1|Page CASES (FULL TEXT) – BANKING LAWS (GENERAL PRINCIPLES)
G.R. No. L-20583. January 23, 1967.
REPUBLIC OF THE PHILIPPINES, vs. SECURITY CREDIT AND
ACCEPTANCE CORPORATION, ROSENDO T. RESUELLO,
PABLO TANJUTCO, ARTURO SORIANO, RUBEN BELTRAN,
BIENVENIDO V. ZAPA, PILAR G. RESUELLO, RICARDO D.
BALATBAT, JOSE R. SEBASTIAN and VITO TANJUTCO, JR.,
SYLLABUS
1. CORPORATION LAW; BANKING; TRANSACTIONS DEEMED TO
BE IN THE NATURE OF BANKING. — Although, admittedly,
defendant corporation has not secured the requisite authority to engage in
banking, defendants deny that its transactions partake of the nature of
banking operations. It is conceded, however, that in consequence of a
propaganda campaign therefor, a total of 59,643 savings account deposits
have been made by the public with the corporation and its 74 branches,
with an aggregate deposit of P1,689,136.74, which has been lent out to
such persons as the corporation deemed suitable therefor. It is clear that
those transactions partake of the nature of banking, as the term is used in
See. 2 of the General Banking Acts.
2. WORDS AND PHRASES; "BANK" DEFINED. — A bank has been
defined as "a moneyed institute [Talmage v. Pell, 7 N.Y. (3 Seld.) 328,
347, 248] founded to facilitate the borrowing, lending, and safe-keeping of
money (Smith v. Kansas City Title & Trust Co., 41 S. Ct. 243, 255 U.S.
180, 210, 65 L. Ed. 577) and to deal in notes, bills of exchange, and
credits (State v. Cornings Sav. Bank, 115 N.W. 937, 139 Iowa, 388)."
(Banks & Banking, by Zellmann, Vol. 1, p. 46.)
3. ID.; ID.; WHEN INVESTMENT COMPANY IS CONSIDERED A
BANK. — "An investment company which loans out the money of its
customers, collects the interests and charges a commission to both
borrower and lender is a bank."cralaw virtua1aw library
4. ID.; ILLEGAL TRANSACTIONS BY CORPORATION WARRANT
ITS DISSOLUTION. — That the illegal transactions thus undertaken by
defendant corporation warrant its dissolution is apparent from the fact that
the foregoing misuser of the corporate funds and franchise affects the
essence of its business, that it is willful and has been repeated 59,643
times, and that its continuances inflicts injury upon the public, owing to
the number of persons affected thereby.
5. JURISDICTION; IN QUO WARRANTO PROCEEDING, THE
SUPREME COURT IS VESTED WITH CONCURRENT ORIGINAL
JURISDICTION WITH THE CFI. — The Supreme Court is vested with
original jurisdiction, concurrently with courts of first instance, to hear and
decide quo warranto cases and, consequently, it is discretionary for the
Court either to entertain the present case or to require that the issues
therein be taken up in the lower court . . . In the case at bar, there is,
however, no dispute as to the principal facts or acts performed by the
corporation in the conduct of its business. The main issue here is one of
law, namely, the legal nature of said facts or of the aforementioned acts of
the corporation. For this reason, and because public interest demands an
early disposition of the case, we have deemed it best to determine the
merits therefor.
6. ID.; ID.; WHEN ISSUES OF FACT REQUIRE PRESENTATION OF
EVIDENCE, CFI, IS APPROPRIATE FORUM. - Where there are issues
of fact which require the presentation of evidence, the courts of first
instance are, in general, better equipped than appellate courts for the
taking of testimony and the determination of questions of fact.
DECISION
CONCEPCION, C.J.:
This is an original quo warranto proceeding, initiated by the Solicitor
General, to dissolve the Security Credit and Acceptance Corporation for
allegedly engaging in banking operations without the authority required
therefore by the General Banking Act (Republic Act No. 337). Named as
respondents in the petition are, in addition to said corporation, the
following, as alleged members of its Board of Directors and/or Executive
Officers, namely:jgc:chanrobles.com.ph
"NAME POSITION
Rosendo T. Resuello President & Chairman of the Board
Pablo Tanjutco Director
Arturo Soriano Director
Ruben Beltran Director
Bienvenido V. Zapa Director & Vice-President
Pilar G. Resuello Director & Secretary-Treasurer
Ricardo D. Balatbat Director & Auditor
Jose R. Sebastian Director & Legal Counsel
Vito Tanjutco, Jr Director & Personnel Manager"
The record shows that the Articles of Incorporation of defendant
corporation 1 were registered with the Securities and Exchange
Commission on March 27, 1961 that the next day, the Board of Directors
of the corporation adopted a set of by laws, 2 which were filed with said
Commission on April 5, 1961; that on September 19, 1961, the
Superintendent of Banks of the Central Bank of the Philippines asked its
legal counsel an opinion on whether or not said corporation is a banking
institution, within the purview of Republic Act No. 337; that, acting upon
this request, on October 11, 1961, said legal counsel rendered an opinion
resolving the query in the affirmative; that in a letter, dated January 15,
1962, addressed to said Superintendent of Banks, the corporation through
its president, Rosendo T. Resuello, one of defendants herein, sought a
reconsideration of the aforementioned opinion, which reconsideration was
denied on March 16, 1962; that, prior thereto, or on March 9, 1961, the
corporation had applied with the Securities and Exchange Commission for
the registration and licensing of its securities under the Securities Act;
that, before acting on this application, the Commission referred it to the
Central Bank, which, in turn, gave the former a copy of the above-
mentioned opinion, in line with which, the Commission advised the
corporation on December 5, 1961, to comply with the requirements of the
General Banking Act; that, upon application of members of the Manila
Police Department and an agent of the Central Bank, on May 18, 1962, the
Municipal Court of Manila issued Search Warrant No. A-1019; that,
pursuant thereto, members of the intelligence division of the Central Bank
and of the Manila Police Department searched the premises of the
corporation and seized documents and records thereof relative to its
business operations; that, upon the return of said warrant, the seized
documents and records were, with the authority of the court, placed under
the custody of the Central Bank of the Philippines; that, upon examination
and evaluation of said documents and records, the intelligence division of
the Central Bank submitted, to the Acting Deputy Governor thereof, a
memorandum dated September 10, 1962, finding that the corporation is:
"1. Performing banking functions, without requisite certificate of authority
from the Monetary Board of the Central Bank, in violation of Secs. 2 and
6 of Republic Act 337, in that it is soliciting and accepting deposit from
the public and lending out the funds so received;
"2. Soliciting and accepting savings deposits from the general public when
the company’s articles of incorporation authorize it only to engage
primarily in financing agricultural, commercial and industrial projects, and
secondarily, in buying and selling stocks and bonds of any corporation,
thereby exceeding the scope of its powers and authority as granted under
its charter; consequently such acts are ultra-vires;
"3. Soliciting subscriptions to the corporate shares of stock and accepting
deposits on account thereof, without prior registration and/or licensing of
such shares or recurring exemption therefore, in violation of the Securities
Act; and
 2|Page CASES (FULL TEXT) – BANKING LAWS (GENERAL PRINCIPLES)
"4. That being a private credit and financial institution, it should come
under the supervision of the Monetary Board of the Central Bank, by
virtue of the transfer of the authority, power, duties and functions of the
Secretary of Finance, Bank Commissioner and the defunct Bureau of
Banking, to the said Board, pursuant to Secs. 139 and 140 of Republic Act
265 and Secs. 88 and 89 of Republic Act 337." (Italics supplied.)
that upon examination and evaluation of the same records of the
corporation, as well as of other documents and pertinent papers obtained
elsewhere, the Superintendent of Banks, submitted to the Monetary Board
of the Central Bank a memorandum dated August 28, 1962, stating inter
alia:
"11. Pursuant to the request for assistance by the Chief, Intelligence
Division, contained in his Memorandum to the Governor dated May 23,
1962 and in accordance with the written instructions of Governor Castillo
dated May 31, 1962, an examination of the books and records of the
Security Credit and Loans Organizations, Inc. seized by the combined
MPD-CB team was conducted by this Department. The examination
disclosed the following findings:
a. Considering the extent of its operations, the Security Credit and
Acceptance Corporation, Inc. receives deposits from the public regularly.
Such deposits are treated in the Corporation’s financial statements as
conditional subscriptions to capital stock. Accumulated deposits of P5,000
of an individual depositor may be converted into stock subscription to the
capital stock of the Security Credit and Acceptance Corporation at the
option of the depositor. Sale of its shares of stock or subscriptions to its
capital stock are offered to the public as part of its regular operations.
b. That out of the funds obtained from the public through the receipt of
deposits and/or the sale of securities, loans are made regularly to any
person by the Security Credit and Acceptance Corporation.
A copy of the Memorandum Report dated July 30, 1962 of the
examination made by Examiners of this Department of the seized books
and records of the Corporation is attached hereto.
"12. Section 2 of Republic Act No. 337, otherwise known as the General
Banking Act, defines the term ‘banking institution’ as follows:
‘Sec. 2. Only duly authorized persons and entities may engage in the
lending of funds obtained from the public through the receipt of deposits
or the sale of bonds, securities, or obligations of any kind and all entities
regularly conducting operations shall be considered as banking institutions
and shall be subject to the provisions of this Act, of the Central Bank Act,
and of other pertinent laws . . .
"13. Premises considered, the examination disclosed that the Security
Credit and Acceptance Corporation is regularly lending funds obtained
from the receipt of deposits and/or the sale of securities. The Corporation
therefore is performing ‘banking functions’ as contemplated in Republic
Act No. 337, without having first complied with the provisions of said
Act.
Recommendations:
"In view of all the foregoing, it is recommended that the Monetary Board
decide and declare:
‘1. That the Security Credit and Acceptance Corporation is performing
banking functions without having first complied with the provisions of
Republic Act No. 337, otherwise known as the General Banking Act, in
violation of Sections 2 and 6 thereof; and
‘2. That this case be referred to the Special Assistant to the Governor
(Legal Counsel) for whatever legal actions are warranted, including, if
warranted criminal action against the persons criminally liable and/or quo
warranto proceedings with preliminary injunction against the Corporation
for its dissolution’." (Italics supplied.)
that, acting upon said memorandum of the Superintendent of Banks, on
September 14, 1962, the Monetary Board promulgated its Resolution No.
1095, declaring that the corporation is performing banking operations,
without having first complied with the provisions of Sections 2 and 6 of
Republic Act No. 337; 3 that on September 25, 1962, the corporation was
advised of the aforementioned resolution, but, this notwithstanding, the
corporation, as well as the members of its Board of Directors and the
officers of the corporation, have been and still are performing the
functions and activities which had been declared to constitute illegal
banking operations; that during the period from March 27, 1961 to May
18, 1962, the corporation had established 74 branches in principal cities
and towns throughout the Philippines; that through a systematic and
vigorous campaign undertaken by the corporation, the same had managed
to induce the public to open 59,463 savings deposit accounts with an
aggregate deposit of P1,689,136.74; that, in consequence of the foregoing
deposits with the corporation, its original capital stock of P500,000,
divided into 20,000 founders’ shares of stock and 80,000 preferred shares
of stock, both of which had a par value of P5.00 each, was increased, in
less than one (1) year, to P3,000,000 divided into 130,000 founders’
shares and 470,000 preferred shares, both with a par value of P5.00 each;
and that, according to its statement of assets and liabilities, as of
December 31, 1961, the corporation had a capital stock aggregating
P1,273,265.98 and suffered, during the year 1961, a loss of P96,685.29.
Accordingly, on December 6, 1962, the Solicitor General commenced this
quo warranto proceedings for the dissolution of the corporation, with a
prayer that, meanwhile, a writ of preliminary injunction be issued ex parte,
enjoining the corporation and its branches, as well as its officers and
agents, from performing the banking operations complained of, and that a
receiver be appointed pendente lite.
Upon joint motion of both parties, on August 20, 1963, the Superintendent
of Banks of the Central Bank of the Philippines was appointed by this
Court receiver pendente lite of defendant corporation, and upon the filing
of the requisite bond, said officer assumed his functions as such receiver
on September 16, 1963.
In their answer, defendants admitted practically all of the allegations of
fact made in the petition. They, however, denied that defendants Tanjutco
(Pablo and Vito, Jr.) Soriano, Beltran, Zapa, Balatbat and Sebastian, are
directors of the corporation, as well as the validity of the opinion, ruling,
evaluation and conclusions rendered, made and/or reached by the legal
counsel and the intelligence division of the Central Bank, the Securities
and Exchange Commission, and the Superintendent of Banks of the
Philippines, or in Resolution No. 1095 of the Monetary Board, or of
Search Warrant No. A- 1019 of the Municipal Court of Manila, and of the
search and seizure made thereunder. By way of affirmative allegations,
defendants averred that, as of July 7, 1961, the Board of Directors of the
corporation was composed of defendants Rosendo T. Resuello, Aquilino
L. Illera and Pilar G. Resuello; that on July 11, 1962, the corporation had
filed with the Superintendent of Banks an application for conversion into a
Security Savings and Mortgage Bank, with defendants Zapa, Balatbat,
Tanjutco (Pablo and Vito, Jr.), Soriano, Beltran and Sebastian as proposed
directors, in addition to the defendants first named above, with defendants
Rosendo T. Resuello, Zapa, Pilar G. Resuello, Balatbat and Sebastian as
proposed president, vice-president, secretary-treasurer, auditor and legal
counsel, respectively; that said additional officers had never assumed their
respective offices because of the pendency of the approval of said
application for conversion; that defendants Soriano, Beltran, Sebastian,
Vito Tanjutco Jr. and Pablo Tanjutco had subsequently withdrawn from
the proposed mortgage and savings bank; that on November 29, 1962 —
or before the commencement of the present proceedings — the
corporation and defendants Rosendo T. Resuello and Pilar G. Resuello had
instituted Civil Case No. 52342 of the Court of First Instance of Manila
against Purification Santos and other members of the savings plan of the
corporation and the City Fiscal, for a declaratory relief and an injunction;
that on December 3, 1962, Judge Gaudencio Cloribel of said court issued a
 3|Page CASES (FULL TEXT) – BANKING LAWS (GENERAL PRINCIPLES)
writ directing the defendants in said case No. 52342 and their
representatives or agents to refrain from prosecuting the plaintiff spouses
and other officers of the corporation by reason of or in connection with the
acceptance by the same of deposits under its savings plan; that acting upon
a petition filed by plaintiffs in said case No. 52342, on December 6, 1962,
the Court of First Instance of Manila had appointed Jose Ma. Ramirez as
receiver of the corporation; that, on December 12, 1962, said Ramirez
qualified as such receiver, after filing the requisite bond; that, except as to
one of the defendants in said case No. 52342, the issues therein have
already been joined; that the failure of the corporation to honor the
demands for withdrawal of its depositors or members of its savings plan
and its former employees was due, not to mismanagement or
misappropriation of corporate funds, but to an abnormal situation created
by the mass demand for withdrawal of deposits, by the attachment of
property of the corporation by its creditors, by the suspension by debtors
of the corporation of the payment of their debts thereto and by an order of
the Securities and Exchange Commission dated September 26 1962, to the
corporation to stop soliciting and receiving deposits; and that the
withdrawal of deposits of members of the savings plan of the corporation
was understood to be subject, as to time and amounts, to the financial
condition of the corporation as an investment firm.
In its reply, plaintiff alleged that a photostat copy, attached to said
pleading, of the anniversary publication of defendant corporation showed
that defendants Pablo Tanjutco, Arturo Soriano, Ruben Beltran,
Bienvenido V. Zapa, Ricardo D. Balatbat, Jose R. Sebastian and Vito
Tanjutco, Jr. are officers and/or directors thereof; that this is confirmed by
the minutes of a meeting of stockholders of the corporation, held on
September 27, 1962, showing that said defendants had been elected
officers thereof; that the views of the legal counsel of the Central Bank, of
the Securities and Exchange Commission, the Intelligence Division, the
Superintendent of Banks and the Monetary Board above referred to have
been expressed in the lawful performance of their respective duties and
have not been assailed or impugned in accordance with law; that neither
has the validity of Search Warrant No. A-1019 been contested as provided
by law; that the only assets of the corporation now consist of accounts
receivable amounting approximately to P500,000, and its office equipment
and appliances, despite its increased capitalization of P3,000,000 and its
deposits amounting to not less than P1,689,136.74; and that the
aforementioned petition of the corporation, in Civil Case No. 52342 of the
Court of First Instance of Manila, for a declaratory relief is now highly
improper, the defendants having already committed infractions and
violations of the law justifying the dissolution of the corporation.
Although, admittedly, defendant corporation has not secured the requisite
authority to engage in banking, defendants deny that its transactions
partake of the nature of banking operations. It is conceded, however, that,
in consequence of a propaganda campaign therefor, a total of 59,463
savings account deposits have been made by the public with the
corporation and its 74 branches, with an aggregate deposit of
P1,689,136.74, which has been lent out to such persons as the corporation
deemed suitable therefor. It is clear that these transactions partake of the
nature of banking, as the term is used in Section 2 of the General Banking
Act. Indeed, a bank has been defined as:
". . . a moneyed institute [Talmage v. Pell, 7 N.Y. (2 Seld.) 328, 347, 348]
founded to facilitate the borrowing, lending, and safe- keeping of money
(Smith v. Kansas City Title & Trust Co., 41 S. Ct. 243, 255 U.S. 180, 210,
65 L. Ed. 577) and to deal in notes, bills of exchange, and credits (state v.
Cornings Sav. Bank, 115 N.W. 937, 139 Iowa, 338)." (Banks & Banking,
by Zellmann Vol. I, p. 46.)
Moreover, it has been held that:
"An investment company which loans out the money of its customers,
collects the interests, and charges a commission to both lender and
borrower is a bank." (Western Investment Banking Co. v. Murray, 56 P.
728, 730, 731; 6 Ariz. 215.)
". . . any person engaged in the business carried on by banks of deposit, of
discount, or of circulation is doing a banking business, although but one of
these functions is exercised." (MacLaren v. State, 124 N.W. 667, 141 Wis.
577, 135 Am. S.R. 55, 18 Ann. Cas. 826; 9 C.J.S. 30.)
Accordingly, defendant corporation has violated the law by engaging in
banking without securing the administrative authority required in Republic
Act No. 337.
That the illegal transactions thus undertaken by defendant corporation
warrant its dissolution is apparent from the fact that the foregoing misuser
of the corporate funds and franchise affects the essence of its business,
that it is willful and has been repeated 59,643 times, and that its
continuance inflicts injury upon the public, owing to the number of
persons affected thereby.
It is urged, however, that this case should be remanded to the Court of
First Instance of Manila upon the authority of Veraguth v. Isabela Sugar
Co. (57 Phil. 266). In this connection, it should be noted that this Court is
vested with original jurisdiction, concurrently with courts of first instance,
to hear and decide quo warranto cases and, that, consequently, it is
discretionary for us to entertain the present case or to require that the
issues therein be taken up in said Civil Case No. 52342. The Veraguth
case cited by herein defendants, in support of the second alternative, is not
in point, because in said case there were issues of fact which required the
presentation of evidence, and courts of first instance are, in general, better
equipped than appellate courts for the taking of testimony and the
determination of questions of fact. In the case at bar, there is, however, no
dispute as to the principal facts or acts performed by the corporation in the
conduct of its business. The main issue here is one of law, namely, the
legal nature of said facts or of the aforementioned acts of the corporation.
For this reason, and because public interest demands an early disposition
of the case, we have deemed it best to determine the merits thereof.
Wherefore, the writ prayed for should be, as it is hereby granted and
defendant corporation is, accordingly, ordered dissolved. The appointment
of receiver herein issued pendente lite is hereby made permanent, and the
receiver is, accordingly, directed to administer the properties, deposits,
and other assets of defendant corporation and wind up the affairs thereof
conformably to Rules 59 and 66 of the Rules of Court. It is so ordered.
G.R. No. 88353 May 8, 1992
CENTRAL BANK OF THE PHILIPPINES and HON. JOSE B.
FERNANDEZ vs. HON. COURT OF APPEALS, RTC JUDGE
TEOFILO GUADIZ, JR., PRODUCERS BANK OF THE
PHILIPPINES and PRODUCERS PROPERTIES, INC.,
G.R. No. 92943 May 8, 1992
ATTY. LEONIDA G. TANSINSIN-ENCARNACION, as the Acting
Conservator of Producers Bank of the Philippines, and PRODUCERS
BANK OF THE PHILIPPINES vs. PRODUCERS BANK OF THE
PHILIPPINES, allegedly represented by HENRY L. CO, HON.
COURT OF APPEALS, HON. TEOFILO GUADIZ, JR., and the
"LAW FIRM OF QUISUMBING, TORRES AND EVANGELISTA"
(RAMON J. QUISUMBING, VICENTE TORRES,RAFAEL E.
EVANGELISTA, JR. and CHRISTOFER L. LIM),
DAVIDE, JR., J.:
The common origin of these cases is Civil Case No. 17692 filed before
Branch 147 (Makati) of the Regional trail Court, National Capital Judicial
Region and entitled Producers Bank of the Philippines and Producers
 4|Page CASES (FULL TEXT) – BANKING LAWS (GENERAL PRINCIPLES)
Properties, Inc. versus Central Bank of the Philippines, Jose B. Fernandez.
Jr. and the Monetary Board. On 21 January 1991, this Court ordered the
consolidation of G.R. No. 92943 with G.R. No. 88353. 1
The first case, G.R. No. 88353, is a petition for review on certiorari of the
decision of 6 October 19882 and the resolution of 17 May 19893 of the
respondent Court of Appeals in C.A.-G.R. No. SP-13624. The impugned
decision upheld the 21 September 1987 Order of respondent Judge Teofilo
Guadiz, Jr. in Civil Case No. 17692 granting the motion for issuance of a
writ of preliminary injunction –– enjoining petitioners Central Bank of the
Philippines (CB), Mr. Jose B. Fernandez, Jr. and the Monetary Board, or
any of their agencies from implementing Monetary Board (MB)
Resolutions No. 649 and No. 751, or from taking the threatened
appropriate alternative action –– and the 27 October 1987 Order in the
same case denying petitioners' motion to dismiss and vacate said
injunction. The challenged resolution, on the other hand, denied
petitioners' motion for reconsideration of the 6 October 1988 decision.
The second case, G.R. No. 92943, is a petition for review directed
principally against the 17 January 1990 decision of the respondent Court
of Appeals in C.A.-G.R. SP No. 16972. The said decision dismissed the
petition therein filed and sustained the various Orders of the respondent
Judge in Civil Case No. 17692, but directed the plaintiffs therein to amend
the amended complaint by stating in its prayer the specific amount of
damages which Producers Bank of the Philippines (PBP) claims to have
sustained as a result of losses of operation and the conservator's bank
frauds and abuses; the Clerk of Court was also ordered to determine the
amount of filing fees which should be paid by the plaintiffs within the
applicable prescriptive or reglementary period. 4
The records of both cases reveal the following factual and procedural
antecedents:
Petitioners claim that on 29 April 1983, during the regular examination of
the PBP, CB examiners stumbled upon some highly questionable loans
which had been extended by the PBP management to several entities.
Upon further examination, it was discovered that these loans, totalling
approximately P300 million, were "fictitious" as they were extended,
without collateral, to certain interests related to PBP owners themselves.
Said loans were deemed to be anomalous particularly because the total
paid-in capital of PBP at that time was only P 140.544 million. This means
that the entire paid-in capital of the bank, together with some P160 million
of depositors' money, was utilized by PBP management to fund these
unsecured loans.
Sometime in August of the same year, at the height of the controversy
surrounding the discovery of the anomalous loans, several blind items
about a family-owned bank in Binondo which granted fictitious loans to
its stockholders appeared in major newspapers. These news items
triggered a bank-run in PBP which resulted in continuous over-drawings
on the bank's demand deposit account with the Central Bank; the over-
drawings reached P74.109 million by 29 August 1983. By 17 January
1984, PBP's overdraft with the CB increased to P143.955 million, an
indication of PBP's continuing inability to maintain that condition of
solvency and liquidity necessary to protect the interests of its depositors
and creditors. Hence, on 20 January 1984, on the basis of the report
submitted by the Supervision and Examination Sector, Department I of the
CB, the Monetary Board (MB), pursuant to its authority under Section 28-
A of R.A. No. 265 and by virtue of MB Board Resolution No. 164, placed
PBP under conservatorship. 5
While PBP admits that it had no choice but to submit to the
conservatorship, 6 it nonetheless requested that the same be lifted by the
CB. Consequently, the MB issued on 3 February 1984 Resolution No. 169
directing the principal stockholders of PBP to increase its capital accounts
by such an amount that would be necessary for the elimination of PBP's
negative net worth of P424 million. On 10 April 1984, CB senior deputy
Governor Gabriel Singson informed PBP that pursuant to MB Resolution
No. 490 of 30 March 1984, the CB would be willing to lift the
conservatorship under the following conditions:
(a) PBP's unsecured overdraft with the Central Bank will be
converted into an emergency loan, to be secured by sufficient
collateral, including but not limited to the Following properties
offered by PBP's principal stockholders:
i. 6 floors and other areas of the Producers Bank Bldg., at
Paseo de Roxas, owned by PBP;
ii. 15 floors of the Producers Bank Bldg., at Paseo de Roxas,
Makati, owned by the Producers Properties, Inc.;
iii. Manhattan Bldg. on Nueva Street, Binondo, Manila; and
iv. Producers Bank, Makati Branch Bldg. at Buendia Avenue,
Makati;
(b) A comptroller for PBP and any number of bank examiners
deemed necessary to oversee PBP's operations shall be designated by
the Central Bank, under terms of reference to be determined by the
Governor;
(c) A letter from the Management of PBP authorizing the Central
Bank to automatically return clearing items that would result in an
overdraft in its Central Bank account shall be submitted to the
Central Bank.
On 27 April 1984, the MB adopted Resolution No. 584 approving the
consolidation of PBP's other unsecured obligations to the CB with its
overdraft and authorizing the conversion thereof into an emergency loan.
The same resolution authorized the CB Governor to lift the
conservatorship and return PBP's management to its principal stockholders
upon completion of the documentation and full collateralization of the
emergency loan, but directed PBP to pay the emergency loan in five (5)
equal annual installments, with interest and penalty rates at MRR 180 days
plus 48% per annum, and liquidated damages of 5% for delayed
payments.
On 4 June 1984, PBP submitted a rehabilitation plan to the CB which
proposed the transfer to PBP of three (3) buildings owned by Producers
Properties, Inc. (PPI), its principal stockholder and the subsequent
mortgage of said properties to the CB as collateral for the bank's overdraft
obligation. 7 Although said proposal was explored and discussed, no
program acceptable to both the CB and PPI was arrived at because of
disagreements on certain matters such as interest rates, penalties and
liquidated damages.
No other rehabilitation program was submitted by PBP for almost three
(3) years; as a result thereof, its overdrafts with the CB continued to
accumulate. By the end of June 1987, the figure swelled to a
staggering P1.023 billion.Consequently, per Resolution No. 649 dated 3
July 1987, the CB Monetary Board decided to approve in principle what it
considered a viable rehabilitation program for PBP. The program had
these principal features:
Al. The Central Bank will assign in favor of the Philippine Deposit
Insurance Corporation (PDIC) its claim over the overdraft of PBP net
of net peso differential arising from swap transactions and interest
thereon, up to the amount of the par value of the Producers
Properties, Inc. (PPI) shares of stock in PBP presently pledged to the
Central Bank, and PDIC will enter into a contract of dacion en
pago with PBP and PPI whereby PDIC will acquire 4,116,100
preferred shares of stock of PBP with a par value of P100 per share in
consideration for which PDIC will convey its rights over the
overdraft assigned to it by the Central Bank, in favor of PPI;
2. The balance of the overdraft of PBP, after the assignment to
PDIC of a portion of such overdraft referred to in Item I above,
will also be assigned to PDIC and converted into preferred shares
of stock of PBP;
5|Page CASES (FULL TEXT) – BANKING LAWS (GENERAL PRINCIPLES)
3. The interest on the overdraft of PBP will be reduced to 11.75%
p.a. retroactively to the date when the overdraft of PBP was
incurred;
4. The accrued interest on the overdraft of PBP, at the reduced rate
approved in Item 3 above, as well as the unbooked penalties on
legal reserve deficiencies of PBP will be assigned in favor of PDIC
and such amounts will be allowed to be converted into preferred
shares of stock of PBP; and
5. The booking of valuation reserves will be allowed as follows:
3rd year — P31 million
4th year — 48 million
5th year — 67 million
6th year — 85 million
7th year — 105 million
8th year — 124.61 million
subject to the following conditions:
a. Fresh capital of P200.0 million shall be put up, provided that
a new group of stockholders shall hold at least 40% of the total
outstanding voting shares of stock of PBP;
b. PBP shall submit additional collaterals to fully collateralize
its overdraft with the Central Bank;
c. PPI shall convey to PBP the remaining floors of the
Producers Bank Centre for a value of P143.54 million partly in
payment of DOSRI loans of P27.6 million, principal plus
interest, and the balance of P115.94 million for shares of stock
of PBP, P15.12 million common and P100.89 million
preferred, with features as presently provided under PBP's
Articles of Incorporation and By-Laws;
d. PBP's Articles of Incorporation and By-Laws shall be
amended so as to create a special class of preferred, non-
voting, cumulative, non-participating shares of stock with a
dividend rate of 12% which shall be issued (i) in exchange for
the PPI shares that will be conveyed to PDIC under the dacion
en pago mentioned in Item 1 above, (ii) in consideration of the
balance of PBP's overdraft assigned to PDIC under Item 2
above, (iii) in consideration of the accrued interest on PBP's
overdraft assigned to PDIC and the unbooked penalties on
legal reserve deficiencies of PBP also assigned to PDIC. The
said preferred shares of stock shall be convertible into common
voting shares of stock upon the sale of such preferred shares to
private parties at the option of such parties. Proceeds from the
sale of these shares of stock shall be used to liquidate the
advances made by the Central Bank to PDIC by virtue of the
various assignments under Items 1, 2, and 4 above. The said
shares of stock shall not share in losses and other capital
adjustments representing reduction of capital accounts as
recommended by SES Department I incurred up to the date of
the issuance of such shares of stock;
e. PBP shall execute in favor of a trustee to be approved by the
Central Bank of mortgage trust indenture covering the assets
presently mortgaged/pledged to Central Bank as collateral for
the overdraft of PBP as well as additional collaterals to be
submitted to fully collateralize the overdraft of PBP, under
which indenture PDIC as holder of preferred shares of stocks,
shall have the first lien and preference over the assets subject
of the indenture in case of insolvency, to the extent of the
overdraft converted into preferred shares of
stock, provided that PBP shall submit an opinion from the
Securities and Exchange Commission that such indenture is
legal and valid; and
f. The principal stockholders of both PBP and PPI shall submit
in writing their conformity to the above conditions, with the
effect that any previous agreements to the contrary shall be set
aside; and
B. To require PBP to submit to the Monetary Board for approval the
identities of the new stockholders and the new management which
shall not be changed without the prior approval of the Central Bank,
it being understood that final approval of the above rehabilitation
plan shall depend entirely upon the acceptance by the Board of the
new stockholders and the new management; and to give PBP a period
of two weeks after such final approval within which to implement the
above rehabilitation plan 8 (Emphasis supplied).
There being no response from both PBP and PPI on the proposed
rehabilitation plan, the MB issued Resolution No. 751 on 7 August 1987
instructing Central Bank management to advise the bank, through Mr.
Henry Co, as follows:
a. The Central Bank conservatorship over PBP may be lifted only
after PBP shall have identified the new group of stockholders who
will put in new capital in PBP and after the Monetary Board shall
have considered such new stockholders as acceptable; and
b. The stockholders of PBP have to decide whether or not to accept
the terms of the rehabilitation plan as provided under Resolution
No. 649 dated July 3, 1987 within one week from receipt of notice
hereof and if such terms are not acceptable to them, the Central Bank
will take appropriate alternative action on the matter; . . . 9
Additionally, in a letter dated 14 August 1987, the CB called the attention
of the PBP directors and officers to Section 107 of R.A. No. 265, as
amended by Executive Order No. 289 dated 23 July 1987, which
provides, inter alia, that:
. . . any bank which incurs an overdrawing in its deposit account with
the Central Bank shall fully cover said overdraft not later than the
next clearing day: Provided, further, That settlement of clearing
balances shall not be effected for any account which continue (sic) to
be overdrawn for five 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 Sec. 90 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 Central Bank as of the effectivity of this
amended section 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 Central Bank shall
take such action against the bank as may be warranted under this
Act.(Emphasis provided).
A. few days later, or on 27 August 1987, the PBP, without responding to
the communications of the CB, filed a complaint verified by its former
board chairman, Henry Co, with the Regional Trial Court of Makati
against the CB, the MB and CB Governor Jose B. Fernandez, Jr. The
complaint, docketed as Civil Case No. 17692, 10 devoted several pages to
specific allegations in support of PBP's assertions that the conservatorship
was unwarranted, ill-motivated, illegal, utterly unnecessary and
unjustified; that the appointment of the conservator was arbitrary; that
herein petitioners acted in bad faith; that the CB-designated conservators
committed bank frauds and abuses; that the CB is guilty of promissory
estoppel; and that by reason of the conservatorship, it suffered losses
enumerated in paragraph 27 thereof, the total quantifiable extent of which
is P108,479,771.00, exclusive of loss of profits and loss of
goodwill. 11 It concluded with a prayer for:
. . . judicial review of Monetary Board Resolutions No. 649 dated
July 3, 1987 and No. 751 dated 14 August, 1987 and that judgment
be rendered nullifying the same and ordering defendant Central
Bank's conservator to restore the viability of PBP as mandated by
 6|Page CASES (FULL TEXT) – BANKING LAWS (GENERAL PRINCIPLES)
section 28-A of R.A. 265 and to fully repair the damages inflicted
on PBP consisting of losses of operation and the conservators'
bank frauds and abuses, with costs against defendants. (emphasis
supplied).
and for:
. . . the issue of a temporary restraining order/preliminary
injunction enjoining defendants' coercion on PBP to accept the
rehabilitation plan within one week or their taking "appropriate
alternative action" including exclusion of PBP from settlement of
clearing balances at the Central
Bank clearing house, pending judicial review of Monetary Board
Resolutions No. 649 dated July 3, 1987 and No. 751 dated August
14,
1987 –– defendants not being above the law. 12
Only P102.00 was paid as docket fee.
The case was raffled to Branch 147 of said court which was then presided
over by respondent Judge.
On 31 August 1987, respondent Judge issued a temporary restraining
order and set the hearing of the application for preliminary injunction on 9
September 1987. 13 On 11 September 1987, petitioner filed an Opposition
to the application for preliminary injunction. 14
Subsequently, on 21 September 1987, respondent Judge issued an Order
granting the writ 15 and enjoining defendant-petitioners or any of their
agents from:
. . . implementing Monetary Board Resolutions Nos. 649 and 751
or from taking the threatened "appropriate alternative action"
including exclusion of plaintiff bank from settlement of clearing
balances at the Central Bank clearing house or any other action
that will disturb the status quo or the viability of plaintiff bank
during the pendency of this case conditioned upon the posting of a
bond in the amount of P2,000,000.00.
On 25 October 1987, PBP filed the Amended Complaint 16 impleading PPI
as an additional plaintiff. No new allegations or causes of action for said
plaintiff were made.
On 5 November 1987, petitioners filed a Motion to Dismiss the Amended
Complaint. The motion contained a prayer to vacate the injunction and
raised the following grounds:
1) the amended complaint states no cause of action; MB
Resolution Nos. 649 and 751 are merely advisory, thus, neither
effect impairment of plaintiffs' rights nor cause it prejudice, loss
or damage; furthermore, there is no basis for the averments on
the legality or illegality of the conservatorship since the
amended complaint does not seek its annulment;
2) the amended complaint is not authorized by the management
of PBP; and
3) the lower court did not acquire jurisdiction over the case
except to order the amended complaint expunged from the
records because the proper filing fee was not paid. 17
On 27 November 1987, the trial court, through the respondent Judge,
handed down an Order denying the motion to dismiss on the following
grounds: (a) the amended complaint alleges ultimate facts showing that
plaintiff has a right and that such a right has been violated by defendant;
the questioned MB Resolutions were issued arbitrarily and with bad faith,
"being a part of a scheme to divest plaintiff's present stockholders of their
control of PBP and to award the same to the PDIC or its unknown
transferees"; and the averments of legality or illegality of the
conservatorship are relevant to the cause of action since the complaint
seeks the lifting of the conservatorship; (b) While it is true that under
Section 28-A of the Central Bank Act the conservator takes over the
management of a bank, the Board of Directors of such bank is not
prohibited from filing a suit to lift the conservatorship and from
questioning the validity of both the conservator's fraudulent acts and
abuses and its principal's (MB) arbitrary action; besides, PPI is now a
party-plaintiff in the action; and (c) plaintiffs have paid the correct filing
fees since "the value of the case cannot be estimated." 18
G.R. No. 88353
Unable to accept the above Order, herein petitioners CB and Jose B.
Fernandez, Jr. filed with respondent Court of Appeals on 11 January 1988
a petition for certiorari with preliminary injunction 19 to annul the 21
September and 27 November 1987 Orders of the respondent Judge,
restrain the implementation of the same and nullify the writ of preliminary
injunction. They contend therein that:
1. The trial court's injunctive order and writ are anomalous and
illegal because they are directed against CB acts and measures
which constitute no invasion of plaintiff's rights; and
2. The complaint filed was, on its face, dismissible: (a) for
failure to state a cause of action, (b) for being unauthorized by
the party in whose name it purports to have been filed, and (c)
for failure of the purported plaintiff to pay the required filing
fees.
Confronted with the "threshold and decisive issue of whether the
respondent Judge gravely abused his discretion when he issued the Writ of
Preliminary Injunction to enjoin petitioner from implementing Monetary
Board Resolutions Nos. 649 and 751 for having been issued arbitrarily and
with bad faith," the respondent Court promulgated the challenged decision
dismissing the petition for lack of merit. 20 Respondent Court ruled that
the CB's sudden and untimely announcement of the conservatorship over
PBP eroded the confidence which the banking public had hitherto reposed
on the bank and resulted in the bank-run; it then concluded that when the
CB "peremptorily and illtimely (sic) announced" the conservatorship, PBP
was not given an opportunity to be heard since the CB arbitrarily brushed
aside administrative due process notwithstanding PBP's having
sufficiently established its inherent corporate right to autonomously
perform its banking activities without undue governmental interference
that would in effect divest its stockholders of their control over the
operations of the bank." It further held that the challenged resolutions of
the MB are not just advisory in character "because the same sought to
impose upon the respondent bank petitioners' governmental acts that were
specifically designed and executed to devise a scheme that would
irreparably divest from the stockholders of the respondent bank control of
the same."
The motion filed by petitioners for the reconsideration of the above
decision was denied by the respondent Court in its Resolution of 17 May
1989. 21 On the issue of the non-payment of the correct docket fees, the
said court, in ruling that the correct amount was paid, said that "the instant
case is incapable of pecuniary estimation because the value of the losses
incurred by the respondent bank cannot be calibrated nor pinned down to a
specific amount in view of the damage that may be caused by the
appointment of a conservator to its goodwill and standing in the
community."
Undaunted by the adverse decision of the Court of Appeals, petitioners
filed with this Court on 30 July 1989 the instant petition for review under
Rule 45 of the Rules of Court. 22 It is alleged therein that the respondent
Court committed grave abuse of discretion in:
(1) Ignoring petitioners' contention that since PBP did not pay the
correct filing fees, the trial court did not acquire jurisdiction over
the case; hence, pursuant to Manchester Development Corp., et
al. vs.Court of Appeals, et al., G.R. No. 75919, 7 May 1987, 23 the
 7|Page CASES (FULL TEXT) – BANKING LAWS (GENERAL PRINCIPLES)
complaint should have been dismissed for lack of jurisdiction on
the part of the court;
(2) . . . ruling on the propriety or impropriety of the
conservatorship as a basis for determining the existence of a cause
of action since the amended complaint does not seek the annulment
or lifting of the conservatorship;
(3) . . . not holding that the amended complaint should have been
dismissed because it was filed in the name of PBP without the
authority of its conservator; and
(4) . . . not setting aside the Order of the trial court granting the
issuance of a writ of preliminary injunction which unlawfully
restrained the CB from exercising its mandated responsibilities and
effectively compelled it to allow the PBP to continue incurring
overdrafts with it.
This petition was docketed as G.R. No. 88353.
On 19 July 1989, this Court required the respondents to comment on the
petition. 24
In the Comment 25 filed on 9 October 1989, private respondents maintain
that: (a) the issue of whether or not they paid the correct filing fees
involves a question of correctness of judgment, not grave abuse of
discretion; errors of judgment cannot be the subject of the present petition
for certiorari; (b) the complaint and the amended complaint state
sufficient causes of action because they both contain specific allegations
of an illegal, unnecessary, disastrous and repressive conservatorship
conducted contrary to its mandated purpose, and breach of promissory
estoppel; furthermore, the trial court committed no grave abuse of
discretion when it found that the questioned MB Resolutions were
arbitrarily issued in contravention of the due process clause of the
Constitution; (c) the "Filing of the complaint without authority from the
conservator is an issue involving an error of judgment; besides, it would
be ridiculous and absurd to require such prior authorization from the
conservator for no one expects him to sanction the filing of a suit against
his principal –– the CB; moreover, Rule 3 of the Rules of Court requires
that every action must be prosecuted and defended in the name of the real
party in interest; besides, no administrative authority, even the CB, can
nullify judicial review of administrative action by requiring that only said
administrative authority or its designated conservator can file suit for
judicial review of its actuation; and (d) the writ of preliminary injunction
was properly issued.
Petitioners filed a Reply 26 to the Comment on 3 November 1989.
In their Supplemental Comment, private respondents argue that
the Manchester rule is not applicable in the case at bar because what is
primarily sought for herein is a writ of injunction and not an award for
damages; it is further alleged that an order denying a motion to dismiss is
neither appealable nor be made the proper subject of a petition
for certiorari absent a clear showing of lack of jurisdiction or grave abuse
of discretion.
On 15 February 1990, this Court resolved to give due course to the instant
petition and require the parties to simultaneously file their respective
Memoranda, 27 which they complied with.
On 1 March 1990, petitioners filed an Urgent Motion 28 informing this
Court of the fact that on 6 June 1989, PBP, through Henry Co, proposed
another rehabilitation plan which involved the infusion of fresh capital
into PBP by Banque Indosuez (Bangue) and the AFP-Retirement and
Separation Benefits Systems (ARSBS). Under said proposal, all existing
law suits of PBP against the Central Bank and the PBP Conservator,
and vice-versa, shall be withdrawn upon approval and implementation of
the plan. The plan was approved by the Monetary Board in its Resolution
No. 497 dated 23 June 1989. However, before the mechanics of the
rehabilitation plan could be threshed out among the parties, a "quarrel"
developed between Henry and Luis Co, who both have controlling
interests in PBP. Luis accused Henry of "serious manipulations" in PBP
and both steadfastly refused to settle their differences notwithstanding
efforts of mediators, including prospective investors. Eventually, the
prospective investors, in a letter dated 20 November 1989, advised the
Central Bank that they are withdrawing their offer to infuse capital in PBP
and that they have terminated all discussions with the Co family.
Petitioner further allege that with the withdrawal of Banque Indosuez and
RSBS, the rehabilitation plan for PBP is no longer feasible. Meanwhile,
the bank's overdraft with the Central Bank continues to rise. As of 13
February 1990, PBP's overdraft with the CB increased to P1.233 billion. If
the injunction is not lifted, PBP will continually bleed the CB because of
the former's liability to discharge its responsibilities under the law.
G.R. No. 92943
Pursuant to the powers and authority conferred upon her by the Central
Bank, Atty. Leonida Tansinsin-Encarnacion, in her capacity as
conservator, instituted reforms aimed at making PBP more viable. With
this purpose in mind, she started reorganizing the bank's personnel and
committees.
In order to prevent her from continuing with the reorganization, PBP filed
on 24 October 1987, or after it obtained a writ of preliminary injunction in
Civil Case No. 17692, an Omnibus Motion asking the trial court for an
order:
(a) reinstating PBP officers to their original positions and restoring the
bank's standing committees to their respective compositions prior to said
reorganization; (b) enjoining the lease of any portion of the bank's space in
Producers Bank Centre building to third parties and the relocation of
departments/offices of PBP as was contemplated; and (c) to hold, after an
opportunity to be heard is given her, said conservator in contempt of court
for disobedience of and resistance to the writ of injunction. An opposition
to the contempt charge was later filed by said petitioner.
Subsequently, upon its inclusion as party-plaintiff via the amended
complaint, PPI filed on 4 November 1987 a motion asking the lower court
to order the Central Bank and its agents to restore to PPI the
administration of the three (3) buildings earlier assigned to PBP pending
the lifting of the conservatorship. PPI claimed that such transfer was
necessary to prevent the rental income of said buildings being dissipated
by the conservator.
On 17 November 1987, both PBP and PPI filed a motion praying:
(1) that the CB Conservator be ordered to publish PBP's financial
statement for the last quarter of 1987 and every quarterly statement
thereafter during the pendency of this case, with the following
claims of plaintiff PBP against the Central Bank, to wit:
(a) Interest in unconscionable rates of CB overdrawing illegally
paid by the CB conservators to CB –– now totaling
P56,002,000.00,
(b) Penalties on reserve deficiencies illegally paid by the CB
conservators to CB –– now totaling P20,657,000.00,
(c) Penalties on reserve deficiencies not yet paid but which the
conservator has booked as liabilities –– now totaling
P31,717,000.00,
(d) Losses of operation by the CB conservators from January 31,
1984 to October 31, 1987 –– now totaling P461,092,000.00
as "suspense" accounts; and (2) that the CB conservator be
ordered to carry those "suspense" accounts in the books of PBP.
The following day, respondent Judge issued an Order (a) requiring
conservator Tansinsin-Encarnacion to reinstate PBP officers to their
original positions prior to the reorganization of the bank's personnel and
restore PBP's standing committees to their original compositions, and (b)
 8|Page CASES (FULL TEXT) – BANKING LAWS (GENERAL PRINCIPLES)
restraining her from leasing out to third parties any portion of PBP's space
in the Producers Bank Centre building. However, respondent Judge held in
abeyance the contempt proceedings against the conservator pending her
immediate compliance with the Order.
On 22 December 1987, respondent Judge granted PPI's motion for an
order transferring to it the administration of the three (3) buildings
assigned to PBP. A motion for reconsideration of this order was filed by
petitioners but was subsequently denied by respondent Judge in the Order
of 4 October 1988.
A second Order, issued by respondent Judge on the same day, 22
December 1987, directed conservator Tansinsin-Encarnacion to publish
the financial statement of PBP in the manner prayed for in the aforesaid 17
November 1987 motion. The motion to reconsider this Order was denied
by respondent Judge on 3 October 1988.
On several occasions thereafter, conservator Tansinsin-Encarnacion
caused the publication of PBP's financial statement as required by
regulations, without, however, carrying the items enumerated by the trial
court as "suspense accounts." Consequently, two (2) contempt charges
were filed against her, one for the 3 February 1988 publication in
the Manila Standard of PBP's statement of condition as of 29 December
1987 and the other for the 29 July 1988 publication in the Daily Globe of
the bank's statement as of 30 June 1988. Oppositions to both charges of
contempt were filed.
On 9 November 1988, respondent Judge declared said conservator guilty
of contempt of court on three (3) counts and imposed upon her a fine of
P1,000.00 for each count of contempt. The latter asked for reconsideration
of the order but the respondent Judge denied the same.
Another contempt charge against her was filed for publishing the
statement of condition of PBP (as of 13 September 1988) in the 9
November 1988 issue of the Daily Globe without carrying the alleged
"suspense accounts." She was again found guilty as charged and her
motion for reconsideration was denied. Finding no other adequate relief,
Tansinsin-Encarnacion filed with this Court on 11 January 1989 a petition
for certiorari against respondent Judge, Henry L. Co and the law firm of
Quisumbing, Torres and Evangelista. This case was docketed as G.R. No.
86526. She prays therein for judgment declaring respondent judge to be
without jurisdiction to entertain both the complaint and amended
complaint in Civil Case No. 17692; declaring null and void all his orders,
specially the contempt orders; and finding respondent Judge and
respondent lawyers guilty of violating their respective oaths of office. 29
On 8 February 1989, this Court resolved to refer said petition to the Court
of Appeals which docketed it as C.A.-G.R.-SP No. 16972.
In her Memorandum submitted to the Court of Appeals, Tansinsin-
Encarnacion alleged that: (1) respondent Judge has no jurisdiction over
Civil Case No. 17692 because its filing was not authorized by the
petitioner or the conservator in violation of Section 28-A of R.A. No. 265,
as amended, it was filed after the ten (10) day period prescribed by
Section 29 of R.A. No. 265, as amended, and the correct docket fees were
not paid; (2) respondent Judge illegally ordered her to return to PPI the
administration of the bank's three (3) properties, contrary to his own writ
of preliminary injunction and earlier order to make the bank viable, and to
publish the alleged "suspense accounts" contrary to Section 28-A of R.A.
No. 265, as amended, the writ of preliminary injunction and her
constitutional right to silence; (3) respondent Judge erred in declaring her
in contempt of court notwithstanding his lack of jurisdiction over the case
and failure to set any date for the hearing and reception of evidence, in
violation of her right to due process of law; and (4) respondents Judge and
lawyers are administratively liable for their grossly illegal actuations and
for depriving the Government of at least P13.2 million in filing fees. 30
In its decision dated 17 January 1990, the Court of Appeals (Twelfth
Division) 31 dismissed the petition; while finding the claim of lack of
jurisdiction to be without merit, the said court nonetheless gave the
following exception:
. . . except that plaintiffs in Civil Case No. 17692, within 15 days
from receipt of a copy of this Decision, shall file the corresponding
amendment to their amended complaint in said case, stating a
specific amount "to fully repair the damages inflicted on PBP
consisting of losses of operation and the conservator's bank frauds
and abuses", in the prayer of their amended complaint. Thereafter,
the Clerk of Court of the lower court and/or his duly authorized
Docket Clerk of Court in charge, should determine the amount
found due, which should be paid by complainants within the
applicable prescriptive or reglementary period, failure of which
said claims for damages shall be dismissed.
In disposing of the issues raised, respondent Court merely adopted with
approval the ruling of the respondent Judge on the question of jurisdiction
and cited the decision of the Court of Appeals in C.A.-G.R. SP No. 13624
(subject of G.R. No. 88353), sustaining the respondent Judge's ruling. As
to the filing of the complaint after the lapse of the 10-day
period provided for in Section 29 of R.A. No. 265, it ruled that the Section
does not apply because the complaint essentially seeks to compel the
conservator to perform his duties and refers to circumstances and incidents
which transpired after said 10-day period.
On the issue of lack of jurisdiction for non-payment of correct
filing fees, to which an exception was made in the dispositive
portion, the respondent Court found the same to be "partly"
meritorious. It agreed with petitioner that while the other losses
and damages sought to be recovered are incapable of pecuniary
estimation, the damages inflicted on PBP due to losses of
operation and the conservator's bank frauds and abuses were in
fact pegged at P108,479,771.00 in paragraph 26 of the amended
complaint. This specific amount, however, should have been
stated in the prayer of the complaint. It also held that
the Manchester case "has been legally construed in the
subsequent case of Sun Insurance Office Ltd. 32 and the case
of Filipinas Shell Petroleum Corp. 33 to the effect that applying
the doctrine initiated in the case of Manchester, together with
said subsequent thereto (sic), plaintiffs in Civil Case No. 17692
should be given a reasonable time to amend their complaint,
more particularly, to state in their prayer in the amended
complaint the specific amount of damages . . ."
On the orders of contempt and the reasons therefor, respondent Court
merely stated:
. . . Generally, when the court has jurisdiction over the subject
matter and of the person, decisions upon or questions pertinent
to the cause are decisions within its jurisdiction, and however,
irregular or erroneous they may be, they cannot be corrected by
certiorari Whether the court's conclusions was based merely on
speculations and conjecture, or on a misapprehension of facts
contrary to the documents and exhibits of the case, is not for us
to determine in a petition for certiorari wherein only issues of
jurisdiction may be raised. . . . Thus, the instant petition cannot
prosper.
and opined that under the Rules of Court, a judgment of
contempt may be questioned on appeal and not on certiorari.
Finally, on the administrative liability of the respondent Judge and the
lawyers, the respondent Court declared the claim to be without merit.
Petitioner's motion to reconsider the decision having been denied in the 2
April 1990 Resolution of the respondent Court, 34 she filed with this Court
a petition under Rule 45 of the Rules of Court, which was docketed as
G.R. No. 92943. Petitioner Claims that respondent Court grossly erred in
confirming/affirming the allegedly void Orders of respondent Judge which
 9|Page CASES (FULL TEXT) – BANKING LAWS (GENERAL PRINCIPLES)
denied the motion to dismiss the complaint and granted the writ of
preliminary injunction, restating in this regard the issues raised by the CB
in G.R. No. 88353, and in holding her in contempt of court on four
occasions. As to the last ground, she asserts that the Orders were issued in
violation of the Rules of Court and infringed her right to due process since
there was no hearing on the motions for contempt, except for the third
motion wherein respondent Judge immediately ordered the movant to
present evidence.
In their Comment, 35 filed in compliance with Our Resolution 21 May
1990, private respondents practically reiterated the arguments in their
Comment to the petition in G.R. No. 88353; in addition, more specifically
on the issue of contempt, they assert that while the motions for contempt
were set for hearing, there is no showing that the scheduled hearings
actually took place. Besides, the remedy to question a contempt order is an
appeal; 36 since petitioner did not appeal the questioned orders, the same
became final and executory. 37
After petitioner filed a Reply and private respondents submitted their
Rejoinder thereto, this Court gave due course to the petition.
THE ISSUES
The basic issue in these cases is whether or not the respondent Court
committed reversible error in affirming the challenged Orders of the
respondent Judge. This necessarily calls for a determination of whether or
not the respondent Judge committed grave abuse of discretion amounting
to lack of jurisdiction:
(1) In not dismissing Civil Case No. 17692 on the following
grounds: (a) lack of legal. personality to bring the action as the
same was filed in the name of the PBP without the authority of the
conservator; (b) failure of the complaint and amended complaint
to state a cause of action; and (c) non-payment of the correct
amount of docket fee in violation of the rule enunciated
in Manchester Development Corp.vs. Court of Appeals, et al.;
(2) In granting the writ of preliminary injunction; and
(3) In issuing the assailed Orders in G.R. No. 92943.
DISCUSSION
We shall take up the issues sequentially.
1. PBP has been under conservatorship since 20 January 1984. Pursuant to
Section 28-A of the Central Bank Act, 38 a conservator, once appointed,
takes over the management of the bank and assumes exclusive powers to
oversee every aspect of the bank's operations and affairs. Petitioners now
maintain that this power includes the authority to determine "whether or
not to maintain suit in the bank's name." 39 The trial court overruled this
contention stating that the section alluded to "does not prohibit the Board
of Directors of a bank to file suit to lift the conservatorship over it, to
question the validity of the conservator's fraudulent acts and abuses and
the arbitrary action of the conservator's principal –– the Monetary Board
of the Central Bank. The conservator cannot be expected to question his
own continued existence and acts. He cannot be expected to file suit to
annul the action of his principal . . . or a suit that would point out the ill-
motivation, the disastrous effects of the conservatorship and the
conservator's bank frauds and abuses as alleged in the complaint." 40
Obviously, the trial court was of the impression that what was sought for
in Civil Case No. 17692 is the lifting of the conservatorship because it was
arbitrarily and illegally imposed. While it may be true that the PBP
devoted the first 38 pages of its 47-page complaint and amended
complaint to what it considers an unwarranted, ill-motivated, illegal,
unnecessary, and unjustified conservatorship, it, nevertheless, submitted to
the same. There is nothing in the amended complaint to reflect an
unequivocal intention to ask for its lifting. Of course, as subsequent
maneuvers would show, PBP sought to accomplish the lifting thereof
through surreptitious means. That such action was not, on its face, filed to
have the conservatorship lifted, is best evidenced by PBP's prayer for a
judgment "ordering defendant Central Bank's conservator to restore the
viability of PBP as mandated by Section 28-A of R.A. No. 265 . .
." 41 Unfortunately too, respondent Court was easily misled into believing
that the amended complaint sought the lifting of the conservatorship.
Thus, although the matter was not specifically raised in issue and clearly
unnecessary for the determination of the issues squarely raised, the
respondent Court opined:
It is Our sober assessment that the respondent bank was not given
an opportunity to be heard when the Central Bank peremptorily
and illtimely (sic) announced the appointment of a conservatorship
over the latter (bank) for which reason We believe that
administrative due process was arbitrarily brushed aside to the
prejudice of the said bank. . . .
If it were to lift the conservatorship because it was arbitrarily imposed,
then the case should have been dismissed on the grounds of prescription
and lack of personality to bring the action. Per the fifth paragraph of
Section 29 of the Central Bank Act, as amended by Executive Order No.
289, the actions of the MB may be assailed in an appropriate pleading
filed by the stockholders of record representing the majority of the capital
stock within ten (10) days from receipt of notice by the said majority
stockholders of the order placing the bank under conservatorship. The
pertinent portion of said paragraph reads as follows:
The provisions of any law to the contrary notwithstanding, the
actions of the Monetary Board under this Section, Section 28-A,
and the second paragraph of section 34 of this Act shall be final
and executory, and can be set aside by a court only if there is
convincing proof, after hearing, that the action is plainly arbitrary
and made in bad faith: Provided, That the same is raised in an
appropriate pleading filed by the stockholders of record
representing the majority of the capital stock within ten (10) days
from the date the receiver takes charge of the assets and liabilities
of the bank or non-bank financial intermediary performing quasi-
banking functions or, in case of conservatorship or liquidation,
within ten (10) days from receipt of notice by the said majority
stockholders of said bank or non-bank financial intermediary of the
order of its placement under conservatorship or liquidation. . . .
The following requisites, therefore, must be present before the order of
conservatorship may be set aside by a court:
1. The appropriate pleading must be filed by the stockholders of
record representing the majority of the capital stock of the bank in
the proper court;
2. Said pleading must be filed within ten (10) days from receipt of
notice by said majority stockholders of the order placing the bank
under conservatorship; and
3. There must be convincing proof, after hearing, that the action is
plainly arbitrary and made in bad faith. 42
In the instant case, PBP was placed under conservatorship on 20 January
1984. The original complaint in Civil Case No. 17692 was filed only on
27 August 1987, or three (3) years, seven (7) months and seven (7)
days later, long after the expiration of the 10-day period deferred to above.
It is also beyond question that the complaint and the amended complaint
were not initiated by the stockholders of record representing the majority
of the capital stock. Accordingly, the order placing PBP under
conservatorship had long become final and its validity could no longer be
litigated upon before the trial court. Applying the original provision of the
aforesaid Section 29 of the Central Bank Act, this Court, in Rural Bank of
Lucena, Inc. vs. Arca, et al., 43 ruled that:
Nor can the proceedings before Judge Arca be deemed a judicial
review of the 1962 resolution No. 122 of the Monetary Board, if
only because by law (Section 29, R.A. 265) such review must be
asked within 10 days from notice of the resolution of the Board.
 10 | P a g e CASES (FULL TEXT) – BANKING LAWS (GENERAL PRINCIPLES)
Between the adoption of Resolution No. 122 and the challenged
order of Judge Arca, more than one year had elapsed. Hence, the
validity of the Monetary Board's resolution can no longer be
litigated before Judge Arca, whose role under the fourth paragraph
of section 29 is confined to assisting and supervising the
liquidation of the Lucena bank.
This rule is still good law notwithstanding the amendment to Section 29
which expands its scope by including the action of the MB under Section
28-A of the Act on the appointment of a conservator.
It was precisely an awareness of the futility of any action to set aside the
conservatorship which prompted PBP to limit its action to a claim for
damages and a prayer for an injunction against the implementation of MB
Resolution Nos. 649 and 751. However, to make it appear that it had a
meritorious case and a valid grievance against the Central Bank, it
wandered long into the past and narrated a sad story of persecution,
oppression and injustice since the inception of the conservatorship ––
obviously to gain the sympathy of the court, which it eventually obtained.
The next crucial question that suggests itself for resolution is whether an
action for damages arising from the MB's act of placing the PBP under
conservatorship and the acts of the conservator, and to enjoin the MB from
implementing resolutions related or incident to, or in connection with the
conservatorship, may be brought only for and in behalf of the PBP by the
stockholders on record representing the majority of the capital stock
thereof or simply upon authority of its Board of Directors, or by its
Chairman. We hereby rule that as to the first kind of damages, the same
may be claimed only if the MB's action is plainly arbitrary and made in
bad faith, and that the action therefor is inseparable from an action to set
aside the conservatorship. In other words, the same must be filed within
ten (10) days from receipt of notice of the order placing the bank under
conservatorship. Otherwise, the provision of the fifth paragraph of Section
29 of the Central. Bank Act could be rendered meaningless and illusory by
the bank's filing, beyond the prescribed ten-day period, of an action
ostensibly claiming damages but in reality questioning the
conservatorship. As to actions for the second kind of damages and for
injunction to restrain the enforcement of the CB's implementing
resolutions, said fifth paragraph of Section 29 of the Central Bank Act, as
amended, equally applies because the questioned acts are but incidental to
the conservatorship. The purpose of the law in requiring that only the
stockholders of record representing the majority of the capital stock may
bring the action to set aside a resolution to place a bank under
conservatorship is to ensure that it be not frustrated or defeated by the
incumbent Board of Directors or officers who may immediately resort to
court action to prevent its implementation or enforcement. It is presumed
that such a resolution is directed principally against acts of said Directors
and officers which place the bank in a state of continuing inability to
maintain a condition of liquidity adequate to protect the interest of
depositors and creditors. Indirectly, it is likewise intended to protect and
safeguard the rights and interests of the stockholders. Common sense and
public policy dictate then that the authority to decide on whether to contest
the resolution should be lodged with the stockholders owning a majority
of the shares for they are expected to be more objective in determining
whether the resolution is plainly arbitrary and issued in bad faith.
The original complaint in Civil Case No. 17692 was not initiated by the
majority of the stockholders, hence it should have been dismissed.
However, confronted with this fatal flaw, counsel for PBP, through
shrewd maneuvering, attempted to save the day by impleading as co-
plaintiff a corporation, the PPI, which was not under conservatorship.
Unfortunately, the maneuver was crudely and imperfectly executed.
Except for the inclusion of its name, nothing new was actually added to
the original complaint in terms of causes of action and reliefs for PPI. The
amendment then was an exercise in futility. We cannot, however,
subscribe to the petitioner's view that: (a) once a bank is placed under
conservatorship, no action may be filed on behalf of the bank without
prior approval of the conservator, and (b) since in this case such approval
was not secured prior to the filing of Civil Case No. 17692, the latter must
also be dismissed on that ground. No such approval is necessary where the
action was instituted by the majority of the bank's stockholders. To
contend otherwise would be to defeat the rights of such stockholders under
the fifth paragraph of Section 29 of the Central Bank Act. It must be
stressed here that a bank retains its juridical personality even if placed
under conservatorship; 44 it is neither replaced nor substituted by the
conservator who, per Section 28-A of the Central Bank Act, as amended
by P.D. No. 1932, shall only:
. . . take charge of the assets, liabilities, and the management of
that institution, collect all monies and debts due said institution and
exercise all powers necessary to preserve the assets of the
institution, reorganize the management thereof, and restore its
viability. He shall have the power to overrule, or revoke the actions
of the previous management and board of directors . . ., any
provision of law to the contrary notwithstanding, and such other
powers as the Monetary Board shall deem necessary.
Even assuming for the sake of argument that the action was properly
brought by an authorized party, the same must nevertheless be dismissed
for failure of the plaintiffs therein to pay the correct docket fees, pursuant
to Manchester Development Corp. vs. Court of Appeals, et al.; 45 the said
case was decided by this Court on 7 May 1987, exactly three (3) months
and twenty (20) days before the filing of the original complaint and five
(5) months and eighteen (18) days before the filing of the Amended
Complaint in Civil Case No. 17692. We ruled therein that:
The Court acquires jurisdiction over any case only upon the
payment of the prescribed docket fee. An amendment of the
complaint or similar pleading will not thereby vest jurisdiction in
the Court, much less the payment of the docket fee based on the
amounts sought in the amended pleading. The ruling in the
Magaspi case [115 SCRA 193], in so far as it is inconsistent with
this pronouncement is overturned and reversed.
The respondent Judge, in ruling that PBP and PPI had paid the correct
docket fee of P102.00, said that "the value of the case cannot be
estimated" since what is sought is an injunction against the enforcement of
the challenged resolutions of the MB; in short, the claim for damages is
merely incidental. Upon the other hand, respondent Court, in its
Resolution of 17 May 1989 in C.A.-G.R. SP No. 13624, ruled that the case
is "incapable of pecuniary estimation" because the value of the losses
incurred by the PBP "cannot be calibrated nor pinned down to a specific
amount in view of the damage that may be caused by the appointment of a
conservator to its goodwill and standing in the community." 46
Both conclusions are unfounded and are the result of a misapprehension of
the allegations and causes of action in both the complaint and amended
complaint.
While PBP cleverly worded its complaint in Civil Case No. 17692 to
make it appear as one principally for injunction, deliberately omitting the
claim for damages as a specific cause of action, a careful examination
thereof bears that the same is in reality an action for damages arising out
of the alleged "unwarranted, ill-motivated and illegal conservatorship," or
a conservatorship which "was utterly unnecessary and unjustified," and the
"arbitrary" appointment of a conservator. 47 Thus, as stated earlier, it
devoted the bulk of its petition to detailed events, occurrences and
transactions in support thereof and patiently enumerated the losses it
sustained and suffered. The pertinent portions of paragraph 27 of both the
original and amended complaints read as follows:
27. The record of the Central Bank –– conservatorship of PBP
clearly shows that it was responsible for the losses.
xxx xxx xxx
[Then follows an enumeration, from (a) to (u), of particular acts
causing or resulting in losses, most of which are specifically
stated]
 11 | P a g e CASES (FULL TEXT) – BANKING LAWS (GENERAL PRINCIPLES)
xxx xxx xxx
(v) Total of only the foregoing mentioned and only of those that
can be quantified is P108,479,771.00.
And that excludes loss of profits that PBP could have
realized if that disastrous conservatorship had not been
imposed on it and loss of goodwill.
The causes for these abuses of the conservators are course
graft and corruption of the conservators aside from fault in the
system which denies private enterprise. (emphasis supplied)
xxx xxx xxx
These are the very damages referred to in the prayer:
. . . to fully repair the damages inflicted on PBP
consisting of losses of operation and the conservators'
bank frauds and abuses, . . .
but not specified therein. To this Court's mind, this was done to evade
the payment of the corresponding filing fees which, as computed by
petitioner on the basis alone of the specified losses of P108,479,771.00,
would amount to about P 437,000.00. 48 The PBP then clearly acted
with manifest bad faith in resorting to the foregoing clever strategy to
avoid paying the correct filing fees. We are thus constrained to reiterate
Our pronouncements in the Manchester case:
The Court cannot close this case without making the observation that
it frowns at the practice of counsel who filed the original complaint in
this case of omitting any specification of the amount of damages in
the prayer although the amount of over P78 million is alleged in the
body of the complaint. This is clearly intended for no other purpose
than to evade the payment of the correct filing fees if not to mislead
the docket clerk in the assessment of the filing fee. . . .
The respondent Court itself, in its decision of 17 January 1990 in C.A-
G.R. SP No. 16972, 49 confronted by the same issue, but perhaps unaware
of its Resolution of 17 May 1989 in C.A.-G.R. SP No. 13624
aforementioned, ruled that PBP and PPI are liable for the filing fees on the
claim for damages. It even directed PBP and PPI to file "the corresponding
amendment to their amended complaint in said case stating a specific
amount 'to fully repair the damages inflicted on PBP consisting of losses
of operation and the conservator's bank frauds and abuses' . . .," after
which the Clerk of Court of the lower court or his duly authorized docket
clerk should determine the amount found due, which said plaintiffs shall
pay "within the applicable prescriptive or reglementary period,. . ." 50 The
17 January 1990 ruling, clearly reversing the earlier one, is of doubtful
propriety in view of the petition for review of the decision in C.A.-G.R.
SP No. 13624 filed by the petitioner.
In granting PBP and PPI an opportunity to amend their amended
complaint to reflect the specific amount of damages in the prayer of their
Amended Complaint, respondent Court took refuge under the rule laid
down in Sun Insurance Office, Ltd., et al. vs. Asuncion, et
al. 51 and Filipinas Shell Petroleum Corp. vs. Court of Appeals, et al. 52Of
course, it was erroneous for respondent Court to apply these last two (2)
cases which were decided by this Court three (3) months short of two (2)
years after the promulgation of the Manchester decision on 7 May 1987.
Accordingly, since the original complaint in Civil Case No. 17692 was
filed on 27 August 1987, the Manchester doctrine was the controlling and
applicable law. The lower court had no choice but to apply it when its
attention was called by the petitioner.
Moreover, even granting for the sake of argument that Sun
Insurance and Pilipinas Shell 53 may apply in this case, We should not
lose sight of the fact that in the former, this Court categorically stated:
1. It is not simply the filing of the complaint or appropriate initiatory
pleading, but the payment of the prescribed docket fee, that vests a
trial court with jurisdiction over the subject-matter or nature of the
action. Where the filling of the initiatory pleading is not accompanied
by payment of the docket fee, the court may allow the payment of the
fee within a reasonable time but in no case beyond the applicable
prescriptive or reglementary period.
The prescriptive period therein mentioned refers to the period within
which a specific action must be filed. It means that in every case, the
docket fee must be paid before the lapse of the prescriptive period.
Chapter 3, Title V, Book III of the Civil Code is the principal law
governing prescription of actions.
There can be no question that in the instant case, PBP's claims for
damages arise out of an injury to its rights. Pursuant to Article 1146 of the
Civil Code, the action therefor must be initiated within four (4) years from
the time the cause of action accrued. Since the damages arose out of the
alleged unwarranted, ill-motivated, illegal, unnecessary and unjustified
conservatorship, the cause of action, if any, first accrued in 1984 and
continued until 27 August 1987, when the original complaint was filed.
Even if We are to assume that the four-year period should start running on
27 August 1987, that period lapsed on 27 August 1991. There is no
showing that PBP paid the correct filing fee for the claim within the
prescribed period. Hence, nothing can save Civil Case No. 17692 from
being dismissed.
2. And now on the issue of the writ of preliminary injunction.
The challenged Orders of the trial court granting the application for a writ
of preliminary injunction and the assailed decision of the respondent Court
in C.A. G.R. No. 13624 clearly betray a prejudgment of the case. In both
instances, not only did said courts declare MB Resolutions Nos. 649 and
751 to be arbitrary, both also declared the conservatorship to have been
issued in violation of PBP's right to administrative due process, which the
CB "arbitrarily brushed aside to the prejudice" of the latter. The said
courts further concluded that "the sudden and untimely announcement by
the Central Bank that respondent Producers Bank will be under a
conservatorship that will oversee its operations worked havoc over the
confidence that the public had hitherto reposed on respondent bank so that
the majority of its depositors over-reacted and rashly withdrew their
accounts from said bank, thus it incurred a loss of P593.707 million or
59.5% of its deposits."
Thus, save only for the determination of the full extent of PBP's claim for
damages, said courts have, at the most, decided or, at the very least,
prejudged the case. Courts, notwithstanding the discretion given to them,
should avoid issuing writs of preliminary injunction which in effect
dispose of the main case without a trial. 54 We do not then hesitate to rule
that there was grave abuse of discretion in the issuance of the writ of
preliminary injunction.
Besides, there was neither arbitrariness nor bad faith in the issuance of
MB Resolutions Nos. 649 and 751. It must be stressed in this connection
that the banking business is properly subject to reasonable regulation
under the police power of the state because of its nature and relation to the
fiscal affairs of the people and the revenues of the state. 55 Banks are
affected with public interest because they receive funds from the general
public in the form of deposits. Due to the nature of their transactions and
functions, a fiduciary relationship is created between the banking
institutions and their depositors. Therefore, banks are under the obligation
to treat with meticulous care and utmost fidelity the accounts of those who
have reposed their trust and confidence in them. 56
It is then Government's responsibility to see to it that the financial interests
of those who deal with banks and banking institutions, as depositors or
otherwise, are protected. In this country, that task is delegated to the
Central Bank which, pursuant to its Charter, 57 is authorized to administer
the monetary, banking and credit system of the Philippines. Under both
the 1973 and 1987 Constitutions, the Central Bank is tasked with
providing policy direction in the areas of money, banking and credit;
corollarily, it shall have supervision over the operations of banks. 58 Under
its charter, the CB is further authorized to take the necessary steps against
any banking institution if its continued operation would cause prejudice to
 12 | P a g e CASES (FULL TEXT) – BANKING LAWS (GENERAL PRINCIPLES)
its depositors, creditors and the general public as well. This power has
been expressly recognized by this Court. In Philippine Veterans Bank
Employees Union-NUBE vs. Philippine Veterans Bank, 59 this Court held
that:
. . . Unless adequate and determined efforts are taken by the
government against distressed and mismanaged banks, public faith
in the banking system is certain to deteriorate to the prejudice of the
national economy itself, not to mention the losses suffered by the
bank depositors, creditors, and stockholders, who all deserve the
protection of the government. The government cannot simply cross
its arms while the assets of a bank are being depleted through
mismanagement or irregularities. It is the duty of the Central Bank
in such an event to step in and salvage the remaining resources of
the bank so that they may not continue to be dissipated or plundered
by those entrusted with their management.
One important measure adopted by the government to protect the public
against unscrupulous practices of some bankers is to require banking
institutions to set up reserves against their deposit liabilities. These
reserves, pegged at a certain percentage of the volume of deposit liability,
is that portion of the deposit received by a banking institution which it
cannot use for loans and investments. The reserve requirement, which
ordinarily takes the form of a deposit with the Central Bank, is one means
by which the government ensures the liquidity of banking institutions. 60
These reserve accounts maintained by banking institutions with the
Central Bank also serve as a basis for the clearing of checks and the
settlement of interbank balances. 61
The need to maintain these required reserves cannot be over-emphasized.
Thus, where over-drawings on deposit accounts (regardless of amount) are
incurred, R.A. No. 265 requires the delinquent bank to:
. . . fully cover said overdraft not later than the next clearing
day: Provided, Further, That settlement of clearing balances shall
not be effected for any account which continue to, be overdrawn for
five 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 Sec. 90 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 Central Bank as of the effectivity of this
amended section 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 comply herewith, the Central Bank shall
take such action against the bank as may be warranted under this
Act. 62 [Emphasis supplied.]
The fact that PBP is grossly overdrawn on its reserve account with the CB
(up to P1.233 billion as of 13 February 1990) is not disputed by PBP. This
enormous overdraft evidences the patent inability of the bank's
management to keep PBP liquid. This fact alone sufficiently justifies the
remedial measures taken by the Monetary Board.
MB Resolutions Nos. 649 and 751 were not promulgated to arbitrarily
divest the present stockholders of control over PBP, as is claimed by the
latter. The same contemplates an effective and viable plan to revive and
restore PBP. It is to be noted that before issuing these resolutions, the MB
gave the management of PBP ample opportunity (from 30 March 1984 to
June of 1987) to submit a viable rehabilitation plan for the bank.
MB Resolution Nos. 751 merely reiterated the requirement set forth in
Resolution No. 649 for PBP to identify and submit the list of new
stockholders who will infuse new capital into the bank for CB approval. In
this Resolution, the MB gave PBP's stockholders one (1) week from notice
within which to signify their acceptance or rejection of the proposed
rehabilitation plan.
The foregoing resolutions refer to a recommended rehabilitation plan.
What was conveyed to PBP was a mere proposal. There was nothing in the
resolutions to indicate that the plan was mandatory. On the contrary, PBP
was given a specific period within which to accept or reject the plan. And,
as petitioners correctly pointed out, the plan was not self-implementing.
The warning given by the MB that should said proposal be rejected, the
CB "will take appropriate alternative actions on the matter," does not
make the proposed rehabilitation plan compulsory. Whether or not there is
a rehabilitation plan agreed upon between PBP and the MB, the CB is
authorized under R.A. No. 265 to take appropriate measures to protect the
interest of the bank's depositors as well as of the general public.
Furthermore, the assignment of claims to PDIC and the subsequent dacion
en pago (payment of credit through shares) do not divest the present
stockholders of control over PBP. As may be readily observed from the
terms of Resolution No. 645, the shares which shall be issued to PDIC
under the dacion are preferred, non-voting and non-participating shares.
Hence, except for the instances enumerated in the Corporation Code
where holders of non-voting shares are given the right to vote, PDIC shall
have no hand in the bank's operation or business. In any event, these
preferred shares will eventually be sold to private parties or new
stockholders as soon as they are identified by PBP and approved by the
CB. Prior approval by the CB of the stockholders is necessary screening
purposes.
There is nothing objectionable to the actions of the MB. We, therefore,
find to be completely without legal or evidentiary basis the contention that
the impugned resolutions are arbitrary, illegal and made in bad faith.
Moreover, respondent Judge acted in complete disregard of Section 107 of
R.A. No. 265 when he enjoined the CB from taking appropriate actions
against the bank, "including exclusion of (PBP) from settlement of
clearing balances at the Central Bank clearing house" as warranted by law.
By using his own standards, and without scrutinizing the law, respondent
Judge arbitrarily determined when CB may or may not initiate measures
against a bank that cannot maintain its liquidity. He also arbitrarily and
capriciously decided who can continually overdraw from the deposit
account with the CB, to the prejudice of other banking institutions, the
banking public and the government.
3. As could be gleamed from the pleadings in G.R. No. 92943, the
respondent Judge, per his order of 18 November 1987, (a) directed the
conservator to restore both the PBP officers to their original positions
prior to the reorganization of the bank's personnel, and the PBP's standing
committees to their original compositions, and (b) restrained her from
leasing out to a third party any portion of PBP's space in the Producers
Bank Centre; per his Order of 22 December 1987, respondent Judge
granted PPI's motion for an order transferring to the latter the
administration of the three (3) buildings; and per the Order of 22
December 1987, he granted the motion directing the conservator to
publish the financial statement of the PBP in the manner prayed for by the
latter.
The foregoing Orders were issued without due hearing. Moreover, these
reliefs were not prayed for in the Amended Complaint. They were not
even covered by any specific allegations therein. Except for the
prohibition to lease, the rest partook of the nature of a preliminary
mandatory injunction which deprived the conservator of her rights and
powers under Section 28-A of R.A. No. 265 and, in effect, set aside the
conservatorship with PBP itself had earlier accepted. It must be
remembered that PBP did not ask, in its Amended Complaint, for the
setting aside of the conservatorship. On the contrary, it even prayed that
the conservator be ordered to restore the viability of PBP as mandated by
said Section 28-A.
The respondent Judge should not have forgotten the settled doctrine that it
is improper to issue a writ of preliminary mandatory injunction prior to the
final hearing, except in cases of extreme urgency, where the right is very
 13 | P a g e CASES (FULL TEXT) – BANKING LAWS (GENERAL PRINCIPLES)
clear, where considerations of relative inconvenience bear strongly in
complainant's favor, where there is a willful and unlawful invasion of
plaintiff's right against his protest and remonstrance, the injury being a
continuing one, and where the effect of the mandatory injunction is rather
to re-establish and maintain a pre-existing continuing relation between the
parties, recently and arbitrarily interrupted by the defendant, than to
establish a new relation. 63
It is plain to this Court that respondent Judge ceased to be an impartial
arbitrator; he became the godfather of PBP and PPI, granting to them
practically all that they had asked for in the motions they filed. Upon the
issuance of these Orders, nothing appeared clearer in the judicial horizon
than this –– PBP and PPI had everything in the bag, so to speak, including
the reliefs not even contemplated in their Amended Complaint. The
challenged Orders then were whimsically and arbitrarily issued.
Compounding such detestable conduct is the respondent Judge's issuance,
with undue haste and unusual speed, of the orders of contempt without the
proper hearing. If the conservator could, at all, be liable for contempt, it
would be for indirect contempt punished under Section 3, Rule 71 of the
Rules of Court, more specifically item (b) of the first paragraph which
reads:
Sec. 3 Indirect contempts to be punished after charge and hearing.
–– After charge in writing has been filed, and an opportunity given
to the accused to be heard by himself or counsel, a person guilty of
any of the following acts may be punished for contempt:
xxx xxx xxx
(b) Disobedience of or resistance to a lawful writ, process,
order, judgment, or command of a court, or injunction granted
by a court or judge, . . .;
It is clear from the said section that it is necessary that there be a charge
and that the party cited for contempt be given an opportunity to be heard.
The reason for this is that contempt partakes of the nature of a criminal
offense. In the instant case, each motion for contempt served as the
charge. It is settled that a charge may be filed by a fiscal, a judge, or even
a private person. 64 Petitioner Tansinsin-Encarnacion filed oppositions
thereto. Thereafter, it was the duty of the respondent Judge to hold a
hearing on the motions. Respondent Judge deliberately did away with the
hearing and this Court finds no justifiable reason therefor.
There is, moreover, another reason why the contempt orders must be
struck down. The orders which were supposedly disobeyed and from
which the motions for contempt arose were, as earlier indicated, null and
void for having been issued with grave abuse of discretion amounting to
lack of jurisdiction. Such Orders, therefore, cannot then be characterized
as lawful. Consequently, resistance thereto cannot be punished as
contempt 65
PREMISES CONSIDERED, the petitions in G.R. Nos. 88353 and 92943
are GRANTED. The 6 October 1988 decision and 17 May 1989 resolution
of the Court of Appeals in C.A.-G.R. SP No. 13624 are REVERSED and
SET ASIDE. Respondent Judge is ordered to dismiss Civil Case No.
17692. All proceedings undertaken and all orders issued by respondent
Judge are hereby SET ASIDE for being null and void. The writ of
preliminary injunction issued by the trial court in its Order dated 21
September 1987 is hereby LIFTED.
IT IS SO ORDERED.
FIRST DIVISION
G.R. No. 88013 March 19, 1990
SIMEX INTERNATIONAL (MANILA), INCORPORATED vs.
THE HONORABLE COURT OF APPEALS and TRADERS ROYAL
BANK
CRUZ, J.:
We are concerned in this case with the question of damages, specifically
moral and exemplary damages. The negligence of the private respondent
has already been established. All we have to ascertain is whether the
petitioner is entitled to the said damages and, if so, in what amounts.
The parties agree on the basic facts. The petitioner is a private corporation
engaged in the exportation of food products. It buys these products from
various local suppliers and then sells them abroad, particularly in the
United States, Canada and the Middle East. Most of its exports are
purchased by the petitioner on credit.
The petitioner was a depositor of the respondent bank and maintained a
checking account in its branch at Romulo Avenue, Cubao, Quezon City.
On May 25, 1981, the petitioner deposited to its account in the said bank
the amount of P100,000.00, thus increasing its balance as of that date to
P190,380.74. 1 Subsequently, the petitioner issued several checks against
its deposit but was suprised to learn later that they had been dishonored for
insufficient funds.
The dishonored checks are the following:
1. Check No. 215391 dated May 29, 1981, in favor of California
Manufacturing Company, Inc. for P16,480.00:
2. Check No. 215426 dated May 28, 1981, in favor of the Bureau of
Internal Revenue in the amount of P3,386.73:
3. Check No. 215451 dated June 4, 1981, in favor of Mr. Greg
Pedreño in the amount of P7,080.00;
4. Check No. 215441 dated June 5, 1981, in favor of Malabon
Longlife Trading Corporation in the amount of P42,906.00:
5. Check No. 215474 dated June 10, 1981, in favor of Malabon
Longlife Trading Corporation in the amount of P12,953.00:
6. Check No. 215477 dated June 9, 1981, in favor of Sea-Land
Services, Inc. in the amount of P27,024.45:
7. Check No. 215412 dated June 10, 1981, in favor of Baguio
Country Club Corporation in the amount of P4,385.02: and
8. Check No. 215480 dated June 9, 1981, in favor of Enriqueta
Bayla in the amount of P6,275.00. 2
As a consequence, the California Manufacturing Corporation sent on June
9, 1981, a letter of demand to the petitioner, threatening prosecution if the
dishonored check issued to it was not made good. It also withheld delivery
of the order made by the petitioner. Similar letters were sent to the
petitioner by the Malabon Long Life Trading, on June 15, 1981, and by
the G. and U. Enterprises, on June 10, 1981. Malabon also canceled the
petitioner's credit line and demanded that future payments be made by it in
cash or certified check. Meantime, action on the pending orders of the
petitioner with the other suppliers whose checks were dishonored was also
deferred.
The petitioner complained to the respondent bank on June 10,
1981. 3 Investigation disclosed that the sum of P100,000.00 deposited by
the petitioner on May 25, 1981, had not been credited to it. The error was
rectified on June 17, 1981, and the dishonored checks were paid after they
were re-deposited. 4
In its letter dated June 20, 1981, the petitioner demanded reparation from
the respondent bank for its "gross and wanton negligence." This demand
was not met. The petitioner then filed a complaint in the then Court of
First Instance of Rizal claiming from the private respondent moral
damages in the sum of P1,000,000.00 and exemplary damages in the sum
of P500,000.00, plus 25% attorney's fees, and costs.
 14 | P a g e CASES (FULL TEXT) – BANKING LAWS (GENERAL PRINCIPLES)
After trial, Judge Johnico G. Serquinia rendered judgment holding that
moral and exemplary damages were not called for under the
circumstances. However, observing that the plaintiff's right had been
violated, he ordered the defendant to pay nominal damages in the amount
of P20,000.00 plus P5,000.00 attorney's fees and costs. 5 This decision
was affirmed in toto by the respondent court. 6
The respondent court found with the trial court that the private respondent
was guilty of negligence but agreed that the petitioner was nevertheless
not entitled to moral damages. It said:
The essential ingredient of moral damages is proof of bad faith (De
Aparicio vs. Parogurga, 150 SCRA 280). Indeed, there was the
omission by the defendant-appellee bank to credit appellant's deposit
of P100,000.00 on May 25, 1981. But the bank rectified its records. It
credited the said amount in favor of plaintiff-appellant in less than a
month. The dishonored checks were eventually paid. These
circumstances negate any imputation or insinuation of malicious,
fraudulent, wanton and gross bad faith and negligence on the part of
the defendant-appellant.
It is this ruling that is faulted in the petition now before us.
This Court has carefully examined the facts of this case and finds that it
cannot share some of the conclusions of the lower courts. It seems to us
that the negligence of the private respondent had been brushed off rather
lightly as if it were a minor infraction requiring no more than a slap on the
wrist. We feel it is not enough to say that the private respondent rectified
its records and credited the deposit in less than a month as if this were
sufficient repentance. The error should not have been committed in the
first place. The respondent bank has not even explained why it was
committed at all. It is true that the dishonored checks were, as the Court of
Appeals put it, "eventually" paid. However, this took almost a month
when, properly, the checks should have been paid immediately upon
presentment.
As the Court sees it, the initial carelessness of the respondent bank,
aggravated by the lack of promptitude in repairing its error, justifies the
grant of moral damages. This rather lackadaisical attitude toward the
complaining depositor constituted the gross negligence, if not wanton bad
faith, that the respondent court said had not been established by the
petitioner.
We also note that while stressing the rectification made by the respondent
bank, the decision practically ignored the prejudice suffered by the
petitioner. This was simply glossed over if not, indeed, disbelieved. The
fact is that the petitioner's credit line was canceled and its orders were not
acted upon pending receipt of actual payment by the suppliers. Its business
declined. Its reputation was tarnished. Its standing was reduced in the
business community. All this was due to the fault of the respondent bank
which was undeniably remiss in its duty to the petitioner.
Article 2205 of the Civil Code provides that actual or compensatory
damages may be received "(2) for injury to the plaintiff s business
standing or commercial credit." There is no question that the petitioner did
sustain actual injury as a result of the dishonored checks and that the
existence of the loss having been established "absolute certainty as to its
amount is not required." 7 Such injury should bolster all the more the
demand of the petitioner for moral damages and justifies the examination
by this Court of the validity and reasonableness of the said claim.
We agree that moral damages are not awarded to penalize the defendant
but to compensate the plaintiff for the injuries he may have suffered. 8 In
the case at bar, the petitioner is seeking such damages for the prejudice
sustained by it as a result of the private respondent's fault. The respondent
court said that the claimed losses are purely speculative and are not
supported by substantial evidence, but if failed to consider that the amount
of such losses need not be established with exactitude precisely because of
their nature. Moral damages are not susceptible of pecuniary estimation.
Article 2216 of the Civil Code specifically provides that "no proof of
pecuniary loss is necessary in order that moral, nominal, temperate,
liquidated or exemplary damages may be adjudicated." That is why the
determination of the amount to be awarded (except liquidated damages) is
left to the sound discretion of the court, according to "the circumstances of
each case."
From every viewpoint except that of the petitioner's, its claim of moral
damages in the amount of P1,000,000.00 is nothing short of preposterous.
Its business certainly is not that big, or its name that prestigious, to sustain
such an extravagant pretense. Moreover, a corporation is not as a rule
entitled to moral damages because, not being a natural person, it cannot
experience physical suffering or such sentiments as wounded feelings,
serious anxiety, mental anguish and moral shock. The only exception to
this rule is where the corporation has a good reputation that is debased,
resulting in its social humiliation. 9
We shall recognize that the petitioner did suffer injury because of the
private respondent's negligence that caused the dishonor of the checks
issued by it. The immediate consequence was that its prestige was
impaired because of the bouncing checks and confidence in it as a reliable
debtor was diminished. The private respondent makes much of the one
instance when the petitioner was sued in a collection case, but that did not
prove that it did not have a good reputation that could not be marred, more
so since that case was ultimately settled. 10 It does not appear that, as the
private respondent would portray it, the petitioner is an unsavory and
disreputable entity that has no good name to protect.
Considering all this, we feel that the award of nominal damages in the sum
of P20,000.00 was not the proper relief to which the petitioner was
entitled. Under Article 2221 of the Civil Code, "nominal damages are
adjudicated in order that a right of the plaintiff, which has been violated or
invaded by the defendant, may be vindicated or recognized, and not for the
purpose of indemnifying the plaintiff for any loss suffered by him." As we
have found that the petitioner has indeed incurred loss through the fault of
the private respondent, the proper remedy is the award to it of moral
damages, which we impose, in our discretion, in the same amount of
P20,000.00.
Now for the exemplary damages.
The pertinent provisions of the Civil Code are the following:
Art. 2229. 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.
Art. 2232. In contracts and quasi-contracts, the court may award
exemplary damages if the defendant acted in a wanton, fraudulent,
reckless, oppressive, or malevolent manner.
The banking system is an indispensable institution in the modern world
and plays a vital role in the economic life of every civilized nation.
Whether as mere passive entities for the safekeeping and saving of money
or as active instruments of business and commerce, banks have become an
ubiquitous presence among the people, who have come to regard them
with respect and even gratitude and, most of all, confidence. Thus, even
the humble wage-earner has not hesitated to entrust his life's savings to the
bank of his choice, knowing that they will be safe in its custody and will
even earn some interest for him. The ordinary person, with equal faith,
usually maintains a modest checking account for security and convenience
in the settling of his monthly bills and the payment of ordinary expenses.
As for business entities like the petitioner, the bank is a trusted and active
associate that can help in the running of their affairs, not only in the form
of loans when needed but more often in the conduct of their day-to-day
transactions like the issuance or encashment of checks.
In every case, the depositor expects the bank to treat his account with the
utmost fidelity, whether such account consists only of a few hundred pesos
or of millions. The bank must record every single transaction accurately,
 15 | P a g e CASES (FULL TEXT) – BANKING LAWS (GENERAL PRINCIPLES)
down to the last centavo, and as promptly as possible. This has to be done
if the account is to reflect at any given time the amount of money the
depositor can dispose of as he sees fit, confident that the bank will deliver
it as and to whomever he directs. A blunder on the part of the bank, such
as the dishonor of a check without good reason, can cause the depositor
not a little embarrassment if not also financial loss and perhaps even civil
and criminal litigation.
The point is that as a business affected with public interest and because of
the nature of its functions, the bank is under obligation to treat the
accounts of its depositors with meticulous care, always having in mind the
fiduciary nature of their relationship. In the case at bar, it is obvious that
the respondent bank was remiss in that duty and violated that relationship.
What is especially deplorable is that, having been informed of its error in
not crediting the deposit in question to the petitioner, the respondent bank
did not immediately correct it but did so only one week later or twenty-
three days after the deposit was made. It bears repeating that the record
does not contain any satisfactory explanation of why the error was made in
the first place and why it was not corrected immediately after its
discovery. Such ineptness comes under the concept of the wanton manner
contemplated in the Civil Code that calls for the imposition of exemplary
damages.
After deliberating on this particular matter, the Court, in the exercise of its
discretion, hereby imposes upon the respondent bank exemplary damages
in the amount of P50,000.00, "by way of example or correction for the
public good," in the words of the law. It is expected that this ruling will
serve as a warning and deterrent against the repetition of the ineptness and
indefference that has been displayed here, lest the confidence of the public
in the banking system be further impaired.
ACCORDINGLY, the appealed judgment is hereby MODIFIED and the
private respondent is ordered to pay the petitioner, in lieu of nominal
damages, moral damages in the amount of P20,000.00, and exemplary
damages in the amount of P50,000.00 plus the original award of attorney's
fees in the amount of P5,000.00, and costs.
SO ORDERED.
SECOND DIVISION
G.R. No. 118492 August 15, 2001
GREGORIO H. REYES and CONSUELO PUYAT-REYES vs. THE
HON. COURT OF APPEALS and FAR EAST BANK AND TRUST
COMPANY
DE LEON, JR., J.:
Before us is a petition for review of the Decision1 dated July 22, 1994 and
Resolution2 dated December 29, 1994 of the Court of Appeals3 affirming
with modification the Decision4 dated November 12, 1992 of the Regional
Trial Court of Makati, Metro Manila, Branch 64, which dismissed the
complaint for damages of petitioners spouses Gregorio H. Reyes and
Consuelo Puyat-Reyes against respondent Far East Bank and Trust
Company.
The undisputed facts of the case are as follows:
In view of the 20th Asian Racing Conference then scheduled to be held in
September, 1988 in Sydney, Australia, the Philippine Racing Club, Inc.
(PRCI, for brevity) sent four (4) delegates to the said conference.
Petitioner Gregorio H. Reyes, as vice-president for finance, racing
manager, treasurer, and director of PRCI, sent Godofredo Reyes, the club's
chief cashier, to the respondent bank to apply for a foreign exchange
demand draft in Australian dollars.
Godofredo went to respondent bank's Buendia Branch in Makati City to
apply for a demand draft in the amount One Thousand Six Hundred Ten
Australian Dollars (AU$1,610.00) payable to the order of the 20th Asian
Racing Conference Secretariat of Sydney, Australia. He was attended to
by respondent bank's assistant cashier, Mr. Yasis, who at first denied the
application for the reason that respondent bank did not have an Australian
dollar account in any bank in Sydney. Godofredo asked if there could be a
way for respondent bank to accommodate PRCI's urgent need to remit
Australian dollars to Sydney. Yasis of respondent bank then informed
Godofredo of a roundabout way of effecting the requested remittance to
Sydney thus: the respondent bank would draw a demand draft against
Westpac Bank in Sydney, Australia (Westpac-Sydney for brevity) and
have the latter reimburse itself from the U.S. dollar account of the
respondent in Westpac Bank in New York, U.S.A. (Westpac-New York
for brevity). This arrangement has been customarily resorted to since the
1960's and the procedure has proven to be problem-free. PRCI and the
petitioner Gregorio H. Reyes, acting through Godofredo, agreed to this
arrangement or approach in order to effect the urgent transfer of
Australian dollars payable to the Secretariat of the 20th Asian Racing
Conference.
On July 28, 1988, the respondent bank approved the said application of
PRCI and issued Foreign Exchange Demand Draft (FXDD) No. 209968 in
the sum applied for, that is, One Thousand Six Hundred Ten Australian
Dollars (AU$ 1,610.00), payable to the order of the 20th Asian Racing
Conference Secretariat of Sydney, Australia, and addressed to Westpac-
Sydney as the drawee bank.
On August 10, 1988, upon due presentment of the foreign exchange
demand draft, denominated as FXDD No. 209968, the same was
dishonored, with the notice of dishonor stating the following: "xxx No
account held with Westpac." Meanwhile, on August 16, 1988, Wespac-
New York sent a cable to respondent bank informing the latter that its
dollar account in the sum of One Thousand Six Hundred Ten Australian
Dollars (AU$ 1,610.00) was debited. On August 19, 1988, in response to
PRCI's complaint about the dishonor of the said foreign exchange demand
draft, respondent bank informed Westpac-Sydney of the issuance of the
said demand draft FXDD No. 209968, drawn against the Wespac-Sydney
and informing the latter to be reimbursed from the respondent bank's
dollar account in Westpac-New York. The respondent bank on the same
day likewise informed Wespac-New York requesting the latter to honor
the reimbursement claim of Wespac-Sydney. On September 14, 1988,
upon its second presentment for payment, FXDD No. 209968 was again
dishonored by Westpac-Sydney for the same reason, that is, that the
respondent bank has no deposit dollar account with the drawee Wespac-
Sydney.
On September 17, 1988 and September 18, 1988, respectively, petitioners
spouses Gregorio H. Reyes and Consuelo Puyat-Reyes left for Australia to
attend the said racing conference. When petitioner Gregorio H. Reyes
arrived in Sydney in the morning of September 18, 1988, he went directly
to the lobby of Hotel Regent Sydney to register as a conference delegate.
At the registration desk, in the presence of other delegates from various
member of the conference secretariat that he could not register because the
foreign exchange demand draft for his registration fee had been
dishonored for the second time. A discussion ensued in the presence and
within the hearing of many delegates who were also registering. Feeling
terribly embarrassed and humiliated, petitioner Gregorio H. Reyes asked
the lady member of the conference secretariat that he be shown the subject
foreign exchange demand draft that had been dishonored as well as the
covering letter after which he promised that he would pay the registration
fees in cash. In the meantime he demanded that he be given his name plate
and conference kit. The lady member of the conference secretariat relented
and gave him his name plate and conference kit. It was only two (2) days
later, or on September 20, 1988, that he was given the dishonored demand
draft and a covering letter. It was then that he actually paid in cash the
registration fees as he had earlier promised.
Meanwhile, on September 19, 1988, petitioner Consuelo Puyat-Reyes
arrived in Sydney. She too was embarassed and humiliated at the
registration desk of the conference secretariat when she was told in the
presence and within the hearing of other delegates that she could not be
 16 | P a g e CASES (FULL TEXT) – BANKING LAWS (GENERAL PRINCIPLES)
registered due to the dishonor of the subject foreign exchange demand
draft. She felt herself trembling and unable to look at the people around
her. Fortunately, she saw her husband, coming toward her. He saved the
situation for her by telling the secretariat member that he had already
arranged for the payment of the registration fee in cash once he was shown
the dishonored demand draft. Only then was petitioner Puyat-Reyes given
her name plate and conference kit.
At the time the incident took place, petitioner Consuelo Puyat-Reyes was a
member of the House of Representatives representing the lone
Congressional District of Makati, Metro Manila. She has been an officer
of the Manila Banking Corporation and was cited by Archbishop Jaime
Cardinal Sin as the top lady banker of the year in connection with her
conferment of the Pro-Ecclesia et Pontifice Award. She has also been
awarded a plaque of appreciation from the Philippine Tuberculosis Society
for her extraordinary service as the Society's campaign chairman for the
ninth (9th) consecutive year.
On November 23, 1988, the petitioners filed in the Regional Trial Court of
Makati, Metro Manila, a complaint for damages, docketed as Civil Case
No. 88-2468, against the respondent bank due to the dishonor of the said
foreign exchange demand draft issued by the respondent bank. The
petitioners claim that as a result of the dishonor of the said demand draft,
they were exposed to unnecessary shock, social humiliation, and deep
mental anguish in a foreign country, and in the presence of an
international audience.
On November 12, 1992, the trial court rendered judgment in favor of the
defendant (respondent bank) and against the plaintiffs (herein petitioners),
the dispositive portion of which states:
WHEREFORE, judgment is hereby rendered in favor of the
defendant, dismissing plaintiff's complaint, and ordering
plaintiffs to pay to defendant, on its counterclaim, the amount of
P50,000.00, as reasonable attorney's fees. Costs against the
plaintiff.
SO ORDERED.5
The petitioners appealed the decision of the trial court to the Court of
Appeals. On July 22, 1994, the appellate court affirmed the decision of the
trial court but in effect deleted the award of attorney's fees to the
defendant (herein respondent bank) and the pronouncement as to the costs.
The decretal portion of the decision of the appellate court states:
WHEREFORE, the judgment appealed from, insofar as it
dismissed plaintiff's complaint, is hereby AFFIRMED, but is
hereby REVERSED and SET ASIDE in all other respect. No
special pronouncement as to costs.
SO ORDERED.6
According to the appellate court, there is no basis to hold the respondent
bank liable for damages for the reason that it exerted every effort for the
subject foreign exchange demand draft to be honored. The appellate court
found and declared that:
xxx xxx xxx
Thus, the Bank had every reason to believe that the transaction finally
went through smoothly, considering that its New York account had
been debited and that there was no miscommunication between it and
Westpac-New York. SWIFT is a world wide association used by
almost all banks and is known to be the most reliable mode of
communication in the international banking business. Besides, the
above procedure, with the Bank as drawer and Westpac-Sydney as
drawee, and with Westpac-New York as the reimbursement Bank had
been in place since 1960s and there was no reason for the Bank to
suspect that this particular demand draft would not be honored by
Westpac-Sydney.
From the evidence, it appears that the root cause of the
miscommunications of the Bank's SWIFT message is the erroneous
decoding on the part of Westpac-Sydney of the Bank's SWIFT
message as an MT799 format. However, a closer look at the Bank's
Exhs. "6" and "7" would show that despite what appears to be an
asterick written over the figure before "99", the figure can still be
distinctly seen as a number "1" and not number "7", to the effect that
Westpac-Sydney was responsible for the dishonor and not the Bank.
Moreover, it is not said asterisk that caused the misleading on the part
of the Westpac-Sydney of the numbers "1" to "7", since Exhs. "6"
and "7" are just documentary copies of the cable message sent to
Wespac-Sydney. Hence, if there was mistake committed by Westpac-
Sydney in decoding the cable message which caused the Bank's
message to be sent to the wrong department, the mistake was
Westpac's, not the Bank's. The Bank had done what an ordinary
prudent person is required to do in the particular situation, although
appellants expect the Bank to have done more. The Bank having done
everything necessary or usual in the ordinary course of banking
transaction, it cannot be held liable for any embarrassment and
corresponding damage that appellants may have incurred.7
xxx xxx xxx
Hence, this petition, anchored on the following assignment of errors:
I
THE HONORABLE COURT OF APPEALS ERRED IN FINDING
PRIVATE RESPONDENT NOT NEGLIGENT BY
ERRONEOUSLY APPLYING THE STANDARD OF DILIGENCE
OF AN "ORDINARY PRUDENT PERSON" WHEN IN TRUTH A
HIGHER DEGREE OF DILIGENCE IS IMPOSED BY LAW UPON
THE BANKS.
II
THE HONORABLE COURT OF APPEALS ERRED IN
ABSOLVING PRIVATE RESPONDENT FROM LIABILITY BY
OVERLOOKING THE FACT THAT THE DISHONOR OF THE
DEMAND DRAFT WAS A BREACH OF PRIVATE
RESPONDENT'S WARRANTY AS THE DRAWER THEREOF.
III
THE HONORABLE COURT OF APPEALS ERRED IN NOT
HOLDING THAT AS SHOWN OVERWHELMINGLY BY THE
EVIDENCE, THE DISHONOR OF THE DEMAND DRAFT AS
DUE TO PRIVATE RESPONDENT'S NEGLIGENCE AND NOT
THE DRAWEE BANK.8
The petitioners contend that due to the fiduciary nature of the relationship
between the respondent bank and its clients, the respondent should have
exercised a higher degree of diligence than that expected of an ordinary
prudent person in the handling of its affairs as in the case at bar. The
appellate court, according to petitioners, erred in applying the standard of
diligence of an ordinary prudent person only. Petitioners also claim that
the respondent bank violate Section 61 of the Negotiable Instruments
Law9 which provides the warranty of a drawer that "xxx on due
presentment, the instrument will be accepted or paid, or both, according to
its tenor xxx." Thus, the petitioners argue that respondent bank should be
held liable for damages for violation of this warranty. The petitioners pray
this Court to re-examine the facts to cite certain instances of negligence.
It is our view and we hold that there is no reversible error in the decision
of the appellate court.
Section 1 of Rule 45 of the Revised Rules of Court provides that "(T)he
petition (for review) shall raise only questions of law which must be
distinctly set forth." Thus, we have ruled that factual findings of the Court
of Appeals are conclusive on the parties and not reviewable by this Court
– and they carry even more weight when the Court of Appeals affirms the
factual findings of the trial court.10
 17 | P a g e CASES (FULL TEXT) – BANKING LAWS (GENERAL PRINCIPLES)
The courts a quo found that respondent bank did not misrepresent that it
was maintaining a deposit account with Westpac-Sydney. Respondent
bank's assistant cashier explained to Godofredo Reyes, representing PRCI
and petitioner Gregorio H. Reyes, how the transfer of Australian dollars
would be effected through Westpac-New York where the respondent bank
has a dollar account to Westpac-Sydney where the subject foreign
exchange demand draft (FXDD No. 209968) could be encashed by the
payee, the 20th Asian Racing Conference Secretariat. PRCI and its Vice-
President for finance, petitioner Gregorio H. Reyes, through their said
representative, agreed to that arrangement or procedure. In other words,
the petitioners are estopped from denying the said arrangement or
procedure. Similar arrangements have been a long standing practice in
banking to facilitate international commercial transactions. In fact, the
SWIFT cable message sent by respondent bank to the drawee bank,
Westpac-Sydney, stated that it may claim reimbursement from its New
York branch, Westpac-New York, where respondent bank has a deposit
dollar account. The facts as found by the courts a quo show that
respondent bank did not cause an erroneous transmittal of its SWIFT cable
message to Westpac-Sydney. It was the erroneous decoding of the cable
message on the part of Westpac-Sydney that caused the dishonor of the
subject foreign exchange demand draft. An employee of Westpac-Sydney
in Sydney, Australia mistakenly read the printed figures in the SWIFT
cable message of respondent bank as "MT799" instead of as "MT199". As
a result, Westpac-Sydney construed the said cable message as a format for
a letter of credit, and not for a demand draft. The appellate court correct
found that "the figure before '99' can still be distinctly seen as a number '1'
and not number '7'." Indeed, the line of a "7" is in a slanting position while
the line of a "1" is in a horizontal position. Thus, the number "1" in
"MT199" cannot be construed as "7".11
The evidence also shows that the respondent bank exercised that degree of
diligence expected of an ordinary prudent person under the circumstances
obtaining. Prior to the first dishonor of the subject foreign exchange
demand draft, the respondent bank advised Westpac-New York to honor
the reimbursement claim of Westpac-Sydney and to debit the dollar
account12 of respondent bank with the former. As soon as the demand draft
was dishonored, the respondent bank, thinking that the problem was with
the reimbursement and without any idea that it was due to
miscommunication, re-confirmed the authority of Westpac-New York to
debit its dollar account for the purpose of reimbursing Westpac-
Sydney.13 Respondent bank also sent two (2) more cable messages to
Westpac-New York inquiring why the demand draft was not honored. 14
With these established facts, we now determine the degree of diligence
that banks are required to exert in their commercial dealings. In Philippine
Bank of Commerce v. Court of Appeals15 upholding a long standing
doctrine, we ruled that the degree of diligence required of banks, is more
than that of a good father of a family where the fiduciary nature of their
relationship with their depositors is concerned. In other words banks are
duty bound to treat the deposit accounts of their depositors with
the highest degree of care. But the said ruling applies only to cases where
banks act under their fiduciary capacity, that is, as depositary of the
deposits of their depositors. But the same higher degree of diligence is not
expected to be exerted by banks in commercial transactions that do not
involve their fiduciary relationship with their depositors.
Considering the foregoing, the respondent bank was not required to exert
more than the diligence of a good father of a family in regard to the sale
and issuance of the subject foreign exchange demand draft. The case at bar
does not involve the handling of petitioners' deposit, if any, with the
respondent bank. Instead, the relationship involved was that of a buyer and
seller, that is, between the respondent bank as the seller of the subject
foreign exchange demand draft, and PRCI as the buyer of the same, with
the 20th Asian Racing conference Secretariat in Sydney, Australia as the
payee thereof. As earlier mentioned, the said foreign exchange demand
draft was intended for the payment of the registration fees of the
petitioners as delegates of the PRCI to the 20th Asian Racing Conference
in Sydney.
The evidence shows that the respondent bank did everything within its
power to prevent the dishonor of the subject foreign exchange demand
draft. The erroneous reading of its cable message to Westpac-Sydney by
an employee of the latter could not have been foreseen by the respondent
bank. Being unaware that its employee erroneously read the said cable
message, Westpac-Sydney merely stated that the respondent bank has no
deposit account with it to cover for the amount of One Thousand Six
Hundred Ten Australian Dollar (AU $1610.00) indicated in the foreign
exchange demand draft. Thus, the respondent bank had the impression that
Westpac-New York had not yet made available the amount for
reimbursement to Westpac-Sydney despite the fact that respondent bank
has a sufficient deposit dollar account with Westpac-New York. That was
the reason why the respondent bank had to re-confirm and repeatedly
notify Westpac-New York to debit its (respondent bank's) deposit dollar
account with it and to transfer or credit the corresponding amount to
Westpac-Sydney to cover the amount of the said demand draft.
In view of all the foregoing, and considering that the dishonor of the
subject foreign exchange demand draft is not attributable to any fault of
the respondent bank, whereas the petitioners appeared to be under estoppel
as earlier mentioned, it is no longer necessary to discuss the alleged
application of Section 61 of the Negotiable Instruments Law to the case at
bar. In any event, it was established that the respondent bank acted in good
faith and that it did not cause the embarrassment of the petitioners in
Sydney, Australia. Hence, the Court of Appeals did not commit any
reversable error in its challenged decision.
WHEREFORE, the petition is hereby DENIED, and the assailed decision
of the Court of Appeals is AFFIRMED. Costs against the petitioners.
SO ORDERED.
PHILIPPINE NATIONAL BANK vs. SPOUSES CHEAH CHEE CHONG
and OFELIA CAMACHO CHEAH
G.R. No. 170865, April 25, 2012
SPOUSES CHEAH CHEE CHONG and OFELIA CAMACHO CHEAH
vs. PHILIPPINE NATIONAL BANK, G.R. No. 170892
DEL CASTILLO, J.:
Law favoreth diligence, and therefore, hateth folly and negligence.Wingates
Maxim.
In doing a friend a favor to help the latters friend collect the proceeds of a foreign
check, a woman deposited the check in her and her husbands dollar account. The
local bank accepted the check for collection and immediately credited the proceeds
thereof to said spouses account even before the lapse of the clearing period. And
just when the money had been withdrawn and distributed among different
beneficiaries, it was discovered that all along, to the horror of the woman whose
intention to accommodate a friends friend backfired, she and her
bank had dealt with a rubber check.
These consolidated[1] Petitions for Review on Certiorari filed by the Philippine
National Bank (PNB)[2] and by the spouses Cheah Chee Chong and Ofelia
Camacho Cheah (spouses Cheah)[3] both assail the August 22, 2005 Decision[4] and
December 21, 2005 Resolution[5]of the Court of Appeals (CA) in CA-G.R. CV No.
63948 which declared both parties equally negligent and, hence, should equally
suffer the resulting loss. For its part, PNB questions why it was declared
blameworthy together with its depositors, spouses Cheah, for the amount
wrongfully paid the latter, while the spouses Cheah plead that they be declared
entirely faultless.
Factual Antecedents
 18 | P a g e CASES (FULL TEXT) – BANKING LAWS (GENERAL PRINCIPLES)
On November 4, 1992, Ofelia Cheah (Ofelia) and her friend Adelina Guarin
(Adelina) were having a conversation in the latters office when Adelinas friend,
Filipina Tuazon (Filipina), approached her to ask if she could have Filipinas check
cleared and encashed for a service fee of 2.5%. The check is Bank of America
Check No. 190[6] under the account of Alejandria Pineda and Eduardo Rosales and
drawn by Atty. Eduardo Rosales against Bank of America Alhambra Branch
in California, USA, with a face amount of $300,000.00, payable to cash. Because
Adelina does not have a dollar account in which to deposit the check, she asked
Ofelia if she could accommodate Filipinas request since she has a joint dollar
savings account with her Malaysian husband Cheah Chee Chong (Chee Chong)
under Account No. 265-705612-2 with PNB Buendia Branch.
Ofelia agreed.
That same day, Ofelia and Adelina went to PNB Buendia Branch. They met with
Perfecto Mendiola of the Loans Department who referred them to PNB Division
Chief Alberto Garin (Garin). Garin discussed with them the process of clearing the
subject check and they were told that it normally takes 15 days.[7] Assured that the
deposit and subsequent clearance of the check is a normal transaction, Ofelia
deposited Filipinas check. PNB then sent it for clearing through its correspondent
bank, Philadelphia National Bank. Five days later, PNB received a credit
advice[8] from Philadelphia National Bank that the proceeds of the subject check
had been temporarily credited to PNBs account as of November 6,
1992. On November 16, 1992, Garin called up Ofelia to inform her that the check
had already been cleared.[9] The following day, PNB Buendia Branch, after
deducting the bank charges, credited $299,248.37 to the account of the spouses
Cheah.[10] Acting on Adelinas instruction to withdraw the credited amount, Ofelia
that day personally withdrew $180,000.00.[11] Adelina was able to withdraw the
remaining amount the next day after having been authorized by Ofelia.[12] Filipina
received all the proceeds.
In the meantime, the Cable Division of PNB Head Office in Escolta, Manila
received on November 16, 1992 a SWIFT[13] message from Philadelphia National
Bank dated November 13, 1992 with Transaction Reference Number (TRN)
46506218, informing PNB of the return of the subject check for insufficient
funds.[14] However, the PNB Head Office could not ascertain to which
branch/office it should forward the same for proper action. Eventually, PNB Head
Office sent Philadelphia National Bank a SWIFT message informing the latter that
SWIFT message with TRN 46506218 has been relayed to PNBs various
divisions/departments but was returned to PNB Head Office as it seemed
misrouted. PNB Head Office thus requested for Philadelphia National Banks
advice on said SWIFT messages proper disposition.[15] After a few days, PNB Head
Office ascertained that the SWIFT message was intended for PNB Buendia
Branch.
PNB Buendia Branch learned about the bounced check when it received on
November 20, 1992 a debit advice,[16] followed by a letter[17] on November 24,
1992, from Philadelphia National Bank to which the November 13, 1992 SWIFT
message was attached. Informed about the bounced check and upon demand by
PNB Buendia Branch to return the money withdrawn, Ofelia immediately
contacted Filipina to get the money back. But the latter told her that all the money
had already been given to several people who asked for the checks encashment. In
their effort to recover the money, spouses Cheah then sought the help of the
National Bureau of Investigation. Said agencys Anti-Fraud and Action Division
was later able to apprehend some of the beneficiaries of the proceeds of the check
and recover from them $20,000.00. Criminal charges were then filed against these
suspect beneficiaries.[18]
Meanwhile, the spouses Cheah have been constantly meeting with the bank
officials to discuss matters regarding the incident and the recovery of the value of
the check while the cases against the alleged perpetrators remain pending. Chee
Chong in the end signed a PNB drafted[19] letter[20] which states that the spouses
Cheah are offering their condominium units as collaterals for the amount
withdrawn. Under this setup, the amount withdrawn would be treated as a loan
account with deferred interest while the spouses try to recover the money from
those who defrauded them. Apparently, Chee Chong signed the letter after the Vice
President and Manager of PNB Buendia Branch, Erwin Asperilla (Asperilla), asked
the spouses Cheah to help him and the other bank officers as they were in danger of
losing their jobs because of the incident. Asperilla likewise assured the spouses
Cheah that the letter was a mere formality and that the mortgage will be disregarded
once PNB receives its claim for indemnity from Philadelphia National Bank.
Although some of the officers of PNB were amenable to the proposal,[21] the same
did not materialize. Subsequently, PNB sent a demand letter to spouses Cheah for
the return of the amount of the check,[22] froze their peso and dollar deposits in the
amounts of P275,166.80 and $893.46,[23] and filed a complaint[24] against them for
Sum of Money with Branch 50 of the Regional Trial Court (RTC) of Manila,
docketed as Civil Case No. 94-71022. In said complaint, PNB demanded payment
of around P8,202,220.44, plus interests[25] and attorneys fees, from the spouses
Cheah.
As their main defense, the spouses Cheah claimed that the proximate cause of
PNBs injury was its own negligence of paying a US dollar denominated check
without waiting for the 15-day clearing period, in violation of its bank practice as
mandated by its own bank circular, i.e., PNB General Circular No. 52-
101/88.[26] Because of this, spouses Cheah averred that PNB is barred from
claiming what it had lost. They further averred that it is unjust for them to pay back
the amount disbursed as they never really benefited therefrom. As counterclaim,
they prayed for the return of their frozen deposits, the recoupment of P400,000.00
representing the amount they had so far spent in recovering the value of the check,
and payment of moral and exemplary damages, as well as attorneys fees.
Ruling of the Regional Trial Court
The RTC ruled in PNBs favor. The dispositive portion of its Decision[27] dated May
20, 1999 reads:
WHEREFORE, premises considered, judgment is hereby rendered in
favor of the plaintiff Philippine National Bank [and] against defendants
Mr. Cheah Chee Chong and Ms. Ofelia Camacho Cheah, ordering the
latter to pay jointly and severally the herein plaintiffs bank the amount:
1. of US$298,950.25 or its peso equivalent based on Central
Bank Exchange Rate prevailing at the time the proceeds of the BA
Check No. 190 were withdrawn or the prevailing Central Bank Rate at
the time the amount is to be reimbursed by the defendants to plaintiff or
whatever is lower. This is without prejudice however, to the rights of the
defendants (accommodating parties) to go against the group of Adelina
Guarin, Atty. Eduardo Rosales, Filipina Tuazon, etc., (Beneficiaries-
accommodated parties) who are privy to the defendants.
No pronouncement as to costs.
No other award of damages for non[e] has been proven.
SO ORDERED.[28]
The RTC held that spouses Cheah were guilty of contributory negligence.
Because Ofelia trusted a friends friend whom she did not know and considering the
amount of the check made payable to cash, the RTC opined that Ofelia showed
lack of vigilance in her dealings. She should have exercised due care by
investigating the negotiability of the check and the identity of the drawer. While the
court found that the proximate cause of the wrongful payment of the check was
PNBs negligence in not observing the 15-day guarantee period rule, it ruled that
spouses Cheah still cannot escape liability to reimburse PNB the value of the check
as an accommodation party pursuant to Section 29 of the Negotiable Instruments
Law.[29] It likewise applied the principle of solutio indebiti under the Civil
Code. With regard to the award of other forms of damages, the RTC held that each
party must suffer the consequences of their own acts and thus left both parties as
they are.
Unwilling to accept the judgment, the spouses Cheah appealed to the CA.
Ruling of the Court of Appeals
While the CA recognized the spouses Cheah as victims of a scam who nevertheless
have to suffer the consequences of Ofelias lack of care and prudence in
 19 | P a g e CASES (FULL TEXT) – BANKING LAWS (GENERAL PRINCIPLES)
immediately trusting a stranger, the appellate court did not hold PNB scot-free. It
ruled in its August 22, 2005 Decision,[30] viz:
As both parties were equally negligent, it is but right and just that both
parties should equally suffer and shoulder the loss. The scam would not
have been possible without the negligence of both parties. As earlier
stated, the complaint of PNB cannot be dismissed because the Cheah
spouses were negligent and Ms. Cheah took an active part in the deposit
of the check and the withdrawal of the subject amounts.On the other
hand, the Cheah spouses cannot entirely bear the loss because PNB
allowed her to withdraw without waiting for the clearance of the check.
The remedy of the parties is to go after those who perpetrated, and
benefited from, the scam.
WHEREFORE, the May 20, 1999 Decision of the Regional Trial Court,
Branch 5, Manila, in Civil Case No. 94-71022, is hereby REVERSED
and SET ASIDE and another one entered DECLARING both parties
equally negligent and should suffer and shoulder the loss.
Accordingly, PNB is hereby ordered to credit to the peso and dollar
accounts of the Cheah spouses the amount due to them.
SO ORDERED.[31]
In so ruling, the CA ratiocinated that PNB Buendia Branchs non-receipt of the
SWIFT message from Philadelphia National Bank within the 15-day clearing
period is not an acceptable excuse.Applying the last clear chance doctrine, the CA
held that PNB had the last clear opportunity to avoid the impending loss of the
money and yet, it glaringly exhibited its negligence in allowing the withdrawal of
funds without exhausting the 15-day clearing period which has always been a
standard banking practice as testified to by PNBs own officers, and as provided in
its own General Circular No. 52/101/88. To the CA, PNB cannot claim from
spouses Cheah even if the latter are accommodation parties under the law as the
banks own negligence is the proximate cause of the damage it
sustained. Nevertheless, it also found Ofelia guilty of contributory
negligence. Thus, both parties should be made equally responsible for the resulting
loss.
Both parties filed their respective Motions for Reconsideration[32] but same were
denied in a Resolution[33] dated December 21, 2005.
Hence, these Petitions for Review on Certiorari.
Our Ruling
The petitions for review lack merit. Hence, we affirm the ruling of the CA.
PNBs act of releasing the proceeds of the check prior to the lapse of the 15-day
clearing period was the proximate cause of the loss.
Proximate cause is that cause, which, in natural and continuous sequence, unbroken
by any efficient intervening cause, produces the injury and without which the result
would not have occurred. x x x To determine the proximate cause of a controversy,
the question that needs to be asked is: If the event did not happen, would the injury
have resulted? If the answer is no, then the event is the proximate cause.[34]
Here, while PNB highlights Ofelias fault in accommodating a strangers check and
depositing it to the bank, it remains mum in its release of the proceeds thereof
without exhausting the 15-day clearing period, an act which contravened
established banking rules and practice.
It is worthy of notice that the 15-day clearing period alluded to is construed as 15
banking days. As declared by Josephine Estella, the Administrative Service Officer
who was the banks Remittance Examiner, what was unusual in the processing of
the check was that the lapse of 15 banking days was not observed.[35] Even PNBs
agreement with Philadelphia National Bank[36] regarding the rules on the collection
of the proceeds of US dollar checks refers to business/ banking days. Ofelia
deposited the subject check on November 4, 1992. Hence, the 15thbanking day
from the date of said deposit should fall on November 25, 1992. However, what
happened was that PNB Buendia Branch, upon calling up Ofelia that the check had
been cleared, allowed the proceeds thereof to be withdrawn on November 17 and
18, 1992, a week before the lapse of the standard 15-day clearing period.
This Court already held that the payment of the amounts of checks without
previously clearing them with the drawee bank especially so where the drawee
bank is a foreign bank and the amounts involved were large is contrary to normal or
ordinary banking practice.[37] Also, in Associated Bank v. Tan,[38] wherein the bank
allowed the withdrawal of the value of a check prior to its clearing, we said that
[b]efore the check shall have been cleared for deposit, the collecting bank can only
assume at its own risk x x x that the check would be cleared and paid out. The delay
in the receipt by PNB Buendia Branch of the November 13, 1992 SWIFT message
notifying it of the dishonor of the subject check is of no moment, because had PNB
Buendia Branch waited for the expiration of the clearing period and had never
released during that time the proceeds of the check, it would have already been duly
notified of its dishonor. Clearly, PNBs disregard of its preventive and protective
measure against the possibility of being victimized by bad checks had brought upon
itself the injury of losing a significant amount of money.
It bears stressing that the diligence required of banks is more than that of a
Roman pater familias or a good father of a family. The highest degree of diligence
is expected.[39] PNB miserably failed to do its duty of exercising extraordinary
diligence and reasonable business prudence. The disregard of its own banking
policy amounts to gross negligence, which the law defines as negligence
characterized by the want of even slight care, acting or omitting to act in a situation
where there is duty to act, not inadvertently but wilfully and intentionally with a
conscious indifference to consequences in so far as other persons may be
affected.[40] With regard to collection or encashment of checks, suffice it to say that
the law imposes on the collecting bank the duty to scrutinize diligently the checks
deposited with it for the purpose of determining their genuineness and
regularity. The collecting bank, being primarily engaged in banking, holds itself out
to the public as the expert on this field, and the law thus holds it to a high standard
of conduct.[41] A bank is expected to be an expert in banking procedures and it has
the necessary means to ascertain whether a check, local or foreign, is sufficiently
funded.
Incidentally, PNB obliges the spouses Cheah to return the withdrawn money under
the principle of solutio indebiti, which is laid down in Article 2154 of the Civil
Code:[42]
Art. 2154. If something is received when there is no right to demand it,
and it was unduly delivered through mistake, the obligation to return it
arises.
[T]he indispensable requisites of the juridical relation known as solutio indebiti, are,
(a) that he who paid was not under obligation to do so; and (b) that the payment was
made by reason of an essential mistake of fact.[43]
In the case at bench, PNB cannot recover the proceeds of the check under the
principle it invokes. In the first place, the gross negligence of PNB, as earlier
discussed, can never be equated with a mere mistake of fact, which must be
something excusable and which requires the exercise of prudence. No recovery is
due if the mistake done is one of gross negligence.
The spouses Cheah are guilty of contributory negligence and are bound to share
the loss with the bank
Contributory negligence is conduct on the part of the injured party,
contributing as a legal cause to the harm he has suffered, which falls below the
standard to which he is required to conform for his own protection.[44]
The CA found Ofelias credulousness blameworthy. We agree. Indeed, Ofelia failed
to observe caution in giving her full trust in accommodating a complete stranger
and this led her and her husband to be swindled. Considering that Filipina was not
personally known to her and the amount of the foreign check to be encashed was
$300,000.00, a higher degree of care is expected of Ofelia which she, however,
failed to exercise under the circumstances. Another circumstance which should
 20 | P a g e CASES (FULL TEXT) – BANKING LAWS (GENERAL PRINCIPLES)
have goaded Ofelia to be more circumspect in her dealings was when a bank officer
called her up to inform that the Bank of America check has already been cleared
way earlier than the 15-day clearing period. The fact that the check was cleared
after only eight banking days from the time it was deposited or contrary to what
Garin told her that clearing takes 15 days should have already put Ofelia on
guard. She should have first verified the regularity of such hasty clearance
considering that if something goes wrong with the transaction, it is she and her
husband who would be put at risk and not the accommodated party. However,
Ofelia chose to ignore the same and instead actively participated in immediately
withdrawing the proceeds of the check. Thus, we are one with the CA in ruling that
Ofelias prior consultation with PNB officers is not enough to totally absolve her of
any liability. In the first place, she should have shunned any participation in that
palpably shady transaction.
In any case, the complaint against the spouses Cheah could not be dismissed. As
PNBs client, Ofelia was the one who dealt with PNB and negotiated the check such
that its value was credited in her and her husbands account. Being the ones in
privity with PNB, the spouses Cheah are therefore the persons who should return to
PNB the money released to them.
All told, the Court concurs with the findings of the CA that PNB and the spouses
Cheah are equally negligent and should therefore equally suffer the loss. The two
must both bear the consequences of their mistakes.
WHEREFORE, premises considered, the Petitions for Review on Certiorari in
G.R. No. 170865 and in G.R. No. 170892 are both DENIED. The assailed August
22, 2005 Decision and December 21, 2005 Resolution of the Court of Appeals in
CA-G.R. CV No. 63948 are hereby AFFIRMED in toto.
SO ORDERED.
FAR EAST BANK AND TRUST COMPANY (now Bank of the
Philippine Islands) vs. TENTMAKERS GROUP, INC., GREGORIA
PILARES SANTOS and RHOEL P. SANTOS
G.R. No. 171050, July 4, 2012
MENDOZA, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of
Court assailing the July 28, 2005 Decision[1] and the January 6,
2006 Resolution[2] of the Court of Appeals (CA) in CA-GR No. CV-71543
entitled Far East Bank and Trust Company v. Tentmakers Group, Inc.,
Gregoria Pilares Santos & Rhoel P. Santos. The CA reversed and set
aside the June 11, 2001 Decision of the Regional Trial Court, Branch
60, Makati City (RTC), and dismissed petitioners complaint in Civil Case
No. 98-910.
THE FACTS
The signatures of respondents, Gregoria Pilares Santos (Gregoria) and
Rhoel P. Santos (Rhoel), President and Treasurer of respondent
Tentmakers Group, Inc. (TGI) respectively, appeared on the three (3)
promissory notes for loans contracted with petitioner Far East Bank and
Trust Company (FEBTC), now known as Bank of the Philippine
Islands (BPI).The first two (2) promissory notes were signed by both of
them on July 5, 1996, as evidenced by Promissory Note No. 2-038-
965034[3] for ₱255,000.00 and Promissory Note No. 2-038-965040[4] for
₱155,000.00. Gregoria and Rhoel alleged that they did sign on blank
promissory notes intended for future use. The sixty (60)-day notes became
due and demandable on September 3, 1996.
On August 7, 1996, Promissory Note No. 2-038-965003[5] for
₱140,000.00, a thirty (30)-day note, was executed allegedly in the same
manner as the first two promissory notes.
After a futile demand, FEBTC filed a Complaint[6] before the RTC for the
payment of the principal of the promissory notes which amounted to a
total of ₱887,613.37 inclusive of interest, penalty charges and attorneys
fees. In the said complaint, Gregoria and Rhoel were impleaded to be
jointly and severally liable with TGI for the unpaid promissory notes.
In defense, the respondents alleged that FEBTC had no right at all to
demand from them the amount being claimed; that records would show
the absence of any resolution coming from the Board of Directors of TGI,
authorizing the signatories to receive the proceeds and the FEBTC to
release any loan; that FEBTC violated the rules and regulations of the
Central Bank as well as its own policy when it failed to require the
respondents to submit the said board resolution, it allegedly being a
condition sine qua non before granting a loan to a corporate entity, for the
protection of the depositors/borrowers; that it was FEBTCs branch
manager, a certain Liza Liwanag, who represented to Gregoria and Rhoel
that they could avail of additional working capital for TGI by having them
sign the promissory notes in advance, which were blank at the time, so
they would be ready for future use; that Liza Liwanags act of not requiring
the aforesaid board resolution was against bank policy; that this
irregularity caused damage to FEBTC with its own employee defrauding
the bank; that the respondents had no knowledge that a loan had been
taken out in its name; and that FEBTC could not present any proof that the
respondents duly received the various amounts reflected in the three (3)
promissory notes.[7]
In the Answer with Counterclaim and Cross-claim,[8] the respondents
alleged that Salvador Bernardo, Jr. and Luisa Bernardo of Eliezer Crafts,
who were erroneously impleaded as cross-defendants,[9] were the ones
who received the proceeds of the promissory notes.
The respondents failed to appear during the pre-trial. Thereafter, FEBTC
was allowed to present evidence ex-parte. The respondents filed their
motion for reconsideration, but the same was denied by the RTC. A
subsequent attempt to have their pre-trial brief admitted was also
denied.[10]
After trial, the RTC rendered its decision[11] in favor of FEBTC, the
dispositive portion of which states:
WHEREFORE, in view of the foregoing, the Complaint filed is herein
GRANTED. Defendants Tentmakers Group, Inc., Gregoria P. Santos and
Rhoel P. Santos are held jointly and severally liable to pay plaintiff Far
East Bank and Trust Co. in the amount of ₱1,181,764.68 plus attorneys
fees equivalent to 10% of the total amount claimed.
SO ORDERED.[12]
The RTC found sufficient basis to award FEBTCs claim. It ruled that the
liability of the individual respondents, Gregoria and Rhoel, was based on
their having assumed personal and solidary liability for the amounts
represented under the promissory notes as shown by their respective
signatures appearing in the aforesaid documents. It upheld the validity and
binding effect of the said promissory notes as the respondents did not deny
the due execution thereof or their signatures appearing therein.
As earlier stated, in its July 28, 2005 Decision, the CA reversed and set
aside the RTC judgment. The decretal portion of the CA decision reads:
WHEREFORE, premises considered, the Regional
Trial Court of Makati, Branch 60s June 11,
2001 Decision is hereby REVERSED and SET
ASIDE. The Complaint filed on April 17, 1998 is
hereby DISMISSED.
 21 | P a g e CASES (FULL TEXT) – BANKING LAWS (GENERAL PRINCIPLES)
EVIDENCE ON RECORD, EXHIBITS, G H AND I
SO ORDERED.[13] BEFORE THE TRIAL COURT.

The CA, taking judicial notice of the usual banking practice involving loan
agreements, held that although there were promissory notes, there was no (C)
board resolution/corporate secretarys certificate designating the signatories IN ITS 28 JULY 2005 DECISION, THE COURT OF
for the corporation, and there was no disclosure that the signatories acted APPEALS, MADE A CONCLUSION THAT IS
as agents thereof. There were no collaterals either to ensure the payment GROUNDED ENTIRELY ON SPECULATIONS,
of the loan. In the conferment of such unsecured loans, FEBTC, its bank SURMISES, OR CONJECTURES. THERE IS NO
manager in particular, also failed to comply with the guidelines set forth EVIDENCE ON RECORD THAT WARRANTS AN
under the Manual of Regulations for Banks,[14] when it allegedly approved INFERENCE THAT THE BANK [HEREIN
and released the subject loans to Gregoria and Rhoel. These deficiencies, PETITIONER, THEN PLAINTIFF-APPELLEE], IN
according to the CA, cast doubt on the loan transaction which appeared FACT, DID NOT DENY NOR DISPROVE THAT
more like an inside job with the branch manager or bank employee THIRD PERSONS HAD RECEIVED THE PROCEEDS
securing the signatures of Gregoria and Rhoel, after which the said OF THE THREE PROMISSORY NOTES;
manager/employee simply filled in the blanks.[15] NAMELY, SALVADOR BERNARDO, JR. AND LUISA
BERNARDO OF ELIEZER CRAFTS WHO WERE NOT
The CA held that [b]anks should always have adequate audit mechanisms CONNECTED WITH TGI. NO DEMAND ON THEM
to make sure that their employees follow accepted banking rules and WAS EVER MADE FOR [THE] RETURN OF THE
practices to safeguard the interest of the investing public and preserve the PROCEEDS THEY HAD RECEIVED. THIS FACTUAL
public confidence on banks.[16] FINDING, EXPRESSLY CONFLICTS WITH THE
FINDING OF THE TRIAL COURT AND
Further, the CA found that there was no evidence presented to prove that CONTRADICTED BY THE EVIDENCE ON RECORD,
Gregoria and Rhoel or TGI received the proceeds of the three (3) EXHIBITS A TO K OF PETITIONER [THEN
promissory notes. PLAINTIFF-APPELLEE] BEFORE THE TRIAL
COURT.[18]
FEBTC filed a motion for reconsideration[17] of the said decision. The CA,
however, in its January 6, 2006 Resolution, denied the motion for lack of The issue to be resolved is whether the CA rendered a decision that is
merit. grounded entirely on speculations, surmises, or conjectures when it ruled
in favor of the respondents.
Hence, FEBTC interposes the present petition before this Court anchored
on the following FEBTC contends that the evidence on record showed its compliance with
the banking rules and regulations through board resolutions issued by TGI
GROUNDS fully authorizing Gregoria and Rhoel to transact business with it. It
submits that the materiality of the said board resolutions was already ruled
(A) upon by the RTC. It asserts that Gregoria and Rhoel were solidarily liable
IN ITS 28 JULY 2005 DECISION, THE COURT OF for the amounts represented under the three promissory notes having
APPEALS, ERRED IN RULING THAT PETITIONER signed the same. It adds that there was no specific denial, under oath, of
DID NOT COMPLY WITH THE GUIDELINES UNDER the genuineness and due execution of the said documents as required
THE MANUAL OF REGULATION FOR BANKS, THAT under Section 8, Rule 8 of the Rules of Court. According to FEBTC, it
THERE WAS NO BOARD merely acted within its rights as creditor in demanding payment of the
RESOLUTION/CORPORATE SECRETARYS overdue obligation from the solidary creditors, which included Gregoria
CERTIFICATE DESIGNATING THE SIGNATORIES and Rhoel. It argues that the inference of an inside job by the CA was a
FOR THE CORPORATION; THERE WAS NO mere speculation not supported by any credible evidence. It further argues
DISCLOSURE THAT THE SIGNATORIES ACTED AS that the CA erred when it gave weight to the allegation that third persons
AGENTS; THAT THERE WERE NO had received the proceeds of the promissory notes because the proceeds
COLLATERALS/CHATTEL MORTGAGE/REAL were credited to the account of TGI. There was no evidence on record that
ESTATE MORTGAGE/PLEDGES TO ENSURE such proceeds were credited to the account of an entity called Eliezer
PAYMENT OF THE LOAN. THIS FACTUAL FINDING Crafts.
EXPRESSLY CONFLICTS WITH THE FINDING OF
THE TRIAL COURT AND CONTRADICTED BY THE In their Comment,[19] the respondents counter that they did not receive the
EVIDENCE ON RECORD. proceeds of the three promissory notes. The same argument was reiterated
in their Memorandum.[20]The respondents posit that it is true that they
signed the Promissory Notes, but they vehemently deny having received
(B) the amounts reflected thereon. They aver that FEBTC miserably failed to
IN ITS 28 JULY 2005 DECISION, THE COURT OF present any check, voucher, or any document to show actual receipt by
APPEALS, MADE A CONCLUSION THAT IS them of the aforementioned amounts from the bank. They argue that the
GROUNDED ENTIRELY ON SPECULATIONS, RTC gravely erred in finding Gregoria and Rhoel personally liable for the
SURMISES, OR CONJECTURES. THERE IS NO amounts under the promissory notes, they being mere signatories of the
EVIDENCE ON RECORD THAT WARRANTS AN companys account, acting in behalf of TGI, which was the one principally
INFERENCE OF AN INSIDE JOB WITH THE transacting business with FEBTC. This, the respondents say, was very
BRANCH MANAGER OR BANK EMPLOYEE clear from the wordings of the Certificate of Board Resolution of TGI
HAVING SECURED THE SIGNATURES OF submitted to FEBTC.
RESPONDENTS [DEFENDANTS-APPELLANTS]
GREGORIA AND RHOEL AFTER WHICH THE The petition is bereft of merit.
MANAGER AND EMPLOYEE SIMPLY FILLED IN
THE BLANKS THIS FACTUAL FINDING, It should be noted that the questions raised in this petition involve the
EXPRESSLY CONFLICTS WITH THE FINDING OF correctness of the factual findings of the CA. In petitions for review on
THE TRIAL COURT AND CONTRADICTED BY THE certiorari under Rule 45, only questions of law may be raised by the
 22 | P a g e CASES (FULL TEXT) – BANKING LAWS (GENERAL PRINCIPLES)
parties and passed upon by this Court. An inquiry into the veracity of the
factual findings and conclusions of the CA is not the function of this
Court, for this Court is not a trier of facts. Neither is it its function to
reexamine and weigh anew the respective evidence of the parties.[21]
The factual findings of the CA are generally binding on this
Court.[22] There are recognized exceptions[23] to this rule. FEBTC,
however, has failed to satisfactorily show the applicability of any of those
exceptions in this case to warrant a reexamination of the findings.
In any case, even granting that factual issues may be considered, the facts
would not make a good case for FEBTC because there was no evidence
adduced to prove that the respondents received the amount demanded in
its complaint. Contrary to the claim of FEBTC, nowhere in the records of
this case can one find a document evidencing that Gregoria and Rhoel, or
TGI for that matter, received the proceeds of the three (3) promissory
notes. Moreover, FEBTC violated the rules and regulations of the Bangko
Sentral ng Pilipinas (BSP) by its failure to strictly follow the guidelines in
the conferment of unsecured loans set forth under the Manual of
Regulations for Banks (MORB), to quote:
Sec. X319 Loans Against Personal
Security. The following regulations shall govern credit
accommodations against personal security granted by
banks.[24]
X319.1 General guidelines. Before granting credit
accommodations against personal security, banks must
exercise proper caution by ascertaining that the borrowers,
co-makers, endorsers, sureties and/or guarantors possess
good credit standing and are financially capable of
fulfilling their commitments to the bank. For this purpose,
banks shall keep records containing information on the
credit standing and financial capacity of credit applicants.
X319.2 Proof of financial capacity of borrower. In
addition to the usual personal information sheet about the
borrower, banks shall require that an application for a credit
accommodation against personal security be accompanied
by:
a. A copy of the latest income tax returns of the borrower
and his co-maker duly stamped as received by the BIR; and
b. If the credit accommodation exceeds ₱500,000.00, a
copy of the borrowers balance sheet duly certified by an
Independent Certified Public Accountant (CPA), and in
case he is engaged in business, also a copy of the profit and
loss statement duly certified by a CPA.
The above documents shall be required to be submitted
annually for as long as the credit accommodation is
outstanding.
A perusal of the evidentiary records discloses that none of the above-
enumerated guidelines was complied with by FEBTC, particularly the
bank manager. As the CA stated, banking institutions usually require the
following documentations involving loan agreements to be presented
before approving any loan or release of the proceeds thereof:
1) Promissory Notes duly signed by the parties;
2) Evidence of Receipt of Proceeds of the Promissory
Notes;
3) If a corporation is involved, the appropriate copy of the
Board Resolution and a duly notarized Corporate
Secretarys Certificate is required to indicate who the
authorized signatories are;
4) If agents sign, they must disclose their principal; and
5) Real Estate Mortgage/Chattel Mortgage/Pledges to
secure the payment of the loan.
In this case, although there were promissory notes, there was no proof of
receipt by the respondents of the same amounts reflected in the said
promissory notes. There was no Board Resolution/Corporate Secretarys
Certificate either, designating the authorized signatories for the
corporation specifically for the loan covered by the Promissory
Notes.Even granting arguendo that the two Board Resolutions (Exhibits A
and B) dated March 3, 1995 and April 11, 1995, respectively, authorizing
Gregoria and Rhoel to transact business with FEBTC, were binding, still
the petition would not prosper as there was no evidence of crediting of the
proceeds of the promissory notes. Further, there were no collaterals, real
estate mortgage, chattel mortgage or pledges to ensure the payment of the
loan. The Court is in accord with the CA when the latter wrote:
The bank was remiss in the surveillance of its people
because the bank auditors could have easily spotted the
anomaly that the loan transaction: (1) did not have any
Board Resolution/Corporate Secretarys Certificate; (2) did
not have collateral/Real Estate Mortgage/Chattel
Mortgage/Pledge and was given clean; and (3) there was
no disclosure that TGI was the principal involved as
borrower all in violation of accepted banking rules and
practices.
Time and again, the Supreme Court has stressed that
banking business is so impressed with public interest
where the trust and confidence of the public in general is
of paramount importance such that the appropriate
standard of diligence must be very high, if not the highest
degree of diligence. A banks liability as obligor is not
merely vicarious but primary, wherein the defense of
exercise of due diligence in the selection and supervision
of its employees is of no moment.
The laxity of the bank cannot be allowed to prejudice the
clients of the bank who may unsuspectingly become
victims of fraud most likely perpetrated by insiders or
employees of the bank, which is made possible when the
bank did not follow accepted banking rules and practices
and prescribed requirements by the Bangko Sentral in
dealing with loan transactions.[25]
The CA was, thus, correct when it dismissed FEBTCs complaint against
the respondents.
As to the allegation that there is no evidence on record that warrants an
inference that the transaction was attended by irregularities purely
orchestrated by FEBTCs branch manager, the Court gives credence to the
respondents stance that:
xxx. Those are material facts which have not been refuted
by the petitioner especially the issue of irregularities
orchestrated by the petitioners Branch Manager Liza
Liwanag. Not even an Affidavit of Denial was adduced by
the petitioner. The banks silence on this point is tantamount
to acquiescence to respondents position, more so on the
sudden disappearance of the said Bank Manager which
under the law and jurisprudence that flight being an
evidence/indication of guilt.[26]
Evidently, this is a case where the respondents are being used as a
scapegoat to answer for the damage and prejudice brought about by the
negligence of FEBTCs own employees.The branch manager should have
appeared and explained the circumstances. Thus, the CA cannot be faulted
for making such a ruling.
The bottom line is that FEBTC miserably failed to present any document
that would serve as basis for its claim that the proceeds of the three
promissory notes were indeed credited to the account of the respondents.
 23 | P a g e CASES (FULL TEXT) – BANKING LAWS (GENERAL PRINCIPLES)
Indeed, the Court finds no evidentiary basis to sustain the RTCs finding of
actual receipt by TGI of the amounts stated in the promissory
notes. Accordingly, the Court affirms the CA decision for being more in
accord with the facts and evidence on record.
On a final note, FEBTC should have been more circumspect in dealing
with its clients. It cannot be over emphasized that the banking business is
impressed with public interest. Of paramount importance is the trust and
confidence of the public in general in the banking industry. Consequently,
the diligence required of banks is more than that of a Roman pater
familias or a good father of a family. The highest degree of diligence is
expected.[27] In handling loan transactions, banks are under obligation to
ensure compliance by the clients with all the documentary requirements
pertaining to the approval and release of the loan applications. For failure
of its branch manager to exercise the requisite diligence in abiding by the
MORB and the banking rules and practices, FEBTC was negligent in the
selection and supervision of its employees. In Equitable PCI Bank v.
Tan,[28] the Court ruled:
xxx. Banks handle daily transactions involving millions of
pesos. By the very nature of their works the degree of
responsibility, care and trustworthiness expected of
their employees and officials is far greater than those
of ordinary clerks and employees. Banks are expected
to exercise the highest degree of diligence in the
selection and supervision of their employees.[29]
For the loss suffered by FEBTC due to its laxity and carelessness to police
its own personnel, the bank has no one to blame but itself. As correctly
concluded by the CA, this situation partakes of the nature of damnum
absque injuria.
WHEREFORE, the petition is DENIED. The Decision of the Court of
Appeals dated July 28, 2005 and its Resolution of January 6, 2006,
are AFFIRMED.
SO ORDERED.
August 1, 2016, G.R. No. 213241
PHILIPPINE NATIONAL BANK vs. JUAN F. VILLA
PEREZ, J.:
For resolution of the Court is the instant Petition for Review
on Certiorari1 filed by petitioner Philippine National Bank (PNB), seeking
to reverse and set aside the Decision2 dated 18 December 2013 and
Resolution3 dated 13 June 2014 of the Court of Appeals (CA) in CA-G.R.
CV No. 97612. The assailed decision and resolution affirmed the 22 June
2011 Decision4 of the Regional Trial. Court (RTC) of Villasis,
Pangasinan, Branch 50 which found that petitioner PNB is not a
mortgagee in good faith.
The Facts
Petitioner PNB is a universal banking corporation duly authorized by
Bangko Sentral ng Pilipinas (BSP) to engage in banking business.
Sometime in 1986, Spouses Reynaldo Comista and Erlinda Gamboa
Comista (Spouses Comista) obtained a loan from Traders Royal Bank
(Traders Bank).5 To secure the said obligation, the Spouses Comista
mortgaged to the bank a parcel of land with an area of 451 square meters
designated as Lot 555-A-2 and registered under Transfer Certificate of
Title (TCT) No. 131498 in their names by the Register of Deeds of
Pangasinan.
For failure of the Spouses Comista to make good of their loan obligation
after it has become due, Traders Bank foreclosed the mortgage constituted
on the security of the loan. After the notice and publication requirements
were complied with, the subject property was sold at the public auction on
23 December 1987. During the public sale, respondent Juan F. Vila (Vila)
was declared as the highest bidder after he offered to buy the subject
property for P50,000.00. The Certificate of Sale dated 13 January 1988
was duly recorded in TCT No. 131498 under Entry No. 623599.6
To exercise his right of ownership, Vila immediately took possession of
the subject property and paid the real estate taxes corresponding thereon.
On 11 February 1989, a Certificate of Final Sale was issued to Vila after
the one-year redemption period had passed without the Spouses Comista
exercising their statutory right to redeem the subject property. He was,
however, prevented from consolidating the ownership of the property
under his name because the owner's copy of the certificate of title was not
turned over to him by the Sheriff.
Despite the lapse of the redemption period and the fact of issuance of a
Certificate of Final Sale to Vila, the Spouses Comista were nonetheless
allowed to buy back the subject property by tendering the amount of
₱50,000.00. A Certificate of Redemption7 dated 14 March 1989 was
issued for this purpose and was duly annotated in the title under Entry No.
708261.
Claiming that the Spouses Cornista already lost their right to redeem the
subject property, Vila filed an action for nullification of redemption,
transfer of title and damages against the Spouses Comista and Alfredo
Vega in his capacity as the Register of Deeds of Pangasinan. The case was
docketed as Civil Case No. V-0242 on 10 January 1992 and was raffled to
Branch 50. A Notice of Lis Pendens was issued for this purpose and was
duly recorded in the certificate of title of the property on 19 October
1992 under Entry No. 759302.8
On 3 February 1995, the RTC rendered a Decision 9 in Civil Case No. V-
0242 in favor of Vila thereby ordering the Register of Deeds to cancel the
registration of the certificate of redemption and the annotation thereof on
TCT No. 131498. The said decision was affirmed by the CA on 19
October 1997 in CA-G.R. CV No. 49463. 10 The decision of the appellate
court became final and executory on 19 November 1997.
In order to enforce the favorable decision, Vila filed before the RTC a
Motion for the Issuance of Writ of Execution which was granted by the
court. Accordingly, a Writ of Execution 11 was issued by the RTC on 14
December 1997.
By unfortunate tum of events, the Sheriff could not successfully enforce
the decision because the certificate of title covering the subject property
was no longer registered under the names of the Spouses Comista. Hence,
the judgment was returned unsatisfied as shown in Sheriffs Retum12 dated
13 July 1999.
Upon investigation it was found out that during the interregnum the
Spouses Comista were able to secure a loan from the PNB in the amount
of ₱532,000.00 using the same property subject of litigation as security.
The Real Estate Mortgage (REM) was recorded on 28 September 1992
under Entry No. 758171 13 or month before the Notice of Lis Pendens was
annotated.
Eventually, the Spouses Comista defaulted in the payment of their loan
obligation with the PNB prompting the latter to foreclose the property
offered as security. The bank emerged as the highest bidder during the
public sale as shown at the Certificate of Sale issued by the Sheriff. As
with the prior mortgage, the Spouses Comista once again failed to exercise
their right of redemption within the required period allowing PNB to
consolidate its ownership over the subject property. Accordingly, TCT No.
131498 14 in the name of the Spouses Comista was cancelled and a new
one under TCT No. 216771 15 under the name of the PNB was issued.
The foregoing tum of events left Vila with no other choice but to
commence another round of litigation against the Spouses Comista and
PNB before the RTC of Villasis, Pangasinan, Branch 50. In his Complaint
 24 | P a g e CASES (FULL TEXT) – BANKING LAWS (GENERAL PRINCIPLES)
docketed as Civil Case No. V-0567, Vila sought for the nullification of
TCT No. 216771 issued under the name of PNB and for the payment of
damages.
To refute the allegations of Vila, PNB pounded that it was a mortgagee in
good faith pointing the fact that at the time the subject property was
mortgaged to it, the same was still free from any liens and encumbrances
and the Notice of Lis Pendens was registered only a month after the REM
was annotated on the title. PNB meant to say that at the time of the
transaction, the Spouses Cornista were still the absolute owners of the
property possessing all the rights to mortgage the same to third persons.
PNB also harped on the fact that a close examination of title was
conducted and nowhere was it shown that there was any cloud in the title
of the Spouses Cornista, the latter having redeemed the property after they
have lost it in a foreclosure sale. 16
After the Pre-Trial Conference, trial on the merits ensued. The court a quo
then proceeded to receive documentary and testimonial evidence from the
opposing parties. Thereafter, the parties submitted their respective
memorandum and the case was submitted for decision.
On 22 June 2011, the RTC rendered a Decision17 in favor of Vila and
ruled that PNB is not a mortgagee in good faith. As a financial institution,
the trial court held that PNB is expected to observe a higher degree of
diligence. In hastily granting the loan, the trial court declared that PNB
failed in this regard. Had the bank exercised due diligence, it could have
easily discovered that the Spouses Comista were not the possessors of the
subject property which could lead it to the fact that at the time the subject
property was mortgaged to it, a litigation involving the same was already
commenced before the court. ·It was further ratiocinated by the RTC that
"[a] mortgagee cannot close his eyes to facts which should put a
reasonable man upon his guard" in ascertaining the status of a mortgaged
property. The dispositive portion of the decision reads:
"WHEREFORE, judgment is hereby rendered:
1. Declaring the Real Estate Mortgage dated September 28, 1992,
executed by the Spouses Reynaldo Comista and Erlinda Gamboa in favor
of the Philippine National Bank, Tayug, Pangasinan Branch, over the
parcel of land covered by TCT No. 131498 null and void;
2. Declaring the Deed of Sale dated September 27, 1996, in favor of the
PNB null and void;
3. Ordering the nullification and cancellation of Transfer Certificate of
Title No. 216771 in the name of PNB;
4. Ordering the Register of Deeds of Pangasinan to issue a new certificate
of title covering the property subject matter of this case in the name.of
Juan F. Vila; and
5. Ordering [the] defendant PNB to pay the plaintiff P-50,000.00 moral
damages, P-50,000.00 exemplary damages and P-100,000.00 attorney's
fees and litigation expenses.
Costs against defendant Philippine National Bank.
SO ORDERED." 18
In a Resolution19 dated 13 June 2014, the RTC refused to reconsider its
earlier decision and thereby denied the Motion for Reconsideration
interposed by PNB.
On appeal, the CA Decision20 dated 18 December 2013 affirmed the RTC
ruling. In failing to exercise greater care and diligence in approving the
loan of the Spouses Comista without first ascertaining if there were any
defects in their title, tlre appellate court held that PNB could not be
afforded the status of a mortgagee in good faith. It went further by
declaring that "[a] bank whose business is impressed with public interest is
expected to exercise more care and prudence in its dealings than a private
individual, even in cases involving registered lands. A bank cannot assume
that, simply because the title offered as security is on its face free of any
encumbrances of lien, it is relieved of the responsibility of taking further
steps to verify the title and inspect the properties to be mortgaged. "21 The
CA thus disposed:
"WHEREFORE, the instant appeal is DENIED. The assailed Decision
dated June 22, 2011 and the Resolution dated August 11, 2011 of the
Regional Trial Court of Villasis, Pangasinan, Branch 50, in Civil Case No,
V-0567 are hereby AFFIRMED."22
On 13 June 2014, the CA issued a Resolution23 denying the Motion for
Reconsideration of the PNB prompting the bank to seek recourse before
the Court via instant Petition for Review on Certiorari. For Our resolution
are the following issues:
The Issues
I. WHETHER OR NOT PNB IS A MORTGAGEE IN GOOD FAITH;
II. WHETHER OR NOT PNB IS LIABLE FOR DAMAGES.24
The Court's Ruling
We resolve to deny the petition.
In general, the issue of whether a mortgagee is in good faith cannot be
entertained in a Rule 45 petition. This is because the ascertainment of
good faith or the lack thereof, and the determination of negligence are
factual matters which lay outside the scope of a petition for review
on certiorari. Good faith, or the lack of it, is a question of intention. In
ascertaining intention, courts are necessarily controlled by the evidence as
to the conduct and outward facts by which alone the inward motive may,
with safety, be determined.25 A recognized. exception to the rule is when
there are conflicting findings of fact by the CA and the RTC. 26 In the case
at bar, RTC and the CA agreed on their findings.
The RTC, which possessed the first hand opportunity to observe the
demeanor of the witnesses and admit the documentary evidence, found
that PNB accepted outright the collateral offered by the Spouses Cornista
without making further inquiry as to the real status of the subject property.
Had the bank been prudent and diligent enough in ascertaining the
condition of the property, it could have discovered that the same was in
the possession of Vila who, at that time, possessed a colorable title thereon
being a holder of a Final Certificate of Sale. The RTC further exposed the
frailty of PNB' s claim by pointing to the fact that it was Vila who was
paying the realty tax on the property, a crucial information that the bank
could have easily discovered had it exercised due diligence.
Resonating the findings of the RTC, the CA also declared that PNB fell
short in exercising the degree of diligence expected from bank and
financial institutions. We hereby quote with approval the disquisition of
the appellate court:
Thus, before approving a loan application, it is a standard operating
practice for these institutions to conduct an ocular inspection of the
property offered for mortgage and to verify the genuineness of the title to
determine the real owner thereof. The apparent purpose of an ocular
inspection is to protect the "true owner" of the property as well as innocent
third parties with a right, interest or claim thereon from a usurper who may
have acquired a fraudulent certificate of title thereto. Here, [the] PNB has
failed to exercise the requisite due diligence in ascertaining the status and
condition of the property being offered to it as security for the loan before
it approved the same. xxx. 27
Clearly, the PNB failed to observe the exacting standards required of
banking institutions which are behooved by statutes and jurisprudence to
exercise greater care and prudence before entering into a mortgage
contract.
No credible proof on the records could substantiate the claim of PNB that
a physical inspection of the property was conducted. We agree with both
the RTC and CA that if in fact it were true that ocular inspection was
conducted, a suspicion could have been raised as to the real status of the
property. By failing to uncover a crucial fact that the mortgagors were not
the possessors of the subject property, We could not lend credence to the
claim of the bank that an ocular inspection of the property was
conducted.1âwphi1 What further tramples upon PNB' s claim is the fact
that, as shown on the records, it was Vila who was religiously paying the
 25 | P a g e CASES (FULL TEXT) – BANKING LAWS (GENERAL PRINCIPLES)
real property tax due on the property from 1989 to 1996, another
significant fact that could have raised a red flag as to the real ownership of
the property. The failure of the mortgagee to take precautionary steps
would mean negligence on his part and would thereby preclude it from
invoking that it is a mortgagee in good faith.
Before approving a loan application, it is standard operating procedure for
banks and financial institutions to conduct an ocular inspection of the
property offered for mortgage and to determine the real owner(s) thereof.
The apparent purpose of an ocular inspection is to protect the "true owner"
of the property as well as innocent third parties with a right, interest or
claim thereon from a usurper who may have acquired a fraudulent
certificate of title thereto.28
In this case, it was adjudged by the courts of competent jurisdiction in a
final and executory .decision that the Spouses Cornista's reacquisition of
the property after the lapse of the redemption period is fraudulent and the
property used by the mortgagors as collateral rightfully belongs to Vila, an
innocent third party with a right, could have been protected if PNB only
observed the degree diligence expected from it.
In Land Bank of the Philippines v. Belle Corporation,29 the Court exhorted
banks to exercise the highest degree of diligence in its dealing with
properties offered as securities for the loan obligation:
When the purchaser or the mortgagee is a bank, the rule on innocent
purchasers or mortgagees for value is applied more strictly. Being in the
business of extending loans secured by real estate mortgage, banks are
presumed to be familiar with the rules on land registration. Since the
banking business· is impressed with public interest, they are expected to
be more cautious, to exercise a higher degree of diligence, care and
prudence, than private individuals in their dealings, even those involving
registereo lands. Banks may not simply rely on the face of the certificate
of title. Hence, they cannot assume that, xxx the title offered as security is
on its face free of any encumbrances or lien, they are relieved of the
responsibility of taking further steps to verify the title and inspect the
properties to be mortgaged. As expected, the ascertainment of the status or
condition of a property offered to it as security for a loan must be a
standard and indispensable part of the bank's operations. xxx. (Citations
omitted)
We never fail to stress the remarkable significance of a banking institution
to commercial transactions, in particular, and to the country's economy in
general. 30 The banking system is an indispensable institution in the
modern world and plays a vital role in the economic life of every civilized
nation.31 Whether as mere passive entities for the safekeeping and saving
of money or as active instruments of business and commerce, banks have
become an ubiquitous presence among the people, who have come to
regard them with respect and even gratitude and, most of all,
confidence.32 Consequently, the highest degree of diligence is expected,
and high standards of integrity and performance are even required, of it. 33
PNB clearly failed to observe the required degree of caution in readily
approving the loan and accepting the collateral offered by the Spouses
Comista without first ascertaining the real ownership of the property. It
should not have simply relied on the face of title but went further to
physically ascertain the actual condition of the property. That the property
offered as security was in the possession of the person other than the one
applying for the loan and the taxes were declared not in their names could
have raised a suspicion. A person who deliberately ignores a significant
fact that could create suspicion in an otherwise reasonable person is not an
innocent purchaser for value.34
Having laid down that the PNB is not in good faith, We are led to affirm
the award of moral damages, exemplary damages, attorney's fees and costs
of litigation in favor of Vila. Moral damages are not awarded to penalize
the defendant but to compensate the plaintiff for the injuries he may have
suffered.35 Willful injury to property may be a legal ground for awarding
moral damages if the court should find that, under the circumstances, such
damages are justly due.36 In the instant case, we find that the award of
moral damages is proper. 37 As for the award of exemplary damages, we
deem that the same is proper for the PNB was remiss in its obligation to
inquire the real status of the subject property, causing damage to
Vila.38 Finally, we rule that the award of attorney's fees and litigation
expenses is valid since Vila was compelled to litigate and thus incur
expenses in order to protect its rights over the subject property. 39
WHEREFORE, premises considered, the petition is DENIED. The
assailed Decision and Resolution of the Court of Appeals are
hereby AFFIRMED. Accordingly, the decision of the RTC dated 22 June
2011 STANDS as the final resolution of this case.
SO ORDERED.
SOLIDBANK CORPORATION (now known as FIRST METRO
INVESTMENT CORPORATION) vs. ERNESTO U. GAMIER, ELENA
R. CONDEVILLAMAR, JANICE L. ARRIOLA and OPHELIA C. DE
GUZMAN
G.R. No. 159460, November 15, 2010
VILLARAMA, JR., J.:
The consolidated petitions before us seek to reverse and set aside the
Decision[1] dated March 10, 2003 of the Court of Appeals (CA) in CA-
G.R. SP Nos. 67730 and 70820 which denied the petitions for certiorari
filed by Solidbank Corporation (Solidbank) and ordered the reinstatement
of the above-named individual respondents to their former positions.
The Antecedents
Sometime in October 1999, petitioner Solidbank and respondent
Solidbank Employees Union (Union) were set to renegotiate the economic
provisions of their 1997-2001 Collective Bargaining Agreement (CBA) to
cover the remaining two years thereof. Negotiations commenced
on November 17, 1999 but seeing that an agreement was unlikely,
the Union declared a deadlock on December 22, 1999 and filed a Notice of
Strike on December 29, 1999.[2] During the collective bargaining
negotiations, some Union members staged a series of mass actions. In
view of the impending actual strike, then Secretary of Labor and
Employment Bienvenido E. Laguesma assumed jurisdiction over the labor
dispute, pursuant to Article 263 (g) of the Labor Code, as amended. The
assumption order dated January 18, 2000 directed the parties to cease and
desist from committing any and all acts that might exacerbate the
situation.[3]
In his Order[4] dated March 24, 2000, Secretary Laguesma resolved all
economic and non-economic issues submitted by the parties, as follows:
WHEREFORE, premises considered,
judgment is hereby issued:
a. Directing Solidbank Corporation and Solidbank Union to
conclude their Collective Bargaining Agreement for
the years 2000 and 2001, incorporating the
dispositions above set forth;
b. Dismissing the unfair labor practice charge against
Solidbank Corporation;
c. Directing Solidbank to deduct or check-off from the
employees lump sum payment an amount equivalent
to seven percent (7%) of their economic benefits for
the first (1st) year, inclusive of signing bonuses, and to
remit or turn over the said sum to the Unions
authorized representative, subject to the requirements
of check-off;
d. Directing Solidbank to recall the show-cause memos
issued to employees who participated in the mass
actions if such memos were in fact issued.
 26 | P a g e CASES (FULL TEXT) – BANKING LAWS (GENERAL PRINCIPLES)
SO ORDERED.[5]
Dissatisfied with the Secretarys ruling, the Union officers and members
decided to protest the same by holding a rally infront of the Office of the
Secretary of Labor and Employment in Intramuros, Manila, simultaneous
with the filing of their motion for reconsideration of the March 24, 2000
Order. Thus, on April 3, 2000, an overwhelming majority of employees,
including the individual respondents, joined the mass leave and protest
action at the Department of Labor and Employment (DOLE) office while
the banks provincial branches in Cebu, Iloilo, Bacolod and Naga followed
suit and boycotted regular work.[6] The union members also picketed the
banks Head Office in Binondo on April 6, 2000, and Paseo de Roxas
branch on April 7, 2000.
As a result of the employees concerted actions, Solidbanks business
operations were paralyzed. On the same day, then President of Solidbank,
Deogracias N. Vistan, issued a memorandum[7] addressed to all employees
calling their absence from work and demonstration infront of the DOLE
office as an illegal act, and reminding them that they have put their jobs at
risk as they will be asked to show cause why they should not be
terminated for participating in the union-instigated concerted action. The
employees work abandonment/boycott lasted for three days, from April 3
to 5, 2000.
On the third day of the concerted work boycott (April 5, 2000), Vistan
issued another memorandum,[8] this time declaring that the bank is
prepared to take back employees who will report for work starting April 6,
2000 provided these employees were/are not part of those who led or
instigated or coerced their co-employees into participating in this illegal
act. Out of the 712 employees who took part in the three-day work
boycott, a total of 513 returned to work and were accepted by the
bank. The remaining 199 employees insisted on defying Vistans directive,
which included herein respondents Ernesto U. Gamier, Elena R.
Condevillamar, Janice L. Arriola and Ophelia C. De Guzman. For their
failure to return to work, the said 199 employees were each issued a show-
cause memo directing them to submit a written explanation within twenty-
four (24) hours why they should not be dismissed for the illegal strike x x
x in defiance of x x x the Assumption Order of the Secretary of Labor x x
x resulting [to] grave and irreparable damage to the Bank, and placing
them under preventive suspension.[9]
The herein 129 individual respondents were among the 199 employees
who were terminated for their participation in the three-day work boycott
and protest action. On various dates in June 2000, twenty-one (21) of the
individual respondents executed Release, Waiver and Quitclaim in favor
of Solidbank.[10]
On May 8, 2000, Secretary Laguesma denied the motions for
reconsideration filed by Solidbank and the Union.[11]
The Union filed on May 11, 2000 a Motion for Clarification of certain
portions of the Order dated March 24, 2000, and on May 19, 2000 it filed
a Motion to Resolve the Supervening Issue of Termination of 129 Striking
Employees. On May 26, 2000, Secretary Laguesma granted the first
motion by clarifying that the contract-signing bonus awarded in the new
CBA should likewise be based on the adjusted pay. However, the Unions
second motion was denied,[12] as follows:
This Office cannot give due course to
the Unions second motion. The labor dispute arising
from the termination of the Bank employees is an
issue that ought to be entertained in a separate
case. The assumption order of January 18,
2000 covered only the bargaining deadlock between
the parties and the alleged violation of the CBA
provision on regularization. We have already resolved
both the deadlock and the CBA violation issues. The
only motion pending before us is the motion for
clarification, which we have earlier disposed of in this
Order. Thus, the only option left is for the Union to
file a separate case on the matter.[13]
In the meantime, the Monetary Board on July 28, 2000 approved the
request of Metropolitan Bank and Trust Company (Metrobank) to acquire
the existing non-real estate assets of Solidbank in consideration of
assumption by Metrobank of the liabilities of Solidbank, and to integrate
the banking operations of Solidbank with Metrobank.Subsequently,
Solidbank was merged with First Metro Investment Corporation, and
Solidbank, the surviving corporation, was renamed the First Metro
Investment Corporation (FMIC).[14] By August 31, 2000, Solidbank
ceased banking operations after surrendering its expanded banking license
to the Bangko Sentral ng Pilipinas. Petitioners duly filed a Termination
Report with the DOLE and granted separation benefits to the banks
employees.[15]
Respondents Gamier, Condevillamar, Arriola and De Guzman filed
separate complaints for illegal dismissal, moral and exemplary damages
and attorneys fees on April 28, May 15 and May 29, 2000,
respectively (NLRC NCR Case Nos. [S]30-04-01891-00, 30-05-03002-00
and 30-05-02253-00). The cases were consolidated before Labor Arbiter
Potenciano S. Caizares, Jr. Respondent Union joined by the 129 dismissed
employees filed a separate suit against petitioners for illegal dismissal,
unfair labor practice and damages (NLRC NCR Case No. 30-07-02920-00
assigned to Labor Arbiter Luis D. Flores).
Labor Arbiters Rulings
In his Decision dated November 14, 2000, Labor Arbiter Potenciano S.
Caizares, Jr. dismissed the complaints of Gamier, Condevillamar, Arriola
and De Guzman. It was held that their participation in the illegal strike
violated the Secretary of Labors return to work order upon the latters
assumption of the labor dispute and after directing the parties to execute
their new CBA.[16]
On March 16, 2001, Labor Arbiter Luis D. Flores rendered a
decision[17] in favor of respondents Union and employees, the dispositive
portion of which reads:
WHEREFORE, premises considered, judgment is hereby
rendered declaring complainants dismissal as illegal and
unjustified and ordering the respondents Solidbank Corporation
and/or its successor-in-interest First Metro Investment
Corporation and/or Metropolitan Bank and Trust Company
and/or Deogracias Vistan and/or Edgardo Mendoza to reinstate
complainants to their former positions. Concomitantly, said
respondents are hereby ordered to jointly and severally pay the
complainants their full backwages and other employees benefits
from the time of their dismissal up to the date of their actual
reinstatement; payment of ten (10%) percent attorneys fees;
payment of ONE HUNDRED FIFTY THOUSAND PESOS
(P150,000.00) each as moral damages and ONE HUNDRED
THOUSAND PESOS (P100,000.00) each as exemplary
damages which are computed, at the date of this decision in the
amount of THIRTY THREE MILLION SEVEN HUNDRED
NINETY FOUR THOUSAND TWO HUNDRED TWENTY
TWO PESOS and 80/100 (P33,794,222.80), by the Computation
and Examination Unit of this branch and becomes an integral
part of this Decision.
SO ORDERED. [18]
Respondents Gamier, Condevillamar, Arriola and De Guzman appealed
the decision of Labor Arbiter Caizares, Jr. to the National Labor Relations
Commission (NLRC NCR CA No 027342-01). Petitioners likewise
appealed from the decision of Labor Arbiter Flores (NLRC NCR CA No.
028510-01).
Rulings of the NLRC
 27 | P a g e CASES (FULL TEXT) – BANKING LAWS (GENERAL PRINCIPLES)
On July 23, 2001, the NLRCs Second Division rendered a exercise of their right to express frustration and dissatisfaction over the
Decision[19] reversing the decision of Labor Arbiter Flores, as follows:
WHEREFORE, premises considered, the decision of the Labor
Arbiter is hereby VACATED and SET ASIDE and a new one
entered dismissing the complaint for illegal dismissal and unfair
labor practice for lack of merit. As equitable relief, respondents
are hereby ordered to pay complainants separation benefits as
provided under the CBA at least one (1) month pay for every
year of service whichever is higher.
SO ORDERED.[20]
The Second Division ruled that the mass action held by the bank
employees on April 3, 2000 infront of the Office of the Secretary of Labor
was not a legitimate exercise of the employees freedom of speech and
assembly. Such was a strike as defined under Article 212 (o) of the Labor
Code, as amended, which does not distinguish as to whom the action of
the employees is directed against, nor the place/location where the
concerted action of the employees took place. Complainants Gamier,
Condevillamar, Arriola and De Guzman did not report for work and
picketed the DOLE premises on April 3, 2000; they continuously refused
to report back to work until April 7, 2000 when they were issued a Notice
of Termination. It was stressed that the mass action of the bank employees
was an incident of a labor dispute, and hence the concerted work
abandonment was a prohibited activity contemplated under Article 264 (a)
of the Labor Code, as amended, upon assumption of jurisdiction by the
Secretary of Labor. Citing this Courts ruling in the case of Telefunken
Semiconductors Employees Union-FFW v. Court of Appeals,[21] the
Second Division found there was just and valid cause for the dismissal of
complainants.[22]
On the charge of forum shopping with respect to twenty-one (21)
individual complainants who have voluntarily settled their claims against
Solidbank, the said cases not having been dismissed by the Labor Arbiter
despite proper motion,[23] the Second Division found that complainants
admitted in their Answer that the said employees preferred to pursue their
own independent action against the bank and their names were stricken
out from the original complaint; hence, the Labor Arbiter erred in granting
relief to said employees. Nevertheless, it held that the complaint will not
be dismissed on this ground as the issue of forum shopping should have
been raised in the proceedings before the Labor Arbiter.[24]
Respondents filed a motion for reconsideration while the petitioners filed a
partial motion for reconsideration. Both motions were denied under
Resolution[25] dated September 28, 2001.
As to respondents appeal, the NLRCs Third Division by
Decision[26] dated January 31, 2002, reversed the decision of Labor Arbiter
Caizares, Jr., as follows:
WHEREFORE, the decision appealed from is hereby SET
ASIDE and a new one entered finding the respondent Solidbank
Corporation liable for the illegal dismissal of complainants
Ernesto U. Gamier, Elena P. Condevillamar, Janice L. Arriola
and Maria Ophelia C. de Guzman, and ordering the respondent
bank to reinstate the complainants to their former positions
without loss of seniority rights and to pay full backwages
reckoned from the time of their illegal dismissal up to the time
of their actual/payroll reinstatement. Should reinstatement not be
feasible, respondent bank is further ordered to pay complainants
their separation pay in accordance with the provisions of the
subsisting Collective Bargaining Agreement.
All other claims are DISMISSED for lack of merit.
SO ORDERED.[27]
The Third Division held that the protest action staged by the banks
employees before the DOLE did not amount to a strike but rather an
decision rendered by the Secretary of Labor. Hence, it cannot be
concluded that the activity is per se illegal or violative of the assumption
order considering that at the time, both parties had pending motions for
reconsideration of the Secretarys decision. Moreover, it was found that
Gamier, Condevillamar, Arriola and De Guzman were not fully
investigated on the charge that they had instigated or actively participated
in an illegal activity; neither was it shown that the explanations submitted
by them were considered by the management. Since said employees had
presented evidence of plausible and acceptable reasons for their absence at
the workplace at the time of the protest action, their termination based on
such alleged participation in the protest action was unjustified.[28]
Respondents filed a partial motion while the petitioners filed a motion for
reconsideration of the Decision dated January 31, 2002. Both motions
were denied under Resolution[29] dated March 8, 2002.
On November 20, 2001, petitioners filed a petition for certiorari before the
CA assailing the July 23, 2001 Decision and Resolution dated September
28, 2001 of the NLRCs Second Division insofar as it ordered the payment
of separation benefits to the 129 terminated employees of Solidbank who
participated in the mass action/strike (CA-G.R. SP No. 67730).[30]
On May 23, 2002, petitioners filed a separate petition in the CA (CA-G.R.
SP No. 70820) seeking the reversal of the January 31, 2002 Decision and
Resolution dated March 8, 2002 of the NLRCs Third Division and praying
for the following reliefs: (1) immediate issuance of a TRO and writ of
preliminary injunction to restrain/enjoin the NLRC from issuing a writ of
execution in NLRC CA No. 027342-01; (2) the petition be consolidated
with CA-G.R. SP No. 67730 before the Thirteenth Division and CA-G.R.
SP No. 68054 before the Third Division, or if consolidation is no longer
possible, that the petition be resolved independently of the aforesaid cases;
and (3) granting the petition by annulling and setting aside the January 31,
2002 Decision of the NLRC, and reinstating the November 14, 2000
Decision of Labor Arbiter Caizares, Jr.[31]
On August 9, 2002, petitioners filed a Manifestation before the Fifteenth
Division (CA-G.R. SP No. 67730) attaching thereto a copy of the
Decision[32] (dated July 26, 2002) rendered by the CAs Special Third
Division in CA-G.R. SP No. 68998, a petition for certiorari separately
filed by Metrobank which also sought to annul and set aside the July 23,
2001 Decision of the NLRCs Second Division insofar as it ordered the
payment of separation benefits to the dismissed employees of
Solidbank. In the said decision, the CAs Fourteenth Division gave due
course to the petition of Metrobank and affirmed the July 23,
2001 decision of the NLRC but reversed and set aside the portion of the
decision ordering the payment of separation benefits.[33]
On September 11, 2002, respondents filed an Omnibus Motion and
Counter-Manifestation arguing that petitioners Manifestation constitutes a
judicial admission that Metrobank engaged in forum shopping; it was thus
prayed that CA-G.R. SP No. 68998 be consolidated with CA-G.R. SP No.
67730, the latter having a lower case number.Further, respondents
attached a copy of the Decision[34] dated August 29, 2002 rendered by the
CAs Second Division in CA-G.R. SP No. 68054, the petition separately
filed by the Union and the 129 terminated employees of Solidbank from
the July 23, 2001 Decision of the NLRCs Second Division. The CAs
Second Division granted the petition in CA-G.R. SP No. 68054 and
reinstated the March 16, 2001 Decision of Labor Arbiter Flores.
CA-G.R. SP Nos. 67730 and 70820 were consolidated before the Twelfth
Division.
Court of Appeals Ruling
On March 10, 2003, the CA rendered its Decision[35] the dispositive
portion of which reads:
WHEREFORE, the twin petitions are hereby
DENIED. The dismissal of private respondents are
 28 | P a g e CASES (FULL TEXT) – BANKING LAWS (GENERAL PRINCIPLES)
hereby declared to be illegal. Consequently, petitioner
is ordered to reinstate private respondents to their
former position, consonant with the Decision of this
Court in CA-G.R. SP No. 68054.
SO ORDERED.[36]
First, on the issue of forum shopping, the CA found that while there were
indeed two cases filed respecting the same matter of illegality of the
dismissal of certain employees of Solidbank, it appears that the individual
complainants have no hand in initiating the case before the Labor Arbiter
for which the Union filed the complaint in behalf of its members. Hence,
the individual complainants cannot be said to have deliberately or
consciously sought two different fora for the same issues and causes of
action. Petitioners, moreover, failed to call the attention of the Labor
Arbiter as to the fact of filing of similar complaints by four employees.
As to the nature of the mass action resorted to by the employees of
Solidbank, the CA ruled that it was a legitimate exercise of their right to
free expression, and not a strike proscribed when the Secretary of Labor
assumed jurisdiction over the impass between Solidbank and the Union in
the collective bargaining negotiations. The CA thus reasoned:
while conceding that the aggregated acts of the private
respondents may have resulted in a stoppage of work, such was
the necessary result of the exercise of a Constitutional right. It is
beyond cavil that the mass action was done, not to exert any
undue pressure on the petitioner with regard to wages or
other economic demands, but to express dissatisfaction over
the decision of the Labor Secretary subsequent to his
assumption of jurisdiction. Surely, this is one course of
action that is not enjoined even when a labor dispute is
placed under the assumption of the said Labor Secretary. To
allow an act of the Labor Secretary one man in the Executive
Department to whittle down a freedom guaranteed by the Bill of
Rights would be to place upon that freedom a limitation never
intended by the several framers of our Constitution. In effect, it
would make a right enshrined in the Fundamental Law that was
ratified by the Sovereign People, subordinate to a prerogative
granted by the Labor Code, a statutory enactment made by mere
representatives of the People. This anomaly We cannot allow.
xxxx
Was private respondents act of massing in front of
the DOLE Building calculated by them to cause work stoppage,
or were they merely airing their grievance over the ruling of the
Labor Secretary in exercise of their civil liberties? Who can
divine the motives of their hearts? But when two different
interpretations are possible, the courts must lean towards that
which gives meaning and vitality to the Bill of Rights. x x
x[37] (Emphasis supplied.)
On April 2, 2003, petitioners filed a motion for reconsideration but this
was denied by the CA in its Resolution[38] dated August 7, 2003.
The Petitions
G.R. No. 159460
Petitioners argued that the CA erred in holding that the mass action
of April 3, 2000 infront of the Office of the Secretary of Labor was not a
strike considering that it had all the elements of a strike and the
respondents judicially admitted that it was a strike. The CA deemed the
mass action as an exercise of the respondents freedom of expression but
such constitutional right is not absolute and subject to certain well-defined
exceptions. Moreover, a mass action of this nature is considered a strike
and not an exercise of ones freedom of expression, considering further that
the Secretarys Order dated January 18, 2000 is a valid exercise of police
power.
Petitioners assail the CA in not considering the damage and prejudice
caused to the bank and its clients by respondents illegal acts. Respondents
mass actions crippled banking operations. Over-the-counter transactions
were greatly undermined. Checks for clearing were significantly
delayed. On-line transactions were greatly hampered, causing inestimable
damage to the nationwide network of automated teller
machines. Respondent Unions actions clearly belie its allegation that its
mass action was merely intended to protest and express their
dissatisfaction with the Secretarys Order dated March 24, 2000.
In view of the illegal strike conducted in violation of the Secretarys
assumption order, petitioners maintain that the dismissal of respondents
was not illegal, as consistently ruled by this Court in many cases. Even
granting arguendo that their termination was illegal, the CA erred in
ordering the reinstatement of respondents and holding that Solidbank,
FMIC and Metrobank are solidarily liable to the respondents. Lastly, the
CA erred in not finding that respondents were guilty of forum shopping as
respondents claim that they did not know the Union had filed a complaint
was unbelievable under the circumstances.[39]
G.R. No. 159461
Petitioners contend that the CA erred in ruling that the dismissal of
respondents Gamier, Condevillamar, Arriola and De Guzman was illegal,
considering that this was not an issue raised in the petition for certiorari
before the appellate court. What was raised by petitioners was only the
propriety of the award of separation pay by the NLRC which in fact
declared their dismissal to be valid and legal.
Petitioners maintain that respondents are not entitled to separation pay
even if the dismissal was valid because they committed serious
misconduct and/or illegal act in defying the Secretarys assumption
order. Moreover, the CA also erred in disregarding the Release, Waiver
and Quitclaim executed by twenty-one (21) individual respondents who
entered into a compromise agreement with Solidbank.[40]
Issues
The fundamental issues to be resolved in this controversy are: (1) whether
the protest rally and concerted work abandonment/boycott staged by the
respondents violated the Order dated January 18, 2000 of the Secretary of
Labor; (2) whether the respondents were validly terminated; and (3)
whether the respondents are entitled to separation pay or financial
assistance.
Our Ruling
Article 212 of the Labor Code, as amended, defines strike
as any temporary stoppage of work by the concerted action of employees
as a result of an industrial or labor dispute. A labor dispute includes any
controversy or matter concerning terms and conditions of employment or
the association or representation of persons in negotiating, fixing,
maintaining, changing or arranging the terms and conditions of
employment, regardless of whether or not the disputants stand in the
proximate relation of employers and employees.[41] The term strike shall
comprise not only concerted work stoppages, but also slowdowns, mass
leaves, sitdowns, attempts to damage, destroy or sabotage plant equipment
and facilities and similar activities.[42] Thus, the fact that the conventional
term strike was not used by the striking employees to describe their
common course of action is inconsequential, since the substance of the
situation, and not its appearance, will be deemed to be controlling.[43]
After a thorough review of the records, we hold that the CA patently erred
in concluding that the concerted mass actions staged by respondents
cannot be considered a strike but a legitimate exercise of the respondents
right to express their dissatisfaction with the Secretarys resolution of the
economic issues in the deadlocked CBA negotiations with petitioners. It
must be stressed that the concerted action of the respondents was not
limited to the protest rally infront of the DOLE Office on April 3,
2000. Respondent Unionhad also picketed the Head Office and Paseo de
Roxas Branch. About 712 employees, including those in the provincial
branches, boycotted and absented themselves from work in a concerted
 29 | P a g e CASES (FULL TEXT) – BANKING LAWS (GENERAL PRINCIPLES)
fashion for three continuous days that virtually paralyzed the employers
banking operations. Considering that these mass actions stemmed from a
bargaining deadlock and an order of assumption of jurisdiction had
already been issued by the Secretary of Labor to avert an impending
strike, there is no doubt that the concerted work abandonment/boycott was
the result of a labor dispute.
In Toyota Motor Phils. Corp. Workers Association (TMPCWA) v. National
Labor Relations Commission,[44] petitioners union and members held
similar protest rallies infront of the offices of BLR and DOLE Secretary
and at the company plants. We declared that said mass actions constituted
illegal strikes:
Petitioner Union contends that the protests or rallies
conducted on February 21 and 23, 2001 are not within the
ambit of strikes as defined in the Labor Code, since they
were legitimate exercises of their right to peaceably
assemble and petition the government for redress of
grievances. Mainly relying on the doctrine laid down in the
case of Philippine Blooming Mills Employees Organization
v. Philippine Blooming Mills Co., Inc., it argues that the
protest was not directed at Toyota but towards the
Government (DOLE and BLR). It explains that the protest
is not a strike as contemplated in the Labor Code. The
Union points out that in Philippine Blooming Mills
Employees Organization, the mass action staged in
Malacaang to petition the Chief Executive against the
abusive behavior of some police officers was a proper
exercise of the employees right to speak out and to
peaceably gather and ask government for redress of their
grievances.
The Unions position fails to convince us.
While the facts in Philippine Blooming Mills Employees
Organization are similar in some respects to that of the
present case, the Union fails to realize one major
difference: there was no labor dispute in Philippine
Blooming Mills Employees Organization. In the present
case, there was an on-going labor dispute arising
from Toyotas refusal to recognize and negotiate with
the Union, which was the subject of the notice of strike
filed by the Union on January 16, 2001. Thus, the Unions
reliance on Philippine Blooming Mills Employees
Organization is misplaced, as it cannot be considered a
precedent to the case at bar.
xxxx
Applying pertinent legal provisions and jurisprudence, we
rule that the protest actions undertaken by the Union
officials and members on February 21 to 23, 2001 are not
valid and proper exercises of their right to assemble and ask
government for redress of their complaints, but are illegal
strikes in breach of the Labor Code. The Unions position is
weakened by the lack of permit from the City of Manila to
hold rallies. Shrouded as demonstrations, they were in
reality temporary stoppages of work perpetrated
through the concerted action of the employees who
deliberately failed to report for work on the convenient
excuse that they will hold a rally at the BLR and DOLE
offices in Intramuros, Manila, on February 21 to 23,
2001. x x x (Emphasis supplied.)
Moreover, it is explicit from the directive of the Secretary in his January
18, 2000 Order that the Union and its members shall refrain from
committing any and all acts that might exacerbate the situation,[45] which
certainly includes concerted actions. For all intents and purposes,
therefore, the respondents staged a strike ultimately aimed at realizing
their economic demands. Whether such pressure was directed against the
petitioners or the Secretary of Labor, or both, is of no moment. All the
elements of strike are evident in the Union-instigated mass actions.
The right to strike, while constitutionally recognized, is not without legal
constrictions.[46] Article 264 (a) of the Labor Code, as amended, provides:
Art. 264. Prohibited activities. (a) x x x
No strike or lockout shall be declared after
assumption of jurisdiction by the President or the
Secretary or after certification or submission of the
dispute to compulsory or voluntary arbitration or
during the pendency of cases involving the same
grounds for the strike or lockout.
x x x x (Emphasis supplied.)
The Court has consistently ruled that once the Secretary of Labor assumes
jurisdiction over a labor dispute, such jurisdiction should not be interfered
with by the application of the coercive processes of a strike or
lockout.[47] A strike that is undertaken despite the issuance by the
Secretary of Labor of an assumption order and/or certification is a
prohibited activity and thus illegal.[48]
Article 264 (a) of the Labor Code, as amended, also considers it a
prohibited activity to declare a strike during the pendency of cases
involving the same grounds for the same strike.[49] There is no dispute that
when respondents conducted their mass actions on April 3 to 6, 2000, the
proceedings before the Secretary of Labor were still pending as both
parties filed motions for reconsideration of the March 24, 2000
Order. Clearly, respondents knowingly violated the aforesaid provision by
holding a strike in the guise of mass demonstration simultaneous with
concerted work abandonment/boycott.
Notwithstanding the illegality of the strike, we cannot sanction petitioners
act of indiscriminately terminating the services of individual respondents
who admitted joining the mass actions and who have refused to comply
with the offer of the management to report back to work on April 6,
2000. The liabilities of individual respondents must be determined under
Article 264 (a) of the Labor Code, as amended:
Art. 264. Prohibited activities. x x x
xxxx
Any worker whose employment has been
terminated as a consequence of an unlawful lockout
shall be entitled to reinstatement with full back
wages. Any union officer who knowingly
participates in an illegal strike and any worker or
union officer who knowingly participates in the
commission of illegal acts during a strike may be
declared to have lost his employment
status: Provided, That mere participation of a
worker in a lawful strike shall not constitute
sufficient ground for termination of his
employment, even if a replacement had been hired by
the employer during such lawful strike.
xxxx
The foregoing shows that the law makes a distinction between union
officers and members. For knowingly participating in an illegal strike or
participating in the commission of illegal acts during a strike, the law
provides that a union officer may be terminated from employment. The
law grants the employer the option of declaring a union officer who
participated in an illegal strike as having lost his employment. It possesses
the right and prerogative to terminate the union officers from service. [50]
However, a worker merely participating in an illegal strike may not be
terminated from employment. It is only when he commits illegal
 30 | P a g e CASES (FULL TEXT) – BANKING LAWS (GENERAL PRINCIPLES)
acts during a strike that he may be declared to have lost employment
status.[51] We have held that the responsibility of union officers, as main
players in an illegal strike, is greater than that of the members and,
therefore, limiting the penalty of dismissal only for the former for
participation in an illegal strike is in order.[52] Hence, with respect to
respondents who are union officers, the validity of their termination by
petitioners cannot be questioned. Being fully aware that the proceedings
before the Secretary of Labor were still pending as in fact they filed a
motion for reconsideration of the March 24, 2000 Order, they cannot
invoke good faith as a defense.[53]
For the rest of the individual respondents who are union members, the rule
is that an ordinary striking worker cannot be terminated for mere
participation in an illegal strike.There must be proof that he or she
committed illegal acts during a strike. In all cases, the striker must be
identified. But proof beyond reasonable doubt is not required. Substantial
evidence available under the attendant circumstances, which may justify
the imposition of the penalty of dismissal, may suffice. Liability for
prohibited acts is to be determined on an individual basis.[54]
Petitioners have not adduced evidence on such illegal acts committed by
each of the individual respondents who are union members. Instead,
petitioners simply point to their admitted participation in the mass actions
which they knew to be illegal, being in violation of the Secretarys
assumption order. However, the acts which were held to be prohibited
activities are the following:
where the strikers shouted slanderous and scurrilous words
against the owners of the vessels; where the strikers used
unnecessary and obscene language or epithets to prevent
other laborers to go to work, and circulated libelous
statements against the employer which show actual malice;
where the protestors used abusive and threatening language
towards the patrons of a place of business or against co-
employees, going beyond the mere attempt to persuade
customers to withdraw their patronage; where the strikers
formed a human cordon and blocked all the ways and
approaches to the launches and vessels of the vicinity of the
workplace and perpetrated acts of violence and coercion to
prevent work from being performed; and where the strikers
shook their fists and threatened non-striking employees
with bodily harm if they persisted to proceed to the
workplace. x x x[55]
The dismissal of herein respondent-union members are therefore
unjustified in the absence of a clear showing that they committed specific
illegal acts during the mass actions and concerted work boycott.
Are these dismissed employees entitled to backwages and separation pay?
The award of backwages is a legal consequence of a finding of illegal
dismissal. Assuming that respondent-union members have indeed reported
back to work at the end of the concerted mass actions, but were soon
terminated by petitioners who found their explanation unsatisfactory, they
are not entitled to backwages in view of the illegality of the said strike.
Thus, we held in G & S Transport Corporation v. Infante[56]--
It can now therefore be concluded that the acts of
respondents do not merit their dismissal from employment
because it has not been substantially proven that they
committed any illegalact while participating in the illegal
strike. x x x
xxxx
With respect to backwages, the principle of a fair days
wage for a fair days labor remains as the basic factor in
determining the award thereof. If there is no work
performed by the employee there can be no wage or pay
unless, of course, the laborer was able, willing and
ready to work but was illegally locked out, suspended or
dismissed or otherwise illegally prevented from
working. While it was found that respondents expressed
their intention to report back to work, the latter exception
cannot apply in this case. In Philippine Marine Officers
Guild v. Compaia Maritima, as affirmed in Philippine
Diamond Hotel and Resort v. Manila Diamond Hotel
Employees Union, the Court stressed that for this
exception to apply, it is required that the strike be legal,
a situation that does not obtain in the case at
bar. (Emphasis supplied.)
Under the circumstances, respondents reinstatement without backwages
suffices for the appropriate relief. But since reinstatement is no longer
possible, given the lapse of considerable time from the occurrence of the
strike, not to mention the fact that Solidbank had long ceased its banking
operations, the award of separation pay of one (1) month salary for each
year of service, in lieu of reinstatement, is in order.[57] For the twenty-one
(21) individual respondents who executed quitclaims in favor of the
petitioners, whatever amount they have already received from the
employer shall be deducted from their respective separation pay.
Petitioners contended that in view of the blatant violation of the Secretarys
assumption order by the striking employees, the award of separation pay is
unjust and unwarranted.That respondent-members themselves knowingly
participated in the illegal mass actions constitutes serious misconduct
which is a just cause under Article 282 for terminating an employee.
We are not persuaded.
As we stated earlier, the Labor Code protects an ordinary, rank-and-file
union member who participated in such a strike from losing his job,
provided that he did not commit an illegal act during the strike.[58] Article
264 (e) of the Labor Code, as amended, provides for such acts which are
generally prohibited during concerted actions such as picketing:
No person engaged in picketing shall commit any act
of violence, coercion or intimidation or obstruct the free
ingress to or egress from the employers premises for
lawful purposes, or obstruct public
thoroughfares. (Emphasis supplied.)
Petitioners have not adduced substantial proof that respondent-union
members perpetrated any act of violence, intimidation, coercion or
obstruction of company premises and public thoroughfares. It did not
submit in evidence photographs, police reports, affidavits and other
available evidence.
As to the issue of solidary liability, we hold that Metrobank cannot be held
solidarily liable with Solidbank for the claims of the latters dismissed
employees. There is no showing that Metrobank is the successor-in-
interest of Solidbank. Based on petitioners documentary evidence,
Solidbank was merged with FMIC, with Solidbank as the surviving
corporation, and was later renamed as FMIC. While indeed Solidbanks
banking operations had been integrated with Metrobank, there is no
showing that FMIC has ceased business operations. FMIC as successor-in-
interest of Solidbank remains solely liable for the sums herein adjudged
against Solidbank.
Neither should individual petitioners Vistan and Mendoza be held
solidarily liable for the claims adjudged against petitioner
Solidbank. Article 212 (e)[59] does not state that corporate officers are
personally liable for the unpaid salaries or separation pay of employees of
the corporation. The liability of corporate officers for corporate debts
remains governed by Section 31[60] of the Corporation Code.
It is basic that a corporation is invested by law with a personality separate
and distinct from those of the persons composing it as well as from that of
any other legal entity to which it may be related. Mere ownership by a
 31 | P a g e CASES (FULL TEXT) – BANKING LAWS (GENERAL PRINCIPLES)
single stockholder or by another corporation of all or nearly all of the
capital stock of a corporation is not of itself sufficient ground for
disregarding the separate corporate personality.[61] In labor cases, in
particular, the Court has held corporate directors and officers solidarily
liable with the corporation for the termination of employment of corporate
employees done with malice or in bad faith.[62] Bad faith is never
presumed.[63] Bad faith does not simply connote bad judgment or
negligence -- it imports a dishonest purpose or some moral obliquity and
conscious doing of wrong. It means a breach of a known duty through
some motive or interest or ill-will that partakes of the nature of fraud.[64]
Respondents have not satisfactorily proven that Vistan and Mendoza acted
with malice, ill-will or bad faith. Hence, said individual petitioners are not
liable for the separation pay of herein respondents-union members.
WHEREFORE, the petitions are PARTLY GRANTED. The Decision
dated March 10, 2003 of the Court of Appeals in CA-G.R. SP Nos. 67730
and 70820 is hereby SET ASIDE. Petitioner Solidbank Corporation (now
FMIC) is hereby ORDERED to pay each of the above-named individual
respondents, except union officers who are hereby declared validly
dismissed, separation pay equivalent to one (1) month salary for every
year of service. Whatever sums already received from petitioners under
any release, waiver or quitclaim shall be deducted from the total
separation pay due to each of them.
The NLRC is hereby directed to determine who among the
individual respondents are union members entitled to the separation pay
herein awarded, and those union officers who were validly dismissed and
hence excluded from the said award.
No costs.
SO ORDERED.
G.R. No. L-29630 July 2, 1981
PHILIPPINE COMMERCIAL & INDUSTRIAL BANK vs.
PHILNABANK EMPLOYEES' ASSOCIATION, ROMEO G. ROY,
DALUYONG GABRIEL, BAYANI A. BAUTISTA, DOMINGO
VILLANUEVA, ALEJANDRO RICARDO, JESUS MANAHAN,
MANUEL JACINTO, ERNESTO BATAC, LEONIDO CASPE
PATRICIA GRANADOS and PANTALEON BERNARDO
FERNANDO, C.J.:
There is a unique aspect to this action for libel against the Philippine
National Bank Employees' Association. 1 It was filed by plaintiff
Philippine Commercial and Industrial Bank as a result of placards and
signboards along the Philippine National Bank building in Escolta,
Manila, containing the following: "PCIB BAD ACCOUNTS
TRANSFERRED TO PNB-NIDC?" Plaintiff considered the above
"defamatory and libelous per se for at the very least [it] amounts to an "act
tending to cause dishonor, discredit, or contempt of a juridical
person." 2 The allegation of its being libelous was denied by defendants on
the ground that such placards "containing the alleged writing were
displayed during the strike on April 3 and April 4,1967 as a fair, legal
labor strategy denouncing the lack of business foresight, incompetence,
mismanagement, arbitrary and despotic acts of the Management to heed
the legal and legitimate demands of the defendants, as a striking union,
and against whom a strike was declared against the management of the
Philippine National Bank" 3 and that moreover, "defendants, during the
strike on April 3 to April 4, 1967, against the management of the
Philippine National Bank, were only moved by good intention and
justifiable motives and did not intend to injure any party not connected
with the strike;" 4 constituting part "of their legal and fair labor strategy to
enforce their demands" and to bolster their imputation of incompetence
and arbitrariness of the Philippine National Bank management. 5 The
lower court sustained such a defense and dismissed the complaint. Hence
this appeal.
The decision of the then Judge Conrado Vasquez was to dismiss the
complaint. He could not discern any libelous imputation in the alleged
offending words. Such a ruling finds additional support in the sympathetic
approach followed by courts to inaccuracies and imprecision in language
in the use of placards as part of peaceful picketing in labor controversies.
The facts as found by the lower court, admitted by plaintiff-appellant as
correct, follow: "On April 3, 1967, defendant Philnabank Employees'
Association (PEMA), a labor organization composed of the rank and file
employees of the Philippine National Bank, declared a strike. During the
said strike, which lasted up to the following day, members of the (PEMA)
paraded and displayed placards in front of the PNB building at Escolta,
Manila, one of which contained the following words: "PCIB BAD
ACCOUNTS TRANSFERRED TO PNB-NIDC?" It is an admitted fact
that PCIB stands for plaintiff Philippine Commercial and Industrial Bank,
while PNB refers to Philippine National Bank, and NIDC stands for
National Investment Development Corporation, a subsidiary of the
PNB." 6 To prove its claim for the recovery of damages both actual and
exemplary, as well as for attorney's fees, plaintiff-appellant, as noted in
the appealed decision, contended "that the writing on the placard in
question is a baseless and malicious aspersion that the plaintiff was a party
to a fraud, in that it was able to recoup on bad debts or other uncollected
accounts by fraudulent, questionable and immoral transfer thereof to the
PNB or NIDC. 7 Malice was likewise at- tributed to defendant labor union
and its officers. Then the decision went on to state: "Plaintiff presented
evidence to show that it is the largest 100% Filipino commercial bank in
the Philippines; that at the time of the filing of the complaint, it had
twenty-seven (27) branches all over the country and with foreign
correspondent banks throughout the world; that the assets of the plaintiff
amounted to P333,417,445.05 and it handles a quarterly volume of
business amounting to P110,000,000.00; that it has several big companies
among its clients; and that it has a reputation for honesty, reliability and
trustworthiness, and has enjoyed domestic and international prominence
and goodwill." 8 On that point, the lower court ruled: "The plaintiff has
also miserably failed to prove any damage caused to it by the supposed
libelous placard subject matter of this action. Plaintiff has admitted that its
twenty-seven branches at the time of the filing of the complaint (May 6,
1967) increased to twenty-nine branches in August of 1967. The
defendants have shown that the number further increased to thirty-three
branches as of September, 1967. Plaintiff's networth likewise increased
from P46,000,000.00 in March, 1967 to P53,000,000.00 in August, 1967.
Although plaintiff's witness Jovino Valenzuela testified that. after the
display of the questioned placard, the deposits of the plaintiff bank
decreased, no record was presented to sustain this claim, which is even
inconsistent with the admission of the same witness that the Bank's
networth increased since that time and has continued to increase up to the
time he testified. The same thing is true with the testimony of plaintiff's
witness Edmundo Ledesma to the effect that due to the placard in question
his confidence in the plaintiff was shaken, thereby causing him to deposit
P50,000.00 with other banks instead of with the PCIB. He admmitted
moreover that, as an exporter, it was safer to be opening accounts in
several banks instead of in only one." 9
As noted earlier, the decision must be affirmed.
1. The brief presented by the San Juan, Africa, Gonzales and San Agustin
Law Offices is noted for its exhaustive and scholarly discussion of the law
on libel relying on both the Philippine and American authorities. If the
matter were viewed solely from what appeared in the placard, there is an
element of plausibility in the assertion that while it was aimed at the
Philippine National Bank, the way it was worded could reflect on a
stranger to the controversy, plaintiff Philippine Commercial and Industrial
Bank. It is understandable if there were an affront to the sensibilities of its
officials, They were right to guard its reputation earned after many years
of laudable and creditable performance in the field of banking. It is,
however, precisely because of its well-deserved reputation that what could
 32 | P a g e CASES (FULL TEXT) – BANKING LAWS (GENERAL PRINCIPLES)
at first glance be for the most fastidious hurtful to its prestige could, if
viewed with calmness and objectivity, be considered, as it was
characterized in the appealed decision, as lacking in "libelous imputation.
" incentives for industrial dispersal to the countryside, and for other
2. There is, as already indicated, another reinforcement to such a mode of
appraising the matter. There was a labor controversy resulting in a strike,
fortunately lasting only for one day. The labor union made use of its
constitutional right to picket. From the time of Mortera v. Court of
Industrial Relations, a 1947 decision, 10 this Court has been committed to
the view that peaceful picketing is part of the freedom of speech guarantee
of the Constitution. The latest case in point where such a principle was
reaffirmed expressly is Associated Labor Union v. Gomez, 11 a 1980
decision. There is no mention of the other placards but it is not unlikely
that to bolster its claim, mention was likewise made and in bold letters at
that of such alleged failing of its management. That was the aim and intent
as found by the lower court. That could not very well be disputed by
plaintiff-appellant. Unfortunately, the offending imputation, but in the
form of a question, was included. It was due to a former official of
plaintiff-appellant's bank who was thereafter named as President of the
Philippine National Bank. Should there be an automatic attitude of
condemnation for such incident? If the realistic observation of Justice
Frankfurter in Milk Wagon Drivers Union of Chicago v. Meadowmoor
Dairies 12 be heeded that labor disputes give rise to strong emotional
response, then the decision reached by the lower court becomes even more
acceptable. It is a fact of industrial life, both in the Philippines as in the
United States, that in the continuing confrontation between labor and
management, it is far from likely that the language employed would be
both courteous and polite. Such being the case. there is no affront either to
reason or to the law in the complaint for libel being dismissed. In pricing
reliance on the constitutional right of freedom of expression, 13 this Court
once again makes manifest its adherence to the principle first announced
by Justice Malcolm as ponente in the leading case of United States v.
Bustos. 14 In no uncertain terms, it made clear that the judiciary, in
deciding suits for libel, must ascertain whether or not the alleged
offending words may be embraced by the guarantees of free speech and
free press. It cannot he too often said that Bustos was promulgated as far
back as March 8, 1918. A doctrine analogous in character was enunciated
by the United States Supreme Court only thirty-six years later in New York
Times Co. v. Sullivan. 15 WHEREFORE, the appealed decision is
affirmed. No costs.
G.R. No. 102636 September 10, 1993
METROPOLITAN BANK & TRUST COMPANY EMPLOYEES
UNION-ALU-TUCP and ANTONIO V. BALINANG vs. NATIONAL
LABOR RELATIONS COMMISSION (2nd Division) and
METROPOLITAN BANK and TRUST COMPANY
VITUG, J.:
In this petition for certiorari, the Metropolitan Bank & Trust Company
Employees Union-ALU-TUCP (MBTCEU) and its president, Antonio V.
Balinang, raise the issue of whether or not the implementation by the
Metropolitan Bank and Trust Company of Republic Act No. 6727,
mandating an increase in pay of P25 per day for certain employees in the
private sector, created a distortion that would require an adjustment under
said law in the wages of the latter's other various groups of employees.
On 25 May 1989, the bank entered into a collective bargaining agreement
with the MBTCEU, granting a monthly P900 wage increase effective 01
January 1989, P600 wage increase 01 January 1990, and P200 wage
increase effective 01 January 1991. The MBTCEU had also bargained for
the inclusion of probationary employees in the list of employees who
would benefit from the first P900 increase but the bank had adamantly
refused to accede thereto. Consequently, only regular employees as of 01
January 1989 were given the increase to the exclusion of probationary
employees.
Barely a month later, or on 01 January 1989, Republic Act 6727, "an act to
rationalize wage policy determination be establishing the mechanism and
proper standards thereof, . . . fixing new wage rates, providing wage
purposes," took effect. Its provisions, pertinent to this case, state:
Sec. 4. (a) Upon the effectivity of this Act, the statutory minimum
wage rates of all workers and employees in the private sector,
whether agricultural or non-agricultural, shall be increased by
twenty-five pesos (P25) per day, . . .: Provided, That those already
receiving above the minimum wage rates up to one hundred
pesos(P100.00) shall also receive an increase of twenty-five pesos
(P25.00) per day, . . .
xxx xxx xxx
(d) If expressly provided for and agreed upon in the collective
bargaining agreements, all increase in the daily basic wage rates
granted by the employers three (3) months before the effectivity of
this Act shall be credited as compliance with the increases in the
wage rates prescribed herein, provided that, where such increases are
less than the prescribed increases in the wage rates under this Act, the
employer shall pay the difference. Such increase shall not include
anniversary wage increases, merit wage increase and those resulting
from the regularization or promotion of employees.
Where the application of the increases in the wage rates under this
Section results in distortions as defined under existing laws in the
wage structure within an establishment and gives rise to a dispute
therein, such dispute shall first be settled voluntarily between the
parties and in the event of a deadlock, the same shall be finally
resolved through compulsory arbitration by the regional branches of
the National Labor Relations Commission (NLRC) having
jurisdiction over the workplace.
It shall be mandatory for the NLRC to conduct continous hearings
and decide any dispute arising under this Section within twenty (20)
calendar days from the time said dispute is formally submitted to it
for arbitration. The pendency of a dispute arising from a wage
distortion shall not in any way delay the applicability of the increase
in the wage rates prescribed under this Section.
Pursuant to the above provisions, the bank gave the P25 increase per day,
or P750 a month, to its probationary employees and to those who had been
promoted to regular or permanent status before 01 July 1989 but whose
daily rate was P100 and below. The bank refused to give the same increase
to its regular employees who were receiving more than P100 per day and
recipients of the P900 CBA increase.
Contending that the bank's implementation of Republic Act 6727 resulted
in the categorization of the employees into (a) the probationary employees
as of 30 June 1989 and regular employees receiving P100 or less a day
who had been promoted to permanent or regular status before 01 July
1989, and (b) the regular employees as of 01 July 1989, whose pay was
over P100 a day, and that, between the two groups, there emerged a
substantially reduced salary gap, the MBTCEU sought from the bank the
correction of the alleged distortion in pay. In order to avert an impeding
strike, the bank petitioned the Secretary of Labor to assume jurisdiction
over the case or to certify the same to the National Labor Relations
Commission (NLRC) under Article 263 (g) of the Labor Code.1 The
parties ultimately agreed to refer the issue for compulsory arbitration to
the NLRC.
The case was assigned to Labor Arbiter Eduardo J. Carpio. In his decision
of 05 February 1991, the labor arbiter disregard with the bank's contention
that the increase in its implementation of Republic Act 6727 did not
constitute a distortion because "only 143 employees or 6.8% of the bank's
population of a total of 2,108 regular employees" benefited. He stressed
that "it is not necessary that a big number of wage earners within a
 33 | P a g e CASES (FULL TEXT) – BANKING LAWS (GENERAL PRINCIPLES)
company be benefited by the mandatory increase before a wage distortion
may be considered to have taken place," it being enough, he said, that such
increase "result(s) in the severe contraction of an intentional quantitative
difference in wage between employee groups."
The labor arbiter concluded that since the "intentional quantitative
difference" in wage or salary rates between and among groups of
employees is not based purely on skills or length of service but also on
"other logical bases of differentiation, a P900.00 wage gap intentionally
provided in a collective bargaining agreement as a quantitative difference
in wage between those who WERE regular employees as of January 1,
1989 and those who WERE NOT as of that date, is definitely a logical
basis of differentiation (that) deserves protection from any distorting
statutory wage increase." Otherwise, he added, "a minimum wage statute
that seek to uplift the economic condition of labor would itself destroy the
mechanism of collective bargaining which, with perceived stability, has
been labor's constitutional and regular source of wage increase for so long
a time now." Thus, since the "subjective quantitative difference" between
wage rates had been reduced from P900.00 to barely P150.00, correction
of the wage distortion pursuant to Section 4(c) of the Rules Implementing
Republic Act 6727 should be made.
The labor arbiter disposed of the case, thus:
WHEREFORE, premises considered, the respondent is hereby
directed to restore to complainants and their members the Nine
Hundred (P900.00) Pesos CBA wage gap they used to enjoy over
non-regular employees as of January 1, 1989 by granting them a
Seven Hundred Fifty (P750.00) Pesos monthly increase effective July
1, 1989.
SO ORDERED.2
The bank appealed to the NLRC. On 31 May 1991, the NLRC Second
Division, by a vote of 2 to 1, reversed the decision of the Labor Arbiter.
Speaking, through Commissioners Rustico L. Diokno and Domingo H.
Zapanta, the NLRC said:
. . . a wage distortion can arise only in a situation where the salary
structure is characterized by intentional quantitative differences
among employee groups determined or fixed on the basis of skills,
length of service, or other logical basis of differentiation and such
differences or distinction are obliterated (In Re: Labor Dispute at the
Bank of the Philippine Islands, NCMB-RB-7-11-096-89, Secretary of
Labor and Employment, February 18, 1991).
As applied in this case, We noted that in the new wage salary
structure, the wage gaps between Level 6 and 7 levels 5 and 6, and
levels 6 and 7 (sic) were maintained. While there is a noticeable
decrease in the wage gap between levels 2 and 3, Levels 3 and 4, and
Levels 4 and 5, the reduction in the wage gaps between said levels is
not significant as to obliterate or result in severe contraction of the
intentional quantitative differences in salary rates between the
employees groups. For this reason, the basis requirement for a wage
in this case. Moreover, there is nothing in the law which would
justify an across-the-board adjustment of P750.00 as ordered by the
labor Arbiter.
WHEREFORE, premises considered, the appealed decision is hereby
set aside and a new judgment is hereby entered, dismissing the
complaint for lack of merit.
SO ORDERED.3
In her dissent, Presiding Commissioner Edna Bonto-Perez opined:
There may not be an obliteration nor elimination of said quantitative
distinction/difference aforecited but clearly there is a contraction.
Would such contraction be severe as to warrant the necessary
correction sanctioned by the law in point, RA 6727? It is may
considered view that the quantitative intended distinction in pay
between the two groups of workers in respondent company was
contracted by more than fifty (50%) per cent or in particular by more
or less eighty-three (83%) per cent hence, there is no doubt that there
is an evident severe contraction resulting in the complained of wage
distortion.
Nonetheless, the award of P750.00 per month to all of herein
individual complainants as ordered by the Labor Arbiter below, to
my mind is not the most equitable remedy at bar, for the same would
be an across the board increase which is not the intention of RA
6727. For that matter, herein complainants cannot by right claim for
the whole amount of P750.00 a month or P25.00 per day granted to
the workers covered by the said law in the sense that they are not
covered by the said increase mandated by RA 6727. They are only
entitled to the relief granted by said law by way of correction of the
pay scale in case of distortion in wages by reason thereof.
Hence, the formula offered and incorporated in Wage Order No. IV-
02 issued on 21 May 1991 by the Regional Tripartite Wages and
Productivity Commission for correction of pay scale structures in
case of wage distortion as in the case at bar which is:
Minimum Wage = % x Prescribed
= Distortion
—————— Increased
Adjustment
Actual Salary
would be the most equitable and fair under the circumstances
obtaining in this case.
For this very reason, I register my dissent from the majority opinion
and opt for the modification of the Labor Arbiter's decision as afore-
discussed.4
The MBTCEU filed a motion for reconsideration of the decision of the
NLRC; having been denied, the MBTCEU and its president filed the
instant petition for certiorari, charging the NLRC with gave abuse of
discretion by its refusal (a) "to acknowledge the existence of a wage
distortion in the wage or salary rates between and among the employee
groups of the respondent bank as a result of the bank's partial
implementation" of Republic Act 6727 and (b) to give due course to its
claim for an across-the-board P25 increase under Republic Act No. 6727.5
We agree with the Solicitor General that the petition is impressed with
merit.6
The term "wage distortion", under the Rules Implementing Republic Act
6727, is defined, thus:
(p) Wage Distortion means a situation where an increase in
prescribed wage rates results in the elimination or severe
contradiction of intentional quantitative differences in wage or salary
rates between and among employee groups in an establishment as to
effectively obliterate the distinctions embodied in such wage
structure based on skills, length of service, or other logical bases of
differentiation.
The issue of whether or not a wage distortion exists as a consequence of
the grant of a wage increase to certain employees, we agree, is, by and
large, a question of fact the determination of which is the statutory
function of the NLRC.7 Judicial review of labor cases, we may add, does
not go beyond the evaluation of the sufficiency of the evidence upon
which the labor official's findings rest.8 As such, factual findings of the
NLRC are generally accorded not only respect but also finality provided
that its decision are supported by substantial evidence and devoid of any
taint of unfairness of arbitrariness.9 When, however, the members of the
same labor tribunal are not in accord on those aspects of a case, as in this
case, this Court is well cautioned not to be as so conscious in passing upon
 34 | P a g e CASES (FULL TEXT) – BANKING LAWS (GENERAL PRINCIPLES)
the sufficiency of the evidence, let alone the conclusions derived
therefrom.
In this case, the majority of the members of the NLRC, as well as its
dissenting member, agree that there is a wage distortion arising from the
bank's implementation of the P25 wage increase; they do differ, however,
on the extent of the distortion that can warrant the adoption of corrective
measures required by law.
The definition of "wage distortion," 10 aforequoted, shows that such
distortion can so exist when, as a result of an increase in the prescribed
wage rate, an "elimination or severe contraction of intentional quantitative
differences in wage or salary rates" would occur "between and among
employee groups in an establishment as to effectively obliterate the
distinctions embodied in such wage structure based on skills, length of
service, or other logical bases of differentiation." In mandating an
adjustment, the law did not require that there be an elimination or total
abrogation of quantitative wage or salary differences; a severe contraction
thereof is enough. As has been aptly observed by Presiding Commissioner
Edna Bonto-Perez in her dissenting opinion, the contraction between
personnel groupings comes close to eighty-three (83%), which cannot, by
any stretch of imagination, be considered less than severe.
The "intentional quantitative differences" in wage among employees of
the bank has been set by the CBA to about P900 per month as of 01
January 1989. It is intentional as it has been arrived at through the
collective bargaining process to which the parties are thereby
concluded. 11 The Solicitor General, in recommending the grant of due
course to the petition, has correctly emphasized that the intention of the
parties, whether the benefits under a collective bargaining agreement
should be equated with those granted by law or not, unless there are
compelling reasons otherwise, must prevail and be given effect. 12
In keeping then with the intendment of the law and the agreement of the
parties themselves, along with the often repeated rule that all doubts in the
interpretation and implementation of labor laws should be resolved in
favor of labor, 13 we must approximate an acceptable quantitative
difference between and among the CBA agreed work levels. We, however,
do not subscribe to the labor arbiter's exacting prescription in correcting
the wage distortion. Like the majority of the members of the NLRC, we
are also of the view that giving the employees an across-the-board
increase of P750 may not be conducive to the policy of encouraging
"employers to grant wage and allowance increases to their employees
higher than the minimum rates of increases prescribed by statute or
administrative regulation," particularly in this case where both Republic
Act 6727 and the CBA allow a credit for voluntary compliance. As the
Court, through Associate Justice Florentino Feliciano, also pointed out
in Apex Mining Company, Inc. v. NLRC: 14
. . . . (T)o compel employers simply to add on legislated increases
in salaries or allowances without regard to what is already being
paid, would be to penalize employers who grant their workers
more than the statutorily prescribed minimum rates of increases.
Clearly, this would be counter-productive so far as securing the
interests of labor is concerned. . . .
We find the formula suggested then by Commissioner Bonto-Perez, which
has also been the standard considered by the regional Tripartite Wages and
Productivity Commission for the correction of pay scale structures in cases
of wage distortion, 15 to well be the appropriate measure to balance the
respective contentions of the parties in this instance. We also view it as
being just and equitable.
WHEREFORE, finding merit in the instant petition for certiorari, the
same is GRANTED DUE PROCESS, the questioned NLRC decision is
hereby SET ASIDE and the decision of the labor arbiter is REINSTATED
subject to the MODIFICATION that the wage distortion in question be
corrected in accordance with the formula expressed in the dissenting
opinion of Presiding Commissioner Edna Bonto-Perez. This decision is
immediately executory.
SO ORDERED.
G.R. No. 174912, July 24, 2013
BPI EMPLOYEES UNION-DAVAO CITY-FUBU (BPIEU-DAVAO
CITY-FUBU) vs. BANK OF THE PHILIPPINE ISLANDS (BPI), and
BPI OFFICERS CLARO M. REYES, CECIL CONANAN and
GEMMA VELEZ
MENDOZA, J.:
Before the Court is a petition for review on certiorari under Rule 45 of the
1997 Rules of Civil Procedure, assailing the April 5, 2006 Decision 1 and
August 17, 2006 Resolution2 of the Court of Appeals (CA) in CA-G.R. SP
No. 74595 affirming the December 21, 20013 and August 23,
20024 Resolutions of the National Labor Relations Commission (NLRC)
in declaring as valid and legal the action of respondent Bank of the
Philippine Islands-Davao City (BPI-Davao) in contracting out certain
functions to BPI Operations Management Corporation (BOMC).
The Factual Antecedents
BOMC, which was created pursuant to Central Bank5 Circular No. 1388,
Series of 1993 (CBP Circular No. 1388, 1993), and primarily engaged in
providing and/or handling support services for banks and other financial
institutions, is a subsidiary of the Bank of Philippine Islands (BPI)
operating and functioning as an entirely separate and distinct entity.
A service agreement between BPI and BOMC was initially implemented
in BPI’s Metro Manila branches. In this agreement, BOMC undertook to
provide services such as check clearing, delivery of bank statements, fund
transfers, card production, operations accounting and control, and cash
servicing, conformably with BSP Circular No. 1388. Not a single BPI
employee was displaced and those performing the functions, which were
transferred to BOMC, were given other assignments.
The Manila chapter of BPI Employees Union (BPIEU-Metro
ManilaFUBU) then filed a complaint for unfair labor practice (ULP). The
Labor Arbiter (LA) decided the case in favor of the union. The decision
was, however, reversed on appeal by the NLRC. BPIEU-Metro Manila-
FUBU filed a petition for certiorari before the CA which denied it, holding
that BPI transferred the employees in the affected departments in the
pursuit of its legitimate business. The employees were neither demoted
nor were their salaries, benefits and other privileges diminished.6
On January 1, 1996, the service agreement was likewise implemented in
Davao City. Later, a merger between BPI and Far East Bank and Trust
Company (FEBTC) took effect on April 10, 2000 with BPI as the
surviving corporation. Thereafter, BPI’s cashiering function and FEBTC’s
cashiering, distribution and bookkeeping functions were handled by
BOMC. Consequently, twelve (12) former FEBTC employees were
transferred to BOMC to complete the latter’s service complement.
BPI Davao’s rank and file collective bargaining agent, BPI Employees
Union-Davao City-FUBU (Union), objected to the transfer of the
functions and the twelve (12) personnel to BOMC contending that the
functions rightfully belonged to the BPI employees and that the Union was
deprived of membership of former FEBTC personnel who, by virtue of the
merger, would have formed part of the bargaining unit represented by the
Union pursuant to its union shop provision in the CBA.7
The Union then filed a formal protest on June 14, 2000 addressed to BPI
Vice Presidents Claro M. Reyes and Cecil Conanan reiterating its
objection. It requested the BPI management to submit the BOMC issue to
the grievance procedure under the CBA, but BPI did not consider it as
 35 | P a g e CASES (FULL TEXT) – BANKING LAWS (GENERAL PRINCIPLES)
"grievable." Instead, BPI proposed a Labor Management Conference
(LMC) between the parties.8
During the LMC, BPI invoked management prerogative stating that the
creation of the BOMC was to preserve more jobs and to designate it as an
agency to place employees where they were most needed. On the other
hand, the Union charged that BOMC undermined the existence of the
union since it reduced or divided the bargaining unit. While BOMC
employees perform BPI functions, they were beyond the bargaining unit’s
coverage. In contracting out FEBTC functions to BOMC, BPI effectively
deprived the union of the membership of employees handling said
functions as well as curtailed the right of those employees to join the
union.
Thereafter, the Union demanded that the matter be submitted to the
grievance machinery as the resort to the LMC was unsuccessful. As BPI
allegedly ignored the demand, the Union filed a notice of strike before the
National Conciliation and Mediation Board (NCMB) on the following
grounds:
a) Contracting out services/functions performed by union
members that interfered with, restrained and/or coerced the
employees in the exercise of their right to self-organization;
b) Violation of duty to bargain; and
c) Union busting.9
BPI then filed a petition for assumption of jurisdiction/certification with
the Secretary of the Department of Labor and Employment (DOLE), who
subsequently issued an order certifying the labor dispute to the NLRC for
compulsory arbitration. The DOLE Secretary directed the parties to cease
and desist from committing any act that might exacerbate the situation.
On October 27, 2000, a hearing was conducted. Thereafter, the parties
were required to submit their respective position papers. On November 29,
2000, the Union filed its Urgent Omnibus Motion to Cease and Desist
with a prayer that BPI-Davao and/or Mr. Claro M. Reyes and Mr. Cecil
Conanan be held in contempt for the following alleged acts of BPI:
1. The Bank created a Task Force Committee on November 20, 2000
composed of six (6) former FEBTC employees to handle the
Cashiering, Distributing, Clearing, Tellering and Accounting
functions of the former FEBTC branches but the "task force"
conducts its business at the office of the BOMC using the latter’s
equipment and facilities.
2. On November 27, 2000, the bank integrated the clearing operations
of the BPI and the FEBTC. The clearing function of BPI, then solely
handled by the BPI Processing Center prior to the labor dispute, is
now encroached upon by the BOMC because with the merger,
differences between BPI and FEBTC operations were diminished or
deleted. What the bank did was simply to get the total of all clearing
transactions under BPI but the BOMC employees process the
clearing of checks at the Clearing House as to checks coming from
former FEBTC branches. Prior to the labor dispute, the run-up and
distribution of the checks of BPI were returned to the BPI processing
center, now all checks whether of BPI or of FEBTC were brought to
the BOMC. Since the clearing operations were previously done by
the BPI processing center with BPI employees, said function should
be performed by BPI employees and not by BOMC. 10
On December 21, 2001, the NLRC came out with a resolution upholding
the validity of the service agreement between BPI and BOMC and
dismissing the charge of ULP. It ruled that the engagement by BPI of
BOMC to undertake some of its activities was clearly a valid exercise of
its management prerogative.11 It further stated that the spinning off by BPI
to BOMC of certain services and functions did not interfere with, restrain
or coerce employees in the exercise of their right to self-
organization.12 The Union did not present even an iota of evidence
showing that BPI had terminated employees, who were its members. In
fact, BPI exerted utmost diligence, care and effort to see to it that no union
member was terminated.13 The NLRC also stressed that Department Order
(D.O.) No. 10 series of 1997, strongly relied upon by the Union, did not
apply in this case as BSP Circular No. 1388, series of 1993, was the
applicable rule.
After the denial of its motion for reconsideration, the Union elevated its
grievance to the CA via a petition for certiorari under Rule 65. The CA,
however, affirmed the NLRC’s December 21, 2001 Resolution with
modification that the enumeration of functions listed under BSP Circular
No. 1388 in the said resolution be deleted. The CA noted at the outset that
the petition must be dismissed as it merely touched on factual matters
which were beyond the ambit of the remedy availed of. 14 Be that as it may,
the CA found that the factual findings of the NLRC were supported by
substantial evidence and, thus, entitled to great respect and finality. To the
CA, the NLRC did not act with grave abuse of discretion as to merit the
reversal of the resolution.15
Furthermore, the CA ratiocinated that, considering the ramifications of the
corporate merger, it was well within BPI’s prerogatives "to determine
what additional tasks should be performed, who should best perform it and
what should be done to meet the exigencies of business."16 It pointed out
that the Union did not, by the mere fact of the merger, become the
bargaining agent of the merged employees17 as the Union’s right to
represent said employees did not arise until it was chosen by them. 18
As to the applicability of D.O. No. 10, the CA agreed with the NLRC that
the said order did not apply as BPI, being a commercial bank, its
transactions were subject to the rules and regulations of the BSP.
Not satisfied, the Union filed a motion for reconsideration which was,
however, denied by the CA.1âwphi1
Hence, the present petition with the following
ASSIGNMENT OF ERRORS:
A. THE PETITION BEFORE THE COURT OF APPEALS
INVOLVED QUESTIONS OF LAW AND ITS DECISION DID
NOT ADDRESS THE ISSUE OF WHETHER BPI’S ACT OF
OUTSOURCING FUNCTIONS FORMERLY PERFORMED BY
UNION MEMBERS VIOLATES THE CBA.
B. THE HONORABLE COURT OF APPEALS ERRED IN
HOLDING THAT DOLE DEPARTMENT ORDER NO. 10 DOES
NOT APPLY IN THIS CASE.
The Union is of the position that the outsourcing of jobs included in the
existing bargaining unit to BOMC is a breach of the union-shop agreement
in the CBA. In transferring the former employees of FEBTC to BOMC
instead of absorbing them in BPI as the surviving corporation in the
merger, the number of positions covered by the bargaining unit was
decreased, resulting in the reduction of the Union’s membership. For the
Union, BPI’s act of arbitrarily outsourcing functions formerly performed
by the Union members and, in fact, transferring a number of its members
beyond the ambit of the Union, is a violation of the CBA and interfered
with the employees’ right to self organization. The Union insists that the
CBA covers the agreement with respect, not only to wages and hours of
work, but to all other terms and conditions of work. The union shop
clause, being part of these conditions, states that the regular employees
belonging to the bargaining unit, including those absorbed by way of the
corporate merger, were required to join the bargaining union "as a
condition for employment." Simply put, the transfer of former FEBTC
employees to BOMC removed them from the coverage of unionized
establishment. While the Union admitted that BPI has the prerogative to
determine what should be done to meet the exigencies of business in
accordance with the case of Sime Darby Pilipinas, Inc. v. NLRC,19 it
insisted that the exercise of management prerogative is not absolute, thus,
requiring good faith and adherence to the law and the CBA. Citing the
case of Shell Oil Workers’ Union v. Shell Company of the Philippines,
 36 | P a g e CASES (FULL TEXT) – BANKING LAWS (GENERAL PRINCIPLES)
Ltd.,20 the Union claims that it is unfair labor practice for an employer to
outsource the positions in the existing bargaining unit.
Position of BPI-Davao
For its part, BPI defended the validity of its service agreement with
BOMC on three (3) grounds: 1] that it was pursuant to the prevailing law
at that time, CBP Circular No. 1388; 2] that the creation of BOMC was
within management prerogatives intended to streamline the operations and
provide focus for BPI’s core activities; and 3] that the Union recognized,
in its CBA, the exclusive right and prerogative of BPI to conduct the
management and operation of its business.21
BPI argues that the case of Shell Oil Workers’ Union v. Shell Company of
the Philippines, Ltd.,22 cited by the Union, is not on all fours with the
present case. In said case, the company dissolved its security guard section
and replaced it with an outside agency, claiming that such act was a valid
exercise of management prerogative. The Court, however, ruled against
the said outsourcing because there was an express assurance in the CBA
that the security guard section would continue to exist. Having failed to
reserve its right to effect a dissolution, the company’s act of outsourcing
and transferring security guards was invalidated by the Court, ruling that
the unfair labor practice strike called by the Union did have the impression
of validity. In contrast, there is no provision in the CBA between BPI and
the Union expressly stipulating the continued existence of any position
within the bargaining unit. For BPI, the absence of this peculiar fact is
enough reason to prevent the application of Shell to this case.
BPI likewise invokes settled jurisprudence,23 where the Court upheld the
acts of management to contract out certain functions held by employees,
and even notably those held by union members. In these cases, the
decision to outsource certain functions was a justifiable business judgment
which deserved no judicial interference. The only requisite of this act is
good faith on the part of the employer and the absence of malicious and
arbitrary action in the outsourcing of functions to BOMC.
On the issue of the alleged curtailment of the right of the employees to
self-organization, BPI refutes the Union’s allegation that ULP was
committed when the number of positions in the bargaining was reduced. It
cites as correct the CA ruling that the representation of the Union’s
prospective members is contingent on the choice of the employee, that is,
whether or not to join the Union. Hence, it was premature for the Union to
claim that the rights of its prospective members to self-organize were
restrained by the transfer of the former FEBTC employees to BOMC.
The Court’s Ruling
In essence, the primordial issue in this case is whether or not the act of
BPI to outsource the cashiering, distribution and bookkeeping functions to
BOMC is in conformity with the law and the existing CBA. Particularly in
dispute is the validity of the transfer of twelve (12) former FEBTC
employees to BOMC, instead of being absorbed in BPI after the corporate
merger. The Union claims that a union shop agreement is stipulated in the
existing CBA. It is unfair labor practice for employer to outsource the
positions in the existing bargaining unit, citing the case of Shell Oil
Workers’ Union v. Shell Company of the Philippines, Ltd. 24
The Union’s reliance on the Shell Case is misplaced. The rule now is
covered by Article 261 of the Labor Code, which took effect on November
1, 1974.25 Article 261 provides:
ART. 261. Jurisdiction of Voluntary Arbitrators or panel of Voluntary
Arbitrators. – x x x Accordingly, violations of a Collective Bargaining
Agreement, except those which are gross in character, shall no longer be
treated as unfair labor practice and shall be resolved as grievances under
the Collective Bargaining Agreement. For purposes of this article, gross
violations of Collective Bargaining Agreement shall mean flagrant and/or
malicious refusal to comply with the economic provisions of such
agreement. [Emphases supplied]
Clearly, only gross violations of the economic provisions of the CBA are
treated as ULP. Otherwise, they are mere grievances.
In the present case, the alleged violation of the union shop agreement in
the CBA, even assuming it was malicious and flagrant, is not a violation
of an economic provision in the agreement. The provisions relied upon by
the Union were those articles referring to the recognition of the union as
the sole and exclusive bargaining representative of all rank-and-file
employees, as well as the articles on union security, specifically, the
maintenance of membership in good standing as a condition for continued
employment and the union shop clause.26 It failed to take into
consideration its recognition of the bank’s exclusive rights and
prerogatives, likewise provided in the CBA, which included the hiring of
employees, promotion, transfers, and dismissals for just cause and the
maintenance of order, discipline and efficiency in its operations.27
The Union, however, insists that jobs being outsourced to BOMC were
included in the existing bargaining unit, thus, resulting in a reduction of a
number of positions in such unit. The reduction interfered with the
employees’ right to self-organization because the power of a union
primarily depends on its strength in number.28
It is incomprehensible how the "reduction of positions in the collective
bargaining unit" interferes with the employees’ right to self-organization
because the employees themselves were neither transferred nor dismissed
from the service. As the NLRC clearly stated:
In the case at hand, the union has not presented even an iota of evidence
that petitioner bank has started to terminate certain employees, members
of the union. In fact, what appears is that the Bank has exerted utmost
diligence, care and effort to see to it that no union member has been
terminated. In the process of the consolidation or merger of the two banks
which resulted in increased diversification of functions, some of these
non-banking functions were merely transferred to the BOMC without
affecting the union membership.29
BPI stresses that not a single employee or union member was or would be
dislocated or terminated from their employment as a result of the Service
Agreement.30 Neither had it resulted in any diminution of salaries and
benefits nor led to any reduction of union membership.31
As far as the twelve (12) former FEBTC employees are concerned, the
Union failed to substantially prove that their transfer, made to complete
BOMC’s service complement, was motivated by ill will, anti-unionism or
bad faith so as to affect or interfere with the employees’ right to self-
organization.
It is to be emphasized that contracting out of services is not illegal
perse.1âwphi1 It is an exercise of business judgment or management
prerogative. Absent proof that the management acted in a malicious or
arbitrary manner, the Court will not interfere with the exercise of
judgment by an employer.32 In this case, bad faith cannot be attributed to
BPI because its actions were authorized by CBP Circular No. 1388, Series
of 199333 issued by the Monetary Board of the then Central Bank of the
Philippines (now Bangko Sentral ng Pilipinas). The circular covered
amendments in Book I of the Manual of Regulations for Banks and Other
Financial Intermediaries, particularly on the matter of bank service
contracts. A finding of ULP necessarily requires the alleging party to
prove it with substantial evidence. Unfortunately, the Union failed to
discharge this burden.
Much has been said about the applicability of D.O. No. 10. Both the
NLRC and the CA agreed with BPI that the said order does not apply.
With BPI, as a commercial bank, its transactions are subject to the rules
and regulations of the governing agency which is the Bangko Sentral ng
Pilipinas.34 The Union insists that D.O. No. 10 should prevail.
 37 | P a g e CASES (FULL TEXT) – BANKING LAWS (GENERAL PRINCIPLES)
The Court is of the view, however, that there is no conflict between D.O.
No. 10 and CBP Circular No. 1388. In fact, they complement each other.
Consistent with the maxim, interpretare et concordare leges legibus est
optimus interpretandi modus, a statute should be construed not only to be
consistent with itself but also to harmonize with other laws on the same
subject matter, as to form a complete, coherent and intelligible system of
jurisprudence.35 The seemingly conflicting provisions of a law or of two
laws must be harmonized to render each effective.36 It is only when
harmonization is impossible that resort must be made to choosing which
law to apply.37
In the case at bench, the Union submits that while the Central Bank
regulates banking, the Labor Code and its implementing rules regulate the
employment relationship. To this, the Court agrees. The fact that banks are
of a specialized industry must, however, be taken into account. The
competence in determining which banking functions may or may not be
outsourced lies with the BSP. This does not mean that banks can simply
outsource banking functions allowed by the BSP through its circulars,
without giving regard to the guidelines set forth under D.O. No. 10 issued
by the DOLE.
While D.O. No. 10, Series of 1997, enumerates the permissible
contracting or subcontracting activities, it is to be observed that,
particularly in Sec. 6(d) invoked by the Union, the provision is general in
character – "x x x Works or services not directly related or not integral to
the main business or operation of the principal… x x x." This does not
limit or prohibit the appropriate government agency, such as the BSP, to
issue rules, regulations or circulars to further and specifically determine
the permissible services to be contracted out. CBP Circular No.
138838enumerated functions which are ancillary to the business of banks,
hence, allowed to be outsourced. Thus, sanctioned by said circular, BPI
outsourced the cashiering (i.e., cash-delivery and deposit pick-up) and
accounting requirements of its Davao City branches.39 The Union even
described the extent of BPI’s actual and intended contracting out to
BOMC as follows:
"As an initiatory move, the functions of the Cashiering Unit of the
Processing Center of BPI, handled by its regular rank and file employees
who are members of the Union, xxx [were] transferred to BOMC with the
Accounting Department as next in line. The Distributing, Clearing and
Bookkeeping functions of the Processing Center of the former FEBTC
were likewise contracted out to BOMC."40
Thus, the subject functions appear to be not in any way directly related to
the core activities of banks. They are functions in a processing center of
BPI which does not handle or manage deposit transactions. Clearly, the
functions outsourced are not inherent banking functions, and, thus, are
well within the permissible services under the circular.
The Court agrees with BPI that D.O. No. 10 is but a guide to determine
what functions may be contracted out, subject to the rules and established
jurisprudence on legitimate job contracting and prohibited labor-only
contracting.41 Even if the Court considers D.O. No. 10 only, BPI would
still be within the bounds of D.O. No. 10 when it contracted out the
subject functions. This is because the subject functions were not related or
not integral to the main business or operation of the principal which is the
lending of funds obtained in the form of deposits. 42 From the very
definition of "banks" as provided under the General Banking Law, it can
easily be discerned that banks perform only two (2) main or basic
functions – deposit and loan functions. Thus, cashiering, distribution and
bookkeeping are but ancillary functions whose outsourcing is sanctioned
under CBP Circular No. 1388 as well as D.O. No. 10. Even BPI itself
recognizes that deposit and loan functions cannot be legally contracted out
as they are directly related or integral to the main business or operation of
banks. The CBP's Manual of Regulations has even categorically stated and
emphasized on the prohibition against outsourcing inherent banking
functions, which refer to any contract between the bank and a service
provider for the latter to supply, or any act whereby the latter supplies, the
manpower to service the deposit transactions of the former.43
In one case, the Court held that it is management prerogative to farm out
any of its activities, regardless of whether such activity is peripheral or
core in nature.44 What is of primordial importance is that the service
agreement does not violate the employee's right to security of tenure and
payment of benefits to which he is entitled under the law. Furthermore, the
outsourcing must not squarely fall under labor-only contracting where the
contractor or sub-contractor merely recruits, supplies or places workers to
perform a job, work or service for a principal or if any of the following
elements are present:
i) The contractor or subcontractor does not have substantial
capital or investment which relates to the job, work or service to
be performed and the employees recruited, supplied or placed by
such contractor or subcontractor are performing activities which
are directly related to the main business of the principal; or
ii) The contractor does not exercise the right to control over the
performance of the work of the contractual employee.45
WHEREFORE, the petition is DENIED.
SO ORDERED.
EN BANC
G.R. No. L-20119, June 30, 1967
CENTRAL BANK OF THE PHILIPPINES vs. THE HONORABLE
JUDGE JESUS P. MORFE and FIRST MUTUAL SAVING AND
LOAN ORGANIZATION, INC.
CONCEPCION, C.J.:
This is an original action for certiorari, prohibition and injunction, with
preliminary injunction, against an order of the Court of First Instance of
Manila, the dispositive part of which reads:
WHEREFORE, upon the petitioner filing an injunction bond in the
amount of P3,000.00, let a writ of preliminary preventive and/or
mandatory injunction issue, restraining the respondents, their agents
or representatives, from further searching the premises and properties
and from taking custody of the various documents and papers of the
petitioner corporation, whether in its main office or in any of its
branches; and ordering the respondent Central Bank and/or its co-
respondents to return to the petitioner within five (5) days from
service on respondents of the writ of preventive and/or mandatory
injunction, all the books, documents, and papers so far seized from
the petitioner pursuant to the aforesaid search warrant.
Upon the filing of the petition herein and of the requisite bond, we issued,
on August 14, 1962, a writ of preliminary injunction restraining and
prohibiting respondents herein from enforcing the order above quoted.
The main respondent in this case, the First Mutual Savings and Loan
Organization, Inc. — hereinafter referred to as the Organization — is a
registered non-stock corporation, the main purpose of which, according to
its Articles of Incorporation, dated February 14, 1961, is "to encourage . . .
and implement savings and thrift among its members, and to extend
financial assistance in the form of loans," to them. The Organization has
three (3) classes of "members,"1 namely: (a) founder members — who
originally joined the organization and have signed the pre-incorporation
papers — with the exclusive right to vote and be voted for ;
(b) participating members — with "no right to vote or be voted for" — to
which category all other members belong; except (c) honorary members,
so made by the board of trustees, — "at the exclusive discretion" thereof
— due to "assistance, honor, prestige or help extended in the propagation"
of the objectives of the Organization — without any pecuniary expenses
on the part of said honorary members.
On February 14, 1962, the legal department of the Central Bank of the
Philippines — hereinafter referred to as the Bank — rendered an opinion
 38 | P a g e CASES (FULL TEXT) – BANKING LAWS (GENERAL PRINCIPLES)
to the effect that the Organization and others of similar nature are banking
institutions, falling within the purview of the Central Bank Act.2 Hence,
on April 1 and 3, 1963, the Bank caused to be published in the newspapers
the following:
ANNOUNCEMENT
To correct any wrong impression which recent newspaper reports on
"savings and loan associations" may have created in the minds of the
public and other interested parties, as well as to answer numerous inquiries
from the public, the Central Bank of the Philippines wishes to announce
that all "savings and loan associations" now in operation and other
organizations using different corporate names, but engaged in operations
similar in nature to said "associations" HAVE NEVER BEEN
AUTHORIZED BY THE MONETARY BOARD OF THE CENTRAL
BANK OF THE PHILIPPINES TO ACCEPT DEPOSIT OF FUNDS
FROM THE PUBLIC NOR TO ENGAGE IN THE BANKING
BUSINESS NOR TO PERFORM ANY BANKING ACTIVITY OR
FUNCTION IN THE PHILIPPINES.
Such institutions violate Section. 2 of the General Banking Act, Republic
Act No. 337, should they engage in the "lending of funds obtained from
the public through the receipts of deposits or the sale of bonds, securities
or obligations of any kind" without authority from the Monetary Board.
Their activities and operations are not supervised by the Superintendent of
Banks and persons dealing with such institutions do so at their risk.
CENTRAL BANK OF THE PHILIPPINES
Moreover, on April 23, 1962, the Governor of the Bank directed the
coordination of "the investigation and gathering of evidence on the
activities of the savings and loan associations which are operating contrary
to law." Soon thereafter, or on May 18, 1962, a member of the intelligence
division of the Bank filed with the Municipal Court of Manila a verified
application for a search warrant against the Organization, alleging that
"after close observation and personal investigation, the premises at No.
2745 Rizal Avenue, Manila" — in which the offices of the Organization
were housed — "are being used unlawfully," because said Organization is
illegally engaged in banking activities, "by receiving deposits of money
for deposit, disbursement, safekeeping or otherwise or transacts the
business of a savings and mortgage bank and/or building and loan
association . . . without having first complied with the provisions of
Republic Act No. 337" and that the articles, papers, or effects enumerated
in a list attached to said application, as Annex A thereof.3 are kept in said
premises, and "being used or intended to be used in the commission of a
felony, to wit: violation of Sections 2 and 6 of Republic Act No.
337."4 Said articles, papers or effects are described in the aforementioned
Annex A, as follows:
I. BOOKS OF ORIGINAL ENTRY
(1) General Journal
(2) Columnar Journal or Cash Book
(a) Cash Receipts Journal or Cash Receipt Book
(b) Cash Disbursements Journal or Cash Disbursement
Book
II. BOOKS OF FINAL ENTRY
(1) General Ledger
(2) Individual Deposits and Loans Ledgers
(3) Other Subsidiary Ledgers
III. OTHER ACCOUNTING RECORDS
(1) Application for Membership
(2) Signature Card
(3) Deposit Slip
(4) Passbook Slip
(5) Withdrawal Slip
(6) Tellers Daily Deposit Report
(7) Application for Loan Credit Statement
(8) Credit Report
(9) Solicitor's Report
(10) Promissory Note
(11) I n d o r s e m e n t
(12) Co-makers' Statements
(13) Chattel Mortgage Contracts
(14) Real Estate Mortgage Contracts
(15) Trial Balance
(16) Minutes Book — Board of Directors
IV. FINANCIAL STATEMENTS
(1) Income and Expenses Statements
(2) Balance Sheet or Statement of Assets and Liabilities
V. OTHERS
(1) Articles of Incorporation
(2) By-Laws
(3) Prospectus, Brochures Etc.
(4) And other documents and articles which are being used or
intended to be used in unauthorized banking activities and
operations contrary to law.
Upon the filing of said application, on May 18, 1962, Hon. Roman
Cancino, as Judge of the said municipal court, issued the warrant above
referred to,5 commanding the search of the aforesaid premises at No. 2745
Rizal Avenue, Manila, and the seizure of the foregoing articles, there
being "good and sufficient reasons to believe" upon examination, under
oath, of a detective of the Manila Police Department and said intelligence
officer of the Bank — that the Organization has under its control, in the
address given, the aforementioned articles, which are the subject of the
offense adverted to above or intended to be used as means for the
commission of said off offense.
Forthwith, or on the same date, the Organization commenced Civil Case
No. 50409 of the Court of First Instance of Manila, an original action for
"certiorari, prohibition, with writ of preliminary injunction and/or writ of
preliminary mandatory injunction," against said municipal court, the
Sheriff of Manila, the Manila Police Department, and the Bank, to annul
the aforementioned search warrant, upon the ground that, in issuing the
same, the municipal court had acted "with grave abuse of discretion,
without jurisdiction and/or in excess of jurisdiction" because: (a) "said
search warrant is a roving commission general in its terms . . .;" (b) "the
use of the word 'and others' in the search warrant . . . permits the
unreasonable search and seizure of documents which have no relation
whatsoever to any specific criminal act . . .;" and (c) "no court in the
Philippines has any jurisdiction to try a criminal case against a corporation
. . ."
The Organization, likewise, prayed that, pending hearing of the case on
the merits, a writ of preliminary injunction be issued ex parte restraining
the aforementioned search and seizure, or, in the alternative, if the acts
complained of have been partially performed, that a writ of preliminary
mandatory injunction be forthwith issued ex parte, ordering the
preservation of the status quo of the parties, as well as the immediate
return to the Organization of the documents and papers so far seized
under, the search warrant in question. After due hearing, on the petition
for said injunction, respondent, Hon. Jesus P. Morfe, Judge, who presided
over the branch of the Court of First Instance of Manila to which said Case
No. 50409 had been assigned, issued, on July 2, 1962, the order
complained of.
Within the period stated in said order, the Bank moved for a
reconsideration thereof, which was denied on August 7, 1962.
Accordingly, the Bank commenced, in the Supreme Court, the present
action, against Judge Morfe and the Organization, alleging that respondent
Judge had acted with grave abuse of discretion and in excess of his
jurisdiction in issuing the order in question.
At the outset, it should be noted that the action taken by the Bank, in
causing the aforementioned search to be made and the articles above listed
to be seized, was predicated upon the theory that the Organization was
illegally engaged in banking — by receiving money for deposit,
disbursement, safekeeping or otherwise, or transacting the business of a
savings and mortgage bank and/or building and loan association, —
without first complying with the provisions of R.A. No. 337, and that the
 39 | P a g e CASES (FULL TEXT) – BANKING LAWS (GENERAL PRINCIPLES)
order complained of assumes that the Organization had violated sections 2
and 6 of said Act.6 Yet respondent Judge found the searches and, seizures
in question to be unreasonable, through the following process of
reasoning: the deposition given in support of the application for a search
warrant states that the deponent personally knows that the premises of the
Organization, at No. 2745 Rizal Avenue, Manila, 7 were being used
unlawfully for banking and purposes. Respondent judge deduce, from this
premise, that the deponent " knows specific banking transactions of the
petitioner with specific persons," and, then concluded that said deponent ".
. . could have, if he really knew of actual violation of the law, applied for a
warrant to search and seize only books" or records:
covering the specific purportedly illegal banking transactions of
the petitioner with specific persons who are the supposed
victims of said illegal banking transactions according to his
knowledge. To authorize and seize all the records listed in
Annex A to said application for search warrant, without
reference to specific alleged victims of the purported illegal
banking transactions, would be to harass the petitioner, and its
officers with a roving commission or fishing expedition for
evidence which could be discovered by normal intelligence
operations or inspections (not seizure) of books and records
pursuant to Section 4 of Republic Act No 337 . . ."
The concern thus shown by respondent judge for the civil liberty involved
is, certainly, in line with the function of courts, as ramparts of justice and
liberty and deserves the greatest encouragement and warmest
commendation. It lives up to the highest traditions of the Philippine
Bench, which underlies the people's faith in and adherence to the Rule of
Law and the democratic principle in this part of the World.
At the same time, it cannot be gainsaid the Constitutional injunction
against unreasonable searches and seizures seeks to forestall, not purely
abstract or imaginary evils, but specific and concrete ones. Indeed,
unreasonableness is, in the very nature of things, a condition dependent
upon the circumstances surrounding each case, in much the same way as
the question whether or not "probable cause" exists is one which must be
decided in the light of the conditions obtaining in given situations.
Referring particularly to the one at bar, it is not clear from the order
complained of whether respondent Judge opined that the above mentioned
statement of the deponent — to the effect that the Organization was
engaged in the transactions mentioned in his deposition — deserved of
credence or not. Obviously, however, a mere disagreement with Judge
Cancino, who issued the warrant, on the credibility of said statement,
would not justify the conclusion that said municipal Judge had committed
a grave abuse of discretion, amounting to lack of jurisdiction or excess of
jurisdiction. Upon the other hand, the failure of the witness to mention
particular individuals does not necessarily prove that he had no personal
knowledge of specific illegal transactions of the Organization, for the
witness might be acquainted with specific transactions, even if
the names of the individuals concerned were unknown to him.
situation confronting us. The records suggest clearly that the transactions
objected to by the Bank constitute the general pattern of the business of
the Organization. Indeed, the main purpose thereof, according to its By-
laws, is "to extend financial assistance, in the form of loans, to its
members," with funds deposited by them.
It is true, that such funds are referred to — in the Articles of Incorporation
and the By-laws — as their "savings." and that the depositors thereof are
designated as "members," but, even a cursory examination of said
documents will readily show that anybody can be a depositor and thus be a
"participating member." In other words, the Organization is, in effect,
open to the "public" for deposit accounts, and the funds so raised may be
lent by the Organization. Moreover, the power to so dispose of said funds
is placed under the exclusive authority of the "founder members," and
"participating members" are expressly denied the right to vote or be voted
for, their "privileges and benefits," if any, being limited to those which the
board of trustees may, in its discretion, determine from time to time. As a
consequence, the "membership" of the "participating members" is purely
nominal in nature. This situation is fraught, precisely, with the very
dangers or evils which Republic Act No. 337 seeks to forestall, by
exacting compliance with the requirements of said Act, before the
transactions in question could be undertaken.
It is interesting to note, also, that the Organization does not seriously
contest the main facts, upon which the action of the Bank is based. The
principal issue raised by the Organization is predicated upon the theory
that the aforementioned transactions of the Organization do not amount to
" banking," as the term is used in Republic Act No. 337. We are satisfied,
however, in the light of the circumstance obtaining in this case, that the
Municipal Judge did not commit a grave abuse of discretion in finding that
there was probable cause that the Organization had violated Sections 2 and
6 of the aforesaid law and in issuing the warrant in question, and that,
accordingly, and in line with Alverez vs. Court of First Instance (64 Phil.
33), the search and seizure complained of have not been proven to be
unreasonable.
Wherefore, the order of respondent Judge dated July 2, 1962, and the writ
of preliminary mandatory injunction issued in compliance therewith are
hereby annulled, and the writ of preliminary injunction issued by this
Court on August 14, 1962, accordingly, made permanent, with costs
against respondent First Mutual Savings and Loan Organization, Inc. It is
so ordered.

Again, the aforementioned order would seem to assume that an illegal

banking transaction, of the kind contemplated in the contested action of
the officers of the Bank, must always connote the existence of a "victim."
If this term is used to denote a party whose interests have been actually
injured, then the assumption is not necessarily justified. The law requiring
compliance with certain requirements before anybody can engage in
banking obviously seeks to protect the public against actual, as well
as potential, injury. Similarly, we are not aware of any rule limiting the
use of warrants to papers or effects which cannot be secured otherwise.

The line of reasoning of respondent Judge might, perhaps, be justified if

the acts imputed to the Organization consisted of isolated transactions,
distinct and different from the type of business in which it is generally
engaged. In such case, it may be necessary to specify or identify the
parties involved in said isolated transactions, so that the search and seizure
be limited to the records pertinent thereto. Such, however, is not the