Firstsem SPCL Edited

Deans
Circle 2016
SPECIAL COMMERCIAL LAWS DEANS CIRCLE
2016
UNIVERSITY OF SANTO TOMAS
Digested by: DC 2016 Members
Editors: Tricia Lacuesta

Lorenzo Luigi Gayya
Cristopher Reyes
Macky Siazon
Janine Arenas
Ninna Bonsol
Lloyd Javier
SPECIAL COMMERCIAL
LAWS
FIRST SEM CASES
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Table of Contents
LETTERS OF CREDIT
Definition and Nature of Letters of Credit 2
Laws Governing Letters of Credit 9
Kinds of Letters of Credit 10
Parties to a Letter of Credit 14
Basic Principle of Letters of Credit 21
TRUST RECEIPT LAW
Definition/Concept of a Trust Receipt Transaction 28
Ownership of the Goods, Documents and Instruments under a Trust Receipt 36
Obligation and Liability of the Entrustee 39
Return of Goods, Documents or Instruments in Case of Non-Sale 47
Liability for Loss of Goods, Documents or Instruments 48
Penal Sanctions if Offender is a Corporation 49
Remedies Available 51
WAREHOUSE RECEIPT'S LAW 56
BANKING LAWS
General Banking Law of 2000
Definition and Classification of Banks 60
Distinction of Banks from Quasi-Banks and Trust Entities 61
Bank Powers and Liabilities 62
Banking and Incidental Powers 64
Diligence Required of Banks 64
Nature of Bank Funds and Bank Deposits 77
Stipulation on Interests 78
Grant of Loans and Security Requirements 82
DOSRI Restrictions 83
The New Central Bank Act
Responsibility and Primary Objective 86
Monetary Board - Powers and Functions 88
How the BSP handles Banks in Distress
Conservatorship 90
Closure 92
Receivership 100
Liquidation 104
Law on Secrecy of Bank Deposits
Purpose 111
Prohibited Acts 112
Deposits Covered 113
Exceptions 115
Garnishment of Deposits, Including Foreign Deposits 125
Anti-Money Laundering Act
Unlawful Activities or Predicate Crimes 129
Freezing of Monetary Instrument or Property 131
MISCELLANEOUS TOPICS
PDIC 132
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Truth in Lending 134

Letters or Credit
Definition and Nature of Letters of Credit
BANK OF AMERICA, NT & SA v. CA, INTER-RESIN INDUSTRIAL CORPORATION, FRANCISCO TRAJANO,

JOHN DOE AND JANE DOE
G.R. No. 105395, December 10, 1993, VITUG, J.
A letter of credit is a financial device developed to facilitate commercial transactions. Banks play
different roles in such transactions, each of which carries different rights and liabilities; if a bank is an advising
bank based on the provisions in the letter of credit, and other documents presented as evidence, it incurs no
liability under the letter of credit as its only role is to inform a possible client of the existence of the letter of
credit, nothing more.
Facts:
Bank of America entered into an Irrevocable Letter of Credit purportedly issued by Bank of Ayudhya
for the account of General Chemicals Ltd. to cover the sale of plastic ropes and agricultural files, with Bank of
America as the advising bank and Inter-Resin as the beneficiary. Bank of America wrote Inter-Resin of the
foregoing and transmitted the letter of credit. Inter-Resin then sought to confirm the letter of credit, but Bank
of America did not, as they explained that there was no need for confirmation because the letter would not be
transmitted if it were not genuine.
Relying on this, Inter-Resin sought to avail of the letter of credit, using it to ship rope to General
Chemicals. Bank of America then issued checks in favor of Inter-Resin, after which it informed Bank of
Ayudhya of the availment of the letter of credit, seeking reimbursement in the process. Bank of Ayudhya
declared the letter of credit fraudulent, so Bank of America stopped the processing of Inter-Resin's
documents.
Issue:
Whether or not Bank of America incurred any liability to the beneficiary (Inter-Resin) under the
letter of credit.
Ruling:
NO.Bank of America merely acted as an advising bank. A letter of credit is a financial device
developed by merchants to facilitate commercial transactions. It was developed as an attempt to satisfy the
seemingly irreconcilable interests of a seller, who refuses to part with his goods before he is paid, and a buyer,
who wants to have control of the goods before paying.
To break the impasse, the buyer (here, General Chemicals) may be required to contract a bank to
issue a letter of credit in favor of the seller so that, by virtue of the letter, the issuing bank (here, Bank of
Ayudhya) can authorize the seller (here, Inter-Resin) to draw drafts and engage to pay them upon
presentment along with tender of documents required by the letter of credits (such documents are those
evidencing the shipment). Once the credit is established, the seller ships the goods to the buyer and in the
process the required shipping documents. To get paid, the seller executes a draft and presents it together with
the required documents to the issuing bank. The issuing bank redeems the draft and pays cash to the seller if
it finds that the documents submitted by the seller conform with what the letter of credit requires. The bank
then obtains possession of the documents upon paying the seller. The transaction is completed when the
buyer reimburses the issuing bank and acquires the documents entitling him to the goods. Under this
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arrangement, the seller gets paid only if he delivers the documents of title over the goods, while the buyer
acquires said documents and control over the goods only after reimbursing the bank.
One of the types of letters of credit is the commercial letter of credit, as in this case. A commercial
letter of credit is a contractual agreement between a bank, known as the issuing bank, on behalf of one of its
customers, authorizing another bank, known as the advising or confirming bank, to make payment to the
beneficiary. The issuing bank, on the request of its customer, opens the letter of credit. The issuing bank
makes a commitment to honor drawings made under the credit. The beneficiary is normally the provider of
goods and/or services. Essentially, the issuing bank replaces the bank's customer as the payor.
What makes letters of credit attractive is the independence of the engagement of the issuing bank to
pay the seller of the draft and the presentment of required shipping documents from any breach of the main
sales contract. The bank determines compliance only by the examination of shipping documents, without
looking at the main contract.
In modern commerce, the rights and liabilities of banks in letters of credit depend on its role in the
transaction. In this case, the conflict is on the role of Bank of America. If it is the issuing bank, it may be liable
for the letter of credit as it handles payment of the draft to the seller. If it is an advising bank, it is not liable on
the transaction as its sole role is to inform the seller of the existence of the credit. Indicia of its role as an
advising bank can be found on the letter of credit itself (e.g. the draft that will be used for payment would be
partly the engagement of the Bank of Ayudhya, which is the issuing bank), a letter of advice (and related fees
that were paid by Inter-Resin), and a letter expressly stating that Bank of America has no engagement under
the letter of credit). Given this, it is not liable on the letter of credit.
______________________________________________________________________________________________________________________________
PRUDENTIAL BANK v. IAC, PHILIPPINE RAYON MILLS INC., ANACLETO R. CHI

G.R. No. 74886, December 8, 1992, DAVIDE, JR. J.
Liability on a letter of credit is created through the honouring of drafts or other demands for payment
upon compliance with the conditions specified in the credit. When this occurs, a bank substitutes its own promise
to pay (and would later pay a certain seller) in place of a customer (who would reimburse the bank).
Facts:
Philippine Rayon Mills (PRMI) entered into a contract with Nissho Co., Ltd of Japan for the
importation of textile machineries.. PRMI applied for a commercial letter of credit (LOC) with Prudential Bank
and Trust Company in favor of Nissho. Against this LOC, sight drafts were drawn and issued by Nissho, which
were all paid by the Prudential Bank through its correspondent in Japan, the Bank of Tokyo. These drafts were
accepted by PRMI through its president, Anacleto Chi. Upon arrival of machineries, Prudential Bank indorsed
the shipping documents to PRMI, which accepted delivery of the same.
PRMI executed, by prior arrangement with PB, a trust receipt (TC) which was signed by Anacleto Chi
in his capacity as President. At the back of the trust receipt is a printed form to be accomplished by 2 sureties
who are jointly and severally liable to the PB should PRMI fail to pay the total amount or any portion of the
drafts.
PRMI ceased business operation. The obligation of PRMI from the LOC and TC remained unpaid and
unliquidated. Demands were made but yielded no result.
Prudential Bank then instituted an action for collection against PRMI and Analceto Chi.
Issue:
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WhetherPRMI is liable on the basis of the letter of credit.
Ruling:
YES. A letter of credit is an engagement by a bank or other person made at the request of a customer
that the issuer will honor drafts or other demands for payment upon compliance with the conditions specified
in the credit. Through a LOC, the bank merely substitutes its own promise to pay for one of its customers who
in return promised to pay the bank the amount of funds mentioned (in this case, PRMI, in order to make
purchases with Nissho).
In this case, the drawee (the bank that would honor the drafts) was Prudential Bank. It was to
Prudential Bank that the drafts were presented for payment-- in this case, sight drafts payable on demand
(the presentment). When the sight drafts were presented, based on the engagement in the letter of credit,
Prudential Bank would make payments to the seller, Nissho, and would be reimbursed by the buyer, PRMI. In
this regard, PRMI is liable on the basis of the letter of credit.
______________________________________________________________________________________________________________________________
FEATI BANK and TRUST COMPANY v. COURT OF APPEALS and BERNARDO E. VILLALUZ
G.R. No. 94209, April 30, 1991, GUTIERREZ, Jr. J.
A letter of credit, though possibly used as collateral, is an undertaking in itself, distinct from the other
contracts related to it (e.g. sale). A breach in a related contract generally does not create liability in other
contractsone such exception to this rule is when a corresponding bank takes the role of a confirming bank in
the transaction, as the bank assumes a direct and primary obligation as if it had issued the letter of credit.
Facts:
Bernando Villaluz agreed to sell to Axel Christiansen lauan logs. Upon inspecting the logs,
Christiansen issued a purchase order. To pay for the logs, upon the instructions of the consignee, Hanmi Trade
Development, the Security Pacific National Bank of Los Angeles (SPNB) issued an Irrevocable Letter of Credit
available at sight in favor of Villaluz for the purchase price of the logs. The letter of credit was mailed to Feati
Bank and Trust Company (Feati Bank) with the instruction that it be forwarded to the beneficiary.
The draft would be drawn on SPNB, and that for it to be honored, it must be accompanied with
several documents, including a certification from Christiansen stating that the logs have been approved before
shipment in line with the purchase order.
The logs were loaded on the shipping vessel and inspected by customs inspectors, who all certified
the good condition and exportability of the logs. Notwithstanding the favorable conditions, Christiansen
refused to issue the certification required by the letter of credit in spite of requests made by Villaluz. Without
the certification, Feati Bank refused to advance the payment on the letter of credit. As Christiansen kept up his
refusal to issue the needed certification, the letter of the credit lapsed, while the logs reached their consignee.
Villaluz then filed a case against Christiansen and Feati Bank in order to compel the execution of the
required certification, and to hold the two liable-- in particular, Feati Bank for releasing the funds to
Christiansen in spite of non-compliance with the requirements in the letter of credit.
Issue(s):
Whether Feati Bank is liable under the letter of credit despite non-compliance with its terms.
Ruling:
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NO. Two things should be considered here (per BPI v Nery, Art. 2 of Code of Commerce, and the
Uniform Customs and Practice for Documentary Credits): first, in commercial transactions involving letters of
credit, the functions assumed by correspondent banks depend on the obligations taken up by them. If the
bank is a notifying bank, its only obligation is to transmit to the beneficiary the existence of the letter of credit.
If a negotiating bank, it purchases and discounts drafts under the letter of credit, and it would be liable
depending on the stage of the negotiation-- if prior to negotiation, there is no liability to the seller but after
that, it would breach its contract with the seller. If a confirming bank, the correspondent bank assumes a
direct and primary obligation to assume the obligation as if the corresponding bank had issued the letter of
credit.
Second, a letter of credit (especially an irrevocable letter of credit) is a contract independent from the
contract between the buyer and the seller, and the credit agreement between the issuing bank and the buyer.
Breaches and liabilities in one contract may not affect the other contracts. That is, while it provides security
for commercial transactions, it is not an accessory contract (such as a guaranty)-- it is a contract with
obligations within itself, some of which are related to those in other contracts (e.g. the letter of credit is used
in order to facilitate a sale, but the letter of credit is not the sale contract-- it is a contract that can be used as
part of the means of payment). Treating the contract as an accessory destroys the independence of the banks
responsibility from the contract upon which it was opened.
Feati Bank's sole involvement is that of a notifying bank. It forwarded the letter of credit from SPNB
to the beneficiary (the seller). Villaluz claims that Feati is a confirming bank, that it would carry out SPNB's
obligation as if it is own since there was a prior loan agreement that anticipated the letter of credit
(characterizing it as a confirmation and as an accessory). However, the law requires that the undertaking be
absolutely spelled out in order for a bank to be considered confirming. Neither can Feati be considered a
negotiating bank with liability, as there did not seem to be any negotiation that would create a contractual
relationship. Without these, it does appear that Feati Bank really only advised Villaluz of the letter of credit,
and entered into no other obligation with him. It is not privy to whatever agreements Villaluz may have had
with Christiansen. Apparently, Villaluz had a contract akin to one with services with Christiansen, which the
latter breached when he refused to issue the certification. However, his unjustified refusal is a matter between
the two men, and not the bank.
______________________________________________________________________________________________________________________________
MWSS v. HON. REYNALDO DAWAY and MAYNILAD WATER SERVICES

G.R. No. 160732, June 21, 2004, AZCUNA, J.
Except when a letter of credit specifically stipulates otherwise, the obligation of the banks issuing letters
of credit are solidary with that of the person or entity requesting for its issuance, since a letter of credit
constitutes a direct, primary, absolute and definite undertaking to pay the beneficiary upon the presentation of
the set of documents required therein.
Facts:
MWSS granted Maynilad, under a Concession Agreement, a twenty-year period to conduct various
services for the existing MWSS water delivery and sewerage services in the West Zone Service Area, for which
Maynilad undertook to pay the corresponding concession fees on the dates agreed upon in the said
agreement. Among the means they relied upon are foreign loans. To secure Maynilad's performance of
obligations under the agreement, Maynilad was required to put up a bond, bank guarantee, or other security
acceptable to MWSS. To meet this requirement, Maynilad arranged for a three-year credit facility with foreign
banks, led by Citicorp International Ltd., for the issuance of an Irrevocable Standby Letter of Credit in favor of
MWSS.
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Months after the arrangement, Maynilad and MWSS had difficulties negotiating possible solutions to
Maynilad's supposed losses given the PHP's depreciation against the USD, even leading to unilateral
suspension of payment of concession fees. They eventually reached an agreement.
In spite of that agreement, Maynilad served upon MWSS a Notice of Event of Termination, claiming
that MWSS failed to comply with its obligations under the Concession Agreement and their agreed-upon
amendments. MWSS challenged this, leading to an award in favor of MWSS.
As a result, MWSS submitted a written notice to Citicorp, as agent of the foreign banks, that by virtue
of Maynilad's failure to perform its obligations under the Concession agreement, it would draw on the
mentioned letter of credit. Prior to this, Maynilad filed a petition for rehabilitation which resulted in Stay
Orders that would conflict with the letter of credit.
Issue:
Whether MWSS may draw on the letter of credit in spite of the stay order.
Ruling:
YES. As stated in Feati Bank v. CA, an irrevocable letter of credit is not a guaranty-- that is, not an
accessory contract, but a primary obligation by a bank or other person made at the request of a customer that
the issuer shall honor drafts or other demands of payment upon compliance with conditions specified in the
credit. What distinguishes a letter of credit from other accessory contracts is that an issuing bank is to pay the
seller upon presentment of the draft and required shipping documents. In effect, an undertaking to pay at
sight conditioned upon delivery of the required documents.
This should be read alongside the rule on rehabilitation stay orders. Stay orders prevent the
enforcement of claims against the debtor, and guarantees and sureties who are not solidarily liable with the
debtor.
The claim is one against the participating banks. Based on the letter of credit (in fact, explicit in its
terms), they have a primary, direct, definite and absolute undertaking to pay that is not conditioned on prior
exhaustion of the debtor's assets: a surety. As such, the doctrine in Traders Royal Bank v CA applies: the
claims can be pursued separately from and independently of the rehabilitation case.
______________________________________________________________________________________________________________________________
RELIANCE COMMODITIES v. DAEWOO INDUSTRIAL CO., LTD.

G.R. No. L-100831, December 17, 1993, FELICIANO, J.
Letters of credit transactions are composed of at least three distinct relationships concretized in a
contract or set thereof. Such relationships may form obligations that exist and are enforceable separately.
Facts:
Reliance Commodities and Daewoo entered into a contract of sale under the terms of which Daewoo
would ship and deliver foundry pig iron. Pursuant to this, Daewoo shipped from Korea the said stock, but
when the cargo arrived in Manila, it came out short.
Months later, another set of contracts were made, with the final contract including a provision on
payment through an irrevocable letter of credit in favor of Daewoo. To accomplish this, Reliance filed with
Chinabank an application for a letter of credit in favor of Daewoo. Such was endorsed to the Iron and Steel
Authority for approval, but was denied. Because of the denial, Reliance had to submit purchase orders from
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end-users to support its application for a letter of credit, but did not make its target. Daewoo rejected the
proposed letter of credit.
As it turned out, the failure of Reliance to open the letter of credit was due to its exceeding its foreign
exchange allocation. Daewoo was forced to sell the pig iron to another buyer at a lower price in order to
recoup some of its losses, and then requested payment for the amount represented by the short delivery. The
request failed, leading to an action for damages with the trial court.
Issue:
Whether or not the failure of Reliance (an importer) to open a letter of credit on the terms agreed
upon makes it liable to Daewoo (exporter) for damages.
Ruling:
YES. A letter of credit transaction is a composite of at least three distinct but intertwined
relationships being concretized in the contract: the account party or buyer or importer to the beneficiary of
the letter of credit (export or seller)-- here, Reliance agrees to pay Daewoo based on the terms of the contract;
the account party and the issuing bank (the Application)-- Reliance tried to apply to Chinabank for the letter
of credit, and had the letter of credit been approved, they would reimburse the bank for amounts paid by that
bank pursuant to the letter of credit; and the issuing bank and the beneficiary, in order to support the
contract; finally, the account party and the beneficiary to, inter alia, pay certain monies to each other. Other
parties may be included, but the foregoing are indispensable. Note that these relationships represent different
obligations that have separate lifespans.
This case is centered on the contractual relation between the importer and exporter (the first one).
Although the contract refers to a letter of credit, it was not meant to be a condition precedent-- only a mode of
payment. The contract had already been perfected. Consequently, the rights and obligations embodied in the
contract now arise regardless of the failure of the application for the letter of credit-- it was enforceable.
The letter of credit was the mechanism of payment for the pig iron. When an issuing bank undertakes
to accept or pay the drafts presented, the bank in effect issues a loan to the account party. This feature, along
with the bank's undertaking to accept the beneficiary's drafts drawn on the bank, is what makes a letter of
credit a mode of payment.
______________________________________________________________________________________________________________________________
CHARLES LEE, CHUA SIOK SUY, MARIANO SIO, ALFONSO YAP, RICHARD VELASCO and ALFONSO CO v. CA,
PHILIPPINE BANK OF COMMUNICATIONS
G.R. No. 117914, February 1, 2002, DE LEON, JR, J.
A letter of credit is not a negotiable instrument, which does not allow the pertinent presumptions to
apply, but instruments issued in conjunction with a letter of credit, such as bank drafts, may be negotiable.
Facts:
Charles Lee, as President of MICO Metals (MICO) wrote private respondent Philippine Bank of
Communications (PBCom) requesting for a grant of a discounting loan/credit line in the sum of three million
pesos for the purpose of carrying out MICOs line of business as well as to maintain its volume of business. On
the same day, Charles Lee requested for another discounting loan/credit line of three million pesos from
PBCom for the purpose of opening letters of credit and trust receipts. The proceeds of the loans were credited
to their checking account with the Philippine Bank of Communications (PBCom). Lee and several other
officers of the company executed surety agreements as part of the security for the loans.
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Sometime after, MICO then filed applications for domestic and foreign letters of credit. When the
applications were approved, trust receipts were executed in favor of PBCom, and in the case of the foreign
letters of credit, bills of lading and commercial invoices. These facilities were availed of by their beneficiaries,
and drafts were issued and later accepted by MICO.
MICO was eventually unable to repay their debts, leading to foreclosure of a real estate mortgage also
used as security, but that was not enough to completely pay the obligation (there were still remaining trust
receipts liabilities, for example). PBCom then demanded settlement with Lee and the other sureties, but they
refused to acknowledge their obligations. Aggrieved, PBCom filed a complaint with prayer for writ of
preliminary attachment before the RTC of Manila. Failure of delivery was one of the defences considered by
the RTC in ruling in favour of MICO. In the CA, the Court relied on two presumptions to overturn the ruling: (1)
that a negotiable instrument is deemed prima facie issued for valuable consideration and every person whose
signature appears thereon is a party for value, and (2) that an instrument sets out the true agreement of the
parties thereto and that it was executed for valuable consideration.
Issue:
Whether the CA erred in treating the letters of credit and trust receipts as negotiable instruments.
Ruling:
YES. Two presumptions were established by PBCom when it presented several documents, including
letters of credit, trust receipts, and drafts. First, that a negotiable instrument is deemed prima facie issued for
valuable consideration and that every person whose signature appears thereon to be a party for value. While
letters of credit and trust receipts are not negotiable instruments, bank drafts executed in connection with
letters of credit, which are distinct instruments, are negotiable. Second, that sufficient consideration was
given in a contract.
The documents allowed these presumptions to arise (particularly on the drafts, since they were
negotiable instruments), creating not merely a prima facie case but actual proof of a solidary obligation
between MICO and Lee (as well as the other sureties that signed). They establish that the agreements were
availed of, and the proceeds were delivered to MICO.
______________________________________________________________________________________________________________________________
BANK OF COMMERCE v. TERESITA S. SERRANO

G.R. No. 151895, February 16, 2005, QUISUMBING, J.
A letter of credit is a distinct from a trust receipt, creating separate obligations and liabilities.
Facts:
Via Moda International, represented by Teresita Serrano, obtained an export packing loan from Bank
of Commerce (BOC), secured by a Deed of Assignment over an irrevocable transferable letter of credit.
Serrano executed in favor of BOC a promissory note for the amount of the loan. Afterward, Via Moda opened a
deposit account for the loan's proceeds.
Sometime after, BOC issued to Via Moda the subject irrevocable letter of credit for the purchase and
importation of fabric and textile products from Tiger East Fabric Co. Ltd. of Taiwan. To secure the release of
the goods covered, Serrano, in representation of Via Moda, executed a trust receipt covering the shipment.
The goods were shipped by Via Moda to its proper consignee. However, the proceeds of the goods were not
credited to the trust receipt, but were applied to the export packing loan.
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BOC then sent a demand letter to Via Moda for the payment of the obligation on the trust receipts, or
return of the goods covered. The demand was not heeded, leading to an estafa case against Serrano. After an
RTC ruling in favor of BOC, the CA acquitted Serrano and said that she was not civilly liable.
Issue:
Whether Serrano is civilly liable based on the non-payment of the trust receipt.
Ruling:
NO. A letter of credit is a separate document from a trust receipt. While the trust receipt may have
been executed as security on the letter of credit, the two documents involve different undertakings and
obligations. The former is an engagement by a bank or other person made at the request of a customer that
the issuer will honor drafts or other demands for payment upon compliance with the conditions specified in
the credit. In contrast, the latter is one where the entruster, who holds an absolute title or security interests
over certain goods, documents or instruments, released the same to the entrustee, who executes a trust
receipt binding himself to hold the goods, documents or instruments in trust for the entruster and to sell or
otherwise dispose of the goods, documents and instruments with the obligation to turn over to the entruster
the proceeds thereof to the extent of the amount owing to the entruster, or as appears in the trust receipt, or
return the goods, documents or instruments themselves if they are unsold, or not otherwise disposed of, in
accordance with the terms and conditions specified in the trust receipt.
To BOC, Serrano has to account for two obligations: the guarantee clause in the letter of credit, and
the trust receipt. In the case of the former, the issue was never raised until the SC, and was not considered by
it. In the case of the latter, there was nothing on the trust receipt that showed that Serrano was personally
liable, or that she guaranteed the obligation. Serrano merely represented Via Moda, which has a separate
personality from her. Without reason to justify the piercing of the veil of corporate fiction, the obligation on
the trust receipt could not pertain to her.
Moreover, the SC agreed with the CA in finding that there was no misappropriation or conversion by
Serrano of the proceeds of the sale in the good subject of the trust receipt because it was BOC that unilaterally
applied the proceeds to the export packing loan. It should not create liability on Serrano who did not take part
or have any knowledge thereof. Hence, Serrano is not liable.
Laws Governing of Letters of Credit
BANK OF THE PHILIPPINE ISLANDS v. DE RENY FABRIC INDUSTRIES

G.R. No. L-24821, October 16, 1970, CASTRO, J.
In the absence of provision in our local laws, letters of credit are governed by established usage and
customs in commerce (e.g. Uniform Customs and Practices for Commercial Documentary Credits Fixed for the
Thirteenth Congress of International Chamber of Commerce).
Facts:
De Reny Fabric Industries, through its president and secretary, applied to BPI for four irrevocable
commercial letters of credit to cover the purchase by the corporation of dyestuffs of various colors from, JB.
The applications were approved, and the letters of credit were executed. Under these agreements, the
president and secretary bound themselves personally as joint and solidary debtors with the corporation.
By virtue of these transactions, BPI issued irrevocable commercial letters of credit addressed to its
correspond banks in the US, with instructions to inform the American supplier that they have been authorized
to negotiate the latter's sight drafts up to the amountsmentioned therein, respectively, if accompanied, upon
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presentation, by a full set of negotiable clean "on board" ocean bills of lading, covering the dyestuff. JB availed
of these facilities; with those availments, the correspondent banks then debited BPI's account with them.
When the shipments arrived in the Philippines, De Reny made partial payments but these were
discontinued when it turned out the goods were actually colored chalk instead of dyestuff. De Reny refused to
take possession of the goods, leading to BPI depositing the same in a bonded warehouse, and the present case
for collection. One of De Reny's defenses is that BPI has the duty to take the necessary precautions to insure
that the goods shipped under the covering letters of credit conformed with the item appearing therein. Any
losses that accrued should be burdened by BPI.
Issue:
Whether BPI insures that the goods shipped conform to the letters of credit.
Ruling:
NO. First, the letter of credit agreements show that the parties agreed that BPI shall not be
responsible for differences in character, quality, quantity, condition or value of the property from that
expressed in their documents (here, the dyestuff). Second, absent such provision, Art. 10 of the Uniform
Customs and Practices for Commercial Documentary Credits Fixed for the Thirteenth Congress of
International Chamber of Commerce, of which the Philipines is a signatory, states that in documentary credit
operations, all parties concerned deal in documents and not in goods. The bank is not required to verify the
goods themselves-- the bank was only tapped in order to allow engagement in international business. Such is
a custom applicable to commercial transactions that will apply regardless of the lack of provision in the
contract and in our laws.
BPI cannot be liable on the agreement due to both contract provisions and a custom taken as part of
our law.
Kinds of Letters of Credit
INSULAR BANK of ASIA and AMERICA v. INTERMEDIATE APPELLATE COURT, THE PHILIPPINE
AMERICAN LIFE INSURANCE CO., SPS. MENDOZA
G.R. No. 74834, November 17, 1988, MELENCIO-HERRERA, J.
A standby letter of credit is a definite undertaking to pay a money advanced or an amount for which
credit is given on the faith of the instrumentin effect, a security, but not an accessory contract. They are
distinct obligations from the original loan which they secure.
Facts:
The spouses Mendoza obtained two loans from Philam Life to finance the construction of their house.
To secure payments, Philam Life required that amortizations be guaranteed by an irrevocable standby letter
of credit of a commerical bank, leading the Mendozas to apply for the issuance of two such letters of credit
from Insular Bank of Asia and America. Such letters of credit were in turn secured by a real estate mortgage in
favor of the spouses' property.
The Mendozas failed to pay their loan, so that Philam Life informed Insular Bank that it was declaring
both loans as entirely due and demandable, and demanded their payment. IBAA contested the propriety of
calling in the entire loan, so Philam Life desisted and resumed availing of the letters of credit by drawing on
them for five more amoritzations.
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As time passed, the Mendozas still defaulted on their amortization, leading to another declaration
that the entire balance be immediately due and demandable. Philam Life also demanded payment from
Insular Bank, but it argued that it was a mere guarantor of the Mendozas, and that its obligation was much
less than what Philam Life demanded. It even demanded a refund as the Mendozas made partial payments
that reduced their liability.
While this went on, the real estate mortgage was foreclosed. Soon after, Philam Life sued the spouses
and Insular Bank for the recovery of the supposed balance.
Issue:
Whether or not partial payments made by the principal debtors (Mendoza spouses) would reduce the
liability of the guarantor (Insular Bank) under the terms of the standby letter of credit.
Ruling:
NO. In construing the terms of a letter of credit, as in other contracts, it is the intention of the parties
that must govern, also considering the usages of the particular trade of business contemplated. The standby
letter of credit secures the payment of any obligation of the debtor to the creditor. However, while they are
security arrangements, they are not contracts of guaranty. Rather, they are primary, independent contracts
that underline absolute undertakings to pay the money advanced or the amount for which credit is given on
the faith of the instrument.
Because of this, partial payments made by the Mendozas cannot be used in computing Insular Bank's
liability under its own standby letter of credit. Their obligation is distinct from the Mendoza's, although they
are related.
______________________________________________________________________________________________________________________________
TRANSFIELD PHILIPPINES INC. v. LUZON HYDRO CORPORATION, AUSTRALIA and NEW ZEALAND
BANKING GROUP LIMITED and SECURITY BANK CORPORATION
G.R. No. 146717, November 22, 2004, TINGA, J.
A standby letter of credit, while a security arrangement, is not an accessory contract such as guaranty.
Obligations to pay arise upon proof that the principal obligor has failed to meet his obligation, without need of
other proceedings.
Facts:
Transfield and Luzon Hydro Corporation (LHC) entered into a Turnkey contract whereby Transfield
undertook to construct a hydro-electric power station (project). To secure performance of its obligation,
Transfield opened in favor of LHC 2 standby letters ofcredit (securities), one with Australia and New Zealand
Banking Group Limited (ANZ Bank) and one with Security Bank Corporation (SBC).
Transfield sought various extensions of time to complete the project, due to factors such as force
majeure occasioned by typhoon Zeb, barricades and demonstrations. LHC denied the requests. LHC filed
before the Construction Industry Arbitration Commission (CIAC) a Request for Arbitration. Transfield filed
the same with the International Chamber of Commerce (ICC).
Foreseeing that LHC would call on the securities, Transfield advised ANZ Bank and SBC (banks) of the
arbitration proceedings, and that LHC had no right to call on the securities until resolution of the disputes.
Transfield warned the banks that any transfer or release of the securities in favor of LHC would make the
banks liable for damages
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LHC sent notice to Transfield that it failed to comply with its obligation to complete the project. LHC
then declared Transfield in default/delay. LHC served notice that it would call on the securities for the
payment of damages for the delay. In response, Transfield filed a comlaint for injunction, seeking to restrain
LHC from calling on the securities.
Issue:
Whether the beneficiary may call on the letters of credit.
Ruling:
YES. To start, there is a distinction between a commercial credit and a standby credit. The former is a
letter of credit that refers to the payment of money under a contract of sale, and is payable upon presentation
by the seller-beneficiary of documents that show he has taken affirmative steps to comply with the sales
agreement. Meanwhile, the latter is an undertaking to pay for non-performance of an agreement, and is
payable upon showing that the principal obligor has not performed the related contract. Such letters of credit
are separate contracts from the contracts by which they are based, even if such contracts are referenced in the
credit (the independence principle).
The letter of credit in this case is a standby letter of credit. By its nature, it is practically ministerial
for LHC to call on the securities upon Transfield's default. To require a prior negotiation or arbitration would
be to convert the same into a guarantee, which is not the nature of a letter of credit. Note that the securities
admit their liability.
Moreover, LHC's right is not only rooted in the law and usages in business, but the contract itself. All
in all, Transfield cannot pursue the injunction.
______________________________________________________________________________________________________________________________
PHILIPPINE VIRGINIA TOBACCO ADMINISTRATIONv.HON. WALFRIDO DE LOS ANGELES, Judge of the

Court of First Instance of Rizal, Branch IV (Quezon City) and TIMOTEO A. SEVILLA, doing business
under the name and style of PHILIPPINE ASSOCIATED RESOURCES and PRUDENTIAL BANK AND TRUST
COMPANY
G.R. No.L-27829, August 19, 1988, Paras, J.
An irrevocable letter of credit cannot, during its lifetime, be cancelled or modified without the express
permission of the beneficiary.
Facts:
Timoteo Sevilla, proprietor and General Manager of the Philippine Associated Resources (PAR)
entered into a contract for the importation of kilos of Virginia leaf tobacco and Farmers tobacco. Due to
prevailing export or world market price under which Sevilla will be exporting at a loss, the parties agreed that
Sevilla shall open an irrevocable letter of credit with the Prudential Bank and Trust Co. (Prudential Bank) in
favor of Philippine Virginia Tobacco Administration (PVTA)
While Sevilla was trying to negotiate the reduction of the procurement cost of the PVTA tobacco
already exported, PVTA prepared two (2) drafts to be drawn against the said letter of credit for the amounts
which have become due and payable. Sevilla filed an injunction against the release of funds with Prudential
Bank which was not granted byJudge Delos Angeles. Consequently, Judge Delos Angeles issued an order
directing Prudential Bank to make the questioned release of funds from the letters of credit.
Issue:
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Whether the respondent judgeacted with grave abuse of discretion in releasing the funds from the
letters of credit.
Ruling:
YES. Respondent Judge violated the irrevocability of the letter of credit issued by respondent Bank in
favor of petitioner. An irrevocable letter of credit cannot during its lifetime be cancelled or modified Without
the express permission of the beneficiary (Miranda and Garrovilla, Principles of Money Credit and Banking,
Revised Edition, p. 291). Consequently, if the finding the trial on the merits is that respondent Sevilla has
alleged unpaid balance due the petitioner, such unpaid obligation would be unsecured.
______________________________________________________________________________________________________________________________
FEATI BANK & TRUST COMPANY (now CITYTRUST BANKING CORPORATION) v.

THE COURT OF APPEALS, and BERNARDO E. VILLALUZ
G.R. No. 94209, April 30, 1991, Gutierrez, Jr., J.
The correspondent bank may be called a notifying bank, a negotiating bank, or a confirming bank.In
case of a notifying bank, the correspondent bank assumes no liability except to notify and/or transmit to the
beneficiary the existence of the letter of credit.A negotiating bank, on the other hand, is a correspondent bank
which buys or discounts a draft under the letter of credit. In the case of a confirming bank, the correspondent
bank assumes a direct obligation to the seller and its liability is a primary one as if the correspondent bank itself
had issued the letter of credit
Facts:
Bernardo Villaluz agreed to sell Lauan logs to Axel Christiansen which the latter will sell to Hanmi
Trade Development, Inc. in Korea. Thereafter, Security Pacific National Bank of Los Angeles (Issuing bank)
issued an irrevocable letter of credit in favor of Villaluz. Thereafter, the issuing bank instructed Feati Bank &
Trust Company (Corresponding bank) through an email to forward the enclosed letter of credit to Villaluz.
The said letter of credit provided terms and conditions which include a certification from Christiansen that
logs have been approved prior to its shipment in accordance with the latters purchasing order. Also
incorporated by reference in the letter of credit is the Uniform Customs and Practice for Documentary Credits.
Subsequently, when the logs were loaded on the ship after passing the inspection, Christiansen
refused to issue the said certification, hence, when Villaluz presented the other documents in compliance with
the terms and conditions, Feati refused payment on the letter of credit.
Since the demands by Villaluz for Christiansen to execute the certification proved futile, the former,
instituted an action for mandamus and specific performance against Christiansen andFeatibefore Court of
First Instance (CFI) of Rizal. It ruled that Feati assumed the very same undertaking as the issuing bank under
the terms of an irrevocable letter of credit by accepting the instructions from the issuing bank. The Court of
Appeals affirmed the CFI decision on the ground that when Featiaccepted its role as the notifying and
negotiating bank for and in behalf of the issuing bank, it in effect accepted a trust reposed on it, and became a
trustee in relation to plaintiff as the beneficiary of the letter of credit.Thus, Feati cannot be allowed to deny its
commitment and liability under the letter of credit.
Issue:
Whether a correspondent bank should be held liable under the letter of credit despite non-
compliance by the beneficiary with the terms thereof.
Ruling:
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NO.Since Featiwas only a notifying bank, its responsibility was solely to notify and/or transmit the
documentary of credit to the private respondent and its obligation ends there.
The notifying bank may suggest to the seller its willingness to negotiate, but this fact alone does not
imply that the notifying bank promises to accept the draft drawn under the documentary credit.
A notifying bank is not a privy to the contract of sale between the buyer and the seller, its relationship
is only with that of the issuing bank and not with the beneficiary to whom he assumes no liability.
In order that the petitioner may be held liable under the letter, there should be proof that the
petitioner confirmed the letter of credit.
The records are, however, bereft of any evidence which will disclose that the petitioner has confirmed
the letter of credit.
There must have been an absolute assurance on the part of the petitioner that it will undertake the
issuing bank's obligation as its own.
Parties to a Letter of Credit
RELIANCE COMMODITIES, INC.v.DAEWOO INDUSTRIAL CO., LTD.

G.R. No.L-100831, December 17, 1993, Feliciano, J.
The primary purpose of the letter of credit is to substitute for and therefore support the agreement of
the buyer/importer to pay money under a contract or other arrangement. It creates in the seller/exporter a
secure expectation of payment.
Facts:
Reliance Commodities, Inc. entered a contract of sale with Daewoo Industrial Co., Ltd. whereby the
latter shall deliver 2,000 metric tons of foundry pig iron at a certain price. Both parties likewise agreed that
Reliance shall secure a letter of credit (L/C) in favor of Daewoo. Consequently, Reliance failed to secure the
L/C having exceeded its foreign exchange allocation and to raise purchase orders for 2,000 metric tons as
required by the Iron and Steel Authority (ISA).
Corollarily, when the goods were shipped, it fell short of 135 metric tons of foundry pig iron
prompting Reliance to file for damages against Daewoo. However, the latter contended that Reliance breached
their contract for failure to secure the L/C hence should be liable for damages. The trial court ruled that
Reliance is guilty of breach of contract while Daewoo must pay for the amount representing the value of the
short delivered goods plus interest. Reliance filed an appeal contending that the opening of the L/C is a
condition precedent to the effectivity of the contract between therefore it should not be held liable. The Court
of Appeals found no merit in Reliances contention. Hence, this petition was filed.
Issue:
Whether the failure of an importer (Reliance) to open a letter of credit as a condition for another
contract make it liable.
Ruling:
YES.A letter of credit transaction may be seen to be a composite of at least three (3) distinct but
intertwined relationships being concretized in a contract:
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(a) One contract relationship links the party applying for the L/C (the account party or buyer or
importer) and the party for whose benefit the L/C is issued (the beneficiary or seller or exporter). In this
contract, the account party, here Reliance, agrees, among other things and subject to the terms and conditions
of the contract, to pay money to the beneficiary, here Daewoo.
(b) A second contract relationship is between the account party and the issuing bank. Under this
contract, (sometimes called the "Application and Agreement" or the "Reimbursement Agreement"), the
account party among other things, applies to the issuing bank for a specified L/C and agrees to reimburse the
bank for amounts paid by that bank pursuant to the L/C.
(c) The third contract relationship is established between the issuing bank and the beneficiary, in
order to support the contract.
We believe and so hold that failure of a buyer seasonably to furnish an agreed letter of credit is a
breach of the contract between buyer and seller. Where the buyer fails to open a letter of credit as stipulated,
the seller or exporter is entitled to claim damages for such breach. Damages for failure to open a commercial
credit may, in appropriate cases, include the loss of profit which the seller would reasonably have made had
the transaction been carried out.
______________________________________________________________________________________________________________________________
PRUDENTIAL BANKv.INTERMEDIATE APPELLATE COURT, PHILIPPINE RAYON MILLS, INC. and
ANACLETO R. CHI
G.R. No. 74886, December 8, 1992, Davide, Jr., J.
Commercial letters of credit have come into general use in international sales transactions where much
time necessarily elapses between the sale and the receipt by a purchaser of the merchandise, during which
interval great price changes may occur. Buyers and sellers struggle for the advantage of position. The seller is
desirous of being paid as surely and as soon as possible, realizing that the vendee at a distant point has it in his
power to reject on trivial grounds merchandise on arrival, and cause considerable hardship to the shipper.
Letters of credit meet this condition by affording celerity and certainty of payment.
Facts:
Philippine Rayon Mills entered into a contract with Nissho Co., Ltd. of Japan for the importation of
textile machineries. To effect its payment, Rayon applied for a commercial letter of credit with Prudential
Bank and Trust Company in favor of Nissho which was granted. After the drafts were drawn, Prudential Bank
through its correspondent in Japan, paid the amount of the machineries pursuant to the L/C. Consequently,
Rayon ceased its business operation and sold the textile machineries while the drafts remained unpaid in
spite of Prudential Banks demands. Hence, Prudential Bank filed an action for collection of the principal
amount against Rayon. However, the latter interposed the defense that the drafts were not presented to it for
acceptance therefore its liability to reimburse did not arise. On the other hand, Prudential Bank averred that
the drafts, being sight drafts, did not require presentment for acceptance to Rayon. The trial court ruled in
favor of the latter on the ground that since the drafts were not presented and accepted, no valid demand for
payment can be made.
Issue:
Whether or not the presentment for acceptance of the drafts was indispensable to make Philippine
Rayon liable.
Ruling:
NO. A letter of credit is defined as an engagement by a bank or other person made at the request of a
customer that the issuer will honor drafts or other demands for payment upon compliance with the
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conditions specified in the credit. Through a letter of credit, the bank merely substitutes its own promise to
pay for one of its customers who in return promises to pay the bank the amount of funds mentioned in the
letter of credit plus credit or commitment fees mutually agreed upon. In the instant case then, the drawee was
necessarily the herein petitioner. It was to the latter that the drafts were presented for payment. In fact, there
was no need for acceptance as the issued drafts are sight drafts. Presentment for acceptance is necessary only
in the cases expressly provided for in Section 143 of the Negotiable Instruments Law (NIL).
A different conclusion would violate the principle upon which commercial letters of credit are
founded because in such a case, both the beneficiary and the issuer, Nissho Company Ltd. and the petitioner,
respectively, would be placed at the mercy of Philippine Rayon even if the latter had already received the
imported machinery and the petitioner had fully paid for it.
______________________________________________________________________________________________________________________________
RODZSSEN SUPPLY CO. INC. v. FAR EAST BANK & TRUST CO.
G.R. No. 109087, May 9, 2001, Panganiban, J.
When both parties to a transaction are mutually negligent in the performance of their obligations, the
fault of one cancels the negligence of the other. Thus, their rights and obligations may be determined equitably.
No one shall enrich oneself at the expense of another.
Facts:
Rodzssen Supply Inc. applied for and obtained an irrevocable Letter of Credit from Far East Bank and
Trust Company Inc. in favor of Ekman and Company Inc., in order to finance the purchase of five (5) units of
hydraulic loaders in the amount of P190,000. For the first three (3) hydraulic loaders that were delivered, the
bank paid the amount specified in the letter of credit. Five months after the expiration of the L/C, Far East
paid Ekman the amount of the last two (2) hydraulic loaders which were voluntarily received by Rodzssen.
After four years (4), Far East sought for the payment of the 2 hydraulic loaders against Rodzssen but to no
avail. Hence, it filed a complaint to recover its value. Rodzssen contended that Far East acted in bad faith when
it paid Ekman for the 2 hydraulic loaders from Ekman in spite of the expiration of the L/C. Hence, Rodzssen
was no longer bound to reimburse Far East under the subject L/C.
Issue:
Whether or not it is proper for a banking institution to pay a letter of credit which has long expired or
been cancelled.
Ruling:
NO. The subject Letter of Credit had become invalid upon the lapse of the period fixed therein.Thus,
respondent should not have paid Ekman; it was not obliged to do so. In the same vein, of no moment was
Ekmans presentation, within the prescribed period, of all the documents necessary for collection, as the
Letter of Credit had already expired and had in fact been cancelled.
Indeed, equitable considerations behoove us to allow recovery by respondent. True, it erred in paying
Ekman, but petitioner itself was not without fault in the transaction. It must be noted that the latter had
voluntarily received and kept the loaders since October 1979.
Petitioner claims that it accepted the late delivery of the equipment, only because it was bound to
accept it under the companys trust receipt arrangement with respondent bank.
Granting that petitioner was bound under such arrangement to accept the late delivery of the
equipment, we note its unexplained inaction for almost four years with regard to the status of the ownership
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or possession of the loaders. Bewildering was its lack of action to validate the ownership and possession of
the loaders, as well as its stolidity over the purported failed sales transaction. Significant too is the fact that it
formalized its offer to return the two pieces of equipment only after respondents demand for payment, which
came more than three years after it accepted delivery.
______________________________________________________________________________________________________________________________
RAMON L. ABAD v. HON. COURT OF APPEALS & THE PHILIPPINE COMMERCIAL AND INDUSTRIAL BANK
G.R. No.L-42735, January 22, 1990, Grino-Aquino, J.
The marginal deposit requirement for letters of credit has been discontinued, except in those cases
where the applicant for a letter of credit is not known to the bank or does not maintain a good credit standing
therein.
Facts:
TOMCO, Inc., now known as Southeast Timber Co. (Phils.), Inc., applied for, and was granted by the
Philippine Commercial and Industrial Bank (PCIB), a domestic letter of credit for P 80,000 in favor of Oregon
Industries, Inc., to pay for one Skagit Yarder with accessories. PCIB paid to Oregon Industries the cost of the
machinery with recourse, presentment and notice of dishonor waived, and with date of maturity on January 4,
1964.
After making the required marginal deposit of P28,000 on November 5, 1963, TOMCO, Inc. signed and
delivered to the bank a trust receipt acknowledging receipt of the merchandise in trust for the bank. In
consideration of the release to TOMCO, Inc. by PCIB of the machinery covered by the trust receipt, petitioner
Ramon Abad signed an undertaking entitled, "Deed of Continuing Guaranty" appearing on the back of the
trust receipt, whereby he promised to pay the obligation jointly and severally with TOMCO, Inc.Except for
TOMCO's P28,000 marginal deposit in the bank, no payment has been made to PCIB by either TOMCO, Inc. or
its surety, Abad, on the P80,000 letter of credit.
The bank sued TOMCO, Inc. and Abad. TOMCO did not deny its liability to PCIB under the letter of
credit but it alleged that inasmuch as it made a marginal deposit of P28,000, this amount should have been
deducted from its principal obligation.The trial court rendered judgment in favor of PCIB, which was affirmed
by CA.
Issue:
Whether or not the debtor (or its surety) is entitled to deduct the debtor's cash marginal deposit
from the principal obligation under a letter of credit and to have the interest charges computed only on the
balance of the said obligation.
Ruling:
YES. It is only fair then that the importer's marginal deposit (if one was made, as in this case), should
be set off against his debt, for while the importer earns no interest on his marginal deposit, the bank, apart
from being able to use said deposit for its own purposes, also earns interest on the money it loaned to the
importer. It would be onerous to compute interest and other charges on the face value of the letter of credit
which the bank issued, without first crediting or setting off the marginal deposit which the importer paid to
the bank. Compensation is proper and should take effect by operation of law because the requisites in Article
1279 of the Civil Code are present and should extinguish both debts to the concurrent amount (Art. 1290,
Civil Code). Although Abad is only a surety, he may set up compensation as regards what the creditor owes the
principal debtor, TOMCO (Art. 1280, Civil Code).
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It is not farfetched to assume that the bank used TOMCO's marginal deposit to partially fund the
P80,000 letter of credit it issued to TOMCO, hence, the interests and other charges on said letter of credit
should be levied only on the balance of P52,000 which was the portion that was actually funded or loaned by
the bank from its own funds. Requiring the importer to pay interest on the entire letter of credit without
deducting first him marginal deposit, would be a clear case of unjust enrichment by the bank.
______________________________________________________________________________________________________________________________
THE CONSOLIDATED BANK AND TRUST CORPORATION (SOLIDBANK) v. THE COURT OF APPEALS,
CONTINENTAL CEMENT CORPORATION, GREGORY T. LIM and SPOUSE
G.R. No. 114286. April 19, 2001, Ynares-Santiago, J.
The practice of banks of making borrowers sign trust receipts to facilitate collection of loans and place
them under the threats of criminal prosecution should they be unable to pay it may be unjust and inequitable, if
not reprehensible. Such agreements are contracts of adhesion which borrowers have no option but to sign lest
their loan be disapproved. The resort to this scheme leaves poor and hapless borrowers at the mercy of banks.
Facts:
Continental Cement Corporation applied and obtained a letter of credit with Consolidated Bank and
Trust Corporation to purchase bunker fuel oils from Petrophil Corporation. Thereafter, Continental paid a
marginal deposit. Consequently, Petrophil delivered directly to Continentals powerplant the bunker fuels oil.
Subsequently, Continental executed a trust receipt for the amount Consolidated Bank. Claiming that
Continental failed to turn over the goods covered by the trust receipt or the proceeds thereof, Consolidated
Bank filed a complaint for sum of money with application for preliminary attachmentbefore the Regional Trial
Court (RTC) of Manila. In answer to the complaint, respondents averred that the transaction between them
was a simple loan and not a trust receipt transaction, and that that the marginal deposit it made should not be
deducted outright from the amount of the letter of credit.
Issues:
1. Whether or not the contention of Continental Cement Corporation that the marginal deposit should
be applied only after computing the principal and accrued interest is tenable.
2. Whether the transaction with Continental Cement Corporation is a trust receipt transaction.
Ruling:
1. NO. petitioners contention that the marginal deposit made by respondent Corporation should not be
deducted outright from the amount of the letter of credit is untenable. Petitioner argues that the marginal
deposit should be considered only after computing the principal plus accrued interests and other charges.
However, to sustain petitioner on this score would be to countenance a clear case of unjust enrichment, for
while a marginal deposit earns no interest in favor of the debtor-depositor, the bank is not only able to use the
same for its own purposes, interest-free, but is also able to earn interest on the money loaned to respondent
Corporation. Indeed, it would be onerous to compute interest and other charges on the face value of the letter
of credit which the petitioner issued, without first crediting or setting off the marginal deposit which the
respondent Corporation paid to it. Compensation is proper and should take effect by operation of law because
the requisites in Article 1279 of the Civil Code are present and should extinguish both debts to the concurrent
amount.
Hence, the interests and other charges on the subject letter of credit should be computed only on the balance
of P681,075.93, which was the portion actually loaned by the bank to respondent Corporation.
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2. NO. The transaction is a simple loan. The recent case of Colinares v. Court of Appeals appears to be
foursquare with the facts obtaining in the case at bar. There, we found that inasmuch as the debtor received
the goods subject of the trust receipt before the trust receipt itself was entered into, the transaction in
question was a simple loan and not a trust receipt agreement. Prior to the date of execution of the trust
receipt, ownership over the goods was already transferred to the debtor. This situation is inconsistent with
what normally obtains in a pure trust receipt transaction, wherein the goods belong in ownership to the bank
and are only released to the importer in trust after the loan is granted.
In the case at bar, as in Colinares, the delivery to respondent Corporation of the goods subject of the trust
receipt occurred long before the trust receipt itself was executed. Further, the oil was used up by respondent
Corporation in its normal operations. On the other hand, the subject trust receipt was only executed nearly
two months after full delivery of the oil was made to respondent Corporation.
______________________________________________________________________________________________________________________________
BANK OF AMERICA, NT & SA v.COURT OF APPEALS, INTER-RESIN INDUSTRIAL CORPORATION,

FRANCISCO TRAJANO, JOHN DOE AND JANE DOE
G.R. No. 105395 December 10, 1993, Vitug, J.
Between the seller and the negotiating bank there is the usual relationship existing between a drawer
and purchaser of drafts. Unless drafts drawn in pursuance of the credit are indicated to be without recourse
therefore, the negotiating bank has the ordinary right of recourse against the seller in the event of dishonor by
the issuing bank. The fact that the correspondent and the negotiating bank may be one and the same does not
affect its rights and obligations in either capacity, although a special agreement is always a possibility.
Facts:
General Chemicals, Ltd. Of Thailand applied for a letter of credit from the Bank of Ayudhya in favor of
Inter-Resin Industrial Corporation for the sale of plastic ropes and agricultural files. Thereafter, Inter-Resin
sought the services of Bank of America (BA) as its advising bank in relation to the letter of credit.
Consequently, BA received through registered mail an irrevocable letter of credit allegedly from Bank of
Ayudyha. Hence, it informed Inter-Resin of the said letter of credit. To ensure the authenticity of the letter of
credit, Inter-Resin sent its attorney to BA for confirmation. BA failed to confirm its authenticity however its
bank employee explained that there is no need for confirmation because the letter of credit would not have
been transmitted if it were not genuine.
Subsequently, Inter-Resin made a partial availment of the L/C. Upon compliance with the required
documents, BA issued in favor Inter-Resin a cashiers check. Sometime after, when Inter-Resin pursued for the
second availment of the L/C, BA received a telex from Bank of Ayudhya declaring the L/C as fraudulent. BA
sought the assistance of the National Bureau of Investigation (NBI) which discovered that the vans exported
by Inter-Resin did not contain plastic ropes but plastic strips, wrappers, rages, and waste materials. BA sued
Inter-Resin for the recovery of the peso equivalent of the draft for on the partial availment of the now
disowned letter of credit.
Issue:
Whether Bank of America may recover the amount it paid to Inter-Resin for the latters partial
availment of the disowned letter of credit.
Ruling:
YES.Bringing the letter of credit to the attention of the seller is the primordial obligation of an
advising bank. The view that Bank of America should have first checked the authenticity of the letter of credit
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with bank of Ayudhya, by using advanced mode of business communications, before dispatching the same to
Inter-Resin finds no real support in U.C.P. Article 18 of the U.C.P. states that: "Banks assume no liability or
responsibility for the consequences arising out of the delay and/or loss in transit of any messages, letters or
documents, or for delay, mutilation or other errors arising in the transmission of any telecommunication" As
advising bank, Bank of America is bound only to check the "apparent authenticity" of the letter of credit,
which it did. Clarifying its meaning, Webster's Ninth New Collegiate Dictionary explains that the word
"APPARENT suggests appearance to unaided senses that is not or may not be borne out by more rigorous
examination or greater knowledge."
May Bank of America then recover what it has paid under the letter of credit when the corresponding
draft for partial availment thereunder and the required documents were later negotiated with it by Inter-
Resin? The answer is yes. This kind of transaction is what is commonly referred to as a discounting
arrangement. This time, Bank of America has acted independently as a negotiating bank, thus saving Inter-
Resin from the hardship of presenting the documents directly to Bank of Ayudhya to recover payment. (Inter-
Resin, of course, could have chosen other banks with which to negotiate the draft and the documents.) As a
negotiating bank, Bank of America has a right to recourse against the issuer bank and until reimbursement is
obtained, Inter-Resin, as the drawer of the draft, continues to assume a contingent liability thereon.
While bank of America has indeed failed to allege material facts in its complaint that might have
likewise warranted the application of the Negotiable Instruments Law and possible then allowed it to even go
after the indorsers of the draft, this failure, nonetheless, does not preclude petitioner bank's right (as
negotiating bank) of recovery from Inter-Resin itself. Inter-Resin admits having received from bank of
America on the letter of credit and in having executed the corresponding draft. The payment to Inter-Resin
has given, as aforesaid, Bank of America the right of reimbursement from the issuing bank, Bank of Ayudhya
which, in turn, would then seek indemnification from the buyer (the General Chemicals of Thailand). Since
Bank of Ayudhya disowned the letter of credit, however, Bank of America may now turn to Inter-Resin for
restitution.
______________________________________________________________________________________________________________________________

The correspondent bank may be called a notifying bank, a negotiating bank, or a confirming bank. In
case of a notifying bank, the correspondent bank assumes no liability except to notify and/or transmit to the
beneficiary the existence of the letter of credit. A negotiating bank, on the other hand, is a correspondent bank
which buys or discounts a draft under the letter of credit. In the case of a confirming bank, the correspondent
bank assumes a direct obligation to the seller and its liability is a primary one as if the correspondent bank itself
had issued the letter of credit
Facts:
Bernardo Villaluz agreed to sell Lauan logs to Axel Christiansen which the latter will sell to Hanmi
Trade Development, Inc. in Korea. Thereafter, Security Pacific National Bank of Los Angeles (Issuing bank)
issued an irrevocable letter of credit in favor of Villaluz. Thereafter, the issuing bank instructed Feati Bank &
Trust Company (Corresponding bank) through an email to forward the enclosed letter of credit to Villaluz.
The said letter of credit provided terms and conditions which include a certification from Christiansen that
logs have been approved prior to its shipment in accordance with the latters purchasing order. Also
incorporated by reference in the letter of credit is the Uniform Customs and Practice for Documentary Credits.
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instituted an action for mandamus and specific performance against Christiansen and Feati before Court of
Appeals affirmed the CFI decision on the ground that when Feati accepted its role as the notifying and
trustee in relation to plaintiff as the beneficiary of the letter of credit. Thus, Feati cannot be allowed to deny its
Issue:
Ruling:
NO. Since Feati was only a notifying bank, its responsibility was solely to notify and/or transmit the
documentary of credit to the private respondent and its obligation ends there.
The notifying bank may suggest to the seller its willingness to negotiate, but this fact alone does not
imply that the notifying bank promises to accept the draft drawn under the documentary credit.
A notifying bank is not a privy to the contract of sale between the buyer and the seller, its relationship
is only with that of the issuing bank and not with the beneficiary to whom he assumes no liability.
In order that the petitioner may be held liable under the letter, there should be proof that the
petitioner confirmed the letter of credit.
The records are, however, bereft of any evidence which will disclose that the petitioner has confirmed
the letter of credit.
There must have been an absolute assurance on the part of the petitioner that it will undertake the
issuing bank's obligation as its own.
Basic Principles of Letters of Credit
BANK OF THE PHILIPPINE ISLANDS v. DE RENY FABRIC INDUSTRIES, INC., AURORA T. TUYO and
AURORA CARCERENY alias AURORA C. GONZALES
G.R. No.L-24821 October 16, 1970, Castro, J.
The existence of a custom in international banking and financing circles negating any duty on the part
of a bank to verify whether what has been described in letters of credits or drafts or shipping documents actually
tallies with what was loaded aboard ship, having been positively proven as a fact, the appellants are bound by
this established usage. They were, after all, the ones who tapped the facilities afforded by the Bank in order to
engage in international business.
Facts:
De Reny Fabric Industries, Inc. (De Reny) applied for, and was granted, four (4) irrevocable
commercial letters of credit (L/Cs) with the Bank of Philippine Islands (BPI) in favor of J.B distributing
Company to cover the purchase of dyestuffs of various colors. As each shipment arrived in the Philippines, De
Reny made partial payments to the Bank amounting. Further payments were, however, subsequently
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discontinued by the corporation when it was established, as a result of a chemical test conducted by the
National Science Development Board, that the goods which arrived in Manila were colored chalks instead of
dyestuffs. Consequently, BPIfiled a complaint for payment of the amount of the L/Cs. In its answer, De Reny
contended that it was the duty of BPIs foreign correspondent banks to take the necessary precaution to
insure that the goods shipped under the covering L/Cs conformed with the item appearing therein, and, that
the foregoing banks having failed to perform this duty, no claim for recoupment against the defendants-
appellants, arising from the losses incurred for the non-delivery or defective delivery of the articles ordered,
could accrue.
Issue:
Whether or not De Reny fabrics is liable under the Letters of Credit.
Ruling:
YES.Under the terms of their Commercial Letter of Credit Agreements with the Bank, the appellants
agreed that the Bank shall not be responsible for the "existence, character, quality, quantity, conditions,
packing, value, or delivery of the property purporting to be represented by documents; for any difference in
character, quality, quantity, condition, or value of the property from that expressed in documents," or for
"partial or incomplete shipment, or failure or omission to ship any or all of the property referred to in the
Credit," as well as "for any deviation from instructions, delay, default or fraud by the shipper or anyone else in
connection with the property the shippers or vendors and ourselves [purchasers] or any of us." Having agreed
to these terms, the appellants have, therefore, no recourse but to comply with their covenant.
But even without the stipulation recited above, the appellants cannot shift the burden of loss to the
Bank on account of the violation by their vendor of its prestation.
It was uncontrovertibly proven by the Bank during the trial below that banks, in providing financing
in international business transactions such as those entered into by the appellants, do not deal with the
property to be exported or shipped to the importer, but deal only with documents.
______________________________________________________________________________________________________________________________
LAND BANK OF THE PHILIPPINES v. MONETS EXPORT AND MANUFACTURING CORPORATION, SPOUSES
VICENTE V. TAGLE, SR. and MA. CONSUELO G. TAGLE
G.R. No. 161865, March 10, 2005, Ynares-Santiago, J.
The so-called independence principle assures the seller or the beneficiary of prompt payment
independent of any breach of the main contract and precludes the issuing bank from determining whether the
main contract is actually accomplished or not.
Facts:
Land Bank of the Philippines (Land Bank) and Monets Export and Manufacturing Corporation
(Monet) executed an Export Packing Credit Line Agreementunder the latter was given a credit line secured,
among others, by the proceeds of its export letters of credit from Wishbone Trading Corporation. When Monet
failed to pay for its obligations with the Land Bank, the latter filed a complaint for collection of sum of money.
However, Monet countered that Land Bank failed to protect Monets interest when it paid the suppliers
despite discrepancies in the shipment vis--vis the order specifications.
Issue:
Whether or not Monet is entitled to opportunity losses based on Land Banks unauthorized payment
on behalf of Monet.
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Ruling:
NO. As regards to the Beautilike account, the trial court and the Court of Appeals erred in holding
that Land Bank failed to protect Monets interest when it paid the suppliers despite discrepancies in the
shipment vis--vis the order specifications of Monet. The Court finds merit in the contention of Land Bank that,
as the issuing bank in the Beautilike transaction involving an import letter of credit, it only deals in documents
and it is not involved in the contract between the parties. The relationship between the beneficiary and the
issuer of a letter of credit is not strictly contractual, because both privity and a meeting of the minds are
lacking. Thus, upon receipt by Land Bank of the documents of title which conform with what the letter of
credit requires, it is duty bound to pay the seller, as it did in this case. Consequently, it was error for the trial
court and for the Court of Appeals to grant opportunity losses to the respondents on this account.
______________________________________________________________________________________________________________________________
PHILIPPINE NATIONAL BANK v.SAN MIGUEL CORPORATION

G.R. No. 186063, January 15, 2014, Peralta, J.
The engagement of the issuing bank is to pay the seller or beneficiary of the credit once the draft and the
required documents are presented to it. The so-called "independence principle" assures the seller or the
beneficiary of prompt payment independent of any breach of the main contract and precludes the issuing bank
from determining whether the main contract is actually accomplished or not.
Facts:
San Miguel Corporation (SMC) entered into an exclusive dealership agreement with and Rodolfo R.
Goroza wherein the latter was given the right to trade, deal, market or otherwise sell its various beer
products. Consequently, to secure a credit line with SMC, Goroza must apply for a letter of credit which he
obtained from Philippine National Bank. Upon presentment of required invoices and official receipts of
Gorozas purchases of SMC products, the amount of the credit line was released for payment to SMC.
Subsequently, Goroza was able to secure a revolving credit line with PNB which enabled it to pay for his credit
purchases with SMC. However, Goroza started to become delinquent with his accounts. SMC demanded
payment for the balance with Goroza and PNB but to no avail. Hence, SMC filed an action for collection of sum
of money with the Regional Trial Court (RTC) against them.
The RTC ordered Goroza to pay SMC for the said amount without prejudice to the decision against PNB in a
separate trial of the case. PNB now contends that by virtue of the RTC decision finding Gorozaliable to pay the
entire amount sought to be recovered by SMC, has settled the obligation of both Goroza and PNB, and that
there is no longer any ground to hold PNB for trial and make a separate judgment against it. However, the
Court of Appeals (CA) ruled that proceedings against PNB may continue in the RTC, despite the trial court's
complete adjudication of relief in favor of SMC. Hence, this petition was filed.
Issue:
Whether the adjudication of Gorozas liability against SMC also settled the obligation of PNB.
Ruling:
NO. In a letter of credit transaction, such as in this case, where the credit is stipulated as irrevocable,
there is a definite undertaking by the issuing bank to pay the beneficiary provided that the stipulated
documents are presented and the conditions of the credit are complied with. Precisely, the independence
principle liberates the issuing bank from the duty of ascertaining compliance by the parties in the main
contract. As the principle's nomenclature clearly suggests, the obligation under the letter of credit is
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independent of the related and originating contract. In brief, the letter of credit is separate and distinct from
the underlying transaction.
In other words, PNB cannot evade responsibility on the sole ground that the RTC judgment found
Goroza liable and ordered him to pay the amount sought to be recovered by SMC. PNB's liability, if any, under
the letter of credit is yet to be determined.
______________________________________________________________________________________________________________________________
INSULAR BANK OF ASIA & AMERICA (NOW PHILIPPINE COMMERCIAL INTERNATIONAL BANK)v.HON.
INTERMEDIATE APPELLATE COURT, THE PHILIPPINE AMERICAN LIFE INSURANCE CO., SPS. BEN
MENDOZA & JUANITA M. MENDOZA
G.R. No. 74834, November 17, 1988, Melencio-Herrera, J.
Letters of credit and contracts for the issuance of such letters are subject to the same rules of
construction as are ordinary commercial contracts. They are to receive a reasonable and not a technical
construction and although usage and custom cannot control express terms in letters of credit, they are to be
construed with reference to all the surrounding facts and circumstances, to the particular and often varying
terms in which they may be expressed, the circumstances and intention of the parties to them, and the usages of
the particular trade of business contemplated.
Facts:
Spouses Ben and Juanita Mendoza obtained two (2) loans from Philippine American Life Insurance
Co. (Philam Life) to finance the construction of their residential house. To secure payment,Philam Life
required that amortizations be guaranteed by an irrevocable standby letter of credit of a commercial bank
(LCs).Thus, the Mendozas contracted with Insular Bank of Asia and America (IBAA) for the issuance of two (2)
irrevocable standby Letters of Credit in favor of Philam Life. Spouses Mendoza were able to pay initially but
subsequently became delinquent for the remaining balance. IBAA and contended that the payment made by
the spouses reduced its liability pursuant to the LCs. Nonetheless, Phil Am Life filed a complaint for collection
of sum of money against the spouses and IBAA before the Regional Trial Court (RTC) which rendered a
decision extinguishing the liability of IBAA to the extent of the payment made by IBAA. The Court of Appeals
(CA) however, reversed the RTC decision on the ground that IBAAs liability was not reduced by the payments
made by the Mendozas.
Issue:
Whether or not the partial payments made by the principal obligors (respondent MENDOZAS) would
have the corresponding effect of reducing the liability of the petitioner as guarantor or surety under the terms
of the standby LCs in question.
Ruling:
NO. The terms of the subject Irrevocable Standby Letters of Credit read, in part, as follows: This credit
secures the payment of any obligation of the accounteeto you under that Loan Agreement hereto attached xxx.
Unequivocally, the subject standby Letters of Credit secure the payment of any obligation of the
Mendozas to Philam Life including all interests, surcharges and expenses thereon. But while they are a
security arrangement, they are not converted thereby into contracts of guaranty. That would make them ultra
vires rather than a letter of credit, which is within the powers of a bank (Section 74[e], RA 337, General
Banking Act). The standby L/Cs are, "in effect an absolute undertaking to pay the money advanced or the
amount for which credit is given on the faith of the instrument." (Scribner v. Rutherford, 22 N.W. 670, 65 Iowa
551; Duval v. Trask,, 12 Mass. 154, cited in 38 CJS, Sec. 7, p. 1142). They are primary obligations and not
accessory contracts. Being separate and independent agreements, the payments made by the Mendozas
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cannot be added in computing IBAA's liability under its own standby letters of credit. Payments made by the
Mendozas directly to Philam Life are in compliance with their own prestation under the loan agreements. And
although these payments could result in the reduction of the actual amount which could ultimately be
collected from IBAA, the latter's separate undertaking under its L/Cs remains.
______________________________________________________________________________________________________________________________
TRANSFIELD PHILIPPINES, INC. v. LUZON HYDRO CORPORATION, AUSTRALIA and NEW ZEALAND
BANKING GROUP LIMITED and SECURITY BANK CORPORATION
G.R. No. 146717, November 22, 2004, TINGA, J.
The independent nature of the letter of credit may be: (a) independence in toto where the credit is
independent from the justification aspect and is a separate obligation from the underlying agreement like for
instance a typical standby; or (b) independence may be only as to the justification aspect like in a commercial
letter of credit or repayment standby, which is identical with the same obligations under the underlying
agreement. In both cases the payment may be enjoined if in the light of the purpose of the credit the payment of
the credit would constitute fraudulent abuse of the credit.
Facts:
Transfield Philippines, Inc. entered a contract with Luzon Hydro Corporation (LHC) whereby the
former shall construct hydro-electric power stations in Benguet and Ilocos Sur. To secure the performance of
the contract, both agreed that Transfield should obtain standby letters of credit (LCs) whereby LHC shall be
compensated should there be default or delays in the completion of the project on its due date. Unfortunately,
Transfield was unable to complete the construction of the power plants on the date specified in their contract
due to fortuitous events. Since LHC refused to grant extensions of time for the project completion, it called on
the LCs before the Australia and New Zealand Banking Group Limited (ANZ Bank) and Security Bank
Corporation (SBC). Transfield filed a complaint for Injunction against LHC from calling on the securities, and
Anz Bank and SBC Bank from disposing the securities to LHC pending the determination of default before the
arbitral tribunal. The trial court denied the application for writ of preliminary injunction. The Court of
Appeals (CA) issued a temporary restraining order enjoining LHC, ANZ bank and SBC bank but failed to act on
the writ of preliminary injunction, hence, LHC was able to withdraw certain amount from the standby LCs.
LHC now contends that LHCs call on the Securities is wrongful because it fraudulently misrepresented to ANZ
Bank and SBC that there is already a breach in contract knowing fully well that this is yet to be determined by
the arbitral tribunals.Consequently, the CA dismissed Transfields petition for certiorari and upheld the trial
courts decision.
Issue:
Whether or not LHC may call and draw on the standby LCs prior to the resolution of disputes
between the LHC and Transfield subject of arbitration.
Ruling:
Yes. Petitioners argument that any dispute must first be resolved by the parties, whether through
negotiations or arbitration, before the beneficiary is entitled to call on the letter of credit in essence would
convert the letter of credit into a mere guarantee. Jurisprudence has laid down a clear distinction between a
letter of credit and a guarantee in that the settlement of a dispute between the parties is not a pre-requisite
for the release of funds under a letter of credit. In other words, the argument is incompatible with the very
nature of the letter of credit. If a letter of credit is drawable only after settlement of the dispute on the
contract entered into by the applicant and the beneficiary, there would be no practical and beneficial use for
letters of credit in commercial transactions.
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Because parties and courts should not confuse the different functions of the surety contract on the
one hand and the standby credit on the other, the distinction between surety contracts and credits merits
some reflection. The two commercial devices share a common purpose. Both ensure against the obligors
nonperformance. They function, however, in distinctly different ways.
The standby credit has different expectations. He reasonably expects that he will receive cash in the
event of nonperformance, that he will receive it promptly, and that he will receive it before any litigation with
the obligor (the applicant) over the nature of the applicants performance takes place. The standby credit has
this opposite effect of the surety contract: it reverses the financial burden of parties during litigation.
In the surety contract setting, there is no duty to indemnify the beneficiary until the beneficiary
establishes the fact of the obligors performance. The beneficiary may have to establish that fact in litigation.
During the litigation, the surety holds the money and the beneficiary bears most of the cost of delay in
performance.In the standby credit case, however, the beneficiary avoids that litigation burden and receives his
money promptly upon presentation of the required documents.
While it is the bank which is bound to honor the credit, it is the beneficiary who has the right to ask
the bank to honor the credit by allowing him to draw thereon. The situation itself emasculates petitioners
posture that LHC cannot invoke the independence principle and highlights its puerility, more so in this case
where the banks concerned were impleaded as parties by petitioner itself.
Respondent banks had squarely raised the independence principle to justify their releases of the
amounts due under the Securities. Owing to the nature and purpose of the standby letters of credit, this Court
rules that the respondent banks were left with little or no alternative but to honor the credit and both of them
in fact submitted that it was ministerial for them to honor the call for payment.
______________________________________________________________________________________________________________________________

It is a settled rule in commercial transactions involving letters of credit that the documents tendered
must strictly conform to the terms of the letter of credit. The tender of documents by the beneficiary (seller) must
include all documents required by the letter. A correspondent bank which departs from what has been stipulated
under the letter of credit, as when it accepts a faulty tender, acts on its own risks and it may not thereafter be
able to recover from the buyer or the issuing bank, as the case may be, the money thus paid to the beneficiary
Thus the rule of strict compliance.
Facts:
Bernardo Villaluz agreed to sell Lauan logs to Axel Christiansen which the latter will sell to Hanmi Trade
Development, Inc. in Korea. Thereafter, Security Pacific National Bank of Los Angeles (Issuing bank) issued an
irrevocable letter of credit in favor of Villaluz. Thereafter, the issuing bank instructed Feati Bank & Trust
Company (Corresponding bank) through an email to forward the enclosed letter of credit to Villaluz. The said
letter of credit provided terms and conditions which include a certification from Christiansen that logs have
been approved prior to its shipment in accordance with the latters purchasing order. Also incorporated by
reference in the letter of credit is the Uniform Customs and Practice for Documentary Credits.
instituted an action for mandamus and specific performance against Christiansen and Feati before Court of
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Appeals affirmed the CFI decision on the ground that when Feati accepted its role as the notifying and
trustee in relation to plaintiff as the beneficiary of the letter of credit. Thus, Feati cannot be allowed to deny its
Issue:
Ruling:
NO.The incorporation of the Uniform Customs and Practice for Documentary Credit (U.C.P. for short)
in the letter of credit resulted in the applicability of the said rules in the governance of the relations between
the parties.And even if the U.C.P. was not incorporated in the letter of credit, we have already ruled in the
affirmative as to the applicability of the U.C.P. in cases before us.
In Bank of P.I. v. De Nery (35 SCRA 256 [1970]), we pronounced that the observance of the U.C.P. in
this jurisdiction is justified by Article 2 of the Code of Commerce. Article 2 of the Code of Commerce
enunciates that in the absence of any particular provision in the Code of Commerce, commercial transactions
shall be governed by the usages and customs generally observed.
There being no specific provision which governs the legal complexities arising from transactions
involving letters of credit not only between the banks themselves but also between banks and seller and/or
buyer, the applicability of the U.C.P. is undeniable.
The pertinent provisions of the U.C.P. (1962 Revision) are:
Article 3.An irrevocable credit is a definite undertaking on the part of the issuing bank and
constitutes the engagement of that bank to the beneficiary and bona fide holders of drafts drawn and/or
documents presented thereunder, that the provisions for payment, acceptance or negotiation contained in the
credit will be duly fulfilled, provided that all the terms and conditions of the credit are complied with.
An irrevocable credit may be advised to a beneficiary through another bank (the advising bank) without
engagement on the part of that bank, but when an issuing bank authorizes or requests another bank to
confirm its irrevocable credit and the latter does so, such confirmation constitutes a definite undertaking of
the confirming bank. . . .
Article 7.Banks must examine all documents with reasonable care to ascertain that they appear on
their face to be in accordance with the terms and conditions of the credit,"
Article 8.Payment, acceptance or negotiation against documents which appear on their face to be in
accordance with the terms and conditions of a credit by a bank authorized to do so, binds the party giving the
authorization to take up documents and reimburse the bank which has effected the payment, acceptance or
negotiation.
Under the foregoing provisions of the U.C.P., the bank may only negotiate, accept or pay, if the
documents tendered to it are on their face in accordance with the terms and conditions of the documentary
credit. And since a correspondent bank, like the petitioner, principally deals only with documents, the absence
of any document required in the documentary credit justifies the refusal by the correspondent bank to
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negotiate, accept or pay the beneficiary, as it is not its obligation to look beyond the documents. It merely has
to rely on the completeness of the documents tendered by the beneficiary.
Trust Receipt Law
Definition/Concept of Trust Receipt Law
CHARLES LEE, CHUA SIOK SUY, MARIANO SIO, ALFONSO YAP, RICHARD VELASCO and ALFONSO CO v.
COURT OF APPEALS and PHILIPPINE BANK OF COMMUNICATIONS
G.R. NO. 117914, February 1, 2002, De Leon, Jr., J
Modern letters of credit are usually not made between natural persons. They involve bank to bank
transactions. Historically, the letter of credit was developed to facilitate the sale of goods between, distant and
unfamiliar buyers and sellers. It was an arrangement under which a bank, whose credit was acceptable to the
seller, would at the instance of the buyer agree to pay drafts drawn on it by the seller, provided that certain
documents are presented such as bills of lading accompanied the corresponding drafts. Expansion in the use of
letters of credit was a natural development in commercial banking.
Facts:
Charles Lee, as president of Mico Metals Corporation (MICO), applied and obtained both local and
foreign letters of credit from Philippine Bank of Communications (PBCom) to facilitate the business. After the
drafts were issued and the suppliers of the merchandise were paid, trust receipts in favor of MICO were
executed in favor of PBCom. When MICO failed to pay for its credit availments and standing obligations from
trust receipts liabilities in spite of demands, it filed a complaint for collection of sums of money before the
Regional Trial Court (RTC). MICO contended thatthere was no proof that the proceeds of the loans or the
goods under the trust receipts were ever delivered to and received by it; thatit never requested that legal
possession of the merchandise be transferred to PBCom by way of trust receipts. MICO insist that assuming it
transferred possession of the merchandise to PBCom by way of trust receipts, the same would be illegal since
PBCom, being a banking institution, is not authorized by law to engage in the business of importing and
selling goods. The RTC ruled in favor of MICO on the ground that the lack of proof as regards the existence of
the merchandise covered by the letters of credit bolstered the claim of herein petitioners that no purchases of
the goods were really made. The Court of Appeals reversed the ruling of the trial court based on the
presumption that an instrument sets out the true agreement of the parties thereto and that it was
executed for valuable consideration.
Issue:
Whether or not the contention of MICO is correct that PBCom, a banking institution, is not authorized
by law to engage in the business of importing and selling goods.
Ruling:
NO. A trust receipt is considered as a security transaction intended to aid in financing importers and
retail dealers who do not have sufficient funds or resources to finance the importation or purchase of
merchandise, and who may not be able to acquire credit except through utilization, as collateral of the
merchandise imported or purchased.A trust receipt, therefor, is a document of security pursuant to which a
bank acquires a security interest in the goods under trust receipt. Under a letter of credit-trust receipt
arrangement, a bank extends a loan covered by a letter of credit, with the trust receipt as a security for the
loan. The transaction involves a loan feature represented by a letter of credit, and a security feature which is
in the covering trust receipt which securesindebtedness.
______________________________________________________________________________________________________________________________
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SPOUSES TIRSO I. VINTOLA AND LORETO DY VINTOLA v. INSULAR BANK OF ASIA AND AMERICA
G.R. No. 73271, May 29, 1987, J. Melencio-Herrera
The trust receipt arrangement did not convert the IBAA into an investor; the latter remained a lender
and creditor. Since the IBAA is not the factual owner of the goods, the Vintolas cannot justifiably claim that
because they have surrendered the goods to IBAA and subsequently deposited them in the custody of the court,
they are absolutely relieved of their obligation to pay their loan because of their inability to dispose of the goods.
The fact that they were unable to sell the seashells in question does not affect IBAAs right to recover the
advances it had made under the Letter of Credit.
Facts:
Spouses Vintola owns and manages manufacturing of raw seashells into finished products under their
business name Dax Kin International. They were granted a domestic letter of credit by the Insular Bank of
Asia and America (IBAA). They then executed a Trust Receipt Agreement with IBAA stipulating that they
agreed to hold the goods in trust for IBAA as the "latter's property with liberty to sell the same for its
account," and "in case of sale" to turn over the proceeds as soon as received to IBAA. Having defaulted on their
obligation, IBAA demanded payment from the Vintolas. The Vintolas, who were unable to dispose of the shells,
responded by offering to return the goods. IBAA refused to accept the merchandise, and due to the continued
refusal of the Vintolas to make good their undertaking, IBAA charged them with Estafa for having
misappropriated, misapplied and converted for their own personal use and benefit the aforesaid goods.
During the trial of the criminal case the Vintolas turned over the seashells to the custody of the Trial Court.
Issue:
Whetherthe surrender of the goods to the court absolved the liability of the Vintolas.
Ruling:
NO. Section 4 of P.D. No. 115 defines a trust receipt transaction as any transaction by and between a
person referred to as the entruster, and another person referred to as the entrustee, whereby the entruster,
who owns or holds absolute title or security interests over certain specified goods, documents or instruments,
releases the same to the possession of the entrustee upon the latter's execution and delivery to the entruster
of a signed document called a 'trust receipt' wherein the entrustee binds himself to hold the designated goods,
documents or instruments in trust for the entruster and to sell or otherwise dispose of the goods, documents
or instruments thereof to the extent of the amount owing to the entruster or as appears in the trust receipt or
the goods, documents or instruments themselves if they are unsold or not otherwise disposed of, in
accordance with the terms and conditions specified in the trust receipt.
Contrary to the allegation of the Vintolas, IBAA did not become the real owner of the goods. It was
merely the holder of a security title for the advances it had made to the Vintolas . The goods the Vintolas had
purchased through IBAA financing remain their own property and they hold it at their own risk. The trust
receipt arrangement did not convert the IBAA into an investor; the latter remained a lender and
creditor. Since the IBAA is not the factual owner of the goods, the Vintolascannot justifiably claim that because
they have surrendered the goods to IBAA and subsequently deposited them in the custody of the court, they
are absolutely relieved of their obligation to pay their loan because of their inability to dispose of the goods.
advances it had made under the Letter of Credit.
______________________________________________________________________________________________________________________________
ROSARIO TEXTILE MILLS CORPORATION AND EDILBERTO YUJUICO v. HOME BANKERS SAVINGS AND
TRUST COMPANY
G.R. NO. 137232, June 29, 2005, J. Sandoval-Gutierrez
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If under the trust receipt, the bank is made to appear as the owner, it was but an artificial expedient,
more of legal fiction than fact, for if it were really so, it could dispose of the goods in any manner it wants, which
it cannot do, just to give consistency with purpose of the trust receipt of giving a stronger security for the loan
obtained by the importer. To consider the bank as the true owner from the inception of the transaction would be
to disregard the loan feature thereof. Thus, petitioners cannot be relieved of their obligation to pay their loan in
favor of the bank.
Facts:
Rosario Textile Mills Corporation (RTMC) applied from Home Bankers Savings & Trust Co. for an
Omnibus Credit Line.Yujuico signed a Surety Agreement in favor of the bank, where he bound himself jointly
and severally with RTMC for the payment of all RTMCs indebtedness to the bank from 1989 to 1990. RTMC
availed of the credit line by making numerous drawdowns, each drawdown being covered by a separate
promissory note and trust receipt. RTMC failed to pay its loans. RTMC and Yujuico contend that they should be
absolved from liability. They argue that the importation of raw materials under the credit line was with a
grant of option to them to turn-over to the bank the imported raw materials should these fail to meet their
manufacturing requirements. RTMC offered to make such turn-over since the imported materials did not
conform to the required specifications. However, the bank refused to accept the same, until the materials
were destroyed by a fire which gutted down RTMCs premises.
Issue:
Whether or not RTMC and Yujuico are relieved of their obligation to pay their loan after they tried to
tender the goods to the bank which refused to accept the same, and which goods were subsequently lost in a
fire
Ruling:
NO. RTMC and Yujuico's stance conveniently ignores the true nature of its transaction with the bank.
In banking and commerce, a credit line is that amount of money or merchandise which a banker, merchant,
or supplier agrees to supply to a person on credit and generally agreed to in advance. It is the fixed limit of
credit granted by a bank, retailer, or credit card issuer to a customer, to the full extent of which the latter may
avail himself of his dealings with the former but which he must not exceed and is usually intended to cover a
series of transactions in which case, when the customers line of credit is nearly exhausted, he is expected to
reduce his indebtedness by payments before making any further drawings. It is thus clear that the principal
transaction between RTMC and the bank is a contract of loan. RTMC used the proceeds of this loan to
purchase raw materials from a supplier abroad. In order to secure the payment of the loan, RTMC delivered
the raw materials to the bank as collateral. Trust receipts were executed by the parties to evidence this
security arrangement. Simply stated, the trust receipts were mere securities.
more of legal fiction than fact, for if it were really so, it could dispose of the goods in any manner it wants,
which it cannot do, just to give consistency with purpose of the trust receipt of giving a stronger security for
the loan obtained by the importer. To consider the bank as the true owner from the inception of the
transaction would be to disregard the loan feature thereof. Thus, petitioners cannot be relieved of their
obligation to pay their loan in favor of the bank.
______________________________________________________________________________________________________________________________
MELVIN COLINARES AND LORDINO VELOSO v. HONORABLE COURT OF APPEALS, AND THE PEOPLE OF
THE PHILIPPINES
G.R. No. 90828, September 05, 2000, C.J. Davide Jr.
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Ownership over the merchandise was already transferred to use the materials for their construction
project. It was only a day later that they went to the bank to apply for a loan to pay for the merchandise. This
situation belies what normally obtains in a pure trust receipt transaction where goods are owned by the bank
and only released to the importer in trust subsequent to the grant of the loan. The loan should be granted to
finance acquisition of the goods under trust receipt. If the loan is granted when entrustee already has ownership
of the goods, the transaction is only a simple loan.
Facts:
Colinares and Veloso were contracted by the Carmelite Sisters of Cagayan de Oro City to renovate the
latters convent. Colinares applied for a commercial letter of credit with the Philippine Banking Corporation
(PBC) in favor of CM Builders Centre. PBC approved the letter of credit to cover the full invoice value of the
goods. Petitioners signed a pro-forma trust receipt as security. PBC debited from Petitioners marginal
deposit as partial payment of the loan. After the initial payment, the spouses defaulted. PBC wrote to
Petitioners demanding that the amount be paid within seven days from notice.
During trial, petitioner Veloso insisted that the transaction was a clean loan per verbal guarantee of
PBCs former manager. He and petitioner Colinares signed the documents without reading the fine print, only
learning of the trust receipt implication much later. When he brought this to the attention of PBC, Mr. Tuiza
assured him that the trust receipt was a mere formality.
Issue:
Whether or not the transaction of Colinares and Veloso was an ordinary loan, not a trust receipt
agreement under the Trust Receipts Law.
Ruling:
YES. This situation belies what normally obtains in a pure trust receipt transaction where goods are
owned by the bank and only released to the importer in trust subsequent to the grant of the loan. The bank
acquires a security interest in the goods as holder of a security title for the advances it had made to the
entrustee. The ownership of the merchandise continues to be vested in the person who had advanced
payment until he has been paid in full, or if the merchandise has already been sold, the proceeds of the sale
should be turned over to him by the importer or by his representative or successor in interest. To secure that
the bank shall be paid, it takes full title to the goods at the very beginning and continues to hold that title as
his indispensable security until the goods are sold and the vendee is called upon to pay for them; hence, the
importer has never owned the goods and is not able to deliver possession. In a certain manner, trust receipts
partake of the nature of a conditional sale where the importer becomes absolute owner of the imported
merchandise as soon as he has paid its price. The loan should be granted to finance acquisition of the goods
under trust receipt. If the loan is granted when entrustee already has ownership of the goods, the transaction
is only a simple loan.
______________________________________________________________________________________________________________________________
THE CONSOLIDATED BANK AND TRUST CORPORATION (SOLIDBANK) v. THE COURT OF APPEALS,
CONTINENTAL CEMENT CORPORATION, GREGORY T. LIM AND SPOUSE
G.R. No. 114286, April 19, 2001, J. Ynares-Santiago
The delivery to CCC of the goods subject of the trust receipt occurred long before the trust receipt itself
was executed. On the other hand, the subject trust receipt was only executed nearly two months after full delivery
of the oil was made to CCC. The loan should be granted to finance acquisition of the goods under trust receipt. If
the loan is granted when entrustee already has ownership of the goods, the transaction is only a simple loan.
Facts:
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Continental Cement Corporation (CCC) obtained from Consolidated Bank letter of credit used to purchase of
bunker fuel oil. CCC made a marginal deposit to Consolidated Bank. A trust receipt was executed by CCC, with
Gregory Lim as signatory. Claiming that respondents failed to turn over the goods or proceeds, Consolidated
Bank filed a complaint for sum of money before the RTC Manila. In their answer, respondents aver that the
transaction was a simple loan and not a trust receipt one.
Issue:
Whether or not the transaction between the bank and the corporation was a simple loan and not a
trust receipt
Ruling:
YES. Inasmuch as the debtor received the goods subject of the trust receipt before the trust receipt
itself was entered into, the transaction in question was a simple loan and not a trust receipt agreement. Prior
to the date of execution of the trust receipt, ownership over the goods was already transferred to the debtor.
This situation is inconsistent with what normally obtains in a pure trust receipt transaction, wherein the
goods belong in ownership to the bank and are only released to the importer in trust after the loan is granted.
In the case at bar, the delivery to CCC of the goods subject of the trust receipt occurred long before the trust
receipt itself was executed. More specifically, delivery of the bunker fuel oil to CCC's Bulacan plant
commenced on July 7, 1982 and was completed by July 19, 1982. Further, the oil was used up by CCC in its
normal operations by August, 1982. On the other hand, the subject trust receipt was only executed nearly two
months after full delivery of the oil was made to CCC , or on September 2, 1982. The loan should be granted to
finance acquisition of the goods under trust receipt. If the loan is granted when entrustee already has
ownership of the goods, the transaction is only a simple loan.
______________________________________________________________________________________________________________________________
ANTHONY L. NG v. PEOPLE OF THE PHILIPPINES

G.R. No. 173905, April 23, 2010, J. Velasco Jr.
The Trust Receipts Law was created to to aid in financing importers and retail dealers who do not have
sufficient funds or resources to finance the importation or purchase of merchandise, and who may not be able to
acquire credit except through utilization, as collateral, of the merchandise imported or purchased. Since
Asiatrust knew that Ng was neither an importer nor retail dealer, it should have known that the said agreement
could not possibly apply to Ng. The goods must be intended for sale or resale, otherwise, it is a simple loan.
Facts:
Anthony Ng, then engaged in the business of building and fabricating telecommunication towers
under the trade name "Capitol Blacksmith and Builders," applied for a credit line with Asiatrust Development
Bank, Inc. (Asiatrust). Prior to the approval of the loan, Ng informed Asiatrust that the proceeds would be
used for purchasing construction materials necessary for the completion of several steel towers he was
commissioned to build by several telecommunication companies. Asiatrust approved the loan but required Ng
to sign a trust receipt agreement. When Ng failed to pay the loan, Asiatrust filed a criminal case for Estafa in
relation to PD 115 or the Trust Receipts Law.
Issue:
Whether Ng is liable for estafa.
Ruling:
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NO. The Trust Receipts Law was created to to aid in financing importers and retail dealers who do
not have sufficient funds or resources to finance the importation or purchase of merchandise, and who may
not be able to acquire credit except through utilization, as collateral, of the merchandise imported or
purchased. Since Asiatrust knew that Anthony Ng was neither an importer nor retail dealer, it should have
known that the said agreement could not possibly apply to him. The true nature of a trust receipt transaction
can be found in the whereas clause of PD 115 which states that a trust receipt is to be utilized as a
convenient business device to assist importers and merchants solve their financing problems. Obviously, the
State, in enacting the law, sought to find a way to assist importers and merchants in their financing in order to
encourage commerce in the Philippines. A trust receipt is considered a security transaction intended to aid in
financing importers and retail dealers who do not have sufficient funds or resources to finance the
importation or purchase of merchandise, and who may not be able to acquire credit except through
utilization, as collateral, of the merchandise imported or purchased. Similarly, American Jurisprudence
demonstrates that trust receipt transactions always refer to a method of financing importations or financing
sales. The principle is of course not limited in its application to financing importations, since the principle is
equally applicable to domestic transactions. Regardless of whether the transaction is foreign or domestic, it is
important to note that the transactions discussed in relation to trust receipts mainly involved sales.
Considering that the goods in this case were never intended for sale but for use in the fabrication of steel
communication towers, the trial court erred in ruling that the agreement is a trust receipt transaction. The
goods must be intended for sale or resale, otherwise, it is a simple loan.
______________________________________________________________________________________________________________________________
LAND BANK OF THE PHILIPPINES v. LAMBERTO C. PEREZ, NESTOR C. KUN, MA. ESTELITA P. ANGELES-
PANLILIO, AND NAPOLEON O. GARCIA
G.R. No. 166884, June 13, 2012, J. Brion
In concluding that the transaction was a loan and not a trust receipt, it must be noted that the industry
or line of work that the borrowers were engaged in was construction. The borrowers were not importers
acquiring goods for resale. The goods must be intended for sale or resale, otherwise, it is a simple loan.
Facts:
Perez et al were officers of Asian Construction and Development Corporation (ACDC), a corporation
engaged in the construction business. On several occasions, respondents executed in favor of Land Bank of the
Philippines (LBP) trust receipts to secure the purchase of construction materials that they will need in their
construction projects. When the trust receipts matured, ACDC failed to return to LBP the proceeds of the
construction projects or the construction materials subject of the trust receipts. After several demands went
unheeded, LBP filed a complaint for Estafa or violation of Art. 315, par. 1(b) of the RPC, in relation to PD 115,
against the respondent officers of ACDC. The respondents allege that on what was really intended was a
simple contract of loan and not a trust receipts transaction.
Issue:
Whether the transaction between LBP and the respondents is a simple contract of loan and not a
trust receipt transaction.
Ruling:
YES. When both parties enter into an agreement knowing that the return of the goods subject of the
trust receipt is not possible even without any fault on the part of the trustee, it is not a trust receipt
transaction penalized under Section 13 of P.D. 115; the only obligation actually agreed upon by the parties
would be the return of the proceeds of the sale transaction. This transaction becomes a mere loan, where the
borrower is obligated to pay the bank the amount spent for the purchase of the goods. Thus, in concluding
that the transaction was a loan and not a trust receipt, it must be noted that the industry or line of work that
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the borrowers were engaged in was construction. The borrowers were not importers acquiring goods for
resale. Indeed, goods sold in retail are often within the custody or control of the trustee until they are
purchased. In the case of materials used in the manufacture of finished products, these finished products if
not the raw materials or their components similarly remain in the possession of the trustee until they are
sold. But the goods and the materials that are used for a construction project are often placed under the
control and custody of the clients employing the contractor, who can only be compelled to return the
materials if they fail to pay the contractor and often only after the requisite legal proceedings. The contractors
difficulty and uncertainty in claiming these materials (or the buildings and structures which they become part
of), as soon as the bank demands them, disqualify them from being covered by trust receipt agreements.
LBP knew that ACDC was in the construction business and that the materials that it sought to buy
under the letters of credit were to be used for the following projects: the Metro Rail Transit Project and the
Clark Centennial Exposition Project. Clearly, they were aware of the fact that there was no way they could
recover the buildings or constructions for which the materials subject of the alleged trust receipts had been
used. The goods must be intended for sale or resale, otherwise, it is a simple loan.
______________________________________________________________________________________________________________________________
HUR TIN YANG v. PEOPLE OF THE PHILIPPINES

G.R. No. 195117, August 14, 2013, J. Velasco Jr.
The fact that the entruster bank, Metrobank in this case, knew even before the execution of the alleged
trust receipt agreements that the covered construction materials were never intended by the entrustee (Yang)
for resale or for the manufacture of items to be sold would take the transaction between Yang and Metrobank
outside the ambit of the Trust Receipts Law. The goods must be intended for sale or resale, otherwise, it is a
simple loan.
Facts:
Supermax, a domestic corporation engaged in the construction business, sought several letters of
credit from Metropolitan Bank and Trust Company (Metrobank) to pay for the delivery of several construction
materials to be used in their construction business. The bank then required Hur Tin Yang, representative of
Supermax, to sign 24 trust receipts as security for the construction materials and to hold the proceeds of the
sales in trust for Metrobank to the extent of the amount stated in the receipts. Supermax failed to pay or
deliver the goods or proceeds to Metrobank , instead the company sought a restructuring of the loan but it did
not materialize, hence, Metrobank filed a case for Estafa in relation to PD No. 115 (the Trust Receipts Law)
against Hur Tin Yang.
Issue:
Whether the transaction was a simple loan and not a trust receipt agreement.
Ruling:
YES. Yang's admissionthat he signed the trust receipts on behalf of Supermax, which failed to pay
the loan or turn over the proceeds of the sale or the goods to Metrobank upon demanddoes not conclusively
prove that the transaction was, indeed, a trust receipts transaction. In contrast to the nomenclature of the
transaction, the parties really intended a contract of loan. In determining the nature of a contract, courts are
not bound by the title or name given by the parties. The decisive factor in evaluating such agreement is the
intention of the parties, as shown not necessarily by the terminology used in the contract but by their
conduct, words, actions and deeds prior to, during and immediately after executing the agreement. As such,
therefore, documentary and parol evidence may be submitted and admitted to prove such intention.
______________________________________________________________________________________________________________________________
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SPOUSES QUIRINO V. DELA CRUZ AND GLORIA DELA CRUZ v. PLANTERS PRODUCTS, INC.
G.R. No. 158649, February 18, 2013, J. Bersamin
Under Section 4 of the Trust Receipts Law, the sale of goods by a person in the business of selling goods
for profit who, at the outset of the transaction, has, as against the buyer, general property rights in such goods,
or who sells the goods to the buyer on credit, retaining title or other interest as security for the payment of the
purchase price, does not constitute a trust receipt transaction and is outside the purview and coverage of the
law.
Facts:
Spouses QuirinoDela Cruz and Gloria Dela Cruz operated the Barangay Agricultural Supply, an
agricultural supply store in Nueva Ecija engaged in the distribution and sale of fertilizers and agricultural
chemical products, among others. Gloria applied for and was granted by Planters Products, Inc. (PPI) a regular
credit line, with trust receipts as collaterals. Gloria signed in the presence of the PPI distribution
officer/assistant sales representative two documents labelled Trust Receipt/Special Credit Scheme,
indicating the invoice number, quantity, value, and names of the agricultural inputs she received upon the
trust of PPI. The credit term lapsed without Gloria paying her obligation under the Trust Receipt/SCS. PPI
claimed that Gloria did not return the goods indicated in the invoices and did not remit the proceeds of sales.
Spouses Dela Cruz, on the other hand, justified that the non-compliance by Gloria with her obligations under
the Trust Receipt/SCS was due to the loss of the farm outputs due to typhoon Kading.
Issue:
Whether the two transaction documents signed by Gloria is a simple loan, and not a trust receipt
agreement
Ruling:
YES. The contract, its label notwithstanding, was not a trust receipt transaction in legal
contemplation or within the purview of the Trust Receipts Law (PD No. 115) such that its breach would
render Gloria criminally liable for estafa.
It is worthwhile to note that the application for credit facilities was a form contract that Gloria filled
out only with respect to her name, address, credit limit, term, and collateral. Her act of signing the application
signified her agreement to be bound by the terms of the application, specifically her acquiescence to use trust
receipts as collaterals, as well as by the terms and conditions of the Trust Receipt/SCS. In this regard, whether
or not the Trust Receipt/SCS was a contract of adhesion apparently prepared by PPI would neither dilute nor
erase her liabilities.
______________________________________________________________________________________________________________________________
PEOPLE OF THE PHILIPPINES AND ALLIED BANKING CORPORATION v. HON. JUDGE DAVID G. NITAFAN
AND BETTY SIA ANG
G.R. Nos. 81559-60, April 06, 1992, J. Gutierrez, Jr.
P.D. 115, like Batas PambansaBlg. 22, punishes the act not as an offense against property, but as an
offense against public order. The misuse of trust receipts therefore should be deterred to prevent any
possible havoc in trade circles and the banking community. It is in the context of upholding public interest
that the law now specifically designates a breach of a trust receipt agreement to be an act that shall make one
liable for estafa. A mere failure to deliver the proceeds of the sale or the goods if not sold, constitutes a criminal
offense that causes prejudice not only to another, but more to the public interest.
Facts:
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Allied Banking Corporation charged Betty SiaAng with estafa, alleging that Ang received in trust from
the aforesaid bank Gordon Plastics, plastic sheeting and Hook Chromed, in the total amount of P398,000.00,
specified in a trust receipt and covered by Domestic Letter of Credit under the express obligation on the part
of said accused to sell the same and account for the proceeds of the sale thereof, if sold, or to return said
merchandise, if not sold, on or before October 16, 1980, or upon demand, but the said accused, once in
possession of the said articles, far from complying with the aforesaid obligation, paid only the amount of
P283,115.78, thereby leaving unaccounted for the amount of P114,884.22 which, once in her possession, with
intent to defraud, she misappropriated, misapplied and converted to her own personal use and benefit, to the
damage and prejudice of said Allied Banking Corporation.
Issue:
Whether or not the failure of the entrustee to remit sale proceeds or return the goods in case of non-
sale constitutes criminal liability
Ruling:
YES. A trust receipt arrangement does not involve a simple loan transaction between a creditor and a
debtor-importer. Apart from a loan feature, the trust receipt arrangement has a security feature that is
covered by the trust receipt itself. That second feature is what provides the much needed financial assistance
to our traders in the importation or purchase of goods or merchandise through the use of those goods or
merchandise as collateral for the advancements made by a bank. The title of the bank to the security is the
one sought to be protected and not the loan which is a separate and distinct agreement.
The Trust Receipts Law punishes the dishonesty and abuse of confidence in the handling of money or
goods to the prejudice of another regardless of whether the latter is the owner or not. The law does not seek
to enforce payment of the loan. Thus, there can be no violation of a right against imprisonment for non-
payment of a debt.
Ownership of the Goods, Documents and Instruments
SPOUSES TIRSO I. VINTOLA AND LORETO DY VINTOLA v. INSULAR BANK OF ASIA AND AMERICA
G.R. No. 73271, May 29, 1987, J. Melencio-Herrera
The goods the Vintolas had purchased through IBAA financing remain their own property and they hold
it at their own risk. The trust receipt arrangement did not convert the IBAA into an investor; the latter remained
a lender and creditor. Hence, the entrustee is the deemed the owner of the goods.
Facts:
Spouses Vintola owns and manages manufacturing of raw seashells into finished products under
their business name Dax Kin International. They were granted a domestic letter of credit by the Insular Bank
of Asia and America (IBAA). They then executed a Trust Receipt Agreement with IBAA stipulating that they
agreed to hold the goods in trust for IBAA as the "latter's property with liberty to sell the same for its
account," and "in case of sale" to turn over the proceeds as soon as received to IBAA. Having defaulted on their
obligation, IBAA demanded payment from the Vintolas. The Vintolas, who were unable to dispose of the shells,
responded by offering to return the goods. IBAA refused to accept the merchandise, and due to the continued
refusal of the Vintolas to make good their undertaking, IBAA charged them with Estafa for having
misappropriated, misapplied and converted for their own personal use and benefit the aforesaid goods. The
Vintolas take the position that their obligation to IBAA has been extinguished inasmuch as, through no fault of
their own, they were unable to dispose of the seashells, and that they have relinquished possession thereof to
the IBAA, as owner of the goods, by depositing them with the Court.
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Issue:
Whether the IBAA (entrustor) is the real owner of the goods.
Ruling:
NO. IBAA did not become the real owner of the goods. It was merely the holder of a security title for
the advances it had made to the Vintolas. The goods the Vintolas had purchased through IBAA financing
remain their own property and they hold it at their own risk. The trust receipt arrangement did not convert
the IBAA into an investor; the latter remained a lender and creditor. As cited in one case, for the bank has
previously extended a loan which the L/C represents to the importer, and by that loan, the importer should be
the real owner of the goods. If under the trust receipt, the bank is made to appear as the owner, it was but an
artificial expedient, more of a legal fiction than fact, for if it were so, it could dispose of the goods in any
manner it wants, which it cannot do, just to give consistency with the purpose of the trust receipt of giving a
stronger security for the loan obtained by the importer. To consider the bank as the true owner from the
inception of the transaction would be to disregard the loan feature thereof.
Since the IBAA is not the factual owner of the goods, the Vintolas cannot justifiably claim that because
they have surrendered the goods to IBAA and subsequently deposited them in the custody of the court, they
are absolutely relieved of their obligation to pay their loan because of their inability to dispose of the goods.
advances it had made under the Letter of Credit. In so arguing, the Vintolas conveniently close their eyes to
their application for a Letter of Credit. Hence, the entrustee is the deemed the owner of the goods.
______________________________________________________________________________________________________________________________
ROSARIO TEXTILE MILLS CORPORATION AND EDILBERTO YUJUICO v. HOME BANKERS SAVINGS AND
TRUST COMPANY
G.R. NO. 137232, June 29, 2005, J. Sandoval-Guttierez.
more of legal fiction than fact, for if it were really so, it could dispose of the goods in any manner it wants, which
it cannot do, just to give consistency with purpose of the trust receipt of giving a stronger security for the loan
to disregard the loan feature thereof. RTMC, as the entrustee, is deemed the owner of the goods.
Facts:
Rosario Textile Mills Corporation (RTMC) applied from Home Bankers Savings & Trust Co. for an
Omnibus Credit Line. Yujuico signed a Surety Agreement in favor of the bank, where he bound himself jointly
and severally with RTMC for the payment of all RTMCs indebtedness to the bank from 1989 to 1990. RTMC
availed of the credit line by making numerous drawdowns, each drawdown being covered by a separate
promissory note and trust receipt. RTMC failed to pay its loans. RTMC and Yujuico contend that they should be
absolved from liability. They argue that the importation of raw materials under the credit line was with a
grant of option to them to turn-over to the bank the imported raw materials should these fail to meet their
manufacturing requirements. RTMC offered to make such turn-over since the imported materials did not
conform to the required specifications. However, the bank refused to accept the same, until the materials
were destroyed by a fire which gutted down RTMCs premises. RTMC contends that since the ownership of the
goods remains with the bank, then it should bear the loss. With the destruction of the goods by fire, RTMC
should have been relieved of any obligation to pay.
Issue:
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Whether the ownership of the raw materials remained with the bank
Ruling:
NO. If under the trust receipt, the bank is made to appear as the owner, it was but an artificial
expedient, more of legal fiction than fact, for if it were really so, it could dispose of the goods in any manner it
wants, which it cannot do, just to give consistency with purpose of the trust receipt of giving a stronger
security for the loan obtained by the importer. To consider the bank as the true owner from the inception of
the transaction would be to disregard the loan feature thereof. RTMC, as the entrustee, is deemed the owner
of the goods. Thus, RTMC cannot be relieved of their obligation to pay their loan in favor of the bank.
______________________________________________________________________________________________________________________________
DEVELOPMENT BANK OF THE PHILIPPINES v. PRUDENTIAL BANK

G.R. No. 143772, November 22, 2005, J. Corona
The entrustee cannot mortgage the goods under trust receipt.While it was allowed to sell the items,
Litex had no authority to dispose of them or any part thereof or their proceeds through conditional sale, pledge
or any other means.Article 2085 (2) of the Civil Code requires that, in a contract of pledge or mortgage, it is
essential that the pledgor or mortgagor should be the absolute owner of the thing pledged or mortgaged.
Facts:.
Lirag Textile Mills, Inc. (Litex) opened an irrevocable commercial letter of credit with Prudential
Bank. This was in connection with its importation of spindles for spinning machinery. These were released to
Litex under covering trust receipts it executed in favor of Prudential. 9 years later, DBP granted a foreign
currency loan to Litex. To secure the loan, Litex executed real estate and chattel mortgages on its plant site in
Montalban, Rizal, including the buildings and other improvements, machineries and equipment there. Among
the machineries and equipment mortgaged in favor of DBP were the articles covered by the trust receipts.
Prudential Bank informed DBP that it was the absolute and juridical owner of the said items and they were
thus not part of the mortgaged assets that could be legally ceded to DBP. For the failure of Litex to pay its
obligation, DBP extrajudicially foreclosed the real estate and chattel mortgages, including the articles claimed
by Prudential Bank.
Issue:
Whether Litex (entrustee) can mortgage the goods under the trust receipt.
Ruling:
NO.The articles were owned by Prudential Bank and they were only held by Litex in trust. While it
was allowed to sell the items, Litex had no authority to dispose of them or any part thereof or their proceeds
through conditional sale, pledge or any other means.Article 2085 (2) of the Civil Code requires that, in a
contract of pledge or mortgage, it is essential that the pledgor or mortgagor should be the absolute owner of
the thing pledged or mortgaged. Article 2085 (3) further mandates that the person constituting the pledge or
mortgage must have the free disposal of his property, and in the absence thereof, that he be legally authorized
for the purpose.
Litex had neither absolute ownership, free disposal nor the authority to freely dispose of the articles.
Litex could not have subjected them to a chattel mortgage. Their inclusion in the mortgage was voidand had
no legal effect.There being no valid mortgage, there could also be no valid foreclosure or valid auction
sale.Thus, DBP could not be considered either as a mortgagee or as a purchaser in good faith.No one can
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transfer a right to another greater than what he himself has.Nemodat quod non habet. Hence, Litex could not
transfer a right that it did not have over the disputed items.
______________________________________________________________________________________________________________________________
PRUDENTIAL BANK v. NATIONAL LABOR RELATIONS COMMISSION, CECILIA ORQUELLO, ET AL.,

ZENAIDA UCHI, ET AL., ALU-INTERASIA CONTAINER INDUSTRIES INC., AND RAUL REMODO
G.R. No. 112592, December 19, 1995, J. Bellosillo
It is thus clear that the security interest of the entruster is not merely an empty or idle title. To a certain
extent, such interest becomes a "lien" on the goods because the entruster's advances will have to be settled first
before the entrustee can consolidate his ownership over the goods. A contrary view would be disastrous. For to
refuse to recognize the title of the banker under the trust receipt as security for the advance of the purchase price
would be to strike down a bona fide and honest transaction of great commercial benefit and advantage founded
upon a well-recognized custom by which banking credit is officially mobilized for manufacturers and importers
of small means.
Facts:
INTERASIA was embroiled in 3 labor cases which were eventually resolved against it. With the
finality of the three (3) decisions, writs of execution were issued. The Sheriff levied on execution personal
properties located in the factory of INTERASIA. Prudential Bank filed an Affidavit of Third-Party
Claim asserting ownership over the seized properties on the strength of trust receipts executed by INTERASIA
in its favor. As a result, the Sheriff suspended the public auction sale. But the Labor Arbiter denied the claim
of Prudential Bank and directed the Sheriff to proceed with the levy of the properties.
Issue:
Whether the security interest as against the creditors of the entrustee/innocent purchaser for value
is valid.
Ruling:
YES.Sec. 12 of P.D. No. 115 provides that the entruster's security interest in goods, documents, or
instruments pursuant to the written terms of a trust receipt shall be valid as against all creditors of the
entrustee for the duration of the trust receipt agreement. The only exception to the rule is when the
properties are in the hands of an innocent purchaser for value and in good faith. The records however do not
show that the winning bidder is such purchaser. Neither can private respondents plead preferential claims to
the properties as Prudential Bank has the primary right to them until its advances are fully paid.
Obligations and Liabilities of Entrustees
METROPOLITAN BANK AND TRUST COMPANY v. JOAQUIN TONDA AND MA. CRISTINA TONDA
G.R. No. 134436, August 16, 2000, J. Gonzaga-Reyes
Trust Receipts Law declares the failure to turn over the goods or the proceeds realized from the sale
thereof, as a criminal offense punishable under Article 315 (1) (b) of the Revised Penal Code. The law is violated
whenever the entrustee or the person to whom the trust receipts were issued in favor of fails to: (1) return the
goods covered by the trust receipts; or (2) return the proceeds of the sale of the said goods. The foregoing acts
constitute estafa punishable under Article 315 (1) (b) of the Revised Penal Code.
Facts:
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Spouses Joaquin and Ma. Cristina Tondaapplied for and were granted commercial letters of credit by
Metropolitan Bank and Trust Company (Metrobank) in connection with the importation of raw textile
materials to be used in the manufacturing of garments. Spouses Tonda acting both in their capacity as officers
of Honey Tree Apparel Corporation (HTAC) and in their personal capacities, executed 11 trust receipts to
secure the release of the raw materials to HTAC. Due to their failure to settle their obligations under the trust
receipts upon maturity. Despite repeated demands, Spouses Tondafailed to account to Metrobankthe goods
and/or proceeds of sale of the merchandise, subject of the trust receipts. Spouses Tondamaintain that
Metrobankhas no legal standing to file the present petition without the conformity or authority of the
prosecutor as it deals solely with the criminal aspect of the case, a separate action to recover civil liability
having already been instituted; that the issues raised in the present petition are purely factual; and that the
subject trust receipts obligations have been extinguished by payment or legal compensation.
Issue:
Whether Spouses Tonda are criminally liable for violation of the Trust Receipts Law in relation to Art.
315(1) (b) of the Revised Penal Code
Ruling:
YES. Given that various trust receipts were executed by Spouses Tondaand that as entrustees, they
did not return the proceeds from the goods sold nor the goods themselves to Metrobank, there is no dispute
that Spouses Tondafailed to comply with the obligations under the trust receipts despite several demands
from Metrobank.
______________________________________________________________________________________________________________________________
MELVIN COLINARES AND LORDINO VELOSO v. HONORABLE COURT OF APPEALS, AND THE PEOPLE OF
THE PHILIPPINES
G.R. No. 90828, September 05, 2000, C.J. Davide Jr.
Colinares and Veloso (entrustees) already own the goods when the loan under the trust receipt was
granted. If the loan is granted when entrustee already has ownership of the goods, the transaction is only a
simple loan. Also, Colinares and Velosoare contractors who obtained the fungible goods for their construction
project. At no time did title over the construction materials pass to the bank, but directly to the Colinares and
Veloso from CM Builders Centre. This impresses upon the trust receipt in question vagueness and ambiguity,
which should not be the basis for criminal prosecution in the event of violation of its provisions.
Facts:
Colinares and Veloso were contracted for by the Carmelite Sisters of Cagayan de Oro City to renovate
the latters convent. Colinares applied for a commercial letter of credit with the Philippine Banking
Corporation (PBC) in favor of CM Builders Centre. PBC approved the letter of credit to cover the full invoice
value of the goods. Petitioners signed a pro-forma trust receipt as security. After the initial payment, the
spouses defaulted. PBC wrote to Petitioners demanding that the amount be paid within seven days from
notice.
During trial, petitioner Veloso insisted that the transaction was a clean loan per verbal guarantee of
PBCs former manager. He and petitioner Colinares signed the documents without reading the fine print, only
learning of the trust receipt implication much later. When he brought this to the attention of PBC, Mr. Tuiza
assured him that the trust receipt was a mere formality.
Issue:
Whether or not Colinares and Veloso (entrustees) have criminal liability
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Ruling:
NO. Colinares and Veloso received the merchandise from CM Builders Centre on 30 October 1979. It
was only a day later that they went to the bank to apply for a loan to pay for the merchandise. This situation
belies what normally obtains in a pure trust receipt transaction where goods are owned by the bank and only
released to the importer in trust subsequent to the grant of the loan. Hence, Colinares and Veloso (entrustees)
already own the goods when the loan under the trust receipt was granted. If the loan is granted when
entrustee already has ownership of the goods, the transaction is only a simple loan.
Also, it is crystal clear that on the part of Colinares and Veloso there was neither dishonesty nor
abuse of confidence in the handling of money to the prejudice of PBC. Colinares and Veloso continually
endeavored to meet their obligations, as shown by several receipts issued by PBC acknowledging payment of
the loan.The Information charges Colinares and Velosowith intent to defraud and misappropriating the money
for their personal use. The mala prohibita nature of the alleged offense notwithstanding, intent as a state of
mind was not proved to be present in Colinares and Velosossituation. Colinares and Velosoemployed no
artifice in dealing with PBC and never did they evade payment of their obligation nor attempt to abscond.
Also, Colinares and Velosoare not importers acquiring the goods for re-sale, contrary to the express provision
embodied in the trust receipt. They are contractors who obtained the fungible goods for their construction
project. At no time did title over the construction materials pass to the bank, but directly to the Colinares and
Velosofrom CM Builders Centre. This impresses upon the trust receipt in question vagueness and ambiguity,
which should not be the basis for criminal prosecution in the event of violation of its provisions.The practice
of banks of making borrowers sign trust receipts to facilitate collection of loans and place them under the
threats of criminal prosecution should they be unable to pay it may be unjust and inequitable, if not
reprehensible. Such agreements are contracts of adhesion which borrowers have no option but to sign lest
their loan be disapproved. The resort to this scheme leaves poor and hapless borrowers at the mercy of banks,
and is prone to misinterpretation, as had happened in this case.
______________________________________________________________________________________________________________________________
THE CONSOLIDATED BANK AND TRUST CORPORATION (SOLIDBANK) vs.COURT OF APPEALS

G.R. No. 114286, April 19, 2001, YNARES-SANTIAGO, J.
Inasmuch as the debtor received the goods subject of the trust receipt before the trust receipt itself was
entered into, the transaction in question was a simple loan and not a trust receipt agreement. Prior to the date of
execution of the trust receipt, ownership over the goods was already transferred to the debtor. This situation is
inconsistent with what normally obtains in a pure trust receipt transaction, wherein the goods belong in
ownership to the bank and are only released to the importer in trust after the loan is granted.
Facts:
Respondents Continental Cement Corp. (Corporation) and Gregory T. Lim as its Executive Vice
President obtained from Consolidated Bank (Bank) a Letter of Credit used to purchase of bunker fuel oil from
Petrophil Corporation, which the latter delivered directly to the Corporation in its Bulacan plant. In relation to
the same transaction, a trust receipt was executed by the Corporation, with Lim as signatory. Claiming that
respondents failed to turn over the goods covered by the trust receipt or the proceeds thereof, the bank filed a
complaint for sum of money with application for preliminary attachment before the RTC. In answer to the
complaint, respondents averred that the transaction between them was a simple loan and not a trust receipt
transaction.
Issue:
Whether the respondents are liable under the trust receipt transaction.
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Ruling:
NO. In the case at bar, as in Colinares, the delivery to respondent Corporation of the goods subject of
the trust receipt occurred long before the trust receipt itself was executed. More specifically, delivery of the
bunker fuel oil to respondent Corporation's Bulacan plant commenced on July 7, 1982 and was completed by
July 19, 1982. Further, the oil was used up by respondent Corporation in its normal operations by August, 1982.
On the other hand, the subject trust receipt was only executed nearly two months after full delivery of the oil
was made to respondent Corporation, or on September 2, 1982. Respondent Corporation is not an
importer, which acquired the bunker fuel oil for re-sale; it needed the oil for its own operations. More
importantly, at no time did title over the oil pass to petitioner, but directly to respondent Corporation to which
the oil was directly delivered long before the trust receipt was executed. The fact that ownership of the oil
belonged to respondent Corporation, through its President, Gregory Lim, was acknowledged by petitioner's
own account officer on the witness stand.
By all indications, then, it is apparent that there was really no trust receipt transaction that took
place. Evidently, respondent Corporation was required to sign the trust receipt simply to facilitate collection
by petitioner of the loan it had extended to the former.
______________________________________________________________________________________________________________________________
ANTHONY L. NG vs. PEOPLE OF THE PHILIPPINES

G.R. No. 173905, April 23, 2010, VELASCO, JR.
The Trust Receipts Law was created to "to aid in financing importers and retail dealers who do not have
sufficient funds or resources to finance the importation or purchase of merchandise, and who may not be able to
acquire credit except through utilization, as collateral, of the merchandise imported or purchased." Since
Asiatrust knew that Anthony Ng was neither an importer nor retail dealer, it should have known that the said
agreement could not possibly apply to petitioner. Regardless of whether the transaction is foreign or domestic, it
is important to note that the transactions discussed in relation to trust receipts mainly involved sales.
Considering that the goods in this case were never intended for sale but for use in the fabrication of steel
communication towers, the trial court erred in ruling that the agreement is a trust receipt transaction.
Facts:
Anthony Ng, in behalf of his company Capitol Blacksmith and Builders, applied for a credit line with
Asiatrust Development Bank, Inc. (Asiatrust) in order for him to procure goods consisting of chemicals and
metal plates to be utilized in building communication towers ordered from him by his clients (e.g.: Islacom,
Smart and Infocom). Asiatrust approved Ngs loan application. However, he failed to pay his obligation to
Asiatrust by reason of his difficulty in in collecting from his client Islacom. Asiatrust consequently filed with
the RTC a case for Estafa under the RPC in relation to Sec. 3, PD 115 (Trust Receipts Law) against Ng.
Issue:
Whether Anthony Ng is liable for Estafa in relation to PD 115 (Trust Receipts Law).
Ruling:
NO. The transaction between Ng and Asiatrust is not a trust receipt transaction but one of simple
loan. Ng was transparent to Asiatrust from the very beginning that the subject goods were not being held for
sale but were to be used for the fabrication of steel communication towers in accordance with his contracts
with his clients. In these contracts, he was commissioned to build, out of the materials received, steel
communication towers, not to sell them. Moreover, Asiatrust was aware that petitioner was not engaged in
selling the subject goods and that petitioner will use them for the fabrication and installation of communication
towers. In fine, there was no abuse of confidence to speak of nor was there any intention to convert the subject
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goods for another purpose, since Ng did not withhold the fact that they were to be used to fabricate steel
communication towers to Asiatrust.
______________________________________________________________________________________________________________________________
LAND BANK OF THE PHILIPPINES vs LAMBERTO C. PEREZ, et al.

G.R. No. 166884, June 13, 2012, Brion, J.
When both parties enter into an agreement knowing that the return of the goods subject of the trust
receipt is not possible even without any fault on the part of the trustee, it is not a trust receipt transaction
penalized under Section 13 of P.D. 115; the only obligation actually agreed upon by the parties would be the
return of the proceeds of the sale transaction. This transaction becomes a mere loan, where the borrower is
obligated to pay the bank the amount spent for the purchase of the goods.
Facts:
The respondents were officers of Asian Construction and Development Corporation (ACDC), a
corporation engaged in the construction business. On several occasions, respondents executed in favor of
Land Bank of the Philippines (LBP) trust receipts to secure the purchase of construction materials that they
will need in their construction projects. When the trust receipts matured, ACDC failed to return to LBP the
proceeds of the construction projects or the construction materials subject of the trust receipts. After several
demands went unheeded, LBP filed a complaint for Estafa or violation of Art. 315, par. 1(b) of the RPC, in
relation to PD 115 (Trust Receipts Law) against the respondent officers of ACDC.
Issue:
Whether or not the respondents are guilty of estafa or violation of Article 315, paragraph 1(b) of the
RPC, in relation to P.D. 115 (Trust Receipts Law).
Ruling:
NO.The industry or line of work that the borrowers were engaged in was construction. The
borrowers were not importers acquiring goods for resale. Indeed, goods sold in retail are often within the
custody or control of the trustee until they are purchased. In the case of materials used in the manufacture of
finished products, these finished products if not the raw materials or their components similarly remain in
the possession of the trustee until they are sold. But the goods and the materials that are used for a
construction project are often placed under the control and custody of the clients employing the contractor,
who can only be compelled to return the materials if they fail to pay the contractor and often only after the
requisite legal proceedings. The contractors difficulty and uncertainty in claiming these materials (or the
buildings and structures which they become part of), as soon as the bank demands them, disqualify them from
being covered by trust receipt agreements. Since these transactions are not trust receipts, an action for estafa
should not be brought against the respondents, who are liable only for a loan.
______________________________________________________________________________________________________________________________
HUR TIN YANG vs. PEOPLE OF THE PHILIPPINES

G.R. No. 195117, August 14, 2013, VELASCO JR., J.
The fact that the entruster bank knew even before the execution of the trust receipt agreements that the
construction materials covered were never intended by the entrustee for resale or for the manufacture of items
to be sold is sufficient to prove that the transaction was a simple loan and not a trust receipts transaction.
Facts:
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Metrobank extended several commercial letters of credit to Supermax which were used by the latter
to pay for the delivery of several construction materials to be used in its construction business. Thereafter,
Metrobank required Hur Tin Yang, as representative of Supermax, to sign 24 trust receipts as security for the
construction materials and to hold those materials or the proceeds of the sales in trust for Metrobank to the
extent of the amount stated in the trust receipts. When the 24 trust receipts fell due and despite the receipt of
a demand letter, Supermax failed to pay or deliver the goods or proceeds to Metrobank. Thus, Metrobank filed
a case against Hur Tin Yang for Estafa under Art. 315, par. 1(b) of the RPC in relation to PD 115 (Trust
Receipts Law). For his defense, Hur Tin Yang argued that said trust receipts were demanded by Metrobank as
additional security for the loans extended to Supermax. Allegedly, the construction materials covered by the
trust receipts were delivered way before he signed the corresponding trust receipts. Further, he argued that
Metrobank knew all along that the construction materials subject of the trust receipts were not intended for
resale but for personal use of Supermax relating to its construction business.
Issue:
Whether or not Hur Tin Yang is liable for Estafa under Art. 315, par. 1(b) of the RPC in relation to PD
115 (Trust Receipts Law), even if Metrobank knew beforehand that the construction materials subject of the
trust receipts were never intended to be sold but only for use in the entrustees construction business.
Ruling:
NO. The dealing between petitioner and Metrobank was not a trust receipt transaction but one of
simple loan. Hur Tin Yangs admission-- that he signed the trust receipts on behalf of Supermax, which failed
to pay the loan or turn over the proceeds of the sale or the goods to Metrobank upon demanddoes not
conclusively prove that the transaction was, indeed, a trust receipts transaction. In contrast to the
nomenclature of the transaction, the parties really intended a contract of loan. This Courtin Ng v.
People and Land Bank of the Philippines v. Perez, cases which are in all four corners the same as the instant
caseruled that the fact that the entruster bank knew even before the execution of the trust receipt agreements
that the construction materials covered were never intended by the entrustee for resale or for the manufacture of
items to be sold is sufficient to prove that the transaction was a simple loan and not a trust receipts transaction.
The fact that the entruster bank, Metrobank in this case, knew even before the execution of the alleged trust
receipt agreements that the covered construction materials were never intended by the entrustee (petitioner)
for resale or for the manufacture of items to be sold would take the transaction between petitioner and
Metrobank outside the ambit of the Trust Receipts Law. Thus, the consolidated complaints for Estafa in
relation to PD 115 have really no leg to stand on.
______________________________________________________________________________________________________________________________
TRINIDAD RAMOS vs. COURT OF APPEALS and PEOPLE OF THE PHILIPPINES

G.R. No. L-39922-25 August 21, 1987, NARVASA, J.
The trust receipts do not fare any better as proofs of the delivery to Ramos of the goods. Except for the
invoices, documents relating to each trust receipt agreement, including the trust receipts themselves, appear to
be standard Bank forms accomplished by the Bank personnel, and were all signed by Ramos in one sitting, with a
view to facilitating the pending transactions between the parties.
Facts:
Trinidad Ramos filed with the Philippine National Cooperative Bank (PNCB) four (4) applications for
letters of credit which were approved. Consequently, domestic letters of credit were opened. Among the
papers filed for the issuance of the domestic letters of credit were commercial invoices of the different
suppliers of the merchandise sought to be purchased. The different suppliers then drew sight drafts against
the applicant payable to the order of the PNCB. The PNCB then drew its own drafts against the accused as the
buyer of the merchandise and which drafts were accepted by the accused. After such acceptance, the
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corresponding trust receipts were signed by Ramos which provide that she acknowledges to have received in
trust from the PNCB the merchandise covered by the above-mentioned documents which are the property of
said bank, with the liberty to sell the same provided that the proceeds thereof are turned over to the said bank
to be applied against any acceptance(s) and any other indebtedness by her to the said bank. The drafts drawn
by the bank against Ramos were payable within 90 days from the dates thereof. However, no payments were
made except partial payments made pursuant to the written demands for payment addressed by the PNCB to
Ramos. Hence, the PNCB filed a case for four (4) counts of Estafa before the RTC against Ramos.
Issue:
Whether Ramos is guilty of four (4) counts of Estafa.
Ruling:
NO. The proofs are inadequate as to the propositions of receipt of the merchandise and the damage
sustained by the Bank . It could not be said that the commercial invoices attached to the applications for the
letter of credit and of the trust receipts was sufficient proof of delivery. The invoices are actually nothing more
than lists of the items sought to be purchased and their prices; and it can scarcely be believed that goods
worth no mean sum actually transferred hands without the unpaid vendor requiring the vendee to
acknowledge this fact in some way, even by a simple signature on these documents alone if not in fact by the
execution of some appropriate document, such as a delivery receipt.
At any rate, Ramos has categorically and consistently denied ever having received the goods either
from the Bank or the suppliers. And this was because, according to her, the suppliers simply refused to part
with the goods as no payment had been made therefor by the Bank. The issue could quite easily have been
resolved by the production of the delivery receipts or the testimony of the employees who made the supposed
deliveries which the prosecution did not do. Having found the record to contain insufficient evidence of the
essential elements of the crime charged, this Court finds it unnecessary to resolve the other issue raised by
the accused.
______________________________________________________________________________________________________________________________
FERNANDO ONG v. THE COURT OF APPEALS and JUDGE P. PURISIMA

G.R. No. L-58476. September 2, 1983, RELOVA, J.
Novation does not extinguish the criminal liability if the crime of estafa had been completed. In the
instant case the crime of estafa had been consummated long before the compromise settlement was agreed upon.
In fact, the criminal case had already been filed in the court. Therefore, the subsequent agreement did not affect
the criminal culpability of the petitioner.
Facts:
Fernando Ong received from the Tramat Mercantile, Inc. (Tramat) several units of machineries in
trust for the purpose of displaying and selling the same for cash, under the express obligation on his part of
turning over to Tramat the proceeds from the sale thereof, if sold, or of returning to the latter the said goods,
if not sold. However, Ong failed to honor his obligations in the said contract. A few months after the filing of
the estafa case, a collection suit was filed by Tramat against Ong. However, they were able to settle and
subsequently entered into a compromise agreement which was approved by the trial court. In line with this,
Ong moved for the dismissal of the criminal charge of estafa against him because the compromise agreement
in the civil case allegedly novated the contract embodied in the trust receipts on which the estafa case was
based. While the same took place after the filing of the Information in the criminal case, the transaction had
nonetheless been converted from a criminal violation to civil obligation, which would therefore necessitate
the consequent dismissal of the criminal case. The trial court denied the motion to dismiss the estafa case for
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lack of merit. Thereafter, Ong filed a petition for certiorari with the then CA which likewise dismissed the
same. Hence, this petition.
Issue:
Whether Ong is still liable for Estafa after a Compromise Agreement has been executed in the
collection suit grounded on the same act on which the estafa case is based.
Ruling:
NO. The novation theory may perhaps apply to the filing of the criminal information in court by the
state prosecutors because up to that time the original trust relation may be converted by the parties into an
ordinary creditor-debtor situation, thereby placing the complainant in estoppel to insist on the original trust.
But after the justice authorities have taken cognizance of the crime and instituted action in court, the offended
party may no longer divest the prosecution of its power to exact the criminal liability, as distinguished from
the civil. The crime being an offense against the state, only the latter can renounce it.
It may be observed in this regard that novation is not one of the means recognized by the Penal Code
whereby criminal liability can be extinguished; hence, the role of novation may only be to either prevent the
rise of criminal liability or to cast doubt on the true nature of the original basic transaction, whether or not it
was such that its breach would not give rise to penal responsibility, as when money loaned is made to appear
as a deposit, or other similar disguise is resorted to.
______________________________________________________________________________________________________________________________
PILIPINAS BANK vs. ALFREDO T. ONG and LEONCIA LIM

G.R. No. 133176, August 8, 2002, SANDOVAL-GUTIERREZ, J.
There are two ways which could indicate the presence of novation, thereby producing the effect of
extinguishing an obligation by another which substitutes the same. The first is when novation has been stated
and declared in unequivocal terms. The second is when the old and the new obligations are incompatible on
every point. The test of incompatibility is whether or not the two obligations can stand together. If they cannot,
they are incompatible and the latter obligation novates the first. The incompatibility must take place in any of
the essential elements of the obligation, such as its object, cause or principal conditions.
Facts:
Baliwag Mahogany Corporation (BMC), through its president, Alfredo T. Ong, applied for a domestic
commercial letter credit with Pilipinas Bank (the bank) to finance the purchase of Air Dried, Dark Lauan
sawn lumber. The bank approved the application and issued a Letter of Credit. To secure payment of the
amount, BMC, through respondent Ong, executed two (2) trust receipts providing that it shall turn over the
proceeds of the goods to the bank, if sold, or return the goods, if unsold, upon maturity. On the due dates, BMC
failed to comply with the trust receipt agreement. It thereafter filed with the Securities and Exchange
Commission (SEC) a Petition for Rehabilitation and for a Declaration in a State of Suspension of Payments. The
SEC issued an order creating a Management Committee wherein the bank is represented. BMC and a
consortium of 14 of its creditor banks entered into a Memorandum of Agreement (MOA) rescheduling the
payment of BMCs existing debts. The SEC rendered a Decision approving the Rehabilitation Plan of BMC as
contained in the MOA and declaring it in a state of suspension of payments. However, BMC and respondent
Ong defaulted in the payment of the obligations under the rescheduled payment scheme provided in the MOA.
This compelled the bank to file a complaint charging respondents Ong and Leoncia Lim (as president and
treasurer of BMC) with violation of the Trust Receipts Law (PD 115). The bank alleged that both respondents
failed to pay their obligation under the trust receipt despite demand. The office of the City Prosecutor
recommended the dismissal of the complaint which was likewise affirmed by the Justice Secretary. Upon
appeal, the CA affirmed the dismissal of the case. Hence, this petition.
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Issue:
Whether the MOA was a novation of the trust agreement between the parties.
Ruling:
YES. Contrary to petitioners contention, the MOA did not only reschedule BMCs debts, but more
importantly, it provided principal conditions, which are incompatible with the trust agreement. The execution
of the MOA extinguished respondents obligation under the trust receipts. Respondents liability, if any, would
only be civil in nature since the trust receipts were transformed into mere loan documents after the execution
of the MOA.
Return of Goods, Documents or Instruments in Case Non-Sale
SPOUSES VINTOLA vs. INSULAR BANK OF ASIA AND AMERICA (IBAA)

G.R. No. 73271, May 29, 1987, MELENCIO-HERRERA, J.
Since the IBAA is not the factual owner of the goods, the VINTOLAS cannot justifiably claim that because
they have surrendered the goods to IBAA and subsequently deposited them in the custody of the court, they are
absolutely relieved of their obligation to pay their loan because of their inability to dispose of the goods. The fact
that they were unable to sell the seashells in question does not affect IBAA's right to recover the advances it had
made under the Letter of Credit.
Facts:
Spouses VINTOLAS, proprietors of "Dax Kin International" which is engaged in the manufacture of
raw sea shells into finished products, applied for and were granted a domestic letter of credit by the Insular
Bank of Asia and America (IBAA). The Letter of Credit authorized the bank to negotiate for their account
drafts drawn by their supplier, one Stalin Tan, on Dax Kin International for the purchase of puka and olive
seashells. Having received the puka and olive shells, the VINTOLAS executed a Trust Receipt agreement with
IBAA which provides that they agree to hold the goods in trust for IBAA as the "latter's property with liberty
to sell the same for its account, " and "in case of sale" to turn over the proceeds as soon as received to IBAA.
Having defaulted on their obligation, IBAA demanded payment from the VINTOLAS but the latter responded
by offering to return the goods. IBAA refused to accept the merchandise, and due to the continued refusal of
the VINTOLAS to make good their undertaking, IBAA charged them with Estafa During the trial of the criminal
case, the VINTOLAS turned over the seashells to the custody of the Trial Court. The CFI acquitted the
VINTOLAS of the crime charged but went on to say that the remedy of the Bank is civil and not criminal in
nature. Thereafter, IBAA commenced the present civil action to recover the value of the goods before the RTC.
Issue:
Whether the return of the goods subject of the trust receipt agreement (puka and olive shells)
extinguished the liability of the Spouses Vintola.
Ruling:
NO. Under a letter of credit-trust receipt arrangement, a bank extends a loan covered by the Letter of
Credit, with the trust receipt as a security for the loan. In other words, the transaction involves a loan feature
represented by the letter of credit, and a security feature which is in the covering trust receipt. A trust receipt,
therefore, is a security agreement, pursuant to which a bank acquires a "security interest" in the goods. "It
secures an indebtedness and there can be no such thing as security interest that secures no obligation.
Contrary to the allegation of the VINTOLAS, IBAA did not become the real owner of the goods. It was merely
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the holder of a security title for the advances it had made to the VINTOLAS. The goods the VINTOLAS had
purchased through IBAA financing remain their own property and they hold it at their own risk. The trust
receipt arrangement did not convert the IBAA into an investor; the latter remained a lender and creditor. If
under the trust receipt, the bank is made to appear as the owner, it was but an artificial expedient, more of a
legal fiction than fact, for if it were so, it could dispose of the goods in any manner it wants, which it cannot do,
just to give consistency with the purpose of the trust receipt of giving a stronger security for the loan obtained by
the importer. To consider the bank as the true owner from the inception of the transaction would be to
disregard the loan feature thereof.
Liability for Loss of Goods, Documents or Instruments
ROSARIO TEXTILE MILLS CORPORATION vs. HOME BANKERS SAVINGS AND TRUST COMPANY
G.R. No. 137232, June 29, 2005, SANDOVAL-GUTIERREZ, J.
A trust receipt as a security transaction is intended to aid in financing importers and retail dealers who
do not have sufficient funds or resources to finance the importation or purchase of merchandise, and who may
not be able to acquire credit except through utilization, as collateral, of the merchandise imported or purchased.
A trust receipt, therefore, is a security agreement, pursuant to which a bank acquires a security interest in the
goods. It secures an indebtedness and there can be no such thing as security interest that secures no
obligation. Security Interest means a property interest in goods, documents, or instruments to secure
performance of some obligation of the entrustee or of some third persons to the entruster and includes title,
whether or not expressed to be absolute, whenever such title is in substance taken or retained for security only.
Facts:
Rosario Textile Mills Corporation (RTMC) filed with the Home Bankers Savings & Trust Co. (the bank)
an application for a credit line. RTMC availed of the credit line by making numerous drawdowns, each
drawdown being covered by a separate promissory note and trust receipt. RTMC, represented by Yujuico,
executed in favor of the bank a total of eleven (11) promissory notes. Despite the lapse of the respective due
dates under the promissory notes and notwithstanding the banks demand letters, RTMC failed to pay its
loans. Hence, the bank filed a complaint for sum of money against RTMC and Yujuico. In their defense, RTMC
and Yujuico contend that under the trust receipt contracts between the parties, they merely held the goods
described therein in trust for respondent Home Bankers Savings and Trust Company (the bank) which
owns the same. Since the ownership of the goods remains with the bank, then it should bear the loss. With
the destruction of the goods by fire, they should have been relieved of any obligation to pay.
Issue:
Whether RTMC and Yujuico are relieved of their obligation to pay their loan after they tried to tender
the goods to the bank which refused to accept the same, and which goods were subsequently lost in a fire.
Ruling:
NO.The principal transaction between petitioner RTMC and the bank is a contract of loan. RTMC used
the proceeds of this loan to purchase raw materials from a supplier abroad. In order to secure the payment of
the loan, RTMC delivered the raw materials to the bank as collateral. Trust receipts were executed by the
parties to evidence this security arrangement. Simply stated, the trust receipts were mere securities.
Petitioners insistence that the ownership of the raw materials remained with the bank is untenable.
If under the trust receipt, the bank is made to appear as the owner, it was but an artificial expedient, more of
legal fiction than fact, for if it were really so, it could dispose of the goods in any manner it wants, which it
cannot do, just to give consistency with purpose of the trust receipt of giving a stronger security for the loan
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to disregard the loan feature thereof. Thus, petitioners cannot be relieved of their obligation to pay their loan
in favor of the bank.
Penal Sanction if Offender is a Corporation
EDWARD C. ONG vs. THE COURT OF APPEALS AND THE PEOPLE OF THE PHILIPPINES
G.R. No. 119858, April 29, 2003, CARPIO, J.
The Trust Receipts Law recognizes the impossibility of imposing the penalty of imprisonment on a
corporation. Hence, if the entrustee is a corporation, the law makes the officers or employees or other persons
responsible for the offense liable to suffer the penalty of imprisonment. The reason is obvious: corporations,
partnerships, associations and other juridical entities cannot be put to jail. Hence, the criminal liability falls on
the human agent responsible for the violation of the Trust Receipts Law.
Facts:
Edward Ong (Ong), in his capacity as an officer of ARMAGRI International Corporation (ARMAGRI),
executed two (2) trust receipts acknowledging receipt from the Solid Bank Corp. of goods. When the trust
receipts became due and demandable, ARMAGRI failed to pay or deliver the goods to the Bank despite several
demand letters. The trial court convicted Ong of two (2) counts of estafa for violation of the Trust Receipts
Law. On appeal, Ong posited that he is no longer liable for Estafa since a compromise agreement was entered
into by him and ARMGARI.
Issue:
Whether Ong may be held liable for violation of the Trust Receipts Law(PD 115).
Ruling:
YES. In the instant case, the Bank was the entruster while ARMAGRI was the entrustee. Being the
entrustee, ARMAGRI was the one responsible to account for the goods or its proceeds in case of sale. However,
the criminal liability for violation of the Trust Receipts Law falls on the human agent responsible for the
violation. Petitioner Ong, who admits being the agent of ARMAGRI, is the person responsible for the offense
for two reasons. First, petitioner is the signatory to the trust receipts, the loan applications and the letters of
credit. Second, despite being the signatory to the trust receipts and the other documents, petitioner did not
explain or show why he is not responsible for the failure to turn over the proceeds of the sale or account for
the goods covered by the trust receipts.
The Trust Receipts Law expressly makes the corporations officers or employees or other persons
therein responsible for the offense liable to suffer the penalty of imprisonment. In the instant case, petitioner
signed the two trust receipts on behalf of ARMAGRI as the latter could only act through its agents. When
petitioner signed the trust receipts, he acknowledged receipt of the goods covered by the trust receipts. In
addition, petitioner was fully aware of the terms and conditions stated in the trust receipts, including the
obligation to turn over the proceeds of the sale or return the goods to the Bank.
______________________________________________________________________________________________________________________________
ALFREDO CHING vs THE SECRETARY OF JUSTICE, et al.

G. R. No. 164317, February 6, 2006, CALLEJO, SR. J.
Though the entrustee is a corporation, the law specifically makes the officers, employees or other
officers or persons responsible for the offense, without prejudice to the civil liabilities of such corporation and/or
board of directors, officers, or other officials or employees responsible for the offense. The rationale is that such
officers or employees are vested with the authority and responsibility to devise means necessary to ensure
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compliance with the law and, if they fail to do so, are held criminally accountable; thus, they have a responsible
share in the violations of the law.
Facts:
Alfredo Ching, as the Senior Vice-President of Philippine Blooming Mills, Inc. (PBMI), applied with the
Rizal Commercial Banking Corporation for the issuance of commercial letters of credit to finance its
importation of assorted goods. The bank approved the application and irrevocable letters of credit were
issued in favor of Ching. The goods were purchased and delivered in trust to PBMI. Ching signed 13 trust
receipts as surety, acknowledging delivery of the goods as contained in the said trust receipts. When the trust
receipts matured, Ching failed to return the goods to the bank or to return their value despite demands. Thus,
the bank filed a criminal complaint for 13 counts of estafa against Ching in the Office of the City Prosecutor
but the case was ultimately dismissed on the ground that the material allegations therein did not amount
to estafa. In the meantime, the Court rendered judgment in Allied Banking Corporation v. Ordoez, holding that
the penal provision of P.D. No. 115 is not limited to transactions in goods which are to be sold
(retailed), reshipped, stored or processed as a component of a product ultimately sold but covers
failure to turn over the proceeds of the sale of entrusted goods, or to return said goods if unsold or not
otherwise disposed of in accordance with the terms of the trust receipts. In the light of this ruling, the
bank was able to re-file 13 counts of estafa against Ching.
Issue:
Whether Ching is liable as SVP of PBMI.
RULING:
YES. In Allied Banking Corporation v. Ordoez, the Court ruled that PD 115 applies to goods used by
the entrustee in the operation of its machineries and equipment. The non-payment of the amount covered by
the trust receipts or the non-return of the goods covered by the receipts, if not sold or otherwise not disposed
of, violate the entrustees obligation to pay the amount or to return the goods to the entruster which is a crime
under P.D. No. 115, without need of proving intent to defraud. The crime defined in P.D. No. 115 is malum
prohibitum but is classified as estafa under the Revised Penal Code. Though the entrustee is a corporation,
nevertheless, the law specifically makes the officers, employees or other officers or persons responsible for the
offense, without prejudice to the civil liabilities of such corporation and/or board of directors, officers, or other
officials or employees responsible for the offense. In this case, petitioner signed the trust receipts in
question. He cannot, thus, hide behind the cloak of the separate corporate personality of PBMI. A corporate
officer cannot protect himself behind a corporation where he is the actual, present and efficient actor.
______________________________________________________________________________________________________________________________
TUPAZ vs THE COURT OF APPEALS and BANK OF THE PHILIPPINE ISLANDS

G.R. No. 145578, November 18, 2005, CARPIO, J.
A corporation, being a juridical entity, may act only through its directors, officers, and employees. Debts
incurred by these individuals, acting as such corporate agents, are not theirs but the direct liability of the
corporation they represent. As an exception, directors or officers are personally liable for the corporations debts
only if they so contractually agree or stipulate.
Facts:
Petitioners Jose C. Tupaz IV and Petronila C. Tupaz were officers of El Oro Engraver which had a
contract with the Philippine Army to supply the latter with survival bolos. To finance the purchase of the raw
materials for the survival bolos, petitioners, on behalf of El Oro Corporation, applied with the Bank of the
Philippine Islands (BPI) for two (2) commercial letters of credit. The letters of credit were in favor of El Oro
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Corporations suppliers, Tanchaoco Manufacturing Incorporated and Maresco Rubber and Retreading
Corporation. BPI granted petitioners application and issued Letter of Credit No. 2-00896-
3for P564,871.05 to Tanchaoco and Letter of Credit No. 2-00914-5 for P294,000 to Maresco. In line with
this, petitioners signed trust receipts in favor of BPI. Jose C. Tupaz IV signed in hispersonal capacity a trust
receipt corresponding to Letter of Credit No. 2-00896-3 (for P564,871.05) while he and Petronilia signed in
their official capacities the trust receipt corresponding to Letter of Credit No. 2-00914-5 (for P294,000).
Petitioners failed to comply with their undertaking under the trust receipts. Hence, BPI charged them with
estafa under Section 13, PD No. 115 (Trust Receipts Law). The trial court acquitted the petitioners of the
crime of estafa but held them civilly liable to BPI.
ISSUE:
Whether or not petitioners bound themselves personally liable for El Oro Corporations debts under the trust
receipts.
RULING:
YES. Jose Tupaz is liable as guarantor of El Oro Corporations debt under the trust receipt
corresponding to Letter of Credit No. 2-00896-3 (for P564,871.05) but the he and Petronilia are not
personally liable with respect to the debt under the trust receipt corresponding to Letter of Credit No. 2-
00914-5 (for P294,000)
In the trust receipt corresponding to Letter of Credit No. 2-00914-5 (for P294,000), petitioners
signed as officers of El Oro Corporation. Thus, under Petronila Tupaz signature are the words Vice-Pres
Treasurer and under petitioner Jose Tupaz signature are the words Vice-Pres Operations. By so signing that
trust receipt, petitioners did not bind themselves personally liable for El Oro Corporations obligation. Hence,
for the said trust receipt, they are not personally liable for El Oro Corporations obligation.For the trust
receipt corresponding to Letter of Credit No. 2-00896-3 (for P564,871.05) the dorsal portion of which
Jose Tupaz signed alone, we find that he did so in his personal capacity. Jose Tupaz did not indicate that he
was signing as El Oro Corporations Vice-President for Operations. Hence, he bound himself personally liable
for El Oro Corporations debts. Not being a party to the said trust receipt, Petronila Tupaz is not liable under
the same.
Remedies Available
SPOUSES VINTOLA vs. INSULAR BANK OF ASIA AND AMERICA (IBAA)

G.R. No. 73271, May 29, 1987, MELENCIO-HERRERA, J.
The VINTOLAS are liable ex contractu for breach of the Letter of Credit Trust Receipt, whether they
did or they did not "misappropriate, misapply or convert" the merchandise as charged in the criminal case. Their
civil liability does not arise ex delicto, the action for the recovery of which would have been deemed instituted
with the criminal-action (unless waived or reserved) and where acquittal based on a judicial declaration that the
criminal acts charged do not exist would have extinguished the civil action. Rather, the civil suit instituted by
IBAA is based ex contractu and as such is distinct and independent from any criminal proceedings and may
proceed regardless of the result of the latter.
Facts:
Spouses VINTOLAS, proprietors of "Dax Kin International" which is engaged in the manufacture of
raw sea shells into finished products, applied for and were granted a domestic letter of credit by the Insular
Bank of Asia and America (IBAA). The Letter of Credit authorized the bank to negotiate for their account
drafts drawn by their supplier, one Stalin Tan, on Dax Kin International for the purchase of puka and olive
seashells. Having received the puka and olive shells, the VINTOLAS executed a Trust Receipt agreement with
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IBAA which provides that they agree to hold the goods in trust for IBAA as the "latter's property with liberty
to sell the same for its account, " and "in case of sale" to turn over the proceeds as soon as received to IBAA.
Having defaulted on their obligation, IBAA demanded payment from the VINTOLAS but the latter responded
by offering to return the goods. IBAA refused to accept the merchandise, and due to the continued refusal of
the VINTOLAS to make good their undertaking, IBAA charged them with Estafa During the trial of the criminal
case, the VINTOLAS turned over the seashells to the custody of the Trial Court. The CFI acquitted the
VINTOLAS of the crime charged but went on to say that the remedy of the Bank is civil and not criminal in
nature. Thereafter, IBAA commenced the present civil action to recover the value of the goods before the RTC.
Issue:
Whether or not the Spouses Vintolas acquittal in the Estafa case a bar for the filing of a civil action for
collection for the value of the goods which are the subject of the trust receipt agreement.
Ruling:
NO. It is inaccurate for the VINTOLAS to claim that the judgment in the estafa case had declared that
the facts from which the civil action might arise, did not exist, for, it will be recalled that the decision of
acquittal expressly declared that "the remedy of the Bank is civil and not criminal in nature." This amounts to
a reservation of the civil action in IBAA's favor, for the Court would not have dwelt on a civil liability that it had
intended to extinguish by the same decision. The VINTOLAS are liable ex contractu for breach of the Letter of
Credit Trust Receipt, whether they did or they did not "misappropriate, misapply or convert" the
merchandise as charged in the criminal case. Their civil liability does not arise ex delicto, the action for the
recovery of which would have been deemed instituted with the criminal-action (unless waived or reserved)
and where acquittal based on a judicial declaration that the criminal acts charged do not exist would have
extinguished the civil action. Rather, the civil suit instituted by IBAA is based ex contractu and as such is
distinct and independent from any criminal proceedings and may proceed regardless of the result of the latter.
______________________________________________________________________________________________________________________________
SARMIENTO vs. COURT OF APPEALS and ASSOCIATED BANKING CORP.

G.R. No. 122502. December 27, 2002, AUSTRIA-MARTINEZ, J.
Breach of obligation is separate and distinct from any criminal liability for misuse and/or
misappropriation of goods or proceeds realized from the sale of goods, documents or instruments released under
trust receipts, punishable under Section 13 of the Trust Receipts Law (P.D. 115) in relation to Article 315(1), (b)
of the Revised Penal Code. Being based on an obligation ex contractu and not ex delicto, the civil action may
proceed independently of the criminal proceedings instituted against petitioners regardless of the result of the
latter.
Facts:
Gregorio Limpin, Jr. and Antonio Apostol, doing business under the name and style of Davao Libra
Industrial Sales, filed an application for an Irrevocable Domestic Letter of Credit with Associated Banking
Corporation in favor of LS Parts Hardware and Machine Shop (LS Parts) for the purchase of assorted scrap
iron. After the same was approved, a Trust Receipt was executed by Limpin and Antonio Apostol but it was
signed by Lorenzo Sarmiento, Jr. as surety/ guarantor. The defendants failed to comply with their undertaking
under the Trust Receipt after repeated demands were made by the bank. Hence, a complaint for Violation of
the Trust Receipt Law was filed against them before the City Fiscals Office. The corresponding Information
was filed but Lorenzo Sarmiento, Jr. was, however, dropped from the Information while defendant Gregorio
Limpin, Jr. was convicted. In their defense, defendants claim that they cannot be held liable as the 825 tons of
assorted scrap iron, subject of the trust receipt agreement, were lost when the vessel transporting them sunk,
and that said scrap iron were delivered to Davao Libra Industrial Sales, a business concern over which they
had no interest whatsoever.
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Issue:
Whether or not defendants are liable to Associated Banking Corporation notwithstanding the loss of
the scrap irons.
Ruling:
YES. Associated Banking Corporations right to file a separate complaint for a sum of money is
governed by the provisions of Article 31 of the Civil Code, to wit: Article 31. When the civil action is based on an
obligation not arising from the act or omission complained of as a felony, such civil action may proceed
independently of the criminal proceedings and regardless of the result of the latter.
In the present case, private respondents complaint against petitioners was based on the failure of the
latter to comply with their obligation as spelled out in the Trust Receipt executed by them. This breach of
obligation is separate and distinct from any criminal liability for misuse and/or misappropriation of goods or
proceeds realized from the sale of goods, documents or instruments released under trust receipts, punishable
under Section 13 of the Trust Receipts Law (P.D. 115) in relation to Article 315(1), (b) of the Revised Penal
Code. Being based on an obligation ex contractu and not ex delicto, the civil action may proceed independently
of the criminal proceedings instituted against petitioners regardless of the result of the latter.
______________________________________________________________________________________________________________________________
PHILIPPINE NATIONAL BANK v. HON. GREGORIO G. PINEDA

G.R. No. L-46658, May 13, 1991, FERNAN, C.J.
PNB's possession of the subject machinery and equipment being precisely as a form of security for the
advances given to TCC under the Letter of Credit, said possession by itself cannot be considered payment of the
loan secured thereby. Payment would legally result only after PNB had foreclosed on said securities, sold the
same and applied the proceeds thereof to TCC's loan obligation. Mere possession does not amount to foreclosure
for foreclosure denotes the procedure adopted by the mortgagee to terminate the rights of the mortgagor on the
property and includes the sale itself.
Facts:
The Arroyo Spouses obtained a loan from the Philippine National Bank (PNB) to purchase 60% of the
subscribed capital stock of Tayabas Cement Company, Inc. (TCC). To secure the loan, the spouses Arroyo
mortgaged the La Vista property to PNB. A surety agreement was likewise executed by the said Spouses.
Thereafter, TCC applied with the PNB for the establishment of an eight (8) year deferred letter of credit (L/Cs)
in favor of Toyo Menka Kaisha, Ltd. to cover the importation of a cement plant machinery and equipment. The
imported materials were released to TCC under a trust receipt agreement. Subsequently, Toyo Menka Kaisha,
Ltd. made the corresponding drawings against the L/C as scheduled. TCC, however, failed to remit the
corresponding amount covered by the drawings. PNB consequently notified TCC of its intention to repossess,
as it later did, the imported machinery and equipment for failure of TCC to settle its obligations under the
L/C. In the meantime, the other loan obligations of the spouses Arroyo secured by a real estate mortgage over
Hacienda Bacon had likewise become due. For failure to satisfy their obligations with PNB, the latter decided
to foreclose the real estate mortgages executed by the spouses Arroyo in its favor. The CFI of Quezon City
directed the City Sheriff to proceed with the foreclosure sale pursuant to a petition for mandamus filed by the
PNB. However, the CFI of Rizal, Pasig through Judge Gregorio Pineda, issued a restraining order and granted a
writ of preliminary injunction restraining the foreclosure of the mortgages.
Issue:
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Whether or not TCC's liability has been extinguished by the repossession of PNB of the imported
cement plant machinery and equipment.
Ruling:
NO. PNB's possession of the subject machinery and equipment being precisely as a form of security
for the advances given to TCC under the Letter of Credit, said possession by itself cannot be considered
payment of the loan secured thereby. Payment would legally result only after PNB had foreclosed on said
securities, sold the same and applied the proceeds thereof to TCC's loan obligation. Mere possession does not
amount to foreclosure for foreclosure denotes the procedure adopted by the mortgagee to terminate the
rights of the mortgagor on the property and includes the sale itself. Neither can said repossession amount
to dacion en pago. Dation in payment is the delivery and transmission of ownership of a thing by the debtor to
the creditor as an accepted equivalent of the performance of the obligation. As aforesaid, the repossession of
the machinery and equipment in question was merely to secure the payment of TCC's loan obligation and not
for the purpose of transferring ownership thereof to PNB in satisfaction of said loan. Thus, no dacion en
pago was ever accomplished. Thus, PNB has the right to foreclose the mortgages executed by theSpouses
Arroyo as sureties of TCC.
______________________________________________________________________________________________________________________________
SOUTH CITY HOMES, INC., FORTUNE MOTORS (PHILS.), PALAWAN LUMBER MANUFACTURING
CORPORATION v. BA FINANCE CORPORATION
G. R. No. 135462 December 7, 2001 PARDO, J.
In the event of default by the entrustee on his obligations under the trust receipt agreement, it is not
absolutely necessary that the entruster cancel the trust and take possession of the goods to be able to enforce his
rights thereunder.
Facts:
Joseph L. G. Chua, the President of Fortune Motors Corp.(FMC), Palawan Lumber Manufacturing Corp.
and South City Homes, Inc. executed in favor of BA Finance Corp.(BAFC) a Continuing Suretyship Agreementin
which, they jointly and severally unconditionally guaranteed the payment and discharge of any and all
indebtedness of FMC to BAFC. Subsequently, Canlubang Automotive Resources Corporation (CARCO) drew six
Drafts in its own favor, payable thirty (30) days after sight, charged to the account of FMC. FMC thereafter
executed trust receipts covering the motor vehicles delivered to it by CARCO. CARCO assigned the drafts and
trust receipts to BAFC. Upon default of FMC, BAFC sent demand letter to the aforementioned sureties. They,
however, failed to settle their outstanding account so BAFC fileda complaint for a sum of money with prayer
for preliminary attachment. RTC ordered FMC, Palawan Lumber Manufacturing Corporation and Joseph Chua
jointly and severally to pay BAFC.
Issue:
Whether BAFC has a valid cause of action for a sum of money following the drafts and trust receipts
transactions.
Ruling:
YES.Petitioners finally posit that as an entruster, respondent BAFC must first demand the return of
the unsold vehicles from Fortune Motors Corporation, pursuant to the terms of the trust receipts. Having
failed to do so, petitioners had no cause of action whatsoever against Fortune Motors Corporation and the
action for collection of sum of money was, therefore, premature. A trust receipt is a security transaction
intended to aid in financing importers and retail dealers who do not have sufficient funds or resources to
finance the importation or purchase of merchandise, and who may not be able to acquire credit except
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through utilization, as collateral, of the merchandise imported or purchased. In the event of default by the
entrustee on his obligations under the trust receipt agreement, it is not absolutely necessary that the
entruster cancel the trust and take possession of the goods to be able to enforce his rights thereunder. We
ruled:
Significantly, the law uses the word may in granting to the entruster the right to cancel the trust and
take possession of the goods. Consequently, petitioner has the discretion to avail of such right or seek any
alternative action, such as a third party claim or a separate civil action which it deems best to protect its right,
at any time upon default or failure of the entrustee to comply with any of the terms and conditions of the trust
agreement.
______________________________________________________________________________________________________________________________
LANDL & COMPANY (PHIL.) INC., PERCIVAL G. LLABAN and MANUEL P. LUCENTE v. METROPOLITAN
BANK & TRUST COMPANY
G.R. No. 159622 July 30, 2004 YNARES-SANTIAGO, J.
The initial repossession by the bank of the goods subject of the trust receipt did not result in the full
satisfaction of the petitioners loan obligation.
Facts:
Upon compliance with the requirements, Metrobankopened an irrevocable letter of credit for Landl&
Company Inc. On the maturity date of the trust receipt, Landl defaulted in the payment of its obligation to the
bank and failed to turn over the goods to the latter. Metrobank demanded the turn over the goods subject of
the trust receipt to which the company obliged. The goods were sold to Metrobank as the highest bidder at a
public auction.The proceeds of the auction sale, however, were insufficient to completely satisfy Landls
outstanding obligation to the Bank. Accordingly, Metrobankdemanded the payment of the remaining balance
but to no avail. Hence, it filed a complaint for sum of money against Landland its directors.
Issue:
Whether Metrobank had the right to claim the deficiency from Landl et al. notwithstanding the fact
that the goods covered by the trust receipt were fully turned over to it.
Ruling:
YES. The initial repossession by the bank of the goods subject of the trust receipt did not result in the
full satisfaction of the petitioners loan obligation. Petitioners are apparently laboring under the mistaken
impression that the full turn-over of the goods suffices to divest them of their obligation to repay the principal
amount of their loan obligation. This is definitely not the case. In Philippine National Bank v. Hon. Gregorio G.
Pineda and Tayabas Cement Company, Inc., we had occasion to rule:
PNBs possession of the subject machinery and equipment being precisely as a form of security for the
advances given to TCC under the Letter of Credit, said possession by itself cannot be considered payment of
the loan secured thereby. Payment would legally result only after PNB had foreclosed on said securities, sold
the same and applied the proceeds thereof to TCC's loan obligation. Mere possession does not amount to
foreclosure for foreclosure denotes the procedure adopted by the mortgagee to terminate the rights of the
mortgagor on the property and includes the sale itself.
Neither can said repossession amount to dacion en pago. Dation in payment takes place when property is
alienated to the creditor in satisfaction of a debt in money and the same is governed by sales. Dation in
payment is the delivery and transmission of ownership of a thing by the debtor to the creditor as an accepted
equivalent of the performance of the obligation. As aforesaid, the repossession of the machinery and
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equipment in question was merely to secure the payment of TCC's loan obligation and not for the purpose of
transferring ownership thereof to PNB in satisfaction of said loan. Thus, no dacion en pago was ever
accomplished.
Warehouse Receipt's Law
LIBERATA ANTONIO ESTRADA, CANUTO CENIZAN, NAZARIO DE LA CRUZ, GENARO ALVARO, ET AL. v.
COURT OF AGRARIAN RELATIONS and FAUSTINO F. GALVAN
G.R. Nos. L-17481 and L-17537 to L-17559 August 15, 1961 NATIVIDAD, J.
Facts:
It was ordered by the SC that the owner or manager of the Moncada Bonded Warehouse release and
give to Liberata Antonio Estrada et al. the remaining deposits and that Faustino Galvan to surrender the
original of the receipts of the palay deposits to the manager or owner of the Moncada Bonded Warehouse.
Notwithstanding service of notice and in spite of repeated demands, they refused and still refuse to comply,
the former, for the reason that Liberata Antonio Estrada et al. could not surrender to him the original of the
warehouse receipts issued for the palay in question, and the latter, because he could not locate any more said
receipts. Hence, the present action was filed asking that the manager and Faustino F. Galvan be declared in
contempt of court and be punished accordingly.
Issue:
Whether the excuses offered justify their refusal to comply with the orders.
Ruling:
NO. The excuses respectively offered by the manager of the Moncada Bonded Warehouse and
respondent Faustino F. Galvan are not without some merits. The former unquestionably had the right to
protect the interest of the bonded warehouse of which he was manager, as the warehouse receipts issued for
the palay in question might have been for the value in favor of innocent third parties; and the latter, or
Faustino F. Galvan, might have in fact lost said warehouse receipts in the manner above stated, for his
allegation to the effect in his answer to petitioners' motion for contempt until now has not been contradicted.
Such incidents, however, do not constitute a valid excuse to evade compliance with the order of this Court that
the palay in question be delivered to the petitioners, and, considering that the petitioners, according to the
manifestation filed by their counsel under date of August 3, 1961, are in dire need of said palay for their
subsistence, our order must be carried out in the meantime that this cases have not been finally decided in
order to ameliorate the precarious situation in which said petitioners find themselves.
______________________________________________________________________________________________________________________________
CONSOLIDATED TERMINALS, INC. v.ARTEX DEVELOPMENT CO., INC.

G.R. No.L-25748March 10, 1975 AQUINO, J.
Facts:
CTI was the operator of a customs bonded warehouse. It received on deposit one hundred ninety-
three (193) bales of high density compressed raw cotton. It was understood that CTI would keep the cotton in
behalf of Luzon Brokerage Corporation until the consignee thereof, Paramount Textile Mills, Inc., had opened
the corresponding letter of credit in favor of shipper, Adolph Hanslik Cotton of Corpus Christi, Texas.Allegedly
by virtue of a forged permit to deliver imported goods,Artex Development Co. Inc. (Artex) was able to obtain
delivery of the bales of cotton after paying CTI of the storage and handling charges.CTI instituted an action to
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recover possession of the cotton by means of a writ of replevin but the same could not be executed. CTI then
filed an amended complaint for damages.
Issue:
Whether Artex is liable for damages.
Ruling:
NO. Its amended complaint does not clearly show that, as warehouseman, it has a cause of action for
damages against Artex. The real parties interested in the bales of cotton were Luzon Brokerage Corporation as
depositor, Paramount Textile Mills, Inc. as consignee, Adolph Hanslik Cotton as shipper and the
Commissioners of Customs and Internal Revenue with respect to the duties and taxes. These parties have not
sued CTI for damages or for recovery of the bales of cotton or the corresponding taxes and duties.
In other words, on the basis of the allegations of the amended complaint, the lower court could not
render a valid judgment in accordance with the prayer thereof. It could not render such valid judgment
because the amended complaint did not unequivocally allege what right of CTI was violated by Artex, or, to
use the familiar language of adjective law, what delict or wrong was committed by Artex against CTI which
would justify the latter in recovering the value of bales of cotton even if it was not the owner thereof.
______________________________________________________________________________________________________________________________
PHILIPPINE NATIONAL BANK v. NOAH'S ARK SUGAR REFINERY, ALBERTO T. LOOYUKO, JIMMY T. GO,
WILSON T. GO
G.R. No. 107243 September 1, 1993 NARVASA, C.J.
Facts:
Noah's Ark Sugar Refinery issued on several dates warehouse receipts (quedans). Being negotiable,
the receipts covering sugar deposited by RNS Merchandising was negotiated and indorsed to Luis Ramos.
Those covering sugar deposited by St. Therese Merchandising, RNS Merchandising andRosa Sy were indorsed
and negotiated to CresensiaZoleta. The two indorsees used the quedans as security for loans obtained by
them from the PNB. Since both of them defaulted, PNB demanded Noahs Ark to deliver the sugar covered by
the quedans. However, the latter refused to comply.PNB filed a complaint for Specific Performance with
Damages and Application for Writ of Attachment but the RTC denied the application for preliminary
attachment and the MR later filed. After Noahs Ark filed its answer with counterclaim, PNB filed a motion for
summary judgment which was denied. On appeal, CA commanded that summary judgment be rendered in
favor of the PNB. Noah's Ark, et al. moved for reconsideration, but their motion was denied. The judgment
became final. Entry of Judgment was made and was remanded to the RTC. The trial rendered judgment not in
accordance with the decision of the CA. It later denied PNB's MR.
Issue:
Whether or not RTC gravely erred in rendering judgment different from that of the CA.
Ruling:
YES. The Court of Appeals found correctly that the indications in the pleadings to the contrary
notwithstanding, no substantial triable issue of fact actually existed, and that certain issues raised in answer,
even if taken as established, would not materially change the ultimate findings relative to the main claim. Its
decision is entirely in accord with this Court's rulings regarding the propriety of summary judgments invoked
by the Appellate Tribunal, i.e., Vergara, Sr. v. Suelto, and Mercado v. Court of Appeals. According to Vergara, for
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instance, "even if the answer does tender issues and therefore a judgment on the pleadings is not proper
a summary judgment may still be rendered on the plaintiff's motion if he can show to the Court's satisfaction
that "except as to the amount of damages, there is no genuine issue as to any material fact," that is to say, the
issues thus tendered are not genuine, are in other words sham, fictitious, contrived, set up in bad faith,
patently unsubstantial. The determination may be made by the Court on the basis of the pleadings, and the
depositions, admissions and affidavits that the movant may submit, as well as those which the defendant may
present in turn."
In any event, the conclusions of fact and law set out in the Appellate Court's decision are undeniably
binding on all the parties to the case, the respondent Regional Trial Judge included. Having been rendered by
a competent court within its jurisdiction, and having become final and executory, the decision now operates
as the immutable law among the parties, the respondent Trial Judge included; it has become the law of the
case and may no longer, in subsequent proceedings, be altered or modified in any way, much less reversed or
set at naught, by the latter, or any other judge, not even by the Supreme Court; it is an unalterable
determination of the propriety of a summary judgment in the action in question, and upon all the issues
therein raised or which could have been raised relative to the merits of said action.
______________________________________________________________________________________________________________________________
PHILIPPINE NATIONAL BANK v. HON. PRES. JUDGE BENITO C. SE, JR., RTC, BR. 45, MANILA; NOAHS ARK
SUGAR REFINERY; ALBERTO T. LOOYUKO, JIMMY T. GO and WILSON T. GO
G.R. No. 119231 April 18, 1996 HERMOSISIMA, JR., J.
Lien may be lost where the warehouseman surrenders the possession of the goods without requiring
payment of his lien, because a warehousemans lien is possessory in nature.
Facts:
The SC rendered judgment in favor of PNB in G.R. No. 107243 (PNB v. Noahs Ark). Noahs Ark et al.
moved for reconsideration of this decision. The Supplemental/Second MR with leave of court filed by them
was denied. They likewise filed a Motion Seeking Clarification of the Decision which was also denied. They
thereupon filed before the RTC an Omnibus Motion seeking among others the deferment of the proceedings
until they are heard on their claim for warehousemans lien. PNB filed a Motion for the Issuance of a Writ of
Execution and an Opposition to the Omnibus Motion. The RTC granted the Omnibus Motion and found that
there exists in favor of the Noahs Ark a valid warehousemans lien under Section 27 of RA 2137.
Consequently, the PNB filed the present petition to seek the nullification of the assailed order of Judge Se.
Issue:
Whether Judge Se erred in rendering the assailed order.
Ruling:
NO. Petitioner is in estoppel in disclaiming liability for the payment of storage fees due the private
respondents as warehouseman while claiming to be entitled to the sugar stocks covered by the subject
Warehouse Receipts on the basis of which it anchors its claim for payment or delivery of the sugar stocks. The
unconditional presentment of the receipts by the petitioner for payment against private respondents on the
strength of the provisions of the Warehouse Receipts Law (R.A. 2137) carried with it the admission of the
existence and validity of the terms, conditions and stipulations written on the face of the Warehouse Receipts,
including the unqualified recognition of the payment of warehousemans lien for storage fees and
preservation expenses. Petitioner may not now retrieve the sugar stocks without paying the lien due private
respondents as warehouseman.
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In view of the foregoing, the rule may be simplified thus: While the PNB is entitled to the stocks of
sugar as the endorsee of the quedans, delivery to it shall be effected only upon payment of the storage fees.
Imperative is the right of the warehouseman to demand payment of his lien at this juncture, because,
in accordance with Section 29 of the Warehouse Receipts Law, the warehouseman loses his lien upon goods
by surrendering possession thereof. In other words, the lien may be lost where the warehouseman surrenders
the possession of the goods without requiring payment of his lien, because a warehousemans lien is
possessory in nature.
______________________________________________________________________________________________________________________________
PHILIPPINE NATIONAL BANK v. HON. MARCELINO L. SAYO, JR., in his capacity as Presiding Judge of the
Regional Trial Court of Manila (Branch 45), NOAHS ARK SUGAR REFINERY, ALBERTO T. LOOYUKO,
JIMMY T. GO and WILSON T. GO
G.R. No. 129918 July 9, 1998 DAVIDE, JR., J.
The loss of the warehousemans lien, however, does not necessarily mean the extinguishment of the
obligation to pay the warehousing fees and charges which continues to be a personal liability of the owners.
Facts:
After the decision in G.R. No. 119231 (PNB v. Se) became final and executory, various incidents took
place before the trial court. Noahs Ark and its officers filed a Motion for Execution of Defendants Lien as
Warehouseman pursuant to SCs decision which was opposed by PNB. The RTC, this time presided Hon.
Marcelino L. Sayo Jr., granted the Motion for Execution.PNB was immediately served with a Writ of Execution
for the amount of P662,548,611.50. PNB thus filed an Urgent Motion seeking the deferment of the
enforcement of the Writ of Execution.Nevertheless, the Sheriff levied on execution several properties of PNB.
The said bank also filed a MR with Urgent Prayer for Quashal of Writ of Execution. After several exchanges of
motions, JudgeSayodenied with finality for lack of merit the motions filed by PNB.
Issue:
Whether PNB is liable for storage fees.
Ruling:
YES.Regrettably, the factual settings do not sufficiently indicate whether the demand to obtain
possession of the goods complied with Section 8 of the law. The presumption, nevertheless, would be that the
law was complied with, rather than breached, by petitioner. Upon the other hand, it would appear that the
refusal of private respondents to deliver the goods was not anchored on a valid excuse, i.e., non-satisfaction of
the warehousemans lien over the goods, but on an adverse claim of ownership. Private respondents justified
their refusal to deliver the goods, as stated in their Answer with Counterclaim and Third-Party Complaint in
Civil Case No. 90-53023, by claiming that they are still the legal owners of the subject quedans and the
quantity of sugar represented therein. Under the circumstances, this hardly qualified as a valid, legal excuse.
The loss of the warehousemans lien, however, does not necessarily mean the extinguishment of the obligation
to pay the warehousing fees and charges which continues to be a personal liability of the owners, i.e., the
pledgors, not the pledgee, in this case. But even as to the owners-pledgors, the warehouseman fees and
charges have ceased to accrue from the date of the rejection by Noahs Ark to heed the lawful demand by
petitioner for the release of the goods.
The finality of our denial in G.R. No. 119231 of petitioners petition to nullify the trial courts order of
01 March 1995 confirms the warehousemans lien; however, such lien, nevertheless, should be confined to the
fees and charges as of the date in March 1990 when Noahs Ark refused to heed PNBs demand for delivery of
the sugar stocks and in no event beyond the value of the credit in favor of the pledgee (since it is basic that, in
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foreclosures, the buyer does not assume the obligations of the pledgor to his other creditors even while such
buyer acquires title over the goods less any existing preferred lien thereover). The foreclosure of the thing
pledged, it might incidentally be mentioned, results in the full satisfaction of the loan liabilities to the pledgee
of the pledgors.
Banking Laws
General Banking Law of 2000
Definition and Classification of Banks
REPUBLIC OF THE PHILIPPINES v. SECURITY CREDIT AND ACCEPTANCE CORPORATION, ROSENDO T.

RESUELLO, PABLO TANJUTCO, ARTURO SORIANO, RUBEN BELTRAN, BIENVENIDO V. ZAPA, PILAR G.
RESUELLO, RICARDO D. BALATBAT, JOSE SEBASTIAN and VITO TANJUTCO JR.
G.R. No.L-20583 January 23, 1967 CONCEPCION, C.J.
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.
Facts:
Security Credit and Acceptance Corporation (SCAC) registered its articles of incorporation with the
SEC. Upon request, the legal counsel of Superintendent of Banks of the Central Bank of the Philippines opined
that the said corporation is a banking institution, within the purview of RA 337. Municipal Court of Manila
issued search warrant upon application of members of the Manila Police Department and an agent of the
Central Bank. The examination of seized documents disclosed that SCAC receives deposits from the public
regularly. Such deposits are treated in the Corporation's financial statements as conditional subscription to
capital stock. And that out of the funds obtained from the public, loans are made regularly to any person. The
Solicitor General commenced quo warranto proceedings for the dissolution of the said corporation.
Issue:
Whether SCAC is engaged in banking.
Ruling:
YES. Although, admittedly, defendant corporation has not secured the requisite authority to engage in
banking, defendants deny that its transactions partake of the nature of banking operations. It is conceded,
however, that, in consequence of a propaganda campaign therefor, 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 therefor. 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. Indeed, a bank has been defined as:
A moneyed institute founded to facilitate the borrowing, lending and safe-keeping of money and to
deal, in notes, bills of exchange, and credits.
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.
Any person engaged in the business carried on by banks of deposit, of discount, or of circulation is
doing a banking business, although but one of these functions is exercised.
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Accordingly, the defendant corporation has violated the law by engaging in banking without securing
the administrative authority required in Republic Act No. 337.
Distinction of Bank from Quasi-Banks and Trust Entities
TEODORO BAAS,* C. G. DIZON CONSTRUCTION, INC., and CENEN DIZON v. ASIA PACIFIC FINANCE
CORPORATION, substituted by INTERNATIONAL CORPORATE BANK now known as UNION BANK OF
THE PHILIPPINES
G.R. No. 128703 October 18, 2000 BELLOSILLO, J.
What is prohibited by law is for investment companies to lend funds obtained from the public through
receipts of deposit.
Facts:
Teodoro Baas executed a promissory note in favor of C. G. Dizon Construction. Later, C. G. Dizon
Construction endorsed with recourse the PN to Asia Pacific, and to secure payment, it executed a Deed of
Chattel Mortgage. C. G. Dizon Construction defaulted in the payment of the remaining installments. As the
demand was unheeded, Asia Pacific filed a complaint for a sum of money with prayer for a writ of replevin
against Teodoro Baas, C. G. Dizon Construction and Cenen Dizon. They claimed, however, that since Asia
Pacific could not directly engage in banking business, it proposed to them a scheme wherein Asia Pacific could
extend a loan to them without violating banking laws.
Issue:
Whether the disputed transaction between petitioners and Asia Pacific violated banking laws.
Ruling:
NO. An investment company refers to any issuer which is or holds itself out as being engaged or
proposes to engage primarily in the business of investing, reinvesting or trading in securities. As defined in
Sec. 2, par. (a), of the Revised Securities Act, securities "shall include commercial papers evidencing
indebtedness of any person, financial or non-financial entity, irrespective of maturity, issued, endorsed, sold,
transferred or in any manner conveyed to another with or without recourse, such as promissory notes"
Clearly, the transaction between petitioners and respondent was one involving not a loan but
purchase of receivables at a discount, well within the purview of "investing, reinvesting or trading in
securities" which an investment company, like ASIA PACIFIC, is authorized to perform and does not constitute
a violation of the General Banking Act. Moreover, Sec. 2 of the General Banking Act provides:
Only entities duly authorized by the Monetary Board of the Central Bank may engage in the lending of
funds obtained from the public through the receipt of deposits of any kind, and all entities regularly
conducting such operations shall be considered as banking institutions and shall be subject to the provisions
of this Act, of the Central Bank Act, and of other pertinent laws
Indubitably, what is prohibited by law is for investment companies to lend funds obtained from the
public through receipts of deposit, which is a function of banking institutions. But here, the funds supposedly
"lent" to petitioners have not been shown to have been obtained from the public by way of deposits, hence,
the inapplicability of banking laws.
______________________________________________________________________________________________________________________________
FIRST PLANTERS PAWNSHOP, INC. v. COMMISSIONER OF INTERNAL REVENUE

G.R. No. 174134 July 30, 2008 AUSTRIA-MARTINEZ, J.
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It need not be elaborated that pawnshops are non-banks/banking institutions. Moreover, the nature of
their business activities partakes that of a financial intermediary in that its principal function is lending.
Facts:
First Planters Pawnshop (FPP) received Pre-Assessment Notice from the BIR that it has an existing
tax deficiency on its VAT and DST liabilities for the year 2000. It subsequently received a Formal Assessment
Notice directing payment of VAT deficiency. It filed protest on both notices which were denied on the ground
that it is considered as a non-bank financial intermediary thus subject to VAT.
Issue:
Whether pawnshops are non-bank financial intermediaries.
Ruling:
YES. R.A. No. 337, as amended, or the General Banking Act characterizes the terms banking
institution and bank as synonymous and interchangeable and specifically include commercial banks, savings
bank, mortgage banks, development banks, rural banks, stock savings and loan associations, and branches
and agencies in the Philippines of foreign banks. R.A. No. 8791 or the General Banking Law of 2000,
meanwhile, provided that banks shall refer to entities engaged in the lending of funds obtained in the form of
deposits. R.A. No. 8791 also included cooperative banks, Islamic banks and other banks as determined by the
Monetary Board of the Bangko Sentral ng Pilipinas in the classification of banks.
Financial intermediaries, on the other hand, are defined as persons or entities whose principal
functions include the lending, investing or placement of funds or evidences of indebtedness or equity
deposited with them, acquired by them, or otherwise coursed through them, either for their own account or
for the account of others.
A pawnshop's business and operations are governed by Presidential Decree (P.D.) No. 114 or the
Pawnshop Regulation Act and Central Bank Circular No. 374 (Rules and Regulations for Pawnshops). Section
3 of P.D. No. 114 defines pawnshop as a person or entity engaged in the business of lending money on
personal property delivered as security for loans and shall be synonymous, and may be used interchangeably,
with pawnbroker or pawn brokerage.
Bank Powers and Liabilities
REGISTER of DEEDS OF MANILA v. CHINA BANKING CORPORATION

G.R. No.L-11964 April 28, 1962 DIZON, J.
Foreign owned banks may only register lands in its name under certain circumstances.
Facts:
Alfonso Pangilinan and one Guillermo Chua were charged with qualified theft. Pangilinan and his
wife, Belen Sta. Ana, executed a public instrument entitled DEED OF TRANSFER whereby, after admitting his
civil liability in favor of his employer, the China Banking Corporation, in relation to the offense aforesaid, he
ceded and transferred to the latter a parcel of land. The deed was presented for registration but because the
transferee was alien-owned and, as such, barred from acquiring lands in the Philippines.
Issue:
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Whether the land is registrable.
Ruling:
NO. Paragraph (c), Section 25 of Republic Act 337 allows a commercial bank to purchase and hold
such real estate as shall be conveyed to it in satisfaction of debts previously contracted in the course of its
dealings, We deem it quite clear and free from doubt that the "debts" referred to in this provision are only
those resulting from previous loans and other similar transactions made or entered into by a commercial
bank in the ordinary course of its business as such. Obviously, whatever "civil liability" arising from the
criminal offense of qualified theft was admitted in favor of appellant bank by its former employee, Alfonso
Pangilinan, was not a debt resulting from a loan or a similar transaction had between the two parties in the
ordinary course of banking business.
Neither do the provisions of paragraph (d) of the Same section apply to the present case because the
deed of transfer in question can in no sense be considered as a sale made by virtue of a judgment, decree,
mortgage, or trust deed held by appellant bank. In the same manner it cannot be said that the real property in
question was purchased by appellant "to secure debts due to it", considering that, as stated heretofore, the
term debt employed in the pertinent legal provision can logically refer only to such debts as may become
payable to appellant bank as a result of a banking transaction.
______________________________________________________________________________________________________________________________
BANCO DE ORO-EPCI, INC. v. JAPRL DEVELOPMENTCORPORATION, RAPIDFORMING CORPORATIONand

JOSE U. AROLLADO
G.R. No. 179901April 14, 2008 CORONA, J.
Banks have the right to annul any credit accommodation or loan, and demand the immediate payment
thereof, from borrowers proven to be guilty of fraud.
Facts:
Banco de Oro-EPCI, Inc. extended credit facilities to JAPRL. Rapid Forming Corporation (RFC) and
Jose U. Arollado acted as JAPRLs sureties.JAPRL defaulted in the payment of four trust receipts. Banco de Oro-
EPCI demanded immediate payment of JAPRLs outstanding obligations after learning that JAPRL had altered
and falsified its financial statements.
Issue:
Whether the bank can demand immediate payment.
Ruling:
YES.Banks are entities engaged in the lending of funds obtained through depositsfrom the public.
They borrow the publics excess money (i.e., deposits) and lend out the same. Banks therefore redistribute
wealth in the economy by channeling idle savings to profitable investments.
Banks operate (and earn income) by extending credit facilities financed primarily by deposits from
the public. They plough back the bulk of said deposits into the economy in the form of loans. Since banks deal
with the publics money, their viability depends largely on their ability to return those deposits on demand.
For this reason, banking is undeniably imbued with public interest. Consequently, much importance is given
to sound lending practices and good corporate governance.
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Meanwhile, the Makati RTC should proceed to hear Civil Case No. 03-991 against the three
respondents guided by Section 40 of the General Banking Law.
Under this provision, banks have the right to annul any credit accommodation or loan, and demand
the immediate payment thereof, from borrowers proven to be guilty of fraud.
Banking and Incidental Powers
SPOUSES RAUL and AMALIA PANLILIO v. CITIBANK, N.A.

G.R. No. 156335 November 28, 2007 AUSTRIA-MARTINEZ, J.
Investment management activities may be exercised by a banking institution.
Facts:
Amalia Panlilio phoned Citibank saying she wanted to place an investment. During the visit, Amalia
instructed Lee, a bank employees, on what to do with the investment. Later, she learned that part of it was
placed by Citibank in a Long-Term Commercial Paper (LTCP), a debt instrument that paid a high interest,
issued by the corporation Camella and Palmera Homes (C&P Homes). The rest of the money was placed in two
Peso Repriceable Promissory Note (PRPN) accounts, in trust for each of Amalia's two children. The bank
claims to have regularly sent confirmations of investment (COIs) to Amalia. Later, Spouses Panlilio met with
the Banks employee to preterminate the LTCP and their other investments but were told that as to the LTCP,
liquidation could be made only if there is a willing buyer, a prospect which could be difficult at that time
because of the economic crisis. Spouses sent three demand letters to the Bank for a withdrawal of her
investment as soon as possible.
Issue:
Whether the Bank can exercise investment management activities.
Ruling:
YES. The transaction is perfectly legal, investment management activities may be exercised by a
banking institution, pursuant to Republic Act No. 337 or the General Banking Act of 1948, as amended, which
was the law then in effect.
Petitioners may not seek a return of their investment directly from respondent at or prior to maturity.
The investment is not a deposit and is not guaranteed by respondent. Absent any fraud or bad faith, the
recourse of petitioners in the LTCP is solely against the issuer, C&P Homes, and only upon maturity.
Diligence Required of Banks - Relevant Jurisprudence
PACIFIC BANKING CORPORATION and CHESTER G. BABST v. THE COURT OF APPEALS, JOSEPH C. HART
and ELEANOR HART
G.R. No.L-45656May 5, 1989 GUTIERREZ, JR., J.
Foreclosure may only be done if the debtor is already in default.
Facts:
Joseph and Eleanor Hart organized Insular Farms Inc. and borrowed from Pacific Banking
Corporation (PBC).The business struggled, PBC and its then Executive Vice President, Chester Babst, did not
demand payment for the initial installment nor of the entire obligation, but instead opted for more collateral
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in addition to the Continuing Guaranty of John Clarkin. All Insular Farms shares of stocks were pledged to the
Bank in lieu of additional collateral and to insure an extension of the period to pay. Within less than a month,
PBC wrote Insular Farms Inc. giving the latter 48 hours to pay its entire obligation. Due to nonpayment of
debt, PBC sold the 1,000 shares of stocks of Insular Farms to Pacific Farms. Meanwhile, Joseph Hart filed
another case for recovery of sum of money comprising his investments and earnings against Insular Farms,
Inc. The cases were tried jointly and the RTC ruled in favor of PBC and Hart. On appeal, CA modified the
judgment.
Issue:
Whether PBC has the right to collect on the loan.
Ruling:
NO. It was established that there was an agreement to extend indefinitely the payment of the
installment of P50,000.00 in July 1957 as provided in the promissory note. Consequently, Pacific Banking
Corporation was precluded from enforcing the payment of the said installment of July 1957, before the
expiration of the indefinite period of extension, which period had to be fixed by the court as provided in Art.
1197 of the Civil Code.
Even the pledge which modified the fixed period in the original promissory note, did not provide for
dates of payment of installments, nor of any fixed date of maturity of the whole amount of indebtedness.
Accordingly, the date of maturity of the indebtedness should be as may be determined by the proper court
under Art. 1197 of the Civil Code. Hence, the disputed foreclosure and the subsequent sale were premature.
______________________________________________________________________________________________________________________________
SIMEX INTERNATIONAL (MANILA), INCORPORATED v.

THE HONORABLE COURT OF APPEALS and TRADERS ROYAL BANK
G.R. No. 88013March 19, 1990 CRUZ, J.
Bank is under obligation to treat the accounts of its depositors with meticulous care, always having in
mind the fiduciary nature of their relationship.
Facts:
Simex deposited to its account in Traders Royal Bankthe amount of P100,000.00. Subsequently, Simex
issued several checks against its deposit but was suprised to learn later that they had been dishonored for
insufficient funds. Investigation disclosed that the sum of P100,000.00 deposited had not been credited to it.
The error was rectified and the dishonored checks were paid after they were re-deposited. Simex then
demanded reparation from the Bank for its "gross and wanton negligence." This demand was not met. Thus,
Simex filed a complaint claiming from moral damages and exemplary damages.
Issue:
Whether Simex is entitled to moral and exemplary damages.
Ruling:
YES. In every case, the depositor expects the bank to treat his account with the utmost fidelity,
whether such account consists only of a few hundred pesos or of millions. The bank must record every single
transaction accurately, down to the last centavo, and as promptly as possible. This has to be done if the
account is to reflect at any given time the amount of money the depositor can dispose of as he sees fit,
confident that the bank will deliver it as and to whomever he directs. A blunder on the part of the bank, such
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as the dishonor 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.
The point is that as a business affected with public interest and because of the nature of its functions,
the bank is under obligation to treat the accounts of its depositors with meticulous care, always having in
mind the fiduciary nature of their relationship. In the case at bar, it is obvious that the respondent bank was
remiss in that duty and violated that relationship. What is especially deplorable is that, having been informed
of its error in not crediting the deposit in question to the petitioner, the respondent bank did not immediately
correct it but did so only one week later or twenty-three days after the deposit was made. It bears repeating
that the record does not contain any satisfactory explanation of why the error was made in the first place and
why it was not corrected immediately after its discovery. Such ineptness comes under the concept of the
wanton manner contemplated in the Civil Code that calls for the imposition of exemplary damages.
______________________________________________________________________________________________________________________________
LUZAN SIA v. CA AND SECURITY BANK AND TRUST COMPANY

G.R. No. 102970, May13, 1993, Davide, Jr., J.
A contract for the use of a safety deposit box is a special kind of deposit in which the relation between a
bank renting out safe deposit boxes and its customer with respect to the contents of the box is that of a bailor and
bailee.
Facts:
Sia rented a Safety Deposit Box of Security Bank and Trust Company (SBTC) where he placed his
collection of stamps. The safety deposit box rented was at the lowest level of the safety deposit boxes of SBTC.
During the floods that took place, floodwater entered into SBTCs premises, seeped into the safety deposit box
of Sia and damaged his stamps collection. SBTC rejected Sias claim for compensation for his damaged stamps
collection hence Sia filed for damages against SBTC which denied liability based on the Rules and Regulations
Governing the Lease of Safe Deposit Boxes which states in paragraphs 9 and 13 that the liability of SBTC is
limited to the exercise of the diligence to prevent the opening of the safe by any person other than the renter
or his agent; and that SBTC not a depository of the contents of the safe and has neither the possession nor the
control of the same. Moreover, SBTC also contended that its contract was a lease and not deposit, that the
cause of the destruction was beyond its control and there was no obligation to notify Sia about the flood.
Issue:
Whether the agreement entered into by the parties is just a contract of lease.
Ruling:
NO. In the recent case of CA Agro-Industrial Development Corp. vs. Court of Appeals(G.R. No. 90027,
March 3,1993), this Court explicitly rejected the contention that a contract for the use of a safety deposit box is
a contract of lease governed by Title VII, Book IV of the Civil Code. Nor did We fully subscribe to the view that
it is a contract of deposit to be strictly governed by the Civil Code provision on deposit; it is, as We declared, a
special kind of deposit. The prevailing rule in American jurisprudence -- that the relation between a bank
renting out safe deposit boxes and its customer with respect to the contents of the box is that of a bailor and
bailee, the bailment being for hire and mutual benefit -- has been adopted in this jurisdiction, thus:
In the context of our laws which authorize banking institutions to rent out safety deposit boxes, it is
clear that in this jurisdiction, the prevailing rule in the United States has been adopted. Section 72 of the
General Banking Act [R.A. 337, as amended] pertinently provides: SEC. 72. In addition to the operations
specifically authorized elsewhere in this Act, banking institutions other than building and loan associations
may perform the following services: (a) Receive in custody funds, documents, and valuable objects, and rent
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safety deposit boxes for the safeguarding of such effects.The banks shall perform the services permitted under
subsections (a), (b) and (c) of this section as depositories or as agents.
It must be noted that conditions No. 13 and No. 14 in the Contract of Lease of Safety Deposit Box
in CA Agro-Industrial Development Corp. are strikingly similar to condition No. 13 in the instant case. On the
other hand, both condition No. 8 in CA Agro-Industrial Development Corp. and condition No. 9 in the present
case limit the scope of the exercise of due diligence by the banks involved to merely seeing to it that only the
renter, his authorized agent or his legal representative should open or have access to the safety deposit box. In
short, in all other situations, it would seem that SBTC is not bound to exercise diligence of any kind at all.
Assayed in the light of Our aforementioned pronouncements in CA Agro-Industrial Development Corp., it is not
at all difficult to conclude that both conditions No. 9 and No. 13 of the Lease Agreement covering the safety
deposit box in question must be stricken down for being contrary to law and public policy as they are meant
to exempt SBTC from any liability for damage, loss or destruction of the contents of the safety deposit box
which may arise from its own or its agents fraud, negligence or delay. Accordingly, SBTC cannot take refuge
under the said conditions.
______________________________________________________________________________________________________________________________
GREGORIO REYES AND CONSUELO PUYAT-REYESv. CA AND FAR EAST BANK AND TRUST CO.
G.R. No. 118492, August15, 2001, De Leon, Jr., J.
Banks are duty bound to treat the deposit accounts of their depositors with the highest degree of care
but the same higher degree of diligence is not expected to be exerted by banks in commercial transactions that
do not involve their fiduciary relationship with their depositors.
Facts:
The Philippine Racing Club, Inc. (PRCI) sent delegates to the 20 thAsian Racing Conference in Sydney,
Australia. Gregorio Reyes sent Godofredo Reyes to FEBTC to apply for a foreign exchange demand draft
(FXDD) amounting to AU$1,610 payable to the order of the 20th Asian Racing Conference Secretariat. Mr.
Yasis, FEBTCs assistant cashier, denied the application since FEBTC did not have an Australian dollar account
in any bank in Sydney. Godofredo asked if there is a way for FEBTC to accommodate PRCIs urgent need to
remit Australian dollars. Yasis informed Godofredo of a roundabout way of effecting the requested remittance
to Sydney thus: FEBTC would draw a demand draft against Westpac-Sydney and have the latter reimburse
itself from the U.S. dollar account of FEBTC in Westpac-New York in which PRCI and Gregorio agreed. FEBTC
approved the application and issued the FXDD. However, it was dishonored stating No account held with
Westpac. Westpac-New York sent a cable to FEBTC informing that AU$1,610.00 was debited in its dollar
account. In response to PRCIs complaint about the dishonor, FEBTC informed Westpac-Sydney of the issuance
of the FXDD drawn against the Westpac-Sydney and informing it to be reimbursed from FEBTCs dollar
account in Westpac-New York. FEBTC informed Westpac-New York requesting the latter to honor the
reimbursement claim of Westpac-Sydney. However, the FXDD was again dishonored by Westpac-Sydney for
the same reason.
Issue:
Whether FEBTC is required to exercise the highest degree of care as to its commercial dealings.
Ruling:
NO. In Philippine Bank of Commerce v. Court of Appeals (G.R. No. 976276, March 14, 1997) upholding a
long standing doctrine, we ruled that the degree of diligence required of banks, is more than that of a good
father of a family where the fiduciary nature of their relationship with their depositors is concerned. In other
words, banks are duty bound to treat the deposit accounts of their depositors with the highest degree of care.
But the said ruling applies only to cases where banks act under their fiduciary capacity, that is, as depositary
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of the deposits of their depositors. But the same higher degree of diligence is not expected to be exerted by
banks in commercial transactions that do not involve their fiduciary relationship with their depositors.
Considering the foregoing, the respondent bank was not required to exert more than the diligence of
a good father of a family in regard to the sale and issuance of the subject foreign exchange demand draft. The
case at bar does not involve the handling of petitioners deposit, if any, with the respondent bank. Instead, the
relationship involved was that of a buyer and seller, that is, between the respondent bank as the seller of the
subject foreign exchange demand draft, and PRCI as the buyer of the same, with the 20th Asian Racing
Conference Secretariat in Sydney, Australia as the payee thereof. As earlier mentioned, the said foreign
exchange demand draft was intended for the payment of the registration fees of the petitioners as delegates of
the PRCI to the 20th Asian Racing Conference in Sydney.
______________________________________________________________________________________________________________________________
THE CONSOLIDATED BANK AND TRUST CORP. v. CA AND L.C. DIAZ AND COMPANY
G.R. No. 138569, September 11, 2003, Carpio, J.
The bank is under obligation to treat the accounts of its depositors with meticulous care, always having
in mind the fiduciary nature of their relationship. The fiduciary nature of banking requires banks to assume a
degree of diligence higher than that of a good father of a family.
Facts:
L.C. Diaz opened a savings account with Solidbank. L.C. Diaz through its cashier, Macaraya, filled up a
savings cash deposit slip and a savings checks deposit slip. Macaraya instructed Calapre to deposit the money
with Solidbank and was given the Solidbank passbook. Calapre went to Solidbank and presented to Teller No.
6 the deposit slips and the passbook which acknowledged receipt of the deposit by returning to Calapre the
duplicate copies of the two deposit slips. Since the transaction took time, Calapre left the passbook with
Solidbank and went to Allied Bank to make a deposit. When Calapre returned, Teller No. 6 informed him that
"somebody got the passbook." Calapre reported the incident. Macaraya immediately prepared a deposit slip in
duplicate copies with a check of P200,000. Macaraya, together with Calapre, went to Solidbank and presented
to Teller No. 6 the deposit slip and check. When Macaraya asked for the passbook, Teller No. 6 told Macaraya
that someone got the passbook but she could not remember to whom she gave the passbook. Teller No. 6
handed to Macaraya a deposit slip for the deposit of a check for P90,000 drawn on Philippine Banking
Corporation (PBC) which is a check of L.C. Diaz that it had "long closed."PBC dishonored the check because of
insufficient funds and because the signature in the check differed from PBC's specimen signature. Failing to
get back the passbook, Macaraya went back to her office and reported the matter to the Personnel Manager
Emmanuel Alvarez.
Luis Diaz called up and wrote to Solidbank to stop any transaction using the same passbook until L.C.
Diaz could open a new account. Diaz learned of the unauthorized withdrawal of P300,000 from its savings
account. The withdrawal slip for the P300,000 bore the signatures of the authorized signatories of L.C. Diaz,
namely Diaz and Murillo. The signatories, however, denied signing the withdrawal slip.
Issue:
Whether Solidbank is liable for breach of contract due to negligence.
Ruling:
YES. The law imposes on banks high standards in view of the fiduciary nature of banking. Section 2
of Republic Act No. 8791 ("RA 8791"), which took effect on 13 June 2000, declares that the State recognizes
the "fiduciary nature of banking that requires high standards of integrity and performance." This new
provision in the general banking law, introduced in 2000, is a statutory affirmation of Supreme Court
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decisions, starting with the 1990 case of Simex International v. Court of Appeals(G.R. No. 88013, March 19,
1990), holding that "the bank is under obligation to treat the accounts of its depositors with meticulous care,
always having in mind the fiduciary nature of their relationship."
This fiduciary relationship means that the bank's obligation to observe "high standards of integrity
and performance" is deemed written into every deposit agreement between a bank and its depositor. The
fiduciary nature of banking requires banks to assume a degree of diligence higher than that of a good father of
a family. Article 1172 of the Civil Code states that the degree of diligence required of an obligor is that
prescribed by law or contract, and absent such stipulation then the diligence of a good father of a
family. Section 2 of RA 8791 prescribes the statutory diligence required from banks - that banks must observe
"high standards of integrity and performance" in servicing their depositors. Although RA 8791 took effect
almost nine years after the unauthorized withdrawal of the P300,000 from L.C. Diaz's savings account,
jurisprudence at the time of the withdrawal already imposed on banks the same high standard of diligence
required under RA No. 8791.
The bank must not only exercise "high standards of integrity and performance," it must also insure
that its employees do likewise because this is the only way to insure that the bank will comply with its
fiduciary duty. Solidbank failed to present the teller who had the duty to return to Calapre the passbook, and
thus failed to prove that this teller exercised the "high standards of integrity and performance" required of
Solidbank's employees.
_____________________________________________________________________________________________
CITIBANK, N.A. v. SPOUSES LUIS AND CARMELITA CABAMONGAN AND THEIR SONS LUIS CABAMONGAN
JR. AND LITO CABAMONGAN
G.R. No. 146918, May 2, 2006, Austria-Martinez, J.
Banking business is impressed with public interest, of paramount importance thereto is the trust and
confidence of the public in general. Consequently, the highest degree of diligence is expected, and high standards
of integrity and performance are even required, of it.
Facts:
Spouses Cabamongan opened a joint "and/or" foreign currency time deposit in trust for their sons
Luis, Jr. and Lito at Citibank. Prior to maturity, a person claiming to be Carmelita went to Citibank and pre-
terminated the time deposit by presenting a passport, a Bank of America Versatele Card, an ATM card and a
Mabuhay Credit Card. She filled up forms for pre-termination of deposits with the assistance of Account
Officer San Pedro. Since the said person failed to surrender the original Certificate of Deposit, she had to
execute a notarized release and waiver document in favor of Citibank, pursuant to Citibank's internal
procedure, before the money was released to her. The release and waiver document was not notarized on that
same day but the money was given. After she left, San Pedro saw that she left an ID. Thus, San Pedro called up
Carmelita's listed address. Marites, the wife of Lito, answered and was stunned that Carmelita pre-terminated
her time deposit because Carmelita was in the U.S. at that time. Marites informed Carmelita about what
happened. It seems an unidentified person broke in at the spouses' residence. Hence, the spouses informed
Citibank that Carmelita was in the U.S. and did not pre-terminate their deposit and that the person who did so
was an impostor who could have also been involved in the break-in of their California residence. The spouses
made a formal demand upon Citibank for payment of their pre-terminated but refused. Thus, the spouses file
for Specific Performance with Damages.
Issue:
Whether Citibank is negligent for failure to exercise the required diligence from banks.
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Ruling:
YES. The Court has repeatedly emphasized that, since the banking business is impressed with public
interest, of paramount importance thereto is the trust and confidence of the public in general. Consequently,
the highest degree of diligence is expected, and high standards of integrity and performance are even
required, of it. By the nature of its functions, a bank is "under obligation to treat the accounts of its depositors
with meticulous care, always having in mind the fiduciary nature of their relationship."
In this case, it has been sufficiently shown that the signatures of Carmelita in the forms for pre-
termination of deposits are forgeries. Citibank, with its signature verification procedure, failed to detect the
forgery. Its negligence consisted in the omission of that degree of diligence required of banks. The Court has
held that a bank is "bound to know the signatures of its customers; and if it pays a forged check, it must be
considered as making the payment out of its own funds, and cannot ordinarily charge the amount so paid to
the account of the depositor whose name was forged." Such principle equally applies here.
Citibank cannot label its negligence as mere mistake or human error. Banks handle daily transactions
involving millions of pesos. By the very nature of their works the degree of responsibility, care and
trustworthiness expected of their employees and officials is far greater than those of ordinary clerks and
employees. Banks are expected to exercise the highest degree of diligence in the selection and supervision of
their employees.
______________________________________________________________________________________________________________________________
PHILIPPINE SAVINGS BANK v. CHOWKING FOOD CORPORATION

G.R. No. 177526, July 4, 2008, Reyes, J.
The General Banking Law of 2000 requires of banks the highest standards of integrity and performance.
A bank is "under obligation to treat the accounts of its depositors with meticulous care.
Facts:
Joe Kuan Food Corp. issued in favor of Chowking five PSBank checks. On the respective due dates of
each check, Chowking's acting accounting manager, Manzano, endorsed and encashed the checks and were
honored even with only the endorsement of Manzano approving them. The signatures of the other authorized
officers of Chowking were absent contrary to usual banking practice. Manzano absconded with and
misappropriated the check proceeds. When Chowking found out Manzano's scheme, it demanded
reimbursement from PSBank which refused. Hence, Chowking filed a complaint for a sum of money with
damages. PSBank and bank manager Santos filed cross claims and third party complaints against Manzano.
Despite all diligent efforts, summonses were not served to Manzano. Manzano was declared in default for
failure to file a responsive pleading. PSBank did not controvert the foregoing facts, but denied liability and
maintained it exercised due diligence in the supervision of all its employees. It even dismissed Santos after
she was found guilty of negligence in the performance of her duties. However, Santos denied that she was
negligent and contended that she merely followed the bank's practice of honoring Chowking's checks even if
accompanied only by Manzano's endorsement. PSBank claims that the proximate cause of Chowking's loss
was its own negligence.
Issue:
Whether PSBank failed to observe the diligence required of banks under the law which is the
proximate cause of Chowkings loss.
Ruling:
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YES. 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.
Proximate cause is determined by the facts of the case. It is that cause which, in natural and continuous
sequence, unbroken by any efficient intervening cause, produces the injury, and without which the result
would not have occurred. Measured by the foregoing yardstick, the proximate cause of the loss is not
respondent's alleged negligence in allowing Manzano to take hold and encash respondent's checks. The
proximate cause is petitioner's own negligence in the supervision of its employees when it overlooked the
irregular practice of encashing checks even without the requisite endorsements.
______________________________________________________________________________________________________________________________
PHILIPPINE NATIONAL BANK v. ERLANDO RODRIGUEZ AND NORMA RODRIGUEZ

G.R. No. 170325, September 26, 2008, Reyes, J.
The Court has recognized the unique public interest possessed by the banking industry and the need for
the people to have full trust and confidence in their banks. For this reason, banks are minded to treat their
customer's accounts with utmost care, confidence, and honesty. Further, banks are expected to exercise the
highest degree of diligence in the selection and supervision of their employees.
Facts:
Spouses Rodriguez maintained savings and demand/checking accounts in PNB. They were engaged in
informal lending business and had a discounting arrangement with PEMSLA, an association of PNB
employees. PEMSLA also maintained current and savings accounts in PNB.PEMSLA grants loans to its
members and the spouses would rediscount the postdated checks issued to members whenever the
association was short of funds. The spouses would replace the postdated checks with their own checks issued
in the name of the members. It was PEMSLA's policy not to approve applications for loans of members with
outstanding debts. However, some PEMSLA officers obtained additional loans by using the names of other
members without their consent. The PEMSLA checks issued for these loans were given to the spouses and the
officers forged the indorsement of the named payees in the checks. The PEMSLA checks were deposited by
the spouses to their account. Meanwhile, the Rodriguez checks were deposited directly by PEMSLA to its
savings account without any indorsement from the named payees. This irregular procedure was made
through Palermo, Jr., treasurer of PEMSLA and bank teller in PNB.Later, PNB found out said acts and closed the
current account of PEMSLA and the PEMSLA checks deposited by the spouses were dishonored. The
Rodriguez checks were deposited to the PEMSLA account and were duly debited. Thus, because the PEMSLA
checks given as payment were returned, the spouses incurred losses from the rediscounting transactions. The
spouses filed for damages and sought to recover the value of their checks contending that PNB credited the
checks to the PEMSLA account even without indorsements. PNB violated its contractual obligation and paid
the wrong payees, hence, it should bear the loss.
Issue:
Whether or not PNB is negligent for accepting the checks even without any indorsement from the
payees.
Ruling:
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YES. A bank that regularly processes checks that are neither payable to the customer nor duly
indorsed by the payee is apparently grossly negligent in its operations. This Court has recognized the unique
public interest possessed by the banking industry and the need for the people to have full trust and
confidence in their banks. For this reason, banks are minded to treat their customer's accounts with utmost
care, confidence, and honesty.In a checking transaction, the drawee bank has the duty to verify the
genuineness of the signature of the drawer and to pay the check strictly in accordance with the drawer's
instructions, i.e., to the named payee in the check. It should charge to the drawer's accounts only the payables
authorized by the latter. Otherwise, the drawee will be violating the instructions of the drawer and it shall be
liable for the amount charged to the drawer's account.
The checks were presented to PNB for deposit by a representative of PEMSLA absent any type of indorsement,
forged or otherwise. The facts clearly show that the bank did not pay the checks in strict accordance with the
instructions of the drawers, respondents-spouses. Instead, it paid the values of the checks not to the named
payees or their order, but to PEMSLA, a third party to the transaction between the drawers and the payees.
Moreover, PNB was negligent in the selection and supervision of its employees. The trustworthiness of bank
employees is indispensable to maintain the stability of the banking industry. Thus, banks are enjoined to be
extra vigilant in the management and supervision of their employees. In Bank of the Philippine Islands v. Court
of Appeals (G.R. No. 102383, November 26, 1992), this Court cautioned thus: Banks handle daily transactions
involving millions of pesos. By the very nature of their work the degree of responsibility, care and
trustworthiness expected of their employees and officials is far greater than those of ordinary clerks and
employees. For obvious reasons, the banks are expected to exercise the highest degree of diligence in the
selection and supervision of their employees.
______________________________________________________________________________________________________________________________
CENTRAL BANK OF THE PHILIPPINES v. CITYTRUST BANKING CORPORATION

G.R. No. 141835, February4, 2009, Carpio-Morales, J.
The law imposes on banks high standards in view of the fiduciary nature of banking. The fiduciary
nature of banking requires banks to assume a degree of diligence higher than that of a good father of a family.
Facts:
Citytrust maintained a demand deposit account with Central Bank (CB) and furnished CB with the
names and signatures of its officers authorized to sign checks and serve as drawers and indorsers for its
account as well as the list and signatures of its roving tellers. CB issued security IDs to the roving tellers one of
whom was Flores who presented for payment to CB's Senior Teller Dela Cruz two Citytrust checks payable to
Citytrust which were signed and indorsed by Citytrust's authorized signatory-drawers. Dela Cruz verified and
prepared the cash transfer slip and asked Flores to sign. However, Flores signed as "Rosauro C. Cayabyab"
which Dela Cruz did not notice. Dela Cruz sent the cash transfer slip and checks to CB's Cash Department
where an officer verified and approved them and paid Flores. CB debited the checks from Citytrust's account.
Later, Citytrust alleged that the checks were already cancelled because they were stolen and demanded CB to
restore the amounts covered but the latter did not do so. Hence, Citytrust filed a complaint for estafa against
Flores who was convicted. Then, Citytrust filed a complaint for recovery of sum of money with damages
against CB for encashing the checks and in charging the proceeds to its account, despite the lack of authority
of "Rosauro C. Cayabyab."
Issue:
Whether the Central Bank is negligent in releasing the proceeds of the checks to Flores despite lack of
proper verification of signature.
Ruling:
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YES. Petitioner's teller Iluminada did not verify Flores' signature on the flimsy excuse that Flores had
had previous transactions with it for a number of years. That circumstance did not excuse the teller from
focusing attention to or at least glancing at Flores as he was signing, and to satisfy herself that the signature
he had just affixed matched that of his specimen signature. Had she done that, she would have readily been
put on notice that Flores was affixing, not his but a fictitious signature.
Given that petitioner is the government body mandated to supervise and regulate banking and other
financial institutions, this Court's ruling in Consolidated Bank and Trust Corporation v. Court of Appeals (G.R.
No. 138569, September 11, 2003) illumines: The law imposes on banks high standards in view of the fiduciary
nature of banking. Section 2 of Republic Act No. 8791 ("RA 8791"), which took effect on 13 June 2000,
declares that the State recognizes the "fiduciary nature of banking that requires high standards of integrity
and performance." This new provision in the general banking law, introduced in 2000, is a statutory
affirmation of Supreme Court decisions, starting with the 1990 case of Simex International v. Court of
Appeals, holding that "the bank is under obligation to treat the accounts of its depositors with meticulous care,
always having in mind the fiduciary nature of their relationship."
This fiduciary relationship means that the bank's obligation to observe "high standards of integrity
and performance" is deemed written into every deposit agreement between a bank and its depositor. The
fiduciary nature of banking requires banks to assume a degree of diligence higher than that of a good father of
a family. Article 1172 of the Civil Code states that the degree of diligence required of an obligor is that
prescribed by law or contract, and absent such stipulation then the diligence of a good father of a family.
Section 2 of RA 8791 prescribes the statutory diligence required from banks - that banks must observe "high
standards of integrity and performance" in servicing their depositors.
______________________________________________________________________________________________________________________________
BANK OF AMERICA, NT & SA v. ASSOCIATED CITIZENS BANK, et al.

ASSOCIATED CITIZENS BANK v. BA-FINANCE CORPORATION, et al.
G.R. Nos. 141001 & 141018, May21, 2009, Carpio, J.
The law imposes a duty of diligence on the collecting bank to scrutinize checks deposited with it to
determine their genuineness and regularity. The collecting bank being primarily engaged in banking holds itself
out to the public as the expert and the law holds it to a high standard of conduct.
Facts:
BA-Finance grated Miller Offset Press a credit line facility in which Miller could assign or discount its
trade receivables with BA-Finance. Millers authorized representatives executed a Continuing Suretyship
Agreement with BA-Finance whereby they jointly and severally guaranteed the full and prompt payment of all
indebtedness which Miller may incur. In consideration of the assignment of its trade receivables, BA-Finance
issued four checks payable to the "Order of Miller Offset Press, Inc." with the notation "For Payee's Account
Only" which were drawn against Bank of America. It was deposited by the corporate secretary of Miller in
Associated Bank in a joint bank account under the names of Ching Uy Seng and Uy Chung Guan Seng.
Associated Bank stamped the checks with the notation "all prior endorsements and/or lack of endorsements
guaranteed," and sent them through clearing. Later, Bank of America, honored the checks and paid Associated
Bank. Miller failed to deliver to BA-Finance the proceeds of the assigned trade receivables. BA-Finance filed
against Miller for collection of sum of money which BA-Finance paid in consideration of the assignment.
Issue:
Whether Associated Bank is liable to reimburse Bank of America the amount of the four checks for
being negligent.
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Ruling:
YES. When Associated Bank stamped the back of the four checks with the phrase "all prior
endorsements and/or lack of endorsement guaranteed," that bank had for all intents and purposes treated the
checks as negotiable instruments and, accordingly, assumed the warranty of an endorser. Being so, Associated
Bank cannot deny liability on the checks.
The law imposes a duty of diligence on the collecting bank to scrutinize checks deposited with it for
the purpose of determining their genuineness and regularity. The collecting bank being primarily engaged in
banking holds itself out to the public as the expert and the law holds it to a high standard of conduct. In
presenting the checks for clearing and for payment, the defendant [collecting bank] made an express
guarantee on the validity of "all prior endorsements." Thus, stamped at the back of the checks are the
defendant's clear warranty: ALL PRIOR ENDORSEMENTS AND/OR LACK OF ENDORSEMENTS GUARANTEED.
Without such warranty, plaintiff [drawee] would not have paid on the checks. No amount of legal jargon can
reverse the clear meaning of defendant's warranty. As the warranty has proven to be false and inaccurate, the
defendant is liable for any damage arising out of the falsity of its representation.
______________________________________________________________________________________________________________________________
EQUITABLE PCI BANK v. ARCELITO TAN

G.R. No. 165339, August 23, 2010, Peralta, J.
As a business affected with public interest and because of the nature of its functions, the bank is under
obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary
nature of their relationship. The diligence required of banks, therefore, is more than that of a good father of a
family.
Facts:
Tan has a current and savings account with PCIB, now petitioner Equitable PCIBank. Tan issued PCIB
postdated check in favor of Sulpicio Lines, Inc which deposited the check to its account with Solidbank. After
clearing, it was debited by Equitable PCI from Tan's account leaving him with a balance of only P558.87. Tan
issued three checks payable to Agusan del Sur Electric Cooperative Inc. (ASELCO) and Agusan del Norte
Electric Cooperative Inc., (ANECO). However, the checks were dishonored for being drawn against insufficient
funds. The dishonor of the check caused the electric power supply for the two mini-sawmills owned by Tan to
be cut off and was restored only after several months. Hence, Tan filed a complaint against the bank for
payment of losses and damages claiming that the check payable to Sulpicio was a postdated one and that his
account would have sufficient funds to cover the payment of the three checks were it not for the negligence of
the bank debiting it from his account immediately.
Issue:
Whether Equitable PCI Bank exercised the required degree of diligence of banks.
Ruling:
NO. The law imposes on banks high standards in view of the fiduciary nature of banking. Although
R.A. 8791 took effect only in the year 2000, the Court had already imposed on banks the same high standard
of diligence required under R.A. 8791 at the time of the untimely debiting of respondent's account by
petitioner in May 1992. In Simex International (Manila), Inc. v. Court of Appeals(G.R. No. 88013, March 19,
1990), the Court held that as a business affected with public interest and because of the nature of its functions,
the bank is under obligation to treat the accounts of its depositors with meticulous care, always having in
mind the fiduciary nature of their relationship.
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The diligence required of banks, therefore, is more than that of a good father of a family. In every case,
the depositor expects the bank to treat his account with the utmost fidelity, whether such account consists
only of a few hundred pesos or of millions. The bank must record every single transaction accurately, down to
the last centavo, and as promptly as possible. This has to be done if the account is to reflect at any given time
the amount of money the depositor can dispose of as he sees fit, confident that the bank will deliver it as and
to whomever he directs. From the foregoing, it is clear that petitioner bank did not exercise the degree of
diligence that it ought to have exercised in dealing with its client.
______________________________________________________________________________________________________________________________
COMSAVINGS BANK (NOW GSIS FAMILY BANK) v. SPOUSES DANILO & ESTRELLA CAPISTRANO
G.R. No. 170942, August 28, 2013, Bersamin, J.
A banking institution is obliged to exercise the highest degree of diligence as well as high standards of
integrity and performance in all its transactions because its business is imbued with public interest.
Facts:
Spouses Capistrano were the owners of a residential lot who availed themselves of the UHLP
implemented by the National Home Mortgage Finance Corp. (NHMFC) for the construction of their house.
They executed a construction contract with Cruz-Bay, proprietor of GCB Builders which shall undertake the
construction within 75 days. GCB Builders facilitated their loan application with Comsavings Bank. They
executed in favor of GCB Builders a deed of assignment for the proceeds of the loan from Comsavings. The
bank informed Estrella that she needs to sign documents for the release of the loan including a certification of
house completion and acceptance. The bank informed the spouses of the approval of an interim financing loan
which was to be paid out of the proceeds of the loan from NHMFC.
NHMFC told the spouses that they should start paying their monthly amortizations but their house
was still unfinished. Thus, they protested considering that they had not signed any certification of completion
and acceptance, and that even if there was such, it would have been forged.
Issue:
Whether Comsavings Bank is negligent for failure to exercise the required diligence of banks.
Ruling:
YES. As aptly declared in Philippine National Bank v. Pike (G.R. No. 157845, September 20, 2005): The
stability of banks largely depends on the confidence of the people in the honesty and efficiency of banks.
There is no question that Comsavings Bank was grossly negligent in its dealings with respondents
because it did not comply with its legal obligation to exercise the required diligence and integrity. As a
banking institution serving as an originator under the UHLP and being the maker of the certificate of
acceptance/completion, it was fully aware that the purpose of the signed certificate was to affirm that the
house had been completely constructed according to the approved plans and specifications, and that
respondents had thereby accepted the delivery of the complete house. Given the purpose of the certificate, it
should have desisted from presenting the certificate to respondents for their signature without such
conditions having been fulfilled. Yet, it made respondents sign the certificate (through Estrella Capistrano,
both in her personal capacity and as the attorney-in-fact of her husband Danilo Capistrano) despite the
construction of the house not yet even starting. Its act was irregular per se because it contravened the
purpose of the certificate. Had Comsavings Bank been fair towards them as its clients, it should not have made
them pre-sign the certificate until it had confirmed that the construction of the house had been completed.
______________________________________________________________________________________________________________________________
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LAND BANK OF THE PHILIPPINESv.EMMANUEL OATE

G.R. No. 192371, January15, 2014, Del Castillo, J.
A bank is remiss in its duty and obligation for accepting and paying a check to a person other than the
payee appearing on the face of the check sans valid endorsement. Hence, it is liable for its own negligence and in
disregarding established banking rules and procedures.
Facts:
On atehad trust accounts with Land Bank. Land Bank became a trustee of Philippine Virginia Tobacco
Administration (PVTA) and Philippine Virginia Tobacco Board (PVTB) funds and invested P4 Million of the
trust accounts of PVTA and PVTB, through a direct lending scheme to several borrower companies and it
issued four (4) cashiers checks for P1 Million each. The borrowers pre-terminated their loans and paid their
obligations in the form of checks payable to the bank and delivered by On ates representative. When the
checks were delivered, On ate fraudulently misrepresented that they were On ates additional capital
contribution to his personal trust account. Thus, Land Bank credited the payments made by the borrowers to
On ates trust account. On ate withdrew the same, to the damage and prejudice of Land Bank as the
owner.Land Bank demanded from On ate the return of P4 million inadvertently deposited to his trust account
as his additional funds but actually represents the amount of the checks issued to Land Bank by its corporate
borrowers but On ate refused. Hence, Land Bank unilaterally applied the outstanding balance in all of On ates
trust accounts against his resulting indebtedness by reason of the miscrediting of funds.
Issue:
Whether Land Bank can hold On ate liable for the alleged fraudulent scheme.
Ruling:
NO. It would be too presumptuous to immediately conclude that said amount came from the checks
paid to Land Bank by its corporate borrowers just because the maturity dates of the loans coincided with the
dates said total amount was deposited. There must be proof showing an unbroken link between the proceeds
of the pre-terminated loans and the amount allegedly miscredited to On ates Trust Account.
We cannot thus lend credence to Land Banks excuse that the proximate cause of the alleged
miscrediting was the fraudulent representation of Polonio, for assuming that the latter indeed employed
fraudulent machinations, with the degree of prudence expected of banks, Land Bank and its tellers could have
easily detected that On ate was not the intended payee.
______________________________________________________________________________________________________________________________
DEVELOPMENT BANK OF THE PHILIPPINESv.GUARIA AGRICULTURAL AND REALTY DEVELOPMENT

CORPORATION
G.R. No. 160758, January15, 2015, Bersamin, J.
Being a banking institution, it should exercise the highest degree of diligence, as well as to observe the
high standards of integrity and performance in all its transactions because its business is imbued with public
interest.The stability of banks largely depends on the confidence of the people in the honesty and efficiency of
banks.
Facts:
Guarin a Corp. applied for a loan from DBP to finance the development of its resort complex which
was approved.Guarin aexecuted a promissory note and a real estate mortgage in favor of DBP as security for
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the repayment of the loan, and also executed a chattel mortgage. Prior to the release of the loan, DBP required
Guarin a Corporation to put up a cash equity for the construction of the buildings and other
improvements.Guarin a used the proceeds of the loan to defray the cost of additional improvements in the
resort complex and later demanded the release of the balance of the loan, but DBP refused and directly paid
some suppliers ofGuarin a. DBP found out that Guarin a had not completed the construction works hence
demanding to expedite the completion. However, such was not made so DBP initiated extrajudicial foreclosure
proceedings and a notice of foreclosure was sent and published. Guarin afiled for specific performance of
DBPs obligations under the loan agreement, and to stop the foreclosure of the mortgages. However, DBP
moved for the dismissal stating that the mortgaged properties were already sold. Thus, Guarin asought to
nullify the foreclosure proceedings and the cancellation of the certificate of sale.
Issue:
Whether DBPs foreclosure and sale of the mortgaged properties were premature and therefore void
and ineffectual.
Ruling:
YES. Being a banking institution, DBP owed it to Guarin a Corporation to exercise the highest degree
of diligence, as well as to observe the high standards of integrity and performance in all its transactions
because its business was imbued with public interest. The high standards were also necessary to ensure
public confidence in the banking system, for, according to Philippine National Bank v. Pike (G.R. No. 157845,
September 20, 2005): The stability of banks largely depends on the confidence of the people in the honesty
and efficiency of banks. Thus, DBP had to act with great care in applying the stipulations of its agreement
with Guarin a Corporation, lest it erodes such public confidence. Yet, DBP failed in its duty to exercise the
highest degree of diligence by prematurely foreclosing the mortgages and unwarrantedly causing the
foreclosure sale of the mortgaged properties despite Guarin a Corporation not being yet in default. DBP
wrongly relied on Stipulation No. 26 as its basis to accelerate the obligation of Guarin a Corporation, for the
stipulation was relevant to an Omnibus Agricultural Loan, to Guarin a Corporations loan which was intended
for a project other than agricultural in nature.
Nature of Bank Funds and Deposit
THE CONSOLIDATED BANK AND TRUST CORP. v. CA AND L.C. DIAZ AND COMPANY
G.R. No. 138569, September 11, 2003, Carpio, J.
Article 1980 of the Civil Code expressly provides that "savings, deposits of money in banks and similar
institutions shall be governed by the provisions concerning simple loan." There is a debtor-creditor relationship
between the bank and its depositor.
Facts:
L.C. Diaz opened a savings account with Solidbank. L.C. Diaz through its cashier, Macaraya, filled up a
savings cash deposit slip and a savings checks deposit slip. Macaraya instructed Calapre to deposit the money
with Solidbank and was given the Solidbank passbook. Calapre went to Solidbank and presented to Teller No.
6 the deposit slips and the passbook which acknowledged receipt of the deposit by returning to Calapre the
duplicate copies of the two deposit slips. Since the transaction took time, Calapre left the passbook with
Solidbank and went to Allied Bank to make a deposit. When Calapre returned, Teller No. 6 informed him that
"somebody got the passbook." Calapre reported the incident. Macaraya immediately prepared a deposit slip in
duplicate copies with a check of P200,000. Macaraya, together with Calapre, went to Solidbank and presented
to Teller No. 6 the deposit slip and check. When Macaraya asked for the passbook, Teller No. 6 told Macaraya
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that someone got the passbook but she could not remember to whom she gave the passbook. Teller No. 6
handed to Macaraya a deposit slip for the deposit of a check for P90,000 drawn on Philippine Banking
Corporation (PBC) which is a check of L.C. Diaz that it had "long closed."PBC dishonored the check because of
insufficient funds and because the signature in the check differed from PBC's specimen signature. Failing to
get back the passbook, Macaraya went back to her office and reported the matter to the Personnel Manager
Emmanuel Alvarez.
Luis Diaz called up and wrote to Solidbank to stop any transaction using the same passbook until L.C.
Diaz could open a new account. Diaz learned of the unauthorized withdrawal of P300,000 from its savings
account. The withdrawal slip for the P300,000 bore the signatures of the authorized signatories of L.C. Diaz,
namely Diaz and Murillo. The signatories, however, denied signing the withdrawal slip.
Issue:
Whether or not Solidbank is liable for breach of contract due to negligence.
Ruling:
YES. The contract between the bank and its depositor is governed by the provisions of the Civil Code
on simple loan. Article 1980 of the Civil Code expressly provides that "savings deposits of money in banks and
similar institutions shall be governed by the provisions concerning simple loan." There is a debtor-creditor
relationship between the bank and its depositor. The bank is the debtor and the depositor is the creditor. The
depositor lends the bank money and the bank agrees to pay the depositor on demand. The savings deposit
agreement between the bank and the depositor is the contract that determines the rights and obligations of
the parties.
However, the fiduciary nature of a bank-depositor relationship does not convert the contract between
the bank and its depositors from a simple loan to a trust agreement, whether express or implied. Failure by
the bank to pay the depositor is failure to pay a simple loan, and not a breach of trust. The law simply imposes
on the bank a higher standard of integrity and performance in complying with its obligations under the
contract of simple loan, beyond those required of non-bank debtors under a similar contract of simple loan.
Stipulation on Interests
FIDELITY SAVING AND MORTGAGE BANK v. HON. PEDRO D. CENZON, in his capacity as Presiding
Judge of the Court of First Instance of Manila (Branch XL) and SPOUSES TIMOTEO AND OLIMPIA
SANTIAGO
G.R. No. L-46208, 15 April 1990, J. Regalado
It is settled jurisprudence that a banking institution which has been declared insolvent and subsequently
ordered closed by the Central Bank of the Philippines cannot be held liable to pay interest on bank deposits which
accrued during the period when the bank is actually closed and non-operational.
Facts:
Herein private respondents, the Spouses Santiago, deposited with petitioner Fidelity Savings and
Mortgage Bank an aggregate amount of P100,000 under a Savings Account and a Time Deposit. Thereafter,
the Bankwas found to be insolvent and was forbidden to do business in the Philippines pursuant to issued
Resolution No. 350. Eventually the bank was set for liquidation.Pursuant to R.A. No. 5517, PDIC paid the
Spouses the amount of P10,000 thereby leaving a deposit balance of P90,000. The spouses then demanded
immediate payment of the balance of the aforementioned savings and time deposits.While the liquidation
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proceedingis still pending, an action for a sum of money with damages was filed.The court a quo ruled in favor
of the spouses and ordered the Bank to pay P90,000 with accrued interests and exemplary damages as well
as attorneys fees.
Issue:
Whether or not an insolvent bank like the Fidelity Savings and Mortgage Bank may be adjudged to
pay interest or unpaid deposits even after its closure by the Central Bank by reason of insolvency without
violating the provisions of the Civil Code on preference of credits.
Ruling:
NO, it is settled jurisprudence that a banking institution which has been declared insolvent and
subsequently ordered closed by the Central Bank of the Philippines cannot be held liable to pay interest on
bank deposits which accrued during the period when the bank is actually closed and non-operational. In The
Overseas Bank of Manila v. CA and Tony Tapia, the Court took judicial notice to the fact that what enables a
bank to pay stipulated interests on money deposited with it is that through the other aspects of its operation
it is able to generate funds to cover the payment of such interest. Unless a bank can lend money, engage in
international transactions, acquire foreclosed mortgaged properties or their proceeds and generally engage in
other banking and financing activities from which it can derive income, it is inconceivable how it can carry on
as a depository obligated to pay stipulated interest. Therefore, petitioner Bank cannot be held liable for
interest on bank deposits which accrued from the time the Central Bank prohibited it to continue with its
banking operations.
______________________________________________________________________________________________________________________________
ILEANA DR. MACALINAO v. BANK OF THE PHILIPPINE ISLANDS

G.R. No. 175490, 17 September 2009, J. Velasco, Jr.
Stipulations on interests which are excessive, iniquitous, unconscionable, and exorbitant are void for
being contrary to morals. While C.B. Circular No. 905-82 effectively removed the ceiling on interest rates for both
secured and unsecured loans, regardless of maturity, nothing in the said circular could possibly be read as
granting carte blanche authority to lenders to raise interest rates to levels which would either enslave their
borrowers or lead to a hemorrhaging of their assets.
Facts:
Ileana Macalinao is an approved cardholder of BPI Mastercard. She received a letter from BPI
demanding payment of the amount of P141, 518.34. Under the Terms and Conditions Governing the Issuance
and Use of the BPI Credit and BPI Mastercard, the charges or balance thereof remaining unpaid after the
payment due date indicated on the monthly Statement of Accounts shall bear interest at the rate of 3% per
month and an additional penalty fee equivalent to another 3% per month. For failure of Macalinao to settle
her obligations, BPI filed with the MeTC a complaint for sum of money against her and her husband. The
lower court ruled in favor of BPI and ordered Macalinao to pay the amount plus interest and penalty charges
of 2% per month; on appeal to the CA, it increased the interest to 3% per month.
Issue:
Whether or not the interest rate and penalty charge of 3% per month imposed by the CA is iniquitous
as the same translates to 36% per annum or thrice the legal rate of interest.
Ruling:
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YES. The interest rate and penalty charge of 3% per month should be equitably reduced to 2% per
month or 24% per annum.Indeed, in the Terms and Conditions Governing the Issuance and Use of the BPI
Credit Card, there was a stipulation on the 3% interest rate. Nevertheless, it should be noted that this is not
the first time that this Court has considered the interest rate of 36% per annum as excessive and
unconscionable. We held in Chua vs. Timan:
We need not unsettle the principle we had affirmed in a plethora of cases that stipulated interest
rates of 3% per month and higher are excessive, iniquitous, unconscionable and exorbitant. Such stipulations
are void for being contrary to morals, if not against the law. While C.B. Circular No. 905-82, which took effect
on January 1, 1983, effectively removed the ceiling on interest rates for both secured and unsecured loans,
regardless of maturity, nothing in the said circular could possibly be read as granting carte blanche authority
to lenders to raise interest rates to levels which would either enslave their borrowers or lead to a
hemorrhaging of their assets.
Since the stipulation on the interest rate is void, it is as if there was no express contract thereon.
Hence, courts may reduce the interest rate as reason and equity demand.The same is true with respect to the
penalty charge.
______________________________________________________________________________________________________________________________
HEIRS OF ESTELITA BURGOS-LIPAT v. HEIRS OF EUGENIO D. TRINIDAD

G.R. No. 185644, 2 March 2010, J. Corona
The rate of interest specified in the mortgage contract shall be applied for the one-year period reckoned
from the date of registration of the certificate of sale in accordance with the General Banking Act. However,
since petitioners effectively had more than one year to exercise the right of redemption, justice, fairness and
equity require that they pay 12% per annum interest beyond the one-year period.
Facts:
Estelita Burgos-Lipat and her husband obtained a loan from Pacific Banking Corporation (PBC)
secured by a real estate mortgage on their Quezon City property. Due to petitioners failure to pay their loans,
PBC foreclosed on the subject property wherein Eugenio D. Trinidad was declared the highest bidder and was
thereafter issued a certificate of sale on January 31, 1989. Petitioners filed a complaint for annulment of
mortgage, extra-judicial foreclosure and certificate of sale in the RTC of QC. The RTC dismissed the complaint
but granted petitioners five months and 17 days from the finality of the decision to exercise their right of
redemption over the foreclosed property.
Issue:
Whether or not the same interest rate specified in the mortgage contract shall be applied even
beyond the one-year redemption period.
Ruling:
NO. Section 78 of the General Banking Act requires payment of the amount fixed by the court in the
order of execution, with interest thereon at the rate specified in the mortgage contract, and all the costs and
other judicial expenses incurred by the bank or institution concerned by reason of the execution and sale and
as a result of the custody of said property less the income received from the property. The rate of interest
specified in the mortgage contract shall be applied for the one-year period reckoned from the date of
registration of the certificate of sale in accordance with the General Banking Act. However, since petitioners
effectively had more than one year to exercise the right of redemption, justice, fairness and equity require that
they pay 12% per annum interest beyond the one-year period up to June 16, 2004 when Partas consigned the
redemption price with the RTC.
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______________________________________________________________________________________________________________________________
ASIA TRUST DEVELOPMENT BANK v. CARMELO H. TUBLE

G.R. No. 183987, 25 July 2012, J. Sereno
While Article 2209 allows the recovery of interest sans stipulation, this charge is provided not as a form
of monetary interest, but as one of compensatory interest. Compensatory interest, as a form of damages, is due
only if the obligor is proven to have defaulted in paying the loan.
Facts:
Carmelo Tuble, who served as the vice president of petitioner Asia Trust Development Bank, availed
himself of the car incentive plan and loan privileges offered by the bank. As regards the loan privileges, Tuble
obtained three separate loans. The first, a real estate loan evidenced by Promissory Note No. 0142 with
maturity date of 1 January 1999, was secured by a mortgage over his property, with no interest indicated.
Eventually, the bank filed a complaint for replevin against Tuble wherein the Bank obtained a favorable
judgment. The Bank also filed a petition for extra-judicial foreclosure based on his real estate loan amounting
to P421,800. Tuble timely redeemed the property which at that time already amounted to P1,318,401.90.
The Bank explained that the redemption price ballooned in that amount because it included the cars book
value, the salary loan, car insurance, 18% annual interest on the banks redemption price, penalty and interest
charges on P.N. No. 0142, and litigation expenses.
Issue:
Whether or not the Bank is justified in claiming Tubles liability to pay legal interest, notwithstanding
that P.N. No. 0142 contains no stipulation on interest payments.
Ruling:
NO.While Article 2209 allows the recovery of interest sans stipulation, this charge is provided not as a
form of monetary interest, but as one of compensatory interest. Monetary interest refers to the compensation
set by the parties for the use or forbearance of money.On the other hand, compensatory interest refers to the
penalty or indemnity for damages imposed by law or by the courts.Compensatory interest, as a form of
damages, is due only if the obligor is proven to have defaulted in paying the loan. Thus, a default must exist
before the bank can collect the compensatory legal interest of 12% per annum.
In the case at bar, Tuble was not yet in default because as evidence by P.N. No. 0142, the obligation
was set to mature on 1 January 1999. But Tuble had already settled his liabilities on 17 March 1997 by paying
the redemption price. Then, in 1999, the bank issued his Clearance and share in the DIP in view of the full
settlement of his obligations.
______________________________________________________________________________________________________________________________
ADVOCATES FOR TRUTH IN LENDING, INC. and EDUARDO B. OLAGUER v. BANGKO SENTRAL MONETARY
BOARD
G.R. No. 192986, 15 January 2013, J. Reyes
The lifting of the ceilings for interest rates does not authorize stipulations charging excessive,
unconscionable, and iniquitous interest.Nothing in CB Circular No. 905 grants lenders a carte blanche authority
to raise interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of their
assets.
Facts:
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R.A. No. 265, which created the Central Bank of the Philippines, empowered the CB-MB to, among
others, set maximum interest rates which banks may charge for all types of loans and other credit operations,
within limits prescribed by the Usury Law. On March 17, 1980, the Usury Law was amended by Presidential
Decree (P.D.) No. 1684, giving the CB-MB authority to prescribe different maximum rates of interest which
may be imposed for a loan or renewal thereof or the forbearance of any money, goods or credits, provided that
the changes are effected gradually and announced in advance. Thereafter, the CB-MB issued CB Circular No.
905, Series of 1982 removed the ceilings on interest rates on loans or forbearance of any money, goods or
credits.
Issue:
Whether or not exceeded its authority when it issued CB Circular No. 905, which removed all interest
ceilings and thus suspended Act No. 2655 as regards usurious interest rates.
Ruling:
NO.In First Metro Investment Corp. v. Este Del Sol Mountain Reserve, Inc. cited in DBP v. Perez, the
Courtenunciated that: the CB Circular No. 905 did not repeal nor in any way amend the Usury Law but simply
suspended the latters effectivity. A CB Circular cannot repeal a law. By lifting the interest ceiling, CB Circular
No. 905 merely upheld the parties freedom of contract to agree freely on the rate of interest. It cited Article
1306 of the New Civil Code, under which the contracting parties may establish such stipulations, clauses,
terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good
customs, public order, or public policy.
It is settled that nothing in CB Circular No. 905 grants lenders a carte blanche authority to raise
interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of their
assets.Stipulations authorizing iniquitous or unconscionable interests have been invariably struck down for
being contrary to morals, if not against the law.Nonetheless, the nullity of the stipulation of usurious interest
does not affect the lenders right to recover the principal of a loan, nor affect the other terms thereof. Thus, in
a usurious loan with mortgage, the right to foreclose the mortgage subsists, and this right can be exercised by
the creditor upon failure by the debtor to pay the debt due. The debt due is considered as without the
stipulated excessive interest, and a legal interest of 12% per annum will be added in place of the excessive
interest formerly imposed.
Grant of Loans and Security Requirement
BANCO DE ORO v. JAIME Z. BAYUGA and ROBERTO TOLENTINO, THE COURT OF APPEALS and HON.
FRANCISCO DE LA ROSA, in his capacity as Judge of the CFI-Rizal, Branch VII-Pasay City
G.R. No. L49568, 17 October 1979, J. Melencio-Herrera
Funds of a bank are, in a sense, held in trust. There are the interests of depositors to be protected.
Facts:
As security for a loan, private respondents Bayuga and Tolentino and one Leonardo Zaballero
executed a Real Estate Mortgage in favor of Acme Savings Bank (now Banco de Oro) over a parcel of land in
order to pay for another property.The value of the property mortgaged was insufficient to cover the amount of
the loan. Thereafter, claiming that the borrowers showed no indication of complying with their obligation to
pay the amount of the loan to the vendor of the Tagaytay City property, which constituted diversion in
violation of Sec. 77, R.A. No. 337, BANK stopped payment of its Manager's check at the same time that it
refused to release the balance of the loan. An action for specific performance was then filed and a writ of
preliminary mandatory injunction was issued directing the BANK to comply with the mortgage contract but
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the BANK apparently did not release the said amount. The instant case was appealed and the private
respondents filed a motion for execution pending appeal which the court granted.
Issue:
Whether the bank has the right to refuse the release of the loan.
Ruling:
YES.The unfairness and inequity of this posture to the banking business is too evident to require
elaboration. Funds of a bank are, in a sense, held in trust. There are the interests of depositors to be protected.
The collateral the BANK has in its favor, with a loan value of only P157,889.76, is far from adequate to answer
for the amount of P389,000.00 that is now in the hands of private respondents. The manner of repayment by
private respondents of that amount remains nebulous. Of course, the BANK is not without fault for this sorry
state of affairs.
DOSRI Restrictions
JOSE C. GO v. BANGKO SENTRAL NG PILIPINAS

G.R. No. 178429, 23 October 2009, J. Brion
The essence of the crime under Section 83 of RA 337 is becoming an obligor of the bank without
securing the necessary written approval of the majority of the banks directors. To make a distinction between
the act of borrowing and guarantying is unnecessary because in either situation, the director or officer
concerned becomes an obligor of the bank.
Facts:
An Information for the violation of Section 83 of the General Banking Act was filed against Jose Go.
After arraignment, where he pleaded not guilty, Go filed a motion to quash the Information claiming that it is
defective and the facts do not constitute an offense. Go claims that the prosecutions shotgun approach in
alleging that he acted as borrower and/or guarantor rendered the Information highly defective for failure to
specify with certainty the specific act or omission complained of. He further posited that Section 83 of RA 337
penalized only directors and officers of banking institutions who acted either as borrower or as guarantor, but
not as both.
Issue:
Whether or not Gos contention that Section 83 of RA 337 means penalizing a director or officer of a
banking institution for either borrowing the deposits or funds of the bank, or guaranteeing or indorsing loans
to others, but not for assuming both capacities and that the acts so charged do not constitute an offense.
Ruling:
NO. Under Section 83, RA 337, the following elements must be present to constitute a violation of its
first paragraph: (1) the offender is a director or officer of any banking institution; (2) the offender, either
directly or indirectly, for himself or as representative or agent of another, performs any of the following acts:
[a] he borrows any of the deposits or funds of such bank; or [b] he becomes a guarantor, indorser, or surety
for loans from such bank to others, or[c] he becomes in any manner an obligor for money borrowed from
bank or loaned by it;(3) the offender has performed any of such acts without the written approval of the
majority of the directors of the bank, excluding the offender, as the director concerned.
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A simple reading of the above elements easily rejects Gos contention that the law penalizes a bank
director or officer only either for borrowing the banks deposits or funds or for guarantying loans by the bank,
but not for acting in both capacities. The essence of the crime is becoming an obligor of the bank without
securing the necessary written approval of the majority of the banks directors.The third mode under the
second element, serves a catch-all phrase that covers any situation when a director or officer of the bank
becomes its obligor. The prohibition is directed against a bank director or officer who becomes in any manner
an obligor for money borrowed from or loaned by the bank without the written approval of the majority of
the banks board of directors. To make a distinction between the act of borrowing and guarantying is therefore
unnecessary because in either situation, the director or officer concerned becomes an obligor of the bank
against whom the obligation is juridically demandable.
______________________________________________________________________________________________________________________________
HILARIO P. SORIANO v. PEOPLE OF THE PHILIPPINES, BSP, PDIC, PUBLIC PROSECUTOR ANTONIO BUAN
and STATE PROSECUTOR ALBERTO FONACIER
G.R. No. 162336, 1 February 2010, J. Del Castillo
A bank officer violates the DOSRI law when he acquires bank funds for his personal benefit, even if such
acquisition was facilitated by a fraudulent loan application. Directors, officers, stockholders, and their related
interests cannot be allowed to interpose the fraudulent nature of the loan as a defense to escape culpability for
their circumvention of Section 83 of R.A. No. 337.
Facts:
Affidavits were submitted before the Prosecutors office charging Hilario Soriano with Estafa through
falsification of commercial documents in relation to P.D. No. 1689 and for violation of Section 83 of R.A. No.
337, whereby it was alleged that the spouses Carlos appeared to have an outstanding loan of P8 million with
the Rural Bank of San Miguel (Bulacan), Inc., but had never applied for nor received such loan; that it was
petitioner, who was then president of the Bank, who had ordered, facilitated, and received the proceeds of the
loan. Soriano however contends that the commission of estafa is inherently incompatible with the violation of
the DOSRI law, as petitioner contends. Essentially, the petitioner theorized that the characterization of
possession is different in the two offenses. If petitioner acquired the loan as DOSRI, he owned the loaned
money and therefore, cannot misappropriate or convert it as contemplated in the offense of estafa. Conversely,
if petitioner committed estafa, then he merely held the money in trust for someone else and therefore, did not
acquire a loan in violation of DOSRI rules.
Issue:
Whether a loan transaction within the ambit of the DOSRI law (violation of Section 83 of RA 337, as
amended) could also be the subject of Estafa under Article 315 (1) (b) of the Revised Penal Code.
Ruling:
YES. Petitioners theory is based on the false premises that the loan was extended to him by the bank
in his own name, and that he became the owner of the loan proceeds. Both premises are wrong. The bank
money (amounting to P8 million) which came to Sorianos possession was money held in trust or
administration by him for the bank, in his fiduciary capacity as the President of said bank. Soriano, through
falsification, made it appear that said Enrico Carlos applied for the loan when in fact he did not. Through such
fraudulent device, petitioner obtained the loan proceeds and converted the same. Under these circumstances,
it cannot be said that petitioner became the legal owner of the P8 million. Thus, petitioner remained the
banks fiduciary with respect to that money, which makes it capable of misappropriation or conversion in his
hands.
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The prohibition in Section 83 is broad enough to cover various modes of borrowing. It covers loans
by a bank director or officer which are made either: (1) directly, (2) indirectly, (3) for himself, (4) or as the
representative or agent of others. It applies even if the director or officer is a mere guarantor, indorser or
surety for someone else's loanor is in any manner an obligor for money borrowed from the bank or loaned by
it. Indirect borrowing applies in the instant case, the Information describes the manner of securing the loan
as indirect; names petitioner as the benefactor of the indirect loan; and states that the requirements of the law
were not complied with. It contains all the required elements for a violation of Section 83, even if petitioner
did not secure the loan in his own name. In sum, the informations filed against Soriano do not negate each
other.
______________________________________________________________________________________________________________________________
REPUBLIC OF THE PHILIPPINES v. SANDIGANBAYAN (First Division) et al.

-------------------------------
REPUBLIC OF THE PHILIPPINES v. SANDIGANBAYAN (First Division) et al.
-------------------------------
REPUBLIC OF THE PHILIPPINES v. EDUARDO M. COJUANGCO, JR. et al.
G.R. Nos.166859, 169203, 180702, 12 April 2011, J. Bersamin
Assuming that the loans were of a DOSRI nature or without the benefit of the required approvals or in
excess of the Single Borrowers Limit, the same would not be void for that reason. Instead, the bank or the officers
responsible for the approval and grant of the DOSRI loan would be subject only to sanctions under the law.
Facts:
For over two decades, the issue of whether the sequestered sizable block of shares representing 20%
of the outstanding capital stock of San Miguel Corporation (SMC) at the time of acquisition belonged to their
registered owners or to the coconut farmers has remained unresolved. The Republic argues and concludes
that Cojuangco took money from the bank entrusted by law with the administration of coconut levy funds and
took more money from the very corporations/oil mills in which part of those coconut levy funds (the CIIF)
was placed treating the funds of UCPB and the CIIF as his own personal capital to buy his SMC shares. The
Republic suggests that Cojuangco had been enabled to obtain the loans by the issuance of LOI 926 exempting
the UCPB from the DOSRI and the Single Borrowers Limit restrictions.
Issue:
Whether or not there was a violation of the DOSRI and Single Borrowers restriction.
Ruling:
NO.Firstly, the Republic adduced no evidence on the significant particulars of the supposed loan, like
the amount, the actual borrower, the approving official, etc. It did not also establish whether or not the loans
were DOSRI or issued in violation of the Single Borrowers Limit. Secondly, the Republic could not outrightly
assume that President Marcos had issued LOI 926 for the purpose of allowing the loans by the UCPB in favor
of Cojuangco. There must be competent evidence to that effect. And, finally, the loans, assuming that they were
of a DOSRI nature or without the benefit of the required approvals or in excess of the Single Borrowers Limit,
would not be void for that reason. Instead, the bank or the officers responsible for the approval and grant of
the DOSRI loan would be subject only to sanctions under the law.
The New Central Bank Act
Responsibility and Primary Objective
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DAMASO PEREZ and REPUBLIC BANK, etc. et al. v. MONETARY BOARD, THE SUPERINTENDENT OF
BANKS, CENTRAL BANK OF THE PHILIPPINES and SECRETARY OF JUSTICE et al.
G.R. No. L-23307, 30 June 1967, J. J.P. Bengzon
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. There is
nothing in said laws that impose a clear, specific duty on the former to do the actual prosecution of the latter.
Facts:
Damaso Perez, for himself and in a derivative capacity on behalf of the Republic Bank, instituted
mandamus proceedings compelling respondents to prosecute certain 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. Respondents assailed the propriety of the 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 the said cases.
Issue:
Whether or not the mandamus proceeding was proper.
Ruling:
NO, petitioners 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 the Court finds 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 fiscal's 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.
The Central Bank and its respondent officials have already done all they could, within the confines of
their powers, to cause the prosecution of those persons denounced by Perez. The cases of the alleged
anomalous loans had already been referred by the Central Bank to the special prosecutors of the Department
of Justice for criminal investigation and prosecution. For respondents to do the actual prosecuting themselves,
as petitioners would have it, would be tantamount to an ultra vires act already.
______________________________________________________________________________________________________________________________
ROMEO P. BUSUEGO, CATALINO F. BANEZ, and RENATO LIM v. THE HONORABLE COURT OF APPEALS and
THE MONETARY BOARD OF THE CENTRAL BANK OF THE PHILIPPINES
G.R. No. 95326, 11 March 1999, J. Purisima
The Central Bank, through the Monetary Board, is empowered to conduct investigations and examine
the records of savings and loan associations. If any irregularity is discovered in the process, the Monetary Board
may impose appropriate sanctions.
Facts:
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The Central Bank examiners, in conducting their 16 th regular examination of the books and records of
PAL Employees Savings and Loan Association, Inc. (PESALA), discovered several anomalies and irregularities
committed by petitioners who are PESALAs directors and officers. The Monetary Board then adopted and
issued MB Resolution No. 805 which among others provide the following: (1) inclusion of petitioners names
in the Sectors watchlist to prevent them from holding responsible positions in any institutions under Central
Bank supervision; (2) to require the board of directors of PESALA to file civil and criminal cases against
petitioners for all the misfeasance and malfeasance committed by them, as warranted by the evidence.
Thereafter, the petitioners filed and was issued a TRO enjoining the Monetary Board from including
petitioners names in the watchlist.
Issue:
Whether or not Monetary Board Resolution No. 805 is null and void for being violative of petitioners'
rights to due process.
Ruling:
NO. the Central Bank of the. Philippines (now BangkoSentral ng Pilipinas), through the Monetary
Board, is the government agency charged with the responsibility of administering the monetary, banking and
credit system of the country and is granted the power of supervision and examination over banks and non-
bank financial institutions performing quasi-banking functions, of which savings and loan associations, such
as PESALA, form part of. The Central Bank, through the Monetary Board, is empowered to conduct
investigations and examine the records of savings and loan associations. If any irregularity is discovered in the
process, the Monetary Board may impose appropriate sanctions, such as suspending the offender from
holding office or from being employed with the Central Bank, or placing the names of the offenders in a
watchlist.
The requirement of prior notice is also relaxed under Section 28 (c) of RA 3779 as investigations or
examinations may be conducted with or without prior notice "but always with fairness and reasonable
opportunity for the association or any of its officials to give their side." As may be gathered from the records,
the said requirement was properly complied with by the respondent Monetary Board.
______________________________________________________________________________________________________________________________
ANA MARIA A. KORUGA v. TEODORO O. ARCENAS, JR., ALBERT C. AGUIRRE, CESAR S. PAGUIO,
FRANCISCO A. RIVERA and THE HONORABLE COURT OF APPEALS, THIRD DIVISION
G.R. Nos. 168332, 19 June 2009, J. Nachura
It is the BSP which is authorized to administer the monetary, banking, and credit system of the
Philippines. It is further authorized to take the necessary steps against any banking institution if its continued
operation would cause prejudice to its depositors, creditors and the general public as well.
Facts:
Ana Maria Koruga, a minority stockholder of Banco Filipino Savings and Mortgage Bank, filed a
complaint charging private respondents with violation of Sections 31 to 34 of the Corporation Code,
prohibiting self-dealing and conflict of interest of directors and officers. She also invoked her right to inspect
the corporations records and prayed for Receivership and Creation of a Management Committee, pursuant to
Rule 59 of the Rules of Civil Procedure, the Securities Regulation Code, the Interim Rules of Procedure
Governing Intra-Corporate Controversies, the General Banking Law of 2000, and the New Central Bank
Act. She accused the directors and officers of Banco Filipino of engaging in unsafe, unsound, and fraudulent
banking practices, more particularly, acts that violate the prohibition on self-dealing. The respondents filed
their answer raising, among others, the trial courts lack of jurisdiction to take cognizance of the case.
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Issue:
Whether or not Korugas complaint is within the jurisdiction of the RTC.
Ruling:
NO, it is the BSP that has jurisdiction over the case. It is clear that the acts complained of pertain
to the conduct of Banco Filipinos banking business. A bank, as defined in the General Banking Law, refers to
an entity engaged in the lending of funds obtained in the form of deposits. The banking business is properly
subject to reasonable regulation under the police power of the state because of its nature and relation to the
fiscal affairs of the people and the revenues of the state. Banks are affected with public interest because they
receive funds from the general public in the form of deposits. It is the Governments responsibility to see to it
that the financial interests of those who deal with banks and banking institutions, as depositors or otherwise,
are protected. In this country, that task is delegated to the BSP, which pursuant to its Charter, is authorized to
administer the monetary, banking, and credit system of the Philippines. It is further authorized to take the
necessary steps against any banking institution if its continued operation would cause prejudice to its
depositors, creditors and the general public as well.
The law vests in the BSP the supervision over operations and activities of banks, as provided under
Section 25 of the New Central Bank Act.Furthermore, the authority to determine whether a bank is
conducting business in an unsafe or unsound manner is also vested in the Monetary Board pursuant to
Section 56 of the General Banking Law of 2000.
Monetary Board Powers and Functions
ANA MARIA A. KORUGA v. TEODORO O. ARCENAS, JR., ALBERT C. AGUIRRE, CESAR S. PAGUIO,
FRANCISCO A. RIVERA, and THE HONORABLE COURT OF APPEALS, THIRD DIVISION
G.R. No. 168332 and G.R. No. 169053, June 19, 2009, NACHURA, J.
The Central Monetary Authority, through the Monetary Board, is vested with exclusive authority to
assess, evaluate and determine the condition of any bank, and finding such condition to be one of insolvency, or
that its continuance in business would involve a probable loss to its depositors or creditors, forbid bank or non-
bank financial institution to do business in the Philippines; and shall designate an official of the BSP or other
competent person as receiver to immediately take charge of its assets and liabilities.
Facts:
Petitioner Ana Maria Koruga is a minority stockholder of Banco Filipino Savings and Mortgage Bank.
She accused the directors and officers of Banco Filipino of engaging in unsafe, unsound, and fraudulent
banking practices, more particularly, acts that violate the prohibition on self-dealing. With that, she filed a
complaint before the RTC against the Board of Directors of Banco Filipinoand praying therein for Receivership
and Creation of a Management Committee.
The respondent Directors argued that the case falls under the jurisdiction of the BSP and hence they
prayed for the dismissal of the case.The RTC ruled in favor of the Koruga but it was reversed by the CA. Hence,
this petition.
Issue:
Whether the court has jurisdiction over the case.
Ruling:
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NO. The Central Monetary Authority, through the Monetary Board, is vested with exclusive authority
to assess, evaluate and determine the condition of any bank, and finding such condition to be one of
insolvency, or that its continuance in business would involve a probable loss to its depositors or creditors,
forbid bank or non-bank financial institution to do business in the Philippines; and shall designate an official
of the BSP or other competent person as receiver to immediately take charge of its assets and liabilities.
This case involves not just ordinary intra-corporate matters; rather, they involve banking activities
which are, by law, regulated and supervised by the BSP. Hence, the court has no jurisdiction over the case.
______________________________________________________________________________________________________________________________
BANGKO SENTRAL NG PILIPINAS MONETARY BOARD and CHUCHI FONACIER v.

HON. NINA G. ANTONIO-VALENZUELA, in her capacity as Regional Trial Court Judge of Manila, Branch
28; RURAL BANK OF PARAAQUE, INC. et al.
G.R. No. 184778, October 2, 2009, VELASCO, JR., J.
Sec. 28 of RA 7653, or the New Central Bank Act, which governs examinations of banking institutions,
provides that the Report on Examination shall be submitted to the MB; the bank examined is not mentioned as a
recipient of the Report on Examination. Therefore, the BSP is not required to give copies of the Report on
Examination to the bank examined.
Facts:
The Supervision and Examination Department of the BSP conducted examinations of the books of the
respondent banks and it found that these banks had deficiencies in their capital. The respondent banks on
their part filed before the RTC an action to nullify the Report on Examination and issuance of restraining
order. They contend that their right to due process was violated because they were not furnished with the
said report. They further that the sanction of closure that the MB might imposed upon the receipt of such
Report will result in irreparable damage to them as well as to the public.
The RTC ruled in favor of the respondent banksand this was affirmed by the CA.However, the SC
issued a restraining order on the RTC and CA decision. By reason of the such, the SED was able to submit their
Report on Examination to the Monetary Board. The MB then prohibited the respondent banks from
transacting business and placed them under receivership with the Philippine Deposit Insurance Corporation
as the appointed receiver. Hence, this petition.
Issue:
Whether the respondent banks were entitled to the copy of the Report on Examination made by the
BSP before its submission to the Monetary Board.
Ruling:
NO. There was no provision of law, no section in the procedures of the BSP that shows that the BSP is
required to give copies of the Report on Examination to banks. Sec. 28 of RA 7653, or the New Central Bank
Act, which governs examinations of banking institutions, provides that the Report on Examination shall be
submitted to the MB; the bank examined is not mentioned as a recipient of the Report on Examination.
Therefore, the respondent banks cannot claim a violation of their right to due process if they are not provided
with copies of the such report.
How BSP Handles Banks in Distress
Conservatorship
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CENTRAL BANK OF THE PHILIPPINES and ACTING DIRECTOR ANTONIO T. CASTRO, JR. OF THE
DEPARTMENT OF COMMERCIAL AND SAVINGS BANK, in his capacity as statutory receiver of Island
Savings Bank v. THE HONORABLE COURT OF APPEALS and SULPICIO M. TOLENTINO, G.R. No. L-45710,
October 3, 1985, MAKASIAR, CJ.
The mere pecuniary inability to fulfill an engagement does not discharge the obligation of the contract,
nor does it constitute any defense to a decree of specific performance. And, the mere fact of insolvency of a
debtor is never an excuse for the non-fulfillment of an obligation but 'instead it is taken as a breach of the
contract by him.
Facts:
Private respondent SulpicioTolentino obtained a loan with real estate mortgagee from Island Savings
Bank in the amount of P80,000. But only P17, 000 was released by the bank because there was no fund yet
available for the release of the P63,000.00 balance.Thereafter, the MB declared Island Bank insolvent and
wasprohibited from doing business in the Philippines.
However, Island Savings Bank, in view of non-payment of the P17,000, filed an application for the
extra-judicial foreclosure of the real estate mortgage, this was opposed by Tolentino it his petition before the
court. The court ruled in favor of the foreclosure, but this was reversed by the CA. Hence, this petition.
Issue:
Whether the insolvency of Island Bank is a valid reason to the non-fulfillment of its obligation.
Ruling:
NO. The mere pecuniary inability to fulfill an engagement does not discharge the obligation of the
contract, nor does it constitute any defense to a decree of specific performance. And, the mere fact of
insolvency of a debtor is never an excuse for the non-fulfillment of an obligation but 'instead it is taken as a
breach of the contract by him. Hence, the Board Resolution of MB to that effect cannot interrupt the default of
Island Savings Bank in complying with its obligation of releasing the P63,000.00 balance. More so that this
Resolution merely prohibited the Bank from making new loans and investments, and nowhere did it prohibit
island Savings Bank from releasing the balance of loan agreements previously contracted.
______________________________________________________________________________________________________________________________
CENTRAL BANK OF THE PHILIPPINES and HON. JOSE B. FERNANDEZ v. HON. COURT OF APPEALS, RTC
JUDGE TEOFILO GUADIZ, JR., PRODUCERS BANK OF THE PHILIPPINES and PRODUCERS PROPERTIES,
INC.
G.R. No. 88353 and G.R. No. 92943 May 8, 1992, DAVIDE, JR., J.
A conservator, once appointed, takes over the management of the bank and assumes exclusive powers to
oversee every aspect of the bank's operations and affairs. However, it must be stressed that a bank retains its
juridical personality even if placed under conservatorship; it is neither replaced nor substituted by the
conservator. Hence, the approval of the CB is not necessary where the action was instituted by the bank through
the majority of the bank's stockholders. To contend otherwise would be to defeat the rights of such stockholders
under the fifth paragraph of Section 29 of the Central Bank Act.
Facts:
CB on the basis of the report submitted by the Supervision and Examination Sector of the CB, the
Monetary Board, placed PBP under conservatorship. The PBP in turnfiled a complaint with the RTC against
the CB asserting that the conservatorship was unwarranted, ill-motivated, illegal, utterly unnecessary and
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unjustified; that the appointment of the conservator was arbitrary; that CB acted in bad faith; that the CB-
designated conservators committed bank frauds and abuses; that the CB is guilty of promissory estoppel; and
that by reason of the conservatorship, it suffered losses. The complaint prayed that the CBs conservator be
ordered to restore the viability of PBP and to fully repair the damages inflicted on PBP.
The CB, however, contends that the complaint should be dismissed on the ground of lack of legal
personality on the part of the respondent bank to bring the action as the same was filed in the name of the
PBP without the authority of the conservator.
Issue:
Whether an approval from the CB is necessary for the bank to bring action before the court.
Ruling:
NO, but the Court in this case ruled that the case filed by PB should be dismissed. A conservator, once
appointed, takes over the management of the bank and assumes exclusive powers to oversee every aspect of
the bank's operations and affairs. However, it must be stressed that a bank retains its juridical personality
even if placed under conservatorship; it is neither replaced nor substituted by the conservator. Hence, the
approval of the CB is not necessary where the action was instituted by the bank through the majority of the
bank's stockholders. To contend otherwise would be to defeat the rights of such stockholders under the fifth
paragraph of Section 29 of the Central Bank Act.
Therefore, the rule is the Board of Directors of a bank is not prohibited to file suit to lift the
conservatorship over it, to question the validity of the conservator's fraudulent acts and abuses and the
arbitrary action of the MB provided following requisites should be complied with:
1. The appropriate pleading must be filed by the stockholders of record representing the majority of the
capital stock of the bank in the proper court;
2. Said pleading must be filed within ten (10) days from receipt of notice by said majority stockholders
of the order placing the bank under conservatorship; and
3. There must be convincing proof, after hearing, that the action is plainly arbitrary and made in bad
faith.
In the instant case, however,PBPs complaint was filed after the expiration of the 10-day period
deferred to above. Accordingly, the order placing PBP under conservatorship had long become final and its
validity could no longer be litigated upon before the trial court. Furthermore, it is important to note that the
action instituted was not for the purpose of having the conservatorship lifted but it is an action for damage
which must nevertheless be dismissed for failure of the PBP to pay the correct docket fees.
______________________________________________________________________________________________________________________________
FIRST PHILIPPINE INTERNATIONAL BANK (Formerly Producers Bank of the Philippines) and
MERCURIO RIVERA v. COURT OF APPEALS, CARLOS EJERCITO, in substitution of DEMETRIODEMETRIA,
and JOSE JANOLO
G.R. No. 115849, January 24, 1996, PANGANIBAN, J.
The powers of conservator of a bank cannot extend to the post-facto repudiation of perfected
transactions, otherwise they would infringe against the non-impairment clause of the Constitution and would
prejudice vested rights of third persons. Instead, the law merely gives the conservator power to revoke contracts
that are, under existing law, deemed to be defective - i.e., void, voidable, unenforceable or rescissible.
Facts:
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In the course of its banking operations, Producer Bank of the Philippines acquired six parcels of land.
Demetrio, Demetria and Jose O. Janolo, wanted to purchase the property and thus initiated negotiations for
that purpose. The result of such negotiation was that, respondents Janolo accepted to purchase the property
in the amount offered of the bank. During the time of the negotiation and perfection of the contract of sale
took place, petitioner Bank was under a conservator. However, the said conservatorwas replaced by Acting
Conservator Leonida T. Encarnacion. Consequently, the bank informed respondents Janolo that their proposal
to purchase the property would be under the study of the newly designated Acting Conservator of the bank.
But the Janolosfiled a suit for specific performance with damages against the bank, its Manager
Rivera and Acting Conservator Encarnacion. The basis of the suit was that the transaction had with the bank
resulted in a perfected contract of sale. The respondent court ruled that there was already a perfected
contract of sale and that the designation of a new conservatorship would not revoke such contract.
Issue:
Whether or not the conservator have theunilateral power to revoke a perfected contract of sale.
Ruling:
NO. The powers of conservator of a bank cannot extend to the post-facto repudiation of perfected
transactions, otherwise they would infringe against the non-impairment clause of the Constitution. The law
merely gives the conservator power to revoke contracts that are, under existing law, deemed to be defective -
i.e., void, voidable, unenforceable or rescissible. Hence, the conservator merely takes the place of a banks
board of directors. What the said board cannot do - such as repudiating a contract validly entered into under
the doctrine of implied authority - the conservator cannot do either. Ineluctably, his power is not unilateral
and he cannot simply repudiate valid obligations of the Bank. His authority would be only to bring court
actions to assail such contracts.
To rule otherwise would be to enable a failing bank to become solvent, at the expense of third parties,
by simply getting the conservator to unilaterally revoke all previous dealings which had one way or another
come to be considered unfavorable to the Bank, yielding nothing to perfected contractual rights nor vested
interests of the third parties who had dealt with the Bank.
Closure
EMERITO M. RAMOS, SUSANA B. RAMOS, EMERITO B. RAMOS, JR., JOSEFA RAMOS DE LA RAMA,
HORACIO DE LA RAMA, ANTONIO B. RAMOS, FILOMENA RAMOS LEDESMA, RODOLFO RAMOS,
VICTORIA RAMOS TANJUATCO, and TEOFILOTANJUATCO v. CENTRAL BANK OF THE PHILIPPINES
G.R. No. L-29352, October 4, 1971, REYES, J.B.L., J.
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. In this case, the order of CB for liquidation and the suspension of OBM should be set
aside for having been adopted in abuse of discretion, equivalent to excess of jurisdiction.
Facts:
Petitioners were majority stock holders of Overseas Bank of Manila, which during that time was in
financial distress. To address necessity and urgency of rehabilitating the OBM, the petitioners sough help from
CB for the possible extension of emergency loan in the amount of P20 Million. The CB bank, however,
recommended the need of the execution of a voting trust agreement between OBM and PNB and in such
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eventuality, the Central Bank will support the PNB in order to allay the fears of depositors and creditors. With
that, OBM agreed to the execution of the trusteeship agreement.
After such execution, the CB extended an emergency loan only in the amount of P10 Million. This,
however, did not elevate the financial woes of the bank. Consequently, CB Monetary Board adopted a
Resolution ordering the Superintendent of Banks to proceed to the liquidation of the OBM, under Section 29
of the Central Bank Act. This was opposed by the petitioners in their petition before the court arguing that CB
failed to provide an adequate financial assistance to OBM, a violation of their obligation under the voting trust
agreement and hence liquidation is not proper.On the other hand, CB argued that it is not a party to the Voting
Trust agreement, therefore cannot be compelled to implement it and that the courts cannot interfere with
CB's discretion in determining whether or not a distressed bank should be supported or liquidated.
Issue:
Whether the liquidation of OBM is proper.
Ruling:
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.
In this case, while the trust agreement on its face creates obligations only for the Superintendent of
Banks as trustee, his commitments were undeniably those of the Central Bank itself, since it was the latter
that had from the very beginning insisted upon such voting trust being executed. Furthermore, even in the
absence of contract, the record plainly shows that the CB made express representations to petitioners herein
that it would support the OBM, and avoid its liquidation if the petitioners would execute (a) the Voting Trust
Agreement turning over the management of OBM to the CB or its nominees, and (b) mortgage or assign their
properties to the Central Bank to cover the overdraft balance of OBM. The petitioners having complied with
these conditions and parted with value to the profit of the CB (which thus acquired additional security for its
own advances), the CB may not now renege on its representations and liquidate the OBM, to the detriment of
its stockholders, depositors and other creditors, under the rule of promissory estoppel.
The Court conclude that having induced the petitioners to part with additional security in reliance
upon its promises and commitments to avert liquidation and to support, normalize and rehabilitate the OBM,
CB is duty bound to comply in good faith with such promises. Consequently CB Resolutions should be
annulled and set aside for having been adopted in abuse of discretion, equivalent to excess of jurisdiction.
______________________________________________________________________________________________________________________________
CENTRAL BANK OF THE PHILIPPINES v. HONORABLE COURT OF APPEALS, ISIDRO E.FERNANDEZ, and
JESUS R. JAYME
G.R. No. L-50031-32, July 27, 1981, CONCEPCION, JR., J.
The closure and liquidation of a bank may be considered an exercise of police power, however, the
validity of such exercise of police power is subject to judicial inquiry and could be set aside if it is either
capricious, discriminatory, whimsical, arbitrary, unjust, or a denial of the due process and equal protection
clauses of the Constitution.
Facts:
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Private respondents Isidro Fernandez and Jesus Jayme are majority and controlling stockholders of
Provident Savings Bank. In view of the unusually heavy withdrawals, Provident requested for emergency
loans from the Central Bank to meet the demands of the depositors. As a condition, the CB posits that it will
only release and continue its assistance to Provident if Fernandez and Jayme will relinquish and turn over the
management and control of the bank to Iglesia Ni Kristo. The condition was allegedly necessary because
Iglesia Ni Kristo had seizable deposit to Provident and this deposit will be converted into shares of stock.
Thus, Fernandez and Jaymeagreed to such condition.
However, the Iglesia Ni Kristodid not comply with its commitment to purchase the shares of stock and
to convert its deposits into equity. Instead, the new management of Provident caused the conversion of the
deposits of Iglesia Ni Kristo into bills payable earning 12% interest. This contributed to the deteriorating
financial condition of Provident which resultedin MB declaring it insolvent, ordering its closure and its asset
be liquidated. Consequently, Fernandez and Jayme opposed to such in its petition before the CFI.
Issue:
Whether the action of the MB in ordering the closure and liquidation of an insolvent bank can be
annulled by the court.
Ruling:
YES. While the closure and liquidation of a bank may be considered an exercise of police power, the
validity of such exercise of police power is subject to judicial inquiry and could be set aside if it is either
capricious, discriminatory, whimsical, arbitrary, unjust, or a denial of the due process and equal protection
clauses of the Constitution.
In this case, it is not disputed that the Central Bank had committed itself to support Provident and
restore it to its former sound financial position provided that Fernandez and Jayme should relinquish and give
up its control and management of the bank to the Iglesia Ni Kristo, and thereafter, whimsically withdrew such
support to the detriment of Provident.
______________________________________________________________________________________________________________________________
contract by him.
Facts:
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Issue:
Ruling:
______________________________________________________________________________________________________________________________
SPOUSES ROMEO LIPANA and MILAGROS LIPANA v. DEVELOPMENT BANK OF RIZAL

G.R. No. 73884, September 24, 1987, PARAS, J.
It is well settled ruled that after the Monetary Board has declared that a bank is insolvent and has
ordered it to cease operations, the Board becomes the trustee of its assets for the equal benefit of all the
creditors, including depositors. The assets of the insolvent banking institution are held in trust for the equal
benefit of all creditors, and after its insolvency, one cannot obtain an advantage or a preference over another by
an attachment, execution or otherwise.The same is true notwithstanding the fact that the receivership was done
after the filing of the complaint because it is the execution that win obviously prejudice the other depositors and
creditors.
Facts:
Spouses Lipanaopened and maintained time and savings deposits with theDBP of Rizal. When some
of the Time Deposit Certificates matured, spouses Lipana were not able to cash them but instead were issued
a manager's check which was dishonored upon presentment. After demands for the payment of both time and
savings deposits having failed, spouses Lipanafiled with the a Complaint. The RTC ruled in favor the spouses.
Meanwhile, the MB declared the DBP of Rizal insolvent and that its continuance in business would
result in probable loss to its depositors and creditors, decided to place it under receivership. Consequently,
the court issued an order to Stay Writ of Execution of its prior decision. Hence, this petition.
Issue:
Whether or not the placing under receivership by the Central Bank of the respondent bank, long after
the complaint became final and executory, could legally stay execution of such judgment.
Ruling:
YES. The rule that once a decision becomes final and executory, it is the ministerial duty of the court
to order its execution, admits of certain exceptions as in cases of special and exceptional nature where it
becomes imperative in the higher interest of justice to direct the suspension of its execution; whenever it is
necessary to accomplish the aims of justice; or when certain facts and circumstances transpired after the
judgment became final which could render the execution of the judgment unjust.
In the instant case, the stay of the execution of judgment is warranted by the fact that respondent
bank was placed under receivership. To execute the judgment would unduly deplete the assets of respondent
bank to the obvious prejudice of other depositors and creditors. It is well settled ruled that after the Monetary
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Board has declared that a bank is insolvent and has ordered it to cease operations, the Board becomes the
trustee of its assets for the equal benefit of all the creditors, including depositors. The assets of the insolvent
banking institution are held in trust for the equal benefit of all creditors, and after its insolvency, one cannot
obtain an advantage or a preference over another by an attachment, execution or otherwise.
The same is true notwithstanding the fact that the receivership was done after the filing of the
complaint because it is the execution that win obviously prejudice the other depositors and creditors.
______________________________________________________________________________________________________________________________
OVERSEAS BANK OF MANILA v. THE COURT OF APPEALS and NATIONAL WATERWORKS AND
SEWERAGE AUTHORITY
G.R. No. L-45866, April 19, 1989, NARVASA, J.
The bank cannot be excused from its obligation which had matured long before its operation was
suspended by the Central Bank. In this case, The suspension of operations of Overseas Bank which took place in
August 1968, could not possibly excuse non-compliance with the obligations in question which matured in 1966.
Facts:
The private respondent NAWASA obtained two time deposits with the Overseas Bank of Manila for
the payment made by a certain BonifacioRegalado. The period for such time deposits were fixed at one year.
Upon the maturity date, NAWASA made a demand for the release of the funds from Overseas Bank, but the
bank did not respond. After repeated demands, NAWASA sought help from Central Bank about the matter.
Consequently, the Central Bank ordered the Overseas Bank to transfer the said government deposits in its
custody to the PNB or DBP. Apparently, even the this was ignored by Overseas Bank.NAWASA thus brought
suit to recover its deposits and damages and such was decided in its favor.
Overseas Bank contends thatthe Central Bankhas suspended its operations and because of that, it
failed to generate funds which it could pay not only its depositors and creditors but likewise, the interests due
on the deposits.
Issue:
Whether or not the failure of Overseas Bank in complying with its obligation to NAWASA should be
attributed to the act of Central Bank.
Ruling:
NO.The suspension of operations which took place in August 1968, could not possibly excuse non-
compliance with the obligations in question which matured in 1966. The suspension of banking operations
and the further claim of distressed financial situation cannot in any sense excuse the bank from its obligation
to the NAWASA. Again, the such obligation had nothing to do with the Central Bank's actuations or the events
leading to the bank's distressed state.
______________________________________________________________________________________________________________________________
BANCO FILIPINO SAVINGS AND MORTGAGE BANK v. THE MONETARY BOARD, CENTRAL BANK OF THE
PHILIPPINES, JOSE B. FERNANDEZ, CARLOTA P. VALENZUELA, ARNULFO B. AURELLANO and RAMON V.
TIAOQUI
G.R. No. 70054, December 11, 1991, MEDIALDEA, J.
The pendency of the case regarding the validity of the closure and receivership of the bank did not
diminish the powers and authority of the designated liquidator to effectuate and carry on the a ministration of
the bank. Therefore, in this case, the liquidator by himself or through counsel has the authority to bring actions
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for foreclosure of mortgages executed by debtors in favor of the bank. The liquidator is likewise authorized to
resist or defend suits instituted against the bank by debtors and creditors of the bank and by other private
persons
Facts:
Top Management Programs Corporation, Pilar Development Corporation and El Grande Development
Corporation obtained a loan from Banco Filipino. Thereupon, the Monetary Board issued a resolution placing
the bank under liquidation and designating Valenzuela as liquidator. Consequently, Banco Filipino filed the
petition questioning the validity of the resolutions issued by the Monetary Board authorizing the receivership
and liquidation of Banco Filipino.
Subsequently, Top Management, Pilar Development and El Grande Development failed to pay its loan
on the due date. Hence, Banco Filipino applied for extra-judicial foreclosure of the mortgage. This was
opposed on the ground that Banco Filipino has no authority to proceed with the foreclosure sale of
petitioners' properties on the ground that the resolution of the issue on the validity of the closure and
liquidation of Banco Filipino is still pending with this Court.
Issue:
Whether the liquidator appointed by the CB has the authority to prosecute as well as to defend suits,
and to foreclose mortgages for and in behalf of the bank while the issue on the validity of the receivership and
liquidation of the latter is pending.
Ruling:
YES. Section 29 the Central Bank Act, provides that when a bank is forbidden to do business in the
Philippines and placed under receivership, the person designated as receiver shall immediately take charge of
the bank's assets and liabilities, as expeditiously as possible, collect and gather all the assets and administer
the same for the benefit of its creditors, and represent the bank personally or through counsel as he may
retain in all actions or proceedings for or against the institution, exercising all the powers necessary for these
purposes including, but not limited to, bringing and foreclosing mortgages in the name of the bank. If the
Monetary Board shall later determine and confirm that banking institution is insolvent or cannot resume
business safety to depositors, creditors and the general public, it shall, public interest requires, order its
liquidation and appoint a liquidator who shall take over and continue the functions of receiver previously
appointed by Monetary Board. The liquid for may, in the name of the bank and with the assistance counsel as
he may retain, institute such actions as may necessary in the appropriate court to collect and recover a counts
and assets of such institution or defend any action ft against the institution.
The pendency of the case regarding the validity of the closure and receivership of the bank did not
diminish the powers and authority of the designated liquidator to effectuate and carry on the a ministration of
the bank. Therefore, in this case, the liquidator by himself or through counsel has the authority to bring
actions for foreclosure of mortgages executed by debtors in favor of the bank. The liquidator is likewise
authorized to resist or defend suits instituted against the bank by debtors and creditors of the bank and by
other private persons
______________________________________________________________________________________________________________________________
CENTRAL BANK OF THE PHILIPPINES and HON. JOSE B. FERNANDEZ v. HON. COURT OF APPEALS, RTC
JUDGE TEOFILO GUADIZ, JR., PRODUCERS BANK OF THE PHILIPPINES and PRODUCERS PROPERTIES,
INC.
G.R. No. 88353 and G.R. No. 92943 May 8, 1992, DAVIDE, JR., J.
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or excess of jurisdiction. In this case, the order of CB placing PBP under conservatorship is proper on the ground
that there was neither arbitrariness nor bad faith in the issuance of thereof.
Facts:
CB on the basis of the report submitted by the Supervision and Examination Sector of the CB, the
Monetary Board, placed PBP under conservatorship. The PBP in turn filed a complaint with the RTC against
the CB asserting that the conservatorship was unwarranted, ill-motivated, illegal, utterly unnecessary and
unjustified; that the appointment of the conservator was arbitrary; that CB acted in bad faith; that the CB-
designated conservators committed bank frauds and abuses; that the CB is guilty of promissory estoppel; and
that by reason of the conservatorship, it suffered losses. The complaint prayed that the CBs conservator be
ordered to restore the viability of PBP and to fully repair the damages inflicted on PBP.
Consequently, the court issued a preliminary injunction to restrain the MB in placing PBP under
conservatorship.
Issue:
Whether the court is correct in issuing the preliminary injunction
Ruling:
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. The records of this case revealed that there was neither arbitrariness
nor bad faith in the issuance of MB Resolutions ordering for conservatorship.
It must be stressed in this connection that the banking business is properly subject to reasonable
regulation under the police power of the state because of its nature and relation to the fiscal affairs of the
people and the revenues of the state. It is then Government's responsibility to see to it that the financial
interests of those who deal with banks and banking institutions, as depositors or otherwise, are protected.
Hence, the CB is authorized to take the necessary steps against any banking institution if its continued
operation would cause prejudice to its depositors, creditors and the general public as well. This power has
been expressly recognized by this Court.
______________________________________________________________________________________________________________________________
RURAL BANK OF SAN MIGUEL, INC. and HILARIO P. SORIANO, in his capacity as majority stockholder in
the Rural Bankof San Miguel, Inc., v. MONETARY BOARD, BANGKO SENTRAL NG PILIPINAS and
PHILIPPINE DEPOSIT INSURANCE CORPORATION
G.R. No. 150886, February 16, 2007,CORONA, J.
or excess of jurisdiction.
Facts:
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Petitioner Rural Bank of San Miguel, Inc. was a domestic corporation engaged in banking and in
which Hilario P. Soriano claims to be the majority stockholder.MB issued a Resolution prohibiting RBSM from
doing business in the Philippines, placing it under receivership and designating PDIC as receiver. The MB,
after evaluating and deliberating on the findings and recommendation of the Department of Rural Banks
Supervision and Examination Sector ordered the closure of the RBSM and placed its management under PDIC.
Hence, this petition contending that the closure order was bereft of any basis considering that no
complete examination had been conducted before it was issued.
Issue:
Whether a complete examination of the bank is required before it can be closed and placed under
receivership.
Ruling:
NO. It is clear that under the New Central Bank Act or RA 7653 that only a report of the head of the
supervising or examining department is necessary before the MB can order for the closure of a bank and not a
complete examination of the bank.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.
In the case at bar, the reliance on the report of the head of the supervising or examining department,
the MB had sufficient basis to arrive at a sound conclusion that there were grounds that would justify RBSMs
closure and hence the issuance of closure order was untainted with arbitrariness.
______________________________________________________________________________________________________________________________
BANGKO SENTRAL NG PILIPINAS MONETARY BOARD and CHUCHI FONACIER v.

HON. NINA G. ANTONIO-VALENZUELA, in her capacity as Regional Trial Court Judge of Manila, Branch
28; RURAL BANK OF PARAAQUE, INC. et al.
G.R. No. 184778, October 2, 2009, VELASCO, JR., J.
The "close now, hear later" scheme is grounded on practical and legal considerations to prevent
unwarranted dissipation of the banks assets and as a valid exercise of police power to protect the depositors,
creditors, stockholders, and the general public. Hence, the MB could order the closure of the Bank even without
notice and hearing.
Facts:
The Supervision and Examination Department of the BSP conducted examinations of the books of the
respondent banks and it found that these banks had deficiencies in their capital. The respondent banks on
their part filed before the RTC an action to nullify the Report on Examination and issuance of restraining
order. They contend that their right to due process was violated because they were not furnished with the
said report. They further that the sanction of closure that the MB might imposed upon the receipt of such
Report will result in irreparable damage to them as well as to the public.
The RTC ruled in favor of the respondent banksand this was affirmed by the CA.However, the SC
issued a restraining order on the RTC and CA decision. By reason of the such, the SED was able to submit their
Report on Examination to the Monetary Board. The MB then prohibited the respondent banks from
transacting business and placed them under receivership with the Philippine Deposit Insurance Corporation
as the appointed receiver. Hence, this petition.
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Issue:
Whether the sanction of closure that MB might imposed will result in irreparable damage to the
respondent banks and to the public.
Ruling:
NO. Under the law, the sanction of closure could be imposed upon a bank by the BSP even without
notice and hearing. The apparent lack of procedural due process would not result in the invalidity of action by
the MB. This is enshrined in the "close now, hear later" scheme which is grounded on practical and legal
considerations to prevent unwarranted dissipation of the banks assets and as a valid exercise of police power
to protect the depositors, creditors, stockholders, and the general public. The writ of preliminary injunction
cannot, thus, prevent the MB from taking action, by preventing the submission of the Report on Examination
and by preventing the MB from acting on such.
Receivership
contract by him.
Facts:
Issue:
Ruling:
______________________________________________________________________________________________________________________________
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SPOUSES ROMEO LIPANA and MILAGROS LIPANA vs. DEVELOPMENT BANK OF RIZAL
G.R. No. 73884, September 24, 1987, PARAS, J.
The assets of the insolvent banking institution are held in trust for the equal benefit of all creditors, and
after its insolvency, one cannot obtain an advantage or a preference over another by an attachment, execution or
otherwise.
Facts:
Spouses Lipana maintained time and savings deposits with DBP. When the deposits matured, spouses
Lipana were issued a managers check instead of cash. However, the check was dishonored. The court ordered
DBP to pay the amount due.
Meanwhile, the Monetary Board placed the bank under receivership due to its insolvency. A Motion
for Execution Pending Appeal was filed by Spouses Lipana.
Issue:
Whether respondent judge could legally stay execution of judgment that has already become final and
executory.
Ruling:
YES.In the instant case, the stay of the execution of judgment is warranted by the fact that respondent
bank was placed under receivership. To execute the judgment would unduly deplete the assets of respondent
bank to the obvious prejudice of other depositors and creditors, since, as aptly stated in Central Bank of the
Philippines vs. Morfe (63 SCRA 114), after the Monetary Board has declared that a bank is insolvent and has
ordered it to cease operations, the Board becomes the trustee of its assets for the equal benefit of all the
creditors, including depositors. The assets of the insolvent banking institution are held in trust for the equal
benefit of all creditors, and after its insolvency, one cannot obtain an advantage or a preference over another
by an attachment, execution or otherwise.
______________________________________________________________________________________________________________________________
ABACUS REAL ESTATE DEVELOPMENT CENTER, INC., vs. THE MANILA BANKING CORPORATION.
G.R. No. 162270, April 06, 2005, GARCIA, J.
Thus, the appointment of a receiver operates to suspend the authority of the bank and of its directors
and officers over its property and effects, such authority being reposed in the receiver, and in this respect, the
receivership is equivalent to an injunction to restrain the bank officers from intermeddling with the property of
the bank in any way.
Facts:
The bank started to construct a 14-storey building on their land. However, the bank encountered
financial difficulties which rendered it unable to finish construction of the building. The Central Bank ordered
the closure of the bank and placed it under receivership.
The banks acting president, Vicente Puyat, started to scout investors who could finance the
completion of the building. The Laureano group offered to lease the building and wanted to be given an
exclusive option to purchase the building. The offer was accepted and the building was subleased to
petitioner, Abacus Real Estate. When Abacus expressed its desire to exercise its exclusive option to purchase
the building, Manila Bank refused to honor it.
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Abacus insists that the option to purchase the lot and building granted to it by Puyat was binding
upon Manila Bank. On the other hand, the bank insists that Puyat had no authority to act for Manila bank, as it
was already placed under receivership by the Central Bank at the time of the granting of the exclusive option
to purchase.
Issue:
Whether Abacus has acquired the right to purchase the lot and building in question.
Ruling:
NO.There can be no quibbling that respondent Manila Bank was under receivership, pursuant to
Central Banks MB Resolution No. 505 dated May 22, 1987, at the time the late Vicente G. Puyat granted the
exclusive option to purchase to the Laureano group of investors. Owing to this defining reality, the appellate
court was correct in declaring that Vicente G. Puyat was without authority to grant the exclusive option to
purchase the lot and building in question. The invocation by the appellate court of the following
pronouncement in Villanueva vs. Court of Appeals, was apropos, to say the least:
The assets of the bank pass beyond its control into the possession and control of the receiver whose
duty it is to administer the assets for the benefit of the creditors of the bank. Thus, the appointment of a
receiver operates to suspend the authority of the bank and of its directors and officers over its property and
effects, such authority being reposed in the receiver, and in this respect, the receivership is equivalent to an
injunction to restrain the bank officers from intermeddling with the property of the bank in any way.
With respondent bank having been already placed under receivership, its officers, inclusive of its
acting president, Vicente G. Puyat, were no longer authorized to transact business in connection with the
bank's assets and property. Clearly then, the exclusive option to purchase granted by Vicente G. Puyat was and
still is unenforceable against Manila Bank.
______________________________________________________________________________________________________________________________
ALFEO D. VIVAS, ON HIS BEHALF AND ON BEHALF OF THE SHAREHOLDERS OF EUROCREDIT

COMMUNITY BANK v. THE MONETARY BOARD OF THE BANGKO SENTRAL NG PILIPINAS AND THE
PHILIPPINE DEPOSIT INSURANCE CORPORATION
G.R. No. 191424, August 07, 2013, MENDOZA, J.
The Court, in several cases, upheld the power of the MB to take over banks without need for prior
hearing. It is not necessary inasmuch as the law entrusts to the MB the appreciation and determination of
whether any or all of the statutory grounds for the closure and receivership of the erring bank are present.
Facts:
The examiners from the Department of Loans and Credit of the BSP arrived at the Euro Credit
Community Bank (ECBI) and cancelled the rediscounting line of the bank. A general examination of books of
ECBI was ordered by BSP, however, the former refused to comply. Thereafter, the Monetary Board issued a
cease and desist order against ECBI, which enjoined it from pursuing certain acts and transactions that were
considered unsafe or unsound banking practices.
The Monetary Board placed ECBI under receivership as it can no longer pay its liabilities nor it can
continue in business without involving probable losses to its depositors. Vivas, owner of the controlling
interest of ECBI, submits that the respondents committed grave abuse of discretion when they erroneously
applied Section 30 of R.A. No. 7653, instead of Sections 11 and 14 of the Rural Bank Act of 1992 or R.A. No.
7353. He argues that despite the deficiencies, inadequacies and oversights in the conduct of the affairs of
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ECBI, it has not committed any financial fraud and, hence, its placement under receivership was unwarranted
and improper. He posits that, instead, the BSP should have taken over the management of ECBI and extended
loans to the financially distrained bank pursuant to Sections 11 and 14 of R.A. No. 7353 because the BSPs
power is limited only to supervision and management take-over of banks.
Issue:
Whether the Monetary Board acted in grave abuse of discretion in placing ECBI under receivership
Ruling:
NO.Accordingly, there is no conflict which would call for the application of the doctrine that a special
law should prevail over a general law. It must be emphasized that R.A .No. 7653 is a later law and under said
act, the power of the MB over banks, including rural banks, was increased and expanded. The Court, in several
cases, upheld the power of the MB to take over banks without need for prior hearing. It is not necessary
inasmuch as the law entrusts to the MB the appreciation and determination of whether any or all of the
statutory grounds for the closure and receivership of the erring bank are present. The MB, under R.A. No.
7653, has been invested with more power of closure and placement of a bank under receivership for
insolvency or illiquidity, or because the banks continuance in business would probably result in the loss to
depositors or creditors.
ALFEO D. VIVAS, ON HIS BEHALF AND ON BEHALF OF THE SHAREHOLDERS OF EUROCREDIT

COMMUNITY BANK, v. THE MONETARY BOARD OF THE BANGKO SENTRAL NG PILIPINAS AND THE
PHILIPPINE DEPOSIT INSURANCE CORPORATION.
G.R. No. 191424, August 07, 2013, MENDOZA, J.
To address the growing concerns in the banking industry, the legislature has sufficiently empowered the
MB to effectively monitor and supervise banks and financial institutions and, if circumstances warrant, to forbid
them to do business, to take over their management or to place them under receivership.
Facts:
The examiners from the Department of Loans and Credit of the BSP arrived at the ECBI Community
Bank and cancelled the rediscounting line of the bank. A general examination of books of ECBI was ordered by
BSP, however, the former refused to comply. Thereafter, the Monetary Board issued a cease and desist order
against ECBI, which enjoined it from pursuing certain acts and transactions that were considered unsafe or
unsound banking practices.
The Monetary Board placed ECBI under receivership as it can no longer pay its liabilities nor it can continue
in business without involving probable losses to its depositors.
Vivas assails the constitutionality of Section 30 of R.A. No. 7653 claiming that said provision vested
upon the BSP the unbridled power to close and place under receivership a hapless rural bank instead of
aiding its financial needs. He is of the view that such power goes way beyond its constitutional limitation and
has transformed the BSP to a sovereign in its own kingdom of banks.
Issue:
Whether or not Section 30 of R.A. No. 7653 is unconstitutional
Ruling:
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NO.Lastly, the petitioner challenges the constitutionality of Section 30 of R.A. No. 7653, as the
legislature granted the MB a broad and unrestrained power to close and place a financially troubled bank
under receivership. He claims that the said provision was an undue delegation of legislative power. The
contention deserves scant consideration.
In this case, under the two tests, there was no undue delegation of legislative authority in the
issuance of R.A. No. 7653. To address the growing concerns in the banking industry, the legislature has
sufficiently empowered the MB to effectively monitor and supervise banks and financial institutions and, if
circumstances warrant, to forbid them to do business, to take over their management or to place them under
receivership. The legislature has clearly spelled out the reasonable parameters of the power entrusted to the
MB and assigned to it only the manner of enforcing said power. In other words, the MB was given a wide
discretion and latitude only as to how the law should be implemented in order to attain its objective of
protecting the interest of the public, the banking industry and the economy.
Liquidation
APOLLO M. SALUD, as Attorney-in-Fact for its Stockholders, in his behalf and for and in behalf of the
Rural Bank of Muntinlupa, Inc., Hon. VICENTE R. CAMPOS, Presiding Judge, Regional Trial Court,
National Capital Region, Br. CLXIV vs. CENTRAL BANK OF THE PHILIPPINES, AND CONSOLACION V.
ODRA, in her capacity as Liquidator of the Rural Bank of Muntinlupa, Inc.,
G.R. No. L-17620 August 19, 1986, NARVASA, J.
Indeed, the failure to assert, as a ground of defense or objection to a proceeding for assistance in
liquidation, the fact that the resolution of the Monetary Board authorizing the initiation of such a proceeding is
"arbitrary and made in bad faith" would constitute a waiver thereof.
Facts:
The Monetary Board adopted two resolutions forbidding the rural bank from doing business,
thereafter, designating Odra as receiver. It also ordered the liquidation of the bank after findings that it was
insolvent.
The bank asserts that under Section 29 of the Central Bank Act, the RTC has jurisdiction to adjudicate
the question of whether the Monetary Board acted in arbitrarily and in bad faith in directing the banks
dissolution. The Central Bank, on the other hand, contends that such issue may only be raised in a separate
action or proceeding.
Issue:
Whether the RTC has jurisdiction to adjudicate the question of whether the Monetary Board acted in
arbitrarily and in bad faith.
Ruling:
YES.This Court perceives no reason whatever why a banking institution's claim that a resolution of
the Monetary Board under Section 29 of the Central Bank Act should be set aside as plainly arbitrary and
made in bad faith cannot be asserted as an affirmative defense or a counterclaim in the proceeding for
assistance in liquidation, but only as a cause of action in a separate and distinct action. Nor can this Court see
why "a full-blown hearing" on the issue is possible only if it is asserted as a cause of action, but not when set
up by way of an affirmative defense, or a counterclaim. There is no provision of law which expressly or even
by implication imposes the requirement for a separate proceeding exclusively occupied with adjudicating this
issue. Moreover, to declare the issue as beyond the scope of matters cognizable in a proceeding for assistance
in liquidation would be to engender that multiplicity of proceedings which the law abhors. Indeed, the failure
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to assert, as a ground of defense or objection to a proceeding for assistance in liquidation, the fact that the
resolution of the Monetary Board authorizing the initiation of such a proceeding is "arbitrary and made in bad
faith" would constitute a waiver thereof, conformably with the rule of "Waiver of Defenses," to the effect that
"defenses and objections not pleaded either in a motion to dismiss or in the answer are (generally) deemed
waived," or the "Omnibus Motion Rule," providing that "A motion attacking a pleading or a proceeding shall
include all objections then available, and all objections not so included shall be deemed waived."
______________________________________________________________________________________________________________________________
BANCO FILIPINO SAVINGS AND MORTGAGE BANK v.THE MONETARY BOARD, CENTRAL BANK OF THE
PHILIPPINES, JOSE B. FERNANDEZ, CARLOTA P. VALENZUELA, ARNULFO B. AURELLANO and RAMON V.
TIAOQUI
G.R. No. 70054, December 11, 1991, MEDIALDEA, J
There is no doubt that the prosecution of suits for collection and the foreclosure of mortgages against
debtors of the bank by the liquidator are among the usual and ordinary transactions pertaining to the
administration of a bank.
Facts:
The case pertains to nine consolidated cases concerning the legality of the closure and receivership of
Banco Filipino.
Issue:
Whether the liquidator appointed by Central Bank has the authority to prosecute as well as to defend
suits, and to foreclose mortgages for and in behalf of the bank while the issue on the validity of the
receivership and liquidation of the latter is pending resolution
Ruling:
YES.Section 29 of the Republic Act No. 265, as amended known as the Central Bank Act, provides that
when a bank is forbidden to do business in the Philippines and placed under receivership, the person
designated as receiver shall immediately take charge of the banks assets and liabilities, as expeditiously as
possible, collect and gather all the assets and administer the same for the benefit of its creditors, and
represent the bank personally or through counsel as he may retain in all actions or proceedings for or against
the institution, exercising all the powers necessary for these purposes including, but not limited to, bringing
and foreclosing mortgages in the name of the bank. If the Monetary Board shall later determine and confirm
that the banking institution is insolvent or cannot resume business with safety to depositors, creditors and
the general public, it shall, if public interest requires, order its liquidation and appoint a liquidator who shall
take over and continue the functions of the receiver previously appointed by Monetary Board. The liquidator
may, in the name of the bank and with the assistance of counsel as he may retain, institute such actions as may
be necessary in the appropriate court to collect and recover accounts and assets of such institution or defend
any action filed against the institution.
When the issue on the validity of the closure and receivership of Banco Filipino bank was raised in
G.R. No. 70054, the pendency of the case did not diminish the powers and authority of the designated
liquidator to effectuate and carry on the administration of the bank. In fact when the Supreme Court adopted
a resolution on August 25, 1985 and issued a restraining order to respondents Monetary Board and Central
Bank, the Supreme Court enjoined merely further acts of liquidation. Such acts of liquidation, as explained in
Sec. 29 of the Central Bank Act are those which constitute the conversion of the assets of the banking
institution to money or the sale, assignment or disposition of the same to creditors and other parties for the
purpose of paying the debts of such institution. The Supreme Court did not prohibit however acts such as
receiving collectibles and receivables or paying off creditors claims and other transactions pertaining to
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normal operations of a bank. There is no doubt that the prosecution of suits for collection and the foreclosure
of mortgages against debtors of the bank by the liquidator are among the usual and ordinary transactions
pertaining to the administration of a bank.
______________________________________________________________________________________________________________________________
JERRY ONG vs. COURT OF APPEALS and RURAL BANK OF OLONGAPO, INC., represented by its
Liquidator, GUILLERMO G. REYES, JR. and Deputy Liquidator ABEL ALLANIGUE.
G.R. No. 112830, February 1, 1996, BELLOSILLO, J.
The lawmaking body contemplated that for convenience, only one court, if possible, should pass upon
the claims against the insolvent bank.
Facts:
Two parcels of land owned by Rural Bank of Olongapo were mortgaged in favor of Ong. This is to
guarantee the payment of Omnibus Finance to Ong. When Omnibus Finance failed to settle its obligations, Ong
extrajudicially foreclosed said mortgages. A Certificate of Sale was issued in favor of Ong, however, such sale
was not yet registered in view of the fact that the title remains with RBO. He filed with the Regional Trial
Court of Quezon City a petition for the surrender of title against RBO.
RBO contends that it was undergoing liquidation, hence, it is the liquidation court which has exclusive
jurisdiction over Ongs claim. Ong, on the other hand, submits that the liquidation court has no jurisdiction
over subject parcels of land since they are no longer assets of RBO.
Issue:
Whether the liquidation court have jurisdiction over the parcels of land
Ruling:
YES.We explained therein the rationale behind the provision, i.e., the judicial liquidation is intended
to prevent multiplicity of actions against the insolvent bank. It is a pragmatic arrangement designed to
establish due process and orderliness in the liquidation of the bank, to obviate the proliferation of litigations
and to avoid injustice and arbitrariness. The lawmaking body contemplated that for convenience, only one
court, if possible, should pass upon the claims against the insolvent bank and that the liquidation court should
assist the Superintendent of Banks and regulate his operations.
Petitioner must have overlooked the fact that since respondent RBO is insolvent other claimants not
privy to their transaction may be involved. As far as those claimants are concerned, in the absence of
certificates of title in the name of petitioner, subject lots still form part of the assets of the insolvent bank.
______________________________________________________________________________________________________________________________
DOMINGO R. MANALO vs. COURT OF APPEALS (Special Twelfth Division) and PAIC SAVINGS AND
MORTGAGE BANK.
G.R. No. 141297, October 8, 2001, PUNO, J.
In fine, the exclusive jurisdiction of the liquidation court pertains only to the adjudication of claims
against the bank. It does not cover the reverse situation where it is the bank which files a claim against another
person or legal entity.
Facts:
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Vargas obtained a loan from PAIC Savings. Vargas executed a mortgage to secure the debts. PAIC
extrajudicially foreclosed the mortgage when Vargas failed to pay the loan. The title of the lot was then
consolidated in PAICs name.
The Central Bank filed a petition for assistance in the liquidation of PAIC. In the meantime, PAIC
Savings petitioned RTC Pasay for the issuance of a writ of possession for the subject property as it has already
consolidated its title. During the pendency of that case, Vargas sold the land to one Angsico. Notwithstanding
this sale, Vargas, still representing herself to be the lawful owner of the property, leased the same to petitioner
Domingo R. Manalo. The court then granted the writ of possession to PAIC. Manalo entered into another lease
agreement, this time with PAIC, represented by its liquidator.
Manalo postulates that the lower court should have dismissed PAICs Petition for Issuance of Writ of
Possession for want of jurisdiction over the subject matter of the claim. The power to hear the same, he
insists, exclusively vests with the Liquidation Court pursuant to the Central Bank Act.
Issue:
Whether the Liquidation Court has jurisdiction over the petition.
Ruling:
NO. The pertinent portion of Section 29 states:
The liquidator designated as hereunder provided shall, by the Solicitor General, file a petition in the
Regional Trial Court reciting the proceedings which have been taken and praying the assistance of the court in
the liquidation of such institution. The court shall have jurisdiction in the same proceedings to assist in the
adjudication of disputed claims against the bank or non-bank financial intermediary performing quasi-
banking functions and the enforcement of individual liabilites of the stockholders and do all that is necessary
to preserve the assets of such institution and to implement the liquidation plan approved by the Monetary
Board.
Petitioner apparently failed to appreciate the correct meaning and import of the above-quoted law.
The legal provision only finds operation in cases where there are claims against an insolvent bank. In fine, the
exclusive jurisdiction of the liquidation court pertains only to the adjudication of claims against the bank. It
does not cover the reverse situation where it is the bank which files a claim against another person or legal
entity.
______________________________________________________________________________________________________________________________
DOMINGO R. MANALO vs. COURT OF APPEALS (Special Twelfth Division) and PAIC SAVINGS AND
MORTGAGE BANK
G.R. No. 141297, October 8, 2001, PUNO, J.
A bank which had been ordered closed by the monetary board retains its juridical personality which can
sue and be sued through its liquidator. The only limitation being that the prosecution or defense of the action
must be done through the liquidator.
Facts:
Vargas obtained a loan from PAIC Savings. Vargas executed a mortgage to secure the debts. PAIC
extrajudicially foreclosed the mortgage when Vargas failed to pay the loan. The title of the lot was then
consolidated in PAICs name.
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The Central Bank filed a petition for assistance in the liquidation of PAIC. In the meantime, PAIC
Savings petitioned RTC Pasay for the issuance of a writ of possession for the subject property as it has already
consolidated its title. During the pendency of that case, Vargas sold the land to one Angsico. Notwithstanding
this sale, Vargas, still representing herself to be the lawful owner of the property, leased the same to petitioner
Domingo R. Manalo. The court then granted the writ of possession to PAIC. Manalo entered into another lease
agreement, this time with PAIC, represented by its liquidator.
Manalo casts doubt on the capacity of the PAIC to continue litigating the petition for the issuance of
the writ. He asserts that, being under liquidation, the bank is already a dead corporation that cannot maintain
the suit in the RTC.
Issue:
Whether a bank closed by the MB retains its juridical personality.
Ruling:
YES.The argument is devoid of merit. A bank which had been ordered closed by the monetary board
retains its juridical personality which can sue and be sued through its liquidator. The only limitation being
that the prosecution or defense of the action must be done through the liquidator. Otherwise, no suit for or
against an insolvent entity would prosper. In such situation, banks in liquidation would lose what justly
belongs to them through a mere technicality.
That the law allows a bank under liquidation to participate in an action can be clearly inferred from
the third paragraph of the same Section 29 of The Central Bank Act earlier quoted, which authorizes or
empowers a liquidator to institute actions, thus:
He (liquidator) may in the name of the bank or non-bank financial intermediary performing quasi-
banking functions and with the assistance of counsel as he may retain, institute such actions as may be
necessary in the appropriate court to collect and recover accounts and assests of such institution or defend
any action filed against the institution.
______________________________________________________________________________________________________________________________
RURAL BANK OF STA. CATALINA, INC., represented by The Philippine Deposit Insurance Corporation,
in its capacity as Liquidator vs. LAND BANK OF THE PHILIPPINES
G.R. No. 148019, July 26, 2004, CALLEJO, SR., J.
It bears stressing that a defending party declared in default loses his standing in court and his right to
adduce evidence and to present his defense.
Facts:
Land Bank filed a suit for collection of sum of money against Sta. Catalina Rural Bank. The rural bank
was declared in default for its failure to file its answer. It also failed to file a motion to set aside the order of
default.
In the meantime, the Monetary Board approved the placement of the banks assets under
receivership. Unaware of the action of the Monetary Board, the trial court ordered Sta. Catalina Rural Bank to
pay Landbank.
The rural bank asserts that its liability to the Landbank under its availments must be limited only to
the aggregate amount of its outstanding liability as of the date of its closure, inclusive of accrued interests and
penalties. It avers that the PDIC, as the liquidator, should not be faulted for failing to file its Answer to the
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complaint and to move for a reconsideration of the default order in the trial court and in the CA, because it
had no knowledge of the case filed against the rural bank.
Issue:
Whether or not Rural Bank of Sta Catalina is still liable to pay interest on its loan obligation after it
has been placed under receivership/liquidation.
Ruling:
YES.The PDIC was designated by the Central Bank of the Philippines as receiver (conservator) as
early as January 14, 1998, and in the course of its management of the petitioner banks affairs, it should have
known of the pendency of the case against the latter in the trial court. Moreover, the petitioner, through the
PDIC, received a copy of the decision of the trial court on June 2, 1998, but did not bother filing a motion for
partial reconsideration, under Rule 37 of the Rules of Court, appending thereto the orders of the Monetary
Board or a motion to set aside the order of default. Instead, the petitioner appealed the decision, and even
failed to assign as an error the default order of the trial court. The petitioner is, thus, barred from relying on
the orders of the Monetary Board of the Central Bank of the Philippines placing its assets and affairs under
receivership and ordering its liquidation.
______________________________________________________________________________________________________________________________
LETICIA G. MIRANDA v PHILIPPINE DEPOSIT INSURANCE CORPORATION, BANGKO SENTRAL NG

PILIPINAS and PRIME SAVINGS BANK
G.R. No. 169334, September 8, 2006, YNARES-SANTIAGO, J.
Disputed claims refer to all claims, whether they be against the assets of the insolvent bank, for specific
performance, breach of contract, damages, or whatever.
Facts:
Miranda withdrew substantial amounts from her deposits in Prime Savings Bank. She was issued a
crossed cashiers check. When she deposited the checks into her account in another bank on the same day, the
BSP suspended the clearing privileges of Prime Savings Bank. Hence, two checks were returned to her unpaid.
BSP placed Prime Savings Bank under the receivership of the PDIC.
Miranda filed an action for sum of money to recover funds from her unpaid checks. The trial court
ruled in favor of Miranda. The Court of Appeals ruled in favor of the PDIC and BSP, dismissing the case against
them, without prejudice to the right of Miranda to file her claim before the court designated to adjudicate on
claims against Prime Savings Bank.
Issue:
Whether the claim lodged by the petitioner is a disputed claim under Section 30 of the New Central
Bank Act, and therefore, under the jurisdiction of the liquidation court
Ruling:
YES.As regards the second issue, the claim lodged by the petitioner qualifies as a disputed claim
subject to the jurisdiction of the liquidation court. Regular courts do not have jurisdiction over actions filed by
claimants against an insolvent bank, unless there is a clear showing that the action taken by the BSP, through
the Monetary Board in the closure of financial institutions was in excess of jurisdiction, or with grave abuse of
discretion.
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Disputed claims refer to all claims, whether they be against the assets of the insolvent bank, for
specific performance, breach of contract, damages, or whatever. Petitioners claim which involved the payment
of the two cashiers checks that were not honored by Prime Savings Bank due to its closure falls within the
ambit of a claim against the assets of the insolvent bank. The issuance of the cashiers checks by Prime Savings
Bank to the petitioner created a debtor/creditor relationship between them. This disputed claim should
therefore be lodged in the liquidation proceedings by the petitioner as creditor, since the closure of Prime
Savings Bank has rendered all claims subsisting at that time moot which can best be threshed out by the
liquidation court and not the regular courts.
______________________________________________________________________________________________________________________________
IN RE: PETITION FOR ASSISTANCE IN THE LIQUIDATION OF THE RURAL BANK OF BOKOD (BENGUET),
INC., PHILIPPINE DEPOSIT INSURANCE CORPORATION, - versus - BUREAU OF INTERNAL REVENUE
G.R. No. 158261, December 18, 2006, CHICO-NAZARIO, J.
Section 30 of the New Central Bank Act lays down the proceedings for receivership and liquidation of a
bank. The said provision is silent as regards the securing of a tax clearance from the BIR.
Facts:
The Monetary Board placed the Rural Bank of Bokod (RBBI) bank under receivership and liquidation
due to its various loan irregularities. PDIC was appointed as the receiver of RBBI. The former filed a Motion
for Approval of Project Distribution of the assets of the RBBI in the RTC.
During the hearing, BIR contends that PDIC should secure a tax clearance certificate before it could
proceed with the dissolution of the bank. On the other hand, PDIC argues that securing a tax clearance is not a
condition precedent since the closure of banks is summary in nature. It contends that under the New Central
Bank Act,asset distribution of a closed bank requires only the approval of the liquidation court.
Issue:
Whether a bank placed under receivership by the Monetary Board still needs to secure a tax
clearance certificate from the BIR before the liquidation court approves the project of distribution of the
assets of the bank.
Ruling:
NO.Section 30 of the New Central Bank Act lays down the proceedings for receivership and
liquidation of a bank. The said provision is silent as regards the securing of a tax clearance from the BIR. The
omission, nonetheless, cannot compel this Court to apply by analogy the tax clearance requirement of the SEC,
as stated in Section 52(C) of the Tax Code of 1997 and BIR-SEC Regulations No. 1, since, again, the dissolution
of a corporation by the SEC is a totally different proceeding from the receivership and liquidation of a bank by
the BSP. This Court cannot simply replace any reference by Section 52(C) of the Tax Code of 1997 and the
provisions of the BIR-SEC Regulations No. 1 to the SEC with the BSP. To do so would be to read into the law
and the regulations something that is simply not there, and would be tantamount to judicial legislation.
Law on Secrecy of Bank Deposits
Purpose
BSB GROUP, INC., represented by its President, Mr. RICARDO BANGAYAN,

vs, SALLY GO a.k.a. SALLY GO-BANGAYAN,.
G.R. No. 168644, February 16, 2010, PERALTA, J.
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The inquiry into bank deposits allowable under R.A. No. 1405 must be premised on the fact that the
money deposited in the account is itself the subject of the action
Facts:
Sally was employed as a cashier by a company run by her husband, Ricardo. Ricardo charged Sally
with Estafa/ Qualified Theft due to the latters misappropriation of the companys funds. Sally allegedly
deposited the checks issue by the customers to her personal bank account in Security Bank.
The prosecution presented the testimony of Marasigan, a representative of Security Bank. Marasigan
said that Sally credited the amounts to her personal deposit account. Sally moved to suppress the testimony of
Marasigan on the ground of confidentiality under R.A. 1405.
Issue:
Whether the admission of Marasigans testimony on the particulars of Sallys account with Security
Bank, as well as of the corresponding evidence of the checks allegedly deposited in said account, constitutes
an unallowable inquiry under R.A. 1405.
Ruling:
YES.R.A. No. 1405 has two allied purposes. It hopes to discourage private hoarding and at the same
time encourage the people to deposit their money in banking institutions, so that it may be utilized by way of
authorized loans and thereby assist in economic development. Owing to this piece of legislation, the
confidentiality of bank deposits remains to be a basic state policy in the Philippines. Section 2 of the law
institutionalized this policy by characterizing as absolutely confidential in general all deposits of whatever
nature with banks and other financial institutions in the country.
In taking exclusion from the coverage of the confidentiality rule, petitioner in the instant case posits
that the account maintained by respondent with Security Bank contains the proceeds of the checks that she
has fraudulently appropriated to herself and, thus, falls under one of the exceptions in Section 2 of R.A. No.
1405, that the money kept in said account is the subject matter in litigation.
What indeed constitutes the subject matter in litigation in relation to Section 2 of R.A. No. 1405 has
been pointedly and amply addressed in Union Bank of the Philippines v. Court of Appeals, in which the Court
noted that the inquiry into bank deposits allowable under R.A. No. 1405 must be premised on the fact that the
money deposited in the account is itself the subject of the action.
Given this perspective, we deduce that the subject matter of the action in the case at bar is to be
determined from the indictment that charges respondent with the offense, and not from the evidence sought
by the prosecution to be admitted into the records. In the criminal Information filed with the trial court,
respondent, unqualifiedly and in plain language, is charged with qualified theft by abusing petitioners trust
and confidence and stealing cash. The said Information makes no factual allegation that in some material way
involves the checks subject of the testimonial and documentary evidence sought to be suppressed. Neither do
the allegations in said Information make mention of the supposed bank account in which the funds
represented by the checks have allegedly been kept.
Prohibited Acts
EMMANUEL C. OATE and ECON HOLDINGS CORPORATION, vs. HON. ZUES C. ABROGAR, as Presiding
Judge of Branch 150 of the Regional Trial Court of Makati, and SUN LIFE ASSURANCE COMPANY OF
CANADA
G.R. No. 107303, February 23, 1995, NOCON, J.
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Whether the transaction is considered a sale or money placement does not make the money the "subject
matter of litigation" within the meaning of Sec. 2 of Republic Act No. 1405 which prohibits the disclosure or
inquiry into bank deposits except "in cases where the money deposited or invested is the subject matter of
litigation."
Facts:
Sun Life filed a complaint for sum of money against Onate, Econ Holdings and Brunner Development.
Sun Life alleges that Onate, as president of Econ, offered to sell 46 million worth of treasury bills at a
discounted price. Sun Life paid the price by means of a check payable to Brunner. Brunner, through its
president Din o, issued to it a receipt with undertaking to deliver the treasury bills to Sun Life. Brunner and
Din o delivered instead a promissory note, in which it was made to appear that the transaction was a money
placement instead of sale of treasury bills.
Sun Life moved to examine the accounts and ledgers of Brunner Development at Urban Bank and BPI.
Issue:
Whether the money paid can be considered as a subject matter of litigation within the meaning of RA
1405.
Ruling:
NO.Thus the issue is whether the money paid to Brunner was the consideration for the sale of
treasury bills, as Sun Life claims, or whether it was money intended for placement, as petitioners allege.
Petitioners do not deny receipt of P39,526,500.82 from Sun Life. Hence, whether the transaction is considered
a sale or money placement does not make the money the "subject matter of litigation" within the meaning of
Sec. 2 of Republic Act No. 1405 which prohibits the disclosure or inquiry into bank deposits except "in cases
where the money deposited or invested is the subject matter of litigation." Nor will it matter whether the
money was "swindled" as Sun Life contends.
______________________________________________________________________________________________________________________________
UNION BANK OF THE PHILIPPINES, vs. COURT OF APPEALS and ALLIED BANK CORPORATION,
G.R. No. 134699, December 23, 1999, KAPUNAN, J.
By the terms of R.A. No. 1405, the money deposited itself should be the subject matter of the litigation.
Facts:
A check in the amount of 1 million pesos was drawn against Account No. 0111-01854-8 with Allied
Bank payable to the order of Alvarez. The payee deposited the check with Union Bank who credited the
P1,000,000.00 to the account of Mr. Alvarez. Union Bank sent the check for clearing through the Philippine
Clearing House Corporation. When the check was presented for payment, a clearing discrepancy was
committed by Union Banks clearing staff when the 1 Million Pesos was erroneously under-encoded to 1
Thousand Pesos.
Union Bank filed a petition for the examination of Account No. 111-01854-8. The RTC held that the
case was not one where the money deposited is the subject matter of the litigation.
Union Bank in its complaint filed before the PCHC, Arbicom Case, clearly stated that its cause of
action against defendant arose from Allied Banks deliberate violation of the provisions of the PCHC Rule
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Book, Sec. 25.3, specifically on Under-Encoding of check. A reading of petitioner collecting banks complaint in
the Arbicom case shows that its thrust is directed against respondent drawee banks alleged failure to inform
the former of the under-encoding. On the other hand, the petition before the Supreme Court reveals that the
true purpose for the examination is to aid petitioner in proving the extent of Allied Banks liability.
Issue:
Whether or not the money deposited is covered by the term subject matter of litigation
Ruling:
NO.In short, petitioner is fishing for information so it can determine the culpability of private
respondent and the amount of damages it can recover from the latter. It does not seek recovery of the very
money contained in the deposit. The subject matter of the dispute may be the amount of P999,000.00 that
petitioner seeks from private respondent as a result of the latters alleged failure to inform the former of the
discrepancy; but it is not the P999,000.00 deposited in the drawers account. By the terms of R.A. No. 1405, the
money deposited itself should be the subject matter of the litigation.
That petitioner feels a need for such information in order to establish its case against private
respondent does not, by itself, warrant the examination of the bank deposits. The necessity of the inquiry, or
the lack thereof, is immaterial since the case does not come under any of the exceptions allowed by the Bank
Deposits Secrecy Act.
Deposits Covered
CARMEN LL. INTENGAN, ROSARIO LL. NERI, and RITA P. BRAWNER vs. COURT OF APPEALS,
DEPARTMENT OF JUSTICE, AZIZ RAJKOTWALA, WILLIAM FERGUSON, JOVEN REYES, and VIC LIM,
G.R. No. 128996, February 15, 2002, DE LEON, JR., J.
Thus, under R.A. No. 6426 there is only a single exception to the secrecy of foreign currency deposits,
that is, disclosure is allowed only upon the written permission of the depositor.
Facts:
Citibank filed a complaint against two of its officers, Santos and Genuino. The two appeared to have
been actively engaged in business endeavors that were in conflict with the business of the bank. They caused
existing clients/depositors to divert their money from Citibank to products offered by other companies.
Intengan, Neri and Brawner are some of clients who have long standing accounts with Citibank, N.A.
As evidence, Lim, the Vice-President of Citibank, annexed bank records purporting to establish the
deception practiced by Santos and Genuino. Some of the documents pertained to the dollar deposits of the
petitioners.
The Court of Appeals held that the disclosure of deposits was necessary to establish the allegation
that Santos and Genuino had violated Section 31 of the Corporation Code in acquiring any interest adverse to
the corporation in respect of any matter which has been reposed in him in confidence. In assailing the
appellate courts findings, petitioners assert that the disclosure of their bank records was unwarranted and
illegal.
Issue:
Whether the disclosure of the bank records was illegal.
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Ruling:
YES.The accounts in question are U.S. dollar deposits; consequently, the applicable law is not
Republic Act No. 1405 but Republic Act (RA) No. 6426,known as the Foreign Currency Deposit Act of the
Philippines.
Thus, under R.A. No. 6426 there is only a single exception to the secrecy of foreign currency deposits,
that is, disclosure is allowed only upon the written permission of the depositor. Incidentally, the acts of private
respondents complained of happened before the enactment on September 29, 2001 of R.A. No. 9160
otherwise known as the Anti-Money Laundering Act of 2001.
A case for violation of Republic Act No. 6426 should have been the proper case brought against
private respondents. Private respondents Lim and Reyes admitted that they had disclosed details of
petitioners dollar deposits without the latters written permission. It does not matter if that such disclosure
was necessary to establish Citibanks case against Dante L. Santos and Marilou Genuino. Lims act of disclosing
details of petitioners bank records regarding their foreign currency deposits, with the authority of Reyes,
would appear to belong to that species of criminal acts punishable by special laws, called malum prohibitum.
______________________________________________________________________________________________________________________________
JOSEPH VICTOR EJERCITO VS. SANDIGANBAYAN

G.R. Nos. 157294-95, November 30, 2006, CARPIO MORALES, J.
An examination of the law shows that the term deposits used therein is to be understood broadly and
not limited only to accounts which give rise to a creditor-debtor relationship between the depositor and the
bank.Moreover, the law applies not only to money which is deposited but also to those which are invested.
Facts:
The special prosecution panel filed a Request for Issuance of Subpoena Duces Tecum directing the
President of Export and Industry Bank (EIB, formerly Urban Bank) or his/her authorized representative to
produce the Trust Account No. 858 and Savings Account No. 0116-17345-9 of the petitioner. In his Motion to
Quash, petitioner claimed that his bank accounts are covered by R.A. No. 1405 (The Secrecy of Bank Deposits
Law) and do not fall under any of the exceptions stated therein. For, to respondent People, the law applies only
to deposits which strictly means the money delivered to the bank by which a creditor-debtor relationship is
created between the depositor and the bank. Thus, the Trust Account No. 858 should be inquired into, not
merely because it falls under the exceptions to the coverage of R.A. 1405, but because it is not even
contemplated therein.
Issue:
Whether a Trust Account is covered by the term deposit under R.A. 1405.
Ruling:
YES. An examination of the law shows that the term deposits used therein is to be understood
broadly and not limited only to accounts which give rise to a creditor-debtor relationship between the
depositor and the bank.
If the money deposited under an account may be used by banks for authorized loans to third persons,
then such account, regardless of whether it creates a creditor-debtor relationship between the depositor and
the bank, falls under the category of accounts which the law precisely seeks to protect for the purpose of
boosting the economic development of the country.
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Trust Account No. 858 is, without doubt, one such account. The Trust Agreement between petitioner
and Urban Bank provides that the trust account covers deposit, placement or investment of funds by Urban
Bank for and in behalf of petitioner. The money deposited under Trust Account No. 858, was, therefore,
intended not merely to remain with the bank but to be invested by it elsewhere. To hold that this type of
account is not protected by R.A. 1405 would encourage private hoarding of funds that could otherwise be
invested by banks in other ventures, contrary to the policy behind the law.
Section 2 of the same law in fact even more clearly shows that the term deposits was intended to be
understood broadly:
SECTION 2. All deposits of whatever nature with banks or banking institutions in the Philippines
including investments in bonds issued by the Government of the Philippines, its political subdivisions and its
instrumentalities, are hereby considered as of an absolutely confidential nature and may not be examined,
inquired or looked into by any person, government official, bureau or office, except upon written permission
of the depositor, or in cases of impeachment, or upon order of a competent court in cases of bribery or
dereliction of duty of public officials, or in caseswhere the money deposited or invested is the subject
matter of the litigation.
The phrase of whatever nature proscribes any restrictive interpretation of deposits. Moreover, it is
clear from the immediately quoted provision that, generally, the law applies not only to money which is
deposited but also to those which are invested. This further shows that the law was not intended to apply only
to deposits in the strict sense of the word. Otherwise, there would have been no need to add the phrase or
invested.
Exceptions
PHILIPPINE NATIONAL BANK and EDUARDO Z. ROMUALDEZ, in his capacity as President of the
Philippine National Bank vs. EMILIO A. GANCAYCO and FLORENTINO FLOR, Special Prosecutors of the
Dept. of Justice
G.R. No.L-18343, September 30, 1965, Regala, J.
Thus, while Republic Act No. 1405 provides that bank deposits are "absolutely confidential ... and
therefore may not be examined, inquired or looked into," except in those cases enumerated therein, the Anti-Graft
Law directs in mandatory terms that bank deposits "shall be taken into consideration in the enforcement of this
section, notwithstanding any provision of law to the contrary." The only conclusion possible is that section 8 of
the Anti-Graft Law is intended to amend section 2 of Republic Act No. 1405 by providing additional exception to
the rule against the disclosure of bank deposits.
Facts:
Philippine National Bank (PNB) was required by the prosecutors to produce the records of the bank
deposits of Ernesto T. Jimenez who was then under investigation of an unexplained wealth. The prosecutors
cited the Anti-Graft and Corrupt Practices Act (Republic Act No. 3019) while PNB, on the other hand, refused
to comply and invoked R.A. No. 1405. Subsequently, plaintiffs filed an action for declaratory judgment before
the Manila court. The said court said that, by enacting section 8 of, the Anti-Graft and Corrupt Practices Act,
Congress clearly intended to provide an additional ground for the examination of bank deposits. Without such
provision, the court added prosecutors would be hampered if not altogether frustrated in the prosecution of
those charged with having acquired unexplained wealth while in public office.
Issue:
Whether section 8 of the Anti-Graft Law amends section 2 of R.A. No. 1405.
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Ruling:
YES. Contrary to their claim that their position effects a reconciliation of the provisions of the two
laws, plaintiffs are actually making the provisions of Republic Act No. 1405 prevail over those of the Anti-Graft
Law, because even without the latter law the balance standing to the depositor's credit can be considered
provided its disclosure is made in any of the cases provided in Republic Act No. 1405.The truth is that these
laws are so repugnant to each other than no reconciliation is possible.
Indeed, it is said that if the new law is inconsistent with or repugnant to the old law, the presumption
against the intent to repeal by implication is overthrown because the inconsistency or repugnancy reveals an
intent to repeal the existing law. And whether a statute, either in its entirety or in part, has been repealed by
implication is ultimately a matter of legislative intent.
______________________________________________________________________________________________________________________________
BANCO FILIPINO SAVINGS AND MORTGAGE BANK vs.HON. FIDEL PURISIMA, etc., and HON. VICENTE
ERICTA and JOSE DEL FIERO
G.R. No.L-56429 May 28, 1988, NARVASA, J.
To sustain the petitioner's theory, and restrict the inquiry only to property held by or in the name of the
government official or employee, or his spouse and unmarried children is unwarranted in the light of the
provisions of the statutes in question, and would make available to persons in government who illegally acquire
property an easy and fool-proof means of evading investigation and prosecution; all they would have to do would
be to simply place the property in the possession or name of persons other than their spouse and unmarried
children. This is an absurdity that we will not ascribe to the lawmakers.
Facts:
Manuel Caturla was the accused before the Tanodbayan of having allegedly acquired property
manifestly out of proportion to his salary and other lawful income, in violation of the "Anti-Graft and Corrupt
Practices Act. Tanodbayan issued a subpoena ducestecum to the Banco Filipino Savings & Mortgage Bank,
commanding its representative to appear at a specified time at the Office of the Tanodbayan and furnish the
latter with duly certified copies of the records in all its branches and extension offices, of the loans, savings
and time deposits and other banking transactions of Manuel Caturla, his wife, PuritaCaturla, their children.
Caturla moved to quash the subpoena ducestecum arguing that compliance therewith would result in a
violation of Sections 2 and 3 of the Law on Secrecy of Bank Deposits.
The Bank filed a complaint for declaratory relief praying for a judicial declaration as to whether its
compliance with the subpoenaducestecum would constitute an infringement of the provisions of Sections 2
and 3 of R.A. No. 1405 in relation to Section 8 of R.A. No. 3019.
Issue:
Whether the "Law on Secrecy of Bank Deposits" precludes production by subpoena ducestecum of
bank records of transactions by or in the names of the wife, children and friends of the accused.
Ruling:
NO. The inquiry into illegally acquired property or property NOT "legitimately acquired"
extends to cases where such property is concealed by being held by or recorded in the name of other persons.
This proposition is made clear by R.A. No. 3019 which quite categorically states that the term, "legitimately
acquired property of a public officer or employee shall not include .. property unlawfully acquired by the
respondent, but its ownership is concealed by its being recorded in the name of, or held by, respondent's
spouse, ascendants, descendants, relatives or any other persons."
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______________________________________________________________________________________________________________________________
RIZAL COMMERCIAL BANKING CORPORATION vs.THE HONORABLE PACIFICO P. DE CASTRO and

PHILIPPINE VIRGINIA TOBACCO ADMINISTRATION
G.R. No.L-34548 November 29, 1988, CORTES, J.
It is clear that PVTA has been endowed with a personality distinct and separate from the government
which owns and controls it. Accordingly, this Court has heretofore declared that the funds of the PVTA can be
garnished since "funds of public corporation which can sue and be sued were not exempt from garnishment.
Facts:
The present case is an offshoot case of "Badoc Planters, Inc. versus Philippine Virginia Tobacco
Administration (PVTA), et al.," whereby defendants PVTA therein to pay jointly and severally, the plaintiff
Badoc Planters, Inc. (hereinafter referred to as "BADOC") within 48 hours the aggregate amount of
P206,916.76, with legal interests thereon.Upon the issuance of Urgent Ex-Parte Motion for a Writ of Execution
of the said Partial Judgment, the respondent De Castro ordered the herein petitioner to deliver in check the
amount garnished in the amount of P206,916.76. The PVTA then filed a motion for reconsideration ordering
petitioner and BADOC to restore, jointly and severally, the account of PVTA with the said bank in the same
condition and state it was before the issuance of the aforesaid Orders by reimbursing the PVTA of the amount
of P 206, 916.76 with interests.
Issue:
Whether PVTA funds are exempt from garnishment.
Ruling:
NO. Republic Act No. 2265 created the PVTA as an ordinary corporation with all the attributes of a
corporate entity subject to the provisions of the Corporation Law. Hence, it possesses the power "to sue and
be sued" and "to acquire and hold such assets and incur such liabilities resulting directly from operations
authorized by the provisions of this Act or as essential to the proper conduct of such operations." [Section 3,
Republic Act No. 2265.]
Inasmuch as the Tobacco Fund, a special fund, was by law, earmarked specifically to answer
obligations incurred by PVTA in connection with its proprietary and commercial operations authorized under
the law, it follows that said funds may be proceeded against by ordinary judicial processes such as execution
and garnishment. If such funds cannot be executed upon or garnished pursuant to a judgment sustaining the
liability of the PVTA to answer for its obligations, then the purpose of the law in creating the PVTA would be
defeated. For it was declared to be a national policy, with respect to the local Virginia tobacco industry, to
encourage the production of local Virginia tobacco of the qualities needed and in quantities marketable in
both domestic and foreign markets, to establish this industry on an efficient and economic basis, and to create
a climate conducive to local cigarette manufacture of the qualities desired by the consuming public, blending
imported and native Virginia leaf tobacco to improve the quality of locally manufactured cigarettes [Section 1,
Republic Act No. 4155.]
______________________________________________________________________________________________________________________________
MELLON BANK, N.A. vs.HON. CELSO L. MAGSINO, in his capacity as Presiding Judge of Branch CLIX of
the Regional Trial Court at Pasig
G.R. No. 71479 October 18, 1990, FERNAN, CJ.
Section 2 of R.A. No. 1405 allows the disclosure of bank deposits in cases where the money deposited is
the subject matter of the litigation.
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Facts:
Dolores Ventosa requested the transfer of $1,000 from the First National Bank of Moundsville, West
Virginia, U.S.A. to Victoria Javier in Manila through the Prudential Bank. To effect the transfer, the First
National Bank requested the petitioner, Mellon Bank, which mistakenly indicated in its wire sent to
Manufacturers Hanover Bank, a correspondent of Prudential Bank the amount transferred as
"US$1,000,000.00" instead of US$1,000.00.
Mellon Bank filed in the Court of First Instance of Rizal, Branch X, a complaint against the Javier
spouses, Honorio Poblador, etc to recover the amount they received for the sale of the 160-acre lot in
California City.
In due course, it was found out that the checks originally issued by Javier spouses were already
negotiated and now were deposited to Account 2825-1 of the Philippine Veterans Bank in the name of
Cipriano Azada, Poblador's law partner and counsel to the Javiers. Mellon Bank then subpoenaed Erlinda
Baylosis of Veterans Bank to show that Azada deposited checks in his personal current account with said bank
and Pilologo Red, Jr. of HSBC to prove that said amount was returned by Azada to Hagedorn one of the
companies connected with Poblador. The testimonies of these witnesses were objected to by the defense on
the grounds of res inter alios acta, immateriality, irrelevancy and confidentiality and then moved to strike off
the testimonies from the record of the case in violation of Republic Act No. 1405 the Secrecy of Bank Deposits
Issue:
Whether the disclosure of bank deposits in the present case violates R.A. no. 1405.
Ruling:
NO. Private respondents' protestations that to allow the questioned testimonies to remain on record
would be in violation of the provisions of Republic Act No. 1405 on the secrecy of bank deposits, is unfounded.
Section 2 of said law allows the disclosure of bank deposits in cases where the money deposited is the
subject matter of the litigation. Inasmuch as Civil Case No. 26899 is aimed at recovering the amount converted
by the Javiers for their own benefit, necessarily, an inquiry into the whereabouts of the illegally acquired
amount extends to whatever is concealed by being held or recorded in the name of persons other than the one
responsible for the illegal acquisition.
______________________________________________________________________________________________________________________________
PHILIPPINE COMMERCIAL & INDUSTRIAL BANK and JOSE HENARES vs.THE HON. COURT OF APPEALS
and MARINDUQUE MINING AND INDUSTRIAL CORPORATION
G.R. No. 84526, January 28, 1991,SARMIENTO, J.
It is clear from the discussion of the conference committee report on Senate Bill No. 351 and House Bill
No. 3977, which later became Republic Act 1405, that the prohibition against examination of or inquiry into a
bank deposit under Republic Act 1405 does not preclude its being garnished to insure satisfaction of a judgment.
Indeed there is no real inquiry in such a case, and if existence of the deposit is disclosed the disclosure is purely
incidental to the execution process. It is hard to conceive that it was ever within the intention of Congress to
enable debtors to evade payment of their just debts, even if ordered by the Court, through the expedient of
converting their assets into cash and depositing the same in a bank.
Facts:
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The present case originated from a NLRC case where a group of laborersobtained therefrom a
favorable judgment for the payment of backwages amounting to P205,853.00 against the private
respondent.Thereafter, the Sheriff prepared on his own a Notice of Garnishment addressed to six (6) banks,
one of which being the petitioner herein, directing the bank concerned to immediately issue a check in an
amount equivalent to the amount of the garnishment. Thereafter, the bank released the amount.
Issue:
Whether a bank is liable for releasing its depositor's funds on the strength of the notice of
garnishment made by the deputy sheriff pursuant to a writ of execution issued by the National Labor
Relations Commission (NLRC).
Ruling:
NO. Since there is no evidence that the petitioners themselves divulged the information that the
private respondent had an account with the petitioner bank and it is undisputed that the said account was
properly the object of the notice of garnishment and writ of execution carried out by the deputy sheriff, a duly
authorized officer of the court, we cannot therefore hold the petitioners liable under R.A. 1405.
______________________________________________________________________________________________________________________________
ALEXANDER VAN TWEST and THE HON. SALVADOR P. DE GUZMAN, in his capacity as Presiding Judge of
the Regional Trial Court of Makati, Branch 142 vs. THE HON. COURT OF APPEALS and GLORIA
ANACLETO,
G.R. No. 106253, February 10, 1994, FELICIANO, J.
Circular No. 960, Series of 1983 was in force at the time private respondent undertook her questioned
transactions; thus, such local transfer from the original joint foreign currency account to another (personal)
foreign currency account, was not an eligible foreign currency deposit within the coverage of R.A. No. 6426 and
not entitled to the benefit of the confidentiality provisions of R.A. No. 6426.
Facts:
Alexander Van Twest and Gloria Anacleto opened a joint foreign currency savings account with
Interbank to hold funds which "belonged entirely and exclusively" to petitioner, to "facilitate the funding of
certain business undertakings" of both of them and which funds were to be "temporarily (held) in trust" by
private respondent, who "shall turnover the same to plaintiff upon demand." When the business relationship
of petitioner and respondent ended, the respondent unilaterally closed their joint account, withdrew the
remaining balance of Deutschmark (DM) 269,777.37 and placed the money in her own personal account with
the same bank. Petitioner thus sought an injunctive writ to prevent private respondent from withdrawing the
money at any time.
Private respondent contends for the first time before the CA that the personal foreign currency
deposit account she is maintaining is exempt from processes issued by the courts, pursuant to Section 8 of
R.A. 6426 as amended by P. D. 1246, the date she withdrew the foreign exchange fund from her joint account
with petitioner and transferred the same to her personal account.
Issue:
Whether the account is covered byconfidentiality.
Ruling:
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NO.Although transfers from one foreign currency deposit account to another foreign currency deposit
account in the Philippines are now eligible deposits under the Central Bank's Foreign Currency Deposit
System, private respondent is still not entitled to the confidentiality provisions of the relevant circulars. For, as
noted earlier, private respondent is not the ownerof such foreign currency funds and her personal deposit
account is not protected.
______________________________________________________________________________________________________________________________
LOURDES T. MARQUEZ, in her capacity as Branch Manager, Union Bank of the Philippines, petitioners,
vs. HON. ANIANO A. DESIERTO
G.R. No. 135882. June 27, 2001, PARDO, J.
We rule that before an in camera inspection may be allowed, there must be a pending case before a
court of competent jurisdiction. Further, the account must be clearly identified, the inspection limited to the
subject matter of the pending case before the court of competent jurisdiction. The bank personnel and the
account holder must be notified to be present during the inspection, and such inspection may cover only the
account identified in the pending case.
Facts:
The present case originated from Fact-Finding and Intelligence Bureau (FFIB) v. Amado Lagdameo, et.
al. Petitioner Marquez, the manager of Union Bank of the Philippines, Vargas branch, received an Order from
the Ombudsman Aniano A. Desierto to produce several bank documents for purposes of inspection in
camerarelative to various accounts maintained at Union Bank of the Philippines. Later on, petitioner together
with Union Bank of the Philippines, filed a petition for declaratory relief, prohibition and injunction before the
RTC alleging that clear conflict between R. A. No. 6770, Section 15 and R. A. No. 1405, Sections 2 and 3.
Petitioner prayed for a temporary restraining order (TRO) because the Ombudsman and other
persons acting under his authority were continuously harassing her to produce the bank documents relative
to the accounts in question.
Issue:
Whether the order of the Ombudsman to have an in camerainspection of the questioned account is
allowed as an exception to the law on secrecy of bank deposits (R. A. No. 1405).
Ruling:
NO. The order of the Ombudsman to produce for in camera inspection the subject accounts with the
Union Bank of the Philippines, Julia Vargas Branch, is based on a pending investigation at the Office of the
Ombudsman against Amado Lagdameo, et. al. for violation of R. A. No. 3019, Sec. 3 (e) and (g) relative to the
Joint Venture Agreement between the Public Estates Authority and AMARI.
In Union Bank of the Philippines v. Court of Appeals, we held that Section 2 of the Law on Secrecy of
Bank Deposits, as amended, declares bank deposits to be absolutely confidential except:
(1) In an examination made in the course of a special or general examination of a bank that is
specifically authorized by the Monetary Board after being satisfied that there is reasonable ground to believe
that a bank fraud or serious irregularity has been or is being committed and that it is necessary to look into
the deposit to establish such fraud or irregularity,
(2) In an examination made by an independent auditor hired by the bank to conduct its regular audit
provided that the examination is for audit purposes only and the results thereof shall be for the exclusive use
of the bank,
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(3) Upon written permission of the depositor,
(4) In cases of impeachment,
(5) Upon order of a competent court in cases of bribery or dereliction of duty of public officials, or
(6) In cases where the money deposited or invested is the subject matter of the litigation
In the case at bar, there is yet no pending litigation before any court of competent authority. What is
existing is an investigation by the office of the Ombudsman. In short, what the Office of the Ombudsman
would wish to do is to fish for additional evidence to formally charge Amado Lagdameo, et. al., with the
Sandiganbayan. Clearly, there was no pending case in court which would warrant the opening of the bank
account for inspection.
______________________________________________________________________________________________________________________________
OFFICE OF THE OMBUDSMAN, petitioner, vs. HON. FRANCISCO B. IBAY, et. al.
G. R. No. 137538, September 3, 2001, QUISUMBING, J.
In Marquez vs. Desierto, we ruled that before an in camera inspection of bank accounts may be allowed,
there must be a pending case before a court of competent jurisdiction.
Facts:
This case is a continuance of the Marquez vs. Desierto case. Petitioner in this case questioned the
jurisdiction of the public respondent in entertaining the petition for declaratory relief filed by the petitioner.
Issue:
Whether in camera inspection of bank accounts are allowed.
Ruling:
NO. Before an in camera inspection of bank accounts may be allowed, there must be a pending case
before a court of competent jurisdiction. Further, the account must be clearly identified, and the inspection
limited to the subject matter of the pending case before the court of competent jurisdiction. The bank
personnel and the account holder must be notified to be present during the inspection, and such inspection
may cover only the account identified in the pending case. In the present case, since there is no pending
litigation yet before a court of competent authority, but only an investigation by the Ombudsman on the so-
called scam, any order for the opening of the bank account for inspection is clearly premature and legally
unjustified.
______________________________________________________________________________________________________________________________
CHINA BANKING CORPORATION vs. THE HONORABLE COURT OF APPEALS, et. al.
G.R. No. 140687, December 18, 2006, CHICO-NAZARIO, J.
All things considered and in view of the distinctive circumstances attendant to the present case, we are
constrained to render a limited pro hac vice ruling. Clearly it was not the intent of the legislature when it enacted
the law on secrecy on foreign currency deposits to perpetuate injustice. This Court is of the view that the
allowance of the inquiry would be in accord with the rudiments of fair play, the upholding of fairness in our
judicial system and would be an avoidance of delay and time-wasteful and circuitous way of administering
justice.
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Facts:
Jose Gotianuy and Mary Margaret Dee (the latters daughter) are co-payees of various Citibank
checks. Mary Margaret Dee withdrew these checks from Citibank but she alleged that she withdrew the funds
from Citibank upon the instruction of her father Jose Gotianuy and that the funds belonged exclusively to the
latter. Consequently, these checks were endorsed by Mary Margaret Dee at the dorsal portion; and (5) Jose
Gotianuy discovered that these checks were deposited with China Bank as shown by the stamp of China Bank
at the dorsal side of the checks.
A Complaint for recovery of sums of money and annulment of sales of real properties and shares of
stock docketed was filed by Jose Joseph Gotianuy against his son-in-law, George Dee, and his daughter, Mary
Margaret. Upon motion, the trial court issued a subpoena to CristotaLabios and Isabel Yap, employees of China
Bank, to testify on the case. A MR was filed but was denied. Subsequently, upon a petition for certiorari before
the CA, the latter denied the petition reasoning that the law specifically encompasses only the money or funds
in foreign currency deposited in a bank. Thus, the coverage of the law extends only to the foreign currency
deposit in the CBC account where Mary Margaret Dee deposited the Citibank checks in question and nothing
more.
Issue:
Whether or not Court of Appeals has interpreted the provision of Section 8 of R.A. 6426, as amended,
otherwise known as the Foreign Currency Deposit Act, in a manner contrary to the legislative purpose, that is,
to provide absolute confidentiality of whatever information relative to the foreign currency deposit.
Ruling:
NO.As the owner of the funds unlawfully taken and which are undisputably now deposited with China
Bank, Jose Gotianuy has the right to inquire into the said deposits.A depositor, in cases of bank deposits, is one
who pays money into the bank in the usual course of business, to be placed to his credit and subject to his
check or the beneficiary of the funds held by the bank as trustee.
It must be remembered that in the complaint of Jose Gotianuy, he alleged that his US dollar deposits
with Citibank were illegally taken from him. On the other hand, China Bank employee Cristuta Labios testified
that Mary Margaret Dee came to China Bank and deposited the money of Jose Gotianuy in Citibank US dollar
checks to the dollar account of her sister Adrienne Chu. This fortifies our conclusion that an inquiry into the
said deposit at China Bank is justified. At the very least, Jose Gotianuy as the owner of these funds is entitled
to a hearing on the whereabouts of these funds.
______________________________________________________________________________________________________________________________
BSB GROUP, INC., represented by its President, Mr. RICARDO BANGAYAN vs. SALLY GO a.k.a. SALLY GO-
BANGAYAN
G.R. No. 168644, February 16, 2010, PERALTA, J.
Admission of testimonial and documentary evidence relative to respondents Security Bank account
serves no other purpose than to establish the existence of such account, its nature and the amount kept in it. It
constitutes an attempt by the prosecution at an impermissible inquiry into a bank deposit account the privacy
and confidentiality of which is protected by law. On this score alone, the objection posed by respondent in her
motion to suppress should have indeed put an end to the controversy at the very first instance it was raised
before the trial court.
Facts:
Bangayan filed with the Manila Prosecutors Office a complaint for estafa and/or qualified theft
against respondent, alleging that several checks issued by the companys customers in payment of their
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obligation were, instead of being turned over to the companys coffers, indorsed by respondent Sally Go who
deposited the same to her personal banking account maintained at Security Bank and Trust Company
(Security Bank) in Divisoria, Manila Branch.
The prosecution moved for the issuance of subpoena ducestecum /ad testificandum against the
respective managers or records custodians of Security Banks Divisoria Branch, as well as of the Asian Savings
Bank (now Metropolitan Bank & Trust Co. [Metrobank]). The trial court granted the motion and issued the
corresponding subpoena.
Meanwhile, the prosecution was able to present in court the testimony of ElenitaMarasigan
(Marasigan), the representative of Security Bank.But before the testimony could be completed, respondent
filed a Motion to Suppress, seeking the exclusion of Marasigans testimony and accompanying documents thus
far received, bearing on the subject Security Bank account. This time respondent invokes, in addition to
irrelevancy, the privilege of confidentiality under R.A. No. 1405.
Issue:
Whether or not the testimony of Marasigan would be a violation of confidentiality under R.A. No.
1405.
Ruling:
YES. What indeed constitutes the subject matter in litigation in relation to Section 2 of R.A. No. 1405
has been pointedly and amply addressed in Union Bank of the Philippines v. Court of Appeals, in which the
Court noted that the inquiry into bank deposits allowable under R.A. No. 1405 must be premised on the fact
that the money deposited in the account is itself the subject of the action. Given this perspective, we deduce
that the subject matter of the action in the case at bar is to be determined from the indictment that charges
respondent with the offense, and not from the evidence sought by the prosecution to be admitted into the
records. In the criminal Information filed with the trial court, respondent, unqualifiedly and in plain language,
is charged with qualified theft by abusing petitioners trust and confidence and stealing cash. The said
Information makes no factual allegation that in some material way involves the checks subject of the
testimonial and documentary evidence sought to be suppressed. Neither do the allegations in said
Information make mention of the supposed bank account in which the funds represented by the checks have
allegedly been kept.
______________________________________________________________________________________________________________________________
RIZAL COMMERCIAL BANKING CORPORATION vs. HI-TRI DEVELOPMENT CORPORATION and LUZ R.
BAKUNAWA
G.R. No. 192413, June 13, 2012, SERENO, J.
In the case of dormant accounts, the state inquires into the status, custody, and ownership of the
unclaimed balance to determine whether the inactivity was brought about by the fact of death or absence of or
abandonment by the depositor. If after the proceedings the property remains without a lawful owner interested
to claim it, the property shall be reverted to the state to forestall an open invitation to self-service by the first
comers. However, if interested parties have come forward and lain claim to the property, the courts shall
determine whether the credit or deposit should pass to the claimants or be forfeited in favor of the state. We
emphasize that escheat is not a proceeding to penalize depositors for failing to deposit to or withdraw from their
accounts. It is a proceeding whereby the state compels the surrender to it of unclaimed deposit balances when
there is substantial ground for a belief that they have been abandoned, forgotten, or without an owner.
Facts:
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TeresitaMillan (Millan) offered to buy the parcels of land belonging to Spouses Bakunawa with the
condition that she will take care of clearing whatever preliminary obstacles there may be to effect a
completion of the sale. However, Millan was not able to clear the said obstacles. As a result, the Spouses
Bakunawa rescinded the sale and offered to return to Millan her down payment of 1,019,514.29. However,
Millan refused to accept back the 1,019,514.29 down payment. A complaint was filed by the
SpousesBakunawa against Millan. During the pendency of the case, the Spouses Bakunawa, through their
company, the Hi-Tri Development Corporation (Hi-Tri) took out on October 28, 1991, a Managers Check from
RCBC-Ermita in the amount of 1,019,514.29, payable to MillanscompanyRosmil Realty and Development
Corporation (Rosmil) c/o TeresitaMillan.
On January 31, 2003, the RCBC reported the 1,019,514.29-credit existing in favor of Rosmil to the
Bureau of Treasury as among its unclaimed balances. On December 14, 2006, Republic, through the Office of
the Solicitor General (OSG), filed with the RTC the action below for Escheat. Manuel Bakunawa, in 2008, wrote
a letter to the RCBC saying that the 1,019,514.29-creditcontinues to form part of the funds in the
Corporations RCBC bank account.
Issue:
Whether the allocated funds may be escheated in favor of the Republic.
Ruling:
NO. Under Act No. 3936 which outlines the proper procedure to be followed by banks and other
similar institutions in filing a sworn statement with the Treasurer concerning dormant accounts, the law sets
a detailed system for notifying depositors of unclaimed balances. This notification is meant to inform them
that their deposit could be escheated if left unclaimed. Accordingly, before filing a sworn statement, banks and
other similar institutions are under obligation to communicate with owners of dormant accounts. The
purpose of this initial notice is for a bank to determine whether an inactive account has indeed been
unclaimed, abandoned, forgotten, or left without an owner. If the depositor simply does not wish to touch the
funds in the meantime, but still asserts ownership and dominion over the dormant account, then the bank is
no longer obligated to include the account in its sworn statement. It is not the intent of the law to force
depositors into unnecessary litigation and defense of their rights, as the state is only interested in escheating
balances that have been abandoned and left without an owner.
______________________________________________________________________________________________________________________________
DOA ADELA EXPORT INTERNATIONAL, INC. vs. TRADE AND INVESTMENT DEVELOPMENT
CORPORATION (TIDCORP), AND THE BANK OF THE PHILIPPINE ISLANDS (BPI)
G.R. No.201931, February 11, 2015, VILLARAMA, JR., J.
Corollarily, the stipulation in the Joint Motion to Approve Compromise Agreement that petitioner waives
its right to confidentiality of its bank deposits requires the approval and conformity of Atty. Gonzales as receiver
since all the property, money, estate and effects of petitioner have been assigned and conveyed to her and she has
the right to recover all the estate, assets, debts and claims belonging to or due to the insolvent debtor.
Facts:
Petitioner was declared insolvent. The petitioner agreed to enter into a compromise agreement with
its creditors. TIDCORP and BPI agreed to approve the Dacion En Pago by Compromise Agreement with the
following terms:
WAIVER OF CONFIDENTIALITY. The petitioner and the members of its Board of Directors shall
waive all rights to confidentiality provided under the provisions of Republic Act No. 1405, as amended,
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otherwise known as the Law on Secrecy of Bank Deposits, and Republic Act No. 8791, otherwise known as
The General Banking Law of 2000.
Petitioner asserts that express and written waiver from the depositor concerned is required by law
before any third person or entity is allowed to examine bank deposits or bank records. According to
petitioner, it is not a party to the compromise agreement between BPI and TIDCORP and its silence or
acquiescence is not tantamount to an admission that binds it to the compromise agreement of the creditors
especially the waiver of confidentiality of bank deposits. While Respondent TIDCORP contends that the waiver
of confidentiality under Republic Act (R.A.) Nos. 1405 and 8791 does not require the express or written
consent of the depositor. It is TIDCORPs position that upon declaration of insolvency, the insolvency court
obtains complete jurisdiction over the insolvents property which includes the authority to issue orders to
look into the insolvents bank deposits. Since bank deposits are considered debts owed by the banks to the
petitioner, the receiver is empowered to recover them even without petitioners express or written consent,
said TIDCORP.
Issue:
Whether the compromise agreement is binding on the petitioner.
Ruling:
NO. In this case, the Joint Motion to Approve Agreement was executed by BPI and TIDCORP only.
There was no written consent given by petitioner or its representative, Epifanio Ramos, Jr., that petitioner is
waiving the confidentiality of its bank deposits. Neither can petitioner be deemed to have given its permission
by failure to interpose its objection during the proceedings. The norm is that a waiver must not only be
voluntary, but must have been made knowingly, intelligently, and with sufficient awareness of the relevant
circumstances and likely consequences. There must be persuasive evidence to show an actual intention to
relinquish the right. Mere silence on the part of the holder of the right should not be construed as a surrender
thereof; the courts must indulge every reasonable presumption against the existence and validity of such
waiver.
Garnishment of Deposits, Including Foreign Deposits
LOURDES DE LA RAMA vs. AUGUSTO R. VILLAROSA, ET AL., LUZON SURETY COMPANY, INC.,
G.R. No.L-17927, June 29, 1963, LABRADOR, J.
The mere garnishment of funds belonging to the party upon order of the court does not have the effect
of delivering the money garnished to the sheriff or to the party in whose favor the attachment is issued. The fund
is retained by the garnishee or the person holding the money for the defendant.
Facts:
Plaintiff lessor Lourdes de la Rama filed a complaint for confirmation of the cancellation, rescission
and annulment of a contract of lease of sugarland against defendant lessee Augusto R. Villarosa and the
latter's surety, the Luzon Surety Co., Inc. The court rendered a partial summary judgment in favour of Lourdes.
Accordingly, the sheriff of Manila garnished the deposit of defendant-appellant with the Philippine Trust Co.
to the amount of P71,533.99. and required the latter not to deliver, transfer or otherwise dispose of the said
amount belonging to the defendant, to any person except to the sheriff, or suffer the penalties prescribed by
law.The Philippine Trust Co., complying with such notice, set aside the amount of P71,533.99 out of the
deposit of the defendant-appellant in its possession for the benefit of the sheriff of Manila and the plaintiff-
appellee.
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After the lower court ordered Philippine Trust Co. to pay the sheriff out of the deposit of the Luzon
Surety Co., Inc., defendant Luzon Surety Co. filed a petition for certiorari with preliminary injunction with the
Court of Appeals. As a result, Philippine Trust Co. did not deliver to the sheriff of Manila any portion of the
amount garnished.
Issue:
Whether or not the amount garnished be awarded to the defendant-appellant.
Ruling:
NO. In the first place, the amount garnished was not actually taken possession of by the sheriff, even
from the time of the garnishment, because upon the perfection of the defendant-appellant's appeal to the
Court of Appeals this Court issued an injunction prohibiting execution of the judgment. The plaintiff-appellee
was, therefore, able to secure a full satisfaction of the judgment only upon final judgment of the Court on
August 6, 1960. The total sum garnished was not delivered to the sheriff in execution, because the order for
the execution of the judgment of the lower court was suspended in time by the appeal and the preliminary
injunction issue on appeal.
In the second place, the mere garnishment of funds belonging to the party upon order of the court
does not have the effect of delivering the money garnished to the sheriff or to the party in whose favor the
attachment is issued. The fund is retained by the garnishee or the person holding the money for the
defendant.
The garnishee, or one in whose hands property is attached or garnished, is universally regarded as
charged with its legal custody pending the outcome of the attachment of garnishment, unless, by local statute
and practice, he is permitted to surrender or pay the garnished property or funds into court, to the attaching
officer, or to a receiver or trustee appointed to receive them.
The effect of the garnishment, therefore, was to require the Philippine Trust Company, holder of the
funds of the Luzon Surety Co., to set aside said amount from the funds of the Luzon Surety Co. and keep the
same subject to the final orders of the Court. In the case at bar there was never in order to deliver the full
amount garnished to the plaintiff-appellee; all that was ordered to be delivered after the judgment had
become final was the amount found by the Court of Appeals to be due. The balance of the amount garnished,
therefore, remained all the time in the possession of the bank as part of the funds of the Luzon Surety Co.,
although the same could not be disposed of by the owner.
______________________________________________________________________________________________________________________________
PHILIPPINE COMMERCIAL & INDUSTRIAL BANK and JOSE HENARES vs. THE HON. COURT OF APPEALS
and MARINDUQUE MINING AND INDUSTRIAL CORPORATION
G.R. No. 84526, January 28, 1991, SARMIENTO, J.
Garnishment is considered as a specie of attachment for reaching credits belonging to the judgment
debtor and owing to him from a stranger to the litigation. Under the above-cited rule, the garnishee [the third
person] is obliged to deliver the credits, etc. to the proper officer issuing the writ and "the law exempts from
liability the person having in his possession or under his control any credits or other personal property belonging
to the defendant, . . . if such property be delivered or transferred, . . . to the clerk, sheriff, or other officer of the
court in which the action is pending."
Facts:
This is a labor case where the court ruled in favour of the workers for the payment of backwages
against the private respondent.Pursuant to the Notice of Garnishment, the sheriff directed the bank, one of
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which is the petitioner PCIB, to immediately issue a check in the name of the Deputy Provincial Sheriff of
Negros Occidental in an amount equivalent to the amount of the garnishment and that proper receipt would
be issued therefor. Later on, Marinduque Mining and Industrial Corporation filed a complaint against the
petitioners and Damian Rojas, the Deputy Provincial Sheriff of Negros Occidental alleging that the former's
current deposit with the petitioner bank was levied upon, garnished, and with undue haste unlawfully
allowed to be withdrawn.
Issue:
Whether a bank is liable for releasing its depositor's funds on the strength of the notice of
garnishment made by the deputy sheriff pursuant to a writ of execution issued by the National Labor
Relations Commission (NLRC).
Ruling:
NO. The cases more in point to the present controversy are the recent decisions in Engineering
Construction Inc. v. National Power Corporation and Rizal Commercial Banking Corporation (RCBC) vs. De
Castro, Unless there are compelling reasons such as: a defect on the face of the writ or actual knowledge on
the part of the garnishee of lack of entitlement on the part of the garnisher, it is not incumbent upon the
garnishee to inquire or to judge for itself whether or not the order for the advance execution of a judgment is
valid.
After an execution against property has issued, a person indebted to the judgment debtor, may pay to
the officer holding the execution the amount of his debt or so much thereof as may be necessary to satisfy the
execution, and the officer's receipt shall be a sufficient discharge for the amount so paid or directed to be
credited by the judgment creditor on the execution.
______________________________________________________________________________________________________________________________
KAREN E. SALVACION, minor, thru Federico N. Salvacion, Jr., father and Natural Guardian, and Spouses
FEDERICO N. SALVACION, JR., and EVELINA E. SALVACION vs. CENTRAL BANK OF THE PHILIPPINES,
CHINA BANKING CORPORATION and GREG BARTELLI y NORTHCOTT
G.R. No. 94723 August 21, 1997, TORRES, JR., J.
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
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. 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.
Issue:
Whether Section 113 of Central Bank Circular No. 960 and Section 8 of Republic Act No. 6426, as
amended by PD 1246, otherwise known as the Foreign Currency Deposit Act be made applicable to a foreign
transient?
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Ruling:
NO.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.
______________________________________________________________________________________________________________________________
GOVERNMENT SERVICE INSURANCE SYSTEM, vs. THE HONORABLE 15th DIVISION OF THE COURT OF
APPEALS and INDUSTRIAL BANK OF KOREA, TONG YANG MERCHANT BANK, HANAREUM BANKING
CORP., LAND BANK OF THE PHILIPPINES, WESTMONT BANK and DOMSAT HOLDINGS, INC.
G.R. No. 189206, June 8, 2011, PEREZ, J.
The lone exception to the non-disclosure of foreign currency deposits, under Republic Act No. 6426, is
disclosure upon the written permission of the depositor.
Facts:
A collection of sum of money with damages filed by Industrial Bank of Korea, Tong Yang Merchant
Bank, First Merchant Banking Corporation, Land Bank of the Philippines, and Westmont Bank (Banks) against
Domsat Holdings, Inc. and the GSIS. Said case stemmed from a Loan Agreement, whereby the said banks
agreed to lend United States (U.S.) $11 Million to Domsat for the purpose of financing the lease and/or
purchase of a Gorizon Satellite from the International Organization of Space Communications
(Intersputnik).Domsat obtained a surety bond from GSIS to secure the payment of the loan from the Banks.
When Domsat failed to pay the loan, GSIS refused to comply with its obligation reasoning that Domsat, with
Westmont Bank as the conduit, transferred the U.S. $11 Million loan proceeds from the Industrial Bank of
Korea to Citibank New York account of Westmont Bank and from there to the Binondo Branch of Westmont
Bank. In the course of the hearing, GSIS requested for the issuance of a subpoena duces tecum to the
custodian of records of Westmont Bank. A motion to quash was filed by the said banks on the ground that
request for the documents will violate the Law on Secrecy of Bank Deposits. RTC denied the motion to quash.
However, Court of Appeals declared that Domsats deposit in Westmont Bank is covered by Republic Act No.
6426 or the Bank Secrecy Law. GSIS insists that Domsats deposit with Westmont Bank can be examined based
on Republic Act No. 1405 or the "Law on Secrecy of Bank Deposits," which allows the disclosure of bank
deposits in cases where the money deposited is the subject matter of the litigation.
Issue:
Whether the US$11,000,000.00 deposit in the account of respondent Domsat in Westmont Bank is
covered by the secrecy of bank deposit.
Ruling:
Yes.Presidential Decree No. 1246, provides, Section 8. Secrecy of Foreign Currency Deposits. States
that All foreign currency deposits authorized under this Act, as amended by Presidential Decree No. 1035, as
well as foreign currency deposits authorized under Presidential Decree No. 1034, are hereby declared as and
considered of an absolutely confidential nature and, except upon the written permission of the depositor, in
no instance shall foreign currency deposits be examined, inquired or looked into by any person, government
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official, bureau or office whether judicial or administrative or legislative or any other entity whether public or
private.
Applying the said provision, absent the written permission from Domsat, Westmont Bank cannot be
legally compelled to disclose the bank deposits of Domsat, otherwise, it might expose itself to criminal liability
under the same act.
Anti-Money Laundering Act
Unlawful Activities or Predicate Crimes
REPUBLIC OF THE PHILIPPINES, represented by the ANTI-MONEYLAUNDERING COUNCIL VS. GLASGOW

CREDIT ANDCOLLECTION SERVICES, INC. and CITYSTATE SAVINGS BANK, INC.
G.R. No. 170281, January 18, 2008, CORONA, J.
A criminal conviction for an unlawful activity is not a prerequisite for the institution of a civil forfeiture
proceeding. Stated otherwise, a finding of guilt for an unlawful activity is not an essential element of civil
forfeiture.
Facts:
Republic of the Philippines filed a complaint for civil forfeiture of assets with the RTC of Manila
against the bank deposits maintained by GLASGOW in CSBI pursuant to RA 9160 or the Anti-Money
Laundering Act of 2001. Meanwhile, summons to GLASGOW was returned unserved as it could no longer be
found at its last known address.Trial court archived the case for failure of the Republic to serve alias
summons. GLASGOWs motion to dismiss by way of special appearance alleging that the complaint was
premature and stated no cause of action.
Issue:
Whether a criminal conviction is necessary for the institution of a civil forfeiture proceeding.
Ruling:
NO.Section 6 of RA 9160, as amended, provides:
SEC. 6. Prosecution of Money Laundering.
(a) Any person may be charged with and convicted of both the offense of money laundering
and the unlawful activity as herein defined.
(b) Any proceeding relating to the unlawful activity shall be given precedence over the
prosecution of any offense or violation under this Act without prejudice to the freezing and other remedies
provided.
Rule 6.1 of the Revised Implementing Rules and Regulations of RA 9160, as amended, states:
(a) Any person may be charged with and convicted of both the offense of money laundering
and the unlawful activity as defined under Rule 3(i) of the AMLA.
(b) Any proceeding relating to the unlawful activity shall be given precedence over the
prosecution of any offense or violation under the AMLA without prejudice to the application ex-parte by the
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AMLC to the Court of Appeals for a freeze order with respect to the monetary instrument or property involved
therein and resort to other remedies provided under the AMLA, the Rules of Court and other pertinent
laws and rules. (emphasis supplied)
Finally, Section 27 of the Rule of Procedure in Cases of Civil Forfeiture provides:
Sec. 27. No prior charge, pendency or conviction necessary. No prior criminal charge, pendency of or
conviction for an unlawful activity or money laundering offense is necessary for the commencement or
the resolution of a petition for civil forfeiture. (emphasis supplied)
Thus, regardless of the absence, pendency or outcome of a criminal prosecution for the unlawful
activity or for money laundering, an action for civil forfeiture may be separately and independently
prosecuted and resolved.
______________________________________________________________________________________________________________________________
REPUBLIC OF THE PHILIPPINES, Represented by THE ANTI-MONEY LAUNDERING COUNCIL (AMLC),v.

HON. ANTONIO M. EUGENIO, JR., AS PRESIDING JUDGE OF RTC, MANILA, BRANCH 34, PANTALEON
ALVAREZ and LILIA CHENG
G.R. No. 174629, February 14, 2008, TINGA, J.
AMLC may inquire into a bank account upon order of any competent court in cases of violation of the
AMLA after having been established that there is probable cause that the deposits or investments are related to
unlawful activities such as those acts under Anti-Graft and Corrupt Practices Act.
Facts:
AMLC filed an application to inquire into or examine the deposits or investments of Alvarez, Trinidad,
Liongson and Cheng Yong before the RTC of MakatiMakati RTC rendered an 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 probable cause to believe that the deposits in various bank
accounts which are related to the offense of violation of Anti-Graft and Corrupt Practices Act. AMLC
promulgated Resolution No. 121 Series of 2005, 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.
Issue:
Whether the bank accounts of Alvarez, Trinidad, Liongson and Cheng Yong can be examined.
Ruling:
YES.Section 2 of the Bank Secrecy Act itself prescribes exceptions whereby these bank accounts may
be examined by any person, government official, bureau or official; 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 such as 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.
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Freezing of Monetary Instruments or Property
REPUBLIC OF THE PHILIPPINES, Represented by the ANTI-MONEYLAUNDERING COUNCIL,v. CABRINI

GREEN & ROSS, INC.,MICHAEL J. FINDLAY and JANEGELBERG,
G.R. No. 154522, May 5, 2006, CORONA, J.
Court of Appeals which has the authority to issue a freeze order as well as to extend its effectivity.
Facts:
In the exercise of its power under Section 10 of RA 9160, the Anti-Money Laundering Council (AMLC)
issued freeze orders against various bank accounts of Cabrini Green and Ross Inc. The frozen bank accounts
were previously found prima facie to be related to the unlawful activities of respondents. However, the CA
disagreed with the AMLC and dismissed the petitions on the ground that it was not vested by RA 9160 with
the power to extend a freeze order issued by the AMLC.
Issue:
Whether AMLC has the jurisdiction to extend freeze order.
Ruling:
NO.During the pendency of these petitions, Congress enactedAnti-Money Laundering Act of 2001 and
gave the CA jurisdiction to extend the effectivity of a freeze order. The amendment by RA 9194 of RA 9160
erased any doubt on the jurisdiction of the CA over the extension of freeze orders. As the law now stands, it is
solely the CA which has the authority 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--vis accounts and
deposits related to money-laundering activities.
______________________________________________________________________________________________________________________________
RET. LT. GEN. JACINTO C. LIGOT, ERLINDA Y. LIGOT, PAULO Y. LIGOT, RIZA Y. LIGOT, and MIGUEL Y.
LIGOT, v. REPUBLIC OF THE PHILIPPINES, represented by the ANTI-MONEY LAUNDERING COUNCIL
G.R. No. 176944, March 6, 2013, BRION, J.
Based on Section 10 of R.A 9160, there are only two requisites for the issuance of a freeze order: (1) the
application ex parte by the AMLC and (2) the determination of probable cause by the CA.
Facts:
Republic of the Philippines, represented by the Anti-Money Laundering Council (AMLC), filed an
Urgent Ex-Parte Application for the issuance of a freeze order with the CA against certain monetary
instruments and properties of the Ret. Lt. Gen Ligot, pursuant to Anti-Money Laundering Act of 2001based on
the February 1, 2005 letter of the Office of the Ombudsman for possible violation ofAnti-Graft and Corrupt
Practices Act. AMLC issued Resolution No. 52, Series of 2005, directing the AMLC Secretariat to file an
application for a freeze order against the properties of Lt. Gen. Ligot and the members of his family with the
CA and the appellate court granted the application ruling that probable cause existed that an unlawful activity
and/or money laundering offense had been committed by Lt. Gen. Ligot and his family, and that the properties
sought to be frozen are related to the unlawful activity or money laundering offense. Ligots filed a motion to
lift the extended freeze order, principally arguing that it deprived them of their property without due process
and it also punished them before their guilt could be proven.
Issue:
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Whether the freeze order deprived them of their property and due process since it was issued even
before their guilt was proven.
Ruling:
NO.The legal basis for the issuance of a freeze order is Section 10 of RA No. 9160, as amended by RA
No. 9194, which states the Court of Appeals, upon application ex parte by the AMLC and after determination
that probable cause exists that any monetary instrument or property is in any way related to an unlawful
activity, may issue a freeze order which shall be effective immediately. The freeze order shall be for a period of
twenty (20) days unless extended by the court.
As defined in the law, the probable cause required for the issuance of a freeze order refers to such
facts and circumstances which would lead a reasonably discreet, prudent or cautious man to believe that an
unlawful activity and/or a money laundering offense is about to be, is being or has been committed and that
the account or any monetary instrument or property subject thereof sought to be frozen is in any way related
to said unlawful activity and/or money laundering offense.Since these assets are grossly disproportionate to
Lt. Gen. Ligots income, as well as the lack of any evidence that the Ligots have other sources of income, the CA
properly found that probable cause exists that these funds have been illegally acquired.
Miscellaneous Topics
PDIC
PHILIPPINE DEPOSIT INSURANCE CORPORATION, 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
G.R. No. 118917. December 22, 1997, KAPUNAN, J.
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.
Facts:
Aquero et. al. invested in money market placements with the Premiere Financing Corporation (PFC)
in the sum ofP10,000.00 each for which they were issued by the PFC corresponding promissory notes and
checks. John Francis Cotaoco, for and in behalf of Aquero et al, 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. On the
aforesaid maturity date Cotaoco went to the RSB to encash the said certificates but RSB still failed to pay the
value of the certificates. Instead, RSB advised Cotaoco to file a claim with the PDIC. PDIC refused the aforesaid
claims on the ground that the Traders Royal Bank Checkissued by PFC was returned by the drawee bank for
having been drawn against insufficient funds. Trial court rendered its decision ordering the PDIC therein to
pay Aquero et al, jointly and severally, the amount corresponding to the latters certificates of time deposit. CA
affirmed the decision.
Issue:
Whether PDIC is jointly and severally liable to Aquero et al.
Ruling:
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NO.SECTION 1. There is hereby created a Philippine Deposit Insurance Corporation states that it shall
insure, as provided, the deposits of all banks which are entitled to the benefits of insurance under this Act
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. Under the said law, 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 certificates that were issued to PFC which did not acquire the for value because the check issued
by the latter for the certificates bounced for insufficiency of funds. Such issuance could only give rise to the
presumption that the amount stated in the certificates have been deposited to RSB. 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.
______________________________________________________________________________________________________________________________
PHILIPPINE DEPOSIT INSURANCE CORPORATION, vs. THE HONORABLE COURT OF APPEALS andJOSE
ABAD, LEONOR ABAD, SABINA ABAD, JOSEPHINE JOSIE BEATA ABAD-ORLINA, CECILIA ABAD, PIO ABAD,
DOMINIC ABAD, TEODORA ABAD
G.R. No. 126911. April 30, 2003, CARPIO-MORALES, J.
The evident implication of the law, therefore, is that the appointment of a receiver may be made by the
Monetary Board without notice and hearing but its action is subject to judicial inquiry to insure the protection of
the banking institution.
Facts:
Monetary Board of the Central Bank of the Philippines, now Bangko Sentral ng Pilipinas, issued a
resolution prohibiting Manila Banking Corporation to do business in the Philippines, and placing its assets
and affairs under receivership. However, a copy thereof was served on MBC only on May 26, 1987. The next
banking day following the issuance of the MB Resolution, Jose Abad pre-terminatie the 71 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 Leonor Abad et al., individually or jointly with each other. Of the 28 new GTDs, Jose
Abad pre-terminated 8 and withdrew the value thereof in the total amount of P320,000.00.Leonor Abad and
other thereafter filed their claims with the PDIC for the payment of the remaining 20 insured GTDs. PDIC
refused payment claiming that they are only liable for deposits received by a bank in the usual course of
business and since MBC was prohibited from doing further business by MB Resolution 505 as of May 22,
1987, all transactions subsequent to such date were not done in the usual course of business.
Issue:
Whether Philippine Deposit Insurance Corporation (PDIC) is liable, as statutory insurer, for the value
of 20 Golden Time Deposits belonging to respondents.
Ruling:
YES.MB issued Resolution 505 on May 22, 1987, a copy thereof was served on MBC only on May 26,
1987. MBC and its clients could be given the benefit of the doubt that they were not aware that the MB
resolution had been passed, given the necessity of confidentiality of placing a banking institution under
receivership. The evident implication of the law, therefore, is that the appointment of a receiver may be made
by the Monetary Board without notice and hearing but its action is subject to judicial inquiry to insure the
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protection of the banking institution. Mere conjectures that MBC had actual knowledge of its impending
closure do not suffice. The MB resolution could not thus have nullified respondents transactions which
occurred prior to May 26, 1987.
Truth in Lending
THE CONSOLIDATED BANK AND TRUST CORPORATION (SOLIDBANK), v. THE HONORABLE COURT OF
APPEALS, GEORGE AND GEORGE TRADE, INC., GEORGE KING TIM PUA and PUA KE SENG
G.R. No. 91494, July 14, 1995, QUIASON, J.
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.
Facts:
George King Tim Pua, in his personal capacity, applied for, and was granted, by Consolidated bank a
loan for which he executed a promissory note. Thereafter, George and George Trade Inc., through George King
Tim Pua, obtained a loan from the Consolidated bank for which the latter executed a promissory note on
behalf of the said corporation, with George King Tim Pua and Pua Ke Seng as co-makers and the loan bears an
interest of 13.23% per annum and will be paid through the assignment of the fire insurance proceeds.
Thereafter, Consolidated bank instituted Civil Case against Pua et al. before the then Court of First Instance of
Manila for the recovery of the unpaid balances, included therein handling charges. In their defense Pua et al.
claimed that the loans had been extinguished by way of payment through the assignment of the fire insurance
proceeds and that it was in fact petitioner which owed them by reason of its failure to return to the latter the
balance of said insurance proceeds. Trial court rendered judgment, finding for Consolidated bank and
ordering George and George Trade, Inc., George King Tim Pua and Pua Ke Seng to pay the sum of the balance
of P228,469.80 with handling charges.
Issue:
Whether Consolidated bank can charge Pua and Ke Seng for handling charges.
Ruling:
NO.Section 7 of the same Circular 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 Pua and Ke Seng do not
contain any stipulation on the payment of handling charges. Consolidated bank cannot, therefore, charge
private respondents such handling charges.
______________________________________________________________________________________________________________________________
DEVELOPMENT BANK OF THE PHILIPPINES v. FELIPE P. ARCILLA, JR.

G.R. No. 161397, June 30, 2005, CALLEJO, SR., J.
Section 1 of R.A. No. 3765 provides that prior to the consummation of a loan transaction, the bank, as
creditor, is obliged to furnish a client with a clear statement, in writing, setting forth, to the extent applicable and
in accordance with the rules and regulations prescribed by the Monetary Board of the Central Bank of the
Philippines, the following information: (1) the cash price or delivered price of the property or service to be
acquired; (2) the amounts, if any, to be credited as down payment and/or trade-in; (3) the difference between the
amounts set forth under clauses (1) and (2); (4) the charges, individually itemized, which are paid or to be paid
by such person in connection with the transaction but which are not incident to the extension of credit; (5) the
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total amount to be financed;(6) the finance charges expressed in terms of pesos and centavos; and (7) the
percentage that the finance charge bears to the total amount to be financed expressed as a simple annual rate on
the outstanding unpaid balance of the obligation.
Facts:
Atty. Felipe P. Arcilla, Jr. was employed by the DBPavailed a loan under the Individual Housing Project
of the bank. He obliged himself to pay the loan in 25 years, with a monthly amortization of P1,417.91, with 9%
interest per annum, to be deducted from his monthly salary. It was also agreed therein that if Arcilla availed of
optional retirement, he could elect to continue paying the loan, provided that the loan/amount would be
converted into a regular real estate loan account with the prevailing interest assigned on real estate loans,
payable within the remaining term of the loan account. Thereafter, Arcilla opted to resign from the bank so he
decided to issue three Promissory Notes for the total amount of P186,364.15 for the balance and pay for the
service charge and interests. However, he failed to pay as of October 31, 1990 which amounted
to P241,940.93. As a result, DBP rescinded the Deed of Conditional Sale and the property was advertised for
sale at public bidding. This prompted Arcilla to file a complaint against DBP with the RTC alleging that DBP
failed to furnish him with the disclosure statement required by R.A. No. 3765 and CB Circular No. 158 prior to
the execution of the deed of conditional sale and the conversion of his loan account with the bank into a
regular housing loan account. DBP alleged that it substantially complied with the said provisions since the
details required in said statements were particularly disclosed in the promissory notes, deed of conditional
sale and the required notices sent to Arcilla. DBP claimed that it any event, its failure to comply strictly with
R.A. No. 3765 did not affect the validity and enforceability of the subject contracts or transactions.
Issue:
Whether petitioner DBP substantially complied with the disclosure requirement of R.A. No. 3765 and
CB Circular No. 158, Series of 1978, in the execution of the deed of conditional sale, the supplemental deed of
conditional sale, as well as the promissory notes
Ruling:
YES.If the borrower is not duly informed of the data required by the law prior to the consummation
of the availment or drawdown, the lender will have no right to collect such charge or increases thereof, even if
stipulated in the promissory note. However, such failure shall not affect the validity or enforceability of any
contract or transaction. In the present case, DBP failed to disclose the requisite information in the disclosure
statement form authorized by the Central Bank, but did so in the loan transaction documents between it and
Arcilla. However, the Court is convinced that Arcillas claim of not having been furnished the data/information
required by R.A. No. 3765 and CB Circular No. 158 was but an afterthought. Despite the notarial rescission of
the conditional sale in 1990, and DBPs subsequent repeated offers to repurchase the property, the latter
maintained his silence. Arcilla filed his complaint only on February 21, 1994, or four years after the said
notarial rescission. It must be stressed that the Truth in Lending Act (R.A. No. 3765), was enacted primarily to
protect its citizens from a lack of awareness of the true cost of credit to the user. Contrary to appellees claim
that he was not sufficiently informed of the details of the loan, the records disclose that the required
informations were readily available in the three (3) promissory notes he executed. Precisely, the said
promissory notes were executed to apprise appellee of the remaining balance on his loan when the same was
converted into a regular housing loan. And on its face, the promissory notes signed by no less than the
appellee readily shows all the data required by the Truth in Lending Act.
______________________________________________________________________________________________________________________________
UNITED COCONUT PLANTERS BANK v. SPOUSES SAMUEL and ODETTE BELUSO

G.R. No. 159912, August 17, 2007, CHICO-NAZARIO, J.
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Sec. 2. Of Truth in Lending Act states that it is hereby declared to be the policy of the State to protect its
citizens from a lack of awareness of the true cost of credit to the user by assuring a full disclosure of such cost
with a view of preventing the uninformed use of credit to the detriment of the national economy.
Facts:
UCPB granted the spouses Beluso a Promissory Notes Line under a P2.35 Million Credit Agreement .
To completely avail themselves of the credit line extended to them by UCPB, the spouses Beluso executed two
more promissory notes. UCPB applied interest rates on the different promissory notes ranging from 18% to
34%. Unfortunately, Spouses Beluso failed to make any payment of the foregoing amounts. This prompted
UCPB to foreclose the properties mortgaged by the spouses Beluso. As a result, spouses Beluso filed a Petition
for Annulment, Accounting and Damages against UCPB with the RTC. UCPB countered that while the interest
rate was not numerically quantified in the face of the promissory notes, it was nonetheless categorically fixed,
at the time of execution thereof, at the rate indicative of the DBD retail rate. According to UCPB, the imposition
of the questioned interest rates did not infringe on the principle of mutuality of contracts, because the
spouses Beluso had the liberty to choose whether or not to renew their credit line at the new interest rates
pegged by petitioner. RTC ruled in favor of the spouses Beluso declaring that the interest rate used by UCPB
void and the foreclosure and Sheriffs Certificate of Sale void.
Issue:
Whether the imposition of interest in the following provision found in the promissory notes of the
spouses Beluso is void, as the interest rates and the bases were determined solely by petitioner UCPB.
Ruling:
YES.The provision in the loan 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.
The interest rate provisions in the case at bar are illegal not only because of the provisions of the Civil
Code on mutuality of contracts, but also, violate the Truth in Lending Act. Not disclosing the true finance
charges in connection with the extensions of credit is, furthermore, a form of deception which the Court
cannot countenance. Moreover, while the spouses Beluso indeed agreed to renew the credit line, the offending
provisions are found in the promissory notes themselves, not in the credit line. In fixing the interest rates in
the promissory notes to cover the renewed credit line, UCPB still reserved to itself the same two options (1) a
rate indicative of the DBD retail rate; or (2) a rate as determined by the Branch Head.
______________________________________________________________________________________________________________________________
SPOUSES EDUARDO and LYDIA SILOS, v. PHILIPPINE NATIONAL BANK

G.R. No. 181045, July 2, 2014, DEL CASTILLO, J.
Truth in Lending Act, or Republic Act No. 3765 was enacted to protect citizens from a lack of awareness
of the true cost of credit to the user by using a full disclosure of such cost with a view of preventing the
uninformed use of credit to the detriment of the national economy.
Facts:
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Spouses Silos secured a revolving credit line obtained from PNB, constituted anda Real Estate
Mortgage over lot in Kalibo, Aklan. The Credit Agreement contained a stipulation on interest which provides
that the Borrower shall agrees that the Bank may modify the interest rate in the Loan depending on whatever
policy the Bank may adopt in the future. The promissory note also provided that without need for notice or
demand, failure to pay or any installment thereon, when due, shall constitute default shall be subject to a
penalty charge of twenty four percent (24%) per annum based on the defaulted principal amount. The credit
came due but despite demand, petitioners failed to pay. Thus, PNB foreclosed on the mortgage and sold the
property. Spouses Silos filed a case seeking annulment of the foreclosure sale on the ground that the payment
of interest in their loan agreements with PNB, which allegedly left to the latter the sole will to determine the
interest rate are null and void. In its Answer, PNB denied that it unilaterally imposed or fixed interest rates
and that petitioners agreed that without prior notice, PNB may modify interest rates depending on future
policy adopted by it and that the imposition of penalties was agreed upon in the Credit Agreement. It added
that the imposition of penalties is supported by the all-inclusive clause in the Real Estate Mortgage agreement
which provides that the mortgage shall stand as security for any and all other obligations of whatever kind
and nature owing to respondent.
Issue:
Whether the interests and penalty imposed is valid.
Ruling:
NO. The element of consent or agreement by the borrower in the credit agreement is completely
lacking. It appears that by its acts, PNB violated the Truth in Lending Act, or Republic Act No. 3765. The law
states that Aany creditor shall furnish to each person to whom credit is extended, prior to the consummation
of the transaction, a clear statement in writing setting forth, (1) the cash price or delivered price of the
property or service to be acquired; (2) the amounts, if any, to be credited as down payment and/or trade-in;
(3) the difference between the amounts set forth under clauses (1) and (2);(4) the charges, individually
itemized, which are paid or to be paid by such person in connection with the transaction but which are not
incident to the extension of credit;(5) the total amount to be financed; (6) the finance charge expressed in
terms of pesos and centavos; and(7) the percentage that the finance bears to the total amount to be financed
expressed as a simple annual rate on the outstanding unpaid balance of the obligation.
By requiring the petitioners to sign the credit documents and the promissory notes in blank, and then
unilaterally filling them up later on, respondent violated the Truth in Lending Act, and was remiss in its
disclosure obligations.
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Deans

Digested by: DC 2016 Members

Editors: Tricia Lacuesta

Truth in Lending 134

Definition and Nature of Letters of Credit

BANK OF AMERICA, NT & SA v. CA, INTER-RESIN INDUSTRIAL CORPORATION, FRANCISCO TRAJANO,

PRUDENTIAL BANK v. IAC, PHILIPPINE RAYON MILLS INC., ANACLETO R. CHI

WhetherPRMI is liable on the basis of the letter of credit.

MWSS v. HON. REYNALDO DAWAY and MAYNILAD WATER SERVICES

RELIANCE COMMODITIES v. DAEWOO INDUSTRIAL CO., LTD.

BANK OF COMMERCE v. TERESITA S. SERRANO

Laws Governing of Letters of Credit

BANK OF THE PHILIPPINE ISLANDS v. DE RENY FABRIC INDUSTRIES

Kinds of Letters of Credit

Whether the beneficiary may call on the letters of credit.

PHILIPPINE VIRGINIA TOBACCO ADMINISTRATIONv.HON. WALFRIDO DE LOS ANGELES, Judge of the

FEATI BANK & TRUST COMPANY (now CITYTRUST BANKING CORPORATION) v.

Parties to a Letter of Credit

RELIANCE COMMODITIES, INC.v.DAEWOO INDUSTRIAL CO., LTD.

BANK OF AMERICA, NT & SA v.COURT OF APPEALS, INTER-RESIN INDUSTRIAL CORPORATION,

FEATI BANK & TRUST COMPANY (now CITYTRUST BANKING CORPORATION) v.

Basic Principles of Letters of Credit

Whether or not De Reny fabrics is liable under the Letters of Credit.

PHILIPPINE NATIONAL BANK v.SAN MIGUEL CORPORATION

FEATI BANK & TRUST COMPANY (now CITYTRUST BANKING CORPORATION) v.

The pertinent provisions of the U.C.P. (1962 Revision) are:

Trust Receipt Law

Definition/Concept of Trust Receipt Law

ANTHONY L. NG v. PEOPLE OF THE PHILIPPINES

Whether Ng is liable for estafa.

HUR TIN YANG v. PEOPLE OF THE PHILIPPINES

Ownership of the Goods, Documents and Instruments

Whether the IBAA (entrustor) is the real owner of the goods.

DEVELOPMENT BANK OF THE PHILIPPINES v. PRUDENTIAL BANK

PRUDENTIAL BANK v. NATIONAL LABOR RELATIONS COMMISSION, CECILIA ORQUELLO, ET AL.,

Obligations and Liabilities of Entrustees

Whether or not Colinares and Veloso (entrustees) have criminal liability

THE CONSOLIDATED BANK AND TRUST CORPORATION (SOLIDBANK) vs.COURT OF APPEALS

ANTHONY L. NG vs. PEOPLE OF THE PHILIPPINES

LAND BANK OF THE PHILIPPINES vs LAMBERTO C. PEREZ, et al.

HUR TIN YANG vs. PEOPLE OF THE PHILIPPINES

TRINIDAD RAMOS vs. COURT OF APPEALS and PEOPLE OF THE PHILIPPINES

Whether Ramos is guilty of four (4) counts of Estafa.

FERNANDO ONG v. THE COURT OF APPEALS and JUDGE P. PURISIMA

PILIPINAS BANK vs. ALFREDO T. ONG and LEONCIA LIM

Return of Goods, Documents or Instruments in Case Non-Sale

SPOUSES VINTOLA vs. INSULAR BANK OF ASIA AND AMERICA (IBAA)

Liability for Loss of Goods, Documents or Instruments

Penal Sanction if Offender is a Corporation

ALFREDO CHING vs THE SECRETARY OF JUSTICE, et al.

Whether Ching is liable as SVP of PBMI.

TUPAZ vs THE COURT OF APPEALS and BANK OF THE PHILIPPINE ISLANDS

SPOUSES VINTOLA vs. INSULAR BANK OF ASIA AND AMERICA (IBAA)

SARMIENTO vs. COURT OF APPEALS and ASSOCIATED BANKING CORP.

PHILIPPINE NATIONAL BANK v. HON. GREGORIO G. PINEDA

Warehouse Receipt's Law

CONSOLIDATED TERMINALS, INC. v.ARTEX DEVELOPMENT CO., INC.

Whether Artex is liable for damages.

Whether Judge Se erred in rendering the assailed order.

Whether PNB is liable for storage fees.

General Banking Law of 2000

Definition and Classification of Banks

REPUBLIC OF THE PHILIPPINES v. SECURITY CREDIT AND ACCEPTANCE CORPORATION, ROSENDO T.