BANKING LAWS
Eventually, Spouses Cornista defaulted in the payment of
I. GBL of 2000 (RA8791)
CHAPTER 1 – TITLE AND CLASSIFICATION OF BANKS
Sec. 2 – Declaration of Policy - The State recognizes the
vital role of banks providing an environment conducive to the
sustained development of the national economy and the
fiduciary nature of banking that requires high standards of
integrity and performance. In furtherance thereof, the State
shall promote and maintain a stable and efficient banking and
financial system that is globally competitive, dynamic and
responsive to the demands of a developing economy.
DILIGENCE REQUIRED FROM BANKS
1) PNB vs VILLA
DILIGENCE REQUIRED: The banking system is an
indispensable institution in the modern world and plays a vital
role in the economic life of every civilized nation. Whether as
mere passive entities for the safekeeping and saving of money
or as active instruments of business and commerce, banks
have become an ubiquitous presence among the people, who
have come to regard them with respect and even gratitude
and, most of all, confidence.  Consequently, the highest degree
of diligence is expected, and high standards of integrity and
performance are even required, of it.
MORTGAGEE-BANK: 1st: Traders Royal Bank, 2nd: PNB
MORTGAGOR: Sps. Reynaldo Cornista
FACTS:
1. Spouses Reynaldo Cornista and Erlinda Gamboa Cornista
obtained a loan from Traders Royal Bank.
2. To secure the said obligation, Spouses Cornista mortgaged to
the bank a parcel of land.
3. For failure of Spouses Cornista to make good of their loan
obligation after it has become due, Traders Bank foreclosed
the mortgage constituted on the security of the loan.
4. During the public sale, respondent Juan F. Vila was declared
as the highest bidder.
5. To exercise his right of ownership, Vila immediately took
possession of the subject property and paid the real estate
taxes corresponding thereon.
6. He was, however, prevented from consolidating the
ownership of the property under his name because the
owner's copy of the certificate of title was not turned over to
him by the Sheriff.
7. Despite the lapse of the redemption period and the fact of
issuance of a Certificate of Final Sale to Vila, Spouses
Cornista were nonetheless allowed to buy back the subject
property.
8. Claiming that Spouses Cornista already lost their right to
redeem the subject property, Vila filed an action for
nullification of redemption, transfer of title and damages
against Spouses Cornista and the Register of Deeds.
9. RTC rendered a Decision in favor of Vila thereby ordering the
Register of Deeds to cancel the registration of the certificate
of redemption and the annotation thereof. The said decision
was affirmed by the CA.
10. In order to enforce the favorable decision, Vila filed before
the RTC a Motion for the Issuance of Writ of Execution which
was granted by the court. Accordingly, a Writ of
Execution was issued.
11. By unfortunate turn of events, the Sheriff could not
successfully enforce the decision because the certificate of
title covering the subject property was no longer registered
under the names of Spouses Cornista. Hence, the judgment
was returned unsatisfied.
12. Upon investigation, it was found out that during
the interregnum,  Spouses Cornista were able to secure a
loan from petitioner Philippine National Bank using the same
property subject of litigation as security.
13.
their loan obligation with the PNB prompting the latter to
foreclose the property offered as security.
14. The bank emerged as the highest bidder during the public
sale.
15. As with the prior mortgage, Spouses Cornista once again
failed to exercise their right of redemption within the
required period allowing PNB to consolidate its ownership
over the subject property. Accordingly, certificate of title in
the name of the Spouses Cornista was cancelled and a new
one under the name of the PNB was issued.
16. Vila commenced another round of litigation against Spouses
Cornista and PNB.
PNB’S CONTENTION:
 It was a mortgagee in good faith pointing the fact that at
the time the subject property was mortgaged to it,
Spouses Cornista were still the absolute owners of the
property possessing all the rights to mortgage the same
to third persons.
 A close examination of title was conducted and nowhere
was it shown that there was any cloud in the title of
Spouses Cornista, the latter having redeemed the
property after they have lost it in a foreclosure sale.
RULING OF THE LOWER COURTS:
 RTC – rendered a Decision in favor of Vila and ruled that PNB
is not a mortgagee in good faith.
As a financial institution, PNB is expected to observe a higher
degree of diligence. In hastily granting the loan, PNB failed in
this regard. Had the bank exercised due diligence, it could
have easily discovered that Spouses Cornista were not the
possessors of the subject property which could lead it to the
fact that at the time the subject property was mortgaged to
it, a litigation involving the same was already commenced
before the court.
 CA – affirmed the RTC ruling
In failing to exercise greater care and diligence in approving
the loan of Spouses Cornista without first ascertaining if
there were any defects in their title, PNB could not be
afforded the status of a mortgagee in good faith.
"A bank whose business is impressed with public interest is
expected to exercise more care and prudence in its dealings
than a private individual, even in cases involving registered
lands. A bank cannot assume that, simply because the title
offered as security is on its face free of any encumbrances of
lien, it is relieved of the responsibility of taking further steps
to verify the title and inspect the properties to be
mortgaged." 
ISSUE: Whether PNB is liable for damages in approving the loan
of Spouses Cornista without first ascertaining if there were any
defects in their title. – YES.
RULING:
The banking system is an indispensable institution in the modern
world and plays a vital role in the economic life of every civilized
nation. Whether as mere passive entities for the safekeeping and
saving of money or as active instruments of business and
commerce, banks have become an ubiquitous presence among
the people, who have come to regard them with respect and
even gratitude and, most of all, confidence.  Consequently, the
highest degree of diligence is expected, and high standards of
integrity and performance are even required, of it. 
Before approving a loan application, it is standard operating
procedure for banks and financial institutions to conduct an
ocular inspection of the property offered for mortgage and to
determine the real owner(s) thereof. The apparent purpose of an
ocular inspection is to protect the "true owner" of the property
as well as innocent third parties with a right, interest or claim
thereon from a usurper who may have acquired a fraudulent
certificate of title thereto.  insufficient balance, but a check of a certain Lee See
In this case, PNB failed to observe the exacting standards
required of banking institutions which are behooved by statutes
and jurisprudence to exercise greater care and prudence before
entering into a mortgage contract. PNB clearly failed to observe
the required degree of caution in readily approving the loan and
accepting the collateral offered by Spouses Cornista without first
ascertaining the real ownership of the property. It should not
have simply relied on the face of title but went further to
physically ascertain the actual condition of the property. That the
property offered as security was in the possession of the person
other than the one applying for the loan and the taxes were
declared not in their names could have raised a suspicion.
No credible proof on the records could substantiate the claim of
PNB that a physical inspection of the property was conducted. If
in fact it were true that ocular inspection was conducted, a
suspicion could have been raised as to the real status of the
property. What further tramples upon PNB's claim is the fact
that, as shown on the records, it was Vila who was religiously
paying the real property tax due on the property from 1989 to
1996, another significant fact that could have raised a red flag
as to the real ownership of the property. The failure of the
mortgagee to take precautionary steps would mean negligence
on his part and would thereby preclude it from invoking that it is
a mortgagee in good faith.
NOTE:
the issue of whether a mortgagee is in good faith cannot be
entertained in a Rule 45 petition. This is because the
ascertainment of good faith or the lack thereof, and the
determination of negligence are factual matters which lay
outside the scope of a petition for review on certiorari. Good
faith, or the lack of it, is a question of intention. In ascertaining
intention, courts are necessarily controlled by the evidence as
to the conduct and outward facts by which alone the inward
motive may, with safety, be determined.
2) WESTMONT BANK V DELA ROSA-RAMOS
DILIGENCE REQUIRED: The fiduciary nature of every bank’s
relationship with its clients/depositors impels it to exercise the
highest degree of care, definitely more than that of a
reasonable man or a good father of a family.
BANK: Westmont Bank, formerly Associated Bank now United
Overseas Bank Philippines
DEPOSITOR: Myrna Dela Rosa-Ramos (Checking Account)
FACTS:
1. PARTIES: Myrna Dela Rosa-Ramos maintained a checking
account with the Bank. She buys Cigarettes from William
Co.
2. Domingo Tan, the Bank’s Signature Verifier, offered Ramos
a “Special Arrangement” that he would finance her
checking account with sufficient funds to make sure that
the checks she would issue would not be dishonored. His
service fee is P50/day for every P40k he would finance.
(Financier-debtor relationship).
3. Ramos issued 4 checks to Tan payable to cash. The 4
checks were deposited by Tan without her consent.
a. The First check was a stale check. It bears the date of
August 28, 1987 but was altered with May 8, 1988.
Tan deposited it in Co’s account despite the
superimposed date.
b. The Second check was a bounced check. Ramos
replaced it with another check, but Tan did not return
the bounced check and instead redeposited it in Co’s
account.
c. The Third check was an undated check. She put an
order to stop payment because of insufficient funds.
But this check was not returned, and instead it was
redeposited in Co’s account.
d. The Fourth check was an undated check. She had
Bin was deposited in her account so that Tan was able
to encash this fourth check.
4. She instituted a complaint against Tan, Co and the Bank.
Tan however passed away.
5. RTC ruled against Tan, Co and the Bank to pay Ramos
jointly and severally.
6. CA affirmed RTC
ISSUES: Is the Bank liable for the acts of Tan? Yes, the bank
is liable
RULING:
MAIN DOCTRINE: BANK MUST EXERCISE
HIGHEST DEGREE OF CARE. It must be remembered that
public interest is intimately carved into the banking industry
because the primordial concern here is the trust and confidence
of the public. This fiduciary nature of every bank’s
relationship with its clients/depositors impels it to
exercise the highest degree of care, definitely more than
that of a reasonable man or a good father of a family. It
is, therefore, required to treat the accounts and deposits of
these individuals with meticulous care.
BANKS ARE DIRECTLY LIABLE FOR THE ACTS OF
THEIR EMPLOYEES. Considering that banks can only act
through their officers and employees, the fiduciary obligation
laid down for these institutions necessarily extends to their
employees. Thus, banks must ensure that their employees
observe the same high level of integrity and performance for it
is only through this that banks may meet and comply with their
own fiduciary duty. It has been repeatedly held that “a bank’s
liability as an obligor is not merely vicarious, but
primary” since they are expected to observe an equally high
degree of diligence, not only in the selection, but also in the
supervision of its employees. Thus, even if it is their employees
who are negligent, the bank’s responsibility to its client remains
paramount making its liability to the same to be a direct one.
APPLIED IN THIS CASE. Guided by the following
standard, the Bank, given the fiduciary nature of its
relationship with Ramos, should have exerted every effort to
safeguard and protect her money which was deposited and
entrusted with it. As found by both the RTC and the CA,
Ramos was defrauded and she lost her money because of
the negligence attributable to the Bank and its
employees. Indeed, it was the employees who directly dealt
with Ramos, but the Bank cannot distance itself from them.
That they were the ones who gained at the expense of Ramos
will not excuse it of its fundamental responsibility to her.
SC RULED OVER FOUR CHECKS:
1st CHECK, the Bank failed to double check the genuineness
of the date which displayed an obvious alteration. The bank is
liable.
2nd CHECK and 3rd CHECK, these checks were never paid,
the bank is not liable.
4th CHECK, there is no irregularity because Ramos failed to
establish that Lee See Bin was fictitious. The bank is not liable.
RAMOS HAS CONTRIBUTORY NEGLIGENCE. While
the Bank reneged on its responsibility to Ramos, she is
nevertheless equally guilty of contributory negligence for
entering the “Special Arrangement” with Tan. It has been held
that where the bank and a depositor are equally negligent, they
should equally suffer the loss. The two must both bear the
consequences of their mistakes. Thus, the Bank should only
pay 50% of the actual damages awarded while Dela Rosa-
Ramos should have to shoulder the remaining 50%. The Bank
can seek compensation from Tan’s estate since he is the
primarily responsible for the damages.
3) EQUITABLE PCI VS BANK VS TAN, GR NO. 165339
DILIGENCE REQUIRED: The law imposes on banks high
standards in view of the fiduciary nature of banking. The
diligence required of banks, therefore, is more than that of a
good father of a family. In every case, the depositor expects
the bank to treat his account with the utmost fidelity, whether
such account consists only of a few hundred pesos or of
millions.
BANK: PCI
DEPOSITOR: Arcelito B. Tan (Current and Savings)
FACTS:
1. Respondent Arcelito B.Tan maintained a current and savings
account with petitioner Equitable PCI Bank
2. On May 13, 1992, issued PCIB Check No. 275100 postdated
May 30, 19924 in the amount of P34,588.72 in favor of
Sulpicio Lines, Inc.
3.  On May 14, 1992, Sulpicio Lines, Inc. deposited the
postdated check to with Solid Bank, Carbon Branch, Cebu
City which was cleared and immediately debited by
petitioner EPCI leaving respondent’s account with a balance
of P558.87.
4. Meanwhile, respondent issued three checks from May 9 to
May 16, 1992 which was dishonored for being drawn
against insufficient funds.
5. As a result of the dishonor of checks which were payable to
ASELCO and ANECO,  the electric power supply for the two
mini-sawmills owned and operated by respondent was cut
off but was later on restored.
6. Due to the foregoing, respondent filed with the RTC a
complaint against petitioner, praying for payment of losses
consisting of unrealized income and damages.
7. Respondent:
a. claimed that his account with petitioner would have had
sufficient funds to cover payment of the three other
checks were it not for the negligence of petitioner in
immediately debiting from his account Check No.
275100.
8. Petitioner:
a. denied that the questioned check was postdated May
30, 1992 and claimed that it was a current check dated
May 3, 1992.
b. the disconnection of the electric supply to respondent’s
sawmills was not due to the dishonor of the checks, but
for other reasons not attributable to the bank.
9. RTC: ruled in favor of petitioner and dismissed the
complaint
10. CA: reversed the decision
ISSUE:
WON petitioner is negligent and therefore liable for the
respondent’s loss. Yes, the law imposes on banks high
standards in view of the fiduciary nature of banking.
RULING:
Procedural
1. Administrative issuances must not override, supplant or
modify the law, but must remain consistent with the law
they intend to carry out—Office Order No. 82-04-CG cannot
defeat the provisions of Republic Act No. 8246.
2. In an appeal by certiorari under Rule 45 of the Rules of
Court, only questions of law may be raised, but one of the
recognized exceptions is when the findings of the appellate
court are contrary to those of the trial court. In an appeal
by certiorari under Rule 45 of the Rules of Court, only
questions of law may be raised, but one of the recognized
exceptions is when the findings of the appellate court are
contrary to those of the trial court.
PURPOSE OF CHECK
The purpose for the issuance of the check has no logical
connection with the date of the check. Besides, the trial court
need not look into the purpose for which the check was issued.
A reading of Check No. 275100 would readily show that it was
dated May 30, 1992.
DILIGENCE REQUIRED
The law imposes on banks high standards in view of the
fiduciary nature of banking. Section 2 of R.A. 8791
decrees: Declaration of Policy.—The State recognizes the vital
role of banks in providing an environment conducive to the
sustained development of the national economy and the
fiduciary nature of banking that requires high standards of
integrity and performance. In furtherance thereof, the State
shall promote and maintain a stable and efficient banking and
financial system that is globally competitive, dynamic and
responsive to the demands of a developing economy. Although
R.A. 8791 took effect only in the year 2000, the Court had
already imposed on banks the same high standard of diligence
required under R.A. 8791 at the time of the untimely debiting
of respondent’s account by petitioner in May 1992. In Simex
International (Manila), Inc. v. Court of Appeals, 183 SCRA 360
(1990), which was decided in 1990, the Court held that as a
business affected with public interest and because of the nature
of its functions, the bank is under obligation to treat the
accounts of its depositors with meticulous care, always having
in mind the fiduciary nature of their relationship.
The diligence required of banks, therefore, is more than
that of a good father of a family. In every case, the
depositor expects the bank to treat his account with the utmost
fidelity, whether such account consists only of a few hundred
pesos or of millions. The bank must record every single
transaction accurately, down to the last centavo, and as
promptly as possible. This has to be done if the account is to
reflect at any given time the amount of money the depositor
can dispose of as he sees fit, confident that the bank will
deliver it as and to whomever he directs. From the foregoing, it
is clear that petitioner bank did not exercise the degree of
diligence that it ought to have exercised in dealing with its
client.
PROXIMATE CAUSE
Petitioner’s negligence is the proximate cause of respondent’s
loss. The proximate cause of the loss is not respondent’s
manner of writing the date of the check, as it was very clear
that he intended Check No. 275100 to be dated May 30, 1992
and not May 3, 1992. The proximate cause is petitioner’s own
negligence in debiting the account of the respondent prior to
the date as appearing in the check, which resulted in the
subsequent dishonor of several checks issued by the
respondent and the disconnection by ASELCO and ANECO of his
electric supply. The bank on which the check is drawn, known
as the drawee bank, is under strict liability to pay to the order
of the payee in accordance with the drawer’s instructions as
reflected on the face and by the terms of the check. Thus,
payment made before the date specified by the drawer is
clearly against the drawee bank’s duty to its client.
As a matter of practice, bank tellers would not receive nor
honor such checks which they believe to be unclear, without
the counter-signature of its drawer. Petitioner should have
exercised the highest degree of diligence required of it by
ascertaining from the respondent the accuracy of the entries
therein, in order to settle the confusion, instead of proceeding
to honor and receive the check.
ENTITLED OF MORAL AND EXEMPLARY DAMAGES
 A bank is under obligation to treat the accounts of its
depositors with meticulous care whether such account consists
only of a few hundred pesos or of millions of pesos.
Responsibility arising from negligence in the performance of
every kind of obligation is demandable. While petitioner’s
negligence in that case may not have been attended with
malice and bad faith, the banks’ negligence caused respondent
to suffer mental anguish, serious anxiety, embarrassment and
humiliation. In said case, We ruled that respondent therein was
entitled to recover reasonable moral damages. In this case, the
unexpected cutting off of respondent’s electricity, which
resulted in the stoppage of his business operations, had caused
him to suffer humiliation, mental anguish and serious anxiety.
The award of P50,000.00 is reasonable, considering the
reputation and social standing of respondent. As found by the
CA, as an accredited supplier, respondent had been reposed
with a certain degree of trust by various reputable and well-
established corporations.
The law allows the grant of exemplary damages to set an
example for the public good. The bank ing system has become
an indispensable institution in the modern world and plays a
vital role in the economic life of every civilized society. Whether
as mere passive entities for the safekeeping and saving of
money or as active instruments of business and commerce,
banks have attained an ubiquitous presence among the people,
who have come to regard them with respect and even gratitude
and most of all, confidence. For this reason, banks should
guard against injury attributable to negligence or bad faith on
its part. Without a doubt, it has been repeatedly emphasized
that since the banking business is impressed with public
interest, of paramount importance thereto is the trust and
confidence of the public in general. Consequently, the highest
degree of diligence is expected, and high standards of integrity
and performance are even required of it. Petitioner, having
failed in this respect, the award of exemplary damages in the
amount of P50,000.00 is in order.
4) CONSOLIDATED BANK AND TRUST CORPORATION V
CA AND L.C. DIAZ AND COMPANY, 2003
DILIGENCE REQUIRED: This fiduciary relationship means
that the bank’s obligation to observe “high standards of
integrity and performance” is deemed written into every
deposit agreement between a bank and its depositor. The
fiduciary nature of banking requires banks to assume a degree
of diligence higher than that of a good father of a family.
BANK: Consolidated Bank and Trust Corporation
DEPOSITOR: L.C. Diaz and Company, CPA’s (Savings Account)
FACTS:
1. L.C. Diaz and Company, CPA’s is a professional partnership
of Accounting. It has a savings account with Solidbank.
2. The Accounting Cashier, Mercedes Macaraya, filled up two
deposit slips for 990 and 50 pesos. Then Macaraya
instructed its messenger, Ismael Calapre, to deposit the
money with the Solidbank.
a. Calapre went to Solidbank and presented the 2 deposit
slips and the passbook to the teller.
b. Since the transaction took time and Calapre had to
make another deposit in Allied Bank, he left the
passbook with Solidbank.
c. Then a certain Noel Tamayo took the passbook of
L.C. Diaz. When Calapre returned to Solidbank, the
teller told him that someone took the passbook.
3. The CEO, Luis C. Diaz called the bank to stop any
transaction using the same passbook. But it was too late
because an unauthorized withdrawal of 300,000 was
already made. The withdrawal slip bore the
authorized signatories of L.C. Diaz.
4. An Information was filed for Estafa but it was dismissed.
5. L.C. Diaz demanded from Solidbank the return of its
money. Solidbank refused. The partnership filed a
complaint for Sum of Money against Solidbank.
6. RTC absolved Solidbank on the ground
a. that the Passbook has a written note that, “possession
of this book shall raise the presumption of ownership
and any payment or payments made by the bank upon
the production of the said book and entry therein of
the withdrawal shall have the same effect as if made
to the depositor personally.”
b. that the passbook presented during the questioned
transaction was “now out of the lock and key and
presumptively ready for a business transaction.” The
depositor must keep the passbook “under lock and
key.” When another person presents the passbook for
withdrawal prior to Solidbank’s receipt of the notice of
loss of the passbook, that person is considered as the
owner of the passbook.
c. That L.C. Diaz’s committed 2 negligence:
(1) the possession of the passbook by a person other
than the depositor L.C. Diaz;
(2) the presentation of a signed withdrawal receipt by
an unauthorized person; and
d. That L.C. Diaz is wron
7. CA reversed RTC decision on the ground that the
Proximate Cause of the loss is the Solidbank’s negligence.
a. That the teller of Solidbank who received the
withdrawal slip for P300,000 allowed the withdrawal
without making the necessary inquiry. That the teller,
should have called up the depositor because the
money to be withdrawn was a significant amount.
b. CA applied quasi-delict and found Solidbank liable for
its negligence in the selection and supervision of its
employees.
c. CA also ruled that L.C. Diaz is also negligent in
entrusting its deposits to a messenger
d. CA held found Solidbank remiss in its duty,
violating its fiduciary relationship with L.C. Diaz.
8. Hence, this appeal.
ISSUES: WON the bank is liable? Yes, it is liable for breach of
contract due to negligence, or culpa contractual and not under
tort.
RULING:
I. FIDUCIARY DUTY
GBL CODIFIED SC DECISION ABOUT REQUIRED
DILIGENCE OF BANKS. The law imposes on banks high
standards in view of the fiduciary nature of banking. Section 2
of Republic Act No. 8791 (“RA 8791”), which took effect on 13
June 2000, declares that the State recognizes the “fiduciary
nature of banking that requires high standards of integrity and
performance.” This new provision is a is a statutory affirmation
of Supreme Court decisions, starting with the Simex
International v. CA, 1990 holding that “the bank is under
obligation to treat the accounts of its depositors with
meticulous care, always having in mind the fiduciary nature of
their relationship.”
MAIN DOC: This fiduciary relationship means
that the bank’s obligation to observe “high standards of
integrity and performance” is deemed written into every
deposit agreement between a bank and its depositor. The
fiduciary nature of banking requires banks to assume a degree
of diligence higher than that of a good father of a family.
Section 2 of RA 8791 prescribes the statutory diligence required
from banks—that banks must observe “high standards of
integrity and performance” in servicing their depositors.
FIDUCIARY NATURE OF BANKING DOES NOT
CONVERT A SIMPLE LOAN INTO A TRUST AGREEMENT.
However, the fiduciary nature of a bank-depositor relationship
does not convert the contract between the bank and its
depositors from a simple loan to a trust agreement, whether
express or implied. Failure by the bank to pay the depositor is
failure to pay a simple loan, and not a breach of trust.24 The
law simply imposes on the bank a higher standard of integrity
and performance in complying with its obligations under the
contract of simple loan, beyond those required of non-bank
debtors under a similar contract of simple loan.
II. SOLIDBANK’S BREACH OF CONTRACT
BANK AND ITS TELLERS MUST BOTH EXERCISE
HIGH STANDARDS OF INTEGRITY AND PERFORMANCE:
For breach of the savings deposit agreement due to negligence,
or culpa contractual, the bank is liable to its depositor. When
the passbook is in the possession of Solidbank’s tellers during
withdrawals, the law imposes on Solidbank and its tellers an
even higher degree of diligence in safeguarding the passbook.
Likewise, Solidbank’s tellers must exercise a high degree of
diligence in insuring that they return the passbook only to the
depositor or his authorized representative. The tellers know, or
should know, that the rules on savings account provide that
any person in possession of the passbook is presumptively its
owner. If the tellers give the passbook to the wrong person,
they would be clothing that person presumptive ownership of
the passbook, facilitating unauthorized withdrawals by that
person. For failing to return the passbook to Calapre, the
authorized representative of L.C. Diaz, Solidbank and Teller
presumptively failed to observe such high degree of diligence in
safeguarding the passbook, and in insuring its return to the
party authorized to receive the same.
LIABLE UNDER CONTRACT, NOT UNDER TORT.
The law on quasi-delict or culpa aquiliana is generally
applicable when there is no pre-existing contractual relationship
between the parties. The contract between the bank and its
depositor is governed by the provisions of the Civil Code on
simple loan. The contract between the bank and its depositor is
governed by the provisions of the Civil Code on simple loan. In
culpa contractual, once the plaintiff proves a breach of
contract, there is a presumption that the defendant was at fault
or negligent. The burden is on the defendant to prove that he
was not at fault or negligent. In contrast, in culpa aquiliana the
plaintiff has the burden of proving that the defendant was
negligent.
IN THIS CASE, L.C. Diaz has established that
Solidbank breached its contractual obligation to return the
passbook only to the authorized representative of L.C. Diaz.
There is thus a presumption that Solidbank was at fault and its
teller was negligent in not returning the passbook to Calapre.
The burden was on Solidbank to prove that there was no
negligence on its part or its employees. Solidbank failed to
discharge its burden.
DOC. OF LAST CLEAR CHANCE IS NOT
APPLICABLE IN CULPA CONTRACTUAL.
PRINCIPLE OF COMMAND RESPONSIBILITY.
Solidbank is bound by the negligence of its employees under
the principle of respondeat superior or command responsibility.
The defense of exercising the required diligence in the selection
and supervision of employees is not a complete defense in
culpa contractual, unlike in culpa aquiliana.25
III. PROXIMATE CAUSE OF LOSS IS SOLIDBANK’S
NEGLIGENCE.
L.C. Diaz was not at fault that the passbook landed in
the hands of the impostor. Solidbank was in possession of the
passbook while it was processing the deposit. After completion
of the transaction, Solidbank had the contractual obligation to
return the passbook only to Calapre, the authorized
representative of L.C. Diaz. Solidbank failed to fulfill its
contractual obligation because it gave the passbook to another
person. There is no law mandating banks to call up their clients
whenever their representatives withdraw significant amounts
from their accounts. L.C. Diaz therefore had the burden to
prove that it is the usual practice of Solidbank to call up its
clients to verify a withdrawal of a large amount of money. L.C.
Diaz failed to do so.
IV. DOCTRINE OF CONTRIBUTORY NEGLIGENCE
MITIGATES DAMAGES.
In this case, L.C. Diaz was guilty of contributory
negligence in allowing a withdrawal slip signed by its authorized
signatories to fall into the hands of an impostor. Thus, the
liability of Solidbank should be reduced. Solidbank is liable only
for 60% of actual damages.
5) PBC VS CA and MARCOS, 2004
DILIGENCE REQUIRED: This fiduciary relationship means
that the bank’s obligation to observe “high standards of
integrity and performance” is deemed written into every
deposit agreement between a bank and its depositor.
BANK: Philippine Banking Corp
DEPOSITOR: Leonilo Marcos (time deposit)
FACTS:
1. Leonilo Marcos is in a construction business.
2. Marcos allegedly made 2 time deposits in 2 occasions the
amt. of P664,897.67 and P764,897.67 (total 1.4M) through
the persuasion of his friend Pagsaligan, one of the bank’s
officials.
3. The bank issued receipt for the first deposit while a letter-
certification was issued for his second deposit by
Pagsaligan. Pagsaligan kept the various time deposit
certificates.
4. When Marcos wanted to withdraw his time deposits, PBC’s
Bank Manager Pagsaligan encouraged him to open a letter
of credit to the bank instead of withdrawing the same para
ang PBC ang magbabayad ng construction materials he
needed.
NOTE: Pagsaligan wants to defraud Marcos of his time
deposits kc Pagsaligan is unable to account for Marcos’
time deposits.
a. Marcos executed 3 trust receipts agreement. The
total amount of his loan to the bank is P851,250.
b. He negligently signed blank forms for domestic
letter of credits, trust receipts agreements and
promissory notes.
c. He was required to deposit 30% of the total amount of
credit and his time deposit will secure the remaining
70% of the letters of credit.
d. Marcos believed that he and PBC are debtors and
creditors of each other that offset may take place that
the 30% required deposit shall be automatically
deducted from the time deposit.
5. Leonilo Marcos filed in court a complaint for sum of money
with damages against Phil. Banking Corporation (PBC).
6. MARCOS:
a. He is now accusing the bank for unjustly collecting
payment without deducting the 30% of his down
payment and charging him with accumulating interests
since his time deposit serves as collateral for his
remaining obligation.
b. He further denied making a loan of P500,000 with
25% interest per annum covered by a promissory note
produced by the bank.
(In short, 2 kasalanan ng PBC:
1. It did not deduct the 30% DP from his loan of
851k~hindi na-setoff
2. It automatically made a fictitious PN of 500k
loan against him with 25% interest
7. PBC:
a. The bank only acknowledged the second time deposit
of 764k instead of 1.4M.
b. The bank explained that the promissory notes he
executed are distinct from the trust receipt agreement
and denied falsifying the promissory note covering for
the loan of P500,000. The evidence presented on the
promissory note however is merely a machine copy of
the document. The said loan was already paid by
offsetting it from his time deposit.
c. The bank said that Marcos delivered to PBC the time
deposit certificates by virtue of Deed of Assignment
that he executed to secure his loan. When Marcos
defaulted in the payment of the promissory note, PBC
debited his time deposits and made a set off.
d. The bank also claimed that it filed a Criminal Case for
violation of PD 115 or Trust Receipts Law for failure of
Marcos to account for the construction materials
bought.
8. RTC: ruled in favor of Marcos
a. That the total amount of time deposits is 1.4m and not
only 764k as claimed by PBC.
b. That there is an executed Deed of Assignment of time
deposits in favor of the bank, and the loan of Marcos is
deemed paid by virtue of this deed.
c. That the PN of 500k is void.
 d. Directed PBC to return his time deposit in the sum of
P971, 292.49 with interest thereon at the legal rate
until fully restituted.
e. That PBC failed to prove the PN by presenting
original copies of the PN instead of just “Machine
copies of the duplicate.” Hence, the PN is
fictitious.
f. The trial court noted the Bank’s defective
documentation of its transaction and attributed the
Bank’s lapses to Pagsaligan’s scheme to defraud
Marcos of his time deposit.
9. CA: modified RTC decision
a. That the total amount of time deposits is 764k as
claimed by PBC and not 1.4m
b. Sustained that the PN of 500k is void for being
fictitious.
ISSUE: WON the bank is liable for offsetting his time deposits
with the PN. YES, The BANK is liable to Marcos for offsetting his
time deposits with a fictitious promissory note.
RULING:
I. THE BANK’S FIDUCIARY DUTY TO ITS DEPOSITOR
(MAIN DOCTRINE)
HSIP IS BASED FROM STATUTORY LAW (GBL,
2000) AND CASE LAW (Simex v CA, 1990). SECTION 2 of
General Banking Law of 2000 expressly imposes this fiduciary
duty on banks when it declares that the State recognizes the
“fiduciary nature of banking that requires high standards of
integrity and performance.” Although RA No. 8791 took effect
only in the year 2000, at the time that the BANK transacted
with Marcos, jurisprudence had already imposed on banks the
same high standard of diligence required under RA No. 8791.
This fiduciary relationship means that the bank’s obligation to
observe “high standards of integrity and performance” is
deemed written into every deposit agreement between a bank
and its depositor.
EVEN IF MARCOS IS NEGLIGENT, BANK STILL
HAS FIDUCIARY DUTY. The fiduciary nature of banking
requires banks to assume a degree of diligence higher than
that of a good father of a family. Thus, the BANK’s fiduciary
duty imposes upon it a higher level of accountability than that
expected of Marcos, a businessman, who negligently signed
blank forms and entrusted his certificates of time deposits to
Pagsaligan without retaining copies of the certificates.
MARCOS HAD THE RIGHT TO EXPECT FROM BANK
AN ACCURATE RECORDING WHICH PBC FAILED TO DO.
As the BANK’s depositor, Marcos had the right to expect that
the BANK was accurately recording his transactions with it.
Upon the maturity of his time deposits, Marcos also had the
right to withdraw the amount due him after the BANK had
correctly debited his outstanding obligations from his time
deposits.By the very nature of its business, the BANK should
have had in its possession the original copies of the disputed
promissory note and the records and ledgers evidencing the
offsetting of the loan with the time deposits of Marcos. The
BANK inexplicably failed to produce the original copies of these
documents. Clearly, the BANK failed to treat the account of
Marcos with meticulous care.
ALTHOUGH ITS EMPLOYEE, PAGSALIGAN MADE
THE FICTITIOUS LOAN, THE BANK IS NOT EXCUSED
FROM ITS OBLIGATION. It was Pagsaligan, the BANK’s
branch manager and a close friend of Marcos, whom the trial
court categorically blamed for the fictitious loan agreements.
Whether it was the BANK’s negligence and inefficiency or
Pagsaligan’s misdeed that deprived Marcos of the amount due
him will not excuse the BANK from its obligation to return to
Marcos the correct amount of his time deposits with interest.
The duty to observe “high standards of integrity and
performance” imposes on the BANK that obligation. The BANK
cannot also unjustly enrich itself by keeping Marcos’ money.
Assuming Pagsaligan was behind the spurious promissory note,
the BANK would still be accountable to Marcos. We have held
that a bank is liable for the wrongful acts of its officers done in
the interest of the bank or in their dealings as bank
representatives but not for acts outside the scope of their
authority.
II. THE EXISTENCE OF PROMISSORY NOTE WAS NOT
PROVEN: Bank did not follow the best evidence rule. It only
presented “Machine copies of the duplicate” of PN.
III. TOTAL AMOUNT DUE TO MARCOS: 764k lng not 1.4m
6) PNB V PIKE, 2005
DILIGENCE REQUIRED: With banks, the degree of diligence
required is more than that of a good father of a family
considering that the business of banking is imbued with public
interest due to the nature of their functions—the law imposes
on banks a high degree of obligation to treat the accounts of its
depositors with meticulous care, always having in mind the
fiduciary nature of banking.
BANK: PNB (Dollar Savings Account) Buendia Branch
DEPOSITOR: Norman Y. Pike, a gay entertainer in Japan.
FACTS:
1. Pike stored his passbook in a locked cabinet in his home.
When he arrived from Japan he discovered that his
valuables were missing including the passbook. His sister
asked the bank to issue a hold-order on the passbook.
2. Mr. Joy Manuel Davasol was arrested. He made 2
unauthorized withdrawals: 3500$ and 4000$.
3. Pike demanded from PNB the return of the money. PNB
refused. Then Pike asked PNB to lift the hold-order so he
can withdraw the money. In a letter, he wrote that, “I also
promise not to hold responsible the bank and its officers
for the withdrawal.”
4. He filed a complaint.
5. RTC ruled that the bank is liable on the ground the bank
was negligent in the performance of its duties such that
unauthorized withdrawals were made in the deposit of
plaintiff.
6. CA affirmed RTC on ground that
a. A withdrawal by a representative requires a form to
allow such withdrawals.
b. The letter is an Invalid waiver of rights
ARGUMENTS OF BANK
1. Pike left pre-signed withdrawal slips and authorized
withdrawals by a representative.
2. Pike condoned the bank in his letter.
3. PNB observed diligence of a good father of a family
in handling the savings account.
ISSUES: Is PNB liable for the unauthorized withdrawal? YES
RULING:
THE BANK WAS NEGLIGENT. At this juncture, it
bears emphasizing that negligence of banking institutions
should never be countenanced. The negligence here lies in the
lackadaisical attitude exhibited by employees of petitioner PNB
in their treatment of respondent Pike’s US Dollar Savings
Account that resulted in the unauthorized withdrawal of
$7,500.00. Nevertheless, though its employees may be the
ones negligent, a bank’s liability as an obligor is not merely
vicarious but primary, as banks are expected to exercise the
highest degree of diligence in the selection and supervision of
their employees, and having such obligation, this Court cannot
ignore the circumstances surrounding the case at bar—how the
employees of petitioner PNB turned their heads, nay, closed
their eyes to the suspicious circumstances enfolding the two
withdrawals subject of the case at bar. It may even be said that
they went out of their ways to disregard standard operating
procedures formulated to ensure the security of each and every
account that they are handling. The teller still approved the
withdrawal transaction without asking for any proof of
identification for the reason that: 1) Davasol was in possession
of a pre-signed withdrawal slip; and 2) the witness
“recognized” the signature of respondent Pike—even after
admitting that he did not bother to counter check the signature
on the slip with the specimen signature card of respondent Pike
and that he met respondent Pike just once so that he cannot
seem to recall what the latter looks like.
REQUIRED DILIGENCE WITH BANKS: HSIP With
banks, the degree of diligence required, contrary to the position
of petitioner PNB, is more than that of a good father of a family
considering that the business of banking is imbued with public
interest due to the nature of their functions. The stability of
banks largely depends on the confidence of the people in the
honesty and efficiency of banks. Thus, the law imposes on
banks a high degree of obligation to treat the accounts of its
depositors with meticulous care, always having in mind the
fiduciary nature of banking. Section 2 of Republic Act No. 8791,
which took effect on 13 June 2000, makes a categorical
declaration that the State recognizes the “fiduciary nature of
banking that requires high standards of integrity and
performance.”
When there is no law, the default diligence in a
contract is good father of a family. But GBL and jurisprudence
provides for HSIP
7) BPI VS LIFETIME MARKETING, GR NO. 176434
1. LMC and BPI, made a special arrangement that the former’s
agents will accomplish three (3) copies of the deposit slips,
the third copy to be retained and held by the teller until
LMC’s authorized representatives shall retrieve them on the
following banking day.
2. LMC availed of the BPI’s inter-branch banking network
services in Metro Manila, whereby the former’s agents could
make [a] deposit to any BPI branch in Metro Manila under
the same account.
a. Under this system, BPI’s bank tellers were no longer
obliged to retain the extra copy of the deposit slips
instead, they will rely on the machine-validated deposit
slip, to be submitted by LMC’s agents.
b. BPI would send to LMC a monthly bank statement
relating to the subject account.
3. Alice Laurel, one of LMC’s agents, deposited checks to
LMC’s subject account at different branches of BPI
4. After the check deposit slips were machine-validated,
requested the teller to reverse the transactions. 
5. In turn, the amount that was supposed to be credited to
respondent was cancelled.
6. The above fraudulent transactions of Alice Laurel and her
husband was made possible through BPI teller’s failure to
retrieve the duplicate original copies of the deposit slips
from the former, every time they ask for cancellation or
reversal of the deposit or payment transaction.
7. LMC instituted a criminal action for Estafa against Alice
Laurel and her husband before the RTC but was archived
because summons could not be served upon the spouses as
they have absconded.  not have occurred.
8. LMC then filed a complaint for damages against BPI
9. RTC ruled in favor of LMC
10. CA affirmed
11. BPI’s Contention:
a. LMC should have presented evidence to prove not only
the amount of the checks that were deposited and
subsequently reversed, but also the actual delivery of
the books and the payment of “sales and promo prizes”
to Alice Laurel.
b. LMC’s negligence in considering the machine-validated
check deposit slips as evidence of Alice Laurel’s
payment was the proximate cause of its own loss.
c. LMC violated its own special arrangement with BPI’s
Greenhills-EDSA branch for the latter to hold on to an
extra copy of the deposit slip for pick up by LMC’s
authorized representatives.
ISSUE:
Whether BPI observed the highest degree of care in handling
LMC’s account? NO
RULING:
The banking industry is impressed with public interest. Of
paramount importance thereto is the trust and confidence of
the public in general. Accordingly, the highest degree of
diligence is expected, and high standards of integrity and
performance are required of it. By the nature of its functions, a
bank is under obligation to treat the accounts of its depositors
with meticulous care, always having in mind the fiduciary
nature of its relationship with them. The fiduciary nature of
banking, previously imposed by case law, is now enshrined in
Republic Act No. 8791 or the General Banking Law of 2000.
Section 2 thereof specifically says that the state recognizes the
fiduciary nature of banking that requires high standards of
integrity and performance.
LMC’s Cause of Action based on Tort
LMC sought recovery from BPI on a cause of action based on
tort. Article 2176 of the Civil Code provides, “Whoever by act or
omission causes damage to another, there being fault or
negligence, is obliged to pay for the damage done. Such fault
or negligence if there is no pre-existing contractual relation
between the parties, is called a quasi-delict and is governed by
the provisions of this Chapter.” There are three elements
of quasi-delict: (a) fault or negligence of the defendant, or
some other person for whose acts he must respond; (b)
damages suffered by the plaintiff; and (c) the connection of
cause and effect between the fault or negligence of the
defendant and the damages incurred by the plaintiff.
Negligence-Proximate Cause
Negligence is the omission to do something which a reasonable
man, guided by those considerations which ordinarily regulate
the conduct of human affairs, would do, or the doing of
something which a prudent and reasonable man would not do.
Negligence in this case lies in the tellers’ disregard of the
validation procedures in place and BPI’s utter failure to
supervise its employees. Notably, BPI’s managers admitted in
several correspondences with LMC that the deposit transactions
were cancelled without LMC’s knowledge and consent and
based only upon the request of Alice Laurel and her husband.
BPI cannot escape liability because of LMC’s failure to scrutinize
the monthly statements sent to it by the bank. This omission
does not change the fact that were it not for the wanton and
reckless negligence of BPI’s tellers in failing to require the
surrender of the machine-validated deposit slips before
reversing the deposit transactions, the loss would not have
occurred. BPI’s negligence is undoubtedly the proximate cause
of the loss. Proximate cause is that cause which, in a natural
and continuous sequence, unbroken by any efficient intervening
cause, produces the injury, and without which the result would
Contributory Negligence
LMC should have been more vigilant in managing and
overseeing its own financial affairs. The damages awarded to it
were correctly reduced on account of its own contributory
negligence in accordance with Article 1172 of the Civil Code.
Degree of Diligence Required
The degree of diligence required of banks is more than that of a
reasonable man or a good father of a family. In view of the
fiduciary nature of their relationship with their depositors,
banks are duty-bound to treat the accounts of their clients with
the highest degree of care.
Pleadings and Practice
SC find the appellate court’s decision increasing the award of
actual damages in favor of LMC improper since the latter did
not appeal from the decision of the trial court. It is well-settled
that a party who does not appeal from the decision may not
obtain any affirmative relief from the appellate court other than
what he has obtained from the lower court whose decision is
brought up on appeal. The exceptions to this rule, such as
where there are (1) errors affecting the lower court’s
jurisdiction over the subject matter, (2) plain errors not
specified, and (3) clerical errors, do not apply in this case.
8) BPI v CASA MONTESSORI, 2004
DILIGENCE REQUIRED: Since the banking business is
impressed with public interest, of paramount importance
thereto is the trust and confidence of the public in general—the
highest degree of diligence is expected, and high standards of
integrity and performance are even required of it; A bank is
bound to know the signatures of its customers, and if it pays a
forged check, it must be considered as making the payment
out of its own funds, and cannot ordinarily charge the amount
so paid to the account of the depositor whose name was
forged.
BANK: BPI
DEPOSITOR: CASA MONTESSORI INTERNATIONALE (Current
account); President Ma. Carina Lebron is the signatory.
FACTS:
1. Plaintiff discovered that 9 of its checks were encashed by a
certain Sonny Santos with a total amount of 782k.
2. It turned out that Sonny Santos was a fictitious name used
by Leonardo Yabut, the external auditior of Casa. Yabut
admitted that he forged the signature of Lebron to encash.
3. Plaintiff filed Complaint for Collection against the bank.
4. RTC ruled in favor of plaintiff
5. CA modified the RTC ruling finding contributory negligence
that resulted in the undetected forgery.
ARGUMENT OF BPI:
1. That CASA is estopped from questioning the wrongful
withdrawals because of its failure to timely report to the
bank the incident of forgery.
ISSUES:
1. Was there forgery under the Negotiable Instruments Law?
Yes, the effect of a forged signature is that it is wholly
inoperative.
2. Were any of the parties negligent and therefore
precluded from setting up forgery as a defense? Yes,
Negligence is attributable to BPI alone
3. Should moral and exemplary damages, attorney’s fees, and
interest be awarded?
RULING: SECOND ISSUE
IN A NUTSHELL: By the nature of its functions, a
bank is required to take meticulous care of the deposits of its
clients, who have the right to expect high standards of integrity
and performance from it. Among its obligations in furtherance
thereof is knowing the signatures of its clients. Depositors are
not estopped from questioning wrongful withdrawals, even if
they have failed to question those errors in the statements sent
by the bank to them for verification.
A. CLEAR NEGLIGENCE IN ALLOWING PAYMENT UNDER A
FORGED SIGNATURE
MAIN DOC: HSIP. We have repeatedly emphasized
that, since the banking business is impressed with public
interest, of paramount importance thereto is the trust and
confidence of the public in general. Consequently, the highest
degree of diligence is expected, and high standards of
integrity and performance are even required, of it. By the
nature of its functions, a bank is “under obligation to treat the
accounts of its depositors with meticulous care, always having
in mind the fiduciary nature of their relationship.”
BPI’S NEGLIGENCE: IT FAILED TO DETECT 8
INSTANCES OF FORGERY. BPI contends that it has a
signature verification procedure, in which checks are honored
only when the signatures therein are verified to be the same
with or similar to the specimen signatures on the signature
cards. Nonetheless, it still failed to detect the eight instances of
forgery. Its negligence consisted in the omission of that degree
of diligence required of a bank. It cannot now feign ignorance,
for very early on we have already ruled that a bank is “bound
to know the signatures of its customers; and if it pays a forged
check, it must be considered as making the payment out of its
own funds, and cannot ordinarily charge the amount so paid to
the account of the depositor whose name was forged.” (San
Carlos v BPI, 1933)
B. NEITHER WAIVER NOR ESTOPPEL RESULTS FROM
FAILURE TO REPORT ERROR IN BANK STATEMENT
The monthly statements issued by BPI to its clients
contain a notice worded as follows: “If no error is reported in
ten (10) days, account will be correct.” Such notice cannot be
considered a waiver, even if CASA failed to report the error.
Neither is it estopped from questioning the mistake after
the lapse of the ten-day period. In the instant case, CASA
never made any deed or representation that misled BPI. The
former’s omission, if any, may only be deemed an innocent
mistake oblivious to the procedures and consequences of
periodic audits. Since its conduct was due to such ignorance
founded upon an innocent mistake, estoppel will not arise.
C. LOSS SHOULD BE BORNE BY PROXIMATE SOURCE OF
NEGLIGENCE: BPI’S ENCASHMENT OF 8 CHECKS. HENCE,
BPI MUST BEAR THE LOSS
Pursuant to its prime duty to ascertain well the
genuineness of the signatures of its client-depositors on checks
being encashed, BPI is “expected to use reasonable business
prudence.” In the performance of that obligation, it is bound by
its internal banking rules and regulations that form part of the
contract it enters into with its depositors. Unfortunately, it
failed in that regard. First, Yabut was able to open a bank
account in one of its branches without privity; that is, without
the proper verification of his corresponding identification
papers. Second, BPI was unable to discover early on not only
this irregularity, but also the marked differences in the
signatures on the checks and those on the signature card.
Third, despite the examination procedures it conducted, the
Central Verification Unit of the bank even passed off these
evidently different signatures as genuine. Without exercising
the required prudence on its part, BPI accepted and encashed
the eight checks presented to it. As a result, it proximately
contributed to the fraud and should be held primarily liable for
the “negligence of its officers or agents when acting within the
course and scope of their employment.” It must bear the loss.
D. CASA NOT NEGLIGENT IN ITS FINANCIAL AFFAIRS
E. CASH BALANCES ARE OPEN TO MANIPULATION
9) CENTRAL BANK VS CITYTRUST BANK, GR NO. 141835
FACTS:
1. Pursuant to Republic Act No. 625, the old Central Bank Law,
respondent Citytrust maintained a demand deposit account
with petitioner Central Bank
2. As required, Citytrust furnished petitioner with:
a. the names and corresponding signatures of five of
its officers authorized to sign checks and serve as
drawers and indorsers for its account.
b. the list and corresponding signatures of its roving
tellers authorized to withdraw, sign receipts and
perform other transactions on its behalf.
3.
4. Petitioner later issued security identification cards to the
roving tellers one of whom was Flores.
5. Flores presented for payment to petitioner’s Senior Teller
Iluminada dela Cruz two Citytrust checks of even date
payable to Citytrust both of which were signed and indorsed
by Citytrust’s authorized signatory-drawers.
6. After the checks were certified by petitioner’s Accounting
Department, Iluminada verified them, prepared the cash
transfer slip on which she affixed her signature, stamped
the checks with the notation “Received Payment” and asked
Flores to, as he did, sign on the space above such notation.
Instead of signing his name, however, Flores signed as
“Rosauro C. Cayabyab” — a fact Iluminada failed to notice.
7. Petitioner’s Cash Department officer approved the cash
transfer slip and paid the corresponding amounts to Flores.
8. Petitioner then debited the amount of the checks totaling
P1,750,000 from Citytrust’s demand deposit account.
9. More than a year and nine months later, Citytrust, by letter
alleging that the checks were already cancelled because
they were stolen, demanded petitioner to restore the
amounts covered thereby to its demand deposit account.
10. Petitioner did not heed the demand.
11. Citytrust filed a complaint for estafa, with reservation
on the filing of a separate civil action, against Flores. Flores
was convicted.
12. Citytrust thereafter filed before the RTC a complaint
for recovery of sum of money with damages against
petitioner which it alleged erred in encashing the checks
and in charging the proceeds thereof to its account, despite
the lack of authority of “Rosauro C. Cayabyab.”
13. RTC:  found both Citytrust and petitioner negligent
and accordingly held them equally liable for the loss.  to call the drawer to inform about the discrepancy.
14. CA: affirmed
a. Citytrust failed to take adequate precautionary
measures to prevent the fraudulent encashment of
its checks
b. Central Bank failed to verify the signature of
Citytrust’s agent authorized to receive payment.
ISSUE:
WON petitioner Cenral Bank is liable? YES, petitioner and
Citytrust shall bear the loss on a 60-40 ratio.
RULING:
The law imposes on banks high standards in view of the
fiduciary nature of banking. Section 2 of Republic Act No. 8791
(“RA 8791”), which took effect on 13 June 2000, declares that
the State recognizes the “fiduciary nature of banking that
requires high standards of integrity and performance.” This new
provision in the general banking law, introduced in 2000, is a
statutory affirmation of Supreme Court decisions, starting with
the 1990 case of Simex International v. Court of
Appeals, holding that “the bank is under obligation to treat the
accounts of its depositors with meticulous care, always having
in mind the fiduciary nature of their relationship.” This
fiduciary relationship means that the bank’s obligation to
observe “high standards of integrity and performance” is
deemed written into every deposit agreement between a
bank and its depositor. The fiduciary nature of banking
requires banks to assume a degree of diligence higher
than that of a good father of a family.
Citytrust’s failure to timely examine its account, cancel the
checks and notify petitioner of their alleged loss/theft should
mitigate petitioner’s liability, in accordance with Article 2179 of
the Civil Code which provides that if the plaintiff’s negligence
was only contributory, the immediate and proximate cause of
the injury being the defendant’s lack of due care, the plaintiff
may recover damages, but the courts shall mitigate the
damages to be awarded. For had Citytrust timely discovered
the loss/theft and/or subsequent encashment, their proceeds or
part thereof could have been recovered. In line with the ruling
in Consolidated Bank and Trust Corporation v. Court of
Appeals, 410 SCRA 562 (2003), the Court deems it proper to
allocate the loss between petitioner and Citytrust on a 60-40
ratio.
10) CHINA BANKING CORP V DOLORES PADILLA, 2015
DILIGENCE REQUIRED: In its declaration of policy, the GBL
of 2000 requires of banks the highest standards of integrity and
performance. Needless to say, a bank is under obligation to
treat the accounts of its depositors with meticulous care.
BANK: CHINA BANKING CORP
DEPOSITOR: Dolores Padilla and Loida Birung (Joint Checking
Account) Tuguegarao Branch
FACTS:
1. Dolores and Loida issued a check for 700 in favor of Marivic
Samonte as payment for imported canned goods and
fruits. But what was written was 700,000 erroneously.
2. Marivic took advantage of the error and deposited the
check. But the check was dishonored due to DAIF because
the outstanding balance was only 5k. bwahahaha
3. Marivic filed a criminal case for estafa and BP 22.
a. Dolores was arrested and posted a bail.
b. She called the China Bank Cashier Michael Yu and
inquired why she was being arrested inspite of
sufficient funds.
c. Then she admitted the mistake. The case was
dismissed.
4. Dolores filed Damages against China Bank.
a. A former bank employee of RCBC testified that Banks
procedure when there are discrepancies in checks was
b. China Bank countered that it was never negligent in
dishonoring the check.
5. ARGUMENT OF CHINA BANK:
a. That Yu telephoned Dolores to verify the amount
and it was Dolores herself who confirmed it.
b. That there is no better way to ascertain the true
amount of the check than the personal confirmation of
the drawer, Dolores.
c. That if the drawer would still be required to appear in
the drawee bank simply to countersign the erroneous
amount of the check, such procedure would destroy
the very purpose for which checks are deemed as
convenient substitutes for money.
6. RTC ruled in favor of Dolores’ heirs on the ground that
confirmation through telephone was not enough
considering the situation, not to mention the huge amount
involved. The degree of diligence required was more than
that of a good father of a family because the banking
business was imbued with public interest.
7. CA affirmed the RTC decision reasoning that China Bank
could not escape liability from Yu’s negligent act committed
by Yu.
8. Hence this Petition.
ISSUES: IS CHINA BANK LIABLE? Yes,
RULING:
MAIN DOCTRINE: HSIP; DEF. OF SELECTION AND
SUPERVISION IN UNAVAILING BECAUSE ITS LIABILITY
IS NOT VICARIOUS BUT PRIMARY. Time and again, the
Court has stressed that banking business is so impressed with
public interest, where the trust and confidence of the public in
general is of paramount importance, such that the appropriate
standard of diligence must be very high, if not the highest
degree of diligence. A bank’s liability as obligor is not merely
vicarious but primary, wherein the defense of exercise of due
diligence in the selection and supervision of its employees is
unavailing. By the very nature of their duties, the degree of
responsibility, care and trustworthiness expected of their
employees and officials are far greater than those of ordinary
clerks and employees. Banks are expected to exercise the
highest degree of diligence in the selection and supervision of
their employees.
BANK Ees MUST OBSERVE HSIP TOO. Considering
that banks can only act through their officers and employees,
the fiduciary obligation laid down for these institutions
necessarily extends to their employees. Thus, banks must
ensure that their employees observe the same high level of for purposes of relending or purchasing of receivables and
integrity and performance for it is only through this that banks other obligations. (2-Da)
may meet and comply with their own fiduciary duty. Thus, even
if it is their employees who are negligent, the bank’s
responsibility to its client remains paramount-making its
liability to the same to be a direct one.
SC ANSWERED CHINA BANK’S ARGUMENT THAT
THE PURPOSE OF CHECK AS CONVENIENT SUBSTITUTE
FOR MONEY IS DEFEATED IF DRAWER IS STILL
REQUIRED TO APPEAR. CBC's arguments runs afoul with a
bank's duty to exercise the highest degree of diligence.
Considering the amount involved in the check, it would have
been more prudent for CBC to call Dolores and require her to
countersign the check. Convenience cannot defeat the bank's
paramount fiduciary responsibility to its clients.

SECTION 3. Definition and Classification of Banks. —

3.1. "Banks" shall refer to entities engaged in the lending of
funds obtained in the form of deposits. (2a)

3.2. Banks shall be classified into:

(a) Universal banks;
(b) Commercial banks;
(c) Thrift banks, composed of: (i) Savings and mortgage
banks, (ii) Stock savings and loan associations, and (iii) Private
development banks, as defined in Republic Act No. 7906
(hereafter the "Thrift Banks Act");
(d) Rural banks, as defined in Republic Act No. 7353 (hereafter
the "Rural Banks Act");
(e) Cooperative banks, as defined in Republic Act No. 6938
(hereafter the "Cooperative Code");
(f) Islamic banks as defined in Republic Act No. 6848,
otherwise known as the "Charter of Al Amanah Islamic
Investment Bank of the Philippines"; and
(g) Other classifications of banks as determined by the
Monetary Board of the Bangko Sentral ng Pilipinas.

CHAPTER 2- AUTHORITY OF THE BANGKO SENTRAL

SECTION 4. Supervisory Powers. — The operations and

activities of banks shall be subject to supervision of the Bangko
Sentral. "Supervision" shall include the following:
4.1. The issuance of rules of conduct or the establishment of
standards of operation for uniform application to all institutions
or functions covered, taking into consideration the distinctive
character of the operations of institutions and the substantive
similarities of specific functions to which such rules, modes or
standards are to be applied;
4.2. The conduct of examination to determine compliance with
laws and regulations if the circumstances so warrant as
determined by the Monetary Board;
4.3. Overseeing to ascertain that laws and regulations are
complied with;
4.4. 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: Provided, That the deficiencies/irregularities found by or
discovered by an audit shall be immediately addressed;
4.5. Inquiring into the solvency and liquidity of the institution
(2-D); or
4.6. Enforcing prompt corrective action. (n)

The Bangko Sentral shall also have supervision over the

operations of and exercise regulatory powers over quasi-banks,
trust entities and other financial institutions which under special
laws are subject to Bangko Sentral supervision. (2-Ca)

For the purposes of this Act, "quasi-banks" shall refer to

entities engaged in the borrowing of funds through the
issuance, endorsement or assignment with recourse or
acceptance of deposit substitutes as defined in Section 95 of
Republic Act No. 7653 (hereafter the "New Central Bank Act")
11) BANK OF COMMERCE V PLANTERS DEVELOPMENT
BANK, 2012
DOCTRINE: to oversee to comply with existing rules and
regulations
BANK:
DEPOSITOR:

FACTS:
RTC:
CA:

ISSUES:

RULING:
12) SPS. SERAFINO v FAR EAST BANK, 2012
DOCTRINE: The rule (of adopting a foreign rule in this case)
reflects a matter of policy that is better addressed by the other
branches of government (than the Supreme Court),
particularly, the Bangko Sentral ng Pilipinas, which is the
agency that supervises the operations and activities of banks,
and which has the power to issue “rules of conduct or the
establishment of standards of operation for uniform application
to all institutions or functions covered.”
BANK: Far East Bank and Trust Company, Inc. (FEBTC)
DEPOSITOR: Magdalena Cortez deposited her retirement
benefits in Savings Account of her daughter in law, Grace
Cortez.
FACTS:
1. Sps. Cortez had debt of 155k from Sps. Serfino. In a
Compromise Judgment by RTC, Sps. Cortez promised to
pay the debt out of Mrs. MagdalenaCortez’ retirement
benefits from GSIS.
a. But Mrs. Cortez did not pay the debt, instead she
deposited her retirement benefits in the savings
account of her daughter in law, Grace Cortez, in Far
East Bank.
b. Sps. Serfino sent 2 letters to Far East informing it of
their adverse claim that the deposit in Grace’s name
was owned by SPS Serfino by virutue of an
assignment made in their favor by the Sps. Cortez.
2. Sps. Serfino filed recovery of money on deposit against the
Cortez and Far East Bank.
a. Grace withdrew 150k from her savings account.
b. During the pendency of the case, the Sps Cortez
manifested to return the remaining balance in Grace’s
account of 54k as partial payment.
3. RTC ruled that the Cortez are liable for fraudulently
diverting the amount, but it absolved Far East Bank
from any liability on the ground that
(1) the bank was not a party to the compromise
agreement and
(2) there was no valid court order requiring the bank to
withhold the deposit
(3) Bank deposits are in the nature of Contract of Loan
with Grace.
4. Serfinos filed a petition for review on Certiorari to SC.
ARGUMENTS of Sps. Serfino:
1. That since they sent letters of adverse claim to the bank, it
becomes the duty of the bank to withhold payment of
deposit (citing an American case law: Miller v Bank of
Washington)
2. That although bank deposits are in the nature of Contract
of Loan, the provisions on Voluntary Deposits (A. 1988,
NCC: Contract of Deposit) should apply in this case that
the depository is not obliged to return the thing deposited
to the depositor if notified of a third party’s adverse claim.
ISSUE: WON the Far East Bank is liable for releasing the
deposits to Grace despite adverse claim of Sps. Serfino. NO
RULING:
I. CLAIM FOR ACTUAL DAMAGES NOT MERITORIOUS
BECAUSE THERE COULD BE NO PECUNIARY LOSS THAT
SHOULD BE COMPENSATED IF THERE WAS NO
“ASSIGNMENT OF CREDIT.”
THERE WAS NO VALID “ASSIGNMENT OF
CREDIT” IN THIS CASE. We find no basis to support the
spouses Serfino’s claim of ownership of the deposit. The terms
of the compromise judgment, did not convey an intent to
equate the assignment of Magdalena’s retirement benefits (the
credit) as the equivalent of the payment of the debt due the
spouses Serfino (the obligation). There was actually no
assignment of credit; if at all, the compromise judgment
merely identified the fund from which payment for the
judgment debt would be sourced.
MEANING OF ASSIGNMENT OF CREDIT. “An
assignment of credit is an agreement by virtue of which the
owner of a credit, known as the assignor, by a legal cause,
such as sale, dation in payment, exchange or donation, and
without the consent of the debtor, transfers his credit and
accessory rights to another, known as the assignee, who
acquires the power to enforce it to the same extent as the
assignor could enforce it against the debtor. It may be in the
form of sale, but at times it may constitute a dation in
payment, such as when a debtor, in order to obtain a
release from his debt, assigns to his creditor a credit he
has against a third person.” As a dation in payment, the
assignment of credit operates as a mode of extinguishing
the obligation.
IN THIS CASE IT WAS NOT AN ASSIGNMENT OF
CREDIT BUT A MERE DESIGNATION OF RETIREMENT
BENEFITS. In the present case, the judgment debt was not
extinguished by the mere designation in the compromise
judgment of Magdalena’s retirement benefits as the fund from
which payment shall be sourced. That the compromise
agreement authorizes recourse in case of default on other
executable properties of the spouses Cortez, to satisfy the
judgment debt, further supports our conclusion that there was
no assignment of Magdalena’s credit with the GSIS that would
have extinguished the obligation.
PRAYER FOR DAMAGES AGAINST BANK HAS NO
BASIS. Since no valid assignment of credit took place, the
spouses Serfino cannot validly claim ownership of the
retirement benefits that were deposited with FEBTC. Without
ownership rights over the amount, they suffered no pecuniary
loss that has to be compensated by actual damages. The grant
of actual damages presupposes that the claimant suffered a
duly proven pecuniary loss.
II. FAR EAST BANK HAS NOT DUTY TO PROTECT
INTEREST OF THIRD PERSON CLAIMING DEPOSIT IN THE
NAME OF ANOTHER.
MAIN DOCTRINE: SC CANNOT ADOPT FOREIGN
RULE IN MATTERS OF ADVERSE CLAIM AGAINST
DEPOSITOR’S ACCOUNT BECAUSE IT GOES BEYOND ITS
POWER AND THAT IS A MATTER OF POLICY BETTER
ADDRESSED BY THE BSP WHICH SUPERVISES
OPERATIONS OF BANKS. The spouses Serfino invoke
American common law that imposes a duty upon a bank
receiving a notice of adverse claim to the fund in a depositor’s
account to freeze the account for a reasonable length of time,
sufficient to allow the adverse claimant to institute legal
proceedings to enforce his right to the fund. In other words,
the bank has a duty not to release the deposits unreasonably
early after a third party makes known his adverse claim to the
bank deposit. Acknowledging that no such duty is imposed by
law in this jurisdiction, the spouses Serfino ask the Court to
adopt this foreign rule. To adopt the foreign rule, however,
goes beyond the power of this Court to promulgate rules
governing pleading, practice and procedure in all courts.
The rule reflects a matter of policy that is better
addressed by the other branches of government,
particularly, the Bangko Sentral ng Pilipinas, which is the
agency that supervises the operations and activities of
banks, and which has the power to issue “rules of
conduct or the establishment of standards of operation
for uniform application to all institutions or functions
covered.
BECAUSE THERE IS NO LAW ABOUT ADVERSE
CLAIM OF THIRD PARTY AGAINST THE DEPOSITOR, SC
FINDS THAT BANKS GAVE CONTRACTUAL RELATIONS
WITH THEIR DEPOSITORS AND NOT WITH ANY THIRD
PARTY. In the absence of a law or a rule binding on the Court,
it has no option but to uphold the existing policy that
recognizes the fiduciary nature of banking. It likewise rejects
the adoption of a judicially-imposed rule giving third parties
with unverified claims against the deposit of another a better
right over the deposit. As current laws provide, the bank’s
contractual relations are with its depositor, not with the third
party; “a bank is under obligation to treat the accounts of its
depositors with meticulous care and always to have in mind the
fiduciary nature of its relationship with them.” In the absence
of any positive duty of the bank to an adverse claimant, there
could be no breach that entitles the latter to moral damages.
13) EQUITABLE PCI VS BANK VS TAN, GR NO. 165339
DILIGENCE REQUIRED: The law imposes on banks high
standards in view of the fiduciary nature of banking. The
diligence required of banks, therefore, is more than that of a
good father of a family. In every case, the depositor expects
the bank to treat his account with the utmost fidelity, whether
such account consists only of a few hundred pesos or of
millions.
BANK: PCI
DEPOSITOR: Arcelito B. Tan (Current and Savings)
FACTS:
11. Respondent Arcelito B.Tan maintained a current and
savings account with petitioner Equitable PCI Bank
12. On May 13, 1992, issued PCIB Check No. 275100
postdated May 30, 19924 in the amount of P34,588.72 in
favor of Sulpicio Lines, Inc.
13.  On May 14, 1992, Sulpicio Lines, Inc. deposited the
postdated check to with Solid Bank, Carbon Branch, Cebu
City which was cleared and immediately debited by
petitioner EPCI leaving respondent’s account with a balance
of P558.87.
14. Meanwhile, respondent issued three checks from May
9 to May 16, 1992 which was dishonored for being drawn
against insufficient funds.
15. As a result of the dishonor of checks which were
payable to ASELCO and ANECO,  the electric power supply
for the two mini-sawmills owned and operated by
respondent was cut off but was later on restored.
16. Due to the foregoing, respondent filed with the RTC a
complaint against petitioner, praying for payment of losses
consisting of unrealized income and damages.
17. Respondent:
b. claimed that his account with petitioner would have had
sufficient funds to cover payment of the three other
checks were it not for the negligence of petitioner in
immediately debiting from his account Check No.
275100.
18. Petitioner:
c. denied that the questioned check was postdated May
30, 1992 and claimed that it was a current check dated
May 3, 1992.
d. the disconnection of the electric supply to respondent’s
sawmills was not due to the dishonor of the checks, but
for other reasons not attributable to the bank.
19. RTC: ruled in favor of petitioner and dismissed
the complaint
20. CA: reversed the decision
ISSUE:
WON petitioner is negligent and therefore liable for the
respondent’s loss. Yes, the law imposes on banks high
standards in view of the fiduciary nature of banking.
RULING:
Procedural
3. Administrative issuances must not override, supplant or
modify the law, but must remain consistent with the law
they intend to carry out—Office Order No. 82-04-CG cannot
defeat the provisions of Republic Act No. 8246.
4. In an appeal by certiorari under Rule 45 of the Rules of
Court, only questions of law may be raised, but one of the
recognized exceptions is when the findings of the appellate
court are contrary to those of the trial court. In an appeal
by certiorari under Rule 45 of the Rules of Court, only
questions of law may be raised, but one of the recognized
exceptions is when the findings of the appellate court are
contrary to those of the trial court.
PURPOSE OF CHECK
The purpose for the issuance of the check has no logical
connection with the date of the check. Besides, the trial court
need not look into the purpose for which the check was issued.
A reading of Check No. 275100 would readily show that it was
dated May 30, 1992.
DILIGENCE REQUIRED
The law imposes on banks high standards in view of the
fiduciary nature of banking. Section 2 of R.A. 8791
decrees: Declaration of Policy.—The State recognizes the vital
role of banks in providing an environment conducive to the
sustained development of the national economy and the
fiduciary nature of banking that requires high standards of
integrity and performance. In furtherance thereof, the State
shall promote and maintain a stable and efficient banking and
financial system that is globally competitive, dynamic and
responsive to the demands of a developing economy. Although
R.A. 8791 took effect only in the year 2000, the Court had
already imposed on banks the same high standard of diligence
required under R.A. 8791 at the time of the untimely debiting
of respondent’s account by petitioner in May 1992. In Simex
International (Manila), Inc. v. Court of Appeals, 183 SCRA 360
(1990), which was decided in 1990, the Court held that as a
business affected with public interest and because of the nature
of its functions, the bank is under obligation to treat the
accounts of its depositors with meticulous care, always having
in mind the fiduciary nature of their relationship.
The diligence required of banks, therefore, is more than
that of a good father of a family. In every case, the
depositor expects the bank to treat his account with the utmost
fidelity, whether such account consists only of a few hundred
pesos or of millions. The bank must record every single
transaction accurately, down to the last centavo, and as
promptly as possible. This has to be done if the account is to
reflect at any given time the amount of money the depositor
can dispose of as he sees fit, confident that the bank will
deliver it as and to whomever he directs. From the foregoing, it
is clear that petitioner bank did not exercise the degree of
diligence that it ought to have exercised in dealing with its
client.
PROXIMATE CAUSE
Petitioner’s negligence is the proximate cause of respondent’s
loss. The proximate cause of the loss is not respondent’s
manner of writing the date of the check, as it was very clear
that he intended Check No. 275100 to be dated May 30, 1992
and not May 3, 1992. The proximate cause is petitioner’s own
negligence in debiting the account of the respondent prior to
the date as appearing in the check, which resulted in the
subsequent dishonor of several checks issued by the
respondent and the disconnection by ASELCO and ANECO of his
electric supply. The bank on which the check is drawn, known
as the drawee bank, is under strict liability to pay to the order
of the payee in accordance with the drawer’s instructions as
reflected on the face and by the terms of the check. Thus,
payment made before the date specified by the drawer is
clearly against the drawee bank’s duty to its client.
As a matter of practice, bank tellers would not receive nor
honor such checks which they believe to be unclear, without
the counter-signature of its drawer. Petitioner should have
exercised the highest degree of diligence required of it by
ascertaining from the respondent the accuracy of the entries
therein, in order to settle the confusion, instead of proceeding
to honor and receive the check.
ENTITLED OF MORAL AND EXEMPLARY DAMAGES
 A bank is under obligation to treat the accounts of its
depositors with meticulous care whether such account consists
only of a few hundred pesos or of millions of pesos.
Responsibility arising from negligence in the performance of
every kind of obligation is demandable. While petitioner’s
negligence in that case may not have been attended with
malice and bad faith, the banks’ negligence caused respondent
to suffer mental anguish, serious anxiety, embarrassment and
humiliation. In said case, We ruled that respondent therein was
entitled to recover reasonable moral damages. In this case, the
unexpected cutting off of respondent’s electricity, which
resulted in the stoppage of his business operations, had caused
him to suffer humiliation, mental anguish and serious anxiety.
The award of P50,000.00 is reasonable, considering the
reputation and social standing of respondent. As found by the
CA, as an accredited supplier, respondent had been reposed
with a certain degree of trust by various reputable and well-
established corporations.

The law allows the grant of exemplary damages to set an

example for the public good. The bank ing system has become
an indispensable institution in the modern world and plays a
vital role in the economic life of every civilized society. Whether
as mere passive entities for the safekeeping and saving of
money or as active instruments of business and commerce,
banks have attained an ubiquitous presence among the people,
who have come to regard them with respect and even gratitude
and most of all, confidence. For this reason, banks should
guard against injury attributable to negligence or bad faith on
its part. Without a doubt, it has been repeatedly emphasized
that since the banking business is impressed with public
interest, of paramount importance thereto is the trust and
confidence of the public in general. Consequently, the highest
degree of diligence is expected, and high standards of integrity
and performance are even required of it. Petitioner, having
failed in this respect, the award of exemplary damages in the
amount of P50,000.00 is in order.
SECTION 5. Policy Direction; Ratios, Ceilings and
Limitations. — The Bangko Sentral shall provide policy
direction in the areas of money, banking and credit. (n)

For this purpose, the Monetary Board may prescribe ratios,

ceilings, limitations, or other forms of regulation on the
different types of accounts and practices of banks and quasi-
banks which shall, to the extent feasible, conform to
internationally accepted standards, including those of the Bank
for International Settlements (BIS). The Monetary Board may
exempt particular categories of transactions from such ratios,
ceilings and limitations, but not limited to exceptional cases or
to enable a bank or quasi-bank under rehabilitation or during a
merger or consolidation to continue in business with safety to
its creditors, depositors and the general public. (2-Ca)

SECTION 6. Authority to Engage in Banking and Quasi-

Banking Functions. — No person or entity shall engage in
banking operations or quasi-banking functions without
authority from the Bangko Sentral: Provided, however, That an
entity authorized by the Bangko Sentral to perform universal or
commercial banking functions shall likewise have the authority
to engage in quasi-banking functions.

The determination of whether a person or entity is performing

banking or quasi-banking functions without Bangko Sentral
authority shall be decided by the Monetary Board. To resolve
such issue, the Monetary Board may, through the appropriate
supervising and examining department of the Bangko Sentral,
examine, inspect or investigate the books and records of such
person or entity. Upon issuance of this authority, such person
or entity may commence to engage in banking operations or
quasi-banking functions and shall continue to do so unless such
authority is sooner surrendered, revoked, suspended or
annulled by the Bangko Sentral in accordance with this Act or
other special laws.

The department head and the examiners of the appropriate

supervising and examining department are hereby authorized
to administer oaths to any such person, employee, officer, or
director of any such entity and to compel the presentation or
production of such books, documents, papers or records that
are reasonably necessary to ascertain the facts relative to the
true functions and operations of such person or entity. Failure
or refusal to comply with the required presentation or
production of such books, documents, papers or records within
a reasonable time shall subject the persons responsible
therefore to the penal sanctions provided under the New
Central Bank Act.

Persons or entities found to be performing banking or quasi-

banking functions without authority from the Bangko Sentral
shall be subject to appropriate sanctions under the New Central
Bank Act and other applicable laws. (4a)
CHAPTER 3: ORGANIZATION, MANAGEMENT AND
ADMINISTRATION OF BANKS, QUASI-BANKS AND
TRUST ENTITIES
Section 8. Organization. - The Monetary Board may
authorize the organization of a bank or quasi-bank subject to
the following conditions:
8.1 That the entity is a stock corporation (7);
8.2 That its funds are obtained from the public, which shall
mean twenty (20) or more persons (2-Da); and
8.3 That the minimum capital requirements prescribed by the
Monetary Board for each category of banks are satisfied. (n)
Section 16. Fit and Proper Rule. - To maintain the quality of
bank management and afford better protection to depositors
and the public in general the Monetary Board shall prescribe,
pass upon and review the qualifications and disqualifications of
individuals elected or appointed bank directors or officers and
disqualify those found unfit. After due notice to the board of
directors of the bank, the Monetary Board may disqualify,
suspend or remove any bank director or officer who commits or
omits an act which render him unfit for the position. In
determining whether an individual is fit and proper to hold the
position of a director or officer of a bank, regard shall be given
to his integrity, experience, education, training, and
competence. (9-Aa).

No new commercial bank shall be established within three (3)

years from the effectivity of this Act. In the exercise of the
authority granted herein, the Monetary Board shall take into
consideration their capability in terms of their financial
resources and technical expertise and integrity. The bank
licensing process shall incorporate an assessment of the bank's
ownership structure, directors and senior management, its
operating plan and internal controls as well as its projected
financial condition and capital base.
Section 22. Strikes and Lockouts. - The banking industry is
hereby declared as indispensable to the national interest and,
notwithstanding the provisions of any law to the contrary, any
strike or lockout involving banks, if unsettled after seven (7)
calendar days shall be reported by the Bangko Sentral to the
secretary of Labor who may assume jurisdiction over the
dispute or decide it or certify the sane to the National Labor
Relations Commission for compulsory arbitration. However, the
President of the Philippines may at any time intervene and
assume jurisdiction over such labor dispute in order to settle or
terminate the same. (6-E).

Section 14. Certificate of Authority to Register. - The

Securities and Exchange Commission shall no register the
articles of incorporation of any bank, or any amendment
thereto, unless accompanied by a certificate of authority issued
by the Monetary Board, under it seal. Such certificate shall not
be issued unless the Monetary Board is satisfied from the
evidence submitted to it:

14.1 That all requirements of existing laws and regulations to

engage in the business for which the applicant is proposed to
be incorporated have been complied with;

14.2 That the public interest and economic conditions, both

general and local, justify the authorization; and

14.3 That the amount of capital, the financing, organization,

direction and administration, as well as the integrity and
responsibility of the organizers and administrators reasonably
assure the safety of deposits and the public interest. (9)

The Securities and Exchange Commission shall not register the

by-laws of any bank, or any amendment thereto, unless
accompanied by a certificate of authority from the Bangko
Sentral. (10).

Section 15. Board of Directors. - The provisions of the

Corporation Code to the contrary notwithstanding, there shall
be at least five (5), and a maximum of fifteen (15) members of
the board or directors of a bank, two (2) of whom shall be
independent directors. An "independent director" shall mean a
person other than an officer or employee of the bank, its
subsidiaries or affiliates or related interests. (n) Non-Filipino
citizens may become members of the board of directors of a
bank to the extent of the foreign participation in the equity of
said bank. (Sec. 7, RA 7721) The meetings of the board of
directors may be conducted through modern technologies such
as, but not limited to, teleconferencing and video-conferencing.
(n).
CHAPTER 4: DEPOSITS. LOANS AND OTHER OPERATIONS
NATURE OF BANK DEPOSITS
14) METROBANK V ROSALES, 2014
NATURE OF BANK DEPOSTIS: Bank deposits, which are in
the nature of a simple loan or mutuum, must be paid upon
demand by the depositor.
BANK: Metropolitan Bank and Trust Company (Pritil-Tondo
Branch)
DEPOSITOR: Ana Grace Rosales owner of a travel agency and
her mom, Yo Yuk To (Joint Peso Account)
FACTS:
1. Rosales accompanied her client Liu Chiu Fang, a Taiwanese
National, to open a savings dollar account in Metrobank as
required by the Philippine Government to allow retirement
visa in Ph.
2. Rosales and her mom open a Joint Dollar Account in
Metrobank.
3. Then Metrobank issued a “Hold Out” order against the joint
account.
a. Metrobank filed Estafa against Rosales accusing her to
be responsible for the unauthorized withdrawal of
$75k from Liu Chiu Fang’s account.
b. It was alleged that Rosales accompanied an
unidentified imposter of Liu Chiu Fang to the bank to
withdraw. It was later discovered that the serial
numbers of the dollars deposited in the joint account is
similar to those withdrawn by the impostor.
c. The City Prosecutor of Manila dismissed the case for
lack of probable cause.
4. Respondents filed a complaint for Breach of Contract
against Metrobank with a prayer to lift the Hold Out
order.
a. Respondents claim that they cannot withdraw
their deposits because of the Hold Out Order,
and no explanation was given by the bank as to
why they issued it.
b. Metrobank argued that respondents have no cause of
action because, the Hold Out Order was validly issued
to compel them to reimburse Liu Chiu Fang.
c. Pending this Civil Case, the criminal case of estafa was
subsequently filed.
5. RTC held Metrobank liable for the breach of contract on
the ground
a. That it is the duty of Metrobank to release the deposit
upon demand by the creditor/depositor
6. CA affirmed the ruling of RTC.
7. Hence, this petition.
ARGUMENTS:
1. Metrobank
a. That Courts should have applied the “Hold Out” clause
stipulated in the Application and Agreement for
Deposit Account which applies to all kinds of
obligation.
b. That Hold Out Order is justified because the fraud
committed by Rosales was clearly established by
evidence.
c. Denies that its employees were negligent in releasing
the dollars because of the deception employed by
Rosales. (Ignored by SC)
2. Rosales and her Mom
a. that there is no legal basis for petitioner to withhold
their deposits because they have no monetary
obligation to petitioner. They insist that petitioner
miserably failed to prove its accusations against
respondent Rosales.
b. that what was established during the trial was the
negligence of petitioner’s employees as they allowed
the withdrawal of the funds without properly verifying
the identity of the depositor. (Ignored by SC)
c. that their deposits are in the nature of a loan;
thus, petitioner had the obligation to return the
deposits to them upon demand. Failing to do so
makes petitioner liable to pay respondents moral
and exemplary damages, as well as attorney’s
fees.
ISSUES: WON the Bank breached its contract with respondents
(when it did not release the deposits upon their demand). YES,
mutuum yun eh kaya must be released upon demand, and Hold
Out is valid sana if criminally liable si Rosales.
RULING:
Bank deposits, which are in the nature of a simple loan
or mutuum, must be paid upon demand by the depositor.
(MAIN DOCTRINE)
I. THE “HOLD OUT” CLAUSE DOES NOT APPLY TO THE
INSTANT CASE.
TO EFFECT THE HOLD OUT CLAUSE, A SOURCE OF
OBLIGATION MUST FIRST BE EXISTING. THERE IS NO
SOURCE OF OBLIGATION YET IN THIS CASE BECAUSE
THE CRIMINAL CASE IS NOT YET ADJUDICATED. The
“Hold Out” clause applies only if there is a valid and existing
obligation arising from any of the sources of obligation
enumerated in Article 1157[79] of the Civil Code, to wit: law,
contracts, quasi-contracts, delict, and quasi-delict. In this case,
petitioner failed to show that respondents have an obligation to
it under any law, contract, quasi-contract, delict, or quasi-
delict. And although a criminal case was filed by petitioner
against respondent Rosales, this is not enough reason for
petitioner to issue a “Hold Out” order as the case is still
pending and no final judgment of conviction has been rendered
against respondent Rosales. In fact, it is significant to note that
at the time petitioner issued the “Hold Out” order, the criminal
complaint had not yet been filed. Thus, considering that
respondent Rosales is not liable under any of the five sources
of obligation, there was no legal basis for petitioner to issue the
“Hold Out” order. Accordingly, we agree with the findings of the
RTC and the CA that the “Hold Out” clause does not apply in
the instant case.
In view of the foregoing, we find that petitioner is
guilty of breach of contract when it unjustifiably refused to
release respondents’ deposit despite demand. Having breached
its contract with respondents, petitioner is liable for damages.
II. RESPONDENTS ARE ENTITLED TO MORAL AND
EXEMPLARY DAMAGES AND ATTORNEY’S FEES.
RULE: AWARDED ONLY IN CASE OF BAD FAITH.
In cases of breach of contract, moral damages may be
recovered only if the defendant acted fraudulently or in bad
faith, or is “guilty of gross negligence amounting to bad faith,
or in wanton disregard of his contractual obligations.”
METROBANK COMMITTED BAD FAITH. In this case,
a review of the circumstances surrounding the issuance of the
“Hold Out” order reveals that petitioner issued the “Hold Out”
order in bad faith. First of all, the order was issued without any
legal basis. Second, petitioner did not inform respondents of
the reason for the “Hold Out.” Third, the order was issued prior
to the filing of the criminal complaint. Records show that the
“Hold Out” order was issued on July 31, 2003, while the
criminal complaint was filed only on September 3, 2003. All
these taken together lead us to con lude that petitioner acted in
bad faith when it breached its contract with respondents. As we
see it then, respondents are entitled to moral damages.
in this case, we find that petitioner indeed acted in a
wanton, fraudulent, reckless, oppressive or malevolent manner
when it refused to release the deposits of respondents without
any legal basis. We need not belabor the fact that the banking
industry is impressed with public interest. As such, “the highest
degree of diligence is expected, and high standards of integrity
and performance are even required of it.” It must therefore
“treat the accounts of its depositors with meticulous care and
always to have in mind the fiduciary nature of its relationship
with them.” For failing to do this, an award of exemplary
damages is justified to set an example.
15) PNB V SANTOS, 2014
NATURE OF BANK DEPOSTIS: The contractual relationship
between banks and their depositors is governed by the Civil
Code provisions on simple loan. Once a person makes a deposit
of his or her money to the bank, he or she is considered to
have lent the bank that money. The bank becomes his or her
debtor, and he or she becomes the creditor of the bank, which
is obligated to pay him or her on demand. The default standard
of diligence in the performance of obligations is “diligence of a
good father of a family.”
If a bank has knowledge of the death of a person
who maintained a bank deposit account alone, or jointly
with another, it shall not allow any withdrawal from the
said deposit account, unless the Commissioner has
certified that the taxes imposed thereon by this Title
have been paid.
BANK: Philippine National Bank (PNB)-Sta. Elena-Marikina City
Branch
DEPOSITOR: Angel C. Santos (time deposit converted into a
premium savings account)
FACTS:
1. Respondents discovered that their father maintained a
premium savings account and also had a time deposit with
Philippine National Bank (PNB)-Sta. Elena-Marikina City
Branch.
2. When respondents had already obtained the necessary
documents, they tried to withdraw their father’s deposit.
a. (1) original or certified true copy of the Death
Certificate of Angel C. Santos; (2) certificate of
payment of, or exemption from, estate tax
issued by the BIR; (3) Deed of Extrajudicial
Settlement; (4) Publisher’s Affidavit of publication
of the Deed of Extrajudicial Settlement; and (5)
Surety bond effective for two (2) years and in an
amount equal to the balance of the deposit to be
withdrawn.
3. However, Aguilar, the Branch Manager, informed them that
the deposit had already “been released to a certain
Bernardito Manimbo
a. An amount of P1,882,002.05 was released upon
presentation of: (a) an affidavit of self adjudication
purportedly executed by one of the respondents,
Reyme L. Santos; (b) a certificate of time deposit
dated December 14, 1989 amounting to
P1,000,000.00; and (c) the death certificate of
Angel C. Santos. A special power of attorney was
purportedly executed by Reyme L. Santos in favor
of Manimbo and a certain Angel P. Santos for
purposes of withdrawing and receiving the
proceeds of the certificate of time deposit.
4. Respondents filed before the RTC a complaint for sum of
money and damages against PNB, Lina B. Aguilar, and a
John Doe.
a. They questioned the release of the deposit amount
to Manimbo who had no authority from them to
withdraw their father’s deposit and who failed to
present to PNB all the requirements for such
withdrawal.
5. PNB and Aguilar denied that Angel C. Santos had two
separate accounts (premium deposit account and time
deposit account) with PNB.
a. Angel C. Santos’ deposit account was originally a
time deposit account that was subsequently
converted into a premium savings account.
b. Aguilar did not know about Angel C. Santos’ death
in 1991 because she only assumed office in 1996.
c. Manimbo was able to submit:
 an affidavit of self-adjudication
 required surety bond
 certificate of payment of estate tax dated
March 31, 1997
(All documents he submitted appeared to
be regular)
6. PNB and Aguilar filed a third-party complaint against
Manimbo, Angel P. Santos, and Capital Insurance and
Surety Co., Inc.
7. Capital Insurance and Surety Co., Inc. alleged that its
undertaking was to pay claims only when persons who were
unduly deprived of their lawful participation in the estate
filed an action in court for their claims. It did not undertake
to pay claims resulting from PNB’s negligence.
8. RTC’s DECISION
a. PNB and Aguilar were jointly and severally liable to pay
respondents
 they were both negligent in releasing the deposit to
Manimbo.
 PNB failed to notify the depositor about the maturity
of the time deposit and the conversion of the time
deposit into a premium savings account.
 PNB failed to cancel the certificate of time deposit
despite conversion.
 PNB and Aguilar also failed to require the production
of birth certificates to prove claimants’ relationship
to the depositor. (They relied on the affidavit of
self-adjudication when several persons claiming to
be heirs had already approached them previously)
b. Manimbo, Angel P. Santos, and Capital Insurance and
Surety Co., Inc. were held jointly and severally liable to
pay PNB
c. The trial court found that Angel C. Santos had only one
account with PNB. (A time deposit converted into a
premium savings account when it was not renewed on
maturity).
9. Aguilar’s contention: she was not negligent as she merely
implemented PNB’s Legal Department’s directive to release
the deposit to Manimbo
PNB’s Contention: The release of the deposit to Manimbo
was pursuant to an existing policy. Moreover, the
documents submitted by Manimbo were more substantial
than those submitted by respondents. Respondents could
have avoided the incident “had they accomplished the
required documents immediately.”
Respondents: The acceptance of invalid and incomplete
documents to support the deposit’s release to Manimbo was
a violation of the bank’s fiduciary duty to its clients.
10. CA AFFIRMED
ISSUE:
Whether Philippine National Bank and Lina B. Aguilar were
negligent in releasing the deposit to Bernardito Manimbo? Yes,
they failed to exercise the diligence required of banks
when they accepted the fraudulent representations of
Manimbo.
RULING:
I. Whether Philippine National Bank and Lina
B. Aguilar were negligent in releasing the
deposit to Bernardito Manimbo
The contractual relationship between banks and their
depositors is governed by the Civil Code provisions on simple
loan. Once a person makes a deposit of his or her money to the
bank, he or she is considered to have lent the bank that
money. The bank becomes his or her debtor, and he or she
becomes the creditor of the bank, which is obligated to pay him
or her on demand. The default standard of diligence in the
performance of obligations is “diligence of a good father of a
family.”
Banking is a business that is impressed with public
interest. It affects economies and plays a significant role in
businesses and commerce. The public reposes its faith and
confidence upon banks, such that “even the humble wage-
earner has not hesitated to entrust his life’s savings to the bank
of his choice, knowing that they will be safe in its custody and
will even earn some interest for him.” This is why we have
recognized the fiduciary nature of the banks’ functions, and
attached a special standard of diligence for the exercise of their
functions.
The point is that as a business affected with public
interest and because of the nature of its functions, the bank is
under obligation to treat the accounts of its
depositors with  meticulous care, always having in mind the
fiduciary nature of their relationship. The fiduciary nature of
banking is affirmed in Republic Act No. 8791 or The General
Banking Law
This fiduciary relationship means that the banks
obligation to observe “high standards of integrity and
performance” is deemed written into every deposit agreement
between a bank and its depositor. The fiduciary nature of
banking requires banks to assume a degree of diligence higher
than that of a good father of a family. Article 1172 of the Civil
Code states that the degree of diligence required of an obligor
is that prescribed by law or contract, and absent such
stipulation then the diligence a good father of a family.
Petitioners PNB and Aguilar’s treatment of Angel C.
Santos’ account is inconsistent with the high standard of
diligence required of banks. They accepted Manimbo’s
representations despite knowledge of the existence of
circumstances that should have raised doubts on such
representations. As a result, Angel C. Santos’ deposit was
given to a person stranger to him.
Petitioners PNB and Aguilar disregarded their own
requirements for the release of the deposit to persons claiming
to be heirs of a deceased depositor. When respondents asked
for the release of Angel C. Santos’ deposit, they were required
to present the following: “(1) original or certified true copy of
the Death Certificate of Angel C. Santos; (2) certificate of
payment of, or exemption from, estate tax issued by the BIR;
(3) Deed of Extrajudicial Settlement; (4) Publisher’s Affidavit of
publication of the Deed of Extrajudicial Settlement; and (5)
Surety bond effective for two (2) years and in an amount equal
to the balance of the deposit to be withdrawn.”
Petitioners PNB and Aguilar, however, accepted Manimbo’s
representations, and they released Angel C. Santos’ deposit
based on only the following documents:
1. Death certificate of Angel C. Santos;
2. Birth certificate of Reyme L. Santos;
3. Affidavit of self-adjudication of Reyme L. Santos;
4. Affidavit of publication;
5. Special power of attorney that Reyme L. Santos
executed in favor of Bernardito Manimbo and Angel P. Santos;
6. Personal items of Angel C. Santos, such as photocopies
or originals of passport, residence certificate for year 1990,
SSS I.D., etc.;
7. Surety good for two (2) years; and
8. Certificate of Time Deposit No. 341306.
Based on these enumerations, petitioners PNB and Aguilar
either have no fixed standards for the release of their deceased
clients’ deposits or they have standards that they disregard for
convenience, favor, or upon exercise of discretion. Both are
inconsistent with the required diligence of banks. These
threaten the safety of the depositors’ accounts as they provide
avenues for fraudulent practices by third persons or by bank
officers themselves.
In this case, petitioners PNB and Aguilar released
Angel C. Santos’ deposit to Manimbo without having
been presented the BIR-ISSUED CERTIFICATE OF
PAYMENT OF, OR EXCEPTION FROM, ESTATE TAX. This is
a legal requirement before the deposit of a decedent is
released. Presidential Decree No. 1158,the tax code applicable
when Angel C. Santos died in 1991, provides that if  a bank
has knowledge of the death of a person who maintained
a bank deposit account alone, or jointly with another, it
shall not allow any withdrawal from the said deposit
account, unless the Commissioner has certified that the
taxes imposed thereon by this Title have been paid.
Taxes are created primarily to generate revenues for the
maintenance of the government. However, this particular tax
may also serve as guard against the release of deposits to
persons who have no sufficient and valid claim over the
deposits. Based on the assumption that only those with
sufficient and valid claim to the deposit will pay the taxes for it,
requiring the certificate from the BIR increases the chance that
the deposit will be released only to them.
Petitioner PNB is a bank from which a degree of diligence
higher than that of a good father of a family is expected.
Petitioner PNB and its manager, petitioner Aguilar, failed to
meet even the standard of diligence of a good father of a
family. Their actions and inactions constitute gross negligence.
It is for this reason that we sustain the trial court’s and the
Court of Appeals’ rulings that petitioners PNB and Aguilar are
solidarily liable with each other.
II. Whether respondents were properly awarded
damages.
Moral Damages
The Supreme Court (SC) sustains the award of moral
damages. The bank’s negligence was the result of lack of due
care and caution required of managers and employees of a firm
engaged in so sensitive and demanding business as banking.
Petitioners PNB and Aguilar’s gross negligence deprived Angel
C. Santos’ heirs what is rightfully theirs. Respondents also
testified that they experienced anger and embarrassment when
petitioners PNB and Aguilar refused to release Angel C. Santos’
deposit.
Exemplary Damages
“The law allows the grant of exemplary damages by way
of example for the public good. The public relies on the banks’
sworn profession of diligence and meticulousness in giving
irreproachable service. The level of meticulousness must be
maintained at all times by the banking sector.”
Attorney’s Fees
Since exemplary damages are awarded and since
respondents were compelled to litigate to protect their
interests, the award of attorney’s fees is also proper.
Interest Rates
The Court of Appeals’ (CA’s) award of interest should be
modified to twelve percent (12%) from demand on April 25,
1998 until June 30, 2013, and six percent (6%) from July 1,
2013 until fully paid.
16) ALLIED BANK V LIM SIO WAN, 2008
NATURE OF BANK DEPOSTIS: Fundamental and familiar is
the doctrine that the relationship between a bank and a client is
one of debtor-creditor. Thus, we have ruled in a line of cases
that a bank deposit is in the nature of a simple loan or
mutuum. This Court ruled that a money market placement is a
simple loan or mutuum.
BANK: (1) Allied Bank (Money Market Placement), for
Depositor Lim Sio Wan; (2) Metrobank (Checking account) and
(3) Producers Bank (Money Market Placement) for Depositor
Filipinas Cement Corporation (FCC)
FACTS:
1. FCC had deposited a money market placement for 2m with
Producer’s Bank. Deborah Dee Santos, employee of
Producer’s Bank, was the money market trader assigned to
FCC.
2. Lim Sio Wan also had deposited a money market
placement for 1.1m with Allied Bank.
3. Lokohan na nangyari: (palagay ko si Santos ang forger,
baka dinukot ang pera ng FCC)
 a. After the maturity of the money market placement,
FCC demanded the payment of the 2m from Producer’s
Bank.
b. Then an impostor claiming to be Lim Sio Wan called
Cristina So, an officer of Allied, and instructed her to
pre-terminate Lim Sio Wan’s money market placement
in Allied Bank, to issue a manager’s check and give the
check to Santos.
c. The Allied bank issued the Manager’s Check in the
name of Lim Sio Wan as payee. The check was cross-
checked “For Payee’s Account Only” and given to
Santos.
d. Thereafter, the signature of Lim Sio Wan as indorser
was forged, and the check was deposited in the
account of FCC in Metrobank. The check was used
as Producer Bank’s payment of its obligation to
FCC.
e. To clear the check, Metrobank stamped a guaranty on
the check, which reads: “All prior endorsements
and/or lack of endorsement guaranteed.”
f. Then the check was sent to Allied Bank. Upon the
presentment of the check, Allied funded the check
even without checking the authenticity of Lim Sio
Wan’s purported indorsement. Thus, the amount on
the face of the check was credited to the account of
FCC.
4. When the true Lim Sio Wan wanted to withdraw her money
market placement, she was informed that the placement
had been pre-terminated.
a. She demanded payment from Allied Bank. But Allied
refused claiming that Lim Sio wan authorized the
pretermination and release to Santos.
b. Lim Sio Wan filed Complaint in RTC against Allied.
Metrobank, Santos, FCC and Producers Bank were
included in third party complaint.
c. 6 months after funding the check, Allied informed
Metrobank that the signature was forged.
5. RTC: ordered Allied Bank liable, while complaints against
Metrobank, FCC, Producer’s Bank were dismissed.
6. CA: modified RTC decision: Allied Bank liable for 60%,
Metrobank for 40%.
ISSUES: Who is liable for the loss of Lim Sio Wan’s Money
Market Placement deposited in Allied Bank?
Allied Bank: liable, because of the nature of deposit (mutuum)
Metrobank: liable, because it was the last indorser
FCC: not liable, because it has no participation in the forgery
Producer’s bank: liable to Allied and Metrobank, because of
Unjust enrichment
Santos: not liable, no longer connected with Producer’s bank
RULING:
I. ALLIED BANK IS LIABLE BECAUSE OF MUTUUM. (MAIN
DOCTRINE)
NATURE OF RELATIONSHIP BETWEEN BANK AND
CLIENT IS DR-CR. As to the liability of the parties, we find
that Allied is liable to Lim Sio Wan. Fundamental and
familiar is the doctrine that the relationship between a
bank and a client is one of debtor-creditor. Articles 1953
and 1980 of the Civil Code provide:
“Art. 1953. A person who receives a loan of
money or any other fungible thing acquires the
ownership thereof, and is bound to pay to the creditor
an equal amount of the same kind and quality.
Art. 1980. Fixed, savings, and current
deposits of money in banks and similar institutions
shall be governed by the provisions concerning simple
loan.”
MONEY MARKET PLACEMENT IS A MUTUUM. Thus,
we have ruled in a line of cases that a bank deposit is in
the nature of a simple loan or mutuum. More succinctly, in
Citibank, N.A. v. Sabeniano, this Court ruled that a money
market placement is a simple loan or mutuum. Further,
we defined a money market in Cebu International Finance
Corporation v. Court of Appeals, as follows:
“[A] money market is a market dealing in
standardized short-term credit instruments (involving
large amounts) where lenders and borrowers do not
deal directly with each other but through a middle
man or dealer in open market. In a money market
transaction, the investor is a lender who loans his
money to a borrower through a middleman or
dealer.In the case at bar, the money market
transaction between the petitioner and the private
respondent is in the nature of a loan.”
OBLIGATION OF THE BANK IS NOT YET
EXTINGUISHED BECAUSE LIM SIO WAN DID NOT
AUTHORIZE THE RELEASE OF HER MONEY MARKET
PLACEMENT. Lim Sio Wan, as creditor of the bank for her
money market placement, is entitled to payment upon her
request, or upon maturity of the placement, or until the bank is
released from its obligation as debtor. Until any such event, the
obligation of Allied to Lim Sio Wan remains unextinguished.
[NOTE: Obligation may be extinguished by payment of
performance (Art. 1231).] From the factual findings of the trial
and appellate courts that Lim Sio Wan did not authorize the
release of her money market placement to Santos and the bank
had been negligent in so doing, there is no question that the
obligation of Allied to pay Lim Sio Wan had not been
extinguished.
II. METROBANK IS LIABLE ASE LAST INDORSER OF
CHECK (under Negotiable Instruments)
The liability of Allied, however, is concurrent with that of
Metrobank as the last indorser of the check. When Metrobank
indorsed the check without verifying the authenticity of Lim Sio
Wan’s indorsement and when it accepted the check despite the
fact that it was cross-checked payable to payee’s account
only,56 its negligent and cavalier indorsement contributed to
the easier release of Lim Sio Wan’s money and perpetuation of
the fraud. Given the relative participation of Allied and
Metrobank to the instant case, both banks cannot be adjudged
as equally liable. Hence, the 60:40 ratio of the liabilities of
Allied and Metrobank, as ruled by the CA, must be upheld.
III. FCC IS NOT LIABLE (under Negotiable Instruments)
FCC, having no participation in the negotiation of the
check and in the forgery of Lim Sio Wan’s indorsement, can
raise the real defense of forgery as against both banks.
IV. PRODUCER’S BANK IS NOT LIABLE (under NCC
provisions in Tort), BUT IT IS LIABLE TO ALLIED AND
METROBANK (under A. 22 NCC, Unjust Enrichment).
As to Producers Bank, Allied Bank’s argument that
Producers Bank must be held liable as employer of Santos
under Art. 2180 of the Civil Code is erroneous. Art. 2180
pertains to the vicarious liability of an employer for quasi-
delicts that an employee has committed. Such provision of law
does not apply to civil liability arising from delict. And
subsidiary liability of Employer in A. 103 RPC requires final
conviction of the employee.
As to the claim that there was unjust enrichment on
the part of Producers Bank, the same is correct. Allied correctly
claims in its petition that Producers Bank should reimburse
Allied for whatever judgment that may be rendered against it
pursuant to Art. 22 of the Civil Code.
In the instant case, Lim Sio Wan’s money market
placement in Allied Bank was pre-terminated and withdrawn
without her consent. Moreover, the proceeds of the placement
were deposited in Producers Bank’s account in Metrobank
without any justification. In other words, there is no reason
that the proceeds of Lim Sio Wans’ placement should be
deposited in FCC’s account purportedly as payment for FCC’s
money market placement and interest in Producers Bank. With
such payment, Producers Bank’s indebtedness to FCC was
extinguished, thereby benefitting the former. Clearly, Producers
Bank was unjustly enriched at the expense of Lim Sio Wan.
Based on the facts and circumstances of the case, Producers
Bank should reimburse Allied and Metrobank for the amounts
the two latter banks are ordered to pay Lim Sio Wan.
17) ASSOCIATED BANK V TAN, 2004
NATURE OF BANK DEPOSTIS: A bank generally has a right
of setoff over the deposits therein for the payment of any
withdrawals on the part of a depositor. The right of a collecting
bank to debit a client’s account for the value of a dishonored
check that has previously been credited has fairly been
established by jurisprudence. To begin with, Article 1980 of the
Civil Code provides that “[f]ixed, savings, and current deposits
of money in banks and similar institutions shall be governed by
the provisions concerning simple loan.”
While banks are granted by law the right to debit the
value of a dishonored check from a depositor’s account,
they must do so with the highest degree of care, so as
not to prejudice the depositor unduly.
BANK: Associated Bank (now Westmont)
DEPOSITOR: Vicente Henry Tan
FACTS:
1. Tan deposited a postdated UCPB check with Associated
Bank in the amount of P101,000.00 issued to him by a
certain Willy Cheng from Tarlac.  Also affirming this long standing doctrine, Philippine
2. The check was duly entered in his bank record thereby
making his balance in the amount of P297,000.00
(original deposit P196,000.00)
3. Upon advice and instruction of the BANK that the
P101,000.00 check was already cleared and backed up by
sufficient funds, TAN, on the same date, withdrew the
sum of P240,000.00
4. A day after, TAN deposited the amount of P50,000.00
making his existing balance in the amount of
P107,793.45, because he has issued several checks to his
business partners
5. However, his suppliers and business partners went back to
him alleging that the checks he issued bounced for
insufficiency of funds.
6. TAN, thru his lawyer, informed the BANK to take positive
steps regarding the matter for he has adequate and
sufficient funds to pay the amount of the subject checks.
7. Nonetheless, the BANK did not bother nor offer any
apology regarding the incident.
8. TAN filed a Complaint for Damages with the RTC
9. BANK alleged that  it was within its rights, as collecting
bank, to debit the account of its client for a dishonored
check; and it had informed respondent about the dishonor
prior to debiting his account.
10. RTC: ruled in favor of respondent Tan
11. CA: affirmed the RTC decision
ISSUES:
whether petitioner properly exercised its right of setoff. NO,
petitioner allowed the withdrawal of the face value of the
deposited check prior to its clearing.
RULING:
Right of Setoff
A bank generally has a right of setoff over the deposits
therein for the payment of any withdrawals on the part of a
depositor. The right of a collecting bank to debit a client’s
account for the value of a dishonored check that has previously
been credited has fairly been established by jurisprudence. To
begin with, Article 1980 of the Civil Code provides that “[f]ixed,
savings, and current deposits of money in banks and similar
institutions shall be governed by the provisions concerning
simple loan.”
The relationship between banks and depositors has
been held to be that of creditor and debtor. Thus, legal
compensation under Article 1278 of the Civil Code may take
place “when all the requisites mentioned in Article 1279 are
present,” as follows: “(1) That each one of the obligors be
bound principally, and that he be at the same time a principal
creditor of the other; (2) That both debts consist in a sum of
money, or if the things due are consumable, they be of the
same kind, and also of the same quality if the latter has been
stated; (3) That the two debts be due; (4) That they be
liquidated and demandable; (5) That over neither of them there
be any retention or controversy, commenced by third persons
and communicated in due time to the debtor.”
The liability of petitioner in this case ultimately
revolves around the issue of whether it properly exercised its
right of setoff. The determination thereof hinges, in turn, on
the bank’s role and obligations, first, as respondent’s
depositary bank; and second, as collecting agent for the check
in question.
Obligation as Depositary Bank
In BPI v. Casa Montessori, the Court has emphasized
that the banking business is impressed with public interest.
“Consequently, the highest degree of diligence is expected, and
high standards of integrity and performance are even required
of it. By the nature of its functions, a bank is under obligation
to treat the accounts of its depositors with meticulous care.”
Bank of Commerce v. Court of Appeals has held that “the
degree of diligence required of banks is more than that of a
good father of a family where the fiduciary nature of their
relationship with their depositors is concerned.” Indeed, the
banking business is vested with the trust and confidence of the
public; hence the “appropriate standard of diligence must be
very high, if not the highest, degree of diligence.” The standard
applies, regardless of whether the account consists of only a
few hundred pesos or of millions.
In the case, petitioner did not exercise highest degree
of care. Petitioner allowed the withdrawal of the face value of
the deposited check prior to its clearing. That act certainly
disregarded the clearance requirement of the banking system.
Such a practice is unusual, because a check is not legal
tender or money; and its value can properly be
transferred to a depositor’s account only after the check
has been cleared by the drawee bank.
Under ordinary banking practice, after receiving a
check deposit, a bank either immediately credit the amount to
a depositor’s account; or infuse value to that account only after
the drawee bank shall have paid such amount. Before the
check shall have been cleared for deposit, the collecting bank
can only “assume” at its own risk—as herein petitioner did—
that the check would be cleared and paid out.
Reasonable business practice and prudence,
moreover, dictated that petitioner should not have authorized
the withdrawal by respondent of P240,000 on October 1, 1990,
as this amount was over and above his outstanding cleared
balance of P196,793.45. Hence, the lower courts correctly
appreciated the evidence in his favor.
Obligation as Collecting Agent
Indeed, the bank deposit slip expressed this
reservation:
“In receiving items on deposit, this Bank obligates itself only as
the Depositor’s Collecting agent, assuming no responsibility
beyond carefulness in selecting correspondents, and until such
time as actual payments shall have come to its possession, this
Bank reserves the right to charge back to the Depositor’s
account any amounts previously credited whether or not the
deposited item is returned. x x x.”
However, this reservation is not enough to insulate the
bank from any liability. In the past, we have expressed doubt
about the binding force of such conditions unilaterally
imposed by a bank without the consent of the depositor.
It is indeed arguable that “in signing the deposit slip, the
depositor does so only to identify himself and not to agree to
the conditions set forth at the back of the deposit slip.”
Further, by the express terms of the stipulation,
petitioner took upon itself certain obligations as respondent’s
agent, consonant with the well-settled rule that the relationship
between the payee or holder of a commercial paper and the
collecting bank is that of principal and agent. Under Article
1909 of the Civil Code, such bank could be held liable not only
for fraud, but also for negligence.
As a general rule, a bank is liable for the wrongful or
tortuous acts and declarations of its officers or agents within
the course and scope of their employment. Due to the very
nature of their business, banks are expected to exercise the
highest degree of diligence in the selection and supervision of
their employees. Jurisprudence has established that the lack of
diligence of a servant is imputed to the negligence of the
employer, when the negligent or wrongful act of the former
proximately results in an injury to a third person; in this case,
the depositor.
Aggravating matters, petitioner failed to show that it
had immediately and duly informed respondent of the debiting
of his account.  Section 28. Equity Investments in Quasi-Banks. - To
First, by the bank manager’s account, respondent was
considered a “valued client” whose checks had always been
sufficiently funded from 1987 to 1990, until the October
imbroglio. Thus, he deserved nothing less than an official notice
of the precarious condition of his account.
Second, under the provisions of the Negotiable Instruments
Law regarding the liability of a general indorser and the
procedure for a notice of dishonor, it was incumbent on the
bank to give proper notice to respondent.
Third, regarding the deposit of P50,000 made by
respondent on October 2, 1990, we fully subscribe to the CA’s
observations that it was not unusual for a well-reputed
businessman like him, who “ordinarily takes note of the amount
of money he takes and releases,” to immediately deposit
money in his current account to answer for the postdated
checks he had issued.
Section 23. Powers of a Universal Bank - A universal bank
shall have the authority to exercise, in addition to the powers
authorized for a commercial bank in Section 29, the powers of
an investment house as provided in existing laws and the
power to invest in non-allied enterprises as provided in this Act.
(21-B)
Section 24. Equity Investments of a Universal Bank. - A
universal bank may, subject to the conditions stated in the
succeeding paragraph, invest in the equities of allied and non-
allied enterprises as may be determined by the Monetary
Board. Allied enterprises may either be financial or non-
financial. Except as the Monetary Board may otherwise
prescribe:
24.1. The total investment in equities of allied and non-allied
enterprises shall not exceed fifty percent (50%) of the net
worth of the bank; and
24.2. The equity investment in any one enterprise, whether
allied or non-allied, shall not exceed twenty-five percent (25%)
of the net worth of the bank.
As used in this Act, "net worth" shall mean the total of the
unimpaired paid-in capital including paid-in surplus, retained
earnings and undivided profit, net of valuation reserves and
other adjustments as may be required by the Bangko Sentral.
The acquisition of such equity or equities is subject to the prior
approval of the Monetary Board which shall promulgate
appropriate guidelines to govern such investments. (21-Ba)
Section 25. Equity Investments of a Universal Bank in
Financial Allied Enterprises. - A universal bank can own up
to one hundred percent (100%) of the equity in a thrift bank, a
rural bank or a financial allied enterprise. A publicly-listed
universal or commercial bank may own up to one hundred
percent (100%) of the voting stock of only one other universal
or commercial bank. (21-B; 21-Ca)
Section 26. Equity Investments of a Universal Bank in
Non-Financial Allied Enterprises. - A universal bank may
own up to one hundred percent (100%) of the equity in a non-
financial allied enterprise. (21-Ba)
Section 27. Equity Investments of a Universal Bank in
Non-Allied Enterprises. - The equity investment of a
universal bank, or of its wholly or majority-owned subsidiaries,
in a single non-allied enterprise shall not exceed thirty-five
percent (35%) of the total equity in that enterprise nor shall it
exceed thirty-five percent (35%) of the voting stock in that
enterprise. (21-B)
promote competitive conditions in financial markets, the
Monetary Board may further limit to forty percent (40%) equity
investments of universal banks in quasi-banks. This rule shall
also apply in the case of commercial banks. (12-E) Article II.
Operations Of Commercial Banks
Section 29. Powers of a Commercial Bank. - A commercial
bank shall have, in addition to the general powers incident to
corporations, all such powers as may be necessary to carry on
the business of commercial banking such as accepting drafts
and issuing letters of credit; discounting and negotiating
promissory notes, drafts, bills of exchange, and other
evidences of debt; accepting or creating demand deposits;
receiving other types of deposits and deposit substitutes;
buying and selling foreign exchange and gold or silver bullion;
acquiring marketable bonds and other debt securities; and
extending credit, subject to such rules as the Monetary Board
may promulgate. These rules may include the determination of
bonds and other debt securities eligible for investment, the
maturities and aggregate amount of such investment.
Section 30. Equity Investments of a Commercial Bank. -
A commercial bank may, subject to the conditions stated in the
succeeding paragraphs, invest only in the equities of allied
enterprises as may be determined by the Monetary Board.
Allied enterprises may either be financial or non-financial.
Except as the Monetary Board may otherwise prescribe:
30.1. The total investment in equities of allied enterprises shall
not exceed thirty-five percent (35%) of the net worth of the
bark; and
30.2. The equity investment in any one enterprise shall not
exceed twenty-five percent (25%) of tile net worth of the bank.
The acquisition of such equity or equities is subject to the prior
approval of the Monetary Board which shall promulgate
appropriate guidelines to govern such investment.(2lA-a; 21-
Ca)
Section 31. Equity Investments of a Commercial Bank in
Financial Allied Enterprises. - A commercial bank may own
up to one hundred percent (100%) of the equity of a thrift
bank or a rural bank. Where the equity investment of a
commercial bank is in other financial allied enterprises,
including another commercial bank, such investment shall
remain a minority holding in that enterprise. (21-Aa; 21-Ca)
Section 32. Equity Investments of a Commercial Bank in
Non-Financial Allied Enterprises. A commercial bank may
own up to one hundred percent (100%) of the equity in a non-
financial allied enterprise. (21-Aa) Article III. Provisions
Applicable To All Banks, Quasi-Banks, And Trust Entities
Section 33. Acceptance of Demand Deposits. - A bank
other than a universal or commercial bank cannot accept or
create demand deposits except upon prior approval of, and
subject to such conditions and rules as may be prescribed by
the Monetary Board. (72-Aa)
Section 35. Limit on Loans, Credit Accommodations and
Guarantees
35.1 Except as the Monetary Board may otherwise prescribe for
reasons of national interest, the total amount of loans, credit
accommodations and guarantees as may be defined by the
Monetary Board that may be extended by a bank to any
person, partnership, association, corporation or other entity
shall at no time exceed twenty percent (20%) of the net worth
of such bank. The basis for determining compliance with single
borrower limit is the total credit commitment of the bank to the
borrower.
35.2. Unless the Monetary Board prescribes otherwise, the total
amount of loans, credit accommodations and guarantees
prescribed in the preceding paragraph may be increased by an
additional ten percent (10%) of the net worth of such bank
provided the additional liabilities of any borrower are
adequately secured by trust receipts, shipping documents,
warehouse receipts or other similar documents transferring or
securing title covering readily marketable, non-perishable
goods which must be fully covered by insurance.
35.3 The above prescribed ceilings shall include (a) the direct
liability of the maker or acceptor of paper discounted with or
sold to such bank and the liability of a general endorser, drawer
or guarantor who obtains a loan or other credit accommodation
from or discounts paper with or sells papers to such bank; (b)
in the case of an individual who owns or controls a majority
interest in a corporation, partnership, association or any other
entity, the liabilities of said entities to such bank; (c) in the
case of a corporation, all liabilities to such bank of all
subsidiaries in which such corporation owns or controls a
majority interest; and (d) in the case of a partnership,
association or other entity, the liabilities of the members
thereof to such bank.
35.4. Even if a parent corporation, partnership, association,
entity or an individual who owns or controls a majority interest
in such entities has no liability to the bank, the Monetary Board
may prescribe the combination of the liabilities of subsidiary
corporations or members of the partnership, association, entity
or such individual under certain circumstances, including but
not limited to any of the following situations: (a) the parent
corporation, partnership, association, entity or individual
guarantees the repayment of the liabilities; (b) the liabilities
were incurred for the accommodation of the parent corporation
or another subsidiary or of the partnership or association or
entity or such individual; or (c) the subsidiaries though
separate entities operate merely as departments or divisions of
a single entity.
35.5. For purposes of this Section, loans, other credit
accommodations and guarantees shall exclude: (a) loans and
other credit accommodations secured by obligations of the
Bangko Sentral or of the Philippine Government: (b) loans and
other credit accommodations fully guaranteed by the
government as to the payment of principal and interest; (c)
loans and other credit accommodations covered by assignment
of deposits maintained in the lending bank and held in the
Philippines; (d) loans, credit accommodations and acceptances
under letters of credit to the extent covered by margin
deposits; and (e) other loans or credit accommodations which
the Monetary Board may from time to time, specify as non-risk
items.
35.6. Loans and other credit accommodations, deposits
maintained with, and usual guarantees by a bank to any other
bank or non-bank entity, whether locally or abroad, shall be
subject to the limits as herein prescribed.
35.7. Certain types of contingent accounts of borrowers may be
included among those subject to these prescribed limits as may
be determined by the Monetary Board.(23a)
Section 36. Restriction on Bank Exposure to Directors,
Officers, Stockholders and Their Related Interests. - No
director or officer of any bank shall, directly or indirectly, for
himself or as the representative or agent of others, borrow
from such bank nor shall he become a guarantor, endorser or
surety for loans from such bank to others, or in any manner be
an obligor or incur any contractual liability to the bank except
with the written approval of the majority of all the directors of
the bank, excluding the director concerned: Provided, That
such written approval shall not be required for loans, other
credit accommodations and advances granted to officers under
a fringe benefit plan approved by the Bangko Sentral. The
required approval shall be entered upon the records of the bank
and a copy of such entry shall be transmitted forthwith to the
appropriate supervising and examining department of the
Bangko Sentral. Dealings of a bank with any of its directors,
officers or stockholders and their related interests shall be upon
terms not less favorable to the bank than those offered to
others. After due notice to the board of directors of the bank,
the office of any bank director or officer who violates the
provisions of this Section may be declared vacant and the
director or officer shall be subject to the penal provisions of the
New Central Bank Act. 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. However, the outstanding loans, credit
accommodations and guarantees which a bank may extend to
each of its stockholders, directors, or officers and their related
interests, shall be limited to an amount equivalent to their
respective unencumbered deposits and book value of their
paid-in capital contribution in the bank: Provided, however,
That loans, credit accommodations and guarantees secured by
assets considered as non-risk by the Monetary Board shall be
excluded from such limit: Provided, further, That loans, credit
accommodations and advances to officers in the form of fringe
benefits granted in accordance with rules as may be prescribed
by the Monetary Board shall not be subject to the individual
limit. The Monetary Board shall define the term "related
interests." The limit on loans, credit accommodations and
guarantees prescribed herein shall not apply to loans, credit
accommodations and guarantees extended by a cooperative
bank to its cooperative shareholders. (83a)
18) GO V BSP, 2009
SC RULING OVER DOSRI: Banks were not created for the
benefit of their directors and officers; they cannot use the
assets of the bank for their own benefit, except as may be
permitted by law. Congress has thus deemed it essential to
impose restrictions on borrowings by bank directors and
officers in order to protect the public, especially the depositors.
Hence, when the law prohibits directors and officers of banking
institutions from becoming in any manner an obligor of the
bank (unless with the approval of the board).
BANK: Orient Commercial Banking Corporation
DOSRI: Jose C. Go the Director, President, CEO
FACTS:
1. Go was accused for violating S. 83 of RA 337 amended by
PD 1795.
a. It was alleged that he functioned indirectly as (1)
borrower “AND/OR” (2) guarantor for loans from
the deposits of Orient Bank to facilitate the credit lines
to the New Zealand Accounts loans in the amount of
2.7B pesos without written approval of majority of the
Board of Directors of Orient Bank.
b. He pleaded not guilty and filed a motion to quash the
Information. He claimed that the facts charged do not
constitute an offense under S.83 which says,
“No director or officer of any banking
institution shall either directly or indirectly, for
himself or as the representative or agent of another,
borrow any of the deposits of funds of such banks,
nor shall he become a guarantor, indorser, or surety
for loans from such bank, to others, or in any
manner be an obligor for money borrowed from the
bank or loaned by it, except with the written
approval of the majority of the directors of the bank,
excluding the director concerned…”
c. Go claimed that the Information is a shotgun
approach. That the use of “and/or” meant he was
charged for being either (1) a borrower or (2) a
guarantor, or (3) for being both borrower or
guarantor. That this charge is vague. That S.83
penalizes only DOSRI who acted either as borrower or
as guarantor, but not as both.
2. RTC granted the motion to quash. RTC denied MR of the
prosecution.
3. CA annulled RTC decision ruling that RTC misread the law.
That the allegation that Go acted either as a borrower or a
guarantor or as both borrower and guarantor merely set
forth the different modes by which the offense was
committed. It did not necessarily mean that Go acted both
as borrower and guarantor for the same loan at the same
time.
4. Hence, this present appeal.
ARGUMENTS of GO:
1. The shotgun approach of the Information violates his
constitutional right to be informed of the nature and cause
of the accusation against him.
2. That S. 83 penalizes DOSRI for either borrowing or
guaranteeing but not for both.
3. That credit accommodations by banks to its DOSRI are
valid, provided the same are limited to their outstanding
deposits. And the prosecution failed to state that he
borrowed or guaranteed beyond this limit.
ISSUES: WON the information is defective? NO
RULING: SC ordered RTC to proceed the hearing of the
criminal case.
I. THE ACCUSED’S RIGHT TO BE INFORMED.
To comply with the constitutional right to be informed,
the rule is that an Information only needs to state the ultimate
facts constituting the offense, not the finer details of why and
how the illegal acts alleged amounted to undue injury or
damage. The Information must allege clearly and accurately
the elements of the crime charged.
II. ELEMENTS OF VIOLATION OF SECTION 83 OF RA 337
Elements of par. 1 S.83 RA 337:
1. the offender is a director or officer of any banking
institution;
2. the offender, either directly or indirectly, for himself or
as representative or agent of another, performs any of
the following acts:
a. he borrows any of the deposits or funds of such
bank; or (1ST MODE)
b. he becomes a guarantor, indorser, or surety for
loans from such bank to others, or (2ND MODE)
c. he becomes in any manner an obligor for
money borrowed from bank or loaned by it; (3RD
MODE)
3. the offender has performed any of such acts without
the written approval of the majority of the directors of
the bank, excluding the offender, as the director
concerned.
S. 83 PENALIZES DOSRI IN SIMPLY BECOMING
AN OBLIGOR OF THE BANK. A simple reading of the above
elements easily rejects Go’s contention that the law penalizes a
bank director or officer only either for borrowing the bank’s
deposits or funds or for guarantying loans by the bank, but not
for acting in both capacities. The essence of the crime is
becoming an obligor of the bank without securing the
necessary written approval of the majority of the bank’s
directors.
THE 3RD MODE OF COMMITTING THE OFFENSE
IS A CATCH-ALL PROVISION THAT PENSALIZES DOSRI IF
IT BECOMES AN OBLIGOR OF THE BANK. HENCE, PASOK
DITO SI GO. The second element merely lists down the
various modes of committing the offense. The third mode, by
declaring that “[no director or officer of any banking institution
shall xxx] in any manner be an obligor for money borrowed
from the bank or loaned by it,” in fact serves a catch-all phrase
that covers any situation when a director or officer of the bank
becomes its obligor. The prohibition is directed against a
bank director or officer who becomes in any manner an
obligor for money borrowed from or loaned by the bank
without the written approval of the majority of the
bank’s board of directors. To make a distinction between the
act of borrowing and guarantying is therefore unnecessary
because in either situation, the director or officer concerned
becomes an obligor of the bank against whom the obligation is
juridically demandable.
MAIN DOCTRINE: WHY THE LAW PENALIZES
DOSRI? BECAUSE BANKS WERE NOT CREATED FOR
THEIR BENEFIT AND IN ORDER TO PROTECT THE
PUBLIC, ESPECIALLY THE DEPOSITORS. The language of
the law is broad enough to encompass either act of borrowing
or guaranteeing, or both. While the first paragraph of Section
83 is penal in nature, and by principle should be strictly
construed in favor of the accused, the Court is unwilling to
adopt a liberal construction that would defeat the legislature’s
intent in enacting the statute. The objective of the law should
allow for a reasonable flexibility in its construction. Section 83
of RA 337, as well as other banking laws adopting the same
prohibition, was enacted to ensure that loans by banks and
similar financial institutions to their own directors, officers, and
stockholders are above board. Banks were not created for
the benefit of their directors and officers; they cannot
use the assets of the bank for their own benefit, except
as may be permitted by law. Congress has thus deemed
it essential to impose restrictions on borrowings by bank
directors and officers in order to protect the public,
especially the depositors. Hence, when the law prohibits
directors and officers of banking institutions from
becoming in any manner an obligor of the bank (unless
with the approval of the board), the terms of the
prohibition shall be the standards to be applied to
directors’ transactions such as those involved in the
present case.
III. CREDIT ACCOMMODATION LIMIT IS NOT AN
EXCEPTION NOR IS IT AN ELEMENT OF THE OFFENSE
Contrary to Go’s claims, the second paragraph of
Section 83, RA 337 does not provide for an exception to a
violation of the first paragraph thereof, nor does it constitute as
an element of the offense charged. Section 83 of RA 337
actually imposes three restrictions: approval, reportorial, and
ceiling requirements. (Basahin mo sa case kung interested ka)
Pinaiksi ko:
 1. Approval Requirement – DOSRI must secure written
approval by the majority of the bank’s board of
directors before a DOSRI can become a Bank’s obligor
2. Reportorial Requirement – bank must record the
transaction in the records of the corporation
3. Ceiling Requirement – bank may limit its credit
accommodations extended to its DOSRI.
IV. RULES OF COURT ALLOW AMENDMENT OF
INSUFFICIENT INFORMATION
19) SORIANO V PEOPLE
SC RULING OVER DOSRI: The prohibition in Section 83 is
broad enough to cover various modes of borrowing. It covers
loans by a bank director or officer (like herein petitioner) which
are made either: (1) directly, (2) indirectly, (3) for himself, (4)
or as the representative or agent of others. It applies even if
the director or officer is a mere guarantor, indorser or surety
for someone else’s loan or is in any manner an obligor for
money borrowed from the bank or loaned by it. The covered
transactions are prohibited unless
the approval, reportorial and ceiling requirements under
Section 83 are complied with.
BANK: Rural Bank of San Miguel
DOSRI: HILARIO P. SORIANO, President of the Rural Bank
of San Miguel (Bulacan), Inc. and ROSALINDA ILAGAN,
Branch Manager of the Rural Bank of San Miguel
FACTS:
1. The Office of Special Investigation (OSI) of the BSP
transmitted a letter  to  the  DOJ, which was attached  allegations in the assailed informations, when
with five affidavits, which would allegedly serve as bases
for filing criminal charges for Estafa thru Falsification of
Commercial Documents, in relation to PD No. 1689, and
for Violation of Section 83 of RA 337, as amended by PD
1795, against petitioner Hilario P. Soriano.
a. These affidavits stated that spouses Enrico and
Amalia Carlos appeared to have an outstanding loan
of P8 million with the Rural Bank of San Miguel, Inc.
(RBSM), but had never applied for nor received such
loan; that it was petitioner, who was then president
of RBSM who had ordered, facilitated, and received
the proceeds of the loan; and that the P8 million loan
had never been authorized by RBSM’s Board of
Directors and no report thereof had ever been
submitted to the Department of Rural Banks,
Supervision and Examination Sector of the BSP.
2. Two separate informations was filed against petitioner.
a. 1st: estafa through falsification of commercial
documents. Petitioner and his co-accused, in abuse of
the confidence reposed in them as RBSM officers,
caused the falsification of a number of loan
documents, making it appear that one Enrico Carlos
filled up the same, and thereby succeeded in securing
a loan and converting the loan proceeds for their
personal gain and benefit.
b. 2nd: violation of Section 83 of RA 337, as amended by
PD 1795. The said provision refers to the prohibition
against the so-called DOSRI loans. in his capacity as
President of RBSM, petitioner indirectly secured an P8
million loan with RBSM, for his personal use and
benefit, without the written consent and approval of
the bank’s Board of Directors, without entering the
said transaction in the bank’s records, and without
transmitting a copy of the transaction to the
supervising department of the bank. His ruse was
facilitated by placing the loan in the name of an
unsuspecting RBSM depositor, one Enrico Carlos.
3. Petitioner moved to quash these information  on two
grounds: that the court had no jurisdiction over the
offense charged, and that the facts charged do not
constitute an offense.
4. Essentially, the petitioner theorized that the
characterization of possession is different in the two
offenses. If petitioner acquired the loan as DOSRI, he
owned the loaned money and therefore, cannot
misappropriate or convert it as contemplated in the
offense of estafa. Conversely, if petitioner committed
estafa, then he merely held the money in trust for
someone else and therefore, did not acquire a loan in
violation of DOSRI rules.
5. RTC: denied petitioner’s Motion to Quash for lack of merit.
The MR was denied as well. The two offenses were
separate and distinct violations, hence the prosecution of
one did not pose a bar to the other.
6. CA: denied the Petition for Certiorari 
a. 1st issue: the BSP letter, which petitioner
characterized to be a fatally infirm complaint, was not
actually a complaint, but a transmittal or cover letter
only. Being a mere transmittal letter, it need not
comply with the requirements of Section 3(a) of Rule
112 of the Rules of Court. The five affidavits attached
to the transmittal letter is considered as the
complaint-affidavits that charged petitioner with
violation of Section 83 of RA 337 and for Estafa thru
Falsification of Commercial Documents which
complied with the mandatory requirements set out in
the Rules of Court
b. 2nd issue: no merit in petitioner’s argument that the
violation of the DOSRI law and the commission of
estafa thru falsification of commercial documents are
inherently inconsistent with each other because
hypothetically admitted, clearly constitute the
elements of Estafa thru Falsification of Commercial
Documents and Violation of DOSRI law.
ISSUES:
Whether a loan transaction within the ambit of the DOSRI law
(violation of Section 83 of RA 337, as amended) could also be
the subject of Estafa under Article 315 (1) (b) of the Revised
Penal Code. Yes, the two informations contain allegations
which, if hypothetically admitted, would establish the
essential elements of the crime of DOSRI violation and
estafa thru falsification of commercial documents.
RULING:
I. Whether the complaint complied with the
mandatory requirements provided under Section
3(a), Rule 112 of the Rules of Court and Section
18, paragraphs (c) and (d) of Republic Act No.
7653.
The BSP letters involved in Soriano v. Hon. Casanova,
486 SCRA 431 (2006), are not the same as the BSP letter
involved in the instant case. However, the BSP letters in Soria-
no v. Hon. Casanova and the BSP letter subject of this case are
similar in the sense that they are all signed by the OSI officers
of the BSP, they were not sworn to by the said officers, they all
contained summaries of their attached affidavits, and they all
requested the conduct of a preliminary investigation and the
filing of corresponding criminal charges against petitioner
Soriano. Thus, the principle of stare decisis dictates that the
ruling in Soriano v. Hon. Casanova be applied in the instant
case—once a question of law has been examined and decided,
it should be deemed settled and closed to further argument.
The Court further held that since the offenses for
which Soriano was charged were public crimes, authority holds
that it can be initiated by “any competent person” with
personal knowledge of the acts committed by the offender.
Thus, the witnesses who executed the affidavits clearly fell
within the purview of “any competent person” who may
institute the complaint for a public crime.

II. Whether a loan transaction within the ambit of
the DOSRI law (violation of Section 83 of RA
337, as amended) could be the subject of Estafa
under Article 315 (1) (b) of the Revised Penal
Code
The second issue was raised by petitioner in the
context of his Motion to Quash Information on the ground that
the facts charged do not constitute an offense. It is settled that
in considering a motion to quash on such ground, the test is
“whether the facts alleged, if hypothetically admitted, would
establish the essential elements of the offense charged as
defined by law. The trial court may not consider a situation
contrary to that set forth in the criminal complaint or
information. Facts that constitute the defense of the
petitioner[s] against the charge under the information must be
proved by [him] during trial. Such facts or circumstances do
not constitute proper grounds for a motion to quash the
information on the ground that the material averments do not
constitute the offense.”
Estafa Through Falsification of Commercial
Documents
The bank money (amounting to P8 million) which
came to the possession of petitioner was money held in trust or
administration by him for the bank, in his fiduciary capacity as
the President of said bank. It is not accurate to say that
petitioner became the owner of the P8 million because it was
the proceeds of a loan. That would have been correct if the
bank knowingly extended the loan to petitioner himself. But
that is not the case here. According to the information for
estafa, the loan was supposed to be for another person, a
certain “Enrico Carlos”; petitioner, through falsification, made it
appear that said “Enrico Carlos” applied for the loan when in
fact he (“Enrico Carlos”) did not. Through such fraudulent
device, petitioner obtained the loan proceeds and converted the
same. Under these circumstances, it cannot be said that
petitioner became the legal owner of the P8 million. Thus,
petitioner remained the bank’s fiduciary with respect to that
money, which makes it capable of misappropriation or
conversion in his hands.
A charge for DOSRI violation   invasion of the right sought to be protected is material and
The prohibition in Section 83 is broad enough to cover
various modes of borrowing. It covers loans by a bank director
or officer (like herein petitioner) which are made either: (1)
directly, (2) indirectly, (3) for himself, (4) or as the
representative or agent of others. It applies even if the director
or officer is a mere guarantor, indorser or surety for someone
else’s loan or is in any manner an obligor for money borrowed
from the bank or loaned by it. The covered transactions are
prohibited unless
the approval, reportorial and ceiling requirements under
Section 83 are complied with. The prohibition is intended to
protect the public, especially the depositors, from the
overborrowing of bank funds by bank officers, directors,
stockholders and related interests, as such overborrowing may
lead to bank failures. It has been said that “banking institutions
are not created for the benefit of the directors [or officers].
While directors have great powers as directors, they have no
special privileges as individuals. They cannot use the assets of
the bank for their own benefit except as permitted by law.
Stringent restrictions are placed about them so that when
acting both for the bank and for one of themselves at the same
time, they must keep within certain prescribed lines regarded
by the legislature as essential to safety in the banking
business.”
A direct borrowing is obviously one that is made in the
name of the DOSRI himself or where the DOSRI is a named
party, while an indirect borrowing includes one that is made by
a third party, but the DOSRI has a stake in the transaction. The
latter type—indirect borrowing—applies here. The
information in Criminal Case 238-M-2001 alleges that petitioner
“in his capacity as President of Rural Bank of San Miguel-San
Ildefonso branch x x x indirectly borrow[ed] or secure[d] a loan
with [RBSM] x x x knowing fully well that the same has been
done by him without the written consent and approval of the
majority of the board of directors x x x, and which consent and
approval the said accused deliberately failed to obtain and
enter the same upon the records of said banking institution and
to transmit a copy thereof to the supervising department of the
said bank x x x by using the name of one depositor Enrico
Carlos x x x, the latter having no knowledge of the said loan,
and once in possession of the said amount of eight million
pesos (P8 million), [petitioner] converted the same to his  own
personal use and benefit.”
The foregoing information describes the manner of
securing the loan as indirect; names petitioner as the
benefactor of the indirect loan; and states that the
requirements of the law were not complied with. It contains all
the required elements for a violation of Section 83, even if
petitioner did not secure the loan in his own name.
III. Is a Rule 65 petition for certiorari the proper
remedy against an Order denying a Motion to
Quash?
This issue may be speedily resolved by adopting our
ruling in Soriano v. People, 591 SCRA 244 (2009), where we
held: In fine, the Court has consistently held that a special civil
action for certiorari is not the proper remedy to assail the
denial of a motion to quash an information. The proper
procedure in such a case is for the accused to enter a plea, go
to trial without prejudice on his part to present the special
defenses he had invoked in his motion to quash and if after trial
on the merits, an adverse decision is rendered, to appeal
therefrom in the manner authorized by law.
IV. Whether petitioner is entitled to a writ of
injunction
The requisites to justify an injunctive relief are: (1)
the right of the complainant is clear and unmistakable; (2) the
substantial; and (3) there is an urgent and paramount
necessity for the writ to prevent serious damage. A clear legal
right means one clearly founded in or granted by law or is
“enforceable as a matter of law.” Absent any clear and
unquestioned legal right, the issuance of an injunctive writ
would constitute grave abuse of discretion.
Section 47. Foreclosure of Real Estate Mortgage. - In the event
of foreclosure, whether judicially or extra-judicially, of any
mortgage on real estate which is security for any loan or other
credit accommodation granted, the mortgagor or debtor whose
real property has been sold for the full or partial payment of his
obligation shall have the right within one year after the sale of
the real estate, to redeem the property by paying the amount
due under the mortgage deed, with interest thereon at rate
specified in the mortgage, and all the costs and expenses
incurred by the bank or institution from the sale and custody of
said property less the income derived therefrom. However, the
purchaser at the auction sale concerned whether in a judicial or
extra-judicial foreclosure shall have the right to enter upon and
take possession of such property immediately after the date of
the confirmation of the auction sale and administer the same in
accordance with law. Any petition in court to enjoin or restrain
the conduct of foreclosure proceedings instituted pursuant to
this provision shall be given due course only upon the filing by
the petitioner of a bond in an amount fixed by the court
conditioned that he will pay all the damages which the bank
may suffer by the enjoining or the restraint of the foreclosure
proceeding. Notwithstanding Act 3135, juridical persons whose
property is being sold pursuant to an extrajudicial foreclosure,
shall have the right to redeem the property in accordance with
this provision until, but not after, the registration of the
certificate of foreclosure sale with the applicable Register of
Deeds which in no case shall be more than three (3) months
after foreclosure, whichever is earlier. Owners of property that
has been sold in a foreclosure sale prior to the effectivity of this
Act shall retain their redemption rights until their expiration.
(78a)
20) WHITE MARKETING DEVELOPMENT CORPORATION,
petitioner, vs. GRANDWOOD FURNITURE &
WOODWORK, INC., 2016
DOCTRINE ABOUT MORTGAGE: When the bank assigns its
interest to the mortgage to a nonbanking institution, the
assignee has all the rights of the banks (including shorter
redemption period), because the assignee merely steps into the
shoes of the mortgagee bank.
BANK: Metrobank assigned the mortgage to ARC then, ARC to
Cameron
MORTGAGOR: Grandwood Furniture & Woodwork, Inc (40M)
HIGHEST BIDDER: White Marketing Development Corporation
FACTS:
1. Grandwood obtained a mortgage for 40M from mortgagee-
bank Metrobank.
a. Metrobank assigned the rights over the mortgage to
Asia Recovery Corporation.
b. Then Asia Recovery assigned the mortgage to
Cameron Granville 3 Asset Management, Inc.
2. Grandwood failed to pay the loan. Cameron initiated
extrajudicial foreclosure.
a. On Sept. 17, 2013 the property was sold to White
Marketing as the highest bidder.
b. On Sept. 30, 2013 the certificate of sale was
registered and annotated on the TCT.
c. On Nov. 21, 2013 Grandwood intended to redeem the
forclosed property. But White Marketing informed the
sheriff that Grandwood no longer had the right to
redeem.
3. Grandwood insisted on its right to redeem the property.
The Office of the Clerk of Court refused to accept
Grandwood’s tender of payment on the ground that it was
confronted with conflicting laws over redemption period.
4. Grandwood was prompted to file its Petition for
Consignation, Mandamus and Damages
5. RTC dismissed on the ground that the redemption period
applicable in the mortgage between Metrobank and
Grandwood was Section 47 of GBL or before registration of
the sale on September 30, 2013.
6. CA reversed RTC ruling and ordered Clerk of Court to
accept the consigned amount and issue a certificate of
redemption in Grandwood’s favor.
a. It emphasized that Section 47 of GBL applied only in
cases of foreclosure of real estate by a mortgagee
bank in order to provide sufficient legal remedies to
banks in case of unpaid debts or loans. As White
Marketing was not privy to the contract of loan and the
accessory contract of mortgage, it considered the
limitation on the right of redemption on juridical
persons as inapplicable. It was of the view that in case
of doubt on the issue of the right of redemption, it
should be resolved in favor of the mortgagor.
7. Hence, this petition.
ARGUMENTS:
1. White Marketing:
a. That Grandwood’s right of redemption already lapsed
because under the mortgage contract, the parties
agreed that the governing law is GBL. And that
Metrobank assigned its rights which the assignees
acquired.
b. That S. 47 says that Grandwood should have
redeemed the foreclosed property before the
registration of the certificate of sale on Sept. 30, 2013.
c. That the fact that Metrobank assigned its rights to
Cameron neither modified the terms of the mortgage
contract nor excluded Grandwood. Thus, Grandwood
was bound by the redemption period of GBL.
2. Grandwood:
a. That White Marketing could not enjoy S. 47 of GBL on
the redemption period because it was not a banking
institution.
ISSUES: WON S. 47 of GBL is applicable as to the redemption
period even if the highest bidder, White Marketing, is not a
bank. Yes, because White Marketing, stepped into the shoes of
Metrobank.
RULING:
MAIN DOCTRINE: The shortened period of
redemption provided in Section 47 of GBL serves as additional
security and protection to mortgagee-banks in order for them
to maintain a solvent and liquid financial status. The period is
not extended by the mere fact that the bank assigned its
interest to the mortgage to a nonbanking institution because
the assignee merely steps into the shoes of the mortgagee
bank and acquires all its rights, interests and benefits under
the mortgage — including the shortened redemption period.
Moreover, to extend the redemption period would prejudice the
ability of the banks to quickly dispose of its hard assets to
maintain solvency and liquidity.
WHITE MARKETING, STEPPED INTO THE SHOES
OF METROBANK. In the case at bench, it is undisputed that
Metrobank assigned its rights in the mortgage to ARC, which
later assigned the same to CGAM3. After Grandwood defaulted
in its loan obligation, CGAM3 foreclosed the mortgaged
property. As earlier stated, White Marketing emerged as the
winning bidder in the foreclosure sale. Thus, White Marketing,
stepped into the shoes of Metrobank.
In Fort Bonifacio Development Corporation v. Fong,
the Court explained the effects of assignment of credit, to wit:
Case law states that when a person assigns
his credit to another person, the latter is deemed
subrogated to the rights as well as to the obligations
of the former. By virtue of the Deed of
Assignment, the assignee is deemed subrogated
to the rights and obligations of the assignor and
is bound by exactly the same conditions as those
which bound the assignor. Accordingly, an
assignee cannot acquire greater rights than
those pertaining to the assignor. The general rule
is that an assignee of a nonnegotiable chose in action
acquires no greater right than what was possessed by
his assignor and simply stands into the shoes of the
latter.
METROBANK’S SUCCESSORS-IN-INTEREST ARE
ENTITLED TO THE SAME RIGHTS OF METROBANK. WHITE
MARKETING IS TREATED AS A BANK BECAUSE ITS
ULTIMATE ASSIGNOR IS METROBANK. In an assignment of
credit, the assignee is subrogated to the rights of the original
creditor, such that he acquires the power to enforce it, to the
same extent as the assignor could have enforced it against the
debtor. Through the assignment of credit, the new creditor is
entitled to the rights and remedies available to the previous
creditor, and includes accessory rights such as mortgage or
pledge. Consequently, ARC acquired all the rights, benefits and
obligations of Metrobank under its mortgage contract with
Grandwood. The same could be said for subsequent assignees
or successors-in-interest after ARC like White Marketing.
APPLICABLE LAW IS GBL; GRANDWOOD’S
REDEMPTION WAS FILED OUT OF TIME. The mortgage
between Grandwood and Metrobank, as the original mortgagee,
was subject to the provisions of Section 47 of R.A. No. 8791.
The Court finds that Grandwood’s redemption was made out of
time as it was done after the certificate of sale was registered
on September 30, 2013. Pursuant to Section 47 of R.A. No.
8791, it only had three (3) months from foreclosure or before
the registration of the certificate of foreclosure sale, whichever
came first, to redeem the property sole in the extrajudicial sale.
21) BENGUET MANAGEMENT V KEPPEL BANK, 2003
DOCTRINE ABOUT MORTGAGE: Before the passing of GBL,
Corporate Mortgagors have 1 year after foreclosure sale to
redeem. Now the redemption period from 1 year is reduced to
not more than 3 months after foreclosure OR not after
registration of the certificate of sale. The provision is presumed
constitutional until an actual controversy arises to test its
constitutionality. (~nico)
BANK: Keppel Bank Philippines, INC, trustee of other banks:
Metrobank, UCPB, Far East Bank, BPI under Mortgage Trust
Indenture
MORTGAGOR: Benguet Management Corporation
HIGHEST BIDDER:
FACTS:
1. Benguet and Keppel entered into a Loan Agreement and
Mortgage Trust Indenture (MTI) for a syndicated loan of
190M and mortgage on several lots in Zambales and
Laguna.
2. Benguet failed to pay in full the installments due. Keppel
filed applications of extra-judicial foreclosure with clerk of
court in RTC San Pablo and with clerk of court in RTC Iba.
3. Benguet filed a “request” to Executive Judge of RTC San
Pablo to deny the foreclosure on grounds that:
a. Benguet was willing to execute a dacion en pago in
place of mortgaged properties,
b. The MTI securing the loan of 190M cannot be
foreclosed, because it was not registered with the
Register of Deeds.
4. Then Benguet filed a complaint in RTC Iba to nullify the
foreclosure.
5. RTC of IBA ruled in favor of Keppel because the
application for extrajudicial foreclosure of mortgage was
found to be sufficient in form and substance.
6. Benguet filed a TRO in CA to enjoin the sale. But no TRO
was issued, and the auction sale proceeded with Keppel as
the highest bidder. Then Benguet was able to obtain a TRO
from CA to restrain the registration of the certificate of
sale.
7. CA then ruled in favor of Keppel and lifted the TRO to allow
the registration.
a. Benguet filed an MR claiming that Sec. 47 of GBL is
unduly discriminatory and unconstitutional. Sec. 47
reduced the period of redemption for extrajudicially
foreclosed properties of juridical persons from 1 year
to 3 months/before registration of the sale whichever
is earlier.
b. MR denied. Hence, this petition.
ISSUES: WON SEC. 47 of GBL is unconstitutional. This issue is
not the very lis mota of the case. Until an actual controversy is
brought to test its constitutionality, it is presumed valid.
RULING:
SINCE THERE IS NO ACTUAL CONTROVERY IN
THIS CASE TO TEST THE CONSTITUTIONALITY OF THE
LAW, IT IS PRESUMED VALID. Anent the constitutional issue
raised by BMC, we have repeatedly held that the
constitutionality of a law may be passed upon by the Court,
where there is an actual case and that the resolution of the
constitutional question must be necessary in deciding the con
troversy.29 In this case, the resolution of the constitutionality
of Section 47 of the General Banking Act (Republic Act No.
8791) which reduced the period of redemption of extrajudicially
foreclosed properties of juridical persons is not the very lis
mota of the controversy. BMC is not asserting a legal right for
which it is entitled to a judicial determination at this time
inasmuch as it may not even be entitled to redeem the
foreclosed properties. Until an actual controversy is
brought to test the constitutionality of Republic Act No.
8791, the presumption of validity, which inheres in every
statute, must be accorded to it.
22) SAN FERNANDO RURAL BANK V PAMPANGA Omnibus
Devt. Corp. , 2007
BAKIT SINAMA PA TONG KASONG TO?
FACTS:
1. PODC had a loan (first loan by PODC) from San Fernando
Rural Bank. PODC mortgaged its lot.
2. Then PODC president Garbes (second loan by PODC Pres.)
also loaned from San Fernando.
3. PODC failed to pay.
4. San Fernando proceeded to Extrajudicial foreclosure. San
Fernando is winning bidder.
5. Certificate of sale was issued to San Fernando.
6. After issuance of Cert. of Sale, PODC assigned its
right to redeem the property to Garbes. Garbes
redeemed the property at 5M. Certificate of redemption
was issued.
7. But San Fernando claimed that the redemption price
should be 16M because the loan of Garbes should be
included. It also claimed that Sec. 47 was not
followed because the redemption period was already
expired when redemption was done after issuance of
the certificate od sale.
ISSUES: WON the redemption period was followed.
RULING:
We need not rule on the issue of whether respondent Aquino
had lawfully redeemed the property as provided in Section 47
of R.A. No. 8791. This issue shall be passed upon by the RTC in
Civil Case No. 12785 after the parties present their testimonial
and documentary evidence. (BAKIT SINAMA PA TONG
KASONG TO?)
Pero tama si San Fernando dapat. It argued,
Undisputably, respondent PODC failed to redeem the property
before the registration of the Certificate of Sale; hence, when
respondent PODC executed the deed of assignment on May 11,
2002 in favor of respondent Aquino, it had no more right to
redeem the property. Thus, it could not have assigned the right
to redeem the property to respondent Aquino.
23) TOLENTINO V BPI FAMILY BANK, 2019
DOCTRINE ABOUT MORTGAGE: It is not sufficient that a
person offering to redeem manifests his/her desire to do so.
The statement of intention must be accompanied by an actual
and simultaneous tender of payment.
BANK: BPI FAMILY BANK
MORTGAGOR: Reynaldo Tolentino
HIGHEST BIDDER: BPI FAMILY BANK
FACTS:
1. Tolentino purchased the properties subject of this case
(from Spouses Roberth and Myra Constancia Tolentino) via the
Deed of Sale with Assumption of Mortgage (Deed) dated April
10, 2001; the properties were then mortgaged with respondent
BPI Family Bank.
2. Pursuant to the Deed, Tolentino made installment payments
to the BPI and requested that the payment receipts be issued
in his name.
3. The BPI, however, refused to recognize the sale and
Tolentino as the properties' new owner on the ground that
Tolentino did not secure the consent of BPI, as the properties'
mortgagee, prior to the sale as provided under the terms of the
Mortgage Contract.
4. Thus, Tolentino stopped paying the balance of the loan (and
interests) and, instead, informed the BPI of his decision to just
participate in the foreclosure sale.
5. The BPI, however, did not inform Tolentino of the
extrajudicial foreclosure sale where the BPI eventually emerged
as the winning bidder. The certificate of sale, issued in the
BPI's name, was annotated on the properties' titles on April 18,
2002.
6. To redeem the properties within the one-year redemption
period, Tolentino immediately wrote the BPI and asked for a
computation of the redemption price. The BPI ignored
Tolentino's letter.
7. To forestall the running of the redemption period, Tolentino
filed on April 14, 2003 before the RTC an action for judicial
redemption. He specifically asked the RTC for the correct
computation of the redemption price.
8. RTC denied Tolentino's complaint.
a. Tolentino has no right to redeem the properties as the
sale with assumption of mortgage was made without
the BPI's consent.
9. CA:
a. declared that he (Tolentino) has in fact the right to
redeem the properties as the new owner.
 the stipulation in the Mortgage Contract that "any
sale of the mortgaged properties without BP Is
consent shall not bind BPI" is void as it violates
Article 21305 of the Civil Code.
 By virtue of the Deed, Tolentino was subrogated
to the rights of the properties' previous owner
including the right to redeem them.
b. denied Tolentino's appeal as it found him in delay in
paying the redemption price. During the pendency of
the case before the RTC, Tolentino did not tender the
redemption price but instead asked for its re-
computation.
10. ARGUMENTS OF THE PARTIES:
PETITIONER:
He did not fail to pay the redemption price
The Trial Court reneged on its duty to require the bank to
submit an updated statement of account, indicating the correct
computation of redemption price
The copy sent to him is an erroneous computation as it include
fees, penalties and other charges in violation of Sec 6 of Act
3135 and Sec 47 of GBL
RESPONDENT:
Petitioner has no intention to redeem the property. (GR in
redemption requires not just mere manifestation of one’s desire
to redeem property but also it must be accompanied by actual
and simultaneous tender of payment sufficient to cover the
redemption price and must the same must be made in good
faith)
ISSUES: Did Petitioner/Tolentino successfully redeem the
property? NO
RULING:
CA is correct. Petitioner failed to satisfy the requirements for a
valid and effective exercise of the right of redemption.
It is not sufficient that a person offering to redeem manifests
his/her desire to do so. The statement of intention must be
accompanied by an actual and simultaneous tender of
payment. This constitutes the exercise of the right to
repurchase. Bona fide redemption necessarily implies a
reasonable and valid tender of the entire purchase price,
otherwise, the rule on the redemption period fixed by law can
easily be circumvented.
Rationale: to prevent the prolonged economic uncertainty over
the ownership of the thing sold. Pending redemption, the buyer
of the property cannot recover the value of his investment,
while the landowner’s effort to realize the full value of his land
is paralyzed.
In this case, petitioner had expressed his intention to redeem
the properties subject of the deed of sale with assumption of
mortgage which he executed with sps Tolentino. He, however
did not tender the full amount of the RP to respondent despite
receipt of the requested computation.
24) BPI FAMILY BANK V DALES, 2017
DOCTRINE ABOUT MORTGAGE: the redemption price should
be based on the principal amount represented by the winning
bid at the auction sale instead of being "equivalent to the
remaining balance of the loan”
FACTS
1. Spouses Dales obtained several loans from Prudential Bank
and Trust Company (Prudential, later acquired by BPI)
covered by five separate promissory notes (PNs) with the
accumulated total price of P2M. The loans were secured by
a real estate mortgage (REM) on Lot No. 1-D. Spouses
Dales eventually stopped making payments on the loans
for personal reasons.
2. Subsequently, Prudential Bank merged with BPI. As
Prudential's successor-in- interest, BPI filed a Petition for
Extrajudicial Foreclosure under Act 3135 as amended by
Act 4118, against the mortgaged property and stating that,
as of January 2011, Spouses Dales had an outstanding
obligation of P5,543,868.79, inclusive of penalties and
other charges.
3. The bank was considered as the highest bidder, paying the
amount of P2M at the foreclosure sale. Thereafter, a
Certificate of Sale was issued to BPI.
4. In November 2012, Spouses Dales sent a letter to Sheriff
Jalandoni, signifying their interest to redeem the property
and asking the sheriff for a copy of the computation of the
redemption price.
5. In response, Sheriff Angelito C. Barba (Sheriff Barba) of
the RTC-Negros Oriental said they were adopting the
Statement of Account of the mortgagee, BPI. Allegedly, in
addition to the computation of the legal fees amounting to
P81,418.00, the amount of P10,762,374.96 was due as of
November 30, 2012.
6. On December 28, 2012, respondents sent another letter to
Sheriff Barba, tendering payment in the amount of P2M,
plus allowable interest and cost as redemption price, being
the same amount that was bid by BPI for the spouses'
property during the auction sale. BPI opposed by saying
that P10,762,374.96 is the correct redemption price and
that Spouses Dales failed to make an actual and
simultaneous tender of payment of the full amount of the
repurchase price as the check was never consigned with
the Clerk of Court of RTC-Dumaguete City.
7. As a consequence of BPI's refusal to allow the spouses to
redeem the property, the latter instituted the complaint for
legal redemption with the lower court.
8. The lower court debunked the bank's argument that the
redemption price is to be computed from the loan amount,
plus interest, penalties, and attorney's fees amounting to
P1,101,652.41 and liquidated damages amounting to
fifteen percent (15%) of the said amount, which brought
the total obligation to P10,017,383.15.
9. In deciding against BPI, the court harped on the detailed
limit of the redemption price set by Section 47 of Republic
 Act No. (RA) 8791, otherwise known as the General
Banking Law of 2000, considering that the mortgagee is a
banking institution, in relation to Act No. 3135 and the
Rules of Court. As the amended Real Estate Mortgage
between the parties secured the indebtedness up to the
amount of P2,000,000.00, the same amount was used by
the lower court to compute the fees to be paid by Spouses
Dales for the redemption price.
10. The CA ruled that since BPI, the mortgagee, is a banking
institution, the determination of the price of the foreclosed
property should be governed by Section 78 of the General
Banking Act (now Section 47 of the General Banking Law
of 2000). It provides, among others, that the amount at
which the foreclosed property is redeemable is the amount
due under the mortgage deed, or the outstanding
obligation of the mortgagor plus interest and expenses.
The REM between the parties stated an interest rate of
seventeen percent (17%) per annum. Spouses Dales'
obligation is thus limited to the 17% interest as stated in
the mortgage.
ISSUE: W/N the redemption price should be based on the
principal amount represented by the winning bid at the auction
sale instead of being "equivalent to the remaining balance of
the loan." YES
RULING:
Both the RTC and the CA are correct in ruling that the amount
at which the foreclosed property is redeemable is the amount
due under the mortgage deed, or the outstanding obligation of
the mortgagor plus interest and expenses in accordance with
Section 78 of the General Banking Act.
In Asiatrust Development Bank v. Tuble, the Court emphasized
that, in the event of a judicial or extrajudicial foreclosure of any
mortgage on real estate that is used as a security for an
obligation to any bank, banking institution or credit institution,
the mortgagor can redeem the property by paying the amount
fixed by the court in the order of execution, with interest at the
rate specified in the mortgage. Thus, BPI's contention that the
redemption price should be based on the total amount of
indebtedness, which includes other charges and interests, finds
no support.
25) PHILIPPINE RABIT V ALLIED BANKING CORP., 2016
26) ROSALES V SUBA, 2003
DOCTRINE: Clearly, as a general rule, there is no right of
redemption in a judicial foreclosure of mortgage. The only
exemption is when the mortgagee is the Philippine National
Bank or a bank or a banking institution. Since the mortgagee in
this case is not one of those mentioned, no right of redemption
exists in favor of petitioners. They merely have an equity of
redemption, which, to reiterate, is simply their right, as
mortgagor, to extinguish the mortgage and retain ownership of
the property by paying the secured debt prior to the
confirmation of the foreclosure sale. However, instead of
exercising this equity of redemption, petitioners chose to delay
the proceedings by filing several manifestations with the trial
court. Thus, they only have themselves to blame for the
consequent loss of their property.
MORTGAGEE: Masapac
MORTGAGOR: Sps. Rosales
HIGHEST BIDDER: Sps. Suba
FACTS:
1. The spouses Ricardo Rosales and Erlinda Sibug were
indebted to a certain Felicisimo Macaspac. Later, Macaspac
sued the spouses for their failure to pay. During trial, it was
found out that there existed an equitable mortgage between
the spouses and Macaspac. The court ordered the spouses to
pay Macaspac and if they fail to do so, their property shall be
foreclosed.
2. The spouses failed to pay Macaspac hence the court ordered
the sale at a public auction of their land in May 1998. The
highest bidder was the spouses Alfonso and Lourdes Suba. In
June 1998, the trial court issued an order confirming the sale
made to the spouses Suba. The spouses Rosales then filed a
motion for reconsideration. The trial court ruled against their
motion as it ruled that there is no right of redemption in judicial
foreclosures. The Court of Appeals affirmed the decision of the
trial court.
ISSUE:
Whether or not the debtor-mortgagor can exercise the right of
redemption in judicial foreclosure.
RULING:
No. There is no right of redemption in judicial foreclosure. What
can be exercised is equity of redemption.
Equity of redemption is simply the right of the mortgagor to
extinguish the mortgage and retain ownership of the property
by paying the secured debt within the 90-day period after the
judgment becomes final, in accordance with Rule 68 of the
Rules of Court, or even after the foreclosure sale but prior to its
confirmation by the court (prior to the court’s confirmation of
the sale).
In this case, unfortunately, the spouses Rosales never
exercised their equity of redemption.
When can equity of redemption be exercised?
The mortgagor may exercise his equity of redemption even
beyond the 90-day period ‘from the date of service of the
order,’ and even after the foreclosure sale itself, provided it be
before the order of confirmation of the sale.
Are there any exceptions to the rule that “there is no
right of redemption in judicial foreclosure”?
Yes, the only exemption is when the mortgagee is the
Philippine National Bank or a bank or a banking institution. In
such cases, the mortgagor can exercise the right of
redemption.
27) MALLARI V GSIS, 2010
DOCTRINE ABOUT MORTGAGE: The mortgagor or his
successor-in-interest must redeem the foreclosed
property within one year from the registration of the sale with
the Register of Deeds in order to avoid the title from
consolidating in the purchaser. By failing to redeem thuswise,
the mortgagor loses all interest over the foreclosed property.
The purchaser, who has a right to possession that
extends beyond the expiration of the redemption period,
becomes the absolute owner of the property when no
redemption is made, that it is no longer necessary for the
purchaser to file the bond required under Section 7 of Act No.
3135, as amended, considering that the possession of the land
becomes his absolute right as the land’s confirmed owner.
MORTGAGEE: GSIS
MORTGAGOR: MALLARI
HIGHEST BIDDER:
FACTS:
1. Mallari obtained two loans totaling 34k from respondent
GSIS.
2. To secure the performance of his obligations, he mortgaged
two parcels of land registered under his and his wife Marcelina
Mallari’s names.
3. However, he paid GSIS about ten years after contracting
the obligations only 10k on May 22, 1978 and 20k on August
11, 1978.
4. GSIS sent on a telegraphic demand to him to update his
account.
5. Mallari requested a final accounting, but did not do anything
more.
6. Nearly three years later, GSIS applied for the extrajudicial
foreclosure of the mortgage.
7. On July 21, 1986, it finally commenced extrajudicial
foreclosure proceedings against him because he had meanwhile
made no further payments.
8. Petitioner sued GSIS and the Provincial Sheriff of Pampanga
in the Regional Trial Court to enjoin them from proceeding
against him for injunction  registered in the Register of Deeds.
9. RTC: decided in favor of petitioner, nullifying the
extrajudicial foreclosure and auction sale; cancelling TCTs No.
284272-R and 284273-R already issued in the name of GSIS;
and reinstating TCTs No. 61171-R and 54835-R in his and his
wife’s names.
10. CA: reversed
11. What followed thereafter was the series of inordinate moves
of the petitioner to delay the efforts of GSIS to recover on the
debt, and to have the unhampered possession of the foreclosed
property.
ISSUES:
RULING:
I. Petition for Certiorari in CA Was Filed Beyond
Reglementary Period
Considering that the motion for reconsideration dated August
17, 2001 denied by the order dated February 11, 2002 was in
reality and effect a prohibited second motion for
reconsideration vis-à-vis the orders dated October 21, 1999
and October 8, 1999, the assailed orders dated July 30, 2001,
October 21, 1999, and October 8, 1999 could no longer be
subject to attack by certiorari. Thus, the petition
for certiorari filed only in March 2002 was already improper and
tardy for being made beyond the 60-day limitation defined in
Section 4, Rule 65, 1997 Rules of Civil Procedure, as amended,
which requires a petition for certiorari to be filed “not later than
sixty (60) days from notice of the judgment, order or
resolution,” or, in case a motion for reconsideration or new trial
is timely filed, whether such motion is required or not, “the
sixty (60) day period shall be counted from notice of the denial
of the said motion.”
II. MAIN ISSUE: Nature of the Writ of Possession and its
Ministerial Issuance
As defaulting mortgagor, petitioner is not entitled to any prior
notice of the application for the issuance of the writ of
possession.
Instances When Issued.—A writ of possession, which
commands the sheriff to place a person in possession of real
property, may be issued in: (1) land registration proceedings
under Section 17 of Act No. 496; (2) judicial foreclosure,
provided the debtor is in possession of the mortgaged property,
and no third person, not a party to the foreclosure suit, had
intervened; (3) extrajudicial foreclosure of a real estate
mortgage, pending redemption under Section 7 of Act No.
3135, as amended by Act No. 4118; and (4) execution sales,
pursuant to the last paragraph of Section 33, Rule 39 of
the Rules of Court.
The redemption period envisioned under Act 3135 is reckoned
from the date of the registration of the sale not from and after
the date of the sale.—We clarify that the redemption period
envisioned under Act 3135 is reckoned from the date of the
registration of the sale, not from and after the date of the sale,
as the text of Act 3135 shows. Although the original Rules of
Court (effective on July 1, 1940) incorporated Section 464 to
Section 466 of the Code of Civil Procedure as its Section 25
(Section 464); Section 26 (Section 465); and Section 27
(Section 466) of Rule 39, with Section 27 still expressly
reckoning the redemption period to be “at any time within
twelve months after the sale;” and although the Revised Rules
of Court (effective on January 1, 1964) continued to provide in
Section 30 of Rule 39 that the redemption be made from the
purchaser “at any time within twelve (12) months after the
sale,” the 12-month period of redemption came to be held as
beginning “to run not from the date of the sale but from the
time of registration of the sale in the Office of the Register of
Deeds.” This construction was due to the fact that the sheriff’s
sale of registered (and unregistered) lands did not take effect
as a conveyance, or did not bind the land, until the sale was
The mortgagor or his successor-in-interest must redeem the
foreclosed property within one year from the registration of the
sale with the Register of Deeds in order to avoid the title from
consolidating in the purchaser. By failing to redeem thuswise,
the mortgagor loses all interest over the foreclosed property.
The purchaser, who has a right to possession that
extends beyond the expiration of the redemption period,
becomes the absolute owner of the property when no
redemption is made, that it is no longer necessary for the
purchaser to file the bond required under Section 7 of Act No.
3135, as amended, considering that the possession of the land
becomes his absolute right as the land’s confirmed owner. The
consolidation of ownership in the purchaser’s name and the
issuance to him of a new TCT then entitles him to demand
possession of the property at any time, and the issuance of a
writ of possession to him becomes a matter of right upon the
consolidation of title in his name.
Court cannot exercise any discretion to determine whether or
not to issue the writ, for the issuance of the writ to the
purchaser in an extrajudicial foreclosure sale becomes a
ministerial function.
The proceeding upon an application for a writ of possession
is ex parte and summary in nature, brought for the benefit of
one party only and without notice being sent by the court to
any person adverse in interest. The relief is granted even
without giving an opportunity to be heard to the person against
whom the relief is sought. Its nature as an ex parte petition
under Act No. 3135, as amended, renders the application for
the issuance of a writ of possession a non-litigious proceeding.
A non-redeeming mortgagor like the petitioner had no more
right to challenge the issuance of the writ of execution cum
writ of possession upon the ex parte  application  of GSIS. He
could not also impugn anymore the extrajudicial foreclosure,
and could not undo the consolidation in GSIS of the ownership
of the properties covered by TCT No. 284272-R and TCT No.
284273-R, which consolidation was already irreversible. Hence,
his moves against the writ of execution cum writ of
possession were tainted by bad faith, for he was only too
aware, being his own lawyer, of the dire consequences of his
non-redemption within the period provided by law for that
purpose.
III. Dismissal of Petitioner’s Motion for Indirect
Contempt was Proper and In Accord with the Rules of
Court
The petitioner’s charging GSIS, et al. with indirect contempt by
mere motions was not permitted by the Rules of Court.
A person may be charged with indirect contempt only by either
of two alternative ways, namely: (1) by a verified petition, if
initiated by a party; or (2) by an order or any other formal
charge requiring the respondent to show cause why he should
not be punished for contempt, if made by a court against which
the contempt is committed. In short, a charge of indirect
contempt must be initiated through a verified petition, unless
the charge is directly made by the court against which the
contemptuous act is committed.
And, secondly, even assuming that charges for contempt could
be initiated by motion, the petitioner should have tendered
filing fees. The need to tender filing fees derived from the fact
that the procedure for indirect contempt under Rule 71, Rules
of Court was an independent special civil action. Yet, the
petitioner did not tender and pay filing fees, resulting in the
trial court not acquiring jurisdiction over the action.
IV. Petitioner Was Guilty of Misconduct as A Lawyer
His conduct contravened Rule 10.03, Canon 10 of the Code of
Professional Responsibility, by which he was enjoined as a
lawyer to “observe the rules of procedure and xxx not [to]
misuse them to defeat the ends of justice.” By his dilatory
moves, he further breached and dishonored his Lawyer’s Oath
28) EQUITABLE PCI BANK V DNG REALTY AND DEVT.
CORP., 2010
DOCTRINE ABOUT MORTGAGE: If the foreclosure of
mortgage and the issuance of the certificate of sale in the
creditor’s favor were done prior to the appointment of a
Rehabilitation Receiver and the Stay Order, all the actions
taken with respect to the foreclosed mortgage property which
were subsequent to the issuance of the Stay Order were not
affected by the Stay Order.
BANK: PCI
MORTGAGOR: DNG REALTY
HIGHEST BIDDER: PCI
SUMMARY FACTS: DNG Realty obtained a loan of Php 20-M
from EPCIB, secured by a real estate mortgage. DNG failed to
pay its loan on time, so EPCIB sought the extrajudicial
foreclosure of the said mortgage. In the public auction held on
September 2003, EPCIB emerged as the highest bidder. On
October 2003, DNG filed a petition for rehabilitation before the
RTC, and a Stay Order was issued. Meanwhile, ECPIB caused
the recording of the Sheriff’s Certificate of Sale with the
Register of Deeds. ECPIB also filed for an issuance of writ of
possession with the RTC, which was granted. DNG filed a case
for annulment of the foreclosure proceeding through a
certiorari petition in the CA.
SUMMARY RULING: (1) the certiorari was not the proper
remedy, since Act 3135, which regulates the methods of
effecting an extrajudicial foreclosure of mortgage explicitly
authorizes the issuance of such writ of possession by the RTC;
AND (2) Since the foreclosure of respondent DNG's mortgage
and the issuance of the certificate of sale in petitioner EPCIB's
favor were done prior to the appointment of a Rehabilitation
Receiver and the Stay Order, all the actions taken with respect
to the foreclosed mortgage property which were subsequent to
the issuance of the Stay Order were not affected by the Stay
Order. Thus, after the redemption period expired without
respondent redeeming the foreclosed property, EPCIB becomes
the absolute owner of the property and it was within its right to
ask for the consolidation of title and the issuance of new title in
its name as a consequence of ownership; thus, it is entitled to
the possession and enjoyment of the property.
FACTS:
1. DNG obtained a loan of ₱20M from Equitable PCI Bank
(EPCIB) secured by a real estate mortgage over a piece of
land of the former situated in Cabanatuan City. Due to the
Asian Economic Crisis, DNG experienced liquidity problems
disenabling DNG from paying its loan on time. For this
reason, EPCIB sought the extrajudicial foreclosure of the
said mortgage. The mortgage property was sold at public
auction, which was eventually awarded to EPCIB as the
highest bidder.
2. DNG filed a petition for rehabilitation under Rule 4 of the
Interim Rules of Procedure on Corporate Rehabilitation
before the RTC. Pursuant to this, a Stay Order was issued.
3. Respondent DNG failed to redeem the foreclosed property
within the reglementary period; thus, petitioner EPCIB
consolidated its ownership over the property in its favor
and annotated the same in respondent's title. Thus,
respondent DNG's title was cancelled and a new title was
issued in petitioner EPCIB's name. This prompted DNG to
file for annulment of the foreclosure proceeding before the
Office of the Ex-Officio Sheriff. This case was dismissed for
failure to prosecute.
4. In order to gain possession of the foreclosed property,
EPCIB filed an Ex-Parte Petition for Issuance of Writ of
Possession which was issued. DNG filed with the CA a
petition for certiorari, prohibition and mandamus with
prayer for the issuance of temporary restraining order/
preliminary injunction.
5. The CA issued the TRO and also found that, despite the
Stay Order issued, petitioner EPCIB's over-zealousness in
consolidating its title and taking possession of the
respondent's property left the latter without any plain,
speedy and adequate remedy but to file the petition.
ISSUES:
1) Whether respondent DNG's petition for certiorari, prohibition
and mandamus filed in the CA was a proper remedy — No.
2) Whether the CA correctly held that all subsequent actions
pertaining to respondent DNG's Cabanatuan property should
have been held in abeyance after the Stay Order was issued by
the rehabilitation court — No.
RULING:
1) Respondent's petition for certiorari, prohibition and
mandamus was not the proper remedy.
2) As to the second issue of whether the CA correctly held that
after the issuance of the Stay Order by the rehabilitation court,
all subsequent actions in this case pertaining to respondent's
Cabanatuan property should have been held in abeyance is
devoid of merit.
Respondent DNG's petition for rehabilitation was made
pursuant to the 2000 Interim Rules of Procedure on Corporate
Rehabilitation, which was the applicable law on rehabilitation
petitions filed by corporations, partnerships or associations,
including rehabilitation cases transferred from the SEC to the
RTCs pursuant to RA 8799 or the Securities Regulation Code.
The suspension of the enforcement of all claims against the
corporation is subject to the rule that it shall commence only
from the time the Rehabilitation Receiver is appointed.
In this case, since the foreclosure of respondent DNG's
mortgage and the issuance of the certificate of sale in
petitioner EPCIB's favor were done prior to the appointment of
a Rehabilitation Receiver and the Stay Order, all the actions
taken with respect to the foreclosed mortgage property which
were subsequent to the issuance of the Stay Order were not
affected by the Stay Order. Thus, after the redemption
period expired without respondent redeeming the
foreclosed property, petitioner becomes the absolute
owner of the property and it was within its right to ask for
the consolidation of title and the issuance of new title in its
name as a consequence of ownership; thus, it is entitled to the
possession and enjoyment of the property.

Section 51. Ceiling on Investments in Certain Assets. -
Any bank may acquire real estate as shall be necessary for its
own use in the conduct of its business: Provided, however, That
the total investment in such real estate and improvements
thereof including bank equipment, shall not exceed fifty percent
(50%) of combined capital accounts: Provided, further, That
the equity investment of a bank in another corporation
engaged primarily in real estate shall be considered as part of
the bank's total investment in real estate, unless otherwise
provided by the Monetary Board. (25a)
29) Union Bank v Sps Tiu, 2011
Doctrine: The properties acquired by bank must be (GR)
disposed of within 5 years (XPN) unless such bank has exerted
its best efforts to dispose the property in good faith but failed.
The reason for this is to prevent concentration of land in few
hands.
BANK: UB
Mortgagor: Tiu
FACTS:
1. Union Bank and respondent spouses, the spouses Tiu
entered into a Credit Line Agreement (CLA) whereby Union
Bank agreed to make available to the spouses Tiu credit
facilities in such amounts as may be approved. From
September 22, 1997 to March 26, 1998, the spouses Tiu
took out various loans pursuant to this CLA for
US$3,632,000.00.
2. Union Bank advised the spouses Tiu through a letter that,
in view of the existing currency risks, the loans shall be
redenominated to their equivalent Philippine peso amount.
The spouses Tiu wrote to Union Bank authorizing the latter
to redenominate the loans at the rate of US$1=P41.40
with interest of 19% for one year. Under the same
Restructuring Agreement, the parties declared that the
loan obligation to be restructured is P104, 668,741.00. As
likewise provided in the Restructuring Agreement, the
spouses Tiu executed a Real Estate Mortgage in favor of
Union Bank over their residential property inclusive of lot
and improvements.
3. Asserting that the spouses Tiu failed to comply with the
payment schemes set up in the Restructuring Agreement,
Union Bank initiated extrajudicial foreclosure proceedings
on the residential property of the spouses Tiu. The
property was to be sold at a public auction. The spouses
Tiu filed with the (RTC) a Complaint seeking to have the
Extrajudicial Foreclosure declared null and void.
4. The spouses Tiu claim that from the beginning the loans
were in pesos, not in dollars. The spouses Tiu allege that
the foreclosure sale of the mortgaged properties was
invalid, as the loans have already been fully paid. They
also allege that they are not the owners of the
improvements constructed on the lot because the real
owners thereof are their co-petitioners.
5. The spouses Tiu further claim that prior to the signing of
the Restructuring Agreement, they entered into a
Memorandum of Agreement with Union Bank whereby the
former deposited with the latter several certificates of
shares of stock of various companies and four certificates
of title of various parcels of land located in Cebu. The
spouses Tiu claim that these properties have not been
subjected to any lien in favor of Union Bank, yet the latter
continues to hold on to these properties and has not
returned the same to the former.
6. On the other hand, Union Bank claims that the
Restructuring Agreement was voluntarily and validly
entered into by both parties. Presenting as evidence the
Warranties embodied in the Real Estate Mortgage, Union
Bank contends that the foreclosure of the mortgage on the
residential property of the spouses Tiu was valid and that
the improvements thereon were absolutely owned by
them. Union Bank denies receiving certificates of shares of
stock of various companies or the four certificates of title
of various parcels of land from the spouses Tiu. However,
Union Bank also alleges that even if said certificates were
in its possession it is authorized under the Restructuring
Agreement to retain any and all properties of the debtor as
security for the loan.
7. The Court of Appeals ruled in favor of the spouses Tiu and
held that the loan transactions were in pesos, since there
was supposedly no stipulation the loans will be paid in
dollars and since no dollars ever exchanged hands.
Considering that the loans were in pesos from the
beginning, the Court of Appeals reasoned that there is no
need to convert the same. By making it appear that the
loans were originally in dollars, Union Bank overstepped its
rights as creditor, and made unwarranted interpretations of
the original loan agreement. According to the Court of
Appeals, the Restructuring Agreement, which purportedly
attempts to create a novation of the original loan, was not
clearly authorized by the debtors and was not supported by
any cause or consideration.
8. Finally, the Court of Appeals took judicial notice that before
or during the financial crisis, banks actively convinced
debtors to make dollar loans in the guise of benevolence,
saddling borrowers with loans that ballooned twice or
thrice their original loans.
ISSUE:
1. WON the Restructuring Agreement between the parties is
valid. – Yes
2. WON the lease contracts over the properties conveyed to
Union Bank via dacion en pago are void. – No
1. YES, the Restructuring Agreement is valid and, as such, a
valid and binding novation of loans of the spouses Tiu.
Union Bank does not dispute that the spouses Tiu received the
loaned amount of US$3,632,000.00 in Philippine pesos, not
dollars, at the prevailing exchange rate of US$1 = P26. 53
However, Union Bank claims that this does not change the true
nature of the loan as a foreign currency loan, 54 and proceeded
to illustrate in its Memorandum that the spouses Tiu obtained
favorable interest rates by opting to borrow in dollars (but
receiving the equivalent peso amount) as opposed to borrowing
in pesos.
Although indeed, the spouses Tiu received peso equivalents of
the borrowed amounts, the loan documents presented as
evidence expressed the amount of the loans in US dollars and
not in any other currency. This clearly indicates that the
spouses Tiu were bound to pay Union Bank in dollars, the
amount stipulated in said loan documents. Thus, before the
Restructuring Agreement, the spouses Tiu were bound to pay
Union Bank the amount of US$3,632,000.00 plus the interest
stipulated in the promissory notes, without converting the
same to pesos. The spouses Tiu, who are in the construction
business and appear to be dealing primarily in Philippine
currency, should therefore purchase the necessary amount of
dollars to pay Union Bank, who could have justly refused
payment in any currency other than that which was stipulated
in the promissory notes.
The SC disagrees with the finding of the CA that the spouses
Tiu received the peso equivalent of their dollar loan, proves the
intention of the parties that such loans should be paid in pesos.
If such had been the intention of the parties, the promissory
notes could have easily indicated the same. Having established
that Union Bank and the spouses Tiu validly entered into dollar
loans, the conclusion of the Court of Appeals that there were no
dollar loans to novate into peso loans must necessarily fail.
2. No, Sec. 52 of the GBL allows such. (MAIN ISSUE)
The CA erroneously found the lease contracts over the
properties conveyed to Union Bank via dacion en pago to be
void for being against public policy. The appellate court held
that since the GBL of 2000 mandates banks to immediately
dispose of real estate properties that are not necessary for its
own use in the conduct of its business, banks should not enter
into two-year contracts of lease over properties paid to them
through dacion. The Court of Appeals thus ordered Union Bank
to return the rentals it collected.
Even assuming arguendo that the spouses Tiu had duly proven
that it had paid rent to Union Bank, the SC nevertheless
disagrees with the finding of the Court of Appeals that it is
against public policy for banks to enter into two-year contracts
of lease of properties ceded to them through dacion en pago.
Section 52.2 contemplates a dacion en pago. Thus, Section 52
undeniably gives banks five years to dispose of properties
conveyed to them in satisfaction of debts previously contracted
in the course of its dealings, unless another period is prescribed
by the Monetary Board. Furthermore, there appears to be no
legal impediment for a bank to lease the real properties it has
received in satisfaction of debts, within the five year period that
such bank is allowed to hold the acquired realty.
The SC does not dispute that banks should not be allowed to
hold on to the properties contemplated in Section 52 beyond
the five-year period unless such bank has exerted its best
efforts to dispose of the property in good faith but failed.
However, inquiries as to whether the banks exerted best efforts
to dispose of the property can only be done if said banks fail to
dispose of the same within the period provided. Such inquiry is
furthermore irrelevant to the issues in the case at bar.
Section 52. Acquisition of Real Estate by Way of
Satisfaction of Claims. - Notwithstanding the limitations of
the preceding Section, a bank may acquire, hold or convey real
property under the following circumstances:
52.1. Such as shall be mortgaged to it in good faith by way of
security for debts;
52.2. Such as shall be conveyed to it in satisfaction of debts
previously contracted in the course of its dealings, or (SC said,
52.2 contemplates dacion en pago)
52.3. Such as it shall purchase at sales under judgments,
decrees, mortgages, or trust deeds held by it and such as it
shall purchase to secure debts due it.
Any real property acquired or held under the circumstances
enumerated in the above paragraph shall be disposed of by the
bank within a period of five (5) years or as may be prescribed
by the Monetary Board: Provided, however, That the bank may,
after said period, continue to hold the property for its own use,
subject to the limitations of the preceding Section. (25a)
Section 54. Prohibition to Act as Insurer. - A bank shall not
directly engage in insurance business as the insurer. (73)
Section 58. Independent Auditor. - The Monetary Board
may require a bank, quasi-bank or trust entity to engage the
services of an independent auditor to be chosen by the bank,
quasi-bank or trust entity concerned from a list of certified
public accountants acceptable to the Monetary Board. The term
of the engagement shall be as prescribed by the Monetary
Board which may either be on a continuing basis where the
auditor shall act as resident examiner, or on the basis of special
engagements; but in any case, the independent auditor shall be
responsible to the bank's, quasi-bank's or trust entity's board
of directors. A copy of the report shall be furnished to the
Monetary Board. The Monetary Board may also direct the board
of directors of a bank, quasi-bank, trusty entity and/or the
individual members thereof; to conduct, either personally or by
a committee created by the board, an annual balance sheet
audit of the bank, quasi-bank or trust entity to review the
internal audit and control system of the bank, quasi-bank or
trust entity and to submit a report of such audit. (6-Da)
CHAPTER 5: PLACEMENT UNDER CONSERVATORSHIP
Section 67. Conservatorship. - The grounds and procedures
for placing a bank under conservatorship, as well as, the
powers and duties of the conservator appointed for the bank
shall be governed by the provisions of Section 29 and the last
two paragraphs of Section 30 of the New Central Bank Act:
Provided, That this Section shall also apply to conservatorship
proceedings of quasi-banks.
CHAPTER 6 CESSATION OF BANKING BUSINESS
Section 68. Voluntary Liquidation. - In case of voluntary
liquidation of any bank organized under the laws of the
Philippines, or of any branch or office in the Philippines of a
foreign bank, written notice of such liquidation shall be sent to
the Monetary Board before such liquidation shall be sent to the
Monetary Board before such liquidation is undertaken, and the
Monetary Board shall have the right to intervene and take such
steps as may be necessary to protect the interests of creditors.
(86)
Section 69. Receivership and Involuntary Liquidation. -
The grounds and procedures for placing a bank under
receivership or liquidation, as well as the powers and duties of
the receiver or liquidator appointed for the bank shall be
governed by the provisions of Sections 30, 31, 32, and 33 of
the New Central Bank Act: Provided, That the petitioner or
plaintiff files with the clerk or judge of the court in which the
action is pending a bond, executed in favor of the Bangko
Sentral, in an amount to be fixed by the court. This Section
shall also apply to the extent possible to the receivership and
liquidation proceedings of quasi-banks.
CHAPTER 7 LAWS GOVERNING OTHER TYPES OF BANKS
CHAPTER 8 FOREIGN BANKS and RA 7721 “Foreign Bank
Liberalization Act 1994” as Amended by RA 10641
(2013)
SEC. 72. Transacting Business in the Philippines. – The entry of
foreign banks in the Philippines through the establishment of
branches shall be governed by the provisions of the Foreign
Banks Liberalization Act.
The conduct of offshore banking business in the Philippines
shall be governed by the provisions of Presidential Decree No.
1034, otherwise known as the "Offshore Banking System
Decree."
SEC. 74. Local Branches of Foreign Banks. – In case of a
foreign bank which has more than one (1) branch in the
Philippines, all such branches shall be treated as one (1) unit
for the purpose of this Act, and all references to the Philippine
branches of foreign banks shall be held to refer to such units.
SEC. 75. Head Office Guarantee. – In order to provide effective
protection of the interests of the depositors and other creditors
of Philippine branches of a foreign bank, the head office of such
branches shall fully guarantee the prompt payment of all
liabilities of its Philippine branch.
Residents and citizens of the Philippines who are creditors of a
branch in the Philippines of a foreign bank shall have
preferential rights to the assets of such branch in accordance
with existing laws.
Republic Act No. 7721, Foreign Banks Liberalization Law, lays
down the policies and regulations specifically concerning the
establishment and operation of local branches of foreign banks.
Relevant provisions of the said statute read
SEC. 2. Modes of Entry. – The Monetary Board may authorize
foreign banks to operate in the Philippine banking system
through any one of the following" modes of entry:
(i) by acquiring, purchasing or owning up to one hundred
percent (100%) of the voting stock of an existing bank;
(ii) by investing in up to one hundred percent (100%) of the
voting stockof a new banking subsidiary incorporated under the
laws of the Philippines; or
(iii) by establishing branches with full banking authority."
Sec. 5. Head Office Guarantee. - The head office of foreign
bank branches shall guarantee prompt payment of all liabilities
of its Philippine branches.
30) Citibank v Sabeniano, 2007
DOCTRINE: the foreign bank cannot extend the liability of a
client from Ph branch to other branches worldwide.
FACTS:
1. Sabeniano had several transactions with Citibank.
a. Saving deposit in Citibank Manila
b. Money Market Placement in FNCB Finance (old name
of Citibank in Ph)
c. Dollar account in Citibank Geneva, Switzerland
2. Sebiano had a loan in Citibank Manila. For her failure to
pay, Citibank Manila offset all her deposits worldwide.
3. She filed sum of money against Citibank.
4. RTC ruled the setoff as illegal.
5. CA affirmed RTC
6. Hence the appeal to SC. SC ruled in Citibank v Sabeniano,
2006.
7. Citibank filed MR, hence this Citibank v Sabeniano, 2007
Case.
ISSUE: WON the foreign bank can extend the liability of a
client from Ph branch to other branches worldwide? NO! A
client who obtains a loan in Ph branch is not automatically a
debtor worldwide!
RULING:
SA AMERERIKA INDEPENDENT ANG BRANCH IN ONE
COUNTRY SA OTHER COUNTRIES. “Every national banking
association operating foreign branches shall conduct the
accounts of each foreign branch independently of the
accounts of other foreign branches established by it and of its
home office.” (Section 25 of the United States Federal Reserve
Act)
OFFSETTING DONE BY CITIBANK MANILA TO ALL
DEPOSITS OF CLIENT WORLDWIDE IS ILLEGAL. Although
this Court concedes that all the Philippine branches of petitioner
Citibank should be treated as one unit with its head office, it
cannot be persuaded to declare that these Philippine branches
are likewise a single unit with the Geneva branch. It would be
stretching the principle way beyond its intended purpose.
Therefore, this Court maintains its original position in the
Decision that the off-setting or compensation of respondent’s
loans with Citibank-Manila using her dollar accounts with
Citibank-Geneva cannot be effected. The parties cannot be
considered principal creditor of the other. As for the dollar
accounts, respondent was the creditor and Citibank-Geneva
was the debtor; and as for the outstanding loans, petitioner
Citibank, particularly Citibank-Manila, was the creditor and
respondent was the debtor. Since legal compensation was not
possible, petitioner Citibank could only use respondent’s dollar
accounts with Citibank-Geneva to liquidate her loans if she had
expressly authorized it to do so by contract.
SC NOTE OVER THE STATUS OF FOREIGN BANK HAVING
BRANCH IN PH. The General Banking Law of 2000, however,
does not make the same categorical statement as regards to
foreign banks and their branches in the Philippines. What
Section 74 of the said law provides is that in case of a foreign
bank with several branches in the country, all such branches
shall be treated as one unit. As to the relations between the
local branches of a foreign bank and its head office, Section 75
of the General Banking Law of 2000 and Section 5 of the
Foreign Banks Liberalization Law provide for a "Home Office
Guarantee," in which the head office of the foreign bank shall
guarantee prompt payment of all liabilities of its Philippine
branches. While the Home Office Guarantee is in accord with
the principle that these local branches, together with its head
office, constitute but one legal entity, it does not necessarily
support the view that said principle is true and applicable in all
circumstances. The Home Office Guarantee is included in
Philippine statutes clearly for the protection of the interests of
the depositors and other creditors of the local branches of a
foreign bank
CHAPTER 9 TRUST OPERATIONS
Section 79. Authority to Engage in Trust Business. - Only
a stock corporation or a person duly authorized by the
Monetary Board to engage in trust business shall act as a
trustee or administer any trust or hold property in trust or on
deposit for the use, benefit, or behoof of others. For purposes
of this Act, such a corporation shall be referred to as a trust
entity. (56a; 57a)
Section 80. Conduct of Trust Business. - A trust entity shall
administer the funds or property under its custody with the
diligence that a prudent man would exercise in the conduct of
an enterprise of a like character and with similar aims. No trust
entity shall, for the account of the trustor or the beneficiary of
the trust, purchase or acquire property from, or sell, transfer,
assign, or lend money or property to, or purchase debt
instruments of, any of the departments, directors, officers,
stockholders, or employees of the trust entity, relatives within
the first degree of consanguinity or affinity, or the related
interests, of such directors, officers and stockholders, unless
the transaction is specifically authorized by the trustor and the
relationship of the trustee and the other party involved in the
transaction is fully disclosed to the trustor of beneficiary of the
trust prior to the transaction. The Monetary Board shall
promulgate such rules and regulations as may be necessary to
prevent circumvention of this prohibition or the evasion of the
responsibility herein imposed on a trust entity. (56)
Section 83. Powers of a Trust Entity. - A trust entity, in
addition to the general powers incident to corporations, shall
have the power to:
83.1 Act as trustee on any mortgage or bond issued by any
municipality, corporation, or any body politic and to accept and
execute any trust consistent with law;
83.2 Act under the order or appointment of any court as
guardian, receiver, trustee, or depositary of the estate of any
minor or other incompetent person, and as receiver and
depositary of any moneys paid into court by parties to any legal
proceedings and of property of any kind which may be brought
under the jurisdiction of the court;
83.3. Act as the executor of any will when it is named the
executor thereof;
83.4 Act as administrator of the estate of any deceased person,
with the will annexed, or as administrator of the estate of any
deceased person when there is no will;
 (BSP) is not simply a corporate entity but qualifies as an
83.5. Accept and execute any trust for the holding, administrative agency created, pursuant to constitutional
management, and administration of any estate, real or mandate, to carry out a particular governmental function.
personal, and the rents, issues and profits thereof; and
BSP HAS QUASI-JUDICIAL POWERS OVER A
83.6. Establish and manage common trust funds, subject to CLASS OF CASES WHICH DOES NOT INCLUDE THE
such rules and regulations as may be prescribed by the ADJUDICATION OF OWNERSHIP OF THE CB BILLS IN
Monetary Board. QUESTION.
What the law grants the BSP is a continuing role to
shape and carry out the country’s monetary policy – not the
Section 89. Real Estate Acquired by a Trust Entity. -
authority to adjudicate competing claims of ownership over the
Unless otherwise specifically directed by the trustor or the
securities it has issued – since this authority would not fall
nature of the trust, real estate acquired by a trust entity in
under the BSP’s purposes under its charter.
whatever manner and for whatever purposes, shall likewise be
In other words, the grant of quasi-judicial authority to
governed by the relevant provisions of Section 52 of this Act.
the BSP cannot possibly extend to situations which do not call
(64a)
for the exercise by the BSP of its supervisory or regulatory
functions over entities within its jurisdiction
CHAPTER 10 FINAL PROVISIONS
THE DOCTRINE OF PRIMARY JURISDICTION
NCBA ARGUES AGAINST BSP’S PURPORTED AUTHORITY TO
31) BANK OF COMMERCE V PLANTERS DEVELOPMENT ADJUDICATE OWNERSHIP ISSUES OVER THE DISPUTED
BANK GR 154470-71, 2012 CB BILLS.
FACTS:
1. RCBC owns Central Bank (CB) Bills with total value of 70M.
32) VIVAS V MONETARY BOARD GR 191424, 2013
a. RCBC sold the CB bills to BOC, and BOC to PDB.
FACTS:
b. From PDB the CB bills were transferred to BOC. PDB
1. ECBI was a banking institution which underwent BSP’s
protested this transfer.
general examination.
2. When the CB Bills neared their maturity, PDB filed
2. ECBI was issued a cease and desist order and was enjoined
mandamus and injunction in RTC against BSP and RCBC to
from pursuing certain acts and transactions that were
enjoin the payment of the CB bills. PDB impleaded BOC as
considered as unsafe or unsound banking practices, and
defendant.
from doing such other acts or transactions constituting
a. PDB claimed that it has no intention to transfer the CB
fraud or might result in the dissipation of its assets.
Bills to BOC, but only to “warehouse” it.
3. This was the result of the continuing refusal of ECBI’s BOD
b. BOC claimed that PDB is no longer the owner of the CB
to allow the examination of the BSP.
Bills because it already transferred it.
4. Thereafter, for defying the cease and desist order, BSP
issued as resolution placing it under receivership.
ISSUE: WON BSP has jurisdiction to adjudicate as to who is
the owner of CB bills.
ISSUE: Was the action of the BSP proper?
RULING: Walang jurisdiction si BSP
RULING:
CONGRESS CREATED BSP. On January 3, 1949,
Yes. The Monetary Board (MB) may forbid a bank from
Congress created the Central Bank of the Philippines (Central
doing business and place it under receivership without prior
Bank) as a corporate body with the primary objective of (i)
notice and hearing. This is called the “close now, hear later”
maintaining the internal and external monetary stability in the
doctrine. It must be emphasized that R.A .No. 7653 is a later
Philippines; and (ii) preserving the international value and the
law and under said act, the power of the MB over banks,
convertibility of the peso. In line with these broad objectives,
including rural banks, was increased and expanded.
the Central Bank was empowered to issue rules and regulations
The Court, in several cases, upheld the power of the
"necessary for the effective discharge of the responsibilities and
MB to take over banks without need for prior hearing. Prior
exercise of the powers assigned to the Monetary Board and to
hearing is not necessary inasmuch as the law entrusts to the
the Central Bank." Specifically, the Central Bank is authorized
MB the appreciation and determination of whether any or all of
to organize (other) departments for the efficient conduct of its
the statutory grounds for the closure and receivership of the
business and whose powers and duties "shall be determined by
erring bank are present. The MB, under R.A. No. 7653, has
the Monetary Board, within the authority granted to the Board
been invested with more power of closure and placement of a
and the Central Bank" under its original charter.
bank under receivership for insolvency or illiquidity, or because
POWER OF BSP UNDER NCBA. Under the New
the bank’s continuance in business would probably result in the
Central Bank Act (R.A. No. 7653), the BSP is given the
loss to depositors or creditors.
responsibility of providing policy directions in the areas of
Accordingly, the MB can immediately implement its
money, banking and credit; it is given, too, the primary
resolution prohibiting a banking institution from doing business
objective of maintaining price stability, conducive to a balanced
in the Philippines and, thereafter, appoint the PDIC as receiver.
and sustainable growth of the economy, and of promoting and
The procedure for the involuntary closure of a bank is summary
maintaining monetary stability and convertibility of the peso.
and expeditious in nature. Such action of the MB shall be final
Under R.A. No. 7653, the BSP’s powers and functions include
and executory, but may later be subjected to a judicial scrutiny
(i) supervision over the operation of banks; (ii) regulation of
via a petition for certiorari to be filed by the stockholders of
operations of finance companies and non-bank financial
record of the bank representing a majority of the capital stock.
institutions performing quasi banking functions; (iii) sole power
Obviously, this procedure is designed to protect the interest of
and authority to issue currency within the Philippine territory;
all concerned, that is, the depositors, creditors and
(iv) engaging in foreign exchange transactions; (v) making
stockholders, the bank itself and the general public. The
rediscounts, discounts, loans and advances to banking and
protection afforded public interest warrants the exercise of a
other financial institutions to influence the volume of credit
summary closure. Management take-over under Sec. 11 of R.A.
consistent with the objective of achieving price stability; (vi)
No. 7353 is no longer feasible considering the actuations of the
engaging in open market operations; and (vii) acting as banker
president of ECBI, which may show serious conditions of
and financial advisor of the government.
insolvency and illiquidity. Besides, placing ECBI under
BSP IS A CORPORATE ENTITY AND ALSO AN
ADMINISTRATIVE AGENCY. The Bangko Sentral ng Pilipinas
receivership would effectively put a stop to the draining of its
assets.
33) BANCO FILIPINO SAVINGS V. BANGKO SENTRAL,
G.R. No. 200678, June 4, 2018
FACTS:
1. Banco Filipino wished to have a loan of 25B from BSP.
a. BSP gave a condition to Banco Filipino to withdraw first
its suits against BSP.
b. Banco Filipino was not willing to withdraw the suits.
BSP disapproved the loan.
2. Banco Filipino filed writ of Mandamus against BSP because
of coercing Banco Filipino to withdraw its suits for the
approval of loan.
3. BSP assailed the jurisdiction of RTC.
a. RTC claimed it has jurisdiction because the acts
complained of pertained to BSP’s regulatory functions
and not its adjudicatory functions.
b. CA ruled that RTC has no jurisdiction because special
civil actions (mandamus) filed against quasi-judicial
agencies such as BSP are only cognizable by CA.
c. BSP added that the case should be dismissed outright
for being filed without PDIC’s authority as the Banco
Filipino was placed under receivership on March 17,
2011.
ISSUE and RULING:
1. May Banco Filipino file a case without authority of
PDIC? No, a closed bank under receivership can only sue or be
sued through its receiver, PDIC.
2. Does RTC have jurisdiction? No, Special Civil Actions filed
against a quasi-judicial agency are cognizable only by CA. BSP
exercises quasi-judicial functions.
BSP is an administrative agency with (1) administrative, (2)
investigatory, (3) regularoty, (4) quasi-legislative and (5)
quasi-judicial functions or a mix of these five.
34) APEX BANCRIGHTS V. BANGKO SENTRAL, G.R. No,
214866, October 2, 2017
FACTS:
1. Export and Industry Bank (EIB) attempted to rehabilitate
itself.
a. EIB merged with Urban Bank, but EIB still failed to
overcome its financial problems.
2. BSP placed EIB under receivership of PDIC.
a. PDIC submitted its receivership report to Monetary
board that EIB was insolvent and can hardly be
rehabilitated.
b. Based on PDIC report that EIB was insolvent, the
Monetary Board directed PDIC to proceed with the
liquidation of EIB.
c. Petitioners insist that the Monetary Board must first
make its own independent finding that a bank could no
longer be rehabilitated before the order of liquidation.
Must the Monetary Board first make its own independent
finding that a bank could no longer be rehabilitated -
instead of merely relying on the findings of the PDIC -
before ordering the liquidation of the said bank?
No. Nothing in Section 30 of RA 7653 requires the
BSP, through the Monetary Board, to make an· independent
determination of whether a bank may still be rehabilitated or
not. As expressly stated in the afore-cited provision, once the
receiver determines that rehabilitation is no longer feasible, the
Monetary Board is simply obligated to: (a) notify in writing the
bank's board of directors of the same; and ( b) direct the PDIC
to proceed with liquidation.
If the law had indeed intended that the Monetary
Board make a separate and distinct factual determination
before it can order the liquidation of a bank or quasi-bank, then
there should have been a provision to that effect. There being
none, it can safely be concluded that the Monetary Board is not
so required when the PDIC has already made such
determination. It must be stressed that the BSP (the umbrella
agency of the Monetary Board), in its capacity as government
regulator of banks, and the PDIC, as statutory receiver of
banks under RA 7653, are the principal agencies mandated by
law to determine the financial viability of banks and quasi-
banks, and facilitate the receivership and liquidation of closed
financial institutions, upon a factual determination of the
latter's insolvency.
35) SPOUSES POON V. PRIME SAVINGS BANK, G.R. No.
183794, June 13, 2016
FACTS:
1. Poon leased its building to Prime Savings Bank. Prime
Savings Bank paid 100 months advanced rentals.
2. BSP placed Prime Savings Bank under receivership of
PDIC.
3. Prime Savings Bank vacated the building and surrendered
it to Sps Poon.
a. PDIC issued demand letter from Poon asking the
return of the unused advanced rental because the
closure of Prime Savings Banks constituted force
majeure.
b. Poon refused.
c. BSP sued Poon for recovery of money and rescission of
lease.
4. RTC ordered rescission.
5. CA affirmed.
ISSUE: WON the Sps are entitled to remaining rental
payments. NO
RULING:
The closure of Prime Savings Bank’s business was
neither a fortuitous nor an unforeseen event that
rendered the lease agreement without force.
BSP’s closure of the bank was not made in bad faith
because it is pursuant to NCBA. Prime Savings Bank was partly
accountable for the closure of its business hence the closure
was not independent of its will.
The Period during which the bank cannot do business
due to insolvency is not a fortuitous event, unless the BSP’s
action was done in bad faith.
36) CONSOLIDATED BANK V. CA, G.R. No. 169457,
October 19, 2015
What is the nature of liquidation proceedings?
A liquidation proceeding is a special proceeding involving the
administration and disposition, with judicial intervention, of an
insolvent's assets for the benefit of its creditors. Under the
Central Bank Act, this proceeding is cognizable by the Regional
Trial Courts. But, if liquidation proceedings have already been
started in one court, another RTC branch cannot rule on the
propriety of the rulings of the liquidation court.
Due to the nature of their transactions and functions, the
banking industry is affected with public interest and banks can
properly be subject to reasonable regulation under the police
power of the State. It is the Government's responsibility to see
to it that the financial interests of those who deal with banks
and banking institutions are protected. Hence, the Monetary
Board, under certain circumstances, is empowered to
(summarily and without need for prior hearing) forbid a
banking institution from doing business in the Philippines and
designate a Receiver for the institution. Such grounds include:
1) Inability 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; or
2) Has sufficient realizable assets, as determined by the
Bangko Sentral, to meet its liabilities; or
3) Cannot continue in business without involving probable
losses to its depositors or creditors; or
4) Willful violation of a cease and desist order that has become
final, involving acts or transactions which amount to fraud or a
dissipation of the assets of the institution.
The judicial liquidation is intended to prevent multiplicity of
actions against the insolvent bank. The lawmaking body
contemplated that for convenience only one court, if possible,
should pass upon the claims against the insolvent bank and
that the liquidation court should assist the Superintendent of
Banks and control his operations. It is a pragmatic
arrangement designed to establish due process and orderliness
in the liquidation of the bank, to obviate the proliferation of
litigations and to avoid injustice and arbitrariness.
Notwithstanding this "pragmatic arrangement," claims may,
under certain circumstances, be litigated before courts other
than the liquidation court. This, however, does not mean that
the other courts can interfere with the liquidation proceedings.
Adjudicated claims must still be submitted to the liquidators for
processing.
PDIC
37) Linsangan v. PDIC, G.R. No. 228807, February 11,
2019
BANK: Cooperative Rural Bank of Bulacan, Inc. (CRBBI)
FACTS:
1. Cooperative Rural Bank of Bulacan, Inc. (CRBBI) was
placed under receivership.
2. The account of “Cornelio or Ligaya Linsangan” had 1.5M
and was closed. It was distributed/ transferred/ split to 4
accounts.
3. PDIC ruled that, for purposes of computing the insurance
deposit, Carlito (petitioner) was not a qualified relative of
Cornelio and Ligaya. Thus, PDIC consolidated their
accounts and only 500,000 insurance deposit is given.
4. Petitioner filed in CA. CA affirmed PDIC claiming that
Petitioner failed to provide the details of the splitting of
deposit.
5. Hence, this petition.
6. Linsangan argues:
a. that the transfer of funds to his account is not deposit
splitting because the transfer took place more than
120 days prior to the closure of the bank
ISSUE: Was there a “Deposit Splitting”? YES, even if beyond
120 days, transferor/transferee must still prove that transfer
was for valid consideration
RULING:
PDIC HAS THE DUTY TO GRANT OR DENY CLAIMS
FOR DEPOSIT INSURANCE. Based on its charter, the PDIC
has the duty to grant or deny claims for deposit insurance.
"The term 'insured deposit' means the amount due to any bona
fide depositor for legitimate deposits in an insured bank net of
any obligation of the depositor to the insured bank as of the
date of closure, but not to exceed Five Hundred Thousand
Pesos (P500,000.00). x x x In determining such amount
due to any depositor, there shall be added together all
deposits in the bank maintained in the same right and
capacity for his benefit either in his own name or in the
names of others." To determine beneficial ownership of
legitimate deposits which are entitled to deposit insurance.
ELEMENTS OF DEPOSIT SPLITTING.
a. Existence of source account/s in a bank with a balance
or aggregate balance of more than the MDIC;
b. There is a break up and transfer of said account/s into
two or more existing or new accounts in the name of
another person/s or entity/entities;
c. The transferee/s have no Beneficial Ownership over
the transferred funds; and
d. Transfer occurred within 120 days immediately
preceding or during a bank-declared bank holiday, or
immediately preceding bank closure.
RULE: (1) IF TRANSFER WAS MADE WITHIN 120
DAYS, THERE IS A PRESUMPTION THAT THERE IS
DEPOSIT SPLITTING (2) IF TRANSFER WAS MADE
OUTSIDE 120 DAYS, THERE IS NO PRESUMPTION OF
DEPOSIT SPLITTING, BUT THE TRANSFERER AND
TRANSFEREE MUST PROVE THE TRANSFER WAS FOR
VALID CONSIDERATION. Petitioner's argument is erroneous.
In deposit splitting, there is a presumption that the transferees
have no beneficial ownership considering that the source
account, which exceeded the maximum deposit insurance
coverage, was split into two or more accounts within 120 days
immediately preceding bank closure. On the other hand, in
cases wherein the transfer into two or more accounts occurred
before the 120-day period, the PDIC does not discount the
possibility that there may have been a transfer for valid
consideration, but in the absence of transfer documents found
in the records of the bank at the time of closure, the
presumption arises that the source account remained with the
transferor. Consequently, even if the transfer into different
accounts was not made within 120 days immediately preceding
bank closure, the grant of deposit insurance to an account
found to have originated from another deposit is not automatic
because the transferee still has to prove that the transfer was
for a valid consideration through documents kept in the custody
of the bank.
In this case, no document of the alleged donation wa
shown by petitioner.
38) So v. PDIC, G.R. No. 230020, March 19, 2018
BANK: Cooperative Rural Bank of Bulacan, Inc. (CRBBI)
FACTS:
1. CRBBI was placed under receivership
2. Petitioner filed a claim of insurance deposit from PDIC
3. PDIC investigated and found that petitioner’s account was
originated from Reyes’ account. Thus, the deposit
insurance claim was denied because of alleged Deposit
Splitting.
4. RTC ruled in favor of PDIC finding that there is a Deposit
Splitting. It also ruled that RTC has no jurisdiction
because PDIC has jurisdiction being a quasi-judicial
body to rule.
ISSUE: Does RTC have jurisdiction over petition fore certiorari
filed under Rule 65 assailing denial of a deposit insurance
claim? NO, PDIC has jurisdiction.
RULING:
PDIC IS A QUASI-JUDICIAL BODY WHICH HAS THE
DUTY AND AUTHORITY TO DETERMINE THE VALIDITY OF
AND GRANT OR DENY DEPOSIT INSURANCE CLAIMS.
(Basis: PDIC charter RA 3591)
PDIC’s decision on the other hand may only be appeal via
Petition for Certiorari (R65) before the CA (Basis: PDIC charter
as amended by RA 10846).
39) Spouses Chugani v. PDIC, G.R. No. 230037, March
19, 2018
BANK: Rural Bank of Mawab (Davao), Inc., (RBMI)
FACTS:
1. Petitioners opened time deposits, but it was opened under
the name of the President of RBMI.
2. RBMI was placed under receivership.
3. Petitioners filed a claim of insurance deposit from PDIC for
their time deposit.
4. PDIC denied the claim.
5. RTC ruled it has no jurisdiction.
6. CA affirmed.
ISSUE:
1. Does RTC have jurisdiction? NO, PDIC has jurisdiction.
2. Was the denial of claim valid? YES
RULING:
I. PDIC HAS JURISDICTION.
Based on its charter, the PDIC has the duty to grant or deny
claims for deposit insurance.
II. DENIAL OF CLAIM WAS VALID BECAUSE THE ALLEGED
TIME DEPOSITS ARE NOT FOUND IN RBMI.
REQUISITES TO BE VALID DEPOSIT:
1) received by a bank as a deposit in the usual course
of business;
2) recorded in the books of the bank as such;
3) opened in accordance with established forms and
requirements of the BSP and/or the PDIC.
(Sec. 2(d) of PDIC Regulatory Issuance No. 2011-
0221)
IN THIS CASE IT WAS DISCOVERED THAT (1) the
time deposits was in fact credited to the President of RBMI, (2)
the act of petitioners in opening Time Deposits and thereafter
depositing through inter-branch deposits with Metrobank and
China Bank for the account of RBMI can hardly be considered
as in the ordinary course of business.
40) PDIC v. PCRB Inc., G.R. No. 176438, January 24,
2011
BANK: Philippine Countryside Rural Bank, Lapu-Lapu City
FACTS:
1. PDIC sent notice of investigation to PCRB.
a. PCRB answered that PDIC’s investigatory power
requires prior approval from Monetary Board.
b. PDIC replied that its investigation power as
distinguished from examination power does not need
such prior approval.
2. PCRB filed petition for injunction/TRO before RTC.
a. PDIC filed MTD claiming that RTC has no jurisdiction.
b. PCRB withdrew their application for TRO reasoning
that RTC cannot issue injunctions against PDIC.
3. PCRB filed TRO before CA-Manila which was dismissed.
4. PCRB filed TRO before CA-Cebu which was granted finding
that prior approval of MB is necessary.
ISSUE:
1. PROCEDURAL: Was the Injunction properly issued? NO
2. MAIN ISSUE: Is Prior Approval of MB necessary before PDIC
may conduct an investigation on banks? NO
RULING:
II. PRIOR APPROVAL OF MB IS NOT NECESSARY BEFORE
PDIC MAY CONDUCT AN INVESTIGATION ON BANKS
UNDER PDIC CHARTER, PDIC HAS POWER TO
CONDUCT EXAMINATION OF BANKS WITH PRIOR
APPROVAL OF MB (Sec. 8 RA 3591 as amended by RA.
9302).
BUT IN THIS CASE, PDIC EXERCISES ITS
INVESTIGATION POWER AND NOT THE EXAMINATION
POWER. INVESTIGATION V EXAMINATION. The process of
examination covers a wider scope than that of investigation;
Investigation does not involve a general evaluation of the
status of a bank; An examination entails a review of essentially
all the functions and facets of a bank and its operation.
While in a literary sense, the two terms may be used
interchangeably, under the PDIC Charter, examination and
investigation refer to two different processes. To reiterate, an
examination of banks requires the prior consent of the
Monetary Board, whereas an investigation based on an
examination report, does not.
41) PDIC v. Citibank, G.R. No. 170290, April 11, 2012
BANK: Citibank
FACTS:
1. PDIC in its investigation found that Citibank did not report
to PDIC 11.9B as deposit liabilities.
2. Citibank answered that money placements were not
deposits subject to PDIC insurable deposit liabilities.
3. RTC ruled in favor of Citibank reasoning that the deposits
were considered inter-branch deposits and excluded from
assessment of PDIC as the practice in USA.
4. CA affirmed RTC.
ISSUE: Are the funds placed in Ph branch by the head office of
Citibank insurable deposits subject to assessment for insurance
premiums of PDIC? No
RULING:
I. A BRANCH HAS NO SEPARATE LEGAL PERSONALITY.
AS SUCH PDIC CANNOT REQUIRE CITIBANK TO INSURE
DEPOSIT MADE BY THE HEAD OFFICE
Where a bank maintains branches, each branch
becomes a separate business entity with separate books of
account; Nevertheless, when considered with relation to the
parent bank they are not independent agencies; they are, what
their name imports, merely branches, and are subject to the
supervision and control of the parent bank; Ultimate liability for
a debt of a branch would rest upon the parent bank. The head
office of a bank and its branches are considered as one under
the eyes of the law. While branches are treated as separate
business units for commercial and financial reporting purposes,
in the end, the head office remains responsible and answerable
for the liabilities of its branches which are under its supervision
and control.
As such, it is unreasonable for PDIC to require the
respondents, Citibank, to insure the money placements made
by their home office and other branches. Deposit insurance is
superfluous and entirely unnecessary when, as in this case, the
institution holding the funds and the one which made the
placements are one and the same legal entity.
II. THE FUNDS IN QUESTION ARE NOT DEPSIT UNDER
DEFINITION OF PDIC CHARTER; HENCE, EXCLUDED
FROM ASSESSMENT
As explained by the respondents, the transfer of
funds, which resulted from the inter-branch transactions, took
place in the books of account of the respective branches in
their head office located in the United States. Hence, because it
is payable outside of the Philippines, it is not considered a
deposit pursuant to Section 3(f) of the PDIC Charter
SECRECY OF DEPOSITS
42) BSB Group v. Go, G.R. No. 168644, February 16, 2010
BANK: Security Bank
FACTS:
1. BSB Group Inc., is presided by Ricardo Bangayan. The
company employed as cashier Sally Bangayan.
a. Allegedly, Sally deposited in her personal account in
the Security Bank the checks paid by the company’s
customers.
b. However, in the complaint affidavit filed to the
prosecutor, as well as in the information, it merely
mentioned that the cashier took away a cash money
from the company with intent to gain.
c. It did not mention about the two checks allegedly
deposited and encashed to the bank in convicting her
for qualified theft.
2. The RTC considered as admissible the testimony of
the bank officer who testified that indeed during
those periods, there were two checks encashed and
deposited in the personal account of Sally.
3. The accused raised the defense of non-admissibility of the
testimony of the bank since it is violative of RA 1405 which
prohibits the inquiry of bank deposits being highly
confidential.
4. CA reversed and ruled that these are inadmissible.
5. Petitioner argued that the cash involved is the subject
matter of litigation, hence inquiry and testimony of the
bank are admissible.
ISSUE: won the bank deposits in the record of the bank as well
as its testimony are admissible. NO
RULING:
INQUIRY INTO BANK DEPOSITS IS ALLOWABLE
IF THE MONEY DEPOSITED IN THE ACCOUNT ITSELF IS
THE SUBJECT OF THE ACTION. HOWEVER, THE INFO
MADE NO MENTION OF THE BANK ACCOUNT IN WHICH
THE FUNDS WERE ALLEGEDLY KEPT. What indeed
constitutes the subject matter in litigation in relation to Section
2 of R.A. No. 1405 has been pointedly and amply addressed in
Union Bank of the Philippines v. Court of Appeals, in which the
Court noted that the inquiry into bank deposits allowable under
R.A. No. 1405 must be premised on the fact that the money
deposited in the account is itself the subject of the action.
Given this perspective, we deduce that the subject matter of
the action in the case at bar is to be determined from the
indictment that charges respondent with the offense, and not
from the evidence sought by the prosecution to be admitted
into the records. In the criminal Information filed with the trial
court, respondent, unqualifiedly and in plain language, is
charged with qualified theft by abusing petitioners trust and
confidence and stealing cash in the amount of P1,534,135.50.
The said Information makes no factual allegation that in some
material way involves the checks subject of the testimonial and
documentary evidence sought to be suppressed. Neither do the
allegations in said Information make mention of the supposed
bank account in which the funds represented by the checks
have allegedly been kept.
In other words, it can hardly be inferred from the
indictment itself that the Security Bank account is the
ostensible subject of the prosecution’s inquiry. Without
needlessly expanding the scope of what is plainly alleged in the
Information, the subject matter of the action in this case is the
money amounting to P1,534,135.50 alleged to have been
stolen by respondent, and not the money equivalent of the
checks which are sought to be admitted in evidence. Thus, it is
that, which the prosecution is bound to prove with its evidence,
and no other.
THE TESTIMONIAL EVIDENCE CANNOT BE ADMITTED
BECAUSE IT MAKES AN IMPERMISSIBLE INQUIRY INTO
BANK DEPOSIT. It comes clear that the admission of
testimonial and documentary evidence relative to respondents
Security Bank account serves no other purpose than to
establish the existence of such account, its nature and the
amount kept in it. It constitutes an attempt by the
prosecution at an impermissible inquiry into a bank
deposit account the privacy and confidentiality of which
is protected by law. On this score alone, the objection posed
by respondent in her motion to suppress should have indeed
put an end to the controversy at the very first instance it was
raised before the trial court.
43) Onate and ECON v. Abrogar, G.R. No. 107303,
February 23, 1995
BANK:
FACTS:
1. Sun Life Assurance Company of Canada (Sun Life) filed a
complaint for a sum of money with a prayer for the
immediate issuance of a writ of attachment against
petitioners and Noel L. Diño at Branch 150 of the RTC
Makati, presided over by respondent Judge. The following
day, respondent Judge Abrogar issued an order granting
the issuance of a writ of attachment.
2. Upon Sun Life’s ex-parte motion, the trial court amended
the writ of attachment to reflect the alleged amount of the
indebtedness. That same day, Deputy Sheriff Flores,
accompanied by a representative of Sun Life, attempted to
serve summons and a copy of the amended writ of
attachment upon petitioners at their known office address
in Makati but was not able to do so since there was no
responsible officer to receive the same. Nonetheless,
Sheriff Flores proceeded over a period of several days to
serve notices of garnishment upon several commercial
banks and financial institutions, and levied on attachment
a condominium unit and a real property belonging to
petitioner Oñate.
3. ECON filed an “Urgent Motion to Discharge/Dissolve Writ of
Attachment.”
a. That same day, Sun Life filed an ex-parte motion to
examine the books of accounts and ledgers of
petitioner Brunner Development Corporation (Brunner)
at the Urban Bank, Legaspi Village Branch, and to
obtain copies thereof, which motion was granted by
respondent Judge. The examination of said account
took place on January 23, 1992. Petitioners filed a
motion to nullify the proceedings taken thereat since
they were not present.
4. ECON and their co-defendants filed a memorandum in
support of the motion to discharge attachment.
a. Also on that same day, Sun Life filed another
motion for examination of bank accounts, this
time seeking the examination of Account with
BPI — which, incidentally, petitioners claim not
to be owned by them — and the records of PNB
with regard to checks payable to Brunner. Sun
Life asked the court to order both banks to
comply with the notice of garnishment.
5. On February 6, 1992, respondent Judge issued an order
(1) denying petitioners’ and the co-defendants’ motion to
discharge the amended writ of attachment, (2) approving
Sun Life’s additional attachment, (3) granting Sun Life’s
motion to examine the BPI account, and (4) denying
petitioners’ motion to nullify the proceedings.
6. Petitioners’ assail the acts of respondent Judge in allowing
the examination of Urban Banks’ records and in ordering
that the examination of the bank records of BPI and PNB
as invalid since no notice of said examinations were
ever given them.
ISSUE AND RULING:
1) Whether or not respondent Judge erred in issuing writs of
attachment and the corresponding notices of garnishment and
levy on attachment pending acquisition of the jurisdiction of the
RTC. no
ATTACHMENT MAY BE GRANTED EVEN BEFORE
DEFENDANT IS SUMMONED (CIV PRO). It is well-settled
that a writ of preliminary attachment may be validly applied for
and granted even before the defendant is summoned or is
heard from. A preliminary attachment may be defined as the
provisional remedy in virtue of which a plaintiff or other proper
party may, at the commencement of the action or any time
thereafter, have the property of the adverse party taken into
the custody of the court as security for the satisfaction of any
judgment that may be recovered. It is a remedy which is purely
statutory in respect of which the law requires a strict
construction of the provisions granting it. Withal no principle,
statutory or jurisprudential, prohibits its issuance by any court
before acquisition of jurisdiction over the person of the
defendant.
2) Whether or not respondent Judge erred in allowing the
examination of the bank records though no notice was given to
them. NO
NO NOTICE OF EXAMINATION IS NEEDED
BEFORE AN EXAMINATION MAY BE MADE AGAINST THE
GARNISHEE (UNLESS THE GARNISHEE IS ALSO THE
DEFENDANT) It is clear from the provision of Section 10, Rule
57 (ROC) that notice need only be given to the garnishee, but
the person who is holding property or credits belonging to the
defendant. The provision does not require that notice be
furnished the defendant himself, except when there is a need
to examine said defendant “for the purpose of giving
information respecting his property.” Furthermore, Section 10
Rule 57 is not incompatible with Republic Act No. 1405, as
amended, (Bank Deposits Secrecy Law) for Section 2 therefor
provides an exception “in cases where the money deposited or
invested is the subject matter of the litigation.” The
examination of the bank records is not a fishing expedition, but
rather a method by which Sun Life could trace the proceeds of
the check it paid to petitioners.
THE PROHIBITION AGAINST EXAMINATION OF BANK
DEPOSIT DOES NOT PRECLUDE ITS GARNISHMENT TO
SATISFY A JUDGMENT AGAINST THE DEPOSITOR.
44) Intengan v. CA, G.R. No. 128996, February 15, 2002
BANK:
FACTS:
1. Citibank filed a complaint for violation of section 31 of
Corporation Code against two (2) of its officers, Dante L.
Santos and Marilou Genuino.
2. The complaint was attached with the affidavit of Vic Lim,
VP of Citibank, who was then instructed by the higher
management of the bank to investigate the
anomalous/highly irregular activities of the said officers.
3. As evidence, Lim annexed bank records purporting to
establish the deception practiced by Santos and Genuino.
Some of the documents pertained to the dollar deposits of
petitioners Carmen Ll. Intengan, Rosario Ll. Neri, and Rita
P. Brawner.
4. In turn, private respondent Joven Reyes, vice-
president/business manager of the Global Consumer
Banking Group of Citibank, admits to having authorized
Lim to state the names of the clients involved and to
attach the pertinent bank records, including those of
petitioners’
5. Petitioners aver that respondents violated RA 1405 (Bank
Secrecy Law).
ISSUES:
Whether or not Respondents are liable for violation of Secrecy
of Bank Deposits Act, RA 1405. NO.
RULING:
APPLICABLE LAW IS NOT BSL, BUT FOREIGN
CURRENCY DEPOSIT ACT. The accounts in question are U.S.
dollar deposits; consequently, the applicable law is not Republic
Act No. 1405, but Republic Act (R.A.) No. 6426, known as the
“Foreign Currency Deposit Act of the Philippines,” section 8 of
which provides:
Sec. 8. Secrecy of Foreign Currency Deposits.—All
foreign currency deposits authorized under this Act, as
amended by Presidential Decree No. 1035, as well as
foreign currency deposits authorized under Presidential
Decree No. 1034, are hereby declared as and
considered of an absolutely confidential nature and,
except upon the written permission of the depositor, in
no instance shall such foreign currency deposits be
examined, inquired or looked into by any person,
government official bureau or office whether judicial or
administrative or legislative or any other entity
whether public or private: Provided, however, that
said foreign currency deposits shall be exempt from
attachment, garnishment, or any other order or
process of any court, legislative body, government
agency or any administrative body whatsoever.
XPN TO SECRECY OF FOREIGN CURRENCY
DEPOSIT: DISCLOSURE UPON WRITTEN PERMISSION OF
DEPOSITOR. Thus, under R.A. No. 6426 there is only a single
exception to the secrecy of foreign currency deposits, that is,
disclosure is allowed only upon the written permission of the
depositor.
CASE WOULD HAVE PROSPERED IF VIOL. OF RA
6426 WAS FILED. A case for violation of Republic Act No.
6426 should have been the proper case brought against private
respondents. Private respondents Lim and Reyes admitted that
they had disclosed details of petitioners’ dollar deposits without
the letter’s written permission. It does not matter if that such
disclosure was necessary to establish Citibank’s case against
Dante L. Santos and Marilou Genuino. Lim’s act of disclosing
details of petitioners’ bank records regarding their foreign
currency deposits, with the authority of Reyes, would appear to
belong to that species of criminal acts punishable by special
laws, called malum prohibitum.
45) Ejercito v. Sandiganbayan, G.R. Nos. 157294-95,
November 30, 2006
Are Trust Funds/ Trust Accounts covered by the term
“deposit”?
YES. The money deposited under the trust agreement (“Trust
account”) is intended not merely to remain with the bank but to
be invested by it elsewhere. To hold that this type of account is
not protected by R.A. 1405 would encourage private hoarding
of funds that could otherwise be invested by banks in other
ventures, contrary to the policy behind the law (Ejercito v.
Sandiganbayan, G.R. No. 157294-95, November 30, 2006).
NOTE: Despite such pronouncement that trust funds are
considered deposits, trust funds remain not covered by PDIC.
46) PNB v. Gangayco, G.R. No. L-18343, September 30,
1965
47) Marquez v. Desierto, G.R. No. 135882, June 27, 2001
GR: EXAMINATION OF DEPOSITS NOT ALLOWED
XPN: Instances where examination or disclosure of information
about deposits can be allowed:
1. The prohibition against examination of bank deposit does
not preclude its garnishment to satisfy a judgment against
the depositor (Oñate v. Abrogar, G.R. No. 107303,
February 21, 1994)
2. With Court Order: In cases of unexplained wealth under
Sec. 8 of the Anti-Graft and Corrupt Practices Act (PNB v.
Gancayco, L-18343, September 30, 1965)
A bank can be compelled to disclose the records of
the accounts of a depositor under the investigation
for unexplained wealth: Since cases of unexplained
wealth are similar to cases of bribery and dereliction of
duty, no reason is seen why it cannot be excepted from
the rule making bank deposits confidential. In this
connection, inquiry into illegally acquired property in anti-
graft cases extends to cases where such property is
concealed by being held or recorded in the name of other
persons. This is also because the Anti-Graft and Corrupt
Practices Act, bank deposits shall be taken into
consideration in determining whether or not a public officer
has acquired property manifestly out of proportion with his
lawful income (PNB v. Gancayco, G.R. No. L-18343,
September 30, 1965)
3. With Court Order: In cases filed by the Ombudsman and
upon the latter’s authority to examine and have access to
bank accounts and records (Marquez v. Desierto, GR
138569, September 11, 2003)
 GR: BSL prohibits disclosing any information about
deposit records of an individual without court order
XPN: Investigation by Ombudsman (BAR).
Requirement before Ombudsman may inspect bank
deposit:
1. there must be a case pending in court,
2. the account must be clearly identified,
3. the inspection must be limited to the subject matter of
the pending case,
4. the inspection may cover only the account identified,
and
5. the bank personnel and the account holder must be
notified to be present during the inspection (Marquez v.
Desierto, G.R. No. 135882, June 27, 2001)
48) PCIB v. CA, G.R. No. 84526, January 28, 1991
49) Salvacion v. Central Bank, G.R. No. 94723, August
21, 1997
GARNISHMENT OF DEPOSITS INCLUDING FOREIGN
DEPOSITS
1. Garnishment of a bank deposit does not violate the
law:
The prohibition against examination or inquiry does not
preclude its being garnished for satisfaction of judgment.
The disclosure is purely incidental to the execution process
and it was not the intention of the legislature to place bank
deposits beyond the reach of judgment creditor (PCIB v.
CA, G.R. No. 84526, January 28, 1991).
2. Garnishment of foreign currency deposits
GR: Foreign currency deposits shall be exempt from
attachment, garnishment, or any other order or process of
any court, legislative body, government agency or any
administrative body whatsoever (RA 6426, Sec 8).
XPN: The application of Sec. 8 of RA 6426 depends on the
extent of its justice. The garnishment of a foreign currency
deposit should be allowed to prevent injustice and for
equitable grounds, otherwise, it would negate Article 10 of
the New Civil Code which provides that “in case of doubt in
the interpretation or application of laws, it is presumed
that the lawmaking body intended right and justice to
prevail (Salvacion v. Central Bank of the Philippines, G.R.
94723, August 21, 1997).
3. The foreign currency deposit of a transient foreigner
who illegally detained and raped a minor Filipina can
be garnished to satisfy the award for damages to the
victim The exemption from garnishment of foreign
currency deposits under R.A. 6426 cannot be invoked
to escape liability for the damages to the victim.
The garnishment of the transient foreigner’s foreign
currency deposit should be allowed to prevent injustice and
for equitable grounds. The law was enacted to encourage
foreign currency deposit and not to benefit a wrongdoer
(Salvacion v. Central Bank of the Philippines, G.R. 94723,
August 21, 1997).
50) GSIS v. CA, G.R. No. 189206, June 8, 2011
Q: A, an individual, secured a loan from XYZ Company. C,
a surety company, issued a bond to further secure the
obligation. A has dollar deposits with ABC Bank. Can C
inquire to ABC Bank about the foreign currency deposits of
A to determine whether or not the loan proceeds were
used for the purpose specified in their surety agreement?
A: NO. The surety company which issued the bond cannot
inquire into the foreign currency deposits. It cannot be
examined without the consent of the depositor except in
certain situations like violation of anti-money laundering
law (GSIS v. CA, G.R. No. 189206, June 8, 2011).
GR: Foreign currency deposits cannot be inquired or looked
into. All foreign currency deposits are absolutely
confidential (RA 6426, Sec. 8). RA 6426 is a special law
designed especially for foreign currency deposits in the
Philippines. RA 1405 which covers all bank deposits in the
Philippines is the general law which does not nullify the
special law on foreign currency deposits. The surety which
issued a bond to secure the obligation of the principal
debtor cannot inquire into the foreign currency deposits of
the debtor even if its purpose is to determine whether or
not the loan proceeds were used for the purpose specified
in the surety agreement. The foreign currency deposits
cannot be examined without the written consent of the
depositor. The subpoena issued by the bank should be
quashed because foreign currency deposits are not subject
to court order except for violation of the anti-money
laundering law (GSIS v. Court of Appeals GR 189206, June
8, 2011, in Divina, 2014).
XPN:
1. The depositor has given his written permission (ibid.)
2. The exemption from court process of foreign currency
deposits under RA 6426 cannot be invoked by a foreign
transient who raped a minor, escaped and was held liable
for damages to the victim. The garnishment of his foreign
currency deposit should be allowed to prevent an injustice
and for equitable grounds. The law was enacted to
encourage foreign currency deposit and not to benefit a
wrongdoer (Salvacion v. Central Bank of the Philippines,
G.R. No. 94723, August 21, 1997).
UNCLAIMED BALANCES ACT (ACT 3936)
51) RCBC v. Hi-Tri Development Corporation, G.R. No.
192413, June 13, 2012
FACTS:
1. Luz Bakunawa and her husband Manuel now deceased
(Spouses Bakunawa) are registered owners of six (6)
parcels of land. These lots were sequestered by PCGG.
2. Sometime in 1990, a certain Teresita Millan (Millan),
through her representative, Jerry Montemayor, offered to
buy said lots for ₱6M, with the promise that she will take
care of clearing whatever preliminary obstacles there may
be to effect a completion of the sale.
3. The Spouses Bakunawa gave to Millan the Owners Copies
of said TCTs and in turn, Millan made a downpayment of
₱1M for the intended purchase.
4. However, for one reason or another, Millan was not able to
clear said obstacles. As a result, the Spouses Bakunawa
rescinded the sale and offered to return to Millan her
downpayment.
a. However, Millan refused to accept back the
downpayment.
5. Consequently, the Spouses Bakunawa, through their
company, the Hi-Tri Development Corporation (Hi-Tri) took
out on October 28, 1991, a Managers Check from RCBC-
Ermita in the amount of ₱1M, payable to Millan’s company
Rosmil Realty and Development Corporation (Rosmil) c/o
Teresita Millan.
a. Sps. Bakunawa used this as one of their basis for a
complaint against Millan and Montemayor which they
filed with the RTC.
6. On January 31, 2003, during the pendency of the above
mentioned case and without the knowledge of [Hi-Tri and
Spouses Bakunawa], RCBC reported the ₱1M manager’s
check is under Escheat proceeding as among its
unclaimed balances as of January 31, 2003.
7. Allegedly, a copy of the Sworn Statement executed by
RCBC and was posted within the premises of RCBC-Ermita.
ISSUE: Whether or not the escheat of the account in RCBC is
proper. No, because the respondents should have been
informed that the deposit is inactive for 10 years before it may
be subject to escheat proceeding AND there is no abandonment
RULING:
 ESCHEAT IS NOT TO PENALIZE DEPOSITOR FOR
FAILING TO DEPOSIT OR WITHDRAW. Escheat proceedings
refer to the judicial process in which the state, by virtue of its
sovereignty, steps in and claims abandoned, left vacant, or
unclaimed property, without there being an interested person
having a legal claim thereto; Escheat is not a proceeding to
penalize depositors for failing to deposit to or withdraw from
their accounts. It is a proceeding whereby the state compels
the surrender to it of unclaimed deposit balances when there is
substantial ground for a belief that they have been abandoned,
forgotten, or without an owner.
IN ESCHEATED ACCOUNTS, THE BANK IS NOT
LIABLE. In case the bank complies with the provisions of the
law and the unclaimed balances are eventually escheated to
the Republic, the bank shall not thereafter be liable to any
person for the same and any action which may be brought by
any person against any bank for unclaimed balances so
deposited shall be defended by the Solicitor General without
cost to such bank
WHEN A DEPOSIT IS LEFT FOR 10 YEARS, IT MAY
BE SUBJECT TO ESCHEAT PROVIDED THE BANK WILL
EXECUTE SWORN STATEMENT. BUT IF THE DEPOSITORS
HAVE NO INTENT TO ABANDON THE DEPOSIT, THEN IT
CANNOT BE SUBJECT TO ESCHEAT. If the depositor simply
does not wish to touch the funds in the meantime, but still
asserts ownership and dominion over the dormant account,
then the bank is no longer obligated to include the account in
its sworn statement. It is not the intent of the law to force
depositors into unnecessary litigation and defense of their
rights, as the state is only interested in escheating balances
that have been abandoned and left without an owner. As it is
obvious from their foregoing actions that they have not
abandoned their claim over the fund, we rule that the allocated
deposit, subject of the Manager’s Check, should be excluded
from the escheat proceedings.
ANTI-MONEY LAUNDERING ACT
52) Estrada v. Sandiganbayan, G.R. No. 217682, July 17,
2018
FACTS:
1. Jinggoy was involved in the Pork Barrel Scam.
2. Ombudsman requested Anti-Money Laundering Council
(AMLC) to conduct investigation of the bank accounts of
Jinggoy
3. AMLC filed ex parte application for the bank inquiry on
Jinggoy’s accounts.
4. Estrada filed a motion to suppress. Sandiganbayan denied
it.
5. Estrada claimed that the application of Sec. 11 of RA 9160
cannot be applied retroactively because it violates his Right
to Privacy; hence, Sec. 11 is unconstitutional.
ISSUE:
WON Sec. 11 of RA 9160 is unconstitutional. NO.
RULING:
I. SEC. 11 OF R.A. NO. 9160, AS AMENDED, IS
CONSTITUTIONAL
SIMILAR CASES ARE SUBIDO AND EUGENIO CASES.
SIMILAR FAULTY ARGUMENT: INQUIRY REPORT VILATES
DUE PROCESS AND RIGHT TO PRIVACY HENCE A FRUIT
OF POISONOUS TREE. Like the petitioners in Subido, the
petitioners herein contend that Section 11 of R.A. No. 9160, as
amended, is unconstitutional insofar as it allows the filing of an
ex parte application for an order to inquire into bank deposits
and investments for violating the constitutionally-mandated
right to due process and right to privacy; that Section 11 of
R.A. No. 9160 is being used for a "fishing expedition;" that the
disclosure of "related accounts" imposed by the amendment to
Section 11 of R.A. No. 9160 is clearly a "fruit of the poisonous
tree;" and that the Inquiry Report should consequently be
declared inadmissible as evidence.
AMLC IS ONLY AN INVESTIGATING BODY LIKE NBI
AND NOT Q-JUDICIAL BODY; HENCE EX PARTE
APPLICATION FOR BANK INQUIRY IS NOT VIOLATIVE OF
DUE PROCESS. We clarify that the AMLC, in investigating
probable money laundering activities, does not exercise quasi-
judicial powers, but merely acts as an investigatory body with
the sole power of investigation similar to the functions of the
National Bureau of Investigation (NBI). Hence, the ex parte
application for the bank inquiry order cannot be said to violate
any person's constitutional right to procedural due process.
RIGHT TO PRIVACY OF BANK DEPOSITS IS MERELY
STATUTORY RIGHTS AND SUBJECT TO XPN SUCH AS SEC.
11 OF RA 9160. The source of the right to privacy respecting
bank deposits is statutory, not constitutional; hence, the
Congress may validly carve out exceptions to the rule on the
secrecy of bank deposits, as illustrated in Section 11 of R.A.
No. 9160.
INQUIRY REPORT IS ADMISSIBLE IN EVIDENCE. With
the consistency of the assailed provision of R.A. No. 9160 with
the Constitution, the petitioners' argument that the Inquiry
Report was the fruit of a poisonous tree and, therefore,
inadmissible in evidence remains unsubstantiated.
II. THE AMENDMENT TO SECTION 11 OF R.A. 9160
ALLOWING AN EX PARTE APPLICATION FOR THE BANK
INQUIRY DOES NOT VIOLATE THE PROSCRIPTION
AGAINST EX POST FACTO LAWS (pang consti na to)
53) Subido v. CA, G.R. No. 216914, December 6, 2016
FACTS:
1. In 2015, a year before the 2016 presidential elections, the
Office of the Ombudsman and the Senate conducted
investigations and inquiries on alleged disproportionate
wealth.
2. Subido Pagente Certeza Mendoza & Binay Law Firm
(SPCMB) learned that the appellate court had issued a
Resolution granting the ex-parte application of the AMLC to
examine the bank accounts of SPCMB.
3. SPCMB undertook direct resort to Supreme 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.
ISSUES:
1. Whether Section 11 of R.A No. 9160 violates substantial
due process. NO, because there is no physical seizure of
property involved at that stage
2. Whether Section 11 of R.A No. 9160 violates procedural
due process. NO, because AMLC is merely an investigative
body
3. Whether Section 11 of R.A No. 9160 is violative of the
constitutional right to privacy enshrined in Section 2,
Article III of the Constitution. NO
RULINGS
1. THERE IS NO VIOLATION OF SUBSTANTIAL DUE
PROCESS BECAUSE THERE IS NO PHYSICAL SEIZURE OF
PROPERTY INVOLVED AT THAT STAGE
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.
In fact, Eugenio delineates a bank inquiry order under Section
11 from a freeze order under Section 10 on both remedies'
effect on the direct objects, i.e. the bank deposits and
investments:
On the other hand, a bank inquiry order under Section
11 does not necessitate any form of physical seizure of
property of the account holder. What the bank inquiry
 order authorizes is the examination of the particular
deposits or investments in banking institutions or non-
bank financial institutions. The monetary instruments
or property deposited with such banks or financial
institutions are not seized in a physical sense, but are
examined on particular details such as the account
holder's record of deposits and transactions. Unlike the
assets subject of the freeze order, the records to be
inspected under a bank inquiry order cannot be
physically seized or hidden by the account holder. 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.
At the stage in which the petition was filed before us, the
inquiry into certain bank deposits and investments by the AMLC
still does not contemplate any form of physical seizure of the
targeted corporeal property.
2. THERE IS NO VIOLATION OF PROCEDURAL DUE
PROCESS BECAUSE AMLC IS MERELY AN INVESTIGATIVE
BODY TO DETERMINE ANY PROBABLE CAUSE IN A CASE.
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 pursuant to Rule 6b. Even in the case of Estrada
v. Office of the Ombudsman, where the conflict arose at the
preliminary investigation stage by the Ombudsman, we ruled
that the Ombudsman's denial of Senator Estrada's Request to
be furnished copies of the counter-affidavits of his co-
respondents did not violate Estrada's constitutional right to due
process where the sole issue is the existence of probable cause
for the purpose of determining whether an information should
be filed and does not prevent Estrada from requesting a copy of
the counter-affidavits of his co-respondents during the pre-trial
or even during trial.
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 due process.
3. THERE IS NO VIOLATION OF RIGHT TO PRIVACY
ARGUMENTS OF SPCMB. We now come to a
determination of whether Section 11 is violative of the
constitutional right to privacy enshrined in Section 2, Article III
of the Constitution. SPCMB is adamant that the CA's denial of
its request to be furnished copies of AMLC's ex-parte
application for a bank inquiry order and all subsequent
pleadings, documents and orders filed and issued in relation
thereto, constitutes grave abuse of discretion where the
purported blanket authority under Section 11: (1) partakes of a
general warrant intended to aid a mere fishing expedition; (2)
violates the attorney-client privilege; (3) is not preceded by
predicate crime charging SPCMB of a money laundering
offense; and ( 4) is a form of political harassment [of SPCMB'
s] clientele.
AMLA DID NOT ACT ARBITRARILY. We thus subjected
Section 11 of the AMLA to heightened scrutiny and found
nothing arbitrary in the allowance and authorization to AMLC to
undertake an inquiry into certain bank accounts or deposits.
Instead, we found that it provides safeguards before a bank
inquiry order is issued, ensuring adherence to the general state
policy of preserving the absolutely confidential nature of
Philippine bank accounts:
1. The AMLC is required to establish probable cause as basis
for its ex-parte application for bank inquiry order;
2. The CA, independent of the AMLC's demonstration of
probable cause, itself makes a finding of probable cause
that the deposits or investments are related to an unlawful
activity under Section 3(i) or a money laundering offense
under Section 4 of the AMLA;
3. A bank inquiry court order ex-parte for related accounts is
preceded by a bank inquiry court order ex-parte for the
principal account which court order ex-parte for related
accounts is separately based on probable cause that such
related account is materially linked to the principal account
inquired into; and
4. The authority to inquire into or examine the main or
principal account and the related accounts shall comply
with the requirements of Article III, Sections 2 and 3 of the
Constitution. The foregoing demonstrates that the inquiry
and examination into the bank account are not undertaken
whimsically and solely based on the investigative discretion
of the AMLC. In particular, the requirement of
demonstration by the AMLC, and determination by the CA,
of probable cause emphasizes the limits of such
governmental action. We will revert to these safeguards
under Section 11 as we specifically discuss the CA' s denial
of SPCMB' s letter request for information concerning the
purported issuance of a bank inquiry order involving its
accounts.
All told, we affirm the constitutionality of Section 11 of the
AMLA allowing the ex-parte application by the AMLC for
authority to inquire into, and examine, certain bank deposits
and investments.
54) Republic v. Hon. Eugenio, G.R. No. 174629, February
14, 2008
NOTE: this case is not controlling because it has been cured by
RA 10167 amending Sec. 11 of RA 9160. This case is only
included to see the history of AMLA
FACTS:
1. AMLC filed an application to inquire into or examine the
deposits or investments of respondents before RTC
2. RTC granted 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 probable cause [to] believe that the
deposits in various bank accounts are related to violation
of Anti-Graft and Corrupt Practices Act.
3. Meanwhile, the Special Prosecutor of the Office of the
Ombudsman, Dennis Villa-Ignacio requested 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.
ISSUE: Whether or not the bank accounts of respondents can
be examined. NO
RULING:
GR: BANK SECRECY; XPN: SIX. Any exception to
the rule of absolute confidentiality must be specifically
legislated. Section 2 of the Bank Secrecy Act itself prescribes
exceptions whereby these bank accounts may be examined by
any person, government official, bureau or official; 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.
5th: 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.
6th: 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 above.

55) Ligot v. Republic, G.R. No. 176944, March 6, 2013

SUMMARY: The freeze order over the Ligots’ properties (which

were declared by the Ombudsman to be unexplained wealth)
has been in effect since 2005, while the civil forfeiture case –
per the Republic’s manifestation – was filed only in 2011 and
the forfeiture case under RA No. 1379 – per the petitioners’
manifestation – was filed only in 2012. This means that the
Ligots have not been able to access the properties subject of
the freeze order for six years or so simply on the basis of the
existence of probable cause to issue a freeze order, which was
intended mainly as an interim preemptive remedy.

DOCTRINE: 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. Otherwise, the property owner should already be
able to fully enjoy his property without any legal process
affecting it.