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Fabian, Melissa S. -JD3

BANKING
4. Bank Powers and Liabilities

Aquino Chapter 26

A. Corporate Powers
B. Banking and Incidental Powers

5. Other Bank Functions

Ignacio pp 189-191
Aquino Chapter 25 and 28

6. Nature of Bank Funds and Bank Deposits

Ignacio pp78-86
Aquino Chapter 22

PEOPLE vs PUIG and PORRAS (2008)

112 Qualified theft cases against PUIG (Cashier) and PORRAS (Bookkeeper) of
Rural Bank of Pototan

RTC: no probable cause and insufficiency of the informations

missing element: taking without the consent of the OWNERS
it is the DEPOSITORs-CLIENTs, and NOT THE BANK who are the owners of
the money allegedly taken by respondents
Informations bereft of the phrase dependence, guardianship or vigilance
between the respondents and the offended party that would have created a
high degree of confidence between them w/c the respondents could have
abused
DISMISSED the cases

RULING:
The BANK acquires OWNERSHIP of the money deposited by its clients; and the
employees of the Bank, who are entrusted with the possession of money of
the Bank due to the confidence reposed in them, occupy positions of
confidence.
Creditor-debtor relationship (Art 1953, Civil Code)
Simple Loan (Art 1980, Civil Code)

The court has consistently considered the allegations in the Information that
such employees acted with grave abuse of confidence, to the
damage and prejudice of the Bank, w/o particularly referring to the
owner of the money deposits as SUFFICIENT to make out a case of
QUALIFIED THEFT.

RTC DECISION REVERSED AND SET ASIDE

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GUINGONA JR vs THE CITY FISCGUINGONA JR vs THE CITY FISCAL OF
MANILA (1984)

Petitioners (GUINGONA, MARTIN and SANTOS) were charged by DAVID with

ESTAFA and VIOLATION of Central Bank Circular 364
DAVID invested with NATIONAL SAVINGS AND LOAN ASSOCIATION (NSLA)
P1,145,546.20
MARCH 21, 1981: NSLA was placed under RECEIVERSHIP by the Central Bank
JUNE 17. 1981: GUINGONA and MARTIN assumed the obligation of the Bank to
DAVID by executing a joint PN (P1,336,614 and $75,000)
JULY 17, 1981, G and M agreed to DIVIDE the said indebtedness

RULING
When DAVID invested his money on savings deposits with the BANK -->
CONTRACT OF SIMPLE LOAN, and not a contract of deposit
Creditor-debtor relationship
The ownership of the amount deposited was transmitted to the Bank.
While the BANK has the obligation to return the amount deposited, it has
NO OBLIGATION to return the SAME money that was deposited
The failure of the BANK to return the amount deposited will not
constitute ESTAFA through misappropriation, but it will only GIVE
RISE to CIVIL LIABILITY
In order that a person can be convicted, it must be proven that he has
the obligation to deliver or return the SAME money, goods or
personal property that he received. The BANK had no such
obligation to return the same money
the failure of the bank or petitioners to pay the deposits of DAVID would not
constitute a breach of trust but would merely be a failure to pay the obligation as
a debtor.

On the issue of Violation of Sec 3 of Central Bank Circular No. 364 by

accepting foreign currencyy deposit WITHOUT AUTHORITY from the Central
bank ---> the US dollars intended by DAVID for deposit were all CONVERTED
into PH currency before acceptance and deposit into NSLA.

BPI FAMILY BANK vs FRANCO and CA (2007)

Aug 15, 1989, TEVESTECO opened a SA and CA with BFB.

Aug 25, First Metro Investment Corp (FMIC) opened a TD (P100M)
Aug 31: FRANCO opened 3 accounts -- CA (P500K), SA (p500K) and TD (p1M)
total: P2Million
Traceable to a check issued by TEVESTECO allegedly in consideration of
FRANCOS introduction to TEVES, who was looking for a conduit bank to
facilitate TEVESTECOS business transactions to SEBASTIAN (BM)
P2Million was part of the P80M DEBITED by BFB from FMICs TD
and CREDITED to TEVESTECOS CA pursuant to ADA (later on found to be
forged)
TEVESTECOS had already effected SEVERAL WITHDRAWALS
P37,455,410.54 (including P2M)
BFB debited FRANCOs SA and CA for the amounts remaining therein
2 checks drawn by Franco were DISHONORED --> under garnishment
The checks were ISSUED and PRESENTED FOR PAYMENT at BFB
PRIOR to Francos receipt that his accounts were under
garnishment

RULING
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BFB cannot unilaterally freeze FRANCOs accounts and preclude him from
withdrawing his deposits
Franco is NOT entitled to unearned interest on the TD as well as moral and
exemplary damages

Who has a better right to the deposit? FRANCO

BFB ultimately acquires ownership of Francos deposits, but such ownership is
coupled with a corresponding obligation to pay him an equal amount ON
DEMAND. (right as a creditor)
Creditor-debtor relationship

Having failed to detect the forgery in the ADA, BFB cannot now shift liability
thereon to Franco and the other payees of the checks
It was PREMATURE for BFB to freeze Francos account without even awaiting
service of the RTCs notice of Garnishment on Franco.

FAR-EAST BANK vs CHANTE (2013)

CHAN was a CA depositor of the BANK, the latter issued him Far East Card
A complaint was brought by the Bank to recover from Chan the amount
fraudulently withdrawn from his CA (P967,000)
May 4-5, 1992 (8:52pm-4:06am) - a series of 242 transaction at
P4,000/withdrawal
At PNB MEGALINK AT Facility, Manila Pavilion Hotel
BOA offline status
CA balance: P198,511.70 only
Max withdrawal limit: P50k/day
No record of the transactions
There was an ERROR in the bank computer system (system bug) and
that Chan took advantage of it
CHAN denied liability --> he was actually HOME

RULING

The BANK did not present preponderant evidence proving CHANs liability for
the supposedly fraudulent withdrawals.

RIVERA vs PEOPLES BANK AND TRUST (1942)

Validity of the Survivorship Agreement between a master (EDGAR STEPHENSON)

and a servant (ANA RIVERA)
EDGAR opened an account in his name which was later transferred to the name of
Edgar Stephenson and/or Ana Rivera.
Upon Edgars death, the Bank refused to pay her upon advice of its attorneys
(doubtful validity)

RTC:
VIEW 1 (Inter vivos) --> mere power of attorney authorizing Rivera to withdraw,
which power terminated upon Edgars death
VIEW 2 (mortis causa) --> not having been executed with the formalities (no legal
effect)

Rivera served her master for about 19years without actually receiving salary
from him.

RULING:
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JOINT OWNERS
The SURVIVORSHIP AGREEMENT is prima facie VALID.
An ALEATORY CONTRACT, supported by law a lawful consideration -- the
mutual agreement of the joint depositors permitting either of them to
withdraw the whole deposit during their lifetime, and transferring the balance
to the survivor upon death of one of them.

The AGREEMENT is per se NOT contrary to law, its operation or effect MAY be
violative of the law:
1. mere cloak to hide an inofficious donation
2. To transfer property in fraud of creditors
3. To defeat the legitime of a forced heir

VITUG vs CA and ROWENA FAUSTINO-CORONA (1990)

Earlier suit --> probate of the wills of the late DOLORES VITUG
ROWENA - executrix; NENITA - co-special administrator

ROMARICO VITUG filed a MOTION asking for authority TO SELL CERTAIN

SHARES OF STOCK and REAL PROPERTIES belonging to the estate to cover his
allegedly his ADVANCES (P667,731.66), w/c he claimed as PERSONAL FUNDS
--> spent for the payment of estate tax
He WITHDREW the sums from SAVINGS ACCOUNT of the BANK OF AMERICA
(Makati)

ROWENA opposed -> the funds withdrawn were CONJUGAL partnership properties
and part of the estate ---> no ground for reimbursement
ROMARICO ---> funds are his EXCLUSIVE property - acquired through a
SURVIVORSHIP AGREEMENT executed with his wife, DOLORES

RTC: upheld VALIDITY of the agreement

CA: agreement constitutes a conveyance MORTIS CAUSA w/c DID NOT COMPLY
with formalities of a valid will (Art 805 CC); assuming it is a donation inter vivos
--> prohibited donation

ROMARICO: in Rivera vs Peoples bank and trust and Macam vs Gatmaitan

---> SC sustained the validity of survivorship agreement --> as aleatory
contracts

RULING:

The conveyance is NOT one of mortis causa

The monies subject of SA were in the nature of CONJUGAL FUNDS
NO SHOWING that the funds exclusively belonged to one party -->
PRESUMED to be CONJUGAL (acquired during the existence of the marital
relations)
Survivorship agreement is NOT a donation inter vivos --> it was to take effect
AFTER the death of one party
Survivorship agreement NOT a donation between the spouses ---> NO
conveyance of a spouses own properties to the other
The agreement involves NO modification petition of the conjugal partnership
and it is NO cloakto circumvent the law on conjugal property relations.
The spouses are not prohibited by law to invest conjugal property by
way of a joint and several account.
When the spouses Vitug opened SA, they merely put what rightfully
belonged to them in a money-making venture. They did not dispose it in
favor of the other (not prohibited donation)
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The contract imposed a MERE OBLIGATION WITH A TERM (death) --> it is
permitted by the Civil Code.

ROMARICO has acquired upon the death of his wife a VESTED RIGHT over the
amounts under the SA of the Bank.
Being the SEPARATE property of ROMARICO, it forms no more part of
the estate of the deceased.

CA DECISION SET ASIDE.

7. Stipulation on Interests and Grant of Loans

Aquino Chapter 24

NEW SAMPAGUITA BUILDER CONST. Vs PNB (2004)

MANILA BANKING CORP vs TEODORO (1989)

APRIL 25, 1966: ANASTACIO JR (Son), GRACE (DEFENDANTS) and ANASTACIO SR

(Father) ., jointly and severally executed in favor of MBC PN#1 (P10,420) --> failed
to pay
MAY 3, 1966: Father and Son executed PN#2(P8,000) and PN#3 (P1,000).
JANUARY 24, 1964: Son executed in favor of MBC a DEED OF ASSIGNMENT OF
RECEIVABLES from the EMERGENCY EMPLOYMENT ADMIN (EEA) ---> that NON-
PAYMENT of the PNs was due to the failure of EEA to pay defendants after the
latter had complied with their contractual obligations

ISSUES:
WON the ASSIGNMENT has the effect of PAYMENT of all the loans

RULING:

DEED OF ASSIGNMENT OF RECEIVABLES did NOT transfer the ownership

of receivables to the BANK and release Defendants from their loans
It was intended as COLLATERAL SECURITY for the bank loans, as a
CONTINUING GUARANTY for whatever sums would be owing by defendants to
the BANK.

NOT A SALE --> not have been constituted by virtue of a dation in payment
At the time the DEED was executed, the loans were NON-
EXISTENT yet

Peoples Bank &Trust vs Odom: An assignment to guarantee an obligation is

in effect a MORTGAGE and not a absolute conveyance of title which confers
ownership to the assignee

The obligation of defendants under the PNs not having been released by
the assignment of receivables, they remain as the PRINCIPAL DEBTORS
of the bank rather than mere guarantors. The Deed merely GUARANTEES
said obligations. The guarantor cannot be compelled to pay the creditor unless
the latter has exhausted all the property of the debtor.

8. TRUTH IN LENDING ACT (RA 3765)

Ignacio, pp 192-199
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DBP vs ARCILLA, JR (2005)

Arcilla Jr. was employed by DBP

He decided to avail a loan under the Individual Housing Project (IHP) of the
Bank
DBP and Arcilla executed a Deed of Conditional Sale over the land and the
house to be constructed thereon, in the amount of P160K
TERMS:
1. 25 YEARS, MA= P1417.91, 9%P.A, salary deduction
2. DBP to transfer title upon payment of the loan
3. If Arcilla availed of optional retirement, he could elect to continue paying
the loan, provided the loan would be converted into a regular estate loan
account

Arcilla opted to RESIGN from the bank, the bank had informed him that the
BALANCE of his loan account had been converted to a regular housing loan
Arcilla signed 3 PNs (P186,364.15) - with the reservation by the DBP of its
right to unilaterally increase the rate of interest on the loans and advances
An additional cash advance (P32k) was also granted to Arcilla
Arcilla failed to pay the loan account, advances, penallty charges and interest
(P241,940.93)
DBP RESCINDED the deed
Acrilla filed a complaint against DBP -- for failure to furnish him with the
DISCLOSURE STATEMENT required by RA 3765 and CB 158 prior to the
execution of the DEED and the conversion of his loan account into a regular
housing loan
DBP alleged that it substantially complied with RA 3765 because the details
required were particularyly disclosed in the PNs, Deed ad the required notices
sent to Arcilla. Nevertheless, its failure to comply strictly with RA3765 did not
affect the validity and enforceability of the contracts

RTC - in favor of Arcilla

CA - reverse

Compliance with disclosure requirement

DBP failed to disclose the requisite information in the disclosure statement form
authorized by the Central Bank, but did so in the loan transaction documents
between it and Arcilla.
There is no evidence on record that DBP sought to collect or collected any
interest, penalty, charges from Arcilla other than those disclosed in the said
deed/documents

Aricllas claim of not having been furnished the data/information was but an
afterthought. He filed his complaint 4 years after the notarial rescission
That Arcilla had been sufficiently informed of the terms and the requisites
charges ---
- the required information were readily available in the 3 PNs he executed
- considering his education and training, he was duly informed of the
necessary charges and fully understood their implications and effects (he
was a lawyer)

Th case was remanded to the trial court to resolve the counterclaim of DBP for
possession of property

9. SECURITY REQUIREMENTS
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Ignacio, pp168-188
Aquino, Chapter 24

A. Ratio of Net Worth to Total Risk Assets

B. Single Borrowers Limit
C. Restrictions on Bank exposure to DOSRI

GO vs BSP (2009)

Go, a Director and the President and CEO of Orient Bank was charged in an
Information with violation of Sec 83 of RA 337 for being a borrower of deposits or
funds of Orient Bank and/or acting as a guarantor, indorser or obligor for the
banks loan to New Zealand Acounts loan (P2,754,905,857.00)

Go moved to quash the information stating that

(1) the use of the word and/or meant that he was charged for being either a
borrower or a guarantor or for being both.
The charge was not only vague, but also did not constitute an offense
That Sec 83 of RA337 penalized only directors and officers of banking
institutions who acted either as borrower or as a guarantor, but not both.
(2) the information failed to state that his alleged act of borrowing and/or
guarantying was not among the exceptions provided for in the law
That 2nd paragraph of sec 83 allowed banks to extend credit accommodations
to their directors, officers and stockholders provided it is limited to an amount
equivalent to the respective outstanding deposits and book value of the paid-
in capital contribution

The contentions of GO are untenable

(1) The language of the law is broad enough to encompass either the act of
borrowing or guarantying, or both.

The essence of the crime is becoming an obligor of the bank without securing
the necessary written approval of the majority of the Banks director.

Under Sec 83 of RA337, the following elements must be present to

constitute a violation of its 1st paragraph:
1. the offender is a director or officer of any banking institution;
2. The offender, either directlt or indrectly, for himself or as a representative
or agent of another, performs any of the acts: (various modes of
committing the offense)
a. He borrows any of the deopsits or funds of such bank;
b. He becomes a guarantor, indorser or surety for loans from such bank to others,
or
c. He becomes in any manner an obligor for money borrowed from bank or loaned
by it (catch-all provision);
3. the offender has performed any of such acts without the written approval of the
majority of the directors of the bank, excluding the offender, as the director
concerned.

To make a distinction between the act of borrowing and guarantying

is therefore unnecessary because in either situation, the director or
officer concerned becomes an obligor of the bank against whom the
obligation is juridically demandable

(2) the 2nd paragraph of Sec 83 does not provide for an exception to a violation
of the 1st paragraph thereof, nor does it constitute as an element of the
offense charged
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Sec 83 imposes THREE RESTRICTIONS:

A. APPROVAL REQUIREMENT
Refers to the written approval of the majority of the banks BOD required
before a bank directors and officers can be an obligor for money borrowed or
loaned by the bank.
Failure to secure the approval renders the banks directors and officer
concerned liable for prosecution

B. REPORTORIAL REQUIREMENT
Mandates that any such approval shall be entered upon the records of the
Corporation, and a copy be transmitted to the appropriate supervising
department.
Failure by the Bank to do so subjects it quo warranto proceedings

C. CEILING REQUIREMENT
Regulates the amount of credit accommodations that bank may extend to
their directors or officers by limiting these to an amount equivalent to the
respective outstanding deposits and book value of the paid-in capital
contribution
This requirement is directed at the Bank

A prosecution for violation of the 1st paragraph of Sec 83 does not require an
allegation that the loan exceeded the legal limit

Compliance with the ceiling requirement does not dispense with the approval
requirement

Evidently, the failure to observe the 3 requirements paves the way for the
prosecution of 3 different offenses, each with its own sets of elements.

SORIANO vs PEOPLE (2010)

A bank officer violates the DOSRI [2] law when he acquires bank funds for his personal benefit, even if such
acquisition was facilitated by a fraudulent loan application. Directors, officers, stockholders, and their related
interests cannot be allowed to interpose the fraudulent nature of the loan as a defense to escape culpability for
their circumvention of Section 83 of Republic Act (RA) No. 337.

Soriano, who was then the President of Rural Bank San Miguel, Bulacan was
charged with:
(1) estafa through falsification of commercial documents
(2) Violations of Sec 83 of RA337, the prohibition against DOSRI loans
Soriano, in his capacity of President, ordered, facilitated and received the
proceeds of an P8M Loan purportedly in the name of spouses Enrico and
Amalia Carlos, which loan had never been authorized by RBSMs BOD and no
report thereof was submitted to the Department of Rural Banks, Supervision
and Examination Sector of the BSP.

Soriano moved to quash these informations on two grounds:

(1) that the court had no jurisdiction over the offense charged;
defective for failure to comply with the mandatory requirements of the Rules
of Court, such as the statement of address of petitioner and oath and
subscription.

(2) that the facts charged do not constitute an offense.

Estafa is inherently incompatible with the violation of DOSRI law:
A violation of the DOSRI law requires the offender to obtain a
loan from his bank, without complying with procedural,
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reportorial, or ceiling requirements.

Estafa, on the other hand, requires the offender to misappropriate or

convert something that he holds in trust, or on commission, or for
administration, or under any other obligation involving the duty to return
the same.

He theorized that the characterization of possession is different in the two offenses. If

petitioner acquired the loan as DOSRI, he owned the loaned money and therefore,
cannot misappropriate or convert it as contemplated in the offense of estafa. Conversely,
if petitioner committed estafa, then he merely held the money in trust for someone else
and therefore, did not acquire a loan in violation of DOSRI rules.

RTC- the two offenses were separate and distinct violations, hence the prosecution of
one did not pose a bar to the other
CA -found no merit in petitioner's argument that the violation of the DOSRI law and the commission
of estafa thru falsification of commercial documents are inherently inconsistent with each other. It
explained that the test in considering a motion to quash on the ground that the facts charged do
not constitute an offense, is whether the facts alleged, when hypothetically admitted, constitute the
elements of the offense charged. The appellate court held that this test was sufficiently met
because the allegations in the assailed informations, when hypothetically admitted, clearly
constitute the elements of Estafa thru Falsification of Commercial Documents and Violation of
DOSRI law

RULING: the informations filed against petitioner do not negate each other

ESTAFA
The bank money (P8M) which came to the possession of petitioner was money
held in trust or administration by him for the bank, in his fiduciary capacity
as the President of said bank.[47] It is not accurate to say that petitioner
became the owner of the P8 million because it was the proceeds of a loan. That
would have been correct if the bank knowingly extended the loan to
petitioner himself. But that is not the case here. According to the information
for estafa, the loan was supposed to be for another person, a certain Enrico
Carlos; petitioner, through falsification, made it appear that said Enrico Carlos
applied for the loan when in fact he (Enrico Carlos) did not. Through such
fraudulent device, petitioner obtained the loan proceeds and converted the
same. Under these circumstances, Soriano did not became the legal owner of
the P8 million and remained the banks fiduciary with respect to that money, which
makes it capable of misappropriation or conversion in his hands.

VIOLATION OF DOSRI LAW

The prohibition in Section 83 is broad enough to cover various modes of
borrowing.[48] It covers loans by a bank director or officer (like herein petitioner)
which are made either: (1) directly, (2) indirectly, (3) for himself, (4) or as the
representative or agent of others. It applies even if the director or officer is a mere
guarantor, indorser or surety for someone else's loan or is in any manner an
obligor for money borrowed from the bank or loaned by it. The covered
transactions are prohibited unless the approval, reportorial and ceiling
requirements under Section 83 are complied with. The prohibition is intended to
protect the public, especially the depositors, [49] from the overborrowing of bank
funds by bank officers, directors, stockholders and related interests, as such
overborrowing may lead to bank failures.[50] It has been said that banking
institutions are not created for the benefit of the directors [or officers]. While
directors have great powers as directors, they have no special privileges as
individuals. They cannot use the assets of the bank for their own benefit except as
permitted by law. Stringent restrictions are placed about them so that when
acting both for the bank and for one of themselves at the same time, they must
keep within certain prescribed lines regarded by the legislature as essential to
safety in the banking business.[51]
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A direct borrowing is obviously one that is made in the name of the DOSRI
himself or where the DOSRI is a named party, while an indirect borrowing
includes one that is made by a third party, but the DOSRI has a stake in the
transaction.[52] The latter type indirect borrowing applies here.

The broad interpretation of the prohibition in Section 83 is justified by the fact

that it even expressly covers loans to third parties where the third parties are
aware of the transaction (such as principals represented by the DOSRI), and
where the DOSRIs interest does not appear to be beneficial but even burdensome
(such as in cases when the DOSRI acts as a mere guarantor or surety). If the law
finds it necessary to protect the bank and the banking system in such situations,
it will surely be illogical for it to exclude a case like this where the DOSRI
acted for his own benefit, using the name of an unsuspecting person. A contrary
interpretation will effectively allow a DOSRI to use dummies to circumvent the
requirements of the law.

The charge against Soriano is an INDRECT BORROWING that falls within the DOSRI
Rule.

AGAN vs PIATCO (2003)

Some time in 1993, six business leaders, explored the possibility of investing in
the new NAIA airport terminal, so they formed Asians Emerging Dragon Corp.

Then, AEDC submitted an unsolicited proposal to the Government through the

DOTC/MIAA for the development of NAIA International Passenger Terminal III (NAIA
IPT III) under a build-operate-and-transfer arrangement.

DOTC constituted the Prequalification Bids and Awards Committee (PBAC) for the
implementation of the project and submitted with its endorsement proposal to the
NEDA, which approved the project.

DOTC/MIAA caused the publication in two daily newspapers of an invitation for

competitive or comparative proposals on AEDCs unsolicited proposal

The consortium composed of Peoples Air Cargo and Warehousing Co., Inc.
(Paircargo), Phil. Air and Grounds Services, Inc. (PAGS) and Security Bank Corp.
(Security Bank) (collectively, Paircargo Consortium) submitted their competitive
proposal to the PBAC. PBAC awarded the project to Paircargo Consortium.
Because of that, it was incorporated into Philippine International Airport Terminals
Co., Inc.

AEDC subsequently protested the alleged undue preference given to PIATCO and
reiterated its objections as regards the prequalification of PIATCO.

Is PIATCO a qualified bidder?

AEDC argue that the Paircargo Consortium, PIATCOs predecessor, was not a duly
pre-qualified bidder on the unsolicited proposal submitted by AEDC as the
Paircargo Consortium failed to meet the financial capability required under the
BOT Law and the Bid Documents. They allege that in computing the ability of the
Paircargo Consortium to meet the minimum equity requirements for the project,
the entire net worth of Security Bank, a member of the consortium,
should not be considered.

PIATCO relies, on the other hand, on the strength of the Memorandum issued by
the DOTC Undersecretary Cal stating that the Paircargo Consortium is found to
have a combined net worth of P3,900,000,000.00, sufficient to meet the equity
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requirements of the project. The said Memorandum was in response to a letter

from Mr. Antonio Henson of AEDC to President Fidel V. Ramos questioning the
financial capability of the Paircargo Consortium on the ground that it does not
have the financial resources to put up the required minimum equity
of P2,700,000,000.00. This contention is based on the restriction under R.A. No.
337, as amended or the General Banking Act that a commercial bank cannot
invest in any single enterprise in an amount more than 15% of its net worth. In
the said Memorandum, Undersecretary Cal opined:

The Bid Documents, as clarified through Bid Bulletin Nos. 3 and 5, require that
financial capability will be evaluated based on total financial capability of all the
member companies of the [Paircargo] Consortium. In this connection, the
Challenger was found to have a combined net worth of P3,926,421,242.00 that
could support a project costing approximately P13 Billion.

It is not a requirement that the net worth must be unrestricted. To impose that as
a requirement now will be nothing less than unfair.

The financial statement or the net worth is not the sole basis in establishing
financial capability. As stated in Bid Bulletin No. 3, financial capability may also be
established by testimonial letters issued by reputable banks. The Challenger has
complied with this requirement.

Under the BOT Law, in case of a build-operate-and-transfer arrangement, the contract shall
be awarded to the bidder who, having satisfied the minimum financial, technical,
organizational and legal standards required by the law, has submitted the lowest bid
and most favorable terms of the project.[24] Further, the 1994 Implementing Rules and
Regulations of the BOT Law provide:

Accordingly, the Paircargo Consortium or any challenger to the unsolicited proposal of

AEDC has to show that it possesses the requisite financial capability to undertake the
project in the minimum amount of 30% of the project cost through (i) proof of the
ability to provide a minimum amount of equity to the project, and (ii) a letter testimonial
from reputable banks attesting that the project proponent or members of the consortium
are banking with them, that they are in good financial standing, and that they have
adequate resources.

As the minimum project cost was estimated to be US$350,000,000.00 or

roughly P9,183,650,000.00,[25] the Paircargo Consortium had to show to the satisfaction of
the PBAC that it had the ability to provide the minimum equity for the project in the
amount of at least P2,755,095,000.00.

Paircargos Audited Financial Statements as of 1993 and 1994 indicated that it had a net
worth of P2,783,592.00 and P3,123,515.00 respectively.[26] PAGS Audited Financial
Statements as of 1995 indicate that it has approximately P26,735,700.00 to invest as its
equity for the project.[27] Security Banks Audited Financial Statements as of 1995 show
that it has a net worth equivalent to its capital funds in the amount
of P3,523,504,377.00.[28]

We agree with public respondents that with respect to Security Bank,

the entire amount of its net worth could not be invested in a single
undertaking or enterprise, whether allied or non-allied in accordance
with the provisions of R.A. No. 337, as amended or the General Banking
Act:

Sec. 21-B. The provisions in this or in any other Act to the contrary notwithstanding, the Monetary
Board, whenever it shall deem appropriate and necessary to further national development objectives
or support national priority projects, may authorize a commercial bank, a bank authorized to
provide commercial banking services, as well as a government-owned and controlled bank,
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to operate under an expanded commercial banking authority and by virtue thereof

exercise, in addition to powers authorized for commercial banks, the powers of
an Investment House as provided in Presidential Decree No. 129, invest in the equity of a
non-allied undertaking, or own a majority or all of the equity in a financial intermediary other than
a commercial bank or a bank authorized to providecommercial banking services: Provided, That (a)
the total investment in equities shall not exceed fifty percent (50%) of the net worth of the bank; (b)
the equity investment in any one enterprise whether allied or non-allied shall not exceed
fifteen percent (15%) of the net worth of the bank; (c) the equity investment of the bank, or of
its wholly or majority-owned subsidiary, in a single non-allied undertaking shall not exceed thirty-five
percent (35%) of the total equity in the enterprise nor shall it exceed thirty-five percent (35%) of the
voting stock in that enterprise; and (d) the equity investment inother banks shall be deducted from
the investing bank's net worth for purposes of computing the prescribed ratio of net worth to risk
assets

Further, the 1993 Manual of Regulations for Banks provides:

SECTION X383. Other Limitations and Restrictions. The following limitations and restrictions shall also
apply regarding equity investments of banks.

a. In any single enterprise. The equity investments of banks in any single enterprise shall not exceed
at any time fifteen percent (15%) of the net worth of the investing bank as defined in Sec. X106 and
Subsec. X121.5.

Thus, the maximum amount that Security Bank could validly invest in the
Paircargo Consortium is only P528,525,656.55, representing 15% of its entire net
worth. The total net worth therefore of the Paircargo Consortium, after considering
the maximum amounts that may be validly invested by each of its members
is P558,384,871.55 or only 6.08% of the project cost,[29] an amount substantially less
than the prescribed minimum equity investment required for the project in the amount
of P2,755,095,000.00 or 30% of the project cost.

The PBAC has determined that any prospective bidder for the construction, operation and
maintenance of the NAIA IPT III project should prove that it has the ability to provide equity
in the minimum amount of 30% of the project cost, in accordance with the 70:30 debt-to-
equity ratio prescribed in the Bid Documents. Thus, in the case of Paircargo Consortium,
the PBAC should determine the maximum amounts that each member of the consortium
may commit for the construction, operation and maintenance of the NAIA IPT III project at
the time of pre-qualification. With respect to Security Bank, the maximum
amount which may be invested by it would only be 15% of its net worth in view of the
restrictions imposed by the General Banking Act. Disregarding the investment ceilings
provided by applicable law would not result in a proper evaluation of whether or not a
bidder is pre-qualified to undertake the project as for all intents and purposes, such ceiling
or legal restriction determines the true maximum amount which a bidder may invest in
the project.

The basic rule in public bidding is that bids should be evaluated based on the required
documents submitted before and not after the opening of bids. Otherwise, the foundation
of a fair and competitive public bidding would be defeated. Strict observance of the
rules, regulations, and guidelines of the bidding process is the only safeguard to
a fair, honest and competitive public bidding.[30]

Thus, if the maximum amount of equity that a bidder may invest in the project at the
time the bids are submitted falls short of the minimum amounts required to be put up
by the bidder, said bidder should be properly disqualified. Considering that at the pre-
qualification stage, the maximum amounts which the Paircargo Consortium may invest in
the project fell short of the minimum amounts prescribed by the PBAC, we hold that
Paircargo Consortium was not a qualified bidder.

Thus the award of the contract by the PBAC to the Paircargo Consortium, a
disqualified bidder, is null and void.

II. UNCLAIMED BALANCES LAW (RA 3936)

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Ignacio p.200-208
Aquino, Chapter 22

RCBC vs HI-TRI DEVELOPMENT CORP (2012)

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

Due to some obstacles, the sale did not push through; so Spouses Bakunawa
rescinded the sale and offered to return to Millan her down. However, Millan
refused to accept back the down payment.

Consequently, the Spouses Bakunawa, through their company, Hi-Tri took out on
October 28, 1991, a Managers Check from RCBC-Ermita in the amount
of P 1,019,514.29, payable to Millans company Rosmil and used this as one of
their basis for a complaint against Millan.

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

On January 31, 2003, without the knowledge of Spouses Bakunawa, RCBC

reported the "P 1,019,514.29-credit existing in favor of Rosmil to the Bureau of
Treasury as among its "unclaimed balances" as of January 31, 2003. On December
14, 2006, the Republic, through the Office of the Solicitor General (OSG), filed with
the RTC the action for Escheat.

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

The trial court ordered the deposit of the escheated balances with the Treasurer
and credited in favor of the Republic. Respondents claim that they were not able
to participate in the trial, as they were not informed of the ongoing escheat
proceedings.
CA reversed the RTC ruling. CA pronounced that RTC Clerk of Court failed to issue
individual notices directed to all persons claiming interest in the unclaimed
balances. CA held that the Decision and Order of the RTC were void for want of
jurisdiction.

ISSUE: Is there a need for personal/individual notices to all persons of unclaimed

balances? Is this a jurisdictional requirement?

RULING:
NO. The pertinent provision of Act No. 3936, as amended, on the rule on service of
processes provides:

Sec. 3. Whenever the Solicitor General shall be informed of such unclaimed balances, he shall commence
an action or actions in the name of the People of the Republic of the Philippinesin the Court of First
Instance of the province or city where the bank, building and loan association or trust corporation is
located, in which shall be joined as parties the bank, building and loan association or trust
corporation and all such creditors or depositors. All or any of such creditors or depositors or banks,
building and loan association or trust corporations may be included in one action. Service of process in
such action or actions shall be made by delivery of a copy of the complaint and summons to the
president, cashier, or managing officer of each defendant bank, building and loan association or trust
corporation and by publication of a copy of such summons in a newspaper of general circulation, either
in English, in Filipino, or in a local dialect, published in the locality where the bank, building and loan
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BANKING

association or trust corporation is situated, if there be any, and in case there is none, in the City of
Manila, at such time as the court may order. Upon the trial, the court must hear all parties who have
appeared therein, and if it be determined that such unclaimed balances in any defendant bank, building
and loan association or trust corporation are unclaimed as hereinbefore stated, then the court shall
render judgment in favor of the Government of the Republic of the Philippines, declaring that said
unclaimed balances have escheated to the Government of the Republic of the Philippines and commanding
said bank, building and loan association or trust corporation to forthwith deposit the same with the
Treasurer of the Philippines to credit of the Government of the Republic of the Philippines to be used as
the National Assembly may direct.

At the time of issuing summons in the action above provided for, the clerk of court shall also issue a
notice signed by him, giving the title and number of said action, and referring to the complaint therein,
and directed to all persons, other than those named as defendants therein, claiming any interest in any
unclaimed balance mentioned in said complaint, and requiring them to appear within sixty days after
the publication or first publication, if there are several, of such summons, and show cause, if they have
any, why the unclaimed balances involved in said action should not be deposited with the Treasurer of
the Philippines as in this Act provided and notifying them that if they do not appear and show cause, the
Government of the Republic of the Philippines will apply to the court for the relief demanded in the
complaint. A copy of said notice shall be attached to, and published with the copy of, said summons
required to be published as above, and at the end of the copy of such notice so published, there shall be a
statement of the date of publication, or first publication, if there are several, of said summons and
notice. Any person interested may appear in said action and become a party thereto. Upon the
publication or the completion of the publication, if there are several, of the summons and notice, and the
service of the summons on the defendant banks, building and loan associations or trust corporations, the
court shall have full and complete jurisdiction in the Republic of the Philippines over the said
unclaimed balances and over the persons having or claiming any interest in the said unclaimed
balances, or any of them, and shall have full and complete jurisdiction to hear and determine the issues
herein, and render the appropriate judgment thereon. (Emphasis supplied.)

Hence, insofar as banks are concerned, service of processes is made by delivery of a copy
of the complaint and summons upon the president, cashier, or managing officer of the
defendant bank.[8] On the other hand, as to depositors or other claimants of the
unclaimed balances, service is made by publication of a copy of the summons in a
newspaper of general circulation in the locality where the institution is situated. [9] A notice
about the forthcoming escheat proceedings must also be issued and published, directing
and requiring all persons who may claim any interest in the unclaimed balances to appear
before the court and show cause why the dormant accounts should not be deposited with
the Treasurer.

Accordingly, the CA committed reversible error when it ruled that the issuance of
individual notices upon respondents was a jurisdictional requirement, and that
failure to effect personal service on them rendered the Decision and the Order of
the RTC void for want of jurisdiction. Escheat proceedings are actions in rem,
[10]
whereby an action is brought against the thing itself instead of the person. [11] Thus, an
action may be instituted and carried to judgment without personal service upon the
depositors or other claimants.[12] Jurisdiction is secured by the power of the court over
the res.[13] Consequently, a judgment of escheat is conclusive upon persons notified by
advertisement, as publication is considered a general and constructive notice to all persons
interested. [14]

Act No. 3936, as amended, outlines the proper procedure to be followed by banks and
other similar institutions in filing a sworn statement with the Treasurer concerning dormant
accounts:

Sec. 2. Immediately after the taking effect of this Act and within the month
of January of every odd year, all banks, building and loan associations,
and trust corporations shall forward to the Treasurer of the
Philippines a statement, under oath, of their respective managing
officers, of all credits and deposits held by them in favor of
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BANKING

persons known to be dead, or who have not made further deposits or

withdrawals during the preceding ten years or more, arranged in
alphabetical order according to the names of creditors and depositors,
and showing:

(a) The names and last known place of residence or post office
addresses of the persons in whose favor such unclaimed balances
stand;

(b) The amount and the date of the outstanding unclaimed balance and
whether the same is in money or in security, and if the latter, the
nature of the same;

(c) The date when the person in whose favor the unclaimed balance
stands died, if known, or the date when he made his last deposit or
withdrawal; and

(d) The interest due on such unclaimed balance, if any, and the amount
thereof.

A copy of the above sworn statement shall be posted in a

conspicuous place in the premises of the bank, building and loan
association, or trust corporation concerned for at least sixty days from the
date of filing thereof: Provided, That immediately before filing the
above sworn statement, the bank, building and loan association, and
trust corporation shall communicate with the person in whose favor
the unclaimed balance stands at his last known place of residence
or post office address.

It shall be the duty of the Treasurer of the Philippines to inform the Solicitor
General from time to time the existence of unclaimed balances held by
banks, building and loan associations, and trust corporations. (Emphasis
supplied.)

As seen in the afore-quoted provision, the law sets a detailed system for notifying
depositors of unclaimed balances. This notification is meant to inform them that their
deposit could be escheated if left unclaimed. Accordingly, before filing a sworn statement,
banks and other similar institutions are under obligation to communicate with owners of
dormant accounts. The purpose of this initial notice is for a bank to determine whether an
inactive account has indeed been unclaimed, abandoned, forgotten, or left without an
owner. If the depositor simply does not wish to touch the funds in the meantime, but still
asserts ownership and dominion over the dormant account, then the bank is no longer
obligated to include the account in its sworn statement. [20] It is not the intent of the law to
force depositors into unnecessary litigation and defense of their rights, as the state is only
interested in escheating balances that have been abandoned and left without an owner.

In case the bank complies with the provisions of the law and the unclaimed balances
are eventually escheated to the Republic, the bank shall not thereafter be liable to any
person for the same and any action which may be brought by any person against in any
bank xxx for unclaimed balances so deposited xxx shall be defended by the Solicitor
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BANKING

General without cost to such bank.[21] Otherwise, should it fail to comply with the legally
outlined procedure to the prejudice of the depositor, the bank may not raise the defense
provided under Section 5 of Act No. 3936, as amended.

The exclusion of the funds allocated for the payment of the Managers
Check in the escheat proceedings is proper.

As found by CA, RCBC failed to prove that the latter had communicated with the purchaser
of the Managers Check (Hi-Tri and/or Spouses Bakunawa) or the designated payee (Rosmil)
immediately before the bank filed its Sworn Statement on the dormant accounts held
therein.

Since there was no delivery, presentment of the check to the bank for payment did not
occur. An order to debit the account of respondents was never made. In fact, petitioner
confirms that the Managers Check was never negotiated or presented for payment to its
Ermita Branch, and that the allocated fund is still held by the bank.[34] As a result, the
assigned fund is deemed to remain part of the account of Hi-Tri, which procured the
Managers Check. The doctrine that the deposit represented by a managers check
automatically passes to the payee is inapplicable, because the instrument although
accepted in advance remains undelivered. Hence, respondents should have been
informed that the deposit had been left inactive for more than 10 years, and that
it may be subjected to escheat proceedings if left unclaimed.