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Banking Law case DIGEST

(General banking law and Central Bank Act


cases.)

Both petitioners and respondents appealed to the CA. CA


affirmed the decision of the trial court.

Banco Filipino vs. Ybaez

What is the effect of the temporary closure of Banco Filipino


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

Facts
Respondents obtained a loan secured by a mortgage over TCT
69836 from Banco Filipino, to be used for the construction of a
commercial building in Cebu. They obtained an additional
loan, thus increasing their obligation to one million pesos. A
corresponding Amendment of Real Estate Mortgage was
thereafter executed.
Four years later (1982), their loan was again restructured, and
it was increased to 1,225,000, to which a promissory note has
been issued payable in 15 years. The mortgage contract was
again amended. Respondents total payment from 1983 to
1988 amounted to around 1.4m (including
interests/penalties).
From 1989 onwards, respondents did not pay a single centavo.
They alleged that Banco Filipino had ceased operations
and/or was not allowed to continue business, having been
placed under liquidation by the Central Bank.
On January 15, 1990, respondents lawyer wrote Special Acting
Liquidator, Renan Santos, and requested that plaintiff return
the mortgaged property of the respondents since it had
sufficiently profited from the loan and that the interest and
penalty charges were excessive. Petitioner bank denied the
request. Banco Filipino was closed on January 1, 1985 and reopened for business on July 1, 1994. From its closure to its reopening, petitioner bank did not transact any business with its
customers.
On August 24, 1994, respondents were served a Notice of Extra
Judicial Sale of their property covered by TCT No. 69836 to
satisfy their indebtedness allegedly of P6,174,337.46 which
includes the principal, interest, surcharges and 10% attorneys
fees. The public auction was scheduled on September 22, 1994
at 2:00 in the afternoon.
On September 19, 1994, respondents filed a suit for
Injunction, Accounting and Damages, alleging that there was
no legal and factual basis for the foreclosure proceedings
since the loan had already been fully paid.
A restraining order was issued the following day by the
lower court enjoining petitioner to cease and desist from
selling the property at a public auction. The trial court ordered
that Banco Filipino shall make a proper accounting of the
obligation of the respondents, reducing the interests and
the surcharge (21 to 17% per annum interests, eliminated
1% surcharge per month), and enjoining the foreclosure,
unless the respondents still failed to pay.

Issues

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


(3) Is the 3% monthly surcharge valid?
Ratio
Effect of temporary closure
In Banco Filipino Savings and Mortgage Bank v. Monetary
Board , the validity of the closure and receivership of Banco
Filipino was put in issue. But the pendency of the case did
not diminish the authority of the designated liquidator to
administer and continue the banks transactions. The Court
allowed the banks liquidator to continue receiving
collectibles and receivables or paying off creditors claims
and other transactions pertaining to normal operations of
a bank. Among these transactions were the prosecution of suits
against debtors for collection and for foreclosure of mortgages.
The bank was allowed to collect interests on its loans
while under liquidation, provided that the interests were
legal. Interests and surcharges
Is the 21% interest rate usurious? NO. We note that at the
time the parties entered into the said loan agreement, the
pertinent law, Act No. 2655, already provided that the rate of
interest for the forbearance of money when secured by a
mortgage upon real estate should not be more than 12%
per annum or the maximum rate prescribed by the
Monetary Board and in force at the time the loan was
granted.
On December 1, 1979, the Monetary Board of the Central Bank
of the Philippines had issued CBP Circular No. 705-79. On loan
transactions with maturities of more than 730 days, it fixed the
effective rate of interest at 21% per annum for both secured
and unsecured loans. Since the loan in question has fixed 15
years for its maturity, it fell within the coverage of said CBP
Circular. Thus, we agree that the 21% interest is not violative
of the Usury Law as it stood at the time of the loan transaction.
As to the monthly surcharge, petitioner relies on CBP
Circular No. 905-82] the ceiling on interest rates prescribed
by the Usury Law, according to petitioner, were expressly
removed.
Petitioner argues that the said circular had retroactive
effect since it is merely procedural in nature. Hence
according to petitioner, the imposition of 3% monthly
surcharge by the bank against the borrower is legal.
NO MERIT. CBP Circular No. 905-82, which was effective
January 1, 1983, did not repeal nor in any way amend the
Usury Law. The Circular simply suspended the effectivity of

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


cannot, and should not, be presumed.
The loan was entered into on December 24, 1982, but CBP
Circular No. 905-82 was given force and effect only on January
1, 1983. Thus, CBP Circular No. 905-82 could not be made
applicable to the loan agreement in this case, and petitioner
could not rely on this Circular for its imposition of 3% monthly
surcharge.
Petitioner also argues that the 3% monthly surcharge partakes
of the nature of a penalty clause. A penal clause is an
accessory undertaking to assume greater liability in case of
breach and is attached to an obligation in order to secure its
performance. The penalty shall substitute the indemnity for
damages and the payment of interests in case of noncompliance. But if such stipulation is found contrary to law
for being usurious, it can be nullified by the courts
without affecting the principal obligation.
In the loan agreement between the parties in this case,
the total interest and other charges exceed the prescribed
21% ceiling. Hence, the imposition of the 3% monthly
surcharge, as the penal clause to the obligation, violated
the limit imposed by the Usury Law. Said surcharge of 3%
monthly must be declared null and void.
To recapitulate: the respondents principal obligation to pay
the monthly amortization of P22,426, validly subsists. Only the
3% monthly surcharge is void.
The monthly amortization of P22,426, for 15 years, would
amount to P4,036,680. To date, respondents already paid the
amount of P1,455,385.07. Thus, only the outstanding balance
of P2,581,294.93 remains due.
Respondents were given by the RTC 30 days from receipt
of decision, within which to pay their outstanding
obligation. We now reiterate that period of 30 days, from
receipt of this Decision, for respondents to pay the amount
of P2,581,294.93 to the bank as full payment of the
outstanding balance on their loan obligation. Otherwise, the
order of injunction restraining petitioner from foreclosing
the property shall be lifted.

PCIB V. CA
350 SCRA 446
FACTS:
Ford Philippines filed actions to recover from the drawee
bank Citibank and collecting bank PCIB the value of
several checks payable to the Commissioner of Internal
Revenue which were embezzled allegedly by an organized
syndicate. What prompted this action was the drawing
of a check by Ford, which it deposited to PCIB as
payment and was debited from their Citibank account. It
later on found out that the payment wasnt received by the
Commissioner. Meanwhile, according to the NBI report, one
of the checks issued by petitioner was withdrawn from PCIB
for alleged mistake in the amount to be paid. This was
replaced with managers check by PCIB, which were
allegedly stolen by the syndicate and deposited in their
own account. The trial court decided in favor of Ford.
ISSUE:
Has Ford the right to recover the value of the checks intended
as payment to CIR?
HELD:
The checks were drawn against the drawee bank but the
title of the person negotiating the same was allegedly
defective because the instrument was obtained by fraud
and unlawful means, and the proceeds of the checks
were not remitted to the payee. It was established that
instead paying the Commissioner, the checks were diverted
and encashed for the eventual distribution among members of
the syndicate.
Pursuant to this, it is vital to show that the
negotiation is made by the perpetrator in breach of faith
amounting to fraud. The person negotiating the checks
must have gone beyond the authority given by his
principal. If the principal could prove that there was no
negligence in the performance of his duties, he may set up
the personal defense to escape liability and recover from
other parties who, through their own negligence, allowed
the commission of the crime.
It should be resolved if Ford is guilty of the imputed
contributory negligence that would defeat its claim for
reimbursement, bearing in mind that its employees were
among the members of the syndicate. It appears although
the employees of Ford initiated the transactions
attributable to the organized syndicate, their actions
were not the proximate cause of encashing the checks
payable to CIR. The degree of Fords negligence
couldnt be characterized as the proximate cause of the
injury to parties. The mere fact that the forgery was

committed by a drawer-payors confidential employee or


agent, who by virtue of his position had unusual facilities
for perpetrating the fraud and imposing the forged paper
upon the bank, doesnt entitle the bank to shift the loss to the
drawer-payor, in the absence of some circumstance raising
estoppel against the drawer.
Note: not only PCIB but also Citibank is responsible for
negligence. Citibank was negligent in the performance of
its duties as a drawee bank. It failed to establish its
payments of Fords checks were made in due course and
legally in order.

Rural Bank of San Miguel v Monetary


Board
It is well-settled that the closure of a bank may be considered
as an exercise of police power. The action of the MB on this
matter is final and executory. Such exercise may nonetheless
be subject to judicial inquiry and can be set aside if found to be
in excess of jurisdiction or with such grave abuse of discretion
as to amount to lack or excess of jurisdiction.
Facts:
Monetary Board (MB), the governing board of respondent
Bangko Sentral ng Pilipinas (BSP), issued Resolution No.
105 prohibiting RBSM from doing business in the
Philippines, placing it under receivership and designating
respondent Philippine Deposit Insurance Corporation
(PDIC) as receiver on the basis of the comptrollership
reports of the banks supervising head. To assist its impaired
liquidity and operations, the RBSM was granted emergency
loans on different occasions in the aggregate amount of P375.
As early as November 18, 1998, Land Bank of the Philippines
(LBP) advised RBSM that it will terminate the clearing of
RBSMs checks in view of the latters frequent clearing
losses and continuing failure to replenish its Special Clearing
Demand Deposit with LBP. The BSP interceded with LBP not to
terminate the clearing arrangement of RBSM to protect the
interests of RBSMs depositors and creditors. On the basis of
reports prepared by PDIC stating that RBSM could not
resume business with sufficient assurance of protecting the
interest of its depositors, creditors and the general public, the
MB passed Resolution No. 966 directing PDIC to proceed
with the liquidation of RBSM under Section 30 of RA 7653.
Issue: Whether or not the Monetary Board can unilaterally
close a bank without prior hearing
Held: No. It is well-settled that the closure of a bank may be
considered as an exercise of police power. The action of the
MB on this matter is final and executory. Such exercise may
nonetheless be subject to judicial inquiry and can be set aside if
found to be in excess of jurisdiction or with such grave abuse of
discretion as to amount to lack or excess of jurisdiction.

This case essentially boils down to one core issue: whether


Section 30 of RA 7653 (also known as the New Central Bank
Act) and applicable jurisprudence require a current and
complete examination of the bank before it can be closed and
placed under receivership. The actions of the Monetary Board
taken under this section or under Section 29 of this Act shall
be final and executory, and may not be restrained or set
aside by the court except on petition for certiorari on the
ground that the action taken was in excess of jurisdiction or
with such grave abuse of discretion as to amount to lack or
excess of jurisdiction. The petition for certiorari may only be
filed by the stockholders of record representing the majority of
the capital stock within ten (10) days from receipt by the board
of directors of the institution of the order directing
receivership, liquidation or conservatorship.

Damaso Perez vs. Monetary Board


Being an artificial person, The Central Bank is limited to its
statutory powers and the nearest power to which
prosecution of violators of banking laws may be attributed
is its power to sue and be sued. But this corporate power of
litigation evidently refers to civil cases only. Violations of
banking laws constitute a public offense, the prosecution of
which is a matter of public interest and hence, anyone
even private individuals can denounce such violations
before the prosecuting authorities.
Facts: Damaso Perez, for himself and in a derivative capacity
on behalf of the Republic Bank, instituted mandamus
proceedings in the Court of First Instance of Manila against
the Monetary Board, the Superintendent of Banks, the
Central Bank and the Secretary of Justice. His object was to
compel these respondents to prosecute, among others, Pablo
Roman and several other Republic Bank officials for violations
of the General Banking Act and the Central Bank Act, and
for falsification of public or commercial documents in
connection with certain alleged anomalous loans amounting to
P1,303,400.00 authorized by Roman and the other bank
officials.
Respondents, Monetary Board, the Superintendent of
Banks, the Central Bank and the Secretary of Justice their
respective answers, the propriety of mandamus. The Secretary
of Justice claimed that it was not their specific duty to
prosecute the persons denounced by Perez. The Central Bank
and its respondent officials, on the other hand, averred that
they had already done their duty under the law by referring to
the special prosecutors of the Department of Justice for
criminal investigation and prosecution those cases involving
the alleged anomalous loans.
Issue: Whether or not these respondents may be
compelled to prosecute criminally the alleged violators of
banking laws.
Held:
As for the Secretary of Justice, while he may have the power to
prosecute through the office of the Solicitor General

criminal cases, yet it is settled rule that mandamus will not lie
to compel a prosecuting officer to prosecute a criminal case in
court.
Perez cannot seek by mandamus to compel respondents to
prosecute criminally those alleged violators of the banking
laws. Although the Central Bank and its respondent officials
may have the duty under the Central Bank Act and the
General Banking Act to cause the prosecution of those alleged
violators, yet there is nothing in said laws that impose a clear,
specific duty on the former to do the actual prosecution of the
latter. The Central Bank is a government corporation created
principally to administer the monetary and banking system
of the Republic, not a prosecution agency like the fiscals
office. Being an artificial person, The Central Bank is limited
to its statutory powers and the nearest power to which
prosecution of violators of banking laws may be attributed is
its power to sue and be sued. But this corporate power of
litigation evidently refers to civil cases only. Central Bank and
its officers have already done what they can by referring
the matter to the special prosecutors of the Department of
Justice for prosecution and investigation. Moreover, it is a
settled rule that mandamus will not lie to compel a prosecuting
officer, like the Secretary of Justice, to prosecute a case in
court.
Violations of banking laws constitute a public offense, the
prosecution of which is a matter of public interest and
hence, anyone even private individuals can denounce such
violations before the prosecuting authorities. Since Perez
himself could cause the filing of criminal complaints against
those allegedly involved in the anomalous loans, if any, then he
has a plain, adequate and speedy remedy in the ordinary
course of law, which makes mandamus against respondents
improper. Hence, the order of the lower court dismissing
the petition was affirmed.

BPI vs. IAC


Facts: Spouses Arthur & Vivienne Canlas opened a joint
account in Commercial Bank & Trust Comp (CBTC) with
initial deposit of P2,250. Arthur Canlas had an existing
separate personal account in the same branch. Upon
opening the joint account, the new accounts teller pulled out
form the banks files the old and existing signature card of
Arthur Canlas, for ID and reference. By mistake, she placed
the old personal account number of Arthur Canlas on the
deposit slip for the new joint checking account of the spouses
so that the initial deposit of P2,250 for the joint checking
account was miscredited to Arthur's personal account. The
spouses subsequently deposited other amounts in their
joint account. As a consequence, two checks were
dishonored which the Canlas had issued against their joint
account. The bank was unable to contract the spouses
because of a wrong address. Spouses Canlas filed a complaint
for damages against CBTC in CFI Pampanga. During the
pendency of the case, the Bank of the Philippine Islands
(BPI) and CBTC were merged. As the surviving corporation
under the merger agreement and under Section 80 (5) of
the Corporation Code of the Philippines, BPI took over the

prosecution and defense of any pending claims, actions or


proceedings by and against CBTC. RTC Pampanga rendered a
decision against BPI, ordering them to pay actual damages
(P5,000), moral damages (P300,000), and exemplary
damages (P150,000). On appeal, the IAC deleted the actual
damages and reduced the other awardsactual
damages(P50,000), moral damages (P50,000) and exemplary
damages(P50,000).
Issue: Whether or not BPI is guilty of gross negligence in
the handling of the spouses Canlas bank account.
Held:
YES. IAC decision modified by deleting the award of exemplary
damages. The bank is not expected to be infallible but it
must bear the blame for not discovering the mistake of its
teller despite the established procedure requiring the papers
and bank books to pass through a battery of bank personnel
whose duty it is to check and countercheck them for
possible errors. Apparently, the officials and employees
tasked to do that did not perform their duties with due care, as
may be gathered from the testimony of the bank's lone witness,
Antonio Enciso, who casually declared that "the approving
officer does not have to see the account numbers and all
those things. Those are very petty things for the
approving manager to look into." Unfortunately, it was a "petty
thing," like the incorrect account number that the bank teller
wrote on the initial deposit slip for the newly-opened joint
current account of the Canlas spouses that sparked this half-amillion-peso damage suit against the bank. While the
bank's negligence may not have been attended with malice
and bad faith, nevertheless, it caused serious anxiety,
embarrassment and humiliation to the private respondents
for which they are entitled to recover reasonable moral
damages.
However, the absence of malice and bad faith renders the
award of exemplary damages improper.

their assigned tasks even though the former are not engaged in
any business or activity.

PHILIPPINE SAVINGS BANK VS.


CHOWKING FOOD CORPORATION

Facts: The RTC ordered petitioner PSBank and its Bustos


Branch Head, Erlinda O. Santos, to reimburse respondent
Chowking the amount corresponding to five (5) illegally
encashed checks. The total amount of the subject checks
reached P556,981.86. On the respective due dates of each
check, Chowking's acting accounting manager, Rino T.
Manzano, endorsed and encashed said checks with the Bustos
branch of respondent PSBank. All the five checks were
honored by defendant Santos, even with only the endorsement
of Manzano approving them.
The signatures of the other authorized officers of respondent
corporation were absent in the five (5) checks, contrary to
usual banking practice. Unexpectedly, Manzano absconded
with and misappropriated the check proceeds. When
Chowking found out Manzano's scheme, it demanded
reimbursement from PSBank. When PSBank refused to pay,
Chowking filed a complaint for a sum of money with damages
before the RTC. In its Answer, petitioner did not controvert the
foregoing facts, but denied liability to respondent for the
encashed checks. RTC rendered judgment in favor of
respondent. On motion for reconsideration of the plaintiff, the
RTC reversed its earlier decision and dismissed Chowking's
complaint. In its appeal, CA granted the petition reinstating the
first decision of the RTC.
Issue: WON banks' required diligence is that of pater familias.
Ruling: CA decision affirmed. Petition Denied.
It cannot be over emphasized that the banking business is
impressed with public interest. Of paramount importance is
the trust and confidence of the public in general in the
banking industry. Consequently, the diligence required of
banks is more than that of a Roman pater familias or a good
father of a family. The highest degree of diligence is expected.
In its declaration of policy, the General Banking Law of 2000
requires of banks the highest standards of integrity and
performance. Needless to say, a bank is "under obligation to
treat the accounts of its depositors with meticulous care. The
fiduciary nature of the relationship between the bank and the
depositors must always be of paramount concern.
"Art. 2176. Whoever by act or omission causes damage to
another, there being fault or negligence, is obliged to pay
for the damage done....Art. 2180. The obligation imposed by
Art. 2176 is demandable not only for one's own acts or
omissions but also for those of persons for whom one is
responsible.
x x x xEmployers shall be liable for the damage caused by their
employees and household helpers acting within the scope of

x x x xThe responsibility treated of in this article shall cease


when the persons herein mentioned prove that they observed
all the diligence of a good father of a family to prevent
damage."x x x
However, with banks like PSB, the degree of diligence required
is more than that of a good father of a family considering that
the business of banking is imbued with public interest due to
the nature of its functions. Highest degree of diligence is
needed which PSB, in this case, failed to observe. x x x Its
argument that it should no be held responsible for the
negligent acts of Santos because those were independent acts x
x x perpetrated without its knowledge and consent is without
basis in fact and in law. Assuming that PSB did not err in
hiring Santos for her position, its lack of supervision over
her made it solidarily liable for the unauthorized
encashment of the checks involved. In the supervision of
employees, the employer must formulate standard
operating procedures, monitor their implementation and
impose disciplinary measures for the breach thereof. The
appellee, in this case, presented no evidence that it
formulated rules/guidelines for the proper performance of
functions of its employees and that it strictly implemented
and monitored compliance therewith. x x x

METROBANK V. CABLIZO
FACTS:
Cablizo maintained an account with petitioner. It drew a check
payable to cash payable to a certain Marquez, for the
latters sales commission. The check was subsequently
deposited in Westmont bank and the latter submitted it
with Metrobank for clearing. The check was cleared.
Thereafter, the banks representative asked Cablizo if he
issued a check for P91,000. The answer was in the
negative. This prompted Cablizo to call Metrobank and ask
for the recrediting of P90,000 but petitioner failed to
recredit the amount prompting Cablizo to file an action
against it.
HELD:
An alteration is said to be material if it alters the effect of
the instrument. It means an unauthorized change in the
instrument that purports to modify in any respect the
obligation of a party or an unauthorized addition of
words or numbers or other change to an incomplete
instrument relating to the obligation of the party. In
other words, a material alteration is one which changes
the items which are required to be stated under Section 1 of
the NIL.
The check in issue was materially altered when its amount
was increased from P1000 to P91000. Cablizo was not the
one who authorized or made such increase. There is no

showing that he was negligent in exercising what was


due in a prudent man which could have otherwise
prevented the loss. Cablizo was never remiss in the
preparation and issuance of the check.
The doctrine of equitable estoppel is inapplicable
against Cablizo. This doctrine states that when one of the
two innocent person, each guiltiness of an intentional or moral
wrong, must suffer a loss, it must be borne by the one whose
erroneous conduct, either by omission or commission, was
the cause of the injury. Negligence is never presumed.
Metrobank was actually the one remiss in its duties.
The CA took into consideration that the alterations were
actually visible in the eye and yet the bank allowed
someone not acquainted with the examination of checks to
do the same. Furthermore, it cannot rely on the
indorsement of Westmont Bank of the check. It should
have exercised meticulous care in handling the affairs of its
clients especially if the clients money is involved.

Republic of the Philippines vs. Security


Credit and Acceptance
An investment company which loans out the money of its
customers, collects the interest and charges a commission to
both lender and borrower, is a bank. It is conceded that a total
of 59,463 savings account deposits have been made by the
public with the corporation and its 74 branches, with an
aggregate deposit of P1,689,136.74, which has been lent out
to such persons as the corporation deemed suitable
therefore. It is clear that these transactions partake of the
nature of banking, as the term is used in Section 2 of the
General Banking Act.
Facts: The Solicitor General filed a petition for quo
warranto to dissolve the Security and Acceptance
Corporation, alleging that the latter was engaging in
banking operations without the authority required therefor
by the General Banking Act (Republic Act No. 337). Pursuant
to a search warrant issued by MTC Manila, members of Central
Bank intelligence division and Manila police seized
documents and records relative to the business operations
of the corporation.
After examination of the same, the intelligence division of
the Central Bank submitted a memorandum to the then Acting
Deputy Governor of Central Bank finding that the corporation
is engaged in banking operations. It was found that Security
and Acceptance Corporation established 74 branches in
principal cities and towns throughout the Philippines; that
through a systematic and vigorous campaign undertaken by
the corporation, the same had managed to induce the public to
open 59,463 savings deposit accounts with an aggregate
deposit of P1,689,136.74; Accordingly, the Solicitor General
commenced this quo warranto proceedings for the dissolution
of the corporation, with a prayer that, meanwhile, a writ of
preliminary injunction be issued ex parte, enjoining the
corporation and its branches, as well as its officers and

agents, from performing the banking operations complained


of, and that a receiver be appointed pendente lite.
Superintendent of Banks of the Central Bank was then
appointed by the Supreme Court as receiver pendente lite of
defendant corporation. In their defense, Security and
Acceptance Corporation averred that the corporation had
filed with the Superintendent of Banks an application for
conversion into a Security Savings and Mortgage Bank,
with defendants Zapa, Balatbat, Tanjutco (Pablo and Vito,
Jr.), Soriano, Beltran and Sebastian as proposed directors.
Issue: Whether or not defendant corporation was
engaged in banking operations.
Held. An investment company which loans out the
money of its customers, collects the interest and charges a
commission to both lender and borrower, is a bank. It is
conceded that a total of 59,463 savings account deposits
have been made by the public with the corporation and its 74
branches, with an aggregate deposit of P1,689,136.74, which
has been lent out to such persons as the corporation
deemed suitable therefore. It is clear that these transactions
partake of the nature of banking, as the term is used in Section
2 of the General Banking Act. Hence, defendant corporation has
violated the law by engaging in banking without securing the
administrative authority required in Republic Act No. 337.
That the illegal transactions thus undertaken by defendant
corporation warrant its dissolution is apparent from the
fact that the foregoing misuse of the corporate funds and
franchise affects the essence of its business, that it is willful
and has been repeated 59,463 times, and that its continuance
inflicts injury upon the public, owing to the number of persons
affected thereby.

SALVACION VS. CENTRAL BANK


FACTS: Greg Bartelli, an American tourist, was arrested for
committing four counts of rape and serious illegal
detention against Karen Salvacion. Police recovered from
him several dollar checks and a dollar account in the
China Banking Corp. He was, however, able to escape from
prison. In a civil case filed against him, the trial court awarded
Salvacion moral, exemplary and attorneys fees amounting to
almost P1,000,000.00.
Salvacion tried to execute the judgment on the dollar deposit of
Bartelli with the China Banking Corp. but the latter refused
arguing that Section 11 of Central Bank Circular No. 960
exempts foreign currency deposits from attachment,
garnishment, or any other order or process of any court,
legislative body, government agency or any administrative
body whatsoever. Salvacion therefore filed this action for
declaratory relief in the Supreme Court.
ISSUE: Should Section 113 of Central Bank Circular No.
960 and Section 8 of Republic Act No. 6426, as amended by
PD 1246, otherwise known as the Foreign Currency Deposit
Act be made applicable to a foreign transient?

HELD: NO.
The provisions of Section 113 of Central Bank Circular No. 960
and PD No. 1246, insofar as it amends Section 8 of Republic Act
No. 6426, are hereby held to be INAPPLICABLE to this case
because of its peculiar circumstances. Respondents are hereby
required to comply with the writ of execution issued in the civil
case and to release to petitioners the dollar deposit of Bartelli
in such amount as would satisfy the judgment.
Supreme Court ruled that the questioned law makes futile
the favorable judgment and award of damages that Salvacion
and her parents fully deserve. It then proceeded to show that
the economic basis for the enactment of RA No. 6426 is not
anymore present; and even if it still exists, the questioned law
still denies those entitled to due process of law for being
unreasonable and oppressive. The intention of the law may be
good when enacted. The law failed to anticipate the iniquitous
effects producing outright injustice and inequality such as the
case before us.
The SC adopted the comment of the Solicitor General who
argued that the Offshore Banking System and the Foreign
Currency Deposit System were designed to draw deposits from
foreign lenders and investors and, subsequently, to give the
latter protection. However, the foreign currency deposit made
by a transient or a tourist is not the kind of deposit encouraged
by PD Nos. 1034 and 1035 and given incentives and protection
by said laws because such depositor stays only for a few days
in the country and, therefore, will maintain his deposit in the
bank only for a short time. Considering that Bartelli is just a
tourist or a transient, he is not entitled to the protection of
Section 113 of Central Bank Circular No. 960 and PD No. 1246
against attachment, garnishment or other court processes.
Further, the SC said: In fine, the application of the law depends
on the extent of its justice. Eventually, if we rule that the
questioned Section 113 of Central Bank Circular No. 960
which exempts from attachment, garnishment, or any other
order or process of any court, legislative body, government
agency or any administrative body whatsoever, is
applicable to a foreign transient, injustice would result
especially to a citizen aggrieved by a foreign guest like accused
Greg Bartelli. This would negate Article 10 of the New Civil
Code which provides that in case of doubt in the
interpretation or application of laws, it is presumed that the
lawmaking body intended right and justice to prevail.
NOTES:
On February 4, 1989, Greg Bartelli y Northcott, an American
tourist, coaxed and lured petitioner Karen Salvacion, then
12 years old to go with him to his apartment. Therein, Greg
Bartelli detained Karen Salvacion for four days, or up to
February 7, 1989 and was able to rape the child once on
February 4, and three times each day on February 5, 6, and
7, 1989. On February 7, 1989, after policemen and people
living nearby, rescued Karen, Greg Bartelli was arrested

and detained at the Makati Municipal Jail. The policemen


recovered from Bartelli the following items: 1.) Dollar
Check No. 368, Control No. 021000678-1166111303, US
3,903.20; 2.) COCOBANK Bank Book No. 104-108758-8
(Peso Acct.); 3.) Dollar Account China Banking Corp.,
US$/A#54105028-2; 4.) ID-122-30-8877; 5.) Philippine Money
(P234.00) cash; 6.) Door Keys 6 pieces; 7.) Stuffed Doll (Teddy
Bear) used in seducing the complainant.

Miranda vs. Court of Appeals


Solidary liability cannot attach to the BSP, in its capacity
as government regulator of banks, and the PDIC as
statutory receiver under R.A. No. 7653, because they are
the principal government agencies mandated by law to
determine the financial viability of banks and quasi-banks,
and facilitate receivership and liquidation of closed financial
institutions, upon a factual determination of the latters
insolvency.
Facts: Leticia G. Miranda (Miranda) was a depositor of Prime
Savings Bank. She withdrew substantial amounts from her
account, but instead of cash she opted to be issued a crossed
cashiers check in the sum of P2,500,000 and cashiers check in
the amount of P3,002,000. Petitioner deposited the two
checks into her account in another bank on the same day,
however, Bangko Sentral ng Pilipinas (BSP) suspended the
clearing privileges of Prime Savings Bank effective 2:00 p.m. of
June 3, 1999. The two checks of petitioner were returned
to her unpaid. Subsequently, Prime Savings Bank declared
a bank holiday. The BSP placed Prime Savings Bank under
the receivership of the Philippine Deposit Insurance
Corporation (PDIC).
Petitioner filed a civil action for sum of money in the
Regional Trial Court to recover the funds from her unpaid
checks against Prime Savings Bank, PDIC and the BSP. The
court rendered judgment against defendants and ordered them
to pay the plaintiff. On appeal, the Court of Appeals
reversed the trial court and ruled in favor of the PDIC and
BSP, dismissing the case against them, without prejudice to
the right of petitioner to file her claim before the court
designated to adjudicate on claims against Prime Savings
Bank. Petitioners motion for reconsideration was denied.
Hence, this petition.
Issue: Whether or not the PDIC are solidarily liable to pay
the petitioner.
Held: Only Prime Savings Bank that is liable to pay for the
amount of the two cashiers checks. Solidary liability cannot
attach to the BSP, in its capacity as government regulator of
banks, and the PDIC as statutory receiver under R.A. No. 7653,
because they are the principal government agencies mandated
by law to determine the financial viability of banks and
quasi-banks, and facilitate receivership and liquidation of
closed financial institutions, upon a factual determination of
the latters insolvency. However, in a situation involving
the element of fraud, where a cashiers check is purchased

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


know or are bound to know by the exercise of
reasonable diligence, it has been held that the purchase is
entitled to a preference in the assets of the bank on its
liquidation before the check is paid. Hence, the CA decision is
affirmed with modification that the claim of petitioner
Miranda is entitled to preference in the assets of PSB in its
liquidation.

Simex International (Manila) Inc. vs. Court


of Appeals
A bank may be held liable for damages by reason of its
unjustified dishonor of a check, which caused damage to its
clients credit standing. The bank must record every single
transaction accurately, down to the last centavo, and as
promptly as possible. This has to be done if the account is to
reflect at any given time the amount of money the depositor
can dispose of as he sees fit, confident that the bank will
deliver it as and to whomever he directs. The bank is a
fiduciary of the depositors money.
Facts: Simex International is a private corporation engaged
in the exportation of food products. It buys these products
from various local suppliers and then sells them abroad to the
Middle East and the United States. Most of its exports are
purchased by the petitioner on credit. Simex was a
depositor of the Far East Savings Bank and maintained a
checking account in its branch in Cubao, Quezon City which
issued several checks against its deposit but was surprised
to learn later that they had been dishonored for
insufficient funds. As a consequence, several suppliers sent
a letter of demand to the petitioner, threatening
prosecution if the dishonored check issued to it was not
made good and also withheld delivery of the order made by
the petitioner. One supplier also cancelled the petitioners
credit line and demanded that future payments be made by it
in cash or certified check. The petitioner complained to the
respondent bank.
Investigation disclosed that the sum of P100,000.00 deposited
by the petitioner on May 25, 1981, had not been credited
to it. The error was rectified only a month after, and the
dishonored checks were paid after they were re-deposited. The
petitioner then filed a complaint in the then Court of First
Instance of Rizal against the bank for its gross and wanton
negligence.
Issue: Whether or not the bank can be held liable for
negligence by reason of its unjustified dishonor of a check
Held: The depositor expects the bank to treat his
account with the utmost fidelity whether such account
consists only of a few hundred pesos or of millions. The bank
must record every single transaction accurately, down to
the last centavo, and as promptly as possible. This has to
be done if the account is to reflect at any given time the
amount of money the depositor can dispose of as he sees fit,

confident that the bank will deliver it as and to whomever he


directs. A blunder on the part of the bank, such as the
dishonour of a check without good reason, can cause the
depositor not a little embarrassment if not also financial loss
and perhaps even civil and criminal litigation.
Article 2205 of the Civil Code provides that actual or
compensatory damages may be received (2) for injury to
the plaintiff s business standing or commercial credit.
There is no question that the petitioner did sustain actual
injury as a result of the dishonored checks and that the
existence of the loss having been established absolute
certainty as to its amount is not required. 7 Such injury
should bolster all the more the demand of the petitioner for
moral damages and justifies the examination by this Court of
the validity and reasonableness of the said claim.