You are on page 1of 30

Premiere Development Bank v. Central Surety | 13 February 2009 | Nachura, J.

o order PDB to pay Central Surety damages and to pay the cost of suit.
Topic: Basic Functions of Banks; Loan Function; Other Collaterals • RTC dismissed the complaint and held that the provision in the contract of loan granting PDB the sole
discretion to apply the payments made by Central Surety is valid despite being a contract of adhesion.
Facts: • CA reversed the RTC decision holding that PDB’s letter demanding payment of the P6M loan amounts to
• 20 AUG 1999: Central Surety obtained a P6M loan from Premiere Development Bank (PDB) with a a waiver of its discretion to apply the payments as it pleased. It held that the P6M loan has already been
maturity date of 14 AUG 2000. paid and that the pledge be released.
• Loan is evidenced by a promissory note (1st PN) with the ff. stipulations: •
o 17% interest rate p.a. payable monthly in arrears; Issue/Ratio:
o 24% rate p.a. penalty charge on unpaid installment or the entire unpaid balance of the loan; WON PDB has the right to apply the payment(s) made by Central Surety. – YES.
o Principal payable on due date. Law pertinent to the issue is NCC, Art. 1252,1 which contemplates a debtor with various obligations to the same
o Should Central Surety fail to pay, it shall be liable for the ff.: creditor.
§ unpaid interest up to maturity date;
§ unpaid penalties up to maturity date; and Debtor has the right to apply payment. However, this is not mandatory and may be waived as the said provision
§ unpaid balance of the principal. used the term “may”. Central Surety, in signing the PNs, through its representatives, agreed to waive its right
• P6M loan also secured by a deed of assignment with pledge (Deed) on Central Surety’s membership fee to specify the obligation to which their payments will apply. It effectively transferred the same right to PDB
certificate with Wack Wack Golf & Country Club. through the uniform provision2 in the PNs effecting the same.
• Sps. Castañeda, the president and vice president of Central Surety, represented the latter in the 1st PN
and the Deed and made themselves solidarily liable with Central Surety to the payment of the obligation. WON PDB waived the right to apply Central Surety’s payment. – NO.
• Central Surety had another loan with PDB for P40,898,000 maturing on 10 OCT 2001, evidenced by At the time of conflict between the parties material to this case, The PN covering the P6M loan and secured by
another promissory note (2nd PN) and secured by a REM recorded in a condominium certificate. The the pledge of the Wack Wack Membership, was past the due and demand stage. PDB was entitled to declare
president and the vice transacted for Central Surety in this loan as well. said Note and all sums payable thereunder immediately due and payable, without need of presentment,
• 22 AUG 2000: PDB wrote to Central Surety demanding payment of the P60M loan after the latter failed demand, protest or notice of any kind. The subsequent demand made by PDB was, therefore, a mere
to submit the required documents for the loans restructuring. PDB expressed its intention to have the superfluity, which cannot be equated with a waiver of the right to demand payment of all the matured
Wack Wack membership certificate transferred to its name should Central Surety fail to pay the obligations of Central Surety to it.
outstanding obligation in the P60M loan within 5 days. Central Surety sent a reply expressing its intention
to settle the account by end of September. Neither can it be said that PDB waived its right to apply payments when it specifically demanded payment of
• Before SEPT ended, Central Surety issued a P6M-check payable to PDB but the latter returned the check the P6M loan under the 1st PN. The existence of a waiver must be positively demonstrated since a waiver by
and demanded payment of the P6M loan as well as the P48M+ loan. implication is not normally countenanced. The norm is that a waiver must not only be voluntary, but must have
• Central Surety re-tendered the P6M check and issued another check for P2.6M for the personal loan of been made knowingly, intelligently, and with sufficient awareness of the relevant circumstances and likely
Sps. Castañeda. PDB did not apply the checks in accordance with Central Surety’s instructions. Instead, consequences. There must be persuasive evidence to show an actual intention to relinquish the right. Mere
they applied part thereof to other obligations incurred by Central Surety and a load obtained by one silence on the part of the holder of the right should not be construed as a surrender thereof; the courts must
Casent Realty and Development Corporation. indulge every reasonable presumption against the existence and validity of such waiver.
• Central Surety objected to the application of the proceeds of the checks and asked that the pledge over
the Wack Wack membership be released but PDB insisted on its application of the proceeds of the checks Moreover, the PNs contain a provision stating that: no failure on the part of [PDB] to exercise, and no delay in
to Central Surety’s other obligations. This prompted the filing of a case by Central Surety praying for the exercising any right hereunder, shall operate as a waiver thereof.
ff.:
o declare Central Suretys P6,000,000.00 loan as fully paid; WON the pledge on the Wack Wack Membership may be foreclosed by PDB. – YES.
o order PDB to release to Central Surety its membership certificate of shares in Wack Wack; The pledge executed over the Wack Wack Membership contains a dragnet clause.3 This means that the same
property will also serve as a security (of pledge) to the future obligations which Central Surety will incur in favor

1 2
NCC, Art. 1252. He who has various debts of the same kind in favor of one and the same creditor, may declare In case I/We have several obligations with [Premiere Bank], I/We hereby empower [Premiere Bank] to apply
at the time of making the payment, to which of them the same must be applied. Unless the parties so stipulate, without notice and in any manner it sees fit, any or all of my/our deposits and payments to any of my/our
or when the application of payment is made by the party for whose benefit the term has been constituted, obligations whether due or not. Any such application of deposits or payments shall be conclusive and binding
application shall not be made as to debts which are not yet due. upon us.
3
If the debtor accepts from the creditor a receipt in which an application of the payment is made, the former As security for the payment of loan obtained by the ASSIGNOR/PLEDGOR from the ASSIGNEE/PLEDGEE
cannot complain of the same, unless there is a cause for invalidating the contract. in the amount of FIFTEEN MILLION PESOS (15,000,000.00) Philippine Currency in accordance with the
Promissory Note attached hereto and made an integral part hereof as Annex A and/or such Promissory Note/s
which the ASSIGNOR/PLEDGOR shall hereafter execute in favor of the ASSIGNEE/PLEDGEE, the

1
of PDB. This means that PDB has the right to foreclose on the Wack Wack Membership, the security
corresponding to the first promissory note, with the deed of assignment that originated the dragnet clause.

DISPOSITIVE PORTION: WHEREFORE, the instant petition is PARTIALLY GRANTED. The assailed Decision of the
Court of Appeals in CA-G.R. CV No. 85930 dated July 31, 2006, as well as its Resolution dated January 4, 2007,
are REVERSED and SET ASIDE. The Decision of the Regional Trial Court of Makati City, Branch 132, in Civil Case
No. 00-1536, dated July 12, 2005, is REINSTATED with the MODIFICATION that the award of attorney's fees to
petitioner is DELETED. No pronouncement as to costs.


ASSIGNOR/ PLEDGOR hereby transfers, assigns, conveys, endorses, encumbers and delivers by way of with Serial No. 1793 duly issue by Wack Wack Golf and Country Club Incorporated on August 27, 1996 in the
first pledge unto the ASSIGNEE/PLEDGEE, its successors and assigns, that certain Membership fee name of the ASSIGNOR.
Certificate Share in Wack Wack Golf and Country Club Incorporated covered by Stock Certificate No. 217

2
Vivas v. Monetary Board (Vivas contends that the implementation of Resolution No. 276 was tainted with arbitrariness and
bad faith, stressing that ECBI was placed under receivership without due and prior hearing in
Facts: Rural Bank of Faire, Incorporated (“RBFI”) was a duly registered rural banking institution whose corporate violation of his and the bank’s right to due process.)
life expired on May 31, 2005. Notwithstanding, petitioner Alfeo D. Vivas (“Vivas”) and his principals acquired
the controlling interest in RBFI. At the initiative of Vivas and the new management team, certain measures B. W/N the power delegated in favor of the BSP to place rural banks under receiverships is
calculated to revitalize the bank were allegedly introduced. BSP extended the corporate life of RBFI for another unconstitutional for being a diminution or invasion of the powers of the Supreme Court, in violation
fifty (50) years and also approved the change of its corporate name to Euro Credit Community Bank, of Section 2, Article VIII of the Philippine Constitution.
Incorporated (“ECBI”).
Held/Ratio:
Sometime in 2008, the examiners from the Department of Loans and Credit of the BSP arrived at the ECBI and
cancelled the rediscounting line of the bank. Vivas appealed the said cancellation. Thereafter, the Monetary A. MB committed no grave abuse of discretion. It appears from all over the records that ECBI was
Board (“MB”) issued Resolution No. 1255, placing ECBI under Prompt Corrective Action framework because of given every opportunity to be heard and improve on its financial standing. There were also
the negative capital of P14.674 million and capital adequacy ratio of negative 18.42% and serious supervisory reminders that ECBI submit its financial audit reports for the years 2007 and 2008 with a warning
concerns particularly on activities deemed unsafe or unsound, among others. Vivas claimed that the BSP took that failure to submit them and a written explanation of such omission shall result in the imposition
the above courses of action due to the joint influence exerted by a certain hostile shareholder and a former of a monetary penalty.
BSP examiner.
Close now, hear later.
The BSP directed the bank’s Board of Directors (“Board”) to infuse fresh capital of P22.643 million. Later, BSP
directed ECBI to explain why it transferred the majority shares of RBFI without securing the prior approval of The MB may forbid a bank from doing business and place it under receivership without prior notice
the MB and why it did not obtain the prior approval of the BSP anent the establishment and operation of the and hearing. Section 30 of R.A. No. 7653 provides,
bank’s sub-offices.
Whenever, upon report of the head of the supervising or examining department,
Vivas believed that he was being treated unfairly because the letter of authority to examine allegedly contained the Monetary Board finds that a bank or quasi-bank:
a clause which pertained to the Anti-Money Laundering Law and the Bank Secrecy Act. The MB, on the other
hand, posited that ECBI unjustly refused to allow the BSP examiners from examining and inspecting its books (a)is unable to pay its liabilities as they become due in the ordinary course of
and records, in violation of Sections 25 and 34 of R.A. No. 7653. business: Provided, That this shall not include inability to pay caused by
extraordinary demands induced by financial panic in the banking community;
In view of ECBI’s refusal to comply with the required examination, the MB issued Resolution No. 726, imposing
a fine on ECBI, and referred the matter to the Office of the Special Investigation (“OSI”) for the filing of (b) has insufficient realizable assets, as determined by the BSP, to
appropriate legal action. meet its liabilities; or

Subsequently, the MB issued Resolution No. 823, approving the issuance of a cease and desist order against (c) cannot continue in business without involving probable losses to its depositors
ECBI, which enjoined it from pursuing certain acts and transactions that were considered unsafe or unsound or creditors; or
banking practices, and from doing such other acts or transactions constituting fraud or might result in the
dissipation of its assets. (d) has willfully violated a cease and desist order under Section 37 that has
become final, involving acts or transactions which amount to fraud or a
Further, MB issued Resolution No. 276 placing ECBI under receivership due to the following: (a) unable to pay dissipation of the assets of the institution; in which cases, the Monetary Board
its liabilities as they become due in the ordinary course of business; (b) has insufficient realizable assets to meet may summarily and without need for prior hearing forbid the institution from
liabilities; (c) cannot continue in business without involving probable losses to its depositors and creditors; and doing business in the Philippines and designate the Philippine Deposit Insurance
(d) has willfully violated a cease and desist order of the Monetary Board for acts or transactions which are Corporation as receiver of the banking institution.
considered unsafe and unsound banking practices and other acts or transactions constituting fraud or
dissipation of the assets of the institution, and considering the failure of the Board of Directors/management The Court, in several cases, upheld the power of the MB to take over banks without need for prior
of ECBI to restore the bank’s financial health and viability despite considerable time given to address the bank’s hearing. It is not necessary inasmuch as the law entrusts to the MB the appreciation and
financial problems, and that the bank had been accorded due process, the Board, in accordance with Section determination of whether any or all of the statutory grounds for the closure and receivership of
30 of Republic Act No. 7653 the erring bank are present. The MB, under R.A. No. 7653, has been invested with more power of
closure and placement of a bank under receivership for insolvency or illiquidity, or because the
Issues: bank’s continuance in business would probably result in the loss to depositors or creditors.
A. W/N the MB gravely abused its discretion when it issued Resolution No. 276.

3
In the case of BSP MB v. Hon. Antonio-Valenzuela, the Court reiterated the doctrine of "close now,
hear later," stating that it was justified as a measure for the protection of the public interest.

The "close now, hear later" doctrine has already been justified as a measure for the protection of
the public interest. Swift action is called for on the part of the BSP when it finds that a bank is in
dire straits.

The doctrine is founded on practical and legal considerations to obviate unwarranted dissipation
of the bank’s assets and as a valid exercise of police power to protect the depositors, creditors,
stockholders, and the general public.

Accordingly, the MB can immediately implement its resolution prohibiting a banking institution to
do business in the Philippines and, thereafter, appoint the PDIC as receiver. The procedure for the
involuntary closure of a bank is summary and expeditious in nature. Such action of the MB shall be
final and executory, but may be later subjected to a judicial scrutiny via a petition for certiorari to
be filed by the stockholders of record of the bank representing a majority of the capital stock.
Obviously, this procedure is designed to protect the interest of all concerned, that is, the
depositors, creditors and stockholders, the bank itself and the general public.

In light of the circumstances obtaining in this case, the application of the corrective measures
enunciated in Section 30 of R.A. No. 7653 was proper and justified.

B. The petitioner challenges the constitutionality of Section 30 of R.A. No. 7653, as the legislature
granted the MB a broad and unrestrained power to close and place a financially troubled bank
under receivership. He claims that the said provision was an undue delegation of legislative power.
The contention deserves scant consideration.

Nothing is more settled than the rule that the constitutionality of a statute cannot be collaterally
attacked as constitutionality issues must be pleaded directly and not collaterally. A collateral attack
on a presumably valid law is not permissible. Unless a law or rule is annulled in a direct proceeding,
the legal presumption of its validity stands.

There are two accepted tests to determine whether or not there is a valid delegation of legislative
power, viz, the completeness test and the sufficient standard test.

In this case, under the two tests, there was no undue delegation of legislative authority in the
issuance of R.A. No. 7653. To address the growing concerns in the banking industry, the legislature
has sufficiently empowered the MB to effectively monitor and supervise banks and financial
institutions and, if circumstances warrant, to forbid them to do business, to take over their
management or to place them under receivership. The legislature has clearly spelled out the
reasonable parameters of the power entrusted to the MB and assigned to it only the manner of
enforcing said power. In other words, the MB was given a wide discretion and latitude only as to
how the law should be implemented in order to attain its objective of protecting the interest of the
public, the banking industry and the economy.



4
Koruga vs Arcenas, Jr. insolvency, or that its continuance in business would involve a probable loss to its depositors or creditors, forbid
June 19, 2009, J. Nachura bank or non-bank financial institution to do business in the Philippines; and shall designate an official of the
BSP or other competent person as receiver to immediately take charge of its assets and liabilities.
Summary: Koruga filed a complaint before the Makati RTC against the Directors and Officers of Banco Filipino Therefore, the RTC should have dismissed the case since it is the BSP who has jurisdiction over it.
Savings and Mortgage Bank for violating the prohibition on self-dealing and conflicts of interest when they
granted loans to dummy corporations, to which these directors and officers have interests, and accepted a
dacion en pago, or payment of loans with property instead of cash. The SC ruled that RTC has no jurisdiction
over the case and the complaint should have been filed in the Bangko Sentral ng Pilipinas since it is vested with
supervision over operations and activities of banks.
Doctrine: It is the Government’s responsibility to see to it that the financial interests of those who deal with
banks and banking institutions, as depositors or otherwise, are protected. In this country, that task is delegated
to the BSP, which pursuant to its Charter, is authorized to administer the monetary, banking, and credit system
of the Philippines

oFACTS:
1) Ana Maria Koruga (Petitioner) is a minority stockholder of Banco Filipino Savings and Mortgage Bank. She
filed a complaint before the Makati RTC against Teodoro Arcenas, Jr., Albert Aguirre, Cesar Paguio, and
Francisco Rivera (Respondents), who are all Board of Directors of Banco Filipino.
2) Petitioner alleged that the Respondents violated Secs. 31 to 34 of the Corporation Code which prohibit self-
dealing and conflicts of interest for: a) engaging in unsafe, unsound, and fraudulent banking practices; b)
granting and approving loans to 6 dummy corporations which at the time of approval had no financial capacity
to justify the loans; c) accepting a dacion en pago, or payment of loans with property instead of cash, resulting
to a diminished future cumulative interest income by the Bank; d) favorable treatment to the borrower
corporations in which most of them have interlocking interests.
3) Respondents filed their answer seeking the dismissal of the case for lack of jurisdiction over the subject
matter.
ISSUE: WoN the RTC has jurisdiction over the subject matter of the complaint filed by Koruga.
HELD:
No. It is the BSP that has jurisdiction over the case.
The banking business is properly subject to reasonable regulation under the police power of the state because
of its nature and relation to the fiscal affairs of the people and the revenues of the state. It is the Government’s
responsibility to see to it that the financial interests of those who deal with banks and financial institutions, as
depositors or otherwise, are protected. In this country, that task is delegated to the BSP, which pursuant to its
Charter, is authorized to administer the monetary, banking, and credit system of the Philippines.
The law vests in the BSP the supervision over operations and activities of banks. The New Central Bank Act
provides: Sec. 25. Supervision and Examination – The Bangko Sentral shall have supervision over, and conduct
periodic or special examinations of, banking institutions and quasi-banks, including their subsidiaries and
affiliates engaged in allied activities.
The BSP’s supervisory and regulatory powers include: 1) issuance of rules of conduct or the establishment of
standard of operation for uniform application to all institutions or functions covered; 2) conduct of examination
to determine compliance with laws and regulations if the circumstances so warrant as determined by the
Monetary Board; 3) overseeing to ascertain that laws and regulations are complied with; 4) regular
investigation which shall not be oftener than once a year to determine whether an institution is conducting its
business on a safe or sound basis; 5) inquiring into the solvency and liquidity of the institution; or 6) enforcing
prompt corrective action.
Petitioner’s allegations are not ordinary intra-corporate matters, rather, they involve banking activities which
are, by law, regulated and supervised by the BSP. In Miranda vs PDIC, it is well-settled in both law and
jurisprudence that the Central Monetary Authority, through the Monetary Board, is vested with exclusive
authority to assess, evaluate and determine the condition of any bank, and finding such condition to be one of

5
The Honorable Monetary Board v Philippine Veterans Bank 5. Almost year later, it filed a Motion to Admit Motion for Reconsideration, stating that it did not
GR 189571 (Jan 21, 2015) receive a copy of the order until September 3, 2008, which the Monetary Board opposed, alleging
that per certification by the Philippine Postal Corporation, the order was served on respondent on
SUMMARY: PVB offered financial assistance through pension loans for its bonafide veterans and beneficiaries October 17, 2007.
pensioners. Given that these people don’t have any form of security other than the good health and 6. The RTC ruling on the motion for reconsideration, reversed itself and ruled that the collection of
employment, they established a program where they require the participants to pay a premium for a special the CRF by PVB did not constitute engaging in the issuance business as an insurer, hence not a
trust fund. So in case of death of these borrowers, the funds in the trust fund will be used to pay off the loan. violation of Section 54 of RA 8791. Accordingly, it declared MB Resolution No. 1189 null and void.
BSP, citing that PVB was engaging in insurance business moved to discontinue the said collection. MB issued a MB motion for reconsideration denied and so it filed before the Supreme Court a petition for
resolution asking PVB Trust Dept to return all the balances collected to the borrowers. PVB filed a petition for review on certiorari to contest the RTC decision, on the issue of whether or not the petition for
declaratory relief before RTC. RTC initially ruled that the issue raised can be resolved thru other ordinary action declaratory relief is proper.
(not petition for declaratory relief). A year later, however, an MR was filed by PVB and RTC reversed its earlier
decision and it gave due course to the petition. It declared the MB Resolution void. It ruled that PVB was NOT ISSUE: Was the petition for declaratory relief proper? NO.
doing insurance business in violation of Sec. 54, R.A. 8791, otherwise known as the "General Banking Law of
2000." MB appealed to SC questioning propriety of petition for declatory relief voiding MB resolution. SC ruled
in favor of MB saying that as a quasi-judicial agency, it is vested with power to issue such order and it cannot
be a proper subject of declaratory relief.

DOCTRINE: BSP Monetary Board is a quasi-judicial agency exercising quasi-judicial powers or functions. It is an
independent central monetary authority and a body corporate with fiscal and administrative autonomy,
mandated to provide policy directions in the areas of money, banking, and credit. It has the power to issue
subpoena, to sue for contempt those refusing to obey the subpoena without justifiable reason, to administer
oaths and compel presentation of books, records and others, needed in its examination, to impose fines and
other sanctions and to issue cease and desist order. Section 37 of Republic Act No. 7653, in particular, explicitly
provides that the BSP Monetary Board shall exercise its discretion in determining whether administrative
sanctions should be imposed on banks and quasi-bank xxx.

FACTS:

1. The Philippine Veterans Bank, pursuant to its mandate to provide financial assistance to veterans
and teachers under Republic Acts 3518 and 7169, established pension loans for bona fide veterans
and beneficiaries, as well as salary loan products for teachers. As these clientele do not have
security other than their continuing good health or employment, to secure their loans, the PVB
devised a program by charging a premium, a higher fee known as Credit Redemption Fund (CRF)
from the borrowers. Special Trust Funds were established by PVB for the loans of its clientele and
in case of death of the borrower, the fees charged from him and credited to the trust funds will be
used to fully pay the loan.
2. Bangko Sentral ng Pilipinas found that PVB’s collection of the CRF violated Section 54 of Republic
Act No. 8791 which prohibited banks from directly engaging in insurance business as insurer. Thus,
it wrote the PVB to inform it that CRF is a form of insurance, based on opinion by the Insurance
Commission and should be discontinued. PVB then stopped collecting the fees.
3. The Monetary Board issued MB Resolution No. 1139 directing the PVB’s Trust and Investment
Department to return to the borrowers all the balances of the CRF; and to preserve the records of
borrowers who were deducted CRF pending resolution of ruling of the Office of the General
Counsel of the BSP. The BSP denied PVB’s request for reconsideration, hence it filed a petition for
declamatory relief before the RTC of Makati City.
4. The Monetary Board moved to dismiss the petition, citing that the petition should not prosper
because of the prior breach of PVB by Section 54 of RA 8791. The RTC dismissed the petition for
declaratory relief, ruling that the issue of whether or not PVB violated Section 54 of Republic Act
8791 should be resolved in an ordinary civil action, not a declaratory relief.

6
HELD:
• Declaratory relief is an action by any person interested in a deed, will, contract or other written
instrument, executive order or resolution, to determine any question of construction or validity
arising from the instrument, executive order or regulation, or statute; and for a declaration of his
rights and duties thereunder. The only issue that may be raised in such a petition is the question of
construction or validity of provisions in an instrument or statute
• In CJH Development Corporation v. Bureau of Internal Revenue, the SC that in the same manner
that court decisions cannot be the proper subjects of a petition for declaratory relief, decisions of
quasi-judicial agencies cannot be subjects of a petition for declaratory relief for the simple reason
that if a party is not agreeable to a decision either on questions of law or of fact, it may avail of the
various remedies provided by the Rules of Court.
• In this case, the decision of the BSP Monetary Board cannot be a proper subject matter for a
petition for declaratory relief. The BSP Monetary Board is a quasi-judicial agency and the MB
resolution it issued was in its exercise of quasi-judicial powers or functions.
o The authority of the petitioners to issue the questioned MB Resolution emanated from
its powers under Section 37 of RA No. 7653 and Section 66 of RA No. 8791 to impose,
at its discretion, administrative sanctions, upon any bank for violation of any banking
law.
o The nature of the BSP Monetary Board as a quasi-judicial agency, and the character of
its determination of whether or not appropriate sanctions may be imposed upon erring
banks, as an exercise of quasi-judicial function

• A quasi-judicial agency or body is an organ of government other than a court and other than a
legislature, which affects the rights of private parties through either adjudication or rule making.
The very definition of an administrative agency includes its being vested with quasi-judicial powers.
o It recognizes the need for the active intervention of administrative agencies in matters
calling for technical knowledge and speed in countless controversies, which cannot
possibly be handled by regular courts.

• A “quasi-judicial function” is a term which applies to the action, discretion, etc. of public
administrative officers or bodies, who are required to investigate facts, or ascertain the existence
of facts, hold hearings, and draw conclusions from them, as a basis for their official action and to
exercise discretion of a judicial nature.

• Lastly, also worth noting is the fact that the court a quo’s Order dated September 24, 2007, which
dismissed respondent’s petition for declaratory relief, had long become final and executory.
o To recall, said Order was duly served on and received by respondent on October 17,
2007, as evidenced by the Certification issued by the Philippine Postal Corporation.
Almost a year later, however, or on October 15, 2008, respondent moved for
reconsideration of the court a quo’s Order of dismissal, claiming it received a copy of
said Order only on September 3, 2008.
o Thus, respondent’s self-serving claim should not have prevailed over the Certification
issued by the Philippine Postal Corporation. It was error for the trial court to entertain
it for the second time despite the lapse of almost a year before respondent filed its
motion for reconsideration against said Order.

7
Bank of Commerce vs Planters Development Bank No. 769-80, the BSP shall merely "issue and circularize a ‘stop order’ against the transfer, exchange,
Topic: Authority as a Quasi-judicial Agency redemption of the [registered] certificate" without any adjudicative function.

Doctrine: To be able to perform its role as central monetary authority, the Constitution granted the BSP fiscal The BSP Monetary Board is a quasi-judicial agency exercising quasi-judicial powers or functions. It
and administrative autonomy. In general, administrative agencies exercise powers and/or functions which may has fiscal and administrative autonomy, mandated to provide policy directions in the areas of
be characterized as administrative, investigatory, regulatory, quasi-legislative, or quasi-judicial, or a mix of money, banking and credit. It has power to issue subpoena, to sue for contempt those refusing to
these five, as may be conferred by the Constitution or by statute. While the very nature of an administrative obey the subpoena without justifiable reason, to administer oaths and compel presentation of
agency dictate a grant of quasi-judicial power to it, there must be an enabling law, either by express provision books, records and others, needed in its examination, to impose fines and other sanctions and to
or by necessary implication. Once found, the quasi-judicial power partakes of the nature of a limited and special issue cease and desist order. Section 37 of Republic Act No. 7653, in particular, explicitly provides
jurisdiction, that is, to hear and determine a class of cases within its peculiar competence and expertise. that the BSP Monetary Board shall exercise its discretion in determining whether administrative
sanctions should be imposed on banks and quasi-banks, which necessarily implies that the BSP
FACTS: Monetary Board must conduct some form of investigation or hearing regarding the same.

• The Rizal Commercial Banking Corporation (RCBC) was the registered owner of seven Central Bank The BSP is not simply a corporate entity but qualifies as an administrative agency created, pursuant
(CB) bills with a total face value of ₱ 70 million. RCBC sold these CB bills to the Bank of Commerce to constitutional mandate to carry out a particular governmental function. To be able to perform
(BOC) who in turn sold it to the Planter's Development Bank. The BOC delivered the Detached its role as central monetary authority, the Constitution granted it fiscal and administrative
Assignments to the PDB. autonomy. In general, administrative agencies exercise powers and/or functions which may be
• PDB, in turn, sold to the BOC Treasury Bills (TBills) worth ₱ 70 million. Instead of delivering the T characterized as administrative, investigatory, regulatory, quasi-legislative, or quasi-judicial, or a
Bills, the PDB delivered the seven CB bills to the BOC as evidenced by a PDB Security Delivery mix of these five, as may be conferred by the Constitution or by statute. While the very nature of
Receipt, bearing a "note: ** substitution in lieu of 06-29-94" – referring to the Treasury Bills. PDB an administrative agency dictate a grant of quasi-judicial power to it, there must be an enabling
retained possession of the Detached Assignments. law, either by express provision or by necessary implication. Once found, the quasi-judicial power
• Several other transactions where done which ultimately led to BOC reacquiring all 7 of the CB partakes of the nature of a limited and special jurisdiction, that is, to hear and determine a class of
• Upon learning of the transfers involving the CB bills, the PDB informed BSP of its claim over the CB cases within its peculiar competence and expertise.
bills basing it on the fact that PDB still had in its possession the Detached Assignments. The PDB
requested the BSP to record its claim in the BSP’s books, explaining that its non-possession of the The BSP exercises supervisory powers (and regulatory powers) over banks (and quasi banks). The
CB bills is "on account of imperfect negotiations issue presented before the Court, however, does not concern the BSP’s supervisory power over
• BSP denied the request, invoking Section 8 of CB Circular No. 28 which requires the presentation banks as this power is understood under the General Banking Law. In fact, there is nothing in the
of the bond before a registered bond may be transferred on the books of the BSP. PDB’s petition that would support the BSP’s jurisdiction outside of CB Circular No. 28, under its
• PDB clarified that it was not "asking for the transfer of the CB Bills but merely to put the BSP on power of supervision, over conflicting claims to the proceeds of the CB bills.
formal notice that whoever is in possession of said bills is not a holder in due course," so that the
BSP shuld not make payments upon the presentation of the CB Bills on maturity. While the BSP has quasi-judicial powers over a class of cases, it does not include the adjudication
• PDB again made a request but this was again denied by the BSP of ownership of the CB bills in question. When competing claims of ownership over the proceeds
• the PDB filed with the RTC two separate petitions for Mandamus, Prohibition and Injunction with of the securities it has issued are brought before it, the law has not given the BSP the quasi-judicial
prayer for Preliminary Injunction and TRO, with regards the CB Bills saying that PDB had no power to resolve these competing claims as part of its power to engage in open market operations.
intention of transferring the CB bills but merely warehoused the said CB Bills as security collateral Nothing in the BSP’s charter confers on the BSP the jurisdiction or authority to determine this kind
• RTC dismissed PDB’s petition holding that under CB Circular No. 28, it has no jurisdiction (i) over of claims, arising out of a subsequent transfer or assignment of evidence of indebtedness – a matter
the BOC’s that appropriately falls within the competence of courts of general jurisdiction.
"counterclaims" and (ii) to resolve the issue of ownership of the CB bills.
Petition granted. PDB required to file with RTC its comment or answer-in-interpleader to Bank of
ISSUE: WON BSP has jurisdiction over the case. NO, JURISDICTION LIES WITH THE RTC Commerce’s Amended Consolidated Answer with Compulsory Counterclaim, as previously ordered
by the RTC.
What is contested is the applicable circular in case of fraudulent assignment of CB Bill which in turn
determines the proper remedy. At the time the PDB invoked the jurisdiction of the BSP in 1994, CB
Circular No. 769-80 has long been in effect.

Under CB Circular No. 28, in case of fraudulent assignments, the BSP would have to "call upon the
owner and the person presenting the bond to substantiate their respective claims" and, from there,
determine who has a better right over the registered bond. On the other hand, under CB Circular

8
First Planters Pawnshop, Inc. v. Commissioner of Internal Revenue o Third, Section 116 of the NIRC of 1977 subjects to percentage tax dealers in securities
July 30, 2008 | Austria-Martinez, J. and lending investors only; and
o Lastly, the BIR had ruled several times prior to the issuance of RMO No. 15-91 and RMC
SUMMARY: First Planters contests the deficiency value-added and documentary stamp taxes imposed upon it 43-91 that pawnshops were not subject to the 5% percentage tax on lending investors
by the Bureau of Internal Revenue (BIR) for the year 2000. The core of petitioner's argument is that it is not a imposed by Section 116 of the NIRC of 1977, as amended by Executive Order No. 273.
lending investor within the purview of Section 108(A) of the National Internal Revenue Code (NIRC), as • RA 9238: When R.A. No. 92384 took effect on February 16, 2004, the Department of Finance
amended, and therefore not subject to value-added tax (VAT). SC (1) traced how pawnshops became to be issued RR No. 10-2004 dated October 18, 2004, classifying pawnshops as Other Non-bank Financial
considered as non-bank financial intermediaries; (2) compared banks with non-bank financial intermediaries; Intermediaries. The BIR then issued RMC No. 73-2004 on November 25, 2004, prescribing the
(3) argued further how pawnshops are considered as non-bank financial intermediaries (this part contains the guidelines and policies on the assessment and collection of 10% VAT for gross annual sales/receipts
relevant portions for our topic), and finally; (4) determined the laws that apply to pawnshops for tax purposes. exceeding P550,000.00 or 3% percentage tax for gross annual sales/receipts not
exceeding P550,000.00 of pawnshops prior to January 1, 2005.
DOCTRINE: That pawnshops are to be treated as non-bank financial intermediaries is further bolstered by the 2. Banks vs Non-bank financial intermediaries
fact that pawnshops are under the regulatory supervision of the Bangko Sentral ng Pilipinas and covered by its • Nature of Banks: R.A. No. 8791 or the General Banking Law of 2000, meanwhile, provided
Manual of Regulations for Non-Bank Financial Institutions. that banks shall refer to entities engaged in the lending of funds obtained in the form of deposits.
• Nature of financial intermediaries: Financial intermediaries, on the other hand, are defined as
NOTE: SC ruled that planters is liable for DST. Discussion on DST is not relevant hence no longer included in this persons or entities whose principal functions include the lending, investing or placement of funds
digest. or evidences of indebtedness or equity deposited with them, acquired by them, or otherwise
coursed through them, either for their own account or for the account of others. (General Banking
FACTS Act, Section 2-D(c); Manual of Regulations for Non-Bank Financial Institutions, 4101Q.1)
1. First Planters received a Formal Assessment Notice from BIR on December 29, 2003, directing • Definition of pawnshop: A pawnshop's business and operations are governed by Presidential
payment of VAT and DST deficiency for the year 2000, in the amount of P541,102.79 and Decree (P.D.) No. 114 or the Pawnshop Regulation Act and Central Bank Circular No. 374 (Rules
P24,747.13, respectively. and Regulations for Pawnshops). Section 3 of P.D. No. 114 defines pawnshop as a person or entity
2. First Planters filed a protest, which was denied by BIR Regional Director. CTA 2nd Division and CTA engaged in the business of lending money on personal property delivered as security for loans and
en banc both upheld the deficiency assessment. shall be synonymous, and may be used interchangeably, with pawnbroker or pawn brokerage.
3. Hence, First Planters filed a petition for review with SC to question its liability for VAT and DST for
the year 2000. 3. More arguments why pawnshops are considered non-bank financial intermediaries
• (MOST RELEVANT PART!!!) That pawnshops are to be treated as non-bank financial intermediaries
ISSUE/RATIO: WON First Planters is liable for VAT - NO. is further bolstered by the fact that pawnshops are under the regulatory supervision of the
Bangko Sentral ng Pilipinas and covered by its Manual of Regulations for Non-Bank Financial
1. How pawnshops became to be considered as non-bank financial intermediaries Institutions.
• Prior to EVAT Law: In Revenue Memorandum Order No. 15-91 issued on March 11, 1991, a o The Manual includes pawnshops in the list of non-bank financial intermediaries, viz.:
pawnshop business was considered as akin to lending investor’s business activity and subject to 5% 4101Q.1 Financial Intermediaries
percentage tax beginning January 1, 1991, under Section 116 of the Tax Code of 1977, as amended x x x
by E.O. No. 273. Non-bank financial intermediaries shall include the following:
• EVAT Law: With the passage of Republic Act (R.A.) No. 7716 or the EVAT Law in 1994, the BIR (1) A person or entity licensed and/or registered with any government
maintained that pawnshops are subject to 10% VAT (as implemented by RR No. 7-95 and RMC No. regulatory body as a non-bank financial intermediary, such as investment
45-01). house, investment company, financing company, securities dealer/broker,
• The Lhuiller Case: On July 15, 2003, the Court rendered Commissioner of Internal Revenue v. Michel lending investor, pawnshop, money broker x x x. (Emphasis supplied)
J. Lhuillier Pawnshop, Inc. in which it was categorically ruled that while pawnshops are engaged in o Revenue Regulations No. 10-2004, in fact, recognized these bases, to wit
the business of lending money, they are not considered lending investors for the purpose of SEC. 2. BASES OF QUALIFYING PAWNSHOPS AS NON-BANK FINANCIAL
imposing percentage taxes. The Court gave the following reasons: INTERMEDIARIES. - Whereas, in relation to Sec. 2.3 of Rev. Regs No. 9-
o First, under the 1997 Tax Code, pawnshops and lending investors were subjected to 2004 defining Non-bank Financial Intermediaries, the term pawnshop as
different tax treatments; defined under Presidential Decree No. 114 which authorized its
o Second, Congress never intended pawnshops to be treated in the same way as lending creation, to be a person or entity engaged in the business of lending
investors;

4
An Act Amending Certain Sections of the National Internal Revenue Code of 1997, as amended, by Tax on Banks and Non-bank Financial Intermediaries Performing Quasi-banking Functions and Other Non-
Excluding Several Services from the Coverage of the Value-added Tax and Re-imposing the Gross Receipts bank Financial Intermediaries

9
money, all fall within the classification of Non-bank Financial
Intermediaries and therefore, covered by Sec. 4 of R.A. No. 9238.
This classification is equally supported by Subsection 4101Q.1 of the BSP
Manual of Regulations for Non-Bank Financial Intermediaries and
reiterated in BSP Circular No. 204-99, classifying pawnshops as one of
Non-bank Financial Intermediaries within the supervision of
the Bangko Sentral ng Pilipinas.
• Ultimately, R.A. No. 9238 categorically confirmed the classification of pawnshops as non-bank
financial intermediaries.

4. Tax laws applicable to pawnshops (irrelevant)
• With the imposition of the VAT under the EVAT Law, pawnshops should have been subjected to
the 10% VAT imposed on banks and non-bank financial intermediaries and financial institutions
under Section 102 of the Tax Code of 1977 (now Section 108 of the Tax Code of 1997).
• However, the levy, collection and assessment of the 10% VAT on services rendered by banks, non-
bank financial intermediaries, finance companies, and other financial intermediaries not
performing quasi-banking functions were deferred till Dec. 31, 2002 by RAs 8424 and 8761.
• Hence, at the time of the disputed assessment, that is, for the year 2000, pawnshops were not
subject to 10% VAT under the general provision on sale or exchange of services as defined under
Section 108(A) of the Tax Code of 1997.

Held: FIRST PLANTERS IS NOT LIABLE FOR DEFICIENCY VAT FOR THE YEAR 2000.

10
GEORGE W. BATCHELDER vs. THE CENTRAL BANK OF THE PHILIPPINES following objectives: (a) to maintain monetary stability in the Philippines; (b) to preserve the international
G.R. No. L-25071 | March 29, 1972 value of the peso and the convertibility of the peso into other freely convertible currencies; and (c) to
promote a rising level of production, employment and real income in the Philippines."
FACTS: • It would be then to set at naught fundamental concepts in administrative law that accord due
• Monetary Board Resolution No. 857 requires Filipino and American resident contractors for constructions recognition to the vesting of quasi-legislative and quasi-judicial power in administrative law for the
in U.S. military bases in the Philippines to surrender to the Central Bank their dollar earnings under their purpose of attaining statutory objectives, especially now that government is saddled with greater
respective contracts but were entitled to utilize 90% of their surrendered dollars for importation at the responsibilities due to the complex situation of the modern era, if the lower court is to be upheld.
preferred rate of commodities for use within oroutside said U.S. military bases. • Nor is this to deal unjustly with plaintiff. Defendant Central Bank in its motion to dismiss before the lower
• Resolution 695 moreover, denies their right to reacquire at the preferred rate ninety per cent (90%) of court was quite explicit as to why under the circumstances, no right could be recognized as possessed by
the foreign exchange the sold or surrendered earnings to Central Bank for the purpose of determining him.
whether the imports against proceeds of contracts entered into prior to April 25, 1960 are classified as • It is clear from the aforecited provisions of said memorandum that not all imports againt proceeds of
dollar-to-dollar transactions or not. contracts entered into prior to April 25, 1960 are entitled to the preferred buying rate of exchange. Only
• George Batchelder, an American Citizen permanently residing in the Philippines who is engaged in the imports against proceeds of contracts entered into prior to April 25, 1960, not otherwise classified as
construction business under the name and style of Batchelder Equipment, surrendered to the Central dollar-to-dollar transactions, are entitled to the preferred rate of exchange.
Bank his dollar earnings amounting to $199,966.00. • This is the reason why the contractor is required to first file an application with defendant Central
• Compelled Central Bank of the Philippines to resell to him $170,210.60 at the preferred rate of Bank (Import Department) thru the Authorized Agent Banks, for the purpose of determining
exchange of around two Philippine pesos for one American dollar. whether the imports against proceeds of contracts entered into prior to April 25, 1960 are classified
• Lower Court: In short, it is apparent that by the issuance of its various resolutions and circulars as dollar-to-dollar transactions
aforementioned the defendant had considered the plaintiff and other contractors similarly situated with • If said imports are entitled to the preferred rate of exchange, defendant Central Bank would issue
contracts with the U.S. military authorities predating April 25, 1960, as exempted from decontrol, a license to the contractor for authority to buy foreign exchange at the preferred rate for the
pursuant to defendant's Monetary Board Resolutions Nos. 857 and 695. Hence, they are entitled to the payment of said imports
utilization of the 90% of the U.S. dollars surrendered by them to the defendant at the preferred rate of • Had there been greater care therefore on the part of the plaintiff to show why in his opinion he could
exchange. assert a right in accordance not with a contract binding on the Central Bank, because there is none, but
• Ordered defendant Central Bank to resell to plaintiff at the preferred rate. by virtue of compliance with rules and regulations of an administrative tribunal, then perhaps a different
• Central Bank appeals, claiming that the decision failed to consider that if there was no contract obligating outcome would have been justified.
the bank to resell to Batchelder.
• Its refusal to honor plaintiff's claim is impressed with validity in accordance with the governing RATIO:
provision of the existing rules and regulations governing the sale of foreign exchange. WHEREFORE, the decision of the lower court of January 10, 1963 is reversed and the complaint of the plaintiff
DISMISSED.
ISSUE:
1. WON Central Bank has the obligation arising from law to resell to Batchelder at the preferred rate?
YES.

RATIO:
• Central Bank was intended to attain basic objectives in the field of currency and finance.
• Civil Code expressly provides that a contract is a meeting of minds between two persons whereby one
binds himself with respect to the other to give something or render some service.
• The consent of the parties, that is to say, the accord of wills, is the essential element of every
contract.
• No question that the Central Bank as a public corporation could enter into contracts. It is so provided for
among the corporate powers vested in it. No doubt would have arisen therefore if defendant Central
Bank, utilizing a power expressly granted, did enter into a contract with plaintiff. It could have done so,
but it did not do so. How could it possibly be maintained then that merely through the exercise of its
regulatory power to implement statutory provisions, a contract as known to the law was thereby created?
• For some reason, that is what the lower court erroneously held (SC calling out lower court)
• RA 265 establishing the CBP states:
“It shall be the responsibility of the Central Bank of the Philippines to administer the monetary and banking system of the Republic.
It shall be the duty of the Central Bank to use the powers granted to it under this Act to achieve the

11
because this high costs is comparatively cheaper than CB’s interests on overdrawings at the
rate of 12% per annum and a penalty of 36% per annum on reserve deficiencies.
Emerito Ramos v. Central Bank of the Philippines G.R. No. L-29352 • Oliva’s letter prompted further investigation of OBM’s records which revealed allegedly unrecorded
4 October 1971 J.B.L. Reyes, J. deposits and transactions (which is disputed by Petitioners) amounting to P 48,007,211 as of 13
TOPIC IN SYLLABUS: BSP Resolutions and Promissory Estoppel September 1967 (reduced to P 35,000,000 when petition was filed); diversion of deposits to accounts
controlled by certain OBM officials (so-called COFICO and EMRACO accounts); and loans to the Ramos
SUMMARY: OBM was suspended by CB from clearing and from lending operation due to overdrawings and reserve deficiencies. Upon advice by CB, the bank executed a Voting Trust
family and firms controlled by them.
Agreement with the Superintendent of Banks as trustee so that CB could rehabilitate OBM. The stockholders also executed mortgages on their properties in favor of CB as security.
o Petitioners contend that these transactions were recorded in subsidiary ledger accounts that
Instead of lending the required money to rehabilitate the bank, CB said that it could only lend a limited amount. Because of this, the bank became more distressed. Eventually, CB
were linked to the general ledger accounts of the Bank under the so-called BM-RACO and
ordered the liquidation of OBM; hence, the instant Petition before the SC. The SC ruled in favor of OBM and held that CB reneged on its undertaking to rehabilitate the bank.
COFICO accounts, and finally incorporated in OBM’s regular books in September 1967 upon
instructions of Oliva.
o As to the loans to the Ramos family and firms, the same had been written off when around
31 July 1967 the Ramoses conveyed to the OBM properties worth P 54,096,000.
• On 27 October 1967, the Superintendent reported that the condition of OBM was one of insolvency,
calling for the application of Sec. 29 of the Central Bank Act and the liquidation of the bank.
FACTS: o However, with the listing of Ramos properties worth P 100,000,000, the possibility to
• The Overseas Bank of Manila, which opened on 6 January 1964, is a commercial banking corporation duly recapitalize OBM in the same amount emerged.
organized and existing under Philippine law. The Petitioners are the majority and controlling stockholders • The Superintendent also suggested the following alternatives: 1) that OBM be required to acquire the
thereof. properties in payment for frozen or bad loans or for unaccountable funds, and then mortgage the
• OBM was suspended by the Central Bank (CB) from clearing with the latter and from lending operations properties to CB for emergency advances; or 2) that the owners be required to mortgage the properties
for various violations of banking laws and implementing regulations. directly to CB and for the latter to extend loans to OBM depending on the needs.
• Petitioners averred that OBM became financially distressed because of the said suspension and the • After further meetings, Governor Castillo wrote to Ramos on 30 October 1967:
deprivation by the CB of all the usual credit facilities and accommodations accorded to the other banks. o Overdrawing in OBM’s deposit account with CB stood at P 22,300,000; balance of past
They also alleged that CB’s exaction of onerous fines and penalties aggravated its situation. emergency loan with CB stood at P 10,300,000
o For its deficiencies, OBM was made subject to penalties of 12% interest on overdrawings and o As a measure to stave off liquidation, a VTA should be executed by Ramos and his family and
36% per annum on reserve deficiencies, which amounted to Millions by 1968. the corporations he controls in favor of the Superintendent of Banks in an instrument similar
• In April 1967, OBM’s financial situation caused mounting concern in the CB so Ramos, the principal to the one executed by the stockholders of Republic Bank in favor of PNB
stockholder, and the OBM management met with CB on the necessity and urgency of rehabilitating the o On 23 October 1967, CB legal counsel sent a draft of such VTA but Ramos sent on 25 October
bank through extension of financial assistance. 1967 his own draft of a trust agreement which is not the agreement desired by the MB
• On 2 May 1967, CB Governor Castillo wrote to the Monetary Board (MB): • On 8 November 1967, Governor Castillo sent another letter:
o OBM is in imminent danger of being thrown out of clearing o As a result of a meeting on the same day, Governor Castillo requested that the VTA be signed
o There is an immediate necessity of putting up additional capital of at least P 3,000,000 o Governor Castillo also requested the execution of the mortgages Ramos offered as security
o If OBM is thrown out of clearing, CB will proceed in accordance with the existing policy under and that the shares of stock belonging to Ramos and his family be endorsed in favor of the
which the stockholders representing a majority will have to sign a trusteeship agreement CB and delivered ASAP
with PNB, pursuant to which OBM will be managed by PNB • On 20 November 1967, the Petitioners executed the VTA with them as the cestuis que trust and the
• Because of the OBM stockholders’ reluctance to execute the Voting Trust Agreement (VTA), the MB Superintendent as Trustee, pursuant to MB Resolution No. 2017
adopted Resolution No. 2015 (16 October 1967) requiring: o The VTA was for the “rehabilitation, normalization and stabilization” of OBM
o Ramos to submit a list of his properties and to mortgage or assign the same to the CB to cover o Term was for 3 years from 20 November 1967. It can be automatically extended for such
the overdraft balance of OBM period determined by the MB if at the expiration of the 3-year period the purposes for the
o The stockholders to subscribe an appropriate VTA so that CB may be able to effect a complete VTA have not been fully achieved.
reorganization and/or transfer the management to an MB nominee o “The trustee is given all and full authority, subject to the limitations set forth in the law and
• On 25 September 1967, Martin Oliva, who had become president of OBM on 13 March 1967, wrote to other conditions in the contract to: (1) direct the management of the affairs and accounts
the Superintendent that transactions worth around P 48,000,000, of which over P 43,000,000 were time and properties of the OBM; (2) vote its directors and choose the officers and employees; (3)
deposits, at usurious rates of interest, had not been incorporated in OBM’s books nor reported to the improve, modify, reorganize its operation policies, standards, systems, methods, structure,
Board of Directors. organization, personnel, staffing pattern, etc.; (4) hold and vote on the shares of stocks
o It was explained2 that the OBM management had resorted to these unrecorded transactions transferred to him as trustee; (5) safeguard the interests of depositors, creditors and
because the suspension of its lending activities after 14 months of operation reduced OBM stockholders; and (6) in general, to exercise all such powers and discharge all such functions
to virtual inactivity, and it had to agree to pay high premiums or interests on such deposits as inherently pertain to the cestui que trust as owers, and/or for the sound management of
a banking institution”

12
• The Petitioners also conveyed by way of mortgage to CB all their private properties and holdings as to support the Philippine National Bank in order to allay the fears of depositors and creditors.” (Italics
security. supplied by the SC)
o Petitioners claim that they are worth over P 141,000,000 but CB appraised them at around P • CB Resolution No. 2015, in addition to requiring a mortgage or assignment of Petitioners’ personal
67,000,000 properties to CB, confirmed the 2 May 1967 Memorandum by requiring the stockholders of OEM to
• On 5 December 1967, new directors and officers drafted from the CB itself, the PNB and DBP were elected subscribe to an appropriate VTA, with the only difference that the trust would be executed in favor of
and installed and they took over the management and control of OBM. the CB “to enable it to reorganize and transfer management to a nominee of the [MB].”
• On 6 January 1968, OBM management requested for a P 30,000,000 loan to enable OBM to get back on • The 30 October 1967 letter of the CB Governor to Ramos stated that the MB “decided that, as a measure
its feet. to stave off liquidation, a voting trust agreement should be executed by you and your family and the
• On 14 June 1968, the CB announced that only P 10,000,000 was available as emergency loan to OBM and corporations controlled by you in favor of the Superintendent of Banks, in an instrument similar to the
requested the management of the bank to project how it could help bail out the latter. one executed by stockholders of the Republic Bank in favor of the Philippine National Bank.” (Italics
o OBM president Orosa submitted a “Projected Cash Flow Statement” concluding that “[t]o be supplied by the SC)
able to breakdown in operations, therefore, TOBM needs loanable funds estimated at P196 • Accordingly, the VTA was finally executed, “and which was admittedly prepared by the [CB legal
million, placing the cost of such funds at 1½.” counsel],” contained as an objective that: “the above named stockholders of the Overseas Bank of Manila
• On 23 July 1968, the Superintendent recommended to the MB that OBM be liquidated under Sec. 29 of believe that it is for and/or interest and benefit of the bank depositors, creditors, and stockholders, that
RA 265, if its “capital structure cannot be strengthened to meet the requirements of RA 337,” and if this trust agreement should be entered into by them for the rehabilitation, normalization and
“massive financing cannot be given to enable the bank to expand its risk assets.” stabilization of the Overseas Bank of Manila,” and that the Superintendent as “Trustee has likewise
o “The bank’s continuance in business under its present extremely precarious financial signified his willingness to accept such trust in pursuance of the objectives above mentioned”.
condition, without the necessary capital injection and financial aid, will involve not merely • While the trust agreement on its face creates obligations only for the Superintendent as trustee, his
probable, but certain further losses to its depositors and other creditors and may have further commitments were undeniably those of the CB itself, since it was the latter that had from the very
adverse effects on the banking system.” beginning insisted upon such VTA be executed.
• On 30 July 1968, MB issued Resolution No. 1263 excluding OBM from clearing with the CB. o “For the Superintendent of Banks was an officer of the CB, the chief of its Department of
• On 1 August 1968, MB adopted Resolution No. 1290 granting authority to the OBM Board of Directors to Supervision and Examination of all banking institutions operating in the country, subject to
suspend operations thereof. the instructions of the Monetary Board at all times, pursuant to Section 25 of the CB charter,
• Petitioners then initiated the instant Petition for Certiorari, Prohibition, and Mandamus with Prayer for Republic Act No. 265; and it is not credible that he should have understood that he was
the Issuance of a Writ of Preliminary Injunction to restrain CB from enforcing Resolution Nos. 1263 and entering into the trust agreement in his personal capacity.”
1290. • “Bearing in mind that the communications, as well as the voting trust agreement, had been prepared by
• On 13 August 1968, the MB adopted Resolution No. 1333 ordering the Superintendent to proceed with the CB, and the well-known rule that ambiguities therein are to be construed against the party that
the liquidation of OBM under Sec. 29 of the Central Bank Act. caused them, the record becomes clear that, in consideration of the execution of the voting trust
o This was later restrained by the SC on 14 August 1968 upon Motion of Petitioners. agreement by the petitioner stockholders of OBM, and of the mortgage or assignment of their personal
properties to the CB (Res. No. 2015), the CB had agreed to announce its readiness to support the new
RELEVANT ISSUE: Whether or not CB had agreed to rehabilitate, normalize, and stabilize OBM (YES) management ‘in order to allay the fears of depositors and creditors,’ and to ‘stave off liquidation’ by
• Petitioners’ arguments: providing adequate funds for ‘the rehabilitation, normalization and stabilization’ of the OBM, in a manner
o The said Resolutions are prejudicial to the national interest and against public policy, as they would similar to what title CB had previously done with the Republic Bank. While no express terms in the
erode confidence in the banking system and undermine the integrity and stability thereof, contrary documents refer to the provision of funds by CB for the purpose, the same is necessarily implied, for in
to the purpose and spirit of the Central Bank Act. no other way could it rehabilitate, normalize and stabilize a distressed bank.”
o The said Resolutions have caused and will cause further irreparable losses, damages and injuries to • Even in the absence of a contract, the records plainly show that CB made express representations to
the depositors, creditors and stockholders of the OBM. Petitioners that it would support OBM and avoid liquidation.
• Respondent’s arguments: o Since Petitioners complied with CB’s conditions, the latter may not now renege on its
o CB is not a party to the VTA and, therefore, cannot be compelled to implement it. The VTA is only representations and liquidate the OBM, to the detriment of its stockholders, depositors and
binding upon the trustee. other creditors, under the rule of promissory estoppel.
o It would be illegal and contrary to public interest to construe the VTA as imposing upon CB the duty • The SC agrees with Petitioners that the conduct of CB reveals a calculated attempt to evade rehabilitating
to rescue OBM at all costs. OBM despite its promises.
• A review of the letters from CB to the Petitioners, considered together with the terms of the VTA, leaves o The deception practiced by the Central Bank, not only on petitioners but on its own
no doubt that CB did agree and commit itself to the continued operations of OBM. management team, was in violation of NCC 1159 and 1315.
• As early as 2 May 1967, CB, through the MB, caused Governor Castillo to advise Petitioners that: “he and § NCC 1159: “Obligations arising from contracts have the force of law between the
other stockholders representing a majority will have to sign a trusteeship agreement with the Philippine contracting parties and should be complied with in good faith.”
National Bank pursuant to which the Overseas Bank will be managed by the Philippine National Bank. If § NCC 1315: “Contracts are perfected by mere consent, and from that moment the
the PNB takes over management in such eventuality, the Central Bank could also announce that it is ready parties are bound not only to the fulfillment of what has been expressly

13
stipulated but also to all the consequences which, according to their nature, may
be in keeping with good faith, usage and law.” 2. The Resolutions were issued in grave abuse of discretion
o Abelarde v. Lopez: “Cleverness should never take place of the loyal, upright and • As to CB’s argument that courts cannot interfere with its discretion in determining whether to support
straightforward observance of plighted undertakings.” or liquidate a distressed bank, the SC found no case cited by the former wherein the CB engaged to
• As to CB’s argument that it is impossible to rehabilitate OBM anymore, the SC held that the reports of support the distressed bank in exchange for control of its management and additional mortgages in its
Orsoa requiring P 136,000,000 were made after 6 months of inaction on the part of the CB, without favor. Therefore, the authorities cited are not in point.
positive action on its part to comply with its previous commitments. • Discretion has its limits and has never been held to include arbitrariness, discrimination or bad faith.

o “Had the CB furnished the original aid of 30 million asked by the Orosa team early in January,
1968, and the OBM allowed to resume operations with CB support, the restored confidence
would have stimulated new deposits, which, as is well-known, become in turn a source of
loanable funds.”

OTHER ISSUES:
1. Whether or not SC has jurisdiction to restrain the implementation of Resolution No. 1333 (YES)
• Before CB adopted Resolution No. 1333, the SC had already taken cognizance of the instant Petition
assailing Resolution Nos. 1263 and 1290 of the MB as “patent acts of liquidation,” violative of its alleged
commitment to rehabilitate OBM.
• In fact, the SC already required CB to answer the Petition prior to the adoption of Resolution No. 1333.
• Resolution No. 1333 is clearly an act in pursuance of the policy outline in Resolution Nos. 1263 and 1290.
“Hence, if jurisdiction was already acquired to delve into the validity of Resolutions 1263 and 1290 (and
this the Central Bank admits), there is no cogent reason why, after such jurisdiction had been acquired,
the Court should be deprived thereof by the subsequent adoption of Resolution 1333, particularly
because the latter, in relation to the antecedent facts, appears to be no more than a deliberate effort to
evade the jurisdiction of this Court, and have the case thrown back to the Court of First Instance.”
• People v. Peragrum: “the jurisdiction of a court depends upon the state of facts existing at the time it is
invoked, and if the jurisdiction once attaches to the person and subject matter of the litigation, the
subsequent happening of events, although they are of such a character as would have prevented
jurisdiction from attaching in the first instance, will not operate to oust jurisdiction already attached.”
• Dimayuga v. Fernandez: “It is true, as respondents contend, that as a general rule, a court of equity will
not restrain the authorities of either a state or municipality from the enforcement of a criminal law, and
among the earlier decisions, there was no exception to that rule. By the modern authorities, an exception
is sometimes made, and the writ is granted, where it is necessary for the orderly administration of justice,
or to prevent the use of the strong arm of the law in an oppressive or vindictive manner, or a multiplicity
of actions.”
• Nor would it serve the interest of justice to dismiss the case at this stage and let a new petition be filed
in another court.
• On previous occasions, this Court has overruled the defense of jurisdiction in the interest of public
welfare and for the advancement of public policy, where, as in this case, an extraordinary situation
existed.
o “There is no denying that creditors, depositors and the banking community are all interested
in a quick determination whether the Overseas Bank may, under the circumstances, be
closed or allowed to continue operating at the exclusive discretion of respondent Central
Bank.
• The SC brushed aside the argument that OBM is not a party to the instant case.
o “The petitioners are the controlling stockholders of that Bank, and are qualified to represent
its interests, so that a judgment may be enforced for or against it, although it is not impleaded
by name in the suits.”

14
CENTRAL BANK v. IAC
(1989, J. Medialdea) Respondents filed a case with the trial court which ruled in their favor. It ruled that the respondents have the
right to purchase from the Central Bank, and the CB has the duty to sell, the foreign exchange needed to pay
SUMMARY: Private Respondents (Textile Mills) were participants of the textile mills integration program, the obligations incurred by respondents to cover the importation of the capital machinery, equipment, spare
wherein they were required to integrate and authorized to import capital machinery only upon Central Bank parts and accessories for their integrated textile mills operations at the preferred rate of P2.00 to $1.00; and
approval of the foreign currency costs of the project, corresponding peso payments, and directed to undertake
importation on deferred payment basis. Central Bank filed this petition for review to annul the decision of the ISSUE: WON petitioner made an enforceable promise or assurance to sell foreign exchange to private
IAC which upheld the right of private respondents to purchase foreign exchange from CB at the preferred respondents at the preferred rate of P2.00 to US $1.00 to service the deferred payment of private respondents’
exchange rate of P2.00 to $1.00. Supreme Court held CB is estopped from denying the respondents right to the imported machinery and equipment?
preferred rate.
HELD: Yes. Under the doctrine of promissory estoppel:
FACTS:
". . . an estoppel may arise from the making of a promise, even though without consideration, if it was intended
Pursuant to a policy established by the Monetary Board as early as 1954-1955, respondents were required to that the promise should be relied upon and in fact it was relied upon, and if a refusal to enforce it would be
integrate their textile mills. In line with this directive, respondents filed applications for authority to purchase mutually to sanction the perpetration of fraud or would result in other injustice. In this respect, the reliance by
needed foreign exchange to cover importation of the requisite capital machinery. The Central Bank directed the promisee is generally evidenced by action or forbearance on his part, and the idea has been expressed that
plaintiffs:chanrob1es virtual 1aw library such action or forbearance would reasonably have been expected by the promisor. Mere omission by the
promisee to do whatever the promisor promised to do has been held insufficient ‘forbearance’ to give rise to
(a) to submit cost estimates of their respective textile mill integration projects, making it understood that, a promissory estoppel.’
under prevailing policy, authorization of capital machinery importation by plaintiffs was to be conditioned on
approval of the foreign currency costs of the project, as well as the schedules of corresponding peso payments; Private respondents merely complied with rules and regulations of the CB, as participants of the textile mills
and integration program. As a result, they should not now be deprived of rights acquired by reason thereof.

(b) to contract for the importation of the needed capital machinery only on a deferred payment basis. Admittedly, CB is duly committed to maintain the stability of the country’s foreign exchange reserve position.
Underlying this commitment, however, is the government’s strict and faithful adherence to basic principles of
Respondents complied with CB directives. They submitted the required cost estimates for the integration of fairness and decency under the Bill of Rights. Hence, CB circulars/memoranda must be implemented in a
their textile mills based on the rate of exchange of P2.00 to US $1.00. They likewise submitted the schedules manner that would not only safeguard or harmonize them with government programs designed to uplift or
of the counterpart peso payments on deferred payment terms. The Central Bank approved both. promote the country’s level of production and employment, but at the same time avoid irreparable or grave
prejudice to participants of said program.
On July 16, 1959, Republic Act 2609 was approved, directing ‘the monetary authorities’ to take steps for the
adoption of a four-year program of gradual decontrol’ and empowering the Monetary Board to promulgate Since private respondents faithfully complied with petitioner’s directives as participants of the textile mills
rules and regulations necessary to carry out the law’s provisions. integration program, petitioner CB is now estopped from enforcing the disputed circulars that would deny
private respondents their right to purchase foreign exchange at the preferred rate of P2.00 to US $1.00.
On April 22, 1960, the Monetary Board approved Resolution No. 632 adopting a ‘program of Gradual
Decontrol’, and further approved, on April 25, 1960, CB Circular No. 105 which established a decontrol rate of
P3.20 to $1.00 but specifically excluded from the operation of said decontrol rate ‘existing contractual
obligations previously approved by the Monetary Board.

On November 28, 1960, Central Bank issued CB Circular No. 117 amending Circular No. 105 but still alleged
servicing at the P2.00 to $1.00 rate of ‘special financing items previously approved by the Monetary Board.’

On March 2, 1961, Central Bank issued CB Circular No. 121 which eliminated ‘existing contractual obligations
previously approved by the Monetary Board’ from among the enumerated foreign exchange transactions
within the coverage of the P2.00 to $1.00 preferred exchange rate.

Despite their protestations, respondents were denied purchases of foreign exchanges at the P2.00 to $1.00
exchange rate with which to service their aforesaid foreign exchange obligations, incurred in the importation
of capital machinery needed to effect integration of their textile mills. Instead, respondents purchased under
protest, foreign exchange needed to service their obligations at the ‘free market’ rate."

15
Union Bank v. SEC • Failing to respond to the aforesaid communication, Union Bank was given a 2nd Show Cause with
June 6, 2001 | Panganiban, J. | Concurrent Supervisory Authority Assessment by the SEC on July 21, 1997. Union Bank was then assessed a fine of P50,000.00 plus
P500.00 for every day that the report was not filed, or a total of P91, 000.00 as of July 21, 1997.
SUMMARY: Union Bank failed to submit a Proxy/Information statement in connection with its annual meeting Union Bank was likewise advised by the SEC to submit the required reports and settle the
held on May 23, 1997, in violation of SEC’s Full Material Disclosure Rule. Union Bank was then assessed a fine assessment, or submit the case to a formal hearing.
of P50,000.00 plus P500.00 for every day that the report was not filed, or a total of P91, 000.00 as of July 21, • Union Bank disputed the assessment but the SEC denied the appeal filed by the Union Bank of the
1997. It disputed the assessment but both the SEC and CA denied its appeal. Union Bank’s argument is that Philippines.
because its securities are exempt from the registration requirements under Section 5(a)(3) of the Revised o Dispositive: In view of the foregoing, the appeal filed by the Union Bank of the
Securities Act, it is not covered by RSA Implementing Rules. The SC also denied its petition and held that Section Philippines is hereby denied. The penalty imposed in the amount of P91,000.00 as of
5 (a) (3) of the Revised Securities Act exempts from registration the securities issued by banking or financial July 21, 1997, for failure to file SEC Form 11-A excludes the fine accruing after the cut-
institutions mentioned in the law. However, it does not state or even imply that Union Bank, as a listed off date until the final submission of the report. Further, the amount of P50,000.00
corporation, is exempt from complying with the reports required by the assailed RSA Implementing Rules. shall be collected for the violation of RSA Rule 34(a)-1 or Rule 34 (c)(1).
Union Bank is a commercial banking corporation listed in the stock exchange. Thus, it must adhere not only to • Union Bank sought a reconsideration which was denied
banking and other allied special laws, but also to the rules promulgated by the SEC, the government entity • CA affirmed the questioned Orders.
tasked not only with the enforcement of the Revised Securities Act, but also with the supervision of all
corporations, partnerships or associations which are grantees of government-issued primary franchises and/or RULING: Petition denied. CA decision affirmed.
licenses or permits to operate in the Philippines.
DOCTRINE: Union Bank, as a bank, is primarily subject to the control of the BSP; and as a corporation trading ISSUE & RATIO:
its securities in the stock market, it is under the supervision of the SEC. It must be pointed out that even the
PSE is under the control and supervision of respondent. There is no over-supervision here. Each regulating 1. [MAIN] WON RSA Implementing Rules 11(a)-1, 34(a)-1 and 34(c)-1 are applicable to Union Bank –
authority operates within the sphere of its powers. That stringent requirements are imposed is understandable, YES
considering the paramount importance given to the interests of the investing public. 2. WON the fine imposed was proper - YES

Applicability of the Assailed RSA Implementing Rules
FACTS:
• On April 4, 1997, petitioner Union Bank of the Philippines, through its General Counsel and • Union Bank’s argument: Because its securities are exempt from the registration requirements
Corporate Secretary, sought the opinion of Chairman Perfecto Yasay, Jr. of the SEC as to the under Section 5(a)(3) of the Revised Securities Act, it is not covered by RSA Implementing Rule
applicability and coverage of the Full Material Disclosure Rule on banks, contending that said rules, 11(a)-1, which requires the filing of annual, quarterly, current predecessor and successor reports;
in effect, amend Section 5 (a) (3) of the Revised Securities Act which exempts securities issued or Rule 34(a)-1, which mandates the filing of proxy statements and forms of proxy; and Rule 34(c)-1,
guaranteed by banking institutions from the registration requirement provided by Section 4 of the which obligates the submission of information statements.
same Act. • Court disagreed.
• According to Chairman Yasay, while the requirements of registration do not apply to securities of
• Section 5(a)(3) of the said Act reads:
banks which are exempt under Section 5(a) (3) of the Revised Securities Act, however, banks with
a class of securities listed for trading on the Philippine Stock Exchange, Inc. are covered by certain
Revised Securities Act Rules governing the filing of various reports with respondent Commission, Sec 5. Exempt Securities. (a) Except as expressly provided, the requirement of registration under
i.e., (1) Rule 11(a)-1 requiring the filing of Annual, Quarterly, Current, Predecessor and Successor subsection (a) of Section four of this Act shall not apply to any of the following classes of securities:
Reports; (2) Rule 34-(a)-1 requiring submission of Proxy Statements; and (3) Rule 34-(c)-1 requiring
submission of Information Statements, among others.
x x x x x x x x x
• Not satisfied, Union Bank informed Chairman Yasay that they will refer the matter to the Philippine
Stock Exchange for clarification.
• On May 9, 1997, the SEC, through its Money Market Operations Department Director, wrote Union (3) Any security issued or guaranteed by any banking institution authorized to do business in the
Bank, reiterating its previous position that Union Bank is not exempt from the filing of certain Philippines, the business of which is substantially confined to banking, or a financial institution
reports. The letter further stated that the Revised Securities Act Rule 11(a) requires the submission licensed to engage in quasi-banking, and is supervised by the Central Bank.
of reports necessary for full, fair and accurate disclosure to the investing public, and not the
registration of its shares.
• This provision exempts from registration the securities issued by banking or financial institutions
• On July 17, 1997, the SEC wrote Union Bank, enjoining the latter to show cause why it should not
mentioned in the law. Nowhere does it state or even imply that Union Bank, as a listed corporation,
be penalized for its failure to submit a Proxy/Information Statement in connection with its annual
is exempt from complying with the reports required by the assailed RSA Implementing Rules.
meeting held on May 23, 1997, in violation of the SEC’s Full Material Disclosure Rule.

16
• The SC quoted the CA’s decision: However, the exemption from the registration requirement refused to permit any lawful examination into its affairs, it shall, in its discretion, impose any or all
enjoyed by petitioner does not necessarily connote that [it is] exempted from the other reportorial of the following sanctions:
requirements. Having confined the exemption enjoyed by petitioner merely to the initial
requirement of registration of securities for public offering, and not [to] the subsequent filing of
x x x x x x x x x
various periodic reports, respondent Commission, as the regulatory agency, is able to exercise its
power of supervision and control over corporations and over the securities market as a whole.
Otherwise, the objectives of the `Full Material Disclosure policy would be defeated since petitioner (b) A fine of no less than two hundred (P200.00) pesos nor more than fifty thousand (P50,000.00)
corporation and its dealings would be totally beyond the reach of respondent Commission and the pesos plus not more than five hundred (P500.00) pesos for each day of continuing violation.
investing public.i
• It must be emphasized that Union Bank is a commercial banking corporation listed in the stock
• Union Bank complied with RSA Rule 11(a)-1 on April 30, 1998. To date, it still has not complied with
exchange. Thus, it must adhere not only to banking and other allied special laws, but also to the
either RSA Rule 34(a)-1 or Rule 34(c)-1. That there was a failure to submit the required reports on
rules promulgated by the SEC, the government entity tasked not only with the enforcement of the
time is evident in the present case. Thus, the SEC was justified in imposing a fine upon it.
Revised Securities Act but also with the supervision of all corporations, partnerships or associations
• Finally the Court noted that Union Bank was accorded due process. That it received adverse rulings
which are grantees of government-issued primary franchises and/or licenses or permits to operate
in the Philippines. from both the SEC and the CA does not mean that its right to be heard was discarded
• RSA Rules 11(a)-1, 34(a)-1 and 34(c)-1 require the submission of certain reports to ensure full, fair •
and accurate disclosure of information for the protection of the investing public. These Rules were
issued by the SEC pursuant to the authority conferred upon it by Section 3 of the RSA.
• The said Rules do not amend Section 5(a)(3) of the Revised Securities Act, because they do not
revoke or amend the exemption from registration of the securities enumerated thereunder. They
are reasonable regulations imposed upon Union Bank as a banking corporation trading its securities
in the stock market.
• That Union Bank is under the supervision of the Bangko Sentral ng Pilipinas (BSP) and the Philippine
Stock Exchange (PSE) does not exempt it from complying with the continuing disclosure
requirements embodied in the assailed Rules. Union Bank, as a bank, is primarily subject to the
control of the BSP; and as a corporation trading its securities in the stock market, it is under the
supervision of the SEC. It must be pointed out that even the PSE is under the control and supervision
of the SEC. There is no over-supervision here. Each regulating authority operates within the sphere
of its powers. That stringent requirements are imposed is understandable, considering the
paramount importance given to the interests of the investing public.
• Otherwise stated, the mere fact that in regard to its banking functions, Union Bank is already
subject to the supervision of the BSP does not exempt the former from reasonable disclosure
regulations issued by the SEC. These regulations are meant to assure full, fair and accurate
disclosure of information for the protection of investors in the stock market. Imposing such
regulations is a function within the jurisdiction of the SEC. Since Union Bank opted to trade its
shares in the exchange, then it must abide by the reasonable rules imposed by the SEC.

Propriety of Fine Imposed

• The fine imposed upon Union Bank is sanctioned by Section 46(b) of the RSA:

Sec. 46. Administrative sanctions. If, after proper notice and hearing, the Commission finds that
there is a violation of this Act, its rules, or its orders or that any registrant has, in a registration
statement and its supporting papers and other reports required by law or rules to be filed with the
Commission, made any untrue statement of a material fact, or omitted to state any material fact
required to be stated therein or necessary to make the statements therein not misleading, or

17
Shell Philippines, Inc. vs. Central Bank of the Philippines (1988) | Gutierrez, J. RATIO:
Topic: Authority to Promulgate Rules

While it is true that under the same law the Central Bank was given the authority to promulgate rules and
SUMMARY: RA 6125 imposed stabilization tax on export products to be collected during the following fiscal
regulations to implement the statutory provision in question, we reiterate the principle that this authority is
year (starting July 1). CB issued Monetary Board Resolution No. 47 (Resolution) subjecting petroleum residues
to stabilization tax effective January 1 1972. Shell was assessed taxes for the period beginning January 1 1972, limited only to carrying into effect what the law being implemented provides.
which it paid for under protest. SC held that the CFI is correct in ruling that the Resolution is void for running
counter to the provisions of RA 6125 which states that the tax is collected during the following fiscal year. Citing People vs. Macaren, Court explained that:
Finding Shell liable to pay tax, albeit it was collected prematurely, SC held that tax refund granted by CFI was
not proper.
Administrative regulations adopted under legislative authority by a particular

department must be in harmony with the provisions of the law, and should be for the
FACTS:
sole purpose of carrying into effect its general provisions. By such regulations, of
• Congress enacted the Act imposing a stabilization tax on consignments abroad (R.A. 6125) which course, the law itself cannot be extended. An administrative agency cannot amend an
provides that: "(A)ny export product the aggregate annual F.O.B. value of which shall exceed five act of Congress.
million United States dollars in any one calendar year during the effectivity of this Act shall likewise
be subject to the rates of tax in force during the fiscal year following its reaching the said aggregate The rule-making power must be confined to details for regulating the mode or
value." proceeding to carry into effect the law as it has been enacted. The power cannot be
• During 1971, Shell, Philippines, Inc. (Shell) exported seria residues, a by-product of petroleum extended to amending or expanding the statutory requirements or to embrace matters
refining, to an extent reaching $5 million.
not covered by the statute. Rules that subvert the statute cannot be sanctioned.
• The Monetary Board issued its Resolution No. 47 "subjecting petroleum pitch and other petroleum
residues" to the stabilization tax effective January 1, 1972. Under the Central Bank Circular No. 309,
implemented by Resolution No. 47, appellee had to pay the stabilization tax beginning January 1, xxx xxx xxx
1972, which it did under protest.
• Shell sued the Central Bank (CB) before the CFI praying that Monetary Board Resolution No. 47 be ... The rule or regulation should be within the scope of the statutory authority granted
declared null and void, and that Central Bank be ordered to refund the stabilization tax it paid by the legislature to the administrative agency.
during the first semester of 1972. Its position was that, pursuant to the provisions of RA 6125, it
had to pay the stabilization tax only from July 1, 1972.
• CFI ruled in favor of Shell and declared Monetary Board Resolution No. 47 void and ordered refund In case of discrepancy between the basic law and a rule or regulation issued to
of the stabilization tax paid by Shell during the period January 1 to June 30 1972. CFI held that: implement said law, the basic law prevails because said rule or regulation cannot go
“ Note that the law mentions both calendar year and fiscal year. Calendar year refers beyond the terms and provisions of the basic law. (citations omitted)
to one year starting from January to December. Fiscal year, as it is usually and commonly used,
refers to the period covered between July 1 of a year to June 30 of the following year. In using The trial court was correct in declaring that "Monetary Board Resolution No. 47 is void insofar as it imposes the
these two terms, it is the considered opinion of this Court that they should be taken in the meaning tax mentioned in Republic Act No. 6125 on the export seria residue of (plaintiff) the aggregate annual F.O.B.,
where they are commonly and usually understood. So that when an export product reaches an value of which reached five million United States dollars in 1971 effective on January 1, 1972." The said
aggregate F.O.B. value of more than $5,000,000.00 in a calendar year it becomes subject to the resolution runs counter to the provisions of R.A. 6125 which provides that "(A)ny export product the aggregate
rates of tax in force during the fiscal year following its reaching the said aggregate value.” annual F.O.B. value of which shall exceed five million United States dollars in any one calendar year during the
• CB appealed to the CA, which referred the case to the SC being a pure question of law. CB alleges effectivity of this Act shall likewise be subject to the rates of tax in force during the fiscal year following its
that the CFI erred in regarding the the deliberations of the Senate on the stabilization tax in favor reaching the said aggregate value."
of Shell, and in failing to consider the authority granted to the appellant to promulgate rules and
regulations in the implementation of the stabilization tax law. The tax accrues when the aggregate annual F.O.B. value of the export product has exceeded five million United
• Court noted that PD 230 took effect on July 1 1973 which transferred the assessment and collection States dollars during any calendar year. The imposition of the tax is only deferred until the "fiscal year following
of the export duty from CB to the Bureau of Customs. Notwithstanding said fact, SC resolved the its reaching the said aggregate value." It is only then that the rates in force are ascertained.
issue on the merits as an affirmative relief was granted to Shell
In this case, there is no question that in 1971, the appellee exported seria residue with an F.O.B. value of more
ISSUE: Whether or not Monetary Board Resolution No. 47 is void– YES, it is contrary to the provisions of RA than five million US dollars. The appellee's objection lies in the collection of the tax thereon as of January 1972
6125 but CFI erred in ordering refund rather than in July 1972.

18
Shell was liable to pay the tax and that the Central Bank merely collected the said tax prematurely. There is
likewise no controversy over the rate of tax in force when payment became due. Thus, the tax refund granted
by the trial court was not proper because the tax paid was in fact, and in law due to the government at the
correct time.

NOTE: SC declined to grant Shell an amount equivalent to the interest on the prematurely collected tax because
of the well entrenched rule that in the absence of a statutory provision clearly or expressly directing or
authorizing payment of interest on the amount to be refunded to the taxpayer, the Government cannot be
required to pay interest. Likewise, it is the rule that interest may be awarded only when the collection of tax
sought to be refunded was attended with arbitrariness. There is no indication of arbitrariness in the questioned
act of the appellant.

19
CENTRAL BANK v. CLORIBEL and BANGKO FILIPINO c) the statutory power of the Monetary Board to "fix the maximum
G.R. NO. L-26971 | APRIL 11, 1972 | CONCEPCION, C.J. rates of interest which banks may pay on deposits and any other
obligations" does "not include the regulation of the manner of
SUMMARY: CB issued 2 circulars, fixing the maximum interest rate and the manner of computing and paying computing and paying interest, since this function is not expressly
interest. The MB directed BF to strictly comply with said circulars. BF filed for prohibition and preliminary granted petitioner."
injunction with the CFI to restrain CB and MB from enforcing the circulars, arguing that CB has no power to fix
the manner of computing and time of paying interest. Judge Cloribel granted both so CB for filed for issuance ISSUES/HELD:
of writ of certiorari and prohibition. SC took cognizance of this certiorari case despite CB’s failure to exhaust all 1. WON petition is improper because CB has not exhausted all remedies in the CFI—NO.
remedies with CFI since the case falls under the exceptions enumerated below. SC held that the power of CB 2. WON the authority of the Monetary Board to fix the maximum rates of interest which banks may
to fix the manner and time are incidental to its power to fix the maximum rate. Therefore, BF has no cause of pay on deposits and on any other obligations includes the power to determine and fix the manner
action against CB and Judge Cloribel committed grave abuse of discretion amounting to excess of jurisdiction. in which said interests may be compounded and paid—YES.
Writ granted. 3. WON Judge Cloribel committed grave abuse of discretion or exceeded his jurisdiction in issuing the
assailed order—YES.
FACTS:
• Bangko Filipino, a savings and mortgage bank duly organized and existing under the laws of the RATIO:
Philippines, changed its policy by compounding and paying the interest on its savings deposits, at the 1. It is true that the CB did not seek a reconsideration of the order complained of, and that, as a general
maximum rate fixed by the Monetary Board, from the quarterly to the monthly basis, and by paying, in rule, a petition for certiorari will not be entertained unless the respondent has had, through a motion for
advance, the maximum rate of interest on time deposits. reconsideration, a chance to correct the error imputed to him. This rule is subject, however, to
• The Monetary Board approved Resolution No. 1566, directing the Banco Filipino to comply strictly with exceptions, among which are the following, namely: 1) where the issue raised is one purely of law; 2)
Central Bank Circular No. 222. where public interest is involved; and 3) in case of urgency. These circumstances are present in the case
• Banco Filipino filed with the CFI of Manila a petition for prohibition and preliminary injunction against at bar. (hindi in-explain kung bakit present)
CB and the Monetary Board, to annul Central Bank Circulars Nos. 185 and 222 and Monetary Board
Resolutions Nos. 805 and 1566, "insofar as they restrict the payment of monthly interests on savings 2. The law does not merely authorize the Board to "fix the maximum rates of interest which banks may pay
deposits and advance interests on time deposits," and praying that a writ of preliminary injunction be on deposits and on any other obligations." It, also, expressly empowers the Board — "(i)n order to avoid
issued ex parte to restrain the CB, its officials and/or agents from enforcing the aforementioned circulars possible evasion of maximum interest rates set by the ... Board" — to fix also "the maximum rates that
and resolutions to the extent that the same imposed said restrictions, or, should the court "require that banks may pay to or collect from their customers in the form of ... payments of any sort." Indeed, the
a hearing be conducted on the petition for a preliminary injunction, that a preliminary restraining order authority to establish maximum rates of interest carries with it, necessarily, the power to determine the
to the same effect be issued pending such hearing." maximum rates payable as interest for given periods of time. In other words, it connotes the right to
• Judge Cloribel issued ex parte the restraining order prayed for and later granted the application for a specify the length of time for which the rates thus fixed shall be computed. Consequently, it cannot but
writ of preliminary injunction. include the prerogative to regulate (a) the manner of computing said rates and (b) the manner or time
• The CB now seeks a writ of certiorari and prohibition to annul the order of Judge Cloribel authorizing of payment of interest, insofar as these factors affect the amount of interest to be paid.
the issuance of a writ of preliminary injunction.
The objective of the power to fix maximum rates of interest payable by banks is to establish a uniform ceiling
• Bangko Filipino sets up the ff defenses:
applicable to all banks, in order to avoid that a competition among the same, in the form of higher rates of
1. that said petition should be dismissed, because "petitioner has not exhausted
interest offered to depositors, may ensue and reach such a point that, to offset the resulting reduction in their
all remedies in the Court of First Instance of Manila before coming to this
Honorable Court"; profits, said institutions might be impelled to increase their earnings, by resorting to risky ventures, or "less
2. that having heard the parties before issuing the contested order, respondent conservative and more remunerative loans and investments," which could impair the stability of the banking
system and jeopardize the financial condition of the nation. The important thing is the amount paid or to be
Judge had neither committed a grave abuse of discretion, nor exceeded his
deposited by the latter and made available for the operations of the bank, within the period for which the rate
jurisdiction, in acting as he did; and
has been fixed. The manner of computing such rate and the time or manner of payment of interest are merely
3. that the contested resolutions and circulars are null and void for
incidental thereto.
a) they were issued without previous notice and hearing,

b) they impair vested rights, and

20
3. It was, therefore, apparent from the pleadings and memoranda that Banco Filipino had no cause of action
against Petitioner herein to restrain the same from demanding strict compliance with said circulars.
Pursuant to Section 3 of Rule 58 of the Rules of Court, "(a) preliminary injunction may be granted ... when
it is established" (1) that "the plaintiff is entitled to the relief demanded," which consists in restraining
"the commission or continuance of the acts complained of," and (2) that the commission or continuance
thereof "would probably work injustice to the plaintiff" or be "in violation of the plaintiff's rights" and
tend "to render the judgment ineffectual." Since Banco Filipino was clearly not entitled to the relief
sought in the CFI case and no "injustice" to said institution would, accordingly, result from its compliance
with the contested resolutions and circulars, it follows that Respondent Judge had committed a grave
abuse of discretion, amounting to excess of jurisdiction, in issuing the assailed order.


WHEREFORE, said order and the writ of preliminary injunction issued in pursuance thereof are hereby declared
null and void, and the enforcement of both, accordingly, restrained permanently, with costs against respondent
Banco Filipino. Writ granted.

21
CENTRAL BANK v CA 5. On 27 April 1984, the MB adopted Resolution No. 584 approving the consolidation of PBP's other
(1992, Davide, Jr.) 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
FACTS: return PBP's management to its principal stockholders upon completion of the documentation and
1. The common origin of these cases is Civil Case No. 17692 filed before RTC Makati entitled Producers full collateralization of the emergency loan, but directed PBP to pay the emergency loan in 5 equal
Bank of the Philippines and Producers Properties, Inc. versus Central Bank of the Philippines, Jose B. annual installments, with interest and penalty rates at MRR 180 days plus 48% per annum, and
Fernandez. Jr. and the Monetary Board. On 21 January 1991, this Court ordered the consolidation liquidated damages of 5% for delayed payments.
of G.R. No. 92943 with G.R. No. 88353. 6. On 4 June 1984, PBP submitted a rehabilitation plan to the CB which proposed the transfer to PBP
2. Petitioners claim that on 29 April 1983, during the regular examination of the PBP, Central Bank of 3 buildings owned by Producers Properties, Inc. (PPI), its principal stockholder and the
(CB) examiners stumbled upon some highly questionable loans which had been extended by the subsequent mortgage of said properties to the CB as collateral for the bank's overdraft obligation.
PBP management to several entities. Upon further examination, it was discovered that these loans, Although said proposal was explored and discussed, no program acceptable to both the CB and PPI
totaling approximately P300M, were "fictitious" as they were extended, without collateral, to was arrived at because of disagreements on certain matters such as interest rates, penalties and
certain interests related to PBP owners themselves. Said loans were deemed to be anomalous liquidated damages.
particularly because the total paid-in capital of PBP at that time was only P 140.544M. This means 7. No other rehabilitation program was submitted by PBP for almost 3 years; as a result thereof, its
that the entire paid-in capital of the bank, together with some P160M of depositors' money, was overdrafts with the CB continued to accumulate. By the end of June 1987, the figure swelled to a
utilized by PBP management to fund these unsecured loans. staggering P1.023 billion. Consequently, per Resolution No. 649 dated 3 July 1987, the CB Monetary
3. Sometime in August of the same year, at the height of the controversy surrounding the discovery Board decided to approve in principle what it considered a viable rehabilitation program for PBP.
of the anomalous loans, several blind items about a family-owned bank in Binondo which granted 8. There being no response from both PBP and PPI on the proposed rehabilitation plan, the MB issued
fictitious loans to its stockholders appeared in major newspapers. These news items triggered a Resolution No. 751 on 7 August 1987 instructing CB management to advise the bank, through Mr.
bank-run in PBP which resulted in continuous over-drawings on the bank's demand deposit account Henry Co, as follows:
with the Central Bank; the over-drawings reached P74.109M by 29 August 1983. By 17 January a. The CB conservatorship over PBP may be lifted only after PBP shall have identified the
1984, PBP's overdraft with the CB increased to P143.955M, an indication of PBP's continuing new group of stockholders who will put in new capital in PBP and after the Monetary
inability to maintain that condition of solvency and liquidity necessary to protect the interests of Board shall have considered such new stockholders as acceptable; and
its depositors and creditors. Hence, on 20 January 1984, on the basis of the report submitted by b. The stockholders of PBP have to decide whether or not to accept the terms of the
the Supervision and Examination Sector, Department I of the CB, the Monetary Board (MB), rehabilitation plan as provided under Resolution No. 649 dated July 3, 1987 within one
pursuant to its authority under Section 28-A of R.A. No. 265 and by virtue of MB Board Resolution week from receipt of notice hereof and if such terms are not acceptable to them, the
No. 164, placed PBP under conservatorship. Central Bank will take appropriate alternative action on the matter; . . .
4. While PBP admits that it had no choice but to submit to the conservatorship, it nonetheless 9. Additionally, the CB called the attention of the PBP directors and officers to Section 107 of R.A. No.
requested that the same be lifted by the CB. Consequently, the MB issued Resolution No. 169 265, as amended by Executive Order No. 289 dated 23 July 1987, which provides, inter alia, that:
directing the principal stockholders of PBP to increase its capital accounts by such an amount that . . . any bank which incurs an overdrawing in its deposit account with the Central Bank shall fully
would be necessary for the elimination of PBP's negative net worth of P424M. On 10 April 1984, cover said overdraft not later than the next clearing day: Provided, further, That settlement of
CB senior deputy Governor Gabriel Singson informed PBP that pursuant to MB Resolution No. 490 clearing balances shall not be effected for any account which continue (sic) to be overdrawn for five
of 30 March 1984, the CB would be willing to lift the conservatorship under the following conditions consecutive banking days until such time as the overdrawing is fully covered or otherwise converted
a. PBP's unsecured overdraft with the Central Bank will be converted into an emergency into an emergency loan or advance pursuant to the provisions of Sec. 90 of this Act. Provided,
loan, to be secured by sufficient collateral, including but not limited to the Following Finally, That the appropriate clearing office shall be officially notified of banks with overdrawn
properties offered by PBP's principal stockholders: balances. Banks with existing overdrafts with the Central Bank as of the effectivity of this amended
i. 6 floors and other areas of the Producers Bank Bldg., at Paseo de Roxas, section shall within such period as may be prescribed by the Monetary Board, either convert the
owned by PBP; overdraft into an emergency loan or advance with a plan of payment, or settle such overdrafts, and
ii. 15 floors of the Producers Bank Bldg., at Paseo de Roxas, Makati, owned that upon failure to so comply herewith, the Central Bank shall take such action against the bank as
by the Producers Properties, Inc.; may be warranted under this Act.
iii. Manhattan Bldg. on Nueva Street, Binondo, Manila; and 10. A few days later, the PBP, without responding to the communications of the CB, filed a verified
iv. Producers Bank, Makati Branch Bldg. at Buendia Avenue, Makati; complaint with the RTC against the CB, the MB and CB Governor. The complaint devoted several
b. A comptroller for PBP and any number of bank examiners deemed necessary to pages to specific allegations in support of PBP's assertions that the conservatorship was
oversee PBP's operations shall be designated by the Central Bank, under terms of unwarranted, ill-motivated, illegal, utterly unnecessary and unjustified; that the appointment of
reference to be determined by the Governor; the conservator was arbitrary; that herein petitioners acted in bad faith; that the CB-designated
c. A letter from the Management of PBP authorizing the Central Bank to automatically conservators committed bank frauds and abuses; that the CB is guilty of promissory estoppel; and
return clearing items that would result in an overdraft in its Central Bank account shall that by reason of the conservatorship, it suffered losses, the total quantifiable extent of which is
be submitted to the Central Bank. P108,479,771, exclusive of loss of profits and loss of goodwill.

22
11. RTC issued a TRO and set the hearing of the application for preliminary injunction. Subsequently, 1. PBP has been under conservatorship since 20 January 1984. Pursuant to Section 28-A of the Central
on 21 September 1987, respondent Judge issued an Order granting the writ and enjoining Bank Act, a conservator, once appointed, takes over the management of the bank and assumes
defendant-petitioners or any of their agents from implementing MB Resolutions Nos. 649 and 751. exclusive powers to oversee every aspect of the bank's operations and affairs. Obviously, the trial
PBP later filed the Amended Complaint impleading PPI as an additional plaintiff. No new allegations court was of the impression that what was sought is the lifting of the conservatorship because it
or causes of action for said plaintiff were made. On 5 November 1987, petitioners filed a Motion was arbitrarily and illegally imposed. While it may be true that the PBP devoted the complaint to
to Dismiss the Amended Complaint. what it considers an unwarranted, ill-motivated, illegal, unnecessary, and unjustified
12. RTC denied the MTD on the following grounds: (a) the amended complaint alleges ultimate facts conservatorship, it, nevertheless, submitted to the same. There is nothing in the amended
showing that plaintiff has a right and that such a right has been violated by defendant; the complaint to reflect an unequivocal intention to ask for its lifting. Of course, as subsequent
questioned MB Resolutions were issued arbitrarily and with bad faith; (b) While it is true that under maneuvers would show, PBP sought to accomplish the lifting thereof through surreptitious means.
Section 28-A of the Central Bank Act the conservator takes over the management of a bank, the That such action was not, on its face, filed to have the conservatorship lifted, is best evidenced by
Board of Directors of such bank is not prohibited from filing a suit to lift the conservatorship and PBP's prayer for a judgment "ordering defendant Central Bank's conservator to restore the viability
from questioning the validity of both the conservator's fraudulent acts and abuses and its of PBP as mandated by Section 28-A of R.A. No. 265 . . ." Unfortunately too, respondent Court was
principal's (MB) arbitrary action; and (c) plaintiffs have paid the correct filing fees since "the value easily misled into believing that the amended complaint sought the lifting of the conservatorship.
of the case cannot be estimated." 2. 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 the action. Per the
G.R. No. 88353 fifth paragraph of Section 29 of the Central Bank Act, as amended by Executive Order No. 289, the
13. Unable to accept the above Order, herein petitioners CB and Jose B. Fernandez, Jr. filed with actions of the MB may be assailed in an appropriate pleading filed by the stockholders of record
respondent CA a petition for certiorari with preliminary injunction to annul the orders of the RTC, representing the majority of the capital stock within 10 days from receipt of notice by the said
restrain the implementation of the same and nullify the writ of preliminary injunction. majority stockholders of the order placing the bank under conservatorship:
14. CA dismissed the petition for lack of merit. It ruled that ruled that the CB's sudden and untimely The provisions of any law to the contrary notwithstanding, the actions of the Monetary Board under
announcement of the conservatorship over PBP eroded the confidence which the banking public this Section, Section 28-A, and the second paragraph of section 34 of this Act shall be final and
had hitherto reposed on the bank and resulted in the bank-run; it then concluded that when the executory, and can be set aside by a court only if there is convincing proof, after hearing, that the
CB "peremptorily and ill-timely announced" the conservatorship, PBP was not given an opportunity action is plainly arbitrary and made in bad faith: Provided, That the same is raised in an appropriate
to be heard since the CB arbitrarily brushed aside administrative due process notwithstanding PBP's pleading filed by the stockholders of record representing the majority of the capital stock within ten
having sufficiently established its inherent corporate right to autonomously perform its banking (10) days from the date the receiver takes charge of the assets and liabilities of the bank or non-
activities without undue governmental interference that would in effect divest its stockholders of bank financial intermediary performing quasi-banking functions or, in case of conservatorship or
their control over the operations of the bank. liquidation, within ten (10) days from receipt of notice by the said majority stockholders of said bank
or non-bank financial intermediary of the order of its placement under conservatorship or
G.R. No. 92943 liquidation. . . .
15. Atty. Leonida Tansinsin-Encarnacion, in her capacity as conservator, instituted reforms aimed at
making PBP more viable. With this purpose in mind, she started reorganizing the bank's personnel 3. The following requisites, therefore, must be present before the order of conservatorship may be
and committees. In order to prevent her from continuing with the reorganization, PBP filed an set aside by a court:
a. The appropriate pleading must be filed by the stockholders of record representing the
Omnibus Motion asking the trial court to reinstate the PBP officers and restore the bank’s
majority of the capital stock of the bank in the proper court;
committees as well as enjoin the lease to third parties and to hold the conservator in contempt of
court. b. Said pleading must be filed within ten (10) days from receipt of notice by said majority
16. RTC granted the prayers. The conservator was judged guilty of contempt in 3 counts. stockholders of the order placing the bank under conservatorship; and
17. The conservator thus filed with the SC a petition for certiorari, which was referred to the CA. c. There must be convincing proof, after hearing, that the action is plainly arbitrary and
made in bad faith.
18. CA dismissed the petition.
4. PBP was placed under conservatorship on 20 January 1984. The original complaint in was filed only
ISSUE: on 27 August 1987, or 3 years, 7 months, 7 days later, long after the expiration of the 10-day period
1. WON the complaint of PDP and PPI should be dismissed - YES deferred to above. It is also beyond question that the complaint and the amended complaint were
not initiated by the stockholders of record representing the majority of the capital stock.
2. WON the contempt charges should be dismissed - YES Accordingly, the order placing PBP under conservatorship had long become final and its validity
could no longer be litigated upon before the trial court.
RATIO:
5. It was precisely an awareness of the futility of any action to set aside the conservatorship which
PBP did not ask for the lifting of the conservatorship, and even if it did, the action was not filed by the proper prompted PBP to limit its action to a claim for damages and a prayer for an injunction. However, to
party and had already prescribed. make it appear that it had a meritorious case and a valid grievance against the Central Bank, it
wandered long into the past and narrated a sad story of persecution, oppression and injustice since

23
the inception of the conservatorship –– obviously to gain the sympathy of the court, which it correct docket fees. While PBP cleverly worded its complaint to make it appear as one principally
eventually obtained. for injunction, deliberately omitting the claim for damages as a specific cause of action, a careful
examination thereof bears that the same is in reality an action for damages arising out of the
Action for damages also prescribes in 10 days. alleged "unwarranted, ill-motivated and illegal conservatorship," or a conservatorship which "was
6. The next crucial question is whether an action for damages arising from the MB's act of placing the utterly unnecessary and unjustified," and the "arbitrary" appointment of a conservator.
PBP under conservatorship and the acts of the conservator, and to enjoin the MB from
implementing resolutions related or incident to, or in connection with the conservatorship, may be Decisions on preliminary injunction clear prejudgment of the case.
brought only for and in behalf of the PBP by the stockholders on record representing the majority 10. The orders of the trial court granting the application for a writ of preliminary injunction and the
of the capital stock thereof or simply upon authority of its Board of Directors, or by its Chairman.
assailed decision of the CA clearly betray a prejudgment of the case. Not only did said courts declare
a. As to the first kind of damages, the same may be claimed only if the MB's action is
MB Resolutions Nos. 649 and 751 to be arbitrary, both also declared the conservatorship to have
plainly arbitrary and made in bad faith, and that the action therefor is inseparable from
an action to set aside the conservatorship. The same must be filed within 10 days from been issued in violation of PBP's right to administrative due process, which the CB "arbitrarily
receipt of notice of the order placing the bank under conservatorship. Otherwise, the brushed aside to the prejudice" of the latter.
provision of the fifth paragraph of Section 29 of the Central Bank Act could be rendered 11. Thus, save only for the determination of the full extent of PBP's claim for damages, said courts
meaningless and illusory. have, at the most, decided or, at the very least, prejudged the case. Courts, notwithstanding the
b. As to actions for the second kind of damages and for injunction to restrain the discretion given to them, should avoid issuing writs of preliminary injunction which in effect dispose
enforcement of the CB's implementing resolutions, said fifth paragraph of Section 29 of the main case without a trial. We do not then hesitate to rule that there was grave abuse of
of the Central Bank Act, as amended, equally applies because the questioned acts are
discretion in the issuance of the writ of preliminary injunction.
but incidental to the conservatorship. The purpose of the law in requiring that only the

stockholders of record representing the majority of the capital stock may bring the
No arbitrariness or bad faith in the issuance of the MB Resolutions.
action to set aside a resolution to place a bank under conservatorship is to ensure that
it be not frustrated or defeated by the incumbent Board of Directors or officers who 12. It must be stressed in this connection that the banking business is properly subject to reasonable
may immediately resort to court action to prevent its implementation or enforcement. regulation under the police power of the state because of its nature and relation to the fiscal affairs
Common sense and public policy dictate then that the authority to decide on whether of the people and the revenues of the state. Banks are affected with public interest because they
to contest the resolution should be lodged with the stockholders owning a majority of receive funds from the general public in the form of deposits. Due to the nature of their
the shares for they are expected to be more objective in determining whether the transactions and functions, a fiduciary relationship is created between the banking institutions and
resolution is plainly arbitrary and issued in bad faith. their depositors. Therefore, banks are under the obligation to treat with meticulous care and
7. The original complaint was not initiated by the majority of the stockholders, hence it should have utmost fidelity the accounts of those who have reposed their trust and confidence in them.
been dismissed.

13. Under its charter, the CB is further authorized to take the necessary steps against any banking
institution if its continued operation would cause prejudice to its depositors, creditors and the
8. We cannot, however, subscribe to the petitioner's view that once a bank is placed under general public as well. This power has been expressly recognized by this Court. In Philippine
conservatorship, no action may be filed on behalf of the bank without prior approval of the Veterans Bank Employees Union-NUBE vs. Philippine Veterans Bank:
conservator. No such approval is necessary where the action was instituted by the majority of the
. . . Unless adequate and determined efforts are taken by the government against distressed and
bank's stockholders. To contend otherwise would be to defeat the rights of such stockholders. It
mismanaged banks, public faith in the banking system is certain to deteriorate to the prejudice of
must be stressed here that a bank retains its juridical personality even if placed under
the national economy itself, not to mention the losses suffered by the bank depositors, creditors,
conservatorship; it is neither replaced nor substituted by the conservator who, per Section 28-A of
and stockholders, who all deserve the protection of the government. The government cannot
the Central Bank Act, as amended by P.D. No. 1932, shall only:
simply cross its arms while the assets of a bank are being depleted through mismanagement or
. . . take charge of the assets, liabilities, and the management of that institution, collect all monies
irregularities. It is the duty of the Central Bank in such an event to step in and salvage the remaining
and debts due said institution and exercise all powers necessary to preserve the assets of the
resources of the bank so that they may not continue to be dissipated or plundered by those
institution, reorganize the management thereof, and restore its viability. He shall have the power
entrusted with their management.
to overrule, or revoke the actions of the previous management and board of directors . . ., any
provision of law to the contrary notwithstanding, and such other powers as the Monetary Board 14. The fact that PBP is grossly overdrawn on its reserve account with the CB (up to P1.233 billion) is
shall deem necessary. not disputed by PBP. This enormous overdraft evidences the patent inability of the bank's
management to keep PBP liquid. This fact alone sufficiently justifies the remedial measures taken
Failure to pay correct docket fees. by the Monetary Board.
9. Even assuming for the sake of argument that the action was properly brought by an authorized 15. MB Resolutions were not promulgated to arbitrarily divest the present stockholders of control over
party, the same must nevertheless be dismissed for failure of the plaintiffs therein to pay the PBP. It contemplates an effective and viable plan to revive and restore PBP. It is to be noted that

24
before issuing these resolutions, the MB gave the management of PBP ample opportunity (from 30 Sec. 3 Indirect contempts to be punished after charge and hearing. –– After charge in writing has
March 1984 to June of 1987) to submit a viable rehabilitation plan for the bank. been filed, and an opportunity given to the accused to be heard by himself or counsel, a person
guilty of any of the following acts may be punished for contempt:
16. The foregoing resolutions refer to a recommended rehabilitation plan. What was conveyed to PBP
(b) Disobedience of or resistance to a lawful writ, process, order, judgment, or command of a court,
was a mere proposal. There was nothing in the resolutions to indicate that the plan was mandatory.
or injunction granted by a court or judge, . .
PBP was given a specific period within which to accept or reject the plan. And, as petitioners
correctly pointed out, the plan was not self-implementing. The warning given by the MB that should 22. It is clear from the said section that it is necessary that there be a charge and that the party cited
said proposal be rejected, the CB "will take appropriate alternative actions on the matter," does for contempt be given an opportunity to be heard. The reason for this is that contempt partakes of
not make the proposed rehabilitation plan compulsory. Whether or not there is a rehabilitation the nature of a criminal offense. In the instant case, each motion for contempt served as the charge.
plan agreed upon between PBP and the MB, the CB is authorized under R.A. No. 265 to take It is settled that a charge may be filed by a fiscal, a judge, or even a private person. Petitioner
appropriate measures to protect the interest of the bank's depositors as well as of the general Tansinsin-Encarnacion filed oppositions thereto. Thereafter, it was the duty of the respondent
Judge to hold a hearing on the motions. Respondent Judge deliberately did away with the hearing
public.
and this Court finds no justifiable reason therefor.
17. Furthermore, the assignment of claims to PDIC and the subsequent dacion en pago (payment of
credit through shares) do not divest the present stockholders of control over PBP. As may be readily PETITIONS GRANTED.
observed from the terms of Resolution No. 645, the shares which shall be issued to PDIC under
the dacion are preferred, non-voting and non-participating shares.

RTC Judge was no longer impartial.
18. The reliefs were not prayed for in the Amended Complaint (reinstatement of officers, committees).
They were not even covered by any specific allegations therein. Except for the prohibition to lease,
the rest partook of the nature of a preliminary mandatory injunction which deprived the
conservator of her rights and powers under Section 28-A of R.A. No. 265 and, in effect, set aside
the conservatorship with PBP itself had earlier accepted. It must be remembered that PBP did not
ask, in its Amended Complaint, for the setting aside of the conservatorship. On the contrary, it even
prayed that the conservator be ordered to restore the viability of PBP as mandated by said Section
28-A.
19. The respondent Judge should not have forgotten the settled doctrine that it is improper to issue a
writ of preliminary mandatory injunction prior to the final hearing, except in cases of extreme
urgency, where the right is very clear, where considerations of relative inconvenience bear strongly
in complainant's favor, where there is a willful and unlawful invasion of plaintiff's right against his
protest and remonstrance, the injury being a continuing one, and where the effect of the
mandatory injunction is rather to re-establish and maintain a pre-existing continuing relation
between the parties, recently and arbitrarily interrupted by the defendant, than to establish a new
relation.
20. It is plain to that the judge ceased to be an impartial arbitrator; he became the godfather of PBP
and PPI, granting to them practically all that they had asked for in the motions they filed. The
challenged Orders then were whimsically and arbitrarily issued.

Issuance of contempt with undue haste and unusual speed.
21. Compounding such detestable conduct is the issuance, with undue haste and unusual speed, of the
orders of contempt without the proper hearing. If the conservator could, at all, be liable for
contempt, it would be for indirect contempt punished under Section 3, Rule 71 of the Rules of
Court, more specifically item (b) of the first paragraph which reads:

25
• The two cashier's checks issued by Prime Savings Bank do not constitute an assignment of funds in
Miranda v. PDIC the hands of the petitioner as there were no funds to speak of in the first place. The bank was
(Tort Liability of Monetary Board Members, September 8, 2006, YNARES-SANTIAGO, J.) financially insolvent for sometime
2. WON the liquidation court has jurisdiction – YES
SUMMARY: Miranda was a depositor of Prime Savings Bank (PSB). She withdrew from her account, but got 2 • Regular courts do not have jurisdiction over actions filed by claimants against an insolvent bank,
crossed cashier's P5,502,000 instead of cash. She deposited the cashier's check in another bank on the same unless there is a clear showing that the action taken by the BSP, through the Monetary Board in
day, but the BSP suspended the clearing priveleges of PSB and the checks were returned unpaid. A day after, the closure of financial institutions was in excess of jurisdiction, or with grave abuse of discretion.
PSB declared a bank and later on PSB was put under receivership of PDIC. Miranda filed a civil action for a sum • "Disputed claims" refer to all claims, whether they be against the assets of the insolvent bank, for
of money against BSP, PSB, & PDIC. The RTC ruled for her. The CA reversed and dismissed the case. The SC ruled specific performance, breach of contract, damages, or whatever. Petitioner's claim which involved
that cashier's checks did not result in an assignment of the cash. The cashier's checks are counted as a Disputed the payment of the two cashier's checks that were not honored falls within the ambit of a claim.
claim and the creditor-debtor relationship between Miranda and PSB remained thus she needs to file her claim The issuance of the cashier's checks by PSB created a debtor/creditor relationship between them.
with the proper liquidation court. [Topic] The BSP cannot be held liable as they had acted within their powers This disputed claim should therefore be lodged in the liquidation proceedings by the petitioner as
to enforce sanctions against PSB which caused injuries. But the SC held that there was Bad Faith on the part of creditor, since the closure of PSB has rendered all claims subsisting at that time moot which can
PSB by issuing cashier's checks when they knew they were insolvent. Thus the cashier's checks will be given best be threshed out by the liquidation court and not the regular courts.
preference in the liquidation proceedings. • It is well-settled in both law and jurisprudence that the Central Monetary Authority, through the
Monetary Board, is vested with exclusive authority to assess, evaluate and determine the condition
FACTS: of any bank, and finding such condition to be one of insolvency, or that its continuance in business
1. Petitioner Leticia G. Miranda was a depositor of Prime Savings Bank, Santiago City Branch. On June 3, would involve a probable loss to its depositors or creditors, forbid bank or non-bank financial
1999, she withdrew substantial amounts from her account, but instead of cash she opted to be issued a institution to do business in the Philippines.
crossed cashier's check. She was thus issued two cashier's checks in the sum of P2,500,000 and 3. Whether the respondents are solidarily liable to the petitioner – NO
P3,002,000. Petitioner deposited the two checks into her account in another bank on the same day, • It is only PSB that is liable to pay for the amount of the two cashier's checks. Solidary liability cannot
however, Bangko Sentral ng Pilipinas (BSP) suspended the clearing privileges of Prime Savings Bank attach to the BSP, in its capacity as government regulator of banks, and the PDIC as statutory
effective 2:00 p.m. of June 3, 1999. The two checks of petitioner were returned to her unpaid. On June receiver under R.A. No. 7653, because they are the principal government agencies mandated by
4, 1999, Prime Savings Bank declared a bank holiday. On January 7, 2000, the BSP placed Prime Savings law to determine the financial viability of banks
Bank under the receivership of the Philippine Deposit Insurance Corporation (PDIC). • [TOPIC](The only paragraph that talks about liability)
The BSP should not be held liable on the crossed cashier's checks for it was not a party to the
2. Petitioner filed a civil action for sum of money in the Regional Trial Court of Santiago City, Isabela to issuance of the same; nor can it be held liable for imposing the sanctions on Prime Savings Bank
recover the funds from her unpaid checks against Prime Savings Bank, PDIC and the BSP. The RTC ordered which indirectly affected Miranda, since it is mandated under Sec. 37 of R.A. No. 7653 to act
PDIC, BSP, & PSB to pay jointly and solidarily the amount of P5,502,000. The Court of Appeals reversed accordingly. The BSP, through the Monetary Board was well within its discretion to exercise this
the trial court and ruled in favor of the PDIC and BSP, dismissing the case against them, without prejudice power granted by law to issue a resolution suspending the interbank clearing privileges of Prime
to the right of petitioner to file her claim before the court designated to adjudicate on claims against Savings Bank, having made a factual determination that the bank had deficient cash reserves
Prime Savings Bank. deposited before the BSP. There is no showing that the BSP abused this discretionary power.
• PDIC was impleaded as a party-litigant only in its representative capacity as the receiver/liquidator.
3. Petitioner contends that she ceased to be a depositor upon withdrawal of her deposit and the issuance Both BSP and PDIC cannot therefore be held directly and solidarily liable for the payment of the
of the two cashier's checks to her. As a holder in due course she is an assignee of the funds of Prime two cashier's checks. Sole liability rests with PSB
Savings Bank as drawer thereof and entitled to its immediate payment. Petitioner next argues that the 4. WON the claim is a preferred claim – YES
present claim is not a disputed claim because she is recovering assigned funds which were segregated. • In the absence of fraud, the purchase of a cashier's check, is not entitled to a preference over
She argues that the mere issuance of the cashier's check, the funds represented by the check are general creditors. However, in a situation involving the element of fraud, where a cashier's check
transferred from the credit of the maker to that of the payee or holder thus she cannot be placed on the is purchased from a bank at a time when it is insolvent, as its officers know or are bound to know
same footing with the ordinary creditors of the bank. She avers that she is not a creditor thus is entitled by the exercise of reasonable diligence, it has been held that the purchase is entitled to a
to the immediate payment of her claim. She argues that PDIC and BSP contrary to the Negotiable preference in the assets of the bank on its liquidation before the check is paid. Clearly, there was
Instruments Law have caused damage to the petitioner and should be held solidarily liable. fraud or the intent to deceive in this case. PSB did not collapse overnight and they were cash-
strapped, a fact which could not have gone unnoticed by the bank officers. They could not have
4. Respondents, on the other hand, state that the mere issuance of the cashier's checks did not operate as issued in good faith checks knowing that the bank's coffers could not meet this.
assignment of funds in favor of the petitioner. PSB was also already cash-strapped and they argue that
there can be no assignment of funds when there is no funds to speak of in the first place. The BSP & PDIC
argue that they cannot be held liable as they were not parties to the checks.
RATIO:
1. WON the cashier's checks were an assignment of funds – NO

26
Tort Liability of Monetary Board Members 6. Meanwhile, MB approved Resolution No. 724 ordering RBSMI to correct the major exceptions noted
G.R. No. 154499 (Feb. 7, 2004) - REYES v. RURAL BANK OF SAN MIGUEL within 30 days from receipt of the advice, and to remit to the BSP P2,538,483.00 as fines and penalties
Tinga J. for incurring deficiencies in reserves against deposit liabilities.

7. The above incidents, particularly the alleged “brokering” by Reyes and the petitioners “unsupported”
In a previous case, the SC found Reyes and Domo-ong, Deputy Governor and Director respectively of the BSP
recommendation to impose a penalty of P2,538,483.00 for legal reserve deficiency, prompted the
liable for violation of the Code of Conduct and Ethical Standards for Public Officials and Employees for using
respondent to file the letter-complaint charging the petitioners with “unprofessionalism.” (Note: Details
the distressed financial condition of Rural Bank of San Miguel Inc (RBMSI) as the subject o a case study in one
as to case study issue found in ratio part.)
of the BSP seminars. The Court absolved the petitioners. The petitioners were not guilty for unprofessionalism
8. In the Decision of March 14, 2003, SC found Deputy Governor Reyes and Director Domo-ong liable for
because first, there was no evidence that the seminar was conducted under petitioners’ patronage and even if
violation of the “standards of professionalism” prescribed by RA 6713 in using the distressed financial
it were, the principle of command responsibility does not apply because the negligence of the subordinate
cannot be ascribed to the superior in the absence of evidence of the latter’s own negligence. Second, the acts condition of resp. Rural Bank of San Miguel (Bulacan), Inc. (RBSMI) as the subject of a case study in one
of Reyes are not brokering but merely to pave the way for a possible consolidation or merger of RBSMI with of the BSP seminars and in the “brokering” of the sale of RBSMI. Principio was exonerated of the
interested banks. administrative charges. Hence this MR by Reyes and Domo-ong and Motion for Partial MR by RBSMI.

DOCTRINE ISSUE with HOLDING
Neither the principle of command responsibility nor its counterpart respondeat superior in the law on quasi- 1. Whether petitioners are liable for unprofessionalism for using Rural Bank as a case study – NO.
delicts would be relevant in this case, involving as it does the actual performance in office of the petitioners • In pinning liability on Reyes and Domo-ong for the seminar which used the rural bank as a case study, the
and given the fact that petitioners are high ranking officers of the country’s central monetary authority. court made this ratiocination, viz.:
BSP is an independent body corporate bestowed under its charter with fiscal and administrative autonomy. As o “(W)hile there was indeed no evidence showing that either petitioner Reyes or petitioner Domo-
such, its officials should be granted a certain degree of flexibility in the performance of their duties and provided ong distributed or used the materials, the very fact that the seminar was conducted under their
insulation from interference and vexatious suits. auspices is enough to make them liable to a certain extent. Petitioner Reyes, as Head of the BSP
Supervision and Examination Sector (SES), and petitioner Domo-ong, as Director of the BSP
FACTS Department of Rural Banks, should have exercised their power of control and supervision so that
1. In a May 1999 letter addressed to BSP Governor Singson, Rural Bank of San Miguel (RBSMI) charged the incident could have been prevented or at the very least remedied.”
Alfredo Reyes and Wilfredo Domo-ong and Herminio Principio with violation of Republic Act No. 6713 • Plainly, conclusion on petitioners’ culpability is grounded, not on an established fact but on a mere
(Code of Conduct and Ethical Standards for Public Officials and Employees). inference that the seminar was conducted under their auspices.
o It is conceded that there was no evidence that the seminar was conducted under petitioners’
2. In an investigation by the Monetary Board Ad Hoc Committee, it was disclosed that sometime in Sept.
patronage. And it was assumed, as indeed there was absolutely paucity of proof, that they
1996, RBSMI, which had a history of major violations/exceptions dating back to 1995, underwent periodic exercised supervision and control over the persons responsible in organizing the seminar.
examination by the BSP. The examination team headed by Principio noted 20 serious o On the contrary, as shown in the MR, it was the Bangko Sentral ng Pilipinas Institute (BSPI), an
exceptions/violations and deficiencies of RBSMI and thereafter required them to submit a written office separate and independent from the SES, which is directly under the control and supervision
explanation regarding such findings. of another Deputy Governor—that for the Resource Management Sector (RMS), which is charged
3. RBSMI President Hilario Soriano claimed that he was pressured into issuing a memorandum to the bank with conducting seminars and lectures for the BSP, including the seminar involved in this case.
employees authorizing the examination team to review the bank’s accounting and internal control • RBSMI argues that since information on the state of its finances found its way as a training material of
RMS, the event could have transpired only because the SES permitted it. Even if the subordinates of
system.
petitioners were the source of information, RBSMI further claims in reference to the principle of
4. Soriano also alleged that in March 1997, Reyes started urging him to consider selling the bank. Reyes command responsibility, petitioners could be held liable for negligence.
introduced him Mr. Villacorta, CEO of the TA Bank. However in his Affidavit, Villacorta confirmed that he o SC: It is noteworthy that petitioners’ alleged role in the disclosure of information is not anchored
and Soriano indeed met but the meeting never got past the exploratory stage since Villacorta expressed on any concrete piece of evidence. That explains the RBSMI’s effort to cast liability vicariously on
disinterest because Soriano wanted to sell all his equity shares while he was merely contemplating a the petitioners by a superficial resort to the principle of command responsibility which this Court
possible buy-in. did not reject.
o But neither the principle itself, which is an accepted notion in military or police structural dynamics
5. Soriano further alleged that thereafter, Reyes introduced him to Benjamin P. Castillo of the Export and
or its counterpart of respondeat superior in the law on quasi-delicts would be relevant in this case,
Industry Bank whom he met on June 26, 1997. No negotiation took place because Soriano desired a total
involving as it does the actual performance in office of the petitioners and given the fact that
sale while EIB merely desired a joint venture arrangement or a buy-in to allow EIB to gain control of petitioners are high ranking officers of the country’s central monetary authority.
RBSMI. § Indeed, as such officers, petitioners cannot be expected to monitor the activities of their
subalterns.

27
§ All heads of offices have to rely to a reasonable extent on the good faith of their
subordinates. Delegation of function is part of sound management. DISPOSITIVE PORTION
• The negligence of the subordinate cannot be ascribed to his superior in the absence of evidence of the Court RESOLVES to GRANT the Motion for Reconsideration of the petitioners Deputy Governor Alberto V. Reyes
latter’s own negligence. and Director Wilfredo B. Domo-ong. The Decision dated March 14, 2003 is SET ASIDE and another entered,
o Negligence of the subordinate is not tantamount to negligence of the superior official so the Court DISMISSING the administrative complaint and EXONERATING all the petitioners. The Motion for Partial
ruled in a case where the mandated responsibilities of the superior do not include actual Reconsideration of the respondent Rural Bank of San Miguel (Bulacan), Inc. is
monitoring of projects. DENIED.
o These official subordinates, he notes further, are themselves public officers though of an inferior
grade, and therefore directly liable m the cases in which any public officer is liable, for their own
misdeeds or defaults.

2. Whether Reyes is liable for unprofessionalism for “brokering” – NO
• The Court equated “brokering” with unprofessionalism. The standards are set forth in Section 4 (A) (b) of
RA 6713:
“Sec. 4. Norms of Conduct of Public Officials and Employees. (A) Every public official and employee
shall observe the following as standards of personal conduct in the discharge and execution of
official duties:
xxx
(b) Professionalism. Public officials and employees shall perform and discharge their duties with
the highest degree of excellence, professionalism, intelligence and skill. They shall enter public
service with utmost devotion and dedication to duty. They shall endeavor to discourage wrong
perceptions of their roles as dispensers or peddlers of undue patronage.
o Professionalism” means “the conduct, aims, or qualities that characterize or mark a profession.”
• In the first place, the acts of Reyes do not constitute “brokering.”
o Case law defines a “broker” as “one who is engaged, for others, on a commission, negotiating
contracts relative to property with the custody of which he has no concern; the negotiator
between other parties, never acting in his own name but in the name of those who employed
him… a broker is one whose occupation is to bring the parties together, in matters of trade,
commerce or navigation.” Thus, the word “brokering” clearly indicates the performance of certain
acts for monetary consideration or compensation.
o From the evidence, all that Reyes did was to introduce RBSMI’s President to the President of TA
Bank and EIB. Nothing more. There was not even a hint that he was motivated by monetary
consideration or swayed by any personal interest in doing what he did.
o On his part, Soriano who is RBSMI’s President himself admitted that the talks with Villacorta and
Castillo never got past the exploratory stage because the two wanted a buy-in while he was for a
total sell-out. This is an indelible indication that Reyes was not personally involved in the
transaction otherwise, he would at least have an inkling of the plans of Villacorta and Castillo.
• It appears to the Court that in keeping with the standards of professionalism and heeding the mandate
of his position, he made the telephone introductions for no other purpose but to pave the way for a
possible consolidation or merger of RBSMI with interested banks. It is indeed the policy of the BSP to
promote mergers and consolidations by providing incentives to banks that would undergo such corporate
combinations.
o To effectively implement the policy, it was necessary that the banks be advised and assisted by a
person knowledgeable about the transactions like Reyes.
o It cannot be overemphasized that the BSP is an independent body corporate bestowed under its
charter with fiscal and administrative autonomy. As such, its officials should be granted a certain
degree of flexibility in the performance of their duties and provided insulation from interference
and vexatious suits, especially when moves of the kind are resorted to as counterfoil to the
exercise of their regulatory mandate.

28
Prudential Bank v CA and Aurora Cruz (1993; Cruz) • Petitioner: denies claim, pointing that the Withdrawal slip which it says Cruz has not denied having
TOPIC: Directors of Bank; Fit and Proper Rule signed it, and also contended that the Confirmation of Sale and Debit Memo are fake and should
SUMMARY not have been given credit.
Cruz and her sister invested P200,000 in Central Bank Bills with Prudential Bank. Upon renewal, the bank officer
(Quimbo) in charge of the transaction required respondent to sign a withdrawal slip. Upon respondent’s return,
SC: Findings of TC on said issues were affirmed by CA and there is no reason to disturb them. Petitioner
she found out that the amount was already withdrawn and that Quimbo could not be found. Respondent
bank was not able to show that the decision was reached arbitrarily or in disregard of evidence submitted.
demanded the return from the bank which the bank thereafter denied claim. RTC and CA ruled in favor of
Respondent, ordering the bank to pay. SC affirmed the lower court’s decision, ordering the bank to pay and • There is basis for the conclusion that Respodent Cruz signed the Withdrawal Slip only as part of the
explaining in turn the liability of the bank as principal for its agents. bank’s new procedure of re-investment.
FACTS o This is supported by the observations of the trial court that it is unbelievable that the
withdrawal made by the respondent was an irregular amount (P196,122.98) if they
1. Respondent Aurora Cruz and her sister are co-depositors who invested P200,000 in Central Bank really received it, and instead it is in fact the price of the Central Bank bills rolled over.
bills with Prudential Bank in Quezon Avenue, for 63 days at 13.75% annual interest. P196,122.88 o The bank failed to explain the claimed coincidence that the amount indicated in the
was withdrawn from the depositor’s savings account and was applied to the investment. The withdrawal slip to be exactly the same amount Cruz was re-investing after deducting
remaining difference of P3,877.07 represented the prepaid interest. the pre-paid interest.
a. Said transaction was evidenced by a confirmation of sale and Debit Memo issued by • Bank failed to impugn the authenticity of the Confirmation of Sale and Debit Memo. These
Susan Quimbo, an employee of the bank who was in charge of the transactions.
documents are not available to the public and are instead handled only by the personnel.
2. Upon maturity of the placement, Respondent returned to the bank to “roll-over” or renew her
investment. Respondent Cruz has no obligation therefore to verify the authority because she has the right to
a. Quimbo complied with said renewal but this time required Cruz to sign a withdrawal presume it.
slip of P196,122.88 on August 25, 1986 to cover the re-investment of P200,000 minus o The bank in fact although impleaded Quimbo in the third party complaint, did not even
the prepaid interest of P3,877.02. Quimbo explained such as a new requirement of the pursue suit even if she failed to answer and was declared in default.
bank. o Bank also did not call her to testify and instead relied on other witnesses whose
3. Cruz subsequently returned to the bank to withdraw her P200k but the records shown that it was testimony are less direct and categorical than what Quimbo could have given.
already withdrawn by her on August 25, 1986. Neither Confirmation of Sale nor Debit memo was
allegedly issued by Quimbo, with Quimbo herself not available and had not been reporting for a
week. The branch manager, Roman Santos assured Cruz he would look into the matter. RELEVANT PART
4. Every day thereafter, Cruz went to bank to inquire of her request to withdraw her investment, to • As to the liability on quasi-delict, SC ruled that the petitioner was made liable for its failure or refusal
which she did not receive any definite answer. Cruz subsequently sent a demand letter to the bank to deliver to Cruz the amount deposited. Whatever might have happened to the investment was
for the amount and interest. The VP of the bank (Jocson) requested Cruz for deferral of the action, not the concern of the depositor but instead of the bank.
hoping instead to settle the matter amicably. o Hence Cruz has the right to withdraw her 200k placement when it matured pursuant
a. Cruz sent another letter to reiterate the demand, but the bank made an unequivocal to the terms of her investment as acknowledged and reflected in confirmation of Sale.
negative reply, denying the request since she had already withdrawn the amount. Failure to do so amounts to a breach holding the bank liable.
5. Hence, Cruz filed a complaint for breach of contract against Prudential Bank in QC RTC demanding
the return of her money plus interest, damages, and atty fees. Bank denied liability, insisting that • The bank is liable as a principal for the acts of the agent. SC cited the New Civil Code (articles 1910
she already withdrawn her investment. Bank filed a third party complaint against Quimbo who did and 1911) and cited the case McIntosh v Dakota which held that a bank is liable to innocent third
not file an answer. persons where the representation is made in the course of its business by an agent acting within
6. RTC rendered judgment in favor of Cruz, ordering the bank to pay her the amount plus moral the general scope of his authority even if the agent is secretly abusing his authority and attempting
damages of 30k, exemplary damages of 20k, atty fees of 25k, and dismissing the counterclaim and to perpetrate fraud for own benefit.
3rd party complaint. o These principles are necessary because of the fiduciary relationship with the public and
7. CA affirmed RTC decision. Hence this petition to the SC
their reliance on the stability depends upon the confidence of the people in their
honesty and efficiency.
SC DENIES PETITION and categorically found the petitioner quibbling to delay enforcement of liability • Applying here in the case, petitioner never presented Quimbo on trial nor established her liability
ISSUE w/ RULING
even if they filed a third party complaint. SC ruled that the absence of Quimbo in the proceedings
W/N the lower court is correct in ruling that the bank is liable for its failure to return the money demanded by
the respondent? YES, hence bank is liable created suspicion of the possible misdeed which the bank ignored by insisting that the money was
• Respondent: That she has not yet collected her investment of 200k, and that she has submitted actually withdrawn by Cruz.
proof issued to her by Quimbo.

29
o Bank therefore acted in bad faith in denying the demand by Cruz. Hence the bank is Art. 1911. Even when the agent has exceeded his authority, the principal is solidarily
liable for the amounts sued for by the respondent. liable with the agent if the former allowed the latter to act as though he had full
powers.

DISPOSITIVE
PETITION DENIED

Art. 1910. The principal must comply with all the obligations which the agent may have
contracted within the scope of his authority.

30