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1. Republic of the Philippinesvs.

Security Credit and Acceptance Corporation 19 SCRA 58 January 23, 1967 FACTS: The record shows that the Articles of Incorporation of defendant corporation were registered with the Securities and Exchange Commission on March 27, 1961; that the next day, the Board of Directors of the corporation adopted a set of by-laws, 2 which were filed with said Commission on April 5, 1961; that on September 19, 1961, the Superintendent of Banks of the Central Bank of the Philippines asked its legal counsel an opinion on whether or not said corporation is a banking institution, within the purview of Republic Act No. 337; that, acting upon this request, on October 11, 1961, said legal counsel rendered an opinion resolving the query in the affirmative; that in a letter, dated January 15, 1962, addressed to said Superintendent of Banks, the corporation through its president, Rosendo T. Resuello, one of defendants herein, sought a reconsideration of the aforementioned opinion, which reconsideration was denied on March 16, 1962; that, prior thereto, or on March 9, 1961, the corporation had applied with the Securities and Exchange Commission for the registration and licensing of its securities under the Securities Act; that, before acting on this application, the Commission referred it to the Central Bank, which, in turn, gave the former a copy of the above-mentioned opinion, in line with which, the Commission advised the corporation on December 5, 1961, to comply with the requirements of the General Banking Act; that, upon application of members of the Manila Police Department and an agent of the Central Bank, on May 18, 1962, the Municipal Court of Manila issued Search Warrant No. A-1019; that, pursuant thereto, members of the intelligence division of the Central Bank and of the Manila Police Department searched the premises of the corporation and seized documents and records thereof relative to its business operations; that, upon the return of said warrant, the seized documents and records were, with the authority of the court, placed under the custody of the Central Bank of the Philippines; that, upon examination and evaluation of said documents and records, the intelligence division of the Central Bank submitted, to the Acting Deputy Governor thereof, a memorandum dated September 10, 1962, finding that the corporation is: 1. Performing banking functions, without requisite certificate of authority from the Monetary Board of the Central Bank, in violation of Secs. 2 and 6 of Republic Act 337, in that it is soliciting and accepting deposit from the public and lending out the funds so received; 2. Soliciting and accepting savings deposits from the general public when the company's articles of incorporation authorize it only to engage primarily in financing agricultural, commercial and industrial projects, and secondarily, in buying and selling stocks and bonds of any corporation, thereby exceeding the scope of its powers and authority as granted under its charter; consequently such acts are ultra-vires:

3. Soliciting subscriptions to the corporate shares of stock and accepting deposits on account thereof, without prior registration and/or licensing of such shares or securing exemption therefor, in violation of the Securities Act; and 4. That being a private credit and financial institution, it should come under the supervision of the Monetary Board of the Central Bank , by virtue of the transfer of the authority, power, duties and functions of the Secretary of Finance, Bank Commissioner and the defunct Bureau of Banking (Xxx). ISSUE: Whether or not the Security and Acceptance Corporation should be dissolved for engaging in banking operations without authority required therefor by the General Banking Act (R.A. No. 337). HELD: Yes, the Corporations should be dissolved. Although, admittedly, defendant corporation has not secured the requisite authority to engage in banking, defendants deny that its transactions partake of the nature of banking operations. It is conceded, however, that, in consequence of a propaganda campaign therefor, a total of 59,463 savings account deposits have been made by the public with the corporation and its 74 branches, with an aggregate deposit of P1,689,136.74, which has been lent out to such persons as the corporation deemed suitable therefor. It is clear that these transactions partake of the nature of banking, as the term is used in Section 2 of the General Banking Act. Indeed, a bank has been defined as: ... a moneyed institute [Talmage vs. Pell 7 N.Y. (3 Seld. ) 328, 347, 348] founded to facilitate the borrowing, lending and safe-keeping of money (Smith vs. Kansas City Title & Trust Co., 41 S. Ct. 243, 255 U.S. 180, 210, 65 L. Ed. 577) and to deal, in notes, bills of exchange, and credits (State vs. Cornings Sav. Bank, 115 N.W. 937, 139 Iowa 338). (Banks & Banking, by Zellmann Vol. 1, p. 46). Moreover, it has been held that: 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.)

Accordingly, defendant corporation has violated the law by engaging in banking without securing the administrative authority required in Republic Act No. 337. Wherefore, the writ prayed for should be, as it is hereby granted and defendant corporation is, accordingly, ordered dissolved. The appointment of receiver herein issued pendente lite is hereby made permanent, and the receiver is, accordingly, directed to administer the properties, deposits, and other assets of defendant corporation and wind up the affairs thereof conformably to Rules 59 and 66 of the Rules of Court. It is so ordered.

2. Central bank of the Philippines vs. Morfe 20 SCRA 507 June 30, 1967 FACTS: The main respondent in this case, the First Mutual Savings and Loan Organization, Inc. hereinafter referred to as the Organization is a registered non-stock corporation, the main purpose of which, according to its Articles of Incorporation, dated February 14, 1961, is "to encourage . . . and implement savings and thrift among its members, and to extend financial assistance in the form of loans," to them. The Organization has three (3) classes of "members,"1 namely: (a) founder members who originally joined the organization and have signed the pre-incorporation papers with the exclusive right to vote and be voted for ; (b) participating members with "no right to vote or be voted for" to which category all other members belong; except (c) honorary members, so made by the board of trustees, "at the exclusive discretion" thereof due to "assistance, honor, prestige or help extended in the propagation" of the objectives of the Organization without any pecuniary expenses on the part of said honorary members. On February 14, 1962, the legal department of the Central Bank of the Philippines hereinafter referred to as the Bank rendered an opinion to the effect that the Organization and others of similar nature are banking institutions, falling within the purview of the Central Bank Act. Hence, on April 1 and 3, 1963, the Bank caused to be published in the newspapers an announcement that stated all "savings and loan associations" now in operation and other organizations using different corporate names, but engaged in operations similar in nature to said "associations" HAVE NEVER BEEN AUTHORIZED BY THE MONETARY BOARD OF THE CENTRAL BANK OF THE PHILIPPINES TO ACCEPT DEPOSIT OF FUNDS FROM THE PUBLIC NOR TO ENGAGE IN THE BANKING BUSINESS NOR TO PERFORM ANY BANKING ACTIVITY OR FUNCTION IN THE PHILIPPINES. On May 18, 1962, a member of the intelligence division of the Bank filed with the Municipal Court of Manila a verified application for a search warrant against the Organization, alleging that "after close observation and personal investigation, the premises at No. 2745 Rizal Avenue, Manila" in which the offices of the Organization were housed "are being used unlawfully," because said Organization is illegally engaged in banking activities, "by receiving deposits of money for deposit, disbursement, safekeeping or otherwise or transacts the business of a savings and mortgage bank and/or building and loan association . . . without having first complied with the provisions of Republic Act No. 337". Upon the filing of said application, on May 18, 1962, Hon. Roman Cancino, as Judge of the said municipal court, issued the warrant above referred to, 5 commanding the search of the aforesaid premises at No. 2745 Rizal Avenue, Manila, and the seizure of the foregoing articles, there being "good and sufficient reasons to believe" upon examination, under oath, of a detective of the Manila Police Department and said intelligence officer of the Bank.

Forthwith, or on the same date, the Organization commenced Civil Case No. 50409 of the Court of First Instance of Manila, an original action for "certiorari, prohibition, with writ of preliminary injunction and/or writ of preliminary mandatory injunction," against said municipal court, the Sheriff of Manila, the Manila Police Department, and the Bank, to annul the aforementioned search warrant, upon the ground that, in issuing the same, the municipal court had acted "with grave abuse of discretion, without jurisdiction and/or in excess of jurisdiction" because: (a) "said search warrant is a roving commission general in its terms . . .;" (b) "the use of the word 'and others' in the search warrant . . . permits the unreasonable search and seizure of documents which have no relation whatsoever to any specific criminal act . . .;" and (c) "no court in the Philippines has any jurisdiction to try a criminal case against a corporation . . ." After due hearing, on the petition for said injunction, respondent, Hon. Jesus P. Morfe, Judge, who presided over the branch of the Court of First Instance of Manila to which said Case No. 50409 had been assigned, issued, on July 2, 1962, the order complained of. Within the period stated in said order, the Bank moved for a reconsideration thereof, which was denied on August 7, 1962. Accordingly, the Bank commenced, in the Supreme Court, the present action, against Judge Morfe and the Organization, alleging that respondent Judge had acted with grave abuse of discretion and in excess of his jurisdiction in issuing the order in question. ISSUE: Whether or not the respondent Judge acted with grave abuse of discretion. HELD: The Municipal Judge did not commit a grave abuse of discretion in finding that there was probable cause that the Organization had violated Sections 2 and 6 of the aforesaid law and in issuing the warrant in question, and that, accordingly, and in line with Alverez vs. Court of First Instance (64 Phil. 33), the search and seizure complained of have not been proven to be unreasonable. It is true, that such funds are referred to in the Articles of Incorporation and the By-laws as their "savings." and that the depositors thereof are designated as "members," but, even a cursory examination of said documents will readily show that anybody can be a depositor and thus be a "participating member." In other words, the Organization is, in effect, open to the "public" for deposit accounts, and the funds so raised may be lent by the Organization. Moreover, the power to so dispose of said funds is placed under the exclusive authority of the "founder members," and "participating members" are expressly denied the right to vote or be voted for, their "privileges and benefits," if any, being limited to those which the board of trustees may, in its discretion, determine from time to time. As a consequence, the "membership" of the "participating members" is purely nominal in nature. This situation is fraught, precisely, with the very dangers or evils which Republic Act No. 337 seeks to forestall, by exacting compliance with the requirements of said Act, before the transactions in question could be undertaken.

Wherefore, the order of respondent Judge dated July 2, 1962, and the writ of preliminary mandatory injunction issued in compliance therewith are hereby annulled, and the writ of preliminary injunction issued by this Court on August 14, 1962, accordingly, made permanent, with costs against respondent First Mutual Savings and Loan Organization, Inc. It is so ordered.

3. Baas vs. Asia Pacific Finance Corporation 343 SCRA 527 October 18, 2000 FACTS: On 20 March 1981 Asia Pacific Finance Corporation (ASIA PACIFIC for short) filed a complaint for a sum of money with prayer for a writ of replevin against Teodoro Baas, C. G. Dizon Construction and Cenen Dizon. Sometime in August 1980 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 starting from September 25, 1980 up to August 25, 1981." Later, C. G. Dizon Construction endorsed with recourse the Promissory Note to ASIA PACIFIC, and to secure payment thereof, C. G. Dizon Construction, through its corporate officers, Cenen Dizon, President, and Juliette B. Dizon, Vice President and Treasurer, executed a Deed of Chattel Mortgage covering three (3) heavy equipment units of Caterpillar Bulldozer Crawler Tractors with Model Nos. D8-14A, D8-2U and D8H in favor of ASIA PACIFIC. [4] Moreover, Cenen Dizon executed on 25 August 1980 a Continuing Undertaking wherein he bound himself to pay the obligation jointly and severally with C. G. Dizon Construction. In compliance with the provisions of the Promissory Note, C. G. Dizon Construction made the following installment payments to ASIA PACIFIC: P32,500.00 on 25 September 1980, P32,500.00 on 27 October 1980 and P65,000.00 on 27 February 1981, or a total of P130,000.00. Thereafter, however, C. G. Dizon Construction defaulted in the payment of the remaining installments, prompting ASIA PACIFIC to send a Statement of Account to Cenen Dizon for the unpaid balance of P267,737.50 inclusive of interests and charges, and P66,909.38 representing attorney's fees. 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, 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. 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. Meanwhile, on 21 April 1981 the trial court issued a writ of replevin against defendant C. G. Dizon Construction for the surrender of the bulldozer crawler tractors subject of the Deed of Chattel Mortgage. Of the three (3) bulldozer crawler tractors, only two (2) were actually turned over by defendants - D8-14A and D8-2U - which units were subsequently foreclosed by ASIA PACIFIC to satisfy the obligation. D8-14A was sold for P120,000.00 and D8-2U forP60,000.00 both to ASIA PACIFIC as the highest bidder. 25 September 1992 the Regional Trial Court ruled in favor of ASIA PACIFIC holding the defendants jointly and severally liable for the unpaid balance of the obligation under the Promissory Note in the amount of P87,637.50 at 14% interest per annum, and attorney's fees equivalent to 25% of the monetary award.[7] On 24 July 1996 the Court of Appeals affirmed in toto the decision of the trial court thus this petition for review. ISSUES: 1. Whether or not the disputed transaction between petitioners and Asia Pacific violated banking laws, hence, null and void; 2. Whether or not the surrender of the bulldozer crawler tractors to respondent resulted in the extinguishment of petioners obligation. HELD: 1. We reject the argument. An investment company refers to any issuer which is or holds itself out as being engaged or proposes to engage primarily in the business of investing, reinvesting or trading in securities.[8] 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. [10] 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. 2. Petitioners contend that the parties already had a verbal understanding wherein ASIA PACIFIC actually agreed to consider petitioners' account closed and the principal obligation fully paid in exchange for the ownership of the two (2) bulldozer crawler tractors. We are not persuaded. Again, other than the bare allegations of petitioners, the records are bereft of any evidence of the supposed agreement. As correctly observed by the Court of Appeals, it is unbelievable that the parties entirely neglected to write down such an important agreement. Equally incredulous is the fact that petitioner Cenen Dizon, a seasoned businessman, readily consented to deliver the bulldozers to respondent without a corresponding receipt of acquittance. Indeed, even the testimony of petitioner Cenen Dizon himself negates the supposed verbal understanding between the parties Q: You said and is it not a fact that you surrendered the bulldozers to APCOR by virtue of the seizure order? A: There was no seizure order. Atty. Carag during that time said if I surrender the two equipment, we might finally close a deal if the equipment would come up to the balance of the loan. So I voluntarily surrendered, I pulled them from the job site and returned them to APCOR x x x x Q: You mentioned a certain Atty. Carag, who is he? A: He was the former legal counsel of APCOR. They were handling cases. In fact, I talked with Atty. Carag, we have a verbal agreement if I surrender the equipment it might suffice to pay off the debt so I did just that (underscoring ours). In other words, there was no binding and perfected contract between petitioners and respondent regarding the settlement of the obligation, but only a conditional one, a mere conjecture in fact, depending on whether the value of the tractors to be surrendered would equal the balance of the loan plus interests. And since the bulldozer crawler tractors were sold at the foreclosure sale for only P180,000.00,[14] which was not enough to cover the unpaid balance ofP267,637.50, petitioners are still liable for the deficiency.

4. Busuego vs. Court of Appeals 304 SCRA 473 March 11, 1999 FACTS: On July 19, 1988, Central Bank ("CB") Supervision and Examination Section ("SES") Department IV Director Ricardo F. Lirio sent a letter to the Board of Directors of PESALA inviting them to a conference on July 21, 1988 to discuss subject findings noted in the said 16th regular examination, but petitioners did not attend such conference. On July 28, 1988, petitioner Renato Lim wrote the PESALA's Board of Directors explaining his side on the said examination of PESALA's records and requesting that a copy .of his letter be furnished the CB, which was forthwith made by the Board. On July 29, 1988, PESALA's Board of Directors sent to Director Lirio a letter concerning the 16th regular examination of PESALA's records. On September 9, 1988, the Monetary Board adopted and issued MB Resolution No. 805 the pertinent provisions of which are as follows: 1. To note the report on the examination of the PAL Employees' Savings and Loan Association, Inc. (PESALA) as of December 31, 1987, as submitted in a memorandum of the Director, Supervision and Examination Section (SES) Department IV, dated August 19, 1988; 2. To require the board of directors of PESALA to immediately inform the members of PESALA of the results of the "Central Bank examination. and their effects on the financial condition of the Association; xxx xxx xxx 5. To include the names of Mr. Catalino Banez, Mr. Romeo Busuego and Mr. Renato Lim in the Sector's watchlist to prevent them from holding responsible positions in any institution under Central Bank supervision; 6. To require PESALA to enforce collection of the overpayment to the Vista Grande Management and Development Corporation and to require the accounting of P12.28 million unaccounted and unremitted bank loan proceeds and P3.9 million other unsupported cash disbursements from the responsible directors and officers; or to properly charge these against their respective accounts, if necessary; 7. To require the board of directors of PESALA to file civil and criminal cases against Messrs. Catalino Banez, Romeo Busuego and Renato Lim for all the misfeasance and malfeasance committed by them, as warranted by the evidence; 8. To require the board of directors of PESALA to improve the operations of the Association; correct all violations noted, and adopt internal control measures to prevent the recurrence of similar incidents as shown in Annex E of the subject memorandum of the Director, SES Department IV;

xxx xxx xxx On January 23, 1989, petitioners filed a Petition for Injunction with Prayer for the Immediate Issuance of a Temporary Restraining Order 4 docketed as Civil Case No. Q-89-1617 before Branch 104 of the Regional Trial Court of Quezon City. On January 26, 1989, the said court issued. a temporary restraining order 5 enjoining the defendant, the Monetary Board of the Central Bank, (now Banko Sentral ng Pilipinas) from including the names of petitioners in the watchlist. On February 10, 1989, the same trial Court issued a writ of preliminary injunction, 6 conditioned upon the filing by petitioners of a bond in the amount of Ten Thousand (P10,000.00) Pesos each. The Monetary Board presented a Motion for Reconsideration 7 of the said Order, but the same was denied. On September 11, 1999, the trial court handed down its Decision, 8 disposing thus: WHEREFORE, judgment is hereby rendered declaring Monetary Board Resolution No. 805 as void and in existent. The writ of preliminary prohibitory injunctions issued on February 10, 1989 is deemed permanent. Costs against respondent. The Monetary Board appealed the aforesaid Decision to the Court of Appeals which came out with a Decision 9of reversal on September 14, 1990, the decretal portion of which is to the following effect: WHEREFORE, the decision appealed from is hereby reversed and another one entered dismissing the petition for injunction. Dissatisfied with the said Decision of the Court of Appeals, petitioners have come to this Court via the present petition for review on certiorari. ISSUES: 1. Whether or not the petitioners were deprived of their right to a notice and the opportunity to be heard by the Monetary Board prior to its issuance of Monetary Board Resolution No. 805. 2. Whether or not the respondent board is legally bound to observe the essential requirements of due process of a valid charge notice and opportunity to be heard insofar as the petitioners subject case is concerned. 3. Whether or not Monetary Board Resolution No. 805 is null and void for being violative of petitioners rights to due process. HELD:


1. Petitioners were duly afforded their right to due process by the Monetary Board, it appearing that: 1. Petitioners were invited by Director Lirio to a conference scheduled for July 21, 1988 to discuss the findings made in the 16th regular examination of PESALA's records. Petitioners did not attend said conference; 2. Petitioner Renato Lim's letter of July 28, 1988 to PESALA.'s Board of Directors, explaining his side of the controversy, was forwarded to the Monetary Board which the latter considered in adopting Monetary Board Resolution No. 805; and 3. PESALA's Board of Director's letter, dated July 29, 1988, to Monetary Board, explaining the Board's side of the controversy was properly considered in the adoption of Monetary Board Resolution No. 805. Petitioners therefore cannot complain of deprivation of their right to due process, as they were given ample opportunity by the Monetary Board to air their submission and defenses as to the findings of irregularity during the said 16th regular examination. The essence of due process is to be afforded a reasonable opportunity to be heard and to submit any evidence one may have in support of his defense 13 What is offensive to due process is the denial of the opportunity to be heard. 14 Petitioner having availed of their opportunity to present their position to the Monetary Board by their letters-explanation, they were not denied due process. 2. With respect to the second issue, there is tenability in petitioners' contention that the Monetary Board, as an administrative agency, is legally bound to observe due process, although they are free from the rigidity of certain procedural requirements. As held in Adamson and Adamson, Inc. v. Amores. While administrative tribunals exercising quasi-judicial functions are free from the rigidity of certain procedural requirements they are bound by law and practice to observe the fundamental and essential requirements of due process in justiciable cases presented before them. However, the standard of due process that must be met in administrative tribunals allows a certain latitude as long as the element of fairness is not ignored. Hence, there is no denial of due process where records show that hearings were held with prior notice to adverse parties. But even in the absence of previous notice, there is no denial of procedural due process as long as the parties are given the opportunity to be heard. 3. Petitioners' contentions are untenable. It must be remembered that the Central Bank of the Philippines (now Bangko Sentral ng Pilipinas), through the Monetary Board, is the government agency charged with the responsibility of administering the monetary, banking and credit system of the country 19 and is granted the power of supervision and examination over banks and nonbank financial institutions performing quasi-banking functions of which savings and loan associations, such as PESALA, from part of. The special law governing savings and loan associations 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 loans 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. From the foregoing, it is gleanable that the Central Bank, through the Monetary Board, is empowered to conduct investigations and examine the records of savings and loan associations. If any irregularity is discovered in the process, the Monetary Board may impose appropriate sanctions, such as suspending the offender from holding office or from being employed with the Central Bank, or placing the names of the offenders in a watchlist. We sustain the ruling of the Court of Appeals that petitioners' suspension was only preventive in nature and therefore, no notice or hearing was necessary. Until such time that the petitioners have proved their innocence, they may be preventively suspended from holding office so as not to influence the conduct of investigation, and to prevent the commission of further irregularities. Neither were petitioners deprived of their lawful calling as they are free to look for another employment so long as the agency or company involved is not subject to Central Bank control and supervision. Petitioners can still practise their profession or engage in business as long as these are not within the ambit of Monetary Board Resolution No. 805. All thing studiedly considered, the court upholds the validity of Monetary Board Resolution No. 805 and affirms the decision of the respondent court. WHEREFORE, the petition is DENIED, and the assailed Decision dated September 14, 1996 of the AFFIRMED. No pronouncement as to costs.


5. Philippine Commercial and International Bank vs. Court of Appeals 350 SCRA 446 January 29, 2001 FACTS: There are three cases consolidated here: G.R. No. 121413 (PCIB vs CA and Ford and Citibank), G.R. No. 121479 (Ford vs CA andCitibank and PCIB), and G.R. No. 128604 (Ford vs Citibank and PCIB and CA). G.R. No. 121413/G.R. No. 121479 In October 1977, Ford Philippines drew a Citibank check in the amount of P4,746,114.41 in favor of the Commissioner of the Internal Revenue (CIR). The check represents Fords tax payment for the third quarter of 1977. On the face of the check was written Payees account only which means that the check cannot be encashed and can only be deposited with the CIRs savings account (which is with Metrobank). The said check was however presented to PCIB and PCIB accepted the same. PCIB then indorsed the check for clearing to Citibank. Citibank cleared the check and paid PCIB P4,746,114.41. CIR later informed Ford that it never received the tax payment. An investigation ensued and it was discovered that Fords accountant Godofredo Rivera, when the check was deposited with PCIB, recalled the check since there was allegedly an error in the computation of the tax to be paid. PCIB, as instructed by Rivera, replaced the check with two of its managers checks. It was further discovered that Rivera was actually a member of a syndicate and the managers checks were subsequently deposited with the Pacific Banking Corporation by other members of the syndicate. Thereafter, Rivera and the other members became fugitives of justice. G.R. No. 128604 In July 1978 and in April 1979, Ford drew two checks in the amounts of P5,851,706.37 and P6,311,591.73 respectively. Both checks are again for tax payments. Both checks are for Payees account only or for the CIRs bank savings account only with Metrobank. Again, these checks never reached the CIR. In an investigation, it was found that these checks were embezzled by the same syndicate to which Rivera was a member. It was established that an employee of PCIB, also a member of the syndicate, created a PCIB account under a fictitious name upon which the two checks, through high end manipulation, were deposited. PCIB unwittingly endorsed the checks to Citibank which the latter cleared. Upon clearing, the amount was withdrawn from the fictitious account by syndicate members.

ISSUE: What are the liabilities of each party? HELD: G.R. No. 121413/G.R. No. 121479 PCIB is liable for the amount of the check (P4,746,114.41). PCIB, as a collecting bank has been negligent in verifying the authority of Rivera to negotiate the check. It failed to ascertain whether or not Rivera can validly recall the check and have them be replaced with PCIBs managers checks as in fact, Ford has no knowledge and did not authorize such. A bank (in this case PCIB) which cashes a check drawn upon another bank (in this case Citibank), without requiring proof as to the identity of persons presenting it, or making inquiries with regard to them, cannot hold the proceeds against the drawee when the proceeds of the checks were afterwards diverted to the hands of a third party. Hence, PCIB is liable for the amount of the embezzled check. G.R. No. 128604 PCIB and Citibank are liable for the amount of the checks on a 50-50 basis. As a general rule, a bank is liable for the negligent or tortuous act of its employees within the course and apparent scope of theiremployment or authority. Hence, PCIB is liable for the fraudulent act of its employee who set up the savings account under afictitious name. Citibank is likewise liable because it was negligent in the performance of its obligations with respect to its agreement with Ford. The checks which were drawn against Fords account with Citibank clearly states that they are payable to the CIR only yet Citibankdelivered said payments to PCIB. Citibank however argues that the checks were indorsed by PCIB to Citibank and that the latter has nothing to do but to pay it. The Supreme Court cited Section 62 of the Negotiable Instruments Law which mandates theCitibank, as an acceptor of the checks, to engage in paying the checks according to the tenor of the acceptance which is to deliver the payment to the payees account only. But the Supreme Court ruled that in the consolidated cases, that PCIB and Citibank are not the only negligent parties. Ford is also negligent for failing to examine its passbook in a timely manner which could have avoided further loss. But this negligence is not the proximate cause of the loss but is merely contributory. Nevertheless, this mitigates the liability of PCIB and Citibank hence the rate of interest, with which PCIB and Citibank is to pay Ford, is lowered from 12% to 6% per annum.