TRUSTRECEIPTSLAW receipt agreement in favor of Allied Banking

(P.D. No. 115) Corporation in consideration of the receipt by the

accused of certain goods. Further, when the
A. Definition and purpose
accused was in possession of said goods, he was

G.R. No. 110844 April 27, 2000 far from complying with the terms of the trust

2.) ALFREDO CHING, petitioner, receipt agreement and instead misappropriated,

vs. misapplied and converted to his own personal use

HON. COURT OF APPEALS, HON. ZOSIMO Z. and benefit the said goods and/or the proceeds of

ANGELES, RTC- BR. 58, MAKATI, METRO the sale. Despite repeated demands, Ching failed

MANILA, PEOPLE OF THE PHILIPPINES AND and refused to remit the proceeds of sale to Allied

ALLIED BANKING CORPORATION, respondents. Banking.

Topic: Trust Receipts Law; Definition and Purpose Petitioner Ching, together with Philippine

Principle: A trust receipt is considered a security Blooming Mills Co. Inc., filed a case before the

transaction intended to aid in financing importers RTC-Manila, Branch 53, for declaration of nullity

and retail dealers who do not have sufficient funds of documents and for damages against Allied

or resources to finance the importation or purchase Banking Corporation. Petitioner now asks before

of merchandise, and who may not be able to acquire this Court to suspend the criminal proceedings on

credit except through utilization, as collateral, of the ground of prejudicial question in a civil action

the merchandise imported or purchased. It could and to declare the trust receipts null and void.

never be a mere additional or side document as

alleged by petitioner. Otherwise, a party to a trust Issue: Whether or not the pendency of a civil

receipt agreement could easily renege on its action for damages and declaration of nullity of

obligations thereunder, thus undermining the documents warrants the suspension of criminal

importance and defeating with impunity the proceedings instituted for violation of Article 315

purpose of such an indispensable tool in commercial 1(b) of the RPC, in relation to P.D. 115

transactions.
Ruling:

Facts: No. For the court to appreciate the

pendency of a prejudicial question, the law, in no

Petitioner was charged before the RTC- uncertain terms, requires the concurrence of two

Makati, Branch 58, with four counts of estafa essential requisites, to wit:

punishable under Article 315 par. 1(b) of the a) The civil action involves an issue similar or

Revised Penal Code, in relation to P.D. 115, intimately related to the issue raised in the

otherwise known as the "Trust Receipts Law". criminal action; and

Allegedly, petitioner-accused executed a trust b) The resolution of such issue determines

whether or not the criminal action may proceed.
Under the prevailing circumstances, the alleged
prejudicial question in the civil case
declaration of nullity of documents and for
damages, does not juris et de jure determine the
guilt or innocence of the accused in the criminal
action for estafa. Assuming arguendo that the
court hearing the civil aspect of the case
adjudicates that the transaction entered into
between the parties was not a trust receipt
agreement, nonetheless the guilt of the accused
could still be established and his culpability under
penal laws determined by other evidence. To put
it differently, even on the assumption that the
documents are declared of null, it does not ipso
facto follow that such declaration of nullity shall
exonerate the accused from criminal prosecution
and liability.
Accordingly, the prosecution may adduce
evidence to prove the criminal liability of the
accused for estafa, specifically under Article 315
1(b) of the Revised Penal Code which explicitly
provides that said crime is committed:
. . . (b) By misappropriating or converting, to the
prejudice of another, money; goods, or any other
personal property received by the offender in
trust or on commission, or for administration, or
any other obligation involving the duty to make
delivery of or to return the same, even though
such obligation be totally or partially guaranteed
by a bond; or by denying having received such
money, goods, or other property.
Applying the foregoing principles, the
criminal liability of the accused for violation of
Article 315 1(b) of the Revised Penal Code, may
still be shown through the presentation of
evidence to the effect that: (a) the accused
received the subject goods in trust or under the
obligation to sell the same and to remit the
for proceeds thereof to Allied Banking Corporation, or
to return the goods, if not sold; (b) that accused
Ching misappropriated or converted the goods
and/or the proceeds of the sale; (c) that accused
Ching performed such acts with abuse of
confidence to the damage and prejudice of Allied
Banking Corporation; and (d) that demand was
made by the bank to herein petitioner.
It must be emphasized that an act
violative of a trust receipt agreement is only one
mode of committing estafa under the
abovementioned provision of the Revised Penal
Code. Stated differently, a violation of a trust
receipt arrangement is not the sole basis for
incurring liability under Article 315 1 (b) of the
Code.
To our mind, petitioner's contention is a
stealthy attempt to circumvent the principle
enunciated in the case of Alied Banking
Corporation vs. Ordonez, thus:
. . . In an attempt to escape criminal liability,
private respondent claims P.D. 115 covers goods
which are ultimately destined for sale and not
goods for use in manufacture. But the wording of
Section 13 covers failure to turn over the proceeds
of the sale of the entrusted goods, or to return said
goods if unsold or disposed of in accordance with
the terms of the trust receipts.
xxx xxx xxx
The penal provision of P.D. 115
encompasses any act violative of an obligation
covered by the trust receipt; it is not limited to
transactions in goods which are to be sold
(retailed), reshipped, stored or processed as a
component of a product ultimately sold.
 An examination of P.D. 115 shows the
growing importance of trust receipts in Philippine
business, the need to provide for the rights and
obligations of parties to a trust receipt transaction,
the study of the problems involved and the action
by monetary authorities, and the necessity of
regulating the enforcement of rights arising from
default or violations of trust receipt agreements.
The legislative intent to meet a pressing need is
clearly expressed.
In fine, we reiterate that the civil action
for declaration of nullity of documents and for
damages does not constitute a prejudicial question
to the criminal cases for estafa filed against
petitioner Ching.
3.) HARLESS LEE, ET AL VS COURT OF APPEALS
FACTS:
MICO Metals Corporation, through its
President, Chares Lee requested from Philippine
Bank of Communication a discounting loan/credit
line in the amount of P3,000,000.000 for the
purpose of carrying out MICO’s line of business as
well as to maintain its volume of business, and
another discounting loan/credit line for the
purpose of opening letters of credit and trust
receipts.
Both requests were supported by a
resolution that the President, Charles Lee, and the
Vice President and General Manager, Mr. Mariano
Sio, are authorized and empowered to apply for,
negotiate and secure the approval of commercial
loans but not limited to discount loans, letters of
credit, trust receipts, lines for marginal deposits
on foreign and domestic letters of credit for a total
amount of not to exceed P10,000,000.00.
The request was approved by the Bank –
PB Com, and first availment in the amount of
P1,000,000.00 was made on March 26, 1979.
Total availment has reached P3,000,000.00, which
upon maturity, were rolled-over or renewed.
As security to the loan, a Real Estate
Mortgage over MICO’s properties was executed by
its VP Mariano Sio. Further, Charles Lee, Chua
Siok Suy, Mariano Sio, Alfonso Yap and Richard
Velasco, executed in their personal capacity a
Surety Agreement in favor of PB Com in the
amount of P3,000,000.00.
Another P4,0000,000.00 was requested
by the President Charles Lee from PBCom for the
purpose of expansion and modernization of the
companies machineries. The request was
consequently approved and availed in full.
Another surety agreement was executed by the
same set of officers-persons in favor of PBCom and
their liability shall not at any one time exceed the
sum of P7,500,000.00/
Later, MICO furnished PBCom a copy of its
notarized certification issued by its corporate
secretary stating therein that Chio Siok Suy was
the duly authorized person, unanimously
approved by the Board of Directors, to negotiate
with PBCom on behalf of MICO for loans and other
credit availments.
After the receipt of this secretary’s
certificate, foreign letters of credits, domestic
letter of credits and loans were further requested, facie case. If there is no proof to the contrary, the
approved and availed. Upon maturity of all the prima facie case or evidence will prevail.
credit availments, PBCom demanded for payment The Negotiable Instruments Law clearly
but MICO failed to settle despite repeated provides that every negotiable instrument is
demands, reason for the Bank to foreclose deemed prima facie to have been issued for
extrajudicially the properties, and later sold them valuable consideration and every person whose
in public auction. The price however, was not signature appears thereon are also presumed to
sufficient to fully pay the total outstanding. have become a party for value. Negotiable
PBCom demanded from the petitioners-sureties instruments include promissory notes, bills of
the deficiency, which the latter refused to exchange and checks. Letters of credit and trust
acknowledge. Thus, the filing with the court of the receipts are however, not negotiable instruments,
complaint and for attachment on the properties of but drafts issued in connection with letters of
the petitioners-sureties contending that MICO is credit are negotiable instruments.
no longer in operation and it has no other All documents presented by PBCom have
properties to settle for the deficiency. The trial not merely created a prima facie case but have
court denied the complaint for failure on the part actually proved the solidary obligation of MICO
of the Bank to prove that the proceeds of the loans and the petitioners-sureties. While the
were ever delivered to MICO, which the Court of presumption found under the Negotiable
Appeals reversed, hence this petition. Instruments Law may not necessarily be
applicable to trust receipts and letters of credit,
ISSUES: the presumption that the drafts drawn in
1.) Whether or not the proceeds of the loans and connection with the letters of credit have
letters of credit transactions were ever delivered to sufficient consideration. The fact that the letters
MICO; and of credit show that the pertinent
2.) Whether or not the individual petitioners, as materials/merchandise have been received by
sureties, may be held liable under the 2 Surety MICO and with drafts signed by the
Agreements executed. beneficiary/suppliers proved that there was a
consideration for value.
RULING: Therefore, the contention of the
The SC AFFIRMED in toto the decision of petitioner that the contracts on loans and letters
the Court Appeals. In civil cases, the party having of credits were not binding on the premise that
the burden of proof must establish his case by there were no consideration for value and if there
preponderance of evidence, which can be was, the Bank failed to present evidence as to the
established by the operation of presumption or by crediting of the proceeds to its account is
the probative value, which the law attaches to a untenable. It was the petitioner who has been
specific state of facts, thereby creating a prima preventing the Bank in presenting the evidence.
But from the fact itself that MICO has requested
for an additional loan of P4M, impliedly, is a prima
facie case which showed that the proceeds of the
earlier loans were delivered to MICO. The court
also found no merits on the latter’s contention
that the contracts were executed fraudulently by
the unauthorized person Chua Siok Suy. The fact
that it was MICO which furnished PBCom the
Secretary’s Certificate, notarized by its own
corporate secretary suffices for the PBCom to
believe that it was valid and binding, hence the
granting of the request for further availments.
Anent petitioners-sureties contention that
they obtained no consideration whatsoever on the
surety agreements, the Court pointed out that the
consideration for the surety is the
consideration for the principal obligor, MICO, in
the contracts of loan. In the case of Willex Plastic
Industries Corporation vs. CA, it ruled that the
consideration necessary to support a surety
obligation need not pass directly to the surety, a
consideration moving to the principal alone being
sufficient. For a guarantor or surety is bound by
the same consideration that makes the contract
effective between the parties thereto. It is not
necessary that a guarantor or surety should
receive any part or benefit, if such there be,
accruing to his principal.
J. Return of goods, documents or instruments
in case of non-sale
SPOUSES TIRSO I. VINTOLA AND LORETO DY
VINTOLA, DEFENDANTS-APPELLANTS, -
VERSUSINSULAR
BANK OF ASIA AND AMERICA, PLAINTIFF-
APPELLEE.
G.R. No. 73271, FIRST DIVISION,
May 29, 1987, MELENCIO-HERRERA, J.
Contrary to the allegation of the VINTOLAS,
IBAA did not become the real owner of the goods. It was
merely the holder of a security title for the advances it had
made to the Vintolas. The goods the Vintolas had
purchased through IBAA financing remain their own
property and they hold it at their own risk. The trust receipt
arrangement did not convert the IBAA into an investor; the
latter remained a lender and creditor.
Since the IBAA is not the factual owner of the
goods, the Vintolas cannot justifiably claim that because
they have surrendered the goods to IBAA and subsequently
deposited them in the custody of the court, they are
absolutely relieved of their obligation to pay their loan
because of their inability to dispose of the goods. The fact
that they were unable to sell the seashells in question does
very not affect IBAA's right to recover the advances it had made
under the Letter of Credit.
FACTS
On August 20, 1975 the spouses Tirso and
Loreta Vintola (Vintolas), doing business under the
name "Dax Kin International," engaged in the
manufacture of raw sea shells into finished products,
applied for and were granted a domestic letter of credit
by the Insular Bank of Asia and America (IBAA). The
Letter of Credit authorized the bank to negotiate for
their account drafts drawn by their supplier, one Stalin
Tan, on Dax Kin International for the purchase of puka
and olive seashells.
On the same day, having received from Stalin
Tan the puka and olive shells, the Vintolas executed a
Trust Receipt agreement with IBAA. Under that
Agreement, the Vintolas agreed to hold the goods in
trust for IBAA as the "latter's property with liberty to
sell the same for its account, and "in case of sale" to turn
over the proceeds as soon as received to (IBAA).
Having defaulted on their obligation, IBAA
demanded payment from the Vintolas. The Vintolas,
who were unable to dispose of the shells, responded by
offering to return the goods. IBAA refused to accept the
merchandise, and due to the continued refusal of the
Vintolas to make good their undertaking, IBAA charged
them with estafa. During the trial of the criminal case
the VINTOLAS turned over the seashells to the custody
of the trial court.
The trial court acquitted the Vintolas of the
crime charged, after finding that the element of
misappropriation or conversion was inexistent. Shortly
thereafter, IBAA commenced the present civil action to
recover the value of the goods before the Regional Trial
Court. Holding that the complaint was barred by the
judgment of acquittal in the criminal case, said Court
dismissed the complaint. However, on IBAA's motion,
the Court granted reconsideration and hold the Vintolas
civilly liable.
The VINTOLAS rest their present appeal on the
principal allegation that their acquittal in the estafa case
bars IBAA's filing of the civil action because IBAA had
not reserved in the criminal case its right to enforce
separately their civil liability. Further, the VINTOLAS
take the position that their obligation to IBAA has been
extinguished inasmuch as, through no fault of their own,
they were unable to dispose of the seashells, and that
they have relinquished possession thereof to the IBAA,
as owner of the goods, by depositing them with the
Court.
This case was appealed to the Intermediate
Appellate Court which, however, certified the same to
this Court, the issue involved being purely legal.
ISSUE
Whether or not the Vintolas’ obligation with IBAA is
extinguished on the ground that they deposited the
subject goods with the court? (NO)
RULING
Contrary to the allegation of the VINTOLAS,
IBAA did not become the real owner of the goods. It was
merely the holder of a security title for the advances it
had made to the Vintolas. The goods the Vintolas had
purchased through IBAA financing remain their own
property and they hold it at their own risk. The trust
receipt arrangement did not convert the IBAA into an
investor; the latter remained a lender and creditor.
Since the IBAA is not the factual owner of the
goods, the Vintolas cannot justifiably claim that because
they have surrendered the goods to IBAA and
subsequently deposited them in the custody
of the court, they are absolutely relieved of their
obligation to pay their loan because of their inability to
dispose of the goods. The fact that they were unable to
sell the seashells in question does not affect IBAA's right
to recover the advances it had made under the Letter of
Credit.
The acquittal of the Vintolas in the estafa case
is no bar to the institution of a civil action for collection.
It is inaccurate for the Vintolas to claim that the
judgment in the estafa case had declared that the facts
from which the civil action might arise, did not exist, for,
it will be recalled that the decision of acquittal expressly
declared that "the remedy of the Bank is civil and not
criminal in nature." This amounts to a reservation of the
civil action in IBAA's favor, for the Court would nothave
dwelt on a civil liability that it had intended to
extinguish by the same decision.
The Vintolas are liable ex contractu for breach
of the Letter of Credit — Trust Receipt, whether they
did or they did not "misappropriate, misapply or
convert" the merchandise as charged in the criminal
case. Their civil liability does not arise ex delicto, the
action for the recovery of which would have been
deemed instituted with the criminal-action (unless
waived or reserved) and where acquittal based on a
judicial declaration that the criminal acts charged do not
exist would have extinguished the civil action.
Ching v. Court of Appeals
G.R. No. 110844, 27 Apr 2000
FACTS:
 Alfredo Ching challenges the decision 1 of the
Court of Appeals promulgated on 27 January 1993. He
was charged before the RTC with four counts of estafa
punishable under Article 315 par. 1(b) of the Revised
Penal Code, in relation to Presidential Decree 115,
otherwise known as the "Trust Receipts Law."
ISSUE: Whether or not the civil action for declaration of
nullity of documents and for damages does not
constitute a prejudicial question to the criminal cases
for estafa filed against petitioner Ching.
RULING:
The criminal liability of the accused for
violation of Article 315 1(b) of the Revised Penal Code,
may still be shown through the presentation of evidence
to the effect that: (a) the accused received the subject
goods in trust or under the obligation to sell the same
and to remit the proceeds thereof to Allied Banking
Corporation, or to return the goods, if not sold; (b) that
accused Ching misappropriated or converted the goods
and/or the proceeds of the sale; (c) that accused Ching
performed such acts with abuse of confidence to the
damage and prejudice of Allied Banking Corporation;
and (d) that demand was made by the bank to herein
petitioner.
Presidential Decree 115, otherwise known as
the "Trust Receipts Law", specifically Section 13 thereof,
provides:
"The failure of an entrustee to turn over the proceeds of
the sale of the goods, documents or instruments covered
by a trust receipt to the extent of the amount owing to the
entruster or as appears in the trust receipt or to return
said goods, documents or instruments if they were not
sold or disposed of in accordance with the terms of the
trust receipt shall constitute the crime of estafa. “
A civil case contesting the validity of a certain
receipt is not a prejudicial question that would warrant
the suspension of criminal proceedings for estafa. An
alleged prejudicial question is not determinative of the
guilt or innocence of the parties charged with estafa,
because even on the assumption that the execution of
the receipt whose annulment they sought in the civil
case was vitiated by fraud, duress or intimidation, their
guilt could still be established by other evidence
showing.
The penal provision of P.D. 115 encompasses
any act violative of an obligation covered by the trust
receipt; it is not limited to transactions in goods which
are to be sold (retailed), reshipped, stored or processed
as a component of a product ultimately sold.
The civil action for declaration of nullity of
documents and for damages does not constitute a
prejudicial question to the criminal cases for estafa filed
against petitioner Ching.
LAND BANK OF THE PHILIPPINES, PETITIONER,
-VERSUS- LAMBERTO C. PEREZ, NESTOR C.
KUN, MA. ESTELITA P. ANGELES-PANLILIO, AND
NAPOLEON O. GARCIA, RESPONDENTS. G.R.
No. 166884, SECOND DIVISION, June 13, 2012, BRION, J.
TOPIC: TRUST RECEIPTS LAW; Obligations and
Liability of the Entrustee
PRINCIPLE: Under the Trust Receipts Law,
intent to defraud is presumed when (1) the entrustee
fails to turn over the proceeds of the sale of goods
covered by the trust receipt to the entruster; or (2)
when the entrustee fails to return the goods under
trust, if they are not disposed of in accordance with
the terms of the trust receipts. 
In all trust receipt transactions, both
obligations on the part of the trustee exist in the
alternative—the return of the proceeds of the sale or
the return or recovery of the goods, whether raw or
processed.
In order that the respondents “may be validly
prosecuted for estafa under Article 315, paragraph
1(b) of the Revised Penal Code, in relation with
Section 13 of the Trust Receipts Law, the following
elements must be established: 
(a) they received the subject goods in trust or under
the obligation to sell the same and to remit the
proceeds thereof to [the trustor], or to return the
goods if not sold;  and the Quezon Power Plant in Mauban, Quezon. Its
(b) they misappropriated or converted the goods
and/or the proceeds of the sale;  general contractors of these projects, have not yet
(c) they performed such acts with abuse of confidence
to the damage and prejudice of Metrobank; and
(d) demand was made on them by [the trustor] for the
remittance of the proceeds or the return of the unsold
goods.”
FACTS: Petitioner Land Bank of the Philippines (LBP)
is a government financial institution and the official
depository of the Philippines. Respondents are the
officers and representatives of Asian Construction and
Development Corporation (ACDC), a corporation
incorporated under Philippine law and engaged in the
construction business.
LBP extended a credit accommodation to
ACDC. In various instances, ACDC used the Letters
of Credit/Trust Receipts Facility of the Agreement to
buy construction materials. The respondents, as
officers and representatives of ACDC, executed trust
receipts in connection with the construction materials.
The trust receipts matured, but ACDC failed to return
to LBP the proceeds of the construction projects or
the construction materials subject of the trust receipts.
LBP sent ACDC a demand letter for the payment of its
debts, including those under the Trust Receipts
Facility. When ACDC failed to comply with the
demand letter, LBP filed the affidavit-complaint for
estafa.
Perez alleged that they signed the trust
receipt documents on or about the same time LBP
and ACDC executed the loan documents; their
signatures were required by LBP for the release of the
loans. The trust receipts in this case do not contain (1)
a description of the goods placed in trust, (2) their
invoice values, and (3) their maturity dates, in
violation of Section 5(a) of P.D. 115.
They alleged that ACDC acted as a
subcontractor for government projects such as the
Metro Rail Transit, the Clark Centennial Exposition
clients for the construction projects, which were the
paid them; thus, ACDC had yet to receive the
proceeds of the materials that were the subject of the
trust receipts and were allegedly used for these
constructions. As there were no proceeds received
from these clients, no misappropriation thereof could
have taken place.
The CA ruled in favor of Perez ratiocinating
in this wise: the case did not involve a trust receipt
transaction, but a mere loan. It emphasized that
construction materials, the subject of the trust receipt
transaction, were delivered to ACDC even before the
trust receipts were executed. Also, LBP did not offer
proof that the goods were received by ACDC, and that
the trust receipts did not contain a description of the
goods, their invoice value, the amount of the draft to
be paid, and their maturity dates. It also adopted
ACDC’s argument that since no payment for the
construction projects had been received by ACDC, its
officers could not have been guilty of misappropriating
any payment.
ISSUE: Whether or not transactions between the
parties constitute trust receipt agreements.
 
RULING: No. The transaction is a mere loan
agreement and not a trust receipt transaction. A trust
receipt transaction, within the meaning of this
Decree, is any transaction by and between a
person referred to in this Decree as the entruster,
and another person referred to in this Decree as
entrustee, whereby the entruster, who owns or
holds absolute title or security interests over
certain specified goods, documents or
instruments, releases the same to the possession
of the entrustee upon the latter’s execution and
delivery to the entruster of a signed document called a
“trust receipt” wherein the entrustee binds himself to
hold the designated goods, documents or instruments
in trust for the entruster and to sell or otherwise
dispose of the goods, documents or instruments with
the obligation to turn over to the entruster the
proceeds thereof to the extent of the amount owing to
the entruster or as appears in the trust receipt or the
goods, documents or instruments themselves if they
are unsold or not otherwise disposed of, in
accordance with the terms and conditions specified in
the trust receipt, or for other purposes substantially
equivalent to any of the following:  In the case of
goods or documents, (a) to sell the goods or procure
their sale; or (b) to manufacture or process the goods
with the purpose of ultimate sale: Provided, That, in
the case of goods delivered under trust receipt for the
purpose of manufacturing or processing before its
ultimate sale, the entruster shall retain its title over the
goods whether in its original or processed form until
the entrustee has complied fully with his obligation
under the trust receipt; or (c) to load, unload, ship or
tranship or otherwise deal with them in a manner
preliminary or necessary to their sale[.]”
Obligations in a trust receipt transaction:
a.  By the provision that refers to money under the
obligation to deliver it (entregarla) to the owner of the
merchandise sold.
b. By the provision referring to merchandise received
under the obligation to return it (devolvera) to the
owner.  construction sites, repudiates the idea that LBP
Thus, under the Trust Receipts Law, intent to
defraud is presumed when: (1) the entrustee fails to
turn over the proceeds of the sale of goods covered
by the trust receipt to the entruster; or (2) when the
entrustee fails to return the goods under trust, if they
are not disposed of in accordance with the terms of
the trust receipts.
In all trust receipt transactions, both
obligations on the part of the trustee exist in the
alternative—the return of the proceeds of the sale or
the return or recovery of the goods, whether raw or
processed. When both parties enter into an
agreement knowing that the return of the goods
subject of the trust receipt is not possible even without
any fault on the part of the trustee, it is not a trust
receipt transaction penalized under Section 13 of P.D.
115; The only obligation actually agreed upon by the
parties would be the return of the proceeds of the sale
transaction. This transaction becomes a mere loan,
where the borrower is obligated to pay the bank the
amount spent for the purchase of the goods.
At the onset of these transactions, LBP knew
that ACDC was in the construction business and that
the materials that it sought to buy under the letters of
credit were to be used for construction projects. LBP
had in fact authorized the delivery of the materials on
the construction sites for these projects, as seen in
the letters of credit it attached to its complaint. Clearly,
they were aware of the fact that there was no way
they could recover the buildings or constructions for
which the materials subject of the alleged trust
receipts had been used. Notably, despite the
allegations in the affidavit-complaint wherein LBP
sought the return of the construction materials, its
demand letter dated May 4, 1999 sought the payment
of the balance but failed to ask, as an alternative, for
the return of the construction materials or the
buildings where these materials had been used. The
fact that LBP had knowingly authorized the delivery of
construction materials to a construction site of two
government projects, as well as unspecified
intended to be the owner of those construction
materials. 
As a government financial institution, LBP
should have been aware that the materials were to be
used for the construction of an immovable property,
as well as a property of the public domain. As an
immovable property, the ownership of whatever was
constructed with those materials would presumably
belong to the owner of the land. In contrast with the
present situation, it is fundamental in a trust receipt
transaction that the person who advanced payment
for the merchandise becomes the absolute owner of
said merchandise and continues as owner until he or
she is paid in full, or if the goods had already been
sold, the proceeds should be turned over to him or to
her.
Based on these premises, the agreements
between the parties in this case are not trust receipt
transactions because (1) from the start, the parties
were aware that ACDC could not possibly be
obligated to reconvey to LBP the materials or the end
product for which they were used; and  (2) from the
moment the materials were used for the government.
ROSARIO TEXTILE MILLS CORPORATION and
EDILBERTO YUJUICO, petitioners, vs. HOME
BANKERS SAVINGS AND TRUST COMPANY,
respondent.  under the promissory notes and notwithstanding the
TOPIC: LIABILITY FOR LOSS OF GOODS,
DOCUMENTS OR INSTRUMENTS  Yujuico before the Regional Trial Court, Br. 16,
Principle:
A trust receipt as "a security transaction intended to
aid in financing importers and retail dealers who do
not have sufficient funds or resources to finance the
importation or purchase of merchandise, and who
may not be able to acquire credit except through
utilization, as collateral, of the merchandise imported
or purchased."  liable. They argue that the importation of raw
“A trust receipt, therefore, is a security agreement,
pursuant to which a bank acquires a 'security interest'
in the goods. It secures an indebtedness and there
can be no such thing as security interest that secures
no obligation. "
Facts:
Rosario Textile Mills Corporation (RTMC)
applied from Home Bankers Savings & Trust Co. for
an Omnibus Credit Line for P10 million. The bank
approved RTMC's credit line but for only P8 million.
The bank notified RTMC of the grant of the said loan
thru a letter dated March 2, 1989 which contains
terms and conditions conformed by RTMC thru
Edilberto V. Yujuico. On March 3, 1989, Yujuico
signed a Surety Agreement in favor of the bank, in
which he bound himself jointly and severally with
RTMC for the payment of all RTMC's indebtedness to
the bank from 1989 to 1990. RTMC availed of the
credit line by making numerous drawdowns, each
drawdown being covered by a separate promissory
note and trust receipt. RTMC, represented by Yujuico,
executed in favor of the bank a total of eleven (11)
promissory notes
Despite the lapse of the respective due dates
bank's demand letters, RTMC failed to pay its loans.
Hence, on January 22, 1993, the bank filed a
complaint for sum of money against RTMC and
Manila. 
RTMC and Yujuico contend that they should
be absolved from liability. They claimed that although
the grant of the credit line and the execution of the
suretyship agreement are admitted, the bank gave
assurance that the suretyship agreement was merely
a formality under which Yujuico will not be personally
materials under the credit line was with a grant of
option to them to turn-over to the bank the imported
raw materials should these fail to meet their
manufacturing requirements. RTMC offered to make
such turn-over since the imported materials did not
conform to the required specifications. However, the
bank refused to accept the same, until the materials
were destroyed by a fire which gutted down RTMC's
premises. 
 The trial court rendered a decision in favor of
the Home Bankers. Petitioners are ordered to pay
jointly and severally in favor of the respondent.
The petitioners appealed to the CA
contending that under the trust receipt contracts
between the parties, they merely held the goods
described therein in trust for respondent Home
Bankers Savings and Trust Company (the bank)
which owns the same . Since the ownership of the
goods remains with the bank, then it should bear the
loss. With the destruction of the goods by fire,
petitioners should have been relieved of any
obligation to pay. The Court of Appeals, however,
affirmed the trial court's judgment, holding that the
bank is merely the holder of the security for its
advance payments to petitioners; and that the goods
they purchased, through the credit line extended by
the bank, belong to them and hold said goods at their
own risk.
Issue:
Whether the Court of Appeals erred in holding that
petitioners are not relieved of their obligation to pay
their loan after they tried to tender the goods to the
bank which refused to accept the same, and which
goods were subsequently lost in a fire;
Ruling:
No. Petitioners' stance, however,
conveniently ignores the true nature of its transaction
with the bank. We recall that RTMC filed with the bank
an application for a credit line in the amount of P10
million, but only P8 million was approved. RTMC then
made withdrawals from this credit line and issued
several promissory notes in favor of the bank. In
banking and commerce, a credit line is "that amount
of money or merchandise which a banker, merchant,
or supplier agrees to supply to a person on credit and
generally agreed to in advance."
It is thus clear that the principal transaction
between petitioner RTMC and the bank is a contract
of loan. RTMC used the proceeds of this loan to
purchase raw materials from a supplier abroad. In
order to secure the payment of the loan, RTMC
delivered the raw materials to the bank as collateral.
Trust receipts were executed by the parties to
evidence this security arrangement. Simply stated, the
trust receipts were mere securities. 
In Samo vs. People, the Court described a
trust receipt as "a security transaction intended to aid
in financing importers and retail dealers who do not
have sufficient funds or resources to finance the
importation or purchase of merchandise, and who
may not be able to acquire credit except through
utilization, as collateral, of the merchandise imported
or purchased."
In Vintola vs. Insular Bank of Asia and
America,  the Court elucidated further that "a trust
receipt, therefore, is a security agreement, pursuant to
which a bank acquires a 'security interest' in the
goods. It secures an indebtedness and there can be
no such thing as security interest that secures no
obligation. " 
Petitioners' insistence that the ownership of
the raw materials remained with the bank is
untenable. 
In Sia vs. People,  Abad vs. Court of
Appeals, and PNB vs. Pineda, the Court held that: 
"If under the trust receipt, the bank is made to appear
as the owner, it was but an artificial expedient, more
of legal fiction than fact, for if it were really so, it could
dispose of the goods in any manner it wants, which it
cannot do, just to give consistency with purpose of the
trust receipt of giving a stronger security for the loan
obtained by the importer. To consider the bank as the
true owner from the inception of the transaction would
be to disregard the loan feature thereof. . . ." 
Thus, petitioners cannot be relieved of their
obligation to pay their loan in favor of the bank. 
a. Criminal liability of directors, officers and
agents
G.R. No. 119858             April 29, 2003
EDWARD C. ONG, petitioner,  sufficient to show failure by the entrustee to turn over
vs.
THE COURT OF APPEALS AND THE PEOPLE OF
THE PHILIPPINES, respondents.
Topic: Trust Receipts Law; Criminal Liability of
Directors, Officers and Agents
Principle:   possession by the entrustee of the goods subject of
Facts:  transactions.
Petitioner-accused representing ARMAGRI
International Corporation defraud SOLIDBANK
Corporation represented by its accountant, Demetrio
Lazaro.
The accused received in trust from said
SOLIDBANK Corporation the following goods: 125
pcs. Rear diff. assy RNZO 49", 50 pcs. Front & Rear
diff assy. Isuzu Elof and 85 units 1-Beam assy. Isuzu
Spz, all valued at P2,532,500.00 specified in a Trust
Receipt Agreement and under the express obligation
on the part of the said accused to account for said
goods to Solidbank Corporation and/or remit the
proceeds of the sale thereof within the period
specified in the Agreement or return the goods, if
unsold immediately or upon demand. However, the
accused refused to comply with his obligations and
instead misapplied, misappropriated and converted
the same or the value thereof to his own personal use
and benefit, to the damage and prejudice of Solidbank
Corporation in the aforementioned amount.
The Court of Appeals ruled that what made
petitioner liable was his failure to account to the
entruster Bank what he undertook to perform under
the trust receipts. Based on the representations of
petitioner, the Bank accepted the trust receipts and,
consequently, expected petitioner to return or account
for the goods entrusted. The Court of Appeals further
ruled that the prosecution need not prove that
petitioner personally received and misappropriated
the goods subject of the trust receipts. Evidence of
misappropriation is not required under the Trust
Receipts Law. To establish the crime of estafa, it is
the goods or the proceeds of the sale of the goods
covered by a trust receipt. Moreover, the bank is not
obliged to determine if the goods came into the
actual possession of the entrustee. Trust receipts
are issued to facilitate the purchase of merchandise.
To obligate the bank to examine the fact of actual
every trust receipt will greatly impede commercial
Petitioner now contends that he is merely acting as
agent and signed for the entrustee corporation and
thus he was not necessarily the one responsible for
the offense. 
Issue: 
1. Whether or not petitioner comes within the
purview of Section 13 of the Trusts Receipts Law
2. Whether or not petitioner’s conviction for Estafa is
proper
Ruling:
Petitioner responsible for violation of the Trusts
Receipts Law
Yes. The relevant penal provision of the Trust
Receipts Law reads:
SEC. 13. Penalty Clause. - The failure of the
entrustee to turn over the proceeds of the
sale of the goods, documents or instruments
covered by a trust receipt to the extent of the
amount owing to the entruster or as appears
in the trust receipt or to return said goods,
 documents or instruments if they were not
sold or disposed of in accordance with the
terms of the trust receipt shall constitute the
crime of estafa, punishable under the
provisions of Article Three Hundred and
Fifteen, Paragraph One (b), of Act Numbered
Three Thousand Eight Hundred and Fifteen,
as amended, otherwise known as the
Revised Penal Code. If the violation or
offense is committed by a corporation,
partnership, association or other juridical
entities, the penalty provided for in this
Decree shall be imposed upon the directors,
officers, employees or other officials
or persons therein responsible for the
offense, without prejudice to the civil
liabilities arising from the criminal offense.
(Emphasis supplied)
The Trust Receipts Law is violated whenever the
entrustee fails to: (1) turn over the proceeds of the
sale of the goods, or (2) return the goods covered by
the trust receipts if the goods are not sold. The mere
failure to account or return gives rise to the crime
which is malum prohibitum. There is no requirement
to prove intent to defraud.
The Trust Receipts Law recognizes the impossibility
of imposing the penalty of imprisonment on a
corporation. Hence, if the entrustee is a corporation,
the law makes the officers or employees or other
persons responsible for the offense liable to suffer the
penalty of imprisonment. The reason is obvious:
corporations, partnerships, associations and other
juridical entities cannot be put to jail. Hence, the
criminal liability falls on the human agent responsible
for the violation of the Trust Receipts Law.
In the instant case, the Bank was the
entruster while ARMAGRI was the entrustee. Being
the entrustee, ARMAGRI was the one responsible to
account for the goods or its proceeds in case of sale.
However, the criminal liability for violation of the Trust
Receipts Law falls on the human agent responsible
for the violation. Petitioner, who admits being the
agent of ARMAGRI, is the person responsible for the
offense for two reasons. First, petitioner is the
signatory to the trust receipts, the loan applications
and the letters of credit. Second, despite being the
signatory to the trust receipts and the other
documents, petitioner did not explain or show why he
is not responsible for the failure to turn over the
proceeds of the sale or account for the goods covered
by the trust receipts.
True, petitioner acted on behalf of
ARMAGRI. However, it is a well-settled rule that the
law of agency governing civil cases has no application
in criminal cases. When a person participates in the
commission of a crime, he cannot escape punishment
on the ground that he simply acted as an agent of
another party. In the instant case, the Bank accepted
the trust receipts signed by petitioner based on
petitioner's representations. It is the fact of being the
signatory to the two trust receipts, and thus a direct
participant to the crime, which makes petitioner a
person responsible for the offense.
Petitioner’s conviction of Estafa is proper
Yes. There is no need to allege in the Informations in
what capacity petitioner participated to hold him
responsible for the offense. Under the Trust Receipts
Law, it is sufficient to allege and establish the failure
of ARMAGRI, whom petitioner represented, to remit
the proceeds or to return the goods to the Bank. 
When petitioner signed the trust receipts, he claimed
he was representing ARMAGRI. The corporation
obviously acts only through its human agents and it is
the conduct of such agents which the law must deter.
The existence of the corporate entity does not shield
from prosecution the agent who knowingly and
intentionally commits a crime at the instance of a
corporation.
ALFREDO CHING vs THE SECRETARY OF
JUSTICE, et al.
G. R. No. 164317, February 6, 2006.
Though the entrustee is a corporation, the law
specifically makes the officers, employees or other
officers or persons responsible for the offense,
without prejudice to the civil liabilities of such
corporation and/or board of directors, officers, or
other officials or employees responsible for the
offense. The rationale is that such officers or
employees are vested with the authority and
responsibility to devise means necessary to ensure
compliance with the law and, if they fail to do so, are
held criminally accountable; thus, they have a
responsible share in the violations of the law.
Facts:
Alfredo Ching, as the Senior Vice-President
of Philippine Blooming Mills, Inc. (PBMI), applied
with the Rizal Commercial Banking Corporation for
the issuance of commercial letters of credit to finance
its importation of assorted goods. The bank approved
the application and irrevocable letters of credit were
issued in favor of Ching. The goods were purchased
and delivered in trust to PBMI. Ching signed 13 trust
receipts as surety, acknowledging delivery of the
goods as contained in the said trust receipts. When
the trust receipts matured, Ching failed to return the
goods to the bank or to return their value despite
demands. Thus, the bank filed a criminal complaint
for13 counts of estafa against Ching in the Office of
the City Prosecutor but the case was ultimately
dismissed on the ground that the material allegations
therein did not amount to estafa. In the meantime, the
Court rendered judgment in Allied Banking
Corporation v. Ordoez, holding that the penal
provision of P.D. No. 115 is not limited to
transactions in goods which are to be sold (retailed),
reshipped, stored or processed as a component of a
product ultimately sold but covers failure to turn over
the proceeds of the sale of entrusted goods, or to
return said goods if unsold or not otherwise disposed
of in accordance with the terms of the trust receipts.
In the light of this ruling, the bank was able to re-file
13 counts of estafa against Ching. 
Issue:
Whether Ching is liable as SVP of PBMI.
RULING:
YES. In Allied Banking Corporation v.
Ordoez, the Court ruled that PD 115 applies to goods
used by the entrustee in the operation of its
machineries and equipment. The non-payment of the
amount covered by the trust receipts or the non-return
of the goods covered by the receipts, if not sold or
otherwise not disposed of, violate the entrustees
obligation to pay the amount or to return the goods to
the entruster which is a crime under P.D. No.
115,without need of proving intent to defraud. The
crime defined in P.D. No. 115 is malum prohibitum
but is classified as estafa under the Revised Penal
Code. Though the entrustee is a corporation,
nevertheless, the law specifically makes the officers,
employees or other officers or persons responsible for
the offense, without prejudice to the civil liabilities of
such corporation and/or board of directors, officers,
or other officials or employees responsible for the
offense. 
 In this case, petitioner signed the trust ("El Oro Corporation"). El Oro Corporation had
receipts in question. He cannot, thus, hide behind the a contract with the Philippine Army to supply

cloak of the separate corporate personality of PBMI. the latter with "survival bolos."

A corporate officer cannot protect himself behind a

corporation where he is the actual, present and Respondent : Philippine Islands  - the bank
where the petitioner applied for two
efficient actor.
commercial letters of credit in favor of El Oro
b. Directors and officers of the corporation Corporation’s suppliers, Tanchaoco
not civilly liable unless they assume
Manufacturing Incorporated ("Tanchaoco
personal liability
Incorporated") and Maresco Rubber and
Tupaz IV v. Court of Appeals
Retreading Corporation ("Maresco
G.R. No. 145578, 18 Nov 2005
Corporation"). 

Topic:
Facts:
Trust Receipt Law
L. Penal sanctions of directors, officers
and agents After granting the petitioner’s
application and issued Letter of Credit to
b. Directors and officers of the
corporation not civilly liable unless they Tanchaoco Incorporated and Letter of Credit to
assume personal 
Maresco Corporation, petitioners signed trust
Liability
receipts in favor of respondent bank. 
Principle:

The corporate representatives signing as a Petitioners did not comply with their
solidary guarantee as corporate representative undertaking under the trust receipts.
did not undertake to guarantee personally the Respondent bank made several demands for
payment of the corporation's debt. Debts payments but El Oro Corporation made partial
incurred by directors, officers and employees payments only. On 27 June 1983 and 28 June
acting as such corporate agents are not theirs 1983, respondent bank’s counsel and its
but the direct liability of the corporation they representative respectively sent final demand
represent. As an exception, directors or letters to El Oro Corporation. El Oro
officers are personally liable for the Corporation replied that it could not fully pay
corporation's debt if they so contractually its debt because the Armed Forces of the
agree or stipulate.  Philippines had delayed paying for the survival
bolos.
Parties:
Respondent bank charged petitioners
Petitioners : Jose C. Tupaz IV and with estafa under Section 13,  Presidential
Petronila C. Tupaz - Vice-President for Decree No. 115 ("Section 13") or Trust
Operations and Vice-President/Treasurer, Receipts Law ("PD 115").
respectively, of El Oro Engraver Corporation
Issue: found on the dorsal portion of the trust
receipts. Petitioner placed his signature after
Whether or not the corporate officers make the typewritten words "ARMCO INDUSTRIAL
themselves personally liable for El Oro CORPORATION" found at the end of the
Corporation’s debts under the trust receipts. solidary guarantee clause. Evidently, petitioner
did not undertake to guaranty personally the
Ruling: payment of the principal and interest of
ARMAGRI’s debt under the two trust receipts.
No, A corporation, being a juridical
entity, may act only through its directors, Hence, for the trust receipt dated 9
officers, and employees; and the debts October 1981, we sustain petitioners’ claim
incurred by these individuals, acting as such that they are not personally liable for El Oro
corporate agents, are not theirs but the direct Corporation’s obligation.
liability of the corporation they represent. As
an exception, directors or officers are For the trust receipt dated 30
personally liable for the corporation’s debts September 1981, the dorsal portion of which
only if they so contractually agree or stipulate. petitioner Jose Tupaz signed alone, we find
that he did so in his personal capacity.
In the trust receipt dated 9 October Petitioner Jose Tupaz did not indicate that he
1981, petitioners signed below this clause as was signing as El Oro Corporation’s Vice-
officers of El Oro Corporation. Thus, under President for Operations. Hence, petitioner
petitioner Petronila Tupaz’s signature are the Jose Tupaz bound himself personally liable for
words "Vice-Pres–Treasurer" and under El Oro Corporation’s debts. Not being a party
petitioner Jose Tupaz’s signature are the words to the trust receipt dated 30 September 1981,
"Vice-Pres–Operations." By so signing that petitioner Petronila Tupaz is not liable under
trust receipt, petitioners did not bind such trust receipt.
themselves personally liable for El Oro
Corporation’s obligation.  E. Ownership of the goods, documents and
instruments under a trust receipt
In Ong v. Court of Appeals, a corporate
representative signed a solidary guarantee Spouses RAMON R. NACU and LOURDES I.
clause in two trust receipts in his capacity as NACU, petitioners,
corporate representative. There, the Court held vs.

that the corporate  representative did not THE COURT OF APPEALS and PILIPINAS BANK,

undertake to guarantee personally the respondents.

payment of the corporation’s debts, thus:

PRINCIPLE: Under pertinent laws, the trust receipt is
a separate and independent security transaction
Here, petitioner did not sign in his
intended to aid in financing importers whereby the
personal capacity the solidary guarantee clause
imported goods are held as security by the lending
institution for the loan obligation.
FACTS:
Petitioners spouses are the registered
owners of the subject property covered by Transfer
Certificate of Title No. 276891 of the Registry of
Deeds for Quezon City, located at 12 Yakan Street,
La Vista Subdivision, Quezon City.
On July 12, 1982, respondent Pilipinas Bank
extended to Home Construction-Joint venture,
represented by Horacio Mendoza, Julio Matias and
Ramon Nacu, Irrevocable Stand-by LC No. 82/408-
HO in the amount of P4,400,000.00 to guarantee the
ten per cent (10%) mobilization fund to be released by
the Ministry of Public Works and Highways in
connection with a Lucana Fishing Port and
Construction Project.
To secure this Home Construction-Joint
Venture credit accommodation, petitioners spouses,
together with Spouses Horacio S. Mendoza and
Leonisa D. Mendoza and Spouses Julio D. Matias
and Lydia Sison constituted real estate mortgages on
five (5) distinct properties in favor of respondent Bank.
The principal obligation mentioned in the said real
estate mortgage extended to the Home Construction
— Joint Venture was fully paid and extinguished.
Respondent Bank effected the cancellation/release of
the titles subject of the said real estate mortgage,
particularly the properties of the co-mortgagors,
Horacio Mendoza and Julio Matias.
Petitioners spouses did not immediately request for
the issuance of the corresponding certificate of
cancellation/release of mortgage of TCT No. 276891
from respondent Bank.
On February 24, 1983, two (2) corporations under the
Joint Venture — JBS Construction, Inc., and P.I.
Construction and Services Co., Inc., petitioner Nacu
secured from respondent Bank, under letters of credit
(L/C), a loan accommodation for the importation of
several pieces of construction machinery and
equipment to be used by said joint venture in a
construction project, located at Mindanao.
In consideration of this JBS and PI Construction Joint
Venture credit accommodation, Jose Sahagun and
petitioner Nacu executed in their capacities as
executive officers thereof, a Continuing Security
Agreement in favor of respondent Bank. Said debtor
corporations, represented by their respective
presidents, were also made to sign trust receipts in
favor of respondent Bank.
Later, petitioner spouses requested from respondent
Bank the issuance of the Certificate of
Cancellation/Release of the Real Estate Mortgage on
TCT No. 276891. The respondent Bank refused
despite its admission that the Home Construction loan
had been fully paid and despite the release of the
properties of the co-mortgagors, Horacio Mendoza
and Julio Matias.
Issue:
Whether or not petitioner Nacu again bound himself
"jointly and severally" with the Trustees (JBS
Corporation and PI Construction) for the value of the
goods covered by the instruments.
Held:
No. The trust receipt agreement shows that
the 1982 real estate mortgage is no longer operative
because otherwise, there would have been no need
for the execution of said trust agreement to secure the
second loan.
Under pertinent laws, the trust receipt is a
separate and independent security transaction
intended to aid in financing importers whereby the
imported goods are held as security by the lending
institution for the loan obligation.
In the case and Vintola v. Insular bank of
Asia and America 7 this Court explained the nature
and usage of trust receipts as follows:
. . . A letter of credit-trust receipt arrangement is
endowed with its own distinctive features and
characteristics. Under that set-up, a bank extends a
loan covered by the letter of credit, with the trust
receipt as a security for the loan. In other words, the
transaction involved a loan feature represented by the
letter of credit, and security feature which is in the
covering trust receipt. . . .
A trust receipt, therefore, is a security agreement,
pursuant to which a bank acquires a security interest
in the goods. It secures an indebtedness and there
can be no such thing as security interest that secures
no obligation.
. . . A trust receipt is considered as a security
transaction intended to aid in financing importers and
retail dealers who do not have sufficient funds or
resources to finance the importation or purchase or
merchandise, and who may not be able to acquire
credit except through utilization, as collateral, of the
merchandise imported or purchased. . . .
Moreover, by virtue of the trust receipt agreement,
respondent Bank should proceed against the same
because the trust receipt theoretically transferred the
ownership of the imported personal property to
respondent Bank.
Worth mentioning is also the fact that the trust
receipts and the Continuing Surety Agreement were
signed only by petitioner Nacu. Assuming that both
documents duly constituted a real estate mortgage on
the property of petitioners spouses, they are voidable
for want of petitioner Lourdes Nacu's acquiescence
and/or consent thereto. Article 166 of the Civil Code,
the law then applicable, provides that unless the wife
has been declared a non compos mentis, a
spendthrift, is under civil interdiction or is confined in a
leprosarium, the husband cannot alienate
encumber any real property of the conjugal
partnership without the wife's consent.
M. Remedies
Sarmiento Jr. v. Court of Appeals
G.R. No. 122502, 27 Dec 2002
Topic: Trust Receipts Law: Remedies
Principle:
The breach of obligation spelled out it the
Trust Receipt is separate and distinct from
any criminal liability for "misuse and/or
misappropriation of goods or proceeds
realized from the sale of goods, documents or
instruments released under trust receipts,"
punishable under Section 13 of the Trust
Receipts Law in relation to Article 315(1), (b)
of the Revised Penal Code. Being based on an
obligation ex contractu and not ex delicto, the
civil action may proceed independently of the
criminal proceedings instituted against
petitioners regardless of the result of the
latter.
Facts:
Gregorio Limpin, Jr. and Antonio
Apostol, doing business under the name and
style of 'Davao Libra Industrial Sales,' filed
an application for an Irrevocable Domestic
Letter of Credit with Associated Banking
Corporation for the amount of P495,000.00 in
or
favor of LS Parts Hardware and Machine Shop
for the purchase of assorted scrap irons. Said
application was signed by Limpin and
Apostol. The aforesaid application was
approved, and Associated Banking issued
Domestic Letter of Credit in favor of LS Parts
for P495,000.00. Thereafter, a Trust Receipt
was executed by defendant Limpin and "Among others, the Trust Receipt
Antonio Apostol. In said Trust Receipt, the provided that:
following stipulation, signed by defendant
Lorenzo Sarmiento, Jr. appears: — 'The defendants acknowledged to
have received in trust from the
'In consideration of the Associated plaintiff Bank the merchandise
Banking Corporation releasing to covered by the documents and agreed
Gregorio Limpin and Antonio Apostol to hold said merchandise in storage as
goods mentioned in the trust receipt, the property of the Bank, with liberty
we hereby jointly and severally to sell the same for cash for its
undertake and agree to pay, on accounts provided the proceeds
demand, to the Associated Bank thereof are turned over in their
Corporation all sums and amount of entirety to the bank to be applied
money which said Associated Banking against acceptance and any other
Corporation may call upon us to pay indebtedness of the defendants to the
arising out of, pertaining to, and/or bank.
any manner connected with the trust
receipt, WE FURTHER AGREE that our 'That the defendants shall
liability in this undertaking shall be immediately give notice to said Bank
direct and immediate and not of any average damage, non-
contingent upon the pursuit by the shipment, shortage, non-delivery or
Associated Banking Corporation of other happening not in the usual and
whatever remedies it may have ordinary course of business.
against the aforesaid Gregorio Limpin
and Antonio Apostol. 'That the due date of the Trust Receipt
is December 5, 1978.'
SGD.
T/LORENZO Limpin and Apostol failed to comply
SARMIENTO, with their undertaking under the Trust
JR. Receipt. Hence, demands were made.
Surety/ However, defendants failed to pay their
Guarantor' account. Legal action against the defendants
was deferred due to the proposed settlement
of the account. However, no settlement was
reached. Hence the bank, thru counsel, sent a
final letter of demand.
A complaint for Violation of the Trust Receipt
Law was filed against the defendants before
the City Fiscal's Office.
After trial, the lower court rendered
judgment in favor of Associated Banking
Corporation.
On appeal by herein petitioners
Sarmiento, Jr. and Limpin, Jr., the Court of
Appeals affirmed the judgment of the trial
court, and, denied the Motion for
Reconsideration of herein petitioner. Hence,
this petition.
Issue:
Whether or not Associated Banking has the
right to institute a separate civil action against
Sarmiento for civil liability
Ruling:
Yes, Associated Banking has the right
to institute a separate civil action against
Sarmiento for civil liability.  error hinges on the proper interpretation of
Article 31 of the Civil Code provides
that “When the civil action is based on an
obligation not arising from the act or
omission complained of as a felony, such civil
action may proceed independently of the
criminal proceedings and regardless of the
result of the latter.”
 
In the present case, private
respondent’s complaint against petitioners
was based on the failure of the latter to
comply with their obligation as spelled out in
the Trust Receipt executed by them. This
breach of obligation is separate and distinct
from any criminal liability for “misuse and/or
misappropriation of goods or proceeds
realized from the sale of goods, documents or
instruments released under trust receipts”,
punishable under Section 13 of the Trust
Receipts Law (P.D. 115) in relation to Article
315(1), (b) of the Revised Penal Code.
Being based on an obligation ex
contractu and not ex delicto, the civil action
may proceed independently of the criminal
proceedings instituted against petitioners
regardless of the result of the latter.
Landl & Company (Phil.) Inc. v. Metropolitan
Bank & Trust Co., G.R. No. 159622, 30 Jul
2004
Principle: The resolution of the first assigned
Section 7 of Presidential Decree No. 115, or the
Trust Receipts Law, which reads:
Sec. 7. Rights of the entruster. - The entruster
shall be entitled to the proceeds from the sale of
the goods, documents or instruments released
under a trust receipt to the entrustee to the extent
of the amount owing to the entruster or as
appears in the trust receipt, or to the return of the
goods, documents or instruments in case of non-
sale, and to the enforcement of all other rights
conferred on him in the trust receipt provided
such are not contrary to the provisions of this
Decree.
The entruster may cancel the trust and
take possession of the goods, documents or
instruments subject of the trust or of the
proceeds realized therefrom at any time upon
default or failure of the entrustee to comply with
any of the terms and conditions of the trust
receipt or any other agreement between the
entruster and the entrustee, and the entruster in
possession of the goods, documents or
instruments may, on or after default, give notice
to the entrustee of the intention to sell, and may,
not less than five days after serving or sending
of such notice, sell the goods, documents or
instruments at public or private sale, and the
entruster may, at a public sale, become a
purchaser. The proceeds of any such sale,
whether public or private, shall be applied (a) to
the payment of the expenses thereof; (b) to the
payment of the expenses of re-taking, keeping
and storing the goods, documents or
instruments; (c) to the satisfaction of the
entrustee's indebtedness to the entruster. The
entrustee shall receive any surplus but shall be
liable to the entruster for any deficiency. Notice
of sale shall be deemed sufficiently given if in
writing, and either personally served on the
entrustee or sent by post-paid ordinary mail to
the entrustee's last known business address
Facts:
Respondent alleged that petitioner
corporation (Landl & Co.) is engaged in the
business of selling imported welding rods and
alloys. On June 17, 1983, it opened Commercial
Letter of Credit with respondent bank, in the
amount of P218, 733. The letter of credit was
opened to purchase various welding rods and
electrodes from Perma Alloys, Inc., New York,
U.S.A., as evidenced by a Pro-Forma Invoice
dated March 10, 1983. Petitioner Corporation
put up a marginal deposit of P50, 414.00 from
the proceeds of a separate clean loan.
As an additional security, and as a
condition for the approval of Petitioner
Corporation’s application for the opening of the
commercial letter of credit, Percival G. Llaban
and Manuel P. Lucente executed a Continuing
Suretyship Agreement. Petitioner Lucente also
executed a Deed of Assignment. Upon
compliance with these requisites, respondent
bank opened an irrevocable letter of credit for
the petitioner corporation.
To secure the indebtedness of petitioner
corporation, respondent bank required the
execution of a Trust Receipt in an amount
equivalent to the letter of credit, on the condition
that Landl would hold the goods in trust for
respondent bank, with the right to sell the goods
and the obligation to turn over to respondent
bank the proceeds of the sale, if any. If the
goods remained unsold, Petitioner Corporation
had the further obligation to return them to
respondent bank on or before November 23,
1983.
Upon arrival of the goods in the
Philippines, Landl took possession and custody
thereof.
On November 23, 1983, the maturity
date of the trust receipt, Petitioner Corporation
defaulted in the payment of its obligation to
respondent bank and failed to turn over the
goods to the latter. On July 24, 1984, respondent
bank demanded that petitioners, as entrustees,
turn over the goods subject of the trust receipt.
On September 24, 1984, petitioners turned over
the subject goods to the respondent bank.
On July 31, 1985, in the presence of
representatives of Landl and respondent bank,
the goods were sold at public auction. The goods
were sold for P30, 000.00 to respondent bank as
the highest bidder. The proceeds of the auction
sale were insufficient to completely satisfy
petitioners' outstanding obligation to respondent
bank, notwithstanding the application of the time
deposit account of petitioner Lucente.
Accordingly, respondent bank demanded that
petitioners pay the remaining balance of their
obligation. After petitioners failed to do so,
respondent bank instituted the instant case to
collect the said deficiency.
Respondent Metrobank filed a complaint
for sum of money against Landl and Company
(Phil.) Inc. and its directors, Percival G. Llaban
and Manuel P. Lucente before the Regional Trial
Court of Cebu City.
On March 31, 1997, after trial on the
merits, the trial court rendered a decision
ordering Landl, Llab and Lucente to pay jointly
and severally to Metrobank the sum of P292,
172.23 representing the defendant's obligation,
plus interest, attorney’s fees and penalty.
Petitioners appealed to the Court of
Appeals. On February 13, 2003, the Court of
Appeals rendered a decision affirming in toto the
decision of the trial court. Hence, this petition
for review.
Issue:
a.)Whether Metro bank’s repossession of the
goods amounted to extinguishment of Lendl’s
obligation; and
b.)Whether Metrobank had the right to claim the
deficiency from petitioners notwithstanding the
fact that the goods covered by the trust receipt
were fully turned over to respondent.
Ruling:
(A).NO. Repossession did not extinguish the
liability of Landl.
There is no question that petitioners
failed to pay their outstanding obligation to
respondent bank. They contend, however, that
based on Sec. 7 of PD 115, when the entrustee
fails to settle his principal loan, the entruster
may choose between two separate and
alternative remedies:
(1) the return of the goods covered by the trust
receipt, in which case, the entruster now
acquires the ownership of the goods which the
entrustee failed to sell; or
(2) Cancel the trust and take possession of the
goods, for the purpose of selling the same at a
private sale or at public auction. Petitioners
assert that, under this second remedy, the
entruster does not acquire ownership of the
goods, in which case he is entitled to the
deficiency. Petitioners argue that these two
remedies are so distinct that the availment of one
necessarily bars the availment of the other. Thus,
when respondent bank availed of the remedy of
demanding the return of the goods, the actual
return of all the unsold goods completely
extinguished petitioners' liability. Petitioners'
argument is bereft of merit.
A trust receipt is inextricably linked
with the primary agreement between the parties.
Time and again, we have emphasized that a trust
receipt agreement is merely a collateral
agreement, the purpose of which is to serve as
security for a loan.
The initial repossession by the bank of
the goods subject of the trust receipt did not
result in the full satisfaction of the petitioners'
loan obligation. Petitioners are apparently
laboring under the mistaken impression that the
full turn-over of the goods suffices to divest
them of their obligation to repay the principal
amount of their loan obligation.
The repossession of the machinery and
equipment in question was merely to secure the
payment of loan obligation and not for the
purpose of transferring ownership thereof to
Metrobank in satisfaction of said loan.
Respondent bank's repossession of the properties
and subsequent sale of the goods were
completely in accordance with its statutory and
contractual rights upon default of Petitioner
Corporation.
(B) YES, Metrobank can claim deficiency.
The second paragraph of Section 7
expressly provides that the entrustee shall be
liable to the entruster for any deficiency after the
proceeds of the sale have been applied to the
payment of the expenses of the sale, the payment
of the expenses of re-taking, keeping and storing
the goods, documents or instruments, and the
satisfaction of the trustee’s indebtedness to the
entruster. In the case at bar, the proceeds of the
auction sale were insufficient to satisfy entirely
Petitioner Corporation’s indebtedness to the
respondent bank. Respondent bank was thus
well within its rights to institute the instant case
to collect the deficiency
N. Letter of credit vis-à-vis trust receipt
transactions
RCBC/Rizal Commercial Banking VS ALFA
RTW MANUFACTURING CORP
 purchase of raw materials for its garments

TOPIC: TRUST RECEIPTS LAW; Letters of business. Upon said letters of credit,

Credit vis-à-vis Trust Receipt Transactions corresponding bill of exchange of various

amounts were drawn and charged to account of
Alfa. Alfa had executed 4 Trust Receipts
PRINCIPLE: The jurisdiction of this Court in
stipulating that it had received in trust for RCBC.
cases brought before it from the Court of
When the obligations became due, RCBC
Appeals via Rule 45 of the 1997 Rules of Civil
demanded payment citing 2 Comprehensive
Procedure, as amended, is limited to reviewing
Surety Agreements allegedly executed by the
errors of law. Findings of fact of the latter court
individual defendants. Under such surety
are conclusive, except in a number of instances.
agreement, it was essentially agreed that Alfa
In Siguan vs. Lim this Court enumerated those
and the signatory officers jointly guarantee the
instances when the factual findings of the Court
punctual payment of their obligation provided
of Appeals are not deemed conclusive, to wit: (1)
that the liability of the individual defendants and
when the conclusion is a finding grounded
Alfa shall not exceed the sum of P4 Million and
entirely on speculations, surmises or
P7.5 Million and such interest as may accrue
conjectures; (2) when the inference made is
thereon and expenses as may be incurred by
manifestly mistaken, absurd or impossible; (3)
RCBC. Upon default of payment, RCBC filed a
when there is grave abuse of discretion; (4)
civil case before RTC Makati for a sum of money
when the judgment is based on a
against Alfa and the individual defendants. The
misapprehension of facts; (5) when the findings
trial court ordered the defendants to pay RCBC
of facts are conflicting; (6) when the Court of
more than P18 Million inclusive of the interest
Appeals, in making its findings, went beyond the
and other legal fees. On appeal, CA affirmed the
issues of the case and the same is contrary to
decision of the trial court but modified the
the admissions of both the appellant and
amount to only P3 Million inclusive of the
appellee; (7) when the findings are contrary to
stipulated interest and other legal fees.
those of the trial court; (8) when the findings are
conclusions without citation of specific evidence
on which they are based; (9) when the facts set ISSUE: Whether or not the Court of

forth in the petition as well as in the petitioners Appeals  erred in awarding to RCBC the minimal

main and reply briefs are not disputed by the sum of P3 Million instead of P18 Million granted

respondent; and (10) when the findings of fact by the trial court.

are premised on the supposed absence of  

evidence and contradicted by the evidence on RULING: YES. The appellate court
record. disregarded the parties’ stipulations in their
contracts of loan, specifically, those pertaining to

FACTS: Alfa RTW applied for four the agreed interest rates, service charges and

Letters of Credit with petitioner to facilitate its penalties in case of any breach thereof. CA
failed to apply the time-honored doctrine that
which is agreed to in a contract is the law
between the parties. Thus, the obligations
arising from contracts have the force of law
between the contracting parties and should be
complied with in good faith. The Court cannot
vary the terms and conditions therein stipulated
unless such stipulation is contrary to law,
morals, good customs, public order or public
policy.
The present case involves an obligation
arising from a letter of credit-trust receipt
transaction. Under this arrangement, a bank
extends to a borrower a loan covered by the
letter of credit, with the trust receipt as security
of the loan. In contracts contained in trust
receipts, the contracting parties may establish
agreements, terms and conditions they may
deem advisable, provided they are not contrary
to law, morals or public order. In the computation
of interest, the principal amount of loans
corresponding to each trust receipt must earn an
interest rate of 16% per annum with the
stipulated service charge of 2% per annum on
the loan principal or the outstanding balance
thereof, from the date of execution until finality of
court’s Decision. A penalty of 6% per annum of
the amount due and unpaid must also be
imposed computed from the date of demand
until the finality of court’s Judgment. The
interest of 16% per annum, as long as unpaid,
also earns interest which is computed from the
date of filing of the complaint until finality of the
court’s decision. From such finality the total
unpaid amount (principal + interest + service
charge + penalty + interest on the interest)
computed shall earn interest of 12% per annum
until satisfied.
Ratio:
The case now before us involves an
obligation arising from a letter of credit-trust
receipt transaction. Under this arrangement, a
bank extends to a borrower a loan covered by
the letter of credit, with the trust receipt as
security of the loan. A trust receipt is a security
transaction intended to aid in financing importers
and retail dealers who do not have sufficient
funds or resources to finance the importation or
purchase of merchandise, and who may not be
able to acquire credit except thru utilization, as
collateral, of the merchandise imported or
purchased.
In contracts contained in trust receipts,
the contracting parties may establish
agreements, terms and conditions they may
deem advisable, provided they are not contrary
to law, morals or public order. 12 In the case at
bar, there are specific amounts of interest,
service charges and penalties agreed upon by
the parties. Pertinent provisions in the four (4)
trust receipts
WAREHOUSE
RECEIPTS LAW
(Act No. 2137, as amended)
A. General concepts (Sec. 1-7)
a. Purpose and coverage
b. Definition
Warehouse receipt. — a contract or receipt for
goods deposited with a warehouseman
containing the latter’s undertaking to hold and
deliver the said goods to a specified person, to
order, or to bearer. Quedan is a warehouse
receipt usually for sugar received by
warehouseman.
"Warehouseman"   means a person lawfully
engaged in the business of storing goods for
profit.
c. Who may issue warehouse receipts? (Sec.
1)
- Warehouse receipts may be issued by any
warehouseman.
d. Form and content of warehouse receipts
(Sec. 2)
- Warehouse receipts need not be in any
particular form but every such receipt must
embody within its written or printed terms:
(a) The location of the warehouse where the
goods are stored,
(b) The date of the issue of the receipt,
(c) The consecutive number of the receipt,
(d) The undertaking - a statement whether the
goods received will be delivered to the bearer, to
a specified person or to a specified person or his
order,
(e) The rate of storage charges,
(f) A description of the goods or of the packages
containing them,
(g) The signature of the warehouseman which
may be made by his authorized agent,
(h) If the receipt is issued for goods of which the
warehouseman is owner, either solely or jointly
or in common with others, the fact of such
ownership, and
(i) A statement of the amount of advances made
and of liabilities incurred for which the
warehouseman claims a lien. If the precise
amount of such advances made or of such
a liabilities incurred is, at the time of the issue of,
unknown to the warehouseman or to his agent
who issues it, a statement of the fact that
advances have been made or liabilities incurred
and the purpose thereof is sufficient.
A warehouseman shall be liable to any person
injured thereby for all damages caused by the
omission from a negotiable receipt of any of the
terms herein required.
e. Effect of omission of any of the essential
terms
Topic: Warehouse Receipts Law; Effect of
omission of any of the essential terms
Principle: Any deposit made with a bonded
warehouseman must necessarily be governed
by the provisions of Act No. 3893. The kind or
nature of the receipts issued by him for the
deposits is not very material, much less decisive.
Though it is desirable that receipts issued by a
bonded warehouseman should conform to the
provisions of the Warehouseman Receipts Law,
said provisions are not mandatory, and
indispensable in the sense that if they fell short
of the requirement of the Warehouse Receipts
Act, then the commodities delivered for storage
become ordinary deposits and will not be
governed by the provisions of the Bonded
Warehouse Act. Under Section 1 of the
Warehouse Receipts Act, the issuance of a
warehouse receipt in the form provided by it is
merely permissive and directory and not
obligatory.
 Gonzales v. Go Tiong
G.R. No. L-11776, 30 Aug 1958
Facts:
Go Tiong owned a rice mill and warehouse,
located at Mabini, Urdaneta, Pangasinan. On
February 4, 1953, he obtained a license to
engage in the business of a bonded
warehouseman. To secure the performance of
his obligations as such bonded warehouseman,
the Luzon Surety Co. executed Guaranty Bond
No. 294 in the sum of P18,334, conditioned
particularly on the fulfillment by Go Tiong of his
duty or obligation to deliver to the depositors in
his storage warehouse, the palay received by
him for storage, at any time demand is made, or
to pay the market value thereof, in case he was
unable to return the same. Go Tiong insured the
warehouse and the palay deposited therein with
the Alliance Surety and Insurance Company.
But prior to the issuance of the license to Go
Tiong to operate as bonded warehouseman, he
had on several occasions received palay for
deposit from plaintiff Ramon Gonzales, totalling
368 sacks, for which he issued receipts. After he
was licensed as a bonded warehouseman, Go
Tiong again received various deliveries of palay
from Ramon Gonzales, totalling 492 sacks, for
which he issued the corresponding receipts, all
the deliveries having a grand total of 860 sacks,
valued at P8,600 at the rate of P10 per sack.
Eventually, plaintiff Gonzales demanded from
Go Tiong the value of his deposits in the amount
of P8,600. However, he was told to return after
two days, which he did. But upon his return, he
was once again told to come back. A few days
later, the warehouse burned to the ground.
At the time of the fire, there were 5,847 sacks of
palay in the warehouse, in excess of the 5,000
sacks authorized under his license. The receipts
issued by Go Tiong to Gonzales were ordinary
receipts, not the "warehouse receipts" defined
by the Warehouse Receipts Act.
After the burning of the warehouse, the
depositors of palay, including plaintiff Gonzales,
filed their claims with the Bureau of Commerce,
and it would appear that with the proceeds of the
insurance policy, the Bureau of Commerce paid
off some of the claims. Thereafter, Gonzales
filed the present action against Go Tiong and the
Luzon Surety for the sum of P8,600, the value of
his palay, with legal interest, damages in the
sum of P5,000 and P1,500 as attorney's fees.
The Court of First Instance of Manila rendered
judgment against Go Tiong and Luzon Surety
Co. Hence, they appealed to the Court of
Appeals. However, since the issues raised were
purely questions of law, the CA indorsed the
case to the Supreme Court.
Issue: Whether or not the failure of Go Tiong to
issue the warehouse receipts contemplated by the
Warehouse Receipts Act precluded plaintiff from
suing on the bond?
Ruling:
No. The Supreme Court held that the surety
cannot avoid liability from the mere failure of the
warehouseman to issue the prescribed receipt.
The law does not require as indispensable that a
warehouse receipt be issued to be liable under
Act No. 3893 or the Bonded Warehouse Act.
Act No. 3893 as amended is a special law
regulating the business of receiving commodities
for storage and defining the rights
obligations of a bonded warehouseman and
those transacting business with
Consequently, any deposit made with him as a
bonded warehouseman must necessarily be
governed by the provisions of Act No. 3893. The
kind or nature of the receipts issued by him for
the deposits is not very material, much less
decisive. Though it is desirable that receipts
issued by a bonded warehouseman should
conform to the provisions of the Warehouse
Receipts Law, said provisions in our opinion are
not mandatory and indispensable in the sense
that if they fell short of the requirements of the
Warehouse Receipts Act, then the commodities
delivered for storage become ordinary deposits
and will not be governed by the provisions of the
Bonded Warehouse Act. Under Section 1 of the
Warehouse Receipts Act, one would gather the
impression that the issuance of a warehouse
receipt in the form provided by it is merely
permissive and directory and not obligatory:
"SECTION 1. Persons who may issue receipts.
— Warehouse receipts may be issued by any
warehouseman.",
and the Bonded Warehouse Act as amended
permits the warehouseman to issue any receipt,
thus:
". . . receipt' as any receipt issued by a
warehouseman for commodity delivered to him."
Furthermore, Section 7 of said law provides that
as long as the depositor is injured by a breach of
any obligation of the warehouseman, which
obligation is secured by a bond, said depositor
may sue on said bond.
and In the case of Andreson vs. Krueger, 212 N.W.
198, 199, it was held:
him. "The surety company concedes that the bond
which it gave contains the statutory conditions.
The statute . . . requires that the bond — 'shall
be conditioned upon the faithful performance of
the public local grain warehouseman of all the
provisions of law relating to the storage of grain
by such warehouseman.'
"The surety company thereby made itself
responsible for the performance by the
warehouseman of all the duties and obligations
imposed upon him by the statute; and, if he
failed to perform any such duty to the loss or
detriment of those who delivered grain for
storage, the surety company became liable
therefor. Where the warehouseman receives
grain for storage and refuses to return or pay it,
the fact that he failed to issue the receipt, when
the statute required him to issue on receiving it,
is not available to the surety as a defense
against an action on the bond. The obligation of
the surety covers the duty of the warehouseman
to issue the prescribed receipt, as well as the
other duties imposed upon him by the statute."
In view of the foregoing, the appealed decision
was affirmed.
f. Terms that cannot be included (Sec. 3)
Sec. 3. Form of receipts. – What terms may be
inserted. – A warehouseman may insert in a
receipt issued by him any other terms and
conditions provided that such terms and
conditions shall not:
(a) Be contrary to the provisions of this Act. establish the existence of a lawful excuse for
(b) In any wise impair his obligation to exercise such refusal.
that degree of care in the safe-keeping of the
goods entrusted to him which is reasonably Sec. 9. Justification of warehouseman in
careful man would exercise in regard to similar delivering. – A warehouseman is justified in
goods of his own. delivering the goods, subject to the provisions of
the three following sections, to one who is:
B. Obligations and rights of a warehouseman
(a) The person lawfully entitled to the
a. Obligation to deliver (Secs. 8-19, 36, & 58) possession of the goods, or his agent;

II – OBLIGATIONS AND RIGHTS OF (b) A person who is either himself entitled to

WAREHOUSEMEN UPON THEIR RECEIPTS
Sec. 8. Obligation of warehousemen to deliver. –
A warehouseman, in the absence of some lawful
excuse provided by this Act, is bound to deliver
the goods upon a demand made either by the
holder of a receipt for the goods or by the
depositor; if such demand is accompanied with:
(a) An offer to satisfy the warehouseman's lien;
(b) An offer to surrender the receipt, if
negotiable, with such indorsements as would be
necessary for the negotiation of the receipt; and
(c) A readiness and willingness to sign, when the
goods are delivered, an acknowledgment that
they have been delivered, if such signature is
requested by the warehouseman.
In case the warehouseman refuses or fails to
deliver the goods in compliance with a demand
by the holder or depositor so accompanied, the
burden shall be upon the warehouseman to
delivery by the terms of a non-negotiable receipt
issued for the goods, or who has written
authority from the person so entitled either
indorsed upon the receipt or written upon
another paper; or
(c) A person in possession of a negotiable
receipt by the terms of which the goods are
deliverable to him or order, or to bearer, or which
has been indorsed to him or in blank by the
person to whom delivery was promised by the
terms of the receipt or by his mediate or
immediate indorser.
Sec. 10. Warehouseman's liability for
misdelivery. – Where a warehouseman delivers
the goods to one who is not in fact lawfully
entitled to the possession of them, the
warehouseman shall be liable as for conversion
to all having a right of property or possession in
the goods if he delivered the goods otherwise
than as authorized by subdivisions (b) and (c) of
the preceding section, and though he delivered
the goods as authorized by said subdivisions, he
shall be so liable, if prior to such delivery he had
either:
(a) Been requested, by or on behalf of the
person lawfully entitled to a right of property or
possession in the goods, not to make such
delivery; or
(b) Had information that the delivery about to be
made was to one not lawfully entitled to the
possession of the goods.
Sec. 11. Negotiable receipt must be cancelled
when goods delivered. – Except as provided in
section thirty-six, where a warehouseman
delivers goods for which he had issued a
negotiable receipt, the negotiation of which
would transfer the right to the possession of the
goods, and fails to take up and cancel the
receipt, he shall be liable to anyone who
purchases for value in good faith such receipt,
for failure to deliver the goods to him, whether
such purchaser acquired title to the receipt
before or after the delivery of the goods by the
warehouseman.
Sec. 12. Negotiable receipts must be cancelled
or marked when part of goods delivered. –
Except as provided in Section 36, where a
warehouseman delivers part of the goods for
which he had issued a negotiable receipt and
fails either to take up and cancel such receipt or
to place plainly upon it a statement of what
goods or packages have been delivered, he
shall be liable to any one who purchases for
value in good faith such receipt, for failure to
deliver all the goods specified in the receipt,
whether such purchaser acquired title to the
receipt before or after the delivery of any portion
of the goods by the warehouseman.
Sec. 13. Altered receipts. – The alteration of a
receipt shall not excuse the warehouseman who
issued it from any liability if such alteration was:
(a) Immaterial,
(b) Authorized, or
(c) Made without fraudulent intent.
If the alteration was authorized, the
warehouseman shall be liable according to the
terms of the receipt as altered. If the alteration
was unauthorized but made without fraudulent
intent, the warehouseman shall be liable
according to the terms of the receipt as they
were before alteration.
Material and fraudulent alteration of a
receipt shall not excuse the warehouseman who
issued it from liability to deliver according to the
terms of the receipt as originally issued, the
goods for which it was issued but shall excuse
him from any other liability to the person who
made the alteration and to any person who took
with notice of the alteration. Any purchaser of
the receipt for value without notice of the
alteration shall acquire the same rights against
the warehouseman which such purchaser would
have acquired if the receipt had not been altered
at the time of purchase.
Sec. 14. Lost or destroyed receipts. – Where a
negotiable receipt has been lost or destroyed, a
court of competent jurisdiction may order the
delivery of the goods upon satisfactory proof of
such loss or destruction and upon the giving of a
bond with sufficient sureties to be approved by
the court to protect the warehouseman from any
liability or expense, which he or any person
injured by such delivery may incur by reason of
the original receipt remaining outstanding. The
court may also in its discretion order the
payment of the warehouseman's reasonable
costs and counsel fees.
The delivery of the goods under an
order of the court as provided in this section,
shall not relieve the warehouseman from liability
to a person to whom the negotiable receipt has
been or shall be negotiated for value without
notice of the proceedings or of the delivery of the
goods.
Sec. 15. Effect of duplicate receipts. – A receipt
upon the face of which the word "duplicate" is
plainly placed is a representation and warranty
by the warehouseman that such receipt is an
accurate copy of an original receipt properly
issued and uncancelled at the date of the issue
of the duplicate, but shall impose upon him no
other liability.
Sec. 16. Warehouseman cannot set up title in
himself . – No title or right to the possession of
the goods, on the part of the warehouseman,
unless such title or right is derived directly or
indirectly from a transfer made by the depositor
at the time of or subsequent to the deposit for
storage, or from the warehouseman's lien, shall
excuse the warehouseman from liability for
refusing to deliver the goods according to the
terms of the receipt.
Sec. 17. Interpleader of adverse claimants. – If
more than one person claims the title or
possession of the goods, the warehouseman
may, either as a defense to an action brought
against him for non-delivery of the goods or as
an original suit, whichever is appropriate, require
all known claimants to interplead.
Sec. 18. Warehouseman has reasonable time to
determine validity of claims. – If someone other
than the depositor or person claiming under him
has a claim to the title or possession of goods,
and the warehouseman has information of such
claim, the warehouseman shall be excused from
liability for refusing to deliver the goods, either to
the depositor or person claiming under him or to
the adverse claimant until the warehouseman
has had a reasonable time to ascertain the
validity of the adverse claim or to bring legal
proceedings to compel claimants to interplead.
Sec. 19. Adverse title is no defense except as
above provided. – Except as provided in the two
preceding sections and in sections 9 & 36, no
right or title of a third person shall be a defense
to an action brought by the depositor or person
claiming under him against the warehouseman
for failure to deliver the goods according to the
terms of the receipt.
b. Liability for goods (Secs. 20-26)
Sec. 20. Liability for non-existence or
misdescription of goods. – A warehouseman
shall be liable to the holder of a receipt for
damages caused by the non-existence of the
goods or by the failure of the goods to
correspond with the description thereof in the
receipt at the time of its issue. If, however, the
goods are described in a receipt merely by a
statement of marks or labels upon them or upon
packages containing them or by a statement that
the goods are said to be goods of a certain kind
or that the packages containing the goods are
said to contain goods of a certain kind or by
words of like purport, such statements, if true,
shall not make liable the warehouseman issuing
the receipt, although the goods are not of the
kind which the marks or labels upon them
indicate or of the kind they were said to be by
the depositor.
Sec. 21. Liability for care of goods. – A
warehouseman shall be liable for any loss or
injury to the goods caused by his failure to
exercise such care in regard to them as
reasonably careful owner of similar goods would
exercise, but he shall not be liable, in the
absence of an agreement to the contrary, for any
loss or injury to the goods which could not have
been avoided by the exercise of such care.
Sec. 22. Goods must be kept separate. – Except
as provided in the following section,
warehouseman shall keep the goods so far
separate from goods of other depositors and
from other goods of the same depositor for
which a separate receipt has been issued, as to
permit at all times the identification
redelivery of the goods deposited.
Sec. 23. Fungible goods may be commingled if
warehouseman authorized. – If authorized by
agreement or by custom, a warehouseman may
mingle fungible goods with other goods of the
same kind and grade. In such case, the various
depositors of the mingled goods shall own the
entire mass in common and each depositor shall
be entitled to such portion thereof as the amount
deposited by him bears to the whole.
Sec. 24. Liability of warehouseman to depositors
of commingled goods. – The warehouseman
shall be severally liable to each depositor for the
care and redelivery of his share of such mass to
the same extent and under the same
circumstances as if the goods had been kept
separate.
Sec. 25. Attachment or levy upon goods for
which a negotiable receipt has been issued. – If
goods are delivered to a warehouseman by the
owner or by a person whose act in conveying
the title to them to a purchaser in good faith for
value would bind the owner, and a negotiable
receipt is issued for them, they can not
thereafter, while in the possession of the
warehouseman, be attached by garnishment or
otherwise, or be levied upon under an execution
a unless the receipt be first surrendered to the
warehouseman or its negotiation enjoined. The
warehouseman shall in no case be compelled to
deliver up the actual possession of the goods
until the receipt is surrendered to him or
and impounded by the court.
Sec. 26. Creditor's remedies to reach negotiable
receipts. – A creditor whose debtor is the owner
of a negotiable receipt shall be entitled to such
aid from courts of appropriate jurisdiction, by (c) A demand that the amount of the claim as
injunction and otherwise, in attaching such stated in the notice of such further claim as shall
receipt or in satisfying the claim by means accrue, shall be paid on or before a day
thereof as is allowed at law or in equity in these mentioned, not less than ten days from the
islands in regard to property which cannot delivery of the notice if it is personally delivered,
readily be attached or levied upon by ordinary or from the time when the notice shall reach its
legal process. destination, according to the due course of post,
if the notice is sent by mail,
c. Warehouseman’s lien (Secs. 31-36)
Sec. 31. Warehouseman need not deliver until (d) A statement that unless the claim is paid
lien is satisfied. – A warehouseman having a lien within the time specified, the goods will be
valid against the person demanding the goods advertised for sale and sold by auction at a
may refuse to deliver the goods to him until the specified time and place.
lien is satisfied.
In accordance with the terms of a notice so
Sec. 32. Warehouseman's lien does not given, a sale of the goods by auction may be
preclude other remedies. – Whether a had to satisfy any valid claim of the
warehouseman has or has not a lien upon the warehouseman for which he has a lien on the
goods, he is entitled to all remedies allowed by goods. The sale shall be had in the place
law to a creditor against a debtor for the where the lien was acquired, or, if such place is
collection from the depositor of all charges and manifestly unsuitable for the purpose of the
advances which the depositor has expressly or claim specified in the notice to the depositor has
impliedly contracted with the warehouseman to elapsed, and advertisement of the sale,
pay. describing the goods to be sold, and stating the
name of the owner or person on whose account
Sec. 33. Satisfaction of lien by sale. – A the goods are held, and the time and place of
warehouseman's lien for a claim which has the sale, shall be published once a week for two
become due may be satisfied as follows: consecutive weeks in a newspaper published in
the place where such sale is to be held. The
(a) An itemized statement of the sale shall not be held less than fifteen days from
warehouseman's claim, showing the sum due at the time of the first publication. If there is no
the time of the notice and the date or dates newspaper published in such place, the
when it becomes due, advertisement shall be posted at least ten days
before such sale in not less than six
(b) A brief description of the goods against which conspicuous places therein.
the lien exists,
From the proceeds of such sale, the
warehouseman shall satisfy his lien including the
reasonable charges of notice, advertisement and
sale. The balance, if any, of such proceeds
shall be held by the warehouseman and
delivered on demand to the person to whom he
would have been bound to deliver or justified in
delivering goods.
At any time before the goods are so sold, any
person claiming a right of property or possession
therein may pay the warehouseman the amount
necessary to satisfy his lien and to pay the
reasonable expenses and liabilities incurred in
serving notices and advertising and preparing for
the sale up to the time of such payment. The
warehouseman shall deliver the goods to the
person making payment if he is a person
entitled, under the provision of this Act, to the
possession of the goods on payment of charges
thereon. Otherwise, the warehouseman shall
retain the possession of the goods according to
the terms of the original contract of deposit.
Sec. 34. Perishable and hazardous goods. – If
goods are of a perishable nature, or by keeping
will deteriorate greatly in value, or, by their order,
leakage, inflammability, or explosive nature, will
be liable to injure other property , the
warehouseman may give such notice to the
owner or to the person in whose names the
goods are stored, as is reasonable and possible
under the circumstances, to satisfy the lien upon
such goods and to remove them from the
warehouse and in the event of the failure of such
person to satisfy the lien and to receive the
goods within the time so specified, the
warehouseman may sell the goods at public or
private sale without advertising. If the
warehouseman, after a reasonable effort, is
unable to sell such goods, he may dispose of
them in any lawful manner and shall incur no
liability by reason thereof.
The proceeds of any sale made under the terms
of this section shall be disposed of in the same
way as the proceeds of sales made under the
terms of the preceding section.
Sec. 35. Other methods of enforcing lien. – The
remedy for enforcing a lien herein provided does
not preclude any other remedies allowed by law
for the enforcement of a lien against personal
property nor bar the right to recover so much of
the warehouseman's claim as shall not be paid
by the proceeds of the sale of the property.
Sec. 36. Effect of sale. – After goods have been
lawfully sold to satisfy a warehouseman's lien, or
have been lawfully sold or disposed of because
of their perishable or hazardous nature, the
warehouseman shall not thereafter be liable for
failure to deliver the goods to the depositor or
owner of the goods or to a holder of the receipt
given for the goods when they were deposited,
even if such receipt be negotiable.
E. Kinds
a. Negotiable warehouse receipt (Secs. 5-6 &
47)
Sec. 5. Definition of negotiable receipt. – A
receipt in which it is stated that the goods
received will be delivered to the bearer or to the
order of any person named in such receipt is a that may be invoked against anyone who claims
negotiable receipt. a right of possession thereon. In this case, the
lien was lost when
No provision shall be inserted in a negotiable the respondents refused to deliver the goods,
receipt that it is non-negotiable. Such provision, which were not anchored to a valid excuse (i.e.
if inserted shall be void. non-satisfaction of warehouseman’s lien) but on
an adverse claim of ownership. HOWEVER, the
Sec. 6. Duplicate receipts must be so marked. – loss of Warehouseman’s lien does not
When more than one negotiable receipt is necessarily mean the extinguishment of the
issued for the same goods, the word "duplicate" obligation to pay the Warehouseman’s fees and
shall be plainly placed upon the face of every charges, which continues to be a personal
such receipt, except the first one issued. A liability of the owners, PNB in this case.
warehouseman shall be liable for all damages
caused by his failure so to do to any one who FACTS
purchased the subsequent receipt for value
supposing it to be an original, even though the In accordance with the Warehouse
purchase be after the delivery of the goods by Receipts Law, Noah's Ark Sugar Refinery issued
the warehouseman to the holder of the original on several dates Warehouse Receipts
receipt. (quedans) covering sugar deposited by Rosa Sy,
RNS Merchandising, and St. Therese
b. Non-negotiable warehouse receipt Merchandising. The receipts are substantially in
the form, and contain the terms, prescribed for
Sec. 4. Definition of non-negotiable receipt. – A negotiable warehouse receipts by Section 2 of
receipt in which it is stated that the goods the law.
received will be delivered to the depositor or to Subsequently, Warehouse Receipts
any other specified person, is a non-negotiable were negotiated and endorsed to Luis T. Ramos
receipt. and to Cresencia K. Zoleta. Ramos and Zoleta
then used the quedans as security for two loan
J. Warehouse defenses for non-delivery or agreements — one for P15.6 million and the
misdelivery other for P23.5 million — obtained by them from
a. Legal excuses the PNB. They endorsed the aforementioned
quedans to PNB.
PNB vs. Sayo
G.R. No. 129918; 09 Jul 1998 After the decision in G.R. No. 119231 (PNB v.
Se) became final and executory, various
Principle: The warehouseman is entitled to the incidents took place before the trial court. Noah’s
warehouseman’s lien that attaches to the goods Ark and its officers filed a Motion for Execution
of Defendants’ Lien as Warehouseman pursuant
to SC’s decision which was opposed by PNB.
The RTC, this time presided Hon. Marcelino L.
Sayo Jr., granted the Motion for Execution. PNB
was immediately served with a Writ of Execution
for the amount of P662,548,611.50. PNB thus
filed an Urgent Motion seeking the deferment of
the enforcement of the Writ of Execution.
Nevertheless, the Sheriff levied on execution
several properties of PNB. The said bank also
filed a MR with Urgent Prayer for Quashal of
Writ of Execution. After several exchanges of
motions, Judge Sayo denied with finality for lack
of merit the motions filed by PNB.
ISSUE
Whether or not the loss of warehouseman’s lien
extinguishes the obligation of PNB to pay
storage fees and charges.
RULING
No. The warehouseman is entitled to the
warehouseman’s lien that attaches to the goods
that may be invoked against anyone who claims
a right of possession thereon. In this case, the
lien was lost when the respondents refused to
deliver the goods, which were not anchored to a
valid excuse (i.e. non -satisfaction
warehouseman’s lien) but on an adverse claim
of ownership. HOWEVER, the loss
Warehouseman’s lien does not necessarily
mean the extinguishment of the obligation to pay
the Warehouseman’s fees and charges, which
continues to be a personal liability of the owners,
PNB in this case. However, such fees and
charges have ceased to accrue from the date of
the rejection by Noah’s Ark to heed the lawful
demand for the release of the goods. While PNB
is entitled to the stocks of sugar as the endorsee
of the quedans, delivery to it shall be effected
only upon payment of the storage fees.
CASES:
LIBERATA ANTONIO ESTRADA, CANUTO
CENIZAN, NAZARIO DE LA CRUZ, GENARO
ALVARO, ET AL. v. COURT OF AGRARIAN
RELATIONS and FAUSTINO F. GALVAN G.R.
Nos. L-17481 and L-17537 to L-17559, August
15, 1961
PRINCIPLE: The excuses respectively offered by
the manager of the Moncada Bonded
Warehouse and respondent Faustino F. Galvan
are not without some merits. The former
unquestionably had the right to protect the
interest of the bonded warehouse of which he
was manager, as the warehouse receipts issued
for the palay in question might have been for
the value in favor of innocent third parties; and
the latter (Galvan), might have in fact lost said
warehouse receipts in the manner above stated,
for his allegation to the effect in his answer to
petitioners' motion for contempt until now has
of not been contradicted.
of FACTS: It was ordered by the Supreme Court
that the owner or manager of the Moncada
Bonded Warehouse release and give to Liberata
Antonio Estrada et al. (Estrada et al.) the
remaining deposits and that Faustino Galvan
(Galvan) to surrender the original receipts of
the palay deposits to the manager or owner of excuse to evade compliance with the order of
the Moncada Bonded Warehouse. this Court that the palay in question be
Notwithstanding service of notice and in spite delivered to the petitioners, and, considering
of repeated demands, they refused and still that the petitioners, according to the
refuse to comply, the former, for the reason manifestation filed by their counsel under date
that Liberata Antonio Estrada et al. could not of August 3, 1961, are in dire need of said palay
surrender to him the original of the warehouse for their subsistence, our order must be carried
receipts issued for the palay in question, and out in the meantime that this cases have not
the latter, because he could not locate any been finally decided in order to ameliorate the
more said receipts. Petitioners Estrada Et Al. precarious situation in which said petitioners
filed the petition before the Supreme Court to find themselves.
declare the manager of Moncada Bonded
Warehouse and Respondent Galvan in
ACT No. 3952
contempt of court and punished accordingly.
THE BULK SALES LAW (as amended)
ISSUE: Whether the excuses offered justify their
AN ACT TO REGULATE THE SALE,
refusal to comply with the orders.
TRANSFER, MORTGAGE OR ASSIGNMENT

HELD: NO. The excuses respectively offered by OF GOODS, WARES, MERCHANDISE,

PROVISIONS OR MATERIALS, IN BULK, AND
the manager of the Moncada Bonded
PRESCRIBING PENALTIES FOR THE
Warehouse and respondent Faustino F. Galvan
VIOLATION OF THE PROVISIONS THEREOF
are not without some merits. The former
unquestionably had the right to protect the Section 1. This Act shall be known as "The Bulk
interest of the bonded warehouse of which he Sales Law."

was manager, as the warehouse receipts issued

for the palay in question might have been for
the value in favor of innocent third parties; and
the latter (Galvan), might have in fact lost said
warehouse receipts in the manner above
stated, for his allegation to the effect in his
Sec. 2. Sale and transfer in bulk. — Any sale,
transfer, mortgage or assignment of a stock of
goods, wares, merchandise, provisions, or
materials otherwise than in the ordinary course
of trade and the regular prosecution of the
business of the vendor, mortgagor, transferor, or

answer to petitioners' motion for contempt assignor, or sale, transfer, mortgage or

assignment of all, or substantially all, of the
until now has not been contradicted. Such
business or trade theretofore conducted by the
incidents, however, do not constitute a valid
vendor, mortgagor, transferor, or assignor, or of
all, or substantially all, of the fixtures and
equipment used in and about the business of the
vendor, mortgagor, transferor, or assignor, shall
be deemed to be a sale and transfer in bulk, in
contemplation of this Act: Provided, however,
That if such vendor, mortgagor, transferor or
assignor, produces and delivers a written waiver
of the provisions of this Act from his creditors as
shown by verified statements, then, and in that
case, the provisions of this section shall not
apply.
Sec. 3. Statement of creditors. — It shall be the
duty of every person who shall sell, mortgage,
transfer, or assign any stock of goods, wares,
merchandise, provisions or materials in bulk, for
cash or on credit, before receiving from the
vendee, mortgagee, or his, or its agent or
representative any part of the purchase price
thereof, or any promissory note, memorandum,
or other evidence therefor, to deliver to such
vendee, mortgagee, or agent, or if the vendee,
mortgagee, or agent be a corporation, then to
the president, vice-president, treasurer,
secretary or manager of said corporation, or, if
such vendee or mortgagee be a partnership firm,
then to a member thereof, a written statement,
sworn to substantially as hereinafter provided, of
the names and addresses of all creditors to
whom said vendor or mortgagor may be
indebted, together with the amount of
indebtedness due or owing, or to become due or
owing by said vendor or mortgagor to each of
said creditors, which statement shall be verified
by an oath to the following effect:
PHILIPPINE ISLANDS
PROVINCE OR CITY OF _________________}
Before me, the undersigned authority, personally
appeared __________________ (vendor,
mortgagor, agent or representative, as the case
may be), bearing cedula No. ____________
issued at ___________ on the day of
_____________ who, by me being first duly
sworn, upon his oath, deposes and states that
the foregoing statement contains the names of
all of the creditors of ________________
(vendor, or mortgagor) together with their
addresses, and that the amount set opposite
each of said respective names, is the amount
now due and owing, and which shall become
due and owing by _____________ (vendor or
mortgagor) to such creditors, and that there are
no creditors holding claims due or which shall
become due, for or on account of goods, wares,
merchandise, provisions or materials purchased
upon credit or on account of money borrowed, to
carry on the business of which said goods,
wares, merchandise, provisions or materials are
a part, other than as set forth in said statement.
______________________
Subscribed and sworn to before me this
_______ day of ______, 19___, at ________
Sec. 4. Fraudulent and void sale, transfer or
mortgage. — Whenever any person shall sell,
mortgage, transfer, or assign any stock of
goods, wares, merchandise, provisions or
materials, in bulk, for cash or on credit, and shall
receive any part of the purchase price, or any
promissory note, or other evidence of
indebtedness for said purchase price or advance
upon mortgage, without having first delivered to
the vendee or mortgagee or to his or its agent or
representative, the sworn statement provided for
in section three hereof, and without applying the
purchase or mortgage money of the said
property to the pro rata payment of the bona fide
claim or claims of the creditors of the vendor or
mortgagor, as shown upon such sworn
statement, he shall be deemed to have violated
this Act, and any such sale, transfer or mortgage
shall be fraudulent and void.
Sec. 5. Inventory. — It shall be the duty of every
vendor, transferor, mortgagor, or assignor, at
least ten days before the sale, transfer or
execution of a mortgage upon any stock of
goods, wares, merchandise, provisions or
materials, in bulk, to make a full detailed
inventory thereof and to preserve the same
showing the quantity and, so far as is possible
with the exercise of reasonable diligence, the
cost price to the vendor, transferor, mortgagor or
assignor of each article to be included in the
sale, transfer or mortgage, and notify every
creditor whose name and address is set forth in
the verified statement of the vendor, transferor,
mortgagor, or assignor, at least ten days before
transferring possession thereof, personally or by
registered mail, of the price, terms conditions of
the sale, transfer, mortgage, or assignment.
Sec. 6. Any vendor, transferor, mortgagor or
assignor of any stock of goods, wares,
merchandise, provisions or materials, in bulk, or
any person acting for, or on behalf of any such
vendor, transferor, mortgagor, or assignor, who
shall knowingly or willfully make, or deliver or
cause to be made or delivered, a statement, as
provided for in section three hereof, which shall
not include the names of all such creditors, with
the correct amount due and to become due to
each of them, or shall contain any false or untrue
statement, shall be deemed to have violated the
provisions of this Act.
Sec. 7. It shall be unlawful for any person, firm
or corporation, as owner of any stock of goods,
wares, merchandise, provisions or materials, in
bulk, to transfer title to the same without
consideration or for a nominal consideration
only.
Sec. 8. Nothing in this Act contained shall apply
to executors, administrators, receivers,
assignees in insolvency, or public officers, acting
under judicial process.
Sec. 9. The sworn statement containing the
names and addresses of all creditors of the
vendor or mortgagor provided for in section
three of this Act, shall be registered in the
Bureau of Commerce. For the registration of
each such sworn statement a fee of five pesos
shall be charged to the vendor or mortgagor of
the stock of goods, wares, merchandise,
provisions or materials, in bulk.
Sec. 10. The provisions of this Act shall be
administered by the Director of the Bureau of
Commerce and Industry, who is hereby
empowered, with the approval of the Department
Head, to prescribe and adopt from time to time
such rules and regulations as may be deemed
 ./7
necessary for the proper and efficient
enforcement of the provisions of this Act.

Sec. 11. Any person violating any provision of

this Act shall, upon conviction thereof, be
!
punished by imprisonment not less than six
months, nor more than five years, or fined in
1)
sum not exceeding five thousand pesos, or both
such imprisonment and fine, in the discretion of 
#1
the court.

#81
Sec. 12. This Act shall take effect on its
approval.

Approved: 01 December 1972

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6 FACTS:
Accused Tung (Chinese) was the owner

341 of the Kim Tay Seng Foundry Shop in Caloocan,

Rizal, built on the land of Ocampo. Tung owed

/83/ Ocampo over P2,000 for rental of the lands,

which he failed to pay, despite demands.

/ Ocampo threatened to sue Wong, and ordered

the closing of the shop.

/- Lim Guan offered to buy the shop and

Ocampo had his lawyer prepare the deed of

13!
sale, which Wong signed. Ocampo received the
P2,500 from the sale and applied it as payment
for the rentals in arrears.

6# However, Wong was also indebted to

Shurdut Mills Supply Co., Inc., for P1,591.25. A

B1/ complaint was filed to recover that amount, and

judgment was obtained against Wong. When a

87-9 representative of the Company went to the shop

to demand payment, the shop had already been

'+ sold to Lim Guan.

Wong is charged of violating Section 3

,-
of the Bulk Sales Law, declaring that he willfully
and voluntarily sold his shop, and that he
received the purchase price thereof, without

0 delivering to Guan a written

containing the names and addresses of his
statement

3C@ creditors and the amounts of indebtedness due

and owing them, as required by law.

%"2 ? Bulk Sales Law (Act No 3952) Section 3:

@* It shall be the duty of every person who shall

CASES: sell, mortgage, transfer, or assign any stock of
People Vs. Wong Szu Tung goods, wares, merchandise, provisions or
materials in bulk, for cash or on credit, before
SUBJECT: Bulk Sales Law receiving from the vendee, mortgagee, or his, or
its agent or representative any part of the
purchase price thereof, or any promissory note,
memorandum, or other evidence therefore, to
deliver to such vendee, mortgagee, or agent, or
if the vendee, mortgagee, or agent be a
corporation, then to the president, vice-
president, treasurer, secretary or manager of
said corporation, or, if such vendee or
mortgagee be a partnership firm, then to a
member thereafter provided, of the names and
addresses of all creditors to whom said vendor
or mortgagor may be indebted, together with the
amount of indebtedness due or owing, or to
become due or owing by said vendor or
mortgagor to each of said creditors, which
statement shall be verified by an oath to the
ISSUE:
Whether or not Wong violated Section 3 of the
Bulk Sales Law when he sold his Shop without
HELD
No. Wong was pressed to sign the deed
of sale by his creditor Ocampo. With threats of
closing the shop and court action for eviction,
the accused was practically forced into signing
the deed of sale. BUT, even if he hadn’t been
forced to sign the deed, he still would not be
criminally liable. Act No. 3925 is penal in nature
and should be construed strictly against the
State. The object of sale was not covered by the
provision. What was sold was the shop itself,
together with the goodwill, credits, equipments,
tools, machineries, which are not the stock of
merchandise, goods, wares, provisions or
materials in bulk contemplated in the provision.
Meaning of ‘merchandise’ according to
a couple of American cases:
Something that is sold everyday, and is
constantly going out of the store and being
replaced by other goods; must be construed to
mean such things as are usually bought and
sold in trade by merchants - Meaning of ‘stock’:
“The common use of the term ‘stock’ when
applied to goods in a mercantile house refers to
those which are kept for sale.”
A “foundry shop”, which does not sell
merchandise, is not included in said law.
Disposition
We are of the opinion that the guilt of the
appellant Wong Szu Tung has not been proven
beyond reasonable doubt; consequently, the
judgment appealed from is reversed, and the
said appellant acquitted, with costs de officio.
Liwanag v. Menghraj, G.R. No. 47588, 20
Jun 1941
FACTS:
Jose L. Liwanag, plaintiff and appellant
in this case, claims from Tolaram Menghraj and
others, defendants and appellants, the payment
of the sum of P550, with its legal interests from
April 1936 until its full payment, as the amount of
the consigned assets in Exhibit A of the claim, in
addition to P500 for damages. Once the matter
was ruled by the Manila Court of First Instance,
which acquitted the defendant of the claim, the
plaintiff appealed the sentence before the Court
of Appeal, and this certified the matter to this
Superiority, as it arose in the constitutionality of
the Law No. 3952.
 Din has not complied with the conditions
ISSUE: Whether or not the trial court erred in prescribed by the aforementioned Law No. 3952
stating that the pending suit of Tolaram in cases such as this, before proceeding with the
Menghraj against Khaira Din as well as the claim sale of his goods, it is evident that the Exhibit B
of Lim Tek Chuan are claims or credits covered sale contract is null and void. right over the
by Act No. 3952, the Bulk Sales Law. goods, the amount of which is claimed in this
matter.
RULING:
Finally, as regards whether Law No. 3952 is People v. Mapoy,
unconstitutional, the appellant maintains that this G.R. No. 48336, 21 Sep 1942
law violates a person's right to dispose of their
property; restricts without due legal process your VIOLATION OF BULK SALES LAW (Act No.
constitutional right to dispose of your 3952); WHEN PAYMENT OF INDEMNITY TO
property; and that is a class legislation. OFFENDED PARTY DOES NOT LIE,
Defendants were charged with violation of the
The constitutional right to freely dispose of one's Bulk Sales Law in that they mortgaged all of
property is not absolute, as is not, generally, any their stock of goods, etc., without any notice to
right; it recognizes by limits the rights of others Daido Boeki Kaisha, Ltd., one of the offended
and those of the State itself. One and the other parties, to which they were indebted in the sura
demand protection. The creditor must be of P2,568.85. They pleaded guilty and each
protected in his rights against the debtor. What sentenced by the Court of First Instance of
the State, in the exercise of its police powers, Manila to pay a fine of P100, and the costs, and
has proposed through the legislative power, with to indemnify Daido Boeki Kaisha, Ltd., jointly
Law No. 3952, was not to deny citizens the and severally in the sum of P2,568.85, with
exercise of their rights recognized by the subsidiary imprisonment in case of insolvency.
Constitution, but rather, under certain Held: That it was error for the (rial court to
circumstances , that is, when in a case like this, consider said indebtedness as a liability arising
there are created rights that may be affected by from the crime charged, and to order defendants
the exercise of other rights, such exercise is to indemnify Daido Boeki Kaisha, Ltd., in the
done under certain conditions with the sole sum of P2,568.85, with subsidiary imprisonment
purpose of protecting and protecting the rights of in case of insolvency.
others.

ID.; ID.; ID. Inasmuch as under section 4 of the

However; proven that Khaira Din owed Lim Tek Bulk Sales Law, the mortgage in question was
Chuan, the plaintiff Liwanag himself, and the fraudulent and void, and there being no proof
defendant, at the time of the sale of his (Din's) that (he mortgaged goods have disappeared, the
assets to Liwanag; and it has been proven that same are still subject to attachment for the
satisfaction of creditors' lawful claims against the
defendants. Daido Boeki Kaisha, Ltd., may still
bring a separate civil action against defendants
herein for the collection of any indebtedness that
may be due from defendants, and if the latter will
not pay the judgment in such civil case, the
goods involved in the instant case may be
seized and sold. Therefore, the obligation of
defendants to pay Daido Boeki Kaisha, Ltd., the
sum of P2,568.85, which was already existing
when the mortgage was signed, was not the
result of the violation of the Bulk Sales Law, nor
was it affected by said violation.
IMELDA ONG, ET AL., petitioners,
vs.
ALFREDO ONG, ET AL., respondents.
G.R. No. L-67888 October 8, 1985
Facts:
On February 25, 1976 Imelda Ong, for
and in consideration of One (P1.00) Peso and
other valuable considerations, executed in favor
of private respondent Sandra Maruzzo, then a
minor, a Quitclaim Deed whereby
transferred, released, assigned and forever quit-
claimed to Sandra Maruzzo, her heirs and
assigns, all her rights, title, interest
participation in the ONE-HALF (½) undivided
portion of the parcel of land.
On November 19, 1980, Imelda Ong
revoked the aforesaid Deed of Quitclaim and,
thereafter, on January 20, 1982 donated the
whole property described above to her son, Rex
Ong-Jimenez.
Sandra Maruzzo, through her guardian
(ad litem) Alfredo Ong, filed with the Regional
Trial Court of Makati, Metro Manila an action
against petitioners, for the recovery of
ownership/possession and nullification of the
Deed of Donation over the portion belonging to
her and for Accounting.
Petitioners claimed that the Quitclaim
Deed is null and void inasmuch as it is
equivalent to a Deed of Donation, acceptance of
which by the donee is necessary to give it
validity. Further, it is averred that the donee,
Sandra Maruzzo, being a minor, had no legal
personality and therefore incapable of accepting
the donation.
The trial court rendered judgment in
favor of respondent Maruzzo and held that the
Quitclaim Deed is equivalent to a Deed of Sale
and, hence, there was a valid conveyance in
favor of the latter.
Petitioners appealed to the respondent
Intermediate Appellate Court. They reiterated
their argument below and, in addition, contended
that the One (P1.00) Peso consideration is not a
consideration at all to sustain the ruling that the
she Deed of Quitclaim is equivalent to a sale.
Respondent Intermediate Appellate
Court promulgated its Decision affirming the
and appealed judgment and held that the Quitclaim
Deed is a conveyance of property with a valid
cause or consideration; that the consideration is
the One (P1.00) Peso which is clearly stated in
the deed itself; that the apparent inadequacy is
of no moment since it is the usual practice in
deeds of conveyance to place a nominal amount
although there is a more valuable consideration
given.
 formal acceptance is not important for the donor
Issue: Whether a Quitclaim Deed is equivalent requires no right to be protected and the donee
to a Deed of Sale neither undertakes to do anything nor assumes
any obligation. The Quitclaim now in question
Held: does not impose any condition.
A careful perusal of the subject deed
reveals that the conveyance of the one- half (½) Bad faith and inadequacy of the monetary
undivided portion of the above-described consideration do not render a conveyance
property was for and in consideration of the One inexistent, for the assignor’s liberality may be
(P 1.00) Peso and the other valuable sufficient cause for a valid contract (Article 1350,
considerations (emphasis supplied) paid by Civil Code), whereas fraud or bad faith may
private respondent Sandra Maruzzo through her render either rescissible or voidable, although
representative, Alfredo Ong, to petitioner Imelda valid until annulled, a contract concerning an
Ong. Stated differently, the cause or object certain entered into with a cause and with
consideration is not the One (P1.00) Peso alone the consent of the contracting parties, as in the
but also the other valuable considerations. case at bar.”

The execution of a deed purporting to convey WHEREFORE. the appealed decision of the
ownership of a realty is in itself prima facie Intermediate Appellate Court should be, as it is
evidence of the existence of a valuable hereby AFFIRMED, with costs against herein
consideration, the party alleging lack of petitioners.
consideration has the burden of proving such
allegation.

The New Central Bank Act

Even granting that the Quitclaim deed in
question is a donation, Article 741 of the Civil
Code provides that the requirement of the
acceptance of the donation in favor of minor by
parents of legal representatives applies only to
onerous and conditional donations where the
donation may have to assume certain charges or
burdens (Article 726, Civil Code).
The donation to an incapacitated donee does
not need the acceptance by the
(R.A. No. 7653, as amended)
A. State policy (Sec. 1)
Section 1. Declaration of Policy. - The State
shall maintain a central monetary authority
that shall function and operate as an
independent and accountable body
corporate in the discharge of its mandated
responsibilities concerning money, banking
lawful and credit. In line with this policy, and

representative if said donation does not contain considering its unique functions and
any condition. In simple and pure donation, the responsibilities, the central monetary
authority established under this Act, while
being a government-owned corporation,
shall enjoy fiscal and administrative
autonomy.
B. Creation of the Bangko Sentral ng
Pilipinas (BSP) (Sec. 2)
Section 2. Creation of the Bangko Sentral. -
There is hereby established an independent
central monetary authority, which shall be a
body corporate known as the Bangko
Sentral ng Pilipinas, hereafter referred to as
the Bangko Sentral.
The capital of the Bangko Sentral
shall be Fifty billion pesos
(P50,000,000,000), to be fully subscribed by
the Government of the Republic, hereafter
referred to as the Government, Ten billion
pesos (P10,000,000,000) of which shall be
fully paid for by the Government upon the
effectivity of this Act and the balance to be
paid for within a period of two (2) years from
the effectivity of this Act in such manner and
form as the Government, through the
Secretary of Finance and the Secretary of
Budget and Management, may thereafter
determine.
Busuego v. Court of Appeals,
G.R. No. L-48955, 30 Jun 1987
Principle: The CB, through the MB, is the
government agency charged with the responsibility of
administering the monetary, banking and credit
system of the country and is granted the power of
supervision and examination over banks and non-
bank financial institutions performing quasi-banking
functions of which savings and loan associations,
such as PESALA, form part of. If any irregularity is
discovered in the process, the MB may impose
appropriate sanctions, such as suspending the
offender from holding office or from being employed
with the CB, or placing the names of the offenders in
a watchlist.
FACTS
The 16th regular examination of the
books and records of PAL Employees Savings and
Loan Association (PESALA) was conducted by a
team of CB Examiners.
Several irregularities were found to have
been committed by the PESALA officers. Hence, CB
sent a letter to petitioners for them to be present
at a meeting specifically for the purpose of
investigating said anomalies. Petitioners did not
respond. Hence, the Monetary Board adopted a
resolution including the names of the officers of
PESALA in the watchlist to prevent them from
holding responsible positions in any institution
under CB supervision.
Petitioners filed a petition for injunction
against the MB in order to prevent their names
from being added in the said watchlist. RTC issued
the TRO. The MB appealed to the CA which
reversed RTC.
Hence, this petition for certiorari with the
SC. Petitioners contend that the MB resolution was
null and void for being violative of their right to
due process by imposing administrative sanctions
where the MB is not vested with authority to
disqualify persons from occupying positions in
institutions under the supervision of CB.
ISSUE:
Whether or not the MB resolution was null and void
C. Responsibility and primary objective
(Sec. 3)
Section 3. Responsibility and Primary
Objective. - The Bangko Sentral shall
provide policy directions in the areas of
money, banking, and credit. It shall have
supervision over the operations of banks
and exercise such regulatory powers as
provided in this Act and other pertinent laws
over the operations of finance companies
and non-bank financial institutions
performing quasi-banking functions,
hereafter referred to as quasi-banks, and
institutions performing similar functions.
D. Monetary board (MB); its powers and
functions (Secs. 6-16)
Section 6. Composition of the Monetary Board. -
The powers and functions of the Bangko Sentral
shall be exercised by the Bangko Sentral
Monetary Board, hereafter referred to as the
Monetary Board, composed of seven (7)
members appointed by the President of the
Philippines for a term of six (6) years.
The seven (7) members are:
(a) the Governor of the Bangko Sentral, who
shall be the Chairman of the Monetary Board.
The Governor of the Bangko Sentral shall be
head of a department and his appointment shall
be subject to confirmation by the Commission on
Appointments. Whenever the Governor is unable
to attend a meeting of the Board, he shall
designate a Deputy Governor to act as his
alternate: Provided, That in such event, the
Monetary Board shall designate one of its
members as acting Chairman;
(b) a member of the Cabinet to be designated by
the President of the Philippines. Whenever the
designated Cabinet Member is unable to attend
a meeting of the Board, he shall designate an
Undersecretary in his Department to attend as
his alternate; and
(c) five (5) members who shall come from the
private sector, all of whom shall serve full-time:
Provided, however, That of the members first
appointed under the provisions of this
subsection, three (3) shall have a term of six (6)
years, and the other two (2), three (3) years.
No member of the Monetary Board may
be reappointed more than once.
Section 7. Vacancies. - Any vacancy in the
Monetary Board created by the death,
resignation, or removal of any member shall be
filled by the appointment of a new member to
complete the unexpired period of the term of the
member concerned.
Section 8. Qualifications. - The members of the
Monetary Board must be natural-born citizens of
the Philippines, at least thirty-five (35) years of
age, with the exception of the Governor who
should at least be forty (40) years of age, of
good moral character, of unquestionable
integrity, of known probity and patriotism, and
with recognized competence in social and
economic disciplines.
Section 9. Disqualifications. - In addition to the
disqualifications imposed by Republic Act No.
6713, a member of the Monetary Board is
disqualified from being a director, officer,
employee, consultant, lawyer, agent or
stockholder of any bank, quasi-bank or any other
institution which is subject to supervision or
examination by the Bangko Sentral, in which
case such member shall resign from, and divest
himself of any and all interests in such institution
before assumption of office as member of the
Monetary Board.
The members of the Monetary Board
coming from the private sector shall not hold any
other public office or public employment during
their tenure.
No person shall be a member of the
Monetary Board if he has been connected
directly with any multilateral banking or financial
institution or has a substantial interest in any
private bank in the Philippines, within one (1)
year prior to his appointment; likewise, no
member of the Monetary Board shall be
employed in any such institution within two (2)
years after the expiration of his term except
when he serves as an official representative of
the Philippine Government to such institution.
Section 10. Removal. - The President may
remove any member of the Monetary Board for
any of the following reasons:
(a) If the member is subsequently disqualified
under the provisions of Section 8 of this Act; or
(b) If he is physically or mentally incapacitated
that he cannot properly discharge his duties and
responsibilities and such incapacity has lasted
for more than six (6) months; or
(c) If the member is guilty of acts or operations
which are of fraudulent or illegal character or
which are manifestly opposed to the aims and
interests of the Bangko Sentral; or
(d) If the member no longer possesses the
qualifications specified in Section 8 of this Act.
Section 11. Meetings. - The Monetary Board
shall meet at least once a week. The Board may
be called to a meeting by the Governor of the
Bangko Sentral or by two (2) other members of
the Board.
The presence of four (4) members shall
constitute a quorum: Provided, That in all cases
the Governor or his duly designated alternate
shall be among the four (4).
Unless otherwise provided in this Act, all
decisions of the Monetary Board shall require
the concurrence of at least four (4) members.
The Bangko Sentral shall maintain and
preserve a complete record of the proceedings
and deliberations of the Monetary Board,
including the tapes and transcripts of the
stenographic notes, either in their original form
or in microfilm.
Section 12. Attendance of the Deputy
Governors. - The Deputy Governors may attend
the meetings of the Monetary Board with the
right to be heard.
Section 13. Salary. - The salary of the Governor
and the members of the Monetary Board from
the private sector shall be fixed by the President
of the Philippines at a sum commensurate to the
importance and responsibility attached to the
position.
Section 14. Withdrawal of Persons Having a
Personal Interest. - In addition to the
requirements of Republic Act No. 6713, any
member of the Monetary Board with personal or
pecuniary interest in any matter in the agenda of
the Monetary Board shall disclose his interest to
the Board and shall retire from the meeting when
the matter is taken up. The decision taken on the
matter shall be made public. The minutes shall
reflect the disclosure made and the retirement of
the member concerned from the meeting.
Section 15. Exercise of Authority. - In the
exercise of its authority, the Monetary Board
shall:
(a) issue rules and regulations it considers
necessary for the effective discharge of the
responsibilities and exercise of the powers
vested upon the Monetary Board and the
Bangko Sentral. The rules and regulations
issued shall be reported to the President and the
Congress within fifteen (15) days from the date
of their issuance;
(b) direct the management, operations, and
administration of the Bangko Sentral, reorganize
its personnel, and issue such rules and
regulations as it may deem necessary or
convenient for this purpose. The legal units of
the Bangko Sentral shall be under the exclusive
supervision and control of the Monetary Board;
(c) establish a human resource management
system which shall govern the selection, hiring,
appointment, transfer, promotion, or dismissal of
all personnel. Such system shall aim to establish
professionalism and excellence at all levels of
the Bangko Sentral in accordance with sound
principles of management.
A compensation structure, based on job
evaluation studies and wage surveys and
subject to the Board's approval, shall be
instituted as an integral component of the
Bangko Sentral's human resource development
program: Provided, That the Monetary Board
shall make its own system conform as closely as
possible with the principles provided for under
Republic Act No. 6758: Provided, however, That
compensation and wage structure of employees
whose positions fall under salary grade 19 and
below shall be in accordance with the rates
prescribed under Republic Act No. 6758.
On the recommendation of the Governor,
appoint, fix the remunerations and other
emoluments, and remove personnel of the
Bangko Sentral, subject to pertinent civil service
laws: Provided, That the Monetary Board shall
have exclusive and final authority to promote,
transfer, assign, or reassign personnel of the
Bangko Sentral and these personnel actions are
deemed made in the interest of the service and
not disciplinary: Provided, further, That the
Monetary Board may delegate such authority to
the Governor under such guidelines as it may
determine.
(d) adopt an annual budget for and authorize
such expenditures by the Bangko Sentral as are
in the interest of the effective administration and
operations of the Bangko Sentral in accordance
with applicable laws and regulations; and
(e) indemnify its members and other officials of
the Bangko Sentral, including personnel of the
departments performing supervision
examination functions against all costs and
expenses reasonably incurred by such persons
in connection with any civil or criminal action,
suit or proceedings to which he may be, or is,
made a party by reason of the performance of
his functions or duties, unless he is finally
adjudged in such action or proceeding to be
liable for negligence or misconduct.
In the event of a settlement or
compromise, indemnification shall be provided
only in connection with such matters covered by
the settlement as to which the Bangko Sentral is
advised by external counsel that the person to
be indemnified did not commit any negligence or
misconduct.
The costs and expenses incurred in
defending the aforementioned action, suit or
proceeding may be paid by the Bangko Sentral
in advance of the final disposition of such action,
suit or proceeding upon receipt of
undertaking by or on behalf of the member,
officer, or employee to repay the amount
advanced should it ultimately be determined by
the Monetary Board that he is not entitled to be
indemnified as provided in this subsection.
Section 16. Responsibility. - Members of the
Monetary Board, officials, examiners, and
employees of the Bangko Sentral who willfully
violate this Act or who are guilty of negligence,
abuses or acts of malfeasance or misfeasance
or fail to exercise extraordinary diligence in the
performance of his duties shall be held liable for
any loss or injury suffered by the Bangko Sentral
and or other banking institutions as a result of such
violation, negligence, abuse, malfeasance,
misfeasance or failure to exercise extraordinary
diligence.
Similar responsibility shall apply to
members, officers, and employees of the
Bangko Sentral for: (1) the disclosure of any
information of a confidential nature, or any
information on the discussions or resolutions of
the Monetary Board, or about the confidential
operations of the Bangko Sentral, unless the
disclosure is in connection with the performance
of official functions with the Bangko Sentral, or is
with prior authorization of the Monetary Board or
the Governor; or (2) the use of such information
for personal gain or to the detriment of the
Government, the Bangko Sentral or third parties:
Provided, however, That any data or information
required to be submitted to the President and/or
the Congress, or to be published under the
provisions of this Act shall not be considered
an confidential.
E. How the BSP handles banks in
distress (The New Central Bank Act)
a. Conservatorship (Secs. 29 & 30; Sec. the conservatorship is terminated on other
67, R.A. No. 8791) grounds, the conservator shall not be entitled to
such remaining balance. The Monetary Board
Section 29. Appointment of Conservator. -
may appoint a conservator connected with the
Whenever, on the basis of a report submitted by
Bangko Sentral, in which case he shall not be
the appropriate supervising or examining
entitled to receive any remuneration or
department, the Monetary Board finds that a
emolument from the Bangko Sentral during the
bank or a quasi-bank is in a state of continuing
conservatorship. The expenses attendant to the
inability or unwillingness to maintain a condition
conservatorship shall be borne by the bank or
of liquidity deemed adequate to protect the
quasi-bank concerned
interest of depositors and creditors, the
The Monetary Board shall terminate the
Monetary Board may appoint a conservator with
conservatorship when it is satisfied that the
such powers as the Monetary Board shall deem
institution can continue to operate on its own
necessary to take charge of the assets,
and the conservatorship is no longer necessary.
liabilities, and the management thereof,
The conservatorship shall likewise be terminated
reorganize the management, collect all monies
should the Monetary Board, on the basis of the
and debts due said institution, and exercise all
report of the conservator or of its own findings,
powers necessary to restore its viability. The
determine that the continuance in business of
conservator shall report and be responsible to
the institution would involve probable loss to its
the Monetary Board and shall have the power to
depositors or creditors, in which case the
overrule or revoke the actions of the
provisions of Section 30 shall apply.
previous management and board of directors
of the bank or quasi-bank.
Section 30. Proceedings in Receivership and
The conservator should be competent
Liquidation. - Whenever, upon report of the head
and knowledgeable in bank operations and
of the supervising or examining department, the
management. The conservatorship shall not
Monetary Board finds that a bank or quasi-bank:
exceed one (1) year.
The conservator shall receive
(a) is unable to pay its liabilities as they become
remuneration to be fixed by the Monetary Board
due in the ordinary course of business:
in an amount not to exceed two-thirds (2/3) of
Provided, That this shall not include inability to
the salary of the president of the institution in
pay caused by extraordinary demands induced
one (1) year, payable in twelve (12) equal
by financial panic in the banking community;
monthly payments: Provided, That, if at any time
within one-year period, the conservatorship is
(b) has insufficient realizable assets, as
terminated on the ground that the institution can
determined by the Bangko Sentral, to meet its
operate on its own, the conservator shall receive
liabilities; or
the balance of the remuneration which he would
have received up to the end of the year; but if
(c) cannot continue in business without involving
probable losses to its depositors or creditors; or
(d) has willfully violated a cease and desist order
under Section 37 that has become final,
involving acts or transactions which amount to
fraud or a dissipation of the assets of the
institution; in which cases, the Monetary Board
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.
For a quasi-bank, any person of
recognized competence in banking or finance
may be designed as receiver.
The receiver shall immediately gather
and take charge of all the assets and liabilities of
the institution, administer the same for the
benefit of its creditors, and exercise the general
powers of a receiver under the Revised Rules of
Court but shall not, with the exception of
administrative expenditures, pay or commit any
act that will involve the transfer or disposition of
any asset of the institution: Provided, That the
receiver may deposit or place the funds of the
institution in non-speculative investments. The
receiver shall determine as soon as possible, but
not later than ninety (90) days from takeover,
whether the institution may be rehabilitated or
otherwise placed in such a condition so that it
may be permitted to resume business with
safety to its depositors and creditors and the
general public: Provided, That any determination
for the resumption of business of the institution
shall be subject to prior approval of the Monetary
Board.
If the receiver determines that the
institution cannot be rehabilitated or permitted to
resume business in accordance with the next
preceding paragraph, the Monetary Board shall
notify in writing the board of directors of its
findings and direct the receiver to proceed with
the liquidation of the institution. The receiver
shall:
(1) file ex parte with the proper regional trial
court, and without requirement of prior notice or
any other action, a petition for assistance in the
liquidation of the institution pursuant to a
liquidation plan adopted by the Philippine
Deposit Insurance Corporation for general
application to all closed banks. In case of quasi-
banks, the liquidation plan shall be adopted by
the Monetary Board. Upon acquiring jurisdiction,
the court shall, upon motion by the receiver after
due notice, adjudicate disputed claims against
the institution, assist the enforcement of
individual liabilities of the stockholders, directors
and officers, and decide on other issues as may
be material to implement the liquidation plan
adopted. The receiver shall pay the cost of the
proceedings from the assets of the institution.
(2) convert the assets of the institutions to
money, dispose of the same to creditors and
other parties, for the purpose of paying the debts
of such institution in accordance with the rules
on concurrence and preference of credit under
the Civil Code of the Philippines and he may, in
the name of the institution, and with the
assistance of counsel as he may retain, institute
such actions as may be necessary to collect and
recover accounts and assets of, or defend any
action against, the institution. The assets of an
institution under receivership or liquidation shall
be deemed in custodia legis in the hands of the
receiver and shall, from the moment the
institution was placed under such receivership or
liquidation, be exempt from any order of
garnishment, levy, attachment, or execution.
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.
The designation of a conservator under
Section 29 of this Act or the appointment of a
receiver under this section shall be vested
exclusively with the Monetary Board.
Furthermore, the designation of a conservator is
not a precondition to the designation of a
receiver.
See – Sec. 36 of The New Central Bank Act (RA
7653)
i. Grounds
ii. Appointment of conservator
iii. Powers of conservator
First Philippine International Bank vs.
Court of Appeals
G.R. No. 115849, January 24, 1996
PRINCIPLE:
While admittedly, the Central Bank law gives
vast and far-reaching powers to the conservator
of a bank, it must be pointed out that such
powers must be related to the "(preservation of)
the assets of the bank, (the reorganization of)
the management thereof and (the restoration of)
its viability." Such powers, enormous and
extensive as they are, cannot extend to the post-
facto repudiation of perfected transactions,
otherwise they would infringe against the non-
impairment clause of the Constitution.
In the case, it is not disputed that the bank
was under a conservator placed by the Central
Bank of the Philippines during the time that the
negotiation and perfection of the contract of sale
took place. Moreover, there was absolutely no
evidence that the Conservator, at the time the
contract was perfected, actually repudiated or
overruled said contract of sale. The bank never
objected to the sale, what it unilaterally
repudiated was—not the contract —but the
authority of Rivera to make a binding offer —and
which unarguably came months after the
perfection of the contract.
FACTS:
Producer Bank of the Philippines
acquired six parcels of land located at Laguna.
The property used to be owned by BYME
Investment and Development Corporation which
had them mortgaged with the bank as collateral
for a loan. The original plaintiffs, Demetrio
Demetria and Jose O. Janolo, wanted to had with the bank resulted in a perfected
purchase the property and thus initiated contract of sale, The defendants took the
negotiations for that purpose. Plaintiffs, met with position that there was no such perfected sale
defendant Mercurio Rivera, Manager of the because the defendant Rivera is not authorized
Property Management Department of the to sell the property, and that there was no
defendant bank. After the meeting, plaintiff meeting of the minds as to the price.
Janolo made a formal purchase offer to the bank
in the amount of 3.5M but counter offered by ISSUE:
Rivera (Bank) with 5.5M. Janolo revised there Whether or not the bank conservator has the
offer to 4.25M. unilateral power to repudiate the authority of the
but received no response but Luis co and Rivera bank officers and/or to revoke the said contract
had a meeting and in the end the offer of Mr.
Rivera was accepted. RULING:
The conservator of the bank was Section 28-A - Whenever, on the basis of a
replaced by an Acting Conservator in the person report submitted by the appropriate supervising
of defendant Leonida T. Encarnacion whereby or examining department, the Monetary Board
they stated that Rivera’s proposal was under finds that a bank or a non-bank financial
study yet as of this time by the newly created intermediary performing quasi-banking functions
committee for submission to the newly is in a state of continuing inability or
designated Acting Conservator of the bank. unwillingness to maintain a state of liquidity
Thereafter transpired was a series of demands deemed adequate to protect the interest of
by the plaintiffs for compliance by the bank with depositors and creditors, the Monetary Board
what plaintiff considered as a perfected contract may appoint a conservator to take charge of the
of sale, which demands were in one form or assets, liabilities, and the management of that
another refused by the bank. institution, collect all monies and debts due said
In a reply letter dated May 12, 1988 institution and exercise all powers necessary to
(Annex "4" of defendant's answer to amended preserve the assets of the institution, reorganize
complaint), the defendants through Acting the management thereof, and restore its viability.
Conservator Encarnacion repudiated the He shall have the power to overrule or revoke
authority of defendant Rivera and claimed that the actions of the previous management and
his dealings with the plaintiffs, particularly his board of directors of the bank or non-bank
counter-offer of P5.5 Million are unauthorized or financial intermediary performing quasi-banking
illegal. functions, any provision of law to the contrary
Plaintiffs filed a suit for specific notwithstanding, and such other powers as the
performance with damages against the bank’s Monetary Board shall deem necessary.
Acting Conservator Encarnacion. The basis of While admittedly, the Central Bank law
the suit was the argument that the transaction gives vast and far-reaching powers to the
conservator of a bank, it must be pointed out iv. Qualifications and remuneration
that such powers must be related to the v. Termination of conservatorship
"(preservation of) the assets of the bank, (the The Monetary Board shall terminate the
reorganization of) the management thereof and conservatorship (1) when it is satisfied that the
(the restoration of) its viability." institution can continue to operate on its own
Such powers, enormous and extensive and the conservatorship is no longer necessary.
as they are, cannot extend to the post-facto The conservatorship shall likewise be terminated
repudiation of perfected transactions, otherwise should the Monetary Board, on the basis of the
they would infringe against the non-impairment report of the conservator or of its own findings,
clause of the Constitution. determine that the (2) continuance in business of
Section 28-A merely gives the the institution would involve probable loss to its
conservator power to revoke contracts that are, depositors or creditors, in which case the
under existing law, deemed to be defective. provisions of Section 30 shall apply.
Hence, the conservator merely takes the place
of a bank's board of directors, so what the board vi. Effect
cannot do; the conservator cannot do either. His
power is however, not unilateral as he cannot Producers Bank of the Phils. v. National
simply repudiate valid obligations of the Bank. Labor Relations Commission, G.R. No.
His authority would be only to bring court actions 100701, 28 Mar 2001
to assail such contracts.
In the case, it is not disputed that the FACTS:
Private respondent filed a
bank was under a conservator placed by the
complaint against petitioner charging the
Central Bank of the Philippines during the time
companywith diminution of benefits, non-
that the negotiation and perfection of the
compliance with Wage Order No. 6 and
contract of sale took place. Moreover, there was
non-payment of holiday pay. They contended
absolutely no evidence that the Conservator, at
that the decrease in the mid-year andyear-end
the time the contract was perfected, actually
bonuses constituted a diminution of the
repudiated or overruled said contract of sale.
employees’ salaries.
The bank never objected to the sale, what it
unilaterally repudiated was—not the contract —
HELD:
but the authority of Rivera to make a binding On the other hand, petitioner asserts
offer —and which unarguably came months after that it cannot be compelled to pay the alleged
the perfection of the contract The conservator’s bonus differentials due to its depressed financial
authority would be only to bring court actions to condition, as evidenced by the fact that in 1984 it
assail such contracts —as he has already done was placed under conservatorship by the
so in the instant case. Monetary Board. According to petitioner, it
sustained losses in the millions of pesos from
1984 to 1988.
Under Section 28-A, the Monetary
Board may place a bank under the control of a
conservator when it finds that the bank is
continuously unable or unwilling to maintain a
condition of solvency or liquidity. In Central Bank
of the Philippines v. Court of Appeals, the Court
declared that the order placing petitioner herein
under conservatorship had long become final
and its validity could no longer be litigated upon.
Also, in the same case, the Court found that
sometime in August, 1983, some news items
triggered a bank-run in petitioner which resulted
in continuous over-drawings on petitioners
demand deposit account with the Central Bank;
the over-drawings reached P143.955 million by
17 January 1984; and as of 13 February 1990,
petitioner had over-drawings of up to P1.233
billion, which evidences petitioners continuing
inability to maintain a condition of solvency and
liquidity, thus justifying the conservatorship. Our
findings in the Central Bank case coincide with
petitioners claims that it continuously suffered
losses from 1984 to 1988.
Petitioner was not only experiencing a
decline in its profits, but was reeling from
tremendous losses triggered by a bank-run
which began in 1983. In such a depressed
financial condition, petitioner cannot be legally
compelled to continue paying the same amount
of bonuses to its employees. Thus, the
conservator was justified in reducing the mid-
year and Christmas bonuses of petitioners
employees. To hold otherwise would be to
defeat the reason for the conservatorship which
is to preserve the assets and restore the viability
of the financially precarious bank. Ultimately, it is
to the employees advantage that the
conservatorship achieve its purposes for the
alternative would be petitioners closure whereby
employees would lose not only their benefits, but
their jobs as well.
vii. Judicial review
b. Voluntary liquidation (Sec. 68, R.A. No.
8791)
Section 68. Voluntary Liquidation. - In case of
voluntary liquidation of any bank organized
under the laws of the Philippines, or of any
branch or office in the Philippines of a foreign
bank, written notice of such liquidation shall be
sent to the Monetary Board before such
liquidation is undertaken, and the Monetary
Board shall have the right to intervene and take
such steps as may be necessary to protect the
interests of creditors.
c. Receivership and involuntary liquidation
(Sec. 30; Sec. 69, R.A. No. 8791)
Section 30. Proceedings in Receivership and
Liquidation. - Whenever, upon report of the head
of the supervising or examining department, the
Monetary Board finds that a bank or quasi-bank:
(a) is unable to pay its liabilities as they become
due in the ordinary course of business:
Provided, That this shall not include inability to
pay caused by extraordinary demands induced
by financial panic in the banking community;
(b) has insufficient realizable assets,
determined by the Bangko Sentral, to meet its
liabilities; or
(c) cannot continue in business without involving
probable losses to its depositors or creditors; or
(d) has willfully violated a cease and desist order
under Section 37 that has become final,
involving acts or transactions which amount to
fraud or a dissipation of the assets of the
institution; in which cases, the Monetary Board
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.
For a quasi-bank, any person of
recognized competence in banking
finance may be designated as receiver.
The receiver shall immediately gather
and take charge of all the assets and liabilities of
the institution, administer the same for the
benefit of its creditors, and exercise the general
powers of a receiver under the Revised Rules of
Court but shall not, with the exception of
administrative expenditures, pay or commit any
act that will involve the transfer or disposition of
any asset of the institution: Provided, That the
receiver may deposit or place the funds of the
institution in non-speculative investments. The
receiver shall determine as soon as possible, but
not later than ninety (90) days from take over,
whether the institution may be rehabilitated or
otherwise placed in such a condition so that it
as may be permitted to resume business with
safety to its depositors and creditors and the
general public: Provided, That any determination
for the resumption of business of the institution
shall be subject to prior approval of the Monetary
Board.
If the receiver determines that the
institution cannot be rehabilitated or permitted to
resume business in accordance with the next
preceding paragraph, the Monetary Board shall
notify in writing the board of directors of its
findings and direct the receiver to proceed with
the liquidation of the institution. The receiver
shall:
(1) file ex parte with the proper regional trial
court, and without requirement of prior notice or
any other action, a petition for assistance in the
or liquidation of the institution pursuant to a
liquidation plan adopted by the Philippine
Deposit Insurance Corporation for general
application to all closed banks. In case of quasi-
banks, the liquidation plan shall be adopted by
the Monetary Board. Upon acquiring jurisdiction,
the court shall, upon motion by the receiver after
due notice, adjudicate disputed claims against
the institution, assist the enforcement of
individual liabilities of the stockholders, directors
and officers, and decide on other issues as may
be material to implement the liquidation plan
adopted. The receiver shall pay the cost of the
proceedings from the assets of the institution.
(2) convert the assets of the institutions to
money, dispose of the same to creditors and
other parties, for the purpose of paying the debts
of such institution in accordance with the rules
on concurrence and preference of credit under
the Civil Code of the Philippines and he may, in
the name of the institution, and with the
assistance of counsel as he may retain, institute
such actions as may be necessary to collect and
recover accounts and assets of, or defend any
action against, the institution. The assets of an
institution under receivership or liquidation shall
be deemed in custodia legis in the hands of the
receiver and shall, from the moment the
institution was placed under such receivership or
liquidation, be exempt from any order of
garnishment, levy, attachment, or execution.
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
conservatorship.
The designation of a conservator under
Section 29 of this Act or the appointment of a
receiver under this section shall be vested
exclusively with the Monetary Board.
Furthermore, the designation of a conservator is
not a precondition to the designation of a
receiver.
Section 69. Receivership and Involuntary
Liquidation. - The grounds and procedures for
placing a bank under receivership or liquidation,
as well as the powers and duties of the receiver
or liquidator appointed for the bank shall be
governed by the provisions of Sections 30, 31,
32, and 33 of the New Central Bank Act:
Provided, That the petitioner or plaintiff files with
the clerk or judge of the court in which the action
is pending a bond, executed in favor of the
Bangko Sentral, in an amount to be fixed by the
court. This Section shall also apply to the extent
possible to the receivership and liquidation
proceedings of quasi-banks
i. Governing law
In Re: Petition for Assistance in the
Liquidation of the Rural Bank of Bokod
(Benguet), Inc.
G.R. No. 158261, 18 Dec 2006
ii. Grounds (Secs. 30 & 36 of RA 7653; Sec. 53,
R.A. No. 8791)
See – Sec. 30
or
Section 36. Proceedings Upon Violation of This
Act and Other Banking Laws, Rules,
Regulations, Orders or Instructions. - Whenever
a bank or quasi-bank, or whenever any person
or entity willfully violates this Act or other
pertinent banking laws being enforced or
implemented by the Bangko Sentral or any
order, instruction, rule or regulation issued by
the Monetary Board, the person or persons
responsible for such violation shall unless
otherwise provided in this Act be punished by a
fine of not less than Fifty thousand pesos
(P50,000) nor more than Two hundred thousand
pesos (P200,000) or by imprisonment of not less
than two (2) years nor more than ten (10) years,
or both, at the discretion of the court.
Whenever a bank or quasi-bank persists
in carrying on its business in an unlawful or
unsafe manner, the Board may, without
prejudice to the penalties provided in the
preceding paragraph of this section and the
administrative sanctions provided in Section 37
of this Act, take action under Section 30 of this
Act. (Provision on receivership and liquidation)
Section 53. Other Banking Services. - In addition
to the operations specifically authorized in this
Act, a bank may perform the following services:
53.1. Receive in custody funds, documents and
valuable objects;
53.2. Act as financial agent and buy and sell, by
order of and for the account of their customers,
shares, evidences of indebtedness and all types
of securities;
53.3. Make collections and payments for the
account of others and perform such other
services for their customers as are not
incompatible with banking business;
53.4 Upon prior approval of the Monetary Board,
act as managing agent, adviser, consultant or
administrator of investment
management/advisory/consultancy accounts;
and
53.5. Rent out safety deposit boxes.
The bank shall perform the services permitted
under Subsections 53.1, 53.2,53.3 and 53.4 as
depositary or as an agent. Accordingly, it shall
keep the funds, securities and other effects
which it receives duly separate from the bank's
own assets and liabilities: The Monetary Board
may regulate the operations authorized by this
Section in order to ensure that such operations
do not endanger the interests of the depositors
and other creditors of the bank. In case a bank
or quasi-bark notifies the Bangko Sentral or
publicly announces a bank holiday, or in any
manner suspends the payment of its deposit
liabilities continuously for more than thirty (30)
days, the Monetary Board may summarily and
without need for prior hearing close such
banking institution and place it under
receivership of the Philippine Deposit Insurance
Corporation.
iii. Who may be receiver? (Sec. 30)
For a quasi-bank, any person of recognized
competence in banking or finance may be
designed as receiver.
iv. Duties of receiver
Spouses Larrobis, Jr. v. Philippine Veterans
Bank, G.R. No. 135706, 01 Oct 2004
FACTS:
 Petitioner spouses contracted a acts not only for the benefit of the bank, but for
monetary loan with herein respondent bank
secured by a REM executed on their lot.
Respondent bank then went bankrupt and was
placed under receivership/liquidation by the
Central Bank. Sometime after, respondent bank
sent a demand letter for the amount of the
insurance premiums advanced by it over the
mortgaged property of petitioners. More than 14
years from the time the loan became due and
demandable, respondent bank moved for the
extrajudicial foreclosure of the mortgaged
property and was sold to it as being the lone
bidder. Petitioners moved to declare the
foreclosure null and void contending that the
respondent bank being placed under
receivership did not interrupt the running of the
prescriptive period. RTC ruled in favor of
respondents.
RULING:
This is consistent with the purpose of
receivership proceedings, i.e., to receive
collectibles and preserve the assets of the bank
in substitution of its former management, and
prevent the dissipation of its assets to the
detriment of the creditors of the bank.
When a bank is declared insolvent and
placed under receivership, the Central Bank,
through the Monetary Board, determines
whether to proceed with the liquidation or
reorganization of the financially distressed bank.
A receiver, who concurrently represents the
bank, then takes control and possession of its
assets for the benefit of the bank’s creditors. A
liquidator meanwhile assumes the role of the
receiver upon the determination by the Monetary
Board that the bank can no longer resume
business. His task is to dispose of all the assets
of the bank and effect partial payments of the
bank’s obligations in accordance with legal
priority. In both receivership and liquidation
proceedings, the bank retains its juridical
personality notwithstanding the closure of its
business and may even be sued as its corporate
existence is assumed by the receiver or
liquidator. The receiver or liquidator meanwhile
its creditors as well.
The receiver of the bank is in fact
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 receiver of the bank is obliged
to collect pre-existing debts due to the bank, and
in connection therewith, to foreclose mortgages
securing such debts.
v. “Close Now-Hear Later” doctrine
Central Bank of the Philippines v. Court of
Appeals, G.R. No. 76118, 30 Mar 1993
FACTS:
The Monetary Board (MB) issued on 31
May 1985 Resolution No. 596 ordering the closure of
Triumph Savings Bank (TSB), forbidding it from
doing business in the Philippines, placing it under
receivership, and appointing Ramon V. Tiaoqui as
receiver.
On 11 June 1985, TSB filed a complaint
with the RTC 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(S):
WON the 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. A previous hearing is nowhere
required in Sec. 29 nor does the constitutional
requirement of due process demand that the
correctness of the Monetary Board’s resolution
to stop operation and proceed to liquidation of
first adjudged before making the resolution
effective. It is enough that a subsequent judicial
review be provided.
It may be emphasized that Sec. 29 does
not altogether divest a bank or a non-bank
financial institution placed under receivership of
the opportunity to be heard and present
evidence on arbitrariness and bad faith because
within ten (10) days from the date the receiver
takes charge of the assets of the bank, resort to
judicial review may be had by filing an
appropriate pleading with the court. Respondent
TSB did in fact avail of this remedy by filing a
complaint with the RTC of Quezon City on the
8th day following the takeover by the receiver of
the bank’s assets on 3 June 1985. 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. Banks are affected with public
interest because they receive funds from the
general public in the form of deposits.
Rural Bank of Buhi, Inc. v. Court of Appeals,
G.R. No. 61689, 20 Jun 1988
FACTS:
The Rural Bank of Buhi was placed
under receivership and designated respondent
Odra as Receiver pursuant to the provisions of
Section 29 of Republic Act No. 265, as
amended. Odra implemented and carried out
said Monetary Board Resolution No. 583 by
authorizing deputies of the receiver to take
control, possession, and charge of the Bank, its
assets and liabilities. The Bank filed a petition for
injunction with Restraining Order against
respondent Odra and DRBSLA assailing the
action of herein respondent Odra in
recommending the receivership over the Bank
as a violation of the provisions of Sections 28
and 29 of Republic Act No. 265 as amended and
Section 10 of Republic Act No. 720 (The Rural
Banks Act), and as being ultra vires and done
with grave abuse of discretion and in excess of
jurisdiction. Respondents filed their motion to
dismiss alleging that the petition did not allege a
cause of action and is not sufficient in form and
substance. Petitioner Bank filed an opposition to
the motion to dismiss averring that the petition
alleged a valid cause of action and that
respondents have violated the due process
clause of the Constitution. Thereafter the Central
Bank Monetary Board issued a Resolution
ordering the liquidation of the Bank. RTC ruled in
favor of the Bank and issued a writ of execution.
CA however restrained the enforcement of the
execution.
ISSUE(S):
WON due process was violated.
RULING:
 NO. Republic Act No. 265 does not
require that a hearing be first conducted before a
banking institution may be placed under
receivership. Rather, it provides the conditions
prerequisite to the action of the Monetary Board
to forbid the institution to do business in the
Philippines and to appoint a receiver
immediately take charge of the bank's assets
and liabilities. They are: (a) an examination
made by the examining department of the
Central Bank; (b) report by said department to
the Monetary Board; and (c) prima facie showing
that the bank is in a condition of insolvency or so
situated that its continuance in business would
involve probable loss to its depositors or
creditors.
The petitioner’s contention that
property shall be taken without due process of
law is guaranteed under the constitution is
without merit. It has long been established that
the closure and liquidation of a bank may be
considered as an exercise of police power. Such
exercise may, however, be subject to judicial
inquiry and could be set aside if found to be
capricious, discriminatory, whimsical, arbitrary,
unjust or a denial of the due process and equal
protection clauses of the Constitution. Hence,
appointment of a receiver may be made by the
Monetary Board without notice and hearing but
its action is subject to judicial inquiry. Due
process does not necessarily require a prior
hearing; a hearing or an opportunity to be heard
may be subsequent to the closure. One can just
imagine the dire consequences of a prior
hearing: bank runs would be the order of the
day, resulting in panic and hysteria. In the
process, fortunes may be wiped out and
disillusionment will run the gamut of the entire
banking community.
Furthermore, a banking institution's
claim that a resolution of the Monetary Board
under Section 29 of the Central Bank Act should
be set aside as plainly arbitrary and made in bad
to faith, may be asserted as an affirmative defense
(Sections 1 and 4[b], Rule 6, Rules of Court) or a
counterclaim (Section 6, Rule 6; Section 2, Rule
72 of the Rules of Court) in the proceedings for
assistance in liquidation or as a cause of action
in a separate and distinct action where the latter
was filed ahead of the petition for assistance in
liquidation.
vi. Liquidation
no
1. As opposed to rehabilitation
Philippine Veterans Bank Employees Union
v. Vega, G.R. No. 105364, 28 Jun 2001
2. Actions to take (Sec. 30)
3. How assets are distributed (Secs. 31 & 32)
Section 31. Distribution of Assets. - In case of
liquidation of a bank or quasi-bank, after
payment of the cost of proceedings, including
reasonable expenses and fees of the receiver to
be allowed by the court, the receiver shall pay
the debts of such institution, under order of the
court, in accordance with the rules on
concurrence and preference of credit as
provided in the Civil Code.
Section 32. Disposition of Revenues
Earnings. - All revenues and earnings realized
by the receiver in winding up the affairs and
administering the assets of any bank or quasi-
bank within the purview of this Act shall be used
to pay the costs, fees and expenses mentioned
in the preceding section (debts), salaries of such
personnel whose employment is rendered
necessary in the discharge of the liquidation
together with other additional expenses caused
thereby. The balance of revenues and earnings,
after the payment of all said expenses, shall
form part of the assets available for payment to
creditors.
4. All claims filed in liquidation court
Ong v. Court of Appeals, G.R. No. 112830, 01
Feb 1996
All claims against the insolvent bank should be filed in
the liquidation proceeding. The judicial liquidation is
intended to prevent multiplicity of actions against the
insolvent bank. It is a pragmatic arrangement designed
to establish due process and orderliness in the
liquidation of the bank, to obviate the proliferation of
litigations and to avoid injustice and arbitrariness.
Facts:   
Jerry Ong filed with the Regional Trial
Court of Quezon City a petition for the surrender
of 2 TCTs against Rural Bank of Olongapo, Inc.
(RBO), represented by its liquidator Guillermo G.
Reyes, Jr. and deputy liquidator Abel Allanigue.
The complaint stemmed from 2 parcels of land
which was duly mortgaged by RBO in favor of
petitioner to guarantee the payment of Omnibus
Finance, Inc., which is likewise now undergoing
and liquidation proceedings of its money market
obligations to petitioner. Omnibus Finance, Inc.,
not having seasonably settled its obligations to
petitioner, the latter proceeded to effect the
extrajudicial foreclosure of said mortgages and
the city sheriff of TagaytayCity issued a
certificate of sale in favor of petitioner which
were duly registered.
Respondents failed to seasonably
redeem said parcels of land, for which reason,
petitioner has executed an affidavit of
consolidation of ownership which has not been
submitted to the Registry of Deeds of Tagaytay
City, in view of the fact that possession of the
aforesaid titles or owner’s duplicate certificates
of title remains with the RBO. To date, petitioner
has not been able to effect the registration of
said parcels of land in his name in view of the
persistent refusal of respondents to surrender
RBO’s copies of its owner’s certificates of title for
the parcels of land covered by the two TCTs.
Respondent RBO filed a motion to
dismiss on the ground of res judicata and that it
was undergoing liquidation and it is the
liquidation court which has exclusive jurisdiction
to take cognizance of petitioner’s claim. Trial
court denied the motion to dismiss because it
found that the causes of action in the previous
and present cases were different although it was
silent on the jurisdictional issue. RBO filed a
motion for reconsideration but was similarly
rejected. The Court of Appeals, through a
certiorari filed by RBO, annulled the challenged
orders of the trial court which sustained the
jurisdiction of the trial court and denied
reconsideration thereof. Moreover, the trial judge
was ordered to dismiss the civil case without
prejudice to the right of petitioner to file his claim and arbitrariness. It is not necessary that a claim
in the liquidation proceedings pending before the be initially disputed in a court or agency before it
Regional Trial Court of Olongapo City. is filed with the liquidation court.  

Issue:    Whether or not the civil case against - Vda. de Manalo v. Court of Appeals, G.R.
RBO may proceed independently from the No. 129242, 16 Jan 2001
liquidation proceedings.
5. Disposition of banking franchise (Sec. 33)
Held:    Section 29, par. 3, of R.A. 265 as
amended by P. D. 1827 provides –If the Section 33. Disposition of Banking
Monetary Board shall determine and confirm Franchise. - The Bangko Sentral may, if public
within (sixty days) that the bank x x x is insolvent interest so requires, award to an institution,
or cannot resume business with safety to its upon such terms and conditions as the
depositors, creditors and the general public, it Monetary Board may approve, the banking
shall, if the public interest requires, order its franchise of a bank under liquidation to
liquidation, indicate the manner of its liquidation
operate in the area where said bank or its
and approve a liquidation plan.  The Central
branches were previously operating: Provided,
Bank shall, by the Solicitor General, file a
That whatever proceeds may be realized from
petition in the Court of First Instance[7] reciting
such award shall be subject to the appropriate
the proceedings which have been taken and
exclusive disposition of the Monetary Board.
praying the assistance of the court in the
liquidation of such institution.  The court shall
TOPIC:LIQUIDATION AS OPPOSED TO
have jurisdiction in the same proceedings to
adjudicate disputed claims against the bank x x
REHABILITATION

x and enforce individual liabilities of the PRINCIPLE: Liquidation, in corporation law,

stockholders and do all that is necessary to connotes a winding up or settling with

preserve the assets of such institution and to creditors and debtors.It is the winding up of a
implement the liquidation plan approved by the corporation so that assets are distributed to
Monetary Board those entitled to receive them. It is the
All claims against the insolvent bank process of reducing assets to cash,
should be filed in the liquidation proceeding. The discharging liabilities and dividing surplus or
judicial liquidation is intended to prevent loss.
multiplicity of actions against the insolvent bank.
It is a pragmatic arrangement designed to On the opposite end of the spectrum is
establish due process and orderliness in the rehabilitation which connotes a reopening or
liquidation of the bank, to obviate the
reorganization. Rehabilitation contemplates a
proliferation of litigations and to avoid injustice
continuance of corporate life and activities in
an effort to restore and reinstate the Section 36. Proceedings Upon Violation of
corporation to its former position of successful This Act and Other Banking Laws, Rules,
operation and solvency. Regulations, Orders or Instructions. -
Whenever a bank or quasi-bank, or whenever
Effects of receivership and liquidation any person or entity willfully violates this Act
or other pertinent banking laws being enforced
1. Restriction on capacity to act or implemented by the Bangko Sentral or any
- Villanueva v. Court of Appeals, G.R. No. order, instruction, rule or regulation issued by
114870, 26 May 1995 the Monetary Board, the person or persons
- Abacus Real Estate Develoment Center Inc. responsible for such violation shall unless
v. Manila Banking Corp., G.R. No. 162270, 06
otherwise provided in this Act be punished by
Apr 2005
a fine of not less than Fifty thousand pesos
(P50,000) nor more than Two hundred
2. Penalties for transaction after bank
thousand pesos (P200,000) or by
becomes insolvent (Sec. 70, R.A. No. 8791)
imprisonment of not less than two (2) years
nor more than ten (10) years, or both, at the
Section 70.  Penalty for Transactions After a
discretion of the court
Bank Becomes Insolvent. - Any director or
officer of any bank declared insolvent or
3. Effect on garnishment, levy on attachment
placed under receivership by the Monetary
or execution (Sec. 30) – exempt
Board who refuses to turn over the bank's
The receiver shall:
records and assets to the designated
2) convert the assets of the institutions to
receivers, or who tampers with banks records,
money, dispose of the same to creditors and
or who appropriates for himself for another
other parties, for the purpose of paying the
party or destroys or causes the
debts of such institution in accordance with
misappropriation and destruction of the bank's
the rules on concurrence and preference of
assets, or who receives or permits or causes
credit under the Civil Code of the Philippines
to be received in said bank any deposit,
and he may, in the name of the institution, and
collection of loans and/or receivables, or who
with the assistance of counsel as he may
pays out or permits or causes to be
retain, institute such actions as may be
transferred any securities or property of said
necessary to collect and recover accounts and
bank shall be subject to the penal provisions
assets of, or defend any action against, the
of the New Central Bank Act
institution. The assets of an institution under
receivership or liquidation shall be deemed in
What are these penal provisions?
custodia legis in the hands of the receiver and
shall, from the moment the institution was
placed under such receivership or liquidation, fact that respondent bank was placed under
be exempt from any order of garnishment, receivership. To execute the judgment
levy, attachment, or execution. would unduly deplete the assets of
respondent bank to the obvious prejudice of
Spouses Lipana v. Development Bank of other depositors and creditors, since, as
Rizal, G.R. No. 73884, 24 Sep 1987
aptly stated in Central Bank of the
Philippines vs. Morfe (63 SCRA 114), after
Facts:    Petitioners opened and maintained
the Monetary Board has declared that a
both time and savings deposits with the
bank is insolvent and has ordered it to
respondent Development Bank of Rizal.
cease operations, the Board becomes the
When some of the time deposit certificates
trustee of its assets for the equal benefit of
matured, petitioners were not able to cash
all the creditors, including depositors. The
them but instead were issued a manager’s
assets of the insolvent banking institution
check which was dishonored upon
are held in trust for the equal benefit of all
presentment. Demands for the payment of
creditors, and after its insolvency, one
both time and savings deposits have failed.
cannot obtain an advantage or a preference
Hence, petitioners filed with the RTC a
over another by an attachment, execution or
collection suit with prayer for issuance of a
otherwise.
writ of preliminary attachment which was
After the Monetary Board has
granted by the court. The RTC rendered
declared that a bank is insolvent and has
judgment in favor of petitioners. Meanwhile,
ordered it to cease operations, the Board
the Monetary Board placed the respondent
becomes the trustee of its assets for the
bank under receivership. Subsequently, the
equal benefit of all the creditors, including
motion for execution pending appeal filed by
depositors. The assets of the insolvent
petitioners was granted by the court but was
banking institution are held in trust for the
also stayed by the trial judge. The motion
equal benefit of all creditors, and after its
filed by petitioners to lift the stay order
insolvency, one cannot obtain an advantage
having been denied, this petition was filed.
or a preference over another by an
attachment, execution or otherwise. To
Issue:    Whether or not respondent judge
execute the judgment would unduly deplete
could legally stay execution of judgment that
the assets of respondent bank to the
has already become final and executor
obvious prejudice of other depositors and
creditors.
Held:    In the instant case, the stay of the
execution of judgment is warranted by the
3. Stoppage of business
Provident Savings Bank v. Court of Appeals,
G.R. No. 97218, 17 May 1993
Facts:
Spouses Guarin obtained a loan from
petitioner bank and as a security, executed a
REM in its favor over a parcel of land. Then
petitioner bank was placed under receivership
until it was set aside. Guarin signified its
willingness to pay its obligation in exchange for
the mortgaged title. Petitioner bank could not
release said title as it also served as security for
another loan obtained by Guarin for his
corporation. Private respondent Chua wrote
petitioner bank saying that the mortgaged
property was offered to him as payment of
judgment he obtained against the Guarins. The
Guarins sold the property to Chua with the latter
assuming the obligations. Chua tried to pay the
loan but petitioner would not release the title
unless the second loan of Guarin was also
settled.
Issue:
Whether or not a bank being placed under
receivership interrupts the prescription of actions
it may institute.
Ruling: YES.
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.
Having arrived at the conclusion that the
foreclosure is part of bank’s business activity
which could not have been pursued by the
receiver then because of the circumstances
discussed in the Central Bank case, we are thus
convinced that the prescriptive period was
legally interrupted by fuerza mayor in 1972 on
account on the prohibition imposed by the
Monetary Board against petitioner from
transacting business, until the directive of the
board was nullified in 1981. Indeed, the period
during which the obligee was prevented by a
caso fortuito from enforcing his right is not
reckoned against him (Article 1154, New Civil
Code). When prescription is interrupted, all the
benefits acquired so far from the possession
cease and when prescription starts anew, it will
be entirely a new one. This concept should not
be equated with suspension where the past
period is included in the computation being
added to the period after prescription is
resumed. Consequently, when the closure of
was set aside in 1981, the period of ten years
within which to foreclose under Article 1142 of
the New Civil Code began to run again and,
therefore, the action filed on August 21, 1986 to
compel petitioner to release the mortgage
carried with it the mistaken notion that
petitioner’s own suit foreclosure had prescribed.
4. Interest on deposits
Fidelity Savings and Mortgage Bank v.
Cenzon, G.R. No. L-46208, 05 Apr 1990
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.
From the aforecited authorities, it is
manifest that petitioner cannot be held liable
for interest on bank deposits which accrued
from the time it was prohibited by the Central
Bank to continue with its banking operations,
that is, when Resolution No. 350 to that effect
was issued on February 18, 1969.
Rural Bank of Sta. Catalina Inc. v. Land
Bank of the Phils.
G.R. No. 148019, 26 Jul 2004
Facts: Land Bank of the Philippines filed a
complaint against, Sta. Catalina Rural Bank,
Inc., in the Regional Trial Court for the collection
of the sum of P2,809,280.25, capitalized and
accrued interests, penalties and surcharges, and
for such other equitable reliefs. For its failure to
file its answer to the complaint, the trial court
declared the petitioner bank in default. Despite
its receipt of the copy of the said order, the
petitioner bank failed to file a motion to set aside
the order of default.
In the meantime, the Monetary Board approved
the placement of the petitioner bank’s assets
under receivership. The Philippine Deposit
Insurance Corporation (PDIC) was designated
as receiver (conservator) of the petitioner, and
the latter was prohibited from doing business in
the Philippines. Unaware of the action of the CB,
the trial court rendered judgment by default
against the petitioner bank ordering the bank to
pay its obligation to respondent LBP plus
interests and damages. The petitioner, through
the PDIC, appealed the decision to the Court of
Appeals. The petitioner bank claim that since it
was placed under receivership and prohibited
from doing business in the Philippines it should
no longer be held liable for interests and
penalties on its account to the respondent bank.
However, CA rendered judgment affirming the
decision of the RTC.
Issue: Whether or not an insolvent bank
placed under receivership and prohibited from
doing business in the Philippines may be held
liable to pay interests and penalties after being
declared in default.
Held. Such party declared in default is
proscribed from seeking a modification or
reversal of the assailed decision on the basis of
the evidence submitted by him in the Court of
Appeals, for if it were otherwise, he would
thereby be allowed to regain his right to adduce
evidence, a right which he lost in the trial court
when he was declared in default, and which he
failed to have vacated. In this case, the
petitioner sought the modification of the decision
of the trial court based on the evidence
submitted by it only in the Court of Appeals.
Petitioner was served with a copy of
summons and the complaint, but failed to file its
answer thereto. It also failed to file a verified
motion to set aside the order of default despite
its receipt of a copy thereof. We note that the
trial court rendered judgment only on April 7,
1998 or more than a year after the issuance of
the default order; yet, the petitioner failed to file
any verified motion to set aside the said order
before the rendition of the judgment of default.
The PDIC was designated by the Central Bank
of the Philippines as receiver (conservator) as
early as January 14, 1998, and in the course of
its management of the petitioner bank’s affairs, it
should have known of the pendency of the case
against the latter in the trial court. Moreover, the
petitioner, through the PDIC, received a copy of
the decision of the trial court but did not bother
filing a motion for partial reconsideration
appending thereto the orders of the Monetary
Board or a motion to set aside the order of
default. Instead, the petitioner appealed the
decision, and even failed to assign as an error
the default order of the trial court. The petitioner
is, thus, barred from relying on the orders of the
Monetary Board of the Central Bank of the
Philippines placing its assets and affairs under
receivership and ordering its liquidation.
G. Judicial review
a. Availability of remedy (Sec. 30)
b. Ground
Central Bank of the Philippines v. Court
of Appeals,
G.R. No. L-50031-32, 27 Jul 1981
Banco Filipino Savings and Mortgage
Bank v. Monetary Board
c. Jurisdiction (Sec. 4, Rule 65, Rules of
Court)
Certiorari, Prohibition, & Mandamus
Section 4. When and where petition filed.
— The petition shall be filed not later than
sixty (60) days from notice of the judgment,
order or resolution. In case a motion for
reconsideration or new trial is timely filed,
whether such motion is required or not, the
sixty (60) day period shall be counted from
notice of the denial of said motion.
d. Who may question?
Central Bank of the Philippines v. Court
of Appeals, G.R. No. 76118, 30 Mar 1993
1. Bank Officers
2. Stockholders representing
majority of the capital stock
Quoted:
In regard to lack of capacity to sue
on the part of Triumph Savings Bank we
view such argument as being specious, for
if we get the drift of petitioners’ argument,
they mean to convey the impression that
only the CB appointed receiver himself may
question the CB resolution appointing him
as such. This may be asking for the
impossible, for it cannot be expected that
the master, the CB, will allow the receiver it
has appointed to question that very
appointment. Should the argument of
petitioners be given circulation, then judicial
review of actions of the CB would be
effectively checked and foreclosed to the
very bank officials who may feel, as in the
case at bar, that the CB action ousting them
General Banking Act
from the bank deserves to be set aside.
(R.A. No. 8791, as amended)

Central Bank of the Phils. v. Court of A. Definition (Sec. 3.1)

3.1. "Banks" shall refer to entities engaged in
Appeals, G.R. Nos. 88353 & 92943, 08
the lending of funds obtained in the form of
May 1992
Per the fifth paragraph of Section 29 deposits. (2a)
of the Central Bank Act, as amended by
Executive Order No. 289, the actions of the 3.2. Banks shall be classified into:
MB may be assailed in an appropriate
pleading filed by the stockholders of record (a) Universal banks;
representing the majority of the capital stock
within ten (10) days from receipt of notice by
(b) Commercial banks;
the said majority stockholders of the order
placing the bank under conservatorship. 
(c) Thrift banks, composed of: (i) Savings and
mortgage banks, (ii) Stock savings and loan
Section 52. Legal Tender Power. - All
associations, and (iii) Private development
notes and coins issued by the Bangko
banks, as defined in the Republic Act No.
Sentral shall be fully guaranteed by the
Government of the Republic of the 7906 (hereafter the "Thrift Banks Act");

Philippines and shall be legal tender in the

Philippines for all debts, both public and
private: Provided, however, That, unless
otherwise fixed by the Monetary Board,
coins shall be legal tender in amounts not
exceeding Fifty pesos (P50.00)
denominations of Twenty-five centavos and
above, and in amounts not exceeding
Twenty pesos (P20.00) for denominations of
Ten centavos or less.
(d) Rural banks, as defined in Republic Act
No. 73S3 (hereafter the "Rural Banks Act");
(e) Cooperative banks, as defined in Republic
for Act No 6938 (hereafter the "Cooperative
Code");
(f) Islamic banks as defined in Republic Act
No. 6848, otherwise known as the "Charter of
Al Amanah Islamic Investment Bank of the
Philippines"; and
(g) Other classifications of banks as pertinent laws. The terms ‘banking
determined by the Monetary Board of the institution’ and ‘bank’ as used in this Act,
Bangko Sentral ng Pilipinas. are synonymous and interchangeable and
specially include banks, banking institutions,
B. Elements commercial banks, saving banks, mortgage
banks, trust companies, building and loan
Republic of the Philippines v.
associations, branches and agencies in the
Security Credit and Acceptance
Philippines of foreign banks hereinafter
Corp.,
called Philippine branches, and all other
G.R. No. L-20583, 23 Jan 1967 corporations, companies, partnerships, and
associations performing banking functions
A bank has been defined as a in the Philippines.
moneyed institute founded to facilitate the
borrowing, lending, and safe- keeping of
Bañas v. Asia Pacific Finance Corp
money and to deal in notes, bills of
G.R. No. 128703, 18 Oct 2000
exchange, and credits.
An investment company which loans
An investment company refers to
out the money of its customers, collects the
any issuer which is or holds itself out as
interests, and charges a commission to both
being engaged or proposes to engage
lender and borrower is a bank.
primarily in the business of investing,
Any person engaged in the business
reinvesting or trading in securities. 8 As
carried on by banks of deposit, of discount,
defined in Sec. 2, par. (a), of the Revised
or of circulation is doing a banking business,
Securities Act, 9 securities "shall include . . .
although but one of these functions is
commercial papers evidencing
exercised.
indebtedness of any person, financial or
Only duly authorized persons and
non-financial entity, irrespective of maturity,
entities may engage in the lending of funds
issued, endorsed, sold, transferred or in any
obtained from the public through the receipt
manner conveyed to another with or without
of deposits of the sale of bonds, securities,
recourse, such as promissory notes . . ."
or obligations of any kind, and all entities
Clearly, the transaction between petitioners
regularly conducting such operations shall
and respondent was one involving not a
be considered as banking institutions and
loan but purchase of receivables at a
shall be subject to the provisions of this Act,
discount, well within the purview of
of the General Bank Act, and of other
"investing, reinvesting or trading in
securities" which an investment company,
like ASIA PACIFIC, is authorized to perform
and does not constitute a violation of the
General Banking Act. 10 Moreover, Sec. 2
of the General Banking Act provides in part
— public, which shall mean twenty (20) or
SECTION 2. Only entities duly authorized
by the Monetary Board of the Central Bank
may engage in the lending of funds
obtained from the public through the receipt
of deposits of any kind, and all entities
regularly conducting such operations shall
be considered as banking institutions and
shall be subject to the provisions of this Act,
of the Central Bank Act, and of other
pertinent laws (Emphasis supplied).
Indubitably, what is prohibited by law
is for investment companies to lend funds
obtained from the public through receipts of
deposit, which is a function of banking
institutions. But here, the funds supposedly
"lent" to petitioners have not been shown to
have been obtained from the public by way
of deposits, hence, the inapplicability of
banking laws.
a. Engaged in lending of funds
b. Obtained in the form of deposits
c. From the public, which shall mean 20
or more persons (Sec. 8.2)
Section 8. Organization. - The Monetary
Board may authorize the organization of a
bank or quasi-bank subject to the following
conditions:
8.1 That the entity is a stock corporation;
8.2 That its funds are obtained from the
more persons (2-Da); and
8.3 That the minimum capital requirements
prescribed by the Monetary Board for each
category of banks are satisfied. (n)
C. Classification of banks (Sec. 3; Sec.
X101, Manual of Regulations for Bank)
a. Classifications of banks. Banks are classified
into the following subject to the power of the
Monetary Board to create other classes or kinds
of banks:
(1) Universal banks (UBs);
(2) Commercial banks (KBs);
(3) Thrift banks (TBs), as defined in Republic Act
(R.A.) No. 7906, which shall be composed of:
(a) savings and mortgage banks, (b) stock
savings and loan associations, and (c) private
development banks;
(4) Rural banks (RBs), as defined in R. A. No.
7353;
(5) Cooperative banks (Coop Banks); and
(6) Islamic banks (IBs), as defined in R.A. No.
6848.
b. Powers and scope of authorities The
following are the powers and scope of
authorities of banks.
(1) UBs. A UB shall have the authority to
exercise, in addition to the powers and services
authorized for a KB as enumerated in Item
“b(2)” and those provided by other laws, the
following:
(a) the powers of an investment house (IH) as
provided under existing laws;
(b) the power to invest in non-allied enterprises;
(c) the power to own up to one hundred
percent (100%) of the equity in a TB, an RB, a
financial allied enterprise, or a non-financial
allied enterprise; and
(d) in case of publicly-listed UBs, the power to
own up to one hundred percent (100%) of the
voting stock of only one (1) other UB or KB. A
UB may perform the functions of an IH either
directly or indirectly through a subsidiary IH; in
either case, the underwriting of equity
securities and securities dealing shall be subject
to pertinent laws and regulations of the
Securities and Exchange Commission (SEC):
Provided, That if the IH functions are performed
directly by the UB, such functions shall be
undertaken by a separate and distinct
department or other similar unit in the UB:
Provided, further, That a UB cannot perform
such functions both directly and indirectly
through a subsidiary.
(2) KBs. In addition to the general powers
incident to corporations and those provided in
other laws, a KB shall have the authority to
exercise all such powers as may be necessary to
carry on the business of commercial banking,
such as accepting drafts and issuing letters of
credit; discounting and negotiating promissory
notes, drafts, bills of exchange, and other
evidences of debt; accepting or creating
demand deposits; receiving other types of
deposits and deposit substitutes; buying and
selling foreign exchange and gold or silver
bullion; acquiring marketable bonds and other
debt securities; and extending credit, subject to
such rules as the Monetary Board may
promulgate. These rules may include the
determination of bonds and other debt
securities eligible for investment, the maturities
and aggregate amount of such investment. It
may also exercise or perform any or… (see law)
D. Distinction of banks from quasi-banks
and other entities (Sec. 4[last para]; Sec.
X234, Manual of Regulations for Banks)
Sec. 4 - For the purposes of this Act, "quasi-
banks" shall refer to entities engaged in the
borrowing of funds through the issuance,
endorsement or assignment with recourse or
acceptance of deposit substitutes as defined in
Section 95 of Republic Act No. 7653 (hereafter
the "New Central Bank Act") for purposes of re-
lending or purchasing of receivables and other
obligations.
X234.1 Elements of quasi-banking. The essential
elements of quasi-banking are:
a. Borrowing funds for the borrower’s own
account;
b. Twenty (20) or more lenders at any one (1)
time;
8.2 That its funds are obtained from the public,
which shall mean twenty (20) or more persons
(2-Da); and
8.3 That the minimum capital requirements
prescribed by the Monetary Board for each
category of banks are satisfied. (n)
i. Stock corporation (Sec. 8.1)

c. Methods of borrowing are issuance, ii. Funds obtained from the public (Sec. 8.2)

endorsement, or acceptance of debt

instruments of any kind, other than deposits, iii. Minimum capital requirements (Sec. 8.3;

such as acceptances, promissory notes, - BSP Circular No. 257, s.2000

participations, certificates of assignments or - BSP Circular No. 854, s.2014

similar instruments with recourse, trust

certificates, repurchase agreements, and such iv. Capability and other requirements (Sec.

other instruments as the Monetary Board may 8[para. 2])

determine; and Par. 2 - No new commercial bank shall be

d. The purpose of which is established within three (3) years from the

(1) relending, or effectivity of this Act. In the exercise of the

(2) purchasing receivables or other obligations. authority granted herein, the Monetary Board
shall take into consideration their capability in

E. Ownership/capitalization of banks terms of their financial resources and technical

expertise and integrity. The bank licensing

a. Organization (Sec. 8) process shall incorporate an assessment of the

Section 8. Organization. - The Monetary Board
may authorize the organization of a bank or
quasi-bank subject to the following conditions:
8.1 That the entity is a stock corporation (7);
bank's ownership structure, directors and
senior management, its operating plan and
internal controls as well as its projected
financial condition and capital base.
b. Stockholdings
i. Foreign stockholdings
 1. Individuals and non-banks (Sec. 11)
Section 11. Foreign Stockholdings. - Foreign
individuals and non-bank corporations may own
or control up to forty percent (40%) of the
voting stock of a domestic bank. This rule shall
apply to Filipinos and domestic non-bank
corporations. The percentage of foreign-owned
voting stocks in a bank shall be determined by
the citizenship of the individual stockholders in
that bank. The citizenship of the corporation
which is a stockholder in a bank shall follow the
citizenship of the controlling stockholders of the
corporation, irrespective of the place of
incorporation.
- BSP Circular No. 256, s.2000
2. Foreign banks (Secs. 11 & 73)
Section 73. Acquisition of Voting Stock in a
Domestic Bank. - Within seven (7) years from
the effectivity of this act and subject to
guidelines issued pursuant to the Foreign Banks
Liberalization Act, the Monetary Board may
authorize a foreign bank to acquire up to one
hundred percent (100%) of the voting stock of
only one (1) bank organized under the laws of
the Republic of the Philippines. Within the same
period, the Monetary Board may authorize any
foreign bank, which prior to the effectivity of
this Act availed itself of the privilege to acquire
up to sixty percent (60%) of the voting stock of
a bank under the Foreign Banks Liberalization
Act and the Thrift Banks Act, to further acquire
voting shares such bank to the extent necessary
for it to own one hundred percent (100%) of the
voting stock thereof. In the exercise of the
authority, the Monetary Board shall adopt
measures as may be necessary to ensure that at
all times the control of seventy percent (70%) of
the resources or assets of the entire banking
system is held by banks which are at least
majority-owned by Filipinos. Any right, privilege
or incentive granted to a foreign bank under
this Section shall be equally enjoyed by and
extended under the same conditions to banks
organized under the laws of the Republic of the
Philippines
- See: R.A. No. 7721, as amended
ii. Filipino stockholdings (Sec. 11)
– see notes up
- BSP Circular No. 256, s.2000
- BSP Circular No. 332, s.2002
1. Stockholdings of family groups or related
interests (Secs. 12 & 13)
Section 12. Stockholdings of Family Groups of
Related Interests. - Stockholdings of individuals
related to each other within the fourth degree
of consanguinity or affinity, legitimate or
common-law, shall be considered family groups
or related interests and must be fully disclosed
in all transactions by such corporations or
related groups of persons with the bank. (12-
Ba)
Section 13. Corporate Stockholdings. - Two or
more corporations owned or controlled by the
same family group or same group of persons of consanguinity or affinity, and corporations
shall be considered related interests and must controlled or affiliated with them.
be fully disclosed in all transactions by such
A bank whose shares of stock are
corporations or related group of persons with
the bank. already listed in the Philippine Stock Exchange
(*Note: indicia that the bank has already
- BSP Circular No. 332, s.2002
complied w/ the public offering requirement)
2. Required public offering (Sec. X102.1,
(PSE) at the time of filing of its application for
Manual of Regulations for Banks)
UB authority shall be deemed to have complied
X102.1 (2008 - X101.2) Prerequisites for the
with the public offering requirement. Likewise,
grant of a universal banking authority
an applicant bank may opt to have its shares
a. Compliance with guidelines. A domestic
listed in the PSE directly instead of passing
bank seeking authority to operate as a UB shall
through the process of public offering. In either
submit an application to the appropriate
case, at least ten percent (10%) of the applicant
department of the SES. The applicant shall
bank’s capital stock should be held by public
comply with the guidelines for the issuance of a
stockholders before it can be granted the
UB authority and shall submit all the
license for authority to operate as a UB.
documentary requirements enumerated in
Appendix 1.
c. Listing of bank shares in the stock exchange.
b. Public offering of bank shares. A domestic
Domestic banks granted a UB license, existing or
bank applying for a UB authority shall, as a
new, must list their shares in the PSE within
condition to the approval of its application,
three (3) years: Provided, That in the case of
make a public offering of at least ten percent
new UBs, the three (3) year period shall be
(10%) of the required minimum capital and this
reckoned from the date the license to operate
condition must be complied with before it can
as a UB was granted.
be granted the license for authority to operate
as a UB. The term public offering shall mean the
- BSP Circular No. 271, s.2001
offer to sell equity shares to the public. Public
- SEC MC No. 13, s.2017
shall refer to all prospective stockholders,
excluding the bank’s directors, shareholders
c. Directors and Officers
owning twenty percent (20%) or more of the
i. Composition of Board (Secs. 15 & 17; Sec. 7,
bank’s subscribed capital stock, together with
R.A. No. 7721, as amended; Secs. 22 & 24, R.A.
those of their relatives within the fourth degree
No. 11232)
Section 15. Board of Directors. - The
provisions of the Corporation Code to the
contrary notwithstanding, there shall be at least
five (5), and a maximum of fifteen (15)
members of the board or directors of a bank,
two (2) of whom shall be independent directors.
An "independent director" shall mean a person
other than an officer or employee of the bank,
its subsidiaries or affiliates or related interests.
(n) Non-Filipino citizens may become members
of the board of directors of a bank to the extent
of the foreign participation in the equity of said
bank. (Sec. 7, RA 7721) The meetings of the
board of directors may be conducted through
modern technologies such as, but not limited
to, teleconferencing and video-conferencing.
Section 17. Directors of Merged or
Consolidated Banks. - In the case of a
bank merger or consolidation, the number of
directors shall not exceed twenty-one (21).
RA 11232 – RCCP:
Section 22. The Board of Directors
or Trustees of a Corporation;
Qualification and Term. - Unless
otherwise provided in this Code, the board of
directors or trustees shall exercise the
corporate powers, condict all business, and
control all properties of the corporation.
Directors shall be elected for a term of one (1)
Year from among the holders of stocks
registered in the corporation's book while
trustees shall be elected for a term not
exceeding three (3) years from among the
members of the corporation. Each director and
trustee shall hold office until the successor is
elected and qualified. A director who ceases to
own at least one (1) share of stock or a trustee
who ceases to be a member of the corporation
shall cease to be such.
TERM OF DIRECTORS – 1 year
TERM OF TRUSTEES – not exceeding
3 yrs
 Percentage requirement for
independent directors:
The board of the following corporations vested
with public interest shall have independent
directors constituting at least twenty percent
(20%) of such board:
(a) Corporations covered by Section 17.2 of
Republic Act No. 8799, otherwise known as
"The Securities Regulation Code", namely those
whose securities are registered with the
Commission, corporations listed with an
exchange or with assets of at least Fifty million
pesos (50,000,000.00) and having two hundred
(200) or more holders of shares, each holding at
least one hundred (100) shares of a class of its
equity shares;
(b) Banks and quasi-banks, NSSLAs, pawnshops,
corporations engaged in money service
business, preneed, trust and insurance
companies and other financial intermediaries;
and
(c) Other corporations engaged in businesses
vested with public interest similar to the above,
as may be determined by the Commission, after
taking into account relevant factors which are
germane to the objective and purpose of
requiring the election of an independent
director, such as the extent of minority
ownership, type of financial products or
securities issued or offered to investors, public
interest involved in the nature of business
operations, and other analogous factors.
 Who is an independent
director?
An independent director is a person who apart
from shareholdings and fees received from any
business or other relationship which could, or
could reasonable be received to materially
interfere with the exercise of independent
judgment in carrying out the responsibilities as
a director.
Independent directors must be elected by the
shareholders present or entitled to vote in
absentia during the election of directors.
Independent directors shall be subject to rules
and regulations governing their qualifications,
disqualifications, voting requirements, duration
of term and term limit, maximum number of
board membership and other requirements that
the Commission will prescribed to strengthen
their independence and align with international
best practices.
Section 24. Corporate Officers. -
Immediately after their election, the directors of
a corporation must formally organize an elect:
(a) a president, who must be a director; (b) a
treasurer, who must be a resident of the
Philippines; and (d) such other officers as may
be provided in the bylaws. If the corporation is
vested with public interest, the board shall also
elect compliance officer. The same person may
hold two (2) or more positions concurrently,
except that no one shall act as president and
secretary or as president and treasurer at the
same time, unless otherwise allowed in this
Code.
Directors shall be elected for a term of one (10
Year from among the holders of stocks
registered in the corporation's book while
trustees shall be elected for a term not
exceeding three (3) years from among the
members of the corporation. Each director and - Busuego v. Court of Appeals, G.R. No. 95326,
trustee shall hold office until the successor is 11 Mar 1999
elected and qualified. A director who ceases to 3. Other minimum qualifications (Guidelines
own at least one (1) share of stock or a trustee for the Establishment of Banks)
who ceases to be a member of the corporation
shall cease to be such. iii. Disqualifications (Guidelines for the
Establishment of Banks)
ii. Qualifications 1. Criminal conviction (Sec. 26, R.A. No. 11232)
1. Own at least one share (Sec. 22, R.A. Disqualification of Directors,
No. 11232) Trustees or Officers. - A person shall be
A director who ceases to own at least one (1) disqualified from being a director, trustee or
share of stock or a trustee who ceases to be a officer of any corporation if, within five (5)
member of the corporation shall cease to be
years prior to the election or appointment as
such.
such, the person was:
2. “Fit and Proper” rule (Sec. 16)
To maintain the quality of bank management
(a) Convicted by final judgment:
and afford better protection to depositors and
(1) Of an offense punishable by imprisonment
the public in general the Monetary Board shall
for a period exceeding six (6) years;
prescribe, pass upon and review the
(2) For violating this Code; and
qualifications and disqualifications of individuals
(3) For violating Republic Act No. 8799,
elected or appointed bank directors or officers
otherwise known as "The Securities Regulation
and disqualify those found unfit. After due
Code";
notice to the board of directors of the bank, the
(b) Found administratively liable for any offense
Monetary Board may disqualify, suspend or
involving fraudulent acts; and
remove any bank director or officer who
(c) By a foreign court or equivalent foreign
commits or omits an act which render him unfit
regulatory authority for acts, violations or
for the position. In determining whether an
misconduct similar to those enumerated in
individual is fit and proper to hold the position
paragraphs (a) and (b) above.
of a director or officer of a bank, regard shall be
given to his integrity, experience, education,
2. Public officials (Sec. 19)
training, and competence.
Prohibition on Public Officials. -
Except as otherwise provided in the Rural Banks
Act, no appointive or elective public official
whether full-time or part-time shall at the same
time serve as officer of any private bank
Exception: Save in cases where such service is
incident to financial assistance provided by the
government or a government owned or
controlled corporation to the bank or unless
otherwise provided under existing laws.
3. MB member/BSP personnel (Secs. 9 & 27,
R.A. No. 7653, as amended)
Section 9. Disqualifications. - a
member of the Monetary Board is disqualified
from being a director, officer, employee,
consultant, lawyer, agent or stockholder of any
bank, quasi-bank or any other institution which
is subject to supervision or examination by the
Bangko Sentral, in which case such member
shall resign from, and divest himself of any and
all interests in such institution before
assumption of office as member of the
Monetary Board.
The members of the Monetary Board
coming from the private sector shall not hold
any other public office or public employment
during their tenure.
No person shall be a member of the
Monetary Board if
1. he has been connected directly with any
multilateral banking or financial institution or
has a substantial interest in any private bank in
the Philippines, within one (1) year prior to his
appointment;
2. no member of the Monetary Board shall be
employed in any such institution within two (2)
years after the expiration of his term except
when he serves as an official representative of
the Philippine Government to such institution.
Sec. 27, RA 7653:
Personnel of the Bangko Sentral
are hereby prohibited from:
(a) being an officer, director, lawyer or agent,
employee, consultant or stockholder, directly or
indirectly, of any institution subject to
supervision or examination by the Bangko
Sentral, except non-stock savings and loan
associations and provident funds organized
exclusively for employees of the Bangko Sentral,
and except as otherwise provided in this Act;
(b) directly or indirectly requesting or receiving
any gift, present or pecuniary or material
benefit for himself or another, from any
institution subject to supervision or
examination by the Bangko Sentral;
(c) revealing in any manner, except under
orders of the court, the Congress or any
government office or agency authorized by law,
or under such conditions as may be prescribed
by the Monetary Board, information relating to
the condition or business of any institution. This
prohibition shall not be held to apply to the
giving of information to the Monetary Board or
the Governor of the Bangko Sentral, or to any
person authorized by either of them, in writing,
to receive such information; and
(d) borrowing from any institution subject to
supervision or examination by the Bangko
Sentral shall be prohibited unless said
borrowings are adequately secured, fully
disclosed to the Monetary Board, and shall be
subject to such further rules and regulations as
the Monetary Board may prescribe: Provided,
however, That personnel of the supervising and
examining departments are prohibited from
borrowing from a bank under their supervision
or examination.
iv. Compensation and other benefits (Sec. 18;
Sec. 29, R.A. No. 11232)
Section 29. Compensation of
Directors or Trustees. - In the absence
of any provision in the bylaws fixing their
compensation, the directors or trustees shall
not receive any compensation in their capacity
as such, except for reasonable per diems:
(*Note: But the corp can nevertheless stipulate
for a compensation; this is just the general rule)
Provided, however, That the
stockholders representing at least a majority of
the outstanding capital stock or majority of the
members may grant directors or trustees with
compensation and approve the amount thereof
at a regular or special meeting.
In no case shall the total yearly
compensation of directors exceed ten percent
(10%) of the net income before income tax of
the corporation during the preceding year.
Directors or trustees shall not
participate in the determination of their own
per diems or compensation.
Corporations vested with public interest
shall submit to their shareholders and the
Commission, an annual report of the total
compensation of each of their directors or
trustees.
v. Meetings (Sec. 15)
The meetings of the board of directors may be
conducted through modern technologies such
as, but not limited to, teleconferencing and
video-conferencing
vi. Powers of directors
- BSP Circular No. 283, s.2001
vii. “Apparent Authority” doctrine
Philippine Commercial International Bank v.
Court of Appeals
G.R. Nos. 121413 29 Jan 2001
The general rule is that a bank is liable for the
fraudulent acts or representations of an officer
or agent acting within the course and apparent
scope of his employment or authority. And if an
officer or employee of a bank, in his official
capacity, receives money to satisfy an evidence
of indebtedness lodged with his bank for
collection, the bank is liable for
misappropriation of such sum.
viii. Prohibited acts (Sec. 55.1)
Section 55. Prohibited
Transactions.
55.1. No director, officer, employee, or agent of
any bank shall -
(a) Make false entries in any bank report or
statement or participate in any fraudulent
transaction, thereby affecting the financial
interest of, or causing damage to, the bank or
any person;
(b) Without order of a court of competent
jurisdiction, disclose to any unauthorized
person any information relative to the funds or
properties in the custody of the bank belonging
to private individuals, corporations, or any
other entity: Provided, That with respect to
bank deposits, the provisions of existing laws
shall prevail;
(c) Accept gifts, fees, or commissions or any
other form of remuneration in connection with
the approval of a loan or other credit
accommodation from said bank;
(d) Overvalue or aid in overvaluing any security
for the purpose of influencing in any way the
actions of the bank or any bank; or
(e) Outsource inherent banking functions.
F. Incorporation (Sec. 14; Secs. 16, 45, & 116,
R.A. No. 11232)
G. Operation (Sec. 6)
his Section 6. Authority to Engage in Banking and
Quasi-Banking Functions. - No person or entity
shall engage in banking operations or quasi-
banking functions without authority from the
Bangko Sentral:
2. Provided, however, That an entity authorized
by the Bangko Sentral to perform universal or
commercial banking functions shall likewise
have the authority to engage in quasi-banking
functions.
3. The determination of whether a person or
entity is performing banking or quasi-banking
functions without Bangko Sentral authority shall
be decided by the Monetary Board. To resolve
such issue, the Monetary Board may; through
the appropriate supervising and examining
department of the Bangko Sentral, examine,
inspect or investigate the books and records of
such person or entity. Upon issuance of this
authority, such person or entity may commence
to engage in banking operations or quasi-
banking function and shall continue to do so
unless such authority is sooner surrendered,
revoked, suspended or annulled by the Bangko
Sentral in accordance with this Act or other
special laws.
a. Authority required
b. Monetary board determination
c. Unauthorized advertisement
(Sec. 64)
GR: No person, association, or corporation shall
advertise or hold itself out as being engaged in
the business of such bank, quasi-bank, trust
entity, or association, or use in connection with
its business title, the word or words "bank",
"banking", "banker", "quasi-bank", "quasi-
banking", "quasi-banker", "savings and loan
association", "trust corporation",
company" or words of similar import or transact
in any manner the business of any such bank,
corporation or association.
Exc: Unless duly authorized to engage in the
business of a bank, quasi-bank, trust entity, or
savings and loan association as defined in this
Act, or other banking laws,
d. Change in name
P.C. Javier & Sons Inc. v. Court of
Appeals
G.R. No. 129552, 29 Jun 2005
FACTS:
Petitioner Corporation, P.C. Javier and
Sons Services, Inc., applied with First Summa
Savings and Mortgage Bank, later
renamed as PAIC Savings and Mortgage
Bank, Respondent Bank, for a loan
accommodation under the Industrial
Guarantee Loan Fund (IGLF) for P1.5 Million.
Petitioner Corporation claims that the
loan releases were delayed; that the amount
of P 250, 000.00 was deducted from the IGLF
loan of P1.5 Million and placed under time
deposit. Respondent Bank, however, claims
that only the final proceeds of the loan in the
amount of P750,000.00 was delayed the
same having been released to Plaintiff
Corporation, but this was because of the
shortfall in the collateral cover of Plaintiffs
loan.
Respondent Bank sent a demand
letter to Petitioner spouses informing them
"trust that since they have defaulted in paying their
obligation, their mortgage will now be
foreclosed; that when Petitioners still failed to
pay, Respondent Bank initiated extrajudicial
foreclosure of the real estate mortgage
executed by Plaintiff spouses. The instant
complaint was filed to forestall the extrajudicial
foreclosure sale of a piece of land mortgaged
by Petitioner Corporation in favor of First
Summa Savings and Mortgage Bank which
bank was later renamed as PAIC Savings and
Mortgage Bank, Inc.
ISSUE:
Whether P.C. Javier & Sons should have
been notified, as a requirement, by First
Summa Savings and Mortgage Bank and
on PAIC Savings and Mortgage Bank, Inc. of
their change in name in order to treat them as
one and the same entity and comply with their
loan obligation.
RULING:
NO. There is no such requirement
provided in the Corporation Code and Banking
Laws. After going over the Corporation Code
and Banking Laws, as well as the regulations
and circulars of both the SEC and the Bangko
Sentral ng Pilipinas (BSP), this Court finds
that there is no such requirement.
This Court cannot impose on a bank
that changes its corporate name to notify a
debtor of such change absent any law,
circular or regulation requiring it. Such act
would be judicial legislation. The formal
notification is, therefore, discretionary on the
bank. Unless there is a law, regulation or
circular from the SEC or BSP requiring the
formal notification of all debtors of banks of
any change in corporate name, such
notification remains to be a mere internal
policy that banks may or may not adopt.
This Court finds that petitioners failed
to comply with what is incumbent upon them
to pay their loans when they became due. The
lame excuse they belatedly advanced for their
non-payment cannot and should not prevent
respondent bank from exercising its right to
foreclose the real estate mortgages executed
in its favor.
e. Sanctions for operating without authority
Section 66. Penalty for Violation of
this Act. - Unless otherwise herein provided,
the violation of any of the provisions of this Act
shall be subject to Sections 34, 35, 36 and 37 of
the New Central Bank Act. If the offender is a
director or officer of a bank, quasi-bank or trust
entity, the Monetary Board may also suspend or
remove such director or officer. If the violation
is committed by a corporation, such corporation
may be dissolved by quo warranto proceedings
instituted by the Solicitor General.
H. Nature of banking business (Sec. 2)
“It is fiduciary nature of banking that requires
high standards of integrity and performance.”
a. Vital role in economy
i. Subject to reasonable regulation by the State
Central Bank of the Phils. v. Court
of Appeals, G.R. Nos. 88353 &
92943, 08 May 1992
The banking business is properly subject to
reasonable regulation under the police power
of the state because of its nature and relation to
the fiscal affairs of the people and the revenues
of the state. Banks are affected with public
interest because they receive funds from the
general public in the form of deposits. Due to
the nature of their transactions and functions, a
fiduciary relationship is created between the
banking institutions and their depositors.
Therefore, banks are under the obligation to
treat with meticulous care and utmost fidelity
the accounts of those who have reposed their
trust and confidence in them.
ii. Strikes and lockouts (Sec. 22; Article 278[g],
Labor Code, as amended)
Section 22. Strikes and Lockouts. - The banking
industry is hereby declared as indispensable to
the national interest and, notwithstanding the
provisions of any law to the contrary, any strike
or lockout involving banks, if unsettled after
seven (7) calendar days shall be reported by the
Bangko Sentral to the secretary of Labor who
may assume jurisdiction over the dispute or
decide it or certify the sane to the National
Labor Relations Commission for compulsory
arbitration.
The President of the Philippines may at
any time intervene and assume jurisdiction over
such labor dispute in order to settle or
terminate the same
b. Fiduciary nature of banking business
i. Degree of diligence required
Simex International, Inc. v. Court
of Appeals,
G.R. No. 88013, 19 Mar 1990
The depositor expects the bank to treat
his account with the utmost fidelity whether
such account consists only of a few hundred
pesos or of millions. The bank must record
every single transaction accurately, down to the
last centavo, and as promptly as possible. This
has to be done if the account is to reflect at any
given time the amount of money the depositor
can dispose of as he sees fit, confident that the
bank will deliver it as and to whomever he
directs. A blunder on the part of the bank, such
as the dishonour of a check without good
reason, can cause the depositor not a little
embarrassment if not also financial loss and
perhaps even civil and criminal litigation.
Bank of the Philippine Islands v.
Intermediate Appellate Court,
G.R. No. 69162, 21 Feb 1992
The bank is not expected to be infallible
but, as correctly observed by respondent
Appellate Court, in this instance, it must bear
the blame for not discovering the mistake of its
teller despite the established procedure
requiring the papers and bank books to pass
through a battery of bank personnel whose duty
it is to check and countercheck them for
possible errors. Apparently, the officials and
employees tasked to do that did not perform
their duties with due care
1. When utmost diligence required
a. In dealing with accounts of depositors
Philippine Banking Corp. v. Court
of Appeals, G.R. No. 127469, 15
Jan 2004
In every case, the depositor expects the
bank to treat his account with the utmost
fidelity, whether such account consists only of a
few hundred pesos or of millions. The bank
must record every single transaction accurately,
down to the last centavo, and as promptly as
possible. This has to be done if the account is to
reflect at any given time the amount of money
the depositor can dispose of as he sees fit,
confident that the bank will deliver it as and to
whomever he directs.
 As the BANK’s depositor, Marcos had
the right to expect that the BANK was
accurately recording his transactions with it.
Upon the maturity of his time deposits, Marcos
also had the right to withdraw the amount due
him after the BANK had correctly debited his
outstanding obligations from his time deposits.
b. In selection and supervision of employees
Philippine Commercial
International Bank v. Court of
Appeals
G.R. Nos. 121413, 121479 &
128604, 29 Jan 2001
Thus, invoking the doctrine of
comparative negligence, we are of the view
that both PCIBank and Citibank failed in
their respective obligations and both were
negligent in the selection and supervision of
their employees resulting in the encashment
of Citibank Check Nos. SN 10597 AND
16508. Thus, we are constrained to hold
them equally liable for the loss of the
proceeds of said checks issued by Ford in
favor of the CIR.
Time and again, we have stressed
that banking business is so impressed with
public interest where the trust and
confidence of the public in general is of
paramount importance such that the
appropriate standard of diligence must be
very high, if not the highest, degree of
diligence. A bank's liability as obligor is not
merely vicarious but primary, wherein the
defense of exercise of due diligence in the
selection and supervision of its employees
is of no moment.
Banks handle daily transactions involving
millions of pesos. By the very nature of their
work the degree of responsibility, care and
trustworthiness expected of their employees
and officials is far greater than those of
ordinary clerks and employees. Banks are
expected to exercise the highest degree of
diligence in the selection and supervision of
their employees.
c. To be mortgagees in good faith
Cruz v. Bancom Finance Corp.,
G.R. No. 147788, 19 Mar 2002
A bank that failed to observe due diligence was
not a mortgagee in good faith. The rule that
persons dealing with registered lands can rely
solely on the certificate of title does not apply
to banks. Banks, indeed, should exercise more
care and prudence in dealing even with
registered lands, than private individuals, for
their business is one affected with public
interest, keeping in trust money belonging to
their depositors, which they should guard
against loss by not committing any act of
negligence which amounts to lack of good faith
by which they would be denied the protective
mantle of the land registration statute, Act [No.]
496, extended only to purchasers for value and
in good faith, as well as to mortgagees of the
same character and description.
d. In the custody of documents; integrity of
records
- Heirs of Manlapat v. Court of Appeals, G.R. No.
125585, 08 Jun 2005
2. Exception
Spouses Reyes v. Court of Appeals, G.R. No.
118492, 15 Aug 2001
The degree of extraordinary diligence applies
only to cases where banks act under their
fiduciary capacity, that is, as depositary of the
deposits of their depositors. But the same
higher degree of diligence is not expected to be
exerted by banks in commercial transactions
that do not involve their fiduciary relationship
with their depositors.
LAWONSECRECY
OF
BANKDEPOSITS
(R.A. No. 1405, as amended)
Section 28. Subject to reasonable conditions
prescribed by law, the State adopts and
implements a policy of full public disclosure of
all its transactions involving public interest.
B. Prohibited acts
1. Examination of deposits bec. They are
considered confidential in nature
- Exc:
1.) upon written permission of
depositor, or in cases of impeachment;
2.) upon order of a competent court in
cases of bribery or dereliction of duty of
public officials
3.) in cases where the money deposited
or invested is the subject matter of the
litigation.
2. For employees/officials of banking
institutions to disclose to any person
any info - deposits
Section 2. 1 All deposits of whatever nature
with banks or banking institutions in the
Philippines including investments in bonds
issued by the Government of the Philippines, its
political subdivisions and its instrumentalities,
are hereby considered as of an absolutely
confidential nature and may not be examined,
inquired or looked into by any person,
government official, bureau or office, except
upon written permission of the depositor, or in
cases of impeachment, or upon order of a
competent court in cases of bribery or
dereliction of duty of public officials, or in cases
where the money deposited or invested is the
subject matter of the litigation.
Section 3. It shall be unlawful for any official or
employee of a banking institution to disclose to
any person other than those mentioned in
the Section two hereof any information concerning
said deposits.
Sec. 55.1 (b) (RA 8791) Without order of a
court of competent jurisdiction, disclose to any
unauthorized person any information relative to
the funds or properties in the custody of the
bank belonging to private individuals,
corporations, or any other entity: Provided,
That with respect to bank deposits, the
provisions of existing laws shall prevail;
C. Deposits covered (Sec. 2)
All deposits of whatever nature with banks or
banking institutions in the Philippines including
investments in bonds issued by the Government
of the Philippines, its political subdivisions and
its instrumentalities
D. Exceptions
a. Under the Law on Secrecy of Bank
Deposits (Sec. 2, R.A. No. 1405)
1.) except upon written permission of the
depositor, or in cases of impeachment,
2.) upon order of a competent court in cases of
bribery or dereliction of duty of public officials,
3.) in cases where the money deposited or
invested is the subject matter of the litigation.
b. Under the Anti-Graft and Corrupt Practices
Act (Sec. 8 R.A. No. 3019, as amended)
Section 8. Dismissal due to unexplained
wealth. If in accordance with the provisions of
Republic Act Numbered One thousand three
hundred seventy-nine, a public official has been
found to have acquired during his incumbency,
whether in his name or in the name of other
persons, an amount of property and/or money
manifestly out of proportion to his salary and to
his other lawful income, that fact shall be a
ground for dismissal or removal. Properties in
the name of the spouse and unmarried children
of such public official may be taken into
consideration, when their acquisition through
legitimate means cannot be satisfactorily
shown. Bank deposits shall be taken into
consideration in the enforcement of this
section, notwithstanding any provision of law to
the contrary.
c. Under the Ombudsman Act (Sec. 15[8], R.A.
No. 6770)
The Office of the Ombudsman shall have the
following powers, functions and duties:
(8) Administer oaths, issue subpoena and
subpoena duces tecum, and take testimony in
any investigation or inquiry, including the power
to examine and have access to bank accounts
and records
d. Under the Plunder Law (Secs. 1[d] & 4, R.A.
No. 7080, as amended)
d) “Ill-gotten wealth” means any asset,
property, business enterprise or material
possession of any person within the purview of
Section Two (2) hereof, acquired by him directly
or indirectly through dummies, nominees,
agents, subordinates and/or business associates
by any combination or series of the following
means or similar schemes:
1) Through misappropriation, conversion,
misuse, or malversation of public funds or raids
on the public treasury;
2) By receiving, directly or indirectly, any
commission, gift, share, percentage, kickbacks
or any other form of pecuniary benefit from any
person and/or entity in connection with any
government contract or project or by reason of
the office or position of the public officer
concerned;
3) By the illegal or fraudulent conveyance or
disposition of assets belonging to the National
Government or any of its subdivisions, agencies
or instrumentalities or government-owned or -
controlled corporations and their subsidiaries;
4) By obtaining, receiving or accepting directly
or indirectly any shares of stock, equity or any
other form of interest or participation including
the promise of future employment in any
business enterprise or undertaking;
5) By establishing agricultural, industrial or
commercial monopolies or other combinations
and/or implementation of decrees and orders
intended to benefit particular persons or special
interests; or
6) By taking undue advantage of official
position, authority, relationship, connection or
influence to unjustly enrich himself or
themselves at the expense and to the damage
and prejudice of the Filipino people and the
Republic of the Philippines.
e. Under the Anti-Money Laundering Act (Sec.
11, R.A. No. 9160, as amended)
SEC. 11. Authority to Inquire into Bank Deposits.
— Notwithstanding the provisions of Republic
Act No. 1405, as amended; Republic Act No.
6426, as amended; Republic Act No. 8791, and
other laws, the AMLC may inquire into or
examine any particular deposit or investment
with any banking institution or non-bank
financial institution upon order of any
competent court in cases of violation of this Act
when it has been established that there is
probable cause that the deposits or investments
involved are in any way related to a money
laundering offense: Provided, That this
provision shall not apply to deposits and
investments made prior to the effectivity of this
Act.
f. BSP inquiry into or examination of deposits
or investments with any bank, when the
inquiry or examination is made in the course of
the BSP’s periodic or special examination
g. Independent auditor hired by the bank to
conduct its regular audit, provided that the
examination is for audit purposes only and the
results thereof shall be for the exclusive use of
the bank
h. Under the PDIC charter (Sec. 8[8], R.A. No.
3591, as amended)
Section 8. The Corporation as a corporate body
shall have the power to make examination of
and to require information and reports from
banks, as provided in this Act.
i. Under the Anti-Terrorism Act (Sec. 39, R.A.
No. 11479)
Section 39. Bank Officials and Employees
Defying a Court Authorization. - An employee,
official, or a member of the board of directors
of a bank or financial institution, who after
being duly served with the written order of
authorization from the Court of appeals, refuses
to allow the examination of the deposits,
placements, trust accounts, assets, and records
of a terrorist or an outlawed group of persons,
organization or association, in accordance with
Section 25 and 26 hereof, shall suffer the
penalty of imprisonment of four (4) years.
j. Under the National Internal Revenue Code
(Sec. 6[F], Tax Code, as amended)
(F) Authority of the Commissioner to inquire
into Bank Deposit Accounts. - Notwithstanding
any contrary provision of Republic Act No. 1405
and other general or special laws, the
Commissioner is hereby authorized to inquire
into the bank deposits of:
(1) a decedent to determine his gross estate;
and
(2) any taxpayer who has filed an application for
compromise of his tax liability under Sec. 204
(A) (2) of this Code by reason of financial
incapacity to pay his tax liability.
In case a taxpayer files an application to
compromise the payment of his tax liabilities on
his claim that his financial position
demonstrates a clear inability to pay the tax
assessed, his application shall not be considered
unless and until he waives in writing his
privilege under Republic Act No. 1405 or under
other general or special laws, and such waiver
shall constitute the authority of the
Commissioner to inquire into the bank deposits
of the taxpayer.
k. Under the Unclaimed Balances Law (Sec. 3,
R.A. No. 3936, as amended)
l. Under the Rules of Court
i. Garnishment
1. Procedure (Sec. 9[c], Rule 39, Rules of Court)
(c) Garnishment of debts and credits. - The
officer may levy on debts due the judgment
obligor and other credits, including bank
deposits, financial interests, royalties,
commissions and other personal property not
capable of manual delivery in the possession or
control of third parties. Levy shall be made by
serving notice upon the person owing such
debts or having in his possession or control such
credits to which the judgment obligor is
entitled. The garnishment shall cover only such
amount as will satisfy the judgment and all
lawful fees.
The garnishee shall make a written
report to the court within five (5) days from
service of the notice of garnishment stating
whether or not the judgment obligor has
sufficient funds or credits to satisfy the amount
of the judgment. If not, the report shall state
how much funds or credits the garnishee holds
for the judgment obligor. The garnished amount
in cash, or certified bank check issued in the
name of the judgment obligee, shall be
delivered directly to the judgment obligee
within ten (10) working days from service of
notice on said garnishing requiring such
delivery, except the lawful fees which shall be
paid directly to the court.
In the event there are two or more
garnishees holding deposits or credits sufficient
to satisfy the judgment, the judgment obligor, if
available, shall have the right to indicate the
garnishee or garnishees who shall be required
to deliver the amount due; otherwise, the
choice shall be made by the judgment obligee.
The executing sheriff shall observe the
same procedure under paragraph (a) with
respect to delivery of payment to the judgment
obligee.
2. Exempt Deposits
a. Foreign currency deposits (Sec. 8, R.A. No.
6426)
Section 8. Secrecy of foreign currency deposits.
– All foreign currency deposits authorized under
this Act, as amended by PD No. 1035, as well as
foreign currency deposits authorized under PD
No. 1034, are hereby declared as and
considered of an absolutely confidential nature
and, except upon the written permission of the
depositor, in no instance shall foreign currency
deposits be examined, inquired or looked into
by any person, government official, bureau or
office whether judicial or administrative or
legislative, or any other entity whether public or
private; Provided, however, That said foreign
currency deposits shall be exempt from
attachment, garnishment, or any other order or
process of any court, legislative body,
government agency or any administrative body
whatsoever.
b. Under the Rules of Court (Sec. 13, Rule 39,
Rules of Court)
Sec. 13. Property exempt from
execution.
Except as otherwise expressly provided by law,
the following property, and no other, shall be
exempt from execution:
(a) The judgment obligor's family home as
provided by law, or the homestead in which he
resides, and land necessarily used in connection
therewith;
(b) Ordinary tools and implements personally
used by him in his trade, employment, or
livelihood;
(c) Three horses, or three cows, or three
carabaos, or other beasts of burden such as the
judgment obligor may select necessarily used by
him in his ordinary occupation;
(d) His necessary clothing and articles for
ordinary personal use, excluding jewelry;
(e) Household furniture and utensils necessary
for housekeeping, and used for that purpose by
the judgment obligor and his family, such as the
judgment obligor may select, of a value not
exceeding one hundred thousand pesos;
(f) Provisions for individual or family use
sufficient for four months;
(g) The professional libraries and equipment of
judges, lawyers, physicians, pharmacists,
dentists, engineers, surveyors, clergymen,
teachers, and other professionals, not
exceeding three hundred thousand pesos in
value;
(h) One fishing boat and accessories not
exceeding the total value of one hundred
thousand pesos owned by a fisherman and by
the lawful use of which he earns his livelihood;
(i) So much of the salaries, wages, or earnings of
the judgment obligor of his personal services
within the four months preceding the levy as
are necessary for the support of his family;
(j) Lettered gravestones;
(k) Monies benefits, privileges, or annuities
accruing or in any manner growing out of any
life insurance;
(l) The right to receive legal support, or money
or property obtained as such support, or any
pension or gratuity from the Government;
(m) Properties specially exempt by law.
But no article or species of property
mentioned in his section shall be exempt from
execution issued upon a judgment recovered
for its price or upon a judgment of foreclosure
of a mortgage thereon.
c. No violation of Law on Secrecy of Bank
Deposits
China Banking Corp. v. Ortega,
G.R. No. L-34964, 31 Jan 1973
FACTS:
Vicente Acaban won in a civil case for
sum of money against B & B Forest
Development Corporation. To satisfy the
judgment, the Acaban sought the garnishment
of the bank deposit of the B & B Forest
Development Corporation with the China
Banking Corporation (CBC). Accordingly, a
notice of garnishment was issued by the Deputy
Sheriff of the trial court and served on said bank
through its cashier, Tan Kim Liong. Liong was
ordered to inform the Court whether or not
there is a deposit in the CBC of B & B Forest
Development Corporation, and if there is any
deposit, to hold the same intact and not allow
any withdrawal until further order from the
Court. CBC and Liong refuse to comply with a
court process garnishing the bank deposit of a
judgment debtor by invoking the provisions of
Republic Act No. 1405 ( Secrecy of Bank
Deposits Act) which allegedly prohibits the
disclosure of any information concerning to
bank deposits.
ISSUES: Whether or not a banking institution
may validly refuse to comply with a court
processes garnishing the bank deposit of a
judgment debtor, by invoking the provisions of
Republic Act No. 1405.
RULING: NO. The lower court did not order an
examination of or inquiry into deposit of B & B
Forest Development Corporation, as
contemplated in the law. It merely required Tan
Kim Liong to inform the court whether or not
the defendant B & B Forest Development
Corporation had a deposit in the China Banking
Corporation only for the purposes of the
garnishment issued by it, so that the bank
would hold the same intact and not allow any
withdrawal until further order. It is sufficiently
clear that the prohibition against examination
of or inquiry into bank deposit under RA 1405
does not preclude its being garnished to insure
satisfaction of a judgment. Indeed there is no
real inquiry in such a case, and the existence of
the deposit is disclosed the disclosure is purely
incidental to the execution process. It is hard to
conceive that it was ever within the intention of
Congress to enable debtors to evade payment
of their just debts, even if ordered by the Court,
through the expedient of converting their assets
into cash and depositing the same in a bank.
d. Liability for release
Rizal Commercial Banking Corp. v.
De Castro
G.R. No. L-34548, 29 Nov 1988
Facts:
Badoc Planters, Inc. filed an action for
recovery of unpaid tobacco deliveries against
PVTA. Hon. Lourdes P. San Diego, then
Presiding Judge, ordering the defendants
therein to pay jointly and severally, the plaintiff
Badoc Planters, Inc. (hereinafter referred to as
“BADOC”) within 48 hours the aggregate
amount of P206,916.76, with legal interests
thereon. Accordingly, the Branch Clerk of Court
on the very same day, issued a Writ of
Execution addressed to Special Sheriff Faustino
Rigor, who then issued a Notice of Garnishment
addressed to the General Manager and/or
Cashier of Rizal Commercial Banking
Corporation (hereinafter referred to as RCBC).
However, PVTA filed a Motion for
Reconsideration. The Judge set aside the Orders
of Execution and of Payment and the Writ of
Execution and ordering petitioner and BADOC
“to restore, jointly and severally, the account of
PVTA with the said bank in the same condition
and state it was before.
Issues:
1) Whether or not PVTA funds are public funds
not subject to garnishment;
2) Whether or not the respondent Judge
correctly ordered the herein petitioner to
reimburse the amount paid to the Special Sheriff
by virtue of the execution issued pursuant to the
Order/Partial Judgment dated January 15, 1970.
1) Whether or not PVTA funds are public funds
not subject to garnishment;
Republic Act No. 2265 created the PVTA
as an ordinary corporation with all the
attributes of a corporate entity subject to the
provisions of the Corporation Law. Hence, it
possesses the power “to sue and be sued” and
“to acquire and hold such assets and incur such
liabilities resulting directly from operations
authorized by the provisions of this Act or as
essential to the proper conduct of such
operations.” Among the specific powers vested
in the PVTA are: 1) to buy Virginia tobacco
grown in the Philippines for resale to local bona
fide tobacco manufacturers and leaf tobacco
dealers [Section 4(b), R.A. No. 2265]; 2) to
contracts of any kind as may be necessary or
incidental to the attainment of its purpose with
any person, firm or corporation, with the
Government of the Philippines or with any
foreign government, subject to existing laws
[Section 4(h), R.A. No. 22651; and 3) generally,
to exercise all the powers of a corporation
under the Corporation Law, insofar as they are
not inconsistent with the provisions of this Act
[Section 4(k), R.A. No. 2265.]
From the foregoing, it is clear that PVTA
has been endowed with a personality distinct
and separate from the government which owns
and controls it. Accordingly, this Court has
heretofore declared that the funds of the PVTA
can be garnished since “funds of public
corporation which can sue and be sued were
not exempt from garnishment. Inasmuch as the
Tobacco Fund, a special fund, was by law,
earmarked specifically to answer obligations
incurred by PVTA in connection with its
proprietary and commercial operations
authorized under the law, it follows that said
funds may be proceeded against by ordinary
judicial processes such as execution and
garnishment. Garnishment is considered as a
specie of attachment for reaching credits
belonging to the judgment debtor and owing to
him from a stranger to the litigation. Under the
above-cited rule, the garnishee [the third
person] is obliged to deliver the credits, etc. to
the proper officer issuing the writ and “the law
exempts from liability the person having in his
possession or under his control any credits or
other personal property belonging to the
defendant, …, if such property be delivered or
transferred, …, to the clerk, sheriff, or other
officer of the court in which the action is
pending.
2) Whether or not the respondent Judge
correctly ordered the herein petitioner to
reimburse the amount paid to the Special
Sheriff
No. The bank was in no position to
question the legality of the garnishment since it
was not even a party to the case. As correctly
pointed out by the petitioner, it had neither the
personality nor the interest to assail or
controvert the orders of respondent Judge. It
had no choice but to obey the same inasmuch
as it had no standing at all to impugn the
validity of the partial judgment rendered in
favor of the plaintiff or of the processes issued
in execution of such judgment. RCBC cannot
therefore be compelled to make restitution
solidarily with the plaintiff BADOC. Plaintiff
BADOC alone was responsible for the issuance
of the Writ of Execution and Order of Payment
and so, the plaintiff alone should bear the
consequences of a subsequent annulment of
such court orders; hence, only the plaintiff can
be ordered to restore the account of the PVTA.
E. Penalty for violation (Sec. 5)
SECTION 5. Any violation of this law will subject
offender upon conviction, to an imprisonment
of not more than five years or a fine of not
more than twenty thousand pesos or both, in
the discretion of the court.
F. Foreign Currency Deposit Act of the
Philippines (R.A. No. 6426)
a. Coverage/Prohibition (Sec. 8, R.A. No. 6426)
Section 8. Secrecy of foreign currency deposits.
– All foreign currency deposits authorized under
this Act, as amended by PD No. 1035, as well as
foreign currency deposits authorized under PD
No. 1034, are hereby declared as and
considered of an absolutely confidential nature
and, except upon the written permission of the
depositor, in no instance shall foreign currency
deposits be examined, inquired or looked into
by any person, government official, bureau or
office whether judicial or administrative or
legislative, or any other entity whether public or
private; Provided, however, That said foreign
currency deposits shall be exempt from
attachment, garnishment, or any other order or
process of any court, legislative body,
government agency or any administrative body
whatsoever.