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Republic Act No.

7353
Sunday, June 06, 2010
12:13 AM

Republic Act No. 7353


AN ACT PROVIDING FOR THE CREATION, ORGANIZATION AND OPERATION OF RURAL BANKS, AND FOR
OTHER PURPOSES.
Section 1. This Act shall be known and cited as the “Rural Banks Act of 1992.”
Section 2. The State hereby recognizes the need to promote comprehensive rural development with the
end in view of attaining a more equitable distribution of opportunities, income and wealth, a sustained
increase in the amount of goods and services produced by the nation for the benefit of the people; and in
expanding productivity as a key to raising the quality of life for all, especially the underprivileged.
Towards these ends, the State hereby encourages and assists in the establishment of a rural banking
system designed to make needed credit available and readily accessible in the rural areas on reasonable
terms.
Section 3. In furtherance of this policy, the Monetary Board of the Central Bank of the Philippines shall
formulate the necessary rules and regulations governing the establishment and operation of farmers and
merchants, or to cooperatives of such farmers and merchants and, in general, to the people of the rural
communities, and to supervise the operation of such banks.
Section 4. No rural bank shall be operated without a Certificate of Authority from the Monetary Board of
the Central Bank. Rural banks shall be organized in the form of stock corporations. Upon consultation with
the rural banks in the area, duly established cooperatives and corporations primarily organized to hold
equities in rural banks may organize a rural bank and/or subscribe to the shares of stock of any rural bank:
Provided, That a cooperative or corporation owning or controlling the whole or majority of the voting stock
of the rural bank shall be subject to special examination and to such rules and regulations as the Monetary
Board may prescribe. With the exception of shareholdings of corporations organized primarily to hold
equities in rural banks as provided for under Section 12-C of Republic Act No. 337, as amended, and of
Filipino-controlled domestic banks, the capital stock of any rural bank shall be fully owned and held directly
or indirectly by citizens of the Philippines or corporations, associations or cooperatives qualified under
Philippine laws to own and hold such capital stock: Provided, That any provisions of existing laws to the
contrary notwithstanding, stockholdings in a rural bank shall be exempt from any ownership ceiling for a
period of ten (10) years from the approval of this Act: Provided, further, That any such exemption shall
require the approval of the Monetary Board. If subscription of private shareholders to the capital stock of a
rural bank cannot be secured or is not available, or insufficient to meet the normal credit needs of the
locality, the Land Bank of the Philippines, the Development Bank of the Philippines, or any government-
owned or controlled bank or financial institution, on representation of the said private shareholders but
subject to the investment guidelines, policies and procedures of the bank of financial institution and upon
approval of the Monetary Board of the Central Bank, shall subscribe to the capital stock of such rural bank,
which shall be paid in full at the time of subscription, in an amount equal to the fully paid subscribed and
unimpaired, capital of the private stockholders or such amount as the Monetary Board may prescribe as
may be necessary to promote and expand rural economic development: Provided, however, That such
shares of stock subscribed by the Land Bank of the Philippines, the Development Bank of the Philippines or
any government-owned or controlled bank or financial institution may be sold at any time at market value
to private individuals who are citizens of the Philippines: Provided, finally, that in the sale of shares of stock
subscribed by the Land Bank of the Philippines, the Development Bank of the Philippines or any
government-owned or controlled bank or financial institution, the registered stockholders shall have the
right of preemption within one (1) year from the date of offer in proportion to their respective holdings, but
in the absence of such buyer, preference, however, shall be given to residents of the locality or province
where the rural bank is located.
Section 5. All members of the Board of Directors of the rural bank shall be citizens of the Philippines at
the time of their assumption to office: Provided, however, That nothing in this Act shall be construed as
prohibiting any appointive or in any capacity in the bank.
No director or officer of any rural bank shall, either directly or indirectly, for himself or as the
representative or agent of another, borrow any of the deposits or funds of such banks, nor shall he become
a guarantor, indorser, or surety for loans from such bank to others, or in any manner be an obligor for
money borrowed from the bank or loaned by it except with the written approval of the majority of the
directors of the bank, excluding the director concerned. Any such approval shall be entered upon the
records of the corporation and a copy of such entry shall be transmitted forthwith to the appropriate
supervising department. The director/officer of the bank who violates the provisions of this section shall be
immediately dismissed from his office and shall be penalized in accordance with Section 26 of this Act.
The Monetary Board may regulate the amount of credit accommodations that may be extended directly to
the directors, officers or stockholders of rural banks of banking institutions. However, the outstanding
credit accommodations which a rural bank may extend to each of its stockholders owning two percent
(2%) or more of the subscribed capital stock, its directors, or officers shall be limited to an amount
equivalent to the respective outstanding deposits and book value of the paid-in capital contributions in the
bank.
Section 6. Loans or advances extended by rural banks organized and operated under this Act shall be
primarily for the purpose of meeting the normal credit needs of farmers, fishermen or farm families owning
or cultivating land dedicated to agricultural production as well as the normal credit needs of cooperatives
and merchants. In the granting of loans, the rural bank shall give preference to the application of farmers
and merchants whose cash requirements are small.
Loans may be granted by rural banks on the security of lands without Torrens Title where the owner of
private property can show five (5) years or more of peaceful, continuous and uninterrupted possession in
concept of owner; or of portions of friar land estates or other lands administered by the Bureau of Lands
that are covered by sales contracts and the purchasers have paid at least five (5) years installment
thereon, without the necessity of prior approval and consent by the Director of Lands, or of portions of
other estates under the administration of the Department of Agrarian Reform or other governmental
agency which are likewise covered by sales contracts and the purchasers have paid at least five (5) years
installment thereon, without the necessity of prior approval and consent of the Department of Agrarian
Reform or corresponding governmental agency; or of homesteads or free patent lands pending the
issuance of titles but already approved, the provisions of any law or regulations to the contrary
notwithstanding: Provided, That when the corresponding titles are issued, the same shall be delivered to
the Register of Deeds of the province where such lands are situated for the annotation of the
encumbrance: Provided, further, That in the case of lands pending homestead or free patent titles, copies
of the notices for the presentation of the final proof shall also be furnished the creditor rural bank and, if
the borrower applicants fail to present the final proof within thirty (30) days from date of notice, the
creditor rural bank may do so for then at their expense: Provided, furthermore, That the applicant for
homestead or free patent has already made improvements on the land and the loan applied for is to be
used for further development of the same or for other productive economic activities: Provided, finally,
That the appraisal and verification of the status of a land is a full responsibility of the rural bank and any
loan granted on any land which shall be found later to be within the forest zone shall be for the sole
account of the rural bank.
The foreclosure of mortgages covering loans granted by rural banks and executions of judgment thereon
involving real properties levied upon by sheriff shall be exempt from the publications in newspapers now
required by law where the total amount of loan, excluding interests due and unpaid, does not exceed One
Hundred thousand Pesos (P100,000) or such amount as the Monetary Board may prescribe as may be
warranted by prevailing economic conditions. It shall be sufficient publication in such cases if the notices
of foreclosure and execution of judgment are posted in the most conspicuous area of the municipal
building, the municipal public market, the rural bank, the barangay hall, and the barangay public market, if
any, where the land mortgaged is situated during the period of sixty (60) days immediately preceding the
public auction or execution of judgment. Proof of publication as required herein shall be accomplished by
an affidavit of the sheriff or officer conducting the foreclosure sale or execution of judgment and shall be
attached with the records of the case: Provided, That when a homestead or free patent is foreclosed, the
homesteader or free patent holder, as well as his heirs shall have the right to redeem the same within one
(1) year from the date of foreclosure in the case of land not covered by a Torrens Title or one (1) year from
the date of the registration of the foreclosure in the case of land covered by a Torrens Title: Provided,
finally, That in any case, borrowers, especially those who are mere tenants, need only to secure their loans
with the procedure corresponding to their share.
A rural bank shall be allowed to foreclosure lands mortgaged to it; Provided, That said lands shall be
covered under Republic Act No. 6657.
Section 7. With the view to ensuring the balanced rural economic growth and expansion, rural banks
may, within limits and conditions fixed by the Monetary Board, devote a portion of their loanable funds to
meeting the normal credit needs of small business enterprises; Provided, That loans shall not exceed
fifteen percent (15%) of the net worth of a rural bank or such amount as the Monetary Board may
prescribe as may be warranted by prevailing economic conditions, and of essential enterprises or
industries, other than those which are strictly agricultural in nature.
Section 8. To provide supplemental capital to any rural bank until it has accumulated enough capital of its
own or stimulate private investments in rural banks, the Land Bank of the Philippines, the Development
Bank of the Philippines or any government-owned or controlled bank or financial institution shall subscribe
within thirty (30) days to the capital stock of any rural bank from time to time in an amount equal to the
total equity investment of the private shareholders which shall be paid in full at the time of the
subscription or such amount as may be necessary to promote and expand rural economic development:
Provided, however, That shares of stock issued to the Land Bank of the Philippines, the Development Bank
of the Philippines or any government-owned or controlled bank or financial institution, may, pursuant to
this section, at any time, be paid off at par and retired in whole or in part if the rural bank has accumulated
enough capital strength to permit retirement of such shares, or if an offer is received form private sources
to replace the equity investment of the Land Bank of the Philippines, the Development Bank of the
Philippines or any government owned or controlled bank or financial institution with an equivalent
investment or more in the equity of such bank. In case of retirement of stock or replacement of equity
investments of the Land Bank of the Philippines, the Development Bank of the Philippines or of any
government-owned or controlled bank or financial institution, the registered private shareholders of the
rural bank shall have the right of preemption within one (1) year from the date of offer in proportion to
their respective holdings.
Stocks held by the Land Bank of the Philippines, the Development Bank of the Philippines or by any
government-owned or controlled bank or financial institution, under the terms of this section, shall be
made preferred only as to assets upon liquidation and without the power to vote and shall share in
dividend distributions from the date of issuance in the amount of four percent (4%) on the first and second
years, six percent (6%) on the third and fourth years, eight percent (8%) on the fifth and sixth years, ten
percent (10%) on the seventh and eighth years and twelve percent (12%) on the ninth to the fifteenth
years without preference; Provided, however, That if such stock of the Land Bank of the Philippines, the
Development Bank of the Philippines or any government owned or controlled bank or financial institution is
sold to private shareholders, the same may be converted into common stock of the class provided for in
Section 10 hereof: Provided, further, That pending the amendment of the Articles of Incorporation of the
rural bank, if necessary, for the purpose of reflecting the conversion into common stock of preferred stock
sold to private stockholders, the transfer shall be recorded by the rural bank in the stock and transfer book
and such shareholders shall thereafter enjoy all the rights and privileges of common stockholders. The
preferred stocks so transferred shall be surrendered and cancelled and the corresponding common stocks
shall be issued.
The corporate secretary of the rural bank shall submit to the Central Bank and the Securities and
Exchange Commission a report on every transfer of preferred stock to private shareholders, and such
report received by the Securities and Exchange Commission shall form part of the corporate records of the
rural bank. When all the preferred shares of stock of rural bank have been sold to private shareholders, the
Articles of Incorporation of the rural bank shall be amended to reflect the conversion of the preferred
shares of stock into common stock. For this purpose, the President, the corporate secretary, and a majority
of the Board of Directors shall issue a certificate that all preferred shares have been sold to private
shareholders which, together with a copy of the Articles of Incorporations, as amended, and a majority of
the Board of Directors, shall be filed with the Securities and Exchange Commission, which shall attach the
same to the original Articles of Incorporation on file with said office.
The Securities and Exchange Commission shall not register the amended Articles of Incorporation unless
accompanied by the Certificate of Authority required under Section 9 of Republic Act No. 337, as amended.
All supervised past due and restructured past due loans, including those covered under existing
rehabilitation programs of the Central Bank, and fifty percent (50%) of non-supervised past due and
restructured past due loans including accrued interest thereon of rural banks organized under Republic Act
No. 720, as amended, as of December 31, 1986, shall be converted into preferred stocks of the rural bank
and issued in favor of the Land Bank of the Philippines, the Development Bank of the Philippines or any
government-owned or controlled bank or financial institution: Provided, That penalties thereon are hereby
waived except accrued interest on arrearages: Provided, further, That the equivalent penalties due from
corresponding farmers are likewise waived: Provided, further, That rural banks that prefer to settle their
arrearages under a plan of payment or a combination of both plan of payment and conversion may do so
in accordance with existing regulations and provisions of this Act: Provided, furthermore, That rural banks
shall match these preferred stocks with private equity in equal annual installments over a period of fifteen
(15) years to begin three (3) years after conversion; Provided, finally, that the Central Bank, the Land Bank
of the Philippines, the Development Bank of the Philippines and any government-owned or controlled bank
or financial institution shall continue to rediscount subject to their respective programs, policies and
guidelines against papers evidencing a loan granted by a rural bank in order to achieve the declared policy
and promote the objectives of this Act.
Section 9. The Land Bank of the Philippines, the Development Bank of the Philippines or any government-
owned or controlled bank or financial institution may obtain from any source as may be authorized under
existing laws and regulations such amounts as it may require for the purpose of subscribing to the shares
of stock of rural banks, and of granting loans to such banks as provided in Section 13 of this Act.
Section 10. Stock certificates shall be issued to represent the contributions to capital stock of the rural
bank by the Government through the Land Bank of the Philippines, the Development Bank of the
Philippines or any government-owned or controlled bank or financial institution, and by qualified persons
under such terms and conditions as the Monetary Board may prescribe. The powers of the Monetary Board
over rural banks shall extend to prescribing the amount, value and class of stock issued by any rural bank,
organizing under this Act.
Section 11. The power to supervise the operation of any rural bank by the Monetary Board as herein
indicated shall consist in placing limits to the maximum credit allowed to any individual borrower; in
prescribing the interest rate, in determining the loan period and loan procedures, in indicating the manner
in which technical assistance shall be extended to rural banks, in imposing a uniform accounting system
and manner keeping the accounts and records of rural banks; in instituting periodic surveys of loan and
lending procedures, audits, test-check of cash and other transactions of the rural banks; in conducting
training courses for personnel of rural banks; and, in general, in supervising the business operations of the
rural banks.
The Central Bank shall have the power to enforce the laws, orders, instructions, rules and regulations
promulgated by the Monetary Board, applicable to rural banks; to require rural banks, their directors,
officers and agents to conduct and manage the affairs of the rural banks in a lawful and orderly manner;
and, upon proof that the rural bank or its Board of Directors, or officers are conducting and managing the
affairs of the bank in a manner contrary to laws, orders, instructions, rules and regulations promulgated by
the Monetary Board or in a manner substantially prejudicial to the interest of the Government, depositors
or creditors, to take over the management of such bank when specifically authorized to do so by the
Monetary Board after due hearing process until a new board of directors and officers are elected and
qualified without prejudice to the prosecution of the persons responsible for such violations under the
provisions of Sections 32, 33 and 34 of Republic Act No. 265, as amended.
The management of the rural bank by the Central Bank shall be without expense to the rural bank, except
such as is actually necessary for its operation, pending the election and disqualification of a new board of
directors and officers to take place of those responsible for the violations or acts contrary to the interest of
the Government, depositors or creditors.
The director and the examiners of the department of the Central Bank charged with the supervision of
rural banks are hereby authorized to administer oaths to any director, officer or employee of any rural
bank or to any voluntary witness and to compel the presentation of all books, documents, papers or
records necessary in his or their judgment to ascertain the facts relative to the true condition of any rural
bank or to any loan.
Section 12. In addition to the operations specifically authorized in this Act, any rural bank may;
(a) Accept savings and time deposits;
(b) Open current or checking accounts, provided the rural bank has net assets of at least Five Million pesos
(P5,000,000) subject to such guidelines as may be established by the Monetary Board;
(c) Act as correspondent for other financial institutions;
(d) Act as a collection agent;
(e) Act as official depository of municipal, city or provincial funds in the municipality, city or province
where it is located, subject to such guidelines as may be established by the Monetary Board.
(f) Rediscount paper with the Philippine National Bank, the Land Bank of the Philippines, the Development
Bank of the Philippines or any banking institution, including its branches and agencies. Said institution
shall specify the nature of paper deemed acceptable for rediscount, as well as the rediscount rate to be
charged by any of these institutions;
(g) Offer other banking services as provided in Section 72 of Republic Act No. 337, as amended; and
(h) Extend financial assistance to private and public employees in accordance with the provisions of
Sections 5 or Republic Act No. 3779, as amended.
With written permission of the Monetary Board of the Central Bank, any rural bank may act as trustee over
estates or properties of farmers and merchants;
Nothing in this section shall be construed as precluding a rural bank from performing, with prior approval
of the Monetary Board, all the services authorized for savings and mortgage banks, or for commercial
banks, under Republic Act No. 337, as amended, or from operating under an expanded authority as
provided in Section 21-B of the same Act.
Section 13.Subject to such guidelines as may be established by the Monetary Board, rural banks may
invest in equities of allied undertakings as hereinafter enumerated: Provided, That: (a) the total
investment to equities shall not exceed twenty-five percent (25%) of the net worth of the rural bank; (b)
the equity investment in any single enterprise shall be limited to fifteen percent (15%) of the net worth of
the rural bank; and (c) the equity investment of the rural bank in any single enterprise shall remain a
minority holding in that enterprise: Provided, further, That equity investment shall not be permitted in non-
related activities;
Allied undertakings shall include;
(a) Banks, financial institutions and non-bank financial intermediaries;
(b) Warehousing and other post-harvest facilities;
(c) Fertilizer and agricultural chemical and pesticides distribution;
(d) Farm equipment distribution;
(e) Trucking and transportation of agricultural products;
(f) Marketing of agricultural products;
(g) Leasing; and
(h) Other undertakings as may be determined by the Monetary Board.
Section 14. The Land Bank of the Philippines, the Development Bank of the Philippines or any
government-owned or controlled bank or financial institution shall within sixty (6) days of certification of
the Monetary Board, which shall be final, extend to a rural bank a loan or loans from time to time
repayable in ten (10) years, with concessional rates of interest, against security which may be offered by
any stockholder or stockholders of the rural bank: Provided:
(a) That the Monetary Board is convinced that the resources of the rural bank are inadequate to meet the
legitimate credit requirements of the locality wherein the rural bank is established;
(b) That there is a dearth of private capital in the said locality; and
(c) That it is not possible for the stockholders of the rural bank to increase the paid-up capital thereof.
Section 15. All rural banks created and organized under the provisions of this Act shall be exempt from
the payment of all taxes, fees and charges of whatever nature and description, except the
corporate income tax and local taxes, fees and charges, for a period of five (5) years from the date of
commencement of operations.
All rural banks in operation as of the date of approval of this Act shall be exempt from the payment of all
taxes, fees and charges of whatever nature and description, except the corporate income tax and local
taxes, fees and charges, for a period of five (5) years from the approval of this Act.
Section 16. In an emergency or when a financial crisis is imminent, the Central Bank may give a loan to
any rural bank against assets of the rural bank which may be considered acceptable by a concurrent vote
of a least four (4) members of the Monetary Board.
In normal times, the Central Bank may rediscount against paper evidencing a loan granted by a rural bank
to any of its customers which can be liquefied within a period of three hundred sixty (360) days; Provided,
however, That for the purpose of implementing a nationwide program of agricultural and industrial
development, rural banks are hereby authorized, under such terms and conditions as the Central Bank
shall prescribe, to borrow, on a medium or long-term basis, funds that the Central Banks or any other
government financing institution shall borrow from the Development Bank of the Philippines or other
international or foreign-lending institutions for the specific purpose of financing the abovestated
agricultural and industrial program. Repayment of loans obtained by the Central Bank of the Philippines or
any other government-financing institution form said foreign lending institutions under this section shall be
guaranteed by the Republic of the Philippines.
Section 17. Deposits of rural banks with government-owned or controlled financial institutions like the
Land Bank of the Philippines, the Development Bank of the Philippines, and the Philippine National Bank
are exempted from the Single Borrower’s Limit imposed by the General Banking Act.
In areas where there are no government banks, rural banks may deposit in private banks more than the
amount prescribed by the Single Borrower’s Limit, subject to Monetary Board regulations.
Section 18. To encourage consolidation and mergers of rural banks, there are five (5) or more rural banks
within the region that merge and consolidate within three (3) years from the enactment of this Act, the
merged or consolidated entity will be given the following incentives for a period of seven (7) years.
(a) Its deposit liabilities shall be subjected to only one third (1/3) of reserves normally required for rural
banks.
(b) Its reserve requirement can all be maintained under interest-bearing government securities but kept
unencumbered with government financial institutions or the Central Bank; and
(c) It shall have unrestricted branching right within the region, free from any assessment or surcharges
required in setting up a branch but under coordination with the Central Bank which will have to assess that
there are qualified personnel, control and procedures to operate the branch.
Section 19. The Central Bank of the Philippines shall extend technical assistance to any rural bank in the
process of organization or during the course of operations whenever it is requested to do so or whenever
the Monetary Board deems it necessary to preserve, protect and promote the objectives of this Act;
Provided, however, That said assistance shall be without cost or obligation on the part of the rural bank.
Section 20. Any city of municipal trial court judge in his capacity as notary public ex officio shall
administer the oath or acknowledge the instruments of any rural bank and its borrowers or mortgagors,
free from all charges, fees and documentary stamp tax, collectible under existing laws, relative to any loan
or transaction not exceeding Fifty thousand pesos (P50,000) or such amount as the Secretary of Finance,
upon recommendation of the Monetary Board may prescribe as may be necessary to promote and expand
the rural economy.
Section 21. Any register of Deeds shall accept from any rural bank and its borrowers and mortgagors for
registration, free from all charges, fees and documentary stamp tax, collectible under existing laws, any
instrument, whether voluntary or involuntary, relating to loans or transaction extended by a rural bank in
an amount not exceeding Fifty thousand pesos (P50,000); Provided, however, That charges, if any, shall be
collectible on the amount in excess of Fifty thousand pesos (P50,000); and that in instruments related to
assignments of several mortgages consolidated in a single deed, if any, shall be levied only on the amount
in excess of Fifty thousand pesos (P50,000) of the consideration in the assignment of each mortgage, or
such amount as the Secretary of Finance, upon recommendation of the Monetary Board, may prescribe as
may be necessary to promote and expand the rural economy.
Section 22. Any rural bank organized under this Act may, pursuant to regulations promulgated for the
purpose by the Monetary Board, be required to contribute to the Central Bank an annual fee to help defray
the cost of maintaining the appropriate supervising department within the Central Bank in an amount to be
determined by the Monetary Board but in no case to exceed one fortieth of one percent (1/40 of 1%) of its
average total assets during the preceding years, as shown on its end-of-month balance sheets, after
deducting its cash on hand and amounts due from banks, including the Central Bank.
Section 23. Every individual acting as officer or employee of a rural bank and handling funds or securities
amounting to Five thousand pesos (P5,000) or more, in any one (1) year, shall be covered by an adequate
bond as determined by the Monetary Board; and the bylaws of the rural bank may also provide for the
bonding of other employees or officers of rural banks.
Section 24. For the purpose of carrying out the objectives of this Act, the Central Bank is authorized to
require the services and facilities of any department or instrumentality of the Government or any officer or
employee of any such departments or government instrumentality.
Section 25. Rural banks organized and operated under the provisions of this Act shall act as agents of the
Philippine National Bank, The Land Bank of the Philippines, the Development Bank of the Philippines in
places where these have no offices, subject to accreditation guidelines.
Section 26. Without prejudice to any prosecution under any law which may have been violated, a fine of
not more than Ten thousand pesos (P10,000), or imprisonment for not less than six (6) months but more
than ten (10) years, or both, at the discretion of the court, shall be imposed upon.
(a) Any officer, employee, or agent of a rural bank who shall:
(1) Make false entries in any bank report or statement thereby affecting the financial interest of, or causing
damage to, the bank or any person; or
(2) Without order of a court of competent jurisdiction, disclose any information relative to the funds or
properties in the custody of the bank belonging to private individuals, corporations, or any other entity; or
(3) Accept gifts, fees or commission or any other form of remuneration in connection with the approval of a
loan from said bank; or
(4) Otherwise or aid in overvaluing any security for the purpose of influencing in any way of the action of
the bank on any loan; or
(5) Appear and sign as guarantor, indorser, or surety for loans granted; or
(6) Violate any of the provisions of this Act.
(b) Any applicant for a loan from, or borrower of a rural bank who shall:
(1) Misuse, misapply, or divert the proceeds of the loan obtained by him from its declared purpose; or
(2) Fraudulently overvalue property offered as security for a loan from said bank; or
(3) Give out or furnish false or willful misrepresentation of material facts for the purpose of obtaining,
renewing, or increasing a loan or extending the period thereof; or
(4) Attempt to defraud the said bank in the event of court action to recover a loan; or
(5) Offer any officer, employee or agent of a rural bank as a gift, fee, commission or other form of
compensation in order to influence such bank personnel into approving a loan application; or
(6) Dispose or encumber the property or the crops offered as security for the loan.
(c) Any examiner, or officer or employee of the Central Bank of the Philippines or of any department,
bureau, office, branch or agency of the Government who is assigned to examine, supervise, assist or
render technical service to rural banks and who shall connive or aid in the commission of the same.
Section 27. Any municipal trial court judge or register of deeds who shall demand or accept, directly or
indirectly, any gift, fee, commission or other form of compensation in connection with the service, or shall
arbitrarily or without reasonable cause delay the acknowledgment or administration of oath or the
registration of documents required to be performed by said judge as provided in Section 20 and by said
register of deeds as provided in Section 21 of this Act, shall be punished by a fine of not more than One
thousand pesos (P1,000) or by imprisonment for not more than one (1) year, or both, at the discretion of
the court.
Section 28. Any bank not organized under this Act and any person, association, or corporation doing the
business of banking, not authorized under this Act which shall use the words “Rural Bank” as part of the
name or title of such bank or of such person, association, or corporation, shall be punished by a fine of not
less than Fifty pesos (P50) for each day during which said words are so used.
Section 29. The Monetary Board of the Central Bank shall submit a report to the Congress of the
Philippines as of the end of each calendar year of all the rules and regulations promulgated by it in
accordance with the provisions of this Act, as well as its other actuations in connection with rural banks,
together with an explanation of its reasons therefor.
Section 30. If any provision or section of this Act or the application thereof to any person or
circumstances is held invalid, the other provisions of sections of this Act, and the application of such
provision or section to other persons or circumstances, shall not be affected thereby.
Section 31. Republic Act No. 720, as amended, is hereby repealed. The provisions of Republic Act No.
265, as amended, and Republic Act No. 337, as amended, insofar as they are applicable and not in conflict
with any provision of this Act, are hereby made a part of this Act.
Section 32. This act shall take effect upon its approval.
Approved: April 2, 1992
Approved,
NEPTALI GONZALES RAMON V. MITRA
President of Senate Speaker of the House of Representatives
This Act which is a consolidation of House Bill No. 28736 and Senate Bill No. 1554 was finally passed by the
House of Representatives and the Senate on January 22, 1992.
CAMILO L. SABIO
Secretary of the Senate Secretary General
House of Representatives
Approved : April 02, 1992
CORAZON C. AQUINO
President of the Philippines

Pasted from <http://www.bcphilippineslawyers.com/republic-act-no-7353/>

REPUBLIC ACT NO. 7906


Sunday, June 06, 2010
12:13 AM

REPUBLIC ACT NO. 7906


.
.
AN ACT PROVIDING FOR THE REGULATION OF THE ORGANIZATION AND
OPERATIONS OF THRIFT BANKS, AND FOR OTHER PURPOSES.
CHAPTER I
DECLARATION OF POLICY AND DEFINITIONS
Section 1. Title. — This Act shall be known and cited as the "Thrift Banks Act of 1995."
Sec. 2. Declaration of Policy. — It is hereby declared the policy of the State to:
(a) Recognize the indispensable role of the private sector, to encourage private
enterprise, and to provide incentives to needed investments;
(b) Promote economic development pursuant to the socioeconomic program of the
government, to expand industrial and agricultural growth, to encourage the
establishment of more private thrift banks in order to meet the needs for capital, personal
and investment credit or medium- and long-term loans for Filipino entrepreneurs;
(c) Encourage and assist the establishment of thrift bank system which will promote
agriculture and industry and at the same time place within easy reach of the people the
medium-and long-term credit facilities at reasonable cost;
(d) Encourage industry, frugality and the accumulation of savings among the public, and
the members and stockholders of thrift banks; and
(e) Regulate and supervise the activities of thrift banks in order to place their operations
on a sound, stable and efficient basis and to curtail or prevent acts or practices which
are prejudicial to the public interest.
Sec. 3. Definition of Terms. — For purposes of implementing this Act, the following
definitions shall apply:
(a) "Thrift banks" shall include savings and mortgage banks, private development banks,
and stock savings and loans associations organized under existing laws, and any
banking corporation that may be organized for the following purposes:
(1) Accumulating the savings of depositors and investing them, together with capital
loans secured by bonds, mortgages in real estate and insured improvements thereon,
chattel mortgage, bonds and other forms of security or in loans for personal or
household finance, whether secured or unsecured, or in financing for homebuilding and
home development; in readily marketable and debt securities; in commercial papers and
accounts receivables, drafts, bills of exchange, acceptances or notes arising out of
commercial transactions; and in such other investments and loans which the Monetary
Board may determine as necessary in the furtherance of national economic objectives;
(2) Providing short-term working capital, medium- and long-term financing, to businesses
engaged in agriculture, services, industry and housing; and
(3) Providing diversified financial and allied services for its chosen market and
constituencies specially for small and medium enterprises and individuals.
(b) "Monetary Board" shall mean the Monetary Board of the Bangko Sentral ng Pilipinas.
(c) "Bangko Sentral" shall refer to the Bangko Sentral ng Pilipinas created under
Republic Act No. 7653.
CHAPTER II
ORGANIZATION
Sec. 4. Organization. — A thrift bank shall be organized in the form of stock
corporation. The Monetary Board shall fix the minimum paid-up capital of thrift banks in
such amount as the Board may consider necessary for the safe and sound operation of
thrift banks taking into account the development thrusts of this Act and due protection of
the general public. No thrift bank shall be organized without a certificate of authority from
the Monetary Board.
Sec. 5. Establishment of Thrift Banks. — The articles of incorporation of any bank, or
any amendment thereto, shall not be registered by the Securities and Exchange
Commission unless accompanied by a certificate of authority issued by the Monetary
Board under its official seal .Such certificate shall not be issued unless the Monetary
Board is satisfied from the evidence submitted to it: (a) that all the requirements of the
existing laws and regulations to engage in business for which the applicant is proposed
to be incorporated have been complied with; (b) that public interest and the economic
conditions, both general and local, justify the authorization; and (c) that the amount of
capital, the financing organization, direction and administration, as well as the integrity
and the responsibility of the organizers and administrators reasonably assure the safety
of the interest which the public may entrust to them.
The by-laws of any thrift bank, or any amendment thereto, shall not be registered by the
Securities and Exchange Commission unless accompanied by a certificate of the
Monetary Board to the effect that such by-laws or amendments thereto are in
accordance with law.
Sec. 6. Bank Management. — In order to maintain the quality of bank management and
afford better protection to depositors and the public in general, the Monetary Board may
pass upon and review the qualifications of persons who are elected or appointed bank
directors and officers and disqualify those unfit. The Monetary Board shall prescribe the
qualifications of bank directors and officers for purposes of this Section.
Sec. 7. Directors and Officers. — At least a majority of the members of the board of
directors of any thrift bank which may be established after the effectivity of this Act shall
be citizens of the Philippines: Provided, however, That no appointive or elective official,
whether full-time or part-time, shall at the same time serve as officer of any thrift bank,
except in cases where such service is incident to financial assistance provided by the
government or a government-owned or -controlled corporation to the bank: Provided,
further, That in the case of merger or consolidation duly approved by the Monetary
Board, the limitation on the number of directors in a corporation, as provided in Section
14 of the Corporation Code of the Philippines, shall not be applied so that membership in
the new board may include up to the total number of directors provided for in the
respective articles of incorporation of the merging or consolidating banks.
CHAPTER III
OWNERSHIP AND CAPITAL REQUIREMENTS
Sec. 8. Ownership. — At least forty percent (40%) of the voting stock of a thrift bank
which may be established after the approval of this Act shall be owned by citizens of the
Philippines, except where a new bank may be established as a result of a merger or
consolidation of existing thrift banks with foreign holdings in which case, the resulting
foreign holdings shall not be increased but may be reduced and, once reduced, shall not
be increased thereafter beyond sixty percent (60%) of the voting stock of thrift
banks. The percentage of the foreign-owned voting stocks shall be determined by the
citizenship of individual stockholders and in case of corporations owning shares, by the
citizenship of each stockholder in the said corporations.
Any provision of existing laws to the contrary notwithstanding, stockholdings in a thrift
bank shall be exempt from any ownership ceiling for a period of ten (10) years from the
effectivity of this Act.
Sec. 9. Combined Capital Accounts of Thrift Banks. — The combined capital accounts of
each thrift bank shall not be less than an amount equal to ten percent (10%) of its risk
assets which is defined as its total assets minus the following assets:
(a) Cash on hand;
(b) Amounts from the Bangko Sentral;
(c) Evidences of indebtedness of the Republic of the Philippines and of the Bangko
Sentral, and any other evidences of indebtedness or obligations the servicing and
repayment of which are fully guaranteed by the Republic of the Philippines;
(d) Loans to the extent covered by hold-out on, or assignment of deposits maintained in
the lending bank and held in the Philippines; and
(e) Other non-risk items as the Monetary Board may, from time to time, authorize to be
deducted from total assets.
The Monetary Board shall prescribe the manner of determining the total assets of
banking institutions for purposes of this Section.
Whenever the capital accounts of a bank are deficient with respect to the requirements
of the preceding paragraph, the Monetary Board, after considering the report of the
appropriate supervising department on the state of solvency of the institution, shall limit
or prohibit the distribution of net profits and shall require that part or all of net profits be
used to increase the capital accounts of the institution until the minimum requirement
has been met.The Monetary Board may, after considering the aforesaid report of the
appropriate supervising department and if the amount of the deficiency justifies it, restrict
or prohibit the making of new investments of any sort by the bank, with the exception of
purchases of evidences of indebtedness included under subsection (c) of this Section,
until the minimum required capital ratio has been restored.
Where in the process of a bank merger or consolidation, the merged or constituent bank
may not be able to comply fully with the net worth to risk asset ratio herein prescribed,
the Monetary Board may, at its discretion, temporarily relieve the bank from full
compliance with this requirement under such conditions it may prescribe.
CHAPTER IV
POWERS
Sec. 10. Powers of Thrift Banks. — In addition to powers granted it by this Act and
existing laws, any thrift bank may:
(a) Accept savings and time deposits;
(b) Open current or checking accounts: Provided, That the thrift bank has net assets of
at least Twenty million pesos (P20,000,000) subject to such guidelines as may be
established by the Monetary Board; and shall be allowed to directly clear its demand
deposit operations with the Bangko Sentral and the Philippine Clearing House
Corporation;
(c) Act as correspondent for other financial institutions;
(d) Act as collection agent for government entities, including but not limited to, the
Bureau of Internal Revenue, Social Security System, and the Bureau of Customs;
(e) Act as official depository of national agencies and of municipal, city or provincial
funds in the municipality, city or province where the thrift bank is located, subject to such
guidelines as may be established by the Monetary Board;
(f) Rediscount paper with the Philippine National Bank, the Land Bank of the Philippines,
the Development Bank of the Philippines, and other government-owned or -controlled
corporations. Said institutions shall specify the nature of paper deemed acceptable for
rediscount, as well as rediscounting rate to be charged by any of these institutions; and
(g) Issue mortgage and chattel mortgage certificates, buy and sell them for its own
account or for the account of others, or accept and receive them in payment or as
amortization of its loan.
Such mortgage and chattel mortgage certificates shall be issued exclusively in national
currency and exclusively for the financing of equipment loans, mortgage loans for the
acquisition of machinery and other fixed installations, conservation, enlargement or
improvement of productive properties and real estate mortgage loans for: (1) the
construction, acquisition, expansion or improvement of rural and urban properties; (2)
the refinancing of similar loans and mortgages; and (3) such other purposes as may be
authorized by the Monetary Board.
A thrift bank shall coordinate the amounts and maturities of its certificates with those of
its loans, so as to ensure adequate cash receipts for the payment of principal and
interest at the time they become due. The bank shall accept its own certificates at least
at the actual price of issue, in any prepayment of loans which mortgage or chattel
mortgage debtors may wish to make: Provided, That the date of maturity of the
certificates is not later than the date on which the payment would otherwise become
due, in the absence of the aforesaid prepayment;
(h) Purchase, hold and convey real estate under the same conditions as those governing
commercial banks as specified under Section 25 of Republic Act No. 337;
(i) Engage in quasi-banking and money market operations;
(j) Open domestic letters of credit;
(k) Extend credit facilities to private and government employees: Provided, That in the
case of a borrower who is a permanent employee or wage earner, the treasurer, cashier
or paymaster of the office employing him is authorized, notwithstanding the provisions of
any existing law, rules and regulations to the contrary, to make deductions from his
salary, wage or income pursuant to the terms of his loan, to remit deductions to the thrift
bank concerned, and collect such reasonable fee for his services;
(l) Extend credit against the security of jewelry, precious stones and articles of similar
nature, subject to such rules and regulations as the Monetary Board may prescribe; and
(m) Offer other banking services as provided in Section 72 of Republic Act No. 337 and
Republic Act No. 6426, as amended.
Thrift banks may perform the services under subsections (b), (d), (e), (g) and (i) only
upon prior approval of the Monetary Board.
Nothing in this Section shall be construed as precluding a thrift bank from performing,
with prior approval of the Monetary Board, commercial banking services, or from
operating under an expanded banking authority, nor from exercising, whenever
applicable and not inconsistent with the provisions of this Act and Bangko Sentral
regulations, and such other powers incident to a corporation.
Sec. 11. Limitations on Lending Authority. — Except as the Monetary Board may
otherwise prescribe, the direct indebtedness to thrift banks of any person, company,
corporation, or firm, including the indebtedness of members of a partnership and
association, for money borrowed, excluding: (a) loans secured by obligations of the
Bangko Sentral; (b) loans fully guaranteed by the government as to the payment of
principal and interest; (c) loans to the extent covered by the hold-out on, or assignment
of, deposits maintained in the lending bank and held in the Philippines; and (d) other
loans or credits as the Monetary Board may, from time to time, specify as non-risk
assets, which shall in no time exceed fifteen percent (15%) of unimpaired capital and
surplus of the bank.
Notwithstanding the provisions of the preceding paragraph and subject to such
regulations as the Monetary Board may prescribe, the total indebtedness of any
borrower to the bank may amount to a further fifteen percent (15%) of the unimpaired
capital and surplus of such bank provided the additional indebtedness is for the purpose
of financing subdivision or housing development, medium- and low-income borrowers
and agriculture on a fully secured basis.
The term "indebtedness" as used herein, shall mean the direct liability of the maker or
acceptor of paper discounted with or sold to such bank and liability of the indorser,
drawer or guarantor who obtains a loan from or discounts paper with or sells paper
under his guaranty to such bank; and shall include in the case of liabilities of a
partnership or association the liabilities of the several members thereof; and shall
include in the case of liabilities of a corporation, all liabilities of all the subsidiaries
thereof in which such corporation owns or controls a majority interest: Provided, That
even if the parent corporation, partnership or association has no liability to the bank, the
Monetary Board may prescribe the combination of liabilities of subsidiary corporations or
members of the partnership or association under certain circumstances, including but
need not be limited to any of the following situations: (a) the parent corporation,
partnership or association guarantees the repayment of liabilities; (b) the liabilities were
incurred for the accommodation of the parent corporation or another subsidiary or of the
partnership or association; or (c) the subsidiaries through separate entities operate
merely as departments or divisions of a single entity: Provided, further, That the discount
of bills of exchange drawn in good faith against actually existing values, and the discount
of commercial and business paper actually owned by the person negotiating the same,
shall not be considered as money borrowed for the purpose of this Section: Provided,
finally, That certain types of contingent liabilities of borrowers may be included among
the total liabilities as may be determined by the Monetary Board.
Loan accommodations granted by thrift banks to any other bank, as well as deposits
maintained by them in any bank licensed to do business in the Philippines, shall be
subject to the loan limit of any single borrower as herein prescribed.
Sec. 12. Investment in Allied Undertakings. — Subject to such guidelines as may be
established by the Monetary Board, thrift banks may invest in equities of allied
undertakings as hereinafter enumerated: Provided, That: (a) the total investments in
equities shall not exceed twenty-five percent (25%) of the net worth of the thrift bank; (b)
the equity investment in any single enterprise shall be limited to fifteen percent (15%) of
the net worth of the thrift bank; (c) the equity investment in any single enterprise shall
remain a minority holding in that enterprise; and (d) the equity investment in other banks
shall be subject to the same provisions governing similar investments of commercial
banks and shall be deducted from the investing bank's net worth for the purpose of
computing of the prescribed ratio as provided in Section 9 hereof: Provided, further, That
equity investments shall not be permitted in non-related activities.Where the allied
activity is a wholly- or majority-owned subsidiary of the thrift bank, the Bangko Sentral
may subject it to examination.
Investment in allied undertaking shall include institutions engaged in the following
activities:
(a) Banking and financing;
(b) Warehousing and other post-harvesting activities;
(c) Fertilizer and agricultural chemical and pesticides distribution;
(d) Farm equipment distribution;
(e) Trucking and transportation of agricultural products;
(f) Marketing of agricultural products;
(g) Leasing; and
(h) Other undertakings as may be determined by the Monetary Board.
CHAPTER V
SUPERVISION
Sec. 13. Supervisory Powers of the Monetary Board. — The power to supervise the
operation of any thrift bank by the Monetary Board shall consist in placing limits to the
maximum credit allowed to any individual borrower; in indicating the manner in which
technical assistance shall be extended to thrift banks; in imposing a uniform accounting
system and manner of keeping the accounts and records of thrift banks; in instituting
periodic surveys of loans and lending procedures, audits, test-check of cash and other
transactions of the thrift banks; in conducting training courses for personnel of thrift
banks; and, in general, in supervising the business operations of the thrift banks.
The Bangko Sentral shall have the power to enforce the laws, orders, instructions, rules
and regulations promulgated by the Monetary Board applicable to thrift banks; to require
thrift banks, their directors, officers and agents to conduct and manage the affairs of the
thrift bank in a lawful and orderly manner; and upon proof that the thrift bank or its board
of directors or officers are conducting and managing the affairs of the bank in a manner
contrary to laws, orders, instructions, rules and regulations promulgated by the Monetary
Board or in a manner substantially prejudicial to the interest of the government,
depositors, creditors, or the general public, to appoint a conservator pursuant to Section
29 of Republic Act No. 7653 without prejudice to the prosecution of persons responsible
for such violations under the provisions of Sections 36 and 37 of Republic Act No. 7653.
The director and examiners of the department of Bangko Sentral charged with the
supervision of thrift banks are hereby authorized to administer oaths to any director,
officer or employee of any thrift bank or to any voluntary witness and to compel the
presentation of all books, documents, papers or records necessary in his or their
judgment to ascertain the facts relative to the true conditions of any thrift bank or to any
loan.
CHAPTER VI
INCENTIVES
Sec. 14. Reserve Requirement Differential. — Reserve requirement imposed on thrift
banks by the Monetary Board shall enjoy equitable preferential terms over those
imposed on commercial banks: Provided, That the Monetary Board may change reserve
differentials for the purpose of stimulating economic growth in the countryside, thereby
promoting national economic development.
Sec. 15. Liberalized Branching Rules. — Thrift banks shall have unrestricted branching
right within the region, free from any assessment or surcharges required in setting up a
branch, but under coordination with the Bangko Sentral which will have to assess that
there are qualified personnel, control and procedures to operate the branch.
Sec. 16. Notices of Statement of Condition. — Subject to Monetary Board approval, a
thrift bank may publish its statement of condition in a newspaper of general circulation,
or post it in the most conspicuous area of its premises, municipal building, municipal
public market, barangay hall and barangay public market if there be any, where the thrift
bank concerned is located.
CHAPTER VII
EXEMPTIONS
Sec. 17. Tax Exemptions. — All thrift banks, whether created or organized under this Act
or in operation as of the date of effectivity of this Act, shall be exempt from payment of
all taxes, fees and charges of whatever nature and description, except the corporate
income taxes and local taxes, fees and charges for a period of five (5) years, counted
from the date of commencement of operations for thrift banks created under this Act and
from the date of the effectivity of this Act for existing thrift banks.
Sec. 18. Exemption from Publication Requirement. — The foreclosure of mortgage
covering loans granted by thrift banks and executions of judgments thereon involving
real properties and levied upon by a sheriff shall be exempt from publication
requirements where the total amount of the loan, excluding interest due and unpaid,
does not exceed One hundred thousand pesos (P100,000) or such amount as the
Monetary Board may prescribe, as may be warranted by the prevailing economic
conditions and by the nature of service of customers served by each category of the
thrift bank. It shall be sufficient publication in such cases if the notice of foreclosure and
execution of judgment are posted in the conspicuous area of a thrift bank's premises,
municipal building, the municipal public market, the barangay hall, and the barangay
public market, if there be any, where the land mortgaged is situated within a period of
sixty (60) days immediately preceding the public auction of the execution of
judgment. Proof of publication as required herein shall be accomplished by an affidavit of
the sheriff or officer conducting the foreclosure sale or execution of judgment and shall
be attached with the records of the case.
A thrift bank shall be allowed to foreclose lands mortgaged to it; Provided, That said
lands shall be covered under Republic Act No. 6657.
Sec. 19. Exemption from Notarial Charges. — Any metropolitan, municipal, or municipal
circuit trial court judge in his capacity as notary public ex officio shall administer the oath
to or acknowledge the instrument of any thrift bank and its borrowers or mortgagor free
from all charges, fees and documentary stamp tax, collectible under existing laws,
relative to any loan or transaction not exceeding Fifty pesos (P50.00) or such amount as
the Secretary of Finance, upon recommendation of the Monetary Board, may prescribe
as may be necessary to promote and expand the economy.
Sec. 20. Exemption from Registration Fees. — Any register of deeds shall accept from
any thrift bank and its borrowers and mortgagors for registration, free from all charges,
fees and documentary stamp tax, collectible under existing laws, any instrument,
whether voluntary or involuntary, relating to loans or transactions extended by any thrift
bank in an amount not exceeding Fifty thousand pesos (P50,000): Provided, however,
That charges, if any, shall be collectible on the amount in excess of Fifty thousand pesos
(P50,000); and that an instrument related to assignments of several mortgages
consolidated in a single deed, if any, shall be levied only on the amount in excess of Fifty
thousand pesos (P50,000) of the consideration in the assignment of each mortgage, or
such amount as the Secretary of Finance, upon recommendation of the Monetary Board,
may prescribe as may be necessary to promote and expand the economy.
CHAPTER VIII
PROHIBITIONS
Sec. 21. Prohibited Acts. — Without prejudice to any prosecution under any law which
may have been violated, a fine of not more than Ten thousand pesos (P10,000) or
imprisonment for not less than six (6) months but not more than ten (10) years, or both,
at the discretion of the court, shall be imposed upon:
(a) Any officer, employee, or agent of a thrift bank who shall:
(1) Make false entries in any bank report or statement thereby affecting the financial
interest of, or causing damage to, the bank or any person; or
(2) Without order of a court of competent jurisdiction, disclose any information relative to
the funds or properties in the custody of the bank belonging to private individuals,
corporations, or any other entity; or
(3) Accept gifts, fees or commissions or any other form of remuneration in connection
with the approval of a loan from said bank; or
(4) Overvalue or aid in the overvaluing any security for the purpose of influencing in any
way the action of the bank on any loan; or
(5) Appear and sign as guarantor, indorser, or surety for loans granted; or
(6) Violate any provision of this Act.
(b) Any applicant for a loan from, or borrower of a thrift bank who shall:
(1) Misuse, misapply or divert the proceeds of the loan obtained by him from its declared
purpose; or
(2) Fraudulently overvalue property offered as security for a loan from said bank; or
(3) Give out or furnish false or willful misinterpretation of material facts for the purpose of
obtaining, renewing, or increasing a loan extending the period thereof; or
(4) Attempt to defraud the said bank in the event of court action to recover the loan; or
(5) Offer any officer, employee or agent of a thrift bank a gift, fee, commission or other
forms of compensation in order to influence such bank personnel into approving a loan
application; or
(6) Dispose or encumber the property offered as security for the loan.
(c) Any examiner, or officer or employee of the Bangko Sentral or of any department,
bureau, office, branch, or agency of the government who is assigned to examine,
supervise, assist or render technical service to thrift banks and who shall connive or aid
in the commission of the same.
(d) Any metropolitan, municipal, or municipal circuit trial court judge or register of deeds
who shall demand or accept, directly or indirectly, any gift, fee, commission, or any other
form of compensation in connection with the service, or shall arbitrarily and without
reasonable cause delay the acknowledgment or administration of oath or the registration
of documents required to be performed by said judge or by said register of deeds shall
be punished with a fine of not more than One (1) thousand pesos (P1,000) or by
imprisonment of not more than one (1) year, or both, at the discretion of the court.
(e) Any bank not organized under this Act and any person, association, or corporation
doing the business of banking, not authorized under this Act or existing laws which shall
use the words "Development Bank," "Savings Bank," "Mortgage Bank," "Savings and
Mortgage Bank," or "Savings and Loan Association," as part of the name or title of such
bank or of such person, association, or corporation, shall be punished by a fine of not
less than One hundred pesos (P100), but in no case to exceed Thirty thousand pesos
(P30,000), for each day during which the said words are so used.
CHAPTER IX
GENERAL PROVISIONS
Sec. 22. Minors as Depositors. — Minors in their own rights and in their own names may
make deposits and withdraw the same, and may receive dividends and interest:
Provided, however, That, if any guardian shall give notice in writing to any thrift bank not
to make payments of deposits, dividends, or interest to the minor of whom he is the
guardian, then such payment shall be made only to the guardian.
Sec. 23. Return of Deposits. — Deposits shall be returned to the depositors or to their
legal representatives in the manner and at the time and under the conditions which shall
be determined by the board of directors and stipulated in regulations which shall be in
conformity with laws and with such regulations as the Monetary Board may prescribe.
Sec. 24. Deposit Insurance. — Deposit in thrift banks shall be eligible for insurance
coverage under Republic Act No. 3591, as amended.
Sec. 25. Annual Fees. — Consistent with the provisions of Section 28 of Republic Act
No. 7653, any thrift bank organized under this Act may, pursuant to regulations
promulgated for the purpose by the Monetary Board, be required to contribute to the
Bangko Sentral an annual fee in an amount to be determined by the Monetary Board.
Sec. 26. Implementation. — For the purpose of carrying the objectives of this Act, the
Bangko Sentral is authorized to require the services and facilities of any department or
instrumentality of the government or any officer or employee of any such department or
government instrumentality.
Sec. 27. Annual Report. — The Monetary Board shall submit a report to the Congress of
the Philippines at the end of each calendar year of all the rules and regulations
promulgated by it in accordance with the provisions of this Act, as well as its other
actuations in connection with thrift banks together with an explanation of its reasons
therefor and recommendations on legislative actions.
Sec. 28. Parity Clause Under Same Circumstances. — The incentives granted shall be
enjoyed by financial institutions giving the same services for countryside lending and
development under such terms as may be equitable and as may be defined by the
Monetary Board.
Sec. 29. Separability Clause. — If any provision of this Act or the application thereof to
any person or circumstances is held invalid, the other provisions of this Act and the
application of such provisions to other persons and circumstances, shall not be affected
thereby.
Sec. 30. Repealing Clause. — Republic Act No. 4093, Republic Act No. 3779 to the
extent that it applies to thrift banks, and Chapter 5 of Republic Act No. 337 are hereby
repealed. Any law or parts of any law inconsistent with the provisions of this Act are
hereby repealed. In all matters affecting the price stability of the peso, the provisions of
Republic Act No. 7653 shall prevail.
Sec. 31. Applicability of Other Laws. — The provisions of Republic Act No. 7653 and
Republic Act No. 337, as amended, insofar as they are applicable and not in conflict with
any provision of this Act, shall apply to thrift banks organized hereunder.
Sec. 32. Effectivity. — This Act shall take effect fifteen (15) days following the
completion of its publication in the Official Gazette or in two (2) national newspapers of
general circulation.
Approved: February 23, 1995
.

Cando vs. Cando


Sunday, June 06, 2010
12:20 AM

PHILIPPINE JURISPRUDENCE – FULL TEXT


The Lawphil Project - Arellano Law Foundation
G.R. No. 160741 March 22, 2007
HERMINIA CANDO VS. SPS. AURORA OLAZO ETC.

Republic of the Philippines


SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 160741 March 22, 2007
HERMINIA CANDO, Petitioner,
vs.
SPS. AURORA OLAZO and CLAUDIO OLAZO, Respondents.
DECISION
TINGA, J.:
The instant petition for review assails the Decision of the Court of Appeals dated 13 November 2003 in CA
G.R. CV No. 61151 captioned "Herminia Cando v. Spouses Aurora Olazo and Claudio Olazo."1
The facts of the case are not disputed.
On 27 April 1987, Aurora and Claudio Olazo (respondents) mortgaged to Herminia Cando (petitioner) a
parcel of land with improvements thereon to secure the payment of theirP240,000.00 loan. The real
estate mortgage was embodied in a written instrument titled "Mortgage of Realty." In the said
instrument, the parties agreed that should the mortgagors fail to pay the loan within one (1) year from
the date of the execution of the document, the mortgage shall be foreclosed.
Alleging that respondents failed to pay their obligation within the prescribed period despite demands,
petitioner filed a complaint for judicial foreclosure of mortgage before the Regional Trial Court of
Olongapo City on 16 February 1998.2 Respondents moved for the dismissal of the complaint, arguing that
the action for foreclosure of the mortgage has already prescribed; that petitioner is barred from filing the
complaint under the principle of laches; and that respondents have already paid the mortgage obligation.
On 25 May 1998, the trial court issued an Order which reads:
Acting on the Motion to Dismiss on the ground that the Action to Foreclose Mortgage of Realty dated April
27, 1987 has prescribed in accordance with Article 1142 of the Civil Code "that the action for foreclosure
of mortgage prescribes after ten (10) years" and it appearing that this Complaint was filed on February
16, 1998 after the expiration of the said period, this case is hereby DISMISSED.
SO ORDERED.3
Petitioner sought reconsideration of the Order but her motion was denied by the trial court,4 prompting
her to appeal the case before the Court of Appeals.
In her brief as appellant,5 petitioner interposed a lone assignment of error, to wit:
THE LOWER COURT HAD CLEARLY ERRED IN DISMISSING THE PLAINTIFF’S COMPLAINT IN THE INSTANT
CASE ON THE GROUND OF PRESCRIPTION OF ACTION.6
The appellate court dismissed the appeal on the ground of lack of jurisdiction. It found that the issue
raised in the appeal is a pure question of law, that is, what is the proper computation of the ten (10) year
prescriptive period for filing an action for foreclosure of mortgage. According to the Court of Appeals, the
dismissal was based on Sec. 2, Rule 50 of the Rules of Civil Procedure which provides that an appeal
under Rule 41 taken from the Regional Trial Court to the Court of Appeals raising only questions of law
shall be dismissed.7
In the present petition for review under Rule 45, petitioner claims that the Court of Appeals erred in
holding that her action to enforce the mortgage obligation had already prescribed. She posits that the ten
(10) year period for foreclosure of the mortgaged property must be counted from the time the stipulated
one (1) year period within which to pay the loan elapsed. Thus, it should be reckoned from 27 April 1988,
and not 27 April 1987, or the date of the mortgage instrument.8 Petitioner thus prays that the Decision of
the Court of Appeals be reconsidered and/or set aside and the case remanded to the court of origin for
further proceedings.
On the other hand, respondents point out that the petition is a mere rehash of the issues and arguments
raised and resolved by the lower court and the Court of Appeals. They insist that the ten (10) year period
for foreclosure is counted from the date of the execution of the mortgage deed.9
The trial court’s dismissal of the complaint for judicial foreclosure of mortgage is a final order which
terminated the litigation of the case and left nothing more to be done by the lower court. Petitioner had
no more remedy but to appeal the order of dismissal.
There are two modes of appeal from a final order of the trial court in the exercise of its original
jurisdiction–(1) by writ of error under Section 2(a), Rule 41 of the Rules of Court if questions of fact or
questions of fact and law are raised or involved; or (2) appeal by certiorari under Section 2(c), Rule 41, in
relation to Rule 45, where only questions of law are raised or involved.10 If the aggrieved party appeals
via a writ of error under Rule 41, but it turns out that only questions of law are raised, the appeal shall be
dismissed.11
There is a question of law in a given case when the doubt or difference arises as to what the law is on a
certain state of facts; there is a question of fact when the doubt or difference arises as to the truth or
falsehood of alleged facts.12
The test of whether a question is one of law or of fact is not the appellation given to such question by the
party raising the same; rather, it is whether the appellate court can determine the issue raised without
reviewing or evaluating the evidence, in which case, it is a question of law; otherwise, it is a question of
fact.13
Admittedly, petitioner’s appeal entailed a lone assignment of error, which turned out be a pure question
of law. The appellate court can easily determine the plausibility of the trial court’s conclusion that the ten
(10) year prescriptive period for an action for foreclosure of mortgage should be computed from the date
of the deed of mortgage without reviewing or evaluating the evidence, but of course with due regard to
the governing case law on the matter. A strict adherence to the rules leads us to the conclusion that the
Court of Appeals is correct in dismissing the appeal on the ground of lack of jurisdiction. However, equity
considerations behoove a different course of action.
Even from a cursory reading of the appeal, it is indelibly clear that the trial court committed an appalling
blunder when it ruled that an action for foreclosure of mortgage prescribes after ten (10) years from the
date of the mortgage contract. Under Article 1142 of the Civil Code, a mortgage action prescribes after
ten (10) years. Jurisprudence, however, has clarified this rule by holding that a mortgage action
prescribes after ten (10) years from the time the right of action accrued,14 which is obviously not the
same as the date of the mortgage contract. Stated differently, an action to enforce a right arising from a
mortgage should be enforced within ten (10) years from the time the right of action accrues; otherwise, it
will be barred by prescription and the mortgage creditor will lose his rights under the mortgage.15 The
right of action accrues when the mortgagor defaults in the payment of his obligation to the mortgagee.16
The foregoing basic principles must have been unknown to the trial court when it reached its erroneous
conclusion that the action to foreclose the mortgage covered by the "Mortgage of Realty dated April 27,
1987 has prescribed in accordance with Article 1142 of the Civil Code which provides that ‘the action for
foreclosure of mortgage prescribes after ten (10) years’ and it appearing that this Complaint was filed on
February 16, 1998 after the expiration of the said period x x x. "17
The dismissal of the appeal by the appellate court would have put the instant case to rest. Yet if the Court
will affirm the appellate court’s dismissal of the case and disregard the error of the trial court, great
injustice and undue prejudice will be caused petitioner.
We have ruled time and again that litigants should have the amplest opportunity for a proper and just
disposition of their cause–free, as much as possible, from the constraints of procedural technicalities. In
the interest of its equity jurisdiction, the Court may disregard procedural lapses so that a case may be
resolved on its merits. Rules of procedure should promote, not defeat, substantial justice. Hence, the
Court may opt to apply the Rules liberally to resolve substantial issues raised by the parties.18
Rules of procedure ought not to be applied in a very rigid, technical sense, for they are adopted to help
secure, not override, substantial justice, and thereby defeat their very ends. Indeed, rules of procedure
are mere tools designed to expedite the resolution of cases and other matters pending in court. A strict
and rigid application of the rules that would result in technicalities that tend to frustrate rather than
promote justice must be avoided.19
In the instant case, the strict adherence to the rules will definitely cause injustice to petitioner since the
erroneous conclusion of the trial court will bar her from pursuing her right of action against respondents,
assuming that the latter really failed to pay their obligation within the prescribed period.
If procedural lapses on the part of the litigants are sometimes overlooked by the Court in the interest of
justice, with all the more reason will the Court overlook these rules when the injustice will be
compounded by the error of the courts below. Ultimately, the interest of substantial justice must
transcend rigid observance of the rules of procedure. We cannot allow the trial court’s egregious error to
perpetuate simply because petitioner had pursued the wrong recourse or erred in drafting her appeal.
WHEREFORE, the petition is GRANTED and the assailed Decision dated 13 November 2003 of the Court of
Appeals is hereby
REVERSED. Let the case be REMANDED to the Regional Trial Court of Olongapo City for further
proceedings with deliberate dispatch.
SO ORDERED.
DANTE O. TINGA
Associate Justice
WE CONCUR:
LEONARDO A. QUISUMBING
Associate Justice
Chairperson
ANTONIO T. CARPIO CONCHITA CARPIO MORALES
Associate Justice Asscociate Justice
PRESBITERO J. VELASCO, JR.
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Court’s Division.
LEONARDO A. QUISUMBING
Associate Justice
Chairperson, Second Division
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson’s Attestation, it is
hereby certified that the conclusions in the above Decision had been reached in consultation before the
case was assigned to the writer of the opinion of the Court’s Division.
REYNATO S. PUNO
Chief Justice
Foonotes
1 Penned by Associate Justice Marina L. Buzon, with Associate Justices Sergio Pestano and Jose C.
Mendoza concurring.
2 The case was raffled to Branch 72, Third Judicial Region, Olongapo City.
3 Rollo, p. 31.
4 Order dated 14 July 1998; id. at 34.
5 Appellant’s Brief; id. at 36-43.
6 Id. at 37.
7 Id. at 55-60.
8 Petition; id. at 8-13.
9 Comment; id. at 75-79.
10 First Bancorp, Inc. v. Court of Appeals, G.R. No. 151132, 22 June 2006, 492 SCRA 221, 235.
11 Rules of Court, Rule 50, Sec. 2. Dismissal of improper appeal to the Court of Appeals.—An appeal
under Rule 41 taken from the Regional Trial Court to the Court of Appeals raising only questions of law
shall be dismissed, issues purely of law not being reviewable by said court. Similarly, an appeal by notice
of appeal instead of by petition for review from the appellate judgment of a Regional Trial Court shall be
dismissed.
An appeal erroneously taken to the Court of Appeals shall not be transferred to the appropriate court but
shall be dismissed outright.
12 Barcenas v. Tomas, G.R. No. 150321, 31 March 2005, 454 SCRA 593, 606.
13 Crisologo v. Globe Telecom, Inc., G.R. No. 167631, 16 December 2005, 478 SCRA 433, 441, citing
China Road and Bridge Corporation v. Court of Appeals, G.R. No. 137898, 15 December 2000, 348 SCRA
401, 411.
14 Quirino Gonzales Logging Concessionaire v. Court of Appeals, 450 Phil. 218, 229 (2003).
15 Tambunting, Jr. v. Sumabat, G.R. No. 144101, 16 September 2005, 470 SCRA 92, 97.
16 Tambunting, Jr. v. Sumabat, G.R. No. 144101, 16 September 2005, 470 SCRA 92.
17 Order dated 25 May 1998; Annex "C," rollo, p. 31.
18 Durban Apartments Corporation v. Catacutan, et al., G.R. No. 167136, 14 December 2005, 477 SCRA
801, 808.
19 Id. at 809.
The Lawphil Project - Arellano Law Foundation

Pasted from <http://www.lawphil.net/judjuris/juri2007/mar2007/gr_160741_2007.html>

BANK OF AMERICA, NT and SA, petitioner, vs. AMERICAN REALTY CORPORATION and COURT OF
APPEALS, respondents.
Sunday, June 06, 2010
12:21 AM
SECOND DIVISION

[G.R. No. 133876. December 29, 1999]


BANK OF AMERICA, NT and SA, petitioner, vs. AMERICAN REALTY CORPORATION and COURT OF
APPEALS, respondents.
DECISION
BUENA, J.:
Does a mortgage-creditor waive its remedy to foreclose the real estate mortgage constituted over a
third party mortgagor’s property situated in the Philippines by filing an action for the collection of the
principal loan before foreign courts?
Sought to be reversed in the instant petition for review on certiorari under Rule 45 of the Rules of
Court are the decision[1] of public respondent Court of Appeals in CA G.R. CV No. 51094,
promulgated on 30 September 1997 and its resolution,[2] dated 22 May 1998, denying petitioner’s
motion for reconsideration.
Petitioner Bank of America NT & SA (BANTSA) is an international banking and financing institution
duly licensed to do business in the Philippines, organized and existing under and by virtue of the laws
of the State of California, United States of America while private respondent American Realty
Corporation (ARC) is a domestic corporation.
Bank of America International Limited (BAIL), on the other hand, is a limited liability company
organized and existing under the laws of England.
As borne by the records, BANTSA and BAIL on several occasions granted three major multi-million
United States (US) Dollar loans to the following corporate borrowers: (1) Liberian Transport
Navigation, S.A.; (2) El Challenger S.A. and (3) Eshley Compania Naviera S.A. (hereinafter collectively
referred to as “borrowers”), all of which are existing under and by virtue of the laws of the Republic
of Panama and are foreign affiliates of private respondent.[3]
Due to the default in the payment of the loan amortizations, BANTSA and the corporate borrowers
signed and entered into restructuring agreements. As additional security for the restructured loans,
private respondent ARC as third party mortgagor executed two real estate mortgages,[4] dated 17
February 1983 and 20 July 1984, over its parcels of land including improvements thereon, located at
Barrio Sto. Cristo, San Jose Del Monte, Bulacan, and which are covered by Transfer Certificate of Title
Nos. T-78759, T-78760, T-78761, T-78762 and T-78763.
Eventually, the corporate borrowers defaulted in the payment of the restructured loans prompting
petitioner BANTSA to file civil actions[5] before foreign courts for the collection of the principal loan,
to wit:
“a) In England, in its High Court of Justice, Queen’s Bench Division, Commercial Court (1992-Folio No.
2098) against Liberian Transport Navigation S.A., Eshley Compania Naviera S.A., El Challenger S.A.,
Espriona Shipping Company S.A., Eddie Navigation Corp., S.A., Eduardo Katipunan Litonjua and Aurelio
Katipunan Litonjua on June 17, 1992.
b) In England, in its High Court of Justice, Queen’s Bench Division, Commercial Court (1992-Folio No. 2245)
against El Challenger S.A., Espriona Shipping Company S.A., Eduardo Katipuan Litonjua & Aurelio
Katipunan Litonjua on July 2, 1992;
c) In Hongkong, in the Supreme Court of Hongkong High Court (Action No. 4039 of 1992) against Eshley
Compania Naviera S.A., El Challenger S.A., Espriona Shipping Company S.A. Pacific Navigators Corporation,
Eddie Navigation Corporation S.A., Litonjua Chartering (Edyship) Co., Inc., Aurelio Katipunan Litonjua, Jr.
and Eduardo Katipunan Litonjua on November 19, 1992; and
d) In Hongkong, in the Supreme Court of Hongkong High Court (Action No. 4040 of 1992) against Eshley
Compania Naviera S.A., El Challenger S.A., Espriona Shipping Company, S.A., Pacific Navigators
Corporation, Eddie Navigation Corporation S.A., Litonjua Chartering (Edyship) Co., Jr. and Eduardo
Katipunan Litonjua on November 21, 1992.”
In the civil suits instituted before the foreign courts, private respondent ARC, being a third party
mortgagor, was not impleaded as party-defendant.
On 16 December 1992, petitioner BANTSA filed before the Office of the Provincial Sheriff of Bulacan,
Philippines, an application for extrajudicial foreclosure[6] of real estate mortgage.
On 22 January 1993, after due publication and notice, the mortgaged real properties were sold at
public auction in an extrajudicial foreclosure sale, with Integrated Credit and Corporation Services Co.
(ICCS) as the highest bidder for the sum of Twenty Four Million Pesos (P24,000,000.00).[7]
On 12 February 1993, private respondent filed before the Pasig Regional Trial Court, Branch 159, an
action for damages[8] against the petitioner, for the latter’s act of foreclosing extrajudicially the real
estate mortgages despite the pendency of civil suits before foreign courts for the collection of the
principal loan.
In its answer[9] petitioner alleged that the rule prohibiting the mortgagee from foreclosing the
mortgage after an ordinary suit for collection has been filed, is not applicable in the present case,
claiming that:
“a) The plaintiff, being a mere third party mortgagor and not a party to the principal restructuring
agreements, was never made a party defendant in the civil cases filed in Hongkong and England;
“b) There is actually no civil suit for sum of money filed in the Philippines since the civil actions were filed
in Hongkong and England. As such, any decisions (sic) which may be rendered in the abovementioned
courts are not (sic) enforceable in the Philippines unless a separate action to enforce the foreign
judgments is first filed in the Philippines, pursuant to Rule 39, Section 50 of the Revised Rules of Court.
“c) Under English Law, which is the governing law under the principal agreements, the mortgagee does
not lose its security interest by filing civil actions for sums of money.”
On 14 December 1993, private respondent filed a motion for suspension[10] of the redemption
period on the ground that “it cannot exercise said right of redemption without at the same time
waiving or contradicting its contentions in the case that the foreclosure of the mortgage on its
properties is legally improper and therefore invalid.”
In an order[11] dated 28 January 1994, the trial court granted the private respondent’s motion for
suspension after which a copy of said order was duly received by the Register of Deeds of
Meycauayan, Bulacan.
On 07 February 1994, ICCS, the purchaser of the mortgaged properties at the foreclosure sale,
consolidated its ownership over the real properties, resulting to the issuance of Transfer Certificate of
Title Nos. T-18627, T-186272, T-186273, T-16471 and T-16472 in its name.
On 18 March 1994, after the consolidation of ownership in its favor, ICCS sold the real properties to
Stateland Investment Corporation for the amount of Thirty Nine Million Pesos (P39,000,000.00).
[12]Accordingly, Transfer Certificate of Title Nos. T-187781(m), T-187782(m), T-187783(m), T-
16653P(m) and T-16652P(m) were issued in the latter’s name.
After trial, the lower court rendered a decision[13] in favor of private respondent ARC dated 12 May
1993, the decretal portion of which reads:
“WHEREFORE, judgment is hereby rendered declaring that the filing in foreign courts by the defendant of
collection suits against the principal debtors operated as a waiver of the security of the
mortgages. Consequently, the plaintiff’s rights as owner and possessor of the properties then covered by
Transfer Certificates of Title Nos. T-78759, T-78762, T-78763, T-78760 and T-78761, all of the Register of
Deeds of Meycauayan, Bulacan, Philippines, were violated when the defendant caused the extrajudicial
foreclosure of the mortgages constituted thereon.
“Accordingly, the defendant is hereby ordered to pay the plaintiff the following sums, all with legal interest
thereon from the date of the filing of the complaint up to the date of actual payment:
“1) Actual or compensatory damages in the amount of Ninety Nine Million Pesos (P99,000,000.00);
“2) Exemplary damages in the amount of Five Million Pesos (P5,000,000.00); and
“3) Costs of suit.
“SO ORDERED.”
On appeal, the Court of Appeals affirmed the assailed decision of the lower court prompting petitioner
to file a motion for reconsideration which the appellate court denied.
Hence, the instant petition for review[14] on certiorari where herein petitioner BANTSA ascribes to
the Court of Appeals the following assignment of errors:
1. The Honorable Court of Appeals disregarded the doctrines laid down by this Hon. Supreme Court
in the cases of Caltex Philippines, Inc. vs. Intermediate Appellate Court docketed as G.R. No.
74730 promulgated on August 25, 1989 and Philippine Commercial International Bank vs.
IAC, 196 SCRA 29 (1991 case), although said cases were duly cited, extensively discussed and
specifically mentioned, as one of the issues in the assignment of errors found on page 5 of the
decision dated September 30, 1997.
2. The Hon. Court of Appeals acted with grave abuse of discretion when it awarded the private
respondent actual and exemplary damages totalling P171,600,000.00, as of July 12, 1998 although
such huge amount was not asked nor prayed for in private respondent’s complaint, is contrary to law
and is totally unsupported by evidence (sic).
In fine, this Court is called upon to resolve two main issues:
1. Whether or not the petitioner’s act of filing a collection suit against the principal debtors for the
recovery of the loan before foreign courts constituted a waiver of the remedy of foreclosure.
2. Whether or not the award by the lower court of actual and exemplary damages in favor of private
respondent ARC, as third-party mortgagor, is proper.
The petition is bereft of merit.
First, as to the issue of availability of remedies, petitioner submits that a waiver of the remedy of
foreclosure requires the concurrence of two requisites: an ordinary civil action for collection should be
filed and subsequently a final judgment be correspondingly rendered therein.
According to petitioner, the mere filing of a personal action to collect the principal loan does not
suffice; a final judgment must be secured and obtained in the personal action so that waiver of the
remedy of foreclosure may be appreciated. To put it differently, absent any of the two requisites, the
mortgagee-creditor is deemed not to have waived the remedy of foreclosure.
We do not agree.
Certainly, this Court finds petitioner’s arguments untenable and upholds the jurisprudence laid down
in Bachrach[15] and similar cases adjudicated thereafter, thus:
“In the absence of express statutory provisions, a mortgage creditor may institute against the mortgage
debtor either a personal action for debt or a real action to foreclose the mortgage. In other words, he may
pursue either of the two remedies, but not both. By such election, his cause of action can by no means be
impaired, for each of the two remedies is complete in itself. Thus, an election to bring a personal action
will leave open to him all the properties of the debtor for attachment and execution, even including the
mortgaged property itself. And, if he waives such personal action and pursues his remedy against the
mortgaged property, an unsatisfied judgment thereon would still give him the right to sue for a deficiency
judgment, in which case, all the properties of the defendant, other than the mortgaged property, are again
open to him for the satisfaction of the deficiency. In either case, his remedy is complete, his cause of
action undiminished, and any advantages attendant to the pursuit of one or the other remedy are purely
accidental and are all under his right of election. On the other hand, a rule that would authorize the
plaintiff to bring a personal action against the debtor and simultaneously or successively another action
against the mortgaged property, would result not only in multiplicity of suits so offensive to justice
(Soriano vs. Enriques, 24 Phil. 584) and obnoxious to law and equity (Osorio vs. San Agustin, 25 Phil., 404),
but also in subjecting the defendant to the vexation of being sued in the place of his residence or of the
residence of the plaintiff, and then again in the place where the property lies.”
In Danao vs. Court of Appeals,[16] this Court, reiterating jurisprudence enunciated in Manila
Trading and Supply Co. vs. Co Kim[17]and Movido vs. RFC,[18] invariably held:
“x x x The rule is now settled that a mortgage creditor may elect to waive his security and bring, instead,
an ordinary action to recover the indebtedness with the right to execute a judgment thereon on all the
properties of the debtor, including the subject matter of the mortgage x x x, subject to the qualification
that if he fails in the remedy by him elected, he cannot pursue further the remedy he has waived.
(Underscoring Ours)
Anent real properties in particular, the Court has laid down the rule that a mortgage creditor may
institute against the mortgage debtor either a personal action for debt or a real action to foreclose
the mortgage.[19]
In our jurisdiction, the remedies available to the mortgage creditor are deemed alternative and not
cumulative. Notably, an election of one remedy operates as a waiver of the other. For this purpose,
a remedy is deemed chosen upon the filing of the suit for collection or upon the filing of the
complaint in an action for foreclosure of mortgage, pursuant to the provision of Rule 68 of the 1997
Rules of Civil Procedure. As to extrajudicial foreclosure, such remedy is deemed elected by the
mortgage creditor upon filing of the petition not with any court of justice but with the Office of the
Sheriff of the province where the sale is to be made, in accordance with the provisions of Act No.
3135, as amended by Act No. 4118.
In the case at bench, private respondent ARC constituted real estate mortgages over its properties as
security for the debt of the principal debtors. By doing so, private respondent subjected itself to the
liabilities of a third party mortgagor. Under the law, third persons who are not parties to a loan may
secure the latter by pledging or mortgaging their own property.[20]
Notwithstanding, there is no legal provision nor jurisprudence in our jurisdiction which makes a third
person who secures the fulfillment of another‘s obligation by mortgaging his own property, to be
solidarily bound with the principal obligor. The signatory to the principal contract—loan—remains to
be primarily bound. It is only upon default of the latter that the creditor may have recourse on the
mortgagors by foreclosing the mortgaged properties in lieu of an action for the recovery of the
amount of the loan.[21]
In the instant case, petitioner’s contention that the requisites of filing the action for collection and
rendition of final judgment therein should concur, is untenable.
Thus, in Cerna vs. Court of Appeals,[22] we agreed with the petitioner in said case, that
the filing of a collection suit barred the foreclosure of the mortgage:
“A mortgagee who files a suit for collection abandons the remedy of foreclosure of the chattel mortgage
constituted over the personal property as security for the debt or value of the promissory note when he
seeks to recover in the said collection suit.”
“ x x x When the mortgagee elects to file a suit for collection, not foreclosure, thereby abandoning the
chattel mortgage as basis for relief, he clearly manifests his lack of desire and interest to go after the
mortgaged property as security for the promissory note x x x.”
Contrary to petitioner’s arguments, we therefore reiterate the rule, for clarity and emphasis, that the
mere act of filing of an ordinary action for collection operates as a waiver of the mortgage-creditor’s
remedy to foreclose the mortgage. By the mere filing of the ordinary action for collection against the
principal debtors, the petitioner in the present case is deemed to have elected a remedy, as a result
of which a waiver of the other necessarily must arise. Corollarily, no final judgment in the collection
suit is required for the rule on waiver to apply.
Hence, in Caltex Philippines, Inc. vs. Intermediate Appellate Court,[23] a case relied upon by
petitioner, supposedly to buttress its contention, this Court had occasion to rule that the mere act
offiling a collection suit for the recovery of a debt secured by a mortgage constitutes waiver of the
other remedy of foreclosure.
In the case at bar, petitioner BANTSA only has one cause of action which is non-payment of the
debt. Nevertheless, alternative remedies are available for its enjoyment and exercise. Petitioner
then may opt to exercise only one of two remedies so as not to violate the rule against splitting a
cause of action.
As elucidated by this Court in the landmark case of Bachrach Motor Co., Inc. vs. Icarangal.[24]
“For non-payment of a note secured by mortgage, the creditor has a single cause of action against the
debtor. This single cause of action consists in the recovery of the credit with execution of the security. In
other words, the creditor in his action may make two demands, the payment of the debt and the
foreclosure of his mortgage. But both demands arise from the same cause, the non-payment of the debt,
and for that reason, they constitute a single cause of action. Though the debt and the mortgage constitute
separate agreements, the latter is subsidiary to the former, and both refer to one and the same
obligation. Consequently, there exists only one cause of action for a single breach of that
obligation. Plaintiff, then, by applying the rules above stated, cannot split up his single cause of action by
filing a complaint for payment of the debt, and thereafter another complaint for foreclosure of the
mortgage. If he does so, the filing of the first complaint will bar the subsequent complaint. By allowing
the creditor to file two separate complaints simultaneously or successively, one to recover his credit and
another to foreclose his mortgage, we will, in effect, be authorizing him plural redress for a single breach
of contract at so much cost to the courts and with so much vexation and oppression to the debtor.”
Petitioner further faults the Court of Appeals for allegedly disregarding the doctrine enunciated in
Caltex, wherein this High Court relaxed the application of the general rules to wit:
“In the present case, however, we shall not follow this rule to the letter but declare that it is the collection
suit which was waived and/or abandoned. This ruling is more in harmony with the principles underlying
our judicial system. It is of no moment that the collection suit was filed ahead, what is determinative is the
fact that the foreclosure proceedings ended even before the decision in the collection suit was rendered. x
x x”
Notably, though, petitioner took the Caltex ruling out of context. We must stress that the Caltex case
was never intended to overrule the well-entrenched doctrine enunciated in Bachrach, which to our
mind still finds applicability in cases of this sort. To reiterate, Bachrach is still good law.
We then quote the decision[25]of the trial court, in the present case, thus:
“The aforequoted ruling in Caltex is the exception rather than the rule, dictated by the peculiar
circumstances obtaining therein. In the said case, the Supreme Court chastised Caltex for making “ x x x a
mockery of our judicial system when it initially filed a collection suit then, during the pendency thereof,
foreclosed extrajudicially the mortgaged property which secured the indebtedness, and still pursued the
collection suit to the end.” Thus, to prevent a mockery of our judicial system”, the collection suit had to be
nullified because the foreclosure proceedings have already been pursued to their end and can no longer
be undone.
xxx xxx xxx
“In the case at bar, it has not been shown whether the defendant pursued to the end or are still pursuing
the collection suits filed in foreign courts. There is no occasion, therefore, for this court to apply the
exception laid down by the Supreme Court in Caltex, by nullifying the collection suits. Quite obviously,
too, the aforesaid collection suits are beyond the reach of this Court. Thus the only way the court may
prevent the spector of a creditor having “plural redress for a single breach of contract” is by holding, as
the Court hereby holds, that the defendant has waived the right to foreclose the mortgages constituted by
the plaintiff on its properties originally covered by Transfer Certificates of Title Nos. T-78759, T-78762, T-
78760 and T-78761.” (RTC Decision pp., 10-11)
In this light, the actuations of Caltex are deserving of severe criticism, to say the least.[26]
Moreover, petitioner attempts to mislead this Court by citing the case of PCIB vs. IAC.[27] Again,
petitioner tried to fit a square peg in a round hole. It must be stressed that far from overturning the
doctrine laid down in Bachrach, this Court in PCIB buttressed its firm stand on this issue by declaring:
“While the law allows a mortgage creditor to either institute a personal action for the debt or a real action
to foreclosure the mortgage, he cannot pursue both remedies simultaneously or successively as was done
by PCIB in this case.”
xxx xxx xxx
“Thus, when the PCIB filed Civil Case No. 29392 to enforce payment of the 1.3 million promissory note
secured by real estate mortgages and subsequently filed a petition for extrajudicial foreclosure, it violates
the rule against splitting a cause of action.”
Accordingly, applying the foregoing rules, we hold that petitioner, by the expediency of filing four civil
suits before foreign courts, necessarily abandoned the remedy to foreclose the real estate mortgages
constituted over the properties of third-party mortgagor and herein private respondent
ARC. Moreover, by filing the four civil actions and by eventually foreclosing extrajudicially the
mortgages, petitioner in effect transgressed the rules against splitting a cause of action well-
enshrined in jurisprudence and our statute books.
In Bachrach, this Court resolved to deny the creditor the remedy of foreclosure after the collection
suit was filed, considering that the creditor should not be afforded “plural redress for a single breach
of contract.” For cause of action should not be confused with the remedy created for its
enforcement.[28]
Notably, it is not the nature of the redress which is crucial but the efficacy of the remedy chosen in
addressing the creditor’s cause. Hence, a suit brought before a foreign court having competence and
jurisdiction to entertain the action is deemed, for this purpose, to be within the contemplation of the
remedy available to the mortgagee-creditor. This pronouncement would best serve the interest of
justice and fair play and further discourage the noxious practice of splitting up a lone cause of action.
Incidentally, BANTSA alleges that under English Law, which according to petitioner is the governing
law with regard to the principal agreements, the mortgagee does not lose its security interest by
simply filing civil actions for sums of money.[29]
We rule in the negative.
This argument shows desperation on the part of petitioner to rivet its crumbling cause. In the case at
bench, Philippine law shall apply notwithstanding the evidence presented by petitioner to prove the
English law on the matter.
In a long line of decisions, this Court adopted the well-imbedded principle in our jurisdiction that
there is no judicial notice of any foreign law. A foreign law must be properly pleaded and proved as a
fact.[30] Thus, if the foreign law involved is not properly pleaded and proved, our courts will presume
that the foreign law is the same as our local or domestic or internal law.[31] This is what we refer to
as the doctrine of processual presumption.
In the instant case, assuming arguendo that the English Law on the matter were properly pleaded
and proved in accordance with Section 24, Rule 132 of the Rules of Court and the jurisprudence laid
down in Yao Kee, et al. vs. Sy-Gonzales,[32] said foreign law would still not find applicability.
Thus, when the foreign law, judgment or contract is contrary to a sound and established public policy
of the forum, the said foreign law, judgment or order shall not be applied.[33]
Additionally, prohibitive laws concerning persons, their acts or property, and those which have for
their object public order, public policy and good customs shall not be rendered ineffective by laws or
judgments promulgated, or by determinations or conventions agreed upon in a foreign country.[34]
The public policy sought to be protected in the instant case is the principle imbedded in our
jurisdiction proscribing the splitting up of a single cause of action.
Section 4, Rule 2 of the 1997 Rules of Civil Procedure is pertinent -
“If two or more suits are instituted on the basis of the same cause of action, the filing of one or a
judgment upon the merits in any one is available as a ground for the dismissal of the others.”
Moreover, foreign law should not be applied when its application would work undeniable injustice to
the citizens or residents of the forum. To give justice is the most important function of law; hence, a
law, or judgment or contract that is obviously unjust negates the fundamental principles of Conflict of
Laws.[35]
Clearly then, English Law is not applicable.
As to the second pivotal issue, we hold that the private respondent is entitled to the award of actual
or compensatory damages inasmuch as the act of petitioner BANTSA in extrajudicially foreclosing the
real estate mortgages constituted a clear violation of the rights of herein private respondent ARC, as
third-party mortgagor.
Actual or compensatory damages are those recoverable because of pecuniary loss in business,
trade, property, profession, job or occupation and the same must be proved, otherwise if the proof is
flimsy and non-substantial, no damages will be given.[36] Indeed, the question of the value of
property is always a difficult one to settle as valuation of real property is an imprecise process since
real estate has no inherent value readily ascertainable by an appraiser or by the court.[37] The
opinions of men vary so much concerning the real value of property that the best the courts can do is
hear all of the witnesses which the respective parties desire to present, and then, by carefully
weighing that testimony, arrive at a conclusion which is just and equitable.[38]
In the instant case, petitioner assails the Court of Appeals for relying heavily on the valuation made
by Philippine Appraisal Company. In effect, BANTSA questions the act of the appellate court in giving
due weight to the appraisal report composed of twenty three pages, signed by Mr. Lauro Marquez
and submitted as evidence by private respondent. The appraisal report, as the records would readily
show, was corroborated by the testimony of Mr. Reynaldo Flores, witness for private respondent.
On this matter, the trial court observed:
“The record herein reveals that plaintiff-appellee formally offered as evidence the appraisal report dated
March 29, 1993 (Exhibit J, Records, p. 409), consisting of twenty three (23) pages which set out in detail
the valuation of the property to determine its fair market value (TSN, April 22, 1994, p. 4), in the amount of
P99,986,592.00 (TSN, ibid., p. 5), together with the corroborative testimony of one Mr. Reynaldo F. Flores,
an appraiser and director of Philippine Appraisal Company, Inc. (TSN, ibid., p. 3). The latter’s testimony
was subjected to extensive cross-examination by counsel for defendant-appellant (TSN, April 22, 1994, pp.
6-22).”[39]
In the matter of credibility of witnesses, the Court reiterates the familiar and well-entrenched rule
that the factual findings of the trial court should be respected.[40] The time-tested jurisprudence is
that the findings and conclusions of the trial court on the credibility of witnesses enjoy a badge of
respect for the reason that trial courts have the advantage of observing the demeanor of witnesses
as they testify.[41]
This Court will not alter the findings of the trial court on the credibility of witnesses, principally
because they are in a better position to assess the same than the appellate court.[42] Besides, trial
courts are in a better position to examine real evidence as well as observe the demeanor of
witnesses.[43]
Similarly, the appreciation of evidence and the assessment of the credibility of witnesses rest
primarily with the trial court.[44] In the case at bar, we see no reason that would justify this Court to
disturb the factual findings of the trial court, as affirmed by the Court of Appeals, with regard to the
award of actual damages.
In arriving at the amount of actual damages, the trial court justified the award by presenting the
following ratiocination in its assailed decision[45], to wit:
“Indeed, the Court has its own mind in the matter of valuation. The size of the subject real properties are
(sic) set forth in their individual titles, and the Court itself has seen the character and nature of said
properties during the ocular inspection it conducted. Based principally on the foregoing, the Court makes
the following observations:
“1. The properties consist of about 39 hectares in Bo. Sto. Cristo, San Jose del Monte, Bulacan, which is
(sic) not distant from Metro Manila – the biggest urban center in the Philippines – and are easily accessible
through well-paved roads;
“2. The properties are suitable for development into a subdivision for low cost housing, as admitted by
defendant’s own appraiser (TSN, May 30, 1994, p. 31);
“3. The pigpens which used to exist in the property have already been demolished. Houses of strong
materials are found in the vicinity of the property (Exhs. 2, 2-1 to 2-7), and the vicinity is a growing
community. It has even been shown that the house of the Barangay Chairman is located adjacent to the
property in question (Exh. 27), and the only remaining piggery (named Cherry Farm) in the vicinity is
about 2 kilometers away from the western boundary of the property in question (TSN, November 19, p. 3);
“4. It will not be hard to find interested buyers of the property, as indubitably shown by the fact that on
March 18, 1994, ICCS (the buyer during the foreclosure sale) sold the consolidated real estate properties to
Stateland Investment Corporation, in whose favor new titles were issued, i.e., TCT Nos. T-187781(m); T-
187782(m), T-187783(m); T-16653P(m) and T-166521(m) by the Register of Deeds of Meycauayan (sic),
Bulacan;
“5. The fact that ICCS was able to sell the subject properties to Stateland Investment Corporation for
Thirty Nine Million (P39,000,000.00) Pesos, which is more than triple defendant’s appraisal (Exh. 2) clearly
shows that the Court cannot rely on defendant’s aforesaid estimate (Decision, Records, p. 603).”
It is a fundamental legal aphorism that the conclusions of the trial judge on the credibility of
witnesses command great respect and consideration especially when the conclusions are supported
by the evidence on record.[46] Applying the foregoing principle, we therefore hold that the trial court
committed no palpable error in giving credence to the testimony of Reynaldo Flores, who according
to the records, is a licensed real estate broker, appraiser and director of Philippine Appraisal
Company, Inc. since 1990.[47] As the records show, Flores had been with the company for 26 years
at the time of his testimony.
Of equal importance is the fact that the trial court did not confine itself to the appraisal report dated
29 March 1993, and the testimony given by Mr. Reynaldo Flores, in determining the fair market value
of the real property. Above all these, the record would likewise show that the trial judge in order to
appraise himself of the characteristics and condition of the property, conducted an ocular inspection
where the opposing parties appeared and were duly represented.
Based on these considerations and the evidence submitted, we affirm the ruling of the trial court as
regards the valuation of the property –
“x x x a valuation of Ninety Nine Million Pesos (P99,000,000.00) for the 39-hectare properties (sic)
translates to just about Two Hundred Fifty Four Pesos (P254.00) per square meter. This appears to be, as
the court so holds, a better approximation of the fair market value of the subject properties. This is the
amount which should be restituted by the defendant to the plaintiff by way of
actual or compensatory damages x x x.”[48]
Further, petitioner ascribes error to the lower court for awarding an amount allegedly not asked nor
prayed for in private respondent’s complaint.
Notwithstanding the fact that the award of actual and compensatory damages by the lower court
exceeded that prayed for in the complaint, the same is nonetheless valid, subject to certain
qualifications.
On this issue, Rule 10, Section 5 of the Rules of Court is pertinent:
“SEC. 5. Amendment to conform to or authorize presentation of evidence. – When issues not raised by
the pleadings are tried with the express or implied consent of the parties, they shall be treated in all
respects as if they had been raised in the pleadings. Such amendment of the pleadings as may be
necessary to cause them to conform to the evidence and to raise these issues may be made upon motion
of any party at any time, even after judgement; but failure to amend does not affect the result of the trial
of these issues. If evidence is objected to at the trial on the ground that it is not within the issues made by
the pleadings, the court may allow the pleadings to be amended and shall do so with liberality if the
presentation of the merits of the action and the ends of substantial justice will be subserved thereby. The
court may grant a continuance to enable the amendment to be made.”
The jurisprudence enunciated in Talisay-Silay Milling Co., Inc. vs. Asociacion de Agricultures
de Talisay-Silay, Inc.[49] citing Northern Cement Corporation vs. Intermediate Appellate
Court [50] is enlightening:
“There have been instances where the Court has held that even without the necessary amendment, the
amount proved at the trial may be validly awarded, as in Tuazon v. Bolanos (95 Phil. 106), where we said
that if the facts shown entitled plaintiff to relief other than that asked for, no amendment to the complaint
was necessary, especially where defendant had himself raised the point on which recovery was
based. The appellate court could treat the pleading as amended to conform to the evidence although the
pleadings were actually not amended. Amendment is also unnecessary when only clerical error or non
substantial matters are involved, as we held in Bank of the Philippine Islands vs. Laguna (48 Phil. 5). In Co
Tiamco vs. Diaz (75 Phil. 672), we stressed that the rule on amendment need not be applied rigidly,
particularly where no surprise or prejudice is caused the objecting party. And in the recent case
of National Power Corporation vs. Court of Appeals (113 SCRA 556), we held that where there is a variance
in the defendant’s pleadings and the evidence adduced by it at the trial, the Court may treat the pleading
as amended to conform with the evidence.
“It is the view of the Court that pursuant to the above-mentioned rule and in light of the decisions cited,
the trial court should not be precluded from awarding an amount higher than that claimed in the pleading
notwithstanding the absence of the required amendment. But it is upon the condition that the evidence
of such higher amount has been presented properly, with full opportunity on the part of the opposing
parties to support their respective contentions and to refute each other’s evidence.
“The failure of a party to amend a pleading to conform to the evidence adduced during trial does not
preclude an adjudication by the court on the basis of such evidence which may embody new issues not
raised in the pleadings, or serve as a basis for a higher award of damages. Although the pleading may not
have been amended to conform to the evidence submitted during trial, judgment may nonetheless be
rendered, not simply on the basis of the issues alleged but also on the basis of issues discussed and the
assertions of fact proved in the course of trial. The court may treat the pleading as if it had been amended
to conform to the evidence, although it had not been actually so amended. Former Chief Justice Moran put
the matter in this way:
`When evidence is presented by one party, with the expressed or implied consent of the adverse party, as
to issues not alleged in the pleadings, judgment may be rendered validly as regards those issues, which
shall be considered as if they have been raised in the pleadings. There is implied consent to the evidence
thus presented when the adverse party fails to object thereto.’
“Clearly, a court may rule and render judgment on the basis of the evidence before it even though the
relevant pleading had not been previously amended, so long as no surprise or prejudice is thereby caused
to the adverse party. Put a little differently, so long as the basis requirements of fair play had been met,
as where litigants were given full opportunity to support their respective contentions and to object to or
refute each other’s evidence, the court may validly treat the pleadings as if they had been amended to
conform to the evidence and proceed to adjudicate on the basis of all the evidence before it.”
In the instant case, inasmuch as the petitioner was afforded the opportunity to refute and object to
the evidence, both documentary and testimonial, formally offered by private respondent, the
rudiments of fair play are deemed satisfied. In fact, the testimony of Reynaldo Flores was put under
scrutiny during the course of the cross-examination. Under these circumstances, the court acted
within the bounds of its jurisdiction and committed no reversible error in awarding actual damages
the amount of which is higher than that prayed for. Verily, the lower court’s actuations are
sanctioned by the Rules and supported by jurisprudence.
Similarly, we affirm the grant of exemplary damages although the amount of Five Million Pesos
(P5,000,000.00) awarded, being excessive, is subject to reduction. Exemplary or corrective damages
are imposed, by way of example or correction for the public good, in addition to the moral,
temperate, liquidated or compensatory damages.[51] Considering its purpose, it must be fair and
reasonable in every case and should not be awarded to unjustly enrich a prevailing party.[52] In our
view, an award of P50,000.00 as exemplary damages in the present case qualifies the test of
reasonableness.
WHEREFORE, premises considered, the instant petition is DENIED for lack of merit. The decision of
the Court of Appeals is hereby AFFIRMED with MODIFICATION of the amount awarded as exemplary
damages. Accordingly, petitioner is hereby ordered to pay private respondent the sum of
P99,000,000.00 as actual or compensatory damages; P50,000.00 as exemplary damage and the
costs of suit.
SO ORDERED.
Bellosillo, (Chairman), Mendoza, Quisumbing, and De Leon, Jr., JJ., concur.
[1] CA Decision in CA-G.R. CV No. 51094, penned by Justice Ricardo P. Galvez and concurred in by Justice
Fidel V. Purisima and Justice B.A. Adefuin-De la Cruz; Rollo, pp. 38-58.
[2] CA Resolution in CA G.R. CV No. 51094, dated 22 May 1998; Rollo, p. 60.
[3] Rollo, p. 38.
[4] Ibid., p. 39.
[5] Ibid.
[6] Ibid., p. 40.
[7] Ibid.
[8] Ibid.
[9] Ibid.
[10] Rollo, p. 41.
[11] Ibid.
[12] Ibid.
[13] Rollo,, pp. 41-42.
[14] Rollo, pp. 10-36.
[15] Bachrach Motor Co., Inc. vs. Esteban Icarangal, 68 Phil. 287.
[16] 154 SCRA 446.
[17] 71 Phil. 448.
[18] 105 Phil. 886.
[19] Danao vs. Court of Appeals 154 SCRA 446.
[20] Article 2085, Civil Code; Lustan vs. Court of Appeals, 266 SCRA 663.
[21] Cerna vs. Court of Appeals 220 SCRA 517.
[22] Ibid.
[23] 176 SCRA 741.
[24] 68 Phil. 287.
[25] Rollo, p.94.
[26]Caltex Philippines, Inc. vs. Intermediate Appellate Court, 176 SCRA 741.
[27] 196 SCRA 29.
[28] Bachrach Motor vs. Icarangal, 68 Phil. 287.
[29] Rollo, p.16.7
[30] Adong vs. Cheong Seng Gee, 43 Phil. 43; Sy Joc Lieng vs. Syquia, 16 Phil. 137.
[31] Lim vs. Collector, 36 Phil. 472.
[32] 167 SCRA 736.
[33] Philippine Conflict of Laws, Eighth Edition, 1996, Paras, page 46.
[34] Article 17, par. 3, Civil Code.
[35] Philippine Conflict of Laws, Eight Edition, 1996, Paras, p. 60.
[36] Perfecto vs. Gonzales, 128 SCRA 640, as cited in Danao vs. Court of Appeals, 154 SCRA 447.
[37] City of Manila vs. Corrales, 32 Phil. 85, 96.
[38] 22 Am. Jur. 2d 193.
[39] Rollo, p. 103.
[40] People vs. Morales, 241 SCRA 267.
[41] People vs. Gamiao, 240 SCRA 254.
[42] People vs. Cascalla, 240 SCRA 482.
[43] Lee Eng Hong vs. Court of Appeals, 241 SCRA 392.
[44] Ibid.
[45] Rollo, pp. 46-47.
[46] People vs. Asoy, 251 SCRA 682.
[47] TSN, April 22, 1994, p. 6.
[48] Decision, Records, ibid.
[49] 247 SCRA 361, 377-378.
[50] 158 SCRA 408.
[51] Article 2229, Civil Code.
[52] Philtranco Service Exporters, Inc. vs. Court of Appeals, 273 SCRA 562.

Pasted from <http://sc.judiciary.gov.ph/jurisprudence/1999/dec99/133876.htm>

Olizon vs. CA (1994)


Sunday, June 06, 2010
12:22 AM

Republic of the Philippines


SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 107075 September 1, 1994


ARMANDO S. OLIZON and ILUMINADA C. OLIZON, petitioners,
vs.
COURT OF APPEALS and PRUDENTIAL BANK, respondents.
Roberto T. Neri for petitioners.
Magno & Associates for private respondent.

REGALADO, J.:
The factual alpha of the present dispute was sometime in 1967 when the spouses Armando and Iluminada
Olizon obtained a loan from respondent Prudential Bank in the amount of P25,000.00 and, as security
therefor, they executed in favor of respondent bank a real estate mortgage over a parcel of land consisting
of 1,000 square meters located at Barrio Calaanan, Kalookan City and registered in their names under
Transfer Certificate of Title No. 24604 of the Registry of Deeds of Kalookan City. Unfortunately, that
transaction spawned the succeeding events hereunder chronologically narrated, eventuating in this appeal
wherein we are now expected to pen the judicial omega.
It appears from the records that the Olizon spouses failed to pay their aforestated obligation upon its
maturity, so private respondent extrajudicially foreclosed the real estate mortgage. At a public auction
thereafter held on March 11, 1975, the subject property was sold to respondent bank as the highest
bidder, pursuant to which it was issued a certificate of sale as of the same date. On March 12, 1974, the
said certificate of sale was duly annotated at the back of petitioner's Transfer Certificate of Title No.
24604.
On June 5, 1978, again due to the failure of petitioner spouses to redeem the foreclosed property within
the period of redemption, title to the property was consolidated in favor of respondent bank. 1
On January 14, 1986, respondent bank filed with the Regional Trial Court of Kalookan City a petition to
reconstitute Transfer Certificate of Title No. 24604, which was lost in the Office of the Registry of Deeds of
Kalookan City, the said proceeding being docketed as Case No. C-2746. 2
On June 11, 1986, the Regional Trial Court of Kalookan City ordered the reconstitution prayed for. As a
consequence, Transfer of Certificate of Title No. 24604 in the name of the Olizon spouses was cancelled
and, in lieu thereof, Transfer Certificate of Title No. 149858 was issued on June 5, 1987 in the name of
respondent bank.3
On November 27, 1989, respondent bank this time filed with the Regional Trial Court of Kalookan City, a
petition for the issuance of a writ of possession against petitioner spouses, docketed as LRC Case No. C-
3094, 4 and which petition was granted by the trial court on February 8, 1990. 5
On March 8, 1990, a petition, by way of opposition, was filed by petitioner spouses wherein they sought
the cancellation of the writ of possession, the nullification of the certificate of sale dated March 11, 1974,
and/or the nullification of the foreclosure proceedings. In support thereof, they alleged lack of notice of the
auction sale and lack of posting of the notice of sale as required by Section 3 of Act No. 3135, as
amended. 6
After trial, the court a quo issued an order dated July 16, 1990, with the following dispositive portion:
WHEREFORE, the Court hereby declares that:
1. The foreclosure of the real estate mortgage executed by the spouses Olizons, as well as the certificate
of sale dated March 11, 1974 as (sic) null and void;
2. The writ of possession is hereby set aside; and
3. Ordering the Register of Deeds of Caloocan City to cancel Transfer Certificate of Title No. 149858 issued
in the name of Prudential Bank and to reinstate Transfer Certificate of Title No. 24604 to (sic) spouses
Armando S. Olizon and Iluminada C. Olizon.
SO ORDERED. 7
Private respondent appealed the said decision to the Court of Appeals which rendered its questioned
decision in CA—G.R. CV No. 29482, dated September 9, 1992, with a disposition of reversal, thus:
WHEREFORE, the Decision (sic) dated July 16, 1990 of the Regional Trial Court of Caloocan in LRC Case No.
3094 is hereby REVERSED and SET ASIDE and another rendered upholding the validity of the foreclosure
sale of the real estate mortgage and the writ of possession dated February 8, 1990. 8
Petitioners have now come to us through the present petition wherein they contend that:
1. The Court of Appeals erred in reversing the trial court since there is evidence to show that the
requirements of Sec. 3, Act No. 3135, as amended, were not complied with.
2. The Court of Appeals erred in holding that petitioners had notice of the foreclosure sale.
3. The Court of Appeals erred in holding that petitioners had totally abandoned the subject property, as
this is not supported by the evidence. 9
We do not find substantial merit in the petition.
Herein petitioners are now seeking the annulment of the extrajudicial foreclosure sale conducted more
than 20 years ago, invoking therefor two grounds, namely, lack of personal notice to the mortgagors about
the foreclosure sale, and the failure of the mortgagee bank to comply with the posting requirement under
Section 3 of Act No. 3135, as amended.
It is now a well-settled rule that personal notice to the mortgagor in extrajudicial foreclosure proceedings is
not necessary. 10 Section 3 of Act No. 3135 governing extrajudicial foreclosure of real estate mortgages,
as amended by Act No. 4118, requires only the posting of the notice of sale in three public places and the
publication of that notice in a newspaper of general circulation. Hence, the lack of personal notice to the
mortgagors, herein petitioners, is not a ground to set aside the foreclosure sale.
Neither can the supposed failure of respondent bank to comply with the posting requirement as provided
under the aforesaid Section 3, under the factual ambiance and circumstances which obtained in this case,
be considered a sufficient ground for annulling the aforementioned sale. We are not unaware of the rulings
in some cases that, under normal situations, the statutory provisions governing publication of notice of
extrajudicial foreclosure sales must be strictly complied with and that failure to publish the notice of
auction sale as required by the statute constitutes a jurisdictional defect which invalidates the sale.
However, the unusual nature of the attendant facts and the peculiarity of the confluent circumstances
involved in this case require that we rule otherwise.
Petitioners' cited authority on the requisite publication of notices is not so all-embracing as to deny
justified exceptions thereto under appropriate situations. Petitioners quote this passage from Tambunting
et al. vs. Court of Appeals, et al. 11 which is not conclusive hereon for not being exactly in point, based as
it is on different facts, thus:
The rule is that statutory provisions governing publication of notice of mortgage foreclosure sales must be
strictly complied with, and that even slight deviations therefrom will invalidate the notice and render the
sale at least voidable. Interpreting Sec. 457 of the Code of Civil Procedure (reproduced in Sec. 18[c] of
Rule 39, Rules of Court and in Sec. 3 of Act No. 3135) in Campomanes vs. Bartolome and German &
Co. (38 Phil. 8081), this Court held that if a sheriff sells without the notice prescribed by the Code of Civil
Procedure induced thereto by the judgment creditor, the sale is absolutely void and no title passes. . . .
(Emphasis supplied.)
At any rate, respondent Court of Appeals has this commendable ratiocination on the aforestated twin
errors assigned by petitioners:
The decisive issue which must be resolved is whether or not the statutory requirements of notice have
been complied with in this case. Section 12 of the mortgage contract reads:
"12. All correspondence relative to this mortgage, including demand letters, summonses, subpoenas or
notifications of any judicial or extrajudicial action shall be sent to the Mortgagor at No. 82 Naval Street,
Malabon, Rizal or at the address that may hereafter be given in writing by the Mortgagor to the Mortgagee.
The mere act of sending any correspondence by mail or by personal delivery to the said address shall be
valid and effective notice to the Mortgagor for all legal purposes, and . . . shall not excuse or relieve the
mortgagor from the effects of such notice." (Emphasis supplied.)
The foregoing stipulation is the law between petitioner and oppositors-spouses and should be complied
with faithfully.
That the mortgagors were actually notified by appellant bank of the foreclosure proceedings is shown by
its letters to the Olizons before the actual sale at public auction of the subject property, to wit: (1) Letter
dated January 16, 1973 of Atty. Octavio D. Fule, Legal Officer of appellant bank to the Olizons informing
the latter that their failure to pay their obligations will constrain appellant bank to institute appropriate
legal action against them; (2) Letter dated January 31, 1974 of Atty. Octavio D. Fule, Legal Officer of
appellant bank, informing the Olizons that Prudential Bank has filed foreclosure proceedings under Act
3135, as amended.
xxx xxx xxx
Furthermore, notice of sale was duly published in accordance with law and furnished the Olizons. The
evidence presented during the trial of the case show that the then Clerk of Court, Emma Ona, sent a
printed letter dated February 18, 1974 informing the Olizons that appellant bank had filed an application to
foreclosure their real estate mortgage and the public auction of the mortgaged parcel of land was sent on
March 11, 1974, together with a copy of the Notice of Sale. The document is more than ten (10) years old
and the absence of a registry receipt in the case folder of the foreclosure records of the Sheriff of the City
of Caloocan, does not indicate that the Olizons did not receive a copy of the aforesaid notice of sale, it
being presumed that the sheriff performed her duties and that foreclosure proceedings are regular. . . .
(Citations omitted.) 12
Furthermore, unlike the situation in previous cases 13 where the foreclosure sales were annulled by
reason of failure to comply with the notice requirement under Section 3 of Act No. 3135, as amended,
what is allegedly lacking here is the posting of the notice in three public places, and not the publication
thereof in a newspaper of general circulation.
We take judicial notice of the fact that newspaper publications have more far-reaching effects than posting
on bulletin boards in public places. There is a greater probability that an announcement or notice
published in a newspaper of general circulation, which is distributed nationwide, shall have a readership of
more people than that posted in a public bulletin board, no matter how strategic its location may be, which
caters only to a limited few. Hence, the publication of the notice of sale in the newspaper of general
circulation alone is more than sufficient compliance with the notice-posting requirement of the law. By
such publication, a reasonably wide publicity had been effected such that those interested might attend
the public sale, and the purpose of the law had been thereby subserved.
The object of a notice of sale is to inform the public of the nature and condition of the property to be sold,
and of the time, place and terms of the sale. Notices are given for the purpose of securing bidders and to
prevent a sacrifice of the property. If these objects are attained, immaterial errors and mistakes will not
affect the sufficiency of the notice; but if mistakes or omissions occur in the notices of sale, which are
calculated to deter or mislead bidders, to depreciate the value of the property, or to prevent it from
bringing a fair price, such mistakes or omissions will be fatal to the validity of the notice, and also to the
sale made pursuant thereto. 14
In the instant case, the aforesaid objective was attained since there was sufficient publicity of the sale
through the newspaper publication. There is completely no showing that the property was sold for a price
far below its value as to insinuate any bad faith, nor was there any showing or even an intimation of
collusion between the sheriff who conducted the sale and respondent bank. This being so, the alleged non-
compliance with the posting requirement, even if true, will not justify the setting aside of the sale.
Moreover, herein petitioners failed to discharge the burden of proving by convincing evidence their
allegation that there was actually no compliance with the posting requirement. The foreclosure proceeding
has in its favor the presumption of regularity, 15 and the burden of evidence to rebut the same is on
petitioners. Where the allegation is an essential part of the cause of action or defense in a civil case,
whether posited in an affirmative or negative form, the burden of evidence thereon lies with the
pleader. 16 Besides, the fact alone that there was no certificate of posting attached to the sheriff's records
of the extrajudicial foreclosure sale is not sufficient to prove the lack of posting, especially in this case
where the questioned act and the record thereof are already 16 years old. It is quite unfair to now shift to
respondent bank the burden of proving the fact of posting considering the length of time that has elapsed,
aside from the fact that the sheriff who conducted the public sale and who was responsible for the posting
of the notice of sale is already out of the country, with the records being silent on his present whereabouts
or the possibility of his returning here.
Indeed, even on equitable considerations alone, the presumption of regularity in the performance of
official duty must stand. As aptly found by the Court of Appeals:
. . . It is not a matter of lack of compliance with the requirements of the law, rather, it is a matter of
unavailability of certain documents due to the loss thereof, considering that more than sixteen (16) years
had lapsed from the date of the extra-judicial foreclosure of the real estate mortgage. Indeed, the
presumption of regularity in the performance of official duty by the sheriff, more particularly, compliance
with the provisions of Act 3135, as amended, has not been overturned by the Olizons. 17
Nor are these all that we wish to expound hereon, for this is one case where we find the necessity for the
application of the equitable principle of estoppel by laches in order to avoid an injustice.
Laches has been defined as the failure or neglect, for an unreasonable and unexplained length of time, to
do that which by exercising due diligence could nor should have been done earlier; it is negligence or
omission to assert a right within a reasonable time, warranting a presumption that the party entitled to
assert it either has abandoned it or declined to assert it. 18
In the case at bar, petitioners are already considered estopped through laches from questioning the
regularity of the sale as well as the ownership of the land in question. It is evident from the records that
the petition to annul the foreclosure sale was filed by herein petitioners only after 16 long years from the
date of sale and only after a transfer certificate of title over the subject property had long been issued to
respondent bank. Herein petitioners failed to advance any justification for their prolonged inaction. It
would be inequitable to allow petitioners, after the lapse of an almost interminable period of time, to
defeat an otherwise indefeasible title by the simple and dubious expedient of invoking a purported
irregularity in the foreclosure proceedings.
Although a sale under a power contained in a mortgage or trust deed has been defectively executed and
the mortgagor has the right to disaffirm the same, he may, by laches or by acts amounting to an estoppel
or ratification, cure the defect and render the sale valid. 19 Where a sale under a power is voidable at the
election of the mortgagor for some irregularity — such as that the mortgagee purchased without authority,
or that there was an inadequacy in the price obtained, a want of sufficient or proper notice, or the like —
the mortgagor must institute proceedings for avoidance within apt and reasonable time, or his laches will
bar him of relief. 20 Thus, a party seeking to set aside a foreclosure sale made under a power of sale must
bring his action without unreasonable delay. The court generally will refuse to grant relief when there has
been great and unreasonable delay, amounting to laches, in seeking its aid. 21
Besides, it has been said that in seeking to set aside a foreclosure sale, the moving party must act
promptly after he becomes aware of the facts on which he bases his complaint, and in this connection,
notice of an irregularity may be presumed from the fact that the mortgagor has knowledge of the sale, as
he is thereby put on inquiry, and is bound to use diligence in discovering any defects in the
proceedings. 22 Having failed to do so, petitioners cannot now be heard on their much belated plaints.
Moreover, it is an entrenched doctrine in our jurisdiction that registration in a public registry is notice to
the whole world. The record is a constructive notice of its contents as well as of all interest, legal and
equitable, included therein. All persons are charged with knowledge of what it contains. 23 Therefore, in
the case at bar, the annotation of the certificate of sale on petitioners' Transfer Certificate of Title No.
24604 and the filing of the affidavit of consolidation with the Register of Deeds constituted constructive
notice of both acts to herein petitioners. Consequently, as early as March 11, 1974 24 when the certificate
of sale was annotated at the back of their title, petitioners were already charged with knowledge of the
foreclosure sale, yet they still failed or refused to take the necessary steps to protect their rights over the
subject property.
It also bears stressing that petitioners entered their appearance in the Regional Trial Court of Kalookan
City where the petition for reconstitution of Transfer Certificate of Title No. 24604 was filed by respondent
bank, as shown by said court's order dated June 11, 1986. 25 It was then incumbent on petitioners to have
filed an objection or opposition to the reconstitution if they sincerely believed that the property rightfully
belongs to them. Significantly, petitioners neither moved for the reconsideration of nor appealed from the
order of the lower court granting reconstitution of title in the name of respondent bank.
Finally, the negligence or omission to assert a right within a reasonable time warrants not only a
presumption that the party entitled to assert it either had abandoned it or declined to assert it, but also
casts doubt on the validity of the claim of ownership. Such neglect to assert a right taken in conjunction
with the lapse of time, more or less great, and other circumstances causing prejudice to the adverse party,
operates as a bar in a court of equity. 26 In the present case, at no time after the debt became due and
demandable and the mortgage property had been foreclosed, or even thereafter, did petitioners offer to
pay their mortgage obligation to redeem their property. Petitioners' collective acts are, therefore,
indicative of their acquiescence to and acknowledgment of the validity of the foreclosure proceedings and
the sale, as well as a recognition of respondent bank's just and legal title over the property acquired
thereby.
We, therefore, cannot but concur in these observations of respondent Court:
The evidence on record, likewise show that after the foreclosure proceedings in 1974, the Olizons had
totally abandoned actual ownership over the subject property in favor of appellant bank, leaving it to
appellant bank to pay the real estate taxes over the subject property. In fact, in the reconstitution of the
owner's title in Case No. C-2746, while the Olizons entered their appearance before the Regional Trial
Court of Caloocan, they did not oppose the petition of appellant bank, despite the fact that the certificate
of sale and final deed of sale as well as consolidation of the ownership were submitted as evidence by
appellant bank in the reconstitution process. It was only after they noticed the lack of certain documents in
the possession of the sheriff that they thought of raising technicalities. . . . 27
WHEREFORE, the instant petition is DENIED for lack of merit and the assailed judgment of respondent
Court of Appeals is hereby AFFIRMED in toto.
SO ORDERED.
Narvasa, Padilla, Puno and Mendoza, JJ., concur.
#Footnotes

* The word "Spouses" (or the abbreviation "Sps."), stated before the names of petitioners in the title of this
case during the proceedings in the two lower courts, has been eliminated from the caption here as it is
neither indicative of an official position nor an accepted honorific.
1 Decision, CA-G.R. CV No. 29482, 1-2; Rollo, 21-22.
2 See Exhibit N-1, Folder of Exhibits, LRC Case No. C-3094, Regional Trial Court, Branch 120, Kalookan
City.
3 Original Record, 7.
4 Ibid., 1-4.
5 Ibid., 23.
6 Ibid., 43-45.
7 Ibid., 80-82; per Judge Arturo A. Romero.
8 Rollo, 26. Justice Jorge S. Imperial, ponente, with Justices Serafin E. Camilon and Cancio C. Garcia,
concurring.
9 Ibid., 11.
10 Cortes, et al. vs. Intermediate Appellate Court, et al., G.R. No. 73678, July 21, 1989, 175 SCRA 545;
Cruz, et al. vs. Court of Appeals, et al., G.R. No. 90369, October 31, 1990, 191 SCRA 170;Gravina, et al. vs.
Court of Appeals, et al., G.R. No. 97070, March 19, 1993, 220 SCRA 178.
11 L-48278, November 8, 1988, 167 SCRA 16; Rollo, 96.
12 Rollo, 24-25.
13 Tambunting, et al. vs. Court of Appeals, et al., supra; Masantol Rural Bank, Inc. vs. Court of Appeals, et
al., G.R. Nos. 97132 and 70937, December 10, 1991, 204 SCRA 752.
14 Bacon vs. Northwestern Mut. L. Ins. Co., 131 U.S. 258, 33 L. Ed 128, 9 S Ct 787; State ex rel. Raulerson
vs. Sloan, 134 Fla 632, 14 So 128.
15 Philippine National Bank vs. Adul, etc., et al., G.R. No. 52823, November 2, 1982, 118 SCRA 110.
16 See Industrial Finance Corporation vs. Tobias, L-41555, July 27, 1977, 78 SCRA 28.
17 Rollo, 26.
18 Tejido, et al. vs. Zamacoma, et al., G.R. No. 63048, August 7, 1985, 138 SCRA 78, citing Tijam, et al. vs.
Sibonghanoy, et al., No. L-21450, April 15, 1963, 23 SCRA 29; Sotto vs. Teves, et al., L-38018, October 31,
1978, 86 SCRA 154.
19 55 Am. Jur. 2d, Ratification and Estoppel, 750.
20 55 Am. Jur. 2d, Laches, 751.
21 59 C.J.S., Mortgages, 1059.
22 59 C.J.S., Mortgages, 1060.
23 People vs. Reyes, G.R. Nos. 74226-27, July 27, 1989, 175 SCRA 597.
24 Exhibit A, Folder of Exhibits, LRC Case No. C-3094, Regional Trial Court, Branch 120, Kalookan City.
25 Exhibit N-1, ibid., id.
26 Guerrero, et al. vs. Court of Appeals, et al., L-35250, November 29, 1983, 126 SCRA 109; Villamor, et al.
vs. Court of Appeals, et al., L-41508, June 27, 1988, 162 SCRA 574.
27 Rollo, 26.

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Metrobank vs. Penafiel (2009)


Sunday, June 06, 2010
12:23 AM

Republic of the Philippines


SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 173976 February 27, 2009
METROPOLITAN BANK AND TRUST COMPANY, INC., Petitioner,
vs.
EUGENIO PEÑAFIEL, for himself and as Attorney-in-Fact of ERLINDA PEÑAFIEL, Respondents.
DECISION
NACHURA, J.:
This is a petition for review on certiorari of the Decision1 of the Court of Appeals (CA) dated July 29, 2005
and Resolution dated July 31, 2006. The assailed decision nullified the extrajudicial foreclosure sale of
respondents’ properties because the notice of sale was published in a newspaper not of general
circulation in the place where the properties were located.
Respondent Erlinda Peñafiel and the late Romeo Peñafiel are the registered owners of two parcels of land
covered by Transfer Certificate of Title (TCT) No. (350937) 6195 and TCT No. 0085, both issued by the
Register of Deeds of Mandaluyong City. On August 1, 1991, the Peñafiel spouses mortgaged their
properties in favor of petitioner Metropolitan Bank and Trust Company, Inc. The mortgage deed was
amended on various dates as the amount of the loan covered by said deed was increased.
The spouses defaulted in the payment of their loan obligation. On July 14, 1999, petitioner instituted an
extrajudicial foreclosure proceeding under Act No. 3135 through Diego A. Alleña, Jr., a notary public.
Respondent Erlinda Peñafiel received the Notice of Sale, stating that the public auction was to be held on
September 7, 1999 at ten o’clock in the morning, at the main entrance of the City Hall of Mandaluyong
City. The Notice of Sale was published in Maharlika Pilipinas on August 5, 12 and 19, 1999, as attested to
by its publisher in his Affidavit of Publication.2 Copies of the said notice were also posted in three
conspicuous places in Mandaluyong City.3
At the auction sale, petitioner emerged as the sole and highest bidder. The subject lots were sold to
petitioner forP6,144,000.00. A certificate of sale4 was subsequently issued in its favor.
On August 8, 2000, respondent Erlinda Peñafiel, through her attorney-in-fact, Eugenio Peñafiel, filed a
Complaint5praying that the extrajudicial foreclosure of the properties be declared null and void. They
likewise sought (a) to enjoin petitioner and the Register of Deeds from consolidating ownership, (b) to
enjoin petitioner from taking possession of the properties, and (c) to be paid attorney’s fees.
On June 30, 2003, the Regional Trial Court (RTC) rendered judgment in favor of petitioner:
ACCORDINGLY, judgment is hereby rendered as follows:
1. The extrajudicial foreclosure of real estate mortgage instituted by defendants Metrobank and Notary
Public Diego A. Alleña, Jr. over the two parcels of land covered by TCT Nos. (350937) 6195 and TCT No.
0085 is hereby declared VALID; and
2. The counterclaim of herein defendants are hereby DISMISSED for insufficiency of evidence.
SO ORDERED.6
Respondents appealed to the CA, raising, among others, the issue of whether petitioner complied with the
publication requirement for an extrajudicial foreclosure sale under Act No. 3135.
On this issue, the CA agreed with respondents. The CA noted that the law requires that publication be
made in a newspaper of general circulation in the municipality or city where the property is situated.
Based on the testimony of the publisher of Maharlika Pilipinas, it concluded that petitioner did not comply
with this requirement, since the newspaper was not circulated in Mandaluyong City where the subject
properties were located. Thus, in its Decision dated July 29, 2005, the CA reversed the RTC Decision, thus:
WHEREFORE, the appealed decision is REVERSED and SET ASIDE. A new one is hereby entered declaring
the extrajudicial foreclosure sale of the properties covered by TCT Nos. (350937) 6195 and 0085 NULL
and VOID.
SO ORDERED.7
Petitioner filed a motion for reconsideration8 of the decision which the CA denied on July 31, 2006.
Petitioner now brings before us this petition for review on certiorari, raising the following issues:
I. WHETHER OR NOT THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED WHEN IT RULED TO
APPLY THE PROVISIONS ON THE PUBLICATION OF JUDICIAL NOTICES UNDER SECTION 1 OF P.D. NO.
1079 TO THE EXTRAJUDICIAL FORECLOSURE OF THE MORTGAGE BY NOTARY PUBLIC OVER THE
PROPERTIES COVERED BY TCT NO. (350927) 6195 AND TCT NO. 0085.
II. WHETHER OR NOT THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED WHEN IT RULED THAT
"MAHARLIKA PILIPINAS" IS NOT A NEWSPAPER OF GENERAL CIRCULATION IN MANDALUYONG CITY.
III. WHETHER OR NOT THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED WHEN IT REVERSED
AND SET ASIDE THE DECISION DATED JUNE 30, 2003 ISSUED BY THE REGIONAL TRIAL COURT OF
MANDALUYONG CITY, BRANCH 208 AND DECLARED THE EXTRAJUDICIAL FORECLOSURE SALE OF THE
PROPERTIES COVERED BY TCT NO. (350937) 6195 AND TCT NO. 0085 NULL AND VOID.9
This controversy boils down to one simple issue: whether or not petitioner complied with the publication
requirement under Section 3, Act No. 3135, which provides:
SECTION 3. Notice shall be given by posting notices of the sale for not less than twenty days in at least
three public places of the municipality or city where the property is situated, and if such property is worth
more than four hundred pesos, such notice shall also be published once a week for at least three
consecutive weeks in a newspaper of general circulation in the municipality or city.10
We hold in the negative.
Petitioner insists that Maharlika Pilipinas is a newspaper of general circulation since it is published for the
dissemination of local news and general information, it has a bona fide subscription list of paying
subscribers, and it is published at regular intervals. It asserts that the publisher’s Affidavit of Publication
attesting that Maharlika Pilipinas is a newspaper of general circulation is sufficient evidence of such
fact.11 Further, the absence of subscribers in Mandaluyong City does not necessarily mean that Maharlika
Pilipinas is not circulated therein; on the contrary, as testified to by its publisher, the said newspaper is in
fact offered to persons other than its subscribers. Petitioner stresses that the publisher’s statement that
Maharlika Pilipinas is also circulated in Rizal and Cavite was in response to the question as to where else
the newspaper was circulated; hence, such testimony does not conclusively show that it is not circulated
in Mandaluyong City.12
Petitioner entreats the Court to consider the fact that, in an Order13 dated April 27, 1998, the Executive
Judge of the RTC of Mandaluyong City approved the application for accreditation of Maharlika Pilipinas as
one of the newspapers authorized to participate in the raffle of judicial notices/orders effective March 2,
1998. Nonetheless, petitioner admits that this was raised for the first time only in its Motion for
Reconsideration with the CA.14
The accreditation of Maharlika Pilipinas by the Presiding Judge of the RTC is not decisive of whether it is a
newspaper of general circulation in Mandaluyong City. This Court is not bound to adopt the Presiding
Judge’s determination, in connection with the said accreditation, that Maharlika Pilipinas is a newspaper
of general circulation. The court before which a case is pending is bound to make a resolution of the
issues based on the evidence on record.1avvphi1
To prove that Maharlika Pilipinas was not a newspaper of general circulation in Mandaluyong City,
respondents presented the following documents: (a) Certification15 dated December 7, 2001 of Catherine
de Leon Arce, Chief of the Business Permit and Licensing Office of Mandaluyong City, attesting that
Maharlika Pilipinas did not have a business permit in Mandaluyong City; and (b) List of Subscribers16 of
Maharlika Pilipinas showing that there were no subscribers from Mandaluyong City.
In addition, respondents also presented Mr. Raymundo Alvarez, publisher of Maharlika Pilipinas, as a
witness. During direct examination, Mr. Alvarez testified as follows:
Atty. Mendoza: And where is your principal place of business? Where you actually publish.
Witness: At No. 80-A St. Mary Avenue, Provident Village, Marikina City.
Atty. Mendoza: Do you have any other place where you actually publish Maharlika Pilipinas?
Witness: At No. 37 Ermin Garcia Street, Cubao, Quezon City.
Atty. Mendoza: And you have a mayor’s permit to operate?
Witness: Yes.
Atty. Mendoza: From what city?
Witness: Originally, it was from Quezon City, but we did not change anymore our permit.
Atty. Mendoza: And for the year 1996, what city issued you a permit?
Witness: Quezon City.
Atty. Mendoza: What about this current year?
Witness: Still from Quezon City.
Atty. Mendoza: So, you have no mayor’s permit from Marikina City?
Witness: None, it’s only our residence there.
Atty. Mendoza: What about for Mandaluyong City?
Witness: We have no office in Mandaluyong City.
Atty. Mendoza: Now, you said that you print and publish Maharlika Pilipinas in Marikina and Quezon City?
Witness: Yes.
Atty. Mendoza: Where else do you circulate your newspaper?
Witness: In Rizal and in Cavite.
Atty. Mendoza: In the subpoena[,] you were ordered to bring the list of subscribers.
Witness: Yes.
xxxx
Atty. Mendoza: How do these subscribers listed here in this document became (sic) regular subscribers?
Witness: They are friends of our friends and I offered them to become subscribers.
Atty. Mendoza: Other than this list of subscribers, you have no other subscribers?
Witness: No more.
Atty. Mendoza: Do you offer your newspaper to other persons other than the subscribers listed here?
Witness: Yes, but we do not just offer it to anybody.17 (Emphasis supplied.)
It bears emphasis that, for the purpose of extrajudicial foreclosure of mortgage, the party alleging non-
compliance with the requisite publication has the burden of proving the same.18 Petitioner correctly
points out that neither the publisher’s statement that Maharlika Pilipinas is being circulated in Rizal and
Cavite, nor his admission that there are no subscribers in Mandaluyong City proves that said newspaper is
not circulated in Mandaluyong City.
Nonetheless, the publisher’s testimony that they "do not just offer [Maharlika Pilipinas] to anybody"
implies that the newspaper is not available to the public in general. This statement, taken in conjunction
with the fact that there are no subscribers in Mandaluyong City, convinces us that Maharlika Pilipinas is,
in fact, not a newspaper of general circulation in Mandaluyong City.
The object of a notice of sale is to inform the public of the nature and condition of the property to be sold,
and of the time, place and terms of the sale. Notices are given for the purpose of securing bidders and to
prevent a sacrifice of the property.19 The goal of the notice requirement is to achieve a "reasonably wide
publicity" of the auction sale. This is why publication in a newspaper of general circulation is required. The
Court has previously taken judicial notice of the "far-reaching effects" of publishing the notice of sale in a
newspaper of general circulation.20
True, to be a newspaper of general circulation, it is enough that it is published for the dissemination of
local news and general information, that it has a bona fide subscription list of paying subscribers, and that
it is published at regular intervals.21 Over and above all these, the newspaper must be available to the
public in general, and not just to a select few chosen by the publisher. Otherwise, the precise objective of
publishing the notice of sale in the newspaper will not be realized.
In fact, to ensure a wide readership of the newspaper, jurisprudence suggests that the newspaper must
also be appealing to the public in general. The Court has, therefore, held in several cases that the
newspaper must not be devoted solely to the interests, or published for the entertainment, of a particular
class, profession, trade, calling, race, or religious denomination. The newspaper need not have the largest
circulation so long as it is of general circulation.22
Thus, the Court doubts that the publication of the notice of sale in Maharlika Pilipinas effectively caused
widespread publicity of the foreclosure sale.
Noticeably, in the Affidavit of Publication, Mr. Alvarez attested that he was the "Publisher of Maharlika
Pilipinas, a newspaper of general circulation, published every Thursday." Nowhere is it stated in the
affidavit that Maharlika Pilipinas is in circulation in Mandaluyong City. To recall, Sec. 3 of Act No. 3135
does not only require that the newspaper must be of general circulation; it also requires that the
newspaper be circulated in the municipality or city where the property is located. Indeed, in the
cases23 wherein the Court held that the affidavit of the publisher was sufficient proof of the required
publication, the affidavit of the publisher therein distinctly stated that the newspaper was generally
circulated in the place where the property was located.
Finally, petitioner argues that the CA, in effect, applied P.D. No. 107924 when it cited Fortune Motors
(Phils.) Inc. v. Metropolitan Bank and Trust Company,25 which involved an extrajudicial foreclosure sale
by a sheriff. Petitioner avers that the general reference to "judicial notices" in P.D. No. 1079, particularly
Section 226 thereof, clearly shows that the law applies only to extrajudicial foreclosure proceedings
conducted by a sheriff, and not by a notary public.27 P.D. No. 1079 allegedly applies only to notices and
announcements that arise from court litigation.28
The Court does not agree with petitioner that the CA applied P.D. 1079 to the present case. The appellate
court cited Fortune Motors merely to emphasize that what is important is that the newspaper is actually
in general circulation in the place where the properties to be foreclosed are located.
In any case, petitioner’s concern that the CA may have applied P.D. 1079 to the present case is trifling.
While P.D. No. 1079 requires the newspaper to be "published, edited and circulated in the same city
and/or province where the requirement of general circulation applies," the Court, in Fortune Motors, did
not make a literal interpretation of the provision. Hence, it brushed aside the argument that New Record,
the newspaper where the notice of sale was published, was not a newspaper of general circulation in
Makati since it was not published and edited therein, thus:
The application given by the trial court to the provisions of P.D. No. 1079 is, to our mind, too narrow and
restricted and could not have been the intention of the said law. Were the interpretation of the trial court
(sic) to be followed, even the leading dailies in the country like the "Manila Bulletin," the "Philippine Daily
Inquirer," or "The Philippine Star" which all enjoy a wide circulation throughout the country, cannot
publish legal notices that would be honored outside the place of their publication. But this is not the
interpretation given by the courts. For what is important is that a paper should be in general circulation in
the place where the properties to be foreclosed are located in order that publication may serve the
purpose for which it was intended.29
Therefore, as it stands, there is no distinction as to the publication requirement in extrajudicial
foreclosure sales conducted by a sheriff or a notary public. The key element in both cases is still general
circulation of the newspaper in the place where the property is located.
WHEREFORE, premises considered, the petition is DENIED. The Court of Appeals Decision dated July 29,
2005 and Resolution dated July 31, 2006 in CA-G.R. CV No. 79862 are AFFIRMED.
SO ORDERED.
ANTONIO EDUARDO B. NACHURA
Associate Justice
WE CONCUR:
LEONARDO A. QUISUMBING*
Associate Justice
ANTONIO T. CONCHITA CARPIO MORALES***
CARPIO** Associate Justice
Associate Justice
MINITA V. CHICO-NAZARIO****
Associate Justice
Acting Chairperson
ATTESTATION
I attest that the conclusions in the above Decision were reached in consultation before the case was
assigned to the writer of the opinion of the Court’s Division.
MINITA V. CHICO-NAZARIO
Associate Justice
Acting Chairperson, Third Division
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution and the Division Acting Chairperson's Attestation, I
certify that the conclusions in the above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Court’s Division.
REYNATO S. PUNO
Chief Justice
Footnotes
* Additional member in lieu of Associate Justice Consuelo Ynares-Santiago per Special Order No. 564 dated February 12, 2009.

** Additional member in lieu of Associate Justice Ma. Alicia Austria-Martinez per Special Order No. 568 dated February 12, 2009.

*** Additional member per Raffle dated September 24, 2007.

**** In lieu of Associate Justice Consuelo Ynares-Santiago per Special Order No. 563 dated February 12, 2009.

1 Penned by Associate Justice Ruben T. Reyes (now a retired member of this Court), with Associate
Justices Rebecca de Guia-Salvador and Fernanda Lampas Peralta, concurring; rollo, pp. 27-45.
2 Rollo, p. 100.
3 Id. at 101.
4 Id. at 72-73.
5 Id. at 48-53.
6 Id. at 198.
7 Id. at 44.
8 Id. at 46-47.
9 Id. at 326.
10 Emphasis supplied.
11 Rollo, pp. 329-331.
12 Id. at 332-334.
13 Id. at 265.
14 Id. at 332.
15 Id. at 149.
16 Id. at 150-161.
17 Id. at 272-273.
18 Ruiz, et al. v. Sheriff of Manila, et al., 145 Phil. 111, 114 (1970).
19 Olizon v. Court of Appeals, G.R. No. 107075, September 1, 1994, 236 SCRA 148, 156.
20 Id. at 155.
21 Perez v. Perez, G.R. No. 143768, March 28, 2005, 454 SCRA 72, 81.
22 Id.
23 Fortune Motors (Phils.) Inc. v. Metropolitan Bank and Trust Co., 332 Phil. 844 (1996); Bonnevie, et al. v.
Court of Appeals, et al., 210 Phil. 100 (1983).
24 Revising and Consolidating All Laws and Decrees Regulating Publication of Judicial Notices,
Advertisements for Public Bidding, Notices of Auction Sales and Other Similar Notices.
25 Supra note 23
26 Sec. 2 of P.D. No. 1079 provides:
SECTION 2. The executive judge of the court of first instance shall designate a regular working day and a
definite time each week during which the said judicial notices or advertisements shall be distributed
personally by him for publication to qualified newspapers or periodicals as defined in the preceding
section, which distribution shall be done by raffle: Provided, That should the circumstances require that
another day be set for the purpose, he shall notify in writing the editors and publishers concerned at least
three (3) days in advance of the designated date: Provided, further, That the distribution of the said
notices by raffle shall be dispensed with in case only one newspaper or periodical is in operation in a
particular province or city. (Emphasis supplied.)
27 Rollo, pp. 327-328, 332-333.
28 Id. at 331, 336.
29 Fortune Motors (Phils.) Inc. v. Metropolitan Bank and Trust Co., supra note 23 at 850.

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Global Holiday vs. Metrobank (2009)


Sunday, June 06, 2010
12:24 AM
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 184081 June 19, 2009
GLOBAL HOLIDAY OWNERSHIP CORPORATION, Petitioner,
vs.
METROPOLITAN BANK & TRUST COMPANY, Respondent.
DECISION
YNARES-SANTIAGO, J.:
This petition for review on certiorari assails the March 31, 2008 Decision1 of the Court of Appeals in CA-
G.R. SP No. 97287, which annulled and set aside the July 26, 2006 and October 6, 2006 Orders of the
Regional Trial Court of Makati, Branch 146, granting petitioner’s prayer for a writ of preliminary injunction
in Civil Case No. 06-549 and directed the judge to dissolve the said writ. Also assailed is the August 7,
2008 Resolution2 denying the motion for reconsideration.
The facts as found by the appellate court are as follows:
Global Holiday Ownership Corporation (Global for short) obtained on various dates several loans from x x
x Metrobank in the total principal amount of P5,700,000.00 secured by a real estate mortgage over a
condominium unit under Condominium Certificate of Title No. 29774 of the Registry of Deeds for Makati
City. Upon default in the payment of the loan, x x x Global requested for a restructuring of its loan in the
total principal amount of P6,375,000.00 as of September 3, 2001. (Metrobank) acceded to its request.
As x x x Global defaulted anew in the payment of its loan, it requested for another restructuring which
was likewise granted by the bank. Hence, a Debt Settlement Agreement was executed by the parties on
November 15, 2001 detailing a schedule of payment of the principal obligation of P6,375,000.00 within a
3-year period up to August 19, 2004 as well (sic) the interest on the principal, payable quarterly based on
the prevailing market rates beginning December 2, 2001 and every 90 days thereafter, without need of
notice or demand, the full payment of which shall be on or before August 29, 2002.
xxxx
Global failed to comply with the terms and conditions of the Debt Settlement Agreement. Despite
demands made upon it for payment on December 22, 2005 and May 18, 2006, it still failed and refused to
pay (Metrobank) the loans which are all past due.
Thus on May 22, 2006, (Metrobank) requested the Clerk of Court of the RTC of Makati City to cause the
sale at public auction of CCT No. 29774 pursuant to Act 3135 as amended. The sale was scheduled on July
10, 2006 at 10:00 a.m. per notice of sheriff’s sale.
Four (4) days before the date of the auction sale or on July 6, 2006, x x x Global filed the instant
complaint for annulment of extrajudicial foreclosure proceedings, damages and injunction with
application for TRO and/or writ of preliminary injunction. Respondent judge granted Global’s application
for temporary restraining order on July 7, 2006 and set the prayer for a writ of preliminary injunction for
hearing on July 14, 2006. After hearing, respondent judge issued an Order on July 26, 2006 granting
Global’s application for a writ of preliminary injunction. (Metrobank) moved to reconsider this Order but
respondent judge denied the motion in the Order dated October 6, 2006.3
Metrobank filed a petition for certiorari before the Court of Appeals arguing that Global is not entitled to
injunctive relief because it has not shown that it had a legal right that must be protected. Metrobank thus
prayed that the trial court’s issuances dated July 26, 2006 and October 6, 2006 be annulled and set aside.
(Metrobank) stresses that in view of x x x Global’s admission that it failed to pay its loan, the latter has
definitely no right in esse to be protected as it was clearly provided in the deed of real estate mortgage
and in the Debt Settlement Agreement that the mortgage can be foreclosed by (Metrobank) in case of
default.
(Metrobank) contends that x x x Global’s claim of not having been notified of the foreclosure proceedings
is debunked by the Certification issued by the Makati Central Post Office dated August 2, 2006 stating
that a copy of the notice of sheriff sale was sent to Global and was received by it on June 23, 2006.
Moreover, (Metrobank’s) several demand letters to x x x Global urging it to pay its overdue account with a
warning that in case of failure to do, actions to protect the bank’s interests will be initiated, more than
satisfies the requirement of notice. Additionally, (Metrobank) emphasizes that Sec. 14 of the real estate
mortgage was already superseded by Sec. 5 of the Debt Settlement Agreement whereby Global waived
its right to be personally notified in case of default.
(Metrobank) argues that no personal notice of the extrajudicial foreclosure is even required as said
proceeding is an action in rem where only notice by publication and posting is necessary to bind the
interested parties, citing Bobanan vs. Court of Appeals, G.R. No. 111654, April 18, 1996. The law itself,
Act No. 3135, does not require personal notice to the mortgagor. Only notice by publication and posting
are required. Likewise, (Metrobank) points to Administrative Matter No. 99-10-05-0 dated February 26,
2002 (Re: Procedure in the Extrajudicial Foreclosure of Mortgage) wherein the Supreme Court
acknowledged that personal notice to the debtor-mortgagor in case of extrajudicial foreclosure of real
estate mortgage is not required by Act No. 3135 as the addition of such requirement can only make the
proceedings cumbersome.
For its part, x x x Global avers that after it defaulted in its quarterly payment under the Debt Settlement
Agreement, (Metrobank) informed it on May 30, 2003 that its account is being considered for transfer to a
Special Purpose Vehicle under the SPV Act of 2002. Within the period given to signify its conformity to the
plan, x x x Global wrote (Metrobank) on July 4, 2003 informing (Metrobank) that it is (sic) amenable to its
proposal to transfer the loan to a special purpose vehicle company. Instead of transferring its account to a
SPV Company, (Metrobank) decided to proceed with the extrajudicial foreclosure of the mortgaged
property with the sheriff setting the auction sale on July 10, 2006. Such being the case, there is nothing
that can be ascribed in the July 26, 2006 Order of respondent judge that could be considered whimsical,
capricious, arbitrary and despotic, x x x Global asserts.
Mere failure to pay a secured obligation, according to Global, does not give the mortgagee bank the
unbridled right to foreclose the mortgage, more so in this case when the interest rate on a loan is
unilaterally imposed or increased by (Metrobank) without Global’s consent, in violation of mutuality of
contract. Besides, there is already a perfected contract between (Metrobank) and x x x Global to transfer
the latter’s account to a special purpose vehicle company.
Finally, x x x Global claimed that it has not waived its right to be notified of the foreclosure when it
executed the Debt Settlement Agreement. The statement "without need of demand" in the debt
settlement agreement refers to the payment of the principal and interest, which is different from notice of
extrajudicial foreclosure that is required to be given to a mortgagor.4
In the assailed March 31, 2008 Decision, the Court of Appeals granted Metrobank’s petition and set aside
the July 26, 2006 and October 6, 2006 orders of the trial court, with a directive to dissolve the writ of
preliminary injunction it issued. The appellate court found that Global had no legal right to an injunction;
that Metrobank had the undeniable right to foreclose on the real estate mortgage in view of Global’s
default in the settlement of its obligation to the bank; that Global had not shown any legal justification to
enjoin it from enforcing this right; that it is not required that Global be personally informed of the
foreclosure of its mortgaged property, since personal notice is not necessary; the applicable law – Act
31355 – requires only notice by publication and posting; that under Administrative Matter No. 99-10-05-
06 in relation to Act 3135, as amended, personal notice to the debtor-mortgagor in case of extrajudicial
foreclosure of real estate mortgage is not required; and that by declaring that the foreclosure
proceedings were defective and null and void, the trial court’s issuances granting Global’s prayer for a
writ of preliminary injunction constituted a premature disposition of the case on its merits, a pre-
judgment that went beyond the nature of the proceeding then being taken, which was merely for the
issuance of a writ of preliminary injunction.7
Global moved to reconsider the decision, however, it was denied by the Court of Appeals in the assailed
August 7, 2008 Resolution.
Hence, this petition by Global raising the following as errors:
First Assigned Error:
The Honorable Court of Appeals (erred in) ruling x x x that personal notice to the debtor-mortgagor of the
extrajudicial foreclosure is not necessary despite the parties’ stipulation in their Real Estate Mortgage
contract requiring personal notice thereof x x x.
Second Assigned Error:
The Honorable Court of Appeals seriously erred in its interpretation and application of Supreme Court
Administrative Matter No. 99-10-05-0 dated February 26, 2002 that in extrajudicial foreclosure of real
estate mortgage, personal notice to the debtor-mortgagor is not necessary.
Third Assigned Error:
The Honorable Court of Appeals erred in applying the superseded case of Cortez v. Intermediate
Appellate Court (G.R. No. 73678, July 21, 1989) in support of its ruling that the parties’ stipulation in their
Real Estate Mortgage contract requiring all correspondence relative to the mortgage to be sent at the
mortgagor’s given address is a mere expression of "general intent" which cannot prevail over the parties’
"specific intent" to apply the provisions of Act 3135 in the extrajudicial foreclosure of the mortgage as the
same is contrary to subsequent rulings of the Supreme Court.
Fourth Assigned Error
The Honorable Court of Appeals erred in relying on the cases of BPI Family Savings Bank, Inc. v. Veloso,
436 SCRA 1; China Banking Corporation v. CA, 265 SCRA 327; and Selegna Mgnt. & Devt. Corp. v. UCPB,
G.R. No. 165662, May 3, 2006, to support its findings that petitioner has no clear legal right to be
protected, since the trial court’s issuance of the injunctive writ was founded on the mortgagee’s non-
compliance with the stipulated personal notice to the mortgagor.
Fifth Assigned Error
The Honorable Court of Appeals’ ruling that there was no perfected contract to transfer petitioner’s
account to a Special Purpose Vehicle despite its finding that respondent MBTC made a proposal thereon
to GHOC is contrary to the provision of Article 1319 of the Civil Code of the Philippines since there was
unqualified acceptance of the proposal.
Sixth Assigned Error
The Honorable Court of Appeals erroneously ruled that petitioner was personally notified of the
foreclosure proceedings as evidenced by the Certification of the Clerk of Court of Makati RTC when such
Certification is non-existent in the records of the case.
Seventh Assigned Error
The Honorable Court of Appeals erred in denying petitioner’s Motion for Reconsideration despite the
apparent falsified Certification submitted by respondent thru its Comment to the motion.
Eighth Assigned Error
The Honorable Court of Appeals seriously erred in finding that the grant by the trial court of the injunctive
writ is completely without justification and in grave abuse of its discretion.
The issues for resolution are: whether Metrobank’s failure to serve personal notice upon Global of the
foreclosure proceedings renders the same null and void; and whether the trial court properly issued a writ
of injunction to prevent Metrobank from proceeding with the scheduled auction sale of Global’s
condominium unit.
We grant the petition.
Paragraph 14 of the real estate mortgage contract states that:
All correspondence relative to this mortgage, including demand letters, summonses, subpoenas or
notifications of any judicial or extra-judicial actions shall be sent to the Mortgagor at the address
hereinabove given or at the address that may hereafter be given in writing by the Mortgagor to the
Mortgagee, and the mere act of sending any correspondence by mail or by personal delivery to the said
address shall be valid and effective notice to the Mortgagor for all legal purposes, and the fact that any
communication is not actually received by the Mortgagor, or that it has been returned unclaimed to the
Mortgagee, or that no person was found at the address given, or that the address is fictitious, or cannot
be located, shall not excuse or relieve the Mortgagor from the effect of such notice.8
This specific provision in the parties’ real estate mortgage agreement is the same provision involved in
the case of Metropolitan Bank and Trust Company v. Wong,9 where the Court made the following
pronouncement:
It is bad enough that the mortgagor has no choice but to yield his property in a foreclosure proceeding. It
is infinitely worse, if prior thereto, he was denied of his basic right to be informed of the impending loss of
his property. This is another instance when law and morals echo the same sentiment.1awphi1
xxxx
Thus, disregarding all factual issues which petitioner interjected in his petition, the only crucial legal
queries in this case are: first, is personal notice to respondent a condition sine qua non to the validity of
the foreclosure proceedings? and, second, is petitioner’s non-compliance with the posting requirement
under Section 3, Act No. 3135 fatal to the validity of the foreclosure proceedings?
In resolving the first query, we resort to the fundamental principle that a contract is the law between the
parties and, that absent any showing that its provisions are wholly or in part contrary to law, morals, good
customs, public order, or public policy, it shall be enforced to the letter by the courts. Section 3, Act No.
3135 reads:
"Sec. 3. Notice shall be given by posting notices of the sale for not less than twenty days in at least three
public places of the municipality or city where the property is situated, and if such property is worth more
than four hundred pesos, such notice shall also be published once a week for at least three consecutive
weeks in a newspaper of general circulation in the municipality and city."
The Act only requires (1) the posting of notices of sale in three public places, and (2) the publication of
the same in a newspaper of general circulation. Personal notice to the mortgagor is not necessary.
Nevertheless, the parties to the mortgage contract are not precluded from exacting additional
requirements. In this case, petitioner and respondent in entering into a contract of real estate mortgage,
agreed inter alia:
"all correspondence relative to this mortgage, including demand letters, summonses, subpoenas, or
notifications of any judicial or extra-judicial action shall be sent to the MORTGAGOR at 40-42 Aldeguer St.,
Iloilo City, or at the address that may hereafter be given in writing by the MORTGAGOR to the
MORTGAGEE."
Precisely, the purpose of the foregoing stipulation is to apprise respondent of any action which petitioner
might take on the subject property, thus according him the opportunity to safeguard his rights. When
petitioner failed to send the notice of foreclosure sale to respondent, he committed a contractual breach
sufficient to render the foreclosure sale on November 23, 1981 null and void.10 (Emphasis supplied)
We do not see how a different outcome could have been expected in the present case which involves the
same contractual provision as that in the abovementioned case – not to mention the same mortgagee. In
cases subsequent to Wong, we sustained the same principle: that personal notice to the mortgagor in
extrajudicial foreclosure proceedings is not necessary, unless stipulated.11
If respondent wanted to rid itself of the effects of the Court’s pronouncement in Wong, considering that it
was a party to the case and knows firsthand about the Court’s disposition, it should have caused the
deletion of Paragraph 14 from all its subsequent standard form real estate mortgage agreements, or if
not, modified the provision or the contracts accordingly. A modification of the mortgage contract on this
point, with respect to Global, would not have been difficult; an addendum would have sufficed.
Taking from Wong, we must interpret Paragraph 14 of the parties’ mortgage contract as one having been
made for the benefit of the mortgagor, and one which Metrobank knowingly incorporated into the
agreement. Having been in the business of banking since 1962 – or for more than forty years now – it
certainly had the knowledge, experience and the resources to correct any perceived oversight it was
guilty of making in the past with respect to its contracts. Although we do not view Paragraph 14 to be one
such oversight; as we have declared in Wong, the purpose of said stipulation is benign: to apprise the
mortgagor of any action which Metrobank might take on the subject property, thus according him the
opportunity to safeguard his rights. We cannot allow Metrobank to disavow its solemn covenant with
Global, to turn its back on a contract which it prepared on its own, without the intervention of the other
party. A party should not, after having its opportunity to enjoy the benefits of an agreement, be allowed
to later disown the arrangement when the terms thereof ultimately would prove to operate against its
hopeful expectations.12
The business of banking is imbued with public interest. It carries with it a fiduciary duty that requires high
standards of integrity and performance.13 Our decision in Wong was not a mere declaration of what the
law is on a given point; its underlying message is our acknowledgment that banks must play a
compassionate role amidst these changing times. That in the wake of huge profits being made from their
operations, all that is required is for them to inform the borrower of the impending loss of his property
when their covenants require it. This is a valid argument when viewed within the context of the principle
that any attempt to vest ownership of the encumbered property in the mortgagee without proper
observance of the requirements of law is against public policy.14
Paragraph 14 is clear that "all correspondence relative to this mortgage, including demand letters,
summonses, subpoenas or notifications of any judicial or extrajudicial actions shall be sent to the
mortgagor at the address hereinabove given or at the address that may hereafter be given in writing by
(it)." It must be recalled that the principal object of a notice of sale in a foreclosure of mortgage is not so
much to notify the mortgagor as to inform the public generally of the nature and condition of the property
to be sold, and of the time, place, and terms of the sale. Notices are given to secure bidders and prevent
a sacrifice of the property. Clearly, the statutory requirements of posting and publication are mandated,
not for the mortgagor’s benefit, but for the public or third persons.15 Taking this into context, the
stipulation in the mortgage agreement requiring notice to the mortgagor of extrajudicial actions to be
taken operates as a contractual undertaking for the latter’s sole benefit, such that the mortgagee is
mandated to strictly abide by the same.
Metrobank claims that Cortes v. Intermediate Appellate Court16 should be applied in the resolution of the
present controversy. In said case, the Court held:
But in pleading their case, petitioners invoke paragraph 10 of the Deed of Mortgage (vide, p. 28, Rollo)
which provides:
"10. All correspondence relative to this mortgage, including demand letters, summons, subpoenas, or
notification of any judicial or extrajudicial action, shall be sent to the Mortgagor at _________ or at the
address that may hereafter be given in writing by the Mortgagor to the Mortgagee."
While the above stipulation points to a place (which, notably was clearly stated) where all correspondence
relative to the mortgage are to be sent, it does not specifically require that personal notice of foreclosure
sale be given to petitioner. The said paragraph 10 presumes that a specific correspondence is made but
does not definitely require which correspondence must be made. It would, therefore, be erroneous to say
that notice of extrajudicial foreclosure to the petitioners is required for such is not the clear intention of
the parties, and, thus, may not be pursued. (Rule 130, Section 10).
But even if the contrary were true, the sending of "All correspondence relative to this mortgage . . . " to
the petitioners may only be deemed, at the most, as an expression of a general intent. As such, it may
not prevail against the parties' specific intent that Act No. 3135 be the controlling law between them. This
is so since "a particular intent will control a general one that is inconsistent with it." (Rule 130, Sec. 10). It
is clear from the Deed of Mortgage that the Mortgagee Bank (DBP) may, under any of the specific
circumstances enumerated, proceed to "foreclose this mortgage . . . extrajudicially under Act No. 3135,
as amended." (p. 28, Rollo). Having invoked the said Act, it shall "govern the manner in which the sale
and redemption shall be effected" (Sec. 1, Act 3135). And as already shown earlier Act 3135 does not
require personal notice of the foreclosure sale to the mortgagor. Incidentally, it was found by the trial
court that notices of the foreclosure sale were duly posted and published in accordance with law. As such,
petitioners are in estoppel; they cannot now deny that they were not informed of the said
sale.17 (Emphasis supplied)lawphil.net
But what is stated in Cortes no longer applies in light of the Court’s rulings in Wong and all the
subsequent cases, which have been consistent. Cortes has never been cited in subsequent rulings of the
Court, nor has the doctrine therein ever been reiterated. Its doctrinal value has been diminished by the
policy enunciated in Wong and the subsequent cases; that is, that in addition to Section 3 of Act 3135,
the parties may stipulate that personal notice of foreclosure proceedings may be required. Act 3135
remains the controlling law, but the parties may agree, in addition to posting and publication, to include
personal notice to the mortgagor, the non-observance of which renders the foreclosure proceedings null
and void, since the foreclosure proceedings become an illegal attempt by the mortgagee to appropriate
the property for itself.
Thus, we restate: the general rule is that personal notice to the mortgagor in extrajudicial foreclosure
proceedings is not necessary, and posting and publication will suffice. Sec. 3 of Act 3135 governing extra-
judicial foreclosure of real estate mortgages, as amended by Act 4118, requires only posting of the notice
of sale in three public places and the publication of that notice in a newspaper of general circulation.
The exception is when the parties stipulate that personal notice is additionally required to be given the
mortgagor. Failure to abide by the general rule, or its exception, renders the foreclosure proceedings null
and void.18
Global’s right to be furnished with personal notice of the extrajudicial foreclosure proceedings has been
established. Thus, to continue with the extrajudicial sale without proper notice would render the
proceedings null and void; injunction is proper to protect Global’s rights and to prevent unnecessary
injury that would result from the conduct of an irregular sale. It is beyond question that a writ of
preliminary injunction is issued to prevent an extrajudicial foreclosure, upon a clear showing of a violation
of the mortgagor’s unmistakable right.19 The trial court was thus correct in granting an injunction.
Metrobank’s reliance on Ardiente v. Provincial Sheriff20 is misplaced. The cited case is merely a
reiteration of the general rule, since the parties therein did not stipulate in their mortgage agreement
that personal notice of judicial or extrajudicial actions shall be furnished the mortgagor.
Neither can the circumstance that Global received a notice of sheriff’s sale from the Office of the Clerk of
Court of the Regional Trial Court of Makati City cure the defect occasioned by Metrobank’s violation of its
covenant under the mortgage agreement. As already stated, the object of a notice of sale in a foreclosure
of mortgage is not for the mortgagor’s benefit, but for the public or third persons; on the other hand, the
undertaking in a mortgage deed to notify the mortgagor of all judicial or extrajudicial actions relative to
the mortgage is especially for the mortgagor’s benefit, so that he may safeguard his rights.
Under the parties’ Debt Settlement Agreement,21 Global’s obligation was reduced (Metrobank waived the
penalties incurred), but the agreement carried a proviso that if such reduced obligation was not timely
settled and Global defaulted on two consecutive amortizations, Metrobank shall be entitled to treat
Global’s obligation as outstanding, impose a penalty at the rate of 18% per annum, and/or foreclose on
the real estate mortgage, without need of demand. According to Metrobank, this provision in the Debt
Settlement Agreement resulted in a waiver by Global of the required personal notice under Paragraph 14
of the mortgage contract.
We disagree. Demand here relates to the principal obligation, which shall become due and demandable
and shall incur interest and penalties without need of informing Global, were the conditions of the Debt
Settlement Agreement not observed. It does not relieve Metrobank of its obligation under Paragraph 14 of
the Mortgage Contract, which is a separate agreement, distinct and apart from the Debt Settlement
Agreement. As we have said, only an addendum or modification of the mortgage agreement can relieve
Metrobank of the adverse effects of Paragraph 14.
Given the merits of the case, we are not at this point inclined to dismiss the petition, on respondent’s
argument that there was a defective verification and certification accompanying the present petition. We
can simply require petitioner to submit proof of its President Pedro P. Diomampo’s authority to sign the
petition in its behalf, but we no longer see the need to do the same at this late stage. Under the parties’
mortgage agreement, Global was formerly named Diomampo Industries, Inc.;22 certainly, we have been
equally less rigid in previous cases.23
We agree with the appellate court that Metrobank had every right to choose whether to foreclose on the
mortgage or to transfer Global’s account to a special purpose vehicle. In this respect, Global has no right
to interfere. Besides, what Metrobank conveyed to Global about transferring the latter’s account to a
special purpose vehicle was that it was merely considering such move; eventually, it wrote Global of its
decision not to exercise the option, and proceed with foreclosure of the mortgage instead. In the first
place, whether Global’s account could qualify for transfer to a special purpose vehicle is not for the latter
to determine; under the Special Purpose Vehicle Act of 2002,24 the decision belongs to the appropriate
regulatory authority.
Penultimately, we do not subscribe to Metrobank’s argument that the foreclosure proceedings should
continue, since Global is not without adequate protective remedy, like annotation of lis pendens,
participating in the auction sale, or redemption. Annotation of lis pendens is unnecessary, since the issue
may now be resolved at this point; participating in null and void foreclosure proceedings is no valid
option, just as well as redeeming the property following a void auction sale.
Finally, the granting of the writ of preliminary injunction would not in effect dispose of the main case
without trial. The granting of the writ would only enjoin the foreclosure of the mortgage for lack of
personal notice, and the status quo would be maintained. It does not prevent Metrobank from foreclosing
on the mortgage after giving personal notice. The only lesson to be learned from the present case is that
the law must be followed to the letter; no shortcuts are allowed.25
WHEREFORE, the petition is GRANTED. The March 31, 2008 Decision and August 7, 2008 Resolution of the
Court of Appeals in CA-G.R. SP No. 97287 are hereby ANNULLED and SET ASIDE. The July 26, 2006 and
October 6, 2006 Orders of the Regional Trial Court of Makati, Branch 146 are REINSTATED and AFFIRMED.
SO ORDERED.
CONSUELO YNARES-SANTIAGO
Associate Justice
WE CONCUR:
MINITA V. CHICO-NAZARIO
Associate Justice
PRESBITERO J. VELASCO, JR. ANTONIO EDUARDO B. NACHURA
Associate Justice Associate Justice
DIOSDADO M. PERALTA
Associate Justice
ATTESTATION
I attest that the conclusions in the above decision were reached in consultation before the case was
assigned to the writer of the opinion of the Court’s Division.
CONSUELO YNARES-SANTIAGO
Associate Justice Chairperson, Third Division
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson’s Attestation, it is
hereby certified that the conclusions in the above Decision were reached in consultation before the case
was assigned to the writer of the opinion of the Court’s Division.
REYNATO S. PUNO
Chief Justice
Footnotes
1 Rollo, pp. 50-69; penned by Associate Justice Lucenito N. Tagle and concurred in by Associate Justices
Amelita G. Tolentino and Marlene Gonzales-Sison.
2 Id. at 71-72; penned by Associate Justice Amelita G. Tolentino and concurred in by Associate Justices
Ramon R. Garcia and Marlene Gonzales-Sison.
3 Id. at 51-54.
4 Id. at 55-59.
5 Entitled "An Act To Regulate the Sale of Property under Special Powers Inserted in or Annexed to Real-
Estate Mortgages," it was approved on March 6, 1924, and amended by Act 4118.
6 Procedure in Extra-Judicial Foreclosure of Mortgage, effective January 15, 2000, which was further
amended on March 1, 2001, and on August 7, 2001.
7 According to the Court of Appeals, "(t)his prejudgment violates the well-entrenched principle that courts
should avoid issuing a writ of preliminary injunction which in effect disposes of the main case without
trial." (Rollo, p. 67; citing Medina v. Greenfield Dev. Corp., 443 SCRA 150)
8 Rollo, p. 90
9 G.R. No. 120859, June 26, 2001, 359 SCRA 608.
10 Id. at 610, 614-615.
11 Union Bank v. Court of Appeals, G.R. No. 164910, September 30, 2005, 471 SCRA 751; Ouano v. Court
of Appeals, G.R. No. 129279, March 4, 2003, 398 SCRA 525; Philippine National Bank v. Nepomuceno
Productions, Inc., G.R. No. 139479, December 27, 2002, 394 SCRA 405;. See also earlier cases: Philippine
National Bank v. Rabat, G.R. No. 134406, November 15, 2000, 344 SCRA 706; Concepcion v. Court of
Appeals, G.R. No. 122079, June 27, 1997, 274 SCRA 614; and Fortune Motors (Phils.) Inc. v. Metropolitan
Bank and Trust Company, G.R. No. 115068, November 28, 1996, 265 SCRA 72; Olizon v. Court of Appeals,
G.R. No. 107075, September 1, 1994, 236 SCRA 148.
12 Dela Cruz v. Court of Appeals, G.R. No. 151298, November 17, 2004, 442 SCRA 492, citing Philippine
Aluminum Wheels, Inc v. FASGI Enterprises, Inc., G.R. No. 137378, October 12, 2000, 342 SCRA 722.
13 The Consolidated Bank and Trust Corporation v. Court of Appeals, G.R. No.138569, September 11,
2003, 410 SCRA 562.
14 Under Article 2088 of the Civil Code:
The creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of them. Any
stipulation to the contrary is null and void.
15 Philippine National Bank v. Nepomuceno Productions Inc., supra note 11 at 411.
16 G.R. No. 73678, July 21, 1989, 175 SCRA 545.
17 Id. at 548-549.
18 Development Bank of the Philippines v. Court of Appeals, G.R. No. 125838, June 10, 2003, 403 SCRA
460; Ouano v. Court of Appeals, supra note 11; Lucena v. Court of Appeals, G.R. No. L-77468, August 25,
1999, 313 SCRA 47; Roxas v. Court of Appeals, 221 SCRA 729; Metropolitan Bank and Trust Company v.
Wong, supra note 9.
19 Selegna Management & Development Corp. v. United Coconut Planters Bank, G.R. No. 165662, May 3,
2006, 489 SCRA 125, 127.
20 G.R. No. 148448, August 17, 2004, 436 SCRA 655.
21 Rollo, pp. 188-191.
22 Id. at 87, 185.
23 Shipside, Inc. v. Court of Appeals, G.R. No. 143377, February 20, 2001, 352 SCRA 334, and cited cases,
where we held that:
In the instant case, the merits of petitioner’s case should be considered special circumstances or
compelling reasons that justify tempering the requirement in regard to the certificate of non-forum
shopping. Moreover, in Loyola, Roadway, and Uy, the Court excused non-compliance with the
requirement as to the certificate of non-forum shopping. With more reason should we allow the instant
petition since petitioner herein did submit a certification on non-forum shopping, failing only to show
proof that the signatory was authorized to do so. That petitioner subsequently submitted a secretary’s
certificate attesting that Balbin was authorized to file an action on behalf of petitioner likewise mitigates
this oversight. (at 346-347) (Emphasis and underscoring supplied)
In Estribillo v. Department of Agrarian Reform, G.R. No. 159674, June 30, 2006, 494 SCRA 218, we
reiterated the principle, in the following wise:
In Uy v. Land Bank of the Philippines, we, likewise, considered the apparent merits of the substantive
aspect of the case as a special circumstance or compelling reason for the reinstatement of the case, and
invoked our power to suspend our rules to serve the ends of justice. (at 233)
24 Republic Act No. 9182.
25 Gabriel v. Secretary of Labor, G.R. No. 115949, March 16, 2000, 328 SCRA 247.

Pasted from <http://www.lawphil.net/judjuris/juri2009/jun2009/gr_184081_2009.html>

PHILIPPINE NATIONAL BANK, PETITIONER, VS. SPOUSES TOMAS CABATINGAN AND AGAPITA
EDULLANTES REPRESENTED BY RAMIRO DIAZ AS THEIR ATTORNEY-IN-FACT, RESPONDENTS.
(2008)
Sunday, June 06, 2010
12:27 AM
FIRST DIVISION

[G.R. No. 167058, July 09, 2008]

PHILIPPINE NATIONAL BANK, PETITIONER, VS. SPOUSES TOMAS CABATINGAN AND AGAPITA
EDULLANTES REPRESENTED BY RAMIRO DIAZ AS THEIR ATTORNEY-IN-FACT, RESPONDENTS.

RESOLUTION

CORONA, J.:
Respondent spouses Tomas Cabatingan and Agapita Edullantes obtained two loans, secured by a real
estate mortgage,[1] in the total amount of P421,200[2] from petitioner Philippine National Bank. However,
they were unable to fully pay their obligation despite having been granted more than enough time to do
so.[3] Thus, on September 25, 1991, petitioner extrajudicially foreclosed on the mortgage pursuant to Act
3135.[4]
Thereafter, a notice of extrajudicial sale[5] was issued stating that the foreclosed properties would be sold
at public auction on November 5, 1991 between 9:00 a.m. and 4:00 p.m. at the main entrance of the office
of the Clerk of Court on San Pedro St., Ormoc City.

Pursuant to the notice, the properties were sold at public auction on November 5, 1991. The auction began
at 9:00 a.m. and was concluded after 20 minutes with petitioner as the highest bidder.[6]

On March 16, 1993, respondent spouses filed in the Regional Trial Court (RTC) of Ormoc City, Branch 12 a
complaint for annulment of extrajudicial foreclosure of real estate mortgage and the November 5, 1991
auction sale.[7] They invoked Section 4 of Act 3135 which provides:
Section 4. The sale shall be made at public auction, between the hours of nine in the morning
and four in the afternoon, and shall be under the direction of the sheriff of the province, the
justice or auxiliary justice of peace of the municipality in which such sale has to be made, or of a
notary public of said municipality, who shall be entitled to collect a fee of Five pesos for each day of
actual work performed, in addition to his expenses. (emphasis supplied)
Petitioners claimed that the provision quoted above must be observed strictly. Thus, because the public
auction of the foreclosed properties was held for only 20 minutes (instead of seven hours as required by
law), the consequent sale was void.

On November 4, 2004, the RTC issued an order[8] annulling the November 5, 1991 sale at public auction.
It held:
[T]he rationale behind the holding of auction sale between the hours of 9:00 in the morning and 4:00
in the afternoon of a particular day as mandated in Section 4 of Act 3135 is to give opportunity to
more would-be bidders to participate in the auction sale thus giving the judgment-debtor more
opportunity to recover the value of his or her property subject of the auction sale.
Petitioner moved for reconsideration but it was denied in an order dated February 7, 2005.[9]Hence, this
petition.

The issue here is whether a sale at public auction, to be valid, must be conducted the whole day from 9:00
a.m. until 4:00 p.m. of the scheduled auction day.

Petitioner contends that the RTC erred in interpreting Section 4 of Act 3135. The law only prohibits the
conduct of a sale at any time before nine in the morning and after four in the afternoon. Thus, a sale held
within the intervening period (i.e., at any time between 9:00 a.m. and 4:00 p.m.), regardless of duration, is
valid.

We grant the petition.

We note that neither the previous rule (Administrative Order No. 3)[10] nor the current rules (A.M. No. 99-
10-05-O, as amended, and the guidelines for its enforcement, Circular No. 7-2002)[11] governing the
conduct of foreclosure proceedings provide a clear answer to the question at hand.

Statutes should be sensibly construed to give effect to the legislative intention.[12] Act 3135 regulates the
extrajudicial sale of mortgaged real properties[13] by prescribing a procedure which effectively safeguards
the rights of both debtor and creditor. Thus, its construction (or interpretation) must be equally and
mutually beneficial to both parties.

Section 4 of Act 3135 provides that the sale must take place between the hours of nine in the
morning and four in the afternoon. Pursuant to this provision, Section 5 of Circular No. 7-2002 states:

Section 5. Conduct of extrajudicial foreclosure sale—


a. The bidding shall be made through sealed bids which must be submitted to the
Sheriff who shall conduct the sale between the hours of 9 a.m. and 4 p.m. of the date
of the auction (Act 3135, Sec. 4).[14] The property mortgaged shall be awarded to the party
submitting the highest bid and, in case of a tie, an open bidding shall be conducted between the
highest bidders. Payment of the winning bid shall be made in either cash or in manager's check,
in Philippine Currency, within five (5) days from notice. (emphasis supplied)
xxx xxx xxx
A creditor may foreclose on a real estate mortgage only if the debtor fails to pay the principal obligation
when it falls due.[15] Nonetheless, the foreclosure of a mortgage does not ipso factoextinguish a debtor's
obligation to his creditor. The proceeds of a sale at public auction may not be sufficient to extinguish the
liability of the former to the latter.[16] For this reason, we favor a construction of Section 4 of Act 3135
that affords the creditor greater opportunity to satisfy his claim without unduly rewarding the debtor for
not paying his just debt.

The word "between" ordinarily means "in the time interval that separates."[17] Thus, "between the hours
of nine in the morning and four in the afternoon" merely provides a time frame within which an auction
sale may be conducted. Therefore, a sale at public auction held within the intervening period provided by
law (i.e., at any time from 9:00 a.m. until 4:00 p.m.) is valid, without regard to the duration or length of
time it took the auctioneer to conduct the proceedings.

In this case, the November 5, 1991 sale at public auction took place from 9:00 a.m. to 9:20 a.m. Since it
was conducted within the time frame provided by law, the sale was valid.

WHEREFORE, the petition is hereby GRANTED. The November 4, 2004 and February 7, 2005 orders of
the Regional Trial Court of Ormoc City, Branch 12 in Civil Case No. 3111-0 areREVERSED and SET ASIDE.

SO ORDERED.

Puno, C.J., (Chairperson), Carpio, Azcuna, and Leonardo-De Castro, JJ., concur.

[1] Respondent spouses mortgaged the following properties:


1. Lot No. 10650 in the Municipality of Kananga, Leyte covered by TCT No. 168;
2. Lot No. 10654 in the Municipality of Kananga, Leyte covered by OCT No. P-590;
3. Lot No. 10653 in the Municipality of Kananga, Leyte covered by TCT No. 2173;
4. Lot No. 10645 in the Municipality of Kananga, Leyte covered by TCT No. 220;
5. Lot No. 7912 in Brgy. Valencia, Ormoc City covered by TCT No. 11664 and
6. Lot No. 6550 in Brgy. Valencia, Ormoc City covered by TCT No. 6559.
[2] Respondents obtained the following loans:

Year Amount
1973 P 46,200
1977 375,000
TOTAL P 421,200
[3] While petitioner failed to explain how respondent spouses' obligation ballooned to P1,990,421.21 at the time of foreclosure (excluding interest at 28% p.a., penalties and other bank

charges, attorney's fees and expenses for foreclosure), respondent spouses failed to contest petitioner's claim. Thus, they are deemed to have admitted such as the amount of their

liability to petitioner.

[4] An Act to Regulate the Sale of Property under Special Powers Inserted In or Annexed to Real Estate Mortgages. See also Administrative Order No. 3 dated October 19, 1984. (This

issuance was superseded by A.M. No. 99-10-05-0, as amended.)

[5] Dated October 3, 1991.

[6] On March 22, 1992, a certificate of sale was issued to petitioner. This certificate was registered in the Registry of Deeds of the Province of Leyte on May 22, 1992. However, it
appears (based on the records of this case) that no writ of possession was issued to petitioner.

[7] Docketed as Civil Case No. 3111-0.

[8] Penned by Judge Francisco C. Gedorio, Jr. Annex "A" of the petition. Rollo, pp. 29-31.

[9] Annex "B" of the petition, id., p. 32.

[10] Supra note 4.

[11] Dated April 22, 2002.

[12] See Cosico, Jr. v. National Labor Relations Commission, 338 Phil. 1080, 1089 (1997).
[13] Luna v. Encarnacion, 92 Phil. 531, 534 (1952).

[14] Contra Circular No. 7-2002, Sec. 4(a) which provides:

Sec. 4. The Sheriff to whom the application for extra-judicial foreclosure of mortgage was raffled shall do
the following:

a. Prepare a Notice of Extrajudicial Sale using the following form:

"NOTICE OF EXTRA-JUDICIAL SALE"

"Upon extra-judicial petition for sale under Act 3135/1508 filed _________ against (name and address of
Mortgagor/s) to satisfy the mortgage indebtedness which as of ____________ amounts to P __________,
excluding penalties, charges, attorney's fees and expenses of foreclosure, the undersigned or his duly
authorized deputy will sell at public auction on (date of sale) _____ at 10:00 A.M. or soon thereafter at
the main entrance of the ________ (place of sale) to the highest bidder, for cash or manager's check and in
Philippine Currency, the following property with all its improvements, to wit:"

"(Description of Property)"

"All sealed bids must be submitted to the undersigned on the above stated time and date."

"In the event the public auction should not take place on the said date, it shall be held on ________________,
____________ without further notice."

_______________ (date)

"SHERIFF"

xxx xxx x x x (emphasis supplied)


[15] de Leon, COMMENT AND CASES ON CREDIT TRANSACTIONS, 2002 ed., 424-425 (citations omitted).

[16] Id., pp. 437-439 (citations omitted).

[17] WEBSTER'S THIRD NEW INTERNATIONAL DICTIONARY, 1993 ed., 209.

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Metrobank vs. BANCE (2008)


Sunday, June 06, 2010
12:30 AM

SECOND DIVISION

[G.R. No. 167280, April 30, 2008]

METROPOLITAN BANK AND TRUST COMPANY, PETITIONER, VS. SPS. ELMOR V. BANCE AND
ROSARIO J. BANCE, RESPONDENTS.

DECISION

QUISUMBING, J.:
Challenged in this petition for review are the Decision [1] and Resolution [2] dated October 29, 2004 and
March 3, 2005, respectively, of the Court of Appeals in CA-G.R. SP No. 78162, which had annulled the
Order [3] dated September 11, 2000 of the Regional Trial Court (RTC) of Manila, Branch 4, in LRC Cad.
Record No. 278.
The antecedent facts, as culled from the records, are as follows:

Respondents Elmor and Rosario Bance obtained several loans in the amount of P24,150,954.84 from
petitioner Metropolitan Bank and Trust Company, Tutuban Branch.[4] As security for the loans,
respondents mortgaged their properties in Binondo and Tondo, Manila, covered by Condominium
Certificate of Title No. 20040 and Transfer Certificates of Title Nos. 179657 and 179711.[5] Respondents
failed to pay their obligations, prompting petitioner to institute extrajudicial foreclosure proceedings over
the mortgage.

During the public auction held on October 2, 1998, petitioner emerged as the highest and winning bidder.
It was issued a Certificate of Sale [6] which was registered in the Registry of Deeds of Manila on May 3,
1999. [7] On April 5, 2000, petitioner demanded from respondents the surrender and possession of the
properties, [8] but the latter failed and refused to do so.

In the meantime, respondents, on May 2, 2000, instituted Civil Case No. 00-97252 in the RTC of Manila,
Branch 32, and sought the declaration of nullity of promissory notes, real estate mortgages, agreements,
continuing surety agreement, extrajudicial foreclosure proceedings, notices, publications, certificates of
sales and the corresponding entries on titles to the subject properties with prayer for temporary
restraining order (TRO) and issuance of writs of preliminary injunction and damages.[9] RTC Branch 32
immediately issued a TRO [10] dated May 15, 2000 enjoining petitioner from consolidating the titles of the
subject properties; from committing acts giving effect to the subject certificates of sales and all documents
thereto; and from committing acts of dispossession of the subject properties against respondents.

On June 23, 2000, petitioner filed with Branch 4 of the RTC of Manila a petition [11] for the issuance of a
writ of possession, docketed as LRC Cad. Record No. 278. RTC Branch 4, on September 11, 2000, granted
the petition and ordered the issuance of the writ. [12] The writ was implemented in March 2001, 2002, and
July 2003. [13]

Meanwhile, RTC Branch 32, on October 20, 2000, issued a preliminary prohibitory and mandatory
injunctive order [14] against petitioner. But for failure of respondents to post a bond, RTC Branch 32
recalled and set aside the order, [15] and accordingly dismissed the case. [16] Upon reconsideration,
however, RTC Branch 32 ordered the issuance of the writ. [17] Petitioner sought reconsideration, but it was
denied.

On July 22, 2003, respondents filed a petition [18] with the Court of Appeals seeking to annul the
September 11, 2000 Order of RTC Branch 4 on the ground of extrinsic fraud. On October 29, 2004, the
Court of Appeals ruled that petitioner employed extrinsic fraud when it deliberately withheld the true
nature of its claims against respondents in foreclosing the mortgage and securing the writ. It also added
that petitioner failed to state in the certification of non-forum shopping attached to the petition for the
issuance of the writ, the pendency of Civil Case No. 00-97252 in RTC Branch 32. In conclusion, it declared
the foreclosure of mortgage null and void and annulled the September 11, 2000 Order of RTC Branch
4. [19] The dispositive portion of the Court of Appeals’ decision reads:
WHEREFORE, the petition is hereby GRANTED. The Order of respondent court dated September 11,
2000 is hereby ANNULLED.

SO ORDERED. [20]
Petitioner sought reconsideration, but it was denied. Hence, this petition, ascribing the following errors to
the Court of Appeals:
I.

…THE COURT OF APPEALS ERRED IN GIVING DUE COURSE TO RESPONDENTS SPOUSES BANCE’S
PETITION FOR ANNULMENT OF THE SEPTEMBER 11, 2000 ORDER OF THE REGIONAL TRIAL COURT OF
MANILA BRANCH IV (04) INSTITUTED UNDER RULE 47 OF THE 1997 REVISED RULES OF CIVIL
PROCEDURE CONSIDERING THAT A WRIT OF POSSESSION CASE FILED UNDER ACT NO. 3135, AS
AMENDED, IS NOT AN ORDINARY ACTION.

II.

…THE COURT OF APPEALS ERRED IN ANNULLING THE SEPTEMBER 11, 2000 ORDER OF THE
REGIONAL TRIAL COURT OF MANILA BRANCH IV (04) GRANTING THE WRIT OF POSSESSION TO
PETITIONER METROBANK ON THE GROUND THAT PETITIONER METROBANK COMMITTED EXTRINSIC
OR COLLATERAL FRAUD UNDER SECTION 2, RULE 47 OF THE 1997 REVISED RULES OF CIVIL
PROCEDURE.

III.

…THE COURT OF APPEALS ERRED IN NOT DISMISSING RESPONDENTS SPOUSES BANCE’S


PETITION FOR ANNULMENT OF THE ORDER DATED SEPTEMBER 11, 2000 OF THE REGIONAL TRIAL
COURT OF MANILA BRANCH IV (04) GRANTING THE WRIT OF POSSESSION (LRC CAD. RECORD NO.
278) CONSIDERING THAT IT IS AN EX PARTEPROCEEDING AND ITS ISSUANCE IS MINISTERIAL UNDER
ACT NO. 3135, AS AMENDED, AND THERE IS A PENDING CIVIL CASE NO. 00-97252 FILED BY
RESPONDENTS SPOUSES BANCE AGAINST PETITIONER METROBANK BEFORE THE REGIONAL TRIAL
COURT OF MANILA BRANCH XXXII (32) FOR “DECLARATION OF NULLITY OF PROMISSORY NOTES,
REAL ESTATE MORTGAGES, AGREEMENTS, CONTINUING SURETY AGREEMENT, EXTRAJUDICIAL
FORECLOSURE PROCEEDINGS, ETC.” [21]

IV.

…THE COURT OF APPEALS ERRED IN FINDING PETITIONER BANK GUILTY OF FORUM SHOPPING WHEN
IT FILED A PETITION FOR ISSUANCE OF A WRIT OF POSSESSION BEFORE [THE] REGIONAL TRIAL
COURT OF MANILA BRANCH IV WHEN THERE WAS A PENDING ACTION ON THE SAME SUBJECT MATTER
BEFORE REGIONAL TRIAL COURT OF MANILA, BRANCH XXXII. [22]
Simply, the issues are: (1) Did the Court of Appeals err in annulling the writ of possession issued by RTC
Branch 4? (2) Is petitioner guilty of forum shopping?

The petition has merit.

Anent the first issue, petitioner contends that the Court of Appeals erred in annulling the writ of possession
on the ground of extrinsic fraud. It avers that a petition for the issuance of the writ is ex parte in nature;
hence, respondents need not be notified of the proceedings therein. It further argues that since there is
already a pending civil case for declaration of nullity of mortgage, etc., the Court of Appeals should not
have ruled on the validity of the loan documents and foreclosure proceedings. It adds that respondents, in
instituting the annulment of judgment case, failed to pursue the proper remedy provided under Section
8 [23] of Act No. 3135, [24] as amended.

Respondents counter that petitioner employed extrinsic fraud when it secured the writ because it
deliberately withheld from them the foreclosure of the mortgage and institution of the petition for the
issuance of the writ. They add that a petition for the issuance of the writ is an ordinary action, hence, they
must be notified of the true nature of petitioner’s claims against them. They also contend that the writ
was irregularly issued because petitioner was not required to post the bond mandated in Section 7 [25] of
Act No. 3135, as amended.

First, no extrinsic fraud was employed by petitioner in not informing respondents of the institution of the
writ of possession case. A petition for the issuance of the writ, under Section 7 of Act No. 3135, as
amended, is not an ordinary action filed in court, by which one party “sues another for the enforcement
or protection of a right, or prevention or redress of a wrong.” [26] It is in the nature of an ex
parte motion which the court hears only one side. It is taken or granted at the instance and for the benefit
of one party, and without notice to or consent by any party adversely affected.[27] Accordingly, upon the
filing of a proper motion by the purchaser in a foreclosure sale, and the approval of the corresponding
bond, the writ of possession issues as a matter of course and the trial court has no discretion on this
matter. [28]

Second, the writ of possession was not irregular despite the fact that petitioner did not post a bond. The
posting of a bond as a condition for the issuance of the writ of possession becomes necessary only if it is
applied for within one year from the registration of the sale with the register of deeds, i.e., during the
redemption period inasmuch as ownership has not yet vested on the creditor-mortgagee. After the one-
year period, and no redemption was made, the mortgagor loses all interest over it.[29] In this case,
respondents were already stripped of their rights over the properties when they failed to redeem the same
within one year from May 3, 1999, the date of registration of the sale. [30] Hence, when petitioner applied
for the writ after the expiration of the redemption period there was even more reason to issue the writ.
Third, the Court of Appeals, in CA-G.R. SP No. 78162, need not delve on any alleged defect or irregularity
in the foreclosure, inasmuch as the only issue therein was the propriety of the issuance of the
writ. [31] Any question regarding the validity of the mortgage or its foreclosure cannot be a legal ground
for refusing the issuance of the writ. [32] If only to stress the writ’s ministerial character, we have, in
several cases, [33] disallowed injunctions prohibiting its issuance, just as we have held that the issuance of
the writ may not be stayed by a pending action for annulment of mortgage or the foreclosure itself.

Fourth, respondents failed to pursue the proper remedy. Under Section 8 of Act No. 3135, as amended, in
case it is disputed that the writ of possession was irregularly issued, the mortgagor may file with the trial
court that issued the writ a petition to set aside the sale and to cancel the writ of possession within 30
days after the purchaser-mortgagee was given possession. [34] Based on the records, the subject
properties were turned over to petitioner on March 19, 2001, sometime in 2002 and July 2003.
Respondents should have assailed the writ within 30 days therefrom, but they failed to do so.

On the issue of forum shopping, respondents contend that petitioner’s filing of the petition for the
issuance of a writ of possession constitutes forum shopping because there is already a pending case in
RTC Branch 32 involving the subject properties. Petitioner, on the other hand, avers that it was not duty
bound to disclose to respondents the pendency of the writ of possession case and a certificate of non-
forum shopping is not required in a petition for the issuance of the writ under Section 7 of Act No. 3135, as
amended because it is not a complaint or initiatory pleading.

Petitioner is correct. Insofar as LRC Cad. Record No. 278 and Civil Case No. 00-97252 are concerned, there
is no forum shopping. The essence of forum shopping is the filing of multiple suits involving the same
parties for the same cause of action, either simultaneously or successively, for the purpose of obtaining
favorable judgment. It exists where the elements of litis pendentia are present or where a final judgment
in one case will amount to res judicata in another. Since the issuance of a writ of possession is a ministerial
function and summary in nature, it cannot be said to be a judgment on the merits but simply an incident in
the transfer of title. [35] Hence, regardless of whether or not there is a pending suit for annulment of the
mortgage or the foreclosure itself, petitioner is entitled to the writ, subject however to the final outcome of
the case. [36]

Moreover, a certificate of non-forum shopping, as provided in Section 5, [37] Rule 7 of the 1997 Rules of
Civil Procedure, is required only in complaints or other initiatory pleadings, and a petition or motion for the
issuance of the writ under Section 7 of Act No. 3135, as amended, is not a complaint or an initiatory
pleading. [38] Indeed, any insignificant lapse in the certification of non-forum shopping filed by petitioner
does not render the writ irregular for no verification and certification on non-forum shopping need be
attached to the motion at all. [39]

WHEREFORE, the instant petition is GRANTED. The challenged Decision and Resolution dated October
29, 2004 and March 3, 2005, respectively, of the Court of Appeals in CA-G.R. SP No. 78162 are
hereby REVERSED AND SET ASIDE. Costs against the respondents.

SO ORDERED.

Carpio-Morales, Tinga, Velasco, Jr., and Brion, JJ., concur.

[1] Rollo, pp. 31-42. Penned by Associate Justice Eloy R. Bello, Jr., with Associate Justices Regalado E.
Maambong and Lucenito N. Tagle concurring.
[2] Id. at 43-44. Penned by Associate Justice Regalado E. Maambong, with Associate Justices Elvi John S. Asuncion and Lucenito N. Tagle concurring.

[3] Id. at 46-47. Penned by Presiding Judge Socorro B. Inting.

[4] Records, pp. 24-27.

[5] Id. at 22-23 and 28-31.

[6] Id. at 38-40.


[7] Rollo, p. 71.

[8] Records, pp. 67-69.

[9] Id. at 1-21.

[10] Id. at 72-73.

[11] Rollo, pp. 68-73.

[12] Id. at 46-47.

[13] Id. at 152-155. As to the property with Condominium Certificate of Title No. 20040, the Notice to Vacate was served on February 21, 2001 and possession was turned over to

petitioner on March 19, 2001. On the other hand, the Notice to Vacate the property with TCT Nos. 179657 and 179711 was served upon the occupants on March 22, 2001. The property

with TCT No. 179711 was voluntarily turned over to petitioner in 2002, but as to TCT No. 179657, possession was turned over to petitioner sometime in July 2003, after the latter has

secured a “break-open” order from the said court which issued the writ.

[14] Records, pp. 161-163.

[15] Id. at 164.

[16] Id. at 170.

[17] Id. at 270-271.

[18] CA rollo, pp. 2-15.

[19] Rollo, pp. 39-42.

[20] Id. at 42.

[21] Id. at 158-159.

[22] Id. at 180.

[23] SEC. 8. The debtor may, in the proceedings in which possession was requested, but not later than thirty days after the purchaser was given possession, petition

that the sale be set aside and the writ of possession cancelled, specifying the damages suffered by him, because the mortgage was not violated or the sale was not
made in accordance with the provisions hereof, and the court shall take cognizance of this petition in accordance with the summary procedure provided for in section one hundred

and twelve of Act Numbered four hundred and ninety-six and if it finds the complaint of the debtor justified, it shall dispose in his favor of all or part of the bond furnished by the person

who obtained possession. Either of the parties may appeal from the order of the judge in accordance with section fourteen of Act Numbered Four hundred and ninety-six; but the order

of possession shall continue in effect during the pendency of the appeal. (Emphasis supplied.)

[24] An Act to Regulate the Sale of Property under Special Powers Inserted in or Annexed to Real Estate Mortgages, approved on March 6, 1924 (as amended by Act No. 4118, approved

on December 7, 1933).

[25] SEC. 7. In any sale made under the provisions of this Act, the purchaser may petition the Court of First Instance of the province or place where the property or any part thereof is

situated, to give him possession thereof during the redemption period, furnishing bond in an amount equivalent to the use of the property for a period of twelve months, to indemnify

the debtor in case it be shown that the sale was made without violating the mortgage or without complying with the requirements of this Act. Such petition shall be made under oath

and filed in form of an ex parte motion in registration or cadastral proceedings if the property is registered, or in special proceedings in the case of property registered under the

Mortgage Law or under section one hundred and ninety-four of the Administrative Code, or of any other real property, encumbered with a mortgage duly registered in the office of any

register of deeds in accordance with any existing law, and in each case the clerk of the court shall, upon the filing of such petition, collect the fees specified in paragraph eleven of
section one hundred and fourteen of Act Numbered Four hundred and ninety-six, as amended by Act Numbered Twenty-eight hundred sixty-six, and the court shall, upon approval of

the bond, order that a writ of possession issue, addressed to the sheriff of the province in which the property is situated, who shall execute said order immediately. (Emphasis

supplied.)

[26] De Vera v. Agloro, G.R. No. 155673, January 14, 2005, 448 SCRA 203, 215.

[27] Arquiza v. Court of Appeals, G.R. No. 160479, June 8, 2005, 459 SCRA 753, 766.

[28] Yulienco v. Court of Appeals, G.R. No. 141365, November 27, 2002, 393 SCRA 143, 153.
[29] Espiridion v. Court of Appeals, G.R. No. 146933, June 8, 2006, 490 SCRA 273, 278.

[30] See Yulienco v. Court of Appeals, supra at 152.

[31] See Vda. de Zaballero v. Court of Appeals, G.R. No. 106958, February 9, 1994, 229 SCRA 810, 814.

[32] De Vera v. Agloro, supra.

[33] Chailease Finance Corporation v. Ma, G.R. No. 151941, August 15, 2003, 409 SCRA 250, 253; Yulienco v. Court of Appeals, supra at 154.

[34] Ong v. Court of Appeals, G.R. No. 121494, June 8, 2000, 333 SCRA 189, 196.

[35] Id. at 199.

[36] Id. at 198.

[37] SEC. 5. Certification against forum shopping. – The plaintiff or principal party shall certify under oath in the complaint or other initiatory pleading asserting a claim for relief, or in

a sworn certification annexed thereto and simultaneously filed therewith: (a) that he has not theretofore commenced any action or filed any claim involving the same issues in any

court, tribunal or quasi-judicial agency and, to the best of his knowledge, no such other action or claim is pending therein; (b) if there is such other pending action or claim, a complete

statement of the present status thereof; and (c) if he should thereafter learn that the same or similar action or claim has been filed or is pending, he shall report that fact within five (5)

days therefrom to the court wherein his aforesaid complaint or initiatory pleading has been filed.

Failure to comply with the foregoing requirements shall not be curable by mere amendment of the
complaint or other initiatory pleading but shall be cause for the dismissal of the case without prejudice,
unless otherwise provided, upon motion and after hearing. The submission of a false certification or non-
compliance with any of the undertakings therein shall constitute indirect contempt of court, without
prejudice to the corresponding administrative and criminal actions. If the acts of the party or his counsel
clearly constitute willful and deliberate forum shopping, the same shall be ground for summary dismissal
with prejudice and shall constitute direct contempt, as well as a cause for administrative sanctions.
[38] Ancheta v. Metropolitan Bank & Trust Company, Inc., G.R. No. 163410, September 16, 2005, 470 SCRA 157, 164.

[39] See Arquiza v. Court of Appeals, supra note 27, at 762-763.

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Chinabank vs Lozada (2008)


Sunday, June 06, 2010
12:38 AM

THIRD DIVISION

CHINA BANKING CORPORATION, G.R. No. 164919


Petitioner,
Present:

YNARES-SANTIAGO,
Chairperson,
- versus- AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
NACHURA, and
REYES, JJ.

SPOUSES TOBIAS L. LOZADA and ERLINA P. LOZADA, Promulgated:


Respondents.

July 4, 2008
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

CHICO-NAZARIO, J.:

Before this Court is a Petition for Review on Certiorari[1] under Rule 45 of the Revised Rules of Court
filed by petitioner China Banking Corporation (CBC) seeking the reversal and setting aside of the
Decision[2] dated 25 March 2004 and Resolution[3] dated 10 August 2004 of the Court of Appeals in
CA-G.R. SP No. 67399. The assailed Decision of the appellate court annulled and set aside: (1) the
Order[4] dated 31 August 2001 of the Regional Trial Court (RTC), Branch 65,Makati City, in L.R.C.
Case No. M-4184, granting the ex parte petition of CBC for a writ of possession over the
condominium unit covered by Condominium Certificate of Title (CCT) No. 69096; (2) the Writ of
Possession[5] dated 3 September 2001 issued by the RTC Branch Clerk of Court commanding the
Sheriff to place CBC in possession of the said condominium unit and eject all its present occupants;
and (3) the Notices to Vacate[6] dated 17 October 2001 and 22 October 2001 of the Sheriff
addressed, respectively, to Primetown Property Group, Inc. (PPGI) and respondent spouses Tobias
L. Lozada and Erlina P. Lozada (spousesLozada), directing them to vacate the said property within
five days from receipt of the notices.

There is hardly any dispute as to the antecedent facts of the instant Petition.

On 25 June 1995, the spouses Lozada entered into a Contract to Sell[7] with PPGI. PPGI, the
developer of Makati Prime City Condominium TownhomesProject (Project), agreed to sell to the
spouses Lozada Unit No. 402 of Cluster 1 of the Project, a two-bedroom residential unit with an area
of 42.90 square meters, covered by CCT No. 34898, for the total price of P1,444,014.04, payable as
follows:

30% Downpayment P 402,803.92- Payable in 15 months, beginning 2


(including the Residential October 1995
Fee)

70% Balance P 1,010,809.83- Payable upon completion or turn-over


of the unit

About six months later, or on 7 December 1995, PPGI, represented by its President Kenneth T. Yap
and Treasurer Gilbert Y. Yap, and with Mortgage Clearance[8] from the Housing and Land Use Regulatory
Board (HLURB), executed two Deeds of Real Estate Mortgage[9] in favor of CBC to secure the credit
facilities granted by CBC to PPGI in the combined maximum amount of P37,000,000.00. The real estate
mortgages covered 51 units of the Project, including Unit No. 402.

PPGI availed itself of the said credit facilities and incurred a total principal obligation
of P29,067,708.10 to CBC. When PPGI failed to pay its indebtedness despite repeated demands,
CBC filed with the Clerk of Court and Ex Officio Sheriff of the Makati City RTC a Petition for
Extrajudicial Foreclosure[10] of the real estate mortgages on 31 July 1998. The Petition was
docketed as Foreclosure No. 98-098. A Notice of Sheriff’s Sale[11] was issued on 7 August
1998 setting the public auction of the foreclosed properties on 11 September 1998 at 10:00
a.m. The said Notice was published in Metro Profile on 11, 18 and 25 August 1998.[12] The public
auction sale took place as scheduled at which CBC was the highest bidder, offering the amount
of P30,000,000.00 for the foreclosed properties. The Certificate of Sale[13] of the foreclosed
properties was subsequently issued in favor of CBC on 15 October 1998.
On 25 April 2000, CBC Chief Executive Officer Peter S. Dee executed an Affidavit of
Consolidation[14] stating that 21 of the 51 foreclosed properties had been either “released by take-out by
certain buyers” or partially redeemed; the period for redemption of the remaining foreclosed properties
(which included Unit No. 402) had already expired without having been redeemed; the titles to the
remaining foreclosed properties had already been consolidated in the name of CBC; and for said reason,
the Registry of Deeds of Makati City was requested to issue the corresponding CCTs in the name of
CBC. Pursuant to the Affidavit of Consolidation, the Registry of Deeds of Makati City cancelled CCT No.
34898, covering Unit No. 402, and registered in the name of PPGI, and issued in its place CCT No.
69096[15] in the name of CBC on 12 May 2000.

It appears that a few months prior to the foreclosure of the real estate mortgages, PPGI, through its
Senior Manager Salvador G. Prieto, Jr., sent a letter[16]dated 30 March 1998 to
respondent Erlina P. Lozada (Erlina) in the following tenor:

Dear Ms. Lozada:

This refers to your purchase of Unit 402, Cluster 1 of Makati Prime City, a project
of Primetown Property Group, Inc. (“PPGI”), the development of which has been partially
financed by China Banking Corporation.

We refer to Section 18 of Presidential Decree No. 957, otherwise known as “The Subdivision and
Condominium Buyer’s Protective Decree”. Section 18 states:

SECTION 18. Mortgages. No mortgage on any unit or lot shall be made by the owner or
developer without prior written approval of the Authority. Such approval shall not be granted
unless it is shown that the proceeds of the mortgage loan shall be used for the development of
the condominium or subdivision project and effective measures have been provided to ensure
such utilization. The loan value of each lot or unit covered by the mortgage shall be
determined and the buyer thereof, if any, shall be notified before the release of the loan. The
buyer may, at his option, pay his installment for the lot or unit directly to the mortgagee who
shall apply the payments to the corresponding mortgage indebtedness secured by the
particular lot or unit being paid for, with a view to enabling said buyer to obtain title over the
lot or unit promptly after full payment thereto.

In view of the foregoing, we hereby direct your goodself to remit all payments under your Contract
to Sell directly to China Banking Corporation at its Greenhills Branch located at Padilla
Arcade, Greenhills, M.M. effective April 1, 1998. Attached is your Statement of Account for your
guidance.

This payment arrangement shall in no way cause any amendment of the other terms and conditions,
nor the cancellation of the Contract to Sell you have executed with PPGI.

Very truly yours,

(Signed)
Salvador G. Prieto, Jr.
Sr. Manager
Credit and Collection Department

There is nothing on record to show any immediate action taken by the spouses Lozada on the afore-
quoted letter. But a year following the public auction sale of the foreclosed properties held on 11
September 1998, Erlina executed a Notice of Adverse Claim[17] dated 13 September 1999 as
regards Unit No. 402, which she registered with the Registry of Deeds of Makati City.[18] Said
Notice of Adverse Claim was subsequently annotated on CCT No. 69096 when it was issued in the
name of CBC.

Erlina next sent a letter dated 1 December 1999[19] to both PPGI and CBC, laying down her position
pertaining to Unit No. 402, to wit:
1. I have been ready, willing, and able since August 25, 1998 to pay the balance under my
contract and I have tendered payment as early as then.
2. My liability is limited to the amount stated thereunder plus reasonable expenses for the
transfer of title; no other liability such as for interests, penalties, charges or any other imposition is
recognized. The VAT is a liability of the seller and I have never consented to accept this burden.
3. On delivery of my full payment, I have a right to demand reasonable assurance that title could
be transferred to me immediately and so to require that the muniments of title and evidence of all
tax payments by seller (necessary for registration) be delivered to me.

In the same letter, she advised that she was tendering payment by opening an escrow account with CBC
in the amount of P1,010,809.83, representing the 70% balance of the purchase price of Unit No. 402 per
the Contract to Sell with PPGI. Not long thereafter, Erlina sent another letter[20] dated 3 December
1999 to PPGI and CBC stating that she was unable to open an escrow account as no one had advised her
on how to go about it. Instead, she opened a special account with the following details:

Account Name : Erlina P. Lozada


Account No. : 103-630621-4
Bank : Chinabank Makati Head Office
Amount : P1,010,809.83

She reiterated that the amount represented the balance of the purchase price for Unit No. 402 under the
Contract to Sell, and shall be available to the party who shall establish the lawful right to the payment
and deliver the muniments of title and other documents necessary for the transfer of the same.

In reply, CBC sent Erlina a letter[21] dated 8 December 1999, telling her that the consideration for
Unit No. 402 was P1,100,788.29; thus, the amount she was tendering was insufficient. CBC also informed
her that all taxes including documentary stamp tax, capital gains tax, transfer tax, and all other expenses
for the transfer of title to her name shall be for her exclusive account.

In another letter dated 15 May 2001 to Erlina, CBC notified her that it had already consolidated its
title and ownership over Unit No. 402 which she presently occupied, and requested her to vacate and
surrender the said property, including the appurtenant keys, to its duly authorized representative within
15 days from receipt of the letter.

Following the 15 May 2001 letter of CBC to Erlina, a conference was held and more letters were
exchanged between the parties,[22] but, apparently, no agreement was reached.

On 27 July 2001, CBC filed an Ex Parte Petition for Issuance of a Writ of Possession[23] with
the Makati City RTC, docketed as Land Registration Commission (L.R.C.) Case No. M-4184. CBC prayed to
the court a quo for the following:

WHEREFORE, it is most respectfully prayed of this Honorable Court that the corresponding Writ
of Possession be issued ex parte by the Honorable Court in favor of petitioner [CBC] and
against Erlinda [sic] Lozada and/or all persons claiming rights under her name, over the
condominium unit covered by CCT No. 69096 (formerly CCT No. 34898), of the Registry of
Deeds for the City of Makati, with all the improvements existing thereon.

On the other hand, on 7 August 2001, the spouses Lozada instituted a Complaint[24] with the
HLURB, docketed as HLURB Case No. REM-0080701-11582, with the following prayer:

WHEREFORE, [herein respondents spouses Lozada] pray of this Honorable Board to order the
annulment of mortgage, foreclosure, sale, consolidation of ownership between CBC and [PPGI]
insofar as they pertain to [spouses Lozada] and to order the respondent Register of Deeds
of Makati City to cancel Condominium Certificate of Title No. 69096. It is likewise prayed that a
Temporary Restraining Order and/or Writ of Preliminary Injunction be issued to prevent [herein
petitioner] CBC from taking possession of the unit in question.
[Spouses Lozada] pray for such other relief and remedies that are just and equitable under the
premises.

L.R.C. Case No. M-4184 and HLURB Case No. REM-0080701-11582 proceeded simultaneously,
although it is principally the former which concerns this Court in the present Petition.

The Makati City RTC, finding that the prayer for issuance of a writ of possession of CBC in L.R.C.
Case No. M-4184 needed to be substantiated by evidence, initially set the hearing on 15 August
2001 at 10:00 a.m.[25] However, on motion of CBC, the Makati City RTC issued an Order[26] dated
15 August 2001 canceling the hearing for that day and transferring the same to 31 August 2001 at
10:00 a.m. The same Order expressly directed that Erlina be notified, but the records do not show
that said notice was actually sent and received by her.

The hearing on 31 August 2001 pushed through, even without the presence of the spouses Lozada,
during which the CBC presented and marked its documentary evidence.

On 31 August 2001, the Makati City RTC issued an Order[27] granting the Ex Parte Petition of CBC,
and decreeing that:

Finding the petition to be duly substantiated by the evidence presented and pursuant to the
provisions of section 7 of Act 3135 as amended by Act 4118, let a writ of possession issue in
favor of the petitioner China Banking Corporation.

In accordance with the foregoing Order, the RTC Branch Clerk of Court issued the Writ of
Possession[28] dated 3 September 2001 commanding the Sheriff to place CBC in possession of Unit
No. 402 and eject all its present occupants. The Sheriff, in turn, issued the Notices to
Vacate[29] dated 17 October 2001 and 22 October 2001 addressed to PPGI and the spouses Lozada,
respectively, directing them to vacate the said property within five days from receipt of the notices.

When the Sheriff went to Unit No. 402 on 30 October 2001, he failed to enforce the Writ of
Possession because the main door of the said property was padlocked,[30] prompting CBC to file
with the Makati City RTC an Urgent Ex Parte Motion to Break Open[31] the door to Unit No. 402 and
place CBC in possession thereof.

While the afore-mentioned events were unfolding in L.R.C. Case No. M-4184, the
spouses Lozada were seeking recourse elsewhere.

They were able to secure an Order[32] dated 25 October 2001 in HLURB Case No. REM-0080701-
11582 directing the parties therein to maintain status quoawaiting the resolution of the Application
for a Writ of Preliminary Injunction of the spouses Lozada.

Four days later, on 29 October 2001, the spouses Lozada filed with the Court of Appeals their
Petition for Certiorari and Prohibition, with Application for Writ of Preliminary Injunction/Temporary
Restraining Order[33] against the Makati City RTC, Sheriff, CBC, and PPGI, docketed as CA-G.R. SP
No. 67399, which was anchored on the following grounds:

I. Respondent Presiding Judge deprived your [herein respondents spouses Lozada] of due
process of law and their day in court, when he unjustifiably failed to order the service of notice on
[spouses Lozada] of the ex-parte petition of [herein petitioner] CBC;

II. The respondent Judge, contrary to law and existing jurisprudence, issued arbitrarily, without
jurisdiction and in excess of jurisdiction, the Writ of Possession to the irreparable damage and
[prejudice] of [spouses Lozada];

III. The respondent Judge in grave abuse of discretion, without jurisdiction and in excess of
jurisdiction, without giving [spouses Lozada] the opportunity to fully ventilate their possession over
the condominium unit purchased by them, he capriciously, arbitrarily and unjustifiably issued the
questioned Writ of Possession intended to eject the [spouses Lozada] from the condominium unit
that they purchased;
IV. The respondent Presiding Judge committed a grave abuse of discretion, amounting to lack or
excess of jurisdiction, when he issued the Order of August 31, 2001 granting the Writ of Possession
sought by [petitioner] CBC that will certainly interfere with the authority of [the] HLURB being
exercised in HLURB Case No. REM-008070-11582.

On 30 October 2001, the Court of Appeals issued a Resolution[34] granting in favor of the
spouses Lozada a temporary restraining order enjoining the Sheriff and the other respondents
therein from enforcing the Writ of Possession and Notices to Vacate. The spouses Lozada, however,
were directed to file an injunctive bond in the amount of P200,000.00.

The Court of Appeals rendered its assailed Decision[35] on 25 March 2004 ruling in favor of the
spouses Lozada. According to the appellate court, the issuance of the Writ of Possession was not
mandatory and ministerial on the part of the Makati City RTC, and the court a quo should have
afforded the spouses Lozada a hearing, considering that (1) Unit No. 402 was no longer in the
possession of the original debtor/mortgagor PPGI, but was already being enjoyed by the
spousesLozada; (2) the Makati City RTC was aware that Unit No. 402 was already in the possession
of the spouses Lozada because it was so stated in the ex parte petition of CBC, as well as the Notice
of Adverse Claim annotated on CCT No. 69096 presented by CBC as evidence before the trial court;
(3) the spouses Lozada , under Section 18 of Presidential Decree No. 957, had the right to continue
paying for Unit No. 402 to CBC, the purchaser thereof at the foreclosure sale, still in accordance with
the tenor of the Contract to Sell; and (4) the spouses Lozada had a perfect cause of action for the
annulment of the mortgage constituted by PPGI in favor of CBC since PPGI failed to comply with the
requirement in Union Bank of the Philippines v. Housing and Land Use Regulatory Board,[36] to
notify the installment buyer of the condominium unit of the mortgage constituted
thereon. The dispositive portion of the Decision reads:

WHEREFORE, premises considered, there being grave abuse of discretion on the part of the
court a quo in issuing the herein assailed Order, the instant Petition is GRANTED. Accordingly,
the August 31, 2001 Order, the Writ of Possession and the Notice to Vacate are hereby
ANNULLED and SET ASIDE.[37]

In its Resolution[38] dated 10 August 2004, the Court of Appeals denied the Motion for
Reconsideration of CBC, maintaining that the possession of the spousesLozada of Unit No. 402
constituted an effective obstacle barring the Makati City RTC from issuing a writ to place CBC in
possession of the same. The appellate court reiterated that there was grave abuse of discretion on
the part of the Makati City RTC when it included Unit No. 402 within the coverage of the writ of
possession, notwithstanding the fact that said unit was in possession of the spouses Lozada under a
legitimate claim of ownership on the strength of a Contract to Sell executed in their favor by PPGI.

Comes now CBC before this Court via the present Petition for Review on Certiorari under Rule 45 of
the Revised Rules of Court with the following assignment of errors:

THE HONORABLE COURT OF APPEALS GRAVELY ERRED WHEN IT TOOK COGNIZANCE OF THE
PETITION, STOPPED THE IMPLEMENTATION OF THE WRIT OF POSSESSION AND EVENTUALLY HAD IT
ANNULLED AND SET ASIDE.

II

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN RULING THAT THE RESPONDENTS WERE
HOLDING THE SUBJECT PROPERTY ADVERSELY TO THE JUDGMENT DEBTOR THUS THE ISSUANCE OF
THE WRIT OF POSSESSION WAS IMPROPER AND UNWARRANTED, WHICH IS IN DIRECT COLLISSION
(SIC) WITH APPLICABLE JURISPRUDENCE.

III
THE HONORABLE COURT OF APPEALS GRAVELY ERRED WHEN IT FAILED TO APPRECIATE THE
FACTUALITY THAT RESPONDENTS WERE SUBSEQUENTLY INFORMED OF THE MORTGAGE WITH AN
ADVISE OF PAYMENT OF INSTALLMENTS TO HEREIN PETITIONERS [sic], BUT WHICH RESPONDENTS
IGNORED, HENCE THEY MADE [sic] THEMSELVES BEYOND THE MANTLE OF PROTECTION UNDER P.D.
957.[39]

Sorting through the allegations and arguments presented by the parties, the Court ascertains that
the pivotal issue for its consideration is, given the circumstances in the present case, whether the
writ of possession may be granted and issued by the Makati City RTC ex parte or without notice to
other parties.[40]

The Court answers in the affirmative.

Procedural due process

At the outset, this Court establishes that the issue herein is one involving procedural due
process. Procedural due process "refers to the method or manner by which the law is
enforced."[41] It consists of the two basic rights of notice and hearing, as well as the guarantee of
being heard by an impartial and competent tribunal. True to the mandate of the due process clause,
the basic rights of notice and hearing pervade not only in criminal and civil proceedings, but in
administrative proceedings as well. Non-observance of these rights will invalidate the
proceedings. Individuals are entitled to be notified of any pending case affecting their interests; and
upon notice, they may claim the right to appear therein, present their side and refute the position of
the opposing parties.[42]

At the crux of the opposition of the spouses Lozada to the ex parte issuance by the Makati City RTC
of the writ of possession in favor of CBC was that it supposedly deprived them of the opportunity to
defend their title and right to possess; or simply, that it denied them due process.

The procedure for extrajudicial foreclosure of real estate mortgage is governed by Act No. 3135,
[43] as amended. The purchaser at the public auction sale of anextrajudicially foreclosed real
property may seek possession thereof in accordance with Section 7 of Act No. 3135, as amended,
which provides:

SEC. 7. In any sale made under the provisions of this Act, the purchaser may petition the Court
of First Instance of the province or place where the property or any part thereof is situated, to
give him possession thereof during the redemption period, furnishing bond in an amount
equivalent to the use of the property for a period of twelve months, to indemnify the debtor in
case it be shown that the sale was made without violating the mortgage or without complying
with the requirements of this Act. Such petition shall be made under oath and filed in
form or an ex parte motion in the registration or cadastral proceedings if the property is
registered, or in special proceedings in the case of property registered under the Mortgage Law
or under section one hundred and ninety-four of the Administrative Code, or of any other real
property encumbered with a mortgage duly registered in the office of any register of deeds in
accordance with any existing law, and in each case the clerk of court shall, upon the filing of
such petition, collect the fees specified in paragraph eleven of section one hundred and
fourteen of Act Numbered Four hundred and ninety six as amended by Act Numbered Twenty-
eight hundred and sixty-six, and the court shall, upon approval of the bond, order that a writ of
possession issue addressed to the sheriff of the province in which the property is situated, who
shall execute said order immediately. (Emphasis supplied.)

The Court expounded on the application of the foregoing provision in De Gracia v. San Jose,
[44] thus:

As may be seen, the law expressly authorizes the purchaser to petition for a writ of possession
during the redemption period by filing an ex parte motion under oath for that purpose in the
corresponding registration or cadastral proceeding in the case of property with Torrens title;
and upon the filing of such motion and the approval of the corresponding bond, the law also in
express terms directs the court to issue the order for a writ of possession. Under the legal
provisions above copied, the order for a writ of possession issues as a matter of course upon
the filing of the proper motion and the approval of the corresponding bond. No discretion is
left to the court. And any question regarding the regularity and validity of the sale (and the
consequent cancellation of the writ) is left to be determined in a subsequent proceeding as
outlined in section 8. Such question is not to be raised as a justification for opposing the
issuance of the writ of possession, since, under the Act, the proceeding for this
is ex parte. (Emphasis supplied.)

Strictly, Section 7 of Act No. 3135, as amended, refers to a situation wherein the purchaser seeks
possession of the foreclosed property during the 12-month period for redemption. Upon the
purchaser’s filing of the ex parte petition and posting of the appropriate bond, the RTC[45] shall, as
a matter of course, order the issuance of the writ of possession in the purchaser’s favor.

In IFC Service Leasing and Acceptance Corporation v. Nera,[46] the Court reasoned that if under
Section 7 of Act No. 3135, as amended, the RTC has the power during the period of redemption to
issue a writ of possession on the ex parte application of the purchaser, there is no reason why it
should not also have the same power after the expiration of the redemption period, especially where
a new title has already been issued in the name of the purchaser. Hence, the procedure under
Section 7 of Act No. 3135, as amended, may be availed of by a purchaser seeking possession of the
foreclosed property he bought at the public auction sale after the redemption period has expired
without redemption having been made.

The Court recognizes the rights acquired by the purchaser of the foreclosed property at the public
auction sale upon the consolidation of his title when no timely redemption of the property was
made, to wit:

It is settled that upon receipt of the definitive deed in an execution sale, legal title over the
property sold is perfected (33 C. J. S. 554). And this court has also [said] and that the land
bought by him and described in the deed deemed (sic) within the period allowed for that
purpose, its ownership becomes consolidated in the purchaser, and the latter, "as absolute
owner . . . is entitled to its possession and to receive the rents and fruits thereof." (Powell v.
Philippine National Bank, 54 Phil., 54, 63.) x x x.[47]

It is thus settled that the buyer in a foreclosure sale becomes the absolute owner of the property
purchased if it is not redeemed during the period of one year after the registration of the sale. As
such, he is entitled to the possession of the said property and can demand it at any time following
the consolidation of ownership in his name and the issuance to him of a new transfer certificate of
title. The buyer can in fact demand possession of the land even during the redemption period
except that he has to post a bond in accordance with Section 7 of Act No. 3135, as amended. No
such bond is required after the redemption period if the property is not redeemed. Possession of the
land then becomes an absolute right of the purchaser as confirmed owner. Upon proper application
and proof of title, the issuance of the writ of possession becomes a ministerial duty of the court.[48]

The purchaser, therefore, in the public auction sale of a foreclosed property is entitled to a writ of
possession; and upon an ex parte petition of the purchaser, it is ministerial upon the RTC to issue
such writ of possession in favor of the purchaser. However, while this is the general rule, as in all
general rules, there is an exception. The exception and its basis were summarized by the Court
in Roxas v. Buan,[49] thus:

In the extrajudicial foreclosure of real estate mortgages, possession of the property may be
awarded to the purchaser at the foreclosure sale during the pendency of the period of
redemption under the terms provided in Sec. 6 of Act 3135, as amended (An Act to Regulate
the Sale of Property Under Special Powers Inserted In or Annexed to Real Estate Mortgages), or
after the lapse of the redemption period, without need of a separate and independent action
[IFC Service Leasing and Acceptance Corp. v. Nera, G.R. No. L-21720, January 30, 1967, 19
SCRA 181). This is founded on his right of ownership over the property which he purchased at
the auction sale and his consequent right to be placed in possession thereof.

This rule is, however, not without exception. Under Sec. 35, Rule 39 of the Revised Rules of
Court, which was made applicable to the extrajudicial foreclosure of real estate mortgages by
Sec. 6 Act No. 3135, the possession of the mortgaged property may be awarded to a purchaser
in extrajudicial foreclosures "unless a third party is actually holding the property adversely to
the judgment debtor." (Clapano v. Gapultos, G.R. Nos. 51574-77, September 30, 1984, 132
SCRA 429, 434; Philippine National Bank v. Adil, G.R. No. 52823, November 2, 1982, 118 SCRA
110; IFC Service Leasing and Acceptance Corp. v. Nera, supra.) As explained by the Court
in IFC Service Leasing and Acceptance Corp. v. Nera, supra:

x x x The applicable provision of Act No. 3135 is Section 6 which provides that, in
cases in which an extrajudicial sale is made, "redemption shall be governed by the
provisions of sections four hundred and sixty-four to four hundred and sixty-six,
inclusive, of the Code of Civil Procedure in so far as these are not inconsistent with
the provisions of this Act." Sections 464-466 of the Code of Civil Procedure were
superseded by Sections 25-27 and Section 31 of Rule 39 of the Rules of Court which
in turn were replaced by Sections 29-31 and Section 35 of Rule 39 of the Revised
Rules of Court. Section 35 of the Revised Rules of Court expressly states that "If no
redemption be made within twelve (12) months after the sale, the purchaser, or his
assignee, is entitled to a conveyance and possession of the property x x x." The
possession of the property shall be given to the purchaser or last redemptioner by
the officer unless a party is actually holding the property adversely to the judgment
debtor, [Id. at 184-185; Emphasis in the original.]

After further revision of the Rules of Court, Section 35 of Rule 39 referred to above is now Section 33
of Rule 39, which reads:

SEC. 33. Deed and possession to be given at expiration of redemption period; by whom
executed or given. – If no redemption be made within one (1) year from the date of the
registration of the certificate of sale, the purchaser is entitled to a conveyance and possession
of the property; x x x.

Upon the expiration of the right of redemption, the purchaser or redemptioner shall be
substituted to and acquire all the rights, title, interest and claim of the judgment obligor to the
property as of the time of the levy. The possession of the property shall be given to the
purchaser or last redemptioner by the same officer unless a third party is actually holding
the property adversely to the judgment obligor. (Emphasis supplied.)

Where a parcel levied upon on execution is occupied by a party other than a judgment debtor, the
procedure is for the court to order a hearing to determine the nature of said adverse possession.
[50] Similarly, in an extrajudicial foreclosure of real property, when the foreclosed property is in the
possession of a third party holding the same adversely to the defaulting debtor/mortgagor, the
issuance by the RTC of a writ of possession in favor of the purchaser of the said real property ceases
to be ministerial and may no longer be done ex parte. For the exception to apply, however, the
property need not only be possessed by a third party, but also held by the third party adversely to
the debtor/mortgagor.

General rule v. exception

While CBC invokes the general rule in the Petition at bar, the spouses Lozada assert the exception.

The spouses Lozada aver that they are holding Unit No. 402 adversely to the debtor/mortgagor PPGI,
and that their possession is sufficient obstacle to the exparte issuance of a writ of possession in
favor of CBC. CBC, however, counters that the spouses Lozada are mere successors-in-interest of
PPGI who only stepped into the latter’s shoes and may not claim the defense of possession by third
persons.

It is thus incumbent upon this Court to scrutinize the nature of the spouses Lozada’s possession of
Unit No. 402.

The spouses Lozada acquired possession of Unit No. 402 pursuant to the Contract to Sell executed
in their favor by PPGI. According to the Contract to Sell, PPGI shall deliver Unit No. 402 to the
spouses Lozada upon the completion thereof, and the spouses Lozada, in turn, shall already be
bound at that point to pay the 70% balance of the purchase price for the said property. The records
do not establish the date when the spouses Lozada actually entered into possession of Unit No.
402. However, it is undisputed that they were already in possession thereof at the time CBC filed
its Ex Parte Petition for the Issuance of a Writ of Possession with theMakati City RTC on July 2001.

Given the foregoing, it is apparent that the spouses Lozada’s possession of Unit No. 402 cannot be
considered adverse to that of PPGI. Their right to possess the said property was derived from PPGI
under the terms of the Contract to Sell executed by the latter in their favor. It was because PPGI
contractually agreed to deliver Unit No. 402 to them even prior to the transfer of ownership and title
over the same that they came into its possession. They cannot assert that said right of possession
is adverse or contrary to that of PPGI when they have no independent right of possession other than
what they acquired from PPGI. The spouses Lozadacan be more appropriately considered the
transferee of or successor to the right of possession of PPGI over Unit No. 402.

Again relevant herein is the Court’s ruling in Roxas v. Buan,[51] which involved factual
circumstances akin to the instant Petition. Valentin executed a Deed of Real Estate Mortgage over a
house and lot in favor of Buan to secure a loan granted by the latter to the
former. When Valentin failed to pay his loan when it matured,Buan caused the extrajudicial
foreclosure of the real estate mortgage and was the winning bidder at the auction sale of the
foreclosed property. Upon the expiration of the period for redemption without Valentin redeeming
the foreclosed property, a Final Bill of Sale was issued by the Sheriff in Buan’s favor. Buan then filed
a petition for the issuance of a writ of possession, which, being uncontested, was granted by the trial
court. However, the Sheriff was unable to execute the writ of possession because the foreclosed
property was occupied by Roxas and the spouses De Guia. Roxas allegedly bought the foreclosed
property from Valentin and leased the same to the spouses De Guia. Roxas and the spouses
De Guia argued that the writ of possession was ineffective as against them, being third
parties. They also insisted thatBuan should file an independent action to recover the property,
otherwise, their right to due process of law would be violated since they were not given their day in
court to prove their adverse claim.

In the said case, the character of Roxas’ possession was directly put in issue. The Court determined
that Roxas was the successor-in-interest of the mortgagorValentin, and not a third party holding the
property adversely to the latter. The Court ratiocinated as follows:

Contending that petitioner Roxas is a party actually holding the property adversely to the
debtor, Arcadio Valentin, petitioners argue that under the provisions of Act No. 3135 they
cannot be ordered to vacate the property. Hence, the question of whether, under the
circumstances, petitioner Roxas indeed is a party actually holding the property adversely
to Valentin.

It will be recalled that Roxas' possession of the property was premised on its alleged sale to
him by Valentin for the amount of P100,000.00. Assuming this to be true, it is readily apparent
that Roxas holds title to and possesses the property as Valentin's transferee. Any right he has
to the property is necessarily derived from that of Valentin

Pasted from <http://sc.judiciary.gov.ph/jurisprudence/2008/july2008/164919.htm>

Metrobank vs. Tan (2008)


Sunday, June 06, 2010
12:48 AM

THIRD DIVISION

[G.R. No. 178449, October 17, 2008]

METROPOLITAN BANK AND TRUST COMPANY, PETITIONER, VS. SPOUSES ELISA TAN AND
ANTONIO TAN AND SPOUSES LILIAN TAN AND MARCIAL SEE, RESPONDENTS.
DECISION

CHICO-NAZARIO, J.:
Before Us is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure which
seeks to set aside the Decision[1] of the Court of Appeals dated 31 January 2007 in CA-G.R. CV No. 86214
affirming in toto the Decision[2] of Branch 32 of the Regional Trial Court (RTC) of Manila in Civil Case No.
97-85012 and its Resolution[3] dated 15 June 2007 denying petitioner's motion for reconsideration.

The factual antecedents are as follows:

In June 1974, Ylang-Ylang Merchandising Company, a partnership between Angelita Rodriguez and
respondent Antonio Tan, obtained a loan in the amount of P250,000.00 from petitioner Metropolitan Bank
and Trust Company (Metrobank). To secure payment of the same, respondents spouses Marcial See and
Lilian Tan[4] constituted a real estate mortgage in favor of petitioner over their property consisting of
469.40 square meters, located in the District of Paco, Manila, covered by Transfer Certificate of Title (TCT)
No. 105233 of the Registry of Deeds of Manila. The mortgage, dated 14 June 1974, was annotated at the
back of the title.[5]

Subsequently, after the partnership had changed its name to Ajax Marketing Company, albeit without
changing its composition, it obtained another loan in July 1976 in the amount of P150,000.00 from
Metrobank. Again, to secure the loan, spouses Marcial See and Lilian Tan executed in favor of Metrobank a
second real estate mortgage dated 26 August 1976 over the same property. As in the first instance, the
mortgage was annotated at the back of TCT No. 105233.[6]

On 19 February 1979, the partnership (Ajax Marketing Company) was converted into a corporation
denominated as Ajax Marketing and Development Corporation (Ajax Marketing), with the original partners
(Angelita Rodriguez and Antonio Tan) as incorporators and three additional incorporators, namely,
respondent Elisa Tan, the wife of respondent Antonio Tan, and Jose San Diego and Tessie San Diego. Ajax
Marketing obtained from Metrobank a loan in the amount P600,000.00, the payment of which was secured
by another real estate mortgage executed by the spouses Marcial See and Lilian Tan over the same
property in favor of Metrobank. The third real estate mortgage was annotated at the back of TCT No.
105233.

On 2 December 1980, the three loans with an aggregate amount of P1,000,000.00 were re-structured and
consolidated into one loan and Ajax Marketing, represented by Antonio Tan as Board Chairman/President
and in his personal capacity as solidary co-obligor, and Elisa Tan as Vice-President/Treasurer and in her
personal capacity as solidary co-obligor, executed Promissory Note (PN) No. BDS-3605. Said loan was
payable in eight (8) equal quarterly installments of P125,000.00 starting 2 March 1981 until fully paid.[7]

On 24 April 1984, Metrobank filed a case for sum of money before the RTC of Manila against Ajax
Marketing, Elisa Tan and Antonio Tan for another loan earlier obtained in the amount of P970,000.00 that
the latter obtained from the former for which they executed Promissory Note (PN) No. BDS-3583. The
case was docketed as Civil Case No. 84-24065.[8] Subsequently, the lower court decided this case in favor
of Metrobank which decision was affirmed by the Court of Appeals.

For failure of Ajax Marketing to pay its obligation contained in PN No. BDS-3605, Metrobank foreclosed the
real estate mortgage. On 19 June 1984, the mortgaged property was sold at public auction for
P1,775,040.00 to Metrobank, it having the highest and winning bid.

On 11 December 1984, Civil Case No. 85-33933 for Annulment and Cancellation of Extra-judicial
Foreclosure Sale with Preliminary Injunction, Restraining Order and Damages was filed by Ajax Marketing
and spouses Marcial See and Lilian Tan, represented by their Attorney-in-Fact, Elisa Tan, and spouses
Antonio Tan and Elisa Tan (spouses Tan) against Metrobank and the Registry of Deeds of Manila. The
complaint asked that the extrajudicial foreclosure, as well as the auction sale, be declared null and void on
the ground that the real estate mortgages constituted on the property covered by TCT No. 105233 have
been extinguished or novated when PN No. BDS-3605 was executed. The trial court upheld the validity of
the extra-judicial foreclosure. On appeal to the Court of Appeals, the appellate court affirmed the decision
of the trial court. The decision was appealed to the Supreme Court.

In a letter dated 2 February 1995, spouses Antonio Tan and Elisa Tan wrote Metrobank a
letter[9] containing, inter alia, the following:
To end the controversy once and for all, the undersigned spouses hereby proposes (sic) to fully settle
the obligations of the borrowers in exchange of your release of the Real Estate Mortgage you are
presently holding, to wit:

1. We propose to pay the total amount of P2MM to be paid as follows:

a) Downpayment of P600,000.00 two (2) weeks upon approval of our proposal;

b) Balance of P1.4MM shall no longer be subject to interest and to be liquidated in 24 months or


P58,333.33 to be covered by postdated checks.

2. Attorney's fees shall be separately paid by us.


On 14 September 1995, this Court rendered its Decision[10] in Civil Case No. 85-33933 for Annulment and
Cancellation of Extra-judicial Foreclosure Sale with Preliminary Injunction, Restraining Order and Damages.
We ruled:
[P]etitioners argue that a novation occurred when their three (3) loans which are all secured by the
same real estate property covered by TCT No. 105233 were consolidated into a single loan of P1
million under Promissory Note No. BDS-3605, thereby extinguishing their monetary obligations and
releasing the mortgaged property from liability.

xxxx

The attendant facts herein do not make a case of novation. There is nothing in the records to show
the unequivocal intent of the parties to novate the three loan agreements through the execution of
PN No. BDS-3065. The provisions of PN No. BDS-3605 yield no indication of the extinguishment of, or
an incompatibility with, the three loan agreements secured by the real estate mortgages over TCT
No. 105233. x x x

xxxx

x x x [P]etitioners posit that the extra-judicial foreclosure is invalid as it included two unsecured
loans: one, the consolidated loan of P1.0 million under PN BDS No. 3605, and two, the P970,000.00
loan under PN BDS No. 3583 subsequently extended by Metrobank.

An action to foreclose a mortgage is usually limited to the amount mentioned in the mortgage, but
where on the four corners of the mortgage contracts, as in this case, the intent of the contracting
parties is manifest that the mortgaged property shall also answer for future loans or advancements
then the same is not improper as it is valid and binding between the parties. For merely consolidating
and expediently making current the three previous loans, the loan of P1.0 million under PN BDS No.
3605, secured by the real estate property, was correctly included in the foreclosure's bid price. The
inclusion of the unsecured loan of P970,000.00 under PN BDS No. 3583, however, was found to be
improper by public respondent which ruling we shall not disturb for Metrobank's failure to appeal
therefrom. Nonetheless, the inclusion of PN BDS No. 3583 in the bid price did not invalidate the
foreclosure proceedings. As correctly pointed out by the Court of Appeals, the proceeds of the
auction sale should be applied to the obligation pertaining to PN BDS No. 3605 only, plus interests,
expenses and other charges accruing thereto. It is Metrobank's duty as mortgagee to return the
surplus in the selling price to the mortgagors.
On 12 September 1997, spouses Elisa Tan and Antonio Tan and spouses Lilian Tan and Marcial See filed a
civil case for Specific Performance, Injunction and Damages before the RTC of Manila, Branch 30, against
Metrobank and Ajax Marketing (origin of the instant petition). They prayed, among other things, that
Metrobank be ordered to allow them (spouses Tan) to exercise their right of redemption over the subject
foreclosed property and to accept the amount of P1,609,334.61 as the redemption price, and to order Ajax
Marketing to reimburse them the amount which they will pay as redemption price for the foreclosed
property.[11]

On 4 November 1997, an amended compliant was filed.[12] They included as defendants John Doe and
Peter Doe. They made the following allegations:

Spouses See and spouses Tan alleged that the property covered by TCT No. 105233, though registered in
the names of spouses Marcial See and Lilian Tan See is, in reality, co-owned by respondents and their
other siblings. They further allege that after the foreclosure sale, they offered to redeem the property
within the one-year redemption period and they discovered that Metrobank included in the bid price an
amount covered by PN No. BDS-3583 not secured by the mortgage over TCT No. 105233. They claim that
while the tender and offer of the redemption was seasonably made, same cannot be made because
Metrobank was ambivalent with respect to the redemption price. Redemption, they claim, was rendered
doubly difficult when Metrobank filed Civil Case No. 84-24065 with the RTC of Manila to collect on PN No.
BDS-3583. On their part, they filed Civil Case No. 85-33933 before the RTC of Manila for annulment and
cancellation of the extra-judicial foreclosure of the mortgage over TCT No. 105233 rendering more difficult
the resumption of negotiation for redemption of the foreclosed property. On 14 September 1995, the
Supreme Court, in G.R. No. 118585, declared the extra-judicial foreclosure valid but found the inclusion of
PN No. BDS-3583 in the bid price to be improper but same did not invalidate the foreclosure proceedings.
After said decision, they resumed to negotiate for the redemption of the foreclosed property and tendered
and offered P1,609,334.61 which Metrobank rejected and declined. They further alleged that Metrobank
encouraged their other siblings to repurchase the foreclosed property at a price over and above the lawful
redemption price. In fact, Metrobank sold the property to John and Peter Doe for P11,500,000.00 in
complete disregard of their right of redemption. They claim that Metrobank cannot sell the property
because ownership thereof has not been vested absolutely in its favor until they have exercised their right
of redemption. The sale of the property to their other siblings was fraudulent and therefore void. Because
of the sale, they and their other siblings were divested of their share in the property and are additionally
required by the purchasing siblings to reimburse a portion of the repurchase price (P11,500,000.00),
thereby fomenting trouble within the family. They asked, among other things, that the sale of the property
between Metrobank and defendants John and Peter Doe be declared null and void ab initio and that
Metrobank be ordered to allow them to exercise their right of redemption by accepting the amount of
P1,609,334.61 as the redemption price.

On 6 November 1997, Spouses Marcial See and Lilian Tan executed a document entitled "Deed of
Redemption and Reconveyance" wherein it was stated that the latter (redemptioners) paid Metrobank on
12 September 1997 the amount of P11,500,000.00 representing the redemption price for the
reconveyance/redemption of the foreclosed property (TCT No. 105233).[13]

On 2 February 1998, Metrobank filed a Motion to Dismiss on the ground that the claims and demands in
the amended complaint have been extinguished. Metrobank disclosed that the subject property was not
sold to John and Peter Doe, but to spouses Marcial See and Lilian Tan. As registered owners of the
property, the spouses were allowed to exercise their right of redemption on 6 November 1997 as
evidenced by the Deed of Redemption and Reconveyance.[14] On 7 December 1998, the motion was
denied.[15]

On 3 February 1999, Metrobank filed its Answer with Counterclaim. It declared that John and Peter Doe are
none other than spouses Marcial See and Lilian Tan. It alleged that neither Ajax Marketing nor the plaintiffs
(respondents herein) were able to redeem the subject property within the one-year period which
commenced from the date (20 June 1984) the Certificate of Sale issued by the auctioning sheriff was
registered with the concerned Registry of Deeds. Respondents did not even approach Metrobank to
negotiate the redemption of said property. Instead, Ajax Marketing and respondents instituted on 11
December 1984 an action to annul said extra-judicial foreclosure which foreclosure was upheld by the
Supreme Court in G.R. No. 118585 on 14 September 1995. It was only in 1997 that spouses Marcial See
and Lilian Tan communicated with Metrobank their intention to buy back the subject property. Metrobank
agreed to sell the property for the "redemption" price of P11,500,000.00. It further denied the allegations
with respect to the actual ownership of the subject property. It added that the sale of the foreclosed
property to spouses Marcial See and Lilian Tan was not fraudulent and that property was redeemed at a
mutually agreed price. It explained that spouses Marcial See and Lilian Tan are the proper "redemptioners"
of the subject property being the registered owners thereof. As such, Metrobank had the right to allow said
spouses to redeem the property and to reconvey the same under mutually agreed terms. It stressed that
assuming arguendothat spouses Marcial See and Lilian Tan never redeemed the subject property, spouses
Elisa Tan and Antonio Tan offered the amount of P1,609,334.61 when they communicated with Metrobank
in 1997 which amount they believe was the redemption price "in esse," Metrobank had rightfully rejected
the same for Act No. 3135, as amended, requires the payment of the redemption price equivalent to the
winning bid price (P1,775,040.00) plus interest up to the time of redemption, together with the amount of
any assessments or taxes paid by the purchaser after the auction sale, and interest on such last-named
amount at the same rate.[16]

In its Reply to the Answer, respondents claim the "Deed of Redemption and Reconveyance" does not bear
the true and genuine signatures of spouses Marcial See and Lilian Tan. It said that assuming arguendo that
the Deed of Redemption and Reconveyance is true, the difference between P11,500,000.00 and
P1,775,040.00 should be refunded to them.[17]

On 10 January 2000, the pre-trial of the case was terminated.[18] Thereafter, the case was heard.

Respondents-spouses Elisa and Antonio Tan testified in court on their behalf, while for the defense, only
Rito A. Negado, employee of Metrobank, testified on respondents' loan with Metrobank, the execution of
respondents Marcial See and Lilian Tan of the accommodation mortgage in favor of Metrobank, and
respondents' failure to pay their obligation which led Metrobank to initiate extra-judicial foreclosure
proceedings.

While the case was being heard, the presiding judge hearing the case voluntarily inhibited himself from the
case. Consequently, the case was re-raffled to Branch 32 of RTC, Manila.[19]

On 5 May 2005, the trial court rendered its decision, the dispositive portion of which reads:
WHEREFORE, premises considered, JUDGMENT is hereby rendered DECLARING the "DEED OF
REDEMPTION AND RECONVEYANCE" between Defendant Bank and the Sps. Marcial See and Lilian Tan
NULL and VOID ab initio. It is hereby further ADJUDGED that:
1. Plaintiffs Spouses Elisa and Antonio Tan are reinstated as Redemptioners with the right to
redeem the property foreclosed and mortgaged as they are hereby directed to pay Defendant
Bank the sum of Php 1,609,334.61 as redemption price in accordance with the Decision in G.R.
No. 118585 and in turn, Defendant Metrobank is ordered to reconvey TCT No. 105233 to
plaintiffs in exchange for the said redemption price.
2. Defendant Bank is ordered to refund and pay to plaintiffs Sps. Marcial See and Lilian Tan the
sum of Php11,500,000.00 with interests at the rate of 12% per annum beginning September
1995 until the whole obligation is fully paid;
3. Defendant Bank is finally ordered to pay, in addition to the costs of suit, the sum of
Php50,000.00 as and for attorney's fees over and above the contingent arrangement for legal
services rendered to plaintiffs Elisa and Antonio Tan by their lawyers.[20]
The RTC ruled that the nullification of the Deed of Redemption and Reconveyance dated 6 November 1997
is warranted. It declared that spouses Elisa and Antonio Tan, as mortgagors of the foreclosed property, are
entitled to exercise their right as redemptioners. As such, they should pay Metrobank as redemption price
the amount of Php1,609,334.61 or Php1,775,040.00, as the case may be, the latter price being
Metrobank's winning bid. The fact that spouses Marcial See and Lilian Tan are the registered owners of the
property foreclosed is not sufficient to entitle them to redeem over and above the willingness of spouses
Elisa and Antonio Tan to exercise their right of redemption. Spouses Elisa and Antonio Tan have the
preferential right as redemptioners of what they have mortgaged.

The trial court ruled that spouses Elisa and Antonio Tan are fully within their right to redeem the foreclosed
property after the finality of the Decision in G.R. No. 118585. Technically, it said, the tender and offer of
redemption of spouses Elisa and Antonio Tan was within the one-year period reckoned from the
registration of the Certificate of Sale in the Registry of Deeds because the redemption period was
"freezed" when respondents were forced to file Civil Case No. 85-33933 (Annulment and Cancellation of
Extra-judicial Foreclosure Sale with Preliminary Injunction, Restraining Order and Damages) on 11
December 1984 after said tender of redemption price was refused as a result of a misunderstanding as to
its amount. Respondents insisted to redeem on the basis of their PN No. BDS-3605 while Metrobank
demanded that the redemption price should include the unsecured PN No. BDS-3583. The filing of Civil
Case No. 85-33933 within the one-year redemption period preserved spouses Elisa and Antonio Tan's right
of redemption until said case has been decided with finality. Citing State Investment House, Inc. v. Court
of Appeals,[21] Belisario v. Intermediate Appellate Court[22] and Hi-Yield Realty, Inc. v. Court of Appeals,
[23] the Court said that the filing of the Civil Complaint has the effect of freezing the redemption period
and preserves the right of the mortgagor to redeem the property foreclosed, and that the filing of the court
action to enforce the correct redemption price is equivalent to a formal offer to redeem. The offer to
redeem in this case made sometime in 1985 was "frozen" and remained fresh and unexpired until Civil
Case No. 85-33933 was finally decided by the Supreme Court on 14 September 1995. Thereafter, the
redemption period resumed to run anew.

Metrobank appealed said decision to the Court of Appeals. On 31 January 2007, the appellate court
affirmed in toto the decision of the trial court. It disposed of the case as follows:
WHEREFORE, premises considered, the appeal is DISMISSED for lack of merit and the assailed
decision of the court a quo is hereby AFFIRMED in toto. No costs.[24]
The Court of Appeals said that the spouses Elisa and Antonio Tan were granted, no less by the Supreme
Court, the right to redeem the contested property. However, despite the finality of the Supreme Court
decision in G.R. No. 118585, Metrobank ignored spouses Elisa and Antonio Tan's right to redeem and
instead allowed spouses Marcial See and Lilian Tan to redeem the property. It described such act of
Metrobank to be contemptuous. It brushed away Metrobank's argument that spouses Elisa and Antonio
Tan have no more right to redeem as they failed to make a valid tender since what they did was a mere
proposal failing to actually deliver the redemption price. The appellate court added that Metrobank has no
right to demand from spouses Elisa and Antonio Tan the actual delivery of the redemption price because it
is not legally capacitated to surrender the possession and title of the subject property to said spouses until
such time the redemption of spouses Marcial See and Lilian Tan is declared null and void. It agreed with
the trial court that the one-year period to redeem the foreclosed property was deemed suspended.

The motion for reconsideration filed by Metrobank was denied.

Hence, this appeal via petition for review on certiorari.

Initially, this Court denied the petition for insufficient or defective verification and for failure to show that
the appellate court committed reversible error as to warrant the exercise by this Court of its discretionary
appellate jurisdiction.[25] Metrobank filed a motion for the reconsideration. On 12 November 2007, the
Court granted the motion and set aside the resolution denying the petition, and required respondents to
comment thereon within ten days from receipt of notice.[26] Respondents filed their Comment[27] to
which Metrobank filed a Reply.[28]

The Court gave due course to the petition and required the parties to submit their respective memoranda.
[29]

Metrobank makes the following assignment of errors:


WHETHER THE COURT OF APPEALS ERRED IN DECLARING THAT METROBANK MUST BE LEGALLY
CAPACITATED TO SURRENDER POSSESSION AND TITLE TO THE SUBJECT PROPERTY IN ORDER FOR IT
TO BE ABLE TO INVOKE THE LEGAL REQUIREMENT OF THE LAW THAT THERE MUST BE AN ACTUAL
TENDER OR DELIVERY OF THE REDEMPTION PRICE FOR AN OFFER TO REDEEM TO BE BINDING.

WHETHER THE COURT OF APPEALS ERRED WHEN IT DECLARED THAT RESPONDENT SPOUSES
ANTONIO AND ELISA TAN'S TENDER AND OFFER OF REDEMPTION WAS WITHIN THE ONE-YEAR PERIOD
STARTING FROM THE REGISTRATION OF THE CERTIFICATE OF SALE CONSIDERING THAT THE
REDEMPTION PERIOD WAS "FREEZED" WHEN RESPONDENTS WERE FORCED TO FILE CIVIL CASE NO.
85-33933 ON DECEMBER 11, 1984 AFTER THEIR TENDER OF THE REDEMPTION PRICE WAS REFUSED
BY METROBANK AND THAT THE REDEMPTION PERIOD REMAINED FRESH AND UNEXPIRED UNTIL CIVIL
CASE NO. 85-33933 WAS FINALLY ADJUDICATED BY THE SUPREME COURT IN SEPTEMBER 1995.

WHETHER THE COURT OF APPEALS ERRED IN DECLARING THAT METROBANK IS LIABLE TO PAY
RESPONDENTS ATTORNEY'S FEES.

WHETHER THE COURT OF APPEALS ERRED IN DECLARING THAT THE TRIAL COURT WAS CORRECT IN
SUBMITTING THE CASE IMMEDIATELY FOR DECISION AS THERE WAS UNREASONABLE DELAY ON THE
PART OF METROBANK IN THE PRESENTATION OF ITS EVIDENCE.[30]
There is no dispute that respondents were already in default in the payment of their obligation. Thus,
Metrobank had the right to foreclose any real estate mortgage executed in its favor as security for the
loans it has given to respondents. Foreclosure is valid where the debtor is in default in the payment of his
obligation. In a real estate mortgage when the principal obligation is not paid when due, the mortgagee
has the right to foreclose the mortgage and to have the property seized and sold with the view of applying
the proceeds to the payment of the obligation.[31]

In the resolution of this case, two primary issues have to be resolved:


1. Did the filing of Civil Case No. 85-33933 (Annulment and Cancellation of Extra-judicial
Foreclosure Sale with Preliminary Injunction, Restraining Order and Damages) by respondents on 11
December 1984 interrupt the running of the one-year redemption period?
2. Did spouses Elisa and Antonio Tan exercise their right of redemption within the one-year
period allowed by law?
From the records, the foreclosure sale was on 19 June 1984 and the Certificate of Sale issued by the sheriff
was registered with the Registry of Deeds of Manila on 20 June 1984. On 11 December 1984, Civil Case No.
85-33933 for Annulment and Cancellation of Extra-judicial Foreclosure Sale was filed by respondents. On 2
February 1995, spouses Antonio Tan and Elisa Tan wrote Metrobank a letter proposing to redeem the
subject for P2,000,000.00 payable as follows: downpayment of P600,000.00 and the balance payable in 24
months (P58,333.33/month) without interest. Thereafter, on 14 September 1995, this Court, in G.R. No.
118585, ruled with finality that the extrajudicial foreclosure and sale were valid.

The lower courts ruled that the filing of Civil Case No. 85-33933 suspended the running of the one-year
redemption period for which spouses Elisa and Antonio Tan can exercise their right of redemption. The
tender and offer of redemption made by spouses Elisa and Antonio Tan was within the one-year
redemption period. On the other hand, Metrobank insists that the filing of said case did not toll the running
of said redemption period and that they failed to exercise said right with the allowable period of one year.

The filing of Civil Case No. 85-33933 (Annulment and Cancellation of Extra-judicial Foreclosure Sale ) did
not toll the running of the one-year redemption period. Settled is the rule that the period within which to
redeem the property sold at a sheriff's sale is not suspended by the institution of an action to annul the
foreclosure sale.[32] Thus, both lower courts erred in ruling that the one-year redemption period was
interrupted.

It is apparent from the complaint filed in Civil Case No. 85-33933 that the issue advanced by respondents
is whether the extrajudicial foreclosure, as well as the auction sale, is void because the real estate
mortgages constituted on the property covered by TCT No. 105233 have been extinguished or novated
when PN No. BDS-3605 was executed. There is nothing in the complaint that deals with any right of
redemption. Respondents wanted to have the extrajudicial foreclosure proceedings nullified on the ground
that their obligation under PN No. BDS-3605 was no longer secured by any mortgage.

We likewise find the declaration of the Court of Appeals that the spouses Elisa and Antonio Tan were
granted by the Supreme Court the right to redeem the contested property pursuant to G.R. No. 118585 to
be without basis. There is nothing in G.R. No. 118585 that gave respondents the right to redeem. This
Court did not even determine the amount of the redemption price which, in the first place, was not raised
as an issue. What was upheld in said case was the validity of the extrajudicial foreclosure despite the
inclusion therein of an unsecured loan.

Having ruled that Civil Case No. 85-33933 did not toll the running of the one-year redemption period, did
spouses Elisa and Antonio Tan exercise their right o redemption within this period? They did not.

Section 6 of Republic Act No. 3135,[33] as amended by Republic Act No. 4118, provides:
Sec. 6. In all cases in which an extrajudicial sale is made under the special power hereinbefore
referred to, the debtor, his successors in interest or any judicial creditor or judgment creditor of said
debtor, or any person having a lien on the property subsequent to the mortgage or deed of trust
under which the property is sold, may redeem the same at any time within the term of one
year from and after the date of the sale; x x x. (Emphasis supplied.)
We, however, have consistently ruled that the one-year redemption period should be counted not from the
date of foreclosure sale, but from the time the certificate of sale is registered with the Registry of Deeds.
[34]

In the case before us, the certificate of sale was registered with the Registry of Deeds of Manila on 20 June
1984. Under Article 13 of the Civil Code, a year is understood to be three hundred sixty-five (365) days.
Thus excluding the first day and counting from 20 June 1984, respondents spouses Tan had only until 20
June 1985 within which to redeem the foreclosed property in accordance with law. Prior to this date, they
did not exercise their right to redeem the foreclosed property.

The only credible evidence respondents presented to show that they allegedly offered to redeem the
subject property was the letter[35] of spouses Elisa and Antonio Tan dated 2 February 1995 where they
offered the amount of two million pesos (in installment) as settlement of their obligation and for the
release of the real estate mortgages on TCT No. 105233. Other than this, we find nothing concrete to
prove that they (spouses Tan) tried to redeem within the one-year period and even after when this Court
ruled in G.R. No. 118585 on 14 September 1995. Their claims that they tendered their offer to redeem on
various times are all unsubstantiated and which Metrobank has denied.

The general rule in redemption is that it is not sufficient that a person offering to redeem manifests his/her
desire to do so. The statement of intention must be accompanied by an actual and simultaneous tender of
payment. This constitutes the exercise of the right to repurchase. Bona fide redemption necessarily implies
a reasonable and valid tender of the entire purchase price, otherwise the rule on the redemption period
fixed by law can easily be circumvented.[36] There is no cogent reason for requiring the vendee to accept
payment by installments from the redemptioner, as it would ultimately result in an indefinite extension of
the redemption period.[37]

In order to effect a redemption, the judgment debtor must pay the purchaser the redemption price
composed of the following: (1) the price which the purchaser paid for the property; (2) interest of 1% per
month on the purchase price; (3) the amount of any assessment or taxes which the purchaser may have
paid on the property after the purchase; and (4) interest of 1% per month on such assessment and taxes.
[38]

Even assuming that such offer was made by the spouses Elisa and Antonio Tan within the one-year
redemption period, we find said offer in the amount of two million pesos to be invalid and ineffectual. It is
clear from the letter that the tender was in installments. Same will not do for there is no showing that
Metrobank agreed via such payment. By paying in installments, the redemption period will be extended. It
could be otherwise if Metrobank agreed; in such case, the concept of legal redemption will be converted
into one of conventional redemption.[39] Moreover, though there was an offer, there was no evidence that
there was an actual and simultaneous tender of payment. Redemption within the period allowed by law is
not a matter of intent but a question of payment or valid tender of the full redemption price within said
period.[40]

The trial court, citing State Investment House, Inc. v. Court of Appeals,[41] Belisario v. Intermediate
Appellate Court[42] and Hi-Yield Realty, Inc. v. Court of Appeals,[43]declared that the filing of the Civil
Complaint has the effect of freezing the redemption period and preserves the right of the mortgagor to
redeem the property foreclosed, and that the filing of the court action to enforce the correct redemption
price is equivalent to a formal offer to redeem. Such rule has no application in the instant case. Such rule
applies only when the complaint to enforce a repurchase is filed within the period of redemption in
which case, the same will be equivalent to an offer to redeem and have the effect of preserving the right
of redemption. In the case before us, the complaint for redemption (Specific Performance) was
filed beyond the one-year redemption period or on 12 September 1997 , more than twelve
years from 20 June 1985 which is the last day of said period. We do not consider the complaint filed
by respondents on 11 December 1984, docketed as Civil Case No. 85-33933, for Annulment and
Cancellation of Extra-judicial Foreclosure Sale to be an action for judicial redemption because its purpose
was not for redemption but for nullification of extrajudicial foreclosure sale.

In the case at bar, respondents spouses Elisa and Antonio Tan failed to show good faith on their part. They
have failed to validly tender any redemption price nor consigned any amount, in any of the cases they
have filed, which they believed was the correct amount, if only to show their willingness and ability to pay.
It is not difficult to understand why the redemption price should either be fully offered in legal tender or
else validly consigned in court. Only by such means can the auction winner be assured that the offer to
redeem is being done in good faith.[44]

In the case before us, though the respondents spouses Marcial See and Lilian Tan signed a document
entitled "Deed of Redemption and Reconveyance" wherein they were called the "Redemptioners" and that
they paid the amount of P11,500,000.00 for the subject property, this Court finds that what was entered
into by them and Metrobank was not a redemption, but a sale. Being already the absolute owner of the
subject property because spouses Elisa and Antonio Tan failed to properly exercise their right of
redemption, Metrobank can sell, to a price of its liking, the foreclosed property to interested buyers which
in this case are respondents spouses Marcial See and Lilian Tan. The price itself (P11,500,000.00) is
indicative of a sale. If it were a redemption, the price would only be the winning bid price (P1,775,040.00)
plus interest up to the time of redemption, together with the amount of any assessments or taxes paid by
the purchaser after the auction sale, and interest on such last-named amount at the same rate.

The appellate court's ruling that Metrobank had no right to demand from spouses Elisa and Antonio Tan
the actual delivery of the redemption price because it is not legally capacitated to surrender the
possession and title of the subject property to said spouses until such time the redemption of spouses
Marcial See and Lillian Tan is declared null and void, is flawed.

Metrobank, as the highest bidder in the public auction sale, can demand from the redemptioner, in this
case spouses Elisa and Antonio Tan, the purchase price and taxes it had paid for the property, together
with interests with the one-year redemption period. If same is not paid by the redemptioner within the
time prescribed by law, the latter loses his/her right to redeem, and the buyer of the foreclosed property
becomes its absolute owner. Prior to selling the property to spouses Marcial See and Lilian
Tan via the Deed of Redemption and Reconveyance, Metrobank already consolidated its ownership over
the foreclosed property. We will not nullify the "redemption" (purchase) made by spouses Marcial See and
Lilian Tan so that respondents spouses Elisa and Antonio Tan can exercise their right of redemption which
has long been lost for their failure to exercise the same in accordance with law.

The trial court's ruling that respondents spouses Elisa and Antonio Tan should be allowed to redeem the
foreclosed property because Metrobank "allowed the execution of the Deed of Redemption and
Reconveyance to a wrong person and for wrong reason" is erroneous. As explained above, we consider the
"redemption" for P11,500,000.00 made by spouses Marcial See and Lilian Tan to be a sale in the guise of a
redemption. Such "redemption" will not restore respondents spouses Elisa and Antonio Tan's right to
legally redeem the subject property which right they have lost.

Respondents spouses Elisa and Antonio Tan were granted by the law the right of redemption which they
failed to exercise validly and effectively. Having failed to redeem the foreclosed property in the manner
and within the period prescribed by law, they have lost any right and interest over the subject property. In
so doing, Metrobank has the right to dispose of said property as it deems fit.

WHEREFORE, all the foregoing considered, the instant petition for review on certiorari is GRANTED and
the Decision of the Court of Appeals dated 31 January 2007 and its Resolution dated 15 June 2007 in CA-
G.R. CV No. 86214 are hereby REVERSED andSET ASIDE. The complaint in Civil Case No. 97-85012
before the Regional Trial Court of Manila, Branch 32, is DISMISSED.

SO ORDERED.

MINITA V. CHICO-NAZARIO
Associate Justice

WE CONCUR:

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson

MA. ALICIA AUSTRIA-MARTINEZ


Associate Justice

ADOLFO S. AZCUNA
Associate Justice

ANTONIO EDUARDO B. NACHURA


Associate Justice

* Per Special Order No. 521, dated 29 September 2008, signed by Chief Justice Reynato S. Puno,
designating Associate Justice Adolfo S. Azcuna to replace Associate Justice Ruben T. Reyes, who is on
official leave.
[1] Penned by Associate Justice Andres B. Reyes, Jr. with Associate Justices Noel G. Tijam and Sesinando E. Villon , concurring; rollo, pp. 35-48.

[2] Records, pp. 356-364.

[3] Id. at 33-34.

[4] Referred to as Lillian in some documents.

[5] Records, p. 22.


[6] Id. at 23.

[7] Records, p. 14.

[8] Id. at 17-19, 101.

[9] Exh. D, records, p. 239.

[10] Ajax Marketing & Development Corporation v. Court of Appeals, G.R. No. 118585, 14 September 1995, 248 SCRA 222, 226-230.

[11] Records, pp. 8-9.

[12] Id. at 49-56.

[13] Exh. E; Records, pp. 240-241.

[14] Records, pp. 62-65.

[15] Id. at 93.

[16] Records, pp. 99-106.

[17] Id. at 108-110.

[18] Id. at 139.

[19] Id. at 142, 144.

[20] Id. at 364.

[21] G.R. No. 99308, 13 November 1992, 215 SCRA 734.

[22] G.R. No. L-73503, 30 August 1988, 165 SCRA 101.

[23] 437 Phil. 483 (2002).

[24] Rollo, p. 48.

[25] Id. at 54.

[26] Id. at 185.

[27] Id. at 186-193.

[28] Id. at 195-202

[29] Id. at 262.

[30] Id. at 299-300.

[31] State Investment House, Inc. v. Court of Appeals, supra note 21 at 744.

[32] Landrito, Jr. v. Court of Appeals, G.R. No. 133079, 9 August 2005, 466 SCRA 107, 118; citing Conejero v. Court of Appeals, 123 Phil. 605, 612 (1966); Daza v. Tomacruz, 58 Phil.

414, 418 (1933); Sumerariz v. Development Bank of the Philippines, 129 Phil. 641, 648 (1967).

[33] An Act to Regulate the Sale of Property Under Special Powers Inserted In or Annexed to Real Real Estate Mortgages.

[34] Quimson v. Philippine National Bank, 146 Phil. 629, 636 (1970); Eastman Chemical Industries v. Court of Appeals, G.R. No. 76733, 30 June 1989, 174 SCRA 619, 630.

[35] Exh. D; records, p. 239.


[36] Tolentino v. Court of Appeals, G.R. No. 171354, 7 March 2007, 517 SCRA 732, 744.

[37] State Investment House, Inc. v. Court of Appeals, supra note 21 at 746.

[38] Bodiongan v. Court of Appeals, G.R. No. 114418, 21 September 1995, 248 SCRA 496, 501.

[39] Lazo v. Republic Surety & Insurance Co., Inc., G.R. No. L-27365, 30 January 1970, 31 SCRA 329, 340.

[40] BPI Family Savings Bank, Inc. v. Veloso, G.R. No. 141974, 9 August 2004, 436 SCRA 1, 8.

[41] Supra note 21.

[42] Supra note 22.

[43] Supra note 23.

[44] BPI Family Savings Bank, Inc. v. Veloso, supra note 40 at 7

Pasted from <http://elibrary.judiciary.gov.ph/decisions.php?doctype=Decisions%20/%20Signed


%20Resolutions&docid=12257632611104551535>

Tolentino vs. CA (2007)


Sunday, June 06, 2010
12:49 AM

THIRD DIVISION

MARYLOU B. TOLENTINO, M.D., G.R. No. 171354


Petitioner,
Present:

- versus - Ynares-Santiago, J. (Chairperson),


Austria-Martinez,
Callejo, Sr.,*
Chico-Nazario, and
Nachura, JJ.
COURT OF APPEALS and CITYTRUST
BANKING CORPORATION, Promulgated:
Respondents.
March 7, 2007

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

DECISION

YNARES-SANTIAGO, J.:

This Petition for Review on Certiorari[1] assails the October 28, 2005 Decision[2] of the Court of
Appeals in CA-G.R. CV. No. 83794, which reversed the April 22, 2004 Decision[3] of the Regional Trial Court
of Mandaluyong City, Branch 213 in Civil Case No. MC-00-1063, as well as the January 31, 2006
Resolution[4]denying petitioner’s Motion for Reconsideration.

The antecedent facts are as follows:


In May 1996, petitioner Marylou B. Tolentino (Tolentino) applied for and was granted by private
respondent Citytrust Banking Corporation (“Citytrust,” now Bank of the Philippine Islands) a Business
Credit Line Facility for P2,450,000[5] secured by a First Real Estate Mortgage[6] over her property
covered by Transfer Certificate of Title (TCT) No. 1933.[7]

On July 16, 1998, Citytrust informed Tolentino that her credit line has expired thereby making her
P2,611,440.23 outstanding balance immediately due and demandable.[8] Tolentino failed to settle
her obligations thus her property was extrajudicially foreclosed and sold in a public auction, with
Citytrust as the highest bidder. On April 13, 1999, the Certificate of Sale was registered and duly
annotated on TCT No. 1933.

As of March 17, 2000, the “Statement of Account To Redeem” [9] sent by Citytrust showed
petitioner’s outstanding obligation at P5,386,993.91. Petitioner asked for a re-computation and the
deletion of certain charges, such as the late payment charges, foreclosure expenses, attorney’s fees,
liquidated damages, and interests, but was denied by Citytrust. As of April 10, 2000, petitioner’s
outstanding balance amounted to P5,431,337.41.

On April 7, 2000, petitioner filed a Complaint for Judicial Redemption, Accounting and Damages, with
application for the issuance of a Temporary Restraining Order/Writ of Preliminary Injunction, against
Citytrust and the Register of Deeds of Mandaluyong City.[10] Petitioner alleged that the bank
unilaterally increased the interest charges in her credit line from 17.75% to 23.04%; that she was
forced to convert her existing Home Owners Credit Line into an Amortized Term Loan with interest of
19.50%;[11] that the bank cancelled her credit line when she refused the said conversion; that her
mortgaged property was foreclosed and sold at public auction but the bank did not remit the balance
of the proceeds of the foreclosure sale; and that the bank unjustifiably refused her request for
accounting and re-computation of the redemption amount.

In its Answer with Counterclaim,[12] Citytrust asserted that petitioner’s credit line has a term of one
year and that upon the expiration of the said period, it may be cancelled and closed; that the
inclusion of late payment charges, foreclosure expense, attorney’s fees, liquidated damages,
foreclosure fee, and interests in the redemption price was in accordance with the terms and
conditions of their loan and mortgage contracts; that the bid price was applied to the outstanding
obligations of petitioner; and that the Complaint of petitioner was merely dilatory and frivolous
considering that she has admitted having defaulted in the payment of her obligations.

Meanwhile, TCT No. 1933 was cancelled and a new title[13] was issued in favor of
Citytrust. However, petitioner was able to secure a writ of preliminary injunction,[14] which enjoined
Citytrust from taking possession, selling, and/or otherwise disposing of the foreclosed property.

After trial on the merits, the Regional Trial Court of Mandaluyong City, Branch 213, rendered
judgment upholding petitioner’s right of redemption, but at the price computed by private
respondent. The dispositive portion of the Decision reads:

WHEREFORE, judgment is hereby rendered upholding the right of the herein plaintiff MARILOU
TOLENTINO to redeem the foreclosed property covered by Transfer Certificate of Title No. 1933
in accordance however with the computation stated in the account to redeem as of April 10,
2000 issued by the defendant CITYTRUST BANKING CORPORATION (now FAMILY BANK)
particularly marked as Exhibit 10 for the Defendant.

SO ORDERED.[15]

The trial court held that the filing of an action for judicial redemption by petitioner is equivalent to a
formal offer to redeem. Having exercised her right of legal redemption, petitioner should not be
barred from redeeming the property, but at the redemption price as computed by Citytrust pursuant
to the provisions of their loan agreement. The trial court held that petitioner cannot belatedly claim
that the loan agreement and mortgage contract are contracts of adhesion considering that she freely
and voluntarily executed the same, nor was she ignorant of the nature and provisions of the
agreements.
Both the petitioner and the bank appealed to the Court of Appeals, which rendered the assailed
Decision, the dispositive portion of which reads:

WHEREFORE, premises considered, the appeal of plaintiff is DISMISSED for lack of merit, while
the appeal of defendant Bank of the Philippine Islands is hereby GRANTED. The appealed
Decision dated April 22, 2004 of the Regional Trial Court of Mandaluyong City, Branch 213 is
hereby REVERSED and SET ASIDE. A new judgment is hereby entered DISMISSING the
complaint in Civil Case No. MC-00-1063.

With costs against the plaintiff-appellant.

SO ORDERED.[16]

The Court of Appeals held that petitioner’s act of filing an action for judicial redemption without
simultaneous consignation of redemption money was not valid. Having failed to exercise her right of
redemption within the one-year period provided by law, petitioner thus lost all her rights over the
foreclosed property. The appellate court noted that as early as March 17, 2000, Citytrust computed
the redemption price at P5,386,993.91; however, petitioner only offered to pay P3 million pesos,
without attempting to tender a single centavo to private respondent. Further, records show that
when asked during trial if she was prepared to tender the amount, petitioner replied in the negative.

Petitioner’s motion for reconsideration was denied; hence, this petition.

Petitioner insists that the mortgage agreement is a contract of adhesion since it was solely prepared
by the bank and her only participation thereto was to affix her signature; that the 25% attorney’s
fees, penalty, late payment charges, and liquidated damages are excessive and unconscionable; that
the capital gains tax should not have been added to the computation of the redemption price; that
the filing of the complaint for judicial redemption effectively tolled the running one-year prescriptive
period; that the consignation of the redemption price is only necessary if the redemption suit was
filed after the expiration of the redemption period; and that without admitting the loss of right to
redeem, the surplus of the proceeds of the foreclosure sale should have been returned to her.

The petition lacks merit.

A contract of adhesion is an agreement where one of the parties imposes a ready-made form of
contract which the other party may accept or reject, but which the latter cannot modify. One
party prepares the stipulation in the contract, while the other party merely affixes his signature or his
“adhesion” thereto giving no room for negotiation and depriving the latter of the opportunity to
bargain on equal footing.[17]

It bears stressing that a contract of adhesion is just as binding as ordinary contracts. However, there
are instances when this Court has struck down such contract as void when the weaker party is
imposed upon in dealing with the dominant bargaining party and is reduced to the alternative of
taking it or leaving it, completely deprived of the opportunity to bargain on equal footing.
Nevertheless, a contract of adhesion is not invalid per se; it is not entirely prohibited. The one who
adheres to the contract is in reality free to reject it entirely; if he adheres, he gives his consent.[18]

Should there be any ambiguity in a contract of adhesion, such ambiguity is to


be construed against the party who prepared it. If, however, the stipulations are not obscure, but
are clear and leave no doubt on the intention of the parties, the literal meaning of its stipulations
must be held controlling.[19]

In the instant case, it has not been shown that petitioner signed the contracts through mistake,
violence, intimidation, undue influence, or fraud. Petitioner even admitted during trial that she was
not compelled to sign the contracts, nor was she totally ignorant of their nature, having been
engaged in business since 1984.[20] Petitioner only raised in issue the following stipulations before
the redemption period expired, to wit:

2. Loan Line – CityTrust shall make the Loan Line available to Client for a period of one (1) year
from the date of this Agreement subject to Section 19; xxx
19. Cancellation – (a) The Loan Line may be cancelled by either party upon thirty-day written
notice to the other party.
(b) CityTrust may shorten the period of availability of the Loan Line upon thirty-day written notice to
Client.
(c) Upon cancellation of the Loan Line or expiration of the period of availability of the Loan Line, the
Loan Account and CityTrust Business Credit Line Current Account shall be automatically
cancelled/closed and Client shall immediately pay the entire Outstanding Balance. Client shall
immediately surrender to CityTrust any and all unused CityTrust Business Credit Line Check(s) as well
as the ATM card issued to access the CityTrust Business Credit Line Current Account.

7. Interest on Outstanding Balance – The Outstanding Balance shall earn simple interest,
computed daily, at such per annum rate for such interest period (of not less than 30 days) as shall be
determined in advance by CityTrust and advised initially through the Letter of Approval and
thereafter through the Statement of Loan Account. Interest shall be calculated on the basis of actual
number of days elapsed and a year of 360 days. Interest accrued shall be automatically debited by
the CityTrust against the Loan Account.

9. Penalty Charges – Failure to make the full remittance required to cover the Excess
Availment within fifteen (15) days from the date that the same is incurred shall subject the Excess
Availment to penalty charge. Failure to make the full remittance required to cover an Excess
Availment within fifty-nine (59) days from the date that the same is incurred shall subject the entire
Outstanding Balance to the aforesaid penalty charge. Penalty charges shall be imposed by CityTrust
without prejudice to Sections 7 (Interest on Outstanding Balance) and 15 [Events of Default].

The penalty charge shall be such per annum rate as shall be determined by CityTrust and advised
through the Statement of Loan Account and Demand Statement. Sail penalty charge shall be fixed
for thirty (30) days or such other period as may be determined by CityTrust and shall be
automatically debited against the Loan Account.

20. Collection/Attorney’s Fees – in the event CityTrust is compelled to litigate or engage the
services of a lawyer or collection agent for collection or implementation of the terms of the
Agreements, Client shall pay attorney’s fees in the sum equivalent to twenty-five (25%) percent of
the amount due but which attorney’s fees shall in any case be not less than FIVE THOUSAND PESOS
(P5,000.00) plus costs of suit and other litigation expenses and, in addition, liquidated damages in
the sum equivalent to ten (10%) percent of the amount due but which liquidated damages shall in
any case be not less than ONE THOUSAND PESOS (P1,000.00).[21]

We find the above-quoted provisions explicit and leave no room for construction. It is easily
understood, especially by a businesswoman like the petitioner. Thus, we agree with the conclusion of
the trial and appellate courts that no compelling reasons were presented to declare the subject
contractual documents as void contracts of adhesion.[22]

Anent the legality of petitioner’s judicial redemption and the bank’s computation of the redemption
price, Section 6 of Act No. 3135,[23] as amended,[24]provides for the requisites for a valid
redemption, to wit:

SEC. 6. In all cases in which an extrajudicial sale is made under the special power hereinbefore
referred to, the debtor, his successors in interest or any judicial creditor or judgment creditor of said
debtor, or any person having a lien on the property subsequent to the mortgage or deed of trust
under which the property is sold, may redeem the same at any time within the term of one year from
and after the date of sale; and such redemption shall be governed by the provisions of sections four
hundred and sixty-four to four hundred and sixty-six, inclusive, of the Code of Civil Procedure, insofar
as these are not inconsistent with the provisions of this Act.

However, considering that private respondent is a banking institution, the determination of the
redemption price is governed by Section 78 of the General Banking Act,[25] as amended by
Presidential Decree No. 1828, which provides:

In the event of foreclosure, whether judicially or extrajudicially, of any mortgage on real estate which
is security for any loan granted before the passage of this Act or under the provisions of this Act, the
mortgagor or debtor whose real property has been sold at public auction, judicially or extrajudicially,
for the full or partial payment of an obligation to any bank, banking or credit institution, within the
purview of this Act shall have the right, within one year after the sale of the real estate as a result of
the foreclosure of the respective mortgage, to redeem the property by paying the amount fixed by
the court in the order of execution, or the amount due under the mortgage deed, as the case may be,
with interest thereon at the rate specified in the mortgage, and all the costs, and judicial and other
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.

Section 78 of the General Banking Act amended Section 6 of Act No. 3135 insofar as the redemption
price is concerned when the mortgagee is a bank or a banking or credit institution.[26] Thus, the
amount at which the foreclosed property is redeemable is the amount due under the mortgage deed,
or the outstanding obligation of the mortgagor plus interest and expenses in accordance with Section
78 of the General Banking Act.[27]

In Banco Filipino Savings and Mortgage Bank v. Court of Appeals,[28] we ruled that the redemptioner
should make an actual tender in good faith of the full amount of the purchase price, i.e., the amount
fixed by the court in the order of execution or the amount due under the mortgage deed, as the case
may be, with interest thereon at the rate specified in the mortgage, and all the costs, and judicial and
other 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.[29]

As correctly pointed out by the appellate court, the general rule in redemption is that it is not
sufficient that a person offering to redeem simply manifests his/her desire to do so. The statement of
intention must be accompanied by an actual and simultaneous tender of payment. This constitutes
the exercise of the right to repurchase. Bona fide redemption necessarily implies a reasonable and
valid tender of the entire purchase price, otherwise the rule on the redemption period fixed by law
can easily be circumvented.[30]

Petitioner however claims, citing Banco Filipino Savings and Mortgage Bank v. Court of
Appeals [31] and Lee Chuy Realty Corporation v. Court of Appeals[32] that in case of disagreement
over the redemption price, the redemptioner may preserve his right of redemption through judicial
action which must be filed within the one-year period of redemption. The filing of a court action to
enforce redemption, being equivalent to a formal offer to redeem, would have the effect of
preserving his redemptive rights and “freezing” the expiration of the one-year period.[33] Bona
fide tender of the redemption price, within the prescribed period is only essential to preserve the
right of redemption for future enforcement beyond such period of redemption and within the period
prescribed for the action by the statute of limitations. Where the right to redeem is exercised
through judicial action within the reglementary period, the offer to redeem, accompanied by a bona
fide tender of the redemption price, while proper, may be unessential.[34]

It should, however, be noted that in Hi-Yield Realty, Inc. v. Court of Appeals,[35] we held that the
action for judicial redemption should be filed on time and in good faith, the redemption price is finally
determined and paid within a reasonable time, and the rights of the parties are respected. Stated
otherwise, the foregoing interpretation has three critical dimensions: (1) timely redemption or
redemption by expiration date; (2) good faith as always, meaning, the filing of the action must have
been for the sole purpose of determining the redemption price and not to stretch the redemptive
period indefinitely; and (3) once the redemption price is determined within a reasonable time, the
redemptioner must make prompt payment in full.[36]

The records show that the correct redemption price had been determined prior to the filing of the
complaint for judicial redemption. Petitioner had been furnished updated Statements of Account
specifying the redemption price even prior to the consolidation of the title of the foreclosed property
in the bank’s name. The inclusion of late payment charges, foreclosure expense, attorney’s fees,
liquidated damages, foreclosure fee, and interests therein was pursuant to the Loan
Agreement. Considering that the Loan Agreement was read and freely adhered to by petitioner, the
stipulations therein are binding on her.[37]

Moreover, petitioner admitted during trial that she was not questioning the computation of the
redemption price, but she was requesting for a condonation of certain fees and charges.
Q. Now Madam Witness, during the last hearing, you were questioning the statement of account,
the computation, is that correct?
A. Yes, sir.

Q. In particular, you were questioning the attorney’s fees of twenty five percent (25%), is that
correct?
A. Yes, sir.

Q. Did you not read the mortgage loan agreement, Madam Witness?
A. I know its [sic] there in the mortgage loan what I said is that I was requesting for a
condonation.

Q. So, you are [sic] not questioning it?


A. Yes, sir.

Q. In your complaint there is an allegation that the computation has no basis, do you confirm
that, do you still maintain that?
A. Yes.

Q. Why do you say so?


A. I was just hoping that some of the items could be condone[d] because they were
rather high, although, normally, in the mortgage contract it is really stated that they
charge twenty five percent for attorney’s fees, so I agreed with it.

Q. So, it is not your statement in your complaint that the computation has no basis, is not
correct?
A. Yes, sir.

Q. So, the twenty five percent computation here has a basis, which is the mortgage
loan agreement, correct?
A. Yes, in your agreement.

Q. And in that agreement you have your signature therein?


A. Yes.

Q. And you have read that before signing it?


A. Yes, sir.

Q. So, also with this liquidated damages of ten percent (10%), there is a basis under the
mortgage loan agreement?
A. I’m not sure.

Q. I will show you again the mortgage loan agreement xxx.

xxxx

Q. Now, Ms. Witness, can you now say that this statement of account is with basis,
accurate and with basis [sic]?
A. It has a basis, based on your conditions as prepared by the bank.

Q. Which you have conform[ed] to?


A. Yes, I have to because I executed a loan.

Q. But the bank did not compel you to apply for a loan?
A. No, they did not compel me.

Q. And you are only asking this court to reduce?


A. Yes, if possible.[38] (Emphasis supplied)

The records also reveal that petitioner offered to redeem the foreclosed property for P3 million but
failed to tender or consign the same, to wit:
Q. Ms. Witness, you stated that based on your computation[,] the redemption price should be
three million pesos (P3,000,000.00) more or less?
A. More or less.

Q. Do you have this amount right now? Do you have this three million (P3M) more or less, do
you have this amount right now?
A. Not right now, but if we will be given a few days to produce it, we will give us [sic] that kind.

xxxx

Q. Did you tender this amount of three million pesos (P3M) more or less, to the bank?
A. No, because that is not the amount that they were asking for.

Q. Did you at least offer to pay this amount of three million pesos (P3M) more or less?
A. During the discussion with the manager, Ms. Lolita Carrido, I ask [sic] her if the deletion of the
said [sic] is possible but she said it’s not possible.

xxxx

Q. Did you also consign with this amount of three million pesos (P3M) more or less?
A. No, sir.[39]

Based on the foregoing, it is clear that petitioner did not file the instant case for judicial redemption
in good faith. It was not filed for the purpose of determining the correct redemption price but to
stretch the redemption period indefinitely, which is not allowed by law.

WHEREFORE, the instant Petition for Review on Certiorari is DENIED. The Decision of the Court of
Appeals in CA-G.R. CV. No. 83794 dismissing the complaint for judicial redemption for lack of merit
and the Resolution denying petitioner’s motion for reconsideration are AFFIRMED.

SO ORDERED.

CONSUELO YNARES-SANTIAGO
Associate Justice

WE CONCUR:

MA. ALICIA AUSTRIA-MARTINEZ


Associate Justice

ROMEO J. CALLEJO, SR. MINITA V. CHICO-NAZARIO


Associate Justice Associate Justice

ANTONIO EDUARDO B. NACHURA


Associate Justice

ATTESTATION

I attest that the conclusions in the above decision were reached in consultation before the case was
assigned to the writer of the opinion of the Court’s Division.
CONSUELO YNARES-SANTIAGO
Associate
Justice Chairperson, Third Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson’s Attestation, it is
hereby certified that the conclusions in the above Decision were reached in consultation before the case
was assigned to the writer of the opinion of the Court’s Division.

REYNATO S. PUNO
Chief Justice

* On leave.
[1] Rollo, pp. 8-32.
[2] Id. at 33-48; penned by Associate Justice Martin S. Villarama, Jr. and concurred in by Associate Justices
Edgardo F. Sundiam and Japar B. Dimaampao.
[3] Id. at 33-34.
[4] Id. at 49.
[5] Records, pp. 51-54, 99-101, also known as Homeowners’ Credit Line.
[6] Rollo, pp. 50-53.
[7] Records, pp. 20-23.
[8] Id. at 24.
[9] Id. at 32.
[10] Id. at 7-14.
[11] Id. at 102.
[12] Id. at 44-49.
[13] TCT No. 15625, id. at 72.
[14] Id. at 167-168.
[15] CA Rollo, pp. 44-56.
[16] Id. at 48.
[17] South Pachem Development, Inc. v. Court of Appeals, G.R. No. 126260, December 16, 2004, 447 SCRA
85, 95.
[18] Rizal Commercial Banking Corporation v. Court of Appeals, 364 Phil. 947, 953-954 (2002).
[19] South Pachem Development, Inc. v. Court of Appeals, supra note 17 at 95-96.
[20] TSN, October 7, 2002, pp. 14-15.
[21] Records, pp. 51-53.
[22] Rollo, p. 40.
[23] An Act to Regulate the Sale of Property under Special Powers Inserted in or Annexed to Real Estate
Mortgages (1924).
[24] Act No. 4118 (1933).
[25] Republic Act No. 337 (1948).
[26] Sy v. Court of Appeals, G.R. No. 83139, April 12, 1989, 172 SCRA 125, 133-134.
[27] Union Bank of the Philippines v. Court of Appeals, 412 Phil. 64, 76 (2001).
[28] G.R. No. 143896, July 8, 2005, 463 SCRA 64.
[29] Id. at 75.
[30] BPI Family Savings Bank, Inc. v. Veloso, G.R. No. 141974, August 9, 2004, 436 SCRA 1, 6.
[31] Supra note 28.
[32] 321 Phil. 185 (1995).
[33] Banco Filipino Savings and Mortgage Bank v. Court of Appeals, supra note 28 at 75.
[34] Lee Chuy Realty Corporation v. Court of Appeals, supra note 32 at 190-191.
[35] 437 Phil. 483 (2002).
[36] Id. at 493.
[37] Consing v. Court of Appeals, G.R. No. 143584, March 10, 2004, 425 SCRA 192, 203.
[38] TSN, October 7, 2002, pp. 16-19.
[39] TSN, September 22, 2000, pp. 33-35.
Pasted from <http://sc.judiciary.gov.ph/jurisprudence/2007/march2007/171354.htm>

Heirs of Quisumbing vs. PNB (2009)


Sunday, June 06, 2010
12:58 AM

Republic of the Philippines


SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 178242 January 20, 2009
HEIRS OF NORBERTO J. QUISUMBING, Petitioners,
vs.
PHILIPPINE NATIONAL BANK and SANTIAGO LAND DEVELOPMENT CORPORATION, Respondents.
DECISION
CARPIO MORALES, J.:
From the Court of Appeals Decision1 of February 14, 2007 denying petitioners’ appeal from the
Decision2 of the Regional Trial Court, Branch 62, Makati City in Civil Case No. 10513, they come to this
Court on petition for review on certiorari.
Culled from the eight-volume records of the case are the following facts:
In 1984, spouses Ricardo C. Silverio and Beatriz Sison-Silverio (spouses Silverio) and Ricardo C. Silverio as
Chairman of the Board of the following companies, namely Delta Motors Corporation (Delta Motors),
Komatsu Industries (Komatsu), R.C. Silverio Management Corporation (RCSMC), through Deeds of
Assignment3 dated April 11 and 12, 1985, assigned to Atty. Norberto J. Quisumbing (Quisumbing) their
rights of redemption with respect to various real properties which herein respondent Philippine National
Bank (PNB) had foreclosed and acquired as the highest bidder. The properties included lots in Quezon
City, Manila, Pampanga and Bulacan in the name of Ricardo C. Silverio, married to Beatriz Sison; a lot in
Tagaytay in the name of Ricardo C. Silverio; lots in Nueva Ecija in the name of RCSMC; lots in Baguio and
Benguet in the name of Delta Motors; a lot in Zambales in the name of RCSMC; and a lot in Rizal (actually
Pasong Tamo, Makati) including improvements in the name of Komatsu (hereafter referred to as Pasong
Tamo property).
By letter4 dated April 8, 1985, Quisumbing made a formal tender of redemption to PNB for the
abovementioned properties, with the request that he be informed within 10 days of the total amount of
the redemption prices so "he would know how much to pay." Quisumbing furnished the sheriffs who
conducted the sales, as well as the registers of deeds in the various localities where the properties are
situated, with a copy of said tender letter.
Acting on Quisumbing’s tender of redemption, the PNB, by letter of April 15, 1985, requested copies of
the Deeds of Assignment so that it may "have a basis to reply to" his request.5 Quisumbing furnished PNB
with copies of the Deeds, requesting a reply to his tender letter and requested for the computation of the
total amount of redemption price for which he gave PNB until April 30, 1985 to do so. Before PNB could
reply, however, or on April 23, 1985, Quisumbing executed an Affidavit of Redemption,6 furnishing PNB,
the sheriffs and the registers of deeds a copy thereof.
Before the one-year redemption period expired, PNB, by letter dated May 3, 1985,7 denied Quisumbing’s
offer of redemption on the ground that the Deeds of Assignment were invalid for not having been
registered and for being against Art. 1491 (5) of the Civil Code; that the tender was not proper because it
was not accompanied by actual money payment; and that the amount Quisumbing offered was way
below that required under Sec. 25 of P.D. No. 694.
Quisumbing thus filed a Complaint8 before the Regional Trial Court (RTC) of Makati9 against PNB to
compel it to allow him to exercise his right of redemption over the foreclosed properties and to inform
him of the total amount of redemption price. At the same time, he caused the annotation of a notice of lis
pendens on the certificates of title of the properties.
In its Answer,10 PNB contended that Quisumbing had no cause of action as his tender offer was "pro-
forma," as the same was unaccompanied by cash payment; that the offer was not in accordance with
Section 25 of P.D. No. 694, as amended; that the assignment of rights made in Quisumbing’s favor was
ineffectual because the same was not registered and annotated on the certificates of title of the
properties; that the Deeds of Assignment executed by RSCMC, Komatsu and Delta Motors were
defectively acknowledged as public instruments; and that the assignments were barred by Article 1491
(5) of the Civil Code.11 During the pendency of the case, Quisumbing died, hence, he was substituted by
his heirs-herein petitioners on September 14, 1990.
On December 8, 1989, with the approval by Branch 149 of the Makati RTC, the herein other respondent
Santiago Land Development Corporation (SLDC) intervened, it having purchased pendente lite from PNB
the Pasong Tamo property, and adopted in its Answer-in-Intervention PNB’s defenses as set forth in its
Answer, and raised additional defenses.
Petitioners thus filed before the appellate court a Petition for Certiorari, docketed as CA-G.R. SP No.
25826, questioning, inter alia, the trial court’s grant of SLDC’s move to intervene, arguing that SLDC
should have joined as an additional defendant for it to be bound by all prior proceedings.
By Decision dated July 6, 1992, the appellate court granted the petition of petitioners and nullified the
trial court’s Order granting SLDC’s intervention. SLDC appealed to this Court via certiorari, docketed as
G.R. No. 106194.
By Decision12 of January 28, 1997, the Court dismissed SLDC’s petition and affirmed the appellate court’s
decision, ruling that SLDC is a transferee pendente lite and, as such, could no longer intervene as the law
already considers it joined or substituted in the pending action, hence, bound by all prior proceedings and
barred from presenting a new or different claim.
SLDC thereupon filed a Motion for Partial Substitution in Civil Case No. 10513, which was granted on April
14, 1998.
By Decision13 of October 24, 2000, the trial court dismissed petitioner’s Amended Complaint as against
PNB, as well as that against SLDC, ruling that Quisumbing did not make a valid tender of redemption as it
was not accompanied by cash payment; that Sec. 25 of P.D. No. 694 is not unconstitutional and was
applicable not only to direct debtors/mortgagors but constructively also to accommodation mortgagors
following Nepomuceno v. RFC.14Aggrieved, petitioners appealed to the Court of Appeals.
By the assailed Decision of February 14, 2007, the appellate court affirmed the trial court’s decision,
holding that there was no valid offer to redeem the properties owing to Quisumbing’s failure to validly
tender payment; and that even if his filing of the complaint was considered as judicial redemption, it was
still ineffectual due to non-tender of the redemption price. On account of such ruling, the appellate court
no longer ruled on the issue of the constitutionality of Sec. 25 of P.D. 694 and on the validity of the Deeds
of Assignment. Petitioners’ motion for reconsideration having been denied by Resolution dated June 5,
2007, this present petition was filed.
Petitioners insist that Quisumbing made a valid tender of redemption because he did not have to tender
the redemption prices due to, so they claim, PNB’s outright refusal to accept or allow any redemption,
and that he perfected a ‘judicial redemption’ following Tioseco v. CA.15 They assail the ruling of the trial
court that spouses Silverio were accommodation mortgagors or direct debtors/mortgagors and that Sec.
25 of P.D. No. 694 applies to accommodation mortgagors, as well as the trial and appellate court’s ruling
that Sec. 25 is not unconstitutional despite its being violative, so petitioners contend, of the due process
and equal protection clauses of the Constitution.
Petitioners maintain that Sec. 25 applies only to debtors-mortgagors, hence, the case at bar should have
been governed by the general law on redemption ─ Sec. 6 of Republic Act No. 3135 vis a vis Rule 39, Sec.
30. In support of their position, they draw attention to the fact that all the certificates of sale state that
the proceedings/sale were pursuant to an "extra-judicial foreclosure of real estate mortgage under RA
3135 as amended," without any mention whatsoever of P.D. No. 694. Petitioners thus conclude that Sec.
25 of P.D. No. 694 should be struck down for being void for vagueness; and that it is arbitrary and
unreasonable because it grants a preferred position to PNB which may abuse to unjustly enrich itself at
the expense of mortgagors, hence, violative of the right to due process.
At all events, they argue that assuming that Sec. 25 applies to accommodation mortgagors such as the
spouses Silverio still, the redemption price would be based on the value of the properties foreclosed, not
on the obligations of the debtor, as what PNB insists on doing.
In its Comment,16 PNB, averring that what petitioners are raising are questions of fact, maintains that the
Deeds of Assignment are void for being against public policy because at the time they were executed,
Quisumbing was already the lawyer not only of the spouses Silverio but also of Komatsu and the other
companies, the properties of which were being foreclosed.
In its separate Comment,17 SLDC argues that the present petition, insofar as the Pasong Tamo property
is concerned, is barred by res judicata, the Court in Komatsu Industries (Phils.) Inc. v. Philippine National
Bank and Santiago Land Development Corporation and Maximo Contreras, (Komatsu case)18 having
declared PNB’s extrajudicial foreclosure of the said property and eventual sale to SLDC valid. It adds that,
since in G.R. No. 106194 or the "Intervention Case," it was held that a purchaser pendente lite ─ SLDC is
bound by the outcome of the case instituted by the transferor ─ PNB, then Quisumbing, as transferee
pendente lite of Komatsu’s right to redeem the Pasong Tamo property, "must also necessarily be bound
by the outcome of the Komatsu case" ─ and that, perforce, "if he cannot intervene, then neither can he be
allowed to file or maintain a separate case."
Maintaining that Quisumbing’s "judicial redemption" should not be allowed, SLDC contends that since
redemption is inconsistent with the claim of invalidity of a foreclosure sale, then Komatsu’s act of
assigning its right of redemption to Quisumbing was incompatible with its earlier remedy of contesting
the validity of PNB’s foreclosure and is, therefore, prohibited.
SLDC further avers that Sec. 25 of PD No. 694 does not violate the due process clause, its provision
requiring the mortgagors to pay the redemption price being in line with the purpose of the law, viz "to
protect the investment of the government in the institution."
Aside from reiterating their previous arguments, petitioners, in their Consolidated Reply,19 refute SLDC’s
and PNB’s arguments. They contend that the action is not barred by res judicata because in the Komatsu
case, the Court "contemplated" that the issue of validity of the exercise of redemption would not be
resolved in that case but in Civil Case No. 10513, and the reason why Quisumbing was not required to
intervene in Komatsu was because he was not a party thereto, and the case involved annulment of the
foreclosure sale, not the exercise of the right of redemption.
Petitioners further maintain that the issue of whether the assignment of rights made in Quisumbing’s
favor was barred for being against public policy (under Art. 1491[5] of the Civil Code) can no longer be
raised as an issue, respondents having failed to raise it in the proceedings below; and assuming arguendo
that it had been raised, said provision would not apply, as what were assigned were merely the rights of
redemption, not the properties themselves, and Quisumbing did not represent Komatsu or the other
companies in the annulment of foreclosure proceedings.
In a Supplemental Petition20 filed on August 28, 2007, petitioners submit that the sale of the Philippine
Government’s remaining minority shares (12.28%) in the PNB on August 1, 2007 reinforces their
argument that if Sec. 25 of P.D. No. 694 is made applicable to accommodation mortgagors, the same
should be struck down for being unconstitutional, as it would then be violative of the equal protection
clause. And they assert that if, indeed, the purpose of said provision is to protect the government’s
investment in PNB, then it has ceased to exist due to the privatization of said institution and, as such,
Sec. 25 should be struck down.
The pivotal issue that needs to be resolved is whether the original plaintiff, Atty. Norberto J. Quisumbing,
made a valid tender of redemption.
The Court rules in the negative.
Sec. 25 of P.D. No. 694 otherwise known as the Revised Charter of the Philippine National Bank enacted
on May 8, 1975 provides:
Section 25. Right of redemption of foreclosed property Right of possession during redemption
period. Within one year from the registration of the foreclosure sale of real estate, the mortgagor shall
have the right to redeem the property by paying all claims of the Bank against him on the date of the sale
including all the costs and other expenses incurred by reason of the foreclosure sale and custody of the
property, as well as charges and accrued interests.
The Bank may take possession of the foreclosed property during the redemption period. When the Bank
takes possession during such period, it shall be entitled to the fruits of the property with no obligation to
account for them, the same being considered compensation for the interest that would otherwise accrue
on the account. Neither shall the Bank be obliged to post a bond for the purpose of such possession.
(Emphasis supplied)
On the other hand, under Act No. 3135, An Act to Regulate the Sale of Property under Special Powers
Inserted in or Annexed to Real Estate Mortgages (which took effect on March 6, 1924), as amended by
Act. No. 4118, redemption of extra-judicially foreclosed properties is undertaken as follows:
SECTION 6. In all cases in which an extrajudicial sale is made under the special power hereinbefore
referred to, the debtor, his successors in interest or any judicial creditor or judgment creditor of said
debtor, or any person having a lien on the property subsequent to the mortgage or deed of trust under
which the property is sold, may redeem the same at any time within the term of one year from and after
the date of the sale; and such redemption shall be governed by the provisions of sections four hundred
and sixty-four to four hundred and sixty-six, inclusive, of the Code of Civil Procedure, in so far as these
are not inconsistent with the provisions of this Act. (Emphasis supplied)
And the pertinent provision of the Code of Civil Procedure, now Section 28 of Rule 39 of the Revised Rules
of Civil Procedure, reads:
SEC. 28. Time and manner of, and amounts payable on, successive redemptions; notice to be given and
filed. – The judgment obligor, or redemptioner, may redeem the property from the purchaser, at any time
within one (1) year from the date of the registration of the certificate of sale, by paying the purchaser the
amount of his purchase, with one per centum per month interest thereon in addition, up to the time of
redemption, together with the amount of any assessments or taxes which the purchaser may have paid
thereon after purchase, and interest on such last named amount of the same rate; and if the purchaser
be also a creditor having a prior lien to that of the redemptioner, other than the judgment under which
such purchase was made, the amount of such other lien, with interest. (Emphasis supplied)
As to the requisites for a valid tender of redemption in case of extra-judicially foreclosed properties by
banks, Banco Filipino Savings and Mortgage Bank, Inc., v. Court of Appeals,21 instructs:
Section 6 of Act 3135 provides for the requisites for a valid redemption, thus:
SEC. 6. In all cases in which an extrajudicial sale is made under the special power hereinbefore referred
to, the debtor, his successors in interest or any judicial creditor or judgment creditor of said debtor, or
any person having a lien on the property subsequent to the mortgage or deed of trust under which the
property is sold, may redeem the same at any time within the term of one year from and after the date of
sale; and such redemption shall be governed by the provisions of sections four hundred and sixty-four to
four hundred and sixty-six, inclusive, of the Code of Civil Procedure, insofar as these are not inconsistent
with the provisions of this Act.
However, considering that petitioner is a banking institution, the determination of the redemption price is
governed by Section 78 of the General Banking Act which provides:
In the event of foreclosure, whether judicially or extrajudicially, of any mortgage on real estate which is
security for any loan granted before the passage of this Act or under the provisions of this Act, the
mortgagor or debtor whose real property has been sold at public auction, judicially or extrajudicially, for
the full or partial payment of an obligation to any bank, banking or credit institution, within the purview of
this Act shall have the right, within one year after the sale of the real estate as a result of the foreclosure
of the respective mortgage, to redeem the property by paying the amount fixed by the court in the order
of execution, or the amount due under the mortgage deed, as the case may be, with interest thereon at
the rate specified in the mortgage, and all the costs, and judicial and other 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.
Clearly, the right of redemption should be exercised within the specified time limit, which is one year from
the date of registration of the certificate of sale. The redemptioner should make an actual tender in good
faith of the full amount of the purchase price as provided above, i.e., the amount fixed by the court in the
order of execution or the amount due under the mortgage deed, as the case may be, with interest
thereon at the rate specified in the mortgage, and all the costs, and judicial and other 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.
xxxx
In BPI Family Savings Bank, Inc. vs. Veloso, we held:
The general rule in redemption is that it is not sufficient that a person offering to redeem manifests his
desire to do so. The statement of intention must be accompanied by an actual and simultaneous tender
of payment. This constitutes the exercise of the right to repurchase.
xxxx
Whether or not respondents were diligent in asserting their willingness to pay is irrelevant. Redemption
within the period allowed by law is not a matter of intent but a question of payment or valid tender of the
full redemption price within said period. (Emphasis supplied)
Evidently, whether the redemption is being made under Act No. 3135 or the General Banking Act, as
amended by Presidential Decree No. 1828, or under P.D. No.
694, the mortgagor or his assignee is required to tender paymentto make said redemption valid –
something which petitioners’ predecessor failed to do. The only instance when this rule may be construed
liberally, i.e., allow the non-simultaneous tender of payment, is if a judicial action is instituted by the
redemptioner. 22
Petitioner however claims, citing Banco Filipino Savings and Mortgage Bank v. Court of Appeals and Lee
Chuy Realty Corporation v. Court of Appeals that in case of disagreement over the redemption price, the
redemptioner may preserve his right of redemption through judicial action which must be filed within the
one-year period of redemption. The filing of a court action to enforce redemption, being equivalent to a
formal offer to redeem, would have the effect of preserving his redemptive rights and "freezing" the
expiration of the one-year period. Bona fidetender of the redemption price, within the prescribed period is
only essential to preserve the right of redemption for future enforcement beyond such period of
redemption and within the period prescribed for the action by the statute of limitations. Where the right
to redeem is exercised through judicial action within the reglementary period, the offer to redeem,
accompanied by a bona fide tender of the redemption price, while proper, may be unessential. (Emphasis
supplied)
For this exception to apply, however, certain conditions must be met, viz:
It should, however, be noted that in Hi-Yield Realty, Inc. v. Court of Appeals, we held that the action for
judicial redemption should be filed on time and in good faith, the redemption price is finally determined
and paid within a reasonable time, and the rights of the parties are respected. Stated otherwise, the
foregoing interpretation has three critical dimensions: (1) timely redemption or redemption by expiration
date; (2) good faith as always, meaning, the filing of the action must have been for the sole purpose of
determining the redemption price and not to stretch the redemptive period indefinitely; and (3) once the
redemption price is determined within a reasonable time, the redemptioner must make prompt payment
in full. (Emphasis supplied)
While Quisumbing filed the Complaint on May 7, 1985, days or even weeks before the expiration of the
one-year redemption period reckoned from the dates of registration of the different certificates of sale, it
cannot be said that he was motivated by good faith when he filed the Complaint, as contemplated in the
above ruling. For the Complaint was filed not for the sole purpose of determining the redemption price,
but, as Quisumbing himself admitted on direct examination, it was to seek the annulment of Sec. 25 of
P.D. No. 694, thus:
Q: And what is the purpose of your present suit?
A: To compel the redemption, because the redemption were (sic) disallowed unless the entire obligation
rather than just leaving the purchase price of the foreclosure sale is paid. The purpose of suit therefore,
is to seek the annulment of that provision of Section 25 of the Revised Chapter (sic) of the Philippine
National Bank, which provides that redemption can be effected only by paying the entire claim of the
Philippine National Bank, against in this case, Delta Motors Corporation. As the Complaint alleges the
sale . . . contrary to law, moral, customs, public security, since the law favors in the long line of decisions
of the right of redemption. Second, with such a provision no one can get a fair price at a foreclosure sale
of an individual property.23 (Emphasis and underscoring supplied)
And on cross-examination, when questioned why he wrote to PNB on April 8, 1985 offering to redeem the
property when the Deeds of Assignment in his favor were not yet executed, Quisumbing replied:
xxxx
Q: The Deeds of Assignment were executed either on April 12 or 11 in the case of Komatsu, 1985. Why
did you write PNB a tender of letter as early as April 8 when the Deeds of Assignment were not yet
executed – have not yet been executed?
A: Well, there might have been a delay in the execution of the Deeds of Assignment; but since I was
certain that PNB will reject a redemption, not in accordance with Sec. 25 of its charter. In other words,
just offering the purchase price derive from… we began the process of redemption early. Besides, the
Philippine National Bank, in some cases, in other creditors of . . . 24
x x x x (Emphasis and underscoring supplied)
Clearly, from the admissions reflected in the testimony, Quisumbing’s filing of the Complaint was not
solely due to a mere disagreement in the redemption price; rather, it was because he was not willing to
pay whatever amount PNB would compute on the basis of Sec. 25 of P.D. No. 694. By questioning the
constitutionality of said provision, Quisumbing, wittingly delayed the redemption, since he must have
known that raising the issue of constitutionality of a statute in any suit would result in a litigious process
which could stretch for an indefinite period as, in fact, the history of the present case shows. More
importantly, his act of executing his Affidavit of Redemption on April 23, 1985 and alleging therein his oft-
repeated excuse of "PNB’s refusal to allow him to redeem the subject properties" even before PNB could
provide him the computations by April 30, 1985, as he himself requested in his April 23, 1985 letter, and
before PNB’s actual refusal as stated in its May 3, 1985 letter, reflected that from the very beginning, his
mindset was that if any redemption would be had, the same should be made according to his terms and
conditions and under Act No. 3135, not P.D. No. 694. Indubitably, such actuations belie good faith and,
therefore, the exception as enunciated in Tolentino case would not apply.
Had Quisumbing believed in good faith that Act No. 3135 was applicable, he could have tendered the
amount as computed thereunder, if only to show that he was able and willing to redeem the properties.
Respecting the issues raised by petitioners that Sec. 25 of P.D. No. 694 is unconstitutional, the same has
been rendered moot and academic by the full privatization of PNB pursuant to E.O. 8025 which repealed
said P.D., as well as the subsequent sale of the remaining shares of the government on August, 2007
which converted it from a government financial institution to a private banking institution.
The foregoing discussions render it unnecessary to address the other points pleaded by petitioners, such
as the validity of the Deeds of Assignment, whether the Silverio spouses are accommodation mortgagors
or direct debtors/mortgagors, or whether the suit is barred by the principle of res judicata.
WHEREFORE, the petition is DENIED. The February 14, 2007 Decision of the Court of Appeals and the June
5, 2007 Resolution in CA-G.R. CV No. 69337 are AFFIRMED.
Costs against petitioner.
SO ORDERED.
CONCHITA CARPIO MORALES
Associate Justice
WE CONCUR:
DANTE O. TINGA MINITA V. CHICO-NAZARIO*
Associate Justice Associate Justice
PRESBITERO J. VELASCO, JR. ARTURO D. BRION
Associate Justice Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Court’s Division.
CONCHITA CARPIO MORALES*
Associate Justice
Acting Chairperson
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division Acting Chairperson’s Attestation, I
certify that the conclusions in the above decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Court’s Division.
REYNATO S. PUNO
Chief Justice
Footnotes
* Acting Chairperson in lieu of Justice Leonardo A. Quisumbing who took no part.
** Additional member per Raffle dated September 3, 2007 and pursuant to Administrative Circular No. 42-2007 in A.M. No. 07-6-13-SC.

1 "Heirs of Norberto Quisumbing v. Philippine National Bank and Santiago Land Development
Corporation," Annex "A" of Petition, rollo, pp. 130-145. Penned by Associate Justice Jose C. Reyes, Jr., and
concurred in by Associate Justices Jose L. Sabio, Jr., and Myrna Dimaranan Vidal.
2 Annex "EE," id at. 747-757. Penned by Judge Roberto C. Diokno.
3 Exhibit "BB," id at 316-324.
4 Annex "N," id at 188-192.
5 Vide letter, Annex "O," id at 357 and 359.
6 Annex "Q," id at 193-196.
7 Vide letter, records, Vol. I, pp. 142-143.
8 Annex "C," id at 147-155.
9 N.B.: initially filed with Branch 149 but assailed Decision rendered by Branch 62.
10 Annex "D," id. at 209-213.
11 Art. 1491(5) justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and other
officers and employees connected with the administration of justice, the property and rights in litigation
or levied upon an execution before the court within whose jurisdiction or territory they exercise their
respective functions; this prohibition includes the act of acquiring by assignment and shall apply to
lawyers, with respect to the property and rights which may be the object of any litigation in which they
may take part by virtue of their profession;
12 Santiago Land Development Corporation v. Court of Appeals, G.R. No. 106194, January 28, 1997, 267
SCRA 79.
13 Vide note 2.
14 110 Phil 42 (1960).
15 G.R. No. L-66597, August 29, 1986, 143 SCRA 705.
16 Rollo, pp. 1663-1715.
17 Id. at 1485-1589.
18 G.R. No. 127682, April 24, 1998, 289 SCRA 604.
19 Rollo, pp. 1728-1809.
20 Id. at 1469-1479.
21 G.R. No. 143896, July 8, 2005, 463 SCRA 64, 73-76.
22 Tolentino v. Court of Appeals and Citytrust Banking Corporation, G.R. No. 171354, March 7, 2007, 517
SCRA 732, 744-745.
23 TSN, hearing of Civil Case No. 10513 on March 3, 1987, records, Vol. III, pp. 190-191.
24 Id. at 199.
25 EXECUTIVE ORDER NO. 80
PROVIDING FOR THE 1986 REVISED CHARTER OF THE PHILIPPINE NATIONAL BANK (December
3, 1986)
xxxx
Sec. 38. Repealing Clauses. Subject to Section 31 of this Charter, Presidential Decree No. 694, as
amended, is hereby repealed. All other laws, decrees, acts, executive orders, administrative orders,
proclamations, rules and regulations or parts thereof inconsistent with any of the provisions of this
Charter are hereby repealed or modified accordingly. (emphasis supplied)
xxxx
Sec. 31. Banking Operations under the 1986 Revised Charters; Governing Laws. The Banking operations
of the Bank shall be governed by the provisions of this Charter beginning on January 1, 1987, or on such
subsequent date as may be determine by the President of the Philippine upon the recommendation of the
Minister of Finance. (Emphasis supplied)

Pasted from <http://www.lawphil.net/judjuris/juri2009/jan2009/gr_178242_2009.html>

DBP v. Prime Neighborhood (2009)


Sunday, June 06, 2010
1:00 AM

Republic of the Philippines


SUPREME COURT
Manila
SECOND DIVISION
G.R. Nos. 175728 & 178914 May 8, 2009
DEVELOPMENT BANK OF THE PHILIPPINES, Petitioner,
vs.
PRIME NEIGHBORHOOD ASSOCIATION Respondents.
DECISION
TINGA, J.:
Before this court are two consolidated cases involving two petitions for review on certiorari. The petitions
seek to set aside the following decisions and resolutions of the Court of Appeals: in G.R.
No. 175728, the Decision1 dated 15 September 2006 and Resolution2 dated 11 December 2006 of the
Court of Appeals Eleventh Division, while in G.R. No. 178914, the Decision3 dated 28 August 2006 and
Resolution4 dated 17 July 2007 of the Fifteenth Division.
These consolidated cases arose from an Ex-Parte Petition for Issuance of a Writ of Possession5 filed
before the Regional Trial Court (RTC) of Quezon City, Branch 92, filed by petitioner Development Bank of
the Philippines (DBP) against Y-Electric Power Corporation (Y-Electric), mortgagor and previous owner of
the subject parcel of land. Sometime in June 1960, Y-Electric obtained from DBP an industrial loan
of P408,000.00 secured by a Real Estate Mortgage executed by the spouses Victorino Yenko and Rosa
Jaranilla-Yenko in favor of DBP, over the parcel of land situated in Quezon City, covered by certificate of
title TCT No. 342461 (RT-101612).
Y-Electric failed to pay its loan obligation; hence, DBP instituted extrajudicial foreclosure of the mortgage.
On 4 March 1977, the property was sold at public auction to DBP as the highest bidder. A certificate of
sale was issued in favor of DBP and was registered on 25 May 1977. The redemption period expired on 25
May 1978 without the property being redeemed. On 20 May 2000, DBP consolidated its ownership of the
property. Thereafter, DBP subdivided the parcel of land, and on 12 March 2003, had TCT No. 342461
cancelled and in lieu thereof TCT Nos. 247959 and 247960 issued in its name.
On 12 March 2004, DBP filed the Ex-Parte Petition for Issuance of a Writ of Possession.6 On 28 May 2004,
the RTC issued an order7 granting the petition and a writ of possession was issued on 1 June 2004.
On 29 July 2004, respondent Prime Neighborhood Association (PNA) filed its Opposition to the Writ of
Possession with Prayer for Temporary Restraining Order (TRO).8 PNA claimed to represent third persons
in possession of the property in their own right and adverse to the mortgagor Y-Electric. It alleged that it
became aware of the writ only when it was being served upon its president Oscar Estopin and several of
its members on 14 July 2004. PNA claimed that it should have been notified of the proceedings as it is the
owner of the subject property pursuant to a Deed of Sale executed to them by Julian M. Tallano, the
registered owner’s predecessor-in-interest and court-appointed administrator. It disputed the ownership
of Y-Electric as mortgagor and DBP as purchaser at auction as their claims arose from a spurious title.
PNA alleged it had filed a case for unlawful detainer against DBP and Luzonville Homeowners Association
before the Metropolitan Trial Court (MeTC) of Quezon City, Branch 21, docketed as Civil Case No. 32412.
The unlawful detainer case was dismissed on 6 April 2004. PNA filed a notice of appeal on 11 May 2004,
and said appeal was still pending at another branch of the Quezon City RTC. PNA claimed that as it was
not included as a party in the proceedings of the issuance of the writ of possession, it was deprived of due
process when the said writ was issued.
On 5 August 2004, the RTC issued an order noting PNA’s opposition and denying its prayer for the
issuance of a TRO.9 Aggrieved, PNA filed a petition for certiorari10 with the Court of Appeals docketed as
CA-G.R. SP No. 85870 to annul the writ of possession issued on 28 May 2004, with prayer for issuance of a
restraining order to prevent DBP from dispossessing them of the property.
In the meantime, on 17 September 2004, DBP served a notice to vacate the premises against PNA
through Sheriff Wilfredo Villanueva of the RTC. The occupants of the property however refused to receive
the notice and the sheriff was forced to leave the notice to vacate at their residences. DBP thus filed a
Motion to Issue an Order of Demolition to Effect the Implementation of the Writ of Possession11 against
PNA, all persons occupying the subject property and all the improvements thereon. On 30 November
2004, the RTC denied the motion.12 DBP’s motion for reconsideration was likewise denied. Thus, DBP
filed a petition for certiorari13 with the Court of Appeals docketed as CA-G.R. SP No. 89051 to annul the
orders denying its motion for issuance of a demolition order and its motion for reconsideration.
In CA-G.R. SP No. 85870, the Court of Appeals promulgated the assailed Decision14 dated 15 September
2006 granting PNA’s petition for certiorari and setting aside the RTC’s order for the issuance of the writ of
possession. The appellate court relied on Philippine National Bank v. Court of Appeals15 and Capital
Credit Dimension, Inc. v. Chua16 which both held that the obligation of a court to issue an ex parte writ of
possession in favor of a purchaser in an extrajudicial foreclosure sale ceases to be ministerial once it
appears that there is a third party in possession of the property who is claiming a right adverse to that of
the debtor/mortgagor, and that the issuance of the writ of possession in such a case would be to sanction
a summary ejectment in violation of the basic tenets of due process. The Court of Appeals thus held that
the RTC should not just ignore PNA’s claims but should allow their opposition to be heard in order to
determine whether they are actual occupants of the subject property. The dispositive portion of the
decision reads:
WHEREFORE, in view of all the foregoing, the petition is GRANTED and the assailed orders of the public
respondent are declared NULL and VOID and are hereby SET ASIDE.
This case is hereby remanded to the court a quo for further proceedings, specifically, to determine
whether or not members of petitioner Prime Neighborhood Association, Inc., are actually in possession of
subject property who are claiming right adverse to that of the original mortgagor.
SO ORDERED.17
The appellate court also denied DBP’s motion for reconsideration in the assailed Resolution18 dated 11
December 2006 for lack of merit.
In CA-G.R. SP No. 89051, the Court of Appeals promulgated the assailed Decision19 dated 28 August
2006 dismissing DBP’s petition for certiorari and affirming the RTC’s orders denying DBP’s motion for the
issuance of a demolition order. The appellate court again cited Philippine National Bank v. Court of
Appeals, saying that the general rule that the issuance of a writ of possession in favor of a purchaser in a
foreclosure sale after the lapse of the redemption period and after title is consolidated in its favor does
not apply to affect the possession of third persons claiming adverse ownership against the judgment
debtor and who were not made a party therein. The Court of Appeals noted that DBP already knew of the
actual adverse possession of PNA and that it was for the purpose of racing to beat the proceedings in the
ejectment case filed by PNA that the Ex-Parte Petition for Issuance of a Writ of Possession was filed.
The fallo of the decision thus reads:
WHEREFORE, premises considered, the Petition is hereby DISMISSED. The questioned Orders of Br. 92,
Regional Trial Court, Quezon City, dated 30 November 2004 and 17 January 2005 respectively, in LRC
Case No. Q-17793(04) are hereby AFFIRMED in toto.
SO ORDERED.20
DBP filed a motion for reconsideration but this was denied in the assailed Resolution21 dated 17 July
2007.
DBP thus filed these petitions for review. In G.R. No. 175728 assailing the decision and resolution in CA-
G.R. SP No. 85870, DBP assigns the following errors:
(a) The Court of Appeals erred in granting the intervention of PNA in a proceeding which is ex parte in
nature.
(b) The Court of Appeals erred in giving due course to the petition for certiorari filed by PNA which is
clearly frivolous and unfounded and a collateral attack on herein petitioner’s valid and subsisting title.
(c) The Court of Appeals erred in disregarding the ruling of this Honorable Supreme Court in St. Dominic
Corp. v. Intermediate Appellate Court22 where it was held that there is no denial of the right of a third
party in an ex parte proceeding when the latter is merely an intruder/squatter.23
In G.R. No. 178914 assailing the decision and resolution in CA-G.R. SP No. 178914, DBP raises the
following grounds:
(a) The Court of Appeals erred in denying DBP’s motion for demolition for its reliance on Philippine
National Bank v. Court of Appeals is off tangent and hence, bereft of basis.
(b) The Court of Appeals should not have considered PNA’s allegations collaterally attacking the integrity
of DBP’s titles.
(c) DBP’s right to the property is founded on the right to ownership, hence its right over the property is
absolute, vesting upon it the right of possession of the property which the court must aid in effecting its
delivery.24
The propriety of the issuance of the writ of possession relating to the foreclosure of the real estate
mortgage is at issue in these consolidated cases. Consequently, DBP’s arguments in the two petitions are
inter-related, if not similar.
DBP argues that as the purchaser of the foreclosed property in the public auction, it has the right to
petition the trial court to place him in possession of the property through the filing of an ex parte motion,
pursuant to Sec. 725of Act No. 3135,26 as amended by Act No. 4118.27 The issuance of a writ of
possession to the purchaser in the extrajudicial foreclosure has long been held to be a ministerial function
of the trial court. By the very nature of anex parte proceeding that it is brought for the benefit of one
party only and without notice to or consent by any person adversely interested, PNA should not have
been allowed to intervene by filing an opposition to the motion for issuance of writ of possession. Instead,
DBP claims, PNA should have filed a direct proceeding to have DBP’s title declared void and not have
resorted to the procedural short cut of intervention.
DBP also argues that PNA’s claim of ownership upon which it based its opposition is baseless. DBP alleges
that PNA, through its president Oscar Estopoin, recognized DBP’s ownership over the subject property.
Estopin was the former Vice President of Luzonville Homeowner’s Association, Inc. (LHA) and one of its
incorporators. The Articles of Incorporation and By-Laws of LHA were registered with the Home Insurance
and Guaranty Corporation on 21 August 1998 as "Luzonville Homeowners Association, Inc. (Development
Bank of the Philippines Property)." The By-Laws also indicated that the members of LHA were all
homeowners or long term lessees of houses at the subject property owned by DBP. DBP claims that it was
only on 9 February 2004 that PNA started to falsely claim ownership of the foreclosed property by virtue
of an alleged Deed of Sale with Real Estate Mortgage from the vendor, a certain Don Julian M. Tallano,
when they learned that DBP agreed to sell the subject property to LHA pursuant to a Memorandum of
Agreement dated 22 December 2003. DBP clarifies that PNA is merely a break-away group from LHA.
With LHA’s recognition of DBP’s ownership of the foreclosed property under the Memorandum of
Agreement, PNA is estopped from making an adverse claim of ownership against DBP.
PNA claims that DBP’s title to the foreclosed property is void, having as its source a fraudulent original
certificate of title, OCT No. 614. Such a claim, DBP argues, constitutes a collateral attack on DBP’s titles to
the foreclosed property. DBP points out that the property is covered by a certificate of title and has
passed through different owners until it was acquired by DBP. DBP has already consolidated its title to the
property and has had it registered in its name. Previous to that, nobody claimed ownership thereof
adverse to the former owners and to DBP. In sanctioning PNA’s baseless claim of ownership, DBP alleges
that the Court of Appeals has ignored the protection given by law to the Torrens system and to the
certificates of title issued to DBP. DBP thus argues that the Court of Appeals should not have relied
on Philippine National Bank v. Court of Appeals because PNA cannot be considered a third party in
possession of the subject property under a claim of title adverse to DBP’s. PNA is neither the owner nor is
in possession of rights under a color of title, but a mere squatter/intruder. On the other hand, DBP’s right
to the property is founded on its right of ownership. It has an indefeasible right to the property and its
right over the property is absolute, vesting upon it the right of possession. Thus, the Court of Appeals
should have allowed DBP to enforce its right to the possession of the property. The Court of Appeals
should have relied on St. Dominic Corp. v. Intermediate Appellate Court28 which emphasized the
indefeasibility of Torrens title vis-à-vis baseless claims of ownership. It held that as the purchaser of the
properties in the foreclosure sale, and to which the respective titles thereto have already been issued,
DBP’s right over the property has become absolute, vesting upon it the right of possession of the property
which the court must aid in effecting its delivery.
DBP thus prays that the decision of the CA in CA-G.R. SP No. 85870 be set aside and the writ of
possession granted by the RTC be reinstated, and that the decision in CA-G.R. SP No. 89051 affirming the
denial of the motion for a writ of demolition be set aside and the implementation of the writ of possession
through the issuance of the writ of demolition against PNA be ordered.
The Court finds the petitions bereft of merit. They should be denied.
It is ministerial upon the court to issue a writ of possession after the foreclosure sale and during the
period of redemption. The governing law, Act No. 3135, as amended, in Section 7 thereof, explicitly
authorizes the purchaser in a foreclosure sale to apply for a writ of possession during the redemption
period by filing an ex partemotion under oath for that purpose in the corresponding registration or
cadastral proceeding in the case of property with Torrens title. Upon the filing of such motion and the
approval of the corresponding bond, the law also in express terms directs the court to issue the order for
a writ of possession.29 The writ of possession issues as a matter of course even without the filing and
approval of a bond after consolidation of ownership and the issuance of a new transfer certificate of title
in the name of the purchaser.30
But the rule is not without exception. Under Section 35,31 Rule 39 of the Rules of Court, which is made
suppletory to the extrajudicial foreclosure of real estate mortgages by Section 6 of Act 3135, as amended,
the possession of the mortgaged property may be awarded to a purchaser in the extrajudicial
foreclosure unless a third party is actually holding the property adversely to the judgment debtor. Thus, in
the cited case of Philippine National Bank v. Court of Appeals,32 the Court held that the obligation of a
court to issue an ex parte writ of possession in favor of the purchaser in an extrajudicial foreclosure sale
ceases to be ministerial once it appears that there is a third party in possession of the property who is
claiming a right adverse to that of the debtor/mortgagor.33 This is substantiated by the Civil Code which
protects the actual possessor of a property. The discussion in Philippine National Bank on this matter is
informative:
Under [Article 43334 of the Civil Code], one who claims to be the owner of a property possessed by
another must bring the appropriate judicial action for its physical recovery. The term "judicial process"
could mean no less than an ejectment suit or reivindicatory action in which ownership claims of the
contending parties may be properly heard and adjudicated.
An ex parte petition for issuance of a possessory writ under Section 7 of Act 3135[, as amended,] is not,
strictly speaking, a "judicial process" as contemplated above. Even if the same may be considered a
judicial proceeding for the enforcement of one’s right of possession as purchaser in a foreclosure sale, it
is not an ordinary suit filed in court by which one party "sues another for the enforcement or protection of
a right, or the prevention or redress of a wrong."
It should be emphasized that an ex parte petition for issuance of a writ of possession is a non-litigious
proceeding authorized in an extrajudicial foreclosure of mortgage pursuant to Ac 3135, as amended.
Unlike a judicial foreclosure of real estate mortgage under Rule 68 of the Rules of Court, any property
brought within the ambit of the act is foreclosed by the filing of a petition, not with any court of justice,
but with the office of the sheriff of the province where the sale is to be made.
As such, a third person in possession of an extrajudicially foreclosed realty, who claims a right superior to
that of the original mortgagor, will have no opportunity to be heard on his claim in a proceeding of this
nature. It stands to reason, therefore, that such third person may not be dispossessed on the strength of
a mere ex parte possessory writ, since to do so would be tantamount to his summary ejectment, in
violation of the basic tenets of due process.
Besides, as earlier stressed, Article 433 of the Civil Code, cited above, requires nothing less that an action
for ejectment to be brought even by the true owner. After all, the actual possessor of a property enjoys a
legal presumption of just title in his favor, which must be overcome by the party claiming otherwise.35
This was reiterated in Dayot v. Shell Chemical Company (Phils.), Inc.36
The question now is whether PNA is a third party in possession of the property claiming a right adverse to
that of the debtor/mortgagor. The answer is yes.
DBP’s right of possession is founded on its right of ownership over the property which he purchased at the
auction sale. Upon expiration of the redemption period and consolidation of the title to the property in its
name, DBP became substituted to and acquired all the rights, title and interest of the mortgagor Y
Electric. As the new owner of the property, DBP can validly exercise his right of possession over it. Thus,
as against Y Electric and its successors-in-interest, DBP can apply for the issuance of a writ of possession
against them to compel them to deliver and transfer possession to DBP. Note, however, that a third party
not privy to the debtor/mortgagor—in this case, Y Electric—is protected by law. The purchaser’s right of
possession is recognized only as against the judgment debtor and his successor-in-interest but not
against persons whose right of possession is adverse to the latter.37 As previously stated, under the law,
such third party’s possession of the property is legally presumed to be pursuant to a just title which may
be overcome by the purchaser in a judicial proceeding for recovery of the property. It is through such a
judicial proceeding that the nature of such adverse possession by the third party is determined, according
such third party due process and the opportunity to be heard. The third party may be ejected from the
property only after he has been given an opportunity to be heard, conformably with the time-honored
principle of due process.38
In its petition for certiorari in CA-G.R. No. SP No. 85870, PNA claims that it is the owner of the property in
dispute as it purchased it from its true owner, and that the title to the property upon which Y Electric and
DBP base their claim is fictitious and non-existent. In exercise of its right of ownership, PNA filed an
ejectment case against DBP which is now on appeal with the RTC of Quezon City. There is nothing in the
records that would show that PNA derives its claim of ownership from Y Electric or from Y Electric’s
predecessors-in-interest, or that PNA is a successor-in-interest or transferee of Y Electric’s rights. It is thus
clear that PNA asserts a claim of ownership adverse to that of Y Electric and DBP, and that it acquired title
and possession of the property by virtue of a title entirely distinct from that through which DBP claims.
PNA thus stands in the same position as a stranger or third party whose rights to the property cannot be
resolved in an ex parte proceeding where it was not impleaded or where it could appear to present its
side.1 a vv p h i 1 . z w +
St. Dominic Corp. v. Intermediate Appellate Court,39 cited by DBP, actually supports the finding that PNA
is a third party possessor claiming against DBP an adverse right. The facts in St. Dominic are as follows:
In 1961, the People’s Homesite and Housing Corporation (PHHC) awarded a parcel of land covered by TCT
No. 83783 to Cristobal Santiago, who sold the same to the spouses Carlos Robes and Adelia Francisco.
The spouses Robes mortgaged the lot to Manufacturer’s Bank and Trust Company, and this fact was duly
annotated on the back of TCT No. 84387. Thereafter, Civil Case No. Q-11895, entitled "Ricardo Castulo
and Juan V. Ebreo v. Carlos Robes, Adelia Francisco, and People’s Homesite and Housing Corporation,"
was filed seeking the cancellation of TCT No. 83783. Claiming legal interest in the property, the
Bustamante spouses were allowed to intervene in the case. A notice of lis pendens was annotated on the
title at the instance of the Bustamante spouses. For failure of the Robes spouses to pay the mortgage
obligation, Manufacturer’s Bank foreclosed the lot which was then bought at public auction by Aurora
Francisco, who was subsequently issued a certificate of sale. As no redemption of the property was
effected, TCT No. 84387 issued in the name of the Robes spouses was cancelled and TCT No. 217192 was
issued to the buyer Aurora Francisco. The notice of lis pendens was not carried over to TCT No. 217192.
Aurora Francisco applied for, and was issued, a writ of possession for the property. The Bustamante
spouses filed a motion to quash the writ, which motion was denied by the lower court. The spouses then
filed a petition for certiorari with the Supreme Court. Thereafter, Aurora Francisco sold the property to
petitioner St. Dominic Corp, which was issued TCT No. 22337. Again, no notice of any lien or
encumbrance appeared on the title.
Meanwhile, Civil Case No. Q-11895 was decided. The trial court ruled that the sale by PHHC to Cristobal
Santiago was void and cancelled TCT No. 83783. The sale of the same lot to the spouses Robes was
likewise declared void and TCT No. 84387 was cancelled. PHHC was ordered to process Bustamante’s
application to purchase the lot and execute documents awarding the lot to her. A writ of execution was
issued to the Bustamante spouses, with the qualification, however, that the writ could not be enforced
against St. Dominic Corp. The spouses questioned the order via certiorari [with St. Dominic Corp. and
Aurora Francisco, though not parties to Civil Case No. Q-11895, made respondents thereto] with the
Intermediate Appellate Court, which granted the writ of certiorari and ordered the trial court to issue the
writ of execution against St. Dominic Corp. 40
This Court reversed the ruling of the Intermediate Appellate Court and held that St. Dominic Corp. was not
bound by the decision in that case because it was never impleaded in Civil Case No. Q-11895. Anent the
effect of the trial court’s judgment on Manufacturer’s Bank’s (mortgagee bank) rights and on the
foreclosure of the property in question, it was held that where a Torrens title was issued as a result of
regular land registration proceedings and was in the name of the mortgagor when given as a security for
a bank loan, the subsequent declaration of said title as null and void would not nullify the rights of the
mortgagee who acted in good faith. The mortgagee is under no obligation to look beyond the certificate
of title and has the right to rely on what appears on its face. The title to the property given as security to
Manufacturer’s Bank by the spouses Robes was valid, regular, and free from any lien or encumbrance.
The title of Aurora Francisco, as a purchaser at the auction sale of the property in question, could not be
affected by any adverse claim of the plaintiffs in Civil Case No. Q-11895. This is even more true with
petitioner St. Dominic Corp. which had acquired title from Francisco without any notice or flaw.41
The Bustamante spouses assailed the grant ex parte by the trial court of the writ of possession over the
property in favor of Aurora Francisco, alleging that a court has no jurisdiction, power and authority to
eject a third person who is not a party to the foreclosure proceedings or mortgage by a mere writ of
possession summarily issued in a foreclosure suit. This Court approved of the trial court’s disquisition on
this matter. The trial court was aware of the limitation that a writ of possession may not issue when the
property is in the possession of a third party who holds the property adverse to the buyer in the
foreclosure sale. But by their express admission in their motion to intervene, the Bustamante spouses
were merely occupants-applicants for the purchase of the land from PHHC. Their claim was at best
inchoate, and cannot prevent the issuance of the writ of possession prayed for; to do so would becloud
the integrity of the Torrens title and in derogation of its indefeasibility. Their inchoate right cannot prevail
over the clean title of Aurora Francisco and/or St. Dominic Corp. The Bustamante spouses had no clear
title or right that may be enforced, thus, the writ of possession should issue in favor of Aurora Francisco
and/or St. Dominic Corp.42 The Court added:
Indeed, the rules contemplate a situation where a third party holds the property by adverse title or right
such as a co-owner, tenant or usufructuary. In such cases, a grant of a writ of possession would be denial
of such third person’s rights without giving them their day in court. Especially where question of title is
involved, the matter would well be threshed out in a separate action and not in a motion for a writ of
possession.43
Clearly, the facts in St. Dominic are hugely different from the facts of the case at bar. The Bustamante
spouses’ claim is not as owner of the property, but only as an occupant-applicant thereto; it rests on a
mere expectancy. They did not hold the property by any adverse title or right. In the case at bar,
however, PNA claims ownership of the property through a title adverse to that of DBP and DBP’s
predecessor-in-interest.
The other cases44 cited by DBP also support the finding of PNA as a third party claiming an adverse right.
These cases support the ruling that trespassers or intruders without title can be evicted by writ of
possession. However, the issuance of the writ of possession in these cases, except for one, is not
pursuant to the foreclosure of a mortgage under Act No. 3135, as amended. The said cases involve
different judicial proceedings which have for its purpose the recovery of property. Thus, Caballero v.
Court of Appeals involves an action for cancellation of sale. Mendoza v. National Housing
Authority and Galay v. Court of Appeals are cases for ejectment. E.B. Marcha Transport Co. v.
Intermediate Appellate Court involves a case for recovery of possession of property. Rodil v.
Benedicto and Demorar v. Ibanez concern registration proceedings. It should be noted too that in these
cases, there was a categorical finding by the courts, or there was an admission by the parties, that the
persons to be evicted are indeed squatters or intruders without any right to the property.
The only case cited by DBP which involves the issuance of a writ of possession under Act No. 3135
is Rivero de Ortega v. Natividad which, however, supports the finding that PNA is a third party possessor
protected under the law. Thus:
But where a party in possession was not a party to the foreclosure, and did not acquire his possession
from a person who was bound by the decree, but who is a mere stranger and who entered into possession
before the suit was begun, the court has no power to deprive him of possession by enforcing the decree.
x x x Thus, it was held that only parties to the suit, persons who came in under them pendente lite, and
trespassers or intruders without title, can be evicted by a writ of possession. x x x The reason for this
limitation is that the writ does not issue in case of doubt, nor will a question of legal title be tried or
decided in proceedings looking to the exercise of the power of the court to put a purchaser in possession.
A very serious question may arise upon full proofs as to where the legal title to the property rests, and
should not be disposed of in a summary way. The petitioner, it is held, should be required to establish his
title in a proceeding directed to that end.45
PNA also need not prove its ownership of the foreclosed property in the same ex parte proceeding
instituted by DBP. The jurisdiction of the court in the ex parte proceeding is limited only to the issuance of
the writ of possession. It has no jurisdiction to determine who between the parties is the rightful owner
and lawful possessor of the property. As earlier stated, the appropriate judicial proceeding must be
resorted to.46 Consequently, the Court of Appeals’ order in CA-G.R. SP No. 85870 to remand the case to
the court a quo to determine whether PNA and its members are actually in possession of the property
claiming a right adverse to that of the original mortgagor is unnecessary.
WHEREFORE, the petitions for review in certiorari are DENIED.
In G.R. No. 175728, the Court of Appeals Decision dated 15 September 2006 is AFFIRMED insofar as it
declares as null and void the Regional Trial Court’s Order dated 5 August 2004. The Resolution dated 11
December 2006 is also AFFIRMED.
In G.R. No. 178914, the Decision dated 28 August 2006 and Resolution dated 17 July 2007 are AFFIRMED.
SO ORDERED.
DANTE O. TINGA
Associate Justice
WE CONCUR:
CONCHITA CARPIO MORALES*
Associate Justice
Acting Chairperson
PRESBITERO J. VELASCO, JR. TERESITA J. LEONARDO-DE CASTRO**
Associate Justice Associate Justice
ARTURO D. BRION
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Court’s Division.
CONCHITA CARPIO MORALES
Associate Justice
Acting Chairperson, Second Division
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson’s Attestation, it is
hereby certified that the conclusions in the above Decision had been reached in consultation before the
case was assigned to the writer of the opinion of the Court’s Division.
REYNATO S. PUNO
Chief Justice
Footnotes
* Acting Chairperson.
** Per Special Order No. 619, Justice Teresita J. Leonardo-De Castro is hereby designated as additional member of the Second Division in lieu of Justice Leonardo A. Quisumbing, who is

on official leave

1 Rollo (G.R. No. 175728), pp. 56-64.


2 Id. at 66-67.
3 Id. at 25-26.
4 Id. at 68-75.
5 Id. at 68-75/
6 Rollo (G.R. No. 178914), pp. 104-109.
7 Rollo (G.R. No. 175728), pp. 79-80.
8 Rollo (G.R. No. 178914), pp. 115-122.
9 Rollo (G.R. No. 178914), p. 127.
10 Rollo (G.R. No. 175728), pp. 81-88.
11 Rollo (G.R. No. 178914), pp. 139-142.
12 Rollo (G.R. No. 178914), pp. 101-102.
13 Rollo (G.R. No. 178914), pp. 86-100.
14 Supra note 1. Penned by Associate Justice Sesinando E. Villon and concurred in by Associate Justices
Elvi John S. Asuncion and Jose Catral Mendoza.
15 424 Phil. 757 (2002).
16 G.R. No. 157213, 28 April 2004, 428 SCRA 259.
17 Rollo (G.R. No. 175728), p.63.
18 Supra note 2.
19 Supra note 3. Penned by Associate Justice Normandie B. Pizarro, concurred in by Associate Justices
Eliezer R. De Los Santos and Aurora Santiago-Lagman.
20 Id. at 22..
21 Supra note 4.
22 Cited as 151 SCRA 577.
23 Rollo (G.R. No. 175728), p. 31.
24 Rollo (G.R. No. 178914), pp. 39-49.
25 Sec. 7. In any sale made under the provisions of this Act, the purchaser may petition the Court of First
Instance of the province or place where the property or any part thereof is situated, to give him
possession thereof during the redemption period, furnishing bond in an amount equivalent to the use of
the property for a period of twelve months, to indemnify the debtor in case it be shown that the sale was
made without violating the mortgage or without complying with the requirements of this Act. Such
petition shall be made under oath and filed in form of an ex parte motion in the registration or cadastral
proceedings if the property is registered, or in special proceedings in the case of property registered
under the Mortgage Law or under section one hundred and ninety-four of the Administrative Code, or of
any other real property encumbered with a mortgage duly registered in the office of any register of deeds
in accordance with any existing law, and in each case the clerk of the court shall, upon the filing of such
petition, collect the fees specified in paragraph eleven of section one hundred and fourteen of Act
Numbered Four hundred and ninety-six, as amended by Act Numbered Twenty-eight hundred and sixty-
six, and the court shall, upon approval of the bond, order that a writ of possession issue, addressed to the
sheriff of the province in which the property is situated, who shall execute said order immediately.
26 An Act to Regulate the Sale of Property Under Special Powers Inserted In or Annexed To Real Estate
Mortgages, 6 March 1924.
27 An Act to Amend Act Numbered Thirty-One Hundred and Thirty-Five, Entitled "An Act to Regulate the
Sale of Property Under Special Powers Inserted In or Annexed To Real Estate Mortgages," 7 December
1933.
28 235 Phil. 582 (1987).
29 Sulit v. Court of Appeals, 335 Phil. 914, 924 (1997).
30 Penson v. Maranan, G.R. No. 148630, 20 June 2006, 491 SCRA 396, 405.
31 Now Section 33, Rule 39 of the Rules of Court as revised. The second paragraph thereof reads: "Sec.
33. Deed and possession to be given at expiration of redemption period; by whom executed or given.—x
x x Upon the expiration of the right of redemption, the purchaser or redemptioner shall be substituted to
and acquire all the rights, title, interest and claim of the judgment obligor to the property as of the time of
the levy. The possession of the property shall be given to the purchaser or last redemptioner by the same
officer unless a third party is actually holding the property adversely to the judgment obligor."
32 Supra note 5.
33 Penson v. Maranan, G.R. No. 148630, 20 June 2006, 491 SCRA 396, 406.
34 Art. 43. Actual possession under claim of ownership raises a disputable presumption of ownership. The
true owners must resort to judicial process for the recovery of the property.
35 PNB v. Court of Appeals, supra note 10 at 769-771.
36 G.R. No. 156542, 26 June 2007, 525 SCRA 535.
37 Roxas v. Buan, No. L-53798, 8 November 1988, 167 SCRA 43, 50.
38 Unchuan v. Court of Appeals (Fifth Division), No. L-78775, 31 May 1988, 161 SCRA 710, 716.
39 Supra note 28.
40 As summarized in the Malayan Bank v. Lagrama, 409 Phil. 493, 505-506 (2001).
41 St. Dominic Corp. v. Intermediate Appellate Court, supra note 34, at 592-594.
42 St. Dominic Corp. v. Intermediate Appellate Court, supra note 34 at 595-597.
43 St. Dominic Corp. v. Intermediate Appellate Court, supra note 34 at 596.
44 Caballero v. Court of Appeals, G.R. No. 59888, 29 January 1993, 218 SCRA 56, 64; Mendoza v. National
Housing Authority, 197 Phil. 596 (1982); E.B. Marcha Transport Co., Inc. v.. Intermediate Appellate Court,
231 Phil. 275 (1987); Galay v. Court of Appeals, 321 Phil. 224 (1995); Lourdes Rivero D. Ortega v. Hon.
Felipe Natividad, et al., 71 Phil. 340, 342; Tomas Rodil, et al. v. Judge Benedicto, 184 Phil. 107 (1980);
andDemorar v. Ibanez, etc., 97 Phil. 72, 74 (1955).
45 Rivero de Ortega v. Natividad, 71 Phil. 340, 342-343 (1941).
46 See Civil Code, Art. 43, supra note 29; Philippine National Bank v. Court of Appeals, supra note 10, at
32; and Rivero de Ortega v. Natividad, supra note 40, at 343.

Pasted from <http://www.lawphil.net/judjuris/juri2009/may2009/gr_175728_2009.html>

PNB vs. Gotesco (2009)


Sunday, June 06, 2010
1:02 AM

THIRD DIVISION

PHILIPPINE NATIONAL BANK, G.R. No. 183211


Petitioner,
Present:

YNARES-SANTIAGO, J.,
Chairperson,
- versus - CARPIO,*
CORONA,**
NACHURA, and
PERALTA, JJ.

GOTESCO TYAN MING DEVELOPMENT, INC., Promulgated:


Respondent.
June 5, 2009

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

DECISION

NACHURA, J.:

This petition for review filed by Philippine National Bank (PNB) seeks to nullify and set aside the
March 12, 2008 Decision[1] of the Court of Appeals (CA) in CA-G.R. SP No. 99194, which affirmed the
Orders dated August 24, 2006[2] and March 2, 2007[3] of the Regional Trial Court (RTC) of Pasig
City, and the June 6, 2008 Resolution,[4] denying PNB’s motion for reconsideration.

The antecedents.
On April 7, 1995, PNB, along with Metropolitan Bank and Trust Company (MBTC), United Coconut
Planters Bank (UCB), and Citytrust Banking Corporation (CBC), extended credit facilities
worth P800,000,000.00 to respondent Gotesco Tyan Ming Development, Inc. (GOTESCO). To secure
the credit facility, GOTESCO executed a Mortgage Trust Indenture over a parcel of land in Pasig City,
covered by Transfer Certificate of Title (TCT) No. PT-97306.[5] GOTESCO availed itself
of P800,000,000.00 from its credit line, but failed to pay it in full. Accordingly, PNB, MBTC, UCB, and
CBC instituted foreclosure proceedings on the GOTESCO property.

On July 30, 1999, the property was auctioned and was awarded to PNB as the highest bidder
for P1,240,000,496.82. A Certificate of Sale[6] was issued on August 4, 1999 and was registered
with the Register of Deeds on November 9, 1999.

The one-year redemption period expired without GOTESCO exercising its right of redemption.
Accordingly, PNB consolidated the title in its name and, on July 18, 2005, TCT No. PT-127557[7] in
the name of PNB was issued. Consequently, PNB filed an Ex-Parte Petition for Issuance of Writ of
Possession with the RTC of Pasig City. The case was docketed as LRC Case No. R-6695-PSG and was
raffled to Branch 155.

GOTESCO then filed a motion to consolidate LRC Case No. R-6695-


PSG with its case for annulment of foreclosure proceedings, specific
performance and damages against PNB, docketed as Civil Case No. 68139, and pending with RTC Branch
161.

On August 24, 2006, Hon. Judge Luis R. Tongco of Branch 155 issued an Order granting the motion
for consolidation:

Finding merit in the Motion For Consolidation filed by [respondent] Gotesco Tyan Ming
Development, Inc., through counsel, on August 7, 2006, and as prayed for and over the
opposition of x x x petitioner Philippine National Bank (PNB), the same is hereby GRANTED.

Let, therefore, the entire records of the instant case be forwarded to the Office of the Clerk of
Court, RTC, Pasig City for CONSOLIDATION with Civil Case No. 68139, entitled “Gotesco Tyan
Ming Development, Inc. v. Philippine National Bank, et al.” filed on October 30, 2000 pending
before Branch 161, Regional Trial Court, Pasig City.

SO ORDERED.[8]

PNB filed a motion for reconsideration, but RTC Branch 161 denied the same, viz.:

After a careful and judicious consideration of the arguments raised by the parties in their
respective pleadings, this Court resolves to DENY the Urgent Motion for Reconsideration.

A perusal of the arguments/issues raised by the petitioner in its pleadings would clearly show
that they were mere reiteration of its previous arguments/issues which have been duly
considered and passed upon by Honorable Judge Luis R. Tongco who ordered the consolidation
of this case, in his discretion, to the civil case pending before this Court and no new matter was
raised to warrant the reconsideration of the assailed Order dated August 24, 2006.

As a rule, the consolidation of several cases involving the same parties and subject matter is
discretionary with the trial court. However, consolidation of these cases becomes a matter of
duty if two or more cases are tried before the same judge, or, if filed with different branches of
the same Court of First Instance, one of such cases has not been partially tried. (Raymundo, et
al. v. Felipe, L-30887, Dec. 24, 1971). Noteworthy is the fact that the civil case pending
before this Court is in the stage of presentation of [GOTESCO’s] initial evidence.

As stressed by the Honorable Supreme Court in the case of Philippine Savings Bank v. Spouses
Rodolfo C. Mañalac, Jr., G.R. No. 145441, April 26, 2005, to wit:

“In Active Wood Products Co., Inc. v. Court of Appeals, x x x The Court held that
while a petition for a writ of possession is an ex-parte proceeding, being made on a
presumed right of ownership, when such presumed right of ownership is contested
and is made the basis of another action, then the proceedings for writ of possession
would also become groundless. The entire case must be litigated and if need be
must be consolidated with a related case so as to thresh out thoroughly all related
issues.

In the same case, the Court likewise rejected the contention that under the Rules of
Court only actions can be consolidated. The Court held that the technical difference
between an action and a proceeding, which involve the same parties and subject
matter, becomes insignificant and consolidation becomes a logical conclusion in
order to avoid confusion and unnecessary expenses with the multiplicity of suits.”

WHEREFORE, in view of the foregoing, finding no cogent reason to reverse and set aside the
assailed Order dated August 24, 2006, the Urgent Motion for Reconsideration is hereby DENIED
and the two (2) cases being consolidated, this Court deems it proper to treat Civil Case No.
68139 for Annulment of Foreclosure Sale, etc. as an opposition to this case (LR Case No. R-
6695-PSG). Thus, petitioner should first present evidence.

Accordingly, the March 30, 2007 setting in Civil Case No. 68139 is cancelled and reset to April
13, 2007 at 1:30 o’clock (sic) in the afternoon for the presentation of x x x PNB’s evidence.

SO ORDERED.[9]

PNB then filed a petition for certiorari with the CA. On March 12, 2008, the CA rendered the assailed
Decision dismissing the petition. Citing Philippine Savings Bank v. Mañalac, Jr.,[10] the CA rejected
PNB’s argument that a petition for issuance of a writ of possession cannot be consolidated with an
ordinary civil action. The CA further held that the RTC merely complied with the express mandate
of Section 1, Rule 31 of the 1997 Rules of Civil Procedure in granting the motion for consolidation.
Thus, it cannot be charged with grave abuse of discretion.

PNB moved for reconsideration of the decision, but the CA denied it on June 6, 2008.

PNB is now before us faulting the CA for dismissing its petition.

On March 27, 2009, PNB moved for the issuance of a temporary restraining order (TRO) and/or writ
of preliminary injunction to enjoin the proceedings in LRC Case No. R-6695-PSG and in Civil Case No.
68139. PNB claimed that its petition for issuance of a writ of possession, which is supposed to be
summary in nature, is in grave and imminent danger of being wrongfully subjected to litigation. It
alleged that its witness is set to be cross-examined on April 23, 2009 at 1:30 p.m. despite PNB’s
continuing objection as to the flow of trial. It argued that, in the event that the RTC further proceeds
with the hearing of the consolidated cases, the present petition will become moot and
academic. Thus, unless the RTC is restrained or enjoined from further hearing the two improperly
consolidated cases, PNB’s right to due process, particularly to an expeditious and summary hearing
of its ex-parte petition, will be utterly violated. PNB added that it would also suffer grave and
irreparable injury as its right to take immediate possession of the mortgaged property, with the title
thereto now consolidated in its name, would be rendered nugatory. In its April 20, 2009 Resolution,
this Court granted PNB’s prayer and issued a TRO enjoining the proceedings a quo.

In the main, PNB contends that the consolidation of its petition for issuance of a writ of possession
with GOTESCO’s case for annulment of foreclosure proceedings has seriously prejudiced its right to
a writ of possession. It points that after the consolidation of title in its name, when GOTESCO failed
to redeem the property, entitlement to a writ of possession becomes a matter of right. Moreover, a
petition for issuance of a writ of possession is a non-litigious proceeding; hence, it must not be
consolidated with a civil action for the annulment of foreclosure proceedings, specific performance,
and damages, which is litigious in nature. It faults the CA for affirming the RTC’s action.

GOTESCO, on the other hand, submits that the RTC and the CA did not err, much less abuse their
discretion, in granting the motion for consolidation. It cites judicial economy and convenience of
both parties as justification for granting the motion for consolidation.
The petition is meritorious.

The legal basis of an order of consolidation of two (2) cases is Section 1, Rule 31 of the Rules of Civil
Procedure, which states:

SECTION 1. Consolidation. — When actions involving a common question of law or fact are
pending before the court, it may order a joint hearing or trial of any or all the matters in issue
in the actions; it may order all the actions consolidated; and it may make such orders
concerning proceedings therein as may tend to avoid unnecessary costs or delay.

In Teston v. Development Bank of the Philippines,[11] we laid down the requisites for the
consolidation of cases, viz.:

A court may order several actions pending before it to be tried together where they arise from
the same act, event or transaction, involve the same or like issues, and depend largely or
substantially on the same evidence, provided that the court has jurisdiction over the cases to
be consolidated and that a joint trial will not give one party an undue advantage or prejudice
the substantial rights of any of the parties.[12]

The rule allowing consolidation is designed to avoid multiplicity of suits, to guard against oppression
or abuse, to prevent delays, to clear congested dockets, and to simplify the work of the trial court; in
short, the attainment of justice with the least expense and vexation to the parties- litigants.[13]

Thus, in Philippine Savings Bank v. Mañalac, Jr.,[14] we disregarded the technical difference
between an action and a proceeding, and upheld the consolidation of a petition for the issuance of a
writ of possession with an ordinary civil action in order to achieve a more expeditious resolution of
the cases, thus:

In the instant case, the consolidation of Civil Case No. 53967 with LRC Case No. R-3951 is more
in consonance with the rationale behind the consolidation of cases which is to promote a more
expeditious and less expensive resolution of the controversy than if they were heard
independently by separate branches of the trial court. Hence, the technical difference between
Civil Case No. 53967 and LRC Case No. R-3951 must be disregarded in order to promote the
ends of justice.[15]

But in the instant case, the consolidation of PNB’s petition for a writ of possession with GOTESCO’s
complaint for annulment of foreclosure proceeding serves none of the purposes cited above. On the
contrary, it defeated the very rationale of consolidation.

The record shows that PNB’s petition was filed on May 26, 2006, and remains pending after three (3)
years, despite the summary nature of the petition. Obviously, the consolidation only delayed the
issuance of the desired writ of possession. Further, it prejudiced PNB’s right to take immediate
possession of the property and gave GOTESCO undue advantage, for GOTESCO continues to possess
the property during the pendency of the consolidated cases, despite the fact that title to the
property is no longer in its name.

It should be stressed that GOTESCO was well aware of the expiration of the period to redeem the
property. Yet, it did not exercise its right of redemption. There was not even an attempt to redeem
the property. Instead, it filed a case for annulment of foreclosure, specific performance, and
damages and prayed for a writ of injunction to prevent PNB from consolidating its title. GOTESCO’s
maneuvering, however, failed, as the CA and this Court refused to issue the desired writ of
injunction.

Cognizant that the next logical step would be for PNB to seek the delivery of possession of the
property, GOTESCO now tries to delay the issuance of writ of possession. It is clear that the motion
for consolidation was filed merely to frustrate PNB’s right to immediate possession of the
property. It is a transparent ploy to delay, if not to prevent, PNB from taking possession of the
property it acquired at a public auction ten (10) years ago. This we cannot tolerate.
Jurisprudence teems with pronouncements that, upon the expiration of the redemption period, the
right of the purchaser to the possession of the foreclosed property becomes absolute. Thus, the
mere filing of an ex parte motion for the issuance of a writ of possession would suffice, and there is
no bond required since possession is a necessary consequence of the right of the confirmed owner.
It is a settled principle that a pending action for annulment of mortgage or foreclosure sale does not
stay the issuance of the writ of possession.[16] Indisputably, the consolidation of PNB’s petition with
GOTESCO’s complaint runs counter to this well established doctrine.

In De Vera v. Agloro[17] this Court upheld the denial by the RTC of a motion for consolidation of a
petition for issuance of a writ of possession with a civil action, as it would prejudice the right of one
of the parties, viz.:

It bears stressing that consolidation is aimed to obtain justice with the least expense and
vexation to the litigants. The object of consolidation is to avoid multiplicity of suits, guard
against oppression or abuse, prevent delays and save the litigants unnecessary acts and
expense. Consolidation should be denied when prejudice would result to any of the parties or
would cause complications, delay, prejudice, cut off, or restrict the rights of a party.

In the present case, the trial court acted in the exercise of its sound judicial discretion in
denying the motion of the petitioners for the consolidation of LRC Case No. P-97-2000 with Civil
Case No. 109-M-2000.

First. The proceedings in LRC Case No. P-97-2000 is not, strictly speaking, a judicial process
and is a non-litigious proceeding; it is summary in nature. In contrast, the action in Civil Case
No. 109-M-2000 is an ordinary civil action and adversarial in character. The rights of the
respondent in LRC Case No. P-97-2000 would be prejudiced if the said case were to be
consolidated with Civil Case No. 109-M-2000, especially since it had already adduced its
evidence.[18]

Likewise, in Teston v. Development Bank of the Philippines,[19] this Court explicitly declared that:

Consolidation should be denied when prejudice would result to any of the parties or would cause
complications, delay, cut off, or restrict the rights of a party.[20]

It is true that the trial court is vested with discretion whether or not to consolidate two or more
cases. But in the present case, we are of the considered view that the exercise of such discretion by
the RTC was less than judicious. We are constrained to agree with PNB that, given the
circumstances herein cited, the RTC’s discretion has been gravely abused. Accordingly, the CA
committed reversible error in upholding the RTC.

WHEREFORE, the petition is GRANTED. The assailed Decision and Resolution of the Court of
Appeals in CA-G.R. SP. No. 99194 and the Orders dated August 24, 2006 and March 2, 2007 of
the Regional Trial Court of Pasig City, Branch 155, are SET ASIDE. Let the Ex-Parte Petition for
Issuance of a Writ of Possession (LRC Case No. R-6695-PSG) and the Complaint for Annulment of
Foreclosure, Specific Performance and Damages (Civil Case No. 68139) proceed and be heard
independently in accordance with the Rules, and be resolved with dispatch.

SO ORDERED.

ANTONIO EDUARDO B. NACHURA


Associate Justice

WE CONCUR:
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson

ANTONIO T. CARPIO RENATO C. CORONA


Associate Justice Associate Justice

DIOSDADO M. PERALTA
Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision were reached in consultation before the case
was assigned to the writer of the opinion of the Court’s Division.

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's Attestation, I
certify that the conclusions in the above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Court’s Division.

REYNATO S. PUNO
Chief Justice

* Additional member in lieu of Associate Justice Conchita Carpio Morales per Special Order No.
646 dated May 15, 2009.
** Additional member in lieu of Associate Justice Minita V. Chico-Nazario per Special Order No. 631
dated April 29, 2009.
[1] Penned by Associate Justice Amelita G. Tolentino, with Associate Justices Lucenito N. Tagle
and Agustin S. Dizon, concurring; rollo, pp. 49-56.
[2] Rollo, p. 113.
[3] Id. at 114-116.
[4] Id. at 19-20.
[5] Id. at 83-85.
[6] Id. at 80-82.
[7] Id. at 87-89.
[8] Id. at 113.
[9] Id. at 114-115.
[10] G.R. No. 145441, April 26, 2005, 457 SCRA 203.

[11] G.R. No. 144374, November 11, 2005, 474 SCRA 597.
[12] Teston v. Development Bank of the Philippines, id. at 605.
[13] Id.
[14] G.R. No. 145441, April 26, 2005, 457 SCRA 203.
[15] Philippine Savings Bank v. Mañalac, Jr., id. at 214.
[16] See Fernandez v. Espinoza, G.R. No. 156421, April 14, 2008, 551 SCRA 136, 150.
[17] G.R. No. 155673, January 14, 2005, 448 SCRA 203.
[18] De Vera v. Agloro, id. at 218. (Citations omitted.)
[19] Teston v. Development Bank of the Philippines, supra note 11.
[20] Id. at 606.

Pasted from <http://sc.judiciary.gov.ph/jurisprudence/2009/june2009/183211.htm>

Rural Bank vs. MB (2007)


Sunday, June 06, 2010
1:05 AM

PHILIPPINE JURISPRUDENCE – FULL TEXT


The Lawphil Project - Arellano Law Foundation
G.R. No. 150886 February 16, 2007
RURAL BANK OF SAN MIGUEL, INC. VS. MONETARY BOARD ET AL.

Republic of the Philippines


SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 150886 February 16, 2007
RURAL BANK OF SAN MIGUEL, INC. and HILARIO P. SORIANO, in his capacity as majority
stockholder in the Rural Bankof San Miguel, Inc., Petitioners,
vs.
MONETARY BOARD, BANGKO SENTRAL NG PILIPINAS and PHILIPPINE DEPOSIT INSURANCE
CORPORATION, Respondents.
DECISION
CORONA, J.:
This is a petition for review on certiorari1 of a decision2 and resolution3 of the Court of Appeals (CA)
dated March 28, 2000 and November 13, 2001, respectively, in CA-G.R. SP No. 57112.
Petitioner Rural Bank of San Miguel, Inc. (RBSM) was a domestic corporation engaged in banking. It
started operations in 1962 and by year 2000 had 15 branches in Bulacan.4Petitioner Hilario P. Soriano
claims to be the majority stockholder of its outstanding shares of stock.5
On January 21, 2000, respondent Monetary Board (MB), the governing board of respondent Bangko
Sentral ng Pilipinas (BSP), issued Resolution No. 105 prohibiting RBSM from doing business in the
Philippines, placing it under receivership and designating respondent Philippine Deposit Insurance
Corporation (PDIC) as receiver:
On the basis of the comptrollership/monitoring report as of October 31, 1999 as reported by Mr. Wilfredo
B. Domo-ong, Director, Department of Rural Banks, in his memorandum dated January 20, 2000, which
report showed that [RBSM] (a) is unable to pay its liabilities as they become due in the ordinary course of
business; (b) cannot continue in business without involving probable losses to its depositors and
creditors; that the management of the bank had been accordingly informed of the need to infuse
additional capital to place the bank in a solvent financial condition and was given adequate time within
which to make the required infusion and that no infusion of adequate fresh capital was made, the Board
decided as follows:
1. To prohibit the bank from doing business in the Philippines and to place its assets and affairs under
receivership in accordance with Section 30 of [RA 7653];
2. To designate the [PDIC] as receiver of the bank;
xxx xxx xxx6
On January 31, 2000, petitioners filed a petition for certiorari and prohibition in the Regional Trial Court
(RTC) of Malolos, Branch 22 to nullify and set aside Resolution No. 105.7However, on February 7, 2000,
petitioners filed a notice of withdrawal in the RTC and, on the same day, filed a special civil action for
certiorari and prohibition in the CA. On February 8, 2000, the RTC dismissed the case pursuant to Section
1, Rule 17 of the Rules of Court.8
The CA’s findings of facts were as follows.
To assist its impaired liquidity and operations, the RBSM was granted emergency loans on different
occasions in the aggregate amount of P375 [million].
As early as November 18, 1998, Land Bank of the Philippines (LBP) advised RBSM that it will terminate
the clearing of RBSM’s checks in view of the latter’s frequent clearing losses and continuing failure to
replenish its Special Clearing Demand Deposit with LBP. The BSP interceded with LBP not to terminate the
clearing arrangement of RBSM to protect the interests of RBSM’s depositors and creditors.
After a year, or on November 29, 1999, the LBP informed the BSP of the termination of the clearing
facility of RBSM to take effect on December 29, 1999, in view of the clearing problems of RBSM.
On December 28, 1999, the MB approved the release of P26.189 [million] which is the last tranche of
the P375 million emergency loan for the sole purpose of servicing and meeting the withdrawals of its
depositors. Of the P26.180 million, xxx P12.6 million xxx was not used to service withdrawals [and]
remains unaccounted for as admitted by [RBSM’s Treasury Officer and Officer-in-Charge of Treasury].
Instead of servicing withdrawals of depositors, RBSM paid Forcecollect Professional Solution, Inc. and
Surecollect Professional, Inc., entities which are owned and controlled by Hilario P. Soriano and other
RBSM officers.
On January 4, 2000, RBSM declared a bank holiday. RBSM and all of its 15 branches were closed from
doing business.
Alarmed and disturbed by the unilateral declaration of bank holiday, [BSP] wanted to examine the books
and records of RBSM but encountered problems.
Meanwhile, on November 10, 1999, RBSM’s designated comptroller, Ms. Zenaida Cabais of the BSP,
submitted to the Department of Rural Banks, BSP, a Comptrollership Report on her findings on the
financial condition and operations of the bank as of October 31, 1999. Another set of findings was
submitted by said comptroller [and] this second report reflected the financial status of RBSM as of
December 31, 1999.
The findings of the comptroller on the financial state of RBSM as of October 31, 1999 in comparison with
the financial condition as of December 31, 1999 is summed up pertinently as follows:
FINANCIAL CONDITION OF RBSM
As of Oct. 31, 1999 As of Dec. 31, 1999
Total obligations/ P1,076,863,000.00 1,009,898,000.00
Liabilities
Realizable Assets 898,588,000.00 796,930,000.00
Deficit 178,275,000.00 212,968,000.00
Cash on Hand 101,441.547.00 8,266,450.00
Required Capital Infusion P252,120,000.00
Capital Infusion P5,000,000.00
(On Dec. 20, 1999)
Actual Breakdown of Total Obligations:
1) Deposits of 20,000 depositors – P578,201,000.00
2) Borrowings from BSP – P320,907,000.00
3) Unremitted withholding and gross receipt taxes – P57,403,000.00.9
Based on these comptrollership reports, the director of the Department of Rural Banks Supervision and
Examination Sector, Wilfredo B. Domo-ong, made a report to the MB dated January 20, 2000.10 The MB,
after evaluating and deliberating on the findings and recommendation of the Department of Rural Banks
Supervision and Examination Sector, issued Resolution No. 105 on January 21, 2000.11 Thereafter, PDIC
implemented the closure order and took over the management of RBSM’s assets and affairs.
In their petition12 before the CA, petitioners claimed that respondents MB and BSP committed grave
abuse of discretion in issuing Resolution No. 105. The petition was dismissed by the CA on March 28,
2000. It held, among others, that the decision of the MB to issue Resolution No. 105 was based on the
findings and recommendations of the Department of Rural Banks Supervision and Examination Sector,
the comptroller reports as of October 31, 1999 and December 31, 1999 and the declaration of a bank
holiday. Such could be considered as substantial evidence.13
Pertinently, on June 9, 2000, on the basis of reports prepared by PDIC stating that RBSM could not resume
business with sufficient assurance of protecting the interest of its depositors, creditors and the general
public, the MB passed Resolution No. 966 directing PDIC to proceed with the liquidation of RBSM under
Section 30 of RA 7653.14
Hence this petition.
It is well-settled that the closure of a bank may be considered as an exercise of police power.15 The
action of the MB on this matter is final and executory.16 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.17
Petitioners argue that Resolution No. 105 was bereft of any basis considering that no complete
examination had been conducted before it was issued. This case essentially boils down to one core issue:
whether Section 30 of RA 7653 (also known as the New Central Bank Act) and applicable jurisprudence
require a current and complete examination of the bank before it can be closed and placed under
receivership.
Section 30 of RA 7653 provides:
SECTION 30. Proceedings in Receivership and Liquidation. — Whenever, upon report of the head of
the supervising or examining department, the Monetary Board finds that a bank or quasi-bank:
(a) is unable to pay its liabilities as they become due in the ordinary course of business: Provided, That
this shall not include inability to pay caused by extraordinary demands induced by financial panic in the
banking community;
(b) has insufficient realizable assets, as determined by the [BSP] to meet its liabilities; or
(c) cannot continue in business without involving probable losses to its depositors or creditors; or
(d) has willfully violated a cease and desist order under Section 37 that has become final, involving acts
or transactions which amount to fraud or a dissipation of the assets of the institution; in which cases, the
Monetary Board may summarily and without need for prior hearing forbid the institution from
doing business in the Philippines and designate the Philippine Deposit Insurance Corporation
as receiver of the banking institution.
xxx xxx xxx
The actions of the Monetary Board taken under this section or under Section 29 of this Act shall be final
and executory, and may not be restrained or set aside by the court except on petition for certiorari on the
ground that the action taken was in excess of jurisdiction or with such grave abuse of discretion as to
amount to lack or excess of jurisdiction. The petition for certiorari may only be filed by the stockholders of
record representing the majority of the capital stock within ten (10) days from receipt by the board of
directors of the institution of the order directing receivership, liquidation or conservatorship. (Emphasis
supplied)
xxx xxx xxx
Petitioners contend that there must be a current, thorough and complete examination before a bank can
be closed under Section 30 of RA 7653. They argue that this section should be harmonized with Sections
25 and 28 of the same law:
SECTION 25. Supervision and Examination. — The [BSP] shall have supervision over, and conduct
periodic or special examinations of, banking institutions and quasi-banks, including their subsidiaries
and affiliates engaged in allied activities.
xxx xxx xxx
SECTION 28. Examination and Fees. — The supervising and examining department head, personally
or by deputy, shall examine the books of every banking institution once in every twelve (12) months, and
at such other time as the Monetary Board by an affirmative vote of five (5) members may deem
expedient and to make a report on the same to the Monetary Board: Provided that there shall be
an interval of at least twelve (12) months between annual examinations. (Emphasis supplied)
xxx xxx xxx
According to the petitioners, it is clear from these provisions that the "report of the supervising or
examining department" required under Section 30 refers to the report on the examination of the bank
which, under Section 28, must be made to the MB after the supervising or examining head conducts an
examination mandated by Sections 25 and 28.18They cite Banco Filipino Savings & Mortgage Bank v.
Monetary Board, Central Bank of the Philippines19 wherein the Court ruled:
There is no question that under Section 29 of the Central Bank Act, the following are the mandatory
requirements to be complied with before a bank found to be insolvent is ordered closed and forbidden
to do business in the Philippines: Firstly, an examination shall be conducted by the head of the
appropriate supervising or examining department or his examiners or agents into the
condition of the bank; secondly, it shall be disclosed in the examination that the condition of the bank
is one of insolvency, or that its continuance in business would involve probable loss to its depositors or
creditors; thirdly, the department head concerned shall inform the Monetary Board in writing, of the facts;
and lastly, the Monetary Board shall find the statements of the department head to be true.20 (Emphasis
supplied)
Petitioners assert that an examination is necessary and not a mere report, otherwise the decision to close
a bank would be arbitrary.
Respondents counter that RA 7653 merely requires a report of the head of the supervising or examining
department. They maintain that the term "report" under Section 30 and the word "examination" used in
Section 29 of the old law are not synonymous. "Examination" connotes in-depth analysis, evaluation,
inquiry or investigation while "report" connotes a simple disclosure or narration of facts for informative
purposes.21
Petitioners’ contention has no merit. Banco Filipino and other cases petitioners cited22 were decided
using Section 29 of the old law (RA 265):
SECTION 29. Proceedings upon insolvency. — Whenever, upon examination by the head of the
appropriate supervising or examining department or his examiners or agents into the
condition of any bank or non-bank financial intermediary performing quasi-banking functions, it shall be
disclosed that the condition of the same is one of insolvency, or that its continuance in business would
involve probable loss to its depositors or creditors, it shall be the duty of the department head concerned
forthwith, in writing, to inform the Monetary Board of the facts. The Board may, upon finding the
statements of the department head to be true, forbid the institution to do business in the Philippines and
designate an official of the Central Bank or a person of recognized competence in banking or finance, as
receiver to immediately take charge of its assets and liabilities, as expeditiously as possible collect and
gather all the assets and administer the same for the benefits 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 or non-bank financial intermediary performing quasi-
banking functions. (Emphasis supplied)
xxx xxx xxx
Thus in Banco Filipino, we ruled that an "examination [conducted] by the head of the appropriate
supervising or examining department or his examiners or agents into the condition of the bank"23 is
necessary before the MB can order its closure.
However, RA 265, including Section 29 thereof, was expressly repealed by RA 7653 which took effect in
1993. Resolution No. 105 was issued on January 21, 2000. Hence, petitioners’ reliance on Banco
Filipino which was decided under RA 265 was misplaced.
In RA 7653, only a "report of the head of the supervising or examining department" is necessary. It is an
established rule in statutory construction that where the words of a statute are clear, plain and free from
ambiguity, it must be given its literal meaning and applied without attempted interpretation:24
This plain meaning rule or verba legis derived from the maxim index animi sermo est (speech is the index
of intention) rests on the valid presumption that the words employed by the legislature in a statute
correctly express its intention or will and preclude the court from construing it differently. The legislature
is presumed to know the meaning of the words, to have used words advisedly, and to have expressed its
intent by use of such words as are found in the statute. Verba legis non est recedendum, or from the
words of a statute there should be no departure.25
The word "report" has a definite and unambiguous meaning which is clearly different from "examination."
A report, as a noun, may be defined as "something that gives information" or "a usually detailed account
or statement."26 On the other hand, an examination is "a search, investigation or scrutiny."27
This Court cannot look for or impose another meaning on the term "report" or to construe it as
synonymous with "examination." From the words used in Section 30, it is clear that RA 7653 no longer
requires that an examination be made before the MB can issue a closure order. We cannot make it a
requirement in the absence of legal basis.
Indeed, the court may consider the spirit and reason of the statute, where a literal meaning would lead to
absurdity, contradiction, injustice, or would defeat the clear purpose of the lawmakers.28 However, these
problems are not present here. Using the literal meaning of "report" does not lead to absurdity,
contradiction or injustice. Neither does it defeat the intent of the legislators. The purpose of the law is to
make the closure of a bank summary and expeditious in order to protect public interest. This is also why
prior notice and hearing are no longer required before a bank can be closed.29
Laying down the requisites for the closure of a bank under the law is the prerogative of the legislature
and what its wisdom dictates. The lawmakers could have easily retained the word "examination" (and in
the process also preserved the jurisprudence attached to it) but they did not and instead opted to use the
word "report." The insistence on an examination is not sanctioned by RA 7653 and we would be guilty of
judicial legislation were we to make it a requirement when such is not supported by the language of the
law.
What is being raised here as grave abuse of discretion on the part of the respondents was the lack of an
examination and not the supposed arbitrariness with which the conclusions of the director of the
Department of Rural Banks Supervision and Examination Sector had been reached in the report which
became the basis of Resolution No. 105.1awphi1.net
The absence of an examination before the closure of RBSM did not mean that there was no basis for the
closure order. Needless to say, the decision of the MB and BSP, like any other administrative body, must
have something to support itself and its findings of fact must be supported by substantial evidence. But it
is clear under RA 7653 that the basis need not arise from an examination as required in the old law.
We thus rule that the MB had sufficient basis to arrive at a sound conclusion that there were grounds that
would justify RBSM’s closure. It relied on the report of Mr. Domo-ong, the head of the supervising or
examining department, with the findings that: (1) RBSM was unable to pay its liabilities as they became
due in the ordinary course of business and (2) that it could not continue in business without incurring
probable losses to its depositors and creditors.30 The report was a 50-page memorandum detailing the
facts supporting those grounds, an extensive chronology of events revealing the multitude of problems
which faced RBSM and the recommendations based on those findings.
In short, MB and BSP complied with all the requirements of RA 7653. By relying on a report before placing
a bank under receivership, the MB and BSP did not only follow the letter of the law, they were also faithful
to its spirit, which was to act expeditiously. Accordingly, the issuance of Resolution No. 105 was untainted
with arbitrariness.
Having dispensed with the issue decisive of this case, it becomes unnecessary to resolve the other minor
issues raised.31
WHEREFORE, the petition is hereby DENIED. The March 28, 2000 decision and November 13, 2001
resolution of the Court of Appeals in CA-G.R. SP No. 57112 areAFFIRMED.
Costs against petitioners.
SO ORDERED.
RENATO C. CORONA
Associate Justice
WE CONCUR:
REYNATO S. PUNO
Chief Justice
Chairperson
ANGELINA SANDOVAL- ADOLFO S. AZCUNA
GUTIERREZ Asscociate Justice
Associate Justice
CANCIO C. GARCIA
Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above decision
had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s
Division.
REYNATO S. PUNO
Chief Justice
Footnotes
1 Under Rule 45 of the Rules of Court.
2 Penned by Associate Justice Eugenio S. Labitoria (now retired) and concurred in by Associate Justices
Bernardo P. Abesamis (now retired) and Elvi John S. Asuncion of the Thirteenth Division of the Court of
Appeals; rollo, pp. 32-50.
3 Id., pp. 52-57.
4 Id., pp. 6 and 33.
5 Id., p. 6.
6 Id., p. 93.
7 Docketed as Civil Case No. 66-M-2000; id. p. 187.
8 Id., p. 38. Section 1, Rule 17 states:
Dismissal upon notice by plaintiff. — A complaint may be dismissed by the plaintiff by filing a notice of
dismissal at any time before service of the answer or of a motion for summary judgment. Upon such
notice being filed, the court shall issue an order confirming the dismissal. Unless otherwise stated in the
notice, the dismissal is without prejudice, except that a notice operates as an adjudication upon the
merits when filed by a plaintiff who has once dismissed in a competent court an action based on or
including the same claim.
9 Id., pp. 33-36.
10 Id., pp. 375-426.
11 Id., pp. 33-37.
12 Under Rule 65 of the Rules of Court.
13 Rollo, p. 43.
14 Id., p. 172.
15 Rural Bank of Buhi, Inc. v. Court of Appeals, G.R. No. L-61689, 20 June 1988, 162 SCRA 288, 303.
16 Section 30, RA 7653.
17 Id.
18 Rollo, pp. 13-14.
19 G.R. No. 70054, 11 December 1991, 204 SCRA 767.
20 Id., p. 794.
21 Rollo, pp. 368-369.
22 Supra note 15, at 302; and Central Bank of the Philippines v. Court of Appeals, G.R. No. 76118, 30
March 1993, 220 SCRA 536, 548.
23 Supra note 19 at 794.
24 National Food Authority (NFA) v. Masada Security Agency, Inc., G.R. No. 163448, 8 March 2005, 453
SCRA 70, 79; Philippine National Bank v. Garcia, Jr., G.R. No. 141246, 9 September 2002, 388 SCRA 485,
487, 491.
25 National Food Authority (NFA) v. Masada Security Agency, Inc., id., citations omitted.
26 Webster’s Third New International Dictionary (1993).
27 Id.
28 Ursua v. Court of Appeals, G.R. No. 112170, 10 April 1996, 256 SCRA 147, 152, citations omitted.
29 Central Bank of the Philippines v. Court of Appeals, supra note 22, at 544; Banco Filipino Savings &
Mortgage Bank v. Monetary Board, Central Bank of the Philippines,supra note 19 at 798; Rural Bank of
Buhi, Inc. v. Court of Appeals, supra note 22,z at 303.
In Rural Bank of Buhi, we stated:
x x x [D]ue process does not necessarily require a prior hearing; a hearing or an opportunity to be heard
may be subsequent to the closure. One can just imagine the dire consequences of a prior hearing: bank
runs would be the order of the day, resulting in panic and hysteria. In the process, fortunes may be wiped
out and disillusionment will run the gamut of the entire banking community.
30 Incidentally, the declaration of a bank holiday (done by RBSM in January 4, 2000) is also a ground for
the closure of a bank by the MB under Section 53 of RA 8791 or the General Banking Law of 2000.
However, RA 8791 became effective only on June 13, 2000 and consequently is not applicable to this
case.
31 1) Whether petitioner Hilario P. Soriano has legal personality to file this petition;
2) Whether petitioners are guilty of forum shopping;
3) Whether petitioners failed to formally offer their evidence/documents in the CA; rollo, pp. 326, 330,
364.

Pasted from <http://www.lawphil.net/judjuris/juri2007/feb2007/gr_150886_2007.html>

Koruga vs. Arcenas (2009)


Sunday, June 06, 2010
1:05 AM

Republic of the Philippines


SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 168332 June 19, 2009
ANA MARIA A. KORUGA, Petitioner,
vs.
TEODORO O. ARCENAS, JR., ALBERT C. AGUIRRE, CESAR S. PAGUIO, FRANCISCO A. RIVERA, and
THE HONORABLE COURT OF APPEALS, THIRD DIVISION, Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 169053 June 19, 2009
TEODORO O. ARCENAS, JR., ALBERT C. AGUIRRE, CESAR S. PAGUIO, and FRANCISCO A.
RIVERA,Petitioners,
vs.
HON. SIXTO MARELLA, JR., Presiding Judge, Branch 138, Regional Trial Court of Makati City,
and ANA MARIA A. KORUGA, Respondents.
DECISION
NACHURA, J.:
Before this Court are two petitions that originated from a Complaint filed by Ana Maria A. Koruga (Koruga)
before the Regional Trial Court (RTC) of Makati City against the Board of Directors of Banco Filipino and
the Members of the Monetary Board of the Bangko Sentral ng Pilipinas (BSP) for violation of the
Corporation Code, for inspection of records of a corporation by a stockholder, for receivership, and for the
creation of a management committee.
G.R. No. 168332
The first is a Petition for Certiorari under Rule 65 of the Rules of Court, docketed as G.R. No. 168332,
praying for the annulment of the Court of Appeals (CA) Resolution1 in CA-G.R. SP No. 88422 dated April
18, 2005 granting the prayer for a Writ of Preliminary Injunction of therein petitioners Teodoro O.
Arcenas, Jr., Albert C. Aguirre, Cesar S. Paguio, and Francisco A. Rivera (Arcenas, et al.).
Koruga is a minority stockholder of Banco Filipino Savings and Mortgage Bank. On August 20, 2003, she
filed a complaint before the Makati RTC which was raffled to Branch 138, presided over by Judge Sixto
Marella, Jr.2Koruga’s complaint alleged:
10. 1 Violation of Sections 31 to 34 of the Corporation Code ("Code") which prohibit self-dealing and
conflicts of interest of directors and officers, thus:
(a) For engaging in unsafe, unsound, and fraudulent banking practices that have jeopardized the welfare
of the Bank, its shareholders, who includes among others, the Petitioner, and depositors. (sic)
(b) For granting and approving loans and/or "loaned" sums of money to six (6) "dummy" borrower
corporations ("Borrower Corporations") which, at the time of loan approval, had no financial capacity to
justify the loans. (sic)
(c) For approving and accepting a dacion en pago, or payment of loans with property instead of cash,
resulting to a diminished future cumulative interest income by the Bank and a decline in its liquidity
position. (sic)
(d) For knowingly giving "favorable treatment" to the Borrower Corporations in which some or most of
them have interests, i.e. interlocking directors/officers thereof, interlocking ownerships. (sic)
(e) For employing their respective offices and functions as the Bank’s officers and directors, or omitting to
perform their functions and duties, with negligence, unfaithfulness or abuse of confidence of fiduciary
duty, misappropriated or misapplied or ratified by inaction the misappropriation or misappropriations, of
(sic) almost P1.6 Billion Pesos (sic) constituting the Bank’s funds placed under their trust and
administration, by unlawfully releasing loans to the Borrower Corporations or refusing or failing to impugn
these, knowing before the loans were released or thereafter that the Bank’s cash resources would be
dissipated thereby, to the prejudice of the Petitioner, other Banco Filipino depositors, and the public.
10.2 Right of a stockholder to inspect the records of a corporation (including financial statements) under
Sections 74 and 75 of the Code, as implemented by the Interim Rules;
(a) Unlawful refusal to allow the Petitioner from inspecting or otherwise accessing the corporate records
of the bank despite repeated demand in writing, where she is a stockholder. (sic)
10.3 Receivership and Creation of a Management Committee pursuant to:
(a) Rule 59 of the 1997 Rules of Civil Procedure ("Rules");
(b) Section 5.2 of R.A. No. 8799;
(c) Rule 1, Section 1(a)(1) of the Interim Rules;
(d) Rule 1, Section 1(a)(2) of the Interim Rules;
(e) Rule 7 of the Interim Rules;
(f) Rule 9 of the Interim Rules; and
(g) The General Banking Law of 2000 and the New Central Bank Act.3
On September 12, 2003, Arcenas, et al. filed their Answer raising, among others, the trial court’s lack of
jurisdiction to take cognizance of the case. They also filed a Manifestation and Motion seeking the
dismissal of the case on the following grounds: (a) lack of jurisdiction over the subject matter; (b) lack of
jurisdiction over the persons of the defendants; (c) forum-shopping; and (d) for being a
nuisance/harassment suit. They then moved that the trial court rule on their affirmative defenses, dismiss
the intra-corporate case, and set the case for preliminary hearing.
In an Order dated October 18, 2004, the trial court denied the Manifestation and Motion, ruling thus:
The result of the procedure sought by defendants Arcenas, et al. (sic) is for the Court to conduct a
preliminary hearing on the affirmative defenses raised by them in their Answer. This [is] proscribed by the
Interim Rules of Procedure on Intracorporate (sic) Controversies because when a preliminary hearing is
conducted it is "as if a Motion to Dismiss was filed" (Rule 16, Section 6, 1997 Rules of Civil Procedure). A
Motion to Dismiss is a prohibited pleading under the Interim Rules, for which reason, no favorable
consideration can be given to the Manifestation and Motion of defendants, Arcenas, et al.
The Court finds no merit to (sic) the claim that the instant case is a nuisance or harassment suit.
WHEREFORE, the Court defers resolution of the affirmative defenses raised by the defendants Arcenas, et
al.4
Arcenas, et al. moved for reconsideration5 but, on January 18, 2005, the RTC denied the motion.6 This
prompted Arcenas, et al. to file before the CA a Petition for Certiorari and Prohibition under Rule 65 of the
Rules of Court with a prayer for the issuance of a writ of preliminary injunction and a temporary retraining
order (TRO).7
On February 9, 2005, the CA issued a 60-day TRO enjoining Judge Marella from conducting further
proceedings in the case.8
On February 22, 2005, the RTC issued a Notice of Pre-trial9 setting the case for pre-trial on June 2 and 9,
2005. Arcenas, et al. filed a Manifestation and Motion10 before the CA, reiterating their application for a
writ of preliminary injunction. Thus, on April 18, 2005, the CA issued the assailed Resolution, which reads
in part:
(C)onsidering that the Temporary Restraining Order issued by this Court on February 9, 2005 expired on
April 10, 2005, it is necessary that a writ of preliminary injunction be issued in order not to render
ineffectual whatever final resolution this Court may render in this case, after the petitioners shall have
posted a bond in the amount of FIVE HUNDRED THOUSAND (P500,000.00) PESOS.
SO ORDERED.11
Dissatisfied, Koruga filed this Petition for Certiorari under Rule 65 of the Rules of Court. Koruga alleged
that the CA effectively gave due course to Arcenas, et al.’s petition when it issued a writ of preliminary
injunction without factual or legal basis, either in the April 18, 2005 Resolution itself or in the records of
the case. She prayed that this Court restrain the CA from implementing the writ of preliminary injunction
and, after due proceedings, make the injunction against the assailed CA Resolution permanent.12
In their Comment, Arcenas, et al. raised several procedural and substantive issues. They alleged that the
Verification and Certification against Forum-Shopping attached to the Petition was not executed in the
manner prescribed by Philippine law since, as admitted by Koruga’s counsel himself, the same was only a
facsimile.
They also averred that Koruga had admitted in the Petition that she never asked for reconsideration of
the CA’s April 18, 2005 Resolution, contending that the Petition did not raise pure questions of law as to
constitute an exception to the requirement of filing a Motion for Reconsideration before a Petition for
Certiorari is filed.
They, likewise, alleged that the Petition may have already been rendered moot and academic by the July
20, 2005 CA Decision,13 which denied their Petition, and held that the RTC did not commit grave abuse of
discretion in issuing the assailed orders, and thus ordered the RTC to proceed with the trial of the case.
Meanwhile, on March 13, 2006, this Court issued a Resolution granting the prayer for a TRO and enjoining
the Presiding Judge of Makati RTC, Branch 138, from proceeding with the hearing of the case upon the
filing by Arcenas, et al. of a P50,000.00 bond. Koruga filed a motion to lift the TRO, which this Court
denied on July 5, 2006.
On the other hand, respondents Dr. Conrado P. Banzon and Gen. Ramon Montaño also filed their
Comment on Koruga’s Petition, raising substantially the same arguments as Arcenas, et al.
G.R. No. 169053
G.R. No. 169053 is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, with prayer for
the issuance of a TRO and a writ of preliminary injunction filed by Arcenas, et al.
In their Petition, Arcenas, et al. asked the Court to set aside the Decision14 dated July 20, 2005 of the CA
in CA-G.R. SP No. 88422, which denied their petition, having found no grave abuse of discretion on the
part of the Makati RTC. The CA said that the RTC Orders were interlocutory in nature and, thus, may be
assailed by certiorari or prohibition only when it is shown that the court acted without or in excess of
jurisdiction or with grave abuse of discretion. It added that the Supreme Court frowns upon resort to
remedial measures against interlocutory orders.
Arcenas, et al. anchored their prayer on the following grounds: that, in their Answer before the RTC, they
had raised the issue of failure of the court to acquire jurisdiction over them due to improper service of
summons; that the Koruga action is a nuisance or harassment suit; that there is another case involving
the same parties for the same cause pending before the Monetary Board of the BSP, and this constituted
forum-shopping; and that jurisdiction over the subject matter of the case is vested by law in the BSP.15
Arcenas, et al. assign the following errors:
I. THE COURT OF APPEALS, IN "FINDING NO GRAVE ABUSE OF DISCRETION COMMITTED BY PUBLIC
RESPONDENT REGIONAL TRIAL COURT OF MAKATI, BRANCH 138, IN ISSUING THE ASSAILED
ORDERS," FAILED TO CONSIDER AND MERELY GLOSSED OVER THE MORE TRANSCENDENT ISSUES
OF THE LACK OF JURISDICTION ON THE PART OF SAID PUBLIC RESPONDENT OVER THE SUBJECT
MATTER OF THE CASE BEFORE IT, LITIS PENDENTIA AND FORUM SHOPPING, AND THE CASE BELOW
BEING A NUISANCE OR HARASSMENT SUIT, EITHER ONE AND ALL OF WHICH GOES/GO TO RENDER
THE ISSUANCE BY PUBLIC RESPONDENT OF THE ASSAILED ORDERS A GRAVE ABUSE OF DISCRETION.
II. THE FINDING OF THE COURT OF APPEALS OF "NO GRAVE ABUSE OF DISCRETION COMMITTED BY
PUBLIC RESPONDENT REGIONAL TRIAL COURT OF MAKATI, BRANCH 138, IN ISSUING THE ASSAILED
ORDERS," IS NOT IN ACCORD WITH LAW OR WITH THE APPLICABLE DECISIONS OF THIS HONORABLE
COURT.16
Meanwhile, in a Manifestation and Motion filed on August 31, 2005, Koruga prayed for, among others, the
consolidation of her Petition with the Petition for Review on Certiorari under Rule 45 filed by Arcenas, et
al., docketed as G.R. No. 169053. The motion was granted by this Court in a Resolution dated September
26, 2005.
Our Ruling
Initially, we will discuss the procedural issue.
Arcenas, et al. argue that Koruga’s petition should be dismissed for its defective Verification and
Certification Against Forum-Shopping, since only a facsimile of the same was attached to the Petition.
They also claim that the Verification and Certification Against Forum-Shopping, allegedly executed in
Seattle, Washington, was not authenticated in the manner prescribed by Philippine law and not certified
by the Philippine Consulate in the United States.
This contention deserves scant consideration.
On the last page of the Petition in G.R. No. 168332, Koruga’s counsel executed an Undertaking, which
reads as follows:
In view of that fact that the Petitioner is currently in the United States, undersigned counsel is attaching a
facsimile copy of the Verification and Certification Against Forum-Shopping duly signed by the Petitioner
and notarized by Stephanie N. Goggin, a Notary Public for the Sate (sic) of Washington. Upon arrival of
the original copy of the Verification and Certification as certified by the Office of the Philippine Consul, the
undersigned counsel shall immediately provide duplicate copies thereof to the Honorable Court.17
Thus, in a Compliance18 filed with the Court on September 5, 2005, petitioner submitted the original copy
of the duly notarized and authenticated Verification and Certification Against Forum-Shopping she had
executed.19 This Court noted and considered the Compliance satisfactory in its Resolution dated
November 16, 2005. There is, therefore, no need to further belabor this issue.
We now discuss the substantive issues in this case.
First, we resolve the prayer to nullify the CA’s April 18, 2005 Resolution.
We hold that the Petition in G.R. No. 168332 has become moot and academic. The writ of preliminary
injunction being questioned had effectively been dissolved by the CA’s July 20, 2005 Decision. The
dispositive portion of the Decision reads in part:
The case is REMANDED to the court a quo for further proceedings and to resolve with deliberate dispatch
the intra-corporate controversies and determine whether there was actually a valid service of summons.
If, after hearing, such service is found to have been improper, then new summons should be served
forthwith.20
Accordingly, there is no necessity to restrain the implementation of the writ of preliminary injunction
issued by the CA on April 18, 2005, since it no longer exists.
However, this Court finds that the CA erred in upholding the jurisdiction of, and remanding the case to,
the RTC.
The resolution of these petitions rests mainly on the determination of one fundamental issue: Which body
has jurisdiction over the Koruga Complaint, the RTC or the BSP?
We hold that it is the BSP that has jurisdiction over the case.
A reexamination of the Complaint is in order.
Koruga’s Complaint charged defendants with violation of Sections 31 to 34 of the Corporation Code,
prohibiting self-dealing and conflict of interest of directors and officers; invoked her right to inspect the
corporation’s records under Sections 74 and 75 of the Corporation Code; 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.
It is clear that the acts complained of pertain to the conduct of Banco Filipino’s banking business. A bank,
as defined in the General Banking Law,21 refers to an entity engaged in the lending of funds obtained in
the form of deposits.22 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 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.
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.23
The law vests in the BSP the supervision over operations and activities of banks. The New Central Bank
Act provides:
Section 25. Supervision and Examination. - The Bangko Sentral shall have supervision over, and conduct
periodic or special examinations of, banking institutions and quasi-banks, including their subsidiaries and
affiliates engaged in allied activities.24
Specifically, the BSP’s supervisory and regulatory powers include:
4.1 The issuance of rules of conduct or the establishment of standards of operation for uniform
application to all institutions or functions covered, taking into consideration the distinctive character of
the operations of institutions and the substantive similarities of specific functions to which such rules,
modes or standards are to be applied;
4.2 The conduct of examination to determine compliance with laws and regulations if the
circumstances so warrant as determined by the Monetary Board;
4.3 Overseeing to ascertain that laws and Regulations are complied with;
4.4 Regular investigation which shall not be oftener than once a year from the last date of
examination to determine whether an institution is conducting its business on a safe or sound
basis: Provided, That the deficiencies/irregularities found by or discovered by an audit shall be
immediately addressed;
4.5 Inquiring into the solvency and liquidity of the institution (2-D); or
4.6 Enforcing prompt corrective action.25
Koruga alleges that "the dispute in the trial court involves the manner with which the Directors’ (sic) have
handled the Bank’s affairs, specifically the fraudulent loans and dacion en pago authorized by the
Directors in favor of several dummy corporations known to have close ties and are indirectly controlled by
the Directors."26 Her allegations, then, call for the examination of the allegedly questionable loans.
Whether these loans are covered by the prohibition on self-dealing is a matter for the BSP to determine.
These are not ordinary intra-corporate matters; rather, they involve banking activities which are, by law,
regulated and supervised by the BSP. As the Court has previously held:
It is well-settled in both law and jurisprudence that 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.27
Correlatively, the General Banking Law of 2000 specifically deals with loans contracted by bank directors
or officers, thus:
SECTION 36. Restriction on Bank Exposure to Directors, Officers, Stockholders and Their
Related Interests. — No director or officer of any bank shall, directly or indirectly, for himself or as the
representative or agent of others, borrow from such bank nor shall he become a guarantor, indorser or
surety for loans from such bank to others, or in any manner be an obligor or incur any contractual liability
to the bank except with the written approval of the majority of all the directors of the bank, excluding the
director concerned: Provided, That such written approval shall not be required for loans, other credit
accommodations and advances granted to officers under a fringe benefit plan approved by the Bangko
Sentral. The required approval shall be entered upon the records of the bank and a copy of such entry
shall be transmitted forthwith to the appropriate supervising and examining department of the Bangko
Sentral.
Dealings of a bank with any of its directors, officers or stockholders and their related interests shall be
upon terms not less favorable to the bank than those offered to others.
After due notice to the board of directors of the bank, the office of any bank director or officer who
violates the provisions of this Section may be declared vacant and the director or officer shall be subject
to the penal provisions of the New Central Bank Act.
The Monetary Board may regulate the amount of loans, credit accommodations and guarantees that may
be extended, directly or indirectly, by a bank to its directors, officers, stockholders and their related
interests, as well as investments of such bank in enterprises owned or controlled by said directors,
officers, stockholders and their related interests. However, the outstanding loans, credit accommodations
and guarantees which a bank may extend to each of its stockholders, directors, or officers and their
related interests, shall be limited to an amount equivalent to their respective unencumbered deposits and
book value of their paid-in capital contribution in the bank: Provided, however, That loans, credit
accommodations and guarantees secured by assets considered as non-risk by the Monetary Board shall
be excluded from such limit: Provided, further, That loans, credit accommodations and advances to
officers in the form of fringe benefits granted in accordance with rules as may be prescribed by the
Monetary Board shall not be subject to the individual limit.
The Monetary Board shall define the term "related interests."
The limit on loans, credit accommodations and guarantees prescribed herein shall not apply to loans,
credit accommodations and guarantees extended by a cooperative bank to its cooperative
shareholders.28
Furthermore, the authority to determine whether a bank is conducting business in an unsafe or unsound
manner is also vested in the Monetary Board. The General Banking Law of 2000 provides:
SECTION 56. Conducting Business in an Unsafe or Unsound Manner. — In determining whether a
particular act or omission, which is not otherwise prohibited by any law, rule or regulation affecting banks,
quasi-banks or trust entities, may be deemed as conducting business in an unsafe or unsound manner for
purposes of this Section, the Monetary Board shall consider any of the following circumstances:
56.1. The act or omission has resulted or may result in material loss or damage, or abnormal risk or
danger to the safety, stability, liquidity or solvency of the institution;
56.2. The act or omission has resulted or may result in material loss or damage or abnormal risk to the
institution's depositors, creditors, investors, stockholders or to the Bangko Sentral or to the public in
general;
56.3. The act or omission has caused any undue injury, or has given any unwarranted benefits, advantage
or preference to the bank or any party in the discharge by the director or officer of his duties and
responsibilities through manifest partiality, evident bad faith or gross inexcusable negligence; or
56.4. The act or omission involves entering into any contract or transaction manifestly and grossly
disadvantageous to the bank, quasi-bank or trust entity, whether or not the director or officer profited or
will profit thereby.
Whenever a bank, quasi-bank or trust entity persists in conducting its business in an unsafe or unsound
manner, the Monetary Board may, without prejudice to the administrative sanctions provided in Section
37 of the New Central Bank Act, take action under Section 30 of the same Act and/or immediately exclude
the erring bank from clearing, the provisions of law to the contrary notwithstanding.
Finally, the New Central Bank Act grants the Monetary Board the power to impose administrative
sanctions on the erring bank:
Section 37. Administrative Sanctions on Banks and Quasi-banks. - Without prejudice to the criminal
sanctions against the culpable persons provided in Sections 34, 35, and 36 of this Act, the Monetary
Board may, at its discretion, impose upon any bank or quasi-bank, their directors and/or officers, for any
willful violation of its charter or by-laws, willful delay in the submission of reports or publications thereof
as required by law, rules and regulations; any refusal to permit examination into the affairs of the
institution; any willful making of a false or misleading statement to the Board or the appropriate
supervising and examining department or its examiners; any willful failure or refusal to comply with, or
violation of, any banking law or any order, instruction or regulation issued by the Monetary Board, or any
order, instruction or ruling by the Governor; or any commission of irregularities, and/or conducting
business in an unsafe or unsound manner as may be determined by the Monetary Board, the following
administrative sanctions, whenever applicable:
(a) fines in amounts as may be determined by the Monetary Board to be appropriate, but in no case to
exceed Thirty thousand pesos (P30,000) a day for each violation, taking into consideration the attendant
circumstances, such as the nature and gravity of the violation or irregularity and the size of the bank or
quasi-bank;
(b) suspension of rediscounting privileges or access to Bangko Sentral credit facilities;
(c) suspension of lending or foreign exchange operations or authority to accept new deposits or make
new investments;
(d) suspension of interbank clearing privileges; and/or
(e) revocation of quasi-banking license.
Resignation or termination from office shall not exempt such director or officer from administrative or
criminal sanctions.
The Monetary Board may, whenever warranted by circumstances, preventively suspend any director or
officer of a bank or quasi-bank pending an investigation: Provided, That should the case be not finally
decided by the Bangko Sentral within a period of one hundred twenty (120) days after the date of
suspension, said director or officer shall be reinstated in his position: Provided, further, That when the
delay in the disposition of the case is due to the fault, negligence or petition of the director or officer, the
period of delay shall not be counted in computing the period of suspension herein provided.
The above administrative sanctions need not be applied in the order of their severity.
Whether or not there is an administrative proceeding, if the institution and/or the directors and/or officers
concerned continue with or otherwise persist in the commission of the indicated practice or violation, the
Monetary Board may issue an order requiring the institution and/or the directors and/or officers
concerned to cease and desist from the indicated practice or violation, and may further order that
immediate action be taken to correct the conditions resulting from such practice or violation. The cease
and desist order shall be immediately effective upon service on the respondents.
The respondents shall be afforded an opportunity to defend their action in a hearing before the Monetary
Board or any committee chaired by any Monetary Board member created for the purpose, upon request
made by the respondents within five (5) days from their receipt of the order. If no such hearing is
requested within said period, the order shall be final. If a hearing is conducted, all issues shall be
determined on the basis of records, after which the Monetary Board may either reconsider or make final
its order.
The Governor is hereby authorized, at his discretion, to impose upon banking institutions, for any failure
to comply with the requirements of law, Monetary Board regulations and policies, and/or instructions
issued by the Monetary Board or by the Governor, fines not in excess of Ten thousand pesos (P10,000) a
day for each violation, the imposition of which shall be final and executory until reversed, modified or
lifted by the Monetary Board on appeal.29
Koruga also accused Arcenas, et al. of violation of the Corporation Code’s provisions on self-dealing and
conflict of interest. She invoked Section 31 of the Corporation Code, which defines the liability of
directors, trustees, or officers of a corporation for, among others, acquiring any personal or pecuniary
interest in conflict with their duty as directors or trustees, and Section 32, which prescribes the conditions
under which a contract of the corporation with one or more of its directors or trustees – the so-called
"self-dealing directors"30 – would be valid. She also alleged that Banco Filipino’s directors violated
Sections 33 and 34 in approving the loans of corporations with interlocking ownerships, i.e., owned,
directed, or managed by close associates of Albert C. Aguirre.
Sections 31 to 34 of the Corporation Code provide:
Section 31. Liability of directors, trustees or officers. - Directors or trustees who wilfully and knowingly
vote for or assent to patently unlawful acts of the corporation or who are guilty of gross negligence or bad
faith in directing the affairs of the corporation or acquire any personal or pecuniary interest in conflict
with their duty as such directors or trustees shall be liable jointly and severally for all damages resulting
therefrom suffered by the corporation, its stockholders or members and other persons.
When a director, trustee or officer attempts to acquire or acquires, in violation of his duty, any interest
adverse to the corporation in respect of any matter which has been reposed in him in confidence, as to
which equity imposes a disability upon him to deal in his own behalf, he shall be liable as a trustee for the
corporation and must account for the profits which otherwise would have accrued to the corporation.
Section 32. Dealings of directors, trustees or officers with the corporation. - A contract of the corporation
with one or more of its directors or trustees or officers is voidable, at the option of such corporation,
unless all the following conditions are present:
1. That the presence of such director or trustee in the board meeting in which the contract was approved
was not necessary to constitute a quorum for such meeting;
2. That the vote of such director or trustee was not necessary for the approval of the contract;
3. That the contract is fair and reasonable under the circumstances; and
4. That in case of an officer, the contract has been previously authorized by the board of directors.
Where any of the first two conditions set forth in the preceding paragraph is absent, in the case of a
contract with a director or trustee, such contract may be ratified by the vote of the stockholders
representing at least two-thirds (2/3) of the outstanding capital stock or of at least two-thirds (2/3) of the
members in a meeting called for the purpose: Provided, That full disclosure of the adverse interest of the
directors or trustees involved is made at such meeting: Provided, however, That the contract is fair and
reasonable under the circumstances.
Section 33. Contracts between corporations with interlocking directors. - Except in cases of fraud, and
provided the contract is fair and reasonable under the circumstances, a contract between two or more
corporations having interlocking directors shall not be invalidated on that ground alone: Provided, That if
the interest of the interlocking director in one corporation is substantial and his interest in the other
corporation or corporations is merely nominal, he shall be subject to the provisions of the preceding
section insofar as the latter corporation or corporations are concerned.
Stockholdings exceeding twenty (20%) percent of the outstanding capital stock shall be considered
substantial for purposes of interlocking directors.
Section 34. Disloyalty of a director. - Where a director, by virtue of his office, acquires for himself a
business opportunity which should belong to the corporation, thereby obtaining profits to the prejudice of
such corporation, he must account to the latter for all such profits by refunding the same, unless his act
has been ratified by a vote of the stockholders owning or representing at least two-thirds (2/3) of the
outstanding capital stock. This provision shall be applicable, notwithstanding the fact that the director
risked his own funds in the venture.
Koruga’s invocation of the provisions of the Corporation Code is misplaced. In an earlier case with similar
antecedents, we ruled that:
The Corporation Code, however, is a general law applying to all types of corporations, while the New
Central Bank Act regulates specifically banks and other financial institutions, including the dissolution and
liquidation thereof. As between a general and special law, the latter shall prevail – generalia specialibus
non derogant.31
Consequently, it is not the Interim Rules of Procedure on Intra-Corporate Controversies,32 or Rule 59 of
the Rules of Civil Procedure on Receivership, that would apply to this case. Instead, Sections 29 and 30 of
the New Central Bank Act should be followed, viz.:
Section 29. Appointment of Conservator. - Whenever, on the basis of a report submitted by the
appropriate supervising or examining department, the Monetary Board finds that a bank or a quasi-bank
is in a state of continuing inability or unwillingness to maintain a condition of liquidity deemed adequate
to protect the interest of depositors and creditors, the Monetary Board may appoint a conservator with
such powers as the Monetary Board shall deem necessary to take charge of the assets, liabilities, and the
management thereof, reorganize the management, collect all monies and debts due said institution, and
exercise all powers necessary to restore its viability. The conservator shall report and be responsible to
the Monetary Board and shall have the power to overrule or revoke the actions of the previous
management and board of directors of the bank or quasi-bank.
xxxx
The Monetary Board shall terminate the conservatorship when it is satisfied that the institution can
continue to operate on its own and the conservatorship is no longer necessary. The conservatorship shall
likewise be terminated should the Monetary Board, on the basis of the report of the conservator or of its
own findings, determine that the continuance in business of the institution would involve probable loss to
its depositors or creditors, in which case the provisions of Section 30 shall apply.
Section 30. Proceedings in Receivership and Liquidation. - Whenever, upon report of the head of the
supervising or examining department, the Monetary Board finds that a bank or quasi-bank:
(a) is unable to pay its liabilities as they become due in the ordinary course of business: Provided, That
this shall not include inability to pay caused by extraordinary demands induced by financial panic in the
banking community;
(b) has insufficient realizable assets, as determined by the Bangko Sentral, to meet its liabilities; or
(c) cannot continue in business without involving probable losses to its depositors or creditors; or
(d) has willfully violated a cease and desist order under Section 37 that has become final, involving acts
or transactions which amount to fraud or a dissipation of the assets of the institution; in which cases, the
Monetary Board may summarily and without need for prior hearing forbid the institution from doing
business in the Philippines and designate the Philippine Deposit Insurance Corporation as receiver of the
banking institution.
xxxx
The actions of the Monetary Board taken under this section or under Section 29 of this Act shall be final
and executory, and may not be restrained or set aside by the court except on petition for certiorari on the
ground that the action taken was in excess of jurisdiction or with such grave abuse of discretion as to
amount to lack or excess of jurisdiction. The petition for certiorari may only be filed by the stockholders of
record representing the majority of the capital stock within ten (10) days from receipt by the board of
directors of the institution of the order directing receivership, liquidation or conservatorship.
The designation of a conservator under Section 29 of this Act or the appointment of a receiver under this
section shall be vested exclusively with the Monetary Board. Furthermore, the designation of a
conservator is not a precondition to the designation of a receiver.33
On the strength of these provisions, it is the Monetary Board that exercises exclusive jurisdiction over
proceedings for receivership of banks.
Crystal clear in Section 30 is the provision that says the "appointment of a receiver under this section
shall be vested exclusively with the Monetary Board." The term "exclusively" connotes that only the
Monetary Board can resolve the issue of whether a bank is to be placed under receivership and, upon an
affirmative finding, it also has authority to appoint a receiver. This is further affirmed by the fact that the
law allows the Monetary Board to take action "summarily and without need for prior hearing."
And, as a clincher, the law explicitly provides that "actions of the Monetary Board taken under this section
or under Section 29 of this Act shall be final and executory, and may not be restrained or set aside by the
court except on a petition for certiorari on the ground that the action taken was in excess of jurisdiction or
with such grave abuse of discretion as to amount to lack or excess of jurisdiction."1avvphi1
From the foregoing disquisition, there is no doubt that the RTC has no jurisdiction to hear and decide a
suit that seeks to place Banco Filipino under receivership.
Koruga herself recognizes the BSP’s power over the allegedly unlawful acts of Banco Filipino’s directors.
The records of this case bear out that Koruga, through her legal counsel, wrote the Monetary Board34 on
April 21, 2003 to bring to its attention the acts she had enumerated in her complaint before the RTC. The
letter reads in part:
Banco Filipino and the current members of its Board of Directors should be placed under investigation for
violations of banking laws, the commission of irregularities, and for conducting business in an unsafe or
unsound manner. They should likewise be placed under preventive suspension by virtue of the powers
granted to the Monetary Board under Section 37 of the Central Bank Act. These blatant violations of
banking laws should not go by without penalty. They have put Banco Filipino, its depositors and
stockholders, and the entire banking system (sic) in jeopardy.
xxxx
We urge you to look into the matter in your capacity as regulators. Our clients, a minority stockholders,
(sic) and many depositors of Banco Filipino are prejudiced by a failure to regulate, and taxpayers are
prejudiced by accommodations granted by the BSP to Banco Filipino35
In a letter dated May 6, 2003, BSP Supervision and Examination Department III Director Candon B.
Guerrero referred Koruga’s letter to Arcenas for comment.36 On June 6, 2003, Banco Filipino’s then
Executive Vice President and Corporate Secretary Francisco A. Rivera submitted the bank’s comments
essentially arguing that Koruga’s accusations lacked legal and factual bases.37
On the other hand, the BSP, in its Answer before the RTC, said that it had been looking into Banco
Filipino’s activities. An October 2002 Report of Examination (ROE) prepared by the Supervision and
Examination Department (SED) noted certain dacion payments, out-of-the-ordinary expenses, among
other dealings. On July 24, 2003, the Monetary Board passed Resolution No. 1034 furnishing Banco
Filipino a copy of the ROE with instructions for the bank to file its comment or explanation within 30 to 90
days under threat of being fined or of being subjected to other remedial actions. The ROE, the BSP said,
covers substantially the same matters raised in Koruga’s complaint. At the time of the filing of Koruga’s
complaint on August 20, 2003, the period for Banco Filipino to submit its explanation had not yet
expired.38
Thus, the court’s jurisdiction could only have been invoked after the Monetary Board had taken action on
the matter and only on the ground that the action taken was in excess of jurisdiction or with such grave
abuse of discretion as to amount to lack or excess of jurisdiction.
Finally, there is one other reason why Koruga’s complaint before the RTC cannot prosper. Given her own
admission – and the same is likewise supported by evidence – that she is merely a minority stockholder of
Banco Filipino, she would not have the standing to question the Monetary Board’s action. Section 30 of
the New Central Bank Act provides:
The petition for certiorari may only be filed by the stockholders of record representing the majority of the
capital stock within ten (10) days from receipt by the board of directors of the institution of the order
directing receivership, liquidation or conservatorship.
All the foregoing discussion yields the inevitable conclusion that the CA erred in upholding the jurisdiction
of, and remanding the case to, the RTC. Given that the RTC does not have jurisdiction over the subject
matter of the case, its refusal to dismiss the case on that ground amounted to grave abuse of discretion.
WHEREFORE, the foregoing premises considered, the Petition in G.R. No. 168332 is DISMISSED, while the
Petition in G.R. No. 169053 is GRANTED. The Decision of the Court of Appeals dated July 20, 2005 in CA-
G.R. SP No. 88422 is hereby SET ASIDE. The Temporary Restraining Order issued by this Court on March
13, 2006 is made PERMANENT. Consequently, Civil Case No. 03-985, pending before the Regional Trial
Court of Makati City, is DISMISSED.
SO ORDERED.
ANTONIO EDUARDO B. NACHURA
Associate Justice
WE CONCUR:
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson
ANTONIO T. RENATO C. CORONA**
CARPIO* Associate Justice
Associate Justice
DIOSDADO M. PERALTA
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision were reached in consultation before the case was
assigned to the writer of the opinion of the Court’s Division.
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's Attestation, I certify
that the conclusions in the above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Court’s Division.
REYNATO S. PUNO
Chief Justice
Footnotes
* Additional member in lieu of Associate Justice Conchita Carpio Morales per Special Order No. 646 dated May 15, 2009.

** Additional member in lieu of Associate Justice Minita V. Chico-Nazario per Special Order No. 631 dated April 29, 2009.
1 Rollo (G.R. No. 168332), pp. 48-49.
2 Now a Justice of the Court of Appeals.
3 Rollo (G.R. No. 168332), pp. 7-9.
4 CA rollo, p. 48.
5 Id. at 52-60.
6 Id. at 50.
7 Id. at 2-47.
8 Id. at 95-97.
9 Rollo (G.R. No. 168332), p. 196.
10 Id. at 197-198.
11 Id. at 49.
12 Id. at 40.
13 Penned by Associate Justice Eugenio S. Labitoria, with Associate Justices Eliezer R. delos Santos and
Arturo D. Brion (now a member of this Court), concurring; id. at 259-277.
14 Rollo (G.R. No. 169053), pp. 58-76.
15 Id. at 8-9.
16 Id. at 17-18.
17 Rollo (G.R. No. 168332), p. 44.
18 Id. at 286-288.
19 Id. at 290-292.
20 Rollo (G.R. No. 169053), p. 75.
21 Republic Act (R.A.) No. 8791.
22 R.A. No. 8791, Sec. 3 (3.1).
23 Central Bank of the Philippines v. Court of Appeals, G.R. No. 88353, May 8, 1992, 208 SCRA 652, 684-
685.
24 R.A. No. 7653.
25 R.A. No. 8791, Sec. 4. (Emphasis supplied.)
26 Memorandum, rollo (G.R. No. 169053), p. 717.
27 Miranda v. Philippine Deposit Insurance Corporation, G.R. No. 169334, September 8, 2006, 501 SCRA
288, 298.
28 Emphasis supplied.
29 Emphasis supplied.
30 See Prime White Cement Corporation v. Honorable Intermediate Appellate Court, et al., G.R. No.
68555, March 19, 1993, 220 SCRA 103.
31 In Re: Petition for Assistance in the Liquidation of the Rural Bank of Bokod (Benguet), Inc., PDIC v.
Bureau of Internal Revenue, G.R. No. 158261, December 18, 2006, 511 SCRA 123, 141, citing Laureano v.
Court of Appeals, 381 Phil. 403, 411-412 (2000).
32 A.M. No. 01-2-04-SC dated April 1, 2001.
33 Emphasis supplied.
34 Rollo (G.R. No. 169053), pp. 266-272
35 Id. at 271-272. (Citations omitted.)
36 Id. at p.457
37 Id. at pp. 459-462.
38 CA rollo, p. 460.

Pasted from <http://www.lawphil.net/judjuris/juri2009/jun2009/gr_168332_2009.html>

Solidbank vs. Tan (2007)


Sunday, June 06, 2010
1:12 AM

PHILIPPINE JURISPRUDENCE – FULL TEXT


The Lawphil Project - Arellano Law Foundation
G.R. No. 167346 April 2, 2007
SOLIDBANK CORP./METRO BANK & TRUST CO. VS. SPS. PETER & SUSAN TAN

Republic of the Philippines


SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 167346 April 2, 2007
SOLIDBANK CORPORATION/ METROPOLITAN BANK AND TRUST COMPANY,* Petitioner,
vs.
SPOUSES PETER and SUSAN TAN, Respondents.
DECISION
CORONA, J.:
Assailed in this petition for review by certiorari under Rule 45 of the Rules of Court are the decision1 and
resolution2 of the Court of Appeals (CA) dated November 26, 2004 and March 1, 2005, respectively, in
CA-G.R. CV No. 58618,3 affirming the decision of the Regional Trial Court (RTC) of Manila, Branch 31.4
On December 2, 1991, respondents’ representative, Remigia Frias, deposited with petitioner ten checks
worth P455,962. Grace Neri, petitioner’s teller no. 8 in its Juan Luna, Manila Branch, received two deposit
slips for the checks, an original and a duplicate. Neri verified the checks and their amounts in the deposit
slips then returned the duplicate copy to Frias and kept the original copy for petitioner.
In accordance with the usual practice between petitioner and respondents, the latter’s passbook was left
with petitioner for the recording of the deposits on the bank’s ledger. Later, respondents retrieved the
passbook and discovered that one of the checks, Metropolitan Bank and Trust Company (Metrobank)
check no. 403954, payable to cash in the sum of P250,000 was not posted therein.
Immediately, respondents notified petitioner of the problem. Petitioner showed respondent Peter Tan a
duplicate
copy of a deposit slip indicating the list of checks deposited by Frias. But it did not include the missing
check. The deposit slip bore the stamp mark "teller no. 7" instead of "teller no. 8" who previously received
the checks.
Still later, respondent Peter Tan learned from Metrobank (where he maintained an account) that
Metrobank check no. 403954 had cleared after it was inexplicably deposited by a certain Dolores Lagsac
in Premier Bank in San Pedro, Laguna. Respondents demanded that petitioner pay the amount of the
check but it refused, hence, they filed a case for collection of a sum of money in the RTC of Manila,
Branch 31.
In its answer, petitioner averred that the deposit slips Frias used when she deposited the checks were
spurious. Petitioner accused respondents of engaging in a scheme to illegally exact money from it. It
added that, contrary to the claim of respondents, it was "teller no. 7" who received the deposit slips and,
although respondents insisted that Frias deposited ten checks, only nine checks were actually received by
said teller. By way of counterclaim, it sought payment of P1,000,000 as actual and moral damages
andP500,000 as exemplary damages.
After trial, the RTC found petitioner liable to respondents:
Upon examination of the oral, as well as of the documentary evidence which the parties presented at the
trial in support of their respective contentions, and after taking into consideration all the circumstances of
the case, this Court believes that the loss of Metrobank Check No. 403954 in the sum of P250,000.00 was
due to the fault of [petitioner]…[It] retained the original copy of the [deposit slip marked by "Teller No.
7"]. There is a presumption in law that evidence willfully suppressed would be adverse if produced.
Art. 1173 of the Civil Code states that "the fault or negligence of the obligor consists in the omission of
that diligence which is required by the nature of the obligation and corresponds with the circumstances of
the person of the time and of the place"; and that "if the law or contract does not state the diligence
which is to be observed in the performance, the same as expected of a good father of a family shall be
required."
…For failure to comply with its obligation, [petitioner] is presumed to have been at fault or to have acted
negligently unless they prove that they observe extraordinary diligence as prescribed in Arts. 1733 and
1735 of the Civil Code (Art. 1756)…
xxx xxx xxx
WHEREFORE, premises considered, judgment is hereby rendered in favor of [respondents], ordering
[petitioner] to pay the sum of P250,000, with legal interest from the time the complaint [for collection of a
sum of money] was filed until satisfied; P25,000.00 moral damages; P25,000.00 exemplary damages plus
20% of the amount due [respondents] as and for attorney’s fees. With costs.
SO ORDERED.5
Petitioner appealed to the CA which affirmed in toto the RTC’s assailed decision:
Serious doubt [was] engendered by the fact that [petitioner] did not present the original of the deposit
slip marked with "Teller No. 7" and on which the entry as to Metrobank Check No. 403954 did not appear.
Even the most cursory look at the handwriting thereon reveal[ed] a very marked difference with that in
the other deposit slips filled up [by Frias] on December 2, 1991. Said circumstances spawn[ed] the belief
thus, the said deposit slip was prepared by [petitioner] itself to cover up for the lost check.6
Petitioner filed a motion for reconsideration but the CA dismissed it. Hence, this appeal.1a\^/phi1.net
Before us, petitioner faults the CA for upholding the RTC decision. Petitioner argues that: (1) the findings
of the RTC and the CA were not supported by the evidence and records of the case; (2) the award of
damages in favor of respondents was unwarranted and (3) the application by the RTC, as affirmed by the
CA, of the provisions of the Civil Code on common carriers to the instant case was erroneous.7
The petition must fail.
On the first issue, petitioner contends that the lower courts erred in finding it negligent for the loss of the
subject check. According to petitioner, the fact that the check was deposited in Premier Bank affirmed its
claim that it did not receive the check.
At the outset, the Court stresses that it accords respect to the factual findings of the trial court and,
unless it overlooked substantial matters that would alter the outcome of the case, this Court will not
disturb such findings.8 We meticulously reviewed the records of the case and found no reason to deviate
from the rule. Moreover, since the CA affirmed these findings on appeal, they are final and conclusive on
us.9 We therefore sustain the RTC’s and CA’s findings that petitioner was indeed negligent and
responsible for respondents’ lost check.
On the issue of damages, petitioner argues that the moral and exemplary damages awarded by the lower
courts had no legal basis. For the award of moral damages to stand, petitioner avers that respondents
should have proven the existence of bad faith by clear and convincing evidence. According to petitioner,
simple negligence cannot be a basis for its award. It insists that the award of exemplary damages is
justified only when the act complained of was done in a wanton, fraudulent and oppressive manner.10
We disagree.
While petitioner may argue that simple negligence does not warrant the award of moral damages, it
nonetheless cannot insist that that was all it was guilty of. It refused to produce the original copy of the
deposit slip which could have proven its claim that it did not receive respondents’ missing check. Thus, in
suppressing the best evidence that could have bolstered its claim and confirmed its innocence, the
presumption now arises that it withheld the same for fraudulent purposes.11
Moreover, in presenting a false deposit slip in its attempt to feign innocence, petitioner’s bad faith was
apparent and unmistakable. Bad faith imports a dishonest purpose or some moral obliquity or conscious
doing of a wrong that partakes of the nature of fraud.12
As to the award of exemplary damages, the law allows it by way of example for the public good. The
business of banking is impressed with public interest and great reliance is made on the bank’s sworn
profession of diligence and meticulousness in giving irreproachable service.13 For petitioner’s failure to
carry out its responsibility and to account for respondents’ lost check, we hold that the lower courts did
not err in awarding exemplary damages to the latter.
On the last issue, we hold that the trial court did not commit any error.1awphi1.nét A cursory reading of
its decision reveals that it anchored its conclusion that petitioner was negligent on Article 1173 of the
Civil Code.14
In citing the different provisions of the Civil Code on common carriers,15 the trial court merely made
reference to the kind of diligence that petitioner should have performed under the circumstances. In
other words, like a common carrier whose business is also imbued with public interest, petitioner should
have exercised extraordinary diligence to negate its liability to respondents.
Assuming arguendo that the trial court indeed used the provisions on common carriers to pin down
liability on petitioner, still we see no reason to strike down the RTC and CA rulings on this ground alone.
In one case,16 the Court did not hesitate to apply the doctrine of last clear chance (commonly used in
transportation laws involving common carriers) to a banking transaction where it adjudged the bank
responsible for the encashment of a forged check. There, we enunciated that the degree of diligence
required of banks is more than that of a good father of a family in keeping with their responsibility to
exercise the necessary care and prudence in handling their clients’ money.
We find no compelling reason to disallow the application of the provisions on common carriers to this case
if only to emphasize the fact that banking institutions (like petitioner) have the duty to exercise the
highest degree of diligence when transacting with the public. By the nature of their business, they are
required to observe the highest standards of integrity and performance, and utmost assiduousness as
well.17
WHEREFORE, the assailed decision and resolution of the Court of Appeals dated November 26, 2004 and
March 1, 2005, respectively, in CA-G.R. CV No. 58618 are herebyAFFIRMED. Accordingly, the petition
is DENIED.
Costs against petitioner.
SO ORDERED.
RENATO C. CORONA
Associate Justice
WE CONCUR:
REYNATO S. PUNO
Chief Justice
Chairperson
ANGELINA SANDOVAL- ADOLFO S. AZCUNA
GUTIERREZ Asscociate Justice
Associate Justice
CANCIO C. GARCIA
Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above decision
had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s
Division.
REYNATO S. PUNO
Chief Justice
Footnotes
* On June 8, 2005, the Court granted the motion of private respondents to implead Metropolitan Bank and
Trust Company as petitioner following the latter’s acquisition of Solidbank. Under Rule 3, Section 19 of
the Rules of Court, the person or entity which acquired the interest of a party to a case may be
substituted in the action or joined with the original party.
1 Penned by Associate Justice Arcangelita M. Romilla-Lontok and concurred in by Associate Justices
Rodrigo V. Cosico and Danilo B. Pine (retired) of the Twelfth Division of the Court of Appeals; rollo, pp. 9-
20.
2 Id., pp. 22-23.
3 Entitled Peter and Susan Tan v. Solidbank Corporation.
4 Decided by Judge Zenaida R. Daguna, rollo, pp. 74-80.
5 Rollo, pp. 79-80.
6 Rollo, p. 17.
7 Rollo, pp. 150-159.
8 Lipat v. Pacific Banking Corporation, 450 Phil. 410 (2003).
9 Bordalba v. Court of Appeals, 425 Phil. 407 (2002).
10 Petitioner’s Memorandum, rollo, p. 157.
11 Philippine Banking Corporation v. Court of Appeals, G.R. No. 127469, 15 January 2004, 419 SCRA 487.
12 Petitioner’s Memorandum, rollo, p. 157.
13 See Prudential Bank v. Court of Appeals, 384 Phil. 817 (2000); Bank of the Philippine Islands v. Casa
Montessori International, G.R. No. 149454, 28 May 2004, 430 SCRA 261.
14 Supra, at 5.
15 Id., Articles 1733, 1735 and 1756 of the Civil Code.
16 Canlas v. Asian Savings Bank et al., 383 Phil. 315 (2000); see also Bank of the Philippine Islands v.
Court of Appeals, G.R. No. 102383, 26 November 1992, 216 SCRA 51.
17 Simex International (Manila) v. Court of Appeals, G.R. No. 88013, 19 March 1990, 183 SCRA 360.
The Lawphil Project - Arellano Law Foundation

Pasted from <http://www.lawphil.net/judjuris/juri2007/apr2007/gr_167346_2007.html>

BSP Circulars…
Sunday, June 06, 2010
1:15 AM

Date Issued: 06.21.2005


Number: 0488
CIRCULAR NO. 488
Series of 2005
Pursuant to Monetary Board Resolution No. 772 dated 09 June 2005, the Manual of
Regulations for Banks (MORB) is hereby amended, as follows:
Section 1. Subsec. X169.3 Outsourcing of other banking functions of the MORB is
hereby amended to read, as follows:
“Subject to prior approval of the Monetary Board, banks may outsource the
following functions, services or activities:
1. data imaging, storage, retrieval and other related systems;
2. clearing and processing of checks not included in the Philippine Clearing House
System;
3. printing of bank deposit statements;
4. credit card services;
5. credit investigation and collection;
6. processing of export, import and other trading transactions;
7. property appraisal;
8. property management services;
9. internal audit, subject to the following conditions:
a) the board of directors and senior management of the regulated entity remain
responsible for maintaining an effective system of internal control and for
providing active oversight of the outsourced internal audit activities/functions;
b) the external service provider shall be an independent external auditor
included in the list of BSP selected external auditors or a parent company which
owns or controls more than fifty percent (50%) of the subscribed capital stock of
the outsourcing entity: provided, that item “b.” of the general requirements under
Section 2 of Circular no.410, series of 2003 shall apply to the parent company
while items “b.”, “d.”, “e.”, and “f.” shall apply to the independent external
auditor.
c) the contract/service agreement with the external service provider shall not be
entered into for a period longer than five (5) years;
d) There shall be a contingency plan to mitigate any significant disruption,
discontinuity or gap in audit coverage, particularly for high-risk areas;
e) The written engagement contract or service agreement with the external
service provider shall, as a minimum:
i. Define the rights, expectations and responsibilities of both parties;
ii. Set the scope and frequency of, and the fees to be paid for, the work to
be performed by the external service provider;
iii. State that the outsourced internal audit services are subject to
regulatory review and that BSP examiners shall be granted full and timely
access to internal audit reports and related working papers;
iv. State that the external service provider will not perform management
functions, make management decisions, or act or appear to act in a capacity
equivalent to that of a member of management or an employee of the
institution, and will comply with professional and regulatory independence
guidelines;
v. Specify that the external service provider must maintain the audit
reports and related working papers/files for at least five (5) years;
vi. State that internal audit reports are the property of the institution, that
the institution will be provided with copies of related working papers/files it
deems necessary, and any information pertaining to the institution must be
kept confidential; and
vii. Establish a protocol for changing the terms of the service contract and
stipulations for default and termination of the contract;
10. marketing loans, deposits and other bank products and services, provided it
does not involve the actual opening of deposit accounts;
11. general bookkeeping and accounting services, provided that these activities
do not include servicing bank deposits or other inherent banking functions;
12. offsite records storage services;
13. front/back office functions, i.e., trade support services and downstream
processing activities, by parent to a subsidiary or vice-versa, subject to the
following conditions:
a) The bank intending to outsource the aforementioned functions shall
certify that the front office functions to be done by its parent/subsidiary
(service provider) shall be limited to trade support services;
b) The bank shall remain a parent/subsidiary of its subsidiary/ parent
(service provider) and such service provider shall service only entities
belonging to its business group;
c) The bank shall certify that no inherent banking functions involving
deposit transactions shall be outsourced to its parent/subsidiary (service
provider);
d) The bank shall submit a Service Level Agreement duly signed by the
concerned parties and any amendments thereto, detailing the functions to be
outsourced, the respective responsibilities of the bank and its parent/
subsidiary (service provider), and a confidentiality clause; and
e) Any breach in any of the above conditions shall subject the outsourcing
of the aforementioned banking functions to all the requirements of this
Section; and
14. such other activities as may be determined by the Monetary Board.
Without need of prior Monetary Board approval, banks may outsource the
following functions, services or activities:
1. printing of bank loan statements and other non-deposit records, bank forms
and promotional materials;
2. transfer agent services for debt and equity securities;
3. messenger, courier and postal services;
4. security guard services;
5. vehicle service contracts;
6. janitorial services;
7. public relations services, procurement services, and temporary staffing,
provided that these activities do not include servicing bank deposits or other
inherent banking functions;
8. sorting and bagging of notes and coins;
9. maintenance of computer hardware, e.g., disk drives, printers, monitors, UPS,
network cabling systems;
10. payroll of bank employees;
11. telephone operator/receptionist services;
12. sale/disposal of acquired assets (ROPOA);
13. personnel training and development;
14. building, ground and other facilities maintenance; and
15. such other activities as may be determined by the Monetary Board.”
Section 2. The provisions on outsourcing of Section X169 and Subsecs. X169.1 to
X169.5 of the Manual of Regulations for Banks (MORB) in so far as they are
applicable to quasi-banks and other non-bank financial institutions are hereby
incorporated in the Manual of Regulations for Non-Bank Financial Institutions
(MORNBFI).
This Circular shall take effect fifteen (15) days following its publication either in
the Official Gazette or in a newspaper of general circulation.

FOR THE MONETARY BOARD:


AMANDO M. TETANGCO, JR
Officer-in-Charge

Pasted from <http://www.bsp.gov.ph/regulations/regulations.asp?type=1&id=74>

Date Issued: 09.16.2005


Number: 0493

CIRCULAR NO. 493


Series of 2005
Pursuant to Monetary Board Resolution No. 1191 dated 08 September 2005, the
Manual of Regulations for Banks (MORB) is hereby amended, as follows:
Section 1. Subsec. X169.3 Outsourcing of other banking functions of the MORB is
hereby amended to read, as follows:
“Subject to prior approval of the Monetary Board, banks may outsource the
following functions, services or activities:
x x x
14. back-up and data recovery operations; and
15. such other activities as may be determined by the Monetary Board.
The bank concerned must submit the same documentary requirements listed in
Subsec. X169.2b hereof, except where they exclusively pertain to information
technology operations.
Without need of prior Monetary Board approval, banks may outsource the
following functions, services or activities:
x x x
15. legal services from local legal counsel;
16. compliance risk assessment and testing;
17. such other activities as may be determined by the Monetary Board.”
Section 2. The foregoing amendments shall likewise apply to corresponding
provisions in the Manual of Regulations for Non-Bank Financial Institutions
(MORNBFI).
This Circular shall take effect fifteen (15) days following its publication either in
the Official Gazette or in a newspaper of general circulation.

FOR THE MONETARY BOARD


DIWA C. GUINIGUNDO
Officer-in-Charge

Pasted from <http://www.bsp.gov.ph/regulations/regulations.asp?type=1&id=68>

Date Issued: 09.08.2006


Number: 0543

CIRCULAR NO. 543


Series of 2006
Subject: Outsourcing of Other Banking Functions
Pursuant to Monetary Board Resolution No. 1034 dated 17 August 2006, the
Manual of Regulations for Banks (MORB) is hereby amended as follows:
Section 1. Subsect. X169.3 Outsourcing of other banking functions of the MORB is
hereby amended to read, as follows:
"Subject to prior approval of the Monetary Board, banks may outsource the
following functions, services or activities:
x x x
15. Call center operations for credit card and bank services provided
that such bank services do not involve inherent banking functions; and
16. Such other activities as may be determined by the Monetary Board."
Section 2. The foregoing amendments shall likewise apply to corresponding
provisions in the Manual of Regulations for Non-Bank Financial Institutions
(MORNBFI).
This Circular shall take effect fifteen (15) days after publication in the Official
Gazette or in a newspaper of general circulation.
FOR THE MONETARY BOARD
AMANDO M. TETANGCO, JR.
Governor

Pasted from <http://www.bsp.gov.ph/regulations/regulations.asp?type=1&id=1029>

Date Issued: 09.15.2006


Number: 0545

CIRCULAR NO. 545


Series of 2006
Subject: Guidelines on Liquidity Risk Management
The Monetary Board in its Resolution No. 1082 dated 31 August 2006 approved the
adoption of the attached guidelines on liquidity risk management to ensure that
financial institutions have the sufficient knowledge and skills necessary to
understand and effectively manage liquidity risk.
The guidelines set forth the expectations of the Bangko Sentral ng Pilipinas (BSP)
with respect to the management of liquidity risk and are intended to provide more
consistency in how the risk-focused supervision function is applied to this risk.
Financial institutions are expected to have an integrated approach to risk
management to identify, measure, monitor and control risks. Liquidity risk should
be reviewed together with other risks to determine overall risk profile.
These guidelines are intended for general application; specific application will
depend on the size and sophistication of a particular financial institution and the
nature and complexity of its activities.
This Circular shall take effect fifteen (15) days after its publication either in the
Official Gazette or in a newspaper of general circulation.
FOR THE MONETARY BOARD:

ARMANDO L. SURATOS
Officer-In-Charge

Pasted from <http://www.bsp.gov.ph/regulations/regulations.asp?type=1&id=1089>

Date Issued: 01.30.2009


OFFICE OF THE GOVERNOR
CIRCULAR NO. 642
Series of 2009
Subject: Amendment of Subsection X169.3 of the Manual of Regulations for Banks
and Appendix 0-37 of the Manual of Regulations for Non-Bank Financial
Institutions - Outsourcing of Other Banking Functions
Pursuant to Monetary Board Resolution No. 05 dated 02 January 2009, item b.13 of
Subsection X169.3 of the Manual of Regulations for Banks (MORB) and item d.2
(m) of Appendix 0-37 of the Manual of Regulations for Non-Bank Financial
Institutions (MORNBFI) are hereby amended, as follows:
A. On the MORB -
13. Human-resource related services (such as personnel training and
development, background investigation and salary benchmarking
service).
B. On the MORNBFI -
m. Human-resource related services (such as personnel training and
development, background investigation and salary benchmarking
service).
This Circular shall take effect fifteen (15) days after publication in the Official
Gazette or in a newspaper of general circulation.
FOR THE MONETARY BOARD
AMANDO M. TETANGCO, JR
Governor

Pasted from <http://www.bsp.gov.ph/regulations/regulations.asp?type=2&id=2326>

Date Issued: 08.06.2002


Number: 0341
CIRCULAR NO. 341
Series of 2002
Pursuant to Monetary Board Resolution No. 1055 dated 25 July 2002, the following
guidelines shall be observed in implementing Section 56 of the General Banking
Law of 2000 or Republic Act No. 8791:
Section 1. Whether a particular activity may be considered as conducting business
in an unsafe or unsound manner, all relevant facts must be considered. An
analysis of the impact thereof on the banks/quasi-banks/trust entities’ operations
and financial conditions must be undertaken, including evaluation of capital
position, asset condition, management, earnings posture and liquidity position.
In determining whether a particular act or omission, which is not otherwise
prohibited by any law, rule or regulation affecting banks, quasi-banks or trust
entities, may be deemed as conducting business in an unsafe or unsound manner,
the Monetary Board, upon report of the head of the supervising or examining
department based on findings in an examination or a complaint, shall consider any
of the following circumstances:
a. The act or omission has resulted or may result in material loss or damage, or
abnormal risk or danger to the safety, stability, liquidity or solvency of the
institution;
b. The act or omission has resulted or may result in material loss or damage or
abnormal risk to the institution’s depositors, creditors, investors, stockholders or
to the Bangko Sentral or to the public in general;
c. The act or omission has caused any undue injury, or has given unwarranted
benefits, advantage or preference to the bank or any party in the discharge by the
director or officer of his duties and responsibilities through manifest partiality,
evident bad faith or gross inexcusable negligence; or
d. The act or omission involves entering into any contract or transaction
manifestly and grossly disadvantageous to the bank, quasi-bank or trust entity,
whether or not the director or officer profited or will profit thereby.
Attached for guidance is a list of activities which may be considered unsafe and
unsound. (Annex A) The Monetary Board may consider any other acts/omissions as
unsafe and unsound practices.
Section 2. The Monetary Board may, at its discretion and based on the seriousness
and materiality of the acts or omissions, impose any or all of the following
sanctions provided under Section 37 of Republic Act No. 7653 and Section 56 of
Republic Act No. 8791, whenever a bank, quasi-bank or trust entity conducts
business in an unsafe and unsound manner:
a. Issue an order requiring the institution to cease and desist from conducting
business in an unsafe and unsound manner and may further order that immediate
action be taken to correct the conditions resulting from such unsafe or unsound
practice;
b. Fines in amounts as may be determined by the Monetary Board to be
appropriate, but in no case to exceed Thirty Thousand pesos (P30,000.00) a day
on a per transaction basis taking into consideration the attendant circumstances,
such the gravity of the act or omission and the size of the bank, quasi-bank or
trust entity, to be imposed on the bank, quasi-banks or trust entities, their
directors and/or responsible officers;
c. Suspension of interbank clearing privileges/immediate exclusion from clearing;
d. Suspension of rediscounting privileges or access to Bangko Sentral credit
facilities;
e. Suspension of lending or foreign exchange operations or authority to accept
new deposits or make new investments;
f. Suspension of responsible directors and/or officers;
g. Revocation of quasi-banking license; and/or
h. Receivership and liquidation under Section 30 of RA 7653.
All other provisions of Sections 30 and 37 of R.A. 7653 whenever appropriate shall
also be applicable on the conduct of business in an unsafe or unsound manner.
The imposition of the above sanctions is without prejudice to the filing of
appropriate criminal charges against culpable persons as provided in Sections 34,
35 and 36 of R.A. 7653.
This Circular shall take effect immediately.

FOR THE MONETARY BOARD:


RAFAEL B. BUENAVENTURA
Governor

Pasted from <http://www.bsp.gov.ph/regulations/regulations.asp?type=1&id=402>

Date Issued: 01.16.2009


Number: 640
CIRCULAR NO. 640
Pursuant to Monetary Board Resolution No. 1723 dated 23 December 2008, Annex
A (List of Activities Which May Be Considered Unsafe and Unsound Banking
Practices) of Circular No. 341 dated 6 August 2002 is hereby amended as follows:
Section 1. The opening paragraph and Items c and g of Annex A of Circular No. 341
are hereby amended to read as follows:
“The activities enumerated herein are considered only as guidelines and are not
irrebutably presumed to be unsafe or unsound. Conversely, not all practices which
might under the circumstances be termed unsafe or unsound are mentioned here.
The Monetary Board may NOW AND THEN consider any other acts/omissions as
unsafe or unsound practices.”
“c. Operating in a way that produces a deficit in net operating income
WITHOUT ADEQUATE MEASURES TO ENSURE A SURPLUS IN NET OPERATING
INCOME IN THE FUTURE.”
“x x x
“g. Excessive reliance on large, high-COST or volatile deposits/ borrowings TO
FUND AGGRESSIVE GROWTH THAT MAY BE UNSUSTAINABLE.
FOR THIS PURPOSE, A BANK IS CONSIDERED OFFERING HIGH-COST
DEPOSITS/BORROWINGS IF THE EFFECTIVE INTEREST RATE PAID ON SAID
DEPOSITS/ BORROWINGS AND/OR NON-CASH INCENTIVES IS 50% OVER THE
PREVAILING COMPARABLE MARKET MEDIAN RATE FOR SIMILAR BANK
CATEGORIES, MATURITIES AND CURRENCY DENOMINATION AND
ACCOMPANIED BY OTHER CIRCUMSTANCE/S SUCH AS:
“1. UNDUE RELIANCE ON SOLICITATION AND ACCEPTANCE OF BROKERED
DEPOSITS;
“2. BANK INCURS LARGE SUM OF DEPOSIT GENERATION EXPENSES IN THE
FORM OF COMMISSIONS, REFERRAL AND SOLICITATION FEES AND RELATED
EXPENSES AND/OR PAYMENT OF ADVANCE INTEREST ON DEPOSITS;
“3. DEFERRAL OF THE ABOVE DEPOSIT GENERATION EXPENSES INCURRED TO
DELAY RECORDING OF EXPENSES AND/OR INACCURATE AMORTIZATION OF
ADVANCE INTEREST PAID ON DEPOSITS;
“4. DEPOSIT PACKAGES OFFERED INCLUDE NON-CASH INCENTIVES
DISPROPORTIONATE TO THE AMOUNT OF DEPOSITS SOUGHT WHICH GIVE
UNDUE OR UNWARRANTED ADVANTAGE OR PREFERENCE FOR THE BANK; AND
“5. BANK MARKETS, SOLICITS AND ACCEPTS DEPOSITS OUTSIDE THE BANK
PREMISES INCLUDING BRANCHES, UNLESS OTHERWISE AUTHORIZED BY THE
BSP UNDER SECTIONS X213 (SERVICING DEPOSITS OUTSIDE BANK PREMISES)
OR X621 (ELECTRONIC BANKING SERVICES) OF THE MANUAL OF REGULATIONS
FOR BANKS.”
Section 2. Item m of Annex A of Circular No. 341 is hereby amended and sub-items
12 to 15 are hereby added to Item m, to read as follows:
“m. Engaging in hazardous lending and lax collection policies and practices, as
evidenced by ANY OF THE FOLLOWING CIRCUMSTANCES:
“x x x
“12. HIGH INCIDENCE OF SPURIOUS AND FRAUDULENT LOANS DUE TO
PATENTLY INADEQUATE RISK MANAGEMENT SYSTEMS AND PROCEDURES
RESULTING IN SIGNIFICANT IMPAIRMENT OF CAPITAL;
“13. BANK’S NICHE MOSTLY CONSISTS OF BORROWERS WHO HAVE IMPAIRED
OR LIMITED CREDIT HISTORY, OR MAJORITY OF THE LOANS ARE EITHER
CLEAN/UNSECURED OR BACKED WITH MINIMUM COLLATERAL VALUES EXCEPT
THOSE UNDERWRITTEN USING MICROFINANCE TECHNOLOGY CONSISTENT
WITH CIRCULAR NO. 272 DATED 30 JANUARY 2001 AND OTHER ACCEPTABLE
CASHFLOW-BASED LENDING SYSTEMS; AND THE BANK DOES NOT HAVE A
ROBUST RISK MANAGEMENT SYSTEM IN PLACE LEAVING THE BANK
VULNERABLE TO LOSSES;
“14. LOAN RATES ARE EXCESSIVELY HIGHER THAN MARKET RATES TO
COMPENSATE THE ADDED OR HIGHER RISKS INVOLVED. EXCESSIVELY HIGHER
RATES ARE THOSE CHARACTERIZED BY EFFECTIVE INTEREST RATES THAT ARE
50% OVER THE PREVAILING COMPARABLE MARKET MEDIAN RATE FOR SIMILAR
LOAN TYPES, MATURITIES AND COLLATERALS;
“15. ASSIGNMENT OF LOANS ON WITHOUT RECOURSE BASIS WITH REAL
ESTATE PROPERTIES AS PAYMENT, RESULTING IN TOTAL INVESTMENT IN REAL
ESTATE IN EXCESS OF THE PRESCRIBED CEILING.
Section 3. Item s and u of Annex A of Circular No. 341 are hereby amended to read
as follows:
“s. Failure to heed warnings and admonitions of the supervisory AND
REGULATORY authorities.
“x x x
“u. Any OTHER action likely to cause insolvency or substantial dissipation of
assets or earnings of the institution or likely to seriously weaken its condition or
otherwise seriously prejudice the interest of its depositors/investors/clients.”
This Circular shall take immediately.
FOR THE MONETARY BOARD

AMANDO M. TETANGCO
Governor

Pasted from <http://www.bsp.gov.ph/regulations/regulations.asp?type=1&id=2321>

Date Issued: 03.09.2009


Number: 650

CIRCULAR NO. 650


Series of 2009
Subject : Authority of Thrift Banks to Issue Foreign Letters of Credit (LCs) and
Pay/Accept/Negotiate Import/Export Drafts/Bills of Exchange
Pursuant to Monetary Board Resolution No. 283 dated 19 February 2009, the
Manual of Regulations for Banks (MORB) is hereby amended, as follows:
Section 1. Subsec. 2101.7 on authority of thrift banks to issue foreign letters of
credit (LCs) and pay/accept/negotiate import/export drafts/bills of exchange is
hereby added and shall read, as follows:
“Subsec. X2101.7 Authority of thrift banks to issue foreign letters of
credit (LCs) and pay/accept/negotiate import/export drafts/bills of exchange.
With prior Monetary Board approval, thrift banks may be authorized to issue
foreign letters of credit (LCs) and pay/accept/negotiate import/export
drafts/bills of exchange, subject to compliance with the following conditions
(at the time of application unless otherwise indicated):
a) Minimum capital requirement of P= 1.0 billion;
b) Ten percent (10%) risk-based capital adequacy ratio (CAR);
c) CAMELS composite rating not lower than “3”, with Management component
score not lower than “3” in the latest examination of the bank;
d) Risk management system appropriate to its operations, characterized by
clear delineation of responsibility for risk management, adequate risk
measurement system, appropriately structured risk limits, effective internal
control system and complete, timely and efficient risk reporting system;
e) Articles of incorporation which shall include among its powers or purposes,
the issuance of foreign LCs and payment/acceptance/negotiation of
import/export drafts/bills of exchange (which may be submitted any time
prior to engaging in said activities);
f) Correspondent banking relationship or arrangement with reputable foreign
banks (which should be in place prior to engaging in said activities);
g) Appointment of the officer with actual experience of at least two (2) years
as in-charge or at least as assistant in-charge of import and export financing
operations in a universal/ commercial bank who will be in-charge of the said
operations (prior to engaging in said activities);
h) Appointment of bank personnel with actual experience and/or training of at
least six (6) months in import and export financing operations in a
universal/commercial bank who will handle the said operations (prior to
engaging in said activities);
i) No net weekly regular and liquidity reserve deficiencies during the twelve
(12) week period immediately preceding the date of application;
j) No deficiency in asset and liquid asset cover for FCDU liabilities for three
(3) months immediately preceding the date of application;
k) No deficiency in liquidity floor requirement for government funds held
during the twelve (12) week period immediately preceding the date of
application;
l) No float items outstanding for more than sixty (60) calendar days in the
“Due From/To Head Office/Branches/Offices” and “Due from BSP” accounts
exceeding 1% of the total resources as of end of month preceding the date of
application;
m) No unbooked valuation reserves;
n) Compliant with ceilings on loans, other credit accommodations and
guarantees to directors, officers, stockholders, and their related interests
(DOSRI) for the quarter immediately preceding the date of application;
o) Compliant with the single borrower’s loan limit (SBL);
p) Compliant with the limit on real estate and improvements, including bank
equipment;
q) No uncorrected findings of unsafe and unsound banking practices;
r) Generally compliant with banking laws, rules and regulations, orders or
instructions of the Monetary Board and/or BSP Management; and
s) No past due obligations with the BSP or with any financial institution.

Section 2. Subsec. 2101.8 on application for authority to issue foreign letters of


credit and pay/accept/negotiate import/export drafts/bills of exchange is hereby
added, and shall read as follows:
“Subsec. 2101.8 Application for authority to issue foreign letters of
credit (LCs) and pay/accept/negotiate import/export drafts/bills of exchange.
An application for authority to issue foreign LCs and pay/accept/negotiate
import/export drafts/bills of exchange shall be signed by the president of the
bank or officer of equivalent rank and shall be accompanied by a certified
true copy of the resolution of the bank’s board of directors authorizing the
application.”

This Circular shall take effect fifteen (15) days following its publication either in
the Official Gazette or in a newspaper of general circulation.

FOR THE MONETARY BOARD:

AMANDO M. TETANGCO, JR.


Governor

Pasted from <http://www.bsp.gov.ph/regulations/regulations.asp?type=1&id=2347>

REPUBLIC ACT NO. 3591


Sunday, June 06, 2010
3:18 AM
REPUBLIC ACT NO. 3591 – AN ACT ESTABLISHING THE PHILIPPINE DEPOSIT INSURANCE
CORPORATION, DEFINING ITS POWERS AND DUTIES AND FOR OTHER PURPOSES
Section 1. There is hereby created a Philippine Deposit Insurance Corporation hereinafter referred
to as the “Corporation” which shall insure, as herein provided, the deposits of all banks which are entitled
to the benefits of insurance under this Act, and which shall have the powers hereinafter granted.
Sec. 2. The powers and functions of the Corporation shall be vested in a board of directors consisting of
three (3) members one of whom shall be the governor of the Central Bank of the Philippines and two of
whom shall be citizens of the Republic of the Philippines to be appointed by the President of the Philippines
with the advice and consent of the Commission on Appointments. One of the appointive members shall be
the Chairman of the Board of Directors of the Corporation who shall be appointed on a full time basis for a
term of six (6) years at an annual salary of twenty-four thousand pesos (P24,000.00). The other appointive
member, who shall be appointed for a term of four (4) years and the Governor of the Central Bank shall
each receive a per diem of not exceeding fifty pesos (P50.00) for each day of meeting actually attended by
them but in no case shall each of them receive more than five hundred pesos (P500.00) a month. In the
event of a vacancy in the Office of the Governor of the Central Bank of the Philippines, and pending the
appointment of his successor or during the absence of the Governor, the Acting Governor of the Central
Bank of the Philippines shall act as member of the Board of Director. In the event of a vacancy in the Office
of the Chairman of the Board of Directors and pending the appointment of his successor, the Governor of
the Central Bank of the Philippines shall act as Chairman. The members of the Board of Directors shall be
ineligible during the time they are in office and for a period of two years thereafter to hold any office,
position or employment in any insured bank, except that this restriction shall not apply to any member
who has served the full term for which he was appointed. No member of the Board of Directors shall be an
officer or director of any insured bank; and before entering upon his duties as member of the Board of
Directors he shall certify under oath that he has complied with this requirement and such certification shall
be filed with the Secretary of the Board of Directors. Any vacancy in the Board created by the death,
resignation, or removal of an appointive member shall be filled by the appointment of new member to
complete the unexpired period of the term of the member concerned.
The Board of Directors shall have the authority:
1. To prepare and issue rules and regulations as it considers necessary for the effective discharge of its
responsibilities;
2. To direct the management, operations and administration of the Corporation;
3. To appoint, fix the remunerations and remove all officers and employees of the Corporation, subject to
the Civil Service Law; and
4. To authorize such expenditures by the Corporation as are in the interest of the effective administration
and operation of the Corporation.
Sec. 3. As used in this Act -
(a) The term “Board of Directors” means the Board of Directors of the Corporation.
(b) The term “Bank” and “Banking Institution” shall be synonymous and interchangeable and shall include
banks, commercial banks, savings banks, mortgage banks, rural banks, development banks, cooperative
banks, trust companies, branches and agencies in the Philippines of foreign banks and all other companies,
corporations, partnership performing banking functions in the Philippines.
(c) The term “receiver” includes a receiver, liquidating agent, conservator, commission, person, or other
agency charged by law with the duty of winding up the affairs of a bank.
(d) The term “insured bank” means any bank the deposit of which are insured in accordance with the
provision of this Act;
(e) The term “non-insured bank” means any bank the deposit of which are not insured.
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 evidenced by its certificate of deposit, and trust funds held by
such bank whether retained or deposited in any department of such bank or deposited in another bank,
together with such other obligations of a bank as the Board of Directors shall find and shall prescribe by
regulations to be deposit liabilities of the Bank: Provided, That any obligation of a bank which is payable at
the office of the bank located outside of the Philippines shall not be a deposit for any of the purposes of
this Act or included as part of the total deposits or of the insured deposit: Provided, further, That any
insured bank which is incorporated under the laws of the Philippines which maintains a branch outside the
Philippines may elect to include for insurance its deposit obligation payable only at such branch.
(g) The term “insured deposit” means the net amount due to any depositor for deposits in an insured bank
(after deducting offsets) less any part thereof which is in excess of P10,000. Such net amount shall be
determined according to such regulations as the Board of Directors may prescribe and in determining the
amount due to any depositor there shall be added together all deposits in the bank maintained in the
same capacity and the same right for his benefit or in his own name or in the names of others.
(h) The term “transfer deposit” means a deposit in an insured bank made available to a depositor by the
Corporation as payment of insured deposit of such depositor in a closed bank and assumed by another
insured bank.
(i) The term “trust funds” means funds held by an insured bank in a fiduciary capacity and includes
without being limited to, funds held as trustee, executor, administrator, guardian, or agent.
Sec. 4. Any bank or banking institution which is engaged in the business of receiving deposits as herein
defined on the effective date of this Act, or which thereafter may engage in the business of receiving
deposits, may insure its deposit liabilities with the Corporation. Before approving the application of such
bank to become an insured bank, the Board of Directors shall give consideration to the factors enumerated
in Section 5 and shall determine upon the basis of a thorough examination of such bank, that its assets in
excess of its capital requirements are adequate to enable it to meet all its liabilities to depositors and
other creditors as shown by the books of the bank.
Sec. 5. The factors to be considered by the Board of Directors under the preceding section shall be the
following: the financial history and condition of the Bank, the adequacy of its capital structure, its future
earning prospects, the general character of its management, the convenience and needs of the community
to be served by the Bank and whether or not its corporate powers are consistent with the purposes of this
Act.
Sec. 6. (a) The assessment rate shall be determined by the Board of Directors: Provided, That the
assessment rate shall not exceed one-twelfth of one per centum per annum. The semiannual assessment
for each insured bank shall be in the amount of the product of one-half (1/2) the assessment rate
multiplied by the assessment base. The assessment base shall be the amount of the liability of the bank
for deposits, according to the definition of the term “deposit” in and pursuant to subsection (f) of Section 3
without any deduction for indebtedness of depositors: Provided, further, That the bank -
(1) may deduct (i) from the deposit balance due to an insured bank the deposit balance due from such
insured bank (other than trust funds deposited by it in such bank) which is subject to an immediate
withdrawal; and (ii) cash items as determined by either of the following methods, at the option of the bank:
(aa) by multiplying by 2 the total of the cash items forwarded for collection on the assessment base days
(being the days on which the average deposits are computed) and cash items held for clearings at the
close of business on said days, which are in the process of collection and which the bank has paid in the
regular course of business or credited to deposit accounts; or (bb) by deducting the total of cash items
forwarded for collection on the assessment base days and cash items held for clearing at the close of
business on said days, which are in the process of collection and which the bank has paid in the regular
course of business or credited to deposit accounts, plus such uncollected items paid or credited on
preceding days which are in the process of collection: Provided, That the Board of Directors may define the
terms “cash items”, “process of collection”, and “uncollected items” and shall fix the maximum period for
which any such item may be deducted; and
(2) may exclude from its assessment base (i) drafts drawn by it on deposit accounts in other banks which
are issued in the regular course of business; and the amount of devices or authorizations issued by it for
cash letters received, directing that its deposit account in the sending bank be charged with the amount
thereof; and (ii) cash funds which are received and held solely for the purpose of securing a liability to the
bank but not in an amount in excess of such liability, and which are not subject to withdrawal by the
obligor and are carried in a special non-interest bearing account designated to properly show their
purpose.
Each insured bank, as a condition to the right to make any such deduction or exclusion in determining its
assessment base, shall maintain such records as will readily permit verification of the correctness thereof.
The semiannual assessment base for one semiannual period shall be the average of the assessment base
of the bank as of the close of business on March thirty-one and June thirty, and the semiannual assessment
base for the other semiannual period shall be the average of the assessment base of the bank as of the
close of business on September thirty and December thirty-one: Provided, That when any of said days is a
nonbusiness day or a legal holiday, either National or Provincial, the preceding business day shall be used.
The certified statements required to be filed with the Corporation under subsections (b) and (c) of this
section shall be in such form and set forth such supporting information as the Board of Directors shall
prescribe. The assessment payments required from insured banks under subsections (b) and (c) of this
section shall be made in such manner and at such time or times as the Board of Directors shall prescribe,
provided the time or times so prescribed shall not be later than sixty days after filing the certified
statement setting forth the amount of assessment.
(b) On or before the 15th of July of each year, each insured bank shall file with the Corporation a certified
statement showing for the six months ending on the preceding June thirty the amount of the assessment
base and the amount of the semiannual assessment due to the Corporation for the period ending on the
following December thirty-one, determined in accordance with subsection (a) of this section, which shall
contain or be verified by a written declaration that it is made under the penalties of perjury. Each insured
bank shall pay to the Corporation the amount of the semiannual assessment it is required to certify. On or
before the 15th day of January of each year, each insured bank shall file with the Corporation a similar
certified statement for the six months ending on the preceding December thirty-one and shall pay to the
Corporation the amount of the semiannual assessment for the period ending on the following June thirty
which it is required to certify.
(c) Each bank which becomes an insured bank shall not be required to file any certified statement or pay
any assessment for the semiannual period in which it becomes an insured bank. On the expiration of such
period, each such bank shall comply with the provisions of subsection (b) of this section except that the
semiannual assessment base for its first certified statement shall be the assessment base of the bank as of
the close of business on the preceding June thirty or December thirty-one, whichever is applicable,
determined in accordance with subsection (a) of this section. If such bank has assumed the liabilities for
deposits of another bank or banks, it shall include such liabilities in its assessment base. The first certified
statement shall show as the amount of the first semiannual assessment due to the Corporation, an amount
equal to the product of one-half of the annual assessment rate multiplied by such assessment base.
(d) As of December thirty-one nineteen hundred sixty-four, and as of December thirty-one of each calendar
year thereafter, the Corporation shall transfer 40 per centum of its net assessment income to its capital
account and the balance of the net assessment income shall be credited pro rata to the insured banks
based upon the assessment of each bank becoming due during said calendar year. Each year such credit
shall be applied by the Corporation toward the payment of the total assessment becoming due for the
semiannual assessment period beginning the next ensuing July 1 and any excess credit shall be applied
upon the assessment next becoming due. The term “net assessment income” as used therein means the
total assessments which becomes due during the calendar year less (1) the operating costs and expenses
of the Corporation for the calendar year; (2) additions to reserve to provide for insurance losses during the
calendar year, except that any adjustments to reserve which result in a reduction of such reserve shall be
added; and (3) the insurance losses sustained in said calendar year plus losses from any preceding years
in excess of such reserves. If the above deductions exceed in amount the total assessments which become
due during the calendar year, the amount of such excess shall be restored by deduction from total
assessments becoming due in subsequent years.
(e) The Corporation (1) may refund to an insured bank any payment of assessment in excess of the
amount due to the Corporation or (2) may credit such excess toward the payment of the assessment next
becoming due from such bank and upon succeeding assessments until the credit is exhausted.
Any insured bank which fails to file any certified statement required to be filed by it in connection with
determining the amount of any assessment payable by the bank to the Corporation may be compelled to
file such statement by mandatory injunction or other appropriate remedy in a suit brought for such
purpose by the Corporation against the bank and any officer or officers thereof in any court of the
Philippines of competent jurisdiction in which such bank is located.
(g) The Corporation, in a suit brought in any court of competent jurisdiction, shall be entitled to recover
from any insured bank the amount of any unpaid assessment lawfully payable by such insured bank to the
Corporation, whether or not such bank shall have filed any such certified statement and whether or not
suit shall have been brought to compel the bank to file any such statement. No action or proceeding shall
be brought for recovery of any assessment due to the Corporation or for the recovering of any amount
paid to the Corporation in excess of the amount due to it, unless such action or proceeding shall have been
brought within five years after the right accrued for which the claim is made, except where the insured
bank has made or filed with the Corporation a false or fraudulent certified statement with the intent of
evade, in a whole or in part, the payment of assessment, in which case the claim shall not have been
deemed to have accrued until the discovery by the Corporation that the certified statement is false
fraudulent.
(h) Should any insured bank fail or refuse to pay any assessment required to be paid by such bank under
any provision of this Act, and should the bank not correct such failure or refusal within thirty days after
written notice has been given by the Corporation to an officer of the bank, citing this subsection, and
stating that the bank has failed or refused to pay as required by law the insured status of such bank shall
be terminated by the Board of Directors. The remedies provided in this subsection and in the two
preceding subsections shall not be construed as limiting any other remedies against an insured bank but
shall be in addition thereto.
(i) Trust funds held by an insured bank in a fiduciary capacity whether held in trust or deposited in any
other department or in another bank shall be insured like other forms of deposits, in an amount not to
exceed P10,000 for each trust estate, and when deposited by the fiduciary bank in another insured bank
such trust funds shall be similarly insured to the fiduciary bank according to the trust estates represented.
Notwithstanding any other provision of this Act, such insurance shall be separate from the additional to
that covering other deposits of the owners of such trust funds or the beneficiaries of such trust estates:
Provided, That where the fiduciary bank deposits any of such trust funds in other insured banks, the
amount so held by other insured banks on deposit shall not for the purpose of any certified statement
required under subsections (b) and (c) of this section be considered to be a deposit liability of the fiduciary
bank, but shall be considered to be a deposit liability of the bank in which such funds are so deposited by
such fiduciary bank. The Board of Directors shall have the power by regulation to prescribe the manner of
reporting and of depositing such trust funds.
Sec. 7. (a) Any insured bank may, upon not less than ninety days, written notice to the Corporation, and
to the Development Bank of the Philippines if it owns or holds as pledges any preferred stock, capital
notes, or debentures of such bank, terminate its status as an insured bank. Whenever the Board of
Directors shall find that an insured bank or its directors or trustees have continued unsafe or unsound
practices in conducting the business of the bank or which have knowingly or negligently permitted any of
its officers or agents to violate any provisions of any law or regulation to which the insured bank is subject,
the Board of Directors shall first give to the Central Bank of the Philippines a statement with respect to
such practices or violations for the purpose of securing the correction thereof and shall give a copy thereof
to the bank. Unless such correction shall be made within one hundred twenty days or such shorter period
of time as the Central Bank of the Philippines shall require, the Board of Directors, if it shall determine to
proceed further, shall give to the bank not less than thirty days’ written notice of intention to determine
the status of the bank as an insured bank, and shall fix a time and place for a hearing before the Board of
Directors or before a person designated by it to conduct such hearing, at which evidence may be
produced, and upon such evidence the Board of Directors shall make written findings which shall be
conclusive. Unless the bank shall appear at the hearing by a duly authorized representative, it shall be
deemed to have consented to the termination of its status as an insured bank. If the Board of Directors
shall find that any unsafe or unsound practice or violation specified in such notice has been established
and has not been corrected within the time above prescribed in which to make such correction, the Board
of Directors may order that the insured status of the bank be terminated on a date subsequent to such
finding and to the expiration of the same specified in such notice of intention. The Corporation may publish
notice of such termination and the bank shall give notice of such termination to each of the depositors at
his last address of record on the books of the bank, in such a manner and at such at time as the Board of
Directors may find to be necessary and may order for the protection of the depositors. After the
termination of the insured status of any bank under the provisions of this subsection, the insured deposits
of each depositor in the bank on the date of such termination, less all subsequent withdrawals from any
deposits of such depositor, shall continue for a period of two years to be insured, and the bank shall
continue to pay to the Corporation assessments as in the case of an insured bank during such period. No
additions to any such deposits and no new deposits in such bank made after the date of such termination
shall be insured by the Corporation, and the bank shall not advertise or hold itself out as having insured
deposits unless in the same connection it shall also state equal prominence that such additions to deposits
and new deposits made after such date are not so insured. Such bank shall, in all other respects, be
subject to the duties and obligations of an insured bank for the period of two years from the date of such
termination, and in the event that such bank shall be closed on account of insolvency within such period of
two years, the Corporation shall have the same powers and rights with respect to such bank as in case of
an insured bank.
(b) Notwithstanding any other provision of law, whenever the Board of Directors shall determine that an
insured banking institution is not engaged in the business of receiving deposits, the Corporation shall
notify the banking institution that its insured status will terminate at the expiration of the first full
semiannual assessment period following such notice. A finding by the Board of Directors that a banking
institution is not engaged in the business of receiving deposits shall be conclusive. The Board of Directors
shall prescribe the notice to be given by the banking institution of such termination and the Corporation
may publish notice thereof. Upon the termination of the insured status of any such banking institution, its
deposits shall thereupon cease to be insured and the banking institution shall thereafter be relieved of all
future obligations to the Corporation, including the obligation to pay future assessments.
(c) Whenever the liabilities of an insured bank for deposits shall have been assumed by another insured
bank or banks, the insured status of the bank whose liabilities are so assumed shall terminate on the date
of receipt by the Corporation of satisfactory evidence of such assumption with like effect as if its insured
status had been terminated on said date by the Board of Directors after proceedings under subsection (a)
of this section: Provided, That if the bank whose liabilities are so assumed gives to its depositors notice of
such assumption within thirty days after such assumption takes effect, by publication or by any reasonable
means, in accordance with regulations to be prescribed by the Board of Directors, the insurance of its
deposits shall terminate at the end of six months from the date such assumption takes effect. Such bank
shall be subject to the duties and obligations of an insured bank for the period its deposits are insured:
Provided, further, That if the deposits are assumed by a newly insured bank, the bank whose deposits are
assumed shall not be required to pay any assessment upon the deposits which have been so assumed
after the semiannual period in which the assumption takes effect.
Sec. 8. The Corporation as a corporate body shall have the power -
First. - To adopt and use a corporate seal.
Second. - To have succession until dissolved by an Act of Congress.
Third. - To make contracts.
Fourth. - To sue and be sued, complain and defend, in any court of law in the Philippines. All suits of a civil
nature to which the corporation shall be a part shall be deemed to arise under the laws of the Philippines.
No attachment or execution shall be issued against the Corporation or its property before final judgment in
any suit, action, or proceeding in any court. The Board of Directors shall designate an agent upon whom
service of process may be made in any province or city or jurisdiction in which any insured bank is located.
Fifth. - To appoint by its Board of Directors such officers and employees as are not otherwise provided for
in this Act to define their duties, fix their compensation, require bonds of them and fix penalty thereof and
to dismiss such officers and employees for cause.
Sixth. - To prescribe, by its Board of Directors, by-laws not inconsistent with law, regulating the manner in
which its general business may be conducted, and the privileges granted to it by law may be exercised
and enjoyed.
Seventh. - To exercise by its Board of Directors, or duly authorized officers or agents, all powers
specifically granted by the provisions of this Act, and such incidental powers as shall be necessary to carry
on the powers so granted.
Eighth. - To make examination of and to require information and reports from banks, as provided in this
Act.
Ninth. - To act as receiver.
Tenth. - To prescribe by its Board of Directors such rules and regulations as it may deem necessary to
carry out the provisions of this Act.
Sec. 9. (a) The Board of Directors shall administer the affairs of the Corporation fairly and impartially and
without discrimination. the Corporation shall be entitled to the free use of Philippine mails in the same
manner as the other offices of the national government.
(b) The Board of Directors shall appoint examiners who shall have power, on behalf of the Corporation to
examine any insured bank or any bank making application to become an insured bank, whenever in the
judgment of the Board of Directors an examination of the bank is necessary. Each such examiner shall
have power to make a thorough examination of all the affairs of the bank and in doing so he shall have
power to administer oaths and to examine and take and preserve the testimony of any of the officers and
agents thereof, and shall make a full and detailed report of the condition of the bank to the Corporation.
The Board of Directors in like manner shall appoint claim agents who shall have power to investigate and
examine all claims for insured deposits and transferred deposits. Each claim agent shall have power to
administer oaths and to examine under oath and take and preserve the testimony of any person relating
to such claims.
(c) Each insured bank shall make to the Corporation reports of condition in such form and at such times as
the Board of Directors may require such reports to be published in such manner, not inconsistent with any
applicable law, as it may direct. Every such bank which fails to make or publish any such report within
such time, not less than five days, as the Board of Directors may require, shall be subject to a penalty of
not more than P100 for each day of such failure recoverable by the Corporation of its use.
(d) The Corporation shall have access to reports of examination made by, and reports of condition made to
the Superintendent of Banks or the Governor of the Central Bank of the Philippines, and the
Superintendent of Banks or the Governor of the Central Bank of the Philippines shall also have access to
reports of examination made on behalf of, and reports of condition made to the Corporation.
(e) The members of the Board of Directors and the officers and employees of the Corporation are
prohibited from revealing any information relating to the condition or business of any insured bank and
any member of the Board of Directors, officer or employee of the Corporation violating this provision shall
be held liable for any loss or injury suffered by the Corporation.
Sec. 10. (a) A permanent insurance fund in the amount of P5,000,000 to be appropriated from the
General Fund is hereby created to be used by the Corporation to carry out the purposes of this Act:
Provided, That the maximum amount of the insured deposit of any depositor shall be P10,000.
(b) For the purposes of this Act an insured bank shall be deemed to have been closed on account of
insolvency in any case in which it has been closed for the purpose of liquidation without adequate
provision being made for payment of its depositors.
(c) Whenever an insured bank shall have been closed on account of insolvency, payment of the insured
deposits in such bank shall be made by the Corporation as soon as possible either (1) by cash or (2) by
making available to each depositor a transferred deposit in another insured bank in an amount equal to
the insured deposit of such depositor: Provided, That the Corporation, in its discretion, may require proof
of claims to be filed before paying the insured deposit, and that in any case where the Corporation is not
satisfied as to the validity of a claim for an insured deposit, it may require the final determination of a
court of competent jurisdiction before paying such claim.
(d) The Corporation, upon the payment of any depositor as provided for in subsection (c) of this section
shall be subrogated to all rights of the depositor against the closed bank to the extent of such payment.
Such subrogation shall include the right on the part of the Corporation to receive the same dividends from
the proceeds of the assets of such closed bank and recoveries on account of stockholders’ liability as
would have been payable to the depositor on a claim for the insured deposit, but such depositor shall
retain his claim for any uninsured portion of his deposit.
Sec. 11. (a) Payment of an insured deposit to any person by the Corporation shall discharge the
Corporation, and payment of a transferred deposit to any person by the new bank or by an insured bank in
which a transferred deposit has been made available shall discharge the Corporation and such new bank
or other insured bank, to the same extent that payment to such person by the closed bank would have
discharged it from liability for the insured deposit.
(b) Except as otherwise prescribed by the Board of Directors, neither the Corporation nor such other
insured bank shall be required to recognize as the owner of any portion of a deposit appearing on the
records of the closed bank under a name other than that of the claimant, any person whose name or
interest as such owner is not disclosed on the records of such closed bank as part owner of said deposit, if
such recognition would increase the aggregate amount of the insured deposits in such closed bank.
(c) The Corporation may withhold payment of such portion of the insured deposit of any depositor in a
closed bank as may be required to provide for the payment of any liability of such depositor as a
stockholder of the closed bank, or of any liability of such depositor to the closed bank or its receiver, which
is not offset against the claim due from such bank, pending the determination and payment of such
liability by such depositor or any other person liable therefor.
(d) If, after the Corporation shall have given at least three months notice to the depositor by mailing a
copy thereof to his last-known address appearing on the records of the closed bank, any depositor in the
closed bank shall fail to claim his insured deposit from the Corporation within eighteen months after the
Monetary Board of the Central Bank of the Philippines or the proper court shall have ordered the
conversion of the assets of such closed bank into money, all rights of the depositor against the Corporation
with respect to the insured deposit shall be barred, and all rights of the depositor against the closed bank
and its shareholders or the receivership estate to which the Corporation may have become subrogated,
shall thereupon revert to the depositor.
Sec. 12. (a) Money of the Corporation not otherwise employed shall be invested in obligations of the
Republic of the Philippines or in obligations guaranteed as to principal and interest by the Republic of the
Philippines: Provided, That the Corporation shall not sell or purchase any such obligations for its own
account and in its own right and interest, at any one time aggregating in excess of P100,000, without the
approval of the Insurance Commissioner: And Provided, further, That the Insurance Commissioner may
waive the requirement of his approval with respect to any transaction or classes of transactions subject to
the provisions of this subsection for the period of time and under such conditions as he may determine.
(b) The banking or checking accounts of the Corporation shall be kept with the Central Bank of the
Philippines, with the Philippine National Bank, or with any other bank designated as depositary or fiscal
agent of the Philippine Government.
(c) When the Corporation has determined that an insured bank is in danger of closing, in order to prevent
such closing, the Corporation, in the discretion of its Board of Directors is authorized to make loans to, or
purchase the assets of, or make deposits in, such insured bank, upon such terms and conditions as the
Board of Directors may prescribe, when in the opinion of the Board of Directors the continued operation of
such bank is essential to provide adequate banking service in the community. Such loans and deposits
may be in subordination to the rights of depositors and other creditors.
Sec. 13. The corporation is authorized to borrow from the Central Bank of the Philippines and the Central
Bank is authorized and directed to loan the Corporation on such terms as may be fixed by the Corporation
and the Central Bank, such funds as in the judgment of the Board of Directors of the Corporation are from
time to time required for insurance purposes not exceeding in the aggregate of one hundred million pesos
outstanding at any one time: Provided, That the rate of interest to be charged in connection with any loan
made pursuant to this section shall not be less than the current average rate on outstanding marketable
and nonmarketable obligations of the Republic of the Philippines as of the last day of the month preceding
the making of such loan. Any such loan shall be used by the Corporation solely in carrying out its functions
with respect to such insurance.
Sec. 14. All notes, debentures, bonds, or such obligations issued by the Corporation shall be exempt from
taxation.
Sec. 15. (a) The Corporation shall annually make a report of its operations to the Congress as soon as
practicable after the 1st day of January in each year.
(b) The financial transactions of the Corporation shall be audited by the General Auditing Office in
accordance with the principles and procedures applicable to commercial corporate transactions and under
such rules and regulations as may be prescribed by the Auditor General. The audit shall be conducted at
the place or places where accounts of the Corporation are normally kept. The representatives of the
General Auditing Office shall have access to all books, accounts, records, reports, files, and all other
papers, things, or property belonging to or in use by the Corporation pertaining to its financial transactions
and necessary to facilitate the audit, and they shall be afforded full facilities for verifying transactions with
the balances or securities held by depositaries, fiscal agents, and custodians. All such books, accounts,
records, reports, files, papers, and property of the Corporation shall remain in possession and custody of
the Corporation.
(c) A report of the Audit for each fiscal year ending on June 30 shall be made by the Auditor General to the
Congress not later than January 15 following the close of such fiscal year. On or before December 15
following such fiscal year the Auditor General shall furnish the Corporation a short form report showing the
financial position of the Corporation at the close of fiscal year. The report to the Congress shall set forth
the scope of the audit and shall include a statement of assets and liabilities and surplus or deficit; a
statement of surplus or deficit analysis; a statement of income and expenses; a statement of sources and
application of funds and such comments and information as may be deemed necessary to inform Congress
of the financial operations and condition of the Corporation, together with such recommendations with
respect thereto as the Auditor General may deem advisable. The report shall also show specifically any
program, expenditure, or other financial transactions or undertaking observed in the course of the audit,
which in the opinion of the Auditor General, has been carried on or made without authority of law. A copy
of each report shall be furnished to the President of the Philippines, to the Governor of the Central Bank of
the Philippines, and to the Corporation at the time submitted to the Congress.
Sec. 16. (a) Every insured bank shall display at each place of business maintained by it a sign or signs,
and shall include a statement to the effect that its deposits are insured by the Corporation in all of its
advertisements: Provided, That the Board of Directors may exempt from this requirement advertisements
which do not relate to deposits or when it is impractical to include such statement therein. The Board of
Directors shall prescribe by regulation the forms of such signs and the manner of display and the
substance of such statements and the manner of use. For each day an insured bank continues to violate
any provisions of this subsection or any lawful provisions of said regulations, it shall be subject to a penalty
of not more than P100, which the Corporation may recover for its use.
(b) No insured bank shall pay any dividend on its capital stock or interest on its capital notes or debentures
(if such interest is required to be paid only out of net profits) or distribute any of its capital assets while it
remains in default in the payment of any assessment due to the Corporation; and any director or officer of
any insured bank who participates in the declaration or payment of any such dividend or interest or in any
such distribution shall, upon conviction, be fined not more than P1,000 or imprisoned not more than one
year, or both: Provided, That if such default is due to a dispute between the insured bank and the
Corporation over the amount of such assessment, this subsection shall not apply, if such bank shall deposit
security satisfactory to the Corporation of payment upon final determination of the issue.
(c) Without prior written consent by the Corporation, no insured bank shall (1) merge or consolidate with
any noninsured bank or institution or convert into a noninsured bank or institution or (2) assume liability to
pay any deposits made in, or similar liabilities of, any noninsured bank or institution or (3) transfer assets
to any noninsured bank or institution in consideration of the assumption of liabilities for any portion of the
deposits made in such insured bank.
(d) The Corporation may require any insured bank to provide protection and indemnity against burglary,
defalcation, and other similar insurable losses. Whenever any insured bank refuses to comply with any
such requirement the Corporation may contract for such protection and indemnity and add the cost
thereof to the assessment otherwise payable by such bank.
(e) Any insured bank which wilfully fails or refuses to file any certified statement or pay any assessment
required under this Act shall be subject to a penalty of not more than P100 for each day that such
violations continue, which penalty the Corporation may recover for its use: Provided, That this subsection
shall not be applicable under the circumstances stated in the provisions of subsection (b) of this section.
Sec. 17. Except with the written consent of the Corporation, no person shall serve as a director, officer, or
employee of an insured bank who has been convicted, or who is hereafter convicted, of any criminal
offense involving dishonesty or a breach of trust. For each willful violation of this prohibition, the bank
involved shall be subject to a penalty of not more than P100 for each day this prohibition is violated, which
the Corporation may recover for its use.
Sec. 18. If any provision or section of this Act or the application thereof to any person or circumstances is
held invalid, the other provisions or sections of this Act, in the application of such provision or section to
other persons or circumstances shall not be affected thereby.
Sec. 19. All Acts or parts of Acts and executive orders, administrative orders, or parts thereof which are
inconsistent with the provisions of this Act are hereby repealed.
Sec. 20. This Act shall take effect upon approval. The Philippine Deposit Insurance Corporation shall
commence business upon organization of the Board of Directors and certification by the Treasurer of the
Philippines that the Permanent Insurance Fund has been appropriated.
Approved: June 22, 1963

Pasted from <http://www.bcphilippineslawyers.com/republic-act-no-3591/>

REPUBLIC ACT NO. 6037


Sunday, June 06, 2010
3:20 AM

REPUBLIC ACT NO. 6037 - AN ACT TO AMEND CERTAIN SECTIONS OF REPUBLIC ACT NUMBERED
THREE THOUSAND FIVE HUNDRED NINETY ONE ENTITLED "AN ACT ESTABLISHING THE
PHILIPPINE DEPOSIT INSURANCE CORPORATION, DEFINING ITS POWERS AND DUTIES AND FOR
OTHER PURPOSES"

SECTION 1. Section 2 of Republic Act Numbered Three thousand five hundred ninety one is
hereby amended to read as follows:

"Sec. 2. The powers and functions of the Corporation shall be vested in a Board of Directors
consisting of three (3) members one of whom shall be the Governor of the Central Bank of the
Philippines and two of whom shall be citizens of the Republic of the Philippines to be
appointed by the President of the Philippines with the consent of the Commission on
Appointments. One of the appointive members shall be the Chairman of the Board of Directors
of the Corporation who shall be appointed on full time basis for a term of six (6) years at an
annual compensation which shall be fixed by the President of the Philippines. The other
appointive member, who shall be appointed for a term of four (4) years and the Governor of
the Central Bank shall each receive a per diem of not exceeding fifty pesos (P50.00) for each
day of meeting actually attended by them but in no case shall each of them receive more than
five hundred pesos (P500.00) a month.n the event of vacancy in the office of the Governor of
the Central Bank of the Philippines, and pending the appointment of his successor or during
the absence of the Governor, the Acting Governor of the Central Bank of the Philippines shall
act as member of the Board of Directors.n the event of a vacancy in the Office of the Chairman
of the Board of Directors and pending the appointment of his successor, the Governor of the
Central Bank of the Philippines shall act as Chairman. The members of the Board of Directors
shall be ineligible during the time they are in office and for a period of two years thereafter to
hold any office, position or employment in any insured bank, except that this restriction shall
not apply to any member who has served the full term for which he was appointed. No
member of the Board of Directors shall be an officer or director of any insured bank; and
before entering upon his duties as member of the Board of Directors, he shall certify under
oath that he has complied with this requirement and such certification shall be filed with the
Secretary of the Board of Directors. Any vacancy in the Board created by the death,
resignation, or removal of an appointive member shall be filled by the appointment of new
member to complete the unexpired period of the term of the member concerned.

"The Board of Directors shall have the authority:

"1. To prepare and issue rules and regulations as it considers necessary for the effective
discharge of its responsibilities.

"2. To direct the management, operations and administration of the Corporation;


"3. To appoint, fix the remuneration and remove any officer or employee of the Corporation
for cause: provided, however, that officers exercising discretionary powers shall not be
subject to the Civil Service Law; and

"4. To authorize such expenditures by the Corporation as are in the interest of the effective
administration and operation of the Corporation."

SECTION 3. Section 4 of the same Act is hereby amended as follows:

"Sec. 4. The deposit liabilities of any bank or banking institution, which is engaged in the
business of receiving deposits as herein defined on the effective date of this Act, or which
thereafter may engage in the business of receiving deposits, shall be insured with the
corporation."

SECTION 4. Section 5 of the same Act is hereby repealed.

SECTION 5. Section 8 of the same Act is hereby amended to read as follows:

"Sec. 8. The Corporation as a corporate body shall have the powers:

"First — To adopt and use a corporate seal;

"Second — To have succession until dissolved by an Act of Congress;

"Third — To make contracts;

"Fourth — To sue and be sued, complain and defend, in any court of law in the Philippines. All
suits of a civil nature to which the Corporation shall be a part shall be deemed to arise under
the laws of the Philippines. No attachment or execution shall be issued against the
Corporation or its property before final judgment in any suit, action or proceeding in any
court. The Board of Directors shall designate an agent upon whom service of process may be
made in any province or city or jurisdiction in which the insured bank is located;

"Fifth — To appoint by its Board of Directors such officers and employees as are not otherwise
provided for in this Act, to define their duties, fix their compensation, require bonds of them
and fix penalty thereof and to dismiss such officers and employees for cause;

"Sixth — To prescribe, by its Board of Directors, by-laws not inconsistent with law, regulating
the manner in which its general business may be conducted, and the privileges granted to it
by law may be exercised and enjoyed;

"Seventh — To exercise, by its Board of Directors, or duly authorized officers or agents, all
powers specifically granted by the provisions of this Act, and such incidental powers as shall
be necessary to carry on the powers so granted;

"Eight — To make examinations of and to require information and reports from banks, as
provided in this Act: provided, that any examination shall be made simultaneously with the
examination by the Departments of the Central Bank conducting examinations on banks;

"Ninth — To act as receiver; and

"Tenth — To prescribe by its Board of Directors such rules and regulations as it may deem
necessary to carry out the provisions of this Act."

SECTION 6. Section 12 of the same Act is hereby amended to read as follows:

"Sec. 12. (a) Money of the Corporation not otherwise employed shall be invested in
obligations of the Republic of the Philippines or in obligations guaranteed as to principal and
interest by the Republic of the Philippines.
"(b) The banking or checking accounts of the Corporation shall be kept with the Central Bank
of the Philippines, with the Philippine National Bank, or with any other bank designated as
depository or fiscal agent of the Philippine Government.

"(c) When the Corporation has determined that an insured bank is in danger of closing, in
order to prevent such closing, the Corporation, in the discretion of its Board of Directors is
authorized to make loans to, or purchase the assets of, or make deposits in, such insured
bank, upon such terms and conditions as the Board of Directors may prescribe, when in the
opinion of the Board of Directors the continued operation of such bank is essential to provided
adequate banking service in the community, Such loans and deposits may be in subordination
to the rights of depositors and other creditors."

SECTION 7. Section 13 of the same Act is hereby amended to read as follows:

"Sec. 13. The Corporation is authorized to borrow from the Central Bank of the Philippines
and the Central Bank is authorized and directed to loan the Corporation on such terms as may
be fixed by the Corporation and the Central Bank, such funds as in the judgment of the Board
of Directors of the Corporation are from time to time required for insurance purposes including
those provided for in section 12 (c) not exceeding in the aggregate of one hundred million
pesos at any one time: provided, that the rate of interest to be charged in connection with any
loan made pursuant to this Section shall not be less than the current average rate on
outstanding marketable and non-marketable obligations of the Republic of the Philippines as
of the last day of the month preceding the making of such loan. Any such loan shall be used by
the Corporation solely in carrying out its functions with respect to such insurance."

SECTION 8. Section 14 of the same Act is hereby amended to read as follows:

"Sec. 14. With the approval of the President of the Philippines, to issue bonds, debentures,
and other obligations whenever its capital or funds are not sufficient to meet its obligations to
depositors whose deposits are insured: provided, that the board of directors shall determine
the interest rates, maturity and other requirements of said obligations: provided, further, that
the corporation shall provide for appropriate reserves for the redemption or retirement of said
obligations.

"All notes, debentures, bonds or such obligations issued by the Corporation shall be exempt
from taxation."

SECTION 9. Section 16 (a) of the same Act is hereby amended to read as follows:

"Sec. 16. (a) Every insured bank shall display at each place of business maintained by it a
sign or signs, and shall include a statement to the effect that its deposits are insured by the
Corporation in all of its advertisements: provided, that the Board of Directors may exempt
from this requirement advertisements which do not relate to deposits or when it is impractical
to include such statement therein. The Board of Directors shall prescribe by regulation the
forms of such signs and the manner of display and the substance of such statements and the
manner of use. For each day an insured bank continues to violate any provisions of this
subsection or any lawful provisions of said regulations, it shall be subject to a penalty of not
more than P100.00 which the Corporation may recover for its use: provided, however, that the
penalty of imprisonment for not more than one (1) year or a fine of not exceeding two
thousand pesos (P2,000.00) or both, in the discretion of the court shall be imposed upon:

"1. The directors and officers of any Bank, Corporation, partnership or any other company
performing banking functions in the Philippines not insured under the provisions of this Act
which shall in any manner, advertise, or hold itself out as having insured status for the
purpose of making it appear that its deposits are insured with the corporation.

"2. The directors and officers of a bank whose insured status had already been terminated, if
such bank shall continue to advertise in any manner or hold itself out as having insured
deposits, unless in the same connection, it shall also state with the same prominence that
additional and/or new deposits made after the effective date of termination of its insured
status are no longer insured.
"3. Any person, who knowing the purpose for which the official sign, advertising statement
and/or emblem, as duly prescribed by the board of directors of the corporation is to be used,
reproduces or supplies such official sign, advertising statement and/or emblem or a colorable
imitation thereof, for the use of a bank not insured under the provisions of this act, to enable
such bank to fraudulently use the same in connection with the advertising of its services.

"(b) No insured bank shall pay any dividends on its capital stock or interest on its capital
notes or debentures (if such interest is required to be paid only out of net profits) or distribute
any of its capital assets while it remains in default in the payment of any assessment due to
the Corporation; and any director or officer of any insured bank who participates in the
declaration or payment of any such dividend or interest or in any such distribution shall, upon
conviction, be fined not more than P1,000 or imprisoned not more than one year, or both:
provided, that if such default is due to a dispute between the insured bank and the
Corporation over the amount of such assessment, this subsection shall not apply, if such bank
shall deposit security satisfactory to the Corporation for payment upon final determination of
the issue.

"(c) Without prior written consent by the Corporation, no insured bank shall (1) merge or
consolidate with any non-insured bank or institution or convert into a non-insured bank or
institution or (2) assume liability to pay any deposits made in, or similar liabilities of, any non-
insured bank or institution or (3) transfer assets to any non-insured bank or institution in
consideration of the assumption of liabilities for any portion of the deposits made in such
insured bank.

"(d) The Corporation may require any insured bank to provide protection and indemnity
against burglary, defalcation, and other similar insurable losses. Whenever any insured bank
refuses to comply with any such requirement the Corporation may contact for such protection
and indemnity and add the cost thereof to the assessment otherwise payable by such bank.

"(e) Any insured bank which willfully fails or refuses to file any certified statement or pay
any assessment required under this Act shall be subject to a penalty of not more than P100 for
each day that such violations continue, which penalty the Corporation may recover for its use:
provided, that this subsection shall not be applicable under the circumstances stated in the
provisions of subsection (b) of this section."

SECTION 10. This Act shall take effect upon its approval.

Approved: August 4, 1969

Pasted from <http://www.chanrobles.com/republicacts/republicactno6037.html>

PD 120
Sunday, June 06, 2010
3:21 AM

The Lawphil Project - Arellano Law Foundation


PRESIDENTIAL DECREES No. 120 January 29, 1973

MALACAÑANG
Manila
PRESIDENTIAL DECREE No. 120 January 29, 1973
AMENDING REPUBLIC ACT NUMBERED THREE THOUSAND FIVE HUNDRED NINETY-ONE, AS
AMENDED, ENTITLED "AN ACT ESTABLISHING THE PHILIPPINE DEPOSIT INSURANCE
CORPORATION, DEFINING ITS POWERS AND DUTIES AND FOR OTHER PURPOSES"
WHEREAS, there were pending before Congress prior to the promulgation of Proclamation No. 1081, dated
September 21, 1972, certain urgent measures proposing amendments to Republic Act No. 3591, as
amended;
WHEREAS, the deposit insurance scheme has been adopted to generate more faith and confidence in the
banking system and the Philippine Deposit Insurance Corporation, as an insurer of bank depositors, is
entrusted not only with the vital role of protecting depositors from loss resulting from bank closures but
also in helping develop a sound and stable banking system;
WHEREAS, the recommendations contained in the report on the Philippine financial system which have
been accepted, with certain modifications by the monetary authorities, included among others, certain
proposals geared toward ensuring the effectiveness of the Corporation in performing its assigned tasks;
NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the powers vested
in me by the Constitution as Commander-in-Chief of all the Armed Forces of the Philippines, and pursuant
to Proclamation No. 1081, dated September 21, 1972, and General Order No. 1, dated September 22,
1972, as amended, and in order to effect the desired changes and reforms in the social, economic, and
political structure of our society, do hereby order and decree the amendment of Republic Act No. 3591, as
amended, as follows:
Section 1. Section two of Republic Act Numbered Three thousand five hundred ninety-one, as amended,
is hereby amended to read as follows:
"Sec. 2. The powers and functions of the Corporation shall be vested in a Board of Directors consisting of
three (3) members one of whom shall be the Governor of the Central Bank of the Philippines and two of
whom shall be citizens of the Republic of the Philippines to be appointed by the President of the Philippines
with the consent of the Commission on Appointments. One of the appointive members shall be the
Chairman of the Board of Directors of the Corporation who shall be appointed on a full time basis for a
term of six (6) years at an annual compensation which shall be fixed by the President of the Philippines.
The other appointive member, who shall be appointed for a term of four (4) years and the Governor of the
Central Bank shall each receive a per diem of not exceeding fifty pesos (P50.00) for each day of meeting
actually attended by them but in no case shall each of them receive more than five hundred pesos
(P500.00) a month. In the event of vacancy in the office of the Governor of the Central Bank of the
Philippines, and pending the appointment of his successor or during the absence of the Governor the
Acting Governor of the Central Bank of the Philippines shall act as member of the Board of Directors. In the
event of a vacancy in the Office of the Chairman of the Board of Directors and pending the appointment of
his successor, the Governor of the Central Bank of the Philippines shall act as Chairman. The members of
the Board of Directors shall be ineligible during the time they are in office and for a period of two years
thereafter to hold office, position or employment in any insured bank, except that this restriction shall not
apply to any member who has served the full term for which he was appointed. No member of the Board of
Directors shall be an officer or director of any insured bank; and before entering upon his duties as
member of the Board of Directors, he shall certify under oath that he has complied with this requirement
and such certification shall be filed with the Secretary of the Board of Directors. Any vacancy in the Board
created by the death, resignation, or removal of an appointive member shall be filled by the appointment
of a new member to complete the unexpired period of the term of the member concerned.
"The Board of Directors shall have the authority:
"1. To prepare and issue rules and regulations as it considers necessary for the effective discharge of its
responsibilities;
"2. To direct the management, operations and administration of the Corporation;
"3. To appoint, fix the remuneration and remove any officer or employee of the Corporation for cause:
Provided, however, That officers exercising discretionary powers shall not be subject to the Civil Service
Law; and
"4. To authorize such expenditures by the Corporation as are in the interest of the effective administration
and operation of the Corporation: Provided, however, That not later than one year after the appropriation
and release of the additional fifteen million pesos for the permanent insurance fund as provided in Section
ten (a-1) of this Act, the annual operating expenses of the Corporation may amount to not more than the
equivalent of the annual gross income from the investment of the permanent insurance fund and not more
than fifteen per cent of the first ten million pesos of all other income, such as assessments and earnings
from the investment of funds of the Corporation other than the permanent insurance fund: Provided,
further, That if all other income exceeds ten million pesos, the prescribed ceiling for the annual operating
expenses may be increased by not more than ten per cent of the excess: Provided, finally, That in the
computation of income, recoveries and accrued income shall be excluded."
Section 2. Section ten (a) of the same Act is hereby amended by adding another paragraph after section
ten (a) which reads as follows:
"Sec. 10(a-1). The permanent insurance fund hereinabove created is hereby increased to twenty million
pesos for this purpose, the amount of fifteen million pesos is hereby appropriated from the General Fund."
Section 3. Section twelve, subsection (c) of the same Act is hereby amended to read as follows:
"Sec. 12(c). When the Corporation has determined that an insured bank is in danger of closing, in order to
prevent such closing, the Corporation, in the discretion of its Board of Directors, is authorized to make
loans to, or purchase the assets of, or make deposits in, such insured bank, upon such terms and
conditions as the Board of Directors may prescribe, when in the opinion of the Board of Directors, the
continued operation of such bank is essential to provide adequate banking service in the community:
Provided, however, That funds available for this purpose shall be limited only to the permanent insurance
fund referred to in Section ten (a) of this Act, additional appropriations thereto, and money borrowed from
the Central Bank in accordance with the provisions of Section thirteen of this Act: Provided, further, That
funds of the Corporation accumulated from assessments paid by insured banks shall not be available for
this purpose nor for the repayment of loans obtained from the Central Bank for the funding of assistance to
insured banks as provided in this section. Such loans and deposits may be in subordination to the rights of
depositors and other creditors."
Section 4. This Decree shall take effect immediately.
Done in the City of Manila, this 29th day of January, in the year of Our Lord, nineteen hundred and
seventy-three.

Pasted from <http://www.lawphil.net/statutes/presdecs/pd1973/pd_120_1973.html>

PD 1094
Sunday, June 06, 2010
3:22 AM

PRESIDENTIAL DECREE NO. 1094 - AMENDING CERTAIN PROVISIONS OF R.A. 3591 AS AMENDED
ENTITLED "AN ACT ESTABLISHING THE PHILIPPINE DEPOSIT INSURANCE CORPORATION,
DEFINING ITS POWERS AND DUTIES AND FOR OTHER PURPOSES"

I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the powers vested in me


by the Constitution, hereby decree the following amendment to R.A. 3591 as amended:

Section 1. Section 2 of R.A. 3591 as amended is hereby further amended to read as follows:

"Sec. 2 . The powers and functions of the Corporation shall be vested in a Board of Directors
consisting of three (3) members one of whom shall be the Governor of the Central Bank of the
Republic of the Philippines to be appointed by the President of the Philippines with the
consent of the Commission on Appointments. One of the appointive members shall be the
Chairman of the Board of Directors of the Corporation who shall be appointed on a full time
basis for a term of six (6) years at an annual compensation [which shall] AS MAY be fixed
FROM TIME TO TIME by the President of the Philippines BUT WHICH SHALL UNTIL AMENDED BY
LAW BE FIFTY THOUSAND (P50,000.00) PESOS PER ANNUM. The other appointive member, who
shall be appointed for a term of four (4) years and the Governor of the Central Bank shall each
receive a per diem of not exceeding [fifty pesos (P50.00)] TWO HUNDRED FIFTY PESOS
(P250.00) FOR each day of meeting actually attended by them but in no case shall each of
them receive more, than [five hundred (P500.00] ONE THOUSAND PESOS (P1,000.00) a month.
In the event of vacancy in the office of the Governor of the Central Bank of the Philippines,
and pending the appointment of his successor or during the absence of the Governor, the
Acting Governor of the Central Bank of the Philippines shall act as member of the Board of
Directors. In the event of a vacancy in the Office of the Chairman of the Board of Directors and
pending the appointment of his successor, the Governor of the Central Bank of the Philippines
shall act as Chairman. The members of the Board of Directors shall be ineligible during the
time they are in office and for a period of two years thereafter to hold office or employment in
any insured bank, except that this restriction shall not apply to any member who has served
the full term for which he was appointed. No member of the Board of Directors shall be an
officer or director of any insured bank, and before entering upon his duties as member of the
Board of Directors he shall certify under oath that he has complied with this requirement and
such certification shall be filed with the Secretary of the Board of Directors. Any vacancy in
the Board created by the death, resignation, or removal of an appointive member shall be
filled by the appointment of a new member to complete the unexpired period of the term of
the member concerned.
Section 2. All laws, decrees, orders, rules and regulations inconsistent herewith are hereby
repealed or amended accordingly.

Section 3. This decree shall take effect immediately.

DONE in the City of Manila, this 18th of February, in the year of Our Lord, nineteen hundred
and seventy-seven.

Pasted from <http://www.chanrobles.com/presidentialdecrees/presidentialdecreeno1094.html>

PD 1451
Sunday, June 06, 2010
3:23 AM

PRESIDENTIAL DECREE No. 1451 June 11, 1978

MALACAÑANG
Manila
PRESIDENTIAL DECREE No. 1451
AMENDING REPUBLIC ACT NUMBERED THREE THOUSAND FIVE HUNDRED NINETY-ONE, AS
AMENDED, ENTITLED "AN ACT ESTABLISHING THE PHILIPPINE DEPOSIT INSURANCE
CORPORATION, DEFINING ITS POWERS AND DUTIES AND FOR OTHER PURPOSES"
WHEREAS, the deposit insurance scheme has been adopted to generate public faith and
confidence in the banking system and the Philippine Deposit Insurance Corporation has been
established to serve as the implementing agency of the Government;
WHEREAS, the Government is currently engaged in the institution of vital reforms in the
banking system to enable it to play a more effective role in the socio-economic development of
the country;
WHEREAS, as a means of encouraging the accumulation of more deposits in order to
contribute to the socio-economic progress of the country, it is imperative that protection of
deposits in banks be enhanced;
NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the
powers in me vested by the Constitution, do hereby order and decree the amendment of
Republic Act No. 3591, as amended, as follows:
Section 1. Section three (g) of Republic Act Numbered Three Thousand Five Hundred Ninety-
One, as amended, is hereby amended to read as follows:
"Sec. 3. (g) The term "insured deposit" means the net amount due to any depositor for
deposits in an insured bank (after deducting offsets) less any part thereof which is in excess
of (P15,000.00. Such net amount shall be determined according to such regulations as the
Board of Directors may prescribe and in determining the amount due to any depositor there
shall be added together all deposits in the bank maintained in the same capacity and the same
right for his benefit either in his own name or in the name of others."
Section 2. Section six (i) of the same Act is hereby amended to read as follows:
"Sec. 6. (i) Trust funds held by an insured bank in a fiduciary capacity whether held in trust or
deposited in any other department or in another bank shall be insured like other forms of
deposits, in an amount not to exceed (P15,000.00 for each trust estate, and when deposited
by the fiduciary bank in another bank such trust funds shall be similarly insured to the
fiduciary bank according to the trust estates represented. Notwithstanding any other
provision of this Act, such insurance shall be separate from and additional to that covering
other deposits of the owners of such trust funds or the beneficiaries of such trust estates:
Provided, That where the fiduciary bank deposits any of such trust funds in other insured
banks, the amount so held by other insured banks on deposit shall not for the purpose of any
certified statement required under subsections (b) and (c) of this section be considered to be
a deposit liability of the fiduciary bank, but shall be considered to be a deposit liability of the
bank in which such funds are so deposited by such fiduciary bank. The Board of Directors shall
have the power by regulation to prescribe the manner of reporting and of depositing such
trust funds."
Section 3. Section ten (a) and (a-1) of the same Act is hereby amended by deleting and adding
the following provisions to read as follows:
"Sec. 10(a) A permanent insurance fund in the amount of P5,000,000 to be appropriated from
the General Fund, is hereby created to be used by the Corporation to carry out the purposes of
this Act.
(a-1) The permanent insurance fund hereinabove created is hereby increased to twenty million
pesos and for this purpose, the amount of fifteen million pesos is hereby appropriated from
the General Fund: Provided, That the maximum amount of the insured deposit of any depositor
is hereby increased to P15,000.00."
Section 4. This Decree shall take effect immediately.
Done in the City of Manila, this 11th day of June, in the year of Our Lord, nineteen hundred and
seventy-eight.

Pasted from <http://www.lawphil.net/statutes/presdecs/pd1978/pd_1451_1978.html>

PD 1935
Sunday, June 06, 2010
3:24 AM

PRESIDENTIAL DECREE NO. 1935 - AMENDING CERTAIN SectionS OF PRESIDENTIAL DECREE


NOS. 1183 AND 1867

WHEREAS, the objectives of government in imposing a travel tax to discourage unnecessary


foreign travel and encourage domestic tourism has not been fully achieved, and;

WHEREAS, there is an apparent need to pursue this objective further particularly in the light of
the present economic situation;

NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the


powers vested in me by the Constitution, do hereby order and decree the further amendment
of certain sections of Presidential Decree No. 1183, as amended, as follows:

Section 1. Section 1 of Presidential Decree No. 1183; as amended, is hereby amended to


read as follows:

"Sec. 1. There is hereby imposed, in lieu of the travel taxes levied under Section three of
Republic Act No. 1478, as amended, and Section six of Republic Act No. 6141, a travel tax from
(a) all citizens of the Philippines; (b) permanent resident aliens; and (c) non-immigrant aliens
who have stayed in the Philippines for more than one (1) year who are leaving the country,
irrespective of the place of issuance of ticket and the form and place of payment. A travel tax
of the equivalent in pesos of Two Hundred Dollars (US$200.00) shall be imposed on
passengers travelling under first class passage and the peso equivalent of One Hundred
Twenty Dollars (US$120.00) for those travelling under economy class passage; Provided,
however, that a reduced rate of the peso equivalent of One Hundred Twenty-five Dollars
(US$125.00) for first class passage and the peso equivalent of Seventy-Five Dollars (US$75.00)
for economy class passage shall be imposed on those enumerated under Section 2-A of this
Decree."

Section 2. Section 2 of the Presidential Decree No. 1867 is hereby amended to read as
follows:

"Sec. 2. Proceeds to be realized from the additional tax shall accrue entirely to the General
Fund of the National Government; Provided, however, that the Philippine Tourism Authority
shall be allowed to maintain its projected receipts for 1984 out of total travel tax collections."
Section 3. Section 2 of Presidential Decree No. 1183 as amended, is hereby further amended
to read as follows:

"Sec. 2. The following shall be exempt from the payment of the travel tax imposed under
Section 1 of this Decree by securing a Travel Tax Exemption Certificate from the Philippine
Tourism Authority:

"(a) Foreign diplomatic and consular officials and members of their staff who are duly
accredited to the Republic of the Philippines including the immediate members of their
families and household domestics whose entry as such has been authorized by the Philippine
Government;

"(b) Officials, consultants, experts and employees of the United Nations Organization and of
its agencies, and those exempted under existing laws, treaties and international agreements;

"(c) Personnel of multi-national companies with regional headquarters at, but not engaged in
business in the Philippines and their dependents if joining them during the period of their
assignment in the Philippines as certified to by the Ministry of Trade and Industry;

"(d) Crew members of ships andrplanes plying international routes who are leaving the
country to join their vessels orrplanes or to assume their position therein;

"(e) Filipino citizens who are permanent residents of foreign countries who have stayed in
the Philippines for a period of not more than one (1) year;

"(f) Bona fide students who studies abroad have been approved by the NEDA Scholarship
Committee and foreign students whose studies in the country is financed by their government
or by an international organization;

"(g) Infants who are two years old or less;

"(h) United States military personnel and other United States nationals, including their
dependents in proper cases as indicated hereinbelow, who are travelling on United States
Government-owned or chartered transport facilities or with fares expended out of United
States Government funds, to wit:

"1) United States military personnel and their dependents;

"2) Filipinos in the United States Military Service and their dependents;

"3) Filipino employees of the United States Government travelling on United States
Government business;

"4) U.S. State Department visitor grantees travelling on United States Government business
and

"5) Destitute American repatriates

"i) Persons whose travel is provided or funded by foreign governments with which the
Philippine Government maintains diplomatic relations;

"j) Those authorized by the President of the Philippines for reasons of national interest."

Section 4. Section 2-A of the same decree is hereby further amended to read as follows:

"Sec. 2-A. Unless otherwise exempted under Section 2 of the same Act, a reduced rate of the
peso equivalent of One Hundred Twenty-Five Dollars (US$125.00) for first class passage and
the peso equivalent of Seventy-Five Dollars (US$75.00) for economy class passage shall be
imposed on the following:

"a) Individuals who are twelve years old or below but over two years of age;
"b) Those travelling under steerage class;

"c) Recipients of awards and grants from foreign governments, institutions and
organizations as certified to by the NEDA;

"d) Those authorized by the President of the Philippines for reasons of national interest."

Section 5. Section 2-B, as inserted by Batas Pambansa Blg. 38, is hereby amended to read as
follows:

"Sec. 2-B. Contract workers, their spouses, and dependents 21 years of age or below, with
approved employment contracts and duly certified by the Ministry of Labor and Employment
shall be subject to a rate of the peso equivalent of Sixty Dollars (US$60.00) for first class
passage and the peso equivalent of Thirty-Five Dollars (US$35.00) for economy class passage."

Section 6. All Laws, decrees, orders and regulations or parts thereof, which are inconsistent
herewith, are hereby repealed or modified accordingly.

Section 7. This Decree shall take effect on August 15, 1984.

Done in the City of Manila, this 11th of June in the Year of Our Lord, Nineteen Hundred Eighty-
Four.

Pasted from <http://www.chanrobles.com/presidentialdecrees/presidentialdecreeno1935.html>

RA 7400
Sunday, June 06, 2010
3:25 AM

An Act Further Amending Republic Act Numbered Three Thousand Five Hundred Ninety-One, As Amended,
Otherwise Known as the Charter of the Philippine Deposit Insurance Corporation, and for Other Purposes.
SECTION 1. Section 2 of Republic Act No. 3591, as amended, is hereby further amended to read as follows:
"Sec. 2. The powers and functions of the Corporation shall be vested in and exercised by a Board of
Directors which shall be composed of five (5) members as follows:
"(a) The Secretary of Finance who shall be the ex officio Chairman of the Board without
compensation.
"(b) The Governor of the Central Bank, who shall be the ex officio member of the Board without
compensation.
"(c) The President of the Corporation, who shall be appointed by the President of the Philippines from
either the Government or private sector to serve on a full-time basis for a term of six (6) years. The
President shall also serve vice chairman of the Board.
"(d) Two (2) members from the private sector, to be appointed for a term of six (6) years without
reappointment from the President of the Philippines: Provided, That of those first appointed, the first
appointee shall serve a period of two (2) years.
"No person shall be appointed as member of the Board unless he be of good moral character and of
unquestionable integrity and responsibility, and who is of recognized competence in economics, banking
and finance, law, management administration or insurance, and shall be at least thirty-five (35) years of
age. For the duration of their tenure or term in office and for a period of one year thereafter, the
appointive members of the Board shall be disqualified from holding any office, position or employment in
any insured bank.
"Whenever the Chairman of the Board is unable to attend a meeting of the Board, or in the event of a
vacancy in the office of the Secretary of Finance, the President of the Corporation shall act as the
chairman.
"The presence of three (3) members shall constitute a quorum, and all decisions shall require a vote of a
majority of the members present, there being a quorum.
"The members of the Board of Directors from the private sector, except the President shall receive a per
diem for every board meeting attended, the amount of which shall be Five hundred pesos (P500.00) per
meeting but not to exceed the sum of Two thousand pesos (P2,000.00) for every single month.
"The Board of Directors shall have the authority:
"1.To prepare and issue rules and regulations as it considers necessary for the effective discharge of
its responsibilities;
"2.To direct the management, operations and administration of the Corporation;
"3.To appoint, establish the rank, fix the remuneration and remove any officer or employee of the
Corporation for cause; subject to the Civil Service and pertinent compensation laws; and
"4.To authorize such expenditures by the corporation as are in the interest of the effective
administration and operation of the Corporation."
Sec. 2. Section 2-A of the same Act is hereby amended to read as follows:
"Sec. 2-A. The President of the Corporation shall be the Chief Executive thereof and his salary shall be
fixed by the President of the Philippines at a sum commensurate to the importance and responsibility
attached to the position. The sum total of the salary of the President and the allowances and other
emoluments which the Board of Directors may grant him shall be ceiling for fixing the salary allowances
and other emoluments of all other personnel in the Corporation.
"The powers and duties of the president of the Corporation are:
"(a) To prepare the agenda for the meeting of the Board and to submit for the consideration of the
Board the policies and measures which he believes to be necessary to carry out the purposes and
provisions of this Act;
"(b) To execute and administer the policies and measures approved by the Board;
"(c) To direct and supervise the operations and internal administration of the Corporation in
accordance with the policies established by the Board. The President may delegate certain of his
administrative responsibilities to other officers of the Corporation, subject to the rules and regulations of
the Board;
"(d) To represent the Corporation, upon prior authority of the Board, in all dealings with other offices,
agencies and instrumentalities of the Government and with all other persons or entities, public or private,
whether domestic, foreign or international;
"(e) To authorize, with his signature, upon prior authority of the Board, contracts entered into by the
Corporation, notes and securities issued by the Corporation, and the annual reports, balance sheets,
profits and loss statements, correspondence and other documents of the Corporation. The signature of the
President may be in facsimile wherever appropriate;
"(f) To represent the corporation, either personally or through counsel, in all legal proceedings or
actions;
"(g) To delegate, with the prior approval of the Board of Directors, his power to represent the
Corporation, as provided in subsections (d) and (f) of this Section, to other officers of the Corporation; and
"(h) To exercise such other powers as may be vested in him by the Board.
"The President shall be assisted by a Vice-President and other officials whose appointment and removal
for cause shall be approved and whose salary shall be fixed by the Board of Directors upon
recommendation of the President of the Corporation. During the absence or temporary incapacity of the
President, or in case of vacancy or permanent incapacity and pending the appointment of a new President
of the Corporation by the President of the Philippines, the Vice-President shall act as President and
discharge the duties and responsibilities thereof."
Sec. 3. Section 3, subsections (b), (c), (f) and (g) is hereby amended to read as follows:
"(b) The term ‘Bank’ and ‘Banking Institution’ shall be synonymous and interchangeable and shall
include banks, commercial banks, savings bank, mortgage banks, rural banks, development banks,
cooperative banks, stock savings and loan associations and branches and agencies in the Philippines of
foreign banks and all other corporations authorized to perform banking functions in the Philippines."
"(c) The term ‘receiver’ includes a receiver, commission, person or other agency charged by law with
the duty to take charge of the assets and liabilities of a bank which has been forbidden from doing
business in the Philippines, as well as the duty to gather, preserve and administer such assets and
liabilities for the benefit of the depositors and creditors of said bank, and to continue into liquidation
whenever authorized under this Act other laws, and to dispose of the assets and to wind up the affairs of
such bank."
"(f) The term ‘deposit’ means the unpaid balance of money or its equivalent received by a bank in the
usual course of business and for which it has given or its obliged to give credit to a commercial, checking,
savings, time or thrift account or which is evidenced by passbook check, and/or certificate of deposit,
printed or issued in accordance with Central Bank Rules and Regulations and other applicable laws,
together with such other obligations of a bank, which, consistent with banking usage and practices, the
Board of Directors shall determine and prescribe by regulations to be deposit liabilities of the Bank:
Provided, That any obligation of a bank which is payable at the office of the bank located outside of the
Philippines shall no be a deposit for any of the purposes of this Act or included as part of the total deposits
or in insured deposit: Provided, further, That, subject to the approval of the Board of Directors, any insured
bank which is incorporated under the laws of the Philippines which maintains a branch outside the
Philippines may elect to include for insurance its deposit obligations payable only at such branch."
"(g) The term ‘insured deposit’ means the net amount due to any depositor for deposits in an insured
bank (after deducting offsets) less any part thereof which is in excess of One hundred thousand pesos
(P1,000.00). Such net amount shall be determined according to such regulations as the Board of Directors
may prescribe and in determining such amount due to any depositor, there shall be added together all
deposits in the bank maintained in the same capacity and the same right for his benefit either in his own
name or in the name of others: Provided, That the provisions of any law to the contrary notwithstanding no
owner/holder of any negotiable certificate of deposit shall be recognized as a depositor entitled to the
rights provided in this Act unless his name is registered as owner/holder thereof in the books of the issuing
banks."
Sec. 4. Section 6, Subsections (a) and (h), of the same Act is hereby amended to read as follows:
"(a) The assessment rate shall be determined by the Board of Directors: Provided, That the assessment
rate shall not exceed one fifth (1/5) of one per centum (1%) per annum. The semi-annual assessment for
each insured bank shall be in the amount of the product of one half (½) the assessment rate multiplied by
the assessment based but in no case shall it be less than the amount of Two hundred fifty (P250.00). The
assessment base shall be the amount of the liability of the bank for deposits, according to the definition of
the term ‘deposit’ in and pursuant to subsection (f) of Section 3 without any deduction for indebtedness of
depositors.
"The semi-annual assessment base for one semi-annual period shall be the average of the assessment
base of the bank as of the close of business on March thirty-one and June thirty and the semi-annual
assessment base for the other-semi-annual period shall be the average of the assessment base of the
bank as for the close of business on September thirty and December thirty-one: Provided, That when any
of said days in a non-business day or legal holiday, either national or provincial, the preceding business
day shall be used. The certified statements required to be filed with the Corporation under subsections (b)
and (c) of this Section shall be in such form and set forth such supporting information as the Board of
Directors shall prescribed. The assessment payments required from the insured banks under subsections
(b) and (c) of this Section shall be made in such manner and at such time or times as the Board of Director
shall prescribe, provided the time or times so prescribed shall not be later than sixty (60) days after filing
the certified statement setting forth the amount of assessment."
"(h) Should any insured bank fail or refused to pay any assessment required to be paid by such bank
under any provision of this Act, and should the bank not correct such failure or refusal within thirty (30)
days after written notice has been given by the Corporation to an officer of the bank citing this subsection,
and stating that the bank has failed or refused to pay as required by the law the insured status of such
bank shall be determined by the Board of Directors: Provided, that, after the lapse of thirty (30) days from
the date when the written notice has been sent by registered mail, whether or not such notice has been
actually received by the bank, the Corporation shall terminate the insured status of the bank. The bank
shall give written notice of such termination to each of the depositors at his last address of record on the
books of the bank and the Corporation shall publish the notice of the termination of insured status of the
bank. After the termination of the insured status, the insured deposit of each depositor in the bank on the
date of such termination, less all subsequent withdrawals from the deposits of such depositor, shall
continue to be insured for a period of ninety (90) days. No additions to any such deposits and no new
deposits in such bank, after the date of such termination shall be insured by the Corporation, and the bank
shall not advertise or hold itself out as having insured deposits unless the same connection shall also state
with equal prominence that such additions to deposits and new deposits made be closed on account of
insolvency within the period of ninety (90) days, the Corporation shall have the same powers and rights
with respect to such bank as in the case of an insured bank."
Sec. 5. Section 7 of the same Act is hereby amended to read as follows:
"Sec. 7 (a). Whenever upon examination by the Corporation into the condition of any insured bank, it
shall be disclosed that an insured bank or its directors or agents have committed, are committing or about
to commit unsafe or unsound practices in conducting the business of the bank, or have violated, are
violating or about to violate any provisions of any law or regulation to which the insured bank is subject,
the Board of Directors shall submit the report of the examination to the monetary board to secure
corrective action thereon. If no such corrective action is taken by the Monetary Board within sixty (60)
days from the submission of the report, the Board of Directors shall, motu proprio, institute corrective
action which it deems necessary. The Board of Directors may issue a cease and desist order and require
the bank or its directors or agents concerned to correct the practices or violations within sixty (60) days.
However, If the practice or violation is likely to cause insolvency or substantial dissipation of assets or
earnings of the bank, or is likely to seriously weaken the condition of the bank or otherwise seriously
prejudice the interests of its depositors and the Corporation, the period to take corrective action shall not
be more than fifteen (15) days. The order may also include the imposition of fines provided in Section 16
(f) hereof. The Board of Directors shall duly inform the Monetary Board of the Central Bank of the
Philippines of action it has taken with respect to such practices or violations. If the bank violates the cease
and desist order or fails to correct the practices or violations as required within the period prescribed
herein, the corporation shall terminate the insured status of the bank the consequences of the termination
of insured status of the bank on the Corporation, the bank and the depositor and their deposits shall be
governed by Section 6 (h) hereof.
"(b) The actions and proceedings provided in the proceeding subsection may be undertaken by the
Corporation if, in its opinion, an insured bank or its directors or agents have violated, are violating or about
to violate any provisions of this Act or any order, rule or instruction issued by the Corporation or any
written condition imposed by the Corporation in connection with any transaction with or grant by the
Corporation."
Sec. 6. Section 8 is hereby amended by adding a new paragraph to be designated as paragraph twelfth.
Paragraph eighth is likewise amended. Paragraphs eighth and twelfth shall read as follows:
"Eight — To conduct independent examinations of and to required information and reports from bank, as
provided in this Act, whenever deemed necessary by the Board of Directors: Provided, That to the extent
practicable, said examinations shall maximize the efficient use of available relevant reports, information
and findings, specifically from the Central Bank. The Board of Directors shall prescribe such regulations as
may be necessary to ensure the special nature and reasonable exercise of this power."
"Twelfth — To compromise, condone or release, in whole or in part, any of claim or settled liability to the
Corporation, regardless of the amount involved, under such terms and conditions as may be imposed by
the Board of Directors to protect the interest of Corporation."
Sec. 7. Section 9, subsection (b) and (d) of the same Act is hereby amended to read as follows:
"(b) The Board of Directors shall appoint examiners who shall have power, on behalf of the Corporation
to examine any insured bank. Each such examiner shall have the power to make a through examination of
all the affairs of the bank and in doing so, he shall have the power to administer oaths, to examine and
take and preserve the testimony of any the officers and agents thereof, and to compel the presentation of
books, documents, papers or records necessary in his judgment to ascertain the facts relative to the
condition of the bank: and shall make a full and detailed report of the condition of the bank to the
Corporation. The Board of Directors in like manner shall appoint claim agents who shall have the power to
investigate and examine all claims for insured deposits and transferred deposits. Each claim agent shall
have the power to administer oaths and examine under oath and take and preserve testimony of any
person relating to such claim."
"(d) The Corporation shall have access to reports of examination made by, and reports of condition
made to the Central Bank of the Philippines or its appropriate supervising departments, and the Central
Bank of the Philippines shall also have access to reports of examination made by, and reports of condition
made to the Corporation: Provided, That the provisions of any law to the contrary notwithstanding, the
Corporation shall likewise have access to reports, findings and any other information derived from any
special or general examination of inquiry conducted by the Central Bank in respect to bank fraud or
serious irregularity in an insured bank: Provided, that, the Corporation shall use such reports and findings
under similar terms and conditions prescribed by applicable laws on the Central Bank."
Sec. 8. Section 9, subsection (e) of the same Act is hereby amended to read as follows:
"(e) Personnel of the Corporation are hereby prohibited from:
"(1) being an officer, director, consultant, employee or stockholder, directly or indirectly, of any bank
or banking institution except as otherwise provided in this Act;
"(2) receiving any gift or thing of value from any officer, director or employee thereof:
"(3) revealing in any manner, except under order of the court or authorized herein in such condition
or business of any such institution. The prohibition shall not be held to apply to the giving of information to
the Board of Directors or to any person authorized by neither of them in writing to receive such
information.
"Notwithstanding the provisions of this Section and Section 2, members of the Board of Directors and
other personnel of the Corporation may become directors and officers of any bank and banking institution
and of any entity related to such institution in connection with financial assistance extended by the
Corporation to such institution and when in the opinion of the Board it is appropriate to make such a
designation to protect the interest of the Corporation.
"Borrowing from any bank or banking institution by examiners and other personnel of the examination
departments of the corporation shall be prohibited only with respect to the particular institution in which
they are assigned, or are conducting an examination. Personnel of other departments, offices or units of
the Corporation shall likewise be prohibited from borrowing from any bank or banking institution during the
period of time that a transaction of such institution with the corporation is being evaluated, processed or
acted upon by such personnel: Provided, however, that the Board may, at its discretion, indicate the
position levels or functional groups to which the prohibition is applicable.
"Borrowing by all full-time personnel of the corporation from any bank or banking institution shall be
secured and disclosed to the Board, and shall be subject to such further rules and regulations as the Board
may prescribe."
Sec. 9. The same Act is hereby amended by adding new sections after Section 9 thereof, to read as
follows:
"Sec. 9-A. The provisions of other laws, general or special, to the contrary notwithstanding, whenever it
shall be appropriate for the Monetary Board of the Central Bank of the Philippines to appoint a receiver of
any banking institution pursuant to existing laws, the Monetary Board shall give price notice and appoint
the Corporation as receiver.
"In addition to the powers of a receiver pursuant to existing laws, the Corporation is empowered to bring
suits to enforce liabilities to or recoveries of the bank. Further, the Corporation may, upon its own
responsibility, in the discretion of its Board of Directors and upon justifiable reasons, appoint and hire
persons or entities of recognized competence in banking or finance as its deputies and assistants.
"The Corporation, its directors, officers and employees shall not be subject to any action, claim or
demand for or in connection with any act done or omitted to be done by them in good faith in the exercise
of their functions or in connection with the exercise of the powers under this Section and Sections 9-b, 9-c
and 12(c) of this Act.
"Sec. 9-B. Before any distribution of the assets of the closed bank in accordance with the preferences
established by law, the Corporation shall periodically charge against said assets such reasonable
receivership expenses and subject to approval by the proper court, such reasonable liquidation expenses,
it has incurred as part of the costs of receivership/liquidation proceedings and collect payment therefor
from available assets.
"Sec. 9-C. Cases not provided in Section 9-A above including the filing of cases to modify, set aside or
restrain any action of the Corporation therein shall be governed by Section 29 of R. A. 265, as amended."
Sec. 10. Section 10, subsections (a-1,) (c) and (d) is hereby amended to read as follows:
"(a-1) The permanent insurance fund hereinabove created is hereby increased to Three billion pesos
(P3,000,000,000.00) and for this purpose, such sum as may be necessary is hereby appropriated from the
General Fund: Provided, That the maximum amount of the insured deposit of any depositor is hereby
increased to One hundred thousand pesos (P100,000.00)."
"(c) Whenever an insured bank shall have been closed on account of insolvency payment of the insured
deposits in such shall be made by the Corporation as soon as possible either (1) by cash or (2) by making
available to each depositor a transferred deposit in another insured bank in an amount equal to the
insured deposit of such depositor: Provided, however, That the corporation, in its discretion may required
proof of claims to be filed before paying the insured deposits, and that it any case where the Corporation is
not satisfied as to the viability of a claim for an insured deposit, it may require the final determination of a
court of competent jurisdiction before paying such claim: Provided, further, That failure to settle the claim
within six (6) months from the date of filing of the claim for insured deposit shall, upon conviction, subject
the directors, officers or employees of the corporation responsible for the delay, to imprisonment from six
(6) months to one (1) year: Provided, however, That the period shall not apply if the validity of the claim
requires the resolution of issues of facts and or law by another office, body or agency including the case
mentioned in the first proviso or by the Corporation together with such other office, body or agency.
"(d) The Corporation, upon payment of any depositor as provided for in subsection (c) of this Section,
shall be subrogated to all rights of the depositor against the closed bank to the extent of such payment.
Such subrogation shall include the right on the part of the Corporation to receive the same dividends and
payments from the proceeds of the assets of such closed bank and recoveries on account of stockholders
liability as would have been payable to the depositor on a claim for the insured deposits but, such
depositor shall retain his claim for any uninsured portion of his deposit. All payments by the corporation of
insured deposits in closed banks partake of the nature of public funds, and as such, must be considered a
preferred credit similar to taxes due to the National Government in the order of preference under Article
2244 of the New Civil Code: Provided, further, That this preference shall be likewise effective upon
liquidation proceedings already commenced and pending as of the approval of this Act, where no
distribution of assets has been made."
Sec. 11. Section 11, subsection (d) of the same Act is hereby amended to read as follows:
"(d) If, after the Corporation have given at least three (3) months notice to the depositor by mailing a
copy thereof to his last known address appearing on the records of the closed bank, the depositor in the
closed bank shall fail to file a claim for his insured deposit from the Corporation within eighteen (18)
months after the Monetary Board of the Central Bank of the Philippines shall have ordered the closure of
said bank, pursuant to Section 29 of R.A. 265 as amended, all rights of the depositor against the
Corporation with respect to the insured deposit shall be barred, and all rights of the depositor against the
closed bank and its shareholders or the receivership estate to which the Corporation may have become
subrogated shall thereupon revert to the depositor: Provided, That the claimant shall enforce his duly-filed
claim against the Corporation within one (1) year after the eighteen-month period heretofore mentioned.
Thereafter, the Corporation shall be discharged from any liability on the insured deposit without prejudice
to the rights of the claimants against the closed bank and its shareholders or the receivership estate:
Provided, further, That when practicable, the Board of Directors may adopt other adequate means of
notice to the depositor."
Sec. 12. Section 12, subsection (c) of the same Act is hereby amended to read as follows:
"(c) When the Corporation has determined that an insured bank is in danger of closing, in order to
prevent such closing, the Corporation, in the discretion of its Board of Directors, is authorized to make
loans to, or purchase the assets of, or assume liabilities of, or make deposits in, such insured bank, upon
such terms and conditions as the Board of Directors may prescribe, when in the opinion of the Board of
Directors, the continued operation of such bank in essential to provide adequate banking service in the
community or maintain financial stability in the economy.
"The authority of the Corporation under the foregoing paragraph to extend financial assistance to,
assume liabilities of, purchase the assets of an insured bank may also be exercised in the case of a closed
insured bank if the Corporation finds that the resumption of operations of such bank is vital to the interest
of the community or, a severe financial climate exists which threatens the stability of a number of banks
possessing significant resources: Provided, That the reopening and resumption of operations of the closed
bank shall be subject to the prior approval of the Monetary Board.
"The Corporation may provide any Corporation acquiring control of, merging or consolidating with or
acquiring the assets of an insured bank in danger of closing in order to prevent such closing or of a closed
insured bank in order to restore to normal operations, with such financial assistance as it could provide an
insured bank under this subsection: Provided, That, within sixty (60) days from a date of assistance the
Corporation shall submit a report thereof to the Monetary Board.
"In all case, however, the Corporation, prior to the exercise of this power, shall determine that actual
payoff and liquidation thereof will be more expensive than the exercise of this power. Finally, the
Corporation may not use its authority under this subsection to purchase the voting or common stock of an
insured bank but it can enter into and enforce agreements that it determines to be necessary to protect its
financial interests."
Sec. 13. Section 13 of the same Act is hereby amended to read as follows:
"The Corporation is authorized to borrow from the Central Bank of the Philippines and the Central Bank
is authorized to lend the Corporation on such terms as may be agreed upon by the Corporation and the
Central Bank, such funds as in the judgment of the Board of Directors of the Corporation are from time to
time required for insurance purposes including those provided for in Section 12(c) of this Act: Provided,
That any such loan as may be granted by the Central Bank shall be consistent with monetary policy; and
Provided, further, That the rate of interest thereon shall be fixed by the Monetary Board but shall not
exceed the treasury bill rate.
"When in the judgment to the board of Directors the funds of the Corporation are not sufficient to
provide for an emergency or urgent need to attain the purposes of this Act, the Corporation is likewise
authorized to borrow money, obtain loans or arrange credit lines or other credit accommodations from any
bank designated as depository or fiscal agent of the Philippine Government: Provided, That such loan shall
be of short term duration."
Sec. 14. Section 16, subsections (a), (d), (e) and (f) of the same Act is hereby amended to read as follows:
"(a) Every insured bank shall display at each place of business maintained by it a sign or signs, and shall
include a statement to the effect that its deposits are insured by the Corporation in all its advertisements:
Provided, That the Board of Directors may exempt from this requirement advertisements which do not
relate to deposits or when it is impractical to include such statement therein. The Board of Directors shall
prescribe by regulations the forms of such signs and the manner of use. For each day an insured bank
continues to violate any provisions of this subsection or any lawful provisions of said regulations, it shall be
subject to a penalty of not more than One thousand pesos (P1,000) which the Corporation may recover for
its use: Provided, however, That the penalty of imprisonment for not more than one (1) year or a fine of
not exceeding Twenty thousand pesos (P20,000.00) or both, in the discretion of the insured under the
provisions of this Act which shall in any manner, advertise or hold itself out as having insured status for the
purpose of making it appear that its deposits are insured with the Corporation."
"(d) The Corporation may require an insured bank to provide protection and indemnity against burglary,
defalcation, losses arising from discharge of duties by, or particular acts of defaults of its directors,
officers, or employees, and other similar insurable losses. The Board of Directors in consultation with the
Central Bank, shall determine the bonding requirement as it referred to directors, officers and employers
of the insured bank as well as the form and amount of the bond. Whenever any insured bank refuses to
comply with any such requirement the Corporation may contract for such protection and add the cost
thereof to the assessment otherwise payable by such bank."
"(e) Any assessment payable by an insured bank under this Act shall be subject to payment of interest
computed from the date such assessment became due and payable and at the legal rate for loans as
prescribed by law or appropriate authority and in case of willful failure or refusal to pay such assessment
and interest thereon, there shall be added a penalty equivalent to twice the amount of interest payable as
computed herein for each day such violations continue, which the interest and penalty the Corporation
may recover for its use: Provided, That the penalty shall not be applicable under the circumstances stated
in the provisions of subsection (b) of this Section."
"(f) The Board of Directors is hereby authorized at its discretion to impose upon insured banks, their
directors, and/or officers, for any willful delay in the submission of reports as required by law, rules and
regulations; any refusal to permit examination in the affairs of the institution; any willful making of a false
statement to the Corporation; any willful failure or refusal to comply with, or violation of any provision of
this Act, or any order, instruction, or regulations issued by the Corporation or any commission of
irregularities, and/or conducting business in an unsafe or unsound manner as may be determined by the
Board of Directors, a fine not exceeding One thousand pesos (P1,000.00) a day for each type of violation,
the imposition of which shall be final and executory until reversed, modified or lifted by the Board of
Directors."
Sec. 15. Transitory Provisions. — (a) Authority to Reorganize. — In view of the new powers and functions
herein provided, a reorganization of the Corporation is hereby authorized including adopting a new staffing
pattern for effective and efficient exercise and performance of such powers and function.
The formulation of the program of reorganization shall be completed as soon as possible and the
implementation of such program within eighteen (18) months after approval of this Act.
(b) Implementing Details. — Organization and Staffing of the Corporation. — Upon effectivity of this Act,
the Secretary of Finance, the incumbent President of the Corporation and the Governor of the Central Bank
shall constitute the Chairman and members of the Board provided hereof. The President is hereby
authorized subject to the approval of the Board of Directors as appropriate, to issue such orders, rules and
regulations as may be necessary to implement the reorganization authorized under the preceding section
which will involve the determination and adoption of (1) a new internal structure of the Corporation as
reorganized down to the divisional, section or lowest reorganization levels; (2) a new staffing pattern
including appropriate salary rates.
The provisions of any law to the contrary notwithstanding, in the implementation of the reorganization
herein, and in appointments to appropriate positions in the new staffing pattern of the Corporation, no
preferential or priority rights shall be given to or enjoyed by any officer or personnel of the Corporation for
appointment to any position in the new staffing pattern not shall any officer or personnel be considered as
having prior or vested rights with respect to retention in the Corporation or in any position as may have
been created in its new staffing pattern, even if he should be the incumbent of a similar position therein.
Pending the completion of the personnel actions above provided and the issuance of the appropriate
implementing orders, all incumbent shall continue to exercise their mutual functions, duties and
responsibilities.
Sec. 16. Any amount appropriated under the General Appropriations Act or any other appropriation or
supplemental appropriation act shall be regularly released in accordance with the allotment system
established under existing law.
Sec. 17. All acts or parts of act, presidential decrees, executive orders, administrative orders or parts
thereof which are inconsistent with the provisions of this Act are hereby repealed.
Sec. 18. This Act shall take effect upon its approval.
Approved: April 13, 1992

Pasted from <http://www.law.nfo.ph/republic-act-no-7400/>

RA 9302
Sunday, June 06, 2010
3:26 AM

Republic Act No. 9302


AN ACT AMENDING REPUBLIC ACT NUMBERED THREE THOUSAND FIVE HUNDRED NINETY-ONE,
AS AMENDED, OTHERWISE KNOWN AS THE "CHARTER OF THE PHILIPPINE DEPOSIT INSURANCE
CORPORATION" AND FOR OTHER PURPOSES
Be it enacted by the Senate and House of Representatives of the Philippines in Congress assembled:
SECTION 1. Section 1 of Republic Act No. 3591, as amended, is hereby amended by adding a new
paragraph to read as follows:
"The Corporation shall, as a basic policy, promote and safeguard the interests of the depositing public by
way of providing permanent and continuing insurance coverage on all insured deposits."
SECTION 2. Section 2 of the same Act is hereby further amended to read as follows:
"SEC. 2. The powers and functions of the Corporation shall be vested in, and exercised by a Board of
Directors which shall be composed of five (5) members as follows:
"(a) The Secretary of Finance who shall be ex-officio Chairman of the Board without compensation.
"(b) The Governor of the Bangko Sentral ng Pilipinas, who shall be ex-officio member of the Board without
compensation.
"(c) The President of the Corporation, who shall be appointed by the President of the Philippines from
either the Government or private sector to serve on full-time basis for a term of six (6) years. The
President of the Corporation shall also serve as Vice Chairman of the Board.
"(d) Two (2) members from the private sector, to be appointed for a term of six (6) years without
reappointment by the President of the Philippines: Provided, That of those first appointed, the first
appointee shall serve for a period of two (2) years.
"No person shall be appointed as member of the Board unless he be of good moral character and of
unquestionable integrity and responsibility, and who is of recognized competence in economics, banking
and finance, law, management administration or insurance, and shall be at least thirty-five (35) years of
age. For the duration of their tenure or term in office and for a period of one year thereafter, the
appointive members of the Board shall be disqualified from holding any office, position, or employment in
any insured bank.
"The Secretary of Finance and the Governor of the Bangko Sentral may each designate a representative,
whose position shall not be lower than an undersecretary or deputy governor respectively, to attend such
meetings and to vote on behalf of their respective principals. Whenever the Chairman of the Board is
unable to attend a meeting of the Board, or in the event of a vacancy in the office of the Secretary of
Finance, the President of the Corporation shall act as Chairman.
"The presence of three (3) members shall constitute a quorum. All decisions of the Board of Directors
shall require the concurrence of at least three (3) members.
"The Secretary of Finance shall fix the rate of per diem for every Board meeting attended by the
members of the Board of Directors from the private sector. The President of the Philippines may fix such
emoluments that may be received by the Board of Directors comparable to the emoluments of members
of the Board of Directors of other government financial institutions.
"The Board of Directors shall have the authority:
"1. To prepare and issue rules and regulations as it considers necessary for the effective discharge of its
responsibilities;
"2. To direct the management, operation and administration of the Corporation;
"3. To establish a human resource management system which shall govern the selection, hiring,
appointment, transfer, promotion, or dismissal of all personnel. Such system shall aim to establish
professionalism and excellence at all levels of the Corporation in accordance with sound principles of
management.
"A compensation structure, based on job evaluation studies and wage surveys and subject to the Board's
approval, shall be instituted as an integral component of the Corporation's human resource development
program: Provided, That all positions in the Corporation shall be governed by a compensation, position
classification system and qualification standards approved by the Board based on a comprehensive job
analysis and audit of actual duties and responsibilities. The compensation plan shall be comparable with
the prevailing compensation plans of other government financial institutions and shall be subject to
review by the Board no more than once every two (2) years without prejudice to yearly merit reviews or
increases based on productivity and profitability. The Corporation shall therefore be exempt from existing
laws, rules and regulations on compensation, position classification and qualification standards It shall
however endeavor to make its system conform as closely as possible with the principles under Republic
Act No. 6758, as amended.
"4. To appoint, establish the rank, fix the remuneration, approve local and foreign training of, and remove
any officer or employee of the Corporation, for cause, subject to pertinent civil service laws: Provided,
That the Board of Directors may delegate this authority to the President subject to specific guidelines;
"5. To adopt an annual budget for, and authorize such expenditures by the Corporation as are in the
interest of the effective administration and operation of the Corporation; and
"6. To approve the methodology for determining the level and amount of provisioning for insurance and
financial assistance losses, which shall establish reasonable levels of deposit insurance reserves."
SECTION 3. Section 2-A of the same Act is hereby re-numbered as Section 3.
SECTION 4. Section 3 of the same Act is hereby re-numbered as Section 4 and subsection (g) thereof is
further amended to read as follows:
"(g) The term "insured deposit" means the amount due to any depositor for deposits in an insured bank
net of any obligation of the depositor to the insured bank as of the date of closure, but not to exceed Two
hundred fifty thousand pesos (P250,000.00). Such net amount shall be determined according to such
regulations as the Board of Directors may prescribe. In determining such amount due to any depositor,
there shall be added together all deposits in the bank maintained in the same right and capacity for his
benefit either in his own name or in the name of others. A joint account regardless of whether the
conjunction "and," "or," "and/or" is used, shall be insured separately from any individually-owned deposit
account: Provided, That (1) If the account is held jointly by two or more natural persons, or by two or
more juridical persons or entities, the maximum insured deposit shall be divided into as many equal
shares as there are individuals, juridical persons or entities, unless a different sharing is stipulated in the
document of deposit; and (2) If the account is held by a juridical person or entity jointly with one or more
natural persons, the maximum insured deposit shall be presumed to belong entirely to such juridical
person or entity: Provided, further, That the aggregate of the interests of each co-owner over several joint
accounts, whether owned by the same or different combinations of individuals, juridical persons or
entities, shall likewise be subject to the maximum insured deposit of Two hundred fifty thousand pesos
(P250,000.00): Provided, furthermore, That the provisions of any law to the contrary notwithstanding, no
owner/holder of any negotiable certificate of deposit shall be recognized as a depositor entitled to the
rights provided in this Act unless his name is registered as owner/holder thereof in the books of the
issuing bank."
SECTION 5. Section 4 of the same Act is re-numbered as Section 5.
SECTION 6. Section 6, subsections (a), (d) and (h) of the same Act are hereby further amended, to read
as follows:
"SEC. 6. (a) The assessment rate shall be determined by the Board of Directors: Provided, That the
assessment rate shall not exceed one-fifth (1/5) of one per centum (1%) per annum. The semi-annual
assessment for each insured bank shall be in the amount of the product of one-half (1/2) the assessment
rate multiplied by the assessment base but in no case shall it be less than Five thousand pesos
(P5,000.00). The assessment base shall be the amount of the liability of the bank for deposits as defined
under subsection (f) of Section 4 without any deduction for indebtedness of depositors.
"The semi-annual assessment base for one semi-annual period shall be the average of the assessment
base of the bank as of the close of business on March thirty-one and June thirty and the semi-annual
assessment base for the other semi-annual period shall be the average of the assessment base of the
bank as of the close of business on September thirty and December thirty-one: Provided, That when any
of said days is a non-business day or legal holiday, either national or provincial, the preceding business
day shall be used. The certified statements required to be filed with the Corporation under subsections (b)
and (c) of this Section shall be in such form and set forth such supporting information as the Board of
Directors shall prescribe. The assessment payments required from the insured banks under subsections
(b) and (c) of this Section shall be made in such manner and at such time or times as the Board of
Directors shall prescribe, provided the time or times so prescribed shall not be later than sixty (60) days
after filing the certified statement setting forth the amount of assessment."
"(d) All assessment collections and income from operations after expenses and charges shall be added to
the Deposit Insurance Fund under Section 13 hereof. Such expenses and charges are: (1) the operating
costs and expenses of the Corporation for the calendar year; (2) additions to reserve to provide for
insurance and financial assistance losses, net of recoverable amounts from applicable assets and
collaterals, during the calendar year; and (3) the net insurance and financial assistance losses sustained
in said calendar year."
"(h) The Corporation shall not terminate the insured status of any bank which continues to operate or
receive deposits. Should any insured bank fail or refuse to pay any assessment required to be paid by
such bank under any provision of this Act, and should the bank not correct such failure or refusal within
thirty (30) days after written notice has been given by the Corporation to an officer of the bank citing this
subsection, and stating that the bank has failed or refused to pay as required by the law, the Corporation
may, at its discretion, file a case for collection before the appropriate court without prejudice to the
imposition of administrative sanctions allowed under the provisions of this Law on the bank officials
responsible for the non payment of assessment fees."
SECTION 7. Section 7, subsection (a) of the same Act is hereby further amended to read as follows:
"SEC. 7. (a) Whenever upon examination by the Corporation into the condition of any insured bank, it
shall be disclosed that an insured bank or its directors or agents have committed, are committing or
about to commit unsafe or unsound practices in conducting the business of the bank, or have violated,
are violating or about to violate any provisions of any law or regulation to which the insured bank is
subject, the Board of Directors shall submit the report of the examination to the Monetary Board to secure
corrective action thereon. If no such corrective action is taken by the Monetary Board within forty-five
(45) days from the submission of the report, the Board of Directors shall, motu proprio, institute
corrective action which it deems necessary. The Board of Directors may thereafter issue a cease and
desist order, and require the bank or its directors or agents concerned to correct the practices or
violations within forty-five (45) days. However, if the practice or violation is likely to cause insolvency or
substantial dissipation of assets or earnings of the bank, or is likely to seriously weaken the condition of
the bank or otherwise seriously prejudice the interests of its depositors and the Corporation, the period to
take corrective action shall not be more than fifteen (15) days. The order may also include the imposition
of fines provided in Section 21 (f) hereof. The Board of Directors shall duly inform the Monetary Board of
the Bangko Sentral ng Pilipinas of action it has taken under this subsection with respect to such practices
or violations."
SECTION 8. Section 8, paragraph Eighth of the same Act is hereby amended to read as follows:
"Eighth - To conduct examination of banks with prior approval of the Monetary Board: Provided, That no
examination can be conducted within twelve (12) months from the last examination date: Provided,
further, That, to avoid overlapping of efforts, the examination shall maximize the efficient use of relevant
reports, information and findings of the Bangko Sentral which it shall make available to the Corporation:
Provided, finally, That the Board of Directors shall, in close coordination with the Monetary Board,
prescribe such guidelines as may be necessary to ensure that there are no duplications of functions."
SECTION 9. Section 9 of the same Act is hereby further amended by adding a new subsection (b-1) after
subsection (b), adding a new subsection (d-1) after subsection (d), amending subsection (e), and adding
new subsections (f), (g), and (h), to read as follows:
"(b-1) The investigators appointed by the Board of Directors shall have the power on behalf of the
Corporation to conduct investigations on frauds, irregularities and anomalies committed in banks, based
on reports of examination conducted by the Corporation and Bangko Sentral ng Pilipinas or complaints
from depositors or from other government agency. Each such investigator shall have the power to
administer oaths, and to examine and take and preserve the testimony of any person relating to the
subject of investigation."
"(d-1) Each insured bank shall keep and maintain a true and accurate record or statement of its daily
deposit transactions consistent with the standards set by the Bangko Sentral ng Pilipinas and the
Corporation. Compliance with such standards shall be duly certified by the president of the bank or the
compliance officer: Provided, That refusal or willful failure to issue the required certification shall
constitute a violation of this Section and shall subject such officers of the bank to the sanctions provided
for under Section 21 (f) of this Act."
"(e) Personnel of the Corporation are hereby prohibited from:
"(1) being an officer, director, consultant, employee or stockholder, directly or indirectly, of any bank or
banking institution except as otherwise provided in this Act;
"(2) receiving any gift or thing of value from any officer, director or employee thereof;
"(3) revealing in any manner, except as provided in this Act or under order of the court, information
relating to the condition or business of any such institution. This prohibition shall not apply to the giving
of information to the Board of Directors, the President of the Corporation, Congress, any agency of
government authorized by law, or to any person authorized by either of them in writing to receive such
information.
"(f) The Corporation shall underwrite or advance litigation costs and expenses, including legal fees and
other expenses of external counsel, or provide legal assistance to, directors, officers, employees or
agents of the Corporation in connection with any civil, criminal, administrative or any other action or
proceeding, to which such director, officer, employee or agent is made a party by reason of, or in
connection with, the exercise of authority or performance of functions and duties under this Act: Provided,
That such legal protection shall not apply to any civil, criminal, administrative or any action or proceeding
that may be initiated by the Corporation, in whatever capacity, against such director, officer, employee or
agent: Provided, further, That directors, officers, employees or agents who shall resign, retire, transfer to
another agency or be separated from the service, shall continue to be provided with such legal protection
in connection with any act done or omitted to be done by them in good faith during their tenure or
employment with the Corporation: Provided, finally, That in the event of a settlement or compromise,
indemnification shall be provided only in connection with such matters covered by the settlement as to
which the Corporation is advised by counsel that the persons to be indemnified did not commit any
negligence or misconduct.
"(g) The costs and expenses incurred in defending the aforementioned action, suit or proceeding may be
paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of the director, officer, employee or agent to repay the amount
advanced should it ultimately be determined by the Board of Directors that he is not entitled to be
indemnified as provided in this subsection.
"(h) Legal assistance shall include the grant or advance of reasonable legal fees as determined by the
Board of Directors to enable the concerned director, officer, employee or agent to engage counsel of his
choice, subject to approval by the Board of Directors."
"Notwithstanding the provisions of this Section and Section 2, members of the Board of Directors and
personnel of the Corporation may become directors and officers of any bank and banking institution and
of any entity related to such institution in connection with financial assistance extended by the
Corporation to such institution and when, in the opinion of the Board, it is appropriate to make such
designation to protect the interest of the Corporation.
"Borrowing from any bank or banking institution by examiners and other personnel of the examination
departments of the Corporation shall be prohibited only with respect to the particular institution in which
they are assigned, or are conducting an examination. Personnel of other departments, offices or units of
the Corporation shall likewise be prohibited from borrowing from any bank or banking institution during
the period of time that a transaction of such institution with the Corporation is being evaluated, processed
or acted upon by such personnel: Provided, however, That the Board may, at its discretion, indicate the
position levels or functional groups to which the prohibition is applicable.
"Borrowing by all full-time personnel of the Corporation from any bank or banking institution shall be
secured and disclosed to the Board, and shall be subject to such further rules and regulations as the
Board may prescribe."
SECTION 10. Section 9-A of the same Act is hereby numbered as Section 10, and further amended to
read as follows:
"SEC. 10. (a) The provisions of other laws, general or special, to the contrary notwithstanding, whenever it
shall be appropriate for the Monetary Board of the Bangko Sentral ng Pilipinas to appoint a receiver of
any banking institution pursuant to existing laws, the Monetary Board shall give prior notice and appoint
the Corporation as receiver.
"(b) The Corporation as receiver shall control, manage and administer the affairs of the closed bank.
Effective immediately upon takeover as receiver of such bank, the powers, functions and duties, as well
as all allowances, remunerations and perquisites of the directors, officers, and stockholders of such bank
are suspended, and the relevant provisions of the Articles of Incorporation and By-laws of the closed bank
are likewise deemed suspended.
"The assets of the closed bank under receivership shall be deemed in custodia legis in the hands of the
receiver. From the time the closed bank is placed under such receivership, its assets shall not be subject
to attachment, garnishment, execution, levy or any other court processes. Therefore, a judge, officer of
the court or any person who shall issue, order, process or cause the issuance or implementation of the
writ of garnishment, levy, attachment or execution shall be liable under Section 21 hereof.
"(c) In addition to the powers of a receiver pursuant to existing laws, the Corporation is empowered to:
"(1) bring suits to enforce liabilities to or recoveries of the closed bank;
"(2) appoint and hire persons or entities of recognized competence in banking or finance as its deputies
and assistants, to perform such powers and functions of the Corporation as receiver or liquidator of the
closed bank;
"(3) suspend or terminate the employment of officers and employees of the closed bank: Provided, That
payment of separation pay or benefits shall be made only after the closed bank has been placed under
liquidation pursuant to the order of the Monetary Board under Section 30 of R.A. 7653, and that such
payment shall be made from available funds of the bank after deducting reasonable expenses for
receivership and liquidation;
"(4) pay accrued utilities, rentals and salaries of personnel of the closed bank, for a period not exceeding
three (3) months, from available funds of the closed bank;
"(5) collect loans and other claims of the closed bank, and for the purpose, modify, compromise or
restructure the terms and conditions of such loans or claims as may be deemed advantageous to the
interest of the creditors and claimants of the closed bank;
"(6) hire or retain private counsels as may be necessary;
"(7) borrow or obtain a loan, or mortgage, pledge or encumber any asset of the closed bank, when
necessary to preserve or prevent dissipation of the assets, or to redeem foreclosed assets of the closed
bank, or to minimize losses to the depositors and creditors;
"(8) if the stipulated interest on deposits is unusually high compared with the prevailing applicable
interest rate, the Corporation as receiver may exercise such powers which may include a reduction of the
interest rate to a reasonable rate: Provided, That any modification or reduction shall apply only to unpaid
interest; and
"(9) exercise such other powers as are inherent and necessary for the effective discharge of the duties of
the Corporation as receiver."
"The Board of Directors shall adopt such policies and guidelines as may be necessary for the performance
of the above powers by personnel, deputies and agents of the Corporation."
SECTION 11. A new section is hereby inserted as Section 11 of the same Act to read as follows:
"SEC. 11 In all cases or actions filed by the Corporation as receiver for the recovery of, or involving any
asset of the closed bank, payment of all docket and other court fees shall be deferred until the action is
terminated with finality. Any such fees shall constitute as a first lien on any judgment in favor of the
closed bank or in case of unfavorable judgment, such fees shall be paid as administrative expenses
during the distribution of the assets of the closed bank."
SECTION 12. Section 9-B of the same Act is hereby renumbered as Section 12 and further amended to
read as follows:
"SEC 12. Before any distribution of the assets of the closed bank in accordance with the preferences
established by law, the Corporation shall periodically charge against said assets reasonable receivership
expenses and subject to approval by the proper court, reasonable liquidation expenses, it has incurred as
part of the cost of receivership/liquidation proceedings and collect payment therefore from available
assets.
"After the payment of all liabilities and claims against the closed bank, the Corporation shall pay any
surplus dividends at the legal rate of interest from date of takeover to date of distribution, to creditors
and claimants of the closed bank in accordance with legal priority before distribution to the shareholders
of the closed bank."
SECTION 13. Section 9-C of the same Act is hereby repealed.
SECTION 14. Section 10 of the same Act is re-numbered as Section 13 and further amended to read as
follows:
"SEC. 13. To carry out the purposes of this Act, the permanent insurance fund shall be Three billion pesos
(P3,000,000,000.00).
"The Deposit Insurance Fund shall be the capital account of the Corporation and shall principally consist
of the following: (i) the Permanent Insurance Fund; (ii) assessment collections, subject to the charges
enumerated in Section 6 (d); (iii) reserves for insurance and financial assistance losses; and (iv) retained
earnings: Provided: That the reserves for insurance and financial assistance losses and retained earnings
shall be maintained at a reasonable level to ensure capital adequacy: Provided, further, That the
Corporation may, within two (2) years from the passage of this Act, and every five (5) years thereafter,
conduct a study on the need to adjust the amount of the Permanent Insurance Fund, insurance cover,
assessment rate and assessment base, and thereafter make the necessary recommendation to Congress.
For this purpose, the Corporation may hire the services of actuarial consultants to determine, among
others, the affordability of assessment rates, analysis and evaluation of insurance risk, and advisability of
imposing varying assessment rates or insurance cover of different bank categories."
SECTION 15. Section 10 (b) of the same Act is hereby repealed.
SECTION 16. Section 10 (c) of the same Act is hereby renumbered as Section 14 and further amended to
read as follows:
"SEC. 14. Whenever an insured bank shall have been closed by the Monetary Board pursuant to Section
30 of R.A. 7653, payment of the insured deposits on such closed bank shall be made by the Corporation
as soon as possible either (1) by cash or (2) by making available to each depositor a transferred deposit
in another insured bank in an amount equal to insured deposit of such depositor: Provided, however, That
the Corporation, in its discretion, may require proof of claims to be filed before paying the insured
deposits, and that in any case where the Corporation is not satisfied as to the viability of a claim for an
insured deposit, it may require final determination of a court of competent jurisdiction before paying such
claim: Provided, further, That failure to settle the claim, within six (6) months from the date of filing of
claim for insured deposit, where such failure was due to grave abuse of discretion, gross negligence, bad
faith, or malice, shall, upon conviction, subject the directors, officers or employees of the Corporation
responsible for the delay, to imprisonment from six (6) months to one (1) year: Provided, furthermore,
That the period shall not apply if the validity of the claim requires the resolution of issues of facts and or
law by another office, body or agency including the case mentioned in the first proviso or by Corporation
together with such other office, body or agency."
SECTION 17. Section 10 (d) of the same Act is hereby renumbered as Section 15.
SECTION 18. Section 11 of the same Act is hereby re-numbered as Section 16 and further amended by
inserting a new paragraph as Section 16 (a), and the existing paragraphs are hereby re-numbered
accordingly:
"SEC. 16 (a) The Corporation shall commence the determination of insured deposits due the depositors of
a closed bank upon its actual takeover of the closed bank. The Corporation shall give notice to the
depositors of the closed bank of the insured deposits due them by whatever means deemed appropriate
by the Board of Directors: Provided, That the Corporation shall publish the notice once a week for at least
three (3) consecutive weeks in a newspaper of general circulation or, when appropriate, in a newspaper
circulated in the community or communities where the closed bank or its branches are located.
"(b) Payment of an insured deposit to any person by the Corporation shall discharge the Corporation, and
payment of a transferred deposit to any person by the new bank or by an insured bank in which a
transferred deposit has been made available shall discharge the Corporation and such new bank or other
insured bank, to the same extent that payment to such person by the closed bank would have discharged
it from liability for the insured deposit.
"(c) Except as otherwise prescribed by the Board of Directors, neither the Corporation or such other
insured bank shall be required to recognize as the owner of any portion of a deposit appearing on the
records of the closed bank under a name other than that of the claimant, any person whose name or
interest as such owner is not disclosed on the records of such closed bank as part owner of said deposit, if
such recognition would increase the aggregate amount of the insured deposits in such closed bank.
"(d) The Corporation may withhold payment of such portion of the insured deposit of any depositor in a
closed bank as may be required to provide for the payment of any liability of such depositor as a
stockholder of the closed bank, or of any liability of such depositor to the closed bank or its receiver,
which is not offset against a claim due from such bank, pending the determination and payment of such
liability by such depositor or any other liable therefor.
"(e) Unless otherwise waived by the Corporation, if the depositor in the closed bank shall fail to claim his
insured deposits with the Corporation within two (2) years from actual takeover of the closed bank by the
receiver, or does not enforce his claim filed with the corporation within two (2) years after the two-year
period to file a claim as mentioned hereinabove, all rights of the depositor against the Corporation with
respect to the insured deposit shall be barred; however, all rights of the depositor against the closed bank
and its shareholders or the receivership estate to which the Corporation may have become subrogated,
shall thereupon revert to the depositor. Thereafter, the Corporation shall be discharged from any liability
on the insured deposit."
SECTION 19. Section 12 of the same Act is re-numbered as Section 17 and the last paragraph (c) hereof
is hereby further amended to read as follows:
"(c) When the Corporation has determined that an insured bank is in danger of closing, in order to
prevent such closing, the Corporation, in the discretion of its Board of Directors, is authorized to make
loans to, or purchase the assets of, or assume liabilities of, or make deposits in, such insured bank, upon
such terms and condition as the Board of Directors may prescribe, when in the opinion of the Board of
Directors, the continued operation of such bank is essential to provide adequate banking service in the
community or maintain financial stability in the economy.
"The authority of the Corporation under the foregoing paragraph to extend financial assistance to,
assume liabilities of, purchase the assets of an insured bank may also be exercised in the case of a closed
insured bank if the Corporation finds that the resumption of operations of such bank is vital to the
interests of the community, or a severe financial climate exists which threatens the stability of a number
of banks possessing significant resources: Provided, That the reopening and resumption of operations of
the closed bank shall be subject to the prior approval of the Monetary Board.
"The Corporation may provide any corporation acquiring control of, merging or consolidating with or
acquiring the assets of an insured bank in danger of closing in order to prevent such closing or of a closed
insured bank in order to restore to normal operations, with such financial assistance as it could provide an
insured bank under this subsection: Provided, That, within sixty (60) days from date of assistance the
Corporation shall submit a report thereof to the Monetary Board.
"The Corporation, prior to the exercise of the powers under this Section, shall determine that actual
payoff and liquidation thereof will be more expensive than the exercise of this power: Provided, That
when the Monetary Board has determined that there are systemic consequences of a probable failure or
closure of an insured bank, the Corporation may grant financial assistance to such insured bank in such
amount as may be necessary to prevent its failure or closure and/or restore the insured bank to viable
operations, under such terms and conditions as may be deemed necessary by the Board of Directors,
subject to concurrence by the Monetary Board and without additional cost to the Deposit Insurance Fund.
"A systemic risk refers to the possibility that failure of one bank to settle net transactions with other
banks will trigger a chain reaction, depriving other banks of funds leading to a general shutdown of
normal clearing and settlement activity. Systemic risk also means the likelihood of a sudden, unexpected
collapse of confidence in a significant portion of the banking or financial system with potentially large real
economic effects. Finally, the Corporation may not use its authority under this subsection to purchase the
voting or common stock of an insured bank but it can enter into and enforce agreements that it
determines to be necessary to protect its financial interests: Provided, That the financial assistance may
take the form of equity or quasi-equity of the insured bank as may be deemed necessary by the Board of
Directors with concurrence by the Monetary Board: Provided, further, That the Corporation shall dispose
of such equity as soon as practicable."
SECTION 20. Section 13 of the same Act is re-numbered as Section 18, and is hereby amended to read
as follows:
"SEC. 18. The Corporation is authorized to borrow from the Bangko Sentral ng Pilipinas and the Bangko
Sentral is authorized to lend the Corporation on such terms as may be agreed upon by the Corporation
and the Bangko Sentral, such funds as in the judgment of the Board of Directors of the Corporation are
from time to time required for insurance purposes and financial assistance provided for in Section 17(c) of
this Act: Provided, That any such loan as may be granted by the Bangko Sentral shall be consistent with
monetary policy: Provided, further, That the rate of interest thereon shall be fixed by the Monetary Board
but shall not exceed the treasury bill rate.
"When in the judgment of the Board of Directors the funds of the Corporation are not sufficient to provide
for an emergency or urgent need to attain the purposes of this Act, the Corporation is likewise authorized
to borrow money, obtain loans or arrange credit lines or other credit accommodations from any bank
designated as depository or fiscal agent of the Philippine Government: Provided, That such loan shall be
of short-term duration."
SECTION 21. Section 14 of the same Act is re-numbered as Section 19 and is hereby amended to read as
follows:
"SEC. 19. With the approval of the President of the Philippines, the Corporation is authorized to issue
bonds, debentures, and other obligations as may be necessary for purposes of settlement of insured
deposits in closed banks as well as for financial assistance as provided herein: Provided, That the Board of
Directors shall determine the interest rates, maturity and other requirements of said obligations:
Provided, further, That the Corporation shall provide for appropriate reserves for the redemption or
retirement of said obligation.
SECTION 22. Section 15 of the same Act is re-numbered as Section 20 and is hereby amended to read as
follows:
"SEC. 20. (a) The Corporation shall annually make a report of its operations to the Congress as soon as
practicable after the 1st day of January in each year.
"(b) The financial transactions of the Corporation shall be audited by the Commission on Audit in
accordance with the principles and procedures applicable to commercial corporate transactions and
under such rules and regulations as may be prescribed by the Commission on Audit. The audit shall be
conducted at the place or places where accounts of the Corporation are normally kept. Except as to
matters relating to the function of the Corporation as receiver which shall be subject to visitorial audit
only, the representatives of the Commission on Audit shall have access to all books, accounts, records,
reports, files and all other papers, things, or property belonging to or in use by the Corporation pertaining
to its financial transactions and necessary to facilitate the audit, and they shall be afforded full facilities
for verifying transactions with the balances or securities held by depositories, fiscal agents, and
custodians. All such books, accounts, records, reports, files, papers, and property of the Corporation shall
remain in possession and custody of the Corporation."
SECTION 23. Section 16 of the same Act is re-numbered as Section 21, and paragraphs (a), (b), (f) and
(g) are hereby further amended to read as follows:
"SEC. 21. (a) Every insured bank shall display at each place of business maintained by it a sign or signs,
and shall include a statement in all its advertisements to the effect that its deposits are insured by the
Corporation: Provided, That the Board of Directors may exempt from this requirement advertisements
which do not relate to deposits or when it is impractical to include such statement therein. The Board of
Directors shall prescribe by regulations the forms of such signs and the manner of use.
"(b) No insured bank shall pay any dividend on its capital stock or interest on its capital notes or
debentures (if such interest is required to be paid only out of net profits) or distribute any of its capital
assets while it remains in default in the payment of any assessment due to the Corporation: Provided,
That if such default is due to a dispute between the insured bank and the Corporation over the amount of
such assessment, this subsection shall not apply if such bank shall deposit security satisfactory to the
Corporation for payment upon final determination of the issue."
"(f) The penalty of prision mayor or a fine of not less than Fifty thousand pesos (P50,000.00) but not more
than Two million pesos (P2,000,000.00), or both, at the discretion of the court, shall be imposed upon any
director, officer, employee or agent of a bank:
"1) for any willful refusal to submit reports as required by law, rules and regulations;
"2) any unjustified refusal to permit examination and audit of the deposit records or the affairs of the
institution;
"3) any willful making of a false statement or entry in any bank report or document required by the
Corporation;
"4) submission of false material information in connection with or in relation to any financial assistance of
the Corporation extended to the bank;
"5) splitting of deposits or creation of fictitious loans or deposit accounts.
"Splitting of deposits occurs whenever a deposit account with an outstanding balance of more than the
statutory maximum amount of insured deposit maintained under the name of natural or juridical persons
is broken down and transferred into two or more accounts in the name/s of natural or juridical persons or
entities who have no beneficial ownership on transferred deposits in their names within thirty (30) days
immediately preceding or during a bank-declared bank holiday, or immediately preceding a closure order
issued by the Monetary Board of the Bangko Sentral ng Pilipinas for the purpose of availing of the
maximum deposit insurance coverage;
"6) refusal to allow the Corporation to take over a closed bank placed under its receivership or
obstructing such action of the Corporation;
"7) refusal to turn over or destroying or tampering bank records;
"8) fraudulent disposal, transfer or concealment of any asset, property or liability of the closed bank
under the receivership of the Corporation;
"9) violation of, or causing any person to violate, the exemption from garnishment, levy, attachment or
execution provided under this Act and the New Central Bank Act;
"10) any willful failure or refusal to comply with, or violation of any provision of this Act, or commission of
any other irregularities, and/or conducting business in an unsafe or unsound manner as may be
determined by the Board of Directors.
"(g) The Board of Directors is hereby authorized to impose administrative fines for any act or omission
enumerated in the preceding subsection, and for violation of any order, instruction, rule or regulation
issued by the Corporation, against a bank and/or any of its directors, officers or agents responsible for
such act, omission, or violation, in amounts as it may be determined to be appropriate, but in no case to
exceed three times the amount of the damages or costs caused by the transaction for each day that the
violation subsists, taking into consideration the attendant circumstances, such as the nature and gravity
of the violation or irregularity and the size of the bank."
SECTION 24. A new Section 22 is hereby inserted, to read as follows:
"SEC. 22. No court, except the Court of Appeals, shall issue any temporary restraining order, preliminary
injunction or preliminary mandatory injunction against the Corporation for any action under this Act.
"This prohibition shall apply in all cases, disputes or controversies instituted by a private party, the
insured bank, or any shareholder of the insured bank.
"The Supreme Court may issue a restraining order or injunction when the matter is of extreme urgency
involving a constitutional issue, such that unless a temporary restraining order is issued, grave injustice
and irreparable injury will arise. The party applying for the issuance of a restraining order or injunction
shall file a bond in an amount to be fixed by the Supreme Court, which bond shall accrue in favor of the
Corporation if the court should finally decide that the applicant was not entitled to the relief sought.
"Any restraining order or injunction issued in violation of this Section is void and of no force and effect
and any judge who has issued the same shall suffer the penalty of suspension of at least sixty (60) days
without pay."
SEC. 23 The Corporation may be reorganized by the Board of Directors by adopting if it so desires, an
entirely new staffing pattern or organizational structure to suit the operations of the Corporation under
this Act. No preferential or priority right shall be given to or enjoyed by any personnel for appointment to
any position in the new staffing pattern nor shall any personnel be considered as having prior or vested
rights with respect to retention in the Corporation or in any other position which may be created in the
new staffing pattern, even if he should be the incumbent of a similar position prior to reorganization. The
reorganization shall be completed within six (6) months after the effectivity of this Act. Personnel who are
not retained are deemed separated from the service.
SEC. 24. The Board of Directors is hereby authorized to provide separation incentives, and all those who
shall retire or be separated from the service on account of reorganization under the preceding section
shall be entitled to such incentives which shall be in addition to all gratuities and benefits to which they
may be entitled under existing laws.
SECTION 25. The words "Central Bank" and the "Central Bank of the Philippines" wherever they appear
in Republic Act No. 3591, as amended, is hereby replaced with Bangko Sentral and/or Bangko Sentral ng
Pilipinas, respectively.
SECTION 26. Separability Clause. - If any provision or section of this Act or the application thereof to any
person or circumstances is held invalid, the other provisions or sections of this Act, in the application of
such provision or section to other persons or circumstances, shall not be affected thereby.
SECTION 27. Repealing Clause. - All acts or parts of acts and executive orders, administrative orders, or
parts thereof which are inconsistent with the provisions of this Act are hereby repealed.
SECTION 28. Effectivity Clause. - This Act shall take effect fifteen (15) days following the completion of
its publication in the Official Gazette or in two (2) newspapers of general circulation.
Approved,

FRANKLIN DRILON JOSE DE VENECIA JR.


President of the Senate Speaker of the House of Representatives
This Act which is a consolidation of Senate Bill No. 2730 and House Bill No. 6003 was finally passed by the
Senate and the House of Representatives on June 11, 2004.

OSCAR G. YABES ROBERTO P. NAZARENO


Secretary of Senate Secretary General
House of Represenatives
Approved: July 27 2004
GLORIA MACAPAGAL-ARROYO
President of the Philippines

Pasted from <http://www.lawphil.net/statutes/repacts/ra2004/ra_9302_2004.html>

RA 9576
Sunday, June 06, 2010
3:27 AM

Republic Act No. 9576 April 29, 2009


AN ACT INCREASING THE MAXIMUM DEPOSIT INSURANCE COVERAGE, AND IN CONNECTION
THEREWITH, TO STRENGTHEN THE REGULATORY AND ADMINISTRATIVE AUTHORITY, AND
FINANCIAL CAPABILITY OF THE PHILIPPINE DEPOSIT INSURANCE CORPORATION (PDIC),
AMENDING FOR THIS PURPOSE REPUBLIC ACT NUMBERED THREE THOUSAND FIVE HUNDRED
NINETY-ONE, AS AMENDED, OTHERWISE KNOWN AS THE PDIC CHARTER, AND FOR OTHER
PURPOSES
Be it enacted by the Senate and House of Representatives of the Philippines in Congress assembled::
Section 1. Statement of State Policy and Objectives. - It is hereby declared to be the policy of the
State to strengthen the mandatory deposit insurance coverage system to generate, preserve, maintain
faith and confidence in the country's banking system, and protect it from illegal schemes and
machinations.
Towards this end, the government must extend all means and mechanisms necessary for the Philippine
Deposit Insurance Corporation to effectively fulfill its vital task of promoting and safeguarding the
interests of the depositing public by way of providing permanent and continuing insurance coverage on
all insured deposits, and in helping develop a sound and stable banking system at all times.
Section 2. Section 4 (f) of Republic Act No. 3591, as amended, is hereby amended by adding an
additional paragraph, to read as follows:
"(f) The term "deposit" means the unpaid balance of money or its equivalent received by a bank in the
usual course of business and for which it has given or is obliged to give credit to a commercial, checking,
savings, time or thrift account, or issued in accordance with Bangko Sentral rules and regulations and
other applicable laws, together with such other obligations of a bank, which, consistent with banking
usage and practices, the Board of Directors shall determine and prescribe by regulations to be deposit
liabilities of the bank: Provided, That any obligation of a bank which is payable at the office of the bank
located outside of the Philippines shall not be a deposit for any of the purposes of this Act or included as
part of the total deposits or of insured deposits: Provided, further, That, subject to the approval of the
Board of Directors, any insured bank which is incorporated under the laws of the Philippines which
maintains a branch outside the Philippines may elect to include for insurance its deposit obligations
payable only at such branch.
The corporation shall not pay deposit insurance for the following accounts or transactions, whether
denominated, documented, recorded or booked as deposit by the bank:
"(1) Investment products such as bonds and securities, trust accounts, and other similar instruments;
"(2) Deposit accounts or transactions which are unfunded, or that are fictitious or fraudulent;
"(3) Deposits accounts or transactions constituting, and/or emanating from, unsage and unsound banking
practice/s, as determined by the Corporation, in consultation with the BSP, after due notice and hearing,
and publication of a cease and desist order issued by the Corporation against such deposit accounts or
transactions; and
"(4) Deposits that are determined to be the proceeds of an unlawful activity as defined under republic act
9160, as amended.
"The actions of the Corporation taken under this section shall be final and executory, and may not be
restrained or set aside by the court, except on appropriate petition for certiorari on the ground that the
action was taken in excess of jurisdiction or with such grave abuse of discretion as to amount to a lack or
excess of jurisdiction. The petition for certiorari may only be filed within thirty (30) days from notice of
denial of claim for deposit insurance."
Section. 3. Section 4(g) of the same Act is hereby amended to read as follows:
"(g) The term "insured deposit" means the amount due to any bona fide depositor for legitimate deposits
in an insured bank net of any obligation of the depositor to the insured bank as of date of closure, but not
to exceed Five hundred thousand pesos (P500,000.00). Such net amount shall be determined according
to such regulations as the Board of Directors may prescribe, In determining such amount due to any
depositor, there shall be added together all deposits in the bank maintained in the same right and
capacity for his benefits either in his own name or in the name of others. A joint account regardless of
whether the conjunction 'and,' 'or,' 'and/or' is used, shall be insured separately from any individually-
owned deposit account: Provided, That (1) If the account is held jointly by two or more natural persons, or
by two or more juridical persons or entities, the maximum insured deposit shall be divided into as many
equal shares as there are individuals, juridical persons or entities, unless a different sharing is stipulated
in the document of deposit, and (2) If the account is held by a juridical person or entity jointly with one or
more natural persons, the maximum insured deposits shall be presumed to belong entirely to such
juridical person or entity:Provided, further, That the aggregate of the interest of each co-owner over
several joint accounts, whether owned by the same or different combinations of individuals, juridical
persons or entities, shall likewise be subject to the maximum insured deposit of Five hundred thousand
pesos (P500,000.00): Provided,Furthermore, The the provisions of any law to the contrary
notwithstanding, no owner/holder of any negotiable certificate of deposit shall be recognized as a
depositor entitled to the rights provided in this Act unless his name is registered as owner/holder thereof
in the books of the issuing bank: Provided, Finally, That, in case of a condition that threatens the
monetary and financial stability of the banking system that may have systemic consequences, as defined
in section 17 hereof, as determined by the monetary board, the maximum deposit insurance cover may
be adjusted in such amount, for such a period, and/or for such deposit products, as may be determined
by a unanimous vote of the Board of Directors in a meeting called for the purpose and chaired by the
Secretary of Finance, subject to the approval of the President of the Philippines."
Section 4. The maximum deposit insurance coverage of Five hundred thousand pesos (P500,000.00)
provided in Section 4(g) of Republic Act 3591, as amended herein, shall be paid by the
Corporation: Provided, That for the first three (3) years from the effectivity of this Act, the first Two
hundred fifty thousand pesos (P250,000.00) of the deposited insurance coverage shall be for the account
of the Corporation, and those in excess of Two hundred fifty thousand pesos (P250,000.00) but not more
than Five hundred thousand pesos (P500,000.00) shall be for the account of the National Government.
The Congress shall annually appropriate the necessary funding to reimburse the Corporation for any
payment to insured depositors paid in excess of Two hundred fifty thousand pesos (P250,000.00).
Section 5. Section 8, paragraph Eighth of the same Act is hereby amended to read as follows:
"Eighth - To conduct examination of banks with prior approval of the Monetary Board: Provided, That no
examination can be conducted within twelve (12) months from the last examination
date: Provided, however, That the Corporation may, in coordination with the Bangko Sentral, conduct a
special examination as the Board of Directors, by an affirmative vote of a majority of all of its members, if
there is a threatened or impending closure of a bank: Provided, further, That notwithstanding the
provisions of Republic Act No. 1405, as amended, Republic Act No. 6426, as amended, Republic Act No.
8791, and other laws, the Corporation and/or Bangko Sentral may inquire into or examine deposit
accounts and all information related thereto in case there is a finding of unsafe or unsound banking
practice: Provided, finally, That to avoid overlapping of efforts, the examination shall maximize the
efficient use of the relevant reports, information, and findings of the Bangko Sentral, which it shall make
available to the Corporation."
Section 6. A new Section 9 (h) of the same Act is hereby added to read as follows:
"(h) Unless the actions of the Corporation or any of its officers and employees are found to be in willful
violation of this Act, performed in bad faith, with malice and/or gross negligence, the Corporation, its
directors, officers, employees and agents are held free and harmless to the fullest extent permitted by
law from any liability, and they shall be indemnified for any and all liabilities, losses, claims, demands,
damages, deficiencies, costs and expenses of whatsoever kind and nature that may arise in connection
with the performance of their functions, without prejudice to any criminal liability under existing laws."
Section 7. Section 9 (h) of the same Act is accordingly renumbered as Section 9 (i).
Section 8. An additional paragraph to Section 17 of the same Act is hereby added after subparagraph (b)
to read as follows:
"(c) It is hereby declared to be the policy of the State that the Deposit Insurance Fund of the Corporation
shall be preserved and maintained at all times. Accordingly, all tax obligations of the Corporation for a
period of five (5) years reckoned from the date of effectivity of this Act shall be chargeable to the Tax
Expenditure Fund (TEF) in the annual General Appropriation Act pursuant to the provisions of Executive
Order No. 93, series of 1986: Provided, That, on the 6th year and thereafter, the Corporation shall be
exempt from income tax, final withholding tax, value-added tax on assessments collected from member
banks and local taxes."
Section 9. Section 17 (c) of the same Act shall be accordingly renumbered as Section 17 (d).
Section 10. Section 19 is hereby amended to read as follows.
"SEC. 19. With the approval of the President of the Philippines, the Corporation is authorized to issue
bonds, debentures, and other obligations, both local or foreign, as may be necessary for purposes of
providing liquidity for settlement of insured deposits in closed banks as well as for financial assistance as
provided herein: Provided, That the Board of Directors shall determine the interest rates, maturity and
other requirements of said obligations: Provided, further, That the Corporation shall provide for
appropriate reserves for the redemption or retirement of said obligation.
All notes, debentures, bonds, or such obligations issued by the Corporation shall be exempt from taxation
both as to principal and interest, and shall be fully guaranteed by the Government of the Republic of the
Philippines. Such guarantee, which in no case shall exceed two times the Deposit Insurance Fund as of
date of the debt issuance, shall be expressed on the face thereof.
The Board of Directors shall have the power to prescribe rules and regulations for the issuance,
reissuance, servicing, placement and redemption of the bonds herein authorized to be issued as well as
the registration of such bonds at the request of the holders thereof."
Section 11. Section 21, paragraph (f)(5) is hereby amended to read as follows.
"5) splitting of deposits or creation of fictitious loans or deposits accounts.
"Splitting of deposits occurs whenever a deposit account with an outstanding balance of more that the
statutory maximum amount of insured deposit maintained under the name of natural or juridical persons
is broken down and transferred into two (2) or more accounts in the name/s of natural or juridical persons
or entities who have no beneficial ownership on transferred deposits in their names within one hundred
twenty (120) days immediately preceding or during a bank-declared bank holiday, or immediately
preceding a closure order issued by the Monetary Board of the Bangko Sentral ng Pilipinas for the
purpose of availing of the maximum deposit insurance coverage."
Section 12. An additional paragraph shall be inserted under Section 2, to read as follows:
"SEC. 2. xxx The Board of Directors shall have the authority:
"xxx
"7. To review the organizational set-up of the Corporation and adopt a new or revised organizational
structure as it may deem necessary for the Corporation to undertake its mandate and functions."
Section 13. Joint Congressional Oversight Committee. - There is hereby created a joint
congressional oversight committee to oversee the implementation of this Act. The committee shall be
composed of the chairpersons of the Senate Committee on Banks, Financial Institutions and Currencies
and the Committee on Finance and five (5) senators to be appointed by the President of the Senate, and
the chairpersons of the House Committee on Banks and Financial Intermediaries and the Committee on
Appropriations and five (5) members to be appointed by the Speaker of the House of Representatives.
Section 14. Separability Clause. - If any provision or section of this Act or the application thereof to
any person or circumstances is held invalid, the other provisions or sections of this Act, in the application
of such provision or section to other persons or circumstances, shall not be affected thereby.
Section 15. Repealing Clause. - All acts or parts of acts and executive orders, administrative orders, or
parts thereof, which are inconsistent with the provisions of this Act are hereby repealed.
Section 16. Effectivity Clause. - This Act shall take effect fifteen (15) days following the completion of
its publication in the Official Gazette or in two (2) newspapers of general circulation.
Approved,

(Sgd.) PROSPERO C. NOGRALES (Sgd.) JUAN PONCE ENRILE


Speaker of the House of President of the Senate
Representatives
This Act which is a consolidation of Senate Bill No. 2964 and House Bill No. 5911 was finally passed by the
Senate and the House of Representatives on March 5, 2009 and March 4, 2009, respectively.

(Sgd.) MARILYN B. BARUA- (Sgd.) EMMA LIRIO-REYES


YAP Secretary of Senate
Secretary General
House of Represenatives
Approved: April 29, 2009
(Sgd.) GLORIA MACAPAGAL-ARROYO
President of the Philippines
Pasted from <http://www.lawphil.net/statutes/repacts/ra2009/ra_9576_2009.html>

PD 1792
Sunday, June 06, 2010
3:28 AM

PRESIDENTIAL DECREE No. 1792 January 16, 1981

MALACAÑANG
Manila
PRESIDENTIAL DECREE No. 1792
AMENDING REPUBLIC ACT NO. 1405
WHEREAS, under existing legal framework, the Central Bank has the authority to examine all records of
banks in the discharge of its responsibilities under the Central Bank Charter;
WHEREAS, the prohibition against inquiry into bank deposits adversely delimits the examining authority of
the Central Bank.
WHEREAS, limited examination powers operate against effective supervision of banks and endangers the
safety of deposits which may affect the public's faith in the banking system.
NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the powers in me
vested by the Constitution, do hereby decree and make the following part of the law of the land;
Section 1. Section 2 of Republic Act No. 1405 is hereby amended to read as follows:
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 when the examination
is made in the course of a special or general examination of a bank and 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, or when the examination is 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, or upon written permission of the depositor, or in
cases of impeachment, or upon order of a competent court in cases of bribery or dereliction of duty of
public officials, or in cases where the money deposited or invested is the subject matter of the litigation.
Section 2. Section 3 of the same Act is hereby amended to read as follows:
Section 3. It shall be unlawful for any official or employee of a bank to disclose to any person other than
those mentioned in Section Two hereof, or for an independent auditor hired by a bank to conduct its
regular audit to disclose to any person other than a bank director, official or employee authorized by the
bank, any information concerning said deposits.
Section 3. This Decree shall take effect immediately.
Done in the City of Manila, this 16th day of January, in the year of Our Lord, nineteen hundred and eighty-
one.

Pasted from <http://www.lawphil.net/statutes/presdecs/pd1981/pd_1792_1981.html>

RA 6832
Sunday, June 06, 2010
3:29 AM

Republic Act No. 6832 January 5, 1990


AN ACT CREATING A COMMISSION TO CONDUCT A THOROUGH FACT-FINDING INVESTIGATION
OF THE FAILED COUP D′ÉTAT OF DECEMBER 1989, RECOMMEND MEASURES TO PREVENT THE
OCCURRENCE OF SIMILAR ATTEMPTS AT A VIOLENT SEIZURE OF POWER, AND FOR OTHER
PURPOSES
Be it enacted by the Senate and House of Representatives of the Philippines in Congress assembled::
Section 1. Creation, Objectives and Powers. – There is hereby created an independent Commission
which shall investigate all the facts and circumstances of the failed coup d′État of December 1989, and
recommend measures to prevent similar attempts at a violent seizure of power.
To attain these objectives, the Commission shall:
(a) Conduct a thorough fact-finding investigation of the said coup d′État and the involvement therein of
military personnel and civilian personalities including public officials and employees, evaluate all the facts
and circumstances of the same, and submit its findings and recommendation to the President, the
Congress, and other appropriate authorities not later that one (1) year from the effectivity of this Act;
(b) Receive, review and evaluate the evidence adduced and to this end, summon witnesses, administer
oaths, take testimony or receive evidence relevant to the investigation, and to issue subpoena ad
testificandum or subpoena duces tecum to produce documents, books, records and other papers;
(c) Turn over to the appropriate prosecutorial authorities all evidence involving any person when in the
course of its investigation, the Commission finds that there is reasonable ground to believe that he
appears to be liable for any criminal offense in connection with said coup d′État.
(d) Ask the Monetary Board to disclose information on and/or to grant authority to examine any bank
deposits, trust or investment funds, or banking transactions in the name of and/or utilized by a person,
natural or juridical, under investigation by the Commission, in any bank or banking institution in the
Philippines, when the Commission has reasonable ground to believe that actions have been used in
support or furtherance of the objectives of said coup d′État; and
(e) Exercise such other acts incident to or are appropriate and necessary in connection with the objectives
of this Act.
Section 2. Bar Against Court Injunction; Exception, Supreme Court. – No court, except the
Supreme Court, shall issue any restraining order or preliminary injunction on any matter involving the
official acts of the Commission pursuant to this Act and of the Monetary Board under paragraph (d) of
Section 1 hereof.
Section 3. Composition, Qualification and Salary. – The Commission shall be composed of a
Chairman and four (4) members who shall be appointed by the President. The Chairman and members
shall be citizens of the Philippines, at least thirty-five (35) years of age, and have an established reputation
for integrity, honesty, probity and professional competence. They shall receive the same salary as the
Chairman and members, respectively, of the Constitutional Commission.
Section 4. Tenure and Turn Over of Records. – The Commission is hereby given one (1) year from the
effectivity of this Act to attain the objectives set forth herein. Two (2) months after the lapse of said period,
the Commission shall be functus officio, and shall turn over all its records, assets and properties to the
Department of Justice.
Section 5. Orderly Conduct of Proceedings. – The Commission shall adopt rules and procedures for
orderly conduct of its investigation, proceeding and hearing, including the presentation of evidence. The
rules of evidence under the Revised Rules of Court shall have suppletory application.
Section 6. Conduct of Hearings. – Proceedings and hearings of the Commission, sitting en banc, shall
be open to the public. The Commission may, motu proprio or upon request of the person testifying, hold an
executive or closed-door hearing where matters of national security or public safety are involved or the
personal safety of the witness warrants the holding of such executive or closed-door hearing. The
Commission shall prescribe the rules to govern such executive or closed-door hearings.
Any person called to testify before the Commission shall have the right to counsel at any stage of the
proceedings.
Section 7. Right Against Self-Incrimination; Protection of Witness. – No person shall be excused
from attending and testifying or from producing documents, books, records, correspondence, or other
evidence in obedience to a subpoena issued by the Commission on the ground that his testimony or other
evidence required of him may tend to incriminate him or subject him to penalty or forfeiture. After having
invoked his right against self-incrimination, his testimony or any evidence produced by him shall not be
used against him in any proceedings, except for perjury committed in so testifying.
The Commission shall protect any person called to testify by providing the necessary and reasonable
security arrangements with the assistance and cooperation of the Armed Forces of the Philippines and
other appropriate government agencies.
Section 8. Immunity from Criminal Prosecution. – The Commission is authorized to grant immunity
from criminal prosecution to any person who provides information or testifies in any investigation
conducted by it where, upon its evaluation, such information or testimony is necessary and vital to the
investigation. The immunity thereby granted shall continue to protect the witness who repeats such
testimony before the appropriate court when required to do so by the latter. Should he refuse to repeat
such testimony, the immunity granted him shall cease.
Section 9. Direct or Indirect Contempt. – The Commission may hold any person in direct or indirect
contempt, and impose appropriate penalties therefor.
A person guilty of misbehavior in the presence of or so near the Commission as to obstruct or interrupt the
proceedings before the same, including disrespect towards its officials, offensive personalities towards
other, or refusal to be sworn or to answer as a witness or to subscribe to an affidavit or deposition when
lawfully required to do so, may be summarily adjudged in direct contempt by the Commission and
punished with a fine not exceeding Five thousand pesos (P5,000.00) or imprisonment not exceeding thirty
(30) days or both. The judgment of the Commission on direct contempt shall be final and not appealable.
Indirect contempt shall be dealt by the Commission in the manner prescribed under Rule 71 of the Revised
Rules of Court.
Section 10. Personnel of the Commission. – The Chairman shall have the power to engage the
services of such persons or personnel including a Commission Counsel, Deputy Commission Counsel(s) or
such other officials as may be required for the effective performance of its functions and responsibilities, to
fix their duties and compensation, to organize the structure and staffing pattern of the Commission; and to
authorize the payment of honoraria and/or allowance for deputized officers and officials subject to the
pertinent accounting and auditing rules and procedures. The persons, appointed, designated, deputized or
contracted by the Commission shall be subject to the Civil Service Law, rules and regulations.
Section 11. Promulgation of Rules and Regulations; Publication of Rules and Reports. – The
Commission shall have the power to promulgate its rules and regulations, enter into contracts, and
perform any and all other acts necessary or incidental to the attainment of the objectives of this Act.
Commission rules and regulations shall be published in at least two (2) national newspapers of general
circulation and shall take effect two (2) days after its publication. The final report to the President and to
Congress shall be published.
Section 12. Role of Other Government Agencies. – The Commission may call upon any government
investigative and prosecutorial agency, including the National Bureau of Investigation and the Philippine
Constabulary/Integrated National Police, to make available their offices, personnel and facilities to attain
the objectives of this Act.
Section 13. Appropriations. – The sum of Ten million pesos (P10,000,000.00) is hereby provided to the
Commission, chargeable against the Contingent Fund. The said amount shall automatically be released to
the Commission for disbursement by it in accordance with the auditing rules and regulations.
Section 14. Transfer of Records and Facilities to the Commission. – The records, facilities,
equipment, property, rights and such other things incidental to the creation of the Presidential Commission
under Administrative Order No. 146, Series of 1989, are hereby transferred to the Commission created by
this Act: Provided, That employees of the Presidential Commission, particularly the rank and file, shall be
absorbed by the Commission to the extent that it is administratively feasible.
Section 15. Applicable Law in Case of Conflict. – The provisions of this Act shall prevail over other
laws, acts, executive orders, administrative orders, issuances, rules and regulations or parts thereof, of the
Revised Rules of Court as regards the subject matter of this Act.
Section 16. Separability Clause. – If any provision of this Act is declared unconstitutional, the same
shall not affect the validity and effectivity of the other provisions hereof.
Section 17. Effectivity. – This Act shall take effect two (2) days following its publication in at least two
(2) national newspapers of general circulation.
Approved: January 5, 1990.

Pasted from <http://www.lawphil.net/statutes/repacts/ra1990/ra_6832_1990.html>

RA 7653
Sunday, June 06, 2010
3:29 AM

REPUBLIC ACT No. 7653


THE NEW CENTRAL BANK ACT
CHAPTER I — ESTABLISHMENT AND ORGANIZATION OF THE BANGKO SENTRAL NG PILIPINAS
ARTICLE I
CREATION, RESPONSIBILITIES AND CORPORATE POWERS OF THE BANGKO SENTRAL
Section 1. Declaration of Policy. - The State shall maintain a central monetary authority that shall
function and operate as an independent and accountable body corporate in the discharge of its mandated
responsibilities concerning money, banking and credit. In line with this policy, and considering its unique
functions and responsibilities, the central monetary authority established under this Act, while being a
government-owned corporation, shall enjoy fiscal and administrative autonomy.
Section 2. Creation of the Bangko Sentral. - There is hereby established an independent central
monetary authority, which shall be a body corporate known as the Bangko Sentral ng Pilipinas, hereafter
referred to as the Bangko Sentral.
The capital of the Bangko Sentral shall be Fifty billion pesos (P50,000,000,000), to be fully
subscribed by the Government of the Republic, hereafter referred to as the Government, Ten billion pesos
(P10,000,000,000) of which shall be fully paid for by the Government upon the effectivity of this Act and
the balance to be paid for within a period of two (2) years from the effectivity of this Act in such manner
and form as the Government, through the Secretary of Finance and the Secretary of Budget and
Management, may thereafter determine.
Section 3. Responsibility and Primary Objective. - The Bangko Sentral shall provide policy
directions in the areas of money, banking, and credit. It shall have supervision over the operations of
banks and exercise such regulatory powers as provided in this Act and other pertinent laws over the
operations of finance companies and non-bank financial institutions performing quasi-banking functions,
hereafter referred to as quasi-banks, and institutions performing similar functions.
The primary objective of the Bangko Sentral is to maintain price stability conducive to a balanced
and sustainable growth of the economy. It shall also promote and maintain monetary stability and the
convertibility of the peso.
Section 4. Place of Business. - The Bangko Sentral shall have its principal place of business in
Metro Manila, but may maintain branches, agencies and correspondents in such other places as the proper
conduct of its business may require.
Section 5. Corporate Powers. - The Bangko Sentral is hereby authorized to adopt, alter, and use a
corporate seal which shall be judicially noticed; to enter into contracts; to lease or own real and personal
property, and to sell or otherwise dispose of the same; to sue and be sued; and otherwise to do and
perform any and all things that may be necessary or proper to carry out the purposes of this Act.
The Bangko Sentral may acquire and hold such assets and incur such liabilities in connection with
its operations authorized by the provisions of this Act, or as are essential to the proper conduct of such
operations.
The Bangko Sentral may compromise, condone or release, in whole or in part, any claim of or
settled liability to the Bangko Sentral, regardless of the amount involved, under such terms and conditions
as may be prescribed by the Monetary Board to protect the interests of the Bangko Sentral.
ARTICLE II
THE MONETARY BOARD
Section 6. Composition of the Monetary Board. - The powers and functions of the Bangko Sentral
shall be exercised by the Bangko Sentral Monetary Board, hereafter referred to as the Monetary Board,
composed of seven (7) members appointed by the President of the Philippines for a term of six (6) years.
The seven (7) members are:
(a) the Governor of the Bangko Sentral, who shall be the Chairman of the Monetary Board. The Governor
of the Bangko Sentral shall be head of a department and his appointment shall be subject to confirmation
by the Commission on Appointments. Whenever the Governor is unable to attend a meeting of the Board,
he shall designate a Deputy Governor to act as his alternate: Provided, That in such event, the Monetary
Board shall designate one of its members as acting Chairman;
(b) a member of the Cabinet to be designated by the President of the Philippines. Whenever the
designated Cabinet Member is unable to attend a meeting of the Board, he shall designate an
Undersecretary in his Department to attend as his alternate; and
(c) five (5) members who shall come from the private sector, all of whom shall serve full-time: Provided,
however, That of the members first appointed under the provisions of this subsection, three (3) shall have
a term of six (6) years, and the other two (2), three (3) years.
No member of the Monetary Board may be reappointed more than once.
Section 7. Vacancies. - Any vacancy in the Monetary Board created by the death, resignation, or
removal of any member shall be filled by the appointment of a new member to complete the unexpired
period of the term of the member concerned.
Section 8. Qualifications. - The members of the Monetary Board must be natural-born citizens of
the Philippines, at least thirty-five (35) years of age, with the exception of the Governor who should at
least be forty (40) years of age, of good moral character, of unquestionable integrity, of known probity and
patriotism, and with recognized competence in social and economic disciplines.
Section 9. Disqualifications. - In addition to the disqualifications imposed by Republic Act No.
6713, a member of the Monetary Board is disqualified from being a director, officer, employee, consultant,
lawyer, agent or stockholder of any bank, quasi-bank or any other institution which is subject to
supervision or examination by the Bangko Sentral, in which case such member shall resign from, and
divest himself of any and all interests in such institution before assumption of office as member of the
Monetary Board.
The members of the Monetary Board coming from the private sector shall not hold any other public
office or public employment during their tenure.
No person shall be a member of the Monetary Board if he has been connected directly with any
multilateral banking or financial institution or has a substantial interest in any private bank in the
Philippines, within one (1) year prior to his appointment; likewise, no member of the Monetary Board shall
be employed in any such institution within two (2) years after the expiration of his term except when he
serves as an official representative of the Philippine Government to such institution.
Section 10. Removal. - The President may remove any member of the Monetary Board for any of
the following reasons:
(a) If the member is subsequently disqualified under the provisions of Section 8 of this Act; or
(b) If he is physically or mentally incapacitated that he cannot properly discharge his duties and
responsibilities and such incapacity has lasted for more than six (6) months; or
(c) If the member is guilty of acts or operations which are of fraudulent or illegal character or which are
manifestly opposed to the aims and interests of the Bangko Sentral; or
(d) If the member no longer possesses the qualifications specified in Section 8 of this Act.
Section 11. Meetings. - The Monetary Board shall meet at least once a week. The Board may be
called to a meeting by the Governor of the Bangko Sentral or by two (2) other members of the Board.
The presence of four (4) members shall constitute a quorum: Provided, That in all cases the
Governor or his duly designated alternate shall be among the four (4).
Unless otherwise provided in this Act, all decisions of the Monetary Board shall require the
concurrence of at least four (4) members.
The Bangko Sentral shall maintain and preserve a complete record of the proceedings and
deliberations of the Monetary Board, including the tapes and transcripts of the stenographic notes, either
in their original form or in microfilm.
Section 12. Attendance of the Deputy Governors. - The Deputy Governors may attend the
meetings of the Monetary Board with the right to be heard.
Section 13. Salary. - The salary of the Governor and the members of the Monetary Board from the
private sector shall be fixed by the President of the Philippines at a sum commensurate to the importance
and responsibility attached to the position.
Section 14. Withdrawal of Persons Having a Personal Interest. - In addition to the requirements of
Republic Act No. 6713, any member of the Monetary Board with personal or pecuniary interest in any
matter in the agenda of the Monetary Board shall disclose his interest to the Board and shall retire from
the meeting when the matter is taken up. The decision taken on the matter shall be made public. The
minutes shall reflect the disclosure made and the retirement of the member concerned from the meeting.
Section 15. Exercise of Authority. - In the exercise of its authority, the Monetary Board shall:
(a) issue rules and regulations it considers necessary for the effective discharge of the responsibilities and
exercise of the powers vested upon the Monetary Board and the Bangko Sentral. The rules and regulations
issued shall be reported to the President and the Congress within fifteen (15) days from the date of their
issuance;
(b) direct the management, operations, and administration of the Bangko Sentral, reorganize its
personnel, and issue such rules and regulations as it may deem necessary or convenient for this purpose.
The legal units of the Bangko Sentral shall be under the exclusive supervision and control of the Monetary
Board;
(c) establish a human resource management system which shall govern the selection, hiring, appointment,
transfer, promotion, or dismissal of all personnel. Such system shall aim to establish professionalism and
excellence at all levels of the Bangko Sentral in accordance with sound principles of management.
A compensation structure, based on job evaluation studies and wage surveys and subject to the
Board's approval, shall be instituted as an integral component of the Bangko Sentral's human resource
development program: Provided, That the Monetary Board shall make its own system conform as closely
as possible with the principles provided for under Republic Act No. 6758: Provided, however, That
compensation and wage structure of employees whose positions fall under salary grade 19 and below
shall be in accordance with the rates prescribed under Republic Act No. 6758.
On the recommendation of the Governor, appoint, fix the remunerations and other emoluments,
and remove personnel of the Bangko Sentral, subject to pertinent civil service laws: Provided, That the
Monetary Board shall have exclusive and final authority to promote, transfer, assign, or reassign personnel
of the Bangko Sentral and these personnel actions are deemed made in the interest of the service and not
disciplinary: Provided, further, That the Monetary Board may delegate such authority to the Governor
under such guidelines as it may determine.
(d) adopt an annual budget for and authorize such expenditures by the Bangko Sentral as are in the
interest of the effective administration and operations of the Bangko Sentral in accordance with applicable
laws and regulations; and
(e) indemnify its members and other officials of the Bangko Sentral, including personnel of the
departments performing supervision and examination functions against all costs and expenses reasonably
incurred by such persons in connection with any civil or criminal action, suit or proceedings to which he
may be, or is, made a party by reason of the performance of his functions or duties, unless he is finally
adjudged in such action or proceeding to be liable for negligence or misconduct.
In the event of a settlement or compromise, indemnification shall be provided only in connection
with such matters covered by the settlement as to which the Bangko Sentral is advised by external
counsel that the person to be indemnified did not commit any negligence or misconduct.
The costs and expenses incurred in defending the aforementioned action, suit or proceeding may
be paid by the Bangko Sentral in advance of the final disposition of such action, suit or proceeding upon
receipt of an undertaking by or on behalf of the member, officer, or employee to repay the amount
advanced should it ultimately be determined by the Monetary Board that he is not entitled to be
indemnified as provided in this subsection.
Section 16. Responsibility. - Members of the Monetary Board, officials, examiners, and employees
of the Bangko Sentral who willfully violate this Act or who are guilty of negligence, abuses or acts of
malfeasance or misfeasance or fail to exercise extraordinary diligence in the performance of his duties
shall be held liable for any loss or injury suffered by the Bangko Sentral or other banking institutions as a
result of such violation, negligence, abuse, malfeasance, misfeasance or failure to exercise extraordinary
diligence.
Similar responsibility shall apply to members, officers, and employees of the Bangko Sentral for:
(1) the disclosure of any information of a confidential nature, or any information on the discussions or
resolutions of the Monetary Board, or about the confidential operations of the Bangko Sentral, unless the
disclosure is in connection with the performance of official functions with the Bangko Sentral, or is with
prior authorization of the Monetary Board or the Governor; or (2) the use of such information for personal
gain or to the detriment of the Government, the Bangko Sentral or third parties: Provided, however, That
any data or information required to be submitted to the President and/or the Congress, or to be published
under the provisions of this Act shall not be considered confidential.
ARTICLE III
THE GOVERNOR AND DEPUTY GOVERNORS OF THE BANGKO SENTRAL
Section 17. Powers and Duties of the Governor. - The Governor shall be the chief executive officer
of the Bangko Sentral. His powers and duties shall be to:
(a) prepare the agenda for the meetings of the Monetary Board and to submit for the consideration of the
Board the policies and measures which he believes to be necessary to carry out the purposes and
provisions of this Act;
(b) execute and administer the policies and measures approved by the Monetary Board;
(c) direct and supervise the operations and internal administration of the Bangko Sentral. The Governor
may delegate certain of his administrative responsibilities to other officers or may assign specific tasks or
responsibilities to any full-time member of the Monetary Board without additional remuneration or
allowance whenever he may deem fit or subject to such rules and regulations as the Monetary Board may
prescribe;
(d) appoint and fix the remunerations and other emoluments of personnel below the rank of a department
head in accordance with the position and compensation plans approved by the Monetary Board, as well as
to impose disciplinary measures upon personnel of the Bangko Sentral, subject to the provisions of Section
15(c) of this Act: Provided, That removal of personnel shall be with the approval of the Monetary Board;
(e) render opinions, decisions, or rulings, which shall be final and executory until reversed or modified by
the Monetary Board, on matters regarding application or enforcement of laws pertaining to institutions
supervised by the Bangko Sentral and laws pertaining to quasi-banks, as well as regulations, policies or
instructions issued by the Monetary Board, and the implementation thereof; and
(f) exercise such other powers as may be vested in him by the Monetary Board.
Section 18. Representation of the Monetary Board and the Bangko Sentral. - The Governor of the
Bangko Sentral shall be the principal representative of the Monetary Board and of the Bangko Sentral and,
in such capacity and in accordance with the instructions of the Monetary Board, he shall be empowered to:
(a) represent the Monetary Board and the Bangko Sentral in all dealings with other offices, agencies and
instrumentalities of the Government and all other persons or entities, public or private, whether domestic,
foreign or international;
(b) sign contracts entered into by the Bangko Sentral, notes and securities issued by the Bangko Sentral,
all reports, balance sheets, profit and loss statements, correspondence and other documents of the
Bangko Sentral.
The signature of the Governor may be in facsimile whenever appropriate;
(c) represent the Bangko Sentral, either personally or through counsel, including private counsel, as may
be authorized by the Monetary Board, in any legal proceedings, action or specialized legal studies; and
(d) delegate his power to represent the Bangko Sentral, as provided in subsections (a), (b) and (c) of this
section, to other officers upon his own responsibility: Provided, however, That in order to preserve the
integrity and the prestige of his office, the Governor of the Bangko Sentral may choose not to participate
in preliminary discussions with any multilateral banking or financial institution on any negotiations for the
Government within or outside the Philippines. During the negotiations, he may instead be represented by
a permanent negotiator.
Section 19. Authority of the Governor in Emergencies. - In case of emergencies where time is
sufficient to call a meeting of the Monetary Board, the Governor of the Bangko Sentral, with the
concurrence of two (2) other members of the Monetary Board, may decide any matter or take any action
within the authority of the Board.
The Governor shall submit a report to the President and Congress within seventy-two (72) hours
after the action has been taken.
At the soonest possible time, the Governor shall call a meeting of the Monetary Board to submit his
action for ratification.
Section 20. Outside Interests of the Governor and the Full-time Members of the Board. - The
Governor of the Bangko Sentral and the full-time members of the Board shall limit their professional
activities to those pertaining directly to their positions with the Bangko Sentral. Accordingly, they may not
accept any other employment, whether public or private, remunerated or ad honorem, with the exception
of positions in eleemosynary, civic, cultural or religious organizations or whenever, by designation of the
President, the Governor or the full-time member is tasked to represent the interest of the Government or
other government agencies in matters connected with or affecting the economy or the financial system of
the country.
Section 21. Deputy Governors. - The Governor of the Bangko Sentral, with the approval of the
Monetary Board, shall appoint not more than three (3) Deputy Governors who shall perform duties as may
be assigned to them by the Governor and the Board.
In the absence of the Governor, a Deputy Governor designated by the Governor shall act as chief
executive of the Bangko Sentral and shall exercise the powers and perform the duties of the Governor.
Whenever the Government is unable to attend meetings of government boards or councils in which he is
an ex officio member pursuant to provisions of special laws, a Deputy Governor as may be designated by
the Governor shall be vested with authority to participate and exercise the right to vote in such meetings.
ARTICLE IV
OPERATIONS OF THE BANGKO SENTRAL
Section 22. Research and Statistics. - The Bangko Sentral shall prepare data and conduct
economic research for the guidance of the Monetary Board in the formulation and implementation of its
policies. Such data shall include, among others, forecasts of the balance of payments of the Philippines,
statistics on the monthly movement of the monetary aggregates and of prices and other statistical series
and economic studies useful for the formulation and analysis of monetary, banking, credit and exchange
policies.
Section 23. Authority to Obtain Data and Information. - The Bangko Sentral shall have the
authority to request from government offices and instrumentalities, or government-owned or controlled
corporations, any data which it may require for the proper discharge of its functions and responsibilities.
The Bangko Sentral through the Governor or in his absence, a duly authorized representative shall have
the power to issue a subpoena for the production of the books and records for the aforesaid purpose.
Those who refuse the subpoena without justifiable cause, or who refuse to supply the bank with data
requested or required, shall be subject to punishment for contempt in accordance with the provisions of
the Rules of Court.
Data on individual firms, other than banks, gathered by the Department of Economic Research and
other departments or units of the Bangko Sentral shall not be made available to any person or entity
outside of the Bangko Sentral whether public or private except under order of the court or under such
conditions as may be prescribed by the Monetary Board: Provided, however, That the collective data on
firms may be released to interested persons or entities: Provided, finally, That in the case of data on
banks, the provisions of Section 27 of this Act shall apply.
Section 24. Training of Technical Personnel. - The Bangko Sentral shall promote and sponsor the
training of technical personnel in the field of money and banking. Toward this end, the Bangko Sentral is
hereby authorized to defray the costs of study, at home or abroad, of qualified employees of the Bangko
Sentral, of promising university graduates or of any other qualified persons who shall be determined by
proper competitive examinations. The Monetary Board shall prescribe rules and regulations to govern the
training program of the Bangko Sentral.
Section 25. Supervision and Examination. - The Bangko Sentral shall have supervision over, and
conduct periodic or special examinations of, banking institutions and quasi-banks, including their
subsidiaries and affiliates engaged in allied activities.
For purposes of this section, a subsidiary means a corporation more than fifty percent (50%) of the
voting stock of which is owned by a bank or quasi-bank and an affiliate means a corporation the voting
stock of which, to the extent of fifty percent (50%) or less, is owned by a bank or quasi-bank or which is
related or linked to such institution or intermediary through common stockholders or such other factors as
may be determined by the Monetary Board.
The department heads and the examiners of the supervising and/or examining departments are
hereby authorized to administer oaths to any director, officer, or employee of any institution under their
respective supervision or subject to their examination and to compel the presentation of all books,
documents, papers or records necessary in their judgment to ascertain the facts relative to the true
condition of any institution as well as the books and records of persons and entities relative to or in
connection with the operations, activities or transactions of the institution under examination, subject to
the provision of existing laws protecting or safeguarding the secrecy or confidentiality of bank deposits as
well as investments of private persons, natural or juridical, in debt instruments issued by the Government.
No restraining order or injunction shall be issued by the court enjoining the Bangko Sentral from
examining any institution subject to supervision or examination by the Bangko Sentral, unless there is
convincing proof that the action of the Bangko Sentral is plainly arbitrary and made in bad faith and the
petitioner or plaintiff files with the clerk or judge of the court in which the action is pending a bond
executed in favor of the Bangko Sentral, in an amount to be fixed by the court. The provisions of Rule 58
of the New Rules of Court insofar as they are applicable and not inconsistent with the provisions of this
section shall govern the issuance and dissolution of the restraining order or injunction contemplated in this
section.
Section 26. Bank Deposits and Investments. - Any director, officer or stockholder who, together
with his related interest, contracts a loan or any form of financial accommodation from: (1) his bank; or (2)
from a bank (a) which is a subsidiary of a bank holding company of which both his bank and the lending
bank are subsidiaries or (b) in which a controlling proportion of the shares is owned by the same interest
that owns a controlling proportion of the shares of his bank, in excess of five percent (5%) of the capital
and surplus of the bank, or in the maximum amount permitted by law, whichever is lower, shall be
required by the lending bank to waive the secrecy of his deposits of whatever nature in all banks in the
Philippines. Any information obtained from an examination of his deposits shall be held strictly confidential
and may be used by the examiners only in connection with their supervisory and examination
responsibility or by the Bangko Sentral in an appropriate legal action it has initiated involving the deposit
account.
Section 27. Prohibitions. - In addition to the prohibitions found in Republic Act Nos. 3019 and
6713, personnel of the Bangko Sentral are hereby prohibited from:
(a) being an officer, director, lawyer or agent, employee, consultant or stockholder, directly or indirectly,
of any institution subject to supervision or examination by the Bangko Sentral, except non-stock savings
and loan associations and provident funds organized exclusively for employees of the Bangko Sentral, and
except as otherwise provided in this Act;
(b) directly or indirectly requesting or receiving any gift, present or pecuniary or material benefit for
himself or another, from any institution subject to supervision or examination by the Bangko Sentral;
(c) revealing in any manner, except under orders of the court, the Congress or any government office or
agency authorized by law, or under such conditions as may be prescribed by the Monetary Board,
information relating to the condition or business of any institution. This prohibition shall not be held to
apply to the giving of information to the Monetary Board or the Governor of the Bangko Sentral, or to any
person authorized by either of them, in writing, to receive such information; and
(d) borrowing from any institution subject to supervision or examination by the Bangko Sentral shall be
prohibited unless said borrowings are adequately secured, fully disclosed to the Monetary Board, and shall
be subject to such further rules and regulations as the Monetary Board may prescribe: Provided, however,
That personnel of the supervising and examining departments are prohibited from borrowing from a bank
under their supervision or examination.
Section 28. Examination and Fees. - The supervising and examining department head, personally
or by deputy, shall examine the books of every banking institution once in every twelve (12) months, and
at such other times as the Monetary Board by an affirmative vote of five (5) members, may deem
expedient and to make a report on the same to the Monetary Board: Provided, That there shall be an
interval of at least twelve (12) months between annual examinations.
The bank concerned shall afford to the head of the appropriate supervising and examining
departments and to his authorized deputies full opportunity to examine its books, cash and available
assets and general condition at any time during banking hours when requested to do so by the Bangko
Sentral: Provided, however, That none of the reports and other papers relative to such examinations shall
be open to inspection by the public except insofar as such publicity is incidental to the proceedings
hereinafter authorized or is necessary for the prosecution of violations in connection with the business of
such institutions.
Banking and quasi-banking institutions which are subject to examination by the Bangko Sentral
shall pay to the Bangko Sentral, within the first thirty (30) days of each year, an annual fee in an amount
equal to a percentage as may be prescribed by the Monetary Board of its average total assets during the
preceding year as shown on its end-of-month balance sheets, after deducting cash on hand and amounts
due from banks, including the Bangko Sentral and banks abroad.
Section 29. Appointment of Conservator. - Whenever, on the basis of a report submitted by the
appropriate supervising or examining department, the Monetary Board finds that a bank or a quasi-bank is
in a state of continuing inability or unwillingness to maintain a condition of liquidity deemed adequate to
protect the interest of depositors and creditors, the Monetary Board may appoint a conservator with such
powers as the Monetary Board shall deem necessary to take charge of the assets, liabilities, and the
management thereof, reorganize the management, collect all monies and debts due said institution, and
exercise all powers necessary to restore its viability. The conservator shall report and be responsible to
the Monetary Board and shall have the power to overrule or revoke the actions of the previous
management and board of directors of the bank or quasi-bank.
The conservator should be competent and knowledgeable in bank operations and management.
The conservatorship shall not exceed one (1) year.
The conservator shall receive remuneration to be fixed by the Monetary Board in an amount not to
exceed two-thirds (2/3) of the salary of the president of the institution in one (1) year, payable in twelve
(12) equal monthly payments: Provided, That, if at any time within one-year period, the conservatorship is
terminated on the ground that the institution can operate on its own, the conservator shall receive the
balance of the remuneration which he would have received up to the end of the year; but if the
conservatorship is terminated on other grounds, the conservator shall not be entitled to such remaining
balance. The Monetary Board may appoint a conservator connected with the Bangko Sentral, in which
case he shall not be entitled to receive any remuneration or emolument from the Bangko Sentral during
the conservatorship. The expenses attendant to the conservatorship shall be borne by the bank or quasi-
bank concerned.
The Monetary Board shall terminate the conservatorship when it is satisfied that the institution can
continue to operate on its own and the conservatorship is no longer necessary. The conservatorship shall
likewise be terminated should the Monetary Board, on the basis of the report of the conservator or of its
own findings, determine that the continuance in business of the institution would involve probable loss to
its depositors or creditors, in which case the provisions of Section 30 shall apply.
Section 30. Proceedings in Receivership and Liquidation. - Whenever, upon report of the head of
the supervising or examining department, the Monetary Board finds that a bank or quasi-bank:
(a) is unable to pay its liabilities as they become due in the ordinary course of business: Provided, That
this shall not include inability to pay caused by extraordinary demands induced by financial panic in the
banking community;
(b) has insufficient realizable assets, as determined by the Bangko Sentral, to meet its liabilities; or
(c) cannot continue in business without involving probable losses to its depositors or creditors; or
(d) has willfully violated a cease and desist order under Section 37 that has become final, involving acts or
transactions which amount to fraud or a dissipation of the assets of the institution; in which cases, the
Monetary Board may summarily and without need for prior hearing forbid the institution from doing
business in the Philippines and designate the Philippine Deposit Insurance Corporation as receiver of the
banking institution.
For a quasi-bank, any person of recognized competence in banking or finance may be designed as
receiver.
The receiver shall immediately gather and take charge of all the assets and liabilities of the
institution, administer the same for the benefit of its creditors, and exercise the general powers of a
receiver under the Revised Rules of Court but shall not, with the exception of administrative expenditures,
pay or commit any act that will involve the transfer or disposition of any asset of the institution: Provided,
That the receiver may deposit or place the funds of the institution in non-speculative investments. The
receiver shall determine as soon as possible, but not later than ninety (90) days from take over, whether
the institution may be rehabilitated or otherwise placed in such a condition so that it may be permitted to
resume business with safety to its depositors and creditors and the general public: Provided, That any
determination for the resumption of business of the institution shall be subject to prior approval of the
Monetary Board.
If the receiver determines that the institution cannot be rehabilitated or permitted to resume
business in accordance with the next preceding paragraph, the Monetary Board shall notify in writing the
board of directors of its findings and direct the receiver to proceed with the liquidation of the institution.
The receiver shall:
(1) file ex parte with the proper regional trial court, and without requirement of prior notice or any other
action, a petition for assistance in the liquidation of the institution pursuant to a liquidation plan adopted
by the Philippine Deposit Insurance Corporation for general application to all closed banks. In case of
quasi-banks, the liquidation plan shall be adopted by the Monetary Board. Upon acquiring jurisdiction, the
court shall, upon motion by the receiver after due notice, adjudicate disputed claims against the
institution, assist the enforcement of individual liabilities of the stockholders, directors and officers, and
decide on other issues as may be material to implement the liquidation plan adopted. The receiver shall
pay the cost of the proceedings from the assets of the institution.
(2) convert the assets of the institutions to money, dispose of the same to creditors and other parties, for
the purpose of paying the debts of such institution in accordance with the rules on concurrence and
preference of credit under the Civil Code of the Philippines and he may, in the name of the institution, and
with the assistance of counsel as he may retain, institute such actions as may be necessary to collect and
recover accounts and assets of, or defend any action against, the institution. The assets of an institution
under receivership or liquidation shall be deemed in custodia legis in the hands of the receiver and shall,
from the moment the institution was placed under such receivership or liquidation, be exempt from any
order of garnishment, levy, attachment, or execution.
The actions of the Monetary Board taken under this section or under Section 29 of this Act shall be
final and executory, and may not be restrained or set aside by the court except on petition for certiorari on
the ground that the action taken was in excess of jurisdiction or with such grave abuse of discretion as to
amount to lack or excess of jurisdiction. The petition for certiorari may only be filed by the stockholders of
record representing the majority of the capital stock within ten (10) days from receipt by the board of
directors of the institution of the order directing receivership, liquidation or conservatorship.
The designation of a conservator under Section 29 of this Act or the appointment of a receiver
under this section shall be vested exclusively with the Monetary Board. Furthermore, the designation of a
conservator is not a precondition to the designation of a receiver.
Section 31. Distribution of Assets. - In case of liquidation of a bank or quasi-bank, after payment
of the cost of proceedings, including reasonable expenses and fees of the receiver to be allowed by the
court, the receiver shall pay the debts of such institution, under order of the court, in accordance with the
rules on concurrence and preference of credit as provided in the Civil Code.
Section 32. Disposition of Revenues and Earnings. - All revenues and earnings realized by the
receiver in winding up the affairs and administering the assets of any bank or quasi-bank within the
purview of this Act shall be used to pay the costs, fees and expenses mentioned in the preceding section,
salaries of such personnel whose employment is rendered necessary in the discharge of the liquidation
together with other additional expenses caused thereby. The balance of revenues and earnings, after the
payment of all said expenses, shall form part of the assets available for payment to creditors.
Section 33. Disposition of Banking Franchise. - The Bangko Sentral may, if public interest so
requires, award to an institution, upon such terms and conditions as the Monetary Board may approve, the
banking franchise of a bank under liquidation to operate in the area where said bank or its branches were
previously operating: Provided, That whatever proceeds may be realized from such award shall be subject
to the appropriate exclusive disposition of the Monetary Board.
Section 34. Refusal to Make Reports or Permit Examination. - Any officer, owner, agent, manager,
director or officer-in-charge of any institution subject to the supervision or examination by the Bangko
Sentral within the purview of this Act who, being required in writing by the Monetary Board or by the head
of the supervising and examining department willfully refuses to file the required report or permit any
lawful examination into the affairs of such institution shall be punished by a fine of not less than Fifty
thousand pesos (P50,000) nor more than One hundred thousand pesos (P100,000) or by imprisonment of
not less than one (1) year nor more than five (5) years, or both, in the discretion of the court.
Section 35. False Statement. - The willful making of a false or misleading statement on a material
fact to the Monetary Board or to the examiners of the Bangko Sentral shall be punished by a fine of not
less than One hundred thousand pesos (P100,000) nor more than Two hundred thousand pesos
(P200,000), or by imprisonment of not more than (5) years, or both, at the discretion of the court.
Section 36. Proceedings Upon Violation of This Act and Other Banking Laws, Rules, Regulations,
Orders or Instructions. - Whenever a bank or quasi-bank, or whenever any person or entity willfully
violates this Act or other pertinent banking laws being enforced or implemented by the Bangko Sentral or
any order, instruction, rule or regulation issued by the Monetary Board, the person or persons responsible
for such violation shall unless otherwise provided in this Act be punished by a fine of not less than Fifty
thousand pesos (P50,000) nor more than Two hundred thousand pesos (P200,000) or by imprisonment of
not less than two (2) years nor more than ten (10) years, or both, at the discretion of the court.
Whenever a bank or quasi-bank persists in carrying on its business in an unlawful or unsafe
manner, the Board may, without prejudice to the penalties provided in the preceding paragraph of this
section and the administrative sanctions provided in Section 37 of this Act, take action under Section 30 of
this Act.
Section 37. Administrative Sanctions on Banks and Quasi-banks. - Without prejudice to the
criminal sanctions against the culpable persons provided in Sections 34, 35, and 36 of this Act, the
Monetary Board may, at its discretion, impose upon any bank or quasi-bank, their directors and/or officers,
for any willful violation of its charter or by-laws, willful delay in the submission of reports or publications
thereof as required by law, rules and regulations; any refusal to permit examination into the affairs of the
institution; any willful making of a false or misleading statement to the Board or the appropriate
supervising and examining department or its examiners; any willful failure or refusal to comply with, or
violation of, any banking law or any order, instruction or regulation issued by the Monetary Board, or any
order, instruction or ruling by the Governor; or any commission of irregularities, and/or conducting
business in an unsafe or unsound manner as may be determined by the Monetary Board, the following
administrative sanctions, whenever applicable:
(a) fines in amounts as may be determined by the Monetary Board to be appropriate, but in no case to
exceed Thirty thousand pesos (P30,000) a day for each violation, taking into consideration the attendant
circumstances, such as the nature and gravity of the violation or irregularity and the size of the bank or
quasi-bank;
(b) suspension of rediscounting privileges or access to Bangko Sentral credit facilities;
(c) suspension of lending or foreign exchange operations or authority to accept new deposits or make new
investments;
(d) suspension of interbank clearing privileges; and/or
(e) revocation of quasi-banking license.
Resignation or termination from office shall not exempt such director or officer from administrative
or criminal sanctions.
The Monetary Board may, whenever warranted by circumstances, preventively suspend any
director or officer of a bank or quasi-bank pending an investigation: Provided, That should the case be not
finally decided by the Bangko Sentral within a period of one hundred twenty (120) days after the date of
suspension, said director or officer shall be reinstated in his position: Provided, further, That when the
delay in the disposition of the case is due to the fault, negligence or petition of the director or officer, the
period of delay shall not be counted in computing the period of suspension herein provided.
The above administrative sanctions need not be applied in the order of their severity.
Whether or not there is an administrative proceeding, if the institution and/or the directors and/or
officers concerned continue with or otherwise persist in the commission of the indicated practice or
violation, the Monetary Board may issue an order requiring the institution and/or the directors and/or
officers concerned to cease and desist from the indicated practice or violation, and may further order that
immediate action be taken to correct the conditions resulting from such practice or violation. The cease
and desist order shall be immediately effective upon service on the respondents.
The respondents shall be afforded an opportunity to defend their action in a hearing before the
Monetary Board or any committee chaired by any Monetary Board member created for the purpose, upon
request made by the respondents within five (5) days from their receipt of the order. If no such hearing is
requested within said period, the order shall be final. If a hearing is conducted, all issues shall be
determined on the basis of records, after which the Monetary Board may either reconsider or make final
its order.
The Governor is hereby authorized, at his discretion, to impose upon banking institutions, for any
failure to comply with the requirements of law, Monetary Board regulations and policies, and/or
instructions issued by the Monetary Board or by the Governor, fines not in excess of Ten thousand pesos
(P10,000) a day for each violation, the imposition of which shall be final and executory until reversed,
modified or lifted by the Monetary Board on appeal.
Section 38. Operating Departments of the Bangko Sentral. - The Monetary Board shall, in
accordance with its authority under this Act, determine and provide for such operating departments and
other offices, including a public information office, of the Bangko Sentral as it deems convenient for the
proper and efficient conduct of the operations and the accomplishment of the objectives of the Bangko
Sentral. The functions and duties of such operating departments and other offices shall be determined by
the Monetary Board.
ARTICLE V
REPORTS AND PUBLICATIONS
Section 39. Reports and Publications. - The Bangko Sentral shall publish a general balance sheet
showing the volume and composition of its assets and liabilities as of the last working day of the month
within sixty (60) days after the end of each month except for the month of December, which shall be
submitted within ninety (90) days after the end hereof.
The Monetary Board shall publish and submit the following reports to the President and to the
Congress:
(a) not later than ninety (90) days after the end of each quarter, an analysis of economic and financial
developments, including the condition of net international reserves and monetary aggregates;
(b) within ninety (90) days after the end of the year, the preceding year's budget and profit and loss
statement of the Bangko Sentral showing in reasonable detail the result of its operations;
(c) one hundred twenty (120) days after the end of each semester, a review of the state of the financial
system; and
(d) as soon as practicable, abnormal movements in monetary aggregates and the general price level, and,
not later than seventy-two (72) hours after they are taken, remedial measures in response to such
abnormal movements.
Section 40. Annual Report. - Before the end of March of each year, the Bangko Sentral shall
publish and submit to the President and the Congress an annual report on the condition of the Bangko
Sentral including a review of the policies and measures adopted by the Monetary Board during the past
year and an analysis of the economic and financial circumstances which gave rise to said policies and
measures.
The annual report shall also include a statement of the financial condition of the Bangko Sentral
and a statistical appendix which shall present, as a minimum, the following data:
(a) the monthly movement of monetary aggregates and their components;
(b) the monthly movement of purchases and sales of foreign exchange and of the international reserves of
the Bangko Sentral;
(c) the balance of payments of the Philippines;
(d) monthly indices of consumer prices and of import and export prices;
(e) the monthly movement, in summary form, of exports and imports, by volume and value;
(f) the monthly movement of the accounts of the Bangko Sentral and of other banks;
(g) the principal data on government receipts and expenditures and on the status of the public debt, both
domestic and foreign; and
(h) the texts of the major legal and administrative measures adopted by the Government and the
Monetary Board during the year which relate to the functions or operations of the Bangko Sentral or of the
financial system.
The Bangko Sentral shall publish another version of the annual report in terms understandable to
the layman.
Failure to comply with the reportorial requirements pursuant to this article without justifiable
reason as may be determined by the Monetary Board shall cause the withholding of the salary of the
personnel concerned until the requirements are complied with.
Section 41. Signatures on Statements. - The balance sheets and other financial statements of the
Bangko Sentral shall be signed by the officers responsible for their preparation, by the Governor, and by
the auditor of the Bangko Sentral.
ARTICLE VI
PROFITS, LOSSES, AND SPECIAL ACCOUNTS
Section 42. Fiscal Year. - The fiscal year of the Bangko Sentral shall begin on January first and end
on December thirty-first of each year.
Section 43. Computation of Profits and Losses. - Within the first thirty (30) days following the end
of each year, the Bangko Sentral shall determine its net profits or losses. In the calculation of net profits,
the Bangko Sentral shall make adequate allowance or establish adequate reserves for bad and doubtful
accounts.
Section 44. Distribution of Net Profits. - Within the first sixty (60) days following the end of each
fiscal year, the Monetary Board shall determine and carry out the distribution of the net profits, in
accordance with the following rule:
Fifty percent (50%) of the net profits shall be carried to surplus and the remaining fifty percent
(50%) shall revert back to the National Treasury, except as otherwise provided in the transitory provisions
of this Act.
Section 45. Revaluation Profits and Losses. - Profits or losses arising from any revaluation of the
Bangko Sentral's net assets or liabilities in gold or foreign currencies with respect to the Philippine peso
shall not be included in the computation of the annual profits and losses of the Bangko Sentral. Any profits
or losses arising in this manner shall be offset by any amounts which, as a consequence of such
revaluations, are owed by the Philippines to any international or regional intergovernmental financial
institution of which the Philippines is a member or are owed by these institutions to the Philippines. Any
remaining profit or loss shall be carried in a special frozen account which shall be named "Revaluation of
International Reserve" and the net balance of which shall appear either among the liabilities or among the
assets of the Bangko Sentral, depending on whether the revaluations have produced net profits or net
losses.
The Revaluation of International Reserve account shall be neither credited nor debited for any
purposes other than those specifically authorized in this section.
Section 46. Suspense Accounts. - Sections 43 and 43-A of Republic Act No. 265, as amended,
creating the Monetary Adjustment Account (MAA) and the Exchange Stabilization Adjustment Account
(ESAA), respectively, are hereby repealed. Amounts outstanding as of the effective date of this Act based
on these accounts shall continue to be for the account of the Central Bank and shall be governed by the
transitory provisions of this Act.
The Revaluation of International Reserve (RIR) account as of the effective date of this Act of the
Central Bank shall continue to be for the account of the same entity and shall be governed by the
provisions of Section 44 of Republic Act No. 265, as amended, until otherwise provided for in accordance
with the transitory provisions of this Act.
ARTICLE VII
THE AUDITOR
Section 47. Appointment and Personnel. - The Chairman of the Commission on Audit shall act as
the ex officio auditor of the Bangko Sentral and, as such, he is empowered and authorized to appoint a
representative who shall be the auditor of the Bangko Sentral and, in accordance with law, fix his salary,
and to appoint and fix salaries and number of personnel to assist said representative in his work. The
salaries and other emoluments shall be paid by the Commission. The auditor of the Bangko Sentral and
personnel under him may be removed only by the Chairman of the Commission.
The representative of the Chairman of the Commission must be a certified public accountant with
at least ten (10) years experience as such. No relative of any member of the Monetary Board or the
Chairman of the Commission within the sixth degree of consanguinity or affinity shall be appointed such
representative.
CHAPTER II — THE BANGKO SENTRAL AND THE MEANS OF PAYMENT
ARTICLE I
THE UNIT OF MONETARY VALUE
Section 48. The Peso. - The unit of monetary value in the Philippines is the "peso," which is
represented by the sign "P."
The peso is divided into one hundred (100) equal parts called "centavos," which are represented
by the sign "c."
ARTICLE II
ISSUE OF MEANS OF PAYMENT
A. CURRENCY
Section 49. Definition of Currency. - The word "currency" is hereby defined, for purposes of this
Act, as meaning all Philippine notes and coins issued or circulating in accordance with the provisions of
this Act.
Section 50. Exclusive Issue Power. - The Bangko Sentral shall have the sole power and authority
to issue currency, within the territory of the Philippines. No other person or entity, public or private, may
put into circulation notes, coins or any other object or document which, in the opinion of the Monetary
Board, might circulate as currency, nor reproduce or imitate the facsimiles of Bangko Sentral notes
without prior authority from the Bangko Sentral.
The Monetary Board may issue such regulations as it may deem advisable in order to prevent the
circulation of foreign currency or of currency substitutes as well as to prevent the reproduction of
facsimiles of Bangko Sentral notes.
The Bangko Sentral shall have the authority to investigate, make arrests, conduct searches and
seizures in accordance with law, for the purpose of maintaining the integrity of the currency.
Violation of this provision or any regulation issued by the Bangko Sentral pursuant thereto shall
constitute an offense punishable by imprisonment of not less than five (5) years but not more than ten
(10) years. In case the Revised Penal Code provides for a greater penalty, then that penalty shall be
imposed.
Section 51. Liability for Notes and Coins. - Notes and coins issued by the Bangko Sentral shall be
liabilities of the Bangko Sentral and may be issued only against, and in amounts not exceeding, the assets
of the Bangko Sentral. Said notes and coins shall be a first and paramount lien on all assets of the Bangko
Sentral.
The Bangko Sentral's holdings of its own notes and coins shall not be considered as part of its
currency issue and, accordingly, shall not form part of the assets or liabilities of the Bangko Sentral.
Section 52. Legal Tender Power. - All notes and coins issued by the Bangko Sentral shall be fully
guaranteed by the Government of the Republic of the Philippines and shall be legal tender in the
Philippines for all debts, both public and private: Provided, however, That, unless otherwise fixed by the
Monetary Board, coins shall be legal tender in amounts not exceeding Fifty pesos (P50.00) for
denominations of Twenty-five centavos and above, and in amounts not exceeding Twenty pesos (P20.00)
for denominations of Ten centavos or less.
Section 53. Characteristics of the Currency. - The Monetary Board, with the approval of the
President of the Philippines, shall prescribe the denominations, dimensions, designs, inscriptions and other
characteristics of notes issued by the Bangko Sentral: Provided, however, That said notes shall state that
they are liabilities of the Bangko Sentral and are fully guaranteed by the Government of the Republic of
the Philippines. Said notes shall bear the signatures, in facsimile, of the President of the Philippines and of
the Governor of the Bangko Sentral.
Similarly, the Monetary Board, with the approval of the President of the Philippines, shall prescribe
the weight, fineness, designs, denominations and other characteristics of the coins issued by the Bangko
Sentral. In the minting of coins, the Monetary Board shall give full consideration to the availability of
suitable metals and to their relative prices and cost of minting.
Section 54. Printing of Notes and Mining of Coins. - The Monetary Board shall prescribe the
amounts of notes and coins to be printed and minted, respectively, and the conditions to which the
printing of notes and the minting of coins shall be subject. The Monetary Board shall have the authority to
contract institutions, mints or firms for such operations.
All expenses incurred in the printing of notes and the minting of coins shall be for the account of
the Bangko Sentral.
Section 55. Interconvertibility of Currency. - The Bangko Sentral shall exchange, on demand and
without charge, Philippine currency of any denomination for Philippine notes and coins of any other
denomination requested. If for any reason the Bangko Sentral is temporarily unable to provide notes or
coins of the denominations requested, it shall meet its obligations by delivering notes and coins of the
denominations which most nearly approximate those requested.
Section 56. Replacement of Currency Unfit for Circulation. - The Bangko Sentral shall withdraw
from circulation and shall demonetize all notes and coins which for any reason whatsoever are unfit for
circulation and shall replace them by adequate notes and coins: Provided, however, That the Bangko
Sentral shall not replace notes and coins the identification of which is impossible, coins which show signs
of filing, clipping or perforation, and notes which have lost more than two-fifths (2/5) of their surface or all
of the signatures inscribed thereon. Notes and coins in such mutilated conditions shall be withdrawn from
circulation and demonetized without compensation to the bearer.
Section 57. Retirement of Old Notes and Coins. - The Bangko Sentral may call in for replacement
notes of any series or denomination which are more than five (5) years old and coins which are more than
(10) years old.
Notes and coins called in for replacement in accordance with this provision shall remain legal
tender for a period of one (1) year from the date of call. After this period, they shall cease to be legal
tender but during the following year, or for such longer period as the Monetary Board may determine, they
may be exchanged at par and without charge in the Bangko Sentral and by agents duly authorized by the
Bangko Sentral for this purpose. After the expiration of this latter period, the notes and coins which have
not been exchanged shall cease to be a liability of the Bangko Sentral and shall be demonetized. The
Bangko Sentral shall also demonetize all notes and coins which have been called in and replaced.
B. DEMAND DEPOSITS
Section 58. Definition. - For purposes of this Act, the term "demand deposits" means all those
liabilities of the Bangko Sentral and of other banks which are denominated in Philippine currency and are
subject to payment in legal tender upon demand by the presentation of checks.
Section 59. Issue of Demand Deposits. - Only banks duly authorized to do so may accept funds or
create liabilities payable in pesos upon demand by the presentation of checks, and such operations shall
be subject to the control of the Monetary Board in accordance with the powers granted it with respect
thereto under this Act.
Section 60. Legal Character. - Checks representing demand deposits do not have legal tender
power and their acceptance in the payment of debts, both public and private, is at the option of the
creditor: Provided, however, That a check which has been cleared and credited to the account of the
creditor shall be equivalent to a delivery to the creditor of cash in an amount equal to the amount credited
to his account.
CHAPTER III — GUIDING PRINCIPLES OF MONETARY ADMINISTRATION BY THE BANGKO
SENTRAL
ARTICLE I
DOMESTIC MONETARY STABILIZATION
Section 61. Guiding Principle. - The Monetary Board shall endeavor to control any expansion or
contraction in monetary aggregates which is prejudicial to the attainment or maintenance of price
stability.
Section 62. Power to Define Terms. - For purposes of this article and of this Act, the Monetary
Board shall formulate definitions of monetary aggregates, credit and prices and shall make public such
definitions and any changes thereof.
Section 63. Action When Abnormal Movements Occur in the Monetary Aggregates, Credit, or
Price Level.- Whenever abnormal movements in the monetary aggregates, in credit, or in prices endanger
the stability of the Philippine economy or important sectors thereof, the Monetary Board shall:
(a) take such remedial measures as are appropriate and within the powers granted to the Monetary Board
and the Bangko Sentral under the provisions of this Act; and
(b) submit to the President of the Philippines and the Congress, and make public, a detailed report which
shall include, as a minimum, a description and analysis of:
(1) the causes of the rise or fall of the monetary aggregates, of credit or of prices;
(2) the extent to which the changes in the monetary aggregates, in credit, or in prices have been reflected
in changes in the level of domestic output, employment, wages and economic activity in general, and the
nature and significance of any such changes; and
(3) the measures which the Monetary Board has taken and the other monetary, fiscal or administrative
measures which it recommends to be adopted.
Whenever the monetary aggregates, or the level of credit, increases or decreases by more than
fifteen percent (15%), or the cost of living index increases by more than ten percent (10%), in relation to
the level existing at the end of the corresponding month of the preceding year, or even though any of
these quantitative guidelines have not been reached when in its judgment the circumstances so warrant,
the Monetary Board shall submit the reports mentioned in this section, and shall state therein whether, in
the opinion of the Board, said changes in the monetary aggregates, credit or cost of living represent a
threat to the stability of the Philippine economy or of important sectors thereof.
The Monetary Board shall continue to submit periodic reports to the President of the Philippines
and to Congress until it considers that the monetary, credit or price disturbances have disappeared or
have been adequately controlled.
ARTICLE II
INTERNATIONAL MONETARY STABILIZATION
Section 64. International Monetary Stabilization. - The Bangko Sentral shall exercise its powers
under this Act to preserve the international value of the peso and to maintain its convertibility into other
freely convertible currencies primarily for, although not necessarily limited to, current payments for
foreign trade and invisibles.
Section 65. International Reserves. - In order to maintain the international stability and
convertibility of the Philippine peso, the Bangko Sentral shall maintain international reserves adequate to
meet any foreseeable net demands on the Bangko Sentral for foreign currencies.
In judging the adequacy of the international reserves, the Monetary Board shall be guided by the
prospective receipts and payments of foreign exchange by the Philippines. The Board shall give special
attention to the volume and maturity of the Bangko Sentral's own liabilities in foreign currencies, to the
volume and maturity of the foreign exchange assets and liabilities of other banks operating in the
Philippines and, insofar as they are known or can be estimated, the volume and maturity of the foreign
exchange assets and liabilities of all other persons and entities in the Philippines.
Section 66. Composition of the International Reserves. - The international reserves of the Bangko
Sentral may include but shall not be limited to the following assets:
(a) gold; and
(b) assets in foreign currencies in the form of: documents and instruments customarily employed for the
international transfer of funds; demand and time deposits in central banks, treasuries and commercial
banks abroad; foreign government securities; and foreign notes and coins.
The Monetary Board shall endeavor to hold the foreign exchange resources of the Bangko Sentral
in freely convertible currencies; moreover, the Board shall give particular consideration to the prospects of
continued strength and convertibility of the currencies in which the reserve is maintained, as well as to the
anticipated demands for such currencies. The Monetary Board shall issue regulations determining the
other qualifications which foreign exchange assets must meet in order to be included in the international
reserves of the Bangko Sentral.
The Bangko Sentral shall be free to convert any of the assets in its international reserves into other
assets as described in subsections (a) and (b) of this section.
Section 67. Action When the International Stability of the Peso Is Threatened. - Whenever the
international reserve of the Bangko Sentral falls to a level which the Monetary Board considers inadequate
to meet prospective net demands on the Bangko Sentral for foreign currencies, or whenever the
international reserve appears to be in imminent danger of falling to such a level, or whenever the
international reserve is falling as a result of payments or remittances abroad which, in the opinion of the
Monetary Board, are contrary to the national welfare, the Monetary Board shall:
(a) take such remedial measures as are appropriate and within the powers granted to the Monetary Board
and the Bangko Sentral under the provisions of this Act; and
(b) submit to the President of the Philippines and to Congress a detailed report which shall include, as a
minimum, a description and analysis of:
(1) the nature and causes of the existing or imminent decline;
(2) the remedial measures already taken or to be taken by the Monetary Board;
(3) the monetary, fiscal or administrative measures further proposed; and
(4) the character and extent of the cooperation required from other government agencies for the
successful execution of the policies of the Monetary Board.
If the resultant actions fail to check the deterioration of the reserve position of the Bangko Sentral,
or if the deterioration cannot be checked except by chronic restrictions on exchange and trade
transactions or by sacrifice of the domestic objectives of a balanced and sustainable growth of the
economy, the Monetary Board shall propose to the President, with appropriate notice of the Congress,
such additional action as it deems necessary to restore equilibrium in the international balance of
payments of the Philippines.
The Monetary Board shall submit periodic reports to the President and to Congress until the threat
to the international monetary stability of the Philippines has disappeared.
CHAPTER IV — INSTRUMENTS OF BANGKO SENTRAL ACTION
ARTICLE I
GENERAL CRITERION
Section 68. Means of Action. - In order to achieve the primary objective of price stability, the
Monetary Board shall rely on its moral influence and the powers granted to it under this Act for the
management of monetary aggregates.
ARTICLE II
OPERATIONS IN GOLD AND FOREIGN EXCHANGE
Section 69. Purchases and Sales of Gold. - The Bangko Sentral may buy and sell gold in any form,
subject to such regulations as the Monetary Board may issue.
The purchases and sales of gold authorized by this section shall be made in the national currency
at the prevailing international market price as determined by the Monetary Board.
Section 70. Purchases and Sales of Foreign Exchange. - The Bangko Sentral may buy and sell
foreign notes and coins, and documents and instruments of types customarily employed for the
international transfer of funds. The Bangko Sentral may engage in future exchange operations.
The Bangko Sentral may engage in foreign exchange transactions with the following entities or
persons only:
(a) banking institutions operating in the Philippines;
(b) the Government, its political subdivisions and instrumentalities;
(c) foreign or international financial institutions;
(d) foreign governments and their instrumentalities; and
(e) other entities or persons which the Monetary Board is hereby empowered to authorize as foreign
exchange dealers, subject to such rules and regulations as the Monetary Board shall prescribe.
In order to maintain the convertibility of the peso, the Bangko Sentral may, at the request of any
banking institution operating in the Philippines, buy any quantity of foreign exchange offered, and sell any
quantity of foreign exchange demanded, by such institution, provided that the foreign currencies so
offered or demanded are freely convertible into gold or United States dollars. This requirement shall not
apply to demands for foreign notes and coins.
The Bangko Sentral shall effect its exchange transactions between foreign currencies and the
Philippine peso at the rates determined in accordance with the provisions of Section 74 of this Act.
Section 71. Foreign Asset Position of the Bangko Sentral. - The Bangko Sentral shall endeavor to
maintain at all times a net positive foreign asset position so that its gross foreign exchange assets will
always exceed its gross foreign liabilities. In the event that the equivalent amount in pesos of the foreign
exchange liabilities of the Bangko Sentral exceed twice the equivalent amount in pesos of the foreign
exchange assets of the bank, the Bangko Sentral shall, within sixty (60) days from the date the limit is
exceeded, submit a report to the Congress stating the origin of these liabilities, and the manner in which
they will be paid.
Section 72. Emergency Restrictions on Exchange Operations. - In order to achieve the primary
objective of the Bangko Sentral as set forth in Section 3 of this Act, or protect the international reserves of
the Bangko Sentral in the imminence of, or during an exchange crisis, or in time of national emergency
and to give the Monetary Board and the Government time in which to take constructive measures to
forestall, combat, or overcome such a crisis or emergency, the Monetary Board, with the concurrence of at
least five (5) of its members and with the approval of the President of the Philippines, may temporarily
suspend or restrict sales of exchange by the Bangko Sentral, and may subject all transactions in gold and
foreign exchange to license by the Bangko Sentral, and may require that any foreign exchange thereafter
obtained by any person residing or entity operating in the Philippines be delivered to the Bangko Sentral
or to any bank or agent designated by the Bangko Sentral for the purpose, at the effective exchange rate
or rates: Provided, however, That foreign currency deposits made under Republic Act No. 6426 shall be
exempt from these requirements.
Section 73. Acquisition of Inconvertible Currencies. - The Bangko Sentral shall avoid the
acquisition and holding of currencies which are not freely convertible, and may acquire such currencies in
an amount exceeding the minimum balance necessary to cover current demands for said currencies only
when, and to the extent that, such acquisition is considered by the Monetary Board to be in the national
interest. The Monetary Board shall determine the procedures which shall apply to the acquisition and
disposition by the Bangko Sentral of foreign exchange which is not freely utilizable in the international
market.
Section 74. Exchange Rates. - The Monetary Board shall determine the exchange rate policy of
the country.
The Monetary Board shall determine the rates at which the Bangko Sentral shall buy and sell spot
exchange, and shall establish deviation limits from the effective exchange rate or rates as it may deem
proper. The Bangko Sentral shall not collect any additional commissions or charges of any sort, other than
actual telegraphic or cable costs incurred by it.
The Monetary Board shall similarly determine the rates for other types of foreign exchange
transactions by the Bangko Sentral, including purchases and sales of foreign notes and coins, but the
margins between the effective exchange rates and the rates thus established may not exceed the
corresponding margins for spot exchange transactions by more than the additional costs or expenses
involved in each type of transactions.
Section 75. Operations with Foreign Entities. - The Monetary Board may authorize the Bangko
Sentral to grant loans to and receive loans from foreign banks and other foreign or international entities,
both public and private, and may engage in such other operations with these entities as are in the national
interest and are appropriate to its character as a central bank. The Bangko Sentral may also act as agent
or correspondent for such entities.
Upon authority of the Monetary Board, the Bangko Sentral may pledge any gold or other assets
which it possesses as security against loans which it receives from foreign or international entities.
ARTICLE III
REGULATION OF FOREIGN EXCHANGE OPERATIONS OF THE BANKS
Section 76. Foreign Exchange Holdings of the Banks. - In order that the Bangko Sentral may at all
times have foreign exchange resources sufficient to enable it to maintain the international stability and
convertibility of the peso, or in order to promote the domestic investment of bank resources, the Monetary
Board may require the banks to sell to the Bangko Sentral or to other banks all or part of their surplus
holdings of foreign exchange. Such transfers may be required for all foreign currencies or for only certain
of such currencies, according to the decision of the Monetary Board. The transfers shall be made at the
rates established under the provisions of Section 74 of this Act.
The Monetary Board may, whenever warranted, determine the net assets and net liabilities of
banks and shall, in making such a determination, take into account the bank's networth, outstanding
liabilities, actual and contingent, or such other financial or performance ratios as may be appropriate
under the circumstances. Any such determination of net assets and net liabilities shall be applied in all
banks uniformly and without discrimination.
Section 77. Requirement of Balanced Currency Position. - The Monetary Board may require the
banks to maintain a balanced position between their assets and liabilities in Philippine pesos or in any
other currency or currencies in which they operate. The banks shall be granted a reasonable period of
time in which to adjust their currency positions to any such requirement.
The powers granted under this section shall be exercised only when special circumstances make
such action necessary, in the opinion of the Monetary Board, and shall be applied to all banks alike and
without discrimination.
Section 78. Regulation of Non-spot Exchange Transactions. - In order to restrain the banks from
taking speculative positions with respect to future fluctuations in foreign exchange rates, the Monetary
Board may issue such regulations governing bank purchases and sales of non-spot exchange as it may
consider necessary for said purpose.
Section 79. Other Exchange Profits and Losses. - The banks shall bear the risks of non-compliance
with the terms of the foreign exchange documents and instruments which they buy and sell, and shall also
bear any other typically commercial or banking risks, including exchange risks not assumed by the Bangko
Sentral under the provisions of the preceding section.
Section 80. Information on Exchange Operations. - The banks shall report to the Bangko Sentral
the volume and composition of their purchases and sales of gold and foreign exchange each day, and
must furnish such additional information as the Bangko Sentral may request with reference to the
movements in their accounts in foreign currencies.
The Monetary Board may also require other persons and entities to report to it currently all
transactions or operations in gold, in any shape or form, and in foreign exchange whether entered into or
undertaken by them directly or through agents, or to submit such data as may be required on operations
or activities giving rise to or in connection with or relating to a gold or foreign exchange transaction. The
Monetary Board shall prescribe the forms on which such declarations must be made. The accuracy of the
declarations may be verified by the Bangko Sentral by whatever inspection it may deem necessary.
ARTICLE IV
LOANS TO BANKING AND OTHER FINANCIAL INSTITUTIONS
A. CREDIT POLICY
Section 81. Guiding Principles. - The rediscounts, discounts, loans and advances which the
Bangko Sentral is authorized to extend to banking institutions under the provisions of the present article of
this Act shall be used to influence the volume of credit consistent with the objective of price stability.
B. NORMAL CREDIT OPERATIONS
Section 82. Authorized Types of Operations. - Subject to the principle stated in the preceding
section of this Act, the Bangko Sentral may normally and regularly carry on the following credit operations
with banking institutions operating in the Philippines:
(a) Commercial credits. - The Bangko Sentral may rediscount, discount, buy and sell bills, acceptances,
promissory notes and other credit instruments with maturities of not more than one hundred eighty (180)
days from the date of their rediscount, discount or acquisition by the Bangko Sentral and resulting from
transactions related to:
(1) the importation, exportation, purchase or sale of readily saleable goods and products, or their
transportation within the Philippines; or
(2) the storing of non-perishable goods and products which are duly insured and deposited, under
conditions assuring their preservation, in authorized bonded warehouses or in other places approved by
the Monetary Board.
(b) Production credits. - The Bangko Sentral may rediscount, discount, buy and sell bills, acceptances,
promissory notes and other credit instruments having maturities of not more than three hundred sixty
(360) days from the date of their rediscount, discount or acquisition by the Bangko Sentral and resulting
from transactions related to the production or processing of agricultural, animal, mineral, or industrial
products. Documents or instruments acquired in accordance with this subsection shall be secured by a
pledge of the respective crops or products: Provided, however, That the crops or products need not be
pledged to secure the documents if the original loan granted by the Bangko Sentral is secured by a lien or
mortgage on real estate property seventy percent (70%) of the appraised value of which equals or
exceeds the amount of the loan granted.
(c) Other credits. - Special credit instruments not otherwise rediscountable under the immediately
preceding subsections (a) and (b) may be eligible for rediscounting in accordance with rules and
regulations which the Bangko Sentral shall prescribe. Whenever necessary, the Bangko Sentral shall
provide funds from non-inflationary sources: Provided, however, That the Monetary Board shall prescribe
additional safeguards for disbursing these funds.
(d) Advances. - The Bangko Sentral may grant advances against the following kinds of collaterals for fixed
periods which, with the exception of advances against collateral named in clause (4) of the present
subsection, shall not exceed one hundred eighty (180) days:
(1) gold coins or bullion;
(2) securities representing obligations of the Bangko Sentral or of other domestic institutions of recognized
solvency;
(3) the credit instruments to which reference is made in subsection (a) of this section;
(4) the credit instruments to which reference is made in subsection (b) of this section, for periods which
shall not exceed three hundred sixty (360) days;
(5) utilized portions of advances in current amount covered by regular overdraft agreements related to
operations included under subsections (a) and (b) of this section, and certified as to amount and liquidity
by the institution soliciting the advance;
(6) negotiable treasury bills, certificates of indebtedness, notes and other negotiable obligations of the
Government maturing within three (3) years from the date of the advance; and
(7) negotiable bonds issued by the Government of the Philippines, by Philippine provincial, city or
municipal governments, or by any Philippine Government instrumentality, and having maturities of not
more than ten (10) years from the date of advance.
The rediscounts, discounts, loans and advances made in accordance with the provisions of this section
may not be renewed or extended unless extraordinary circumstances fully justify such renewal or
extension.
Advances made against the collateral named in clauses (6) and (7) of subsection (d) of this section
may not exceed eighty percent (80%) of the current market value of the collateral.
C. SPECIAL CREDIT OPERATION
Section 83. Loans for Liquidity Purposes. - The Bangko Sentral may extend loans and advances to
banking institutions for a period of not more than seven (7) days without any collateral for the purpose of
providing liquidity to the banking system in times of need.
D. EMERGENCY CREDIT OPERATION
Section 84. Emergency Loans and Advances. - In periods of national and/or local emergency or of
imminent financial panic which directly threaten monetary and banking stability, the Monetary Board may,
by a vote of at least five (5) of its members, authorize the Bangko Sentral to grant extraordinary loans or
advances to banking institutions secured by assets as defined hereunder: Provided, That while such loans
or advances are outstanding, the debtor institution shall not, except upon prior authorization by the
Monetary Board, expand the total volume of its loans or investments.
The Monetary Board may, at its discretion, likewise authorize the Bangko Sentral to grant
emergency loans or advances to banking institutions, even during normal periods, for the purpose of
assisting a bank in a precarious financial condition or under serious financial pressures brought by
unforeseen events, or events which, though foreseeable, could not be prevented by the bank concerned:
Provided, however, That the Monetary Board has ascertained that the bank is not insolvent and has the
assets defined hereunder to secure the advances: Provided, further, That a concurrent vote of at least five
(5) members of the Monetary Board is obtained.
The amount of any emergency loan or advance shall not exceed the sum of fifty percent (50%) of
total deposits and deposit substitutes of the banking institution and shall be disbursed in two (2) or more
tranches. The amount of the first tranche shall be limited to twenty-five percent (25%) of the total deposit
and deposit substitutes of the institution and shall be secured by government securities to the extent of
their applicable loan values and other unencumbered first class collaterals which the Monetary Board may
approve: Provided, That if as determined by the Monetary Board, the circumstances surrounding the
emergency warrant a loan or advance greater than the amount provided hereinabove, the amount of the
first tranche may exceed twenty-five percent (25%) of the bank's total deposit and deposit substitutes if
the same is adequately secured by applicable loan values of government securities and unencumbered
first class collaterals approved by the Monetary Board, and the principal stockholders of the institution
furnish an acceptable undertaking to indemnify and hold harmless from suit a conservator whose
appointment the Monetary Board may find necessary at any time.
Prior to the release of the first tranche, the banking institution shall submit to the Bangko Sentral a
resolution of its board of directors authorizing the Bangko Sentral to evaluate other assets of the banking
institution certified by its external auditor to be good and available for collateral purposes should the
release of the subsequent tranche be thereafter applied for.
The Monetary Board may, by a vote of at least five (5) of its members, authorize the release of a
subsequent tranche on condition that the principal stockholders of the institution:
(a) furnish an acceptable undertaking to indemnify and hold harmless from suit a conservator whose
appointment the Monetary Board may find necessary at any time; and
(b) provide acceptable security which, in the judgment of the Monetary Board, would be adequate to
supplement, where necessary, the assets tendered by the banking institution to collateralize the
subsequent tranche.
In connection with the exercise of these powers, the prohibitions in Section 128 of this Act shall not
apply insofar as it refers to acceptance as collateral of shares and their acquisition as a result of
foreclosure proceedings, including the exercise of voting rights pertaining to said shares: Provided,
however, That should the Bangko Sentral acquire any of the shares it has accepted as collateral as a result
of foreclosure proceedings, the Bangko Sentral shall dispose of said shares by public bidding within one (1)
year from the date of consolidation of title by the Bangko Sentral.
Whenever a financial institution incurs an overdraft in its account with the Bangko Sentral, the
same shall be eliminated within the period prescribed in Section 102 of this Act.
E. CREDIT TERMS
Section 85. Interest and Rediscount. - The Bangko Sentral shall collect interest and other
appropriate charges on all loans and advances it extends, the closure, receivership or liquidations of the
debtor-institution notwithstanding. This provision shall apply prospectively.
The Monetary Board shall fix the interest and rediscount rates to be charged by the Bangko Sentral
on its credit operations in accordance with the character and term of the operation, but after due
consideration has been given to the credit needs of the market, the composition of the Bangko Sentral's
portfolio, and the general requirements of the national monetary policy. Interest and rediscount rates shall
be applied to all banks of the same category uniformly and without discrimination.
Section 86. Endorsement. - The documents rediscounted, discounted, bought or accepted as
collateral by the Bangko Sentral in the course of the credit operations authorized in this article shall bear
the endorsement of the institution from which they are received.
Section 87. Repayment of Credits. - Documents rediscounted, discounted or accepted as
collateral by the Bangko Sentral must be withdrawn by the borrowing institution on the dates of their
maturities, or upon liquidation of the obligations which they represent or to which they relate whenever
said obligations have been liquidated prior to their dates of maturity.
Banks shall have the right at any time to withdraw any documents which they have presented to
the Bangko Sentral as collateral, upon payment in full of the corresponding debt to the Bangko Sentral,
including interest charges.
Section 88. Other requirements. - The Monetary Board may prescribe, within the general powers
granted to it under this Act, additional conditions which borrowing institutions must satisfy in order to
have access to the credit of the Bangko Sentral. These conditions may refer to the rates of interest
charged by the banks, to the purposes for which their loans in general are destined, and to any other
clearly definable aspect of the credit policy of the bank.
Section 89. Provisional Advances to the National Government. - The Bangko Sentral may make
direct provisional advances with or without interest to the National Government to finance expenditures
authorized in its annual appropriation: Provided, That said advances shall be repaid before the end of
three (3) months extendible by another three (3) months as the Monetary Board may allow following the
date the National Government received such provisional advances and shall not, in their aggregate,
exceed twenty percent (20%) of the average annual income of the borrower for the last three (3)
preceding fiscal years.
ARTICLE V
OPEN MARKET OPERATIONS FOR THE ACCOUNT OF THE BANGKO SENTRAL
Section 90. Principles of Open Market Operations. - The open market purchases and sales of
securities by the Bangko Sentral shall be made exclusively in accordance with its primary objective of
achieving price stability.
Section 91. Purchases and Sales of Government Securities. - In order to achieve the objectives of
the national monetary policy, the Bangko Sentral may, in accordance with the principle stated in Section
90 of this Act and with such rules and regulations as may be prescribed by the Monetary Board, buy and
sell in the open market for its own account:
(a) evidences of indebtedness issued directly by the Government of the Philippines or by its political
subdivisions; and
(b) evidences of indebtedness issued by government instrumentalities and fully guaranteed by the
Government.
The evidences of indebtedness acquired under the provisions of this section must be freely
negotiable and regularly serviced and must be available to the general public through banking institutions
and local government treasuries in denominations of a thousand pesos or more.
Section 92. Issue and Negotiation of Bangko Sentral Obligations. - In order to provide the Bangko
Sentral with effective instruments for open market operations, the Bangko Sentral may, subject to such
rules and regulations as the Monetary Board may prescribe and in accordance with the principles stated in
Section 90 of this Act, issue, place, buy and sell freely negotiable evidences of indebtedness of the Bangko
Sentral: Provided, That issuance of such certificates of indebtedness shall be made only in cases of
extraordinary movement in price levels. Said evidences of indebtedness may be issued directly against
the international reserve of the Bangko Sentral or against the securities which it has acquired under the
provisions of Section 91 of this Act, or may be issued without relation to specific types of assets of the
Bangko Sentral.
The Monetary Board shall determine the interest rates, maturities and other characteristics of said
obligations of the Bangko Sentral, and may, if it deems it advisable, denominate the obligations in gold or
foreign currencies.
Subject to the principles stated in Section 90 of this Act, the evidences of indebtedness of the
Bangko Sentral to which this section refers may be acquired by the Bangko Sentral before their maturity,
either through purchases in the open market or through redemptions at par and by lot if the Bangko
Sentral has reserved the right to make such redemptions. The evidences of indebtedness acquired or
redeemed by the Bangko Sentral shall not be included among its assets, and shall be immediately retired
and cancelled.
ARTICLE VI
COMPOSITION OF BANGKO SENTRAL'S PORTFOLIO
Section 93. Review of the Bangko Sentral's Portfolio. - At least once every month the Monetary
Board shall review the portfolio of the Bangko Sentral in relation to its future credit policy.
In reviewing the Bangko Sentral's portfolio, the Monetary Board shall especially consider whether a
sufficiently large part of the portfolio consists of assets with early maturities, in order that a contraction in
Bangko Sentral credit may be effected promptly whenever the national monetary policy so requires.
ARTICLE VII
BANK RESERVES
Section 94. Reserve Requirements. - In order to control the volume of money created by the
credit operations of the banking system, all banks operating in the Philippines shall be required to
maintain reserves against their deposit liabilities: Provided, That the Monetary Board may, at its discretion,
also require all banks and/or quasi-banks to maintain reserves against funds held in trust and liabilities for
deposit substitutes as defined in this Act. The required reserves of each bank shall be proportional to the
volume of its deposit liabilities and shall ordinarily take the form of a deposit in the Bangko Sentral.
Reserve requirements shall be applied to all banks of the same category uniformly and without
discrimination.
Reserves against deposit substitutes, if imposed, shall be determined in the same manner as
provided for reserve requirements against regular bank deposits, with respect to the imposition, increase,
and computation of reserves.
The Monetary Board may exempt from reserve requirements deposits and deposit substitutes with
remaining maturities of two (2) years or more, as well as interbank borrowings.
Since the requirement to maintain bank reserves is imposed primarily to control the volume of
money, the Bangko Sentral shall not pay interest on the reserves maintained with it unless the Monetary
Board decides otherwise as warranted by circumstances.
Section 95. Definition of Deposit Substitutes. - The term "deposit substitutes" is defined as an
alternative form of obtaining funds from the public, other than deposits, through the issuance,
endorsement, or acceptance of debt instruments for the borrower's own account, for the purpose of
relending or purchasing of receivables and other obligations. These instruments may include, but need not
be limited to, bankers acceptances, promissory notes, participations, certificates of assignment and similar
instruments with recourse, and repurchase agreements. The Monetary Board shall determine what specific
instruments shall be considered as deposit substitutes for the purposes of Section 94 of this Act: Provided,
however, That deposit substitutes of commercial, industrial and other non-financial companies for the
limited purpose of financing their own needs or the needs of their agents or dealers shall not be covered
by the provisions of Section 94 of this Act.
Section 96. Required Reserves Against Peso Deposits. - The Monetary Board may fix and, when it
deems necessary, alter the minimum reserve ratios to peso deposits, as well as to deposit substitutes,
which each bank and/or quasi-bank may maintain, and such ratio shall be applied uniformly to all banks of
the same category as well as to quasi-banks.
Section 97. Required Reserves Against Foreign Currency Deposits. - The Monetary Board is
similarly authorized to prescribe and modify the minimum reserve ratios applicable to deposits
denominated in foreign currencies.
Section 98. Reserves Against Unused Balances of Overdraft Lines. - In order to facilitate Bangko
Sentral control over the volume of bank credit, the Monetary Board may establish minimum reserve
requirements for unused balances of overdraft lines.
The powers of the Monetary Board to prescribe and modify reserve requirements against unused
balances of overdraft lines shall be the same as its powers with respect to reserve requirements against
demand deposits.
Section 99. Increase in Reserve Requirements. - Whenever in the opinion of the Monetary Board it
becomes necessary to increase reserve requirements against existing liabilities, the increase shall be
made in a gradual manner and shall not exceed four percentage points in any thirty-day period. Banks and
other affected financial institutions shall be notified reasonably in advance of the date on which such
increase is to become effective.
Section 100. Computation on Reserves. - The reserve position of each bank or quasi-bank shall be
calculated daily on the basis of the amount, at the close of business for the day, of the institution's
reserves and the amount of its liability accounts against which reserves are required to be maintained:
Provided, That with reference to holidays or non-banking days, the reserve position as calculated at the
close of the business day immediately preceding such holidays and non-banking days shall apply on such
days.
For the purpose of computing the reserve position of each bank or quasi-bank, its principal office in
the Philippines and all its branches and agencies located therein shall be considered as a single unit.
Section 101. Reserve Deficiencies. - Whenever the reserve position of any bank or quasi-bank,
computed in the manner specified in the preceding section of this Act, is below the required minimum, the
bank or quasi-bank shall pay the Bangko Sentral one-tenth of one percent (1/10 of 1%) per day on the
amount of the deficiency or the prevailing ninety-one-day treasury bill rate plus three percentage points,
whichever is higher: Provided, however, That banks and quasi-banks shall ordinarily be permitted to offset
any reserve deficiency occurring on one or more days of the week with any excess reserves which they
may hold on other days of the same week and shall be required to pay the penalty only on the average
daily deficiency during the week. In cases of abuse, the Monetary Board may deny any bank or quasi-bank
the privilege of offsetting reserve deficiencies in the aforesaid manner.
If a bank or quasi-bank chronically has a reserve deficiency, the Monetary Board may limit or
prohibit the making of new loans or investments by the institution and may require that part or all of the
net profits of the institution be assigned to surplus.
The Monetary Board may modify or set aside the reserve deficiency penalties provided in this
section, for part or the entire period of a strike or lockout affecting a bank or a quasi-bank as defined in
the Labor Code, or of a national emergency affecting operations of banks or quasi-banks. The Monetary
Board may also modify or set aside reserved deficiency penalties for rehabilitation program of a bank.
Section 102. Interbank Settlement. - The Bangko Sentral shall establish facilities for interbank
clearing under such rules and regulations as the Monetary Board may prescribe: Provided, That the
Bangko Sentral may charge administrative and other fees for the maintenance of such facilities.
The deposit reserves maintained by the banks in the Bangko Sentral in accordance with the
provisions of Section 94 of this Act shall serve as basis for the clearing of checks and the settlement of
interbank balances, subject to such rules and regulations as the Monetary Board may issue with respect to
such operations: Provided, That any bank which incurs on overdrawing in its deposit account with the
Bangko Sentral shall fully cover said overdraft, including interest thereon at a rate equivalent to one-tenth
of one percent (1/10 of 1%) per day or the prevailing ninety-one-day treasury bill rate plus three
percentage points, whichever is higher, not later than the next clearing day: Provided, further, That
settlement of clearing balances shall not be effected for any account which continues to be overdrawn for
five (5) consecutive banking days until such time as the overdrawing is fully covered or otherwise
converted into an emergency loan or advance pursuant to the provisions of Section 84 of this Act:
Provided, finally, That the appropriate clearing office shall be officially notified of banks with overdrawn
balances. Banks with existing overdrafts with the Bangko Sentral as of the effectivity of this Act shall,
within such period as may be prescribed by the Monetary Board, either convert the overdraft into an
emergency loan or advance with a plan of payment, or settle such overdrafts, and that, upon failure to so
comply herewith, the Bangko Sentral shall take such action against the bank as may be warranted under
this Act.
Section 103. Exemption from Attachment and Other Purposes. - Deposits maintained by banks
with the Bangko Sentral as part of their reserve requirements shall be exempt from attachment,
garnishments, or any other order or process of any court, government agency or any other administrative
body issued to satisfy the claim of a party other than the Government, or its political subdivisions or
instrumentalities.
ARTICLE VIII
SELECTIVE REGULATION OF BANK OPERATIONS
Section 104. Guiding Principle. - The Monetary Board shall use the powers granted to it under this
Act to ensure that the supply, availability and cost of money are in accord with the needs of the Philippine
economy and that bank credit is not granted for speculative purposes prejudicial to the national interests.
Regulations on bank operations shall be applied to all banks of the same category uniformly and without
discrimination.
Section 105. Margin Requirements Against Letters of Credit. - The Monetary Board may at any
time prescribe minimum cash margins for the opening of letters of credit, and may relate the size of the
required margin to the nature of the transaction to be financed.
Section 106. Required Security Against Bank Loans. - In order to promote liquidity and solvency
of the banking system, the Monetary Board may issue such regulations as it may deem necessary with
respect to the maximum permissible maturities of the loans and investments which the banks may make,
and the kind and amount of security to be required against the various types of credit operations of the
banks.
Section 107. Portfolio Ceilings. - Whenever the Monetary Board considers it advisable to prevent
or check an expansion of bank credit, the Board may place an upper limit on the amount of loans and
investments which the banks may hold, or may place a limit on the rate of increase of such assets within
specified periods of time. The Monetary Board may apply such limits to the loans and investments of each
bank or to specific categories thereof.
In no case shall the Monetary Board establish limits which are below the value of the loans or
investments of the banks on the date on which they are notified of such restrictions. The restrictions shall
be applied to all banks uniformly and without discrimination.
Section 108. Minimum Capital Ratios. - The Monetary Board may prescribe minimum ratios which
the capital and surplus of the banks must bear to the volume of their assets, or to specific categories
thereof, and may alter said ratios whenever it deems necessary.
ARTICLE IX
COORDINATION OF CREDIT POLICIES BY GOVERNMENT INSTITUTIONS
Section 109. Coordination of Credit Policies. - Government-owned corporations which perform
banking or credit functions shall coordinate their general credit policies with those of the Monetary Board.
Toward this end, the Monetary Board may, whenever it deems it expedient, make suggestions or
recommendations to such corporations for the more effective coordination of their policies with those of
the Bangko Sentral.
CHAPTER V — FUNCTIONS AS BANKER AND FINANCIAL ADVISOR OF THE GOVERNMENT
ARTICLE I
FUNCTIONS AS BANKER OF THE GOVERNMENT
Section 110. Designation of Bangko Sentral as Banker of the Government. - The Bangko Sentral
shall act as a banker of the Government, its political subdivisions and instrumentalities.
Section 111. Representation with the International Monetary Fund. - The Bangko Sentral shall
represent the Government in all dealings, negotiations and transactions with the International Monetary
Fund and shall carry such accounts as may result from Philippine membership in, or operations with, said
Fund.
Section 112. Representation with Other Financial Institutions. - The Bangko Sentral may be
authorized by the Government to represent it in dealings, negotiations or transactions with the
International Bank for Reconstruction and Development and with other foreign or international financial
institutions or agencies. The President may, however, designate any of his other financial advisors to
jointly represent the Government in such dealings, negotiations or transactions.
Section 113. Official Deposits. - The Bangko Sentral shall be the official depository of the
Government, its political subdivisions and instrumentalities as well as of government-owned or controlled
corporations and, as a general policy, their cash balances should be deposited with the Bangko Sentral,
with only minimum working balances to be held by government-owned banks and such other banks
incorporated in the Philippines as the Monetary Board may designate, subject to such rules and
regulations as the Board may prescribe: Provided, That such banks may hold deposits of the political
subdivisions and instrumentalities of the Government beyond their minimum working balances whenever
such subdivisions or instrumentalities have outstanding loans with said banks.
The Bangko Sentral may pay interest on deposits of the Government or of its political subdivisions
and instrumentalities, as well as on deposits of banks with the Bangko Sentral.
Section 114. Fiscal Operations. - The Bangko Sentral shall open a general cash account for the
Treasurer of the Philippines, in which the liquid funds of the Government shall be deposited.
Transfers of funds from this account to other accounts shall be made only upon order of the
Treasurer of the Philippines.
Section 115. Other Banks as Agents of the Bangko Sentral. - In the performance of its functions
as fiscal agent, the Bangko Sentral may engage the services of other government-owned and controlled
banks and of other domestic banks for operations in localities at home or abroad in which the Bangko
Sentral does not have offices or agencies adequately equipped to perform said operations: Provided,
however, That for fiscal operations in foreign countries, the Bangko Sentral may engage the services of
foreign banking and financial institutions.
Section 116. Remuneration for Services. - The Bangko Sentral may charge equitable rates,
commissions or fees for services which it renders to the Government, its political subdivisions and
instrumentalities.
ARTICLE II
THE MARKETING AND STABILIZATION OF SECURITIES FOR THE ACCOUNT OF THE GOVERNMENT
A. THE ISSUE AND PLACING OF GOVERNMENT SECURITIES
Section 117. Issue of Government Obligations. - The issue of securities representing obligations
of the Government, its political subdivisions or instrumentalities, may be made through the Bangko
Sentral, which may act as agent of, and for the account of, the Government or its respective subdivisions
or instrumentality, as the case may be: Provided, however, That the Bangko Sentral shall not guarantee
the placement of said securities, and shall not subscribe to their issue except to replace its maturing
holdings of securities with the same type as the maturing securities.
Section 118. Methods of Placing Government Securities. - The Bangko Sentral may place the
securities to which the preceding section refers through direct sale to financial institutions and the public.
The Bangko Sentral shall not be a member of any stock exchange or syndicate, but may intervene
therein for the sole purpose of regulating their operations in the placing of government securities.
The Government, or its political subdivisions or instrumentalities, shall reimburse the Bangko
Sentral for the expenses incurred in the placing of the aforesaid securities.
Section 119. Servicing and Redemption of the Public Debt. - The servicing and redemption of the
public debt shall also be effected through the Bangko Sentral.
B. BANGKO SENTRAL SUPPORT OF THE GOVERNMENT SECURITIES MARKET
Section 120. The Securities Stabilization Fund. - There shall be established a "Securities
Stabilization Fund" which shall be administered by the Bangko Sentral for the account of the Government.
The operations of the Securities Stabilization Fund shall consist of purchases and sales, in the open
market, of bonds and other evidences of indebtedness issued or fully guaranteed by the Government. The
purpose of these operations shall be to increase the liquidity and stabilize the value of said securities in
order thereby to promote investment in government obligations.
The Monetary Board shall use the resources of the Fund to prevent, or moderate, sharp
fluctuations in the quotations of said government obligations, but shall not endeavor to alter movements
of the market resulting from basic changes in the pattern or level of interest rates.
The Monetary Board shall issue such regulations as may be necessary to implement the provisions
of this section.
Section 121. Resources of the Securities Stabilization Fund. - Subject to Section 132 of this Act,
the resources of the Securities Stabilization Fund shall come from the balance of the fund as held by the
Central Bank under Republic Act No. 265 as of the effective date of this Act.
Section 122. Profits and Losses of the Fund. - The Securities Stabilization Fund shall retain net
profits which it may make on its operations, regardless of whether said profits arise from capital gains or
from interest earnings. The Fund shall correspondingly bear any net losses which it may incur.
ARTICLE III
FUNCTIONS AS FINANCIAL ADVISOR OF THE GOVERNMENT
Section 123. Financial Advice on Official Credit Operations. - Before undertaking any credit
operation abroad, the Government, through the Secretary of Finance, shall request the opinion, in writing,
of the Monetary Board on the monetary implications of the contemplated action. Such opinions must
similarly be requested by all political subdivisions and instrumentalities of the Government before any
credit operation abroad is undertaken by them.
The opinion of the Monetary Board shall be based on the gold and foreign exchange resources and
obligations of the nation and on the effects of the proposed operation on the balance of payments and on
monetary aggregates.
Whenever the Government, or any of its political subdivisions or instrumentalities, contemplates
borrowing within the Philippines, the prior opinion of the Monetary Board shall likewise be requested in
order that the Board may render an opinion on the probable effects of the proposed operation on
monetary aggregates, the price level, and the balance of payments.
Section 124. Representation on the National Economic and Development Authority. - In order to
assure effective coordination between the economic, financial and fiscal policies of the Government and
the monetary, credit and exchange policies of the Bangko Sentral, the Deputy Governor designated by the
Governor of the Bangko Sentral shall be an ex officio member of the National Economic and Development
Authority Board.
CHAPTER VI — PRIVILEGES AND PROHIBITIONS
ARTICLE I
PRIVILEGES
Section 125. Tax Exemptions. - The Bangko Sentral shall be exempt for a period of five (5) years
from the approval of this Act from all national, provincial, municipal and city taxes, fees, charges and
assessments.
The exemption authorized in the preceding paragraph of this section shall apply to all property of
the Bangko Sentral, to the resources, receipts, expenditures, profits and income of the Bangko Sentral, as
well as to all contracts, deeds, documents and transactions related to the conduct of the business of the
Bangko Sentral: Provided, however, That said exemptions shall apply only to such taxes, fees, charges and
assessments for which the Bangko Sentral itself would otherwise be liable, and shall not apply to taxes,
fees, charges, or assessments payable by persons or other entities doing business with the Bangko
Sentral: Provided, further, That foreign loans and other obligations of the Bangko Sentral shall be exempt,
both as to principal and interest, from any and all taxes if the payment of such taxes has been assumed
by the Bangko Sentral.
Section 126. Exemption from Customs Duties. - The provision of any general or special law to the
contrary notwithstanding, the importation and exportation by the Bangko Sentral of notes and coins, and
of gold and other metals to be used for purposes authorized under this Act, and the importation of all
equipment needed for bank note production, minting of coins, metal refining and other security printing
operations shall be fully exempt from all customs duties and consular fees and from all other taxes,
assessments and charges related to such importation or exportation.
Section 127. Applicability of the Civil Service Law. - Appointments in the Bangko Sentral, except
as to those which are policy-determining, primarily confidential or highly technical in nature, shall be made
only according to the Civil Service Law and regulations: Provided, That no qualification requirements for
positions in the Bangko Sentral shall be imposed other than those set by the Monetary Board: Provided,
further, That, the Monetary Board or Governor, in accordance with Sections 15(c) and 17(d) of this Act,
respectively, may without need of obtaining prior approval from any other government agency, appoint
personnel in the Bangko Sentral whose services are deemed necessary in order not to unduly disrupt the
operations of the Bangko Sentral.
Officers and employees of the Bangko Sentral, including all members of the Monetary Board, shall
not engage directly or indirectly in partisan activities or take part in any election except to vote.
ARTICLE II
PROHIBITIONS
Section 128. Prohibitions. - The Bangko Sentral shall not acquire shares of any kind or accept
them as collateral, and shall not participate in the ownership or management of any enterprise, either
directly or indirectly.
The Bangko Sentral shall not engage in development banking or financing: Provided, however,
That outstanding loans obtained or extended for development financing shall not be affected by the
prohibition of this section.
CHAPTER VII — TRANSITORY PROVISIONS
Section 129. Phase-out of Fiscal Agency Functions. - Unless circumstances warrant otherwise and
approved by the Congress Oversight Committee, the Bangko Sentral shall, within a period of three (3)
years but in no case longer than five (5) years from the approval of this Act, phase out all fiscal agency
functions provided for in Sections 117, 118, 119, and 120 as well as in other pertinent provisions of this
Act and transfer the same to the Department of Finance.
Section 130. Phase-out of Regulatory Powers Over the Operations of Finance Corporations and
Other Institutions Performing Similar Functions. - The Bangko Sentral shall, within a period of five (5) years
from the effectivity of this Act, phase out its regulatory powers over finance companies without quasi-
banking functions and other institutions performing similar functions as provided in existing laws, the
same to be assumed by the Securities and Exchange Commission.
Section 131. Implementing Details. - The Bangko Sentral shall be made operational by the
performance of the following acts:
(a) the President shall constitute the Monetary Board by appointing the members thereof within sixty (60)
days from the effectivity of this Act; and
(b) the transfer of such assets and liabilities from the Central Bank to the Bangko Sentral as provided in
Section 132 shall be completed within ninety (90) days from the constitution of the Monetary Board.
All incumbent personnel in the Central Bank as of the date of the approval of this Act shall
continue to exercise their duties and functions as personnel of the Bangko Sentral subject to the
provisions of Section 133: Provided, That such personnel in the Central Bank as may be necessary for the
purpose of implementing Section 132 may be assigned by the Bangko Sentral Monetary Board to the
Central Bank.
Section 132. Transfer of Assets and Liabilities. - Upon the effectivity of this Act, three (3)
members of the Monetary Board, which may include the Governor, in representation of the Bangko
Sentral, the Secretary of Finance and the Secretary of Budget and Management in representation of the
National Government, and the Chairmen of the Committees on Banks of the Senate and the House of
Representatives shall determine the assets and liabilities of the Central Bank which may be transferred to
or assumed by the Bangko Sentral. The Committee shall complete its work within ninety (90) days from
the constitution of the Monetary Board submitting a comprehensive report with all its findings and
justification.
The following guidelines shall be strictly observed in the determination of which assets and
liabilities shall be transferred to the Bangko Sentral:
(a) the Monetary Board and the Secretary of Finance shall have primary responsibility for working out
creative monetary and financial solutions to retire the Central Bank liabilities and losses at the least cost
to the Government;
(b) the Bangko Sentral shall remit seventy-five percent (75%) of its net profits to a special deposit account
(sinking fund) until such time as the net liabilities of the Central Bank shall have been liquidated through
generally accepted finance mechanisms such as, but not limited to, write-offs, set-offs, condonation,
collections, reappraisal, revaluation and bond issuance by the National Government, or to the National
Government as dividends;
(c) the assets and liabilities to be transferred shall be limited to an amount that will enable the Bangko
Sentral to perform its responsibilities adequately and operate on a viable basis: Provided, That the assets
shall exceed the liabilities as certified by the Commission on Audit (COA), by an initial amount of Ten
billion pesos (P10,000,000,000);
(d) liabilities to be assumed by the Bangko Sentral shall include liability for notes and coins in circulation
as of the effective date of this Act; and
(e) any asset or liability of the Central Bank not transferred to the Bangko Sentral shall be retained and
administered, disposed of and liquidated by the Central Bank itself which shall continue to exist as the CB
Board of Liquidators only for the purposes provided in this paragraph but not later than twenty-five (25)
years or until such time that liabilities have been liquidated: Provided, That the Bangko Sentral may
financially assist the Central Bank of Liquidators in the liquidation of CB liabilities: Provided, finally, That
upon disposition of said retained assets and liquidation of said retained liabilities, the Central Bank shall be
deemed abolished.
All actions taken by the Bangko Sentral Monetary Board under this section shall be reported to
Congress and the President within thirty (30) days.
Section 133. Mandate to Organize. - The Bangko Sentral shall be organized by the Monetary
Board without being subject to the provisions of Republic Act No. 7430, by adopting if it so desires, an
entirely new staffing pattern on organizational structure to suit the operations of the Bangko Sentral under
this Act. No preferential or priority right shall be given to or enjoyed by any personnel for appointment to
any position in the new staffing pattern, nor shall any personnel be considered as having prior or vested
rights with respect to retention in the Bangko Sentral or in any position which may be created in the new
staffing pattern, even if he should be the incumbent of a similar position prior to organization. The
formulation of the program of organization shall be completed within six (6) months after the effectivity of
this Act, and shall be fully implemented within a period of six (6) months thereafter. Personnel who may
not be retained are deemed separated from the service.
Section 134. Separation Benefits. - Pursuant to Section 15 of this Act, the Monetary Board is
authorized to provide separation incentives, and all those who shall retire or be separated from the service
on account of reorganization under the preceding section shall be entitled to such incentives, which shall
be in addition to all gratuities and benefits to which they may be entitled under existing laws.
Section 135. Repealing Clause. - Except as may be provided for in Section 46 and 132 of this Act,
Republic Act No. 265, as amended, the provisions of any other law, special charters, rule or regulation
issued pursuant to said Republic Act No. 265, as amended, or parts thereof, which may be inconsistent
with the provisions of this Act are hereby repealed. Presidential Decree No. 1792 is likewise repealed.
Section 136. Transfer of Powers. - All powers, duties and functions vested by law in the Central
Bank of the Philippines not inconsistent with the provisions of this Act shall be deemed transferred to the
Bangko Sentral ng Pilipinas. All references to the Central Bank of the Philippines in any law or special
charters shall be deemed to refer to the Bangko Sentral.
Section 137. Separability Clause. - If any provision or section of this Act or the application thereof
to any person or circumstance is held invalid, the other provisions or sections of this Act, and the
application of such provision or section to other persons or circumstances, shall not be affected thereby.
Section 138. Effectivity Clause. - This Act shall take effect fifteen (15) days following its
publication in the Official Gazette or in two (2) national newspapers of general circulation.
Approved: June 14, 1993
The Lawphil Project - Arellano Law Foundation

Pasted from <http://www.lawphil.net/statutes/repacts/ra1993/ra_7653_1993.html>

RA 6770
Sunday, June 06, 2010
3:30 AM

Republic Act No. 6770 November 17, 1989


AN ACT PROVIDING FOR THE FUNCTIONAL AND STRUCTURAL ORGANIZATION OF THE OFFICE OF
THE OMBUDSMAN, AND FOR OTHER PURPOSES
Be it enacted by the Senate and House of Representatives of the Philippines in Congress assembled::
Section 1. Title. — This Act shall be known as "The Ombudsman Act of 1989".
Section 2. Declaration of Policy. — The State shall maintain honesty and integrity in the public service
and take positive and effective measures against graft and corruption.
Public office is a public trust. Public officers and employees must at all times be accountable to the people,
serve them with utmost responsibility, integrity, loyalty, efficiency, act with patriotism and justice and lead
modest lives.
Section 3. Office of the Ombudsman. — The Office of the Ombudsman shall include the Office of the
Overall Deputy, the Office of the Deputy for Luzon, the Office of the Deputy for the Visayas, the Office of
the Deputy for Mindanao, the Office of the Deputy for the Armed Forces, and the Office of the Special
Prosecutor. The President may appoint other Deputies as the necessity for it may arise, as recommended
by the Ombudsman.
Section 4. Appointment. — The Ombudsman and his Deputies, including the Special Prosecutor, shall be
appointed by the President from a list of at least twenty-one (21) nominees prepared by the Judicial and
Bar Council, and from a list of three (3) nominees for each vacancy thereafter, which shall be filled within
three (3) months after it occurs, each of which list shall be published in a newspaper of general circulation.
In the organization of the Office of the Ombudsman for filling up of positions therein, regional, cultural or
ethnic considerations shall be taken into account to the end that the Office shall be as much as possible
representative of the regional, ethnic and cultural make-up of the Filipino nation.
Section 5. Qualifications. — The Ombudsman and his Deputies, including the Special Prosecutor, shall
be natural-born citizens of the Philippines, at least forty (40) years old, of recognized probity and
independence, members of the Philippine Bar, and must not have been candidates for any elective
national or local office in the immediately preceding election whether regular or special. The Ombudsman
must have, for ten (10) years or more, been a judge or engaged in the practice of law in the Philippines.
Section 6. Rank and Salary. — The Ombudsman and his Deputies shall have the same ranks, salaries
and privileges as the Chairman and members, respectively, of a Constitutional Commission. Their salaries
shall not be decreased during their term of office.
The members of the prosecution, investigation and legal staff of the Office of the Ombudsman shall
receive salaries which shall not be less than those given to comparable positions in any office in the
Government.
Section 7. Term of Office. — The Ombudsman and his Deputies, including the Special Prosecutor, shall
serve for a term of seven (7) years without reappointment.
Section 8. Removal; Filling of Vacancy. —
(1) In accordance with the provisions of Article XI of the Constitution, the Ombudsman may be removed
from office on impeachment for, and conviction of, culpable violation of the Constitution, treason, bribery,
graft and corruption, other high crimes, or betrayal of public trust.
(2) A Deputy or the Special Prosecutor, may be removed from office by the President for any of the
grounds provided for the removal of the Ombudsman, and after due process.
(3) In case of vacancy in the Office of the Ombudsman due to death, resignation, removal or permanent
disability of the incumbent Ombudsman, the Overall Deputy shall serve as Acting Ombudsman in a
concurrent capacity until a new Ombudsman shall have been appointed for a full term.n case the Overall
Deputy cannot assume the role of Acting Ombudsman, the President may designate any of the Deputies,
or the Special Prosecutor, as Acting Ombudsman.
(4) In case of temporary absence or disability of the Ombudsman, the Overall Deputy shall perform the
duties of the Ombudsman until the Ombudsman returns or is able to perform his duties.
Section 9. Prohibitions and Disqualifications. — The Ombudsman, his Deputies and the Special
Prosecutor shall not, during their tenure, hold any other office or employment. They shall not, during said
tenure, directly or indirectly practice any other profession, participate in any business, or be financially
interested in any contract with, or in any franchise, or special privilege granted by the Government or any
subdivision, agency or instrumentality thereof, including government-owned or controlled corporations or
their subsidiaries. They shall strictly avoid conflict of interest in the conduct of their office. They shall not
be qualified to run for any office in the election immediately following their cessation from office. They
shall not be allowed to appear or practice before the Ombudsman for two (2) years following their
cessation from office.
No spouse or relative by consanguinity or affinity within the fourth civil degree and no law, business or
professional partner or associate of the Ombudsman, his Deputies or Special Prosecutor within one (1)
year preceding the appointment may appear as counsel or agent on any matter pending before the Office
of the Ombudsman or transact business directly or indirectly therewith.
This disqualification shall apply during the tenure of the official concerned. This disqualification likewise
extends to the law, business or professional firm for the same period.
Section 10. Disclosure of Relationship. — It shall be the duty of the Ombudsman, his Deputies,
including the Special Prosecutor to make under oath, to the best of their knowledge and/or information, a
public disclosure of the identities of, and their relationship with the persons referred to in the preceding
section.
The disclosure shall be filed with the Office of the President and the Office of the Ombudsman before the
appointee assumes office and every year thereafter. The disclosures made pursuant to this section shall
form part of the public records and shall be available to any person or entity upon request.
Section 11. Structural Organization. — The authority and responsibility for the exercise of the
mandate of the Office of the Ombudsman and for the discharge of its powers and functions shall be vested
in the Ombudsman, who shall have supervision and control of the said office.
(1) The Office of the Ombudsman may organize such directorates for administration and allied services as
may be necessary for the effective discharge of its functions. Those appointed as directors or heads shall
have the rank and salary of line bureau directors.
(2) The Office of the Overall Deputy shall oversee and administer the operations of the different offices
under the Office of Ombudsman.t shall likewise perform such other functions and duties assigned to it by
the Ombudsman.
(3) The Office of the Special Prosecutor shall be composed of the Special Prosecutor and his prosecution
staff. The Office of the Special Prosecutor shall be an organic component of the Office of the Ombudsman
and shall be under the supervision and control of the Ombudsman.
(4) The Office of the Special Prosecutor shall, under the supervision and control and upon the authority of
the Ombudsman, have the following powers:
(a) To conduct preliminary investigation and prosecute criminal cases within the jurisdiction of the
Sandiganbayan;
(b) To enter into plea bargaining agreements; and
(c) To perform such other duties assigned to it by the Ombudsman.
The Special Prosecutor shall have the rank and salary of a Deputy Ombudsman.
(5) The position structure and staffing pattern of the Office of the Ombudsman, including the Office of the
Special Prosecutor, shall be approved and prescribed by the Ombudsman. The Ombudsman shall appoint
all officers and employees of the Office of the Ombudsman, including those of the Office of the Special
Prosecutor, in accordance with the Civil Service Law, rules and regulations.
Section 12. Official Stations. — The Ombudsman, the Overall Deputy, the Deputy for Luzon, and the
Deputy for the Armed Forces shall hold office in Metropolitan Manila; the Deputy for the Visayas, in Cebu
City; and the Deputy for Mindanao, in Davao City. The Ombudsman may transfer their stations within their
respective geographical regions, as public interest may require.
Section 13. Mandate. — The Ombudsman and his Deputies, as protectors of the people, shall act
promptly on complaints filed in any form or manner against officers or employees of the Government, or of
any subdivision, agency or instrumentality thereof, including government-owned or controlled
corporations, and enforce their administrative, civil and criminal liability in every case where the evidence
warrants in order to promote efficient service by the Government to the people.
Section 14. Restrictions. — No writ of injunction shall be issued by any court to delay an investigation
being conducted by the Ombudsman under this Act, unless there is a prima facie evidence that the subject
matter of the investigation is outside the jurisdiction of the Office of the Ombudsman.
No court shall hear any appeal or application for remedy against the decision or findings of the
Ombudsman, except the Supreme Court, on pure question of law.
Section 15. Powers, Functions and Duties. — The Office of the Ombudsman shall have the following
powers, functions and duties:
(1) Investigate and prosecute on its own or on complaint by any person, any act or omission of any public
officer or employee, office or agency, when such act or omission appears to be illegal, unjust, improper or
inefficient.t has primary jurisdiction over cases cognizable by the Sandiganbayan and, in the exercise of
this primary jurisdiction, it may take over, at any stage, from any investigatory agency of Government, the
investigation of such cases;
(2) Direct, upon complaint or at its own instance, any officer or employee of the Government, or of any
subdivision, agency or instrumentality thereof, as well as any government-owned or controlled
corporations with original charter, to perform and expedite any act or duty required by law, or to stop,
prevent, and correct any abuse or impropriety in the performance of duties;
(3) Direct the officer concerned to take appropriate action against a public officer or employee at fault or
who neglect to perform an act or discharge a duty required by law, and recommend his removal,
suspension, demotion, fine, censure, or prosecution, and ensure compliance therewith; or enforce its
disciplinary authority as provided in Section 21 of this Act: provided, that the refusal by any officer without
just cause to comply with an order of the Ombudsman to remove, suspend, demote, fine, censure, or
prosecute an officer or employee who is at fault or who neglects to perform an act or discharge a duty
required by law shall be a ground for disciplinary action against said officer;
(4) Direct the officer concerned, in any appropriate case, and subject to such limitations as it may provide
in its rules of procedure, to furnish it with copies of documents relating to contracts or transactions
entered into by his office involving the disbursement or use of public funds or properties, and report any
irregularity to the Commission on Audit for appropriate action;
(5) Request any government agency for assistance and information necessary in the discharge of its
responsibilities, and to examine, if necessary, pertinent records and documents;
(6) Publicize matters covered by its investigation of the matters mentioned in paragraphs (1), (2), (3) and
(4) hereof, when circumstances so warrant and with due prudence: provided, that the Ombudsman under
its rules and regulations may determine what cases may not be made public: provided, further, that any
publicity issued by the Ombudsman shall be balanced, fair and true;
(7) Determine the causes of inefficiency, red tape, mismanagement, fraud, and corruption in the
Government, and make recommendations for their elimination and the observance of high standards of
ethics and efficiency;
(8) Administer oaths, issue subpoena and subpoena duces tecum, and take testimony in any investigation
or inquiry, including the power to examine and have access to bank accounts and records;
(9) Punish for contempt in accordance with the Rules of Court and under the same procedure and with the
same penalties provided therein;
(10) Delegate to the Deputies, or its investigators or representatives such authority or duty as shall ensure
the effective exercise or performance of the powers, functions, and duties herein or hereinafter provided;
(11) Investigate and initiate the proper action for the recovery of ill-gotten and/or unexplained wealth
amassed after February 25, 1986 and the prosecution of the parties involved therein.
The Ombudsman shall give priority to complaints filed against high ranking government officials and/or
those occupying supervisory positions, complaints involving grave offenses as well as complaints involving
large sums of money and/or properties.
Section 16. Applicability. — The provisions of this Act shall apply to all kinds of malfeasance,
misfeasance, and non-feasance that have been committed by any officer or employee as mentioned in
Section 13 hereof, during his tenure of office.
Section 17. Immunities. — In all hearings, inquiries, and proceedings of the Ombudsman, including
preliminary investigations of offenses, nor person subpoenaed to testify as a witness shall be excused from
attending and testifying or from producing books, papers, correspondence, memoranda and/or other
records on the ground that the testimony or evidence, documentary or otherwise, required of him, may
tend to incriminate him or subject him to prosecution: provided, that no person shall be prosecuted
criminally for or on account of any matter concerning which he is compelled, after having claimed the
privilege against self-incrimination, to testify and produce evidence, documentary or otherwise.
Under such terms and conditions as it may determine, taking into account the pertinent provisions of the
Rules of Court, the Ombudsman may grant immunity from criminal prosecution to any person whose
testimony or whose possession and production of documents or other evidence may be necessary to
determine the truth in any hearing, inquiry or proceeding being conducted by the Ombudsman or under its
authority, in the performance or in the furtherance of its constitutional functions and statutory objectives.
The immunity granted under this and the immediately preceding paragraph shall not exempt the witness
from criminal prosecution for perjury or false testimony nor shall he be exempt from demotion or removal
from office.
Any refusal to appear or testify pursuant to the foregoing provisions shall be subject to punishment for
contempt and removal of the immunity from criminal prosecution.
Section 18. Rules of Procedure. —
(1) The Office of the Ombudsman shall promulgate its rules of procedure for the effective exercise or
performance of its powers, functions, and duties.
(2) The rules of procedure shall include a provision whereby the Rules of Court are made suppletory.
(3) The rules shall take effect after fifteen (15) days following the completion of their publication in the
Official Gazette or in three (3) newspapers of general circulation in the Philippines, one of which is printed
in the national language.
Section 19. Administrative Complaints. — The Ombudsman shall act on all complaints relating, but
not limited to acts or omissions which:
(1) Are contrary to law or regulation;
(2) Are unreasonable, unfair, oppressive or discriminatory;
(3) Are inconsistent with the general course of an agency's functions, though in accordance with law;
(4) Proceed from a mistake of law or an arbitrary ascertainment of facts;
(5) Are in the exercise of discretionary powers but for an improper purpose; or
(6) Are otherwise irregular, immoral or devoid of justification.
Section 20. Exceptions. — The Office of the Ombudsman may not conduct the necessary investigation
of any administrative act or omission complained of if it believes that:
(1) The complainant has an adequate remedy in another judicial or quasi-judicial body;
(2) The complaint pertains to a matter outside the jurisdiction of the Office of the Ombudsman;
(3) The complaint is trivial, frivolous, vexatious or made in bad faith;
(4) The complainant has no sufficient personal interest in the subject matter of the grievance; or
(5) The complaint was filed after one (1) year from the occurrence of the act or omission complained of.
Section 21. Official Subject to Disciplinary Authority; Exceptions. — The Office of the Ombudsman
shall have disciplinary authority over all elective and appointive officials of the Government and its
subdivisions, instrumentalities and agencies, including Members of the Cabinet, local government,
government-owned or controlled corporations and their subsidiaries, except over officials who may be
removed only by impeachment or over Members of Congress, and the Judiciary.
Section 22. Investigatory Power. — The Office of the Ombudsman shall have the power to investigate
any serious misconduct in office allegedly committed by officials removable by impeachment, for the
purpose of filing a verified complaint for impeachment, if warranted.
In all cases of conspiracy between an officer or employee of the government and a private person, the
Ombudsman and his Deputies shall have jurisdiction to include such private person in the investigation
and proceed against such private person as the evidence may warrant. The officer or employee and the
private person shall be tried jointly and shall be subject to the same penalties and liabilities.
Section 23. Formal Investigation. —
(1) Administrative investigations conducted by the Office of the Ombudsman shall be in accordance with
its rules of procedure and consistent with due process.
(2) At its option, the Office of the Ombudsman may refer certain complaints to the proper disciplinary
authority for the institution of appropriate administrative proceedings against erring public officers or
employees, which shall be determined within the period prescribed in the civil service law. Any delay
without just cause in acting on any referral made by the Office of the Ombudsman shall be a ground for
administrative action against the officers or employees to whom such referrals are addressed and shall
constitute a graft offense punishable by a fine of not exceeding Five thousand pesos (P5,000.00).
(3) In any investigation under this Act the Ombudsman may: (a) enter and inspect the premises of any
office, agency, commission or tribunal; (b) examine and have access to any book, record, file, document or
paper; and (c) hold private hearings with both the complaining individual and the official concerned.
Section 24. Preventives Suspension. — The Ombudsman or his Deputy may preventively suspend any
officer or employee under his authority pending an investigation, if in his judgment the evidence of guilt is
strong, and (a) the charge against such officer or employee involves dishonesty, oppression or grave
misconduct or neglect in the performance of duty; (b) the charges would warrant removal from the
service; or (c) the respondent's continued stay in office may prejudice the case filed against him.
The preventive suspension shall continue until the case is terminated by the Office of the Ombudsman but
not more than six (6) months, without pay, except when the delay in the disposition of the case by the
Office of the Ombudsman is due to the fault, negligence or petition of the respondent, in which case the
period of such delay shall not be counted in computing the period of suspension herein provided.
Section 25. Penalties. —
(1) In administrative proceedings under Presidential Decree No. 807, the penalties and rules provided
therein shall be applied.
(2) In other administrative proceedings, the penalty ranging from suspension without pay for one (1) year
to dismissal with forfeiture of benefits or a fine ranging from Five thousand pesos (P5,000.00) to twice the
amount malversed, illegally taken or lost, or both at the discretion of the Ombudsman, taking into
consideration circumstances that mitigate or aggravate the liability of the officer or employee found guilty
of the complaint or charges.
Section 26. Inquiries. —
(1) The Office of the Ombudsman shall inquire into acts or omissions of a public officer, employee, office or
agency which, from the reports or complaints it has received, the Ombudsman or his Deputies consider to
be:
(a) contrary to law or regulation;
(b) unreasonable, unfair, oppressive, irregular or inconsistent with the general course of the operations
and functions of a public officer, employee, office or agency;
(c) an error in the application or interpretation of law, rules or regulations, or a gross or palpable error in
the appreciation of facts;
(d) based on improper motives or corrupt considerations;
(e) unclear or inadequately explained when reasons should have been revealed; or
(f) inefficient performed or otherwise objectionable.
(2) The Officer of the Ombudsman shall receive complaints from any source in whatever form concerning
an official act or omission.t shall act on the complaint immediately and if it finds the same entirely
baseless, it shall dismiss the same and inform the complainant of such dismissal citing the reasons
therefor.f it finds a reasonable ground to investigate further, it shall first furnish the respondent public
officer or employee with a summary of the complaint and require him to submit a written answer within
seventy-two (72) hours from receipt thereof.f the answer is found satisfactory, it shall dismiss the case.
(3) When the complaint consists in delay or refusal to perform a duty required by law, or when urgent
action is necessary to protect or preserve the rights of the complainant, the Office of the Ombudsman shall
take steps or measures and issue such orders directing the officer, employee, office or agency concerned
to:
(a) expedite the performance of duty;
(b) cease or desist from the performance of a prejudicial act;
(c) correct the omission;
(d) explain fully the administrative act in question; or
(e) take any other steps as may be necessary under the circumstances to protect and preserve the rights
of the complainant.
(4) Any delay or refusal to comply with the referral or directive of the Ombudsman or any of his Deputies,
shall constitute a ground for administrative disciplinary action against the officer or employee to whom it
was addressed.
Section 27. Effectivity and Finality of Decisions. — (1) All provisionary orders of the Office of the
Ombudsman are immediately effective and executory.
A motion for reconsideration of any order, directive or decision of the Office of the Ombudsman must be
filed within five (5) days after receipt of written notice and shall be entertained only on any of the following
grounds:
(1) New evidence has been discovered which materially affects the order, directive or decision;
(2) Errors of law or irregularities have been committed prejudicial to the interest of the movant. The
motion for reconsideration shall be resolved within three (3) days from filing: provided, that only one
motion for reconsideration shall be entertained.
Findings of fact by the Officer of the Ombudsman when supported by substantial evidence are conclusive.
Any order, directive or decision imposing the penalty of public censure or reprimand, suspension of not
more than one (1) month's salary shall be final and unappealable.
In all administrative disciplinary cases, orders, directives, or decisions of the Office of the Ombudsman
may be appealed to the Supreme Court by filing a petition for certiorari within ten (10) days from receipt of
the written notice of the order, directive or decision or denial of the motion for reconsideration in
accordance with Rule 45 of the Rules of Court.
The above rules may be amended or modified by the Office of the Ombudsman as the interest of justice
may require.
Section 28. Investigation in Municipalities, Cities and Provinces. — The Office of the Ombudsman
may establish offices in municipalities, cities and provinces outside Metropolitan Manila, under the
immediate supervision of the Deputies for Luzon, Visayas and Mindanao, where necessary as determined
by the Ombudsman. The investigation of complaints may be assigned to the regional or sectoral deputy
concerned or to a special investigator who shall proceed in accordance with the rules or special
instructions or directives of the Office of the Ombudsman. Pending investigation the deputy or investigator
may issue orders and provisional remedies which are immediately executory subject to review by the
Ombudsman. Within three (3) days after concluding the investigation, the deputy or investigator shall
transmit, together with the entire records of the case, his report and conclusions to the Office of the
Ombudsman. Within five (5) days after receipt of said report, the Ombudsman shall render the appropriate
order, directive or decision.
Section 29. Change of Unjust Laws. — If the Ombudsman believes that a law or regulation is unfair or
unjust, he shall recommend to the President and to Congress the necessary changes therein or the repeal
thereof.
Section 30. Transmittal/Publication of Decision. — In every case where the Ombudsman has reached
a decision, conclusion or recommendation adverse to a public official or agency, he shall transmit his
decision, conclusion, recommendation or suggestion to the head of the department, agency or
instrumentality, or of the province, city or municipality concerned for such immediate action as may be
necessary. When transmitting his adverse decision, conclusion or recommendation, he shall, unless
excused by the agency or official affected, include the substance of any statement the public agency or
official may have made to him by way of explaining past difficulties with or present rejection of the
Ombudsman's proposals.
Section 31. Designation of Investigators and Prosecutors. — The Ombudsman may utilize the
personnel of his office and/or designate or deputize any fiscal, state prosecutor or lawyer in the
government service to act as special investigator or prosecutor to assist in the investigation and
prosecution of certain cases. Those designated or deputized to assist him herein provided shall be under
his supervision and control.
The Ombudsman and his investigators and prosecutors, whether regular members of his staff or
designated by him as herein provided, shall have authority to administer oaths, to issue subpoena and
subpoena duces tecum, to summon and compel witnesses to appear and testify under oath before them
and/or bring books, documents and other things under their control, and to secure the attendance or
presence of any absent or recalcitrant witness through application before the Sandiganbayan or before
any inferior or superior court having jurisdiction of the place where the witness or evidence is found.
Section 32. Rights and Duties of Witness. —
(1) A person required by the Ombudsman to provide the information shall be paid the same fees and travel
allowances as are extended to witnesses whose attendance has been required in the trial courts. Upon
request of the witness, the Ombudsman shall also furnish him such security for his person and his family
as may be warranted by the circumstances. For this purpose, the Ombudsman may, at its expense, call
upon any police or constabulary unit to provide the said security.
(2) A person who, with or without service or compulsory process, provides oral or documentary information
requested by the Ombudsman shall be accorded the same privileges and immunities as are extended to
witnesses in the courts, and shall likewise be entitled to the assistance of counsel while being questioned.
(3) If a person refuses to respond to the Ombudsman's or his Deputy's subpoena, or refuses to be
examined, or engages in obstructive conduct, the Ombudsman or his Deputy shall issue an order directing
the person to appear before him to show cause why he should not be punished for contempt. The
contempt proceedings shall be conducted pursuant to the provisions of the Rules of Court.
Section 33. Duty to Render Assistance to the Office of the Ombudsman. — Any officer or
employee of any department, bureau or office, subdivision, agency or instrumentality of the Government,
including government-owned or controlled corporations and local governments, when required by the
Ombudsman, his Deputy or the Special Prosecutor shall render assistance to the Office of the Ombudsman.
Section 34. Annual Report. — The Office of the Ombudsman shall render an annual report of its
activities and performance to the President and to Congress to be submitted within thirty (30) days from
the start of the regular session of Congress.
Section 35. Malicious Prosecution. — Any person who, actuated by malice or gross bad faith, files a
completely unwarranted or false complaint against any government official or employee shall be subject to
a penalty of one (1) month and one (1) day to six (6) months imprisonment and a fine not exceeding Five
thousand pesos (P5,000.00).
Section 36. Penalties for Obstruction. — Any person who willfully obstructs or hinders the proper
exercise of the functions of the Office of the Ombudsman or who willfully misleads or attempts to mislead
the Ombudsman, his Deputies and the Special Prosecutor in replying to their inquiries shall be punished by
a fine of not exceeding Five thousand pesos (P5,000.00).
Section 37. Franking Privilege. — All official mail matters and telegrams of the Ombudsman addressed
for delivery within the Philippines shall be received, transmitted, and delivered free of charge: provided,
that such mail matters when addressed to private persons or nongovernment offices shall not exceed one
hundred and twenty (120) grams. All mail matters and telegrams sent through government telegraph
facilities containing complaints to the Office of the Ombudsman shall be transmitted free of charge,
provided that the telegram shall contain not more than one hundred fifty (150) words.
Section 38. Fiscal Autonomy. — The Office of the Ombudsman shall enjoy fiscal autonomy.
Appropriations for the Office of the Ombudsman may not be reduced below the amount appropriated for
the previous years and, after approval, shall be automatically and regularly released.
Section 39. Appropriations. — The appropriation for the Office of the Special Prosecutor in the current
General Appropriations Act is hereby transferred to the Office of the Ombudsman. Thereafter, such sums
as may be necessary shall be included in the annual General Appropriations Act.
Section 40. Separability Clause. — If any provision of this Act is held unconstitutional, other provisions
not affected thereby shall remain valid and binding.
Section 41. Repealing Clause. — All laws, presidential decrees, letters of instructions, executive orders,
rules and regulations insofar as they are inconsistent with this Act, are hereby repealed or amended as the
case may be.
Section 42. Effectivity. — This Act shall take effect after fifteen (15) days following its publication in the
Official Gazette or in three (3) newspapers of general circulation in the Philippines.
Approved: November 17, 1989.

Pasted from <http://www.lawphil.net/statutes/repacts/ra1989/ra_6770_1989.html>

RA 9160
Sunday, June 06, 2010
3:31 AM
Congress of the Philippines
Twelfth Congress
REPUBLIC ACT NO. 9160 September 29, 2001
AN ACT DEFINING THE CRIME OF MONEY LAUNDERING, PROVIDING PENALTIES THEREFOR AND
FOR OTHER PURPOSES
Be it enacted by the Senate and House of Representatives of the Philippines in Congress assembled:
Section 1. Short Title. – This Act shall be known as the "Anti-Money Laundering Act of 2001."
Section 2. Declaration of Policy. – It is hereby declared the policy of the State to protect and preserve the
integrity and confidentiality of bank accounts and to ensure that the Philippines shall not be used as a
money laundering site for the proceeds of any unlawful activity. Consistent with its foreign policy, the
State shall extend cooperation in transnational investigations and prosecutions of persons involved in
money laundering activities whenever committed.
Section 3. Definitions. For purposes of this Act, the following terms are hereby defined as follows:
(a) "Covered Institution" refers to:
(1) banks, non-banks, quasi-banks, trust entities, and all other institutions and their subsidiaries and
affiliates supervised or regulated by the Bangko Sentral ng Pilipinas (BSP);
(2) Insurance companies and all other institutions supervised or regulated by the Insurance Commission;
and
(3) (i) securities dealers, brokers, salesmen, investment houses and other similar entities managing
securities or rendering services as investment agent, advisor, or consultant, (ii) mutual funds, close and
investment companies, common trust funds, pre-need companies and other similar entities, (iii) foreign
exchange corporations, money changers, money payment, remittance, and transfer companies and other
similar entities, and (iv) other entities administering or otherwise dealing in currency, commodities or
financial derivatives based thereon, valuable objects, cash substitutes and other similar monetary
instruments or property supervised or regulated by Securities and Exchange Commission.
(b) "Covered transaction" is a single, series, or combination of transactions involving a total amount in
excess of Four million Philippine pesos (Php4,000,000.00) or an equivalent amount in foreign currency
based on the prevailing exchange rate within five (5) consecutive banking days except those between a
covered institution and a person who, at the time of the transaction was a properly identified client and the
amount is commensurate with the business or financial capacity of the client; or those with an underlying
legal or trade obligation, purpose, origin or economic justification.
It likewise refers to a single, series or combination or pattern of unusually large and complex transactions
in excess of Four million Philippine pesos (Php4,000,000.00) especially cash deposits and investments
having no credible purpose or origin, underlying trade obligation or contract.
(c) "Monetary Instrument" refers to:
(1) coins or currency of legal tender of the Philippines, or of any other country;
(2) drafts, checks and notes;
(3) securities or negotiable instruments, bonds, commercial papers, deposit certificates, trust certificates,
custodial receipts or deposit substitute instruments, trading orders, transaction tickets and confirmations
of sale or investments and money marked instruments; and
(4) other similar instruments where title thereto passes to another by endorsement, assignment or
delivery.
(d) "Offender" refers to any person who commits a money laundering offense.
(e) "Person" refers to any natural or juridical person.
(f) "Proceeds" refers to an amount derived or realized from an unlawful activity.
(g) "Supervising Authority" refers to the appropriate supervisory or regulatory agency, department or
office supervising or regulating the covered institutions enumerated in Section 3(a).
(h) "Transaction" refers to any act establishing any right or obligation or giving rise to any contractual or
legal relationship between the parties thereto. It also includes any movement of funds by any means with
a covered institution.
(l) "Unlawful activity" refers to any act or omission or series or combination thereof involving or having
relation to the following:
(1) Kidnapping for ransom under Article 267 of Act No. 3815, otherwise known as the Revised Penal Code,
as amended;
(2) Sections 3, 4, 5, 7, 8 and 9 of Article Two of Republic Act No. 6425, as amended, otherwise known as
the Dangerous Drugs Act of 1972;
(3) Section 3 paragraphs B, C, E, G, H and I of Republic Act No. 3019, as amended; otherwise known as the
Anti-Graft and Corrupt Practices Act;
(4) Plunder under Republic Act No. 7080, as amended;
(5) Robbery and extortion under Articles 294, 295, 296, 299, 300, 301 and 302 of the Revised Penal Code,
as amended;
(6) Jueteng and Masiao punished as illegal gambling under Presidential Decree No. 1602;
(7) Piracy on the high seas under the Revised Penal Code, as amended and Presidential Decree No. 532;
(8) Qualified theft under, Article 310 of the Revised Penal Code, as amended;
(9) Swindling under Article 315 of the Revised Penal Code, as amended;
(10) Smuggling under Republic Act Nos. 455 and 1937;
(11) Violations under Republic Act No. 8792, otherwise known as the Electronic Commerce Act of 2000;
(12) Hijacking and other violations under Republic Act No. 6235; destructive arson and murder, as defined
under the Revised Penal Code, as amended, including those perpetrated by terrorists against non-
combatant persons and similar targets;
(13) Fraudulent practices and other violations under Republic Act No. 8799, otherwise known as the
Securities Regulation Code of 2000;
(14) Felonies or offenses of a similar nature that are punishable under the penal laws of other countries.
Section 4. Money Laundering Offense. – Money laundering is a crime whereby the proceeds of an unlawful
activity are transacted, thereby making them appear to have originated from legitimate sources. It is
committed by the following:
(a) Any person knowing that any monetary instrument or property represents, involves, or relates to the
proceeds of any unlawful activity, transacts or attempts to transact said monetary instrument or property.
(b) Any person knowing that any monetary instrument or property involves the proceeds of any unlawful
activity, performs or fails to perform any act as a result of which he facilitates the offense of money
laundering referred to in paragraph (a) above.
(c) Any person knowing that any monetary instrument or property is required under this Act to be
disclosed and filed with the Anti-Money Laundering Council (AMLC), fails to do so.
Section 5. Jurisdiction of Money Laundering Cases. – The regional trial courts shall have jurisdiction to try
all cases on money laundering. Those committed by public officers and private persons who are in
conspiracy with such public officers shall be under the jurisdiction of the Sandiganbayan.
Section 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 proceedin