Advocates for Truth in Lending, Inc. vs. BSP, et. al.

G.R. No. 192986 / January 15, 2013              

REYES, J.

FACTS:
Advocates for Truth in Lending, Inc. and its President, Eduardo Olaguer claim that they are
raising issues of transcendental importance to the public and so they filed Petition for
Certiorari under Rule 65 ROC seeking to declare that the Bangko Sentral ng Pilipinas
Monetary Board (BSP-MB), replacing the Central Bank Monetary Board (CB-MB) by virtue
of R.A. No. 7653, has no authority to continue enforcing Central Bank Circular No. 905,
issued by the CB-MB in 1982, which "suspended" the Usury Law of 1916 (Act No. 2655).

R.A. No. 265, which created the Central Bank (CB) of the Philippines, empowered the CB-
MB to, among others, set the maximum interest rates which banks may charge for all
types of loans and other credit operations, within limits prescribed by the Usury Law.

In its Resolution No. 2224, the CB-MB issued CB Circular No. 905, Series of 1982. Section
1 of the Circular, under its General Provisions, removed the ceilings on interest rates on
loans or forbearance of any money, goods or credits.

On June 14, 1993, President Fidel V. Ramos signed into law R.A. No. 7653 establishing the
Bangko Sentral ng Pilipinas (BSP) to replace the CB.

ISSUE/S: 
1.    Whether the CB-MB exceeded its authority when it issued CB Circular No. 905,
which removed all interest ceilings and thus suspended Act No. 2655 as regards
usurious interest rates. NO

2.      Whether under R.A. No. 7653, the BSP-MB may continue to enforce CB Circular
No. 905. YES

RULING:

1. The CB-MB merely suspended the effectivity of the Usury Law when it issued CB Circular
No. 905.
 The power of the CB to effectively suspend the Usury Law pursuant to P.D. No. 1684 has
long been recognized and upheld in many cases. As the Court explained in the landmark
case of Medel v. CA, citing several cases, CB Circular No. 905 "did not repeal nor in
anyway amend the Usury Law but simply suspended the latter’s effectivity;" that "a CB
Circular cannot repeal a law, [for] only a law can repeal another law;" that "by virtue of
CB Circular No. 905, the Usury Law has been rendered ineffective;" and "Usury has been
legally non-existent in our jurisdiction. Interest can now be charged as lender and
borrower may agree upon." 

By lifting the interest ceiling, CB Circular No. 905 merely upheld the parties’ freedom of
contract to agree freely on the rate of interest. It cited Article 1306 of the New Civil Code,
under which the contracting parties may establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided they are not contrary to law, morals,
good customs, public order, or public policy.

2. The BSP-MB has authority to enforce CB Circular No. 905.

Section 1 of CB Circular No. 905 provides that, "The rate of interest, including
commissions, premiums, fees and other charges, on a loan or forbearance of any money,
goods, or credits, regardless of maturity and whether secured or unsecured, that may be
charged or collected by any person, whether natural or juridical, shall not be subject to
any ceiling prescribed under or pursuant to the Usury Law, as amended." It does not
purport to suspend the Usury Law only as it applies to banks, but to all lenders.

Petitioners contend that, granting that the CB had power to "suspend" the Usury Law, the
new BSP-MB did not retain this power of its predecessor, in view of Section 135 of R.A. No.
7653, which expressly repealed R.A. No. 265. The petitioners point out that R.A. No. 7653
did not reenact a provision similar to Section 109 of R.A. No. 265.

A closer perusal shows that Section 109 of R.A. No. 265 covered only loans extended by
banks, whereas under Section 1-a of the Usury Law, as amended, the BSP-MB may
prescribe the maximum rate or rates of interest for all loans or renewals thereof or the
forbearance of any money, goods or credits, including those for loans of low priority such
as consumer loans, as well as such loans made by pawnshops, finance companies and
similar credit institutions. It even authorizes the BSP-MB to prescribe different maximum
rate or rates for different types of borrowings, including deposits and deposit substitutes,
or loans of financial intermediaries. Act No. 2655, an earlier law, is much broader in
scope, whereas R.A. No. 265, now R.A. No. 7653, merely supplemented it as it concerns
loans by banks and other financial institutions. Had R.A. No. 7653 been intended to repeal
Section 1-a of Act No. 2655, it would have so stated in unequivocal terms.

Further, the lifting of the ceilings for interest rates does not authorize stipulations
charging excessive, unconscionable, and iniquitous interest. It is settled that nothing in
CB Circular No. 905 grants lenders a carte blanche authority to raise interest rates to
levels which will either enslave their borrowers or lead to a hemorrhaging of their assets.
Stipulations authorizing iniquitous or unconscionable interests have been invariably
struck down for being contrary to morals, if not against the law.

Rural Bank of San Miguel v Monetary Board G.R. No. 150886 February 16, 2007

It is well-settled that the closure of a bank may be considered as an exercise of

police power. The action of the MB on this matter is final and executory. Such
exercise may nonetheless be subject to judicial inquiry and can be set aside if
found to be in excess of jurisdiction or with such grave abuse of discretion as
to amount to lack or excess of jurisdiction.

Facts: Monetary Board (MB), the governing board of respondent Bangko Sentral ng
Pilipinas (BSP), issued Resolution No. 105 prohibiting RBSM from doing business in the
Philippines, placing it under receivership and designating respondent Philippine Deposit
Insurance Corporation (PDIC) as receiver on the basis of the comptrollership reports of
the banks supervising head. To assist its impaired liquidity and operations, the RBSM was
granted emergency loans on different occasions in the aggregate amount of P375. As
early as November 18, 1998, Land Bank of the Philippines (LBP) advised RBSM that it will
terminate the clearing of RBSM’s checks in view of the latter’s frequent clearing losses
and continuing failure to replenish its Special Clearing Demand Deposit with LBP. The BSP
interceded with LBP not to terminate the clearing arrangement of RBSM to protect the
interests of RBSM’s depositors and creditors.  On the basis of reports prepared by PDIC
stating that RBSM could not resume business with sufficient assurance of protecting the
interest of its depositors, creditors and the general public, the MB passed Resolution No.
966 directing PDIC to proceed with the liquidation of RBSM under Section 30 of RA 7653.

Issue: Whether or not the Monetary Board can unilaterally close a bank without prior
hearing

Held: No. It is well-settled that the closure of a bank may be considered as an exercise of
police power. The action of the MB on this matter is final and executory. Such exercise
may nonetheless be subject to judicial inquiry and can be set aside if found to be in
excess of jurisdiction or with such grave abuse of discretion as to amount to lack or
excess of jurisdiction.
This case essentially boils down to one core issue: whether Section 30 of RA 7653 (also
known as the New Central Bank Act) and applicable jurisprudence require a current and
complete examination of the bank before it can be closed and placed under receivership.
The actions of the Monetary Board taken under this section or under Section 29 of this Act
shall be final and executory, and may not be restrained or set aside by the court except
on petition for certiorari on the ground that the action taken was in excess of jurisdiction
or with such grave abuse of discretion as to amount to lack or excess of jurisdiction. The
petition for certiorari may only be filed by the stockholders of record representing the
majority of the capital stock within ten (10) days from receipt by the board of directors of
the institution of the order directing receivership, liquidation or conservatorship.

Soriano v. People G.R. No. 162336 February 1, 2010 Banking Law, DOSRI
N OVE M B E R 14 , 20 18

FACTS:

The Office of Special Investigation (OSI) of the BSP transmitted

a letter  to  the  DOJ,  which was attached  with five affidavits,
which would allegedly serve as bases for filing criminal charges
for Estafa thru Falsification of Commercial Documents, in
relation to PD No. 1689, and for Violation of Section 83 of RA
337, as amended by PD 1795, against, inter alia,  petitioner
Hilario P. Soriano. These five affidavits, along with other
documents, stated that spouses Enrico and Amalia Carlos
appeared to have an outstanding loan of P8 million with the
Rural Bank of San Miguel, Inc. (RBSM), but had never applied for
nor received such loan; that it was petitioner, who was then
president of RBSM who had ordered, facilitated, and received
the proceeds of the loan; and that the P8 million loan had never
been authorized by RBSM’s Board of Directors and no report
thereof had ever been submitted to the Department of Rural
Banks, Supervision and Examination Sector of the BSP.
Two separate informations against petitioner.

Petitioner moved to quash these information.

Essentially, the petitioner theorized that the characterization of

possession is different in the two offenses. If petitioner acquired
the loan as DOSRI, he owned the loaned money and therefore,
cannot misappropriate or convert it as contemplated in the
offense of estafa. Conversely, if petitioner committed estafa,
then he merely held the money in trust for someone else and
therefore, did not acquire a loan in violation of DOSRI rules.

The trial court denied petitioner’s Motion to Quash for lack of

merit. The MR was denied as well.

Aggrieved, petitioner filed a Petition for Certiorari before the CA

which was also denied. Hence, this petition.

ISSUE:

Whether a loan transaction within the ambit of the DOSRI law

(violation of Section 83 of RA 337, as amended) could also be
the subject of Estafa under Article 315 (1) (b) of the Revised
Penal Code.

RULING:

We have examined the two informations against petitioner and

we find that they contain allegations which, if hypothetically
admitted, would establish the essential elements of the crime of
DOSRI violation and estafa thru falsification of commercial
documents.

In Criminal Case No. 238-M-2001 for violation of DOSRI rules,

the information alleged that petitioner Soriano was the
president of RBSM; that he was able to indirectly obtain a loan
from RBSM by putting the loan in the name of depositor Enrico
Carlos; and that he did this without complying with the requisite
board approval, reportorial, and ceiling requirements.

In Criminal Case No. 237-M-2001 for estafa thru falsification of

commercial documents, the information alleged that petitioner,
by taking advantage of his position as president of RBSM,
falsified various loan documents to make it appear that an
Enrico Carlos secured a loan of P8 million from RBSM; that
petitioner succeeded in obtaining the loan proceeds; that he
later converted the loan proceeds to his own personal gain and
benefit; and that his action caused damage and prejudice to
RBSM, its creditors, the BSP, and the PDIC.

Petitioners theory is based on the false premises that the loan

was extended to him by the bank in his own name, and that he
became the owner of the loan proceeds.

Under the circumstances, it cannot be said that petitioner

became the legalowner of the P8 million. Thus, petitioner
remained the banks fiduciary with respect to that money, which
makes it capable of misappropriation or conversion in his hands.

The prohibition in Section 83 is broad enough to cover various

modes of borrowing. It covers loans by a bank director or officer
(like herein petitioner) which are made either: (1) directly,
(2) indirectly, (3) for himself, (4) or as the representative or
agent of others.

It applies even if the director or officer is a mere guarantor,

indorser or surety for someone else’s loan or is in any manner
an obligor for money borrowed from the bank or loaned by it.
The covered transactions are prohibited unless
the approval, reportorial and ceiling requirements under Section
83 are complied with.

The prohibition is intended to protect the public, especially the

depositors,from the overborrowing of bank funds by bank
officers, directors, stockholders and related interests, as such
overborrowing may lead to bank failures.

It has been said that banking institutions are not created for the
benefit of the directors [or officers]. While directors have great
powers as directors, they have no special privileges as
individuals. They cannot use the assets of the bank for their
own benefit except as permitted by law. Stringent restrictions
are placed about them so that when acting both for the bank
and for one of themselves at the same time, they must keep
within certain prescribed lines regarded by the legislature as
essential to safety in the banking business.
 A direct borrowing is obviously one that is made in the name of
the DOSRI himself or where the DOSRI is a named party, while
an indirect borrowing includes one that is made by a third party,
but the DOSRI has a stake in the transaction. The latter type
indirect borrowing applies here.

Banco Filipino Savings and Mortgage Bank vs. Central Bank G.R. No. 70054, December
11, 1991

Pendency of the case did not diminish the powers and authority of the
designated liquidator to effectuate and carry on the administration of the
bank. In the instant case, the basic standards of substantial due process were
not observed.
 Facts:    Top Management Programs Corporation and Pilar Development Corporation are
corporations engaged in the business of developing residential subdivisions.Top
Management and Pilar Development obtained several loans from Banco Filipino all
secured by real estate mortgage in their various properties in Cavite.
The Monetary Board by Ramon Tiaoqui, Special Assistant to the Governor and Head, SES
Department III submitted a report finding that the bank is insolvent and recommending
the appointment of a receiver.    The Monetary Board, based on the Tiaoqui report, issued
a resolution finding Banco Filipino insolvent and placing it under receivership.
Subsequently, the Monetary Board issued another resolution placing the bank under
liquidation and designated a liquidator. By virtue of her authority as liquidator, Valenzuela
appointed the law firm of Sycip, Salazar, et al. to represent Banco Filipino in all litigations.
Banco Filipino filed the petition for certiorari questioning the validity of the resolutions
issued by the Monetary Board authorizing the receivership and liquidation of Banco
Filipino.A temporary restraining order was issued enjoining the respondents from
executing further acts of liquidation of the bank. However, acts and other transactions
pertaining to normal operations of a bank are not enjoined. Subsequently, Top
Management and Pilar Development failed to pay their loans on the due date. Hence, the
law firm of Sycip, Salazar, et al. acting as counsel for Banco Filipino under authority of the
liquidator, applied for extra-judicial foreclosure of the mortgage over Top Management
and Pilar Development’s properties. Thus, the Ex-Officio Sheriff of the Regional Trial Court
of Cavite issued a notice of extra-judicial foreclosure sale of the properties. Top
Management and Pilar Development filed 2 separate petitions for injunction and
prohibition with the respondent appellate court seeking to enjoin the Regional Trial Court
of Cavite, the ex-officio sheriff of said court and Sycip, Salazar, et al. from proceeding
with foreclosure sale which were subsequently dismissed by the court. Hence this petition
Issue:    1) Whether or not the liquidator has the authority to prosecute as well as to
defend suits and to foreclose mortgages for and behalf of the bank while the issue on the
validity of the receivership and liquidation is still pending resolution.
            2) Whether or not the closure of the bank based on the Tiaoqui report is correct.
Held:   
1) Whether or not the liquidator has the authority to prosecute as well as to defend suits
and to foreclose mortgages for and behalf of the bank while the issue on the validity of
the receivership and liquidation is still pending resolution.
Section 29 of the Republic Act No. 265, as amended known as the Central Bank
Act, provides that when a bank is forbidden to do business in the Philippines and placed
under receivership, the person designated as receiver shall immediately take charge of
the bank’s assets and liabilities, as expeditiously as possible, collect and gather all the
assets and administer the same for the benefit of its creditors, and represent the bank
personally or through counsel as he may retain in all actions or proceedings for or against
the institution, exercising all the powers necessary for these purposes including, but not
limited to, bringing and foreclosing mortgages in the name of the bank. If the Monetary
Board shall later determine and confirm that banking institution is insolvent or cannot
resume business safety to depositors, creditors and the general public, it shall, public
interest requires, order its liquidation and appoint a liquidator who shall take over and
continue the functions of receiver previously appointed by Monetary Board. The liquid for
may, in the name of the bank and with the assistance counsel as he may retain, institute
such actions as may necessary in the appropriate court to collect and recover a counts
and assets of such institution or defend any action ft against the institution.
Pendency of the case did not diminish the powers and authority of the designated
liquidator to effectuate and carry on the administration of the bank. The Court did not
prohibit however acts a as receiving collectibles and receivables or paying off credits
claims and other transactions pertaining to normal operate of a bank. There is no doubt
that the prosecution of suits collection and the foreclosure of mortgages against debtors
the bank by the liquidator are among the usual and ordinary transactions pertaining to
the administration of a bank.
2) Whether or not the closure of the bank based on the Tiaoqui report is correct.
Clearly, Tiaoqui based his report on an incomplete examination of petitioner bank and
outrightly concluded therein that the latter’s financial status was one of insolvency or
illiquidity. In the instant case, the basic standards of substantial due process were not
observed. Time and again, We have held in several cases, that the procedure of
administrative tribunals must satisfy the fundamentals of fair play and that their
judgment should express a well-supported conclusion.The test of insolvency laid down in
Section 29 of the Central Bank Act is measured by determining whether the realizable
assets of a bank are leas than its liabilities. Hence, a bank is solvent if the fair cash value
of all its assets, realizable within a reasonable time by a reasonable prudent person,
would equal or exceed its total liabilities exclusive of stock liability; but if such fair cash
value so realizable is not sufficient to pay such liabilities within a reasonable time, the
bank is insolvent. 
 Examination appraises the soundness of the institution’s assets, the quality and
character of management and determines the institution’s compliance with laws, rules
and regulations. Audit is a detailed inspection of the institution’s books, accounts,
vouchers, ledgers, etc. to determine the recording of all assets and liabilities. Hence,
examination concerns itself with review and appraisal, while audit concerns itself with
verification. 

Central Bank of the Philippines vs. Court of Appeals G.R. No. 88353, May 8, 1992

The following requisites must be present before the order of conservatorship

may be set aside by a court: (1) The appropriate pleading must be filed by the
stockholders of record representing the majority of the capital stock of the
bank in the proper court; (2) Said pleading must be filed within ten (10) days
from receipt of notice by said majority stockholders of the order placing the
bank under conservatorship; and (3) There must be convincing proof, after
hearing, that the action is plainly arbitrary and made in bad faith. 
Facts:    Central Bank discovered that certain questionable loans extended by Producer’s
Bank of the Philippines (PBP), totalling approximately P300 million (the paid-in capital of
PBP amounting only to P 140.544 million, were fictitious as they were extended, without
collateral, to certain interests related to PBP owners themselves. Subsequently and
during the same year, several blind items about a family-owned bank in Binondo which
granted fictitious loans to its stockholders appeared in major newspapers which triggered
a bank-run in PBP and resulted in continuous over-drawings on the bank’s demand
deposit account with the Central Bank; reaching to P 143.955 million. Hence, on the basis
of the report submitted by the Supervision and Examination Sector, the Monetary Board
(MB), placed PBP under conservatorship.
 PBP submitted a rehabilitation plan to the CB which proposed the transfer to PBP of 3
buildings owned by Producers Properties, Inc. (PPI), its principal stockholder and the
subsequent mortgage of said properties to the CB as collateral for the bank’s overdraft
obligation but which was not approved due to disagreements between the parties. Since
no other rehabilitation program was submitted by PBP for almost 3 years its overdrafts
with the CB continued to accumulate and swelled to a staggering P1.023
billion. Consequently, the CB Monetary Board decided to approve in principle what it
considered a viable rehabilitation program for PBP. There being no response from both
PBP and PPI on the proposed rehabilitation plan, the MB issued a resolution instructing
Central Bank management to advise the bank that the conservatorship may be lifted if
PBP complies with certain conditions.
Without responding to the communications of the CB, PBP filed a complaint with the
Regional Trial Court of Makati against the CB, the MB and CB Governor alleging that the
resolutions issued were arbitraty and made in bad faith. Respondent Judge issued a
temporary restraining order and subsequently a writ of preliminary injunction. CB filed a
motion to dismiss but was denied and ruled that the MB resolutions were arbitrarily
issued. CB filed a petition for certiorari before the Court of Appeals seeking to annul the
orders of the trial court but CA affirmed the said orders. Hence this petition.
Issue:    Whether or not the trial court erred in not dismissing the case for lack of cause of
action and declaring the MB resolutions as arbitrary.
Held:    The following requisites must be present before the order of conservatorship may
be set aside by a court: (1) The appropriate pleading must be filed by the stockholders of
record representing the majority of the capital stock of the bank in the proper court; (2)
Said pleading must be filed within ten (10) days from receipt of notice by said majority
stockholders of the order placing the bank under conservatorship; and (3) There must be
convincing proof, after hearing, that the action is plainly arbitrary and made in bad faith.
In the instant case, the original complaint was filed more than 3 years after PBP was
placed under conservator, long after the expiration of the 10-day period 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.