TRUSTRECEIPTSLAW receipt agreement in favor of Allied Banking

(P.D. No. 115) Corporation in consideration of the receipt by the

accused of certain goods. Further, when the
A. Definition and purpose
accused was in possession of said goods, he was

G.R. No. 110844 April 27, 2000 far from complying with the terms of the trust

2.) ALFREDO CHING, petitioner, receipt agreement and instead misappropriated,

vs. misapplied and converted to his own personal use

HON. COURT OF APPEALS, HON. ZOSIMO Z. and benefit the said goods and/or the proceeds of

ANGELES, RTC- BR. 58, MAKATI, METRO the sale. Despite repeated demands, Ching failed

MANILA, PEOPLE OF THE PHILIPPINES AND and refused to remit the proceeds of sale to Allied

ALLIED BANKING CORPORATION, respondents. Banking.

Topic: Trust Receipts Law; Definition and Purpose Petitioner Ching, together with Philippine

Principle: A trust receipt is considered a security Blooming Mills Co. Inc., filed a case before the

transaction intended to aid in financing importers RTC-Manila, Branch 53, for declaration of nullity

and retail dealers who do not have sufficient funds of documents and for damages against Allied

or resources to finance the importation or purchase Banking Corporation. Petitioner now asks before

of merchandise, and who may not be able to acquire this Court to suspend the criminal proceedings on

credit except through utilization, as collateral, of the ground of prejudicial question in a civil action

the merchandise imported or purchased. It could and to declare the trust receipts null and void.

never be a mere additional or side document as

alleged by petitioner. Otherwise, a party to a trust Issue: Whether or not the pendency of a civil

receipt agreement could easily renege on its action for damages and declaration of nullity of

obligations thereunder, thus undermining the documents warrants the suspension of criminal

importance and defeating with impunity the proceedings instituted for violation of Article 315

purpose of such an indispensable tool in commercial 1(b) of the RPC, in relation to P.D. 115

transactions.
Ruling:

Facts: No. For the court to appreciate the

pendency of a prejudicial question, the law, in no

Petitioner was charged before the RTC- uncertain terms, requires the concurrence of two

Makati, Branch 58, with four counts of estafa essential requisites, to wit:

punishable under Article 315 par. 1(b) of the a) The civil action involves an issue similar or

Revised Penal Code, in relation to P.D. 115, intimately related to the issue raised in the

otherwise known as the "Trust Receipts Law". criminal action; and

Allegedly, petitioner-accused executed a trust b) The resolution of such issue determines

whether or not the criminal action may proceed.
Under the prevailing circumstances, the alleged obligation to sell the same and to remit the
prejudicial question in the civil case for proceeds thereof to Allied Banking Corporation, or
declaration of nullity of documents and for to return the goods, if not sold; (b) that accused
damages, does not juris et de jure determine the Ching misappropriated or converted the goods
guilt or innocence of the accused in the criminal and/or the proceeds of the sale; (c) that accused
action for estafa. Assuming arguendo that the Ching performed such acts with abuse of
court hearing the civil aspect of the case confidence to the damage and prejudice of Allied
adjudicates that the transaction entered into Banking Corporation; and (d) that demand was
between the parties was not a trust receipt made by the bank to herein petitioner.
agreement, nonetheless the guilt of the accused It must be emphasized that an act
could still be established and his culpability under violative of a trust receipt agreement is only one
penal laws determined by other evidence. To put mode of committing estafa under the
it differently, even on the assumption that the abovementioned provision of the Revised Penal
documents are declared of null, it does not ipso Code. Stated differently, a violation of a trust
facto follow that such declaration of nullity shall receipt arrangement is not the sole basis for
exonerate the accused from criminal prosecution incurring liability under Article 315 1 (b) of the
and liability. Code.
Accordingly, the prosecution may adduce To our mind, petitioner's contention is a
evidence to prove the criminal liability of the stealthy attempt to circumvent the principle
accused for estafa, specifically under Article 315 enunciated in the case of Alied Banking
1(b) of the Revised Penal Code which explicitly Corporation vs. Ordonez, thus:
provides that said crime is committed: . . . In an attempt to escape criminal liability,
. . . (b) By misappropriating or converting, to the private respondent claims P.D. 115 covers goods
prejudice of another, money; goods, or any other which are ultimately destined for sale and not
personal property received by the offender in goods for use in manufacture. But the wording of
trust or on commission, or for administration, or Section 13 covers failure to turn over the proceeds
any other obligation involving the duty to make of the sale of the entrusted goods, or to return said
delivery of or to return the same, even though goods if unsold or disposed of in accordance with
such obligation be totally or partially guaranteed the terms of the trust receipts.
by a bond; or by denying having received such xxx xxx xxx
money, goods, or other property. The penal provision of P.D. 115
Applying the foregoing principles, the encompasses any act violative of an obligation
criminal liability of the accused for violation of covered by the trust receipt; it is not limited to
Article 315 1(b) of the Revised Penal Code, may transactions in goods which are to be sold
still be shown through the presentation of (retailed), reshipped, stored or processed as a
evidence to the effect that: (a) the accused component of a product ultimately sold.
received the subject goods in trust or under the
 An examination of P.D. 115 shows the on foreign and domestic letters of credit for a total
growing importance of trust receipts in Philippine amount of not to exceed P10,000,000.00.
business, the need to provide for the rights and
obligations of parties to a trust receipt transaction, The request was approved by the Bank –
the study of the problems involved and the action PB Com, and first availment in the amount of
by monetary authorities, and the necessity of P1,000,000.00 was made on March 26, 1979.
regulating the enforcement of rights arising from Total availment has reached P3,000,000.00, which
default or violations of trust receipt agreements. upon maturity, were rolled-over or renewed.
The legislative intent to meet a pressing need is
clearly expressed. As security to the loan, a Real Estate
In fine, we reiterate that the civil action Mortgage over MICO’s properties was executed by
for declaration of nullity of documents and for its VP Mariano Sio. Further, Charles Lee, Chua
damages does not constitute a prejudicial question Siok Suy, Mariano Sio, Alfonso Yap and Richard
to the criminal cases for estafa filed against Velasco, executed in their personal capacity a
petitioner Ching. Surety Agreement in favor of PB Com in the
amount of P3,000,000.00.
3.) HARLESS LEE, ET AL VS COURT OF APPEALS
Another P4,0000,000.00 was requested
FACTS: by the President Charles Lee from PBCom for the
purpose of expansion and modernization of the
MICO Metals Corporation, through its companies machineries. The request was
President, Chares Lee requested from Philippine consequently approved and availed in full.
Bank of Communication a discounting loan/credit Another surety agreement was executed by the
line in the amount of P3,000,000.000 for the same set of officers-persons in favor of PBCom and
purpose of carrying out MICO’s line of business as their liability shall not at any one time exceed the
well as to maintain its volume of business, and sum of P7,500,000.00/
another discounting loan/credit line for the
purpose of opening letters of credit and trust Later, MICO furnished PBCom a copy of its
receipts. notarized certification issued by its corporate
secretary stating therein that Chio Siok Suy was
Both requests were supported by a the duly authorized person, unanimously
resolution that the President, Charles Lee, and the approved by the Board of Directors, to negotiate
Vice President and General Manager, Mr. Mariano with PBCom on behalf of MICO for loans and other
Sio, are authorized and empowered to apply for, credit availments.
negotiate and secure the approval of commercial
loans but not limited to discount loans, letters of After the receipt of this secretary’s
credit, trust receipts, lines for marginal deposits certificate, foreign letters of credits, domestic
letter of credits and loans were further requested, facie case. If there is no proof to the contrary, the
approved and availed. Upon maturity of all the prima facie case or evidence will prevail.
credit availments, PBCom demanded for payment The Negotiable Instruments Law clearly
but MICO failed to settle despite repeated provides that every negotiable instrument is
demands, reason for the Bank to foreclose deemed prima facie to have been issued for
extrajudicially the properties, and later sold them valuable consideration and every person whose
in public auction. The price however, was not signature appears thereon are also presumed to
sufficient to fully pay the total outstanding. have become a party for value. Negotiable
PBCom demanded from the petitioners-sureties instruments include promissory notes, bills of
the deficiency, which the latter refused to exchange and checks. Letters of credit and trust
acknowledge. Thus, the filing with the court of the receipts are however, not negotiable instruments,
complaint and for attachment on the properties of but drafts issued in connection with letters of
the petitioners-sureties contending that MICO is credit are negotiable instruments.
no longer in operation and it has no other All documents presented by PBCom have
properties to settle for the deficiency. The trial not merely created a prima facie case but have
court denied the complaint for failure on the part actually proved the solidary obligation of MICO
of the Bank to prove that the proceeds of the loans and the petitioners-sureties. While the
were ever delivered to MICO, which the Court of presumption found under the Negotiable
Appeals reversed, hence this petition. Instruments Law may not necessarily be
applicable to trust receipts and letters of credit,
ISSUES: the presumption that the drafts drawn in
1.) Whether or not the proceeds of the loans and connection with the letters of credit have
letters of credit transactions were ever delivered to sufficient consideration. The fact that the letters
MICO; and of credit show that the pertinent
2.) Whether or not the individual petitioners, as materials/merchandise have been received by
sureties, may be held liable under the 2 Surety MICO and with drafts signed by the
Agreements executed. beneficiary/suppliers proved that there was a
consideration for value.
RULING: Therefore, the contention of the
The SC AFFIRMED in toto the decision of petitioner that the contracts on loans and letters
the Court Appeals. In civil cases, the party having of credits were not binding on the premise that
the burden of proof must establish his case by there were no consideration for value and if there
preponderance of evidence, which can be was, the Bank failed to present evidence as to the
established by the operation of presumption or by crediting of the proceeds to its account is
the probative value, which the law attaches to a untenable. It was the petitioner who has been
specific state of facts, thereby creating a prima preventing the Bank in presenting the evidence.
But from the fact itself that MICO has requested
for an additional loan of P4M, impliedly, is a prima
facie case which showed that the proceeds of the Contrary to the allegation of the VINTOLAS,
IBAA did not become the real owner of the goods. It was
earlier loans were delivered to MICO. The court
merely the holder of a security title for the advances it had
also found no merits on the latter’s contention
made to the Vintolas. The goods the Vintolas had
that the contracts were executed fraudulently by
purchased through IBAA financing remain their own
the unauthorized person Chua Siok Suy. The fact property and they hold it at their own risk. The trust receipt
that it was MICO which furnished PBCom the arrangement did not convert the IBAA into an investor; the
Secretary’s Certificate, notarized by its own latter remained a lender and creditor.
corporate secretary suffices for the PBCom to Since the IBAA is not the factual owner of the

believe that it was valid and binding, hence the goods, the Vintolas cannot justifiably claim that because
they have surrendered the goods to IBAA and subsequently
granting of the request for further availments.
deposited them in the custody of the court, they are
Anent petitioners-sureties contention that
absolutely relieved of their obligation to pay their loan
they obtained no consideration whatsoever on the because of their inability to dispose of the goods. The fact
surety agreements, the Court pointed out that the that they were unable to sell the seashells in question does
consideration for the surety is the very not affect IBAA's right to recover the advances it had made
consideration for the principal obligor, MICO, in under the Letter of Credit.

the contracts of loan. In the case of Willex Plastic

FACTS
Industries Corporation vs. CA, it ruled that the
On August 20, 1975 the spouses Tirso and
consideration necessary to support a surety
Loreta Vintola (Vintolas), doing business under the
obligation need not pass directly to the surety, a
name "Dax Kin International," engaged in the
consideration moving to the principal alone being manufacture of raw sea shells into finished products,
sufficient. For a guarantor or surety is bound by applied for and were granted a domestic letter of credit
the same consideration that makes the contract by the Insular Bank of Asia and America (IBAA). The
effective between the parties thereto. It is not Letter of Credit authorized the bank to negotiate for

necessary that a guarantor or surety should their account drafts drawn by their supplier, one Stalin

receive any part or benefit, if such there be, Tan, on Dax Kin International for the purchase of puka
and olive seashells.
accruing to his principal.
On the same day, having received from Stalin
Tan the puka and olive shells, the Vintolas executed a
J. Return of goods, documents or instruments
Trust Receipt agreement with IBAA. Under that
in case of non-sale Agreement, the Vintolas agreed to hold the goods in
trust for IBAA as the "latter's property with liberty to
SPOUSES TIRSO I. VINTOLA AND LORETO DY sell the same for its account, and "in case of sale" to turn
VINTOLA, DEFENDANTS-APPELLANTS, - over the proceeds as soon as received to (IBAA).
VERSUSINSULAR
Having defaulted on their obligation, IBAA
BANK OF ASIA AND AMERICA, PLAINTIFF-
demanded payment from the Vintolas. The Vintolas,
APPELLEE.
who were unable to dispose of the shells, responded by
G.R. No. 73271, FIRST DIVISION,
offering to return the goods. IBAA refused to accept the
May 29, 1987, MELENCIO-HERRERA, J.
merchandise, and due to the continued refusal of the property and they hold it at their own risk. The trust
Vintolas to make good their undertaking, IBAA charged receipt arrangement did not convert the IBAA into an
them with estafa. During the trial of the criminal case investor; the latter remained a lender and creditor.
the VINTOLAS turned over the seashells to the custody Since the IBAA is not the factual owner of the
of the trial court. goods, the Vintolas cannot justifiably claim that because
The trial court acquitted the Vintolas of the they have surrendered the goods to IBAA and
crime charged, after finding that the element of subsequently deposited them in the custody
misappropriation or conversion was inexistent. Shortly of the court, they are absolutely relieved of their
thereafter, IBAA commenced the present civil action to obligation to pay their loan because of their inability to
recover the value of the goods before the Regional Trial dispose of the goods. The fact that they were unable to
Court. Holding that the complaint was barred by the sell the seashells in question does not affect IBAA's right
judgment of acquittal in the criminal case, said Court to recover the advances it had made under the Letter of
dismissed the complaint. However, on IBAA's motion, Credit.
the Court granted reconsideration and hold the Vintolas The acquittal of the Vintolas in the estafa case
civilly liable. is no bar to the institution of a civil action for collection.
The VINTOLAS rest their present appeal on the It is inaccurate for the Vintolas to claim that the
principal allegation that their acquittal in the estafa case judgment in the estafa case had declared that the facts
bars IBAA's filing of the civil action because IBAA had from which the civil action might arise, did not exist, for,
not reserved in the criminal case its right to enforce it will be recalled that the decision of acquittal expressly
separately their civil liability. Further, the VINTOLAS declared that "the remedy of the Bank is civil and not
take the position that their obligation to IBAA has been criminal in nature." This amounts to a reservation of the
extinguished inasmuch as, through no fault of their own, civil action in IBAA's favor, for the Court would nothave
they were unable to dispose of the seashells, and that dwelt on a civil liability that it had intended to
they have relinquished possession thereof to the IBAA, extinguish by the same decision.
as owner of the goods, by depositing them with the The Vintolas are liable ex contractu for breach
Court. of the Letter of Credit — Trust Receipt, whether they
This case was appealed to the Intermediate did or they did not "misappropriate, misapply or
Appellate Court which, however, certified the same to convert" the merchandise as charged in the criminal
this Court, the issue involved being purely legal. case. Their civil liability does not arise ex delicto, the
action for the recovery of which would have been
ISSUE deemed instituted with the criminal-action (unless
Whether or not the Vintolas’ obligation with IBAA is waived or reserved) and where acquittal based on a
extinguished on the ground that they deposited the judicial declaration that the criminal acts charged do not
subject goods with the court? (NO) exist would have extinguished the civil action.

RULING Ching v. Court of Appeals

Contrary to the allegation of the VINTOLAS, G.R. No. 110844, 27 Apr 2000
IBAA did not become the real owner of the goods. It was
merely the holder of a security title for the advances it FACTS:
had made to the Vintolas. The goods the Vintolas had
purchased through IBAA financing remain their own
 Alfredo Ching challenges the decision 1 of the because even on the assumption that the execution of
Court of Appeals promulgated on 27 January 1993. He the receipt whose annulment they sought in the civil
was charged before the RTC with four counts of estafa case was vitiated by fraud, duress or intimidation, their
punishable under Article 315 par. 1(b) of the Revised guilt could still be established by other evidence
Penal Code, in relation to Presidential Decree 115, showing.
otherwise known as the "Trust Receipts Law." The penal provision of P.D. 115 encompasses
any act violative of an obligation covered by the trust
ISSUE: Whether or not the civil action for declaration of receipt; it is not limited to transactions in goods which
nullity of documents and for damages does not are to be sold (retailed), reshipped, stored or processed
constitute a prejudicial question to the criminal cases as a component of a product ultimately sold.
for estafa filed against petitioner Ching. The civil action for declaration of nullity of
documents and for damages does not constitute a
RULING: prejudicial question to the criminal cases for estafa filed
The criminal liability of the accused for against petitioner Ching.
violation of Article 315 1(b) of the Revised Penal Code,
may still be shown through the presentation of evidence
to the effect that: (a) the accused received the subject LAND BANK OF THE PHILIPPINES, PETITIONER,
-VERSUS- LAMBERTO C. PEREZ, NESTOR C.
goods in trust or under the obligation to sell the same KUN, MA. ESTELITA P. ANGELES-PANLILIO, AND
and to remit the proceeds thereof to Allied Banking NAPOLEON O. GARCIA, RESPONDENTS. G.R.
No. 166884, SECOND DIVISION, June 13, 2012, BRION, J.
Corporation, or to return the goods, if not sold; (b) that
accused Ching misappropriated or converted the goods
TOPIC: TRUST RECEIPTS LAW; Obligations and
and/or the proceeds of the sale; (c) that accused Ching
Liability of the Entrustee
performed such acts with abuse of confidence to the
damage and prejudice of Allied Banking Corporation;
PRINCIPLE: Under the Trust Receipts Law,
and (d) that demand was made by the bank to herein
intent to defraud is presumed when (1) the entrustee
petitioner.
fails to turn over the proceeds of the sale of goods
Presidential Decree 115, otherwise known as
covered by the trust receipt to the entruster; or (2)
the "Trust Receipts Law", specifically Section 13 thereof,
when the entrustee fails to return the goods under
provides:
trust, if they are not disposed of in accordance with
"The failure of an entrustee to turn over the proceeds of
the terms of the trust receipts. 
the sale of the goods, documents or instruments covered
In all trust receipt transactions, both
by a trust receipt to the extent of the amount owing to the
obligations on the part of the trustee exist in the
entruster or as appears in the trust receipt or to return
alternative—the return of the proceeds of the sale or
said goods, documents or instruments if they were not
the return or recovery of the goods, whether raw or
sold or disposed of in accordance with the terms of the
processed.
trust receipt shall constitute the crime of estafa. “
In order that the respondents “may be validly
A civil case contesting the validity of a certain
prosecuted for estafa under Article 315, paragraph
receipt is not a prejudicial question that would warrant
1(b) of the Revised Penal Code, in relation with
the suspension of criminal proceedings for estafa. An Section 13 of the Trust Receipts Law, the following
alleged prejudicial question is not determinative of the elements must be established: 
guilt or innocence of the parties charged with estafa,
(a) they received the subject goods in trust or under They alleged that ACDC acted as a
the obligation to sell the same and to remit the subcontractor for government projects such as the
proceeds thereof to [the trustor], or to return the Metro Rail Transit, the Clark Centennial Exposition
goods if not sold;  and the Quezon Power Plant in Mauban, Quezon. Its
(b) they misappropriated or converted the goods clients for the construction projects, which were the
and/or the proceeds of the sale;  general contractors of these projects, have not yet
(c) they performed such acts with abuse of confidence paid them; thus, ACDC had yet to receive the
to the damage and prejudice of Metrobank; and proceeds of the materials that were the subject of the
(d) demand was made on them by [the trustor] for the trust receipts and were allegedly used for these
remittance of the proceeds or the return of the unsold constructions. As there were no proceeds received
goods.” from these clients, no misappropriation thereof could
have taken place.

FACTS: Petitioner Land Bank of the Philippines (LBP) The CA ruled in favor of Perez ratiocinating

is a government financial institution and the official in this wise: the case did not involve a trust receipt

depository of the Philippines. Respondents are the transaction, but a mere loan. It emphasized that

officers and representatives of Asian Construction and construction materials, the subject of the trust receipt

Development Corporation (ACDC), a corporation transaction, were delivered to ACDC even before the

incorporated under Philippine law and engaged in the trust receipts were executed. Also, LBP did not offer

construction business. proof that the goods were received by ACDC, and that

LBP extended a credit accommodation to the trust receipts did not contain a description of the

ACDC. In various instances, ACDC used the Letters goods, their invoice value, the amount of the draft to

of Credit/Trust Receipts Facility of the Agreement to be paid, and their maturity dates. It also adopted

buy construction materials. The respondents, as ACDC’s argument that since no payment for the

officers and representatives of ACDC, executed trust construction projects had been received by ACDC, its

receipts in connection with the construction materials. officers could not have been guilty of misappropriating

The trust receipts matured, but ACDC failed to return any payment.

to LBP the proceeds of the construction projects or

the construction materials subject of the trust receipts. ISSUE: Whether or not transactions between the
LBP sent ACDC a demand letter for the payment of its parties constitute trust receipt agreements.
debts, including those under the Trust Receipts  
Facility. When ACDC failed to comply with the RULING: No. The transaction is a mere loan
demand letter, LBP filed the affidavit-complaint for agreement and not a trust receipt transaction. A trust
estafa. receipt transaction, within the meaning of this
Perez alleged that they signed the trust Decree, is any transaction by and between a
receipt documents on or about the same time LBP person referred to in this Decree as the entruster,
and ACDC executed the loan documents; their and another person referred to in this Decree as
signatures were required by LBP for the release of the entrustee, whereby the entruster, who owns or
loans. The trust receipts in this case do not contain (1) holds absolute title or security interests over
a description of the goods placed in trust, (2) their certain specified goods, documents or
invoice values, and (3) their maturity dates, in instruments, releases the same to the possession
violation of Section 5(a) of P.D. 115. of the entrustee upon the latter’s execution and
delivery to the entruster of a signed document called a processed. When both parties enter into an
“trust receipt” wherein the entrustee binds himself to agreement knowing that the return of the goods
hold the designated goods, documents or instruments subject of the trust receipt is not possible even without
in trust for the entruster and to sell or otherwise any fault on the part of the trustee, it is not a trust
dispose of the goods, documents or instruments with receipt transaction penalized under Section 13 of P.D.
the obligation to turn over to the entruster the 115; The only obligation actually agreed upon by the
proceeds thereof to the extent of the amount owing to parties would be the return of the proceeds of the sale
the entruster or as appears in the trust receipt or the transaction. This transaction becomes a mere loan,
goods, documents or instruments themselves if they where the borrower is obligated to pay the bank the
are unsold or not otherwise disposed of, in amount spent for the purchase of the goods.
accordance with the terms and conditions specified in At the onset of these transactions, LBP knew
the trust receipt, or for other purposes substantially that ACDC was in the construction business and that
equivalent to any of the following:  In the case of the materials that it sought to buy under the letters of
goods or documents, (a) to sell the goods or procure credit were to be used for construction projects. LBP
their sale; or (b) to manufacture or process the goods had in fact authorized the delivery of the materials on
with the purpose of ultimate sale: Provided, That, in the construction sites for these projects, as seen in
the case of goods delivered under trust receipt for the the letters of credit it attached to its complaint. Clearly,
purpose of manufacturing or processing before its they were aware of the fact that there was no way
ultimate sale, the entruster shall retain its title over the they could recover the buildings or constructions for
goods whether in its original or processed form until which the materials subject of the alleged trust
the entrustee has complied fully with his obligation receipts had been used. Notably, despite the
under the trust receipt; or (c) to load, unload, ship or allegations in the affidavit-complaint wherein LBP
tranship or otherwise deal with them in a manner sought the return of the construction materials, its
preliminary or necessary to their sale[.]” demand letter dated May 4, 1999 sought the payment
Obligations in a trust receipt transaction: of the balance but failed to ask, as an alternative, for
a.  By the provision that refers to money under the the return of the construction materials or the
obligation to deliver it (entregarla) to the owner of the buildings where these materials had been used. The
merchandise sold. fact that LBP had knowingly authorized the delivery of
b. By the provision referring to merchandise received construction materials to a construction site of two
under the obligation to return it (devolvera) to the government projects, as well as unspecified
owner.  construction sites, repudiates the idea that LBP
Thus, under the Trust Receipts Law, intent to intended to be the owner of those construction
defraud is presumed when: (1) the entrustee fails to materials. 
turn over the proceeds of the sale of goods covered As a government financial institution, LBP
by the trust receipt to the entruster; or (2) when the should have been aware that the materials were to be
entrustee fails to return the goods under trust, if they used for the construction of an immovable property,
are not disposed of in accordance with the terms of as well as a property of the public domain. As an
the trust receipts. immovable property, the ownership of whatever was
In all trust receipt transactions, both constructed with those materials would presumably
obligations on the part of the trustee exist in the belong to the owner of the land. In contrast with the
alternative—the return of the proceeds of the sale or present situation, it is fundamental in a trust receipt
the return or recovery of the goods, whether raw or transaction that the person who advanced payment
for the merchandise becomes the absolute owner of an Omnibus Credit Line for P10 million. The bank
said merchandise and continues as owner until he or approved RTMC's credit line but for only P8 million.
she is paid in full, or if the goods had already been The bank notified RTMC of the grant of the said loan
sold, the proceeds should be turned over to him or to thru a letter dated March 2, 1989 which contains
her. terms and conditions conformed by RTMC thru
Based on these premises, the agreements Edilberto V. Yujuico. On March 3, 1989, Yujuico
between the parties in this case are not trust receipt signed a Surety Agreement in favor of the bank, in
transactions because (1) from the start, the parties which he bound himself jointly and severally with
were aware that ACDC could not possibly be RTMC for the payment of all RTMC's indebtedness to
obligated to reconvey to LBP the materials or the end the bank from 1989 to 1990. RTMC availed of the
product for which they were used; and  (2) from the credit line by making numerous drawdowns, each
moment the materials were used for the government. drawdown being covered by a separate promissory
note and trust receipt. RTMC, represented by Yujuico,
executed in favor of the bank a total of eleven (11)
ROSARIO TEXTILE MILLS CORPORATION and promissory notes
EDILBERTO YUJUICO, petitioners, vs. HOME
BANKERS SAVINGS AND TRUST COMPANY, Despite the lapse of the respective due dates
respondent.  under the promissory notes and notwithstanding the
bank's demand letters, RTMC failed to pay its loans.
Hence, on January 22, 1993, the bank filed a
TOPIC: LIABILITY FOR LOSS OF GOODS, complaint for sum of money against RTMC and
DOCUMENTS OR INSTRUMENTS  Yujuico before the Regional Trial Court, Br. 16,
Manila. 
Principle:
A trust receipt as "a security transaction intended to RTMC and Yujuico contend that they should
aid in financing importers and retail dealers who do be absolved from liability. They claimed that although
not have sufficient funds or resources to finance the the grant of the credit line and the execution of the
importation or purchase of merchandise, and who suretyship agreement are admitted, the bank gave
may not be able to acquire credit except through assurance that the suretyship agreement was merely
utilization, as collateral, of the merchandise imported a formality under which Yujuico will not be personally
or purchased."  liable. They argue that the importation of raw
materials under the credit line was with a grant of
“A trust receipt, therefore, is a security agreement, option to them to turn-over to the bank the imported
pursuant to which a bank acquires a 'security interest' raw materials should these fail to meet their
in the goods. It secures an indebtedness and there manufacturing requirements. RTMC offered to make
can be no such thing as security interest that secures such turn-over since the imported materials did not
no obligation. " conform to the required specifications. However, the
bank refused to accept the same, until the materials
were destroyed by a fire which gutted down RTMC's
Facts: premises. 
Rosario Textile Mills Corporation (RTMC)
applied from Home Bankers Savings & Trust Co. for
 The trial court rendered a decision in favor of It is thus clear that the principal transaction
the Home Bankers. Petitioners are ordered to pay between petitioner RTMC and the bank is a contract
jointly and severally in favor of the respondent. of loan. RTMC used the proceeds of this loan to
The petitioners appealed to the CA purchase raw materials from a supplier abroad. In
contending that under the trust receipt contracts order to secure the payment of the loan, RTMC
between the parties, they merely held the goods delivered the raw materials to the bank as collateral.
described therein in trust for respondent Home Trust receipts were executed by the parties to
Bankers Savings and Trust Company (the bank) evidence this security arrangement. Simply stated, the
which owns the same . Since the ownership of the trust receipts were mere securities. 
goods remains with the bank, then it should bear the In Samo vs. People, the Court described a
loss. With the destruction of the goods by fire, trust receipt as "a security transaction intended to aid
petitioners should have been relieved of any in financing importers and retail dealers who do not
obligation to pay. The Court of Appeals, however, have sufficient funds or resources to finance the
affirmed the trial court's judgment, holding that the importation or purchase of merchandise, and who
bank is merely the holder of the security for its may not be able to acquire credit except through
advance payments to petitioners; and that the goods utilization, as collateral, of the merchandise imported
they purchased, through the credit line extended by or purchased."
the bank, belong to them and hold said goods at their In Vintola vs. Insular Bank of Asia and
own risk. America,  the Court elucidated further that "a trust
receipt, therefore, is a security agreement, pursuant to
Issue: which a bank acquires a 'security interest' in the
Whether the Court of Appeals erred in holding that goods. It secures an indebtedness and there can be
petitioners are not relieved of their obligation to pay no such thing as security interest that secures no
their loan after they tried to tender the goods to the obligation. " 
bank which refused to accept the same, and which Petitioners' insistence that the ownership of
goods were subsequently lost in a fire; the raw materials remained with the bank is
untenable. 

Ruling: In Sia vs. People,  Abad vs. Court of

No. Petitioners' stance, however, Appeals, and PNB vs. Pineda, the Court held that: 

conveniently ignores the true nature of its transaction

with the bank. We recall that RTMC filed with the bank "If under the trust receipt, the bank is made to appear
an application for a credit line in the amount of P10 as the owner, it was but an artificial expedient, more
million, but only P8 million was approved. RTMC then of legal fiction than fact, for if it were really so, it could
made withdrawals from this credit line and issued dispose of the goods in any manner it wants, which it
several promissory notes in favor of the bank. In cannot do, just to give consistency with purpose of the
banking and commerce, a credit line is "that amount trust receipt of giving a stronger security for the loan
of money or merchandise which a banker, merchant, obtained by the importer. To consider the bank as the
or supplier agrees to supply to a person on credit and true owner from the inception of the transaction would
generally agreed to in advance." be to disregard the loan feature thereof. . . ." 

Thus, petitioners cannot be relieved of their

obligation to pay their loan in favor of the bank. 
a. Criminal liability of directors, officers and ruled that the prosecution need not prove that
agents petitioner personally received and misappropriated
the goods subject of the trust receipts. Evidence of
G.R. No. 119858             April 29, 2003 misappropriation is not required under the Trust
Receipts Law. To establish the crime of estafa, it is
EDWARD C. ONG, petitioner,  sufficient to show failure by the entrustee to turn over
vs. the goods or the proceeds of the sale of the goods
THE COURT OF APPEALS AND THE PEOPLE OF covered by a trust receipt. Moreover, the bank is not
THE PHILIPPINES, respondents. obliged to determine if the goods came into the
actual possession of the entrustee. Trust receipts
Topic: Trust Receipts Law; Criminal Liability of are issued to facilitate the purchase of merchandise.
Directors, Officers and Agents To obligate the bank to examine the fact of actual
Principle:   possession by the entrustee of the goods subject of
every trust receipt will greatly impede commercial
Facts:  transactions.
Petitioner-accused representing ARMAGRI Petitioner now contends that he is merely acting as
International Corporation defraud SOLIDBANK agent and signed for the entrustee corporation and
Corporation represented by its accountant, Demetrio thus he was not necessarily the one responsible for
Lazaro. the offense. 
The accused received in trust from said
SOLIDBANK Corporation the following goods: 125 Issue: 
pcs. Rear diff. assy RNZO 49", 50 pcs. Front & Rear
diff assy. Isuzu Elof and 85 units 1-Beam assy. Isuzu
1. Whether or not petitioner comes within the
Spz, all valued at P2,532,500.00 specified in a Trust
purview of Section 13 of the Trusts Receipts Law
Receipt Agreement and under the express obligation
2. Whether or not petitioner’s conviction for Estafa is
on the part of the said accused to account for said
proper
goods to Solidbank Corporation and/or remit the
proceeds of the sale thereof within the period
specified in the Agreement or return the goods, if Ruling:

unsold immediately or upon demand. However, the

accused refused to comply with his obligations and Petitioner responsible for violation of the Trusts
instead misapplied, misappropriated and converted Receipts Law
the same or the value thereof to his own personal use
and benefit, to the damage and prejudice of Solidbank Yes. The relevant penal provision of the Trust
Corporation in the aforementioned amount. Receipts Law reads:
The Court of Appeals ruled that what made
petitioner liable was his failure to account to the SEC. 13. Penalty Clause. - The failure of the
entruster Bank what he undertook to perform under entrustee to turn over the proceeds of the
the trust receipts. Based on the representations of sale of the goods, documents or instruments
petitioner, the Bank accepted the trust receipts and, covered by a trust receipt to the extent of the
consequently, expected petitioner to return or account amount owing to the entruster or as appears
for the goods entrusted. The Court of Appeals further in the trust receipt or to return said goods,
 documents or instruments if they were not However, the criminal liability for violation of the Trust
sold or disposed of in accordance with the Receipts Law falls on the human agent responsible
terms of the trust receipt shall constitute the for the violation. Petitioner, who admits being the
crime of estafa, punishable under the agent of ARMAGRI, is the person responsible for the
provisions of Article Three Hundred and offense for two reasons. First, petitioner is the
Fifteen, Paragraph One (b), of Act Numbered signatory to the trust receipts, the loan applications
Three Thousand Eight Hundred and Fifteen, and the letters of credit. Second, despite being the
as amended, otherwise known as the signatory to the trust receipts and the other
Revised Penal Code. If the violation or documents, petitioner did not explain or show why he
offense is committed by a corporation, is not responsible for the failure to turn over the
partnership, association or other juridical proceeds of the sale or account for the goods covered
entities, the penalty provided for in this by the trust receipts.
Decree shall be imposed upon the directors,
officers, employees or other officials True, petitioner acted on behalf of
or persons therein responsible for the ARMAGRI. However, it is a well-settled rule that the
offense, without prejudice to the civil law of agency governing civil cases has no application
liabilities arising from the criminal offense. in criminal cases. When a person participates in the
(Emphasis supplied) commission of a crime, he cannot escape punishment
on the ground that he simply acted as an agent of
The Trust Receipts Law is violated whenever the another party. In the instant case, the Bank accepted
entrustee fails to: (1) turn over the proceeds of the the trust receipts signed by petitioner based on
sale of the goods, or (2) return the goods covered by petitioner's representations. It is the fact of being the
the trust receipts if the goods are not sold. The mere signatory to the two trust receipts, and thus a direct
failure to account or return gives rise to the crime participant to the crime, which makes petitioner a
which is malum prohibitum. There is no requirement person responsible for the offense.
to prove intent to defraud.
Petitioner’s conviction of Estafa is proper
The Trust Receipts Law recognizes the impossibility
of imposing the penalty of imprisonment on a Yes. There is no need to allege in the Informations in
corporation. Hence, if the entrustee is a corporation, what capacity petitioner participated to hold him
the law makes the officers or employees or other responsible for the offense. Under the Trust Receipts
persons responsible for the offense liable to suffer the Law, it is sufficient to allege and establish the failure
penalty of imprisonment. The reason is obvious: of ARMAGRI, whom petitioner represented, to remit
corporations, partnerships, associations and other the proceeds or to return the goods to the Bank. 
juridical entities cannot be put to jail. Hence, the
criminal liability falls on the human agent responsible When petitioner signed the trust receipts, he claimed
for the violation of the Trust Receipts Law. he was representing ARMAGRI. The corporation
obviously acts only through its human agents and it is
In the instant case, the Bank was the the conduct of such agents which the law must deter.
entruster while ARMAGRI was the entrustee. Being The existence of the corporate entity does not shield
the entrustee, ARMAGRI was the one responsible to from prosecution the agent who knowingly and
account for the goods or its proceeds in case of sale.
intentionally commits a crime at the instance of a dismissed on the ground that the material allegations
corporation. therein did not amount to estafa. In the meantime, the
Court rendered judgment in Allied Banking
Corporation v. Ordoez, holding that the penal
ALFREDO CHING vs THE SECRETARY OF
provision of P.D. No. 115 is not limited to
JUSTICE, et al.
transactions in goods which are to be sold (retailed),

G. R. No. 164317, February 6, 2006. reshipped, stored or processed as a component of a

product ultimately sold but covers failure to turn over
Though the entrustee is a corporation, the law the proceeds of the sale of entrusted goods, or to
specifically makes the officers, employees or other return said goods if unsold or not otherwise disposed
officers or persons responsible for the offense, of in accordance with the terms of the trust receipts.
without prejudice to the civil liabilities of such In the light of this ruling, the bank was able to re-file
corporation and/or board of directors, officers, or 13 counts of estafa against Ching. 
other officials or employees responsible for the
offense. The rationale is that such officers or Issue:

employees are vested with the authority and

Whether Ching is liable as SVP of PBMI.
responsibility to devise means necessary to ensure
compliance with the law and, if they fail to do so, are RULING:
held criminally accountable; thus, they have a
YES. In Allied Banking Corporation v.
responsible share in the violations of the law.
Ordoez, the Court ruled that PD 115 applies to goods
Facts: used by the entrustee in the operation of its
machineries and equipment. The non-payment of the
Alfredo Ching, as the Senior Vice-President
amount covered by the trust receipts or the non-return
of Philippine Blooming Mills, Inc. (PBMI), applied
of the goods covered by the receipts, if not sold or
with the Rizal Commercial Banking Corporation for
otherwise not disposed of, violate the entrustees
the issuance of commercial letters of credit to finance
obligation to pay the amount or to return the goods to
its importation of assorted goods. The bank approved
the entruster which is a crime under P.D. No.
the application and irrevocable letters of credit were
115,without need of proving intent to defraud. The
issued in favor of Ching. The goods were purchased
crime defined in P.D. No. 115 is malum prohibitum
and delivered in trust to PBMI. Ching signed 13 trust
but is classified as estafa under the Revised Penal
receipts as surety, acknowledging delivery of the
Code. Though the entrustee is a corporation,
goods as contained in the said trust receipts. When
nevertheless, the law specifically makes the officers,
the trust receipts matured, Ching failed to return the
employees or other officers or persons responsible for
goods to the bank or to return their value despite
the offense, without prejudice to the civil liabilities of
demands. Thus, the bank filed a criminal complaint
such corporation and/or board of directors, officers,
for13 counts of estafa against Ching in the Office of
or other officials or employees responsible for the
the City Prosecutor but the case was ultimately
offense. 
 In this case, petitioner signed the trust ("El Oro Corporation"). El Oro Corporation had
receipts in question. He cannot, thus, hide behind the a contract with the Philippine Army to supply

cloak of the separate corporate personality of PBMI. the latter with "survival bolos."

A corporate officer cannot protect himself behind a

corporation where he is the actual, present and Respondent : Philippine Islands  - the bank
where the petitioner applied for two
efficient actor.
commercial letters of credit in favor of El Oro
b. Directors and officers of the corporation Corporation’s suppliers, Tanchaoco
not civilly liable unless they assume
Manufacturing Incorporated ("Tanchaoco
personal liability
Incorporated") and Maresco Rubber and
Tupaz IV v. Court of Appeals
Retreading Corporation ("Maresco
G.R. No. 145578, 18 Nov 2005
Corporation"). 

Topic:
Facts:
Trust Receipt Law
L. Penal sanctions of directors, officers
and agents After granting the petitioner’s
application and issued Letter of Credit to
b. Directors and officers of the
corporation not civilly liable unless they Tanchaoco Incorporated and Letter of Credit to
assume personal 
Maresco Corporation, petitioners signed trust
Liability
receipts in favor of respondent bank. 
Principle:

The corporate representatives signing as a Petitioners did not comply with their
solidary guarantee as corporate representative undertaking under the trust receipts.
did not undertake to guarantee personally the Respondent bank made several demands for
payment of the corporation's debt. Debts payments but El Oro Corporation made partial
incurred by directors, officers and employees payments only. On 27 June 1983 and 28 June
acting as such corporate agents are not theirs 1983, respondent bank’s counsel and its
but the direct liability of the corporation they representative respectively sent final demand
represent. As an exception, directors or letters to El Oro Corporation. El Oro
officers are personally liable for the Corporation replied that it could not fully pay
corporation's debt if they so contractually its debt because the Armed Forces of the
agree or stipulate.  Philippines had delayed paying for the survival
bolos.
Parties:
Respondent bank charged petitioners
Petitioners : Jose C. Tupaz IV and with estafa under Section 13,  Presidential
Petronila C. Tupaz - Vice-President for Decree No. 115 ("Section 13") or Trust
Operations and Vice-President/Treasurer, Receipts Law ("PD 115").
respectively, of El Oro Engraver Corporation
Issue: found on the dorsal portion of the trust
receipts. Petitioner placed his signature after
Whether or not the corporate officers make the typewritten words "ARMCO INDUSTRIAL
themselves personally liable for El Oro CORPORATION" found at the end of the
Corporation’s debts under the trust receipts. solidary guarantee clause. Evidently, petitioner
did not undertake to guaranty personally the
Ruling: payment of the principal and interest of
ARMAGRI’s debt under the two trust receipts.
No, A corporation, being a juridical
entity, may act only through its directors, Hence, for the trust receipt dated 9
officers, and employees; and the debts October 1981, we sustain petitioners’ claim
incurred by these individuals, acting as such that they are not personally liable for El Oro
corporate agents, are not theirs but the direct Corporation’s obligation.
liability of the corporation they represent. As
an exception, directors or officers are For the trust receipt dated 30
personally liable for the corporation’s debts September 1981, the dorsal portion of which
only if they so contractually agree or stipulate. petitioner Jose Tupaz signed alone, we find
that he did so in his personal capacity.
In the trust receipt dated 9 October Petitioner Jose Tupaz did not indicate that he
1981, petitioners signed below this clause as was signing as El Oro Corporation’s Vice-
officers of El Oro Corporation. Thus, under President for Operations. Hence, petitioner
petitioner Petronila Tupaz’s signature are the Jose Tupaz bound himself personally liable for
words "Vice-Pres–Treasurer" and under El Oro Corporation’s debts. Not being a party
petitioner Jose Tupaz’s signature are the words to the trust receipt dated 30 September 1981,
"Vice-Pres–Operations." By so signing that petitioner Petronila Tupaz is not liable under
trust receipt, petitioners did not bind such trust receipt.
themselves personally liable for El Oro
Corporation’s obligation.  E. Ownership of the goods, documents and
instruments under a trust receipt
In Ong v. Court of Appeals, a corporate
representative signed a solidary guarantee Spouses RAMON R. NACU and LOURDES I.
clause in two trust receipts in his capacity as NACU, petitioners,
corporate representative. There, the Court held vs.

that the corporate  representative did not THE COURT OF APPEALS and PILIPINAS BANK,

undertake to guarantee personally the respondents.

payment of the corporation’s debts, thus:

PRINCIPLE: Under pertinent laws, the trust receipt is
a separate and independent security transaction
Here, petitioner did not sign in his
intended to aid in financing importers whereby the
personal capacity the solidary guarantee clause
imported goods are held as security by the lending equipment to be used by said joint venture in a
institution for the loan obligation. construction project, located at Mindanao.
In consideration of this JBS and PI Construction Joint
FACTS: Venture credit accommodation, Jose Sahagun and
Petitioners spouses are the registered petitioner Nacu executed in their capacities as
owners of the subject property covered by Transfer executive officers thereof, a Continuing Security
Certificate of Title No. 276891 of the Registry of Agreement in favor of respondent Bank. Said debtor
Deeds for Quezon City, located at 12 Yakan Street, corporations, represented by their respective
La Vista Subdivision, Quezon City. presidents, were also made to sign trust receipts in
On July 12, 1982, respondent Pilipinas Bank favor of respondent Bank.
extended to Home Construction-Joint venture, Later, petitioner spouses requested from respondent
represented by Horacio Mendoza, Julio Matias and Bank the issuance of the Certificate of
Ramon Nacu, Irrevocable Stand-by LC No. 82/408- Cancellation/Release of the Real Estate Mortgage on
HO in the amount of P4,400,000.00 to guarantee the TCT No. 276891. The respondent Bank refused
ten per cent (10%) mobilization fund to be released by despite its admission that the Home Construction loan
the Ministry of Public Works and Highways in had been fully paid and despite the release of the
connection with a Lucana Fishing Port and properties of the co-mortgagors, Horacio Mendoza
Construction Project. and Julio Matias.
To secure this Home Construction-Joint
Venture credit accommodation, petitioners spouses,
Issue:
together with Spouses Horacio S. Mendoza and
Whether or not petitioner Nacu again bound himself
Leonisa D. Mendoza and Spouses Julio D. Matias
"jointly and severally" with the Trustees (JBS
and Lydia Sison constituted real estate mortgages on
Corporation and PI Construction) for the value of the
five (5) distinct properties in favor of respondent Bank.
goods covered by the instruments.
The principal obligation mentioned in the said real
estate mortgage extended to the Home Construction
Held:
— Joint Venture was fully paid and extinguished.
No. The trust receipt agreement shows that
Respondent Bank effected the cancellation/release of
the 1982 real estate mortgage is no longer operative
the titles subject of the said real estate mortgage,
because otherwise, there would have been no need
particularly the properties of the co-mortgagors,
for the execution of said trust agreement to secure the
Horacio Mendoza and Julio Matias.
second loan.
Petitioners spouses did not immediately request for
Under pertinent laws, the trust receipt is a
the issuance of the corresponding certificate of
separate and independent security transaction
cancellation/release of mortgage of TCT No. 276891
intended to aid in financing importers whereby the
from respondent Bank.
imported goods are held as security by the lending
On February 24, 1983, two (2) corporations under the
institution for the loan obligation.
Joint Venture — JBS Construction, Inc., and P.I.
In the case and Vintola v. Insular bank of
Construction and Services Co., Inc., petitioner Nacu
Asia and America 7 this Court explained the nature
secured from respondent Bank, under letters of credit
and usage of trust receipts as follows:
(L/C), a loan accommodation for the importation of
. . . A letter of credit-trust receipt arrangement is
several pieces of construction machinery and
endowed with its own distinctive features and
characteristics. Under that set-up, a bank extends a Topic: Trust Receipts Law: Remedies
loan covered by the letter of credit, with the trust
receipt as a security for the loan. In other words, the
Principle:
transaction involved a loan feature represented by the
letter of credit, and security feature which is in the
covering trust receipt. . . . The breach of obligation spelled out it the
A trust receipt, therefore, is a security agreement,
Trust Receipt is separate and distinct from
pursuant to which a bank acquires a security interest
any criminal liability for "misuse and/or
in the goods. It secures an indebtedness and there
can be no such thing as security interest that secures misappropriation of goods or proceeds
no obligation. realized from the sale of goods, documents or
. . . A trust receipt is considered as a security
instruments released under trust receipts,"
transaction intended to aid in financing importers and
punishable under Section 13 of the Trust
retail dealers who do not have sufficient funds or
resources to finance the importation or purchase or Receipts Law in relation to Article 315(1), (b)
merchandise, and who may not be able to acquire of the Revised Penal Code. Being based on an
credit except through utilization, as collateral, of the
obligation ex contractu and not ex delicto, the
merchandise imported or purchased. . . .
civil action may proceed independently of the
Moreover, by virtue of the trust receipt agreement,
respondent Bank should proceed against the same criminal proceedings instituted against
because the trust receipt theoretically transferred the petitioners regardless of the result of the
ownership of the imported personal property to
latter.
respondent Bank.
Worth mentioning is also the fact that the trust
receipts and the Continuing Surety Agreement were Facts:
signed only by petitioner Nacu. Assuming that both
documents duly constituted a real estate mortgage on Gregorio Limpin, Jr. and Antonio
the property of petitioners spouses, they are voidable
Apostol, doing business under the name and
for want of petitioner Lourdes Nacu's acquiescence
and/or consent thereto. Article 166 of the Civil Code, style of 'Davao Libra Industrial Sales,' filed
the law then applicable, provides that unless the wife an application for an Irrevocable Domestic
has been declared a non compos mentis, a Letter of Credit with Associated Banking
spendthrift, is under civil interdiction or is confined in a
Corporation for the amount of P495,000.00 in
leprosarium, the husband cannot alienate or
encumber any real property of the conjugal favor of LS Parts Hardware and Machine Shop
partnership without the wife's consent. for the purchase of assorted scrap irons. Said
application was signed by Limpin and
M. Remedies Apostol. The aforesaid application was
Sarmiento Jr. v. Court of Appeals approved, and Associated Banking issued
G.R. No. 122502, 27 Dec 2002 Domestic Letter of Credit in favor of LS Parts
for P495,000.00. Thereafter, a Trust Receipt
was executed by defendant Limpin and "Among others, the Trust Receipt
Antonio Apostol. In said Trust Receipt, the provided that:
following stipulation, signed by defendant
Lorenzo Sarmiento, Jr. appears: — 'The defendants acknowledged to
have received in trust from the
'In consideration of the Associated plaintiff Bank the merchandise
Banking Corporation releasing to covered by the documents and agreed
Gregorio Limpin and Antonio Apostol to hold said merchandise in storage as
goods mentioned in the trust receipt, the property of the Bank, with liberty
we hereby jointly and severally to sell the same for cash for its
undertake and agree to pay, on accounts provided the proceeds
demand, to the Associated Bank thereof are turned over in their
Corporation all sums and amount of entirety to the bank to be applied
money which said Associated Banking against acceptance and any other
Corporation may call upon us to pay indebtedness of the defendants to the
arising out of, pertaining to, and/or bank.
any manner connected with the trust
receipt, WE FURTHER AGREE that our 'That the defendants shall
liability in this undertaking shall be immediately give notice to said Bank
direct and immediate and not of any average damage, non-
contingent upon the pursuit by the shipment, shortage, non-delivery or
Associated Banking Corporation of other happening not in the usual and
whatever remedies it may have ordinary course of business.
against the aforesaid Gregorio Limpin
and Antonio Apostol. 'That the due date of the Trust Receipt
is December 5, 1978.'
SGD.
T/LORENZO Limpin and Apostol failed to comply
SARMIENTO, with their undertaking under the Trust
JR. Receipt. Hence, demands were made.
Surety/ However, defendants failed to pay their
Guarantor' account. Legal action against the defendants
was deferred due to the proposed settlement action may proceed independently of the
of the account. However, no settlement was criminal proceedings and regardless of the
reached. Hence the bank, thru counsel, sent a result of the latter.”
final letter of demand.  
In the present case, private
A complaint for Violation of the Trust Receipt respondent’s complaint against petitioners
Law was filed against the defendants before was based on the failure of the latter to
the City Fiscal's Office. comply with their obligation as spelled out in
After trial, the lower court rendered the Trust Receipt executed by them. This
judgment in favor of Associated Banking breach of obligation is separate and distinct
Corporation. from any criminal liability for “misuse and/or
On appeal by herein petitioners misappropriation of goods or proceeds
Sarmiento, Jr. and Limpin, Jr., the Court of realized from the sale of goods, documents or
Appeals affirmed the judgment of the trial instruments released under trust receipts”,
court, and, denied the Motion for punishable under Section 13 of the Trust
Reconsideration of herein petitioner. Hence, Receipts Law (P.D. 115) in relation to Article
this petition. 315(1), (b) of the Revised Penal Code.
 
Issue: Being based on an obligation ex
contractu and not ex delicto, the civil action
Whether or not Associated Banking has the may proceed independently of the criminal
right to institute a separate civil action against proceedings instituted against petitioners
Sarmiento for civil liability regardless of the result of the latter.

Ruling: Landl & Company (Phil.) Inc. v. Metropolitan

Bank & Trust Co., G.R. No. 159622, 30 Jul
Yes, Associated Banking has the right 2004
to institute a separate civil action against Principle: The resolution of the first assigned
Sarmiento for civil liability.  error hinges on the proper interpretation of
Article 31 of the Civil Code provides Section 7 of Presidential Decree No. 115, or the
that “When the civil action is based on an Trust Receipts Law, which reads:
obligation not arising from the act or
omission complained of as a felony, such civil Sec. 7. Rights of the entruster. - The entruster
shall be entitled to the proceeds from the sale of
the goods, documents or instruments released writing, and either personally served on the
under a trust receipt to the entrustee to the extent entrustee or sent by post-paid ordinary mail to
of the amount owing to the entruster or as the entrustee's last known business address
appears in the trust receipt, or to the return of the
goods, documents or instruments in case of non- Facts:
sale, and to the enforcement of all other rights Respondent alleged that petitioner
conferred on him in the trust receipt provided corporation (Landl & Co.) is engaged in the
such are not contrary to the provisions of this business of selling imported welding rods and
Decree. alloys. On June 17, 1983, it opened Commercial
The entruster may cancel the trust and Letter of Credit with respondent bank, in the
take possession of the goods, documents or amount of P218, 733. The letter of credit was
instruments subject of the trust or of the opened to purchase various welding rods and
proceeds realized therefrom at any time upon electrodes from Perma Alloys, Inc., New York,
default or failure of the entrustee to comply with U.S.A., as evidenced by a Pro-Forma Invoice
any of the terms and conditions of the trust dated March 10, 1983. Petitioner Corporation
receipt or any other agreement between the put up a marginal deposit of P50, 414.00 from
entruster and the entrustee, and the entruster in the proceeds of a separate clean loan.
possession of the goods, documents or As an additional security, and as a
instruments may, on or after default, give notice condition for the approval of Petitioner
to the entrustee of the intention to sell, and may, Corporation’s application for the opening of the
not less than five days after serving or sending commercial letter of credit, Percival G. Llaban
of such notice, sell the goods, documents or and Manuel P. Lucente executed a Continuing
instruments at public or private sale, and the Suretyship Agreement. Petitioner Lucente also
entruster may, at a public sale, become a executed a Deed of Assignment. Upon
purchaser. The proceeds of any such sale, compliance with these requisites, respondent
whether public or private, shall be applied (a) to bank opened an irrevocable letter of credit for
the payment of the expenses thereof; (b) to the the petitioner corporation.
payment of the expenses of re-taking, keeping To secure the indebtedness of petitioner
and storing the goods, documents or corporation, respondent bank required the
instruments; (c) to the satisfaction of the execution of a Trust Receipt in an amount
entrustee's indebtedness to the entruster. The equivalent to the letter of credit, on the condition
entrustee shall receive any surplus but shall be that Landl would hold the goods in trust for
liable to the entruster for any deficiency. Notice respondent bank, with the right to sell the goods
of sale shall be deemed sufficiently given if in and the obligation to turn over to respondent
bank the proceeds of the sale, if any. If the and Manuel P. Lucente before the Regional Trial
goods remained unsold, Petitioner Corporation Court of Cebu City.
had the further obligation to return them to On March 31, 1997, after trial on the
respondent bank on or before November 23, merits, the trial court rendered a decision
1983. ordering Landl, Llab and Lucente to pay jointly
Upon arrival of the goods in the and severally to Metrobank the sum of P292,
Philippines, Landl took possession and custody 172.23 representing the defendant's obligation,
thereof. plus interest, attorney’s fees and penalty.
On November 23, 1983, the maturity Petitioners appealed to the Court of
date of the trust receipt, Petitioner Corporation Appeals. On February 13, 2003, the Court of
defaulted in the payment of its obligation to Appeals rendered a decision affirming in toto the
respondent bank and failed to turn over the decision of the trial court. Hence, this petition
goods to the latter. On July 24, 1984, respondent for review.
bank demanded that petitioners, as entrustees,
turn over the goods subject of the trust receipt. Issue:
On September 24, 1984, petitioners turned over a.)Whether Metro bank’s repossession of the
the subject goods to the respondent bank. goods amounted to extinguishment of Lendl’s
On July 31, 1985, in the presence of obligation; and
representatives of Landl and respondent bank,
the goods were sold at public auction. The goods b.)Whether Metrobank had the right to claim the
were sold for P30, 000.00 to respondent bank as deficiency from petitioners notwithstanding the
the highest bidder. The proceeds of the auction fact that the goods covered by the trust receipt
sale were insufficient to completely satisfy were fully turned over to respondent.
petitioners' outstanding obligation to respondent
bank, notwithstanding the application of the time Ruling:
deposit account of petitioner Lucente.
Accordingly, respondent bank demanded that (A).NO. Repossession did not extinguish the
petitioners pay the remaining balance of their liability of Landl.
obligation. After petitioners failed to do so,
respondent bank instituted the instant case to There is no question that petitioners
collect the said deficiency. failed to pay their outstanding obligation to
Respondent Metrobank filed a complaint respondent bank. They contend, however, that
for sum of money against Landl and Company based on Sec. 7 of PD 115, when the entrustee
(Phil.) Inc. and its directors, Percival G. Llaban fails to settle his principal loan, the entruster
may choose between two separate and them of their obligation to repay the principal
alternative remedies: amount of their loan obligation.
(1) the return of the goods covered by the trust The repossession of the machinery and
receipt, in which case, the entruster now equipment in question was merely to secure the
acquires the ownership of the goods which the payment of loan obligation and not for the
entrustee failed to sell; or purpose of transferring ownership thereof to
Metrobank in satisfaction of said loan.
(2) Cancel the trust and take possession of the Respondent bank's repossession of the properties
goods, for the purpose of selling the same at a and subsequent sale of the goods were
private sale or at public auction. Petitioners completely in accordance with its statutory and
assert that, under this second remedy, the contractual rights upon default of Petitioner
entruster does not acquire ownership of the Corporation.
goods, in which case he is entitled to the
deficiency. Petitioners argue that these two (B) YES, Metrobank can claim deficiency.
remedies are so distinct that the availment of one The second paragraph of Section 7
necessarily bars the availment of the other. Thus, expressly provides that the entrustee shall be
when respondent bank availed of the remedy of liable to the entruster for any deficiency after the
demanding the return of the goods, the actual proceeds of the sale have been applied to the
return of all the unsold goods completely payment of the expenses of the sale, the payment
extinguished petitioners' liability. Petitioners' of the expenses of re-taking, keeping and storing
argument is bereft of merit. the goods, documents or instruments, and the
A trust receipt is inextricably linked satisfaction of the trustee’s indebtedness to the
with the primary agreement between the parties. entruster. In the case at bar, the proceeds of the
Time and again, we have emphasized that a trust auction sale were insufficient to satisfy entirely
receipt agreement is merely a collateral Petitioner Corporation’s indebtedness to the
agreement, the purpose of which is to serve as respondent bank. Respondent bank was thus
security for a loan. well within its rights to institute the instant case
The initial repossession by the bank of to collect the deficiency
the goods subject of the trust receipt did not
result in the full satisfaction of the petitioners'
loan obligation. Petitioners are apparently N. Letter of credit vis-à-vis trust receipt
laboring under the mistaken impression that the transactions
full turn-over of the goods suffices to divest
RCBC/Rizal Commercial Banking VS ALFA
RTW MANUFACTURING CORP
 purchase of raw materials for its garments

TOPIC: TRUST RECEIPTS LAW; Letters of business. Upon said letters of credit,

Credit vis-à-vis Trust Receipt Transactions corresponding bill of exchange of various

amounts were drawn and charged to account of
Alfa. Alfa had executed 4 Trust Receipts
PRINCIPLE: The jurisdiction of this Court in
stipulating that it had received in trust for RCBC.
cases brought before it from the Court of
When the obligations became due, RCBC
Appeals via Rule 45 of the 1997 Rules of Civil
demanded payment citing 2 Comprehensive
Procedure, as amended, is limited to reviewing
Surety Agreements allegedly executed by the
errors of law. Findings of fact of the latter court
individual defendants. Under such surety
are conclusive, except in a number of instances.
agreement, it was essentially agreed that Alfa
In Siguan vs. Lim this Court enumerated those
and the signatory officers jointly guarantee the
instances when the factual findings of the Court
punctual payment of their obligation provided
of Appeals are not deemed conclusive, to wit: (1)
that the liability of the individual defendants and
when the conclusion is a finding grounded
Alfa shall not exceed the sum of P4 Million and
entirely on speculations, surmises or
P7.5 Million and such interest as may accrue
conjectures; (2) when the inference made is
thereon and expenses as may be incurred by
manifestly mistaken, absurd or impossible; (3)
RCBC. Upon default of payment, RCBC filed a
when there is grave abuse of discretion; (4)
civil case before RTC Makati for a sum of money
when the judgment is based on a
against Alfa and the individual defendants. The
misapprehension of facts; (5) when the findings
trial court ordered the defendants to pay RCBC
of facts are conflicting; (6) when the Court of
more than P18 Million inclusive of the interest
Appeals, in making its findings, went beyond the
and other legal fees. On appeal, CA affirmed the
issues of the case and the same is contrary to
decision of the trial court but modified the
the admissions of both the appellant and
amount to only P3 Million inclusive of the
appellee; (7) when the findings are contrary to
stipulated interest and other legal fees.
those of the trial court; (8) when the findings are
conclusions without citation of specific evidence
on which they are based; (9) when the facts set ISSUE: Whether or not the Court of

forth in the petition as well as in the petitioners Appeals  erred in awarding to RCBC the minimal

main and reply briefs are not disputed by the sum of P3 Million instead of P18 Million granted

respondent; and (10) when the findings of fact by the trial court.

are premised on the supposed absence of  

evidence and contradicted by the evidence on RULING: YES. The appellate court
record. disregarded the parties’ stipulations in their
contracts of loan, specifically, those pertaining to

FACTS: Alfa RTW applied for four the agreed interest rates, service charges and

Letters of Credit with petitioner to facilitate its penalties in case of any breach thereof. CA
failed to apply the time-honored doctrine that computed shall earn interest of 12% per annum
which is agreed to in a contract is the law until satisfied.
between the parties. Thus, the obligations
arising from contracts have the force of law Ratio:
between the contracting parties and should be The case now before us involves an
complied with in good faith. The Court cannot obligation arising from a letter of credit-trust
vary the terms and conditions therein stipulated receipt transaction. Under this arrangement, a
unless such stipulation is contrary to law, bank extends to a borrower a loan covered by
morals, good customs, public order or public the letter of credit, with the trust receipt as
policy. security of the loan. A trust receipt is a security
The present case involves an obligation transaction intended to aid in financing importers
arising from a letter of credit-trust receipt and retail dealers who do not have sufficient
transaction. Under this arrangement, a bank funds or resources to finance the importation or
extends to a borrower a loan covered by the purchase of merchandise, and who may not be
letter of credit, with the trust receipt as security able to acquire credit except thru utilization, as
of the loan. In contracts contained in trust collateral, of the merchandise imported or
receipts, the contracting parties may establish purchased.
agreements, terms and conditions they may In contracts contained in trust receipts,
deem advisable, provided they are not contrary the contracting parties may establish
to law, morals or public order. In the computation agreements, terms and conditions they may
of interest, the principal amount of loans deem advisable, provided they are not contrary
corresponding to each trust receipt must earn an to law, morals or public order. 12 In the case at
interest rate of 16% per annum with the bar, there are specific amounts of interest,
stipulated service charge of 2% per annum on service charges and penalties agreed upon by
the loan principal or the outstanding balance the parties. Pertinent provisions in the four (4)
thereof, from the date of execution until finality of trust receipts
court’s Decision. A penalty of 6% per annum of
the amount due and unpaid must also be
WAREHOUSE
imposed computed from the date of demand
RECEIPTS LAW
until the finality of court’s Judgment. The (Act No. 2137, as amended)
interest of 16% per annum, as long as unpaid,
also earns interest which is computed from the A. General concepts (Sec. 1-7)
date of filing of the complaint until finality of the a. Purpose and coverage
court’s decision. From such finality the total
b. Definition
unpaid amount (principal + interest + service
charge + penalty + interest on the interest) Warehouse receipt. — a contract or receipt for
goods deposited with a warehouseman
containing the latter’s undertaking to hold and (i) A statement of the amount of advances made
deliver the said goods to a specified person, to and of liabilities incurred for which the
warehouseman claims a lien. If the precise
order, or to bearer. Quedan is a warehouse
amount of such advances made or of such
receipt usually for sugar received by a liabilities incurred is, at the time of the issue of,
warehouseman. unknown to the warehouseman or to his agent
who issues it, a statement of the fact that
advances have been made or liabilities incurred
"Warehouseman"   means a person lawfully and the purpose thereof is sufficient.
engaged in the business of storing goods for
A warehouseman shall be liable to any person
profit. injured thereby for all damages caused by the
omission from a negotiable receipt of any of the
c. Who may issue warehouse receipts? (Sec. terms herein required.
1)
- Warehouse receipts may be issued by any e. Effect of omission of any of the essential
warehouseman. terms

d. Form and content of warehouse receipts Topic: Warehouse Receipts Law; Effect of
(Sec. 2)
- Warehouse receipts need not be in any omission of any of the essential terms
particular form but every such receipt must
embody within its written or printed terms:
Principle: Any deposit made with a bonded

(a) The location of the warehouse where the warehouseman must necessarily be governed
goods are stored, by the provisions of Act No. 3893. The kind or
nature of the receipts issued by him for the
(b) The date of the issue of the receipt,
deposits is not very material, much less decisive.
(c) The consecutive number of the receipt, Though it is desirable that receipts issued by a
bonded warehouseman should conform to the
(d) The undertaking - a statement whether the
provisions of the Warehouseman Receipts Law,
goods received will be delivered to the bearer, to
a specified person or to a specified person or his said provisions are not mandatory, and
order, indispensable in the sense that if they fell short
of the requirement of the Warehouse Receipts
(e) The rate of storage charges,
Act, then the commodities delivered for storage
(f) A description of the goods or of the packages become ordinary deposits and will not be
containing them,
governed by the provisions of the Bonded

(g) The signature of the warehouseman which Warehouse Act. Under Section 1 of the
may be made by his authorized agent, Warehouse Receipts Act, the issuance of a
warehouse receipt in the form provided by it is
(h) If the receipt is issued for goods of which the
warehouseman is owner, either solely or jointly merely permissive and directory and not
or in common with others, the fact of such obligatory.
ownership, and
 Gonzales v. Go Tiong At the time of the fire, there were 5,847 sacks of
G.R. No. L-11776, 30 Aug 1958 palay in the warehouse, in excess of the 5,000
Facts: sacks authorized under his license. The receipts
Go Tiong owned a rice mill and warehouse, issued by Go Tiong to Gonzales were ordinary
located at Mabini, Urdaneta, Pangasinan. On receipts, not the "warehouse receipts" defined
February 4, 1953, he obtained a license to by the Warehouse Receipts Act.
engage in the business of a bonded After the burning of the warehouse, the
warehouseman. To secure the performance of depositors of palay, including plaintiff Gonzales,
his obligations as such bonded warehouseman, filed their claims with the Bureau of Commerce,
the Luzon Surety Co. executed Guaranty Bond and it would appear that with the proceeds of the
No. 294 in the sum of P18,334, conditioned insurance policy, the Bureau of Commerce paid
particularly on the fulfillment by Go Tiong of his off some of the claims. Thereafter, Gonzales
duty or obligation to deliver to the depositors in filed the present action against Go Tiong and the
his storage warehouse, the palay received by Luzon Surety for the sum of P8,600, the value of
him for storage, at any time demand is made, or his palay, with legal interest, damages in the
to pay the market value thereof, in case he was sum of P5,000 and P1,500 as attorney's fees.
unable to return the same. Go Tiong insured the The Court of First Instance of Manila rendered
warehouse and the palay deposited therein with judgment against Go Tiong and Luzon Surety
the Alliance Surety and Insurance Company. Co. Hence, they appealed to the Court of
But prior to the issuance of the license to Go Appeals. However, since the issues raised were
Tiong to operate as bonded warehouseman, he purely questions of law, the CA indorsed the
had on several occasions received palay for case to the Supreme Court.
deposit from plaintiff Ramon Gonzales, totalling
368 sacks, for which he issued receipts. After he Issue: Whether or not the failure of Go Tiong to
was licensed as a bonded warehouseman, Go issue the warehouse receipts contemplated by the
Tiong again received various deliveries of palay Warehouse Receipts Act precluded plaintiff from
from Ramon Gonzales, totalling 492 sacks, for suing on the bond?
which he issued the corresponding receipts, all
the deliveries having a grand total of 860 sacks, Ruling:
valued at P8,600 at the rate of P10 per sack.
Eventually, plaintiff Gonzales demanded from No. The Supreme Court held that the surety
Go Tiong the value of his deposits in the amount cannot avoid liability from the mere failure of the
of P8,600. However, he was told to return after warehouseman to issue the prescribed receipt.
two days, which he did. But upon his return, he The law does not require as indispensable that a
was once again told to come back. A few days warehouse receipt be issued to be liable under
later, the warehouse burned to the ground. Act No. 3893 or the Bonded Warehouse Act.
Act No. 3893 as amended is a special law obligation is secured by a bond, said depositor
regulating the business of receiving commodities may sue on said bond.
for storage and defining the rights and In the case of Andreson vs. Krueger, 212 N.W.
obligations of a bonded warehouseman and 198, 199, it was held:
those transacting business with him. "The surety company concedes that the bond
Consequently, any deposit made with him as a which it gave contains the statutory conditions.
bonded warehouseman must necessarily be The statute . . . requires that the bond — 'shall
governed by the provisions of Act No. 3893. The be conditioned upon the faithful performance of
kind or nature of the receipts issued by him for the public local grain warehouseman of all the
the deposits is not very material, much less provisions of law relating to the storage of grain
decisive. Though it is desirable that receipts by such warehouseman.'
issued by a bonded warehouseman should "The surety company thereby made itself
conform to the provisions of the Warehouse responsible for the performance by the
Receipts Law, said provisions in our opinion are warehouseman of all the duties and obligations
not mandatory and indispensable in the sense imposed upon him by the statute; and, if he
that if they fell short of the requirements of the failed to perform any such duty to the loss or
Warehouse Receipts Act, then the commodities detriment of those who delivered grain for
delivered for storage become ordinary deposits storage, the surety company became liable
and will not be governed by the provisions of the therefor. Where the warehouseman receives
Bonded Warehouse Act. Under Section 1 of the grain for storage and refuses to return or pay it,
Warehouse Receipts Act, one would gather the the fact that he failed to issue the receipt, when
impression that the issuance of a warehouse the statute required him to issue on receiving it,
receipt in the form provided by it is merely is not available to the surety as a defense
permissive and directory and not obligatory: against an action on the bond. The obligation of
"SECTION 1. Persons who may issue receipts. the surety covers the duty of the warehouseman
— Warehouse receipts may be issued by any to issue the prescribed receipt, as well as the
warehouseman.", other duties imposed upon him by the statute."
and the Bonded Warehouse Act as amended In view of the foregoing, the appealed decision
permits the warehouseman to issue any receipt, was affirmed.
thus:
". . . receipt' as any receipt issued by a f. Terms that cannot be included (Sec. 3)
warehouseman for commodity delivered to him."
Sec. 3. Form of receipts. – What terms may be
Furthermore, Section 7 of said law provides that inserted. – A warehouseman may insert in a
as long as the depositor is injured by a breach of receipt issued by him any other terms and
any obligation of the warehouseman, which conditions provided that such terms and
conditions shall not:
(a) Be contrary to the provisions of this Act. establish the existence of a lawful excuse for
(b) In any wise impair his obligation to exercise such refusal.
that degree of care in the safe-keeping of the
goods entrusted to him which is reasonably Sec. 9. Justification of warehouseman in
careful man would exercise in regard to similar delivering. – A warehouseman is justified in
goods of his own. delivering the goods, subject to the provisions of
the three following sections, to one who is:
B. Obligations and rights of a warehouseman
(a) The person lawfully entitled to the
a. Obligation to deliver (Secs. 8-19, 36, & 58) possession of the goods, or his agent;

II – OBLIGATIONS AND RIGHTS OF (b) A person who is either himself entitled to

WAREHOUSEMEN UPON THEIR RECEIPTS delivery by the terms of a non-negotiable receipt
issued for the goods, or who has written
Sec. 8. Obligation of warehousemen to deliver. – authority from the person so entitled either
A warehouseman, in the absence of some lawful indorsed upon the receipt or written upon
excuse provided by this Act, is bound to deliver another paper; or
the goods upon a demand made either by the
holder of a receipt for the goods or by the (c) A person in possession of a negotiable
depositor; if such demand is accompanied with: receipt by the terms of which the goods are
deliverable to him or order, or to bearer, or which
(a) An offer to satisfy the warehouseman's lien; has been indorsed to him or in blank by the
person to whom delivery was promised by the
(b) An offer to surrender the receipt, if terms of the receipt or by his mediate or
negotiable, with such indorsements as would be immediate indorser.
necessary for the negotiation of the receipt; and
Sec. 10. Warehouseman's liability for
(c) A readiness and willingness to sign, when the misdelivery. – Where a warehouseman delivers
goods are delivered, an acknowledgment that the goods to one who is not in fact lawfully
they have been delivered, if such signature is entitled to the possession of them, the
requested by the warehouseman. warehouseman shall be liable as for conversion
to all having a right of property or possession in
In case the warehouseman refuses or fails to the goods if he delivered the goods otherwise
deliver the goods in compliance with a demand than as authorized by subdivisions (b) and (c) of
by the holder or depositor so accompanied, the the preceding section, and though he delivered
burden shall be upon the warehouseman to the goods as authorized by said subdivisions, he
shall be so liable, if prior to such delivery he had whether such purchaser acquired title to the
either: receipt before or after the delivery of any portion
of the goods by the warehouseman.
(a) Been requested, by or on behalf of the
person lawfully entitled to a right of property or Sec. 13. Altered receipts. – The alteration of a
possession in the goods, not to make such receipt shall not excuse the warehouseman who
delivery; or issued it from any liability if such alteration was:

(b) Had information that the delivery about to be (a) Immaterial,

made was to one not lawfully entitled to the (b) Authorized, or
possession of the goods. (c) Made without fraudulent intent.

Sec. 11. Negotiable receipt must be cancelled If the alteration was authorized, the
when goods delivered. – Except as provided in warehouseman shall be liable according to the
section thirty-six, where a warehouseman terms of the receipt as altered. If the alteration
delivers goods for which he had issued a was unauthorized but made without fraudulent
negotiable receipt, the negotiation of which intent, the warehouseman shall be liable
would transfer the right to the possession of the according to the terms of the receipt as they
goods, and fails to take up and cancel the were before alteration.
receipt, he shall be liable to anyone who
purchases for value in good faith such receipt, Material and fraudulent alteration of a
for failure to deliver the goods to him, whether receipt shall not excuse the warehouseman who
such purchaser acquired title to the receipt issued it from liability to deliver according to the
before or after the delivery of the goods by the terms of the receipt as originally issued, the
warehouseman. goods for which it was issued but shall excuse
him from any other liability to the person who
Sec. 12. Negotiable receipts must be cancelled made the alteration and to any person who took
or marked when part of goods delivered. – with notice of the alteration. Any purchaser of
Except as provided in Section 36, where a the receipt for value without notice of the
warehouseman delivers part of the goods for alteration shall acquire the same rights against
which he had issued a negotiable receipt and the warehouseman which such purchaser would
fails either to take up and cancel such receipt or have acquired if the receipt had not been altered
to place plainly upon it a statement of what at the time of purchase.
goods or packages have been delivered, he
shall be liable to any one who purchases for Sec. 14. Lost or destroyed receipts. – Where a
value in good faith such receipt, for failure to negotiable receipt has been lost or destroyed, a
deliver all the goods specified in the receipt, court of competent jurisdiction may order the
delivery of the goods upon satisfactory proof of refusing to deliver the goods according to the
such loss or destruction and upon the giving of a terms of the receipt.
bond with sufficient sureties to be approved by
the court to protect the warehouseman from any Sec. 17. Interpleader of adverse claimants. – If
liability or expense, which he or any person more than one person claims the title or
injured by such delivery may incur by reason of possession of the goods, the warehouseman
the original receipt remaining outstanding. The may, either as a defense to an action brought
court may also in its discretion order the against him for non-delivery of the goods or as
payment of the warehouseman's reasonable an original suit, whichever is appropriate, require
costs and counsel fees. all known claimants to interplead.

The delivery of the goods under an Sec. 18. Warehouseman has reasonable time to
order of the court as provided in this section, determine validity of claims. – If someone other
shall not relieve the warehouseman from liability than the depositor or person claiming under him
to a person to whom the negotiable receipt has has a claim to the title or possession of goods,
been or shall be negotiated for value without and the warehouseman has information of such
notice of the proceedings or of the delivery of the claim, the warehouseman shall be excused from
goods. liability for refusing to deliver the goods, either to
the depositor or person claiming under him or to
Sec. 15. Effect of duplicate receipts. – A receipt the adverse claimant until the warehouseman
upon the face of which the word "duplicate" is has had a reasonable time to ascertain the
plainly placed is a representation and warranty validity of the adverse claim or to bring legal
by the warehouseman that such receipt is an proceedings to compel claimants to interplead.
accurate copy of an original receipt properly
issued and uncancelled at the date of the issue Sec. 19. Adverse title is no defense except as
of the duplicate, but shall impose upon him no above provided. – Except as provided in the two
other liability. preceding sections and in sections 9 & 36, no
right or title of a third person shall be a defense
Sec. 16. Warehouseman cannot set up title in to an action brought by the depositor or person
himself . – No title or right to the possession of claiming under him against the warehouseman
the goods, on the part of the warehouseman, for failure to deliver the goods according to the
unless such title or right is derived directly or terms of the receipt.
indirectly from a transfer made by the depositor
at the time of or subsequent to the deposit for b. Liability for goods (Secs. 20-26)
storage, or from the warehouseman's lien, shall Sec. 20. Liability for non-existence or
excuse the warehouseman from liability for misdescription of goods. – A warehouseman
shall be liable to the holder of a receipt for
damages caused by the non-existence of the Sec. 23. Fungible goods may be commingled if
goods or by the failure of the goods to warehouseman authorized. – If authorized by
correspond with the description thereof in the agreement or by custom, a warehouseman may
receipt at the time of its issue. If, however, the mingle fungible goods with other goods of the
goods are described in a receipt merely by a same kind and grade. In such case, the various
statement of marks or labels upon them or upon depositors of the mingled goods shall own the
packages containing them or by a statement that entire mass in common and each depositor shall
the goods are said to be goods of a certain kind be entitled to such portion thereof as the amount
or that the packages containing the goods are deposited by him bears to the whole.
said to contain goods of a certain kind or by
words of like purport, such statements, if true, Sec. 24. Liability of warehouseman to depositors
shall not make liable the warehouseman issuing of commingled goods. – The warehouseman
the receipt, although the goods are not of the shall be severally liable to each depositor for the
kind which the marks or labels upon them care and redelivery of his share of such mass to
indicate or of the kind they were said to be by the same extent and under the same
the depositor. circumstances as if the goods had been kept
separate.
Sec. 21. Liability for care of goods. – A
warehouseman shall be liable for any loss or Sec. 25. Attachment or levy upon goods for
injury to the goods caused by his failure to which a negotiable receipt has been issued. – If
exercise such care in regard to them as goods are delivered to a warehouseman by the
reasonably careful owner of similar goods would owner or by a person whose act in conveying
exercise, but he shall not be liable, in the the title to them to a purchaser in good faith for
absence of an agreement to the contrary, for any value would bind the owner, and a negotiable
loss or injury to the goods which could not have receipt is issued for them, they can not
been avoided by the exercise of such care. thereafter, while in the possession of the
warehouseman, be attached by garnishment or
Sec. 22. Goods must be kept separate. – Except otherwise, or be levied upon under an execution
as provided in the following section, a unless the receipt be first surrendered to the
warehouseman shall keep the goods so far warehouseman or its negotiation enjoined. The
separate from goods of other depositors and warehouseman shall in no case be compelled to
from other goods of the same depositor for deliver up the actual possession of the goods
which a separate receipt has been issued, as to until the receipt is surrendered to him or
permit at all times the identification and impounded by the court.
redelivery of the goods deposited.
Sec. 26. Creditor's remedies to reach negotiable
receipts. – A creditor whose debtor is the owner
of a negotiable receipt shall be entitled to such
aid from courts of appropriate jurisdiction, by (c) A demand that the amount of the claim as
injunction and otherwise, in attaching such stated in the notice of such further claim as shall
receipt or in satisfying the claim by means accrue, shall be paid on or before a day
thereof as is allowed at law or in equity in these mentioned, not less than ten days from the
islands in regard to property which cannot delivery of the notice if it is personally delivered,
readily be attached or levied upon by ordinary or from the time when the notice shall reach its
legal process. destination, according to the due course of post,
if the notice is sent by mail,
c. Warehouseman’s lien (Secs. 31-36)
Sec. 31. Warehouseman need not deliver until (d) A statement that unless the claim is paid
lien is satisfied. – A warehouseman having a lien within the time specified, the goods will be
valid against the person demanding the goods advertised for sale and sold by auction at a
may refuse to deliver the goods to him until the specified time and place.
lien is satisfied.
In accordance with the terms of a notice so
Sec. 32. Warehouseman's lien does not given, a sale of the goods by auction may be
preclude other remedies. – Whether a had to satisfy any valid claim of the
warehouseman has or has not a lien upon the warehouseman for which he has a lien on the
goods, he is entitled to all remedies allowed by goods. The sale shall be had in the place
law to a creditor against a debtor for the where the lien was acquired, or, if such place is
collection from the depositor of all charges and manifestly unsuitable for the purpose of the
advances which the depositor has expressly or claim specified in the notice to the depositor has
impliedly contracted with the warehouseman to elapsed, and advertisement of the sale,
pay. describing the goods to be sold, and stating the
name of the owner or person on whose account
Sec. 33. Satisfaction of lien by sale. – A the goods are held, and the time and place of
warehouseman's lien for a claim which has the sale, shall be published once a week for two
become due may be satisfied as follows: consecutive weeks in a newspaper published in
the place where such sale is to be held. The
(a) An itemized statement of the sale shall not be held less than fifteen days from
warehouseman's claim, showing the sum due at the time of the first publication. If there is no
the time of the notice and the date or dates newspaper published in such place, the
when it becomes due, advertisement shall be posted at least ten days
before such sale in not less than six
(b) A brief description of the goods against which conspicuous places therein.
the lien exists,
From the proceeds of such sale, the warehouseman may sell the goods at public or
warehouseman shall satisfy his lien including the private sale without advertising. If the
reasonable charges of notice, advertisement and warehouseman, after a reasonable effort, is
sale. The balance, if any, of such proceeds unable to sell such goods, he may dispose of
shall be held by the warehouseman and them in any lawful manner and shall incur no
delivered on demand to the person to whom he liability by reason thereof.
would have been bound to deliver or justified in
delivering goods. The proceeds of any sale made under the terms
of this section shall be disposed of in the same
At any time before the goods are so sold, any way as the proceeds of sales made under the
person claiming a right of property or possession terms of the preceding section.
therein may pay the warehouseman the amount
necessary to satisfy his lien and to pay the Sec. 35. Other methods of enforcing lien. – The
reasonable expenses and liabilities incurred in remedy for enforcing a lien herein provided does
serving notices and advertising and preparing for not preclude any other remedies allowed by law
the sale up to the time of such payment. The for the enforcement of a lien against personal
warehouseman shall deliver the goods to the property nor bar the right to recover so much of
person making payment if he is a person the warehouseman's claim as shall not be paid
entitled, under the provision of this Act, to the by the proceeds of the sale of the property.
possession of the goods on payment of charges
thereon. Otherwise, the warehouseman shall Sec. 36. Effect of sale. – After goods have been
retain the possession of the goods according to lawfully sold to satisfy a warehouseman's lien, or
the terms of the original contract of deposit. have been lawfully sold or disposed of because
of their perishable or hazardous nature, the
Sec. 34. Perishable and hazardous goods. – If warehouseman shall not thereafter be liable for
goods are of a perishable nature, or by keeping failure to deliver the goods to the depositor or
will deteriorate greatly in value, or, by their order, owner of the goods or to a holder of the receipt
leakage, inflammability, or explosive nature, will given for the goods when they were deposited,
be liable to injure other property , the even if such receipt be negotiable.
warehouseman may give such notice to the
owner or to the person in whose names the E. Kinds
goods are stored, as is reasonable and possible a. Negotiable warehouse receipt (Secs. 5-6 &
under the circumstances, to satisfy the lien upon 47)
such goods and to remove them from the
warehouse and in the event of the failure of such Sec. 5. Definition of negotiable receipt. – A
person to satisfy the lien and to receive the receipt in which it is stated that the goods
goods within the time so specified, the received will be delivered to the bearer or to the
order of any person named in such receipt is a that may be invoked against anyone who claims
negotiable receipt. a right of possession thereon. In this case, the
lien was lost when
No provision shall be inserted in a negotiable the respondents refused to deliver the goods,
receipt that it is non-negotiable. Such provision, which were not anchored to a valid excuse (i.e.
if inserted shall be void. non-satisfaction of warehouseman’s lien) but on
an adverse claim of ownership. HOWEVER, the
Sec. 6. Duplicate receipts must be so marked. – loss of Warehouseman’s lien does not
When more than one negotiable receipt is necessarily mean the extinguishment of the
issued for the same goods, the word "duplicate" obligation to pay the Warehouseman’s fees and
shall be plainly placed upon the face of every charges, which continues to be a personal
such receipt, except the first one issued. A liability of the owners, PNB in this case.
warehouseman shall be liable for all damages
caused by his failure so to do to any one who FACTS
purchased the subsequent receipt for value
supposing it to be an original, even though the In accordance with the Warehouse
purchase be after the delivery of the goods by Receipts Law, Noah's Ark Sugar Refinery issued
the warehouseman to the holder of the original on several dates Warehouse Receipts
receipt. (quedans) covering sugar deposited by Rosa Sy,
RNS Merchandising, and St. Therese
b. Non-negotiable warehouse receipt Merchandising. The receipts are substantially in
the form, and contain the terms, prescribed for
Sec. 4. Definition of non-negotiable receipt. – A negotiable warehouse receipts by Section 2 of
receipt in which it is stated that the goods the law.
received will be delivered to the depositor or to Subsequently, Warehouse Receipts
any other specified person, is a non-negotiable were negotiated and endorsed to Luis T. Ramos
receipt. and to Cresencia K. Zoleta. Ramos and Zoleta
then used the quedans as security for two loan
J. Warehouse defenses for non-delivery or agreements — one for P15.6 million and the
misdelivery other for P23.5 million — obtained by them from
a. Legal excuses the PNB. They endorsed the aforementioned
quedans to PNB.
PNB vs. Sayo
G.R. No. 129918; 09 Jul 1998 After the decision in G.R. No. 119231 (PNB v.
Se) became final and executory, various
Principle: The warehouseman is entitled to the incidents took place before the trial court. Noah’s
warehouseman’s lien that attaches to the goods Ark and its officers filed a Motion for Execution
of Defendants’ Lien as Warehouseman pursuant charges have ceased to accrue from the date of
to SC’s decision which was opposed by PNB. the rejection by Noah’s Ark to heed the lawful
The RTC, this time presided Hon. Marcelino L. demand for the release of the goods. While PNB
Sayo Jr., granted the Motion for Execution. PNB is entitled to the stocks of sugar as the endorsee
was immediately served with a Writ of Execution of the quedans, delivery to it shall be effected
for the amount of P662,548,611.50. PNB thus only upon payment of the storage fees.
filed an Urgent Motion seeking the deferment of
the enforcement of the Writ of Execution.
CASES:
Nevertheless, the Sheriff levied on execution
several properties of PNB. The said bank also LIBERATA ANTONIO ESTRADA, CANUTO
CENIZAN, NAZARIO DE LA CRUZ, GENARO
filed a MR with Urgent Prayer for Quashal of
ALVARO, ET AL. v. COURT OF AGRARIAN
Writ of Execution. After several exchanges of RELATIONS and FAUSTINO F. GALVAN G.R.
motions, Judge Sayo denied with finality for lack Nos. L-17481 and L-17537 to L-17559, August
of merit the motions filed by PNB.
15, 1961

PRINCIPLE: The excuses respectively offered by

ISSUE the manager of the Moncada Bonded
Warehouse and respondent Faustino F. Galvan
Whether or not the loss of warehouseman’s lien
are not without some merits. The former
extinguishes the obligation of PNB to pay
storage fees and charges. unquestionably had the right to protect the
interest of the bonded warehouse of which he
RULING was manager, as the warehouse receipts issued
for the palay in question might have been for
No. The warehouseman is entitled to the
the value in favor of innocent third parties; and
warehouseman’s lien that attaches to the goods
the latter (Galvan), might have in fact lost said
that may be invoked against anyone who claims
a right of possession thereon. In this case, the warehouse receipts in the manner above stated,
lien was lost when the respondents refused to for his allegation to the effect in his answer to
deliver the goods, which were not anchored to a petitioners' motion for contempt until now has
valid excuse (i.e. non -satisfaction of not been contradicted.
warehouseman’s lien) but on an adverse claim
of ownership. HOWEVER, the loss of FACTS: It was ordered by the Supreme Court
Warehouseman’s lien does not necessarily that the owner or manager of the Moncada
mean the extinguishment of the obligation to pay
Bonded Warehouse release and give to Liberata
the Warehouseman’s fees and charges, which
Antonio Estrada et al. (Estrada et al.) the
continues to be a personal liability of the owners,
remaining deposits and that Faustino Galvan
PNB in this case. However, such fees and
(Galvan) to surrender the original receipts of
the palay deposits to the manager or owner of excuse to evade compliance with the order of
the Moncada Bonded Warehouse. this Court that the palay in question be
Notwithstanding service of notice and in spite delivered to the petitioners, and, considering
of repeated demands, they refused and still that the petitioners, according to the
refuse to comply, the former, for the reason manifestation filed by their counsel under date
that Liberata Antonio Estrada et al. could not of August 3, 1961, are in dire need of said palay
surrender to him the original of the warehouse for their subsistence, our order must be carried
receipts issued for the palay in question, and out in the meantime that this cases have not
the latter, because he could not locate any been finally decided in order to ameliorate the
more said receipts. Petitioners Estrada Et Al. precarious situation in which said petitioners
filed the petition before the Supreme Court to find themselves.
declare the manager of Moncada Bonded
Warehouse and Respondent Galvan in
ACT No. 3952
contempt of court and punished accordingly.
THE BULK SALES LAW (as amended)
ISSUE: Whether the excuses offered justify their
AN ACT TO REGULATE THE SALE,
refusal to comply with the orders.
TRANSFER, MORTGAGE OR ASSIGNMENT

HELD: NO. The excuses respectively offered by OF GOODS, WARES, MERCHANDISE,

PROVISIONS OR MATERIALS, IN BULK, AND
the manager of the Moncada Bonded
PRESCRIBING PENALTIES FOR THE
Warehouse and respondent Faustino F. Galvan
VIOLATION OF THE PROVISIONS THEREOF
are not without some merits. The former
unquestionably had the right to protect the Section 1. This Act shall be known as "The Bulk
interest of the bonded warehouse of which he Sales Law."

was manager, as the warehouse receipts issued

Sec. 2. Sale and transfer in bulk. — Any sale,
for the palay in question might have been for
transfer, mortgage or assignment of a stock of
the value in favor of innocent third parties; and
goods, wares, merchandise, provisions, or
the latter (Galvan), might have in fact lost said materials otherwise than in the ordinary course
warehouse receipts in the manner above of trade and the regular prosecution of the
stated, for his allegation to the effect in his business of the vendor, mortgagor, transferor, or

answer to petitioners' motion for contempt assignor, or sale, transfer, mortgage or

assignment of all, or substantially all, of the
until now has not been contradicted. Such
business or trade theretofore conducted by the
incidents, however, do not constitute a valid
vendor, mortgagor, transferor, or assignor, or of
all, or substantially all, of the fixtures and PROVINCE OR CITY OF _________________}
equipment used in and about the business of the
vendor, mortgagor, transferor, or assignor, shall Before me, the undersigned authority, personally
be deemed to be a sale and transfer in bulk, in appeared __________________ (vendor,
contemplation of this Act: Provided, however, mortgagor, agent or representative, as the case
That if such vendor, mortgagor, transferor or may be), bearing cedula No. ____________
assignor, produces and delivers a written waiver issued at ___________ on the day of
of the provisions of this Act from his creditors as _____________ who, by me being first duly
shown by verified statements, then, and in that sworn, upon his oath, deposes and states that
case, the provisions of this section shall not the foregoing statement contains the names of
apply. all of the creditors of ________________
(vendor, or mortgagor) together with their
Sec. 3. Statement of creditors. — It shall be the addresses, and that the amount set opposite
duty of every person who shall sell, mortgage, each of said respective names, is the amount
transfer, or assign any stock of goods, wares, now due and owing, and which shall become
merchandise, provisions or materials in bulk, for due and owing by _____________ (vendor or
cash or on credit, before receiving from the mortgagor) to such creditors, and that there are
vendee, mortgagee, or his, or its agent or no creditors holding claims due or which shall
representative any part of the purchase price become due, for or on account of goods, wares,
thereof, or any promissory note, memorandum, merchandise, provisions or materials purchased
or other evidence therefor, to deliver to such upon credit or on account of money borrowed, to
vendee, mortgagee, or agent, or if the vendee, carry on the business of which said goods,
mortgagee, or agent be a corporation, then to wares, merchandise, provisions or materials are
the president, vice-president, treasurer, a part, other than as set forth in said statement.
secretary or manager of said corporation, or, if
such vendee or mortgagee be a partnership firm, ______________________
then to a member thereof, a written statement,
sworn to substantially as hereinafter provided, of Subscribed and sworn to before me this
the names and addresses of all creditors to _______ day of ______, 19___, at ________
whom said vendor or mortgagor may be
indebted, together with the amount of Sec. 4. Fraudulent and void sale, transfer or
indebtedness due or owing, or to become due or mortgage. — Whenever any person shall sell,
owing by said vendor or mortgagor to each of mortgage, transfer, or assign any stock of
said creditors, which statement shall be verified goods, wares, merchandise, provisions or
by an oath to the following effect: materials, in bulk, for cash or on credit, and shall
receive any part of the purchase price, or any
PHILIPPINE ISLANDS promissory note, or other evidence of
indebtedness for said purchase price or advance shall knowingly or willfully make, or deliver or
upon mortgage, without having first delivered to cause to be made or delivered, a statement, as
the vendee or mortgagee or to his or its agent or provided for in section three hereof, which shall
representative, the sworn statement provided for not include the names of all such creditors, with
in section three hereof, and without applying the the correct amount due and to become due to
purchase or mortgage money of the said each of them, or shall contain any false or untrue
property to the pro rata payment of the bona fide statement, shall be deemed to have violated the
claim or claims of the creditors of the vendor or provisions of this Act.
mortgagor, as shown upon such sworn
statement, he shall be deemed to have violated Sec. 7. It shall be unlawful for any person, firm
this Act, and any such sale, transfer or mortgage or corporation, as owner of any stock of goods,
shall be fraudulent and void. wares, merchandise, provisions or materials, in
bulk, to transfer title to the same without
Sec. 5. Inventory. — It shall be the duty of every consideration or for a nominal consideration
vendor, transferor, mortgagor, or assignor, at only.
least ten days before the sale, transfer or
execution of a mortgage upon any stock of Sec. 8. Nothing in this Act contained shall apply
goods, wares, merchandise, provisions or to executors, administrators, receivers,
materials, in bulk, to make a full detailed assignees in insolvency, or public officers, acting
inventory thereof and to preserve the same under judicial process.
showing the quantity and, so far as is possible
with the exercise of reasonable diligence, the Sec. 9. The sworn statement containing the
cost price to the vendor, transferor, mortgagor or names and addresses of all creditors of the
assignor of each article to be included in the vendor or mortgagor provided for in section
sale, transfer or mortgage, and notify every three of this Act, shall be registered in the
creditor whose name and address is set forth in Bureau of Commerce. For the registration of
the verified statement of the vendor, transferor, each such sworn statement a fee of five pesos
mortgagor, or assignor, at least ten days before shall be charged to the vendor or mortgagor of
transferring possession thereof, personally or by the stock of goods, wares, merchandise,
registered mail, of the price, terms conditions of provisions or materials, in bulk.
the sale, transfer, mortgage, or assignment.
Sec. 10. The provisions of this Act shall be
Sec. 6. Any vendor, transferor, mortgagor or administered by the Director of the Bureau of
assignor of any stock of goods, wares, Commerce and Industry, who is hereby
merchandise, provisions or materials, in bulk, or empowered, with the approval of the Department
any person acting for, or on behalf of any such Head, to prescribe and adopt from time to time
vendor, transferor, mortgagor, or assignor, who such rules and regulations as may be deemed
 ./7
necessary for the proper and efficient
enforcement of the provisions of this Act.

Sec. 11. Any person violating any provision of

this Act shall, upon conviction thereof, be
!
punished by imprisonment not less than six
months, nor more than five years, or fined in
1)
sum not exceeding five thousand pesos, or both
such imprisonment and fine, in the discretion of 
#1
the court.

#81
Sec. 12. This Act shall take effect on its
approval.

Approved: 01 December 1972

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6 FACTS:
Accused Tung (Chinese) was the owner

341 of the Kim Tay Seng Foundry Shop in Caloocan,

Rizal, built on the land of Ocampo. Tung owed

/83/ Ocampo over P2,000 for rental of the lands,

which he failed to pay, despite demands.

/ Ocampo threatened to sue Wong, and ordered

the closing of the shop.

/- Lim Guan offered to buy the shop and

Ocampo had his lawyer prepare the deed of

13!
sale, which Wong signed. Ocampo received the
P2,500 from the sale and applied it as payment
for the rentals in arrears.

6# However, Wong was also indebted to

Shurdut Mills Supply Co., Inc., for P1,591.25. A

B1/ complaint was filed to recover that amount, and

judgment was obtained against Wong. When a

87-9 representative of the Company went to the shop

to demand payment, the shop had already been

'+ sold to Lim Guan.

Wong is charged of violating Section 3

,-
of the Bulk Sales Law, declaring that he willfully
and voluntarily sold his shop, and that he
received the purchase price thereof, without

0 delivering to Guan a written

containing the names and addresses of his
statement

3C@ creditors and the amounts of indebtedness due

and owing them, as required by law.

%"2 ? Bulk Sales Law (Act No 3952) Section 3:

@* It shall be the duty of every person who shall

CASES: sell, mortgage, transfer, or assign any stock of
People Vs. Wong Szu Tung goods, wares, merchandise, provisions or
materials in bulk, for cash or on credit, before
SUBJECT: Bulk Sales Law receiving from the vendee, mortgagee, or his, or
its agent or representative any part of the Meaning of ‘merchandise’ according to
purchase price thereof, or any promissory note, a couple of American cases:
memorandum, or other evidence therefore, to Something that is sold everyday, and is
deliver to such vendee, mortgagee, or agent, or constantly going out of the store and being
if the vendee, mortgagee, or agent be a replaced by other goods; must be construed to
corporation, then to the president, vice- mean such things as are usually bought and
president, treasurer, secretary or manager of sold in trade by merchants - Meaning of ‘stock’:
said corporation, or, if such vendee or “The common use of the term ‘stock’ when
mortgagee be a partnership firm, then to a applied to goods in a mercantile house refers to
member thereafter provided, of the names and those which are kept for sale.”
addresses of all creditors to whom said vendor
or mortgagor may be indebted, together with the A “foundry shop”, which does not sell
amount of indebtedness due or owing, or to merchandise, is not included in said law.
become due or owing by said vendor or
mortgagor to each of said creditors, which Disposition
statement shall be verified by an oath to the We are of the opinion that the guilt of the
appellant Wong Szu Tung has not been proven
ISSUE: beyond reasonable doubt; consequently, the
Whether or not Wong violated Section 3 of the judgment appealed from is reversed, and the
Bulk Sales Law when he sold his Shop without said appellant acquitted, with costs de officio.

HELD
No. Wong was pressed to sign the deed Liwanag v. Menghraj, G.R. No. 47588, 20
Jun 1941
of sale by his creditor Ocampo. With threats of
closing the shop and court action for eviction, FACTS:
the accused was practically forced into signing Jose L. Liwanag, plaintiff and appellant

the deed of sale. BUT, even if he hadn’t been in this case, claims from Tolaram Menghraj and

forced to sign the deed, he still would not be others, defendants and appellants, the payment

criminally liable. Act No. 3925 is penal in nature of the sum of P550, with its legal interests from

and should be construed strictly against the April 1936 until its full payment, as the amount of

State. The object of sale was not covered by the the consigned assets in Exhibit A of the claim, in

provision. What was sold was the shop itself, addition to P500 for damages. Once the matter

together with the goodwill, credits, equipments, was ruled by the Manila Court of First Instance,

tools, machineries, which are not the stock of which acquitted the defendant of the claim, the

merchandise, goods, wares, provisions or plaintiff appealed the sentence before the Court

materials in bulk contemplated in the provision. of Appeal, and this certified the matter to this
Superiority, as it arose in the constitutionality of
the Law No. 3952.
 Din has not complied with the conditions
ISSUE: Whether or not the trial court erred in prescribed by the aforementioned Law No. 3952
stating that the pending suit of Tolaram in cases such as this, before proceeding with the
Menghraj against Khaira Din as well as the claim sale of his goods, it is evident that the Exhibit B
of Lim Tek Chuan are claims or credits covered sale contract is null and void. right over the
by Act No. 3952, the Bulk Sales Law. goods, the amount of which is claimed in this
matter.
RULING:
Finally, as regards whether Law No. 3952 is People v. Mapoy,
unconstitutional, the appellant maintains that this G.R. No. 48336, 21 Sep 1942
law violates a person's right to dispose of their
property; restricts without due legal process your VIOLATION OF BULK SALES LAW (Act No.
constitutional right to dispose of your 3952); WHEN PAYMENT OF INDEMNITY TO
property; and that is a class legislation. OFFENDED PARTY DOES NOT LIE,
Defendants were charged with violation of the
The constitutional right to freely dispose of one's Bulk Sales Law in that they mortgaged all of
property is not absolute, as is not, generally, any their stock of goods, etc., without any notice to
right; it recognizes by limits the rights of others Daido Boeki Kaisha, Ltd., one of the offended
and those of the State itself. One and the other parties, to which they were indebted in the sura
demand protection. The creditor must be of P2,568.85. They pleaded guilty and each
protected in his rights against the debtor. What sentenced by the Court of First Instance of
the State, in the exercise of its police powers, Manila to pay a fine of P100, and the costs, and
has proposed through the legislative power, with to indemnify Daido Boeki Kaisha, Ltd., jointly
Law No. 3952, was not to deny citizens the and severally in the sum of P2,568.85, with
exercise of their rights recognized by the subsidiary imprisonment in case of insolvency.
Constitution, but rather, under certain Held: That it was error for the (rial court to
circumstances , that is, when in a case like this, consider said indebtedness as a liability arising
there are created rights that may be affected by from the crime charged, and to order defendants
the exercise of other rights, such exercise is to indemnify Daido Boeki Kaisha, Ltd., in the
done under certain conditions with the sole sum of P2,568.85, with subsidiary imprisonment
purpose of protecting and protecting the rights of in case of insolvency.
others.

ID.; ID.; ID. Inasmuch as under section 4 of the

However; proven that Khaira Din owed Lim Tek Bulk Sales Law, the mortgage in question was
Chuan, the plaintiff Liwanag himself, and the fraudulent and void, and there being no proof
defendant, at the time of the sale of his (Din's) that (he mortgaged goods have disappeared, the
assets to Liwanag; and it has been proven that same are still subject to attachment for the
satisfaction of creditors' lawful claims against the Sandra Maruzzo, through her guardian
defendants. Daido Boeki Kaisha, Ltd., may still (ad litem) Alfredo Ong, filed with the Regional
bring a separate civil action against defendants Trial Court of Makati, Metro Manila an action
herein for the collection of any indebtedness that against petitioners, for the recovery of
may be due from defendants, and if the latter will ownership/possession and nullification of the
not pay the judgment in such civil case, the Deed of Donation over the portion belonging to
goods involved in the instant case may be her and for Accounting.
seized and sold. Therefore, the obligation of Petitioners claimed that the Quitclaim
defendants to pay Daido Boeki Kaisha, Ltd., the Deed is null and void inasmuch as it is
sum of P2,568.85, which was already existing equivalent to a Deed of Donation, acceptance of
when the mortgage was signed, was not the which by the donee is necessary to give it
result of the violation of the Bulk Sales Law, nor validity. Further, it is averred that the donee,
was it affected by said violation. Sandra Maruzzo, being a minor, had no legal
personality and therefore incapable of accepting
IMELDA ONG, ET AL., petitioners, the donation.
vs. The trial court rendered judgment in
ALFREDO ONG, ET AL., respondents. favor of respondent Maruzzo and held that the
G.R. No. L-67888 October 8, 1985 Quitclaim Deed is equivalent to a Deed of Sale
and, hence, there was a valid conveyance in
Facts: favor of the latter.
Petitioners appealed to the respondent
On February 25, 1976 Imelda Ong, for Intermediate Appellate Court. They reiterated
and in consideration of One (P1.00) Peso and their argument below and, in addition, contended
other valuable considerations, executed in favor that the One (P1.00) Peso consideration is not a
of private respondent Sandra Maruzzo, then a consideration at all to sustain the ruling that the
minor, a Quitclaim Deed whereby she Deed of Quitclaim is equivalent to a sale.
transferred, released, assigned and forever quit- Respondent Intermediate Appellate
claimed to Sandra Maruzzo, her heirs and Court promulgated its Decision affirming the
assigns, all her rights, title, interest and appealed judgment and held that the Quitclaim
participation in the ONE-HALF (½) undivided Deed is a conveyance of property with a valid
portion of the parcel of land. cause or consideration; that the consideration is
On November 19, 1980, Imelda Ong the One (P1.00) Peso which is clearly stated in
revoked the aforesaid Deed of Quitclaim and, the deed itself; that the apparent inadequacy is
thereafter, on January 20, 1982 donated the of no moment since it is the usual practice in
whole property described above to her son, Rex deeds of conveyance to place a nominal amount
Ong-Jimenez. although there is a more valuable consideration
given.
 formal acceptance is not important for the donor
Issue: Whether a Quitclaim Deed is equivalent requires no right to be protected and the donee
to a Deed of Sale neither undertakes to do anything nor assumes
any obligation. The Quitclaim now in question
Held: does not impose any condition.
A careful perusal of the subject deed
reveals that the conveyance of the one- half (½) Bad faith and inadequacy of the monetary
undivided portion of the above-described consideration do not render a conveyance
property was for and in consideration of the One inexistent, for the assignor’s liberality may be
(P 1.00) Peso and the other valuable sufficient cause for a valid contract (Article 1350,
considerations (emphasis supplied) paid by Civil Code), whereas fraud or bad faith may
private respondent Sandra Maruzzo through her render either rescissible or voidable, although
representative, Alfredo Ong, to petitioner Imelda valid until annulled, a contract concerning an
Ong. Stated differently, the cause or object certain entered into with a cause and with
consideration is not the One (P1.00) Peso alone the consent of the contracting parties, as in the
but also the other valuable considerations. case at bar.”

The execution of a deed purporting to convey WHEREFORE. the appealed decision of the
ownership of a realty is in itself prima facie Intermediate Appellate Court should be, as it is
evidence of the existence of a valuable hereby AFFIRMED, with costs against herein
consideration, the party alleging lack of petitioners.
consideration has the burden of proving such
allegation.

The New Central Bank Act

Even granting that the Quitclaim deed in (R.A. No. 7653, as amended)
question is a donation, Article 741 of the Civil
A. State policy (Sec. 1)
Code provides that the requirement of the
acceptance of the donation in favor of minor by Section 1. Declaration of Policy. - The State
parents of legal representatives applies only to shall maintain a central monetary authority
onerous and conditional donations where the
that shall function and operate as an
donation may have to assume certain charges or
independent and accountable body
burdens (Article 726, Civil Code).
corporate in the discharge of its mandated
responsibilities concerning money, banking
The donation to an incapacitated donee does
not need the acceptance by the lawful and credit. In line with this policy, and

representative if said donation does not contain considering its unique functions and
any condition. In simple and pure donation, the responsibilities, the central monetary
authority established under this Act, while offender from holding office or from being employed
being a government-owned corporation, with the CB, or placing the names of the offenders in

shall enjoy fiscal and administrative a watchlist.

autonomy.
FACTS

B. Creation of the Bangko Sentral ng The 16th regular examination of the

Pilipinas (BSP) (Sec. 2) books and records of PAL Employees Savings and
Section 2. Creation of the Bangko Sentral. - Loan Association (PESALA) was conducted by a
There is hereby established an independent
team of CB Examiners.
central monetary authority, which shall be a
body corporate known as the Bangko Several irregularities were found to have
Sentral ng Pilipinas, hereafter referred to as been committed by the PESALA officers. Hence, CB
the Bangko Sentral. sent a letter to petitioners for them to be present
The capital of the Bangko Sentral at a meeting specifically for the purpose of
shall be Fifty billion pesos investigating said anomalies. Petitioners did not
(P50,000,000,000), to be fully subscribed by
respond. Hence, the Monetary Board adopted a
the Government of the Republic, hereafter
referred to as the Government, Ten billion resolution including the names of the officers of
pesos (P10,000,000,000) of which shall be PESALA in the watchlist to prevent them from
fully paid for by the Government upon the holding responsible positions in any institution
effectivity of this Act and the balance to be under CB supervision.
paid for within a period of two (2) years from
Petitioners filed a petition for injunction
the effectivity of this Act in such manner and
form as the Government, through the against the MB in order to prevent their names
Secretary of Finance and the Secretary of from being added in the said watchlist. RTC issued
Budget and Management, may thereafter the TRO. The MB appealed to the CA which
determine.
reversed RTC.
Hence, this petition for certiorari with the
Busuego v. Court of Appeals,
G.R. No. L-48955, 30 Jun 1987 SC. Petitioners contend that the MB resolution was
null and void for being violative of their right to
Principle: The CB, through the MB, is the
due process by imposing administrative sanctions
government agency charged with the responsibility of
where the MB is not vested with authority to
administering the monetary, banking and credit
disqualify persons from occupying positions in
system of the country and is granted the power of
institutions under the supervision of CB.
supervision and examination over banks and non-
bank financial institutions performing quasi-banking ISSUE:
functions of which savings and loan associations, Whether or not the MB resolution was null and void
such as PESALA, form part of. If any irregularity is
discovered in the process, the MB may impose C. Responsibility and primary objective
appropriate sanctions, such as suspending the (Sec. 3)
Section 3. Responsibility and Primary
Objective. - The Bangko Sentral shall (b) a member of the Cabinet to be designated by

provide policy directions in the areas of the President of the Philippines. Whenever the
designated Cabinet Member is unable to attend
money, banking, and credit. It shall have
a meeting of the Board, he shall designate an
supervision over the operations of banks
Undersecretary in his Department to attend as
and exercise such regulatory powers as
his alternate; and
provided in this Act and other pertinent laws
over the operations of finance companies (c) five (5) members who shall come from the
and non-bank financial institutions private sector, all of whom shall serve full-time:
performing quasi-banking functions, Provided, however, That of the members first
hereafter referred to as quasi-banks, and appointed under the provisions of this
institutions performing similar functions. subsection, three (3) shall have a term of six (6)
years, and the other two (2), three (3) years.
D. Monetary board (MB); its powers and
functions (Secs. 6-16) No member of the Monetary Board may
Section 6. Composition of the Monetary Board. - be reappointed more than once.
The powers and functions of the Bangko Sentral
shall be exercised by the Bangko Sentral Section 7. Vacancies. - Any vacancy in the
Monetary Board, hereafter referred to as the Monetary Board created by the death,
Monetary Board, composed of seven (7) resignation, or removal of any member shall be
members appointed by the President of the filled by the appointment of a new member to
Philippines for a term of six (6) years. complete the unexpired period of the term of the
member concerned.
The seven (7) members are:
Section 8. Qualifications. - The members of the
(a) the Governor of the Bangko Sentral, who Monetary Board must be natural-born citizens of
shall be the Chairman of the Monetary Board. the Philippines, at least thirty-five (35) years of
The Governor of the Bangko Sentral shall be age, with the exception of the Governor who
head of a department and his appointment shall should at least be forty (40) years of age, of
be subject to confirmation by the Commission on good moral character, of unquestionable
Appointments. Whenever the Governor is unable integrity, of known probity and patriotism, and
to attend a meeting of the Board, he shall with recognized competence in social and
designate a Deputy Governor to act as his economic disciplines.
alternate: Provided, That in such event, the
Monetary Board shall designate one of its Section 9. Disqualifications. - In addition to the
members as acting Chairman; disqualifications imposed by Republic Act No.
6713, a member of the Monetary Board is
disqualified from being a director, officer, (c) If the member is guilty of acts or operations
employee, consultant, lawyer, agent or which are of fraudulent or illegal character or
stockholder of any bank, quasi-bank or any other which are manifestly opposed to the aims and
institution which is subject to supervision or interests of the Bangko Sentral; or
examination by the Bangko Sentral, in which
case such member shall resign from, and divest (d) If the member no longer possesses the
himself of any and all interests in such institution qualifications specified in Section 8 of this Act.
before assumption of office as member of the
Monetary Board. Section 11. Meetings. - The Monetary Board
The members of the Monetary Board shall meet at least once a week. The Board may
coming from the private sector shall not hold any be called to a meeting by the Governor of the
other public office or public employment during Bangko Sentral or by two (2) other members of
their tenure. the Board.
No person shall be a member of the
Monetary Board if he has been connected The presence of four (4) members shall
directly with any multilateral banking or financial constitute a quorum: Provided, That in all cases
institution or has a substantial interest in any the Governor or his duly designated alternate
private bank in the Philippines, within one (1) shall be among the four (4).
year prior to his appointment; likewise, no
member of the Monetary Board shall be Unless otherwise provided in this Act, all
employed in any such institution within two (2) decisions of the Monetary Board shall require
years after the expiration of his term except the concurrence of at least four (4) members.
when he serves as an official representative of
the Philippine Government to such institution. The Bangko Sentral shall maintain and
preserve a complete record of the proceedings
Section 10. Removal. - The President may and deliberations of the Monetary Board,
remove any member of the Monetary Board for including the tapes and transcripts of the
any of the following reasons: stenographic notes, either in their original form
or in microfilm.
(a) If the member is subsequently disqualified
under the provisions of Section 8 of this Act; or Section 12. Attendance of the Deputy
Governors. - The Deputy Governors may attend
(b) If he is physically or mentally incapacitated the meetings of the Monetary Board with the
that he cannot properly discharge his duties and right to be heard.
responsibilities and such incapacity has lasted
for more than six (6) months; or
Section 13. Salary. - The salary of the Governor the Bangko Sentral shall be under the exclusive
and the members of the Monetary Board from supervision and control of the Monetary Board;
the private sector shall be fixed by the President
of the Philippines at a sum commensurate to the (c) establish a human resource management
importance and responsibility attached to the system which shall govern the selection, hiring,
position. appointment, transfer, promotion, or dismissal of
all personnel. Such system shall aim to establish
Section 14. Withdrawal of Persons Having a professionalism and excellence at all levels of
Personal Interest. - In addition to the the Bangko Sentral in accordance with sound
requirements of Republic Act No. 6713, any principles of management.
member of the Monetary Board with personal or
pecuniary interest in any matter in the agenda of A compensation structure, based on job
the Monetary Board shall disclose his interest to evaluation studies and wage surveys and
the Board and shall retire from the meeting when subject to the Board's approval, shall be
the matter is taken up. The decision taken on the instituted as an integral component of the
matter shall be made public. The minutes shall Bangko Sentral's human resource development
reflect the disclosure made and the retirement of program: Provided, That the Monetary Board
the member concerned from the meeting. shall make its own system conform as closely as
possible with the principles provided for under
Section 15. Exercise of Authority. - In the Republic Act No. 6758: Provided, however, That
exercise of its authority, the Monetary Board compensation and wage structure of employees
shall: whose positions fall under salary grade 19 and
below shall be in accordance with the rates
(a) issue rules and regulations it considers prescribed under Republic Act No. 6758.
necessary for the effective discharge of the
responsibilities and exercise of the powers On the recommendation of the Governor,
vested upon the Monetary Board and the appoint, fix the remunerations and other
Bangko Sentral. The rules and regulations emoluments, and remove personnel of the
issued shall be reported to the President and the Bangko Sentral, subject to pertinent civil service
Congress within fifteen (15) days from the date laws: Provided, That the Monetary Board shall
of their issuance; have exclusive and final authority to promote,
transfer, assign, or reassign personnel of the
(b) direct the management, operations, and Bangko Sentral and these personnel actions are
administration of the Bangko Sentral, reorganize deemed made in the interest of the service and
its personnel, and issue such rules and not disciplinary: Provided, further, That the
regulations as it may deem necessary or Monetary Board may delegate such authority to
convenient for this purpose. The legal units of
the Governor under such guidelines as it may the Monetary Board that he is not entitled to be
determine. indemnified as provided in this subsection.

(d) adopt an annual budget for and authorize Section 16. Responsibility. - Members of the
such expenditures by the Bangko Sentral as are Monetary Board, officials, examiners, and
in the interest of the effective administration and employees of the Bangko Sentral who willfully
operations of the Bangko Sentral in accordance violate this Act or who are guilty of negligence,
with applicable laws and regulations; and abuses or acts of malfeasance or misfeasance
or fail to exercise extraordinary diligence in the
(e) indemnify its members and other officials of performance of his duties shall be held liable for
the Bangko Sentral, including personnel of the any loss or injury suffered by the Bangko Sentral
departments performing supervision and or other banking institutions as a result of such
examination functions against all costs and violation, negligence, abuse, malfeasance,
expenses reasonably incurred by such persons misfeasance or failure to exercise extraordinary
in connection with any civil or criminal action, diligence.
suit or proceedings to which he may be, or is,
made a party by reason of the performance of Similar responsibility shall apply to
his functions or duties, unless he is finally members, officers, and employees of the
adjudged in such action or proceeding to be Bangko Sentral for: (1) the disclosure of any
liable for negligence or misconduct. information of a confidential nature, or any
information on the discussions or resolutions of
In the event of a settlement or the Monetary Board, or about the confidential
compromise, indemnification shall be provided operations of the Bangko Sentral, unless the
only in connection with such matters covered by disclosure is in connection with the performance
the settlement as to which the Bangko Sentral is of official functions with the Bangko Sentral, or is
advised by external counsel that the person to with prior authorization of the Monetary Board or
be indemnified did not commit any negligence or the Governor; or (2) the use of such information
misconduct. for personal gain or to the detriment of the
Government, the Bangko Sentral or third parties:
The costs and expenses incurred in Provided, however, That any data or information
defending the aforementioned action, suit or required to be submitted to the President and/or
proceeding may be paid by the Bangko Sentral the Congress, or to be published under the
in advance of the final disposition of such action, provisions of this Act shall not be considered
suit or proceeding upon receipt of an confidential.
undertaking by or on behalf of the member,
officer, or employee to repay the amount E. How the BSP handles banks in
distress (The New Central Bank Act)
advanced should it ultimately be determined by
a. Conservatorship (Secs. 29 & 30; Sec. the conservatorship is terminated on other
67, R.A. No. 8791) grounds, the conservator shall not be entitled to
such remaining balance. The Monetary Board
Section 29. Appointment of Conservator. -
may appoint a conservator connected with the
Whenever, on the basis of a report submitted by
Bangko Sentral, in which case he shall not be
the appropriate supervising or examining
entitled to receive any remuneration or
department, the Monetary Board finds that a
emolument from the Bangko Sentral during the
bank or a quasi-bank is in a state of continuing
conservatorship. The expenses attendant to the
inability or unwillingness to maintain a condition
conservatorship shall be borne by the bank or
of liquidity deemed adequate to protect the
quasi-bank concerned
interest of depositors and creditors, the
The Monetary Board shall terminate the
Monetary Board may appoint a conservator with
conservatorship when it is satisfied that the
such powers as the Monetary Board shall deem
institution can continue to operate on its own
necessary to take charge of the assets,
and the conservatorship is no longer necessary.
liabilities, and the management thereof,
The conservatorship shall likewise be terminated
reorganize the management, collect all monies
should the Monetary Board, on the basis of the
and debts due said institution, and exercise all
report of the conservator or of its own findings,
powers necessary to restore its viability. The
determine that the continuance in business of
conservator shall report and be responsible to
the institution would involve probable loss to its
the Monetary Board and shall have the power to
depositors or creditors, in which case the
overrule or revoke the actions of the
provisions of Section 30 shall apply.
previous management and board of directors
of the bank or quasi-bank.
Section 30. Proceedings in Receivership and
The conservator should be competent
Liquidation. - Whenever, upon report of the head
and knowledgeable in bank operations and
of the supervising or examining department, the
management. The conservatorship shall not
Monetary Board finds that a bank or quasi-bank:
exceed one (1) year.
The conservator shall receive
(a) is unable to pay its liabilities as they become
remuneration to be fixed by the Monetary Board
due in the ordinary course of business:
in an amount not to exceed two-thirds (2/3) of
Provided, That this shall not include inability to
the salary of the president of the institution in
pay caused by extraordinary demands induced
one (1) year, payable in twelve (12) equal
by financial panic in the banking community;
monthly payments: Provided, That, if at any time
within one-year period, the conservatorship is
(b) has insufficient realizable assets, as
terminated on the ground that the institution can
determined by the Bangko Sentral, to meet its
operate on its own, the conservator shall receive
liabilities; or
the balance of the remuneration which he would
have received up to the end of the year; but if
(c) cannot continue in business without involving If the receiver determines that the
probable losses to its depositors or creditors; or institution cannot be rehabilitated or permitted to
resume business in accordance with the next
(d) has willfully violated a cease and desist order preceding paragraph, the Monetary Board shall
under Section 37 that has become final, notify in writing the board of directors of its
involving acts or transactions which amount to findings and direct the receiver to proceed with
fraud or a dissipation of the assets of the the liquidation of the institution. The receiver
institution; in which cases, the Monetary Board shall:
may summarily and without need for prior
hearing forbid the institution from doing business (1) file ex parte with the proper regional trial
in the Philippines and designate the Philippine court, and without requirement of prior notice or
Deposit Insurance Corporation as receiver of the any other action, a petition for assistance in the
banking institution. liquidation of the institution pursuant to a
For a quasi-bank, any person of liquidation plan adopted by the Philippine
recognized competence in banking or finance Deposit Insurance Corporation for general
may be designed as receiver. application to all closed banks. In case of quasi-
The receiver shall immediately gather banks, the liquidation plan shall be adopted by
and take charge of all the assets and liabilities of the Monetary Board. Upon acquiring jurisdiction,
the institution, administer the same for the the court shall, upon motion by the receiver after
benefit of its creditors, and exercise the general due notice, adjudicate disputed claims against
powers of a receiver under the Revised Rules of the institution, assist the enforcement of
Court but shall not, with the exception of individual liabilities of the stockholders, directors
administrative expenditures, pay or commit any and officers, and decide on other issues as may
act that will involve the transfer or disposition of be material to implement the liquidation plan
any asset of the institution: Provided, That the adopted. The receiver shall pay the cost of the
receiver may deposit or place the funds of the proceedings from the assets of the institution.
institution in non-speculative investments. The
receiver shall determine as soon as possible, but (2) convert the assets of the institutions to
not later than ninety (90) days from takeover, money, dispose of the same to creditors and
whether the institution may be rehabilitated or other parties, for the purpose of paying the debts
otherwise placed in such a condition so that it of such institution in accordance with the rules
may be permitted to resume business with on concurrence and preference of credit under
safety to its depositors and creditors and the the Civil Code of the Philippines and he may, in
general public: Provided, That any determination the name of the institution, and with the
for the resumption of business of the institution assistance of counsel as he may retain, institute
shall be subject to prior approval of the Monetary such actions as may be necessary to collect and
Board. recover accounts and assets of, or defend any
action against, the institution. The assets of an
First Philippine International Bank vs.
institution under receivership or liquidation shall
Court of Appeals
be deemed in custodia legis in the hands of the
G.R. No. 115849, January 24, 1996
receiver and shall, from the moment the
institution was placed under such receivership or
PRINCIPLE:
liquidation, be exempt from any order of While admittedly, the Central Bank law gives
garnishment, levy, attachment, or execution. vast and far-reaching powers to the conservator
of a bank, it must be pointed out that such
The actions of the Monetary Board taken powers must be related to the "(preservation of)
under this section or under Section 29 of this Act the assets of the bank, (the reorganization of)
shall be final and executory, and may not be the management thereof and (the restoration of)
restrained or set aside by the court except on its viability." Such powers, enormous and
petition for certiorari on the ground that the extensive as they are, cannot extend to the post-
action taken was in excess of jurisdiction or with facto repudiation of perfected transactions,
such grave abuse of discretion as to amount to otherwise they would infringe against the non-
lack or excess of jurisdiction. The petition for impairment clause of the Constitution.
certiorari may only be filed by the stockholders In the case, it is not disputed that the bank
of record representing the majority of the capital was under a conservator placed by the Central
stock within ten (10) days from receipt by the Bank of the Philippines during the time that the
board of directors of the institution of the order negotiation and perfection of the contract of sale
directing receivership, liquidation or took place. Moreover, there was absolutely no
conservatorship. evidence that the Conservator, at the time the
The designation of a conservator under contract was perfected, actually repudiated or
Section 29 of this Act or the appointment of a overruled said contract of sale. The bank never
receiver under this section shall be vested objected to the sale, what it unilaterally
exclusively with the Monetary Board. repudiated was—not the contract —but the
Furthermore, the designation of a conservator is authority of Rivera to make a binding offer —and
not a precondition to the designation of a which unarguably came months after the
receiver. perfection of the contract.

See – Sec. 36 of The New Central Bank Act (RA FACTS:

7653) Producer Bank of the Philippines
acquired six parcels of land located at Laguna.
i. Grounds The property used to be owned by BYME
Investment and Development Corporation which
ii. Appointment of conservator had them mortgaged with the bank as collateral
for a loan. The original plaintiffs, Demetrio
iii. Powers of conservator
Demetria and Jose O. Janolo, wanted to had with the bank resulted in a perfected
purchase the property and thus initiated contract of sale, The defendants took the
negotiations for that purpose. Plaintiffs, met with position that there was no such perfected sale
defendant Mercurio Rivera, Manager of the because the defendant Rivera is not authorized
Property Management Department of the to sell the property, and that there was no
defendant bank. After the meeting, plaintiff meeting of the minds as to the price.
Janolo made a formal purchase offer to the bank
in the amount of 3.5M but counter offered by ISSUE:
Rivera (Bank) with 5.5M. Janolo revised there Whether or not the bank conservator has the
offer to 4.25M. unilateral power to repudiate the authority of the
but received no response but Luis co and Rivera bank officers and/or to revoke the said contract
had a meeting and in the end the offer of Mr.
Rivera was accepted. RULING:
The conservator of the bank was Section 28-A - Whenever, on the basis of a
replaced by an Acting Conservator in the person report submitted by the appropriate supervising
of defendant Leonida T. Encarnacion whereby or examining department, the Monetary Board
they stated that Rivera’s proposal was under finds that a bank or a non-bank financial
study yet as of this time by the newly created intermediary performing quasi-banking functions
committee for submission to the newly is in a state of continuing inability or
designated Acting Conservator of the bank. unwillingness to maintain a state of liquidity
Thereafter transpired was a series of demands deemed adequate to protect the interest of
by the plaintiffs for compliance by the bank with depositors and creditors, the Monetary Board
what plaintiff considered as a perfected contract may appoint a conservator to take charge of the
of sale, which demands were in one form or assets, liabilities, and the management of that
another refused by the bank. institution, collect all monies and debts due said
In a reply letter dated May 12, 1988 institution and exercise all powers necessary to
(Annex "4" of defendant's answer to amended preserve the assets of the institution, reorganize
complaint), the defendants through Acting the management thereof, and restore its viability.
Conservator Encarnacion repudiated the He shall have the power to overrule or revoke
authority of defendant Rivera and claimed that the actions of the previous management and
his dealings with the plaintiffs, particularly his board of directors of the bank or non-bank
counter-offer of P5.5 Million are unauthorized or financial intermediary performing quasi-banking
illegal. functions, any provision of law to the contrary
Plaintiffs filed a suit for specific notwithstanding, and such other powers as the
performance with damages against the bank’s Monetary Board shall deem necessary.
Acting Conservator Encarnacion. The basis of While admittedly, the Central Bank law
the suit was the argument that the transaction gives vast and far-reaching powers to the
conservator of a bank, it must be pointed out iv. Qualifications and remuneration
that such powers must be related to the v. Termination of conservatorship
"(preservation of) the assets of the bank, (the The Monetary Board shall terminate the
reorganization of) the management thereof and conservatorship (1) when it is satisfied that the
(the restoration of) its viability." institution can continue to operate on its own
Such powers, enormous and extensive and the conservatorship is no longer necessary.
as they are, cannot extend to the post-facto The conservatorship shall likewise be terminated
repudiation of perfected transactions, otherwise should the Monetary Board, on the basis of the
they would infringe against the non-impairment report of the conservator or of its own findings,
clause of the Constitution. determine that the (2) continuance in business of
Section 28-A merely gives the the institution would involve probable loss to its
conservator power to revoke contracts that are, depositors or creditors, in which case the
under existing law, deemed to be defective. provisions of Section 30 shall apply.
Hence, the conservator merely takes the place
of a bank's board of directors, so what the board vi. Effect
cannot do; the conservator cannot do either. His
power is however, not unilateral as he cannot Producers Bank of the Phils. v. National
simply repudiate valid obligations of the Bank. Labor Relations Commission, G.R. No.
His authority would be only to bring court actions 100701, 28 Mar 2001
to assail such contracts.
In the case, it is not disputed that the FACTS:
Private respondent filed a
bank was under a conservator placed by the
complaint against petitioner charging the
Central Bank of the Philippines during the time
companywith diminution of benefits, non-
that the negotiation and perfection of the
compliance with Wage Order No. 6 and
contract of sale took place. Moreover, there was
non-payment of holiday pay. They contended
absolutely no evidence that the Conservator, at
that the decrease in the mid-year andyear-end
the time the contract was perfected, actually
bonuses constituted a diminution of the
repudiated or overruled said contract of sale.
employees’ salaries.
The bank never objected to the sale, what it
unilaterally repudiated was—not the contract —
HELD:
but the authority of Rivera to make a binding On the other hand, petitioner asserts
offer —and which unarguably came months after that it cannot be compelled to pay the alleged
the perfection of the contract The conservator’s bonus differentials due to its depressed financial
authority would be only to bring court actions to condition, as evidenced by the fact that in 1984 it
assail such contracts —as he has already done was placed under conservatorship by the
so in the instant case. Monetary Board. According to petitioner, it
sustained losses in the millions of pesos from of the financially precarious bank. Ultimately, it is
1984 to 1988. to the employees advantage that the
Under Section 28-A, the Monetary conservatorship achieve its purposes for the
Board may place a bank under the control of a alternative would be petitioners closure whereby
conservator when it finds that the bank is employees would lose not only their benefits, but
continuously unable or unwilling to maintain a their jobs as well.
condition of solvency or liquidity. In Central Bank
of the Philippines v. Court of Appeals, the Court vii. Judicial review
declared that the order placing petitioner herein
under conservatorship had long become final b. Voluntary liquidation (Sec. 68, R.A. No.
and its validity could no longer be litigated upon. 8791)
Also, in the same case, the Court found that Section 68. Voluntary Liquidation. - In case of
sometime in August, 1983, some news items voluntary liquidation of any bank organized
triggered a bank-run in petitioner which resulted under the laws of the Philippines, or of any
in continuous over-drawings on petitioners branch or office in the Philippines of a foreign
demand deposit account with the Central Bank; bank, written notice of such liquidation shall be
the over-drawings reached P143.955 million by sent to the Monetary Board before such
17 January 1984; and as of 13 February 1990, liquidation is undertaken, and the Monetary
petitioner had over-drawings of up to P1.233 Board shall have the right to intervene and take
billion, which evidences petitioners continuing such steps as may be necessary to protect the
inability to maintain a condition of solvency and interests of creditors.
liquidity, thus justifying the conservatorship. Our
findings in the Central Bank case coincide with c. Receivership and involuntary liquidation
petitioners claims that it continuously suffered (Sec. 30; Sec. 69, R.A. No. 8791)
losses from 1984 to 1988.
Petitioner was not only experiencing a Section 30. Proceedings in Receivership and
decline in its profits, but was reeling from Liquidation. - Whenever, upon report of the head
tremendous losses triggered by a bank-run of the supervising or examining department, the
which began in 1983. In such a depressed Monetary Board finds that a bank or quasi-bank:
financial condition, petitioner cannot be legally
compelled to continue paying the same amount (a) is unable to pay its liabilities as they become
of bonuses to its employees. Thus, the due in the ordinary course of business:
conservator was justified in reducing the mid- Provided, That this shall not include inability to
year and Christmas bonuses of petitioners pay caused by extraordinary demands induced
employees. To hold otherwise would be to by financial panic in the banking community;
defeat the reason for the conservatorship which
is to preserve the assets and restore the viability
(b) has insufficient realizable assets, as may be permitted to resume business with
determined by the Bangko Sentral, to meet its safety to its depositors and creditors and the
liabilities; or general public: Provided, That any determination
for the resumption of business of the institution
(c) cannot continue in business without involving shall be subject to prior approval of the Monetary
probable losses to its depositors or creditors; or Board.

(d) has willfully violated a cease and desist order If the receiver determines that the
under Section 37 that has become final, institution cannot be rehabilitated or permitted to
involving acts or transactions which amount to resume business in accordance with the next
fraud or a dissipation of the assets of the preceding paragraph, the Monetary Board shall
institution; in which cases, the Monetary Board notify in writing the board of directors of its
may summarily and without need for prior findings and direct the receiver to proceed with
hearing forbid the institution from doing business the liquidation of the institution. The receiver
in the Philippines and designate the Philippine shall:
Deposit Insurance Corporation as receiver of the
banking institution. (1) file ex parte with the proper regional trial
court, and without requirement of prior notice or
For a quasi-bank, any person of any other action, a petition for assistance in the
recognized competence in banking or liquidation of the institution pursuant to a
finance may be designated as receiver. liquidation plan adopted by the Philippine
Deposit Insurance Corporation for general
The receiver shall immediately gather application to all closed banks. In case of quasi-
and take charge of all the assets and liabilities of banks, the liquidation plan shall be adopted by
the institution, administer the same for the the Monetary Board. Upon acquiring jurisdiction,
benefit of its creditors, and exercise the general the court shall, upon motion by the receiver after
powers of a receiver under the Revised Rules of due notice, adjudicate disputed claims against
Court but shall not, with the exception of the institution, assist the enforcement of
administrative expenditures, pay or commit any individual liabilities of the stockholders, directors
act that will involve the transfer or disposition of and officers, and decide on other issues as may
any asset of the institution: Provided, That the be material to implement the liquidation plan
receiver may deposit or place the funds of the adopted. The receiver shall pay the cost of the
institution in non-speculative investments. The proceedings from the assets of the institution.
receiver shall determine as soon as possible, but
not later than ninety (90) days from take over, (2) convert the assets of the institutions to
whether the institution may be rehabilitated or money, dispose of the same to creditors and
otherwise placed in such a condition so that it other parties, for the purpose of paying the debts
of such institution in accordance with the rules
on concurrence and preference of credit under Section 69. Receivership and Involuntary
the Civil Code of the Philippines and he may, in Liquidation. - The grounds and procedures for
the name of the institution, and with the placing a bank under receivership or liquidation,
assistance of counsel as he may retain, institute as well as the powers and duties of the receiver
such actions as may be necessary to collect and or liquidator appointed for the bank shall be
recover accounts and assets of, or defend any governed by the provisions of Sections 30, 31,
action against, the institution. The assets of an 32, and 33 of the New Central Bank Act:
institution under receivership or liquidation shall Provided, That the petitioner or plaintiff files with
be deemed in custodia legis in the hands of the the clerk or judge of the court in which the action
receiver and shall, from the moment the is pending a bond, executed in favor of the
institution was placed under such receivership or Bangko Sentral, in an amount to be fixed by the
liquidation, be exempt from any order of court. This Section shall also apply to the extent
garnishment, levy, attachment, or execution. possible to the receivership and liquidation
proceedings of quasi-banks
The actions of the Monetary Board taken
under this section or under Section 29 of this Act i. Governing law
shall be final and executory, and may not be
restrained or set aside by the court except on In Re: Petition for Assistance in the
petition for certiorari on the ground that the Liquidation of the Rural Bank of Bokod
action taken was in excess of jurisdiction or with (Benguet), Inc.
such grave abuse of discretion as to amount to G.R. No. 158261, 18 Dec 2006
lack or excess of jurisdiction. The petition for
certiorari may only be filed by the stockholders ii. Grounds (Secs. 30 & 36 of RA 7653; Sec. 53,
of record representing the majority of the capital R.A. No. 8791)
stock within ten (10) days from receipt by the
board of directors of the institution of the order See – Sec. 30
directing receivership, liquidation or
conservatorship. Section 36. Proceedings Upon Violation of This
Act and Other Banking Laws, Rules,
The designation of a conservator under Regulations, Orders or Instructions. - Whenever
Section 29 of this Act or the appointment of a a bank or quasi-bank, or whenever any person
receiver under this section shall be vested or entity willfully violates this Act or other
exclusively with the Monetary Board. pertinent banking laws being enforced or
Furthermore, the designation of a conservator is implemented by the Bangko Sentral or any
not a precondition to the designation of a order, instruction, rule or regulation issued by
receiver. the Monetary Board, the person or persons
responsible for such violation shall unless
otherwise provided in this Act be punished by a management/advisory/consultancy accounts;
fine of not less than Fifty thousand pesos and
(P50,000) nor more than Two hundred thousand
pesos (P200,000) or by imprisonment of not less 53.5. Rent out safety deposit boxes.
than two (2) years nor more than ten (10) years,
or both, at the discretion of the court. The bank shall perform the services permitted
under Subsections 53.1, 53.2,53.3 and 53.4 as
Whenever a bank or quasi-bank persists depositary or as an agent. Accordingly, it shall
in carrying on its business in an unlawful or keep the funds, securities and other effects
unsafe manner, the Board may, without which it receives duly separate from the bank's
prejudice to the penalties provided in the own assets and liabilities: The Monetary Board
preceding paragraph of this section and the may regulate the operations authorized by this
administrative sanctions provided in Section 37 Section in order to ensure that such operations
of this Act, take action under Section 30 of this do not endanger the interests of the depositors
Act. (Provision on receivership and liquidation) and other creditors of the bank. In case a bank
or quasi-bark notifies the Bangko Sentral or
Section 53. Other Banking Services. - In addition publicly announces a bank holiday, or in any
to the operations specifically authorized in this manner suspends the payment of its deposit
Act, a bank may perform the following services: liabilities continuously for more than thirty (30)
days, the Monetary Board may summarily and
53.1. Receive in custody funds, documents and without need for prior hearing close such
valuable objects; banking institution and place it under
receivership of the Philippine Deposit Insurance
53.2. Act as financial agent and buy and sell, by Corporation.
order of and for the account of their customers,
shares, evidences of indebtedness and all types iii. Who may be receiver? (Sec. 30)
of securities; For a quasi-bank, any person of recognized
competence in banking or finance may be
53.3. Make collections and payments for the designed as receiver.
account of others and perform such other
services for their customers as are not iv. Duties of receiver
incompatible with banking business;
Spouses Larrobis, Jr. v. Philippine Veterans
53.4 Upon prior approval of the Monetary Board, Bank, G.R. No. 135706, 01 Oct 2004
act as managing agent, adviser, consultant or
administrator of investment
FACTS:
 Petitioner spouses contracted a acts not only for the benefit of the bank, but for
monetary loan with herein respondent bank its creditors as well.
secured by a REM executed on their lot.
Respondent bank then went bankrupt and was The receiver of the bank is in fact
placed under receivership/liquidation by the obliged to collect debts owing to the bank, which
Central Bank. Sometime after, respondent bank debts form part of the assets of the bank. The
sent a demand letter for the amount of the receiver must assemble the assets and pay the
insurance premiums advanced by it over the obligation of the bank under receivership, and
mortgaged property of petitioners. More than 14 take steps to prevent dissipation of such assets.
years from the time the loan became due and Accordingly, the receiver of the bank is obliged
demandable, respondent bank moved for the to collect pre-existing debts due to the bank, and
extrajudicial foreclosure of the mortgaged in connection therewith, to foreclose mortgages
property and was sold to it as being the lone securing such debts.
bidder. Petitioners moved to declare the
foreclosure null and void contending that the
respondent bank being placed under
receivership did not interrupt the running of the v. “Close Now-Hear Later” doctrine
prescriptive period. RTC ruled in favor of
respondents.
Central Bank of the Philippines v. Court of
RULING: Appeals, G.R. No. 76118, 30 Mar 1993
This is consistent with the purpose of FACTS:
receivership proceedings, i.e., to receive The Monetary Board (MB) issued on 31
collectibles and preserve the assets of the bank May 1985 Resolution No. 596 ordering the closure of
in substitution of its former management, and Triumph Savings Bank (TSB), forbidding it from
prevent the dissipation of its assets to the
doing business in the Philippines, placing it under
detriment of the creditors of the bank.
receivership, and appointing Ramon V. Tiaoqui as
When a bank is declared insolvent and
receiver.
placed under receivership, the Central Bank,
through the Monetary Board, determines On 11 June 1985, TSB filed a complaint
whether to proceed with the liquidation or with the RTC against Central Bank and Ramon V.
reorganization of the financially distressed bank. Tiaoqui to annul MB Resolution No. 596, with prayer
A receiver, who concurrently represents the
for injunction, challenging in the process the
bank, then takes control and possession of its
assets for the benefit of the bank’s creditors. A constitutionality of Sec. 29 of R.A. 269, otherwise
liquidator meanwhile assumes the role of the known as "The Central Bank Act," as amended,
receiver upon the determination by the Monetary
insofar as it authorizes the Central Bank to take over
Board that the bank can no longer resume
business. His task is to dispose of all the assets a banking institution even if it is not charged with
of the bank and effect partial payments of the violation of any law or regulation, much less found
bank’s obligations in accordance with legal guilty thereof.
priority. In both receivership and liquidation
proceedings, the bank retains its juridical
personality notwithstanding the closure of its ISSUE(S):
business and may even be sued as its corporate WON the absence of prior notice and hearing may be
existence is assumed by the receiver or
considered acts of arbitrariness and bad faith
liquidator. The receiver or liquidator meanwhile
sufficient to annul a Monetary Board resolution
enjoining a bank from doing business and placing it FACTS:
under receivership. The Rural Bank of Buhi was placed
under receivership and designated respondent
RULING: Odra as Receiver pursuant to the provisions of
No. A previous hearing is nowhere Section 29 of Republic Act No. 265, as
required in Sec. 29 nor does the constitutional amended. Odra implemented and carried out
requirement of due process demand that the said Monetary Board Resolution No. 583 by
correctness of the Monetary Board’s resolution authorizing deputies of the receiver to take
to stop operation and proceed to liquidation of control, possession, and charge of the Bank, its
first adjudged before making the resolution assets and liabilities. The Bank filed a petition for
effective. It is enough that a subsequent judicial injunction with Restraining Order against
review be provided. respondent Odra and DRBSLA assailing the
It may be emphasized that Sec. 29 does action of herein respondent Odra in
not altogether divest a bank or a non-bank recommending the receivership over the Bank
financial institution placed under receivership of as a violation of the provisions of Sections 28
the opportunity to be heard and present and 29 of Republic Act No. 265 as amended and
evidence on arbitrariness and bad faith because Section 10 of Republic Act No. 720 (The Rural
within ten (10) days from the date the receiver Banks Act), and as being ultra vires and done
takes charge of the assets of the bank, resort to with grave abuse of discretion and in excess of
judicial review may be had by filing an jurisdiction. Respondents filed their motion to
appropriate pleading with the court. Respondent dismiss alleging that the petition did not allege a
TSB did in fact avail of this remedy by filing a cause of action and is not sufficient in form and
complaint with the RTC of Quezon City on the substance. Petitioner Bank filed an opposition to
8th day following the takeover by the receiver of the motion to dismiss averring that the petition
the bank’s assets on 3 June 1985. This "close alleged a valid cause of action and that
now and hear later" scheme” is grounded on respondents have violated the due process
practical and legal considerations to prevent clause of the Constitution. Thereafter the Central
unwarranted dissipation of the bank’s assets and Bank Monetary Board issued a Resolution
as a valid exercise of police power to protect the ordering the liquidation of the Bank. RTC ruled in
depositors, creditors, stockholders and the favor of the Bank and issued a writ of execution.
general public. Banks are affected with public CA however restrained the enforcement of the
interest because they receive funds from the execution.
general public in the form of deposits.
ISSUE(S):
Rural Bank of Buhi, Inc. v. Court of Appeals, WON due process was violated.
G.R. No. 61689, 20 Jun 1988
RULING:
 NO. Republic Act No. 265 does not disillusionment will run the gamut of the entire
require that a hearing be first conducted before a banking community.
banking institution may be placed under Furthermore, a banking institution's
receivership. Rather, it provides the conditions claim that a resolution of the Monetary Board
prerequisite to the action of the Monetary Board under Section 29 of the Central Bank Act should
to forbid the institution to do business in the be set aside as plainly arbitrary and made in bad
Philippines and to appoint a receiver to faith, may be asserted as an affirmative defense
immediately take charge of the bank's assets (Sections 1 and 4[b], Rule 6, Rules of Court) or a
and liabilities. They are: (a) an examination counterclaim (Section 6, Rule 6; Section 2, Rule
made by the examining department of the 72 of the Rules of Court) in the proceedings for
Central Bank; (b) report by said department to assistance in liquidation or as a cause of action
the Monetary Board; and (c) prima facie showing in a separate and distinct action where the latter
that the bank is in a condition of insolvency or so was filed ahead of the petition for assistance in
situated that its continuance in business would liquidation.
involve probable loss to its depositors or
creditors. vi. Liquidation
The petitioner’s contention that no
property shall be taken without due process of 1. As opposed to rehabilitation
law is guaranteed under the constitution is
without merit. It has long been established that Philippine Veterans Bank Employees Union
the closure and liquidation of a bank may be v. Vega, G.R. No. 105364, 28 Jun 2001
considered as an exercise of police power. Such
exercise may, however, be subject to judicial 2. Actions to take (Sec. 30)
inquiry and could be set aside if found to be
capricious, discriminatory, whimsical, arbitrary,
3. How assets are distributed (Secs. 31 & 32)
unjust or a denial of the due process and equal
protection clauses of the Constitution. Hence, Section 31. Distribution of Assets. - In case of
appointment of a receiver may be made by the liquidation of a bank or quasi-bank, after
Monetary Board without notice and hearing but payment of the cost of proceedings, including
its action is subject to judicial inquiry. Due reasonable expenses and fees of the receiver to
process does not necessarily require a prior be allowed by the court, the receiver shall pay
hearing; a hearing or an opportunity to be heard the debts of such institution, under order of the
may be subsequent to the closure. One can just court, in accordance with the rules on
imagine the dire consequences of a prior concurrence and preference of credit as
hearing: bank runs would be the order of the provided in the Civil Code.
day, resulting in panic and hysteria. In the
process, fortunes may be wiped out and
Section 32. Disposition of Revenues and liquidation proceedings of its money market
Earnings. - All revenues and earnings realized obligations to petitioner. Omnibus Finance, Inc.,
by the receiver in winding up the affairs and not having seasonably settled its obligations to
administering the assets of any bank or quasi- petitioner, the latter proceeded to effect the
bank within the purview of this Act shall be used extrajudicial foreclosure of said mortgages and
to pay the costs, fees and expenses mentioned the city sheriff of TagaytayCity issued a
in the preceding section (debts), salaries of such certificate of sale in favor of petitioner which
personnel whose employment is rendered were duly registered.
necessary in the discharge of the liquidation Respondents failed to seasonably
together with other additional expenses caused redeem said parcels of land, for which reason,
thereby. The balance of revenues and earnings, petitioner has executed an affidavit of
after the payment of all said expenses, shall consolidation of ownership which has not been
form part of the assets available for payment to submitted to the Registry of Deeds of Tagaytay
creditors. City, in view of the fact that possession of the
aforesaid titles or owner’s duplicate certificates
4. All claims filed in liquidation court of title remains with the RBO. To date, petitioner
has not been able to effect the registration of
Ong v. Court of Appeals, G.R. No. 112830, 01 said parcels of land in his name in view of the
Feb 1996 persistent refusal of respondents to surrender
RBO’s copies of its owner’s certificates of title for
All claims against the insolvent bank should be filed in the parcels of land covered by the two TCTs.
the liquidation proceeding. The judicial liquidation is Respondent RBO filed a motion to
intended to prevent multiplicity of actions against the dismiss on the ground of res judicata and that it
insolvent bank. It is a pragmatic arrangement designed was undergoing liquidation and it is the
to establish due process and orderliness in the
liquidation court which has exclusive jurisdiction
liquidation of the bank, to obviate the proliferation of
to take cognizance of petitioner’s claim. Trial
litigations and to avoid injustice and arbitrariness.
court denied the motion to dismiss because it
found that the causes of action in the previous
Facts:   
and present cases were different although it was
Jerry Ong filed with the Regional Trial
silent on the jurisdictional issue. RBO filed a
Court of Quezon City a petition for the surrender
motion for reconsideration but was similarly
of 2 TCTs against Rural Bank of Olongapo, Inc.
rejected. The Court of Appeals, through a
(RBO), represented by its liquidator Guillermo G.
certiorari filed by RBO, annulled the challenged
Reyes, Jr. and deputy liquidator Abel Allanigue.
orders of the trial court which sustained the
The complaint stemmed from 2 parcels of land
jurisdiction of the trial court and denied
which was duly mortgaged by RBO in favor of
reconsideration thereof. Moreover, the trial judge
petitioner to guarantee the payment of Omnibus
was ordered to dismiss the civil case without
Finance, Inc., which is likewise now undergoing
prejudice to the right of petitioner to file his claim and arbitrariness. It is not necessary that a claim
in the liquidation proceedings pending before the be initially disputed in a court or agency before it
Regional Trial Court of Olongapo City. is filed with the liquidation court.  

Issue:    Whether or not the civil case against - Vda. de Manalo v. Court of Appeals, G.R.
RBO may proceed independently from the No. 129242, 16 Jan 2001
liquidation proceedings.
5. Disposition of banking franchise (Sec. 33)
Held:    Section 29, par. 3, of R.A. 265 as
amended by P. D. 1827 provides –If the Section 33. Disposition of Banking
Monetary Board shall determine and confirm Franchise. - The Bangko Sentral may, if public
within (sixty days) that the bank x x x is insolvent interest so requires, award to an institution,
or cannot resume business with safety to its upon such terms and conditions as the
depositors, creditors and the general public, it Monetary Board may approve, the banking
shall, if the public interest requires, order its franchise of a bank under liquidation to
liquidation, indicate the manner of its liquidation
operate in the area where said bank or its
and approve a liquidation plan.  The Central
branches were previously operating: Provided,
Bank shall, by the Solicitor General, file a
That whatever proceeds may be realized from
petition in the Court of First Instance[7] reciting
such award shall be subject to the appropriate
the proceedings which have been taken and
exclusive disposition of the Monetary Board.
praying the assistance of the court in the
liquidation of such institution.  The court shall
TOPIC:LIQUIDATION AS OPPOSED TO
have jurisdiction in the same proceedings to
adjudicate disputed claims against the bank x x
REHABILITATION

x and enforce individual liabilities of the PRINCIPLE: Liquidation, in corporation law,

stockholders and do all that is necessary to connotes a winding up or settling with

preserve the assets of such institution and to creditors and debtors.It is the winding up of a
implement the liquidation plan approved by the corporation so that assets are distributed to
Monetary Board those entitled to receive them. It is the
All claims against the insolvent bank process of reducing assets to cash,
should be filed in the liquidation proceeding. The discharging liabilities and dividing surplus or
judicial liquidation is intended to prevent loss.
multiplicity of actions against the insolvent bank.
It is a pragmatic arrangement designed to On the opposite end of the spectrum is
establish due process and orderliness in the rehabilitation which connotes a reopening or
liquidation of the bank, to obviate the
reorganization. Rehabilitation contemplates a
proliferation of litigations and to avoid injustice
continuance of corporate life and activities in
an effort to restore and reinstate the Section 36. Proceedings Upon Violation of
corporation to its former position of successful This Act and Other Banking Laws, Rules,
operation and solvency. Regulations, Orders or Instructions. -
Whenever a bank or quasi-bank, or whenever
Effects of receivership and liquidation any person or entity willfully violates this Act
or other pertinent banking laws being enforced
1. Restriction on capacity to act or implemented by the Bangko Sentral or any
- Villanueva v. Court of Appeals, G.R. No. order, instruction, rule or regulation issued by
114870, 26 May 1995 the Monetary Board, the person or persons
- Abacus Real Estate Develoment Center Inc. responsible for such violation shall unless
v. Manila Banking Corp., G.R. No. 162270, 06
otherwise provided in this Act be punished by
Apr 2005
a fine of not less than Fifty thousand pesos
(P50,000) nor more than Two hundred
2. Penalties for transaction after bank
thousand pesos (P200,000) or by
becomes insolvent (Sec. 70, R.A. No. 8791)
imprisonment of not less than two (2) years
nor more than ten (10) years, or both, at the
Section 70.  Penalty for Transactions After a
discretion of the court
Bank Becomes Insolvent. - Any director or
officer of any bank declared insolvent or
3. Effect on garnishment, levy on attachment
placed under receivership by the Monetary
or execution (Sec. 30) – exempt
Board who refuses to turn over the bank's
The receiver shall:
records and assets to the designated
2) convert the assets of the institutions to
receivers, or who tampers with banks records,
money, dispose of the same to creditors and
or who appropriates for himself for another
other parties, for the purpose of paying the
party or destroys or causes the
debts of such institution in accordance with
misappropriation and destruction of the bank's
the rules on concurrence and preference of
assets, or who receives or permits or causes
credit under the Civil Code of the Philippines
to be received in said bank any deposit,
and he may, in the name of the institution, and
collection of loans and/or receivables, or who
with the assistance of counsel as he may
pays out or permits or causes to be
retain, institute such actions as may be
transferred any securities or property of said
necessary to collect and recover accounts and
bank shall be subject to the penal provisions
assets of, or defend any action against, the
of the New Central Bank Act
institution. The assets of an institution under
receivership or liquidation shall be deemed in
What are these penal provisions?
custodia legis in the hands of the receiver and
shall, from the moment the institution was
placed under such receivership or liquidation, fact that respondent bank was placed under
be exempt from any order of garnishment, receivership. To execute the judgment
levy, attachment, or execution. would unduly deplete the assets of
respondent bank to the obvious prejudice of
Spouses Lipana v. Development Bank of other depositors and creditors, since, as
Rizal, G.R. No. 73884, 24 Sep 1987
aptly stated in Central Bank of the
Philippines vs. Morfe (63 SCRA 114), after
Facts:    Petitioners opened and maintained
the Monetary Board has declared that a
both time and savings deposits with the
bank is insolvent and has ordered it to
respondent Development Bank of Rizal.
cease operations, the Board becomes the
When some of the time deposit certificates
trustee of its assets for the equal benefit of
matured, petitioners were not able to cash
all the creditors, including depositors. The
them but instead were issued a manager’s
assets of the insolvent banking institution
check which was dishonored upon
are held in trust for the equal benefit of all
presentment. Demands for the payment of
creditors, and after its insolvency, one
both time and savings deposits have failed.
cannot obtain an advantage or a preference
Hence, petitioners filed with the RTC a
over another by an attachment, execution or
collection suit with prayer for issuance of a
otherwise.
writ of preliminary attachment which was
After the Monetary Board has
granted by the court. The RTC rendered
declared that a bank is insolvent and has
judgment in favor of petitioners. Meanwhile,
ordered it to cease operations, the Board
the Monetary Board placed the respondent
becomes the trustee of its assets for the
bank under receivership. Subsequently, the
equal benefit of all the creditors, including
motion for execution pending appeal filed by
depositors. The assets of the insolvent
petitioners was granted by the court but was
banking institution are held in trust for the
also stayed by the trial judge. The motion
equal benefit of all creditors, and after its
filed by petitioners to lift the stay order
insolvency, one cannot obtain an advantage
having been denied, this petition was filed.
or a preference over another by an
attachment, execution or otherwise. To
Issue:    Whether or not respondent judge
execute the judgment would unduly deplete
could legally stay execution of judgment that
the assets of respondent bank to the
has already become final and executor
obvious prejudice of other depositors and
creditors.
Held:    In the instant case, the stay of the
execution of judgment is warranted by the
3. Stoppage of business receiver then because of the circumstances
discussed in the Central Bank case, we are thus
Provident Savings Bank v. Court of Appeals, convinced that the prescriptive period was
G.R. No. 97218, 17 May 1993 legally interrupted by fuerza mayor in 1972 on
Facts: account on the prohibition imposed by the
Spouses Guarin obtained a loan from Monetary Board against petitioner from
petitioner bank and as a security, executed a transacting business, until the directive of the
REM in its favor over a parcel of land. Then board was nullified in 1981. Indeed, the period
petitioner bank was placed under receivership during which the obligee was prevented by a
until it was set aside. Guarin signified its caso fortuito from enforcing his right is not
willingness to pay its obligation in exchange for reckoned against him (Article 1154, New Civil
the mortgaged title. Petitioner bank could not Code). When prescription is interrupted, all the
release said title as it also served as security for benefits acquired so far from the possession
another loan obtained by Guarin for his cease and when prescription starts anew, it will
corporation. Private respondent Chua wrote be entirely a new one. This concept should not
petitioner bank saying that the mortgaged be equated with suspension where the past
property was offered to him as payment of period is included in the computation being
judgment he obtained against the Guarins. The added to the period after prescription is
Guarins sold the property to Chua with the latter resumed. Consequently, when the closure of
assuming the obligations. Chua tried to pay the was set aside in 1981, the period of ten years
loan but petitioner would not release the title within which to foreclose under Article 1142 of
unless the second loan of Guarin was also the New Civil Code began to run again and,
settled. therefore, the action filed on August 21, 1986 to
compel petitioner to release the mortgage
Issue: carried with it the mistaken notion that
Whether or not a bank being placed under petitioner’s own suit foreclosure had prescribed.
receivership interrupts the prescription of actions
it may institute.
4. Interest on deposits
Ruling: YES.
When a bank is prohibited to do Fidelity Savings and Mortgage Bank v.
business by the Central Bank and a receiver is Cenzon, G.R. No. L-46208, 05 Apr 1990
appointed for such bank, that bank would not be
It is settled jurisprudence that a
able to do new business, i.e., to grant new loans
banking institution which has been declared
or to accept new deposits.
insolvent and subsequently ordered closed by
Having arrived at the conclusion that the
the Central Bank of the Philippines cannot be
foreclosure is part of bank’s business activity
held liable to pay interest on bank deposits
which could not have been pursued by the
which accrued during the period when the pay its obligation to respondent LBP plus
bank is actually closed and non-operational. interests and damages. The petitioner, through
From the aforecited authorities, it is the PDIC, appealed the decision to the Court of

manifest that petitioner cannot be held liable Appeals. The petitioner bank claim that since it

for interest on bank deposits which accrued was placed under receivership and prohibited

from the time it was prohibited by the Central from doing business in the Philippines it should
no longer be held liable for interests and
Bank to continue with its banking operations,
penalties on its account to the respondent bank.
that is, when Resolution No. 350 to that effect
However, CA rendered judgment affirming the
was issued on February 18, 1969.
decision of the RTC.

Issue: Whether or not an insolvent bank

Rural Bank of Sta. Catalina Inc. v. Land placed under receivership and prohibited from
Bank of the Phils. doing business in the Philippines may be held
G.R. No. 148019, 26 Jul 2004 liable to pay interests and penalties after being
declared in default.

Facts: Land Bank of the Philippines filed a

complaint against, Sta. Catalina Rural Bank, Held. Such party declared in default is

Inc., in the Regional Trial Court for the collection proscribed from seeking a modification or

of the sum of P2,809,280.25, capitalized and reversal of the assailed decision on the basis of

accrued interests, penalties and surcharges, and the evidence submitted by him in the Court of

for such other equitable reliefs. For its failure to Appeals, for if it were otherwise, he would

file its answer to the complaint, the trial court thereby be allowed to regain his right to adduce

declared the petitioner bank in default. Despite evidence, a right which he lost in the trial court

its receipt of the copy of the said order, the when he was declared in default, and which he

petitioner bank failed to file a motion to set aside failed to have vacated. In this case, the

the order of default. petitioner sought the modification of the decision

of the trial court based on the evidence

In the meantime, the Monetary Board approved submitted by it only in the Court of Appeals.

the placement of the petitioner bank’s assets Petitioner was served with a copy of

under receivership. The Philippine Deposit summons and the complaint, but failed to file its

Insurance Corporation (PDIC) was designated answer thereto. It also failed to file a verified

as receiver (conservator) of the petitioner, and motion to set aside the order of default despite

the latter was prohibited from doing business in its receipt of a copy thereof. We note that the

the Philippines. Unaware of the action of the CB, trial court rendered judgment only on April 7,

the trial court rendered judgment by default 1998 or more than a year after the issuance of

against the petitioner bank ordering the bank to the default order; yet, the petitioner failed to file
any verified motion to set aside the said order Certiorari, Prohibition, & Mandamus
before the rendition of the judgment of default. Section 4. When and where petition filed.
The PDIC was designated by the Central Bank — The petition shall be filed not later than
of the Philippines as receiver (conservator) as
sixty (60) days from notice of the judgment,
early as January 14, 1998, and in the course of
order or resolution. In case a motion for
its management of the petitioner bank’s affairs, it
reconsideration or new trial is timely filed,
should have known of the pendency of the case
whether such motion is required or not, the
against the latter in the trial court. Moreover, the
petitioner, through the PDIC, received a copy of sixty (60) day period shall be counted from
the decision of the trial court but did not bother notice of the denial of said motion.
filing a motion for partial reconsideration
appending thereto the orders of the Monetary d. Who may question?
Board or a motion to set aside the order of Central Bank of the Philippines v. Court
default. Instead, the petitioner appealed the of Appeals, G.R. No. 76118, 30 Mar 1993
decision, and even failed to assign as an error
1. Bank Officers
the default order of the trial court. The petitioner
2. Stockholders representing
is, thus, barred from relying on the orders of the
majority of the capital stock
Monetary Board of the Central Bank of the
Philippines placing its assets and affairs under
receivership and ordering its liquidation. Quoted:
In regard to lack of capacity to sue
G. Judicial review on the part of Triumph Savings Bank we
view such argument as being specious, for
a. Availability of remedy (Sec. 30) if we get the drift of petitioners’ argument,
they mean to convey the impression that
only the CB appointed receiver himself may
b. Ground
question the CB resolution appointing him
as such. This may be asking for the
Central Bank of the Philippines v. Court
impossible, for it cannot be expected that
of Appeals,
the master, the CB, will allow the receiver it
G.R. No. L-50031-32, 27 Jul 1981
has appointed to question that very
appointment. Should the argument of
Banco Filipino Savings and Mortgage
petitioners be given circulation, then judicial
Bank v. Monetary Board
review of actions of the CB would be
effectively checked and foreclosed to the
c. Jurisdiction (Sec. 4, Rule 65, Rules of
very bank officials who may feel, as in the
Court)
case at bar, that the CB action ousting them
General Banking Act
from the bank deserves to be set aside.
(R.A. No. 8791, as amended)

Central Bank of the Phils. v. Court of A. Definition (Sec. 3.1)

3.1. "Banks" shall refer to entities engaged in
Appeals, G.R. Nos. 88353 & 92943, 08
the lending of funds obtained in the form of
May 1992
Per the fifth paragraph of Section 29 deposits. (2a)
of the Central Bank Act, as amended by
Executive Order No. 289, the actions of the 3.2. Banks shall be classified into:
MB may be assailed in an appropriate
pleading filed by the stockholders of record (a) Universal banks;
representing the majority of the capital stock
within ten (10) days from receipt of notice by
(b) Commercial banks;
the said majority stockholders of the order
placing the bank under conservatorship. 
(c) Thrift banks, composed of: (i) Savings and
mortgage banks, (ii) Stock savings and loan
Section 52. Legal Tender Power. - All
associations, and (iii) Private development
notes and coins issued by the Bangko
banks, as defined in the Republic Act No.
Sentral shall be fully guaranteed by the
Government of the Republic of the 7906 (hereafter the "Thrift Banks Act");

Philippines and shall be legal tender in the

Philippines for all debts, both public and (d) Rural banks, as defined in Republic Act
private: Provided, however, That, unless No. 73S3 (hereafter the "Rural Banks Act");
otherwise fixed by the Monetary Board,
coins shall be legal tender in amounts not (e) Cooperative banks, as defined in Republic
exceeding Fifty pesos (P50.00) for Act No 6938 (hereafter the "Cooperative
denominations of Twenty-five centavos and Code");
above, and in amounts not exceeding
Twenty pesos (P20.00) for denominations of (f) Islamic banks as defined in Republic Act
Ten centavos or less. No. 6848, otherwise known as the "Charter of
Al Amanah Islamic Investment Bank of the
Philippines"; and
(g) Other classifications of banks as pertinent laws. The terms ‘banking
determined by the Monetary Board of the institution’ and ‘bank’ as used in this Act,
Bangko Sentral ng Pilipinas. are synonymous and interchangeable and
specially include banks, banking institutions,
B. Elements commercial banks, saving banks, mortgage
banks, trust companies, building and loan
Republic of the Philippines v.
associations, branches and agencies in the
Security Credit and Acceptance
Philippines of foreign banks hereinafter
Corp.,
called Philippine branches, and all other
G.R. No. L-20583, 23 Jan 1967 corporations, companies, partnerships, and
associations performing banking functions
A bank has been defined as a in the Philippines.
moneyed institute founded to facilitate the
borrowing, lending, and safe- keeping of
Bañas v. Asia Pacific Finance Corp
money and to deal in notes, bills of
G.R. No. 128703, 18 Oct 2000
exchange, and credits.
An investment company which loans
An investment company refers to
out the money of its customers, collects the
any issuer which is or holds itself out as
interests, and charges a commission to both
being engaged or proposes to engage
lender and borrower is a bank.
primarily in the business of investing,
Any person engaged in the business
reinvesting or trading in securities. 8 As
carried on by banks of deposit, of discount,
defined in Sec. 2, par. (a), of the Revised
or of circulation is doing a banking business,
Securities Act, 9 securities "shall include . . .
although but one of these functions is
commercial papers evidencing
exercised.
indebtedness of any person, financial or
Only duly authorized persons and
non-financial entity, irrespective of maturity,
entities may engage in the lending of funds
issued, endorsed, sold, transferred or in any
obtained from the public through the receipt
manner conveyed to another with or without
of deposits of the sale of bonds, securities,
recourse, such as promissory notes . . ."
or obligations of any kind, and all entities
Clearly, the transaction between petitioners
regularly conducting such operations shall
and respondent was one involving not a
be considered as banking institutions and
loan but purchase of receivables at a
shall be subject to the provisions of this Act,
discount, well within the purview of
of the General Bank Act, and of other
"investing, reinvesting or trading in
securities" which an investment company, bank or quasi-bank subject to the following
like ASIA PACIFIC, is authorized to perform conditions:
and does not constitute a violation of the
General Banking Act. 10 Moreover, Sec. 2 8.1 That the entity is a stock corporation;
of the General Banking Act provides in part 8.2 That its funds are obtained from the
— public, which shall mean twenty (20) or
more persons (2-Da); and
SECTION 2. Only entities duly authorized 8.3 That the minimum capital requirements
by the Monetary Board of the Central Bank prescribed by the Monetary Board for each
may engage in the lending of funds category of banks are satisfied. (n)
obtained from the public through the receipt
of deposits of any kind, and all entities C. Classification of banks (Sec. 3; Sec.
regularly conducting such operations shall X101, Manual of Regulations for Bank)
be considered as banking institutions and
shall be subject to the provisions of this Act, a. Classifications of banks. Banks are classified
of the Central Bank Act, and of other into the following subject to the power of the
pertinent laws (Emphasis supplied). Monetary Board to create other classes or kinds
of banks:
Indubitably, what is prohibited by law
(1) Universal banks (UBs);
is for investment companies to lend funds
(2) Commercial banks (KBs);
obtained from the public through receipts of
(3) Thrift banks (TBs), as defined in Republic Act
deposit, which is a function of banking
(R.A.) No. 7906, which shall be composed of:
institutions. But here, the funds supposedly
(a) savings and mortgage banks, (b) stock
"lent" to petitioners have not been shown to
savings and loan associations, and (c) private
have been obtained from the public by way
of deposits, hence, the inapplicability of development banks;

banking laws. (4) Rural banks (RBs), as defined in R. A. No.

a. Engaged in lending of funds 7353;

b. Obtained in the form of deposits (5) Cooperative banks (Coop Banks); and
c. From the public, which shall mean 20 (6) Islamic banks (IBs), as defined in R.A. No.
or more persons (Sec. 8.2) 6848.

Section 8. Organization. - The Monetary

Board may authorize the organization of a
b. Powers and scope of authorities The (2) KBs. In addition to the general powers
following are the powers and scope of incident to corporations and those provided in
authorities of banks. other laws, a KB shall have the authority to
(1) UBs. A UB shall have the authority to exercise all such powers as may be necessary to
exercise, in addition to the powers and services carry on the business of commercial banking,
authorized for a KB as enumerated in Item such as accepting drafts and issuing letters of
“b(2)” and those provided by other laws, the credit; discounting and negotiating promissory
following: notes, drafts, bills of exchange, and other
(a) the powers of an investment house (IH) as evidences of debt; accepting or creating
provided under existing laws; demand deposits; receiving other types of
(b) the power to invest in non-allied enterprises; deposits and deposit substitutes; buying and
(c) the power to own up to one hundred selling foreign exchange and gold or silver
percent (100%) of the equity in a TB, an RB, a bullion; acquiring marketable bonds and other
financial allied enterprise, or a non-financial debt securities; and extending credit, subject to
allied enterprise; and such rules as the Monetary Board may
(d) in case of publicly-listed UBs, the power to promulgate. These rules may include the
own up to one hundred percent (100%) of the determination of bonds and other debt
voting stock of only one (1) other UB or KB. A securities eligible for investment, the maturities
UB may perform the functions of an IH either and aggregate amount of such investment. It
directly or indirectly through a subsidiary IH; in may also exercise or perform any or… (see law)
either case, the underwriting of equity
securities and securities dealing shall be subject D. Distinction of banks from quasi-banks
to pertinent laws and regulations of the and other entities (Sec. 4[last para]; Sec.

Securities and Exchange Commission (SEC): X234, Manual of Regulations for Banks)

Provided, That if the IH functions are performed

directly by the UB, such functions shall be Sec. 4 - For the purposes of this Act, "quasi-

undertaken by a separate and distinct banks" shall refer to entities engaged in the

department or other similar unit in the UB: borrowing of funds through the issuance,

Provided, further, That a UB cannot perform endorsement or assignment with recourse or

such functions both directly and indirectly acceptance of deposit substitutes as defined in

through a subsidiary. Section 95 of Republic Act No. 7653 (hereafter

the "New Central Bank Act") for purposes of re-
lending or purchasing of receivables and other 8.2 That its funds are obtained from the public,
obligations. which shall mean twenty (20) or more persons
(2-Da); and
X234.1 Elements of quasi-banking. The essential
elements of quasi-banking are: 8.3 That the minimum capital requirements
a. Borrowing funds for the borrower’s own prescribed by the Monetary Board for each
account; category of banks are satisfied. (n)
b. Twenty (20) or more lenders at any one (1)
time; i. Stock corporation (Sec. 8.1)

c. Methods of borrowing are issuance, ii. Funds obtained from the public (Sec. 8.2)

endorsement, or acceptance of debt

instruments of any kind, other than deposits, iii. Minimum capital requirements (Sec. 8.3;

such as acceptances, promissory notes, - BSP Circular No. 257, s.2000

participations, certificates of assignments or - BSP Circular No. 854, s.2014

similar instruments with recourse, trust

certificates, repurchase agreements, and such iv. Capability and other requirements (Sec.

other instruments as the Monetary Board may 8[para. 2])

determine; and Par. 2 - No new commercial bank shall be

d. The purpose of which is established within three (3) years from the

(1) relending, or effectivity of this Act. In the exercise of the

(2) purchasing receivables or other obligations. authority granted herein, the Monetary Board
shall take into consideration their capability in

E. Ownership/capitalization of banks terms of their financial resources and technical

expertise and integrity. The bank licensing

a. Organization (Sec. 8) process shall incorporate an assessment of the

Section 8. Organization. - The Monetary Board bank's ownership structure, directors and
may authorize the organization of a bank or senior management, its operating plan and
quasi-bank subject to the following conditions: internal controls as well as its projected
financial condition and capital base.
8.1 That the entity is a stock corporation (7);
b. Stockholdings
i. Foreign stockholdings
 1. Individuals and non-banks (Sec. 11) for it to own one hundred percent (100%) of the
Section 11. Foreign Stockholdings. - Foreign voting stock thereof. In the exercise of the
individuals and non-bank corporations may own authority, the Monetary Board shall adopt
or control up to forty percent (40%) of the measures as may be necessary to ensure that at
voting stock of a domestic bank. This rule shall all times the control of seventy percent (70%) of
apply to Filipinos and domestic non-bank the resources or assets of the entire banking
corporations. The percentage of foreign-owned system is held by banks which are at least
voting stocks in a bank shall be determined by majority-owned by Filipinos. Any right, privilege
the citizenship of the individual stockholders in or incentive granted to a foreign bank under
that bank. The citizenship of the corporation this Section shall be equally enjoyed by and
which is a stockholder in a bank shall follow the extended under the same conditions to banks
citizenship of the controlling stockholders of the organized under the laws of the Republic of the
corporation, irrespective of the place of Philippines
incorporation. - See: R.A. No. 7721, as amended
- BSP Circular No. 256, s.2000 ii. Filipino stockholdings (Sec. 11)
2. Foreign banks (Secs. 11 & 73) – see notes up
Section 73. Acquisition of Voting Stock in a
Domestic Bank. - Within seven (7) years from - BSP Circular No. 256, s.2000
the effectivity of this act and subject to - BSP Circular No. 332, s.2002
guidelines issued pursuant to the Foreign Banks
Liberalization Act, the Monetary Board may 1. Stockholdings of family groups or related
authorize a foreign bank to acquire up to one interests (Secs. 12 & 13)
hundred percent (100%) of the voting stock of Section 12. Stockholdings of Family Groups of
only one (1) bank organized under the laws of Related Interests. - Stockholdings of individuals
related to each other within the fourth degree
the Republic of the Philippines. Within the same
of consanguinity or affinity, legitimate or
period, the Monetary Board may authorize any common-law, shall be considered family groups
foreign bank, which prior to the effectivity of or related interests and must be fully disclosed
in all transactions by such corporations or
this Act availed itself of the privilege to acquire
related groups of persons with the bank. (12-
up to sixty percent (60%) of the voting stock of Ba)
a bank under the Foreign Banks Liberalization
Act and the Thrift Banks Act, to further acquire
Section 13. Corporate Stockholdings. - Two or
voting shares such bank to the extent necessary
more corporations owned or controlled by the
same family group or same group of persons of consanguinity or affinity, and corporations
shall be considered related interests and must controlled or affiliated with them.
be fully disclosed in all transactions by such
A bank whose shares of stock are
corporations or related group of persons with
the bank. already listed in the Philippine Stock Exchange
(*Note: indicia that the bank has already
- BSP Circular No. 332, s.2002
complied w/ the public offering requirement)
2. Required public offering (Sec. X102.1,
(PSE) at the time of filing of its application for
Manual of Regulations for Banks)
UB authority shall be deemed to have complied
X102.1 (2008 - X101.2) Prerequisites for the
with the public offering requirement. Likewise,
grant of a universal banking authority
an applicant bank may opt to have its shares
a. Compliance with guidelines. A domestic
listed in the PSE directly instead of passing
bank seeking authority to operate as a UB shall
through the process of public offering. In either
submit an application to the appropriate
case, at least ten percent (10%) of the applicant
department of the SES. The applicant shall
bank’s capital stock should be held by public
comply with the guidelines for the issuance of a
stockholders before it can be granted the
UB authority and shall submit all the
license for authority to operate as a UB.
documentary requirements enumerated in
Appendix 1.
c. Listing of bank shares in the stock exchange.
b. Public offering of bank shares. A domestic
Domestic banks granted a UB license, existing or
bank applying for a UB authority shall, as a
new, must list their shares in the PSE within
condition to the approval of its application,
three (3) years: Provided, That in the case of
make a public offering of at least ten percent
new UBs, the three (3) year period shall be
(10%) of the required minimum capital and this
reckoned from the date the license to operate
condition must be complied with before it can
as a UB was granted.
be granted the license for authority to operate
as a UB. The term public offering shall mean the
- BSP Circular No. 271, s.2001
offer to sell equity shares to the public. Public
- SEC MC No. 13, s.2017
shall refer to all prospective stockholders,
excluding the bank’s directors, shareholders
c. Directors and Officers
owning twenty percent (20%) or more of the
i. Composition of Board (Secs. 15 & 17; Sec. 7,
bank’s subscribed capital stock, together with
R.A. No. 7721, as amended; Secs. 22 & 24, R.A.
those of their relatives within the fourth degree
No. 11232)
Section 15. Board of Directors. - The Directors shall be elected for a term of one (1)
provisions of the Corporation Code to the Year from among the holders of stocks
contrary notwithstanding, there shall be at least registered in the corporation's book while
five (5), and a maximum of fifteen (15) trustees shall be elected for a term not
members of the board or directors of a bank, exceeding three (3) years from among the
two (2) of whom shall be independent directors. members of the corporation. Each director and
An "independent director" shall mean a person trustee shall hold office until the successor is
other than an officer or employee of the bank, elected and qualified. A director who ceases to
its subsidiaries or affiliates or related interests. own at least one (1) share of stock or a trustee
(n) Non-Filipino citizens may become members who ceases to be a member of the corporation
of the board of directors of a bank to the extent shall cease to be such.
of the foreign participation in the equity of said
bank. (Sec. 7, RA 7721) The meetings of the TERM OF DIRECTORS – 1 year
board of directors may be conducted through TERM OF TRUSTEES – not exceeding
modern technologies such as, but not limited 3 yrs
to, teleconferencing and video-conferencing.
 Percentage requirement for
Section 17. Directors of Merged or independent directors:
Consolidated Banks. - In the case of a The board of the following corporations vested
bank merger or consolidation, the number of with public interest shall have independent
directors shall not exceed twenty-one (21). directors constituting at least twenty percent
(20%) of such board:
RA 11232 – RCCP:
Section 22. The Board of Directors (a) Corporations covered by Section 17.2 of
or Trustees of a Corporation; Republic Act No. 8799, otherwise known as
Qualification and Term. - Unless "The Securities Regulation Code", namely those
otherwise provided in this Code, the board of whose securities are registered with the
directors or trustees shall exercise the Commission, corporations listed with an
corporate powers, condict all business, and exchange or with assets of at least Fifty million
control all properties of the corporation. pesos (50,000,000.00) and having two hundred
(200) or more holders of shares, each holding at
least one hundred (100) shares of a class of its Independent directors must be elected by the
equity shares; shareholders present or entitled to vote in
absentia during the election of directors.
(b) Banks and quasi-banks, NSSLAs, pawnshops, Independent directors shall be subject to rules
corporations engaged in money service and regulations governing their qualifications,
business, preneed, trust and insurance disqualifications, voting requirements, duration
companies and other financial intermediaries; of term and term limit, maximum number of
and board membership and other requirements that
the Commission will prescribed to strengthen
(c) Other corporations engaged in businesses their independence and align with international
vested with public interest similar to the above, best practices.
as may be determined by the Commission, after
taking into account relevant factors which are Section 24. Corporate Officers. -
germane to the objective and purpose of Immediately after their election, the directors of
requiring the election of an independent a corporation must formally organize an elect:
director, such as the extent of minority (a) a president, who must be a director; (b) a
ownership, type of financial products or treasurer, who must be a resident of the
securities issued or offered to investors, public Philippines; and (d) such other officers as may
interest involved in the nature of business be provided in the bylaws. If the corporation is
operations, and other analogous factors. vested with public interest, the board shall also
elect compliance officer. The same person may
 Who is an independent hold two (2) or more positions concurrently,
director? except that no one shall act as president and
An independent director is a person who apart secretary or as president and treasurer at the
from shareholdings and fees received from any same time, unless otherwise allowed in this
business or other relationship which could, or Code.
could reasonable be received to materially
interfere with the exercise of independent Directors shall be elected for a term of one (10
judgment in carrying out the responsibilities as Year from among the holders of stocks
a director. registered in the corporation's book while
trustees shall be elected for a term not
exceeding three (3) years from among the
members of the corporation. Each director and - Busuego v. Court of Appeals, G.R. No. 95326,
trustee shall hold office until the successor is 11 Mar 1999
elected and qualified. A director who ceases to 3. Other minimum qualifications (Guidelines
own at least one (1) share of stock or a trustee for the Establishment of Banks)
who ceases to be a member of the corporation
shall cease to be such. iii. Disqualifications (Guidelines for the
Establishment of Banks)
ii. Qualifications 1. Criminal conviction (Sec. 26, R.A. No. 11232)
1. Own at least one share (Sec. 22, R.A. Disqualification of Directors,
No. 11232) Trustees or Officers. - A person shall be
A director who ceases to own at least one (1) disqualified from being a director, trustee or
share of stock or a trustee who ceases to be a officer of any corporation if, within five (5)
member of the corporation shall cease to be
years prior to the election or appointment as
such.
such, the person was:
2. “Fit and Proper” rule (Sec. 16)
To maintain the quality of bank management
(a) Convicted by final judgment:
and afford better protection to depositors and
(1) Of an offense punishable by imprisonment
the public in general the Monetary Board shall
for a period exceeding six (6) years;
prescribe, pass upon and review the
(2) For violating this Code; and
qualifications and disqualifications of individuals
(3) For violating Republic Act No. 8799,
elected or appointed bank directors or officers
otherwise known as "The Securities Regulation
and disqualify those found unfit. After due
Code";
notice to the board of directors of the bank, the
(b) Found administratively liable for any offense
Monetary Board may disqualify, suspend or
involving fraudulent acts; and
remove any bank director or officer who
(c) By a foreign court or equivalent foreign
commits or omits an act which render him unfit
regulatory authority for acts, violations or
for the position. In determining whether an
misconduct similar to those enumerated in
individual is fit and proper to hold the position
paragraphs (a) and (b) above.
of a director or officer of a bank, regard shall be
given to his integrity, experience, education,
2. Public officials (Sec. 19)
training, and competence.
Prohibition on Public Officials. -
Except as otherwise provided in the Rural Banks
Act, no appointive or elective public official the Philippines, within one (1) year prior to his
whether full-time or part-time shall at the same appointment;
time serve as officer of any private bank 2. no member of the Monetary Board shall be
Exception: Save in cases where such service is employed in any such institution within two (2)
incident to financial assistance provided by the years after the expiration of his term except
government or a government owned or when he serves as an official representative of
controlled corporation to the bank or unless the Philippine Government to such institution.
otherwise provided under existing laws.
Sec. 27, RA 7653:
3. MB member/BSP personnel (Secs. 9 & 27, Personnel of the Bangko Sentral
R.A. No. 7653, as amended) are hereby prohibited from:
Section 9. Disqualifications. - a (a) being an officer, director, lawyer or agent,
member of the Monetary Board is disqualified employee, consultant or stockholder, directly or
from being a director, officer, employee, indirectly, of any institution subject to
consultant, lawyer, agent or stockholder of any supervision or examination by the Bangko
bank, quasi-bank or any other institution which Sentral, except non-stock savings and loan
is subject to supervision or examination by the associations and provident funds organized
Bangko Sentral, in which case such member exclusively for employees of the Bangko Sentral,
shall resign from, and divest himself of any and and except as otherwise provided in this Act;
all interests in such institution before
assumption of office as member of the (b) directly or indirectly requesting or receiving
Monetary Board. any gift, present or pecuniary or material
The members of the Monetary Board benefit for himself or another, from any
coming from the private sector shall not hold institution subject to supervision or
any other public office or public employment examination by the Bangko Sentral;
during their tenure.
No person shall be a member of the (c) revealing in any manner, except under
Monetary Board if orders of the court, the Congress or any
1. he has been connected directly with any government office or agency authorized by law,
multilateral banking or financial institution or or under such conditions as may be prescribed
has a substantial interest in any private bank in by the Monetary Board, information relating to
the condition or business of any institution. This
prohibition shall not be held to apply to the compensation and approve the amount thereof
giving of information to the Monetary Board or at a regular or special meeting.
the Governor of the Bangko Sentral, or to any In no case shall the total yearly
person authorized by either of them, in writing, compensation of directors exceed ten percent
to receive such information; and (10%) of the net income before income tax of
the corporation during the preceding year.
(d) borrowing from any institution subject to Directors or trustees shall not
supervision or examination by the Bangko participate in the determination of their own
Sentral shall be prohibited unless said per diems or compensation.
borrowings are adequately secured, fully Corporations vested with public interest
disclosed to the Monetary Board, and shall be shall submit to their shareholders and the
subject to such further rules and regulations as Commission, an annual report of the total
the Monetary Board may prescribe: Provided, compensation of each of their directors or
however, That personnel of the supervising and trustees.
examining departments are prohibited from
borrowing from a bank under their supervision v. Meetings (Sec. 15)
or examination. The meetings of the board of directors may be
conducted through modern technologies such
iv. Compensation and other benefits (Sec. 18; as, but not limited to, teleconferencing and
Sec. 29, R.A. No. 11232) video-conferencing
Section 29. Compensation of vi. Powers of directors
Directors or Trustees. - In the absence - BSP Circular No. 283, s.2001
of any provision in the bylaws fixing their vii. “Apparent Authority” doctrine
compensation, the directors or trustees shall Philippine Commercial International Bank v.
not receive any compensation in their capacity Court of Appeals
as such, except for reasonable per diems: G.R. Nos. 121413 29 Jan 2001
(*Note: But the corp can nevertheless stipulate The general rule is that a bank is liable for the
for a compensation; this is just the general rule) fraudulent acts or representations of an officer
Provided, however, That the or agent acting within the course and apparent
stockholders representing at least a majority of scope of his employment or authority. And if an
the outstanding capital stock or majority of the officer or employee of a bank, in his official
members may grant directors or trustees with capacity, receives money to satisfy an evidence
of indebtedness lodged with his bank for G. Operation (Sec. 6)
collection, the bank is liable for his Section 6. Authority to Engage in Banking and
misappropriation of such sum. Quasi-Banking Functions. - No person or entity
viii. Prohibited acts (Sec. 55.1) shall engage in banking operations or quasi-
Section 55. Prohibited banking functions without authority from the
Transactions. Bangko Sentral:
55.1. No director, officer, employee, or agent of 2. Provided, however, That an entity authorized
any bank shall - by the Bangko Sentral to perform universal or
(a) Make false entries in any bank report or commercial banking functions shall likewise
statement or participate in any fraudulent have the authority to engage in quasi-banking
transaction, thereby affecting the financial functions.
interest of, or causing damage to, the bank or 3. The determination of whether a person or
any person; entity is performing banking or quasi-banking
(b) Without order of a court of competent functions without Bangko Sentral authority shall
jurisdiction, disclose to any unauthorized be decided by the Monetary Board. To resolve
person any information relative to the funds or such issue, the Monetary Board may; through
properties in the custody of the bank belonging the appropriate supervising and examining
to private individuals, corporations, or any department of the Bangko Sentral, examine,
other entity: Provided, That with respect to inspect or investigate the books and records of
bank deposits, the provisions of existing laws such person or entity. Upon issuance of this
shall prevail; authority, such person or entity may commence
(c) Accept gifts, fees, or commissions or any to engage in banking operations or quasi-
other form of remuneration in connection with banking function and shall continue to do so
the approval of a loan or other credit unless such authority is sooner surrendered,
accommodation from said bank; revoked, suspended or annulled by the Bangko
(d) Overvalue or aid in overvaluing any security Sentral in accordance with this Act or other
for the purpose of influencing in any way the special laws.
actions of the bank or any bank; or a. Authority required
(e) Outsource inherent banking functions. b. Monetary board determination
c. Unauthorized advertisement
F. Incorporation (Sec. 14; Secs. 16, 45, & 116, (Sec. 64)
R.A. No. 11232)
GR: No person, association, or corporation shall that only the final proceeds of the loan in the

advertise or hold itself out as being engaged in amount of P750,000.00 was delayed the

the business of such bank, quasi-bank, trust same having been released to Plaintiff
Corporation, but this was because of the
entity, or association, or use in connection with
shortfall in the collateral cover of Plaintiffs
its business title, the word or words "bank",
loan.
"banking", "banker", "quasi-bank", "quasi-
Respondent Bank sent a demand
banking", "quasi-banker", "savings and loan letter to Petitioner spouses informing them
association", "trust corporation", "trust that since they have defaulted in paying their
company" or words of similar import or transact obligation, their mortgage will now be
in any manner the business of any such bank, foreclosed; that when Petitioners still failed to
corporation or association. pay, Respondent Bank initiated extrajudicial

Exc: Unless duly authorized to engage in the foreclosure of the real estate mortgage
executed by Plaintiff spouses. The instant
business of a bank, quasi-bank, trust entity, or
complaint was filed to forestall the extrajudicial
savings and loan association as defined in this
foreclosure sale of a piece of land mortgaged
Act, or other banking laws,
by Petitioner Corporation in favor of First
Summa Savings and Mortgage Bank which
d. Change in name bank was later renamed as PAIC Savings and
P.C. Javier & Sons Inc. v. Court of Mortgage Bank, Inc.
Appeals
G.R. No. 129552, 29 Jun 2005 ISSUE:

FACTS: Whether P.C. Javier & Sons should have

Petitioner Corporation, P.C. Javier and been notified, as a requirement, by First

Sons Services, Inc., applied with First Summa Summa Savings and Mortgage Bank and

Savings and Mortgage Bank, later on PAIC Savings and Mortgage Bank, Inc. of

renamed as PAIC Savings and Mortgage their change in name in order to treat them as

Bank, Respondent Bank, for a loan one and the same entity and comply with their

accommodation under the Industrial loan obligation.

Guarantee Loan Fund (IGLF) for P1.5 Million.

Petitioner Corporation claims that the RULING:

loan releases were delayed; that the amount NO. There is no such requirement

of P 250, 000.00 was deducted from the IGLF provided in the Corporation Code and Banking

loan of P1.5 Million and placed under time Laws. After going over the Corporation Code

deposit. Respondent Bank, however, claims and Banking Laws, as well as the regulations
and circulars of both the SEC and the Bangko
Sentral ng Pilipinas (BSP), this Court finds may be dissolved by quo warranto proceedings
that there is no such requirement. instituted by the Solicitor General.
This Court cannot impose on a bank
that changes its corporate name to notify a
H. Nature of banking business (Sec. 2)
debtor of such change absent any law,
“It is fiduciary nature of banking that requires
circular or regulation requiring it. Such act
high standards of integrity and performance.”
would be judicial legislation. The formal
notification is, therefore, discretionary on the
a. Vital role in economy

bank. Unless there is a law, regulation or i. Subject to reasonable regulation by the State
circular from the SEC or BSP requiring the Central Bank of the Phils. v. Court
formal notification of all debtors of banks of of Appeals, G.R. Nos. 88353 &
any change in corporate name, such 92943, 08 May 1992
notification remains to be a mere internal The banking business is properly subject to
policy that banks may or may not adopt.
reasonable regulation under the police power
This Court finds that petitioners failed
of the state because of its nature and relation to
to comply with what is incumbent upon them
the fiscal affairs of the people and the revenues
to pay their loans when they became due. The
of the state. Banks are affected with public
lame excuse they belatedly advanced for their
non-payment cannot and should not prevent interest because they receive funds from the

respondent bank from exercising its right to general public in the form of deposits. Due to
foreclose the real estate mortgages executed the nature of their transactions and functions, a
in its favor. fiduciary relationship is created between the
banking institutions and their depositors.
e. Sanctions for operating without authority Therefore, banks are under the obligation to
Section 66. Penalty for Violation of treat with meticulous care and utmost fidelity
this Act. - Unless otherwise herein provided, the accounts of those who have reposed their
the violation of any of the provisions of this Act trust and confidence in them.
shall be subject to Sections 34, 35, 36 and 37 of
the New Central Bank Act. If the offender is a ii. Strikes and lockouts (Sec. 22; Article 278[g],
director or officer of a bank, quasi-bank or trust Labor Code, as amended)
entity, the Monetary Board may also suspend or Section 22. Strikes and Lockouts. - The banking
remove such director or officer. If the violation industry is hereby declared as indispensable to
is committed by a corporation, such corporation the national interest and, notwithstanding the
provisions of any law to the contrary, any strike
or lockout involving banks, if unsettled after Bank of the Philippine Islands v.
seven (7) calendar days shall be reported by the Intermediate Appellate Court,
Bangko Sentral to the secretary of Labor who G.R. No. 69162, 21 Feb 1992
may assume jurisdiction over the dispute or The bank is not expected to be infallible
decide it or certify the sane to the National but, as correctly observed by respondent
Labor Relations Commission for compulsory Appellate Court, in this instance, it must bear
arbitration. the blame for not discovering the mistake of its
The President of the Philippines may at teller despite the established procedure
any time intervene and assume jurisdiction over requiring the papers and bank books to pass
such labor dispute in order to settle or through a battery of bank personnel whose duty
terminate the same it is to check and countercheck them for
possible errors. Apparently, the officials and
b. Fiduciary nature of banking business employees tasked to do that did not perform
i. Degree of diligence required their duties with due care
Simex International, Inc. v. Court
of Appeals, 1. When utmost diligence required
G.R. No. 88013, 19 Mar 1990 a. In dealing with accounts of depositors
The depositor expects the bank to treat Philippine Banking Corp. v. Court
his account with the utmost fidelity whether of Appeals, G.R. No. 127469, 15
such account consists only of a few hundred Jan 2004
pesos or of millions. The bank must record In every case, the depositor expects the
every single transaction accurately, down to the bank to treat his account with the utmost
last centavo, and as promptly as possible. This fidelity, whether such account consists only of a
has to be done if the account is to reflect at any few hundred pesos or of millions. The bank
given time the amount of money the depositor must record every single transaction accurately,
can dispose of as he sees fit, confident that the down to the last centavo, and as promptly as
bank will deliver it as and to whomever he possible. This has to be done if the account is to
directs. A blunder on the part of the bank, such reflect at any given time the amount of money
as the dishonour of a check without good the depositor can dispose of as he sees fit,
reason, can cause the depositor not a little confident that the bank will deliver it as and to
embarrassment if not also financial loss and whomever he directs.
perhaps even civil and criminal litigation.
 As the BANK’s depositor, Marcos had Banks handle daily transactions involving
millions of pesos. By the very nature of their
the right to expect that the BANK was
work the degree of responsibility, care and
accurately recording his transactions with it. trustworthiness expected of their employees
Upon the maturity of his time deposits, Marcos and officials is far greater than those of
ordinary clerks and employees. Banks are
also had the right to withdraw the amount due
expected to exercise the highest degree of
him after the BANK had correctly debited his diligence in the selection and supervision of
outstanding obligations from his time deposits. their employees.

c. To be mortgagees in good faith

b. In selection and supervision of employees Cruz v. Bancom Finance Corp.,
Philippine Commercial G.R. No. 147788, 19 Mar 2002
International Bank v. Court of A bank that failed to observe due diligence was
Appeals not a mortgagee in good faith. The rule that
G.R. Nos. 121413, 121479 & persons dealing with registered lands can rely
128604, 29 Jan 2001 solely on the certificate of title does not apply
to banks. Banks, indeed, should exercise more
Thus, invoking the doctrine of
comparative negligence, we are of the view care and prudence in dealing even with
that both PCIBank and Citibank failed in registered lands, than private individuals, for
their respective obligations and both were
their business is one affected with public
negligent in the selection and supervision of
their employees resulting in the encashment interest, keeping in trust money belonging to
of Citibank Check Nos. SN 10597 AND their depositors, which they should guard
16508. Thus, we are constrained to hold
them equally liable for the loss of the against loss by not committing any act of
proceeds of said checks issued by Ford in negligence which amounts to lack of good faith
favor of the CIR.
by which they would be denied the protective
Time and again, we have stressed mantle of the land registration statute, Act [No.]
that banking business is so impressed with 496, extended only to purchasers for value and
public interest where the trust and
confidence of the public in general is of in good faith, as well as to mortgagees of the
paramount importance such that the same character and description.
appropriate standard of diligence must be
very high, if not the highest, degree of
diligence. A bank's liability as obligor is not d. In the custody of documents; integrity of
merely vicarious but primary, wherein the records
defense of exercise of due diligence in the
selection and supervision of its employees - Heirs of Manlapat v. Court of Appeals, G.R. No.
is of no moment. 125585, 08 Jun 2005
2. Exception 3.) in cases where the money deposited
Spouses Reyes v. Court of Appeals, G.R. No. or invested is the subject matter of the
118492, 15 Aug 2001 litigation.

The degree of extraordinary diligence applies 2. For employees/officials of banking

only to cases where banks act under their institutions to disclose to any person
any info - deposits
fiduciary capacity, that is, as depositary of the
deposits of their depositors. But the same
Section 2. 1 All deposits of whatever nature
higher degree of diligence is not expected to be
with banks or banking institutions in the
exerted by banks in commercial transactions
Philippines including investments in bonds
that do not involve their fiduciary relationship
issued by the Government of the Philippines, its
with their depositors.
political subdivisions and its instrumentalities,
are hereby considered as of an absolutely
LAWONSECRECY confidential nature and may not be examined,
OF inquired or looked into by any person,
BANKDEPOSITS government official, bureau or office, except
(R.A. No. 1405, as amended)
upon written permission of the depositor, or in
cases of impeachment, or upon order of a
Section 28. Subject to reasonable conditions
competent court in cases of bribery or
prescribed by law, the State adopts and
dereliction of duty of public officials, or in cases
implements a policy of full public disclosure of
where the money deposited or invested is the
all its transactions involving public interest.
subject matter of the litigation.

B. Prohibited acts
Section 3. It shall be unlawful for any official or
1. Examination of deposits bec. They are
employee of a banking institution to disclose to
considered confidential in nature
any person other than those mentioned in
- Exc:
1.) upon written permission of the Section two hereof any information concerning

depositor, or in cases of impeachment; said deposits.

2.) upon order of a competent court in

cases of bribery or dereliction of duty of Sec. 55.1 (b) (RA 8791) Without order of a
public officials court of competent jurisdiction, disclose to any
unauthorized person any information relative to
the funds or properties in the custody of the manifestly out of proportion to his salary and to
bank belonging to private individuals, his other lawful income, that fact shall be a
corporations, or any other entity: Provided, ground for dismissal or removal. Properties in
That with respect to bank deposits, the the name of the spouse and unmarried children
provisions of existing laws shall prevail; of such public official may be taken into
consideration, when their acquisition through
C. Deposits covered (Sec. 2) legitimate means cannot be satisfactorily
All deposits of whatever nature with banks or shown. Bank deposits shall be taken into
banking institutions in the Philippines including consideration in the enforcement of this
investments in bonds issued by the Government section, notwithstanding any provision of law to
of the Philippines, its political subdivisions and the contrary.
its instrumentalities
c. Under the Ombudsman Act (Sec. 15[8], R.A.
D. Exceptions No. 6770)
a. Under the Law on Secrecy of Bank The Office of the Ombudsman shall have the
Deposits (Sec. 2, R.A. No. 1405) following powers, functions and duties:
1.) except upon written permission of the (8) Administer oaths, issue subpoena and
depositor, or in cases of impeachment, subpoena duces tecum, and take testimony in
2.) upon order of a competent court in cases of any investigation or inquiry, including the power
bribery or dereliction of duty of public officials, to examine and have access to bank accounts
3.) in cases where the money deposited or and records
invested is the subject matter of the litigation.
d. Under the Plunder Law (Secs. 1[d] & 4, R.A.
b. Under the Anti-Graft and Corrupt Practices No. 7080, as amended)
Act (Sec. 8 R.A. No. 3019, as amended) d) “Ill-gotten wealth” means any asset,

Section 8. Dismissal due to unexplained property, business enterprise or material

wealth. If in accordance with the provisions of possession of any person within the purview of

Republic Act Numbered One thousand three Section Two (2) hereof, acquired by him directly

hundred seventy-nine, a public official has been or indirectly through dummies, nominees,

found to have acquired during his incumbency, agents, subordinates and/or business associates

whether in his name or in the name of other by any combination or series of the following

persons, an amount of property and/or money means or similar schemes:

1) Through misappropriation, conversion, e. Under the Anti-Money Laundering Act (Sec.
misuse, or malversation of public funds or raids 11, R.A. No. 9160, as amended)
on the public treasury; SEC. 11. Authority to Inquire into Bank Deposits.
2) By receiving, directly or indirectly, any — Notwithstanding the provisions of Republic
commission, gift, share, percentage, kickbacks Act No. 1405, as amended; Republic Act No.
or any other form of pecuniary benefit from any 6426, as amended; Republic Act No. 8791, and
person and/or entity in connection with any other laws, the AMLC may inquire into or
government contract or project or by reason of examine any particular deposit or investment
the office or position of the public officer with any banking institution or non-bank
concerned; financial institution upon order of any
3) By the illegal or fraudulent conveyance or competent court in cases of violation of this Act
disposition of assets belonging to the National when it has been established that there is
Government or any of its subdivisions, agencies probable cause that the deposits or investments
or instrumentalities or government-owned or - involved are in any way related to a money
controlled corporations and their subsidiaries; laundering offense: Provided, That this
4) By obtaining, receiving or accepting directly provision shall not apply to deposits and
or indirectly any shares of stock, equity or any investments made prior to the effectivity of this
other form of interest or participation including Act.
the promise of future employment in any
business enterprise or undertaking; f. BSP inquiry into or examination of deposits
5) By establishing agricultural, industrial or or investments with any bank, when the
commercial monopolies or other combinations inquiry or examination is made in the course of
and/or implementation of decrees and orders the BSP’s periodic or special examination
intended to benefit particular persons or special
interests; or g. Independent auditor hired by the bank to
6) By taking undue advantage of official conduct its regular audit, provided that the
position, authority, relationship, connection or examination is for audit purposes only and the
influence to unjustly enrich himself or results thereof shall be for the exclusive use of
themselves at the expense and to the damage the bank
and prejudice of the Filipino people and the
Republic of the Philippines. h. Under the PDIC charter (Sec. 8[8], R.A. No.
3591, as amended)
Section 8. The Corporation as a corporate body (A) (2) of this Code by reason of financial
shall have the power to make examination of incapacity to pay his tax liability.
and to require information and reports from In case a taxpayer files an application to
banks, as provided in this Act. compromise the payment of his tax liabilities on
his claim that his financial position
i. Under the Anti-Terrorism Act (Sec. 39, R.A. demonstrates a clear inability to pay the tax
No. 11479) assessed, his application shall not be considered
Section 39. Bank Officials and Employees unless and until he waives in writing his
Defying a Court Authorization. - An employee, privilege under Republic Act No. 1405 or under
official, or a member of the board of directors other general or special laws, and such waiver
of a bank or financial institution, who after shall constitute the authority of the
being duly served with the written order of Commissioner to inquire into the bank deposits
authorization from the Court of appeals, refuses of the taxpayer.
to allow the examination of the deposits,
placements, trust accounts, assets, and records k. Under the Unclaimed Balances Law (Sec. 3,
of a terrorist or an outlawed group of persons, R.A. No. 3936, as amended)
organization or association, in accordance with
Section 25 and 26 hereof, shall suffer the l. Under the Rules of Court
penalty of imprisonment of four (4) years. i. Garnishment
1. Procedure (Sec. 9[c], Rule 39, Rules of Court)
j. Under the National Internal Revenue Code (c) Garnishment of debts and credits. - The
(Sec. 6[F], Tax Code, as amended) officer may levy on debts due the judgment
(F) Authority of the Commissioner to inquire obligor and other credits, including bank
into Bank Deposit Accounts. - Notwithstanding deposits, financial interests, royalties,
any contrary provision of Republic Act No. 1405 commissions and other personal property not
and other general or special laws, the capable of manual delivery in the possession or
Commissioner is hereby authorized to inquire control of third parties. Levy shall be made by
into the bank deposits of: serving notice upon the person owing such
(1) a decedent to determine his gross estate; debts or having in his possession or control such
and credits to which the judgment obligor is
(2) any taxpayer who has filed an application for entitled. The garnishment shall cover only such
compromise of his tax liability under Sec. 204
amount as will satisfy the judgment and all Section 8. Secrecy of foreign currency deposits.
lawful fees. – All foreign currency deposits authorized under
The garnishee shall make a written this Act, as amended by PD No. 1035, as well as
report to the court within five (5) days from foreign currency deposits authorized under PD
service of the notice of garnishment stating No. 1034, are hereby declared as and
whether or not the judgment obligor has considered of an absolutely confidential nature
sufficient funds or credits to satisfy the amount and, except upon the written permission of the
of the judgment. If not, the report shall state depositor, in no instance shall foreign currency
how much funds or credits the garnishee holds deposits be examined, inquired or looked into
for the judgment obligor. The garnished amount by any person, government official, bureau or
in cash, or certified bank check issued in the office whether judicial or administrative or
name of the judgment obligee, shall be legislative, or any other entity whether public or
delivered directly to the judgment obligee private; Provided, however, That said foreign
within ten (10) working days from service of currency deposits shall be exempt from
notice on said garnishing requiring such attachment, garnishment, or any other order or
delivery, except the lawful fees which shall be process of any court, legislative body,
paid directly to the court. government agency or any administrative body
In the event there are two or more whatsoever.
garnishees holding deposits or credits sufficient
to satisfy the judgment, the judgment obligor, if b. Under the Rules of Court (Sec. 13, Rule 39,
available, shall have the right to indicate the Rules of Court)
garnishee or garnishees who shall be required Sec. 13. Property exempt from
to deliver the amount due; otherwise, the execution.
choice shall be made by the judgment obligee. Except as otherwise expressly provided by law,
The executing sheriff shall observe the the following property, and no other, shall be
same procedure under paragraph (a) with exempt from execution:
respect to delivery of payment to the judgment (a) The judgment obligor's family home as
obligee. provided by law, or the homestead in which he
resides, and land necessarily used in connection
2. Exempt Deposits therewith;
a. Foreign currency deposits (Sec. 8, R.A. No.
6426)
(b) Ordinary tools and implements personally
used by him in his trade, employment, or (i) So much of the salaries, wages, or earnings of
livelihood; the judgment obligor of his personal services
within the four months preceding the levy as
(c) Three horses, or three cows, or three are necessary for the support of his family;
carabaos, or other beasts of burden such as the
judgment obligor may select necessarily used by (j) Lettered gravestones;
him in his ordinary occupation;
(k) Monies benefits, privileges, or annuities
(d) His necessary clothing and articles for accruing or in any manner growing out of any
ordinary personal use, excluding jewelry; life insurance;

(e) Household furniture and utensils necessary (l) The right to receive legal support, or money
for housekeeping, and used for that purpose by or property obtained as such support, or any
the judgment obligor and his family, such as the pension or gratuity from the Government;
judgment obligor may select, of a value not
exceeding one hundred thousand pesos; (m) Properties specially exempt by law.
But no article or species of property
(f) Provisions for individual or family use mentioned in his section shall be exempt from
sufficient for four months; execution issued upon a judgment recovered
for its price or upon a judgment of foreclosure
(g) The professional libraries and equipment of of a mortgage thereon.
judges, lawyers, physicians, pharmacists,
dentists, engineers, surveyors, clergymen, c. No violation of Law on Secrecy of Bank
teachers, and other professionals, not Deposits
exceeding three hundred thousand pesos in China Banking Corp. v. Ortega,
value; G.R. No. L-34964, 31 Jan 1973
FACTS:
(h) One fishing boat and accessories not Vicente Acaban won in a civil case for
exceeding the total value of one hundred sum of money against B & B Forest
thousand pesos owned by a fisherman and by Development Corporation. To satisfy the
the lawful use of which he earns his livelihood; judgment, the Acaban sought the garnishment
of the bank deposit of the B & B Forest Corporation only for the purposes of the
Development Corporation with the China garnishment issued by it, so that the bank
Banking Corporation (CBC). Accordingly, a would hold the same intact and not allow any
notice of garnishment was issued by the Deputy withdrawal until further order. It is sufficiently
Sheriff of the trial court and served on said bank clear that the prohibition against examination
through its cashier, Tan Kim Liong. Liong was of or inquiry into bank deposit under RA 1405
ordered to inform the Court whether or not does not preclude its being garnished to insure
there is a deposit in the CBC of B & B Forest satisfaction of a judgment. Indeed there is no
Development Corporation, and if there is any real inquiry in such a case, and the existence of
deposit, to hold the same intact and not allow the deposit is disclosed the disclosure is purely
any withdrawal until further order from the incidental to the execution process. It is hard to
Court. CBC and Liong refuse to comply with a conceive that it was ever within the intention of
court process garnishing the bank deposit of a Congress to enable debtors to evade payment
judgment debtor by invoking the provisions of of their just debts, even if ordered by the Court,
Republic Act No. 1405 ( Secrecy of Bank through the expedient of converting their assets
Deposits Act) which allegedly prohibits the into cash and depositing the same in a bank.
disclosure of any information concerning to
bank deposits. d. Liability for release
Rizal Commercial Banking Corp. v.
ISSUES: Whether or not a banking institution De Castro
may validly refuse to comply with a court G.R. No. L-34548, 29 Nov 1988
processes garnishing the bank deposit of a Facts:
judgment debtor, by invoking the provisions of Badoc Planters, Inc. filed an action for
Republic Act No. 1405. recovery of unpaid tobacco deliveries against
PVTA. Hon. Lourdes P. San Diego, then
RULING: NO. The lower court did not order an Presiding Judge, ordering the defendants
examination of or inquiry into deposit of B & B therein to pay jointly and severally, the plaintiff
Forest Development Corporation, as Badoc Planters, Inc. (hereinafter referred to as
contemplated in the law. It merely required Tan “BADOC”) within 48 hours the aggregate
Kim Liong to inform the court whether or not amount of P206,916.76, with legal interests
the defendant B & B Forest Development thereon. Accordingly, the Branch Clerk of Court
Corporation had a deposit in the China Banking on the very same day, issued a Writ of
Execution addressed to Special Sheriff Faustino essential to the proper conduct of such
Rigor, who then issued a Notice of Garnishment operations.” Among the specific powers vested
addressed to the General Manager and/or in the PVTA are: 1) to buy Virginia tobacco
Cashier of Rizal Commercial Banking grown in the Philippines for resale to local bona
Corporation (hereinafter referred to as RCBC). fide tobacco manufacturers and leaf tobacco
However, PVTA filed a Motion for dealers [Section 4(b), R.A. No. 2265]; 2) to
Reconsideration. The Judge set aside the Orders contracts of any kind as may be necessary or
of Execution and of Payment and the Writ of incidental to the attainment of its purpose with
Execution and ordering petitioner and BADOC any person, firm or corporation, with the
“to restore, jointly and severally, the account of Government of the Philippines or with any
PVTA with the said bank in the same condition foreign government, subject to existing laws
and state it was before. [Section 4(h), R.A. No. 22651; and 3) generally,
to exercise all the powers of a corporation
Issues: under the Corporation Law, insofar as they are
1) Whether or not PVTA funds are public funds not inconsistent with the provisions of this Act
not subject to garnishment; [Section 4(k), R.A. No. 2265.]
2) Whether or not the respondent Judge From the foregoing, it is clear that PVTA
correctly ordered the herein petitioner to has been endowed with a personality distinct
reimburse the amount paid to the Special Sheriff and separate from the government which owns
by virtue of the execution issued pursuant to the and controls it. Accordingly, this Court has
Order/Partial Judgment dated January 15, 1970. heretofore declared that the funds of the PVTA
can be garnished since “funds of public
1) Whether or not PVTA funds are public funds corporation which can sue and be sued were
not subject to garnishment; not exempt from garnishment. Inasmuch as the
Republic Act No. 2265 created the PVTA Tobacco Fund, a special fund, was by law,
as an ordinary corporation with all the earmarked specifically to answer obligations
attributes of a corporate entity subject to the incurred by PVTA in connection with its
provisions of the Corporation Law. Hence, it proprietary and commercial operations
possesses the power “to sue and be sued” and authorized under the law, it follows that said
“to acquire and hold such assets and incur such funds may be proceeded against by ordinary
liabilities resulting directly from operations judicial processes such as execution and
authorized by the provisions of this Act or as garnishment. Garnishment is considered as a
specie of attachment for reaching credits of the Writ of Execution and Order of Payment
belonging to the judgment debtor and owing to and so, the plaintiff alone should bear the
him from a stranger to the litigation. Under the consequences of a subsequent annulment of
above-cited rule, the garnishee [the third such court orders; hence, only the plaintiff can
person] is obliged to deliver the credits, etc. to be ordered to restore the account of the PVTA.
the proper officer issuing the writ and “the law
exempts from liability the person having in his E. Penalty for violation (Sec. 5)
possession or under his control any credits or SECTION 5. Any violation of this law will subject
other personal property belonging to the offender upon conviction, to an imprisonment
defendant, …, if such property be delivered or of not more than five years or a fine of not
transferred, …, to the clerk, sheriff, or other more than twenty thousand pesos or both, in
officer of the court in which the action is the discretion of the court.
pending.
F. Foreign Currency Deposit Act of the
2) Whether or not the respondent Judge Philippines (R.A. No. 6426)
correctly ordered the herein petitioner to a. Coverage/Prohibition (Sec. 8, R.A. No. 6426)
reimburse the amount paid to the Special Section 8. Secrecy of foreign currency deposits.
Sheriff – All foreign currency deposits authorized under
No. The bank was in no position to this Act, as amended by PD No. 1035, as well as
question the legality of the garnishment since it foreign currency deposits authorized under PD
was not even a party to the case. As correctly No. 1034, are hereby declared as and
pointed out by the petitioner, it had neither the considered of an absolutely confidential nature
personality nor the interest to assail or and, except upon the written permission of the
controvert the orders of respondent Judge. It depositor, in no instance shall foreign currency
had no choice but to obey the same inasmuch deposits be examined, inquired or looked into
as it had no standing at all to impugn the by any person, government official, bureau or
validity of the partial judgment rendered in office whether judicial or administrative or
favor of the plaintiff or of the processes issued legislative, or any other entity whether public or
in execution of such judgment. RCBC cannot private; Provided, however, That said foreign
therefore be compelled to make restitution currency deposits shall be exempt from
solidarily with the plaintiff BADOC. Plaintiff attachment, garnishment, or any other order or
BADOC alone was responsible for the issuance process of any court, legislative body,
government agency or any administrative body
whatsoever.