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Banking Laws | Atty.

Pete Bayani Camporedondo | Midterms Pointers

Banks

refer to entities engaged in the lending of funds obtained in the form of deposits obtained from the public. (Sec 3, GBL)

Elements (Sec 8, GBL)

i. That the entity is a stock corporation;


ii. That its funds are obtained from the public, which shall mean twenty (20) or more persons; and
iii. That the minimum capital requirements prescribed by the Monetary Board for each category of banks are
satisfied.

GBL Applicability

Bañas v. Asia Pacific Finance, GR 128703

An investment company engaged in the purchase of receivables at a discount. Did it engage in banking business without
authority from the Bangko Sentral?

No. An investment company refers to any issuer which is or holds itself out as being engaged or proposes to engage primarily in
the business of investing, reinvesting or trading in securities. Securities include commercial papers evidencing indebtedness of any person,
fi nancial or non-fi nancial entity, irrespective of maturity, issued, endorsed, sold, transferred or in any manner conveyed to another with or
without recourse, such as promissory notes. Purchase of receivables at a discount, is well within the purview of “investing, reinvesting or
trading in securities” which an investment company is authorized to perform and does not constitute a violation of the banking laws.116
Indubitably, what is prohibited by law is for investment companies to lend funds obtained from the public through receipts of deposit, which
is a function of banking institutions.

Problem: A total of 59,463 savings account deposits have been made by the public with A corporation and its 74 branches. A Corporation
has an aggregate deposit of P1,689,136.74, which has been lent out to such persons as the corporation deemed suitable therefor. Is the
corporation engaged in banking business?

Yes. It is clear that these transactions partake of the nature of banking.110 Indeed, a bank has been defi ned as a moneyed
institute111 founded to facilitate the borrowing, lending and safe-keeping of money112 and to deal, in notes, bills of exchange, and
credits.113 An investment company which loans out the money of its customers, collects the interest and charges a commission to both
lender and borrower, is a bank.114 Any person engaged in the business carried on by banks of deposit, of discount, or of circulation is
doing a banking business, although but one of these functions is exercised.115 Thus, authority from the Bangko Sentral is necessary.

Give the classifications of banks and their definition. (GBL)


1. Universal banks ‐ Primarily governed by the General Banking Law (GBL), can exercise the powers of an investment house and invest
in non‐allied enterprises and have the highest capitalization requirement.

2. Commercial banks ‐ Ordinary banks governed by the GBL which have a lower capitalization requirement than universal banks and can
neither exercise the powers of an investment house nor invest in non‐allied enterprises.

3. Thrift banks – These are a) Savings and mortgage banks; b) Stock savings and loan associations; c) Private development banks,
which are primarily governed by the Thrift Banks Act (R.A. 7906).

4. Rural banks – Mandated to make needed credit available and readily accessible in the rural areas on reasonable terms and which are
primarily governed by the Rural Banks Act of 1992 (RA 7353).

5. Cooperative banks – Those banks organized whose majority shares are owned and controlled by cooperatives primarily to provide
financial and credit services to cooperatives. It shall include cooperative rural banks. They are governed primarily by the Cooperative
Code (RA 6938).

6. Islamic banks – Banks whose business dealings and activities are subject to the basic principles and rulings of Islamic Shari’ a, such
as the Al Amanah Islamic Investment Bank of the Philippines which was created by RA 6848.

7. Other classification of banks as determined by the Monetary Board of the Bangko Sentral ng Pilipinas.

Universal Bank v. Commercial Bank v. Thrift Bank

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Quasi-banks
refer to entities engaged in the borrowing of funds through the issuance, endorsement or assignment with recourse or acceptance
of deposit substitutes for purposes of relending or purchasing of receivables and other obligations. (Sec 4, GBL)

In this connection, deposit substitutes is an alternative form of obtaining funds from the public, other than deposits, through the
issuance, endorsement, or acceptance of debt instruments for the borrower’s own account, for the purpose of relending or purchasing of
receivables and other obligations. These instruments may include, but need not be limited to, bankers acceptances, promissory notes,
participations, certifi cates of assignment and similar instruments with recourse, and repurchase agreements.

Nature of Bank Deposits

Based on existing jurisprudence, the following are the nature of bank deposits:

(i) It should be noted that fi xed, savings, and current deposits of money in banks and similar institutions are that true deposits are
considered simple loans and, as such, are not preferred credits.39

(ii) Bank deposits are in the nature of irregular deposits. They are really loans because they earn interest.40 All kinds of bank deposits,
whether fi xed, savings, or current are to be treated as loans and are to be covered by the law on loans.41 Current and saving deposits, are
loans to a bank because it can use the same. A depositor is in reality a creditor of the Bank and not a depositor. The Bank is in turn a
debtor of depositor. Failure of the Bank to honor the time deposit is failure to pay its obligation as a debtor and not a breach of trust arising
from a depositary’s failure to return the subject matter of the deposit.42

(iii) The relationship between the depositor and the Savings and Loan Association is that of creditor and debtor; consequently, the
ownership of the amount deposited was transmitted to the Bank upon the perfection of the contract and it can make use of the amount
deposited for its banking operations, such as to pay interests on deposits and to pay withdrawals. While the Bank has the obligation to
return the amount deposited, it has, however, no obligation to return or deliver the same money that was deposited. And, the failure of the
Bank to return the amount deposited will not constitute estafa through misappropriation punishable under Article 315, par. 1(b) of the
Revised Penal Code, but it will only give rise to civil
liability.43

(iv) The contract between the bank and its depositor is governed by the provisions of the Civil Code on simple loan.44 Article 1980 of the
Civil Code expressly provides that “x x x savings x x x deposits of money in banks and similar institutions shall be governed by the
provisions concerning simple loan.” There is a debtor-creditor relationship between the bank and its depositor. The bank is the debtor and
the depositor is the creditor. The depositor lends the bank money and the bank agrees to pay the depositor on demand. The savings
deposit agreement between the bank and the depositor is the contract that determines the rights and obligations of the parties.45

(v) A bank ultimately acquires ownership of the deposits, but such ownership is coupled with a corresponding obligation to pay the
depositor an equal amount on demand. Although the bank owns the deposits, it cannot prevent the depositor from demanding payment of
the bank’s obligation by drawing checks against his current account, or asking for the release of the funds in his savings account. Thus,
when the depositor issues checks drawn against his current account, he has every right as creditor to expect that those checks will be
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honored by the bank as debtor. A bank does not have a unilateral right to freeze the accounts of a depositor based on its mere suspicion
that the funds therein were proceeds of a scam the depositor was allegedly involved in. To grant any bank the right to take whatever action
it pleases on deposits which it supposes are derived from shady transactions, would open the floodgates of public distrust in the banking
industry.46

Bank Deposits v. Deposits v. Trust Agreements

Bank Deposits – refer to the foregoing

Deposits
Art 1962, NCC
A deposit is constituted from the moment a person receives a thing belonging to another, with the obligation of safely
keeping it and of returning the same. If the safekeeping of the thing delivered is not the principal purpose of the contract, there is no deposit
but some other contract.

Trust Agreements
Contain funds administered by the bank for the benefit of the trustor or another person or persons.
Note: Not a Trust Agreement
i. However, the fi duciary nature of a bank-depositor relationship does not convert the contract between the bank and its
depositors from a simple loan to a trust agreement, whether express or implied. Failure by the bank to pay the depositor is failure
to pay a simple loan, and not a breach of trust.12 The law simply imposes on the bank a higher standard of integrity and
performance in complying with its obligations under the contract of simple loan, beyond those required of non-bank debtors under
a similar contract of simple loan.

ii. The fi duciary nature of banking does not convert a simple loan into a trust agreement because banks do not accept
deposits to enrich depositors but to earn money for themselves. The law allows banks to offer the lowest possible interest rate to
depositors while charging the highest possible interest rate on their own borrowers. The interest spread or differential belongs to
the bank and not to the depositors who are not cestui que trust of banks. If depositors are cestui que trust of banks, then the
interest spread or income belongs to the depositors, a situation that Congress certainly did not intend in enacting Section 2 of R.A.
8791.

Nature of Safety Deposit Box

1. Special Kind of Deposit


The contract governing safety deposit box is a special kind of deposit. It cannot be characterized as an ordinary contract of lease
under Article 1643 of the Civil Code because the full and absolute possession and control of the safety deposit box is not given to the
renters. The guard key of the box remains with the bank; without this key, the renters could not open the box. On the other hand, the bank
could not likewise open the box without the renter’s key.175
Thus:
(i) In case the said key had a duplicate which was made so that joint renters could have access to the box, the
bank is not liable to either of the renters in case of loss attributable to either of them. Since both renters agreed that each
should have one (1) renter’s key, it was obvious that either of them could ask the bank for access to the safety deposit
box and, with the use of such key and the bank’s own guard key, could open the said box, without the other renter being
present.
(ii) Where a bank was not aware of an agreement between joint renters to the effect that the articles were
withdrawable from the safety deposit box only upon both parties’ joint signatures, and that no evidence was submitted to
reveal that the loss was due to the fraud or negligence of the bank, the bank is not liable.176
2. Bailor and Bailee
The Supreme Court explicitly rejected the contention that a contract for the use of a safety deposit box is a contract of lease nor
did it fully subscribe to the view that it is a contract of deposit to be strictly governed by the Civil Code provision on deposit. It is, as it
declared, a special kind of deposit. The prevailing rule in American jurisprudence — that the relation between a bank renting out safe
deposit boxes and its customer with respect to the contents of the box is that of a bailor and bailee, the bailment being for hire and mutual
benefit — has been adopted in this jurisdiction.177
3. Duties May Be Defi ned By The Parties
“With respect to property deposited in a safe-deposit box by a customer of a safe-deposit company, the parties, since the relation
is a contractual one, may by special contract defi ne their respective duties or provide for increasing or limiting the liability of the deposit
company, provided such contract is not in violation of law or public policy. It must clearly appear that there actually was such a special
contract, however, in order to vary the ordinary obligations implied by law from the relationship of the parties; liability of the deposit
company will not be enlarged or restricted by words of doubtful meaning. The company, in renting safe-deposit boxes, cannot exempt itself
from liability for loss of the contents by its own fraud or negligence or that of its agents or servants, and if a provision of the contract may be
construed as an attempt to do so, it will be held ineffective for the purpose. Although it has been held that the lessor of a safe-deposit box
cannot limit its liability for loss of the contents thereof through its own negligence, the view has been taken that such a lessor may limit its
liability to some extent by agreement or stipulation.”178
Problem:
A rented the Safety Deposit Box of B Bank wherein he placed his collection of stamps. The said safety deposit box leased by A
was at the bottom or at the lowest level of the safety deposit boxes of the bank. Floodwater entered into the bank’s premises, seeped into
the safety deposit box leased by A and caused damage to his stamps collection. B Bank failed to notify A. The bank rejected A’s claim for
compensation for his damaged stamps collection, so, A instituted an action for damages against the bank. Is the bank guilty of
negligence?
Yes. The bank was guilty of negligence. Bank’s negligence aggravated the injury or damage to A which resulted from the loss or
destruction of the stamp collection. B Bank was aware of the floods; it also knew that the fl oodwaters inundated the room where the Safe
Deposit Box was located. In view hereof, it should have lost no time in notifying A in order that the box could have been opened to retrieve
the stamps, thus saving the same from further deterioration and loss. In this respect, it failed to exercise the reasonable care and prudence
expected of a good father or a family, thereby becoming a party to the aggravation of the injury or loss. Accordingly, the aforementioned
fourth characteristic of a fortuitous event is absent and Article 1170 of the Civil Code, which reads: “Those who in the performance of their
obligations are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages.”
The destruction or loss of the stamp collection caused A pecuniary loss; hence, he must be compensated therefor.179

175CA Agro-Industrial Development Corp. vs. Court of Appeals, G.R. No. 90027,
March 3, 1993.
176Ibid

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177Luzan Sia vs. Court of Appeals, G.R. No. 102970, May 13, 1993.
178CA Agro-Industrial Development Corp. vs. Court of Appeals, G.R. No. 90027,
March 3, 1993.

Foreign Stockholdings (Sec 11, GBL)


(i) Foreign individuals and non-bank corporations may own or control up to forty percent (40%) of the voting stock of a domestic
bank. This rule shall apply to Filipinos and domestic non-bank corporations.10

Note: This provision is ambiguous. It appears that foreign individuals and non-bank corporations may only control up to forty
percent (40%) of the voting stock. On the other hand, Filipinos and domestic non-bank corporations may also control only up to
forty percent of the voting stock. What happens then to the remaining twenty percent (20%)?
The same has been clarifi ed as follows:
a) Foreign individuals and non-bank corporations may own or control up to forty percent (40%) of the voting
stock of a domestic bank: Provided, That the aggregate foreignvoting stocks owned by the foreign individuals and
nonbank corporations in a domestic bank shall not exceed forty percent (40%) of the outstanding voting stock of the
bank. The percentage of foreign-owned voting stock in a bank shall be determined by the citizenship of the individual
stockholders in that bank.
b) A Filipino individual and a domestic non-bank corporation may each own up to forty percent (40%) of the
voting stock of a domestic bank. There shall be no aggregate ceiling on the ownership by such individuals and
corporations in a domestic bank.

(ii) The percentage of foreign-owned voting stocks in a bank shall be determined by the citizenship of the individual stockholders
in that bank. The citizenship of the corporation which is a stockholder in a bank shall follow the citizenship of the controlling stockholders of
the corporation, irrespective of the place of incorporation. Thus, the citizenship of the corporation which is a stockholder of a bank shall
follow the citizenship of the controlling stockholders of the corporation, irrespective of the place of incorporation. The term “controlling
stockholders” shall refer to individuals holding more than Fifty percent (50%) of the voting stock of the corporate stockholders of the bank.

(iii) At least 60% of voting stock of any commercial bank shall be owned by Filipino citizens. For any thrift bank, at least 40% of its
voting stock shall be owned by Filipino citizens. Subject to Section 4 of Republic Act. No. 7353 (Rural Banks Act), all of the capital stock of
any rural bank shall be fully owned and held, directly or indirectly, by Filipino citizens or corporations, associations or cooperatives qualified
under Philippine laws to own and hold such capital stock.
Note: In determining the nationality of banks, the control test is applied.

Board of Directors
A. Number of Directors
The provisions of the Corporation Code to the contrary notwithstanding, there shall be at least five (5), and a maximum of fifteen
(15) members of the board of directors of bank, two (2) of whom shall be independent directors.
An “independent director” means a person other than an officer or employee of the bank, its subsidiaries or affiliates or related
interests. (Sec 15, GBL)
B. Directors of Merged or Consolidated Banks
In the case of a bank merger or consolidation, the number of directors shall not exceed twenty-one. (Sec 17, GBL)

Fit and Proper Rule (Sec 16, GBL)


A. Powers of the Monetary Board (Regulation)
The GBL provides the following rules:
1. To maintain the quality of bank management and afford better protection to depositors and the public in general, the
Monetary Board shall prescribe, pass upon and review the qualifications and disqualifications of individuals elected or appointed
bank directors or officers and disqualify those found unfit.
2. After due notice to the board of directors of the bank, the Monetary Board may disqualify, suspend or remove any bank
director or officer who commits or omits an act which render him unfi t for the position.
3. In determining whether an individual is fi t and proper to hold the position of a director or offi cer of a bank, regard shall
be given to his integrity, experience, education, training, and competence. (CITEE)
Notes:
- By reason of public interest
- Safeguard
- Exercise of police power

DOSRI Limitations (Sec 36, GBL)


Approval and Other Requirements
(i) No director or officer of any bank shall, directly or indirectly, for himself or as the representative or agent of others, borrow from
such bank nor shall he become a guarantor, indorser or surety for loans from such bank to others, or in any manner be an obligor or incur
any contractual liability to the bank except with the written approval of the majority of all the directors of the bank, excluding the director
concerned.
• Such written approval shall not be required for loans, other credit accommodations and advances granted to officers
under a fringe benefit plan approved by the Bangko Sentral.

(ii) The required approval shall be entered upon the records of the bank and a copy of such entry shall be transmitted forthwith to
the appropriate supervising and examining department of the Bangko Sentral. – Reportorial

(iii) Dealings of a bank with any of its directors, officers or stockholders and their related interests shall be upon terms not less
favorable to the bank than those offered to others. – Arms length rule
Effect of Violation
After due notice to the board of directors of the bank, the office of any bank director or officer who violates the foregoing may be
declared vacant and the director or offi cer shall be subject to the penal provisions provided in the New Central Bank Act.
Limits of Loans
(i) The Monetary Board may regulate the amount of loans, credit accommodations and guarantees that may be extended, directly
or indirectly, by a bank to its directors, officers, stockholders and their related interests, as well as investments of such bank in enterprises
owned or controlled by said directors, officers, stockholders and their related interests.
(ii) The outstanding loans, credit accommodations and guarantees which a bank may extend to each of its stockholders, directors,
or officers and their related interests, shall be limited to an amount equivalent to their respective unencumbered deposits and book
value of their paid-in capital contribution in the bank. - Ceiling

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Exclusions to the Limit
(i) Loans, credit accommodations and guarantees secured by assets considered as non-risk by the Monetary Board shall be
excluded from such limit.
(ii) Loans, credit accommodations and advances to officers in the form of fringe benefits granted in accordance with rules as may
be prescribed by the Monetary Board shall not be subject to the individual limit.
(iii) The limit on loans, credit accommodations and guarantees shall not apply to loans, credit accommodations and guarantees
extended by a cooperative bank to its cooperative shareholders.
Notes:
- Substantive limitation – ceiling requirement
- Procedural limitation – approval and reportorial

Single Borrower’s Limit (Sec 35.1, GBL)


(i) The total amount of loans, credit accommodations and guarantees as may be defi ned by the Monetary Board that may be
extended by a bank to any person, partnership, association, corporation or other entity shall at no time exceed twenty percent (20%) of the
net worth of such bank.
Exceptions:
(i) As the Monetary Board may otherwise prescribe for reasons of national interest
(ii) Deposits of rural banks with government-owned or -controlled fi nancial institutions like the Land Bank of the
Philippines, the Development Bank of the Philippines, and the Philippine National Bank are exempted from the Single Borrower’s
Limit imposed by the General Banking Act.

Foreclosure of REM
Procedure
Section 47 of the GBL provides for the following procedures:
(i) In the event of foreclosure, whether judicially or extrajudicially, of any mortgage on real estate which is security for any loan or
other credit accommodation granted, the mortgagor or debtor whose real property has been sold for the full or partial payment of his
obligation shall have the right within one year after the sale of the real estate, to redeem the property by paying the amount due under the
mortgage deed, with interest thereon at the rate specified in the mortgage, and all the costs and expenses incurred by the bank or
institution from the sale and custody of said property less the income derived therefrom.
(ii) However, the purchaser at the auction sale concerned whether in a judicial or extrajudicial foreclosure shall have the right to
enter upon and take possession of such property immediately after the date of the confirmation of the auction sale and administer the same
in accordance with law.
(iii) Any petition in court to enjoin or restrain the conduct of foreclosure proceedings shall be given due course only upon the fi ling
by the petitioner of a bond in an amount fixed by the court conditioned that he will pay all the damages which the bank may s uffer by the
enjoining or the restraint of the foreclosure proceeding.
(iv) Notwithstanding Act 3135 (An Act to Regulate the Sale of Property under Special Powers Inserted in or Annexed to
Real Estate Mortgage), juridical persons whose property is being sold pursuant to an extrajudicial foreclosure, shall have th e right to
redeem the property until, but not after, the registration of the certifi cate of foreclosure sale with the applicable Register of Deeds which in
no case shall be more than three (3) months after foreclosure, whichever is earlier.119
Demand Before Foreclosure Essential
The issue of whether demand was made before the foreclosure was effected is essential. If demand was made and duly received
by the mortgagor and the latter still did not pay, then they were already in default and foreclosure was proper. However, if demand was not
made, then the loans had not yet become due and demandable. This meant that the mortgagor had not defaulted in their payments and the
foreclosure by the mortgagee was premature. Foreclosure is valid only when the debtor is in default in the payment of his
obligation.138
Right of Redemption may be Extended by Agreement
The right of legal redemption must be exercised within specifi ed time limits.145 However, the statutory period of redemption can
be extended by agreement of the parties.

Fiscal policy v. Monetary policy

Fiscal policy
Is the govt’s policy on the generation of its resources through taxation and/or borrowing, as well as the setting of the level and
allocation of expenditures.

Monetary policy
Measure or actions taken by the central bank to influence the general price level and the level of liquidity in the economy.

The Monetary Board (NCBA)

Composition

Section 6. Composition of the Monetary Board. - The powers and functions of the Bangko Sentral shall be exercised by the
Bangko Sentral Monetary Board, hereafter referred to as the Monetary Board, composed of seven (7) members appointed by the President
of the Philippines for a term of six (6) years.

The seven (7) members are:

(a) the Governor of the Bangko Sentral, who shall be the Chairman of the Monetary Board. The Governor of the Bangko Sentral
shall be head of a department and his appointment shall be subject to confirmation by the Commission on Appointments.
Whenever the Governor is unable to attend a meeting of the Board, he shall designate a Deputy Governor to act as his alternate:
Provided, That in such event, the Monetary Board shall designate one of its members as acting Chairman;

(b) a member of the Cabinet to be designated by the President of the Philippines. Whenever the designated Cabinet Member is
unable to attend a meeting of the Board, he shall designate an Undersecretary in his Department to attend as his alternate; and

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(c) five (5) members who shall come from the private sector, all of whom shall serve full-time: Provided, however, That of the
members first appointed under the provisions of this subsection, three (3) shall have a term of six (6) years, and the other two (2),
three (3) years.

No member of the Monetary Board may be reappointed more than once.


Dis/Qualifications/Removal

Section 8. Qualifications. - The members of the Monetary Board must be natural-born citizens of the Philippines, at least thirty-
five (35) years of age, with the exception of the Governor who should at least be forty (40) years of age, of good moral character, of
unquestionable integrity, of known probity and patriotism, and with recognized competence in social and economic disciplines.

Section 9. Disqualifications. - In addition to the disqualifications imposed by Republic Act No. 6713, a member of the Monetary
Board is disqualified from being a director, officer, employee, consultant, lawyer, agent or stockholder of any bank, quasi-bank or any other
institution which is subject to supervision or examination by the Bangko Sentral, in which case such member shall resign from, and divest
himself of any and all interests in such institution before assumption of office as member of the Monetary Board.

The members of the Monetary Board coming from the private sector shall not hold any other public office or public employment
during their tenure.

No person shall be a member of the Monetary Board if he has been connected directly with any multilateral banking or financial
institution or has a substantial interest in any private bank in the Philippines, within one (1) year prior to his appointment; likewise, no
member of the Monetary Board shall be employed in any such institution within two (2) years after the expiration of his term except when
he serves as an official representative of the Philippine Government to such institution.

Section 10. Removal. - The President may remove any member of the Monetary Board for any of the following reasons:

(a) If the member is subsequently disqualified under the provisions of Section 8 of this Act; or

(b) If he is physically or mentally incapacitated that he cannot properly discharge his duties and responsibilities and such
incapacity has lasted for more than six (6) months; or

(c) If the member is guilty of acts or operations which are of fraudulent or illegal character or which are manifestly opposed to the
aims and interests of the Bangko Sentral; or

(d) If the member no longer possesses the qualifications specified in Section 8 of this Act.

Consevatorship v. Receivership v. Liquidation

Cases

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Fultron Iron Works v. China Banking GR 32576 Nov 6, 1930

The specialized function of bank is to serve as a place of deposit for money, to keep it safely while on deposit, and to pay it out,
upon demand to the person who effected the deposit or upon his order. A bank is not a guardian of trust funds deposited with it in the
sense that it must see their proper application nor is it its business to pry into the uses to which moneys on deposit in tits vault are being
put; and so long as it serves its functions and pays the money out in good faith to the person who deposited it, or upon his order, without
knowledge or notice that it is in fact assisting in the misappropriation of the fun, the bank will be protected. It would seriously interfere with
commercial transactions to charge banks with the duty of supervising the administration of trust funds, when, in due course of business,
they receive the checks and drafts in proper form draw upon such funds in their custody.

Guingona Jr. v. City Fiscal of Manila GR L-60033 Apr 4, 1984

When priv respo David invested his money on nine and savings deposits with the bank, the contract that was perfected was a
contract of simple loan or mutuum and not a contract of deposit. Fixed, savings, and current deposits of money in banks and similar
institutions shall be governed the provisions concerning simple loan – Art 1980, NCC.

Hence, the relationship bet the priv respo and the NSLA is that of creditor and debtor; consequently, the ownership of the amount
deposited was transmitted to the bank upon perfection of the contract and it can make use of the amount deposited for its banking
operations, such as to pay interests on deposits deposits and to pay withdrawals. When the bank has the obligation to return the amount
deposited, it has, however, no obligation to return or deliver the same money that was deposited will not constitute estafa through
misappropriation punishable under RPC, but it will only give rise to civil liability over which the public respo has no jurisdiction.

Gullas v PNB GR L-4319113 Nov 13, 1935

Although PNB had with respect to the deposit of Gullas a right of set off, its remedy was not enforced properly.

Notice of dishonor is necessary in order to charge an indorser and that the right of action against him does not accrue until the
notice is given. Prior to the mailing of notice of dishonor, and without waiting for any action by Gullas, the bank made use of the money
standing in his account to make good for the treasury warrant. The action of the bank was prejudicial to Gullas. As such, Gullas should be
awarded nominal damages because of the premature action of the bank.

Vitug Case GR 82027 Mar 29, 1990

The survivorship agreement is a contract which imposed a mere obligation with a term--being death. Such contracts are permitted
under Article 2012 on aleatory contracts. When Dolores predeceased her husband the latter acquired upon her death a vested right over
the funds in the account. The conveyance is therefore not mortis causa.

GBA

PCIB v. Balmaceda GR 158143 Sep 21, 2011

60-40 liability

PCIB itself at fault as employer

In considering this case, one point that cannot be disregarded is the significant role that PCIB played which contributed to the
perpetration of the fraud. We cannot ignore that Balmaceda managed to carry out his fraudulent scheme primarily because other PCIB
employees failed to carry out their assigned tasks – flaws imputable to PCIB itself as the employer. Despite Balmaceda’s gross violations of
bank procedures – mainly in the processing of the applications for Manager’s checks and in the releasing of the Manager’s checks –
Balmaceda’s co-employees not only turned a blind eye to his actions, but actually complied with his instructions. In this way, PCIB’s own
employees were unwitting accomplices in Balmaceda’s fraud.

While we appreciate that Balmaceda took advantage of his authority and position as the branch manager to commit these acts,
this circumstance cannot be used to excuse the manner the Bank – through its employees –handled its clients’ bank accounts and
thereby ignored established bank procedures at the branch manager’s mere order. This lapse is made all the more glaring by Balmaceda’s
repetition of his modus operandi 33 more times in a period of over one year by the Bank’s own estimation. With this kind of record, blame
must be imputed on the Bank itself and its systems, not solely on the weakness or lapses of individual employees.

PNB v. FF Cruz 173259 Jul 25, 2011

Preliminarily, in G.R. No. 173278, we resolved with finality13 that FFCCI is guilty of contributory negligence, thus, making it partly
liable for the loss (i.e., as to 40% thereof) arising from the unauthorized withdrawal of .13,210,500.31 from its combo account. The case
before us is, thus, limited to PNB’s alleged negligence in the subject transactions which the appellate court found to be the proximate cause
of the loss, thus, making it liable for the greater part of the loss (i.e., as to 60% thereof) pursuant to our rulings in Philippine Bank of
Commerce v. Court of Appeals14 and The Consolidated Bank & Trust Corporation v. Court of Appeals.15 PNB contends that it was not
negligent in verifying the genuineness of the signatures appearing on the subject applications for manager’s check. It claims that it followed
the standard operating procedure in the verification process and that four bank officers examined the signatures and found the same to be
similar with those found in the signature cards of FFCCI’s authorized signatories on file with the bank.

As correctly found by the appellate court, PNB failed to make the proper verification because the applications for the manager’s
check do not bear the signature of the bank verifier. PNB concedes the absence16 of the subject signature but argues that the same was
the result of inadvertence. It posits that the testimonies of Geronimo Gallego (Gallego), then the branch manager of PNB Timog Branch,
and Stella San Diego (San Diego), then branch cashier, suffice to establish that the signature verification process was duly followed.

We are not persuaded. First, oral testimony is not as reliable as documentary evidence.17 Second, PNB’s own witness, San
Diego, testified that in the verification process, the principal duty to determine the genuineness of the signature devolved upon the account
analyst.18 However, PNB did not present the account analyst to explain his or her failure to sign the box for signature and balance
verification of the subject applications for manager’s check, thus, casting doubt as to whether he or she did indeed verify the signatures
thereon. Third, we cannot fault the appellate court for not giving weight to the testimonies of Gallego and San Diego considering that the
latter are naturally interested in exculpating themselves from any liability arising from the failure to detect the forgeries in the subject
transactions. Fourth, Gallego admitted that PNB’s employees received training on detecting forgeries from the National Bureau of

7
Investigation.19 However, Emmanuel Guzman, then NBI senior document examiner, testified, as an expert witness, that the forged
signatures in the subject applications for manager’s check contained noticeable and significant differences from the genuine signatures of
FFCCI’s authorized signatories and that the forgeries should have been detected or observed by a trained signature verifier of any bank.20

Given the foregoing, we find no reversible error in the findings of the appellate court that PNB was negligent in the handling of
FFCCI’s combo account, specifically, with respect to PNB’s failure to detect the forgeries in the subject applications for manager’s check
which could have prevented the loss. As we have often ruled, the banking business is impressed with public trust.21 A higher degree of
diligence is imposed on banks relative to the handling of their affairs than that of an ordinary business enterprise.22 Thus, the degree of
responsibility, care and trustworthiness expected of their officials and employees is far greater than those of ordinary officers and
employees in other enterprises.23 In the case at bar, PNB failed to meet the high standard of diligence required by the circumstances to
prevent the fraud. In Philippine Bank of Commerce v. Court of Appeals24 and The Consolidated Bank & Trust Corporation v. Court of
Appeals,25 where the bank’s negligence is the proximate cause of the loss and the depositor is guilty of contributory negligence, we
allocated the damages between the bank and the depositor on a 60-40 ratio. We apply the same ruling in this case considering that, as
shown above, PNB’s negligence is the proximate cause of the loss while the issue as to FFCCI’s contributory negligence has been settled
with finality in G.R. No. 173278. Thus, the appellate court properly adjudged PNB to bear the greater part of the loss consistent with these
rulings.

Reyes v. CA GR 118492 Aug 15, 2001

The courts a quo found that respondent bank did not misrepresent that it was maintaining a deposit account with Westpac-
Sydney. Respondent bank's assistant cashier explained to Godofredo Reyes, representing PRCI and petitioner Gregorio H. Reyes, how
the transfer of Australian dollars would be effected through Westpac-New York where the respondent bank has a dollar account to
Westpac-Sydney where the subject foreign exchange demand draft (FXDD No. 209968) could be encashed by the payee, the 20th Asian
Racing Conference Secretariat. PRCI and its Vice-President for finance, petitioner Gregorio H. Reyes, through their said representative,
agreed to that arrangement or procedure. In other words, the petitioners are estopped from denying the said arrangement or procedure.
Similar arrangements have been a long standing practice in banking to facilitate international commercial transactions. In fact, the SWIFT
cable message sent by respondent bank to the drawee bank, Westpac-Sydney, stated that it may claim reimbursement from its New York
branch, Westpac-New York, where respondent bank has a deposit dollar account. The facts as found by the courts a quo show that
respondent bank did not cause an erroneous transmittal of its SWIFT cable message to Westpac-Sydney. It was the erroneous decoding of
the cable message on the part of Westpac-Sydney that caused the dishonor of the subject foreign exchange demand draft. An employee of
Westpac-Sydney in Sydney, Australia mistakenly read the printed figures in the SWIFT cable message of respondent bank as "MT799"
instead of as "MT199". As a result, Westpac-Sydney construed the said cable message as a format for a letter of credit, and not for a
demand draft. The appellate court correct found that "the figure before '99' can still be distinctly seen as a number '1' and not number '7'."
Indeed, the line of a "7" is in a slanting position while the line of a "1" is in a horizontal position. Thus, the number "1" in "MT199" cannot be
construed as "7".11

The evidence also shows that the respondent bank exercised that degree of diligence expected of an ordinary prudent person under the
circumstances obtaining. Prior to the first dishonor of the subject foreign exchange demand draft, the respondent bank advised Westpac-
New York to honor the reimbursement claim of Westpac-Sydney and to debit the dollar account12 of respondent bank with the former. As
soon as the demand draft was dishonored, the respondent bank, thinking that the problem was with the reimbursement and without any
idea that it was due to miscommunication, re-confirmed the authority of Westpac-New York to debit its dollar account for the purpose of
reimbursing Westpac-Sydney.13 Respondent bank also sent two (2) more cable messages to Westpac-New York inquiring why the
demand draft was not honored.14 With these established facts, we now determine the degree of diligence that banks are required to exert
in their commercial dealings. In Philippine Bank of Commerce v. Court of Appeals15 upholding a long standing doctrine, we ruled that the
degree of diligence required of banks, is more than that of a good father of a family where the fiduciary nature of their relationship with their
depositors is concerned. In other words banks are duty bound to treat the deposit accounts of their depositors with the highest degree of
care. But the said ruling applies only to cases where banks act under their fiduciary capacity, that is, as depositary of the deposits of their
depositors. But the same higher degree of diligence is not expected to be exerted by banks in commercial transactions that do not involve
their fiduciary relationship with their depositors.

Considering the foregoing, the respondent bank was not required to exert more than the diligence of a good father of a family in regard to
the sale and issuance of the subject foreign exchange demand draft. The case at bar does not involve the handling of petitioners' deposit, if
any, with the respondent bank. Instead, the relationship involved was that of a buyer and seller, that is, between the respondent bank as
the seller of the subject foreign exchange demand draft, and PRCI as the buyer of the same, with the 20th Asian Racing conference
Secretariat in Sydney, Australia as the payee thereof. As earlier mentioned, the said foreign exchange demand draft was intended for the
payment of the registration fees of the petitioners as delegates of the PRCI to the 20th Asian Racing Conference in Sydney.

The evidence shows that the respondent bank did everything within its power to prevent the dishonor of the subject foreign exchange
demand draft. The erroneous reading of its cable message to Westpac-Sydney by an employee of the latter could not have been foreseen
by the respondent bank. Being unaware that its employee erroneously read the said cable message, Westpac-Sydney merely stated that
the respondent bank has no deposit account with it to cover for the amount of One Thousand Six Hundred Ten

Australian Dollar (AU $1610.00) indicated in the foreign exchange demand draft. Thus, the respondent bank had the impression that
Westpac-New York had not yet made available the amount for reimbursement to Westpac-Sydney despite the fact that respondent bank
has a sufficient deposit dollar account with Westpac-New York. That was the reason why the respondent bank had to re-confirm and
repeatedly notify

Westpac-New York to debit its (respondent bank's) deposit dollar account with it and to transfer or credit the corresponding amount to
Westpac-Sydney to cover the amount of the said demand draft.

Allied Bank v. BPI GR 188363 Feb 27, 2013

As well established by the records, both petitioner and respondent were admittedly negligent in the encashment of a check post-
dated one year from its presentment. The doctrine of last clear chance, stated broadly, is that the negligence of the plaintiff does not
preclude a recovery for the negligence of the defendant where it appears that the defendant, by exercising reasonable care and prudence,
might have avoided injurious consequences to the plaintiff notwithstanding the plaintiff’s negligence.22

The doctrine necessarily assumes negligence on the part of the defendant and contributory negligence on the part of the plaintiff,
and does not apply except upon that assumption.23 Stated differently, the antecedent negligence of the plaintiff does not preclude him from
recovering damages caused by the supervening negligence of the defendant, who had the last fair chance to prevent the impending harm
by the exercise of due diligence.24Moreover, in situations where the doctrine has been applied, it was defendant’s failure to exercise such

8
ordinary care, having the last clear chance to avoid loss or injury, which was the proximate cause of the occurrence of such loss or
injury.25

In this case, the evidence clearly shows that the proximate cause of the unwarranted encashment of the subject check was the
negligence of respondent who cleared a post-dated check sent to it thru the PCHC clearing facility without observing its own verification
procedure. As correctly found by the PCHC and upheld by the RTC, if only respondent exercised ordinary care in the clearing process, it
could have easily noticed the glaring defect upon seeing the date written on the face of the check "Oct. 9, 2003". Respondent could have
then promptly returned the check and with the check thus dishonored, petitioner would have not credited the amount thereof to the payee’s
account. Thus, notwithstanding the antecedent negligence of the petitioner in accepting the post-dated check for deposit, it can seek
reimbursement from respondent the amount credited to the payee’s account covering the check. What petitioner omitted to mention is that
in the cited case of Philippine Bank of Commerce v. Court of Appeals,26while the Court found petitioner bank as the culpable party under
the doctrine of last clear chance since it had, thru its teller, the last opportunity to avert the injury incurred by its client simply by faithfully
observing its own validation procedure, it nevertheless ruled that the plaintiff depositor (private respondent) must share in the loss on
account of its contributory negligence. Apportionment of damages between parties who are both negligent was followed in subsequent
cases involving banking transactions notwithstanding the court’s finding that one of them had the last clear opportunity to avoid the
occurrence of the loss.

"Contributory negligence is conduct on the part of the injured party, contributing as a legal cause to the harm he has suffered,
which falls below the standard to which he is required to conform for his own protection."34 Admittedly, petitioner’s acceptance of the
subject check for deposit despite the one year postdate written on its face was a clear violation of established banking regulations and
practices. In such instances, payment should be refused by the drawee bank and returned through the PCHC within the 24-hour
reglementary period. As aptly observed by the CA, petitioner’s failure to comply with this basic policy regarding post-dated checks was "a
telling sign of its lack of due diligence in handling checks coursed through it."35 It bears stressing that "the diligence required of banks is
more than that of a Roman paterfamilias or a good father of a family. The highest degree of diligence is expected,"36 considering the
nature of the banking business that is imbued with public interest. While it is true that respondent's liability for its negligent clearing of the
check is greater, petitioner cannot take lightly its own violation of the long-standing rule against encashment of post-dated checks and the
injurious consequences of allowing such checks into the clearing system. Petitioner repeatedly harps on respondent's transgression of
clearing house rules when the latter resorted to direct presentment way beyond the reglementary period but glosses over its own negligent
act that clearly fell short of the conduct expected of it as a collecting bank. Petitioner must bear the consequences of its omission to
exercise extraordinary diligence in scrutinizing checks presented by its depositors.

The Consolidated Bank v. Diaz GR 138569 Sep 11, 2003

Solidbanks Fiduciary Duty under the Law

The rulings of the trial court and the Court of Appeals conflict on the application of the law. The trial court pinned the liability on
L.C. Diaz based on the provisions of the rules on savings account, a recognition of the contractual relationship between Solidbank and L.C.
Diaz, the latter being a depositor of the former. On the other hand, the Court of Appeals applied the law on quasi-delict to determine who
between the two parties was ultimately negligent. The law on quasi-delict or culpa aquiliana is generally applicable when there is no pre-
existing contractual relationship between the parties. We hold that Solidbank is liable for breach of contract due to negligence, or culpa
contractual.

The contract between the bank and its depositor is governed by the provisions of the Civil Code on simple loan.[17] Article 1980 of
the Civil Code expressly provides that x x x savings x x x deposits of money in banks and similar institutions shall be governed by the
provisions concerning simple loan. There is a debtor-creditor relationship between the bank and its depositor. The bank is the debtor and
the depositor is the creditor. The depositor lends the bank money and the bank agrees to pay the depositor on demand.The savings
deposit agreement between the bank and the depositor is the contract that determines the rights and obligations of the parties.

The law imposes on banks high standards in view of the fiduciary nature of banking. Section 2 of Republic Act No. 8791 (RA
8791),[18] which took effect on 13 June 2000, declares that the State recognizes the fiduciary nature of banking that requires high
standards of integrity and performance.[19] This new provision in the general banking law, introduced in 2000, is a statutory affirmation of
Supreme Court decisions, starting with the 1990 case of Simex International v. Court of Appeals,[20] holding that the bank is under
obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship.[21]

This fiduciary relationship means that the banks obligation to observe high standards of integrity and performance is deemed
written into every deposit agreement between a bank and its depositor. The fiduciary nature of banking requires banks to assume a degree
of diligence higher than that of a good father of a family. Article 1172 of the Civil Code states that the degree of diligence required of an
obligor is that prescribed by law or contract, and absent such stipulation then the diligence of a good father of a family.[22]Section 2 of RA
8791 prescribes the statutory diligence required from banks that banks must observe high standards of integrity and performance in
servicing their depositors.Although RA 8791 took effect almost nine years after the unauthorized withdrawal of the P300,000 from L.C.
Diazs savings account, jurisprudence[23] at the time of the withdrawal already imposed on banks the same high standard of diligence
required under RA No. 8791.

However, the fiduciary nature of a bank-depositor relationship does not convert the contract between the bank and its depositors
from a simple loan to a trust agreement, whether express or implied. Failure by the bank to pay the depositor is failure to pay a simple loan,
and not a breach of trust.[24] The law simply imposes on the bank a higher standard of integrity and performance in complying with its
obligations under the contract of simple loan, beyond those required of non-bank debtors under a similar contract of simple loan.

The fiduciary nature of banking does not convert a simple loan into a trust agreement because banks do not accept deposits to
enrich depositors but to earn money for themselves. The law allows banks to offer the lowest possible interest rate to depositors while
charging the highest possible interest rate on their own borrowers. The interest spread or differential belongs to the bank and not to the
depositors who are not cestui que trust of banks. If depositors are cestui que trust of banks, then the interest spread or income belongs to
the depositors, a situation that Congress certainly did not intend in enacting Section 2 of RA 8791.

Solidbanks Breach of its Contractual Obligation

Article 1172 of the Civil Code provides that responsibility arising from negligence in the performance of every kind of obligation is
demandable. For breach of the savings deposit agreement due to negligence, or culpa contractual, the bank is liable to its depositor.
Calapre left the passbook with Solidbank because the transaction took time and he had to go to Allied Bank for another transaction. The
passbook was still in the hands of the employees of Solidbank for the processing of the deposit when Calapre left Solidbank. Solidbanks
rules on savings account require that the deposit book should be carefully guarded by the depositor and kept under lock and key, if

9
possible. When the passbook is in the possession of Solidbanks tellers during withdrawals, the law imposes on Solidbank and its tellers an
even higher degree of diligence in safeguarding the passbook.

Likewise, Solidbanks tellers must exercise a high degree of diligence in insuring that they return the passbook only to the
depositor or his authorized representative. The tellers know, or should know, that the rules on savings account provide that any person in
possession of the passbook is presumptively its owner. If the tellers give the passbook to the wrong person, they would be clothing that
person presumptive ownership of the passbook, facilitating unauthorized withdrawals by that person. For failing to return the passbook to
Calapre, the authorized representative of L.C. Diaz, Solidbank and Teller No. 6 presumptively failed to observe such high degree of
diligence in safeguarding the passbook, and in insuring its return to the party authorized to receive the same.

In culpa contractual, once the plaintiff proves a breach of contract, there is a presumption that the defendant was at fault or
negligent. The burden is on the defendant to prove that he was not at fault or negligent. In contrast, in culpa aquiliana the plaintiff has the
burden of proving that the defendant was negligent. In the present case, L.C. Diaz has established that Solidbank breached its contractual
obligation to return the passbook only to the authorized representative of L.C. Diaz. There is thus a presumption that Solidbank was at fault
and its teller was negligent in not returning the passbook to Calapre. The burden was on Solidbank to prove that there was no negligence
on its part or its employees.

Solidbank failed to discharge its burden. Solidbank did not present to the trial court Teller No. 6, the teller with whom Calapre left
the passbook and who was supposed to return the passbook to him. The record does not indicate that Teller No. 6 verified the identity of
the person who retrieved the passbook. Solidbank also failed to adduce in evidence its standard procedure in verifying the identity of the
person retrieving the passbook, if there is such a procedure, and that Teller No. 6 implemented this procedure in the present case.
Solidbank is bound by the negligence of its employees under the principle of respondeat superior or command responsibility. The defense
of exercising the required diligence in the selection and supervision of employees is not a complete defense in culpa contractual, unlike in
culpa aquiliana.[25]

The bank must not only exercise high standards of integrity and performance, it must also insure that its employees do likewise
because this is the only way to insure that the bank will comply with its fiduciary duty. Solidbank failed to present the teller who had the duty
to return to Calapre the passbook, and thus failed to prove that this teller exercised the high standards of integrity and performance
required of Solidbanks employees.

Proximate Cause of the Unauthorized Withdrawal

Another point of disagreement between the trial and appellate courts is the proximate cause of the unauthorized withdrawal. The
trial court believed that L.C. Diazs negligence in not securing its passbook under lock and key was the proximate cause that allowed the
impostor to withdraw the P300,000. For the appellate court, the proximate cause was the tellers negligence in processing the withdrawal
without first verifying with L.C. Diaz. We do not agree with either court.

Proximate cause is that cause which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces
the injury and without which the result would not have occurred.[26] Proximate cause is determined by the facts of each case upon mixed
considerations of logic, common sense, policy and precedent.[27] L.C. Diaz was not at fault that the passbook landed in the hands of the
impostor. Solidbank was in possession of the passbook while it was processing the deposit. After completion of the transaction, Solidbank
had the contractual obligation to return the passbook only to Calapre, the authorized representative of L.C. Diaz. Solidbank failed to fulfill its
contractual obligation because it gave the passbook to another person.

Solidbanks failure to return the passbook to Calapre made possible the withdrawal of the P300,000 by the impostor who took
possession of the passbook. Under Solidbanks rules on savings account, mere possession of the passbook raises the presumption of
ownership. It was the negligent act of Solidbanks Teller No. 6 that gave the impostor presumptive ownership of the passbook. Had the
passbook not fallen into the hands of the impostor, the loss of P300,000 would not have happened. Thus, the proximate cause of the
unauthorized withdrawal was Solidbanks negligence in not returning the passbook to Calapre.

There is no law mandating banks to call up their clients whenever their representatives withdraw significant amounts from their
accounts. L.C. Diaz therefore had the burden to prove that it is the usual practice of Solidbank to call up its clients to verify a withdrawal of
a large amount of money. L.C. Diaz failed to do so. Teller No. 5 who processed the withdrawal could not have been put on guard to verify
the withdrawal. Prior to the withdrawal of P300,000, the impostor deposited with Teller No. 6 the P90,000 PBC check, which later bounced.

The impostor apparently deposited a large amount of money to deflect suspicion from the withdrawal of a much bigger amount of
money. The appellate court thus erred when it imposed on Solidbank the duty to call up L.C. Diaz to confirm the withdrawal when no law
requires this from banks and when the teller had no reason to be suspicious of the transaction. Solidbank continues to foist the defense
that Ilagan made the withdrawal. Solidbank claims that since Ilagan was also a messenger of L.C. Diaz, he was familiar with its teller so
that there was no more need for the teller to verify the withdrawal.

We uphold the finding of the trial and appellate courts that a certain Noel Tamayo withdrew the P300,000. The Court is not a trier
of facts. We find no justifiable reason to reverse the factual finding of the trial court and the Court of Appeals. The tellers who processed the
deposit of the P90,000 check and the withdrawal of the P300,000 were not presented during trial to substantiate Solidbanks claim that
Ilagan deposited the check and made the questioned withdrawal. Moreover, the entry quoted by Solidbank does not categorically state that
Ilagan presented the withdrawal slip and the passbook.

Doctrine of Last Clear Chance

The doctrine of last clear chance states that where both parties are negligent but the negligent act of one is appreciably later than
that of the other, or where it is impossible to determine whose fault or negligence caused the loss, the one who had the last clear
opportunity to avoid the loss but failed to do so, is chargeable with the loss.[29] Stated differently, the antecedent negligence of the plaintiff
does not preclude im from recovering damages caused by the supervening negligence of the defendant, who had the last fair chance to
prevent the impending harm by the exercise of due diligence.[30]

We do not apply the doctrine of last clear chance to the present case. Solidbank is liable for breach of contract due to negligence
in the performance of its contractual obligation to L.C. Diaz. This is a case of culpa contractual, where neither the contributory negligence of
the plaintiff nor his last clear chance to avoid the loss, would exonerate the defendant from liability.[31] Such contributory negligence or last
clear chance by the plaintiff merely serves to reduce the recovery of damages by the plaintiff but does not exculpate the defendant from his
breach of contract.[32]

Mitigated Damages
10
Under Article 1172, liability (for culpa contractual) may be regulated by the courts, according to the circumstances. This means
that if the defendant exercised the proper diligence in the selection and supervision of its employee, or if the plaintiff was guilty of
contributory negligence, then the courts may reduce the award of damages. In this case, L.C. Diaz was guilty of contributory negligence in
allowing a withdrawal slip signed by its authorized signatories to fall into the hands of an impostor. Thus, the liability of Solidbank should be
reduced.

In Philippine Bank of Commerce v. Court of Appeals,[33] where the Court held the depositor guilty of contributory negligence, we
allocated the damages between the depositor and the bank on a 40-60 ratio. Applying the same ruling to this case, we hold that L.C. Diaz
must shoulder 40% of the actual damages awarded by the appellate court. Solidbank must pay the other 60% of the actual damages.

Simex Int’l v. CA GR 88013 Mar 19, 1990

A corporation is not as a rule entitled to moral damages because, not being a natural person, it cannot experience physical
suffering or such sentiments as wounded feelings, serious anxiety, mental anguish and moral shock. The only exception to this rule is
where the corporation has a good reputation that is debased, resulting in its social humiliation.

BDO v. Bayuga GR L-49568 Oct 17, 1979

The trial Court opined that to deny execution pending appeal would have Been to deny the borrowers relief from the substantial
injustice with which they have been burdened considering that their land had been mortgaged without the BANK having paid any centavo
for the loan. The Court of Appeals, in turn ruled that the issuance of a Writ of execution pending appeal is a matter of discretion on the part
of the issuing Court and as long as it is not exercised in a capricious or whimsical manner, and a special reason for its issuance is stated in
the Order, appellate Courts will not, disturb the same. The Court of Appeals was most persuaded by the fact that the loan is intended to
buy real estate property, the price of which varies as days go by." Upon the other hand, the BANK maintains that the issuance of the Writ
would patently work violence with justice and equity because the property given as collateral as well as the bonds which have been posted
are inadequate, and petitioner would be made to violate the General Banking Act. 17 Which provides that the loan in question should be for
the purpose only of acquiring urban or rural land; and that the appeal in CA-G.R. NO. 64130 would be rendered moot and academic.

While, prima facie, execution pending appeal seemed justified because of the unilateral cancellation of the release of the loan by
the BANK without notice, and the absence of complete supporting documents to the Petition, disclosures by the parties during the hearing
and pleadings and documents subsequently filed uphold a contrary view. Thus, during the hearing as well as in his Comments filed on May
30, 1979, 'TOLENTINO contended that he is not a party to the mortgage contract which was executed only between the BANK and
Bayuga; that he became a party only because he was "injured and damaged by the bad faith of the BANK;" that he is not willing to co-sign
a promissory note in the BANK's favor for the amount of P389,000.00, alleging that Bayuga had already signed a promissory note in
November, 1976 in the sum of P200,000.00; and that neither he nor Bayuga had obligated himself to put up any additional collateral.
Bayuga, for his part, during the hearing, assumed a very passive role admitting that he was but an employee of TOLENTINO who was the
prime mover in the entire transaction. The lack of good faith and of a sense of fair play on the part of private respondents was all too
evident. 'They were treating the release of the amount of P389,000.00 in their favor more as a money judgment, which it is not, rather than
as a loan which it is. They want to avail of the full benefits of the loan without assumption of the corresponding obligations, or very
minimally at, that. Since receipt of the aforestated amount, they have even refused to make any monthly amortizations even upon demand
by the BANK, contending that "no amount of the said loan is due. It will only be paid ten (10) years after the execution of the mortgage
contract as interpreted by our Courts." 18

The unfairness and inequity of this posture to the banking business is too evident to require elaboration. Funds of a bank are, in a
sense, held in trust. There are the interests of depositors to be protected. The collateral the BANK has in its favor, with a loan value of only
P157,889.76, is far from adequate to answer for the amount of P389,000.00 that is now in the hands of private respondents. The manner of
repayment by private respondents of that amount remains nebulous. Of course, the BANK is not without fault for this sorry state of affairs.

The special reason cited by the trial Court and upheld by the Court of Appeals, i.e., the "substantial injustice" wrought on private
respondents whose land had been mortgaged without any centavo paid for the loan, does not exist in law. As pointed out by the BANK, the
Calamba property need not have remained subject to the mortgage, the mortgage being but an accessory contract to the contract of loan
which is the principal obligation and which has been cancelled. The consideration of the mortgage is the same consideration of the
principal contract without which it cannot exist as an independent contract. 19 The "persuasive" factor considered by the Court of Appeals
"that the loan is intended to buy real estate property, the price of which varies as days go by" was disproved by the fact that TOLENTINO
utilized the amount initially released to purchase a certificate of time deposit and to open bank accounts in his name rather than pay for the
Algue property.

In the absence of good reasons, 20 private respondents have not shown a clear entitlement to execution pending appeal.
Moreover, after having received the loan proceeds of P389,000.00 on February 26, 1979 by means of the execution pending appea l
improvidently granted, they refused to make any monthly amortizations since March, 1979, notwithstanding the BANK's demands, on the
outrageous claim against all banking practice that they are not obligated to pay any amount on the loan until the lapse of ten (10) years
after the execution of the mortgage contract. Under the circumstances, defendants are clearly in default on their loan and are liable to
repay the whole amount with the stipulated interest.

Sorian v. People GR 162336 Feb 1, 2010

A bank officer violates the DOSRI2 law when he acquires bank funds for his personal benefit, even if such acquisition was
facilitated by a fraudulent loan application. Directors, officers, stockholders, and their related interests cannot be allowed to interpose the
fraudulent nature of the loan as a defense to escape culpability for their circumvention of Section 83 of Republic Act (RA) No. 337.3

We have examined the two informations against petitioner and we find that they contain allegations which, if hypothetically
admitted, would establish the essential elements of the crime of DOSRI violation and estafa thru falsification of commercial documents.

In Criminal Case No. 238-M-2001 for violation of DOSRI rules, the information alleged that petitioner Soriano was the president of
RBSM; that he was able to indirectly obtain a loan from RBSM by putting the loan in the name of depositor Enrico Carlos; and that he did
this without complying with the requisite board approval, reportorial, and ceiling requirements.

In Criminal Case No. 237-M-2001 for estafa thru falsification of commercial documents, the information alleged that petitioner, by
taking advantage of his position as president of RBSM, falsified various loan documents to make it appear that an Enrico Carlos secured a
loan of .8 million from RBSM; that petitioner succeeded in obtaining the loan proceeds; that he later converted the loan proceeds to his own
personal gain and benefit; and that his action caused damage and prejudice to RBSM, its creditors, the BSP, and the PDIC.

11
Significantly, this is not the first occasion that we adjudge the sufficiency of similarly worded informations. In Soriano v. People,45
involving the same petitioner in this case (but different transactions), we also reviewed the sufficiency of informations for DOSRI violation
and estafa thru falsification of commercial documents, which were almost identical, mutatis mutandis, with the subject informations herein.
We held in Soriano v. People that there is no basis for the quashal of the informations as "they contain material allegations charging
Soriano with violation of DOSRI rules and estafa thru falsification of commercial documents".

Petitioner raises the theory that he could not possibly be held liable for estafa in concurrence with the charge for DOSRI violation.
According to him, the DOSRI charge presupposes that he acquired a loan, which would make the loan proceeds his own money and which
he could neither possibly misappropriate nor convert to the prejudice of another, as required by the statutory definition of estafa.46 On the
other hand, if petitioner did not acquire any loan, there can be no DOSRI violation to speak of. Thus, petitioner posits that the two offenses
cannot co-exist. This theory does not persuade us. Petitioner’s theory is based on the false premises that the loan was extended to him by
the bank in his own name, and that he became the owner of the loan proceeds. Both premises are wrong.

The bank money (amounting to .8 million) which came to the possession of petitioner was money held in trust or administration by
him for the bank, in his fiduciary capacity as the President of said bank.47 It is not accurate to say that petitioner became the owner of the
.8 million because it was the proceeds of a loan. That would have been correct if the bank knowingly extended the loan to petitioner
himself. But that is not the case here. According to the information for estafa, the loan was supposed to be for another person, a certain
"Enrico Carlos"; petitioner, through falsification, made it appear that said "Enrico Carlos" applied for the loan when in fact he ("Enrico
Carlos") did not. Through such fraudulent device, petitioner obtained the loan proceeds and converted the same. Under these
circumstances, it cannot be said that petitioner became the legal owner of the .8 million. Thus, petitioner remained the bank’s fiduciary with
respect to that money, which makes it capable of misappropriation or conversion in his hands.

The next question is whether there can also be, at the same time, a charge for DOSRI violation in such a situation wherein the
accused bank officer did not secure a loan in his own name, but was alleged to have used the name of another person in order to indirectly
secure a loan from the bank. We answer this in the affirmative. Section 83 of RA 337 reads:

Section 83. No director or officer of any banking institution shall, either directly or indirectly, for himself or as the representative or
agent of others, borrow any of the deposits of funds of such bank, nor shall he become a guarantor, indorser, or surety for loans from such
bank to others, or in any manner be an obligor for moneys borrowed from the bank or loaned by it, except with the written approval of the
majority of the directors of the bank, excluding the director concerned. Any such approval shall be entered upon the records of the
corporation and a copy of such entry shall be transmitted forthwith to the Superintendent of Banks. The office of any director or officer of a
bank who violates the provisions of this section shall immediately become vacant and the director or officer shall be punished by
imprisonment of not less than one year nor more than ten years and by a fine of not less than one thousand nor more than ten thousand
pesos. x x x

The prohibition in Section 83 is broad enough to cover various modes of borrowing.[48] It covers loans by a bank director or officer
(like herein petitioner) which are made either: (1) directly, (2) indirectly, (3) for himself, (4) or as the representative or agent of others. It
applies even if the director or officer is a mere guarantor, indorser or surety for someone else's loan or is in any manner an obligor for
money borrowed from the bank or loaned by it. The covered transactions are prohibited unless the approval, reportorial and ceiling
requirements under Section 83 are complied with. The prohibition is intended to protect the public, especially the depositors,[49] from the
overborrowing of bank funds by bank officers, directors, stockholders and related interests, as such overborrowing may lead to bank
failures.[50] It has been said that "banking institutions are not created for the benefit of the directors [or officers]. While directors have great
powers as directors, they have no special privileges as individuals. They cannot use the assets of the bank for their own benefit except as
permitted by law. Stringent restrictions are placed about them so that when acting both for the bank and for one of themselves at the same
time, they must keep within certain prescribed lines regarded by the legislature as essential to safety in the banking business".51

A direct borrowing is obviously one that is made in the name of the DOSRI himself or where the DOSRI is a named party, while an
indirect borrowing includes one that is made by a third party, but the DOSRI has a stake in the transaction.52 The latter type – indirect
borrowing – applies here. The information in Criminal Case 238-M-2001 alleges that petitioner "in his capacity as President of Rural Bank
of San Miguel – San Ildefonso branch x x x indirectly borrow[ed] or secure[d] a loan with [RBSM] x x x knowing fully well that the same has
been done by him without the written consent and approval of the majority of the board of directors x x x, and which consent and approval
the said accused deliberately failed to obtain and enter the same upon the records of said banking institution and to transmit a copy thereof
to the supervising department of the said bank x x x by using the name of one depositor Enrico Carlos x x x, the latter having no knowledge
of the said loan, and once in possession of the said amount of eight million pesos (.8 million), [petitioner] converted the same to his own
personal use and benefit".53

The foregoing information describes the manner of securing the loan as indirect; names petitioner as the benefactor of the indirect
loan; and states that the requirements of the law were not complied with. It contains all the required elements54 for a violation of Section
83, even if petitioner did not secure the loan in his own name.

The broad interpretation of the prohibition in Section 83 is justified by the fact that it even expressly covers loans to third parties
where the third parties are aware of the transaction (such as principals represented by the DOSRI), and where the DOSRI’s interest does
not appear to be beneficial but even burdensome (such as in cases when the DOSRI acts as a mere guarantor or surety). If the law finds it
necessary to protect the bank and the banking system in such situations, it will surely be illogical for it to exclude a case like this where the
DOSRI acted for his own benefit, using the name of an unsuspecting person. A contrary interpretation will effectively allow a DOSRI to use
dummies to circumvent the requirements of the law.

In sum, the informations filed against petitioner do not negate each other.

NCBA

CB v. CA & Triumph Savings Bank

Under Sec. 29 of R.A. 265,15 the Central Bank, through the Monetary Board, is vested with exclusive authority to assess,
evaluate and determine the condition of any bank, and finding such condition to be one of insolvency, or that its continuance in business
would involve probable loss to its depositors or creditors, forbid the bank or non-bank financial institution to do business in the Philippines;
and shall designate an official of the CB or other competent person as receiver to immediately take charge of its assets and liabilities. The
fourth paragraph,16 which was then in effect at the time the action was commenced, allows the filing of a case to set aside the actions of
the Monetary Board which are tainted with arbitrariness and bad faith.

Contrary to the notion of private respondent, Sec. 29 does not contemplate prior notice and hearing before a bank may be
directed to stop operations and placed under receivership. When par. 4 (now par. 5, as amended by E.O. 289) provides for the filing of a
12
case within ten (10) days after the receiver takes charge of the assets of the bank, it is unmistakable that the assailed actions should
precede the filing of the case. Plainly, the legislature could not have intended to authorize "no prior notice and hearing" in the closure of the
bank and at the same time allow a suit to annul it on the basis of absence thereof.

In the early case of Rural Bank of Lucena, Inc. v. Arca [1965],17 We held that a previous hearing is nowhere required in Sec. 29
nor does the constitutional requirement of due process demand that the correctness of the Monetary Board's resolution to stop operation
and proceed to liquidation be first adjudged before making the resolution effective. It is enough that a subsequent judicial review be
provided. Even in Banco Filipino, 18 We reiterated that Sec. 29 of R.A. 265 does not require a previous hearing before the Monetary Board
can implement its resolution closing a bank, since its action is subject to judicial scrutiny as provided by law.

It may be emphasized that Sec. 29 does not altogether divest a bank or a non-bank financial institution placed under receivership
of the opportunity to be heard and present evidence on arbitrariness and bad faith because within ten (10) days from the date the receiver
takes charge of the assets of the bank, resort to judicial review may be had by filing an appropriate pleading with the court. Respondent
TSB did in fact avail of this remedy by filing a complaint with the RTC of Quezon City on the 8th day following the takeover by the receiver
of the bank's assets on 3 June 1985. This "close now and hear later" scheme is grounded on practical and legal considerations to prevent
unwarranted dissipation of the bank's assets and as a valid exercise of police power to protect the depositors, creditors, stockholders and
the general public.

In Rural Bank of Buhi, Inc. v. Court of Appeals,19 We stated that — . . . due process does not necessarily require a prior hearing;
a hearing or an opportunity to be heard may be subsequent to the closure. One can just imagine the dire consequences of a prior hearing:
bank runs would be the order of the day, resulting in panic and hysteria. In the process, fortunes may be wiped out and disillusionment will
run the gamut of the entire banking community.

We stressed in Central Bank of the Philippines v. Court of Appeals20 that — . . . the banking business is properly subject to
reasonable regulation under the police power of the state because of its nature and relation to the fiscal affairs of the people and the
revenues of the state (9 CJS 32).

Banks are affected with public interest because they receive funds from the general public in the form of deposits. Due to the
nature of their transactions and functions, a fiduciary relationship is created between the banking institutions and their depositors.
Therefore, banks are under the obligation to treat with meticulous care and utmost fidelity the accounts of those who have reposed their
trust and confidence in them (Simex International [Manila], Inc., v. Court of Appeals, 183 SCRA 360 [1990]).

It is then the Government's responsibility to see to it that the financial interests of those who deal with the banks and banking
institutions, as depositors or otherwise, are protected. In this country, that task is delegated to the Central Bank which, pursuant to its
Charter (R.A. 265, as amended), is authorized to administer the monetary, banking and credit system of the Philippines. Under both the
1973 and 1987 Constitutions, the Central Bank is tasked with providing policy direction in the areas of money, banking and credit;
corollarily, it shall have supervision over the operations of banks (Sec. 14, Art. XV, 1973 Constitution, and Sec. 20, Art. XII, 1987
Constitution). Under its charter, the CB is further authorized to take the necessary steps against any banking institution if its continued
operation would cause prejudice to its depositors, creditors and the general public as well. This power has been expressly recognized by
this Court.

In Philippine Veterans Bank Employees Union-NUBE v. Philippine Veterans Banks (189 SCRA 14 [1990], this Court held that: . . .
[u]nless 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. The government cannot simply cross its arms
while the assets of a bank are being depleted through mismanagement or irregularities. It is the duty of the Central Bank in such an event
to step in and salvage the remaining resources of the bank so that they may not continue to be dissipated or plundered by those entrusted
with their management. Section 29 of R.A. 265 should be viewed in this light; otherwise, We would be subscribing to a situation where the
procedural rights invoked by private respondent would take precedence over the substantive interests of depositors, creditors and
stockholders over the assets of the bank.

Admittedly, the mere filing of a case for receivership by the Central Bank can trigger a bank run and drain its assets in days or
even hours leading to insolvency even if the bank be actually solvent. The procedure prescribed in Sec. 29 is truly designed to protect the
interest of all concerned, i.e., the depositors, creditors and stockholders, the bank itself, and the general public, and the summary closure
pales in comparison to the protection afforded public interest. At any rate, the bank is given full opportunity to prove arbitrariness and bad
faith in placing the bank under receivership, in which event, the resolution may be properly nullified and the receivership lifted as the trial
court may determine.

The heavy reliance of respondents on the Banco Filipino case is misplaced in view of factual circumstances therein which are not
attendant in the present case. We ruled in Banco Filipino that the closure of the bank was arbitrary and attendant with grave abuse of
discretion, not because of the absence of prior notice and hearing, but that the Monetary Board had no sufficient basis to arrive at a sound
conclusion of insolvency to justify the closure. In other words, the arbitrariness, bad faith and abuse of discretion were determined only
after the bank was placed under conservatorship and evidence thereon was received by the trial court. As this Court found in that case, the
Valenzuela, Aurellano and Tiaoqui Reports contained unfounded assumptions and deductions which did not reflect the true financial
condition of the bank. For instance, the subtraction of an uncertain amount as valuation reserve from the assets of the bank would merely
result in its net worth or the unimpaired capital and surplus; it did not reflect the total financial condition of Banco Filipino.

Furthermore, the same reports showed that the total assets of Banco Filipino far exceeded its total liabilities. Consequently, on the
basis thereof, the Monetary Board had no valid reason to liquidate the bank; perhaps it could have merely ordered its reorganization or
rehabilitation, if need be. Clearly, there was in that case a manifest arbitrariness, abuse of discretion and bad faith in the closure of Banco
Filipino by the Monetary Board. But, this is not the case before Us. For here, what is being raised as arbitrary by private respondent is the
denial of prior notice and hearing by the Monetary Board, a matter long settled in this jurisdiction, and not the arbitrariness which the
conclusions of the Supervision and Examination Sector (SES), Department II, of the Central Bank were reached.

Once again We refer to Rural Bank of Buhi, Inc. v. Court of Appeals,21 and reiterate Our pronouncement therein that — . . . the
law is explicit as to the conditions prerequisite to the action of the Monetary Board to forbid the institution to do business in the Philippines
and to appoint a receiver to immediately take charge of the bank's assets and liabilities. They are: (a) an examination made by the
examining department of the Central Bank; (b) report by said department to the Monetary Board; and (c) prima facie showing that its
continuance in business would involve probable loss to its depositors or creditors. In sum, appeal to procedural due process cannot just
outweigh the evil sought to be prevented; hence, We rule that Sec. 29 of R.A. 265 is a sound legislation promulgated in accordance with
the Constitution in the exercise of police power of the state.

13
Consequently, the absence of notice and hearing is not a valid ground to annul a Monetary Board resolution placing a bank und er
receivership. The absence of prior notice and hearing cannot be deemed acts of arbitrariness and bad faith. Thus, an MB resolution placing
a bank under receivership, or conservatorship for that matter, may only be annulled after a determination has been made by the trial court
that its issuance was tainted with arbitrariness and bad faith. Until such determination is made, the status quo shall be maintained, i.e., the
bank shall continue to be under receivership.

As regards the second ground, to rule that only the receiver may bring suit in behalf of the bank is, to echo the respondent
appellate court, "asking for the impossible, for it cannot be expected that the master, the CB, will allow the receiver it has appointed to
question that very appointment." Consequently, only stockholders of a bank could file an action for annulment of a Monetary Board
resolution placing the bank under receivership and prohibiting it from continuing operations.22 In Central Bank v. Court of Appeals, 23 We
explained the purpose of the law — . . . in requiring that only the stockholders of record representing the majority of the capital stock may
bring the action to set aside a resolution to place a bank under conservatorship is to ensure that it be not frustrated or defeated by the
incumbent Board of Directors or officers who may immediately resort to court action to prevent its implementation or enforcement. It is
presumed that such a resolution is directed principally against acts of said Directors and officers which place the bank in a state of
continuing inability to maintain a condition of liquidity adequate to protect the interest of depositors and creditors. Indirectly, it is likewise
intended to protect and safeguard the rights and interests of the stockholders. Common sense and public policy dictate then that the
authority to decide on whether to contest the resolution should be lodged with the stockholders owning a majority of the shares for they are
expected to be more objective in determining whether the resolution is plainly arbitrary and issued in bad faith.

It is observed that the complaint in this case was filed on 11 June 1985 or two (2) years prior to 25 July 1987 when E.O. 289 was
issued, to be effective sixty (60) days after its approval (Sec. 5). The implication is that before E.O . 289, any party in interest could institute
court proceedings to question a Monetary Board resolution placing a bank under receivership. Consequently, since the instant complaint
was filed by parties representing themselves to be officers of respondent Bank (Officer-in-Charge and Vice President), the case before the
trial court should now take its natural course. However, after the effectivity of E.O. 289, the procedure stated therein should be followed and
observed.

Rural Bank of Lucena v. Arca GR L-21146 Sep 20, 1965

We see no irreconcilable conflict between section 10 (as amended) of Republic Act No. 720 (Rural Banks Act) and section 29 of
Republic Act No. 265 (Central Bank Act). The former provides in substance as follows:

The director of the Department of the Central Bank designated by the Monetary Board to supervise Rural Banks ... upon proof that
the Rural Bank or its board of directors or officers are conducting and managing the affairs of the bank in a manner contrary to laws,
orders, instructions, rules and regulations promulgated by the Monetary Board or in any manner substantially prejudicial to the interests of
the government, depositors or creditors, to take over the management of such bank when specifically authorized to do so by the Monetary
Board after due hearing until a new board of directors and officers are elected and qualified. ...

It is easily seen that what this section authorized is the take over of the management by the Central Bank, until the governing body
of the offending Rural Bank is recognized with a view to assuring compliance by it with the laws and regulations.

Upon the other hand, section 29 6f the Central Bank Act (R. A. 265) has in view a much more drastic step, the liquidation of a rural
bank by taking over its assets and converting them into money to pay off its creditors. Said section prescribes:

SEC. 29. Proceedings upon insolvency. — Whenever, upon examination by the Superintendent or his examiners or agents into
the condition of any banking institution, it shall be disclosed that the condition of the same is one of insolvency, or that its continuance in
business would involve probable loss to its depositors or creditors, it shall be the duty of the Superintendent forthwith, in writing, to inform
the Monetary Board of the facts, and the Board, upon finding the statement of the Superintendent to be true, shall forthwith forbid the
institution to do business in the Philippines and shall take charge of its assets and proceeds according to law.

The Monetary Board shall thereupon determine within thirty days whether the institution may be reorganized or otherwise placed
in such a condition so that it may be permitted to resume business with safety to its creditors and shall prescribe the conditions under which
such resumption of business shall take place. In such case the expenses and fee in the administration of the institution shall be determined
by the Board and shall be paid to the Central Bank out of the assets of such banking institution.

At any time within ten days after the Monetary Board has taken charge of the assets of any banking institution, such institution
may apply to the Court of First Instance for an order requiring the Monetary Board to show cause why it should not be enjoined from
continuing such charge of its assets, and the court may direct the Board to refrain from further proceedings and to surrender charge of its
assets.

If the Monetary Board shall determine that the banking institution cannot resume business with safety to its creditors, it 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 and supervision of the court in the liquidation of the affairs of the same. The Superintendent shall thereafter, upon order of the
Monetary Board and under the supervision of the court and with all convenient speed, convert the assets of the banking institution to
money.

Considering that section 27 of the Rural Banks law (R.A. No. 720) expressly declares that —

The provisions of Republic Acts numbered 265 and 337, in so far as applicable and not in conflict with any provision of this Act,
are hereby made a part of this Act. we find no room for questioning the applicability of section 29 of Republic Act No. 265 (Central Bank
Act) to rural banks organized under Republic Act 720, whenever the Monetary Board should find that the rural bank affected is insolvent, or
that its continuance in business would involve probable loss to its depositors or creditors, and that it cannot resume business with safety.

It follows that on the assumption that under section 10 of the Rural Banks Act the Monetary Board may not take over the
management of a rural bank without giving the latter a hearing, i.e., an opportunity to rebut the charge that it has contravened applicable
laws, rules and regulations to the substantial prejudice of the government, its depositors and creditors, such a previous hearing is nowhere
required by section 29 of the Central Bank Law. Manifestly, whether a rural bank's "continuance in business would involve probable loss" to
its clients or creditors and that it "cannot resume business with safety," is a matter of appreciation and judgment that the law entrusts
primarily to the Monetary Board. Equally apparent is that if the rural bank affected is in the condition previously adverted to, every minute of
delay in securing its assets from dissipation inevitably increases the danger to the creditors. For this reason, the statute has provided for a
subsequent judicial review of the Monetary Board, in lieu of a previous hearing.
14
In point of fact, the petitioner Rural Bank of Lucena did file a petition (Annex "G") for judicial review in the Court of First Instance of
Quezon Province, dated February 12, 1962, and challenged the validity of Resolution No. 122 of the Monetary Board (Case No. 6471) ; but
the Court of First Instance of Quezon dissolved the preliminary injunction issued in that case and allowed Resolution No. 122 to take effect,
without any steps being taken for a review of such action. This being the case, and in view of the manifest reluctance the Lucena bank's
officials to comply with the Monetary Board's resolution, the Central Bank had cause to seek judicial assistance for the discharge of its
duties as liquidator.

The petitioner rural bank seems to take the view that the proceedings had before Judge Gatmaitan in Case No. 47345, Branch
XIV, of the Court of First Instance of Manila constituted the judicial review required by section 29 of Republic Act No. 265, the Central Bank
Act. Such a stand is untenable, for the case tried and decided by Judge Gatmaitan concerned an attempt by the Central Bank to take over
management under section 10 of the Rural Banks law (R.A. No. 720) in connection with the Monetary Board's resolution No. 928 of June
16, 1961. Even more conclusive is the consideration that said action (Case No. 47345) was filed on June 22, 1961, and could not possibly
be a judicial review of the Resolution No. 122 adopted eight months later, on February 2, 1962. A review cannot precede the adoption of
the resolution being reviewed. This proposition requires no demonstration.

The narrated events also rebut the contention that the order of Judge Area, issued on March 28, 1963, in Case No. 50019,
constitutes unlawful interference with the enforcement of Judge Gatmaitan's decision of February 14, 1962, the issues involved being
different in each case. As heretofore pointed out one involved a take over of management under section 10 of the Rural Banks Act, and the
other a seizure of assets and liquidation under section 29 of the Central Bank law (R.A. 265).

Nor can the proceedings before Judge Area be deemed judicial review of the 1962 resolution No. 122 of the Monetary Board, if
only because by law (section29, R. A. 265) such review must be asked within 10 days from notice of the resolution of the Board.

Between the adoption of Resolution No. 122 and the challenged order of Judge Arca, more than one year had elapsed. Hence,
the validity of the Monetary Board's resolution can no longer be litigated before Judge Arca, whose role under the fourth paragraph of
section 29 is confined to assisting and supervising the liquidation of the Lucena bank.

Whether or not the Central Bank acted with arbitrariness or bad faith in decreeing that circumstances called for the liquidation of
the Lucena Rural Bank, and should be answerable in damages, should be threshed out and determined, not by Judge Arca but in Case No.
6471 of the Court of First Instance of Quezon Province, which was filed within the 10-day period prescribed by the Central Bank law, and
which appears to be still pending, unless the Lucena bank had abandoned such litigation, a fact that we need not decide at present. Suffice
it to say that Judge Arca had no reason to inquire into the merits of the case before issuing the disputed order requiring the surrender of the
assets and papers of the Lucena bank, because: (1) neither the statute (sec. 29, R.A. 265) nor the constitutional requirement of due
process demand that the correctness of the Monetary Board's resolution to stop operation and proceed to the liquidation of the Lucena
Rural Bank should first be adjudged before making the resolution effective, it being enough that a subsequent judicial review by provided
(section 29, R.A. 265; 12 Am. Jur. 305, sec. 611; Bourjois vs. Chapman, 301 U.S. 183, 81 Law Ed. 1027, 1032; American Surety Co. vs.
Baldwin, 77 Law Ed. 231, 86 ALR 307; Wilson vs. Standefer, 46 Law Ed. 612); (2) the period for asking such judicial review had elapsed
with excess between the adoption of the Monetary Board Resolution No. 122 and the filing of the case by the Central Bank in the Court of
First Instance of Manila; (3) the correctness of said resolution had already been put in issue before the Court of Quezon Province; (4)
because the latter court had refused to stop implementation of the Resolution of the Monetary Board when it dissolved its own preliminary
injunction; and (5) because the Lucena Bank had apparently acquiesced in the action taken by the Court of Quezon Province, since the
rural bank had not sought that the action of the Quezon court be set aside by a higher court.

CB v. Fernandez GR L-50031-32 Jul 27, 1981

1. The petitioner claims that the respondent Court of Appeals erred in not applying Presidential Decree No. 1007, dated
September 22, 1976, which amended Section 29 of Republic Act No. 265 during the pendency of the appeal and should have dismissed
the petition of Fernandez and Jayme in view of the findings of the said appellate court that there is no clear proof of gross and evident bad
faith on the part of the petitioner and the Eagle Broadcasting Corporation. In support of its contention, the petitioner invokes the case of
Lucas Ramirez vs. The Hon. Court of Appeals, et al. 18

Indeed, the appellate court, in reviewing a judgment on appeal, should dispose of a question according to the law prevailing at the
time of such disposition and not according to the law prevailing at the time of the rendition of the appealed judgment. Accordingly, Section
29 of Republic Act No. 265, as amended by Presidential Decree No. 1007, should be applied.

Under this section, as amended, the action of the Monetary Board in ordering the closure and liquidation of an insolvent bank is
final and executory and can be set aside only if there is convincing proof that the action is plainly arbitrary and made in bad faith.

The petition filed, however, should not be dismissed for while there may not be gross and evident bad faith on the part of the
Central Bank and Eagle Broadcasting Corporation to sustain the award of damages to Fernandez and Jayme, as ordered by the trial court,
the action of the Monetary Board in forbidding PROVIDENT from doing business in the Philippines and ordering its liquidation is clearly
arbitrary and was made in bad faith.

The arbitrariness and bad faith of the petitioner is evident from the fact that it pressured Fernandez and Jayme into relinquishing
the management and control of PROVIDENT to the Iglesia Ni Kristo cranad(INK) which did not have any intention of restoring the bank into
its former sound financial condition but whose interest was merely to recover its deposits from PROVIDENT, and, thereafter, allowing the
Iglesia Ni Kristo to mismanage PROVIDENT until the bank’s financial deterioration and subsequent closure.

“To recapitulate, the CB:

1. Failed to exact compliance by EAGLE of its obligations under the Memorandum Agreement.

2. Failed to exercise the necessary supervision over EAGLE’s management which could have checked EAGLE’s excuses or abuses.

3. Failed to enforce other reforms necessary to restore PROVIDENT to its former sound financial condition.

4. Failed to extend the support and assistance necessary to make reorganization and rehabilitation of PROVIDENT a reality.

“Illustrative of how PROVIDENT was being treated unfairly by the CB, one needs to take note only of the discrepancy in the
interest rates on emergency loans being exacted by the CB. Under the Fernandez/Jayme management of PROVIDENT, it was 12% per
annum. When management was transferred to EAGLE, the medium chosen by the CB for purposes of reorganization, interest was reduced
to 10% per annum. When the conditions at PROVIDENT continued to deteriorate under EAGLE’s management interest rates were again
15
raised to 12%. And yet, the CB proposed to extend to Banco Filipino, a solid and non-distressed bank which was a creditor of
PROVIDENT, an emergency loan under Sec. 90 of the CB Act of up to P7,000.000.00 ‘if it so desires at an interest rate to be determined
by Management but in no case lower than 4 per cent p.a.’cralawcranad(Par. a-1, p. 3, Exh. ‘9 CBP ‘), which is the Memorandum dated
September 14, 1972 of Governor Gregorio Licaros to the Monetary Board.” 19

“The penalties paid by PROVIDENT in its deficiency plus the 12% interests in its emergency loan greatly contributed to the
deterioration of PROVIDENT’s net worth. The CB is supposed to help a distressed bank, but in the case of PROVIDENT, the CB imposed
an interest of 12% on its emergency loans. In so doing, the CB, instead of helping improve the situation of PROVIDENT, actually
aggravated further its financial position. And what is most amazing, while this is being done to a bank in distress, the CB was willing to give
loans to a well-off bank, the Banco Filipino, loans at an interest of only 4%.” 20 Besides, the Central Bank has already rehabilitated similarly
distressed banks, the Republic Bank and the Overseas Bank of Manila, among several others, so that it would be unjust to PROVIDENT to
be deprived of the Central Bank’s continued support.

2. The petitioner next claims that the Court of Appeals erred in not holding that there can be no estoppel against the petitioner in
view of the latter’s valid exercise of police power by its lawful overseeing of Provident Savings Bank.

The contention is without merit. While the closure and liquidation of a bank may be considered an exercise of police power, the
validity of such exercise of police power is subject to judicial inquiry and could be set aside if it is either capricious, discriminatory,
whimsical, arbitrary, unjust, or a 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 support PROVIDENT and restore it to its former sound
financial position provided that Fernandez and Jayme should relinquish and give up its control and management of the bank to the Iglesia
Ni Kristo, and thereafter, whimsically withdrew such support to the detriment of PROVIDENT. In the case of Ramos vs. Central Bank, 21
where the Central Bank committed itself to the continued operation of, and rehabilitation of the Overseas Bank of Manila, and later on
reneged on that promise, the Court therein ruled:

“Even in the absence of contract, the record plainly shows that the CB made express representations to petitioners herein that it
would support the OBM, and avoid its liquidation if the petitioners would execute cranad(a) the Voting Trust Agreement turning over the
management of OBM to the CB or its nominees, and cranad(b) mortgage or assign their properties to the Central Bank to cover the
overdraft balance of OBM. The petitioners having complied with these conditions and parted with value to the profit of the CB cranad(which
thus acquired additional security for its own advances), the CB may not now renege on its representations and liquidate the OBM, to the
detriment of its stockholders, depositors and other creditors, under the rule of promissory estoppel cranad(19 Am. Jur., pp. 657-658, 28
Am. Jur. 2d, 656-657; Ed. Note. 115 ALR, 157).

“The broad general rule to the effect that a promise to do or not to do something in the future does not work an estoppel must be
qualified, since there are numerous cases in which an estoppel has been predicated on promises or assurances as to future contract. The
doctrine of ‘promissory estoppel’ is by no means new, although the name has been adopted only in comparatively recent years. According
to that doctrine, an estoppel may arise from the making of a promise, even though without consideration, if it was intended that the promise
should be relied upon and in fact it was relied upon, and if a refusal to enforce it would be virtually to sanction the perpetration of fraud or
would result in other injustice. In this respect, the reliance by the promisee is generally evidenced by action or forbearance on his part, and
the idea has been expressed that such action of forbearance would reasonably have been expected by the promissor. Mere omission by
the promisee to do whatever the promissor promised to do has been held insufficient ‘forbearance ‘ to give rise to a promissory
estoppel.’cralaw cranad(19 AM Jur. loc cit.).”

3. Finally, the petitioner claims that the Court of Appeals erred in not appreciating certain facts, mainly PROVIDENT’s anomalous
grant of substantial loans to its own directors, officers, stockholders, and related interests, which caused its insolvency, thereby rendering
the remedy of liquidation proper and rehabilitation improper.

The contention is without merit. We believe that the judgment complained of is based upon substantial evidence and that the trial
court had not overlooked, nor misinterpreted certain facts and circumstances of weight in making its findings, so that the respondent
appellate court did not commit any error in affirming the said judgment. Besides, the issue of whether or not certain alleged facts should be
appreciated is a question of fact, not properly cognizable on appeal, since it involves an examination of the probative value of the evidence
presented by the parties.

At any rate, the fact that the directors, officers, and stockholders of PROVIDENT had been extended loans by the bank which may
have caused its insolvency, is of little importance since these loans were already known to and taken into consideration by the Central
Bank when it decided in 1968 to allow PROVIDENT to continue in business. In the case of Ramos vs. Central Bank, 22 the Court said:

“The CB excuses itself by pleading that the OBM officers had resorted to non-recording of time deposits in the Bank’s books and
diverting such deposits to accounts controlled by certain bank officials, and other irregularities. It is well to note, however, that these
‘unrecorded’ deposits were revealed to the CB as early as 25 September 1967 by the then President of the OBM, Mr. Martin Oliva, who
had no hand in such irregularities and who informed the Superintendent of Banks that time deposits worth P43,188,099.29 had not been
reported to the OBM directors. In fact, on 29 September 1967, the CB had already ordered its examiners to investigate the Bank’s records
and determine the parties responsible. Notwithstanding knowledge of these irregularities, the CB did not withdraw its promised support,
and insisted on the execution of the Voting Trust Agreement on 20 November 1967. Such attitude imports that, in its opinion, the
irregularities disclosed were not to be blamed on the OBM itself or its depositors and creditors, but on the officials responsible; and further,
that the OBM could still be saved by adequate aid and management reform, which was required by CB’s duty to maintain the stability of the
banking system and the preservation of public confidence in it.”

Vivas v. MB-SB GR 191424 Aug 7, 2013

The MB Committed No Grave Abuse of Discretion

In any event, no grave abuse of discretion can be attributed to the MB for the issuance of the assailed Resolution No. 276. Vivas
insists that the circumstances of the case warrant the application of Section 11 of R.A. No. 7353, which provides:

Sec. 11. The power to supervise the operation of any rural bank by the Monetary Board as herein indicated shall consist in placing
limits to the maximum credit allowed to any individual borrower; in prescribing the interest rate, in determining the loan period and loan
procedures, in indicating the manner in which technical assistance shall be extended to rural banks, in imposing a uniform accounting
system and manner of keeping the accounts and records of rural banks; in instituting periodic surveys of loan and lending procedures,

16
audits, test-check of cash and other transactions of the rural banks; in conducting training courses for personnel of rural banks; and, in
general, in supervising the business operations of the rural banks.

The Central Bank shall have the power to enforce the laws, orders, instructions, rules and regulations promulgated by the
Monetary Board, applicable to rural banks; to require rural banks, their directors, officers and agents to conduct and manage the affairs of
the rural banks in a lawful and orderly manner; and, upon proof that the rural bank or its Board of Directors, or officers are conducting and
managing the affairs of the bank in a manner contrary to laws, orders, instructions, rules and regulations promulgated by the Monetary
Board or in a manner substantially prejudicial to the interest of the Government, depositors or creditors, to take over the management of
such bank when specifically authorized to do so by the Monetary Board after due hearing process until a new board of directors and
officers are elected and qualified without prejudice to the prosecution of the persons responsible for such violations under the provisions of
Sections 32, 33 and 34 of Republic Act No. 265, as amended. x x x x.

The thrust of Vivas’ argument is that ECBI did not commit any financial fraud and, hence, its placement under receivership was
unwarranted and improper. He asserts that, instead, the BSP should have taken over the management of ECBI and extended loans to the
financially distrained bank pursuant to Sections 11 and 14 of R.A. No. 7353 because the BSP’s power is limited only to supervision and
management take-over of banks, and not receivership. Vivas argues that implementation of the questioned resolution was tainted with
arbitrariness and bad faith, stressing that ECBI was placed under receivership without due and prior hearing, invoking Section 11 of R.A.
No. 7353 which states that the BSP may take over the management of a rural bank after due hearing.33 He adds that because R.A. No.
7353 is a special law, the same should prevail over R.A. No. 7653 which is a general law.

The Court has taken this into account, but it appears from all over the records that ECBI was given every opportunity to be heard
and improve on its financial standing. The records disclose that BSP officials and examiners met with the representatives of ECBI,
including Vivas, and discussed their findings.34 There were also reminders that ECBI submit its financial audit reports for the years 2007
and 2008 with a warning that failure to submit them and a written explanation of such omission shall result in the imposition of a monetary
penalty.35 More importantly, ECBI was heard on its motion for reconsideration. For failure of ECBI to comply, the MB came out with
Resolution No. 1548 denying its request for reconsideration of Resolution No. 726. Having been heard on its motion for reconsideration,
ECBI cannot claim that it was deprived of its right under the Rural Bank Act.

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

Accordingly, there is no conflict which would call for the application of the doctrine that a special law should prevail over a general
law. It must be emphasized that R.A .No. 7653 is a later law and under said act, the power of the MB over banks, including rural banks,
was increased and expanded. 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 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. In the case of Bangko Sentral Ng Pilipinas Monetary Board v. Hon. Antonio-
Valenzuela,36 the Court reiterated the doctrine of "close now, hear later," stating that it was justified as a measure for the protection of the
public interest. Thus:

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.37[Emphasis supplied]

In Rural Bank of Buhi, Inc. v. Court of Appeals,38 the Court also wrote that x x x due process does not necessarily require a prior
hearing; a hearing or an opportunity to be heard may be subsequent to the closure. One can just imagine the dire consequences of a prior
hearing: bank runs would be the order of the day, resulting in panic and hysteria. In the process, fortunes may be wiped out and
disillusionment will run the gamut of the entire banking community.39

The doctrine is founded on practical and legal considerations to obviate unwarranted dissipation of the bank’s assets and as a
valid exercise of police power to protect the depositors, creditors, stockholders, and the general public.40 Swift, adequate and determined
actions must be taken against financially distressed and mismanaged banks by government agencies lest the public faith in the banking
system deteriorate to the prejudice of the national economy.

Accordingly, the MB can immediately implement its resolution prohibiting a banking institution to do business in the Philippines
and, thereafter, appoint the PDIC as receiver. The procedure for the involuntary closure of a bank is summary and expeditious in nature.
Such action of the MB shall be final and executory, but may be later subjected to a judicial scrutiny via a petition for certiorari to be filed by
the stockholders of record of the bank representing a majority of the capital stock. Obviously, this procedure is designed to protect the
interest of all concerned, that is, the depositors, creditors and stockholders, the bank itself and the general public. The protection afforded
public interest warrants the exercise of a summary closure.

In the case at bench, the ISD II submitted its memorandum,containing the findings noted during the general examination
conducted on ECBI with. The memorandum underscored the inability of ECBI to pay its liabilities as they would fall due in the usual course
of its business, its liabilities being in excess of the assets held. Also, it was noted that ECBI’s continued banking operation would most
probably result in the incurrence of additional losses to the prejudice of its depositors and creditors. On top of these, it was found that ECBI
had willfully violated the cease-and-desist order of the MB Resolution, and had disregarded the BSP rules and directives. For said reasons,
the MB was forced to issue the assailed Resolution placing ECBI under receivership. In addition, the MB stressed that it accorded ECBI
ample time and opportunity to address its monetary problem and to restore and improve its financial health and viability but it failed to do
so.

Overseas Bank of Manila v. CA & NAWASA

The first argument advanced by the Overseas Bank is that by reason of "punitive action taken by the Central Bank," it had been
prevented from undertaking banking operations "which would have generated funds to pay not only its depositors and creditors but
likewise, the interests due on the deposits." 10 The argument is palpably without merit. There is in the first place absolutely no evidence of
these facts in the record: and this is simply because the petitioner bank had made no effort whatever to set aside the default order against
it so that it could present evidence in its behalf before the Trial Court. Moreover, the suspension of operations which took place in August,
17
1968, could not possibly excuse non-compliance with the obligations in question which matured in 1966. Again, the claim that the Central
Bank, by suspending the Overseas Bank's banking operations, had made it impossible for the Overseas Bank to pay its debts, whatever
validity might be accorded thereto, or the further claim that it had fallen into a "distressed financial situation," cannot in any sense excuse it
from its obligation to the NAWASA, which had nothing whatever to do with the Central Bank's actuations or the events leading to the bank's
distressed state.

Also futile is the petitioner's invocation of this Court's decision in G.R. No. L-29352, "Emerita M. Ramos, et al. v. Central Bank,"
promulgated October 4, 1971 and subsequent resolutions 11 ordering the "rehabilitation, normalization and stabilization of the Overseas
Bank of Manila," and allegedly approving the rehabilitation plan and a proposed procedure for the payment of the bank's obligations.
Obviously, the failure of the Court of Appeals to apply such a rehabilitation program to the case cannot be error, as the petitioner deposits
since the program was approved after the Appellate Court had rendered judgment. Furthermore, that rehabilitation program or procedure of
payment does not in any way negate or diminish the indebtedness of the Overseas Bank to the NAWASA incurred in 1966, for conceding
full faith and credit to such a prescribed procedure of payment, it constitutes no obstacle to determining the principal and interests of the
debts at issue at this time.

Abacus v. The Manila Bank GR 162270 Apr 6, 2005

Petitioner insists that the option to purchase the lot and building in question granted to it by the late Vicente G. Puyat, then acting
president of Manila Bank, was binding upon the latter. On the other hand, respondent has consistently maintained that the late Vicente G.
Puyat had no authority to act for and represent Manila Bank, the latter having been placed under receivership by the Central Bank at the
time of the granting of the "exclusive option to purchase."

There can be no quibbling that respondent Manila 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 grou p of
investors. Owing to this defining reality, 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. The invocation by the appellate court of the following pronouncement in
Villanueva vs. Court of Appeals12was apropos, to say the least:

… 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 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.13

Petitioner, however, asseverates that the "exclusive option to purchase" was ratified by 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 contract was executed.
However, even assuming, in gratiaargumenti, that Atty. Renan Santos, Manila Bank’s receiver, approved the "exclusive option to purchase"
granted by Vicente G. Puyat, the same would still be of no force and effect.

Section 29 of the Central Bank Act, as amended,14 pertinently provides:

Sec. 29. Proceedings upon insolvency. – Whenever, upon examination by the head of the appropriate supervising and examining
department or his examiners or agents into the condition of any banking institution, it shall be disclosed that the condition of the same is
one of insolvency, or that its continuance in business would involve probable loss to its depositors or creditors, it shall be the duty of the
department head concerned forthwith, in writing, to inform the Monetary Board of the facts, and the Board may, upon finding the statements
of the department head to be true, forbid the institution to do business in the Philippines and shall designate an official of the Central Bank
as receiver to immediately take charge of its assets and liabilities, as expeditiously as possible collect and gather all the assets and
administer the same for the benefit of its creditors, exercising all the powers necessary for these purposes including, but not limited to,
bringing suits and foreclosing mortgages in the name of the banking institution. (Emphasis supplied)

Clearly, the receiver appointed by the Central Bank to take charge of the properties of Manila Bank 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.

For sure, Congress itself has recognized that a bank receiver only has powers of administration. Section 30 of the New Central
Bank Act15 expressly provides that "[t]he receiver shall immediately gather and take charge of all the assets and liabilities of the institution,
administer the same for the benefit of its creditors, and exercise the general powers of a receiver under the Revised Rules of Court but
shall not, with the exception of administrative expenditures, pay or commit any act that will involve the transfer or disposition of any asset of
the institution…"

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. Respondent
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".

Salud v. CB GR L-17620 Aug 19, 1986

Resolutions of the Monetary Board under Section 29 of the Central Bank Act-e.g., forbidding banking institutions to do business
on account of a "condition of insolvency" or because "its continuance in business would involve probable loss to depositors or creditors;" or
appointing a receiver to take charge of the bank's assets and liabilities; or determining whether the banking institutions may be
rehabilitated, or should be liquidated and appointing a liquidator towards this end are by law "final and executory," as earlier pointed out.
But they "can be set aside by the court" on one specific ground, and that is, "if there is convincing proof that the action is plainly arbitrary
and made in bad faith." The Central Bank concedes this power in "the court," but insists that that setting aside can not be done in the same
proceeding for assistance in liquidation, but in a separate action instituted specifically for the purpose, as was the case in Central Bank v.
Court of appeals, 19 where—

18
... the aggrieved parties (Fernandez and Jayme) filed a petition for certiorari, prohibition and mandamus precisely to annul and set
aside the Monetary Board resolution directing the liquidation of the Provident Savings Bank ... (and the) petition was heard by the then
Court of First Instance of Manila jointly with the Petition for Assistance and Supervision in the Liquidation of the Provident Savings Bank. ...
20

This Court perceives no reason whatever why a banking institution's claim that a resolution of the 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 affirmative defense 21
or a counterclaim 22 in the proceeding for assistance in liquidation, but only as a cause of action in a separate and distinct action. Nor can
this Court see why "a full-blown hearing" on the issue is possible only if it is asserted as a cause of action, but not when set up by way of
an affirmative defense, or a counterclaim. There is no provision of law which expressly or even by implication imposes the requirement for
a separate proceeding exclusively occupied with adjudicating this issue. Moreover, to declare the issue as beyond the scope of matters
cognizable in a proceeding for assistance in liquidation would be to engender that multiplicity of proceedings which the law abhors.

Indeed, the failure to assert, as a ground of defense or objection to a proceeding for assistance in liquidation, the fact that the
resolution of the Monetary Board authorizing the initiation of such a proceeding is "arbitrary and made in bad faith" would constitute a
waiver thereof, conformably with the rule of "Waiver of Defenses," 23 to the effect that "defenses and objections not pleaded either in a
motion to dismiss or in the answer are (generally) deemed waived," or the "Omnibus Motion Rule," 24 providing that "A motion attacking a
pleading or a proceeding shall include all objections then available, and all objections not so included shall be deemed waived." 25

It is inconsequential that in the cited case of Central Bank v. Court of Appeals, there were two (2) separate proceedings. This was
entirely fortuitous. It came about merely because by pure chance the petition to annul the Monetary Board resolution authorizing liquidation
was filed ahead of the petition for assistance in liquidation. In fact, the two (2) proceedings were at the parties' instance jointly heard and
decided, a certain indication of the intimate relationship in issues between said proceedings, if not in truth of the preferential nature of the
question of whether or not the Monetary Board resolution was "plainly arbitrary and made in bad faith."

Central Bank v. Court of Appeals is not and canot thus be regarded as supportive of the Central Bank's theory in the case at bar,
On the contrary, it is opposed to that theory, for in that case, this Court in fact ruled that—

... While the closure and liquidation of a bank may be considered an exercise of police power, the validity of such exercise of
police power is subject to judicial inquiry and could be set aside if it is either capricious, discriminatory, whimsical, arbitrary, unjust or a
denial of the due process and equal protection clauses of the Constitution. ... 26 No reason exists to preclude determination of this question
in the very proceeding for assistance in liquidation instituted pursuant to Section 29 of the Central Bank Act.

The Central Bank and its Liquidator also postulate, for the very first time, that the Monetary Board is among the "quasi-judicial ...
boards" whose judgments are within the exclusive appellate jurisdiction of the IAC ; 27 hence, it is only said Court, "to the exclusion of the
Regional Trial Courts," that may review the Monetary Board's resolutions.

The contention is utterly devoid of merit. The IAC has no appellate jurisdiction over resolutions or orders of the Monetary Board,
No law prescribes any mode of appeal from the Monetary Board to the IAC. The contention is moreover inconsistent with the text of
Section 29 of the Central Bank Act. It is inconsistent as well with the Central Bank's own theory in this case, which concedes original
jurisdiction over the matter in the Regional Trial Court provided it is alleged as a cause of action in a suit distinct from a proceeding for
assistance in liquidation.

Sps Lipana v. Dev’t Bank of Rizal GR 73884 Sep 24, 1987

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 cases of special and exceptional nature where it becomes imperative in the higher interest of justice to direct the
suspension of its execution (Vecine vs. Geronimo, 59 O.G. 579); whenever it is necessary to accomplish the aims of justice (Pascual vs.
Tan, 85 Phil. 164); or when certain facts and circumstances transpired after the judgment became final which could render the execution of
the judgment unjust (Cabrias vs. Adil, 135 SCRA 354).

In the instant case, the stay of the execution of judgment is warranted by the fact that respondent bank was placed under
receivership. To execute the judgment would unduly deplete the assets of respondent bank to the obvious prejudice of other depositors
and creditors, since, as aptly stated in Central Bank of the Philippines vs. Morfe (63 SCRA 114), after the Monetary Board has declared
that a bank is insolvent and has ordered it to cease operations, the Board becomes the trustee of its assets for the equal benefit of all the
creditors, including depositors. The assets of the insolvent banking institution are held in trust for the equal benefit of all creditors, and after
its insolvency, one cannot obtain an advantage or a preference over another by an attachment, execution or otherwise.

Moreover, it will be noted that respondent bank was placed under receivership on August 10, 1984, and the Decision of
respondent judge is dated November 13, 1984. Accordingly, in line with the ruling in the aforesaid Morfe case, which reads:

The circumstance that the Fidelity Savings Bank, having stopped operations since February 19, 1969, was forbidden to do
business (and that ban would include the payment of time deposits) implies that suits for the payment of such deposits were prohibited.
What was directly prohibited should not be encompassed indirectly. ... petitioners 'complaint should have been dismissed.

II.

It is the contention of petitioners, however, that the placing under receivership of respondent bank long after the filing of the
complaint removed it from the doctrine in the said Morfe case.

This contention is untenable. The time of the filing of the complaint is immaterial. It is the execution that win obviously prejudice
the other depositors and creditors. Moreover, as stated in the said Morfe case, the effect of the judgment is only to fix the amount of the
debt, and not give priority over other depositors and creditors.

III.

Anent the contention of petitioners that the attachment of one of the properties of respondent bank was erased by virtue of the
delayed receivership is to expand the power of the Central Bank, Suffice it to say that in the case of Central Bank of the Philippines, et al.
vs. Court of Appeals, et al. (Resolution of this Court dated September 17, 1984 in G.R. No. 33302), wherein the original plaintiff Algue Inc.
was able to obtain a writ of preliminary attachment against the original defendant Island Savings Bank, this Court refused to recognize any
preference resulting from such attachment and ruled that after a declaration of insolvency, the remedy of the depositors is to intervene in
the liquidation proceedings.
19
IV.

It is also contended by the petitioners that the indefinite stay of execution without ruling as to how long it will last, amounts to a
deprivation of their property without due process of law.

Said contention, likewise, is devoid of merit. Apart from the fact that the stay of execution is not only in accordance with law but is
also supported by jurisprudence, such staying of execution is not without a time limit. In fact, the Monetary Board, in its resolution No. 4-33
approved the liquidation of respondent bank on April 26, 1985 and ordered, among others, the filing of a petition in the Regional Trial Court
praying for assistance of said court in the liquidation of the bank. (Rollo, p. 81). The staying of the writ of execution will be lifted after
approval by the liquidation court of the project of distribution, and the liquidator or his deputy will authorize payments to all claimants
concerned in accordance with the approved project of distribution.

Equitable PCI Bank v. Ngor GR 171545 Dec 19, 2007

The Award Of Moral And Exemplary Damages Lacked Basis

Moral damages are in the category of an award designed to compensate the claimant for actual injury suffered, not to impose a
penalty to the wrongdoer.79 To be entitled to moral damages, a claimant must prove:

1. That he or she suffered besmirched reputation, or physical, mental or psychological suffering sustained by the claimant;

2. That the defendant committed a wrongful act or omission;

3. That the wrongful act or omission was the proximate cause of the damages the claimant sustained;

4. The case is predicated on any of the instances expressed or envisioned by

Article 2219 and 2220

In culpa contractual or breach of contract, moral damages are recoverable only if the defendant acted fraudulently or in bad faith
or in wanton disregard of his contractual obligations.83 The breach must be wanton, reckless, malicious or in bad faith, and oppressive or
abusive.84

The RTC found that respondents did not pay Equitable the interest due on February 9, 2001 (or any month thereafter prior to the
maturity of the loan)85 or the amount due (principal plus interest) due on July 9, 2001.86Consequently, Equitable applied respondents'
deposits to their loans upon maturity. The relationship between a bank and its depositor is that of creditor and debtor.87 For this reason, a
bank has the right to set-off the deposits in its hands for the payment of a depositor's indebtedness.88

Respondents indeed defaulted on their obligation. For this reason, Equitable had the option to exercise its legal right to set-off or
compensation. However, the RTC mistakenly (or, as it now appears, deliberately) concluded that Equitable acted "fraudulently or in bad
faith or in wanton disregard" of its contractual obligations despite the absence of proof. The undeniable fact was that, whatever damage
respondents sustained was purely the consequence of their failure to pay their loans. There was therefore absolutely no basis for the
award of moral damages to them.

Neither was there reason to award exemplary damages. Since respondents were not entitled to moral damages, neither should
they be awarded exemplary damages.89 And if respondents were not entitled to moral and exemplary damages, neither could they be
awarded attorney's fees and litigation expenses.90

Republic v. Sandiganbayan GRs 166859… Apr 12, 2011

V.

No violation of the DOSRI and Single Borrower’s Limit restrictions

The Republic’s lack of proof on the source of the funds by which Cojuangco, et al. had acquired their block of SMC shares has
made it shift its position, that it now suggests that Cojuangco had been enabled to obtain the loans by the issuance of LOI 926 exempting
the UCPB from the DOSRI and the Single Borrower’s Limit restrictions.

We reject the Republic’s suggestion.

Firstly, as earlier pointed out, the Republic adduced no evidence on the significant particulars of the supposed loan, like the
amount, the actual borrower, the approving official, etc. It did not also establish whether or not the loans were DOSRI126 or issued in
violation of the Single Borrower’s Limit. Secondly, the Republic could not outrightly assume that President Marcos had issued LOI 926 for
the purpose of allowing the loans by the UCPB in favor of Cojuangco. There must be competent evidence to that effect.

And, finally, the loans, assuming that they were of a DOSRI nature or without the benefit of the required approvals or in excess of
the Single Borrower’s Limit, would not be void for that reason. Instead, the bank or the officers responsible for the approval and grant of the
DOSRI loan would be subject only to sanctions under the law.127

VI.

Cojuangco violated no fiduciary duties

The Republic invokes the following pertinent statutory provisions of the Civil Code, to wit:

Article 1455. When any trustee, guardian or other person holding a fiduciary relationship uses trust funds for the purchase of
property and causes the conveyance to be made to him or to a third person, a trust is established by operation of law in favor of the person
to whom the funds belong.

20
Article 1456. If property is acquired through mistake or fraud, the person obtaining it s by force of law, considered a trustee of an
implied trust for the benefit of the person from whom the property comes. and the Corporation Code, as follows:

Section 31. Liability of directors, trustees or officers.—Directors or trustees who willfully and knowingly vote for or assent to
patently unlawful acts of the corporation or who are guilty of gross negligence or bad faith in directing the affairs of the corporation or
acquire any personal or pecuniary interest in conflict with their duty as such directors, or trustees shall be liable jointly and severally for all
damages resulting therefrom suffered by the corporation, its stockholders or members and other persons.

When a director, trustee or officer attempts to acquire or acquires, in violation of his duty, any interest adverse to the corporation
in respect of any matter which has been reposed in him in confidence, as to which equity imposes a disability upon him to deal in his own
behalf, he shall be liable as a trustee for the corporation and must account for the profits which otherwise would have accrued to the
corporation. Did Cojuangco breach his "fiduciary duties" as an officer and member of the Board of Directors of the UCPB? Did his
acquisition and holding of the contested SMC shares come under a constructive trust in favor of the Republic?

The answers to these queries are in the negative.

The conditions for the application of Articles 1455 and 1456 of the Civil Code (like the trustee using trust funds to purchase, or a
person acquiring property through mistake or fraud), and Section 31 of the Corporation Code (like a director or trustee willfully and
knowingly voting for or assenting to patently unlawful acts of the corporation, among others) require factual foundations to be first laid out in
appropriate judicial proceedings.

Hence, concluding that Cojuangco breached fiduciary duties as an officer and member of the Board of Directors of the UCPB
without competent evidence thereon would be unwarranted and unreasonable.

Thus, the Sandiganbayan could not fairly find that Cojuangco had committed breach of any fiduciary duties as an officer and
member of the Board of Directors of the UCPB.

For one, the Amended Complaint contained no clear factual allegation on which to predicate the application of Articles 1455 and
1456 of the Civil Code, and Section 31 of the Corporation Code. Although the trust relationship supposedly arose from Cojuangco’s being
an officer and member of the Board of Directors of the UCPB, the link between this alleged fact and the borrowings or advances was not
established. Nor was there evidence on the loans or borrowings, their amounts, the approving authority, etc. As trial court, the
Sandiganbayan could not presume his breach of fiduciary duties without evidence showing so, for fraud or breach of trust is never
presumed, but must be alleged and proved.128

The thrust of the Republic that the funds were borrowed or lent might even preclude any consequent trust implication. In a
contract of loan, one of the parties (creditor) delivers money or other consumable thing to another (debtor) on the condition that the same
amount of the same kind and quality shall be paid.129 Owing to the consumable nature of the thing loaned, the resulting duty of the
borrower in a contract of loan is to pay, not to return, to the creditor or lender the very thing loaned. This explains why the ownership of the
thing loaned is transferred to the debtor upon perfection of the contract.130 Ownership of the thing loaned having transferred, the debtor
enjoys all the rights conferred to an owner of property, including the right to use and enjoy (jus utendi), to consume the thing by its use (jus
abutendi), and to dispose (jus disponendi), subject to such limitations as may be provided by law.131Evidently, the resulting relationship
between a creditor and debtor in a contract of loan cannot be characterized as fiduciary.132

To say that a relationship is fiduciary when existing laws do not provide for such requires evidence that confidence is reposed by
one party in another who exercises dominion and influence. Absent any special facts and circumstances proving a higher degree of
responsibility, any dealings between a lender and borrower are not fiduciary in nature.133This explains why, for example, a trust receipt
transaction is not classified as a simple loan and is characterized as fiduciary, because the Trust Receipts Law (P.D. No. 115) punishes the
dishonesty and abuse of confidence in the handling of money or goods to the prejudice of another regardless of whether the latter is the
owner.134

Based on the foregoing, a debtor can appropriate the thing loaned without any responsibility or duty to his creditor to return the
very thing that was loaned or to report how the proceeds were used. Nor can he be compelled to return the proceeds and fruits of the loan,
for there is nothing under our laws that compel a debtor in a contract of loan to do so. As owner, the debtor can dispose of the thing
borrowed and his act will not be considered misappropriation of the thing.135 The only liability on his part is to pay the loan together with
the interest that is either stipulated or provided under existing laws.

Banco Filipino Savings and Mortgage Bank vs. Central Bank G.R. No. 70054, December 11, 1991

1) Whether or not the liquidator has the authority to prosecute as well as to defend suits and to foreclose mortgages for and behalf of the
bank while the issue on the validity of the receivership and liquidation is still pending resolution.

Section 29 of the Republic Act No. 265, as amended known as the Central Bank Act, provides that when a bank is forbidden to do
business in the Philippines 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. If the
Monetary Board shall later determine and confirm that banking institution is insolvent or cannot resume business safety to depositors,
creditors and the general public, it shall, public interest requires, order its liquidation and appoint a liquidator who shall take over and
continue the functions of receiver previously appointed by Monetary Board. The liquid for may, in the name of the bank and with the
assistance counsel as he may retain, institute such actions as may necessary in the appropriate court to collect and recover a counts and
assets of such institution or defend any action ft against the institution.

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Pendency of the case did not diminish the powers and authority of the designated liquidator to effectuate and carry on the administration of
the bank. The Court did not prohibit however acts a as receiving collectibles and receivables or paying off credits claims and other
transactions pertaining to normal operate of a bank. There is no doubt that the prosecution of suits collection and the foreclosure of
mortgages against debtors the bank by the liquidator are among the usual and ordinary transactions pertaining to the administration of a
bank.

2) Whether or not the closure of the bank based on the Tiaoqui report is correct.

Clearly, Tiaoqui based his report on an incomplete examination of petitioner bank and outrightly concluded therein that the latter’s
financial status was one of insolvency or illiquidity. In the instant case, the basic standards of substantial due process were not observed.
Time and again, We have held in several cases, that the procedure of administrative tribunals must satisfy the fundamentals of fair play
and that their judgment should express a well-supported conclusion.The test of insolvency laid down in Section 29 of the Central Bank Act
is measured by determining whether the realizable assets of a bank are leas than its liabilities. Hence, a bank is solvent if the fair cash
value of all its assets, realizable within a reasonable time by a reasonable prudent person, would equal or exceed its total liabilities
exclusive of stock liability; but if such fair cash value so realizable is not sufficient to pay such liabilities within a reasonable time, the bank
is insolvent.
Examination appraises the soundness of the institution’s assets, the quality and character of management and determines the institution’s
compliance with laws, rules and regulations. Audit is a detailed inspection of the institution’s books, accounts, vouchers, ledgers, etc. to
determine the recording of all assets and liabilities. Hence, examination concerns itself with review and appraisal, while audit concerns
itself with verification.

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