BSP vs.

Libo-on, 23 November 2015 (rediscounting)

DOCTRINE: In the absence of such absolute conveyance of title to qualify as an assignment of credit,
the subject promissory note with trust receipt agreement should be interpreted as it is denominated.
The contract being that of a mere loan, and because there was no valid assignment of credit, BSP's
authority to foreclose the subject property has no leg to stand on.

FACTS:

Spouses Libo-on, secured loans from the Rural Bank of Hinigaran, Inc., in the amounts of
P100,000.00 and P300,000.00, respectively, which they executed promissory notes payable to the
order of the Rural Bank for a period of 360 days, as well as a Deed of Real Estate Mortgage over a
parcel of land in favour of the Rural Bank of Hinigaran, Inc. The Rural Bank of Hinigaran, in turn,
secured a loan with now petitioner, Bangko Sentral ng Pilipinas ( BSP) in the amount of
P800,000.00 and P640,000.00, respectively. The Rural Bank of Hinigaran executed a document
denominated as "promissory note with trust receipt agreement”, as a security for the loan, the
Rural Bank of Hinigaran pledged and deposited to BSP promissory notes with supporting TCTs,
including the promissory note and TCT of the Spouses Libo-ons mortgaged with the former. The
BSP demanded from the Spouses Libo-on the payment of their outstanding loan with the Rural
Bank of Hinigaran, but failed to pay. The loan obligation of the Rural Bank of Hinigaran with BSP
likewise fell due and demandable as the former failed to pay its loan from BSP; as a result, BSP filed
an application for extrajudicial foreclosure against the mortgage security of the Spouses Libo-on
with the Rural Bank of Hinigaran

ISSUE: Whether or not the BSP has the authority to foreclose the subject mortgage.

RULING: No, the subject promissory note with trust receipt agreement does not show in any aspect
that the Rural Bank of Hinigaran intended to make an absolute conveyance of title over the
securities it had deposited with BSP, but rediscounted of notes and all amounts due thereon; and
what was given to BSP is lien for the payment of the note pledged. There is nothing in the
promissory note with trust receipt agreement which partakes the nature of an assignment of credit.
There are, two obligations in a trust receipt transaction: the first refers to money received under
the obligation involving the duty to turn it over to the owner of the merchandise sold, while, the
second refers to the merchandise received under the obligation to "return" it to the owner. Clearly,
this concept of trust receipt is inconsistent with that of an assignment of credit where there is an
absolute conveyance of title that would have in effect given authority to BSP to foreclose the subject
mortgage.

Without a valid assignment of credit, as in this case, BSF has no authority to foreclose the
mortgaged property of the Spouses Libo-tin to the Rural Bank of Hinigaran. Moreso, BSP could not
possibly sell the subject property without violating the prohibition against pactum
commissoriumsince without a valid assignment of credit, BSP cannot ipso facto appropriate to
itself the Spouses Libo-on's mortgaged property to the Rural Bank of Hinigaran.
DBP vs. COA, 16 January 2002 (bank audit)

Doctrine: The framers of the Constitution were fully aware of the need to allow independent private
audit of certain government agencies in addition to the COA audit, as when there is a private
investment in a government-controlled corporation, or when a government corporation is privatized
or publicly listed, or as in the case at bar when the government borrows money from abroad.

Facts: In 1986, the Philippine government, under Corazon C. Aquino, obtained from the World Bank
an Economic Recovery Loan (ERL). 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 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. The Audit of a
Government-owned or controlled bank by an external independent auditor shall be in addition to
and without prejudice to that conducted by the Commission on Audit in the discharge of its
mandate under existing law. 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. The COA Chairman's did
not interpose objection. However, he soon wrote the Central Bank Governor protesting the Central
Bank's issuance of Circular No. 1124 which allegedly encroached upon the COA's constitutional and
statutory power to audit government agencies.

Issue: Whether or not the constitutional power of the COA to examine and audit the DBP is
exclusive and precludes a concurrent audit of the DBP by a private external auditor.

Ruling: The bare language of Section 2 Article IX-D of the 1987 Constitution shows that the COA's
power under the first paragraph is not declared exclusive, while its authority under the second
paragraph is expressly declared "exclusive." There is a significant reason for this marked difference
in language.

The clear and unmistakable conclusion from a reading of the entire Section 2 is that the COA's
power to examine and audit is non-exclusive. On the other hand, the COA's authority to define the
scope of its audit, promulgate auditing rules and regulations, and disallow unnecessary
expenditures is exclusive.

As the constitutionally mandated auditor of all government agencies, COA's findings and
conclusions necessarily prevail over those of private auditors, at least insofar as government
agencies and officials are concerned.

The mere fact that private auditors may audit government agencies does not divest the COA of its
power to examine and audit the same government agencies. The COA is neither by-passed nor
ignored since even with a private audit the COA will still conduct its usual examination and audit,
and its findings and conclusions will still bind government agencies and their officials. A concurrent
private audit poses no danger whatsoever of public funds or assets escaping the usual scrutiny of a
COA audit. COA's power to examine and audit government banks must be reconciled with the
Central Bank's power to supervise the same banks. The inevitable conclusion is that the COA and
the Central Bank have concurrent jurisdiction, under the Constitution, to examine and audit
government banks.
JOSE C. GO, Petitioner, vs.BANGKO SENTRAL NG PILIPINAS, Respondent.

Doctrine: The language of the law is broad enough to encompass either act of borrowing or
guaranteeing, or both. Banks were not created for the benefit of their directors and officers; they
cannot use the assets of the bank for their own benefit, except as may be permitted by law. Congress
has thus deemed it essential to impose restrictions on borrowings by bank directors and officers in
order to protect the public, especially the depositors. Hence, when the law prohibits directors and
officers of banking institutions from becoming in any manner an obligor of the bank (unless with the
approval of the board), the terms of the prohibition shall be the standards to be applied to directors’
transactions such as those involved in the present case.

Facts: Jose Go, the Director and the President and Chief Executive Officer of the Orient Commercial
Banking Corporation (Orient Bank) was charged before the RTC for violation of Section 83 of RA
337 or the General Banking Act. Go allegedly borrowed the deposits/funds of the Orient Bank
and/or acting as guarantor, indorser of obligor for loans to other persons. He then used the
borrowed deposits/funds in facilitating and granting and/or of credit lines/loans to the New
Zealand Accounts loans in the total amount of PHP 2,754,905,857. He completed the alleged
transaction without the written approval of the majority of the Board of Directors of said Orient
Bank. Go then filed a motion to quash the Information. He averred that the use of the word "and/or"
meant that he was charged for being either a borrower or a guarantor, or for being both. Thus the
charge do not constitute an offense. That the Section 83 of RA 337 penalized only directors and
officers xxx who acted either as borrower or as guarantor, but not as both. Also that the
Information did not constitute an offense since the information failed to state the amount he
purportedly borrowed. According to Go, the second paragraph of Section 83, serves as an exception
to the first paragraph which allows the banks to extend credit accommodations to their directors,
officers, and stockholders, provided it is "limited to an amount equivalent to the respective
outstanding deposits and book value of the paid-in capital contribution in the bank." The RTC
granted Go’s motion to quash the Information.

The prosecution filed a petition for certiorari before the CA. The CA granted the petition. It
explained that the allegation that Go acted either as a borrower or a guarantor or both did not
necessarily mean that Go acted both as borrower and guarantor for the same loan at the same time.
It agreed with the prosecution’s stand that the second paragraph of Section 83 of RA 337 is not an
exception to the first paragraph. Hence, this petition.

Issue: whether or not the allegation that Go acted as borrower or gurantor rendered the
information defective?

Ruling: No, the information was not defective. The following elements of violation of Section 83 of
RA 337 which must be present to constitute a violation of its first paragraph: 1. the offender is a
director or officer of any banking institution; 2. the offender, either directly or indirectly, for
himself or as representative or agent of another, performs any of the following acts: a. he borrows
any of the deposits or funds of such bank; or b. he becomes a guarantor, indorser, or surety for
loans from such bank to others, or c. he becomes in any manner an obligor for money borrowed
from bank or loaned by it; 3. the offender has performed any of such acts without the written
approval of the majority of the directors of the bank, excluding the offender, as the director
concerned.