GENERAL BANKING LAW

9. Advocates for Truth in Lending, Inc. vs. BSP, et. al.

G.R. No. 192986 / January 15, 2013

FACTS:
Advocates for Truth in Lending, Inc. and its President, Eduardo Olaguer claim
that they are raising issues of transcendental importance to the public and so they
filed Petition for Certiorari under Rule 65 ROC seeking to declare that the Bangko
Sentral ng Pilipinas Monetary Board (BSP-MB), replacing the Central Bank Monetary
Board (CB-MB) by virtue of R.A. No. 7653, has no authority to continue enforcing
Central Bank Circular No. 905, issued by the CB-MB in 1982, which "suspended" the
Usury Law of 1916 (Act No. 2655).
R.A. No. 265, which created the Central Bank (CB) of the Philippines,
empowered the CB-MB to, among others, set the maximum interest rates which
banks may charge for all types of loans and other credit operations, within limits
prescribed by the Usury Law.
In its Resolution No. 2224, the CB-MB issued CB Circular No. 905, Series of
1982. Section 1 of the Circular, under its General Provisions, removed the ceilings on
interest rates on loans or forbearance of any money, goods or credits.
On June 14, 1993, President Fidel V. Ramos signed into law R.A. No. 7653
establishing the Bangko Sentral ng Pilipinas (BSP) to replace the CB.

ISSUES:
1. Whether the CB-MB exceeded its authority when it issued CB Circular No. 905,
which removed all interest ceilings and thus suspended Act No. 2655 as regards
usurious interest rates.
2. Whether under R.A. No. 7653, the BSP-MB may continue to enforce CB Circular
No. 905.

RULING:

1. NO. The CB-MB merely suspended the effectivity of the Usury Law when it
issued CB Circular No. 905. The power of the CB to effectively suspend the Usury
Law pursuant to P.D. No. 1684 has long been recognized and upheld in many cases.
As the Court explained in the landmark case of Medel v. CA, citing several cases, CB
Circular No. 905 "did not repeal nor in anyway amend the Usury Law but simply
suspended the latter’s effectivity;" that "a CB Circular cannot repeal a law, [for] only
a law can repeal another law;" that "by virtue of CB Circular No. 905, the Usury Law
has been rendered ineffective;" and "Usury has been legally non-existent in our
jurisdiction. Interest can now be charged as lender and borrower may agree upon."
By lifting the interest ceiling, CB Circular No. 905 merely upheld the parties’
freedom of contract to agree freely on the rate of interest. It cited Article 1306 of the
New Civil Code, under which the contracting parties may establish such stipulations,
clauses, terms and conditions as they may deem convenient, provided they are not
contrary to law, morals, good customs, public order, or public policy.
2. YES. The BSP-MB has authority to enforce CB Circular No. 905. Section 1 of
CB Circular No. 905 provides that, "The rate of interest, including commissions,
premiums, fees and other charges, on a loan or forbearance of any money, goods, or
credits, regardless of maturity and whether secured or unsecured, that may be
charged or collected by any person, whether natural or juridical, shall not be subject
to any ceiling prescribed under or pursuant to the Usury Law, as amended." It does
not purport to suspend the Usury Law only as it applies to banks, but to all lenders.
Petitioners contend that, granting that the CB had power to "suspend" the
Usury Law, the new BSP-MB did not retain this power of its predecessor, in view of
Section 135 of R.A. No. 7653, which expressly repealed R.A. No. 265. The petitioners
point out that R.A. No. 7653 did not reenact a provision similar to Section 109 of R.A.
No. 265.
A closer perusal shows that Section 109 of R.A. No. 265 covered only loans
extended by banks, whereas under Section 1-a of the Usury Law, as amended, the
BSP-MB may prescribe the maximum rate or rates of interest for all loans or
renewals thereof or the forbearance of any money, goods or credits, including those
for loans of low priority such as consumer loans, as well as such loans made by
pawnshops, finance companies and similar credit institutions. It even authorizes the
BSP-MB to prescribe different maximum rate or rates for different types of
borrowings, including deposits and deposit substitutes, or loans of financial
intermediaries. Act No. 2655, an earlier law, is much broader in scope, whereas R.A.
No. 265, now R.A. No. 7653, merely supplemented it as it concerns loans by banks
and other financial institutions. Had R.A. No. 7653 been intended to repeal Section
1-a of Act No. 2655, it would have so stated in unequivocal terms.
Further, the lifting of the ceilings for interest rates does not authorize
stipulations charging excessive, unconscionable, and iniquitous interest. 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. Stipulations authorizing iniquitous or unconscionable
interests have been invariably struck down for being contrary to morals, if not
against the law.

AMLA
1. REPUBLIC OF THE PHILIPPINES, represented by the Anti-Money Laundering
Council v. FIRST PACIFIC NETWORK INC.
G.R. NO. 56646, NOVEMBER 19, 2014

FACTS:
Laundering Council (AMLC for brevity), a government agency created under
Republic Act No. 9160, otherwise known as the Anti-Money Laundering Council Act
of 2001 (AMLA), received a report from a certain Reynaldo Geronimo, who claims to
have personal knowledge that respondent FPN [First Pacific Network, Inc.] is
involved in illegal securities trading and maintains a bank account at the main
Branch of Standard Chartered Bank at Ayala Avenue, Makati City (Standard
Chartered for brevity), under Account Number 904-AE-49351009, where petitioner
allegedly deposited the proceeds of its illegal securities trading activities.
 It appears that on 24 January 2002, the Regional Trial Court of Makati City,
Branch 136, issued three search warrants against several persons for Illegal Trading
of Securities without the necessary license issued by the Securities and Exchange
Commission (SEC for brevity). On 25 January 2002, the raiding teams composed of
agents of the NBI and the SEC served the search warrants, and were forthwith able
to seize several documents, including, among others, false buy-sell confirmation
slips, client files, documents showing the share transactions of clients, stock
quotations, broker's scripts, and the fictitious names used by the brokers/salesmen
and their corresponding real names, belonging to First Pacific.
Upon further investigation, it was discovered that First Pacific was not
registered with the SEC to engage in the buying and selling of securities. The
evidence gathered in such raid would tend to show prima facie proof that First
Pacific was engaged in illegal trading of securities, in contravention of Section 28 of
R.A. No. 8799. After evaluating the documents seized and the report received, the
AMLC found reasonable grounds to believe that the money deposited by First Pacific
with Standard Chartered was related to an illegal activity. It thus issued Resolution
No. 041 directing the immediate issuance and service of the freeze order upon First
Pacific's account.
Before the lapse of the freeze order, AMLC requested the Court of Appeals to
extend the effectivity of the freeze order against respondent First Pacific Network,
Inc.'s (FPN) bank account with the main branch of Standard Chartered Bank at Ayala
Avenue, Makati City. The Court of Appeals gave the AMLC an extension of not more
than 30 days in its assailed September 5, 2002 Decision. Dissatisfied with the ruling
of the Court of Appeals, AMLC filed, on September 30, 2002, a Motion for
Clarification and/or Partial Reconsideration. This motion was denied by the Court of
Appeals in the assailed January 7, 2003 Resolution.

ISSUE:
Whether or not the freeze order issued against respondent's bank account
should be further extended beyond the thirty (30)-day period granted by the Court
of Appeals and until the appropriate case has been filed against respondent.

HELD:
A freeze order is an extraordinary and interim relief issued by the CA to
prevent the dissipation, removal, or disposal of properties that are suspected to be
the proceeds of, or related to, unlawful activities as defined in Section 3(i) of RA No.
9160, as amended. The primary objective of a freeze order is to temporarily
preserve monetary instruments or property that are in any way related to an
unlawful activity or money laundering, by preventing the owner from utilizing them
during the duration of the freeze order. The relief is pre-emptive in character, meant
to prevent the owner from disposing his property and thwarting the State's effort in
building its case and eventually filing civil forfeiture proceedings and/or
prosecuting the owner.
In the case at bar, we find no error in the decision of the Court of Appeals to
extend Freeze Order No. F0-003 to a definite period of thirty (30) days. The state of
law and jurisprudence at the time of the issuance of the assailed ruling of the Court
of Appeals gave the appellate court discretion to extend a freeze order only for a
reasonable period of time which was later clarified by A.M. No. 05-11-04-SC as not
exceeding more than six (6) months. AMLC 's prayer that the freeze order at issue be
extended until proper legal actions allowed under Republic Act No. 9160 shall have
been taken against respondent cannot be therefore accommodated considering that
both Congress and this Court have decreed, in no vague terms, that a freeze order
cannot be issued or extended for an indefinite period of time.

FRIA

3. MARILYN VICTORIO-AQUINO vs. PACIFIC PLANS, INC. and MAMERTO A.

MARCELO, JR. (Court-Appointed Rehabilitation Receiver of Pacific Plans, Inc.)
G.R. No. 193108 December 10, 2014

TOPIC: FRIA, cram-down power of rehabilitation court

FACTS:

Respondent Pacific Plans, Inc. (now “APEC”) is engaged in the business of

selling pre-need plans and educational plans, including traditional open-ended
educational plans (PEPTrads). PEPTrads are educational plans where respondent
guarantees to pay the planholder, without regard to the actual cost at the time of
enrolment, the full amount of tuition and other school fees of a designated
beneficiary. Petitioner is a holder of two (2) units of respondent’s PEPTrads.
On April 7, 2005, foreseeing the impossibility of meeting its obligations to the
availing planholders as they fall due, respondent filed a Petition for Corporate
Rehabilitation with the Regional Trial Court, praying that it be placed under
rehabilitation and suspension of payments. At the time of filing of the Petition for
Corporate Rehabilitation, respondent had more or less 34,000 outstanding
PEPTrads.
On April 12, 2005, the Rehabilitation Court issued a Stay Order, directing the
suspension of payments of the obligations of respondent and ordering all creditors
and interested parties to file their comments/oppositions, respectively, to the
Petition for Corporate Rehabilitation. The same Order also appointed respondent
Marcelo as the rehabilitation receiver.
Pursuant to the prevailing rules on corporate rehabilitation, respondent
submitted to the Rehabilitation Court its proposed rehabilitation plan. Under the
terms thereof, respondent proposed the implementation of a “Swap,” which will
essentially give the planholder a means to exit from the PEPTrads at terms and
conditions relative to a termination value that is more advantageous than those
provided under the educational plan in case of voluntary termination.
The rehabilitation receiver submitted an Alternative Rehabilitation Plan
(ARP) and was approved by the Court. However due to the fact that the value of the
Philippine Peso strengthened and appreciated, the rehabilitation receiver submitted
a Modified Rehabilitation Plan (MRP), which was later approved by the
Rehabilitation Court. In approving the same, the Rehabilitation Court reasoned that
in view of the “cram down” power of the rehabilitation court under Section 23 of the
Interim Rules, courts have the power to approve a rehabilitation plan over the
objection of creditors and even when such proposed rehabilitation plan involves the
impairment of contractual obligations.
Petitioner questioned the approval of the MRP before the CA on September
26, 2008. In dismissing or denying the Petition for Review, the CA held, among
others, that a Petition for Review under Rule 43 is an improper remedy to question
the approval of a modified rehabilitation plan, and that contrary to petitioner’s
claim, the alterations in the MRP are consistent with the goals of the ARP.
Before the SC, petitioner contends that the MRP is ultra vires insofar as it
reduces the original claim and even the original amount that petitioner was to
receive under the ARP. She also claims that it was beyond the authority of the
Rehabilitation Court to sanction a rehabilitation plan, or the modification thereof,
when the essential feature of the plan involves forcing creditors to reduce their
claims against respondent.

ISSUE:
1. Whether or not the appeal under Rule 43 was proper in this case.
2. Whether or not the Rehabilitation Court has the authority to sanction a
rehabilitation plan, or the modification thereof, even when the essential
feature of the plan involves forcing creditors to reduce their claims
against respondent.

HELD:
1. YES. It bears emphasis that the governing rule at the time respondent filed its
petition for rehabilitation was the Interim Rules, which does not expressly
state the mode of appeal from the decisions, orders and resolutions of the
Rehabilitation Court, either prior or after the approval of the rehabilitation
plan. Accordingly, this Court issued a Resolution, A.M. No. 04-9-07-SC, which
lays down the proper mode of appeal in cases involving corporate
rehabilitation and intra-corporate controversies in order to prevent
cluttering the dockets of the courts with appeals and/or petitions for
certiorari. Under the said Resolution, all decisions and final orders of the
rehabilitation court, regardless of whether they are issued before or after the
approval of the rehabilitation court, shall be brought on appeal to the CA via
a petition for review under Rule 43 of the Rules of Court. While We agree
with respondent that the later rule A.M. No. 00-8-10-SC38 (Rehabilitation
Rules), which took effect on January 16, 2009 pursuant to P.D. No. 902-A, as
amended states that orders issued after the approval of the rehabilitation
plan can be reviewed only through a special civil action for certiorari under
Rule 65 of the Rules of Court, such rule does not apply to the instant case as
the same was not yet in effect at the time petitioner filed her Petition for
Review with the CA.
2. YES. The “cram-down” power of the Rehabilitation Court has long been
established and even codified under Section 23, Rule 4 of the Interim Rules.
Such prerogative was carried over in the Rehabilitation Rules, which
 maintains that the court may approve a rehabilitation plan over the objection
of the creditors if, in its judgment, the rehabilitation of the debtors is feasible
and the opposition of the creditors is manifestly unreasonable. The required
number of creditors opposing such plan under the Interim Rules (i.e., those
holding the majority of the total liabilities of the debtor) was, in fact,
removed. Moreover, the criteria for manifest unreasonableness is spelled out,
to wit
SEC. 11. Approval of Rehabilitation Plan. — The court may approve a
rehabilitation plan even over the opposition of creditors of the debtor if, in its
judgment, the rehabilitation of the debtor is feasible and the opposition of
the creditors is manifestly unreasonable. The opposition of the creditors is
manifestly unreasonable if the following are present:
(a) The rehabilitation plan complies with the requirements specified in
Section 18 of Rule 3;
(b) The rehabilitation plan would provide the objecting class of creditors
with payments whose present value projected in the plan would be greater
than that which they would have received if the assets of the debtor were
sold by a liquidator within a six (6)month period from the date of filing of the
petition; and
(c) The rehabilitation receiver has recommended approval of the plan.

Section 23, Rule 4 of the Interim Rules of Procedure on Corporate Rehabilitation

(Interim Rules) states that a rehabilitation plan may be approved even over the
opposition of the creditors holding a majority of the corporation’s total
liabilities if there is a showing that rehabilitation is feasible and the
opposition of the creditors is manifestly unreasonable . Also known as the
“cram-down” clause, this provision, which is currently incorporated in the FRIA, is
necessary to curb the majority creditors’ natural tendency to dictate their own
terms and conditions to the rehabilitation, absent due regard to the greater long-
term benefit of all stakeholders. Otherwise stated, it forces the creditors to accept
the terms and conditions of the rehabilitation plan, preferring long-term viability
over immediate but incomplete recovery.
This cram-down principle which “consists of two things: (i) approval despite
opposition and (ii) binding effect of the approved plan x x x.” This is clearly
manifested in Section 64 of Republic Act (R.A.) No. 10142, otherwise known as
Financial Rehabilitation and Insolvency Act of 2010 (FRIA), the latest law on
corporate rehabilitation and insolvency which states that:
“Notwithstanding the rejection of the Rehabilitation Plan by the
creditors, the court may confirm the Rehabilitation Plan if all of the following
circumstances are present:
 The Rehabilitation Plan complies with the requirements specified in
this Act;
 The rehabilitation receiver recommends the confirmation of the
Rehabilitation Plan;
  The shareholders, owners or partners of the juridical debtor lose at
least their controlling interest as a result of the Rehabilitation Plan; and
 The Rehabilitation Plan would likely provide the objecting class of
creditors with compensation which has a net present value greater than
that which they would have received if the debtor were under
liquidation.”

In the case at bar, we hold that the modification of the rehabilitation plan is a
risk management tool to address the volatility of the exchange rate of the Philippine
Peso vis-à-vis the U.S. Dollars, with the goal of ensuring that all planholders or
creditors receive adequate returns regardless of the tides of the Philippine market
by making payment in U.S. Dollars. This plan would prevent the trust fund of
respondent from being diluted due to the appreciation of the Philippine Peso and
assure that all planholders and creditors shall receive payment upon maturity of the
NAPOCOR bonds in the most equitable manner.
As to the issue of violation of non-impairment clause, the SC has previously
held in another case that “the SEC’s approval of the Rehabilitation Plan did not
impair BPI’s right to contract. As correctly contended by private respondents, the
non-impairment clause is a limit on the exercise of legislative power and not of
judicial or quasi-judicial power. The SEC, through the hearing panel that heard the
petition for approval of the Rehabilitation Plan, was acting as a quasi-judicial body
and thus, its order approving the plan cannot constitute an impairment of the right
and the freedom to contract.”