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SPECIAL COMMERCIAL LAW: BANKING

1. REGISTER OF DEEDS OF MANILA V. Obviously, whatever "civil liability" — arising


CHINA BANKING CORPORATION from the criminal offense of qualified theft —
was admitted in favor of appellant bank by its
FACTS:
former employee, Alfonso Pangilinan, was not a
 Alfonso Pangilinan and Guillermo Chua were debt resulting from a loan or a similar
former employees of China Banking transaction had between the two parties in the
Corportation, who were charged of qualified theft, ordinary course of banking business.
involving a money with the amount of P275, 000.
Neither do the provisions of paragraph (d) of the
 Pangilinan admitted his civil liability to China Same section apply to the present case because
banking. Hence, Pangilinan, together with his the deed of transfer in question can in no sense
wife, Belen excuted a public intstrument entitled be considered as a sale made by virtue of a
DEED OF TRANSFER in favor of the bank. judgment, decree, mortgage, or trust deed held
by appellant bank. In the same manner it cannot
 They surrendered and transferred to the bank
the said registered land covered by the deed as be said that the real property in question was
satisfaction of Pangilinan’s Civil liability. purchased by appellant "to secure debts due to
it", considering that, as stated heretofore, the
 Subsequently, the deed was presented for term debt employed in the pertinent legal
registration to the Register of Deeds of the City provision can logically refer only to such debts
of Manila, but because the transferee bank was as may become payable to appellant bank as a
alien-owned and, as such, barred from acquiring result of a banking transaction.
lands in the Philippines, in accordance with the
provisions of Section 5, Article XIII of the That the constitutional prohibition under
Constitution of the Philippines. consideration has for its purpose the
preservation of the patrimony of the nation can
 The Commission issued a resolution holding that
that the deed of transfer in favor of an alien bank, not be denied, but appellant and the amici curiae
subject of the present Consulta, is claim that it should be liberally construed so that
unregisterable for being in contravention of the the prohibition be limited to the permanent
Constitution of the Philippines. acquisition of real estate by aliens — whether
natural or juridical persons. This, of course,
ISSUE: W/N an alien-owned commercial bank can would make legal the ownership acquired by
temporarily acquire ownership of the residential lot appellant bank by virtue of the deed of transfer
by virtue of the deed of transfer. mentioned heretofore, subject to its obligation to
HELD: No. dispose of it in accordance with law, within 5
years from the date of its acquisition. We can
China Banking argued that temporary holding of land not give assent to this contention, in view of the
is not what the constitution contemplates and that fact that the constitutional prohibition in question
under the provisions of General Banking Act an alien is absolute in terms. We have so held in Ong Sui
or an alien-owned commercial bank may acquire Si Temple vs. The Register of Deeds of Manila
land in the Philippines subject to the obligation of (G. R. No. L-6776, prom. May 21, 1955) where
disposing of it within 5 years from the date of its
we said, inter alia, the following:
acquisition.
We are of the opinion that the Court below has
Paragraph (c), Section 25 of Republic Act 337
correctly held that in view of the absolute terms
allows a commercial bank to purchase and hold
such real estate as shall be conveyed to it in of section 5, Title XIII, of the Constitution, the
satisfaction of debts previously contracted in the provisions of Act 271 of the old Philippine
Commission must be deemed repealed since
course of its dealings, We deem it quite clear
and free from doubt that the "debts" referred to the Constitution was enacted, in so far as
incompatible therewith. In providing that —
in this provision are only those resulting from
previous loans and other similar transactions Save in cases of hereditary succession no
made or entered into by a commercial bank in private agricultural land shall be transferred
the ordinary course of its business as such. or assigned except to individuals,

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corporations or associations qualified to  Performing banking functions, without


acquire or hold lands of the public domain in requisite certificate of authority from
the Philippines. the Monetary Board of the Central
Bank.
the Constitution makes no exception in favor
of religious associations. Neither is there any  Soliciting and accepting savings
such saving found in Sections 1 and 2 of deposits from the general public when
Article XIII, restricting the acquisition of public the company's articles of
agricultural lands and other natural resources incorporation authorize it only to
to "corporations or associations at least sixty engage primarily in financing
per centum of the capital of which is owned agricultural, commercial and industrial
by such citizens" projects, and secondarily, in buying
and selling stocks and bonds of any
2. REPUBLIC OF THE PHILIPPINES V.
corporation, thereby exceeding the
SECURITY CREDIT AND ACCEPTANCE
scope of its powers and authority as
CORP.
granted under its charter;
FACTS: consequently such acts are ultra-
vires:
 Security Credit and Acceptance Corporation,
under its articles of incorporation were  Soliciting subscriptions to the
registered with the Securities and Exchange corporate shares of stock and
Commission; that the next day, the Board of accepting deposits on account thereof,
Directors of the corporation adopted a set of without prior registration and/or
by-laws, which were filed with said licensing of such shares or securing
Commission. exemption therefor, in violation of the
Securities Act; and
 The said corporation was engaged in primarily
financing agricultural, commercial and
o That being a private credit and
financial institution, it should come
industrial projects and secondarily in buying
and selling stocks and bonds of any under the supervision of the Monetary
Board of the Central Bank.
corporation.

 But contrary to the opinion of the legal counsel


 Despite the memorandum issued, the
corporation have been and still
of Central Bank that the corporation is a
continuously performed functions and
banking institution.
activities, which have been declared to
 Hence, the SEC advised the said corporation constitute illegal banking operations.
to comply with the requirements under the
General Banking Act.
 The corporation had established 74
branches in principal cities and towns
 Subsequently, Manila Police applied for and throughout the Philippines; that through a
was granted a search warrant to investigate systematic and vigorous campaign
the premises of the corporation. Hence, undertaken by the corporation, the same
documents relative to its business operation had managed to induce the public to open
were seized. 59,463 savings deposit accounts with an
aggregate deposit of P1,689,136.74
 Upon examination and evaluation of said
documents and records, the intelligence  Hence, an original quo warranto
division of the Central Bank submitted a proceeding, was initiated by the Solicitor
memorandum finding that: General, to dissolve the Security and
Acceptance Corporation for allegedly
engaging in banking operations without
the authority required therefor by the

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General Banking Act (Republic Act No.  The Secretary of Justice claimed that it was
337). not their specific duty to prosecute the
persons denounced by Perez.
ISSUE: W/B Quo warranto proceeding will
lie for its dissolution.  The Central Bank and its respondent officials,
on the other hand, averred that they had
HELD: YES. Although, admittedly, defendant
already done their duty under the law by
corporation has not secured the requisite
referring to the special prosecutors of the
authority to engage in banking, defendants
Department of Justice for criminal
deny that its transactions partake of the
investigation and prosecution those cases
nature of banking operations. It is conceded,
involving the alleged anomalous loans.
however, that, in consequence of a
propaganda campaign therefor, a total of ISSUE: W/N MANDMUS MAY LIE TO
59,463 savings account deposits have been COMPLE THE CENTRAL BANK OR ITS
made by the public with the corporation and OFFICIALS TO PROSECUTE THOSE
its 74 branches, with an aggregate deposit of ALLEGED VIOLATORS OF THE BANKING
P1,689,136.74, which has been lent out to LAWS.
such persons as the corporation deemed
suitable therefor. It is clear that these HELD: No. We rule that petitioners cannot
transactions partake of the nature of banking, seek by mandamus to compel respondents to
as the term is used in Section 2 of the prosecute criminally those alleged violators of
General Banking Act. the banking laws. Although the Central Bank
and its respondent officials may have the duty
Although, admittedly, defendant corporation under the Central Bank Act and the General
has not secured the requisite authority to Banking Act to cause the prosecution of
engage in banking, defendants deny that its those alleged violators, yet We find nothing in
transactions partake of the nature of banking said laws that imposes a clear, specific duty
operations. It is conceded, however, that, in on the former to do the actual prosecution of
consequence of a propaganda campaign the latter. The Central Bank is a government
therefor, a total of 59,463 savings account corporation created principally to administer
deposits have been made by the public with the monetary and banking system of the
the corporation and its 74 branches, with an Republic,4 not a prosecution agency5 like the
aggregate deposit of P1,689,136.74, which fiscal's office. Being an artificial person, The
has been lent out to such persons as the Central Bank is limited to its statutory powers
corporation deemed suitable therefor. It is and the nearest power to which prosecution
clear that these transactions partake of the of violators of banking laws may be attributed
nature of banking, as the term is used in is its power to sue and be sued.6 But this
Section 2 of the General Banking Act. corporate power of litigation evidently refers
to civil cases only.1äwphï1.ñët
3. PEREZ V. MONETARY BANK
The Central Bank and its respondent officials
FACTS:
have already done all they could, within the
confines of their powers, to cause the
 Damaso Perez instituted mandamus
prosecution of those persons denounced by
proceeding against Monetary Board, the
Perez. Annexes 5 to 7-C CBP of
Superintendent of Banks, the Central Bank
respondents' answer and even petitioners'
and the Secretary of Justice, in order to
opposition to the first motion to dismiss7 show
compel them to prosecute Pablo Roman and
that the cases of the alleged anomalous
others for violations of the General Banking
Act and Central Bank Act and for falsification loans had already been referred by the
Central Bank to the special prosecutors of the
of public or commercial documents in
connection with certain alleged anomalous Department of Justice for criminal
investigation and prosecution. For
loans which was authorized by Roman.
respondents to do the actual prosecuting

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SPECIAL COMMERCIAL LAW: BANKING

themselves, as petitioners would have it, purchase from the bank a certificate of
would be tantamount to an ultra vires act deposit and a manager’s check instead of
already. using the said loan to purchase the land.

As for the Secretary of Justice, while he may  Also, after having received the proceeds of
have the power to prosecute — through the the loan and not withstanding BDO’s demand
office of the Solicitor General — criminal to pay, Bayuga and Tolentino refused to
cases, yet it is settled rule that mandamus will make any monthly amortizations claiming that
not lie to compel a prosecuting officer to they’re not obliged to pay any amount on the
prosecute a criminal case in court.8 loan until the lapsed of 10 years.
Moreover, it does not appear from the law  Thereafter, the bank claiming that the
that only the Central Bank or its respondent borrowers showed no indication of complying
officials can cause the prosecution of alleged with his obligation to pay the amount of the
violations of banking laws. Said violations loan to the vendor (Algue, Inc.) of the
constitute a public offense, the prosecution of Tagaytay City property, the BANK stopped
which is a matter of public interest and hence, payment of its Manager's check at the same
anyone — even private individuals — can time that it refused to release the balance of
denounce such violations before the the loan.
prosecuting authorities. Since Perez himself
could cause the filing of criminal complaints  That action was necessary, according to the
against those allegedly involved in the BANK, in order to prevent Tolentino from
anomalous loans, if any, then he has a plain, perpetrating a fraud against it.
adequate and speedy remedy in the ordinary
course of law, which makes mandamus  Tolentino and Bayuga, as plaintiffs, brought
against respondents improper. an action for Specific Performance with
Damages against the BANK.
4. BANCO DE ORO V. BAYUGA
 The trial court issued an order of writ
FACTS:
injunction against the bank to comply with the
mortgage contract.
 Roberto P. Tolentino is a lawyer appearing on
his own behalf and as counsel for his co-
 CA affirmed TC’s decision.
respondent Jaime Z. Bayuga.
 Hence, this present appeal.
 Jaime Bayuga as attorney in fact of Roberto
Tolentino and Leonardo Zaballero executed a ISSUE: W/N the bank may terminate the
Real Estate Mortgage in favor of ACME (now loan and demand immediate payment if
BDO) over a parcel of land, to secure a loan. borrower has not employed the funds
borrowed for the purpose agreed upon.
 The purpose of the loan was for the
"acquisition of real estate property." The HELD: YES. IN THE LAW. The critical issue
mortgage was duly registered. posed before us is the propriety of the
issuance of the Writ of execution pending
 The bank approved the loan but subject to appeal by the trial Court, and its affirmance,
certain terms and condition, that the loan except as to the aspect of damages. by the
shall be payable in 10 years ad the purpose Court of Appeals. The trial Court opined that
shall be for the acquisition of real estate to deny execution pending appeal would have
particularly the registered in the name od Been to deny the borrowers relief from the
Algue Incoporated. substantial injustice with which they have
been burdened considering that their land
 The bank made partial release of 200k. had been mortgaged without the BANK
However, Tolentino used the said money to having paid any centavo for the loan. The

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Court of Appeals, in turn ruled that the Teresa contends that it was not her intention to
issuance of a Writ of execution pending defraud the bank as she had been previously
appeal is a matter of discretion on the part of granted of an overdraft.
the issuing Court and as long as it is not
In fact, the Teresa made the following
exercised in a capricious or whimsical
admissions:
manner, and a special reason for its issuance
is stated in the Order, appellate Courts will (a) accused-appellant issued nine (9) RCBC
not, disturb the same. The Court of Appeals personal checks;
was most persuaded by the fact that the loan
is intended to buy real estate property, the (b) the sum total of the face value of said nine
price of which varies as days go by." Upon (9) checks is P2,150,000.00;
the other hand, the BANK maintains that the
issuance of the Writ would patently work (c) of said nine (9) checks, one (1) was
violence with justice and equity because the honored, namely, RCBC check No. 2424530 in
property given as collateral as well as the the amount of P200,000.00, when the checks
bonds which have been posted are went through clearing;
inadequate, and petitioner would be made to
violate the General Banking Act. (d) the checks drawn by accused-appellant
against said personal checks aggregated
5. PEOPLE V. JALANDONI (P2,041,780.00);

FACTS: (e) said checks were drawn in favor of third


parties, not the accused-appellant; and
Spouses H.M Jalandoni and Teresa Jalandoni
opened a joint current account with BPI. But (f) out of the P2,150,000.00 worth of the nine
subsequently, H.M Jalandoni died, hence, Ma. (9) checks involved, the damage suffered is
Teresa Macapagal replaced her father as co- only P1,391,780.00.
owner with her mother the said account.
ISSUE: whether or not the Teresa Jalandoni
Teresa Jalandoni also opened a current account acted fraudulently in her transactions with the
with RCBC. Sometime in September, she drew 3 Plaza Cervantes Branch of the Bank of the
checks with total amount of 750,000.00, all Philippine Islands.
payable to cash against her account with RCBC
account and deposited the same in her account HELD: No. The record shows that the
with BPI. appellant had been accorded overdraft (OD)
Prior or simultaneously, with, said deposit, she
or drawn against uncollected deposit (DAUD)
issued 25 checks in the total amount of privileges, not just for the nine (9) RCBC
P745,980.00 which the drawee (BPI) bank checks mentioned in the information, but for
honored, and paid, on her assurance made to the many other past transactions. Why she was
bank manager that the RCBC checks which she accorded the privileges was explained by
had issued and deposited were funded. Then Manuel L.Garcia who was the manager of the
subsequently, several transactions followed. Plaza Cervantes branch of BPI when the
transactions took place. Lending credence to
This practice of honoring checks drawn against
the claim of the appellant that she had been
uncollected deposit is allowed to Teresa who ad
been a depositor of a long standing. given OD and/or DAUD privileges is the fact
that Branch Manager Manuel L. Garcia was
However, when all of the RCBC checks, except not accused as a co-principal. During the
one, were dishonored for lack of sufficient funds hearing held on January 12, 1983, the Court
when presented for payment. was informed that Mr. Garcia was allowed to
retire. If the appellant had in fact acted
Hence, BPI filed a complaint for Estafa against
fraudulently she could not have done so
Teresa Jalandoni.
without the active cooperation of Mr. Garcia.
Hence, if Mr. Garcia was innocent of any

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SPECIAL COMMERCIAL LAW: BANKING

criminal act, the same can be said for the  But the business further deteriorated.
appellant. Hart then agreed to Clarkin’s proposal to
pledge all insular farms’ shares of stock
6. PACIFIC BANK V. HART to Pacific Banking in exchange of
FACTS: additional; collateral and to insure an
extension of the period to pay the
 Private respondents Joseph and installment. Hence, the pledge was
Eleanor Hart discovered an area executed
consisting of 480 hectares of tidewater
land in Tambac Gulf of Lingayen which
 Pacific Banking Corporation wrote
Insular Farms Inc. giving them 48 hours
had great potential for the cultivation of
to pay its entire obligation.
fish and saltmaking.

 They organized Insular Farms Inc.,


 Hart received notice that the pledged
shares of stocks of Insular Farms Inc.
applied for and, after eleven months,
would be sold at public auction at 8:00
obtained a lease from the Department of
A.M. to satisfy Insular Farms' obligation.
Agriculture for a period of 25 years,
renewable for another 25 years.
 Then the shares of stock were sold at
 Subsequently Joseph Hart approached pubic auction.
businessman John Clarkin, then
 Hence, a complaint was filed against the
President of Pepsi-Cola Bottling Co. in
bank.
Manila, for financial assistance.
 Hart and Clarking contend that the sale
 Joseph Hart and Clarkin signed a MOA.
by Pacific Banking Corporation of the
shares of stock of insular farms to the
 Due to financial difficulties, Insular
Pacific Farms is void on the ground that
Farms Inc. borrowed money from Pacific
Banking Corporation. when said shares were pledged to the
bank it was done to cause an indefinite
 Insular Farms Inc. executed a PN to the extension of time to pay their obligation
bank payable in five equal annual under the promissory note
installments. Said note provided that
upon default in the payment of any
 Plaintiffs observed that under said
installment when due, all other promissory note, no demand was made
whatsoever by the bank for its payment.
installments shall become due and
payable. ISSUE: W/N the bank is liable for the
damages for the alleged premature
 This loan was effected and the money foreclosure.
released without any security except for
the Continuing Guaranty of John Clarkin, HELD: YES. We also note, that the rule
who owned seven and half percent of which states that there can be no valid
the capital stock of the bank, and his extension of time by oral agreement unless
wife Helen. the extension is for a definite time, is not
absolute but admits of qualifications and
 Unfortunately, the business struggled exceptions.
nevertheless, petitioner Pacific Banking
Corporation did not demand payment The general rule is that an agreement to
for the initial installment nor of the entire extend the time of payment, in order to be
obligation, but instead opted for more valid, must be for a definite time, although it
collateral in addition to the guaranty of seems that no precise date be fixed, it being
Clarkin.

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SPECIAL COMMERCIAL LAW: BANKING

sufficient that the time can be readily  Hence, the suppliers threatened SIMEX of
determined. (8 C.J. 425) criminal prosecution if the checks were not
made good. Some of them also demanded
In case the period of extension is not precise, the whole payment in cash.
the provisions of Article 1197 of the Civil
Code should apply. In this case, there was an  SIMEX complained to the respondent bank.
agreement to extend the payment of the loan, Investigation disclosed that the sum of
including the first installment thereon which P100,000.00 deposited by SIMEX and had
was due on or before July 1957. not been credited to it.
The pledge constituted on the shares of  The error was rectified, and the dishonored
stocks of Insular Farms, Inc. was sufficient checks were paid after they were re-
consideration for the extension, considering deposited.
that this pledge was the additional collateral
required by Pacific Banking in addition to the  Then SIMEX demanded compensation from
continuing guarantee of Clarkin. the respondent bank for its "gross and
wanton negligence." This demand was not
The whole indebtedness was guaranteed by
met.
the continuing guaranty of Clarkin, who had a
corresponding deposit with Pacific Banking
 The petitioner then filed a complaint claiming
which guaranty and deposit, Babst and
for damages.
Charles Chua, president of Pacific Banking,
had actual knowledge of. ISSUE: W/N Bank is liable for damages.

HELD: YES. It seems to us that the


negligence of the private respondent had
7. SIMEX INTERNATIONAL INC. V. COURT been brushed off rather lightly as if it were a
OF APPEALS minor infraction requiring no more than a slap
FACTS: on the wrist. We feel it is not enough to say
that the private respondent rectified its
 The SIMEX is a private corporation engaged records and credited the deposit in less than
in the exportation of food products. a month as if this were sufficient repentance.
The error should not have been committed in
 It buys these products from various local the first place.
suppliers and then sells them abroad.
The point is that as a business affected with
 Most of its exports are purchased by SIMEX public interest and because of the nature of
on credit. its functions, the bank is under obligation to
treat the accounts of its depositors with
 The SIMEX was a depositor of the Traders meticulous care, always having in mind the
Royal Bank and maintained a checking fiduciary nature of their relationship. In the
account in its branch in Quezon City. case at bar, it is obvious that the respondent
bank was remiss in that duty and violated that
 The SIMEX deposited to its account in the relationship. What is especially deplorable is
said bank the amount of P100,000.00, thus that, having been informed of its error in not
increasing its balance as of that date to crediting the deposit in question to the
P190,380.74. petitioner, the respondent bank did not
immediately correct it but did so only one
 Subsequently, the SIMEX issued several week later or twenty-three days after the
checks against its deposit but was surprised deposit was made. It bears repeating that the
to learn later that they had been dishonored record does not contain any satisfactory
for insufficient funds. explanation of why the error was made in the
first place and why it was not corrected

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SPECIAL COMMERCIAL LAW: BANKING

immediately after its discovery. Such thereby leaving a deposit balance of


ineptness comes under the concept of the P90,000.00.
wanton manner contemplated in the Civil
Code that calls for the imposition of  Subsequently, the liquidation proceeding was
exemplary damages. instated to settle the affairs of the bank.

8. FIDELITY & SAVINGS and MORTGAGE  While the proceeding was pending, Sps.
BANK V. CENZON Santiago sent demand letters to Central bank,
demanding the immediate payment of the
FACTS: aforementioned savings and time deposits.
 Fidelity Savings and Mortgage Bank is a ISSUE:
corporation duly organized and existing under
and by virtue of the laws of the Philippines. 1. Whether or not an insolvent bank like the
Fidelity Savings and Mortgage Bank may be
 Defendant Bibiana E. Lacuna is the assistant adjudged to pay interest on unpaid deposits
Vice-President of the defendant fidelity even after its closure by the Central Bank by
Savings and Mortgage Bank. reason of insolvency without violating the
provisions of the Civil Code on preference of
 Sps. Santiago deposited 50,000 to their credits; and
savings account with the Fidelity Bank. The
aggregate amount of deposits of the plaintiffs 2. Whether or not an insolvent bank like the
with the defendant Fidelity Savings and Fidelity Savings and Mortgage Bank may be
Mortgage Bank is 100,000.00. adjudged to pay moral and exemplary
damages, attorney's fees and costs when the
 Monetary Board of Central Bank, after finding insolvency is caused b the anomalous real
the report of the Superintendent of Banks, estate transactions without violating the
that the condition of the defendant Fidelity provisions of the Civil Code on preference of
Savings and Mortgage Bank is one of credits.
insolvency, to be true, issued Resolution to
wit: HELD: It is settled jurisprudence that a
banking institution which has been declared
 1) To forbid the Fidelity Savings Bank insolvent and subsequently ordered closed by
to do business in the Philippines; the Central Bank of the Philippines cannot be
held liable to pay interest on bank deposits
 2) To instruct the Acting which accrued during the period when the
Superintendent of Banks to take bank is actually closed and non-operational.
charge, in the name of the Monetary
Board, of the Bank's assets it is manifest that petitioner cannot be held
liable for interest on bank deposits which
 The Superintendent of Banks took charge in accrued from the time it was prohibited by the
the name of the Monetary Board, of the Central Bank to continue with its banking
assets of defendant Fidelity Savings Bank operations, that is, when Resolution No. 350
and that since that date up to this date, the to that effect was issued on February 18,
Superintendent of Banks has been taking 1969.
charge of the assets of defendant Fidelity
The order, therefore, of the Central Bank as
Savings and Mortgage Bank.
receiver/liquidator of petitioner bank allowing
 After sometime, Philippine Deposit Insurance the claims of depositors and creditors to earn
Corporation paid the Sps. Santiago the interest up to the date of its closure on
amount of P10,000.00 on the aggregate February 18, 1969, in line with the doctrine
deposits of P100,000.00 pursuant to RA 5517, laid down in the jurisprudence above cited.

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The trial court found, and it is not disputed,  Although notice was sent to Filipinas Mills,
that there was no fraud or bad faith on the they failed to appear at the trial. Thus, they
part of petitioner bank and the other were considered in default.
defendants in accepting the deposits of
private respondents. Petitioner bank could  The trial court ruled in favor of ABC and
not even be faulted in not immediately ordered Filipinas Mills to pay ABC.
returning the amount claimed by private
respondents considering that the demand to  Sheriff levied on the personal properties of
pay was made and Civil Case No. 84800 was Filipinas Mills. On the same date,
filed in the trial court several months after the petitioner Buenaventura Tan directed the
Central Bank had ordered petitioner's closure. Deputy Sheriff in writing to levy first on
By that time, petitioner bank was no longer in their shares of stocks at ACB before
a position to comply with its obligations to its levying on their other personal properties.
creditors, including herein private
respondents. Even the trial court had to admit  Subsequently, a notice of garnishment
that petitioner bank failed to pay private was issued on the goods, effects, interests,
respondents because it was already insolvent. credits, moneys, stocks, shares, etc. in the
8
Further, this case is not one of the specified possession or under the control of ACB
or analogous cases wherein moral damages belonging to Filipinas Mills.
may be recovered.
 A notice of sale on execution of personal
In the absence of fraud, bad faith, malice or properties of petitioners was issued but their
wanton attitude, petitioner bank may, (petitioners) shares of stocks were not included
therefore, not be held responsible for in the items for sale. The date of the public
damages which may be reasonably attributed auction was set.
to the non-performance of the obligation.
Consequently, we reiterate that under the  Filipinas Mills filed an urgent motion to cancel
premises and pursuant to the aforementioned the scheduled public auction sale alleging that
provisions of law, it is apparent that private they have the right to direct the Deputy Sheriff
respondents are not justifiably entitled to the that their shares of stocks be levied and sold
payment of moral and exemplary damages first.
and attorney's fees.
 However, ABC contends that the shares of
9. FILIPINAS MILLS V. DAYRIT stock cannot be included in the items to be
sold or first to be levied upon as it is prohibited
FACTS: under Sec. 24 of Gen. Banking Act.
 Petitioners Filipinas Mills, Inc., ISSUE: W/N Sec. 24 of the said law will apply in
Buenaventura Tan and Virginia Dumlao- this case.
Tan obtained a loan from Citizens Bank
and Trust Company (CBTC) as evidenced
by a promissory note. HELD: No. Section 24 of the General Banking Act
(Republic Act No. 337) provides:
 However, despite repeated demands, said "SEC. 24. No commercial bank shall make any loan
loan remained unpaid. Consequently, or discount on the security of shares of its own capital
private respondent Associated Citizens stock, nor be the purchaser or holder of any such
Bank (ACB), which acquired all the assets shares, unless such security or purchase be
and obligations of CBTC by virtue of an necessary to prevent loss upon a debt previously
Agreement of Merger, filed a complaint contracted in good faith, and the stock so purchased
before the Court for collection of the or acquired, or purchased or acquired for any other
reason in the course of its operations, shall, within six
indebtedness of Filipinas Mills. months from the time of its purchase or acquisition,
be sold or disposed of at public or private sale, or in
default thereof, a receiver shall be appointed to close

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SPECIAL COMMERCIAL LAW: BANKING

up the business of the bank in accordance with law." nor the control of the same. The Bank has no
(Emphasis supplied) interest whatsoever in said contents, except
ACB must have misread this provision. It is plain as herein provided, and it assumes absolutely
enough that there is a "specific" exception ("unless no liability in connection therewith."
such security or purchase be necessary to prevent
loss upon a debt previously contracted in good faith")  TC ruled in favor of Sia and ordered the bank
and a "general" exception ("or purchased or acquired to pay damages.
for any other reason in the course of its operations")
mentioned therein. Thus, if and when ACB decide to  However, on appeal, CA reversed TC’s
purchase those shares of stocks in the public auction decision.
sale definitely, this circumstance will not result in a
violation of Section 24 of the General Banking Act as  Sia contends that trial court correctly ruled
it is allowed under the "general" exception.
that SBTC had failed "to exercise the
It was, therefore, a grave abuse of discretion on the required diligence expected of a bank
part of the trial court for having denied the motion maintaining such safety deposit box.
filed by petitioners.
10. SIA V. COURT OF APPEALS  Hence, this present appeal.

FACTS: ISSUE: W/N the contract is a safety


deposit box or lease.
 The Luzan Sia rented a Safety Deposit Box of
Security Bank at its Binondo Branch wherein HELD: SPECIAL KIND OF DEPOSIT. This
he placed his collection of stamps. Court explicitly rejected the contention that a
contract for the use of a safety deposit box is a
 The said safety deposit box leased by the Sia contract of lease governed by Title VII, Book IV
was at the bottom or at the lowest level of the of the Civil Code. Nor did We fully subscribe to
safety deposit boxes of the bank. the view that it is a contract of deposit to be
strictly governed by the Civil Code provision on
 During the floods that took place in 1985 and deposit; 14 it is, as We declared, a special kind
1986, floodwater entered into the Security of deposit.
bank's premises, seeped into the safety
It must be noted that conditions No. 13 and No.
deposit box leased by Sia and caused,
14 in the Contract of Lease of Safety Deposit
according to the Sia, damage to his stamps
Box in CA Agro-Industrial Development Corp.
collection.
are strikingly similar to condition No. 13 in the
 The bank rejected the Sia's claim for instant case. On the other hand, both condition
compensation for his damaged stamps No. 8 in CA Agro-Industrial Development Corp.
collection, so, the Sia instituted an action for and condition No. 9 in the present case limit
damages against the defendant bank. the scope of the exercise of due diligence by
the banks involved to merely seeing to it that
 The defendant bank denied liability for the only the renter, his authorized agent or his
damaged stamps collection of the plaintiff on legal representative should open or have
the basis of the "Rules and Regulations access to the safety deposit box. In short, in all
Governing the Lease of Safe Deposit Boxes" other situations, it would seem that SBTC is
particularly paragraphs 9 and 13, which reads not bound to exercise diligence of any kind at
(sic): The liability of the Bank by reason of the all. Assayed in the light of Our aforementioned
lease, is limited to the exercise of the pronouncements in CA Agro-lndustrial
diligence to prevent the opening of the safe Development Corp., it is not at all difficult to
by any person other than the Renter, his conclude that both conditions No. 9 and No. 13
authorized agent or legal representative; of the "Lease Agreement" covering the safety
deposit box in question (Exhibits "A" and "1")
The Bank is not a depository of the contents must be stricken down for being contrary to law
of the safe and it has neither the possession and public policy as they are meant to exempt

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SBTC from any liability for damage, loss or petitioner pecuniary loss; hence, he must be
destruction of the contents of the safety compensated therefor.
deposit box which may arise from its own or its
agents' fraud, negligence or delay. Accordingly, We cannot, however, place Our imprimatur
SBTC cannot take refuge under the said on the trial court's award of moral damages.
conditions. Since the relationship between the petitioner
and SBTC is based on a contract, either of
Public respondent further postulates that them may be held liable for moral damages
SBTC cannot be held responsible for the for breach thereof only if said party had acted
destruction or loss of the stamp collection fraudulently or in bad faith. 22 There is here
because the flooding was a fortuitous event no proof of fraud or bad faith on the part of
and there was no showing of SBTC's SBTC.
participation in the aggravation of the loss or
injury. 11. PHILIPPINE COMMERCIAL
INTERNATIONAL BANK V. COURT OF
Both the law and authority cited are clear APPEALS
enough and require no further elucidation.
Unfortunately, however, the public Rory Lim delivered to his cousin Lim Ong Tian a
respondent failed to consider that in the PCIB check with the amount of 200K. The said
check was for the purpose of obtaining a
instant case, as correctly held by the trial
telegraphic transfer from PCIB in the same
court, SBTC was guilty of negligence. The amount and such money was to be transferred to
facts constituting negligence are enumerated Equitable Banking Corporation, and credited to
in the petition and have been summarized in Rory’s account at the said bank.
this ponencia. SBTC's negligence aggravated
the injury or damage to the stamp collection. Under their agreement, it was stipulated that:
SBTC was aware of the floods of 1985 and
In case of fund transfer, the undersigned hereby
1986; it also knew that the floodwaters
agrees that such transfer will be made without any
inundated the room where Safe Deposit Box responsibility on the part of the BANK, or its
No. 54 was located. In view thereof, it should correspondents, for any loss occasioned by errors,
have lost no time in notifying the petitioner in or delays in the transmission of message by
order that the box could have been opened to telegraph or cable companies or by the
retrieve the stamps, thus saving the same correspondents or agencies, necessarily
from further deterioration and loss. In this employed by this BANK in the transfer of this
respect, it failed to exercise the reasonable money, all risks for which are assumed by the
care and prudence expected of a good father undersigned.
of a family, thereby becoming a party to the
aggravation of the injury or loss. Accordingly,
the aforementioned fourth characteristic of a Subsequent to the purchase of the
fortuitous event is absent Article 1170 of the telegraphic transfer,PCIB in turn issued and
Civil Code, which reads: delivered eight (8) Equitable Bank checks to
his suppliers in different amounts as payment
Those who in the performance of their for the merchandise that he obtained from
obligation are guilty of fraud, negligence, or
them.
delay, and those who in any manner
contravene the tenor thereof, are liable for When the checks were presented for
damages, payment, five of them bounced for
insufficiency of funds, while the remaining
thus comes to the succor of the petitioner. three were held overnight for lack of funds
The destruction or loss of the stamp
upon presentment.
collection which was, in the language of the
trial court, the "product of 27 years of Consequent to the dishonor of these checks,
patience and diligence" 21 caused the Equitable Bank charged and collected the
total amount of P1,100.00 from Rory. The

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SPECIAL COMMERCIAL LAW: BANKING

dishonor of the checks came to Rory’s subject to the limitation that the agreement must
attention only when Equitable Bank notified not be against public policy and any agreement or
him of the penalty charges and after receiving contract made in violation of this rule is not
24
letters from his suppliers that his credit was binding and will not be enforced.
being cut-off due to the dishonor of the The prohibition against this type of contractual
checks he issued. stipulation is moreover treated by law as void
which may not be ratified or waived by a
Upon verification Rory, it was confirmed that contracting party. Article 1409 of the Civil Code
his telegraphic transfer for the sum of states:
P200,000.00 had not yet been sent to Art. 1409. The following contracts are inexistent and
Equitable Bank. In fact, petitioner PCIB made void from the beginning:
the corresponding transfer of funds only on (1) Those whose cause, object or purpose is contrary
April 3, 1986, twenty one (21) days after the to law, morals, good customs, public order or public
purchase of the telegraphic transfer. policy;

ISSUE: W/N the bank should be held liable. xxx xxx xxx
These contracts cannot be ratified. Neither can the
HELD: Yes. And when it has been shown right to set up the defense of illegality be waived.
that the complainant is knowledgeable Undoubtedly, the services being offered by a banking
enough to have understood the terms and institution like petitioner are imbued with public
conditions of the contract, or one whose 25
interest. The use of telegraphic transfers have now
stature is such that he is expected to be more become commonplace among businessmen because
prudent and cautious with respect to his it facilitates commercial transactions. Any attempt to
transactions, such party cannot later on be completely exempt one of the contracting parties
heard to complain for being ignorant or from any liability in case of loss notwithstanding its
having been forced into merely consenting to bad faith, fault or negligence, as in the instant case,
the contract. 22 cannot be sanctioned for being inimical to public
interest and therefore contrary to public policy.
The factual backdrop of the instant case, Resultingly, there being no dispute that petitioner
however, militates against applying the acted fraudulently and in bad faith, the award of
26
aforestated pronouncements. That petitioner moral and exemplary damages were proper.
failed to discharge its obligation to transmit private 12. BANAS V. ASIA PACIFIC FINANCE
respondent's telegraphic transfer on time in CORPORATION
accordance with their agreement is already a
settled matter as the same is no longer disputed FACTS:
in this petition. Neither is the finding of respondent
Court of Appeals that petitioner acted fraudulently
 Teodoro Bañas executed a Promissory Note
and in bad faith in the performance of its
obligation, being contested by petitioner. Perforce,
in favor of C. G. Dizon Construction whereby
we are bound by these factual considerations. he promised to pay to the order of C. G.
Dizon Construction the sum of P390,000.00
Having established that petitioner acted in installments .
fraudulently and in bad faith, we find it implausible
to absolve petitioner from its wrongful acts on
account of the assailed provision exempting it
 Later, C. G. Dizon Construction endorsed
from any liability. In Geraldez vs. Court of with recourse the said PN to ASIA PACIFIC.
23
Appeals, it was unequivocally declared that
notwithstanding the enforceability of a contractual  In order to secure the payment under PN, C.
limitation, responsibility arising from a fraudulent G. Dizon Construction, through its corporate
act cannot be exculpated because the same is officers, Cenen Dizon, and Juliette B. Dizon,
contrary to public policy. Indeed, Article 21 of the executed a Deed of Chattel Mortgage
Civil Code is quite explicit in providing that "[a]ny covering three (3) heavy equipment units of
person who willfully causes loss or injury to Caterpillar Bulldozer Crawler Tractors in favor
another in a manner that is contrary to morals, of ASIA PACIFIC.
good customs or public policy shall compensate
the latter for the damage". Freedom of contract is

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SPECIAL COMMERCIAL LAW: BANKING

 Moreover, Cenen Dizon executed a HELD: No. Banas et. al. insist that ASIA
Continuing Undertaking wherein he bound PACIFIC was organized as an investment
himself to pay the obligation jointly and house which could not engage in the lending
severally with C. G. Dizon Construction. of funds obtained from the public through
receipt of deposits. The disputed Promissory
 C.G Dizon then made several installment Note, Deed of Chattel Mortgage and
payments to Asia Pacific. Subsequently C.G Continuing Undertaking were not intended to
Dizon defaulted in the payment of the be valid and binding on the parties as they
remaining installments. This prompted Asia were merely devices to conceal their real
Pacific to send statement account to Cenen intention which was to enter into a contract of
Dizon for the unpaid balance. loan in violation of banking laws.

 As the demand was unheeded, ASIA We reject the argument. An investment


PACIFIC sued Teodoro Bañas, C. G. Dizon company refers to any issuer which is or
Construction and Cenen Dizon. holds itself out as being engaged or proposes
to engage primarily in the business of
 Banas, CG Dizon, and Cenen Dizon, investing, reinvesting or trading in securities.
admitted the genuineness and due execution As defined in Sec. 2, par. (a), of the Revised
of the Promissory Note, the Deed of Chattel Securities Act, securities "shall include x x x x
Mortgage and the Continuing Undertaking, commercial papers evidencing indebtedness
they nevertheless maintained that these of any person, financial or non-financial entity,
documents were never intended by the irrespective of maturity, issued, endorsed,
parties to be legal, valid and binding but a sold, transferred or in any manner conveyed
mere machination to conceal the loan of to another with or without recourse, such as
P390,000.00 with usurious interests. promissory notes x x x x" Clearly, the
transaction between petitioners and
 Banas, CG Dizon, and Cenen Dizon claimed respondent was one involving not a loan but
that since ASIA PACIFIC could not directly purchase of receivables at a discount, well
engage in banking business, it proposed to within the purview of "investing, reinvesting or
them a scheme wherein plaintiff ASIA trading in securities" which an investment
PACIFIC could extend a loan to them without company, like ASIA PACIFIC, is authorized to
violating banking laws: first, Cenen Dizon perform and does not constitute a violation of
would secure a promissory note from the General Banking Act. Moreover, Sec. 2 of
Teodoro Bañas with a face value of the General Banking Act provides in part -
P390,000.00 payable in installments; second,
ASIA PACIFIC would then make it appear Sec. 2. Only entities duly authorized by the
that the promissory note was sold to it by Monetary Board of the Central Bank may
Cenen Dizon with the 14% usurious interest engage in the lending of funds obtained from
on the loan or P54,000.00 discounted and the public through the receipt of deposits of
collected in advance by ASIA PACIFIC; and, any kind, and all entities regularly conducting
lastly, Cenen Dizon would provide sufficient such operations shall be considered as
collateral to answer for the loan in case of banking institutions and shall be subject to
default in payment and execute a continuing the provisions of this Act, of the Central Bank
guaranty to assure continuous and prompt Act, and of other pertinent laws (underscoring
payment of the loan. supplied).

 RTC ruled in favor of Asia Pacific. Indubitably, what is prohibited by law is for
investment companies to lend funds obtained
ISSUE: Whether the disputed transaction from the public through receipts of deposit,
between petitioners and ASIA PACIFIC which is a function of banking institutions. But
violated banking laws, hence, null and here, the funds supposedly "lent" to
void petitioners have not been shown to have
been obtained from the public by way of

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SPECIAL COMMERCIAL LAW: BANKING

deposits, hence, the inapplicability of banking  Upon due presentment of the foreign
laws. exchange demand draft the same was
dishonored, with the notice of dishonor
stating the following: “xxx No account held
13. REYES V. COURT OF APPEALS with Westpac.”
FACTS:  Meanwhile, Westpac-New York sent a cable
to Far East bank informing the latter that its
 The Asian Racing Conference was scheduled
dollar account in the sum of One Thousand
to be held in Sydney. The Philippine Racing
Six Hundred Ten Australian Dollars
Club, Inc. (PRCI) sent 4 delegates to the said
(AU$1,610.00) was debited.
conference.
 In response to PRCI’s complaint about the
 Petitioner Gregorio H. Reyes, as VP of PRCI,
dishonor of the said foreign exchange
asked Godofredo Reyes to go to Far East
demand draft, respondent bank informed
Bank and apply for a foreign exchange
Westpac-Sydney of the issuance of the said
demand draft in Australian dollars.
demand draft, drawn against the Westpac-
Sydney and informing the latter to be
 Godofredo went to Far East bank to apply for
reimbursed from the bank’s dollar account in
a demand draft in the amount of
Westpac-New York.
AU$1,610.00 payable to the order of the 20th
Asian Racing Conference Secretariat of
 The respondent bank on the same day
Sydney, Australia.
likewise informed Westpac-New York
requesting the latter to honor the
 In the bank, he was assisted by Mr. Yasis,
reimbursement claim of Westpac-Sydney.
who at first denied the application for the
reason that the bank did not have an
 Upon its second presentment for payment,
Australian dollar account in any bank in
draft was again dishonored by Westpac-
Sydney.
Sydney for the same reason, that is, that the
respondent bank has no deposit dollar
 Then, Godofredo asked if there could be a
account with the drawee Westpac-Sydney.
way for the bank to accommodate PRCI’s
urgent need to remit Australian dollars to
 Meanwhile, the attendees of the conference
Sydney.
namely, Gregorio H. Reyes and Consuelo
Puyat-Reyes went to the said conference
 Yasis then informed that there is a
wherein different representatives from other
complicated way of effecting the request and
country were present.
that is, the bank would draw a demand draft
against Westpac Bank in Sydney, Australia
 At the registration booth, the lady in charged
and have the Westpac Sydney reimburse
did not let them register on the ground that
itself from the U.S. dollar account of Far East
the demand draft presented was dishonored,
in Westpac Bank in New York,
2 times. Hence, the said attendees suffered
U.S.A. Subsequently, Godofredo agreed to
humiliation.
the said arrangement.
 Hence, Reyeses filed a complaint for
 The bank then approved the said application
damages against the Far east bank due to
of PRCI and issued Foreign Exchange
the dishonor of the said foreign exchange
Demand Draft in sum of AU$1,610.00,
demand draft issued by said bank.
payable to the order of the 20th Asian Racing
Conference Secretariat of Sydney, Australia,  The Reyeses claim that as a result of the
and addressed to Westpac-Sydney as the dishonor of the said demand draft, they were
drawee bank. exposed to unnecessary shock, social
humiliation, and deep mental anguish in a

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SPECIAL COMMERCIAL LAW: BANKING

foreign country, and in the presence of an dishonored, the respondent bank, thinking
international audience. that the problem was with the reimbursement
and without any idea that it was due to
 TC rendered judgment in favor of Far east miscommunication, re-confirmed the authority
bank. CA also affirmed TC’s decision. of Westpac-New York to debit its dollar
account for the purpose of reimbursing
ISSUE: W/N Far East Bank is Liable for Westpac-Sydney. Respondent bank also sent
damages. two (2) more cable messages to Westpac-
New York inquiring why the demand draft
HELD: NO. The petitioners contend that due
was not honored.
to the fiduciary nature of the relationship
between the respondent bank and its clients, With these established facts, we now
the respondent bank should have exercised a determine the degree of diligence that banks
higher degree of diligence than that expected are required to exert in their commercial
of an ordinary prudent person in the handling dealings. In Philippine Bank of Commerce v.
of its affairs as in the case at bar. The Court of Appeals upholding a long standing
appellate court, according to petitioners, doctrine, we ruled that the degree of diligence
erred in applying the standard of diligence of required of banks, is more than that of a good
an ordinary prudent person only. father of a family where the fiduciary nature of
their relationship with their depositors is
The facts as found by the courts a quo show
concerned. In other words banks are duty
that respondent bank did not cause an
bound to treat the deposit accounts of their
erroneous transmittal of its SWIFT cable
depositors with the highest degree of
message to Westpac-Sydney. It was the
care. But the said ruling applies only to
erroneous decoding of the cable message on
cases where banks act under their fiduciary
the part of Westpac-Sydney that caused the
capacity, that is, as depositary of the deposits
dishonor of the subject foreign exchange
of their depositors. But the same higher
demand draft. An employee of Westpac-
degree of diligence is not expected to be
Sydney in Sydney, Australia mistakenly read
exerted by banks in commercial transactions
the printed figures in the o cable message of that do not involve their fiduciary relationship
respondent bank as “MT799” instead of as with their depositors.
“MT199”. As a result, Westpac-Sydney
construed the said cable message as a Considering the foregoing, the respondent
format for a letter of credit, and not for a bank was not required to exert more than the
demand draft. The appellate court correctly diligence of a good father of a family in regard
found that “the figure before ‘99’ can still be to the sale and issuance of the subject
distinctly seen as a number ‘1’ and not foreign exchange demand draft. The case at
number ‘7’.” Indeed, the line of a “7” is in a bar does not involve the handling of
slanting position while the line of a “1” is in a petitioners’ deposit, if any, with the
horizontal position. Thus, the number “1” in respondent bank. Instead, the relationship
“MT199” cannot be construed as “7”. involved was that of a buyer and seller, that is,
between the respondent bank as the seller of
The evidence also shows that the respondent the subject foreign exchange demand draft,
bank exercised that degree of and PRCI as the buyer of the same, with the
diligence expected of an ordinary prudent 20th Asian Racing Conference Secretariat in
person under the circumstances Sydney, Australia as the payee thereof. As
obtaining. Prior to the first dishonor of the earlier mentioned, the said foreign exchange
subject foreign exchange demand draft, the demand draft was intended for the payment
respondent bank advised Westpac-New York of the registration fees of the petitioners as
to honor the reimbursement claim of delegates of the PRCI to the 20th Asian
Westpac-Sydney and to debit the dollar Racing Conference in Sydney.
account of respondent bank with the
former. As soon as the demand draft was

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SPECIAL COMMERCIAL LAW: BANKING

The evidence shows that the respondent passbook but she could not remember to
bank did everything within its power to whom she gave the passbook and teller
prevent the dishonor of the subject foreign further said that it was not Calapre neither.
exchange demand draft.
 Teller handed to Macaraya a deposit slip
14. CONSOLIDATED BANK AND TRUST dated for the deposit of a check for P90,000
CORPORATION V. COURT OF APPEALS drawn on Philippine Banking Corporation
(“PBC”). This PBC check of L.C. Diaz was a
FACTS: check that it had “long closed.”
 L.C. Diaz and Company, CPA’s (“L.C.  PBC subsequently dishonored the check
Diaz”), is a professional partnership because of insufficient funds and because the
engaged in the practice of accounting. signature in the check differed from PBC’s
specimen signature.
 L.C. Diaz opened a savings account with
Solidbank.  Failing to get back the passbook, Macaraya
went back to her office and reported the
 L.C. Diaz through its cashier, Mercedes matter to the Personnel Manager of L.C. Diaz.
Macaraya (“Macaraya”), filled up a savings
(cash) deposit slip for P990 and a savings  L.C. Diaz tcalled up Solidbank to stop any
(checks) deposit slip for P50. transaction using the same passbook until
L.C. Diaz could open a new account.
 Macaraya gave the passbook and instructed
the messenger of L.C. Diaz, Ismael Calapre  On the same day, Diaz formally wrote
(“Calapre”), to deposit the money with Solidbank to make the same request.
Solidbank.
 It was also on the same day that L.C. Diaz
 Calapre went to Solidbank and presented to learned of the unauthorized withdrawal.
Teller the two deposit slips and the
passbook.  The withdrawal slip for the P300,000 bore the
signatures of the authorized signatories of
 The teller acknowledged receipt of the L.C. Diaz, namely Diaz and Rustico L. Murillo.
deposit by returning to Calapre the duplicate The signatories, however, denied signing the
copies of the two deposit slips. withdrawal slip. A certain Noel Tamayo
received the P300,000.
 Since the transaction took time and Calapre
had to make another deposit for L.C. Diaz  Hence, LC Diaz filed a complaint.
with Allied Bank, he left the passbook with
Solidbank. ISSUE: W/N the Bank should be held liable
for the unauthorized withdrawals.
 Calapre then went to Allied Bank. When
Calapre returned to Solidbank to retrieve HELD: The contract between the bank and its
the passbook, Teller informed him that depositor is governed by the provisions of the
“somebody got the passbook.” Calapre went Civil Code on simple loan. Article 1980 of the
back to L.C. Diaz and reported the incident Civil Code expressly provides that “x x x
to Macaraya. savings x x x deposits of money in banks and
similar institutions shall be governed by the
 Macaraya, together with Calapre, went to provisions concerning simple loan.” There is
Solidbank and presented to Teller the a debtor-creditor relationship between the
deposit slip and check. bank and its depositor. The bank is the
debtor and the depositor is the creditor. The
 Then Macaraya asked for the passbook, depositor lends the bank money and the bank
Teller told Macaraya that someone got the agrees to pay the depositor on demand. The

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SPECIAL COMMERCIAL LAW: BANKING

savings deposit agreement between the bank law simply imposes on the bank a higher
and the depositor is the contract that standard of integrity and performance in
determines the rights and obligations of the complying with its obligations under the
parties. contract of simple loan, beyond those
required of non-bank debtors under a similar
The law imposes on banks high standards in contract of simple loan.
view of the fiduciary nature of
banking. Section 2 of Republic Act No. 8791 The fiduciary nature of banking does not
(“RA 8791”), which took effect on 13 June convert a simple loan into a trust agreement
2000, declares that the State recognizes the because banks do not accept deposits to
“fiduciary nature of banking that requires high enrich depositors but to earn money for
standards of integrity and performance.” This themselves. The law allows banks to offer
new provision in the general banking law, the lowest possible interest rate to depositors
introduced in 2000, is a statutory affirmation while charging the highest possible interest
of Supreme Court decisions, starting with the rate on their own borrowers. The interest
1990 case of Simex International v. Court spread or differential belongs to the bank and
of Appeals, holding that “the bank is under not to the depositors who are not cestui que
obligation to treat the accounts of its trust of banks. If depositors are cestui que
depositors with meticulous care, always trust of banks, then the interest spread or
having in mind the fiduciary nature of their income belongs to the depositors, a situation
relationship.” that Congress certainly did not intend in
enacting Section 2 of RA 8791.
This fiduciary relationship means that the
bank’s obligation to observe “high standards rticle 1172 of the Civil Code provides that
of integrity and performance” is deemed “responsibility arising from negligence in the
written into every deposit agreement between performance of every kind of obligation is
a bank and its depositor. The fiduciary nature demandable.” For breach of the savings
of banking requires banks to assume a deposit agreement due to negligence, or
degree of diligence higher than that of a good culpa contractual, the bank is liable to its
father of a family. Article 1172 of the Civil depositor.
Code states that the degree of diligence
required of an obligor is that prescribed by Calapre left the passbook with Solidbank
law or contract, and absent such stipulation because the “transaction took time” and he
then the diligence of a good father of a family. had to go to Allied Bank for another
Section 2 of RA 8791 prescribes the statutory transaction. The passbook was still in the
diligence required from banks – that banks hands of the employees of Solidbank for the
must observe “high standards of integrity and processing of the deposit when Calapre left
performance” in servicing their Solidbank. Solidbank’s rules on savings
depositors. Although RA 8791 took effect account require that the “deposit book should
almost nine years after the unauthorized be carefully guarded by the depositor and
withdrawal of the P300,000 from L.C. Diaz’s kept under lock and key, if possible.” When
savings account, jurisprudence at the time of the passbook is in the possession of
the withdrawal already imposed on banks the Solidbank’s tellers during withdrawals, the
same high standard of diligence required law imposes on Solidbank and its tellers an
under RA No. 8791. even higher degree of diligence in
safeguarding the passbook.
However, the fiduciary nature of a bank-
depositor relationship does not convert the Likewise, Solidbank’s tellers must exercise a
contract between the bank and its depositors high degree of diligence in insuring that they
from a simple loan to a trust agreement, return the passbook only to the depositor or
whether express or implied. Failure by the his authorized representative. The tellers
bank to pay the depositor is failure to pay a know, or should know, that the rules on
simple loan, and not a breach of trust. The savings account provide that any person in

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SPECIAL COMMERCIAL LAW: BANKING

possession of the passbook is presumptively  The Cabamongan spouses informed Citibank,


its owner. If the tellers give the passbook to thru San Pedro, that Carmelita was in the United
the wrong person, they would be clothing that States and did not preterminate their deposit and
person presumptive ownership of the that the person who did so was an impostor who
passbook, facilitating unauthorized could have also been involved in the break-in of
their California residence. San Pedro told the
withdrawals by that person. For failing to spouses to submit the necessary documents to
return the passbook to Calapre, the support their claim but Citibank concluded
authorized representative of L.C. Diaz, nonetheless that Carmelita indeed preterminated
Solidbank and Teller No. 6 presumptively her deposit.
failed to observe such high degree of  The Cabamongan spouses, through counsel,
diligence in safeguarding the passbook, and made a formal demand upon Citibank for payment
in insuring its return to the party authorized to of their preterminated deposit. However, Citibank,
receive the same. through counsel, refused such, asserting that the
subject deposit was released to Carmelita upon
15. CITIBANK N.A V. SPOUSES LUIS AND proper identification and verification.
CARMELITA CABAMONGAN  This prompted the spouses to file a complaint
against the bank for specific performance and
FACTS: damages.

 Sps. Luis and Carmelita Cabamongan opened a ISSUE: W/N CITIBANK is liable for
joint "and/or" foreign currency time deposit in trust damages.
for their sons Luis, Jr. and Lito at the Citibank,
N.A, for a term of 182 days or until February 14,
1994. HELD: YES. The Court has repeatedly
 Prior to maturity, a person claiming to be emphasized that, since the banking business
Carmelita went to the Makati branch and pre- is impressed with public interest, of
terminated the said foreign currency time deposit paramount importance thereto is the trust and
by presenting a passport, a Bank of America confidence of the public in general.
Versatele Card, an ATM card and a Mabuhay Consequently, the highest degree of
Credit Card. diligence40 is expected,41 and high standards
 She filled up the necessary forms for pre- of integrity and performance are even
termination of deposits with the assistance of required, of it.42 By the nature of its functions,
Account Officer Yeye San Pedro. a bank is "under obligation to treat the
 Since the said person failed to surrender the accounts of its depositors with meticulous
original Certificate of Deposit, she had to execute
care,43 always having in mind the fiduciary
a notarized release and waiver document in favor
of Citibank, pursuant to Citibank's internal nature of their relationship."44
procedure, before the money was released to her.
7 In this case, it has been sufficiently shown that the
The release and waiver document was not
signatures of Carmelita in the forms for
notarized on that same day but the money was
pretermination of deposits are forgeries. Citibank,
nonetheless given to the person withdrawing.
with its signature verification procedure, failed to
 After said person left, San Pedro realized that she
detect the forgery. Its negligence consisted in the
left behind an identification card. Thus, San Pedro
omission of that degree of diligence required of
called up Carmelita's listed address to have the
banks. The Court has held that a bank is "bound
card picked up.
to know the signatures of its customers; and if it
 The wife of Lito, received San Pedro's call and pays a forged check, it must be considered as
was stunned by the news that Carmelita making the payment out of its own funds, and
preterminated her foreign currency time deposit cannot ordinarily charge the amount so paid to the
because Carmelita was in the United States at account of the depositor whose name was
that time. 45
forged." Such principle equally applies here.
 The Cabamongan spouses were shocked at the
news. Citibank cannot label its negligence as mere
It seems that sometime between June 10 and 16, mistake or human error. Banks handle daily
46
1993, an unidentified person broke in at the transactions involving millions of pesos. By the
couple's residence at in California. very nature of their works the degree of
responsibility, care and trustworthiness expected

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SPECIAL COMMERCIAL LAW: BANKING

of their employees and officials is far greater than HELD: Yes. Protecting the integrity of the
47
those of ordinary clerks and employees. Banks banking system has become, by large, the
are expected to exercise the highest degree of responsibility of banks. The role of the public,
diligence in the selection and supervision of their particularly individual borrowers, has not
48
employees.
been emphasized. Nevertheless, we are not
The Court agrees with the observation of the CA unaware of the rampant and unscrupulous
that Citibank, thru Account Officer San Pedro, practice of obtaining loans without intending
openly courted disaster when despite noticing to pay the same.
discrepancies in the signature and photograph of
the person claiming to be Carmelita and the In this case, petitioner alleged that JAPRL
failure to surrender the original certificate of time fraudulently altered and falsified its financial
deposit, the pretermination of the account was statements in order to obtain its credit facilities.
allowed. Even the waiver document was not Considering the amount of petitioner's exposure in
notarized, a procedure meant to protect the bank. JAPRL, justice and fairness dictate that the Makati
For not observing the degree of diligence required RTC hear whether or not respondents indeed
of banking institutions, whose business is committed fraud in securing the credit
impressed with public interest, Citibank is liable accomodation.
for damages.
A finding of fraud will change the whole picture. In
16. BANCO DE ORO V. JAPRL DEVELOPMENT this event, petitioner can use the finding of fraud
CORPORATION to move for the dismissal of the rehabilitation case
FACTS: in the Calamba RTC.

 After evaluating the financial statements of JAPRL The protective remedy of rehabilitation was never
Development Corporation (JAPRL) for fiscal years intended to be a refuge of a debtor guilty of fraud.
1998, 1999 and 2000, petitioner Banco de Oro- Meanwhile, the Makati RTC should proceed to
EPCI, Inc. extended credit facilities to it. hear Civil Case No. 03-991 against the three
 While respondents Rapid Forming Corporation respondents guided by Section 40 of the General
(RFC) and Jose U. Arollado acted as JAPRL's Banking Law which states:
sureties. Section 40. Requirement for Grant of Loans or
Other Credit Accommodations. Before granting a
 Despite its seemingly strong financial position,
loan or other credit accommodation, a bank must
JAPRL defaulted in the payment of four trust
ascertain that the debtor is capable of fulfilling his
receipts soon after the approval of its loan.
commitments to the bank.
 BDO later learned from MRM Management,
Towards this end, a bank may demand from its
JAPRL's financial adviser, that JAPRL had altered
credit applicants a statement of their assets and
and falsified its financial statements.
liabilities and of their income and expenditures
 It allegedly bloated its sales revenues to post a and such information as may be prescribed by law
big income from operations for the concerned or by rules and regulations of the Monetary Board
fiscal years to project itself as a viable investment. to enable the bank to properly evaluate the credit
application which includes the corresponding
 The information alarmed BDO. Hence, BDO
financial statements submitted for taxation
demanded immediate payment of JAPRL's
purposes to the Bureau of Internal Revenue.
outstanding obligations amounting to
Should such statements prove to be false or
P194,493,388.98.
incorrect in any material detail, the bank may
 Because JAPRL ignored its demand for payment, terminate any loan or credit accommodation
BDO filed a complaint for sum of money with an granted on the basis of said statements and
application for the issuance of a writ of preliminary shall have the right to demand immediate
attachment against sureties. BDO asserts that repayment or liquidation of the obligation.
JAPRL was guilty of fraud because it (JAPRL) In formulating the rules and regulations under this
altered and falsified its financial statements. Section, the Monetary Board shall recognize the
peculiar characteristics of microfinancing, such as
cash flow-based lending to the basic sectors that
ISSUE:
are not covered by traditional collateral.
(emphasis supplied)

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SPECIAL COMMERCIAL LAW: BANKING

Under this provision, banks have the right to annul to previously encash its checks, but it has always
any credit accommodation or loan, and demand been accompanied with the endorsements of the
the immediate payment thereof, from borrowers other authorized signatories. Respondent did not
proven to be guilty of fraud. Petitioner would then allow petitioner to have its checks encashed
be entitled to the immediate payment of without the signature of all of its authorized
P194,493,388.98 and other appropriate damages. signatories.
17. PHILIPPINE SAVINGS BANK V.
CHOWKING FOOD CORPORATION The CA pointed out:

FACTS: We find at the back of those checks, whereon


indorsement usually appears, the signature of
Joe Kuan Food Corporation issued in favor of
Manzano together with other signature/signatures
Chowking five (5) PSBank checks
though mostly are illegible. It appears then that,
The total amount of the subject checks reached assuming the appellant impliedly tolerated the act
P556,981.86. of Manzano in indorsing the checks, it did not
allow Manzano "alone" to indorse its checks as
On the respective due dates of each check, what actually happened in this case because his
Chowking's acting accounting manager, Manzano, previous indorsements were coupled with other
endorsed and encashed said checks with the indorsements of the appellant's signatories.
Bustos branch of respondent PSBank. There is, therefore, no sufficient evidence to
All the five checks were honored by defendant sustain PSB's submission. On this score alone,
[29]
Santos (head-bustos branch), even with only the the defense of estoppel must fail. (Underscoring
endorsement of Manzano approving them. and emphasis supplied)
Neither can estoppel be appreciated in relation to
The signatures of the other authorized officers of petitioner itself. In Kalalo v. Luz,
[30]
the Court
Chowking were absent in the five (5) checks, enumerated the elements of estoppel in this wise:
contrary to usual banking practice. Unexpectedly, x x x As related to the party claiming the estoppel,
Manzano absconded with and misappropriated the essential elements are (1) lack of knowledge
the check proceeds. and of the means of knowledge of the truth as the
When Chowking found out Manzano's scheme, it facts in question; (2) reliance, in good faith, upon
demanded reimbursement from PSBank. the conduct and statements of the party to be
estopped; (3) action or inaction based thereon of
When PSBank refused to pay, Chowking filed a such character as to change the position or status
complaint for a sum of money with damages of the party claiming the estoppel, to his injury,
before the RTC and also impleaded Santos. detriment or prejudice.
[31]

PSBank did not controvert the foregoing facts, but Here, the first two elements are wanting.
denied liability to Chowking for the encashed Petitioner has knowledge of the truth and the
checks. The bank maintained it exercised due means to it as to the proper endorsements
diligence in the supervision of all its employees. It necessary in encashing respondent's checks.
even dismissed defendant Santos after she was Respondent has an account with petitioner bank
found guilty of negligence in the performance of and, as such, is privy to the proper signatories to
her duties. endorse respondent's checks.

Neither can petitioner claim good faith.


Defendant Santos, on the other hand, denied that
she had been negligent in her job. She averred
It is elementary that estoppel cannot be sustained
that she merely followed the bank's practice of
in doubtful inference. Absent the conclusive proof
honoring respondent's checks even if
that its essential elements are present, estoppel
accompanied only by Manzano's endorsement.
must fail. Because estoppel, when misapplied,
becomes a most effective weapon to accomplish
ISSUE: W/N the Bank is liable. an injustice, inasmuch as it shuts a man's mouth
[32]
from speaking the truth.
HELD: Yes. We agree with the CA that Chowking
did not make any false representation or Petitioner failed to prove that it has observed
concealment of material facts in relation to the the due diligence required of banks under the
encashments of the previous checks. As adverted law. Contrary to petitioner's view, its negligence is
to earlier, respondent may have allowed Manzano the proximate cause of respondent's loss.

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SPECIAL COMMERCIAL LAW: BANKING

Deposit Account No. 810480-4 under the


It cannot be over emphasized that the banking account name Erlando T. Rodriguez.
business is impressed with public interest. Of
paramount importance is the trust and confidence  The spouses were engaged in the informal
of the public in general in the banking industry. lending business.
Consequently, the diligence required of banks is
more than that of a Roman pater familias or a
good father of a family.
[33]
The highest degree of
 In line with their business, they had a
diligence is expected discounting arrangement with the Philnabank
Employees Savings and Loan Association
(PEMSLA), an association of PNB employees.
In its declaration of policy, the General Banking
Law of 2000
[35]
requires of banks the highest  Naturally, PEMSLA was likewise a client of
standards of integrity and performance. Needless PNB. The association maintained current and
to say, a bank is "under obligation to treat the savings accounts with PNB.
[36]
accounts of its depositors with meticulous care.
The fiduciary nature of the relationship between  PEMSLA grants loan to its members. Spouses
the bank and the depositors must always be of then would rediscount (discount- buy or sell (a
paramount concern. bill of exchange) before its due date at less
Proximate cause is determined by the facts of the than its maturity value) the post dated checks
case. It is that cause which, in natural and issued to its members.
continuous sequence, unbroken by any efficient  As was customary, the spouses would replace the
intervening cause, produces the injury, and postdated checks with their own checks issued in
without which the result would not have the name of the members.
[40]
occurred.
 It was PEMSLA’s policy not to approve
Measured by the foregoing yardstick, the applications for loans of members with
proximate cause of the loss is not respondent's outstanding debts.
alleged negligence in allowing Manzano to take  In order to circumvent this policy, some PEMSLA
hold and encash respondent's checks. The officers devised a scheme to obtain additional
proximate cause is petitioner's own negligence in loans despite their outstanding loan accounts.
the supervision of its employees when it
overlooked the irregular practice of encashing  What they will do is, they apply loans in the
checks even without the requisite endorsements. names of the other members without their
knowledge and consent.
As a result, it proximately contributed to the
fraud and should be held primarily liable for  The PEMSLA checks issued for these loans were
the "negligence of its officers or agents when then given to the spouses for rediscounting. The
acting within the course and scope of their officers carried this out by forging the indorsement
employment." It must bear the loss. of the named payees in the checks.
 In return, the spouses issued their personal
checks (Rodriguez checks) in the name of the
members and delivered the checks to an officer of
18. PHILIPPINE NATIONAL BANK V. PEMSLA.
RODRIGUEZ
 The PEMSLA checks, on the other hand, were
deposited by the spouses to their account.
FACTS:
 Meanwhile, the Rodriguez checks were
 Spouses Erlando and Norma Rodriguez were deposited directly by PEMSLA to its savings
clients of Philippine National Bank (PNB). account without any indorsement from the
named payees.
 They maintained savings and
demand/checking accounts, namely, PNBig  This was an irregular procedure made
Demand Deposits Account No. 810624-6 possible through the facilitation of Edmundo
under the account name Erlando and/or Palermo, Jr., treasurer of PEMSLA and bank
Norma Rodriguez, and PNBig Demand

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SPECIAL COMMERCIAL LAW: BANKING

teller in the PNB Branch. It appears that this  RTC ruled in favor of the spouses. However
became the usual practice for the parties. on appeal to CA, it reversed RTC’s Decision.

 For the period 1998 to 1999, the spouses  CA in reversing their decision ruled that the
issued sixty nine (69) checks, in the total checks were payable to order. According to
amount of P2,345,804.00. These were the appellate court, PNB failed to present
payable to forty seven (47) individual payees sufficient proof to defeat the claim of the
who were all members of PEMSLA. spouses Rodriguez that they really intended
the checks to be received by the specified
 PNB eventually found out about these payees. Thus, PNB is liable for the value of
fraudulent acts. To put a stop to this scheme, the checks which it paid to PEMSLA without
PNB closed the current account of PEMSLA. indorsements from the named payees. The
award for damages was deemed appropriate
 As a result, the PEMSLA checks deposited in view of the failure of PNB to treat the
by the spouses were returned or dishonored Rodriguez account with the highest degree of
for the reason "Account Closed." care considering the fiduciary nature of their
relationship, which constrained respondents
 The corresponding Rodriguez checks, to seek legal action.
however, were deposited as usual to the
PEMSLA savings account. The amounts ISSUE: W/N the instrument is a bearer of
were duly debited from the Rodriguez order instrument. (order). W/N the bank is
account. liable (yes)

 Thus, because the PEMSLA checks given as HELD: As a rule, when the payee is fictitious
payment were returned, spouses Rodriguez or not intended to be the true recipient of the
incurred losses from the rediscounting proceeds, the check is considered as a
transactions. bearer instrument. The distinction between
bearer and order instruments lies in their
 Subsequently, spouses Rodriguez filed a civil manner of negotiation. Under Section 30 of
complaint for damages against PEMSLA, the NIL, an order instrument requires an
MCP and PNB. They wanted to recover the indorsement from the payee or holder before
value of their checks that were deposited to it may be validly negotiated. A bearer
PEMSLA . instrument, on the other hand, does not
require an indorsement to be validly
 The spouses contended that because PNB negotiated. It is negotiable by mere delivery.
credited the checks to the PEMSLA account
even without indorsements, PNB violated its A check that is payable to a specified payee
contractual obligation to them as depositors. is an order instrument. However, under
PNB paid the wrong payees, hence, it should Section 9(c) of the NIL, a check payable to a
bear the loss. specified payee may nevertheless be
considered as a bearer instrument if it is
 PNB alleged that it is not liable for the checks payable to the order of a fictitious or non-
which it paid to the PEMSLA account without existing person, and such fact is known to the
any indorsement from the payees. The bank person making it so payable.
contended that spouses Rodriguez, the
makers, actually did not intend for the named In USA case, it held that in a fictitious-payee
payees to receive the proceeds of the checks. situation, the drawee bank is absolved from
Consequently, the payees were considered liability and the drawer bears the loss. When
as "fictitious payees" as defined under the faced with a check payable to a fictitious
NIL, being as such it is a bearer instrument payee, it is treated as a bearer instrument
and which can be negotiated by mere that can be negotiated by delivery. The
delivery. underlying theory is that one cannot expect a
fictitious payee to negotiate the check by

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SPECIAL COMMERCIAL LAW: BANKING

placing his indorsement thereon. And since Consequently, the drawee bank bears the
the maker knew this limitation, he must have loss.
intended for the instrument to be negotiated A bank that regularly processes checks that
by mere delivery. Thus, in case of are neither payable to the customer nor duly
controversy, the drawer of the check will bear indorsed by the payee is apparently grossly
the loss. This rule is justified for otherwise, it negligent in its operations. This Court has
will be most convenient for the maker who recognized the unique public interest
desires to escape payment of the check to possessed by the banking industry and the
always deny the validity of the indorsement. need for the people to have full trust and
This despite the fact that the fictitious payee confidence in their banks. For this reason,
was purposely named without any intention banks are minded to treat their customer’s
that the payee should receive the proceeds of accounts with utmost care, confidence, and
the check. honesty.
In the case under review, the Rodriguez checks In a checking transaction, the drawee bank
were payable to specified payees. It is unrefuted has the duty to verify the genuineness of the
that the 69 checks were payable to specific signature of the drawer and to pay the check
persons. Likewise, it is uncontroverted that the strictly in accordance with the drawer’s
payees were actual, existing, and living persons
instructions, i.e., to the named payee in the
who were members of PEMSLA that had a
rediscounting arrangement with spouses check. It should charge to the drawer’s
Rodriguez. accounts only the payables authorized by the
latter. Otherwise, the drawee will be violating
What remains to be determined is if the payees,
the instructions of the drawer and it shall be
though existing persons, were "fictitious" in its
broader context.
liable for the amount charged to the drawer’s
account.
For the fictitious-payee rule to be available as a
defense, PNB must show that the makers did not In the case at bar, respondents-spouses were
intend for the named payees to be part of the the bank’s depositors. The checks were
transaction involving the checks. At most, the drawn against respondents-spouses’
bank’s thesis shows that the payees did not have
accounts. PNB, as the drawee bank, had the
knowledge of the existence of the checks. This
lack of knowledge on the part of the payees, responsibility to ascertain the regularity of the
however, was not tantamount to a lack of intention indorsements, and the genuineness of the
on the part of respondents-spouses that the signatures on the checks before accepting
payees would not receive the checks’ proceeds. them for deposit. Lastly, PNB was obligated
Considering that respondents-spouses were to pay the checks in strict accordance with
transacting with PEMSLA and not the individual the instructions of the drawers. Petitioner
payees, it is understandable that they relied on miserably failed to discharge this burden.
the information given by the officers of PEMSLA
that the payees would be receiving the checks.
A bank that has been remiss in its duty must
Verily, the subject checks are presumed order suffer the consequences of its negligence.
instruments. This is because, as found by both Being issued to named payees, PNB was
lower courts, PNB failed to present sufficient duty-bound by law and by banking rules and
evidence to defeat the claim of respondents-
procedure to require that the checks be
spouses that the named payees were the
intended recipients of the checks’ proceeds. The
properly indorsed before accepting them for
bank failed to satisfy a requisite condition of a deposit and payment. In fine, PNB should be
fictitious-payee situation – that the maker of the held liable for the amounts of the checks.
check intended for the payee to have no interest
in the transaction.
Because of a failure to show that the payees
were "fictitious" in its broader sense, the
fictitious-payee rule does not apply. Thus, the
checks are to be deemed payable to order.

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SPECIAL COMMERCIAL LAW: BANKING

19. CENTRAL BANK OF THE PHILIPPINES  Citytrust later filed a complaint for estafa,
V. CITY TRUST BANKING CORPORATION with reservation on the filing of a
separate civil action, against Flores.
FACTS: Flores was convicted.
 Citytrust thereafter filed before the
 Under the old Central Bank Law, Citytrust Regional Trial Court (RTC) a complaint
Bank maintained a demand deposit for recovery of sum of money with
account with BSP. damages against BSP which it alleged
 As required, Citytrust furnished BSP with erred in encashing the checks and in
the names and corresponding signatures charging the proceeds thereof to its
of five of its officers authorized to sign account, despite the lack of authority of
checks and serve as drawers and "Rosauro C. Cayabyab."
indorsers for its account.  Hence, the present appeal, petitioner
 And it provided BSP with the list and maintaining that Flores having been an
corresponding signatures of its roving authorized roving teller, Citytrust is bound by
tellers authorized to withdraw, sign his acts. Also maintaining that it was not
receipts and perform other transactions negligent in releasing the proceeds of the
on its behalf. checks to Flores, the failure of its teller to
properly verify his signature notwithstanding,
 BSP later issued security identification petitioner contends that verification could be
cards to the roving tellers one of whom dispensed with, Flores having been known to
was "Rounceval Flores" (Flores). be an authorized roving teller of Citytrust who
 Then, Flores presented for payment to had had numerous transactions with it
BSP’s Senior Teller Iluminada dela Cruz (petitioner) on its (Citytrust’s) behalf for five
(Iluminada) two Citytrust checks of even years prior to the questioned transaction.
date, payable to Citytrust, both of which  Attributing negligence solely to Citytrust,
were signed and indorsed by Citytrust’s petitioner harps on Citytrust’s allowing Flores
authorized signatory-drawers. to steal the checks and failing to timely
 BSP then verified the said checks. cancel them; allowing Flores to wear the
Susequently, Ilminada prepared the cash issued identification card issued by it
(petitioner); failing to report Flores’ absence
transfer slip on which she affixed her
from work on the day of the incident; and
signature, stamped the checks with the failing to explain the circumstances
notation "Received Payment" and asked surrounding the supposed theft and
Flores to, as he did, sign on the space cancellation of the checks.
above such notation. Instead of signing
 Drawing attention to Citytrust’s considerable
his name, however, Flores signed as
delay in demanding the restoration of the
"Rosauro C. Cayabyab" – a fact proceeds of the checks, petitioners argue
Iluminada failed to notice. The slip then that, assuming arguendo that its teller was
the checks were sent to BSP’s Cash negligent, Citytrust’s negligence, which
department where an officer compared preceded that committed by the teller, was
the drawer’s signature on the checks the proximate cause of the loss or fraud.
against the specimen signature. ISSUE:
 Finding the same in order, BSP debited
the amount of 1.7 M from citytrust’s HELD: Petitioner’s teller Iluminada did not
demanded deposit account. verify Flores’ signature on the flimsy excuse
 More than a year and nine months later, that Flores had had previous transactions
Citytrust, , alleging that the checks were with it for a number of years. That
already cancelled because they were circumstance did not excuse the teller from
stolen, citytrust demanded BSP to focusing attention to or at least glancing at
restore the amounts covered thereby to Flores as he was signing, and to satisfy
its demand deposit account. Petitioner herself that the signature he had just affixed
did not heed the demand, however. matched that of his specimen signature. Had

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SPECIAL COMMERCIAL LAW: BANKING

she done that, she would have readily been required of an obligor is that prescribed by
put on notice that Flores was affixing, not his law or contract, and absent such stipulation
but a fictitious signature. then the diligence of a good father of a family.
Section 2 of RA 8791 prescribes the statutory
Given that petitioner is the government body diligence required from banks – that banks
mandated to supervise and regulate banking must observe "high standards of integrity and
and other financial institutions, this Court’s performance" in servicing their depositors.
ruling in Consolidated Bank and Trust Although RA 8791 took effect almost nine
Corporation v. Court of Appeals5 illumines: years after the unauthorized withdrawal of the
P300,000 from L.C. Diaz’s savings account,
The contract between the bank and its jurisprudence at the time of the withdrawal
depositor is governed by the provisions of the already imposed on banks the same high
Civil Code on simple loan. Article 1980 of the standard of diligence required under RA No.
Civil Code expressly provides that "x x x 8791. (Emphasis supplied)
savings x x x deposits of money in banks and
similar institutions shall be governed by the Citytrust’s failure to timely examine its
provisions concerning simple loan." There is account, cancel the checks and notify
a debtor-creditor relationship between the petitioner of their alleged loss/theft should
bank and its depositor. The bank is the debtor mitigate petitioner’s liability, in accordance
and the depositor is the creditor. The with Article 2179 of the Civil Code which
depositor lends the bank money and the bank provides that if the plaintiff’s negligence was
agrees to pay the depositor on demand. The only contributory, the immediate and
savings deposit agreement between the bank proximate cause of the injury being the
and the depositor is the contract that defendant’s lack of due care, the plaintiff may
determines the rights and obligations of the recover damages, but the courts shall
parties. mitigate the damages to be awarded. For had
Citytrust timely discovered the loss/theft
The law imposes on banks high standards in and/or subsequent encashment, their
view of the fiduciary nature of banking. proceeds or part thereof could have been
Section 2 of Republic Act No. 8791 ("RA recovered.
8791"), which took effect on 13 June 2000,
declares that the State recognizes the 20. BANK OF AMERICA V. ASSOCIATED
"fiduciary nature of banking that requires high CITIZENS BANK
standards of integrity and performance." This
new provision in the general banking law, FACTS:
introduced in 2000, is a statutory affirmation
of Supreme Court decisions, starting with the  BA Finance entered into a transaction with
1990 case of Simex International v. Court of Miller Offset Press.
Appeals, holding that "the bank is under  BA Finance granted Miller a credit line facility
obligation to treat the accounts of its through which Miller can assign or discount its
depositors with meticulous care, always trade receivable with BA finance.
having in mind the fiduciary nature of their
relationship."  Miller discounted and assigned several trade
receivables to BA-Finance by executing
This fiduciary relationship means that the Deeds of Assignment in favor of the BA
bank’s obligation to observe "high standards Finance.
of integrity and performance" is deemed
written into every deposit agreement between  In consideration of the assignment, BA-
Finance issued four checks payable to the
a bank and its depositor. The fiduciary nature
"Order of Miller Offset Press, Inc." with the
of banking requires banks to assume a notation "For Payee’s Account Only." These 4
degree of diligence higher than that of a good checks were drawn against Bank of America.
father of a family. Article 1172 of the Civil
Code states that the degree of diligence

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SPECIAL COMMERCIAL LAW: BANKING

 Then, the 4 checks were deposited by Ching W/N Associated Bank should Reimburse Bank
Uy Seng in account in Associated Citizen’s of America. YES
Bank.
HELD:
 Associated Bank stamped the checks with the
notation "all prior endorsements and/or lack of Bank of America denies liability for paying the
endorsements guaranteed," and sent them amount of the four checks issued by BA-
through clearing. Later, the drawee bank, Finance to Miller, alleging that it (Bank of
Bank of America, honored the checks and America) relied on the stamps made by
paid the proceeds to Associated Bank as the Associated Bank stating that "all prior
collecting bank. endorsement and/or lack of endorsement
guaranteed," through which Associated Bank
 Miller failed to deliver to BA-Finance the
proceeds of the assigned trade receivables. assumed the liability of a general endorser
Consequently, BA-Finance filed a Complaint under Section 66 of the Negotiable
against Miller for collection of the amount of Instruments Law. Moreover, Bank of America
P731,329.63 which BA-Finance allegedly paid contends that the proximate cause of BA-
in consideration of the assignment. Finance’s injury, if any, is the gross
negligence of Associated Bank which allowed
 Miller and the other representatives who were Ching Uy Seng (Robert Ching) to deposit the
impleaded, filed a joint answer, alleging that four checks issued to Miller in the personal
they never received the amount covered the 4
joint bank account of Ching Uy Seng and Uy
checks issued by BA Finance drawn against
Bank of America. They also deny that they Chung Guan Seng.
authorized Ching Uy Seng to transact
business with BA Finance on behalf of Miller.
We are not convinced.

The bank on which a check is drawn, known


 In view thereof, BA-Finance filed an
as the drawee bank, is under strict liability,
Amended Complaint impleading Bank of
based on the contract between the bank and
America for allowing encashment and
its customer (drawer), to pay the check only
collection of the checks by person or
to the payee or the payee’s order. The
persons other than the payee named
drawer’s instructions are reflected on the face
thereon.
and by the terms of the check. When the
drawee bank pays a person other than the
 Bank of America filed a Third Party
payee named on the check, it does not
Complaint against Associated Bank. In its
comply with the terms of the check and
Answer, Associated Bank admitted
violates its duty to charge the drawer’s
having received the four checks for
account only for properly payable items.9
deposit in the joint account of Ching Uy
Thus, we ruled in Philippine National Bank v.
Seng (a.k.a. Robert Ching) and Uy Chung
Rodriguez10 that a drawee should charge to
Guan Seng, but alleged that Robert Ching,
the drawer’s accounts only the payables
being one of the corporate officers of
authorized by the latter; otherwise, the
Miller, was duly authorized to act for and
drawee will be violating the instructions of the
on behalf of Miller.
drawer and shall be liable for the amount
 RTC ruled against Bank of America, hence it charged to the drawer’s account.
ordered the latter to pay BA Finance. It also
ordered for the Associated bank to reimburse In this case, the four checks were drawn by
bank of America. BA-Finance and made payable to the "Order
of Miller Offset Press, Inc." The checks were
 On appeal, CA affirmed the decision with also crossed and issued "For Payee’s
modification Account Only." Clearly, the drawer intended
the check for deposit only by Miller Offset
ISSUE: W/N Bank of America liable to pay
BA- Finance the amount of the four checks.
Press, Inc. in the latter’s bank account. Thus,
YES when a person other than Miller, i.e., Ching
Uy Seng, a.k.a. Robert Ching, presented and

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SPECIAL COMMERCIAL LAW: BANKING

deposited the checks in his own personal  Overseas Bank of Manila is a commercial
account (Ching Uy Seng’s joint account with banking corporation. Ramos et. al are the
Uy Chung Guan Seng), and the drawee bank, majority and controlling stockholders of
Bank of America, paid the value of the checks OBM.
and charged BA-Finance’s account therefor,
the drawee Bank of America is deemed to  The OBM had been suspended by Central
have violated the instructions of the drawer, Bank from clearing and from lending
and therefore, is liable for the amount operations for various violations of the
charged to the drawer’s account. banking laws and implementing
regulations.
A collecting bank where a check is deposited,
and which endorses the check upon  Hence, OBM became financially
presentment with the drawee bank, is an distressed because of this suspension and
endorser.18 Under Section 66 of the the deprivation by the CB of all the usual
Negotiable Instruments Law, an endorser credit facilities and accommodations
warrants "that the instrument is genuine and accorded to the other banks.
in all respects what it purports to be; that he
has good title to it; that all prior parties had  The alleged exactions of onerous fines
capacity to contract; and that the instrument and penalties by CB was likewise blamed
is at the time of his endorsement valid and for the aggravated situation.
subsisting." This Court has repeatedly held
that in check transactions, the collecting bank  For its deficiencies it was made subject to
or last endorser generally suffers the loss penalties of 12% interest on overdrawings
because it has the duty to ascertain the and 36% per annum on reserve
genuineness of all prior endorsements deficiencies, which by 1968 amounted to
considering that the act of presenting the several millions.
check for payment to the drawee is an
assertion that the party making the  Subsequently, financial situation of the
presentment has done its duty to ascertain OBM had caused mounting concern in the
the genuineness of the endorsements.19 CB. Petitioner Ramos and the OBM
management finally met with respondent
When Associated Bank stamped the back of CB on the necessity and urgency of
the four checks with the phrase "all prior rehabilitating the OBM through the
endorsements and/or lack of endorsement extension of necessary financial
guaranteed," that bank had for all intents and assistance.
purposes treated the checks as negotiable
instruments and, accordingly, assumed the  the Governor of the Central Bank, Andres
warranty of an endorser. Being so, Castillo, upon instructions of the Monetary
Associated Bank cannot deny liability on the Board, advised OBM to sign a trusteeship
checks. agreement with the Philippine National
Bank pursuant to which the Overseas
**** Bank will be managed by the Philippine
National Bank. If the PNB takes over
CLOSURE OF BANKS
management in such eventuality, the
**** Central Bank could also announce that it is
ready to support the Philippine National
Bank in order to allay the fears of
depositors and creditors.
21. RAMOS V. CENTRAL BANK OF PHILS
 Subsequently, CB Gov. reiterated to
FACTS: Ramos and OBM the need for OBM stock
holders to execute a voting trust
agreement to stave off liquidation (To

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SPECIAL COMMERCIAL LAW: BANKING

postpone) and to mortgages their Superintendent of Banks as trustee, his


properties to secure OBM obligations to commitments were undeniably those of the
CB. These were complied by OBM. Central Bank itself, since it was the latter that
had from the very beginning insisted upon
 Hence, new directors and officers drafted such voting trust being executed. For the
from the CB itself, the PNB and DBP were Superintendent of Banks was an officer of the
elected and installed and they took over CB, the chief of its Department of Supervision
the management and control of the and Examination of all banking institutions
Overseas bank. operating in the country, subject to the
instructions of the Monetary Board at all times,
 However, Ramos avers that no adequate pursuant to Section 25 of the CB charter,
financial assistance was granted to the Republic Act No. 265; and it is not credible
OBM after the execution of the Voting that he should have understand that he was
Trust Agreement. They further claim that entering into the trust agreement in his
the said agreement is not only bilateral, personal capacity.
imposing reciprocal obligations for
valuable consideration, but was also Bearing in mind that the communications,
entered into by respondent CB in the Annexes "B" and "G," as well as the voting
performance of its duties under the law; trust agreement, Annex "A," had been
and that under said agreement the prepared by the CB, and the well-known rule
obligation of the CB was to act and work that ambiguities therein are to be construed
for the "rehabilitation, normalization and against the party that caused them, 11 the
stabilization" of the OBM, through the record becomes clear that, in consideration of
extension of adequate and necessary the execution of the voting trust agreement by
financial assistance to stave off liquidation, the petitioner stockholders of OBM, and of
is legally demandable, as well as a duty the mortgage or assignment of their personal
specifically enjoined and imposed by law. properties to the CB (Res. No. 2015, 16
And that in violation of its obligations, the October 1967, Annex "F," Petition), the CB
CB, "after eight months of delay", adopted had agreed to announce its readiness to
the questioned resolutions, without notice support the new management "in order to
to or hearing the petitioners. allay the fears of depositors and creditors."
(Annex "B"), and to stave off liquidation" by
 CB excluded the OBM from clearing with providing adequate funds for "the
the CB (Resol. No. 1263) the contingency rehabilitation, normalization and stabilization"
that the Voting Trust and the mortgage of of the OBM, in a manner similar to what the
the petitioners' private properties were to CB had previously done with the Republic
guard against. Bank (Portion, Annex "G," ante). While no
express terms in the documents refer to the
 CB authorized (and virtually directed) its provision of funds by CB for the purpose, the
nominee Board of Directors to suspend same is necessarily implied, for in no other
operations (Resol. No. 1290); and thirteen way could it rehabilitate, normalize and
days thereafter (13 August 1968), the CB stabilize a distressed bank.
directed its Superintendent of Banks to
proceed to liquidate OBM (Resol. No. Even in the absence of contract, the record
1333) under Section 29 of Republic Act No. plainly shows that the CB made express
265 (Central Bank Charter). representations to petitioners herein that it
would support the OBM, and avoid its
ISSUE: Whether or not CB Resolutions liquidation if the petitioners would execute (a)
Nos. 1263, 1290 and 1333 were adopted in the Voting Trust Agreement turning over the
abuse of discretion. management of OBM to the CB or its
nominees, and (b) mortgage or assign their
HELD: While the trust agreement on its face properties to the Central Bank to cover the
creates obligations only for the overdraft balance of OBM. The petitioners

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SPECIAL COMMERCIAL LAW: BANKING

having complied with these conditions and It reveals a calculated attempt to evade
parted with value to the profit of the CB rehabilitating OBM despite its promises. What
(which thus acquired additional security for its is more aggravating is that by the ordered
own advances), the CB may not now renege liquidation, depositors and other creditors
on its representations and liquidate the OBM, would have to share in the assets of the OBM,
to the detriment of its stockholders, while the CB's own credits for advances were
depositors and other creditors, under the rule secured by the new mortgages it had
of promissory estoppel obtained from the petitioners, thereby gaining
for it what amounts to an illegal preference.
The broad general rule to the effect that a To cap it all, the CB disregarded its
promise to do or not to do something in the representations and promises to rehabilitate
future does not work an estoppel must be and normalize the financial condition of OBM,
qualified, since there are numerous cases in as it had previously done with the Republic
which an estoppel has been predicated on Bank, without even offering to discharge the
promises or assurances as to future conduct. mortgages, given by petitioners in
The doctrine of "promissory estoppel" is by consideration for its promises, or notifying
no means new, although the name has been petitioners that it desired to rescind its
adopted only in comparatively recent years. contract, or bringing action in court for the
According to that doctrine, an estoppel may purpose. And all the while CB knew that the
arise from the making of a promise, even situation of the OBM was deteriorating daily,
though without consideration, if it was with penalties at 3% per month continually
intended that the promise should be relied accumulating, while its creditors, depositors
upon and in fact it was relied upon, and if a and stockholders awaited the promised aid
refusal to enforce it would be virtually to that never came, and which apparently CB
sanction the perpetration of fraud or would never intended to give.
result in other injustice. In this respect, the
reliance by the promisee is generally The deception practiced by the Central Bank,
evidenced by action or forbearance on his not only on petitioners but on its own
part, and the idea has been expressed that management team, was in violation of
such action or forbearance would reasonably Articles 1159 and 1315 of the Civil Code of
have been expected by the promissor. Mere the Philippines:
omission by the promisee to do whatever the
promisor promised to do has been held ART. 1159. Obligations arising from contracts
insufficient "forbearance" to give rise to a have the force of law between the contracting
promissory estoppel. parties and should be complied with in good
faith.
Disingenuously, the CB pleaded that the
Voting Trust agreement was binding only ART. 1315. Contracts are perfected by mere
upon the trustee, the Superintendent of consent, and from that moment the parties
Banks. But as already pointed out this are bound not only to the fulfillment of what
proposition is unacceptable since the trust has been expressly stipulated but also to all
could have no private interest in the matters. the consequences which, according to their
Not only that, but CB subsequently caused its nature, may be in keeping with good faith,
own team of nominees to take over the usage and law. (Emphasis supplied)
direction and management of the OBM,
22. CENTRAL BANK V. COURT OF
through the voting of the shares conveyed to
the trustee. Even more, in August, 1970, the APPEALS
CB gave notice that it would not extend or FACTS:
renew the voting trust, and attempted to turn
back the shares covered by it to the
petitioners, thereby recognizing the  Provident Savings Bank was incorporated after
obligations under the agreement as its own, the Central Bank had approved its
and repudiating its original disclaimer thereof.

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establishment under Monetary Board public in the banking system, thus enabling
Resolution No. 572. PROVIDENT to reopen.
 Its Articles of Incorporation was registered with  The Hon. Alfonso Calalang, then Governor of
the Securities and Exchange Commission. the Central Bank, together with other high
officials of the Central Bank, visited the premises
 PROVIDENT was granted authority to operate of PROVIDENT soon after its reopening and
by the Monetary Board and started business. assured the public that PROVIDENT was sound
 Within four years of operation, PROVIDENT and had the full backing of the Central Bank.
had established six (6) extension offices within  Then followed a series of emergency releases.
the greater Manila area. But, the assistance given to PROVIDENT was
 PROVIDENT has an authorized capital of P10 not sufficient to meet and service the unusually
million, divided into 100,000 shares of common heavy withdrawals of deposits. Fernandez and
stock with a par value of P100.00 each. At the Jayme appealed to the Central Bank for
time of its incorporation, 25% of the stock was continued assistance.
subscribed and paid for by its incorporators.  At one time, Fernandez and Jayme were
 There were subsequent subscriptions received summoned to the Central Bank for a conference
so that by the end of 1967 the total paid up with the Governor and Deputy Governor and
capital of the bank amounted to P6.7 million were introduced to representatives of the Iglesia
out of the aggregate P7.5 million subscribed Ni Kristo cranad(INK) which had a sizeable
shares of stock. deposit of P5.5 million with PROVIDENT and
was having difficulty in withdrawing the same.
 The herein private respondents, Isidro E.
Fernandez and Jesus R. Jayme, are the  Central Bank Deputy Governor Amado Briñas
majority and controlling stockholders thereof, voiced the decision of the Central Bank that
holding 41% and 22%, respectively, of the total unless Fernandez and Jayme relinquished and
subscribed capital stock of the bank. turned over the management and control of
PROVIDENT to the Iglesia Ni Kristo, the Central
 A major portion of PROVIDENT’s loanable funds Bank would not further support and assist the
was granted to directors, officers and distressed PROVIDENT.
stockholders and their related interests and the
bank was cautioned to avoid concentration of  Governor Briñas, in turn, persuaded the
credits and to adopt a policy where loans would representatives of the Iglesia Ni Kristo, headed
be granted to a larger number of borrowers who by Rogelio Manalo, that the only way they could
had no financial interest in the bank. withdraw their deposit was to take control and
management of PROVIDENT. Left with no other
 Provident experienced a bank run. In view of the alternative, but to accede, and in order to protect
unusually heavy withdrawals, PROVIDENT had their investment, Fernandez and Jayme
no recourse but to request emergency loans reluctantly executed a Memorandum Agreement
from the Central Bank to meet the demands of with the Eagle Broadcasting Corporation, a
the depositors. company identified with the Iglesia Ni Kristo.
 The Monetary Board, however, denied these  Following the transfer of management of
requests for emergency loans. PROVIDENT, PROVIDENT to the Iglesia Ni Kristo, the Central
therefore, had to borrow from other banks, Bank forthwith released additional loans to
foremost of which is the Banco Filipino Mortgage PROVIDENT at a much reduced rate of interest
and Savings Bank which granted PROVIDENT of 10% instead of the 12% interest charged on
advances up to P8 million. But, these loans were previous loans. PROVIDENT was further
not enough to meet the demands of the allowed to resume its lending activities. At the
depositors. time of the transfer of the management to the
 As a result, PROVIDENT was forced to Iglesia Ni Kristo the net worth of PROVIDENT
temporarily close its doors to the public. was P7.2 million.

 Subsequently, however, the Central Bank  However, Eagle Broadcasting did not comply
extended emergency loans to PROVIDENT in with its commitment in the terms. Instead,
order to stop the bank run and to prevent the various irregularities detrimental to Provident
bank run from eroding the confidence of the were perpetuated by the new management
despite the presence of CB examiners.

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SPECIAL COMMERCIAL LAW: BANKING

 Because of the financial deterioration of Bank to cover the overdraft balance of OBM. The
PROVIDENT, Monetary Board, asked the petitioners having complied with these conditions
stockholder and INK to submit proposal as how and parted with value to the profit of the CB
to alleviate the status of provident. The cranad(which thus acquired additional security for
proposals of the stockholder were rejecter by the its own advances), the CB may not now renege
monetary board. But INK failed to submit their on its representations and liquidate the OBM, to
proposal. the detriment of its stockholders, depositors and
other creditors, under the rule of promissory
 Then, Rogelio W. Manalo resigned as Chairman estoppel cranad(19 Am. Jur., pp. 657-658, 28 Am.
and President of ROVIDENT, giving rise to large Jur. 2d, 656-657; Ed. Note. 115 ALR, 157).
withdrawals from its big depositors which the
bank could not readily meet. The financial “The broad general rule to the effect that a promise
condition of PROVIDENT continued to worsen, to do or not to do something in the future does not
Monetary Board in pursuance of Section 29 of work an estoppel must be qualified, since there are
Republic Act No. 265, decided that To forbid the numerous cases in which an estoppel has been
Provident Savings Bank to do business in the predicated on promises or assurances as to future
Philippines; To instruct the Superintendent of contract. The doctrine of ‘promissory estoppel’ is by
Banks to take charge, in the name of the no means new, although the name has been
Monetary Board, of the assets of the Provident adopted only in comparatively recent years.
Savings Bank. Hence, Jayme et al. filed a According to that doctrine, an estoppel may arise
certiorari and mandamus against Central Bank. from the making of a promise, even though without
consideration, if it was intended that the promise
 The Trial court ruled in favor of Jayme et. al. should be relied upon and in fact it was relied upon,
Hence this present appeal. and if a refusal to enforce it would be virtually to
ISSUE: W/N There can be no estopel against sanction the perpetration of fraud or would result in
the CB in view of the latter’s valid exercise of other injustice. In this respect, the reliance by the
police power by its lawful overseeing of promisee is generally evidenced by action or
Provident Savings Bank forbearance on his part, and the idea has been
expressed that such action of forbearance would
HELD: he contention is without merit. While the reasonably have been expected by the promissor.
closure and liquidation of a bank may be Mere omission by the promisee to do whatever the
considered an exercise of police power, the promissor promised to do has been held insufficient
validity of such exercise of police power is subject ‘forbearance ‘ to give rise to a promissory
to judicial inquiry and could be set aside if it is estoppel.’c
either capricious, discriminatory, whimsical,
arbitrary, unjust, or a denial of the due process
and equal protection clauses of the Constitution.
In the cases under consideration, it is not disputed
that the Central Bank had committed itself to 23. CENTRAL BANK OF THE PHILS V. COURT
support PROVIDENT and restore it to its former OF APPEALS
sound financial position provided that Fernandez
and Jayme should relinquish and give up its
control and management of the bank to the Iglesia FACTS:
Ni Kristo, and thereafter, whimsically withdrew
 Island Saving Bank approved the loan application
such support to the detriment of PROVIDENT. In
of Sulicio Tolentino.
the case of Ramos vs. Central Bank, 21 where the
Central Bank committed itself to the continued  As a security of the Loan, Tolentino executed on
operation of, and rehabilitation of the Overseas the sme day a real estate mortgage over his 100-
Bank of Manila, and later on reneged on that hectare land.
promise, the Court therein ruled:
 However, only 17,000 php out of 80,000 loan was
“Even in the absence of contract, the record released.
plainly shows that the CB made express
representations to petitioners herein that it would  On the 17K, Tolentino executed a promissory note.
support the OBM, and avoid its liquidation if the  The bank promised the release of the remaining
petitioners would execute cranad(a) the Voting balance of the loan.
Trust Agreement turning over the management of
OBM to the CB or its nominees, and cranad(b)  Subsequently, the bank suffered liquidity problems.
mortgage or assign their properties to the Central

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SPECIAL COMMERCIAL LAW: BANKING

 The Monetary Board issued a resolution prohibiting Island Savings Bank from doing further
the bank from making new loans and investments. business. Such prohibition made it legally
 Because the bank failed to put up the required impossible for Island Savings Bank to furnish
capital to restore its solvency, the Monetary Board, the P63,000.00 balance of the P80,000.00
in another resolution, prohibited the said bank from loan. The power of the Monetary Board to
doing business in the Philippines. Hence, take over insolvent banks for the protection of
Superintendent of the banks took charged of it. the public is recognized by Section 29 of R.A.
 But, Tolentino failed to pay the 17k loan. Hence, the
No. 265, which took effect on June 15, 1948,
bank extra judicially foreclosed the mortgaged the validity of which is not in question.
property.
The Board Resolution No. 1049 issued on August
 Hence, Tolentino filed a petition for injunction and 13,1965 cannot interrupt the default of Island
specific performance. Savings Bank in complying with its obligation of
releasing the P63,000.00 balance because said
 RTC ruled in favor of the bank and ordered resolution merely prohibited the Bank from making
Tolentino to pay the 17 K. new loans and investments, and nowhere did it
 CA affirmed but ruled that the bank cannot also prohibit island Savings Bank from releasing the
foreclose the mortgage. balance of loan agreements previously
contracted. Besides, the mere pecuniary inability
to fulfill an engagement does not discharge the
ISSUE: W/N Tolentino is liable to pay the debt obligation of the contract, nor does it constitute
covered by the PN. YES. any defense to a decree of specific performance
(Gutierrez Repide vs. Afzelius and Afzelius, 39
W/N REM can be foreclosed to satisfy unpaid Phil. 190 [1918]). And, the mere fact of insolvency
loan. NO. of a 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
HELD: When Island Savings Bank and ed., CJS p. 650)
Sulpicio M. Tolentino entered into an
P80,000.00 loan agreement on April 28, 1965, Article 1192 of the Civil Code provides that in
they undertook reciprocal obligations. In case both parties have committed a breach of
reciprocal obligations, the obligation or their reciprocal obligations, the liability of the first
promise of each party is the consideration for infractor shall be equitably tempered by the
that of the other (Penaco vs. Ruaya, 110 courts. WE rule that the liability of Island Savings
SCRA 46 [1981]; Vda. de Quirino vs, Pelarca Bank for damages in not furnishing the entire loan
29 SCRA 1 [1969]); and when one party has is offset by the liability of Sulpicio M. Tolentino for
performed or is ready and willing to perform damages, in the form of penalties and surcharges,
for not paying his overdue P17,000.00 debt. The
his part of the contract, the other party who
liability of Sulpicio M. Tolentino for interest on his
has not performed or is not ready and willing PI 7,000.00 debt shall not be included in offsetting
to perform incurs in delay (Art. 1169 of the the liabilities of both parties. Since Sulpicio M.
Civil Code). The promise of Sulpicio M. Tolentino derived some benefit for his use of the
Tolentino to pay was the consideration for the P17,000.00, it is just that he should account for
obligation of Island Savings Bank to furnish the interest thereon.
the P80,000.00 loan. When Sulpicio M. WE hold, however, that the real estate mortgage
Tolentino executed a real estate mortgage on of Sulpicio M. Tolentino cannot be entirely
April 28, 1965, he signified his willingness to foreclosed to satisfy his P 17,000.00 debt.
pay the P80,000.00 loan. From such date, the
The consideration of the accessory contract of
obligation of Island Savings Bank to furnish real estate mortgage is the same as that of the
the P80,000.00 loan accrued. Thus, the principal contract (Banco de Oro vs. Bayuga, 93
Bank's delay in furnishing the entire loan SCRA 443 [1979]). For the debtor, the
started on April 28, 1965, and lasted for a consideration of his obligation to pay is the
period of 3 years or when the Monetary existence of a debt. Thus, in the accessory
Board of the Central Bank issued Resolution contract of real estate mortgage, the consideration
No. 967 on June 14, 1968, which prohibited of the debtor in furnishing the mortgage is the

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SPECIAL COMMERCIAL LAW: BANKING

existence of a valid, voidable, or unenforceable  The petition alleged that on the strength of said
debt (Art. 2086, in relation to Art, 2052, of the Civil provision, the Monetary Board had adopted two
Code). (2) resolutions, viz:
 1) Resolution No. 213 (February 3, 1978),
24. SALUD V. CENTRAL BANK OF THE PHILS forbidding the Muntinlupa Bank to do business
and designating Consolacion Odra its statutory
FACTS: receiver; and
 The Rural Bank of Muntinlupa, Inc. and its  2) Resolution No. 1523 (August 28, 1981),
stockholders (the Muntinlupa Bank) have petitioned ordering liquidation of the Muntinlupa Bank after
this Court for a writ of certiorari to annul two (2) confirmation that it was insolvent and could not
resolutions of the Intermediate Appellate Court resume business with safety to all concerned, and
dated upon the theory that said resolutions are so that public interest did require said liquidation.
far contrary to the provisions of Section 29 of the
Central Bank Act and relevant rulings of this Court  The petition prayed that the Court "approve
as to constitute grave abuse of discretion. petitioners' request for assistance," that it render
such assistance in fact, and also that it "grant
such other reliefs as may be just and equitable."
 SEC. 29 - > As will be noted, whenever it shall  However, Muntinlupa Bank filed an opposition
appear prima facie that a banking institution is in "a alleging the ff:
condition of insolvency" or so situated "that its
continuance in business would involve probable  1) The liquidation of Muntinlupa Bank
loss to its depositors or creditors," the Monetary decreed by the Monetary Board under
Board has authority: Section 29 was premature and void,
because Section 28-A of the same
 First, to forbid the institution to do business and Central Bank Act mandates that prior to
appoint a receiver therefor; and liquidation, it is the Central Bank's
 Second, to determine, within 60 days, whether or "primordial duty to reorganize the
not: management (of Muntinlupa Bank) and to
restore its viability;"
 1) the institution may be reorganized and
rehabilitated to such an extent as to be permitted to  2) The action of liquidation was "arbitrary
resume business with safety to depositors, creditors and in bad faith" because (a) contrary to
and the general public; or the actuality that Muntinlupa Bank is still
capable of rehabilitation, and (b)
 2) it is indeed insolvent or cannot resume business inconsistent with prior actions of the
with safety to depositors, creditors and the general Central Bank of rehabilitating "similarly
public, and public interest requires that it be distressed banks, the Republic Bank and
liquidated. the Overseas Bank of Manila, among
 In this latter case (i.e., the bank can no longer several others" (citing Central Bank vs.
resume business with safety to depositors, creditors Court of Appeals July 27, 1981).
and the public, etc.) its liquidation will be ordered  Essentially, Muntinlupa Bank's position is that
and a liquidator appointed by the Monetary Board. under Section 29 of the Central Bank Act, as
The Central Bank shall thereafter file a petition in amended, the RTC has jurisdiction to adjudicate
the Regional Trial Court praying for the Court's the question of whether the action of the
assistance in the liquidation of the bank. Monetary Board in directing its dissolution
 It is noteworthy that the actions of the Monetary (instead of its rehabilitation) was in the premises,
Board in this regard are explicitly declared to be and in the language of the statute, "arbitrary and
"final and executory." They may not be set aside or made in bad faith;" and therefore the Decision of
even restrained or enjoined by the court, except the Intermediate Appellate Court of November
16
only upon "convincing proof that the action is plainly 22, 1984 remanding the case to the Regional
arbitrary and made in bad faith." Trial Court for hearing so that "both parities ...
(might) substantiate their, allegations in their
 "Petition for Assistance in the Liquidation of respective pleadings" on that precise question,
1
the Rural Bank of Muntinlupa, Inc." was filed was "in complete accord with the ... law."
with the Court of First Instance at Pasay City by
the Central Bank and the designated Liquidator,
2
Consolacion Odra. ISSUE:

TERESE RAY-ANNE O. AQUINO | 3A


SPECIAL COMMERCIAL LAW: BANKING

failure to assert, as a ground of defense or


objection to a proceeding for assistance in
HELD: Resolutions of the Monetary Board
liquidation, the fact that the resolution of the
under Section 29 of the Central Bank Act-e.g., Monetary Board authorizing the initiation of such a
forbidding banking institutions to do business proceeding is "arbitrary and made in bad faith"
on account of a "condition of insolvency" or would constitute a waiver thereof, conformably
23
because "its continuance in business would with the rule of "Waiver of Defenses," to the
involve probable loss to depositors or effect that "defenses and objections not pleaded
creditors;" or appointing a receiver to take either in a motion to dismiss or in the answer are
charge of the bank's assets and liabilities; or (generally) deemed waived," or the "Omnibus
24
determining whether the banking institutions Motion Rule," providing that "A motion attacking
may be rehabilitated, or should be liquidated a pleading or a proceeding shall include all
objections then available, and all objections not so
and appointing a liquidator towards this end included shall be deemed waived."
are by law "final and executory," as earlier
pointed out. But they "can be set aside by the 25. LIPANA V. DEVELOPMENT BANK OF
court" on one specific ground, and that is, "if RIZAL
there is convincing proof that the action is FACTS:
plainly arbitrary and made in bad faith." The
 Lipana et. al opened and maintained both time
Central Bank concedes this power in "the
and savings deposits with the Development
court," but insists that that setting aside can
Bank of Rizal all in the aggregate amount of
not be done in the same proceeding for
P939,737.32.
assistance in liquidation, but in a separate
action instituted specifically for the purpose,  When some of the Time Deposit Certificates
as was the case in Central Bank v. Court of matured,Lipana were not able to cash them but
appeals, 19 where— instead were issued a manager's check which
... the aggrieved parties (Fernandez and was dishonored upon presentment.
Jayme) filed a petition for certiorari, prohibition
and mandamus precisely to annul and set  Demands for the payment of both time and
aside the Monetary Board resolution directing savings deposits having failed, on March 14,
the liquidation of the Provident Savings Bank 1984, petitioners filed with the Regional Trial
... (and the) petition was heard by the then Court of Pasig a Complaint With Prayer For
Court of First Instance of Manila jointly with the Issuance of a Writ of Preliminary Attachment
Petition for Assistance and Supervision in the for collection of a sum of money with damages.
20
Liquidation of the Provident Savings Bank. ...
This Court perceives no reason whatever why a  Respondent Judge, ordered the issuance of a
banking institution's claim that a resolution of the writ of attachment, and pursuant thereto.
Monetary Board under Section 29 of the Central
Bank Act should be set aside as plainly arbitrary
and made in bad faith cannot be asserted as an  Upon the Motion on Judgment on pleadings
21 22
affirmative defense or a counterclaim in the
filed by Lipana, the court ruled in favor to
proceeding for assistance in liquidation, but only
as a cause of action in a separate and distinct Lipana.
action. Nor can this Court see why "a full-blown
 The Monetary Board, in its Resolution No. 1009,
hearing" on the issue is possible only if it is
finding that the condition of bank was one of
asserted as a cause of action, but not when set up
insolvency and that its continuance in business
by way of an affirmative defense, or a
would result in probable loss to its depositors and
counterclaim. There is no provision of law which
creditors, decided to place it under receivership.
expressly or even by implication imposes the
requirement for a separate proceeding exclusively
 The Court issued writ of execution in order to
occupied with adjudicating this issue. Moreover, to
enforce the decision of the court against the bank.
declare the issue as beyond the scope of matters
But this was opposed by the bank. Hence, bank
cognizable in a proceeding for assistance in
filed a Motion for Reconsideration of order to Stay
liquidation would be to engender that multiplicity
Writ of Execution, opposed by Lipana but in an
of proceedings which the law abhors. Indeed, the
Order respondent judge stayed the execution.

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SPECIAL COMMERCIAL LAW: BANKING

 Lipana contends the following: 114), after the Monetary Board has declared
that a bank is insolvent and has ordered it to
 1. Respondent judge cannot legally stay cease operations, the Board becomes the
execution of judgement that has already trustee of its assets for the equal benefit of all
become final and executory; the creditors, including depositors. The
assets of the insolvent banking institution are
 2. The placing under receivership by the held in trust for the equal benefit of all
Central Bank of the respondent bank, long creditors, and after its insolvency, one cannot
after the complaint was filed removed it from obtain an advantage or a preference over
the application of the doctrine in Re: Central another by an attachment, execution or
Bank vs. Morfe (63 SCRA 113); otherwise.

 3. The filing of the complaint for a sum of Moreover, it will be noted that respondent
money With damages against respondent bank bank was placed under receivership on
and the subsequent attachment of its property August 10, 1984, and the Decision of
in Pasig, Metro Manila long before the respondent judge is dated November 13,
receivership took place render inapplicable the 1984. Accordingly, in line with the ruling in the
doctrine laid down by this Honorable Supreme aforesaid Morfe case, which reads:
Court in the said Morfe case;
The circumstance that the Fidelity Savings
 4. The indefinite stay of execution without a Bank, having stopped operations since
ruling as to how long it will last, amounts to February 19, 1969, was forbidden to do
deprivation of petitioners of their property business (and that ban would include the
without due process of law. payment of time deposits) implies that suits
for the payment of such deposits were
ISSUE: whether or not respondent judge could prohibited. What was directly prohibited
legally stay execution of judgment that has should not be encompassed indirectly. ...
already become final and executory. petitioners 'complaint should have been
dismissed.
HELD: The rule that once a decision
becomes final and executory, it is the
ministerial duty of the court to order its
execution, admits of certain exceptions as in 26. OVERSEAS BANK OF MANILA V. COURT
cases of special and exceptional nature OF APPEALS
where it becomes imperative in the higher
FACTS:
interest of justice to direct the suspension of
its execution (Vecine vs. Geronimo, 59 O.G. A contract of sale was entered between
579); whenever it is necessary to accomplish Nawasa (vr) and Bonifacio Regalado (vee).
the aims of justice (Pascual vs. Tan, 85 Phil. Authorized by the Board of Nawasa, their
164); or when certain facts and treasurer, placed the initial payment of
circumstances transpired after the judgment Regalado on a time deposit with overseas
became final which could render the bank. The time deposit was for 6 months.
execution of the judgment unjust (Cabrias vs.
Adil, 135 SCRA 354). The payment earlier made by Regalado to
the NAWASA, and the time deposit was
In the instant case, the stay of the execution made so that a refund could quickly be made
of judgment is warranted by the fact that to Regalado in the event that his contract with
respondent bank was placed under the NAWASA be disapproved by the Office of
receivership. To execute the judgment would the President.
unduly deplete the assets of respondent bank
to the obvious prejudice of other depositors A second payment was made by Regalado
and creditors, since, as aptly stated in Central as a consideration for the same contract of
Bank of the Philippines vs. Morfe (63 SCRA sale. Hence, another time deposit was made

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SPECIAL COMMERCIAL LAW: BANKING

by the NAWASA Treasurer with the Overseas operations, had made it impossible for the
Bank, this time in the amount of Overseas Bank to pay its debts, whatever
P2,945,314.80, respresenting the balance of validity might be accorded thereto, or the
the purchase price due from Regalado. The further claim that it had fallen into a
period of this second deposit was fixed at one "distressed financial situation," cannot in any
year. sense excuse it from its obligation to the
NAWASA, which had nothing whatever to do
NAWASA's Acting General Manager wrote to the with the Central Bank's actuations or the
Overseas Bank advising that they will be events leading to the bank's distressed state.
withdrawing the first time deposit which was
already matured; that with respect to the second 27. BANCO FILIPINO SAVINGS and
time deposit it will be withdrawn after 60 days.
MORTGAGE BANK V. CENTRAL BANK
But nothing was heard from the Overseas Bank.
It did however pay to NAWASA, , interest on its FACTS:
time deposits, in the aggregate sum of
P212,338.27. - This refers to nine consolidated cases
concerning the legality of the closure and
After maturity of the second time deposit, receivership of petitioner Banco Filipino
NAWASA demanded from Overseas Bank, Savings and Mortgage Bank (Banco
the remittance of both time deposits. But to Filipino) pursuant to the order of
no avail. NAWASA wrote to the Bank once Monetary Board.
more to remit the deposited sums, and
warning that it would seek the intervention of - Petitioners Top Management Programs
the Central Bank for the protection of its Corporation (Top Management) and Pilar
interests. Still no word was received from the Development Corporation (Pilar
bank. Development) are corporations engaged
in the business of developing residential
Hence, NAWASA then wrote to the Central subdivisions. Petitioner El grande was
Bank Governor about it. Apparently, even the engaged in housing projects. Petitioners
Central Bank was ignored by Overseas Bank. were extended a loan by the bank.

NAWASA thus brought suit to recover its - Top Management obtained a loan from
deposits and damages. In that suit, the court Banco Filipino as evidenced by a
rendered judgment against Overseas bank promissory note payable in three years.
and ordered the latter to pay NAWASA. The loan was secured by REM in its
various properties in Cavite.
Hence, this present appeal. Overseas bank
argued that because of the punitive/ - Pilar Development obtained loans from
disciplinary action by CB, the bank was Banco Filipino. To secure the loan, Pilar
prevented from undertaking banking Development mortgaged to Banco
operations "which would have generated Filipino various properties in Dasmariñas,
funds to pay not only its depositors and Cavite.
creditors.
- El grande obtained loan from bank which
ISSUE: W/N the bank is excused from was secured by REM.
complying with its banking duties for the
reason of its suspension. - Subsequently, the Monetary Board (MB)
issued a resolution finding Banco Filipino
HELD: NO. The suspension of operations insolvent and unable to do business
which took place in August, 1968, could not without loss to its creditors and
possibly excuse non-compliance with the depositors.
obligations in question which matured in 1966.
Again, the claim that the Central Bank, by
suspending the Overseas Bank's banking

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SPECIAL COMMERCIAL LAW: BANKING

- MB placed Banco Filipino under business. But Tiaoqui’s findings are


receivership of Carlota Valenzuela, based on an incomplete examination of
Deputy Governor of the Central Bank. the bank’s financial status because CB
submitted only a partial list of findings of
- Banco Filipino filed a complaint to set examination. There was no cross
aside the order of MB. examination held during the referral
hearing.
- However, MB subsequently issued
another resolution placing the bank - However, on the question whether or not
under liquidation and designating the closure is valid, the court held that it
Valenzuela as liquidator. was null and void. For the reason that the
insolvency was not clearly established.
- Banco Filipino filed a petition questioning
the validity of the receivership and ISSUE: (1) W/N the liquidator appointed
placing the bank under liquidation. by the respondent CB has the authority to
prosecute as well as to defend suits, and
- Acting on petition by Banco Filipino, the to foreclose mortgages for and in behalf
Court resolved to issue a TRO, enjoining of the bank while the issue on the validity
MB/CB from executing further acts of of the receivership and liquidation of the
liquidation of the bank; that acts latter is pending resolution. (2) W/N
pertaining to normal operations of a bank courts have supervising power over the
are not enjoined. The Central Bank is proceeding and actions of administrative
ordered to designate a comptroller department of the Govt.
(controller) for Banco Filipino.
HELD: That when a bank is forbidden to do
- Top Management failed to pay its loan on business in the Philippines and placed under
the due date as well as Pilar receivership, the person designated as
development and El grande. Hence, receiver shall immediately take charge of the
Valenzuela as liquidator, applied for bank's assets and liabilities, as expeditiously
extra-judicial foreclosure of REM. But this as possible, collect and gather all the assets
was opposed by Top Mngt, Pilar and El and administer the same for the benefit of its
grande. creditors, and represent the bank personally
or through counsel as he may retain in all
- Subsequently, CA rendered decision actions or proceedings for or against the
dismissing the petitions filed by Top Mngt. institution, exercising all the powers
And Pilar Dev’t and El grande. necessary for these purposes including, but
not limited to, bringing and foreclosing
- Hence, Pilar, El grande and Top mngt. mortgages in the name of the bank. If the
Instituted this petition before the SC, Monetary Board shall later determine and
questioning the appointment of Carlota confirm that banking institution is insolvent or
Valenzuela as Liquidator of Banco cannot resume business safety to depositors,
Filipino; that she has no power to creditors and the general public, it shall,
proceed with the foreclosure on the public interest requires, order its liquidation
ground that the resolution regarding the and appoint a liquidator who shall take over
validity of receivership and liquidation it and continue the functions of receiver
still pending. previously appointed by Monetary Board. The
liquid for may, in the name of the bank and
- Subsequently, MB’s resolution for the
with the assistance counsel as he may retain,
closure of the bank was upheld. This was
institute such actions as may necessary in
based on Ramon Tiaoqui report which
the appropriate court to collect and recover a
indicated that the insolvency and liquidity
counts and assets of such institution or
of the bank is a sufficient justification for
defend any action ft against the institution.
forbidding the bank from engaging in said

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SPECIAL COMMERCIAL LAW: BANKING

When the issue on the validity of the closure foreclosure of mortgages executed by
and receivership of Banco Filipino bank was debtors in favor of the bank. In G.R. No.
raised in G.R. No. 70054, pendency of the 81303, the liquidator is likewise authorized to
case did not diminish the powers and resist or defend suits instituted against the
authority of the designated liquidator to bank by debtors and creditors of the bank
effectuate and carry on the a ministration of and by other private persons. Similarly, in
the bank. In fact when We adopted a resolute G.R. No. 81304, due to the aforestated
on August 25, 1985 and issued a restraining reasons, the Central Bank cannot be
order to respondents Monetary Board and compelled to fulfill financial transactions
Central Bank, We enjoined me further acts of entered into by Banco Filipino when the
liquidation. Such acts of liquidation, as operations of the latter were suspended by
explained in Sec. 29 of the Central Bank Act reason of its closure. The Central Bank
are those which constitute the conversion of possesses those powers and functions only
the assets of the banking institution to money as provided for in Sec. 29 of the Central Bank
or the sale, assignment or disposition of the s Act.
to creditors and other parties for the purpose
of paying debts of such institution. We did not It is a well-recognized principle that
prohibit however acts a as receiving administrative and discretionary functions
collectibles and receivables or paying off may not be interfered with by the courts. In
credits claims and other transactions general, courts have no supervising power
pertaining to normal operate of a bank. over the proceedings and actions of the
administrative departments of the
There is no doubt that the prosecution of suits government. This is generally true with
collection and the foreclosure of mortgages respect to acts involving the exercise of
against debtors the bank by the liquidator are judgment or discretion, and findings of fact.
among the usual and ordinary transactions But when there is a grave abuse of discretion
pertaining to the administration of a bank. which is equivalent to a capricious and
their did Our order in the same resolution whimsical exercise of judgment or where the
dated August 25, 1985 for the designation by power is exercised in an arbitrary or despotic
the Central Bank of a comptroller Banco manner, then there is a justification for the
Filipino alter the powers and functions; of the courts to set aside the administrative
liquid insofar as the management of the determination reached.
assets of the bank is concerned. The mere
duty of the comptroller is to supervise counts There is no question that under Section 29 of
and finances undertaken by the liquidator and the Central Bank Act, the following are the
to d mine the propriety of the latter's mandatory requirements to be complied with
expenditures incurred behalf of the bank. before a bank found to be insolvent is
Notwithstanding this, the liquidator is ordered closed and forbidden to do business
empowered under the law to continue the in the Philippines: Firstly, an examination
functions of receiver is preserving and shall be conducted by the head of the
keeping intact the assets of the bank in appropriate supervising or examining
substitution of its former management, and to department or his examiners or agents into
prevent the dissipation of its assets to the the condition of the bank; secondly, it shall be
detriment of the creditors of the bank. These disclosed in the examination that the
powers and functions of the liquidator in condition of the bank is one of insolvency, or
directing the operations of the bank in place that its continuance in business would involve
of the former management or former officials probable loss to its depositors or creditors;
of the bank include the retaining of counsel of thirdly, the department head concerned shall
his choice in actions and proceedings for inform the Monetary Board in writing, of the
purposes of administration. facts; and lastly, the Monetary Board shall
find the statements of the department head to
the liquidator by himself or through counsel be true.
has the authority to bring actions for

TERESE RAY-ANNE O. AQUINO | 3A


SPECIAL COMMERCIAL LAW: BANKING

28. CENTRAL BANK V. COURT OF iv. Producers Bank, Makati Branch Bldg. at
APPEALS Buendia Avenue, Makati;

FACTS: (b) A comptroller for PBP and any number of bank


examiners deemed necessary to oversee PBP's
CB claims that during the examination of PBP, operations shall be designated by the Central
Central bank examiners discovered some highly Bank, under terms of reference to be determined
questionable loans which turned out to be by the Governor;
fictitious, as they were extended without collateral
to certain interests related to PBP owners (c) A letter from the Management of PBP
themselves. authorizing the Central Bank to automatically
return clearing items that would result in an
Said loans were deemed to be anomalous overdraft in its Central Bank account shall be
particularly because the total paid-in capital of submitted to the Central Bank.
PBP at that time was only P 140.544 million. This
means that the entire paid-in capital of the bank, The MB approved the consolidation of PBP's
together with some P160 million of depositors' other unsecured obligations to the CB with its
money, was utilized by PBP management to fund overdraft and authorizing the conversion thereof
these unsecured loans. into an emergency loan, evidenced by the
resolution. The same resolution authorized the CB
Because of this controversy which was heighten Governor to lift the conservatorship and return
by media, it triggered a bank-run in PBP which PBP's management to its principal stockholders
resulted in continuous over-drawings on the upon completion of the documentation and full
bank's demand deposit account with the Central collateralization of the emergency loan.
Bank. This over drawings reached 74 M. PBP's
overdraft with the CB increased to P143.955 PBP submitted a rehabilitation plan to the CB but
million, an indication of PBP's continuing inability this did not take effect because of the
to maintain that condition of solvency and liquidity disagreement b/w parties. No other rehabilitation
necessary to protect the interests of its depositors program was submitted by PBP for almost 3
and creditors. years; as a result thereof, its overdrafts with the
CB continued to accumulate up to the amount of
Hence, on the basis of the report submitted by the 1.023 billion.
Supervision and Examination of the CB, the
Monetary Board (MB), pursuant to its authority Hence, the CB formulated a rehabilitation program
placed PBP under conservatorship. which requires PBP to submit or comply with
terms and conditions such as naming its new
While PBP admits that it had no choice but to stockholder. However, no response was made by
submit to the conservatorship, it nonetheless PBP. T h e MB issued a resolution
requested that the same be lifted by the CB. CB instructing Central Bank management to
senior deputy Governor informed PBP that advise the bank that the conservatorship may
pursuant to MB Resolution, the CB would be be lifted if PBP complies with certain conditions
willing to lift the conservatorship under the
following conditions: Few days later, PBP filed a complaint against the
CB, the MB and CB Governor. In the complaint,
(a) PBP's unsecured overdraft with the Central PBP's assertions that the conservatorship was
Bank will be converted into an emergency loan, to unwarranted, ill-motivated, illegal, utterly
be secured by sufficient collateral, including but unnecessary and unjustified; that the appointment
not limited to the Following properties offered by of the conservator was arbitrary; that CB acted in
PBP's principal stockholders: bad faith; that the CB-designated conservators
committed bank frauds and abuses; that the CB is
i. 6 floors and other areas of the Producers Bank guilty of promissory estoppel; and that by reason
Bldg., at Paseo de Roxas, owned by PBP; of the conservatorship, it suffered losses
enumerated in paragraph 27 thereof, the total
ii. 15 floors of the Producers Bank Bldg., at Paseo quantifiable extent of which is P108,479,771.00,
de Roxas, Makati, owned by the Producers exclusive of loss of profits and loss of
Properties, Inc.; goodwill. Subsequently, Respondent Judge
issued a temporar y restraining order and
iii. Manhattan Bldg. on Nueva Street, Binondo, then a writ of preliminar y injunction. CB
Manila; and

TERESE RAY-ANNE O. AQUINO | 3A


SPECIAL COMMERCIAL LAW: BANKING

filed a motion to dismiss but was denied although the matter was not specifically raised in
and ruled that the MB resolutions were issue and clearly unnecessary for the
arbitrarily issued. CB filed a petition for determination of the issues squarely raised, the
certiorari before the Court of Appeals respondent Court opined:
seeking to annul the orders of the trial
court but CA affirmed the said orders. Hence It is Our sober assessment that the respondent
this petition. bank was not given an opportunity to be heard
when the Central Bank peremptorily and illtimely
ISSUE: W/N TC erred in not dismissing the (sic) announced the appointment of a
case for lack of cause of action and declaring conservatorship over the latter (bank) for which
the MB resolutions arbitrary. Y E S reason We believe that administrative due
process was arbitrarily brushed aside to the
HELD: PBP has been under conservatorship prejudice of the said bank. . . .
since 20 January 1984. Pursuant to Section 28-A
38
of the Central Bank Act, a conservator, once If it were to lift the conservatorship because it was
appointed, takes over the management of the arbitrarily imposed, then the case should have
bank and assumes exclusive powers to oversee been dismissed on the grounds of prescription
every aspect of the bank's operations and affairs. and lack of personality to bring the action. Per the
Petitioners now maintain that this power includes fifth paragraph of Section 29 of the Central Bank
the authority to determine "whether or not to Act, as amended by Executive Order No. 289, the
39
maintain suit in the bank's name." The trial court actions of the MB may be assailed in an
overruled this contention stating that the section appropriate pleading filed by the stockholders of
alluded to "does not prohibit the Board of record representing the majority of the capital
Directors of a bank to file suit to lift the stock within ten (10) days from receipt of notice by
conservatorship over it, to question the validity of the said majority stockholders of the order placing
the conservator's fraudulent acts and abuses and the bank under conservatorship. The pertinent
the arbitrary action of the conservator's principal – portion of said paragraph reads as follows:
– the Monetary Board of the Central Bank. The
conservator cannot be expected to question his The provisions of any law to the contrary
own continued existence and acts. He cannot be notwithstanding, the actions of the Monetary
expected to file suit to annul the action of his Board under this Section, Section 28-A, and the
principal . . . or a suit that would point out the ill- second paragraph of section 34 of this Act shall
motivation, the disastrous effects of the be final and executory, and can be set aside by a
conservatorship and the conservator's bank court only if there is convincing proof, after
40
frauds and abuses as alleged in the complaint." hearing, that the action is plainly arbitrary and
made in bad faith: Provided, That the same is
Obviously, the trial court was of the impression raised in an appropriate pleading filed by the
that what was sought for in Civil Case No. 17692 stockholders of record representing the majority of
is the lifting of the conservatorship because it was the capital stock within ten (10) days from the date
arbitrarily and illegally imposed. While it may be the receiver takes charge of the assets and
true that the PBP devoted the first 38 pages of its liabilities of the bank or non-bank financial
47-page complaint and amended complaint to intermediary performing quasi-banking functions
what it considers an unwarranted, ill-motivated, or, in case of conservatorship or liquidation, within
illegal, unnecessary, and unjustified ten (10) days from receipt of notice by the said
conservatorship, it, nevertheless, submitted to the majority stockholders of said bank or non-bank
same. There is nothing in the amended complaint financial intermediary of the order of its placement
to reflect an unequivocal intention to ask for its under conservatorship or liquidation. . . .
lifting. Of course, as subsequent maneuvers
would show, PBP sought to accomplish the lifting The following requisites, therefore, must be
thereof through surreptitious means. That such present before the order of conservatorship may
action was not, on its face, filed to have the be set aside by a court:
conservatorship lifted, is best evidenced by PBP's
prayer for a judgment "ordering defendant Central 1. The appropriate pleading must be filed by the
Bank's conservator to restore the viability of PBP stockholders of record representing the majority of
as mandated by Section 28-A of R.A. No. 265 . . ." the capital stock of the bank in the proper court;
41
Unfortunately too, respondent Court was easily
misled into believing that the amended complaint 2. Said pleading must be filed within ten (10) days
sought the lifting of the conservatorship. Thus, from receipt of notice by said majority

TERESE RAY-ANNE O. AQUINO | 3A


SPECIAL COMMERCIAL LAW: BANKING

stockholders of the order placing the bank under agreement.” The bank refused to receive both the
conservatorship; and payment and the letter. Instead, the parcels of
land involved in the transaction were advertised
3. There must be convincing proof, after hearing, by the bank for sale to any interested buyer.
that the action is plainly arbitrary and made in bad Demetria andJanolo demanded the execution by
42
faith. the bank of the documents on what was
considered as a “perfected agreement.”
In the instant case, PBP was placed under
conservatorship on 20 January 1984. The original Hence, demetria and Janolo filed a suit for
complaint in Civil Case No. 17692 was filed only specific performance with damages against
on 27 August 1987, or three (3) years, seven (7) the bank including the Bank manager, River
months and seven (7) days later, long after the
and conservator Encamacion. The bank
expiration of the 10-day period deferred to above.
It is also beyond question that the complaint and alleged that there was no such perfected sale
the amended complaint were not initiated by the because the defendant Rivera is not
stockholders of record representing the majority of authorized to sell the property, and that there
the capital stock. Accordingly, the order placing was no meeting of the minds as to the price.”
PBP under conservatorship had long become final
and its validity could no longer be litigated upon From the trial court’s decision, the Bank,
before the trial court. petitioner Rivera and conservator
Encarnacion appealed to the Court of
29. FIRST PHILIPPINE INTERNATIONAL BANK Appeals which subsequently affirmed with
V. COURT OF APPEALS modification the said judgment.
FACTS: ISSUE: W/N the bank conservator have the
In the course of its banking operation, unilateral power to repudiate the authority
Producer’s Bank acquired 6 parcels of land of the bank officers and/or to revoke the
located in Laguna. The said property was said contract.
mortaged by BYME Corp. in favor of the bank HELD: It is not disputed that the petitioner
in order to secure a loan extended to BYME. Bank was under a conservator placed by the
Demetria and Janolo, wanted to purchase the Central Bank of the Philippines during the
said property. Hence, a negotiation was held time that the negotiation and perfection of the
among plaintiffs-buyer, bank and BYME corp. contract of sale took place. Petitioners
Janolo, following the Property Manager of the energetically contended that the conservator
bank, Rivera, made a formal purchase offer has the power to revoke or overrule actions of
to the bank. the management or the board of directors of
a bank, under Section 28-A of Republic Act
Subsequently, Janolo agreed to purchase the said No. 265 (otherwise known as the Central
land in an amount of 5.5 M. Bank Act) as follows:
Since the bank was placed under a “Whenever, on the basis of a report submitted
conservatorship, acting conservator Encamacion by the appropriate supervising or examining
informed the would-be buyers, that the subject department, the Monetary Board finds that a
property is under study. Hence, it cannot be sold bank or a non-bank financial intermediary
for the mean time.
performing quasi - banking functions is in a
Due to this a series of demands by demetria and state of continuing inability or unwillingness to
Janolo for compliance by the bank with what maintain a state of liquidity deemed adequate
Demetria and Janolo considered as a perfected to protect the interest of depositors and
contract of sale, which demands were in one form creditors, the Monetary Board may appoint a
or another refused by the bank. As detailed by the conservator to take charge of the assets,
trial court in its decision, on November 17, 1987, liabilities, and the management of that
plaintiffs through a letter to defendant Rivera institution, collect all monies and debts due
(Exhibit “G”) tendered payment of the amount of said institution and exercise all powers
P5.5 million “pursuant to (our) perfected sale
necessary to preserve the assets of the

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SPECIAL COMMERCIAL LAW: BANKING

institution, reorganize the management We deny that Producers Bank has ever made
thereof, and restore its viability. He shall have a legal counter-offer to any of your clients nor
the power to overrule or revoke the actions of perfected a ‘contract to sell and buy’ with any
the previous management and board of of them for the following reasons.
directors of the bank or non-bank financial
intermediary performing quasi-banking In the ‘Inter-Office Memorandum’ dated April
functions, any provision of law to the contrary 25, 1986 addressed to and approved by
notwithstanding, and such other powers as former Acting Conservator Mr. Andres I.
the Monetary Board shall deem necessary.” Rustia, Producers Bank Senior Manager
Perfecto M. Pascua detailed the functions of
In the first place, this issue of the Property Management Department (PMD)
Conservator’s alleged authority to revoke or staff and officers (Annex A), you will
repudiate the perfected contract of sale was immediately read that Manager Mr. Mercurio
raised for the first time in this Petition - as this Rivera or any of his subordinates has no
was not litigated in the trial court or Court of authority, power or right to make any alleged
Appeals. As already stated earlier, issues not counter-offer. In short, your lawyer-clients did
raised and/or ventilated in the trial court, let not deal with the authorized officers of the
alone in the Court of Appeals, “cannot be bank.
raised for the first time on appeal as it would
be offensive to the basic rules of fair play, Moreover, under Secs. 23 and 36 of the
justice and due process.” Corporation Code of the Philippines (Batas
Pambansa Blg. 68) and Sec. 28-A of the
In the second place, there is absolutely no Central Bank Act (Rep. Act No. 265, as
evidence that the Conservator, at the time the amended), only the Board of
contract was perfected, actually repudiated or Directors/Conservator may authorize the sale
overruled said contract of sale. The Bank’s of any property of the corporation/bank.
acting conservator at the time, Rodolfo
Romey, never objected to the sale of the Our records do not show that Mr. Rivera was
property to Demetria and Janolo. What authorized by the old board or by any of the
petitioners are really referring to is the letter bank conservators (starting January, 1984) to
of Conservator Encarnacion, who took over sell the aforesaid property to any of your
from Romey after the sale was perfected on clients. Apparently, what took place were just
September 30, 1987 (Annex V, petition) preliminary discussions/ consultations
which unilaterally repudiated - not the between him and your clients, which
contract - but the authority of Rivera to make everyone knows cannot bind the Bank’s
a binding offer - and which unarguably came Board or Conservator.
months after the perfection of the contract.
Said letter dated May 12, 1988 is reproduced We are, therefore, constrained to refuse any
hereunder: tender of payment by your clients, as the
same is patently violative of corporate and
“May 12, 1988 banking laws. We believe that this is more
than sufficient legal justification for refusing
“Atty. Noe C. Zarate said alleged tender.
Zarate Carandang Perlas & Ass.
Suite 323 Rufino Building Rest assured that we have nothing personal
Ayala Avenue, Makati, Metro Manila against your clients. All our acts are official,
Dear Atty. Zarate: legal and in accordance with law. We also
have no personal interest in any of the
This pertains to your letter dated May 5, 1988 properties of the Bank.
on behalf of Attys. Janolo and Demetria
regarding the six (6) parcels of land located at Please be advised accordingly.
Sta. Rosa, Laguna.

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SPECIAL COMMERCIAL LAW: BANKING

In the third place, while admittedly, the The Rural Bank of Olangapo (RBO) was the
Central Bank law gives vast and far-reaching owner in fee simple of two parcels of land
powers to the conservator of a bank, it must including the improvements thereon.
be pointed out that such powers must be
related to the “(preservation of) the assets of Said parcels of land were duly mortgaged by
the bank, (the reorganization of) the RBO in favor of Jerry Ong to guarantee the
management thereof and (the restoration of) payment of Omnibus Finance, Inc. of its
its viability.” Such powers, enormous and money market obligations to Jerry Ong.
extensive as they are, cannot extend to the
post-facto repudiation of perfected Omnibus Finance, Inc., not having
transactions, otherwise they would infringe seasonably settled its obligations to Jerry
against the non-impairment clause of the Ong, the latter proceeded to effect the
Constitution. If the legislature itself cannot extrajudicial foreclosure of said mortgages.
revoke an existing valid contract, how can it RBO failed to seasonably redeem said
delegate such non-existent powers to the parcels of land, for which reason, Jerry Ong
conservator under Section 28-A of said law? has executed an Affidavit of Consolidation of
Obviously, therefore, Section 28-A merely Ownership which, to date, has not been
gives the conservator power to revoke submitted to the Registry of Deeds of
contracts that are, under existing law, Tagaytay City, in view of the fact that
deemed to be defective - i.e., void, voidable, possession of the aforesaid titles or owner’s
unenforceable or rescissible. Hence, the duplicate certificates of title remains with the
conservator merely takes the place of a RBO.
bank’s board of directors. What the said Jerry Ong has not been able to effect the
board cannot do - such as repudiating a registration of said parcels of land in his
contract validly entered into under the name in view of the persistent refusal of RBO,
doctrine of implied authority - the conservator despite demand, to surrender RBO’s copies
cannot do either. Ineluctably, his power is not of its owner’s certificates of title for the
unilateral and he cannot simply repudiate parcels of land.
valid obligations of the Bank. His authority
would be only to bring court actions to assail Hence, Jerry Ong filed with RTC a petition
such contracts - as he has already done so in for the surrender of TCT of land against RBO.
the instant case. A contrary understanding of
the law would simply not be permitted by the However, during that time RBO was already
Constitution. Neither by common sense. To insolvent, forbidden to do business and was
rule otherwise would be to enable a failing under going liquidation before RTC of
bank to become solvent, at the expense of Olongapo. Hence, RBO filed a motion to
third parties, by simply getting the dismiss on the ground that it is the liquidation
conservator to unilaterally revoke all previous court which has the exclusive jurisdiction over
dealings which had one way or another come Jerry Ong’s claim.
to be considered unfavorable to the Bank,
yielding nothing to perfected contractual ISSUE: W/N The liquidation Court has
rights nor vested interests of the third parties jurisdiction over all the claims against
who had dealt with the Bank. insolvent bank. YES

W/N it is necessary that a claim be initially


disputed in a court or agency before it is
filed with liquidation court. NO

30. ONG V. COURT OF APPEALS HELD: If the Monetary Board shall determine
and confirm within (sixty days) that the bank x
FACTS: x x is insolvent or cannot resume business
with safety to its depositors, creditors and the

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SPECIAL COMMERCIAL LAW: BANKING

general public, it shall, if the public interest Hernandez case, the term “disputed claim” in the
requires, order its liquidation, indicate the provision simply connotes that –
manner of its liquidation and approve a [n] the course of the liquidation, contentious cases
liquidation plan. The Central Bank shall, by might arise wherein a full-dress hearing would be
the Solicitor General, file a petition in the required and legal issues would have to be
Court of First Instance[7] reciting the resolved. Hence, it would be necessary injustice
proceedings which have been taken and to all concerned that a Court of First Instance
praying the assistance of the court in the (now Regional Trial Court) x x x assist and
supervise the liquidation and x x x act as umpire
liquidation of such institution. The court shall
or arbitrator in the allowance and disallowance of
have jurisdiction in the same proceedings to claims.
adjudicate disputed claims against the bank x
x x and enforce individual liabilities of the 31. MANALO V. COURT OF APPEALS
stockholders and do all that is necessary to FACTS:
preserve the assets of such institution and to S. Villanueva Enterprises, represented by its
implement the liquidation plan approved by president, Therese Villanueva Vargas,
the Monetary Board (italics supplied). obtained a loan of three million pesos and
Applying the aforequoted provision in Hernandez one million pesos from the respondent PAIC
v. Rural Bank of Lucena, Inc.,[8] this Court ruled – Savings and Mortgage Bank and the
Philippine American Investments Corporation
The fact that the insolvent bank is forbidden to do
business, that its assets are turned over to the
(PAIC), respectively.
Superintendent of Banks, as a receiver, for
To secure payment of both debts, Vargas
conversion into cash, and that its liquidation is
undertaken with judicial intervention means that, executed in favor of the respondent and PAIC
as far as lawful and practicable, all claims against a Joint First Mortgage over two parcels of
the insolvent bank should be filed in the liquidation land registered under her name.
proceeding (italics supplied).
S. Villanueva Enterprises defaulted in paying
We explained therein the rationale behind the the amortizations due. Despite repeated
provision, i.e., the judicial liquidation is intended to
prevent multiplicity of actions against the insolvent
demands from PAIC, S. Villinueva Enterprise
bank. It is a pragmatic arrangement designed to failed to settle its loan obligation.
establish due process and orderliness in the
liquidation of the bank, to obviate the proliferation Accordingly, PAIC instituted extrajudicial
of litigations and to avoid injustice and foreclosure proceedings over the mortgaged
arbitrariness. The lawmaking body contemplated lots. The property was sold at a public auction
that for convenience only one court, if possible, to the PAIC itself, after tendering the highest
should pass upon the claims against the insolvent bid. The PAIC then caused the annotation of
bank and that the liquidation court should assist the corresponding Sheriffs Certificate of Sale
the Superintendent of Banks and regulate his on the title of the land.
operations.
The phrase “(T)he court shall have jurisdiction in For failure of Vargas to redeem within the
the same proceedings to adjudicate disputed specified period allowed by the law, title was
claims against the bank” appears to have misled consolidated in PAIC’s name for failure of
petitioner. He argues that to the best of his Vargas to redeem.
personal knowledge there is no pending action
filed before any court or agency which contests Subsequently, the Central Bank of the
his right over subject properties. Thus his petition Philippines filed a Petition for assistance in
before the Regional Trial Court of Quezon City the liquidation of PAIC. Hence, PAIC
cannot be considered a “disputed claim” as underwent liquidation proceedings.
contemplated by law.
It is not necessary that a claim be initially disputed It appears that Vargas negotiated with the
in a court or agency before it is filed with the PAIC (through its then liquidator, the Central
liquidation court. As may be gleaned in the Bank) for the repurchase of the foreclosed
property. The negotiations, however, failed as

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SPECIAL COMMERCIAL LAW: BANKING

Vargas cannot afford the repurchase price. reverse situation where it is the bank which
PAIC then petitioned the RTC for the files a claim against another person or legal
issuance of writ of possession for the entity.
property.
This interpretation of Section 29 becomes
However, Vargas opposed on the ground that more obvious in the light of its intent. The
RTC has no jurisdiction because the power to requirement that all claims against the bank
hear the same is exclusive jurisdiction of the be pursued in the liquidation proceedings
liquidation court. filed by the Central Bank is intended to
prevent multiplicity of actions against the
During the pendency of the case for issuance insolvent bank and designed to establish due
of the writ of possession, Vargas, executed a process and orderliness in the liquidation of
DEED OF ABSOLUTE SALE in favor of the bank, to obviate the proliferation of
Armando Angsico. Notwithstanding this sale, litigations and to avoid injustice and
Vargas, still representing herself to be the arbitrariness. The lawmaking body
lawful owner of the property, leased the same contemplated that for convenience, only one
to petitioner Domingo R. Manalo. Armando court, if possible, should pass upon the
Angsico, as buyer of the property, assigned claims against the insolvent bank and that the
his rights therein to Manalo. liquidation court should assist the
Superintendents of Banks and regulate his
the court a quo granted the petition for the operations.
issuance of the Writ of Possession.
It then ought to follow that petitioners reliance
ISSUE: W/N the Jurisdiction for the on Section 29 and the Valenzuela case is
petition for the issuance of writ of misplaced. The Petition for the Issuance of a
possession is exclusively vested with Writ of Possession in Civil Case No. 9011 is
liquidation court. NO. not in the nature of a disputed claim against
HELD: The liquidator designated as the bank. On the contrary, it is an action
hereunder provided shall, by the Solicitor instituted by the respondent bank itself for the
General, file a petition in the Regional Trial preservation of its asset and protection of its
Court reciting the proceedings which have property. It was filed upon the instance of the
been taken and praying the assistance of the respondents liquidator in order to take
court in the liquidation of such institution. The possession of a tract of land over which it has
court shall have jurisdiction in the same ownership claims.
proceedings to assist in the adjudication of To be sure, the liquidator took the proper
disputed claims against the bank or non-bank course of action when it applied for a writ in
financial intermediary performing quasi- the Pasay City RTC. Act 3135, entitled An Act
banking functions and the enforcement of to Regulate the Sale of Property Under
individual liabilites of the stockholders and do Special Powers Inserted In or Annexed To
all that is necessary to preserve the assets of Real Estate Mortgages, mandates that
such institution and to implement the jurisdiction over a Petition for Writ of
liquidation plan approved by the Monetary Possession lies with the court of the province,
Board. x x x(emphasis supplied.) city, or municipality where the property
Petitioner apparently failed to appreciate the subject thereof is situated. This is sanctioned
correct meaning and import of the above- by Section 7 of the said Act, thus:
quoted law. The legal provision only finds Section 7. In any sale made under the
operation in cases where there are claims provisions of this Act, the purchaser may
against an insolvent bank. In fine, the petition the Court of First Instance of the
exclusive jurisdiction of the liquidation court province or place where the property or any
pertains only to the adjudication of claims part thereof is situated, to give him
against the bank. It does not cover the possession thereof during the redemption

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SPECIAL COMMERCIAL LAW: BANKING

period, furnishing bond in an amount rehabilitate the said bank. On September 28,
equivalent to the use of the property for a 1998, the Monetary Board resolved that the
period of twelve months, to indemnify the said bank should undergo liquidation.
debtor in case it be shown that the sale was
made without violating the mortgage or Rural Bank through the PDIC, appealed the
without complying with the requirements of decision to the CA. It asserted that the TC
this Act. erred holding that Rural Bank is still liable to
pay interest and penalty on its loan
32. RURAL BANK of. STA. CATALINA V. obligations after it has been place under
LAND BANK OF THE PHILIPPINES receivership/ liquidation . But CA upheld
RTC decision on the ground that Rural
FACTS: Bank’s default.
A rediscounting Line Agreements entered into ISSUE: W/N Rural Bank is liable for
b/w Landbank and Rural bank of Sta. interests and penalties on its account with
Catalina; that in case of default, the LandBank, when its assets and affairs
availments shall be subject to three per cent were placed under receivership by the
(3%) penalty per month from due date of note Central Bank of the Philippines, and was
as agreed in Rediscounting Line prohibited from doing business.
Agreements.
HELD: The petitioner asserts that, based on
During the effectivity of the Rediscounting the ruling of this Court in Overseas Bank of
Line Agreement, Rural Bank made several Manila vs. Court of Appeals, its liability to the
Availments on different occasions. respondent under its availments must be
limited only to P5,814,712.40, the aggregate
For the unpaid balance of the total amount amount of its outstanding liability as of the
availed of, LandBank filed a complaint date of its closure, inclusive of accrued
against Rural Bank. interests and penalties. The petitioner avers
Rural Bank was served with the copy of that the PDIC, as the liquidator of the
summons and complaint but the said bank petitioner, should not be faulted for failing to
failed to file an answer. Hence, TC declared file its Answer to the complaint and to move
Rural bank to be in default. The proceeding for a reconsideration of the default order in
continued. the trial court and in the CA, because it had
no knowledge of the case filed against the
In the meantime, the Monetary Board of the petitioner. The petitioner avers that it was
Central Bank of the Philippines approved the only when the PDIC was served with a copy
placement of the Rural bank’s assets under of the decision of the trial court that it learned,
receivership under Section 29 of Republic Act for the first time, of the pendency of the case
No. 7653. The Philippine Deposit Insurance in the RTC.
Corporation (PDIC) was designated as
receiver (conservator) of the Rural Bank and The petition has no merit.
the latter was prohibited from doing business The records show that the petitioner was
in the Philippines. served with a copy of summons and the
Unaware of the action of the Central Bank of complaint, but failed to file its answer
the Philippines, the trial court, rendered thereto. It also failed to file a verified motion
judgment by default against the Rural bank, to set aside the Order of default dated
and ordering the said bank to pay LandBank. January 23, 1997 despite its receipt of a copy
thereof. We note that the trial court rendered
The PDIC submitted a Report to the judgment only on April 7, 1998 or more than a
Monetary Board of the Central Bank of the year after the issuance of the default order;
Philippines that the Rural bank remained yet, the petitioner failed to file any verified
insolvent, and that its management failed to motion to set aside the said order before the

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SPECIAL COMMERCIAL LAW: BANKING

rendition of the judgment of default. The relief from the judgment by default based on
PDIC was designated by the Central Bank of evidence presented only in the appellate
the Philippines as receiver (conservator) as court, when such order of default was not
early as January 14, 1998, and in the course vacated by the trial court prior to the appeal
of its management of the petitioner bank’s from the judgment of default was not raised
affairs, it should have known of the pendency therein, much less resolved by the Court.
of the case against the latter in the trial
court. Moreover, the petitioner, through the 33. MIRANDA V. PDIC
PDIC, received a copy of the decision of the
trial court on June 2, 1998, but did not bother FACTS:
filing a motion for partial reconsideration, Petitioner Leticia G. Miranda was a depositor of
under Rule 37 of the Rules of Court, Prime Savings Bank. She withdrew substantial
appending thereto the orders of the Monetary amounts from her account, but instead of cash
Board or a motion to set aside the order of she opted to be issued a crossed cashier's
default. Instead, the petitioner appealed the check. She was thus issued cashier's check in
decision, and even failed to assign as an the sum of P2,500,000.00 and another in the
error the default order of the trial court. The amount of P3,002,000.00.
petitioner is, thus, barred from relying on the Leticia Miranda deposited the two checks into her
orders of the Monetary Board of the Central account in another bank on the same day,
Bank of the Philippines placing its assets and however, Bangko Sentral ng Pilipinas (BSP)
affairs under receivership and ordering its suspended the clearing privileges of Prime
liquidation. Savings Bank. Unfortunately, two checks of
petitioner were returned to her unpaid.
It bears stressing that a defending party Prime Savings Bank declared a bank holiday. The
declared in default loses his standing in court BSP placed Prime Savings Bank under the
and his right to adduce evidence and to receivership of the Philippine Deposit Insurance
present his defense. He, however, has the Corporation (PDIC).
right to appeal from the judgment by default Leticia Miranda filed a civil action for sum of
and assail said judgment on the ground, inter money in the RTC to recover the funds from her
alia, that the amount of the judgment is unpaid checks against Prime Savings Bank, PDIC
excessive or is different in kind from that and the BSP. Judgment is rendered against
prayed for, or that the plaintiff failed to prove defendants namely: Philippine Deposit Insurance
the material allegations of his complaint, or Corporation, Bangko Sentral ng Pilipinas and
Prime Bank, to pay jointly and solidarily the
that the decision is contrary to law. Such
amount of P5,502,000.00 to Leticia Miranda.
party declared in default is proscribed from
seeking a modification or reversal of the Aggrieved parties appealed to CA, which in turn
assailed decision on the basis of the reversed RTC’s decision.
evidence submitted by him in the Court of Hence, this present petition.
Appeals, for if it were otherwise, he would ISSUE: (2) Whether the claim lodged by the
thereby be allowed to regain his right to petitioner is a disputed claim under Section 30 of
adduce evidence, a right which he lost in the Republic Act (R.A.) No. 7653, otherwise known as
trial court when he was declared in default, the New Central Bank Act, and therefore, under
and which he failed to have vacated. In this the jurisdiction of the liquidation court; and (3)
case, the petitioner sought the modification of Whether the respondents are solidarily liable to
the decision of the trial court based on the the petitioner.
evidence submitted by it only in the Court of HELD: Respondents argue that the instant case
Appeals. involves a disputed claim of sum of money against
a closed financial institution. Sections 30 and 31
The petitioner cannot, likewise, rely on the of R.A. No. 7653, exclusively vests the authority to
ruling of the Court in Overseas Bank of assess, evaluate and determine the condition of
Manila vs. Court of Appeals, because in the any bank with the BSP, while the PDIC has the
said case, the issue of whether a party who primary responsibility of acting as receiver or
had been declared in default is entitled to liquidator of the closed financial institution. Since

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SPECIAL COMMERCIAL LAW: BANKING

the relationship between petitioner and Prime creditor, since the closure of Prime Savings Bank
Savings Bank is one of creditor and debtor, has rendered all claims subsisting at that time
petitioner should file her claim with the liquidation moot which can best be threshed out by the
court constituted precisely for purposes of liquidation court and not the regular courts.
adjudicating claims against the bank in It is well-settled in both law and
accordance with the rules on concurrence and jurisprudence that the Central Monetary Authority,
preference of credits. through the Monetary Board, is vested with
exclusive authority to assess, evaluate and
Respondent PDIC alleges that it was impleaded
determine the condition of any bank, and finding
in its representative capacity as the
receiver/liquidator of the closed institution, such condition to be one of insolvency, or that its
therefore, it has no direct, personal and solidary continuance in business would involve a probable
loss to its depositors or creditors, forbid bank or
liability for the payment of the two cashier’s
non-bank financial institution to do business in the
checks. Its involvement came about only because
Philippines; and shall designate an official of the
a bank under receivership or liquidation cannot
BSP or other competent person as receiver to
sue or be sued except through its receiver or
liquidator. immediately take charge of its assets and
liabilities.
Respondent BSP also insists that not being
In Central Bank of the Philippines v. De la
a party to the said checks nor for imposing
Cruz, we held that the actions of the Monetary
sanctions on co-respondent Prime Savings Bank,
Board in proceedings on insolvency are explicitly
is not liable on the said crossed cashier’s checks.
declared by law to be “final and executory.” They
The claim lodged by the petitioner qualifies may not be set aside, or restrained, or enjoined by
the courts, except upon “convincing proof that the
as a disputed claim subject to the jurisdiction of
action is plainly arbitrary and made in bad faith.
the liquidation court. Regular courts do not have
Hence, as clearly laid down in Ong v. Court
jurisdiction over actions filed by claimants against
of Appeals, the rationale behind judicial liquidation
an insolvent bank, unless there is a clear showing
that the action taken by the BSP, through the is intended to prevent multiplicity of actions
Monetary Board in the closure of financial against the insolvent bank. It is a pragmatic
arrangement designed to establish due process
institutions was in excess of jurisdiction, or with
and orderliness in the liquidation of the bank, to
grave abuse of discretion.
obviate the proliferation of litigations and to avoid
The power and authority of the Monetary injustice and arbitrariness. The lawmaking body
Board to close banks and liquidate them contemplated that for convenience, only one
court, if possible, should pass upon the claims
thereafter when public interest so requires is an
against the insolvent bank and that the liquidation
exercise of the police power of the State. Police
court should assist the Superintendent of Banks
power, however, is subject to judicial inquiry. It
and regulate his operations.
may not be exercised arbitrarily or unreasonably
and could be set aside if it is either capricious, Regarding the third issue, it is only Prime
discriminatory, whimsical, arbitrary, unjust, or is Savings Bank that is liable to pay for the amount
of the two cashier’s checks. Solidary liability
tantamount to a denial of due process and equal
cannot attach to the BSP, in its capacity as
protection clauses of the Constitution.
government regulator of banks, and the PDIC as
statutory receiver under R.A. No. 7653, because
“Disputed claims” refer to all claims,
whether they be against the assets of the they are the principal government agencies
insolvent bank, for specific performance, breach mandated by law to determine the financial
viability of banks and quasi-banks, and facilitate
of contract, damages, or whatever. Petitioner’s
receivership and liquidation of closed financial
claim which involved the payment of the two
institutions, upon a factual determination of the
cashier’s checks that were not honored by Prime
Savings Bank due to its closure falls within the latter’s insolvency.
ambit of a claim against the assets of the
As correctly pointed out by the Court of
insolvent bank. The issuance of the cashier’s
Appeals, the BSP should not be held liable on the
checks by Prime Savings Bank to the petitioner
crossed cashier’s checks for it was not a party to
created a
the issuance of the same; nor can it be held liable
debtor/creditor relationship between them. This
disputed claim should therefore be lodged in the for imposing the sanctions on Prime Savings Bank
liquidation proceedings by the petitioner as which indirectly affected Miranda, since it is
mandated under Sec. 37 of R.A. No. 7653 to act

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SPECIAL COMMERCIAL LAW: BANKING

accordingly. The BSP, through the Monetary liquidation of a bank or quasi-bank, after payment
Board was well within its discretion to exercise of the cost of proceedings, including reasonable
this power granted by law to issue a resolution expenses and fees of the receiver to be allowed
suspending the interbank clearing privileges of by the court, the receiver shall pay the debts of
Prime Savings Bank, having made a factual such institution, under order of the court, in
determination that the bank had deficient cash accordance with the rules on concurrence and
reserves deposited before the BSP. There is no preference of credit as provided in the Civil Code,”
showing that the BSP abused this discretionary should apply.
power conferred upon it by law.

In addition, co-respondent PDIC was ****


impleaded as a party-litigant only in its
representative capacity as the receiver/liquidator POWERS OF A RECEIVER
of Prime Savings Bank. Both BSP and PDIC
cannot therefore be held directly and solidarily ****
liable for the payment of the two cashier’s
checks. Sole liability rests with Prime Savings 34. ABACUS REAL ESTATE
Bank. DEVELOPMENT CENTER INC, V. MANILA
In the absence of fraud, the purchase of a BANKING CORP.
cashier’s check, like the purchase of a draft on a
correspondent bank, creates the relation of FACTS:
creditor and debtor, not that of principal and
agent, with the result that the purchaser or holder Manila Bank owns a certain parcel of land.
thereof is not entitled to a preference over general Prior to 1984, the bank began constructing on
creditors in the assets of the bank issuing the said land a 14-storey building. Not long after,
check, when it fails before payment of the however, the bank encountered financial
check. However, in a situation involving the
element of fraud, where a cashier’s check is
difficulties that rendered it unable to finish
purchased from a bank at a time when it is construction of the building.
insolvent, as its officers know or are bound to
know by the exercise of reasonable diligence, The Central Bank of the Philippines, ordered
it has been held that the purchase is entitled the closure of Manila Bank and placed it
to a preference in the assets of the bank on its under receivership, with Feliciano Miranda, Jr.
liquidation before the check is paid. being initially appointed as Receiver. The
legality of the closure was contested by the
As correctly found by the Court of bank before the proper court.
Appeals:
The Central Bank, by virtue of Monetary
Prime Savings as a bank Board (MB) Resolution, ordered the
did not collapse overnight but was liquidation of Manila Bank and designated
hemorrhaging and in financial Atty. Renan V. Santos as Liquidator. The
extremis for some time, a fact
liquidation, however, was held in abeyance
which could not have gone
unnoticed by the bank (suspended) pending the outcome of the
officers. They could not have earlier suit filed by Manila Bank regarding the
issued in good faith checks for the legality of its closure. Consequently, the
total sum of P5,502,000.00 designation of Atty. Renan V. Santos as
knowing that the bank’s coffers Liquidator was amended by the Central Bank
could not meet this. on December 22, 1988 to that of Statutory
Receiver.
Clearly, there was fraud or the intent to
deceive when the two cashier’s checks dated In the interim, in order to save the bank’s
June 3, 1999 were issued by Prime Savings Bank investment, it scouted for possible investors
to the petitioner. who could finance the completion of the
building earlier mentioned. Then, a group of
In the distribution of assets of Prime
Savings Bank, Section 31 of the New Central
investors, Laureano group, wrote Manila
Bank Act which provides that “[i]n case of Bank offering to lease the building for ten (10)

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SPECIAL COMMERCIAL LAW: BANKING

years and to advance the cost to complete PURCHASE THE LOT AND BUILDING IN
the same, with the advanced cost to be QUESTION.
amortized and offset against rental payments
during the term of the lease. Likewise, the HELD: Abacus insists that the option to
letter-offer stated that in consideration of purchase the lot and building in question
advancing the construction cost, the group granted to it by the late Vicente G. Puyat,
wanted to be given the "exclusive option to then acting president of Manila Bank, was
purchase" the building and the lot on which it binding upon the latter. On the other hand,
was constructed. respondent has consistently maintained that
the late Vicente G. Puyat had no authority to
Since no disposition of assets could be made act for and represent Manila Bank, the latter
due to the litigation concerning Manila Bank’s having been placed under receivership by the
closure, an arrangement was thought of Central Bank at the time of the granting of the
whereby the property would first be leased to "exclusive option to purchase."
Manila Equities Corporation (MEQCO), a
wholly-owned subsidiary of Manila Bank, with There can be no quibbling that respondent
MEQCO thereafter subleasing the property to Manila Bank was under receivership,
the Laureano group. pursuant to Central Bank’s MB Resolution, at
the time the late Vicente G. Puyat granted the
Manila Bank accepted the Laureano group’s "exclusive option to purchase" to the
offer and granted it an "exclusive option to Laureano group of investors. Owing to this
purchase" the lot and building. The building defining reality, the appellate court was
was leased to MEQCO for a period of ten correct in declaring that Vicente G. Puyat was
(10) years pursuant to a contract of lease without authority to grant the exclusive option
bearing that date then MEQCO subleased the to purchase the lot and building in question.
property to petitioner Abacus Real Estate The invocation by the appellate court of the
Development Center, Inc. (Abacus), a following pronouncement in Villanueva vs.
corporation formed by the Laureano group. Court of Appeals12 was apropos, to say the
least:
The Laureano group was, however, unable to
finish the building due to the economic crisis … the assets of the bank pass beyond its
brought about by the failed coup attempt. On control into the possession and control of the
account thereof, the Laureano group offered receiver whose duty it is to administer the
its rights in Abacus and its "exclusive option assets for the benefit of the creditors of the
to purchase" to Benjamin Bitanga (Bitanga). bank. Thus, the appointment of a receiver
the Laureano group transferred and assigned operates to suspend the authority of the bank
to Bitanga all of its rights in Abacus and the and of its directors and officers over its
"exclusive option to purchase" the subject property and effects, such authority being
land and building. Abacus sent a letter to reposed in the receiver, and in this respect,
Manila Bank informing the latter of its desire the receivership is equivalent to an injunction
to exercise its "exclusive option to purchase". to restrain the bank officers from
However, Manila Bank refused to honor the intermeddling with the property of the bank in
same. any way.

Abacus Real Estate Development Center, Inc. With respondent bank having been already
filed a complaint3 for specific performance placed under receivership, its officers,
and damages against Manila Bank. TC inclusive of its acting president, Vicente G.
rendered decision in favor of Abacus. But this Puyat, were no longer authorized to transact
was reversed by CA. business in connection with the bank’s assets
and property. Clearly then, the "exclusive
ISSUE: WHETHER OR NOT PETITIONER option to purchase" granted by Vicente G.
ABACUS HAS ACQUIRED THE RIGHT TO Puyat was and still is unenforceable against
Manila Bank.13

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SPECIAL COMMERCIAL LAW: BANKING

Petitioner, however, asseverates that the question to petitioner Abacus under the terms
"exclusive option to purchase" was ratified by of the latter’s "exclusive option to purchase".
Manila Bank’s receiver, Atty. Renan Santos,
during a lunch meeting held with Benjamin
Bitanga in March 1990.

Petitioner’s argument is tenuous at best.


Concededly, a contract unenforceable for
lack of authority by one of the parties may be
ratified by the person in whose name the 35. IN RE: PETITION FOR ASSISTANCE IN
contract was executed. However, even THE LIQUIDATION IN THE RURAL BANK
assuming, in gratia argumenti, that Atty. OF BOKOD
Renan Santos, Manila Bank’s receiver, FACTS:
approved the "exclusive option to purchase"
granted by Vicente G. Puyat, the same would Various Loans irregularities were discovered
still be of no force and effect. during a special examination of Rural Bank of
Bokod (RBBI) which was conducted by the
Clearly, the receiver appointed by the Central Supervision and Examination Sector (SES)
Bank to take charge of the properties of Department of Bangko Sentral ng Pilipinas.
Manila Bank only had authority to administer
the same for the benefit of its creditors. the SES Department required the RBBI
management to infuse (put up) fresh capital into
Granting or approving an "exclusive option to the bank, within 30 days from date of the advice,
purchase" is not an act of administration, but and to correct all the exceptions noted.
an act of strict ownership, involving, as it
does, the disposition of property of the bank. However, no concrete action was taken by the
Not being an act of administration, the so- RBBI management. In view of the irregularities
called "approval" by Atty. Renan Santos noted and the insolvent condition of RBBI, the
amounts to no approval at all, a bank receiver members of the RBBI Board of Directors were
not being authorized to do so on his own. called for a conference at the BSP. Only one
RBBI Director, a certain Mr. Wakit, attended the
For sure, Congress itself has recognized that conference, and the examination findings and
related recommendations were discussed with
a bank receiver only has powers of
him.
administration. Section 30 of the New Central
Bank Act15 expressly provides that "[t]he The SES Department warned the RBBI Board of
receiver shall immediately gather and take Directors that, unless substantial remedial
charge of all the assets and liabilities of the measures are taken to rehabilitate the bank, it will
institution, administer the same for the benefit recommend that the bank be placed under
of its creditors, and exercise the general receivership.
powers of a receiver under the Revised Rules
the SES Department reiterated its warning that it
of Court but shall not, with the exception of
would recommend the closure of the bank, unless
administrative expenditures, pay or commit the needed fresh capital was immediately infused
any act that will involve the transfer or but to no avail.
disposition of any asset of the institution…"
Hence, RBBI was placed under receivership. It
In all, respondent bank’s receiver was without prohibited RBBI from doing any transactions and
any power to approve or ratify the "exclusive place all their property under receivership. An
option to purchase" granted by the late order was released, putting the bank under
Vicente G. Puyat, who, in the first place, was receivership and transferred the liquidation
himself bereft of any authority, to bind the proceedings with the Philippine Deposit Insurance
bank under such exclusive option. Corporation (PDIC). A case was filed with the
RTC, for the liquidation of the bank. PDIC then
Respondent Manila Bank may not thus be
filed a Motion for Approval of Project of
compelled to sell the land and building in Distribution in accordance with sec 30 and31 of
the New Central Bank Act. The BIR required PDIC

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SPECIAL COMMERCIAL LAW: BANKING

to comply with section 52(c) of the NIRC, which FACTS:


PDIC to secure a tax clearance certificate. The
Petitioner Rural Bank of San Miguel, Inc.
RTC released an order, requiring the PDIC to
comply. (RBSM) was a domestic corporation engaged
in banking. Petitioner Hilario P. Soriano
ISSUE: W/N a bank ordered closed and placed claims to be the majority stockholder of its
under receivership by the Monetary Board of outstanding shares of stock.
the BSP still needs to secure a tax clearance
certificate from the BIR before the liquidation Monetary Board (MB), the governing board of
court approves the project of distribution of respondent Bangko Sentral ng Pilipinas
the assets of the ban (BSP), issued Resolution No. 105 prohibiting
RBSM from doing business in the Philippines,
HELD: No.
placing it under receivership and designating
SEC. 52. Corporation Returns. – respondent Philippine Deposit Insurance
Corporation (PDIC) as receiver:
(C) Return of Corporation Contemplating
Dissolution or Reorganization. – Every corporation RBSM filed a petition for certiorari and
shall, within thirty days (30) after the adoption by
prohibition in the RTC ] to nullify and set
the corporation of a resolution or plan for its
dissolution, or for the liquidation of the whole or aside Resolution No. 105. However, RBSM
any part of its capital stock, including a filed a notice of withdrawal in the RTC and,
corporation which has been notified of possible on the same day, filed a special civil action
involuntary dissolution by the Securities and for certiorari and prohibition in the CA. On
Exchange Commission, or for its reorganization, February 8, 2000, the RTC dismissed the
render a correct return to the Commissioner, case pursuant to Section 1, Rule 17 of the
verified under oath, setting forth the terms of such Rules of Court.
resolution or plan and such other information as
the Secretary of Finance, upon recommendation TheRTC dismissed the case. RBSM was unable
of the Commissioner, shall, by rules and to pay its liabilities as they became due in the
regulations, prescribe. ordinarycourse of business; it was also found that
Section 52(c) of the NIRC only refers to they cannot continue in businesswithout involving
dissolutions falling under the SEC, and not with probable losses to its depositors and creditors.
the BSP. All liquidation of banks falls under The MB,after evaluating and deliberating on the
Section 30 of the New Central Bank Act. Between findings, issued closure order andtook over the
a general law (NIRC) and a special law(NCBA), management of RBSMs assets and affairs. In
the latter will prevail. The court cannot apply by their petition before the CA, petitioners claimed
analogy the tax clearance requirement because that respondents MB andBSP committed grave
dissolution of corporation and the receivership abuse of discretion in issuing the said order and
and liquidation of banks have a totally different the itwas bereft of any basis considering that no
proceeding. The Monetary Board may summarily complete examination had beenconducted before
and without need for prior hearing, forbid the bank it was issued. Thereafter, MB passed a resolution
from conducting business, appoint PDIC as directing PDIC to proceed the liquidationof RBSM.
receiver, and file an ex parte with the RTC for
ISSUE
liquidation of the bank. What the BIR should have
W/N Section 30 of RA 7653 (also known as the
required was to submit the final return of the RBBI,
New Central BankAct) and applicable
and there assess the tax liabilities of the bank.
jurisprudence require a current and
***It must be noted that the liquidation completeexamination of the bank before it can be
proceedings in the RTC is NOT summarily in closed and placed underreceivership?
nature, and the concurrence and preference in
credit found in Art 2241 and 2242 of the Civil HELD NO.
Code may be applied, and the parties concerned . Examination connotes in-depth analysis,
may question such project distribution of the PDIC evaluation, inquiry orinvestigation while report
connotes a simple disclosure or narration of
36. RURAL BANK OF SAN MIGUEL V. factsfor informative purposes. In RA 7653, only a
MONETARY BOARD report
of the head of thesupervising or examining
department is necessary. It is an established

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SPECIAL COMMERCIAL LAW: BANKING

rulein statutory construction that where the words discretion as to amount to lack or excess of
of a statute are clear, plainand free from jurisdiction.17
ambiguity, it must be given its literal meaning and
appliedwithout attempted Petitioners argue that Resolution No. 105
interpretation. Whenever, upon examination by was bereft of any basis considering that no
the head of the appropriate supervising complete examination had been conducted
orexamining department or his examiners or
before it was issued. This case essentially
agents into the condition of anybank
, it shall be disclosed that the condition of the
boils down to one core issue: whether
same is one of insolvency, or that its continuance Section 30 of RA 7653 (also known as the
in business would involveprobable loss to its New Central Bank Act) and applicable
depositors or creditors, jurisprudence require a current and complete
it shall be the duty of thedepartment head examination of the bank before it can be
concerned forthwith, in writing, to inform the closed and placed under receivership.
MonetaryBoard of the facts. The Board may, upon
finding the statements of thedepartment head to Section 30 of RA 7653 provides:
be true, forbid the institution to do business in
thePhilippines and designate an official of the SECTION 30. Proceedings in Receivership
Central Bank or a person of recognized and Liquidation. — Whenever, upon report
competence in banking or finance, as receiver to of the head of the supervising or
immediatelytake charge of its assets and examining department, the Monetary Board
liabilities, as expeditiously as possible collectand finds that a bank or quasi-bank:
gather all the assets and administer the same for
the benefits of itscreditors, and represent the bank (a) is unable to pay its liabilities as
personally or through counsel as he mayretain in
they become due in the ordinary
all actions or proceedings for or against the
institution, exercisingall the powers necessary for
course of business: Provided, That
these purposes including, but not limited this shall not include inability to pay
to,bringing and foreclosing mortgages in the name caused by extraordinary demands
of the bank. The absence of an examination induced by financial panic in the
before the closure of RBSM did not meanthat banking community;
there was no basis for the closure order. Needless
to say, the decisionof the MB and BSP, like any (b) has insufficient realizable assets,
other administrative body, must havesomething to as determined by the [BSP] to meet
support itself and its findings of fact must be its liabilities; or
supported bysubstantial evidence. But it is clear
under RA 7653 that the basis need notarise from (c) cannot continue in business
an examination as required in the old law. The without involving probable losses to its
Court thus ruledthat the MB had sufficient basis to depositors or creditors; or
arrive at a sound conclusion that therewere
grounds that would justify RBSMs closure. In (d) has willfully violated a cease and
short, MB and BSPcomplied with all the desist order under Section 37 that has
requirements of RA 7653. By relying on a report
become final, involving acts or
beforeplacing a bank under receivership, the MB
and BSP did not only follow theletter of the law, transactions which amount to fraud or
they were also faithful to its spirit, which was to a dissipation of the assets of the
actexpeditiously. institution; in which cases, the
Monetary Board may summarily
and without need for prior hearing
It is well-settled that the closure of a bank forbid the institution from doing
may be considered as an exercise of police business in the Philippines and
power.15 The action of the MB on this matter designate the Philippine Deposit
is final and executory.16 Such exercise may Insurance Corporation as receiver
nonetheless be subject to judicial inquiry and of the banking institution.
can be set aside if found to be in excess of
jurisdiction or with such grave abuse of xxx xxx xxx

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SPECIAL COMMERCIAL LAW: BANKING

The actions of the Monetary Board taken conduct when he submitted the certification to
under this section or under Section 29 of this the RTC despite knowing that the same is
Act shall be final and executory, and may not applicable only for transactions before the
be restrained or set aside by the court except MTCC; and that the bond was defective
on petition for certiorari on the ground that the because it was released by SICI despite
action taken was in excess of jurisdiction or respondent’s failure to put up the required
with such grave abuse of discretion as to P100,000.00 collateral.
amount to lack or excess of jurisdiction. The
petition for certiorari may only be filed by the Suan also claimed that in the complaint filed
stockholders of record representing the by respondent, together with Eduardo,
majority of the capital stock within ten (10) Purisima, Ruben, and Manuel, all surnamed
days from receipt by the board of directors of Tan, before the Bangko Sentral ng Pilipinas
the institution of the order directing (BSP) against Ismael E. Andaya and the
receivership, liquidation or conservatorship. members of the Board of Directors of the
(Emphasis supplied) Rural Green Bank of Caraga, Inc. for alleged
gross violation of the principles of good
xxx xxx xxx corporate governance, they represented
themselves as the bank’s minority
Petitioners contend that there must be a stockholders with a total holdings amounting
current, thorough and complete examination to more or less P5 million while the controlling
before a bank can be closed under Section stockholders own approximately 80% of the
30 of RA 7653. They argue that this section authorized capital stock.
should be harmonized with Sections 25 and
28 of the same law. Suan averred that respondent committed
perjury because the above allegations were
37. SUAN V. GONZALES allegedly inconsistent with respondent’s
averments in the complaint pending before
FACTS: the RTC where he claimed that the majority
Atty. Gonzales filed a case for Mandamus, stockholders own 70% ( and not 80%) of the
Computation of Interests, Enforcement of outstanding capital stock of the Rural Green
Inspection, Dividend and Appraisal Rights, Bank of Caraga, Inc. while the minority
Damages and Attorney’s Fees against the stockholders’ stake amounted to P6 million
Rural Green Bank of Caraga, Inc. and the (and not P5 million).
members of its Board of Directors before the Atty. Gonzales denied the allegations against
RTC, praying, inter alia, that a temporary him. He alleged that it was the bonding
restraining order be issued enjoining the company which inadvertently attached the
conduct of the annual stockholders’ meeting certification pertaining to the MTCC; that
and the holding of the election of the Board of when he discovered the inadvertence, he
Directors. immediately filed with the RTC an ex-parte
TC issued a temporary restraining order motion to replace the certification with the
(TRO) conditioned upon Atty. Gonzales’s one pertaining to the RTC; that he had
posting of a bond. Thereafter, Atty. Gonzales satisfactorily complied with the requirements
posted a bond issued by Stronghold of SICI as shown in the letter of Ms. Evelyn R.
Insurance Company, Incorporated (SICI) Ramirez, SICI’s Officer-in-Charge, dated
together with a Certification issued by then March 19, 2004; that there is no
Court Administrator, that, according to the inconsistency in the allegations contained in
Clerk of Court of the Municipal Trial Court in the complaints pending before the RTC and
Cities (MTCC) of Butuan City, the Bangko Sentral ng Pilipinas thus he could
not be held liable for perjury; that there is no
Based on the foregoing, Suan filed this forum shopping because the causes of action
complaint alleging that respondent engaged and the reliefs prayed for in the cases
in unlawful, dishonest, immoral or deceitful pending before the trial court and the Bangko

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SPECIAL COMMERCIAL LAW: BANKING

Sentral ng Pilipinas are different; and that it is the filing of the wrong certification was
complainant who is guilty of forum shopping deliberate and with intent to deceive was the
since this is the second disbarment suit that fact that after respondent knew of the
she filed against him. inadvertence he immediately filed a
manifestation with motion that the same be
In its Resolution dated December 17, 2005, replaced with the certification applicable to
the Board of Governors of the IBP approved the RTC.
the dismissal of the complaint.
It is well-settled that in disbarment
Complainant is now before us on appeal proceedings, the burden of proof rests upon
praying for the reversal and setting aside of the complainant and the case against the
the assailed Resolution arguing that it failed respondent must be established by clear,
to state clearly the facts and the reasons on convincing and satisfactory proof.
which it is based and that the evidence she Considering the serious consequence of the
presented were ignored and not considered. disbarment or suspension of a member of the
Bar, this Court has consistently held that
Complainant maintains that contrary to the clear preponderant evidence is necessary to
findings of the IBP, respondent’s act of justify the imposition of the administrative
submitting a wrong certification to the RTC, penalty.1 In the instant case, complainant
relative to SICI’s capacity to issue bonds, was Suan failed to show that respondent willfully
deliberate and with intent to mislead, thereby and deliberately resorted to falsehood and
constituting a violation of the Code of unlawful and dishonest conduct. She failed to
Professional Responsibility. She claims that show not only the dubious character of the
respondent who is interested in the issuance act done but the motivation as well.2
of a temporary restraining order is expected
to examine all the documents as well as the Complainant next claims that the injunction
attachments, hence there is no reason why bond was wrongfully released to respondent
he would "inadvertently" attach the by SICI as the latter failed to put up the
certification intended for the MTCC. required collateral, as shown in the February
28, 2004 letter of Evelyn R. Ramirez which
HELD: Complainant’s insistence that the IBP allegedly ignored. She also insists
respondent deliberately attached the MTCC that protesting the propriety of the bond
certification instead of the RTC certification before the trial court is not a pre-requisite to
lacks merit. We are inclined to believe the the filing of the instant administrative
findings of the IBP that the MTCC certification complaint. Besides, she argues that it would
was inadvertently attached and that it was not have been futile to file a protest before the
deliberate. Indeed, respondent as well as trial court considering that she knew of the
every litigant is expected to examine all the defects in the issuance of the injunction bond
documents he files in court. However, not long after the bond has expired.
every mistake or oversight he commits should
be deemed dishonest, deceitful or deliberate FORUM SHOPPING ISSUE: We agree with
so as to mislead the court. Respondent has the findings of the IBP that there is no forum
nothing to gain by submitting the wrong shopping. The essence of forum shopping is
certification. On the contrary, he runs the risk the filing of multiple suits involving the same
that his complaint be dismissed or denied parties for the same cause of action, either
outright. simultaneously or successively, for the
purpose of obtaining a favorable judgment.5
There is no reason for respondent, or even There is forum shopping when, between an
the bonding company, to attach the wrong action pending before this Court and another
certification as the latter was equally qualified one, there exist: a) identity of parties, or at
to issue bonds in civil or criminal cases least such parties as represent the same
pending before the RTC. Further, what interests in both actions, b) identity of rights
militates against complainant’s insistence that asserted and relief prayed for, the relief being

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SPECIAL COMMERCIAL LAW: BANKING

founded on the same facts, and c) the identity


of the two preceding particulars is such that
any judgment rendered in the other action,
will, regardless of which party is successful
amount to res judicata in the action under
consideration; and said requisites also
constitutive of lis pendens.6

The filing of the intra-corporate case before


the RTC does not amount to forum-shopping.
It is a formal demand of respondent’s legal
rights in a court of justice in the manner
prescribed by the court or by the law with
respect to the controversy involved.7 The
relief sought in the case is primarily to compel
the bank to disclose its stockholdings, to
allow them the inspection of corporate books
and records, and the payment of damages. It
was also prayed that a TRO be issued to
enjoin the holding of the annual stockholder’s
meeting and the election of the members of
the Board, which, only courts of justice can
issue.

On the other hand, the complaint filed with


the Bangko Sentral ng Pilipinas was an
invocation of the BSP’s supervisory powers
over banking operations which does not
amount to a judicial proceeding. It brought to
the attention of the BSP the alleged
questionable actions of the bank’s Board of
Directors in violation of the principles of good
corporate governance. It prayed for the
conduct of an investigation over the alleged
unsafe and unsound business practices of
the bank and to make necessary corrective
measures to prevent the collapse of the bank.

As such, the two proceedings are of different


nature praying for different relief. Likewise, a
ruling by the BSP concerning the soundness
of the bank operations will not adversely or
directly affect the resolution of the intra-
corporate controversies pending before the
trial court.

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