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1. TEODORO BAÑAS,*C. G. DIZON CONSTRUCTION, scheme wherein plaintiff ASIA PACIFIC could extend a loan
INC., and CENEN DIZON
vs.
ASIA PACIFIC FINANCE CORPORATION,
substituted by INTERNATIONAL CORPORATE
BANK now known as UNION BANK OF THE
PHILIPPINES
G.R. No. 128703 (October 18, 2000)
FACTS:
On 20 March 1981 Asia Pacific Finance Corporation (ASIA
PACIFIC for short) filed a complaint for a sum of money with
prayer for a writ of replevin against Teodoro Bañas, C. G.
Dizon Construction and Cenen Dizon.
Sometime in August 1980 Teodoro Bañas executed
a Promissory Note in favor of C. G. Dizon Construction
whereby for value received he promised to pay to the order
of C. G. Dizon Construction the sum of ₱390,000.00 in
installments of "₱32,500.00 every 25th day of the month
starting from September 25, 1980 up to August 25, 1981."
Later, C. G. Dizon Construction endorsed with recourse
the Promissory Note to ASIA PACIFIC, and to secure
payment thereof, C. G. Dizon Construction, through its
corporate officers, Cenen Dizon, President, and its Vice
President and Treasurer, executed a Deed of Chattel
Mortgage covering three (3) heavy equipment units of
Caterpillar Bulldozer Crawler Tractors in favor of ASIA
PACIFIC. Moreover, Cenen Dizon executed on 25 August
1980 a Continuing Undertaking wherein he bound himself
to pay the obligation jointly and severally with C. G. Dizon
Construction.
In compliance with the provisions of the Promissory Note,
C. G. Dizon Construction made three installment payments
to ASIA PACIFIC for a total of ₱130,000.00. Thereafter,
however, C. G. Dizon Construction defaulted in the
payment of the remaining installments, prompting ASIA
PACIFIC to send a Statement of Account to Cenen Dizon for
the unpaid balance of ₱267,737.50 inclusive of interests
and charges, and ₱66,909.38 representing attorney's fees.
As the demand was unheeded, ASIA PACIFIC sued the
defendants (herein petitioners).
While defendants admitted the genuineness and due
execution of the Promissory Note, the Deed of Chattel
Mortgage and the Continuing Undertaking, they
nevertheless maintained that these documents were never
intended by the parties to be legal, valid and binding but a
mere subterfuge to conceal the loan of ₱390,000.00 with
usurious interests.
Defendants claimed that since ASIA PACIFIC could not
directly engage in banking business, it proposed to them a
to them without violating banking laws: 
First, Cenen Dizon would secure a promissory note from
Teodoro Bañas with a face value of ₱390,000.00 payable in
installments; 
Second, ASIA PACIFIC would then make it appear that the
promissory note was sold to it by Cenen Dizon with the 14%
usurious interest on the loan discounted and collected in
advance by ASIA PACIFIC; and
Lastly, Cenen Dizon would provide sufficient collateral to
answer for the loan in case of default in payment and
execute a continuing guaranty to assure continuous and
prompt payment of the loan.
Defendants also alleged that out of the loan of ₱390,000.00
defendants actually received only ₱329,185.00 after ASIA
PACIFIC deducted the discounted interest, service handling
charges, insurance premium, registration and notarial fees.
On October 1980 Cenen Dizon informed ASIA PACIFIC that
he would be delayed in meeting his monthly amortization
but later on tendered payment to ASIA PACIFIC in an
amount equivalent to two (2) monthly amortizations. But
ASIA PACIFIC attempted to impose a 3% interest for every
month of delay, which he flatly refused to pay for being
usurious.
Afterwards, ASIA PACIFIC allegedly made a verbal proposal
to Cenen Dizon to surrender to it the ownership of the two
(2) bulldozer crawler tractors and, in turn, the latter would
treat the former's account as closed and the loan fully paid.
Cenen Dizon supposedly agreed and accepted the offer.
Defendants averred that the value of the bulldozer crawler
tractors was more than adequate to cover their obligation
to ASIA PACIFIC.
Meanwhile, on 21 April 1981 the trial court issued a writ of
replevin against defendant C. G. Dizon Construction for the
surrender of the bulldozer crawler tractors subject of
the Deed of Chattel Mortgage. Of the three (3) bulldozer
crawler tractors, only two (2) were actually turned over by
defendants both sold to ASIA PACIFIC as the highest bidder.
During the pendency of the case, defendant Teodoro Bañas
passed away, and on motion of the remaining defendants,
the trial court dismissed the case against him. On the other
hand, ASIA PACIFIC was substituted as party plaintiff by
International Corporate Bank after the disputed Promissory
Note was assigned and/or transferred by ASIA PACIFIC to
International Corporate Bank.
On 25 September 1992 the Regional Trial Court ruled in
favor of ASIA PACIFIC holding the defendants jointly and
severally liable for the unpaid balance of the obligation
BANKING LAW JURISPRUNDENCE

under the Promissory Note. The Court of Appeals
affirmed in toto the decision of the trial court.
ISSUE:
Whether or not the disputed transaction between
petitioners and ASIA PACIFIC violated banking laws, hence,
null and void
RULING: NO
Petitioners insist that ASIA PACIFIC was organized as an
investment house which could not engage in the lending of
funds obtained from the public through receipt of deposits.
The disputed Promissory Note, Deed of Chattel
Mortgage and Continuing Undertaking were not intended
to be valid and binding on the parties as they were merely
devices to conceal their real intention which was to enter
into a contract of loan in violation of banking laws.
We reject the argument. 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:
securities "shall include x x x x 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 x x x x"
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 -
Sec. 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
(underscoring supplied).
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
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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.
On petitioners' submission that the true intention of the
parties was to enter into a contract of loan, we have
examined the Promissory Note and failed to discern
anything therein that would support such theory. On the
contrary, we find the terms and conditions of the
instrument clear, free from any ambiguity, and expressive
of the real intent and agreement of the parties.
Likewise, the Deed of Chattel Mortgage and Continuing
Undertaking were duly acknowledged before a notary
public and, as such, have in their favor the presumption of
regularity. To contradict them there must be clear,
convincing and more than merely preponderant evidence.
In the instant case, the records do not show even a
preponderance of evidence in favor of petitioners' claim
that the Deed of Chattel Mortgage and Continuing
Undertaking were never intended by the parties to be legal,
valid and binding. Notarial documents are evidence of the
facts in clear and unequivocal manner therein expressed.
Interestingly, petitioners' assertions were based mainly on
the self-serving testimony of Cenen Dizon, and not on any
other independent evidence.
2. In Re Liquidation of Mercantile Bank of China.
TAN TIONG TICK
vs.
AMERICAN APOTHECARIES CO., ET AL.
G.R. No. L-43682 (March 31, 1938)
FACTS:
In the proceedings for the liquidation of the Mercantile
Bank of China, the appellant presented a written claim
alleging: that when this bank ceased to operate on
September 19, 1931, his current account in said bank
showed a balance of P9,657.50 in his favor; that on the
same date his savings account in the said bank also showed
a balance in his favor of P20,000 plus interest then due
amounting to P194.78; that on the other hand, he owed
the bank in the amount of P13,262.58, the amount of the
trust receipts which he signed because of his withdrawal
from the bank of certain merchandise consigned to him
without paying the drafts drawn upon him by the remittors
thereof; that the credits thus described should be set off
against each other according to law, and on such set off
being made it appeared that he was still the creditor of the
bank in the sum of P16,589.70. And he asked that the court
BANKING LAW JURISPRUNDENCE

order the Bank Commissioner to pay him the aforesaid
balance and that the same be declared as preferred credit.
The claim was referred to the commissioner appointed by
the court, who at the same time acted as referee, and this
officer recommended that the balance claimed be paid
without interest and as an ordinary credit. The court
approved the recommendation and entered judgment in
the accordance therewith. The claimant took an appeal.
ISSUES:
1. Whether or not the current account and savings
deposits are preferred credits in cases involving
insolvency and liquidation of the bank.
2. Whether or not the deposits could be offset with
the debt of the depositor with the bank.
3. Whether or not the deposits should earn interest
from the time the bank ceased to operate.
RULING:
1.
NO.
It appears that even after the enactment of the Insolvency
Law there was no law in this jurisdiction governing the
order or preference of credits in case of insolvency and
liquidation of a bank. But the Philippine Legislature
subsequently enacted Act No. 3519, amended various
sections of the Revised Administrative Code, which took
effect on February 20, 1929, and section 1641 of this latter
Code. as amended by said Act provides:
SEC. 1641. Distribution of assets. — In the case of the
liquidation of a bank or banking institution, after payment
of the costs of the proceeding, including reasonable
expenses, commissions and fees of the Bank Commissioner,
to be allowed by the court, the Bank Commissioner shall
pay the debts of the institution, under of the court in the
order of their legal priority.
From this section 1641 we deduce that the intention of the
Philippine Legislature, in providing that the Bank
Commissioner shall pay the debts of the company by virtue
of an order of the court in the order of their priority, was to
enforce the provisions of section 48, 49 and 50 of the
Insolvency Law in the sense that they are made applicable
to cases of insolvency or bankruptcy and liquidation of
banks. No other deduction can be made from the phrase
“in the order of their legal priority” employed by the law,
for there being no law establishing any priority in the order
of payment of credits, the legislature could not reasonably
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refer to any legislation upon the subject, unless the
interpretation above stated is accepted.
Examining now the claims of the appellant, it appears that
none of them falls under any of the cases specified by
section 48, 49 and 50 of the Insolvency Law; wherefore, we
conclude that the appellant’s claims, consisting of his
current and savings account, are not preferred credits.
2.
YES.
According to an American Jurisprudence, “it may be stated
as a general rule that when a depositor is indebted to a
bank, and the debts are mutual — that is, between the
same parties and in the same right — the bank may apply
the deposit, or such portion thereof as may be necessary,
to the payment of the debt due it by the depositor,
provided there is no express agreement to the contrary and
the deposit is not specially applicable to some other
particular purposes.” The situation referred to by the
appellees is inevitable because section 1639 of the Revised
Administrative Code, as amended by Act No. 3519, provides
that the Bank Commissioner shall reduce the assets of the
bank into cash and this cannot be done without first
liquidating individually the accounts of the debtors of said
bank, and in making this individual liquidation the debtors
are entitled to set off, by way of compensation, their claims
against the bank.
3.
Upon this point a distinction must be made between the
interest which the deposits should earn from their
existence until the bank ceased to operate, and that which
they may earn from the time the bank’s operations were
stopped until the date of payment of the deposits. As to the
first class, it should be paid because such interest has been
earned in the ordinary course of the bank’s business and
before the latter has been declared in a state or liquidation.
Moreover, the bank being authorized by law to make us of
the deposits, with the limitation stated, to invest the same
in its business and other operations, it may be presumed
that it bound itself to pay interest to the depositors as in
fact it paid interest prior to the date of the said claims.
As to the interest which may be charged from the date the
bank ceased to do business because it was declared in a
state of liquidation, SC held that the said interest should
not be paid. Under articles 1101 and 1108 of the Civil Code,
interest is allowed by way of indemnity for damages
suffered, in the cases wherein the obligation consists in the
payment of money. In view of this, SC held that in the
absence of any express law or any applicable provision of
BANKING LAW JURISPRUNDENCE

the Code of Commerce, it is not proper to pay this last kind
of interest to the appellant upon his deposits in the bank,
for this would be anomalous and unjustified in a liquidation
or insolvency of a bank. This rule should be strictly
observed in the instant case because it is understood that
the assets should be prorated among all the creditors as
they are insufficient to pay all the obligations of the bank.
In view of all the foregoing considerations, SC affirmed the
part of the appealed decision for the reasons stated herein,
and it is ordered that the net claim of the appellant,
amounting to P13,611.21, is an ordinary and not a
preferred credit, and that he is entitled to charge interest
on said amount up to September 19, 1931.
3. THE CONSOLIDATED BANK and TRUST CORPORATION
vs.
COURT OF APPEALS and L.C. DIAZ and COMPANY, CPA’s
G.R. No. 138569 (September 11, 2003)
FACTS:
Solidbank is a domestic banking corporation organized and
existing under Philippine laws. Private respondent L.C. Diaz
and Company, CPA’s ("L.C. Diaz"), is a professional
partnership engaged in the practice of accounting.
Sometime in March 1976, L.C. Diaz opened a savings
account with Solidbank.
On 14 August 1991, L.C. Diaz through its cashier, Mercedes
Macaraya ("Macaraya"), filled up a savings (cash) two
deposit slips. Macaraya instructed the messenger of L.C.
Diaz, Ismael Calapre ("Calapre"), to deposit the money with
Solidbank. Macaraya also gave Calapre the Solidbank
passbook.
Calapre went to Solidbank and presented to Teller No. 6 the
two deposit slips and the passbook. The teller
acknowledged receipt of the deposit by returning to
Calapre the duplicate copies of the two deposit slips. Since
the transaction took time and Calapre had to make another
deposit for L.C. Diaz with Allied Bank, he left the passbook
with Solidbank. Calapre then went to Allied Bank. When
Calapre returned to Solidbank to retrieve the passbook,
Teller No. 6 informed him that "somebody got the
passbook. Calapre went back to L.C. Diaz and reported the
incident to Macaraya.
Macaraya immediately prepared a deposit slip in duplicate
copies with a check of P200,000. Macaraya, together with
Calapre, went to Solidbank and presented to Teller No. 6
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the deposit slip and check. When Macaraya asked for the
passbook, Teller No. 6 told Macaraya that someone got the
passbook but she could not remember to whom she gave
the passbook. When Macaraya asked Teller No. 6 if Calapre
got the passbook, Teller No. 6 answered that someone
shorter than Calapre got the passbook. Calapre was then
standing beside Macaraya.
Teller No. 6 handed to Macaraya a deposit slip dated 14
August 1991 for the deposit of a check for P90,000 drawn
on Philippine Banking Corporation ("PBC"). This PBC check
of L.C. Diaz was a check that it had "long closed." PBC
subsequently dishonored the check because of insufficient
funds and because the signature in the check differed from
PBC’s specimen signature. Failing to get back the passbook,
Macaraya went back to her office and reported the matter
to the Personnel Manager of L.C. Diaz, Emmanuel Alvarez.
L.C. Diaz called up Solidbank to stop any transaction using
the same passbook until L.C. Diaz could open a new
account. On the same day, Diaz formally wrote Solidbank to
make the same request. It was also on the same day that
L.C. Diaz learned of the unauthorized withdrawal the day
before of P300,000 from its savings account. The
withdrawal slip for the P300,000 bore the signatures of the
authorized signatories of L.C. Diaz, namely Diaz and Rustico
L. Murillo. The signatories, however, denied signing the
withdrawal slip. A certain Noel Tamayo received the
P300,000.
In an Information, L.C. Diaz charged its messenger,
Emerano Ilagan and one Roscon Verdazola with Estafa
through Falsification of Commercial Document. The
Regional Trial Court of Manila dismissed the criminal case.
On 24 August 1992, L.C. Diaz through its counsel demanded
from Solidbank the return of its money. Solidbank refused.
L.C. Diaz filed a Complaint for Recovery of a Sum of Money
against Solidbank with the Regional Trial Court of Manila,
Branch 8. After trial, the trial court rendered a decision
absolving Solidbank and dismissing the complaint.
L.C. Diaz then appealed to the Court of Appeals. On 27
October 1998, the Court of Appeals issued its Decision
reversing the decision of the trial court.
On 11 May 1999, the Court of Appeals issued its Resolution
denying the motion for reconsideration of Solidbank. The
appellate court, however, modified its decision by deleting
the award of exemplary damages and attorney’s fees.
ISSUE:
BANKING LAW JURISPRUNDENCE

Whether or not the fiduciary nature of banking converts a
simple loan into a trust agreement.
RULING:
NO. The rulings of the trial court and the Court of Appeals
conflict on the application of the law. The trial court pinned
the liability on L.C. Diaz based on the provisions of the rules
on savings account, a recognition of the contractual
relationship between Solidbank and L.C. Diaz, the latter
being a depositor of the former. On the other hand, the
Court of Appeals applied the law on quasi-delict to
determine who between the two parties was ultimately
negligent. The law on quasi-delict or culpa aquiliana is
generally applicable when there is no pre-existing
contractual relationship between the parties.
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"), 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, 20 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
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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. 22 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. Although RA 8791 took effect almost nine
years after the unauthorized withdrawal of the P300,000
from L.C. Diaz’s savings account, jurisprudence at the time
of the withdrawal already imposed on banks the same high
standard of diligence required under RA No. 8791.
However, the fiduciary nature of a bank-depositor
relationship does not convert the contract between the
bank and its depositors from a simple loan to a trust
agreement, whether express or implied. Failure by the bank
to pay the depositor is failure to pay a simple loan, and not
a breach of trust. The law simply imposes on the bank a
higher standard of integrity and performance in complying
with its obligations under the contract of simple loan,
beyond those required of non-bank debtors under a similar
contract of simple loan.
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.
4. LUZAN SIA, petitioner, vs. COURT OF APPEALS and
SECURITY BANK and TRUST COMPANY, respondents.
G.R. No. 102970 May 13, 1993
TOPIC: Nature of Safety Deposit Box
FACTS
The plaintiff rented Safety Deposit Box No. 54 of
the defendant bank at its Binondo Branch, wherein he
placed his collection of stamps.  During the floods that took
place in 1985 and 1986, floodwater entered into the
defendant bank's premises, seeped into the safety deposit
box leased by the plaintiff and caused, according to the
plaintiff, damage to his stamps collection. The defendant
bank rejected the plaintiff's claim for compensation for his
BANKING LAW JURISPRUNDENCE

damaged stamps collection, so, the plaintiff instituted an
action for damages against the defendant bank. The
defendant bank denied liability for the damaged stamps
collection of the plaintiff on the basis of the "Rules and
Regulations Governing the Lease of Safe Deposit Boxes",
particularly paragraphs 9 and 13, which reads:
"9. The liability of the Bank by reason of the
lease, is limited to the exercise of the diligence to
prevent the opening of the safe by any person
other than the Renter, his authorized agent or
legal representative;
xxx xxx xxx
"13. The Bank is not a depository of the contents
of the safe and it has neither the possession nor
the control of the same. The Bank has no interest
whatsoever in said contents, except as herein
provided, and it assumes absolutely no liability in
connection therewith."
The defendant bank also contended that its
contract with the plaintiff over safety deposit box No. 54
was one of lease and not of deposit and, therefore,
governed by the lease agreement which should be the
applicable law; that the destruction of the plaintiff's stamps
collection was due to a calamity beyond obligation on its
part to notify the plaintiff about the floodwaters that
inundated its premises at Binondo branch which allegedly
seeped into the safety deposit box leased to the plaintiff.
ISSUE
WON the Bank may be held liable for the damaged stamps
collection.
RULING
Yes. The depositary's responsibility for the safekeeping of
the objects deposited in the case at bar is governed by Title
I, Book IV of the Civil Code. Accordingly, the depositary
would be liable if, in performing its obligation, it is found
guilty of fraud, negligence, delay or contravention of the
tenor of the agreement. In the absence of any stipulation
prescribing the degree of diligence required, that of a good
father of a family is to be observed. Hence, any stipulation
exempting the depositary from any liability arising from the
loss of the thing deposited on account of fraud, negligence
or delay would be void for being contrary to law and public
policy.
Both conditions No. 9 and No. 13 of the "Lease Agreement"
covering the safety deposit box must be stricken down for
being contrary to law and public policy as they are meant to
exempt SBTC from any liability for damage, loss or
destruction of the contents of the safety deposit box which
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may arise from its own or its agents' fraud, negligence or
delay. Accordingly, SBTC cannot take refuge under the said
conditions.
Furthermore, condition 13 stands on a wrong premise and
is contrary to the actual practice of the Bank. It is not
correct to assert that the Bank has neither the possession
nor control of the contents of the box since in fact, the
safety deposit box itself is located in its premises and is
under its absolute control; moreover, the respondent Bank
keeps the guard key to the said box. Clearly then, the
foregoing conditions in the contract in question are void
and ineffective.
Moreover, Article 1170 of the Civil Code, which reads:
Those who in the performance of their
obligation are guilty of fraud, negligence,
or delay, and those who in any manner
contravene the tenor thereof, are liable
for damages,
thus comes to the succor of the petitioner. The destruction
or loss of the stamp collection which was the "product of
27 years of patience and diligence" caused the petitioner
pecuniary loss; hence, he must be compensated therefor.
In the recent case CA Agro-Industrial Development Corp. vs.
Court of Appeals, this Court explicitly rejected the
contention that a contract for the use of a safety deposit
box is a contract of lease governed by Title VII, Book IV of
the Civil Code. Nor did We fully subscribe to the view that it
is a contract of deposit to be strictly governed by the Civil
Code provision on deposit; it is, as We declared, a special
kind of deposit. The prevailing rule in American
jurisprudence — that the relation between a bank renting
out safe deposit boxes and its customer with respect to
the contents of the box is that of a bailor and bailee, the
bailment for hire and mutual benefit  — has been adopted
in this jurisdiction.
5. TEOFISTO GUINGONA, JR., ANTONIO I. MARTIN, and
TERESITA SANTOS, petitioners,
vs.
THE CITY FISCAL OF MANILA, HON. JOSE B. FLAMINIANO,
ASST. CITY FISCAL FELIZARDO N. LOTA and CLEMENT
DAVID, respondents.
G.R. No. L-60033 April 4, 1984
FACTS
BANKING LAW JURISPRUNDENCE

Private respondent David filed in the Office of the City Fiscal
of Manila, which case was assigned to respondent Lota for
preliminary investigation. David charged petitioners with
estafa and violation of Central Bank Circular No. 364 and
related Central Bank regulations on foreign exchange
transactions.
At the inception of the preliminary investigation before
respondent Lota, petitioners moved to dismiss the charges
against them for lack of jurisdiction because David's claims
allegedly comprised a purely civil obligation which was itself
novated. Fiscal Lota denied the motion to dismiss
ISSUE
Whether public respondents acted without jurisdiction
when they investigated the charges.
RULING
There is merit in the contention of the petitioners that their
liability is civil in nature and therefore, public respondents
have no jurisdiction over the charge of estafa.
It must be pointed out that when private respondent David
invested his money on nine savings deposits with the
aforesaid bank, the contract that was perfected was a
contract of simple loan or mutuum and not a contract of
deposit.
Bank deposits are in the nature of irregular deposits. They
are really 'loans because they earn interest. All kinds of
bank deposits, whether fixed, savings, or current are to be
treated as loans and are to be covered by the law on
loans. Current and saving deposits are loans to a bank
because it can use the  same.
Hence, the relationship between the private respondent
and the Nation Savings and Loan Association is that of
creditor and debtor; consequently, the ownership of the
amount deposited was transmitted to the Bank upon the
perfection of the contract and it can make use of the
amount deposited for its banking operations. While the
Bank has the obligation to return the amount deposited, it
has, however, no obligation to return or deliver the same
money that was deposited. And, the failure of the Bank to
return the amount deposited will not constitute estafa
through misappropriation punishable under Article 315,
par. l(b) of the Revised Penal Code, but it will only give rise
to civil liability over which the public respondents have no-
jurisdiction.
But even granting that the failure of the bank to pay the
time and savings deposits of private respondent David
would constitute a violation of paragraph 1(b) of Article 315
of the Revised Penal Code, nevertheless any incipient
criminal liability was deemed avoided, because when the
aforesaid bank was placed under receivership by the
7
Central Bank, petitioners Guingona and Martin assumed
the obligation of the bank to private respondent David,
thereby resulting in the novation of the original contractual
obligation arising from deposit into a contract of loan and
converting the original trust relation between the bank and
private respondent David into an ordinary debtor-creditor
relation between the petitioners and private respondent.
Consequently, the failure of the bank or petitioners
Guingona and Martin to pay the deposits of private
respondent would not constitute a breach of trust but
would merely be a failure to pay the obligation as a debtor.
Considering that the liability of the petitioners is purely civil
in nature and that there is no clear showing that they
engaged in foreign exchange transactions, We hold that the
public respondents acted without jurisdiction when they
investigated the charges against the petitioners.
Consequently, public respondents should be restrained
from further proceeding with the criminal case for to allow
the case to continue, even if the petitioners could have
appealed to the Ministry of Justice, would work great
injustice to petitioners and would render meaningless the
proper administration of justice.
6. PHILIPPINE COMMERCIAL INTERNATIONAL
BANK, Petitioner,
vs SANTONIO B. BALMACEDA and ROLANDO N.
RAMOS, Respondents.
G.R. No. 158143               September 21, 2011
TOPIC: EXTRAORDINARY DILIGENCE
FACTS
PCIB filed an action for recovery of sum of money
with damages before the RTC against Antonio Balmaceda,
the Branch Manager of its Sta. Cruz, Manila branch. The
bank alleged that Balmaceda, by taking advantage of his
position as branch manager, fraudulently obtained and
encashed 34 Manager’s checks in the total amount of
₱11,937,150.00. PCIB also impleaded Rolando Ramos as
one of the recipients of a portion of the proceeds from
Balmaceda’s alleged fraud.
Since Balmaceda did not file an Answer, he was
declared in default. On the other hand, Ramos filed an
Answer denying any knowledge of Balmaceda’s scheme.
According to Ramos, he is a reputable businessman
engaged in the business of buying and selling fighting cocks,
BANKING LAW JURISPRUNDENCE

and Balmaceda was one of his clients. Ramos admitted
receiving money from Balmaceda as payment for the
fighting cocks that he sold to Balmaceda, but maintained
that he had no knowledge of the source of Balmaceda’s
money.
RTC disbelieved Ramos’ allegation that the sum of
money deposited into his Savings Account were proceeds
from the sale of fighting cocks, it held Ramos liable to pay
PCIB the amount of ₱895,000.00.
On appeal, the CA dismissed the complaint against
Ramos, holding that no sufficient evidence existed to prove
that Ramos colluded with Balmaceda in the latter’s
fraudulent manipulations.
Hence, this petition.
ISSUE
Whether Ramos, who received a portion of the
money that Balmaceda took from PCIB, should also be held
liable for the return of this money to the Bank.
RULING
NO. PCIB, as plaintiff, had to prove, by
preponderance of evidence, its positive assertion that
Ramos conspired with Balmaceda in perpetrating the
latter’s scheme to defraud the Bank.
All that PCIB’s evidence proves is that Balmaceda
used Ramos’ name as a payee when he filled up the
application forms for the Manager’s checks. But, as the CA
correctly observed, the mere fact that Balmaceda made
Ramos the payee on some of the Manager’s checks is not
enough basis to conclude that Ramos was complicit in
Balmaceda’s fraud; a number of other people were made
payees on the other Manager’s checks yet PCIB never
alleged them to be liable, nor did the Bank adduce any
other evidence pointing to Ramos’ participation that would
justify his separate treatment from the others.
Given that PCIB failed to establish Ramos’
participation in Balmaceda’s scheme, it was not even
necessary for Ramos to provide an explanation for the
money he received from Balmaceda. Even if the evidence
adduced by the plaintiff appears stronger than that
presented by the defendant, a judgment cannot be entered
in the plaintiff’s favor if his evidence still does not suffice to
sustain his cause of action; to reiterate, a preponderance of
evidence must be established to achieve this result.
In considering this case, one point that cannot be
disregarded is the significant role that PCIB played which
contributed to the perpetration of the fraud. We cannot
ignore that Balmaceda managed to carry out his fraudulent
scheme primarily because other PCIB employees failed to
8
carry out their assigned tasks – flaws imputable to PCIB
itself as the employer.
Despite Balmaceda’s gross violations of bank
procedures – mainly in the processing of the applications
for Manager’s checks and in the releasing of the Manager’s
checks – Balmaceda’s co-employees not only turned a blind
eye to his actions, but actually complied with his
instructions. In this way, PCIB’s own employees
were unwitting accomplices in Balmaceda’s fraud.
Another telling indicator of PCIB’s negligence is the
fact that it allowed Balmaceda to encash the Manager’s
checks that were plainly crossed checks. A crossed check is
one where two parallel lines are drawn across its face or
across its corner. Based on jurisprudence, the crossing of a
check has the following effects: (a) the check may not be
encashed but only deposited in the bank; (b) the check may
be negotiated only once — to the one who has an account
with the bank; and (c) the act of crossing the check serves
as a warning to the holder that the check has been issued
for a definite purpose and he must inquire if he received
the check pursuant to this purpose; otherwise, he is not a
holder in due course. In other words, the crossing of a
check is a warning that the check should be deposited only
in the account of the payee. When a check is crossed, it is
the duty of the collecting bank to ascertain that the check is
only deposited to the payee’s account. In complete
disregard of this duty, PCIB’s systems allowed Balmaceda to
encash 26 Manager’s checks which were all crossed checks,
or checks payable to the "payee’s account only."
The General Banking Law of 2000  requires of
banks the highest standards of integrity and performance.
The banking business is impressed with public interest. Of
paramount importance is the trust and confidence of the
public in general in the banking industry. Consequently,
the diligence required of banks is more than that of a
Roman pater familias  or a good father of a family.  The
highest degree of diligence is expected.
While we appreciate that Balmaceda took
advantage of his authority and position as the branch
manager to commit these acts, this circumstance cannot be
used to excuse the manner the Bank – through its
employees –handled its clients’ bank accounts and thereby
ignored established bank procedures at the branch
manager’s mere order. This lapse is made all the more
glaring by Balmaceda’s repetition of his modus operandi 33
more times in a period of over one year by the Bank’s own
estimation. With this kind of record, blame must be
imputed on the Bank itself and its systems, not solely on
the weakness or lapses of individual employees.
Moreover, Ramos cannot be held liable to PCIB on
account of unjust enrichment simply because he received
BANKING LAW JURISPRUNDENCE

payments out of money secured by fraud from PCIB. To
hold Ramos accountable, it is necessary to prove that he
received the money from Balmaceda, knowing that he
(Ramos) was not entitled to it. PCIB must also prove that
Ramos, at the time that he received the money from
Balmaceda, knew that the money was acquired through
fraud. Knowledge of the fraud is the link between Ramos
and PCIB that would obligate Ramos to return the money
based on the principle of unjust enrichment.
7. SIMEX INTERNATIONAL (MANILA),
INCORPORATED, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and TRADERS ROYAL
BANK, respondents.
G.R. No. 88013 March 19, 1990
FACTS
The petitioner was a depositor of the respondent bank and
maintained a checking account in its branch at Romulo
Avenue, Cubao, Quezon City. The petitioner deposited to its
account in the said bank the amount of P100,000.00, thus
increasing its balance as of that date to
P190,380.74. Subsequently, the petitioner issued several
checks against its deposit but was surprised to learn later
that they had been dishonored for insufficient funds.
Investigation disclosed that the sum of P100,000.00
deposited by the petitioner had not been credited to it. The
error was rectified and the dishonored checks were paid
after they were re-deposited.  good reputation that could not be marred, more so since
The petitioner demanded reparation from the respondent
bank for its "gross and wanton negligence." This demand
was not met. The petitioner then filed a complaint in the
then Court of First Instance of Rizal claiming from the
private respondent moral damages in the sum of
P1,000,000.00 and exemplary damages in the sum of
P500,000.00, plus 25% attorney's fees, and costs.
After trial, Judge Johnico G. Serquinia rendered judgment
holding that moral and exemplary damages were not called
for under the circumstances. However, observing that the
plaintiff's right had been violated, he ordered the
defendant to pay nominal damages in the amount of
P20,000.00 plus P5,000.00 attorney's fees and costs.  This
decision was affirmed in toto by the respondent court.  damages are imposed, by way of example
ISSUE
Whether the petitioner is entitled to moral and exemplary
damages and, if so, in what amounts?
RULING
9
The appealed judgment is MODIFIED and the private
respondent is ordered to pay the petitioner, in lieu of
nominal damages, moral damages in the amount of
P20,000.00, and exemplary damages in the amount of
P50,000.00 plus the original award of attorney's fees in the
amount of P5,000.00, and costs.
The Court has carefully examined the facts of this case and
finds that it cannot share some of the conclusions of the
lower courts. It is true that the dishonored checks were, as
the Court of Appeals put it, "eventually" paid. However, this
took almost a month when, properly, the checks should
have been paid immediately upon presentment.
As the Court sees it, the initial carelessness of the
respondent bank, aggravated by the lack of promptitude in
repairing its error, justifies the grant of moral damages. We
also note that while stressing the rectification made by the
respondent bank, the decision practically ignored the
prejudice suffered by the petitioner. Its business declined.
Its reputation was tarnished. Its standing was reduced in
the business community. All this was due to the fault of the
respondent bank which was undeniably remiss in its duty to
the petitioner.
We shall recognize that the petitioner did suffer injury
because of the private respondent's negligence that caused
the dishonor of the checks issued by it. The immediate
consequence was that its prestige was impaired because of
the bouncing checks and confidence in it as a reliable
debtor was diminished. The private respondent makes
much of the one instance when the petitioner was sued in a
collection case, but that did not prove that it did not have a
that case was ultimately settled. It does not appear that, as
the private respondent would portray it, the petitioner is an
unsavory and disreputable entity that has no good name to
protect.
As we have found that the petitioner has indeed incurred
loss through the fault of the private respondent, the proper
remedy is the award to it of moral damages, which we
impose, in our discretion, in the amount of P20,000.00.
Now for the exemplary damages.
The pertinent provisions of the Civil Code are the following:
Art. 2229. Exemplary or corrective
or correction for the public good, in
addition to the moral, temperate,
liquidated or compensatory damages.
Art. 2232. In contracts and quasi-
contracts, the court may award
exemplary damages if the defendant
BANKING LAW JURISPRUNDENCE
 10

acted in a wanton, fraudulent, reckless, good," in the words of the law. It is expected that this ruling
oppressive, or malevolent manner. will serve as a warning and deterrent against the repetition
of the ineptness and indifference that has been displayed
The banking system is an indispensable institution in the here, lest the confidence of the public in the banking
modern world and plays a vital role in the economic life of system be further impaired.
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 an 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 8. PHILIPPINE NATIONAL BANK, Petitioner,
bank of his choice, knowing that they will be safe in its vs.
custody and will even earn some interest for him. The F.F. CRUZ and CO., INC. Respondent.
ordinary person, with equal faith, usually maintains a
modest checking account for security and convenience in G.R. No. 173259               July 25, 2011
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 As between a bank and its depositor, where the bank’s
needed but more often in the conduct of their day-to-day negligence is the proximate cause of the loss and the
transactions like the issuance or encashment of checks. depositor is guilty of contributory negligence, the greater
proportion of the loss shall be borne by the bank.
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 Factual Antecedents
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
The antecedents are aptly summarized by the appellate
amount of money the depositor can dispose of as he sees
court:
fit, confident that the bank will deliver it as and to
whomever he directs. A blunder on the part of the bank,
In its complaint, it is alleged that [respondent F.F. Cruz &
such as the dishonor of a check without good reason, can
Co., Inc.] (hereinafter FFCCI) opened savings/current or so-
cause the depositor not a little embarrassment if not also
called combo account and dollar savings account with
financial loss and perhaps even civil and criminal litigation.
[petitioner Philippine National Bank] (hereinafter PNB) at its
Timog Avenue Branch. Its President Felipe Cruz (or Felipe)
The point is that as a business affected with public interest
and Secretary-Treasurer Angelita A. Cruz (or Angelita) were
and because of the nature of its functions, the bank is
the named signatories for the said accounts.
under obligation to treat the accounts of its depositors with
meticulous care, always having in mind the fiduciary nature
The said signatories on separate but coeval dates left for
of their relationship. In the case at bar, it is obvious that the
and returned from the Unites States of America.
respondent bank was remiss in that duty and violated that
relationship. What is especially deplorable is that, having
been informed of its error in not crediting the deposit in While they were thus out of the country, applications for
question to the petitioner, the respondent bank did not cashier’s and manager’s [checks] bearing Felipe’s
immediately correct it but did so only one week later or [signature] were presented to and both approved by the
twenty-three days after the deposit was made. It bears PNB. The first was on March 27, 1995 for ₱9,950,000.00
repeating that the record does not contain any satisfactory payable to a certain Gene B. Sangalang and the other one
explanation of why the error was made in the first place was on April 24, 1995 for ₱3,260,500.31 payable to one
and why it was not corrected immediately after its Paul Bautista. The amounts of these checks were then
discovery. Such ineptness comes under the concept of the debited by the PNB against the combo account of [FFCCI].
wanton manner contemplated in the Civil Code that calls
for the imposition of exemplary damages. When Angelita returned to the country, she had occasion to
examine the PNB statements of account of [FFCCI] for the
After deliberating on this particular matter, the Court, in months of February to August 1995 and she noticed the
the exercise of its discretion, hereby imposes upon the deductions of ₱9,950,000.00 and ₱3,260,500.31. Claiming
that these were unauthorized and fraudulently made,
respondent bank exemplary damages in the amount of
[FFCCI] requested PNB to credit back and restore to its
P50,000.00, "by way of example or correction for the public
BANKING LAW JURISPRUNDENCE

account the value of the checks. PNB refused, and thus
constrained [FFCCI] filed the instant suit for damages
against the PNB and its own accountant Aurea Caparas (or
Caparas).
In its traverse, PNB averred lack of cause of action. It
alleged that it exercised due diligence in handling the
account of [FFCCI]. The applications for manager’s check
have passed through the standard bank procedures and it
was only after finding no infirmity that these were given
due course. In fact, it was no less than Caparas, the
accountant of [FFCCI], who confirmed the regularity of the
transaction. The delay of [FFCCI] in picking up and going
over the bank statements was the proximate cause of its
self-proclaimed injury. Had [FFCCI] been conscientious in
this regard, the alleged chicanery would have been
detected early on and Caparas effectively prevented from
absconding with its millions. It prayed for the dismissal of
the complaint.4
Issue
Whether the Court of Appeals seriously erred when it
found PNB guilty of negligence.
Ruling
Yes
We affirm the ruling of the CA.
PNB is guilty of negligence.
First, oral testimony is not as reliable as documentary
evidence.17 Second, PNB’s own witness, San Diego, testified
that in the verification process, the principal duty to
determine the genuineness of the signature devolved upon
the account analyst.18 However, PNB did not present the
account analyst to explain his or her failure to sign the box
for signature and balance verification of the subject
applications for manager’s check, thus, casting doubt as to
whether he or she did indeed verify the signatures thereon.
Third, we cannot fault the appellate court for not giving
weight to the testimonies of Gallego and San Diego
considering that the latter are naturally interested in
exculpating themselves from any liability arising from the
failure to detect the forgeries in the subject transactions.
Fourth, Gallego admitted that PNB’s employees received
training on detecting forgeries from the National Bureau of
Investigation.19 However, Emmanuel Guzman, then NBI
senior document examiner, testified, as an expert witness,
that the forged signatures in the subject applications for
manager’s check contained noticeable and significant
differences from the genuine signatures of FFCCI’s
authorized signatories and that the forgeries should have
been detected or observed by a trained signature verifier of
any bank.20
11
Given the foregoing, we find no reversible error in the
findings of the appellate court that PNB was negligent in
the handling of FFCCI’s combo account, specifically, with
respect to PNB’s failure to detect the forgeries in the
subject applications for manager’s check which could have
prevented the loss. As we have often ruled, the banking
business is impressed with public trust. 21 A higher degree of
diligence is imposed on banks relative to the handling of
their affairs than that of an ordinary business
enterprise.22 Thus, the degree of responsibility, care and
trustworthiness expected of their officials and employees is
far greater than those of ordinary officers and employees in
other enterprises.23 In the case at bar, PNB failed to meet
the high standard of diligence required by the
circumstances to prevent the fraud. In Philippine Bank of
Commerce v. Court of Appeals24  and The Consolidated Bank
& Trust Corporation v. Court of Appeals, 25 where the bank’s
negligence is the proximate cause of the loss and the
depositor is guilty of contributory negligence, we allocated
the damages between the bank and the depositor on a 60-
40 ratio.* We apply the same ruling in this case considering
that, as shown above, PNB’s negligence is the proximate
cause of the loss while the issue as to FFCCI’s contributory
negligence has been settled with finality in G.R. No. 173278.
Thus, the appellate court properly adjudged PNB to bear
the greater part of the loss consistent with these rulings.
9. GREGORIO H. REYES and CONSUELO PUYAT-REYES vs.
THE HON. COURT OF APPEALS and FAR EAST BANK AND
TRUST COMPANY
G.R. No. 118492. August 15, 2001
FACTS:
Gregorio Reyes, the director and VP for Finance
of the Philippine Racing Club, Inc. (PRCI) through
Godofredo Reyes applied a demand draft in the amount
One Thousand Six Hundred Ten Australian Dollars
(AU$1,610.00) payable to the order of the 20 th Asian
Racing Conference Secretariat of Sydney, Australia.
Godofredo was attended to by respondent banks assistant
cashier, Mr. Yasis, who at first denied the application for
the reason that respondent bank did not have an
Australian dollar account in any bank in Sydney.
Godofredo asked if there could be a way for respondent
bank to accommodate PRCIs urgent need to remit
Australian dollars to Sydney. Yasis of respondent bank
then informed Godofredo of a roundabout way of
effecting the requested remittance to Sydney thus: the
respondent bank would draw a demand draft against
Westpac Bank in Sydney, Australia
(WestpacSydney for brevity) and have the latter reimburse
itself from the U.S. dollar account of the respondent in
Westpac Bank in New York, U.S.A.. This arrangement has
been customarily resorted to since the 1960s and the
procedure has proven to be problem-free. PRCI and the
BANKING LAW JURISPRUNDENCE

petitioner Gregorio H. Reyes, acting through Godofredo,
agreed to this arrangement or approach in order to effect
the urgent transfer of Australian dollars payable to the
Secretariat of the 20th Asian Racing Conference.
On July 28, 1988, the respondent bank approved the said
application of PRCI and issued Foreign Exchange Demand
Draft (FXDD) No. 209968 in the sum applied for, that is,
One Thousand Six Hundred Ten Australian Dollars
(AU$1,610.00), payable to the order of the 20 th Asian
Racing Conference Secretariat of Sydney, Australia, and
addressed to Westpac-Sydney as the drawee bank.
On August 10, 1988, upon due presentment of the foreign
exchange demand draft, denominated as FXDD No.
209968, the same was dishonored, with the notice of
dishonor stating the following: xxx No account held with
Westpac. Meanwhile, on August 16, 1988, Westpac-New
York sent a cable to respondent bank informing the latter
that its dollar account in the sum of One Thousand Six
Hundred Ten Australian Dollars (AU$1,610.00) was
debited. On August 19, 1988, in response to PRCIs
complaint about the dishonor of the said foreign
exchange demand draft, respondent bank informed
Westpac-Sydney of the issuance of the said demand draft
FXDD No. 209968, drawn against the Westpac-Sydney and
informing the latter to be reimbursed from the
respondent banks dollar account in Westpac-New York.
The respondent bank on the same day likewise informed
Westpac-New York requesting the latter to honor the
reimbursement claim of Westpac-Sydney. On September
14, 1988, upon its second presentment for payment,
FXDD No. 209968 was again dishonored by
WestpacSydney for the same reason, that is, that the
respondent bank has no deposit dollar account with the
drawee Westpac-Sydney.
On September 18, 1988, Gregorio presented the
foreign exchange draft at the registration desk of the racing
conference in the presence of the other delegates in
Sydney, Australia. He was informed by the conference
secretariat that he could not register because the foreign
exchange demand draft for his registration fee had been
dishonored for the second time. Same thing happened to
Consuelo when she tried to register at the racing
conference. This event caused unnecessary shock and social
humiliation for the petitioners. Thus, they filed a complaint
for damages against the respondent bank.
RTC and CA rendered the decision in favour of the
respondent bank. Hence, this petition for certiorari
commences.
Issue:
12
WON the bank should have applied a higher degree of
diligence, which is imposed by law upon banks, rather than
the standard of diligence of an ordinary prudent person
Held:
SC sustained the factual finding of the CA in which
respondent bank did not cause an erroneous transmittal of
its SWIFT cable message to Westpac-Sydney. It was the
erroneous decoding of the cable message on the part of
Westpac-Sydney that caused the dishonor of the subject
foreign exchange demand draft. An employee of
WestpacSydney in Sydney, Australia mistakenly read the
printed figures in the SWIFT cable message of respondent
bank as MT799 instead of as MT199. As a result, Westpac-
Sydney construed the said cable message as a format for a
letter of credit, and not for a demand draft.
The evidence also shows that the respondent bank
exercised that degree of diligence expected of an ordinary
prudent person under the circumstances obtaining. Prior to
the first dishonor of the subject foreign exchange demand
draft, the respondent bank advised Westpac-New York to
honor the reimbursement claim of Westpac-Sydney and to
debit the dollar account of respondent bank with the
former. As soon as the demand draft was dishonored, the
respondent bank, thinking that the problem was with the
reimbursement and without any idea that it was due to
miscommunication, re-confirmed the authority of Westpac-
New York to debit its dollar account for the purpose of
reimbursing Westpac-Sydney. Respondent bank also sent
two (2) more cable messages to Westpac-New York
inquiring why the demand draft was not honored.
The respondent bank did not misrepresent that it was
maintaining a deposit account with Westpac-Sydney and it
had explained how the transfer of Australian dollars would
be effected through Westpac-New York where the
respondent bank has a dollar account to Westpac-Sydney
where the subject foreign exchange demand draft (FXDD
No. 209968) could be encashed by the payee, the 20 th Asian
Racing Conference Secretariat. Gregorio Reyes agreed to
the arrangement presented by the bank.
Based on Philippine Bank of Commerce v. Court of
Appeals, 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. Hence, the
respondent bank is not required to exert more than the
diligence of a good father of a family in regard to the sale
BANKING LAW JURISPRUNDENCE
 13

and issuance of the subject foreign exchange demand draft.
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, and PRCI as the
buyer of the same, with the 20 th Asian Racing Conference
Secretariat in Sydney, Australia as the payee thereof. The
evidence shows that the respondent bank did everything
within its power to prevent the dishonor of the subject
foreign exchange demand draft.
penalized only directors and officers xxx who acted either
as borrower or as guarantor, but not as both. Also that the
Information did not constitute an offense since the
information failed to state the amount he purportedly
borrowed. According to Go, the second paragraph of
Section 83, serves as an exception to the first paragraph
which allows the banks to extend credit accommodations
to their directors, officers, and stockholders, provided it is
"limited to an amount equivalent to the respective
outstanding deposits and book value of the paid-in capital
contribution in the bank." The RTC granted Go’s motion to
quash the Information.

10. JOSE C. GO, Petitioner, vs. BANGKO SENTRAL NG

PILIPINAS, Respondent.
G.R. No. 178429, October 23, 2009
Doctrine: The language of the law is broad enough to
encompass either act of borrowing or guaranteeing, or
both. 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.
FACTS:
The prosecution filed a petition for certiorari before the CA.
The CA granted the petition. It explained that the allegation
that Go acted either as a borrower or a guarantor or both
did not necessarily mean that Go acted both as borrower
and guarantor for the same loan at the same time. It
agreed with the prosecution’s stand that the second
paragraph of Section 83 of RA 337 is not an exception to
the first paragraph. Hence, this petition.
ISSUE:
Whether or not the allegation that Go acted as borrower or
guarantor rendered the information defective?
Whether or not the failure to state that Go borrowed
beyond the limit of his outstanding deposits and book value
of the paid-in capital contribution in the bank rendered the
Information defective?

RULING:
Jose Go, the Director and the President and Chief Executive
Officer of the Orient Commercial Banking Corporation
(Orient Bank) was charged before the RTC for violation of
No, the information was not defective. The following
Section 83 of RA 337 or the General Banking Act. Go
elements of violation of Section 83 of RA 337 which must
allegedly borrowed the deposits/funds of the Orient Bank
be present to constitute a violation of its first paragraph: 1.
and/or acting as guarantor, indorser of obligor for loans to
the offender is a director or officer of any banking
other persons. He then used the borrowed deposits/funds
institution; 2. the offender, either directly or indirectly, for
in facilitating and granting and/or of credit lines/loans to
himself or as representative or agent of another, performs
the New Zealand Accounts loans in the total amount of PHP
any of the following acts: a. he borrows any of the deposits
2,754,905,857. He completed the alleged transaction
or funds of such bank; or b. he becomes a guarantor,
without the written approval of the majority of the Board
indorser, or surety for loans from such bank to others, or c.
of Directors of said Orient Bank. Go then filed a motion to
he becomes in any manner an obligor for money borrowed
quash the Information. He averred that the use of the word
from bank or loaned by it; 3. the offender has performed
"and/or" meant that he was charged for being either a
any of such acts without the written approval of the
borrower or a guarantor, or for being both. Thus the charge
majority of the directors of the bank, excluding the
do not constitute an offense. That the Section 83 of RA 337
BANKING LAW JURISPRUNDENCE

offender, as the director concerned.
The language of the law is broad enough to encompass
either act of borrowing or guaranteeing, or both. 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.
Credit accommodation limit is not an exception nor is it an
element of the offense as contrary to Go’s claims.
Section 83 of RA 337 actually imposes three restrictions:
approval, reportorial, and ceiling requirements.
The approval requirement (found in the first sentence of
the first paragraph of the law) refers to the written
approval of the majority of the bank’s board of directors
required before bank directors and officers can in any
manner be an obligor for money borrowed from or loaned
by the bank. Failure to secure the approval renders the
bank director or officer concerned liable for prosecution
and, upon conviction, subjects him to the penalty provided
in the third sentence of first paragraph of Section 83.
The reportorial requirement, on the other hand, mandates
that any such approval should be entered upon the records
of the corporation, and a copy of the entry be transmitted
to the appropriate supervising department. The reportorial
requirement is addressed to the bank itself, which, upon its
failure to do so, subjects it to quo warranto proceedings
under Section 87 of RA 337.
The ceiling requirement under the second paragraph of
Section 83 regulates the amount of credit accommodations
that banks may extend to their directors or officers by
limiting these to an amount equivalent to the respective
outstanding deposits and book value of the paid-in capital
contribution in the bank. Again, this is a requirement
directed at the bank. In this light, a prosecution for
violation of the first paragraph of Section 83, such as the
one involved here, does not require an allegation that the
loan exceeded the legal limit. Even if the loan involved is
below the legal limit, a written approval by the majority of
the bank’s directors is still required; otherwise, the bank
director or officer who becomes an obligor of the bank is
liable. Compliance with the ceiling requirement does not
dispense with the approval requirement.
14
Evidently, the failure to observe the three requirements
under Section 83 paves the way for the prosecution of
three different offenses, each with its own set of elements.
A successful indictment for failing to comply with the
approval requirement will not necessitate proof that the
other two were likewise not observed.
11. REPUBLIC vs. SANDIGANBAYAN,
G.R. No. 166859, 169203, 180702, 12 April 2011
Doctrine: DOSRI is the acronym derived from the first
letters of the words Directors, Officers, Stockholders and
their Related Interests. The DOSRI restriction is designed to
prevent undue advantage to be granted to such bank
officers and their related interests in the grant of bank
loans, credit accommodations, and guarantees that may be
extended, directly or indirectly, by a bank to its directors,
officers, stockholders and their related interests; and limits
the outstanding loans, credit accommodations, and
guarantees that a bank may extend to each of its
stockholders, directors, or officers and their related interest
to an amount equivalent to their respective unencumbered
deposits and book value of their paid-in capital
contributions in the bank.
FACTS:
On July 31, 1987, the Republic commenced Civil Case No.
0033 in the Sandiganbayan by complaint, impleading as
defendants respondent Eduardo M. Cojuangco, Jr.
(Cojuangco) and 59 individual defendants. The Republic
once more amended the complaint apparently to avert the
nullification of the writs of sequestration issued against
properties of Cojuangco. The amended complaint
impleaded in addition to Cojuangco, President Marcos, and
First Lady Imelda R. Marcos nine other individuals and 71
corporations. Allegedly, Cojuangco purchased a block of
33,000,000 shares of SMC stock through the 14 holding
companies owned by the CIIF Oil Mills. For this reason, the
block of 33,133,266 shares of SMC stock shall be referred to
as the CIIF block of shares. Defendants and Abello law
offices (ACCRA) plotted, devised, schemed, conspired and
confederated with each other in setting up, through the use
of coconut levy funds, the financial and corporate
framework and structures that led to the establishment of
UCPB, UNICOM, COCOLIFE, COCOMARK. CIC, and more
than twenty other coconut levy-funded corporations,
including the acquisition of San Miguel Corporation shares
BANKING LAW JURISPRUNDENCE

and its institutionalization through presidential directives of
the coconut monopoly. Through insidious means and
machinations, ACCRA, being the wholly-owned investment
arm, became the holder of approximately fifteen million
shares representing roughly 3.3% of the total outstanding
capital stock of UCPB. The Republic came to the Court via
petition for certiorari insisting that the Sandiganbayan
thereby committed grave abuse of discretion in not finding
that Cojuangco had taken advantage of his position and had
violated his fiduciary obligations in acquiring the SMC
shares of stock in issue.
ISSUE: WON there is a violation of DOSRI and Single
Borrower’s Limit restrictions.
RULING:
No. 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 DOSRI 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.
12. SORIANO vs. PEOPLE
G.R. No. 162336, 1 February 2010
Doctrine : 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.
FACTS:
Soriano was charged for estafa through falsification of
commercial documents for allegedly securing a loan of 48
million in the name of two (2) persons when in fact these
individuals did not make any loan in the bank, nor did the
bank's officers approved or had any information about the
said loan. The state prosecutor conducted a Preliminary
Investigation on the basis of letters sent by the officers of
Special Investigation of BSP together with 5 affidavits and
15
filed two (2) separate information against Soriano for estafa
through falsification of commercial documents and
violation of Directors, Officers, Stockholders and their
Related Interests (DORSI) Law.
Petitioner moved to quash these information. Essentially,
the petitioner theorized that the characterization of
possession is different in the two offenses. If petitioner
acquired the loan as DOSRI, he owned the loaned money
and therefore, cannot misappropriate or convert it as
contemplated in the offense of estafa. Conversely, if
petitioner committed estafa, then he merely held the
money in trust for someone else and therefore, did not
acquire a loan in violation of DOSRI rules. The trial court
denied petitioner’s Motion to Quash for lack of merit. The
MR was denied as well. Aggrieved, petitioner filed a
Petition for Certiorari before the CA which was also denied.
Hence, this petition.
ISSUE:
Whether or not a loan transaction within the ambit of the
DOSRI law (violation of Section 83 of RA 337, as amended)
could also be the subject of Estafa under Article 315 (1) (b)
of the Revised Penal Code.
RULING:
YES, petitioner’s theory is based on the false premises that
the loan was extended to him by the bank in his own name,
and that he became the owner of the loan proceeds. Under
the circumstances, it cannot be said that petitioner became
the legal owner of the P8 million. Thus, petitioner remained
the banks fiduciary with respect to that money, which
makes it capable of misappropriation or conversion in his
hands.
The prohibition in Sec. 83 is broad enough to cover various
modes of borrowing and is intended to protect the public. It
has been said that banking institutions are not created for
the benefit of the directors [or officers]. A direct borrowing
is obviously one that is made in the name of the DOSRI
himself or where the DOSRI is a named party, while an
indirect borrowing includes one that is made by a third
party, but the DOSRI has a stake in the transaction. The
latter type indirect borrowing applies here.
13. Central Bank of the Philippines vs. CA
GR 76118, March 30, 1993
Facts:
The Monetary Board (MB) issued on 31 May 1985
Resolution No. 596 ordering the closure of TSB, forbidding
BANKING LAW JURISPRUNDENCE

it from doing business in the Philippines, placing it under
receivership, and appointing Ramon V. Tiaoqui as receiver.
On 11 June 1985, TSB filed a complaint with the Regional
Trial Court of Quezon City, docketed as Civil Case No. Q-
45139, against Central Bank and Ramon V. Tiaoqui to annul
MB Resolution No. 596, with prayer for injunction,
challenging in the process the... constitutionality of Sec. 29
of R.A. 269, otherwise known as "The Central Bank Act," as
amended, insofar as it authorizes the Central Bank to take
over a banking institution even if it is not charged with
violation of any law or regulation, much less found guilty...
thereof.
Issue:
May a Monetary Board resolution placing a private bank
under receivership be annulled on the ground of lack of
prior notice and hearing?
Ruling:
Under Sec. 29 of R.A. 265,[15] the Central Bank, 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 probable loss
to its depositors or creditors, forbid the bank or non-bank
financial institution to do business in the Philippines; and
shall designate an... official of the CB or other competent
person as receiver to immediately take charge of its assets
and liabilities. The fourth paragraph,[16] which was then in
effect at the time the action was... commenced, allows the
filing of a case to set aside the actions of the Monetary
Board which are tainted with arbitrariness and bad faith.
Contrary to the notion of private respondent, Sec. 29 does
not contemplate prior notice and hearing before a bank
may be directed to stop operations and placed under
receivership. When par. 4 (now par. 5, as amended by E.O.
289) provides for the filing of a... case within ten (10) days
after the receiver takes charge of the assets of the bank, it
is unmistakable that the assailed actions should precede
the filing of the case. Plainly, the legislature could not have
intended to authorize "no prior notice and hearing" in the...
closure of the bank and at the same time allow a suit to
annul it on the basis of absence thereof.
14. BSP vs. Valenzuela
GR 184778 October 2, 2009
Sec. 28 of RA 7653, or the New Central Bank Act, which
governs examinations of banking institutions, provides that
the Report on Examination shall be submitted to the MB;
16
the bank examined is not mentioned as a recipient of the
Report on Examination. Therefore, the BSP is not required
to give copies of the Report on Examination to the bank
examined.
Facts:
The Supervision and Examination Department of the BSP
conducted examinations of the books of the respondent
banks and it found that these banks had deficiencies in
their capital. The respondent banks on their part filed
before the RTC an action to nullify the Report on
Examination and issuance of restraining order. They
contend that their right to due process was violated
because they were not furnished with the said report. They
further that the sanction of closure that the MB might
imposed upon the receipt of such Report will result in
irreparable damage to them as well as to the public. The
RTC ruled in favor of the respondent banks and this was
affirmed by the CA. However, the SC issued a restraining
order on the RTC and CA decision. By reason of the such,
the SED was able to submit their Report on Examination to
the Monetary Board. The MB then prohibited the
respondent banks from transacting business and placed
them under receivership with the Philippine Deposit
Insurance Corporation as the appointed receiver. Hence,
this petition.
Issue:
Whether the respondent banks were entitled to the copy of
the Report on Examination made by the BSP before its
submission to the Monetary Board.
Ruling:
NO. There was no provision of law, no section in the
procedures of the BSP that shows that the BSP is required
to give copies of the Report on Examination to banks. Sec.
28 of RA 7653, or the New Central Bank Act, which governs
examinations of banking institutions, provides that the
Report on Examination shall be submitted to the MB; the
bank examined is not mentioned as a recipient of the
Report on Examination. Therefore, the respondent banks
cannot claim a violation of their right to due process if they
are not provided with copies of the such report.
15. RURAL BANK OF LUCENA, INC., petitioner,
vs.
HON. FRANCISCO ARCA, as Judge of the Court of First
Instance of Manila, Branch 1, and CENTRAL BANK OF THE
PHILIPPINES, respondents.
BANKING LAW JURISPRUNDENCE

G.R. No. L-21146             September 20, 1965
REYES, J.B.L., J.:
The Rural Bank of Lucena, Inc., a banking corporation
organized under Republic Act No. 720, instituted, on June
22, 1961, in the Court of First Instance of Manila (Civil Case
No. 47345) an action to collect damages and to enjoin the
Central Bank from enforcing Resolution No. 928 of its
Monetary Board, finding that the Rural Bank of Lucena
(Lucena for short), through its officers, directors, and
employees, had committed acts substantially prejudicial to
the Government, depositors, and creditors, and directing
Lucena to reorganize its board of directors; to refrain from
granting or renewing loans, or accept new deposits, and
not to issue drafts or make disbursements without the
approval of the supervising Central Bank examiners, and
threatening Lucena that its management would be taken
over if the latter should fail to comply with the resolution.
After issue joined and trial of the case, and while the
litigation was still undecided by the Court of First Instance,
the Monetary Board, having been informed that the
Director of its Department of Rural Banks recommended
the liquidation of the Rural Bank of Lucena, adopted on
February 2, 1962 its Resolution No. 122 (Petition, Annex
"C") —
To request the Solicitor General, pursuant to
Section 29 of Republic Act No. 265, to file a
petition in the proper courts for the liquidation of
the affairs of the Rural Bank of Lucena, Inc.
Notice was given by Central Bank officials, on February 10,
1962 that the Lucena bank was temporarily closed pending
final decision of the Court, and that business be transacted
with Central Bank representatives only.
Two days later (February 12, 1962), the Lucena bank filed
suit in the Court of First Instance of Quezon (Tayabas)
annual Resolution 122 of the Monetary Board (Case No.
6471) and enjoin its enforcement; and on February 14 the
court issued ex parte  a writ of preliminary injunction to
such effect.
On the same day, the Court of First Instance of Manila, per
Judge, now Court of Appeals Justice, Magno Gatmaitan of
Branch XIV, decided Case No. 47345, enjoining
enforcement of Resolution No. 928 of the Monetary Board,
for having been issued without the prior hearing prescribed
by section 10 of the Rural Bank Act, and ordering the
Central Bank to pay P5,000.00 damages and costs. The
Central Bank appealed.
Upon the other hand, the Court of First Instance of Quezon
Province, in its Case No. 6741, on February, 24, 1962,
dissolved its preliminary injunction against the enforcement
17
of Resolution 122 of the Monetary Board. Other than filing
a motion for reconsideration (ultimately denied on January
9, 1963) the Lucena bank took no other steps to prosecute
the case it had filed.
On the 31st of March 1962, invoking section 29 of Republic
Act 265, the Central Bank, as liquidator, petitioned the
Court of First Instance of Manila for assistance in the
liquidation of the Lucena bank (Civil Case No. 50019). Upon
motion, and after hearing the parties, Judge Arca issued on
interlocutory order on March 28, 1963, the dispositive
portion of which is to the following effect (Petition, Annex
"D"):
The Rural Bank of Lucena thru its duly authorized
officers or representatives, is hereby ordered to
turn over to the Central Bank, thru its duly
authorized representative, within a period of five
(5) days from receipt of copy of this order, the
physical possession of all of said Rural Bank of
Lucena's assets, properties and papers. Should the
Rural Bank of Lucena or its officers fail to comply
with the above order within the period indicated
herein, the Central Bank, thru its authorized
representatives, is hereby authorized to take
actual and physical possession of all said assets,
properties and papers of the Rural Bank of Lucena,
duly inventoried in the presence of the Provincial
Fiscal, the Provincial Commander, the Provincial
Treasurer, and the Provincial Auditor of Quezon
province, or their duly authorized representatives.
The Rural Bank of Lucena resorted to this Court
on certiorari,  claiming that Judge Arca gravely abused his
discretion in issuing the above order, in that —
(a) it interferes with the immediately executory
judgment of Judge Gatmaitan in Case No. 47345 of
the Court of First Instance of Manila;
(b) Section 29 of the Central Bank Act (R.A. 265)
does not apply;
(c) there was no prior valid take over of assets nor
due hearing of the liquidated Bank;
(d) Judge Gatmaitan's decision constitutes a
judicial review of the Monetary Board's action that
cannot be nullified by the challenged order of
Judge Area; and
(e) the turn over should not be ordered before
trial on the merits.1awphîl.nèt
This Court issued a temporary restraining order until April
25, 1963, but the same was not renewed when it expired.
BANKING LAW JURISPRUNDENCE

We see no irreconcilable conflict between section 10 (as
amended) of Republic Act No. 720 (Rural Banks Act) and
section 29 of Republic Act No. 265 (Central Bank Act). The
former provides in substance as follows:
The director of the Department of the Central
Bank designated by the Monetary Board to
supervise Rural Banks ... upon proof that the Rural
Bank or its board of directors or officers are
conducting and managing the affairs of the bank in
a manner contrary to laws, orders, instructions,
rules and regulations promulgated by the
Monetary Board or in any manner substantially
prejudicial to the interests of the government,
depositors or creditors, to take over the
management of such bank when specifically
authorized to do so by the Monetary Board after
due hearing until a new board of directors and
officers are elected and qualified. ...
It is easily seen that what this section authorized is the take
over of the management by the Central Bank, until the
governing body of the offending Rural Bank is recognized
with a view to assuring compliance by it with the laws and
regulations.
Upon the other hand, section 29 6f the Central Bank Act (R.
A. 265) has in view a much more drastic step, the
liquidation of a rural bank by taking over its assets and
converting them into money to pay off its creditors. Said
section prescribes:
SEC. 29. Proceedings upon insolvency. —
Whenever, upon examination by the
Superintendent 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
Superintendent forthwith, in writing, to inform the
Monetary Board of the facts, and the Board, upon
finding the statement of the Superintendent to be
true, shall forthwith forbid the institution to do
business in the Philippines and shall take charge of
its assets and proceeds according to law.
The Monetary Board shall thereupon determine
within thirty days whether the institution may be
reorganized or otherwise placed in such a
condition so that it may be permitted to resume
business with safety to its creditors and shall
prescribe the conditions under which such
resumption of business shall take place. In such
case the expenses and fee in the administration of
the institution shall be determined by the Board
and shall be paid to the Central Bank out of the
assets of such banking institution.
18
At any time within ten days after the Monetary
Board has taken charge of the assets of any
banking institution, such institution may apply to
the Court of First Instance for an order requiring
the Monetary Board to show cause why it should
not be enjoined from continuing such charge of its
assets, and the court may direct the Board to
refrain from further proceedings and to surrender
charge of its assets.
If the Monetary Board shall determine that the
banking institution cannot resume business with
safety to its creditors, it shall, by the Solicitor
General, file a petition in the Court of First
Instance reciting the proceedings which have been
taken and praying the assistance and supervision
of the court in the liquidation of the affairs of the
same. The Superintendent shall thereafter, upon
order of the Monetary Board and under the
supervision of the court and with all convenient
speed, convert the assets of the banking
institution to money.
Considering that section 27 of the Rural Banks law (R.A. No.
720) expressly declares that —
The provisions of Republic Acts numbered 265 and
337, in so far as applicable and not in conflict with
any provision of this Act, are hereby made a part
of this Act.
we find no room for questioning the applicability of section
29 of Republic Act No. 265 (Central Bank Act) to rural banks
organized under Republic Act 720, whenever the Monetary
Board should find that the rural bank affected is insolvent,
or that its continuance in business would involve probable
loss to its depositors or creditors, and that it cannot resume
business with safety.
It follows that on the assumption that under section 10 of
the Rural Banks Act the Monetary Board may not take over
the management of a rural bank without giving the latter a
hearing, i.e., an opportunity to rebut the charge that it has
contravened applicable laws, rules and regulations to the
substantial prejudice of the government, its depositors and
creditors, such a previous hearing is nowhere required by
section 29 of the Central Bank Law. Manifestly, whether a
rural bank's "continuance in business would involve
probable loss" to its clients or creditors and that it "cannot
resume business with safety," is a matter of appreciation
and judgment that the law entrusts primarily to the
Monetary Board. Equally apparent is that if the rural bank
affected is in the condition previously adverted to, every
minute of delay in securing its assets from dissipation
inevitably increases the danger to the creditors. For this
reason, the statute has provided for a subsequent judicial
review of the Monetary Board, in lieu of a previous hearing.
BANKING LAW JURISPRUNDENCE

In point of fact, the petitioner Rural Bank of Lucena did file
a petition (Annex "G") for judicial review in the Court of
First Instance of Quezon Province, dated February 12, 1962,
and challenged the validity of Resolution No. 122 of the
Monetary Board (Case No. 6471) ; but the Court of First
Instance of Quezon dissolved the preliminary injunction
issued in that case and allowed Resolution No. 122 to take
effect, without any steps being taken for a review of such
action. This being the case, and in view of the manifest
reluctance the Lucena bank's officials to comply with the
Monetary Board's resolution, the Central Bank had cause to
seek judicial assistance for the discharge of its duties as
liquidator.
The petitioner rural bank seems to take the view that the
proceedings had before Judge Gatmaitan in Case No.
47345, Branch XIV, of the Court of First Instance of Manila
constituted the judicial review required by section 29 of
Republic Act No. 265, the Central Bank Act. Such a stand is
untenable, for the case tried and decided by Judge
Gatmaitan concerned an attempt by the Central Bank to
take over management under section 10 of the Rural Banks
law (R.A. No. 720) in connection with the Monetary Board's
resolution No. 928 of June 16, 1961. Even more conclusive
is the consideration that said action (Case No. 47345) was
filed on June 22, 1961, and could not possibly be a judicial
review of the Resolution No. 122 adopted eight months
later,  on February 2, 1962. A review cannot precede the
adoption of the resolution being reviewed. This proposition
requires no demonstration.
The narrated events also rebut the contention that the
order of Judge Area, issued on March 28, 1963, in Case No.
50019, constitutes unlawful interference with the
enforcement of Judge Gatmaitan's decision of February 14,
1962, the issues involved being different in each case. As
heretofore pointed out one involved a take over of
management under section 10 of the Rural Banks Act, and
the other a seizure of assets and liquidation under section
29 of the Central Bank law (R.A. 265).
Nor can the proceedings before Judge Area be deemed
judicial review of the 1962 resolution No. 122 of the
Monetary Board, if only because by law (section 29, R. A.
265) such review must be asked within 10 days from notice
of the resolution of the Board. Between the adoption of
Resolution No. 122 and the challenged order of Judge Arca,
more than one year had elapsed. Hence, the validity of the
Monetary Board's resolution can no longer be litigated
before Judge Arca, whose role under the fourth paragraph
of section 29 is confined to assisting and supervising the
liquidation of the Lucena bank.
Whether or not the Central Bank acted with arbitrariness or
bad faith in decreeing that circumstances called for the
liquidation of the Lucena Rural Bank, and should be
answerable in damages, should be threshed out and
determined, not by Judge Arca but in Case No. 6471 of the
19
Court of First Instance of Quezon Province, which was filed
within the 10-day period prescribed by the Central Bank
law, and which appears to be still pending, unless the
Lucena bank had abandoned such litigation, a fact that we
need not decide at present. Suffice it to say that Judge Arca
had no reason to inquire into the merits of the case before
issuing the disputed order requiring the surrender of the
assets and papers of the Lucena bank, because: (1) neither
the statute (sec. 29, R.A. 265) nor the constitutional
requirement of due process demand that the correctness of
the Monetary Board's resolution to stop operation and
proceed to the liquidation of the Lucena Rural Bank should
first be adjudged before making the resolution effective, it
being enough that a subsequent judicial review by provided
(section 29, R.A. 265; 12 Am. Jur. 305, sec. 611; Bourjois vs.
Chapman, 301 U.S. 183, 81 Law Ed. 1027, 1032; American
Surety Co. vs. Baldwin, 77 Law Ed. 231, 86 ALR 307; Wilson
vs. Standefer, 46 Law Ed. 612); (2) the period for asking
such judicial review had elapsed with excess between the
adoption of the Monetary Board Resolution No. 122 and
the filing of the case by the Central Bank in the Court of
First Instance of Manila; (3) the correctness of said
resolution had already been put in issue before the Court of
Quezon Province; (4) because the latter court had refused
to stop implementation of the Resolution of the Monetary
Board when it dissolved its own preliminary injunction; and
(5) because the Lucena Bank had apparently acquiesced in
the action taken by the Court of Quezon Province, since the
rural bank had not sought that the action of the Quezon
court be set aside by a higher court.
IN VIEW OF THE FOREGOING, the writ applied for is denied
with costs against the petitioner Lucena Rural Bank, Inc.
16. CENTRAL BANK OF THE PHILIPPINES vs. HONORABLE
COURT OF APPEALS, ISIDRO E. FERNANDEZ, and JESUS R.
JAYME
G.R. No. L-50031-32 July 27, 1981
FACTS: Provident Savings Bank (PROVIDENT) was
incorporated after the Central Bank had approved its
establishment under Monetary Board Resolution No. 572.
PROVIDENT was then granted authority to operate by the
Monetary Board. The herein private respondents, Isidro E.
Fernandez and Jesus R. Jayme, are the majority and
controlling stockholders thereof. In September, 1968,
PROVIDENT experienced a bank run. In view of the
unusually heavy withdrawals, PROVIDENT had no recourse
but to request emergency loans from the Central Bank to
meet the demands of the depositors. The Monetary Board,
however, denied these requests. PROVIDENT, therefore,
had to borrow from other banks but, these loans were not
enough to meet the demands of the depositors. As a result,
PROVIDENT was forced to temporarily close its doors to the
public.
Subsequently, however, the Central Bank extended
emergency loans to PROVIDENT in order to stop the bank
BANKING LAW JURISPRUNDENCE

run and to prevent the bank run from eroding the
confidence of the public in the banking system, thus
enabling PROVIDENT to reopen. But again, the assistance
given to PROVIDENT was not sufficient to meet and service
the unusually heavy withdrawals of deposits. Fernandez
and Jayme appealed to the Central Bank for continued
assistance. Central Bank Deputy Governor Amado Briñas
voiced the decision of the Central Bank that unless
Fernandez and Jayme relinquished and turned over the
management and control of PROVIDENT to the Iglesia Ni
Kristo, the Central Bank would not further support and
assist the distressed PROVIDENT. Left with no other
alternative, but to accede, and in order to protect their
investment, Fernandez and Jayme reluctantly executed a
Memorandum Agreement with the Eagle Broadcasting
Corporation, a company identified with the Iglesia Ni Kristo.
Immediately thereafter, the Central Bank forthwith
released additional loans to PROVIDENT. PROVIDENT was
further allowed to resume its lending activities. The Eagle
Broadcasting Corporation, however, did not comply with its
commitment to purchase 53,000 common shares of stock
and to convert its deposits into equity thus resulted to a
continued deteriorating financial condition of PROVIDENT.
PROVIDENT had to seek assistance from other banks to
prevent the recurrence of another bank run. But, the
financial condition of PROVIDENT continued to worsen, so
the Monetary Board decided among others “to forbid the
Provident Savings Bank to do business in the Philippines”.
Consequently Fernandez and Jayme filed a petition
for certiorari, prohibition and mandamus and/or specific
performance, with preliminary injunction, against the
Central Bank and Eagle Broadcasting Corporation, with the
Court of First Instance of Manila to annul and set aside the
said Monetary Board Resolution No. 1766 and to restrain
the Central Bank from liquidating PROVIDENT, and, instead,
to order the Central Bank to comply with its commitments
to the petitioners and reorganize and rehabilitate
PROVIDENT in the manner it did to the Overseas Bank of
Manila, as well as for damages and costs.
On December 11, 1972, the Central Bank filed a Petition for
Assistance and Supervision in Liquidation of the Provident
Savings Bank with the CFI of Manila, judgment was then
rendered “Respondent Central Bank and Eagle Broadcasting
Corporation are hereby ordered to pay the petitioners,
jointly and severally damages amounting to P725, 000.00”.
The Central Bank and the Eagle Broadcasting Corporation
appealed, and after appropriate proceedings, the herein
respondent CA affirmed the decision of the CFI.
Hence, the petition.
ISSUE: Whether closure and liquidation may be subject to
judicial review
RULING: NO. The court believes that the judgment
complained of is based upon substantial evidence and that
the trial court had not overlooked, nor misinterpreted
certain facts and circumstances of weight in making its
20
findings, so that the respondent appellate court did not
commit any error in affirming the said judgment. Besides,
the issue of whether or not certain alleged facts should be
appreciated is a question of fact, not properly cognizable on
appeal, since it involves an examination of the probative
value of the evidence presented by the parties.
Moreover, while the closure and liquidation of a bank may
be considered an exercise of police power, the validity of
such exercise of police power is subject to judicial inquiry
and could be set aside if it is either capricious,
discriminatory, whimsical, arbitrary, unjust, or a denial of
the due process and equal protection clauses of the
Constitution.
In the case under consideration, it is not disputed that the
Central Bank had committed itself to support PROVIDENT
and restore it to its former sound financial position
provided that Fernandez and Jayme should relinquish and
give up its control and management of the bank to the
Iglesia Ni Kristo, and thereafter, whimsically withdrew such
support to the detriment of PROVIDENT.
17. FIRST PHILIPPINE INTERNATIONAL BANK vs. COURT OF
APPEALS
G.R. No. 115849 January 24, 1996
THE PARTIES: Petitioner First Philippine International Bank
(formerly Producers Bank of the Philippines; petitioner
Bank, for brevity) is a banking institution organized and
existing under the laws of the Republic of the Philippines.
Petitioner Mercurio Rivera was head-manager of the
Property Management Department of the petitioner Bank.
Respondent Carlos Ejercito is the assignee of original
plaintiffs-appellees Demetrio Demetria and Jose Janolo.
Respondent CA is the court which issued the Decision and
Resolution sought to be set aside through this petition.
FACTS: In the course of its banking operations, the
defendant Producer Bank of the Philippines acquired six
parcels of land. The property used to be owned by BYME
Investment and Development Corporation which had them
mortgaged with the bank as collateral for a loan. The
original plaintiffs, Demetrio Demetria and Jose O. Janolo,
wanted to purchase the property and thus initiated
negotiations for that purpose.
Said plaintiffs, upon the suggestion of BYME investment's
legal counsel, Jose Fajardo, met with defendant Mercurio
Rivera, Manager of the Property Management Department
of the defendant bank. The meeting was held pursuant to
plaintiffs' plan to buy the property. After the meeting,
BANKING LAW JURISPRUNDENCE

plaintiff Janolo, following the advice of defendant Rivera,
made a formal purchase offer to the bank through a letter.
Series of offers were held then eventually they reached an
agreement for the price of the property. Thereafter
demands by the plaintiffs were made for the compliance of
the bank pursuant to what plaintiff considered as a
perfected contract of sale but these demands were refused
by the bank.
Defendant bank, through defendant Rivera, acknowledged
receipt of the foregoing letter and stated that said letter
has been "referred . . . to the office of our Conservator for
proper disposition" However, no response came from the
Acting Conservator.
On December 14, 1987, the plaintiffs made a second tender
of payment. After 4 months of having no reply, the plaintiff,
through counsel, made a final demand for compliance by
the bank with its obligations under the considered
perfected contract of sale.
On May 16, 1988, plaintiffs filed a suit for specific
performance with damages against the bank on the
grounds that the transaction had with the bank resulted in
a perfected contract of sale, The defendants, however, took
the position that there was no such perfected sale because
the defendant Rivera is not authorized to sell the property
and that there was no meeting of the minds as to the price.
In their Petition and Memorandum , petitioners stated,
among others, that the Court of Appeals erred in declaring
that the conservator does not have the power to overrule
or revoke acts of previous management.
Hence this petition.
ISSUE: Whether or not the bank conservator have the
unilateral power to repudiate the authority of the bank
officers and/or to revoke the said contract
RULING: NO. It is not disputed that the petitioner Bank was
under a conservator placed by the Central Bank of the
Philippines during the time that the negotiation and
perfection of the contract of sale took place. Under Section
28-A of Republic Act No. 265 (otherwise known as the
Central Bank Act) as follows:
Whenever, on the basis of a report submitted by
the appropriate supervising or examining
department, the Monetary Board finds that a bank
or a non-bank financial intermediary performing
quasi-banking functions is in a state of continuing
inability or unwillingness to maintain a state of
liquidity deemed adequate to protect the interest
of depositors and creditors, the Monetary Board
may appoint a conservator to take charge of the
21
assets, liabilities, and the management of that
institution, collect all monies and debts due said
institution and exercise all powers necessary to
preserve the assets of the institution, reorganize
the management thereof, and restore its viability.
He shall have the power to overrule or revoke the
actions of the previous management and board of
directors of the bank or non-bank financial
intermediary performing quasi-banking functions,
any provision of law to the contrary
notwithstanding, and such other powers as the
Monetary Board shall deem necessary.
Here there is absolutely no evidence that the Conservator,
at the time the contract was perfected, actually repudiated
or overruled said contract of sale. The Bank's acting
conservator at the time, Rodolfo Romey, never objected to
the sale of the property to Demetria and Janolo. What
petitioners are really referring to is the letter of
Conservator Encarnacion, who took over from Romey after
the sale was perfected on September 30, 1987 which
unilaterally repudiated — not the contract — but the
authority of Rivera to make a binding offer — and which
unarguably came months after the perfection of the
contract. Said letter dated May 12, 1988 is reproduced
hereunder:
“We deny that Producers Bank has ever made a
legal counter-offer to any of your clients nor
perfected a "contract to sell and buy" with any of
them for the following reasons.
xxx
Our records do not show that Mr. Rivera was
authorized by the old board or by any of the bank
conservators (starting January, 1984) to sell the
aforesaid property to any of your clients.
Apparently, what took place were just preliminary
discussions/consultations between him and your
clients, which everyone knows cannot bind the
Bank's Board or Conservator.
We are, therefore, constrained to refuse any
tender of payment by your clients, as the same is
patently violative of corporate and banking laws.
We believe that this is more than sufficient legal
justification for refusing said alleged tender.
xxx”
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
BANKING LAW JURISPRUNDENCE

— 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.
18. ALFEO D. VIVAS, ON HIS BEHALF AND ON BEHALF OF
THE SHAREHOLDERS OF EUROCREDIT COMMUNITY BANK
vs. THE MONETARY BOARD OF THE BANGKO SENTRAL NG
PILIPINAS AND THE PHILIPPINE DEPOSIT INSURANCE
CORPORATION
G.R. No. 191424  August 7, 2013
FACTS: The Rural Bank of Faire, Incorporated (RBFI) was a
duly registered rural banking institution however the
corporate life of RBFI expired on May 31, 2005.
Notwithstanding, petitioner Vivas and his principals
acquired the controlling interest in RBFI. On December 8,
2006, the BSP issued the Certificate of Authority extending
the corporate life of RBFI for another 50 years, change of its
corporate name to EuroCredit Community Bank,
Incorporated and increased the number of the members of
its BOD, from 5 to 11. Pursuant to Section 28 of RA 7653
(The New Central Bank Act), the Integrated Supervision
Department II (ISD II) of the BSP conducted a general
examination on ECBI. Sometime in April 2008, the
examiners from the Department of Loans and Credit of the
BSP arrived at the ECBI and cancelled the rediscounting line
of the bank. Vivas appealed the cancellation to BSP.
Thereafter, the Monetary Board issued Resolution No. 1255
placing ECBI under Prompt Corrective Action (PCA)
framework because of the following serious findings and
supervisory concerns noted during the general
examination:
1. negative capital of 14.674 million and capital
adequacy ratio of negative 18.42%;
2. CAMEL (Capital Asset Management Earnings
Liquidity) composite rating of "2" with a
Management component rating of "1"; and
22
3. serious supervisory concerns particularly on
activities deemed unsafe or unsound.
Through a series of examinations conducted by the BSP, the
findings bore that ECBI was illiquid, insolvent, and was
performing transactions which are considered unsafe and
unsound banking practices. Consequently ECBI was placed
under receivership.
Vivas filed a petition for prohibition before this Court,
ascribing grave abuse of discretion to the MB for
prohibiting ECBI from continuing its banking business and
for placing it under receivership. Vivas contends among
others that the implementation of the questioned
resolution was tainted with arbitrariness and bad faith,
stressing that ECBI was placed under receivership without
due and prior hearing in violation of his and the bank’s right
to due process.
ISSUE: Whether or not ECBI was entitled to due and prior
hearing before its being placed under receivership.
RULING: YES. At any rate, if circumstances warrant it, the
MB may forbid a bank from doing business and place it
under receivership without prior notice and hearing.
Section 30 of R.A. No. 7653 provides, viz:
Sec. 30. Proceedings in Receivership and Liquidation. –
Whenever, upon report of the head of the supervising or
examining department, the Monetary Board finds that a
bank or quasi-bank:
(a) is unable to pay its liabilities as they become
due in the ordinary course of business:
Provided, That this shall not include inability
to pay caused by extraordinary demands
induced by financial panic in the banking
community;
(b) has insufficient realizable assets, as
determined by the Bangko Sentral, to meet its
liabilities; or
(c) cannot continue in business without involving
probable losses to its depositors or creditors;
or
(d) has wilfully violated a cease and desist order
under Section 37 that has become final,
involving acts or transactions which amount to
fraud or a dissipation of the assets of the
institution; in which cases, 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
BANKING LAW JURISPRUNDENCE

receiver of the banking institution. [Emphases
supplied.]
x x x x.
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.
In Rural Bank of Buhi, Inc. v. Court of Appeals, the Court
also wrote that
x x x due process does not necessarily require a
prior hearing; a hearing or an opportunity to be
heard may be subsequent to the closure. One can
just imagine the dire consequences of a prior
hearing: bank runs would be the order of the day,
resulting in panic and hysteria. In the process,
fortunes may be wiped out and disillusionment
will run the gamut of the entire banking
community.
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.
In light of the circumstances obtaining in this case, the
application of the corrective measures enunciated in
Section 30 of R.A. No. 7653 was proper and justified.
Management take-over under Section 11 of R.A. No. 7353
was no longer feasible considering the financial quagmire
that engulfed ECBI showing serious conditions of insolvency
and illiquidity. Besides, placing ECBI under receivership
would effectively put a stop to the further draining of its
assets.
19. ABACUS REAL ESTATE DEVELOPMENT CENTER, INC. vs.
THE MANILA BANKING CORPORATION
GR. No. 162270 16 April 2005
23
Facts:
Manila Bank owns a land where it constructed a 14-storey
building. Not long after, however, the bank encountered
financial difficulties that rendered it unable to finish
construction of the building. Consequently, the Central
Bank ordered the closure of Manila Bank and placed it
under receivership. The legality of the closure was
contested by the bank before the proper court.
The Central Bank ordered the liquidation of Manila Bank
and designated Atty. Renan V. Santos as Liquidator (later as
Statutory Receiver). The liquidation, however, was held in
abeyance pending the outcome of the earlier suit filed by
Manila Bank regarding the legality of its closure.
In the interim, the bank’s acting president Vicente G. Puyat,
in a bid to save the banks investment, started scouting for
possible investors who could finance the completion of the
building earlier mentioned. A group of investors, (Laureano
group), wrote to Puyat offering to lease the building for ten
(10) years and to advance the cost to complete the same.
Also, the group wanted to be given the exclusive option to
purchase the building and the lot on which it was
constructed. This offer was accepted by Puyat and granted
it an exclusive option to purchase the lot and building for
150M,
Since no disposition of assets could be made due to the
litigation concerning Manila Banks closure, an arrangement
was thought of whereby the property would first be leased
to Manila Equities Corporation (MEQCO), a wholly-owned
subsidiary of Manila Bank, with MEQCO thereafter
subleasing the property to Abacus Real Estate Development
Center, Inc. (Abacus), a corporation formed by the
Laureano group for the purpose.
The Laureano group was, however, unable to finish the
building. It offered its rights in Abacus and its exclusive
option to purchase to Benjamin Bitanga. Bitanga alleged
that Atty. Santos (Receiver) then verbally approved his
entry into Abacus and his take-over of the sublease and
option to purchase.
Thereafter, Abacus sent a letter to Manila Bank informing
the latter of its desire to exercise its exclusive option to
purchase. However, Manila Bank refused to honor the
same. This prompted Abacus to file a complaint for specific
performance and damages against Manila Bank .
Abacus’ contention: the option to purchase the lot and
building in question granted to it by Puyat, then acting
president, was binding upon the Manila bank
BANKING LAW JURISPRUNDENCE

Issue:
Whether Puyat has the authority to grant the exclusive
option to purchase the lot and building while Manila Bank
was under receivership by the Central Bank
Ruling:
NO. The SC held that Manila Bank was under receivership,
pursuant to Central Banks MB Resolution No. 505 dated
May 22, 1987, at the time Puyat granted the exclusive
option to purchase to the Laureano group of investors.
Hence, the CA was correct in declaring that Vicente G.
Puyat was without authority to grant the exclusive option
to purchase the lot and building in question.
In Villanueva vs. CA, the court held that:
The assets of the bank pass beyond its control into the
possession and control of the receiver whose duty it is to
administer the assets for the benefit of the creditors of the
bank. Thus, the appointment of a receiver operates to
suspend the authority of the bank and of its directors and
officers over its property and effects, such authority being
reposed in the receiver, and in this respect, the receivership
is equivalent to an injunction to restrain the bank officers
from intermeddling with the property of the bank in any
way.
With Manilabank having been already placed under
receivership, its officers, inclusive of its acting president
were no longer authorized to transact business in
connection with the banks assets and property. Clearly
then, the exclusive option to purchase granted by Vicente
G. Puyat was and still is unenforceable against Manila Bank.
Another contention by Abacus: the exclusive option to
purchase was ratified by Manila Bank’s receiver, Atty.
Renan Santos, during a lunch meeting held with Benjamin
Bitanga.
Citing Sections 29 and 30 of the Central Bank Act, SC held
that 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.
Sec. 29. Proceedings upon insolvency. Whenever, upon
examination by the head of the appropriate supervising and
24
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.
Section 30 of the New Central Bank Act expressly provides
that [t]he 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 but shall not, with the exception of administrative
expenditures, pay or commit any act that will involve the
transfer or disposition of any asset of the institution
In all, Atty. Santos, as receiver, was without any power to
approve or ratify the exclusive option to purchase granted
by Puyat, who, in the first place, was himself bereft of any
authority, to bind the bank under such exclusive option.
Manila Bank may not thus be compelled to sell the land and
building in question to petitioner Abacus under the terms
of the latters exclusive option to purchase.
20. BANCO FILIPINO SAVINGS VS. MONETARY BOARD G.R.
No. 70054 December 11, 1991
FACTS:
This refers to nine (9) consolidated cases concerning the
legality of the closure and receivership of petitioner Banco
Filipino Savings and Mortgage Bank (Banco Filipino for
brevity) pursuant to the order of respondent Monetary
Board.
 G.R. Nos. 68878, 77255-58, 78766, 81303, 81304 and
90473 involve the common issue of whether or not the
liquidator appointed by the respondent Central Bank has
the authority to prosecute as well as to defend suits, and to
foreclose mortgages for and in behalf of the bank while the
BANKING LAW JURISPRUNDENCE

issue on the validity of the receivership and liquidation of
the latter is pending resolution in G.R. No. 70054. Corollary
to this issue is whether the CB can be sued to fulfill financial
commitments of a closed bank pursuant to Section 29 of
the Central Bank Act.
 G.R. Nos. 70054, which is the main case, 78767 and 78894
all seek to annul and set aside M.B. Resolution No. 75
issued by respondents Monetary Board and Central Bank
on January 25, 1985.
G.R. No. 68878
The respondent-movant contends that the petitioner has
no more personality to continue prosecuting the instant
case considering that petitioner bank was placed under
receivership since January 25, 1985 by the Central Bank.
G.R. Nos. 77255-58
Top Management and Pilar Development are corporations
engaged in the business of developing residential
subdivisions. They obtained loans from Banco Filipino. The
loans were secured by real estate mortgage in the
corporations’ various properties in Cavite. Subsequently,
the Monetary Board issued a resolution finding Banco
Filipino insolvent and unable to do business without loss to
its creditors and depositors. It placed Banco Filipino under
receivership of Carlota Valenzuela, Deputy Governor of the
Central Bank. It issued another resolution placing the bank
under liquidation and designating Valenzuela as liquidator.
By virtue of her authority as liquidator, Valenzuela
appointed the law firm of Sycip, Salazar, et al. to represent
Banco Filipino in all litigations. Banco Filipino filed the
petition for certiorari in G.R. No. 70054 questioning the
validity of the resolutions issued by the Monetary Board
authorizing the receivership and liquidation of Banco
Filipino. Subsequently, Top Management and Pilar
Development failed to pay their loans on the due date.
Hence, the law firm of Sycip, Salazar, et al. applied for
extra-judicial foreclosure of the mortgage over the
properties. Thus, the Ex-Officio Sheriff issued a notice of
extra-judicial foreclosure sale of the properties. Hence, this
petition was filed by Top Management and Pilar
Development alleging that Carlota Valenzuela, who was
appointed by the Monetary Board as liquidator of Banco
Filipino, has no authority to proceed with the foreclosure
sale of petitioners' properties on the ground that the
resolution of the issue on the validity of the closure and
liquidation of Banco Filipino is still pending with this Court
in G.R. 70054.
G.R. No. 78766
El Grande is engaged in the business of developing
residential subdivisions. It was extended by respondent
Banco Filipino a credit accommodation to finance its
25
housing program secured by real estate mortgages on its
various estates located in Cavite. Subsequently, the
Monetary Board confirmed Banco Filipino's insolvency and
designated the receiver Carlota Valenzuela as liquidator.
When petitioner El Grande failed to pay its indebtedness to
Banco Filipino, the latter thru its liquidator, Carlota
Valenzuela, initiated the foreclosure. El Grande filed a
petition for prohibition with the Court of Appeals alleging
that respondent Carlota Valenzuela could not proceed with
the foreclosure on the ground that this Court in G.R. No.
70054 restrained Carlota Valenzuela from acting as
liquidator and allowed Banco Filipino to resume banking
operations only under a Central Bank controller.
G.R. No. 81303
Pilar Development filed an action against Banco Filipino,
the Central Bank and Carlota Valenzuela for specific
performance. The former management of Banco Filipino
appointed Quisumbing & Associates as counsel for Banco
Filipino. The said law firm filed an answer for Banco Filipino
which confessed judgment against Banco Filipino. Sycip, et
al., acting for all the defendants including Banco Filipino
moved that the answer filed by Quisumbing & Associates
for defendant Banco Filipino be expunged from the records.
Pilar Development moved to reconsider the order but the
motion was denied. Petitioner Pilar Development filed with
the respondent appellate court a petition for certiorari and
mandamus to annul the order of the trial court.
G.R. No. 81304
BF Homes Incorporated filed an action with the trial court
to compel the Central Bank to restore petitioner's financing
facility with Banco Filipino.
G.R. No. 90473
El Grande obtained a loan from Banco Filipino secured by a
mortgage over its five parcels of land located in Cavite.
Sycip, Salazar, et al. applied with the ex-officio sheriff of the
Regional Trial Court of Cavite for the extrajudicial
foreclosure of the mortgage constituted over petitioner's
properties. Thus, petitioner filed with the Court of Appeals
a petition for prohibition with prayer for writ of preliminary
injunction to enjoin the respondents from foreclosing the
mortgage and to nullify the notice of foreclosure.
G.R. No. 70054 (main case)
Banco Filipino was authorized to operate as such under
M.B. Resolution No. 223 dated February 14, 1963.
Petitioner Bank had an approved emergency advance of
P119.7 million. This was augmented with a P3 billion credit
line. Petitioner bank was placed under conservatorship of
Basilio Estanislao. He was later replaced by Gilberto
Teodoro as conservator. The latter submitted a report
(Teodoro report). Subsequently, another report was
BANKING LAW JURISPRUNDENCE

submitted to the Monetary Board (Tiaoqui Report)
regarding the major findings of examination on the financial
condition of petitioner BF. The examination findings
indicate one of insolvency and illiquidity. The report
provides sufficient justification for forbidding the bank from
engaging in banking activities. The Monetary Board issued
the assailed MB Resolution No. 75 which ordered the
closure of BF and which further provides:
"xxx the Board decided:
1. To forbid Banco Filipino Savings and Mortgage Bank and
all its branches to do business in the Philippines; 2. To
designate Mrs. Carlota P. Valenzuela, Deputy Governor as
Receiver 3. To designate Mr. Arnulfo B. Aurellano, Special
Assistant to the Governor, and Mr. Ramon V. Tiaoqui,
Special Assistant to the Governor and Head, Supervision
and Examination Sector Department II, as Deputy Receivers
4. To direct and authorize Management to do all other
things and carry out all other measures necessary or proper
to implement this Resolution and to safeguard the interests
of depositors, creditors and the general public; and 5. In
consequence of the foregoing, to terminate the
conservatorship over Banco Filipino Savings and Mortgage
Bank."
On March 19, 1985, the Receiver and the Deputy Receivers
of Banco Filipino submitted their report on the receivership
of BF to the Monetary Board:
"In view of the foregoing and considering that the condition
of the banking institution continues to be one of insolvency,
i.e., its realizable assets are insufficient to meet all its
liabilities and that the bank cannot resume business with
safety to its depositors, other creditors and the general
public, it is recommended that:
1. Banco Filipino Savings & Mortgage Bank be liquidated
pursuant to paragraph 3, Sec. 29 of RA No. 265, as
amended;xxx 3. The Statutory Receiver be designated as
the Liquidator of said Bank;xxx”
G.R. No. 78767
Banco Filipino filed a complaint with the trial court to annul
the resolution of the Monetary Board which ordered the
closure of the bank and placed it under receivership. The
Central Bank and the receivers filed a motion to dismiss the
complaint on the ground that the receivers had not
authorized anyone to file the action. Petitioner herein
Metropolis Development Corporation (Metropolis for
brevity) filed a motion to intervene in the aforestated civil
case on ground that as a stockholder and creditor of Banco
Filipino, it has an interest in the subject of the action.
G.R. No. 78894
26
A complaint was filed with the trial court in the name of
Banco Filipino to annul the resolution of the Monetary
Board which ordered the closure of Banco Filipino and
placed it under receivership. The Central Bank and the
receivers filed a motion to dismiss the complaint on the
ground that the receiver had not authorized anyone to file
the action. This petition for certiorari was filed with the
petitioner contending that a bank which has been closed
and placed under receivership by the Central Bank under
Section 29 of RA 265 could file suit in court in its name to
contest such acts of the Central Bank, without the
authorization of the CB-appointed receiver.
ISSUES:
 G.R. Nos. 68878, 77255-58, 78766, 81303, 81304
and 90473- Whether or not the liquidator
appointed by the Central Bank has the authority to
prosecute as well as to defend suits, and to
foreclose mortgages for and in behalf of the bank
while the issue on the validity of the receivership
and liquidation of the latter is pending resolution
in G.R. No. 70054.- YES
 G.R. Nos. 70054, 78767 and 78894- Whether or
not the Central Bank and the Monetary Board
acted arbitrarily and in bad faith in finding and
thereafter concluding that petitioner bank is
insolvent, and in ordering its closure on January
25, 1985.- YES
RULING:
Authority of the appointed liquidator
We find the motions for reconsideration in G.R. Nos. 68878
and 81303 and the petitions in G.R. Nos. 77255-58, 78766,
81304 and 90473 devoid of merit.
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 the
banking institution is insolvent or cannot resume business
with safety to depositors, creditors and the general public,
it shall, if public interest requires, order its liquidation and
appoint a liquidator who shall take over and continue the
functions of the receiver previously appointed by the
BANKING LAW JURISPRUNDENCE

Monetary Board. The liquidator may, in the name of the
bank and with the assistance of counsel as he may retain,
institute such actions as may be necessary in the
appropriate court to collect and recover accounts and
assets of such institution or defend any action filed against
the institution.
When the issue on the validity of the closure and
receivership of Banco Filipino bank was raised in G.R. No.
70054, the pendency of the case did not diminish the
powers and authority of the designated liquidator to
effectuate and carry on the administration of the bank.
Such acts of liquidation, as explained in Sec. 29 of the
Central Bank Act are those which constitute the conversion
of the assets of the banking institution to money or the
sale, assignment or disposition of the same to creditors and
other parties for the purpose of paying the debts of such
institution. We did not prohibit however acts such as
receiving collectibles and receivables or paying off
creditors' claims and other transactions pertaining to
normal operations of a bank. There is no doubt that the
prosecution of suits for collection and the foreclosure of
mortgages against debtors of the bank by the liquidator are
among the usual and ordinary transactions pertaining to
the administration of a bank. Neither did Our order in the
same resolution dated August 25, 1985 for the designation
by the Central Bank of a controller for Banco Filipino alter
the powers and functions of the liquidator insofar as the
management of the assets of the bank is concerned. The
mere duty of the controller is to supervise accounts and
finances undertaken by the liquidator and to determine the
propriety of the latter's expenditures incurred in behalf of
the bank. Notwithstanding this, the liquidator is still
empowered under the law to continue the functions of the
receiver in preserving and keeping intact the assets of the
bank in substitution of its former management, and to
prevent the dissipation of its assets to the detriment of the
creditors of the bank. These powers and functions of the
liquidator in directing the operations of the bank in place of
the former management or former officials of the bank
include the retaining of counsel of his choice in actions and
proceedings for purposes of administration.
Clearly, in G.R. Nos. 68878, 77255-58, 78766 and 90473,
the liquidator by himself or through counsel has the
authority to bring actions for foreclosure of mortgages
executed by debtors in favor of the bank. In G.R. No. 81303,
the liquidator is likewise authorized to resist or defend suits
instituted against the bank by debtors and creditors of the
bank and by other private persons. Similarly, in G.R. No.
81304, due to the aforestated reasons, the Central Bank
cannot be compelled to fulfill financial transactions entered
into by Banco Filipino when the operations of the latter
were suspended by reason of its closure. The Central Bank
27
possesses those powers and functions only as provided for
in Sec. 29 of the Central Bank Act.
Legality of the closure of Banco Filipino
While We recognize the actual closure of Banco Filipino and
the consequent legal effects thereof, on its operations, We
cannot uphold the legality of its closure and thus, find the
petitions in G.R. Nos. 70054, 78767 and 78894 impressed
with merit. We hold that the closure and receivership of
petitioner bank, which was ordered by respondent
Monetary Board on January 25, 1985, is null and void.
It is a well-recognized principle that administrative and
discretionary functions may not be interfered with by the
courts. In general, courts have no supervising power over
the proceedings and actions of the administrative
departments of the government. This is generally true with
respect to acts involving the exercise of judgment or
discretion, and findings of fact.
The jurisdiction of this Court is called upon, once again,
through these petitions, to undertake the delicate task of
ascertaining whether or not an administrative agency of the
government, like the Central Bank of the Philippines and
the Monetary Board, has committed grave abuse of
discretion or has acted without or in excess of jurisdiction
in issuing the assailed order. Coupled with this task is the
duty of this Court not only to strike down acts which violate
constitutional protections or to nullify administrative
decisions contrary to legal mandates but also to prevent
acts in excess of authority or jurisdiction, as well as to
correct manifest abuses of discretion committed by the
officer or tribunal involved.
The law applicable in the determination of these issues is
Section 29 of Republic Act No. 265, as amended, also
known as the Central Bank Act.
Based on the provision, the Monetary Board may order the
cessation of operations of a bank in the Philippines and
place it under receivership upon a finding of insolvency or
when its continuance in business would involve probable
loss to its depositors or creditors. If the Monetary Board
shall determine and confirm within sixty (60) days that the
bank is insolvent or can no longer resume business with
safety to its depositors, creditors and the general public, it
shall, if public interest will be served, order its liquidation.
Specifically, the basic question to be resolved in G.R. Nos.
70054, 78767 and 78894 is whether or not the Central Bank
and the Monetary Board acted arbitrarily and in bad faith in
finding and thereafter concluding that petitioner bank is
insolvent, and in ordering its closure on January 25, 1985.
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
BANKING LAW JURISPRUNDENCE

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.
First requirement:
It is evident from the foregoing circumstances that the
examination contemplated in Sec. 29 of the CB Act as a
mandatory requirement was not completely and fully
complied with. Despite the existence of the partial list of
findings in the examination of the bank, there were still
highly significant items to be weighed and determined such
as the matter of valuation reserves, before these can be
considered in the financial condition of the bank. It would
be a drastic move to conclude prematurely that a bank is
insolvent if the basis for such conclusion is lacking and
insufficient, especially if doubt exists as to whether such
bases or findings faithfully represent the real financial
status of the bank.
The actuation of the Monetary Board in closing petitioner
bank barely four days after a conference with the latter on
the examiners' partial findings on its financial position is
also violative of what was provided in the CB Manual of
Examination Procedures. It is hard to understand how a
period of four days after the conference could be a
reasonable opportunity for a bank to undertake a
responsive and corrective action on the partial list of
findings of the examiner-in-charge.
We recognize the fact that it is the responsibility of the
Central Bank of the Philippines to administer the monetary,
banking and credit system of the country and that its
powers and functions shall be exercised by the Monetary
Board pursuant to Rep. Act. No. 265, known as the Central
Bank Act. Consequently, the power and authority of the
Monetary Board to close banks and liquidate them
thereafter when public interest so requires is an exercise of
the police power of the state. Police power, however, may
not be done arbitrarily or unreasonably and could be set
aside if it is either capricious, discriminatory, whimsical,
arbitrary, unjust or is tantamount to a denial of due process
and equal protection clauses of the Constitution .
In the instant case, the basic standards of substantial due
process were not observed.
As to the requirement of notice and hearing, Sec. 29 of RA
265 does not require a previous hearing before the
28
Monetary Board implements the closure of a bank, since its
action is subject to judicial scrutiny as provided for under
the same law.
Notwithstanding the foregoing, administrative due process
does not mean that the other important principles may be
dispensed with, namely: the decision of the administrative
body must have something to support itself and the
evidence must be substantial. Substantial evidence is more
than a mere scintilla. It means such relevant evidence as a
reasonable mind might accept as adequate to support a
conclusion. Hence, where the decision is merely based
upon pieces of documentary evidence that are not
sufficiently substantial and probative for the purpose and
conclusion they are presented, the standard of fairness
mandated in the due process clause is not met. In the case
at bar, the conclusion arrived at by the respondent Board
that the petitioner bank is in an illiquid financial position on
January 23, 1985, as to justify its closure on January 25,
1985 cannot be given weight and finality as the report itself
admits the inadequacy of its basis to support its conclusion.
Second requirement:
There is no doubt that the Central Bank Act vests authority
upon the Central Bank and Monetary Board to take charge
and administer the monetary and banking system of the
country and this authority includes the power to examine
and determine the financial condition of banks for purposes
provided for by law, such as for the purpose of closure on
the ground of insolvency stated in Section 29 of the Central
Bank Act. But express grants of power to public officers
should be subjected to a strict interpretation, and will be
construed as conferring those powers which are expressly
imposed or necessarily implied.
In this case, there can be no clearer explanation of the
concept of insolvency than what the law itself states. Sec.
29 of the Central Bank Act provides that insolvency under
the Act, shall be understood to mean that "the realizable
assets of a bank or a non-bank financial intermediary
performing quasi-banking functions as determined by the
Central Bank are insufficient to meet its liabilities."
Hence, the contention of the Central Bank that a bank's
true financial condition is synonymous with the terms
"unimpaired capital and surplus," "combined capital
accounts" and net worth after deducting valuation reserves
from the capital, surplus and unretained earnings, citing
Sec. 5 of RA 337 is misplaced.
The test of insolvency laid down in Section 29 of the Central
Bank Act is measured by determining whether the
realizable assets of a bank are less than its liabilities. Hence,
a bank is solvent if the fair cash value of all its assets,
realizable within a reasonable time by a reasonable prudent
person, would equal or exceed its total liabilities exclusive
BANKING LAW JURISPRUNDENCE

of stock liability; but if such fair cash value so realizable is
not sufficient to pay such liabilities within a reasonable
time, the bank is insolvent. Stated in other words, the
insolvency of a bank occurs when the actual cash market
value of its assets is insufficient to pay its liabilities, not
considering capital stock and surplus which are not
liabilities for such purpose
Respondents used its books which undoubtedly are not
reflective of the actual cash or fair market value of its
assets. This is not the proper procedure contemplated in
Sec. 29 of the Central Bank Act. Even the CB Manual of
Examination Procedures does not confine examination of a
bank solely with the determination of the books of the
bank. The latter is part of auditing which should not be
confused with examination. Examination appraises the
soundness of the institution's assets, the quality and
character of management and determines the institution's
compliance with laws, rules and regulations. Audit is a
detailed inspection of the institution's books, accounts,
vouchers, ledgers, etc. to determine the recording of all
assets and liabilities. Hence, examination concerns itself
with review and appraisal, while audit concerns itself with
verification.
We take note of the exhaustive study and findings on the
petitioner bank’s having engaged in unsafe, unsound and
fraudulent banking practices by the granting of huge
unsecured loans to several subsidiaries and related
companies. We do not see, however, that this has any
material bearing on the validity of the closure. Section 34 of
the RA 265, Central Bank Act empowers the Monetary
Board to take action under Section 29 of the Central Bank
Act when a bank "persists in carrying on its business in an
unlawful or unsafe manner." There was no showing
whatsoever that the bank had persisted in committing
unlawful banking practices and that the respondent Board
had attempted to take effective action on the bank's
alleged activities.
Finally, another circumstance which point to the solvency
of petitioner bank is the granting by the Monetary Board in
favor of the former a credit line in the amount of P3 billion
along with the placing of petitioner bank under
conservatorship by virtue of M.B. Resolution No. 955 dated
July 27, 1984.
On emergency loans and advances, Section 90 of RA 265
provides two types of emergency loans that can be granted
by the Central Bank to a financially distressed bank:
The first contemplates a situation where the whole banking
community is confronted with financial and economic crisis
giving rise to serious and widespread confusion among the
public, which may eventually threaten and gravely
prejudice the stability of the banking system. Here, the
29
emergency or financial confusion involves the whole
banking community and not one bank or institution only.
The second situation on the other hand, provides for a
situation where the Central Bank grants a loan to a bank
with uncertain financial condition but not insolvent.
As alleged by the respondents, the following are the
reasons of the Central Bank in approving the resolution
granting the P3 billion loan to petitioner bank and the
latter's reopening after a brief self-imposed banking
holiday.
The clear reason for the decision to grant the emergency
loan to petitioner bank was that the latter was suffering
from financial distress and severe bank "run" as a result of
which it closed on July 23, 1984 and that the release of the
said amount is in accordance with the Central Bank's full
support to meet Banco Filipino's depositors' withdrawal
requirements. Nothing therein shows an extraordinary
emergency situation exists affecting most banks, not only
as regards petitioner bank. The grant of the said emergency
loan was intended from the beginning to fall under the
second paragraph of Section 90 of the Central Bank Act,
which could not have occurred if the petitioner bank was
not solvent. The Central Bank granted financial support to
the latter and placed it under conservatorship, such
actuation means that petitioner bank could still be saved
from its financial distress by adequate aid and management
reform.
In view of the foregoing premises, We believe that the
closure of the petitioner bank was arbitrary and committed
with grave abuse of discretion. Granting in gratia argumenti
that the closure was based on justified grounds to protect
the public, the fact that petitioner bank was suffering from
serious financial problems should not automatically lead to
its liquidation. Section 29 of the Central Bank provides that
a closed bank may be reorganized or otherwise placed in
such a condition that it may be permitted to resume
business with safety to its depositors, creditors and the
general public.
There are alternatives to permanent closure and liquidation
to safeguard those interests as well as those of the general
public for the failure of Banco Filipino or any bank for that
matter may be viewed as an irreversible decline of the
country's entire banking system and ultimately, it may
reflect on the Central Bank's own viability. For one thing,
the Central Bank and the Monetary Board should exercise
strict supervision over Banco Filipino. They should take all
the necessary steps not violative of the laws that will fully
secure the repayment of the total financial assistance that
the Central Bank had already granted or would grant in the
future.
BANKING LAW JURISPRUNDENCE

21. SALUD VS. CENTRAL BANK
G.R. No. L-17620
August 19, 1986
FACTS:
The Monetary Board adopted 2 resolutions
forbidding the Muntinlupa Bank to do business, designating
a statutory receiver, and ordering the liquidation of the
same bank after confirmation that it is insolvent.
Muntinlupa bank opposed the liquidation and alleged that
the action of the Monetary Board was premature and void
since there was no prior effort to reorganize the
management of the bank and restore its viability and that it
was made arbitrarily and in bad faith. The Regional Trial
Court, treating the opposition of the bank as a motion to
dismiss, ruled in favor of it and declared the action of the
Monetary Board arbitrary after finding that the bank had
more assets than liabilities. The Intermediate Appellate
Court reversed the decision and gave due course to the
petition for liquidation. Hence this petition
ISSUE:
Whether or not the action of the Monetary Board is within
the jurisdiction of the Regional Trial Court and may rule on
its validity based on arbitrariness and bad faith.
RULING:
The contention is untenable.
Resolutions of the Monetary Board under Section 29 of the
Central Bank Act-e.g., forbidding banking institutions to do
business on account of a "condition of insolvency" or
because "its continuance in business would involve
probable loss to depositors or creditors;" or appointing a
receiver to take charge of the bank's assets and liabilities;
or determining whether the banking institutions may be
rehabilitated, or should be liquidated and appointing a
liquidator towards this end are by law "final and
executory," as earlier pointed out. But they "can be set
aside by the court" on one specific ground, and that is, "if
there is convincing proof that the action is plainly arbitrary
and made in bad faith." The Central Bank concedes this
power in "the court," but insists that that setting aside can
not be done in the same proceeding for assistance in
liquidation, but in a separate action instituted specifically
for the purpose, as was the case in Central Bank v. Court of
appeals,  where—
... the aggrieved parties (Fernandez and Jayme)
filed a petition for certiorari, prohibition and
mandamus precisely to annul and set aside the
Monetary Board resolution directing the
liquidation of the Provident Savings Bank ... (and
30
the) petition was heard by the then Court of First
Instance of Manila jointly with the Petition for
Assistance and Supervision in the Liquidation of
the Provident Savings Bank. ... 
This Court perceives no reason whatever why a banking
institution's claim that a resolution of the Monetary Board
under Section 29 of the Central Bank Act should be set
aside as plainly arbitrary and made in bad faith cannot be
asserted as an affirmative defense  or a counterclaim  in the
proceeding for assistance in liquidation, but only as a cause
of action in a separate and distinct action. Nor can this
Court see why "a full-blown hearing" on the issue is
possible only if it is asserted as a cause of action, but not
when set up by way of an affirmative defense, or a
counterclaim. There is no provision of law which expressly
or even by implication imposes the requirement for a
separate proceeding exclusively occupied with adjudicating
this issue. Moreover, to declare the issue as beyond the
scope of matters cognizable in a proceeding for assistance
in liquidation would be to engender that multiplicity of
proceedings which the law abhors. Indeed, the failure to
assert, as a ground of defense or objection to a proceeding
for assistance in liquidation, the fact that the resolution of
the Monetary Board authorizing the initiation of such a
proceeding is "arbitrary and made in bad faith" would
constitute a waiver thereof, conformably with the rule of
"Waiver of Defenses,"  to the effect that "defenses and
objections not pleaded either in a motion to dismiss or in
the answer are (generally) deemed waived," or the
"Omnibus Motion Rule,"  providing that "A motion
attacking a pleading or a proceeding shall include all
objections then available, and all objections not so included
shall be deemed waived
The contention is utterly devoid of merit. The IAC has no
appellate jurisdiction over resolutions or orders of the
Monetary Board. No law prescribes any mode of appeal
from the Monetary Board to the IAC. The contention is
moreover inconsistent with the text of Section 29 of the
Central Bank Act. It is inconsistent as well with the Central
Bank’s own theory in this case, which concedes original
jurisdiction over the matter in the Regional Trial Court
provided it is alleged as a cause of action in a suit distinct
from a proceeding for assistance in liquidation.
22. LIPANA VS. DEVELOPMENT BANK OF RIZAL
154 SCRA 257, September 24, 1987
FACTS:
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During the period from 1982 to January, 1984, herein
petitioners opened and maintained both time and savings
deposits with the respondent Development Bank of Rizal all
in the aggregate amount of P939,737.32. When some of
the time deposit certificates matured, petitioners were not
able to cash them but instead were issued a manager’s
check which was dishonored upon presentment. Demands
for the payment of both time and savings deposits have
failed. Hence, petitioners filed with the RTC a collection suit
with prayer for issuance of a writ of preliminary attachment
which was granted by the court. The RTC rendered
judgment in favor of petitioners.
Meanwhile, on August 10, 1984, the Monetary Board, in its
Resolution No. 1009, finding that the condition of
respondent bank was one of insolvency and that its
continuance in business would result in probable loss to its
depositors and creditors, decided to place it under
receivership. The petitioners filed a Motion for Execution
Pending Appeal, which was opposed by respondent bank. It
was granted by the court but was also stayed by the trial
judge. The motion filed by petitioners to lift the stay order
having been denied, this petition for review on certiorari
was filed.
ISSUE:
Whether or not respondent judge could legally stay
execution of judgment that has already become final and
executory.
HELD:
The answer is in the affirmative. The rule that once a
decision becomes final and executory, it is the ministerial
duty of the court to order its execution, admits of certain
exceptions as in cases of special and exceptional nature
where it becomes imperative in the higher interest of
justice to direct the suspension of its execution; whenever
it is necessary to accomplish the aims of justice (Pascual vs.
Tan, 85 Phil. 164); or when certain facts and circumstances
transpired after the judgment became final which could
render the execution of the judgment unjust.
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
resolvency, one cannot obtain an advantage or a
31
preference over another by an attachment, execution or
otherwise.
Moreover, it will be noted that respondent bank was placed
under receivership on August 10, 1984, and the Decision of
respondent judge is dated November 13, 1984. Accordingly,
in time with the ruling in the aforesaid Morfe case that
when it is forbidden to do business (and that ban would
include the payment of time deposits) it implies that suits
for the payment of such deposits were prohibited. What
was directly prohibited should not be encompassed
indirectly.
23. EQUITABLE PCI BANK V. NG SHEUNG NGOR
541 SCRA 223, December 19, 2007
FACTS:
On October 7, 2001, respondents Ng Sheung Ngor, Ken
Appliance Division, Inc. and Benjamin E. Go filed an action
for annulment and/or reformation of documents and
contracts against petitioner Equitable PCI Bank (Equitable)
and its employees, Aimee Yu and Bejan Lionel Apas, in RTC,
Branch 16 of Cebu City. They claimed that Equitable
induced them to avail of its peso and dollar credit facilities
by offering low interest rates so they accepted Equitable's
proposal and signed the bank's pre-printed promissory
notes on various dates beginning 1996. They, however,
were unaware that the documents contained identical
escalation clauses granting Equitable authority to increase
interest rates without their consent.
Equitable, in its answer, asserted that respondents
knowingly accepted all the terms and conditions contained
in the promissory notes. In fact, they continuously availed
of and benefited from Equitable's credit facilities for five
years.
The RTC upheld the validity of the promissory notes
however it invalidated the escalation clause for it violated
the principle of mutuality of contracts. It also took judicial
notice of the steep depreciation of the peso during the
intervening period and declared the existence of
extraordinary deflation. It ordered the use of the 1996
dollar exchange rate in computing respondent’s dollar
denominated loans and awarded moral and exemplary
damages.
Equitable filed an Motion for Reconsideration, while
respondents prayed for the issuance of a writ of execution.
RTC issued an omnibus order denying MR and ordered the
issuance of the motion of a writ of execution in favor of
respondents.
BANKING LAW JURISPRUNDENCE

Three real properties of Equitable were levied upon and
were sold in a public auction. Respondents were the
highest bidder and certificates of sale were issued.
Equitable filed a petition for certiorari with an application
for an injunction in the CA to enjoin the implementation
and execution of the omnibus order. CA granted Equitable’s
application for injunction. Despite the injunction,
Equitable’s properties previously levied were sold in a
public auction to respondent. Equitable moved to annul the
auction sale. CA dismissed the petition for certiorari, hence
this petition.
ISSUE:
Whether or not the bank has the right to set off the deposit
for the payment of a depositor’s indebtedness.
HELD:
Yes. The relationship between the bank and its depositor is
that of creditor and debtor. For this reason, a bank has the
right to set off the deposit in its hands for the payment of a
depositor’s indebtedness. Respondent indeed defaulted on
their obligation. For this reason, Equitable had the option
to exercise its legal right to set-off or compensation.
However, the RTC mistakenly (or, as it now appears,
deliberately) concluded that Equitable acted “fraudulently
or in bad faith or in wanton disregard” of its contractual
obligations despite the absence of proof. The undeniable
fact was that, whatever damage respondents sustained was
purely the consequence of their failure to pay their loans.
There was therefore absolutely no basis for the award of
moral damages to them.
24. CHINA BANKING CORPORATION AND TAN KIM LIONG
VS. HON. WENCESLAO ORTEGA ET. AL
G.R. No. L-34964 31 January 1973
FACTS:
On December 17, 1968 Vicente Acaban filed a complaint in
the court a quo against Bautista Logging Co., Inc., B & B
Forest Development Corporation and Marino Bautista for
the collection of a sum of money. Upon motion of the
plaintiff the trial court declared the defendants in default
for failure to answer within the reglementary period, and
authorized the Branch Clerk of Court and/or Deputy Clerk
to receive the plaintiff’s evidence. On January 20, 1970 a
judgment by default was rendered against the defendants.
To satisfy the judgment, the plaintiff sought the
garnishment of the bank deposit of the defendant B & B
Forest Development Corporation with the China Banking
Corporation. Accordingly, a notice of garnishment was
32
issued by the Deputy Sheriff of the trial court and served on
said bank through its cashier, Tan Kim Liong. In reply, the
bank’s cashier invited the attention of the Deputy Sheriff to
the provisions of Republic Act No. 1405 which, it was
alleged, prohibit the disclosure of any information relative
to bank deposits. Thereupon the plaintiff filed a motion to
cite Tan Kim Liong for contempt of court.
In an order dated March 4, 1972 the trial court denied the
plaintiff’s motion. However, Tan Kim Lion was ordered “to
inform the Court within five days from receipt of this order
whether or not there is a deposit in the China Banking
Corporation of defendant B & B Forest Development
Corporation, and if there is any deposit, to hold the same
intact and not allow any withdrawal until further order
from this Court.” Tan Kim Liong moved to reconsider but
was turned down by order of March 27, 1972. In the same
order he was directed “to comply with the order of this
Court dated March 4, 1972 within ten (10) days from the
receipt of copy of this order, otherwise his arrest and
confinement will be ordered by the Court.” Resisting the
two orders, the China Banking Corporation and Tan Kim
Liong instituted the instant petition.
ISSUE:
Whether or not a banking institution may validly refuse to
comply with a court processes garnishing the bank deposit
of a judgment debtor, by invoking the provisions of
Republic Act No. 1405.
HELD:
No. The lower court did not order an examination of or
inquiry into deposit of B & B Forest Development
Corporation, as contemplated in the law. It merely required
Tan Kim Liong to inform the court whether or not the
defendant B & B Forest Development Corporation had a
deposit in the China Banking Corporation only for the
purposes of the garnishment issued by it, so that the bank
would hold the same intact and not allow any withdrawal
until further order. It is sufficiently clear that the
prohibition against examination of or inquiry into bank
deposit under RA 1405 does not preclude its being
garnished to insure satisfaction of a judgment. Indeed there
is no real inquiry in such a case, and the existence of the
deposit is disclosed the disclosure is purely incidental to the
execution process. WHEREFORE, the orders of the lower
court dated March 4 and 27, 1972, respectively, are hereby
affirmed, with costs against the petitioners-appellants.
25. EJERCITO V. SANDIGANBAYAN G.R. NO. 157294-95
BANKING LAW JURISPRUNDENCE

Ejercito v. Sandiganbayan
G.R. NO. 157294-95
DATE: November 30, 2006
PONENTE: CARPIO-MORALES
FACTS:
The Special Prosecution Panel filed before the
Sandiganbayan a Request for Issuance of Subpoena Duces
Tecum for the issuance of a subpoena directing the
President of Export and Industry Bank (EIB, formerly Urban
Bank) or his/her authorized representative to produce
documents relating to Trust Account No. 858 and Savings
Account of President Estrada. The SB granted the request.
Estrada filed a Motion to Quash the subpoenas claiming
that his bank accounts are covered by R.A. No. 1405 (The
Secrecy of Bank Deposits Law) and do not fall under any of
the exceptions stated therein. He further claimed that the
specific identification of documents in the questioned
subpoenas, including details on dates and amounts, could
only have been made possible by an earlier illegal
disclosure thereof by the EIB and the Philippine Deposit
Insurance Corporation (PDIC) in its capacity as receiver of
the then Urban Bank. The disclosure being illegal, petitioner
concluded, the prosecution in the case may not be allowed
to make use of the information. The SB denied the motion.
ISSUE/S:
1. Is the Trust Account covered by the term “deposit”under
the Bank Secrecy Law?
2. Are the Trust and Savings Accounts of Estrada excepted
from the protection of the Bank Secrecy Law?
3. Does the fruit of poisonous tree principle apply?
RULING:
1. YES. The contention that trust accounts are not covered
by the term “deposits,”as used in R.A. 1405, by the mere
fact that they do not entail a creditor-debtor relationship
between the trustor and the bank, does not lie. An
examination of the law shows that the term “deposits”used
therein is to be understood broadly and not limited only to
accounts which give rise to a creditor-debtor relationship
between the depositor and the bank. If the money
deposited under an account may be used by banks for
authorized loans to third persons, then such account,
regardless of whether it creates a creditor-debtor
relationship between the depositor and the bank, falls
under the category of accounts which the law precisely
seeks to protect for the purpose of boosting the economic
development of the country.
Trust Account No. 858 is, without doubt, one such account.
The Trust Agreement between Estrada and Urban Bank
provides that the trust account covers “deposit, placement
or investment of funds”by Urban Bank for and in behalf of
Estrada. The money deposited under Trust Account No.
858, was, therefore, intended not merely to remain with
the bank but to be invested by it elsewhere. To hold that
33
this type of account is not protected by R.A. 1405 would
encourage private hoarding of funds that could otherwise
be invested by banks in other ventures, contrary to the
policy behind the law.
The phrase “of whatever nature”proscribes any restrictive
interpretation of “deposits.”Moreover, it is clear from the
immediately quoted provision that, generally, the law
applies not only to money which is deposited but also to
those which are invested. This further shows that the law
was not intended to apply only to “deposits”in the strict
sense of the word. Otherwise, there would have been no
need to add the phrase “or invested.” Clearly, therefore,
R.A. 1405 is broad enough to cover Trust Account No. 858.
2. YES. The protection afforded by the law is, however, not
absolute, there being recognized exceptions thereto, as
abovequoted Section 2 provides. In the present case, two
exceptions apply, to wit: (1) the examination of bank
accounts is upon order of a competent court in cases of
bribery or dereliction of duty of public officials, and (2) the
money deposited or invested is the subject matter of the
litigation.
Estrada contends that since plunder is neither bribery nor
dereliction of duty, his accounts are not excepted from the
protection of R.A. 1405. He is wrong. Cases of unexplained
wealth are similar to cases of bribery or dereliction of duty
and no reason is seen why these two classes of cases
cannot be excepted from the rule making bank deposits
confidential. The policy as to one cannot be different from
the policy as to the other. This policy expresses the notion
that a public office is a public trust and any person who
enters upon its discharge does so with the full knowledge
that his life, so far as relevant to his duty, is open to public
scrutiny. An examination of the “overt or criminal acts as
described in Section 1(d)”of R.A. No. 7080 would make the
similarity between plunder and bribery even more
pronounced since bribery is essentially included among
these criminal acts. Plunder being thus analogous to
bribery, the exception to R.A. 1405 applicable in cases of
bribery must also apply to cases of plunder.
The plunder case now pending with the SB necessarily
involves an inquiry into the whereabouts of the amount
purportedly acquired illegally by former President Joseph
Estrada. In light then of this Court’s pronouncement in
Union Bank, the subject matter of the litigation cannot be
limited to bank accounts under the name of President
Estrada alone, but must include those accounts to which
the money purportedly acquired illegally or a portion
thereof was alleged to have been transferred. Trust
Account No. 858 and Savings Account No. 0116-17345-9 in
the name of petitioner fall under this description and must
thus be part of the subject matter of the litigation.
In sum, exception (1) applies since the plunder case
pending against former President Estrada is analogous to
bribery or dereliction of duty, while exception (2) applies
BANKING LAW JURISPRUNDENCE

because the money deposited in petitioner’s bank accounts
is said to form part of the subject matter of the same
plunder case.
3. NO. The “fruit of the poisonous tree”principle, which
states that once the primary source (the “tree”) is shown to
have been unlawfully obtained, any secondary or derivative
evidence (the “fruit”) derived from it is also inadmissible,
does not apply in this case. In the first place, R.A. 1405 does
not provide for the application of this rule. R.A. 1405, it
bears noting, nowhere provides that an unlawful
examination of bank accounts shall render the evidence
obtained therefrom inadmissible in evidence. Moreover,
there is no basis for applying the same in this case since the
primary source for the detailed information regarding
petitioner’s bank accounts—the investigation previously
conducted by the Ombudsman—was lawful.
26. Emmanuel Oñate and Econ Holdings Corporation v
Abrogar and Sunlife Insurance Company of Canada G.R.
No. 107303 February 21, 1994
Section 10 Rule 57 is not incompatible with Republic Act
No. 1405, as amended, (Bank Deposits Secrecy Law) for
Section 2 therefor provides an exception “in cases where
the money deposited or invested is the subject matter of
the litigation. The examination of the bank records is not a
fishing expedition, but rather a method by which Sun Life
could trace the proceeds of the check it paid to petitioners.
Facts: Sun Life Assurance Company of Canada (Sun Life)
filed a complaint for a sum of money with a prayer for the
immediate issuance of a writ of attachment against
petitioners and Noel L. Diño at Branch 150 of the RTC
Makati, presided over by respondent Judge. The following
day, respondent Judge Abrogar issued an order granting
the issuance of a writ of attachment.
Upon Sun Life’s ex-parte motion, the trial court amended
the writ of attachment to reflect the alleged amount of the
indebtedness. That same day, Deputy Sheriff Flores,
accompanied by a representative of Sun Life, attempted to
serve summons and a copy of the amended writ of
attachment upon petitioners at their known office address
in Makati but was not able to do so since there was no
responsible officer to receive the same. Nonetheless,
Sheriff Flores proceeded over a period of several days to
serve notices of garnishment upon several commercial
banks and financial institutions, and levied on attachment a
condominium unit and a real property belonging to
petitioner Oñate. ECON filed an “Urgent Motion to
Discharge/Dissolve Writ of Attachment.” That same day,
Sun Life filed an ex-parte motion to examine the books of
accounts and ledgers of petitioner Brunner Development
34
Corporation (Brunner) at the Urban Bank, Legaspi Village
Branch, and to obtain copies thereof, which motion was
granted by respondent Judge. The examination of said
account took place on January 23, 1992. Petitioners filed a
motion to nullify the proceedings taken thereat since they
were not present.
ECON and their co-defendants filed a memorandum in
support of the motion to discharge attachment. Also on
that same day, Sun Life filed another motion for
examination of bank accounts, this time seeking the
examination of Account No. 0041-0277-03 with the Bank of
Philippine Islands (BPI) — which, incidentally, petitioners
claim not to be owned by them — and the records of
Philippine National Bank (PNB) with regard to checks
payable to Brunner. Sun Life asked the court to order both
banks to comply with the notice of garnishment.
On February 6, 1992, respondent Judge issued an order (1)
denying petitioners’ and the co-defendants’ motion to
discharge the amended writ of attachment, (2) approving
Sun Life’s additional attachment, (3) granting Sun Life’s
motion to examine the BPI account, and (4) denying
petitioners’ motion to nullify the proceedings. Petitioners’
assail the acts of respondent Judge in allowing the
examination of Urban Banks’ records and in ordering that
the examination of the bank records of BPI and PNB as
invalid since no notice of said examinations were ever given
them.
Issue:
1) Whether or not respondent Judge had acted with grave
abuse of discretion in issuing ex parte the original and
amended writs of preliminary attachment and the
corresponding notices of garnishment and levy on
attachment pending acquisition of the jurisdiction of the
RTC.
2) Whether or not respondent Judge had acted with grave
abuse of discretion amounting to lack or in excess of
jurisdiction in allowing the examination of the bank records
though no notice was given to them.
Held:
1) Whether or not respondent Judge had acted with grave
abuse of discretion in issuing ex parte the original and
amended writs of preliminary attachment and the
corresponding notices of garnishment and levy on
attachment pending acquisition of the jurisdiction of the
RTC.
No. It is clear from the provision of Section 10, Rule 57
(ROC) that notice need only be given to the garnishee, but
the person who is holding property or credits belonging to
the defendant. The provision does not require that notice
be furnished the defendant himself, except when there is a
need to examine said defendant “for the purpose of giving
BANKING LAW JURISPRUNDENCE

information respecting his property. Furthermore, Section
10 Rule 57 is not incompatible with Republic Act No. 1405,
as amended, (Bank Deposits Secrecy Law) for Section 2
therefor provides an exception “in cases where the money
deposited or invested is the subject matter of the litigation.
The examination of the bank records is not a fishing
expedition, but rather a method by which Sun Life could
trace the proceeds of the check it paid to petitioners.
2) Whether or not respondent Judge had acted with grave
abuse of discretion amounting to lack or in excess of
jurisdiction in allowing the examination of the bank records
though no notice was given to them.
It is well-settled that a writ of preliminary attachment may
be validly applied for and granted even before the
defendant is summoned or is heard from. A preliminary
attachment may be defined as the provisional remedy in
virtue of which a plaintiff or other proper party may, at the
commencement of the action or any time thereafter, have
the property of the adverse party taken into the custody of
the court as security for the satisfaction of any judgment
that may be recovered. It is a remedy which is purely
statutory in respect of which the law requires a strict
construction of the provisions granting it. Withal no
principle, statutory or jurisprudential, prohibits its issuance
by any court before acquisition of jurisdiction over the
person of the defendant.
27. Philippine National Bank v. Gancayco GR No. 18343, 30
September 1965
Section 8 of the Anti-Graft Law is intended to amend
Section 2 of Republic Act No. 1405 by providing an
additional exception to the rule against the disclosure of
bank deposits.
Facts: Emilio Gancayco and Florentino Flor, as special
prosecutors of the Department of Justice, required the
Philippine National Bank to produce at a hearing the
records of the bank deposits of Ernesto Jimenez, former
administrator of the Agricultural Credit and Cooperative
Administration, who was then under investigation for
unexplained wealth.
PNB refused to disclose his bank deposits, invoking Section
2 of Republic Act No. 1405. On the other hand, the
prosecutors cited the Anti-Graft and Corrupt Practices Act,
particularly Section 8 therewith, to wit:
“Section 8. Dismissal due to unexplained wealth. – If in
accordance with the provisions of RA 1379, a public official
has been found to have acquired during his incumbency,
whether in his name or in the name of other persons, an
amount of property and/or money manifestly out of
35
proportion to his salary and to his other lawful income, that
fact shall be a ground for dismissal or removal. Properties in
the name of the spouse and unmarried children of such
public official, may be taken into consideration, when their
acquisition through legitimate means cannot be
satisfactorily shown. Bank deposits shall be taken into
consideration in the enforcement of this section,
notwithstanding any provision of law to the contrary.” PNB
then filed an action for declaratory judgment in the CFI of
Manila which ruled that Section 8 of the Anti-Graft and
Corrupt Practices Act clearly intended to provide an
additional ground for the examination of bank deposits.
Hence, this appeal.
Issue: Whether or not a bank can be compelled to disclose
the records of accounts of a depositor who is under
investigation for unexplained wealth
Held : Yes. While Republic Act No. 1405 provides that bank
deposits are “absolutely confidential … and may not be
examined, inquired or looked into,” , the Anti-Graft Law
directs in mandatory terms that bank deposits shall be
taken into consideration notwithstanding any provision of
law to the contrary
While No reconciliation is possible between Republic Act
No. 1405 and Republic Act No. 3019 as the two laws are so
repugnant to each other. Thus, while Section 2 of Republic
Act No. 1405 provides that bank deposits are “absolutely
confidential … and, therefore, may not be examined,
inquired or looked into,” except in those cases enumerated
therein, Section 8 of Republic Act No. 3019 (Anti-graft law)
directs in mandatory terms that bank deposits “shall be
taken into consideration in the enforcement of this section,
notwithstanding any provision of law to the contrary.” The
only conclusion possible is that Section 8 of the Anti-Graft
Law is intended to amend Section 2 of Republic Act No.
1405 by providing an additional exception to the rule
against the disclosure of bank deposits.
With regard to the claim that disclosure would be contrary
to the policy making bank deposits confidential, it is enough
to point out that while Section 2 of Republic Act No. 1405
declares bank deposits to be “absolutely confidential,” it
nevertheless allows such disclosure in the following
instances: (1) Upon written permission of the depositor; (2)
In cases of impeachment; (3) Upon order of a competent
court in cases of bribery or dereliction of duty of public
officials; (4) In cases where the money deposited is the
subject of the litigation.
Cases of unexplained wealth are similar to cases of bribery
or dereliction of duty and no reason is seen why these two
classes of cases cannot be excepted from the rule making
bank deposits confidential. The policy as to one cannot be
different from the policy as to the other. This policy
expresses the notion that a public office is a public trust and
any person who enters upon its discharge does so with the
BANKING LAW JURISPRUNDENCE

full knowledge that his life, so far as relevant to his duty, is
open to public scrutiny.
28. LOURDES T. MARQUEZ, in her capacity as Branch
Manager, Union Bank of the Philippines, petitioners
vs.
HON. ANIANO A. DESIERTO, (in his capacity as
OMBUDSMAN, Evaluation and Preliminary Investigation
Bureau, Office of the Ombudsman, ANGEL C. MAYOR-
ALGO, JR., MARY ANN CORPUZ-MANALAC and JOSE T. DE
JESUS, JR., in their capacities as Chairman and Members of
the Panel, respectively, Respondents.
G.R. No. 135882. June 27, 2001
Facts:
Petitioner Lourdes Marquez received an Order from
respondent Ombudsman Aniano Desierto to produce
several bank documents for purposes of inspection in
camera relative to various accounts maintained at the bank
where petitioner is the branch manager. The accounts to be
inspected are involved in a case pending with the
Ombudsman entitled, Fact-Finding and Intelligence Bureau
(FFIB) v. Amado Lagdameo. It appears that a certain George
Trivinio purchased trail managers check and deposited
some of it to an account maintained at petitioner’s branch.
Petitioner after meeting with the FFIB Panel to ensure the
veracity of the checks agreed to the in camera inspection.
Petitioner being unable to readily identify the accounts in
question, the Ombudsman issued an order directing
petitioner to produce the bank documents. Thus, petitioner
sought a declaration of her rights from the court due to the
clear conflict between RA 6770 and RA 1405. Meanwhile,
FFIB moved to cite petitioner in contempt before the
Ombudsman.
Issue:
Whether or not the order of Ombudsman to have an in
camera inspection of the accounts is an allowable
exception of R.A. No. 1405.
Ruling:  Zones of privacy are recognized and protected in our laws.
NO.
The order of the Ombudsman to produce for in camera
inspection the subject accounts with the Union Bank of the
Philippines, Julia Vargas Branch, is based on a pending
investigation at the Office of the Ombudsman against
Amado Lagdameo, et. al. for violation of R.A. No. 3019, Sec.
3 (e) and (g) relative to the Joint Venture Agreement
between the Public Estates Authority and AMARI.
36
We rule that before an in camera inspection may be
allowed, there must be a pending case before a court of
competent jurisdiction. Further, the account must be
clearly identified, the inspection limited to the subject
matter of the pending case before the court of competent
jurisdiction. The bank personnel and the account holder
must be notified to be present during the inspection, and
such inspection may cover only the account identified in
the pending case.
In Union Bank of the Philippines v. Court of Appeals, we
held that Section 2 of the Law on Secrecy of Bank Deposits,
as amended, declares bank deposits to be absolutely
confidential except:
(1) In an examination made in the course of a special or
general examination of a bank that is specifically authorized
by the Monetary Board after being satisfied that there is
reasonable ground to believe that a bank fraud or serious
irregularity has been or is being committed and that it is
necessary to look into the deposit to establish such fraud or
irregularity,
(2) In an examination made by an independent auditor
hired by the bank to conduct its regular audit provided that
the examination is for audit purposes only and the results
thereof shall be for the exclusive use of the bank,
(3) Upon written permission of the depositor,
(4) In cases of impeachment,
(5) Upon order of a competent court in cases of bribery or
dereliction of duty of public officials, or
(6) In cases where the money deposited or invested is the
subject matter of the litigation
In the case at bar, there is yet no pending litigation before
any court of competent authority. What is existing is an
investigation by the Office of the Ombudsman. In short,
what the office of the ombudsman would wish to do is to
fish for additional evidence to formally charge Amado
Lagdameo, et. al., with the Sandiganbayan. Clearly, there
was no pending case in court which would warrant the
opening of the bank account for inspection.
The Civil Code provides that "[e]very person shall respect
the dignity, personality, privacy and peace of mind of his
neighbors and other persons" and punishes as actionable
torts several acts for meddling and prying into the privacy
of another. It also holds a public officer or employee or any
private individual liable for damages for any violation of the
rights and liberties of another person, and recognizes the
privacy of letters and other private communications. The
Revised Penal Code makes a crime of the violation of
secrets by an officer, the revelation of trade and industrial
BANKING LAW JURISPRUNDENCE

secrets, and trespass to dwelling. Invasion of privacy is an
offense in special laws like the Anti-Wiretapping Law, the
Secrecy of Bank Deposits Act, and the Intellectual Property
Code. The petition is granted.
29. GOVERNMENT SERVICE INSURANCE SYSTEM
vs.
THE HONORABLE 15TH DIVISION OF THE COURT OF
APPEALS and INDUSTRIAL BANK OF KOREA, TONG YANG
MERCHANT BANK, HANAREUM BANKING CORP., LAND
BANK OF THE PHILIPPINES, WESTMONT BANK and
DOMSAT HOLDINGS, INC.,
G.R. No. 189206
Facts:
The controversy originated from a surety agreement by
which Domsat obtained a surety bond from GSIS to secure
the payment of the loan from the Banks. When Domsat
failed to pay the loan, GSIS refused to comply with its
obligation reasoning that Domsat did not use the loan
proceeds for the payment of rental for the satellite. GSIS
alleged that Domsat, with Westmont Bank as the conduit,
transferred the U.S. $11 Million loan proceeds from the
Industrial Bank of Korea to Citibank New York account of
Westmont Bank and from there to the Binondo Branch of
Westmont Bank. The Banks filed a complaint before the
RTC of Makati against Domsat and GSIS.
The RTC issued a subpoena decus tecum on 21 November
2002. A motion to quash was filed by the banks on three
grounds: 1) the subpoena is unreasonable, oppressive and
does not establish the relevance of the documents sought;
2) request for the documents will violate the Law on
Secrecy of Bank Deposits; and 3) GSIS failed to advance the
reasonable cost of production of the documents.
Domsat also joined the banks’ motion to quash through its
Manifestation/Comment.On 9 April 2003, the RTC issued an
Order denying the motion to quash for lack of merit.
The GSIS filed a motion for reconsideration but was denied.
The Court of Appeals declared that Domsat’s deposit in
Westmont Bank is covered by Republic Act No. 6426 or the
Bank Secrecy Law. The petition is partially GRANTED. The
CA ordered to issue subpoena duces tecum ad
testificandum directing the records custodian of Westmont
Bank to bring to court the ledger and other documents.
GSIS insists that Domsat’s deposit with Westmont Bank can
be examined and inquired into. It anchored its argument on
Republic Act No. 1405 or the “Law on Secrecy of Bank
Deposits,” which allows the disclosure of bank deposits in
cases where the money deposited is the subject matter of
the litigation. GSIS asserts that the subject matter of the
litigation is the U.S. $11 Million obtained by Domsat from
the Banks to supposedly finance the lease of a Russian
37
satellite from Intersputnik. Whether or not it should be
held liable as a surety for the principal amount of U.S. $11
Million, GSIS contends, is contingent upon whether Domsat
indeed utilized the amount to lease a Russian satellite as
agreed in the Surety Bond Agreement. Hence, GSIS argues
that the whereabouts of the U.S. $11 Million is the subject
matter of the case and the disclosure of bank deposits
relating to the U.S. $11 Million should be allowed.
Issue:
Whether or not CA erred in ruling that Domsat’s deposit
with Westmont Bank cannot be examined and in finding
that the banks’ second motion for reconsideration in Civil
Case No. 99-1853 is procedurally acceptable.
Ruling:
No. Applying Section 8 of Republic Act No. 6426 and
Republic Act No. 1405 Section 2, absent the written
permission from Domsat, Westmont Bank cannot be legally
compelled to disclose the bank deposits of Domsat,
otherwise, it might expose itself to criminal liability under
the same act.
Section 8. Secrecy of Foreign Currency Deposits. – All
foreign currency deposits authorized under this Act, as
amended by Presidential Decree No. 1035, as well as
foreign currency deposits authorized under Presidential
Decree No. 1034, are hereby declared as and considered of
an absolutely confidential nature and, except upon the
written permission of the depositor, in no instance shall
foreign currency deposits be examined, inquired or looked
into by any person, government official, bureau or office
whether judicial or administrative or legislative or any other
entity whether public or private; Provided, however, That
said foreign currency deposits shall be exempt from
attachment, garnishment, or any other order or process of
any court, legislative body, government agency or any
administrative body whatsoever. (As amended by PD No.
1035, and further amended by PD No. 1246, prom. Nov. 21,
1977.)
Section 2. All deposits of whatever nature with banks or
banking institutions in the Philippines including investments
in bonds issued by the Government of the Philippines, its
political subdivisions and its instrumentalities, are hereby
considered as of an absolutely confidential nature and may
not be examined, inquired or looked into by any person,
government official, bureau or office, except upon written
permission of the depositor, or in cases of impeachment, or
upon order of a competent court in cases of bribery or
dereliction of duty of public officials, or in cases where the
money deposited or invested is the subject matter of the
litigation.
BANKING LAW JURISPRUNDENCE

Republic Act No. 1405 provides for four (4) exceptions
when records of deposits may be disclosed. These are
under any of the following instances:
a) upon written permission of the depositor,
(b) in cases of impeachment,
(c) upon order of a competent court in the case of bribery
or dereliction of duty of public officials or,
(d) when the money deposited or invested is the subject
matter of the litigation, and
(e) in cases of violation of the Anti-Money Laundering Act
(AMLA), the Anti-Money Laundering Council (AMLC) may
inquire into a bank account upon order of any competent
court. On the other hand, the lone exception to the non-
disclosure of foreign currency deposits, under Republic Act
No. 6426, is disclosure upon the written permission of the
depositor.
These two laws both support the confidentiality of bank
deposits. There is no conflict between them. Republic Act
No. 1405 was enacted for the purpose of giving
encouragement to the people to deposit their money in
banking institutions and to discourage private hoarding so
that the same may be properly utilized by banks in
authorized loans to assist in the economic development of
the country.  It covers all bank deposits in the Philippines
and no distinction was made between domestic and foreign
deposits.
Thus, Republic Act No. 1405 is considered a law of general
application. On the other hand, Republic Act No. 6426 was
intended to encourage deposits from foreign lenders and
investors.  It is a special law designed especially for foreign
currency deposits in the Philippines. A general law does not
nullify a specific or special law. Generalia specialibus non
derogant. Therefore, it is beyond cavil that Republic Act No.
6426 applies in this case.
30. ALEXANDER VAN TWEST and THE HON. SALVADOR P.
DE GUZMAN, in his capacity as Presiding Judge of the
Regional Trial Court of Makati, Branch 142, petitioners,
vs.
THE HON. COURT OF APPEALS and GLORIA
ANACLETO, respondents.
G.R. No. 106253 February 10, 1994
38
Circular No. 960, Series of 1983 was in force at the
time private respondent undertook her questioned
transactions; thus, such local transfer from the original joint
foreign currency account to another (personal) foreign
currency account, was not an eligible foreign currency
deposit within the coverage of R.A. No. 6426 and not
entitled to the benefit of the confidentiality provisions of
R.A. No. 6426.
Facts:
Alexander Van Twest and Gloria Anacleto opened
a joint foreign currency savings account with Interbank to
hold funds which "belonged entirely and exclusively" to
petitioner, to "facilitate the funding of certain business
undertakings" of both of them and which funds were to be
"temporarily (held) in trust" by private respondent, who
"shall turnover the same to plaintiff upon demand." When
the business relationship of petitioner and respondent
ended, the respondent unilaterally closed their joint
account, withdrew the remaining balance of Deutschmark
(DM) 269,777.37 and placed the money in her own
personal account with the same bank. Petitioner thus
sought an injunctive writ to prevent private respondent
from withdrawing the money at any time.
Private respondent contends for the first time
before the CA that the personal foreign currency deposit
account she is maintaining is exempt from processes issued
by the courts, pursuant to Section 8 of R.A. 6426 as
amended by P. D. 1246, the date she withdrew the foreign
exchange fund from her joint account with petitioner and
transferred the same to her personal account.
Issue:
Whether or not the account is covered by
confidentiality.
Ruling:
NO.
Section one hundred-two of Circular No. 960, Series of
1983, provides in relevant part:
xxx xxx xxx
Sec. 102. Foreign currency funds ineligible for
deposits.
a. Foreign exchange purchased from
authorized agent banks in accordance with
existing regulations such as excess travel
funds; unspent financial assistance of
dependents abroad of Philippine residents;
foreign exchange acquired from any
resident persons, firm, association and
BANKING LAW JURISPRUNDENCE

corporation; and transfers to foreign
currency deposit account or receipt from
another foreign currency deposit account,
whether for payment of legitimate
obligation or otherwise, are not eligible for
deposit under the System.
xxx xxx xxx 27
(Emphasis supplied)
This Circular was in force at the time private
respondent undertook her questioned transactions; thus,
such local transfer from the original joint foreign currency
account to another (personal) foreign currency account,
was not an eligible foreign currency deposit within the
coverage of R.A. No. 6426 and not entitled to the benefit
of the confidentiality provisions of R.A. No. 6426.
Although transfers from one foreign currency deposit
account to another foreign currency deposit account in the
Philippines are now eligible deposits under the Central
Bank's Foreign Currency Deposit System, private
respondent is still not entitled to the confidentiality
provisions of the relevant circulars. For, as noted earlier,
private respondent is not the owner of such foreign
currency funds and her personal deposit account is not
protected.
It does not appear indubitable that private
respondent was a co-owner of the funds who could only
unilaterally control the application thereof in payment of
partnership debts. Indeed, petitioner has affirmatively
shown that the Deutschmark originated from him alone
and that he alone was owner thereof. By depositing those
funds in a joint 'and/or' account, petitioner did not convey
ownership thereof to private respondent and private
respondent could not convert those funds to her personal
and exclusive ownership and use.
31. CHINA BANKING CORPORATION, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and JOSE "JOSEPH"
GOTIANUY as substituted by ELIZABETH GOTIANUY
LO, respondents.
G.R. No. 140687             December 18, 2006
Facts:
Jose Gotianuy accused his daughter Mary Margaret Dee of
stealing, among his other properties, US dollar deposits
with Citibank N.A. Mary Margaret Dee received these
amounts from Citibank through checks which she allegedly
39
deposited at petitioner China Bank. Jose Gotianuy, died
during the pendency of the case and was substituted by his
daughter, Elizabeth Gotianuy Lo. The latter presented the
US Dollar checks withdrawn by Mary Margaret Dee from his
US dollar placement with Citibank.
Upon motion of Elizabeth Gotianuy Lo, the trial court issued
a subpoena to employees of China Bank to testify on the
case. China Bank moved for reconsideration. The trial court
resolved by directing the employees to appear at the trial
of the case only for the purpose of disclosing in whose
name/s is the foreign currency fund deposited with. CA
affirmed the order of the trial court.
The Court of Appeals, in allowing the inquiry, considered
Jose Gotianuy, a co-depositor of Mary Margaret Dee. It
reasoned that since Jose Gotianuy is the named co-payee of
the latter in the subject checks, which checks were
deposited in China Bank, then, Jose Gotianuy is likewise a
depositor thereof. On that basis, no written consent from
Mary Margaret Dee is necessitated.
Issue:
Whether or not a co-depositor may inquire into the deposit
without a written consent of the other co-depositor?
Ruling:  YES. [Pro Hac Vice Ruling]
We agree in the conclusion arrived at by the Court of
Appeals.
Under the above provision, the law provides that all foreign
currency deposits authorized under Republic Act No. 6426,
as amended by Sec. 8, Presidential Decree No. 1246,
Presidential Decree No. 1035, as well as foreign currency
deposits authorized under Presidential Decree No. 1034 are
considered absolutely confidential in nature and may not
be inquired into. There is only one exception to the
secrecy of foreign currency deposits, that is, disclosure is
allowed upon the written permission of the depositor.
Thus, with this, there is no issue as to the source of the
funds. Mary Margaret Dee declared the source to be Jose
Gotianuy. There is likewise no dispute that these funds in
the form of Citibank US dollar Checks are now deposited
with China Bank. As the owner of the funds unlawfully
taken and which are undisputably now deposited with
China Bank, Jose Gotianuy has the right to inquire into the
said deposits.
On this score, the observations of the Court of Appeals are
worth reiterating:
BANKING LAW JURISPRUNDENCE

Furthermore, it is indubitable that the Citibank checks were
drawn against the foreign currency account with Citibank,
NA. The monies subject of said checks originally came from
the late Jose Gotianuy, the owner of the account. Thus, he
also has legal rights and interests in the CBC account where
said monies were deposited. More importantly, the
Citibank checks readily demonstrate that the late Jose
Gotianuy is one of the payees of said checks. Being a co-
payee thereof, then he or his estate can be considered as a
co-depositor of said checks. Ergo, since the late Jose
Gotianuy is a co-depositor of the CBC account, then his
request for the assailed subpoena is tantamount to an
express permission of a depositor for the disclosure of the
name of the account holder.
All things considered and in view of the distinctive
circumstances attendant to the present case, we are
constrained to render a limited pro hac vice ruling. Clearly it
was not the intent of the legislature when it enacted the
law on secrecy on foreign currency deposits to perpetuate
injustice. This Court is of the view that the allowance of the
inquiry would be in accord with the rudiments of fair play,
the upholding of fairness in our judicial system and would
be an avoidance of delay and time-wasteful and circuitous
way of administering justice.
32 KAREN E. SALVACION, minor, thru Federico N.
Salvacion, Jr., father and Natural Guardian, and Spouses
FEDERICO N. SALVACION, JR., and EVELINA E. SALVACION,
petitioners,
vs.
CENTRAL BANK OF THE PHILIPPINES, CHINA BANKING
CORPORATION and GREG BARTELLI y NORTHCOTT,
respondents.
G.R. No. 94723 August 21, 1997
FACTS:
On February 4, 1989, Greg Bartelli y Northcott, an American
tourist, coaxed and lured petitioner Karen Salvacion, a
minor, to go with him to his apartment. He then detained
and raped the petitioner for 4 days. After rescuing
Salvacion on February 7, 1989, the police arrested Bartelli
for committing four counts of rape and serious illegal
detention. The policemen recovered several items from
Bartelli including a dollar account in China Bank of the
Philippines.
40
On February 16, 1989, the petitioners filed with the
Regional Trial Court a civil case for damages with
preliminary attachment against Bartelli. However, Bartelli
escaped from jail on the day of the hearing for his petition
for bail.
The Judge granted the application of the petitioners for the
issuance of the writ of preliminary attachment. The Deputy
Sheriff served a Notice of Garnishment on China Banking
Corporation. In a letter sent by the bank, it invoked
Republic Act No. 1405 as its answer to the notice of
garnishment. The Deputy Sheriff replied by saying that the
garnishment did not violate the secrecy of bank deposits.
However, the bank still refused by invoking Section 113 of
Central Bank Circular No. 960 claiming that the dollar
deposits of Bartelli are exempted from attachment,
garnishment or any order or process of any court,
legislative body, government agency or any administrative
body whatsoever.
The counsel for petitioners inquired with the Central Bank
on whether Section 113 of CB Circular No. 960 has any
exception or whether said section has been repealed or
amended. The Central Bank stated that the provision in the
said section is absolute in application and that it does not
admit of any exception, nor has the same been repealed
nor amended.
ISSUE:
Whether or not Section 113 of Central Bank Circular No.
960 and Section 8 of R.A. 6426, as amended by P.D. 1246,
otherwise known as the Foreign Currency Deposit Act be
made applicable to a foreign transient.
RULING:
NO.
The provisions of Section 113 of CB Circular No. 960 and PD
No. 1246, insofar as it amends Section 8 of R.A. No. 6426
are hereby held to be inapplicable to this case because of
its peculiar circumstances. Respondents are hereby
required to comply with the writ of execution issued in the
civil case and to release to petitioners the dollar deposit of
Bartelli in such amount as would satisfy the judgment.
The Supreme Court agreed with the comment made by the
Solicitor General who argued that the foreign currency
deposit made by a transient or a tourist is not the kind of
deposit encouraged by PD Nos. 1034 and 1035 since such
BANKING LAW JURISPRUNDENCE

depositor stays only for a few days in the country and,
therefore, will maintain his deposit in the bank only for a
short time.
The Supreme Court stated that “In fine, the application of
the law depends on the extent of its justice. Eventually, if
we rule that the questioned Section 113 of Central Bank
Circular No. 960 which exempts from attachment,
garnishment, or any other order or process of any court,
legislative body, government agency or any administrative
body whatsoever, is applicable to a foreign transient,
injustice would result especially to a citizen aggrieved by a
foreign guest like accused Greg Bartelli. This would negate
Article 10 of the New Civil Code which provides that “in
case of doubt in the interpretation or application of laws, it
is presumed that the lawmaking body intended right and
justice to prevail.”
33 MELLON BANK, N.A., petitioner,
vs.
HON. CELSO L. MAGSINO, in his capacity as Presiding
Judge of Branch CLIX of the Regional Trial Court at Pasig;
MELCHOR JAVIER, JR., VICTORIA JAVIER; HEIRS OF
HONORIO POBLADOR, JR., namely: Elsa Alunan Poblador,
Honorio Poblador III, Rafael Poblador, Manuel Poblador,
Ma. Regina Poblador, Ma. Concepcion Poblador & Ma.
Dolores Poblador; F.C. HAGEDORN & CO., INC.; DOMINGO
JHOCSON, JR.; JOSE MARQUEZ; ROBERTO GARINO; ELNOR
INVESTMENT CO., INC.; PARAMOUNT FINANCE
CORPORATION; RAFAEL CABALLERO; and TRI-ARC
INVESTMENT and MANAGEMENT CO., INC. respondents.
G.R. No. 71479 October 18, 1990
FACTS:
Dolores Ventosa requested the transfer of $1,000.00 from
the First National Bank of Moundsville, West Virginia, USA
to Victoria Javier in Manila through the Prudential Bank.
The First National Bank requested petitioner, Mellon Bank,
to effect the transfer. Unfortunately, Mellon Bank
mistakenly indicated in its wire sent to Manufacturers
Hanover Bank the amount of US$1,000,000.00 instead of
US$1,000.00.
Manufacturers Hanover Bank, a correspondent of
Prudential Bank, transferred one million dollars less bank
41
charges of $6.30 to the Prudential Bank for the account of
Victoria Javier.
On June 3, 1977, Javier opened a new dollar account (No.
343) in the Prudential Bank and deposited the amount of
$999,943.70. Victoria and her husband, Melchor Javier Jr.,
immediately made withdrawals from the account and
deposited them in several banks. They subsequently
withdrew them in an apparent plan to conceal “launder”,
and dissipate the erroneously sent amount.
Melchor Javier requested a realtor named Jose Marquez to
look for properties in the United States. Marquez offered
the 160-acre lot of Honorio Poblador Jr. located in the
Mojave desert in California City. Melchor agreed to
purchase the said property even without seeing it. Marquez
then executed a deed of absolute sale as Poblador’s agent
and had it notarized. He sent a copy to Kern County
Registrar in California for registration.
The payment was made through the six cashier’s checks
withdrawn from account No. 343 while the balance was
paid in cash by Javier. The checks were paid to the
companies financially related with Poblador (Elnor
Investment Co., Inc., Paramount Finance, and F.C
Hagedorn).
In July 1977, Mellon Bank filed a complaint docketed as No.
148056 in the Superior Court of California, County of Kern,
against Melchor Javier, Jane Doe Javier, Honorio Poblador,
Jrn, and Does I through V. It imposed constructive trust of
the property purchased by the Javier spouses from the
money mistakenly and erroneously transferred to their
account.
On July 29, 1977, Mellon Bank also filed in the Court of First
Instance of Rizal, Branch X, a complaint against the Javier
spouses, Honorio Poblador, Jr., Domingo L. Jhocson, Jr.,
Jose Marquez, Roberto Gariño, and the 3 companies
mentioned to recover the amount used for the sale of the
property in California City.
Mellon Bank traced the cashier’s check to account 2825-1
of the Philippine Veterans Bank under the name of Cipriano
Azada, Poblador’s law partner and counsel to the Javiers.
Mellon Bank then subpoenaed Baylosis and Red to testify
about the bank transaction but their testimonies were later
stricken from the records because such testimonies were in
violation of Republic Act No. 1405 on the secrecy of bank
deposits.
BANKING LAW JURISPRUNDENCE

ISSUE:
Whether or not the disclosure of bank deposits in cases
where the money deposited is the subject matter of the
litigation violates the provisions of Republic Act No. 1405
on the secrecy of bank deposits.
RULING:
NO.
The Supreme Court ruled that the private respondents'
protestations that to allow the questioned testimonies to
remain on record would be in violation of the provisions of
Republic Act No. 1405 on the secrecy of bank deposits, is
unfounded.
Section 2 of said law allows the disclosure of bank deposits
in cases where the money deposited is the subject matter
of the litigation. Inasmuch as Civil Case No. 26899 is aimed
at recovering the amount converted by the Javiers for their
own benefit, necessarily, an inquiry into the whereabouts
of the illegally acquired amount extends to whatever is
concealed by being held or recorded in the name of
persons other than the one responsible for the illegal
acquisition.
34. BANCO FILIPINO SAVINGS AND MORTGAGE BANK
vs.
HON. FIDEL PURISIMA
G.R. No. L-56429 (May 28, 1988)
FACTS:  banking institutions in the Philippines including investments
Caturla, special agent of the Bureau of Customs, was
accused by BIR before the Tanodbayan  of having allegedly
acquired property manifestly out of proportion to his salary
and other lawful income, in violation of the “Anti-Graft and
Corrupt Practices Act.”
In the course of the preliminary investigation thereof,
the Tanodbayan issued a subpoena duces tecum to the
Banco Filipino Savings & Mortgage Bank, commanding its
representative to appear at the Office of
the Tanodbayan and furnish the latter with duly certified
copies of the records of the loans, savings and time
deposits and other banking transactions appearing in the
names of Caturla, his wife, their children and friends .
Caturla moved to quash the subpoena duces tecum arguing
that compliance therewith would result in a violation of
Sections 2 and 3 of the Law on Secrecy of Bank Deposits.
Then Tanodbayan not only denied the motion for lack of
42
merit, and directed compliance with the subpoena, but also
expanded its scope through a second and third subpoena
duces tecum,
BF Bank took over from Caturla in the effort to nullify
the subpoenae. It filed a complaint for declaratory relief
with the CFI of Manila, praying for a judicial declaration as
to whether its compliance with the subpoenae duces
tecum would constitute an infringement of the provisions
of Sections 2 and 3 of R.A. No. 1405 in relation to Section 8
of R.A. No. 3019. It also asked that pending final resolution
of the question, the Tanodbayan be provisionally restrained
from exacting compliance with the subpoenae.
Respondent Judge Purisima issued an Order denying for
lack of merit the application by BF Bank for a preliminary
injunction and/or restraining order.
This Order is now impugned in the instant certiorari action
instituted by BF Bank before this Court, as having been
issued with grave abuse of discretion, amounting to lack of
jurisdiction.
ISSUE: 
Whether or not the “Law on Secrecy of Bank Deposits”
precludes production by subpoena duces tecum of bank
records of transactions by or in the names of the wife,
children and friends of the accused.
RULING:
NO.
The provisions of R.A. No. 1405 subject of BF's declaratory
action, read as follows:
Sec. 2. All deposits of whatever nature with banks or
in bonds issued by the Government of the Philippines, its
political subdivisions and its instrumentalities, are hereby
considered as of an absolutely confidential nature and may
not be examined, inquired or looked into by any person,
government official, bureau or office, except upon written
permission of the depositor, or in cases of impeachment, or
upon order of a competent court in cases of bribery or
dereliction of duty of public officials, or in cases where the
money deposited or invested is the subject matter of
litigation.
In our decision in Philippine National Bank v. Gancayco,
rendered on September 30, 1966,  we upheld the judgment
of the Trial Court "sustaining the power of the defendants
(special prosecutors of the Department of Justice) to
compel the disclosure (by PNB) of bank accounts of ACCFA
Administrator Jimenez (then under investigation for
unexplained wealth), .. (it being ruled) that, by enacting
BANKING LAW JURISPRUNDENCE

section 8 of the Anti-Graft and Corrupt Practices Act,
Congress clearly intended to provide an additional ground
for the examination of bank deposits .. (for) without such
provision, the .. prosecutors would be hampered if not
altogether frustrated in the prosection of those charged
with having acquired unexplained wealth while in public
office.  We ourselves declared in said case that —
.. while Republic Act No. 1405 provides that bank
deposits are "absolutely confidential .. and
[therefore] may not be examined, inquired or
looked into," except in those cases enumerated
therein, the Anti-Graft Law directs in mandatory
terms that bank deposits "shall be taken into
consideration in the enforcement of this
section, notwithstanding any provision of law to
the contrary." The only conclusion possible is that
section 8 of the Anti-Graft Law is intended to
amend section 2 of Republic Act No. 1405 by
providing an additional exception to the rule
against the disclosure of bank desposits.
xxx xxx xxx
... Cases of unexplained wealth are similar to cases
of bribery or dereliction of duty and no reason is
seen why these two classes of cases cannot be
excepted from the rule making bank deposits
confidential. The policy as to one cannot be
different from the policy as to the other. This
policy expresses the notion that a public office is a
public trust and any person who enters upon its
discharge does so with the full knowledge that his
life, so far as relevant to his duty, is open to public
scrutiny.
The inquiry into illegally acquired property — or property
NOT "legitimately acquired" — extends to cases where such
property is concealed by being held by or recorded in the
name of other persons. This proposition is made clear by
R.A. No. 3019 which quite categorically states that the
term, "legitimately acquired property of a public officer or
employee shall not include .. property unlawfully acquired
by the respondent, but its ownership is concealed by its
being recorded in the name of, or held by, respondent's
spouse, ascendants, descendants, relatives or any other
persons."  Upon the presentation of the Deputy Sheriff of the Notice
To sustain the petitioner's theory, and restrict the inquiry
only to property held by or in the name of the government
official or employee, or his spouse and unmarried children
is unwarranted in the light of the provisions of the statutes
in question, and would make available to persons in
government who illegally acquire property an easy and
fool-proof means of evading investigation and prosecution;
all they would have to do would be to simply place the
43
property in the possession or name of persons other than
their spouse and unmarried children. This is an absurdity
that we will not ascribe to the lawmakers.
35 PHILIPPINE COMMERCIAL & INDUSTRIAL BANK and
JOSE HENARES, petitioners,
vs.
THE HON. COURT OF APPEALS and MARINDUQUE MINING
AND INDUSTRIAL CORPORATION, respondents.
G.R. No. 84526 January 28, 1991
FACTS:
The case originated from the action filed with the National
Labor Relations Commission (NLRC) by a group of laborers
who obtained a favorable judgment for the payment of
back wages amounting to Php 205,853.00 against the
private respondent. The NLRC issued a writ of execution
directing the Deputy Sheriff of Negros Occidental to enforce
the judgment.
The Deputy Sheriff (Damian Rojas) went to the mining site
owned by the private respondent to serve the writ of
execution. However, nothing happened upon the service of
the writ. Thereafter, the Sheriff prepared a Notice of
Garnishment addressed to six banks, all located in Bacolod
City, one of which being the petitioner bank. The Sheriff
directed the bank to immediately issue a check in the name
of the Deputy Provincial Sheriff of Negros Occidental in an
amount equivalent to the amount of the garnishment and
that proper receipt would be issued as a return.
Due to a tip received by the house lawyer of the private
respondent regarding the existence of the notice of
garnishment, he communicated with the bank manager,
petitioner Jose Henares, requesting the withholding of any
release of the deposit of the private respondent with the
petitioner bank.
of Garnishment and the Writ of Execution, and with a
favorable advice of the bank’s legal counsel, petitioner
Henares issued a debit memo for the full balance of the
private respondent’s account. He also issued a manager’s
check in the name of the Deputy Provincial Sheriff of
Negros Occidental for the amount of Php 37,466.18 which
was the exact balance of the private respondent’s account
as of that day.
BANKING LAW JURISPRUNDENCE

Before the actual encashment of the check by the Deputy
Sheriff on April 30, 1976, Henares once again inquired
about any existing restraining order from the NLRC. When
he was told that there was no restraining order, he allowed
the encashment of the said check.
On July 6, 1976, the private respondent filed a complaint
before the RTC of Manila against the petitioners and
Deputy Sheriff Damian Rojas, alleging that the private
respondent’s current deposit was levied, garnished, and
with undue haste unlawfully allowed to be withdrawn. The
petitioners and the Deputy Sheriff denied the allegations of
the private respondent and claimed that their acts were in
accordance with the law.
ISSUE:
Whether or not petitioners violated Republic Act No. 1405,
otherwise known as the Secrecy of Bank Deposits Act,
when they allowed the sheriff to garnish the deposit of
private respondent.
RULING:
NO.
The Supreme Court found no violation whatsoever by the
petitioners of Republic Act No. 1405, otherwise known as
the Secrecy of Bank Deposits Act.
The Court ruled that the immediate release of the funds by
the petitioners on the strength of the notice of garnishment
and writ of execution, whose issuance, absent any patent
defect, enjoys the presumption of regularity, sufficiently
supported by Section 41, Rule 39 of the Rules of Court.
Since there is no evidence that the petitioners themselves
divulged the information that the private respondent had
an account with the petitioner bank and it is undisputed
that the said account was properly the object of the notice
of garnishment and writ of execution carried out by the
deputy sheriff, a duly authorized officer of the court, the
Court cannot therefore hold the petitioners liable under
R.A. 1405
36. PHILIPPINE DEPOSIT INSURANCE
CORPORATION, Petitioner,
44
vs.
CITIBANK, N.A. and BANK OF AMERICA, S.T. &
N.A., Respondents.
G.R. No. 170290               April 11, 2012
Facts
PDIC, a government instrumentality created by virtue of
Republic Act (R.A.) No. 3591, as amended by R.A. No. 9302,
conducted an examination of the books of account of
Citibank. It discovered that Citibank, in the course of its
banking business, received from its head office and other
foreign branches a total of ₱11,923,163,908.00 in dollars,
covered by Certificates of Dollar Time Deposit that were
interest-bearing with corresponding maturity dates.  These
funds were not reported to PDIC as deposit liabilities that
were subject to assessment for insurance.
Similarly, PDIC examined the books of accounts of Bank of
America (BA) which revealed that it received from its head
office and its other foreign branches a total of
₱629,311,869.10 in dollars, covered by Certificates of Dollar
Time Deposit that were interest-bearing. Because BA also
excluded these from its deposit liabilities, PDIC wrote to BA
seeking the remittance of deficiency premium assessments
for dollar deposits.
RTC ruled in favor of Citibank and BA, saying that the
subject money placements were not deposits and did not
give rise to insurable deposit liabilities. The RTC reasoned
out that the money placements subject of the petitions
were not assessable for insurance purposes under the
PDIC Charter because said placements were deposits
made outside of the Philippines.
CA affirmed RTC’s ruling. CA found that the money
placements were received as part of the bank’s internal
dealings by Citibank and BA as agents of their respective
head offices. This showed that the head office and the
Philippine branch were considered as the same entity.
Thus, no bank deposit could have arisen from the
transactions between the Philippine branch and the head
office because there did not exist two separate
contracting parties to act as depositor and depositary.
Issue
Whether the funds placed in the Philippine branch by the
head office and foreign branches of Citibank and BA are
insurable deposits under the PDIC Charter and, as such, are
subject to assessment for insurance premiums.
Ruling
The Court rules in the negative.
BANKING LAW JURISPRUNDENCE

A branch has no separate legal personality;
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.24
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.
Philippine banking laws also support the conclusion that
the head office of a foreign bank and its branches are
considered as one legal entity. Section 75 of R.A. No. 8791
(The General Banking Law of 2000) and Section 5 of R.A.
No. 7221 (An Act Liberalizing the Entry of Foreign Banks)
both require the head office of a foreign bank to guarantee
the prompt payment of all the liabilities of its Philippine
branch, to wit:
Republic Act No. 8791:
Sec. 75. Head Office Guarantee. – In order to
provide effective protection of the interests of the
depositors and other creditors of Philippine
branches of a foreign bank, the head office of such
branches shall fully guarantee the prompt
payment of all liabilities of its Philippine branch.
Residents and citizens of the Philippines who are
creditors of a branch in the Philippines of foreign
bank shall have preferential rights to the assets of
such branch in accordance with the existing laws.
Republic Act No. 7721:
Sec. 5. Head Office Guarantee. – The head office of
foreign bank branches shall guarantee prompt
payment of all liabilities of its Philippine branches.
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
45
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.
Funds not a deposit under the definition
of the PDIC Charter;
Excluded from assessment
As explained by the respondents, the transfer of funds,
which resulted from the inter-branch transactions, took
place in the books of account of the respective branches in
their head office located in the United States. Hence,
because it is payable outside of the Philippines, it is not
considered a deposit pursuant to Section 3(f) of the PDIC
Charter:
Sec. 3(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 evidenced by its certificate of
deposit, and trust funds held by such bank
whether retained or deposited in any department
of said bank or deposit in another bank, together
with such other obligations of a bank as the Board
of Directors shall find and shall prescribe by
regulations to be deposit liabilities of the
Bank; Provided, that any obligation of a bank
which is payable at the office of the bank located
outside of the Philippines shall not be a deposit
for any of the purposes of this Act or included as
part of the total deposits or of the insured
deposits; Provided further, that any insured bank
which is incorporated under the laws of the
Philippines may elect to include for insurance its
deposit obligation payable only at such branch.
[Emphasis supplied]
The petition is DENIED.
37. PHILIPPINE DEPOSIT INSURANCE
CORPORATION, petitioner,
vs.
COURT OF APPEALS, ROSA AQUERO, GERARD YU, ERIC YU,
MINA YU, ELIZABETH NGKAION, MERLY CUESCANO,
LETICIA TAN, FELY RUMBANA, LORNA ACUB, represented
BANKING LAW JURISPRUNDENCE

by their Attorney-in-Fact, JOHN FRANCIS
COTAOCO, respondents.
G.R. No. 118917 December 22, 1997
KAPUNAN, J.:
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.
Facts:
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 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 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.
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. 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.
Consequently, private respondents filed an action for
collection against PDIC, RSB and the Central Bank.
The trial court rendered its decision ordering the PDIC to
pay plaintiffs, jointly and severally, the amount
corresponding to the latter's certificates of time deposit.
Both PDIC and RSB appealed. It was dismissed by CA.
Issue:
Whether or not PDIC is liable for the Certificate of Time
Deposits held by private respondents.
46
Ruling.
No.
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.
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
evidenced 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 . . . .
(Emphasis ours.)
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 two checks "made
good in the clearing" while the third was returned for being
"drawn against insufficient funds."
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 check's dishonor, RSB cancelled the
corresponding as evidence by an RSB "ticket".
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.
The petition is hereby GRANTED and the decision of the
Court of Appeals REVERSED. PDIC is absolved from any
liability to private respondents.
BANKING LAW JURISPRUNDENCE