BANKING CASE DIGESTS
TOPIC: LOAN FUNCTIONS
NACAR VS. GALLERY FRAMES
Facts: Petitioner Nacar filed a complaint for constructive dismissal against
the respondent Gallery Frames.
On October 15, 1998, the Labor Arbiter ruled in favor of petitioner and
awarded the latter with backwages and separation pay in lieu of
reinstatement in the amount of P158, 919.92. The NLRC sustained the
decision of the Labor Arbiter. The Court of Appeals dismissed the
respondent’s appeal. Supreme Court denied the petition. On May 27,
2002, an Entry of Judgment was issued certifying that the resolution of the
Supreme Court became final and executory.
Petitioner then filed a Motion for Correct Computation, praying that his
backwages be computed from the date of his dismissal up to the finality
of the Resolution of the Supreme Court. Upon recomputation, an updated
amount of P471, 320. 31 was arrived at. Respondent opposed. Petitioner
now asserts that the reckoning point for the computation should be on
May 27, 2002, upon the Resolution of the Supreme Court and not when
the decision of the Labor Arbiter was rendered on October 15, 1998.
Issue:
Whether or not recomputation should be allowed
Held:
Yes. By the nature of an illegal dismissal case, the reliefs continue to add
up until full satisfaction, as expressed under Article 279 of the Labor Code.
The recomputation of the consequences upon execution of the decision
does not constitute an alteration or amendment of the final decision being
implemented. The illegal dismissal ruling stands; only the computation of
monetary consequences of this dismissal is affected, and this is not a
violation of the principle of immutability of final judgments. That the
amount respondents shall now pay has greatly increased is a consequence
ACCM
that it cannot avoid as it is the risk that it ran when it continued to seek
recourses against the Labor Arbiter’s decision.
As regards the payment of legal interest, the BSP Monetary Board issued
Circular No. 799, Series of 2013, which provides that in the absence of
stipulation in loan contracts, the interest rate shall no longer be 12%, but
will be 6% per annum, effective July 1, 2013. The 12% per annum legal
interest shall apply only until June 30, 2013. Starting July 1, 2013, the new
rate of 6% per annum shall be the prevailing rate when applicable.
NEW SAMPAGUITA BUILDERS CONSTRUCTION, INC vs PHILIPPINE
NATIONAL BANK; G.R. No. 148753 | July 30, 2004
FACTS
1. NSB approved Board Resolution No. 05, s. 89 authorizing the company
to apply for or secure a Commercial Loan with PNB (P8M) under such
terms agreed by the Bank and NSB:
 Mortgaged the REP of NSB’s President/Chairman of the Board
 Authorized Petitioner-Spouses to secure the loan and sign any/all
documents that may be required by PNB
2. PNB approved NSB’s request. The P8M loan was broken down into a
Revolving Credit Line of P7.7M and an Unadvised Line of P 300K.
 Revolving Credit Line: a line of credit where the customer
pays a commitment fee to a financial institution to borrow
money, and is then allowed to use the funds when needed.
Usually used for operating purposes and the amount drawn
can fluctuate each month depending on the customer's
current cash flow needs.
 Unadvised Line: a line of credit approved by bank. Until some
specific event happens unadvised line of credit is not
disclosed to the borrower. When the event happens line of
credit is informed to the customer. Usually it is a request for
funding from the borrower.
BANKING CASE DIGESTS
3. NSB’s loan was secured by a mortgage on 10 REP and PN. NSB also
signed the Credit Agreement relating to the Revolving Credit Line and
Unadvised Line
4. NSB failed to comply with its obligations under the PN.
5. Eduardo Dee wrote PNB for a request of a 90-day extension for the
payment of interests and the restructuring of its loan for another term.
NSB then tendered a P1M payment to PNB through 3 checks.
6. PNB’s bank manager wrote to Dee informing him that NSB’s proposal
was acceptable provided that the total payment should be different.
7. Dee wrote back the PNB branch manager reiterating his proposals for
the settlement of NSB’s past due loan (P7M).
8. 2 post-dated checks were dishonored.
9. PNB wrote to Dee informing him to make good the dishonored checks
or else consequences will arise.
10. NSB failed to pay their loan obligations within the timeframe given
them. Thus, foreclosure proceedings were instituted resulting in the
public auction of the mortgaged REP (P10.3M).
11. Later on, PNB informed NSB that the proceeds of the sale were
insufficient to cover its total claim of P12.5M and thus demanded that NSB
to pay the deficiencies.
12. NSB refused.
RTC: Dismissed PNB’s petition: No cause of action.
CA: Reversed RTC ruling:
 NSB did not avail of PNB’s Debt Relief Package; Increased in PNB’s
loan rates were authorized by law and the Monetary Board; and
 The increases were binding upon NSB having been freely and
voluntarily entered into via the signing of the Credit Agreements.
ISSUES
1. WON the loan accounts are bloated
2. WON the extrajudicial foreclosure and subsequent claim for
deficiency are valid and proper
ACCM
SUPREME COURT RULING
1. YES. NSB’S LOAN ACCOUNT WAS BLOATED WITH INTERESTS,
PENALTIES, AND OTHER CHARGES
FIRST: PROMISSORY NOTES
NSB’s accessory duty to pay interests on the loan DID NOT give PNB
unrestrained freedom to charge any rate other than that agreed upon. No
interest shall be due unless expressly stipulated in writing. It would be the
zenith of farcicality to specify and agree upon rates that could be
subsequently upgraded at whim by only one party.
The unilateral determination and imposition of increased rates is violative
of the principle of mutuality of contracts. These one-sided impositions do
not have the force of law between the parties because such impositions
are not based on the parties’ essential equality.
Although Escalation Clauses are valid, giving PNB unbridled right to adjust
the interest independently and upwardly would completely take away
NSB’s right to assent to an important modification in their agreement and
negate the element of mutuality in their contracts.
While the Usury Law ceiling on interest rates was lifted by CBC Circular No.
905, nothing in said Circular grants lenders carte blanche authority to raise
interest rates to levels which would either enslave their borrowers or lead
to a hemorrhaging of their assets.
Assent to the increase cannot be implied from their request for loan
restructuring or their lack of response to the statements of accounts sent
by PNB. Such request does not indicate any agreement to an interest
increase. No one receiving a proposal to modify a loan contract
(specifically interest rate) is obliged to answer such proposal.
Aside from sending demand letters, PNB did not at all exercise its option
to enforce collection nor did it renew or extend the account. No complaint
for collection was filed with the courts. Instead a Petition for Sale of
Mortgaged Properties was filed with the Provincial Sheriff.
BANKING CASE DIGESTS
PNB did not follow the stipulation in the PN providing for conversion of
the portion that remained unpaid after 730 days from date of original
release – into a medium-term loan (subject to the applicable rate to be
applied from the dates of original release). Also, PNB did not supply the
interest rate to be charged on medium-term loans granted by automatic
conversion. Because of this, the legal rate of 12% per annum on loans and
forbearance of money shall be used as prescribed by CB Circular 416.
SECOND: CREDIT AGREEMENTS
The First Credit Agreement cannot be given weight because it was not
signed by PNB through its branch manager, it was objected to by NSB, and
there was no attached annex that contained the General Stipulations.
The Second Credit Agreement provided the prime rate plus applicable
spread on the Revolving Credit Line. However, it did not state any
provision on its increase or decrease. It was not the agreement but the
Credit Line that expired. Thus, the T&C continued to apply even if
drawdowns could no longer be made. (Gradual accessing of credit funds;
Drawdown happens when the loan monies are taken up by the borrower.
The loan will appear in the balance sheet as a liability. The loan period will
determine whether this is a long; medium or short term liability.) The rate
of 21.5% agreed upon in the 2nd PN continued to apply until its conversion
into a medium-term loan.
The Third Credit Agreement provided for the same rate of interest as that
in the 2nd Agreement but since there was no mention in the 3rd Agreement
of any stipulation in increases or decreases in interest, there would be no
basis in for imposing amounts higher than the prime rate plus spread.
THIRD: DISCLOSURE STATEMENTS
The DS furnished by PNB set forth the interest rates as those respectively
indicated in the PN. However, the three DS as well as the two Credit
Agreements did not provide for any increase in the specified interest
rates. Thus, none would now be permitted.
ACCM
UNJUSTIFIED PENALTIES OR INCREASES
When the borrower is not clearly informed of the DS prior to the
consummation of the availment or drawdown, the lender will have NO
RIGHT to collect upon such charge or increase thereof, even if stipulated
in the Notes. Since Notes are considered as contracts of adhesion, not
invalid per se, any apparent ambiguity in the loan contract shall be
construed against the one who caused it.
OTHER CHARGES UNWARRANTED
Since the penalty rate has again been unilaterally increased by PNB to 36%
without its consent, the liquidated damages intended as penalty shall be
equitably reduced by the Court to zilch for being iniquitous and
unconscionable.
DEBT RELIEF PACKAGE NOT AVAILED OF
NSB failed to establish satisfactorily that it had been seriously and directly
affected by the economic slowdown in the peripheral areas of the then US
military bases. For short-term loans, there is still a need to conduct a
thorough review of the borrower’s repayment possibilities.
NSB has neither shown enough margin of equity based on the latest loan
value of hard collaterals to be eligible for the DRB. The branch manager’s
recommendation to restructure the loan not exceeding P8M is not final
but subject to the approval of PNB’s Branches Department Credit
Committee to be reported to its BOD.
Under the GBL, banks shall grant loans and other credit accommodations
only in amounts and for periods of time essential to the effective
completion of operations to be financed consistent with safe and sound
banking practices.
2. EXTRAJUDICIAL FORECLOSURE IS VALID BUT DEFICIENCY CLAIMS
ARE EXCESSIVE
■ The Bid Price is Adequate: It may be lower than the property’s fair
market value. A low bid price will make it subsequently easier for
the owner to redeem their properties.
BANKING CASE DIGESTS
As no redemption was exercised within a year after the date of
registration of the Certificate of Sale with the RD, petitioner-spouses shall
lose all their rights to the properties.
■ No Deficiency Claim Receivable: After the foreclosure and sale of
the mortgaged properties, the REM is extinguished. Although the
mortgagors, being third persons, are not liable for any deficiency
in the absence of a contrary stipulation, the action for recovery of
such amount – being clearly sureties to the principal obligation –
may still be directed against them. However, PNB may only
impose the 19.5% and 21.5% on the respective availments and
further reduced to the 12% legal rate revision upon automatic
conversion into medium-term loans.
The payments made by NSB were pro-rated. On the basis of rates, the
deficiency claim receivable amounting to P2.1M vanishes. Instead, there
is an overpayment by more than P3.6M as shown in the Schedules.
Under solutio indebiti, there is no deficiency receivable in favor of PNB but
rather an excess claim or surplus payable by PNB to petitioner-spouses.
GC DALTON INDUSTRIES, INC. vs. EQUITABLE PCI BANK
G.R. No. 171169. August 24, 2009.
 Respondent Equitable PCI Bank (EPB) extended a P30-million
credit line to Camden Industries, Inc. (CII) to allow CII to avail
several loans and purchase trust receipts.
 CII executed “hold- out agreement” in favor of EPB authorizing it
to deduct from its savings account any amounts due.
 Petitioner GC Dalton Industries, Inc executed a third party
mortgage of its real properties in Quezon City and Malolos,
Bulacan as security for CII loans.
 CII did not pay its obligations despite respondent’s demands.
ACCM
 EPB filed a petition for extrajudicial foreclosure of GC Dalton’s
Bulacan properties. It was sold in public auction, EPB being the
highest bidder.
 On September 13, 2004, EPB filed an affidavit of consolidation of
ownership in Register of Deeds in Bulacan pursuant to Section 47
of General Banking Laws. The TCTs were cancelled and new ones
were issued to EPB and filed ex parte motion for the issuance of a
writ of possession.
 CII filed an action for specific performance with damages against
EPB, asserting that it had already paid its obligation in full.
 RTC Pasig rendered decision in favor of GC Dalton, finding that EPB
had already deducted P 108,563,388.06 from CII saving’s account,
ordering EPB to return the overpayment amounting to P
94,136,902.40 and return the mortgage property to GC Dalton.
 Meanwhile, petitioner opposed the writ of possession granted by
RTC Bulacan. However, it was denied. The RTC Bulacan granted
the writ of possession in favor of EPB.
Issue: Whether or not GC Dalton has still legal interest over the properties
foreclosed by EPB
Ruling: No. The mortgagor loses all legal interest over the foreclosed
property after the expiration of the redemption period.21 Under Section
47 of the General Banking Law, if the mortgagor is a juridical person, it can
exercise the right to redeem the foreclosed property until, but not after,
the registration of the certificate of foreclosure sale within three months
after foreclosure, whichever is earlier. Thereafter, such mortgagor loses
its right of redemption. Because consolidation of title becomes a right
upon the expiration of the redemption period, respondent became the
owner of the foreclosed properties.24 Therefore, when petitioner
opposed the ex parte motion for the issuance of the writ of possession on
January 10, 2005 in the Bulacan RTC, it no longer had any legal interest in
the Bulacan properties. Nevertheless, even if the ownership of the
Bulacan properties had already been consolidated in the name of
respondent, petitioner still had, and could have availed of, the remedy
provided in Section 8 of Act 3135. It could have filed a petition to annul
BANKING CASE DIGESTS
the August 3, 2004 auction sale and to cancel the December 19, 2005 writ
of possession, within 30 days after respondent was given possession. But
it did not. Thus, inasmuch as the 30-day period to avail of the said remedy
had already lapsed, petitioner could no longer assail the validity of the
August 3, 2004 sale.
GOLDENWAY MERCHANDISING CORP. vs. EQUITABLE PCI BANK
Facts: Goldenway instituted a Real Estate Mortgage in favor of EqPCIB
over its real properties in Bulacan. The mortgage secured the Php2million
loan granted by the bank to Goldenway. As the latter failed to settle its
loan obligation, the bank extrajudicially foreclosed the mortgage on
December 2000 and the properties were sold to the bank. A certificate of
Sale was then issued on January 26, 2001 and it was registered on
February 16, 2001.
On March 8, 2001, Goldenway offered to redeem the properties by
tendering a check (Php 3.5M) but was told that redemption is no longer
possible because the certificate of sale had already been registered.
Goldenway filed a complaint for specific performance and damages
against the bank, asserting that it is the 1-yr period under Act 3135 which
should apply and not the shorter redemption period under RA 8791. The
bank, in its counterclaim, pointed out that Goldenway had all the time to
redeem from the time it received the demand letter and notice of sale,
and even assuming that the redemption was timely made, it was not for
the amount as required by law.
Trial Court:
 dismissed complaint and counterclaim; attempt to redeem was
already late;
 no valid redemption made because Atty. Abat-Vera of Goldenway
was not properly authorized by Goldenway BOD
CA: Sec. 47/ RA 8791 reveals the intention to shorten the period of
redemption for juridical persons and that the foreclosure of the
ACCM
mortgaged properties in this case when RA 8791 was already in effect
clearly falls within the purview of said provision.
Issue: WON Goldenway can redeem the properties
Ruling: No. Goldenway cannot redeem the properties.
In this case, the parties provided in their contract that upon Goldenway’s
default, the entire loan obligation becoming due, the bank may
immediately foreclose the mortgage judicially in accordance with the
Rules of Court or extrajudicially in accordance with Act 3135.
Sec. 47 of the General Banking Law amended Act 3135. Under the new
law, an exception is thus made in the case of juridical persons which are
allowed to exercise the right of redemption only until but not after the
registration of the certificate of foreclosure sale, and in no case more than
three months after foreclosure, whichever comes first.
Goldenway’s contention that Sec. 47 violates the constitutional
proscription against impairment of the obligation of contract has no basis.
The purpose of the non-impairment clause of the Constitution is to
safeguard the integrity of contracts against unwarranted interference by
the State. Sec. 47 did not divest juridical persons of the right to redeem
their foreclosed properties but only modified the time for the exercise of
such right by reducing the 1-yr period originally provided in Act 3135.
The legislature clearly intended to shorten the period of redemption for
juridical persons whose properties were foreclosed and sold in
accordance with Act 3135. The difference in the treatment of juridical
persons and natural persons was based on the nature of the properties
foreclosed- whether these are used as residence for which the more
liberal 1-yr redemption period is retained, or used for industrial or
commercial purposes, in which case a shorter term is deemed necessary
to reduce the period of uncertainty in the ownership of property and
enable mortgagee banks to dispose sooner of these acquired assets.
BANKING CASE DIGESTS
JOSE C. GO VS. BANGKO SENTRAL NG PILIPINAS
G.R. NO. 178429; 2009-10-23
FACTS:
1. Jose Go, the Director and the President and Chief Executive
Officer of the Orient Commercial Banking Corporation (Orient
Bank), was charged before the RTC for violation of Section 83 of
RA 337 or the General Banking Act.
2. Go allegedly borrowed the deposits/funds of the Orient Bank
and/or acting as guarantor, indorser of obligor for loans to other
persons.
3. He then used the borrowed deposits/funds in facilitating and
granting and/or of credit lines/loans to the New Zealand Accounts
loans in the total amount of PHP 2,754,905,857.
4. He completed the alleged transaction without the written
approval of the majority of the Board of Directors of said Orient
Bank.
5. Go then filed a motion to quash the Information.
6. GO’s contentions:
a. averred that the use of the word "and/or" meant that he
was charged for being either a borrower or a guarantor,
or for being both.
b. Thus, the charge does not constitute an offense.
c. That the Section 83 of RA 337 penalized only directors and
officers who acted either as borrower or as guarantor, but
not as both.
d. Also, that the Information did not constitute an offense
since the information failed to state the amount he
purportedly borrowed.
e. According to Go, the second paragraph of Section 83,
serves as an exception to the first paragraph which allows
the banks to extend credit accommodations to their
directors, officers, and stockholders, provided it is
"limited to an amount equivalent to the respective
outstanding deposits and book value of the paid-in capital
contribution in the bank."
ACCM
7. The RTC granted Go’s motion to quash the Information.
8. The prosecution filed a petition for certiorari before the CA.
9. The CA granted the petition. It explained that the allegation that
Go acted either as a borrower or a guarantor or both did not
necessarily mean that Go acted both as borrower and guarantor
for the same loan at the same time. It agreed with the
prosecution’s stand that the second paragraph of Section 83 of RA
337 is not an exception to the first paragraph. Hence, this petition.
ISSUE:
1. Whether or not the allegation that Go acted as borrower or
guarantor rendered the information defective? NO
2. Whether or not the failure to state that Go borrowed beyond
the limit of his outstanding deposits and book value of the paid-in
capital contribution in the bank rendered the Information
defective? NO
RULING: The following elements of violation of Section 83 of RA 337 which
must be present to constitute a violation of its first paragraph: 1. the
offender is a director or officer of any banking institution; 2. the offender,
either directly or indirectly, for himself or as representative or agent of
another, performs any of the following acts: a. he borrows any of the
deposits or funds of such bank; or b. he becomes a guarantor, indorser, or
surety for loans from such bank to others, or c. he becomes in any manner
an obligor for money borrowed from bank or loaned by it; 3. the offender
has performed any of such acts without the written approval of the
majority of the directors of the bank, excluding the offender, as the
director concerned.
The essence of the crime is becoming an obligor of the bank without
securing the necessary written approval of the majority of the bank
directors.
The language of the law is broad enough to encompass either act of
borrowing or guaranteeing, or both. Banks were not created for the
benefit of their directors and officers; they cannot use the assets of the
BANKING CASE DIGESTS
bank for their own benefit, except as may be permitted by law. Congress
has thus deemed it essential to impose restrictions on borrowings by bank
directors and officers in order to protect the public, especially the
depositors. Hence, when the law prohibits directors and officers of
banking institutions from becoming in any manner an obligor of the bank
(unless with the approval of the board), the terms of the prohibition shall
be the standards to be applied to directors’ transactions such as those
involved in the present case.
Credit accommodation limit is not an exception nor is it an element of
the offense as contrary to Go’s claims.
Section 83 of RA 337 actually imposes three restrictions: approval,
reportorial, and ceiling requirements.
The approval requirement (found in the first sentence of the first
paragraph of the law) refers to the written approval of the majority of the
bank’s board of directors required before bank directors and officers can
in any manner be an obligor for money borrowed from or loaned by the
bank. Failure to secure the approval renders the bank director or officer
concerned liable for prosecution and, upon conviction, subjects him to the
penalty provided in the third sentence of first paragraph of Section 83.
The reportorial requirement, on the other hand, mandates that any such
approval should be entered upon the records of the corporation, and a
copy of the entry be transmitted to the appropriate supervising
department. The reportorial requirement is addressed to the bank itself,
which, upon its failure to do so, subjects it to quo warranto proceedings
under Section 87 of RA 337.
The ceiling requirement under the second paragraph of Section 83
regulates the amount of credit accommodations that banks may extend
to their directors or officers by limiting these to an amount equivalent to
the respective outstanding deposits and book value of the paid-in capital
contribution in the bank. Again, this is a requirement directed at the bank.
In this light, a prosecution for violation of the first paragraph of Section
83, such as the one involved here, does not require an allegation that the
ACCM
loan exceeded the legal limit. Even if the loan involved is below the legal
limit, a written approval by the majority of the bank’s directors is still
required; otherwise, the bank director or officer who becomes an obligor
of the bank is liable. Compliance with the ceiling requirement does not
dispense with the approval requirement.
Evidently, the failure to observe the three requirements under Section 83
paves the way for the prosecution of three different offenses, each with
its own set of elements. A successful indictment for failing to comply with
the approval requirement will not necessitate proof that the other two
were likewise not observed.
WHEREFORE, we DENY the petitioner's petition for review on certiorari
and AFFIRM the decision of the Court of Appeals. The Regional Trial Court,
Branch 26, Manila is directed to PROCEED with the hearing of Criminal
Case No. 99-178551.
DEVELOPMENT BANK OF THE PHILIPPINES vs ARCILLA JR.
G.R. No. 161397 June 30, 2005
FACTS:
1. Atty. Felipe Arcilla Jr. was employed by the DBP. He availed a loan
under Individual Housing Project (IHP) of DBP.
2. September 12, 1983 - He executed a Deed of Conditional Sale over
a parcel of land, as well as the house constructed thereon, for the
price of Php 160,000. He obliged himself to pay the loan in 25
years with a monthly amortization of Php 1, 417.91, with 9%
interest per annum to be deducted from his monthly salary.
3. It was also agreed therein that if Arcilla availed of optional
retirement, he could elect to continue paying the loan, provided
that the loan/amount would be converted into a regular real
estate loan account with the prevailing interest assigned on real
estate loans, payable within the remaining term of the loan
account.
BANKING CASE DIGESTS
4. However, Arcilla opted to resign from the bank in December 1986.
Conformably with the Deed of Conditional Sale, the bank
informed him, on June 11, 1987, that the balance of his loan
account with the bank had been converted to a regular housing
loan.
5. Arcilla also agreed to the reservation by the DBP of its right to
increase (with notice to him) the “rate of interest on the loan, as
well as all other fees and charges on loans and advances pursuant
to such policy as it may adopt from time to time during the period
of the loan. However, he failed to pay his loan account, advances,
penalty charges and interests which, as of October 31,1990,
amounted to P241,940.93.
6. Arcilla filed a complaint against DBP with the RTC. He alleged that
DBP failed to furnish him with the disclosure statement required
by Republic Act (R.A.) No. 3765 and Central Bank (CB) Circular No.
158 prior to the execution of the deed of conditional sale and the
conversion of his loan account with the bank into a regular
housing loan account. Despite this, DBP immediately deducted
the account from his salary as early as 1984. Moreover, the bank
applied its own formula and imposed its usurious interests,
penalties and charges on his loan account and advances.
7. DBP alleged that it substantially complied with R.A. No. 3765 and
CB Circular No. 158 because the details required in said
statements were particularly disclosed in the promissory notes,
deed of conditional sale and the required notices sent to Arcilla.
In any event, its failure to comply strictly with R.A. No. 3765 did
not affect the validity and enforceability of the subject contracts
or transactions.
8. RTC – in favor of Arcilla. Defendant is hereby directed to furnish
the disclosure statement to the plaintiff within five (5) days upon
receipt hereof in the manner and form provided by R.A. No. 3765
9. CA – reversed RTC. DBP substantially complied with R.A. No. 3765
and CB Circular No. 158
ISSUE: Whether or not petitioner DBP complied with the disclosure
requirement of R.A. No. 3765 and CB Circular No. 158, Series of 1978, in
ACCM
the execution of the deed of conditional sale, the supplemental deed of
conditional sale, as well as the promissory notes
RULING: NO. Consummation of a loan transaction, the bank, as creditor,
is obliged to furnish a client with a clear statement, in writing, setting
forth, to the extent applicable and in accordance with the rules and
regulations prescribed by the Monetary Board of the Central Bank of the
Philippines, the following information:
a. the cash price or delivered price of the property or service to be
acquired;
b. the amounts, if any, to be credited as down payment and/or
trade-in;
c. the difference between the amounts set forth under clauses (1)
and (2);
d. the charges, individually itemized, which are paid or to be paid by
such person in connection with the transaction but which are not
incident to the extension of credit;
e. the total amount to be financed;
f. the finance charges expressed in terms of pesos and centavos;
and
g. g. the percentage that the finance charge bears to the total
amount to be financed expressed as a simple annual rate on the
outstanding unpaid balance of the obligation.
Under Circular No. 158 of the Central Bank, the information required by
R.A. No. 3765 shall be included in the contract covering the credit
transaction or any other document to be acknowledged and signed by the
debtor, thus: The contract covering the credit transaction, or any other
document to be acknowledged and signed by the debtor, shall indicate
the above seven items of information. In addition, the contract or
document shall specify additional charges, if any, which will be collected
in case certain stipulations in the contract are not met by the debtor.
Furthermore, the contract or document shall specify additional charges,
if any, which will be collected in case certain stipulations in the contract
are not met by the debtor. If the borrower is not duly informed of the
BANKING CASE DIGESTS
data required by the law prior to the consummation of the availment or
drawdown, the lender will have no right to collect such charge or
increases thereof, even if stipulated in the promissory note. However,
such failure shall not affect the validity or enforceability of any contract
or transaction.
In the present case, DBP failed to disclose the requisite information in the
disclosure statement form authorized by the Central Bank, but did so in
the loan transaction documents between it and Arcilla. There is no
evidence on record that DBP sought to collect or collected any interest,
penalty or other charges, from Arcilla other than those disclosed in the
said deeds/documents.
UCPB VS SPS. BELUSO
Facts: Spouses Beluso was granted by PNB a credit line agreement
amounting to 1.2M whereby the spouses executed a promissory note and
q real estate mortgage of their properties to secure such loan. Later on,
the bank offered to increase the credit line up to 2.3M which was availed
by the spouses and additional two promissory notes were executed by the
spouses. In these promissory notes, the interest rates indicated therein
are ranging between 18-34%. At first, the spouses were able to pay the
loan. But later on, they defaulted in paying their obligation. UCPB
demanded them to pay 2.9M. Since the demand was unheeded, they
foreclosed the properties. At the time of the foreclosure, the amount of
loan ballooned to 3M. The spouses filed a complaint for annulment of
foreclosure, accounting and damages claiming that the interest rates were
invalid. The bank, on the other hand contended that the interest rates
were valid and not violative of the principle of mutuality of contracts. That
the sps have the option to avail or not to avail the credit line agreement.
Issue: Whether or not the interest rates are violative of the principle of
mutuality of contracts
ACCM
Ruling: Yes. The Supreme Court ruled in the case of PNB vs CA that “In
order that obligations arising from contracts may have the force of law
between the parties, there must be mutuality between the parties based
on their essential equality. A contract containing a condition which makes
its fulfillment dependent exclusively upon the uncontrolled will of one of
the contracting parties, is void (Garcia vs. Rita Legarda, Inc., 21 SCRA 555).
Hence, even assuming that the P1.8 million loan agreement between
the PNB and the private respondent gave the PNB a license (although
in fact there was none) to increase the interest rate at will during
the term of the loan, that license would have been null and void
for being violative of the principle of mutuality essential in contracts.”
A provision stating that the interest shall be at the “rate indicative of
DBD retail rate or as determined by the Branch Head” is indeed
dependent solely on the will of the lender; A rate “as determined by
the Branch Head” gives the latter unfettered discretion on what the
rate may be—the Branch Head may choose any rate he or she desires.
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
TOPIC: OTHER BANKING FUNCTIONS
TRANSFIELD PHILIPPINES, INC. VS LUZON HYDRO CORPORTION
G.R. NO. 146717
FACTS: Transfield and LHC entered into a Turnkey Contract, to construct a
70 Megawayy hydro-electric power station (Project). The Contract
provides that the project shall be completed on June 1, 2000 or a later
date that might agree upon or as determined in the contract. The contract
also provides that Transfield is entitled to claim for extension of time (EOT)
in cases of force majeure or delay by LHC. To secure performance of
Transfield’s obligation, a standby letters of credit (Securities) in favor of
LHC was opened.
In the course of construction, Transfield requested various EOT due to
alleged happening of a force majeure that is, the typhoon Zeb. LHC denied
BANKING CASE DIGESTS
the requests that give rise to legal actions and this instant petition. LHC
filed a request for arbitration before the CIAC. On the other hand.
Transfield file a Request for Arbitration before the ICC. Transfield
informed respondent banks of the pending arbitration proceedings and
that LHC has no right to call on the Securities until the resolution of the
disputes. However, respondent banks informed Trans that it would pay
the securities when LHC calls on them.
Transfield filed a complaint for injunction with a prayer for TRO and writ
of preliminary injunction. Trial Court denied the same on the ground of no
legal right and suffered no irreparable injury and on the basis of principle
of independent contract in letters of credit. CA affirmed
ISSUE: Whether or not the principle of independent contract is applicable
RULING: Yes. Article 3 of Uniform and Customs Practice, credits, by their
nature are separate transactions from the sales or other contracts on
which they may be based and banks are in no way concerned with or
bound by such contracts, even if any reference whatsoever to such
contracts is included in the credit. The so- called “independence principle”
assures the seller or the beneficiary of prompt payment independent of
any breach of the main contract and precludes the issuing bank from
determining whether the main contract is actually accomplished or not.
Under this principle, banks assume no liability or responsibility for the
form, sufficiency, accuracy, genuineness, falsification or legal effect of any
documents, or for the general and/or particular conditions stipulated in
the documents or superimposed thereon, nor do they assume any liability
or responsibility for the description, quantity, weight, quality, condition,
packing, delivery, value or existence of the goods represented by any
documents, or for the good faith or acts and/or omissions, solvency,
performance or standing of the consignor, the carriers, or the insurers of
the goods, or any other person whomsoever.
As the principle’s nomenclature clearly suggests, the obligation under the
letter of credit is independent of the related and originating contract. In
ACCM
brief, the letter of credit is separate and distinct from the underlying
transaction.
While it is the bank which is bound to honor the credit, it is the beneficiary
who has the right to ask the bank to honor the credit by allowing him to
draw thereon. Owing to the nature and purpose of the standby letters of
credit, this Court rules that the respondent banks were left with little or
no alternative but to honor the credit and both of them in fact submitted
that it was “ministerial” for them to honor the call for payment.
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
TOPIC: BANKS IN DISTRESS
KORUGA VS. ARCENAS, JR.; G.R. No. 168332 June 19, 2009
FACTS:
1. Koruga is a minority stockholder of Banco Filipino Savings and
Mortgage Bank.
2. She filed a complaint before the RTC against the Board of
Directors of Banco Filipino and the Members of the Monetary
Board of the Bangko Sentral ng Pilipinas (BSP) for
 violation of the Corporation Code,
 for inspection of records of a corporation by a
stockholder,
 for receivership, and for the creation of a management
committee
3. Arcenas, et al. filed their Answer raising, among others, the trial
courts lack of jurisdiction to take cognizance of the case. They
also filed a Manifestation and Motion seeking the dismissal of
the case
4. RTC: denied the Manifestation and Motion
5. CA: Ruled that the RTC did not commit grave abuse of discretion
and ordered the RTC to proceed with the trial of the case
BANKING CASE DIGESTS
6. Arcenas, et al filed a petition before the SC alleging, among
others, that the jurisdiction over the subject matter of the case is
vested by the law in the BSP
ISSUE: Which body has jurisdiction over the Koruga Complaint, the RTC
or the BSP?
RULING:
Korugas invocation of the provisions of the Corporation Code is
misplaced. In an earlier case with similar antecedents, we ruled that:
The Corporation Code, however, is a general law applying to all types of
corporations, while the New Central Bank Act regulates specifically banks
and other financial institutions, including the dissolution and liquidation
thereof. As between a general and special law, the latter shall
prevail generalia specialibus non derogant.
Consequently, it is not the Interim Rules of Procedure on Intra-Corporate
Controversies, or Rule 59 of the Rules of Civil Procedure on Receivership,
that would apply to this case. Instead, Sections 29 and 30 of the New
Central Bank Act should be followed, viz.:
Section 29. Appointment of Conservator.
Whenever, on the basis of a report submitted by the appropriate
supervising or examining department, the Monetary Board finds that a
bank or a quasi-bank is in a state of continuing inability or unwillingness
to maintain a condition of liquidity deemed adequate to protect the
interest of depositors and creditors, the Monetary Board may appoint a
conservator with such powers as the Monetary Board shall deem
necessary to take charge of the assets, liabilities, and the management
thereof, reorganize the management, collect all monies and debts due
said institution, and exercise all powers necessary to restore its viability.
The conservator shall report and be responsible to the Monetary Board
and shall have the power to overrule or revoke the actions of the
previous management and board of directors of the bank or quasi-bank.
ACCM
Section 30. Proceedings in Receivership and Liquidation. –
xxxx
The designation of a conservator under Section 29 of this Act
or the appointment of a receiver under this section shall be
vested exclusively with the Monetary Board. Furthermore, the
designation of a conservator is not a precondition to the
designation of a receiver.
xxxx
On the strength of these provisions, it is the Monetary Board that
exercises exclusive jurisdiction over proceedings for receivership of
banks.
Crystal clear in Section 30 is the provision that says the appointment of a
receiver under this section shall be vested exclusively with the Monetary
Board. The term exclusively connotes that only the Monetary Board can
resolve the issue of whether a bank is to be placed under receivership
and, upon an affirmative finding, it also has authority to appoint a
receiver. This is further affirmed by the fact that the law allows the
Monetary Board to take action summarily and without need for prior
hearing.
From the foregoing disquisition, there is no doubt that the RTC has no
jurisdiction to hear and decide a suit that seeks to place Banco Filipino
under receivership.
SPS. LARROBIS VS PHILIPPINE VETERANS BANK
FACTS: Spouses Larrobis obtained a P135,000 loan from Philippine
Veterans Bank which was evidenced by a promissory note and secured by
a real estate mortgage. The Philippine Veterans Bank went bankrupt and
was placed under receivership/liquidation from April 25, 1985 until August
1992. After recovery, the bank, in 1995, foreclosed the property
mortgaged and was sold in public auction. The petitioners thus filed a
complaint to declare the extrajudicial foreclosure and the subsequent sale
BANKING CASE DIGESTS
null and void on ground of prescription of the right of the bank to foreclose
the property. Respondent on the other hand claims that the receivership
is considered a fortuitous event wherein it was not able to exercise its
right to foreclose the mortgage on petitioner’s property and was banned
from pursuing its business.
ISSUE:
WON the period within which the bank was placed under receivership
and liquidation proceedings tolls the prescriptive period for bringing
actions
RULING:
No. While it is true that foreclosure falls within the broad definition of
“doing business,” it should not be considered included in the acts
prohibited whenever banks are “prohibited from doing business” during
receivership and liquidation proceedings.
When a bank is forbidden to do business in the Ph and placed under
receivership, the person designated as receiver shall immediately take
charge of the bank’s assets and liabilities. As expeditiously as possible,
collect and gather all the assets and administer the same for the benefit
of its creditors, and represent the bank personally or through counsel as
he may retain in all actions or proceedings for or against the institution,
exercising all the powers necessary for these purposes including, but not
limited to, bringing and foreclosing mortgages in the name of the bank.
This is consistent with the purpose of receivership proceedings, to receive
collectibles and preserve the assets of the bank in substitution of its
former management, and prevent the dissipation of its assets to the
detriment of the creditors of the bank. In both receivership and liquidation
proceedings, the bank retains its juridical personality despite closure of
business and may even be sued and sue as its corporate existence is
assumed by receiver/liquidator.
ACCM
CORNITA-DOMINGO VS NLRC; GR No. 156761, October 17, 2006
Facts: By virtue of Central Bank Monetary Board Resolution No. 334,
Philippine Veterans Bank (PVB) was placed under receivership and as a
consequence, adopted a retrenchment and reorganization program. The
Union (Philippine Veterans Bank Employees Union) challenged the legality
of this program on the ground that it allegedly violated their security of
tenure. While the case is pending, the Monetary Board ordered the
liquidation of the Bank. The appointed liquidator, pursuant to its vested
authority, terminated all employees of the Bank and commenced
payment of their separation pay and benefits. Later, the SC in an en banc
decision upheld the legality of the termination of all the Bank’s
employees.
Sometime after, Congress enacted a law authorizing the Central Bank to
reopen the Bank. To facilitate this, a Rehabilitation Committee was
created and given power to select the workforce, with hiring preference
given to the veterans and their dependents. At this juncture, several
former employees of the Bank initiated series of cases claiming that the
enactment of the law nullified the liquidator’s termination of the
employees. The Union also filed a petition claiming unfair labor practice
and praying that the Rehabilitation Committee be directed to cease and
desist from screening and hiring new employees and to immediately
reinstate the Banks former employees.
The Labor Arbiter dismissed the petition but it was reversed by the NLRC.
PVB sought for reconsideration while Union moved for partial
reconsideration. Both motions were denied prompting both parties to file
separate petitions to the SC. While the case is pending, the Union and the
Bank had agreed to enter into a Compromise Agreement for the amicable
settlement of their cases. However, petitioners appealed on the ground
that the Compromise Agreement is contrary to law and that they are
entitled to reinstatement. CA ruled that petitioners were not illegally
dismissed thus foreclosing their right of reinstatement and that the
compromise agreement bound petitioners who even voluntarily received
payments from it.
BANKING CASE DIGESTS
Issues:
(1) Whether petitioners were entitled to reinstatement by virtue of law
reopening the Bank; and
(2) Whether petitioners were bound by the Compromise Agreement
Ruling:
(1) NO. The enactment of R.A. No. 7169 did not nullify Monetary Board
Resolution which earlier placed the Bank under liquidation and caused the
termination of employment of the petitioners. The Bank’s subsequent
rehabilitation did not, by any test of reason, “revive” what was already a
dead relationship between the petitioners and the Bank. Neither did such
rehabilitation affect the Court’s pronouncement in Philippine Veterans
Bank Employees Union-NUBE v. Philippine Veterans Bank that the actions
of the Monetary Board and its duly appointed liquidator were valid and
that the former employees’ claim for back wages must be rejected as they
were lawfully separated. Reinstatement is a relief accorded only to an
employee who was illegally dismissed. To reiterate, the forcible closure of
the Bank by operation of law permanently severed the employer-
employee relationship between it and its employees when it ceased
operations. Thus, the claim for reinstatement and payment of back wages
and other benefits, having no leg to stand on, must necessarily fall.
(2) YES. A labor union’s function is to represent its members. It can file an
action or enter into compromise agreements on behalf of its members.
Here, majority of the Bank’s employees authorized the Union to enter into
a compromise agreement with the Bank on their behalves. Union
members were bound by the resulting compromise agreement when they
affixed their signatures thereon, thereby giving their individual assent
thereto, and when they accepted the benefits due them under that
agreement. As it is, the Compromise Agreement in question detailed the
amounts to be received by each employee. Petitioners and other
employees of the Bank knew exactly what they were ratifying when they
affixed their signatures in the said compromise agreement. Further,
respondent Union is a closed shop union. For this reason, it was the only
one with legal authority to negotiate, transact, and enter into any
agreement with the Bank. The Compromise Agreement was ratified by
ACCM
282 Union members representing a majority of its entire 529 membership.
The ratification of the Compromise Agreement by the majority of the
Union members necessarily binds the minority.
It is likewise noteworthy that 30 of the herein 37 petitioners already
received payment under the same Compromise Agreement. The
acceptance by said petitioners of the benefits bars them from repudiating
the agreement. They cannot be allowed to adopt an inconsistent position
at the expense of the Bank. Petitioners cannot belatedly reject or
repudiate their acts of accepting the monetary consideration under the
compromise agreement, to the prejudice of the Bank.
BACOLOR vs. BANCO FILIPINO SAVINGS AND MORTGAGE BANK,
DAGUPAN CITY G.R. No. 148491 February 8, 2007
FACTS: On February 11, 1982, Spouses Zacarias and Catherine Bacolor
obtained a loan of P244,000.00 from Banco Filipino Savings and Mortgage
Bank (BANCO FILIPINO). A promissory note was executed stating that the
amount shall be payable within a period of 10 years with a monthly
amortization of P5,380.00 beginning March 11, 1982. The same stipulated
that the interest rate shall be 24% per annum with a penalty of 3% on any
unpaid monthly amortization and a 3% service charge per annum on the
loan. A parcel of land with TCT no. 40827 was mortgaged to secure the
loan.
From March 11,1982 until July 10, 1991, petitioners paid the respondent
bank P412,199.13. From then on no other payment has been made. A
bank statement was then sent to the Spouses Bacolor stating that their
indebtedness amounts to P840,845.61.
The spouses’ failure to pay prompted the Bank to institute an action for
extra judicial foreclosure of mortgage.
A month prior, on February 1, 1993, petitioners filed a complaint for
violation of the Usury Law against the respondent bank alleging that the
BANKING CASE DIGESTS
promissory note constitute a usurious transaction. An amended complaint
was filed by the Bacolor Spouses alleging during the closure of the
respondent bank (January 1, 1985- July 1, 1994) it lost its function as a
banking institution and therefore could no longer charge interest and
institute foreclosure proceedings.
In 1994 the RTC rendered a decision dismissing the complaint of the
Spouses. Ruling that the 24% stipulated interest was not in violation of the
USURY law and that the CLOSURE OF BANCO FILIPINO DID NOT SUSPEND
OR STOP ITS USUAL AND NORMAL BANKING OPERATIONS LIKE
COLLECTION OF LOAN RECEIVABLES AND FORCLOSURE OF MORTGAGES.
ISSUE: Whether or not the banks’s closure diminished the authority and
powers of the designated liquidator to effectuate and carry on the
administration of the bank
HELD: No. In the case of Banco Filipino Savings & Mortgage Bank vs.
Monetary Board, Central Bank of the Philippines, the Supreme Court ruled
that the bank’s closure did not thus diminished the authority and powers
of the designated liquidator to effectuate and carry on the administration
of the bank
The Supreme Court did not prohibit however acts such as receiving
collectibles and receivables or paying off creditors’ claims and other
transactions pertaining to the normal operations of a bank. There is no
doubt that that the prosecution of suits for collection and the foreclosure
of mortgages against debtors of the bank by the liquidator are among the
usual and ordinary transactions pertaining to the administration of a bank.
Hence the banks’s closure did not diminish the authority and powers of
the designated liquidator to effectuate and carry on the administration of
the bank.
NOTES:
ACCM
THE CASE FALLS UNDER THE TOPIC OF BANKS IN DISTRESS. WHENEVER A
BANK IS IN DISTRESS THE BSP MAY PERFORM ANY OF THE THREE
SOLUTIONS TO AID THE BANK:
1. GRANT AN EMERGENCY LOAN
2. APPOINT A CONSERVATOR
a. Take charge of the assets, liabilities and management
b. Reorganize the management of the bank
c. Collect monies and debts due said bank
d. Exercise all powers necessary to restore viability
3. APPOINT A RECEIVER AND ORDER THE LIQUIDATION OF THE BANK
Subject to the control of the court in which the action or proceeding
is pending a receiver shall have the power to bring and defend, in
such capacity, actions in his own name; to take and keep possession
of the property in controversy; to receive rents; to collect debts due
to himself as receiver or to the fund, property, estate, person, or
corporation of which he is the receiver; to compound for and
compromise the same; to make transfers; to pay outstanding debts;
to divide the money and other property that shall remain among the
persons legally entitled to receive the same; and generally to do
such acts respecting the property as the court may authorize.
However, funds in the hands of a receiver may be invested only by
order of the court upon the written consent of all the parties to the
action. (7a)
If the receiver determines that the institution cannot be rehabilitated, the
monetary board shall notify in writing the board of directors of its findings
and direct the receiver to proceed with the liquidation.
BANKING CASE DIGESTS
ABACUS REAL ESTATE DEVELOPMENT CENTER, INC. VS. MANILA
BANKING CORPORATION G.R. NO. 162270; APRIL 6, 2005
FACTS:
1. Prior to 1984, the Manila Banking Corporation began constructing
on its own land in Makati City a 14-storey building. However, the
bank encountered financial difficulties that rendered it unable to
finish construction of the building. Thus, the Central Bank ordered
its closure and placed it under receivership. The legality of the
closure was contested by the bank before the proper court.
2. By virtue of Monetary Board Resolution No. 505, the Central Bank
ordered the liquidation of Manila Bank and designated Atty.
Renan V. Santos as liquidator. However, liquidation was held in
abeyance because of the pending suit earlier filed by the bank
regarding the legality of its closure. Consequently, Atty. Santos’s
designation amended to that of Statutory Receiver.
3. In a bid to save the bank’s investment, Manila Bank’s acting
president, late Vicente G. Puyat, started scouting for possible
investors who could finance the completion of the building.
4. The Laureano group offered to lease the building for ten years and
to advance the cost to complete the construction. As
consideration of advancing the construction cost, the group
stated in its offer that the Laureano group be given the “exclusive
option to purchase” the building and the lot on which it was
constructed. The letter-offer was accepted and Laureano’s group
was granted with the “exclusive option to purchase” the building
and lot for P150,000.00.
5. The building was first leased to Manila Equities Corporation for
ten years then it was subleased to herein petitioner Abacus Real
Estate Development Center, Inc, a corporation formed by
Laureano group for the purpose.
6. Unable to finish the building due to the economic crisis, the
Laureano group transferred all of its rights to Abacus including the
“exclusive option to purchase” the building and lot. Atty. Santos
(receiver) met with Benjamin Bitanga to discuss Abacus’ offer to
purchase the property and he verbally approved the offer.
ACCM
However, when Abacus informed the bank of its desire to exercise
the “exclusive option to purchase”, the bank refused to honor the
same.
7. Abacus filed with the RTC a complaint for specific performance
and prayed that it be granted the right to purchase the property.
The RTC ruled in favor of Abacus granting the exclusive option to
purchase. The Court of Appeals reversed the decision.
8. Abacus insisted that the option to purchase the lot and building in
question granted to it by the bank’s late acting president, Vicente
G. Puyat, was binding upon the latter. On the other hand, the bank
insists that Puyat had no authority to act for Manila bank, as it was
already placed under receivership by the Central Bank at the time
of the granting of the exclusive option to purchase.
ISSUE:
1. Whether or not Manila Bank’s acting President, Vicente G. Puyat
is authorized to grant the exclusive option to purchase
2. Whether or not the receiver, Atty. Renan Santos may grant or
approve the “exclusive option to purchase”
RULING:
1. No. The appellate court was correct in declaring that Vicente G.
Puyat was without authority to grant the exclusive option to
purchase the lot and building in question. There is no question
that Mania Bank was under receivership, pursuant to Central
Bank’s MB Resolution No. 505 dated May 22, 1987, at the time
the late Vicente G. Puyat granted the “exclusive option to
purchase” to the Laureano group of investors.
As held in Villanueva vs. CA:
. . . the assets of the bank pass beyond its control into the possession and
control of the receiver whose duty it is to administer the assets for the
benefit of the creditors of the bank. Thus, the appointment of a receiver
operates to suspend the authority of the bank and of its directors and
officers over its property and effects, such authority being reposed in the
receiver, and in this respect, the receivership is equivalent to an injunction
BANKING CASE DIGESTS
to restrain the bank officers from intermeddling with the property of the
bank in any way.
With respondent bank having been already placed under receivership, its
officers, inclusive of its acting president, Vicente G. Puyat, were no longer
authorized to transact business in connection with the bank’s assets and
property. Clearly then, the “exclusive option to purchase” granted by
Vicente G. Puyat was and still is unenforceable against Manila Bank.
2. No. As provided under Sec.30 on NCBA, the receiver appointed by
the Central Bank to take charge of the properties of a bank placed
under receivership only had authority to administer the same for
the benefit of its creditors. Granting or approving an “exclusive
option to purchase” is not an act of administration, but an act of
strict ownership, involving, as it does, the disposition of property
of the bank. Not being an act of administration, the so-called
“approval” by Atty. Renan Santos amounts to no approval at all, a
bank receiver not being authorized to do so on his own.
In all, respondent bank’s receiver was without any power to approve or
ratify the “exclusive option to purchase” granted by the late Vicente G.
Puyat, who, in the first place, was himself bereft of any authority, to bind
the bank under such exclusive option. Manila Bank may not thus be
compelled to sell the land and building in question to petitioner Abacus
under the terms of the latter’s “exclusive option to purchase.”
BANCO FILIPINO SAVINGS AND MORTGAGE BANK VS. THE MONETARY
BOARD; G.R. No. 70054 December 11, 1991
Facts:
1. Banco Filipino Savings and Mortgage Bank commenced operations on
July 9, 1964. It has 89 operating branches with more than 3 million
depositors. It has an approved emergency advance of P119.7 million.
ACCM
2. The Monetary Board placed Banco Filipino Savings and Mortgage Bank
under conservatorship of Basilio Estanislao. He was later replaced by
Gilberto Teodoro as conservator on August 10, 1984. Gilberto Teodoro
submitted a report dated January 8, 1985 to respondent The Monetary
Board on the conservatorship of the bank.
3. Subsequently, another report dated January 23, 1985 was submitted
to the Monetary Board by Ramon Tiaoqui regarding the major findings of
examination on the financial condition of Banco Filipino Savings and
Mortgage Bank as of July 31, 1984, finding the bank one of insolvency and
illiquidity and provides sufficient justification for forbidding the bank from
engaging in banking.
4. The Monetary Board ordered the closure of Banco Filipino and
designated Mrs. Carlota P. Valenzuela as Receiver.
5. Banco Filipino filed a complaint with the RTC to set aside the action of
the Monetary Board placing the bank under receivership and filed with
the SC the petition for certiorari and mandamus.
6. Carlota Valenzuela, as Receiver and Arnulfo Aurellano and Ramon
Tiaoqui as Deputy Receivers of Banco Filipino submitted their report on
the receivership of the bank to the Monetary Board, finding that the
condition of the banking institution continues to be one of insolvency, i.e.,
its realizable assets are insufficient to meet all its liabilities and that the
bank cannot resume business with safety to its depositors, other creditors
and the general public, and recommends the liquidation of the bank.
7. Banco Filipino filed a motion before the SC praying that a restraining
order or a writ of preliminary injunction be issued to enjoin respondents
from causing the dismantling of Banco Filipino signs in its main office and
89 branches. The SC ordered the issuance of the temporary restraining
order.
8. The SC directed the Monetary Board and Central Bank hold hearings at
which the Banco Filipino should be heard.
BANKING CASE DIGESTS
PRINCIPAL Issue: Whether or not the Central Bank and the Monetary
Board acted arbitrarily and in bad faith in finding and thereafter
concluding that Banco Filipino Savings and Mortgage Bank is insolvent,
and in ordering its closure
Ruling: YES, they acted arbitrarily in concluding that BFS is insolvent.
The closure and receivership of Banco Filipino Savings and Mortgage Bank,
which was ordered by the Monetary Board on is null and void.
The Monetary Board may order the cessation of operations of a bank in
the Philippines and place it under receivership upon a finding of insolvency
or when its continuance in business would involve probable loss its
depositors or creditors. If the Monetary Board shall determine and
confirm within 60 days that the bank is insolvent or can no longer resume
business with safety to its depositors, creditors and the general public, it
shall, if public interest will be served, order its liquidation.
Under Section 29 of the Central Bank Act, the following are the
mandatory requirements to be complied with before a bank found to be
insolvent is ordered closed and forbidden to do business in the
Philippines:
1. an examination shall be conducted by the head of the
appropriate supervising or examining department or his
examiners or agents into the condition of the bank;
2. it shall be disclosed in the examination that the condition of the
bank is one of insolvency, or that its continuance in business
would involve probable loss to its depositors or creditors;
3. the department head concerned shall inform the Monetary
Board in writing, of the facts; and
4. the Monetary Board shall find the statements of the department
head to be true.
Clearly, Tiaoqui based his report on an incomplete examination of the
bank and outrightly concluded that the latter's financial status was one of
insolvency or illiquidity. He arrived at the conclusion: that as of July 31,
ACCM
1984, total capital accounts consisting of paid-in capital and other capital
accounts such as surplus, surplus reserves and undivided profits
aggregated ₱351.8 million; that capital adjustments, however, wiped out
the capital accounts and placed the bank with a capital deficiency
amounting to ₱334.956 million; that the biggest adjustment which
contributed to the deficit is the provision for estimated losses on accounts
classified as doubtful and loss which was computed at ₱600.4 million
pursuant to the examination. The valuation which was set up or deducted
against the capital accounts of the bank in arriving at the latter's financial
condition. Tiaoqui admits the insufficiency and unreliability of the findings
of the examiner as to the setting up of recommended valuation reserves
from the assets of the bank.
The examination contemplated in Sec. 29 of the CB Act as a mandatory
requirement was not completely and fully complied with. Despite the
existence of the partial list of findings in the examination of the bank,
there were still highly significant items to be weighed and determined
such as the matter of valuation reserves, before these can be considered
in the financial condition of the bank. It would be a drastic move to
conclude prematurely that a bank is insolvent if the basis for such
conclusion is lacking and insufficient, especially if doubt exists as to
whether such bases or findings faithfully represent the real financial status
of the bank.
In arriving at the computation of realizable assets of Banco Filipino,
respondents used its books which undoubtedly are not reflective of the
actual cash or fair market value of its assets which is not the proper
procedure contemplated in Sec. 29 of the Central Bank Act.
The receivership of Banco Filipino, indicates that total liabilities of
₱4,540.84 million does not exceed the total assets of ₱4,981.53 million.
Likewise, the consolidated statement of condition of the bank prepared
by the Central Bank Authorized Deputy Receiver Artemio Cruz shows that
total assets amounting to ₱4,981,522,996.22 even exceeds total liabilities
amounting to ₱4,540,836,834.15.
BANKING CASE DIGESTS
Based on the foregoing, there was no valid reason for the Valenzuela,
Aurellano and Tiaoqui report to finally recommend the liquidation of
Banco Filipino instead of its rehabilitation.
ONG VS. COURT OF APPEALS; G.R. No. 112830. February 1, 1996.
All claims against the insolvent bank should be filed in the
liquidation proceeding. The judicial liquidation is intended to prevent
multiplicity of actions against the insolvent bank. It is a pragmatic
arrangement designed to establish due process and orderliness in the
liquidation of the bank, to obviate the proliferation of litigations and to
avoid injustice and arbitrariness.
Facts: Jerry Ong filed with the Regional Trial Court of Quezon City a
petition for the surrender of 2 TCTs against Rural Bank of Olongapo, Inc.
(RBO), represented by its liquidator Guillermo G. Reyes, Jr. and deputy
liquidator Abel Allanigue. The complaint stemed from 2 parcels of land
which was duly mortgaged by RBO in favor of petitioner to guarantee the
payment of Omnibus Finance, Inc., which is likewise now undergoing
liquidation proceedings of its money market obligations to petitioner.
Omnibus Finance, Inc., not having seasonably settled its obligations to
petitioner, the latter proceeded to effect the extrajudicial foreclosure of
said mortgages and the city sheriff of Tagaytay City issued a certificate of
sale in favor of petitioner which were duly registered.
Respondents failed to seasonably redeem said parcels of land, for which
reason, petitioner has executed an affidavit of consolidation of ownership
which has not been submitted to the Registry of Deeds of Tagaytay City,
in view of the fact that possession of the aforesaid titles or owner’s
duplicate certificates of title remains with the RBO. To date, petitioner has
not been able to effect the registration of said parcels of land in his name
in view of the persistent refusal of respondents to surrender RBO’s copies
of its owner’s certificates of title for the parcels of land covered by the two
TCTs.
ACCM
Respondent RBO filed a motion to dismiss on the ground of res judicata
and that it was undergoing liquidation and it is the liquidation court which
has exclusive jurisdiction to take cognizance of petitioner’s claim. Trial
court denied the motion to dismiss because it found that the causes of
action in the previous and present cases were different although it was
silent on the jurisdictional issue. RBO filed a motion for reconsideration
but was similarly rejected. The Court of Appeals, through a certiorari filed
by RBO, annulled the challenged orders of the trial court which sustained
the jurisdiction of the trial court and denied reconsideration thereof.
Moreover, the trial judge was ordered to dismiss the civil case without
prejudice to the right of petitioner to file his claim in the liquidation
proceedings pending before the Regional Trial Court of Olongapo City.
Issue: Whether or not the civil case against RBO may proceed
independently from the liquidation proceedings.
Held: Section 29, par. 3, of R.A. 265 as amended by P. D. 1827 provides
–If the Monetary Board shall determine and confirm within (sixty days)
that the bank x x x is insolvent or cannot resume business with safety to
its depositors, creditors and the general public, it shall, if the public
interest requires, order its liquidation, indicate the manner of its
liquidation and approve a liquidation plan. The Central Bank shall, by the
Solicitor General, file a petition in the Court of First Instance reciting the
proceedings which have been taken and praying the assistance of the
court in the liquidation of such institution. The court shall have
jurisdiction in the same proceedings to adjudicate disputed claims against
the bank x x x and enforce individual liabilities of the stockholders and do
all that is necessary to preserve the assets of such institution and to
implement the liquidation plan approved by the Monetary Board
All claims against the insolvent bank should be filed in the liquidation
proceeding. The judicial liquidation is intended to prevent multiplicity of
actions against the insolvent bank. It is a pragmatic arrangement designed
to establish due process and orderliness in the liquidation of the bank, to
obviate the proliferation of litigations and to avoid injustice and
BANKING CASE DIGESTS
arbitrariness. It is not necessary that a claim be initially disputed in a court
or agency before it is filed with the liquidation court.
PRODUCERS BANK vs NLRC and PRODUCERS BANK EMPLOYEES
ASSOCIATION; G.R. No. 118069 November 16, 1998
FACTS:
1. Producers Bank was placed by the Central Bank of the Philippines
(now BSP) under a conservator for the purpose of protecting its
assets.
2. It appears that when the Producer Bank Employees Association
(private respondents) sought the implementation of the CBA
regarding the retirement plan and uniform allowance, the acting
conservator of the bank expressed her objection to such plan,
resulting a deadlock between the bank and the union.
3. The deadlock continued for at least 6 months, this prompted the
union to file a case against the bank for unfair labor practice and
flagrant violation of the CBA provisions.
4. LA – dismissed the complaint.
 Basis: Considering that the bank is under conservatorship
program, the latter is under no compulsion to implement
that CBA. It would not redound for the best interest of the
bank in accordance with the conservatorship program, he
may not be faulted by such inaction or action.
5. NLRC- reversed LA
 Basis: To adhere first to the interest of the company to
the prejudice of the workers can never be allowed or
tolerated as the interest of the working masses is the
paramount concern of the government.
ISSUE: Whether or not the bank should comply with the CBA provisions
while under conservatorship
RULING: YES. While admittedly, the CB law gives vast and far-reaching
powers to the conservator of a bank, it must be pointed out that such
ACCM
powers must be related to the; (1) preservation of the assets of the banks;
(2) reorganization of the management; and (3) restoration of its viability.
Such powers, enormous and extensive as they are, cannot extend to the
post-facto repudiation of perfected transactions, otherwise they would
infringe against the non-impairment clause of the Constitution. If the
legislature itself cannot revoke and existing valid contract, how can it
delegate such non-existent powers to the conservator under Section 28-A
of said law?
Section 28-A merely gives the conservator power to revoke contracts that
are, under existing law, deemed to be defective – i.e., void, voidable,
unenforceable or rescissible. Hence, the conservator merely takes the
place of a bank's board of directors. What the said board cannot do – such
as repudiating a contract validly entered into under the doctrine of
implied authority – the conservator cannot do either. Ineluctably, his
power is not unilateral and he cannot simply repudiate valid obligations
of the bank. His authority would be only to bring court actions to assail
such contracts – as she has already done in the instant case.
A contrary understanding of the law would simply not be permitted by the
Constitution. Neither by common sense. To rule otherwise would be to
enable a failing bank to become solvent, at the expense of third parties,
by simply getting the conservator to unilaterally revoke all previous
dealings which had one way or another come to be considered
unfavorable to the Bank, yielding nothing to perfected contractual rights
nor vested interests of the third parties who had dealt with the Bank.
VIVAS V. MONETARY BOARD G.R. No. 191424; August 7, 2013
FACTS:
 Alfeo Vivas and his principals acquired the controlling interest in
the Rural Bank of Faire when its corporate life expired
 An internal audit was conducted on RBFI and certain measures
calculated to revitalize the bank were allegedly introduced
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 The BSP issued the Certificate issued the Certificate of Authority
extending the corporate life of RBFI for another 50 years and it
also approved the change of its name to Euro Credit
Incorporated, as well as the increase in the number of the
members of the BOD, from 5 to 11
 The Integrated Supervision Department II (ISD II) of the BSP
conducted a general examination on ECBI pursuant to Sec. 28 of
the NCBA, and the members of the BOD were immediately
apprised of the findings
 In April 2008, the examiners from the Dept. of Loans and Credit
if the BSP cancelled the rediscounting line of ECBI, which
prompted Vivas to appeal the cancellation to the BSP
 The Monetary Board issued Resolution No. 1255 placing ECBI
under Prompt Corrective Action due to serious findings and
supervisory concerns so Vivas moved for reconsideration
 The ISD II had invited the BOD of ECBI to discuss matters on
several instances but the meeting never materialized
 The MB eventually imposed fine on ECBI and referred the matter
to the Office of Special Investigation for the filing of appropriate
legal action
 The OSI filed with the DOJ a complaint for Estafa through
Falsification of Commercial Documents a
 The MB then issued Resolution No. 276 placing ECBI under
receivership
ISSUE: WON ECBI’s placement under receivership was unwarranted and
improper
RULING: No. Vivas Availed of the Wrong Remedy
To begin with, Vivas availed of the wrong remedy. The MB issued
Resolution No. 276, dated March 4, 2010, in the exercise of its power
under R.A. No. 7653.
 Under Section 30 thereof, any act of the MB placing a bank
under conservatorship, receivership or liquidation may not be
restrained or set aside except on a petition for certiorari.
ACCM
The Petition Should Have Been Filed in the CA
 MB is a quasi-judicial agency be filed in the Court of Appeals. If it
involves the acts or omissions of a quasi-judicial agency, unless
otherwise provided by law or the Rules, the petition shall be filed
in and cognizable only by the Court of Appeals.
Close Now, Hear Later
At any rate, if circumstances warrant it, the MB may forbid a bank from
doing business and place it under receivership without prior notice and
hearing.
Section 30 of R.A. No. 7653 provides, viz:
 Sec. 30. Proceedings in Receivership and Liquidation. –
Whenever, upon report of the head of the supervising or
examining department, the Monetary Board finds that a bank or
quasi-bank:
a. is unable to pay its liabilities as they become due in the
ordinary course of business: Provided, that this shall not
include inability to pay caused by extraordinary demands
induced by financial panic in the banking community;
b. has insufficient realizable assets, as determined by the
Bangko Sentral, to meet its liabilities; or
c. cannot continue in business without involving probable
losses to its depositors or creditors; or
d. has willfully violated a cease and desist order under
Section 37 that has become final, involving acts or
transactions which amount to fraud or a dissipation of
the assets of the institution; in which cases, the
Monetary Board may summarily and without need for
prior hearing forbid the institution from doing business
in the Philippines and designate the Philippine Deposit
Insurance Corporation as receiver of the banking
institution.
The Court, in several cases, upheld the power of the MB to take over
banks without need for prior hearing. It is not necessary inasmuch as the
BANKING CASE DIGESTS ACCM

law entrusts to the MB the appreciation and determination of whether

any or all of the statutory grounds for the closure and receivership of the
erring bank are present. The MB, under R.A. No. 7653, has been invested
with more power of closure and placement of a bank under receivership
for insolvency or illiquidity, or because the bank’s continuance in
business would probably result in the loss to depositors or creditors.

The "close now, hear later" doctrine has already been justified as a
measure for the protection of the public interest. Swift action is called
for on the part of the BSP when it finds that a bank is in dire straits.
Unless adequate and determined efforts are taken by the government
against distressed and mismanaged banks, public faith in the banking
system is certain to deteriorate to the prejudice of the national economy
itself, not to mention the losses suffered by the bank depositors,
creditors, and stockholders, who all deserve the protection of the
government.