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Central Bank v.

Citytrust Banking Corporation


HELD
DOCTRINE: The law imposes on banks high standards in view of the
fiduciary nature of banking. Section 2 of Republic Act No. 8791 (RA 8791), Yes. CB’s teller Dela Cruz did not verify Flores signature on the flimsy
which took effect on 13 June 2000, declares that the State recognizes the excuse that Flores had had previous transactions with it for a number of years.
fiduciary nature of banking that requires high standards of integrity and That circumstance did not excuse the teller from focusing attention to or at
performance. This new provision in the general banking law, introduced in least glancing at Flores as he was signing, and to satisfy herself that the
2000, is a statutory affirmation of Supreme Court decisions, starting with the signature he had just affixed matched that of his specimen signature. Had she
1990 case of Simex International v. Court of Appeals, holding that the bank is done that, she would have readily been put on notice that Flores was affixing,
under obligation to treat the accounts of its depositors with meticulous care, not his but a fictitious signature.
always having in mind the fiduciary nature of their relationship.
Further, the Supreme Court said, given that CB is the government body
mandated to supervise and regulate banking and other financial institutions,
FACTS this Courts ruling in Consolidated Bank and Trust Corporation v. Court of
Appeals illumines:
Here, pursuant to Republic Act No. 625, the old Central Bank Law,
respondent Citytrust Banking Corporation (Citytrust), formerly Feati Bank, The contract between the bank and its depositor is governed by the
maintained a demand deposit account with petitioner Central Bank of the provisions of the Civil Code on simple loan. Article 1980 of the Civil Code
Philippines, now Bangko Sentral ng Pilipinas. expressly provides that x x x savings x x x deposits of money in banks and
similar institutions shall be governed by the provisions concerning simple
loan. There is a debtor-creditor relationship between the bank and its
As required, Citytrust furnished Central Bank (CB) with the names and depositor. The bank is the debtor and the depositor is the creditor. The
corresponding signatures of five of its officers authorized to sign checks and depositor lends the bank money and the bank agrees to pay the depositor
serve as drawers and indorsers for its account. And it provided CB with the list on demand. The savings deposit agreement between the bank and the
and corresponding signatures of its roving tellers authorized to withdraw, sign depositor is the contract that determines the rights and obligations of the
receipts and perform other transactions on its behalf. parties.

Now, CB later issued security identification cards to the roving tellers one of In other words, the law imposes on banks high standards in view of the
whom was Rounceval Flores (Flores). fiduciary nature of banking. Section 2 of Republic Act No. 8791 (RA 8791),
which took effect on 13 June 2000, declares that the State recognizes the
Flores presented for payment to dela Cruz (CB Senior Teller) two Citytrust fiduciary nature of banking that requires high standards of integrity and
checks of even date, payable to Citytrust, one in the amount of P850,000 and performance. This new provision in the general banking law, introduced in
the other in the amount of P900,000, both of which were signed and indorsed 2000, is a statutory affirmation of Supreme Court decisions, starting with the
by Citytrusts authorized signatory-drawers. 1990 case of Simex International v. Court of Appeals, holding that the bank
is under obligation to treat the accounts of its depositors with
Now, Flores successfully encashed the check in the total amount of meticulous care, always having in mind the fiduciary nature of their
P1,750,000 under the name of Rosauro C. Cayabyab, a fact which Dela Cruz relationship.
failed to notice. And the said encashment was debited from Citytrust demand
deposit account. Accordingly, this fiduciary relationship means that the banks obligation to
observe high standards of integrity and performance is deemed written into
More than a year later, Citytrust, by letter, alleging that the checks were every deposit agreement between a bank and its depositor. The fiduciary
already cancelled because they were stolen, demanded CB to restore the nature of banking requires banks to assume a degree of diligence higher than
amounts covered thereby to its demand deposit account. However, CB did not that of a good father of a family. Article 1172 of the Civil Code states that the
heed the demand. degree of diligence required of an obligor is that prescribed by law or contract,
and absent such stipulation then the diligence of a good father of a family.
Subsequently, Citytrust filed a complaint for estafa against Flores wherein Section 2 of RA 8791 prescribes the statutory diligence required from banks
Flores was later on convicted. that banks must observe high standards of integrity and performance in
servicing their depositors. Although RA 8791 took effect almost nine years
Thereafter Citytrust filed before the RTC a complaint for recovery of sum of after the unauthorized withdrawal of the P300,000 from L.C. Diazs savings
money against CB. account, jurisprudence at the time of the withdrawal already imposed on banks
the same high standard of diligence required under RA No. 8791.
CONTENTION
In this present case, Citytrusts failure to timely examine its account, cancel
Citytrust alleged that CB erred in encashing the checks and in charging the the checks and notify petitioner of their alleged loss/theft should mitigate
proceeds thereof to its account, despite the lack of authority of Rosauro C. petitioners liability, in accordance with Article 2179 of the Civil Code which
Cayabyab (Flores). provides that if the plaintiffs negligence was only contributory, the immediate
and proximate cause of the injury being the defendants lack of due care, the
LOWER COURT’S RULING plaintiff may recover damages, but the courts shall mitigate the damages to be
awarded.
RTC: found both Citytrust and CB negligent and accordingly held them equally
liable for the loss. For had Citytrust timely discovered the loss/theft and/or subsequent
encashment, their proceeds or part thereof could have been recovered.
CA: Affirmed RTC’s decision
Therefore, in line with the ruling in Consolidated Bank, the Court deems it
ISSUE proper to allocate the loss between Central Bank and Citytrust on a 60-40 ratio.

1. Whether or not Central Bank should be held Liable in


favor of Citytrust.
First Philippines International Bank v. CA Petitioners energetically contended that the conservator has the power to
revoke or overrule actions of the management or the board of directors of a
bank, under Section 28-A of Republic Act No. 265 (otherwise known as the
FACTS Central Bank Act) as follows:

Here, in the course of its banking operations, the defendant Producer Bank Whenever, on the basis of a report submitted by the appropriate supervising
of the Philippines acquired six parcels of land with a total area of 101 or examining department, the Monetary Board finds that a bank or a non-bank
hectares. The property used to be owned by BYME Investment and financial intermediary performing quasi-banking functions is in a state of
Development Corporation which had them mortgaged with the bank as continuing inability or unwillingness to maintain a state of liquidity deemed
collateral for a loan. The original plaintiffs, Demetrio Demetria and Jose O. adequate to protect the interest of depositors and creditors, the Monetary
Janolo, wanted to purchase the property and thus initiated negotiations for that Board may appoint a conservator to take charge of the assets, liabilities, and
purpose. the management of that institution, collect all monies and debts due said
institution and exercise all powers necessary to preserve the assets of the
In the early part of August 1987 said First Philippines International Bank (FPIB), institution, reorganize the management thereof, and restore its viability. He
upon the suggestion of BYME investment's legal counsel, Jose Fajardo, met shall have the power to overrule or revoke the actions of the previous
with defendant Mercurio Rivera, Manager of the Property Management management and board of directors of the bank or non-bank financial
Department of the defendant bank. The meeting was held pursuant to intermediary performing quasi-banking functions, any provision of law to the
plaintiffs' plan to buy the property. After the meeting, Janolo, following the contrary notwithstanding, and such other powers as the Monetary Board shall
advice of defendant Rivera, made a formal purchase offer to the bank through deem necessary.
a letter dated August 30, 1987.
In the first place, this issue of the Conservator's alleged authority to
There was no reply to Janolo's foregoing letter of September 17, 1987. What revoke or repudiate the perfected contract of sale was raised for the first
took place was a meeting on September 28, 1987 between the plaintiffs and time in this Petition — as this was not litigated in the trial court or Court of
Luis Co, the Senior Vice-President of defendant bank. Rivera as well as Appeals
Fajardo, the BYME lawyer, attended the meeting. Two days later, or on
September 30, 1987, plaintiff Janolo sent to the bank, through Rivera. In the second place, there is absolutely no evidence that the Conservator, at
the time the contract was perfected, actually repudiated or overruled said
Defendant bank, through Rivera, acknowledged receipt of the foregoing letter contract of sale. The Bank's acting conservator at the time, Rodolfo Romey,
in its communication of December 2, 1987 that said letter has been "referred . . . never objected to the sale of the property to Demetria and Janolo. What
to the office of our Conservator for proper disposition" However, no response petitioners are really referring to is the letter of Conservator Encarnacion, who
came from the Acting Conservator. took over from Romey after the sale was perfected on September 30, 1987
which unilaterally repudiated — not the contract — but the authority of Rivera
On December 14, 1987, the plaintiffs made a second tender of payment this to make a binding offer — and which unarguably came months after the
time through the Acting Conservator, defendant Encarnacion. Plaintiffs send perfection of the contract.
letter to the bank for the alleged perfected contract of sale.
In the third place, while admittedly, the Central Bank law gives vast and far-
However, the said letter drew no response for more than four months. Then, reaching powers to the conservator of a bank, it must be pointed out that such
on May 3, 1988, plaintiff, through counsel, made a final demand for compliance powers must be related to the "(preservation of) the assets of the bank, (the
by the bank with its obligations under the considered perfected contract of sale. reorganization of) the management thereof and (the restoration of) its viability."
Such powers, enormous and extensive as they are, cannot extend to the post-
In a reply letter dated May 12, 1988, the defendants through Acting facto repudiation of perfected transactions, otherwise they would infringe
Conservator Encarnacion repudiated the authority of defendant Rivera and against the non-impairment clause of the Constitution. If the legislature itself
claimed that his dealings with the plaintiffs, particularly his counter-offer of cannot revoke an existing valid contract, how can it delegate such non-existent
P5.5 Million are unauthorized or illegal. On that basis, the defendants justified powers to the conservator under Section 28-A of said law?
the refusal of the tenders of payment and the non-compliance with the
obligations under what the plaintiffs considered to be a perfected contract of Obviously, therefore, Section 28-A merely gives the conservator power to
sale. revoke contracts that are, under existing law, deemed to be defective — i.e.,
void, voidable, unenforceable or rescissible.
On May 16, 1988, plaintiffs filed a suit for specific performance with damages
against the bank, its Manager Rivers and Acting Conservator Encarnacion. Hence, the conservator merely takes the place of a bank's board of directors.
The basis of the suit was that the transaction had with the bank resulted in a What the said board cannot do — such as repudiating a contract validly
perfected contract of sale. entered into under the doctrine of implied authority — the conservator cannot
do either. Ineluctably, his power is not unilateral and he cannot simply
On the other hand, the defendants took the position that there was no such repudiate valid obligations of the Bank. His authority would be only to bring
perfected sale because the defendant Rivera is not authorized to sell the court actions to assail such contracts — as he has already done so in the
property, and that there was no meeting of the minds as to the price. instant case. A contrary understanding of the law would simply not be
permitted by the Constitution. Neither by common sense. To rule otherwise
would be to enable a failing bank to become solvent, at the expense of third
ISSUE parties, by simply getting the conservator to unilaterally revoke all previous
dealings which had one way or another or come to be considered unfavorable
Whether or not the bank conservator has the unilateral power to repudiate the to the Bank, yielding nothing to perfected contractual rights nor vested
authority of the bank officers and/or to revoke the said contract. interests of the third parties who had dealt with the Bank.

HELD
Yes. The Supreme Court said, it is not disputed that the petitioner Bank was
under a conservator placed by the Central Bank of the Philippines during the
time that the negotiation and perfection of the contract of sale took place.
Central Bank v. CA not be required since in all probability a hearing would not only cause
unnecessary delay but also provide bank "insiders" and stockholders
the opportunity to further dissipate the bank's resources, create
DOCTRINE: Under Sec. 29 of R.A. 265, the Central Bank, through the liabilities for the bank up to the insured amount of P40,000.00, and even
Monetary Board, is vested with exclusive authority to assess, evaluate and destroy evidence of fraud or irregularity in the bank's operations to the
determine the condition of any bank, and finding such condition to be one of prejudice of its depositors and creditors. CB further argue that the
insolvency, or that its continuance in business would involve probable loss to legislative intent of Sec. 29 is to repose in the Monetary Board exclusive power
its depositors or creditors, forbid the bank or non-bank financial institution to to determine the existence of statutory grounds for the closure and liquidation
do business in the Philippines; and shall designate an official of the CB or other of banks, having the required expertise and specialized competence to do so.
competent person as receiver to immediately take charge of its assets and
liabilities. Contrary to the notion of TSB, Sec. 29 does not contemplate prior
notice and hearing before a bank may be directed to stop operations and ISSUE
placed under receivership.
Whether or not a Monetary Board resolution placing a TSB (private bank)
under receivership be annulled on the ground of lack of prior notice and
FACTS hearing.

Here, based on examination reports submitted by the Supervision and


Examination Sector (SES) of the Central Bank (CB) "that the financial
condition of Triumph Savings Bank (TSB) is one of insolvency and its HELD
continuance in business would involve probable loss to its depositors and
creditors,". No. Under Sec. 29 of R.A. 265, the Central Bank, through the Monetary Board,
is vested with exclusive authority to assess, evaluate and determine the
Thus, the Monetary Board (MB) issued Resolution No. 596 ordering the condition of any bank, and finding such condition to be one of insolvency, or
closure of TSB, forbidding it from doing business in the Philippines, placing it that its continuance in business would involve probable loss to its depositors
under receivership, and appointing Ramon V. Tiaoqui as receiver. Tiaoqui or creditors, forbid the bank or non-bank financial institution to do business in
assumed office on 3 June 1985. the Philippines; and shall designate an official of the CB or other competent
person as receiver to immediately take charge of its assets and liabilities. The
On June 11, 1985, TSB filed a complaint with the RTC against Central Bank fourth paragraph, which was then in effect at the time the action was
and Ramon V. Tiaoqui to annul MB Resolution No. 596, with prayer for commenced, allows the filing of a case to set aside the actions of the Monetary
injunction, challenging in the process the constitutionality of Sec. 29 of R.A. Board which are tainted with arbitrariness and bad faith.
269, otherwise known as "The Central Bank Act," as amended, insofar as it
authorizes the Central Bank to take over a banking institution even if it is not Contrary to the notion of TSB, Sec. 29 does not contemplate prior notice
charged with violation of any law or regulation, much less found guilty thereof. and hearing before a bank may be directed to stop operations and placed
under receivership. When par. 4 (now par. 5, as amended by E.O. 289)
On July 1, 1985, the trial court temporarily restrained petitioners from provides for the filing of a case within ten (10) days after the receiver takes
implementing MB Resolution No. 596 "until further orders", thus prompting charge of the assets of the bank, it is unmistakable that the assailed actions
them to move for the quashal of the restraining order (TRO) on the ground that should precede the filing of the case. Plainly, the legislature could not have
it did not comply with said Sec. 29, i.e., that TSB failed to show convincing intended to authorize "no prior notice and hearing" in the closure of the bank
proof of arbitrariness and bad faith on the part of petitioners;' and, that TSB and at the same time allow a suit to annul it on the basis of absence thereof.
failed to post the requisite bond in favor of Central Bank.

Central Bank moved to dismiss on two grounds; 1. The complaint failed to The Court cited the case of Rural Bank of Buhi, Inc. v. Court of Appeals,
state a cause of action; 2. The Triumph Savings Bank was without capacity to wherein it was held . . . the law is explicit as to the conditions prerequisite to
sue except through its appointed receiver. the action of the Monetary Board to forbid the institution to do business in the
Philippines and to appoint a receiver to immediately take charge of the bank's
Now, concerning the first ground, Central Bank themselves admit that the assets and liabilities. They are: (a) an examination made by the examining
Monetary Board resolution placing the Triumph Savings Bank under the department of the Central Bank; (b) report by said department to the Monetary
receivership of the officials of the Central Bank was done without prior Board; and (c) prima facie showing that its continuance in business would
hearing, that is, without first hearing the side of the bank. They further involve probable loss to its depositors or creditors.
admit that said resolution can be the subject of judicial review and may be set
aside should it be found that the same was issued with arbitrariness and in In sum, appeal to procedural due process cannot just outweigh the evil sought
bad faith. to be prevented; hence, the Court rule that Sec. 29 of R.A. 265 is a sound
legislation promulgated in accordance with the Constitution in the exercise of
police power of the state. Consequently, the absence of notice and hearing is
CONTENTION not a valid ground to annul a Monetary Board resolution placing a bank under
receivership. The absence of prior notice and hearing cannot be deemed acts
TSB: It allege that in the Banco Filipino case,Wherein it was held that CB of arbitrariness and bad faith. Thus, an MB resolution placing a bank under
violated the rule on administrative due process laid down in Ang Tibay vs. receivership, or conservatorship for that matter, may only be annulled after a
CIR (69 Phil. 635) and Eastern Telecom Corp. vs. Dans, Jr. (137 SCRA 628) determination has been made by the trial court that its issuance was tainted
which requires that prior notice and hearing be afforded to all parties in with arbitrariness and bad faith. Until such determination is made, the
administrative proceedings. Since MB Resolution No. 596 was adopted status quo shall be maintained, i.e., the bank shall continue to be under
without TSB being previously notified and heard, according to TSB, the same receivership.
is void for want of due process; consequently, the bank's management should
be restored to its board of directors and officers. As regards the second ground, to rule that only the receiver may bring suit
in behalf of the bank is, to echo the respondent appellate court, "asking for the
impossible, for it cannot be expected that the master, the CB, will allow the
Central Bank: It asserted that it is the essence of Sec. 29 of R.A. 265 receiver it has appointed to question that very appointment." Consequently,
that prior notice and hearing in cases involving bank closures should only stockholders of a bank could file an action for annulment of a Monetary
Board resolution placing the bank under receivership and prohibiting it from
continuing operations. The Court cited the case of Central Bank v. Court of
Appeals, wherein the Supreme Court explained the purpose of the law —

. . . in requiring that only the stockholders of record representing the majority


of the capital stock may bring the 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 may immediately resort to
court action to prevent its implementation or enforcement. It is presumed that
such a resolution is directed principally against acts of said Directors and
officers which place the bank in a state of continuing inability to maintain a
condition of liquidity adequate to protect the interest of depositors and
creditors. Indirectly, it is likewise intended to protect and safeguard the rights
and interests of the stockholders. Common sense and public policy dictate
then that the authority to decide on whether to contest the resolution should
be lodged with the stockholders owning a majority of the shares for they are
expected to be more objective in determining whether the resolution is plainly
arbitrary and issued in bad faith

IN this case, it is observed that the complaint was filed on June 11, 1985 or
two (2) years prior to July 25, 1987 when E.O. 289 was issued, to be effective
sixty (60) days after its approval (Sec. 5). The implication is that before E.O.
289, any party in interest could institute court proceedings to question a
Monetary Board resolution placing a bank under receivership. Consequently,
since the instant complaint was filed by parties representing themselves to be
officers of respondent Bank (Officer-in-Charge and Vice President), the case
before the trial court should now take its natural course. However, after the
effectivity of E.O. 289, the procedure stated therein should be followed and
observed.

Banco Filipino Savings and Mortgages Bank v.


Monetary Board
Doctrine
Facts
Issue
Held

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