IBL Digest
IBL Digest
IBL Digest
assignee of a loan
amounting to P8.5
million obtained by
petitionerfrom
Intercon. In a
complaint for
judicial foreclosure
of mortgage private
respondent
sought the
foreclosure of (4)
parcels
of land mortgaged
by petitioner
to Intercon Fund
Resource, Inc.
(Intercon),
which was granted
by the CA. On
September
6, 1994, private
respondent was
declared the
highest bidder
during the auction
sale and the
Certificate of Sale
issued in itsfavor
was registered on
October 21, 1994.
in opposition to the
rightto redeem
subject properties
under to Section 78
of R.A. No. 337
(General Banking
Act).
Section 78 of R.A.
No. 337 provides
that in case of a
foreclosure of a
mortgage in favor
of a bank, banking
or creditinstitution,
whether judicially
or extrajudicially,
the mortgagor shall
have the right,
within one year
after the sale of the
realestate as a
result of the
foreclosure of the
respective
mortgage, to
redeem th
e property.
ISSUE: whether
petitioner had the
right of redemption
or equity of
redemption over
subject properties.
in relation to a
mortgage understood in the
sense of
aprerogative to reacquire mortgaged
property after
registration of the
foreclosure sale exists only in the
case of
theextrajudicial
foreclosure of the
mortgage. No such
right is recognized
in a judicial
foreclosure except
only where
themortgagee is
the Philippine
National Bank or a
bank or banking
institution. Where a
mortgage is
foreclosed
extrajudicially, Act
3135 grants to the
mortgagor the right
o
f redemption within
one (1) year from
the registration of
the sheriffs
certificate
of foreclosure
sale.In light of the
aforestated facts, it
was too late in the
day for petitioner to
invoke a right to
redeem under
Section 78
of R.A.No. 337.
compulsory
counterclaim which
should have been
averred
in petitioners
answer
to the compliant for
judicial
foreclosure.There
then existed only
what is known as
the equity of
redemption, which
is simply the right
of the petitioner to
extinguishthe
mortgage and
retain ownership of
the property by
paying the secured
debt within the 90day period after the
judgmentbecame
final. There being
an explicit finding
on the part of the
CA - that the
petitioner failed to
exercise its equity
of redemption
within the
prescribed period,
redemption can
no longer be
effected.
Yes, the only exemption is when the mortgagee is the Philippine National Bank or a bank or
a banking institution. In such cases, the mortgagor can exercise the right of redemption.
Petition for Review on Certiorari declaring void the interest rate provided in the promissory notes
executed by the respondents Spouses Samuel and Odette Beluso (spouses Beluso) in favor of
petitioner United Coconut Planters Bank (UCPB)
2. UCPB granted the spouses Beluso a Promissory Notes Line under a Credit Agreement whereby
the latter could avail from the former credit of up to a maximum amount of P1.2 Million pesos
for a term ending on 30 April 1997. The spouses Beluso constituted, other than their promissory
notes, a real estate mortgage over parcels of land in Roxas City, covered by Transfer Certificates
of Title No. T-31539 and T-27828, as additional security for the obligation. The Credit Agreement
was subsequently amended to increase the amount of the Promissory Notes Line to a maximum
of P2.35 Million pesos and to extend the term thereof to 28 February 1998.
3. On 30 April 1997, the payment of the principal and interest of the latter two promissory notes
were debited from the spouses Belusos account with UCPB; yet, a consolidated loan for P1.3
Million was again released to the spouses Beluso under one promissory note with a due date
of 28 February 1998. To completely avail themselves of the P2.35 Million credit line extended to
them by UCPB, the spouses Beluso executed two more promissory notes for a total
of P350,000.00. However, the spouses Beluso alleged that the amounts covered by these last
two promissory notes were never released or credited to their account and, thus, claimed that
the principal indebtedness was only P2 Million.
4. The spouses Beluso, however, failed to make any payment of the foregoing amounts.
5. On 2 September 1998, UCPB demanded that the spouses Beluso pay their total obligation
of P2,932,543.00 plus 25% attorneys fees, but the spouses Beluso failed to comply
therewith. On 28 December 1998, UCPB foreclosed the properties mortgaged by the spouses
Beluso to secure their credit line, which, by that time, already ballooned to P3,784,603.00.
6. On 9 February 1999, the spouses Beluso filed a Petition for Annulment, Accounting and Damages
against UCPB with the RTC of Makati City.
7. Trial court declared in its judgment that:
a. the interest rate used by [UCPB] void
b. the foreclosure and Sheriffs Certificate of Sale void
c. UCPB is ordered to return to [the spouses Beluso] the properties subject of the foreclosure
d. UCPB to pay [the spouses Beluso] the amount of P50,000.00 by way of attorneys fees
e. UCPB to pay the costs of suit.
f. Spouses Beluso] are hereby ordered to pay [UCPB] the sum of P1,560,308.00.
8. Court of Appeals affirmed Trial court's decision subject to the modification that defendantappellant UCPB is not liable for attorneys fees or the costs of suit.
ISSUES:
1. Whether or not interest rate stipulated was void
Yes, stipulated interest rate is void because it contravenes on the principle of mutuality of contracts and it
violates the Truth in lending Act.
The provision stating that the interest shall be at the rate indicative of DBD retail rate or as determined by the
Branch Head is indeed dependent solely on the will of petitioner UCPB. Under such provision, petitioner
UCPB has two choices on what the interest rate shall be: (1) a rate indicative of the DBD retail rate; or (2) a
rate as determined by the Branch Head. As UCPB is given this choice, the rate should be categorically
determinable in both choices. If either of these two choices presents an opportunity for UCPB to fix the rate at
will, the bank can easily choose such an option, thus making the entire interest rate provision violative of the
principle of mutuality of contracts.
In addition, the promissory notes, the copies of which were presented to the spouses Beluso after execution,
are not sufficient notification from UCPB. As earlier discussed, the interest rate provision therein does not
sufficiently indicate with particularity the interest rate to be applied to the loan covered by said promissory
notes which is required in TRuth in Lending Act
2. Whether or not Spouses Beluso are subject to 12% interest and compounding interest stipulations even if
declared amount by UCPB was excessive.
[26]
THE CONSOLIDATED BANK (SOLIDBANK) vs. COURT OF APPEALS, GEORGE AND GEORGE TRADE, INC., GEORGE
KING TIM PUA and PUA KE SENG
G.R. No. 91494 July 14, 1995
Justice Quiason
Defendant George and George Trade Inc., through defendant George King Tim Pua, obtained a loan of P300,000.00 from
the plaintiff, for which defendant George King Tim Pua executed a promissory note on behalf of defendant corporation, with
defendants George King Tim Pua and Pua Ke Seng as co-makers, which loan bears an interest of 13.23% per annum.
On April 19, 1979, defendant George and George Trade Inc., through defendant George King Tim Pua, applied for, and
was granted, another loan of P200,000.00 from the plaintiff bank, for which defendant George King Tim Pua executed a promissory
note on behalf of defendant corporation, with defendants George King Tim Pua and Pua Ke Seng as co-makers, which loan bears an
interest of 14% per annum and is payable on May 21, 1979.
On August 2, 1979, defendant George and George Trade Inc., through defendant George King Tim Pua, once more
secured a loan for P150,000.00, for which defendant George King Tim Pua executed a promissory note on behalf of defendant
corporation, with defendants George King Tim Pua and Pua Ke Seng as co-makers, which loan bears an interest of 14% per
annum and is payable on September 17, 1979.
The three promissory notes covering loans in the corporate account of defendant George and George Trade Inc. provides
also that in case of default of payment, the defendants agree to pay interest at an increased rate of 14% per annum on the amount
due, compounded monthly, until fully paid, as well as an additional sum equivalent to 10% of the total amount due as and for
attorney's fees in addition to expenses and costs of suit, such amount to bear interest at the rate of 1% per month until paid.
Under the two promissory notes the defendants further bound themselves to pay a penalty at the rate of 3% per
annum on the amount due until fully paid. According to petitioner bank, after it had deducted from the insurance proceeds the
entirety of respondent George King Tim Pua's personal account, there remained of the insurance proceeds the amount of
P383,302.42. It then proceeded to apply said amount to the unpaid loans of respondent George and George Trade, Inc. which
amounted to P671,772.22 as of September 7, 1979, thus leaving a balance of P288,469.80 of the loans.
Hence, Petitioner instituted an action against private respondents for the recovery of the unpaid balances on the three
promissory notes
ISSUE OF THE CASE:
No. Decision of the Court of Appeals is AFFIRMED with the MODIFICATION that the amount which petitioner is ordered to
reimburse respondent George King Tim Pua is reduced to THREE THOUSAND SIX HUNDRED SIXTEEN & 65/100 PESOS (P3,616.65),
with legal interest thereon from September 8, 1979 until said amount is fully paid.
RATIONALE:
All of these loans bore a 14% rate of interest, which was to be compounded monthly, in case of failure on the part of
respondent George King Tim Pua to pay on maturity. In which case, he further undertook to pay an additional sum equivalent to
10% of the total amount due but in no case less than P200.00 as attorney's fees. The maturity dates of the loans were extended up
to either December 1 or December 5, 1977 and all interests were paid up to March 5, 1978.
The first loan bore an annual interest of 13.23%, which was to be increased to 14% in case of failure to pay on due date,
compounded monthly, until fully paid. An additional amount equivalent to 10% of the total amount but not less than P200.00 was
to be imposed in case of failure to pay on due date as attorney's fees. The second and third loans bore an interest rate of 14% per
annum and carried a penalty of 3% per annum on the amount due in case of failure to pay on the date of maturity. An additional
sum equivalent to 10% of the total amount due, but not less than P200.00, was to be imposed as and for attorney's fees. Interests
were paid on the loans up to their date of maturity.
The 14% interest rate charged by petitioner was within the limits set by Section 3 of the Usury Law, as amended. The
charging of compounded interest has been held as proper as long as the payment thereof has been agreed upon by the parties.
In Mambulao Lumber Company v. Philippine National Bank, 22 SCRA 359 (1968), SC ruled that the parties may, by stipulation,
capitalize the interest due and unpaid, which as added principal shall earn new interest. In the instant case, private respondents
agreed to the payment of 14% interest per annum, compounded monthly, should they fail to pay the principal loan on the date of
maturity.
As
to
handling
charges,
banks
are
authorized
under
Central
Bank
Circular
No. 504 to collect such charges on loans over P500,000.00 with a maturity of 730 days or less at the rate of 2% per annum, on the
principal or the outstanding balance thereof, whichever is lower; 1.75% on loans over P500,000.00 but not over P1,000,000.00;
1.50% on loans over P1,000,000.00 but not over 2,000,000.00, etc. Section 7 of the same Circular, however, provides that all banks
and non-bank financial intermediaries authorized to engage in quasi-banking functions are required to strictly adhere to the
provisions of Republic Act No. 3765 otherwise known as the "Truth in Lending Act" and shall make the true and effective cost of
borrowing an integral part of every loan contract. The promissory notes signed by private respondents do not contain any
stipulation on the payment of handling charges. Petitioner bank cannot, therefore, charge private respondents such handling
charges.
The payment of penalty is sanctioned by law, although the penalty may be reduced by the courts if it is iniquitous or
unconscionable (Equitable Banking Corporation v. Liwanag, 32 SCRA 293 [1970]). The payment of penalty was provided for under
the terms and conditions of the promissory notes for Loans B and C of George and George Trade, Inc. The penalty actually
imposed, being only 3% per annum of the unpaid balance of the principal of said Loan B, is considered reasonable and proper.
not
authorize either party to unilaterally raise the interest rate without the others consent.the
interest ranging from 26 percent to 35 percent in the statements of account -- must be
equitably reduced for being iniquitous, unconscionableand exorbitant. Rates found to be iniquitous or
unconscionable are void,as if it there were no express contract thereon. Above all, it is
undoubtedlyagainst public policy to charge excessively for the use of money.It cannot be argued that
assent to the increases can be implied either fromthe June 18, 1991 request of petitioners for loan
restructuring or from theirlack of response to the statements of account sent by respondent. Suchrequest
does not indicate any agreement to an interest increase; there canbe no implied waiver of a right
when there is no clear, unequivocal anddecisive act showing such purpose. Besides,
the statements were not
letters of information sent to secure their conformity; and even if we wereto presume these as an offer,
there was no acceptance. No one
receivinga p r o p o s a l t o m o d i f y a l o a n c o n t r a c t , e s p e c i a l l y i n t e r e s t - a v i t a l component -- is obliged to answer the proposal.Besides, PNB did not comply with its own
stipulation that should the loannot be paid 2 years after release of money then it shall be converted to
amedium term loan.*Court applied 12% interest rate instead for being a forbearance of money(there
were some pieces of evidence presented by PNB in court thatsampaguita objected to. Lower
courts overruled the objections but SC saidt h e o b j e c t i o n s w e r e c o r r e c t a n d
t h e e v i d e n c e s h o u l d n o t h a v e b e e n admitted. i.e. contract wasnt signed by the parties, a part
of the contractwasnt properly annexed/no reference was made in the main contract.)In addition to the
preceding discussion, it is then useless to labor the
pointt h a t t h e i n c r e a s e i n r a t e s v i o l a t e s t h e i m p a i r m e n t c l a u s e o f t h e Const
itution, because the sole purpose of this provision is to safeguard theintegrity of valid contractual
agreements against unwarranted interferenceby the State in the form of laws. Private individuals
intrusions on interestrates is governed by statutory enactments like the Civil Code
RCBC vs. Hi-Tri Development Corp. and Luz R. Bakunawa, G.R. No. 192413, June
13, 2012
Facts:
Millan paid the spouses Bakunawa P1,019,514.29 as down payment for the purchase of
six (6) lots with the Spouses Bakunawa giving Millan the Owners Copies of TCTs of
said lots.
Due to some obstacles, the sale did not push through; so Spouses Bakunawa rescinded
the sale and offered to return to Millan her down. However, Millan refused to accept
back the down payment. Consequently, the Spouses Bakunawa, through their
company, Hi-Tri took out on October 28, 1991, a Managers Check from RCBC-Ermita
in the amount of P 1,019,514.29, payable to Millans company Rosmil and used this as
one of their basis for a complaint against Millan.
The Spouses Bakunawa retained custody of RCBC Managers Check and refrained
from cancelling or negotiating it. Millan was also informed that the Managers Check
was available for her withdrawal, she being the payee.
On January 31, 2003, without the knowledge of Spouses Bakunawa, RCBC reported
the "P 1,019,514.29-credit existing in favor of Rosmil to the Bureau of Treasury as
among its "unclaimed balances" as of January 31, 2003. On December 14, 2006, the
Republic, through the Office of the Solicitor General (OSG), filed with the RTC the
action for Escheat.
On April 30, 2008, Spouses Bakunawa settled amicably their dispute with Millan.
Spouses Bakunawa tried to recover the P1,019,514.29 under Managers Check but they
were informed that the amount was already subject of the escheat proceedings before
the RTC.
The trial court ordered the deposit of the escheated balances with the Treasurer and
credited in favor of the Republic. Respondents claim that they were not able to
participate in the trial, as they were not informed of the ongoing escheat proceedings.
Later motion for reconsideration was denied.
CA reversed the RTC ruling. CA pronounced that RTC Clerk of Court failed to issue
individual notices directed to all persons claiming interest in the unclaimed balances. CA
held that the Decision and Order of the RTC were void for want of jurisdiction.
Issue:
Whether or not the allocated funds may be escheated in favor of the Republic
Held:
There are sufficient grounds to affirm the CA on the exclusion of the funds allocated for
the payment of the Managers Check in the escheat proceedings.
An ordinary check refers to a bill of exchange drawn by a depositor (drawer) on a bank
(drawee), requesting the latter to pay a person named therein (payee) or to the order of
the payee or to the bearer, a named sum of money. The issuance of the check does not
of itself operate as an assignment of any part of the funds in the bank to the credit of the
drawer. Here, the bank becomes liable only after it accepts or certifies the check. After
the check is accepted for payment, the bank would then debit the amount to be paid to
the holder of the check from the account of the depositor-drawer.
There are checks of a special type called managers or cashiers checks. These are bills
of exchange drawn by the banks manager or cashier, in the name of the bank, against
the bank itself. Typically, a managers or a cashiers check is procured from the bank by
allocating a particular amount of funds to be debited from the depositors account or by
directly paying or depositing to the bank the value of the check to be drawn. Since the
bank issues the check in its name, with itself as the drawee, the check is deemed
accepted in advance. Ordinarily, the check becomes the primary obligation of the
issuing bank and constitutes its written promise to pay upon demand.
Nevertheless, the mere issuance of a managers check does not ipso facto work as an
automatic transfer of funds to the account of the payee. In case the procurer of the
managers or cashiers check retains custody of the instrument, does not tender it to the
intended payee, or fails to make an effective delivery, we find the following provision on
undelivered instruments under the Negotiable Instruments Law applicable:
Sec. 16. Delivery; when effectual; when presumed. Every contract on a negotiable
instrument is incomplete and revocable until delivery of the instrument for the purpose
of giving effect thereto. As between immediate parties and as regards a remote party
other than a holder in due course, the delivery, in order to be effectual, must be made
either by or under the authority of the party making, drawing, accepting, or indorsing, as
the case may be; and, in such case, the delivery may be shown to have been
conditional, or for a special purpose only, and not for the purpose of transferring the
property in the instrument. But where the instrument is in the hands of a holder in due
course, a valid delivery thereof by all parties prior to him so as to make them liable to
him is conclusively presumed. And where the instrument is no longer in the possession
of a party whose signature appears thereon, a valid and intentional delivery by him is
presumed until the contrary is proved.
Petitioner acknowledges that the Managers Check was procured by respondents, and
that the amount to be paid for the check would be sourced from the deposit account of
Hi-Tri. When Rosmil did not accept the Managers Check offered by respondents, the
latter retained custody of the instrument instead of cancelling it. As the Managers
Check neither went to the hands of Rosmil nor was it further negotiated to other
persons, the instrument remained undelivered. Petitioner does not dispute the fact that
respondents retained custody of the instrument.
Since there was no delivery, presentment of the check to the bank for payment did not
occur. An order to debit the account of respondents was never made. In fact, petitioner
confirms that the Managers Check was never negotiated or presented for payment to
its Ermita Branch, and that the allocated fund is still held by the bank. As a result, the
assigned fund is deemed to remain part of the account of Hi-Tri, which procured the
Managers Check. The doctrine that the deposit represented by a managers check
automatically passes to the payee is inapplicable, because the instrument although
accepted in advance remains undelivered. Hence, respondents should have been
informed that the deposit had been left inactive for more than 10 years, and that it may
be subjected to escheat proceedings if left unclaimed.
SECOND DIVISION
PHILIPPINE DEPOSIT
INSURANCE CORPORATION
(PDIC),
Petitioner,
- versus -
PHILIPPINE COUNTRYSIDE
RURAL BANK, INC., RURAL
BANK OF CARMEN (CEBU),
INC., BANK OF EAST
ASIA(MINGLANILLA, CEBU),
INC.,
and PILIPINO RURAL BANK
(CEBU), INC.,
Respondents.
Promulgated:
January 24, 2011
x ----------------------------------------------------------------------------------------x
DECISION
MENDOZA, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court
filed by the Philippine Deposit Insurance Corporation (PDIC) assailing the
September 18, 2006 Decision of the Court of Appeals-Cebu (CA-Cebu), which
granted the petition for injunction filed by respondents Philippine Countryside
Rural Bank, Inc. (PCRBI), Rural Bank of Carmen (Cebu), Inc. (RBCI), Bank of
East Asia (Minglanilla, Cebu), Inc. (BEAI), and Pilipino Rural Bank (Cebu),
Inc. (PRBI), all collectively referred to as Banks. The dispositive portion of the
CA-Cebu decision reads:
WHEREFORE, in view of all the foregoing premises, the
petition for injunction is hereby GRANTED. The respondent
PDIC is restrained from further conducting investigations or
examination on petitioners-banks without the requisite approval
from the Monetary Board.
SO ORDERED.[1]
On May 25, 2005, the PDIC Board adopted another resolution, Resolution
No. 2005-05-056,[4] approving the conduct of an investigation on PCRBI based on
a Complaint-Affidavit filed by a corporate depositor, the Philippine School of
Entrepreneurship and Management (PSEMI) through its president, Jacinto L.
Jamero.
On June 3, 2005, in accordance with the two PDIC Board resolutions, then
PDIC President and Chief Executive Officer Ricardo M. Tan issued the Notice of
Investigation[5] to the President or The Highest Ranking Officer of PCRBI.
On June 7, 2005, the PDIC Investigation Team personally served the Notice
of Investigation on PCRBI at its Head Office in Pajo, Lapu-Lapu City.[6]
According to PDIC, in the course of its investigation, PCRBI was found to
have granted loans to certain individuals, which were settled by way of dacion of
properties. These properties, however, had already been previously foreclosed and
consolidated under the names of PRBI, BEAI and RBCI.[7]
On June 15, 2005, PDIC issued similar notices of investigation to
PRBI and BEAI.[9]
[8]
2005.
the loan documents they had requested, until its president received an order
directing him not to allow the investigation.[14]
Subsequently, PRBI and BEAI refused entry to their bank premises and
access to their records and documents by the PDIC Investigation Team, upon
advice of their respective counsels.[15]
On June 16 and 17, 2005, Atty. Victoria G. Noel (Atty. Noel) of the
Tiongson & Antenor Cruz Law Office sent letters to the PDIC[16] informing it of
her legal advice to PCRBI and BEAI not to submit to PDIC investigation on the
ground that its investigatory power pursuant to Section 9(b-1) of R.A. No. 3591, as
amended(An Act Establishing The Philippine Deposit Insurance Corporation,
Defining Its Powers And Duties And For Other Purposes), cannot be differentiated
from the examination powers accorded to PDIC under Section 8, paragraph 8 of
the same law, under which, prior approval from the Monetary Board is required.
On June 17, 2005, PDIC General Counsel Romeo M. Mendoza sent a reply
to Atty. Noel stating that PDICs investigation power, as distinguished from the
examination power of the PDIC under Section 8 of the same law, does not need
prior approval of the Monetary Board.[17] PDIC then urged PRBI and BEAI not
to impede the conduct of PDICs investigation as the same constitutes a violation
of the PDIC Charter for which PRBI and BEAI may be held criminally and/or
administratively liable.[18]
On June 27 and 28, 2005, the Banks, through counsel, sought further
clarification from PDIC on its source of authority to conduct the impending
investigations and requested that PDIC refrain from proceeding with the
investigations.[19]
Thereafter, on March 14, 2006, the Banks filed their Petition for Injunction
with Prayer for Preliminary Injunction[35] (CA-Cebu Petition) with the CACebu(CA-Cebu).
On March 15, 2006, the CA-Cebu issued a resolution granting the Banks
application for a TRO. This enjoined the PDIC, its representatives or agents or any
other persons or agency assisting them or acting for and in their behalf from
On September 18, 2006, after both parties had submitted their respective
memoranda, the CA-Cebu rendered a decision granting the writ of preliminary
injuction,[40] pertinent portions of which read:
enjoin the defendant through a final injunction issued by the court and contained in
the judgment.[48]
Clearly, there is a marked difference between the reliefs sought under an
action for declaratory relief and an action for injunction. While an action for
declaratory relief seeks a declaration of rights or duties, or the determination of any
question or validity arising under a statute, executive order or regulation,
ordinance, or any other governmental regulation, or under a deed, will, contract or
other written instrument, under which his rights are affected, and before breach or
violation, an action for injunction ultimately seeks to enjoin or to compel a party to
perform certain acts.
Moreover, as stated in the RTC-Makati Decision, because the Banks had
already breached the provisions of law on which declaratory judgment was being
sought, it was without jurisdiction to take cognizance of the same. Any judgment
rendered in the RTC-Makati petition would not amount to res judicata in the CAManila Petition. Thus, the RTC was correct in dismissing the case, having been
bereft of jurisdiction to take cognizance of the action for declaratory judgment.
As between the CA-Manila and the CA-Cebu petitions, the second and third
elements of litis pendentia are absent. The rights asserted and reliefs prayed for
were different, although founded on the same set of facts.
The CA-Manila Petition is a petition for injunction wherein the Banks
prayed that:
1) Immediately upon filing of this Petition, a Writ of
Preliminary Injunction and/or Temporary Restraining Order be
issued commanding the respondent and all its officers, employees
and agents to cease and desist from proceeding with the
investigations sought to be conducted on the petitioners head and
branch officeswhile the Petition for Declaratory Relief before
Branch 58 of the Makati Regional Trial Court is pending.
As can be gleaned from the above-cited portions of the CA-Manila and CACebu petitions, the petitions seek different reliefs.
Therefore, as between and among the RTC Makati, and the CA-Manila and
CA-Cebu petitions, there is no forum shopping.
III - Whether petitioner was deprived of its
opportunity to be heard when the Court of
Appeals-Cebu
injunction.
issued the
writ
of
PDIC alleges that the CA-Cebu, in issuing the TRO in its March 15, 2006
Resolution, and subsequently, the preliminary injunction in its May 16, 2006
Resolution, violated the fundamental rule that courts should avoid issuing
injunctive relief which would in effect dispose of the main case without
trial.[51] PDIC argues that a TRO is intended only as a restraint until the propriety
of granting a temporary injunction can be determined, and it goes no further than
to preserve the status until that determination.[52] Moreover, its purpose is
merely to suspend proceedings until such time when there may be an opportunity
to inquire whether any injunction should be granted, and it is not intended to
operate as an injunction pendente lite, and should not, in effect, determine the
issues involved before the parties can have their day in court, or give an advantage
to either party by proceeding in the acquisition or alteration of the property the
right to which is disputed while the hands of the other party are tied.[53]
On the other hand, the Banks claim that PDIC was given every opportunity
to present its arguments against the issuance of the injunction.[54] Its active
participation in the proceedings negates its assertion that it was denied procedural
due process in the issuance of the writ of injunction.[55] Citing Salonga v. Court of
Appeals,[56] the Banks state that the essence of due process is the reasonable
opportunity to be heard and to submit evidence one may have in support of ones
defense,[57] and PDIC was able to do so.
On March 15, 2006, the CA-Cebu issued a resolution granting their prayer
for a 60-day TRO, and requiring PDIC to file its comment.[58] The
latter thereafter filed its Comment ad Cautelam dated March
30,
[59]
2006. [Underscoring ours]
On May 16, 2006, the CA-Cebu issued another resolution, this time granting
the prayer for a preliminary injunction and requiring the parties to file their
respective memoranda. PDIC thereafter filed its memorandum dated July 31,
2006.[60]
On September 18, 2006, the CA-Cebu promulgated its Decision granting the
Petition for Injunction.[61] PDIC filed a motion for reconsideration dated October
10, 2006,[62] which was subsequently denied.
It argues that when it commenced its investigation on the Banks, all of the
aforementioned requirements were met. PDIC stresses that its power of
examination is different from its power of investigation, in such that the former
requires prior approval of the Monetary Board while the latter requires merely the
approval of the PDIC Board.[66] It further claims that the power of examination
cannot be exercised within twelve (12) months from the last examination
conducted, whereas the power of investigation is without limitation as to the
frequency of its conduct. It states that the purpose of the PDICs power of
examination is merely to look into the condition of the bank, whereas the power of
investigation aims to address fraud, irregularities and anomalies based on
complaints from depositors and other government agencies or upon reports of
examinations conducted by the PDIC itself or by the BSP.[67]
The Banks, on the other hand, are of the opinion that a holistic reading of the
PDIC charter shows that petitioners power of examination is synonymous with its
power
of
investigation.[68] They
cite,
as
bases,
the
law
The Banks further cite Section X658 of the Manual of Regulations for
Banks, which states:
Sec. X658
Examination by the BSP. The term
examination shall, henceforth, refer to an investigation of an
institution under the supervisory authority of the BSP to
determine compliance with laws and regulations. It shall include
determination that the institution is conducting its business on a
safe and sound basis. Examination requires full and
comprehensive looking into the operations and books of
institutions, and shall include, but need not be limited to the
following:
a. Determination of the banks solvency and
liquidity position;
b. Evaluation of asset quality as well as
determination of sufficiency of valuation reserves on
loans and other risk assets;
c. Review of all aspects of bank operations;
d. Assessment of risk management system,
including the evaluation of the effectiveness of the
bank managements oversight functions, policies,
procedures, internal control and audit;
e. Appraisal of overall management of the bank;
distinct procedures under the charter of the PDIC and the BSP, the words seem to
be used loosely and interchangeably.
It does not help that indeed these terms are very closely related in a generic
sense. However, while examination connotes a mere generic perusal or
inspection, investigation refers to a more intensive scrutiny for a more specific
fact-finding purpose. The latter term is also usually associated with proceedings
conducted prior to criminal prosecution.
The PDIC was created by R.A. No. 3591 on June 22, 1963 as an insurer of
deposits in all banks entitled to the benefits of insurance under the PDIC Charter to
promote and safeguard the interests of the depositing public by way of providing
permanent and continuing insurance coverage of all insured deposits. It is a
government instrumentality that operates under the Department of Finance. Its
primary purpose is to act as deposit insurer, as a co-regulator of banks, and as
receiver and liquidator of closed banks.[71]
Section 1 of the PDIC Charter states:
SECTION 1. There is hereby created a Philippine Deposit
Insurance Corporation hereinafter referred to as the
Corporation which shall insure, as herein provided, the deposits
of all banks which are entitled to the benefits of insurance under
this Act, and which shall have the powers hereinafter granted.
The Corporation shall, as a basic policy, promote and
safeguard the interests of the depositing public by way of
providing permanent and continuing insurance coverage on all
insured deposits.
Section 9(b-1) of the PDIC Charter further provides that the PDIC Board
shall have the power to:
POWERS AND RESPONSIBILITIES AND PROHIBITIONS
SECTION 9. xxx
(b) The Board of Directors shall appoint examiners who
shall have power, on behalf of the Corporation to examine any
insured bank. Each such examiner shall have the power to make a
thorough examination of all the affairs of the bank and in doing
so, he shall have the power to administer oaths, to examine and
take and preserve the testimony of any of the officers and agents
thereof, and, to compel the presentation of books, documents,
papers, or records necessary in his judgment to ascertain the facts
relative to the condition of the bank; and shall make a full and
detailed report of the condition of the bank to the
Corporation. The Board of Directors in like manner shall appoint
claim agents who shall have the power to investigate and examine
all claims for insured deposits and transferred deposits. Each
claim agent shall have the power to administer oaths and to
examine under oath and take and preserve testimony of any
person relating to such claim. (As amended by E.O. 890, 08 April
1983; R.A. 7400, 13 April 1992)
(b-1) The investigators appointed by the Board of Directors
shall have the power on behalf of the Corporation to conduct
investigations on frauds, irregularities and anomalies committed
in banks, based on reports of examination conducted by the
Corporation and Bangko Sentral ng Pilipinas or complaints from
depositors or from other government agency. Each such
investigator shall have the power to administer oaths, and to
examine and take and preserve the testimony of any
person relating to the subject of investigation. (As added by R.A.
9302, 12 August 2004)
xxx. [Underscoring supplied]
Section 3 of RI No. 2009-05 provides for the general scope of the PDIC
examination:
Section 3. Scope of Examination
The examination shall include, but need not be limited to,
the following:
Rule 2, Section 1 of PDIC RI No. 2005-02 or the PDIC Rules on FactFinding Investigation of Fraud, Irregularities and Anomalies Committed in
Banksprovides for the scope of fact-finding investigations as follows:
SECTION 1. Scope of the Investigation.
Fact-finding Investigations shall be limited to the particular
acts or omissions subject of a complaint or a Final Report of
Examination.
HELD: No. A branch has no separate legal personality. This Court is of the opinion that the key
to the resolution of this controversy is the relationship of the Philippine branches of Citibank
and BA to their respective head offices and their other foreign branches.
The Court begins by examining the manner by which a foreign corporation can establish
its presence in the Philippines. It may choose to incorporate its own subsidiary as a domestic
corporation, in which case such subsidiary would have its own separate and independent legal
personality to conduct business in the country. In the alternative, it may create a branch in
the Philippines, which would not be a legally independent unit, and simply obtain a license to
do business in the Philippines.
In the case of Citibank and BA, it is apparent that they both did not incorporate a
separate domestic corporation to represent its business interests in the Philippines. Their
Philippine branches are, as the name implies, merely branches, without a separate legal
personality from their parent company, Citibank and BA. Thus, being one and the same entity,
the funds placed by the respondents in their respective branches in the Philippines should not
be treated as deposits made by third parties subject to deposit insurance under the PDIC
Charter. The purpose of the PDIC is to protect the depositing public in the event of a bank
closure. It has already been sufficiently established by US jurisprudence and Philippine statutes
that the head office shall answer for the liabilities of its branch. Now, suppose the Philippine
branch of Citibank suddenly closes for some reason. Citibank N.A. would then be required to
answer for the deposit liabilities of Citibank Philippines. If the Court were to adopt the posture
of PDIC that the head office and the branch are two separate entities and that the funds placed
by the head office and its foreign branches with the Philippine branch are considered deposits
within the meaning of the PDIC Charter, it would result to the incongruous situation where
Citibank, as the head office, would be placed in the ridiculous position of having to reimburse
itself, as depositor, for the losses it may incur occasioned by the closure of Citibank
Philippines. Surely our law makers could not have envisioned such a preposterous
circumstance when they created PDIC.
Finally, the Court agrees with the CA ruling that there is nothing in the definition of a
bank and a banking institution in Section 3(b) of the PDIC Charter [27] which explicitly states
that the head office of a foreign bank and its other branches are separate and distinct from
their Philippine branches.
There is no need to complicate the matter when it can be solved by simple logic
bolstered by law and jurisprudence. Based on the foregoing, it is clear that the head office of a
bank and its branches are considered as one under the eyes of the law. While branches are
treated as separate business units for commercial and financial reporting purposes, in the end,
the head office remains responsible and answerable for the liabilities of its branches which are
under its supervision and control. As such, it is unreasonable for PDIC to require the
respondents, Citibank and BA, to insure the money placements made by their home office and
other branches. Deposit insurance is superfluous and entirely unnecessary when, as in this
case, the institution holding the funds and the one which made the placements are one and the
same legal entity.
Meanwhile, on June 15, 1984, the Monetary Board of the Central Bank issued
Resolution No. 788 (Exh. 2, Records, p. 159) suspending the operations of the
RSB. Eventually, the records of RSB were secured and its deposit liabilities were
eventually determined. On December 7, 1984, the Monetary Board issued Resolution
No. 1496 (Exh. 1) liquidating the RSB. Subsequently, a masterlist or inventory of
the RSB assets and liabilities was prepared. However, the certificates of time deposit
of plaintiffs-appellees were not included in the list on the ground that the certificates
were not funded by the PFC or duly recorded as liabilities of RSB.
On September 4, 1984, plaintiffs-appellees filed with the PDIC their respective claims
for the amount of the certificates (Exhs. C, C-1, to C-12). Sabina Yu, James
Ngkaion, Elaine Ngkaion and Jeffrey Ngkaion, who have similar claims on their
certificates of time deposit with the RSB, likewise filed their claims with the PDIC.
To their dismay, PDIC refused the aforesaid claims on the ground that the Traders
Royal Bank Check No. 299255 dated September 22, 1983 for the amount
of P125,846.07 (Exh. B) issued by PFC for the aforementioned certificates was
returned by the drawee bank for having been drawn against insufficient funds; and
said check was not replaced by the PFC, resulting in the cancellation of the
certificates as indebtedness or liabilities of RSB.
[1]
THE CA ERRED WHEN IT HELD THAT BECAUSE THE CTDS STATE THAT
THESE WERE INSURED, PETITIONER SHOULD BE HELD LIABLE FOR THE
SAME.
We deal jointly with petitioners first and third assigned errors.
Relying on this Courts ruling in Caltex (Philippines), Inc. v. Court of
Appeals and Security Bank and Trust Company, the Court of Appeals
concluded that the subject CTDs are negotiable. Petitioner, on the other
hand, contends that the CTDs are non-negotiable since they do not contain an
unconditional promise or order to pay a sum in money are they made payable
to order or bearer, as required by Section 1 of the Negotiable Instruments
Law.
[2]
[4]
x x x the court should hold the certificates to be guaranteed because they are
negotiable instruments, and were acquired by the present holders in due course;
otherwise it is said certificates of deposit will be deprived of the quality of
commercial paper. Certificates of deposit have been regarded as the highest form of
collateral. They are of wide currency in the banking and business worlds, and are
particularly useful to persons of small means, because they bear interest, and may be
readily cashed; therefore to deprive them of the benefit of the guaranty fund would be
a calamity. x x x
In this contention we think the appellants fail to distinguish between the liability of
the maker of a negotiable instrument, which rests upon the law pertaining to
negotiable paper, and the liability of the guaranty fund, which is purely statutory. The
circumstances under which the guaranty fund may be liable are entirely apart from the
law pertaining to negotiable paper. A holder of a certificate of deposit in a bank who
seeks to hold the guaranty fund liable for its payment must show that the transaction
leading up to the issuance of the certificate was such that the law holds the guaranty
fund liable for its payment. x x x
The Farmers State Bank ruling was reiterated by the Nebraska Supreme
Court in State v. Home State Bank of Dunning and in State v. Kilgore State
Bank. The same ruling was adopted by the Supreme Court of South Dakota
in Mildenstein v. Hirning.
[8]
[9]
[10]
In the case at bar, the Court of Appeals initially found the subject CTDs to
be negotiable. Subsequently, however, respondent court deemed the issue
immaterial, albeit for entirely different reasons.
x x x Besides, whether the certificates are negotiable or not is of no moment. The
fact remains that the certificates categorically state that their bearer [sic] have a
deposit in the RSB; that the same will mature on November 3, 1993; and that the
certificates are insured by PDIC.
[11]
Equally unimpressive is the contention of PDIC and RSB that the certificates were
issued to PFC which did not acquire the same for value because the check issued by
the latter for the certificates bounced for insufficiency of funds. First,
granting arguendo that the certificates were originally issued in favor of PFC, such
issuance could only give rise to the presumption that the amount stated in the
certificates have been deposited to RSB. Had not PFC deposited the amount stated
therein, then RSB would have surely refused to issue the certificates certifying to such
fact. Second, why did not RSB demand that PFC pay the certificates or file a claim
against PFC on the ground that the latter failed to pay for the value of the
certificates? It could very well be that the reason why RSB did not run after PFC for
payment of the value of the certificates was because the instruments were issued to the
latter by RSB for value or were already paid to RSB by plaintiffs-appellees. Third, if
it is true at the time RSB issued the certificates to PFC, the instruments were paid for
with checks still to be encashed, then why did not RSB specifically state in the
certificates that the validity thereof hinges on the encashment of said check? Fourth,
even if it is true that PFC did not deposit with or pay the RSB the amount stated in the
certificates, the latter is not be such reason freed from civil liability to plaintiffsappellees. For, by issuing the certificates, RSB bound itself to pay the amount stated
therein to whoever is the bearer upon its presentment for encashment. Truly, there is
no reason to depart from the established principle that were a bank issues a certificate
of deposit acknowledging a deposit made with a third person or an officer of the bank,
or with another bank representing it to be the certificate of the bank, upon which
assurance the depositor accepts it, the bank is liable for the amount of the deposit
(Michis, Banks and Banking, Vol. 5A, pp. 48-49, as cited in the Decision on p. 3
thereof).
[14]
[16]
[17]
[18]
These pieces of evidence convincingly show that the subject CTDs were
indeed issued without RSB receiving any money therefor. No deposit, as
defined in Section 3 (f) of R.A. No. 3591, therefore came into
existence. Accordingly, petitioner PDIC cannot be held liable for value of the
certificates of time deposit held by private respondents.
ACCORDINGLY, the instant petition is hereby GRANTED and the
decision of the Court of Appeals REVERSED. Petitioner is absolved from any
liability to private respondents.
SO ORDERED
declaratory relief that prescribes the filing of a counterclaim based on the same transaction,
deed or contract subject of the complaint. A special civil action is after all not essentially
different from an ordinary civil action, which is generally governed by Rules 1 to 56 of the Rules
of Court, except that the former deals with a special subject matter which makes necessary
some special regulation. But the identity between their fundamental nature is such that the
same rules governing ordinary civil suits may and do apply to special civil actions if not
inconsistent with or if they may serve to supplement the provisions of the peculiar rules
governing special laws.
Held: 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 offial; namely when: (1) upon written permission of the depositor; (2) in cases of impeachment;
(3) the examination of bank accounts is upon order of a competent court in cases of bribery or dereliction of duty of
public officials; and (4) the money deposited or invested is the subject matter of the litigation. Section 8 of R.A. Act
No. 3019, the Anti-Graft and Corrupt Practices Act, has been recognized by this Court as constituting an additional
exception to the rule of absolute confidentiality, and there have been other similar recognitions as well.
The AMLA also provides exceptions to the Bank Secrecy Act. Under Section 11, the AMLC may inquire into a
bank account upon order of any competent court in cases of violation of the AMLA, it having been established that
there is probable cause that the deposits or investments are related to unlawful activities as defined in Section 3(i) of
the law, or a money laundering offense under Section 4 thereof. Further, in instances where there is probable cause
that the deposits or investments are related to kidnapping for ransom, [certain violations of the Comprehensive
Dangerous Drugs Act of 2002,hijacking and other violations under R.A. No. 6235, destructive arson and murder,
then there is no need for the AMLC to obtain a court order before it could inquire into such accounts. It cannot be
successfully argued the proceedings relating to the bank inquiry order under Section 11 of the AMLA is a litigation
encompassed in one of the exceptions to the Bank Secrecy Act which is when money deposited or invested is the
subject matter of the litigation. The orientation of the bank inquiry order is simply to serve as a provisional relief or
remedy. As earlier stated, the application for such does not entail a full-blown trial. Nevertheless, just because the
AMLA establishes additional exceptions to the Bank Secrecy Act it does not mean that the later law has dispensed
with the general principle established in the older law that all deposits of whatever nature with banks or banking
institutions in the Philippines x x x are hereby considered as of an absolutely confidential nature. Indeed, by force of
statute, all bank deposits are absolutely confidential, and that nature is unaltered even by the legislated exceptions
referred to above.