University of the Cordilleras College of Law

Gov. Pack Rd., Baguio City

COURSE REQUIREMENT

Compilation of Case Digest

COMMERCIAL LAW I
JD 2E

Submitted to:

Atty. Jinky Fianza

Second Semester

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Table of Contents
The General Banking Law (Republic Act No. 8791) .................................................................. 5
Nature of Bank Funds and Bank Deposits ................................................................................ 5
Simex Interna,onc, Inc. v. CA ........................................................................................................... 5
Central Bank of the Philippines v. CA ............................................................................................... 7
The Consolidated Bank and Trust Corp v. CA................................................................................... 10
Mercado v. Allied Banking Corp...................................................................................................... 14
Philippine Na,onal Bank v. Spouses Cheah .................................................................................... 17
PNB v. Santos, ................................................................................................................................ 20
Oliver v. PS Bank ............................................................................................................................ 24
Ramon Tan Vs. CA and Rizal Commercial Banking Corpora,on ...................................................... 27
Metropolitan Bank And Trust Co. V. Court Of Appeals .................................................................... 30
Philippine Na,onal Bank v. Court of Appeals ................................................................................. 33
Bank Of The Philippine Islands Vs. Ca And Benjamin C. Napiza ....................................................... 37
Waiver of Secrecy of Bank Deposits....................................................................................... 44
Soriano v. People ........................................................................................................................... 44
Soriano V. People ........................................................................................................................... 47
Apolinario v. People ....................................................................................................................... 52
Soriano v. People ........................................................................................................................... 57
Foreclosure and RedempLon................................................................................................. 59
Mallari v. GSIS ................................................................................................................................ 59
Goldenway Merchandising Corpora,on vs Equitable PCI Bank ....................................................... 61
White Marke,ng Dev. Corp v. Grandwood Furniture and Woodwork, Inc. ...................................... 63
Fidelity Savings and Mortgage Bank v. Hon. Cenzon ....................................................................... 65
Macalinao v. Bank of the Philippine Islands .................................................................................... 67
Heirs of Estelita Burgos-Lipat v. Heirs of Eugenio D. Trinidad .......................................................... 69
Ejercito v. Sandiganbayan............................................................................................................... 71
Advocates for Truth in Lending v. BSP ............................................................................................. 74
Villa Crista Monte Realty & Development Corp. v. Equitable PCI Bank ............................................ 77
Rey v. Anson, ................................................................................................................................. 80
The New Central Bank Act (Rep Act No. 7653, as amended) .................................................. 83
Bangko Sentral ng Pilipinas v. The Commission on Audit ................................................................ 83

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Receivership and LiquidaLon ................................................................................................ 85
RB San Miguel v. Monetary Board .................................................................................................. 85
Barlongan vs Reyes ........................................................................................................................ 87
General Bank and Trust Co. v. Central Bank .................................................................................... 90
RB Lucena v. ARCA ......................................................................................................................... 92
RB Buhi v. CA ................................................................................................................................. 94
Central Bank v. CA .......................................................................................................................... 97
Bangko Sentral ng Pilipinas v. Hon. Valenzuela ............................................................................... 99
Vivas v. Monetary Board .............................................................................................................. 102
The Overseas Bank of Manila vs. CA ............................................................................................. 104
Vda. De Ballesteros v. RB Canaman .............................................................................................. 107
Villanueva v. CA ........................................................................................................................... 110
Pacific Banking Corpora,on Employees Organiza,on vs. Court of Appeals ................................... 113
ONG V. COURT OF APPEALS.......................................................................................................... 116
Manalo v. CA ................................................................................................................................ 118
Remedy of Closed Banks ..................................................................................................... 122
UCPB v. Ganzon............................................................................................................................ 122
Alfeo D. Vivas v. Monetary Board ................................................................................................. 126
Central Bank v. CA ........................................................................................................................ 130
Merchants Rural Bank of Talavera v. Monetary Board .................................................................. 132
Rural Bank of Lucena v. ARCA ....................................................................................................... 134
Bangko Sentral ng Pilipinas v. Hon. Valenzuela ............................................................................. 137
Central Bank v. Dela Cruz ............................................................................................................. 139
The Law on Secrecy of Bank Deposits (Rep Act 1405 and Rep Act No. 6426, as amended) .... 143
Garnishment of Deposits..................................................................................................... 143
Philippine Na,onal Bank v. Gancayco ........................................................................................... 143
Asia Trust Development Bank v. Carmelo H. Tuble ........................................................................ 145
Union Bank of the Philippines v. Court of Appeals ........................................................................ 150
Philippine Savings Bank v. Senate Impeachment Court ................................................................. 155
China Banking Corp. v. CA ............................................................................................................ 156
Salvacion v. Central Bank ............................................................................................................. 158
AnL-Money Laundering Law (Rep Act No. 9160, as amended)............................................. 161
Republic v. Eugenio ...................................................................................................................... 161

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 Republic v. Bolante ...................................................................................................................... 165
Subido v. CA ................................................................................................................................. 168
Estrada v. Sandiganbayan ............................................................................................................. 171
Freeze Order- DuraLon ....................................................................................................... 173
Ligot v. Republic ........................................................................................................................... 173
Yambao v. Republic ...................................................................................................................... 176
Beacon v. Republic ....................................................................................................................... 178
Republic v. Bloomberry ................................................................................................................ 182
Financial RehabilitaLon and Insolvency Act RA 10142 ......................................................... 185
Nature of proceedings ........................................................................................................ 185
Allied Banking Corp. vs. Equitable PCI Bank, Inc. .......................................................................... 185
SPS. ARANETA VS. COURT OF APPEALS ......................................................................................... 188
Araneta, et. al. vs. Gatmaitan ....................................................................................................... 191
Concept of RehabilitaLon.................................................................................................... 195
SAN JOSE TIMBER CORPORATION vs SEC ...................................................................................... 195
Metropolitan Bank & Trust Co vs. Fortuna Paper Mill & Packaging Corp. ...................................... 199
RehabilitaLon Plan ............................................................................................................. 203
Siochi Fishery Enterprises, Inc. et.al. v. Bank of the Philippine Islands .......................................... 203
San Jose Timber Corpora,on v. SEC .............................................................................................. 204
Landbank of the Philippines v. Fastech Synergy Philippines, Inc. ................................................... 209
PAL v. Sps. Sadic and Aisha Kurangking et. al. ............................................................................... 213
Far East Bank and Trust CO. vs. Union Bank of the Philippines ...................................................... 216
Pryce Corpora,on vs China Banking Corpora,on.......................................................................... 218
Yngson, Jr. vs. Philippine Na,onal Bank ........................................................................................ 221
Effect of Stay Order on Contracts ........................................................................................ 227
China Banking Corpora,on vs. ASB Holdings ................................................................................ 227
Philippine Na,onal Bank vs. Court of Appeals .............................................................................. 230

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 The General Banking Law (Republic Act No. 8791)

Nature of Bank Funds and Bank Deposits

Simex Internationc, Inc. v. CA

GR No. 88013 March 19, 1990

Digested by: Adloc Marianne D.

Facts:
Petitioner Simex International, Incorporated (Simex) is a private corporation engaged in
the exportation of food products. Simex buys its products from local suppliers and sells
them abroad. Most of its exports are purchased on credit.

Simex is a depositor of Traders Royal Bank and maintains a checking account with the
respondent bank. Simex deposited to its account in the said bank the amount of
P100,000.00, thus increasing its balance as of that date to P190,380.74. Subsequently,
Simex issued several checks against its deposit but was surprised to learn later that they
had been dishonored for insufficient funds.

As a consequence, Simex received demand letters for the dishonored checks from its
suppliers. The pending orders of Simex were also deferred. Simex complained to the
Respondent Traders Royal Bank. An investigation found that it was not credited with the
deposit. The error was rectified and the dishonored checks were consequently paid.

Simex demanded reparation from the respondent bank for its gross and wanton
negligence but this demand was not met. Simex then filed a complaint in the Court of First
Instance (CFI) claiming from the private respondent moral damages and exemplary
damages. CFI rendered judgment that Simex was not entitled to moral damages.

This decision was affirmed by the Court of Appeals. CA found that the private
respondent was guilty of negligence but agreed that the petitioner was nevertheless not
entitled to moral damages. CA ruled that the essential ingredient of moral damages is
proof of bad faith. The circumstances filed no imputation or insinuation of malicious,

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fraudulent, wanton and gross bad faith and negligence on the part of the Respondent
Traders Royal Bank.

Issue:
Whether the petitioner is entitled to damages due to respondent bank’s negligence.

Ruling:
Yes, the petitioner is entitled to damages due to respondent bank’s negligence.

Article 2205 of the Civil Code provides that actual or compensatory damages may be
received “(2) for injury to the plaintiff's business standing or commercial credit.” A bank
may be held liable for damages by reason of its unjustified dishonor of a check, which
caused damage to its client’s credit standing. 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. The bank is a fiduciary of the depositor’s money. In addition, when a business is
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.

In the case at bar, the respondent bank has not even explained why it was committed at
all. It is obvious that the respondent bank was remiss in that duty and violated that
relationship. What is especially deplorable is that, having been informed of its error in not
crediting the deposit in question to the petitioner, the respondent bank did not
immediately correct it but did so after a month the deposit was made. It bears repeating
that the record does not contain any satisfactory explanation of why the error was made
in the first place and why it was not corrected immediately after its discovery. The fact is
that the petitioner's credit line was cancelled and its orders were not acted upon pending
receipt of actual payment by the suppliers. Its business declined. Its reputation was
tarnished. Its standing was reduced in the business community.

Thus, Simex is entitled for moral and exemplary damages.

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 Central Bank of the Philippines v. CA

G.R. No. 76118 March 30, 1993

Digested by:Alunday, Jubileah Heart B.

Nature of Bank Funds and Bank Deposits- Banks are affected with public interest
because they receive funds from the general public in the form of deposits. Due to the
nature of their transactions and functions, a fiduciary relationship is created between
the banking institutions and their depositors. Therefore, banks are under the
obligation to treat with meticulous care and utmost fidelity the accounts of those who
have reposed their trust and confidence in them, the Government's responsibility to
see to it that the financial interests of those who deal with the banks and banking
institutions, as depositors or otherwise, are protected. In this country, that task is
delegated to the Central Bank which, pursuant to its Charter (R.A. 265, as amended),
is authorized to administer the monetary, banking and credit system of the
Philippines.

Facts:

Triumph Savings Bank (TSB), based on examination reports submitted by the

Supervision and Examination Sector (SES), Department II, of the Central Bank (CB)
"that the financial condition of TSB is one of insolvency and its continuance in business
would involve probable loss to its depositors and creditors," the Monetary Board (MB)
issued on 31 May 1985 Resolution No. 596 ordering the closure of TSB, forbidding it from
doing business in the Philippines, placing it under receivership, and appointing Ramon V.
Tiaoqui as receiver. Tiaoqui assumed office on 3 June 1985

However, it was challenge several times to annul MB Resolution No. 596, challenging in
the process the constitutionality of Sec. 29 of R.A. 269, otherwise known as "The Central
Bank Act," as amended, insofar as it authorizes the Central Bank to take over a banking
institution even if it is not charged with violation of any law or regulation.

Issue:

Whether Sec. 29 does not contemplate prior notice and hearing before a bank may be
directed to stop operations and placed under receivership?

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Ruling:

Yes, Sec. 29 does not contemplate prior notice and hearing before a bank may be
directed to stop operations and placed under receivership.

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

It may be emphasized that Sec. 29 does not altogether divest a bank or a non-bank
financial institution placed under receivership of the opportunity to be heard and present
evidence on arbitrariness and bad faith because within ten (10) days from the date the
receiver takes charge of the assets of the bank, resort to judicial review may be had by
filing an appropriate pleading with the court. Respondent TSB did in fact avail of this
remedy by filing a complaint with the RTC of Quezon City on the 8th day following the
takeover by the receiver of the bank's assets on 3 June 1985

We stressed in Central Bank of the Philippines v. Court of Appeals that —

. . . the banking business is properly subject to reasonable regulation under the police
power of the state because of its nature and relation to the fiscal affairs of the people
and the revenues of the state. Banks are affected with public interest because they
receive funds from the general public in the form of deposits. Due to the nature of
their transactions and functions, a fiduciary relationship is created between the
banking institutions and their depositors. Therefore, banks are under the obligation
to treat with meticulous care and utmost fidelity the accounts of those who have
reposed their trust and confidence in them, the Government's responsibility to see to
it that the financial interests of those who deal with the banks and banking institutions,
as depositors or otherwise, are protected. In this country, that task is delegated to
the Central Bank which, pursuant to its Charter (R.A. 265, as amended), is authorized

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to administer the monetary, banking and credit system of the Philippines. Under both
the 1973 and 1987 Constitutions, the Central Bank is tasked with providing policy
direction in the areas of money, banking and credit; corollarily, it shall have
supervision over the operations of banks (Sec. 14, Art. XV, 1973 Constitution, and Sec.
20, Art. XII, 1987 Constitution). Under its charter, the CB is further authorized to take
the necessary steps against any banking institution if its continued operation would
cause prejudice to its depositors, creditors and the general public as well. This power
has been expressly recognized by this Court.

In Philippine Veterans Bank Employees Union-NUBE v. Philippine Veterans Banks this

Court held that:

. . . [u]nless adequate and determined efforts are taken by the government against
distressed and mismanaged banks, public faith in the banking system is certain to
deteriorate to the prejudice of the national economy itself, not to mention the losses
suffered by the bank depositors, creditors, and stockholders, who all deserve the
protection of the government. The government cannot simply cross its arms while the
assets of a bank are being depleted through mismanagement or irregularities. It is the
duty of the Central Bank in such an event to step in and salvage the remaining resources
of the bank so that they may not continue to be dissipated or plundered by those
entrusted with their management.

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

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 The Consolidated Bank and Trust Corp v. CA
G.R. No. 138569 September 11, 2003
Digested By: Angihan, Rizzi

Facts:

L.C. Diaz and Company, CPA's ("L.C. Diaz") opened a savings account with
Consolidated Bank and Trust Corporation, now known as Solidbank Corporation
("Solidbank"), in March 1976.

In August 1991, L.C. Diaz's cashier filled up a savings deposit slip for P990 and a savings
check deposit slip for P50.

The messenger of L.C. Diaz, Ismael Calapre, was instructed to deposit the money with
Solidbank and was given the passbook.

Calapre went to Solidbank and presented the deposit slips and passbook to Teller No.
6.

The teller acknowledged the deposit and returned the duplicate copies of the deposit
slips to Calapre.

However, when Calapre returned to retrieve the passbook, he was informed that
someone had taken it.

The next day, L.C. Diaz discovered an unauthorized withdrawal of P300,000 from its
account.

ISSUE(S):

WON Solidbank is liable for breach of contract due to negligence.

RULING:

YES. The contract between the bank and its depositor is governed by the provisions of
the Civil Code on simple loan. Article 1980 of the Civil Code expressly provides that ". .
.savings . . . deposits of money in banks and similar institutions shall be governed by the
provisions concerning simple loan." There is a debtor-creditor relationship between the

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bank and its depositor. The bank is the debtor and the depositor is the creditor. The
depositor lends the bank money and the bank agrees to pay the depositor on demand.
The 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 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. Section 2 of RA 8791 prescribes
the statutory diligence required from banks — that banks must observe "high standards
of integrity and performance" in servicing their depositors. Although RA 8791 took effect
almost nine years after the unauthorized withdrawal of the P300,000 from L.C. Diaz's
savings account, jurisprudence at the time of the withdrawal already imposed on banks
the same high standard of diligence required under RA No. 8791.

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 China Banking Corp. V. Padilla
G.R. No. 202532 October 21, 2015

Digested by: Austria, Alessandro A.

Facts:
China Banking Corporation (CBC) was held liable for negligence in dishonoring a
cheque due to a discrepancy in the amount indicated therein. Dolores Padilla and Loida
Birung, herein respondents, issued a CBC cheque in the amount of P700.00 in favor of
one Marivic Samonte, however, the numerical figures in the cheque were written as
P700,000.00. Thereafter, Samonte deposited the said cheque in the joint bank account
of Padilla and Birung, but it was dishonored on the ground that the account had
insufficient funds. The dishonoring of the cheque prompted Samonte to file criminal
complaints of Estafa against the respondents but the same was dismissed. The
respondents consequently filed a complaint for damages against CBC alleging that the
petitioner bank acted with negligence.

In its answer, the CBC asserted that there is no negligence on their part in
dishonoring the said cheque. A CBC cashier named Michael Yu allegedly called Padilla
through a telephone in order to verify the correctness of the amount in the cheque and
that it was Padilla who confirmed that P700,000.00 is the correct amount. The Regional
Trial Court (RTC) rendered a decision in favor of Padilla by citing Section 17 of the
Negotiable Instruments Law which reads xxx “Where the sum payable is expressed in
words and also in figuresand there is a discrepancy between the two, the sum denoted by
thewords is the sum payable, but if the words are ambiguous or uncertain,reference
maybe had to the figures to fix the amount.” xxx

The RTC further averred that confirmation through telephone is not sufficient
considering the enormous amount involved in the transaction. CBC then elevated the case
to the Court of Appeals (CA) wherein the CA ruled in favor of the respondents and
stated that the course of business of banks was imbued with public interest and that the
relationship between it and its depositors is fiduciary in nature in which the diligence
required is more than that of a good father of a family.

Issue:

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 Whether the CA misconstrued the provisions of Sec. 17 of the Negotiable
Instruments Law.

Ruling:
No, the CA construed correctly the provisions of Sec. 17 of the Negotiable
Instruments Law.

In the case of Westmont Bank v. Dela Rosa-Ramos (684 SCRA 429), the Court
ruled that “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. 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

In the present case,the CBC should have acted with more diligence rather than
calling Dolores Padilla through a telephone wherein the verification of the cheque was
done. Although it is more convenient for the parties to transact the verification of the
cheque through a telephone, convenience cannot defeat the fiduciary nature of banks
with its clients and that it would have been more prudent to CBC to request the physical
presence of Padilla in their premises to countersign the correctness of the cheque
considering the huge amount it involves.

Hence, the CA construed correctly the provisions of Sec. 17 of the Negotiable

Instruments Law.

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 Mercado v. Allied Banking Corp.

G.R. No. 171460 July 27, 2007

Digested by: BALBALIN, Nicole E.

FACTS:
Perla Mercado, during her lifetime, owned several pieces of real property in the
Philippines. In 1992, Perla executed a Special Power of Attorney (SPA) in favor of her
husband, Julian Mercado, over several pieces of real property, authorizing him to act on
her behalf to sell, alienate, mortgage, lease and deal otherwise over the parcels of land.
In 1996, using the aforesaid SPA, Julian obtained a loan from the Allied Banking Corp
secured by real estate mortgage constituted on TCT No. RT-18206 (106338) which covers
a parcel of land registered in the Registry of Deeds of Quezon City. Subsequently, still
using the subject property as security, Julian obtained an additional loan.

However, it appears that there was no property identified in the SPA as TCT No. RT -
18206 (106338) registered with the RD of Quezon City. What was identified in the SPA
instead was the property covered by TCT No. RT-106338 registered with the RD of Pasig.
Julian defaulted on the payment so the bank initiated extra-judicial foreclosure
proceedings over the subject property and was declared as the highest bidder.

The petitioners filed for the annulment of REM over the property on the ground that it
was not covered by the SPA and at the time the loan obligations were contracted, the
SPA was revoked by Perla, as evidenced by the Revocation of SPA signed by the latter.
To answer the discrepancy of the title, respondent averred that, TCT No. T-106338 was
actually registered with the RD of Quezon City and not the RD of Pasig (now Makati).
The discrepancy in the SPA was merely an error that must not prevail over the clear
intention of Perla to include the property in the said SPA. Respondent also asserts that
it exercised reasonable diligence required of a prudent man in dealing with the subject
property.

RTC rendered a Decision declaring the REM constituted over the subject property null
and void, for Jukian was not authorized by the terms of the SPA to mortgage the same.
However, the CA reversed the RTC decision and upheld the validity of the REM

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constituted over the property on the strength of the SPA. The appellate court declared
that Perla intended the subject property to be included in the SPA she executed in favor
of Julian, and that her subsequent revocation of the said SPA, not being contained in a
public instrument, cannot bind third persons.

ISSUE:
Whether the Allied Bank is a mortgagee-in-good faith.

RULING:
No, Allied Bank is not a mortgagee-in-good faith.
The palpable difference between the TCT numbers referred to in the real estate
mortgage and Julian’s SPA, coupled with the fact that the said TCTs are registered in
different cities, should have put respondent on guard.

In Arrofo v. Quiño, SC says that:

[Settled is the rule that] a person dealing with registered lands [is not required] to inquire
further than what the Torrens title on its face indicates. This rule, however, is not absolute
but admits of exceptions. Thus, while its is true, x x x that a person dealing with
registered lands need not go beyond the certificate of title, it is likewise a well-settled
rule that a purchaser or mortgagee cannot close his eyes to facts which should put a
reasonable man on his guard, and then claim that he acted in good faith under the
belief that there was no defect in the title of the vendor or mortgagor.

By putting blinders on its eyes, and by refusing to see the patent defect in the scope of
Julian’s authority, easily discernible from the plain terms of the SPA, respondent cannot
now claim to be an innocent mortgagee.

In the case of Cruz v. Bancom Finance Corporation, SC ruled:

Respondent, however, is not an ordinary mortgagee; it is a mortgagee-bank. As such,
unlike private individuals, it is expected to exercise greater care and prudence in its
dealings, including those involving registered lands. A banking institution is expected to
exercise due diligence before entering into a mortgage contract. The ascertainment of
the status or condition of a property offered to it as security for a loan must be a
standard and indispensable part of its operations.

15
Hence, considering that the property being mortgaged by Julian was not his, and there
are additional doubts or suspicions as to the real identity of the same, the respondent
bank should have proceeded with its transactions with Julian only with utmost caution. As
a bank, respondent must subject all its transactions to the most rigid scrutiny, since its
business is impressed with public interest and its fiduciary character requires high
standards of integrity and performance. Where respondent acted in undue haste in
granting the mortgage loans in favor of Julian and disregarding the apparent defects in
the latter’s authority as agent, it failed to discharge the degree of diligence required of it
as a banking corporation.

Thus, even granting for the sake of argument that the subject property and the one
identified in the SPA are one and the same, it would not elevate respondent’s status to
that of an innocent mortgagee. As a banking institution, jurisprudence strictly requires
that respondent take more precautions than an ordinary prudent man should, to
ascertain the status and condition of the properties offered as collateral and to verify
the scope of the authority of the agents dealing with these. Had the respondent acted
with the required degree of diligence, it could have acquired knowledge of the letter sent
by Perla to the Registry of Deeds of Quezon City which recorded the same. The failure
of the respondent to investigate into the circumstances surrounding the mortgage of the
subject property belies its contention of good faith.

16
 Philippine National Bank v. Spouses Cheah
April 25, 2012 G.R. Nos. 170865 & 170892
Digested By: Bayas, Nhel Ann Rose

Facts:
On November 4, 1992, Ofelia Cheah and her friend Adelina Guarin were having a
conversation in the latter's office when Adelina's friend, Filipina Tuazon, approached her
to ask if she could have her Bank of America’s check with a face amount of $300,000.00,
cleared and encashed for a service fee of 2.5%. Because Adelina does not have a dollar
account, she asked Ofelia if she could accommodate Filipina's request since she has a
joint dollar savings account with her husband Cheah Chee Chong with PNB Buendia
Branch. Ofelia agreed and so they met with the Loans Department who referred them to
PNB Division Chief Garin. Garin discussed with them the process of clearing the check
and they were told that it normally takes 15 days. Assured that the deposit and
subsequent clearance of the check is a normal transaction, Ofelia deposited Filipina's
check.

PNB then sent it for clearing through its correspondent bank, Philadelphia National Bank.
5 days later, PNB received credit advice from Philadelphia that the proceeds of the
subject check had been temporarily credited to PNB's account as of November 6, 1992.

On November 16, 1992, Garin called up Ofelia to inform her that the check had already
been cleared. The following day, PNB Buendia, after deducting the bank charges,
credited $299,248.37 to the account of the spouses Cheah. Acting on Adelina's
instruction to withdraw the credited amount. Filipina received all the proceeds.

In the meantime, the Cable Division of PNB Head Office received on November 16, 1992 a
SWIFT message from Philadelphia, informing PNB of the return of the check for
insufficient funds. However, the PNB Head Office could not ascertain to which
branch/office it should forward the same for proper action. After a few days, PNB Head
Office ascertained that the SWIFT message was intended for PNB Buendia Branch.

Informed about the bounced check and upon demand by PNB Buendia to return the
money withdrawn, Ofelia immediately contacted Filipina to get the money back. But the

17
latter told her that all the money had already been given to several people who asked for
the check's encashment. Criminal charges were then filed against these suspect
beneficiaries.

Subsequently, PNB sent a demand letter to spouses Cheah for the return of the amount
of the check, froze their peso and dollar deposits, and filed a complaint against them for
Sum of Money with the RTC. In said complaint, PNB demanded payment of around
P8,202,220.44, plus interests and attorney's fees.

The RTC ruled in PNB's favor. It held that spouses Cheah were guilty of contributory
negligence. While the CA recognized the spouses Cheah as victims of a scam who
nevertheless have to suffer the consequences of Ofelia's lack of care and prudence in
immediately trusting a stranger, the appellate court did not hold PNB scot-free. It
declared both parties equally negligent and should suffer and shoulder the loss.

Issue: Whether petitioner PNB and Sps Cheah should be equally held liable

Ruling:
Yes. PNB's act of releasing the proceeds of the check prior to the lapse of the 15-day
clearing period was the proximate cause of the loss. Banks are expected to exercise "the
highest degree of diligence" and follow their own internal procedures. And this case, PNB
disregarded its own 15-day clearing policy and failed to properly scrutinize the large
check.This Court already held that the payment of the amounts of checks without
previously clearing them with the drawee bank especially so where the drawee bank is a
foreign bank and the amounts involved were large is contrary to normal or ordinary
banking practice.

In Associated Bank v. Tan, 446 SCRA 282 (2004), wherein the bank allowed the
withdrawal of the value of a check prior to its clearing, we said that before the check shall
have been cleared for deposit, the collecting bank can only assume' at its own risk that
the check would be cleared and paid out."

The delay in the receipt by PNB Buendia Branch of November 13. 1992 SWIFT message
notifying it of the dishonour of the subject check is of no moment, because had PNB

18
Buendia Branch waited for the expiration of the clearing period and had never released
during that time the proceeds of the check, it would have already been duly notified of
its dishonour. Clearly, PNB's disregard of its preventive and protective measure against
the possibility of being victimised by bad checks had brought upon itself the injury of
losing a significant amount of money.

It bears stressing that "the diligence required of banks is more than that of a Roman
paterfamilias or a good father of a family. The highest degree of diligence is expected."
PNB miserably failed to do its duty of exercising extraordinary diligence and reasonable
business prudence. The disregard of its own banking policy amounts to gross negligence,
which the law defines as "negligence characterised by the want of even slight care, acting
or omitting to act in a situation where there is duty to act, not inadvertently but wilfully
and intentionally with a conscious indifference to consequences in so far as other
persons may be affected." With regard to collection or encashment of checks, suffice it
to say that the law imposes on the collecting bank the duty to scrutinise diligently the
checks deposited with it for the purpose of determining their genuineness and regularity.
"The collecting bank, being primarily engaged in banking holds itself out to the public as
the expert on this field, and the law thus holds it to a high standard of conduct." A bank
is expected to be an expert in banking procedures and it has the necessary means to
ascertain whether a check, local or foreign, is sufficiently funded.

All told, the Court concurs with the findings of the CA that PNB and the spouses Cheah
are equally negligent and should therefore equally suffer the loss. The two must both
bear the consequences of their mistakes.

19
 PNB v. Santos,
G.R. No. 208293 December 10, 2014
Digested by: Caba-ot,Laureen

Doctrine:
The standard of diligence required of banks is higher than the degree of diligence of a
good father of a family.

Facts:
Sometime in May 1996, respondents discovered that their father maintained a
premium savings account with Philippine National Bank (PNB), Sta. Elena-Marikina City
Branch. As of July 14, 1996, the deposit amounted to 1,759,082.63. Later, respondents
would discover that their father also had a time deposit of 1,000,000.00 with PNB.

Respondents went to PNB to withdraw their father’s deposit.

The Branch Manager of PNB required them to submit 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 Bureau of Internal Revenue (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."

By April 26, 1998, respondents had already obtained the necessary documents.
They tried to withdraw the deposit. However, Aguilar informed them that the deposit had
already "been released to a certain Manimbo, it 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
1,000,000.00; and (c) the death certificate of Angel C. Santos, among others. 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.

On May 20, 1998, respondents filed before the Regional Trial Court a complaint
for sum of money and damages against PNB, Lina B. Aguilar, and a John Doe.
Respondents questioned the release of the deposit amount to Manimbo who had no

20
authority from them to withdraw their father’s deposit and who failed to present to PNB
all the requirements for such withdrawal.

PNB and Aguilar denied that Angel C. Santos had two separate accounts
(premium deposit account and time deposit account) with PNB. They alleged that Angel
C. Santos’ deposit account was originally a time deposit account that was subsequently
converted into a premium savings account. They also alleged that Aguilar did not know
about Angel C. Santos’ death in 1991 because she only assumed office in 1996.

PNB and Aguilar filed a third-party complaint against Manimbo, Angel P. Santos,
and Capital Insurance and Surety Co., Inc.

In the decision, the trial court held that PNB and Aguilar were jointly and severally
liable to pay respondents. Aguilar filed a motion for reconsideration of the February 22,
2011 Regional Trial Court decision. This was denied in the June 21, 2011 Regional Trial
Court order. PNB and Aguilar appealed before the Court of Appeals.

In the decision, the Court of Appeals held that PNB and Aguilar were negligent in
handling the deposit. The deposit amount was released to Manimbo who did not present
all the requirements, particularly the Bureau of Internal Revenue (BIR) certification that
estate taxes had already been paid.

PNB and Aguilar filed their separate petitions for review of the Court of Appeals’
July 25, 2013 decision.

ISSUES:
Whether Philippine National Bank was negligent in releasing the deposit to
Bernardito Manimbo;

RULING:
YES. The Philippine National Bank was 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

21
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." Thus, the Civil Code provides:
ART. 1163. Every person obliged to give something is also obliged to take care of it with
the proper diligence of a good father of a family, unless the law or the stipulation of the
parties requires another standard of care.

ART. 1173. The fault or negligence of the obligor consists in the omission of that diligence
which is required by the nature of the obligation and corresponds with the circumstances
of the persons, of the time and of the place. When negligence shows bad faith, the
provisions of articles 1171 and 2201, paragraph 2, shall apply.

If the law or contract does not state the diligence which is to be observed in the
performance, that which is expected of a good father of a family shall be required.
"Diligence of a good father of a family" is the standard of diligence expected of,
among others, usufructuaries, passengers of common carriers, agents, depositaries,
pledgees, officious managers, and persons deemed by law as responsible for the acts of
others. "The diligence of a good father of a family requires only that diligence which an
ordinary prudent man would exercise with regard to his own property.

Similar to common carriers, 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.

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

22
should have raised doubts on such representations. As a result, Angel C. Santos’ deposit
was given to a person stranger to him.

For the same reason, we sustain the award for moral damages. 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. "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.

WHEREFORE, the Court of Appeals' decision dated July 25, 2013 is AFFIRMED
with the MODIFICATIONS in that petitioners Philippine National Bank and Lina B.
Aguilar are ordered solidarily liable to pay respondents Pl 00,000.00 as exemplary
damages. Further, the interest rate for the amount of Pl,882,002.05, representing the
face value of PNB Manager's Check No. AF-974686B is modified to 12% from April 26,
1998 until June 30, 2013, and 6% from July 1, 2013 until satisfaction. All monetary awards
shall then earn interest at the rate of 6% per annum from finality of the decision until full
satisfaction.

23
 Oliver v. PS Bank
G.R. No. 214567 April 4, 2016

Digested by: Catanes, Gyzer U.

FACTS: Petitioner, Dr. Mercedes Oliver, was a depositor of respondent Philippine

Savings Bank (PSBank) with account number 2812-07991-6. Respondent Lilia Castro was
the Assistant Vice President of PSBank and the Acting Branch Manager of PSBank San
Pedro, Laguna.

Oliver alleged that Castro convinced her to loan out her deposit as interim or bridge
financing for approved loans of bank borrowers. Castro would withdraw the amount
needed from Oliver's account and charge interest on the loan proceeds. Oliver claimed
that she did not authorize the withdrawal of P7 million from her account and that the loans
obtained were not with her consent.

She presented evidence, including her passbook with alterations and the transaction
history register, to support her claim.

PSBank and Castro argued that the loans were obtained with Oliver's consent and that
she signed the loan documents. They failed to present the cash withdrawal slip for the P7
million transaction or call a witness to substantiate their defense

ISSUE: Whether PSBank and Castro should be held liable for damages due to the
unauthorized withdrawals from Oliver's account.

RULING: Yes. In the case of banks, the degree of diligence required is more than that of
a good father of a family. Considering 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. 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.

In Simex International v. Court of Appeals, the Court held that the depositor expected
the bank to treat his account with the utmost fidelity, whether such account consisted

24
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. A
blunder on the part of the bank, such as the dishonor of a check without good reason,
can cause the depositor not a little embarrassment if not also financial loss and perhaps
even civil and criminal litigation.

Time and again, the Court has emphasized that the bank is expected to ensure that the
depositor’s funds shall only be given to him or his authorized representative. In Producers
Bank of the Phil. v. Court of Appeals, the Court held that the usual banking procedure
was that withdrawals of savings deposits could only be made by persons whose
authorized signatures were in the signature cards on file with the bank. In the said case,
the bank therein allowed an unauthorized person to withdraw from its depositor’s savings
account, thus, it failed to exercise the required diligence of banks and must be held liable.

With respect to withdrawal slips, the Court declared in Philippine National Bank v. Pike
that "ordinarily, banks allow withdrawal by someone who is not the account holder so long
as the account holder authorizes his representative to withdraw and receive from his
account by signing on the space provided particularly for such transactions, usually
found at the back of withdrawal slips." There, the bank violated its fiduciary duty because
it allowed a withdrawal by a representative even though the authorization portion of the
withdrawal slip was not signed by the depositor.

Finally, in Cagungun v. Planters Development Bank, a case very similar to the present one,
the depositors therein entrusted their passbook to the bank employees for some specific
transactions. The bank employees went beyond their authority and were able to withdraw
from the depositors’ account without the latter’s consent. The bank was held liable
therein for the acts of its employees because it failed to safeguard the accounts of its
depositors.

In the case at bench, it must be determined whether the P7 million was withdrawn from the
bank with the authority of Oliver. As testified to by Castro, every withdrawal from the
bank was duly evidenced by a cash withdrawal slip, a copy of which is given both to the
bank and to its client. Contrary to the position of the CA and that of the respondents,
Oliver cannot be required to produce the cash withdrawal slip for the said transaction

25
because, precisely, she consistently denied giving authority to withdraw such amount
from her account.

Necessarily, the party that must have access to such crucial document would either be
PSBank or Castro. They must present the said cash withdrawal slip, duly signed by
Oliver, to prove that the withdrawal of P7 million was indeed sanctioned. Unfortunately,
both PSBank and Castro failed to present the cash withdrawal slip.

From the foregoing, there was a clear showing of PSBank’s failure to exercise the degree
of diligence that it ought to have exercised in dealing with its clients. It could not prove
that the withdrawal of P7 million was duly authorized by Oliver. As a banking institution,
PSBank was expected to ensure that such substantial amount should only be transacted
with the consent and authority of Oliver. PSBank, however, reneged on its fiduciary duty
by allowing an encroachment upon its depositor’s account without the latter’s permission.
Hence, PSBank must be held liable for such improper transaction.

26
 Ramon Tan Vs. CA and Rizal Commercial Banking Corporation
G.R. No. 108555 December 20, 1994
Digested by: Alma Chaokas

FACTS:

Ramon Tan, a trader-businessman and community leader in Puerto Princesa, had

maintained an account with the RCBC-Binondo branch since 1976. On March 11, 1988, he
secured a cashier’s check from the Philippine Commercial Industrial Bank (PCIB), Puerto
Princesa branch, in the amount of P30,000.00 which he deposited in his RCBC account
on March 15.

However, he used the wrong deposit slip which is why the cashier’s check was sent
to the Central Bank for clearing but was returned on the same day as “missent” or
“misrouted”. Thus, the P30,000 deposit was debited in his account which resulted in the
two personal checks that Tan issued, relying on the common knowledge that a cashier’s
check is as good as cash, to be returned for insufficient funding. It was only after 42 days
that Tan came to know of the debit made to his account concerning the cashier’s check.

Consequently, Tan filed a case for damages caused by RCBD’s alleged

negligence. He claimed to have suffered humiliation in the business sector as well as his
community standing due to the bounced checks. He claimed that the RCBC’s teller
should have informed him when he erroneously filed the wrong deposit slip when he
deposited the check and should also informed him that the cashier’s check was not
credited to his account.

RCBC denied any negligence claiming that it was Tan’s mistake for using the wrong
deposit slip and that RCBC tried to make contact but the numbers registered by Tan
were no longer in use.

The RTC ruled in favor of Tan and ordered RCBC to pay damages. This was,
however, reversed by the CA ruling that the RCBC had made efforts to inform him of the
matter but was unable to do so because the contact numbers provided to them were no
longer in use. It was the duty of Tan to inform the bank of any changes in his contact
information.

ISSUE:

27
Whether the Bank is liable for negligence for failing to inform the depositor of the failed
deposit of the cashier’s check into their account.

RULING:

Yes, the Bank is liable for negligence for failing to inform the depositor of the failed
deposit of the cashier’s check into their account.

In another case decided by the Supreme Court, it was stated that the bank is
engaged in business impressed with public interests, and it is its duty to protect in return
its many clients and depositors who transact business with it. It should not be a matter of
the bank alone receiving deposits, lending out money, and collecting interest. It is also
obligated to see to it that all funds invested with it are properly accounted for and duly
posted in its ledgers. The point is that as a business affected by 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.

In the present case, the teller should not have accepted the local deposit slip with
the cashier's check that on its face was clearly a regional check without calling the
depositor's attention to the mistake at the very moment this was presented to her. Neither
should everyone else down the line who processed the same check for clearing have
allowed the check to be sent to Central Bank. Depositors do not pretend to be past
master of banking technicalities, much more of clearing procedures. As soon as their
deposits are accepted by the bank teller, they wholly repose trust in the bank personnel's
mastery of banking, their and the bank's sworn profession of diligence and
meticulousness in giving irreproachable service.

Moreover, the RCBC claimed that it is within their discretion to refuse to pay the
cashier’s check without its clearance as provided in Monetary Board Resolution No. 2202
that immediate payment without awaiting clearance of a cashier's check is discretionary
with the bank to whom the check is presented.

However, considering that what was presented to the RCBC was not an ordinary
check but a cashier’s check which is a primary obligation of the issuing bank and accepted
in advance by its mere issuance. By its very nature, a cashier's check is the bank's order
to pay drawn upon itself, committing in effect its total resources, integrity and honor

28
behind the check. A cashier's check by its peculiar character and general use in the
commercial world is regarded substantially to be as good as the money which it
represents. Thus, PCIB by issuing the check created an unconditional credit in favor of
any collecting bank.

Tan’s reliance on the layman's perception that a cashier's check is as good as cash
is not entirely misplaced, as it is rooted in practice, tradition, and principle. There is no
reason as to why this so-called discretion was not exercised in favor of Tan, especially
since PCIB and RCBC are members of the same clearing house group relying on each
other's solvency. RCBC could surely rely on the solvency of PCIB when the latter issued
its cashier's check.

Therefore, RCBC bank is held liable for negligence and ordered to pay damages
to petitioner Ramon Tan for mishandling a cashier's check and failing to inform him of the
mistake, resulting in bounced checks and damage to his reputation.

29
 Metropolitan Bank And Trust Co. V. Court Of Appeals

G.R. NO. 112576 OCTOBER 26, 1994

Digested by: Jessa Dag-o

FACTS: Rural Bank of Padre Garcia, Inc. (RBPG) and Metropolitan Bank and Trust
Company (MBTC) had a disput relative to a credit memorandum dated April 5, 1982 from
the Central Bank in the amount of P304,000.00 in favor of RBPG.

On April 6, 1982, MBTC received from the Central Bank a credit memo dated April 5, 1982
that its demand deposit account was credited with P304,000.00 for the account of
RBPG, representing loans granted by the Central Bank to RBPG.

Isabel Katigbak is the president and director of RBPG. She was issued checks against its
account with MBTC based on the credit memo. However, MBTC dishonored the checks
due to insufficient funds and absence of advice from the Central Bank. Prompting RBPG
to pay cash to replace the dishonored checks.

Katigbak received insulting phone calls from an MBTC officer, causing her blood
pressure to rise and requiring medical treatment. Consequently, RBPG and Isabel
Katigbak filed Civil Case No. V-329 in the RTC of Lipa, Batangas — Branch XIII against
the Metropolitan Bank and Trust Company for damages on April 26, 1983.

ISSUE: W/N RBPG and Isabel Katigbak are entitled to recover actual, moral, and
exemplary damages, as well as attorney's fees and litigation expenses.

RULING: YES, they are entitled to recover actual, moral, and exemplary damages, as well
as attorney's fees and litigation expenses.

30
The Court ruled that the case was instituted to seek damages caused by the dishonor
through negligence of respondent bank's checks which were actually sufficiently funded,
and the insults from petitioner bank's officer directed against private respondent Isabel
R. Katigbak. The presence of malice and the evidence of besmirched reputation or loss
of credit and business standing, as well as a reappraisal of its probative value, involves
factual matters which, having been already thoroughly discussed and analyzed in the
courts below, are no longer reviewable here.

The petitioner bank was remiss in its duty and obligation to treat private respondent's
account with the highest degree of care, considering the fiduciary nature of their
relationship. The 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. It must bear the blame for failing to discover the mistake of its employee despite
the established procedure requiring bank papers to pass through bank personnel whose
duty it is to check and counter check them for possible errors.

Responsibility arising from negligence in the performance of every kind of obligation is

demandable. While the bank's negligence may not have been attended with malice and bad
faith, nevertheless, it caused serious anxiety, embarrassment and humiliation to private
respondents for which they are entitled to recover reasonable moral damages.

It was established that when Mrs. Katigbak learned that her checks were not being
honored and Mr. Dungo repeatedly made the insulting phone calls, her wounded feelings
and the mental anguish suffered by her caused her blood pressure to rise beyond normal
limits, necessitating medical attendance for two (2) days at a hospital.

The damage to private respondents' reputation and social standing entitles them to moral
damages. Moral damages include physical suffering, mental anguish, fright, serious
anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation and
similar injury. The carelessness of petitioner bank, aggravated by the lack of promptness
in repairing the error and the arrogant attitude of the bank officer handling the matter,
justifies the grant of moral damages, which are clearly not excessive and unconscionable.

31
32
 Philippine National Bank v. Court of Appeals
G.R. No. 116181, April 17, 1996

Digested by: DENIS, Debie S.

FACTS

On 11 July 1989, private respondent Carmelo H. Flores (Flores) purchased from petitioner
at its Manila Pavilion Hotel unit, two (2) manager's checks worth P500,000.00 each,
paying a total of P1,000,040.00, including the service charge. A receipt for said amount
was issued by the petitioner.

On 12 July 1989, Flores presented these checks at the Baguio Hyatt Casino unit of
petitioner. Petitioner refused to encash the checks but after a lengthy discussion, it
agreed to encash one (1) of the checks. However, it deferred the payment of the other
check until after Flores agreed that it be broken down to five (5) manager's checks of
P100,000.00 each.

Furthermore, petitioner refused to encash one of the five checks until after it is cleared
by the Manila Pavilion Hotel unit. Having no other option, Flores agreed to such an
arrangement. However, upon his return to Manila, he made representations to petitioner
through its Malate Branch so that the check may be encashed but to no avail. Flores,
thereafter, wrote a letter to his counsel informing the latter of the aforementioned events.
A Formal Demand was made by private respondent's counsel but petitioner persisted in
its refusal to honor the check.

Left with no other choice, Flores filed a case with the Regional Trial Court of Quezon
City, Branch 100, docketed as Civil Case No. Q-89- 4033.

In its Answer with Compulsory Counterclaim, petitioner insisted that only P900,000.00
and P40.00 bank charges were actually paid by Flores when he purchased the two (2)
manager's checks worth P1,000,000.00. It alleged that due to Flores' "demanding
attitude and temper," petitioner's money counter, Rowena Montes, who, at that time was

33
still new at her job, made an error in good faith in issuing the receipt for P1,000,040.00.
The actuations of Flores allegedly distracted the personnel manning the unit.

After trial, the court rendered its decision on in favor of the plaintiff.

Petitioner interposed an appeal with the respondent court.

A motion for reconsideration was filed but it was likewise denied in a resolution.

ISSUE

Whether the CA erred in holding that the best evidence to show whether Mr. Flores paid
the PNB Casino unit is the receipt for P 1,000,040.00

RULING

No, the CA did not err in holding that the best evidence to show whether Mr. Flores paid
the PNB Casino unit is the receipt for P 1,000,040.00.

Petitioner concedes that it issued the subject receipt for P1,000,040.00 to Flores; yet,
in the same breath, it immediately counters that said receipt is not the best evidence to
prove how much money Flores actually paid for the purchase of petitioner's manager's
checks.

Further, petitioner insists that the issue in the instant case is not the contents of the
subject receipt but the exact amount of money Flores paid to PNB, an inquiry which,
petitioner avers, allows the presentation of evidence aliunde.

Petitioner's contentions are unmeritorious.

A "receipt" is defined as:

A written and signed acknowledgment that money has been paid or goods have been
delivered. A receipt is merely presumptive evidence and is not conclusive.

34
A written acknowledgment that money or a thing of value has been received. Since a
receipt is a mere acknowledgment of payment, it may be subject to explanation or
contradiction. A receipt may be used as evidence against one just as any other
declaration or admission. A simple receipt not under seal is presumptive evidence only
and may be rebutted or explained by other evidence of mistake in giving it, or of non-
payment or of the circumstances under which it was given.

Although a receipt is not conclusive evidence, in the case at bench, an exhaustive review
of the records fails to disclose any other evidence sufficient and strong enough to
overturn the acknowledgment embodied in petitioner's own receipt (as to the amount of
money it actually received).

Petitioner contends that it offered in court evidence of the particulars or the actual
denominations of the money it received from Flores in exchange for its managerial checks.
However, aside from the self-serving testimonies of petitioner's witnesses, we fail to
discover any such evidence in the records. In the words of the trial court:

After having thoroughly evaluated the evidence on record, the Court finds and so
believes that plaintiff indeed paid defendant the amount of P1,000,040.00 when he
purchased the two (2) manager's checks worth (sic) P1,000,000.00. This is clearly
manifested from the receipt issued by the defendant wherein it explicitly admits that the
amount stated therein is what plaintiff actually paid. While the defendant does not
dispute the receipt it issued to the plaintiff, it endeavored to prove that the actual amount
involved in the entire transaction is only P900,000.00 that is P450,000.00 manager's
check and P450,000.00 cash by submitting in evidence, the application forms filled up
by the plaintiff, Exhibits "1, 2, 3 and 4".

As may be readily seen, these application forms relied upon by the defendant have no
probative value for they do not yield any direct proof of payment. Besides defendant
even failed to adduce concrete evidence showing that these forms which were crumpled
and retrieved from the waste basket were made the basis of the approval of the
purchased (sic) made. At any rate, the Court finds such pieces of evidence not only
unconvincing but also self-defeating in the light of the receipt, the accuracy, correctness

35
and due execution of which was indubitably established. It is a cardinal rule in the law on
evidence that the best proof of payment is the receipt.

In Monfort v. Aguinaldo, the receipts of payment, although not exclusive, were deemed
to be the best evidence. Thus:

That the best evidence for proving payment is by the evidence of receipts showing the
same is also admitted. What respondents claim is that there is no rule which provides that
payment can only be proved by receipts. While receipts are deemed to be the best
evidence, they are not exclusive. Other evidence may be presented in lieu thereof if they
are not available, as in case of loss, destruction or disappearance. The fact of payment
may be established not only by documentary evidence, but also by parol evidence
especially in civil cases where preponderance of evidence is the rule. Here respondents
presented documentary as well as oral evidence which the Court of Appeals found to be
sufficient, and this finding is final.

In the instant case, petitioner's contention that Flores paid P900,000.00 only instead of
P1,000,000.00 (exclusive of bank charges) in the following denominations: a manager's
check worth P450,000.00; P430,000.00 in P100.00 bills; and P20,000.00 in P500.00
bills, was based solely on the testimonies of petitioner's bank employees — the very ones
involved in the fiasco, and not on any other independent evidence. Hence, having failed
to adduce sufficient rebuttal evidence, petitioner is bound by the contents of the receipt
it issued to Flores. The subject receipt remains to be the primary or best evidence or "that
which affords the greatest certainty of the fact in question.

36
 Bank Of The Philippine Islands Vs. Ca And Benjamin C. Napiza
G.R. No. 112392 February 29, 2000

Digested by: Dulawan, Britney Lauryn H.

Facts:

On September 3, 1987, Benjamin Napiza deposited in Foreign Currency Deposit Unit

(FCDU) Savings Account which he maintained in Bank of the Philippine Island (BPI) a
Continental Bank Manager's Check dated August 17, 1984, payable to "cash" in the
amount of $2,500.00. The check belonged to Henry Chan who went to the office of
Napiza and requested him to deposit the check in his dollar account by way of
accommodation and for the purpose of clearing the same. Napiza acceded, and agreed
to deliver to Chan a signed blank withdrawal slip, with the understanding that as soon as
the check was cleared, both of them would go to the bank to withdraw. On October 23,
1984, using the blank withdrawal slip given by Napiza to Chan, Ruben Gayon, Jr. was able
to withdraw, the withdrawal slip shows that the amount was payable to Ramon A. de
Guzman and Agnes C. de Guzman and was duly initialled by the branch assistant manager,
Teresita Lindo.

On November 20, 1984, BPI received a communication from the Wells Fargo Bank
International of New York that the check deposited by Napiza was a counterfeit check
because it was "not of the type or style of checks issued by Continental Bank
International."Ariel Reyes, manager of BPI, instructed one of its employees, Benjamin D.
Napiza IV, who is Napiza's son, to inform his father that the check bounced. Reyes himself
sent a telegram to Napiza regarding the dishonor of the check Napiza's son told Reyes
that the check had been assigned "for encashment" to Ramon A. de Guzman and/or
Agnes C. de Guzman after it had been cleared upon instruction of Chan. His father
immediately tried to contact Chan but Chan was out of town. Napiza's son undertook to
return the amount of $2,500.00 to BPI.

On August 12, 1986, BPI filed a complaint against Napiza for the return of $2,500.00 or
the prevailing peso equivalent plus legal interest, attorney's fees, and litigation and/or
costs of suit. Napiza, admitting that he indeed signed a "blank" withdrawal slip with the
understanding that the amount deposited would be withdrawn only after the check in
question has been cleared. However, without his knowledge, it was withdrawn through

37
 collusion with one of BPI's employees. BPI also filed a motion for admission of a third
party complaint against Chan. He alleged that "thru stratagem and/or manipulation,"
Chan was able to withdraw the amount of $2,500.00 even without Napiza's passbook.

On November 4, 1991, the lower court dismissed the complaint. Having admitted that it
committed a mistake in not waiting for the clearance of the check before authorizing the
withdrawal of its value or proceeds, BPI should suffer the resultant loss. The Court of
Appeals affirmed the lower court’s decision.

Issue:

Whether Napiza can be held liable as an indorser or accommodation party.

Ruling:

No, Napiza cannot be held liable as an indorser or accommodation party. Ordinarily

Napiza may be held liable as an indorser of the check or even as an accommodation party.
However, to hold Napiza liable for the amount of the check he deposited by the strict
application of the law and without considering the attending circumstances in the case
would result in an injustice and in the erosion of the public trust in the banking system.

The interest of justice thus demands looking into the events that led to the encashment
of the check. Under the Philippine foreign currency deposit system, two requisites must
be presented to petitioner bank by the person withdrawing an amount:

(a) a duly filled-up withdrawal slip, and

(b) the depositor's passbook

Napiza signed a blank deposit slip but the withdrawal slip itself indicates a special
instruction that the amount is payable to "Ramon A. de Guzman &/or Agnes C. de
Guzman."

In depositing the check in his name, Napiza did not become the outright owner of the
amount stated therein. By depositing the check with BPI, he was, in a way, merely
designating BPI as the collecting bank.

38
This is in consonance with the rule that a negotiable instrument, such as a check, whether
a manager's check or ordinary check, is not legal tender. 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 do.

While it is true that Napiza's having signed a blank withdrawal slip set in motion the events
that resulted in the withdrawal and encashment of the counterfeit check, the negligence
of BPI’s personnel was the proximate cause of the loss that petitioner sustained.
Proximate cause, which is determined by a mixed consideration of logic, common sense,
policy and precedent, is that cause, which, in natural and continuous sequence, unbroken
by any efficient intervening cause, produces the injury, and without which the result would
not have occurred. The proximate cause of the withdrawal and eventual loss of the
amount of $2,500.00 on petitioner's part was its personnel's negligence in allowing such
withdrawal in disregard of its own rules and the clearing requirement in the banking
system. In so doing, petitioner assumed the risk of incurring a loss on account of a forged
or counterfeit foreign check and hence, it should suffer the resulting damage.

39
 VICENTE GO vs. METROPOLITAN BANK AND TRUST CO.

G.R. No. 168842 August 11, 2010

Digested by: ESPINO, Ryan C.

DOCTRINE: Negligence was committed by the MBTC in accepting for deposit the
crossed checks without indorsement and in not verifying the authenticity of the
negotiation of the checks. The law imposes a duty of extraordinary diligence on the
collecting bank to scrutinize checks deposited with it, for the purpose of determining their
genuineness and regularity.

FACTS:

Vicente Go, owner of the Hope Pharmacy and petitioner of this case, filed a complaint
and collection for sum of money against Ma. Teresa Chua and Glyndah Tabanag, and
filed a separate complaint for sum of money with damages against Metropolitan Bank and
Trust Company (MBTC), respondent of this case for allowing Chua to use a crossed
check named after Go for encashment and without his indorsement. Moreover, Chua who
has the total discretion, granted by Mr. Go, to transfer money from the offices of Hope
Pharmacy to pay the advances and obligations of the pharmacy. During this time Mr. Go
has a debt to the parents of Chua.

Mr. Go, claimed that there was a total of ₱109,433.30 of unauthorized deposits and
encashment were made by Chua for various transactions. Moreover, Go questioned
MBTC for allowing the transactions which led to a total amount of ₱1,492,595.06 without
his endorsement and was deposited under the personal account of Chua. Mr. Go,
assailed that the checks being used in the said transactions were crossed checks payable
to Hope Pharmacy only and that without the connivance and participation of the MBTC
the checks could not have been accepted for deposit to any other account, except Go’s
account.

The RTC, however, rendered its decision for the separate complaint filed by Mr. Go
against Chua and Tabanag, and the MBTC. In its decision, it dismissed the case filed

40
against Chua and Tabanag, however, it condemned MBTC to pay Mr. Go for moral
damages, and attorney’s fees and litigation expenses. The RTC explained that the said
unauthorized transactions because the said deposits to the personal account of Chua
was payment of debt of Mr. Go to Chua’s parents. Thus, the MBTC was not liable to pay
the whole amount of the transactions. However, the RTC reiterated that the said
transactions are without the proper endorsement of Chua which makes the transactions
unauthorized even though that said transactions were for the payment of debt of Mr. Go
to Chua’s parents. In summary, the payment of debt of Mr. Go through the unauthorized
transaction using a crossed check was not proper. The MBTC was liable for being
negligent in allowing the deposit of crossed checks without proper endorsement.

Unsatisfied with the RTC’s decision of exonerating Chua and Tabanag, Mr. Go filed an
appeal before the CA. However, the CA only upheld the RTC’s decision. Hence, this
petition before the Supreme Court.

ISSUE:

Whether the MBTC is liable for allowing the deposit of crossed checks which were issued
in favor of and payable to Mr. Go/Hope Pharmacy and without being indorsed by him, to
the personal account of Chua.

RULING:

Yes, the MBTC is liable for allowing the deposit of crossed checks to the personal
account of Chua without proper indorsement of Mr. Go as the rightful payee of the
crossed checks.

A check is a bill of exchange drawn on a bank payable on demand. There are different
kinds of checks. In this case, crossed checks are the subject of the controversy. A
crossed check is one where two parallel lines are drawn across its face or across the
corner thereof. It may be crossed generally or specially.

A check is crossed specially when the name of a particular banker or a company is written
between the parallel lines drawn. It is crossed generally when only the words "and

41
company" are written or nothing is written at all between the parallel lines, as in this case.
It may be issued so that presentment can be made only by a bank.

In order to preserve the credit worthiness of checks, jurisprudence has pronounced that
crossing of a check has the following effects:
(a) the check may not be encashed but only deposited in the bank;
(b) the check may be negotiated only once — to one who has an account with a bank;
and
(c) the act of crossing the check serves as warning to the holder that the check has been
issued for a definite purpose so that he must inquire if he has received the check pursuant
to that purpose, otherwise, he is not a holder in due course.

The Court has taken judicial cognizance of the practice that a check with two parallel lines
in the upper left hand corner means that it could only be deposited and not converted
into cash. The effect of crossing a check,

thus, relates to the mode of payment, meaning that the drawer had intended the check
for deposit only by the rightful person, i.e., the payee named therein. The crossing of a
check is a warning that the check should be deposited only in the account of the payee.
Thus, it is the duty of the collecting bank to ascertain that the check be deposited to the
payee’s account only.

In the instant case, there is no dispute that the subject 32 checks with the total amount of
₱1,492,595.06 were crossed checks with petitioner as the named payee. It is the
submission of petitioner that respondent bank should be held accountable for the entire
amount of the checks because it accepted the checks for deposit under Chua’s account
despite the fact that the checks were crossed and that the payee named therein was not
Chua.

In its defense, MBTC countered that petitioner is not entitled to reimbursement of the
total sum of ₱1,492,595.06 from either Maria Teresa Chua or respondent bank because
petitioner was not damaged thereby.

42
The MBTC’s contention is meritorious. MBTC should not be held liable for the entire
amount of the checks considering that, as found by the RTC and affirmed by the CA, the
checks were actually given to Chua as payments by Go for loans obtained from the
parents of Chua. Furthermore, Go’s non-inclusion of Chua and Tabañag in the petition
before this Court is, in effect, an admission by the petitioner that Chua, in representation
of her parents, had rightful claim to the proceeds of the checks, as payments by Go for
money he borrowed from the parents of Chua. Therefore, Go suffered no pecuniary loss
in the deposit of the checks to the account of Chua.

However, we affirm the finding of the RTC that MBTC was negligent in permitting the
deposit and encashment of the crossed checks without the proper indorsement. An
indorsement is necessary for the proper negotiation of checks specially if the payee
named therein or holder thereof is not the one depositing or encashing it. Knowing fully
well that the subject checks were crossed, that the payee was not the holder and that the
checks contained no indorsement, respondent bank should have taken reasonable steps
in order to determine the validity of the representations made by Chua. The MBTC was
amiss in its duty as an agent of the payee. Prudence dictates that respondent bank
should not have merely relied on the assurances given by Chua.

Negligence was committed by MBTC in accepting for deposit the crossed checks without
indorsement and in not verifying the authenticity of the negotiation of the checks. The
law imposes a duty of extraordinary diligence on the collecting bank to scrutinize checks
deposited with it, for the purpose of determining their genuineness and regularity. As a
business affected with public interest and because of the nature of its functions, the
banks are under obligation to treat the accounts of its depositors with meticulous care,
always having in mind the fiduciary nature of the relationship. The fact that this
arrangement had been practiced for three years without Mr. Go/Hope Pharmacy raising
any objection does not detract from the duty of the bank to exercise extraordinary
diligence. Thus, the Decision of the RTC, as affirmed by the CA, holding MBTC liable for
moral damages is sufficient to remind it of its responsibility to exercise extraordinary
diligence in the course of its business which is imbued with public interest.

43
 Waiver of Secrecy of Bank Deposits

Soriano v. People
G.R. No. 162336 February 1, 2010

Digested by: GAGARIN, Carlene

Facts: Hilario P. Soriano, a bank officer, is charged with violating the DOSRI law and
estafa through falsification of commercial documents. Soriano is accused of acquiring
bank funds for personal gain through a fraudulent loan application. The Office of
Special Investigation (OSI) of the Bangko Sentral ng Pilipinas (BSP) transmitted a letter
to the Chief State Prosecutor of the Department of Justice (DOJ) containing affidavits
and other documents as bases for filing criminal charges against Soriano. The affidavits
alleged that Soriano, as president of the Rural Bank of San Miguel (Bulacan), Inc.
(RBSM), ordered, facilitated, and received the proceeds of a loan that was not
authorized by the bank's Board of Directors. The OSI requested a preliminary
investigation and the filing of criminal charges against Soriano. State Prosecutor Albert
R. Fonacier conducted the preliminary investigation and filed two separate pieces of
information against Soriano before the Regional Trial Court (RTC) of Malolos, Bulacan.
The first information charged Soriano with estafa through falsification of commercial
documents, while the second information charged him with violation of Section 83 of the
Rural Bank Act. Soriano filed a motion to quash the information, arguing that the
complaint did not comply with the mandatory requirements and that the DOSRI violation
and estafa charges were inconsistent. The RTC denied the motion, and Soriano filed a
petition for certiorari with the Court of Appeals (CA), which also denied the petition.
Soriano then filed a petition for review on certiorari with the Supreme Court.

Issue: 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.

RULING: We have examined the two pieces of information against the petitioner and we
find that they contain allegations which, if hypothetically admitted, would establish the

44
essential elements of the crime of DOSRI violation and estafa through falsification of
commercial documents.

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

In Criminal Case No. 237-M-2001 for estafa thru falsification of commercial documents,
the information alleged that petitioner, by taking advantage of his position as president
of RBSM, falsified various loan documents to make it appear that an Enrico Carlos
secured a loan of P8 million from RBSM; that petitioner succeeded in obtaining the loan
proceeds; that he later converted the loan proceeds to his own personal gain and benefit;
and that his action caused damage and prejudice to RBSM, its creditors, the BSP, and
the PDIC.

Petitioners theory is based on the false premises that the loan was extended to him by
the bank in his own name, and that he became the owner of the loan proceeds.

Under the circumstances, it cannot be said that the 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.

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.

45
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 of indirect
borrowing applies here.

46
 Soriano V. People

G.R. No. 159517-18 June 30, 2009

Digested by: GALUTEN, Andrea Jane Emmanouel L.

DOCTRINE:
The prohibition in Section 83 is broad enough to cover various modes of borrowing. It
covers loans by a bank director or officer 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.

FACTS:

Sometime in 2000, the Office of Special Investigation (OSI) of the Bangko Sentral
ng Pilipinas (BSP), through its officers, transmitted a letter to Jovencito Zuo, Chief State
Prosecutor of the Department of Justice (DOJ). The letter attached as annexes five
affidavits, which would allegedly serve as bases for filing criminal charges for Estafa thru
Falsification of Commercial Documents, in relation to Presidential Decree (PD) No. 1689,
and for Violation of Section 83 of RA 337, as amended by PD 1795, against, inter alia,
petitioner herein Hilario P. Soriano. It was stated in the affidavits that spouses Enrico and
Amalia Carlos appeared to have an outstanding loan of P8 million with the Rural Bank of
San Miguel (Bulacan), 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.
The letter of the OSI, which was not subscribed under oath, ended with a request that a
preliminary investigation be conducted and the corresponding criminal charges be filed
against petitioner at his last known address.

47
State Prosecutor Albert R. Fonacier proceeded with the PI. The investigating officer
issued a Resolution finding probable cause and correspondingly filed two separate
informations against petitioner before the Regional Trial Court (RTC) of Malolos,
Bulacan.
The first Information docketed as Criminal Case No. 237-M- 2001, was for estafa through
falsification of commercial documents, under Article 315, paragraph 1(b), in relation to
Article 172 of the RPC and PD 1689. It basically alleged that 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. The Second Information docketed as Criminal Case No. 238-
M-2001, was for 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. The information
alleged that, 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.

Petitioner’s Contention:

Petitioner moved to quash these informations on two grounds: that the court had no
jurisdiction over the offense charged, and that the facts charged do not constitute an
offense

Petitioner contended that the commission of estafa under RPC is inherently incompatible
with the violation of DOSRI of RA 337, as amended by PD 1795), hence a person cannot
be charged for both offenses. He argued that a violation of DOSRI law requires the
offender to obtain a loan from his bank, without complying with procedural, reportorial,
or ceiling requirements. On the other hand, estafa under RPC requires the offender to
misappropriate or convert something that he holds in trust, or on commission, or for
administration, or under any other obligation involving the duty to return the same.

48
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.

RTC Ruling:

Ruled in favor of the respondents.

CA RULING:

The CA denied the petition on both issues presented by petitioner.

Petitioners Motion for Reconsideration was likewise denied for lack of merit. Hence, this
petition.

ISSUE:
Whether or not there's a DOSRI violation in such a situation wherein the accused bank
officer did not secure a loan in his own name, but was alleged to have used the name of
another person in order to indirectly secure a loan from the bank.

RULING:

YES.

Section 83 of RA 337 reads:

Section 83. No director or officer of any banking institution shall, either directly or
indirectly, for himself or as the representative or agent of others, borrow any of the
deposits of funds of such bank, nor shall he become guarantor, indorser, or surety for
loans from such bank to others, or in any manner be an obligor for moneys borrowed from
the bank or loaned by it, except with the written approval of the majority of the directors
of the bank, excluding the director concerned. Any such approval shall be entered upon
the records of the corporation and a copy of such entry shall be transmitted forthwith to

49
the Superintendent of Banks. The office of any director or officer of a bank who violates
the provisions of this section shall immediately become vacant and the director or officer
shall be punished by imprisonment of not less than one year nor more than ten years and
by a fine of not less than one thousand nor more than ten thousand pesos.

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

50
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.

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

51
 Apolinario v. People
G.R. No. 242977 October 13, 2021
Digested By: Gewan, Zackery P.

FACTS:

In two separate Informations, Apolinario, Winefredo T. Capilitan (Capilitan), Motohiko

Hagisaka (Hagisaka), and Elmer T. Magpantay (Magpantay), directors and officers of
the Unitrust Development Bank (Unitrust), were charged with violation of Section 36 of
Republic Act No. 8791, in relation to Section 36 of Republic Act No. 7653.

In the first Information, the abovementioned accused who were then officers of
Unitrust Development Bank (UDB), as Director/Corporate Secretary, Director
Acting/President, Director/Executive Vice-President and Board Member, respectively,
acquired and released a personal loan to their co-accused Capilitan in the amount of
1,000,000.00 pesos without the written approval of the majority of all directors of UDB.
Meanwhile in the other Information, the same also granted/released a loan amounting to
13 million pesos as evidenced by promissory note, which was signed also by the accused
Capilitan as President of the G Cosmos Philippines, Inc., and in his personal capacity,
without the written approval of the majority of the directors of UDB.

In their arraignment, Apolinario and Magpantay pleaded not guilty to the crime charged.
However, Hagisaka and Capilitan remained at large.

In a Joint Resolution,50 the Regional Trial Court found Apolinario guilty beyond
reasonable doubt of the crimes charged. The dispositive portion reads:51

WHEREFORE, premises considered, this court is fully

convinced to find the accused, JOSH LLAUDER
APOLINARIO, JR., GUILTY, BEYOND REASONABLE
DOUBT, AS CHARGED IN THE TWO INFORMATION.
Thus, this court hereby imposes the following penalties
against Jose Llauder Apolinario, Jr:

Criminal Case No. Penalty of Fine Only

52
03-3631 P100,000.00

03-3632 P200,000.00

In case of insolvency by accused Jose Llauder

Apolinario, Jr., he shall be subject to a subsidiary personal
liability imposed by Article 39 of the Revised Penal Code
(Act No. 3815, as amended).
Cost de oficio.

In its ruling, the Regional Trial Court found that Apolinario violated Section 31 of Batas
Pambansa Bilang 68 or the Corporation Code of the Philippines when he allowed the
loans' release without the requisite board approval and documentation." It noted that
Apolinario signed the Minutes of the Board Meetings despite his knowledge that no
board meetings were held approving the two loans. Finally, it ruled that the prosecution
established that Apolinario conspired with Capilitan in the commission of the offense.

The accused Apolinario moved for a motion for reconsideration to the RTC, but the latter
denied the said motion. Apolinarion then appealed the decision to the Court of Appeals
(CA), but the CA sustained the decision of the RTC, affirming the same. Hence, the
petitioner appealed to the SC via Rule 45 of the Rules of Court.

ISSUE:

Whether the prosecution proved beyond reasonable doubt the guilt of petitioner
Jose Apolinario Jr. y Llauder for violation of Section 36 of Republic Act No. 8791, in
relation to Section 36 of Republic Act No. 7653.

HELD:

Yes, the prosecution proved beyond reasonable doubt the guilt of petitioner Jose
Apolinario Jr. y Llauder for violation of Section 36 of Republic Act No. 8791, in relation to
Section 36 of Republic Act No. 7653.

53
 Banking institutions are corporations imbued with public interest. They are
required to exercise the highest degree of diligence. By their nature, banks operate
within certain restrictions and limitations, one of which is the issuance of loans to its
directors, officers, stockholders, and related interests (DOSRI). The requirements
under the General Banking Law are straightforward. If all the elements provided by
the law are present, erring directors and officers can be held criminally liable for
violating the DOSRI law.

To further safeguard the interest of the public, several restrictions and

limitations on banks and its employees have been enacted, one of which is the
restriction on DOSRI loans.
DOSRI loans refer to borrowings incurred by the bank's directors, officers,
stockholders, and their related interests. The restriction is described under Section 36
of the General Banking Law.

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[.]

In relation, Section 36 of Republic Act No. 7653 or the New Central Bank Act provides
for the penalty for violation of the restriction on DOSRI loans:

54
 Section 36. Proceedings Upon Violation of This Act and
Other Banking Laws, Rules, Regulations, Orders or
Instructions.– Whenever a bank or quasi-bank, or whenever
any person or entity willfully violates this Act or other
pertinent banking laws being enforced or implemented by
the Bangko Sentral or any order, instruction, rule or
regulation issued by the Monetary Board, the person or
persons responsible for such violation shall unless otherwise
provided in this Act be punished by a fine of not less than
Fifty thousand pesos (P50,000) nor more than Two
hundred thousand pesos (P200,000) or by imprisonment
of not less than two (2) years nor more than ten (10) years,
or both, at the discretion of the court.
Whenever a bank or quasi-bank persists in carrying on its
business in an unlawful or unsafe manner, the Board may,
without prejudice to the penalties provided in the preceding
paragraph of this section and the administrative sanctions
provided in Section 37 of this Act, take action under Section
30 of this Act.

To sustain a conviction for violation of the DOSRI restriction, the prosecution

must prove the existence of the following elements beyond reasonable doubt:

. . . (1) the offender is a director or officer of any

banking institution; (2) the offender, either directly or
indirectly, for himself or as a representative or agent of
another, performs any of the following acts: (a) he
borrows any of the deposits or funds of such bank; or (b)
he becomes a guarantor, indorser, or surety for loans
from such bank to others: or (c) he becomes in any manner
an obligor for money borrowed from bank or loaned by it;
and (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.

55
 Under the General Banking Law, for a DOSRI loan to be valid, it is necessary that
the written approval of the majority of the bank's directors be entered into the bank's
records. In addition, a copy of the entry must be transmitted to the appropriate
supervising and examining department of the Bangko Sentral ng Pilipinas.
In the present case, petitioner does not deny that the loans were not reported to the
Bangko Sentral ng Pilipinas. However, he claims that they could not have met this
requirement because of Bangko Sentral ng Pilipinas and Philippine Deposit Insurance
Company's subsequent takeover of Unitrust. He argues that the takeover effectively
dissolved Unitrust's operations, making it impossible for them to report the loans to
Bangko Sentral ng Pilipinas.125 He also maintains that since Dela Paz was then assigned
as an examiner at Unitrust from October 2001 until January 2002, he should have been
aware of the loans' existence.

The Court deemed otherwise, for it must be stressed that the responsibility
of entering upon its records the required written approval and of
transmitting a copy of the entry to the Bangko Sentral ng Pilipinas is on the
subject bank, which in this case is Unitrust. While Dela Paz, a Bangko
Sentral ng Pilipinas Assisting Examiner, was then assigned at Unitrust at
the time material to this case, his job was to monitor the transfer of
ownership from the previous owners of Bank of Makati to the Japanese
group. Accordingly, his presence at Unitrust alone cannot equate to his
knowledge of the circumstances surrounding the two loans. Further,
assuming that Dela Paz had acquired information regarding these loans,
Unitrust still had the duty to comply with the reportorial requirements of
the law.

56
 Soriano v. People
G.R. No. 240458 January 8, 2020

Digested by: Juguilon, Celina Koleen Z.

FACTS:
Petitioner Hilario P. Soriano, in his capacity as president of the Rural Bank of San
Miguel (RBSM) (Bulacan), Inc., unlawfully secured a loan with the Rural Bank of San
Miguel branch amounting to P15 million without the written consent of the board of
directors of the said bank. Petitioner failed to enter the loan upon the records of the
bank as required under the General Banking Act by using the name of depositor Virgilio
J. Malang (Malang) who had no knowledge of such loan. Petitioner was then found guilty
of abuse of confidence and taking advantage of his posititon as president of the said
institution. Petitioner was also charged of securing an indirect loan from RBSM while
being an officer thereof by falsifying loan documents.

The RTC convicted petitioner for violation of Section 83, R.A. No. 337 as amended
by P.D. No. 1795 (General Banking Act). The CA affirmed such conviction. Aggrieved,
petitioner filed the instant petition, invoking that he did not violate Section 83 of R.A. No.
337 and that there was no evidence that the indirect loan he obtained under Malang’s
name inured to his benefit.

ISSUE:
Whether petitioner violated Section 83 of R.A. No. 337.

RULING:
Yes, petitioner violated Section 83 of R.A. No. 337.

Section 83 of R.A. No. 337, as amended, states:

SEC. 83. No director or officer of any banking institution shall, either directly or
indirectly, for himself or as the representative or agent of others, borrow any of
the deposits of funds of such bank, nor shall he become a guarantor, indorser, or
surety for loans from such bank to others, or in any manner be an obligor for

57
 moneys borrowed from the bank or loaned by it, except with the written approval
of the majority of the directors of the bank, excluding the director concerned. Any
such approval shall be entered upon the records of the corporation and a copy of
such entry shall be transmitted forthwith to the Superintendent of Banks. The
office of any director or officer of a bank who violates the provisions of this
section shall immediately become vacant and the director or officer shall be
punished by imprisonment of not less than one year nor more than ten years and
by a fine of not less than one thousand nor more than ten thousand pesos.

The following elements must be present to constitute a violation of the above-quoted

provision:
1. the offender is a director or officer of any banking institution;
2. the offender, either directly or indirectly, for himself or as a representative or
agent of another, performs any of the following acts:
a. he borrows any of the deposits or funds of such bank; or
b. he becomes a guarantor, indorser, or surety for loans from such bank to
others; or
c. he becomes in any manner an obligor for money borrowed from bank or
loaned by it; and
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.

Considering all the foregoing established circumstances, we find that the courts a
quo correctly ruled that the prosecution evidence proved beyond reasonable doubt that
petitioner, as president of RBSM, indirectly borrowed or secured a loan with RBSM
without the written consent and approval of the majority of the board of directors, which
consent and approval petitioner deliberately failed to obtain, by using the name of one
depositor Malang, the latter having no knowledge of said loan, and thereafter converted
the same to his own personal use and benefit. There is no question that petitioner was a
director and officer of RBSM, being the president thereof. It was also established that
the subject loan had no approval from RBSM's board of directors; thus petitioner
violated

Wherefore, the petition is denied.

58
 Foreclosure and Redemption

Mallari v. GSIS
G.R. No. 157659 January 25, 2010

Digested by: Lawagan, Mary Faith L

Facts: The petitioner obtained two loans with a total of PhP34,000.00 from the
Government Service Insurance System (GSIS), secured by mortgaging two parcels of land
registered under his and his wife's names.

Despite the loans being contracted in 1968, the petitioner only made partial payments in
1978, with a total of Php 30,000.00.

After a series of delays and legal maneuvers by the petitioner, GSIS commenced
extrajudicial foreclosure proceedings in 1986 due to the petitioner's failure to make
further payments.

The Regional Trial Court (RTC) initially ruled in favor of the petitioner, nullifying the
foreclosure and auction sale and reinstating the titles in his and his wife's names.

However, the Court of Appeals (CA) reversed the RTC's decision in 1996, which was
upheld by the Supreme Court in 1997, making the foreclosure and auction sale final and
executory.

GSIS filed for execution and a writ of possession in 1999, which was granted by the RTC.

Despite attempts by the petitioner to delay the execution, including filing motions for
reconsideration and initiating another case, the court ordered the implementation of the
writ of execution.

ISSUE: 1.Whether or not the petitioner's right to redeem the foreclosed properties was
properly observed and respected throughout the legal proceedings.

2.Whether or not the petitioner was given adequate notice and opportunity to redeem the
properties after the foreclosure, and whether any actions taken by GSIS or the court
unduly hindered or infringed upon the petitioner's right to exercise redemption.

59
RULING: 1. The petitioner's right to redeem the foreclosed properties was not infringed
upon and the Court of Appeals (CA) found that the petitioner engaged in legal
maneuvers to delay the execution of the final judgment.

Here, the court emphasized that once a judgment becomes final and executory, the
prevailing party has the right to execute it, including the foreclosure of properties.

Therefore, while the petitioner may have attempted to challenge the proceedings, the CA
ultimately concluded that the execution of the judgment was lawful and proper.

The petitioner was given adequate notice and opportunity to redeem the properties after
the foreclosure. The timeline of events indicates that the petitioner was involved in legal
proceedings and motions regarding the foreclosure and execution of the judgment.

However, the Court of Appeals (CA) ultimately ruled that the petitioner's actions were
part of dilatory tactics to delay the execution of the final judgment.

The CA did not find any actions taken by the Government Service Insurance System
(GSIS) or the court that unduly hindered or infringed upon the petitioner's right to
exercise redemption.

Therefore, it can be inferred that the petitioner was afforded adequate notice and
opportunity to redeem the properties, but his attempts to challenge the proceedings
were deemed as delaying tactics by the court.

60
 Goldenway Merchandising Corporation vs Equitable PCI Bank

G. R. No. 195540 March 13, 2013

Digested by: Liban, Darren

Facts:

Petitioner Goldenway Merchandising Corporation executed a Real Estate Mortgage in

favor of Respondent Equitable PCI Bank. The said mortgage was executed on November
29, 1985 prior to the effectivity of R.A. No. 8791 (The General Banking Law). To cut the
story short, petitioner failed to settle its obligation and respondent extrajudicially
foreclosed the mortgaged o December 13, 2000. The mortgaged properties were later
sold at auction to the respondent. A certificate of sale was issued in favor of the
respondent on January 26, 2001 and it was registered on February 16, 2001.

On March 8, 2001, petitioner offered to redeem the foreclosed property but respondent
told that such redemption is no longer possible because the certificate of sale had
already been registered. Petitioner then filed a complaint for specific performance and
damages against the respondent, asserting that it has one-year period of redemption
under Act No 3135 and not the shorter redemption period under R.A. No. 8791.

The trial court dismissed the complaint and ruled that the petitioner’s attempt to redeem
the foreclosed property was already late and that there was no valid redemption made
because the counsel who made the offer was not properly authorized by petitioner’s
Board of Directors. Aggrieved, petitioner appealed to the CA which affirmed the trial
court’s decision. Thus, petitioner elevated the case to the Supreme Court.

Issue:

Whether the shorter redemption period for juridical persons on foreclosed real estate
properties under Section 47 of R.A. No. 8791 be validly applied in this case, considering
that the real estate mortgage contract was executed in 1985 and the mortgage was
foreclosed when R.A. No. 8791 was already in effect.

Ruling:

61
Yes, the Supreme Court held that Section 47 of R.A. No. 8791 is validly applicable to the
case at bar.

Under Section 47 of R.A. No. 8791, juridical persons are allowed to exercise the right of
redemption only “until, but not after, the registration of the certificate of foreclosure
sale” and in no case more than three (3) months after foreclosure, whichever comes first.

Petitioner’s argument that said provision of R.A. No. 8791 violates the non-impairment
clause of the constitution is without merit. To be clear, there is only an impairment if a
subsequent law changes the terms of a contract between the parties, imposes new
conditions, dispenses with those agreed upon or withdraws remedies for the enforcement
of the rights of the parties. Section 47 did not divest juridical persons, such as the
petitioner, of the right to redeem their foreclosed properties but only modified the time
for exercise of such right by reducing the one-year period originally provided in the old
law.

Petitioner’s claim that section 47 infringes the equal protection clause is also without
merit. The difference in the treatment of juridical persons and natural persons was based
on the nature of the properties foreclosed whether these are used as residence, for
which the more liberal one-year redemption period is retained, or used for industrial or
commercial purposes, in which case a shorter term is deemed necessary to reduce the
period of uncertainty in the ownership of property and enable mortgage-banks to
dispose sooner of these acquired assets. Considering that, the said provision was
introduced with the aim to ensure the solvency and liquidity of our banks, it cannot
therefore be disputed that the said provision was based on a reasonable classification
and germane to the purposes of the law.

On the final note, the right of redemption being statutory, it must be exercised in the
manner prescribed by the statute, and within the prescribed time limit, to make it effective.
Furthermore, as with other individual rights to contract and to property, it has to give way
to police power exercised for public welfare.

62
 White Marketing Dev. Corp v. Grandwood Furniture and Woodwork, Inc.
G.R. No. 222407, November 23, 2016

Digested By: Martinez, Trisha Mae A.

FACTS: Respondent Grandwood Furniture & Woodwork, Inc. (Grandwood) obtained a

loan in the amount of P40,000,000.00 from Metropolitan Bank and Trust Company
(Metrobank). The loan was secured by a real estate mortgage over a parcel of land.
Metrobank eventually sold its rights and interests over the loan and mortgage contract
to Asia Recovery Corporation (ARC). The latter then assigned the same rights and
interests to Cameron Granville 3 Asset Management, Inc. (CGAM3).

After Grandwood failed to pay the loan which already amounted to P68,941,239.46,
CGAM3 initiated extrajudicial foreclosure proceedings of the real estate mortgage.
During the September 17, 2013 Auction Sale, petitioner White Marketing Development
Corporation (White Marketing) was declared the highest bidder and a certificate of sale
was issued in its favour.

White Marketing received a letter from the sheriff informing it that Grandwood intended
to redeem the foreclosed property. In response, White Marketing sent a letter informing
the sheriff that Grandwood no longer had the right to redeem.

Petitioner White Marketing insisted that Grandwood's right of redemption had lapsed
because, under the mortgage contract, the parties agreed that the same would be
governed by R.A. No. 8791. It argued that because the parties voluntarily stipulated the
governing law, the same was binding on them. White Marketing asserted that when
Metrobank assigned its rights, its assignees acquired whatever rights the former had
under the Real Estate Mortgage.

Grandwood reiterated that pursuant to the spirit and intent of R.A No. 8791, the shorter
redemption period applied in favour of banking institutions only. In its view, R.A. No. 8791
would apply only when the mortgagee bank itself would foreclose the property and not
when the same had already assigned or conveyed its mortgage rights for a consideration.

63
White Marketing countered that Grandwood was bound by the provisions of the real
estate mortgage and should suffer the consequences for its failure to redeem the
mortgaged property within the allotted time.

ISSUE: Whether White Marketing was entitled to a shorter redemption period under the
General Banking Law?

RULING: Yes, the Supreme Court ruled in favour of White Marketing, upholding the
shorter redemption period under the General Banking Law of 2000.

A shorter term is deemed necessary to reduce the period of uncertainty in the ownership
of property and enable mortgagee-banks to dispose of these acquired assets. It must be
underscored that the General Banking Law of 2000, crafted in the aftermath of the 1997
Southeast Asian financial crisis, sought to reform the General Banking Act of 1949 by
fashioning a legal framework for maintaining a safe and sound banking system. In this
context, the amendment introduced by Section 47 embodied one of such safe and sound
practices aimed at ensuring the solvency and liquidity of our banks.

While it is a given that redemption by property owners is looked upon with favor, it is
equally true that the right to redeem properties remains to be a statutory privilege. a valid
redemption of property must appropriately be based on the law which is the very source
of this substantive right. It is, therefore, necessary that compliance with the rules set forth
by Jaw and jurisprudence should be shown in order to render validity to the exercise of
this right.

To reiterate, the shortened period of redemption provided in Section 47 of R.A. No. 8791
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 non-banking 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.

64
 Fidelity Savings and Mortgage Bank v. Hon. Cenzon
G.R. No. L-46208 April 5, 1990

Digested by: Minimo, Jessa

Facts:
Respondent spouses Santiago maintained a savings and time deposit with petitioner
bank. The Monetary Board found petitioner bank to be insolvent and ordered for its
assets to be taken charged of by the Acting Superintendent. The PDIC paid spouses for
their deposits with petitioner bank but there was still a remaining balance. The Monetary
Board then directed the liquidation of the affairs of petitioner bank and a subsequent
petition for assistance and supervision in liquidation was filed in the court. The liquidation
proceedings still pending, respondent spouses sent demand letters to petitioner bank for
the payment of their deposits. The court ruled in favor of respondent spouses.

Issue:
Whether petitioner bank may be adjudged to pay interest on unpaid deposits even after
its closure by the Central Bank by reason of insolvency.

Ruling:
No.It is settled jurisprudence that a banking institution which has been declared insolvent
and subsequently ordered closed by the Central Bank of the Philippines cannot be held
liable to pay interest on bank deposits which accrued during the period when the bank is
actually closed and non-operational. In The Overseas Bank of Manila vs. Court of
Appeals and Tony D. Tapia, we held that: It is a matter of common knowledge, which We
take judicial notice of, that what enables a bank to pay stipulated interest on money
deposited with it is that thru the other aspects of its operation it is able to generate funds
to cover the payment of such interest. Unless a bank can lend money, engage in
international transactions, acquire foreclosed mortgaged properties or their proceeds
and generally engage in other banking and financing activities from which it can derive
income, it is inconceivable how it can carry on as a depository obligated to pay stipulated
interest. Conventional wisdom dictates this inexorable fair and just conclusion. And it can
be said that all who deposit money in banks are aware of such a simple economic
proposition. Consequently, it should be deemed read into every contract of deposit with

65
a bank that the obligation to pay interest on the deposit ceases the moment the operation
of the bank is completely suspended by the duly constituted authority, the Central Bank.

From the aforecited authorities, it is manifest that petitioner cannot be held liable for
interest on bank deposits which accrued from the time it was prohibited by the Central
Bank to continue with its banking operations. The order, therefore, of the Central Bank
as receiver/liquidator of petitioner bank allowing the claims of depositors and creditors
to earn interest up to the date of its closure is in line with the doctrine laid down in the
jurisprudence above cited.

66
 Macalinao v. Bank of the Philippine Islands
G.R. No. 175490 September 17, 2009
Digested by: Ogsar, Novilyn A.

FACTS:
Petitioner Ileana Macalinao was an approved cardholder of BPI Mastercard, one of the
credit card facilities of respondent Bank of the Philippine Islands (BPI). Petitioner
Macalinao made some purchases through the use of the said credit card and defaulted in
paying for said purchases. She subsequently received a letter dated January 5, 2004
from respondent BPI, demanding payment of the amount of one hundred forty-one
thousand five hundred eighteen pesos and thirty-four centavos (PhP 141,518.34)

Macalinao defaulted in paying for said purchases. Under the Terms and Conditions
Governing the Issuance and Use of the BPI Creditand BPI Mastercard, the charges or
balance thereof remaining unpaid after the payment due date indicated on the monthly
SOA shall bear interest at the rate of 3% per month and an additional penalty fee
equivalent to another 3% per month. For failure of petitioner Macalinao to settle her
obligations, BPI filed with the MeTC a complaint against her and her husband, Danilo.
BPI prayed for the payment of 154,608.78 plus 3.25% finance charges and late payment
charges equivalent to 6% of the amount due.

MeTC ruled in favor of respondent BPI and modified the interest and penalty charges to
2% per month. RTC affirmed in toto the decision of the MeTC.

CA affirmed with modification the decision of the RTC and increased the interest and
penalty charge to 3% per month or 36% per annum based on the Terms and Conditions
Governing the Issuance and Use of the BPI Credit Card. Macalinao claims that the rate
imposed by the CA is iniquitous. BPI asserts that said interest rate and penalty charge
are reasonable as the same are based on the Terms and Conditions Governing the
Issuance and Use of the BPI Credit Card.

ISSUE:
Whether the Reduction Of Interest Rate, from 9.25% to 2%, should be upheld since the
stipulated rate of interest was unconscionable and iniquitous, and thus illegal.

67
RULING:
Yes. The supreme court ruled that the interest rate and penalty charge of 3% per month
should be equitably reduced to 2% per month or 24% per annum. Indeed, in the Terms
and Conditions Governing the Issuance and Use of the BPI Credit Card, there was a
stipulation on the 3% interest rate. Nevertheless, it should be noted that this is not the
first time that this Court has considered the interest rate of 36% per annum as excessive
and unconscionable. Since the stipulation on the interest rate is void, it is as if there was
no express contract thereon. Hence, courts may reduce the interest rate as reason and
equity demand.

In the instant case, the records would reveal that petitioner Macalinao made partial
payments to respondent BPI, as indicated in her Billing Statements. Further, the
stipulated penalty charge of 3% per month or 36% per annum, in addition to regular
interests, is indeed iniquitous and unconscionable. Thus, under the circumstances, the
Court finds it equitable to reduce the interest rate pegged by the CA.

68
 Heirs of Estelita Burgos-Lipat v. Heirs of Eugenio D. Trinidad
G.R. No. 185644 March 2, 2010
Digested by: OLAIREZ, Dexter Jan C.

FACTS:
Estelita and Alfredo Lipat obtained a loan from Pacific Banking Corporation,
secured by a real estate mortgage. Due to petitioners’ failure to pay their loans, the PBC
foreclosed the subject property with Eugenio D. Trinidad as the highest bidder. He was
issued a certificate of sale which was registered on April 12, 1989.

The petitioners filed a complaint for annulment of mortgage, extra-judicial

foreclosure and certificate of sale. The RTC dismissed the complaint but granted
petitioners five months and 17 days from the finality of the decision to exercise their right
of redemption, a decision which was subsequently affirmed by the Supreme Court.
Meanwhile, petitioners assigned their rights over the contested property to Partas
Transporation Co., Inc. (PTCI). Within the given period left for redemption, PTCI
exercised the right of redemption. However, the heirs of Trinidad refused to claim the
redemption money and surrender the certificate of title.

ISSUE:
Whether the right to redemption should have been exercised within one year from
the date of registration of the certificate of sale.

RULING:
No, the right to redemption should not have been exercised within one year from
the date of registration of the certificate of sale.

The one-year redemption period is the rule that generally applies to foreclosure
of mortgage by a bank. The period of redemption is not tolled by the filing of a complaint
or petition for annulment of the mortgage and the foreclosure sale conducted pursuant
to the said mortgage. However, in Lipat, the Supreme Court upheld the RTC decision
giving petitioners five months and 17 days from the finality of the trial court’s decision to
redeem their foreclosed property. Lipat, already final and executory, has therefore
become the law of the case between the parties, even though the said period was beyond

69
one year from the date of registration of the sale. The CA had no power to reverse the
Court’s final and executory judgment.

70
 Ejercito v. Sandiganbayan
G.R. No. 157294-95 November 30, 2006
Digested by: Padilla, Rhea Mae

Facts: Joseph Victor G. Ejercito is the owner of Trust Account No. 858 which was
originally opened at Urban Bank but which is now maintained at Export and Industry
Bank, which is the purchaser and owner now of the former Urban Bank and Urbancorp
Investment, Inc. He is also the owner of Savings Account No. 0116-17345-9 which was
originally opened at Urban Bank but which is now maintained at Export and Industry
Bank, the purchaser and owner of the former Urban Bank and Urbancorp Investment,
Inc.

Estrada was subsequently charged with Plunder. The Sandiganbayan a Request for
Issuance of Subpoena Duces Tecum for the issuance of a subpoena directing the
President of Export and Industry Bank (EIB, formerly Urban Bank) or his/her
authorized representative to produce various document related to the investigation.
The Special Prosecution Panel also filed a Request for Issuance of Subpoena Duces
Tecum/Ad Testificandum directed to the authorized representative of Equitable-PCI
Bank to produce statements of account pertaining to certain accounts in the name of
“Jose Velarde” and to testify thereon.

The Sandiganbayan granted both requests by Resolution and subpoenas were

accordingly issued. The Special Prosecution Panel filed still another Request for
Issuance of Subpoena Duces Tecum/Ad Testificandum for the President of EIB or
his/her authorized representative to produce the same documents subject of the first
Subpoena Duces Tecum and to testify thereon on the hearings scheduled and
subsequent dates until completion of the testimony. The request was likewise granted by
the Sandiganbayan. A Subpoena Duces Tecum/Ad Testificandum was accordingly
issued. Ejercito filed various motions to quash the various Subpoenas Duces Tecum/Ad
Testificandum previously issued. In his Motion to Quash, he claimed that his bank
accounts are covered by R.A. No. 1405 (The Secrecy of Bank Deposits Law) and do not
fall under any of the exceptions stated therein. He further claimed that the specific
identification of documents in the questioned subpoenas, including details on dates and
amounts, could only have been made possible by an earlier illegal disclosure thereof by

71
the EIB and the Philippine Deposit Insurance Corporation (PDIC) in its capacity as
receiver of the then Urban Bank. The disclosure being illegal, he concluded, the
prosecution in the case may not be allowed to make use of the information. Before the
motion was resolved by the Sandiganbayan, the prosecution filed another

Issue: Whether or not a Trust Account is covered by the term “deposit” as used in R.A.
1405;

Held: R.A. 1405 is broad enough to cover Trust Account No. 858. However, the
protection afforded by the law is not absolute. There being recognized exceptions
thereto, as above-quoted Section 2 provides. In the present case, two exceptions apply,
to wit: (1) the examination of bank accounts is upon order of a competent court in cases
of bribery or dereliction of duty of public officials, and (2) the money deposited or
invested is the subject matter of the litigation. Ejercito contends that since plunder is
neither bribery nor dereliction of duty, his accounts are not excepted from the protection
of R.A. 1405.

Cases of unexplained wealth are similar to cases of bribery or dereliction of duty and no
reason is seen why these two classes of cases cannot be excepted from the rule making
bank deposits confidential. The policy as to one cannot be different from the policy as
to the other. This policy expresses the notion that a public office is a public trust and any
person who enters upon its discharge does so with the full knowledge that his life, so far
as relevant to his duty, is open to public scrutiny. Undoubtedly, cases for plunder involve
unexplained wealth. The crime of bribery and the overt acts constitutive of plunder are
crimes committed by public officers, noble idea that “a public office is a public trust and
any person who enters upon its discharge does so with the full knowledge that his life, so
far as relevant to his duty, is open to public scrutiny” applies with equal force.

Also, the plunder case now pending with the Sandiganbayan necessarily involves an
inquiry into the whereabouts of the amount purportedly acquired illegally by former
President Joseph Estrada. Republic Act No. 1405 allows the disclosure of bank
deposits in cases where the money deposited is the subject matter of the
litigation. Hence, these accounts are no longer protected by the Secrecy of Bank
Deposits Law, there being two exceptions to the said law applicable in this case, namely:

72
(1)the examination of bank accounts is upon order of a competent court in cases of
bribery or dereliction of duty of public officials, and (2)the money deposited or invested
is the subject matter of the litigation. Exception (1) applies since the plunder case pending
against former President Estrada is analogous to bribery or dereliction of duty, while
exception (2) applies because the money deposited in Ejercito’s bank accounts is said to
form part of the subject matter of the same plunder case. The “fruit of the poisonous
tree” doctrine or the exclusionary rule is inapplicable in cases of unlawful examination of
bank accounts.

73
 Advocates for Truth in Lending v. BSP
G.R. No. 192986 January 15, 2013

Digested by: Parana, Micah Nica R.

FACTS:
Petitioner, Advocates for Truth in Lending, Inc. (AFTIL) is a non-profit, non-stock
corporation organized to engage in pro bono concerns and activities relating to money
lending issues. It was incorporated on July 9, 2010, and a month later, it filed this petition,
joined by its founder and president, Eduardo B. Olaguer, suing as a taxpayer and a
citizen.
R.A. No. 265, which created the Central Bank (CB) of the Philippines on June 15, 1948,
empowered the CB-MB to, among others, set the maximum interest rates which banks
may charge for all types of loans and other credit operations, within limits prescribed by
the Usury Law.
On March 17, 1980, the Usury Law was amended by Presidential Decree (P.D.) No. 1684,
giving the CB-MB authority to prescribe different maximum rates of interest which may
be imposed for a loan or renewal thereof or the forbearance of any money, goods or
credits, provided that the changes are effected gradually and announced in advance.
Thereafter, the CB-MB issued CB Circular No. 905, Series of 1982 removing the ceilings
on interest rates on loans or forbearance of any money, goods or credits.
On June 14, 1993, President Fidel V. Ramos signed into law R.A. No. 7653 establishing the
Bangko Sentral ng Pilipinas (BSP) to replace the CB.
Petitioners, claiming that they are raising issues of transcendental importance to the
public, filed directly with this Court this Petition for Certiorari under Rule 65 of the 1997
Rules of Court, seeking to declare that the BangkoSentralngPilipinas Monetary Board
(BSP-MB), replacing the Central Bank
Monetary Board (CB-MB) by virtue of Republic Act (R.A.) No. 7653, has no authority to
continue enforcing Central Bank Circular No. 905,issued by the CB-MB in 1982, which
"suspended" Act No. 2655, or the Usury Law of 1916.

ISSUE:
Whether in a usurious loan with mortgage, the right to foreclose the mortgage subsists,
and this right can be exercised by the creditor upon failure by the debtor to pay the debt
due.

74
RULING:
Yes, the debt due is considered as without the stipulated excessive interest, and a legal
interest of 12% per annum will be added in place of the excessive interest formerly
imposed, following the guidelines laid down in the landmark case of Eastern Shipping
Lines, Inc. v. Court of Appeals, regarding the manner of computing legal interest:
With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as
follows:
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e.,
a loan or forbearance of money, the interest due should be that which may have been
stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the
time it is judicially demanded. In the absence of stipulation, the rate of interest shall be
12% per annum to be computed from default, i.e., from judicial or extrajudicial demand
under and subject to the provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an
interest on the amount of damages awarded may be imposed at the discretion of the court
at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated
claims or damages except when or until the demand can be established with reasonable
certainty. Accordingly, where the demand is established with reasonable certainty, the
interest shall begin to run from the time the claim is made judicially or extrajudicially (Art.
1169, Civil Code) but when such certainty cannot be so reasonably established at the time
the demand is made, the interest shall begin to run only from the date the judgment of the
court is made (at which time the quantification of damages may be deemed to have been
reasonably ascertained). The actual base for the computation of legal interest shall, in
any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory,
the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above,
shall be 12% per annum from such finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of credit.
Stipulations authorizing iniquitous or unconscionable interests have been invariably
struck down for being contrary to morals, if not against the law. Indeed, under Article
1409 of the Civil Code, these contracts are deemed inexistent and void ab initio, and
therefore cannot be ratified, nor may the right to set up their illegality as a defense be
waived.

75
Nonetheless, the nullity of the stipulation of usurious interest does not affect the lender’s
right to recover the principal of a loan, nor affect the other terms thereof.

76
 Villa Crista Monte Realty & Development Corp. v. Equitable PCI Bank
G.R. No. 208336 November 21, 2018

Digested By: POKA-IS, Aprilyn Joy F.

Doctrine:
An escalation clause without a concomitant de-escalation clause is void and
ineffectual for violating Presidential Decree No. 1684,1 otherwise known as Amending
Further Act No. 2655, As Amended, Otherwise Known as "The Usury Law," as well as the
principle of mutuality of contracts unless the established facts and circumstances, as
well as the admissions of the parties, indicate that the lender at times lowered the interest
rates, or, at least, allowed the borrower the discretion to continue with the repriced rates.
Not all contracts of adhesion are invalid. Only a contract of adhesion in which one
of the parties is shown to be the weaker as to have been imposed upon may be invalidated
and set aside.

Facts:
Sometime in 1994, plaintiff-appellant Villa Crista Monte Realty Corporation was
organized to engage in the business of real estate development. It acquired from a certain
Alfonso Lim the 80,000 square meters (8 hectares) parcel of land located at Old Balara,
Quezon City, which land appellant intended to develop into a residential subdivision. To
fully develop its subdivision project, the petitioner applied for and was granted a credit
line of P80 Million by then Equitable Philippine Commercial International Bank (E-PCIB),
now Banco De Oro and secured the said credit line by executing a Real Estate Mortgage
over the 80,000 square meters of its properties covered by a tax declaration including all
the existing improvements thereon.

The petitioner subdivided the land into 174 lots and applied for an additional P50
million credit accommodation. E-PCIB granted appellant's request on the condition that
the real estate mortgage contract be amended to conform to the changes in the amount
of the credit line and in the properties subject of the mortgage, to which condition
appellant readily agreed. The petitioner obtained various amounts under the credit line
from March to August 1997, each covered by a promissory note. E-PCIB later informed
the petitioner of increased interest rates on the loans covered by the promissory notes,

77
ranging from 21% to 36% anchored on the uniform provision in the promissory notes on
monthly repricing.

When the petitioner defaulted on its loan obligations, it prompted E-PCIB to

initiate foreclosure proceedings on the mortgaged properties. Thereafter, the
respondent Sheriff scheduled the auction of the subdivision lots which led to appellant's
filing of its initial complaint for the nullification of the promissory notes and the mortgage
agreements with prayer for injunctive relief. Although the said auction sale was initially
enjoined, the injunction was nonetheless lifted; and so, the auction sale proceeded where
E-PCIB emerged as the highest bidder. This led to appellant's filing of the Supplemental
Complaint with the RTC Quezon City assailing the said auction sale and the amount
claimed therein (including the alleged unwarranted assessments and charges), as well as
praying for the nullification of the titles that were consolidated in the name of E-PCIB.

The Regional Trial Court (RTC) ruled in favor of E-PCIB, holding that the loan
contracts between the parties were supported by several promissory notes; that the
documents included a rider dealing with the monthly repricing of the interest rates; that
the protest allegedly made against the repricing was not established; that the plaintiff
(petitioner herein) paid the adjusted interest rates; and that the evidence on record
sustained the validity of the real estate mortgage and its amendment. On appeal, the
Court of Appeals (CA) affirmed the decision.

Issue: Whether the promissory notes and the repricing of interest rates by E-PCIB is
valid.

HELD: Yes, the promissory notes and the repricing of interest rates by E-PCIB is valid.

The Supreme Court held that an escalation clause without a concomitant de-
escalation clause is void and ineffectual for violating Presidential Decree No. 1684,1
otherwise known as Amending Further Act No. 2655, As Amended, Otherwise Known as
"The Usury Law," as well as the principle of mutuality of contracts unless the established
facts and circumstances, as well as the admissions of the parties, indicate that the lender
at times lowered the interest rates, or, at least, allowed the borrower the discretion to
continue with the repriced rates. Generally, the escalation clause refers to the stipulation

78
allowing increases in the interest rates agreed upon by the contracting parties. Not all
contracts of adhesion are invalid. Only a contract of adhesion in which one of the parties
is shown to be the weaker as to have been imposed upon may be invalidated and set aside.
Further, a de-escalation clause is an indispensable requisite to the validity and
enforceability of an escalation clause in the contract. In other words, in the absence of a
corresponding de-escalation clause, the escalation clause shall be considered null and
void.

In this case, the agreement between the parties on the imposition of increasing
interest rates on the loan is commonly known as the escalation clause. There is nothing
inherently wrong with the escalation clause because it is validly stipulated in commercial
contracts as one of the means adopted to maintain fiscal stability and to retain the value
of money in long term contracts. In short, the escalation clause is not void per se.
Contrary to the petitioner's position, there was mutuality of contracts between itself and
the respondent. Tio, the petitioner's President, who signed the promissory notes in
behalf of the petitioner, was aware of the provision in the documents pertaining to the
monthly repricing of the interest rates. Although the promissory notes succinctly
stipulated that the loans were subject to interest without need of prior notice to the
borrower, the respondent sent notices to the petitioner each and every time it increased
the interest rate. Equally of significance was that the respondent allowed the petitioner
the sufficient time and opportunity either to reject the imposition of the increased interest
rates by paying the outstanding obligations or by accepting the same through payment
of whatever amounts were due. The sufficient time and opportunity negated the
petitioner's insistence about the respondent having unilaterally determined the interest
rates in violation of the principle of mutuality of contracts embodied in Article 1308.

Hence, the promissory notes and the repricing of interest rates by E-PCIB is valid.

79
 Rey v. Anson,
G.R. No. 211206 November 7, 2018

Digested by: Ridulfa, Tricia

FACTS:
On August 23, 2002, Rosemarie Rey borrowed from Cesar Anson the amount of
P200,000.00 payable in one year, and subject to 7.5% interest per month or P15,000.00
monthly interest, which would be paid bi-monthly by way of postdated checks. The loan
was secured by a real estate mortgage on Spouses Teodoro and Rosemarie Rey's
property. In the event of default, the Spouses Rey would pay a penalty charge of 10% of
the total amount, plus 12% attorney's fees. Three days later, or on August 26, 2002,
Rosemarie Rey again borrowed from Cesar Anson P350,000.00, subject to 7% interest
per month, and payable in four months. The second loan was secured by a real estate
mortgage over a parcel of land, registered in the name of Rosemarie Rey's mother, Isabel
B. Quinto. The parties executed a second Deed of Real Estate Mortgage dated August
26, 2002. Rosemarie Rey faithfully paid the interest on the first loan for twelve (12)
months. She was, however, unable to pay the principal amount of P200,000.00 when it
became due on August 24, 2003. She appealed to Cesar Anson not to foreclose the
mortgage or to impose the stipulated penalty charges, but instead to extend the terms
thereof. Cesar Anson agreed and Rosemarie Rey later signed a promissory note dated
April 23, 2004 and executed a Deed of Real Estate Mortgage dated May 3, 2004, stating
that the Spouses Rey's principal obligation of P200,000.00 shall be payable in four (4)
months from the execution of the Deed of Real Estate Mortgage, and it shall be subject
to interest of 7.5% per month. Anent the second loan of P350,000.00, Rosemarie Rey
failed to faithfully pay monthly interest thereon and she was unable to pay the principal
amount thereof when it became due on December 26, 2002. Rosemarie Rey appealed to
Cesar Anson not to foreclose the mortgage securing the same or to impose the penalty
charges, but instead to extend the terms thereof. Cesar Anson agreed, and the parties
executed anew a Deed of Real Estate Mortgage8 dated January 19, 2003 wherein
Rosemarie Rey acknowledged her indebtedness to Cesar Anson in the amount of
P611,340.00, payable within four months from the execution of the Deed of Real Estate
Mortgage, and subject to 7% interest per month. On August 16, 2005, the Spouses Rey
and Isabel Quinto filed a Complaint for Recomputation of Loans and Recovery of Excess

80
Payments and Cancellation of Real Estate Mortgages and Checks against Cesar Anson
with the RTC of Legazpi City. They prayed for the recomputation of all four loans
reflecting the reduction of the interest rates of the first and second loans to 12% per
annum and the disallowance of interest on the third and fourth loans.

ISSUE:
Whether or not the interest rates on the first and second loans are unconscionable and
contrary to morals

RULING:
Yes. The freedom of contract is not absolute. Article 1306 of the Civil Code provides that
the contracting parties may establish such stipulations, clauses, terms and conditions as
they may deem convenient, provided they are not contrary to law, morals, good customs,
public order, or public policy. In Sps. Albos v. Sps. Embisan, et al. the Court held, As case
law instructs, the imposition of an unconscionable rate of interest on a money debt, even
if knowingly and voluntarily assumed, is immoral and unjust. It is tantamount to a
repugnant spoliation and an iniquitous deprivation of property, repulsive to the common
sense of man. It has no support in law, in principles of justice, or in the human conscience
nor is there any reason whatsoever which may justify such imposition as righteous and as
one that may be sustained within the sphere of public or private morals. In several cases,
we have ruled that stipulations authorizing iniquitous or unconscionable interests are
contrary to morals, if not against the law. In Medel v. Court of Appeals, we annulled a
stipulated 5.5% per month or 66% per annum interest on a P500,000.00 loan and a 6%
per month or 72% per annum interest on a P60,000.00 loan, respectively, for being
excessive, iniquitous, unconscionable and exorbitant. In Ruiz v. Court of Appeals, we
declared a 3% monthly interest imposed on four separate loans to be excessive. In both
cases, the interest rates were reduced to 12% per annum. In the case before us, even if
Rosemarie Rey initially suggested the interest rate on the first loan, voluntariness does
not make the stipulation on an interest, which is iniquitous, valid. As Rosemarie Rey later
realized through the counsel of her lawyer that the interest rates of the first and second
loans were excessive and no interest should be imposed on the third and fourth loans,
she came to court for recomputation of the loans and recovery of excess payments. In
this case, the first loan had a 7.5% monthly interest rate or 90% interest per annum, while
the second loan had a 7% monthly interest rate or 84% interest per annum, which rates

81
are very much higher than the 3% monthly interest rate imposed in Ruiz v. Court of
Appeals and the 5% monthly interest rate imposed in Sps. Albos v. Sps. Embisan, et al.
Based on the ruling of the Spouses Albos case, the Court holds that the interest rates of
7.5% and 7% are excessive, unconscionable, iniquitous, and contrary to law and morals;
and, therefore, void ab initio. Hence, the Court of Appeals erred in sustaining the
imposition of the said interest rates, while the RTC correctly imposed the legal interest of
12% per annum in place of the said interest rates.

82
 The New Central Bank Act (Rep Act No. 7653, as amended)
Creation

Bangko Sentral ng Pilipinas v. The Commission on Audit

G.R. No. 210314 October 12, 2021
Digested by: Siadto, Alyssa Trinidad E.

Facts:
The Bangko Sentral ng Pilipinas (BSP) argued against the Commission on Audit (COA)
that the it is allowed to deduct reserves from its net profits based on the New Central
Bank Act (RA 7653, as amended) specifically Section 43 which provides that BSP shall
make adequate allowance or reserves for bad and doubtful accounts in calculating its net
profits. The COA on the other hand argues that Section 2(d) of the same Act defines
“net earnings” as income derived from any source, net of deductions, but in no case shall
any reserve for whatever purpose be allowed as a deduction from the net earnings hence,
BSP should have been prohibited from deducting reserves from its net (profits) earnings.

In 2019 however, Congress amended Section 43 of RA 7653 stating that the net profit of
BSP shall be determined after allowing for expenses of operation, adequate allowances
and provisions for bad and doubtful debts, depreciation in assets, and such allowances
and provisions for contingencies or other purposes as the Monetary Board may
determine.

Issue:
Whether BSP is allowed to deduct any reserve from its net profits which will be remitted
to the government.

Ruling:
Yes, BSP has the authority to deduct reserves from its net profits.

The Constitution (Section 20, Article XII) mandated that Congress shall establish an
independent central monetary authority to provide policy discretion in the areas of
money, banking, and credit. Unless otherwise provided by Congress, the Central Bank
of the Philippines is named as such authority.

83
However, in the enactment of RA 7653, wherein the BSP was created (Central Bank
became BSP), it declared BSP as the independent central monetary authority. This is
also declared in the BSP’s Charter, Section 1:

SECTION 1. Declaration of Policy. - The State shall maintain a central monetary

authority that shall function andoperate as an independent and accountable body
corporate in the discharge of its mandated responsibilities concerning money,
banking and credit. In line with this policy, and considering its unique functions and
responsibilities, the central monetary authority established under this Act, while
being a government-owned corporation, shall enjoy fiscal and administrative
autonomy.

The term “independent” purports that it is independent from the government, especially
from the Executive department, in providing policy direction in the areas of money,
banking, and credit.
With this, BSP then would indeed have the authority the do acts such as deduct reserves
from its net profits (which is actually an allowable act under RA 7653). The government
does not have the authority to negate it.
In addition, RA 11211 was enacted in 2019 and amended several provisions of RA 7653.
Notably, among those amended was Section 43, which reiterated the BSP's power to
maintain reserves:

SECTION. 43. Computation of Profits and Losses. - Within the first 60 days
following the end of each year, the Bangko Sentral shall determine its net profits
or losses. Notwithstanding any provision of law to the contrary, the net profit
of the Bangko Sentral shall be determined after allowing for expenses of
operation, adequate allowances and provisions for bad and doubtful debts,
depreciation in assets, and such allowances and provisions for contingencies
or other purposes as the Monetary Board may determine in accordance with
prudent financial management and effective central banking operations.

This amendment to RA 7653 confirms the intent of Congress to allow the BSP to
maintain reserves in its operations. Likewise, it is the BSP Charter, and not RA 7656
(which applies only to GOCCs), that governs the computation of the BSP's net earnings.

84
 Receivership and Liquidation

RB San Miguel v. Monetary Board

RURAL BANK OF SAN MIGUEL, INC. and HILARIO P. SORIANO, in his capacity as
majority stockholder in the Rural Bankof San Miguel, Inc., Petitioners,
vs.
MONETARY BOARD, BANGKO SENTRAL NG PILIPINAS and PHILIPPINE
DEPOSIT INSURANCE CORPORATION, Respondents.
G.R. No. 150886 February 16, 2007

Digested by: Tulio, Karl

FACTS:
Petitioner Rural Bank of San Miguel (RBSM) was a domestic corporation engaged in
banking. Petitioner Hilario P. Soriano claims to be the majority stockholder of its
outstanding shares of stock. On January 21, 2000, respondent Monetary Board (MB),
the governing board of respondent Bangko Sentral ng Pilipinas (BSP), issued Resolution
No. 105 prohibiting RBSM from doing business in the Philippines, placing it under
receivership and designating respondent Philippine Deposit Insurance Corporation
(PDIC) as the receiver. The reason for such placement is the report of Mr. Domo-ong,
Director of Rural Banks, which states that:
(1) RBSM is unable to pay its liabilities as they become undue in the ordinary course of
business;
(2) RBSM cannot continue in business without involving probable losses to its depositors
and creditors;
(3) that the management of the bank had been accordingly informed of the need to infuse
additional capital to place the bank in a solvent financial condition and was given
adequate time within which to make the required infusion and that no infusion of adequate
fresh capital was made.

On January 31, 2000, RBSM filed a petition for certiorari and prohibition with the RTC
of Malolos. However, the petitioners filed a notice of withdrawal in the RTC and filed a
special civil action for certiorari and prohibition in the CA. In their petition, petitioners
claimed that respondents Monetary Board and the BSP committed grave abuse of

85
discretion in issuing Resolution No. 105. The petition was dismissed by the CA and held
that the decision of the Monetary Board to issue Resolution No. 105 was based on the
findings and recommendations of the Department of Rural Banks Supervision and
Examination Sector. Furthermore, the PDIC reported that the RBSM could not resume
business with sufficient assurance of protecting the interest of its depositors, creditors,
and the general public hence, the Monetary Board passed Resolution No. 966 directing
PDIC to proceed with the liquidation of RBSM under Sec. 30 of RA 7653.

Aggrieved, the petitioners elevated the case to the High Court contending that the Sec.
30 refers to the report on the examination of the bank which, under Sec. 28, must be made
to the Monetary Board after the supervising or examining head conducts an examination
mandated by Sec. 25 and 28. Moreover, petitioners assert that an examination is
necessary and not a mere report, otherwise the decision to close a bank would be
arbitrary. Respondents on the other hand counter that RA 7653 merely requires a report
of the head of the supervising or examining department. They maintain that the term
“report” under Sec. 30 and the word “examination” used in Sec. 29 of the old law are not
synonymous.

ISSUE:
Whether Sec. 30 of RA 7653 (the New Central Bank Act) and applicable jurisprudence
require a current and complete examination of the bank before it can be closed and
placed under receivership.

RULING:

No. RA 7653 only requires a report of the head of the supervising or examining
department before a bank can be closed and placed under receivership. The Banco
Filipino ruling is misplaced as the law governing such case at the time is RA 265, and not
RA 7653. Hence, the Monetary Board had sufficient basis to arrive at a sound conclusion
that there were grounds that would justify RBSM’s closure.

86
 Barlongan vs Reyes
G.R No. 161276 January 31, 2005

Digested by: Irvin Rutherford Q. Yamashita

FACTS:

In a complaint-affidavit filed with the Office of the Ombudsman, petitioner

Teodoro C. Borlongan, former president and chief executive officer of Union Bank, Inc.
(UBI), administratively charged herein respondent officials of the Bangko Sentral ng
Pilipinas (BSP), for allegedly falsifying statement of facts in the BSP Supervision and
Examination Sector (SES) reports and tendering incorrect and inaccurate reports and
opinions to conjure false grounds for the closure of UBI and Urbancorp Development
Bank and placing them under receivership, to the detriment of their shareholders,
officers and employees. The Ombudsman found the respondents guilty of simple neglect
of duty and imposed upon them one month and one day suspension without pay. The
Ombudsman also denied both parties’ motion for reconsideration. Both parties
interposed separate appellate resources to the Court of Appeals.

Petitioners filed a motion to consolidate the two cases but the two cases
proceeded separately and as it turned out, the two divisions of the CA rendered
conflicting decisions. The 5th decision Included BSP governor and was found guilty for
gross neglect of duty while the 17th division reversed the order of the Ombudsman finding
the respondent officials guilty of simple neglect of duty. CA then created a special
division which amended the 1st decision to make it uniform in other words, the BSP
governor was absolved from liability.

ISSUE:
Whether UBI shall be placed under receivership?
RULING:
Yes. Section 30(a) of RA 7653, otherwise known as the New Central Bank Act, is
relevant. Under that law, the Monetary Board may execute measures such those taken in
this case, summarily and without need of prior hearing:

87
Sec. 30. Proceedings in Receivership and Liquidation. -Whenever, upon report of the
head of the supervising and examining department, the Monetary Board finds that the
Bank or quasi-bank:

(a) is unable to pay its liabilities as they become due in the ordinary course of business:
Provided, that this shall not include inability to pay caused by extraordinary demands
induced by financial panic in the banking community;
(b) has insufficient realisable asset, as determined by the Bangko Sentral to meet its
liabilities; or
(c) cannot continue in business without involving probable losses to its creditors; or
(d) has willfully violated a cease and desist order under Section 37 that has become final,
involving acts or transactions which amount to fraud or a dissipation of the assets of the
institution; in which cases, the Monetary Board may summarily and without need for prior
hearing forbid the institution from doing business in the Philippines and designate the
Philippine Deposit Insurance Corporation as receiver of the Banking institution.

Pertinent, too, is Section 53 of Republic Act No. 8791, since it underscores the
summary character of the MB's initiative of placing a bank under receivership. It provides
that in case a bank or quasi-bank notifies the BSP or publicly announces a bank holiday,
or in any manner suspends the payment of its deposit liabilities continuously for more
than 30 days, the MB may summarily and without need of prior hearing close such banking
institution and place it under receivership of the PDIC.

As earlier noted, UBI's own top management, specifically Bartolome III, its
chairman of the Board, and the petitioner himself, its president, continually provided the
BSP the picture of the worsening situation of UBI in the four (4) weeks from March 20,
2000 to April 25, 2000, leading to UBI's unilateral declaration of a bank holiday on April
25, 2000. Their constant reporting showed that UBI was "unable to pay its liabilities as
they become due in the ordinary course of business; (or that it) has insufficient realisable
assets, as determined by the Bangko Sentral, to meet its liabilities." While other factors
might have weighed in the analysis of UBI's financial liquidity and in the preparation of the
inevitable Supervisor and Examination Sector (SES) reports, the MB considered the
constant reports of UBI's own top management as the best proof of its dire liquidity
status.

88
 This authority is beyond review by the courts except on a petition for certiorari.
Here, it is worth to note even the Ombudsman found significant evidence to rationalise
the decision of the Monetary Board to place UBI under receivership.

89
 General Bank and Trust Co. v. Central Bank
G.R. No. 152551 June 15, 2006
Digested by: ADDATU, Ily Meren

FACTS: It was found the Genbank was insolvent within the meaning of Section 29 of RA
265 as amended and that Genbank’s continuance in business would involve losses to its
depositors and creditors. Then, the Monetary Board adopted a resolution forbidding
Genbank to do business in the Philippines and designated a receiver. After a few days,
the Monetary Board adopted another resolution confirming that Genbank was insolvent
and could not resume business with safety to creditors, depositors and the general
public. Such resolution also ordered the liquidation of Genbank and a liquidator was
designated.

The liquidator sold and transferred to Allied Bank all the assets of Genbank and Allied
Bank assumed all the liabilities of Genbank.

A case was filed alleging that the closure and liquidation of Genbank were done arbitrarily
and in bad faith.

ISSUE: Whether GenBank was properly declared as insolvent

RULING:
Yes, GenBank was properly declared as insolvent

Under Section 29 of RA 265, as amended on September 22, 1976 by PD 1007, "insolvency"

was defined as "the inability of a banking institution to pay its liabilities as they fall due in
the ordinary course of business." Furthermore, the actions of the Monetary Board under
this section shall be final and executory, and can be set aside by the court only if there is
convincing proof that the action is plainly arbitrary and made in bad faith. No restraining
order or injunction shall be issued by the court enjoining the Central Bank from
implementing its actions under this section.

Here, Genbank was ordered closed by the CB on March 25, 1977, when "insolvency" was
defined under Section 29 of RA 265, as amended on September 22, 1976 by PD 1007.

90
Central Bank found Genbank undoubtedly incapable to generate liquid funds by itself in
order to meet drawdowns on its deposits and deposit substitutes and to pay for other
maturing obligations, as well as advances from the Central Bank. Respondent CB,
therefore, concluded that Genbank was insolvent under the obtaining definition of said
term, with the CA eventually sustaining the posture of respondent CB.

91
 RB Lucena v. ARCA
GR No. L-21146 September 20, 1965

Digested by: Adloc Marianne D.

Facts:

Petitioner Rural Bank of Lucena (Lucena) filed with CFI of Manila an action to collect
damages and to enjoin Central Bank from enforcing Resolution No. 928 of its Monetary
Board, finding that Lucena, through its officers, directors, and employees, had
committed acts substantially prejudicial to the Government, depositors and creditors,
and directing Lucena to reorganize its Board of Directors; to refrain from granting or
renewing loans, or accept new deposits and not to issue drafts or make disbursements
without the approval of the supervising Central Bank examiners, and threatening Lucena
that its management would be taken over if it should fail to comply with the resolution.

While the litigation was still undecided, the Monetary Board, adopted its Resolution No.
122: "To request the Solicitor General, pursuant to section 29 of Republic Act No. 265, to
file a petition in the proper courts for the liquidation of the affairs of the Rural Bank of
Lucena, Inc.” The notice was given by Central Bank officials, dated February 10, 1962,
which states that Lucena bank was temporarily closed pending final decision of the Court,
and that business be transacted with Central Bank representatives only.

Two days later, the Lucena bank filed suit in the CFI Quezon to annul Resolution No.122
and to enjoin its enforcement. The court issued ex parte a writ of preliminary injunction to
such effect, but subsequently dissolved said preliminary injunction. Aside from a denied
MR, Lucena bank took no other steps to prosecute the case it had filed.

CFI Manila rendered judgment in favor of Lucena, enjoining enforcement of Resolution

No. 928 for having been issued without the prior hearing prescribed by Section 10 of the
Rural Bank Act. The Central Bank appealed this decision.

The Central Bank petitioned the CFI for assistance in the liquidation of the Lucena bank.
CFI issued an interlocutory order for Lucena bank to turn over to the Central Bank the

92
physical possession of all assets, properties and papers and if Lucena bank fails to
comply, the Central Bank is authorized to take actual and physical possession of all of
said assets, properties and papers.
Rural Bank of Lucena petitioned, claiming that CFI gravely abused his discretion in issuing
the order. The court issued a temporary restraining order until April 25, 1963, but the same
was not renewed when it expired.

Issue:
Whether there is irreconcilable conflict between Section 10 of the Rural Bank Act and
Section 29 of the Central Bank Act.

Ruling:
No, there is no irreconcilable conflict between section 10 of Republic Act No. 720 (Rural
Banks Act) and section 29 of Republic Act No. 265 (Central Bank Act).

Section 10 of the Rural Bank Act authorizes the take over of the management by the
Central Bank, until the governing body of the offending Rural Bank is recognized with a
view to assuring compliance by it with the laws and regulations. Upon the other hand,
Section 29 of the Central Bank Act has in view a much more drastic step, the liquidation
of a rural bank by taking over its assets and converting them into money to pay off its
creditors.

It is applicable in cases such as the one in hand, when the Monetary Board should find
that the rural bank affected, is insolvent, or that its continuance in business would involve
probable loss to its depositors or creditors, and that it cannot resume business with
safety.

On the assumption that under Section 10 of the Rural Banks Act the Monetary Board
may not take over the management of a rural bank without giving the latter a hearing, such
a previous hearing is nowhere required by Section 29 of the Central Bank Law. The
statute has provided for a subsequent judicial review of the Monetary Board, in lieu of a
previous hearing. Such must be asked within 10 days from notice of the Resolution of the
Board.

93
 RB Buhi v. CA
RURAL BANK OF BUHI, INC.,vHONORABLE COURT OF APPEALS, CENTRAL
BANK OF THE PHILIPPINES and CONSOLACION ODRA,

G.R. No. L-61689 June 20, 1988

Digested by:Alunday, Jubileah Heart B.

Creation: It has long been established and recognized in this jurisdiction that the
closure and liquidation of a bank may be considered as an exercise of police power

Facts:

Rural Bank of Buhi, Inc. (hereinafter referred to as Buhi) is a juridical entity

existing under the laws of the Philippines. Buhi is a rural bank that started its operations
only on December 26,1975. Consolacion V. Odra, Director of DRBSLA found out that
the bank's affairs and operations have massive irregularities in its operations consisting
of loans to unknown and fictitious borrowers. The promissory notes evidencing these
loans were rediscounted with the Central Bank for cash. As a result thereof, the bank
became insolvent and prejudiced its depositors and creditors.

Consolacion V. Odra, submitted a report recommending to the Monetary Board

of the Central Bank the placing of Buhi under receivership in accordance with Section 29
of Republic Act No. 265, as amended, the designation of the Director, DRBSLA, as
receiver thereof. On March 28, 1980, the Monetary Board, finding the report to be true,
adopted Resolution No. 583 placing Buhi, petitioner herein, under receivership and
designated respondent, Consolacion V. Odra, as Receiver, pursuant to the provisions of
Section 29 of Republic Act No. 265 as amended.

Imelda del Rosario, Manager of herein petitioner Buhi, filed a petition for injunction
with Restraining Order dated April 23, 1980, docketed as Special Proceedings IR-428
against respondent Consolacion V. Odra and DRBSLA deputies in the Court of First
Instance of Camarines Sur, Branch VII, Iriga City, entitled Rural Bank of Buhi vs. Central
Bank, which assailed the action of herein respondent Odra in recommending the
receivership over Buhi as a violation of the provisions of Sections 28 and 29 of Republic
Act No. 265 as amended, and Section 10 of Republic Act No. 720 (The Rural Banks Act)

94
and as being ultra vires and done with grave abuse of discretion and in excess of
jurisdiction

Petitioner further argues, that there is also that constitutional guarantee that no
property shall be taken without due process of law, so that Section 29, R.A. 265, as
amended, could not have intended to disregard and do away with such constitutional
requirement when it conferred upon the Monetary Board the power to place Rural Banks
under receivership

Issue:

• Whether Under Sec. 29, R.A. 265, As Amended, may the Monetary Board (MB) of
The Central Bank (CB) place a Rural Bank under Receivership without prior
Notice To Said Rural Bank to enable It to be heard on the ground relied upon for
such Receivership.

Ruling:

It has long been established and recognized in this jurisdiction that the closure and
liquidation of a bank may be considered as an exercise of police power. Such exercise
may, however, be subject to judicial inquiry and could be set aside if found to be
capricious, discriminatory, whimsical, arbitrary, unjust or a denial of the due process and
equal protection clauses of the Constitution

It will be observed from the foregoing provision of law, that there is no requirement
whether express or implied, that a hearing be first conducted before a banking institution
may be placed under receivership. On the contrary, the law is explicit as to the conditions
prerequisite to the action of the Monetary Board to forbid the institution to do business
in the Philippines and to appoint a receiver to immediately take charge of the bank's
assets and liabilities. They are: (a) an examination made by the examining department of
the Central Bank; (b) report by said department to the Monetary Board; and (c) prima
facie showing that the bank is in a condition of insolvency or so situated that its
continuance in business would involve probable loss to its depositors or creditors.

If the Monetary Board shall determine and confirm within the said period that the
banking institution is insolvent or cannot resume business with safety to its depositors,

95
creditors and the general public, it shall, if the public interest requires, order its
liquidation, indicate the manner of its liquidation and approve a liquidation plan.

The evident implication of the law, therefore, is that the appointment of a receiver
may be made by the Monetary Board without notice and hearing but its action is subject
to judicial inquiry to insure the protection of the banking institution. Stated otherwise,
due process does not necessarily require a prior hearing; a hearing or an opportunity to
be heard may be subsequent to the closure. One can just imagine the dire consequences
of a prior hearing: bank runs would be the order of the day, resulting in panic and
hysteria. In the process, fortunes may be wiped out, and disillusionment will run the gamut
of the entire banking community.

96
 Central Bank v. CA
G.R. No. 76118,
March 30, 1993
Digested By: ANGIHAN, Rizzi

Facts:

Petition filed by the Central Bank of the Philippines and Ramon V. Tiaoqui against the
Court of Appeals and Triumph Savings Bank

Monetary Board issued a resolution on May 31, 1985, ordering the closure of Triumph
Savings Bank and placing it under receivership

Ramon V. Tiaoqui appointed as the receiver

Triumph Savings Bank filed a complaint seeking to annul the Monetary Board resolution
and challenge the constitutionality of the relevant law

Trial court temporarily restrained the implementation of the resolution but later granted
the motion to quash the restraining order

Triumph Savings Bank filed a petition for certiorari with the Supreme Court, which was
dismissed

Trial court denied the motion to dismiss filed by the Central Bank and Tiaoqui and
ordered the restoration of the bank's management to its elected board of directors and
officers, subject to Central Bank comptrollership

ISSUES

1) Is absence of prior notice and hearing constitutive of acts of arbitrariness and bad
faith, as to annul the MB resolution?

HELD: NO

Contrary to the notion of private respondent, Sec. 29 does not contemplate prior
notice and hearing before a bank may be directed to stop operations and placed under
receivership. When par. 4 provides for the filing of a case within ten (10) days after the
receiver takes charge of the assets of the bank, it is unmistakable that the assailed

97
actions should precede the filing of the case. Plainly, the legislature could not have
intended to authorise "no prior notice and hearing" in the closure of the bank and at the
same time allow a suit to annul it on the basis of absence thereof. A previous hearing is
NOT required. It is enough that a subsequent judicial review be provided. This "close
now and hear later" scheme is grounded on practical and legal considerations to prevent
unwarranted dissipation of the bank's assets and as a valid exercise of police power to
protect the depositors, creditors, stockholders and the general public. The mere filing
of a case for receivership by the Central Bank can trigger a bank run and drain its
assets in days or even hours leading to insolvency even if the bank be actually solvent.
The procedure prescribed in Sec. 29 is truly designed to protect the

Upload to download interest of all concerned, i.e., the depositors, creditors and
stockholders, the bank itself, and the general public. The absence of notice and hearing
is not a valid ground to annul a Monetary Board resolution placing a bank under
receivership. The absence of prior notice and hearing cannot be deemed acts of
arbitrariness and bad faith.

98
 Bangko Sentral ng Pilipinas v. Hon. Valenzuela
G.R. No. 184778, October 2, 2009

Digested by: Austria, Alessandro A.

Facts:
In September 2007, the Supervision and Examination Department (SED) of
Bangko Sentral ng Pilipinas (BSP) conducted examination of books of various banks
such as Rural Bank of Paranaque, Inc. (RBPI), Rural Bank of San Jose, Batangas, Inc.,
etc. After the examination of such books, officers or representatives of the banks
examined by the SED attended exit conferences conducted by the SED wherein its
examiners provided the representatives with copies of Lists of Findings/Exceptions
(Lists) containing deficiencies discovered during the examination of books and the
remedial measures that the banks need to comply with. Also, the SEDrequired the banks
to comment and to undertake the said remedial measures within 30 days from their receipt
of such lists, including the infusion of additional capital. Chuchi Fonacier, officer-in-
charge of the SED, informed the banks that they failed to abide by the remedial measures
asserted in the Lists. The banks then requested for the disclosure of the basis for the
capital infusion figures, and further alleged that none of the banks had received the
Report of Examination (ROE) which asserts the final audit findings of the SED.

On May 12, 2008, the RBPI filed an action before the Regional Trial Court (RTC)
to nullify the BSP ROE with an application for a TRO and the issuance of a writ of
preliminary injunction and further prayed that OIC Fonacier and her agents be prohibited
from submitting the ROE to the Monetary Board (MB), or if the ROE was already
submitted to the MB, the MB be prohibited from acting to the ROE. The RBPI also
alleged in their complaint that their right to due process was violated on the ground that
there was no copy of the ROE given to them. The RTC then rendered a decision against
the BSP and averring that SED has a practice to provide ROEs to the banks before its
submission to the MB. In addition, the trial court also held that the banks are entitled to
copies of ROEs as the same are subjects of examination by the BSP wherein the denial
of the requests of the banks for such copies violated their right to due process. The BSP
elevated the case to the Court of Appeals (CA) wherein it ruled that the banks are
entitled to the copies of the ROE.

99
Issue:
1. Whether the banks are entitled to be furnished copies of their respective ROE before
the same is submitted to the MB.
2. Whether the injunction issued by the RTC violated Section 25 of the New Central
Bank Act.

Ruling:
1. No, the banks are not entitled to be furnished copies of their respective ROE before
the same is submitted to the MB.

Pursuant to Sec. 28 of the New Central Bank Act, it states that the ROE shall be
submitted to the MB in which the bank examined is not necessary to receive a copy of the
ROE

In the present case, the Lists of Findings/Exceptions was sent to the officers or
representatives of the banks examined by the BSP SED wherein such lists were the basis
of SED in creating the ROE. Thus, the banks are aware of the deficiencies and the
remedial measures that they need to undertake whereas their right to due process is not
violated as they were furnished with the Lists of Findings/Exceptions.

2. Yes, the injunction issued by the RTC violated Section 25 of the New Central Bank
Act.

Under Sec. 25 of the said Act, no restraining order or injunction shall be issued by the
court enjoining the Bangko Sentral from examining any institution subject to supervision
or examination by the BSP, unless there is convincing proof that the action of the BSP is
plainly arbitrary and made in bad faith.

Under Sec. 29 of the same Act, it

xxx Appointment of Conservator.—Whenever, on the basis of a report submitted by the

appropriate supervising or examining department, the Monetary Board finds that a bank
or a quasi-bank is in a state of continuing inability or unwillingness to maintain a condition
of liquidity deemed adequate to protect the interest of depositors and creditors, the

100
Monetary Board may appoint a conservator with such powers as the Monetary Board
shall deem necessary to take charge of the assets, liabilities, and the management
thereof, reorganize the management, collect all monies and debts due said institution, and
exercise all powers necessary to restore its viability. Xxx
In the present case, the decision of the RTC to grant the issuance of writs of preliminary
injunction by the banks is an unwarranted interference with the powers of the MB as the
ROEs are needed to fulfill their function in appointing a conservator whenever
circumstances arise that respondent banks be put in a state of continuing inability or be
unwilling to maintain a condition of liquidity to protect the interest of its depositors and
creditors.

101
 Vivas v. Monetary Board
G.R. No. 191424 August 7, 2013
Digested by: BALBALIN, Nicole E.

FACTS:
Alfeo D. Vivas filed a petition on behalf of the shareholders of EuroCredit Community
Bank, Incorporated (ECBI) to prohibit the closure and receivership of the bank. The
Rural Bank of Faire, Incorporated (RBFI) already expired, but Vivas and his principals
acquired the controlling interest in RBFI. An internal audit revealed poor operation in
RBFI, and measures were introduced to revitalize the bank. The Bangko Sentral ng
Pilipinas (BSP) approved the extension of RBFI's corporate life and change of name to
ECBI.

Pursuant to Section 28 of RA No. 7653, otherwise known as The New Central Bank Act,
The Integrated Supervision Depaartment II (ISD II) of the BSP conducted a general
examination on ECBI.

After a general examination conducted by the BSP, ECBI was found to have serious
financial problems and serious supervisory concerns. The findings bore that ECBI was
illiquid, insolvent, and was performing transactions which are considered unsafe and
undosund banking practices. On the basis of the examination findings the MB issued
Resolution No. 276 placing ECBI under receivership.

The BSP issued directives to address these issues, but ECBI failed to comply. The BSP
placed ECBI under Prompt Corrective Action (PCA) framework and later under
receivership due to its inability to pay liabilities, insufficient assets, and willful violation of
a cease and desist order. ECBI appealed the decision, but the appeal was denied.

ISSUE:
Whether the closure and receivership of ECBI were done without due process and
constituted a violation of the bank's rights.

RULING:
No, there is no right and due process was violated.

102
Viva argues that implementation of the questioned resolution was tainted with
arbitrat=riness and bad faith, stressing that ECBI was placed under receivership without
due and prior hearing, invoking Section 11 of R.A. No. 7353 which states that the BSP may
take over the management of a rural bank after due hearing.

The court has taken this into account, but it appears from all over the records on its
financial standing. The records disclose that BSP officials and examiners met with the
representatives of ECBI, including Vivas, and submit its financial audit reports for the
years 2007 and 2008 with a failure to submit them a written explanation of such omission
shall result in the imposition of a monetary penalty. More importantly, ECBI was heard on
its motion for reconsideration. For failure of ECBI to comply, the MB came out with
REsolution No. 1548 denying its request for reconsideration, ECBI cannot claim that it
was deprived of its right under the Rural Bank Act.

103
 The Overseas Bank of Manila vs. CA
G.R. No. L-49353, June 11, 1981 (105 SCRA 49)
Digested By: Bayas, Nhel Ann Rose O.

Facts :Tapia, in his capacity as attorney-in-fact of Enrique de Champourcin, instituted

an action against the Overseas Bank of Manila (Overseas Bank) to enforce collection of
the proceeds of a time deposit for which the bank had Issued a certificate for
P100,000.00, with an interest rate of 4 1/2% per annum. The lower court ruled in
favor of Tapia which the bank appealed.

During the pendency of the appeal, the bank was excluded by the Central Bank under
Monetary Board Resolution No. 1263 from interbank clearing, and its operations were
suspended by a Central Bank resolution. In another resolution, the Central Bank forbade
Overseas bank to do business preparatory to its forcible liquidation. These Resolutions
were, however, annulled and set aside by the Supreme Court in its decision in Ramos vs.
Central Bank, L-29350, promulgated October 4, 1971. To assure maximum protection to
its depositors, creditors and the public interest, the rehabilitation, normalization and
stabilization thereof was also ordered by the Supreme Court. Nevertheless, the CB
resolution suspending Overseas BAnk's business operations had actually been
implemented starting 2 August 1968, before it was annulled, and that as of this writingn
Overseas Bank has yet to resume operations in accordance with the aforesaid program
of rehabilitation approved by this Honorable Supreme Court.

The CA affirmed the lower court decision in toto. Overseas Bank moved respondent
Court of Appeals to reconsider its judgment on two grounds, (a) the suspension of
operations of bank by the Central Bank likewise suspends payment of accrued interest,
and (b) respondent Court's judgment must conform to the program of rehabilitation of
Overseas Bank approved by this Supreme Court.

While the CA’s resolution purports to grant Overseas Bank's motion for reconsideration,
actually it reiterates its affirmance of the trial court's judgment in toto and rejects
Overseas Bank's prayer to be declared exempt from liability for interest on the deposit
during the suspension of its business operations by the Central Bank, declaring:
Appellant has not been declared insolvent. The suspension of its operations in 1968 was

104
merely temporary. Its assets and properties were intact including its various investments,
the management of which was taken over by the Central Bank to protect its depositors
and creditors. Hence, there could be no justifiable reason to the payment of the accrued
interests on the appellee's time deposit of P100,000.00 which has been long overdue.

Issue: Whether a person who has deposited money to a bank whose operations have
been suspended by the Central Bank is entitled to the payment of interest.

Held: No.

In the case of Chinese Grocers Association, et al. vs. American Apothecaries, 65 Phil. 395,
the Supreme Court has Held that the appellant is not entitled to charge interest on the
amounts of his claims. Upon this point a distinction must be made between the interest
which the deposits should earn from their existence until the bank ceases to operate, and
that which they may earn from the time the bank's operations were stopped until the date
of payment of the deposits.

As to the first class, we hold that it should be paid because such interest has been earned
in the ordinary course of the bank's business and before the latter has been declared in
a state of liquidation. Moreover, the bank being authorized by law to make use of the
deposits, with the limitation stated, to invest the same in its business and other
operations, it may be presumed that it bound itself to pay interest to the depositors as in
fact it paid interest prior to the dates of the said claims. As to the interest which may be
charged from the date the bank ceased to do business because it was declared in a state
of liquidation, we hold that the said interest should not be paid.

In the case at bar, it is the Court’s considered view that it is utterly unfair to award the
private respondent Tapia’s prayer for payment of interest on his deposit during the
period that petitioner bank was not allowed by the Central Bank to operate. It should be
deemed read into every contract of deposit with a bank that the obligation to pay interest
on the deposit ceases the moment the operation of the bank is completely suspended by
the duly constituted authority, the Central Bank. The complete factual suspension of
petitioner's operation as a bank disabled it to commit itself to the payment of such
interest. Hopefully, the petitioner may be able to resume operations and recover its

105
standing as a normal bank. But it is almost vain to expect that within the foreseeable
future, it would be in a position to pay in full even at least the deposits themselves, not to
mention the interest thereon.In justice and equity, having been subjected to what the
Supreme Court has found to be an unfortunate excess or abuse by the Central Bank of
the exercise of its authority under the law, it would be, to put it tritely, "squeezing blood
out of turnip" for Us to grant private respondent's demand.

106
 Vda. De Ballesteros v. RB Canaman
G.R. No. 176260 November 24, 2010
Digested by: CABA-OT, Laureen K.

FACTS:

Petitioner Lucia Ballesteros filed a complaint, she alleged that her deceased
husband, Eugenio, left two (2) parcels of land located in San Nicolas, Camarines Sur, that
on March 6, 1995, without her knowledge and consent, her children executed a deed of
extrajudicial partition and waiver of the estate of her husband wherein all the heirs,
including Lucia, agreed to allot the two parcels to Rico Ballesteros (Rico); that, still,
without her knowledge and consent, Rico mortgaged Parcel B of the estate in favor of
RBCI which mortgage was being foreclosed for failure to settle the loan secured by the
lot; and that Lucia was occupying Parcel B and had no other place to live.

In its Answer, RBCI claimed that in 1979, Lucia sold one of the two parcels to Rico
which represented her share in the estate of her husband. The extrajudicial partition,
waiver and mortgage were all executed with the knowledge and consent of Lucia although
she was not able to sign the document. RBCI further claimed that Parcel B had already
been foreclosed way back in 1999 which fact was known to Lucia through the auctioning
notary public.

During the pre-trial, RBCI’s counsel filed a motion to withdraw after being
informed that Philippine Deposit Insurance Corporation (PDIC) would handle the case
as RBCI had already been closed and placed under the receivership of the PDIC.

On May 9, 2003, RBCI, through PDIC, filed a motion to dismiss on the ground that
the RTC-Iriga has no jurisdiction over the subject matter of the action. RBCI stated that
pursuant to Section 30, Republic Act No. 7653 (RA No. 7653), otherwise known as the
"New Central Bank Act," the RTC-Makati, already constituted itself, as the liquidation
court to assist PDIC in undertaking the liquidation of RBCI. Thus, the subject matter of
Civil Case No. IR-3128 fell within the exclusive jurisdiction of such liquidation court. Lucia
opposed the motion.

On July 29, 2003, the RTC-Iriga issued an order granting the Motion to Dismiss.
Not in conformity, Lucia appealed the RTC ruling to the CA on the ground that the RTC-

107
Iriga erred in dismissing the case because it had jurisdiction over Civil Case No. IR-3128
under the rule on adherence of jurisdiction.

On August 15, 2006, the CA rendered the questioned decision ordering the
consolidation of Civil Case No. IR-3128 and the liquidation case pending before RTC-
Makati. Lucia filed a motion for reconsideration but it was denied by the CA in its
Resolution dated December 14, 2006.

Hence, the present petition for review on certiorari is anchored.

ISSUES:

Whether a liquidation court can take cognizance of a case wherein the main cause
of action is not a simple money claim against a bank ordered closed, placed under
receivership of the PDIC, and undergoing a liquidation proceeding.

RULING:

No. A liquidation court cannot take cognizance of a case wherein the main cause
of action is not a simple money claim against a bank ordered closed, placed under
receivership of the PDIC, and undergoing a liquidation proceeding.

A liquidation proceeding is commenced by the filing of a single petition by the

Solicitor General with a court of competent jurisdiction entitled, "Petition for Assistance
in the Liquidation of e.g., Pacific Banking Corporation." All claims against the insolvent
are required to be filed with the liquidation court. Although the claims are litigated in the
same proceeding, the treatment is individual. Each claim is heard separately. And the
Order issued relative to a particular claim applies only to said claim, leaving the other
claims unaffected, as each claim is considered separate and distinct from the others.

It is clear, therefore, that the liquidation court has jurisdiction over all claims,
including that of Lucia against the insolvent bank. As declared in Miranda v. Philippine
Deposit Insurance Corporation, regular courts do not have jurisdiction over actions filed
by claimants against an insolvent bank, unless there is a clear showing that the action
taken by the BSP, through the Monetary Board, in the closure of financial institutions
was in excess of jurisdiction, or with grave abuse of discretion. The power and authority
of the Monetary Board to close banks and liquidate them thereafter when public interest

108
so requires is an exercise of the police power of the State. Police power, however, is
subject to judicial inquiry. It may not be exercised arbitrarily or unreasonably and could
be set aside if it is either capricious, discriminatory, whimsical, arbitrary, unjust, or is
tantamount to a denial of due process and equal protection clauses of the Constitution.

In sum, this Court holds that the consolidation is proper considering that the
liquidation court has jurisdiction over Lucia’s action. It would be more in keeping with law
and equity if Lucia’s case is consolidated with the liquidation case in order to
expeditiously determine whether she is entitled to recover the property subject of
mortgage from RBCI and, if so, how much she is entitled to receive from the remaining
assets of the bank.

WHEREFORE, the petition is DENIED.

109
 Villanueva v. CA
G.R. No. 114870 May 26, 1995
Digested by: Catanes, Gyzer U.

FACTS: The disputed lots were originally owned by the spouses Celestino Villanueva
and Miguela Villanueva. Miguela sought a loan from the Philippine Veterans Bank (PVB)
in 1975 and was told to surrender the titles of the lots as collateral. In connivance with an
officer of the PVB, Miguela executed a deed of sale for the lots without the signature of
her husband.

Miguela never received the loan she was expecting and later discovered that new titles for
the lots were issued in the name of the PVB. Miguela attempted to repurchase the lots
from the PVB but negotiations were stalled due to the filing of liquidation proceedings
against the bank. Ildefonso Ong offered to purchase the two pieces of Land that had
been acquired by PVB through foreclosure. To back-up plaintiff-appellant's offer he
deposited the sum of P10,000.00.

Ong's offer was approved by the PVB, but he was not notified of the approval.

Ong later found out about the approval and attempted to pay the balance of the
purchase price, but his payment was not accepted by the PVB. Ong filed a claim for
specific performance against the PVB, while Miguela Villanueva and her children filed their
claims with the liquidation court.

ISSUE: Whether a bank under receivership has authority to sell its assets.

RULING: No. It has been said that where upon the insolvency of a bank a receiver
therefor is appointed, the assets of the bank pass beyond its control into the possession
and control of the receiver whose duty it is to administer the assets for the benefit of the
creditors of the bank. Thus, the appointment of a receiver operates to suspend the
authority of the bank and of its directors and officers over its property and effects, such
authority being reposed in the receiver, and in this respect, the receivership is equivalent
to an injunction to restrain the bank officers from intermeddling with the property of the
bank in any way.

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

110
Sec. 29. Proceedings upon insolvency. — Whenever, upon examination by the head of the
appropriate supervising or examining department or his examiners or agents into the
condition of any bank or non-bank financial intermediary performing quasi-banking
functions, it shall be disclosed that the condition of the same is one of insolvency, or that
its continuance in business would involve probable loss to its depositors or creditors, shall
be the duty of the department head concerned forthwith, in writing, to inform the
Monetary Board of the facts. The Board may, upon finding the statements of the
department head to be true, forbid the institution to do business in the Philippines and
designate an official of the Central Bank or a person of recognized competence in
banking or finance as receiver to immediately take charge of its assets and liabilities, as
expeditiously as possible collect and gather all the assets and administer the same for the
benefit of its creditors . . . exercising all the powers necessary for these purposes. . . .

xxx xxx xxx

The assets of an institution under receivership or liquidation shall be deemed in custodia

legis in the hands of the receiver or liquidator and shall, from the moment of such
receivership or liquidation, be exemp from any order of garnishment, levy, attachment, or
execution.

In a nutshell, the insolvency of a bank and the consequent appointment of a receiver

restrict the bank's capacity to act, especially in relation to its property.

Applying Article 1323 of the Civil Code, Ong's offer to purchase the subject lots became
ineffective because the PVB became insolvent before the bank's acceptance of the offer
came to his knowledge. Hence, the purported contract of sale between them did not
reach the stage of perfection. Corollarily, he cannot invoke the resolution of the bank
approving his bid as basis for his alleged right to buy the disputed properties.

Nor may the acceptance by an employee of the PVB of Ong's payment of P100,000.00
benefit him since the receipt of the payment was made subject to the approval by the
Central Bank liquidator of the PVB thus:

Payment for the purchase price of the former property of Andres Sebastian per
approved BR No. 10902-84 dated 11/13/84, subject to the approval of CB liquidator.

111
This payment was disapproved on the ground that the subject property was already in
custodia legis, and hence, disposable only by public auction and subject to the approval
of the liquidation court.

The Court of Appeals therefore erred when it held that Ong had a better right than the
petitioners to the purchase of the disputed lots.

Considering then that only Ong appealed the decision of the trial court, the PVB and the
Central Bank, as well as the petitioners, are deemed to have fully and unqualifiedly
accepted the judgment, which thus became final as to them for their failure to appeal.

112
 Pacific Banking Corporation Employees Organization vs. Court of Appeals
G.R. Nos. 109373 & 112991 March 27, 1998
Digested by: Chaokas, Alma

FACTS:
On July 5, 1985, the Pacific Banking Corporation (PaBC) was placed under
receivership by the Central Bank of the Philippines and was later placed under
liquidation. The Central Bank filed with the RTC a petition for assistance in the liquidation
of PaBC which was approved.
On March 13, 1989 the Pacific Banking Corporation Employees Organization
(Union), filed a complaint-in-intervention seeking payment of holiday pay, 13th month
pay differential, salary increase differential, Christmas bonus, and cash equivalent of
Sick Leave Benefit due its members as employees of PaBC which was granted and an
order to pay the claimed was issued on September 13, 1991 which the liquidator received
on September 16, 1991.
October 16, 1991, he filed a Motion for Reconsideration and Clarification of the
order but was denied. When he filed a notice of appeal, and a motion for additional time
to file a record on appeal. However, the same was denied on the ground that the motion
for reconsideration was late being made more than 15 days after receipt of the decision.
Consequently, the Liquidator filed petitions for Certiorari, Prohibition, and
Mandamus in the Court of Appeals to set aside the orders of the trial court denying his
appeal from the orders granting the claims of Union.
The Union claims that under the court merely assists in adjudicating the claims of
creditors, preserves the assets of the institution, and implements the liquidation plan
approved by the Monetary Board and that, therefore, as representative of the Monetary
Board, the Liquidator cannot question the order of the court or appeal from it.
The CA ruled in favor of the Liquidator holding that the proceeding before the
trial court was a special proceeding and, therefore, the period for appealing from any
decision or final order rendered therein is 30 days. Since the notice of appeal of the
Liquidator was filed on the 30th day of his receipt of the decision granting the Union’s
claims, the appeal was brought on time. The Fifth Division, therefore, set aside the orders
of the lower court and directed the latter to give due course to the appeal of the
Liquidator and set the Record on Appeal he had filed for hearing.

113
ISSUE:
Whether a petition for liquidation under sec 29 of Rep. Act No. 265 is in the nature of a
special proceeding warranting the 30 days reglementary period.

RULING:
Yes, a petition for liquidation under sec 29 of Rep. Act No. 265 is in the nature of a
special proceeding warranting the 30 days reglementary period.
Under the Interim Rules and Guidelines to implement BP Blg. 129, Action means an
ordinary suit in a court of justice, by which the party prosecutes another for the
enforcement or protection of a right, or the prevention or redress of a wrong. Special
Proceeding, on the other hand, includes every other remedy, including one to establish
the status or right of a party or a particular fact, shall be by special proceeding.
Moreover, in special proceedings other cases wherein multiple appeals are allowed, the
period of appeals shall be thirty (30) days, a record on appeal being required.
In this case, considering that an action is a formal demand of a right by one against
another while a special proceeding is but a petition for a declaration of a status, right or
fact, a petition for liquidation of an insolvent corporation should be classified a special
proceeding and not an ordinary action.
A liquidation proceeding is a single proceeding which consists of a number of cases
properly classified as claims. It is basically a two-phased proceeding. The first phase is
concerned with the approval and disapproval of claims. Upon the approval and
disapproval of the petition seeking the assistance of the court in the liquidation of a
closed entity, all money claims against the bank are required to be filed with the liquidation
court. This phase may end with the declaration by the court that the claim is not proper
or without basis.
The second phase involves the approval of the court of the distribution plan
prepared by the duly appointed liquidator. x x x x The order finally disposes of the issue
of how much property is available for disposal. Moreover, it ushers in the final phase of
the liquidation proceeding, payment of all allowed claims in accordance with the order of
legal priority and the approved liquidation plan.
Moreover, the Union’s claim that there was nothing else for the Liquidator to do
except comply with the order of the court is untenable. In truth, the Liquidator is the
representative not only of the Central Bank but also of the insolvent bank. Under Section
28A-29 of Rep. Act No. 265, he acts on behalf of the bank "personally or through counsel

114
as he may retain, in all actions or proceedings or against the corporation" and he has
authority "to do whatever may be necessary for these purposes." This authority includes
the power to appeal from the decisions or final orders of the court which he believes to
be contrary to the interest of the bank.

Therefore, the CA decision is affirmed.

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 ONG V. COURT OF APPEALS

G.R. NO. 112830 FEBRUARY 1, 1996

Digested by: Jessa Dag-o

FACTS: Petitioner Ong seeks surrender of two parcels of land from RBO, which is
undergoing liquidation. He claims to be the owner of the two parcels of land, which were
mortgaged by RBO to guarantee the payment of Omnibus Finance, Inc.

The subject property was foreclosed by the respondent RBO thus, it refused to
surrender the certificates of title for the properties. As a result, RBO filed a motion to
dismiss, arguing that the liquidation court had exclusive jurisdiction over Ong's claim.

The RTC ruled in favor of Ong holding that the properties were sold to Ong in a public
bidding, and so it was no longer owned by the bank, and should not form part of its
assets. However, the CA reversed this decision and favored the RBO ruling that all
disputed claims against the bank under liquidation must be raised in the liquidation court
exclusively. Hence the appeal.

ISSUE: W/N the regular courts have jurisdiction over disputed claims against a bank
undergoing liquidation.

RULING: No. The regular courts have NO jurisdiction over disputed claims against a bank
undergoing liquidation.

The fact that the insolvent bank is forbidden to do business, that its assets are turned
over to the Superintendent of Banks, as a receiver, for conversion into cash, and that its
liquidation is undertaken with judicial intervention means that, as far as lawful and
practicable, all claims against the insolvent bank should be filed in the liquidation
proceeding.

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The rationale for this is for the judicial liquidation is intended to prevent multiplicity of
actions against the insolvent bank. It is a pragmatic arrangement designed to establish
due process and orderliness in the liquidation of the bank, to obviate the proliferation of
litigations and to avoid injustice and arbitrariness. 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 regulate his operations.

Note: It is NOT necessary that a claim be initially disputed in a court or agency before it
is filed with the liquidation court.

117
 Manalo v. CA
DOMINGO R. MANALO, petitioner vs. COURT OF APPEALS (Special Twelfth
Division) and PAIC SAVINGS AND MORTGAGE BANK, respondents.

G.R. No. 141297 October 8, 2001

Digested by: Dulawan, Britney Lauryn H.

Facts:

S. Villanueva Enterprise thru its president, Therese Vargas, obtained a loan of

3,000,000 and 1,000,000 from the respondent PAIC Savings and Mortgage Bank and
the Philippine American Investments Corporation (PAIC) respectively. As a security,
Vargas executed a Joint First Mortgage over her two parcels of land in favor of the
respondent and PAIC. S. Villanueva Enterprise failed to settle its loan obligation which
prompted the respondent to institute an extrajudicial foreclosure proceeding over the
mortgage lots. A public sale was held and the property was sold to the respondent. A
certificate of sale was issued and it’s duly annotated in the title of the land. Vargas failed
to redeem the property, thus, the title was consolidated in respondent’s name.
Meanwhile, the respondent bank was put under liquidation and a petition for assistance
was granted by the RTC. Vargas tried to negotiate with the liquidator of the bank to
repurchase the property but she cannot afford the same. Vargas then filed a case for
annulment of the mortgage and the extrajudicial foreclosure which was later on dismissed
by the RTC. Vargas appealed before the CA but the decision of the RTC was affirmed
and later on, the decision became final and executory.

In the meantime, the respondent bank filed a petition before the RTC for the issuance of
a writ of possession for the subject property. Vargas and the Villanueva Enterprise filed
an opposition. While the case was still pending, Vargas sold the disputed property to a
certain Armando Angsico. After the sale, Vargas, representing herself as the lawful owner
of the same property, leased it to Doming R. Manalo for a period of 10 years. Later on,
Angsico assigned his rights over the property to Manalo. Then, the RTC granted the
petition and issued the writ of possession and ordered Vargas and any and all persons
claiming rights under her title to vacate the property. Villanueva Enterprise and Vargas
moved for the quashal of the said writ.

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Manalo filed a motion to intervene. The RTC denied both the said motions. Manalo filed
a Motion for Reconsideration which was also denied. Manalo filed a Petition for Certiorari
before the CA. Petitioner contended that the lower court should have dismissed
respondents Ex-Parte Petition for Issuance of Writ of Possession for want of jurisdiction
over the subject matter of the claim. The power to hear the same, he insists, exclusively
vests with the Liquidation Court pursuant to Section 29 of Republic Act No. 265,
otherwise known as The Central Bank Act. He then cites the decision in Valenzuela v.
Court of Appeals, where it was held that if there is a judicial liquidation of an insolvent
bank, all claims against the bank should be filed in the liquidation proceeding. For going
to another court, the respondent, he accuses, is guilty of forum shopping. While this case
was pending, Manalo entered into a lease agreement with the respondent over the same
property. The CA dismissed Manalo's petition. Hence, this appeal before the Supreme
Court.

Issue:

Whether the Liquidation Court has the exclusive jurisdiction over the petition for the
issuance of writ of possession filed by the respondent bank in another court.

Ruling

No, the Liquidation Court does not have the exclusive jurisdiction over the petition for
the issuance of writ of possession filed by the respondent bank in another court.

The pertinent provision of the law which states the liquidation court “shall have
jurisdiction in the same proceedings to assist in the adjudication of disputed claims
against the bank only finds operation in cases where there are claims against an insolvent
bank. In fine, the exclusive jurisdiction of the liquidation court pertains only to the
adjudication of claims against the bank.

It does not cover the reverse situation where it is the bank which files a claim against
another person or legal entity. This interpretation of Section 29 of the Central Bank Act
becomes more obvious in the light of its intent. The requirement that all claims against the
bank be pursued in the liquidation proceedings filed by the Central Bank is intended to
prevent multiplicity of actions against the insolvent bank and 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.

119
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 Superintendents of Banks and regulate his operations. It then ought to
follow that petitioner’s reliance on Section 29 and the Valenzuela case is misplaced. The
Petition for the Issuance of a Writ of Possession in Civil Case No. 9011 is not in the nature
of a disputed claim against the bank. On the contrary, it is an action instituted by the
respondent bank itself for the preservation of its asset and protection of its property. It
was filed upon the instance of the respondent’s liquidator in order to take possession of
a tract of land over which it has ownership claims. To be sure, the liquidator took the
proper course of action when it applied for a writ in the Pasay City RTC because under
Act 3135, it is mandated that jurisdiction over a Petition for Writ of Possession lies with the
court of the province, city, or municipality where the property subject thereof is situated.

120
 Miranda v. PDIC
G.R. No. 169334 September 8, 2006
GAGARIN

121
 Remedy of Closed Banks

UCPB v. Ganzon
G.R. No. 168859 and 168897, June 30, 2009
Digested by: GALUTEN, Andrea Jane Emmanouel L.
FACTS:

EGI is a corporation duly organized and existing under Philippine laws and
engaged in real estate construction and development business.From 1995 to 1998, EGI
availed itself of credit facilities from UCPB to finance its business expansion. To secure
said credit facilities, EGI mortgaged to UCPB its condominium units. However, EGI
defaulted in its payment of amorizations, thus, making all of its obligations due and
demandable. In 1999, EGI and UCPB entered into a MOA in settlement of the loans of
EGI from UCPB. Based on this MOA, the outstanding loan obligations of EGI with UCPB
amounted to P915,838,822.50, inclusive of all interest, charges and fees. In 2000, EGI and
UCPB executed an Amendment of Agreement wherein the properties of EGI to be used
in paying for its debt with UCPB were valued at P904,491,052.00.

According to the MOA and its amendments, titles to the properties of EGI shall be
transferred to UCPB by the following modes: (1) foreclosure of mortgage; (2) dacion en
pago; (3) creation of a holding company; and (4) use of other alternatives as may be
deemed appropriate by UCPB. UCPB proceeded to foreclose some of the properties of
EGI listed in the MOA and the foreclosure proceeds of said properties amounted only to
P723,592,000.00. UCPB applied the entire foreclosure proceeds to the principal amount
of the loan obligations of EGl, pursuant to BSP Circular No. 239, which provided that
partial property payments shall first be applied to the principal. However, there was still
an unpaid balance of P192,246,822.50.

In 2001, some of the other properties of EGI valued at P166,127,369.50, were transferred
by way of dacion en pago to UCPB. However, during the signing of the transaction
papers for the dacion en pago, EGI Senior Vice-President noticed that said papers
stated that the remaining loan balance of EGI in the amount of P192,246,822.50 had
increased to P226,963,905.50. The increase was allegedly due to the addition of the

122
transaction costs amounting to P34,717,083.00. EGI complained to UCPB about the
increase, yet UCPB did not take any action on the matter.

This prompted EGI President Engineer Eulalio Ganzon and Senior VP Layug to review
their files to verify the figures on the loan obligations of EGI as computed by UCPB. In
the process, they discovered the UCPB Internal Memorandum dated 22 February 2001,
signed by UCPB corporate officers, presented two columns, one with the heading
"ACTUAL" and the other "DISCLOSED TO EGI." The figures in the two columns were
conflicting In response, UCPB explained that the "ACTUAL" column in its Internal
Memorandum contained the same amounts reflected or recorded in its financial
statements, in accordance with the Manual of Accounts for Banks, Manual of Regulations
for Banks and BSP Circular No. 202, Series of 1999. In contrast, the "DISCLOSED TO
EG!" column showed the total amount still due from EGI, including the total principal,
interests, transaction and other costs after the foreclosure, whether reflected in the
financial books of UCPB or not.

Despite the explanation of UCPB, EGI insisted that the figures appearing in the
"ACTUAL" column of the former's Internal Memorandum revealed the true and actual
amount of its loan obligations to UCPB, P146,849,412.58.

EGI, also on the basis of the UCPB Internal Memorandum, filed with the BSP an
administrative complaint against UCPB, et al., for violation of Sections 3619 and 653, in
relation to Section 55.1(a) of Republic Act No. 8791; and for the commission of
irregularities and conducting business in an unsafe or unsound manner. In a letter-
decision dated 16 September 2003, the BSP Monetary Board dismissed the
administrative complaint of EGI.

On 14 October 2004, CA rendered its assailed Decision granting the Petition for Review
of EGl, and remanding the case to the BSP Monetary Board for further proceedings.
UCPB, et al., moved for the reconsideration of the 14 October 2004 Decision, praying
for a new judgment dismissing the appeal of EGI for lack of jurisdiction and/or lack of
merit. EGI also filed a Partial Motion for Reconsideration of the same CA Decision, with
the prayer that the appellate court, instead of still remanding the case to the BSP

123
Monetary Board for further proceedings, already direct the latter to impose the
applicable administrative sanctions upon UCPB, et al.

CA denied for lack of merit both the Motion for Reconsideration of UCPB, et al. and the
Motion for Partial Reconsideration of EGI.
Aggrieved by the 14 October 2004 Decision and 7 July 2005 Resolution of the Court of
Appeals,
UCPB, et al. comes before this Court, via a Petition for Review on Certiorari under Rule
45
ISSUE:

W/N CA gravely erred in holding that it has appellate jurisdiction over decisions of the
BSP/Monetary Board

RULING:

NO. There is nothing in Republic Act No. 7653 or in Republic Act No. 8791 which
explicitly allows an appeal of the decisions or orders of the BSP Monetary Board to the
Court of Appeals. Resultantly, the Court of Appeals has no power to review, much less
set aside, the findings of fact of the BSP Monetary Board as contained in its letter-
decision dated 16 September 2003. The issue of jurisdiction of the Court of Appeals over
appeals of decisions, orders and/or resolutions of the BSP Monetary Board on
administrative matters must first be resolved, before the other issues raised herein by
UCPB, et al.

Truly, there is nothing in Republic Act No. 7653 or in Republic Act No. 8791 which explicitly
allows an appeal of the decisions of the BSP Monetary Board to the Court of Appeals.
However, this shall not mean that said decisions are beyond judicial review. At any rate,
under the new law, i.e., Section 30 of Republic Act No. 7653, otherwise known as The New
Central Bank Act, which took effect on 3 July 1993, the order of the BSP Monetary
Board, even regarding the liquidation of a bank, can be questioned via a Petition for
Certiorari before a court when the same was issued in excess of jurisdiction or with such
grave abuse of discretion as to amount to lack or excess of jurisdiction.

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By remanding the case to the BSP Monetary Board, the Court of Appeals only acted in
accordance with Republic Act No. 7653 and Republic Act No. 8791, which tasked the BSP,
through the Monetary Board, to determine whether a particular act or omission, which is
not otherwise prohibited by any law, rule or regulation affecting banks, quasi-banks or
trust entities, may be deemed as conducting business in an unsafe or unsound manner.

125
 Alfeo D. Vivas v. Monetary Board

G.R. No. 191424 August 17, 2013

Digested by: Gewan, Zackery P.

FACTS:

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

Pursuant to Section 28 of Republic Act (R.A.) No. 7653, otherwise known as The New
Central Bank Act, the Integrated Supervision Department II (ISD II) of the BSP
conducted a general examination on ECBI with the cut-off date of December 31, 2007.

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

On the basis of the examination findings as of 30 September 2009 as reported

by the Integrated Supervision Department (ISD) II, in its memorandum dated 17
February 2010, which findings showed that the Eurocredit Community Bank, Inc. – a
Rural Bank (Eurocredit Bank) (a) is unable to pay its liabilities as they become due in
the ordinary course of business; (b) has insufficient realizable assets to meet
liabilities; (c) cannot continue in business without involving probable losses to its
depositors and creditors; and (d) has willfully violated a cease and desist order of the

126
Monetary Board for acts or transactions which are considered unsafe and unsound
banking practices and other acts or transactions constituting fraud or dissipation of
the assets of the institution, and considering the failure of the Board of
Directors/management of Eurocredit Bank to restore the bank’s financial health and
viability despite considerable time given to address the bank’s financial problems, and
that the bank had been accorded due process, the Board, in accordance with Section
30 of Republic Act No. 7653 (The New Central Bank Act), approved the
recommendation of ISD II as follows:
To prohibit the Eurocredit Bank from doing business in the Philippines and to place
its assets and affairs under receivership; and
To designate the Philippine Deposit Insurance Corporation as Receiver of the bank.
Assailing MB Resolution No. 276, Vivas filed a petition for prohibition before the Supreme
Court, ascribing grave abuse of discretion to the MB for prohibiting ECBI from
continuing its banking business and for placing it under receivership.

ISSUE:

Whether the Monetary Board committed grave abuse of discretion upon issuing
Resolution No. 276, placing ECBI under receivership.

HELD:

No, the Monetary Board did not commit grave abuse of discretion upon the
issuance of Resolution No. 276, placing ECBI under receivership.

The Court, in several cases, upheld the power of the MB to take over banks without need
for prior hearing. It is not necessary inasmuch as the law entrusts to the MB the
appreciation and determination of whether any or all of the statutory grounds for the
closure and receivership of the erring bank are present. The MB, under R.A. No. 7653,
has been invested with more power of closure and placement of a bank under receivership
for insolvency or illiquidity, or because the bank’s continuance in business would
probably result in the loss to depositors or creditors.

127
Citing the case of Bangko Sentral Ng Pilipinas Monetary Board v. Hon. Antonio-
Valenzuela, the Court reiterated the doctrine of "close now, hear later," stating that it was
justified as a measure for the protection of the public interest. Thus:

The "close now, hear later" doctrine has already been justified as a measure for the
protection of the public interest. Swift action is called for on the part of the BSP when
it finds that a bank is in dire straits. Unless adequate and determined efforts are taken
by the government against distressed and mismanaged banks, public faith in the
banking system is certain to deteriorate to the prejudice of the national economy
itself, not to mention the losses suffered by the bank depositors, creditors, and
stockholders, who all deserve the protection of the government. [Emphasis supplied]
The doctrine is founded on practical and legal considerations to obviate unwarranted
dissipation of the bank’s assets and as a valid exercise of police power to protect the
depositors, creditors, stockholders, and the general public. Swift, adequate and
determined actions must be taken against financially distressed and mismanaged
banks by government agencies lest the public faith in the banking system deteriorate
to the prejudice of the national economy.

Accordingly, the MB can immediately implement its resolution prohibiting a banking

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

In the present case, the ISD II submitted its memorandum, dated February 17, 2010,
containing the findings noted during the general examination conducted on ECBI with the
cut-off date of September 30, 2009. The memorandum underscored the inability of
ECBI to pay its liabilities as they would fall due in the usual course of its business, its
liabilities being in excess of the assets held. Also, it was noted that ECBI’s continued
banking operation would most probably result in the incurrence of additional losses to

128
the prejudice of its depositors and creditors. On top of these, it was found that ECBI
had willfully violated the cease-and-desist order of the MB issued in its June 24, 2009
Resolution, and had disregarded the BSP rules and directives. For said reasons, the MB
was forced to issue the assailed Resolution No. 276 placing ECBI under receivership. In
addition, the MB stressed that it accorded ECBI ample time and opportunity to address
its monetary problem and to restore and improve its financial health and viability but it
failed to do so.

In this case, the Court held that the application of the corrective measures enunciated in
Section 30 of R.A. No. 7653 was proper and justified.

129
 Central Bank v. CA
G.R. No. 88353 May 8, 1992
Digested by: Lawagan, Mary Faith

Facts: In this case, the Producers Bank of the Philippines (PBP) disagreed with the
Central Bank of the Philippines' (CB) decision to take control of PBP because of
problems with loans and financial losses. PBP took the matter to court, seeking
compensation for its losses and to stop CB from making certain decisions. The trial court
agreed with PBP and temporarily stopped CB from taking further actions. CB disagreed
with the trial court's decision and appealed, but the higher court also sided with PBP,
saying CB's actions were unfair. CB then took the case to the Supreme Court, arguing
that the lower courts didn't have the right to handle the case and that they didn't have
enough evidence against CB. However, the Supreme Court decided to consider CB's
appeal, but also noted that a plan to fix PBP's problems fell apart because of
disagreements among those involved.

ISSUE: Whether or not the respondent Court committed reversible error in affirming the
challenged Orders of the respondent Judge, particularly in relation to the remedy of
closed banks, as follows: In not dismissing Civil Case No. 17692 for: (a) Lack of legal
personality to bring the action, (b) Failure of the complaint and amended complaint to
state a cause of action, (c) Non-payment of the correct amount of docket fee.

RULING: The respondent Court committed reversible error in affirming the challenged
Orders of the respondent Judge, particularly in relation to the remedy of closed banks,
as follows:

a) Lack of legal personality to bring the action: The trial court erred in not dismissing Civil
Case No. 17692 due to lack of legal personality on the part of Producers Bank of the
Philippines (PBP) to bring the action. The conservator appointed to manage PBP does
not possess the authority to determine whether to maintain a suit in the bank's name.
Furthermore, the action to lift the conservatorship should have been initiated by the
stockholders representing the majority of the capital stock within ten days from the
notice of the order placing the bank under conservatorship. As PBP failed to meet these
requirements, the trial court should have dismissed the case.

130
b) Failure of the complaint and amended complaint to state a cause of action: The trial
court also erred in not dismissing the case based on the failure of the complaint and
amended complaint to sufficiently state a cause of action. While PBP alleged various
grievances against the conservatorship, it did not unequivocally seek to lift the
conservatorship itself. Instead, it primarily sought damages and injunctive relief. The
action for damages arising from the conservatorship should have been initiated by the
stockholders representing the majority of the capital stock within the prescribed period.
Therefore, the trial court should have dismissed the case for failure to state a cause of
action.

c) Non-payment of the correct amount of docket fee: Additionally, the trial court erred
in not dismissing the case due to the non-payment of the correct amount of docket fee.
Despite PBP's attempt to evade payment by omitting specific damages in the prayer of
the complaint and amended complaint, the essence of the claims was for damages arising
from the conservatorship. As such, the correct filing fees should have been paid within
the prescribed period. Since PBP failed to do so, the trial court should have dismissed
the case for non-payment of the correct docket fee.

131
 Merchants Rural Bank of Talavera v. Monetary Board

Merchants Rural Bank of Talavera, Inc. And Hilario F. Soriano in his capacity as
majority stockholder in Merchants Rural Bank of Talavera, Inc., Petitioners,

-versus-

Monetary Board, Bangko Sentral Ng Pilipinas, and Philippine Deposit Insurance

Corporation, Respondents.

Digested by: Liban, Darren

Facts:

Respondent Bangko Sentral ng Pilipinas conducted a general examination and found out
that petitioner Merchants Rural Bank of Talavera’s liabilities exceeded its realizable
assets by Php. 26.28 Million. The BSP Supervisor and Examination Department IV
recommended that the petitioner bank be placed under receivership pursuant to Section
30 of R.A. No. 7653. Consequently, the Monetary Board issued a resolution prohibiting
petitioner bank from doing business in the Philippines and placing its assets and affair
under receivership. The said resolution also designated the Philippine Deposit Insurance
Corporation as receiver of the petitioner bank.

Aggrieved, petitioner bank filed a petition for certiorari under Rule 65 directly with the
Court of Appeals claiming that the Monetary Board committed grave abuse of discretion
amounting to lack or in excess of jurisdiction in issuing the said resolution.

Issue:

Whether a petition of certiorari under Rule 65 directly to the Court of Appeals is the
proper remedy for a bank placed under receivership pursuant to Section 30 of R.A, No.
7653.

Ruling:

No, the Court of Appeals held that a petition for certiorari under Rule 65 directly to the
Court of Appeals is not the proper remedy in the case at bar.

132
Under the Rules, the Supreme Court, Court of Appeals and the Regional Trial Court have
concurrent jurisdiction to issue writs of certiorari. However, such concurrence does not
give petitioners unrestricted freedom of choice of court forum as there is a hierarchy of
courts. That heirarchy is determinative of the venue of appeals, and also serves as a
general determinant of the appropriate forum for petitions for the extraordinary writs. A
direct invocation of the Court of Appeals’ original jurisdiction to issue a writ should be
allowed only when there are special and important reasons therefor, clearly and
specifically set out in the petition.

In this case, petitioner bank failed to allege, much less prove, that there exists a special
and important reason or exceptional and compelling circumstance to justify direct
recourse to the Court of Appeals. The present petition should have been initially filed in
the proper Regional Trial Court in strict observance of the doctrine of hierarchy of
courts.

Moreover, assuming that the petitioner bank is justified in directly filing the petition to the
Court of Appeals, nonetheless, it will still be dismissed in accordance with Section 30 of
R.A. No. 7653. Section 30 provides that “actions of the Monetary Board (on proceedings
in recievership and liquidation) shall be final and executory, and may not be restrained or
set aside by the court except on petition for certiorari which may only be filed by the
stockholders of record representing the majority of the capital stock.

Indubitably, petitioner bank is not the stockholders of record but the corporation itself.
Hence, petitioner bank does not have the legal capacity to file the instant petition.
Petitioner Soriano’s claim that he owns over 40% of the authorized capital stock, thus
making him capacitated to file the instant petition, is also without merit. The Manual of
Regulations for Banks prohibits individuals from owning more than 40% of the voting
stocks of a bank. Thus, petitioner Soriano could not validly own more than 40% or the
majority stocks necessary to file the instant petition.

133
 Rural Bank of Lucena v. ARCA
G.R. No. L-21146, September 20, 1965

Digested By: Martinez, Trisha Mae A.

FACTS: The Rural Bank of Lucena, Inc., a banking corporation organised under
Republic Act No. 720, instituted an action to collect damages and to enjoin the Central
Bank from enforcing Resolution No. 928 of its Monetary Board, finding that the Rural
Bank of Lucena (Lucena for short), through its officers, directors, and employees, had
committed acts substantially prejudicial to the Government, depositors, and creditors,
and directing Lucena to reorganize its board of directors; to refrain from granting or
renewing loans, or accept new deposits, and not to issue drafts or make disbursements
without the approval of the supervising Central Bank examiners, and threatening Lucena
that its management would be taken over if the latter should fail to comply with the
resolution. After issue joined and trial of the case, and while the litigation was still
undecided by the Court of First Instance, the Monetary Board, having been informed
that the Director of its Department of Rural Banks recommended the liquidation of the
Rural Bank of Lucena.

Notice was given by Central Bank officials, that the Lucena bank was temporarily closed
pending final decision of the Court, and that business be transacted with Central Bank
representatives only.

Lucena bank filed suit in the Court of First Instance of Quezon (Tayabas) and Court of
First Instance of Manila, per Judge, now Court of Appeals Justice, Magno Gatmaitan of
Branch XIV, decided Case No. 47345, enjoining enforcement of Resolution No. 928 of the
Monetary Board, for having been issued without the prior hearing prescribed by section
10 of the Rural Bank Act, and ordering the Central Bank to pay P5,000.00 damages and
costs. The Central Bank appealed.

Invoking section 29 of Republic Act 265, the Central Bank, as liquidator, petitioned the
Court of First Instance of Manila for assistance in the liquidation of the Lucena bank (Civil
Case No. 50019). Upon motion, and after hearing the parties, Judge Arca issued on
interlocutory order.

134
The Rural Bank of Lucena resorted to this Court on certiorari, claiming that Judge Arca
gravely abused his discretion in issuing the above order, in that Section 29 of the Central
Bank Act (R.A. 265) does not apply. There was no prior valid take over of assets nor due
hearing of the liquidated Bank.

ISSUE: Whether there is a conflict between Section 10 of Rural Bank Act and Section 29
of Central Bank Act.

RULING: No, there is no conflict between Section 10 of Rural Bank Act and Section 29 of
Central Bank Act. Thus, the court denied the petition of the Rural Bank of Lucena.

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

SEC. 29. Proceedings upon insolvency. — Whenever, upon examination by the

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

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

Under section 10 of the Rural Banks Act the Monetary Board may not take over the
management of a rural bank without giving the latter a hearing, an opportunity to rebut

135
the charge that it has contravened applicable laws, rules and regulations to the
substantial prejudice of the government, its depositors and creditors, such a previous
hearing is nowhere required by section 29 of the Central Bank Law. Manifestly, whether
a rural bank's "continuance in business would involve probable loss" to its clients or
creditors and that it "cannot resume business with safety," is a matter of appreciation and
judgement that the law entrusts primarily to the Monetary Board. Equally apparent is that
if the rural bank affected is in the condition previously adverted to, every minute of delay
in securing its assets from dissipation inevitably increases the danger to the creditors. For
this reason, the statute has provided for a subsequent judicial review of the Monetary
Board, in lieu of a previous hearing.

The court find no room for questioning the applicability of section 29 of Republic Act No.
265 (Central Bank Act) to rural banks organized under Republic Act 720, whenever the
Monetary Board should find that the rural bank affected is insolvent, or that its
continuance in business would involve probable loss to its depositors or creditors, and
that it cannot resume business with safety.

The Monetary Board shall determine if the rural bank affected, is insolvent, or that its
continuance in business would involve probable loss to its depositors or creditors, or if it
can resume business with safety to its creditors.

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

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

136
 Bangko Sentral ng Pilipinas v. Hon. Valenzuela
BANGKO SENTRAL NG PILIPINAS MONETARY BOARD and CHUCHI
FONACIER, Petitioners,
Vs.
HON. NINA G. ANTONIO-VALENZUELA

Digested by: Minimo, Jessa

Facts:
The Supervision and Examination Department (SED) of the Bangko Sentral ng Pilipinas
(BSP) conducted examinations of the books of the respondent banks and it found that
these banks had deficiencies in their capital. These banks were then required to
undertake the remedial measures but they failed to carry out such measures. The banks
requested extension of time to comply with the remedial measures and noted that none
of them had received the Report of Examination (ROE) which finalizes the audit findings.

Thereafter, respondent banks then filed before the RTC an action to nullify the ROE
and issuance of restraining order contending that their right to due process was violated
because they were not furnished with ROE. They further contend that the sanction of
closure that the MB might impose upon the receipt of ROE will result in irreparable
damage to them as well as to the public.

The RTC ruled in favor of the respondent banks and this was affirmed by the CA.BSP
then files this Petition for Review on Certiorari under Rule 45 with Prayer for Issuance of
a Temporary Restraining Order (TRO)/Writ of Preliminary Injunction, questioning the
Decision of the CA which upheld RTC’s order in issuing writs of preliminary injunction.

SC issued a restraining order on the RTC and CA decision. By reason of such restraining
order, the SED was able to submit their Report on Examination to the Monetary Board.
The MB then prohibited the respondent banks from transacting business and placed
them under receivership with the Philippine Deposit Insurance Corporation (PDIC) as the
appointed receiver. Now the main petition is resolved by SC

ISSUE:

137
WON the writ of preliminary injunction may be issued in this case in favor of the
respondent banks.

Ruling:
NO. The requisites for preliminary injunctive relief are: (a) the invasion of right sought to
be protected is material and substantial; (b) the right of the complainant is clear and
unmistakable; and (c) there is an urgent and paramount necessity for the writ to prevent
serious damage. But these requirements are absent in thie present case.

As to the third requirement, the law provides that the sanction of closure could be
imposed upon a bank by the BSP even without notice and hearing. This "close now, hear
later" scheme is grounded on practical and legal considerations to prevent unwarranted
dissipation of the bank’s assets and as a valid exercise of police power to protect the
depositors, creditors, stockholders, and the general public. The writ of preliminary
injunction cannot, thus, prevent the MB from taking action.

Furthermore, the issuance by the RTC of writs of preliminary injunction is an unwarranted

interference with the powers of the MB. The actions of the MB under Secs. 29 and 30 of
RA 7653 "may not be restrained or set aside by the court except on petition for certiorari
on the ground that the action taken was in excess of jurisdiction or with such grave abuse
of discretion as to amount to lack or excess of jurisdiction.

138
 Central Bank v. Dela Cruz
G.R. No. 59957 November 12, 1990
Digested by: Ogsar, Novilyn A.

FACTS:

The Rural Bank of Libmanan started operations in 1965 under and by virtue of Republic
Act No. 720, otherwise known as the Rural Banks' Act. Originally owned and managed by
the Albas' family, Libmanan Bank was later sold to Manuel M. Villar and respondent Alex
G. Durante, who commenced banking operations in January 1979.

The Department of Rural Banks and Savings and Loan Associations (DRBSLA) of the
Central Bank of the Philippines (or CB) conducted examinations of the books and affairs
of Libmanan Bank. DRBSLA director, found serious irregularities in its lending and
deposit operations, including false entries and false statements in the bank's records to
give it the appearance of solidity and soundness which it did not possess. As a result of
its questionable transactions, the bank became insolvent.

The Monetary Board, on May 23, 1980, adopted Resolution No. 929 placing Libmanan
Bank under statutory receivership and designating Director Consolacion V. Odra, as
Receiver, pursuant to Section 29, of Republic Act No. 265, as amended.

Libmanan Bank was informed of the Monetary Board Resolution No. 929, and advised to
submit to the Monetary Board an acceptable reorganization and rehabilitation program.
Meanwhile, Director Odra, as receiver, took possession and control of the assets and
records of the rural bank as Libmanan Bank failed to submit the required acceptable
reorganization and rehabilitation plan, the Monetary Board issued on October 3, 1980
Resolution No. 1852 ordering its liquidation.The Solicitor General, in accordance with
Republic Act No. 265, Section 29, filed a petition for Assistance in the Liquidation of
Libmanan Bank.

Respondent Judge issued the questioned order, restraining the respondent Central
Bank from "closing the petitioner(rural) bank and from performing its customary banking

139
business; to restore the control and management of the bank to its Board of Directors;
and to desist from liquidating its assets until ordered otherwise by this Court"

ISSUE:
Whether the respondent Judge acted with grave abuse of discretion or without or in
excess of his jurisdiction in issuing the questioned orders.

RULING:

Yes. Respondent Judge abused his discretion, in authorizing the Libmanan Bank to
withdraw funds from its deposits in other banks. The Rural Bank had become insolvent
as a result of mismanagement, frauds, irregularities and violations of banking laws, rules,
and regulations by its officers. Its remaining assets should therefore be conserved to pay
its creditors. Allowing the Rural Bank to withdraw its deposits in other banks would result
in the further diminution and dissipation of its assets to the prejudice of its depositors
and creditors, and to the unlawful advantage of the very officers who brought about the
bank's insolvency.

The authority for the receivership of Libmanan Bank is found in Section 29 of the Central
Bank Act (P.D. 1827), which provides:

"SECTION 29. Proceedings upon insolvency - Whenever, upon examination by the head
of the appropriate supervising or examining department or his examiners of agents into
the condition of any bank or non-bank financial intermediary performing quasi-banking
functions, it shall be disclosed that the condition of the same is one of insolvency, or that
its continuance in business would involve probable loss to its depositors or creditors, it
shall be the duty of the department head concerned forthwith, in writing, to inform the
Monetary Board of the facts, and the Board may, upon finding the statements of the
department head to be true forbid the institution to do business in the Philippines and
shall designate an official of the Central Bank or a person of recognized competence in
banking or finance as receiver to immediately take charge of its assets and liabilities, as
expeditiously as possible collect and gather all the assets and administer the same for the
benefit of its creditors, exercising all the powers necessary for these purposes including,

140
but not limited to, bringing suits and foreclosing mortgages in the name of the bank or
non-bank financial intermediary performing quasi-banking functions.

If the Monetary Board shall determine and confirm within the said period that the bank
or non-bank financial intermediary performing quasi-banking functions is insolvent or
cannot resume business with safety to its depositors, creditors and the general public,
it shall, if the public interest requires, order its liquidation, indicate the manner of its
liquidation and approve a liquidation plan. The Central Bank shall, by the Solicitor
General, file a petition in the Court of First Instance reciting the proceedings which
have been taken and praying the assistance of the court in the liquidation of such
institution.

The Monetary Board shall designate an official of the Central Bank, or a person of
recognized competence in banking or finance, as liquidator who shall take over the
functions of the receiver previously appointed by the Monetary Board under this
Section. The liquidator shall, with all convenient speed, convert the assets of the bank or
non-bank financial intermediary performing quasi-banking functions to money or sell,
assign or otherwise dispose of the same to creditors and other parties for the purpose
of paying the debts of such institution and he may, in the name of the bank or non-bank
financial intermediary performing quasi-banking functions, institute such actions as may
be necessary in the appropriate court to collect and recover accounts and assets of such
institution."

"The provisions of any law to the contrary notwithstanding the actions of the Monetary
Board under this Section and the second paragraph of Section 34 of this Act shall be
final and executory, and can be set aside by the court only if there is convincing proof
that the action is plainly arbitrary and made in bad faith. No restraining order or
injunction shall be issued by the court enjoining the Central Bank from implementing its
actions under this Section and the second paragraph of Section 34 of this Act, unless
there is convincing proof that the action of the Monetary Board is plainly arbitrary and
made in bad faith and 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 Central Bank, in an amount
to be fixed by the Court.

141
It is noteworthy that the actions of the Monetary Board in proceedings on insolvency
are explicitly declared by law to be "final and executory." They may not be set aside,
or restrained, or enjoined by the courts, except upon "convincing proof that the action
is plainly arbitrary and made in bad faith".

Respondent Judge acted in plain disregard of the fourth paragraph of Section 29 of

the Central Bank Act, when he restrained the petitioners from closing and liquidating
the Rural Bank of Libmanan, prevented them from performing their functions, and
ordered them to return the management and control of the rural bank to its board of
directors without receiving convincing proof that the action of the CB was plainly
arbitrary and made in bad faith. By using his own standards, instead of the standards
set forth in Section 29 of the law, as basis for issuing a restraining order against the
CB, respondent Judge committed a grave abuse of discretion tantamount to excess,
or lack of jurisdiction.

Respondent Judge acted with grave abuse of discretion in issuing the contested order
dated January 15, 1982 enjoining the CB liquidator from closing the rural bank and
requiring it to restore the management and control of the bank to its board of directors. It
is a basic procedural postulate that a preliminary injunction should never be used to
transfer the possession or control of a thing to a party who did not have such possession
or control at the inception of the case. Its proper function is simply to maintain the status
quo at the commencement of the action. The status quo at the time of filing was that
Libmanan Bank was under the control of the DRBSLA Director, with Consolation V.
Odra, as liquidator appointed by the Central Bank.

142
 The Law on Secrecy of Bank Deposits (Rep Act 1405 and Rep
Act No. 6426, as amended)
Prohibited Acts

Garnishment of Deposits

Philippine National Bank v. Gancayco

G.R. No. L-18343 September 30, 1965

Digested by: OLAIREZ, Dexter Jan C.

FACTS:
Defendants Emilio Gancayco and Florentino Flor, as special prosecutors of the
Department of Justice, required the plaintiff Philippine National Bank to produce at a
hearing the records of the bank deposits of Ernesto Jimenez, former administrator of the
Agricultural Credit and Cooperative Administration, who was then under investigation for
unexplained wealth. In declining to reveal its records, the plaintiff bank invoked Section 2
of Republic Act No. 1405 where deposits are prohibited from any disclosure.

SEC. 2. All deposits of whatever nature with banks or banking institutions in the
Philippines including investments in bonds issued by the Government of the
Philippines, its political subdivisions and its instrumentalities, are hereby
considered as of an absolutely confidential nature and may not be examined,
inquired or looked into by any person, government official, bureau or office,
except upon written permission of the depositor, or in cases of impeachment, or
upon order of a competent court in cases of bribery or dereliction of duty of
public officials, or in cases where the money deposited or invested is the subject
matter of the litigation.

ISSUE:

143
 Whether this case is one of the exceptions to the Law on Secrecy of Bank
Deposits.

RULING:
Yes, this case is one of the exceptions to the Law on Secrecy of Bank Deposits.

With regard to the claim that disclosure would be contrary to the policy making
bank deposits confidential, it is enough to point out that while section 2 of Republic Act
1405 declares bank deposits to be "absolutely confidential," it nevertheless allows such
disclosure in the following instances: (1) Upon written permission of the depositor; (2) In
cases of impeachment; (3) Upon order of a competent court in cases of bribery or
dereliction of duty of public officials; (4) In cases where the money deposited is the
subject matter of the litigation. Cases of unexplained wealth are similar to cases of bribery
or dereliction of duty and no reason is seen why these two classes of cases cannot be
excepted from the rule making bank deposits confidential.

144
 Asia Trust Development Bank v. Carmelo H. Tuble

G.R. No. 183987 July 25, 2012

Digested by: Padilla, Rhea Mae

Facts: Carmelo Tuble, who served as the vice president of petitioner Asia Trust
Development Bank, availed himself of the car incentive plan and loan privileges offered
by the bank. As regards the loan privileges, Tuble obtained three separate loans. The
first, a real estate loan evidenced by Promissory Note No. 0142 with maturity date of 1
January 1999, was secured by a mortgage over his property, with no interest indicated.
Eventually, the bank filed a complaint for replevin against Tuble wherein the Bank
obtained a favorable judgment. The Bank also filed a petition for extra-judicial
foreclosure based on his real estate loan amounting to P421,800. Tuble timely redeemed
the property which at that time already amounted to P1,318,401.90. The Bank explained
that the redemption price ballooned in that amount because it included the car’s book
value, the salary loan, car insurance, 18% annual interest on the bank’s redemption price,
penalty and interest charges on P.N. No. 0142, and litigation expenses.

Issue: Whether or not the Bank is justified in claiming Tuble’s liability to pay legal interest,
notwithstanding that P.N. No. 0142 contains no stipulation on interest payments.

Ruling: NO. While Article 2209 allows the recovery of interest sans stipulation, this charge
is provided not as a form of monetary interest, but as one of compensatory interest.
Monetary interest refers to the compensation set by the parties for the use or
forbearance of money. On the other hand, compensatory interest refers to the penalty
or indemnity for damages imposed by law or by the courts. Compensatory interest, as a
form of damages, is due only if the obligor is proven to have defaulted in paying the loan.
Thus, a default must exist before the bank can collect the compensatory legal interest of
12% per annum. In the case at bar, Tuble was not yet in default because as evidence by
P.N. No. 0142, the obligation was set to mature on 1 January 1999. But Tuble had already
settled his liabilities on 17 March 1997 by paying the redemption price. Then, in 1999, the
bank issued his Clearance and share in the DIP in view of the full settlement of his
obligations.

145
 Mellon Bank v. Magsino
G.R. No. 71479 October 18, 1990

Digested by: Parana, Micah Nica R.

FACTS:

Dolores Ventosa requested the transfer of $1,000 from the First National Bank of
Moundsville, West Virginia, U.S.A. to Victoria Javier in Manila through the Prudential
Bank.

Accordingly, the First National Bank requested the petitioner, Mellon Bank, to effect the
transfer. Unfortunately, the wire sent by Mellon Bank to Manufacturers Hanover Bank,
a correspondent of Prudential Bank, indicated the amount transferred as
"US$1,000,000.00" instead of US$1,000.00. Hence Manufacturers Hanover Bank
transferred one million dollars less bank charges of $ 6.30 to the Prudential Bank for the
account of Victoria Javier.

Javier opened a new dollar account in the Prudential Bank and deposited $999,943.70.
Victoria Javier and her husband, Melchor Javier, Jr., made withdrawals from the account,
deposited them in several banks only to withdraw them later in an apparent plan to
conceal, "launder" and dissipate the erroneously sent amount.

Javier withdrew $475,000 from account No. 343 and converted it into eight cashier's
checks made out to the following: (a) F.C. Hagedorn & Co., Inc., two cheques for the
total amount of P1,000,000; (b) Elnor Investment Co., Inc., two checks for P1,000,000;
(c) Paramount Finance Corporation, two checks for P1,000,000; and (d) M. Javier, Jr.,
two checks for P496,000. The first six checks were delivered to Jose Marquez and
HonorioPoblador, Jr.

Mellon Bank also filed in the Court of First Instance of Rizal, a complaint against the Javier
spouses, Honorio Poblador, Jr., Domingo L. Jhocson, Jr., Jose Marquez, Roberto
Gariño, Elnor Investment Co., Inc., F.C. Hagedorn & Co., Inc. and Paramount Finance

146
Corporation. After its amendment, Rafael Caballero and Tri-Arc Investment &
Management Company, Inc. were also named defendants.

It prayed that: (a) the Javiers, Poblador, Elnor, Jhocson and Gariño be ordered to
account for and pay jointly and severally unto the plaintiff US$999,000.00 plus
increments, additions, fruits and interests earned by the funds from receipt thereof until
fully paid; (b) the other defendants be ordered to account for and pay unto the plaintiff
jointly and severally with the Javiers to the extent of the amounts which each of them may
have received directly or indirectly from the US$999,000.00 plus increments, additions,
fruits and interests; (c) Marquez be held jointly and severally liable with Poblador for the
amount received by the latter for the sale of the 160-acre lot in California City; and (d)
defendants be likewise held liable jointly and severally for attorney's fees and litigation
expenses plus exemplary damages.

Mellon Bank traced these checks to Account 2825-1 of the Philippine Veterans Bank in
the name of Cipriano Azada, Poblador's law partner and counsel to the Javiers.
Mellon Bank then subpoenaed ErlindaBaylosis of the Philippine Veterans Bank to show
that Azada deposited HSBC checks No. 339736 and 339737 amounting to P874,490.75 in
his personal current account with said bank. It also subpoenaed Pilologo Red, Jr. of
Hongkong & Shanghai Banking Corporation to prove that said amount was returned by
Azada to Hagedorn.
The testimonies of these witnesses were objected to by the defense on the grounds of
res inter alios acta, immateriality, irrelevancy and confidentiality. The defendants then
moved to strike off the testimonies of Baylosis and Red from the record.

ISSUE:
Whether in an action filed by the bank to recover the money transmitted by mistake, the
bank be allowed to present the accounts which it believed were responsible for the
acquisition of the money.
RULING:
Yes, R.A. 1405 allows the disclosure of bank deposits in cases where the money deposited
is the subject matter of litigation. Section 2 of said law allows the disclosure of bank
deposits in cases where the money deposited is the subject matter of the
litigation. Inasmuch as Civil Case No. 26899 is aimed at recovering the amount converted

147
by the Javiers for their own benefit, necessarily, an inquiry into the whereabouts of the
illegally acquired amount extends to whatever is concealed by being held or recorded in
the name of persons other than the one responsible for the illegal acquisition.
Notwithstanding its lengthy and thorough discussion during the hearing and in pleadings
subsequent to the answers, the issue of election of remedies has not, contrary to the
lower court's assertion, been elevated to a "substantive one." Having been waived as a
defense, it cannot be treated as if it has been raised in a motion to dismiss based on the
nonexistence of a cause of action.
Moreover, granting that the defense was properly raised, it is inapplicable in this case. In
its broad sense, election of remedies refers to the choice by a party to an action of one
of two or more coexisting remedial rights, where several such rights arise out of the same
facts, but the term has been generally limited to a choice by a party between inconsistent
remedial rights, the assertion of one being necessarily repugnant to, or a repudiation of,
the other. In its technical and more restricted sense, election of remedies is the adoption
of one of two or more coexisting remedies, with the effect of precluding a resort to the
others.
As a technical rule of procedure, the purpose of the doctrine of election of remedies is
not to prevent recourse to any remedy, but to prevent double redress for a single wrong.
It is regarded as an application of the law of estoppel, upon the theory that a party
cannot, in the assertion of his right occupy inconsistent positions which form the basis of
his respective remedies. However, when a certain state of facts under the law entitles a
party to alternative remedies, both founded upon the Identical state of facts, these
remedies are not considered inconsistent remedies. In such case, the invocation of one
remedy is not an election which will bar the other, unless the suit upon the remedy first
invoked shall reach the stage of final adjudication or unless by the invocation of the
remedy first sought to be enforced, the plaintiff shall have gained an advantage thereby
or caused detriment or change of situation to the other. It must be pointed out that
ordinarily, election of remedies is not made until the judicial proceedings has gone to
judgment on the merits.
Consonant with these rulings, this Court, through Justice J.B.L. Reyes, opined that while
some American authorities hold that the mere initiation of proceedings constitutes a
binding choice of remedies that precludes pursuit of alternative courses, the better rule
is that no binding election occurs before a decision on the merits is had or a detriment to
the other party supervenes. This is because the principle of election of remedies is

148
discordant with the modern procedural concepts embodied in the Code of Civil
Procedure which Permits a party to seek inconsistent remedies in his claim for relief
without being required to elect between them at the pleading stage of the litigation.

149
 Union Bank of the Philippines v. Court of Appeals
G.R. No. 134699, December 23, 1990

Digested by: POKA-IS, Aprilyn Joy F.

Facts:
On March 21, 1990, a check (Check No. 11669677) dated March 31, 1990 in the
amount of One Million Pesos (P1,000,000.00) was drawn against Account No. 0111-
01854-8 with private respondent Allied Bank payable to the order of one Jose Ch.
Alvarez. The payee deposited the check with petitioner Union Bank who credited the
P1,000,000.00 to the account of Mr. Alvarez. On May 21, 1990, petitioner sent the check
for clearing through the Philippine Clearing House Corporation (PCHC). When the check
was presented for payment, a clearing discrepancy was committed by Union Bank's
clearing staff when the amount of One Million Pesos (P1,000,000.00) was erroneously
"under-encoded" to One Thousand Pesos (P1,000.00) only.

Petitioner only discovered the under-encoding almost a year later. Thus, on May
7, 1991, Union Bank notified Allied Bank of the discrepancy by way of a charge slip for
Nine Hundred NinetyNine Thousand Pesos (P999,000.00) for automatic debiting
against of Allied Bank. The latter, however, refused to accept the charge slip "since [the]
transaction was completed per your [Union Bank's] original instruction and client's
account is now insufficiently funded."

Subsequently, Union Bank filed a complaint against Allied Bank before the PCHC
Arbitration Committee (Arbicom), praying that judgment be rendered in favor of plaintiff
against defendant sentencing it to pay plaintiff:
1. The sum of NINE HUNDRED NINETY-NINE THOUSAND PESOS
(P999,000.00);
2. The sum of THREE HUNDRED SIXTY-ONE AND FOUR HUNDRED EIGHTY
AND 20/XX P361,480.20 as of October 9, 1991 representing reimbursements for
opportunity losses and interest at the rate of 24% per annum arising from actual
losses sustained by plaintiff as of May 21, 1990;
3. The amount for attorney's fees at the rate of 25% of any and all sums due;
4. Penalty Charges at the rate of 1/8 of 1% of P999,000.00 from May 22, 1990 until
payment thereof;

150
 5. Exemplary and punitive damages against the defendant in such amounts as may be
awarded by this Tribunal in order to serve a lesson to all member-Banks under the
PCHC umbrella to strictly comply with the provisions thereof;
6. The costs of suit which includes filing fee in addition to litigation expenses which
shall be proven in the course of arbitration;
7. Such other damages that may be awarded by this Tribunal.
Thereafter, Union Bank filed in the Regional Trial Court (RTC) of Makati a
petition for the examination of Account No. 111-01854-8. Judgment on the arbitration case
was held in abeyance pending the resolution of said petition. The Court of Appeals
affirmed the dismissal of the petition, ruling that the case was not one where the money
deposited is the subject matter of the litigation.

Issue: Whether or not the last exception to the rules on the secrecy of bank deposits will
apply to the disclosure of Account No. 111-01854-8.

Ruling: No, last exception to the rules on the secrecy of bank deposits will not apply to
the disclosure of Account No. 111-01854-8.

The Supreme Court held that the petitioner points to its prayer in its complaint to
show that it sought reimbursement from the drawer's account. The prayer, however, does
not specifically state that it was seeking recovery of the amount from the depositor's
account. Petitioner merely asked that "judgment be rendered in favor of plaintiff against
defendant sentencing it to pay plaintiff: 1. The sum of NINE HUNDRED NINETY-NINE
THOUSAND PESOS (P999,000.00). On the other hand, the petition before this Court
reveals that the true purpose for the examination is to aid petitioners in proving the extent
of Allied Bank's liability.

Hence, the amount actually debited from the subject account becomes very
material and germane to petitioner's claim for reimbursement as it is only upon
examination of subject account can it be proved that indeed a discrepancy in the amount
credited to petitioner was committed, thereby, rendering respondent Allied Bank liable
to petitioner for the deficiency. The money deposited in aforesaid account is undeniably
the subject matter of the litigation since the issue in the Arbicom case is whether
respondent Bank should be held liable to petitioner for reimbursement of the amount of

151
money constituting the difference between the amount of the check and the amount
credited to petitioner, that is, P999,000.00, which has remained deposited in aforesaid
account.

On top of the allegations in the Complaint, which can be verified only by examining
the subject bank account, the defense of respondent Allied Bank that the reimbursement
cannot be made since client's account is not sufficiently funded at the time petitioner sent
its Charge Slip, bolsters petitioner's contention that the money in subject account is the
very subject matter of the pending Arbicom case.

In this case, the petitioner is fishing for information so it can determine the
culpability of private respondent and the amount of damages it can recover from the
latter. It does not seek recovery of the very money contained in the deposit. The subject
matter of the dispute may be the amount of P999,000.00 that petitioner seeks from
private respondent as a result of the latter's alleged failure to inform the former of the
discrepancy; but it is not the P999,000.00 deposited in the drawer's account. By the
terms of R.A. No. 1405, the "money deposited" itself should be the subject matter of the
litigation and that that petitioner feels a need for such information in order to establish
its case against private respondent does not, by itself, warrant the examination of the
bank deposits. The necessity of the inquiry, or the lack thereof, is immaterial since the
case does not come under any of the exceptions allowed by the Bank Deposits Secrecy
Act.

Hence, their petition was denied because the last exception to the rules on the
secrecy of bank deposits will not apply to the disclosure of Account No. 111-01854-8.

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 BSB Group, Inc. v. Go
G.R. No. 168644, February 16, 2010

Digested by: Ridulfa, Tricia

Facts:
Petitioner is a duly organized domestic corporation presided by its representative,
Ricardo Bangayan, husband of herein respondent Sally Go. Respondent was employed
as a cashier, and was engaged, among others, to receive and account for the payments
made by the various customers of the company. Bangayan filed with the Manila
Prosecutor’s Office a complaint for estafa/qualified theft against respondent alleging
that several checks issued by the company’s customers in payment of their obligation
were, instead of being turned over to the company’s coffers, indorsed by respondent
who deposited the same to her personal banking account maintained at Security Bank.
Accordingly, respondent was charged and the prosecution moved for the issuance of
subpoena duces tecum/ad testificandum against the respective managers or records
custodians of Security Bank and Asian Savings Bank. Respondent opposed and
meanwhile, prosecution was able to present in court the testimony of one Security Bank
representative. Petitioner moved to exclude the testimony but was denied by the trial
court. CA reversed and set aside the order.

Issue:

Whether or not the testimony on the particulars of respondent’s account with Security
Bank, as well as of the corresponding evidence of the checks allegedly deposited in said
account, constitutes an unallowable inquiry under R.A. 1405.

Ruling: YES.

The Court found guidance in the relevant portions of the legislative deliberations on
Senate Bill No. 351 and House Bill No. 3977, which later became the Bank Secrecy Act, and
it held that the absolute confidentiality rule in R.A. No. 1405 actually aims at protection
from unwarranted inquiry or investigation if the purpose of such inquiry or investigation

153
is merely to determine the existence and nature, as well as the amount of the deposit in
any given bank account.

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 petitioner’s
trust and confidence and stealing cash. 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 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.

It comes clear that the admission of testimonial and documentary evidence relative to
respondent’s 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.

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 Philippine Savings Bank v. Senate Impeachment Court
Philippine Savings Bank and Pascual M. Garcia III v. Senate Impeachment Court and
the Honorable Members of the Prosecution Panel of the House of Representatives
G.R. No. 200238 November 20, 2012

Digested by: Siadto, Alyssa Trinidad E.

Facts:
Philippine Savings Bank (PSBank) and its President, Pascual M. Garcia III wanted to
nullify and set aside the Resolution of the Senate Impeachment Court which granted the
requests for subpoena duces tecum ad testificandum and/or its representatives requiring
them to testify and produce before the Impeachment Court documents relative to the
foreign currency accounts that allegedly belonged to the Supreme Court Chief Justice
Renato C. Corona.

However, because SC Chief Justice Corona’s impeachment proceedings were

terminated, PSBank withdrew their petition because they are no longer faced with the
dilemma of either violating RA 6426 or being held in contempt of court for refusing to
disclose the details of the subject foreign currency deposits.

Issue:
Whether the Impeachment Court acted arbitrarily when it issued the assailed subpoena
to obtain information concerning the subject foreign currency deposits notwithstanding
the confidentiality of such deposits under RA 6426 has been overtaken by events.

Ruling:
Yes.
The supervening conviction of SC Chief Justice Corona on May 29, 2012, as well as his
execution of a waiver against the confidentiality of all his bank accounts, whether in peso
or foreign currency, has rendered the petition moot hence, the petition is dismissed and
the TRO issued by the court is lifted.

155
 China Banking Corp. v. CA
CHINA BANKING CORPORATION, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and JOSE "JOSEPH" GOTIANUY as
substituted by ELIZABETH GOTIANUY LO, respondents.
G.R. No. 140687 December 18, 2006
Digested by: Tulio, Karl
FACTS:
Jose Gotianuy accused his daughter Mary Margaret Dee of stealing, among his other
properties, US dollar deposit with Citibank N.A amounting to not less than
P35,000,000.00 and US864,000.00. Mary Margaret Dee received these amounts from
Citibank N.A through checks which she allegedly deposited at China Banking
Corporation (China Bank). He likewise accused his son-in-law, George Dee, husband of
Mary, of transferring his real properties and shares of stock in George Dee’s name
without any consideration.

Jose Gotianuy died during the pendency of the case hence, he was substituted by his
daughter, Elizabeth Gotianuy Lo, who presented the US Dollar checks withdrawn by
Mary from his US dollar placement with Citibank. Upon motion of Elizabeth, the trial
court issued a subpoena to Cristota Labios and Isabel Yap, employees of China Bank, to
testify on the case. China Bank moved for reconsideration but it was later denied on the
ground that the disclosure only as to the name or in whose name the said fund is
deposited is not violative of the law.
Aggrieved, China Bank filed a petition for certiorari with the CA in which the same denied
the petition and affirmed the order of the RTC. In justifying its conclusion, the CA
ratiocinated that it is pristinely clear the law specifically encompasses only the money or
funds in foreign currency deposited in a bank. Hence, the coverage of the law extends
only to the foreign currency deposit in the CBC account where Mary Margaret Dee
deposited the Citibank checks in question and nothing more.

ISSUE:
Whether the Citibank dollar checks with Jose Gotianuy and/or Mary Margaret Dee as
payees, which were deposited with petitioner China Bank, be looked into notwithstanding
the law on secrecy of foreign currency deposits.

156
RULING:
Yes. Sec. 8 of RA 6426 (the Foreign Currency Deposit Act) provides that all authorized
foreign currency deposits are considered absolutely confidential in nature and may not
be inquired into. Under the same provision, there is only one exception to this rule, that
is, when disclosure is allowed upon the written permission of the depositor.

In this case, the fact finding courts declared Jose Gotianuy as a co-depositor of Mary
Margaret Dee hence, no written consent from Mary Margaret Dee is necessitated. Mary
Margaret Dee herself declared the source to be Jose Gotianuy. Thus, as the owner of
the funds unlawfully taken and which are undisputably now deposited with China Bank,
Jose Gotianuy has the right to inquire into the said deposits.

157
 Salvacion v. Central Bank
G.R. No. 94723, August 21, 1997
Digested by: Irvin Rutherford Q. Yamashita

FACTS:
Greg Bartelli y Northcott, an American tourist, detained and repeatedly raped
Karenm Salvacion, a 12-year old the victim, in the apartment of the accused in Makati City.
On the 4th day of detention, Karen was finally found by the policemen after a neighbour
heard her crying and screaming for help. The accused was immediately arrested within
the premises of the building, and eventually brought to Makati Municipal Jail.
After thorough investigation and medical examination, the victim, as represented
by her parents, together with the Fiscal filed criminal cases against Greg Bartelli y
Northcott for Serious Illegal Detention and for Four (4) counts of Rape.The petitioners
also filed a separate civil action for damages with preliminary attachment against the
accused that had several dollar accounts in COCOBANK and China Banking
Corporation.
There was a hearing for Bartelli’s petition for bail after the latter escaped from jail.
The deputy sheriff served Notice of Garnishment on China Banking Corporation but the
latter declined to furnish a copy as it invoked R.A. No. 1405. The sheriff again sent a letter
stating that the garnishment did not violate the bank secrecy law as it was legally made by
virtue of a court order but China Banking Corporation invoked Section 113 of Central
Bank Circular No. 960, that dollar accounts are exempt from attachment, garnishment, or
any other order or process of any court, legislative body, government agency or any
administrative body, whatsoever .
The Central Bank sent a reply after a demand from the court asking if the Section
113 of Central Bank Circular No.960 is absolute in nature of which it replied in affirmative.
After the accused was declared in default, the court rendered a judgement in favour of
the petitioners based on the heinous acts of the accused and the grave effects on social,
moral and psychological aspects on the part of the petitioners. China Banking
Corporation refused the Writ of Execution of the court. Thus, Petitioners file a Petition
for Relief in the Supreme Court.

ISSUE:

158
 Whether foreign currency deposits shall be exempt from attachment, garnishment,
or any other order to process of any court, legislative body, government agency or any
administrative body whatsoever.

RULING:
No, it is not applicable in this case. Hence the dollar deposit of respondent be
released to the petitioners.

Here is a child, a 12-year old girl, who in her belief that all Americans are good and
in her gesture of kindness by teaching his alleged niece the Filipino language as requested
by the American, trustingly went with said stranger to his apartment, and there she was
raped by said American tourist Greg Bartelli. Not once, but ten times. She was detained
therein for four (4) days. This American tourist was able to escape from jail and avoid
punishment. On the other hand, the child, having received a favourable judgement in the
Civil Case for damages in the amount of more than P1,000,000.00, which amount could
alleviate the humiliation, anxiety, and besmirched reputation she had suffered and may
continue to suffer for a long, long time; and knowing that this person who had wronged
her has the money, could not, however get the award of damages because of this
unreasonable law. This questioned law, therefore makes futile the favourable judgement
and award of damages that she and her parents fully deserve.

While it is true that the protective cloak of confidentiality over foreign deposit
accounts would better encourage the inflow of foreign currency deposits, lending
capacity of the government and would help financial stability and the national
development, what would be the relief of someone claiming damages against a person with
foreign deposit accounts?More so against a person who heinously and feloniously
committed an offence in the territory of the Philippines? As in this case, the accused
deemed liable for the damages based of the heinous acts according to the testimonies of
the victim and the witnesses.It is the duty of the government to encourage foreign
currency deposits and to comply by giving confidentiality but in the correct argument of
the Solicitor General, foreign currency deposits of a tourist or transient is not the one
encouraged byPD Nos. 1034 and 1305 on the ground that said accounts is temporary and
only for a short period of time.The application of the law depends on the extent of its
justice. If we rule Section 113 of Central Bank Circular No.960 which exempts from

159
attachment, garnishment, or any other order or process of any court, legislative body,
government agency or any administrative body whatsoever, is applicable to foreign
transient , injustice would result especially to a citizen aggrieved by a foreign guest like
accused Greg Bartelli. Article 10 of the New Civil Code 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 ”. Simply stated when the statute is ambiguous, this is one of
those fundamental solutions that would respond to a vehement urge of conscience.

It would be unthinkable that Section 113 of CB circular 960 would be used as a

device by the accused for wrongdoing, and in so doing, acquitting the guilty at the
expense of the innocent. The situation calls for fairness against legal tyranny. We
definitely cannot have both ways and rest in the belief that we have served the ends of
justice.

160
 Anti-Money Laundering Law (Rep Act No. 9160, as amended)
Bank Inquiry Order • By the Court of Appeals; Ex-Parte Application

Republic v. Eugenio
GR No. 174629 February 14, 2008

Digested by: Adloc Marianne D.

Facts:
A series of investigations concerning the award of the NAIA 3 contracts to PIATCO were
undertaken by the Ombudsman and the Compliance and Investigation Staff (CIS) of
petitioner Anti-Money Laundering Council (AMLC).

The CIS conducted an intelligence database search on the financial transactions of

certain individuals involved in the award, including respondent Pantaleon Alvarez
(Alvarez), who had been the Chairman of the PBAC Technical Committee, NAIA-IPT3
Project. By this time, Alvarez had already been charged by the Ombudsman with violation
of R.A. No. 3019 or Anti-Graft and Corrupt Practices Act. The search of the CIS revealed
that the Alvarez maintained eight (8) bank accounts with six (6) different banks.

The RTC granted the application of AMLC to inquire into or examine the deposits or
investments of Alvarez, Trinidad, Liongson and Cheng Yong. The CIS proceeded to
inquire and examine the deposits, investments and related web accounts of the four.

Meanwhile, the Special Prosecutor of the Office of the Ombudsman requested the
AMLC to investigate the accounts of Alvarez, PIATCO, and several other entities
involved in the nullified contract adverting to probable cause to believe that the bank
accounts were used in the commission of unlawful activities that were committed in relation
to the criminal cases then pending before the Sandiganbayan. In response, the AMLC
promulgated another resolution authorizing the executive director of the AMLC t o
inquire into and examine the accounts with DBS Bank and two other accounts in the name
of Cheng Yong with Metrobank.

161
Alvarez, through counsel, filed an Urgent Motion to Stay Enforcement of the said Order
arguing that nothing in R.A. No. 9160 authorized the AMLC to seek the authority to
inquire into bank accounts ex parte. The Manila RTC issued an Order staying the
enforcement of its bank inquiry order and giving the Republic five (5) days to respond to
Alvarez’ motion.

The day after Alvarez filed his motion, the Manila RTC issued an order wherein it clarified
that the AMLC shall refrain from enforcing the order until the expiration of the period to
appeal, without any appeal having been filed. In response, the Republic filed an Urgent
Omnibus Motion for Reconsideration urging that it be allowed to immediately enforce the
bank inquiry order against Alvarez and that Alvarez's notice of appeal be expunged from
the records since appeal from an order of inquiry is disallowed under the Anti money
Laundering Act (AMLA).

Respondent Lilia Cheng (wife of Respondent Cheng Yong) filed an Application for TRO
and/or Writ of Preliminary Injunction directed against the Republic of the Philippines
through the AMLC, with the Court of Appeals. Lilia Cheng imputed that the AMLC’s ex
parte applications violated her constitutional right to due process, that the bank inquiry
order under the AMLA can only be granted in connection with violations of the AMLA
and that the AMLA cannot apply to bank accounts opened and transactions entered into
prior to the effectivity of the AMLA or to bank accounts located outside the Philippines.

The Court of Appeals, acting on Lilia Cheng's petition, issued a Temporary Restraining
Order. On even date, the Manila RTC issued an Order resolving to hold in abeyance the
resolution of the urgent omnibus motion for reconsideration then pending before it until
the resolution of Lilia Cheng’s petition for certiorari with the Court of Appeals.

Issue:
Whether a bank inquiry order may be obtained only upon the pre-existence of a money
laundering offense case filed before the courts.

Ruling:
No, a bank inquiry order may not be obtained only upon the pre-existence of a money
laundering offense case filed before the courts.

162
The confidentiality of bank deposits remains a basic state policy in the Philippines under
Bank Secrecy Act. Subsequent laws, including the AMLA, may have added exceptions to
the Bank Secrecy Act, yet the secrecy of bank deposits still lies as the general rule. 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 office; namely
when:
1. Upon written permission of the depositor;
2. In cases of impeachment;
3. Ihe examination of bank accounts is upon order of a competent court in cases of
bribery or dereliction of duty of public officials; and
4. The money deposited or invested is the subject matter of the litigation. Section 8
of R.A. Act No. 3019, the Anti-Graft and Corrupt Practices Act, has been
recognized by this Court as constituting an additional exception to the rule of
absolute confidentiality and there have been other similar recognitions as well.

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 dened 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.

To ensure compliance with this Act, the Bangko Sentral ng Pilipinas (BSP) may inquire
into or examine any deposit of investment with any banking institution or non-bank
financial institution when the examination is made in the course of a periodic or special
examination, in accordance with the rules of examination of the BSP.
In this case, the bank inquiry order is simply to serve as a provisional relief or remedy. The
application for such does not entail a full-blown trial. Nevertheless, just because the

163
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
“[a]ll deposits of whatever nature with banks or banking institutions in the Philippines . .
. are hereby considered as of an absolutely confidential nature.”
The law does not require that there be an existing money laundering offense case filed
before a bank inquiry order may be availed of under Sec. 11 of AMLA.

164
 Republic v. Bolante
G.R. No. 186717, April 17, 2017
Digested by:Alunday, Jubileah Heart B.

Bank Inquiry- In the issuance of a bank inquiry order, the power to determine
the existence of probable cause is lodged in the trial court. For the trial court to issue
a bank inquiry order, it is necessary for the AMLC to be able to show specific facts
and circumstances that provide a link between an unlawful activity or a money
laundering offense, on the one hand, and the account or monetary instrument or
property sought to be examined on the other hand

Facts:

(LIVECOR), Molugan Foundation (Molugan), and Assembly of Gracious

Samaritans, Inc. Face a series of suspicious transaction reports. The transactions were
reported '"suspicious" because they had no underlying legal or trade obligation, purpose
or economic justification; nor were they commensurate to the business or financial
capacity of Molugan and AGS, which were both lowly capitalized at P50,000 each.

Former Undersecretary of Agriculture Jocelyn I. Bolante (Bolante) requested the

Department of Budget and Management to release to the Department of Agriculture the
amount of ₱728 million for the purchase of farm inputs under the Ginintuang Masaganang
Ani Program. This amount was used to purchase liquid fertilizers from Freshan
Philippines, Inc., which were then distributed to local government units and congressional
districts beginning January 2004. Based on the Audit Report prepared by the
Commission on Audit (COA), the use of the funds was characterized by massive
irregularities, overpricing, violations of the procurement law and wanton wastage of
scarce government resources.

finding probable cause to believe that the accounts of LIVECOR, Molugan and
AGS - the subjects of the suspicious transaction reports submitted by PNB - were related
to what became known as the "fertilizer fund scam."

Thus, the AMLC authorized the filing of a petition for the issuance of an order
allowing an inquiry into the six accounts 18 of LIVECOR, Molugan, AGS, Samuel S.
Bombeo and Ariel Panganiban. The AMLC also required all covered institutions to submit
reports of covered transactions and/or suspicious transactions of these entities and

165
individuals, including all the related web of accounts.The trial court found probable cause
and issued the Order prayed for. It allowed the AMLC to inquire into and examine the six
bank deposits or investments and the related web of accounts.

Hence, this petition.

Issue:

Whether the RTC committed grave abuse of discretion in ruling that there exists no
probable cause to allow an inquiry into the total of 76 deposits and investments of
respondents

Ruling:

The RTC's finding that there was no probable cause for the issuance of a

bank inquiry order was not tainted with grave abuse of discretion.

In the issuance of a bank inquiry order, the power to determine the existence of
probable cause is lodged in the trial court. As we ruled in Eugenio:
Section 11 itself requires that it be established that "there is probable cause that the
deposits or investments are related to unlawful activities," and it obviously is the court
which stands as arbiter whether there is indeed such probable cause. The process of
inquiring into the existence of probable cause would involve the function of
determination reposed on the trial court. Determination clearly implies a function of
adjudication on the part of the trial court, and not a mechanical application of a
standard predetermination by some other body. The word "determination'' implies
deliberation and is, in normal legal contemplation, equivalent to ''the decision of a
court of justice."

The court receiving the application for inquiry order cannot simply take the AMLC's word
that probable cause exists that the deposits or investments are related to an unlawful
activity. It will have to exercise its own determinative function in order to be convinced of
such fact.

For the trial court to issue a bank inquiry order, it is necessary for the AMLC to be
able to show specific facts and circumstances that provide a link between an unlawful

166
activity or a money laundering offense, on the one hand, and the account or monetary
instrument or property sought to be examined on the other hand. In this case, the R
TC found the evidence presented by the AMLC wanting. For its part, the latter insists
that the RTC's determination was tainted with grave abuse of discretion for ignoring the
glaring existence of probable cause that the subject bank deposits and investments were
related to an unlawful activity.

Grave abuse of discretion is present where power is exercised in an arbitrary or despotic

manner by reason of passion, prejudice or personal hostility, that is so patent and gross
as to amount to an evasion of a positive duty or to a virtual refusal to perform a duty
enjoined or to act at all in contemplation of law.For certiorari to lie, it must be shown that
there was a capricious, arbitrary and whimsical exercise of power - the very antithesis of
the judicial prerogative.

We find no reason to conclude that the R TC determined the existence of probable cause,
or lack thereof, in an arbitrary and whimsical manner

167
 Subido v. CA
G.R. No. 216914
December 6, 2016 -

Digested By:ANGIHAN, Rizzi

Facts: The case involves the constitutionality of Section 11 of the Anti-Money
Laundering Act (AMLA).

Subido Pagente Certeza Mendoza and Binay Law Offices (SPCMB) filed the case after
reports emerged about the alleged disproportionate wealth of then Vice President
Jejomar Binay and his family.

SPCMB, which was linked to the Binay family, was concerned about the Anti-Money
Laundering Council's (AMLC) inquiry into their bank accounts.

SPCMB argued that Section 11 violated their right to due process and privacy.

Issues:

Whether Section 11 of R.A No. 9160 violates substantial due process.

Whether Section 11 of R.A No. 9160 violates procedural due process.

Rulings

1. No. We do not subscribe to SPCMB' s position. 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

168
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. No. 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-

169
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.

170
 Estrada v. Sandiganbayan
G.R.No. 217682, July 17, 2018

Digested by: Austria, Alessandro A.

Facts:
On September 11, 2013, a joint-affidavit was executed by various whistleblowers
that revealed the details of the Pork Barrel Scam which involved the misuse or illegal
diversion by certain members in the Legislature of their allocations from the Priority
Development Assistance Fund (PDAF) in corroboration with one Janet Lim Napoles. Five
days after the said affidavit was executed, the National Bureau of Investigation (NBI)
filed verified complaints before the Office of the Ombudsman for plunder, malversation,
direct bribery, and graft and corrupt practices act against those involved in the Pork
Barrel Scam, including petitioner Senator Jinggoy Estrada.

The Office of the Ombudsman then requested the Anti-Money Laundering

Council (AMLC) to conduct a financial investigation of the bank accounts of Estrada and
other persons involved. The AMLC then ordered its secretariat to file in the Court of
Appeals an ex parte application for bank inquiry of the accounts of Estrada to determine
the propriety of the charges filed against him in accordance with the Anti-Money
Laundering Act. After the CA granted the ex parte application, the AMLC then
proceeded with investigating the accounts of Estrada wherein it was found out that a
substantial amount of money had been transferred by him to the bank accounts of his
wife while the issue of Pork Barrel Scam arose. The AMLC rendered a conclusion that
the contents of the accounts of Estrada originated from the crime of plunder charged
against him and released an inquiry report for the investigation that they conducted on
the accounts of Estrada. Estrada assailed the inquiry report as the same was the fruit of
a poisonous tree and is therefore inadmissible in evidence.

Issue:
Whether Sec. 11 of RA 9160, as amended, violated the constitutional rights against
unreasonable search and seizure and the right to privacy.

Ruling:

171
 No, Sec. 11 of RA 9160, as amended, did not violate the constitutional rights against
unreasonable search and seizure and the right to privacy.

In the case of Subido Pagente Certeza Mendoza and Binay Law Offices v. Court
of Appeals, the Court upheld the constitutionality of Sec. 11 of RA 9160, as amended,
wherein it ruled that the ex parte application of AMLC for the bank inquiry based on the
above provision did not violate the substantive due process because the physical seizure
of the targeted corporeal property was not contemplated by law.

In the case at bar, the inquiry report is admissible in evidence as the right to privacy
in bank deposits is statutory in nature, not constitutional as there was nothing in the
Constitution that prohibits any government entity from conducting investigations to one’s
bank deposits whereas the Congress may validly create exceptions to the rule on the
secrecy of bank deposits.

Hence, Sec. 11 of RA 9160, as amended, did not violate the constitutional rights
against unreasonable search and seizure and the right to privacy.

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 Freeze Order- Duration
Ligot v. Republic
G.R. No. 176944 March 6, 2013

Digested by: BALBALIN, Nicole E.

FACTS:
The Republic of the Philippines, represented by the Anti-Money Laundering
Council (AMLC), filed an Urgent Ex-Parte Application for the issuance of a freeze order
with the CA against the properties of Lieutenant General Jacinto C. Ligot and his family.
This application was based on the letter of the Office of the Ombudsman to the AMLC,
recommending that the latter conduct an investigation. They were accused of having
unexplained wealth and failing to declare assets in their Statements of Assets, Liabilities,
and Net Worth (SALN) bearing in mind that Lt. Gen. Ligot’s main source of income was
his salary as an officer of the AFP,and given his wife and children’s lack of any other
substantial sources of income.

The Ombudsman’s investigation also looked into Mrs. Ligot’s younger brother,
Edgardo Tecson Yambao. The Ombudsman concluded that Yambao acted as a dummy
and/or nominee of the Ligot spouses, and all the properties registered in Yambao’s name
actually belong to the Ligot family.

The appellate court granted the application in its resolution, ruling that probable
cause existed that an unlawful activity and/or money laundering offense had been
committed by Lt. Gen. Ligot and his family, including Yambao, and that the properties
sought to be frozen are related to the unlawful activity or money laundering offense.
Accordingly, the CA issued a freeze order against the Ligots’ and Yambao’s various bank
accounts, web accounts and vehicles, valid for a period of 20 days from the date of
issuance, which was later extended indefinitely.

ISSUE:
Whether the CA acted with grave abuse of discretion in extending the freeze order
against the Ligots' properties.

173
RULING:
Yes, the CA acted with grave abuse of discretion in extending the freeze order
against Ligot’s properties.
The legal basis for the issuance of a freeze order is Section 10 of RA No. 9160, as amended
by RA No. 9194, which states:

Section 10. Freezing of Monetary Instrument or Property. – The Court of

Appeals, upon application ex parte by the AMLC and after determination that
probable cause exists that any monetary instrument or property is in any way
related to an unlawful activity as defined in Section
3(i) hereof, may issue a freeze order which shall be effective immediately. The
freeze order shall be for a period of twenty (20) days unless extended by the
court.

However, a freeze order cannot be issued for an indefinite period. Section 53(b)
of the Rule in Civil Forfeiture Cases (A.M. No. 05-11-04-SC) states that:

Section 53. Freeze order. –

xxxx
(b) Extension. – On motion of the petitioner filed before the expiration of twenty
days from issuance of a freeze order, the court may for good cause extend its
effectivity for a period not exceeding six months.

The primary objective of a freeze order is to temporarily preserve monetary

instruments or property that are in any way related to an unlawful activity or money
laundering, by preventing the owner from utilizing them during the duration of the freeze
order. The relief is pre-emptive in character, meant to prevent the owner from disposing
his property and thwarting the State’s effort in building its case and eventually filing civil
forfeiture proceedings and/or prosecuting the owner

In the present case, the SC note that the Republic has not offered any explanation
why it took six years from the time it secured a freeze order before a civil forfeiture case
was filed in court, despite the clear tenor of the Rule in Civil Forfeiture Cases allowing the
extension of a freeze order for only a period of six months. All the Republic could proffer
is its temporal argument on the inapplicability of the Rule in Civil Forfeiture Cases; in

174
effect, it glossed over the squarely-raised issue of due process. Under these
circumstances, the SC cannot but conclude that the continued extension of the freeze
order beyond the six-month period violated the Ligot’s right to due process; thus, the
CA decision should be reversed.

175
 Yambao v. Republic
G.R. No. 171054, January 26, 2021
Digested By: Bayas, Nhel Ann Rose O.

Doctrine: A freeze order is an extraordinary and interim relief issued by the CA to

prevent the dissipation, removal, or disposal of properties that are suspected to be the
proceeds of, or related to, unlawful activities as defined in Section 3 (i) of RA No. 9160,
as amended.

Facts: The Office of the Ombudsman forwarded to the Anti Money Laundering Council
(AMLC) a copy of the OMB's complaint for perjury under ART. 183 of the Revised Penal
Code and violation of Republic Act 6713 and RA 3019 against Re. Lt Gen. Jacinto Ligot for
possible violation of the Anti Money Laundering Act of 2001.

The OMB found that Edgardo Tecson Yambao, Erlinda's younger brother, (petitioner)
is a mere dummy and/or nominee of the spouses Ligot. His other source of income
possibly came from Mabelline Foods, Inc., which was registered with the Securities and
Exchange Commission (SEC) in 1994. Petitioner appears to be the owner of said
corporation. However, SEC records reveal that the company was not generating
considerable income to enable the petitioner to acquire substantial assets. The AMLC
conducted its own investigation and eventually found that apart from real properties,
bank accounts and significant investments were also maintained by Gen. Ligot and his
family. The AMLC, through the Office of the Solicitor General (OSG), filed with the CA
an Urgent Ex-parte Application for the issuance of a freeze order against the monetary
instruments and properties of Gen. Ligot, Erlinda, and their children and petitioner.
petitioner filed a Motion to Lift Freeze Order Against the Monetary Instruments and
Properties of Edgardo Yambao.

Issue:
Whether the CA erred in holding that the freeze order against the petitioner is no longer
pending and hence not covered by A.M. no. 05-11-04-sc or the New Rules on Civil
Forfeiture and Freeze orders

Ruling:

176
Yes. The CA erred in holding that the freeze order is no longer pending. A freeze order
is an extraordinary and interim relief issued by the CA to prevent the dissipation, removal,
or disposal of properties that are suspected to be the proceeds of, or related to,
unlawful activities as defined in Section 3 (i) of RA No. 9160, as amended.

The primary objective of a freeze order is to temporarily preserve monetary instruments

or property that are in any way related to an unlawful activity or money laundering, by
preventing the owner from utilizing them during the duration of the freeze order. The
relief is preemptive in character, meant to prevent the owner from disposing of his
property and thwarting the State's effort in building its case and eventually filing civil
forfeiture proceedings and /or prosecuting the owner.

However, in this case, the freeze order went beyond six months which is violative of
Yambao's right to due process. Also in the case of Ligot vs Republic, the Court already
ruled that "a freeze order cannot be issued for an indefinite period. In fact, in said case,
the court held that the continued extension of the freeze order beyond the six-month
period violated the Ligots' right to due process".

Thus, as a rule, the effectivity of a freeze order may be extended by the CA for a period
not exceeding six months. Before or upon the lapse of this period, ideally, the Republic
should have already filed a case for civil forfeiture against the property owner with the
proper courts and accordingly secure an asset preservation order or it should have filed
the necessary information.
WHEREFORE, the petition is PARTLY GRANTED

177
 Beacon v. Republic
G.R. No. 255099 March 18, 2021
Digested by: CABA-OT,Laureen K.

Facts:

On February 8, 2019, the combined personnel of the Philippine National Police-

Regional Police Drug Enforcement Unit (PNP-RPDEU), Regional Special Operations
Group, RID7 and the Philippine Drug Enforcement Agency 7 conducted a buy-bust
operation against Charlie Duhaylungsod Fortuna (Fortuna) involving the purchase of 25
grams of methamphetamine hydrochloride or shabu worth P170,000.00. In addition to
the shabu, the police operatives found financial documents in Fortuna's possession
consisting of MLhuillier send-out slips and bank deposit slips indicating that Fortuna was
remitting proceeds of his drug trafficking activities to the persons and entities mentioned
therein. One of the deposits was made to BDO Account No. 0005700086337 belonging
to Beacon in the amount of P3,000,000.00.

Consequently, the police operatives filed a complaint against Fortuna for violation
of Sections 5 and 11 of Article II of Republic Act No. (R.A.) 9165, otherwise known as the
"Comprehensive Dangerous Drugs Acts of 2002."

Pursuant to the request, the AMLC conducted the investigation against Fortuna
and all the persons and entities associated with him, including Beacon. The AMLC
confirmed the existence of the BDO account belonging to Beacon as well as the
P3,000,000.00 deposited therein allegedly by Fortuna. The AMLC found that the said
BDO account is subject to a pending civil forfeiture case which also involves the deposit
of funds from another drug-related activity. Based on the investigation, the AMLC found
probable cause that the subject bank accounts, including that of Beacon, are related to
drug trafficking and/or money laundering.

On September 3, 2020, the CA issued a Freeze Order for a period of 20 days on

the bank accounts including BDO Account No. 0005700086337 belonging to Beacon.
On separate dates, the parties affected by the freeze order, including Beacon, moved
for the lifting of the same. On the other hand, the OSG filed a motion for the extension
of the freeze order for a total of six months.

178
 The OSG justifies its application for the extension of the freeze order based on
the ongoing investigation being conducted by the AMLC. The OSG alleged that the case
is a complex nature requiring deeper financial examination and analysis which cannot be
completed in less than six months. Unless frozen, the bank accounts may be removed and
placed beyond the reach of law enforcement.

Beacon, on the other hand, questioned the freezing of not only its BDO Account
No. 0005700086337 but also of its two other U.S. Dollar Accounts. According to
Beacon, it is legitimately engaged in the business of money remittance and exchange and
its operations require undisrupted access to its bank accounts. Beacon explained that
the flagged P3,000,000.00 deposit is part of the payment for the purchase of U.S.
Dollars. Beacon submitted a copy of the Application to Sell/Purchase Foreign Currency
showing that VW Group Asia, Inc., purchased US$156,153.00 for the purchase price of
P8,101,217.64. As far as Beacon is concerned, the transaction was legitimate and
conducted in the regular course of business. Beacon denied that the transaction is in any
way related to illegal drugs trade. Assuming that the OSG was able to show that it is
involved in illegal activity, Beacon asserted that the freeze order should only cover the
P3,000,000.00 deposit made in its BDO Account No. 0005700086337 and not the
whole amount deposited therein as well as its two other U.S. Dollar bank accounts.

Ruling of the Court of Appeals

The CA rendered its Resolution modifying the Freeze Order issued on September
3, 2020. The CA lifted the freeze order against the two other U.S. Dollar bank accounts
of Beacon but extended the effectivity of the same for 6 months or until March 2, 2021
with respect to the P3,000,000.00 deposit in BDO Account No. 0005700086337.

However, Beacon is discontented with the resolution of the CA. Hence, it filed a
motion for reconsideration. However, the motion was denied in a Resolution 18 dated
January 14, 2021.

Issue:

Whether the freeze order, whose effectivity was extended for 6 months, with
respect to the P3,000,000.00 deposit to Beacon's BDO Account No. 0005700086337
should be lifted.

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Ruling:

The petition filed by Beacon has become moot after the lapse of the extended 6-
month period under the Freeze Order issued by the CA.

Section 10 of R.A. 9160, as amended by R.A. 11521, provides for the following:

Section 10. Freezing Monetary Instrument or Property. —

(a) Upon a verified ex parte petition by the AMLC and after determination that probable
cause exists that any monetary instrument or property is in any way related to an unlawful
activity as defined in Section 3(i) hereof, the Court of Appeals may issue a freeze order
which shall be effective immediately, for a period of twenty (20) days. Within the twenty
(20)-day period, the Court of Appeals shall conduct a summary hearing, with notice to
the parties, to determine whether or not to modify or lift the freeze order, or extend its
effectivity. The total period of the freeze order issued by the Court of Appeals under
this provision shall not exceed six (6) months. This is without prejudice to an asset
preservation order that the Regional Trial Court having jurisdiction over the appropriate
anti-money laundering case or civil forfeiture case may issue on the same account
depending on the circumstances of the case, where the Court of Appeals will remand the
case and its records: Provided, That if there is no case filed against a person whose
account has been frozen within the period determined by the Court of Appeals, not
exceeding six (6) months, the freeze order shall be deemed ipso facto lifted: Provided,
further, That this new rule shall not apply to pending cases in the courts. In any case, the
court should act on the petition to freeze within twenty-four (24) hours from filing of the
petition. If the application is filed a day before a non working day, the computation of the
twenty-four (24)-hour period shall exclude the nonworking days.

The freeze order or asset preservation order issued under this Act shall be limited
only to the amount of cash or monetary instrument or value of property that court finds
there is probable cause to be considered as proceeds of a predicate offense, and the
freeze order or asset preservation order shall not apply to amounts in the same account
in excess of the amount or value of the proceeds of the predicate offense.

A person whose account has been frozen may file a motion to lift the freeze order
and the court must resolve this motion before the expiration of the freeze order.

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 No court shall issue a temporary restraining order or a writ of injunction against
any freeze order, except the Supreme Court.

(b) For purposes of implementing targeted financial sanctions in relation to proliferation

of weapons of mass destruction and its financing, as provided under Section 3(15), the
AMLC shall have the power to issue, ex parte, an order to freeze without delay.

The freeze order shall be effective until the basis for its issuance shall have been
lifted. During the effectivity of the freeze order, the aggrieved party may, within twenty
(20) days from issuance, file with the Court of Appeals a petition to determine the basis
of the freeze order according to the principle of effective judicial protection: Provided,
That the person whose property or funds have been frozen may withdraw such sums as
the AMLC determines to be reasonably needed for monthly family needs and sustenance
including the services of counsel and the family medical needs of such person.

The AMLC, if circumstances warrant, may initiate civil forfeiture proceedings to

preserve the assets and to protect it from dissipation. No court shall issue a temporary
restraining order or a writ of injunction against the freeze order, except the Court of
Appeals or the Supreme Court. (Emphasis supplied)

In this case, the Freeze Order was first issued by the CA on September 3, 2020
and extended for a period of six months or until March 2, 2021 with respect to the alleged
P3,000,000.00 deposit by Fortuna in Beacon's BDO Account No. 0005700086337. A
freeze order is merely an interim relief and pre-emptive in character, such that the
monetary instruments or property that are in any way related to an unlawful activity or
money laundering are temporarily preserved by preventing the owner from utilizing them
during the duration of the freeze order. Moreover, Section 10 of R.A. 9160, as amended,
provides clearly that the freeze order shall be ipso facto lifted if there is no case filed
against a person whose account was frozen within the period determined by the CA, but
not exceeding 6 months.

In other words, the freeze order is not permanent and it is time-bound. Therefore, the
Court no longer has the authority to act on Beacon's petition praying for the lifting of
the Freeze Order.

WHEREFORE, the Petition for Review on Certiorari with Application for Issuance of a
Temporary Restraining Order and/or Writ of Preliminary Injunction is DENIED.

181
 Republic v. Bloomberry
G.R. No. 224112 September 2, 2020
Digested by: Catanes, Gyzer U.

FACTS: In February 2016, US$81,000,000.00 was transferred to the Philippine Banking

System from the account of Bangladesh Bank with the Federal Reserve Bank of New
York. Bangladesh Bank sought the assistance of Bangko Sentral ng Pilipinas regarding
the loss of funds and requested an immediate inquiry and help for the recovery of the
money. The funds were transferred to the Banco de Oro (BDO) Account No.
6280225150 of Bloomberry Resorts and Hotels, Inc. (BRHI.) The funds were eventually
transferred to PhilRem Service Corporation's account upon instructions from a certain
William So Go. PhilRem then delivered a portion of the funds to BRHI's BDO account.

The Anti-Money Laundering Council (AMLC) issued a freeze order against BRHI's BDO
account, believing it to be related to unlawful activity. The Court of Appeals granted the
freeze order but limited its duration to 30 days due to BRHI being a legitimate business
entity. The AMLC also filed an application for bank inquiry, which was granted by the
CA. BRHI claimed that the funds deposited in their account were legitimate and used for
their casino operations. They argued that they were not aware of any unlawful activity
and that the funds were deposited in the regular course of business.

The Court of Appeals later lifted the freeze order, stating that the AMLC failed to
establish that the funds in BRHI's account were acquired through unlawful means. The
CA found that the funds were already used in the normal and regular operation of BRHI's
casino business and were not tainted with irregularity or illegality. BRHI, in its
Memorandum dated March 3, 2017, submitted that the petition is moot because a freeze
order cannot be issued or extended for a period longer than six months.

ISSUE: What should be the duration of a Freeze Order?

RULING: R.A. 9160, otherwise known as the AMLA, as amended by R.A. 10365, provides
that:

Section 10. Freezing of Monetary Instrument or Property. – Upon a verified ex parte

petition by the AMLC and after determination that probable cause exists that any
monetary instrument or property is in any way related to an unlawful activity as defined in

182
Section 3(i) hereof, the Court of Appeals may issue a freeze order which shall be
effective immediately, and which shall not exceed six (6) months depending upon the
circumstances of the case: Provided, That if there is no case filed against a person whose
account has been frozen within the period determined by the court, the freeze order shall
be deemed ipso facto lifted: Provided, further, That this new rule shall not apply to
pending cases in the courts. In any case, the court should act on the petition to freeze
within twenty-four (24) hours from filing of the petition. If the application is filed a day
before a nonworking day, the computation of the twenty-four (24)-hour period shall
exclude the nonworking days.

The previous versions of Section 10 of the AMLA before the current amendment do not
specify the maximum period within which a Freeze Order may be effective. However, as
early as 2005, A.M. No. 05-11-04-SC or the Rules of Procedure in Cases of Civil
Forfeiture, Asset Preservation, and Freezing of Monetary Instrument, Property, Or
Proceeds Representing, Involving, or Relating to an Unlawful Activity or Money
Laundering Offense Under R.A. 9160, as amended has already specified that any
extension for the issuance of a freeze order should not exceed six months.

The rationale for giving a maximum period for the effectivity of a freeze order is aptly
explained by the Court in Ligot v. Republic, viz.:

A freeze order is an extraordinary and interim relief issued by the CA to prevent the
dissipation, removal, or disposal of properties that are suspected to be the proceeds of,
or related to, unlawful activities as defined in Section 3(i) of RA No. 9160, as amended.
The primary objective of a freeze order is to temporarily preserve monetary instruments
or property that are in any way related to an unlawful activity or money laundering, by
preventing the owner from utilizing them during the duration of the freeze order. The
relief is pre-emptive in character, meant to prevent the owner from disposing his property
and thwarting the State's effort in building its case and eventually filing civil forfeiture
proceedings and/or prosecuting the owner.

By its very terms, the CA resolution effectively bars the Ligots from using any of the
property covered by the freeze order until after an eventual civil forfeiture proceeding is
concluded in their favor and after they shall have been adjudged not guilty of the crimes
they are suspected of committing. These periods of extension are way beyond the intent
and purposes of a freeze order which is intended solely as an interim relief.

183
Clearly, a Freeze Order may not be issued indefinitely, or else the same be characterized
as a violation of the person's right to due process and to be presumed innocent of a
charge.

184
 Financial Rehabilitation and Insolvency Act RA 10142

Nature of proceedings

Allied Banking Corp. vs. Equitable PCI Bank, Inc.

G.R. No. 191939 March 14, 2018
Digested by: Chaokas, Alma

FACTS:

Equitable PCI Bank, Inc. (EPCIB) filed a petition for the corporate rehabilitation
of Steel Corporation of the Philippines (SCP) with the RTC due to SCP's deteriorating
financial condition caused by the 1997 Asian Financial Crisis. It filed the petition as a
creditor of SCP holding at least twenty-five percent (25%) of SCP's total liabilities.

The RTC issued an order granting EPCIB's petition for corporate rehabilitation
and appointing a rehabilitation receiver for SCP. The order included a stay order,
prohibiting SCP from selling or disposing of its assets and staying all claims against SCP.

However, ABC applied the remaining proceeds of SCP's bank account to its
obligations under the Trust Receipt agreement where SCP authorized ABC to charge
SCP's account in case of bankruptcy, insolvency, or non-payment of any indebtedness.
SCP, then, filed an urgent omnibus motion, alleging that ABC violated the stay order, and
requested ABC to restore its bank account and credit back the amount applied to its
obligation. Thus, the Court ordered ABC to restore SCP’s account. This prompted an
appeal before the CA.

The CA affirmed the RTC’s order ruling that the stay order was effective from the
date of its issuance regardless of when ABC received the order.

ABC argued that the RTC could not invalidate an act already consummated prior
to the date that the subject order was published, since it was only on said date that the
court acquired jurisdiction over ABC. This was based on the Interim Rules which
considers rehabilitation proceedings as in rem and jurisdiction over all those affected
acquired only upon publication of the notice commencing proceedings.

ISSUE:

185
 Whether the rehabilitation court can reverse or invalidate acts that are inconsistent
with its stay order and are made after its issuance but before its publication.

RULING:

Yes, the rehabilitation court can reverse or invalidate acts that are inconsistent
with its stay order and are made after its issuance but before its publication.

Under the Rehabilitation Rules, the court shall issue a commencement order once
it finds the petition for rehabilitation sufficient in form and substance. This
commencement order primarily contains: a declaration that the debtor is under
rehabilitation, the appointment of a rehabilitation receiver, a directive for all creditors to
file their verified notices of claim, and an order staying claims against the debtor. The
rehabilitation proceedings shall be deemed to have commenced from the date of filing of
the petition, which is also termed the commencement date. The commencement order shall
retroact to the date that the petition was filed, and renders void any attempt to collect
on or enforce a claim against the debtor or to set off any debt by the debtor's creditors,
after the commencement date.

In the present case, ABC based its argument on Section 1, Rule 3 of the Interim
Rules which states:

Section 1. Nature of Proceedings. Any proceeding initiated under these Rules shall be
considered in rem. Jurisdiction over all those affected by the proceedings shall be
considered as acquired upon publication of the notice of the commencement of the
proceedings in any newspaper of general circulation in the Philippines in the manner
prescribed by these Rules.

However, considering the laudable objectives of rehabilitation proceedings, the

immediate effectivity of the stay order means that the RTC, through an order commencing
rehabilitation and staying claims against the debtor, acknowledges that the debtor
requires rehabilitation immediately and therefore it can not only prohibit but also nullify
acts made after its effectivity, when such acts are violative of the stay order, to prevent
any irreparable detriment to the debtor's successful restoration.

The publication requirement only requires that all affected persons must be
notified that as of a particular date, the debtor in question requires rehabilitation and

186
should temporarily be exempt from paying its obligations. Then, after the publication, the
court may nullify actions inconsistent with the order as provided in the Interim Rules.

The immediate effectivity of the stay order can be traced to the purpose of
rehabilitation: once the necessity of rehabilitating the debtor is recognized, through a
petition duly granted, it is imperative that the necessary steps to preserve its assets are
taken at the earliest possible time.

Therefore, the RTC properly invalidated ABC's action made after the subject
order was issued.

187
 SPS. ARANETA VS. COURT OF APPEALS
G.R. NO. 95253 JULY 10, 1992
Digested by: Jessa Dag-o

FACTS: On 2 March 1978, Philfinance, then "engaged in the business of trading in

securities," and defendant (herein private respondent) Bank entered into a Securities
Custodianship Agreement whereby the Bank was appointed as custodian of
Philfinance's "various government securities, promissory notes, and commercial papers
issued by different companies.

On 6 May 1980, Delta issued to Philfinance, as payee, as promissory note with Serial No.
2777 in the amount of P2,000,000.00 pursuant to the custodianship agreement.

On 29 December 1980, Petitioner Spouses Consuelo through their son, Jose Antonio
Araneta, who was then the manager of the Iloilo City Branch of Philfinance, made a money
market placement of P200,000.00 in the Iloilo City Branch of Philfinance.This was not
reduced to writing but Philfinance issued on the same day a Confirmation of Sale No.
15839 (Exh. G) and post dated checks.

Upon maturity, plaintiff-Arturo Araneta presented it for encashment with the Iloilo
branch of the Rizal Commercial Banking Corporation but it was dishonored with the
annotation that "Account Closed/Account Under Garnishment"

Despite due demands, there was no positive result, thus Petitioner Spouses Consuelo
and Arturo Araneta filed a complaint against Pilipinas Bank for not physically delivering
a promissory note that was part of the assets of Philfinance.

ISSUE: W/N the bank violated its obligation to physically deliver the promissory note to
the petitioners.

RULING: NO. The bank did NOT violate its obligation to physically deliver the
promissory note to the petitioners.

In one case, the Court ruled that it is immaterial to the issues of this case that the
proceeding by which the receiver bank obtained possession of the property is supposed
to have been irregular, in that it proceeded by means of a search warrant, instead of
starting an ordinary action of replevin. It is enough to know that the property once

188
belonged to the insolvent, that it was transferred to the plaintiffs, out of due course,
within thirty days prior to the insolvency, and that it is now in the hands of the receiver.
This places it in the custody of the court of insolvency, and that court is the only court
having jurisdiction to decide all questions concerning the title or right of possession to
the same. The plaintiffs had a complete remedy by intervention in the insolvency
proceedings, and any rights that they possessed would have been duly recognized and
protected by the court entertaining those proceedings.

Applying the same in this case, it is enough to know that the DMC P/N No. 2777 belongs
to Philfinance, that it was transferred to the private respondent bank by virtue of its
Securities Custodianship Agreement and that by virtue of the June 18, 1981 SEC order, it
is available to the SEC-CB Management Committee as receiver. And by virtue of PD 902-
A, the Securities and Exchange Commission is the only tribunal which has jurisdiction to
decide all questions concerning the title or right of possession to the same.

Although the Philfinance check which was not honored was dated March 30, 1981, 12 it was
not until July 1, 1981 that said check was deposited. It was not until July 1, 1981 that the check
was deposited. The only plausible reason for this is that their son, then the Iloilo City
Branch Manager of Philfinance requested them not to encash the check on March 30,
1981 as Philfinance did not have the funds to honor said check. They were overtaken
however by the SEC Order of June 18, 1981 placing Philfinance in a state of suspension of
payments due to wanton financial mismanagement. This can be deduced from the fact
that out of the petitioners' money market placement of P200,000.00, Philfinance
honored the first P100,000.00 but decided to forego payment of the second
P100,000.00. This must have been Philfinance's head office's concession to their branch
manager Araneta as over 700 other investors with investments of approximately
P677,000,000.00 were not accorded any concession at all.

Thus, when Philfinance could only return half of their investment, aside from filing their
claim with the SEC, petitioners resorted to judicial proceedings in the court below to
recover their investment from respondent Pilipinas Bank when the latter defaulted in its
obligation under the Denominated Custodian Receipt. The supervening order of the

189
SEC of June 18, 1981 clearly prevented respondent Bank from delivering the security
in question to the petitioner.

Petitioners have admitted that they had filed a claim with the Securities and Exchange
Commission (SEC) against Philfinance after the latter was ordered to be placed in a state
of suspension of payments by the SEC in its Orders of June 18, 1981, June 25, 1981, and
August 7, 1981.

Petitioners cannot be allowed to obtain an unfair advantage over Philfinance's other

creditors by the simple expediency of this case which they filed against Philfinance's
custodian of its securities (private respondent bank) and the maker (private respondent
Delta Motors) of the promissory note sold to them.

The petition was denied. The Ca’s decision was affirmed in toto.

190
 Araneta, et. al. vs. Gatmaitan
GR L-8895 and L-9191 April 30, 1957
Dogested by: DENIS, Debie

FACTS

San Miguel Bay, located between the provinces of Camarines Norte and Camarines Sur,
a part of the National waters of the Philippines with an extension of about 250 square
miles and an average depth of approximately 6 fathoms, is considered as the most
important fishing area in the Pacific side of the Bicol region.

Sometime in 1950, operators from Malabon, Navotas and other places migrated to this
region most of them settling at Sabang, Calabanga, Camarines Sur, for the purpose of
using this particular method of fishing in said bay. On account of the belief of sustenance
fishermen that the operation of this kind of gear caused the depletion of the marine
resources of that area, there arose a general clamor among the majority of the inhabitants
of coastal towns to prohibit the operation of trawls in San Miguel Bay. This move was
manifested in the resolution of December 18, 1953, passed by the Municipal Mayors'
League condemning the operation of trawls as the cause of the wanton destruction of
the shrimp specie and resolving to petition the President of the Philippines to regulate
fishing in San Miguel Bay by declaring it closed for trawl fishing at a certain period of the
year.

In another resolution dated March 27, 1954, the same League of Municipal Mayor, prayed
the President to protect them and the fish resources of San Miguel Bay by banning the
operation of trawls therein.

A group of Otter trawl operators took the matter to the court by filing a complaint for
injunction and/or declaratory relief with preliminary injunction with the Court of First
Instance praying that a writ of preliminary injunction be issued to restrain the Secretary
of Agriculture and Natural Resources and the Director of Fisheries from enforcing said
executive order; to declare the same null and void, and for such other relief as may be just
and equitable in the premises.

191
The Court rendered decision declaring Executive Order Nos. 22, 66 and 80 p, the
injunction prayed for is ordered to issue.

Petitioners immediately filed an ex-parte motion for the issuance of a writ of injunction
which was opposed by the Solicitor General and after the parties had filed their
respective memoranda, the Court issued an order dated February 19, 1955, denying
respondents' motion to set aside judgement and ordering them to file a bond in the sum
of P30,000 on or before March 1, 1955, as a condition for the non-issuance of the
injunction prayed for by petitioners pending appeal.

ISSUE

Whether the Secretary of an Executive Department and the Director of a Bureau, acting
in their capacities as such Government officials, could lawfully be required to post a bond
in an action against them.

RULING

No, the Secretary of an Executive Department and the Director of a Bureau, acting in
their capacities as such Government officials, could not be lawfully required to post a
bond in an action against them.

It is an elementary rule of procedure that an appeal stays the execution of a judgment.

An exception is offered by section 4 of Rule 39 of the Rules of Court which provides that:

SEC. 4. INJUNCTION, RECEIVERSHIP AND PATENT ACCOUNTING, NOT STAYED.

— Unless otherwise ordered by the court, a judgment in an action for injunction or in a
receivership action, or a judgment or order directing an accounting in an action for
infringement of letter patent, shall not be stayed after its rendition and before an appeal
is taken or during the pendency of an appeal.

The trial court, however, in its discretion, when an appeal is taken from a judgement
granting, dissolving or denying an injunction, may make an order suspending, modifying,
restoring, or granting such injunction during the pendency of an appeal, upon such terms

192
as to bond or otherwise as it may consider proper for the security of the rights of the
adverse party.

This provision was the basis of the order of the lower court dated February 19, 1955,
requiring the filing by the respondents of a bond for P30,000 as a condition for the non-
issuance of the injunction prayed for by plaintiffs therein, and which the Solicitor General
charged to have been issued in excess of jurisdiction.

The State's counsel, however, alleges that while judgment could be stayed in injunction,
receivership and patent accounting cases and although the complaint was styled
"Injunction, and/or Declaratory Relief with Preliminary Injunction", the case is necessarily
one for declaratory relief, there being no allegation sufficient to convince the Court that
the plaintiffs intended it to be one for injunction. But aside from the title of the complaint,
the court finds that plaintiffs pray for the declaration of the nullity of Executive Order
Nos. 22, 66 and 80; the issuance of a writ of preliminary injunction, and for such other
relief as may be deemed just and equitable.

This Court has already held that there are only two requisites to be satisfied if an
injunction is to issue, namely, the existence of the right sought to be protected, and that
the acts against which the injunction is to be directed are violative of said right (North
Negros Sugar Co., Inc. vs. Serafin Hidalgo, 63 Phil., 664).

There is no question that at least 11 of the complaining trawl operators were duly licensed
to operate in any of the national waters of the Philippines, and it is undeniable that the
executive enactment's sought to be annulled are detrimental to their interests. And
considering further that the granting or refusal of an injunction, whether temporary or
permanent, rests in the sound discretion of the Court, taking into account the
circumstances and the facts of the particular case (Rodulfa vs. Alfonso, 76 Phil,, 225, 42
Off. Gaz., 2439), the court finds no abuse of discretion when the trial Court treated the
complaint as one for injunction and declaratory relief and executed the judgment
pursuant to the provisions of section 4 of Rule 39 of the Rules of Court.

On the other hand, it shall be remembered that the party defendants in Civil Case No.
24867 of the Court of First Instance of Manila are Salvador Araneta, as Secretary of

193
Agriculture and Natural Resources, and, Deogracias Villadolid, as Director of Fisheries,
and were sued in such capacities because they were the officers charged with duty of
carrying out the statutes, orders and regulations on fishing and fisheries. In its order of
February 19, 1955, the trial court denied defendants' motion to set aside judgment and
they were required to file a bond for P30,000 to answer for damages that plaintiffs were
allegedly suffering at that time, as otherwise the injunction prayed for by the latter would
be issued.

Because of these facts, the court agrees with the Solicitor General when he says that the
action, being one against herein petitioners as such Government officials, is essentially
one against the Government, and to require these officials to file a bond would be
indirectly a requirement against the Government for as regards bonds or damages that
may be proved, if any, the real party in interest would be the Republic of the Philippines
(L. S. Moon and Co. vs. Harrison, 43 Phi., 39; Salgado vs. Ramos, 64 Phil., 724-727, and
others).

The reason for this pronouncement is understandable; the State undoubtedly is always
solvent (Tolentino vs. Carlos 66 Phil., 140; Government of the P. I. vs. Judge of the Court
of First Instance of Iloilo, 34 Phil., 167, cited in Joaquin Gutierrez et al. vs. Camus et al. *
G.R. No. L-6725, promulgated October 30, 1954). However, as the records show that
herein petitioners failed to put up the bond required by the lower court, allegedly due to
difficulties encountered with the Auditor General's Office (giving the impression that they
were willing to put up said bond but failed to do so for reasons beyond their control), and
that the orders subjects of the prohibition and certiorari proceedings in G.R. No. L-8895,
were enforced, if at all, in accordance with section 4 of Rule 39, which the court holds to
be applicable to the case at bar, the issue as to the regularity or adequacy of requiring
herein petitioners to post a bond, becomes moot and academic.

194
 Concept of Rehabilitation

SAN JOSE TIMBER CORPORATION vs SEC

SAN JOSE TIMBER CORPORATION and CASILAYAN SOFTWOOD
DEVELOPMENT CORPORATION, Petitioners,

vs.

SECURITIES AND EXCHANGE COMMISSION, TIERRA FACTOR

CORPORATION AND OTHER CREDITORS OF SAN JOSE TIMBER
CORPORATION and CASILAYAN SOFTWOOD DEVELOPMENT
CORPORATION, Respondents.

G.R. No. 162196 February 27, 2012

Digested by: Dulawan, Britey Lauryn H.

Facts:

The petitioner Casilayan Softwood Development Corporation (CSDC) is a corporation

duly organized and existing under and by virtue of the Republic of the Philippines and is
the controlling stockholder and creditor of petitioner San Jose Timber Corporation
(SJTC). SJTC is primarily engaged in the operation of a logging concession with a base
camp in Western Samar by virtue of a Timber License Agreement (TLA) No. 118 issued by
the Department of Environment and Natural Resources (DENR) which is to expire in
2007. On February 8, 1989, the DENR issued a Moratorium Order (MO) suspending all
logging operations in the island of Samar effective February 1989 to May 30, 1989 which
prompted SJTC to cease operations effective February 8, 1989 and caused it to lose all
its income.

On August 7, 1990, SJTC and CSDC filed with the Securities and Exchange Commission
(SEC) a petition for the appointment of a rehabilitation receiver and for suspension of
payments. After due hearing, the SEC Hearing Panel granted such with the condition that
SJTC would resuscitate its operations and properly service its liabilities in accordance
with the duly approved schedule to be submitted by the Rehabilitation Receiver within a
one year period. On February 26, 1992, the petitioners submitted their motion to approve

195
Revised Rehabilitation Plan and Urgent Motion to Extend Waiting Period for
Commencement of Rehabilitation. The SEC Hearing Panel extended the waiting period
up to August 15, 1992 but held in abeyance its approval of the revised rehabilitation plan.
Also subsequent motions filed by the petitioners extended the waiting period several
times.

Meanwhile, prior to the expiration of the waiting period to commence rehabilitation,

petitioners filed their Motion for Settlement of Claims against petitioner San Jose and
subsequently their Motion to Dispose of Personal Properties which were both granted
by SEC. On May 6, 2002, however, the SEC en Banc motu proprio issued its decision
terminating the rehabilitation proceedings and dismissing the petition for rehabilitation
since SJTC could no longer be rehabilitated because the logging moratorium ban which
was crucial for its rehabilitation had not been lifted. Such was affirmed by the Court of
Appeals (CA). The petitioners filed a petition for reconsideration but it was denied by
the CA, hence the petition for review with the Supreme Court.

Issue:

Whether the CA erred in affirming the dissolution of SJTC when the vast majority of the
creditors had agreed to await its rehabilitation.

Ruling:

No, the CA did not err in affirming the dissolution of SJTC when the vast majority of the
creditors had agreed to await its rehabilitation

At the time of the promulgation of the CA decision, there was no certainty that the
moratorium on logging activities in Samar would be lifted or a law on selective logging was
forthcoming. There being no assurance, the CA was correct in sustaining the decision of
the SEC to terminate the rehabilitation proceedings to protect the interest of all
concerned, particularly the investors and the creditors. To have resolved otherwise
would have been prejudicial to these entities as they would be made to wait indefinitely
for something the likelihood of which was quite remote.

Under the Rules of Procedure on Corporate Rehabilitation, "rehabilitation" is defined as

the restoration of the debtor to a position of successful operation and solvency, if it is
shown that its continuance of operation is economically feasible and its creditors can

196
recover by way of the present value of payments projected in the plan, more if the
corporation continues as a going concern than if it is immediately liquidated. An
indispensable requirement in the rehabilitation of a distressed corporation is the
rehabilitation plan. Section 5 of the Interim Rules of Procedure on Corporate
Rehabilitation provides the requisites thereof:

SEC. 5. Rehabilitation Plan. -- The rehabilitation plan shall include (a) the desired
business targets or goals and the duration and coverage of the rehabilitation; (b) the
terms and conditions of such rehabilitation which shall include the manner of its
implementation, giving due regard to the interests of secured creditors; (c) the material
financial commitments to support the rehabilitation plan; (d) the means for the execution
of the rehabilitation plan, which may include conversion of the debts or any portion
thereof to equity, restructuring of the debts, dacion en pago, or sale of assets or of the
controlling interest; (e) a liquidation analysis that estimates the proportion of the claims
that the creditors and shareholders would receive if the debtor's properties were
liquidated; and (f) such other relevant information to enable a reasonable investor to
make an informed decision on the feasibility of the rehabilitation plan.

A successful rehabilitation usually depends on two factors: (1) a positive change in the
business fortunes of the debtor, and (2) the willingness of the creditors and shareholders
to arrive at a compromise agreement on repayment burdens, extent of dilution, etc. The
debtor must demonstrate by convincing and compelling evidence that these
circumstances exist or are likely to exist by the time the debtor submits his revised or
substitute rehabilitation plan for the final approval of the court.

Both the SEC and the CA had reasonable basis in deciding to terminate the rehabilitation
proceedings of SJTC because of the lack of certainty that the logging ban would, in fact,
be lifted. It is clear from the records that the proposed rehabilitation plan of the
petitioners would depend entirely on the lifting of the logging ban either by the lifting of
the moratorium on logging activities in Samar issued by the DENR, or by the enactment
of a law on selective logging. Such lifting of the logging ban is indispensable to the
rehabilitation of SJTC. If it would not be lifted, the company would have no source of
income or revenues and no investor or creditor would come in to lend a hand in its
resuscitation.

197
On August 15, 2005, however, an event supervened. With the lifting of the logging
moratorium in Samar, an indispensable element for the possible rehabilitation of SJTC
has been made a reality. Considering the extension granted by the DENR, the TLA of
SJTC will expire in 2021, or nine (9) years from now. It appears from the proposed
Adjusted Rehabilitation Plan, that SJTC would only need a period of 24 months from the
lifting of the logging moratorium within which to liquidate all of its liabilities, except those
of its affiliates.

The Court is of the considered view that SJTC should be given a second chance to
recover and pay off its creditors. The only practical way of doing it is to resume the
rehabilitation of SJTC which estimated its first year production upon resumption of
operations at 29,000 cubic meters. Thereafter, production is projected to rise to 60,000
cubic meters per year. If the estimated selling price per cubic meter as of December 31,
1991 was ₱3,500.0030 and between ₱5,000.00 and ₱6,000.00 in 2004, there is no
doubt that the price has again risen.

The Court is not unaware of the issuance of Executive Order (E.O.) No. 23 on February
1, 2011. E.O. No. 23 declares a Moratorium on the Cutting and Harvesting of Timber in the
Natural and Residual Forests and Creates the Anti-Illegal Logging Task Force that will
enforce the moratorium. It aims mainly at the promotion of intergeneration responsibility
to protect the environment. As pronounced in the DENR website, however, it does not
impose a total log ban in the country. What is being protected by the executive order is
simply the natural forests and residual forests. Section 2 thereof provides for a
moratorium on the cutting and harvesting of timber in the natural and residual forests of
the entire country. Timber companies, such as petitioner SJTC, may still be allowed to
cut trees subject to the provisions thereof.Thus, SJTC’s rehabilitation appears highly
feasible and the proceedings thereon should be revived. It should, therefore, be given an
opportunity to be heard by the SEC to determine if it could maintain its corporate
existence.

198
 Metropolitan Bank & Trust Co vs. Fortuna Paper Mill & Packaging Corp.
G.R. No. 190800, November 07, 2018

Digested by: ESPINO, Ryan C.

DOCTRINE: The Interim Rules does not make any distinction between a corporation
which is already in debt and a corporation which foresees the possibility of debt, or which
would eventually yet surely fall into the same, but may at present be free from any
financial liability. Thus, since the statute is clear and free from ambiguity, it must be given
its literal meaning and applied without attempted interpretation.

FACTS

Metropolitan Bank & Trust Co., (MBTC), the petitioner of this case, provided Fortuna
Paper Mill & Packaging Corp. (Fortuna), respondent to this case, with various credit and
loan facilities totaling Php 259,981,915.33. Thereafter, Fortuna defaulted on its payments
to MBTC. Instead of paying MBTC's unpaid debts, Fortuna filed a Petition for
Corporate Rehabilitation (Rehabilitation Petition) with the RTC of Malabon, Branch 74.

The RTC issued a Stay Order setting the initial hearing for the Rehabilitation Petition and
ordering all of Fortuna's creditors and other interested parties to provide verified
comments/opposition. The court also ordered the appointment of a rehabilitation
receiver, Atty. Rafael F. Testón. Subsequently, MBTC filed its Comment/Opposition to
the Rehabilitation Petition and prayed for its dismissal based on the following grounds:
(1) Fortuna was not qualified for corporate rehabilitation under Section 1 of Rule 4 of the
Interim Rules;
(2) the petition was fatally defective for non-compliance with the minimum requirements
of Section 5 of Rule 4 of the Interim Rules; and
(3) the petition was filed solely for the purpose of unjustly delaying the payment of its
debt obligations.

Despite opposition, the Rehabilitation Petition was given due course. After reviewing the
same, Atty. Teston submitted a Rehabilitation Receiver's Report and Comments to the
Rehabilitation Plan (Receiver's Report), the said report recommending that the proposed

199
Rehabilitation Plan be adopted, but subject to certain timelines and benchmarks. On the
basis of this, the RTC issued an Order approving the Rehabilitation Plan. The trial court
found the proposed Rehabilitation Plan feasible and viable and noted Fortuna's effort to
improve its financial standing by establishing a new business of realty development in
Malabon City.

Aggrieved with the RTC’s decision MBTC filed a petition for review before the CA and
prayed to set aside the decision. However, the CA dismissed the petition as it found out
that the rehabilitation was feasible. It then appealed to CA en banc but it just upheld the
decision of the RTC. Hence, this petition before the SC.

ISSUE
Whether Fortuna’s petition for rehabilitation is valid.

RULING

Yes, the petition for rehabilitation filed by Fortuna is valid.

Rehabilitation refers to the restoration of the debtor to a condition of successful

operation and solvency, if it is shown that its continuance of operation is economically
feasible and its creditors can recover by way of the present value of payments projected
in the plan, more if the debtor continues as a going concern than if it is immediately
liquidated. Section 1, Rule 4 of the Interim Rules on the Procedure on Corporate
Rehabilitation provides for the qualifications of a corporation to file a petition for
corporate rehabilitation, to wit:

Sec. 1. Who May Petition. - Any debtor who foresees the impossibility of meeting its debts
when they respectively fall due, or any creditor or creditors holding at least twenty-five
percent (25%) of the debtor's total liabilities, may petition the proper Regional Trial
Court to have the debtor placed under rehabilitation. (Emphasis Ours)

A plain reading of the provision shows that the Interim Rules does not make any
distinction between a corporation which is already in debt and a corporation which
foresees the possibility of debt, or which would eventually yet surely fall into the same,

200
but may at present be free from any financial liability. Thus, since the statute is clear and
free from ambiguity, it must be given its literal meaning and applied without attempted
interpretation. This is the plain meaning rule or verha legis, as expressed in the maxim
index animi sermo or speech is the index of intention.

In Philippine Bank of Communications v. Basic Polyprinters and Packaging Corporation,

the Court underscored that despite the insolvency of a corporation, it cannot be
hindered to file a petition for corporate rehabilitation. To conclude otherwise will defeat
its purpose of restoring a corporation to its former position of successful operation and
solvency.

Upon cursory reading of the report and recommendation of Atty. Teston, it can be seen
that Fortuna maintains a status of solvency, having more assets than its liabilities with a
Php 71,000,000.00 margin. However, even hypothetically granting that Fortuna is
already in a state of insolvency, the Court finds that is not precluded from filing its
Rehabilitation Petition to facilitate its restoration to its former busines's stability. Fortuna
is seeking a fresh start to lift itself from its present financial predicament. Thus, the
foreseen viable rehabilitation of Fortuna would be more advantageous to the business
community and its creditors rather than proceed with its liquidation which may possibly
lead to its eventual corporate death.

This Court need not distinguish whether the claim has already matured or not. What is
essential in case of rehabilitation is the inability of the debtor corporation to pay its dues
as they fall due. In the case herein, accepting MBTC's proposition that debtor companies
already in default are unqualified to file a petition for corporate rehabilitation not only
contradicts the purpose of the law, as stated, but also advocates a limiting bar that is not
found under the pertinent provisions. A better and more sound interpretation adheres
to the very purpose of corporate rehabilitation, which is to allow the debtor-corporation
to be restored "to a position of successful operation and solvency, if it is shown that its
continuance of operation is economically feasible and its creditors can recover by way of
the present value of payments projected in the plan."

Despite this Court's finding that Fortuna may petition for court rehabilitation, being
qualified to do does not mean that such a petition will automatically be validated.

201
In order to determine the feasibility of a proposed rehabilitation plan, it is imperative that
a thorough examination and analysis of the distressed corporation's financial data must
be conducted. If the results of such examination and analysis show that there is a real
opportunity to rehabilitate the corporation in view of the assumptions made and financial
goals stated in the proposed rehabilitation plan, then it may be said that a rehabilitation
is feasible. In this accord, the rehabilitation court should not hesitate to allow the
corporation to operate as an on-going concern, albeit under the terms and conditions
stated in the approved rehabilitation plan. On the other hand, if the results of the
financial examination and analysis clearly indicate that there lies no reasonable
probability that the distressed corporation could be revived and that liquidation would,
in fact, better subserve the interests of its stakeholders, then it may be said that a
rehabilitation would not be feasible. In such case, the rehabilitation court may convert the
proceedings into one for liquidation.

202
 Rehabilitation Plan
Siochi Fishery Enterprises, Inc. et.al. v. Bank of the Philippine Islands
G.R. NO. 193872 October 19, 2011.
Digested by: GAGARIN

203
 San Jose Timber Corporation v. SEC
G.R. No. 162196, February 27, 2012.

Digested by: GALUTEN, Andrea Jane Emmanouel L.

Doctrines:

1. An indispensable requirement in the rehabilitation of a distressed corporation is

the rehabilitation plan.
2. "A successful rehabilitation usually depends on two factors: (1) a positive change
in the business fortunes of the debtor, and (2) the willingness of the creditors and
shareholders to arrive at a compromise agreement on repayment burdens, extent
of dilution, etc. The debtor must demonstrate by convincing and compelling
evidence that these circumstances exist or are likely to exist by the time the debtor
submits his 'revised or substitute rehabilitation plan for the final approval of the
court."

FACTS:

Petitioner Casilayan Softwood Development Corporation (CSDC) is a corporation duly

organized and existing under and by virtue of the laws of the Republic of the Philippines
and is the controlling stockholder and creditor of petitioner San Jose Timber
Corporation (SJTC). SJTC is primarily engaged in the operation of a logging concession
with a base camp in Western Samar by virtue of a Timber License Agreement (TLA) No.
118, issued by the Department of Environment and Natural Resources (DENR), which is
to expire in 2007. On February 8, 1989, the DENR issued a Moratorium Order (MO)
suspending all logging operations in the island of Samar effective February 1989 to May
30, 1989 which prompted SUTC to cease operations effective February 8, 1989 and
caused it to lose al its income.

Then, on August 7, 1990, SJTC and CSDC filed with the Securities and Exchange
Commission (SEC) a petition for the appointment of a rehabilitation receiver and for
suspension of payments. After due hearing, the SEC Hearing Panel granted such with
the condition that SJTC would "resuscitate its operations and properly service its

204
liabilities in accordance with the duly approved schedule to be submitted by the
Rehabilitation Receiver within a one
(1) year period. Petitioners, on February 26, 1992, submitted their Motion to Approve
Revised Rehabilitation Plan and Urgent Motion to Extend Waiting Period for
Commencement of Rehabilitation. The SEC Hearing Panel extended the waiting period
up to August 15, 1992 but held in abeyance its approval of the revised rehabilitation plan.
Also, subsequent motions filed by petitioners extended the waiting period several times.
Meanwhile, prior to the expiration of the waiting period to commence rehabilitation,
petitioners filed their Motion for Settlement of Claims Against Petitioner San Jose and
subsequently, their Motion to Dispose of Personal Properties which were both granted
by SEC. On May 6, 2002, however, The SEC En Banc motu propio issued its decision
terminating the rehabilitation proceedings and dismissing the petition for rehabilitation
since SJTC could no longer be rehabilitated because the logging moratorium/ban, which
was crucial for its rehabilitation, had not been lifted. Such was affirmed by the CA.

The petitioners filed a motion for reconsideration but it was denied by CA. Hence, this
petition for review with the SC. Significantly, except for the Social Security System
(SSS), none of the creditors filed an opposition to or comment on the petition. During
the pendency of the petition before the SC, DENR issued an Order allowing SJTC to
resume operations and extending the term of its TLA up to 2021. Then, petitioners filed
their Supplemental Petition. The SC gave due course to such and directed the parties to
submit their respective memoranda within thirty (30) days from notice. SJTC and CSDC
filed their memorandum arguing, among others, that the SEC acted illegally and beyond
its statutory mandate when it ordered the termination of the rehabilitation proceedings.
The CA, in turn, acted contrary to law when it upheld the SEC's decision. Thereafter, the
SEC and the SSS filed their respective memoranda. Then, petitioners
SJTC and CSDC filed their Reply Memorandum.

ISSUE:
Whether the CA erred in affirming the dissolution of the SJTC when the vast majority of
the creditors had agreed to await its rehabilitation

RULING:

205
No. The CA did not err in affirming the dissolution of SJTC when the vast majority of the
creditors had agreed to await its rehabilitation.

At the time of the promulgation of the CA decision, there was no certainty that the
moratorium on logging activities in Samar would be lifted or a law on selective logging was
forthcoming. There being no assurance, the CA was correct in sustaining the decision of
the SEC to terminate the rehabilitation proceedings to protect the interest of all
concerned, particularly the investors and the creditors. To have resolved otherwise
would have been prejudicial to these entities as they would be made to wait indefinitely
for something the likelihood of which was quite remote.

Under the Rules of Procedure on Corporate Rehabilitation, rehabilitation is defined as

the restoration of the debtor to a position of successful operation and solvency, if it is
shown that its continuance of operation is economically feasible and its creditors can
recover by way of the present value of payments projected in the plan, more if the
corporation continues as a going concern than if it is immediately liquidated.

An indispensable requirement in the rehabilitation of a distressed corporation is the

rehabilitation plan. Section 5 of the Interim Rules of Procedure on Corporate
Rehabilitation provides the requisites thereof:

SEC. 5. Rehabilitation Plan. -- The rehabilitation plan shall include (a) the desired
business targets or goals and the duration and coverage of the rehabilitation; (b) the
terms and conditions of such rehabilitation which shall include the manner of its
implementation, giving due regard to the interests of secured creditors; (c) the material
financial commitments to support the rehabilitation plan; (d) the means for the execution
of the rehabilitation plan, which may include conversion of the debts or any portion
thereof to equity, restructuring of the debts, dacion en pago, or sale of assets or of the
controlling interest; (e) a liquidation analysis that estimates the proportion of the claims
that the creditors and shareholders would receive if the debtors properties were
liquidated; and (f) such other relevant information to enable a reasonable investor to
make an informed decision on the feasibility of the rehabilitation plan.

206
A successful rehabilitation usually depends on two factors: (1) a positive change in the
business fortunes of the debtor, and (2) the willingness of the creditors and shareholders
to arrive at a compromise agreement on repayment burdens, extent of dilution, etc. The
debtor must demonstrate by convincing and compelling evidence that these
circumstances exist or are likely to exist by the time the debtor submits his revised or
substitute rehabilitation plan for the final approval of the court."

Both the SEC and the CA had reasonable basis in deciding to terminate the rehabilitation
proceedings of SJTC because of the lack of certainty that the logging ban would, in fact,
be lifted. It is clear from the records that the proposed rehabilitation plan of the
petitioners would depend entirely on the lifting of the logging ban either by the lifting of
the moratorium on logging activities in Samar issued by the DENR, or by the enactment
of a law on selective logging. Such lifting of the logging ban is indispensable to the
rehabilitation of SJTC. If it would not be lifted, the company would have no source of
income or revenues and no investor or creditor would come in to lend a hand in its
resuscitation.

On August 15, 2005, however, an event supervened. With the lifting of the logging
moratorium in Samar, an indispensable element for the possible rehabilitation of SJTC
has been made a reality. Considering the extension granted by the DENR, the TLA of
SJTC will expire on 2021, or nine (9) years from now. It appears from the proposed
Adjusted Rehabilitation Plan, that SJTC would only need a period of 24 months from the
lifting of the logging moratorium within which to liquidate all of its liabilities, except those
of its affiliates.
The Court is of the considered view that SJTC should be given a second chance to
recover and pay off its creditors. The only practical way of doing it is to resume the
rehabilitation of SJC which estimated its first year production upon resumption of
operations at 29,000 cubic meters. Thereafter, production is projected to rise to 60,000
cubic meters per year. If the estimated selling price per cubic meter as of December 31 1991
was P3.500.00 and between P5.000.00 and P6.000.00 in 2004, there is no doubt that
the price has again risen The Court is not unaware of the issuance of Executive Order
(E.O.) No. 23 on February 1, 2011. E.O. No. 23 declares a Moratorium on the Cutting and
Harvesting of Timber in the Natural and Residual Forests and Creates the Anti-Illegal
Logging Task Force that will enforce the moratorium. It aims mainly at the promotion of

207
intergeneration responsibility to protect the environment. As pronounced in the DENR
website, however, it does not impose a total log ban in the country. What is being
protected by the executive order is simply the natural forests and residual forests.
Section 2 thereof provides for a moratorium on the cutting and harvesting of timber in the
natural and residual forests of the entire country. Timber companies, such as petitioner
SJTC, may still be allowed to cut trees subject to the provisions thereof.

Thus, SJTCs rehabilitation appears highly feasible and the proceedings thereon should
be revived. It should, therefore, be given an opportunity to be heard by the SEC to
determine if it could maintain its corporate existence. For said reason, the case should be
remanded to the SEC so that it could factor in the aforecited figures and claims of SJTC
and assess whether or not SJTC could still recover. It appears from the figures that SJTC
can generate sufficient income to pay all its obligations to all its creditors except, as the
petitioners pledged, its corporate affiliates who allegedly represent more than 66% of the
liabilities.

208
 Landbank of the Philippines v. Fastech Synergy Philippines, Inc.

G.R. No. 206150 August 9, 2017

Digested by: Gewan, Zackery P.

FACTS:

The Fastech Corporations claimed that they filed a joint petition since they have
common managers, assets, and creditors. Due to financial losses, their assets would not
be enough to pay their peso and dollar debts from their creditors. They prayed for the
approval of their Rehabilitation Plan, which they submitted together with their
Rehabilitation Petition. The terms and conditions of the Rehabilitation Plan provided for
a two (2)-year grace period for the payment of the Fastech Corporations' outstanding
loans and a waiver of accumulated interests and penalties. Likewise, they indicated a 12-
year period from the end of the grace period for the payment of interests accrued during
the grace period. Finally, they stipulated an interest of four percent (4%) per annum for
real estate-secured creditors and two percent (2%) per annum for chattel mortgage-
secured creditors.

On April 19, 2011, the Rehabilitation Court acted on the Rehabilitation Petition by
issuing a Commencement Order with Stay Order. It appointed Atty. Rosario Bernaldo
(Atty. Bernaldo) as Rehabilitation Receiver. Atty. Bernaldo submitted her Preliminary
Report and opined that the Fastech Corporations' original Rehabilitation Plan was viable.
She stated that the Fastech Corporations "may be successfully rehabilitated,
considering the sufficiency of their assets to cover their liabilities and the underlying
assumptions, financial projections and procedures to accomplish said goals in their
Rehabilitation Plan."

On December 9, 2011, the Rehabilitation Court issued a Resolution dismissing the

Rehabilitation Petition, wherein they have stated that the petition was based on unreliable
facts and figures submitted for evaluation and study, hence the said court could not
arrive at the feasibility that petitioners could be rehabilitated. Thus, the petition is being
DISMISSED for reason that its attachments, i.e. the financial statements and balance
sheets of the petitioners contained materially false and misleading facts and figures.

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(Section 25, (b), (3) of R.A. No. 10142).

Moreover, considering that the facts and figures submitted by petitioners are unreliable
and not credible, the said court could not also declare that petitioners be placed under
liquidation.

The Fastech Corporation filed a review under Rule 43 to the Court of Appeals.
Atty. Bernaldo filed her Manifestation before the Court of Appeals. She maintained that
the Fastech Corporations' rehabilitation was viable as "the financial projections and
procedures set forth to accomplish the goals in their Rehabilitation Plan [were]
attainable."

On September 28, 2012, the Court of Appeals issued a Decision, granting the
Fastech Corporations' Petition for Review, which it found to have "serve[d] the purpose
of corporate rehabilitation." The rehabilitation would allow the continued employment of
its more than 100 employees and would assure payment to creditors, which would all
equally participate in the Fastech Corporations' rehabilitation. Further, stockholders
would benefit in the long run if the Rehabilitation Plan was successful. Finally, the general
public would likewise gain considering that the Fastech Corporations would open the
Philippine market to new opportunities.

Petitioner filed a Petition for Review before the Supreme Court, assailing the
decision made by the Court of Appeals, in approving the said Rehabilitation Plan.

ISSUE:

Whether the Rehabilitation Plan by the respondents is feasible.

HELD:

No, the Rehabilitation Plan by the respondents is not feasible.

Rehabilitation is statutorily defined under Republic Act No. 10142, otherwise

known as the "Financial Rehabilitation and Insolvency Act of 2010" (FRIA), as follows:

Section 4. Definition of Terms. — As used in this Act, the term:

....

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(gg) Rehabilitation shall refer to the restoration of the debtor to a condition of
successful operation and solvency, if it is shown that its continuance of operation
is economically feasible and its creditors can recover by way of the present value
of payments projected in the plan, more if the debtor continues as a going
concern than if it is immediately liquidated. (Emphasis supplied)

In the present case, however, the Rehabilitation Plan failed to comply with the minimum
requirements, i.e.: (a) material financial commitments to support the rehabilitation
plan; and (b) a proper liquidation analysis, under Section 18, Rule 3 of the 2008 Rules
of Procedure on Corporate Rehabilitation 80 (Rules), which Rules were in force at the
time respondents' rehabilitation petition was filed on April 8, 2011:

Section 18. Rehabilitation Plan. — The rehabilitation plan shall include (a) the desired
business targets or goals and the duration and coverage of the rehabilitation; (b) the
terms and conditions of such rehabilitation which shall include the manner of its
implementation, giving due regard to the interests of secured creditors such as, but
not limited, to the non-impairment of their security liens or interests; (c) the material
financial commitments to support the rehabilitation plan; (d) the means for the
execution of the rehabilitation plan, which may include debt to equity conversion,
restructuring of the debts, dacion en pago or sale or exchange or any disposition of
assets or of the interest of shareholders, partners or members; (e) a liquidation
analysis setting out for each creditor that the present value of payments it would
receive under the plan is more than that which it would receive if the assets of the
debtor were sold by a liquidator within a six-month period from the estimated date of
filing of the petition; and (f) such other relevant information to enable a reasonable
investor to make an informed decision on the feasibility of the rehabilitation plan.
(Emphases supplied)

211
The Court further explained that said Rehabilitation Plan was complied with, stating that
a distressed corporation should not be rehabilitated when the results of the financial
examination and analysis clearly indicate that there lies no reasonable probability that it
may be revived, to the detriment of its numerous stakeholders which include not only the
corporation's creditors but also the public at large. The Court cited in Bank of the
Philippine Islands:

Recognizing the volatile nature of every business, the rules on corporate

rehabilitation have been crafted in order to give companies sufficient leeway to deal with
debilitating financial predicaments in the hope of restoring or reaching a sustainable
operating form if only to best accommodate the various interests of all its stakeholders,
may it be the corporation's stockholders, its creditors, and even the general public.

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 PAL v. Sps. Sadic and Aisha Kurangking et. al.
G.R. No. 146698 September 4, 2002
Digested by: Juguilon, Koleen

FACTS:
In 1997, respondents, all Muslim Filipinos, returned to Manila from their pilgrimage
to Saudi Arabia, on board a Philippines Airlines (PAL) flight. Respondents claimed that
they were unable to retrieve their checked-in luggages and filed a complaint with the RTC
against PAL for breach of contract resulting in damages due to negligence. PAL filed its
answer invoking the limitations under the Warsaw Convention. Before the case could be
heard on pre-trial, PAL, claiming to have suffered serious losses due to the Asian
economic crisis, followed by a massive strike by its employees, filed a petition for the
approval of a rehabilitation plan and the appointment of a rehabilitation receiver before
the Securities and Exchange Commission (SEC) which the latter granted, constituting a
panel to oversee PAL’s rehabilitation.

In 1998, the SEC created a management committee conformably with Section 6(d)
PD 902, as amended, declaring the suspension of all actions for money claims against
PAL pending before any court, tribunal, board or body. Thereupon, PAL moved for the
suspension of the proceedings before the RTC. The trial court issued an order denying
the motion for suspension of the proceedings on the ground that the claim of
respondents was only yet to be established. PAL’s motion for reconsideration was then
denied by the trial court.

PAL went to the Court of Appeals via a petition for certiorari but the appellate
court dismissed the petition for the failure of PAL to serve a copy of the petition on
respondents. PAL moved for a reconsideration. The appellate court denied the motion
but added that a second motion for reconsideration before the trial court could still be
feasible inasmuch as the assailed orders of the trial court were merely interlocutory in
nature. Having no other plain, speedy and adequate remedy available to it, PAL went to
this Court via a petition for review on certiorari under Rule 45 of the Rules of Court.

ISSUE:

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 Whether the proceedings before the trial court should have been suspended after
the court was informed that a rehabilitation receiver was appointed over the petitioner by
the SEC under Section 6(c) of Presidential Decree No. 902-A.

RULING:
Yes, the proceedings before the trial court should have been suspended after the
court was informed that a rehabilitation receiver was appointed over the petitioner by the
SEC under Section 6(c) of Presidential Decree No. 902-A.

On December 15, 2000, the Supreme Court, in A.M. No. 00-8-10-SC, adopted the
Interim Rules of Procedure on Corporate Rehabilitation and directed to be transferred
from the SEC to Regional Trial Courts, all petitions for rehabilitation filed by
corporations, partnerships, and associations under P.D. 902-A in accordance with the
amendatory provisions of Republic Act No. 8799. The rules require trial courts to issue,
among other things, a stay order in the “enforcement of all claims, whether for money or
otherwise, and whether such enforcement is by court action or otherwise,” against the
corporation under rehabilitation, its guarantors and sureties not solidarily liable with it.
Specifically, Section 6, Rule 4, of the Interim Rules of Procedure On Corporate
Rehabilitation, provides:

“SEC. 6. Stay Order. - If the court finds the petition to be sufficient in form and
substance, it shall, not later than five (5) days from the filing of the petition, issue
an Order (a) appointing a Rehabilitation Receiver and fixing his bond; (b) staying
enforcement of all claims, whether for money or otherwise and whether such
enforcement is by court action or otherwise, against the debtor, its guarantors and
sureties not solidarily liable with the debtor; (c) prohibiting the debtor from selling,
encumbering, transferring, or disposing in any manner any of its properties except
in the ordinary course of business; (d) prohibiting the debtor from making any
payment of its liabilities outstanding as at the date of filing of the petition; (e)
prohibiting the debtor’s suppliers of goods or services from withholding supply of
goods and services in the ordinary course of business for as long as the debtor
makes payments for the services and goods supplied after the issuance of the stay
order; (f) directing the payment in full of all administrative expenses incurred after
the issuance of the stay order; (g) fixing the initial hearing on the petition not
earlier than forty-five (45) days but not later than sixty (60) days from the filing

214
 thereof; (h) directing the petitioner to publish the Order in a newspaper of general
circulation in the Philippines once a week for two (2) consecutive weeks; (I)
directing all creditors and all interested parties (including the Securities and
Exchange Commission) to file and serve on the debtor a verified comment on or
opposition to the petition, with supporting affidavits and documents, not later
than ten (10) days before the date of the initial hearing and putting them on notice
that their failure to do so will bar them from participating in the proceedings; and
(j) directing the creditors and interested parties to secure from the court copies
of the petition and its annexes within such time as to enable themselves to file their
comment on or opposition to the petition and to prepare for the initial hearing of
the petition.”

The stay order is effective from the date of its issuance until the dismissal of the
petition or the termination of the rehabilitation proceedings. Verily, the claim of private
respondents against petitioner PAL is a money claim for the missing luggages, a financial
demand, that the law requires to be suspended pending the rehabilitation proceedings.

Wherefore, the petition is GRANTED. The assailed orders of the RTC are set
aside.

215
 Far East Bank and Trust CO. vs. Union Bank of the Philippines
GR 196637 June 3, 2019

Digested by: Lawagan, Mary Faith

FACTS: The EYCO Group of Companies faced legal action from Union Bank and other
creditors over alleged fraud. The SEC initially got involved, issuing orders for payment
suspension and forming a management committee. But legal disputes arose, resulting in
some petitions being dismissed and the termination of rehabilitation efforts. Ultimately,
the SEC ordered the dissolution and liquidation of EYCO, appointing a Liquidator. In a
separate case, Civil Case No. 66477, the Spouses Yutingco and FEBTC filed motions to
dismiss, arguing that the SEC proceedings took precedence. Union Bank disagreed,
claiming exclusive court jurisdiction. The Spouses Yutingco and FEBTC countered,
insisting on the indispensability of NIKON and accusing Union Bank of forum shopping.
They argued that Union Bank's claims belonged before the SEC-appointed receiver due
to the exclusive jurisdiction of the SEC over related matters.

ISSUE: Whether or not the Rehabilitation Plan proposed by Strategies and Alliances
Corporation (SAC) viable and feasible for the rehabilitation of EYCO, considering the
objections raised by the consortium of creditors and the subsequent decision of the
Securities and Exchange Commission (SEC) En Banc to terminate the plan and order the
dissolution and liquidation of the petitioning corporations?

RULING:

RTC ruling, the issue of whether the Rehabilitation Plan proposed by SAC is viable and
feasible for the rehabilitation of EYCO was not directly addressed. Instead, the RTC
focused on the issue of litis pendentia, ruling that there was an ongoing action between
the same parties involving the same transactions and properties before Civil Case No.
66477 was filed. The RTC emphasized that Union Bank, as one of the creditors of EYCO,
had voluntarily submitted itself to the jurisdiction of the SEC by participating in the SEC
proceedings.

Additionally, the RTC stated that the SEC had already acquired jurisdiction over the
petition for declaration of suspension, and actions taken by the SEC were in accordance

216
with the law. Therefore, the RTC granted the motions to dismiss based on the grounds
of litis pendentia and forum shopping.

Meanwhile, the CA ruling did not directly address the viability and feasibility of the
Rehabilitation Plan. Instead, the CA focused on the legal issues surrounding the dismissal
of Civil Case No. 66477 by the RTC. The CA found that there was no identity of parties
or rights asserted between Civil Case No. 66477 and SEC Case No. 09-97-5764, and
therefore, litis pendentia did not apply.

Moreover, CA also rejected the argument of forum shopping against Union Bank, stating
that the elements of litis pendentia and res judicata were not present. Furthermore, the
CA held that Union Bank had the capacity to sue at the time of filing the complaint in the
RTC. Consequently, the CA reversed the RTC's orders and remanded the case to the
trial court for a full hearing on the merits.

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 Pryce Corporation vs China Banking Corporation

G.R. No. 172302 February 18, 2014

Digested by: Liban, Darren

Facts:

Petitioner Pryce Corporation filed a petition for corporate rehabilitation with the RTC.
The rehabilitation court found the petition sufficient in form and substance and issued a
stay order appointing Gener T. Medoza as rehabilitation receiver. To cut the story short,
the amended rehabilitation plan submitted by the receiver was approved by the
rehabiltation court. Respondent China Banking Corporation questions the order of the
rehabilitation court. Respondent argues that the rehabiltation plan impaired the
obligations of contracts that neither the provisions of PD No. 902-A nor the Interim Rules
of Procedure on Corporate Rehabilatation empowered commercial courts “to render
without force and effect valid contractual stipulations”. Moreover, the plan’s approval of
authorizing dacio en pago of petitioner ‘s properties without respondent’s consent,
according to the Respondent, violates the mutuality of contract, due process and inimical
to the policy of the state in maintaining a competetive financial system.

The case was then appealed to the Court of Appeals. The Court of Appeals granted
China Banking Corporation's petition, and reversed and set aside the rehabilitation
court's stay order that also appointed Gener T. Mendoza as rehabilitation receiver; order
giving due course to the petition and directing the rehabilitation receiver to evaluate and
give recommendations on petitioner Pryce Corporation's proposed rehabilitation plan;
and theorder finding petitioner Pryce Corporation eligible to be placed in a state of
corporate rehabilitation, identifying assets to be disposed of, and determining the
manner of liquidation to pay the liabilities. Pryce Corporation contends that Rule 4,
Section 6 of the Interim Rules of Procedure on Corporate Rehabilitation does not require
the rehabilitation court to hold a hearing before issuing a stay order. Considering that
the Interim Rules was promulgated later than Rizal Commercial Banking Corp. v. IAC that
enunciated the "serious situations" test, Pryce Corporation argues that the test has
effectively been abandoned by the "sufficiency in form and substance test" under the
Interim Rules.

Issue:

218
Whether hearing is needed prior to the issuance of a stay order in corporate rehabilitation
proceedings.

Ruling:

No, the Supreme Court held that hearing is not necessary prior to the issuance of a stay
order in corporate rehabilitation proceedings.

Section 6 of the Interim Rules states explicitly that if the court finds the petition to be
sufficient in form and substance, it shall, not later than five (5) days from the filing of the
petition, issue an Order (a) appointing a Rehabilitation Receiver and fixing his bond; (b)
staying enforcement of all claims. Compliant with the rules, the July 13, 2004 stay order
was issued not later than five (5) days from the filing of the petition on July 9, 2004 after
the rehabilitation court found the petition sufficient in form and substance. Nowhere in
the Interim Rules does it require a comprehensive discussion in the stay order on the
court's findings of sufficiency in form and substance.

The stay order and appointment of a rehabilitation receiver is an extraordinary,

preliminary, ex parte remedy. The effectivity period of a stay order is only "from the date
of its issuance until dismissal of the petition or termination of the rehabilitation
proceedings. It is not a final disposition of the case. It is an interlocutory order defined
as one that "does not finally dispose of the case, and does not end the Court's task of
adjudicating the parties' contentions and determining their rights and liabilities as regards
each other, but obviously indicates that other things remain to be done by the Court.
Thus, it is not covered by the requirement under the Constitution that a decision must
include a discussion of the facts and laws on which it is based. Neither does the Interim
Rules require a hearing before the issuance of a stay order. What it requires is an initial
hearing before it can give due course to or dismiss a petition.

Nevertheless, while the Interim Rules does not require the holding of a hearing before the
issuance of a stay order, neither does it prohibit the holding of one. Thus, the trial court
has ample discretion to call a hearing when it is not confident that the allegations in the
petition are sufficient in form and substance, for so long as this hearing is held within the
five (5)-day period from the filing of the petition. One of the important objectives of the
Interim Rules is to promote a speedy disposition of corporate rehabilitation cases
apparent from the strict time frames, the non-adversarial nature of the proceedings, and

219
the prohibition of certain kinds of pleadings. It is in light of this objective that a court with
basis to issue a stay order must do so not later than five (5) days from the date the
petition was filed.

220
 Yngson, Jr. vs. Philippine National Bank
G.R. No. 171132 August 15, 2012

Digested By: Martinez, Trisha Mae A.

FACTS: ARCAM & Company, Inc. (ARCAM) is engaged in the operation of a sugar mill
in Pampanga. Between 1991 and 1993, ARCAM applied for and was granted a loan by
respondent Philippine National Bank (PNB). To secure the loan, ARCAM executed a
Real Estate Mortgage over a 350,004-square meter parcel of land covered by TCT No.
340592-R and a Chattel Mortgage over various personal properties consisting of
machinery, generators, field transportation and heavy equipment.

ARCAM, however, defaulted on its obligations to PNB. Thus, on November 25, 1993,
pursuant to the provisions of the Real Estate Mortgage and Chattel Mortgage, PNB
initiated extrajudicial foreclosure proceedings in the Office of the Clerk of Court/Ex
Officio Sheriff of the Regional Trial Court (RTC) of Guagua, Pampanga. The public
auction was scheduled on December 29, 1993 for the mortgaged real properties and
December 8, 1993 for the mortgaged personal properties.

ARCAM filed before the SEC a Petition for Suspension of Payments, Appointment of a
Management or Rehabilitation Committee, and Approval of Rehabilitation Plan, with
application for issuance of a temporary restraining order (TRO) and writ of preliminary
injunction. The SEC issued a TRO and subsequently a writ of preliminary injunction,
enjoining PNB and the Sheriff of the RTC of Guagua, Pampanga from proceeding with
the foreclosure sale of the mortgaged properties.8 An interim management committee was
also created.

The SEC ruled that ARCAM can no longer be rehabilitated. The SEC noted that the
petition for suspension of payment was filed in December 1993 and six years had passed
but the potential white knight" investor had not infused the much needed capital to bail
out ARCAM from its financial difficulties. Thus, the SEC decreed that ARCAM be
dissolved and placed under liquidation.

221
ARCAM, with this development, PNB revived the foreclosure case and requested the
RTC Clerk of Court to reschedule the sale at public auction of the mortgaged properties.

Contending that foreclosure during liquidation was improper, petitioner filed with the
SEC a Motion for the Issuance of a Temporary Restraining Order and/or Writ of
Preliminary Injunction to enjoin the foreclosure sale of ARCAM’s assets. The SEC en
banc issued a TRO effective for seventy-two (72) hours, but said TRO lapsed without
any writ of preliminary injunction being issued by the SEC. Consequently, PNB resumed
the proceedings for the extrajudicial foreclosure sale of the mortgaged properties. PNB
emerged as the highest winning bidder in the auction sale, and certificates of sale were
issued in its favour.

Thus, petitioner argued that the prohibition against foreclosure subsisted during
liquidation because payment of all of ARCAM’s obligations was proscribed except those
authorized by the Commission. Moreover, petitioner asserted that the mortgaged assets
should be included in the liquidation and the proceeds shared with the unsecured
creditors.

ISSUE: Whether PNB, as a secured creditor, can foreclose on the mortgaged properties
of a corporation under liquidation without the knowledge and prior approval of the
liquidator or the SEC.

RULING: Yes, the Supreme Court upheld the SEC's ruling that PNB was not barred from
foreclosing on the mortgages.

In the case of Consuelo Metal Corporation v. Planters Development Bank,26 which

involved factual antecedents similar to the present case, the court has already settled the
above question and upheld the right of the secured creditor to foreclose the mortgages
in its favor during the liquidation of a debtor corporation. In that case, Consuelo Metal
Corporation (CMC) filed with the SEC a petition to be declared in a state of suspension
of payment, for rehabilitation, and for the appointment of a rehabilitation receiver or
management committee under Section 5(d) of P.D. No. 902-A. On April 2, 1996, the SEC,
finding the petition sufficient in form and substance, declared that "all actions for claims
against CMC pending before any court, tribunal, office, board, body and/or commission

222
are deemed suspended immediately until further orders" from the SEC. Then on
November 29, 2000, upon the management committee’s recommendation, the SEC issued
an Omnibus Order directing the dissolution and liquidation of CMC. Thereafter,
respondent Planters Development Bank (Planters Bank), one of CMC’s creditors,
commenced the extrajudicial foreclosure of CMC’s real estate mortgage. Planters Bank
extrajudicially foreclosed on the real estate mortgage as CMC failed to secure a TRO.
CMC questioned the validity of the foreclosure because it was done without the
knowledge and approval of the liquidator. The Court ruled in favor of the respondent
bank, as follows:

In Rizal Commercial Banking Corporation v. Intermediate Appellate Court, we held that if

rehabilitation is no longer feasible and the assets of the corporation are finally liquidated,
secured creditors shall enjoy preference over unsecured creditors, subject only to the
provisions of the Civil Code on concurrence and preference of credits. Creditors of
secured obligations may pursue their security interest or lien, or they may choose to
abandon the preference and prove their credits as ordinary claims.

Moreover, Section 2248 of the Civil Code provides:

"Those credits which enjoy preference in relation to specific real property or real rights,
exclude all others to the extent of the value of the immovable or real right to which the
preference refers."

In this case, Planters Bank, as a secured creditor, enjoys preference over a specific
mortgaged property and has a right to foreclose the mortgage under Section 2248 of the
Civil Code. The creditor-mortgagee has the right to foreclose the mortgage over a
specific real property whether or not the debtor-mortgagor is under insolvency or
liquidation proceedings. The right to foreclose such a mortgage is merely suspended
upon the appointment of a management committee or rehabilitation receiver or upon the
issuance of a stay order by the trial court. However, the creditor-mortgagee may exercise
his right to foreclose the mortgage upon the termination of the rehabilitation proceedings
or upon the lifting of the stay order.27 (Emphasis supplied)

223
It is worth mentioning that under Republic Act No. 10142, otherwise known as the Financial
Rehabilitation and Insolvency Act (FRIA) of 2010, the right of a secured creditor to
enforce his lien during liquidation proceedings is retained. Section 114 of said law thus
provides:

SEC. 114. Rights of Secured Creditors. – The Liquidation Order shall not affect the
right of a secured creditor to enforce his lien in accordance with the applicable contract
or law. A secured creditor may:

(a) waive his rights under the security or lien, prove his claim in the liquidation proceedings
and share in the distribution of the assets of the debtor; or

(b) maintain his rights under his security or lien;

If the secured creditor maintains his rights under the security or lien:

(1) the value of the property may be fixed in a manner agreed upon by the creditor and
the liquidator.1âwphi1 When the value of the property is less than the claim it secures, the
liquidator may convey the property to the secured creditor and the latter will be admitted
in the liquidation proceedings as a creditor for the balance; if its value exceeds the claim
secured, the liquidator may convey the property to the creditor and waive the debtor’s
right of redemption upon receiving the excess from the creditor;

(2) the liquidator may sell the property and satisfy the secured creditor’s entire claim
from the proceeds of the sale; or

(3) the secured creditor may enforce the lien or foreclose on the property pursuant to
applicable laws. (Emphasis supplied)

In this case, PNB elected to maintain its rights under the security or lien; hence, its right
to foreclose the mortgaged properties should be respected, in line with our
pronouncement in Consuelo Metal Corporation.

224
PHILIPPINE COMMERCIAL INTERNATIONAL BANK and MELCHOR B.
FRANCISCO, petitioners,
vs.
THE HON. COURT OF APPEALS and BENGZON, ZARRAGA, NARCISO,
CUDALA, PECSON AZCUNA and BENGZON, SEC Appointed Receiver of
Philfinance, respondents.

Digested by: Minimo, Jessa

Facts:

The case involves a dispute between Philippine Commercial International Bank (PCIB)
and Philfinance, a corporation under receivership. PCIB held a pledge agreement
involving certain shares of stocks and bonds as security for Philfinance's outstanding
obligation. The Securities and Exchange Commission (SEC) placed Philfinance under
suspension of payments and appointed a Receivership Committee to conserve its assets.
The SEC later ordered the dissolution and liquidation of Philfinance.
PCIB posted a Notice of Auction Sale of the pledged shares of stocks and bonds.
The receiver filed a petition for a writ of preliminary injunction to stop the auction sale,
which was denied by the trial court.
The receiver then filed a petition for certiorari with the Court of Appeals, which granted
the petition and enjoined PCIB from proceeding with the auction sale.

Issue:
Whether the order of suspension of payments and claims against Philfinance applies to
secured creditors.

Ruling:

The Supreme Court ruled in favor of PCIB.

The court stated that the order of suspension of payments and claims should not apply
to creditors holding a mortgage, pledge, or lien on the property unless they voluntarily
give up their security for the benefit of all creditors. This ruling finds support in
Chartered Bank vs. Imperial and National Bank (48 Phil. 931). where it is clear and evident

225
that the law recognizes and respects the right of a creditor holding a mortgage, pledge or
lien of any kind, attachment or execution on the property of the debtor, recorded and
not dissolved under said Act, to refrain from voting at the election of an assignee, and
consequently, to preserve said right; to refrain from taking part or intervening in the
insolvency proceedings and to retain the property mortgaged to him and the respective
security or lien the court having no power, even if the debtor is adjudged insolvent, to
dispose of said property, security or lien and cede or transfer them to the sheriff or
assignee by virtue of said adjudication as long as the creditor does not voluntarily deliver
or assign said property, security or lien for the benefit of all the creditors of the insolvent.

It is true that the aforequoted ruling deals with insolvency but by analogy the same could
be adopted in this case considering that the rights of a preferred creditor remain to be
respected and recognized in every existing situation. To hold otherwise would render the
said rights inutile and illusory. Besides, there is no substantial difference between the
suspension of actions in the instant case and that under the Insolvency Law.
Consequently, the herein order of suspension, could not have a different interpretation
as regards secured credits than that already given by this Court. The records show that
PCIB neither surrendered the pledged shares of stock and bonds nor participated in the
proceedings before the SEC regarding the suspension of payments or actions of claims
against Philfinance or in the latter's subsequent dissolution and liquidation. The pledged
properties being still in PCIB's possession, the Receiver could not possess the same for
equitable distribution to the creditors of Philfinance.

226
 Effect of Stay Order on Contracts

China Banking Corporation vs. ASB Holdings

GR 172192 December 23, 2008

Digested by: Ogsar, Novilyn A.

FACTS:

ASB Development Corporation applied for and was granted a credit line by petitioner
China Bank in the principal amount of P35,000,000.00. The loan was secured by a real
estate mortgage constituted over two contiguous lots with a combined area of 1,332.5
square meters in Grace Park, Caloocan City. The said properties are covered by Transfer
Certificate of Title (TCT) Nos. 2981096 and 298110 of the Register of Deeds of Caloocan
City.

ASB Realty Corporation, an affiliate of ASB Development, obtained an omnibus credit

line from petitioner China Bank in the amount of P265,000,000.00. The loan was
secured by two real estate mortgages. Respondent corporations defaulted in the
payment of the agreed loan amortizations, interest, and other charges. Demands to pay
were left unheeded.

ASB Development Corporation and its affiliates, filed before the SEC a petition for
rehabilitation with prayer for suspension of actions and proceedings. In filing the petition
for rehabilitation, respondents contended that while they have sufficient capitalization,
the company will be hard-pressed to service its obligations in favor of petitioner bank and
its other creditors due to a glut in the real estate market, the depreciation of the currency
and decreased investor confidence in the Philippine economy. Respondents then prayed
that the SEC, after due hearing: (a) appoint an interim receiver; (b) suspend all actions
against the ASB Group for a period of sixty days subject to extension; and (c) approve
a rehabilitation plan for the ASB Group and appoint a rehabilitation receiver to monitor
the implementation of the said rehabilitation plan.

227
The Hearing Panel of the SEC Securities Investigation and Clearing Department, finding
the petition for rehabilitation sufficient in form and substance, issued a 60-day
Suspension Order. ASB Development Corporation submitted the rehabilitation plan for
approval of the SEC. It was approved by the SEC.

Aggrieved, petitioner bank appealed the plan’s approval to the SEC En Banc. The SEC
En Banc denied with finality petitioner bank’s appeal.

CA dismissed the bank’s petition for lack of merit.

ISSUE:
Whether the ASB rehabilitation plan violates the principles of mutuality of contracts,
curtails a party’s freedom to contract.

RULING:

No. The Supreme Court ruled that the approval of the Rehabilitation Plan does not
impairs petitioner bank’s lien over the mortgaged properties. Section 6[c] of P.D. No.
902-A provides that "upon appointment of a management committee, rehabilitation
receiver, board or body, pursuant to this Decree, all actions for claims against
corporations, partnerships or associations under management or receivership pending
before any court, tribunal, board or body shall be suspended."

By that statutory provision, it is clear that the approval of the Rehabilitation Plan and the
appointment of a rehabilitation receiver merely suspend the actions for claims against
respondent corporations. Petitioner bank’s preferred status over the unsecured
creditors relative to the mortgage liens is retained, but the enforcement of such
preference is suspended. The loan agreements between the parties have not been set
aside and petitioner bank may still enforce its preference when the assets of ASB Group
of Companies will be liquidated. Considering that the provisions of the loan agreements
are merely suspended, there is no impairment of contracts, specifically its lien in the
mortgaged properties.

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Supreme Court stressed in Rizal Commercial Banking Corporation v. Intermediate
Appellate Court, such suspension "shall not prejudice or render ineffective the status of
a secured creditor as compared to a totally unsecured creditor," for what P.D. No. 902-
A merely provides is that all actions for claims against the distressed corporation,
partnership or association shall be suspended. This arrangement provided by law is
intended to give the receiver a chance to rehabilitate the corporation if there should still
be a possibility for doing so, without being unnecessarily disturbed by the creditors’
actions against the distressed corporation. However, in the event that rehabilitation is no
longer feasible and the claims against the distressed corporation would eventually have
to be settled, the secured creditors, like petitioner bank, shall enjoy preference over the
unsecured creditors.

The terms of the rehabilitation plan unveil that secured creditors like petitioner bank may
refuse or reject the dacion en pago arrangements stated in it. It cannot be implemented
without petitioner’s consent.

Further, the approval of the plan and the appointment of a receiver merely suspend
actions and claims that may be raised against respondent bank. They do not, in any
manner, obliterate petitioner’s status as a preferred secured creditor.

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 Philippine National Bank vs. Court of Appeals
GR 165571 January 20, 2009

Digested by: OLAIREZ, Dexter Jan C.

FACTS:
PNB and Equitable PCI Bank are members of the consortium of creditor banks
constituted pursuant to the Mortgage Trust Indenture (MTI) by and between RCBC-
Trust and Investments Division, acting as trustee for the consortium, and ASB
Development Corporation (Now St. Francis Square Holdings, Inc) and other real estate
dev’t companies. Under the MTI, petitioners granted a loan of PhP 1,081,000,000 to
ASBDC secured by several real estate mortgages.

Due to sudden non-renewal and massive withdrawal by creditors of their loans to

ASB, the glut in the real estate market, severe drop in the sale of real properties, peso
devaluation, and decreased investor confidence in the economy which resulted in the
non-completion of and failure to sell their projects and default in the servicing of their
credits as they fell due, ASB incurred financial problems. They further stated that they
possess sufficient properties to cover their obligations but foresee inability to pay them
within a period of one year.

Faced with 712 creditors, 317 contractors/suppliers, and 492 condominium unit
buyers, and the prospect of having secured and non-secured creditors press for
payments and threaten to initiate foreclosure proceedings, the ASB Group filed a
petition for rehabilitation with prayer for suspension of payments pending rehabilitation
with the SEC Hearing Panel, which the latter granted, suspending all actions for claims
against the ASB Group, enjoining the latter from disposing its properties in any manner
except in the ordinary course of business and from paying outstanding liabilities, and
appointing Atty. Jacob (later replaced by Atty. Cruz) as interim receiver.

The consortium of creditor banks (petitioners) moved for its disapproval on the
ground that,

xxx

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 That the Rehabilitation Plan infringes on right against non-impairment of contracts
by forcing petitioners to release real properties secured in their favor and
approval of the Rehabilitation Plan is a state action that impairs the remedies
available to petitioners under the MTI, which essentially abrogates the contract
itself

CA affirms ruling of SEC

ISSUE:
Whether respondent court committed serious error in finding that petitioners as
creditors and mortgagees cannot, by contractual commitments imposed on their
borrowers-mortgagors, defeat the purpose of the legislation by rendering nugatory the
supervisory and regulatory power of the SEC over private corporations, partnerships
and associations under existing laws.

RULING:
No, respondent court did not commit serious error in finding that petitioners as
creditors and mortgagees cannot, by contractual commitments imposed on their
borrowers-mortgagors, defeat the purpose of the legislation by rendering nugatory the
supervisory and regulatory power of the SEC over private corporations, partnerships
and associations under existing laws.

Section 6 [c] of P.D. No. 902-A provides that "upon appointment of a management
committee, rehabilitation receiver, board or body, pursuant to this Decree, all actions for
claims against corporations, partnerships or associations under management or
receivership pending before any court, tribunal, board or body shall be suspended."

The approval of the Rehabilitation Plan and the appointment of a rehabilitation

receiver merely suspend the actions for claims against respondent corporations.
Petitioner’s preferred status over the unsecured creditors relative to the mortgage liens
is retained, but the enforcement of such preference is suspended. The loan agreements
between the parties have not been set aside and petitioner may still enforce its
preference when the assets of ASB will be liquidated. Considering that the provisions of

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the loan agreements are merely suspended, there is no impairment of contracts,
specifically its lien in the mortgaged properties.

This arrangement provided by law is intended to give the receiver a chance to

rehabilitate the corporation if there should still be a possibility for doing so, without being
unnecessarily disturbed by the creditors’ actions against the distressed corporation.
However, in the event that rehabilitation is no longer feasible and the claims against the
distressed corporation would eventually have to be settled, the secured creditors, like
petitioner bank, shall enjoy preference over the unsecured creditors.

Contrary to petitioners’ belief, they are not forced to accept the terms of the
Rehabilitation Plan, they are merely proposals for the creditors to accept.

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