Central Bank of the Philippines vs Judge Morfe

GR L-38427
March 12, 1975
Facts:
The Monetary Board found the Fidelity Savings Bank to be insolvent. The Board involved to seek
the assistance and supervision of Court of First Instance of Manila in the liquidation of the bank.
Prior to the institution of the liquidation proceeding but after the declaration of insolvency, the
spouses Elizes filed a complaint in the Court of First Instance of Manila against the Fidelity
Savings Bank for the recovery of the sum of P50, 584 as the balance of their time deposits. In the
judgment rendered in that case the Fidelity Savings Bank was ordered to pay the Elizes spouses
the sum of P50,584 plus accumulated interest. In another case, assigned to Branch XXX of the
Court of First Instance of Manila, the spouses Padilla secured a judgment against the Fidelity
Savings Bank for the sums of P80,000 plus interest and damages.
In its orders, the liquidation court, upon motions of the Elizes and Padilla spouses and
over the opposition of the Central Bank, directed the latter as liquidator, to pay their time
deposits as preferred judgments, evidenced by final judgments, within the meaning of
article 2244(14)(b) of the Civil Code.
From the said order, the Central Bank appealed to this Court by certiorari. It contends
that the final judgments secured by the Elizes and Padilla spouses do not enjoy any
preference because (a) they were rendered after the Fidelity Savings Bank was declared
insolvent and (b) under the charter of the Central Bank and the General Banking Law, no
final judgment can be validly obtained against an insolvent bank.
The liquidation court noted that there is no provision in the charter of the Central Bank in
the General Banking Law which suspends or abates civil actions against an insolvent
bank pending in courts other than the liquidation court. It reasoned out that, because such
actions are not suspended, judgments against insolvent banks could be considered as
preferred credits under article 2244(14)(b) of the Civil Code. It further noted that, in
contrast with the Central Act, section 18 of the Insolvency Law provides that upon the
issuance by the court of an order declaring a person insolvent "all civil proceedings
against the said insolvent shall be stayed.
Issue: WON the final judgments secured by the Elizes and Padilla spouses were
preferred credits.
Ruling: No, it should be noted that fixed, savings, and current deposits of money in banks
and similar institutions are not true deposits. They are considered simple loans and, as
such, are not preferred credits.
Section 29 of the Central Bank's charter explicitly provides that when a bank is found to
be insolvent, the Monetary Board shall forbid it to do business and shall take charge of
its assets. The Board in its Resolution banned the Fidelity Savings Bank from doing
business. It took charge of the bank's assets. Evidently, one purpose in prohibiting the
insolvent bank from doing business is to prevent some depositors from having an undue
or fraudulent preference over other creditors and depositors.
That purpose would be nullified if, as in this case, after the bank is declared insolvent,
suits by some depositors could be maintained and judgments would be rendered for the
payment of their deposits and then such judgments would be considered preferred credits
under article 2244 (14) (b) of the Civil Code. The court held that such judgments cannot
be considered preferred and that article 2244(14)(b) does not apply to judgments for the
payment of the deposits in an insolvent savings bank which were obtained after the
declaration of insolvency.
To recognize such judgments as entitled to priority would mean that depositors in
insolvent banks, after learning that the bank is insolvent as shown by the fact that it can
no longer pay withdrawals or that it has closed its doors or has been enjoined by the
Monetary Board from doing business, would rush to the courts to secure judgments for
the payment of their deposits. In such an eventuality, the courts would be swamped with
suits of that character. Depositors armed with such judgments would pester the liquidation
court with claims for preference. Less alert depositors would be prejudiced. That
inequitable situation could not have been contemplated by the framers of section 29.
In this case, the judicial declaration that the said deposits were payable to the depositors,
as indisputably they were due, could not have given the Elizes and Padilla spouses a
priority over the other depositors whose deposits were likewise indisputably due and
owing from the insolvent bank but who did not want to incur litigation expenses in securing
a judgment for the payment of the deposits.
The circumstance that the Fidelity Savings Bank, having stopped operations was
forbidden to do business implies that suits for the payment of such deposits were
prohibited. What was directly prohibited should not be encompassed indirectly.
Philippine National Bank vs Spouses Cheah Chee Chong and Ofelia Cheah
GR No. 170865
April 25, 2012
Facts:
On November 4, 1992, Ofelia Cheah and her friend Adelina Guarin were having a
conversation when Adelina’s friend, Filipina Tuazon approached her to ask if she could
have Filipina’s check cleared and encashed for a service fee of 2.5%. The check is Bank
of America Check No. 190 against Bank of America Alhambra Branch in California, USA,
with a face amount of $300,000.00, payable to cash. Because Adelina does not have a
dollar account in which to deposit the check, she asked Ofelia if she could accommodate
Filipina’s request since she has a joint dollar savings account with her Malaysian husband
Cheah Chee Chong with PNB Buendia Branch. Ofelia agreed.
That same day, Ofelia and Adelina went to PNB Buendia Branch. They met PNB Division
Chief Alberto Garin. Garin discussed with them the process of clearing the subject check
and they were told that it normally takes 15 days. Ofelia then deposited Filipina’s check.
PNB then sent it for clearing through its correspondent bank, Philadelphia National Bank.
Five days later, PNB received a credit advice from Philadelphia National Bank that the
proceeds of the subject check had been temporarily credited to PNB’s account.
Thereafter, Garin called up Ofelia to inform her that the check had already been cleared.
The following day, PNB Buendia Branch, 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, Ofelia that day personally withdrew amount. Filipina
received all the proceeds.
However, it turned out that the Bank of America Check No. 190 bounced for insufficient
funds. Informed about the bounced check and upon demand by PNB Buendia Branch to
return the money withdrawn, Ofelia immediately contacted Filipina to get the money back.
But the latter told her that all the money had already been given to several people who
asked for the check’s encashment.
Subsequently, PNB sent a demand letter to spouses Cheah for the return of the amount
of the check, froze their peso and dollar and filed a complaint against them for Sum of
Money. As their main defense, the spouses Cheah claimed that the proximate cause of
PNB’s injury was its own negligence of paying a US dollar denominated check without
waiting for the 15-day clearing period, in violation of its bank practice as mandated by its
own bank circular.
Issue: WON the spouses Cheah is liable to PNB
Ruling: Yes, the spouses Cheah are guilty of contributory negligence and are bound to
share the loss with the bank. Here, Ofelia failed to observe caution in giving her full trust
in accommodating a complete stranger and this led her and her husband to be swindled.
Considering that Filipina was not personally known to her and the amount of the foreign
check to be encashed was $300,000.00, a higher degree of care is expected of Ofelia
which she, however, failed to exercise under the circumstances. Another circumstance
which should have goaded Ofelia to be more circumspect in her dealings was when a
bank officer called her up to inform that the Bank of America check has already been
cleared way earlier than the 15-day clearing period.
However, 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. Here, while PNB highlights
Ofelia’s fault in accommodating a stranger’s check and depositing it to the bank, it remains
mum in its release of the proceeds thereof without exhausting the 15-day clearing period,
an act which contravened established banking rules and practice. It is worthy of notice
that the 15-day clearing period alluded to is construed as 15 banking days. As declared
by Josephine Estella, the Administrative Service Officer who was the bank’s Remittance
Examiner, what was unusual in the processing of the check was that the "lapse of 15
banking days was not observed.
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. It bears stressing that "the diligence required of banks is more than that of a
Roman pater familias or a good father of a family." 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. "With regard to collection or
encashment of checks, suffice it to say that the law imposes on the collecting bank the
duty to scrutinize 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.
Wong vs CA
GR No. 117857
February 02, 2001
Facts:
Petitioner Wong was an agent of Limtong Press. Inc. (LPI), a manufacturer of calendars.
Petitioner, however, had a history of unremitted collections. Hence, petitioner’s
customers were required to issue postdated checks before LPI would accept their
purchase orders. In early December 1985, Wong issued six (6) postdated checks totaling
P18,025.00, all dated December 30, 1985 and drawn payable to the order of LPI.
These checks were initially intended to guarantee the calendar orders of customers who
failed to issue post-dated checks. However, following company policy, LPI refused to
accept the checks as guarantees. Instead, the parties agreed to apply the checks to the
payment of petitioner’s unremitted collections for 1984 amounting to P18,077.07.3 LPI
waived the P52.07 difference. Before the maturity of the checks, petitioner prevailed upon
LPI not to deposit the checks and promised to replace them within 30 days. However,
petitioner reneged on his promise. Hence, LPI deposited the checks with RCBC. The
checks were returned for the reason "account closed."
Thereafter, petitioner was charged with three (3) counts of violation of B.P. Blg. 22 under
three separate Informations for the three checks. The trial found the accused guilty of the
offense of Violations of Batas Pambansa Bilang 22. The CA affirmed the trial court’s
decision. Hence, this appeal. Petitioner insists that the checks were issued as guarantees
for the 1985 purchase orders (PO’s) of his customers. He contends that private
respondent is not a "holder for value" considering that the checks were deposited by
private respondent after the customers already paid their orders. Instead of depositing
the checks, private respondent should have returned the checks to him.
Issue: WON petitioner is guilty of violation of BP 22.
Ruling: Yes, the elements of B.P. Blg. 22 under the first situation, pertinent to the present
case, are:(1) The making, drawing and issuance of any check to apply for account or for
value; (2) The knowledge of the maker, drawer, or issuer that at the time of issue he does
not have sufficient funds in or credit with the drawee bank for the payment of such check
in full upon its presentment; and (3) The subsequent dishonor of the check by the drawee
bank for insufficiency of funds or credit or dishonor for the same reason had not the
drawer, without any valid cause, ordered the bank to stop payment."

Petitioner contends that the first element does not exist because the checks were not
issued to apply for account or for value. This flawed argument has no factual basis, for
what B.P. Blg. 22 punishes is the issuance of a bouncing check and not the purpose for
which it was issued nor the terms and conditions relating to its issuance.
As to the second element, petitioner avers that since the complainant deposited the
checks 157 days after the maturity date, the presumption of knowledge of lack of funds
under Section 2 of B.P. Blg. 22 should not apply to him. He further claims that he should
not be expected to keep his bank account active and funded beyond the ninety-day
period. An essential element of the offense is "knowledge" on the part of the maker or
drawer of the check of the insufficiency since this involves a state of mind difficult to
establish, the statute itself creates a prima facie presumption of such knowledge where
payment of the check "is refused by the drawee because of insufficient funds in or credit
with such bank when presented within ninety (90) days from the date of the check." To
mitigate the harshness of the law in its application, the statute provides that such
presumption shall not arise if within five (5) banking days from receipt of the notice of
dishonor, the maker or drawer makes arrangements for payment of the check by the bank
or pays the holder the amount of the check.
The clear import of the law is to establish a prima facie presumption of knowledge of such
insufficiency of funds under the following conditions (1) presentment within 90 days from
date of the check, and (2) the dishonor of the check and failure of the maker to make
arrangements for payment in full within 5 banking days after notice thereof. That the check
must be deposited within ninety (90) days is simply one of the conditions for the prima
facie presumption of knowledge of lack of funds to arise. It is not an element of the
offense. Private respondent herein deposited the checks 157 days after the date of the
check. Only the presumption of knowledge of insufficiency of funds was lost, but such
knowledge could still be proven by direct or circumstantial evidence. As found by the trial
court, After the checks were dishonored, petitioner was duly notified of such fact but failed
to make arrangements for full payment within five (5) banking days thereof. There is, on
record, sufficient evidence that petitioner had knowledge of the insufficiency of his funds
in or credit with the drawee bank at the time of issuance of the checks.
Sycip Jr. vs CA
GR No. 125059
March 17, 2000
Facts:
Francisco T. Sycip agreed to buy, on installment, from Francel Realty Corporation (FRC),
a townhouse unit. Upon execution of the contract to sell, Sycip, as required, issued to
FRC, forty-eight (48) postdated checks. After moving in his unit, Sycip complained to FRC
regarding defects in the unit. Dissatisfied, Sycip served on FRC two (2) notarial notices
to the effect that he was suspending his installment payments on the unit pending
compliance with the project plans and specifications, as approved by the Housing and
Land Use Regulatory Board (HLURB). Notwithstanding the notarial notices, FRC
continued to present for encashment Sycip's postdated checks in its possession. Sycip
sent "stop payment orders" to the bank. When FRC continued to present the other
postdated checks to the bank as the due date fell, the bank advised Sycip to close his
checking account to avoid paying bank charges every time he made a "stop payment"
order on the forthcoming checks. Due to the closure of petitioner's checking account, the
drawee bank dishonored six postdated checks. FRC filed a complaint against petitioner
for violations of B.P. Blg. 22 involving said dishonored checks. The trial court and the CA
found that the accused violated BP Blg. 22.
Petitioner argues that the court a quo erred when it affirmed his conviction for violation of
B.P. Blg. 22, considering that he had cause to stop payment of the checks issued to
respondent. Petitioner insists that under P.D. No. 957, the buyer of a townhouse unit has
the right to suspend his amortization payments, should the subdivision or condominium
developer fail to develop or complete the project in accordance with duly-approved plans
and specifications. Given the findings of the HLURB that certain aspects of private
complainant's townhouse project were incomplete and undeveloped, the exercise of his
right to suspend payments should not render him liable under B.P. Blg. 22.
Issue: WON the accused violated BP Blg. 22.
Ruling: No, Under the provisions of the Bouncing Checks Law (B.P. No. 22), an offense
is committed when the following elements are present: (1) the making, drawing and
issuance of any check to apply for account or for value;(2) the knowledge of the maker,
drawer, or issuer that at the time of issue he does not have sufficient funds in or credit
with the drawee bank for the payment of such check in full upon its presentment; and (3)
the subsequent dishonor of the check by the drawee bank for insufficiency of funds or
credit or dishonor for the same reason had not the drawer, without any valid cause,
ordered the bank to stop payment.
In this case, the court find that although the first element of the offense exists, the other
elements have not been established beyond reasonable doubt. The second element
involves knowledge on the part of the issuer at the time of the check's issuance that he
did not have enough funds or credit in the bank for payment thereof upon its presentment.
B.P. No. 22 creates a presumption that the second element prima facie exists when the
first and third elements of the offense are present. But such presumption cannot hold if
there is evidence to the contrary. In this case, we find that the other party has presented
evidence to contradict said presumption. Hence, the prosecution is duty bound to prove
every element of the offense charged, and not merely rely on a rebuttable presumption.
The checks in this case were issued at the time of the signing of the Contract to Sell in
August 1989. But we find from the records no showing that the time said checks were
issued, petitioner had knowledge that his deposit or credit in the bank would be insufficient
to cover them when presented for encashment. On the contrary, there is testimony by
petitioner that at the time of presentation of the checks, he had P150,000,00 cash or credit
with Citibank. As the evidence for the defense showed, the closure of petitioner's Account
No. 845515 with Citibank was not for insufficiency of funds. It was made upon the advice
of the drawee bank, to avoid payment of hefty bank charges each time petitioner issued
a "stop payment" order to prevent encashment of postdated checks in private
respondent's possession. Said evidence contradicts the prima facie presumption of
knowledge of insufficiency of funds.
While B.P. Blg. 22 was enacted to safeguard the interest of the banking system, it is
difficult to see how conviction of the accused in this case will protect the sanctity of the
financial system. Moreover, protection must also be afforded the interest of townhouse
buyers under P.D. No. 957. A statute must be construed in relation to other laws so as
to carry out the legitimate ends and purposes intended by the legislature.
Given the findings of the HLURB as to incomplete features in the construction of
petitioner's and other units of the subject condominium bought on installment from FRC,
we are of the view that petitioner had a valid cause to order his bank to stop payment. To
say the least, the third element of "subsequent dishonor of the check. . . without valid
cause" appears to us not established by the prosecution. As already stated, the
prosecution tried to establish the crime on a prima facie presumption in B.P. Blg. 22. Here
that presumption is unavailing, in the presence of a valid cause to stop payment, thereby
negating the third element of the crime.
Republic vs CA
GR No. 95533
November 20, 2000
Facts:
A complaint for escheat was filed by petitioner, Republic of the Philippines, with the
Regional Trial Court of Davao City against several banks which had branches within the
jurisdiction of the said court.
The complaint alleged that pursuant to Act No. 3936 as amended by P.D. 679, the
respective managers of the defendant banks submitted to the Treasurer of the Republic
of the Philippines separate statements prepared under oath which listed all deposits and
credits held by them in favor of depositors or creditors either known to be dead, have not
been heard from, or have not made depositors or withdrawals for ten years or more.
The complaint prayed that after due notice to the defendant banks, and after hearing,
judgment be rendered declaring that the deposits, credits and unpaid balances in
question be escheated to petitioner.
Thereafter, the trial court ordered to publish a notice in the Mindanao Forum Standard
once a week for two consecutive weeks, containing the summons, notice to the public,
the amended petition incorporated in the summons and the list of unclaimed balances.
However, petitioner submitted a manifestation to the lower court praying that the
publication of the list of the unclaimed balances be dispensed with. Petitioner posited that
under Section 3, Act No. 3936, only the following are required to be published: (1)
summons to respondent banks; and (2) notice to all persons other than those named
defendants therein. Petitioner submitted that to require it to publish the names and list of
unclaimed balances would only result in additional and unnecessary expense to the
government.
The trial court dismissed without prejudice the case for plaintiff’s failure to agree to the
required publication and shoulder the costs thereof.
Issue: WON the publication of the names and list of unclaimed balances is required.
Ruling: Yes, the publication of the list of unclaimed balances is intended to safeguard the
right of the depositors, their heirs and successors to due process. This was made clear
by the lower court in its assailed Order, to wit:
Moreover, how would other persons who may have an interest in any of the unclaimed
balances know what this case is all about and whether they have an interest in this case
if the amended complaint and list of unclaimed balances are not published? Such other
persons may be heirs of the bank depositors named in the list of unclaimed balances.
The fact that the government is in a tight financial situation is not a justification for this
Court to dispense with the elementary rule of due process.
As declared by the trial court, the dismissal of the petition for escheat is without prejudice.
In other words, the State can refile the said petition, notwithstanding the lapse of time.
Prescription of action does not run against the government.