L-20583, January 23, 1967]

FACTS: This case is a quo warranto proceeding or a proper proceeding to challenge individuals who are acting as officers or directors of business corporations initiated by the Solicitor General to dissolve the Security and Acceptance Corporation for engaging in banking without the authority required by the General banking Act. As the Security Credit and Acceptance Corporation applied with the Security and Exchange Commission for the registration and licensing of their securities under the Securities Act, SEC referred it to the Central Bank. The Central Bank classified the Security Credit and Acceptance Corporation as engaged in banking. So, SEC advised the Corporation to comply with the requirements under the General Banking Act or RA No. 337. The MTC of Manila issued a search warrant to search the premises of the corporation in which the Manila Police Department seized the documents and records of the corporation relative to its business operations; and the seized documents were placed under custody of the Central Bank which later submitted a memorandum. This memorandum lead to the issuance by the Monetary board of a resolution stating that the corporation is engaged in banking without compliance with RA No. 337. Despite the issuance of the resolution, the corporation continued its banking operations and had induced greater number of the public to open savings deposit accounts. The Security Credit and Acceptance Corporation denied that its transactions partake of the nature of banking operations. ISSUE: Whether or not the Security Credit and Acceptance Corporation was engaged in banking and violated the General Banking Act. RULING: Yes, the corporation is engaged in banking and violated the General Banking Act by its noncompliance with the administrative authority required in RA No. 337. An investment company which loans out the money of its customers, collects the interest and charges a commission to both lender and borrower, is a bank. (Western Investment Banking Co. vs. Murray, 56 P. 728, 730, 731; 6 Ariz 215.) ... any person engaged in the business carried on by banks of deposit, of discount, or of circulation is doing a banking business, although but one of these functions is exercised. (MacLaren vs. State, 124 N.W. 667, 141 Wis. 577, 135 Am. S.R. 55, 18 Ann. Cas. 826; 9 C.J.S. 30.) Because the corporation is engaged in baking operations for example loaning out the money of its customers, collecting the interests and encouraging people to open savings deposit accounts, the corporation was ordered dissolved.


FACTS: Teodoro Bañas executed a promissory note in favor of C.G. Dizon Construction. 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, executed a Deed of Chattel Mortgage covering three heavy equipment units of Caterpillar Bulldozer Crawler Tractors in favor of Asia Pacific. Moreover Cenen Dizon executed a Continuing Undertaking wherein he bound himself to pay the obligation jointly and severally with C.G. Dizon Construction. C.G. Dizon construction made payments by way of Installments to Asia Pacific, 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. As the demand was unheeded, Asia Pacific sued Teodoro Bañas, C.G. Dizon Construction Inc. and Cenen Dizon. Defendants claimed that since Asia Pacific could not directly engage in banking business, it propose to them a scheme wherein Asia Pacific could extend a loan to them without violating banking. 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. 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; and ruled in favor of Asia Pacific holding the defendants jointly and severally liable for the unpaid balance of the obligation under the Promissory Note. The Court of Appeals affirmed in toto the decision of the trial court. ISSUE: Whether the disputed transaction between petitioners and Asia Pacific violated banking laws, hence null and void RULING: 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). 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. Petitioners C.G. Construction Inc. and Cenen Dizon are ordered jointly and severally to pay respondent Asia Pacific Finance Corporation, substituted by International Corporate Bank

ROMEO P. BUSUEGO vs. COURT OF APPEALS [G.R. No. 95326. March 11, 1999]

FACTS: A regular examination of the books and records of PAL Employees Savings and Loan Association (PESALA) was conducted by a team of Central Bank (CB) examiners. They found some irregularities committed by the PESALA officers, so, the CB sent a letter to Busuego et al., informing them that they will have a meeting for the purpose of investigating the anomalies. There is no response from the petitioners. So, the Monetary Board made a resolution including the names of the officers of PESALA in the watch list preventing them from holding positions in any institution under the Central Bank. Busuego et al., filed a petition for injunction to prevent their names from being added into the watch list which the RTC granted. However, the Monetary Board appealed in which the CA reversed the RTC decision. Busuego et al., contended that the resolution violated their right to due process by imposing administrative. ISSUE: Whether or not the Monetary Board resolution was valid RULING: Yes, the resolution is valid. The Central bank, through the Monetary Board, is the government agency charged with the responsibility of administering the monetary, banking and credit system of the country and is granted the power of supervision and examination over banks and non-bank financial institutions performing quasi-banking functions of which savings and loan associations, such as PESALA, form part of. The special law governing savings and loan association is Republic Act No. 3779, as amended, otherwise known as the "Savings and Loan Association Act." Said law authorizes the Monetary Board to conduct regular yearly examinations of the books and records of savings and loan associations, to suspend, a savings and loan association for violation of law, to decide any controversy over the obligations and duties of directors and officers, and to take remedial measures, among others. Therefore, the Central Bank through the Monetary Board is authorized to conduct investigation and examinations on the records of savings and loan associations. Moreover, if there are irregularities, the Monetary Board may impose sanctions like suspension or listed in watch list.

The petition is denied and the Court of Appeals decision is affirmed.


FACTS: There were three consolidated cases presented involving several fraudulently negotiated checks. Ford Philippines instituted actions to recover from CITIBANK, N.A. (Citibank) and collecting bank, Philippine Commercial International Bank (PCIBank) [formerly Insular Bank of Asia and America], the value of several checks payable to the Commissioner of Internal Revenue, which were embezzled allegedly by an organized syndicate. On October 19, 1977, the plaintiff Ford drew and issued its Citibank Check No. SN-04867 in the amount of P4,746,114.41, in favor of the CIR as payment of plaintiff’s percentage or manufacturer’s sales taxes for the third quarter of 1977. The check was deposited with the defendant IBAA (now PCIBank) and was subsequently cleared at the Central Bank. Upon presentment with the defendant Citibank, the proceeds of the check was paid to IBAA as collecting or depository bank. The proceeds of the same Citibank check of the plaintiff was never paid to or received by the CIR. It is further admitted by defendant Citibank that during the time of the transactions in question, plaintiff had been maintaining a checking account with defendant Citibank; that Citibank Check No. SN-04867 which was drawn and issued by the plaintiff in favor of the CIR was a crossed check in that, on its face were two parallel lines and written in between said lines was the phrase “Payee’s Account Only”; and that defendant Citibank paid the full face value of the check in the amount of P4,746,114.41 to the defendant IBAA. In separate letters addressed to the defendants, the plaintiff notified them that in case the BIR reassessed the payment of taxes, the plaintiff shall hold the defendants liable for reimbursement but the defendants denied liability and refused to pay. An investigation was conducted by the NBI and revealed that Citibank check was recalled by Godofredo Rivera, the General Ledger Accountant of Ford. With Rivera’s instruction, PCIBank replaced the check with two of its own Manager’s Checks. Alleged members of a syndicate later deposited the two MCs with Pacific Banking Corporation. On July 19, 1978 and April 20, 1979, Ford drew two checks which are for tax payments and again these checks never reached the CIR. An investigation was conducted and found out that those checks were embezzled by the same syndicate. It was found out that an employee of PCIBank created a PCIBank account under a fictitious name upon which the two checks were deposited. The checks were cleared and withdrawn from the fictitious account by syndicate members. ISSUE: Whether or not both parties are liable caused by their negligence

RULING: Yes, invoking the doctrine of comparative negligence, the Supreme Court ruled that both PCIBank and Citibank failed in their respective obligations and both were negligent in the selection and supervision of their employees resulting in the encashment of Citibank Check Nos. SN 10597 and 16508. Therefore, PCIBank and Citibank are equally liable for the loss of the proceeds of said checks issued by Ford in favor of the CIR. Banking business is so impressed with public interest where the trust and confidence of the public in general is of paramount importance such that the appropriate standard of diligence must be very high, if not the highest, degree of diligence. A bank’s liability as obligor is not merely vicarious but primary, wherein the defense of exercise of due diligence in the selection and supervision of its employees is of no moment. The decision and resolution of the Court of Appeals in CA-G.R. CV No. 25017, are Affirmed. PCIBank declared solely responsible for the loss of the proceeds of Citibank Check No. SN 04867 in the amount P4,746,114.41, which shall be paid together with six percent (6%) interest thereon to Ford Philippines Inc. from the date when the original complaint was filed until said amount is fully paid. However, the decision and resolution of the Court of Appeals in CA-G.R. No. 28430 are MODIFIED as follows: PCIBank and Citibank are adjudged liable for and must share the loss, (concerning the proceeds of Citibank Check Numbers SN 10597 and 16508 totalling P12,163,298.10) on a fifty-fifty ratio, and each bank is ORDERED to pay Ford Philippines Inc. P6,081,649.05, with six percent (6%) interest thereon, from the date the complaint was filed until full payment of said amount.

P.C. JAVIER & SONS, INC., vs. HON. COURT OF APPEALS [G.R. No. 129552. June 29, 2005]

FACTS: Petitioners P.C. Javier & Sons, Inc, and spouses Pablo C. Javier, Sr. and Rosalinda F. Javier filed a complaint for Annulment of Mortagage and Foreclosure against PAIC Savings & Mortgage Bank, Inc., Grace S. Belvis, acting Ex Officio Regional Sheriff of Pasig, Metro Manila and Sofronio M. Villarin, Deputy Sheriff-in-Charge before the RTC of Makati City. The petitioner corporation applied with First Summa Savings and Mortgage Bank, later on renamed as PAIC Savings and Mortgage Bank for a loan accommodation under the Industrial Guarantee Loan Fund. Pablo C. Javier was advised that its loan application was approved and forwarded to the Central Bank for realease. The Central Bank released the loan to defendant bank in two tranches. However, the petitioners claimed that the loan releases were delayed and were placed under time deposit. Also, the petitioners contended that they were never allowed to withdraw the proceeds of the time deposit because defendant bank intended the time deposit as automatic payments on the accrued interest. However, the defendant bank initiated extrajudicial foreclosure of the real estate mortgage executed by the petitioners and accordingly the auction sale of the property covered by TCT No. 473216. The complaint was filed to forestall the extrajudicial foreclosure sale of the property and the petitioners asked for the nullification of the Real Estate Mortgages it entered into with First Summa Savings and Mortgage Bank.

Several extrajudicial foreclosures of the mortgaged property were scheduled but were temporarily restrained by the RTC. However, RTC later ruled that the respondent bank was justified in extrajudicially foreclosing the mortgaged property because the loans were already due and demandable. The Court of Appeals affirmed in toto the RTC decision. ISSUE: Whether or not the petitioners’ action on withholding their amortization payments to respondent bank because they were not properly notified of the change in the corporate name of the First Summa Savings and Mortgage Bank is tenable RULING: No, the withholding is untenable. The petitioner’s contention that they should first be formally notified of the change of corporate name of First Summa Savings and Mortgage Bank to PAIC Savings and Mortgage Bank, Inc., before they will continue paying their loan obligations to respondent bank presupposes that there exists a requirement under a law or regulation ordering a bank that changes its corporate name to formally notify all its debtors. Moreover, the Supreme Court, after examining the Corporation Code and Banking Laws, as well as the regulations and circulars of SEC and Central Banlk, found out that there is no requirement of notification. The Court cannot impose on a bank that changes its corporate name to notify a debtor of such change absent any law, circular or regulation requiring it. Such act would be judicial legislation. The formal notification is, therefore, discretionary on the bank. Unless there is a law, regulation or circular from the SEC or BSP requiring the formal notification of all debtors of banks of any change in corporate name, such notification remains to be a mere internal policy that banks may or may not adopt. The Court of Appeals’ decision is affirmed in toto.