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Banking Law Cases Batch 5 - 1

PDIC v. CHINABANK
FACTS: Petitioner Philippine Deposit Insurance Corporation (PDIC) is a government
instrumentality created by virtue of Republic Act (R.A.) No. 3591, as amended by
R.A. No. 9302.
Respondent Citibank, N.A. (Citibank) is a banking corporation while
respondent Bank of America, S.T. & N.A. (BA) is a national banking association,
both of which are duly organized and existing under the laws of the United States
of America and duly licensed to do business in the Philippines, with offices
in Makati City.
In 1977, PDIC conducted an examination of the books of account of Citibank.
It discovered that Citibank, in the course of its banking business, from September
30, 1974 to June 30, 1977, received from its head office and other foreign branches
a total of P11,923,163,908.00 in dollars, covered by Certificates of Dollar Time
Deposit that were interest-bearing with corresponding maturity dates. These
funds, which were lodged in the books of Citibank under the account Their
Account-Head Office/Branches-Foreign Currency, were not reported to PDIC as
deposit liabilities that were subject to assessment for insurance. As such, in a
letter dated March 16, 1978, PDIC assessed Citibank for deficiency in the sum
of P1,595,081.96.
Similarly, sometime in 1979, PDIC examined the books of accounts of BA
which revealed that from September 30, 1976 to June 30, 1978, BA received from
its head office and its other foreign branches a total of P629,311,869.10 in dollars,
covered by Certificates of Dollar Time Deposit that were interest-bearing with
corresponding maturity dates and lodged in their books under the account Due to
Head Office/Branches. Because BA also excluded these from its deposit liabilities,
PDIC wrote to BA on October 9, 1979, seeking the remittance of P109,264.83
representing deficiency premium assessments for dollar deposits.
Believing that litigation would inevitably arise from this dispute, Citibank and
BA each filed a petition for declaratory relief before the Court of First Instance (now
the Regional Trial Court) of Rizal on July 19, 1979 and December 11, 1979,
respectively. In their petitions, Citibank and BA sought a declaratory judgment
stating that the money placements they received from their head office and other
foreign branches were not deposits and did not give rise to insurable deposit
liabilities under Sections 3 and 4 of R.A. No. 3591 (the PDIC Charter) and, as a
consequence, the deficiency assessments made by PDIC were improper and
erroneous. The cases were then consolidated.
On June 29, 1998, the Regional Trial Court, Branch 163, Pasig
City (RTC) promulgated its Decision in favor of Citibank and BA. Aggrieved, PDIC
appealed to the CA which affirmed the ruling of the RTC in its October 27,
2005 Decision. Hence, this petition.
ISSUE: Whether or not a branch of a bank has a separate legal Personality.
HELD: No. A branch has no separate legal personality. This Court is of the opinion
that the key to the resolution of this controversy is the relationship of the Philippine

branches of Citibank and BA to their respective head offices and their other foreign
branches.
The Court begins by examining the manner by which a foreign corporation
can establish its presence in the Philippines. It may choose to incorporate its own
subsidiary as a domestic corporation, in which case such subsidiary would have its
own separate and independent legal personality to conduct business in the
country. In the alternative, it may create a branch in the Philippines, which would
not be a legally independent unit, and simply obtain a license to do business in
the Philippines.
In the case of Citibank and BA, it is apparent that they both did not
incorporate a separate domestic corporation to represent its business interests in
the Philippines. Their Philippine branches are, as the name implies, merely
branches, without a separate legal personality from their parent company, Citibank
and BA. Thus, being one and the same entity, the funds placed by the respondents
in their respective branches in the Philippines should not be treated as deposits
made by third parties subject to deposit insurance under the PDIC Charter. The
purpose of the PDIC is to protect the depositing public in the event of a bank
closure. It has already been sufficiently established by US jurisprudence and
Philippine statutes that the head office shall answer for the liabilities of its
branch. Now, suppose the Philippine branch of Citibank suddenly closes for some
reason. Citibank N.A. would then be required to answer for the deposit liabilities of
Citibank Philippines. If the Court were to adopt the posture of PDIC that the head
office and the branch are two separate entities and that the funds placed by the
head office and its foreign branches with the Philippine branch are considered
deposits within the meaning of the PDIC Charter, it would result to the incongruous
situation where Citibank, as the head office, would be placed in the ridiculous
position of having to reimburse itself, as depositor, for the losses it may incur
occasioned by the closure of Citibank Philippines. Surely our law makers could not
have envisioned such a preposterous circumstance when they created PDIC.
Finally, the Court agrees with the CA ruling that there is nothing in the
definition of a bank and a banking institution in Section 3(b) of the PDIC
Charter[27] which explicitly states that the head office of a foreign bank and its
other branches are separate and distinct from their Philippine branches.
There is no need to complicate the matter when it can be solved by simple
logic bolstered by law and jurisprudence. Based on the foregoing, it is clear that
the head office of a bank and its branches are considered as one under the eyes of
the law. While branches are treated as separate business units for commercial and
financial reporting purposes, in the end, the head office remains responsible and
answerable for the liabilities of its branches which are under its supervision and
control. As such, it is unreasonable for PDIC to require the respondents, Citibank
and BA, to insure the money placements made by their home office and other
branches. Deposit insurance is superfluous and entirely unnecessary when, as in
this case, the institution holding the funds and the one which made the placements
are one and the same legal entity.

PDIC v. ABAD
FACTS: Prior to May 22, 1997, respondents had 71 certificates of time deposits
denominated as "Golden Time Deposits" (GTD) with an aggregate face value

Banking Law Cases Batch 5 - 2

of P1,115,889.96. May 22, 1987, a Friday, the Monetary Board (MB) of the Central
Bank of the Philippines, now Bangko Sentral ng Pilipinas, issued Resolution 5052
prohibiting Manila Banking Corporation to do business in the Philippines, and
placing its assets and affairs under receivership. The Resolution, however, was not
served on MBC until Tuesday the following week, or on May 26, 1987, when
the designated Receiver took over. On May 25, 1987 - the next banking day
following the issuance of the MB Resolution, respondent Jose Abad was at the MBC
at 9:00 a.m. for the purpose of pre-terminating the71 aforementioned GTDs and redepositing the fund represented thereby into 28 new GTDs in denominations of
P40,000.00 or less under the names of herein respondents individually or jointly
with each others Of the 28 new GTDs, Jose Abad pre-terminated 8 and withdrew
the value thereof in the total amount of P320,000.00. Respondents thereafter filed
their claims with the PDIC for the payment of the remaining 20 insured GTDs.
February 11, 1988, PDIC paid respondents the value of 3 claims in the total amount
of P120,000.00. PDIC, however, withheld payment of the 17 remaining claims after
Washington Solidum, Deputy Receiver of MBC-Iloilo, submitted a report to the PDIC
that there was massive conversion and substitution of trust and deposit accounts
on May 25, 1987 at MBC-Iloilo. Because of the report, PDIC entertained serious
reservation in recognizing respondents' GTDs as deposit liabilities of MBC-Iloilo.
Thus, PDIC filed a petition for declaratory relief against respondents with the RTC
of Iloilo City, for a judicial declaration determination of the insurability of
respondents' GTD sat MBC-Iloilo. In their Answer respondents set up a counterclaim
against PDIC whereby they asked for payment of their insured deposits. The Trial
Court ordered petitioners to pay the balance of the deposit insurance to
respondents. The Court of Appeals affirmed the decision of the lower court.
Petitioner posits that the trial court erred in ordering it to pay the balance of the
deposit insurance to respondents, maintaining that the instant petition stemmed
from a petition for declaratory relief which does not essentially entail an executory
process, and the only relief that should have been granted by the trial court is
a declaration of the parties' rights and duties. As such, petitioner continues, no
order of payment may arise from the case as this is beyond the office of
declaratory relief proceedings.
ISSUE: Whether or not the trial court order the payment of the balance even if
the petition stemmed from a petition for declaratory relief which does
not essentially entail an executor process.
HELD: YES. Without doubt, a petition for declaratory relief does not essentially
entail an executory process. There is nothing in its nature, however, that prohibits
a counter claim from being set-up in the same action. There is nothing in the
nature of a special civil action for declaratory relief that prescribes the filing of a
counterclaim based on the same transaction, deed or contract subject of the
complaint. A special civil action is after all not essentially different from an ordinary
civil action, which is generally governed by Rules 1 to 56 of the Rules of Court,
except that the former deals with a special subject matter which makes necessary
some special regulation. But the identity between their fundamental nature is such
that the same rules governing ordinary civil suits may and do apply to special civil
actions if not inconsistent with or if they may serve to supplement the provisions of
the peculiar rules governing special laws.

PDIC v. AQUERO

Petitioner Philippine Deposit Insurance Corporation (PDIC) seeks the reversal of the
decision of the Court of Appeals affirming with modification the decision of the
Regional Trial Court holding petitioner liable for the value of thirteen (13)
certificates of time deposit (CTDs) in the possession of private respondents.
The facts, as found by the Court of Appeals, are as follows:
On September 22, 1983, plaintiffs-appellees invested in money market placements
with the Premiere Financing Corporation (PFC) in the sum of P10,000.00 each for
which they were issued by the PFC corresponding promissory notes and checks. On
the same date (September 22, 1983), John Francis Cotaoco, for and in behalf of
plaintiffs-appellees, went to the PFC to encash the promissory notes and checks,
but the PFC referred him to the Regent Saving Bank (RSB). Instead of paying the
promissory notes and checks, the RSB, upon agreement of Cotaoco, issued the
subject 13 certificates of time deposit with Nos. 09648 to 09660, inclusive, each
stating, among others, that the same certifies that the bearer thereof has
deposited with the RSB the sum of P10,000.00; that the certificate shall bear 14%
interest per annum; that the certificate is insured up to P15,000.00 with the PDIC;
and that the maturity date thereof is on November 3, 1983 (Exhs. B, B-1 to B-12).
On the aforesaid maturity dated (November 3, 1983), Cotaoco went to the RSB to
encash the said certificates. Thereat, RSB Executive Vice President Jose M. Damian
requested Cotaoco for a deferment or an extension of a few days to enable the
RSB to raise the amount to pay for the same (Exh. D). Cotaoco agreed. Despite
said extension, the RSB still failed to pay the value of the certificates. Instead, RSB
advised Cotaoco to file a claim with the PDIC.
Meanwhile, on June 15, 1984, the Monetary Board of the Central Bank issued
Resolution No. 788 (Exh. 2, Records, p. 159) suspending the operations of the RSB.
Eventually, the records of RSB were secured and its deposit liabilities were
eventually determined. On December 7, 1984, the Monetary Board issued
Resolution No. 1496 (Exh. 1) liquidating the RSB. Subsequently, a masterlist or
inventory of the RSB assets and liabilities was prepared. However, the certificates
of time deposit of plaintiffs-appellees were not included in the list on the ground
that the certificates were not funded by the PFC or duly recorded as liabilities of
RSB.
On September 4, 1984, plaintiffs-appellees filed with the PDIC their respective
claims for the amount of the certificates (Exhs. C, C-1, to C-12). Sabina Yu, James
Ngkaion, Elaine Ngkaion and Jeffrey Ngkaion, who have similar claims on their
certificates of time deposit with the RSB, likewise filed their claims with the PDIC.
To their dismay, PDIC refused the aforesaid claims on the ground that the Traders
Royal Bank Check No. 299255 dated September 22, 1983 for the amount of
P125,846.07 (Exh. B) issued by PFC for the aforementioned certificates was
returned by the drawee bank for having been drawn against insufficient funds; and
said check was not replaced by the PFC, resulting in the cancellation of the
certificates as indebtedness or liabilities of RSB.[1]
Consequently, on March 31, 1987, private respondents filed an action for collection
against PDIC, RSB and the Central Bank.
On September 14, 1987, the trial court, declared the Central Bank in default for
failing to file an answer.

Banking Law Cases Batch 5 - 3

On May 29, 1989, the trial court rendered its decision ordering the defendants
therein to pay plaintiffs, jointly and severally, the amount corresponding to the
latters certificates of time deposit.
Both PDIC and RSB appealed. The Central Bank, on the other hand, filed a petition
for certiorari, prohibition and mandamus before the Court of Appeals praying that
the writ of execution issued by the trial court against it be set aside.
On February 8, 1995, the Court of Appeals rendered its decision granting the
Central Banks petition but dismissing the appeals of PDIC and RSB. Hence, this
petition by PDIC assigning the following errors:
I
THE CA ERRED IN HOLDING THAT THE SUBJECT CTDS ARE NEGOTIABLE
INSTRUMENTS
II
THE CA ERRED INHOLDING THAT THE CTDS WERE ACQUIRED FOR VALUE AND
CONSIDERATION
III
THE CA ERRED WHEN IT HELD THAT BECAUSE THE CTDS STATE THAT THESE WERE
INSURED, PETITIONER SHOULD BE HELD LIABLE FOR THE SAME.

We deal jointly with petitioners first and third assigned errors.


Relying on this Courts ruling in Caltex (Philippines), Inc. v. Court of Appeals and
Security Bank and Trust Company,[2] the Court of Appeals concluded that the
subject CTDs are negotiable. Petitioner, on the other hand, contends that the CTDs
are non-negotiable since they do not contain an unconditional promise or order to
pay a sum in money are they made payable to order or bearer, as required by
Section 1 of the Negotiable Instruments Law.
Whether the CTDs in question are negotiable or not is, however, immaterial in the
present case. The Philippine Deposit Insurance Corporation was created by law
and, as such, is governed primarily by the provisions of the special law creating it.
[3] The liability of the PDIC for insured deposits therefore is statutory and, under
Republic Act No. 3591,[4] as amended, such liability rests upon the existence of
deposits with the insured bank, not on the negotiability or non-negotiability of the
certificates evidencing these deposits.
The authority for this conclusion finds support in decisions by American state
courts applying their respective bank guaranty laws. Invariably, the plaintiffs in
these cases argued that the negotiability of the certificates of deposits in their
possession entitled them to be paid out of the bank guaranty fund, a contention
that the courts uniformly rejected.
Thus, the plaintiffs in Fourth Nat. Bank of Wichita v. Wilson[5] argued that:

x x x the court should hold the certificates to be guaranteed because they are
negotiable instruments, and were acquired by the present holders in due course;
otherwise it is said certificates of deposit will be deprived of the quality of
commercial paper. Certificates of deposit have been regarded as the highest form
of collateral. They are of wide currency in the banking and business worlds, and are
particularly useful to persons of small means, because they bear interest, and may
be readily cashed; therefore to deprive them of the benefit of the guaranty fund
would be a calamity. x x x
The Supreme Court of Kansas, however, found the plaintiffs contention to be
without merit, ruling thus:
x x x The argument confuses negotiability of commercial paper with statutory
guaranty of deposits. The guaranty is something extrinsic to all forms of evidence
of bank obligation; and negotiability of instruments has no dependence on
existence or nonexistence of the guaranty.
x x x Whatever the status of the plaintiffs may be as holders in due course under
the Negotiable Instruments Law, they cannot be assignees of a deposit which was
not made, and cannot be entitled to the benefit of a guaranty which did not come
into existence. x x x
In arriving at the above decision, the Kansas Supreme Court relied on its earlier
ruling in American State Bank v. Foster, [6] which arose from the same facts as the
Fourth National Bank case. There, the Court held:
x x x Even if the plaintiff were to be regarded as an innocent purchaser of the
certificates as negotiable instruments, its situation would be in no wise bettered so
far as relate to a claim against the guaranty fund. The fund protects deposits only.
And if no deposit is made, or no deposit within the protection of the guaranty law,
the transfer of a certificate cannot impose a liability on the fund. xxx where a
certificate of deposit is given under such circumstances that it is not protected by
the guaranty fund, although that fact is not indicated by anything on its face, its
indorsement to an innocent holder cannot confer that qualify upon it.
In like fashion did the Supreme Court of Nebraska brush aside a similar contention
in State v. Farmers State Bank:[7]
In this contention we think the appellants fail to distinguish between the liability of
the maker of a negotiable instrument, which rests upon the law pertaining to
negotiable paper, and the liability of the guaranty fund, which is purely statutory.
The circumstances under which the guaranty fund may be liable are entirely apart
from the law pertaining to negotiable paper. A holder of a certificate of deposit in a
bank who seeks to hold the guaranty fund liable for its payment must show that
the transaction leading up to the issuance of the certificate was such that the law
holds the guaranty fund liable for its payment. x x x
The Farmers State Bank ruling was reiterated by the Nebraska Supreme Court in
State v. Home State Bank of Dunning[8] and in State v. Kilgore State Bank.[9] The
same ruling was adopted by the Supreme Court of South Dakota in Mildenstein v.
Hirning.[10]

Banking Law Cases Batch 5 - 4

In the case at bar, the Court of Appeals initially found the subject CTDs to be
negotiable. Subsequently, however, respondent court deemed the issue
immaterial, albeit for entirely different reasons.
x x x Besides, whether the certificates are negotiable or not is of no moment. The
fact remains that the certificates categorically state that their bearer [sic] have a
deposit in the RSB; that the same will mature on November 3, 1993; and that the
certificates are insured by PDIC.[11]
We disagree with respondent courts rationale. The fact that the certificates state
that the certificates are insured by PDIC does not ipso facto make the latter liable
for the same should the contingency insured against arise. As stated earlier, the
deposit liability of PDIC is determined by the provisions of R.A. No. 3519, and
statements in the certificates that the same are insured by PDIC are not binding
upon the latter.
x x x The mere fact that a certificate recites on its face that a certain sum has
been deposited, or that officers of the bank may have stated that the deposit is
protected by the guaranty law, does not make the guaranty fund liable for
payment, if in fact a deposit has not been made xxx. The banks have nothing to do
with the guaranty fund as such. It is a fund raised by assessments against all state
banks, administered by officers of the state to protect deposits in banks. x x x[12]
We come now to petitioners second assigned error.
In order that a claim for deposit insurance with the PDIC may prosper, the law
requires that a corresponding deposit be placed in the insured bank. This is implicit
from a reading of the following provisions of R.A. 3519:
SECTION 1. There is hereby created a Philippine Deposit Insurance Corporation.
xxx which shall insure, as provided, the deposits of all banks which are entitled to
the benefits of insurance under this Act xxx. (Italics supplied).
xxx
SEC. 10 (a) xxx
xxx
( c) Whenever an insured bank shall have been closed on account of insolvency,
payment of the insured deposits in such bank shall be made by the Corporation as
soon as possible xxx. (Italics supplied.)
A deposit as defined in Section 3(f) of R.A. No. 3591, may be constituted only if
money or the equivalent of money is received by a bank:
SEC. 3. As used in this Act(f) The term 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 which is
evidence by passbook, check and/or certificate of deposit printed or issued in
accordance with Central Bank rules and regulations and other applicable laws,
together with such other obligations of a bank which, consistent with banking

usage and practices, the Board of Directors shall determine and prescribe by
regulations to be deposit liabilities of the Bank xxx. (Italics ours.)
Did RSB receive money or its equivalent when it issued the
deposit? The Court of Appeals, in resolving who between RSB
certificates to private respondents, answered this question
perusal of the impugned decision, however, reveals that such
entirely on speculation, and thus, cannot bind this Court: [13]

certificates of time
and PFC issued the
in the negative. A
finding is grounded

Equally unimpressive is the contention of PDIC and RSB that the certificates were
issued to PFC which did not acquire the same for value because the check issued
by the latter for the certificates bounced for insufficiency of funds. First, granting
arguendo that the certificates were originally issued in favor of PFC, such issuance
could only give rise to the presumption that the amount stated in the certificates
have been deposited to RSB. Had not PFC deposited the amount stated therein,
then RSB would have surely refused to issue the certificates certifying to such fact.
Second, why did not RSB demand that PFC pay the certificates or file a claim
against PFC on the ground that the latter failed to pay for the value of the
certificates? It could very well be that the reason why RSB did not run after PFC for
payment of the value of the certificates was because the instruments were issued
to the latter by RSB for value or were already paid to RSB by plaintiffs-appellees.
Third, if it is true at the time RSB issued the certificates to PFC, the instruments
were paid for with checks still to be encashed, then why did not RSB specifically
state in the certificates that the validity thereof hinges on the encashment of said
check? Fourth, even if it is true that PFC did not deposit with or pay the RSB the
amount stated in the certificates, the latter is not be such reason freed from civil
liability to plaintiffs-appellees. For, by issuing the certificates, RSB bound itself to
pay the amount stated therein to whoever is the bearer upon its presentment for
encashment. Truly, there is no reason to depart from the established principle that
were a bank issues a certificate of deposit acknowledging a deposit made with a
third person or an officer of the bank, or with another bank representing it to be
the certificate of the bank, upon which assurance the depositor accepts it, the
bank is liable for the amount of the deposit (Michis, Banks and Banking, Vol. 5A,
pp. 48-49, as cited in the Decision on p. 3 thereof).[14]
Moreover, such finding totally ignores the evidence presented by defendants.
Cardola de Jesus, RSB Deputy Liquidator, testified that RSB received three (3)
checks in consideration for the issuance of several CTDs, including the ones in
dispute. The first check amounted to P159,153.93, the second, P121,665.95, and
the third, P125,846.07. In consideration of the third check, private respondents
received thirteen (13) certificates of deposit with Nos. 09648 to 09660, inclusive,
with a value of P10,000.00 each or a total of P130,000.00. To conform with the
value of the third check, CTD No. 09648 was chopped, and only the sum of
P5,846.07 was credited in favor of private respondents. The first two checks made
good in the clearing while the third was returned for being drawn against
insufficient funds.
The check in question appears on the records as Exhibit 3 (for Regent),[15] and is
described in RSBs offer of evidence as Traders Royal Bank Check No. 292555 dated
September 22, 1983 covering the amount or P125,846.07 xxx issued by Premiere
Financing Corporation.[16] At the back of said check are the words Refer to
Drawer,[17] indicating that the drawee bank (Traders Royal Bank) refused to pay
the value represented by said check. By reason of the checks dishonor, RSB

Banking Law Cases Batch 5 - 5

cancelled the corresponding as evidenced by an RSB ticket dated November 4,


1983.[18]
These pieces of evidence convincingly show that the subject CTDs were indeed
issued without RSB receiving any money therefor. No deposit, as defined in Section
3 (f) of R.A. No. 3591, therefore came into existence. Accordingly, petitioner PDIC
cannot be held liable for value of the certificates of time deposit held by private
respondents.
ACCORDINGLY, the instant petition is hereby GRANTED and the decision of the
Court of Appeals REVERSED. Petitioner is absolved from any liability to private
respondents. SO ORDERED.

PDIC vs. PHIL COUNTRYSIDE RURAL BANK


This is a petition for review on certiorari under Rule 45 of the Rules of Court filed by
the Philippine Deposit Insurance Corporation (PDIC) assailing the September 18,
2006 Decision of the Court of Appeals-Cebu (CA-Cebu), which granted the petition
for injunction filed by respondents Philippine Countryside Rural Bank, Inc. (PCRBI),
Rural Bank of Carmen (Cebu), Inc. (RBCI), Bank of East Asia (Minglanilla, Cebu), Inc.
(BEAI), and Pilipino Rural Bank (Cebu), Inc. (PRBI), all collectively referred to as
Banks. The dispositive portion of the CA-Cebu decision reads:
WHEREFORE, in view of all the foregoing premises, the petition for injunction is
hereby GRANTED. The respondent PDIC is restrained from further conducting
investigations or examination on petitioners-banks without the requisite approval
from the Monetary Board.
SO ORDERED.[1]
In a resolution dated January 25, 2007, the CA-Cebu denied petitioners motion for
reconsideration for lack of merit.[2]
THE FACTS
On March 9, 2005, the Board of Directors of the PDIC (PDIC Board) adopted
Resolution No. 2005-03-032[3] approving the conduct of an investigation, in
accordance with Section 9(b-1) of Republic Act (R.A.) No. 3591, as amended, on the
basis of the Reports of Examination of the Bangko Sentral ng Pilipinas (BSP) on ten
(10) banks, four (4) of which are respondents in this petition for review. The said
resolution also created a Special Investigation Team to conduct the said
investigation, with the authority to administer oaths, to examine, take and
preserve testimony of any person relating to the subject of the investigation, and
to examine pertinent bank records.
On May 25, 2005, the PDIC Board adopted another resolution, Resolution No.
2005-05-056,[4] approving the conduct of an investigation on PCRBI based on a
Complaint-Affidavit filed by a corporate depositor, the Philippine School of
Entrepreneurship and Management (PSEMI) through its president, Jacinto L.
Jamero.

On June 3, 2005, in accordance with the two PDIC Board resolutions, then PDIC
President and Chief Executive Officer Ricardo M. Tan issued the Notice of
Investigation[5] to the President or The Highest Ranking Officer of PCRBI.
On June 7, 2005, the PDIC Investigation Team personally served the Notice of
Investigation on PCRBI at its Head Office in Pajo, Lapu-Lapu City.[6]
According to PDIC, in the course of its investigation, PCRBI was found to have
granted loans to certain individuals, which were settled by way of dacion of
properties. These properties, however, had already been previously foreclosed and
consolidated under the names of PRBI, BEAI and RBCI.[7]
On June 15, 2005, PDIC issued similar notices of investigation to PRBI[8] and BEAI.
[9]
The notices stated that the investigation was to be conducted pursuant to Section
9 (b-1) of the PDIC Charter and upon authority of PDIC Board Resolution No. 200503-032 authorizing the twelve (12) named representatives of PDIC to conduct the
investigation.[10]
The investigation was sought because the Banks were found to be among the ten
(10) banks collectively known as Legacy Banks. The Reports of General and Special
Examinations of the BSP as of June 30, 2004, disclosed, among others, that the
Legacy Banks were commonly owned and/or controlled by Legacy Plans Inc. (now
Legacy Consolidated Plans, Inc.), and Celso Gancayco delos Angles, Jr. and his
family.[11]
The notice of investigation was served on PRBI the next day, June 16, 2005.[12]
On June 25, 2005, a separate notice of investigation[13] was served on RBCI. The
latter provided the PDIC Investigation Team with certified copies of the loan
documents they had requested, until its president received an order directing him
not to allow the investigation.[14]
Subsequently, PRBI and BEAI refused entry to their bank premises and access to
their records and documents by the PDIC Investigation Team, upon advice of their
respective counsels.[15]
On June 16 and 17, 2005, Atty. Victoria G. Noel (Atty. Noel) of the Tiongson &
Antenor Cruz Law Office sent letters to the PDIC[16] informing it of her legal advice
to PCRBI and BEAI not to submit to PDIC investigation on the ground that its
investigatory power pursuant to Section 9(b-1) of R.A. No. 3591, as amended (An
Act Establishing The Philippine Deposit Insurance Corporation, Defining Its Powers
And Duties And For Other Purposes), cannot be differentiated from the examination
powers accorded to PDIC under Section 8, paragraph 8 of the same law, under
which, prior approval from the Monetary Board is required.
On June 17, 2005, PDIC General Counsel Romeo M. Mendoza sent a reply to Atty.
Noel stating that PDICs investigation power, as distinguished from the examination
power of the PDIC under Section 8 of the same law, does not need prior approval of
the Monetary Board.[17] PDIC then urged PRBI and BEAI not to impede the conduct
of PDICs investigation as the same constitutes a violation of the PDIC Charter for
which PRBI and BEAI may be held criminally and/or administratively liable.[18]

Banking Law Cases Batch 5 - 6

On June 27 and 28, 2005, the Banks, through counsel, sought further clarification
from PDIC on its source of authority to conduct the impending investigations and
requested that PDIC refrain from proceeding with the investigations.[19]
Simultaneously, the Banks wrote to the Monetary Board requesting a clarification
on the parameters of PDICs power of investigation/examination over the Banks and
for an issuance of a directive to PDIC not to pursue the investigations pending the
requested clarification.[20]
On June 28, 2005, PRBI and BEAI again received letters from PDIC, dated June 24,
2005, which appeared to be final demands on them to allow its investigation.[21]
PRBI and BEAI replied that letters of clarification had been sent to PDIC and the
Monetary Board.[22] Pending action on such requests, PDIC was requested to
refrain from proceeding with the investigation.[23]
Notwithstanding, on July 11, 2005, the Banks received a letter, dated July 8, 2005,
from the PDIC General Counsel reiterating its position that prior Monetary Board
approval was not a pre-requisite to PDICs exercise of its investigative power.[24]
Not in conformity, on July 28, 2005, the Banks filed a Petition for Declaratory Relief
with a Prayer for the Issuance of a TRO and/or Writ of Preliminary Injunction (RTC
Petition) before the Regional Trial Court of Makati (RTC-Makati) which was docketed
as Civil Case No. 05-697.[25]
In the RTC Petition, the Banks prayed for a judgment interpreting Section 9(b-1) of
the PDIC Charter, as amended, to require prior Monetary Board approval before
PDIC could exercise its investigation/examination power over the Banks.[26]
PDIC filed a motion to dismiss alleging that the RTC had no jurisdiction over the
said petition since a breach had already been committed by the Banks when they
received the notices of investigation, and because PDIC need not secure prior
Monetary Board approval since examination and investigation are two different
terms.[27]
Later, the Banks withdrew their application for a temporary restraining order
(TRO) reasoning that lower courts cannot issue injunctions against PDIC. Thus, the
Banks instituted a petition for injunction with application for TRO and/or
Preliminary Injunction (CA-Manila petition) before the Court of Appeals-Manila (CAManila). The case was docketed as CA-G.R. SP No. 91038.[28]
Even before the CA-Manila could rule on the application for a TRO and/or writ of
preliminary injunction, the RTC-Makati dismissed the petition on the ground that
there already existed a breach of law that isolated the case from the jurisdiction of
the trial court.[29]
The Banks filed a motion for reconsideration but it was denied by the RTC for lack
of merit.[30] On February 10, 2006, the Banks filed a notice of appeal[31] which
they later withdrew on February 28, 2006.[32]
In view of the dismissal of the RTC-Makati petition, the CA-Manila dismissed the
petition for injunction for being moot and academic. In its Decision, dated February
1, 2006,[33] the CA-Manila wrote:

What remained for the petitioners to do was to litigate over the breach or violation
by ordinary action, as the circumstances ensuing from the breach or violation
warrant. The ordinary action may either be in the same case, if the RTC permitted
the conversion, in which event the RTC may allow the parties to file such pleadings
as may be necessary or proper, pursuant to Sec. 5, Rule 63; or the petitioners may
file another action in the proper court (e.g. including the Court of Appeals, should
injunction be among the reliefs to be sought) upon some cause of action that has
arisen from the breach or violation.[34]
Thereafter, on March 14, 2006, the Banks filed their Petition for Injunction with
Prayer for Preliminary Injunction[35] (CA-Cebu Petition) with the CA-Cebu (CACebu).
On March 15, 2006, the CA-Cebu issued a resolution granting the Banks
application for a TRO. This enjoined the PDIC, its representatives or agents or any
other persons or agency assisting them or acting for and in their behalf from
conducting examinations/investigations on the Banks head and branch offices
without securing the requisite approval from the Monetary Board of BSP.[36]
During the pendency of the CA-Cebu petition, PDIC filed with this Court a Petition
for Certiorari, Prohibition and Mandamus with Prayer for Issuance of Temporary
Restraining Order and/or Writ of Preliminary Injunction under Rule 65 docketed as
G.R. No. 173370.[37] It alleged that the CA-Cebu committed grave abuse of
discretion amounting to lack or excess of jurisdiction in taking cognizance of the
Banks petition, and in issuing a TRO and a writ of preliminary injunction.[38]
On July 31, 2006, this Court issued a resolution dismissing the petition for
certiorari in G.R. No. 173370. The Resolution reads:
Considering the allegations, issues and arguments adduced in the petition for
certiorari, prohibition and mandamus with prayer for preliminary injunction and/or
restraining order dated 19 July 2006, the Court resolves to DISMISS the petition for
failure to sufficiently show that the questioned resolution of the Court of Appeals is
tainted with grave abuse of discretion. Moreover, the petition failed to conform
with Rule 65 and other related provisions of the 1997 Rules of Civil Procedure, as
amended, governing petitions for certiorari, prohibition and mandamus filed with
the Supreme Court, since petitioner failed to submit a verified statement of
material date of receipt of the assailed resolution dated 16 May 2006 in
accordance with Section 4, Rule 65 in relation to the second paragraph of Section
3, Rule 46. In any event, the petition is premature since no motion for
reconsideration of the questioned resolution of the Court of Appeals was filed prior
to the availment of this special civil action and there are no sufficient allegations to
bring the case within the recognized exceptions to this rule.[39]
On September 18, 2006, after both parties had submitted their respective
memoranda, the CA-Cebu rendered a decision granting the writ of preliminary
injuction,[40] pertinent portions of which read:
[A]fter undergoing a series of amendments, the controlling law with respect to
PDICs power to conduct examination of banks is-prior approval of the Monetary
Board is a condition sine qua non for PDIC to exercise its power of examination. To
rule otherwise would disregard the amendatory law of the PDICs charter.

Banking Law Cases Batch 5 - 7

The Court is not also swayed by the contention of respondent that what it seeks to
conduct is an investigation and not an examination of petitioners transactions,
hence prior approval of the Monetary Board is a mere surplusage.
The ordinary definition of the words examination and investigation would lead
one to conclude that both pertain to the same thing and there seems to be no fine
line differentiating one from the other. Blacks Law Dictionary defines the word
investigate as to examine and inquire into with care and accuracy; to find out by
careful inquisition; examination and the word examination as an investigation. In
Collins Dictionary of Banking and Finance, the word investigation is defined as an
examination to find out what is wrong.
In the case of Anti-Graft League of the Philippines, Inc. vs. Hon. Ortega, et al.,[41]
the Supreme Court using Ballentines Law Dictionary defines an investigation as an
inquiry, judicial or otherwise, for the discovery or collection of facts concerning the
matter or matters involved. Such common definitions would show that there is
really nothing to distinguish between these two (2) terms as to support the PDIC
view differentiating Section 9 (b-1) from paragraph 8, Section 8 of the PDIC
Charter.
In the realm of the PDIC rules, specifically under Section 3 of PDIC Regulatory
Issuance No. 2205-02[42] investigation is defined as: Investigation shall refer to
fact-finding examination, study, inquiry, for determining whether the allegations in
a complaint or findings in a final report of examination may properly be the subject
of an administrative, criminal or civil action.
From the foregoing definition alone, it can be easily deduced that investigation
and examination are synonymous terms. Simply stated, investigation encompasses
a fact-finding examination. Thus, it is inconsistent with the rules if respondent PDIC
be (sic) allowed to conduct an investigation without the approval of the Monetary
Board.
Moreover, the Court sees that the rationale of the law in requiring a (sic) prior
approval from the Monetary Board whenever an examination or in this case an
investigation needs to be conducted by the PDIC is obviously to ensure that there
is no overlapping of efforts, duplication of functions and more importantly to
provide a check and balance to the otherwise unrestricted power of respondent
PDIC to conduct investigations on banks insured by it.
With the foregoing premises, this Court rules that a prior approval from the
Monetary Board is necessary before respondent PDIC can proceed with its
investigations on petitioners-banks.[43]
PDIC moved for reconsideration but it was denied in a resolution dated January
25, 2007.[44]
Hence, this petition.
THE ISSUES
I.

WHETHER RESPONDENT BANKS VIOLATED THE RULE AGAINST FORUM SHOPPING


WHEN THEY FILED THE PETITION FOR INJUNCTION BEFORE THE COURT OF
APPEALS-CEBU.
II.
WHETHER THE PRONOUNCEMENT OF THE REGIONAL TRIAL COURT OF MAKATI IN
THE PETITION FOR DECLARATORY RELIEF CONSTITUTES RES JUDICATA TO THE
PETITION FOR INJUNCTION IN THE COURT OF APPEALS-CEBU.
III.
WHETHER PETITIONER WAS DEPRIVED OF ITS OPPORTUNITY TO BE HEARD WHEN
THE COURT OF APPEALS-CEBU ISSUED THE WRIT OF INJUNCTION.
IV.
WHETHER THE ISSUES RAISED BY PETITIONERS ARE THE SAME ISSUES RAISED IN
G.R. NO. 173370 WHICH WAS EARLIER DISMISSED BY THIS COURT.
V.
WHETHER THE COURT OF APPEALS ERRED IN FINDING THAT PRIOR APPROVAL OF
THE MONETARY BOARD OF THE BANGKO SENTRAL NG PILIPINAS IS NECESSARY
BEFORE THE PDIC MAY CONDUCT AN INVESTIGATION OF RESPONDENT BANKS.
THE COURTS RULING
I - Whether respondent banks violated the rule against forum shopping when they
filed the petition for injunction before the Court of Appeals-Cebu.
II - Whether the pronouncement of the Regional Trial Court of Makati in the petition
for declaratory relief constitutes res judicata to the petition for injunction in the
Court of Appeals-Cebu.
In the recent case of Sameer Oversees Placement Agency, Inc. v. Mildred R.
Santos,[45] the Court discussed the matter of forum shopping:
Forum shopping is defined as an act of a party, against whom an adverse
judgment or order has been rendered in one forum, of seeking and possibly getting
a favorable opinion in another forum, other than by appeal or special civil action
for certiorari. It may also be the institution of two or more actions or proceedings
grounded on the same cause on the supposition that one or the other court would
make a favorable disposition. There is forum shopping where the elements of litis
pendentia are present, namely: (a) there is identity of parties, or at least such
parties as represent the same interest in both actions; (b) there is identity of rights
asserted and relief prayed for, the relief being founded on the same set of facts;
and (c) the identity of the two preceding particulars is such that any judgment
rendered in the pending case, regardless of which party is successful, would
amount to res judicata in the other. It is expressly prohibited by this Court because
it trifles with and abuses court processes, degrades the

Banking Law Cases Batch 5 - 8

administration of justice, and congests court dockets. A willful and deliberate


violation of the rule against forum shopping is a ground for summary dismissal of
the case, and may also constitute direct contempt.[46]
Juxtaposing the RTC-Makati, CA-Manila and CA-Cebu petitions, what must be
determined here, is whether the elements of litis pendentia are present between
and among these petitions, i.e. whether (a) there is identity of parties, or at least
such parties as represent the same interest in both actions; (b) there is identity of
rights asserted and relief prayed for, the relief being founded on the same set of
facts; and (c) the identity of the two preceding particulars is such that any
judgment rendered in the pending case, regardless of which party is successful,
would amount to res judicata in the other.
The first element is clearly present as between the RTC-Makati petition and the
CA-Cebu petition. Both involved the Banks on one hand, and the PDIC on the other.
The second and third elements of litis pendentia, however, are patently wanting.
The rights asserted and reliefs prayed for were different, though founded on the
same set of facts. The RTC-Makati Petition was one for declaratory relief while the
CA-Manila Petition was one for injunction with a prayer for preliminary injunction.
A petition for declaratory relief is filed by any person interested under a deed, will,
contract or other written instrument, or whose rights are affected by a statute,
executive order or regulation, ordinance, or any other governmental regulation,
before breach or violation, thereof, to determine any question of construction or
validity arising, and for a declaration of his rights or duties thereunder.[47]
Injunction, on the other hand, is a judicial writ, process or proceeding whereby a
party is directed either to do a particular act, in which case it is called a mandatory
injunction, or to refrain from doing a particular act, in which case it is called a
prohibitory injunction. As a main action, injunction seeks to permanently enjoin the
defendant through a final injunction issued by the court and contained in the
judgment.[48]
Clearly, there is a marked difference between the reliefs sought under an action
for declaratory relief and an action for injunction. While an action for declaratory
relief seeks a declaration of rights or duties, or the determination of any question
or validity arising under a statute, executive order or regulation, ordinance, or any
other governmental regulation, or under a deed, will, contract or other written
instrument, under which his rights are affected, and before breach or violation, an
action for injunction ultimately seeks to enjoin or to compel a party to perform
certain acts.
Moreover, as stated in the RTC-Makati Decision, because the Banks had already
breached the provisions of law on which declaratory judgment was being sought, it
was without jurisdiction to take cognizance of the same. Any judgment rendered in
the RTC-Makati petition would not amount to res judicata in the CA-Manila Petition.
Thus, the RTC was correct in dismissing the case, having been bereft of jurisdiction
to take cognizance of the action for declaratory judgment.
As between the CA-Manila and the CA-Cebu petitions, the second and third
elements of litis pendentia are absent. The rights asserted and reliefs prayed for
were different, although founded on the same set of facts.

The CA-Manila Petition is a petition for injunction wherein the Banks prayed that:
1) Immediately upon filing of this Petition, a Writ of Preliminary Injunction and/or
Temporary Restraining Order be issued commanding the respondent and all its
officers, employees and agents to cease and desist from proceeding with the
investigations sought to be conducted on the petitioners head and branch offices
while the Petition for Declaratory Relief before Branch 58 of the Makati Regional
Trial Court is pending.
2) After due proceedings, judgment be rendered declaring as permanent the Writ
of Preliminary Injunction and/or Temporary Restraining Order prayed for above.
Other equitable reliefs are likewise prayed for.[49]
[Underscoring supplied]
The CA-Cebu Petition, on the other hand, is denominated as a Petition for
Injunction With Prayer for Writ of Preliminary Injunction and/or Restraining Order.
The Banks prayed therein that:
1) Upon filing of this Petition, a Writ of Preliminary Injunction and/or Temporary
Restraining Order be issued forthwith, enjoining Respondent PDIC and all its
officers, employees and agents to cease and desist from conducting
examinations/investigations on Petitioner Banks head and branch offices without
securing the requisite approval from the Monetary Board of the Bangko Sentral ng
Pilipinas, as required by Sec. 8, Paragraph 8 of the PDIC Charter, as amended;
2) After due proceedings, judgment be rendered declaring as permanent the Writ
of Preliminary Injunction and/or Temporary Restraining Order prayed for above.
Other equitable reliefs are likewise prayed for.[50]
As can be gleaned from the above-cited portions of the CA-Manila and CA-Cebu
petitions, the petitions seek different reliefs.
Therefore, as between and among the RTC Makati, and the CA-Manila and CA-Cebu
petitions, there is no forum shopping.
III - Whether petitioner was deprived of its opportunity to be heard when the Court
of Appeals-Cebu issued the writ of injunction.
PDIC alleges that the CA-Cebu, in issuing the TRO in its March 15, 2006 Resolution,
and subsequently, the preliminary injunction in its May 16, 2006 Resolution,
violated the fundamental rule that courts should avoid issuing injunctive relief
which would in effect dispose of the main case without trial.[51] PDIC argues that a
TRO is intended only as a restraint until the propriety of granting a temporary
injunction can be determined, and it goes no further than to preserve the status
until that determination.[52] Moreover, its purpose is merely to suspend
proceedings until such time when there may be an opportunity to inquire whether
any injunction should be granted, and it is not intended to operate as an injunction
pendente lite, and should not, in effect, determine the issues involved before the
parties can have their day in court, or give an advantage to either party by
proceeding in the acquisition or alteration of the property the right to which is
disputed while the hands of the other party are tied.[53]

Banking Law Cases Batch 5 - 9

On the other hand, the Banks claim that PDIC was given every opportunity to
present its arguments against the issuance of the injunction.[54] Its active
participation in the proceedings negates its assertion that it was denied procedural
due process in the issuance of the writ of injunction.[55] Citing Salonga v. Court of
Appeals,[56] the Banks state that the essence of due process is the reasonable
opportunity to be heard and to submit evidence one may have in support of ones
defense,[57] and PDIC was able to do so.
On March 15, 2006, the CA-Cebu issued a resolution granting their prayer for a 60day TRO, and requiring PDIC to file its comment.[58] The latter thereafter filed its
Comment ad Cautelam dated March 30, 2006.[59] [Underscoring ours]
On May 16, 2006, the CA-Cebu issued another resolution, this time granting the
prayer for a preliminary injunction and requiring the parties to file their respective
memoranda. PDIC thereafter filed its memorandum dated July 31, 2006.[60]
On September 18, 2006, the CA-Cebu promulgated its Decision granting the
Petition for Injunction.[61] PDIC filed a motion for reconsideration dated October
10, 2006,[62] which was subsequently denied.
The essence of procedural due process is found in the reasonable opportunity to
be heard and submit ones evidence in support of his defense.[63] The Court finds
that procedural due process was observed by the CA-Cebu. The parties were
afforded equal opportunity to present their arguments. In the absence of any
indication to the contrary, the CA-Cebu must be accorded the presumption of
regularity in the performance of their functions. However, as discussed herein, the
matter of whether it erred in its conclusion and issuance of the TRO, preliminary
injunction and final injunction is another matter altogether.
IV Whether the issues raised by petitioner are the same issues raised in G.R. No.
173370 which was earlier dismissed by this Court.
In G.R. 173370, a petition for certiorari under Rule 65 of the Rules of Court, PDIC
alleged that the CA-Cebu committed grave abuse of discretion amounting to lack
or excess of jurisdiction in taking cognizance of the Banks petition, and in issuing a
TRO and a writ of preliminary injunction.[64]
In the case at bench, a petition for review under Rule 45, PDICs core contention is
that the CA-Cebu erred in finding that prior approval of the
Monetary Board of the BSP is necessary before it may conduct an investigation of
the Banks.
Clearly then, the two petitions were of different nature raising different issues.
G.R. 173370 challenged the CA-Cebus having taken cognizance of the Banks
petition and interlocutory orders on the issuance of a TRO and a writ of preliminary
injunction. This case, however, strikes at the core of the final decision on the
merits of the CA-Cebu, and not merely the interlocutory orders. While both G.R.
173370 and the present case may have been anchored on the same set of facts,
that is, the refusal of the Banks to allow PDIC to conduct an investigation without
the prior consent of the Monetary Board, the issues raised in the two petitions are

not identical. Moreover, the disposal of the first case does not amount to res
judicata in this case.
V Whether the Court of Appeals-Cebu erred in finding that prior approval of the
Monetary Board of the Bangko Sentral ng Pilipinas is necessary before the PDIC
may conduct an investigation of respondent banks.
PDIC is of the position that in order for it to exercise its power of investigation, the
law requires that:
(a) The investigation is based on a complaint of a depositor or any other
government agency, or on the report of examination of [the] Bangko Sentral ng
Pilipinas (BSP) and/or PDIC; and,
(b) The complaint alleges, or the BSP and/or PDIC Report of Examination contains
adverse findings of, fraud, irregularities or anomalies committed by the Bank
and/or its directors, officers, employees or agents; and,
(c) The investigation is upon the authority of the PDIC Board of Directors.[65]
It argues that when it commenced its investigation on the Banks, all of the
aforementioned requirements were met. PDIC stresses that its power of
examination is different from its power of investigation, in such that the former
requires prior approval of the Monetary Board while the latter requires merely the
approval of the PDIC Board.[66] It further claims that the power of examination
cannot be exercised within twelve (12) months from the last examination
conducted, whereas the power of investigation is without limitation as to the
frequency of its conduct. It states that the purpose of the PDICs power of
examination is merely to look into the condition of the bank, whereas the power of
investigation aims to address fraud, irregularities and anomalies based on
complaints from depositors and other government agencies or upon reports of
examinations conducted by the PDIC itself or by the BSP.[67]
The Banks, on the other hand, are of the opinion that a holistic reading of the PDIC
charter shows that petitioners power of examination is synonymous with its power
of investigation.[68] They cite, as bases, the law
dictionary definitions, Section 8, Eighth paragraph[69] and Section 9(b-1)[70] of
the PDIC Charter, and Rule 1, Section 3(1) of PDIC Regulatory Issuance No. 200502, which defines investigation as follows:
(l) Investigation shall refer to fact-finding examination, study or inquiry for
determining whether the allegations in a complaint or findings in a final report of
examination may properly be the subject of an administrative, criminal or civil
action.
The Banks further cite Section X658 of the Manual of Regulations for Banks, which
states:
Sec. X658 - Examination by the BSP. The term examination shall, henceforth, refer
to an investigation of an institution under the supervisory authority of the BSP to
determine compliance with laws and regulations. It shall include determination that
the institution is conducting its business on a safe and sound basis. Examination

Banking Law Cases Batch 5 - 10

requires full and comprehensive looking into the operations and books of
institutions, and shall include, but need not be limited to the following:
a. Determination of the banks solvency and liquidity position;
b. Evaluation of asset quality as well as determination of sufficiency of valuation
reserves on loans and other risk assets;
c. Review of all aspects of bank operations;
d. Assessment of risk management system, including the evaluation of the
effectiveness of the bank managements oversight functions, policies, procedures,
internal control and audit;
e. Appraisal of overall management of the bank;
f. Review of compliance and applicable laws, rules and regulations; and any other
activities relevant to the above.
After an evaluation of the respective positions of the parties, the Court is of the
view that the Monetary Board approval is not required for PDIC to conduct an
investigation on the Banks.
The disagreement stems from the interpretation of these two key provisions of the
PDIC Charter. The confusion can be attributed to the fact that although
investigation and examination are two separate and
distinct procedures under the charter of the PDIC and the BSP, the words seem to
be used loosely and interchangeably.
It does not help that indeed these terms are very closely related in a generic
sense. However, while examination connotes a mere generic perusal or inspection,
investigation refers to a more intensive scrutiny for a more specific fact-finding
purpose. The latter term is also usually associated with proceedings conducted
prior to criminal prosecution.
The PDIC was created by R.A. No. 3591 on June 22, 1963 as an insurer of deposits
in all banks entitled to the benefits of insurance under the PDIC Charter to promote
and safeguard the interests of the depositing public by way of providing permanent
and continuing insurance coverage of all insured deposits. It is a government
instrumentality that operates under the Department of Finance. Its primary
purpose is to act as deposit insurer, as a co-regulator of banks, and as receiver and
liquidator of closed banks.[71]
Section 1 of the PDIC Charter states:
SECTION 1. There is hereby created a Philippine Deposit Insurance Corporation
hereinafter referred to as the Corporation which shall insure, as herein provided,
the deposits of all banks which are entitled to the benefits of insurance under this
Act, and which shall have the powers hereinafter granted.
The Corporation shall, as a basic policy, promote and safeguard the interests of
the depositing public by way of providing permanent and continuing insurance
coverage on all insured deposits.

Section 1 of R.A. No. 9576 further provides: An Act Increasing the Maximum
Deposit Insurance Coverage, and in connection therewith, to Strengthen the
Regulatory and Administrative Authority, and Financial Capability of the Philippine
Deposit Insurance Corporation (PDIC), amending for this purpose R.A. No. 3591, as
Amended, otherwise known as the PDIC Charter.
SECTION 1. Statement of State Policy and Objectives. - It is hereby declared to be
the policy of the State to strengthen the mandatory deposit insurance coverage
system to generate, preserve, maintain faith and confidence in the countrys
banking system, and protect it from illegal schemes and machinations.
Towards this end, the government must extend all means and mechanisms
necessary for the Philippine Deposit Insurance Corporation to effectively fulfill its
vital task of promoting and safeguarding the interests of the depositing public by
way of providing permanent and continuing insurance coverage on all insured
deposits, and in helping develop a sound and stable banking system at all times.
Under its charter, the PDIC is empowered to conduct examination of banks with
prior approval of the Monetary Board:
Eighth To conduct examination of banks with prior approval of the Monetary
Board: Provided, That no examination can be conducted within twelve (12) months
from the last examination date: Provided, however, That the Corporation may, in
coordination with the Bangko Sentral, conduct a special examination as the Board
of Directors, by an affirmative vote of a majority of all its members, if there is a
threatened or impending closure of a bank; Provided, further, That,
notwithstanding the provisions of Republic Act No. 1405, as amended, Republic Act
No. 6426, as amended, Republic Act No. 8791, and other laws, the Corporation
and/or the Bangko Sentral, may inquire into or examine deposit accounts and all
information related thereto in case there is a finding of unsafe or unsound banking
practice; Provided, That to avoid overlapping of efforts, the examination shall
maximize the efficient use of the relevant reports, information, and findings of the
Bangko Sentral, which it shall make available to the Corporation; (As amended by
R.A. 9302, 12 August 2004, R.A. 9576, 1 June 2009)
xxx. [Underlining supplied]
Section 9(b-1) of the PDIC Charter further provides that the PDIC Board shall have
the power to:
POWERS AND RESPONSIBILITIES AND PROHIBITIONS
SECTION 9. xxx
(b) The Board of Directors shall appoint examiners who shall have power, on
behalf of the Corporation to examine any insured bank. Each such examiner shall
have the power to make a thorough examination of all the affairs of the bank and
in doing so, he shall have the power to administer oaths, to examine and take and
preserve the testimony of any of the officers and agents thereof, and, to compel
the presentation of books, documents, papers, or records necessary in his
judgment to ascertain the facts relative to the condition of the bank; and shall
make a full and detailed report of the condition of the bank to the Corporation. The
Board of Directors in like manner shall appoint claim agents who shall have the

Banking Law Cases Batch 5 - 11

power to investigate and examine all claims for insured deposits and transferred
deposits. Each claim agent shall have the power to administer oaths and to
examine under oath and take and preserve testimony of any person relating to
such claim. (As amended by E.O. 890, 08 April 1983; R.A. 7400, 13 April 1992)
(b-1) The investigators appointed by the Board of Directors shall have the power
on behalf of the Corporation to conduct investigations on frauds, irregularities and
anomalies committed in banks, based on reports of examination conducted by the
Corporation and Bangko Sentral ng Pilipinas or complaints from depositors or from
other government agency. Each such investigator shall have the power to
administer oaths, and to examine and take and preserve the testimony of any
person relating to the subject of investigation. (As added by R.A. 9302, 12 August
2004)
xxx. [Underscoring supplied]
As stated above, the charter empowers the PDIC to conduct an investigation of a
bank and to appoint examiners who shall have the power to examine any insured
bank. Such investigators are authorized to conduct investigations on frauds,
irregularities and anomalies committed in banks, based on an examination
conducted by the PDIC and the BSP or on complaints from depositors or from other
government agencies.
The distinction between the power to investigate and the power to examine is
emphasized by the existence of two separate sets of rules governing the procedure
in the conduct of investigation and examination. Regulatory Issuance (RI) No.
2005-02 or the PDIC Rules on Fact-Finding Investigation of Fraud, Irregularities and
Anomalies Committed in Banks covers the procedural requirements of the exercise
of the PDICs power of investigation. On the other hand, RI No. 2009-05 sets forth
the guidelines for the conduct of the power of examination.
The definitions provided under the two aforementioned regulatory issuances
elucidate on the distinction between the power of examination and the power of
investigation.
Section 2 of RI No. 2005-02 states that its coverage shall be applicable to all factfinding investigations on fraud, irregularities and/or anomalies committed in banks
that are conducted by PDIC based on: [a] complaints from depositors or other
government agencies; and/or [b] final reports of examinations of banks conducted
by the Bangko Sentral ng Pilipinas and/or PDIC.
The same issuance states that the Final Report of Examination[72] is one of the
three pre-requisites to the conduct of an investigation, in addition to the
authorization of the PDIC Board[73] and a complaint.[74] Juxtaposing this provision
with Section 9(b-1) of the PDIC Charter, since an examination is explicitly made the
basis of a fact-finding examination, then clearly examination and investigation are
two different proceedings. It would obviously defy logic to make the result of an
investigation the basis of the same proceeding. Thus, RI No. 2005-02 defines an
investigation as a fact-finding examination, study or inquiry for determining
whether the allegations in a complaint or findings in a final report of examination
may properly be the subject of an administrative, criminal or civil action.[75]

The Banks cite the dictionary definitions of examination and investigation to justify
their conclusion that these terms refer to one and the same proceeding. It is
tempting to use these two terms interchangeably, which practice may be perfectly
justified in a purely literary sense. Indeed, a reading of the PDIC Charter shows that
the two terms have been used interchangeably at some point. However, based on
the provisions aforecited, the intention of the laws is clearly to differentiate
between the process of investigation and that of examination.
In 2009, to clarify procedural matters, PDIC released RI No. 2009-05 or the Rules
and Regulations on Examination of Banks. Section 2 thereof differentiated between
the two types of examination as follows:
Section 2. Types of Examination
a. Regular Examination - An examination conducted independently or jointly with
the BSP. It requires the prior approval of the PDIC Board of Directors and the
Monetary Board (MB). It may be conducted only after an interval of at least twelve
(12) months from the closing date of the last Regular Examination.
b. Special Examination An examination conducted at any time in coordination with
the BSP, by an affirmative vote of a majority of all the members of the PDIC Board
of Directors, without need of prior MB approval, if there is a threatened or
impending bank closure as determined by the PDIC Board of Directors.
[Underscoring supplied]
Section 3 of RI No. 2009-05 provides for the general scope of the PDIC
examination:
Section 3. Scope of Examination
The examination shall include, but need not be limited to, the following:
a. Determination of the banks solvency and liquidity position;
b. Evaluation of asset quality as well as determination of sufficiency of valuation
reserves on loans and other risk assets;
c.

Review of all aspects of bank operations;

d. Assessment of risk management system, including the evaluation of the


effectiveness of the bank managements oversight functions, policies, procedures,
internal control and audit;
e. Appraisal of overall management of the bank;
f. Review of compliance with applicable banking laws, and rules and regulations,
including PDIC issuances;
g. Follow-through of specific exceptions/ violations noted during a previous
examination; and
h.

Any other activity relevant to the above.

Banking Law Cases Batch 5 - 12

Rule 2, Section 1 of PDIC RI No. 2005-02 or the PDIC Rules on Fact-Finding


Investigation of Fraud, Irregularities and Anomalies Committed in Banks provides
for the scope of fact-finding investigations as follows:
SECTION 1. Scope of the Investigation.
Fact-finding Investigations shall be limited to the particular acts or omissions
subject of a complaint or a Final Report of Examination.
From the above-cited provisions, it is clear that the process of examination covers
a wider scope than that of investigation.
Examination involves an evaluation of the current status of a bank and determines
its compliance with the set standards regarding solvency, liquidity, asset valuation,
operations, systems, management, and compliance with banking laws, rules and
regulations.

Investigation, on the other hand, is conducted based on specific findings of certain


acts or omissions which are subject of a complaint or a Final Report of Examination.
Clearly, investigation does not involve a general evaluation of the status of a
bank. An investigation zeroes in on specific acts and omissions uncovered via an
examination, or which are cited in a complaint.
An examination entails a review of essentially all the functions and facets of a
bank and its operation. It necessitates poring through voluminous documents, and
requires a detailed evaluation thereof. Such a process then involves an intrusion
into a banks records.

In contrast, although it also involves a detailed evaluation, an investigation


centers on specific acts of omissions and, thus, requires a less invasive
assessment.
The practical justification for not requiring the Monetary Board approval to
conduct an investigation of banks is the administrative hurdles and paperwork it
entails, and the correspondent time to complete those additional steps or
requirements. As in other types of investigation, time is always of essence, and it is
prudent to expedite the proceedings if an accurate conclusion is to be arrived at,
as an investigation is only as precise as the evidence on which it is based. The
promptness with which such evidence is gathered is always of utmost importance
because evidence, documentary evidence in particular, is remarkably fungible. A
PDIC investigation is conducted to determine[e] whether the allegations in a
complaint or findings in a final report of examination may properly be the subject
of an administrative, criminal or civil action.[76] In other words, an investigation is
based on reports of examination and an examination is conducted with prior
Monetary Board approval. Therefore, it would be unnecessary to secure a separate
approval for the conduct of an investigation. Such would merely prolong the
process and provide unscrupulous individuals the opportunity to cover their tracks.
Indeed, while in a literary sense, the two terms may be used interchangeably,
under the PDIC Charter, examination and investigation refer to two different
processes. To reiterate, an examination of banks requires the prior consent of the
Monetary Board, whereas an investigation based on an examination report, does
not.
WHEREFORE, the petition is GRANTED. The Decision and Resolution of the Court of
Appeals in CA G.R. CEB SP. No. 01550, dated September 18, 2006 and January 25,
2007 are REVERSED and SET ASIDE.
SO ORDERED.