JUDITH ELISCIA E.

YACOB JD-3B

TOPIC: FOREIGN BANKS (Sections 72 – 78)

TITLE: Philippine Deposit Insurance Corporation vs. Citibank; GR NO. 170290; April 11, 2012

DOCTRINE:

It has been settled that any obligation of a bank which is payable at the office outside of the
Philippines shall not be a deposit for any of the purposes of the Act.

FACTS:

PDIC conducted an examination of the books of account of Citibank. It discovered that Citibank
received from its foreign branches a certain amount of dollars, as proven by the Certificates of
Dollar Time Deposit. These funds were allegedly not reported to the PDIC as deposit liabilities
that were subject to assessments for dollar deposits. A petition was filed by the Citibank where it
sought a declaratory judgment stating that the money placements they received from their head
office and other foreign branches were not deposits and did not give rise to insurable deposit
liabilities.

PDIC argued that the head offices of Citibank and BA and their individual foreign branches are
separate and independent entities. They insisted that a bank’s head office and its branches have a
principal-agent relationship only if they operate in the same jurisdiction.

ISSUE:

Whether or not the deposits made by the foreign banks are considered as deposits within the
definition of the PDIC Charter.

RULING:
No. It has been settled that any obligation of a bank which is payable at the office outside of the
Philippines shall not be a deposit for any of the purposes of the Act. As correctly explained by the
respondents, the transfer of funds took place in the books of account of the respective branches in
their head office located in the United States. Hence, because it is payable outside the Philippines,
it cannot be considered as a deposit. The Court found that the funds in question are not deposits.
Thus, they are excluded from assessment.

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JUDITH ELISCIA E. YACOB JD-3B

TOPIC: CENTRAL BANK OF THE PHILIPPINES

TITLE: Development Bank of the Philippines vs. Commission on Audit; GR NO. 88435; January
16, 2002

DOCTRINE:
Section 26 of PD 1445 shall be applied in conformity to Section 25 and 28 of the New Central
Bank Act which authorize expressly the Monetary Board to conduct periodic or special
examination of all banks. The power vested in the Monetary Board emanated from the explicit
mandate of the Constitution to exercise “supervision over the operations of banks.”

FACTS:

The Philippine Government obtained from the World Bank an Economic Recovery Loan. The loan
was intended to support the recovery of the Philippine economy. As a condition for granting the
loan, the World Bank required the Philippine government to rehabilitate the DBP which was then
saddled with huge non-performing loans. The government committed to rehabilitate DBP to make
it a viable and self-sustaining financial institution in recognition of its developmental role in the
economy. Monetary Board adopted Resolution No. 1079 amending the Central Bank's Manual of
Regulations for Banks and other Financial Intermediaries, in line with the government's
commitment to the World Bank to require a private external auditor for DBP. Pursuant to Central
Bank Circular No. 1124 and the government's commitment to the World Bank, DBP Chairman
Jesus Estanislao wrote the COA seeking approval of the DBP's engagement of a private external
auditor in addition to the COA.

ISSUE:

Whether or not COA has the sole and exclusive power to examine and audit government banks.

RULING:
Section 26 of PD 1445 shall be applied in conformity to Section 25 and 28 of the New Central
Bank Act which authorize expressly the Monetary Board to conduct periodic or special
examination of all banks. The power vested in the Monetary Board emanated from the explicit
mandate of the Constitution to exercise “supervision over the operations of banks.”
Clearly, under existing laws, the COA does not have sole and exclusive power to examine and
audit government banks. The Central Bank has concurrent jurisdiction to examine and audit, or
cause the examination and audit, of government banks.
Under the General Banking Law, the Central Bank has the power to require an independent audit
of banks. The DBP, being a bank under the constitutional and statutory supervision of the Central
Bank, was under a clear legal obligation to comply with the requirement of Circular No. 1124 on
the private audit of banks. Refusal by the DBP to comply with the Circular would have rendered
the DBP and its officers liable to the penal provisions of the General Banking Act.

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JUDITH ELISCIA E. YACOB JD-3B

TOPIC: CENTRAL BANK OF THE PHILIPPINES

TITLE: Central Bank Employees Association, Inc. vs. Bangko Sentral ng Pilipinas; GR NO.
148208; December 15, 2004

DOCTRINE:
The equal protection clause does not demand absolute equality but it requires that all persons shall
be treated alike, under like circumstances and conditions both as to privileges conferred and
liabilities enforced.

FACTS:

The New Central Bank Act took effect on July 3, 1993. It abolished the old Central Bank of the
Philippines, and created a new BSP. Eight years after, petitioner filed a petition for prohibition
against BSP and the Executive Secretary of the Office of the President, to restrain respondents
from further implementing the las proviso of RA 7653 on the ground that it is unconstitutional.
The petition challenged the proviso where the law makes an unconstitutional cut between two
classes of employees in BSP: the officers and the rank-and-file. It contended that this classification
is based not on a valid classification.

The respondent posited that the provision does not violate the equal protection clause and can stand
the constitutional test, provided that it is construed with the other provisions of the same law, such
as “fiscal and administrative autonomy of BSP”, and the mandate of the Monetary Board to
“establish professionalism and excellence at all levels in accordance with sound principles of
management.”

ISSUE:

Whether or not the provision is unconstitutional for being violative of equal protection clause.

RULING:
Yes. The equal protection clause does not demand absolute equality but it requires that all persons
shall be treated alike, under like circumstances and conditions both as to privileges conferred and
liabilities enforced.
In the case at bar, it is clear that the exemption of officers from SSL was intended to address the
BSP’s lack of competitiveness in terms of attracting competent officers and executives. It was not
established to discriminate against the rank-and-file.
The equal protection clause does not prevent the legislature from establishing classes of individuals
or objects upon which different rules shall operate. Equality of operation of statutes does not mean
indiscriminate operation on persons themselves, but on persons according to the circumstances
surrounding them.

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JUDITH ELISCIA E. YACOB JD-3B

TOPIC: CENTRAL BANK OF THE PHILIPPINES

TITLE: United Coconut Planters Bank vs. E. Ganzon, Inc.; GR NO. 168859; June 30, 2009

DOCTRINE:
The BSP Monetary Board is a quasi-judicial agency exercising quasi-judicial power 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 the presentation of books, records and others.

FACTS:

Between the years 1995-1998, EDI availed itself of the credit facilities from UCPB to finance its
business expansion. To secure said credit facilities, EGI mortgaged to UCPB its condominium unit
inventories located in Manila. Initially, EDI was able to make periodic amortization payments of
its loans to UCPB. When the negative effects of the economic crisis caught up. EGI started
defaulting in its payment of amortizations, thus, making all its obligations due and demandable.
To fulfill EGI’s obligation, they entered into a MOA with UCPB were the condominiums shall be
transferred to UCPB by the following modes: (1) foreclosure of mortgage; (2) dacion en pago; (3)
creation of a holding company; and (4) use of other alternatives as may be deemed appropriate by
UCPB.

The properties were foreclosed but it was still not sufficient to fulfill the obligations of EGI. The
remaining properties were transferred to UCPB through dacion en pago. However, it was still
insufficient which prompted EGI to investigate overpayment. EGI filed with the BSP an
administrative complaint against UCPB, et al., for violation of Sections 36 and 37, Article IV of
Republic Act No. 7653, in relation to Section 55.1(a) of Republic Act No. 8791; and for the
commission of irregularities and conducting business in an unsafe or unsound manner.

ISSUE:

Whether or not the CA has jurisdiction over the appeals of decisions of the BSP.

RULING:
Yes. The BSP Monetary Board is a quasi-judicial agency exercising quasi-judicial power 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 the presentation of books,
records and others.
The present case involves a decision of the BSP Monetary Board as regards an administrative
complaint against a bank and its corporate officers for the alleged violation of the New Central
Bank Act. There is nothing in the law which states that the decision of the BSP is final and
executory and beyond the subject of judicial review. Without being explicitly excepted or
exempted, the final judgments, orders, resolutions or awards of the BSP Monetary Board are
among those appealable to the Court of Appeals by way of Petition for Review.

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JUDITH ELISCIA E. YACOB JD-3B

TOPIC: CENTRAL BANK OF THE PHILIPPINES

TITLE: Monetary Board vs. Philippine Veterans Bank; GR NO. 189571; January 21, 2015

DOCTRINE:
It is well-settled that decisions of quasi-judicial agencies cannot be the proper subject of a petition
for declaratory relief for the simple reason that if a party is not agreeable to a decision either on
question of law or of fact.

FACTS:

Respondent established a pension loan for bona fide veterans or their surviving spouses, as well
as salary loan product for teachers and low-salaried employees pursuant to its mandate under RA
3518 and 7169 to provide financial assistance to veterans and teachers. An examination was
conducted by the Supervision and Examination Department (SED) II of the Bangko Sentral ng
Pilipinas (BSP). It found that respondent’s collection of premiums from the proceeds of various
salary and pension loans of borrowers to guarantee payment of outstanding loans violated Section
54 of RA No. 8791 which states that banks shall not directly engage in insurance business as
insurer.

BSP notified respondent about the Insurance Commission’s opinion that the CRF is a form of
insurance. Thus, respondent was requested to discontinue the collection of said fees. respondent
complied with the BSP’s directive and discontinued the collection of fees for CRF.

ISSUE:

Whether or not the Monetary Board has the authority to issue MB Resolution.

RULING:
Yes. Declaratory relief is defined as 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. 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.
It is well-settled that decisions of quasi-judicial agencies cannot be the proper subject of a petition
for declaratory relief for the simple reason that if a party is not agreeable to a decision either on
question of law or of fact.
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.
In this case, BSP Monetary Board is indeed a quasi-judicial body exercising quasi-judicial
functions, then its decision in MB Resolution 1139 cannot be the proper subject of declaratory
relief.

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JUDITH ELISCIA E. YACOB JD-3B

TOPIC: CENTRAL BANK OF THE PHILIPPINES

TITLE: Central Bank Board of Liquidators vs. Banco Filipino Savings and Mortgage Bank; GR
NO. 173399; February 21, 2017

DOCTRINE:
Rule 10 of the 1997 Revised Rules of Court allows the parties to amend their pleadings (a) by
adding or striking out an allegation or a party's name; or (b) by correcting a mistake in the name
of a party or rectifying a mistaken or an inadequate allegation or description in the pleadings for
the purpose of determining the actual merits of the controversy in the most inexpensive and
expeditious manner.

FACTS:

The Central Bank issued MB Resolution No. 955 placing Banco Filipino under conservatorship
after granting the latter’s loan applications worth billions of pesos. Respondent bank filed with a
complaint against the CB for the annulment of MB Resolution 955. Thereafter, CB issued MB
Resolution No. 75 ordering the closure of Banco Filipino and placing the latter under receivership.
The Resolution stated that since respondent had been found to be insolvent, the latter was forbidden
to continue doing business to prevent further losses to its depositors and creditors. The Resolution
provided for the takeover of assets and liabilities of Banco Filipino for the benefit of its depositors
and creditors. Banco Filipino filed a Complaint against the MB, assailing the latter's act of placing
the bank under receivership.

ISSUE:

Whether or not the amendment violates the rules on joinder of parties and causes of action.

RULING:
Yes. Rule 10 of the 1997 Revised Rules of Court allows the parties to amend their pleadings (a)
by adding or striking out an allegation or a party's name; or (b) by correcting a mistake in the name
of a party or rectifying a mistaken or an inadequate allegation or description in the pleadings for
the purpose of determining the actual merits of the controversy in the most inexpensive and
expeditious manner.
In this case, since there are multiple parties involved, the two requirements mentioned must be
present before the causes of action and parties can be joined. Neither of the two requirements for
the joinder of causes of action and parties was met.
The only common factor in all these allegations is respondent bank itself as the alleged aggrieved
party. Since the BSP and its MB cannot be joined as parties, then neither can the causes of action
against them be joined.
The "acts complained of"' cover not just the conservatorship, receivership, closure, and liquidation
of Banco Filipino in 1984 and 1985, but also the alleged acts of harassment committed by the BSP
and its MB after respondent bank was reopened in 1994. These acts constituted a whole new cause
of action.

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JUDITH ELISCIA E. YACOB JD-3B

TOPIC: DUTIES OF THE GOVERNOR

TITLE: Bangko Sentral ng Pilipinas vs. Feliciano Legaspi; GR NO. 205966; March 02, 2016

DOCTRINE:
In cases involving the BSP, the Monetary Board may authorize the BSP Governor to represent it
personally or through a counsel, even a private counsel, and the authority to represent the BSP
may be delegated to any of its officers.

FACTS:

Petitioner filed a complaint for annulment of title, revocation of certificate and damages against
Secretary Atienza, et. Al. Respondent Legaspi filed a Motion to Dismiss alleging that the RTC did
not acquire jurisdiction over the person of the petitioner BSP because the suit is unauthorized by
BSP itself and that the counsel representing BSP is not authorized and cannot bind the same
petitioner.

ISSUE:

Whether or not the BSP can lawfully engage the service of a counsel.

RULING:
Yes. Under Republic Act No. 7653, or the New Central Bank Act, the BSP Governor is authorized
to represent the Bangko Sentral, either personally or through counsel, including private counsel,
as may be authorized by the Monetary Board, in any legal proceedings, action or specialized legal
studies. Under the same law, the BSP Governor may also delegate his power to represent the BSP
to other officers upon his own responsibility.
In cases involving the BSP, the Monetary Board may authorize the BSP Governor to represent it
personally or through a counsel, even a private counsel, and the authority to represent the BSP
may be delegated to any of its officers.

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JUDITH ELISCIA E. YACOB JD-3B

TOPIC: DUTIES OF THE GOVERNOR

TITLE: Jesus Armando Tarrosa vs. Gabriel Singson; GR NO 111243; May 25, 1994

DOCTRINE:
However, it was settled before that the Congress cannot by law expand the confirmation powers
of the Commission on Appointments, and require confirmation of appointment of other
government officials not expressly mentioned by the Constitution.

FACTS:

Respondent Singson was appointed the Governor of the BSP by President Fidel Ramos. Petitioner
contested that the respondent’s appointment is null and void since it was not submitted for
confirmation to the Commission on Appointments. However, in their comments, the respondent s
claimed that Congress exceeded its legislative powers in requiring the confirmation of the
appointment by the Commission on Appointments.

ISSUE:

Whether or not the appointment in the BSP must be confirmed by the Commission on
appointments.

RULING:
No. Court refrains from passing upon the constitutionality of Section 6, R.A. No. 7653 in deference
to the principle that bars a judicial inquiry into a constitutional question unless the resolution
thereof is indispensable for the determination of the case.
However, it was settled before that the Congress cannot by law expand the confirmation powers
of the Commission on Appointments, and require confirmation of appointment of other
government officials not expressly mentioned by the Constitution.

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JUDITH ELISCIA E. YACOB JD-3B

TOPIC: SUPERVISION OVER BANKS

TITLE: Rural Bank of San Miguel vs. Monetary Board; GR NO. 150886; February 16, 2007

DOCTRINE:
In RA 7653, only a "report of the head of the supervising or examining department" is necessary.
It is an established rule in statutory construction that where the words of a statute are clear, plain
and free from ambiguity, it must be given its literal meaning and applied without attempted
interpretation.

FACTS:

Respondent, the governing board of respondent BSP, issued a resolution prohibiting RBSM from
doing business in the Philippines, placing it under receivership and designating respondent PDIC
as receiver. On the basis of the monitoring report as of October 31, 1999, it showed that petitioner
(a) is unable to pay its liabilities as they become due in the ordinary course of business; (b) cannot
continue in business without involving probable losses to its depositors and creditors; that the
management of the bank had been accordingly informed of the need to infuse additional capital to
place the bank in a solvent financial condition and was given adequate time within which to make
the required infusion and that no infusion of adequate fresh capital was made.

RBSM declared a bank holiday. RBSM and all of its 15 branches were closed from doing business.
Alarmed and disturbed by the unilateral declaration of bank holiday, BSP wanted to examine the
books and records of RBSM but encountered problems. 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 BSP has the power to examine the bank’s activities.

RULING:
In RA 7653, only a "report of the head of the supervising or examining department" is necessary.
It is an established rule in statutory construction that where the words of a statute are clear, plain
and free from ambiguity, it must be given its literal meaning and applied without attempted
interpretation.
The Supreme Court ruled that the MB had sufficient basis to arrive at a sound conclusion that there
were grounds that would justify RBSM’s closure. It relied on the report of Mr. Domo-ong, the
head of the supervising or examining department, with the findings that: (1) RBSM was unable to
pay its liabilities as they became due in the ordinary course of business and (2) that it could not
continue in business without incurring probable losses to its depositors and creditors.
MB and BSP complied with all the requirements of RA 7653. By relying on a report before placing
a bank under receivership, the MB and BSP did not only follow the letter of the law, they were
also faithful to its spirit, which was to act expeditiously.

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JUDITH ELISCIA E. YACOB JD-3B

TOPIC: RA 10846

TITLE: BSP vs. Hon. Nina Valenzuela; GR NO. 184778; October 2, 2009

DOCTRINE:

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:

Supervision and Examination Department (SED) of the Bangko Sentral ng Pilipinas (BSP)
conducted examinations of the books of the following banks: Rural Bank of Parañaque, Inc.
(RBPI), Rural Bank of San Jose (Batangas), Inc., Rural Bank of Carmen (Cebu), Inc., Pilipino
Rural Bank, Inc., Philippine Countryside Rural Bank, Inc., Rural Bank of Calatagan (Batangas),
Inc. (now Dynamic Rural Bank), Rural Bank of Darbci, Inc., Rural Bank of Kananga (Leyte), Inc.
(now First Interstate Rural Bank), Rural Bank de Bisayas Minglanilla (now Bank of East Asia),
and San Pablo City Development Bank, Inc.

RBPI filed a complaint for nullification of the BSP ROE with application for a TRO and writ of
preliminary injunction. The Rural Bank of San Jose (Batangas), Inc., Rural Bank of Carmen
(Cebu), Inc., Pilipino Rural Bank, Inc., Philippine Countryside Rural Bank, Inc., Rural Bank of
Calatagan (Batangas), Inc., Rural Bank of Darbci, Inc., Rural Bank of Kananga (Leyte), Inc., and
Rural Bank de Bisayas Minglanilla followed suit.

ISSUE:

Whether or not the RTC is correct in holding that the submission of the ROEs to the MB before
the respondent banks would violate the right to due process of said banks.

RULING:
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.
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. Unless adequate and determined efforts are taken by the government against distressed
and mismanaged banks, public faith in the banking system is certain to deteriorate to the prejudice
of the national economy itself, not to mention the losses suffered by the bank depositors, creditors,
and stockholders, who all deserve the protection of the government.
The respondent banks have failed to show their entitlement to the writ of preliminary injunction.
It must be emphasized that an application for injunctive relief is construed strictly against the
pleader. The respondent banks cannot rely on a simple appeal to procedural due process to prove
entitlement. The requirements for the issuance of the writ have not been proved. No invasion of
the rights of respondent banks has been shown, nor is their right to copies of the ROEs clear and
unmistakable.

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JUDITH ELISCIA E. YACOB JD-3B

TOPIC: RA 10846

TITLE: Central Bank of the Philippines vs. Court of Appeals; GR NO.

DOCTRINE:
This "close now and hear later" scheme is grounded on practical and legal considerations to prevent
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.

FACTS:

Based on examination reports submitted by the Supervision and Examination Sector (SES),
Department II, of the Central Bank (CB) "that the financial condition of TSB is one of insolvency
and its continuance in business would involve probable loss to its depositors and creditors," the
Monetary Board (MB) issued on 31 May 1985 Resolution No. 596 ordering the closure of TSB,
forbidding it from doing business in the Philippines, placing it under receivership, and appointing
Ramon V. Tiaoqui as receiver. Tiaoqui assumed office on 3 June 1985.

TSB filed a complaint with the Regional Trial Court of Quezon City against Central Bank and
Ramon V. Tiaoqui to annul MB Resolution No. 596, with prayer for injunction, challenging in the
process the constitutionality of Sec. 29 of R.A. 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 charged with violation of any law or regulation, much less found guilty thereof.

ISSUE:

Whether absence of prior notice and hearing may be considered acts of arbitrariness and bad faith
sufficient to annul a Monetary Board resolution enjoining a bank from doing business and placing
it under receivership.

RULING:
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 condition of any bank, and finding such
condition to be one of insolvency, or that its continuance in business would involve probable loss
to its depositors or creditors, forbid the bank or non-bank financial institution to do business in 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
This "close now and hear later" scheme is grounded on practical and legal considerations to prevent
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.
The Supreme Court ruled 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 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 of arbitrariness and
bad faith. Thus, an MB resolution placing a bank under receivership, or conservatorship for that
matter, may only be annulled after a determination has been made by the trial court that its issuance
was tainted with arbitrariness and bad faith.

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JUDITH ELISCIA E. YACOB JD-3B

TOPIC: RA 10846

TITLE: Alfredo Vivas vs. Monetary Board; GR NO 191424; August 7, 2013

DOCTRINE:

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.

FACTS:

Pursuant to Section 28 of Republic Act (R.A.) No. 7653, otherwise known as The New Central
Bank Act, the Integrated Supervision Department II (ISD II) of the BSP conducted a general
examination on ECBI with the cut-off date of December 31, 2007. Shortly after the completion of
the general examination, an exit conference was held on March 27, 2008 at the BSP during which
the BSP officials and examiners apprised Vivas, the Chairman and President of ECBI, as well as
the other bank officers and members of its BOD, of the advance findings noted during the said
examination. The ECBI submitted its comments on BSP’s consolidated findings and risk asset
classification through a letter, dated April 8, 2008.

The MB, on the other hand, posited that ECBI unjustly refused to allow the BSP examiners from
examining and inspecting its books and records, in violation of Sections 25 and 34 of R.A. No.
7653. In its letter, dated May 8, 2009, the BSP informed ECBI that it was already due for another
annual examination and that the pendency of its appeal before the MB would not prevent the BSP
from conducting another one as mandated by Section 28 of R.A. No. 7653.

ISSUE:

Whether or not the Monetary Board could close a bank even without a hearing.

RULING:
Yes. 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. Unless adequate and determined efforts are taken by the government against
distressed and mismanaged banks, public faith in the banking system is certain to deteriorate to
the prejudice of the national economy itself, not to mention the losses suffered by the bank
depositors, creditors, and stockholders, who all deserve the protection of the government.
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.
Management take-over under Section 11 of R.A. No. 7353 was no longer feasible considering the
financial quagmire that engulfed ECBI showing serious conditions of insolvency and illiquidity.
Besides, placing ECBI under receivership would effectively put a stop to the further draining of
its assets.

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JUDITH ELISCIA E. YACOB JD-3B

TOPIC: RA 10846

TITLE: Producers Bank of the Philippines vs. National Labor Relations; GR NO. 118069;
November 16, 1998

DOCTRINE:

Section 28-A merely gives the conservator power to revoke contracts that are, under existing law,
deemed to be defective - i.e., void, voidable, unenforceable or rescissible.

FACTS:

Petitioner was placed by the then Central Bank of the Philippines (now Bangko Sentral ng
Pilipinas) under a conservator for the purpose of protecting its assets.2 It appears that when the
private respondents sought the implementation of Section 1, Article XI of the CBA regarding the
retirement plan and Section 4, Article X thereof, pertaining to uniform allowance, the acting
conservator of the petitioner expressed her objection to such plan, resulting in an impasse between
the petitioner bank and the private respondent union.

ISSUE:

Whether or not NLRC is correct when it ordered the petitioner to implement the provisions of the
CBA which were disallowed by the conservator.

RULING:
Yes. Section 28-A merely gives the conservator power to revoke contracts that are, under existing
law, deemed to be defective - i.e., void, voidable, unenforceable or rescissible. Hence, the
conservator merely takes the place of a bank's board of directors. What the said board cannot do -
such as repudiating a contract validly entered into under the doctrine of implied authority - the
conservator cannot do either. Ineluctably, his power is not unilateral and he cannot simply
repudiate valid obligations of the Bank.
Prescinding from the rationalization that a conservator cannot rescind a valid and existing contract
and that the CBA is the law between the contracting parties, it is obvious that the conservator had
no authority whatsoever to disallow the implementation of Article XI, Section 1 and Article X,
Section 4 of the CBA, especially considering that the ideals of social justice and protection of labor
are guaranteed not only by the Labor Code, but more importantly by the fundamental law of the
land.

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JUDITH ELISCIA E. YACOB JD-3B

TOPIC: RA 10846

TITLE: APEX Bancrights Holdings vs. Bangko Sentra; ng Pilipinas; GR NO. 214866; October 2,
2017

DOCTRINE:

It is settled that the power of the Monetary Board to close banks and liquidate them thereafter
when public interest so requires is an exercise of the police power of the State. Police power,
however, is subject to judicial inquiry.

FACTS:

In September 2001, following the merger with Urban Bank and Urbancorp, EIB itself encountered
financial difficulties which prompted respondent the Philippine Deposit Insurance Corporation
(PDIC) to extend financial assistance to it. However, EIB still failed to overcome its financial
problems, thereby causing PDIC to release in May 2005 additional financial assistance to it,
conditioned upon the infusion by EIB stockholders of additional capital whenever EIB's adjusted
Risk Based Capital Adequacy Ratio falls below 12.5%.

Initially, Banco de Oro (BDO) expressed interest in acquiring EIB. However, certain issues
derailed the acquisition, including BDO's unwillingness to assume certain liabilities of EIB,
particularly the claim of the Pacific Rehouse Group against it. In the end, BDO's acquisition of
EIB did not proceed and the latter's financial condition worsened.

BSP, through the Monetary Board, issued Resolution No. 6868 prohibiting EIB from doing
business in the Philippines and placing it under the receivership of PDIC.

ISSUE:

Whether or not the CA correctly ruled that the Monetary Board did not gravely abuse its discretion
in issuing Resolution No. 571 which directed the PDIC to proceed with the liquidation of EIB.

RULING:
No. It is settled that the power of the Monetary Board to close banks and liquidate them thereafter
when public interest so requires is an exercise of the police power of the State. Police power,
however, is subject to judicial inquiry. It may not be exercised arbitrarily or unreasonably and
could be set aside if it is either capricious, discriminatory, whimsical, arbitrary, unjust, or is
tantamount to a denial of due process and equal protection clauses of the Constitution.
Nothing in Section 30 of RA 7653 requires the BSP, through the Monetary Board, to make an
independent determination of whether a bank may still be rehabilitated or not. As expressly stated
in the afore-cited provision, once the receiver determines that rehabilitation is no longer feasible,
the Monetary Board is simply obligated to: (a) notify in writing the bank's board of directors of
the same; and (b) direct the PDIC to proceed with liquidation.
Monetary Board's issuance of Resolution No. 571 ordering the liquidation of EIB cannot be
considered to be tainted with grave abuse of discretion as it was amply supported by the factual
circumstances at hand and made in accordance with prevailing law and jurisprudence.

Page 14 of 24
JUDITH ELISCIA E. YACOB JD-3B

TOPIC: RA 10846

TITLE: IN RE: Petition for Assistance in the Liquidation of the Rural Bank of Bokod vs. BIR;
GR NO. 158261; December 18, 2006

DOCTRINE:
The Corporation Code, however, is a general law applying to all types of corporations, while the
New Central Bank Act regulates specifically banks and other financial institutions, including the
dissolution and liquidation thereof. As between a general and special law, the latter shall prevail.

FACTS:

A special examination of RBBI was conducted by the SES Department, now known as BSP, where
various loan irregularities were uncovered. BSP required them to infuse fresh capital on the bank.
But up to the termination of the examination, RBBI did not take any action to solve the same. SES
warned RBBI that they will put under receivership, unless remedial measures are conducted.

A memorandum and report were submitted to the SES featuring that the RBBI remained in
insolvent financial condition and it can no longer safely resume business. By virtue of which, the
Monetary Board ordered the liquidation of the bank. Later on, PDIC took over the receivership
and liquidation of the bank.

ISSUE:

Whether or not a bank ordered closed and placed under receivership by the Monetary Board of the
BSP still needs to secure a tax clearance certificate from the BIR before the liquidation court
approves the project of distribution of the assets of the bank.

RULING:
No. The Corporation Code, however, is a general law applying to all types of corporations, while
the New Central Bank Act regulates specifically banks and other financial institutions, including
the dissolution and liquidation thereof. As between a general and special law, the latter shall
prevail.
Section 30 of the New Central Bank Act lays down the proceedings for receivership and liquidation
of a bank. The said provision is silent as regards the securing of a tax clearance from the BIR. The
omission, nonetheless, cannot compel this Court to apply by analogy the tax clearance requirement
of the SEC, as stated in Section 52(C) of the Tax Code of 1997 and BIR-SEC Regulations No. 1,
since, again, the dissolution of a corporation by the SEC is a totally different proceeding from the
receivership and liquidation of a bank by the BSP.
It should be noted that there are substantial differences in the procedure for involuntary dissolution
and liquidation of a corporation under the Corporation Code, and that of a banking corporation
under the New Central Bank Act, so that the requirements in one cannot simply be imposed in the
other.

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JUDITH ELISCIA E. YACOB JD-3B

TOPIC: RA 10846

TITLE: Provident Savings Bank vs. Court of Appeals; GR NO. 97218; May 17, 1993

DOCTRINE:

. When a bank is prohibited to do business by the Central Bank and a receiver is appointed for such
bank, that bank would not be able to do new business, i.e., to grant new loans or to accept new
deposits.

FACTS:

Spouses Guarin obtained a loan from defendant-appellant. As security for the loan, they executed
a real estate mortgage over a parcel of land. Subsequently, the bank was placed under receivership
by the Central Bank of the Philippines. Spouses Guarin were informed that their property would
be sold in a public auction which they replied that they have every intention to pay their obligations
and requesting for a recomputation of their account. When they were ready to pay their obligations
based in the recomputation, they were informed that they can pay it, however, their title would not
be available even if they paid their obligation. This resulted to the filing of complaint of the
spouses. The complaint is to compel the bank to release the real estate mortgage executed by the
Guarins and surrender the title to them.

ISSUE:

Whether or not the bank can foreclose a real estate mortgage even if it is under receivership.

RULING:
No. When a bank is prohibited to do business by the Central Bank and a receiver is appointed for
such bank, that bank would not be able to do new business, i.e., to grant new loans or to accept
new deposits. However, the receiver of the bank is obliged to collect debts owing to the bank,
which debts form part of the assets of the bank. The receiver must assemble the assets and pay the
obligation of the bank under receivership, and take steps to prevent dissipation of such assets.
Accordingly, the the receiver of the bank is obliged to collect pre-existing debts due to the bank,
and in connection therewith, to foreclose mortgages securing debts.
The prerogative of a bank to foreclose is implicit from and is even necessary to enforce collection
of secured debts under Section 36(11) and 45 of the Corporation Code, in conjunction with Section
29 of the General Banking Act.
The Supreme Court held that a foreclose is deemed embraced by the phrase "doing business" as a
preparatory measure to acquiring or holding property for petitioner as a saving bank under Section
34 of the General Banking Act.

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JUDITH ELISCIA E. YACOB JD-3B

TOPIC: RA 10846

TITLE: Fidelity Savings and Mortgage bank vs. Hon. Pedro Cenzon; GR NO. L-46208; April 5,
1990

DOCTRINE:
It is settled jurisprudence that a banking institution which has been declared insolvent and
subsequently ordered closed by the Central Bank of the Philippines cannot be held liable to pay
interest on bank deposits which accrued during the period when the bank is actually closed and
non-operational.

FACTS:

Private respondents instituted an action against the Fidelity Savings Bank and Central Bank. The
case stemmed when after depositing with the petitioner, the Central Bank declared the petitioner
as insolvent. It forbids the Fidelity Savings Bank to do business in the Philippines and instructed
the Acting Superintendent of Banks to take charge of its assets. Following such declaration, the
respondent received an aggregate amount of P100,000 which leaves a deposit balance of P90,000.
Subsequently, Fidelity Savings Bank was now declared to be liquidated. Since the liquidation is
going on for a long time, respondents sent demand letters for the remaining deposit.

ISSUE:

1. Whether or not an insolvent bank like the Fidelity Savings and Mortgage Bank may be adjudged
to pay interest on unpaid deposits even after its closure by the Central Bank by reason of insolvency
without violating the provisions of the Civil Code on preference of credits; and

2. Whether or not an insolvent bank like the Fidelity Savings and Mortgage Bank may be adjudged
to pay moral and exemplary damages, attorney's fees and costs when the insolvency is caused by
the anomalous real estate transactions without violating the provisions of the Civil Code on
preference of credits.

RULING:
No. It is settled jurisprudence that a banking institution which has been declared insolvent and
subsequently ordered closed by the Central Bank of the Philippines cannot be held liable to pay
interest on bank deposits which accrued during the period when the bank is actually closed and
non-operational.
Unless a bank can lend money, engage in international transactions, acquire foreclosed mortgaged
properties or their proceeds and generally engage in other banking and financing activities from
which it can derive income, it is inconceivable how it can carry on as a depository obligated to pay
stipulated interest.
Petitioner bank could not even be faulted in not immediately returning the amount claimed by
private respondents considering that the demand to pay was made and Civil Case No. 84800 was
filed in the trial court several months after the Central Bank had ordered petitioner's closure. By
that time, petitioner bank was no longer in a position to comply with its obligations to its creditors,
including herein private respondents.
There is no valid basis for the award of exemplary damages which is supposed to serve as a
warning to other banks from dissipating their assets in anomalous transactions. It was not proven
by private respondents, and neither was there a categorical finding made by the trial court, that
petitioner bank actually engaged in anomalous real estate transactions.

Page 17 of 24
JUDITH ELISCIA E. YACOB JD-3B

TOPIC: RA 10846

TITLE: Banco Filipino Savings and Mortagage Bank vs. Bangko Sentral ng Pilipinas and the
Monetary Board; GR NO. 200678; June 04, 2018

DOCTRINE:

A bank which has been ordered closed by the Bangko Sentral ng Pilipinas (Bangko Sentral) is
placed under the receivership of the Philippine Deposit Insurance Corporation. As a consequence
of the receivership, the closed bank may sue and be sued only through its receiver, the Philippine
Deposit Insurance Corporation. Any action filed by the closed bank without its receiver may be
dismissed.

FACTS:

Congress passed RA 7653 providing for the establishment and organization of Bangko Sentral as
the new monetary authority. Subsequently, the Monetary Board issued a resolution which allowed
Banco Filipino to resume its business. The banco Filipino experienced heavy withdrawals,
prompting is to seek the help of the Bangko Sentral. Bangko Sentral informed Banco Filipino that
it should first comply with certain conditions imposed by Republic Act No. 7653 before financial
assistance could be extended. Banco Filipino was also required to submit a rehabilitation plan
approved by Bangko Sentral before emergency loans could be granted.

The Banco Filipino assailed the alleged "arbitrary, capricious and illegal acts" of Bangko Sentral
and of the Monetary Board in coercing Banco Filipino to withdraw all its present suits in exchange
of the approval of its Business Plan. In particular, Banco Filipino alleged that Bangko Sentral and
the Monetary Board committed grave abuse of discretion in imposing an additional condition in
Resolution No. 1668 requiring it to withdraw its cases and waive all future cases since it was
unconstitutional and contrary to public policy.

ISSUE:

Whether or not petitioner Banco Filipino, as a closed bank under receivership, could file this
Petition for Review without joining its statutory receiver, the Philippine Deposit Insurance
Corporation, as a party to the case.

RULING:
No. A closed bank under receivership can only sue or be sued through its receiver, the Philippine
Deposit Insurance Corporation. When the Monetary Board finds a bank insolvent, it may
"summarily and without need for prior hearing forbid the institution from doing business in the
Philippines and designate the Philippine Deposit Insurance Corporation as receiver of the banking
institution."
The relationship between the Philippine Deposit Insurance Corporation and a closed bank is
fiduciary in nature. Section 30 of Republic Act No. 7653 directs the receiver of a closed bank to
"immediately gather and take charge of all the assets and liabilities of the institution" and
"administer the same for the benefit of its creditors." Considering that the receiver has the power
to take charge of all the assets of the closed bank and to institute for or defend any action against
it, only the receiver, in its fiduciary capacity, may sue and be sued on behalf of the closed bank.
When petitioner was placed under receivership, the powers of its Board of Directors and its officers
were suspended. Thus, its Board of Directors could not have validly authorized its Executive Vice
Presidents to file the suit on its behalf. The Petition, not having been properly verified, is
considered an unsigned pleading.

Page 18 of 24
JUDITH ELISCIA E. YACOB JD-3B

TOPIC: RA 10846

TITLE: Balayan Bay Rural Bank, Inc vs. National Livelihood Development Corporation; GR NO.
194589; September 21, 2015

DOCTRINE:
The insolvent bank's legal personality is not dissolved by virtue of being placed under receivership
by the Monetary Board. It must be stressed here that a bank retains its juridical personality even if
placed under conservatorship; it is neither replaced nor substituted by the conservator who shall
only take charge of the assets, liabilities and the management of the institution.

FACTS:

NLDC filed a complaint for collection of sum of money against petitioner bank for the latter’s
unpaid obligation. During the pendency of the case, the BSP placed the bank under receivership
and appointed PDIC as receiver of the bank. After the bank was placed under receivership, NLDC
file a Motion for Substitution of Party and Set the Case for Pre-Trial. The motion was opposed by
the bank contending that the PDIC is not the real party in interest in the instant case because it
does not stand to be benefited or injured by the judgment in the suit. It argued that PDIC is merely
the Statutory receiver of all banks places under receivership.

ISSUE:

Whether or not the PDIC is proper party in the case.

RULING:
No. After the Monetary Board has declared that a bank is insolvent and has ordered it to cease
operations, the Board becomes the trustee of its assets for the equal benefit of all the creditors,
including depositors. The assets of the insolvent banking institution are held in trust for the equal
benefit of all creditors, and after its insolvency, one cannot obtain an advantage or a preference
over another by an attachment, execution or otherwise.
The insolvent bank's legal personality is not dissolved by virtue of being placed under receivership
by the Monetary Board. It must be stressed here that a bank retains its juridical personality even if
placed under conservatorship; it is neither replaced nor substituted by the conservator who shall
only take charge of the assets, liabilities and the management of the institution.
Applying the law, PDIC should not be considered as substitute or a co-defendant of the bank but
rather as a representative party or someone acting in fiduciary capacity. The insolvent institution
shall remain in the case and shall be deemed as the real party in interest.

Page 19 of 24
JUDITH ELISCIA E. YACOB JD-3B

TOPIC: RA 10846

TITLE: Allan Cu vs. Small Business Guarantee and Finance Corporation; GR NO. 211222;
August 07, 2017

DOCTRINE:
When a bank is ordered closed by the Monetary Board, PDIC is designated as the receiver which
shall then proceed with the takeover and liquidation of the closed bank. The placement of a bank
under liquidation has the following effect on interest payments: "The liability of a bank to pay
interest on deposits and all other obligations as of closure shall cease upon its closure by the
Monetary Board without prejudice to the first paragraph of Section 85 of Republic Act No. 7653
(the New Central Bank Act).

FACTS:

An "Omnibus Credit Line Agreement" was executed, whereby G7 Bank was initially granted credit
line for re-lending to qualified MSMEs as sub-borrowers. Subsequently, various drawdowns were
made from the line and each drawdown was covered by a promissory note, amortization schedule
and postdated check. Subsequently, BSP placed G7 Bank under receivership by the Philippine
Deposit Insurance Corporation.

PDIC closed all G7 Bank’s deposit accounts with other banks, including its checking account with
the Land Bank of the Philippines. Upon maturity of the subject postdated checks in October 2008,
SB Corp. deposited the same to its account with the LBP Makati branch but all of them were
dishonored for reason of "Account Closed". Subsequently, SB Corp. sent demand letters to Cu and
Pascual demanding payment of the amounts represented in the dishonored checks. Despite receipt
of the demand letters, Cu and Pascual failed to make good the dishonored checks.

ISSUE:

Whether or not the SB Corporation has the right to demand payment for the checks.

RULING:
No. When a bank is ordered closed by the Monetary Board, PDIC is designated as the receiver
which shall then proceed with the takeover and liquidation of the closed bank. The placement of a
bank under liquidation has the following effect on interest payments: "The liability of a bank to
pay interest on deposits and all other obligations as of closure shall cease upon its closure by the
Monetary Board without prejudice to the first paragraph of Section 85 of Republic Act No. 7653
(the New Central Bank Act).
Petition for assistance is a proceeding in rem and the liquidation court has exclusive jurisdiction
to adjudicate disputed claims against the closed bank, assist in the enforcement of individual
liabilities of the stockholders, directors and officers, and decide on all other issues as may be
material to implement the distribution plan adopted by PDIC for general application to all closed
banks.
At the time SB Corp. presented the subject checks for deposit/encashment in October 2008, it had
no right to demand payment because the underlying obligation was not yet due and demandable
from Cu and he could not be held liable for the civil obligations ofG7 Bank covered by the subject
dishonored checks on account of the Monetary Board's closure of G7 Bank and the takeover
thereof by PDIC. Even payment of interest on G7 Bank's loan ceased upon its closure.

Page 20 of 24
JUDITH ELISCIA E. YACOB JD-3B

TOPIC: EXTRAORDINARY INFLATION

TITLE: Lucia Singson vs. Caltex (Philippines); GR NO. 137798; October 4, 2000

DOCTRINE:
It was settled that extraordinary inflation to exist when there is a decrease or increase in the
purchasing power of the Philippine currency which is unusual or beyond the common fluctuation
in the value of said currency, and such increase or decrease could not have been reasonably
foreseen or was manifestly beyond the contemplation of the parties at the time of the establishment
of the obligation.

FACTS:

Petitioner and respondent entered into a contract of lease on July 16, 1968 over a parcel of land in
Cubao, Quezon City which was used by respondent as gasoline service station. Five years before
the expiration of the lease contract, petitioner asked respondent to adjust or increase the amount of
rentals citing that the country was experiencing extraordinary inflation. In a letter dated August 3,
1983, respondent refused petitioner’s request and declared that the terms of the lease contract are
clear as to the rental amounts therein provided being "the maximum rental which the lessor may
collect during the term of the lease." As a result, petitioner instituted a complaint before the RTC
praying for, among other things, the payment by respondent of adjusted rentals based on the value
of the Philippine peso at the time the contract of lease was executed.

ISSUE:

Whether or not there existed an extraordinary inflation during the period 1968 to 1983 that would
call for the application of Article 1250 of the Civil Code and justify an adjustment or increase of
the rentals between the parties.

RULING:
No. Under Article 1250 of the Civil Code, in case an extraordinary inflation or deflation of the
currency stipulated should supervene, the value of the currency at the time of the establishment of
the obligation shall be the basis of payment, unless there is an agreement to the contrary.
It was settled that extraordinary inflation to exist when there is a decrease or increase in the
purchasing power of the Philippine currency which is unusual or beyond the common fluctuation
in the value of said currency, and such increase or decrease could not have been reasonably
foreseen or was manifestly beyond the contemplation of the parties at the time of the establishment
of the obligation.
The Supreme Court has held that the effects of extraordinary inflation are not to be applied without
an official declaration thereof by competent authorities.

Page 21 of 24
JUDITH ELISCIA E. YACOB JD-3B

TOPIC: EXTRAORDINARY INFLATION

TITLE: Simplicio Palanca vs. Court of Appeals; GR NO. 106685; December 2, 1994

DOCTRINE:

In case extraordinary inflation or deflation of the currency stipulated should supervene, the value
of the currency at the time of the establishment of the obligation shall be the basis of payment,
unless there is an agreement to the contrary.

FACTS:

Petitioner, as vendor, and Jose S. Sanicas, as vendee, entered into a Contract to Sell on Installment
of a parcel of land. Under the terms of the contract, private respondent agreed to pay petitioner the
amount of P9,851.00 as downpayment and the balance of P88,659.00 in 120 monthly installments
with 14% interest per annum on the outstanding balance. Respondent Edgardo S. Sanicas later
assumed the account of his brother Jose and he designated the latter as his authorized representative
in dealing with petitioner.

Following demands from petitioner for the updating of the account, private respondent requested
a detailed statement. When petitioner failed to furnish him with the statement, private respondent
hired an accountant to compute his obligations under the contract. Thereafter, he tendered the
amount of P44,955.87 in cash upon petitioner, which amount included interest at 12% per annum,
which the Petitioner refused to receive the amount tendered.

ISSUE:

Whether or not the grounds relied upon by the trial court and the Court of Appeals that there should
be an "extraordinary inflation" before a stipulation for an upward adjustment of the purchase price
can be enforced is correct.

RULING:
No. In case extraordinary inflation or deflation of the currency stipulated should supervene, the
value of the currency at the time of the establishment of the obligation shall be the basis of
payment, unless there is an agreement to the contrary.
In the case at bench, the clear understanding of the parties is that there should be an upward
adjustment of the purchase price the moment there is a deterioration of the Philippine peso vis-a-
vis the U.S. dollar. This is the "monetary fluctuation" contemplated by them as would justify the
adjustment.
While the contract may contain an "escalator clause" providing that in the occurrence of certain
events, the contract price shall be increased to a fixed percentage of the base still the autonomy of
the parties to provide such escalator clauses may be limited by law.

Page 22 of 24
JUDITH ELISCIA E. YACOB JD-3B

TOPIC: EXTRAORDINARY INFLATION

TITLE: Eufemia Almeda vs. Bathala Marketing Industries, Inc, GR NO. 150806; January 28,
2008

DOCTRINE:
Absent an official pronouncement or declaration by competent authorities of the existence of
extraordinary inflation during a given period, the effects of extraordinary inflation are not to be
applied.

FACTS:

Respondent Bathala Marketing Industries, Inc., as lessee, represented by its president Ramon H.
Garcia, renewed its Contract of Lease4 with Ponciano L. Almeda (Ponciano), as lessor, husband
of petitioner Eufemia and father of petitioner Romel Almeda. Under the said contract, Ponciano
agreed to lease a portion of the Almeda Compound.

Respondent received another letter from petitioners informing the former that its monthly rental
should be increased by 73% pursuant to condition No. 7 of the contract and Article 1250 of the
Civil Code. Respondent opposed petitioners' demand and insisted that there was no extraordinary
inflation to warrant the application of Article 1250 in light of the pronouncement of this Court in
various cases.

ISSUE:

Whether or not Article 1250 of the New Civil Code is applicable to the case at bar.

RULING:
Yes. Inflation has been defined as the sharp increase of money or credit, or both, without a
corresponding increase in business transaction. There is inflation when there is an increase in the
volume of money and credit relative to available goods, resulting in a substantial and continuing
rise in the general price level. While Extraordinary Inflation exists when there is a decrease or
increase in the purchasing power of the Philippine currency which is unusual or beyond the
common fluctuation in the value of said currency.
The Supreme Court stipulated that the erosion of the value of the Philippine peso in the past three
or four decades, starting in the mid-sixties, is characteristic of most currencies. And while the
Court may take judicial notice of the decline in the purchasing power of the Philippine currency
in that span of time, such downward trend of the peso cannot be considered as the extraordinary
phenomenon contemplated by Article 1250 of the Civil Code. Furthermore, absent an official
pronouncement or declaration by competent authorities of the existence of extraordinary inflation
during a given period, the effects of extraordinary inflation are not to be applied.

Page 23 of 24
JUDITH ELISCIA E. YACOB JD-3B

TOPIC: OPEN MARKET OPERATIONS

TITLE: Bank of Commerce vs. Planters Development Bank; GR NO. 154470-71; September 24,
2012

DOCTRINE:
Open market operation is a monetary tool where the BSP publicly buys or sells government
securities from (or to) banks and financial institutions in order to expand or contract the supply of
money. By controlling the money supply, the BSP is able to exert some influence on the prices of
goods and services and achieve its inflation objectives.

FACTS:

The Rizal Commercial Banking Corporation (RCBC) was the registered owner of seven Central
Bank (CB) bills with a total face value of ₱ 70 million. As evidenced by a "Detached Assignment",
the RCBC sold these CB bills to the BOC.

Upon learning of the transfers involving the CB bills, the PDB informed the Officer-in-Charge of
the BSP’s Government Securities Department, Lagrimas Nuqui, of the PDB’s claim over these CB
bills, based on the Detached Assignments in its possession. The PDB requested the BSP to record
its claim in the BSP’s books, explaining that its non-possession of the CB bills is "on account of
imperfect negotiations thereof and/or subsequent setoff or transfer." Nuqui denied the request,
invoking Section 8 of CB Circular No. 28 (Regulations Governing Open Market Operations,
Stabilization of the Securities Market, Issue, Servicing and Redemption of the Public Debt) which
requires the presentation of the bond before a registered bond may be transferred on the books of
the BSP.

ISSUE:

Whether or not BSP is authorized to engage in open market operations.

RULING:
Yes. Among its several functions under R.A. No. 7653, the BSP is authorized to engage in open
market operations and thereby "issue, place, buy and sell freely negotiable evidences of
indebtedness of the Bangko Sentral". Subject to the principles stated in Section 90 of this Act, the
evidences of indebtedness of the Bangko Sentral to which this section refers may be acquired by
the Bangko Sentral before their maturity, either through purchases in the open market or through
redemptions at par and by lot if the Bangko Sentral has reserved the right to make such
redemptions. The evidences of indebtedness acquired or redeemed by the Bangko Sentral shall not
be included among its assets, and shall be immediately retired and cancelled.
To increase or reduce liquidity in the financial system, the BSP uses open market operations,
among others. Open market operation is a monetary tool where the BSP publicly buys or sells
government securities from (or to) banks and financial institutions in order to expand or contract
the supply of money. By controlling the money supply, the BSP is able to exert some influence on
the prices of goods and services and achieve its inflation objectives.

Page 24 of 24