Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
Circle
2016
UNIVERSITY OF SANTO
TOMAS
Digested by: DC 2016
Members
Editors: Tricia Lacuesta
Lorenzo Luigi Gayya
Cristopher Reyes
Macky Siazon
Janine Arenas
Ninna Bonsol
Lloyd Javier
SPECIAL COMMERCIAL
LAWS
FIRST SEM CASES
36
Letters or Credit
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Whether Feati Bank is liable under the letter of credit despite non-compliance with its
Ruling:
NO. Two things should be considered here (per BPI v Nery, Art. 2 of Code of
Commerce, and the Uniform Customs and Practice for Documentary Credits): first, in
commercial transactions involving letters of credit, the functions assumed by correspondent
banks depend on the obligations taken up by them. If the bank is a notifying bank, its only
obligation is to transmit to the beneficiary the existence of the letter of credit. If a
negotiating bank, it purchases and discounts drafts under the letter of credit, and it would be
liable depending on the stage of the negotiation-- if prior to negotiation, there is no liability
to the seller but after that, it would breach its contract with the seller. If a confirming bank,
the correspondent bank assumes a direct and primary obligation to assume the obligation as
if the corresponding bank had issued the letter of credit.
Second, a letter of credit (especially an irrevocable letter of credit) is a contract
independent from the contract between the buyer and the seller, and the credit agreement
between the issuing bank and the buyer. Breaches and liabilities in one contract may not
affect the other contracts. That is, while it provides security for commercial transactions, it is
not an accessory contract (such as a guaranty)-- it is a contract with obligations within itself,
some of which are related to those in other contracts (e.g. the letter of credit is used in order
to facilitate a sale, but the letter of credit is not the sale contract-- it is a contract that can be
used as part of the means of payment). Treating the contract as an accessory destroys the
independence of the banks responsibility from the contract upon which it was opened.
Feati Bank's sole involvement is that of a notifying bank. It forwarded the letter of
credit from SPNB to the beneficiary (the seller). Villaluz claims that Feati is a confirming
bank, that it would carry out SPNB's obligation as if it is own since there was a prior loan
agreement that anticipated the letter of credit (characterizing it as a confirmation and as an
accessory). However, the law requires that the undertaking be absolutely spelled out in
order for a bank to be considered confirming. Neither can Feati be considered a negotiating
bank with liability, as there did not seem to be any negotiation that would create a
contractual relationship. Without these, it does appear that Feati Bank really only advised
Villaluz of the letter of credit, and entered into no other obligation with him. It is not privy to
whatever agreements Villaluz may have had with Christiansen. Apparently, Villaluz had a
contract akin to one with services with Christiansen, which the latter breached when he
refused to issue the certification. However, his unjustified refusal is a matter between the
two men, and not the bank.
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MWSS v. HON. REYNALDO DAWAY and MAYNILAD WATER SERVICES
G.R. No. 160732, June 21, 2004, AZCUNA, J.
Except when a letter of credit specifically stipulates otherwise, the obligation of the
banks issuing letters of credit are solidary with that of the person or entity requesting for its
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Facts:
Reliance Commodities, Inc. entered a contract of sale with Daewoo Industrial Co., Ltd.
whereby the latter shall deliver 2,000 metric tons of foundry pig iron at a certain price. Both
parties likewise agreed that Reliance shall secure a letter of credit (L/C) in favor of Daewoo.
Consequently, Reliance failed to secure the L/C having exceeded its foreign exchange
allocation and to raise purchase orders for 2,000 metric tons as required by the Iron and
Steel Authority (ISA).
Corollarily, when the goods were shipped, it fell short of 135 metric tons of foundry
pig iron prompting Reliance to file for damages against Daewoo. However, the latter
contended that Reliance breached their contract for failure to secure the L/C hence should
be liable for damages. The trial court ruled that Reliance is guilty of breach of contract while
Daewoo must pay for the amount representing the value of the short delivered goods plus
interest. Reliance filed an appeal contending that the opening of the L/C is a condition
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Ruling:
YES.A letter of credit transaction may be seen to be a composite of at least three (3)
distinct but intertwined relationships being concretized in a contract:
(a) One contract relationship links the party applying for the L/C (the account party or
buyer or importer) and the party for whose benefit the L/C is issued (the beneficiary or seller
or exporter). In this contract, the account party, here Reliance, agrees, among other things
and subject to the terms and conditions of the contract, to pay money to the beneficiary,
here Daewoo.
(b) A second contract relationship is between the account party and the issuing bank.
Under this contract, (sometimes called the "Application and Agreement" or the
"Reimbursement Agreement"), the account party among other things, applies to the issuing
bank for a specified L/C and agrees to reimburse the bank for amounts paid by that bank
pursuant to the L/C.
(c) The third contract relationship is established between the issuing bank and the
beneficiary, in order to support the contract.
We believe and so hold that failure of a buyer seasonably to furnish an agreed letter
of credit is a breach of the contract between buyer and seller. Where the buyer fails to open
a letter of credit as stipulated, the seller or exporter is entitled to claim damages for such
breach. Damages for failure to open a commercial credit may, in appropriate cases, include
the loss of profit which the seller would reasonably have made had the transaction been
carried out.
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Commercial letters of credit have come into general use in international sales
transactions where much time necessarily elapses between the sale and the receipt by a
purchaser of the merchandise, during which interval great price changes may occur. Buyers
and sellers struggle for the advantage of position. The seller is desirous of being paid as
surely and as soon as possible, realizing that the vendee at a distant point has it in his
power to reject on trivial grounds merchandise on arrival, and cause considerable hardship
to the shipper. Letters of credit meet this condition by affording celerity and certainty of
payment.
Facts:
Philippine Rayon Mills entered into a contract with Nissho Co., Ltd. of Japan for the
importation of textile machineries. To effect its payment, Rayon applied for a commercial
letter of credit with Prudential Bank and Trust Company in favor of Nissho which was
granted. After the drafts were drawn, Prudential Bank through its correspondent in Japan,
paid the amount of the machineries pursuant to the L/C. Consequently, Rayon ceased its
business operation and sold the textile machineries while the drafts remained unpaid in
spite of Prudential Banks demands. Hence, Prudential Bank filed an action for collection of
the principal amount against Rayon. However, the latter interposed the defense that the
drafts were not presented to it for acceptance therefore its liability to reimburse did not
arise. On the other hand, Prudential Bank averred that the drafts, being sight drafts, did not
require presentment for acceptance to Rayon. The trial court ruled in favor of the latter on
the ground that since the drafts were not presented and accepted, no valid demand for
payment can be made.
Issue:
Whether or not the presentment for acceptance of the drafts was indispensable to
make Philippine Rayon liable.
Ruling:
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A different conclusion would violate the principle upon which commercial letters of
credit are founded because in such a case, both the beneficiary and the issuer, Nissho
Company Ltd. and the petitioner, respectively, would be placed at the mercy of Philippine
Rayon even if the latter had already received the imported machinery and the petitioner had
fully paid for it.
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RODZSSEN SUPPLY CO. INC. v. FAR EAST BANK & TRUST CO.
G.R. No. 109087, May 9, 2001, Panganiban, J.
When both parties to a transaction are mutually negligent in the performance of their
obligations, the fault of one cancels the negligence of the other. Thus, their rights and
obligations may be determined equitably. No one shall enrich oneself at the expense of
another.
Facts:
Rodzssen Supply Inc. applied for and obtained an irrevocable Letter of Credit from Far
East Bank and Trust Company Inc. in favor of Ekman and Company Inc., in order to finance
the purchase of five (5) units of hydraulic loaders in the amount of P190,000. For the first
three (3) hydraulic loaders that were delivered, the bank paid the amount specified in the
letter of credit. Five months after the expiration of the L/C, Far East paid Ekman the amount
of the last two (2) hydraulic loaders which were voluntarily received by Rodzssen. After four
years (4), Far East sought for the payment of the 2 hydraulic loaders against Rodzssen but to
no avail. Hence, it filed a complaint to recover its value. Rodzssen contended that Far East
acted in bad faith when it paid Ekman for the 2 hydraulic loaders from Ekman in spite of the
expiration of the L/C. Hence, Rodzssen was no longer bound to reimburse Far East under the
subject L/C.
Issue:
Whether or not it is proper for a banking institution to pay a letter of credit which has
long expired or been cancelled.
Ruling:
NO. The subject Letter of Credit had become invalid upon the lapse of the period
fixed therein.Thus, respondent should not have paid Ekman; it was not obliged to do so. In
the same vein, of no moment was Ekmans presentation, within the prescribed period, of all
the documents necessary for collection, as the Letter of Credit had already expired and had
in fact been cancelled.
Indeed, equitable considerations behoove us to allow recovery by respondent. True, it
erred in paying Ekman, but petitioner itself was not without fault in the transaction. It must
be noted that the latter had voluntarily received and kept the loaders since October 1979.
Petitioner claims that it accepted the late delivery of the equipment, only because it
was bound to accept it under the companys trust receipt arrangement with respondent
bank.
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The marginal deposit requirement for letters of credit has been discontinued, except
in those cases where the applicant for a letter of credit is not known to the bank or does not
maintain
a
good
credit
standing
therein.
Facts:
TOMCO, Inc., now known as Southeast Timber Co. (Phils.), Inc., applied for, and was
granted by the Philippine Commercial and Industrial Bank (PCIB), a domestic letter of credit
for P 80,000 in favor of Oregon Industries, Inc., to pay for one Skagit Yarder with accessories.
PCIB paid to Oregon Industries the cost of the machinery with recourse, presentment and
notice of dishonor waived, and with date of maturity on January 4, 1964.
The bank sued TOMCO, Inc. and Abad. TOMCO did not deny its liability to PCIB under
the letter of credit but it alleged that inasmuch as it made a marginal deposit of P28,000,
this amount should have been deducted from its principal obligation.The trial court rendered
judgment in favor of PCIB, which was affirmed by CA.
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Issue:
Whether or not the debtor (or its surety) is entitled to deduct the debtor's cash
marginal deposit from the principal obligation under a letter of credit and to have the
interest charges computed only on the balance of the said obligation.
Ruling:
YES. It is only fair then that the importer's marginal deposit (if one was made, as in
this case), should be set off against his debt, for while the importer earns no interest on his
marginal deposit, the bank, apart from being able to use said deposit for its own purposes,
also earns interest on the money it loaned to the importer. It would be onerous to compute
interest and other charges on the face value of the letter of credit which the bank issued,
without first crediting or setting off the marginal deposit which the importer paid to the
bank. Compensation is proper and should take effect by operation of law because the
requisites in Article 1279 of the Civil Code are present and should extinguish both debts to
the concurrent amount (Art. 1290, Civil Code). Although Abad is only a surety, he may set up
compensation as regards what the creditor owes the principal debtor, TOMCO (Art. 1280,
Civil Code).
It is not farfetched to assume that the bank used TOMCO's marginal deposit to
partially fund the P80,000 letter of credit it issued to TOMCO, hence, the interests and other
charges on said letter of credit should be levied only on the balance of P52,000 which was
the portion that was actually funded or loaned by the bank from its own funds. Requiring the
importer to pay interest on the entire letter of credit without deducting first him marginal
deposit, would be a clear case of unjust enrichment by the bank.
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THE CONSOLIDATED BANK AND TRUST CORPORATION (SOLIDBANK) v. THE COURT
OF APPEALS, CONTINENTAL CEMENT CORPORATION, GREGORY T. LIM and SPOUSE
G.R. No. 114286. April 19, 2001, Ynares-Santiago, J.
The practice of banks of making borrowers sign trust receipts to facilitate collection
of loans and place them under the threats of criminal prosecution should they be unable to
pay it may be unjust and inequitable, if not reprehensible. Such agreements are contracts of
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Issues:
1. Whether or not the contention of Continental Cement Corporation that the marginal deposit
should be applied only after computing the principal and accrued interest is tenable.
2. Whether the transaction with Continental Cement Corporation is a trust receipt transaction.
Ruling:
1. NO. petitioners contention that the marginal deposit made by respondent Corporation
should not be deducted outright from the amount of the letter of credit is untenable.
Petitioner argues that the marginal deposit should be considered only after computing the
principal plus accrued interests and other charges. However, to sustain petitioner on this
score would be to countenance a clear case of unjust enrichment, for while a marginal
deposit earns no interest in favor of the debtor-depositor, the bank is not only able to use
the same for its own purposes, interest-free, but is also able to earn interest on the money
loaned to respondent Corporation. Indeed, it would be onerous to compute interest and
other charges on the face value of the letter of credit which the petitioner issued, without
first crediting or setting off the marginal deposit which the respondent Corporation paid to it.
Compensation is proper and should take effect by operation of law because the requisites in
Article 1279 of the Civil Code are present and should extinguish both debts to the concurrent
amount.
Hence, the interests and other charges on the subject letter of credit should be computed
only on the balance of P681,075.93, which was the portion actually loaned by the bank to
respondent Corporation.
2. NO. The transaction is a simple loan. The recent case of Colinares v. Court of Appeals
appears to be foursquare with the facts obtaining in the case at bar. There, we found that
inasmuch as the debtor received the goods subject of the trust receipt before the trust
receipt itself was entered into, the transaction in question was a simple loan and not a trust
receipt agreement. Prior to the date of execution of the trust receipt, ownership over the
goods was already transferred to the debtor. This situation is inconsistent with what normally
obtains in a pure trust receipt transaction, wherein the goods belong in ownership to the
bank and are only released to the importer in trust after the loan is granted.
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Facts:
De Reny Fabric Industries, Inc. (De Reny) applied for, and was granted, four (4)
irrevocable commercial letters of credit (L/Cs) with the Bank of Philippine Islands (BPI) in
favor of J.B distributing Company to cover the purchase of dyestuffs of various colors. As
each shipment arrived in the Philippines, De Reny made partial payments to the Bank
amounting. Further payments were, however, subsequently discontinued by the corporation
when it was established, as a result of a chemical test conducted by the National Science
Development Board, that the goods which arrived in Manila were colored chalks instead of
dyestuffs. Consequently, BPIfiled a complaint for payment of the amount of the L/Cs. In its
answer, De Reny contended that it was the duty of BPIs foreign correspondent banks to take
the necessary precaution to insure that the goods shipped under the covering L/Cs
conformed with the item appearing therein, and, that the foregoing banks having failed to
perform this duty, no claim for recoupment against the defendants-appellants, arising from
the losses incurred for the non-delivery or defective delivery of the articles ordered, could
accrue.
Issue:
Ruling:
YES.Under the terms of their Commercial Letter of Credit Agreements with the Bank,
the appellants agreed that the Bank shall not be responsible for the "existence, character,
quality, quantity, conditions, packing, value, or delivery of the property purporting to be
represented by documents; for any difference in character, quality, quantity, condition, or
value of the property from that expressed in documents," or for "partial or incomplete
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But even without the stipulation recited above, the appellants cannot shift the burden
of loss to the Bank on account of the violation by their vendor of its prestation.
It was uncontrovertibly proven by the Bank during the trial below that banks, in
providing financing in international business transactions such as those entered into by the
appellants, do not deal with the property to be exported or shipped to the importer, but deal
only with documents.
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LAND BANK OF THE PHILIPPINES v. MONETS EXPORT AND MANUFACTURING
CORPORATION, SPOUSES VICENTE V. TAGLE, SR. and MA. CONSUELO G. TAGLE
G.R. No. 161865, March 10, 2005, Ynares-Santiago, J.
The so-called independence principle assures the seller or the beneficiary of prompt
payment independent of any breach of the main contract and precludes the issuing bank
from determining whether the main contract is actually accomplished or not.
Facts:
Land Bank of the Philippines (Land Bank) and Monets Export and Manufacturing
Corporation (Monet) executed an Export Packing Credit Line Agreementunder the latter was
given a credit line secured, among others, by the proceeds of its export letters of credit from
Wishbone Trading Corporation. When Monet failed to pay for its obligations with the Land
Bank, the latter filed a complaint for collection of sum of money. However, Monet countered
that Land Bank failed to protect Monets interest when it paid the suppliers despite
discrepancies in the shipment vis--vis the order specifications.
Issue:
Whether or not Monet is entitled to opportunity losses based on Land Banks
unauthorized payment on behalf of Monet.
Ruling:
NO. As regards to the Beautilike account, the trial court and the Court of Appeals
erred in holding that Land Bank failed to protect Monets interest when it paid the suppliers
despite discrepancies in the shipment vis--vis the order specifications of Monet. The Court
finds merit in the contention of Land Bank that, as the issuing bank in the Beautilike
transaction involving an import letter of credit, it only deals in documents and it is not
involved in the contract between the parties. The relationship between the beneficiary and
the issuer of a letter of credit is not strictly contractual, because both privity and a meeting
of the minds are lacking. Thus, upon receipt by Land Bank of the documents of title which
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The engagement of the issuing bank is to pay the seller or beneficiary of the credit
once the draft and the required documents are presented to it. The so-called "independence
principle" assures the seller or the beneficiary of prompt payment independent of any
breach of the main contract and precludes the issuing bank from determining whether the
main contract is actually accomplished or not.
Facts:
San Miguel Corporation (SMC) entered into an exclusive dealership agreement with
and Rodolfo R. Goroza wherein the latter was given the right to trade, deal, market or
otherwise sell its various beer products. Consequently, to secure a credit line with SMC,
Goroza must apply for a letter of credit which he obtained from Philippine National Bank.
Upon presentment of required invoices and official receipts of Gorozas purchases of SMC
products, the amount of the credit line was released for payment to SMC. Subsequently,
Goroza was able to secure a revolving credit line with PNB which enabled it to pay for his
credit purchases with SMC. However, Goroza started to become delinquent with his
accounts. SMC demanded payment for the balance with Goroza and PNB but to no avail.
Hence, SMC filed an action for collection of sum of money with the Regional Trial Court (RTC)
against them.
The RTC ordered Goroza to pay SMC for the said amount without prejudice to the decision
against PNB in a separate trial of the case. PNB now contends that by virtue of the RTC
decision finding Gorozaliable to pay the entire amount sought to be recovered by SMC, has
settled the obligation of both Goroza and PNB, and that there is no longer any ground to hold
PNB for trial and make a separate judgment against it. However, the Court of Appeals (CA)
ruled that proceedings against PNB may continue in the RTC, despite the trial court's
complete adjudication of relief in favor of SMC. Hence, this petition was filed.
Issue:
Whether the adjudication of Gorozas liability against SMC also settled the obligation
of PNB.
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NO. In a letter of credit transaction, such as in this case, where the credit is
stipulated as irrevocable, there is a definite undertaking by the issuing bank to pay the
beneficiary provided that the stipulated documents are presented and the conditions of the
credit are complied with. Precisely, the independence principle liberates the issuing bank
from the duty of ascertaining compliance by the parties in the main contract. As the
principle's nomenclature clearly suggests, the obligation under the letter of credit is
independent of the related and originating contract. In brief, the letter of credit is separate
and distinct from the underlying transaction.
In other words, PNB cannot evade responsibility on the sole ground that the RTC
judgment found Goroza liable and ordered him to pay the amount sought to be recovered by
SMC. PNB's liability, if any, under the letter of credit is yet to be determined.
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INSULAR BANK OF ASIA & AMERICA (NOW PHILIPPINE COMMERCIAL
INTERNATIONAL BANK)v.HON. INTERMEDIATE APPELLATE COURT, THE PHILIPPINE
AMERICAN LIFE INSURANCE CO., SPS. BEN MENDOZA & JUANITA M. MENDOZA
G.R. No. 74834, November 17, 1988, Melencio-Herrera, J.
Letters of credit and contracts for the issuance of such letters are subject to the
same rules of construction as are ordinary commercial contracts. They are to receive a
reasonable and not a technical construction and although usage and custom cannot control
express terms in letters of credit, they are to be construed with reference to all the
surrounding facts and circumstances, to the particular and often varying terms in which
they may be expressed, the circumstances and intention of the parties to them, and the
usages of the particular trade of business contemplated.
Facts:
Spouses Ben and Juanita Mendoza obtained two (2) loans from Philippine American
Life Insurance Co. (Philam Life) to finance the construction of their residential house. To
secure payment,Philam Life required that amortizations be guaranteed by an irrevocable
standby letter of credit of a commercial bank (LCs).Thus, the Mendozas contracted with
Insular Bank of Asia and America (IBAA) for the issuance of two (2) irrevocable standby
Letters of Credit in favor of Philam Life. Spouses Mendoza were able to pay initially but
subsequently became delinquent for the remaining balance. IBAA and contended that the
payment made by the spouses reduced its liability pursuant to the LCs. Nonetheless, Phil Am
Life filed a complaint for collection of sum of money against the spouses and IBAA before the
Regional Trial Court (RTC) which rendered a decision extinguishing the liability of IBAA to the
extent of the payment made by IBAA. The Court of Appeals (CA) however, reversed the RTC
decision on the ground that IBAAs liability was not reduced by the payments made by the
Mendozas.
Issue:
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to justify their
purpose of the
with little or no
was ministerial
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Lirag Textile Mills, Inc. (Litex) opened an irrevocable commercial letter of credit with
Prudential Bank. This was in connection with its importation of spindles for spinning
machinery. These were released to Litex under covering trust receipts it executed in favor
of Prudential. 9 years later, DBP granted a foreign currency loan to Litex. To secure the loan,
Litex executed real estate and chattel mortgages on its plant site in Montalban, Rizal,
including the buildings and other improvements, machineries and equipment there. Among
the machineries and equipment mortgaged in favor of DBP were the articles covered by the
trust receipts. Prudential Bank informed DBP that it was the absolute and juridical owner of
the said items and they were thus not part of the mortgaged assets that could be legally
ceded to DBP. For the failure of Litex to pay its obligation, DBP extrajudicially foreclosed the
real estate and chattel mortgages, including the articles claimed by Prudential Bank.
Issue:
Whether Litex (entrustee) can mortgage the goods under the trust receipt.
Ruling:
NO.The articles were owned by Prudential Bank and they were only held by Litex in
trust. While it was allowed to sell the items, Litex had no authority to dispose of them or any
part thereof or their proceeds through conditional sale, pledge or any other means.Article
2085 (2) of the Civil Code requires that, in a contract of pledge or mortgage, it is essential
that the pledgor or mortgagor should be the absolute owner of the thing pledged or
mortgaged. Article 2085 (3) further mandates that the person constituting the pledge or
mortgage must have the free disposal of his property, and in the absence thereof, that he be
legally authorized for the purpose.
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Litex had neither absolute ownership, free disposal nor the authority to freely dispose
of the articles. Litex could not have subjected them to a chattel mortgage. Their inclusion in
the mortgage was voidand had no legal effect.There being no valid mortgage, there could
also be no valid foreclosure or valid auction sale.Thus, DBP could not be considered either as
a mortgagee or as a purchaser in good faith.No one can transfer a right to another greater
than what he himself has.Nemodat quod non habet. Hence, Litex could not transfer a right
that it did not have over the disputed items.
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PRUDENTIAL BANK v. NATIONAL LABOR RELATIONS COMMISSION, CECILIA
ORQUELLO, ET AL., ZENAIDA UCHI, ET AL., ALU-INTERASIA CONTAINER INDUSTRIES
INC., AND RAUL REMODO
G.R. No. 112592, December 19, 1995, J. Bellosillo
It is thus clear that the security interest of the entruster is not merely an empty or
idle title. To a certain extent, such interest becomes a "lien" on the goods because the
entruster's advances will have to be settled first before the entrustee can consolidate his
ownership over the goods. A contrary view would be disastrous. For to refuse to recognize
the title of the banker under the trust receipt as security for the advance of the purchase
price would be to strike down a bona fide and honest transaction of great commercial
benefit and advantage founded upon a well-recognized custom by which banking credit is
officially mobilized for manufacturers and importers of small means.
Facts:
INTERASIA was embroiled in 3 labor cases which were eventually resolved against
it. With the finality of the three (3) decisions, writs of execution were issued. The Sheriff
levied on execution personal properties located in the factory of INTERASIA. Prudential Bank
filed an Affidavit of Third-Party Claim asserting ownership over the seized properties on the
strength of trust receipts executed by INTERASIA in its favor. As a result, the Sheriff
suspended the public auction sale. But the Labor Arbiter denied the claim of Prudential Bank
and directed the Sheriff to proceed with the levy of the properties.
Issue:
Whether the security interest as against the creditors of the entrustee/innocent
purchaser for value is valid.
Ruling:
YES.Sec. 12 of P.D. No. 115 provides that the entruster's security interest in goods,
documents, or instruments pursuant to the written terms of a trust receipt shall be valid as
against all creditors of the entrustee for the duration of the trust receipt agreement. The
only exception to the rule is when the properties are in the hands of an innocent purchaser
for value and in good faith. The records however do not show that the winning bidder is
such purchaser. Neither can private respondents plead preferential claims to the properties
as Prudential Bank has the primary right to them until its advances are fully paid.
Obligations and Liabilities of Entrustees
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YES. Given that various trust receipts were executed by Spouses Tondaand that as
entrustees, they did not return the proceeds from the goods sold nor the goods themselves
to Metrobank, there is no dispute that Spouses Tondafailed to comply with the obligations
under the trust receipts despite several demands from Metrobank.
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MELVIN COLINARES AND LORDINO VELOSO v. HONORABLE COURT OF APPEALS,
AND THE PEOPLE OF THE PHILIPPINES
G.R. No. 90828, September 05, 2000, C.J. Davide Jr.
Colinares and Veloso (entrustees) already own the goods when the loan under the
trust receipt was granted. If the loan is granted when entrustee already has ownership of
the goods, the transaction is only a simple loan. Also, Colinares and Velosoare contractors
who obtained the fungible goods for their construction project. At no time did title over the
construction materials pass to the bank, but directly to the Colinares and Veloso from CM
Builders Centre. This impresses upon the trust receipt in question vagueness and ambiguity,
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Inasmuch as the debtor received the goods subject of the trust receipt before the
trust receipt itself was entered into, the transaction in question was a simple loan and not a
trust receipt agreement. Prior to the date of execution of the trust receipt, ownership over
the goods was already transferred to the debtor. This situation is inconsistent with what
normally obtains in a pure trust receipt transaction, wherein the goods belong in ownership
to the bank and are only released to the importer in trust after the loan is granted.
Facts:
Issue:
Whether the respondents are liable under the trust receipt transaction.
Ruling:
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By all indications, then, it is apparent that there was really no trust receipt
transaction that took place. Evidently, respondent Corporation was required to sign the trust
receipt simply to facilitate collection by petitioner of the loan it had extended to the former.
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When both parties enter into an agreement knowing that the return of the goods
subject of the trust receipt is not possible even without any fault on the part of the trustee,
it is not a trust receipt transaction penalized under Section 13 of P.D. 115; the only
obligation actually agreed upon by the parties would be the return of the proceeds of the
sale transaction. This transaction becomes a mere loan, where the borrower is obligated to
pay the bank the amount spent for the purchase of the goods.
Facts:
The respondents were officers of Asian Construction and Development Corporation
(ACDC), a corporation engaged in the construction business. On several occasions,
respondents executed in favor of Land Bank of the Philippines (LBP) trust receipts to secure
the purchase of construction materials that they will need in their construction projects.
When the trust receipts matured, ACDC failed to return to LBP the proceeds of the
construction projects or the construction materials subject of the trust receipts. After several
demands went unheeded, LBP filed a complaint for Estafa or violation of Art. 315, par. 1(b) of
the RPC, in relation to PD 115 (Trust Receipts Law) against the respondent officers of ACDC.
Issue:
Whether or not the respondents are guilty of estafa or violation of Article 315,
paragraph 1(b) of the RPC, in relation to P.D. 115 (Trust Receipts Law).
Ruling:
NO.The industry or line of work that the borrowers were engaged in was
construction. The borrowers were not importers acquiring goods for resale. Indeed, goods
sold in retail are often within the custody or control of the trustee until they are purchased.
In the case of materials used in the manufacture of finished products, these finished
products if not the raw materials or their components similarly remain in the possession
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The fact that the entruster bank knew even before the execution of the trust receipt
agreements that the construction materials covered were never intended by the entrustee
for resale or for the manufacture of items to be sold is sufficient to prove that the
transaction was a simple loan and not a trust receipts transaction.
Facts:
Issue:
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Whether or not Hur Tin Yang is liable for Estafa under Art. 315, par. 1(b) of the RPC in
relation to PD 115 (Trust Receipts Law), even if Metrobank knew beforehand that the
construction materials subject of the trust receipts were never intended to be sold but only
for use in the entrustees construction business.
Ruling:
NO. The dealing between petitioner and Metrobank was not a trust receipt
transaction but one of simple loan. Hur Tin Yangs admission-- that he signed the trust
receipts on behalf of Supermax, which failed to pay the loan or turn over the proceeds of the
sale or the goods to Metrobank upon demanddoes not conclusively prove that the
transaction was, indeed, a trust receipts transaction. In contrast to the nomenclature of the
transaction, the parties really intended a contract of loan. This Courtin Ng v. People and
Land Bank of the Philippines v. Perez, cases which are in all four corners the same as the
instant caseruled that the fact that the entruster bank knew even before the execution of
the trust receipt agreements that the construction materials covered were never intended
by the entrustee for resale or for the manufacture of items to be sold is sufficient to prove
that the transaction was a simple loan and not a trust receipts transaction. The fact that the
entruster bank, Metrobank in this case, knew even before the execution of the alleged trust
receipt agreements that the covered construction materials were never intended by the
entrustee (petitioner) for resale or for the manufacture of items to be sold would take the
transaction between petitioner and Metrobank outside the ambit of the Trust Receipts Law.
Thus, the consolidated complaints for Estafa in relation to PD 115 have really no leg to stand
on.
_____________________________________________________________________________________________
_________________________________
The trust receipts do not fare any better as proofs of the delivery to Ramos of the
goods. Except for the invoices, documents relating to each trust receipt agreement,
including the trust receipts themselves, appear to be standard Bank forms accomplished by
the Bank personnel, and were all signed by Ramos in one sitting, with a view to facilitating
the pending transactions between the parties.
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Trinidad Ramos filed with the Philippine National Cooperative Bank (PNCB) four (4)
applications for letters of credit which were approved. Consequently, domestic letters of
credit were opened. Among the papers filed for the issuance of the domestic letters of credit
were commercial invoices of the different suppliers of the merchandise sought to be
purchased. The different suppliers then drew sight drafts against the applicant payable to
the order of the PNCB. The PNCB then drew its own drafts against the accused as the buyer
of the merchandise and which drafts were accepted by the accused. After such acceptance,
the corresponding trust receipts were signed by Ramos which provide that she
acknowledges to have received in trust from the PNCB the merchandise covered by the
above-mentioned documents which are the property of said bank, with the liberty to sell the
same provided that the proceeds thereof are turned over to the said bank to be applied
against any acceptance(s) and any other indebtedness by her to the said bank. The drafts
drawn by the bank against Ramos were payable within 90 days from the dates thereof.
However, no payments were made except partial payments made pursuant to the written
demands for payment addressed by the PNCB to Ramos. Hence, the PNCB filed a case for
four (4) counts of Estafa before the RTC against Ramos.
Issue:
Ruling:
NO. The proofs are inadequate as to the propositions of receipt of the merchandise
and the damage sustained by the Bank . It could not be said that the commercial invoices
attached to the applications for the letter of credit and of the trust receipts was sufficient
proof of delivery. The invoices are actually nothing more than lists of the items sought to be
purchased and their prices; and it can scarcely be believed that goods worth no mean sum
actually transferred hands without the unpaid vendor requiring the vendee to acknowledge
this fact in some way, even by a simple signature on these documents alone if not in fact by
the execution of some appropriate document, such as a delivery receipt.
At any rate, Ramos has categorically and consistently denied ever having received
the goods either from the Bank or the suppliers. And this was because, according to her, the
suppliers simply refused to part with the goods as no payment had been made therefor by
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There are two ways which could indicate the presence of novation, thereby
producing the effect of extinguishing an obligation by another which substitutes the same.
The first is when novation has been stated and declared in unequivocal terms. The second is
when the old and the new obligations are incompatible on every point. The test of
incompatibility is whether or not the two obligations can stand together. If they cannot, they
are incompatible and the latter obligation novates the first. The incompatibility must take
place in any of the essential elements of the obligation, such as its object, cause or principal
conditions.
Facts:
Baliwag Mahogany Corporation (BMC), through its president, Alfredo T. Ong, applied
for a domestic commercial letter credit with Pilipinas Bank (the bank) to finance the
purchase of Air Dried, Dark Lauan sawn lumber. The bank approved the application and
issued a Letter of Credit. To secure payment of the amount, BMC, through respondent Ong,
executed two (2) trust receipts providing that it shall turn over the proceeds of the goods to
the bank, if sold, or return the goods, if unsold, upon maturity. On the due dates, BMC failed
to comply with the trust receipt agreement. It thereafter filed with the Securities and
Exchange Commission (SEC) a Petition for Rehabilitation and for a Declaration in a State of
Suspension of Payments. The SEC issued an order creating a Management Committee
wherein the bank is represented. BMC and a consortium of 14 of its creditor banks entered
into a Memorandum of Agreement (MOA) rescheduling the payment of BMCs existing debts.
The SEC rendered a Decision approving the Rehabilitation Plan of BMC as contained in the
MOA and declaring it in a state of suspension of payments. However, BMC and respondent
Ong defaulted in the payment of the obligations under the rescheduled payment scheme
provided in the MOA. This compelled the bank to file a complaint charging respondents Ong
and Leoncia Lim (as president and treasurer of BMC) with violation of the Trust Receipts Law
(PD 115). The bank alleged that both respondents failed to pay their obligation under the
trust receipt despite demand. The office of the City Prosecutor recommended the dismissal
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Issue:
Whether the MOA was a novation of the trust agreement between the parties.
Ruling:
YES. Contrary to petitioners contention, the MOA did not only reschedule BMCs
debts, but more importantly, it provided principal conditions, which are incompatible with
the trust agreement. The execution of the MOA extinguished respondents obligation under
the trust receipts. Respondents liability, if any, would only be civil in nature since the trust
receipts were transformed into mere loan documents after the execution of the MOA.
Since the IBAA is not the factual owner of the goods, the VINTOLAS cannot justifiably
claim that because they have surrendered the goods to IBAA and subsequently deposited
them in the custody of the court, they are absolutely relieved of their obligation to pay their
loan because of their inability to dispose of the goods. The fact that they were unable to sell
the seashells in question does not affect IBAA's right to recover the advances it had made
under the Letter of Credit.
Facts:
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Issue:
Whether the return of the goods subject of the trust receipt agreement (puka and
olive shells) extinguished the liability of the Spouses Vintola.
Ruling:
NO. Under a letter of credit-trust receipt arrangement, a bank extends a loan covered
by the Letter of Credit, with the trust receipt as a security for the loan. In other words, the
transaction involves a loan feature represented by the letter of credit, and a security feature
which is in the covering trust receipt. A trust receipt, therefore, is a security agreement,
pursuant to which a bank acquires a "security interest" in the goods. "It secures an
indebtedness and there can be no such thing as security interest that secures no obligation.
Contrary to the allegation of the VINTOLAS, IBAA did not become the real owner of the
goods. It was merely the holder of a security title for the advances it had made to the
VINTOLAS. The goods the VINTOLAS had purchased through IBAA financing remain their own
property and they hold it at their own risk. The trust receipt arrangement did not convert the
IBAA into an investor; the latter remained a lender and creditor. If under the trust receipt,
the bank is made to appear as the owner, it was but an artificial expedient, more of a legal
fiction than fact, for if it were so, it could dispose of the goods in any manner it wants, which
it cannot do, just to give consistency with the purpose of the trust receipt of giving a
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ROSARIO TEXTILE MILLS CORPORATION vs. HOME BANKERS SAVINGS AND TRUST
COMPANY
G.R. No. 137232, June 29, 2005, SANDOVAL-GUTIERREZ, J.
Facts:
Rosario Textile Mills Corporation (RTMC) filed with the Home Bankers Savings & Trust
Co. (the bank) an application for a credit line. RTMC availed of the credit line by making
numerous drawdowns, each drawdown being covered by a separate promissory note and
trust receipt. RTMC, represented by Yujuico, executed in favor of the bank a total of eleven
(11) promissory notes. Despite the lapse of the respective due dates under the promissory
notes and notwithstanding the banks demand letters, RTMC failed to pay its loans. Hence,
the bank filed a complaint for sum of money against RTMC and Yujuico. In their defense,
RTMC and Yujuico contend that under the trust receipt contracts between the parties, they
merely held the goods described therein in trust for respondent Home Bankers
Savings and Trust Company (the bank) which owns the same. Since the ownership of
the goods remains with the bank, then it should bear the loss. With the destruction of the
goods by fire, they should have been relieved of any obligation to pay.
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Whether RTMC and Yujuico are relieved of their obligation to pay their loan after they
tried to tender the goods to the bank which refused to accept the same, and which goods
were subsequently lost in a fire.
Ruling:
NO.The principal transaction between petitioner RTMC and the bank is a contract of
loan. RTMC used the proceeds of this loan to purchase raw materials from a supplier abroad.
In order to secure the payment of the loan, RTMC delivered the raw materials to the bank as
collateral. Trust receipts were executed by the parties to evidence this security arrangement.
Simply stated, the trust receipts were mere securities.
Petitioners insistence that the ownership of the raw materials remained with the bank
is untenable. If under the trust receipt, the bank is made to appear as the owner, it was but
an artificial expedient, more of legal fiction than fact, for if it were really so, it could dispose
of the goods in any manner it wants, which it cannot do, just to give consistency with
purpose of the trust receipt of giving a stronger security for the loan obtained by the
importer. To consider the bank as the true owner from the inception of the transaction would
be to disregard the loan feature thereof. Thus, petitioners cannot be relieved of their
obligation to pay their loan in favor of the bank.
EDWARD C. ONG vs. THE COURT OF APPEALS AND THE PEOPLE OF THE
PHILIPPINES
G.R. No. 119858, April 29, 2003, CARPIO, J.
The Trust Receipts Law recognizes the impossibility of imposing the penalty of
imprisonment on a corporation. Hence, if the entrustee is a corporation, the law makes the
officers or employees or other persons responsible for the offense liable to suffer the
penalty of imprisonment. The reason is obvious: corporations, partnerships, associations and
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Facts:
Issue:
Whether Ong may be held liable for violation of the Trust Receipts Law(PD 115).
Ruling:
YES. In the instant case, the Bank was the entruster while ARMAGRI was the
entrustee. Being the entrustee, ARMAGRI was the one responsible to account for the goods
or its proceeds in case of sale. However, the criminal liability for violation of the Trust
Receipts Law falls on the human agent responsible for the violation. Petitioner Ong, who
admits being the agent of ARMAGRI, is the person responsible for the offense for two
reasons. First, petitioner is the signatory to the trust receipts, the loan applications and the
letters of credit. Second, despite being the signatory to the trust receipts and the other
documents, petitioner did not explain or show why he is not responsible for the failure to
turn over the proceeds of the sale or account for the goods covered by the trust receipts.
The Trust Receipts Law expressly makes the corporations officers or employees or
other persons therein responsible for the offense liable to suffer the penalty of
imprisonment. In the instant case, petitioner signed the two trust receipts on behalf of
ARMAGRI as the latter could only act through its agents. When petitioner signed the trust
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The VINTOLAS are liable ex contractu for breach of the Letter of Credit Trust
Receipt, whether they did or they did not "misappropriate, misapply or convert" the
merchandise as charged in the criminal case. Their civil liability does not arise ex
delicto, the action for the recovery of which would have been deemed instituted with the
criminal-action (unless waived or reserved) and where acquittal based on a judicial
declaration that the criminal acts charged do not exist would have extinguished the civil
action. Rather, the civil suit instituted by IBAA is based ex contractu and as such is distinct
and independent from any criminal proceedings and may proceed regardless of the result of
the latter.
Facts:
Issue:
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Whether or not the Spouses Vintolas acquittal in the Estafa case a bar for the filing
of a civil action for collection for the value of the goods which are the subject of the trust
receipt agreement.
Ruling:
NO. It is inaccurate for the VINTOLAS to claim that the judgment in the estafa case
had declared that the facts from which the civil action might arise, did not exist, for, it will be
recalled that the decision of acquittal expressly declared that "the remedy of the Bank is civil
and not criminal in nature." This amounts to a reservation of the civil action in IBAA's favor,
for the Court would not have dwelt on a civil liability that it had intended to extinguish by
the same decision. The VINTOLAS are liable ex contractu for breach of the Letter of Credit
Trust Receipt, whether they did or they did not "misappropriate, misapply or convert" the
merchandise as charged in the criminal case. Their civil liability does not arise ex
delicto, the action for the recovery of which would have been deemed instituted with the
criminal-action (unless waived or reserved) and where acquittal based on a judicial
declaration that the criminal acts charged do not exist would have extinguished the civil
action. Rather, the civil suit instituted by IBAA is based ex contractu and as such is distinct
and independent from any criminal proceedings and may proceed regardless of the result of
the latter.
_____________________________________________________________________________________________
_________________________________
Breach of obligation is separate and distinct from any criminal liability for misuse
and/or misappropriation of goods or proceeds realized from the sale of goods, documents or
instruments released under trust receipts, punishable under Section 13 of the Trust Receipts
Law (P.D. 115) in relation to Article 315(1), (b) of the Revised Penal Code. Being based on an
obligation ex contractu and not ex delicto, the civil action may proceed independently of the
criminal proceedings instituted against petitioners regardless of the result of the latter.
Facts:
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Gregorio Limpin, Jr. and Antonio Apostol, doing business under the name and style of
Davao Libra Industrial Sales, filed an application for an Irrevocable Domestic Letter of Credit
with Associated Banking Corporation in favor of LS Parts Hardware and Machine Shop (LS
Parts) for the purchase of assorted scrap iron. After the same was approved, a Trust Receipt
was executed by Limpin and Antonio Apostol but it was signed by Lorenzo Sarmiento, Jr. as
surety/ guarantor. The defendants failed to comply with their undertaking under the Trust
Receipt after repeated demands were made by the bank. Hence, a complaint for Violation of
the Trust Receipt Law was filed against them before the City Fiscals Office. The
corresponding Information was filed but Lorenzo Sarmiento, Jr. was, however, dropped from
the Information while defendant Gregorio Limpin, Jr. was convicted. In their defense,
defendants claim that they cannot be held liable as the 825 tons of assorted scrap iron,
subject of the trust receipt agreement, were lost when the vessel transporting them sunk,
and that said scrap iron were delivered to Davao Libra Industrial Sales, a business concern
over which they had no interest whatsoever.
Issue:
liable
to
Associated
Banking
Corporation
Ruling:
YES. Associated Banking Corporations right to file a separate complaint for a sum of
money is governed by the provisions of Article 31 of the Civil Code, to wit: Article 31. When
the civil action is based on an obligation not arising from the act or omission complained of
as a felony, such civil action may proceed independently of the criminal proceedings and
regardless of the result of the latter.
In the present case, private respondents complaint against petitioners was based on
the failure of the latter to comply with their obligation as spelled out in the Trust Receipt
executed by them. This breach of obligation is separate and distinct from any criminal
liability for misuse and/or misappropriation of goods or proceeds realized from the sale of
goods, documents or instruments released under trust receipts, punishable under Section 13
of the Trust Receipts Law (P.D. 115) in relation to Article 315(1), (b) of the Revised Penal
Code. Being based on an obligation ex contractu and not ex delicto, the civil action may
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Stipulation on Interests
FIDELITY SAVING AND MORTGAGE BANK v. HON. PEDRO D. CENZON, in his capacity
as Presiding Judge of the Court of First Instance of Manila (Branch XL) and
SPOUSES TIMOTEO AND OLIMPIA SANTIAGO
G.R. No. L-46208, 15 April 1990, J. Regalado
It is settled jurisprudence that a banking institution which has been declared
insolvent and subsequently ordered closed by the Central Bank of the Philippines cannot be
held liable to pay interest on bank deposits which accrued during the period when the bank
is actually closed and non-operational.
Facts:
Herein private respondents, the Spouses Santiago, deposited with petitioner Fidelity
Savings and Mortgage Bank an aggregate amount of P100,000 under a Savings Account and
a Time Deposit. Thereafter, the Bankwas found to be insolvent and was forbidden to do
business in the Philippines pursuant to issued Resolution No. 350. Eventually the bank was
set for liquidation.Pursuant to R.A. No. 5517, PDIC paid the Spouses the amount of P10,000
thereby leaving a deposit balance of P90,000. The spouses then demanded immediate
payment of the balance of the aforementioned savings and time deposits.While the
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The rate of interest specified in the mortgage contract shall be applied for the oneperiod reckoned from the date of registration of the certificate of sale in accordance
the General Banking Act. However, since petitioners effectively had more than one
to exercise the right of redemption, justice, fairness and equity require that they pay
per annum interest beyond the one-year period.
Facts:
Estelita Burgos-Lipat and her husband obtained a loan from Pacific Banking
Corporation (PBC) secured by a real estate mortgage on their Quezon City property. Due to
petitioners failure to pay their loans, PBC foreclosed on the subject property wherein
Eugenio D. Trinidad was declared the highest bidder and was thereafter issued a certificate
of sale on January 31, 1989. Petitioners filed a complaint for annulment of mortgage, extrajudicial foreclosure and certificate of sale in the RTC of QC. The RTC dismissed the complaint
but granted petitioners five months and 17 days from the finality of the decision to exercise
their right of redemption over the foreclosed property.
Issue:
Whether or not the same interest rate specified in the mortgage contract shall be
applied even beyond the one-year redemption period.
Ruling:
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There is no doubt that the prosecution of suits for collection and the foreclosure of
mortgages against debtors of the bank by the liquidator are among the usual and ordinary
transactions pertaining to the administration of a bank.
Facts:
The case pertains to nine consolidated cases concerning the legality of the closure
and receivership of Banco Filipino.
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Issue:
Whether the liquidator appointed by Central Bank has the authority to prosecute as
well as to defend suits, and to foreclose mortgages for and in behalf of the bank while the
issue on the validity of the receivership and liquidation of the latter is pending resolution
Ruling:
YES.Section 29 of the Republic Act No. 265, as amended known as the Central Bank
Act, provides that when a bank is forbidden to do business in the Philippines and placed
under receivership, the person designated as receiver shall immediately take charge of the
banks assets and liabilities, as expeditiously as possible, collect and gather all the assets
and administer the same for the benefit of its creditors, and represent the bank personally or
through counsel as he may retain in all actions or proceedings for or against the institution,
exercising all the powers necessary for these purposes including, but not limited to, bringing
and foreclosing mortgages in the name of the bank. If the Monetary Board shall later
determine and confirm that the banking institution is insolvent or cannot resume business
with safety to depositors, creditors and the general public, it shall, if public interest requires,
order its liquidation and appoint a liquidator who shall take over and continue the functions
of the receiver previously appointed by Monetary Board. The liquidator may, in the name of
the bank and with the assistance of counsel as he may retain, institute such actions as may
be necessary in the appropriate court to collect and recover accounts and assets of such
institution or defend any action filed against the institution.
When the issue on the validity of the closure and receivership of Banco Filipino bank
was raised in G.R. No. 70054, the pendency of the case did not diminish the powers and
authority of the designated liquidator to effectuate and carry on the administration of the
bank. In fact when the Supreme Court adopted a resolution on August 25, 1985 and issued a
restraining order to respondents Monetary Board and Central Bank, the Supreme Court
enjoined merely further acts of liquidation. Such acts of liquidation, as explained in Sec. 29
of the Central Bank Act are those which constitute the conversion of the assets of the
banking institution to money or the sale, assignment or disposition of the same to creditors
and other parties for the purpose of paying the debts of such institution. The Supreme Court
did not prohibit however acts such as receiving collectibles and receivables or paying off
creditors claims and other transactions pertaining to normal operations of a bank. There is
no doubt that the prosecution of suits for collection and the foreclosure of mortgages against
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Whether the transaction is considered a sale or money placement does not make the
money the "subject matter of litigation" within the meaning of Sec. 2 of Republic Act No.
1405 which prohibits the disclosure or inquiry into bank deposits except "in cases where the
money deposited or invested is the subject matter of litigation."
Facts:
Sun Life filed a complaint for sum of money against Onate, Econ Holdings and
Brunner Development. Sun Life alleges that Onate, as president of Econ, offered to sell 46
million worth of treasury bills at a discounted price. Sun Life paid the price by means of a
check payable to Brunner. Brunner, through its president Dio, issued to it a receipt with
undertaking to deliver the treasury bills to Sun Life. Brunner and Dio delivered instead a
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Sun Life moved to examine the accounts and ledgers of Brunner Development at
Urban Bank and BPI.
Issue:
Whether the money paid can be considered as a subject matter of litigation within
the meaning of RA 1405.
Ruling:
NO.Thus the issue is whether the money paid to Brunner was the consideration for
the sale of treasury bills, as Sun Life claims, or whether it was money intended for
placement, as petitioners allege. Petitioners do not deny receipt of P39,526,500.82 from Sun
Life. Hence, whether the transaction is considered a sale or money placement does not
make the money the "subject matter of litigation" within the meaning of Sec. 2 of Republic
Act No. 1405 which prohibits the disclosure or inquiry into bank deposits except "in cases
where the money deposited or invested is the subject matter of litigation." Nor will it matter
whether the money was "swindled" as Sun Life contends.
_____________________________________________________________________________________________
_________________________________
UNION BANK OF THE PHILIPPINES, vs. COURT OF APPEALS and ALLIED BANK
CORPORATION,
G.R. No. 134699, December 23, 1999, KAPUNAN, J.
By the terms of R.A. No. 1405, the money deposited itself should be the subject
matter of the litigation.
Facts:
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YES. Contrary to their claim that their position effects a reconciliation of the
provisions of the two laws, plaintiffs are actually making the provisions of Republic Act No.
1405 prevail over those of the Anti-Graft Law, because even without the latter law the
balance standing to the depositor's credit can be considered provided its disclosure is made
in any of the cases provided in Republic Act No. 1405.The truth is that these laws are so
repugnant to each other than no reconciliation is possible.
Indeed, it is said that if the new law is inconsistent with or repugnant to the old law,
the presumption against the intent to repeal by implication is overthrown because the
inconsistency or repugnancy reveals an intent to repeal the existing law. And whether a
statute, either in its entirety or in part, has been repealed by implication is ultimately a
matter of legislative intent.
_____________________________________________________________________________________________
_________________________________
BANCO FILIPINO SAVINGS AND MORTGAGE BANK vs.HON. FIDEL PURISIMA, etc.,
and HON. VICENTE ERICTA and JOSE DEL FIERO
G.R. No.L-56429 May 28, 1988, NARVASA, J.
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Circular No. 960, Series of 1983 was in force at the time private respondent
undertook her questioned transactions; thus, such local transfer from the original joint
foreign currency account to another (personal) foreign currency account, was not an eligible
foreign currency deposit within the coverage of R.A. No. 6426 and not entitled to the benefit
of the confidentiality provisions of R.A. No. 6426.
Facts:
Alexander Van Twest and Gloria Anacleto opened a joint foreign currency savings
account with Interbank to hold funds which "belonged entirely and exclusively" to petitioner,
to "facilitate the funding of certain business undertakings" of both of them and which funds
were to be "temporarily (held) in trust" by private respondent, who "shall turnover the same
to plaintiff upon demand." When the business relationship of petitioner and respondent
ended, the respondent unilaterally closed their joint account, withdrew the remaining
balance of Deutschmark (DM) 269,777.37 and placed the money in her own personal
account with the same bank. Petitioner thus sought an injunctive writ to prevent private
respondent from withdrawing the money at any time.
Private respondent contends for the first time before the CA that the personal foreign
currency deposit account she is maintaining is exempt from processes issued by the courts,
pursuant to Section 8 of R.A. 6426 as amended by P. D. 1246, the date she withdrew the
foreign exchange fund from her joint account with petitioner and transferred the same to her
personal account.
Issue:
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NO.Although transfers from one foreign currency deposit account to another foreign
currency deposit account in the Philippines are now eligible deposits under the Central
Bank's Foreign Currency Deposit System, private respondent is still not entitled to the
confidentiality provisions of the relevant circulars. For, as noted earlier, private respondent
is not the ownerof such foreign currency funds and her personal deposit account is not
protected.
_____________________________________________________________________________________________
_________________________________
Facts:
The present case originated from Fact-Finding and Intelligence Bureau (FFIB) v.
Amado Lagdameo, et. al. Petitioner Marquez, the manager of Union Bank of the Philippines,
Vargas branch, received an Order from the Ombudsman Aniano A. Desierto to produce
several bank documents for purposes of inspection in camerarelative to various accounts
maintained at Union Bank of the Philippines. Later on, petitioner together with Union Bank of
the Philippines, filed a petition for declaratory relief, prohibition and injunction before the
RTC alleging that clear conflict between R. A. No. 6770, Section 15 and R. A. No. 1405,
Sections 2 and 3.
Petitioner prayed for a temporary restraining order (TRO) because the Ombudsman
and other persons acting under his authority were continuously harassing her to produce the
bank documents relative to the accounts in question.
Issue:
Whether the order of the Ombudsman to have an in camerainspection of the
questioned account is allowed as an exception to the law on secrecy of bank deposits (R. A.
No. 1405).
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NO. The order of the Ombudsman to produce for in camera inspection the subject
accounts with the Union Bank of the Philippines, Julia Vargas Branch, is based on a pending
investigation at the Office of the Ombudsman against Amado Lagdameo, et. al. for violation
of R. A. No. 3019, Sec. 3 (e) and (g) relative to the Joint Venture Agreement between the
Public Estates Authority and AMARI.
In Union Bank of the Philippines v. Court of Appeals, we held that Section 2 of the Law
on Secrecy of Bank Deposits, as amended, declares bank deposits to be absolutely
confidential except:
(5) Upon order of a competent court in cases of bribery or dereliction of duty of public
officials, or
(6) In cases where the money deposited or invested is the subject matter of the
litigation
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In the case at bar, there is yet no pending litigation before any court of competent
authority. What is existing is an investigation by the office of the Ombudsman. In short, what
the Office of the Ombudsman would wish to do is to fish for additional evidence to formally
charge Amado Lagdameo, et. al., with the Sandiganbayan. Clearly, there was no pending
case in court which would warrant the opening of the bank account for inspection.
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OFFICE OF THE OMBUDSMAN, petitioner, vs. HON. FRANCISCO B. IBAY, et. al.
G. R. No. 137538, September 3, 2001, QUISUMBING, J.
In Marquez vs. Desierto, we ruled that before an in camera inspection of bank
accounts may be allowed, there must be a pending case before a court of competent
jurisdiction.
Facts:
This case is a continuance of the Marquez vs. Desierto case. Petitioner in this case
questioned the jurisdiction of the public respondent in entertaining the petition for
declaratory relief filed by the petitioner.
Issue:
Whether in camera inspection of bank accounts are allowed.
Ruling:
NO. Before an in camera inspection of bank accounts may be allowed, there must be
a pending case before a court of competent jurisdiction. Further, the account must be clearly
identified, and the inspection limited to the subject matter of the pending case before the
court of competent jurisdiction. The bank personnel and the account holder must be notified
to be present during the inspection, and such inspection may cover only the account
identified in the pending case. In the present case, since there is no pending litigation yet
before a court of competent authority, but only an investigation by the Ombudsman on the
so-called scam, any order for the opening of the bank account for inspection is clearly
premature and legally unjustified.
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CHINA BANKING CORPORATION vs. THE HONORABLE COURT OF APPEALS, et. al.
G.R. No. 140687, December 18, 2006, CHICO-NAZARIO, J.
All things considered and in view of the distinctive circumstances attendant to the
present case, we are constrained to render a limited pro hac vice ruling. Clearly it was not
the intent of the legislature when it enacted the law on secrecy on foreign currency deposits
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NO.As the owner of the funds unlawfully taken and which are undisputably now
deposited with China Bank, Jose Gotianuy has the right to inquire into the said deposits.A
depositor, in cases of bank deposits, is one who pays money into the bank in the usual
course of business, to be placed to his credit and subject to his check or the beneficiary of
the funds held by the bank as trustee.
It must be remembered that in the complaint of Jose Gotianuy, he alleged that his US
dollar deposits with Citibank were illegally taken from him. On the other hand, China Bank
employee Cristuta Labios testified that Mary Margaret Dee came to China Bank and
deposited the money of Jose Gotianuy in Citibank US dollar checks to the dollar account of
her sister Adrienne Chu. This fortifies our conclusion that an inquiry into the said deposit at
China Bank is justified. At the very least, Jose Gotianuy as the owner of these funds is
entitled to a hearing on the whereabouts of these funds.
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Facts:
Bangayan filed with the Manila Prosecutors Office a complaint for estafa and/or
qualified theft against respondent, alleging that several checks issued by the companys
customers in payment of their obligation were, instead of being turned over to the
companys coffers, indorsed by respondent Sally Go who deposited the same to her personal
banking account maintained at Security Bank and Trust Company (Security Bank) in
Divisoria, Manila Branch.
The prosecution moved for the issuance of subpoena ducestecum /ad testificandum
against the respective managers or records custodians of Security Banks Divisoria Branch,
as well as of the Asian Savings Bank (now Metropolitan Bank & Trust Co. [Metrobank]). The
trial court granted the motion and issued the corresponding subpoena.
Meanwhile, the prosecution was able to present in court the testimony of
ElenitaMarasigan (Marasigan), the representative of Security Bank.But before the testimony
could be completed, respondent filed a Motion to Suppress, seeking the exclusion of
Marasigans testimony and accompanying documents thus far received, bearing on the
subject Security Bank account. This time respondent invokes, in addition to irrelevancy, the
privilege of confidentiality under R.A. No. 1405.
Issue:
Whether or not the testimony of Marasigan would be a violation of confidentiality
under R.A. No. 1405.
Ruling:
YES. What indeed constitutes the subject matter in litigation in relation to Section 2
of R.A. No. 1405 has been pointedly and amply addressed in Union Bank of the Philippines v.
Court of Appeals, in which the Court noted that the inquiry into bank deposits allowable
under R.A. No. 1405 must be premised on the fact that the money deposited in the account
is itself the subject of the action. Given this perspective, we deduce that the subject matter
of the action in the case at bar is to be determined from the indictment that charges
respondent with the offense, and not from the evidence sought by the prosecution to be
admitted into the records. In the criminal Information filed with the trial court, respondent,
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NO. In this case, the Joint Motion to Approve Agreement was executed by BPI and
TIDCORP only. There was no written consent given by petitioner or its representative,
Epifanio Ramos, Jr., that petitioner is waiving the confidentiality of its bank deposits. Neither
can petitioner be deemed to have given its permission by failure to interpose its objection
during the proceedings. The norm is that a waiver must not only be voluntary, but must
have been made knowingly, intelligently, and with sufficient awareness of the relevant
circumstances and likely consequences. There must be persuasive evidence to show an
actual intention to relinquish the right. Mere silence on the part of the holder of the right
should not be construed as a surrender thereof; the courts must indulge every reasonable
presumption against the existence and validity of such waiver.
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Issue:
Whether or not the amount garnished be awarded to the defendant-appellant.
Ruling:
NO. In the first place, the amount garnished was not actually taken possession of by
the sheriff, even from the time of the garnishment, because upon the perfection of the
defendant-appellant's appeal to the Court of Appeals this Court issued an injunction
prohibiting execution of the judgment. The plaintiff-appellee was, therefore, able to secure a
full satisfaction of the judgment only upon final judgment of the Court on August 6, 1960.
The total sum garnished was not delivered to the sheriff in execution, because the order for
the execution of the judgment of the lower court was suspended in time by the appeal and
the preliminary injunction issue on appeal.
In the second place, the mere garnishment of funds belonging to the party upon
order of the court does not have the effect of delivering the money garnished to the sheriff
or to the party in whose favor the attachment is issued. The fund is retained by the
garnishee or the person holding the money for the defendant.
The effect of the garnishment, therefore, was to require the Philippine Trust
Company, holder of the funds of the Luzon Surety Co., to set aside said amount from the
funds of the Luzon Surety Co. and keep the same subject to the final orders of the Court. In
the case at bar there was never in order to deliver the full amount garnished to the plaintiffappellee; all that was ordered to be delivered after the judgment had become final was the
amount found by the Court of Appeals to be due. The balance of the amount garnished,
therefore, remained all the time in the possession of the bank as part of the funds of the
Luzon Surety Co., although the same could not be disposed of by the owner.
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PHILIPPINE COMMERCIAL & INDUSTRIAL BANK and JOSE HENARES vs. THE HON.
COURT OF APPEALS and MARINDUQUE MINING AND INDUSTRIAL CORPORATION
G.R. No. 84526, January 28, 1991, SARMIENTO, J.
Garnishment is considered as a specie of attachment for reaching credits belonging
to the judgment debtor and owing to him from a stranger to the litigation. Under the abovecited rule, the garnishee [the third person] is obliged to deliver the credits, etc. to the
proper officer issuing the writ and "the law exempts from liability the person having in his
possession or under his control any credits or other personal property belonging to the
defendant, . . . if such property be delivered or transferred, . . . to the clerk, sheriff, or other
officer of the court in which the action is pending."
Facts:
This is a labor case where the court ruled in favour of the workers for the payment of
backwages against the private respondent.Pursuant to the Notice of Garnishment, the sheriff
directed the bank, one of which is the petitioner PCIB, to immediately issue a check in the
name of the Deputy Provincial Sheriff of Negros Occidental in an amount equivalent to the
amount of the garnishment and that proper receipt would be issued therefor. Later on,
Marinduque Mining and Industrial Corporation filed a complaint against the petitioners and
Damian Rojas, the Deputy Provincial Sheriff of Negros Occidental alleging that the former's
current deposit with the petitioner bank was levied upon, garnished, and with undue haste
unlawfully allowed to be withdrawn.
Issue:
Whether a bank is liable for releasing its depositor's funds on the strength of the
notice of garnishment made by the deputy sheriff pursuant to a writ of execution issued by
the National Labor Relations Commission (NLRC).
Ruling:
NO. The cases more in point to the present controversy are the recent decisions
in Engineering Construction Inc. v. National Power Corporation and Rizal Commercial
Banking Corporation (RCBC) vs. De Castro, Unless there are compelling reasons such as: a
defect on the face of the writ or actual knowledge on the part of the garnishee of lack of
entitlement on the part of the garnisher, it is not incumbent upon the garnishee to inquire or
to judge for itself whether or not the order for the advance execution of a judgment is valid.
After an execution against property has issued, a person indebted to the judgment
debtor, may pay to the officer holding the execution the amount of his debt or so much
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KAREN E. SALVACION, minor, thru Federico N. Salvacion, Jr., father and Natural
Guardian, and Spouses FEDERICO N. SALVACION, JR., and EVELINA E. SALVACION
vs. CENTRAL BANK OF THE PHILIPPINES, CHINA BANKING CORPORATION and GREG
BARTELLI y NORTHCOTT
G.R. No. 94723 August 21, 1997, TORRES, JR., J.
If we rule that the questioned Section 113 of Central Bank Circular No. 960 which
exempts from attachment, garnishment, or any other order or process of any court,
legislative body, government agency or any administrative body whatsoever, is applicable to
a foreign transient, injustice would result especially to a citizen aggrieved by a foreign guest
Facts:
Greg Bartelli, an American tourist, was arrested for committing four counts of rape
and serious illegal detention against Karen Salvacion. Police recovered from him several
dollar checks and a dollar account in the China Banking Corp. Trial court awarded Salvacion
moral, exemplary and attorneys fees amounting to almost P1,000,000.00. Salvacion tried to
execute the judgment on the dollar deposit of Bartelli with the China Banking Corp. but the
latter refused arguing that Section 11 of Central Bank Circular No. 960 exempts foreign
currency deposits from attachment, garnishment, or any other order or process of any court,
legislative body, government agency or any administrative body whatsoever.
Issue:
Whether Section 113 of Central Bank Circular No. 960 and Section 8 of Republic Act
No. 6426, as amended by PD 1246, otherwise known as the Foreign Currency Deposit Act be
made applicable to a foreign transient?
Ruling:
NO.The SC adopted the comment of the Solicitor General who argued that the
Offshore Banking System and the Foreign Currency Deposit System were designed to draw
deposits from foreign lenders and investors and, subsequently, to give the latter protection.
However, the foreign currency deposit made by a transient or a tourist is not the kind of
deposit encouraged by PD Nos. 1034 and 1035 and given incentives and protection by said
laws because such depositor stays only for a few days in the country and, therefore, will
maintain his deposit in the bank only for a short time. Considering that Bartelli is just a
tourist or a transient, he is not entitled to the protection of Section 113 of Central Bank
Circular No. 960 and PD No. 1246 against attachment, garnishment or other court processes.
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The certificates that were issued to PFC which did not acquire the for value because
the check issued by the latter for the certificates bounced for insufficiency of funds. Such
issuance could only give rise to the presumption that the amount stated in the certificates
have been deposited to RSB. These pieces of evidence convincingly show that the subject
CTDs were indeed issued without RSB receiving any money therefor. No deposit, as defined
in Section 3 (f) of R.A. No. 3591, therefore came into existence. Accordingly, petitioner PDIC
cannot be held liable for value of the certificates of time deposit held by private
respondents.
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PHILIPPINE DEPOSIT INSURANCE CORPORATION, vs. THE HONORABLE COURT OF
APPEALS andJOSE ABAD, LEONOR ABAD, SABINA ABAD, JOSEPHINE JOSIE BEATA
ABAD-ORLINA, CECILIA ABAD, PIO ABAD, DOMINIC ABAD, TEODORA ABAD
G.R. No. 126911. April 30, 2003, CARPIO-MORALES, J.
The evident implication of the law, therefore, is that the appointment of a receiver
may be made by the Monetary Board without notice and hearing but its action is subject to
judicial inquiry to insure the protection of the banking institution.
Facts:
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Ruling:
YES.MB issued Resolution 505 on May 22, 1987, a copy thereof was served on MBC
only on May 26, 1987. MBC and its clients could be given the benefit of the doubt that they
were not aware that the MB resolution had been passed, given the necessity of
confidentiality of placing a banking institution under receivership. The evident implication of
the law, therefore, is that the appointment of a receiver may be made by the Monetary
Board without notice and hearing but its action is subject to judicial inquiry to insure the
protection of the banking institution. Mere conjectures that MBC had actual knowledge of its
impending closure do not suffice. The MB resolution could not thus have nullified
respondents transactions which occurred prior to May 26, 1987.
Truth in Lending
THE CONSOLIDATED BANK AND TRUST CORPORATION (SOLIDBANK), v. THE
HONORABLE COURT OF APPEALS, GEORGE AND GEORGE TRADE, INC., GEORGE
KING TIM PUA and PUA KE SENG
G.R. No. 91494, July 14, 1995, QUIASON, J.
All banks and non-bank financial intermediaries authorized to engage in quasibanking functions are required to strictly adhere to the provisions of Republic Act No. 3765
otherwise known as the "Truth in Lending Act" and shall make the true and effective cost of
borrowing an integral part of every loan contract.
Facts:
George King Tim Pua, in his personal capacity, applied for, and was granted, by
Consolidated bank a loan for which he executed a promissory note. Thereafter, George and
George Trade Inc., through George King Tim Pua, obtained a loan from the Consolidated
bank for which the latter executed a promissory note on behalf of the said corporation, with
George King Tim Pua and Pua Ke Seng as co-makers and the loan bears an interest of
13.23% per annum and will be paid through the assignment of the fire insurance proceeds.
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