banking law case digest (gen. banking law and central bank act)

8/10/2019 Banking Law Case DIGEST (Gen. Banking Law and Central Bank ACT)

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Banking Law case DIGEST

(General banking law and Central Bank Act

cases.)

Banco Filipino vs. Ybaez

Facts

Respondents obtained a loan secured by a mortgage over TCT

69836 from Banco Filipino, to be used for the construction of a

commercial building in Cebu. They obtained an additional

loan, thus increasing their obligation to one million pesos. A

corresponding Amendment of Real Estate Mortgage was

thereafter executed.

Four years later (1982), their loan was again restructured, and

it was increased to 1,225,000, to which a promissory note has

been issued payable in 15 years. The mortgage contract was

again amended. Respondents total payment from 1983 to

1988 amounted to around 1.4m (including

interests/penalties).

From 1989 onwards, respondents did not pay a single centavo.

They alleged that Banco Filipino had ceased operations

and/or was not allowed to continue business, having been

placed under liquidation by the Central Bank.

On January 15, 1990, respondents lawyer wrote Special Acting

Liquidator, Renan Santos, and requested that plaintiff return

the mortgaged property of the respondents since it had

sufficiently profited from the loan and that the interest and

penalty charges were excessive. Petitioner bank denied the

request. Banco Filipino was closed on January 1, 1985 and re-

opened for business on July 1, 1994. From its closure to its re-

opening, petitioner bank did not transact any business with itscustomers.

On August 24, 1994, respondents were served a Notice of Extra

Judicial Sale of their property covered by TCT No. 69836 to

satisfy their indebtedness allegedly of P6,174,337.46 which

includes the principal, interest, surcharges and 10% attorneys

fees. The public auction was scheduled on September 22, 1994

at 2:00 in the afternoon.

On September 19, 1994, respondents filed a suit for

Injunction, Accounting and Damages, alleging that there was

no legal and factual basis for the foreclosure proceedings

since the loan had already been fully paid.

A restraining order was issued the following day by the

lower court enjoining petitioner to cease and desist from

selling the property at a public auction. The trial court ordered

that Banco Filipino shall make a proper accounting of the

obligation of the respondents, reducing the interests and

the surcharge (21 to 17% per annum interests, eliminated

1% surcharge per month), and enjoining the foreclosure,

unless the respondents still failed to pay.

Both petitioners and respondents appealed to the CA. CA

affirmed the decision of the trial court.

Issues

What is the effect of the temporary closure of Banco Filipino

from January 1, 1985 to July 1, 1994 on the loan?

Is the rate of interest set at 21% per annum legal? and

(3) Is the 3% monthly surcharge valid?

Ratio

Effect of temporary closure

In Banco Filipino Savings and Mortgage Bank v. Monetary

Board , the validity of the closure and receivership of Banco

Filipino was put in issue. But the pendency of the case did

not diminish the authority of the designated liquidator to

administer and continue the banks transactions. The Court

allowed the banks liquidator to continue receiving

collectibles and receivables or paying off creditors claims

and other transactions pertaining to normal operations of

a bank. Among these transactions were the prosecution of suits

against debtors for collection and for foreclosure of mortgages.

The bank was allowed to collect interests on its loans

while under liquidation, provided that the interests were

legal. Interests and surcharges

Is the 21% interest rate usurious? NO. We note that at the

time the parties entered into the said loan agreement, the

pertinent law, Act No. 2655, already provided that the rate of

interest for the forbearance of money when secured by a

mortgage upon real estate should not be more than 12%

per annum or the maximum rate prescribed by the

Monetary Board and in force at the time the loan was

granted.

On December 1, 1979, the Monetary Board of the Central Bank

of the Philippines had issued CBP Circular No. 705-79. On loan

transactions with maturities of more than 730 days, it fixed the

effective rate of interest at 21% per annum for both secured

and unsecured loans. Since the loan in question has fixed 15

years for its maturity, it fell within the coverage of said CBP

Circular. Thus, we agree that the 21% interest is not violative

of the Usury Law as it stood at the time of the loan transaction.

As to the monthly surcharge, petitioner relies on CBP

Circular No. 905-82] the ceiling on interest rates prescribed

by the Usury Law, according to petitioner, were expressly

removed.

Petitioner argues that the said circular had retroactive

effect since it is merely procedural in nature. Hence

according to petitioner, the imposition of 3% monthly

surcharge by the bank against the borrower is legal.

NO MERIT. CBP Circular No. 905-82, which was effective

January 1, 1983, did not repeal nor in any way amend the

Usury Law. The Circular simply suspended the effectivity of


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Usury Law. Thus, the retroactive application of a CBP Circular

cannot, and should not, be presumed.

The loan was entered into on December 24, 1982, but CBP

Circular No. 905-82 was given force and effect only on January

1, 1983. Thus, CBP Circular No. 905-82 could not be made

applicable to the loan agreement in this case, and petitioner

could not rely on this Circular for its imposition of 3% monthlysurcharge.

Petitioner also argues that the 3% monthly surcharge partakes

of the nature of a penalty clause. A penal clause is an

accessory undertaking to assume greater liability in case of

breach and is attached to an obligation in order to secure its

performance. The penalty shall substitute the indemnity for

damages and the payment of interests in case of non-

compliance. But if such stipulation is found contrary to law

for being usurious, it can be nullified by the courts

without affecting the principal obligation.

In the loan agreement between the parties in this case,

the total interest and other charges exceed the prescribed

21% ceiling. Hence, the imposition of the 3% monthly

surcharge, as the penal clause to the obligation, violated

the limit imposed by the Usury Law. Said surcharge of 3%

monthly must be declared null and void.

To recapitulate: the respondents principal obligation to pay

the monthly amortization of P22,426, validly subsists. Only the

3% monthly surcharge is void.

The monthly amortization of P22,426, for 15 years, would

amount to P4,036,680. To date, respondents already paid the

amount of P1,455,385.07. Thus, only the outstanding balance

of P2,581,294.93 remains due.

Respondents were given by the RTC 30 days from receiptof decision, within which to pay their outstanding

obligation. We now reiterate that period of 30 days, from

receipt of this Decision, for respondents to pay the amount

of P2,581,294.93 to the bank as full payment of the

outstanding balance on their loan obligation. Otherwise, the

order of injunction restraining petitioner from foreclosing

the property shall be lifted.

PCIB V. CA

350 SCRA 446

FACTS:

Ford Philippines filed actions to recover from the drawee

bank Citibank and collecting bank PCIB the value of

several checks payable to the Commissioner of Internal

Revenue which were embezzled allegedly by an organized

syndicate. What prompted this action was the drawing

of a check by Ford, which it deposited to PCIB as

payment and was debited from their Citibank account. It

later on found out that the payment wasnt received by the

Commissioner. Meanwhile, according to the NBI report, one

of the checks issued by petitioner was withdrawn from PCIB

for alleged mistake in the amount to be paid. This was

replaced with managers check by PCIB, which were

allegedly stolen by the syndicate and deposited in theirown account. The trial court decided in favor of Ford.

ISSUE:

Has Ford the right to recover the value of the checks intended

as payment to CIR?

HELD:

The checks were drawn against the drawee bank but the

title of the person negotiating the same was allegedly

defective because the instrument was obtained by fraud

and unlawful means, and the proceeds of the checks

were not remitted to the payee. It was established thatinstead paying the Commissioner, the checks were diverted

and encashed for the eventual distribution among members of

the syndicate.

Pursuant to this, it is vital to show that the

negotiation is made by the perpetrator in breach of faith

amounting to fraud. The person negotiating the checks

must have gone beyond the authority given by his

principal. If the principal could prove that there was no

negligence in the performance of his duties, he may set up

the personal defense to escape liability and recover from

other parties who, through their own negligence, allowed

the commission of the crime.

It should be resolved if Ford is guilty of the imputed

contributory negligence that would defeat its claim for

reimbursement, bearing in mind that its employees were

among the members of the syndicate. It appears although

the employees of Ford initiated the transactions

attributable to the organized syndicate, their actions

were not the proximate cause of encashing the checks

payable to CIR. The degree of Fords negligence

couldnt be characterized as the proximate cause of the

injury to parties. The mere fact that the forgery was


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committed by a drawer-payors confidential employee or

agent, who by virtue of his position had unusual facilities

for perpetrating the fraud and imposing the forged paper

upon the bank, doesnt entitle the bank to shift the loss to the

drawer-payor, in the absence of some circumstance raising

estoppel against the drawer.

Note: not only PCIB but also Citibank is responsible fornegligence. Citibank was negligent in the performance of

its duties as a drawee bank. It failed to establish its

payments of Fords checks were made in due course and

legally in order.

Rural Bank of San Miguel v Monetary

Board

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

as an exercise of police power. The action of the MB on this

matter is final and executory. Such exercise may nonetheless

be subject to judicial inquiry and can be set aside if found to be

in excess of jurisdiction or with such grave abuse of discretion

as to amount to lack or excess of jurisdiction.

Facts:

Monetary Board (MB), the governing board of respondent

Bangko Sentral ng Pilipinas (BSP), issued Resolution No.

105 prohibiting RBSM from doing business in the

Philippines, placing it under receivership and designating

respondent Philippine Deposit Insurance Corporation

(PDIC) as receiver on the basis of the comptrollership

reports of the banks supervising head. To assist its impaired

liquidity and operations, the RBSM was granted emergency

loans on different occasions in the aggregate amount of P375.As early as November 18, 1998, Land Bank of the Philippines

(LBP) advised RBSM that it will terminate the clearing of

RBSMs checks in view of the latters frequent clearing

losses and continuing failure to replenish its Special Clearing

Demand Deposit with LBP. The BSP interceded with LBP not to

terminate the clearing arrangement of RBSM to protect the

interests of RBSMs depositors and creditors. On the basis of

reports prepared by PDIC stating that RBSM could not

resume business with sufficient assurance of protecting the

interest of its depositors, creditors and the general public, the

MB passed Resolution No. 966 directing PDIC to proceed

with the liquidation of RBSM under Section 30 of RA 7653.

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

Held: No. It is well-settled that the closure of a bank may be

considered as an exercise of police power. The action of the

MB on this matter is final and executory. Such exercise may

nonetheless be subject to judicial inquiry and can be set aside if

found to be in excess of jurisdiction or with such grave abuse of

discretion as to amount to lack or excess of jurisdiction.

This case essentially boils down to one core issue: whether

Section 30 of RA 7653 (also known as the New Central Bank

Act) and applicable jurisprudence require a current and

complete examination of the bank before it can be closed and

placed under receivership. The actions of the Monetary Board

taken under this section or under Section 29 of this Act shall

be final and executory, and may not be restrained or set

aside by the court except on petition for certiorari on theground 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.

Damaso Perez vs. Monetary Board

Being an artificial person, The Central Bank is limited to its

statutory powers and the nearest power to which

prosecution of violators of banking laws may be attributed

is its power to sue and be sued. But this corporate power oflitigation evidently refers to civil cases only. Violations of

banking laws constitute a public offense, the prosecution of

which is a matter of public interest and hence, anyone

even private individuals can denounce such violations

before the prosecuting authorities.

Facts: Damaso Perez, for himself and in a derivative capacity

on behalf of the Republic Bank, instituted mandamus

proceedings in the Court of First Instance of Manila against

the Monetary Board, the Superintendent of Banks, the

Central Bank and the Secretary of Justice. His object was to

compel these respondents to prosecute, among others, Pablo

Roman and several other Republic Bank officials for violations

of the General Banking Act and the Central Bank Act, andfor falsification of public or commercial documents in

connection with certain alleged anomalous loans amounting to

P1,303,400.00 authorized by Roman and the other bank

officials.

Respondents, Monetary Board, the Superintendent of

Banks, the Central Bank and the Secretary of Justice their

respective answers, the propriety of mandamus. The Secretary

of Justice claimed that it was not their specific duty to

prosecute the persons denounced by Perez. The Central Bank

and its respondent officials, on the other hand, averred that

they had already done their duty under the law by referring to

the special prosecutors of the Department of Justice for

criminal investigation and prosecution those cases involving

the alleged anomalous loans.

Issue: Whether or not these respondents may be

compelled to prosecute criminally the alleged violators of

banking laws.

Held:

As for the Secretary of Justice, while he may have the power to

prosecute through the office of the Solicitor General


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criminal cases, yet it is settled rule that mandamus will not lie

to compel a prosecuting officer to prosecute a criminal case in

court.

Perez cannot seek by mandamus to compel respondents to

prosecute criminally those alleged violators of the banking

laws. Although the Central Bank and its respondent officials

may have the duty under the Central Bank Act and theGeneral Banking Act to cause the prosecution of those alleged

violators, yet there is nothing in said laws that impose a clear,

specific duty on the former to do the actual prosecution of the

latter. The Central Bank is a government corporation created

principally to administer the monetary and banking system

of the Republic, not a prosecution agency like the fiscals

office. Being an artificial person, The Central Bank is limited

to its statutory powers and the nearest power to which

prosecution of violators of banking laws may be attributed is

its power to sue and be sued. But this corporate power of

litigation evidently refers to civil cases only. Central Bank and

its officers have already done what they can by referring

the matter to the special prosecutors of the Department of

Justice for prosecution and investigation. Moreover, it is asettled rule that mandamus will not lie to compel a prosecuting

officer, like the Secretary of Justice, to prosecute a case in

court.

Violations of banking laws constitute a public offense, the

prosecution of which is a matter of public interest and

hence, anyone even private individuals can denounce such

violations before the prosecuting authorities. Since Perez

himself could cause the filing of criminal complaints against

those allegedly involved in the anomalous loans, if any, then he

has a plain, adequate and speedy remedy in the ordinary

course of law, which makes mandamus against respondents

improper. Hence, the order of the lower court dismissing

the petition was affirmed.

BPI vs. IAC

Facts: Spouses Arthur & Vivienne Canlas opened a joint

account in Commercial Bank & Trust Comp (CBTC) with

initial deposit of P2,250. Arthur Canlas had an existing

separate personal account in the same branch. Upon

opening the joint account, the new accounts teller pulled out

form the banks files the old and existing signature card of

Arthur Canlas, for ID and reference. By mistake, she placed

the old personal account number of Arthur Canlas on the

deposit slip for the new joint checking account of the spouses

so that the initial deposit of P2,250 for the joint checking

account was miscredited to Arthur's personal account. The

spouses subsequently deposited other amounts in their

joint account. As a consequence, two checks were

dishonored which the Canlas had issued against their joint

account. The bank was unable to contract the spouses

because of a wrong address. Spouses Canlas filed a complaint

for damages against CBTC in CFI Pampanga. During the

pendency of the case, the Bank of the Philippine Islands

(BPI) and CBTC were merged. As the surviving corporation

under the merger agreement and under Section 80 (5) of

the Corporation Code of the Philippines, BPI took over the

prosecution and defense of any pending claims, actions or

proceedings by and against CBTC. RTC Pampanga rendered a

decision against BPI, ordering them to pay actual damages

(P5,000), moral damages (P300,000), and exemplary

damages (P150,000). On appeal, the IAC deleted the actual

damages and reduced the other awardsactual

damages(P50,000), moral damages (P50,000) and exemplary

damages(P50,000).

Issue: Whether or not BPI is guilty of gross negligence in

the handling of the spouses Canlas bank account.

Held:

YES. IAC decision modified by deleting the award of exemplary

damages. The bank is not expected to be infallible but 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, as

may be gathered from the testimony of the bank's lone witness,

Antonio Enciso, who casually declared that "the approving

officer does not have to see the account numbers and all

those things. Those are very petty things for the

approving manager to look into." Unfortunately, it was a "petty

thing," like the incorrect account number that the bank teller

wrote on the initial deposit slip for the newly-opened joint

current account of the Canlas spouses that sparked this half-a-

million-peso damage suit against the bank. While the

bank's negligence may not have been attended with malice

and bad faith, nevertheless, it caused serious anxiety,

embarrassment and humiliation to the private respondents

for which they are entitled to recover reasonable moral

damages.

However, the absence of malice and bad faith renders the

award of exemplary damages improper.


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showing that he was negligent in exercising what was

due in a prudent man which could have otherwise

prevented the loss. Cablizo was never remiss in the

preparation and issuance of the check.

The doctrine of equitable estoppel is inapplicable

against Cablizo. This doctrine states that when one of the

two innocent person, each guiltiness of an intentional or moralwrong, must suffer a loss, it must be borne by the one whose

erroneous conduct, either by omission or commission, was

the cause of the injury. Negligence is never presumed.

Metrobank was actually the one remiss in its duties.

The CA took into consideration that the alterations were

actually visible in the eye and yet the bank allowed

someone not acquainted with the examination of checks to

do the same. Furthermore, it cannot rely on the

indorsement of Westmont Bank of the check. It should

have exercised meticulous care in handling the affairs of its

clients especially if the clients money is involved.

Republic of the Philippines vs. SecurityCredit and Acceptance

An investment company which loans out the money of its

customers, collects the interest and charges a commission to

both lender and borrower, is a bank. It is conceded that a total

of 59,463 savings account deposits have been made by the

public with the corporation and its 74 branches, with an

aggregate deposit of P1,689,136.74, which has been lent out

to such persons as the corporation deemed suitable

therefore. It is clear that these transactions partake of the

nature of banking, as the term is used in Section 2 of the

General Banking Act.

Facts: The Solicitor General filed a petition for quowarranto to dissolve the Security and Acceptance

Corporation, alleging that the latter was engaging in

banking operations without the authority required therefor

by the General Banking Act (Republic Act No. 337). Pursuant

to a search warrant issued by MTC Manila, members of Central

Bank intelligence division and Manila police seized

documents and records relative to the business operations

of the corporation.

After examination of the same, the intelligence division of

the Central Bank submitted a memorandum to the then Acting

Deputy Governor of Central Bank finding that the corporation

is engaged in banking operations. It was found that Security

and Acceptance Corporation established 74 branches inprincipal cities and towns throughout the Philippines; that

through a systematic and vigorous campaign undertaken by

the corporation, the same had managed to induce the public to

open 59,463 savings deposit accounts with an aggregate

deposit of P1,689,136.74; Accordingly, the Solicitor General

commenced this quo warranto proceedings for the dissolution

of the corporation, with a prayer that, meanwhile, a writ of

preliminary injunction be issued ex parte, enjoining the

corporation and its branches, as well as its officers and

agents, from performing the banking operations complained

of, and that a receiver be appointed pendente lite.

Superintendent of Banks of the Central Bank was then

appointed by the Supreme Court as receiver pendente lite of

defendant corporation. In their defense, Security and

Acceptance Corporation averred that the corporation had

filed with the Superintendent of Banks an application for

conversion into a Security Savings and Mortgage Bank,with defendants Zapa, Balatbat, Tanjutco (Pablo and Vito,

Jr.), Soriano, Beltran and Sebastian as proposed directors.

Issue: Whether or not defendant corporation was

engaged in banking operations.

Held. An investment company which loans out the

money of its customers, collects the interest and charges a

commission to both lender and borrower, is a bank. It is

conceded that a total of 59,463 savings account deposits

have been made by the public with the corporation and its 74

branches, with an aggregate deposit of P1,689,136.74, which

has been lent out to such persons as the corporation

deemed suitable therefore. It is clear that these transactionspartake of the nature of banking, as the term is used in Section

2 of the General Banking Act. Hence, defendant corporation has

violated the law by engaging in banking without securing the

administrative authority required in Republic Act No. 337.

That the illegal transactions thus undertaken by defendant

corporation warrant its dissolution is apparent from the

fact that the foregoing misuse of the corporate funds and

franchise affects the essence of its business, that it is willful

and has been repeated 59,463 times, and that its continuance

inflicts injury upon the public, owing to the number of persons

affected thereby.

SALVACION VS. CENTRAL BANKFACTS: Greg Bartelli, an American tourist, was arrested for

committing four counts of rape and serious illegal

detention against Karen Salvacion. Police recovered from

him several dollar checks and a dollar account in the

China Banking Corp. He was, however, able to escape from

prison. In a civil case filed against him, the trial court awarded

Salvacion moral, exemplary and attorneys fees amounting to

almost P1,000,000.00.

Salvacion tried to execute the judgment on the dollar deposit of

Bartelli with the China Banking Corp. but the latter refused

arguing that Section 11 of Central Bank Circular No. 960

exempts foreign currency deposits from attachment,

garnishment, or any other order or process of any court,

legislative body, government agency or any administrative

body whatsoever. Salvacion therefore filed this action for

declaratory relief in the Supreme Court.

ISSUE: Should Section 113 of Central Bank Circular No.

960 and Section 8 of Republic Act No. 6426, as amended by

PD 1246, otherwise known as the Foreign Currency Deposit

Act be made applicable to a foreign transient?


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from a bank at a time when it is insolvent, as its officers

know or are bound to know by the exercise of

reasonable diligence, it has been held that the purchase is

entitled to a preference in the assets of the bank on its

liquidation before the check is paid. Hence, the CA decision is

affirmed with modification that the claim of petitioner

Miranda is entitled to preference in the assets of PSB in its

liquidation.

Simex International (Manila) Inc. vs. Court

of Appeals

A bank may be held liable for damages by reason of its

unjustified dishonor of a check, which caused damage to its

clients credit standing. 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. The bank is a

fiduciary of the depositors money.

Facts: Simex International is a private corporation engaged

in the exportation of food products. It buys these products

from various local suppliers and then sells them abroad to the

Middle East and the United States. Most of its exports are

purchased by the petitioner on credit. Simex was a

depositor of the Far East Savings Bank and maintained a

checking account in its branch in Cubao, Quezon City which

issued several checks against its deposit but was surprised

to learn later that they had been dishonored for

insufficient funds. As a consequence, several suppliers sent

a letter of demand to the petitioner, threatening

prosecution if the dishonored check issued to it was notmade good and also withheld delivery of the order made by

the petitioner. One supplier also cancelled the petitioners

credit line and demanded that future payments be made by it

in cash or certified check. The petitioner complained to the

respondent bank.

Investigation disclosed that the sum of P100,000.00 deposited

by the petitioner on May 25, 1981, had not been credited

to it. The error was rectified only a month after, and the

dishonored checks were paid after they were re-deposited. The

petitioner then filed a complaint in the then Court of First

Instance of Rizal against the bank for its gross and wanton

negligence.

Issue: Whether or not the bank can be held liable for

negligence by reason of its unjustified dishonor of a check

Held: 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.

Article 2205 of the Civil Code provides that actual or

compensatory damages may be received (2) for injury tothe plaintiff s business standing or commercial credit.

There is no question that the petitioner did sustain actual

injury as a result of the dishonored checks and that the

existence of the loss having been established absolute

certainty as to its amount is not required. 7 Such injury

should bolster all the more the demand of the petitioner for

moral damages and justifies the examination by this Court of

the validity and reasonableness of the said claim.

banking law case digest (gen. banking law and central bank act)

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