HUERTA ALBA RESORT, INC. vs. CA & nd SYNDICATED MANAGEMENT GROUP, INC. September 1, 2000Private respondent instituted a civil case as mortgagee-

assignee of a loan amounting to P8.5 million obtained by petitionerfrom Intercon. In a complaint for judicial foreclosure of mortgage private respondent sought the foreclosure of (4) parcels

of land mortgaged by petitioner to Intercon Fund Resource, Inc. (“Intercon”), which was granted by the CA. On September6, 1994, private respondent was declared the highest bidder

during the auction sale and the Certificate of Sale issued in itsfavor was registered on October 21, 1994. in opposition to the Motion for Issuance of Writ of Possession, petitioner filed aMotion to Compel

Private Respondent to Accept Redemption on May 2, 1995 ,invoking for the very first time its alleged rightto redeem subject properties under to Section 78 of R.A. No. 337 (General Banking Act).

Section 78 of R.A. No. 337 provides that “in case of a foreclosure of amortgage in favor of a bank, banking or creditinstitution, whether judicially or extrajudicially, the mortgagor shall have the right, within one year

after the sale of the realestate as a result of the foreclosure of the respective mortgage, to redeem the property.”  ISSUE: whether petitioner had the right of redemption or equity of

redemption over subject properties.HELD: From the various decisions, resolutions and orders a quo , petitioner has been adjudged to have was only the equityof redemption over subject properties.

The right of redemption in relation to a mortgage - understood in the sense of aprerogative to re-acquire mortgaged property after registration of the foreclosure sale - exists only in the

case of theextrajudicial foreclosure of the mortgage. No such right is recognized in a judicial foreclosure except only where themortgagee is the Philippine National Bank or a bank or banking

institution. Where a mortgage is foreclosed extrajudicially, Act 3135 grants to the mortgagor the right of redemption within one (1) year from the registration of the sheriff’s certificate

of foreclosure sale.In light of the aforestated facts, it was too late in the day for petitioner to invoke a right to redeem under Section 78 of R.A.No. 337. Thus, the claim that petitioner is entitled to the beneficial

provisions of the said law -since private respondent’spredecessor-in-interest is a credit institution - is in the nature of a compulsory counterclaim which should have been averred

in petitioner’s answerto the compliant for judicial foreclosure.There then existed only what is known as the equity of redemption, which is simply the right of the petitioner to extinguishthe

mortgage and retain ownership of the property by paying the secured debt within the 90-day period after the judgmentbecame final. There being an explicit finding on the part of the CA - that the petitioner failed to

exercise its equity of redemption within the prescribed period, redemption can no longer be effected. 

Spouses Ricardo Rosales and Erlinda Sibug vs Spouses Alfonso and Lourdes SubaThe spouses Ricardo Rosales and Erlinda Sibug were indebted to a certain Felicisimo Macaspac. Later, Macaspac sued the spouses for their failure to pay. During trial, it was found out that there existed an equitable mortgage between the spouses and Macaspac. The court ordered the spouses to pay Macaspac and if they fail to do so, their property shall be foreclosed.

The spouses failed to pay Macaspac hence the court ordered the sale at a public auction of their land in May 1998. The highest bidder was the spouses Alfonso and Lourdes Suba. In June 1998, the trial court issued an order confirming the sale made to the spouses Suba. The spouses Rosales then filed a motion for reconsideration. The trial court ruled against their motion as it ruled that there is no right of redemption in judicial foreclosures. The Court of Appeals affirmed the decision of the trial court.

ISSUE: Whether or not the debtor-mortgagor can exercise the right of redemption in judicial foreclosure.

HELD: No. There is no right of redemption in judicial foreclosure. What can be exercised is equity of redemption.

Equity of redemption is simply the right of the mortgagor to extinguish the mortgage and retain ownership of the property by paying the secured debt within the 90-day period after the judgment becomes final, in accordance with Rule 68 of the Rules of Court, or even after the foreclosure sale but prior to its confirmation by the court (prior to the court’s confirmation of the sale).

In this case, unfortunately, the spouses Rosales never exercised their equity of redemption.

When can equity of redemption be exercised?

The mortgagor may exercise his equity of redemption even beyond the 90-day period ‘from the date of service of the order,’ and even after the foreclosure sale itself, provided it be before the order of confirmation of the sale.

Are there any exceptions to the rule that “there is no right of redemption in judicial foreclosure”?

Yes, the only exemption is when the mortgagee is the Philippine National Bank or a bank or a banking institution. In such cases, the mortgagor can exercise the right of redemption.

UCPB vs Spouses Beluso

GR No. 159912, August 17, 2007

Ponente: Chico-Nazario, J.

Facts:

1. Petition for Review on Certiorari declaring void the interest rate provided in the promissory notes executed by the respondents Spouses Samuel and Odette Beluso (spouses Beluso) in favor of petitioner United Coconut Planters Bank (UCPB)

2. UCPB granted the spouses Beluso a Promissory Notes Line under a Credit Agreement whereby the latter could avail from the former credit of up to a maximum amount of P1.2 Million pesos for a term ending on 30 April 1997. The spouses Beluso constituted, other than their promissory notes, a real estate mortgage over parcels of land in Roxas City, covered by Transfer Certificates of Title No. T-31539 and T-27828, as additional security for the obligation. The Credit Agreement was subsequently amended to increase the amount of the Promissory Notes Line to a maximum of P2.35 Million pesos and to extend the term thereof to 28 February 1998.

3. On 30 April 1997, the payment of the principal and interest of the latter two promissory notes were debited from the spouses Beluso’s account with UCPB; yet, a consolidated loan for P1.3 Million was again released to the spouses Beluso under one promissory note with a due date of 28 February 1998. To completely avail themselves of the P2.35 Million credit line extended to them by UCPB, the spouses Beluso executed two more promissory notes for a total of P350,000.00. However, the spouses Beluso alleged that the amounts covered by these last two promissory notes were never released or credited to their account and, thus, claimed that the principal indebtedness was only P2 Million.

4. The spouses Beluso, however, failed to make any payment of the foregoing amounts.5. On 2 September 1998, UCPB demanded that the spouses Beluso pay their total obligation

of P2,932,543.00 plus 25% attorney’s fees, but the spouses Beluso failed to comply therewith. On 28 December 1998, UCPB foreclosed the properties mortgaged by the spouses Beluso to secure their credit line, which, by that time, already ballooned to P3,784,603.00.

6. On 9 February 1999, the spouses Beluso filed a Petition for Annulment, Accounting and Damages against UCPB with the RTC of Makati City.

7. Trial court declared in its judgment that: a. the interest rate used by [UCPB] void b. the foreclosure and Sheriff’s Certificate of Sale void c. UCPB is ordered to return to [the spouses Beluso] the properties subject of the foreclosured. UCPB to pay [the spouses Beluso] the amount of P50,000.00 by way of attorney’s feese. UCPB to pay the costs of suit. f. Spouses Beluso] are hereby ordered to pay [UCPB] the sum of P1,560,308.00.

8. Court of Appeals affirmed Trial court's decision subject to the modification that defendant-appellant UCPB is not liable for attorney’s fees or the costs of suit.

ISSUES:1. Whether or not interest rate stipulated was voidYes, stipulated interest rate is void because it contravenes on the principle of mutuality of contracts and it violates the Truth in lending Act.

The provision stating that the interest shall be at the “rate indicative of DBD retail rate or as determined by the Branch Head” is indeed dependent solely on the will of petitioner UCPB. Under such provision, petitioner UCPB has two choices on what the interest rate shall be: (1) a rate indicative of the DBD retail rate; or (2) a rate as determined by the Branch Head. As UCPB is given this choice, the rate should be categorically determinable in both choices. If either of these two choices presents an opportunity for UCPB to fix the rate at will, the bank

can easily choose such an option, thus making the entire interest rate provision violative of the principle of mutuality of contracts.

In addition, the promissory notes, the copies of which were presented to the spouses Beluso after execution, are not sufficient notification from UCPB. As earlier discussed, the interest rate provision therein does not sufficiently indicate with particularity the interest rate to be applied to the loan covered by said promissory notes which is required in TRuth in Lending Act

2. Whether or not Spouses Beluso are subject to 12% interest and compounding interest stipulations even if declared amount by UCPB was excessive.

Yes. Default commences upon judicial or extrajudicial demand.[26] The excess amount in such a demand does not nullify the demand itself, which is valid with respect to the proper amount. There being a valid demand on the part of UCPB, albeit excessive, the spouses Beluso are considered in default with respect to the proper amount and, therefore, the interests and the penalties began to run at that point. As regards the award of 12% legal interest in favor of petitioner, the RTC actually recognized that said legal interest should be imposed, thus: “There being no valid stipulation as to interest, the legal rate of interest shall be charged.” [27] It seems that the RTC inadvertently overlooked its non-inclusion in its computation. It must likewise uphold the contract stipulation providing the compounding of interest. The provisions in the Credit Agreement and in the promissory notes providing for the compounding of interest were neither nullified by the RTC or the Court of Appeals, nor assailed by the spouses Beluso in their petition with the RTC. The compounding of interests has furthermore been declared by this Court to be legal.

3. Whether or not foreclosure was voidNo. The foreclosure proceedings are valid since there was a valid demand made by UCPB upon the spouses Beluso. Despite being excessive, the spouses Beluso are considered in default with respect to the proper amount of their obligation to UCPB and, thus, the property they mortgaged to secure such amounts may be foreclosed. Consequently, proceeds of the foreclosure sale should be applied to the extent of the amounts to which UCPB is rightfully entitled.

THE CONSOLIDATED BANK (SOLIDBANK) vs. COURT OF APPEALS, GEORGE AND GEORGE TRADE, INC., GEORGE KING TIM PUA and PUA KE SENG G.R. No. 91494 July 14, 1995Justice Quiason

FACTS OF THE CASE:

Defendant George and George Trade Inc., through defendant George King Tim Pua, obtained a loan of P300,000.00 from the plaintiff, for which defendant George King Tim Pua executed a promissory note on behalf of defendant corporation, with defendants George King Tim Pua and Pua Ke Seng as co-makers, which loan bears an interest of 13.23% per annum.

On April 19, 1979, defendant George and George Trade Inc., through defendant George King Tim Pua, applied for, and was granted, another loan of P200,000.00 from the plaintiff bank, for which defendant George King Tim Pua executed a promissory note on behalf of defendant corporation, with defendants George King Tim Pua and Pua Ke Seng as co-makers, which loan bears an interest of 14% per annum and is payable on May 21, 1979.

On August 2, 1979, defendant George and George Trade Inc., through defendant George King Tim Pua, once more secured a loan for P150,000.00, for which defendant George King Tim Pua executed a promissory note on behalf of defendant corporation, with defendants George King Tim Pua and Pua Ke Seng as co-makers, which loan bears an interest of 14% per annum and is payable on September 17, 1979.

The three promissory notes covering loans in the corporate account of defendant George and George Trade Inc. provides also that in case of default of payment, the defendants agree to pay interest at an increased rate of 14% per annum on the amount due, compounded monthly, until fully paid, as well as an additional sum equivalent to 10% of the total amount due as and for attorney's fees in addition to expenses and costs of suit, such amount to bear interest at the rate of 1% per month until paid.

Under the two promissory notes the defendants further bound themselves to pay a penalty at the rate of 3% per annum on the amount due until fully paid. According to petitioner bank, after it had deducted from the insurance proceeds the entirety of respondent George King Tim Pua's personal account, there remained of the insurance proceeds the amount of P383,302.42. It then proceeded to apply said amount to the unpaid loans of respondent George and George Trade, Inc. which amounted to P671,772.22 as of September 7, 1979, thus leaving a balance of P288,469.80 of the loans.

Hence, Petitioner instituted an action against private respondents for the recovery of the unpaid balances on the three promissory notesISSUE OF THE CASE:

Whether or not compounded interest are proper.Whether or not the handling charge imposed by the bank are legal

RULING OF THE SUPREME COURT:

No. Decision of the Court of Appeals is AFFIRMED with the MODIFICATION that the amount which petitioner is ordered to reimburse respondent George King Tim Pua is reduced to THREE THOUSAND SIX HUNDRED SIXTEEN & 65/100 PESOS (P3,616.65), with legal interest thereon from September 8, 1979 until said amount is fully paid.

RATIONALE:

All of these loans bore a 14% rate of interest, which was to be compounded monthly, in case of failure on the part of respondent George King Tim Pua to pay on maturity. In which case, he further undertook to pay an additional sum equivalent to 10% of the total amount due but in no case less than P200.00 as attorney's fees. The maturity dates of the loans were extended up to either December 1 or December 5, 1977 and all interests were paid up to March 5, 1978.

The first loan bore an annual interest of 13.23%, which was to be increased to 14% in case of failure to pay on due date, compounded monthly, until fully paid. An additional amount equivalent to 10% of the total amount but not less than P200.00 was to be imposed in case of failure to pay on due date as attorney's fees. The second and third loans bore an interest rate of 14% per annum and carried a penalty of 3% per annum on the amount due in case of failure to pay on the date of maturity. An additional sum equivalent to 10% of the total amount due, but not less than P200.00, was to be imposed as and for attorney's fees. Interests were paid on the loans up to their date of maturity.

The 14% interest rate charged by petitioner was within the limits set by Section 3 of the Usury Law, as amended. The charging of compounded interest has been held as proper as long as the payment thereof has been agreed upon by the parties. In Mambulao Lumber Company v. Philippine National Bank, 22 SCRA 359 (1968), SC ruled that the parties may, by stipulation, capitalize the interest due and unpaid, which as added principal shall earn new interest. In the instant case, private respondents agreed to the payment of 14% interest  per annum, compounded monthly, should they fail to pay the principal loan on the date of maturity.

As to handling charges, banks are authorized under Central Bank CircularNo. 504 to collect such charges on loans over P500,000.00 with a maturity of 730 days or less at the rate of 2%  per annum, on the principal or the outstanding balance thereof, whichever is lower; 1.75% on loans over P500,000.00 but not over P1,000,000.00; 1.50% on loans over P1,000,000.00 but not over 2,000,000.00, etc. Section 7 of the same Circular, however, provides that all banks and non-bank financial intermediaries authorized to engage in quasi-banking functions are required to strictly adhere to the provisions of Republic Act No. 3765 otherwise known as the "Truth in Lending Act" and shall make the true and effective cost of borrowing an integral part of every loan contract. The promissory notes signed by private respondents do not contain any stipulation on the payment of handling charges. Petitioner bank cannot, therefore, charge private respondents such handling charges.

The payment of penalty is sanctioned by law, although the penalty may be reduced by the courts if it is iniquitous or unconscionable (Equitable Banking Corporation v. Liwanag, 32 SCRA 293 [1970]). The payment of penalty was provided for under the terms and conditions of the promissory notes for Loans B and C of George and George Trade, Inc. The penalty actually imposed, being only 3% per annum of the unpaid balance of the principal of said Loan B, is considered reasonable and proper.

SAMPAGUITA BUILDERS v PNBMini digest:Sampaguita loaned money from PNB. PNB unilaterallyincreased rates of  interest in the loan w/o informing Sampaguita.  PNBc l a i m e d   t h e y   w e r e   a u t h o r i z e d t o   d o i t   a s t h e r e w a s a   c l a u s e i n   t h e agreement that they may do so. Besides, Usury law was no longer in force= SC said NO! PNB cannot do so; it will violate mutuality of contracts under1 3 0 8 .   B e s i d e s ,   S C   m a y   i n t e r v e n e   w h e n   a m o u n t   o f   i n t e r e s t  i s unconscionable.Facts:Sampaguita secured a loan from PNB in an aggregate amount of 8M pesos,mortgaging the properties of Sampaguita’s president and chairman of theb o a r d .   S a m p a g u i t a   a l s o   e x e c u t e d   s e v e r a l   p r o m i s s o r y   n o t e s   d u e   o n different dates (payment dates). The first promissory note had 19.5%interest rate. The 2ndand 3rdhad 21.5%. a uniform clause therein permittedPNB to increase the rate “within the limits allowed by law at any timedepending on whatever policy it may adopt in the future x x x,” withouteven giving prior notice to petitioners. There was also a clause in thepromissory note that stated that if the same is not paid 2 years after release then it shall be converted to a medium term loan – and the interestrate for such loan would apply.Later on, Sampaguita defaulted on its payments and failed to comply withobligations on promissory notes. Sampaguita thus requested for a 90 dayextension to pay the loan. Again they defaulted, so they asked for loan restructuring. It partly paid the loan and promised to pay the balance latero n .   A G A I N   t h e y   f a i l e d   t o   p a y   s o   P N B   e x t r a j u d i c i a l l y   f o r e c l o s e d   t h e mortgaged properties. It was sold for 10M. PNB claimed that Sampaguitaowed it 12M so they fi led a case in court asking sampaguita to pay fordeficiency.RTC found that Sampaguita was automatically entitled to the debt relief package of PNB and ruled that the latter had no cause of action against theformer. CA reversed, saying Sampaguita was not entitled, thus orderedthem to pay the deficiency – Appeal = Went to SC. Sampaguita claims theloan wasbloateds o   t h e y   d o n ’ t r e a l l y   o w e P N B   a n y m o r e ,   b u t i t   j u s t overcharged them!Issues/Ruling:W/N the loan accounts are bloated: YES. There is no deficiency; there is actually an overpayment of more than 3M based on the computation of theSC.Whether PNB could unilaterally increase interest rates: NORatio:Sampaguita’s accessory duty to pay interest did not give PNB unrestrainedfreedom to charge any rate other than that which was agreed upon. Nointerest shall be due, unless expressly stipulated in writing. It would be thez e n i t h   o f   f a r c i c a l i t y   t o   s p e c i f y   a n d a g r e e u p o n   r a t e s   t h a t   c o u l d   b e subsequently upgraded at whim by only one party to the agreement.  T h e   “ u n i l a t e r a l   d e t e r m i n a t i o n   a n d   i m p o s i t i o n ”   o f   i n c r e a s e d   r a t e s  i s “violative of the principle of mutuality of contracts ordained in Article 1308of the Civil Code.” One-sided impositions do not have the force of lawbetween the  parties, because such impositions are not based on theparties’ essential equality.Although escalation clauses are valid in maintaining fiscal stability andretaining the value of money on long-term contracts, giving respondent anunbridled right to adjust the interest independently and upwardly wouldcompletely take away from petitioners the “right to assent to an importantmodification in their agreement” and would also negate the element of  mutuality in their contracts. The clause cited earlier made the fulfillmentof the contracts “dependent exclusively  upon the uncontrolled will” of respondent and was therefore void.  Besides, the pro forma promissorynotes have the character of a contract d’adhésion, “where the parties don o t   b a r g a i n   o n   e q u a l   f o o t i n g ,   t h e   w e a k e r   p a r t y ’ s   [ t h e  d e b t o r ’ s ] participation being reduced to the alternative ‘to take it or leave it.’”C i r c u l a r   t h a t   l i f t e d t h e   c e i l i n g   o f   i n t e r e s t   r a t e s   o f   u s u r y   l a w d i d

notauthorize either party to unilaterally raise the interest rate without the other’s consent.the interest ranging from 26 percent to 35 percent in the statements of  account -- “must be equitably reduced for being iniquitous, unconscionableand exorbitant.” Rates found to be iniquitous or unconscionable are void,as if it there were no express contract thereon. Above all, it is undoubtedlyagainst public policy to charge excessively for the use of money.It cannot be argued that assent to the increases can be implied either fromthe June 18, 1991 request of petitioners for loan restructuring or from theirlack of response to the statements of account sent by respondent. Suchrequest does not indicate any agreement to an interest increase; there canbe no implied waiver of a right when there is no clear, unequivocal anddecisive act  showing such purpose. Besides, the statements were notletters of information sent to secure their conformity; and even if we wereto presume these as an offer, there was no acceptance. No one receivinga   p r o p o s a l   t o   m o d i f y   a   l o a n   c o n t r a c t ,   e s p e c i a l l y   i n t e r e s t   - -   a  v i t a l component -- is “obliged to answer the proposal.”Besides, PNB did not comply with its own stipulation that should the loannot be paid 2 years after release of money then it shall be converted to amedium term loan.*Court applied 12% interest rate instead for being a forbearance of money(there were some pieces of evidence presented by PNB in court thatsampaguita objected to. Lower courts overruled the objections but SC saidt h e   o b j e c t i o n s   w e r e   c o r r e c t   a n d t h e   e v i d e n c e   s h o u l d   n o t   h a v e   b e e n admitted. i.e. contract wasn’t signed by the parties, a part of the contractwasn’t properly annexed/no reference was made in the main contract.)In addition to the preceding discussion, it is then useless to labor the pointt h a t   t h e   i n c r e a s e   i n   r a t e s   v i o l a t e s   t h e   i m p a i r m e n t   c l a u s e   o f  t h e Constitution, because the sole purpose of this provision is to safeguard theintegrity of valid contractual agreements against unwarranted interferenceby the State in the form of laws. Private individuals’ intrusions on interestrates is governed by statutory enactments like the Civil Code

RCBC vs. Hi-Tri Development Corp. and Luz R. Bakunawa, G.R. No. 192413, June 13, 2012

Facts:

Millan paid the spouses Bakunawa P1,019,514.29 as down payment for the purchase of six (6) lots with the Spouses Bakunawa giving Millan the Owner’s Copies of TCTs of said lots.

Due to some obstacles, the sale did not push through; so Spouses Bakunawa rescinded the sale and offered to return to Millan her down. However, Millan refused to accept back the down payment. Consequently, the Spouses Bakunawa, through their company, Hi-Tri took out on October 28, 1991, a Manager’s Check from RCBC-Ermita in the amount of P 1,019,514.29, payable to Millan’s company Rosmil and used this as one of their basis for a complaint against Millan.

The Spouses Bakunawa retained custody of RCBC Manager’s Check and refrained from cancelling or negotiating it. Millan was also informed that the Manager’s Check was available for her withdrawal, she being the payee.

On January 31, 2003, without the knowledge of Spouses Bakunawa, RCBC reported the "P 1,019,514.29-credit existing in favor of Rosmil to the Bureau of Treasury as among its "unclaimed balances" as of January 31, 2003. On December 14, 2006, the Republic, through the Office of the Solicitor General (OSG), filed with the RTC the action for Escheat.

On April 30, 2008, Spouses Bakunawa settled amicably their dispute with Millan. Spouses Bakunawa tried to recover the P1,019,514.29 under Manager’s Check but they were informed that the amount was already subject of the escheat proceedings before the RTC.

The trial court ordered the deposit of the escheated balances with the Treasurer and credited in favor of the Republic. Respondents claim that they were not able to participate in the trial, as they were not informed of the ongoing escheat proceedings. Later motion for reconsideration was denied.

CA reversed the RTC ruling. CA pronounced that RTC Clerk of Court failed to issue individual notices directed to all persons claiming interest in the unclaimed balances. CA held that the Decision and Order of the RTC were void for want of jurisdiction.

Issue:

Whether or not the allocated funds may be escheated in favor of the Republic

Held:

There are sufficient grounds to affirm the CA on the exclusion of the funds allocated for the payment of the Manager’s Check in the escheat proceedings.

An ordinary check refers to a bill of exchange drawn by a depositor (drawer) on a bank (drawee), requesting the latter to pay a person named therein (payee) or to the order of the payee or to the bearer, a named sum of money. The issuance of the check does not of itself operate as an assignment of any part of the funds in the bank to the credit of the drawer. Here, the bank becomes liable only after it accepts or certifies the check. After the check is accepted for payment, the bank would then debit the amount to be paid to the holder of the check from the account of the depositor-drawer.

There are checks of a special type called manager’s or cashier’s checks. These are bills of exchange drawn by the bank’s manager or cashier, in the name of the bank, against the bank itself. Typically, a manager’s or a cashier’s check is procured from the bank by allocating a particular amount of funds to be debited from the depositor’s account or by directly paying or depositing to the bank the value of the check to be drawn. Since the bank issues the check in its name, with itself as the drawee, the check is deemed accepted in advance. Ordinarily, the check becomes the primary obligation of the issuing bank and constitutes its written promise to pay upon demand.

Nevertheless, the mere issuance of a manager’s check does not ipso facto work as an automatic transfer of funds to the account of the payee. In case the procurer of the manager’s or cashier’s check retains custody of the instrument, does not tender it to the intended payee, or fails to make an effective delivery, we find the following provision on undelivered instruments under the Negotiable Instruments Law applicable:

Sec. 16. Delivery; when effectual; when presumed. – Every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto. As between immediate parties and as regards a remote party other than a holder in due course, the delivery, in order to be effectual, must be made either by or under the authority of the party making, drawing, accepting, or indorsing, as the case may be; and, in such case, the delivery may be shown to have been conditional, or for a special purpose only, and not for the purpose of transferring the property in the instrument. But where the instrument is in the hands of a holder in due course, a valid delivery thereof by all parties prior to him so as to make them liable to him is conclusively presumed. And where the instrument is no longer in the possession of a party whose signature appears thereon, a valid and intentional delivery by him is presumed until the contrary is proved.

Petitioner acknowledges that the Manager’s Check was procured by respondents, and that the amount to be paid for the check would be sourced from the deposit account of Hi-Tri. When Rosmil did not accept the Manager’s Check offered by respondents, the

latter retained custody of the instrument instead of cancelling it. As the Manager’s Check neither went to the hands of Rosmil nor was it further negotiated to other persons, the instrument remained undelivered. Petitioner does not dispute the fact that respondents retained custody of the instrument.

Since there was no delivery, presentment of the check to the bank for payment did not occur. An order to debit the account of respondents was never made. In fact, petitioner confirms that the Manager’s Check was never negotiated or presented for payment to its Ermita Branch, and that the allocated fund is still held by the bank. As a result, the assigned fund is deemed to remain part of the account of Hi-Tri, which procured the Manager’s Check. The doctrine that the deposit represented by a manager’s check automatically passes to the payee is inapplicable, because the instrument – although accepted in advance – remains undelivered. Hence, respondents should have been informed that the deposit had been left inactive for more than 10 years, and that it may be subjected to escheat proceedings if left unclaimed.

SECOND DIVISION   PHILIPPINE DEPOSITINSURANCE CORPORATION(PDIC),                                       Petitioner,

   

                  - versus - 

  

PHILIPPINE COUNTRYSIDERURAL BANK, INC., RURALBANK OF CARMEN (CEBU),INC., BANK OF EAST ASIA(MINGLANILLA, CEBU), INC.,and PILIPINO RURAL BANK (CEBU), INC.,

Respondents.

G.R. No. 176438 Present: CARPIO, J., Chairperson,NACHURA,PERALTA,ABAD, andMENDOZA, JJ.       Promulgated: January 24, 2011

 x ----------------------------------------------------------------------------------------x 

D E C I S I O N 

MENDOZA, J.:            This is a petition for review on certiorari under Rule 45 of the Rules of Court filed by the Philippine Deposit Insurance Corporation (PDIC) assailing the September 18, 2006 Decision of the Court of Appeals-Cebu (CA-Cebu), which granted the petition for injunction filed by respondents Philippine Countryside Rural Bank, Inc. (PCRBI), Rural Bank of Carmen (Cebu), Inc. (RBCI), Bank of East Asia (Minglanilla, Cebu), Inc. (BEAI), and Pilipino Rural Bank (Cebu),

Inc. (PRBI), all collectively referred to as “Banks.”  The dispositive portion of the CA-Cebu decision reads: 

WHEREFORE, in view of all the foregoing premises, the petition for injunction is hereby GRANTED.  The respondent PDIC is restrained from further conducting investigations or examination on petitioners-banks without the requisite approval from the Monetary Board.

 SO ORDERED.[1]

                     In a resolution dated January 25, 2007, the CA-Cebu denied petitioner’s motion for reconsideration for “lack of merit.”[2]

 THE FACTS

           On March 9, 2005, the Board of Directors of the PDIC (PDIC Board) adopted Resolution No. 2005-03-032[3]  approving  the conduct  of  an investigation, in accordance with Section 9(b-1) of Republic Act (R.A.) No. 3591, as amended, on the basis of the Reports of Examination of the Bangko Sentral ng Pilipinas (BSP) on ten (10) banks, four (4) of which are respondents in this petition for review.  The said resolution also created a Special Investigation Team to conduct the said investigation, with the authority to administer oaths, to examine, take and preserve testimony of any person relating to the subject of the investigation, and to examine pertinent bank records.             

On May 25, 2005, the PDIC Board adopted another resolution, Resolution No. 2005-05-056,[4] approving the conduct of an investigation on PCRBI based on a Complaint-Affidavit filed by a corporate depositor, the Philippine School of Entrepreneurship and Management (PSEMI) through its president, Jacinto L. Jamero.

           On June 3, 2005, in accordance with the two PDIC Board resolutions, then PDIC President and Chief Executive Officer Ricardo M. Tan issued the Notice of Investigation[5] to the President or The Highest Ranking Officer of PCRBI.           On June 7, 2005, the PDIC Investigation Team personally served the Notice of Investigation on PCRBI at its Head Office in Pajo, Lapu-Lapu City.[6]

           According to PDIC, in the course of its investigation, PCRBI was found to have granted loans to certain individuals, which were settled by way of dacion of properties.  These properties, however, had already been previously foreclosed and consolidated under the names of PRBI, BEAI and RBCI.[7]

           On June 15, 2005, PDIC issued similar notices of investigation to PRBI[8] and BEAI.[9]

              The notices stated that the investigation was to be conducted pursuant to Section 9 (b-1) of the PDIC Charter and upon authority of PDIC Board Resolution No. 2005-03-032 authorizing the twelve (12) named representatives of PDIC to conduct the investigation.[10]

           The investigation was sought because the Banks were found to be among the ten (10) banks collectively known as “Legacy Banks.”  The Reports of General and Special Examinations of the BSP as of June 30,  2004, disclosed, among others, that the Legacy Banks were commonly owned and/or controlled by Legacy Plans Inc. (now Legacy Consolidated Plans, Inc.), and Celso Gancayco delos Angles, Jr. and his family.[11]

           The notice of investigation was served on PRBI the next day, June 16, 2005.[12]

           On June 25, 2005, a separate notice of investigation[13] was served on RBCI.  The latter provided the PDIC Investigation Team with certified copies of

the loan documents they had requested, until its president received an order directing him not to allow the investigation.[14]

           Subsequently, PRBI and BEAI refused entry to their bank premises and access to their records and documents by the PDIC Investigation Team, upon advice of their respective counsels.[15]

              On June 16 and 17, 2005, Atty. Victoria G. Noel (Atty. Noel) of the Tiongson & Antenor Cruz Law Office sent letters to the PDIC[16] informing it of her legal advice to PCRBI and BEAI not to submit to PDIC investigation on the ground that its investigatory power pursuant to Section 9(b-1) of R.A. No. 3591, as amended(An Act Establishing The Philippine Deposit Insurance Corporation, Defining Its Powers And Duties And For Other Purposes), cannot be differentiated from the examination powers accorded to PDIC under Section 8, paragraph 8 of the same law, under which, prior approval from the Monetary Board is required.            On June 17, 2005, PDIC General Counsel Romeo M. Mendoza sent a reply to Atty. Noel stating that “PDIC’s investigation power, as distinguished from the examination power of the PDIC under Section 8 of the same law, does not need prior approval of the Monetary Board.”[17]  PDIC then urged PRBI and BEAI “not to impede the conduct of PDIC’s investigation” as the same “constitutes a violation of the PDIC Charter for which PRBI and BEAI may be held criminally and/or administratively liable.”[18]

           On June 27 and 28, 2005, the Banks, through counsel, sought further clarification from PDIC on its source of authority to conduct the impending investigations and requested that PDIC refrain from proceeding with the investigations.[19]

            

          Simultaneously, the Banks wrote to the Monetary Board requesting a clarification on the parameters of PDIC’s power of investigation/examination over the Banks and for an issuance of a directive to PDIC not to pursue the investigations pending the requested clarification.[20]

           On June 28, 2005, PRBI and BEAI again received letters from PDIC, dated June 24, 2005, which appeared to be final demands on them to allow its investigation.[21]  PRBI and BEAI replied that letters of clarification had been sent to PDIC and the Monetary Board.[22]  Pending action on such requests, PDIC was requested to refrain from proceeding with the investigation.[23]

           Notwithstanding, on July 11, 2005, the Banks received a letter, dated July 8, 2005, from the PDIC General Counsel reiterating its position that prior Monetary Board approval was not a pre-requisite to PDIC’s exercise of its investigative power.[24]

           Not in conformity, on July 28, 2005, the Banks filed a Petition for Declaratory Relief with a Prayer for the Issuance of a TRO and/or Writ of Preliminary Injunction (RTC Petition) before the Regional Trial Court of Makati (RTC-Makati) which was docketed as Civil Case No. 05-697.[25]

           In the RTC Petition, the Banks prayed for a judgment interpreting Section 9(b-1) of the PDIC Charter, as amended, to require prior Monetary Board approval before PDIC could exercise its investigation/examination power over the Banks.[26]

           PDIC filed a motion to dismiss alleging that the RTC had no jurisdiction over the said petition since a breach had already been committed by the Banks when they received the notices of investigation, and because PDIC need not secure prior Monetary Board approval since “examination” and “investigation” are two different terms.[27]

           Later, the Banks withdrew their application for a temporary restraining order (TRO) reasoning that lower courts cannot issue injunctions against PDIC.  Thus, the Banks instituted a petition for injunction with application for TRO and/or Preliminary Injunction (CA-Manila petition) before the Court of

Appeals-Manila (CA-Manila).  The case was docketed as CA-G.R. SP No. 91038.[28]

           Even before the CA-Manila could rule on the application for a TRO and/or writ of preliminary injunction, the RTC-Makati dismissed the petition on the ground that there already existed a breach of law that isolated the case from the jurisdiction of the trial court.[29]

           The Banks filed a motion for reconsideration but it was denied by the RTC for lack of merit.[30]  On February 10, 2006, the Banks filed a notice of appeal[31]which they later withdrew on February 28, 2006.[32]

             In view of the dismissal of the RTC-Makati petition, the CA-Manila dismissed the petition for injunction for being moot and academic.  In its Decision, datedFebruary 1, 2006,[33] the CA-Manila wrote: 

            What remained for the petitioners to do was to litigate over the breach or violation by ordinary action, as the circumstances ensuing from the breach or violation warrant.  The ordinary action may either be in the same case,  if the RTC permitted the conversion, in which event the RTC may allow the parties to file such pleadings as may be necessary or proper, pursuant to Sec. 5, Rule 63; or the petitioners may file another action in the proper court (e.g. including the Court of Appeals, should injunction be among the reliefs to be sought) upon some cause of action that has arisen from the breach or violation.[34]

  

Thereafter, on March 14, 2006, the Banks filed their Petition for Injunction with Prayer for Preliminary Injunction[35] (CA-Cebu Petition) with the CA-Cebu(CA-Cebu).

 

On March 15, 2006, the CA-Cebu issued a resolution granting the Bank’s application for a TRO.  This enjoined the PDIC, its representatives or agents or any other persons or agency assisting them or acting for and in their behalf from conducting examinations/investigations on the Banks’ head and branch offices without securing the requisite approval from the Monetary Board of BSP.[36]

 During the pendency of the CA-Cebu petition, PDIC filed with this Court

a Petition for Certiorari, Prohibition and Mandamus with Prayer for Issuance of Temporary Restraining Order and/or Writ of Preliminary Injunction under Rule 65 docketed as G.R. No. 173370.[37]  It alleged that the CA-Cebu committed grave abuse of discretion amounting to lack or excess of jurisdiction in taking cognizance of the Banks’ petition, and in issuing a TRO and a writ of preliminary injunction.[38]

 On July 31, 2006, this Court issued a resolution dismissing the petition

for certiorari in G.R. No. 173370.  The Resolution reads:             Considering the allegations, issues and arguments adduced in the petition for certiorari, prohibition and mandamus with prayer for preliminary injunction and/or restraining order dated 19 July 2006, the Court resolves to DISMISS the petition for failure to sufficiently show that the questioned resolution of the Court of Appeals is tainted with grave abuse of discretion.  Moreover, the petition failed to conform with Rule 65 and other related provisions of the 1997 Rules of Civil Procedure, as amended, governing petitions for certiorari, prohibition and mandamus filed with the Supreme Court, since petitioner failed to submit a verified statement of material date of receipt of the assailed resolution  dated 16 May 2006 in accordance with Section 4, Rule 65 in relation to the second paragraph of Section 3, Rule 46.  In any  event, the petition is premature since no motion for  reconsideration of the questioned resolution of the Court of  Appeals was filed prior to the availment of this special civil action and there are no sufficient allegations

to bring the case within the recognized exceptions to this rule.[39]

 On September 18, 2006, after both parties had submitted their respective

memoranda, the CA-Cebu rendered a decision granting the writ of preliminary injuction,[40] pertinent portions of which read:

             [A]fter undergoing a series of amendments, the controlling law with respect to PDIC’s power to conduct examination of banks is-prior approval of the Monetary Board is a condition sine qua non for PDIC to exercise its power of examination.  To rule otherwise would disregard the amendatory law of the PDIC’s charter.             The Court is not also swayed by the contention of respondent that what it seeks to conduct is an investigation and not an examination of petitioners’ transactions, hence prior approval of the Monetary Board is a mere surplusage.              The ordinary definition of the words “examination” and “investigation” would lead one to conclude that both pertain to the same thing and there seems to be no fine line differentiating one from the other.  Black’s Law Dictionary defines the word “investigate” as “to examine and inquire into with care and  accuracy; to find out by careful inquisition; examination and the word “examination” as an investigation.  In Collin’s Dictionary of Banking and Finance, the word “investigation” is defined as an “examination to find out what is wrong.”             In the case of Anti-Graft League of the Philippines, Inc. vs. Hon. Ortega, et al.,[41] the Supreme Court using Ballentine’s Law Dictionary defines an “investigation” as an inquiry, judicial or otherwise, for the discovery or collection of facts concerning the matter or matters involved.   Such common definitions would show that there is really nothing to distinguish between

these two (2) terms as to support the PDIC view differentiating Section 9 (b-1) from paragraph 8, Section 8 of the PDIC Charter.             In the realm of the PDIC rules, specifically under Section 3 of PDIC Regulatory Issuance No. 2205-02[42] “investigation” is defined as: Investigation shall refer to fact-finding examination, study, inquiry, for determining whether the allegations in a complaint or findings in a final report of examination may properly be the subject of an administrative, criminal or civil action. 

From the foregoing definition alone, it can be easily deduced that investigation and examination are synonymous terms.  Simply stated, investigation encompasses a fact-finding examination.  Thus, it is inconsistent with the rules if respondent PDIC be (sic) allowed to conduct an investigation without the approval of the Monetary Board.

 Moreover, the Court sees that the rationale of the

law in requiring a (sic) prior approval from the Monetary Board whenever an examination or in this case an investigation needs to be conducted by the PDIC is obviously to ensure that there is no overlapping of efforts, duplication of functions and more importantly to provide a check and balance to the otherwise unrestricted power of respondent PDIC to conduct investigations on banks insured by it.

 With the foregoing premises, this Court rules that a

prior approval from the Monetary Board is necessary before respondent PDIC can proceed with its investigations on petitioners-banks.[43]

      

PDIC moved for reconsideration but it was denied in a resolution dated January 25, 2007.[44]

 Hence, this petition. 

THE ISSUES I.

WHETHER RESPONDENT BANKS VIOLATED THE RULE AGAINST FORUM SHOPPING WHEN THEY FILED THE PETITION FOR INJUNCTION BEFORE THE COURT OF APPEALS-CEBU. 

II. 

WHETHER THE PRONOUNCEMENT OF THE REGIONAL TRIAL COURT OF MAKATI IN THE PETITION FOR DECLARATORY RELIEF CONSTITUTES RES JUDICATA TO THE PETITION FOR INJUNCTION IN THE COURT OF APPEALS-CEBU. 

III. 

WHETHER PETITIONER WAS DEPRIVED OF ITS OPPORTUNITY TO BE HEARD WHEN THE COURT OF APPEALS-CEBU ISSUED THE WRIT OF INJUNCTION. 

IV. 

WHETHER THE ISSUES RAISED BY PETITIONERS ARE THE SAME ISSUES RAISED IN G.R. NO. 173370 WHICH WAS EARLIER DISMISSED BY THIS COURT. 

V. 

WHETHER THE COURT OF APPEALS ERRED IN FINDING THAT PRIOR APPROVAL OF THE MONETARY BOARD OF THE BANGKO SENTRAL NG PILIPINAS IS NECESSARY BEFORE THE PDIC MAY CONDUCT AN INVESTIGATION OF RESPONDENT BANKS.

  

  

THE COURT’S RULING  

I  -     Whether respondent banks violated the rule against forum shopping when they filed the petition for injunction before the Court of Appeals-Cebu.  II  -    Whether the pronouncement of the Regional Trial Court of Makati    in the petition for declaratory relief constitutes res judicata to the    petition for injunction in the Court   of Appeals-Cebu.            In the recent case of Sameer Oversees Placement Agency, Inc. v. Mildred R. Santos,[45] the Court discussed the matter of forum shopping: 

            Forum shopping is defined as an act of a party, against whom an adverse judgment or order has been rendered in one forum, of seeking and possibly getting a favorable opinion in another forum, other than by appeal or special civil action for certiorari.  It may also be the institution of two or more actions or proceedings grounded on the same cause on the supposition that one or the other court would make a favorable disposition.  There is forum shopping where the elements of litis pendentia are present, namely: (a) there is identity of parties, or at least such parties as represent the same interest in both actions; (b) there is identity of rights asserted and relief prayed for, the relief being founded on the same set of facts; and (c) the identity of the two preceding particulars is such that any judgment rendered in the pending case, regardless of which party is successful, would amount to res judicata in the

other.  It is expressly prohibited by this Court because it trifles with and abuses court processes, degrades the 

administration of justice, and congests court dockets.  A willful and deliberate violation of the rule against forum shopping is a ground for summary dismissal of the case, and may also constitute direct contempt.[46]

  

Juxtaposing the RTC-Makati, CA-Manila and CA-Cebu petitions, what must be determined here, is whether the elements of litis pendentia are present between and among these petitions, i.e. whether (a) there is identity of parties, or at least such parties as represent the same interest in both actions; (b) there is identity of rights asserted and relief prayed for, the relief being founded on the same set of facts; and (c) the identity of the two preceding particulars is such that any judgment rendered in the pending   case, regardless of which party is successful, would amount to res judicata in the other.

 The first element is clearly present as between the RTC-Makati petition and

the CA-Cebu petition.  Both involved the Banks on one hand, and the PDIC on the other.

 The second and third elements of litis pendentia, however, are patently

wanting.  The rights asserted and reliefs prayed for were different, though founded on the same set of facts.  The RTC-Makati Petition was one for declaratory relief while the CA-Manila Petition was one for injunction with a prayer for preliminary injunction.

 A petition for declaratory relief is filed by any person interested under a

deed, will, contract or other written instrument, or whose rights are affected by a statute, executive order or regulation, ordinance, or any other governmental regulation, before breach or violation, thereof, to determine any question of construction or validity arising, and for a declaration of his rights or duties thereunder.[47]

 Injunction, on the other hand, is “a judicial writ, process or  proceeding

whereby a party is directed either to do a particular act, in which case it is called a mandatory injunction, or to refrain from doing a particular act, in which case it is called a prohibitory injunction.  As a main action, injunction seeks to permanently

enjoin the defendant through a final injunction issued by the court and contained in the judgment.”[48]

 Clearly, there is a marked difference between the reliefs sought under an

action for declaratory relief and an action for injunction.  While an action for declaratory relief seeks a declaration of rights or duties, or the determination of any question or validity arising under a statute, executive order or regulation, ordinance, or any other governmental regulation, or under a deed, will, contract or other written instrument, under which his rights are affected, and before breach or violation, an action for injunction ultimately seeks to enjoin or to compel a party to perform certain acts.

 Moreover, as stated in the RTC-Makati Decision, because the Banks had

already breached the provisions of law on which declaratory judgment was being sought, it was without jurisdiction to take cognizance of the same.  Any judgment rendered in the RTC-Makati petition would not amount to res judicata in the CA-Manila Petition.  Thus, the RTC was correct in dismissing the case, having been bereft of jurisdiction to take cognizance of the action for declaratory judgment.

   As between the CA-Manila and the CA-Cebu petitions, the second and third

elements of litis pendentia are absent.  The rights asserted and reliefs prayed for were different, although founded on the same set of facts.

 The CA-Manila Petition is a petition for injunction wherein the Banks

prayed that: 

1) Immediately upon filing of this Petition, a Writ of Preliminary Injunction and/or Temporary Restraining Order be issued commanding the respondent and all its officers, employees and agents to cease and desist from proceeding with the investigations sought to be conducted on the petitioners’ head and branch officeswhile the Petition for Declaratory Relief before Branch 58 of the Makati Regional Trial Court is pending.

 

2)  After due proceedings, judgment be rendered declaring as permanent the Writ of Preliminary Injunction and/or Temporary Restraining Order prayed for above.

 Other equitable reliefs are likewise prayed for.[49]

[Underscoring supplied]  

The CA-Cebu Petition, on the other hand, is denominated as a Petition for Injunction With Prayer for Writ of Preliminary Injunction and/or Restraining Order. The Banks prayed therein that:

             1)   Upon filing of this Petition, a Writ of Preliminary Injunction and/or Temporary Restraining Order be issued forthwith, enjoining Respondent PDIC and all its officers, employees and agents to cease and desist from conducting examinations/investigations on Petitioner Banks’ head and branch offices without securing the requisite approval from the Monetary Board of the Bangko Sentral ng Pilipinas, as required by Sec. 8, Paragraph 8 of the PDIC Charter, as amended;             2)  After due proceedings, judgment be rendered declaring as permanent the Writ of Preliminary Injunction and/or Temporary Restraining Order prayed for above.             Other equitable reliefs are likewise prayed for.[50]

     As can be gleaned from the above-cited portions of the CA-Manila and CA-

Cebu petitions, the petitions seek different reliefs. Therefore, as between and among the RTC Makati, and the CA-Manila and

CA-Cebu petitions, there is no forum shopping.

 III - Whether petitioner was deprived of its opportunity to be heard when the Court of Appeals-Cebu issued  the writ of injunction.           PDIC alleges that the CA-Cebu, in issuing the TRO in its March 15, 2006 Resolution, and subsequently, the preliminary injunction in its May 16, 2006 Resolution, violated the fundamental rule that courts should avoid issuing injunctive relief which would in effect dispose of the main case without trial.[51]  PDIC argues that a TRO is intended only as a restraint until the propriety of granting a temporary injunction can be determined, and it goes  no  further  than to  preserve the  status until  that  determination.[52]  Moreover, its purpose is merely to suspend proceedings until such time when there may be an opportunity to inquire whether any injunction should be granted, and it is not intended to operate as an injunction pendente lite, and should not, in effect, determine the issues involved before the parties can have their day in court, or give an advantage to either party by proceeding in the acquisition or alteration of the property the right to which is disputed while the hands of the other party are tied.[53]

    On the other hand, the Banks claim that PDIC was given every opportunity

to present its arguments against the issuance of the injunction. [54]  Its active participation in the proceedings negates its assertion that it was denied procedural due process in the issuance of the writ of injunction.[55]  Citing Salonga v. Court of Appeals,[56] the Banks state that the essence of due process is the reasonable opportunity to be heard and to submit evidence one may have in support of one’s defense,[57] and PDIC was able to do so.

 On March 15, 2006, the CA-Cebu issued a resolution granting their prayer

for a 60-day TRO, and requiring PDIC to file its comment.[58]  The latter     thereafter   filed     its     Comment     ad     Cautelam  dated March 30, 2006.[59] [Underscoring ours]

 

On May 16, 2006, the CA-Cebu issued another resolution, this time granting the prayer for a preliminary injunction and requiring the parties to file their respective memoranda.  PDIC thereafter filed its memorandum dated July 31, 2006.[60]

 On September 18, 2006, the CA-Cebu promulgated its Decision granting the

Petition for Injunction.[61] PDIC filed a motion for reconsideration dated October 10, 2006, [62]  which was subsequently denied.

   

  The essence of procedural due process is found in the reasonable opportunity

to be heard and submit one’s evidence in support of his defense. [63]  The Court finds that procedural due process was observed by the CA-Cebu.  The parties were afforded equal opportunity to present their arguments.  In the absence of any indication to the contrary, the CA-Cebu must be accorded the presumption of regularity in the performance of their functions.  However, as discussed herein, the matter of whether it erred in its conclusion and issuance of the TRO, preliminary injunction and final injunction is another matter altogether.

 IV – Whether the issues raised by petitioner are the same issues raised in G.R. No. 173370 which was earlier dismissed by this Court.

 In G.R. 173370, a petition for   certiorari  under Rule 65 of the Rules  of

Court, PDIC alleged that the CA-Cebu committed grave abuse of discretion amounting to lack or excess of jurisdiction in taking cognizance of the Bank’s petition, and in issuing a TRO and a writ of preliminary injunction.[64]

 In the case at bench, a petition for review under Rule 45, PDIC’s core

contention is that the CA-Cebu erred in finding that prior approval of the 

Monetary Board of the BSP is necessary before it may conduct an investigation of the Banks.

 Clearly then, the two petitions were of different nature raising different

issues. G.R. 173370 challenged the CA-Cebu’s having taken cognizance of the

Bank’s petition and interlocutory orders on the issuance of a TRO and a writ of preliminary injunction.  This case, however, strikes at the core of the final decision on the merits of the CA-Cebu, and not merely the interlocutory orders.  While both G.R. 173370 and the present case may have been anchored on the same set of facts, that is, the refusal of the Banks to allow PDIC to conduct an investigation without the prior consent of the Monetary Board, the issues raised in the two petitions are not identical.  Moreover, the disposal of the first case does not amount to res judicata in this case.

 V – Whether the Court of Appeals-Cebu erred in finding that prior approval of the Monetary Board of the Bangko Sentral ng Pilipinas is necessary before the PDIC may conduct an investigation of respondent banks.           PDIC is of the position that in order for it to exercise its power of investigation, the law requires that: 

            (a)  The investigation is based on a complaint of a depositor or any other government agency, or on the report of examination of [the] Bangko Sentral ng Pilipinas (BSP) and/or PDIC; and,       

            (b)  The complaint alleges, or the BSP and/or PDIC Report of Examination contains adverse findings of, fraud, irregularities or anomalies committed by the Bank and/or its directors, officers, employees or agents; and,             (c)  The investigation is upon the authority of the PDIC Board of Directors.[65]

           It argues that when it commenced its investigation on the Banks, all of the aforementioned requirements were met.  PDIC stresses that its power of examination is different from its power of investigation, in such that the former requires prior approval of the Monetary Board while the latter requires merely the approval of the PDIC Board.[66]  It further claims that the power of examination cannot be exercised within twelve (12) months from the last examination conducted, whereas the power of investigation is without limitation as to the frequency of its conduct.  It states that the purpose of the PDIC’s power of examination is merely to look into the condition of the bank, whereas the power of investigation aims to address fraud, irregularities and anomalies based on complaints from depositors and other government agencies or upon reports of examinations conducted by the PDIC itself or by the BSP.[67]

           The Banks, on the other hand, are of the opinion that a holistic reading of the PDIC charter shows that petitioner’s power of examination is synonymous with its power of investigation.[68]  They cite, as bases, the law 

dictionary definitions, Section 8, Eighth paragraph[69] and Section 9(b-1)[70] of the PDIC Charter, and Rule 1, Section 3(1) of PDIC Regulatory Issuance No. 2005-02, which defines “investigation” as follows: 

(l)  ‘Investigation’ shall refer to fact-finding examination, study or inquiry for determining whether the allegations in a complaint or findings in a final report of examination may properly be the subject of an administrative, criminal or civil action.

             The Banks further cite Section X658 of the Manual of Regulations for Banks, which states: 

            Sec. X658       -           Examination by the BSP.  The term ‘examination’ shall, henceforth, refer to an investigation of an institution under the supervisory authority of the BSP to determine compliance with laws and regulations. It shall include determination that the institution is conducting its business on a safe and sound basis.  Examination requires full and comprehensive looking into the operations and books of institutions, and shall include, but need not be limited to the following:

 a. Determination of the bank’s solvency

and liquidity position; b. Evaluation of asset quality as well as

determination of sufficiency of valuation reserves on loans and other risk assets;

 c.  Review of all aspects of bank

operations; d. Assessment of risk management

system, including the evaluation of the effectiveness of the bank management’s

oversight functions, policies, procedures, internal control and audit;

 e. Appraisal of overall management of the

bank; f. Review of compliance and applicable

laws, rules and regulations; and any other activities relevant to the above.”

  

          After an evaluation of the respective positions of the parties, the Court is of the view that the Monetary Board approval is not required for PDIC to conduct an investigation on the Banks.           The disagreement stems from the interpretation of these two key provisions of the PDIC Charter.  The confusion can be attributed to the fact that although “investigation” and “examination” are two separate and 

distinct procedures under the charter of the PDIC and the BSP, the words seem to be used loosely and interchangeably.           It does not help that indeed these terms are very closely related in a generic sense.  However, while “examination” connotes a mere generic perusal or inspection, “investigation” refers to a more intensive scrutiny for a more specific fact-finding purpose.  The latter term is also usually associated with proceedings conducted prior to criminal prosecution.           The PDIC was created by R.A. No. 3591 on June 22, 1963 as an insurer of deposits in all banks entitled to the benefits of insurance under the PDIC Charter to promote and safeguard the interests of the depositing public by way of providing permanent and continuing insurance coverage of all insured deposits.  It is a government instrumentality that operates under the Department of Finance.  Its primary purpose is to act as deposit insurer, as a co-regulator of banks, and as receiver and liquidator of closed banks.[71]

           Section 1 of the PDIC Charter states: 

          SECTION 1.    There is hereby created a Philippine Deposit Insurance Corporation hereinafter referred to as the “Corporation” which shall insure, as herein provided, the deposits of all banks which are entitled to the benefits of insurance under this Act, and which shall have the powers hereinafter granted.             The Corporation shall, as a basic policy, promote and safeguard the interests of the depositing public by way of providing permanent and continuing insurance coverage on all insured deposits.

           Section 1 of R.A. No. 9576 further provides:  An Act Increasing the Maximum Deposit Insurance Coverage, and in connection therewith, to Strengthen the Regulatory and Administrative Authority, and Financial  Capability of the Philippine Deposit Insurance Corporation (PDIC), amending for this purpose R.A. No. 3591, as Amended, otherwise known as the PDIC Charter.

             SECTION 1.  Statement of State Policy and Objectives. -  It is hereby declared to be the policy of the State to strengthen the mandatory deposit insurance coverage system to generate,  preserve, maintain faith and confidence in the country’s banking system, and protect it from illegal schemes and machinations.             Towards this end, the government must extend all means and mechanisms necessary for the Philippine Deposit Insurance Corporation to effectively fulfill its vital task of promoting and safeguarding the interests of the depositing public by way of providing permanent and continuing insurance coverage on all insured deposits, and in helping develop a sound and stable banking system at all times. Under its charter, the PDIC is empowered to conduct examination of banks

with prior approval of the Monetary Board:             Eighth – To conduct examination of banks with prior approval of the Monetary Board:  Provided, That no examination can be conducted within twelve (12) months from the last examination date:  Provided, however, That the Corporation may, in coordination with the Bangko Sentral, conduct a special examination as the Board of Directors, by an affirmative vote of a majority of all its members, if there is a threatened or impending closure of a bank; Provided, further, That, notwithstanding the provisions of Republic Act No. 1405, as amended, Republic Act No. 6426, as amended, Republic Act No. 8791, and other laws, the Corporation and/or the Bangko Sentral, may inquire into or examine deposit accounts and all information related thereto          in case there is a finding of unsafe or unsound banking practice; Provided, That to avoid overlapping of efforts, the examination shall maximize the efficient use of the relevant reports,   information, and findings of the Bangko Sentral, which it shall make available to the

Corporation; (As amended by R.A. 9302, 12 August 2004, R.A. 9576, 1 June 2009)             xxx.  [Underlining supplied]     Section 9(b-1) of the PDIC Charter further provides that the PDIC Board

shall have the power to: 

POWERS AND RESPONSIBILITIES AND PROHIBITIONS 

            SECTION 9. xxx             (b) The Board of Directors shall appoint examiners who shall have power, on behalf of the Corporation to examine any insured bank.  Each such examiner shall have the power to make a thorough examination of all the affairs of the bank and in doing so, he shall have the power to administer oaths, to examine and take and preserve the testimony of any of the officers and agents thereof,  and, to compel the presentation of books, documents, papers, or records necessary in his judgment to ascertain the facts relative to the condition of the bank; and shall make a full and detailed report of the condition of the bank to the Corporation.  The Board of Directors in like manner shall appoint claim agents who shall have the power to investigate and examine all claims for insured  deposits and transferred deposits.  Each claim agent shall have the power to administer oaths and to examine under oath and take and preserve testimony of any person relating to such claim.  (As amended by E.O. 890, 08 April 1983; R.A. 7400, 13 April 1992)             (b-1)  The investigators appointed by the Board of Directors shall have the power on behalf of the Corporation to conduct investigations on frauds,

irregularities and anomalies committed in banks, based on reports of examination conducted by the Corporation and Bangko Sentral ng Pilipinas or complaints from depositors or from other government agency. Each such investigator shall have the power to administer oaths, and to examine and take and preserve the testimony of any person  relating to the subject of investigation. (As added by R.A. 9302, 12 August 2004) xxx.  [Underscoring supplied]

 As stated above, the charter empowers the PDIC to conduct an investigation

of a bank and to appoint examiners who shall have the power to examine any insured bank.  Such investigators are authorized to conduct investigations on frauds, irregularities and anomalies committed in banks, based on an examinationconducted by the PDIC and the BSP or on complaints from depositors or from other government agencies.

 The distinction between the power to investigate and the power to examine

is emphasized by the existence of two separate sets of rules governing the procedure in the conduct of investigation and examination.  Regulatory Issuance (RI) No. 2005-02 or the PDIC Rules on Fact-Finding Investigation of Fraud, Irregularities and Anomalies Committed in Banks covers the procedural requirements of the exercise of the PDIC’s power of investigation.  On the other hand, RI No. 2009-05 sets forth the guidelines for the conduct of the power of examination.

 The definitions provided under the two aforementioned regulatory issuances

elucidate on the distinction between the power of examination and the power of investigation.

 Section 2 of RI No. 2005-02 states that its coverage shall be applicable to

“all fact-finding investigations on fraud, irregularities and/or anomalies committed in banks that are conducted by PDIC based on: [a] complaints from depositors or other government agencies; and/or [b] final reports of examinations of banks conducted by the Bangko Sentral ng Pilipinas and/or PDIC.”

 

The same issuance states that the Final Report of Examination[72] is one of the three pre-requisites to the conduct of an investigation, in addition to the authorization of the PDIC Board[73] and a complaint.[74]  Juxtaposing this provision with Section 9(b-1) of the PDIC Charter, since an examination is explicitly made the basis of a fact-finding examination, then clearly examination and investigation are two different proceedings.  It would obviously defy logic to make the result of an “investigation” the basis of the same proceeding.  Thus, RI No. 2005-02 defines an “investigation” as a “fact-finding examination, study or inquiry for determining whether the allegations in a complaint or findings in a final report of examination may properly be the subject of an administrative, criminal or civil action.”[75]

 The Banks cite the dictionary definitions of “examination” and

“investigation” to justify their conclusion that these terms refer to one and the same proceeding.  It is tempting to use these two terms interchangeably, which practice may be perfectly justified in a purely literary sense.  Indeed, a reading of the PDIC Charter shows that the two terms have been used interchangeably at some point.  However, based on the provisions aforecited, the intention of the laws is clearly to differentiate between the process of investigation and that of examination.

 In 2009, to clarify procedural matters, PDIC released RI No. 2009-05 or the

Rules and Regulations on Examination of Banks.  Section 2 thereof differentiated between the two types of examination as follows:

 Section 2.  Types of Examination             a. Regular Examination -  An examination conducted independently or jointly with the BSP.  It requires the prior approval of the PDIC Board of Directors and the Monetary Board (MB).  It may be conducted only after an interval of at least twelve (12) months from the closing date of the last Regular Examination.             b.  Special Examination – An examination conducted at any time in coordination with the BSP, by an affirmative vote of a majority of all the members of

the PDIC Board of Directors,  without need of prior MB approval, if there is a threatened or impending bank closure as determined by the PDIC Board of Directors. [Underscoring supplied]  Section 3 of RI No. 2009-05 provides for the general scope of the PDIC

examination: Section 3.  Scope of Examination             The examination shall include, but need not be limited to, the following: 

            a. Determination of the bank’s solvency and liquidity position;             b. Evaluation of asset quality as well as determination of sufficiency of valuation reserves on loans and other risk assets; 

c.       Review of all aspects of bank operations;

  d. Assessment of risk management

system, including the evaluation of the effectiveness of the bank management’s oversight functions, policies, procedures, internal control and audit;

 e.  Appraisal of overall management of

the bank; f. Review of compliance with applicable

banking laws, and rules and regulations, including PDIC issuances;

 

g. Follow-through of specific exceptions/ violations noted during a previous examination; and

 h.     Any other activity relevant to the

above.  

Rule 2, Section 1 of PDIC RI No. 2005-02 or the PDIC Rules on Fact-Finding Investigation of Fraud, Irregularities and Anomalies Committed in Banksprovides for the scope of fact-finding investigations as follows:

 SECTION 1.  Scope of the Investigation. 

Fact-finding Investigations shall be limited to the particular acts or omissions subject of a complaint or a Final Report of Examination.  From the above-cited provisions, it is clear that the process of examination

covers a wider scope than that of investigation. Examination involves an evaluation of the current status of a bank and

determines its compliance with the set standards regarding solvency, liquidity, asset valuation, operations, systems, management, and compliance with banking laws, rules and regulations.

  

  Investigation, on the other hand, is conducted based on specific findings of

certain acts or omissions which are subject of a complaint or a Final Report of Examination.

 Clearly, investigation does not involve a general evaluation of the status of a

bank.  An investigation zeroes in on specific acts and omissions uncovered via an examination, or which are cited in a complaint.

 An examination entails a review of essentially all the functions and facets of

a bank and its operation.  It necessitates poring through voluminous documents, and requires a detailed evaluation thereof.  Such a process then involves an intrusion into a bank’s records.

 In contrast, although it also involves a detailed evaluation, an investigation

centers on specific acts of omissions and, thus, requires a less invasive assessment. The practical justification for not requiring the Monetary Board approval to

conduct an investigation of banks is the administrative hurdles and paperwork it entails, and the correspondent time to complete those additional steps or requirements.  As in other types of investigation, time is always of essence, and it is prudent to expedite the proceedings if an accurate conclusion is to be arrived at, as an investigation is only as precise as the evidence on which it is based.  The promptness with which such evidence is gathered is always of utmost importance because evidence, documentary evidence in particular, is remarkably fungible.  A PDIC investigation is conducted to “determine[e] whether the allegations in a complaint or findings in a final report of examination may properly be the subject of an administrative, criminal or civil action.”[76]  In other words, an investigation is based on reports of examination and an examination is conducted with prior Monetary Board approval. Therefore, it would be unnecessary to secure a separate approval for the conduct of an  investigation.  Such would merely prolong the process and provide unscrupulous individuals the opportunity to cover their tracks.

 Indeed, while in a literary sense, the two terms may be used interchangeably,

under the PDIC Charter, examination and investigation refer to two different processes.  To reiterate, an examination of banks requires the prior consent of the Monetary Board, whereas an investigation based on an examination report, does not.

 WHEREFORE, the petition is GRANTED.  The Decision and Resolution

of the Court of Appeals in CA G.R. CEB SP. No. 01550, dated September 18, 2006 and January 25, 2007 are REVERSED and SET ASIDE.

 SO ORDERED.

 

Philippine Deposit Insurance Corporation vs. Citibank

GR NO.170290 April 11, 2012

Mendoza, J.:

FACTS: Petitioner Philippine Deposit Insurance Corporation (PDIC) is a government instrumentality created by virtue of Republic Act (R.A.) No. 3591, as amended by R.A. No. 9302. Respondent Citibank, N.A. (Citibank) is a banking corporation while respondent Bank of America, S.T. & N.A. (BA) is a national banking association, both of which are duly organized and existing under the laws of the United States of America and duly licensed to do business in the Philippines, with offices in Makati City. In 1977, PDIC conducted an examination of the books of account of Citibank. It discovered that Citibank, in the course of its banking business, from September 30, 1974 to June 30, 1977, received from its head office and other foreign branches a total of P11,923,163,908.00 in dollars, covered by Certificates of Dollar Time Deposit that were interest-bearing with corresponding maturity dates. These funds, which were lodged in the books of Citibank under the account “Their Account-Head Office/Branches-Foreign Currency,” were not reported to PDIC as deposit liabilities that were subject to assessment for insurance. As such, in a letter dated March 16, 1978, PDIC assessed Citibank for deficiency in the sum of P1,595,081.96. Similarly, sometime in 1979, PDIC examined the books of accounts of BA which revealed that from September 30, 1976 to June 30, 1978, BA received from its head office and its other foreign branches a total of P629,311,869.10 in dollars, covered by Certificates of Dollar Time Deposit that were interest-bearing with corresponding maturity dates and lodged in their books under the account “Due to Head Office/Branches.” Because BA also excluded these from its deposit liabilities, PDIC wrote to BA on October 9, 1979, seeking the remittance of P109,264.83 representing deficiency premium assessments for dollar deposits. Believing that litigation would inevitably arise from this dispute, Citibank and BA each filed a petition for declaratory relief before the Court of First Instance (now the Regional Trial Court) of Rizal on July 19, 1979 and December 11, 1979, respectively. In their petitions, Citibank and BA sought a declaratory judgment stating that the money placements they received from their head office and other foreign branches were not deposits and did not give rise to insurable deposit liabilities under Sections 3 and 4 of R.A. No. 3591 (the PDIC Charter) and, as a consequence, the deficiency assessments made by PDIC were improper and erroneous. The cases were then consolidated. On June 29, 1998, the Regional Trial Court, Branch 163, Pasig City (RTC) promulgated its Decision in favor of Citibank and BA. Aggrieved, PDIC appealed to the CA which affirmed the ruling of the RTC in its October 27, 2005 Decision. Hence, this petition.

ISSUE: Whether or not a branch of a bank has a separate legal Personality.

HELD: No. A branch has no separate legal personality. This Court is of the opinion that the key to the resolution of this controversy is the relationship of the Philippine branches of Citibank and BA to their respective head offices and their other foreign branches. The Court begins by examining the manner by which a foreign corporation can establish its presence in the Philippines. It may choose to incorporate its own subsidiary as a domestic corporation, in which case such subsidiary would have its own separate and independent legal personality to conduct business in the country. In the alternative, it may create a branch in the Philippines, which would not be a legally independent unit, and simply obtain a license to do business in the Philippines. In the case of Citibank and BA, it is apparent that they both did not incorporate a separate domestic corporation to represent its business interests in the Philippines. Their Philippine branches are, as the name implies, merely branches, without a separate legal personality from their parent company, Citibank and BA. Thus, being one and the same entity, the funds placed by the respondents in their respective branches in the Philippines should not be treated as deposits made by third parties subject to deposit insurance under the PDIC Charter. The purpose of the PDIC is to protect the depositing public in the event of a bank closure. It has already been sufficiently established by US jurisprudence and Philippine statutes that the head office shall answer for the liabilities of its branch. Now, suppose the Philippine branch of Citibank suddenly closes for some reason. Citibank N.A. would then be required to answer for the deposit liabilities of Citibank Philippines. If the Court were to adopt the posture of PDIC that the head office and the branch are two separate entities and that the funds placed by the head office and its foreign branches with the Philippine branch are considered deposits within the meaning of the PDIC Charter, it would result to the incongruous situation where Citibank, as the head office, would be placed in the ridiculous position of having to reimburse itself, as depositor, for the losses it may incur occasioned by the closure of Citibank Philippines. Surely our law makers could not have envisioned such a preposterous circumstance when they created PDIC. Finally, the Court agrees with the CA ruling that there is nothing in the definition of a “bank” and a “banking institution” in Section 3(b) of the PDIC Charter [27] which explicitly states that the head office of a foreign bank and its other branches are separate and distinct from their Philippine branches. There is no need to complicate the matter when it can be solved by simple logic bolstered by law and jurisprudence. Based on the foregoing, it is clear that the head office of a bank and its branches are considered as one under the eyes of the law. While branches are treated as separate business units for commercial and financial reporting purposes, in the end, the head office remains responsible and answerable for the liabilities of its branches which are under its supervision and control. As such, it is unreasonable for PDIC to require the respondents, Citibank and BA, to insure the money placements made by their home office and other branches. Deposit insurance is superfluous and entirely unnecessary when, as in this case, the institution holding the funds and the one which made the placements are one and the same legal entity.

[G.R. No. 118917.  December 22, 1997]

PHILIPPINE DEPOSIT INSURANCE CORPORATION, petitioner, vs. COURT OF APPEALS, ROSA AQUERO, GERARD YU, ERIC YU, MINA YU, ELIZABETH NGKAION, MERLY CUESCANO, LETICIA TAN, FELY RUMBANA, LORNA ACUB, represented by their Attorney-in-Fact, JOHN FRANCIS COTAACO, respondents.

D E C I S I O NKAPUNAN, J.:

Petitioner Philippine Deposit Insurance Corporation (PDIC) seeks the reversal of the decision of the Court of Appeals affirming with modification the decision of the Regional Trial Court holding petitioner liable for the value of thirteen (13) certificates of time deposit (CTDs) in the possession of private respondents.

The facts, as found by the Court of Appeals, are as follows:

On September 22, 1983, plaintiffs-appellees invested in money market placements with the Premiere Financing Corporation (PFC) in the sum of P10,000.00 each for which they were issued by the PFC corresponding promissory notes and checks.  On the same date (September 22, 1983), John Francis Cotaoco, for and in behalf of plaintiffs-appellees, went to the PFC to encash the promissory notes and checks, but the PFC referred him to the Regent Saving Bank (RSB).  Instead of paying the promissory notes and checks, the RSB, upon agreement of Cotaoco, issued the subject 13 certificates of time deposit with Nos. 09648 to 09660, inclusive, each stating, among others, that the same certifies that the bearer thereof has deposited with the RSB the sum of P10,000.00; that the certificate shall bear 14% interest per annum; that the certificate is insured up to P15,000.00 with the PDIC; and that the maturity date thereof is on November 3, 1983 (Exhs. “B”, “B-1” to “B-12”).

On the aforesaid maturity dated (November 3, 1983), Cotaoco went to the RSB to encash the said certificates.  Thereat, RSB Executive Vice President Jose M. Damian requested Cotaoco for a deferment or an extension of a few days to enable the RSB to raise the amount to pay for the same (Exh. “D”).  Cotaoco agreed.  Despite said extension, the RSB still failed to pay the value of the certificates.  Instead, RSB advised Cotaoco to file a claim with the PDIC.

Meanwhile, on June 15, 1984, the Monetary Board of the Central Bank issued Resolution No. 788 (Exh. ‘2’, Records, p. 159) suspending the operations of the RSB.  Eventually, the records of RSB were secured and its deposit liabilities were eventually determined. On December 7, 1984, the Monetary Board issued Resolution No. 1496 (Exh. ‘1’) liquidating the RSB.  Subsequently, a masterlist or inventory of the RSB assets and liabilities was prepared.  However, the certificates of time deposit of plaintiffs-appellees were not included in the list on the ground that the certificates were not funded by the PFC or duly recorded as liabilities of RSB.

On September 4, 1984, plaintiffs-appellees filed with the PDIC their respective claims for the amount of the certificates (Exhs. “C”, “C-1”, to “C-12”).  Sabina Yu, James Ngkaion, Elaine Ngkaion and Jeffrey Ngkaion, who have similar claims on their certificates of time deposit with the RSB, likewise filed their claims with the PDIC. To their dismay, PDIC refused the aforesaid claims on the ground that the Traders Royal Bank Check No. 299255 dated September 22, 1983 for the amount of P125,846.07 (Exh. “B”) issued by PFC for the aforementioned certificates was returned by the drawee bank for having been drawn against insufficient funds; and said check was not replaced by the PFC, resulting in the cancellation of the certificates as indebtedness or liabilities of RSB. [1]

Consequently, on March 31, 1987, private respondents filed an action for collection against PDIC, RSB and the Central Bank.

On September 14, 1987, the trial court, declared the Central Bank in default for failing to file an answer.

On May 29, 1989, the trial court rendered its decision ordering the defendants therein to pay plaintiffs, jointly and severally, the amount corresponding to the latter’s certificates of time deposit.

Both PDIC and RSB appealed.  The Central Bank, on the other hand, filed a petition for certiorari, prohibition and mandamus before the Court of Appeals praying that the writ of execution issued by the trial court against it be set aside.

On February 8, 1995, the Court of Appeals rendered its decision granting the Central Bank’s petition but dismissing the appeals of PDIC and RSB.  Hence, this petition by PDIC assigning the following errors:

I

THE CA ERRED IN HOLDING THAT THE SUBJECT CTDS ARE NEGOTIABLE INSTRUMENTS

II

THE CA ERRED INHOLDING THAT THE CTDS WERE ACQUIRED FOR VALUE AND CONSIDERATION

III

THE CA ERRED WHEN IT HELD THAT BECAUSE THE CTDS STATE THAT THESE WERE INSURED, PETITIONER SHOULD BE HELD LIABLE FOR THE SAME.

We deal jointly with petitioner’s first and third assigned errors.

Relying on this Court’s ruling in Caltex (Philippines), Inc. v. Court of Appeals and Security Bank and Trust Company,[2] the Court of Appeals concluded that the subject CTDs are negotiable.  Petitioner, on the other hand, contends that the CTDs are non-negotiable since they do not contain an unconditional promise or order to pay a sum in money are they made payable to order or bearer, as required by Section 1 of the Negotiable Instruments Law.

Whether the CTDs in question are negotiable or not is, however, immaterial in the present case.  The Philippine Deposit Insurance Corporation was created by law and, as such, is governed primarily by the provisions of the special law creating it.[3] The liability of the PDIC for insured deposits therefore is statutory and, under Republic Act No. 3591,[4] as amended, such liability rests upon the existence of deposits with the insured bank, not on the negotiability or non-negotiability of the certificates evidencing these deposits.

The authority for this conclusion finds support in decisions by American state courts applying their respective bank guaranty laws.  Invariably, the plaintiffs in these cases argued that the negotiability of the certificates of deposits in their possession entitled them to be paid out of the bank guaranty fund, a contention that the courts uniformly rejected.

Thus, the plaintiffs in Fourth Nat. Bank of Wichita v. Wilson[5] argued that:

x x x the court should hold the certificates to be guaranteed because they are negotiable instruments, and were acquired by the present holders in due course; otherwise it is said certificates of deposit will be deprived of the quality of commercial paper.  Certificates of deposit have been regarded as the highest form of collateral.  They are of wide currency in the banking and business worlds, and are particularly useful to persons of small means, because they bear interest, and may be readily cashed; therefore to deprive them of the benefit of the guaranty fund would be a calamity. x x x

The Supreme Court of Kansas, however, found the plaintiffs’ contention to be without merit, ruling thus:

x x x The argument confuses negotiability of commercial paper with statutory guaranty of deposits.  The guaranty is something extrinsic to all forms of evidence of bank obligation; and negotiability of instruments has no dependence on existence or nonexistence of the guaranty.

x x x Whatever the status of the plaintiffs may be as holders in due course under the Negotiable Instruments Law, they cannot be assignees of a deposit which was not made, and cannot be entitled to the benefit of a guaranty which did not come into existence. x x x

In arriving at the above decision, the Kansas Supreme Court relied on its earlier ruling in American State Bank v. Foster, [6] which arose from the same facts as the Fourth National Bank case.  There, the Court held:

x x x  Even if the plaintiff were to be regarded as an innocent purchaser of the certificates as negotiable instruments, its situation would be in no wise bettered so far as relate to a claim against the guaranty fund.  The fund protects deposits only.  And if no deposit is made, or no deposit within the protection of the guaranty law, the transfer of a certificate cannot impose a liability on the fund.  xxx where a certificate of deposit is given under such circumstances that it is not protected by the guaranty fund, although that fact is not indicated by anything on its face, its indorsement to an innocent holder cannot confer that qualify upon it.

In like fashion did the Supreme Court of Nebraska brush aside a similar contention in State v. Farmers’ State Bank:[7]

In this contention we think the appellants fail to distinguish between the liability of the maker of a negotiable instrument, which rests upon the law pertaining to negotiable paper, and the liability of the guaranty fund, which is purely statutory.  The circumstances under which the guaranty fund may be liable are entirely apart from the law pertaining to negotiable paper.  A holder of a certificate of deposit in a bank who seeks to hold the guaranty fund liable for its payment must show that the transaction leading up to the issuance of the certificate was such that the law holds the guaranty fund liable for its payment.  x x x

The Farmers’ State Bank ruling was reiterated by the Nebraska Supreme Court in State v. Home State Bank of Dunning [8] and in State v. Kilgore State Bank.[9] The same ruling was adopted by the Supreme Court of South Dakota in Mildenstein v. Hirning.[10]

In the case at bar, the Court of Appeals initially found the subject CTDs to be negotiable.  Subsequently, however, respondent court deemed the issue immaterial, albeit for entirely different reasons.

x x x  Besides, whether the certificates are negotiable or not is of no moment.  The fact remains that the certificates categorically state that their bearer [sic] have a deposit in the RSB; that the same will mature on November 3, 1993; and that the certificates are insured by PDIC.[11]

We disagree with respondent court’s rationale.  The fact that the certificates state that the certificates are insured by PDIC does not ipso facto make the latter liable for the same should the contingency insured against arise.  As stated earlier, the deposit liability of PDIC is determined by the provisions of R.A. No. 3519, and statements in the certificates that the same are insured by PDIC are not binding upon the latter.

x x x  The mere fact that a certificate recites on its face that a certain sum has been deposited, or that officers of the bank may have stated that the deposit is protected by the guaranty law, does not make the guaranty fund liable for payment, if in fact a deposit has not been made xxx.  The banks have nothing to do with the guaranty fund as such.  It is a fund raised by assessments against all state banks, administered by officers of the state to protect deposits in banks.  x x x[12]

We come now to petitioner’s second assigned error.

In order that a claim for deposit insurance with the PDIC may prosper, the law requires that a corresponding deposit be placed in the insured bank.  This is implicit from a reading of the following provisions of R.A. 3519:

SECTION 1. There is hereby created a Philippine Deposit Insurance Corporation.  xxx which shall insure, as provided, the deposits of all banks which are entitled to the benefits of insurance under this Act xxx.  (Italics supplied).

xxx

SEC. 10 (a) xxx

xxx

( c) Whenever an insured bank shall have been closed on account of insolvency, payment of the insured deposits in such bank shall be made by the Corporation as soon as possible xxx.  (Italics supplied.)

A deposit as defined in Section 3(f) of R.A. No. 3591, may be constituted only if money or the equivalent of money is received by a bank:

SEC. 3.  As used in this Act-

(f) The term “deposit” means the unpaid balance of money or its equivalent received by a bank in the usual course of business and for which it has given or is obliged to give credit to a commercial, checking, savings, time or thrift account or which is evidence by passbook, check and/or certificate of deposit printed or issued in accordance with Central Bank rules and regulations and other applicable laws, together with such other obligations of a bank which, consistent with banking usage and practices, the Board of Directors shall determine and prescribe by regulations to be deposit liabilities of the Bank xxx.  (Italics ours.)

Did RSB receive money or its equivalent when it issued the certificates of time deposit?  The Court of Appeals, in resolving who between RSB and PFC issued the certificates to private respondents, answered this question in the negative.  A perusal of the impugned decision, however, reveals that such finding is grounded entirely on speculation, and thus, cannot bind this Court: [13]

Equally unimpressive is the contention of PDIC and RSB that the certificates were issued to PFC which did not acquire the same for value because the check issued by the latter for the certificates bounced for insufficiency of funds.  First, granting arguendo that the certificates were originally issued in favor of PFC, such issuance could only give rise to the presumption that the amount stated in the certificates have been deposited to RSB.  Had not PFC deposited the amount stated therein, then RSB would have surely refused to issue the certificates certifying to such fact.  Second, why did not RSB demand that PFC pay the certificates or file a claim against PFC on the ground that the latter failed to pay for the value of the certificates?  It could very well be that the reason why RSB did not run after PFC for payment of the value of the certificates was because the instruments were issued to the latter by RSB for value or were already paid to RSB by plaintiffs-appellees.  Third, if it is true at the time RSB issued the certificates to PFC, the instruments were paid for with checks still to be encashed, then why did not RSB specifically state in the certificates that the validity thereof hinges on the encashment of said check?  Fourth, even if it is true that PFC did not deposit with or pay the RSB the amount stated in the certificates, the latter is not be such reason freed from civil liability to plaintiffs-appellees.  For, by issuing the certificates, RSB bound itself to pay the amount stated therein to whoever is the bearer upon its presentment for encashment.  Truly, there is no reason to depart from the established principle that were a bank issues a certificate of deposit acknowledging a deposit made with a third person or an officer of the bank, or with another bank representing it to be the certificate of the bank, upon which

assurance the depositor accepts it, the bank is liable for the amount of the deposit (Michis, Banks and Banking, Vol. 5A, pp. 48-49, as cited in the Decision on p. 3 thereof).[14]

Moreover, such finding totally ignores the evidence presented by defendants.  Cardola de Jesus, RSB Deputy Liquidator, testified that RSB received three (3) checks in consideration for the issuance of several CTDs, including the ones in dispute.  The first check amounted to P159,153.93, the second, P121,665.95, and the third, P125,846.07.  In consideration of the third check, private respondents received thirteen (13) certificates of deposit with Nos. 09648 to 09660, inclusive, with a value of P10,000.00 each or a total ofP130,000.00.  To conform with the value of the third check, CTD No. 09648 was “chopped,” and only the sum of P5,846.07 was credited in favor of private respondents.  The first two checks “made good in the clearing” while the third was returned for being “drawn” against insufficient funds.”

The check in question appears on the records as Exhibit “3” (for Regent),[15] and is described in RSB’s offer of evidence as “Traders Royal Bank Check No. 292555 dated September 22, 1983 covering the amount or P125,846.07 xxx issued by Premiere Financing Corporation.”[16] At the back of said check are the words “Refer to Drawer,” [17] indicating that the drawee bank (Traders Royal Bank) refused to pay the value represented by said check.  By reason of the check’s dishonor, RSB cancelled the corresponding as evidenced by an RSB “ticket” dated November 4, 1983.[18]

These pieces of evidence convincingly show that the subject CTDs were indeed issued without RSB receiving any money therefor.  No deposit, as defined in Section 3 (f) of R.A. No. 3591, therefore came into existence.  Accordingly, petitioner PDIC cannot be held liable for value of the certificates of time deposit held by private respondents.

ACCORDINGLY, the instant petition is hereby GRANTED and the decision of the Court of Appeals REVERSED.  Petitioner is absolved from any liability to private respondents.

SO ORDERED

Philippine Deposit Insurance Corporation vs. Court of Appeals

G.R. No. 126911 April 30, 2003

Carpio-Morales, J.:

FACTS: Prior to May 22, 1997, respondents had 71 certificates of time deposits denominated as "Golden Time Deposits" (GTD) with an aggregate face value of P1,115,889.96. May 22, 1987, a Friday, the Monetary Board (MB) of the Central Bank of the Philippines, now Bangko Sentral ng Pilipinas, issued Resolution 5052 prohibiting Manila Banking Corporation to do business in the Philippines, and placing its assets and affairs under receivership. The Resolution, however, was not served on MBC until Tuesday the following week, or on May 26, 1987, when the designated Receiver took over. On May 25, 1987 - the next banking day following the issuance of the MB Resolution, respondent Jose Abad was at the MBC at 9:00 a.m. for the purpose of pre-terminating the71 aforementioned GTDs and re-depositing the fund represented thereby into 28 new GTDs in denominations of P40,000.00 or less under the names of herein respondents individually or jointly with each others Of the 28 new GTDs, Jose Abad pre-terminated 8 and withdrew the value thereof in the total amount of P320,000.00. Respondents thereafter filed their claims with the PDIC for the payment of the remaining 20 insured GTDs. February 11, 1988, PDIC paid respondents the value of 3 claims in the total amount of P120,000.00. PDIC, however, withheld payment of the 17 remaining claims after Washington Solidum, Deputy Receiver of MBC-Iloilo, submitted a report to the PDIC that there was massive conversion and substitution of trust and deposit accounts on May 25, 1987 at MBC-Iloilo. Because of the report, PDIC entertained serious reservation in recognizing respondents' GTDs as deposit liabilities of MBC-Iloilo. Thus, PDIC filed a petition for declaratory relief against respondents with the RTC of Iloilo City, for a judicial declaration determination of the insurability of respondents' GTD sat MBC-Iloilo. In their Answer respondents set up a counterclaim against PDIC whereby they asked for payment of their insured deposits. The Trial Court ordered petitioners to pay the balance of the deposit insurance to respondents. The Court of Appeals affirmed the decision of the lower court. Petitioner posits that the trial court erred in ordering it to pay the balance of the deposit insurance to respondents, maintaining that the instant petition stemmed from a petition for declaratory relief which does not essentially entail an executory process, and the only relief that should have been granted by the trial court is a declaration of the parties' rights and duties. As such, petitioner continues, no order of payment may arise from the case as this is beyond the office of declaratory relief proceedings. ISSUE: Whether or not the trial court order the payment of the balance even if the petition stemmed from a petition for declaratory relief which does not essentially entail an executor process.

HELD: YES. Without doubt, a petition for declaratory relief does not essentially entail an executory process. There is nothing in its nature, however, that prohibits a counter claim from

being set-up in the same action. There is nothing in the nature of a special civil action for declaratory relief that prescribes the filing of a counterclaim based on the same transaction, deed or contract subject of the complaint. A special civil action is after all not essentially different from an ordinary civil action, which is generally governed by Rules 1 to 56 of the Rules of Court, except that the former deals with a special subject matter which makes necessary some special regulation. But the identity between their fundamental nature is such that the same rules governing ordinary civil suits may and do apply to special civil actions if not inconsistent with or if they may serve to supplement the provisions of the peculiar rules governing special laws.

Case Digest_Republic v CabriniFacts:AMLC issued freeze orders against various bank accounts of respondents. The frozenaccounts were previously found prima facie to be related to the unlawful activities of therespondents. The AMLC filed with the CA various petitions. It invoked the jurisdiction of the CAin the belief that the power given to the CA to issue a TRO or writ of injunction against anyfreeze order issued by the AMLC carried with it the power to extend the effectivity of a freezeorder. The CA disagreed and dismissed the petitions.Issue:Which court has jurisdiction to extend the effectivity of a freeze order?Held:The amendment by RA 9194 of RA 9160 erased any doubt on the jurisdiction of the CAover the extension of freeze orders. As the law now stands, it is solely the CA which has theauthority to issue a freeze order as well as to extend its effectivity. It also has the exclusive jurisdiction to extend existing freeze orders previously issued by the AMLC vis-à-vis accountsand deposits related to money-laundering activities

REPUBLIC OF THE PHILIPPINES, represented by the ANTI-MONEYLAUNDERING COUNCIL VS. GLASGOW CREDIT ANDCOLLECTION SERVICES, INC. and CITYSTATE SAVINGS BANK, INC.FACTS:On July 18, 2003, petitioner filed a complaint for civil forfeiture of assets withthe RTC of Manila against the bank deposits in account number CS – 005-10-000121-5 maintained by GLASGOW in CSBI. The case was filed pursuant to RA 9160 or theAnti-Money Laundering Act of 2001.On July 21, 2003, the RTC of Manila issued a 72-hour TRO. And on August8 ,   2 0 0 3   a   w r i t   o f   p r e l i m i n a r y   i n j u n c t i o n   w a s   i s s u e d .   M e a n w h i l e ,  s u m m o n s   t o GLASGOW was returned “unserved” as it could no longer be found at its last knownaddress.On October 8, 2003, petitioner filed a verified omnibus motion for a) issuanceof alias summons and b) leave of court to serve summons by publication. On October 15, 2003, the trial court directed the issuance of alias summons. No mention wasmade of the motion for leave of court to serve summons by publication.O n   J a n u a r y   3 0 ,   2 0 0 4 ,   t h e   t r i a l   c o u r t   a r c h i v e d   t h e   c a s e   f o r   f a i l u r e   o f t h e Republic to serve alias summons. The Republic filed an ex parte omnibus motion tor e i n s t a t e t h e c a s e a n d r e s o l v e t h e m o t i o n f o r l e a v e o f c o u r t t o s e r v e s u m m o n s b y  publication.

 O n   M a y   3 1 ,   2 0 0 4 ,   t h e   t r i a l   c o u r t   o r d e r e d   t h e   r e i n s t a t e m e n t   o f   t h e  c a s e directing the Republic to serve the alias summons to Glasgow and CSBI within 15 days.On July 12, 2004, petitioner received a copy of the sheriff’s return stating thatthe alias summons was returned “unserved” as GLASGOW was no longer holdingoffice at the given address since July 2002.On August 11, 2005, petitioner filed a manifestation and ex parte motion to resolve its motion for leave of court to serve summons by publication.On August 12, 2005, the OSG received a copy of GLASGOW’s motion todismiss by way of special appearance alleging that 1) the court had no jurisdiction o v e r i t s p e r s o n a s s u m m o n s h a d n o t y e t b e e n s e r v e d o n i t 2 ) t h e c o m p l a i n t w a s  premature and stated no cause of action and 3) there was failure to prosecute on the  part of the Republic.On October 17, 2005, the trial court dismissed the case on the grounds of 1) improper venue 2) insufficiency of the complaint in form and substance and 3) failureto prosecute and lifted the writ of preliminary injunction.Petitioner filed a petition for review.ISSUE:Whether or not the complaint for civil forfeiture was properly instituted.

 RULING:S e c . 1 2 ( a ) o f R A 9 1 6 0 p r o v i d e s t w o c o n d i t i o n s w h e n a p p l y i n g f o r c i v i l forfeiture:1 . w h e n t h e r e i s s u s p i c i o u s t r a n s a c t i o n r e p o r t o r a   c o v e r e d t r a n s a c t i o n report deemed suspicious after investigation by the AMLC;2.the court has,  in a petition filed for the purpose; ordered the  seizure of any monetary instrument or property, in whole or in part, directly or  indirectly, related to said report.T h e   w r i t   o f   p r e l i m i n a r y   i n j u c t i o n   i s s u e d   o n   A u g u s t 8 ,   2 0 0 3   r e m o v e d a c c o u n t   n o .   C A - 0 0 5 - 1 0 - 0 0 0 1 2 1 - 5   f r o m   t h e   e f f e c t i v e   c o n t r o l  o f   e i t h e r   GLASGOW or CSBI or their representatives or agents and subjected it to the process of the court. Since this account was covered by several suspicious reports and placed under the control of the trial court upon the issuance of thewrit, the conditions provided in Section 12 (a) of RA 9160 were satisfied. The petitioner properly instituted the complaint for civil forfeiture

Republic v Judge Eugenio G.R. No. 174629, February 14, 2008MARCH 16, 2014LEAVE A COMMENTSec. 2 of the Bank Secrecy Act itself prescribes exceptions whereby these bank accounts may be examined by any person, government official, bureau or offial; namely when: (1) upon written permission of the depositor; (2) in cases of impeachment; (3) the examination of bank accounts is upon order of a competent court in cases of bribery or dereliction of duty of public officials; and (4) the money deposited or invested is the subject matter of the litigation. Section 8 of R.A. Act No. 3019, the Anti-Graft and Corrupt Practices Act, has been recognized by this Court as constituting an additional exception to the rule of absolute confidentiality, and there have been other similar recognitions as well.[

Facts: Under the authority granted by the Resolution, the AMLC filed an application to inquire into or examine the deposits or investments of Alvarez, Trinidad, Liongson and Cheng Yong before the RTC of Makati, Branch 138, presided by Judge (now Court of Appeals Justice) Sixto Marella, Jr. The application was docketed as AMLC No. 05-005. The Makati RTC heard the testimony of the Deputy Director of the AMLC, Richard David C. Funk II, and received the documentary evidence of the AMLC.[14] Thereafter, on 4 July 2005, the Makati RTC rendered an Order (Makati RTC bank inquiry order) granting the AMLC the authority to inquire and examine the subject bank accounts of Alvarez, Trinidad, Liongson and Cheng Yong, the trial court being satisfied that there existed p]robable cause [to] believe that the deposits in various bank accounts, details of which appear in paragraph 1 of the Application, are related to the offense of violation of Anti-Graft and Corrupt Practices Act now the subject of criminal prosecution before the Sandiganbayan as attested to by the Informations, Exhibits C, D, E, F, and G Pursuant to the Makati RTC bank inquiry order, the CIS proceeded to inquire and examine the deposits, investments and related web accounts of the four.[16]

Meanwhile, the Special Prosecutor of the Office of the Ombudsman, Dennis Villa-Ignacio, wrote a letter dated 2 November 2005, requesting the AMLC to investigate the accounts of Alvarez, PIATCO, and several other entities involved in the nullified contract. The letter adverted to probable cause to believe that the bank accounts were used in the commission of unlawful activities that were committed a in relation to the criminal cases then pending before the Sandiganbayan. Attached to the letter was a memorandum on why the investigation of the [accounts] is necessary in the prosecution of the above criminal cases before the Sandiganbayan. In response to the letter of the Special Prosecutor, the AMLC promulgated on 9 December 2005 Resolution No. 121 Series of 2005, [19] which authorized the executive director of the AMLC to inquire into and examine the accounts named in the letter, including one maintained by Alvarez with DBS Bank and two other accounts in the

name of Cheng Yong with Metrobank. The Resolution characterized the memorandum attached to the Special Prosecutors letter as extensively justif[ying] the existence of probable cause that the bank accounts of the persons and entities mentioned in the letter are related to the unlawful activity of violation of Sections 3(g) and 3(e) of Rep. Act No. 3019, as amended.Issue: Whether or not the bank accounts of respondents can be examined.

Held: Any exception to the rule of absolute confidentiality must be specifically legislated. Section 2 of the Bank Secrecy Act itself prescribes exceptions whereby these bank accounts may be examined by any person, government official, bureau or offial; namely when: (1) upon written permission of the depositor; (2) in cases of impeachment; (3) the examination of bank accounts is upon order of a competent court in cases of bribery or dereliction of duty of public officials; and (4) the money deposited or invested is the subject matter of the litigation. Section 8 of R.A. Act No. 3019, the Anti-Graft and Corrupt Practices Act, has been recognized by this Court as constituting an additional exception to the rule of absolute confidentiality, and there have been other similar recognitions as well.The AMLA also provides exceptions to the Bank Secrecy Act. Under Section 11, the AMLC may inquire into a bank account upon order of any competent court in cases of violation of the AMLA, it having been established that there is probable cause that the deposits or investments are related to unlawful activities as defined in Section 3(i) of the law, or a money laundering offense under Section 4 thereof. Further, in instances where there is probable cause that the deposits or investments are related to kidnapping for ransom,[certain violations of the Comprehensive Dangerous Drugs Act of 2002,hijacking and other violations under R.A. No. 6235, destructive arson and murder, then there is no need for the AMLC to obtain a court order before it could inquire into such accounts. It cannot be successfully argued the proceedings relating to the bank inquiry order under Section 11 of the AMLA is a litigation encompassed in one of the exceptions to the Bank Secrecy Act which is when money deposited or invested is the subject matter of the litigation. The orientation of the bank inquiry order is simply to serve as a provisional relief or remedy. As earlier stated, the application for such does not entail a full-blown trial. Nevertheless, just because the AMLA establishes additional exceptions to the Bank Secrecy Act it does not mean that the later law has dispensed with the general principle established in the older law that all deposits of whatever nature with banks or banking institutions in the Philippines x x x are hereby considered as of an absolutely confidential nature. Indeed, by force of statute, all bank deposits are absolutely confidential, and that nature is unaltered even by the legislated exceptions referred to above.