Hermosa Savings and Loan Bank v. Development Bank of the Philippines, G.R. No. 222972

 

According to the Court, Section 3029 of RA 7653 "is curative in character when it declared that the liquidation court shall have jurisdiction in the same proceedings to assist in the adjudication of the disputed claims against the Bank." The Court explained that the rationale for consolidating all claims against the bank with the liquidation court is "to prevent multiplicity of actions against the insolvent bank and x x x 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 Court stated that it was the intention, of the lawmaking body "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."

To allow the complaint of DBP to proceed outside the Liquidation Court could result to iniquity not only to Hermosa Bank's depositors who were the most directly affected by its closure, but also to its other creditors because it would prioritize DBP's claim over their claims. The CA also committed a reversible error in ruling that the Liquidation Court has no jurisdiction over the bank employees who are being sued in their personal capacities. Section 30 of RA 7653 gives the liquidation court the authority to "adjudicate disputed claims against the institution, assist the enforcement of individual liabilities of the stockholders, directors and officers, and decide on other issues as may be material to implement the liquidation plan adopted." Hence, the Liquidation Court may resolve the respective liabilities, if any, of Hermosa Bank's officers pursuant to Section 30 of RA 7653. Finally, the Writ of Preliminary Attachment issued by the RTC Branch 136 is a provisional or ancillary remedy resorted to by a litigant to protect and preserve certain rights and interests pending final judgment. With the dismissal of DBP's complaint, the Writ of Preliminary Attachment no longer has a leg to stand on and should correctly be dissolved.

 

 

 

 

 

Yuseco v. PDIC, as statutory liquidator of Unitrust Bank, G.R. No. 217890

 

According to Section 30 of the NCBA, the determination of the propriety of receivership or liquidation proceedings is under the exclusive prerogative of the Monetary Board. The RTC, acting as liquidation court, has no power to overrule the findings of the MB. As a liquidation court, the power of the RTC is limited to adjudicating claims against the institution, assisting the enforcement of individual liabilities of stockholders and deciding on essential issues relevant to the liquidation plan. In the case at bar, the RTC, acting as liquidation court, did not have jurisdiction to decide on the propriety and validity of the proceedings. The trial court failed to consider Sec. 30 of the NCBA when it decided on the validity of the proceeding. Hence, the RTC committed grave abuse of discretion when it ordered the PDIC to cease and desist in the liquidation proceeding.

Apex Bancrights Holdings, Inc. et. al. v. Bangko Sentral ng Pilipinas, G.R. No. 214866, 2 October 2017

 

The Monetary Board may summarily and without need for prior hearing forbid the institution from doing business in the Philippines and designate the Philippine Deposit Insurance Corporation as receiver of the banking institution. The receiver shall immediately gather and take charge of all the assets and liabilities of the institution, administer the same for the benefit of its creditors, and exercise the general powers of a receiver under the Revised Rules of Court. If the receiver determines that the institution cannot be rehabilitated or permitted to resume business in accordance with the next preceding paragraph, the Monetary Board shall notify in writing the board of directors of its findings and direct the receiver to proceed with the liquidation of the institution.

Cu v. Small Business Guarantee and Finance Corporation, G.R. No. 211222

 

To digress, when a bank is ordered closed by the Monetary Board; PDIC is designated as the receiver which shall then proceed with the takeover and liquidation of the closed bank. The placement of a bank under liquidation has the following effect on interest payments: "The liability of a bank to pay interest on deposits and all other obligations as of closure shall cease upon its closure by the Monetary Board without prejudice to the first paragraph of Section 85 of Republic Act No. 7653 (the New Central Bank Act)," and on final decisions against the closed bank: "The execution and enforcement of a final decision of a court other than the liquidation court against the assets of a closed bank shall be stayed. The prevailing party shall file the final decision as a claim with the liquidation court and settled in accordance with the Rules on Concurrence and Preference of Credits under the Civil Code or other laws."

 

The petition for assistance in the liquidation of a closed bank is a special proceeding for the liquidation of a closed bank, and includes the declaration of the concomitant rights of its creditors and the order of payment of their valid claims in the disposition of assets. It is a proceeding in rem and the liquidation court has exclusive jurisdiction to adjudicate disputed claims against the closed bank, assist in the enforcement of individual liabilities of the stockholders, directors and officers, and decide on all other issues as may be material to implement the distribution plan adopted by PDIC for general application to all closed banks. The provisions of the Securities Regulation Code or RA 8799, and Supreme Court Administrative Matter No. 00-8-10-SC or the Rules of Procedure on Corporate Rehabilitation are not applicable to the petition for assistance in the liquidation of closed banks.

In Re : Petition for Assistance in the Liquidation in the Rural Bank of Bokod Benguet v. Bureau of Internal Revenue, G.R. No. 158261, 18 December 2006

 

Section 30 of the New Central Bank Act lays down the proceedings for receivership and liquidation of a bank. The said provision is silent as regards the securing of a tax clearance from the BIR. The omission, nonetheless, cannot compel this Court to apply by analogy the tax clearance requirement of the SEC, as stated in Section 52(C) of the Tax Code of 1997 and BIR-SEC Regulations No. 1, since, again, the dissolution of a corporation by the SEC is a totally different proceeding from the receivership and liquidation of a bank by the BSP. This Court cannot simply replace any reference by Section 52(C) of the Tax Code of 1997 and the provisions of the BIR-SEC Regulations No. 1 to the "SEC" with the "BSP." To do so would be to read into the law and the regulations something that is simply not there, and would be tantamount to judicial legislation.

It should be noted that there are substantial differences in the procedure for involuntary dissolution and liquidation of a corporation under the Corporation Code, and that of a banking corporation under the New Central Bank Act, so that the requirements in one cannot simply be imposed in the other.

Miranda v. Philippine Deposit Insurance Corporation, G.R. No. 169334, 08 September 2006

 

It is well-settled in both law and jurisprudence that the Central Monetary Authority, 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 a probable loss to its depositors or creditors, forbid bank or non-bank financial institution to do business in the Philippines; and shall designate an official of the BSP or other competent person as receiver to immediately take charge of its assets and liabilities.

In Central Bank of the Philippines v. De la Cruz, we held 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.

Rural Bank of Sta. Catalina Inc. v. Land Bank of the Philippines, G.R. No. 148019, 26 July 2004

 

It bears stressing that a defending party declared in default loses his standing in court and his right to adduce evidence and to present his defense. He, however, has the right to appeal from the judgment by default and assail said judgment on the ground, inter alia, that the amount of the judgment is excessive or is different in kind from that prayed for, or that the plaintiff failed to prove the material allegations of his complaint, or that the decision is contrary to law. Such party declared in default is proscribed from seeking a modification or reversal of the assailed decision on the basis of the evidence submitted by him in the Court of Appeals, for if it were otherwise, he would thereby be allowed to regain his right to adduce evidence, a right which he lost in the trial court when he was declared in default, and which he failed to have vacated. In this case, the petitioner sought the modification of the decision of the trial court based on the evidence submitted by it only in the Court of Appeals.

Manalo v. Court of Appeals, G.R. No. 141297, 08 October 2001

 

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. 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. 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. In addition, a bank which had been ordered closed by the monetary board retains its juridical personality which can sue and be sued through its liquidator. The only limitation being that the prosecution or defense of the action must be done through the liquidator. Otherwise, no suit for or against an insolvent entity would prosper. In such situation, banks in liquidation would lose what justly belongs to them through a mere technicality.

Banco Filipino Savings and Mortgage Bank v. Bangko Sentral ng Pilipinas, G.R. No. 200642

 

When a bank is ordered closed and placed under the receivership of PDIC by the Monetary Board, PDIC is mandated to proceed with the takeover and liquidation of the closed bank. It shall immediately gather and take charge of all the assets and liabilities of the bank, administer the same for the benefit of its creditors, and exercise the general powers of a receiver under the Revised Rules of Court. In its capacity as the receiver of the closed bank, the PDIC is authorized to perform several functions in its behalf, including bringing suits to enforce liabilities to or recoveries of the closed banks, hiring or retaining private counsels as may be necessary, and exercising such other powers as are inherent and necessary for the effective discharge of the duties of the corporation as a receiver. The powers and functions of the directors, officers, and stockholders of a closed bank under receivership are deemed suspended upon takeover by the PDIC.

Banco Filipino Savings and Mortgage Bank v. Bangko Sentral ng Pilipinas, G.R. No. 200678, 04 June 2018

 

    A closed bank under receivership can only sue or be sued through its receiver, the Philippine Deposit Insurance Corporation (PDIC). Under R.A. 7653, when the Monetary Board finds a. bank insolvent it may “summarily and without need for prior hearing forbid the institution from doing business in the Philippines and designate PDIC as receiver of the banking institution. The relationship between a closed bank, in this case, Banco Filipino, and the PDIC is fiduciary in nature. Section 30 of R.A. 7653 directs the receiver of a closed bank to “immediately gather and take charge of all the assets and liabilities of the institution.”

Considering that the receiver has the power to take charge of ALL the assets of the closed bank and to institute for or defend any action against it, only the receiver, in its fiduciary capacity, may sue and be sued on behalf of the closed bank. When the petitioner was placed under receivership, the power of its Board of Directors and its officers were suspended. Thus, its Board of Directors could not have validly authorized its Executive Vice Presidents to file the suit on its behalf. Considering that the petition was filed by signatories who were not validly authorized to do so, the petition does not produce any legal effect. Being unauthorized to do so, the Supreme Court never validly acquired jurisdiction over the case. The petition, therefore, must be dismissed.

So v. Philippine Deposit Insurance Corporation, G.R. No. 230020, 19 March 2018

 

There is no controversy as to the proper remedy to question the PDIC's denial of petitioner's deposit insurance claim. Section 4(f) of its Charter, as amended, clearly provides that:

x x x

The actions of the Corporation taken under this section shall be final and executory, and may not be restrained or set aside by the court, except on appropriate petition for certiorari on the ground that the action was taken in excess of jurisdiction or with such grave abuse of discretion as to amount to a lack or excess of jurisdiction. The petition for certiorari may only be filed within thirty (30) days from notice of denial of claim for deposit insurance.

Spouses Chugani v. Philippine Deposit Insurance Corporation, G.R. No. 230037, 19 March 2018

 

Section 4(f) of R.A. No. 3591, as amended by R.A. No. 9576 states that deposit means the unpaid balance of money or its equivalent received by a bank in the usual course of business and for which it has given or is obliged to give credit to a commercial, checking, savings, time or thrift account, or issued in accordance with Bangko Sentral rules and regulations and other applicable laws, together with such other obligations of a bank, which, consistent with banking usage and practices.

Section 2(d) of PDIC Regulatory Issuance No. 2011-0221 states that for deposit to be considered as legitimate, it should be 1) received by a bank as a deposit in the usual course of business; 2) recorded in the books of the bank as such; 3) opened in accordance with established forms and requirements of the BSP and/or the PDIC.

Further, in Phil. Deposit Insurance Corp. v. CA, this Court held that in order for the claim for deposit insurance with the PDIC may prosper, it is necessary that the corresponding deposit must be placed in the insured bank.

Vivas, v. Monetary Board of the Central Bank of the Philippines, G.R. No. 191424, 07 August 2013

 

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

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.

Abacus Real Estate Development Center, Inc. v. Manila Banking Corporation, G.R. No. 162270, 06 April 2005

 

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

Sec. 29. Proceedings upon insolvency. – Whenever, upon examination by the head of the appropriate supervising and examining department 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 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 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, but not limited to, bringing suits and foreclosing mortgages in the name of the banking institution.

Clearly, the receiver appointed by the Central Bank to take charge of the properties of Manila Bank only had authority to administer the same for the benefit of its creditors. Granting or approving an "exclusive option to purchase" is not an act of administration, but an act of strict ownership, involving, as it does, the disposition of property of the bank. Not being an act of administration, the so-called "approval" by Atty. Renan Santos amounts to no approval at all, a bank receiver not being authorized to do so on his own.

Spouses Lipana v. Development Bank of Rizal, G.R. No. L- 73884, 24 September 1987

 

In the instant case, the stay of the execution of judgment is warranted by the fact that respondent bank was placed under receivership. To execute the judgment would unduly deplete the assets of respondent bank to the obvious prejudice of other depositors and creditors, since, as aptly stated in Central Bank of the Philippines vs. Morfe (63 SCRA 114), after the Monetary Board has declared that a bank is insolvent and has ordered it to cease operations, the Board becomes the trustee of its assets for the equal benefit of all the creditors, including depositors. The assets of the insolvent banking institution are held in trust for the equal benefit of all creditors, and after its insolvency, one cannot obtain an advantage or a preference over another by an attachment, execution or otherwise.

Central Bank of the Philippines v. Court of Appeals, G.R. No. L-45710, 03 October 1985

 The Monetary Board Resolution No. 1049 issued on August 13, 1965 cannot interrupt the default of Island Savings Bank in complying with its obligation of releasing the P63,000.00 balance because said resolution merely prohibited the Bank from making new loans and investments, and nowhere did it prohibit Island Savings Bank from releasing the balance of loan agreements previously contracted. Further, the Court emphasized that the mere fact of insolvency of a debtor is never an excuse for the non- fulfillment of an obligation but instead it is taken as a breach of the contract by him

Spouses Poon v. Prime Savings Bank, G.R. No. 183794, 13 June 2016

 

The closure of the bank was not independent of its will. The period during which the bank cannot do business due to insolvency is not a fortuitous event since there the government’s action through the BSP to place the bank under receivership or liquidation proceedings is tainted with arbitrariness or has acted without authority. As the lease was long-term, it was not lost on the parties that such an eventuality might occur, as it was in fact covered by the terms of their Contract.

In this case, it is neither fair nor reasonable to deprive depositors and creditors of what could be their last chance to recoup whatever bank assets or receivables the PDIC can still legally recover. Nothing has prevented petitioners from putting their building to other profitable uses, since respondent surrendered the premises immediately after the closure of its business.

Bangko Sentral ng Pilipinas Monetary Board v. Antonio-Valenzuela, G.R. No. 184778, 02 October 2009

 

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.

Rural Bank of San Miguel Inc. v. Monetary Board, Central Bank of the Philippines, G.R. No. 150886, 16 February 2007

     There is no question that under Section 29 of the Central Bank Act, the following are the mandatory requirements to be complied with before a bank found to be insolvent is ordered closed and forbidden to do business in the Philippines: Firstly, an examination shall be conducted by the head of the appropriate supervising or examining department or his examiners or agents into the condition of the bank; secondly, it shall be disclosed in the examination that the condition of the bank is one of insolvency, or that its continuance in business would involve probable loss to its depositors or creditors; thirdly, the department head concerned shall inform the Monetary Board in writing, of the facts; and lastly, the Monetary Board shall find the statements of the department head to be true.

Laying down the requisites for the closure of a bank under the law is the prerogative of the legislature and what its wisdom dictates. The lawmakers could have easily retained the word "examination" (and in the process also preserved the jurisprudence attached to it) but they did not and instead opted to use the word "report." The insistence on an examination is not sanctioned by RA 7653 and we would be guilty of judicial legislation were we to make it a requirement when such is not supported by the language of the law.

Central Bank of the Philippines v. Court of Appeals, G.R. No. 88353, 92943, 08 May 1992, (208 SCRA 652)

 

The following requisites, therefore, must be present before the order of conservatorship may be set aside by a court:

1. The appropriate pleading must be filed by the stockholders of record representing the majority of the capital stock of the bank in the proper court;

2. Said pleading must be filed within ten (10) days from receipt of notice by said majority stockholders of the order placing the bank under conservatorship; and

3. There must be convincing proof, after hearing, that the action is plainly arbitrary and made in bad faith

Banco Filipino Savings and Mortgage Bank v. Monetary Board, Central Bank of the Philippines, G.R. Nos. 70054, 68878, 77255-58, 11 December 1991, (204 SCRA 767)

 

Section 29 of the Republic Act No. 265, as amended known as the Central Bank Act, provides that when a bank is forbidden to do business in the Philippines and placed under receivership, the person designated as receiver shall immediately take charge of the bank's assets and liabilities, as expeditiously as possible, collect and gather all the assets and administer the same for the benefit of its creditors, and represent the bank personally or through counsel as he may retain in all actions or proceedings for or against the institution, exercising all the powers necessary for these purposes including, but not limited to, bringing and foreclosing mortgages in the name of the bank. If the Monetary Board shall later determine and confirm that banking institution is insolvent or cannot resume business safety to depositors, creditors and the general public, it shall, public interest requires, order its liquidation and appoint a liquidator who shall take over and continue the functions of receiver previously appointed by Monetary Board. The liquid for may, in the name of the bank and with the assistance counsel as he may retain, institute such actions as may necessary in the appropriate court to collect and recover a counts and assets of such institution or defend any action ft against the institution.

Spouses Lipana v. Development Bank of Rizal, G.R. No. L- 73884, 24 September 1987, (154 SCRA 257)

 

In the instant case, the stay of the execution of judgment is warranted by the fact that respondent bank was placed under receivership. To execute the judgment would unduly deplete the assets of respondent bank to the obvious prejudice of other depositors and creditors, since, as aptly stated in Central Bank of the Philippines vs. Morfe (63 SCRA 114), after the Monetary Board has declared that a bank is insolvent and has ordered it to cease operations, the Board becomes the trustee of its assets for the equal benefit of all the creditors, including depositors. The assets of the insolvent banking institution are held in trust for the equal benefit of all creditors, and after its insolvency, one cannot obtain an advantage or a preference over another by an attachment, execution or otherwise.

First Philippine International Bank v. Court of Appeals, G.R. No. 115849, 24 January 1996, (252 SCRA 259)

 

Obviously, therefore, Section 28-A merely gives the conservator power to revoke contracts that are, under existing law, deemed to be defective — i.e., void, voidable, unenforceable or rescissible. Hence, the conservator merely takes the place of a bank's board of directors. What the said board cannot do — such as repudiating a contract validly entered into under the doctrine of implied authority — the conservator cannot do either. Ineluctably, his power is not unilateral and he cannot simply repudiate valid obligations of the Bank. His authority would be only to bring court actions to assail such contracts — as he has already done so in the instant case. A contrary understanding of the law would simply not be permitted by the Constitution. Neither by common sense. To rule otherwise would be to enable a failing bank to become solvent, at the expense of third parties, by simply getting the conservator to unilaterally revoke all previous dealings which had one way or another or come to be considered unfavorable to the Bank, yielding nothing to perfected contractual rights nor vested interests of the third parties who had dealt with the Bank.

Central Bank of the Philippines v. Court of Appeals, G.R. No. 88353, 08 May 1992, (208 SCRA 652)

 

    Pursuant to Section 28-A of the Central Bank Act, a conservator, once appointed, takes over the management of the bank and assumes exclusive powers to oversee every aspect of the bank's operations and affairs. However, it must be stressed that a bank retains its juridical personality even if placed under conservatorship; it is neither replaced nor substituted by the conservator. Hence, the approval of the CB is not necessary where the action was instituted by the bank through the majority of the bank's stockholders.

The following requisites, therefore, must be present before the order of conservatorship may be set aside by a court:

1. The appropriate pleading must be filed by the stockholders of record representing the majority of the capital stock of the bank in the proper court;

2. Said pleading must be filed within ten (10) days from receipt of notice by said majority stockholders of the order placing the bank under conservatorship; and

3. There must be convincing proof, after hearing, that the action is plainly arbitrary and made in bad faith

Central Bank of the Philippines v. Court of Appeals, G.R. No. L-45710, 03 October 1985

 

The power of the Monetary Board to take over insolvent banks for the protection of the public is recognized by Section 29 of R.A. No. 265, which took effect on June 15, 1948, the validity of which is not in question.

The Board Resolution No. 1049 issued on August 13,1965 cannot interrupt the default of Island Savings Bank in complying with its obligation of releasing the P63,000.00 balance because said resolution merely prohibited the Bank from making new loans and investments, and nowhere did it prohibit island Savings Bank from releasing the balance of loan agreements previously contracted. Besides, the mere pecuniary inability to fulfill an engagement does not discharge the obligation of the contract, nor does it constitute any defense to a decree of specific performance. And, the mere fact of insolvency of a debtor is never an excuse for the non-fulfillment of an obligation but 'instead it is taken as a breach of the contract by him.

Federal Express Corporation v. Antonino, G.R. No. 199455, 27 June 2018, (868 SCRA 450)

 

Money is "what is generally acceptable in exchange for goods." It can take many forms, most commonly as coins and banknotes. Despite its myriad forms, its key element is its general acceptability. Laws usually define what can be considered as a generally acceptable medium of exchange.

Bangko Sentral ng Pilipinas Monetary Board v. Antonio-Valenzuela, G.R. No. 184778, 02 October 2009, (602 SCRA 698)

 

Under Republic Act No. 7653, or the New Central Bank Act, the BSP Governor is authorized to represent the Bangko Sentral, either personally or through counsel, including private counsel, as may be authorized by the Monetary Board, in any legal proceedings, action or specialized legal studies. Under the same law, the BSP Governor may also delegate his power to represent the BSP to other officers upon his own responsibility.

Bangko Sentral ng Pilipinas v. Banco Filipino Savings and Mortgage Bank, G.R. Nos. 178696, 192607, 30 July 2018

 

Verily, nothing changed with the enactment of Republic Act No. 7653. BSP, the independent central monetary authority established by the law, is still given sufficient independence and latitude to carry out its mandate. Sections to of Republic Act No. 7653 bear this out, viz.:

SECTION 1. Declaration of Policy. - The State shall maintain a central monetary authority that shall function and operate 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 government-owned corporation, shall enjoy fiscal and administrative autonomy.

Koruga v. Arcenas, Jr., G.R. No. 168332, 169053, 19 June 2009, (590 SCRA 49)

 It is clear that the acts complained of pertain to the conduct of Banco Filipino's banking business. A bank, as defined in the General Banking Law, refers to an entity engaged in the lending of funds obtained in the form of deposits. 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. It is the Government's responsibility to see to it that the financial interests of those who deal with banks and banking institutions, as depositors or otherwise, are protected. In this country, that task is delegated to the BSP, which pursuant to its Charter, is authorized to administer the monetary, banking, and credit system of the Philippines. It 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.

 

The law vests in the BSP the supervision over operations and activities of banks.

Perez v. Monetary Board, G.R. No. L-23307, 30 June 1967, (20 SCRA 592)

 

We rule that petitioners cannot seek by mandamus to compel respondents to prosecute criminally those alleged violators of the banking laws. Although the Central Bank and its respondent officials may have the duty under the Central Bank Act and the General Banking Act to cause the prosecution of those alleged violators, yet We find nothing in said laws that imposes a clear, specific duty on the former to do the actual prosecution of the latter. The Central Bank is a government corporation created principally to administer the monetary and banking system of the Republic, not a prosecution agency like the fiscal's office. Being an artificial person, The Central Bank is limited to its statutory powers and the nearest power to which prosecution of violators of banking laws may be attributed is its power to sue and be sued. But this corporate power of litigation evidently refers to civil cases only.

Republic v. Sandiganbayan, G.R. Nos. 166859, 169203, 180702, 12 April 2011 (648 SCRA 47)

 

A bank officer violates the DOSRI2 law when he acquires bank funds for his personal benefit, even if such acquisition was facilitated by a fraudulent loan application. Directors, officers, stockholders, and their related interests cannot be allowed to interpose the fraudulent nature of the loan as a defense to escape culpability for their circumvention of Section 83 of Republic Act (RA) No. 337.

Republic v. Sandiganbayan, G.R. Nos. 166859, 169203, 180702, 12 April 2011 (648 SCRA 47)

No violation of the DOSRI and Single Borrower’s Limit restrictions

The Republic’s lack of proof on the source of the funds by which Cojuangco, et al. had acquired their block of SMC shares has made it shift its position, that it now suggests that Cojuangco had been enabled to obtain the loans by the issuance of LOI 926 exempting the UCPB from the DOSRI and the Single Borrower’s Limit restrictions.

We reject the Republic’s suggestion.

Firstly, as earlier pointed out, the Republic adduced no evidence on the significant particulars of the supposed loan, like the amount, the actual borrower, the approving official, etc. It did not also establish whether or not the loans were DOSRI126 or issued in violation of the Single Borrower’s Limit. Secondly, the Republic could not outrightly assume that President Marcos had issued LOI 926 for the purpose of allowing the loans by the UCPB in favor of Cojuangco. There must be competent evidence to that effect. And, finally, the loans, assuming that they were of a DOSRI nature or without the benefit of the required approvals or in excess of the Single Borrower’s Limit, would not be void for that reason. Instead, the bank or the officers responsible for the approval and grant of the DOSRI loan would be subject only to sanctions under the law.

Soriano v. People, G.R. No. 162336, 01 February 2010 (611 SCRA 191)

 A bank officer violates the DOSRI2 law when he acquires bank funds for his personal benefit, even if such acquisition was facilitated by a fraudulent loan application. Directors, officers, stockholders, and their related interests cannot be allowed to interpose the fraudulent nature of the loan as a defense to escape culpability for their circumvention of Section 83 of Republic Act (RA) No. 337.

Go v. BSP G.R. No. 178429, October 23, 2009

 

Under Section 83, RA 337, the following elements must be present to constitute a violation of its first paragraph:

1. the offender is a director or officer of any banking institution;

2. the offender, either directly or indirectly, for himself or as representative or agent of another, performs any of the following acts:

a. he borrows any of the deposits or funds of such bank; or

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;

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.

A simple reading of the above elements easily rejects Go’s contention that the law penalizes a bank director or officer only either for borrowing the bank’s deposits or funds or for guarantying loans by the bank, but not for acting in both capacities. The essence of the crime is becoming an obligor of the bank without securing the necessary written approval of the majority of the bank’s directors.

The second element merely lists down the various modes of committing the offense. The third mode, by declaring that "[no director or officer of any banking institution shall xxx] in any manner be an obligor for money borrowed from the bank or loaned by it," in fact serves a catch-all phrase that covers any situation when a director or officer of the bank becomes its obligor. The prohibition is directed against a bank director or officer who becomes in any manner an obligor for money borrowed from or loaned by the bank without the written approval of the majority of the bank’s board of directors. To make a distinction between the act of borrowing and guarantying is therefore unnecessary because in either situation, the director or officer concerned becomes an obligor of the bank against whom the obligation is juridically demandable.

The language of the law is broad enough to encompass either act of borrowing or guaranteeing, or both. While the first paragraph of Section 83 is penal in nature, and by principle should be strictly construed in favor of the accused, the Court is unwilling to adopt a liberal construction that would defeat the legislature’s intent in enacting the statute. The objective of the law should allow for a reasonable flexibility in its construction. Section 83 of RA 337, as well as other banking laws adopting the same prohibition, was enacted to ensure that loans by banks and similar financial institutions to their own directors, officers, and stockholders are above board.

 Banks were not created for the benefit of their directors and officers; they cannot use the assets of the bank for their own benefit, except as may be permitted by law. Congress has thus deemed it essential to impose restrictions on borrowings by bank directors and officers in order to protect the public, especially the depositors. Hence, when the law prohibits directors and officers of banking institutions from becoming in any manner an obligor of the bank (unless with the approval of the board), the terms of the prohibition shall be the standards to be applied to directors’ transactions such as those involved in the present case.

Sally Go-Bangayan v. Spouses Leoncio and Judy Cham Ho, G.R. No 203020, June 28, 2021

 

As for petitioner's claim of stipulated interest of three percent (3%) per month, we are constrained to deny the same. Article 1956 ordains that No interest shall be due unless it has been expressly stipulated in writing. Thus, in the absence of any written proof of the supposed stipulation, petitioner's claim of interest has no factual basis.

At any rate, even if proved, the Court would have just struck it down for being unconscionable. Instead, we impose the legal interest rates in accordance with pertinent jurisprudence. Consequently, legal interest of twelve percent (12%) per annum is imposed pursuant to Eastern Shipping Lines, Inc. v. Court of Appeals from extrajudicial demand on September 21, 2001 until June 30, 2013. Thereafter, the legal interest rate is reduced to six percent (6%) per annum from July 1, 2013 until finality of this decision pursuant to Nacar v. Gallery Frames.

Rey v. Anson, G.R. No. 211206, 07 November 2018

 

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.

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

 

The agreement between the parties on the imposition of increasing interest rates on the loan is commonly known as the escalation clause. Generally, the escalation clause refers to the stipulation allowing increases in the interest rates agreed upon by the contracting parties. 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.

Yet, the escalation clause that "grants the creditor an unbridled right to adjust the interest independently and upwardly, completely depriving the debtor of the right to assent to an important modification in the agreement" is void. Such escalation clause violates the principle of mutuality of contracts and should be annulled. To prevent or forestall any one-sidedness that the escalation clause may cause in favor of the creditor, therefore, Presidential Decree No. 1684

Accordingly, the Court has ruled in Banco Filipino Savings and Mortgage Bank v. Judge Navarro that there should be a corresponding de­ escalation clause that authorizes a reduction in the interest rates corresponding to downward changes made by law or by the Monetary Board. Verily, the escalation clause, to be valid, should specifically provide: (1) that there can be an increase in interest rates if allowed by law or by the Monetary Board; and (2) that there must be a stipulation for the reduction of the stipulated interest rates in the event that the applicable maximum rates of interest are reduced by law or by the Monetary Board. The latter stipulation ensures the mutuality of contracts, and is known as the de-escalation clause.

Advocates for Truth in Lending Inc. v. Bangko Sentral ng Pilipinas, Monetary Board, G.R. No. 192986, 15 January 2013, (688 SCRA 530)

 

It is settled that nothing in CB Circular No. 905 grants lenders a carte blanche authority to raise interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of their assets. As held in Castro v. Tan:

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.

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.

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. Thus, 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.

Macalinao v. Bank of the Philippine Islands, G.R. No. 175490, 17 September 2009, (600 SCRA 67)

 

The stipulated interest rates of 7% and 5% per month imposed on respondents’ loans must be equitably reduced to 1% per month or 12% per annum. We need not unsettle the principle we had affirmed in a plethora of cases that stipulated interest rates of 3% per month and higher are excessive, iniquitous, unconscionable and exorbitant. Such stipulations are void for being contrary to morals, if not against the law. While C.B. Circular No. 905-82, which took effect on January 1, 1983, effectively removed the ceiling on interest rates for both secured and unsecured loans, regardless of maturity, nothing in the said circular could possibly be read as granting carte blanche authority to lenders to raise interest rates to levels which would either enslave their borrowers or lead to a hemorrhaging of their assets.               

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.

The same is true with respect to the penalty charge. Notably, under the Terms and Conditions Governing the Issuance and Use of the BPI Credit Card, it was also stated therein that respondent BPI shall impose an additional penalty charge of 3% per month. Pertinently, Article 1229 of the Civil Code states:

Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable.

In exercising this power to determine what is iniquitous and unconscionable, courts must consider the circumstances of each case since what may be iniquitous and unconscionable in one may be totally just and equitable in another

Fidelity Savings and Mortgage Bank v. Cenzon, G.R. No. 46208, 05 April 1990, (184 SCRA 141)

 

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 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.

Suan v. Gonzales, A.C. No. 6377, 12 March 2007, (518 SCRA 82)

 

The filing of the intra-corporate case before the RTC does not amount to forum- shopping. It is a formal demand of respondent’s legal rights in a court of justice in the manner prescribed by the court or by the law with respect to the controversy involved. The relief sought in the case is primarily to compel the bank to disclose its stockholdings, to allow them the inspection of corporate books and records, and the payment of damages. It was also prayed that a TRO be issued to enjoin the holding of the annual stockholder’s meeting and the election of the members of the Board, which, only courts of justice can issue.

On the other hand, the complaint filed with the Bangko Sentral ng Pilipinas was an invocation of the BSP’s supervisory powers over banking operations which does not amount to a judicial proceeding. It brought to the attention of the BSP the alleged questionable actions of the bank’s Board of Directors in violation of the principles of good corporate governance. It prayed for the conduct of an investigation over the alleged unsafe and unsound business practices of the bank and to make necessary corrective measures to prevent the collapse of the bank.

Consolidated Bank and Trust Corporation v. Court of Appeals, G.R. No. 138569, 11 September 2003, (410 SCRA 562)

 

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 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 savings deposit agreement between the bank and the depositor is the contract that determines the rights and obligations of the parties.

The fiduciary nature of banking does not convert a simple loan into a trust agreement because banks do not accept deposits to enrich depositors but to earn money for themselves. The law allows banks to offer the lowest possible interest rate to depositors while charging the highest possible interest rate on their own borrowers. The interest spread or differential belongs to the bank and not to the depositors who are not cestui que trust of banks. If depositors are cestui que trust of banks, then the interest spread or income belongs to the depositors, a situation that Congress certainly did not intend in enacting Section 2 of RA 8791.

White Marketing Development Corporation v. Grandwood Furniture & Woodwork, Inc. G.R. No. 222407, 23 November 2016 (810 SCRA 409)

 

The mortgage between Grandwood and Metrobank, as the original mortgagee, was subject to the provisions of Section 47 of R.A. No. 8791. Section 47 provides that when a property of a juridical person is sold pursuant to an extrajudicial foreclosure, it "shall have the right to redeem the property in accordance with this provision until, but not after, the registration of the Certificate of foreclosure sale with the applicable Register of Deeds which in no case shall be more than three (3) months after foreclosure, whichever is earlier

Measured by the foregoing parameters, the Court finds that Grandwood's redemption was made out of time as it was done after the certificate of sale was registered on September 30, 2013. Pursuant to Section 47 of R.A. No. 8791, it only had three (3) months from foreclosure or before the registration of the certificate of foreclosure sale, whichever came first, to redeem the property sole in the extrajudicial sale.

Such interpretation is in harmony with the avowed purpose of R.A. No. 8791 in providing for a shorter redemption period for juridical persons. In Goldenway Merchandising Corporation v. Equitable PCI Bank, the Court explained that the shortened period under Section 47 of R.A. No. 8791 served as additional security for banks to maintain their solvency and liquidity, to wit:

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 mortgagee-banks to dispose sooner 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. It cannot therefore be disputed that the said provision amending the redemption period in Act 3135 was based on a reasonable classification and germane to the purpose of the law.

To adopt Grandwood's position that Section 47 of R.A. No. 8791 no longer applies would defeat its very purpose to provide additional security to mortgagee-banks. The shorter redemption period is an incentive which mortgagee-banks may use to encourage prospective assignees to accept the assignment of credit for a consideration. If the redemption period under R.A. No. 8791 would be extended upon the assignment by the bank of its rights under a mortgage contract, then it would be tedious for banks to find willing parties to be subrogated in its place. Thus, it would adversely limit the bank's opportunities to quickly dispose of its hard assets, and maintain its solvency and liquidity.

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.

Spouses Panlilio v. Citibank, N.A., G.R. No. 156335, 28 November 2007, (539 SCRA 69)

 

Sec. 72. In addition to the operations specifically authorized elsewhere in this Act, banking institutions other than building and loan associations may perform the following services:

(a) Receive in custody funds, documents, and valuable objects, and rent safety deposit boxes for the safeguarding of such effects

(b) Act as financial agent and buy and sell, by order of and for the account of their customers, shares, evidences of indebtedness and all types of securities;

(c) Make collections and payments for the account of others and perform such other services for their customers as are not incompatible with banking business.

(d) Upon prior approval of the Monetary Board, act as managing agent, adviser, consultant or administrator of invstment management/ advisory/consultancy accounts.

The banks shall perform the services permitted under subsections (a), (b) and (c) of this section as depositories or as agents. Accordingly, they shall keep the funds, securities and other effects which they thus receive duly separated and apart from the bank's own assets and liabilities.

The Monetary Board may regulate the operations authorized by this section in order to insure that said operations do not endanger the interests of the depositors and other creditors of the banks. (Emphasis supplied.)

while Section 74 prohibits banks from guaranteeing obligations of any person, thus:

Sec. 74. No bank or banking institution shall enter, directly, or indirectly into any contract of guaranty or suretyship, or shall guarantee the interest or principal of any obligation of any person, copartnership, association, corporation or other entity. The provisions of this section shall, however, not apply to the following: (a) borrowing of money by banking institution through the rediscounting of receivables; (b) acceptance of drafts or bills of exchange (c) certification of checks; (d) transactions involving the release of documents attached to items received for collection; (e) letters of credit transaction, including stand-by arrangements; (f) repurchase agreements; (g) shipside bonds; (h) ordinary guarantees or indorsements in favor of foreign creditors where the principal obligation involves loans and credits extended directly by foreign investment purposes; and (i) other transactions which the Monetary Board may, by regulation, define or specify as not covered by the prohibition.

Banco de Oro-EPCI, Inc. v. JAPRL Development Corporation, G.R. No. 179901, 14 April 2008, (551 SCRA 342)

 

Banks are entities engaged in the lending of funds obtained through deposits from the public. They borrow the public's excess money (i.e., deposits) and lend out the same. Banks therefore redistribute wealth in the economy by channeling idle savings to profitable investments.

Banks operate (and earn income) by extending credit facilities financed primarily by deposits from the public. They plough back the bulk of said deposits into the economy in the form of loans. Since banks deal with the public's money, their viability depends largely on their ability to return those deposits on demand. For this reason, banking is undeniably imbued with public interest. Consequently, much importance is given to sound lending practices and good corporate governance.

Should such statements required by the bank prove to be false or incorrect in any material detail, the bank may terminate any loan or credit accommodation granted on the basis of said statements and shall have the right to demand immediate repayment or liquidation of the obligation

Register of Deeds of Manila v. China Banking Corporation, G.R. No. L-11964, 28 April 1962, (04 SCRA 1146)

 

The Court reminded us that the constitutional prohibition under consideration has for its purpose the preservation of patrimony of the nation.

In the examination of Section 25 of Republic Act 337, specifically paragraphs (c) and (d), the Court found that case before them does not fall under anyone of them. Paragraph (c) of Section 25 of Republic Act 337 allows commercial banks to purchase and hold properties conveyed to it in satisfaction of “debts” previously contracted “in the course of its dealings”.

In this case, such property was not conveyed in satisfaction of a debt from the business’s ordinary course, but due to a “civil liability” arising from the criminal offense of qualified theft. Likewise, paragraph (d) of Section 25 of Republic Act 337 is not applicable.

The Court held that in no sense that the transfer in questions can be considered a sale made by virtue of judgement, decree, mortgage, or trust deed. In the same manner, it cannot be said that the property in questions was purchased by appellants to secure debts due to it, considering that the term debt employed in the provisions of the law can logically refer only to such debts as may become payable to appellant bank as a result of a banking transaction. Conclusively, it is not the Court’s duty to determine the wisdom or lack of wisdom of the Constitution. It is only their sworn duty to enforce it free from qualifications and distinctions that tend to render futile the constitutional intent.

First Planters Pawnshop, Inc. v. Commissioner of Internal Revenue, G.R. No. 174134, 30 July 2008 (560 SCRA 606)

 

The Court finds that pawnshops should have been treated as non-bank financial intermediaries from the very beginning, subject to the appropriate taxes provided by law

R.A. No. 337, as amended, or the General Banking Act characterizes the terms banking institution and bank as synonymous and interchangeable and specifically include commercial banks, savings bank, mortgage banks, development banks, rural banks, stock savings and loan associations, and branches and agencies in the Philippines of foreign banks. R.A. No. 8791 or the General Banking Law of 2000, meanwhile, provided that banks shall refer to entities engaged in the lending of funds obtained in the form of deposits. R.A. No. 8791 also included cooperative banks, Islamic banks and other banks as determined by the Monetary Board of the Bangko Sentral ng Pilipinas in the classification of banks.

Financial intermediaries, on the other hand, are defined as "persons or entities whose principal functions include the lending, investing or placement of funds or evidences of indebtedness or equity deposited with them, acquired by them, or otherwise coursed through them, either for their own account or for the account of others."

It need not be elaborated that pawnshops are non-banks/banking institutions. Moreover, the nature of their business activities partakes that of a financial intermediary in that its principal function is lending.

Bañas v. Asia Pacific Finance Corporation, G.R. No. 128703, 18 October 2000, (343 SCRA 527

 

An investment company refers to any issuer which is or holds itself out as being engaged or proposes to engage primarily in the business of investing, reinvesting or trading in securities.  As defined in Sec. 2, par. (a), of the Revised Securities Act, 9 securities "shall include . . . commercial papers evidencing indebtedness of any person, financial or non-financial entity, irrespective of maturity, issued, endorsed, sold, transferred or in any manner conveyed to another with or without recourse, such as promissory notes . . ." Clearly, the transaction between petitioners and respondent was one involving not a loan but purchase of receivables at a discount, well within the purview of "investing, reinvesting or trading in securities" which an investment company, like ASIA PACIFIC, is authorized to perform and does not constitute a violation of the General Banking Act.  Moreover, Sec. 2 of the General Banking Act provides in part —

SECTION 2. Only entities duly authorized by the Monetary Board of the Central Bank may engage in the lending of funds obtained from the public through the receipt of deposits of any kind, and all entities regularly conducting such operations shall be considered as banking institutions and shall be subject to the provisions of this Act, of the Central Bank Act, and of other pertinent laws

Indubitably, what is prohibited by law is for investment companies to lend funds obtained from the public through receipts of deposit, which is a function of banking institutions. But here, the funds supposedly "lent" to petitioners have not been shown to have been obtained from the public by way of deposits, hence, the inapplicability of banking laws.

Republic v. Security Credit and Acceptance Corporation, G.R. No. L-20583, 23 January 1967, (19 SCRA 58)

 

A bank has been defined as a moneyed institute founded to facilitate the borrowing, lending and safe keeping of money and to deal, in notes, bills of exchange, and credits. Moreover, an investment company which loans out the money of its customers, collects the interest and charges a commission to both lender and borrower, is a bank. Any person engaged in the business carried on by banks of deposit, of discount, or of circulation is doing a banking business, although but one of these functions is exercised.

Remedios Banta v. Equitable Bank, G.R. No. 223694, February 10, 2021

 

Time and again, the Court has emphasized that it is required and expected of banks to exercise the highest degree of diligence, along with high standards of integrity and performance in view of its significant role in commercial transactions, not to mention its contribution, to the economy in general. "Since their business and industry are imbued with public interest, banks are required to exercise extraordinary diligence, which is more than that of a Roman paterfamilias or a good father of a family, in handling their transactions." Even as a  mortgagee, a  bank is not relieved of its responsibility to exercise a  higher degree of caution.

In Land Bank of the Philippines v. Belle Corporation31 the Court underscored the following:

When the purchaser or the mortgagee is a bank, the rule on innocent purchasers or mortgagees for value is applied more strictly. Being in the business of extending loans secured by real estate mortgage, banks are presumed to be familiar with the rules on land registration. Since the banking business is impressed with public interest, they are expected to be more cautious, to exercise a higher degree of diligence, care and prudence, than private individuals in their dealings, even those involving registered lands. Banks may not simply rely on the face of the certificate of title. Hence, they cannot assume that, simply because the title offered as security is on its face free of any encumbrances or lien, they are relieved of the responsibility of taking further steps to verify the title and inspect the properties to be mortgaged. As expected, he 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 a  bank's operations.

The Bank's failure to observe the degree of diligence expected of it clearly constitutes negligence. Verily, the Bank was not able to prove that the petitioner participated in the   loan application or in the execution of the documents relative to it. There was no showing that any of the Bank's employees had dealt with the petitioner regarding the loan or the mortgage despite her being one of the registered owners of the mortgaged properties. More importantly, the Bank had not demonstrated how it  took steps or what safety measures were adopted and actually practiced ascertaining the authenticity of the petitioner's signature in the "Amendment to Real Estate Mortgage". Simply put, the Bank's lapses in ascertaining the identity of the petitioner as one of the signatories in the document as well as the genuineness of her signature confirm that the Bank fell short in exercising the degree of diligence demanded of it in the conduct of its affairs.

 As the Bank is not a mortgagee in good faith, it should be held jointly and severally liable with Antonio in the payment of moral damages, exemplary damages, and attorney's fees in favor of the petitioner. In Bank of Commerce v. Spouses San Pablo,  the Court adjudged the Bank of Commerce liable for moral damages, exemplary damages, and attorney's fees for failing to observe the necessary degree of caution in ascertaining the genuineness and extent of authority of the mortgagor who forged the signature of the registered owner of the property. Parenthetically, the award of damages and attorney's fees finds basis in several cases where the Court imposed the same against the defendant-banks for negligence or failing to exercise extraordinary diligence in the discharge of its functions.

 

Allied Banking Corporation v. Spouses Macam, G.R. No. 200635, February 1, 2021

 

RA 8791 enshrines the fiduciary nature of banking that requires high standards of integrity and performance. The statute now reflects jurisprudential holdings that the banking industry is impressed with public interest requiring banks to assume a degree of diligence higher than that of a good father of a family. Thus, all banks are charged with extraordinary diligence in the handling and care of its deposits as well as the highest degree of diligence in the selection and supervision of its employees.

The foregoing obligation of banks is absolute and deemed written into every deposit agreement with its depositors.

Allied Bank cannot obliquely repudiate the resulting banking relationship with the Spouses Mario Macam and the fiduciary nature thereof when it accepted the spouses' initial deposit of P1,590,000.00, the very same funds it now claims as its own. It cannot belatedly claim ignorance of its performance of a core banking function, i.e., accepting or creating demand deposits.

"A certificate of deposit is defined as a written acknowledgment by a bank or banker of the receipt of a sum of money on deposit which the bank or banker promises to pay to the depositor, to the order of the depositor, or to some other person or his order, whereby the relation of debtor and creditor between the bank and the depositor is created. " It is presumed that the money deposited in a bank account belongs to the person in whose name the deposit account is opened.

Metropolitan Bank and Trust Company v. Carmelita Cruz and Vilma Low Tay, G.R. No. 221220, January 19, 2021

 

Significantly, Section 2 of the Banking Law (Republic Act [R.A.] No. 8791) highlights the essential role of banks in our economy and the fiduciary nature of their business:

The State recognizes the vital role of banks providing an environment conducive to the sustained development of the national economy and the fiduciary nature of banking that requires high standards of integrity and performance. In furtherance thereof, the State shall promote and maintain a stable and efficient banking and financial system that is globally competitive, dynamic and responsive to the demands of a developing economy.

Although R.A. No. 8791 took effect in 2000, at the time that Metrobank had been transacting with respondents in 1993, jurisprudence had already imposed on banks the same high standard of diligence required under the said law.

In view of the fiduciary nature of the banking business, banks are mandated to comply with two essential and fundamental obligations -  to treat their clients' accounts with utmost fidelity and meticulous care, and to record all transactions accurately and promptly

Philippine National Bank v. Giron-Roque, G.R. No. 240311, 18 September 2019

 

At the outset, it must be pointed out that PNB commenced extrajudicial foreclosure proceedings on Felina's real property on the ground of the latter's non-payment of the first and second loans inclusive of interests and penalties, which as per the Statement of Account provided by PNB to Felina, amounted to P14,565.58 for the first loan and P148,608.33 for the second loan, or a grand total of P163,173.91.

However, and as unanimously found by the courts a quo: (a) Felina did not avail of the second loan, as her signature in the subject check was forged; (b) Gloria was not duly authorized to obtain the second loan from PNB; and (c) PNB was remiss of the diligence required of a banking institution in allowing the withdrawal and encashment of the subject check representing the second loan. Absent any cogent reason to overturn the aforesaid findings, the Court is inclined to uphold the same

Allied Banking Corporation v. Sia, G.R. No. 195341, 28 August 2019

 

From the foregoing, it is clear that Allied Bank could not be faulted for considering See as one of the depositors of SA No. 0570231382. Again, it is evident that See has a share in the deposits in the subject savings account, as could be adequately shown by the bank records available to Allied Bank at that time. While Elizabeth was the only one expressly named as the depositor of SA No. 0570231382, the Deed of Assignment dated December 13, 1999, indicates that the subject savings account is essentially a joint account between her and her father. This fact is not controverted by See's mistake when he authorized Elizabeth to claim and receive payment for Orient Bank Account No. 023190001020, which was her individual account, instead of Orient Bank No. 023190001031. Even with this error, the fact remains that the settlement payments for Orient Bank No. 023190001031 was one of the sources of the deposits in SA No. 0570231382, making See a co- owner, and effectively a co-depositor, of the said account.

In sum, the Court holds that Allied Bank, was actually legally bound to temporarily withhold any withdrawal from SA No. 0570231382 after it was informed of See's death. As such, no breach of contract could be attributed to it. Obviously, there is also no reason to adjudge the bank liable for damages.

Bank of the Philippine Islands v. Spouses. Quiaoit G.R. No. 199562, 16 January 2019

 

In Spouses Carbonell v. Metropolitan Bank and Trust Company, the Court emphasized that the General Banking Act of 2000 demands of banks the highest standards of integrity and performance. The Court ruled that banks are under obligation to treat the accounts of their depositors with meticulous care. The Court ruled that the bank's compliance with this degree of diligence has to be determined in accordance with the particular circumstances of each case.

BPI insists that there is no law requiring it to list down the serial numbers of the dollar bills. However, it is well-settled that the diligence required of banks is more than that of a good father of a family. Banks are required to exercise the highest degree of diligence in its banking transactions. In releasing the dollar bills without listing down their serial numbers, BPI failed to exercise the highest degree of care and diligence required of it. BPI exposed not only its client but also itself to the situation that led to this case. Had BPI listed down the serial numbers, BPI's presentation of a copy of such listed serial numbers would establish whether the returned 44 dollar bills came from BPI or not.

Ong Bun v. Bank of the Philippine Islands, G.R. No. 212362, 14 March 2018, (589 SCRA 80)

 

When the existence of a debt is fully established by the evidence contained in the record, the burden of proving that it has been extinguished by payment devolves upon the debtor who offers such defense to the claim of the creditor. Even where it is the plaintiff (petitioner herein) who alleges nonpayment, the general rule is that the burden rests on the defendant (respondent herein) to prove payment, rather than on the plaintiff to prove non-payment.

The claim of BPI that the certificates had been paid, is not supported by credible evidence and, therefore, unsubstantiated. The fact that the petitioner still has a copy of the Custodian Certificate of the Silver Certificates of Time Deposit is material as it is inconceivable that the bank would make payment without requiring the surrender thereof. Hence, the conclusion that the Silver Certificates of Deposit may have been withdrawn by the petitioner or his wife although they failed to surrender the custodian certificates is speculative and replete of any proof or evidence.

Furthermore, the surrender of such certificates would have promoted the protection of the bank and would have been more in line with the high standards expected of any banking institution. Banks, their business being impressed with public interest, are expected to exercise more care and prudence than private individuals in their dealings.

Citystate Savings Bank v. Tobias, G.R. No. 227990, 07 March 2018, (858 SCRA 63)

 

The Supreme Court held that petitioner bank is jointly and solidarily liable with Robles. It emphasized that the business of banking is one imbued with public interest, and that as such, banking institutions are obliged to exercise the highest degree of diligence as well as high standards of integrity and performance in all its transactions.

The Supreme Court stressed that banks may be held liable for damages for failure to exercise the degree of diligence required of it resulting to contractual breach. In the case at bar, the records show that the (1) petitioners did not deny the validity of the respondents’ accounts, (2) respondents entered into two types of transactions with the bank, on of savings, and of loan agreements, and (3) transactions were entered into outside of the petitioner bank’s premises. It was clear from the records that the proximate cause of respondents’ loss is the misappropriation of Robles, but petitioner liable is still liable under Article 1911 of the NCC, which states that:

Art. 1911. Even when the agent has exceeded his authority, the principal is solidarity liable with the agent if the former allowed the latter to act as though he had full powers.

It explained then that the bank is liable for the wrongful acts of its officers done in the interests of the bank or in the course of dealings of the officers in their respective capacity, but not for the acts outside the scope of their authority. A banking corporation is made liable to innocent third persons where the representation is made in the course of its business by an agent acting within the general scope of his authority, although, in the case at bar, the agent is secretly abusing his authority and attempting to perpetuate a fraud upon his principal for his benefit. This is because banks have a fiduciary relationship with the public and their stability depends on the confidence of the people in their honesty and efficiency. Such faith will be eroded when banks do not exercise the care and diligence required of them.

Spouses Carbonell v. Metropolitan Bank and Trust Company, G.R. No. 178467, 26 April 2017

 

The General Banking Act of 2000 demands of banks the highest standards of integrity and performance. As such, the banks are under obligation to treat the accounts of their depositors with meticulous care. However, the banks' compliance with this degree of diligence is to be determined in accordance with the particular circumstances of each case.

Gross negligence connotes want of care in the performance of one's duties; it is a negligence characterized by the want of even slight care, acting, or omitting to act in a situation where there is duty to act, not inadvertently but willfully and intentionally, with a conscious indifference to consequences insofar as other persons may be affected. It evinces a thoughtless disregard of consequences without exerting any effort to avoid them.

In order for gross negligence to exist as to warrant holding the respondent liable therefor, the petitioners must establish that the latter did not exert any effort at all to avoid unpleasant consequences, or that it willfully and intentionally disregarded the proper protocols or procedure in the handling of US dollar notes and in selecting and supervising its employees.

In every situation of damnum absque injuria, therefore, the injured person alone bears the consequences because the law affords no remedy for damages resulting from an act that does not amount to a legal injury or wrong.

Philippine National Bank v. Raymundo, G.R. No. 208672, 07 December 2016, (813 SCRA 326)

 

Since their business and industry are imbued with public interest, banks are required to exercise extraordinary diligence, which is more than that of a Roman pater familias or a good father of a family, in handling their transactions. Banks are also expected to exercise the highest degree of diligence in the selection and supervision of their employees. By the very nature of their work in handling millions of pesos in daily transactions, the degree of responsibility, care and trustworthiness expected of bank employees and officials is far greater than those of ordinary clerks and employees.

A bank's disregard of its own banking policy amounts to gross negligence, which is described as "negligence characterized by the want of even slight care, acting or omitting to act in a situation where there is duty to act, not inadvertently but willfully and unintentionally with a conscious indifference to consequences insofar as other persons may be affected." 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. 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. As a bank Branch Manager, Raymundo is expected to be an expert in banking procedures, and he has the necessary means to ascertain whether a check, local or foreign, is sufficiently funded.

Bank of America, NT and SA v. Associated Citizens Bank, G.R. No. 141018, 21 May 2009 (588 SCRA 51)

 

In Banco de Oro Savings and Mortgage Bank v. Equitable Banking Corporation, we held that:

x x x the law imposes a duty of diligence on the collecting bank to scrutinize 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 and the law holds it to a high standard of conduct. x x x in presenting the checks for clearing and for payment, the defendant [collecting bank] made an express guarantee on the validity of "all prior endorsements." Thus, stamped at the back of the checks are the defendant’s clear warranty: ALL PRIOR ENDORSEMENTS AND/OR LACK OF ENDORSEMENTS GUARANTEED. Without such warranty, plaintiff [drawee] would not have paid on the checks. No amount of legal jargon can reverse the clear meaning of defendant’s warranty. As the warranty has proven to be false and inaccurate, the defendant is liable for any damage arising out of the falsity of its representation.

Associated Bank was also clearly negligent in disregarding established banking rules and regulations by allowing the four checks to be presented by, and deposited in the personal bank account of, a person who was not the payee named in the checks. The checks were issued to the "Order of Miller Offset Press, Inc.," but were deposited, and paid by Associated Bank, to the personal joint account of Ching Uy Seng (a.k.a. Robert Ching) and Uy Chung Guan Seng. It could not have escaped Associated Bank’s attention that the payee of the checks is a corporation while the person who deposited the checks in his own account is an individual. Verily, when the bank allowed its client to collect on crossed checks issued in the name of another, the bank is guilty of negligence. As ruled by this Court in Jai-Alai Corporation of the Philippines v. Bank of the Philippine Islands, one who accepts and encashes a check from an individual knowing that the payee is a corporation does so at his peril.

Central Bank of the Philippines v. Citytrust Banking Corporation, G.R. No. 141835, 04 February 2009, (578 SCRA 27)

 

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 "x x x savings x x x 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 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 savings deposit agreement between the bank and the depositor is the contract that determines the rights and obligations of the parties.

The law imposes on banks high standards in view of the fiduciary nature of banking. Section 2 of Republic Act No. 8791 ("RA 8791"), which took effect on 13 June 2000, declares that the State recognizes the "fiduciary nature of banking that requires high standards of integrity and performance." This new provision in the general banking law, introduced in 2000, is a statutory affirmation of Supreme Court decisions, starting with the 1990 case of Simex International v. Court of Appeals, holding that "the bank is under obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship."

Consolidated Bank and Trust Corporation v. Court of Appeals, G.R. No. 138569, 11 September 2003, (410 SCRA 562)

 

We hold that Solidbank is liable for breach of contract due to negligence, or culpa contractual.

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 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 savings deposit agreement between the bank and the depositor is the contract that determines the rights and obligations of the parties.

The law imposes on banks high standards in view of the fiduciary nature of banking. Section 2 of Republic Act No. 8791 ("RA 8791"), declares that the State recognizes the "fiduciary nature of banking that requires high standards of integrity and performance." This new provision in the general banking law, introduced in 2000, is a statutory affirmation of Supreme Court decisions, starting with the 1990 case of Simex International v. Court of Appeals, holding that "the bank is under obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship.

This fiduciary relationship means that the bank’s obligation to observe "high standards of integrity and performance" is deemed written into every deposit agreement between a bank and its depositor. The fiduciary nature of banking requires banks to assume a degree of diligence higher than that of a good father of a family. Article 1172 of the Civil Code states that the degree of diligence required of an obligor is that prescribed by law or contract, and absent such stipulation then the diligence 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.

Reyes v. Court of Appeals, G.R. No. 118492, 15 August 2001

 

    In Philippine Bank of Commerce v. Court of Appeals upholding a long standing doctrine, we ruled that the degree of diligence required of banks, is more than that of a good father of a family where the fiduciary nature of their relationship with their depositors is concerned. In other words banks are duty bound to treat the deposit accounts of their depositors with the highest degree of care. But the said ruling applies only to cases where banks act under their fiduciary capacity, that is, as depositary of the deposits of their depositors. But the same higher degree of diligence is not expected to be exerted by banks in commercial transactions that do not involve their fiduciary relationship with their depositors.

Considering the foregoing, the respondent bank was not required to exert more than the diligence of a good father of a family in regard to the sale and issuance of the subject foreign exchange demand draft. The case at bar does not involve the handling of petitioners' deposit, if any, with the respondent bank. Instead, the relationship involved was that of a buyer and seller, that is, between the respondent bank as the seller of the subject foreign exchange demand draft.

Sia v. Court of Appeals, G.R. No. 102970, 13 May 1993, (222 SCRA 24)

 

Contract of the use of a safety deposit box of a bank is not a deposit but a lease. Section 72 of the General Banking Act [R.A. 337, as amended] pertinently provides: In addition to the operations specifically authorized elsewhere in this Act, banking institutions other than building and loan associations may perform the following services (a) Receive in custody funds, documents, and valuable objects, and rent safety deposit boxes for the safeguarding of such effects.

Simex International (Manila) Inc. v. Court of Appeals, G.R. No. 88013, 19 March 1990, (183 SCRA 360)

 Diligence Required of Banks—Relevant Jurisprudence

The banking system is an indispensable institution in the modern world and plays a vital role in the economic life of every civilized nation. Whether as mere passive entities for the safekeeping and saving of money or as active instruments of business and commerce, banks have become a ubiquitous presence among the people, who have come to regard them with respect and even gratitude and, most of all, confidence. Thus, 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. The ordinary person, with equal faith, usually maintains a modest checking account for security and convenience in the settling of his monthly bills and the payment of ordinary expenses. As for business entities like the petitioner, the bank is a trusted and active associate that can help in the running of their affairs, not only in the form of loans when needed but more often in the conduct of their day-to-day transactions like the issuance or encashment of checks.

In every case, the depositor expects the bank to treat his account with the utmost fidelity, whether such account consists only of a few hundred pesos or of millions. The bank must record every single transaction accurately, down to the last centavo, and as promptly as possible. This has to be done if the account is to reflect at any given time the amount of money the depositor can dispose of as he sees fit, confident that the bank will deliver it as and to whomever he directs. 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.

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