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Intestate Estate of Emilio Camon; Ereneta v

SPCL- BANKING Comia, Antonette Tud

BANKINGA. GENERAL PRINCIPLES

1. Register of Deeds of Manila v. China Banking Corporation, 4 SCRA 145 (1962)

2. Republic Bank v. Security Credit and Acceptance Corporation, 19 SCRA 58 (1967)

3. Perez v. Monetary Board, 20 SCRA 443 (1979)

4. Simex International (Manila) Inc. v. Court of Appeals, 183 SCRA 360 (1990)

5. Fidelity and Savings and Mortgage Bank c. Cenzon, 184 SCRA 141 (1990)6. Sia v. Court of Appeals, 222 SCRA 24 (1993)

7. Banas v. Asia Pacific Finance Corporation, 343 SCRA 527 (2000)

8. Reyes v. Court of Appeals, 363 SCRA 51 (2001)

9. Banco de Oro v. JAPRL Development Corporation, 551 SCRA 342 (2008)

10. Philippine National Bank v. Erlando T. Rodriguez, et al, 556 SCRA 27 (2009)11. Bank of America, NT and SA v. Associated Citizens Bank

B. CLOSURE OF BANKS

1. Ramos v. Central Bank of the Philippines, 41 SCRA 565 (1971)

2. Central Bank v. Court of Appeals, 106 SCRA 143 (1981)

3. Salud v. Central Bank, 143 SCRA 590 (1986)

4. Lipana v. Development Bank of Rizal, 154 SCRA 257 (1987)

5. Overseas Bank of Manila v. Court of Appeals, 172 SCRA 521 (1989)

6. Banco Filipino Savings and Mortgage Bank v. Central Bank, 204 SCRA 767 (1991)

7. Central Bank of the Philippines v. Court of Appeals, 208 SCRA 652 (1992)

8. First Philippine International Bank v. Court of Appeals, 252 SCRA 259 (1996)

9. Ong v. Court of Appeals, 253 SCRA 105 (1996)

10. Manalo v. Court of Appeals, 366 SCRA 753 (2001)

11. Rural Bank of Sta. Catalina v. Land Bank of the Philippines, 435 SCRA 183 (2004)

12. Miranda v. PDIC, 501 SCRA 288 (2006)

C. POWERS OF A RECEIVER

1. Abacus Real Estate Development Center Inc. v. Manila Banking Corporation, 455 SCRA 97 (2005)

2. In Re: Petition for Assistance in the Liquidation in the Rural Bank of Bokod (Benguet), PDIC v. Bureau of Internal Revenue, 511 SCRA 123 (2006)

3. Rural Bank of San Miguel v. Monetary Board, 516 SCRA 154 (2007)

BANKING

A. GENERAL PRINCIPLES

1. Register of Deeds of Manila v. China Banking Corporation, 4 SCRA 145 (1962)

FACTS:

-Alfonso Pangilinan and Guillermo Chua, former employees of China Banking Corporation were charged with qualified theft.-Pangilinan admitted his civil liability in favor of china Banking Corporation .

-Pangilinan, together with his wife, Belen Sta. Ana executed a public instrument entitled DEED OF TRANSFER whereby in relation to the charge of qualified theft he ceded and transferred to China Banking Corporation a residential lot in satisfaction of his civil liability.

-The deed was presented for registration to the Register of Deeds of the City of Manila, but because the transferee the China Banking Corporation was alien-owned and, as such, barred from acquiring lands in the Philippines, in accordance with the provisions of Section 5, Article XIII of the Constitution of the Philippines, said officer submitted the matter of its registration to the Land Registration Commission for resolution.

-The commission issued the resolution appealed from holding that the deed of transfer in favor of an alien bank, subject of the present consulta is unregistrable for being in contravention of the constitution of the Philippines.

ISSUE:

1. May an alien-owned bank acquire lands in the Philippines;

2. Assuming it may, may it acquire land in satisfaction of a civil liability arising from a criminal offense.

HELD:

- Paragraph (c), Section 25 of Republic Act 337 allows a commercial bank to purchase and hold such real estate as shall be conveyed to it in satisfaction of debts previously contracted in the course of its dealings, We deem it quite clear and free from doubt that the "debts" referred to in this provision are only those resulting from previous loans and other similar transactions made or entered into by a commercial bank in the ordinary course of its business as such. Obviously, whatever "civil liability" arising from the criminal offense of qualified theft was admitted in favor of appellant bank by its former employee, Alfonso Pangilinan, was not a debt resulting from a loan or a similar transaction had between the two parties in the ordinary course of banking business.

-Neither do the provisions of paragraph (d) of the Same section apply to the present case because the deed of transfer in question can in no sense be considered as a sale made by virtue of a judgment, decree, mortgage, or trust deed held by appellant bank. In the same manner it cannot be said that the real property in question was purchased by appellant "to secure debts due to it", considering that, as stated heretofore, the term debt employed in the pertinent legal provision can logically refer only to such debts as may become payable to appellant bank as a result of a banking transaction. 2. Republic Bank v. Security Credit and Acceptance Corporation, 19 SCRA 58 (1967)

FACTS:

-Under its Articles of Incorporation registered with SEC, Security Credit and Acceptance Corporation was authorized to engage

PRIMARILY- in financing agricultural, commercial and industrial projects; and

SECONDARILY- in buying and selling stocks and bonds of any corporation

-When it filed for their by-laws, the Superintendent of Banks of the Central Bank asked its legal counsel an opinion whether or not the corporation is a banking institution within the purview of RA 337. Legal Counsel resolved in the affirmative.

-When the Corporation applied with SEC for the registration and licensing of its securities under the Securities Act, the application was referred to the Central Bank.

-The Central Bank in turn, gave SEC a copy of the opinion of the Legal Counsel of the Superintendent of the Banks of the Central Bank, resolving in the affirmative the query of Whether or not the said corporation is a banking institution within the purview of RA 337.

-In line with which, SEC advised the corporation to comply with the requirements of the General Banking Act.

-By virtue of a search warrant, the premises of the corporation were searched and documents and records thereof relative to its business operations were seized.

-Upon examination and evaluation, it was found that the corporation have been and still continuously performing functions and activities which have been declared to constitute illegal banking operations.-The corporation had established branches in principal cities and towns throughout the Philippines and through a systematic and vigorous campaign, had managed to induce the public to open savings deposit account which has been lent out to such persons as the corporation deemed suitable thereof.

-Hence, an original quo warranto proceeding was initiated by the Solicitor General to dissolve Security Credit and Acceptance Corporation for engaging in banking operations without the authority required thereof by the general Banking Act.ISSUE:

-Whether or not a bank may engage in banking business without first securing authority from the Central bank.

HELD:

-Security Credit and Acceptance Corporation violated the General banking Act because it is engaging in banking business without the administrative authority from the Central Bank.

-Before a Corporation can engage in banking business it must first secure the administrative authority required by law.

3. Perez v. Monetary Board, 20 SCRA 443 (1979)

FACT:

-Damaso Perez, for himself and on behalf of the Republic Bank denounced before the Central Bank, Paolo roman and several other republic Bank officials for violations of the General Banking Act and Central Bank Act, and for falsification of public or commercial documents in connection with certain anomalous loans.-The cases of alleged anomalous loans were referred by the Central Bank to the special Prosecutors of the Department of Justice for criminal investigation and prosecution.-Hence, Perez instituted mandamus proceedings in the CFI against the Monetary Board, the Superintendent of Banks, the Central Bank and the Secretary of Justice to compel them to prosecute criminally those alleged violators of the banking laws.

ISSUE:

-Whether or not mandamus may lie to compel the Central Bank or its officials to prosecute those alleged violatiors of the banking laws.HELD:

-Although the Central bank and its officials may have the duty under the Central Bank Act and General Banking Law to cause the prosecution of alleged violators of Banking Laws, yet, there is nothing in said laws that imposes a clear and specific duty on the former to undertake the actual prosecution of the latter.

-The Central Bank is a government corporation created principally to administer the monetary and banking system of the Republic.

-It is not a prosecution agency like the fiscals office. Being an artificial person, the Central Bank is limited to its statutory Powers.

-Its power to sue and be sued refers to Civil Cases only.

-For the officials of the Central Bank to do the actual prosecuting themselves would be tantamount to performing an ULTRAVIRES ACT.

-Mandamus may not lie.

4. Simex International (Manila) Inc. v. Court of Appeals, 183 SCRA 360 (1990)

FACTS:

-Simex International engaged in the exportation of food products. It buys these products from various local suppliers and then sells them abroad, particularly in the United States, Canada and the Middle East. Most of its exports are purchased by Simex International on credit.

-The Simex International was a depositor of the Traders Royal Bank and maintained a checking account in its branch at Romulo Avenue, Cubao, Quezon City. Simex International 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, Simex International issued several checks against its deposit but was surprised to learn later that they had been dishonored for insufficient funds.

-As a consequence, the California Manufacturing Corporation sent, a letter of demand to Simex International, threatening prosecution if the dishonored check issued to it was not made good. It also withheld delivery of the order made by Simex International. Similar letters were sent to the petitioner by the Malabon Long Life Trading, and by the G. and U. Enterprises. Malabon also canceled Simex International's credit line and demanded that future payments be made by it in cash or certified check. -Meantime, action on the pending orders of Simex International with the other suppliers whose checks were dishonored was also deferred.

-Simex International complained to the bank. Investigation disclosed that the sum of P100,000.00 deposited by Simex International, had not been credited to it. The error was rectified only 23 days after, and the dishonored checks were paid after they were re-deposited.

-In its letter, Simex International demanded reparation from the bank for its "gross and wanton negligence." This demand was not met.

-Simex International then filed a complaint for moral damages and exemplary damages, plus attorney's fees, and costs.TC, affirmed by CA:

-Ruled in favor of Simex.

ISSUE:

-Whether or not the bank was negligent and can be held for damages.

HELD:

- The banking system is an indispensable institution in the modern world and plays a vital role in the economic life of every civilized nation. Whether as mere passive entities for the safekeeping and saving of money or as active instruments of business and commerce, banks have become 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 bank of his choice, knowing that they will be safe in its custody and will even earn some interest for him. The ordinary person, with equal faith, usually maintains a modest checking account for security and convenience in the settling of his monthly bills and the payment of ordinary expenses. As for business entities like the petitioner, the bank is a trusted and active associate that can help in the running of their affairs, not only in the form of loans when needed but more often in the conduct of their day-to-day transactions like the issuance or encashment of checks.

-In every case, the depositor expects the bank to treat his account with the utmost fidelity, whether such account consists only of a few hundred pesos or of millions. The bank must record every single transaction accurately, down to the last centavo, and as promptly as possible. This has to be done if the account is to reflect at any given time the amount of money the depositor can dispose of as he sees fit, confident that the bank will deliver it as and to whomever he directs. A blunder on the part of the bank, such as the dishonor of a check without good reason, can cause the depositor not a little embarrassment if not also financial loss and perhaps even civil and criminal litigation.5. Fidelity and Savings and Mortgage Bank c. Cenzon, 184 SCRA 141 (1990)

FACTS:

-Spouses Santiago deposited P50,000 with Fidelity Savings Bank under a savings account, and subsequently, another P50,000 under a certificate of time deposit.-Unfortunately, Fidelity Savings and Mortgage Bank was declared insolvent.

-A resolution was issued by the Monetary Board prohibiting Fidelity to continue with its banking operations.

-Pursuant also to the instructions of the Monetary Board, the Superintendent of Banks took charge in the name of the Monetary Board, the assets of Fidelity.

-PDIC paid the spouses PP10,000 only, thereby leaving a balance of P90,000.

-In another resolution, the Monetary Board directed the liquidation of the affairs of Fidelity.

-While the liquidation proceedings is still pending, the spouses demanded the immediate payment of the savings and time deposits.

-When demand was not met, the spouses instituted an action for sum of money with damages against Fidelity.

TC:-Ordered Fidelity to pay the spouses Santiago P90,000 with accrued INTEREST, as well as damages.

ISSUE:

-Whether or not the bank forbidden by the Central Bank to do business has obligation to pay interest on deposit.

HELD:

-Insolvent banking institution and closed by the Central Bank is not liable to pay interest on bank deposits.

-It is settled jurisprudence that a banking institution which has been ordered close by the Central Bank cannot be held liable to pay interest on bank deposits which accrued during the period when the bank is actually closed and non-operational.

-However, Fidelity Savings and Mortgage Bank is liable, ONLY for the interest on bank deposits which had already accrued until the time it was prohibited by the Central Bank to continue its banking operation.

-The reason is that, a bank cannot be expected to pay interest of the said deposit when at the time the bank was prohibited to transact business operation, the bank no longer derives income.

6. Sia v. Court of Appeals, 222 SCRA 24 (1993)

FACTS:

-Luaon Sia rented a Safety Deposit Box with Security Bank and Trust Company, wherein he placed his stamps collection, pursuant to Lease Agreement.-During the floods that took place in 1985 1nd 1986, floodwater entered into the banks premises and seeped into the safety deposit box causing damage to the stamp collection.

-SBTC rejected Sias claim for compensation.

-Hence, Sia instituted an action for damages.

TC:

-In favor of Sia, holding that SBTC failed to exercise the required diligence expected of a bank maintaining such safety deposit bank.

CA:

-Reversed and dismissed the complaint holding that the LEASE AGREEMENT covering the the safety deposit bank is just a contract of lease, not a contract of deposit, and that paragraphs 9 and 13 thereof, expressly limited the banks liability 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; and that the bank not being depository of the contents of the safe has neither the possession nor the control of the same nor interest what so ever in the contents and thus assumes no liability in connection therewith.HELD:

-A bank is liable for the damages to a stamp collection deposited in a safety deposit box caused by its failure to notify the depositor to retrieve the stamps promptly when the floodwater inundated the room where the safety deposit was located, because it is a depository and the stipulation that it is not a depository and is not liable for the contents of the safety deposit box is void for being contrary to law and public policy.

7. Banas v. Asia Pacific Finance Corporation, 343 SCRA 527 (2000)

FACTS:

-Sometime in Teodoro Baas 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 P390,000.00 in installments of "P32,500.00 every 25th day of the month.

-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 Juliette B. Dizon, Vice President and Treasurer, executed a Deed of Chattel Mortgage covering three (3) heavy equipment units of Caterpillar Bulldozer Crawler Tractors.

-Moreover, Cenen Dizon executed 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 some installment payments to ASIA PACIFIC.

-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.

- As the demand was unheeded, ASIA PACIFIC sued Teodoro Baas, C. G. Dizon Construction and Cenen Dizon.

-While defendants (herein petitioners) 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 P390,000.00 with usurious interests.

-Defendants claimed that since ASIA PACIFIC could not directly engage in banking business, it proposed to them a scheme wherein plaintiff ASIA PACIFIC could extend a loan to them without violating banking laws: first, Cenen Dizon would secure a promissory note from Teodoro Baas with a face value of P390,000.00 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 or P54,000.00 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 P390,000.00 defendants actually received only P329,185.00 after ASIA PACIFIC deducted the discounted interest, service handling charges, insurance premium, registration and notarial fees.

-Sometime in October 1980 Cenen Dizon informed ASIA PACIFIC that he would be delayed in meeting his monthly amortization on account of business reverses and promised to pay instead in February 1981. Cenen Dizon made good his promise and 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.ISSUE:

-Whether or not the disputed transaction violated the banking laws.HELD:

-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 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.8. Reyes v. Court of Appeals, 363 SCRA 51 (2001)

FACTS:

- In view of the 20th Asian Racing Conference in Sydney, Australia, the Philippine Racing Club, Inc. (PRCI, for brevity) sent four (4) delegates to the said conference. Gregorio H. Reyes, as vice-president for finance, racing manager, treasurer, and director of PRCI, sent Godofredo Reyes, the clubs chief cashier, to Far East Bank and Trust Company, to apply for a foreign exchange demand draft in Australian dollars.

-Godofredo went to respondent banks Buendia Branch in Makati City to apply for a demand draft in the amount One Thousand Six Hundred Ten Australian Dollars (AU$1,610.00) payable to the order of the 20th Asian Racing Conference Secretariat of Sydney, Australia. He 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 (Westpac-Sydney 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 (Westpac-New York for brevity). This arrangement has been customarily resorted to since the 1960s and the procedure has proven to be problem-free. PRCI and the 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 20th 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 Westpac-Sydney for the same reason, that is, that the respondent bank has no deposit dollar account with the drawee Westpac-Sydney.

-Spouses Gregorio H. Reyes and Consuelo Puyat-Reyes left for Australia to attend the said racing conference. When petitioner Gregorio H. Reyes arrived in Sydney in the morning of September 18, 1988, he went directly to the lobby of Hotel Regent Sydney to register as a conference delegate. At the registration desk, in the presence of other delegates from various member countries, he was told by a lady member of 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. A discussion ensued in the presence and within the hearing of many delegates who were also registering. Feeling terribly embarrassed and humiliated, petitioner Gregorio H. Reyes asked the lady member of the conference secretariat that he be shown the subject foreign exchange demand draft that had been dishonored as well as the covering letter after which he promised that he would pay the registration fees in cash. In the meantime he demanded that he be given his name plate and conference kit. The lady member of the conference secretariat relented and gave him his name plate and conference kit. It was only two (2) days later, or on September 20, 1988, that he was given the dishonored demand draft and a covering letter. It was then that he actually paid in cash the registration fees as he had earlier promised.

-Consuelo Puyat-Reyes arrived in Sydney. She too was embarrassed and humiliated at the registration desk of the conference secretariat when she was told in the presence and within the hearing of other delegates that she could not be registered due to the dishonor of the subject foreign exchange demand draft. She felt herself trembling and unable to look at the people around her. Fortunately, she saw her husband coming toward her. He saved the situation for her by telling the secretariat member that he had already arranged for the payment of the registration fees in cash once he was shown the dishonored demand draft. Only then was petitioner Puyat-Reyes given her name plate and conference kit.

-The Reyeses felt embarrassed and humiliated, filed a complaint for damages alleging that it was the banks fault in not failing to exercise highest degree of diligence in this case.

.

- TC, affirmed by CA dismissed the complaint and rendered judgment in favor of FEBTC.ISSUE:

-Whether or not banks are still required to act with the highest degree of diligence, in its commercial transaction not involving an exercise of its fiduciary capacity.

HELD:

-The degree of diligence required of a bank is more than that of a good father of a family where fiduciary nature of their relationship with the depositor is concerned. But the said ruling applies only to cases where banks act under their fiduciary capacity, that is, as depositary of the deposits. 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, such as sale and issuance of the foreign exchange demand draft.-The respondent bank was not required to exert more than the diligence of a good father of a family in regard to the sale and issuance of the subject foreign exchange demand draft. The case at bar does not involve the handling of petitioners deposit, if any, with the respondent bank. Instead, the relationship involved was that of a buyer and seller, that is, between the respondent bank as the seller of the subject foreign exchange demand draft, and PRCI as the buyer of the same, with the 20th Asian Racing Conference Secretariat in Sydney, Australia as the payee thereof. As earlier mentioned, the said foreign exchange demand draft was intended for the payment of the registration fees of the petitioners as delegates of the PRCI to the 20th Asian Racing Conference in Sydney.

9. Banco de Oro v. JAPRL Development Corporation, 551 SCRA 342 (2008).

FACTS:

-After evaluating the financial statements of respondent JAPRL Development Corporation (JAPRL) for fiscal years 1998, 1999 and 2000, Banco de Oro-EPCI, Inc. extended credit facilities to it. Rapid Forming Corporation (RFC) and Jose U. Arollado acted as JAPRLs sureties.

-Despite its seemingly strong financial position, JAPRL defaulted in the payment of four trust receipts soon after the approval of its loan BDO later learned from MRM Management, JAPRLs financial adviser, that JAPRL had altered and falsified its financial statements. It allegedly bloated its sales revenues to post a big income from operations for the concerned fiscal years to project itself as a viable investment. The information alarmed BDO. Citing relevant provisions of the Trust Receipt Agreement, it demanded immediate payment of JAPRLs outstanding obligations.-JAPRL (and its subsidiary, RFC) filed a petition for rehabilitation in the Regional Trial Court (RTC) of Quezon City, Branch 90 (Quezon City RTC. It disclosed that it had been experiencing a decline in sales for the three preceding years and a staggering loss in 2002.

-Because the petition was sufficient in form and substance, a stay order] was issued. However, the proposed rehabilitation plan for JAPRL and RFC was eventually rejected by the Quezon City RTC.

-Because JAPRL ignored its demand for payment, BDO filed a complaint for sum of money with an application for the issuance of a writ of preliminary attachment against JAPRL. BDO essentially asserted that JAPRL was guilty of fraud because it (JAPRL) altered and falsified its financial statements.

ISSUE:-Whether or not BDO may annul the credit accommodations it extended to JAPRL and demand immediate payment due to the alteration and falsification of JAPRLs financial statement.

HELD:

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

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

-Protecting the integrity of the banking system has become, by large, the responsibility of banks. The role of the public, particularly individual borrowers, has not been emphasized. Nevertheless, we are not unaware of the rampant and unscrupulous practice of obtaining loans without intending to pay the same.

-In this case, petitioner alleged that JAPRL fraudulently altered and falsified its financial statements in order to obtain its credit facilities. Considering the amount of petitioners exposure in JAPRL, justice and fairness dictate that the Makati RTC hear whether or not respondents indeed committed fraud in securing the credit accommodation.

-Section 40 of the General Banking Law which states:

Section 40. Requirement for Grant of Loans or Other Credit Accommodations. Before granting a loan or other credit accommodation, a bank must ascertain that the debtor is capable of fulfilling his commitments to the bank.

Towards this end, a bank may demand from its credit applicants a statement of their assets and liabilities and of their income and expenditures and such information as may be prescribed by law or by rules and regulations of the Monetary Board to enable the bank to properly evaluate the credit application which includes the corresponding financial statements submitted for taxation purposes to the Bureau of Internal Revenue. Should such statements prove to be false or incorrect in any material detail, the bank may terminate any loan or credit accommodation granted on the basis of said statements and shall have the right to demand immediate repayment or liquidation of the obligation.

In formulating the rules and regulations under this Section, the Monetary Board shall recognize the peculiar characteristics of microfinancing, such as cash flow-based lending to the basic sectors that are not covered by traditional collateral.

Under this provision, banks have the right to annul any credit accommodation or loan, and demand the immediate payment thereof, from borrowers proven to be guilty of fraud. 10. Philippine National Bank v. Erlando T. Rodriguez, et al, 556 SCRA 27 (2009)

FACTS:

-Spouses Erlando and Norma Rodriguez were clients of Philippine National Bank (PNBThey maintained savings and demand/checking accounts,

-The spouses were engaged in the informal lending business. In line with their business, they had a discounting arrangement with the Philnabank Employees Savings and Loan Association (PEMSLA), an association of PNB employees. Naturally, PEMSLA was likewise a client of PNB Amelia Avenue Branch. The association maintained current and savings accounts with petitioner bank.

-PEMSLA regularly granted loans to its members. Spouses Rodriguez would rediscount the postdated checks issued to members whenever the association was short of funds. As was customary, the spouses would replace the postdated checks with their own checks issued in the name of the members.

-It was PEMSLAs policy not to approve applications for loans of members with outstanding debts. To subvert this policy, some PEMSLA officers devised a scheme to obtain additional loans despite their outstanding loan accounts. They took out loans in the names of unknowing members, without the knowledge or consent of the latter. The PEMSLA checks issued for these loans were then given to the spouses for rediscounting. The officers carried this out by forging the indorsement of the named payees in the checks.

-In return, the spouses issued their personal checks (Rodriguez checks) in the name of the members and delivered the checks to an officer of PEMSLA. The PEMSLA checks, on the other hand, were deposited by the spouses to their account.

-Meanwhile, the Rodriguez checks were deposited directly by PEMSLA to its savings account without any indorsement from the named payees. This was an irregular procedure made possible through the facilitation of Edmundo Palermo, Jr., treasurer of PEMSLA and bank teller in the PNB Branch. It appears that this became the usual practice for the parties.

-PNB eventually found out about these fraudulent acts. To put a stop to this scheme, PNB closed the current account of PEMSLA. As a result, the PEMSLA checks deposited by the spouses were returned or dishonored for the reason Account Closed.

-The corresponding Rodriguez checks, however, were deposited as usual to the PEMSLA savings account. The amounts were duly debited from the Rodriguez account. Thus, because the PEMSLA checks given as payment were returned, spouses Rodriguez incurred losses from the rediscounting transactions.

TC:

-Ruled in favor of spouses Rodriguez, PNB is liable to return the value of the checks.

CA:

-Reversed RTC. The checks are payable not to order but to bearer PEMSLA. The payees in the checks were fictitious payee because they were not the intended payees at all.

-After a Motion for Reconsideration, CA reversed itself.

ISSUE:

-Whether or not PNB is liable to return the value of the checks to Spouses Rodriguez.

HELD:

-In a checking transaction, the drawee bank has the duty to verify the genuineness of the signature of the drawer and to pay the check strictly in accordance with the drawers instructions, i.e., to the named payee in the check. It should charge to the drawers accounts only the payables authorized by the latter. Otherwise, the drawee will be violating the instructions of the drawer and it shall be liable for the amount charged to the drawers account.

-Banks handle daily transactions involving millions of pesos. By the very nature of their work the degree of responsibility, care and trustworthiness expected of their employees and officials is far greater than those of ordinary clerks and employees. For obvious reasons, the banks are expected to exercise the highest degree of diligence in the selection and supervision of their employees.

-PNBs tellers and officers, in violation of banking rules of procedure, permitted the invalid deposits of checks to the PEMSLA account. Indeed, when it is the gross negligence of the bank employees that caused the loss, the bank should be held liable.

-A bank that has been remiss in its duty must suffer the consequences of its negligence. Being issued to named payees, PNB was duty-bound by law and by banking rules and procedure to require that the checks be properly indorsed before accepting them for deposit and payment. In fine, PNB should be held liable for the amounts of the checks. 11. Bank of America, NT and SA v. Associated Citizens Bank

FACTS:

- BA-Finance Corporation (BA-Finance) entered into a transaction with Miller Offset Press, Inc. (Miller), through the latters authorized representatives, BA-Finance granted Miller a credit line facility through which the latter could assign or discount its trade receivables with the former. Uy Kiat Chung, Ching Uy Seng, and Uy Chung Guan Seng executed a Continuing Suretyship Agreement with BA-Finance whereby they jointly and severally guaranteed the full and prompt payment of any and all indebtedness which Miller may incur with BA-Finance.

-Miller discounted and assigned several trade receivables to BA-Finance by executing Deeds of Assignment in favor of the latter. In consideration of the assignment, BA-Finance issued four checks payable to the Order of Miller Offset Press, Inc. with the notation For Payees Account Only. These checks were drawn against Bank of America .

-The four checks were deposited by Ching Uy Seng (a.k.a. Robert Ching), then the corporate secretary of Miller, in a joint bank account under the names of Ching Uy Seng and Uy Chung Guan Seng. Associated Bank stamped the checks with the notation all prior endorsements and/or lack of endorsements guaranteed, and sent them through clearing. Later, the drawee bank, Bank of America, honored the checks and paid the proceeds to Associated Bank as the collecting bank.

-Miller failed to deliver to BA-Finance the proceeds of the assigned trade receivables. Consequently, BA-Finance filed a Complaint against Miller for collection of the amount which BA-Finance allegedly paid in consideration of the assignment, plus interest at the rate of 16% per annum and penalty charges. Likewise impleaded as party defendants in the collection case were Uy Kiat Chung, Ching Uy Seng, and Uy Chung Guan Seng.

-Miller, Uy Kiat Chung, and Uy Chung Guan Seng denied that they received the amount covered by the four Bank of America checks, and that they authorized their co-defendant Ching Uy Seng to transact business with BA-Finance on behalf of Miller. Uy Kiat Chung and Uy Chung Guan Seng also denied having signed the Continuing Suretyship Agreement with BA-Finance.

TC:

-Ordered Bank of America to pay BA Finance and Associated Citizens Bank to Reimburse Bank of America.

CA:

-Affirmed TC and ordered Robert Ching and Uy Chung Guan Seng to pay Associated Citizens Bank.

ISSUES:

1. Whether or not Bank of America is liable to pay BA Finance the amount of the four checks;

2. Whether or not Associated Bank is liable to reimburse Bank of America the amount of the four checks.

HELD:

- The bank on which a check is drawn, known as the drawee bank, is under strict liability, based on the contract between the bank and its customer (drawer), to pay the check only to the payee or the payees order. The drawers instructions are reflected on the face and by the terms of the check. When the drawee bank pays a person other than the payee named on the check, it does not comply with the terms of the check and violates its duty to charge the drawers account only for properly payable items. Thus, we ruled in Philippine National Bank v. Rodriguez that a drawee should charge to the drawers accounts only the payables authorized by the latter; otherwise, the drawee will be violating the instructions of the drawer and shall be liable for the amount charged to the drawers account.

-A collecting bank where a check is deposited, and which endorses the check upon presentment with the drawee bank, is an endorser. Under Section 66 of the Negotiable Instruments Law, an endorser warrants that the instrument is genuine and in all respects what it purports to be; that he has good title to it; that all prior parties had capacity to contract; and that the instrument is at the time of his endorsement valid and subsisting. This Court has repeatedly held that in check transactions, the collecting bank or last endorser generally suffers the loss because it has the duty to ascertain the genuineness of all prior endorsements considering that the act of presenting the check for payment to the drawee is an assertion that the party making the presentment has done its duty to ascertain the genuineness of the endorsements.

-When Associated Bank stamped the back of the four checks with the phrase all prior endorsements and/or lack of endorsement guaranteed, that bank had for all intents and purposes treated the checks as negotiable instruments and, accordingly, assumed the warranty of an endorser.

-When a bank allows a client to collect on crossed checks issued in the name of another and for a specific purpose, the bank is guilty of negligence.

B. CLOSURE OF BANKS

1. Ramos v. Central Bank of the Philippines, 41 SCRA 565 (1971)

FACTS:

-Overseas Bank of Manila, a domestic commercial bank was suspended by Central Bank from clearing and from lending operations for various violations of banking laws and implementing regulations.

-Because of this suspension and deprivation of all usual credit facilities and accommodations which were accorded to other banks OBM became financially distressed.-The Central Bank, through its Monetary Board, in a letter advised OBM to sign trusteeship agreement in favor of the Central Bank in order to enable it to recognize and transfer management to a nominee of Central Bank.

-In another letter, CB governor reiterated to Emerito Ramos the need for OBM stockholders to execute voting trust agreement to stave off liquidation and mortgage the properties to secure OBMs obligations to the Central Bank.

-Because CB committed itself to continued operation and rehabilitation of OBM, the majority and controlling stockholders of OBM complied by executing (a) Voting Trust Agreement, turning over the management of OBM to CB, (b) mortgaging the properties.

-Thereafter CB elected and installed new Directors and officers drafted from CB itself, PNB and DBP.-Despite compliance of OBM and parting with value to the profit of CB, CB did not heed to the request for an advance.

-For almost, six months, CB did nothing to enable OBM to resume normal operation nor support OBM and even kept the management team largely in the dark.

-Further, CB, in a resolution, excluded OBM from clearing with it.

-Subsequently, in another resolution, CB authorized its nominee Board of Directors to suspend operations, and thirteen days thereafter directed its Superintendent of Banks to proceed to liquidate OBM under the Central Bank charter.

-Hence this petition for certiorari, prohibition and mandamus with prayer for the issuance of a writ of preliminary injunction to restrain CB from enforcing the resolution.

HELD:-When the Central Bank made express representations that it would support the bank and avoid its liquidation if its majority stockholders would execute a voting trust agreement turning over the management of the bank to CB or its nominees and mortgage or assign their properties to CB to cover the over draft balance of the bank, the CB may not thereafter renege in its representation and liquidate the bank after the majority stockholders of the bank complied with the conditions and parted with value to the profit of CB, which thus acquired additional security for its own advances to the detriment of the banks stockholders, depositors and other creditors under the rule of promissory estoppel.2. Central Bank v. Court of Appeals, 106 SCRA 143 (1981)

FACTS:

-Provident Savings Bank experienced a bank run. Due to unusually heavy withdrawals of depositors, Provident requested from Central Bank emergency loans. Initially, CB denied such request which resulted to temporary closure of Provident. But later on, CB extended emergency loans. Unfortunately, such were not sufficient to cover withdrawals of depositors.-Fernando and Jayme, Providents major stockholders, appealed to CB for its continued assistance.

-CB Deputy declared that assistance would continue, provided that Fernandez and Jayme would turn-over the management and control of Provident to Iglesia ni Cristo.

-Fernandez and Jayme complied with such condition. However, INC had no intention of restoring the bank but merely to recover its deposit.

-Monetary Board ordered the closure of Provident.

-Provident filed a petition for certiorari, prohibition and mandamus.

-CB contended that Closure is an exercise of Police Power, which the court cannot pass upon.

-CFI, Affirmed by CA granted the petition.

ISSUE:

-Whether or not the Closure and Liquidation of Bank which is considered an exercise of Police Power may be subject of judicial inquiry.

HELD:

-While 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, unjust or a denial of the due process and equal protection clauses of the Constitution.3. Salud v. Central Bank, 143 SCRA 590 (1986)

FACTS:

-The Monetary Board issued resolutions forbidding the Rural Bank of Muntinlupa to do business and ordering its liquidation after confirmation that it was insolvent and could not resume business with safety to all concerned.-CB thereafter filed a petition for assistance in the liquidation of the Rural Bank of Muntinlupa.

- Rural Bank of Muntinlupa opposed on the grounds that: (a) the liquidation is premature and void there being no prior reorganization and restoration of its viability and; (b) the liquidation was arbitrary and in bad faith because Rural Bank of Muntinlupa is still capable of rehabilitation and the act of CB was inconsistent with its prior actions of rehabilitating similarly distressed banks.-The Trial Court declared the actions taken by the Monetary Board to be arbitrary and dismissed the petition for assistance in liquidation.

-Failure I two attempts to have this order reconsidered, CB and its liquidator instituted with the Supreme Court a special civil action of certiorari and mandamus.

-The petition was referred to the IAC which initially remanded the case to the RTC, but upon motion of CB, IAC clarified its decision and approved the petition for assistance.

-Hence this petition by Rural Bank of Muntinlupa.

ISSUE:

-Whether or not the issue of whether the MB resolution is arbitrary and made in bad faith may only be raised in a separate action or proceeding.

HELD:

-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 cannot be done in the same proceeding for assistance in liquidation, but in a separate action instituted specifically for the purpose. 4. Lipana v. Development Bank of Rizal, 154 SCRA 257 (1987)

FACTS:

- Spouses Lipana opened and maintained both time and savings deposits with Development Bank of Rizal.

-When some of the Time Deposit Certificates matured, Sps. Lipana 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 having failed, Sps Lipana filed a Complaint With Prayer For Issuance of a Writ of Preliminary Attachment for collection of a sum of money with damages.

-Respondent Judge, ordered the issuance of a writ of attachment, and pursuant thereto, a writ of was issued in favor of the Sps. Lipana..

-Meanwhile, the Monetary Board, finding that the condition Development Bank Of Rizal 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

-Sps. Lipana filed a Motion for Execution Pending Appeal, which was opposed by Development Bank Of Rizal

-In an order, respondent judge ordered the issuance of a writ of execution.

-Development Bank Of Rizal filed a Motion for Reconsideration of order and to Stay Writ of Execution, which, respondent judge stayed the execution.

-When the motion to lift stay of execution was denied, the Sps. Lipana filed the instant petition.

ISSUE:-Whether or not respondent judge could legally stay execution of judgment that has already become final and executory.

HELD:

- 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; 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, after the Monetary Board has declared that a bank is insolvent and has ordered it to cease operations, the Board becomes the trustee of its assets for the equal benefit of all the creditors, including depositors. The assets of the insolvent banking institution are held in trust for the equal benefit of all creditors, and after its insolvency, one cannot obtain an advantage or a preference over another by an attachment, execution or otherwise.

5. Overseas Bank of Manila v. Court of Appeals, 172 SCRA 521 (1989)

FACTS:

- In relation to a contract of sale between NAWASA, as vendor and a certain Bonifacio Regalado, as vendee, and by authority of the former's board of directors, the amount of P327,257.20 was placed on a time deposit with the Overseas Bank by the NAWASA Treasurer for a period of 6 months. The amount corresponding to a payment earlier made by Regalado to the NAWASA, and the time deposit was made so that a refund could quickly be made to Regalado in the event that his contract with the NAWASA be disapproved by the Office of the President.- A second payment having been made by Regalado in the same sum of P327,257.20 in connection with his aforesaid contract, another time deposit was made by the NAWASA Treasurer with the Overseas Bank, respresenting the balance of the purchase price due from Regalado. The period of this second deposit was fixed at one (1) year.

-NAWASA's Acting General Manager wrote to the Overseas Bank advising that (1) as regards the first time deposit of P327,257.20 which had already matured, NAWASA wished to withdraw it immediately, and (2) with respect to the second time deposit of P2,945,314.80, it intended to withdraw it sixty (60) days thereafter as authorized by the parties' agreement set forth in the certificate of the deposit. -The Overseas Bank having failed to remit to it, it did however pay to NAWASA, , interest on its time deposits.-After maturity of the second time deposit, NAWASA again sent a letter to the Overseas Bank, demanding remittance of both time deposits. Having received no response, NAWASA wrote to the Bank once more giving it five (5) days to remit the deposited sums, and warning that it would seek the intervention of the Central Bank for the protection of its interests. Still no word was received from the bank.

-NAWASA then wrote to the Central Bank Governor about the matter. The latter replied that it was pursuing a suggestion of the Monetary Board for the Overseas Bank to transfer government deposits in its custody (including those of NAWASA) to the Philippine National Bank and/or the Development Bank of the Philippines. Apparently, even the Central Bank was ignored by Overseas Bank. -NAWASA informed the Central Bank that it had received no remittance from the Overseas Bank nor did it appear that the latter had transferred the time deposits to the PNB or the DBP. The Central Bank wrote back, pointing out that while the matter really had to be resolved by NAWASA and the Overseas Bank according to their contract, it was nonetheless pursuing an available measures to induce the Overseas Bank to remit the time deposits in question or at least transfer them to either the PNB or DBP; the Central Bank also said that it had informed the President of the Philippines of the status of Government deposits in the Overseas Bank.

-One last letter was written by NAWASA to the Overseas Bank, reiterating its demand for the return of its money. Again the letter went unheeded.

-NAWASA thus brought suit to recover its deposits and damages, with the results already mentioned. The Overseas Bank failed to file its answer despite service of summons; it was declared in default; the Court received NAWASA's evidence ex parte and on the basis thereof, thereafter rendered judgment by default. The Overseas Bank made no effort whatever to have the order of default lifted, or to have the judgment by default reconsidered. After being served with notice of the judgment, it simply brought the case up to the Court of Appeals. -Trial Court, affirmed by the Court of Appeal, rendered decision against Overseas Bank.

OBMs Defense:

-By reason of punitive action taken by the CB, it had been prevented from undertaking banking operations which would have generated funds to pay not only its depositors and creditors but likewise the interests due on the deposits.

HELD:

- There is in the first place absolutely no evidence of these facts in the record: and this is simply because the petitioner bank had made no effort whatever to set aside the default order against it so that it could present evidence in its behalf before the Trial Court. Moreover, the suspension of operations which took place in August, 1968, could not possibly excuse non-compliance with the obligations in question which matured in 1966. Again, the claim that the Central Bank, by suspending the Overseas Bank's banking operations, had made it impossible for the Overseas Bank to pay its debts, whatever validity might be accorded thereto, or the further claim that it had fallen into a "distressed financial situation," cannot in any sense excuse it from its obligation to the NAWASA, which had nothing whatever to do with the Central Bank's actuations or the events leading to the bank's distressed state.

- Furthermore, that rehabilitation program or procedure of payment does not in any way negate or diminish the indebtedness of the Overseas Bank to the NAWASA incurred in 1966, for conceding full faith and credit to such a prescribed procedure of payment, it constitutes no obstacle to determining the principal and interests of the debts at issue at this time.

6. Banco Filipino Savings and Mortgage Bank v. Central Bank, 204 SCRA 767 (1991)

FACTS:

-On different occasions, Top Management Program Corporation, Pilar Development Corporation, El Grande Development Corporation obtained a loan from Banco Filipino and Savings and Mortgage Bank secured by Real Estate Mortgages.

-When the bank suffered serious financial problems, the Monetary Board issued resolution finding the bank insolvent and placed it under receivership.

-Banco Filipino filed a complaint to set aside the said action of MB.

-Subsequently, MB issued another resolution placing the bank under liquidation and designating a liquidator.

-Banco Filipino filed another petition questioning the validity of the said resolution.

-A temporary restraining order was issued, however, acts pertaining to normal operations of a bank are not enjoined.

-A resolution was also issued ordering the conduct of hearings.

-In the meantime, Top Management Program Corporation, Pilar Development Corporation, El Grande Development Corporation failed to pay their obligations.

-The liquidator extra judicially foreclosed the Real Estate Mortgages.

-Each filed separately a petition for injunction and prohibition seeking to enjoin the sheriff from proceeding with the foreclosure sale.

-Petitions were dismissed. Hence, petitions were filed by Top Management Program Corporation, Pilar Development Corporation, El Grande Development Corporation alleging that the liquidator has no authority to proceed with the foreclosure sale pending the resolution of the issue on the validity of the closure and liquidation of Banco Filipino.

ISSUE:

-Whether or not the liquidator has the authority to prosecute as well as to defend suits and foreclose mortgages for and in behalf of the bank while the issue on the validity of the receivership and liquidation is still pending resolution.

HELD:

-The Central bank is vested with the authority to take charge and administer the monetary and banking systems of the country and this authority includes the power to examine and determine the financial condition of banks for the purpose of closure ion the ground of insolvency.

-Even if the bank is questioning the validity of its closure, during the pendency of the case, the liquidator can continue prosecution suits for collection and foreclosure of mortgages, as they are acts done In the usual course of administration of the banks.

7. Central Bank of the Philippines v. Court of Appeals, 208 SCRA 652 (1992)

FACTS:

- At the height of the controversy surrounding the discovery of the anomalous loans, several blind items about a family-owned bank in Binondo which granted fictitious loans to its stockholders appeared in major newspapers. These news items triggered a bank-run in PBP which resulted in continuous over-drawings on the bank's demand deposit account with the Central Bank. Hence, on the basis of the report submitted by the Supervision and Examination Sector, Department I of the CB, the Monetary Board (MB), pursuant to its authority under Section 28-A of R.A. No. 265 and by virtue of MB Board Resolution No. 164, placed PBP under conservatorship.-While PBP admits that it had no choice but to submit to the conservatorship, it nonetheless requested that the same be lifted by the CB. Consequently, the MB issued Resolution directing the principal stockholders of PBP to increase its capital accounts by such an amount that would be necessary for the elimination of PBP's negative net worth. CB senior deputy Governor Gabriel Singson informed PBP that pursuant to MB Resolution, the CB would be willing to lift the conservatorship under the following conditions: (a)PBP's unsecured overdraft with the Central Bank will be converted into an emergency loan, to be secured by sufficient collateral, including but not limited to the properties offered by PBP's principal stockholders.- MB adopted Resolution approving the consolidation of PBP's other unsecured obligations to the CB with its overdraft and authorizing the conversion thereof into an emergency loan. The same resolution authorized the CB Governor to lift the conservatorship and return PBP's management to its principal stockholders upon completion of the documentation and full collateralization of the emergency loan, but directed PBP to pay the emergency loan in five (5) equal annual installments, with interest and penalty rates at MRR 180 days plus 48% per annum, and liquidated damages of 5% for delayed payments.

- PBP submitted a rehabilitation plan to the CB which proposed the transfer to PBP of three (3) buildings owned by Producers Properties, Inc. (PPI), its principal stockholder and the subsequent mortgage of said properties to the CB as collateral for the bank's overdraft obligation. Although said proposal was explored and discussed, no program acceptable to both the CB and PPI was arrived at because of disagreements on certain matters such as interest rates, penalties and liquidated damages.

-No other rehabilitation program was submitted by PBP for almost three (3) years; as a result thereof, its overdrafts with the CB continued to accumulate. The CB Monetary Board decided to approve in principle what it considered a viable rehabilitation program for PBP.

-PBP, without responding to the communications of the CB, filed a complaint verified against the CB, the MB and CB Governor Jose B. Fernandez, Jr., asserting that the conservatorship was unwarranted, ill-motivated, illegal, utterly unnecessary and unjustified; that the appointment of the conservator was arbitrary; that herein petitioners acted in bad faith; that the CB-designated conservators committed bank frauds and abuses; that the CB is guilty of promissory estoppel; and that by reason of the conservatorship, it suffered losses exclusive of loss of profits and loss of goodwill.-The trial court and the Court of Appeals is into lifting the conservatorship. (However, there is nothing in the amended complaint to reflect an unequivocal intention to ask for its lifting.)HELD:

-If it were to lift the conservatorship because it was arbitrarily imposed, then the case should have been dismissed on the grounds of prescription and lack of personality to bring action.-The following requisites must be present before the order of conservatorship may be set aside by a court:

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

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

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

8. First Philippine International Bank v. Court of Appeals, 252 SCRA 259 (1996)

FACTS:

-In the course of its banking operations Producers Bank of the Philippines acquired six parcels of land which used to be owned by BYMC Investment and Development Corporation which was mortgaged to the bank as collateral for a loan.-Demetrio Demetria and Jose Janolo wanted to purchase the property and thus initiated negotiations for that purpose. They met with Mercurio Rivera, manager of the Property Management Department of the bank, who advised them to make formal offer.

-Janolo following the advice of Rivera made a formal purchase offer, through a letter, for 3P3.5M in cash, which was counter-offered by Rivera, on behalf of the bank, to P5.5M, in which Janolo made an amended offer of P4.250M.

-There was reply on Janolos last offer, instead they met with Luis Co, Senior Vice-President of the Bank, sticked to their counter offer of P5.5M, which Janolo et al., accepted after two days.

-The bank was placed under conservatorship by CB and through a letter, Rivera informed Demetria that their proposal to purchase the property is under study yet by the newly created committee for submission to the Acting Consrvator.

-Series of demands were made by Janolo et al for compliance by the bank with what Janolo et al considered as perfected contract of sale which demands were refused by the bank, and refused to receive tender of payment.

-Instead the land was advertised for sale.

-Final demand was made in which acting conservator replied that the bank through the acting Conservator repudiated the authority of Rivera and all his dealings and counter-offer were unauthorized and illegal, and that there was no perfected contract of sale as there was no meeting of minds as to the price.

-Hence, Janolo et al filed a suit for specific performance against the bank.

CA:

-Ruled that there was perfected contract of sale and conservator has no authority to revoke it.

ISSUE:

-Whether or not a conservator has the authority to revoke a perfected contract of sale entered into by the bank through its officers before conservatorship.

HELD:

-The power of conservator, enormous and extensive as they are, cannot extend to the post-facto repudiation of perfected transactions, otherwise they would infringe the non-impairment clause of the Constitution. What the conservator may revoke are contracts which are, under existing law, deemed defective- such as void, voidable, unenforceable or rescissible. Hence, the conservator merely takes place of a banks board of directors. What said board cannot dosuch as repudiating a contract validly entered into under the doctrine of implied authoritythe conservator cannot do either.9. Ong v. Court of Appeals, 253 SCRA 105 (1996)

FACTS:

-Rural Bank of Olonggapo was the owner in fee simple of two parcels of land including the improvements thereon situated in Tagaytay City.

-Said parcels of land were duly mortgaged by RBO in favor Ong to guarantee the payment of Omnibus Finance, Inc., which is likewise now undergoing liquidation proceedings of its money market obligations to Ong.

-Omnibus Finance, Inc., not having seasonably settled its obligations to Ong, the latter proceeded to effect the extrajudicial foreclosure of said mortgages, such that the City Sheriff of Tagaytay City issued a Certificate of Sale in favor of Ong.

-Respondents failed to seasonably redeem said parcels of land, for which reason, Ong has executed an Affidavit of Consolidation of Ownership which, to date, has not been submitted to the Registry of Deeds of Tagaytay City, in view of the fact that possession of the aforesaid titles or owners duplicate certificates of title remains with the RBO.

-To date, Ong has not been able to effect the registration of said parcels of land in his name in view of the persistent refusal of RBO, despite demand, to surrender RBOs copies of its owners certificates of title for the parcels of land.

-RBO filed a motion to dismiss on the ground of res judicata alleging that petitioner had earlier sought a similar relief which case was dismissed with finality on appeal before the Court of Appeals.

-RBO contended that it was undergoing liquidation and, pursuant to prevailing jurisprudence, it is the liquidation court which has exclusive jurisdiction to take cognizance of Ongs claim.

ISSUES:

1. Whether or not the liquidation court has jurisdiction over all claims against insolvent bank.

2. Whether or not it is necessary that a claim be initially disputed in a court or agency before it is filed with the liquidation court.

HELD:

-Sec. 29, par. 3, of R.A. 265 as amended by P.D. 1827 does not limit the jurisdiction of the liquidation court to claims against the assets of the insolvent bank. The provision is general in that it clearly and unqualifiedly states that the liquidation court shall have jurisdiction to adjudicate disputed claims against the bank. Disputed claims refer to all claims, whether they be against the assets of the insolvent bank, for specific performance, breach of contract, damages, or whatever. To limit the jurisdiction of the liquidation court to those claims against the assets of the bank is to remove significantly and without basis the cases that may be brought against a bank in case of insolvency.

-It is not necessary that a claim be initially disputed in a court or agency before it is filed with the liquidation court.10. Manalo v. Court of Appeals, 366 SCRA 753 (2001)

FACTS:

-S. Villanueva Enterprises, represented by its president, Therese Villanueva Vargas, obtained a loan from PAIC Savings and Mortgage Bank and the Philippine American Investments Corporation (PAIC), respectively.

-To secure payment of both debts, Vargas executed in favor PAIC Savings and PAIC a Joint First Mortgageover two parcels of land registered under her name.

-S. Villanueva Enterprises defaulted in paying the amortizations due. Despite repeated demands from the respondent, it failed to settle its loan obligation.

-Accordingly, PAIC Savings instituted extrajudicial foreclosure proceedings over the mortgaged lots. The Pasay City property was sold at a public auction to the respondent itself, after tendering the highest bid. PAIC Saving then caused the annotation of the corresponding Sheriffs Certificate of Sale on the title of the land. After the lapse of one year, or the statutory period extended by law to a mortgagor to exercise his/her right of redemption, title was consolidated in PAIC Savings name for failure of Vargas to redeem.

-The Central Bank of the Philippines filed a Petition for assistance in the liquidation of the PAIC Savings with the Regional Trial Court. The petition was given due course.

-It appears that from the years 1986 to 1991, Vargas negotiated with the PAIC Savings (through its then liquidator, the Central Bank) for the repurchase of the foreclosed property. The negotiations, however, fizzled out as Vargas cannot afford the repurchase price fixed by the PAIC Savings based on the appraised value of the land at that time.

-Vargas filed a case for annulment of mortgage and extra-judicial foreclosure sale.

-The court rendered a decision dismissing the complaint and upholding the validity of the mortgage and foreclosure sale.

-On appeal, the appellate court upheld the assailed judgment and declared the said mortgage and foreclosure proceedings to be in accord with law. This decision of the Court of Appeals subsequently became final and executory when we summarily dismissed Vargass Petition for Review on Certiorari for having been filed beyond the reglementary period.

-In the meantime, PAIC Savings petitioned the herein court a quo, for the issuance of a writ of possession for the subject property. This is in view of the consolidation of its ownership over the same as mentioned earlier. Vargas and S. Villanueva Enterprises, Inc. filed their opposition thereto. After which, trial ensued.

-During the pendency of the case (for the issuance of a writ of possession), Vargas executed a Deed of Absolute Sale selling, transferring, and conveying ownership of the disputed lot in favor of a certain Armando Angsico. Notwithstanding this sale, Vargas, still representing herself to be the lawful owner of the property, leased the same to Domingo R. Manalo

Later, Armando Angsico, as buyer of the property, assigned his rights therein to Domingo Manalo.-Shortly, S. Villanueva Enterprises and Vargas moved for its quashal. Thereafter, Manalo, on the strength of the lease contract and Deed of Assignment made in his favor, submitted a Permission to File an Ex-parte Motion to Intervene. He had separately instituted a Complaint for Mandamus to compel PAIC Bank to allow him to repurchase the subject property.

-Trial Court denied the Motion to Quash and Motion to Intervene filed respectively by Vargas and Manalo. A Motion for Reconsideration and a Supplemental Motion for Reconsideration were filed by the Manalo which, however, were similarly denied.ISSUE:

-Whether or not the public respondent committed grave abuse of discretion when it held that what are required to be instituted before the liquidation court are those claims against the insolvent banks only considering that the PAIC Savings bank is legally dead due to insolvency and considering further that there is already a liquidation court which is exclusively vested with jurisdiction to hear all matters and incidents on liquidation pursuant to Section 29, Republic Act No. 265, otherwise known as The Central Bank Act, as amended.

HELD:

-The liquidator designated as hereunder provided shall, by the Solicitor General, file a petition in the Regional Trial Court reciting the proceedings which have been taken and praying the assistance of the court in the liquidation of such institution. The court shall have jurisdiction in the same proceedings to assist in the adjudication of disputed claims against the bank or non-bank financial intermediary performing quasi-banking functions and the enforcement of individual liabilities of the stockholders and do all that is necessary to preserve the assets of such institution and to implement the liquidation plan approved by the Monetary Board.-. A bank which had been ordered closed by the monetary board retains its juridical personality which can sue and be sued through its liquidator. The only limitation being that the prosecution or defense of the action must be done through the liquidator. Otherwise, no suit for or against an insolvent entity would prosper. In such situation, banks in liquidation would lose what justly belongs to them through a mere technicality

11. Rural Bank of Sta. Catalina v. Land Bank of the Philippines, 435 SCRA 183 (2004)

FACTS:

-Land Bank of the Philippines, filed a complaint against Sta. Catalina Rural Bank, Inc, for the collection of the sum of money, capitalized and accrued interests, penalties and surcharges, and for such other equitable reliefs.

-On motion of the LBP, the trial court issued an Order declaring Sta. Catalina Rural Bank, Inc in default for its failure to file its answer to the complaint. Despite its receipt of the copy of the said order, Sta. Catalina Rural Bank, Inc failed to file a motion to set aside the order of default.

-In the meantime, the Monetary Board of the Central Bank of the Philippines approved the placement of the Sta. Catalina Rural Banks assets under receivership under Section 29 of Republic Act No. 7653, as recommended by its Supervision and Management Section. The Philippine Deposit Insurance Corporation (PDIC) was designated as receiver (conservator) of the Sta. Catalina Rural Bank, and the latter was prohibited from doing business in the Philippines.

-Unaware of the action of the Central Bank of the Philippines, the trial court, rendered judgment by default against Sta. Catalina Rural Bank ordering it to pay LBP.

-Sta. Catalina Rural Bank, through the PDIC, appealed the decision to the Court of Appeals. PDIC submitted a Report to the Monetary Board of the Central Bank of the Philippines that Sta. Catalina Rural Bank remained insolvent, and that its management failed to rehabilitate the said bank.

-Sta. Catalina Rural Bank cited the ruling of this Court in Overseas Bank of Manila vs. Court of Appeals to support its claim that since it was placed under receivership, and prohibited from doing business in the Philippines, it should no longer be held liable for interests and penalties on its account LBP.

-CA rendered judgment affirming the decision of the RTC. The CA ruled that having failed to file a motion for reconsideration of the trial courts order declaring it in default before such court rendered judgment, compounded by its failure to do so in the Court of Appeals, Sta. Catalina Rural Bank was precluded from invoking in the appellate court the placement of its assets and affairs under receivership and its exemption from liability for interests and penalties on its account with the LBP after the said date. The CA ruled that if it acquiesced to the contention of Sta. Catalina Rural Bank, it would defeat the very principle behind the declaration of default of a party for failing to file an answer to the complaint within the reglementary period therefore. The CA further declared that a contrary ruling would render nugatory the effect of the trial courts declaration of default on the part of the Sta. Catalina Rural Bank.

ISSUE:

-Whether or not it is liable for interests and penalties on its account with the Land Bank of the Philippines, when its assets and affairs were placed under receivership by the Central Bank of the Philippines, and was prohibited from doing business.HELD:

-The records show that Sta. Catalina Rural Bank was served with a copy of summons and the complaint, but failed to file its answer thereto. It also failed to file a verified motion to set aside the Order of default despite its receipt of a copy thereof. We note that the trial court rendered more than a year after the issuance of the default order; yet, Sta. Catalina Rural Bank failed to file any verified motion to set aside the said order before the rendition of the judgment of default. The PDIC was designated by the Central Bank of the Philippines as receiver (conservator), and in the course of its management of the Sta. Catalina Rural Banks affairs, it should have known of the pendency of the case against the latter in the trial court. Moreover, Sta. Catalina Rural Bank, through the PDIC, received a copy of the decision of the trial court on June 2, 1998, but did not bother filing a motion for partial reconsideration, under Rule 37 of the Rules of Court, appending thereto the orders of the Monetary Board or a motion to set aside the order of default. Instead, Sta. Catalina Rural Bank appealed the decision, and even failed to assign as an error the default order of the trial court. Sta. Catalina Rural Bank is, thus, barred from relying on the orders of the Monetary Board of the Central Bank of the Philippines placing its assets and affairs under receivership and ordering its liquidation.

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

-The Sta. Catalina Rural Bank cannot, likewise, rely on the ruling of the Court in Overseas Bank of Manila vs. Court of Appeals, because in the said case, the issue of whether a party who had been declared in default is entitled to relief from the judgment by default based on evidence presented only in the appellate court, when such order of default was not vacated by the trial court prior to the appeal from the judgment of default was not raised therein, much less resolved by the Court.

12. Miranda v. PDIC, 501 SCRA 288 (2006)

FACTS:

-Leticia G. Miranda was a depositor of Prime Savings Bank, Santiago City Branch. She withdrew substantial amounts from her account, but instead of cash she opted to be issued a crossed cashiers check. She was thus issued cashiers check.

-Miranda deposited the two checks into her account in another bank on the same day, however, Bangko Sentral ng Pilipinas (BSP) suspended the clearing privileges of Prime Savings Bank effective 2:00 p.m. of June 3, 1999. The two checks of petitioner were returned to her unpaid.

-Prime Savings Bank declared a bank holiday. BSP placed Prime Savings Bank under the receivership of the Philippine Deposit Insurance Corporation (PDIC).

-Miranda filed a civil action for sum of money to recover the funds from her unpaid checks against Prime Savings Bank, PDIC and the BSP.

-Trial Court rendered judgment against Philippine Deposit Insurance Corporation, Bangko Sentral ng Pilipinas and Prime Bank, to pay jointly and solidarily the amount of the checks to Miranda.

-On appeal, the Court of Appeals reversed the trial court and ruled in favor of the PDIC and BSP, dismissing the case against them, without prejudice to the right of Miranda to file her claim before the court designated to adjudicate on claims against Prime Savings Bank.

-Miranda contends that she ceased to be a depositor upon withdrawal of her deposit and the issuance of the two cashiers checks to her. As a holder in due course of the cashiers checks as defined under Sections 52 and 191 of the Negotiable Instruments Law, she is an assignee of the funds of Prime Savings Bank as drawer thereof and entitled to its immediate payment.

ISSUE:

-Whether or not Mirandas claim is entitled to preference in the assets of the bank on its liquidation.HELD:

-The two cashiers checks issued by Prime Savings Bank do not constitute an assignment of funds in the hands of the petitioner as there were no funds to speak of in the first place. The bank was financially insolvent for sometime, even before the issuance of the checks. As the Court of Appeals correctly ruled, the issuance of the cashiers checks to Miranda did not constitute an assignment of funds, of which there was practically none at the time these were issued, as the bank was in dire financial straits for some time.

-However, the claim lodged by the Miranda qualifies as a disputed claim subject to the jurisdiction of the liquidation court. Regular courts do not have jurisdiction over actions filed by claimants against an insolvent bank, unless there is a clear showing that the action taken by the BSP, through the Monetary Board in the closure of financial institutions was in excess of jurisdiction, or with grave abuse of discretion-In the absence of fraud, the purchase of a cashiers check, like the purchase of a draft on a correspondent bank, creates the relation of creditor and debtor, not that of principal and agent, with the result that the purchaser or holder thereof is not entitled to a preference over general creditors in the assets of the bank issuing the check, when it fails before payment of the check. However, in a situation involving the element of fraud, where a cashiers check is purchased from a bank at a time when it is insolvent, as its officers know or are bound to know by the exercise of reasonable diligence, it has been held that the purchase is entitled to a preference in the assets of the bank on its liquidation before the check is paidC. POWERS OF A RECEIVER

1. Abacus Real Estate Development Center Inc. v. Manila Banking Corporation, 455 SCRA 97 (2005)

FACTS:

-Manila Banking Corporation (Manila Bank), owns a 1,435-square meter parcel of land located along Gil Puyat Avenue Extension, Makati City. The bank began constructing on said land a 14-storey building. Not long after, however, the bank encountered financial difficulties that rendered it unable to finish construction of the building.

-Central Bank of the Philippines, now Bangko Sentral ng Pilipinas, ordered the closure of Manila Bank and placed it under receivership, with Feliciano Miranda, Jr. being initially appointed as Receiver. The legality of the closure was contested by the bank before the proper court.

-Central Bank, by virtue of Monetary Board (MB), ordered the liquidation of Manila Bank and designated Atty. Renan V. Santos as Liquidator. The liquidation, however, was held in abeyance pending the outcome of the earlier suit filed by Manila Bank regarding the legality of its closure. Consequently, the designation of Atty. Renan V. Santos as Liquidator was amended by the Central Bank to that of Statutory Receiver.

-In the interim, Manila Banks then acting president, the late 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, represented by Calixto Y. Laureano (Laureano group), wrote Vicente G. Puyat offering to lease the building for ten (10) years and to advance the cost to complete the same, with the advanced cost to be amortized and offset against rental payments during the term of the lease. Likewise, the letter-offer stated that in consideration of advancing the construction cost, the group wanted to be given the exclusive option to purchase the building and the lot on which it was constructed.

-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 the Laureano group.

-Vicente G. Puyat accepted the Laureano groups offer and granted it an exclusive option to purchase the lot and building for One Hundred Fifty Million Pesos (P150,000,000.00). Later, the building was leased to MEQCO for a period of ten (10) years pursuant to a contract of lease bearing that date.MEQCO subleased the property to petitioner Abacus Real Estate Development Center, Inc. (Abacus), a corporation formed by the Laureano group for the purpose, under identical provisions as that of the lease contract between Manila Bank and MEQCO.

-The Laureano group was, however, unable to finish the building due to the economic crisis brought about by the failed coup attempt. On account thereof, the Laureano group offered its rights in Abacus and its exclusive option to purchase to Benjamin Bitanga (Bitanga ), for Twenty Million Five Hundred Thousand Pesos (P20,500,000.00). Bitanga would later allege that because of the substantial amount involved, he first had to talk with Atty. Renan Santos, the Receiver appointed by the Central Bank, to discuss Abacus offer. Bitanga further alleged that, over lunch, Atty. Santos then verbally approved his entry into Abacus and his take-over of the sublease and option to purchase.

-Laureano group transferred and assigned to Bitanga all