International Business Law

Atty. Karen G. Climaco

EH407

Florizza N. Alolor

A. NEW CENTRAL BANK ACT

1. Hon. Monetary Boar vs. PVB G.R. No. 189571. January 21, 2015

FACTS: Respondent established a pension loan product for bona fide veterans or their surviving spouses,
as well as salary loan product for teachers and low-salaried employees pursuant to its mandate under
Republic Act (RA) Nos. 3518 3 and 7169 4 to provide financial assistance to veterans and teachers. It
devised a program by charging a premium in the form of a higher fee known as Credit Redemption Fund
(CRF) from said borrowers. Resultantly, Special Trust Funds were established by respondent for the
pension loans of the veteran-borrowers, salary loans of teachers and low-salaried employees. On April
30, 2002, an examination was conducted by the Supervision and Examination Department (SED) II of the
Bangko Sentral ng Pilipinas (BSP). It found, among other things, that respondent's collection of
premiums from the proceeds of various salary and pension loans of borrowers to guarantee payment of
outstanding loans violated Section 54 of RA No. 8791 which states that banks shall not directly engage in
insurance business as insurer.

Petitioners issued a memorandum against the respondents directing them to return all the premiums
that they collected. Thereafter respondents filed a petition for declaratory relief in the RTC but the RTC
dismissed their petition. Petitioners filed a motion for reconsideration against the decision but the same
was denied.

ISSUE: Whether or not the court a qou erred in dismissing their petition and in declaring that
respondent Veteran’s Bank CRF Scheme as violative of Section 54 of RA 8791 and whether or not the
petition for declaratory relief is proper.

RULING: The decision of the BSP Monetary Board cannot be a proper subject matter for a petition for
declaratory relief since it was issued by the BSP Monetary Board in the exercise of its quasi-judicial
powers or functions. The authority of the petitioners to issue the questioned MB Resolution emanated
from its powers under Section 37 11 of RA No. 7653 and Section 66 of RA No. 8791 to impose, at its
discretion, administrative sanctions, upon any bank for violation of any banking law.

The nature of the BSP Monetary Board as a quasi-judicial agency, and the character of its determination
of whether or not appropriate sanctions may be imposed upon erring banks, as an exercise of quasi-
judicial function. Undoubtedly, the BSP Monetary Board is a quasi-judicial agency exercising quasi-
judicial powers or functions. As aptly observed by the Court of Appeals, the BSP Monetary Board is an
independent central monetary authority and a body corporate with fiscal and administrative autonomy,
mandated to provide policy directions in the areas of money, banking, and credit. It has the power to
issue subpoena, to sue for contempt those refusing to obey the subpoena without justifiable reason, to
administer oaths and compel presentation of books, records and others, needed in its examination, to
impose fines and other sanctions and to issue cease and desist order. Section 37 of Republic Act No.
7653, in particular, explicitly provides that the BSP Monetary\ Board shall exercise its discretion in
determining whether administrative sanctions should be imposed on banks and quasi-banks, which
necessarily implies that the BSP Monetary Board must conduct some form of investigation or hearing
regarding the same. A priori, having established that the BSP Monetary Board is indeed a quasi-judicial
body exercising quasi-judicial functions, then its decision in MB Resolution No. 1139 cannot be the
proper subject of declaratory relief.

2. Koruga vs. Arcenas , et al. G.R. No. 168332. June 19, 2009

FACTS: Koruga is a minority stockholder of Banco Filipino. She filed a complaint before the Makati RTC
alleging that there is a violation of Sections 31 to 34 of the Corporation Code ("Code") which prohibit
self-dealing and conflicts of interest of directors and officers and the right of a stockholder to inspect the
records of a corporation (including financial statements) under Sections 74 and 75 of the Code.

On September 12, 2003, Arcenas, et al. filed their Answer raising, among others, the trial court's lack of
jurisdiction to take cognizance of the case. They also filed a Manifestation and Motion seeking the
dismissal of the case. In an Order dated October 18, 2004, the trial court denied the Manifestation and
Motion. On February 9, 2005, the CA issued a 60-day TRO enjoining Judge Marella from conducting
further proceedings in the case.

On February 22, 2005, the RTC issued a Notice of Pre-trial setting the case for pre-trial on June 2 and 9,
2005. Arcenas, et al. filed a Manifestation and Motion before the CA, reiterating their application for a
writ of preliminary injunction. Thus, on April 18, 2005, the CA issued the assailed Resolution. It ruled
that considering that the Temporary Restraining Order issued by this Court on February 9, 2005 expired
on April 10, 2005, it is necessary that a writ of preliminary injunction be issued in order not to render
ineffectual whatever final resolution this Court may render... in this case, after the petitioners shall have
posted a bond.

Dissatisfied, Koruga filed this Petition for Certiorari under Rule 65 of the Rules of Court. Koruga alleged
that the CA effectively gave due course to Arcenas, et al.'s petition when it issued a writ of preliminary
injunction without factual or legal basis. Meanwhile, on March 13, 2006, this Court issued a Resolution
granting the prayer for a TRO and enjoining the Presiding Judge of Makati RTC, Branch 138, from
proceeding with the hearing of the case upon the filing by Arcenas, et al. of a P50,000.00 bond. In their
Petition, Arcenas, et al. asked the Court to set aside the Decision dated July 20, 2005 of the CA in CA-
G.R. SP No. 88422, which denied their petition, having found no grave abuse of discretion on the part of
the Makati RTC. The CA ruled that the RTC Orders were interlocutory in nature and, thus, may be
assailed by certiorari or prohibition only when it is shown that the court acted without or in excess of
jurisdiction or with grave abuse of discretion.

ISSUE: Whether or not the BSP has jurisdiction over Koruga’s complaint.

RULING: The Court ruled that it is the BSP that has jurisdiction over the case. The acts complained of
pertain to the conduct of Banco Filipino's banking business. The law vests in the BSP the supervision
over operations and activities of banks. Specifically, the BSP's supervisory and regulatory powers include
conduct of examination to determine compliance with laws and regulations if the circumstances so
warrant as determined by the Monetary Board; Overseeing to ascertain that laws and Regulations are
complied with; Regular investigation which shall not be oftener than once a year from the last date of
examination to determine whether an institution is conducting its business on a safe or sound basis
inquiring into the solvency and liquidity of the institution. Correlatively, the General Banking Law of
2000 specifically deals with loans contracted by bank directors or officers.

SECTION 36. Restriction on Bank Exposure to Directors, Officers, Stockholders and Their Related
Interests:

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. Furthermore, the authority to determine whether a
bank is conducting business in an unsafe or unsound manner is also vested in the Monetary Board.

Finally, the New Central Bank Act grants the Monetary Board the power to impose administrative
sanctions on the erring bank: Section 37.

The Monetary Board may, at its discretion, impose upon... any bank or quasi-bank, their directors
and/or officers or any commission of irregularities, and/or conducting business in an unsafe or unsound
manner as may be determined by the Monetary Board. Koruga's invocation of the provisions of the
Corporation Code is misplaced. In an earlier case with similar antecedents, the Court ruled that the
Corporation Code, however, is a general law applying to all types of corporations, while the New Central
Bank Act regulates specifically banks and other financial institutions, including the dissolution and
liquidation thereof.

As between a general and special law, the latter shall prevail – generalia specialibus non derogant.
Consequently, it is not the Interim Rules of Procedure on Intra-Corporate Controversies,[32] or Rule 59
of the Rules of Civil Procedure on Receivership, that would apply to this case. Instead, Sections 29 and
30 of the New Central Bank Act should be followed.

Section 30. The Monetary Board may summarily and without need for prior... hearing forbid the
institution from doing business in the Philippines and designate the Philippine Deposit Insurance
Corporation as receiver of the banking institution. Actions of the Monetary Board taken under this
section or under Section 29 of this Act shall be final and executory, and may not be restrained or set
aside by the court except on petition for certiorari on the ground that the action taken was in excess of
jurisdiction or with such grave abuse of discretion as to amount to lack or excess of jurisdiction. The
appointment of a receiver under this section shall be vested exclusively with the Monetary Board. On
the strength of these provisions, it is the Monetary Board that exercises exclusive jurisdiction over
proceedings for receivership of banks. From the foregoing disquisition, there is no doubt that the RTC
has no jurisdiction to hear and decide a suit that seeks to place Banco Filipino under receivership.

The court's jurisdiction could only have been invoked after the Monetary Board had taken action on the
matter and only on the ground that the action taken was in excess of jurisdiction or with such grave
abuse of discretion as to amount to lack or excess of jurisdiction.
3. First Phil. International Bank vs. CA G.R. No. 115849. January 24, 1996

FACTS:  Producer Bank acquired six parcels of land at Sta. Rosa Laguna with an area of 101 hectares,
more or less, covered by and embraced in Transfer Certificates of Title Nos. T-106932 to T-106937,
inclusive, of the Land Records of Laguna, between the plaintiffs as buyers and the defendant Producers
Bank for an agreed price of Five and One Half Million (P5,500,000.00) Pesos. The property used to be
owned by BYME Investment and Development Corporation which had them mortgaged with the bank as
collateral for a loan. Demetrio Demetria and Jose O. Janolo wanted to purchase the property and thus
initiated negotiations for that purpose.

In 1987, Demetria and Janolo met with Mercurio Rivera, Manager of the Property Management
Department of the Bank because they have a plan to buy the property. Negotiations occurred and
thereafter, they had a series of letters where parties accepted the offer of Demetria and Janolo. Later in
on, the conservator of the bank (which has been placed under conservatorship by the Central Bank since
1984) was replaced; and subsequently the proposal of Demetria and Janolo to buy the properties was
under study pursuant to the new conservator’s mandate. After which, a series of demands ensued.

ISSUE: Whether or not a conservator may revoke a perfected and enforceable contract.

RULING: The Supreme Court in this case held that a conservator cannot revoke a perfected and
enforceable contract. It reiterated Section 28-A of Republic Act No. 265 (otherwise known as the Central
Bank Act) which states that:

Section 28-A - Whenever, on the basis of a report submitted by the appropriate supervising or
examining department, the Monetary Board finds that a bank or a non-bank financial intermediary
performing quasi-banking functions is in a state of continuing inability or unwillingness to maintain a
state of liquidity deemed adequate to protect the interest of depositors and creditors, the Monetary
Board may appoint a conservator to take charge of the assets, liabilities, and the management of that
institution, collect all monies and debts due said institution and exercise all powers necessary to
preserve the assets of the institution, reorganize the management thereof, and restore its viability.  He
shall have the power to overrule or revoke the actions of the previous management and board of
directors of the bank or non-bank financial intermediary performing quasi-banking functions, any
provision of law to the contrary notwithstanding, and such other powers as the Monetary Board shall
deem necessary.

While admittedly, the Central Bank law gives vast and far-reaching powers to the conservator of a bank,
it must be pointed out that such powers must be related to the "(preservation of) the assets of the bank,
(the reorganization of) the management thereof and (the restoration of) its viability." Such powers,
enormous and extensive as they are, cannot extend to the post-facto repudiation of perfected
transactions, otherwise they would infringe against the non-impairment clause of the Constitution.

Section 28-A merely gives the conservator power to revoke contracts that are, under existing law,
deemed to be defective. Hence, the conservator merely takes the place of a bank's board of directors, so
what the board cannot do; the conservator cannot do either. His power is however, not unilateral as he
cannot simply repudiate valid obligations of the Bank. His authority would be only to bring court actions
to assail such contracts.

In the case, it is not disputed that the bank was under a conservator placed by the Central Bank of the
Philippines during the time that the negotiation and perfection of the contract of sale took place.
Moreover, there was absolutely no evidence that the Conservator, at the time the contract was
perfected, actually repudiated or overruled said contract of sale. The bank never objected to the sale,
what it unilaterally repudiated was—not the contract —but the authority of Rivera to make a binding
offer —and which unarguably came months after the perfection of the contract.

The conservator’s authority would be only to bring court actions to assail such contracts —as he has
already done so in the instant case. A contrary understanding of the law would simply not be permitted
by the Constitution. Neither by common sense. To rule otherwise would be to enable a failing bank to
become solvent, at the expense of third parties, by simply getting the conservator to unilaterally revoke
all previous dealings which had one way or another or come to be considered unfavorable to the Bank,
yielding nothing to perfected contractual rights nor vested interests of the third parties who had dealt
with the Bank.

4. RBSM vs. MB G.R. No. 150886. February 16, 2007

FACTS: Petitioner Rural Bank of San Miguel, Inc. (RBSM) was a domestic corporation engaged in banking.
It started operations in 1962 and by year 2000 had 15 branches in Bulacan. On January 21, 2000,
respondent Monetary Board (MB), the governing board of respondent Bangko Sentral ng Pilipinas (BSP),
issued Resolution No. 105 prohibiting RBSM from doing business in the Philippines, placing it under
receivership and designating respondent Philippine Deposit Insurance Corporation (PDIC) as receiver.

Petitioners filed a petition for certiorari and prohibition in the Regional Trial Court (RTC) of Malolos,
Branch 22 to nullify and set aside Resolution No. 105. 7 However, on February 7, 2000, petitioners filed a
notice of withdrawal in the RTC and, on the same day, filed a special civil action for certiorari and
prohibition in the CA. On appeal, the petition was dismissed by the CA on March 28, 2000. It held,
among others, that the decision of the MB to issue Resolution No. 105 was based on the findings and
recommendations of the Department of Rural Banks Supervision and Examination Sector, the
comptroller reports as of October 31, 1999 and December 31, 1999 and the declaration of a bank
holiday. Such could be considered as substantial evidence. On the basis of reports prepared by PDIC
stating that RBSM could not resume business with sufficient assurance of protecting the interest of its
depositors, creditors and the general public, the MB passed Resolution No. 966 directing PDIC to
proceed with the liquidation of RBSM under Section 30 of RA 7653. Hence this petition.

ISSUE: Whether Section 30 of RA 7653 (also known as the New Central Bank Act) and applicable
jurisprudence require a current and complete examination of the bank before it can be closed and
placed under receivership.
RULING: Petitioners' contention has no merit. In RA 7653, only a "report of the head of the supervising
or examining department" is necessary. It is an established rule in statutory construction that where the
words of a statute are clear, plain and free from ambiguity, it must be given its literal meaning and
applied without attempted interpretation.

Section 30 of RA 7653 provides:

SECTION 30. Proceedings in Receivership and Liquidation. — Whenever, upon report of the head of the
supervising or examining department, the Monetary Board finds that a bank or quasi-bank:

(a) is unable to pay its liabilities as they become due in the ordinary course of business: Provided, That
this shall not include inability to pay caused by extraordinary demands induced by financial panic in the
banking community;

(b) has insufficient realizable assets, as determined by the [BSP] to meet its liabilities; or

(c) cannot continue in business without involving probable losses to its depositors or creditors; or

(d) has willfully violated a cease and desist order under Section 37 that has become final, involving acts
or transactions which amount to fraud or a dissipation of the assets of the institution; in which cases,
the Monetary Board may summarily and without need for prior hearing forbid the institution from doing
business in the Philippines and designate the Philippine Deposit Insurance Corporation as receiver of the
banking institution.

The word "report" has a definite and unambiguous meaning which is clearly different from
"examination." A report, as a noun, may be defined as "something that gives information" or "a usually
detailed account or statement." On the other hand, an examination is "a search, investigation or
scrutiny." This Court cannot look for or impose another meaning on the term "report" or to construe it
as synonymous with "examination." From the words used in Section 30, it is clear that RA 7653 no
longer requires that an examination be made before the MB can issue a closure order. We cannot make
it a requirement in the absence of legal basis.

5. Banco Filipino Savings and Mortgage Bank vs. MB, GR 700454, December 11, 1991

FACTS: Petitioners Top Management Programs Corporation (Top Management for brevity) and Pilar
Development Corporation (Pilar Development for brevity) are corporations engaged in the business of
developing residential subdivisions. Top Management and Pilar Development obtained several loans
from Banco Filipino all secured by real estate mortgage in their various properties in Cavite.

The Monetary Board by Ramon Tiaoqui, Special Assistant to the Governor and Head, SES Department III
submitted a report finding that the bank is insolvent and recommending the appointment of a receiver.    
The Monetary Board, based on the Tiaoqui report, issued a resolution finding Banco Filipino insolvent
and placing it under receivership. Subsequently, the Monetary Board issued another resolution placing
the bank under liquidation and designated a liquidator. By virtue of her authority as liquidator,
Valenzuela appointed the law firm of Sycip, Salazar, et al. to represent Banco Filipino in all litigations.

Banco Filipino filed the petition for certiorari questioning the validity of the resolutions issued by the
Monetary Board authorizing the receivership and liquidation of Banco Filipino.A temporary restraining
order was issued enjoining the respondents from executing further acts of liquidation of the bank.
However, acts and other transactions pertaining to normal operations of a bank are not enjoined.
Subsequently, Top Management and Pilar Development failed to pay their loans on the due date. Hence,
the law firm of Sycip, Salazar, et al. acting as counsel for Banco Filipino under authority of the liquidator,
applied for extra-judicial foreclosure of the mortgage over Top Management and Pilar Development’s
properties. Thus, the Ex-Officio Sheriff of the Regional Trial Court of Cavite issued a notice of extra-
judicial foreclosure sale of the properties. Top Management and Pilar Development filed 2 separate
petitions for injunction and prohibition with the respondent appellate court seeking to enjoin the
Regional Trial Court of Cavite, the ex-officio sheriff of said court and Sycip, Salazar, et al. from
proceeding with foreclosure sale which were subsequently dismissed by the court. Hence this petition

Issue:    1) whether or not an administrative agency of the government, like the Central Bank of the
Philippines and the Monetary Board, has committed grave abuse of discretion or has acted without or in
excess of jurisdiction in issuing the validity of the receivership and liquidation is still pending resolution.

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

Held:   

1) 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 filed against the institution. When the issue on the
validity of the closure and receivership of Banco Filipino bank was raised in G.R. No. 70054, the
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.

Such acts of liquidation, as explained in Sec. 29 of the Central Bank Act are those which constitute the
conversion of the assets of the banking institution to money or the sale, assignment or disposition of the
same to creditors and other parties for the purpose of paying the debts of such institution.  The Court
did not prohibit however acts such as receiving collectibles and receivables or paying off creditors'
claims and other transactions pertaining to normal operations of a bank.

There is no doubt that the prosecution of suits for collection and the foreclosure of mortgages against
debtors of the bank by the liquidator are among the usual and ordinary transactions pertaining to the
administration of a bank. The liquidator by himself or through counsel has the authority to bring actions
for foreclosure of mortgages executed by debtors in favor of the bank.
The liquidator is likewise authorized to resist or defend suits instituted against the bank by debtors and
creditors of the bank and by other private persons. The Central Bank cannot be compelled to fulfill
financial transactions entered into by Banco Filipino when the operations of the latter were suspended
by reason of its closure.  The Central Bank possesses those powers and functions only as provided for in
Sec. 29 of the Central Bank Act.

While the Court recognize the actual closure of Banco Filipino and the consequent legal effects thereof,
on its operations, it cannot uphold the legality of its closure. The closure and receivership of petitioner
bank, which was ordered by respondent Monetary Board on January 25, 1985, is null and void.

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 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.

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, the Court 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. 

6. Rural Bank of Buhi vs. CA GR L-61689, June 20, 1988

FACTS: Rural Bank of Buhi, Inc. (hereinafter referred to as Buhi) is a juridical entity existing under the
laws of the Philippines. Buhi is a rural bank that started its operations only on December 26, 1975. an
examination of the books and affairs of Buhi was ordered conducted by the Rural Banks and Savings and
Loan Association (DRBSLA), Central Bank of the Philippines, which by law, has charge of the supervision
and examination of rural banks and savings and loan associations in the Philippines. However, said
petitioner refused to be examined and as a result thereof, financial assistance was suspended.

On January 10, 1980, a general examination of the bank's affairs and operations was conducted and
there were found by DRBSLA a massive irregularities in its operations consisting of loans to unknown
and fictitious borrowers, where the sum of P1,704,782.00 was past due and another sum of
P1,130,000.00 was also past due in favor of the Central Bank. The Monetary Board, finding the report to
be true, adopted Resolution No. 583 placing Buhi, petitioner herein, under receivership and designated
respondent, Consolacion V. Odra, as Receiver, pursuant to the provisions of Section 29 of Republic Act
No. 265.

ISSUE: 1. Whether or not under Section 29, R.A. 265, as amended, may the Monetary Board (MB) of the
Central Bank place a rural bank under receivership without prior notice to said rural bank to enable it to
be heard on the ground relied upon for such receivership.

2. Whether or not supposed a civil case is instituted seeking the annulment of the receivership on the
ground of arbitrariness and bad faith on the part of the Monetary Board, such case be dismissed by the
IAC (Then CA) on the ground of insufficiency of evidence.

RULING: 1. Yes, the MB may place a rural bank under receivership without prior notice to said rural bank
to enable it to be heard on the ground relied upon such receivership. Under Section 29, there is no
requirement whether express or implied, that a hearing be first conducted before a banking institution
may be placed under receivership. On the contrary, 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 the bank is in a condition of insolvency or so
situated that its continuance in business would involve probable loss to its depositors or creditors.

2. Resolutions of the Monetary Board under Section 29 of the Central Bank Act, such as: forbidding bank
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 bank may be rehabilitated or should be
liquidated and appointing a liquidator for that purpose, are under the law " final and executory" and may
be set aside only on one ground, that is "if there is convincing proof that the action is plainly arbitrary
and made in bad faith" (Salud vs. Central Bank, supra).

There is no dispute that under the above-quoted Section 29 of the Central Bank Act, the Regional Trial
Court has jurisdiction to adjudicate the question of whether or not the action of the Monetary Board
directing the dissolution of the subject Rural Bank is attended by arbitrariness and bad faith. Such
position has been sustained by this Court in Salud vs. Central Bank of the Philippines (supra). In the same
case, the Court ruled further that 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,
may be asserted as an affirmative defense (Sections 1 and 4[b], Rule 6, Rules of Court) or a counterclaim
(Section 6, Rule 6 , Section 2, Rule 72 of the Rules of Court) in the proceedings for assistance in
liquidation or as a cause of action in a separate and distinct action where the latter was filed ahead of
the petition for assistance in liquidation (ibid; Central Bank vs. Court of Appeals, 106 SCRA 143 [1981]).

It will be noted that in the issuance of the Order of the Court of First Instance of Camarines Sur, Branch
VII, Iriga City, dated March 9, 1982 there was no trial on the merits. Based on the pleadings filed, the
Court merely acted on the Central Bank's Motion to Dismiss and Supplemental Motion to Dismiss,
denying both for lack of sufficient merit. Evidently, the trial court merely acted on an incident and has
not as yet inquired, as mandated by Section 29 of the Central Bank Act, into the merits of the claim that
the Monetary Board's action is plainly arbitrary and made in bad faith. It has not appreciated certain
facts which would render the remedy of liquidation proper and rehabilitation improper, involving as it
does an examination of the probative value of the evidence presented by the parties properly belonging
to the trial court and not properly cognizable on appeal (Central Bank vs. Court of Appeals, supra, p.
156). Still further, without a hearing held for both parties to substantiate their allegations in their
respective pleadings, there is lacking that "convincing proof" prerequisite to justify the temporary
restraining order (mandatory injunction) issued by the trial court in its Order of March 9, 1982.

7. CB vs. CA, GR 76118 March 30 1998

FACTS: Based on examination reports submitted by the Supervision and Examination Sector (SES),
Department II, of the Central Bank (CB) "that the financial condition of TSB is one of insolvency and its
continuance in business would involve probable loss to its depositors and creditors," the Monetary
Board (MB) issued on 31 May 1985 Resolution No. 596 ordering the closure of TSB, forbidding it from
doing business in the Philippines, placing it under receivership, and appointing Ramon V. Tiaoqui as
receiver. Tiaoqui assumed office on 3 June 1985. On 11 June 1985, TSB filed a complaint with the
Regional Trial Court of Quezon City against Central Bank and Ramon V. Tiaoqui to annul MB Resolution
No. 596, with prayer for injunction, challenging in the process the constitutionality of Sec. 29 of R.A. 269,
otherwise known as "The Central Bank Act," as amended, insofar as it authorizes the Central Bank to
take over a banking institution even if it is not charged with violation of any law or regulation, much less
found guilty thereof.

Central Bank and Ramon Tiaoqui filed a motion to dismiss the complaint before the RTC for failure to
state a cause of action, i.e., it did not allege ultimate facts showing that the action was plainly arbitrary
and made in bad faith, which are the only grounds for the annulment of Monetary Board resolutions
placing a bank under conservatorship, and that TSB was without legal capacity to sue except through its
receiver.

ISSUE: whether absence of prior notice and hearing may be considered acts of arbitrariness and bad
faith sufficient to annul a Monetary Board resolution enjoining a bank from doing business and placing it
under receivership.

RULING: 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. (now par.
5, as amended by E.O. 289) provides for the filing of a case within ten (10) days alter 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.
8. Abacus vs. Manila Banking Corp., GR 162270

FACTS: Respondent Manila Banking Corporation (Manila Bank, for brevity), owns a 1,435- square meter
parcel of land located along Gil Puyat Avenue Extension, Makati City. Prior to 1984, the bank began
constructing on said land a 14-storey building. Not long after, however, the bank encountered financial
difficulties that rendered it unable to finish construction of the building.

On May 22, 1987, the Central Bank of the Philippines, now Bangko Sentral ng Pilipinas, ordered the
closure of Manila Bank and placed it under receivership, with Feliciano Miranda, Jr. being initially
appointed as Receiver. The legality of the closure was contested by the bank before the proper court.

On November 11, 1988, the Central Bank, by virtue of Monetary Board (MB) Resolution No. 505,
ordered the liquidation of Manila Bank and designated Atty. Renan V. Santos as Liquidator. The
liquidation, however, was held in abeyance pending the outcome of the earlier suit filed by Manila Bank
regarding the legality of its closure. Consequently, the designation of Atty. Renan V. Santos as Liquidator
was amended by the Central Bank on December 22, 1988 to that of Statutory Receiver. In a bid to save
the bank's investment, started scouting for possible investors who could finance the completion of the
building earlier mentioned.

A group of investors, represented by Calixto Y. Laureano (hereafter referred to as Laureano group),

wrote Vicente G. Puyat offering to lease the building for ten (10) years and to advance the cost to
complete the same, with the advanced cost to be amortized and offset against rental payments during
the term of the lease. Likewise, the letter-offer stated that in consideration of advancing the
construction cost, the group wanted to be given the “exclusive option to purchase” the building and the
lot on which it was constructed. Vicente G. Puyat accepted the Laureano group’s offer and granted it an
“exclusive option to purchase” the lot and building for One Hundred Fifty Million Pesos
(P150,000,000.00). 

On October 31, 1989, the building was leased to Manila Equities Corp (MEQCO) for a period of ten (10)
years pursuant to a contract of lease bearing that date.  MEQCO subleased the property to
petitioner Abacus Real Estate Development Center, Inc. (Abacus, for short), a corporation formed by the
Laureano group for the purpose, under identical provisions as that of the October 31, 1989 lease
contract between Manila Bank and MEQCO.

ISSUE: Whether or not Puyat, as the acting president of Manila Bank, has the power to sell the
properties.

RULING: Puyat has no authority or power to sell the properties. 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
Act 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".

Note: 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.

9. Villanueva vs. CA G.R. No. 114870. May 26, 1995

FACTS: The Villanueva Spouses owned the disputed lot. In 1975, the wife, Miguela sought the help of
one Jose Viudez, the then Officer-in-Charge of the PVB branch in Makati if she could obtain a loan from
said bank. Jose Viudez told Miguela Villanueva to surrender the titles of said lots as collaterals. And to
further facilitate a bigger loan, Viudez, in connivance with one Andres Sebastian, swayed Miguela
Villanueva to execute a deed of sale covering the two (2) disputed lots, which she did but without the
signature of her husband Celestino. Miguela, however, never got the loan she was expecting.
Subsequent attempts to contact Jose Viudez proved futile, until Miguela Villanueva thereafter found out
that new titles over the two (2) lots were already issued in the name of the PVB. It appeared upon
inquiry from the Registry of Deeds that the original titles of these lots were canceled and new ones were
issued to Jose Viudez, which in turn were again cancelled and new titles issued in favor of Andres
Sebastian, until finally new titles were issued in the name of should be PVB after the lots were
foreclosed for failure to pay the loan granted in the name of Andres Sebastian.

Miguela sought to repurchase the lots from the PVB after being informed that the lots were about to be
sold at auction. The PVB told her that she can redeem the lots for the price of P110,416.00. Negotiations
for the repurchase of the lots nevertheless were stalled by the filing of liquidation proceedings against
the PVB on August of 1985. Her offer not having been accepted,6 Miguela Villanueva increased her bid
to P70,000.00. It was only at this time that she disclosed to the bank her private transactions with Jose
Viudez. After this and her subsequent offers were rejected, Miguela sent her sealed bid of P110,417.00
pursuant to the written advice of the vice president of the PVB.

The PVB was placed under receivership pursuant to Monetary Board (MB) Resolution No. 334. The lot
that Miguela was trying to repurchase was subject to liquidation. Thus she filed a claim to the court that
she is the lawful owner of the said lot. The trial court allowed her to purchase the lots if only to restore
their status as conjugal properties. It further held that by reason of estoppel, the transactions having
been perpetrated by a responsible officer of the PVB. On the other hand, a certain Ong submitted an
offer though lower than Miguela Villanueva's bid by P417.00, is much better, as the same is payable in
cash, while Villanueva's bid is payable in installment; that his payment could not be said to have been
made after the expiration of the 15-day period because this period has not even started to run, there
being no notice yet of the approval of his offer; and that he has a legal right to compel the PVB or its
liquidator to execute the corresponding deed of conveyance.

ISSUE: Whether or not PVB’s sale of the lot to Ong was valid.

RULING: It has been said that where upon the insolvency of a bank a receiver therefor is appointed, 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. In a nutshell, the insolvency of a bank and the consequent appointment of a receiver
restrict the bank's capacity to act, especially in relation to its property. Applying Article 1323 of the Civil
Code, Ong's offer to purchase the subject lots became ineffective because the PVB became insolvent
before the bank's acceptance of the offer came to his knowledge. Hence, the purported contract of sale
between them did not reach the stage of perfection.

10. Pacific Banking Corp. Employee’s Org. vs CA G.R. No. 109373. March 20, 1995.

FACTS: Pacific Banking Corporation (PaBC) was placed under receivership by the Central Bank of the
Philippines pursuant to Resolution No. 699 of its Monetary Board. A few months later, it was placed
under liquidation and a Liquidator was appointed. The Union filed a complaint-in-intervention seeking
payment of holiday pay, 13th month pay differential, salary increase differential, Christmas bonus, and
cash equivalent of Sick Leave Benefits due its members as employees of PaBC. In its order dated
September 13, 1991, the trial court ordered payment of the principal claims of the Union. The Liquidator
received a copy of the order on September 16 , 1991 . On October 16 , 1991 , he filed a Motion for
Reconsideration and Clarification of the order. order of December 6, 1991, the judge modified his
September 13, 1991 6 but in effect denied the Liquidator's Motion for reconsideration.

Ang Keong Lan and E.J. Ang Int'l., private respondents in G .R. No. 112991 , likewise filed claims for the
payment of investment in the PaBC allegedly in the form of shares of stocks amounting to
US$2,531,632.18. The shares of stocks, consisting of 154,462 common shares, constituted 11% of the
total subscribed capital stock of the PaBC. They alleged that their claim constituted foreign exchange
capital investment entitled to preference in payment under the Foreign Investments Law. In his order
dated September 11, 1992, respondent judge of the RTC directed the Liquidator to pay private
respondents the total amount of their claim as preferred creditors. As in the case of the Union, however,
the judge ordered the Notice of Appeal stricken off the record on the ground that it had been filed
without authority of the Central Bank and beyond 15 days. On appeal, the CA rendered different rulings.
In the case of the Union, the proceeding before the trial court was a special proceeding and, therefore,
the period for appealing from any decision or final order rendered therein is 30 days. Since the notice of
appeal of the Liquidator was filed on the 30th day of his receipt of the decision granting the Union's
claims, the appeal was brought on time. The Fifth Division, therefore, set aside the orders of the lower
court and directed the latter to give due course to the appeal of the Liquidator and set the Record on
Appeal he had filed for hearing.

On the other hand, in the case of the Stockholders/Investors that a liquidation proceeding is an ordinary
action. Therefore, the period for appealing from any decision or final order rendered therein is 15 days
and that since the Liquidator's appeal notice was filed on the 23rd day of his receipt of the order
appealed from, deducting the period during which his motion for reconsideration was pending, the
notice of appeal was filed late.

ISSUE: whether a petition for liquidation under 29 of Rep. Act No. 265, otherwise known as the Central
Bank Act, is a special proceeding or an ordinary civil action.

RULING: The SC held that a petition for liquidation under Section 29 of Rep. Act No. 265 is in the nature
of a special proceeding. If it is, then the period of appeal is 30 days and the party appealing must, in
addition to a notice of appeal, file with the trial court a record on appeal in order to perfect his appeal.
Otherwise, if a liquidation proceeding is an ordinary action, the period of appeal is 15 days from notice
of the decision or final order appealed from. Section 29 shall not apply in appeals in special proceedings
and in other cases wherein multiple appeals are allowed under applicable provisions of the Rules of
Court.

A petition for liquidation of an insolvent corporation should be classified a special proceeding and not an
ordinary action. Such petition does not seek the enforcement or protection of a right nor the prevention
or redress of a wrong against a party. It does not pray for affirmative relief for injury arising from a
party's wrongful act or omission nor state a cause of action that can be enforced against any person.

What it seeks is merely a declaration by the trial court of the corporation's insolvency so that its
creditors may be able to file their claims in the settlement of the corporation's debts and obligations.
Put in another way, the petition only seeks a declaration of the corporation's debts and obligations. Put
in another way, the petition only seeks a declaration of the corporation's state of insolvency and the
concomitant right of creditors and the order of payment of their claims in the disposition of the
corporation's assets.

11. PVB va VEGA, G.R. No. 105364. June 28, 2001

FACTS: Central Bank of the Philippines (Central Bank, for brevity) filed a Petition for Assistance in the
Liquidation of the Philippine Veterans Bank, the same docketed as Case No. SP-32311. Thereafter, the
Philippine Veterans Bank Employees Union-N.U.B.E., herein petitioner, represented by petitioner
Perfecto V. Fernandez, filed claims for accrued and unpaid employee wages and benefits with said court
in SP-32311. After lengthy proceedings, partial payment of the sums due to the employees were made.
However, due to the piecemeal hearings on the benefits, many remain unpaid.

On January 2, 1992, the Congress enacted Republic Act No. 7169 providing for the rehabilitation of the
Philippine Veterans Bank. Thereafter, petitioners filed with the labor tribunals their residual claims for
benefits and for reinstatement upon reopening of the bank.

Sometime in May 1992, the Central Bank issued a certificate of authority allowing the PVB to reopen.
Despite the legislative mandate for rehabilitation and reopening of PVB, respondent judge continued
with the liquidation proceedings of the bank. The petitioners learned that respondents were set to order
the payment and release of employee benefits upon motion of another lawyer, while petitioners' claims
have been frozen to their prejudice.

ISSUE: Whether or not the respondent judge may still continue the liquidation proceedings against the
bank despite the enactment of RA 7169.

RULING: The enactment of Republic Act No. 7169, as well as the subsequent developments has
rendered the liquidation court functus officio . Consequently, respondent judge has been stripped of the
authority to issue orders involving acts of liquidation. Liquidation, in corporation law, connotes a
winding up or settling with creditors and debtors. It is the winding up of a corporation so that assets are
distributed to those entitled to receive them. It is the process of reducing assets to cash, discharging
liabilities and dividing surplus or loss.

On the opposite end of the spectrum is rehabilitation which connotes a reopening or reorganization.
Rehabilitation contemplates a continuance of corporate life and activities in an effort to restore and
reinstate the corporation to its former position of successful operation and solvency.

It is crystal clear that the concept of liquidation is diametrically opposed or contrary to the concept of
rehabilitation, such that both cannot be undertaken at the same time. To allow the liquidation
proceedings to continue would seriously hinder the rehabilitation of the subject bank.

12. Vivas vs. Monetary Boar and PDIC G.R. G.R. No. 191424. August 7, 2013

FACTS: The Rural Bank of Faire, Incorporated (RBFI) was a duly registered rural banking institution in
Cagayan. Record shows that the corporate life of RBFI expired on May 31, 2005. Notwithstanding,
petitioner Alfeo D. Vivas and his principals acquired the controlling interest in RBFI sometime in January
2006. At the initiative of Vivas and the new management team, an internal audit was conducted on RBFI
and results thereof highlighted the dismal operation of the rural bank. In view of those findings, certain
measures calculated to revitalize the bank were allegedly introduced.On December 8, 2006, the Bangko
Sentral ng Pilipinas (BSP) issued the Certificate of Authority extending the corporate life of RBFI for
another fifty (50) years. The BSP also approved the change of its corporate name to EuroCredit
Community Bank, Incorporated, as well as the increase in the number of the members of its BOD, from
five (5) to eleven (11).

Pursuant to Section 28 of Republic Act (R.A.) No. 7653, otherwise known as The New Central Bank Act,
the Integrated Supervision Department II (ISD II) of the BSP conducted a general examination on ECBI
with the cut-off date of December 31, 2007. Shortly after the completion of the general examination, an
exit conference was held on March 27, 2008 at the BSP during which the BSP officials and examiners
apprised Vivas, the Chairman and President of ECBI, as well as the other bank officers and members of
its BOD, of the advance findings noted during the said examination. The ECBI submitted its comments on
BSPs consolidated findings and risk asset classification through a letter, dated April 8, 2008.

Sometime in April 2008, the examiners from the Department of Loans and Credit of the BSP arrived at
the ECBI and cancelled the rediscounting line of the bank. Vivas appealed the cancellation to
BSP.Thereafter, the Monetary Board (MB) issued Resolution No. 1255, dated September 25, 2008,
placing ECBI under Prompt Corrective Action (PCA) framework because of the following serious findings
and supervisory concerns noted during the general examination : 1] negative capital of 14.674 million
and capital adequacy ratio of negative 18.42%; 2] CAMEL (Capital Asset Management Earnings Liquidity)
composite rating of "2" with a Management component rating of "1"; and 3] serious supervisory
concerns particularly on activities deemed unsafe or unsound.Vivas claimed that the BSP took the above
courses of action due to the joint influence exerted by a certain hostile shareholder and a former BSP
examiner.

Through its letter, dated September 30, 2008, the BSP furnished ECBI with a copy of the Report of
Examination (ROE) as of December 31, 2007. In addition, the BSP directed the banks BOD and senior
management to : 1] infuse fresh capital of 22.643 million; 2] book the amount of 28.563 million
representing unbooked valuation reserves on classified loans and other risks assets on or before
October 31, 2008; and 3] take appropriate action necessary to address the violations/exceptions noted
in the examination.

Vivas moved for a reconsideration of Resolution No. 1255 on the grounds of non-observance of due
process and arbitrariness. The ISD II, on several instances, had invited the BOD of ECBI to discuss matters
pertaining to the placement of the bank under PCA framework and other supervisory concerns before
making the appropriate recommendations to the MB. The proposed meeting, however, did not
materialize due to postponements sought by Vivas.

In its letter, dated February 20, 2009, the BSP directed ECBI to explain why it transferred the majority
shares of RBFI without securing the prior approval of the MB in apparent violation of Subsection X126.2
of the Manual of Regulation for Banks (MORB).Still in another letter,dated March 31, 2009, the ISD II
required ECBI to explain why it did not obtain the prior approval of the BSP anent the establishment and
operation of the banks sub-offices.

Also, the scheduled March 31, 2009 general examination of the books, records and general condition of
ECBI with the cut-off date of December 31, 2008, did not push through. According to Vivas, ECBI asked
for the deferment of the examination pending resolution of its appeal before the MB. Vivas believed
that he was being treated unfairly because the letter of authority to examine allegedly contained a
clause which pertained to the Anti-Money Laundering Law and the Bank Secrecy Act.

The MB, on the other hand, posited that ECBI unjustly refused to allow the BSP examiners from
examining and inspecting its books and records, in violation of Sections 25 and 34 of R.A. No. 7653. In its
letter, dated May 8, 2009, the BSP informed ECBI that it was already due for another annual
examination and that the pendency of its appeal before the MB would not prevent the BSP from
conducting another one as mandated by Section 28 of R.A. No. 7653.

In view of ECBIs refusal to comply with the required examination, the MB issued Resolution No.
726,dated May 14, 2009, imposing monetary penalty/fine on ECBI, and referred the matter to the Office
of the Special Investigation (OSI) for the filing of appropriate legal action. The BSP also wrote a
letter,dated May 26, 2009, advising ECBI to comply with MB Resolution No. 771, which essentially
required the bank to follow its directives.

Thereafter, the MB issued Resolution No. 823,dated June 4, 2009, approving the issuance of a cease and
desist order against ECBI, which enjoined it from pursuing certain acts and transactions that were
considered unsafe or unsound banking practices, and from doing such other acts or transactions
constituting fraud or might result in the dissipation of its assets. On June 10, 2009, the OSI filed with the
Department of Justice (DOJ) a complaint for Estafa Through Falsification of Commercial Documents
against certain officials and employees of ECBI.

Meanwhile, the MB issued Resolution No. 1164,dated August 13, 2009, denying the appeal of ECBI from
Resolution No. 1255 which placed it under PCA framework. On November 18, 2009, the general
examination of the books and records of ECBI with the cut-off date of September 30, 2009, was
commenced and ended in December 2009. Later, the BSP officials and examiners met with the
representatives of ECBI, including Vivas, and discussed their findings.On December 7, 2009, the ISD II
reminded ECBI of the non-submission of its financial audit reports for the years 2007 and 2008 with a
warning that failure to submit those reports and the written explanation for such omission shall result in
the imposition of a monetary penalty.In a letter, dated February 1, 2010, the ISD II informed ECBI of MB
Resolution No. 1548 which denied its request for reconsideration of Resolution No. 726.

On March 4, 2010, the MB issued Resolution No. 276placing ECBI under receivership in accordance with
the recommendation of the ISD II.

Assailing MB Resolution No. 276, Vivas filed this petition for prohibition before this Court.

ISSUE: Whether or not the MB is correct in prohibiting ECBI from continuing its banking business and for
placing it under receivership?

RULING: 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. 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. 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.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. The MB may forbid a bank from doing
business and place it under receivership without prior notice and hearing.

NOTE: CLOSE NOW, HEAR LATER DOCTRINE

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.

13. Balayan vs. Rural Bank Inc. vs. NLDRC G.R. No. 194589. September 21, 2015

FACTS: Petitioner bank is a banking institution duly authorized by the Central Bank to engage in banking
business before it was placed under receivership by the Bangko Sentral ng Pilipinas on 26 November
2009.

NLDC, on the other hand, is a government institution created to promote and generate the development
of livelihood and community-based enterprises by virtue of Executive Order No. 715 (1981).

On 12 October 2009, NLDC filed a complaint for collection of sum of money against petitioner bank for
the latter's unpaid obligation in the amount of P1,603,179.86 before the RTC of Makati City. During the
pendency of the case before the RTC, the Bangko Sentral ng Pilipinas, thru the Monetary Board, issued
MIN-70-26 November 2009, placing the petitioner bank under receivership and appointed the PDIC as
receiver of the bank pursuant to Section 30 of Republic Act (R.A.) No. 7653. NLDC filed for substitution of
party and alleged that PDIC is not the real party in interest in the instant case because it does not stand
to be benefited or injured by the judgment in the suit. It argued that the PDIC is merely the Statutory
Receiver/Liquidator of all banks placed by the Monetary Board under receivership and is merely a
representative of the petitioner bank which remains as the real party in interest. The substitution of the
PDIC as defendant in this case is therefore not proper. Arguing that the substitution is not proper in the
instant case since the PDIC is not the real party in interest but was merely tasked to conserve the assets
of the bank for the benefit of its creditors, petitioner bank elevated the matter before the Court on
question of law via this instant Petition for Review on Certiorari.

ISSUE: Whether or not the substitution of the PDIC as defendant or its inclusion as co-defendant was
valid.

RULING: The substitution was proper in this case. 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. Towards this end, the PDIC, as the
statutory receiver/liquidator of the bank, is mandated to immediately gather and take charge of all the
assets and liabilities of the institution and administer the same for the benefit of its creditors.

As the fiduciary of the properties of a closed bank, the PDIC may prosecute or defend the case by or
against the said bank as a representative party while the bank will remain as the real party in interest
pursuant to Section 3, Rule 3 of the Revised Rules of Court.

14. PDIC vs. BIR G.R. No. 172892. June 13, 2013

FACTS: The Monetary Board of the Bangko Sentral ng Pilipinas (BSP) prohibited the Rural Bank of Tuba
(Benguet), Inc. (RBTI) from doing business in the Philippines, placed it under receivership in accordance
with Section 30 of Republic Act No. 7653, otherwise known as the "New Central Bank Act," and
designated the Philippine Deposit Insurance Corporation (PDIC) as receiver. PDIC conducted an
evaluation of RBTI’s financial condition and determined that RBTI remained insolvent. Monetary Board
issued Resolution directing PDIC to proceed with the liquidation of RBTI.

ISSUE: Whether a bank placed under liquidation has to secure a tax clearance from the BIR before the
project of distribution of the assets of the bank can be approved by the liquidation court.

RULING: NO. Section 52(C) of the Tax Code of 1997 is not applicable to banks ordered placed under
liquidation by the Monetary Board, and a tax clearance is not a prerequisite to the approval of the
project of distribution of the assets of a bank under liquidation by the PDIC.

Thus, this Court has held that the RTC, acting as liquidation court under Section 30 of the New Central
Bank Act, commits grave abuse of discretion in ordering the PDIC, as liquidator of a bank ordered closed
by the Monetary Board, to first secure a tax clearance from the appropriate BIR Regional Office, and
holding in abeyance the approval of the project of distribution of the assets of the closed bank by virtue
thereof. Three reasons have been given.

First, Section 52(C) of the Tax Code of 1997 pertains only to a regulation of the relationship between the
SEC and the BIR with respect to corporations contemplating dissolution or reorganization. On the other
hand, banks under liquidation by the PDIC as ordered by the Monetary Board constitute a special case
governed by the special rules and procedures provided under Section 30 of the New Central Bank Act,
which does not require that a tax clearance be secured from the BIR.

Second, only a final tax return is required to satisfy the interest of the BIR in the liquidation of a closed
bank, which is the determination of the tax liabilities of a bank under liquidation by the PDIC. In view of
the timeline of the liquidation proceedings under Section 30 of the New Central Bank Act, it is
unreasonable for the liquidation court to require that a tax clearance be first secured as a condition for
the approval of project of distribution of a bank under liquidation.

To our mind, what the BIR should have requested from the RTC, and what was within the discretion of
the RTC to grant, is not an order for PDIC, as liquidator of RBBI, to secure a tax clearance; but, rather, for
it to submit the final return of RBBI. The first paragraph of Section 30(C) of the Tax Code of 1997, read in
conjunction with Section 54 of the same Code, clearly imposes upon PDIC, as the receiver and liquidator
of RBBI, the duty to file such a return.

The filing by PDIC of a final tax return, on behalf of RBBI, should already address the supposed concern
of the BIR and would already enable the latter to determine if RBBI still had outstanding tax liabilities.

The unreasonableness and impossibility of requiring a tax clearance before the approval by the RTC of
the Project of Distribution of the assets of the RBBI becomes apparent when the timeline of the
proceedings is considered.

The BIR can only issue a certificate of tax clearance when the taxpayer had completely paid off his tax
liabilities. The certificate of tax clearance attests that the taxpayer no longer has any outstanding tax
obligations to the Government.

Should the BIR find that RBBI still had outstanding tax liabilities, PDIC will not be able to pay the same
because the Project of Distribution of the assets of RBBI remains unapproved by the RTC; and, if RBBI
still had outstanding tax liabilities, the BIR will not issue a tax clearance; but, without the tax clearance,
the Project of Distribution of assets, which allocates the payment for the tax liabilities, will not be
approved by the RTC. It will be a chicken-and-egg dilemma.

Third, it is not for this Court to fill in any gap, whether perceived or evident, in current statutes and
regulations as to the relations among the BIR, as tax collector of the National Government; the BSP, as
regulator of the banks; and the PDIC, as the receiver and liquidator of banks ordered closed by the BSP.
It is up to the legislature to address the matter through appropriate legislation, and to the executive to
provide the regulations for its implementation.

There is another reason. The position of the BIR, insisting on prior compliance with the tax clearance
requirement as a condition for the approval of the project of distribution of the assets of a bank under
liquidation, is contrary to both the letter and intent of the law on liquidation of banks by the PDIC.

The law expressly provides that debts and liabilities of the bank under liquidation are to be paid in
accordance with the rules on concurrence and preference of credit under the Civil Code. Duties, taxes,
and fees due the Government enjoy priority only when they are with reference to a specific movable
property, under Article 2241(1) of the Civil Code, or immovable property, under Article 2242(1) of the
same Code. However, with reference to the other real and personal property of the debtor, sometimes
referred to as "free property," the taxes and assessments due the National Government, other than
those in Articles 2241(1) and 2242(1) of the Civil Code, such as the corporate income tax, will come only
in ninth place in the order of preference. On the other hand, if the BIR ’s contention that a tax clearance
be secured first before the project of distribution of the assets of a bank under liquidation may be
approved, then the tax liabilities will be given absolute preference in all instances, including those that
do not fall under Articles 2241(1) and 2242(1) of the Civil Code. In order to secure a tax clearance which
will serve as proof that the taxpayer had completely paid off his tax liabilities, PDIC will be compelled to
settle and pay first all tax liabilities and deficiencies of the bank, regardless of the order of preference
under the pertinent provisions of the Civil Code. Following the BIR’s stance, therefore, only then may
the project of distribution of the bank’s assets be approved and the other debts and claims thereafter
settled, even though under Article 2244 of the Civil Code such debts and claims enjoy preference over
taxes and assessments due the National Government. The BIR effectively wants this Court to ignore
Section 30 of the New Central Bank Act and disregard Article 2244 of the Civil Code. However, as a court
of law, this Court has the solemn duty to apply the law. It cannot and will not give its imprimatur to a
violation of the laws.

B. Anti-Money Laundering

15. Republic of the Philippines vs. Hon. Eulogio Jr. G.R. No. 174629. February 14, 2008

FACTS: The case stemmed from the promulgation of Agan. (OSG) wrote the AMLC requesting the latter's
assistance "in obtaining more evidence to completely reveal the financial trail of corruption surrounding
the [NAIA 3] Project," and also noting that petitioner Republic of the Philippines was presently defending
itself in two international arbitration cases filed in relation to the NAIA 3 Project. The CIS conducted an
intelligence database search on the financial transactions of certain individuals involved in the award,
including respondent Pantaleon Alvarez (Alvarez) who had been the Chairman of the PBAC Technical
Committee, NAIA-IPT3 Project. 5 By this time, Alvarez had already been charged by the Ombudsman
with violation of Section 3 (j) of R.A. No. 3019. The search revealed that Alvarez maintained eight (8)
bank accounts with six (6) different banks. On 27 June 2005, the AMLC issued Resolution No. 75
whereby the Council resolved to authorize the Executive Director of the AMLC "to sign and verify an
application to inquire into and/or examine the [deposits] or investments of Pantaleon Alvarez, Wilfredo
Trinidad, Alfredo Liongson, and Cheng Yong, and their related web of accounts wherever these may be
found, as defined under Rule 10.4 of the Revised Implementing Rules and Regulations;" and to authorize
the AMLC Secretariat "to conduct an inquiry into subject accounts once the Regional Trial Court grants
the application to inquire into and/or examine the bank accounts" of those four individuals. Under the
authority granted by the Resolution, the AMLC filed an application to inquire into or examine the
deposits or investments of Alvarez, Trinidad, Liongson and Cheng Yong before the RTC.

RTC rendered an Order (Makati RTC bank inquiry order) granting the AMLC the authority to inquire and
examine the subject bank accounts of Alvarez, Trinidad, Liongson and Cheng Yong, the trial court being
satisfied that there existed "[p]robable cause [to] believe that the deposits in various bank accounts,
details of which appear in paragraph 1 of the Application, are related to the offense of violation of Anti-
Graft and Corrupt Practices Act now the subject of criminal prosecution before the Sandiganbayan as
attested to by the Informations, Exhibits C, D, E, F, and G." Pursuant to the Makati RTC bank inquiry
order, the CIS proceeded to inquire and examine the deposits, investments and related web accounts of
the four. Meanwhile Alvarez filed an urgent motion and manifestation. Manila RTC, acting on Alvarez's
latest motion, issued an Order directing the AMLC "to refrain from enforcing the order dated January 12,
2006 until the expiration of the period to appeal, without any appeal having been filed”.

Special Prosecutor of the Office of the Ombudsman, Dennis Villa-Ignacio, wrote a letter dated 2
November 2005, requesting the AMLC to investigate the accounts of Alvarez, PIATCO, and several other
entities involved in the nullified contract. The letter adverted to probable cause to believe that the bank
accounts were used in the commission of unlawful activities that were committed a in relation to the
criminal cases then pending before the Sandiganbayan. Attached to the letter was a memorandum on
why the investigation of the [accounts] is necessary in the prosecution of the above criminal cases
before the Sandiganbayan. In response to the letter of the Special Prosecutor, the AMLC promulgated
on 9 December 2005 Resolution No. 121 Series of 2005, which authorized the executive director of the
AMLC to inquire into and examine the accounts named in the letter, including one maintained by
Alvarez with DBS Bank and two other accounts in the name of Cheng Yong with Metrobank. The
Resolution characterized the memorandum attached to the Special Prosecutors letter as extensively
justif[ying] the existence of probable cause that the bank accounts of the persons and entities
mentioned in the letter are related to the unlawful activity of violation of Sections 3(g) and 3(e) of Rep.
Act No. 3019, as amended.

On July 2006, or one day after Alvarez filed his motion, the Manila RTC issued an Order wherein it
clarified that "the Ex Parte Order of this Court dated January 12, 2006 cannot be implemented against
the deposits or accounts of any of the persons enumerated in the AMLC Application until the appeal of
movant Alvarez is finally resolved, otherwise, the appeal would be rendered moot and academic or even
nugatory." In addition, the AMLC was ordered "not to disclose or publish any information or document
found or obtained in [v]iolation of the May 11, 2006 Order of this Court." The Manila RTC reasoned that
the other persons mentioned in AMLC's application were not served with the court's 12 January 2006
Order. This 25 July 2006 Manila RTC Order is the first of the four rulings being assailed through this
petition. In response, the Republic filed an Urgent Omnibus Motion for Reconsideration dated 27 July
2006, urging that it be allowed to immediately enforce the bank inquiry order against Alvarez.

Lilia Cheng filed in the CA a petition for certiorari, mandamus with Application for TRO against the
Republic of the Philippines through AMLC. The CA granted this petition. Petitioner's argument is that the
bank inquiry orders issued by the Manila and Makati RTCs are valid and immediately enforceable
whereas the assailed rulings, which effectively stayed the enforcement of the Manila and Makati RTCs
bank inquiry orders, are sullied with grave abuse of discretion. These conclusions flow from the posture
that a bank inquiry order, issued upon a finding of probable cause, may be issued ex parte and, once
issued, is immediately executory. Petitioner further argues that the information obtained following the
bank inquiry is necessarily beneficial, if not indispensable, to the AMLC in discharging its awesome
responsibility regarding the effective implementation of the AMLA and that any restraint in the
disclosure of such information to appropriate agencies or other judicial fora would render meaningless
the relief supplied by the bank inquiry order.

ISSUE: whether a bank inquiry order issued in accordance with Section 10 of the AMLA may be stayed by
injunction.

RULING: Yes. While petitioner would premise that the inquiry into Lilia Cheng's accounts finds root in
Section 11 of the AMLA, it cannot be denied that the authority to inquire under Section 11 is only
exceptional in character, contrary as it is to the general rule preserving the secrecy of bank deposits.
Even though she may not have been the subject of the inquiry orders, her bank accounts nevertheless
were, and she thus has the standing to vindicate the right to secrecy that attaches to said accounts and
their owners. This statutory right to privacy will not prevent the courts from authorizing the inquiry
anyway upon the fulfillment of the requirements set forth under Section 11 of the AMLA or Section 2 of
the Bank Secrecy Act; at the same time, the owner of the accounts have the right to challenge whether
the requirements were indeed complied with. However, prior to the enactment of the AMLA, the fact
that bank accounts or deposits were involved in activities later on enumerated in Section 3 of the law
did not, by itself, remove such accounts from the shelter of absolute confidentiality. Prior to the AMLA,
in order that bank accounts could be examined, there was need to secure either the written permission
of the depositor or a court order authorizing such examination, assuming that they were involved in
cases of bribery or dereliction of duty of public officials, or in a case where the money deposited or
invested was itself the subject matter of the litigation. The passage of the AMLA stripped another layer
off the rule on absolute confidentiality that provided a measure of lawful protection to the account
holder. For that reason, the application of the bank inquiry order as a means of inquiring into records of
transactions entered into prior to the passage of the AMLA would be constitutionally infirm, offensive as
it is to the ex post facto clause.

The AMLA also provides exceptions to the Bank Secrecy Act. Under Section 11, the AMLC may inquire
into a bank account upon order of any competent court in cases of violation of the AMLA, it having been
established that there is probable cause that the deposits or investments are related to unlawful
activities as defined in Section 3(i) of the law, or a money laundering offense under Section 4 thereof.
Further, in instances where there is probable cause that the deposits or investments are related to
kidnapping for ransom,[certain violations of the Comprehensive Dangerous Drugs Act of 2002,hijacking
and other violations under R.A. No. 6235, destructive arson and murder, then there is no need for the
AMLC to obtain a court order before it could inquire into such accounts. It cannot be successfully argued
the proceedings relating to the bank inquiry order under Section 11 of the AMLA is a litigation
encompassed in one of the exceptions to the Bank Secrecy Act which is when money deposited or
invested is the subject matter of the litigation. The orientation of the bank inquiry order is simply to
serve as a provisional relief or remedy. As earlier stated, the application for such does not entail a full-
blown trial. Nevertheless, just because the AMLA establishes additional exceptions to the Bank Secrecy
Act it does not mean that the later law has dispensed with the general principle established in the older
law that all deposits of whatever nature with banks or banking institutions in the Philippines x x x are
hereby considered as of an absolutely confidential nature. Indeed, by force of statute, all bank deposits
are absolutely confidential, and that nature is unaltered even by the legislated exceptions referred to in
Sec. 2 of the Bank Secrecy Act which prescribes exceptions whereby these bank accounts may be
examined by any person, government official, bureau or offial; namely when: (1) upon written
permission of the depositor; (2) in cases of impeachment; (3) the examination of bank accounts is upon
order of a competent court in cases of bribery or dereliction of duty of public officials; and (4) the money
deposited or invested is the subject matter of the litigation. Section 8 of R.A. Act No. 3019, the Anti-Graft
and Corrupt Practices Act, has been recognized by this Court as constituting an additional exception to
the rule of absolute confidentiality, and there have been other similar recognitions as well.

16. Republic of the Philippines vs. Glasgow Credit and Collection Services Inc. G.R. No. 170281. January
18, 2008

FACTS: On July 18, 2003, petitioner filed a complaint for civil forfeiture of assets with the RTC of Manila
against the bank deposit in an account number CS-005-10-000121-5, maintained by the respondent. The
case was filed pursuant to RA 9160 or the Anti-Money Laundering Act of 2001. Three days after, the RTC
of Manila issued a 72-hour TRO and a writ of preliminary injunction followed. Meanwhile, summons to
the respondent was returned "unserved" as it could no longer be found at its last known address.
In 2003, petitioner filed a verified omnibus motion for a.) issuance of alias summons and b) leave of
court to serve summons by publication. No mention was made of the motion for leave of court to serve
summons by publication to which the court archived the case for its failure to serve alias summons.

Sometime in 2004, the trial court ordered the reinstatement of the case directing the petitioner to serve
the alias summons to the respondent within 15 days. A month later, the petitioner received a copy of
the sheriff's return stating that the alias summons was returned "unserved". In 2005, the petitioner filed
a manifestation and ex parte motion to resolve its motion for leave of court to serve summons by
publication. The OSG received a copy of GLASGOW's motion to dismiss by way of special appearance
alleging that:

1) the court had no jurisdiction over its person as summons had not yet been served
2) the complaint was premature and stated no cause of action and
3) there was failure to prosecute on the part of the Republic

The trial court dismissed the case on the grounds of:

1) Improper venue
2) Insufficiency of the complaint in form and substance; and
3) Failure to prosecute
The petitioner filed a petition for review.

ISSUE: Whether the complaint for civil forfeiture was correctly dismissed on grounds of improper venue,
insufficiency in form and substance and failure to prosecute.

RULING: Yes, the court ruled with the Republic. While there was admittedly a delay in the proceeding, it
could not be entirely or primarily ascribed to the Republic. That Glasgow's whereabouts could not be
ascertained was not only beyond the Republic's control, it was also attributable to Glasgow which left its
principal office address without informing the Securities and Exchange Commission or any official
regulatory body (like the Bureau of Internal Revenue or the Department of Trade and Industry) of its
new address. Moreover, as early as October 8, 2003, the Republic was already seeking leave of court to
serve summons by publication.

17. Subido Pagente Certeza Mendoza and Binay law Office. Vs. CA G.R. No. 216914. December 6, 2016

FACTS: In 2015, a year before the 2016 presidential elections, reports abounded on the supposed
disproportionate wealth of then Vice President Jejomar Binay and the rest of his family, some of whom
were likewise elected public officers. The Office of the Ombudsman and the Senate conducted
investigations and inquiries thereon.

From various news reports announcing the inquiry into then Vice President Binay's bank accounts,
including accounts of members of his family, petitioner Subido Pagente Certeza Mendoza & Binay Law
Firm (SPCMB) was most concerned with the article published in the Manila Times on 25 February 2015
entitled "Inspect Binay Bank Accounts" which read, in pertinent part:

The Anti-Money Laundering Council (AMLC) asked the Court of Appeals (CA) to allow the [C]ouncil to
peek into the bank accounts of the Binays, their corporations, and a law office where a family member
was once a partner. Also the bank accounts of the law office linked to the family, the Subido Pagente
Certeza Mendoza & Binay Law Firm, where the Vice President's daughter Abigail was a former partner.

By 8 March 2015, the Manila Times published another article entitled, "CA orders probe of Binay 's
assets" reporting that the appellate court had issued a Resolution granting the ex-parte application of
the AMLC to examine the bank accounts of SPCMB. Forestalled in the CA thus alleging that it had no
ordinary, plain, speedy, and adequate remedy to protect its rights and interests in the purported
ongoing unconstitutional examination of its bank accounts by public respondent Anti-Money Laundering
Council (AMLC), SPCMB undertook direct resort to this Court via petition for certiorari and prohibition
on the following grounds that the he Anti-Money Laundering Act is unconstitutional insofar as it allows
the examination of a bank account without any notice to the affected party: (1) It violates the person's
right to due process; and (2) It violates the person's right to privacy.

ISSUE: whether or not the appellate court gravely abused its discretion when it effectively denied
SPCMB's letter-request for confirmation that the AMLC had applied (ex-parte) for, and was granted, a
bank inquiry order to examine SPCMB's bank accounts relative to the investigation conducted on Vice-
President Binay's accounts.
RULING:

As presently worded, Section 11 of the AMLA has three elements: (1) ex-parte application by the AMLC;
(2) determination of probable cause by the CA; and (3) exception of court order in cases involving
unlawful activities defined in Sections 3(i)(1), (2), and (12).

Succinctly, Section 11 of the AMLA providing for ex-parte application and inquiry by the AMLC into
certain bank deposits and investments does not violate substantive due process, there being no physical
seizure of property involved at that stage. It is the preliminary and actual seizure of the bank deposits or
investments in question which brings these within reach of the judicial process, specifically a
determination that the seizure violated due process. A bank inquiry order under Section 11 does not
necessitate any form of physical seizure of property of the account holder. It only authorizes the
examination of the particular deposits or investments in banking institutions or non-bank financial
institutions and examine on particular details such as the account holder's record of deposits and
transactions.

Said records are in the possession of the bank and therefore cannot be destroyed at the instance of the
account holder alone as that would require the extraordinary cooperation and devotion of the bank. The
AMLA now specifically provides for an ex-parte application for an order authorizing inquiry or
examination into bank deposits or investments which continues to pass constitutional muster.

In this case, at the investigation stage by the AMLC into possible money laundering offenses, SPCMB
demands that it have notice and hearing of AMLC's investigation into its bank accounts. The grant of
jurisdiction over cases involving money laundering offences is bestowed on the Regional Trial Courts and
the Sandiganbayan as the case may be. Textually, the AMLA is the first line of defense against money
laundering in compliance with our international obligation. There are three (3) stages of determination,
two (2) levels of investigation, falling under three (3) jurisdictions:

1. The AMLC investigates possible money laundering offences and initially determines whether
there is probable cause to charge any person with a money laundering offence under Section 4
of the AMLA, resulting in the filing of a complaint with the Department of Justice or the Office of
the Ombudsman;[21] 2. The DOJ or the Ombudsman conducts the preliminary investigation
proceeding and if after due notice and hearing finds probable cause for money laundering
offences, shall file the necessary information before the Regional Trial Courts or the
Sandiganbayan;[22] 3. The RTCs or the Sandiganbayan shall try all cases on money laundering, as
may be applicable.

Nowhere from the text of the law nor its Implementing Rules and Regulations can we glean that the
AMLC exercises quasi-judicial functions. That the AMLC does not exercise quasi-judicial powers and is
simply an investigatory body finds support in our ruling in Shu v. Dee. The AMLC functions solely as an
investigative body in the instances mentioned in Rule 5.b.[26] Thereafter, the next step is for the AMLC
to file a Complaint with either the DOJ or the Ombudsman.

Plainly, the AMLC's investigation of money laundering offenses and its determination of possible money
laundering offenses, specifically its inquiry into certain bank accounts allowed by court order, does not
transform it into an investigative body exercising quasi-judicial powers. Hence, Section 11 of the AMLA,
authorizing a bank inquiry court order, cannot be said to violate SPCMB's constitutional right to
procedural due process. The warning in Eugenio that an ex-parte proceeding authorizing the
government to inspect certain bank accounts or investments without notice to the depositor would
have significant implications on the right to privacy still does not preclude such a bank inquiry order to
be allowed by specific legislation as an exception to the general rule of absolute confidentiality of bank
deposits.

18. Ligot vs. AMLC G.R. No. 176944. March 6, 2013

FACTS: Republic of the Philippines (Republic), represented by the Anti-Money Laundering Council
(AMLC), filed an Urgent Ex-Parte Application for the issuance of a freeze order with the CA against
certain monetary instruments and properties of Ligot. This application was based on the February 1,
2005 letter of the Office of the Ombudsman to the AMLC, recommending that the latter conduct an
investigation on Lt. Gen. Ligot and his family for possible violation of RA No. 9160.

Lt. Gen. Ligot declared in his Statement of Assets, Liabilities, and Net Worth (SALN) that as of December
31, 2003, he had assets in the total amount of Three Million Eight Hundred Forty-Eight Thousand and
Three Pesos (P3,848,003.00). In contrast, his declared assets in his 1982 SALN amounted to only One
Hundred Five Thousand Pesos (P105,000.00).

Aside from these declared assets, the Ombudsman's investigation revealed that Lt. Gen. Ligot and his
family had other properties and bank accounts, not declared in his SALN. Lt. Gen. Ligot's main source of
income was his salary as an officer of the AFP, and given his wife and children's lack of any other
substantial sources of income, the Ombudsman declared the assets registered in Lt. Gen. Ligot's name,
as well as those in his wife's and children's names, to be illegally obtained and unexplained wealth,
pursuant to the provisions of RA No. 1379 (An Act Declaring Forfeiture in Favor of the State Any
Property Found to Have Been Unlawfully Acquired by Any Public Officer or Employee and Providing for
the Proceedings Therefor).

The AMLC issued Resolution No. 52, Series of 2005, directing the Executive Director of the AMLC
Secretariat to file an application for a freeze order against the properties of Lt. Gen. Ligot and the
members of his family with the CA. The appellate court granted the application in its July 5, 2005
resolution, ruling that probable cause existed.

Accordingly, the CA issued a freeze order against the Ligots' and Yambao's various bank accounts, web
accounts and vehicles, valid for a period of 20 days from the date of issuance. On July 26, 2005, the
Republic filed an Urgent Motion for Extension of Effectivity of Freeze Order, arguing that if the bank
accounts, web accounts and vehicles were not continuously frozen, they could be placed beyond the
reach of law enforcement authorities the CA granted the motion in its September 20, 2005 resolution,
extending the freeze order until after all the appropriate proceedings and/or investigations have been
terminated.

Ligots filed a motion to lift the extended freeze order, principally arguing that there was no evidence to
support the extension of the freeze order. They further argued that the extension not only deprived
them of their property without due process, it also punished them before their guilt could be proven.
The appellate court subsequently denied this motion. Meanwhile, on November 15, 2005, Republic Act
No. 9160, as Amended" (Rule in Civil Forfeiture Cases) took effect. Under this rule, a freeze order could
be extended for a maximum period of six months. Ligots filed a motion for reconsideration of the CA.

The CA denied their motion, hence this petition.

ISSUE: Whether or not the CA is correct in dismissing the petition of Ligots.

RULING: A review of the record reveals that after the CA issued its September 20, 2005 resolution
extending the freeze order, the Ligots filed a motion to lift the extended freeze order on September 28,
2005. Significantly, the CA only acted upon this motion on January 4, 2006, when it issued a resolution
denying it. While denominated as a Motion to Lift Extended Freeze Order, this motion was actually a
motion for reconsideration, as it sought the reversal of the assailed CA resolution. Since the Ligots'
motion for reconsideration was still pending resolution at the time the Rule in Civil Forfeiture Cases
came into effect on December 15, 2005, the Rule unquestionably applies to the present case.

Additionally, the government's failure to file an appropriate case until only after six years (despite the
clear provision of the Rule in Civil Forfeiture Cases) were we to dismiss the petition because of the filing
of the forfeiture case during the pendency of the case before the Court. Substantive aspect there are
only two requisites for the issuance of a freeze order: (1) the application ex parte by the AMLC and (2)
the determination of probable cause by the CA. The probable cause required for the issuance... of a
freeze order differs from the probable cause required for the institution of a criminal action, and the
latter was not an issue before the CA nor is it an issue before us in this case.

As defined in the law, the probable cause required for the issuance of a freeze order refers to "such facts
and circumstances which would lead a reasonably discreet, prudent or cautious man to believe that an
unlawful activity and/or a money laundering offense is about to be, is being or has been committed and
that the account or any monetary instrument or property subject thereof sought to be frozen is in any
way related to said unlawful activity and/or money laundering offense.

In other words, in resolving the issue of whether probable cause exists, the CA's statutorily-guided
determination's focus is not on the probable commission of an unlawful activity (or money laundering)
that the Office of the Ombudsman has already determined to exist, but on whether the bank accounts,
assets, or other monetary instruments sought to be frozen are in any way related to any of the illegal
activities a freeze order is not dependent on a separate criminal charge, much less does it depend on a
conviction.

As we previously noted in Republic v. Eugenio, Jr., "[t]o make such freeze order anteceded by a judicial
proceeding with notice to the account holder would allow for or lead to the dissipation of such funds
even before the order could be issued." A freeze order, however, cannot be issued for an indefinite
period A freeze order is an extraordinary and interim relief. The primary objective of a freeze order is to
temporarily preserve monetary instruments or property that are in any way related to an unlawful
activity or money laundering, by preventing the owner from utilizing them during the duration of the
freeze order.[39] The relief is pre-emptive in character, meant to prevent the owner from disposing his
property and thwarting the State's effort in building its case and eventually filing civil forfeiture
proceedings... and/or prosecuting the owner.

Examination of the Anti-Money Laundering Act of 2001, as amended, from the point of view of the
freeze order that it authorizes, shows that the law is silent on the maximum period of time that the
freeze order can be extended by the CA. As correctly noted by the petitioners, a freeze order is meant to
have a temporary effect; it was never intended to supplant or replace the actual forfeiture cases where
the provisional remedy - which means, the remedy is an adjunct of or an incident to the main action of
asking... for the issuance of an asset preservation order from the court where the petition is filed is
precisely available. For emphasis, a freeze order is both a preservatory and preemptive remedy.

To stress, the evils caused by the law's silence on the freeze order's period of effectivity[46] compelled
this Court to issue the Rule in Civil Forfeiture Cases. Specifically, the Court fixed the maximum allowable
extension on the freeze order's... effectivity at six months. In doing so, the Court sought to balance the
State's interest in going after suspected money launderers with an individual's constitutionally-protected
right not to be deprived of his property without due process of law, as well as to be presumed innocent
until proven guilty.

We are not unmindful that the State itself is entitled to due process. As a due process concern, we do
not say that the six-month period is an inflexible rule that would result in the automatic lifting of the
freeze order upon its expiration in all instances. An... inflexible rule may lend itself to abuse - to the
prejudice of the State's legitimate interests - where the property owner would simply file numerous
suits, questioning the freeze order during the six-month extension period, to prevent the timely filing of
a money laundering or civil forfeiture case within this period. With the limited resources that our
government prosecutors and investigators have at their disposal, the end-result of an inflexible rule is
not difficult to see.

Thus, as a rule, the effectivity of a freeze order may be extended by the CA for a period not exceeding six
months. Before or upon the lapse of this period, ideally, the Republic should have already filed a case for
civil forfeiture against the property owner with the proper... courts and accordingly secure an asset
preservation order or it should have filed the necessary information.[47] Otherwise, the property owner
should already be able to fully enjoy his property without any legal process affecting it. However,
should... it become completely necessary for the Republic to further extend the duration of the freeze
order, it should file the necessary motion before the expiration of the six-month period and explain the
reason or reasons for its failure to file an appropriate case and justify the... period of extension sought.
The freeze order should remain effective prior to the resolution by the CA, which is hereby directed to
resolve this kind of motion for extension with reasonable dispatch.

In the present case, we note that the Republic has not offered any explanation why it took six years
(from the time it secured a freeze order) before a civil forfeiture case was filed in court, despite the clear
tenor of the Rule in Civil Forfeiture Cases allowing the extension... of a freeze order for only a period of
six months. All the Republic could proffer is its temporal argument on the inapplicability of the Rule in
Civil Forfeiture Cases; in effect, it glossed over the squarely-raised issue of due process. Under these
circumstances, we cannot but... conclude that the continued extension of the freeze order beyond the
six-month period violated the Ligots' right to due process; thus, the CA decision should be reversed.

OTHER COMMERCIAL LAWS

C. Letters of Credit

19. HSBC vs. National Steel Corp and City Trust Bank Corp. G.R. No. 183486. February 24, 2016
FACTS: Respondent National Steel Corporation (NSC) entered into an Export Sales Contract (the
Contract) with Klockner East Asia Limited (Klockner) on October 12, 1993. NSC sold 1,200 metric tons of
prime cold rolled coils to Klockner under FOB ST Iligan terms. In accordance with the requirements in
the Contract, Klockner applied for an irrevocable letter of credit with HSBC in favor of NSC as the
beneficiary in the amount of US$468,000. HSBC issued an irrevocable and onsight letter of credit in favor
of NSC. The Letter of Credit stated that it is governed by the International Chamber of Commerce
Uniform Customs and Practice for Documentary Credits, Publication No.400 (UCP 400). Under UCP 400,
HSBC as the issuing bank has the obligation to immediately pay NSC upon presentment of the
documents listed in the Letter of Credit. The Letter of Credit was amended twice to reflect changes in
the terms of delivery. NSC, through Emerald Forwarding Corporation, loaded and shipped the cargo of
prime cold rolled coils on board MV Sea Dragon. NSC coursed the collection of its payment from
Klockner through City Trust Banking Corporation (City Trust). NSC had earlier obtained a loan from City
Trust secured by the proceeds of the Letter of Credit issued by HSBC. City Trust sent a collection order
(Collection Order) to HSBC respecting the collection of payment from Klockner. The Collection Order
stated that it is subject to Uniform Rules for the Collection of Commercial Paper Publication No. 322.
HSBC sent a cablegram to City Trust acknowledging receipt of the Collection Order. It also stated that
the documents will be presented to the drawee against payment subject to UCP 322 as instructed. SCB-
M then sent a cablegram to HSBC requesting the latter to urgently remit the proceeds to its account.
Neither City Trust nor SCB-M objected to HSBC's statement that the collection will be handled under the
Uniform Rules for Collection (URC 322).HSBC informed SCB-M that it has referred the matter to Klockner
for payment and that it will revert upon the receipt of the amount. HSBC sent another cablegram to
SCB-M advising it that Klockner had refused payment. City Trust insisted that a demand for payment
must be made from Klockner since the documents were found in compliance with LC terms and
conditions. HSBC replied on the same day stating that in accordance with City Trust's instruction in its
Collection Order, HSBC treated the transaction as a matter under URC 322. Thus, it demanded payment
from Klockner which unfortunately refused payment for unspecified reasons. It then noted that under
URC 322, Klockner has no duty to provide a reason for the refusal. Hence, HSBC requested for further
instructions as to whether it should continue to press for payment or return the documents. City Trust
responded that as advised by its client, HSBC should continue to press for payment.

Klockner refused payment. Meanwhile, on January 12, 1994, CityTrust sent a letter to NSC stating that it
executed NSC's instructions "to send, ON COLLECTION BASIS, the export documents. NSC expressed its
disagreement with CityTrust's contention that it sent the export documents to HSBC on collection basis.
It highlighted that it "negotiated with CityTrust the export documents pertaining to LC No. HKH 239409
of HSBC and it was CityTrust, which wrongfully treated the negotiation, as 'on collection basis.'" NSC
further claimed that CityTrust used its own mistake as an excuse against payment under the Letter of
Credit. Thus, NSC argued that CityTrust remains liable under the Letter of Credit. It also stated that it
presumes that CityTrust has preserved whatever right of reimbursement it may have against HSBC.

Trial ensued and on appeal the CA found that it is UCP 400 and not URC 322 which governs the
transaction. According to the CA, the terms of the Letter of Credit clearly stated that UCP 400 shall
apply. Further, the CA explained that even if the Letter of Credit did not state that UCP 400 governs, it
nevertheless finds application as this Court has consistently recognized it under Philippine jurisdiction.
Thus, applying UCP 400 and principles concerning letters of credit, the CA explained that the obligation
of the issuing bank is to pay the seller or beneficiary of the credit once the draft and the required
documents are properly presented. Under the independence principle, the issuing bank's obligation to
pay under the letter of credit is separate from the compliance of the parties in the main contract.

ISSUE: who among the parties bears the liability to pay the amount stated in the Letter of Credit.

RULING: The SC upheld the decision of the CA. A letter of credit is a commercial instrument developed
to address the unique needs of certain commercial transactions. It is recognized in our jurisdiction and is
sanctioned under Article 567 of the Code of Commerce and in numerous jurisprudence defining a letter
of credit, the principles relating to it, and the obligations of parties arising from it.

Letters of credit are governed primarily by their own provisions, by laws speci fically applicable to them,
and by usage and custom. Consistent with our rulings in several cases, usage and custom refers to UCP
400. When the particular issues are not covered by the provisions of the letter of credit, by laws
specifically applicable to them and by UCP 400, our general civil law finds suppletory application.
Applying this set of laws and rules, this Court rules that HSBC is liable under the provisions of the Letter
of Credit, in accordance with usage and custom as embodied in UCP 400, and under the provisions of
general civil law.

The Letter of Credit categorically stated that it is subject to UCP 400, to wit:

Except so far as otherwise expressly stated, this documentary credit is subject to uniform Customs and
Practice for Documentary Credits (1983 Revision), International Chamber of Commerce Publication No.
400. From the moment that HSBC agreed to the terms of the Letter of Credit — which states that UCP
400 applies — its actions in connection with the transaction automatically became bound by the rules
set in UCP 400. Even assuming that URC 322 is an international custom that has been recognized in
commerce, this does not change the fact that HSBC, as the issuing bank of a letter of credit, undertook
certain obligations dictated by the terms of the Letter of Credit itself and by UCP 400. In Feati, this Court
applied UCP 400 even when there is no express stipulation in the letter of credit that it governs the
transaction. On the strength of our ruling in Feati, we have the legal duty to apply UCP 400 in this case
independent of the parties' agreement to be bound by it.

20. RCBC vs. Alfa RTW Manufacturing Corp., etc., G.R. No. 133877. November 14, 2001

FACTS: On March 12, 1982, Rizal Banking Corporation (RCBC) filed with the Regional Trial Court of
Makati, Branch 145, Civil Case No. 2624 for a sum of money against Alfa RTW Manufacturing
Corporation et. al. Asserting a superior right over the property involved in the suit, North Atlantic
Garments Corporation filed a complaint in intervention. BA Finance Corporation, claiming as mortgagee
of the same property, filed an answer in intervention. RTC ruled against RCBC and ordered it to pay the
defendants and intervenors proportionate costs. The CA upheld the decision of the RTC.

In this petition, RCBC questions the Court of Appeals decision insofar as it modi fied the RTC decision by
decreasing the award in its favor from P18,961,372.43 to P3,060,406.25. In assailing the Court of
Appeals decision, petitioner RCBC raises a question of law, that is, whether or not the Court of Appeals
can deviate from the provisions of the contract between the parties, which contract is the law between
them.

Petitioner RCBC contends that the Court of Appeals erred in awarding to it the minimal sum of
P3,060,406.25 instead of P18,961,372.43 granted by the trial court.
ISSUE: Whether or not the CA is correct in awarding such amount instead of the amount granted by the
trial court.

RULING: Here, the Court of Appeals made findings "contrary to the admissions" of the parties. We refer
to the terms and conditions agreed upon by petitioner RCBC and respondent borrowers in the Trust
Receipts and the Comprehensive Surety Agreements. Significantly, the validity of those contracts is not
being questioned. It follows that the very terms and conditions of the same contracts become the law
between the parties. Herein lies the reversible error on the part of the Court of Appeals. When it ruled
that only P3,060,406.25 should be awarded to petitioner RCBC, the Appellate Court disregarded the
parties' stipulations in their contracts of loan, more specifically, those pertaining to the agreed (1)
interest rates, (2) service charges and (3) penalties in case of any breach thereof. 6 Indeed, the Court of
Appeals failed to apply this time-honored doctrine:

"That which is agreed to in a contract is the law between the parties. Thus, obligations arising from
contracts have the force of law between the contracting parties and should be complied with in good
faith."

"The Court cannot vary the terms and conditions therein stipulated unless such stipulation is contrary to
law, morals, good customs, public order or public policy."

The case now before us involves an obligation arising from a letter of credit-trust receipt transaction.
Under this arrangement, a bank extends to a borrower a loan covered by the letter of credit, with the
trust receipt as security of the loan. A trust receipt is "a security transaction intended to aid in financing
importers and retail dealers who do not have sufficient funds or resources to finance the importation or
purchase of merchandise, and who may not be able to acquire credit except thru utilization, as
collateral, of the merchandise imported or purchased."

In contracts contained in trust receipts, the contracting parties may establish agreements, terms and
conditions they may deem advisable, provided they are not contrary to law, morals or public order. In
the case at bar, there are specific amounts of interest, service charges and penalties agreed upon by the
parties. the principal amount of loans corresponding to each trust receipt must earn an interest at the
rate of sixteen percent (16%) per annum with the stipulated service charge of two percent (2%) per
annum on the loan principal or the outstanding balance thereof, from the date of execution until finality
of this Decision. A penalty of six percent (6%) per annum of the amount due and unpaid must also be
imposed computed from the date of demand (in this case on March 9, 1982), until finality of Judgment.
The interest of 16% percent per annum, as long as unpaid, also earns interest, computed from the date
of the filing of the complaint (March 12, 1982) until finality of this Court's Decision. From such date of
finality, the total unpaid amount (principal + interest + service charge + penalty + interest on the
interest) computed shall earn interest of 12% per annum until satisfied.

The Court of Appeals awarded only the sum of P3,060,406.25 as it was the amount prayed for in the
complaint. The Appellate Court, however, failed to consider that the complaint was filed on March 12,
1982, or just a year after the execution of the trust receipts. The computed interests then, the service
charge, the penalty and the attorney's fees corresponded only to one year. The interest on the interest
could not have been computed then since the finality of judgment could not yet be ascertained.
Significantly, from the filing of the complaint on March 12, 1982 up to the time the Appellate Court's
decision was promulgated, on May 14, 1998, there had been a lapse of sixteen years. The computed
interest in 1982 would no longer be true in 1998. What the Appellate Court should have done then was
to compute the total amount due in accordance with the rules of thumb laid down by this Court in
Eastern Shipping Lines, Inc., the resulting formula of which is as follows:

TOTAL AMOUNT DUE = principal + interest + service charge + penalty + interest on interest

Interest = principal x 16 % per annum x no. of years from date of execution until finality of judgment

Service charge = principal x 2% per annum x no. of years from date of execution until finality of
judgment

Penalty = principal x 6% per annum x no. of years from demand (March 9, 1982) until finality of
judgment

Interest on interest = Interest computed as of the filing of the complaint (March 12, 1982) x 12% x no. of
years until finality of judgment

Attorney's fees is 10% of the total amount computed as of finality of judgment Total amount due as of
the date of finality of judgment will earn an interest of 12% per annum until fully paid.

The total amount due corresponding to each of the four (4) contracts of loan may be easily determined
by the trial court through a simple mathematical computation based on the formula speci fied above.
Mathematics is an exact science, the application of which needs no further proof from the parties.

21. Bank of America, NT &SA vs. CA, G.R. No. 133877 December 10 1993

FACTS: Bank of America, NT & SA, Manila, received by registered mail an Irrevocable Letter of Credit No.
20272/81 purportedly issued by Bank of Ayudhya, Samyaek Branch, for the account of General
Chemicals, Ltd., of Thailand in the amount of US$2,782,000.00 to cover the sale of plastic ropes and
"agricultural files," with the petitioner as advising bank and private respondent Inter-Resin Industrial
Corporation as beneficiary. Notwithstanding such instruction, Bank of America failed to confirm the
letter of credit. Inter-Resin made a partial availment of the Letter of Credit after presentment of the
required documents to Bank of America. After confirmation of all the documents Bank of America  issued
a check in favor of Inter Resin. BA advised Bank of Ayudhya of Inter-Resin’s availment under the letter of
credit and asked for the corresponding reimbursement. Inter Resin presented documents for the second
availment under the same letter of credit. However, BA stopped the processing of such after they
received a telex from Bank of Ayudhya delaring that the Letter Credit fraudulent. BA sued IR for the
recovery of the first Letter Credit payment.

Trial court ruled for Inter-Resin, holding that: (a) Bank of America made assurances that enticed Inter-
Resin to send the merchandise to Thailand;

(b) the telex declaring the letter of credit fraudulent was unveri fied and self-serving, hence hearsay, but
even assuming that the letter of credit was fake, "the fault should be borne by the BA which was
careless and negligent" for failing to utilize its modern means of communication to verify with Bank of
Ayudhya in Thailand the authenticity of the letter of credit before sending the same to Inter-Resin; (c)
the loading of plastic products into the vans were under strict supervision, inspection and veri fication of
government officers who have in their favor the presumption of regularity in the performance of official
functions; and (d) Bank of America failed to prove the participation of Inter-Resin or its employees in the
alleged fraud as, in fact, the complaint for estafa through falsification of documents was dismissed by
the Provincial Fiscal of Rizal.

ISSUE: whether under the "letter of credit," Bank of America has incurred any liability to the
"beneficiary" thereof, an issue that largely is dependent on the bank's participation in that transaction.

RULING: Bank of America has, in fact, only been an advising, not confirming, bank, and this much is
clearly evident, among other things, by the provisions of the letter of credit itself, the petitioner bank's
letter of advice, its request for payment of advising fee, and the admission of Inter-Resin that it has paid
the same. That Bank of America has asked Inter-Resin to submit documents required by the letter of
credit and eventually has paid the proceeds thereof, did not obviously make it a confirming bank. The
fact, too, that the draft required by the letter of credit is to be drawn under the account of General
Chemicals (buyer) only means that the same had to be presented to Bank of Ayudhya (issuing bank) for
payment. It may be significant to recall that the letter of credit is an engagement of the issuing bank, not
the advising bank, to pay the draft. No less important is that Bank of America's letter of 11 March 1981
has expressly stated that "[t]he enclosure is solely an advise of credit opened by the abovementioned
correspondent and conveys no engagement by us." This written reservation by Bank of America in
limiting its obligation only to being an advising bank is in consonance with the provisions of U.C.P. As an
advising or notifying bank, Bank of America did not incur any obligation more than just notifying Inter-
Resin of the letter of credit issued in its favor, let alone to confirm the letter of credit.

22. Prudential Bank vs. IAC G.R. No. 74886. December 8, 1992

FACTS: Philippine Rayon Mills, Inc. entered into a contract with Nissho Co., Ltd. of Japan for the
importation of textile machineries under a five-year deferred payment plan. Upon the arrival of the
machineries, the Prudential Bank indorsed the shipping documents to the defendant-appellant which
accepted delivery of the same. To enable the defendant-appellant to take delivery of the machineries, it
executed, by prior arrangement with the Prudential Bank, a trust receipt which was signed by Anacleto
R. Chi in his capacity as President (sic) of defendant-appellant company.

At the back of the trust receipt is a printed form to be accomplished by two sureties who, by the very
terms and conditions thereof, were to be jointly and severally liable to the Prudential Bank should the
defendant-appellant fail to pay the total amount or any portion of the drafts issued by Nissho and paid
for by Prudential Bank. 

 Against this letter of credit, drafts were drawn and issued by Nissho, which were all paid by the
Prudential Bank through its correspondent in Japan.  Two of these drafts were accepted by Philippine
Rayon Mills while the others were not.  Petitioner instituted an action for the recovery of the sum of
money it paid to Nissho as Philippine Rayon Mills was not able to pay its obligations arising from the
letter of credit.  Respondent court ruled that with regard to the ten drafts which were not presented and
accepted, no valid demand for payment can be made.  Petitioner however claims that the drafts were
sight drafts which did not require presentment for acceptance to Philippine Rayon.

ISSUE: Whether or not Philippine Rayon is liable to Petitioner under Trust receipt.
RULING: While there is no specific prayer for the delivery to the petitioner by Philippine Rayon of the
proceeds of the sale of the machinery covered by the trust receipt, such relief is covered by the general
prayer for "such further and other relief as may be just and equitable on the premises." And although it
is true that the petitioner commenced a criminal action for the violation of the Trust Receipts Law, no
legal obstacle prevented it from enforcing the civil liability arising out of the trust receipt in a separate
civil action.

Under Section 13 of the Trust Receipts Law, the failure of an entrustee to turn over the proceeds of the
sale of goods, documents or instruments covered by a trust receipt to the extent of the amount owing
to the entruster or as appears in the trust receipt or to return said goods, documents or instruments if
they were not sold or disposed of in accordance with the terms of the trust receipt shall constitute the
crime of estafa, punishable under the provisions of Article 315, paragraph 1(b) of the Revised Penal
Code. Under Article 33 of the Civil Code, a civil action for damages, entirely separate and distinct from
the criminal action, may be brought by the injured party in cases of defamation, fraud and physical
injuries. Estafa falls under fraud.

We also conclude, for the reason hereinafter discussed, and not for that adduced by the public
respondent, that private respondent Chi's signature in the dorsal portion of the trust receipt did not
bind him solidarily with Philippine Rayon. The trust receipt, together with the questioned solidary
guaranty clause, is on a form drafted and prepared solely by the petitioner; Chi's participation therein is
limited to the affixing of his signature thereon. It is, therefore, a contract of adhesion; as such, it must be
strictly construed against the party responsible for its preparation.

Note: An irrevocable letter of credit is not synonymous with a confirmed letter of credit. In an
irrevocable letter of credit, the issuing bank may not, without the consent of the beneficiary and the
applicant, revoke its undertaking under the letter, whereas, in a confirmed letter of credit, the
correspondent bank gives an absolute assurance to the beneficiary that it will undertake the issuing
bank’s obligation as its own according to the terms and condition of the credit.

23. Keng Hua Paper Products Co., Inc. vs. CA GR No. 116863, February 12, 1998

FACTS: Sea-Land Service, Inc. (petitioner) received at its Hong Kong terminal a sealed container,
containing seventy-six bales of "unsorted waste paper" for shipment to defendant, Keng Hua Paper
Products. Co. in Manila. A bill of lading to cover the shipment was issued by Sea-Land. Notices of arrival
were transmitted to Keng Hua but the latter failed to discharge the shipment from the container during
the "free time" or grace period. The said shipment remained inside the plaintiff's container from the
moment the free time period expired until the time when the shipment was unloaded from the
container. During the period, demurrage charges accrued. Numerous demands were made on Keng Hua
but the obligation remained unpaid. Sea-Land thereafter commenced this civil action for collection and
damages. The RTC found petitioner liable for demurrage, attorney's fees and expenses of litigation. The
petitioner appealed to the Court of Appeals. Respondent Court of Appeals denied the appeal and
affirmed the lower court's decision in toto. It also denied the petitioner's motion for reconsideration.
Hence, this petition for review.
Hence this petition.

ISSUE: whether or not the petitioner was bound by the bill of lading.

RULING: In the case at bar, the prolonged failure of petitioner to receive and discharge the cargo from
the private respondent's vessel constitutes a violation of the terms of the bill of lading. It should thus be
liable for demurrage to the former. As to the rate of interest, this case involves an obligation not arising
from a loan or forbearance of money; thus, pursuant to Article 2209 of the Civil Code, the applicable
interest rate is six percent per annum, computed from the date of the trial court's decision.

24. National Marketing Corp. vs. Atlas Trading Development Corp. G.R. No. L-21979. September 29,
1967

FACTS: Defendant Atlas offered to sell to the plaintiff 8,000 metric tons of galvanized sheets at the price
of U.S. $247 per ton of 1,000 kilos, CIF Manila, to be shipped beginning August, 1948; 1 on July 24, 1948,
the plaintiff made an order and agreed to purchase the galvanized sheets offered by defendant Atlas
with the condition that the seller should furnish a performance bond in favor of the plaintiff in the
amount of P100,000.00; 2 on August 5, 1948, the plaintiff and defendant Atlas as sales brokers for West
India Commercial Corp. of New York City, N.Y., U.S.A., executed a contract of purchase and sale wherein
the said defendant obligated itself to sell 8,000 metric tons of galvanized steel sheets, at the price of
U.S. $247 per ton of 1,000 kilos CIF Manila; under the aforementioned contract, defendant Atlas
obligated itself to furnish in favor of Pratra a performance bond in the sum of P100,000.00 to guarantee
the faithful compliance of all the terms and conditions of the said contract, with defendant Alto as
surety; in compliance with its undertakings in the contract, the plaintiff on August 26, 1948, opened a
letter of credit with the Philippine National Bank for the amount of U.S. $1,976,000.00 in favor of the
West India Commercial Corp. of New York, United States.

Neither defendant Atlas nor its supposed principal the West India Commercial Corp. of New York
delivered the 8,000 metric tons of galvanized steel sheets involved in the contract. The aforementioned
contract having provided that in case of violation of any of its terms and conditions, the buyer will be
entitled to recover liquidated damages in the amount of 20% of the total contractual value of the
merchandise. It likewise prayed that defendant Alto be condemned to pay the plaintiff the amount of
P100,000.00, the amount of the performance bond. The lower court promulgated a decision on July 29,
1962 dismissing the complaint. In absolving defendant Atlas, it held that it "was duly authorized to act as
agent or broker of the West India Commercial Company in entering into the contract of purchase and
sale." Even if its liability could be held to be direct, the Pratra. Having demanded payment of damages
from West India Commercial Corporation and not from it, waived whatever claim it might have against
Atlas.

ISSUE: whether or not Atlast should be absolved from liability.

RULING: The lower court was correct in holding that no liability was incurred under the contract of
purchase and sale because of such failure to make the delivery. Such being the case, the question of
whether or not defendant Atlas, which acted as a sales broker, could be held liable for the alleged
breach need not be passed upon.
As for the surety, defendant Alto, the judgment must likewise be affirmed for the obvious reason that as
no accountability of the principal arose from the failure to make the delivery of the galvanized steel
sheets, it was equally exempt from liability.

"Where, therefore, legal relations arise from a letter of credit, such letter contains the entire contract of
the parties, and their resulting obligations should be measured by its provisions. It constitutes the
complete agreement, and is independent of the contract of sale between the buyer and the seller, and is
unaffected by any breach of contract on the part of the seller or the buyer or by any controversy which
may arise between the buyer and seller or by any other transaction between the buyer and seller."

25. FEATI Bank vs. CA G. R. No. 94209 April 30, 1991

FACTS: Bernardo Villaluz entered into a contract of sale with Axel Christiansen in which Villaluz agreed
to deliver to Christiansen 2,000 cubic meters of lauan logs at $27.00 per cubic meter FOB. On the
arrangements made and upon the instructions of consignee, Hanmi Trade Development, Ltd., the
Security Pacific National Bank of Los Angeles, California issued an irrevocable letter of credit available at
sight in favor of Villaluz for the sum of $54,000.00, the total purchase price of the lauan logs.

The letter of credit was mailed to the Feati Bank and Trust Company  with the instruction to the latter
that it “forward the enclosed letter of credit to the beneficiary.” The letter of credit also provided that
the draft to be drawn is on Security Pacific National Bank and that it be accompanied by certain
documents. The logs were thereafter loaded on a vessel but Christiansen refused to issue the
certification required in paragraph 4 of the letter of credit, despite repeated requests by the private
respondent. The logs however were still shipped and received by consignee, to whom Christiansen sold
the logs. Because of the absence of the certification by Christiansen, the Feati Bank and Trust company
refused to advance the payment on the letter of credit until such credit lapsed. Since the demands by
Villaluz for Christiansen to execute the certification proved futile, he filed an action for mandamus and
specific performance against Christiansen and Feati Bank and Trust Company before the Court of First
Instance of Rizal. Christiansen however left the Philippines and Villaluz filed an amended complaint
making Feati Bank and Trust Company.

 ISSUE: Whether or not Feati Bank is liable for Releasing the funds to Christiansen

 RULING: In commercial transactions involving letters of credit, the functions assumed by a

correspondent bank are classified according to the obligations taken up by it. The correspondent bank
may be called a notifying bank, a negotiating bank, or a confirming bank. In case of a notifying bank, the
correspondent bank assumes no liability except to notify and/or transmit to the beneficiary the
existence of the letter of credit.

A negotiating bank, on the other hand, is a correspondent bank which buys or discounts a draft under
the letter of credit. Its liability is dependent upon the stage of the negotiation. If before negotiation, it
has no liability with respect to the seller but after negotiation, a contractual relationship will then prevail
between the negotiating bank and the seller.

In the case of a confirming bank, the correspondent bank assumes a direct obligation to the seller and its
liability is a primary one as if the correspondent bank itself had issued the letter of credit. In this case,
the letter merely provided that the petitioner “forward the enclosed original credit to the beneficiary.”
(Records, Vol. I, p. 11) Considering the aforesaid instruction to the petitioner by the issuing bank, the
Security Pacific National Bank, it is indubitable that the petitioner is only a notifying bank and not a
confirming bank as ruled by the courts below. A notifying bank is not a privy to the contract of sale
between the buyer and the seller, its relationship is only with that of the issuing bank and not with the
beneficiary to whom he assumes no liability. It follows therefore that when the petitioner refused to
negotiate with the private respondent, the latter has no cause of action against the petitioner for the
enforcement of his rights under the letter.

Since the Feati was only a notifying bank, its responsibility was solely to notify and/or transmit the
documentary of credit to the private respondent and its obligation ends there. At the most, when the
petitioner extended the loan to the private respondent, it assumed the character of a negotiating bank.
Even then, the petitioner will still not be liable, for a negotiating bank before negotiation has no
contractual relationship with the seller. Whether therefore the petitioner is a notifying bank or a
negotiating bank, it cannot be held liable. Absent any definitive proof that it has confirmed the letter of
credit or has actually negotiated with Feati, the refusal by the petitioner to accept the tender of the
private respondent is justified.

26. BPI vs. De Remy Fabric Industries, Inc. G.R. No. L-24821 October 16, 1970

FACTS: De Reny Fabric Industries, Inc., a Philippine corporation through its co-defendants-appellants,
Aurora Carcereny, alias Aurora C. Gonzales, and Aurora T. Tuyo, president and secretary, respectively of
the corporation, applied to the Bank for four (4) irrevocable commercial letters of credit to cover the
purchase by the corporation of goods described in the covering L/C applications as "dyestuffs of various
colors" from its American supplier, the J.B. Distributing Company. All the applications of the corporation
were approved, and the corresponding Commercial L/C Agreements were executed pursuant to banking
procedures. Under these agreements, the aforementioned officers of the corporation bound themselves
personally as joint and solidary debtors with the corporation. Pursuant to banking regulations then in
force, the corporation delivered to the Bank peso marginal deposits as each letter of credit was opened.

Bank issued irrevocable commercial letters of credit addressed to its correspondent banks in the United
States, with uniform instructions for them to notify the beneficiary thereof, the J.B. Distributing
Company, that they have been authorized to negotiate the latter's sight drafts up to the amounts
mentioned therein, respectively, if accompanied, upon presentation, by a full set of negotiable clean "on
board" ocean bills of lading, covering the merchandise appearing in the L/Cs, that is, dyestuffs of various
colors.

As each shipment (covered by the abovementioned letters of credit) arrived in the Philippines, the De
Reny Fabric Industries, Inc. made partial payments to the Bank amounting, in the aggregate, to P90,000.
Further payments were, however, subsequently discontinued by the corporation when it became
established, as a result of a chemical test conducted by the National Science Development Board, that
the goods that arrived in Manila were colored chalks instead of dyestuffs.

The corporation also refused to take possession of these goods, and for this reason, the Bank caused
them to be deposited with a bonded warehouse paying therefor the amount of P12,609.64 up to the
filing of its complaint with the court below. The lower court rendered a decision ordering the
corporation and its co-defendants (the herein appellants) to pay to the plaintiffappellee the amount of
P291,807.46, with interest thereon, as provided for in the L/C Agreements, at the rate of 7% per annum
from October 31, 1962 until fully paid, plus costs.
ISSUE: Whether or not the foreign correspondent banks of the Bank of the Philippine Islands is liable for
the loss incurred for the defective delivery of the goods.

RULING: Under the terms of their Commercial Letter of Credit Agreements with the Bank, the appellants
agreed that the Bank shall not be responsible for the "existence, character, quality, quantity, conditions,
packing, value, or delivery of the property purporting to be represented by documents; for any
difference in character, quality, quantity, condition, or value of the property from that expressed in
documents," or for "partial or incomplete shipment, or failure or omission to ship any or all of the
property referred to in the Credit," as well as "for any deviation from instructions, delay, default or fraud
by the shipper or anyone else in connection with the property the shippers or vendors and ourselves
[purchasers] or any of us." Having agreed to these terms, the appellants have, therefore, no recourse
but to comply with their covenant. But even without the stipulation recited above, the appellants
cannot shift the burden of loss to the Bank on account of the violation by their vendor of its prestation.

The Bank introduced in evidence a provision contained in the "Uniform Customs and Practices for
Commercial Documentary Credits Fixed for the Thirteenth Congress of International Chamber of
Commerce," to which the Philippines is a signatory nation. Article 10 thereof provides:

"In documentary credit operations, all parties concerned deal in documents and not in goods.—
Payment, negotiation or acceptance against documents in accordance with the terms and conditions of
a credit by a Bank authorized to do so binds the party giving the authorization to take up the documents
and reimburse the Bank making the payment, negotiation or acceptance."

The existence of a custom in international banking and financing circles negating any duty on the part of
a bank to verify whether what has been described in letters of credits or drafts or shipping documents
actually tallies with what was loaded aboard ship, having been positively proven as a fact, the appellants
are bound by this established usage. They were, after all, the ones who tapped the facilities afforded by
the Bank in order to engage in international business.

27. Transfield Philippines, Inc. vs. Luzon Hydro Corp. G.R. No. 146717. November 22, 2004

FACTS: Transfield Philippines (Transfield) entered into a turn-key contract with Luzon Hydro Corp.
(LHC).Under the contract, Transfield were to construct a hydro-electric plants in Benguet and Ilocos.
Transfield was given the sole responsibility for the design, construction, commissioning, testing and
completion of the Project. The contract provides for a period for which the project is to be completed
and also allows for the extension of the period provided that the extension is based on justifiable
grounds such as fortuitous event. In order to guarantee performance by Transfield, two stand-by letters
of credit were required to be opened. During the construction of the plant, Transfield requested for
extension of time citing typhoon and various disputes delaying the construction. Luzon Hydro Corp. did
not give due course to the extension of the period prayed for but referred the matter to arbitration
committee. Because of the delay in the construction of the plant, Luzon Hydro Corp. called on the stand-
by letters of credit because of default. However, the demand was objected by Transfield on the ground
that there is still pending arbitration on their request for extension of time.

Petitioner as plaintiff filed a Complaint for Injunction, with prayer for temporary restraining order and
writ of preliminary injunction, against herein respondents as defendants before the Regional Trial Court
(RTC) of Makati. The RTC, in its Order dated 24 November 2000, denied petitioner's application for a
writ of preliminary injunction. It ruled that petitioner had no legal right and suffered no irreparable
injury to justify the issuance of the writ. Employing the principle of "independent contract" in letters of
credit, the trial court ruled that LHC should be allowed to draw on the Securities for liquidated damages.

Dissatisfied with the trial court's denial of its application for a writ of preliminary injunction, petitioner
elevated the case to the Court of Appeals. However, the appellate court failed to act on the application
for preliminary injunction until the temporary restraining order expired on 27 January 2001.
Immediately thereafter, representatives of LHC trooped to ANZ Bank and withdrew the total amount of
US$4,950,000.00, thereby reducing the balance in ANZ Bank to US$1,852,814.00. On 2 February 2001,
the appellate court dismissed the petition for certiorari.

ISSUE: Whether or not the independence principle and fraud exception rule applicable in this case.

RULING: As beneficiary of the letter of credit, LHC asserts it is entitled to invoke the principle. As
discussed above, in a letter of credit transaction, such as in this case, where the credit is stipulated as
irrevocable, there is a definite undertaking by the issuing bank to pay the beneficiary provided that the
stipulated documents are presented and the conditions of the credit are complied with. Precisely, the
independence principle liberates the issuing bank from the duty of ascertaining compliance by the
parties in the main contract.

As the principle's nomenclature clearly suggests, the obligation under the letter of credit is independent
of the related and originating contract. In brief, the letter of credit is separate and distinct from the
underlying transaction. Given the nature of letters of credit, petitioner's argument — that it is only the
issuing bank that may invoke the independence principle on letters of credit — does not impress this
Court. To say that the independence principle may only be invoked by the issuing banks would render
nugatory the purpose for which the letters of credit are used in commercial transactions. As it is, the
independence doctrine works to the benefit of both the issuing bank and the beneficiary.

28. MWSS vs. DAWAY G.R. No.

FACTS: Maynilad obtained a 20-year concession to manage, repair, refurbish, and upgrade existing
Metropolitan Waterworks and Sewerage System (MWSS) water delivery and sewerage services in Metro
Manila’s west zone.  Maynilad, under the concession agreement undertook to pay concession fees and
itsforeign loans.  To secure its obligations, Maynilad was required under Section 9 of the concession
contract to put up a bond, bank guarantee or other security acceptable to MWSS.   Pursuant to this
requirement, Maynilad arranged on for a three-year facility with a number of foreign banks led by
Citicorp Intl for the issuance of an irrevocable standby letter of credit (SLC) in the amount of $ 120
million in favor of MWSS for the full and prompt payment of Maynilad’s obligations to MWSS. Due to
devaluation of the peso and other business reversals of Maynilad, MWSS filed a notice of early
termination of the concession contract.  Upon certification of the non performance of Maynilad
obligation, the MWSS moved to collect from Citicorp on the standby letters of credit issued. Maynilad
filed for corporate rehabilitation.    Judge Daway stayed the payment of the letter of credit by Citicorp
pursuant to Sec 6 (b) of Rule 4 of the Interim Rules on Corporate Rehabilitation.

ISSUE: Whether or not the payment of the standby of letter of credit can be stayed by filing of a petition
for rehabilitation
RULING: No. The prohibition under Sec 6 (b) of Rule 4 of the Interim Rules does not apply to the the
standby letter of credit issued by the bank as the former prohibition is on the enforcement of claims
against guarantors or sureties of the debtors whose obligations are not solidary with the debtor.

The participating bank’s obligation under the letter of credit are solidary with respondent Maynilad in
that it is a primary, direct, definite and an absolute undertaking to pay and is not conditioned on the
prior exhaustion of the debtors assets. These are the same characteristics of a surety or solidary obligor.
And being solidary, the claims against them can be pursued separately from and independently of the
rehabilitation case.

Issuing banks under the letters of credit are not equivalent to guarantors. The concept of guarantee vis-
à-vis the concept of an irrevocable letter of credit are inconsistent with each other.  The guarantee
theory destroys the independence of the bank’s responsibility from the contract upon which it was
opened and the nature of both contracts is mutually in conflict with each other. In contracts of
guarantee, the guarantor’s obligation is merely collateral and it arises only upon the default of the
person primarily liable. On the other hand, in an irrevocable letter of credit, the bank undertakes a
primary obligation. We have also defined a letter of credit as an engagement by a bank or other person
made at the request of a customer that the issuer shall honor drafts or other demands of payment upon
compliance with the conditions specified in the credit.

A Standby Letter of Credit is not a guaranty because under a Standby Letter of Credit, the bank
undertakes a primary obligation.  On the other hand, a guarantor undertakes a collateral obligation
which arises only upon the debtor’s default.  A Standby Letter of Credit is a primary obligation and not
an accessory contract.

Note: The prohibition under Sec 6 (b) of Rule 4 of the Interim Rules does not apply to the the standby
letter of credit issued by the bank as the former prohibition is on the enforcement of claims against
guarantors or sureties of the debtors whose obligations are not solidary with the debtor.

The concept of guarantee vis-à-vis the concept of an irrevocable letter of credit are inconsistent with
each other.  The guarantee theory destroys the independence of the bank’s responsibility from the
contract upon which it was opened and the nature of both contracts is mutually in conflict with each
other. A Standby Letter of Credit is not a guaranty because under a Standby Letter of Credit, the bank
undertakes a primary obligation.  On the other hand, a guarantor undertakes a collateral obligation
which arises only upon the debtor’s default.  A Standby Letter of Credit is a primary obligation and not
an accessory contract. 

29. Lee vs. CA G.R. No. 117913, February 1, 2002

FACTS: Mico Metals Corporation, through its Vice-President and General Manager, executed a Deed of
Real Estate Mortgage over its properties in Pasig, Metro Manila to secure the loans obtained from
PBCom. Petitioners sureties, in their personal capacities, executed a surety agreement in favor of PBCom
whereby petitioners, jointly and severally, guaranteed the prompt payment on due dates of letters of
credits and other obligations of every kind and nature, for which Mico may be held accountable by
PBCom .To secure the trust receipts transactions, MICO and Lee executed a real estate mortgage in
favor of PBCOM over several properties it owns.  Upon maturity of all credit availments obtained by
MICO from PBCom, the latter made a demand for payment.[For failure of petitioner MICO to pay the
obligations incurred despite repeated demands, PBCom extrajudicially foreclosed MICO’s real estate
mortgage and sold the said mortgaged properties in a public auction sale.  Lee contends that the letters
of credit, surety agreements and loan transactions did not ripen into valid and binding contracts
since no part of the proceeds of the loan transactions were delivered to MICO or to any of the
petitioners-sureties. Petitioners-sureties allege that Chua Siok Suy was the beneficiary of the proceeds of
the loans and that the latter made them sign the surety agreements in blank. Thus, they maintain that
they should not be held accountable for any liability that might arise therefrom.

 ISSUE: whether or not the proceeds of the loans and letters of credit transactions were ever delivered
to MICO and whether or not the individual petitioners, as sureties, may be held liable under the two (2)
Surety Agreements

RULING: The letter of credits, as well as the security agreements, have not merely created a prima facie
case but have actually proved the solidary obligation of MICO and the petitioners, as sureties of MICO, in
favor of respondent PBCom.

While the presumption found under the Negotiable Instruments Law may not necessarily be applicable
to trust receipts and letters of credit, the presumption that the drafts drawn in connection with the
letters of credit have sufficient consideration. Under Section 3(r), Rule 131 of the Rules of Court there is
also a presumption that sufficient consideration was given in a contract.

Hence, petitioners should have presented credible evidence to rebut that presumption as well as the
evidence presented by private respondent PBCom. The letters of credit show that the pertinent
materials/merchandise have been received by MICO. The drafts signed by the beneficiary/suppliers in
connection with the corresponding letters of credit proved that said suppliers were paid by PBCom for
the account of MICO. On the other hand, aside from their bare denials petitioners did not present
sufficient and competent evidence to rebut the evidence of private respondent PBCom.

Also, a perusal of the By-Laws of MICO, however, shows that the power to borrow money for the
company and issue mortgages, bonds, deeds of trust and negotiable instruments or securities, secured
by mortgages or pledges of property belonging to the company is not confined solely to the president of
the corporation. The Board of Directors of MICO can also borrow money, arrange letters of credit,
execute trust receipts and promissory notes on behalf of the corporation.[35] Significantly, this power of
the Board of Directors according to the by-laws of MICO, may be delegated to any of its standing
committee, officer or agent.[36] Hence, PBCom had every right to rely on the Certification issued by
MICO’s corporate secretary, P.B. Barrera, that Chua Siok Suy was duly authorized by its Board of
Directors to borrow money and obtain credit facilities in behalf of MICO from PBCom.

Note: A trust receipt is considered as a security transaction intended to aid in financing importers and
retail dealers who do not have sufficient funds or resources to finance the importation or purchase of
merchandise, and who may not be able to acquire credit except through utilization, as collateral of the
merchandise imported or purchased.

D. TRUST RECEIPTS LAW

30. Land Bank of the Philippines vs. Perez et. al, G.R. No. 166884, June 13 2004
FACTS: Petitioner Land Bank of the Philippines (LBP) is a government financial institution and the official
depository of the Philippines. Respondents were officers of Asian Construction and development
Corporation (ACDC), a corporation engaged in the construction business. In several occasions,
respondents executed in favor of Land Bank of the Philippines (LBP) trust receipts to secure the
purchase of construction materials that they will need in their
construction projects. When the trust receipts matured, ACDC failed to return to LBP the proceeds of 
the construction projects or the construction materials subject of the trust receipts. After several
demands went unheeded, LBP filed a complaint for estafa against the respondent officers of ACDC.

ISSUE: Whether or not the disputed transactions is a trust receipt or a loan.

RULING: There are two obligations in a trust receipt transaction. The first is covered "by the provision
that refers to money under the obligation to deliver it (entregarla) to the owner of the merchandise
sold. 

The second is covered by the provision referring to merchandise received under the obligation to return

it (devolvera) to the owner. Thus, under the trust Receipts Law, intent to defraud is presumed when the
entrustee fails to turn over the proceeds of the sale of goods covered by the trust receipt to the
entruster; or (1) when the entrustee fails to return the goods under trust, if they are not disposed of  in
accordance with the terms of the trust receipts.In all trust receipt transactions, both obligations on the
part of the trustee exist in the alternative the return of the proceeds of the sale or the return or
recovery of the goods, whether raw
or  processed. Whhen both parties enter into an agreement knowing that the return of the goods
subject of the trust receipt is not possible even without any fault on the part of the trustee, it is not a
trust receipt transaction penalized under Section 13 of P.D. 115 the only obligation actually agreed upon
by the parties would be the return of the proceeds of the sale transaction. This transaction becomes a
mere loan, where the borrower is obligated to pay the bank the amount spent for the purchase of the
goods. Article 1371 of the Civil Code provides that "[i]n order to judge the intention of the contracting
parties, their contemporaneous and subsequent acts shall be principally considered." Under this
provision, we can examine the contemporaneous actions of the parties rather than rely purely on the
trust receipts that they signed in order to understand the transaction through their intent.

We note in this regard that at the onset of these transactions, LBP knew that ACDC was in the
construction business and that the materials that it sought to buy under the letters of credit were to be
used for the following projects: the Metro Rail Transit Project and the Clark Centennial Exposition
Project. LBP had in fact authorized the delivery of the materials on the construction sites for these
projects, as seen in the letters of credit it attached to its complaint. Clearly, they were aware of the fact
that there was no way they could recover the buildings or constructions for which the materials subject
of the alleged trust receipts had been used. Notably, despite the allegations in the affidavit complaint
wherein LBP sought the return of the construction materials, its demand letter dated May 4, 1999
sought the payment of the balance but failed to ask, as an alternative, for the return of the construction
materials or the buildings where these materials had been used.

The fact that LBP had knowingly authorized the delivery of construction materials to a construction site
of two government projects, as well as unspecified construction sites, repudiates the idea that LBP
intended to be the owner of those construction materials. As a government financial institution, LBP
should have been aware that the materials were to be used for the construction of an immovable
property, as well as a property of the public domain.

31. Ng vs. People of the Philippines G.R. No. 173905. April 23, 2010

FACTS: Petitioner Anthony Ng, then engaged in the business of building and fabricating
telecommunication towers under the trade name "Capitol Blacksmith and Builders," applied for a credit
line of PhP3,000,000 with Asiatrust Development Bank, Inc. (Asiatrust). In support of Asiatrust's credit
investigation, petitioner voluntarily submitted the following documents: (1) the contracts he had with
Islacom, Smart, and Infocom; (2) the list of projects wherein he was commissioned by the said
telecommunication companies to build several steel towers; and (3) the collectible amounts he has with
the said companies. Asiatrust approved petitioner's loan application. Petitioner was then required to
sign several documents, among which are the Credit Line Agreement, Application and Agreement for
Irrevocable L/C, Trust Receipt Agreements, and Promissory Notes. Though the Promissory Notes
matured on September 18, 1997, the two (2) aforementioned Trust Receipt Agreements did not bear
any maturity dates as they were left unfilled or in blank by Asiatrust.

Petitioner failed to pay the loan to Asia Trust, thus an Information for Estafa, as defined and penalized
under Art. 315, par. 1 (b) of the RPC in relation to Sec. 3, PD 115 or the Trust Receipts Law, was filed
with the RTC which rendered a decision stating that the petitioner is guilty of estafa. In rendering its
Decision, the trial court held that petitioner could not simply argue that the contracts he had entered
into with Asiatrust were void as they were contracts of adhesion. On appeal, the CA affirmed the ruling
of the RTC.

ISSUE: whether or not petitioner is liable for Estafa under Art. 315, par. 1 (b) of the RPC in relation to PD
115.

RULING: No, the petitioner is not guilty of estafa in relation to PD 115. To emphasize, the Trust Receipts
Law was created to "to aid in financing importers and retail dealers who do not have sufficient funds or
resources to finance the importation or purchase of merchandise, and who may not be able to acquire
credit except through utilization, as collateral, of the merchandise imported or purchased." Since
Asiatrust knew that petitioner was neither an importer nor retail dealer, it should have known that the
said agreement could not possibly apply to petitioner.

32. MBTC vs. Jimmy Go G.R. NO. 155647. November 23, 2007

FACTS: Metrobank, through its Assistant Vice-President Leonardo B. Lejano, executed a Credit Line
Agreement in favor of its client, BGB Industrial Textile Mills, Inc. (BGB) in the total amount of
P10,000,000.00. As security for the obligation, private respondent Benjamin Go (now deceased), being
an officer of BGB, executed a Continuing Surety Agreement 3 in favor of Metrobank, binding himself
solidarily with BGB to pay Metrobank the said amount of P10,000,000.00.

Metrobank issued 11 irrevocable letters of credit to BGB. The merchandise/shipments were delivered to
and accepted by BGB on different dates. Consequently, 11 trust receipts were executed by BGB thru
Jimmy Go and Benjamin Go, as entrustees, in favor of Metrobank as entruster.

By the terms of the trust receipts, BGB agreed to hold the goods in trust for Metrobank and, in case of
sale of the goods, to hand the proceeds to the bank to be applied against the total obligation object of
the trust receipts. On maturity dates of the trust receipts, the goods remained unsold, BGB and Jimmy
and Benjamin Go failed to satisfy their obligation. Metrobank filed three (3) separate complaints against
BGB, for collection of sum of money. Metrobank also instituted 11 criminal charges against Jimmy and
Benjamin Go for violation of Presidential Decree No. 115 (Trust Receipts Law) before the Office of the
City Prosecutor of Manila. The Office of the Prosecutor dismissed the criminal cases and stated that
the liability of respondents is only civil in nature in the absence of commission and
misappropriation. Respondents are liable ex-contractu for breach of the Letters of Credit Trust Receipt.

ISSUES: Whether or not there is a violation of the trust receipt law.

RULING: The trust receipts subject of this case partake of the nature of contracts of adhesion. A contract
of adhesion is defined as one in which one party imposes a ready-made form of contract which the
other party may accept or reject, but which the latter cannot modify; one party prepares the stipulations
in the contract, while the other party merely affixes his signature or his "adhesion" thereto, giving no
room for negotiation, and resulting in deprivation of the latter of the opportunity to bargain on equal
footing.

In this case, the trust receipts were prepared solely by Metrobank with Jimmy and Benjamin Go having
no choice but to adhere entirely to their provisions. In fact, the trust receipts stipulated that the goods
subject thereof were the exclusive property of Metrobank, contrary to the essence of a trust receipt.

A trust receipt is considered a security transaction designed to provide financial assistance to importers
and retail dealers who do not have sufficient funds or resources to finance the importation or purchase
of merchandise, and who may not be able to acquire credit except through utilization, as collateral, of
the merchandise imported or purchased. It is a document in which is expressed a security transaction
where the lender, having no prior title to the goods on which the lien is to be constituted, and not
having possession over the same since possession thereof remains in the borrower, lends his money to
the borrower on security of the goods which the borrower is privileged to sell, clear of the lien, with an
agreement to pay all or part of the proceeds of the sale to the lender. It is a security agreement
pursuant to which a bank acquires a "security interest" in the goods. It secures a debt, and there can be
no such thing as security interest that secures no obligation.

The subject trust receipts, being contracts of adhesion, are not per se invalid and ine fficacious. But
should there be ambiguities therein, such ambiguities are to be strictly construed against Metrobank,
the party that prepared them.

There is no doubt as to the obligation of Jimmy and Benjamin Go to turn over the proceeds of the sale of
the goods or to return the unsold goods. However, an ambiguity exists as to when this obligation arises,
whether upon maturity of the trust receipts or upon demand by Metrobank. A strict construction of the
provisions of the contracts of adhesion dictates that the reckoning point should be the demand made by
Metrobank.

As to the other obligations under the trust receipts adapted from Section 9 of the Trust Receipts Law,
there is no sufficient evidence proffered by Metrobank that Jimmy and Benjamin Go had actually
violated them. What the law punishes is the dishonesty and abuse of con fidence in the handling of
money or goods to the prejudice of another, whether the latter is the owner. The malum prohibitum
nature of the offense notwithstanding, the intent to misuse or misappropriate the goods or their
proceeds on the part of Jimmy and Benjamin Go should have been proved. Unfortunately, no such proof
appears on record.

33. MBTC vs. Hon. Raul M. Gonzales, G.R. No. 180165, April 7, 2009

FACTS: Petitioner is a banking institution duly authorized to engage in the banking business under
Philippine laws. Private respondents were the duly authorized representatives of Visaland Inc.
(Visaland), likewise a domestic corporation engaged in the real estate development business.

In order to finance the importation of materials necessary for the operations of its sister company, Titan
Ikeda Construction and Development Corporation (TICDC), private respondents, on behalf of Visaland,
applied with petitioner for 24 letters of credit, the aggregate amount of which reached the sum of
P68,749,487.96. Simultaneous with the issuance of the letters of credit, private respondents signed trust
receipts in favor of petitioner. Private respondents bound themselves to sell the goods covered by the
letters of credit and to remit the proceeds to petitioner, if sold, or to return the goods, if not sold, on or
before their agreed maturity dates. When the trust receipts matured, private respondents failed to
return the goods to petitioner, or to return their value amounting to P68,749,487.96 despite demand.
Thus, petitioner filed a criminal complaint 5 for estafa 6 against Visaland and private respondents with
the Office of the City Prosecutor of Manila (City Prosecutor).

After the requisite preliminary investigation, the City Prosecutor found that no probable cause existed
and dismissed Information Sheet but later on After the element of prior demand was satisfied, the City
Prosecutor issued a Resolution dated 11 October 2004 finding probable cause for estafa under Article
315, paragraph 1 (b) 13 of the Revised Penal Code, in relation to Presidential Decree No. 115.

ISSUE: Whether or not probable cause exists for the prosecution of private respondents for the crime of
Estafa in relation to PD 115.

RULING: Yes. There is ample evidence on record to warrant a finding that there is a probable cause to
warrant the prosecution of private respondents for estafa. It must be once again stressed that probable
cause does not require an inquiry into whether there is sufficient evidence to procure a conviction. It is
enough that it is believed that the act or omission complained of constitutes the offense charged.

That private respondents did not sell the goods under the trust receipt but allowed it to be used by their
sister company is of no moment. The offense punished under Presidential Decree No. 115 is in the
nature of malum prohibitum. A mere failure to deliver the proceeds of the sale or the goods, if not sold,
constitutes a criminal offense that causes prejudice not only to another, but more to the public interest.
Even more incredible is the contention of private respondents that they did not give much significance
to the documents they signed, considering the enormous value of the transaction involved. Thus, it is
highly improbable to mistake trust receipt documents for a contract of loan when the heading thereon
printed in bold and legible letters reads: "Trust Receipts". We are not prejudging this case on the merits.
However, by merely glancing at the documents submitted by petitioner entitled "Trust Receipts" and the
arguments advanced by private respondents, we are convinced that there is probable cause to file the
case and to hold them for trial.
All told, the evidentiary measure for the propriety of filing criminal charges has been reduced and
liberalized to a mere probable cause. As implied by the words themselves, "probable cause" is
concerned with probability, not absolute or moral certainty.

34. LANDL & Co. Phil. Inc. vs MBTC, G.R. No. 90828 September 5 2000

FACTS: Respondent Metropolitan Bank and Trust Company (Metrobank) filed a complaint for sum of
money against Landl and Company Phil. Inc. Respondent alleged that petitioner corporation is engaged
in the business of selling imported welding rods and alloys.  On June 17, 1983, it opened Commercial
Letter of Credit No. 4998 with respondent bank, in the amount of US$19,606.77. As an additional
security, and as a condition for the approval of petitioner corporation's application for the opening of
the commercial letter of credit, respondent bank required petitioners to execute a Continuing
Suretyship Agreement. To secure the indebtedness of petitioner corporation, respondent bank required
the execution of a Trust Receipt in an amount equivalent to the letter of credit, on the condition that
petitioner corporation would hold the goods in trust for respondent bank, with the right to sell the
goods and the obligation to turn over to respondent bank the proceeds of the sale, if any.

On November 23, 1983, the maturity date of the trust receipt, petitioner corporation defaulted in the
payment of its obligation to respondent bank and failed to turn over the goods to the latter. Respondent
bank demanded that petitioners, as entrustees, turn over the goods subject of the trust receipt. On
September 24, 1984, petitioners turned over the subject goods to the respondent bank. The proceeds of
the auction sale were insufficient to completely satisfy petitioners' outstanding obligation to respondent
bank. Accordingly, respondent bank demanded that petitioners pay the remaining balance of their
oblige on.  After petitioners failed to do so, respondent bank instituted the instant case to collect the
said deficiency.

The trial court rendered a decision in favor of the plaintiff the Court of Appeals rendered a decision
affirming in toto the decision of the trial court.

ISSUE: whether or not, in a trust receipt transaction, an entruster which had taken actual and juridical
possession of the goods covered by the trust receipt may subsequently avail of the right to demand
from the entrustee the deficiency of the amount covered by the trust receipt.

RULING: The instant petition is partly meritorious.

They contend, however, that when the entrustee fails to settle his principal loan, the entruster may
choose between two separate and alternative remedies:  (1) the return of the goods covered by the
trust receipt, in which case, the entruster now acquires the ownership of the goods which the entrustee
failed to sell; or (2) cancel the trust and take possession of the goods, for the purpose of selling the same
at a private sale or at public auction.  Petitioners assert that, under this second remedy, the entruster
does not acquire ownership of the goods, in which case he is entitled to the deficiency.  Petitioners
argue that these two remedies are so distinct that the availment of one necessarily bars the availment of
the other.

A trust receipt is inextricably linked with the primary agreement between the parties.   Time and again,
we have emphasized that a trust receipt agreement is merely a collateral agreement, the purpose of
which is to serve as security for a loan.
A trust receipt, therefore, is a security agreement, pursuant to which a bank acquires a "security
interest" in the goods.  It secures an indebtedness and there can be no such thing as security interest
that secures no obligation.

The Trust Receipts Law was enacted to safeguard commercial transactions and to offer an additional
layer of security to the lending bank.  Trust receipts are indispensable contracts in international and
domestic business transactions.  The prevalent use of trust receipts, the danger of their misuse and/or
misappropriation of the goods or proceeds realized from the sale of goods, documents or instruments
held in trust for entruster banks, and the need for regulation of trust receipt transactions to safeguard
the rights and enforce the obligations of the parties involved are the main thrusts of the Trust Receipts
Law.

The afore-cited stipulations in the trust receipt are a near-exact reproduction of the second paragraph of
Section 7 of the Trust Receipts Law.  The right of repossession and subsequent sale at public auction
which were availed of by respondent bank were rights available upon default, and which were conferred
by statute and reinforced by the contract between the parties.

The initial repossession by the bank of the goods subject of the trust receipt did not result in the full
satisfaction of the petitioners' loan obligation.  Petitioners are apparently laboring under the mistaken
impression that the full turn-over of the goods suffices to divest them of their obligation to repay the
principal amount of their loan obligation.  This is definitely not the case in Philippine National Bank v.
Hon. Gregorio G. Pineda and Tayabas Cement Company, Inc.,[9] we had occasion to rule:

PNB's possession of the subject machinery and equipment being precisely as a form of security for the
advances given to TCC under the Letter of Credit, said possession by itself cannot be considered
payment of the loan secured thereby. Payment would legally... result only after PNB had foreclosed on
said securities, sold the same and applied the proceeds thereof to TCC's loan obligation.  Mere
possession does not amount to foreclosure for foreclosure denotes the procedure adopted by the
mortgagee to terminate the rights of... the mortgagor on the property and includes the sale itself.

Indeed, in the 1987 case of Vintola v. Insular Bank of Asia and America,[11] we struck down the position
of the petitioner-spouses that their obligation to the entruster bank had been extinguished when they
relinquished possession of the goods in question.

Contrary to the allegations of the VINTOLAS, IBAA did not become the real owner of the goods.   It was
merely the holder of a security title for the advances it had made to the VINTOLAS.  The goods the
VINTOLAS had purchased through IBAA financing remain their own property and they hold it at their
own risk.  The trust receipt arrangement did not convert the IBAA into an investor; the latter remained
a lender and creditor.

We find, however, that there has been an error in the computation of the total amount of petitioners'
indebtedness to respondent bank. A perusal of the records reveals that the trial court and the Court of
Appeals erred in imposing service charges upon the petitioners.  No such stipulation is found in the trust
receipt.  Moreover, the trial court and the Court of Appeals erred in computing attorney's fees
equivalent to 10% per annum, rather than 10% of the total amount due.  There is no basis for
compounding the interest annually, as the trial court and Court of Appeals have done.  This amount
would be unconscionable.
35. Colinares vs. CA, G.R. 90828 September 5, 2000

FACTS: In 1979 Melvin Colinares and Lordino Veloso (hereafter Petitioners) were contracted for a
consideration of P40,000 by the Carmelite Sisters of Cagayan de Oro City to renovate the latter's
convent at Camaman-an, Cagayan de Oro City. On 31 October 1979, PBC debited P6,720 from
Petitioners' marginal deposit as partial payment of the loan. On 7 May 1980, PBC wrote  to Petitioners
demanding that the amount be paid within seven days from notice.

On 2 December 1980, Petitioners proposed that the terms of payment of the loan be modified as
follows: P2,000 on or before 3 December 1980, and P1,000 per month starting 31 January 1980 until the
account is fully paid. Pending approval of the proposal, Petitioners paid P1,000 to PBC on 4 December
1980,  and thereafter P500 on 11 February 1981,  16 March 1981,  and 20 April 1981.

On 14 January 1983, Petitioners were charged with the violation of P.D. No. 115 (Trust Receipts Law) in
relation to Article 315 of the Revised Penal Code in an Information which was filed with Branch 18,
Regional Trial Court of Cagayan de Oro City.

On 7 July 1986, the trial court promulgated its decision  convicting Petitioners of estafa for violating P.D.
No. 115 in relation to Article 315 of the Revised Penal Code and sentencing each of them to suffer
imprisonment of two years and one day of prision correccional as minimum to six years and one day of
prision mayor as maximum, and to solidarily indemnify PBC the amount of P20,824.44, with legal
interest from 29 January 1980, 12 % penalty charge per annum, 25% of the sums due as attorney's fees,
and costs.

On 25 March 1989, Petitioners filed a Motion for New Trial/Reconsideration  alleging that the
"Disclosure Statement on Loan/Credit Transaction" (hereafter Disclosure Statement) signed by them and
Tuiza was suppressed by PBC during the trial.

In its resolution of 16 October 1989 the Court of Appeals denied the Motion for New
Trial/Reconsideration.

ISSUE: whether or not the accused were properly charged and tried for violation of Sec. 13, PD115 in
relation to Article 215 of the RPC not withstanding the novation of the so called trust receipt converting
the trustor-trustee relationship to creditor-debtor relationship.

RULING: The accused was not properly charged. The Trust Receipts Law does not seek to enforce
payment of the loan, rather it 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. Here, it is
crystal clear that on the part of Petitioners there was neither dishonesty nor abuse of con fidence in the
handling of money to the prejudice of PBC. Petitioners continually endeavored to meet their obligations,
as shown by several receipts issued by PBC acknowledging payment of the loan.

The Information charges Petitioners with intent to defraud and misappropriating the money for their
personal use. The mala prohibita nature of the alleged offense notwithstanding, intent as a state of
mind was not proved to be present in Petitioners' situation. Petitioners employed no article in dealing
with PBC and never did they evade payment of their obligation nor attempt to abscond. Instead,
Petitioners sought favorable terms precisely to meet their obligation.
Also noteworthy is the fact that Petitioners are not importers acquiring the goods for re-sale, contrary to
the express provision embodied in the trust receipt. They are contractors who obtained the fungible
goods for their construction project. At no time did title over the construction materials pass to the
bank, but directly to the Petitioners from CM Builders Centre. This impresses upon the trust receipt in
question vagueness and ambiguity, which should not be the basis for criminal prosecution in the event
of violation of its provisions.

36. DBP vs. Prudential Bank G.R No. 143772. November 22, 2005

FACTS: Lirag Textile Mills, Inc. (Litex) opened an irrevocable commercial letter of credit with respondent
Prudential Bank for US$498,000. This was in connection with its importation of 5,000 spindles for
spinning machinery with drawing frame, simplex fly frame, ring spinning frame and various accessories,
spare parts and tool gauge. These were released to Litex under covering “trust receipts” it executed in
favor of Prudential Bank. Litex installed and used the items in its textile mill located in Montalban,
Rizal. 9 years later, DBP granted a foreign currency loan in the amount of US$4,807,551 to Litex. To
secure the loan, Litex executed real estate and chattel mortgages on its plant site in Montalban, Rizal,
including the buildings and other improvements, machineries and equipments there. Among the
machineries and equipments mortgaged in favor of DBP were the articles covered by the “trust
receipts.”    Sometime in June 1982, Prudential Bank learned about DBP’s plan for the overall
rehabilitation of Litex. In a July 14, 1982 letter, Prudential Bank notified DBP of its claim over the various
items covered by the “trust receipts” which had been installed and used by Litex in the textile mill.
Prudential Bank informed DBP that it was the absolute and juridical owner of the said items and they
were thus not part of the mortgaged assets that could be legally ceded to DBP.  For the failure of Litex to
pay its obligation, DBP extra-judicially foreclosed on the real estate and chattel mortgages, including the
articles claimed by Prudential Bank. During the foreclosure sale held on April 19, 1983, DBP acquired the
foreclosed properties as the highest bidder.     Learning of the intended public auction, Prudential Bank
wrote a letter dated September 6, 1984 to DBP reasserting its claim over the items covered by “trust
receipts” in its name and advising DBP not to include them in the auction. It also demanded the turn-
over of the articles or alternatively, the payment of their value. 

ISSUE: Whether or not the chattel mortgage covers the goods under the trust receipt

RULING: No. Article 2085 (2) of the Civil Code requires that, in a contract of pledge or mortgage, it is
essential that the pledgor or mortgagor should be the absolute owner of the things pledged or
mortgaged. Article 2085 (3) further mandates that the person constituting the pledge or mortgage must
have the free disposal of his property, and in the absence thereof, that he be legally authorized for the
purpose. Litex had neither absolute ownership, free disposal nor the authority to freely dispose of the
articles. Litex could not have subjected them to a chattel mortgage. Their inclusion in the mortgage was
void and had no legal effect. There being no valid mortgage, there could also be no valid foreclosure or
valid auction sale. Thus, DBP could not be considered either as a mortgagee or as a purchaser in good
faith.

Note: Litex could not have subjected the goods under the trust receipt to a chattel mortgage. Thus, the
inclusion in the mortgage was void and had no legal effect. There being no valid mortgage, there could
also be no valid foreclosure or valid auction sale. Thus, DBP could not be considered either as a
mortgagee or as a purchaser in good faith
36. Rosario Textile Mills Corp. vs. Home Bankers Savings and Trust Co., G.R. No. 13732 June 29 2005

FACTS: Sometime in 1989, Rosario Textile Mills Corporation (RTMC) applied from Home Bankers Savings
& Trust Co. for an Omnibus Credit Line for P10 million. The bank approved RTMC’s credit line but for
only P8 million. The bank notified RTMC of the grant of the said loan thru a letter dated March 2, 1989
which contains terms and conditions conformed by RTMC thru Edilberto V. Yujuico. On March 3, 1989,
Yujuico signed a Surety Agreement in favor of the bank, in which he bound himself jointly and severally
with RTMC for the payment of all RTMC’s indebtedness to the bank from 1989 to 1990. RTMC availed of
the credit line by making numerous drawdowns, each drawdown being covered by a separate
promissory note and trust receipt. RTMC, represented by Yujuico, executed in favor of the bank a total
of eleven (11) promissory notes.

Yujuico contend that he should be absolved from liability. They claimed that although the grant of the
credit line and the execution of the suretyship agreement. They alleged that the bank gave assurance
that the suretyship agreement was merely a formality under which Yujuico will not be personally liable.
He theorized that when  RTMC imported the raw materials needed for its manufacture, using the credit
line, it was merely acting on behalf of the bank, the true owner of the goods by virtue of the trust
receipts.

ISSUE:  Whether or not Yujuico is absolved from liability by the grant of the credit line and the execution
of the suretyship agreement 

RULING: No. Yujuico’s argument conveniently ignores the true nature of its transaction with the bank. A
trust receipt is a security agreement pursuant to which a bank acquires a ‘security interest’ in the goods.
In Vintola vs. Insular Bank of Asia and America, we elucidated further that “a trust receipt, therefore, is a
security agreement, pursuant to which a bank acquires a ‘security interest’ in the goods. It secures an
indebtedness and there can be no such thing as security interest that secures no obligation.” In Samo vs.
People, we described a trust receipt as “a security transaction intended to aid in financing importers and
retail dealers who do not have sufficient funds or resources to finance the importation or purchase of
merchandise, and who may not be able to acquire credit except through utilization, as collateral, of the
merchandise imported or purchased.”

“If under the trust receipt, the bank is made to appear as the owner, it was but an artificial expedient,
more of legal fiction than fact, for if it were really so, it could dispose of the goods in any manner it
wants, which it cannot do, just to give consistency with purpose of the trust receipt of giving a stronger
security for the loan obtained by the importer. To consider the bank as the true owner from the
inception of the transaction would be to disregard the loan feature thereof.

RTMC filed with the bank an application for a credit line in the amount of P10 million, but only P8 million
was approved. RTMC then made withdrawals from this credit line and issued several promissory notes in
favor of the bank. In banking and commerce, a credit line is “that amount of money or merchandise
which a banker, merchant, or supplier agrees to supply to a person on credit and generally agreed to in
advance.”[3]It is the fixed limit of credit granted by a bank, retailer, or credit card issuer to a customer,
to the full extent of which the latter may avail himself of his dealings with the former but which he must
not exceed and is usually intended to cover a series of transactions in which case, when the customer’s
line of credit is nearly exhausted, he is expected to reduce his indebtedness by payments before making
any further drawings.