A PROJECT IN LEGAL WRITING AND RESEARCH

SHOULD PDIC EXAMINE BANK ACCOUNTS WHILE THEY ARE STILL ALIVE?

BY 2CLM
VIRGILIO ANGELO GENER PAULEEN BERNADETTE RODRIGUEZ ANGELIQUE ASHLEY MARTIN MIKHAIL IVAN RAMOS JEROME MIRASOL MARK LESTER MAURICIO ROBERT SALAO PATRICK OSORIO JONA MARIE RAMOS MARK ANTHONY VILLANUEVA DAVID LAWRENZ OLIVER SAMONTE

I. The Overview of the Case

The Philippine Deposit Insurance Corporation The Philippine Deposit Insurance Corporation (PDIC) is a government corporation established in June 1963 under Republic Act (RA) 3591. PDIC's role as envisioned by the Congress is to encourage savings in banks and draw idle funds into the banking system, protect insured deposits in the event of bank closures, help promote a sound and stable banking system, and foster public confidence in the banking system. RA 3591 was last amended by RA 7400 in 1992 and it expanded PDIC's authority and regulatory powers to include independent examination of banks. The law also made PDIC the mandatory receiver/liquidator of banks ordered closed by the Monetary Board. Furthermore, the power to grant financial assistance to banks in danger of closing was also expanded to include assumption of liabilities in addition to making deposits, the purchasing of assets or the making of a direct loan. The Law RA 7400 also increased the deposit insurance coverage from P40,000 to P100,000 per depositor. As a deposit insurer, PDIC collects semi-annual assessments from memberbanks (the current rate is 1/5 of 1% of total deposits) and it may terminate as well as reinstate the insured status of banks under certain conditions. As co-regulator of the banking system, PDIC conducts. In 2000, the enactment of the General Banking Act repealed PDICs power to conduct independent examinations of banks offsite examination of banks, it may issue cease and desist orders against banks following unsafe and unsound banking practices, undertake failure resolution activities in

coordination with the Bangko Sentral ng Pilipinas (BSP); and provide financial assistance to distressed banks. The maximum deposit insurance coverage (MDIC) is P100,000 (roughly US$1,905 at the present exchange rate of P52.50 : US$1) per depositor which fully insures almost 25 million deposit accounts, representing about 92% of total deposit accounts in the Philippine banking system (27.02 million). As of December 2002, total insured deposits amounted to P445.5 billion out of P2.339 trillion of total deposits. Likewise, as of year-end 2002, there were 909 insured banks consisting of 42 commercial banks, 94 thrift banks and 773 rural banks. As a receiver/liquidator, PDIC takes control, manages and administers the affairs of the closed bank, and determines whether the bank may be rehabilitated and resume business with safety to its depositors, creditors and the general public; or its assets liquidated. Prior to liquidating the assets of a closed bank, PDIC files with the relevant court a petition for assistance in liquidation. PDIC converts the assets of the closed bank into cash and makes a distribution of such cash and other assets to creditors of the closed bank under the rules on concurrence and preference of credits specified by the Civil Code of the Philippines. PDIC is actively pursuing significant amendments to its Charter to strengthen operational and financial capabilities in order to help it fulfill its mandates. These include, among others, the proposed increase of the MDIC from P100,000 to P200,000 per depositor and the restoration of PDICs examination power. This will be done in close coordination with BSP to effectively perform its role in protecting deposits through effective supervision and monitoring of banks. Thus, it will complement the powers of

BSP and assist BSP in the early detection of problems of distressed banks to prevent further deterioration and eventually, closures. The PDIC, an independent government financial institution attached to the Department of Finance, is governed by a five-member Board of Directors composed of the Secretary of Finance as the ex-officio Chairman; PDIC President and CEO as ViceChairman; the Governor of the central bank as an ex-officio member; and two representatives from the private sector. The President of the Philippines appoints the PDIC President and two private sector representatives for a term of six years. The Functions and Powers of the Philippine Deposit Insurance Corporation Bank Supervision and Examination Prior to 1992, PDIC examined banks through joint missions with CBP only when staff could be spared from the principal tasks of processing deposit claims. Following the landmark case of a bank closed by CBP in the eighties and reopened by decision and order of the Supreme Court, it was deemed prudent for PDIC to likewise undertake independent examinations in the hope that similar findings by two instituted regulatory agencies for bank closure would be difficult to challenge and be reversed in court. Conscious of cost, efforts have been made to avoid unnecessary duplications in examination activities of CBP through sharing of findings. With a lean staff, field examinations by PDIC had to be limited, selected through offsite monitoring. Findings of unsafe and unsound practices discussed with management of the member bank are presented for deliberation of the PDIC Board. Confirmations of unsafe

and unsound findings are in turn referred to the CBP Monetary Board for follow up actions. Corrective measures would be required by PDIC where appropriate. Financial penalties can be imposed for non-compliance and also be basis for termination of insured status. Settlement of Deposit Claims The closure of eight banks in 1968 not yet members of PDIC created a legal dilemma for protection to uninsured depositors. This was resolved by Congress appropriating special funds in 1969 of P15 million for payments of deposits in the closed uninsured banks up to same limit of P10,000.00 per depositor per bank with payments serviced by PDIC. Since then, membership became mandatory with first insured bank closed in 1970. By mid-1998, over 339 member banks have been closed involving total payments of P3.4 billion covering 1.16 million accounts. Receivership and Liquidation PDIC took on receivership and liquidation functions in 1981 with the transfer of six rural banks from CBP and made mandatory receiver/liquidator for all banks in 1992. Of the 339 member banks closed from 1970, PDIC currently manages 309 with the rest either retained by CBP, rehabilitated or liquidation terminated. Of the closed banks under PDIC, 282 are in liquidation with the balance of 27 still in receivership.

Financial Assistance to Distressed Banks The Corporation is authorized to extend financial assistance to prevent closure where continued operation of bank is either needed by a community or essential to maintain financial stability. The assistance may be in the form of loans, deposit placements, purchase of assets, or assumption of liabilities. In all cases, the assistance must be less than cost of closure. Assistance was first extended in 1970 to two thrift banks through loan and deposit placement. Since then, 40 banks have benefited from such assistance of which 23 were through deposit placements, 16 in loan assistance, and one through purchase of assets. The focus of assistance has shifted from closure prevention to rehabilitation with emphasis on infusion of additional capital, correction of unsafe and unsound practices, and change in ownership/management. Termination of Insurance Status Insured status of banks could be terminated by PDIC for failure to pay insurance premium or for failure to correct unsafe and unsound practices. This power is intended to enforce compliances and limit potential insurance losses likely to occur from deteriorating financial condition without remedial measures taken. The insurance status of 38 banks have been terminated for non-payment of insurance premium. These were made possible through charter amendment in 1992 modifying the notification requirement for termination from receipt of notice by a bank officer to the dispatch of notice by registered mail. Of the 38 uninsured banks, 15 have

been closed, 17 remain inoperative and inaccessible, located in a strife torn province with the rest expected to be closed soon. II. FINANCIAL RESOURCES Sources of Funds The principal sources of corporate funds are from capital infusion of government in the form of a Permanent Insurance Fund (PIF) and incomes from insurance premium assessments on member banks as well as from investments in government securities. Borrowings from CBP supplement these resources. The PIF authorized in 1963 for P5 million was paid-in by 1995. The amount was increased gradually over the years to P2 billion by 1985 though not fully matched by subscription payments. Consequently, even with assessment premium at the maximum rate then authorized by law, resources were grossly inadequate to meet insurance claims unleashed by a series of bank closures in the eighties. Only recourse was to borrow from CBP with initial amount of P13 million in 1972 surging to P1.07 billion by 1985 and again to P2.75 billion by 1990. Authorized capital was subsequently raised to P3 billion in 1992 fully paid by 1994. Complementing capital increases to strengthen financial capacity of the Corporation, the maximum annual rate for insurance premium assessed against total deposits more than doubled from 1/12 to 1/5 of one percent. Premium collections increased 186 percent in 1993 over the preceding year when the new rate was made effective. Thereafter, collections paralleled strong deposit growth in the banking system,

accounting for 60 percent of corporate income in 1997 and a major source of reserve provisioning against insurance losses. Investments increased as debts were reduced with strengthening of capital and greater collections in premium. Earnings from investment also became an important source of income accounting for nearly 40 percent in 1997. Deposit Insurance Fund The deposit insurance fund (DIF) represents the consolidated resources available to cover insurance claims from bank closures. The total DIF consists of the government capital (PIF), provisions for insurance losses, and retained earnings. The amount almost quadrupled over 6 years to nearly P16.0 billion by March 1998. Provisions are set aside to cover for insurance losses arising from recoveries, from banks closed or likely to close, inadequate to cover insured deposits paid (subrogated claims) or to be paid. The build up in DIF kept pace with growth in total deposits and ahead of insured deposits following enhancement of capital and assessment income in 1992. This is reflected in the percentage of DIF to total deposit increased slightly from 0.8 percent in 1992 to near 1.0 percent by March 1998, compared to the significant change in percentage of DIF to insured deposit from 2.3 percent in 1992 to 5.0 percent in the same period.

Deposit Insurance Fund and Deposit Liabilities (In Million Pesos) 1992 1997 Permanent Insurance Fund 1,973 3,000 Provision for Losses 2,025 12,092 Retained Earnings 127 228 Total DIF 4,125 15,320 Insured Deposits 179,618 315,137 Total Deposits 492,190 1,655,212 Insured/Total Deposits 36.5% 19.0% DIF/Insured Deposits 2.3% 4.9% DIF/Total Deposits 0.8% 0.9%

19981 3,000 12,747 228 15,975 311,612 1,609,177 19.4% 5.1% 1.0%

Claims on Insured Deposit From inception of PDIC, the maximum deposit amount for insurance cover increased tenfold to P100,000.00 per depositor per bank. Following adjustments in maximum cover, percentage of insured deposits to total deposits surged with peak of 48.3 percent in 1984 and 36.5 percent in 1992. These tapered down following each adjustment to 19.4 percent by yearend 1997.

With size of deposit accounts in commercial banks generally larger, the percentage of insured to total deposits is conversely lower at 17 percent compared to thrift and rural banks where higher percentage of insured deposits of 32 percent and 63 percent were conversely related to smaller size of deposit accounts with them.

Total Deposit Liabilities by Type of Bank, 19983 (In Million Pesos) Total Insured 1,442,449 246,592 130,033 41,884 36,695 23,136 1,609,177 311,612

Commercial Thrift Rural Total

% 17 32 63

Of the 339 banks closed from the seventies, six were commercial banks, 44 thrift banks, and 280 rural banks. Actual payments of insured deposits have reached P3.4 billion this year. Total deposit liabilities in closed banks cumulated to P5.6 billion by 1998, about 0.35 percent of total deposits in the banking system. Of these deposits, 44.4 percent

were from commercial banks, 41.4 percent from thrift banks, and 14.2 percent from rural banks.

Number and Deposit Liabilities of Closed Banks (1970 - 19984) Number Deposits 6 2,514 44 2,340 289 803 339 5,657

Commercial Thrift Rural Total

% 44.4 41.4 14.2 100

On an annual basis, however, deposits in bank closures averaged 0.12 percent of the total deposits in the banking system from 1970 to 1997. The highest rate registered was in 1985 at 1.26% of total deposits that year following major bank closures. In December 1997, this was at 0.007 percent.

III. ISSUES AND DIRECTIONS Rationale for Deposit Insurance System The deposit insurance system can be rationalized on social policy grounds to provide protection to those least able to protect themselves. This is premised on the implicit assumption that the less affluent save less, often with severe limitations in access to information on conditions of banks and no knowledge of attendant risks. Their choice of bank is primarily determined by convenience of access with hardly any

thought on risk. The asymmetry in knowledge between the more affluent and the poorer savers justifies a protection system with limit on maximum insurance cover. The state, in licensing banks with the privilege of taking deposits from the public, and in supervising them to promote safe and sound banking, has responsibility to provide safeguards against risk beyond the knowledge of the less affluent. Confidence in banking system is another consideration for a deposit insurance system. This has been advanced to either build up confidence or restore such in the banks. In systems with high degree of disclosure and ready access to banking information for the public, deposit insurance may not be necessary. This in turn require a high level of literacy in the population. Greater disclosure on routine basis will enable individuals to act in the market place and instigate timely corrective actions. This will minimize risk of failure and thus diminish need for an insurance system.

Moral Hazard Moral hazard is a basic issue that has to be addressed in deposit insurance. Absence of a deposit insurance system does not preclude bail-outs by governments that can turn out more costly. In coping with the Asian currency crisis, some governments were impelled by concerns over possible collapse of their banking system to underwrite the cost of paying not only depositors but other creditors of distressed banks. The solution, of course, does not lie in an insurance system alone but in the

broader strengthening of regulation and supervision over banks through enforcement of sound practices. Full insurance cover takes away incentives for depositors to ascertain for themselves the condition of the bank and the risk of closure. This can be mitigated by providing partial cover either on pro-rata basis or by limiting amount insured. Pro-rata sharing is not in full accord with the social policy of maximum protection for the lower income group. Introducing a cap on a pro-rata structure merely complicates calculation and determination of amounts to pay. A ceiling on maximum amount is simple and practical though the level to be set and periodic adjustments required remain a challenge for all partial insurance systems. Sources of Financing Ideally, the insurance system should be funded solely by member banks as the beneficiaries of the system. Budgetary appropriation passes on cost of the insurance system to others who may not be direct beneficiaries of depositing with banks and thus, less preferred. Government assistance could be through loans or guaranty to enhance access to capital markets on most advantageous term. Philippines has a mixed system with permanent insurance fund from government and insurance premium collected from all member banks, in contrast to US and Canada where initial advances by the respective governments have apparently been fully repaid. The cost of insurance is now entirely borne by banks through premium

collections levied against their insured deposits. Nevertheless, special appropriations were made in the past to cover cost of major bank failures. Insurance premium should be the main source of funding and can be levied against insured deposit only or against total deposits, with the latter providing a stronger base of income. Treatment of public funds Deposits of government in banks are treated differently for deposit insurance purposes by different governments. In Canada, funds of the federal government are categorized as crown properties with preferred priority in liquidation. Deposits of the central government are not insured and thus assessed no premium. In the US, federal funds deposited in banks are apparently required to be secured by liens on bank assets. In the process, government deposits acquire superior credit status and forgo insurance cover with no insurance premium charged either. Philippine government deposits in banks have status of regular deposits despite preference accorded taxes in liquidation settlement. Government deposits are thus insured with premium collections significantly greater than amount of insurance cover. The large differential between premium collected on government deposits in banks over the maximum amount of insurance provides a large annual subsidy from deposits of government to the non-government sector. Access to information

A deposit insurer must have access to all bank records in order to assess risks properly and determine the adequacy of the Insurance Fund. Since payments will be based on deposit accounts, these records must be routinely available for insurer to examine to foster correct and timely entries. Good records will enable prompt servicing of deposit claims and facilitate resolution of failed banks. The effectiveness of the corporation as an insurer is severely compromised by the law on secrecy of deposits that bars examiners from auditing deposit accounts. Deposit records are available to PDIC only upon closure of bank. Invariably, the records of closed banks are in poor state, requiring tedious verification of accounts and protracted processing of claims delaying payments to detriment of depositors. In some cases, deposit claims were made by court order despite absence of entries in the books of the bank. Any restrictions on access of supervisors to bank records will impair their ability to enforce sound and safe banking practices. Prompt corrective actions will be hampered with implications on greater cost in resolution of failed banks. The best protection for depositors is knowledge of the true condition of the banks through timely and accurate reports and disclosures. A principal thrust of supervision should therefore be greater transparency with more information disclosed to the public. In this regard, audit firms of banks should bear responsibilities including accountability for deficiencies in their audited reports. They can be mobilized to strengthen supervision by requiring submission of their material findings on banks to regulators.

Power to terminate insurance The insurer should have the power to terminate insurance of banks to enforce compliance and minimize insurance losses. This will unfortunately deprive depositors of recourse to the insurer and rely solely on recovery of their deposits from assets of failed bank. Insurance cover of a member bank in PDIC can be terminated for non-payment of premium or for violation of cease and desist order. Deposits as of termination date remain insured for ninety days. If the bank is not closed by the Monetary Board* within this ninety day period, only recourse of depositor will be to the bank not PDIC, the insurer. On the other hand, without the power to terminate insurance, the bank can continue to attract deposits with high interest, ultimately to be borne by the insurer.

Prompt servicing of insurance claims The effectiveness of deposit insurance in sustaining confidence in the banking system is enhanced by prompt payments of insured deposit claims. This depends on good state of deposit records to facilitate processing. Insurer should have ready resources and flexibility in payoff operations to expedite payments at convenience of depositors. Least cost resolution and systemic risk

The guiding principle for assistance is least cost resolution where cost of assistance is less than cost of closure. The determination of such cost can be complex where information is poor, aggravated by forbearances in supervision. On the other hand, least cost resolution may not adequately address systemic concerns where closure may be destabilizing to the system. In the Philippines, assistance beyond least cost from PDIC were provided by CBP to cover the amount required for bank rehabilitation. Adequacy of the insurance fund Determination of the appropriate amount of reserve provisioning for insurance losses is complex in the absence of necessary database suitable for actuarial analysis. Failure experiences vary in different countries with insurers evolving ways to determine amount deemed appropriate for their own circumstances. The US, for instance, has a bank insurance fund and a savings insurance fund prescribed by law to be a percentage of deposits in different bank group. PDIC evolved from setting aside 95% of corporate income to build up the deposit insurance fund and developed a framework for approximating possible insurance losses by relating failure probabilities to capital adequacy measures with adjustments for possible recoveries from closed banks. Receivership and liquidation Receivership and liquidation functions are not well developed in emerging economies. Undeveloped legal framework, poor records of closed banks, nascent stage

of judicial experience and absence of market specialists in this field have hobbled progress in receivership/liquidation work. The Philippine experience in the management of bank receivership/liquidation by public entities like the CBP and now the PDIC argues for development of capacity in the private sector to carry out such functions. This will avoid subjecting the process of receivership and liquidation to the rigors of public auditing standards enforced by government Commission on Audit on accountability of public funds. Rigidities in government audit rules severely restrict capacity to compromise on collections of loans, negotiated sales for early disposal of assets routinely entered into in private transaction to terminate liquidation soonest. The government rules preclude early termination of liquidation with toll on deterioration in asset quality and exclusion from economic use.

II. The Ratio Decidendi of the Supreme Court Jurisprudence

A. CASE ONE: G.R. No. 126911 PHILIPPINE April 30, 2003 DEPOSIT INSURANCE CORPORATION, petitioner,

vs. THE HONORABLE COURT OF APPEALS and JOSE ABAD, LEONOR ABAD,

SABINA ABAD, JOSEPHINE "JOSIE" BEATA ABAD-ORLINA, CECILIA ABAD, PIO ABAD, DOMINIC ABAD, TEODORA ABAD, respondents. Ratio Decidendi: Petitioner PDIC is liable to the Abads for the deposit. The Abads could not have acted in bad faith because they could have not been aware of the pending closure of MBC. They were given the benefit of the doubt that they were not aware of the MB resolution because of the confidentiality of placing banking institutions under receivership. Moreover, petitioner PDIC offered mere presumptions as evidence. In the case of the issue raised by the petitioner that an action for declaratory relief does not essentially entail an executory process the court ruled that: Without doubt, a petition for declaratory relief does not essentially entail an executory process. There is nothing in its nature, however, that prohibits a counterclaim from being set-up in the same action. Now, there is nothing in the nature of a special civil action for declaratory relief that proscribes the filing of a counterclaim based on the same transaction, deed or contract subject of the complaint. A special civil action is after all not essentially different from an ordinary civil action, which is generally governed by Rules 1 to 56 of the Rules of Court, except that the former deals with a special subject matter which makes necessary some special regulation. But the identity between their fundamental nature is such that the same rules governing ordinary civil suits may and do apply to special civil

actions if not inconsistent with or if they may serve to supplement the provisions of the peculiar rules governing special civil actions. Petitioner argues they cant be made liable for the 28 new GTDs because it was not made in the usual course of business as provided by RA 3591, as amended. Section 3, R.A. 3591, provides: "(f) The term "deposit" means the unpaid balance of money or its equivalent received by a bank in the usual course of business and for which it has given or is obliged to give credit to a commercial, checking, savings, time or thrift account or which is evidenced by its certificate of deposit, and trust funds held by such bank whether retained or deposited in any department of such bank or deposited in another bank, together with such other obligations of a bank as the Board of Directors shall find and shall prescribe by regulations to be deposit liabilities of the Bank Petitioner PDIC having failed to overcome the presumption that the ordinary course of business was followed, this Court finds that the 28 new GTDs were deposited in the usual course of business of MBC. B. CASE TWO G.R. No. 150886 February 16, 2007

RURAL BANK OF SAN MIGUEL, INC. and HILARIO P. SORIANO, in his capacity as majority stockholder in the Rural Bank of San Miguel, Inc., Petitioners,

vs. MONETARY BOARD, BANGKO SENTRAL NG PILIPINAS and PHILIPPINE DEPOSIT INSURANCE CORPORATION, Respondents.

Ratio Decidendi: Laying down the requisites for the closure of a bank under the law is the prerogative of the legislature and what its wisdom dictates. The lawmakers could have easily retained the word "examination" (and in the process also preserved the jurisprudence attached to it) but they did not and instead opted to use the word "report." The insistence on an examination is not sanctioned by RA 7653 and we would be guilty of judicial legislation were we to make it a requirement when such is not supported by the language of the law. What is being raised here as grave abuse of discretion on the part of the respondents was the lack of an examination and not the supposed arbitrariness with which the conclusions of the director of the Department of Rural Banks Supervision and Examination Sector had been reached in the report which became the basis of Resolution No. 105. The absence of an examination before the closure of RBSM did not mean that there was no basis for the closure order. Needless to say, the decision of the MB and BSP, like any other administrative body, must have something to support itself and its findings of fact must be supported by substantial evidence. But it is clear under RA 7653 that the basis need not arise from an examination as required in the old law. The Supreme Court thus rule that the MB had sufficient basis to arrive at a sound conclusion that there were grounds that would justify RBSMs closure. It relied on the report of Mr. Domo-ong, the head of the supervising or examining department, with the

findings that: (1) RBSM was unable to pay its liabilities as they became due in the ordinary course of business and (2) that it could not continue in business without incurring probable losses to its depositors and creditors. The report was a 50-page memorandum detailing the facts supporting those grounds, an extensive chronology of events revealing the multitude of problems which faced RBSM and the

recommendations based on those findings. In short, MB and BSP complied with all the requirements of RA 7653. By relying on a report before placing a bank under receivership, the MB and BSP did not only follow the letter of the law, they were also faithful to its spirit, which was to act expeditiously. Accordingly, the issuance of Resolution No. 105 was untainted with arbitrariness. Having dispensed with the issue decisive of this case, it becomes unnecessary to resolve the other minor issues raised. C. CASE THREE

G.R. No. 151280. June 10, 2004

THE PRESIDENT OF PHILIPPINE DEPOSIT INSURANCE CORPORATION AND PACIFIC BANKING CORP., petitioners, vs. HON. COURT OF APPEALS, REGIONAL TRIAL COURT OF BACOLOD CITY, BRANCH 43, NELLY M. LOVINA REALTY CO., INC., represented by its PRESIDENT,

VICENTE M. LOVINA, JIM ROSE, TRADING CORP., INC., FRANCISCO SAJO and THE INTESTATE ESTATE OF ELENITA SAJO, respondents. Ratio Decidendi: The instant petition for certiorari is dismissed for lack of merit. The consistent failure of the petitioners or their counsel to appear at the pre-trial justify the court a quos order directing the respondents to present their evidence ex parte. Under Section 5, Rule 18 of the Rules of Court, failure on the part of the

defendants, the petitioners in this case, and their counsel to appear at the pre-trial, shall be a cause to allow the respondents, as the plaintiffs, to present their evidence ex parte, and the Court to render judgment on the basis thereof. As correctly put by the CA, assuming that the respondent judge was strict in the enforcement of the rules, that is an ocean away from being gravely abusive of his discretion.

In the same light, the CA cannot be considered to have committed grave abuse of discretion amounting to lack or excess of jurisdiction when it affirmed the order of the respondent judge directing the respondents to present their evidence ex parte conformably with the rules.

D. CASE FOUR G.R. No. 176929 July 4, 2008

INOCENCIO Y. LUCASAN for himself and as the Judicial Administrator of the Intestate Estate of the late JULIANITA SORBITO LUCASAN, Petitioner,

vs. PHILIPPINE DEPOSIT INSURANCE CORPORATION (PDIC) as receiver and liquidator of the defunct PACIFIC BANKING CORPORATION, Respondent.

Ratio Decidendi: The petition of Lucasan was denied by the Supreme Court and it affirmed to the Decision and Resolution of the Court of Appeals.

In its Order dated July 24, 2003, the RTC granted PDICs motion to dismiss. On appeal, the CA affirmed in toto the RTC ruling. It declared that Lucasan already lost his right to redeem the properties when he failed to exercise it within the prescribed period. The effect of such failure was to vest in PBC absolute ownership over the subject properties.

Lucasan admitted that he failed to redeem the properties within the redemption period, on account of his then limited financial situation. It was only in January 1997 or fifteen (15) years later that he manifested his desire to reacquire the properties. Clearly thus, he had lost whatever right he had over Lot Nos. 1500-A and 229-E.

The payment of loans made by Lucasan to PNB and RPB in 1997 cannot, in any way, operate to restore whatever rights he had over the subject properties. Such

payment only extinguished his loan obligations to the mortgagee banks and the liens which Lucasan claimed were subsisting at the time of the registration of the notice of embargo and certificate of sale.

Concededly, Lucasan can pursue all the legal and equitable remedies to impeach or annul the execution sale prior to the issuance of a new certificate of title in favor of PBC. Unfortunately, the remedy he had chosen cannot prosper because he failed to satisfy the requisites provided for by law for an action to quiet title. Hence, the RTC rightfully dismissed Lucasans complaint.

In fine, the Supreme Court find that the RTC correctly dismissed Lucasans complaint for quieting of title. Thus, the CA committed no reversible error in sustaining the RTC.

E. CASE FIVE G.R. No. 167743 November 22, 2006

HILARIO P. SORIANO, Petitioner, vs. OMBUDSMAN SIMEON V.MARCELO, HON. PLARIDEL OSCAR J. BOHOL, Graft Investigation Officer II, and RAMON R. GARCIA, Respondents. Ratio Decidendi: The Petition of Soriano is denied due course and the Decision and Resolution of the Court of Appeals is affirmed by the Supreme Court.

On April 12, 2005, the CA resolved to deny Sorianos motion for reconsideration of its decision. Dissatisfied, Soriano filed this petition for review.

Petitioner contends that respondent acted in bad faith, or, at the very least, committed acts of irregularity from which an inference of malice or bad faith could be made. He points out that Nazareno could not have had access to said information and would not have disclosed such information against Soriano if he was not the PDIC President. He, therefore, concludes that the impugned remarks were made in relation to office or in the performance of public duties.

Respondents, through the Office of the Solicitor General, point out that the dismissal of the administrative complaint against respondent is final and immediately executory, and unappealable. Nonetheless, they aver that the ruling of the CA, that there was no grave abuse of discretion on the part of the Ombudsman when he dismissed the administrative case, was correct. They maintain that the factual findings of the Ombudsman in administrative disciplinary proceedings are entitled to great respect and finality.

Mere abuse of discretion is not enough. The only question involved is jurisdiction, either the lack or excess thereof, and abuse of discretion warrants the issuance of the extraordinary remedy of certiorari only when the same is grave, as when the power is exercised in an arbitrary or despotic manner by reason of passion, prejudice or personal hostility. A writ of certiorari is a remedy designed for the correction of errors of

jurisdiction and not errors of judgment. An error of judgment is one in which the court may commit in the exercise of its jurisdiction, which error is reversible only by an appeal.

The Supreme Court quote with approval the following discussion of the Ombudsman on its finding that petitioners complaint was premature.

Patently, petitioner filed his complaint against respondent with the Ombudsman despite the pendency of his petition for review in the DOJ. It turned out that the DOJ would sustain the rulings of First Assistant Sulla and respondent, respectively. There was thus no factual and legal basis to file any administrative complaint against respondent.

In this case, petitioner failed to establish his claim that the Ombudsman committed a grave abuse of discretion amounting to excess or lack of jurisdiction in dismissing his complaint. Indeed, the Ombudsman was justified in dismissing the administrative case against respondent. The latter cannot be held administratively liable for the dismissal of the complaint of petitioner against Nazareno and Hirang without the authority or approval of the Ombudsman. It bears emphasizing that the Ombudsman and the City Prosecutor have concurrent jurisdiction to investigate offenses involving public officers and employees. It is only in cases cognizable by the Sandiganbayan that the

Ombudsman has the primary jurisdiction to investigate; hence, in such cases, it may

take over, at any stage, from any investigating agency of the government, the investigation of such cases.

Hence, in cases within the jurisdiction of the Sandiganbayan, the prosecutor has the duty to forward the case to the Ombudsman for proper disposition. In such cases, Section 4 provides that no complaint may be dismissed by an investigating prosecutor without the prior written authority or approval of the Ombudsman or his deputy.

However, the impugned dismissals in the present case involve complaints over offenses which were found to be committed not in relation to office and within the jurisdiction of the regular courts (I.S. No. 01J-43460 is a complaint for perjury while I.S. No. 01H-32904 is a complaint for libel). When the case involves an offense not in relation to office and cognizable by the regular courts, the investigating prosecutor is under no obligation to forward his recommendations together with the records of the case to the Ombudsman for a final disposition.

Petitioner ascribes administrative liability to respondent for allegedly not following OMB-DOJ Joint Circular No. 95-001 when he dismissed the Nazareno and Hirang cases.

For one, respondent did not actually ignore OMB-DOJ Joint Circular No. 95-001. In fact, respondent dismissed the Nazareno case on the honest belief that he was complying with the guidelines set forth in said circular. The Nazareno case was

dismissed by respondent based on the finding that the offense committed by respondent therein was not in relation to office. Paragraph 2 of OMB-DOJ Joint Circular No. 95-001 provides that offenses not in relation to office and cognizable by the regular courts shall be investigated and prosecuted by the Office of the Provincial/City Prosecutor, which shall rule thereon with finality. Respondent is not obliged to forward cases involving offenses not in relation to office to the Office of the Ombudsman.

An offense is deemed to be committed in relation to the accuseds office when such office is an element of the crime charged or when the offense charged is intimately connected with the discharge of the official function of the accused. Respondent found that the interview Nazareno had given to Business World was his personal and private undertaking, and not related to the performance of his duty as a PDIC officer. Whether or not such finding is correct is beyond the reach of the administrative case filed against him; such question should be properly resolved in the petition for review of the City Prosecutors resolution with the DOJ.

Neither can respondent be made administratively liable for the dismissal of the Hirang case in which he had no participation. The negligence of the subordinate cannot be ascribed to his superior in the absence of evidence of the latters own negligence. Finally, it has been declared that OMB-DOJ Joint Circular No. 95-001 is just an internal agreement between the Ombudsman and the DOJ. F. CASE SIX

G.R. No. 169334

September 8, 2006

LETICIA

G.

MIRANDA,

Petitioner,

vs.

PHILIPPINE

DEPOSIT

INSURANCECORPORATION, BANGKO SENTRAL NG PILIPINAS and PRIME SAVINGS BANK, Respondents. Ratio Decidendi:

The Petition of Miranda is denied. The Decision of the Court of Appeals are affirmed with the modification that petitioner Leticia G. Miranda is entitled to a preference in the assets of Prime Savings Bank in its liquidation for the amounts of P3,002,000.00 and P2,500,000.00, respectively stated in Cashiers Check No. 0000000514 and 0000000518 dated June 3, 1999 in the proceedings before the liquidation court designated to adjudicate on all claims against Prime Savings Bank, in accordance with the rules on concurrence and preference of credits as provided in the Civil Code.

The issues presented by the petitioner before the Supreme Court can be summarized as follows: (1) Whether the two cashiers checks operate as an assignment of funds in the hands of the petitioner; (2) Whether the claim lodged by the petitioner is a disputed claim under Section 30 of Republic Act (R.A.) No. 7653, otherwise known as the New Central Bank Act, and therefore, under the jurisdiction of the liquidation court; and (3) Whether the respondents are solidarily liable to the petitioner.

Anent the first issue, the two cashiers checks issued by Prime Savings Bank do not constitute an assignment of funds in the hands of the petitioner as there were no funds to speak of in the first place. The bank was financially insolvent for sometime,

even before the issuance of the checks on June 3, 1999. As the Court of Appeals correctly ruled, the issuance constitute an assignment of funds, of which there was practically none at the time these were issued, as the bank was in dire financial straits for some time. of the cashiers checks to petitioner did not

As regards the second issue, the claim lodged by the petitioner qualifies as a disputed claim subject to the jurisdiction of the liquidation court. Regular courts do not have jurisdiction over actions filed by claimants against an insolvent bank, unless there is a clear showing that the action taken by the BSP, through the Monetary Board in the closure of financial institutions was in excess of jurisdiction, or with grave abuse of discretion.

The power and authority of the Monetary Board to close banks and liquidate them thereafter when public interest so requires is an exercise of the police power of the State. Police power, however, is subject to judicial inquiry. It may not be exercised arbitrarily or unreasonably and could be set aside if it is either capricious, discriminatory, whimsical, arbitrary, unjust, or is tantamount to a denial of due process and equal protection clauses of the Constitution.

Disputed claims refer to all claims, whether they be against the assets of the insolvent bank, for specific performance, breach of contract, damages, or whatever. Petitioners claim which involved the payment of the two cashiers checks that were not honored by Prime Savings Bank due to its closure falls within the ambit of a claim against the assets of the insolvent bank. The issuance of the cashiers checks by Prime Savings Bank to the petitioner created a debtor/creditor relationship between them. This disputed claim should therefore be lodged in the liquidation proceedings by the petitioner as creditor, since the closure of Prime Savings Bank has rendered all claims subsisting at that time moot which can best be threshed out by the liquidation court and not the regular courts.

It is well-settled in both law and jurisprudence that the Central Monetary Authority, through the Monetary Board, is vested with exclusive authority to assess, evaluate and determine the condition of any bank, and finding such condition to be one of insolvency, or that its continuance in business would involve a probable loss to its depositors or creditors, forbid bank or non-bank financial institution to do business in the Philippines; and shall designate an official of the BSP or other competent person as receiver to immediately take charge of its assets and liabilities.

Regarding the third issue, it is only Prime Savings Bank that is liable to pay for the amount of the two cashiers checks. Solidary liability cannot attach to the BSP, in its capacity as government regulator of banks, and the PDIC as statutory receiver under R.A. No. 7653, because they are the principal government agencies mandated by law to

determine the financial viability of banks and quasi-banks, and facilitate receivership and liquidation of closed financial institutions, upon a factual determination of the latters insolvency.

In addition, co-respondent PDIC was impleaded as a party-litigant only in its representative capacity as the receiver/liquidator of Prime Savings Bank. Both BSP and PDIC cannot therefore be held directly and solidarily liable for the payment of the two cashiers checks. Sole liability rests with Prime Savings Bank.

In the absence of fraud, the purchase of a cashiers check, like the purchase of a draft on a correspondent bank, creates the relation of creditor and debtor, not that of principal and agent, with the result that the purchaser or holder thereof is not entitled to a preference over general creditors in the assets of the bank issuing the check, when it fails before payment of the check. However, in a situation involving the element of fraud, where a cashiers check is purchased from a bank at a time when it is insolvent, as its officers know or are bound to know by the exercise of reasonable diligence, it has been held that the purchase is entitled to a preference in the assets of the bank on its liquidation before the check is paid

Clearly, there was fraud or the intent to deceive when the two cashiers checks dated June 3, 1999 were issued by Prime Savings Bank to the petitioner.

In the distribution of assets of Prime Savings Bank, Section 31 of the New Central Bank Act which provides that [i]n case of liquidation of a bank or quasi-bank, after payment of the cost of proceedings, including reasonable expenses and fees of the receiver to be allowed by the court, the receiver shall pay the debts of such institution, under order of the court, in accordance with the rules on concurrence and preference of credit as provided in the Civil Code, should apply. G. CASE SEVEN G.R. No. 137786 March 17, 2004

MARTIN B. ROSARIO, SERGIO SIOJO, JULIAN GABRIEL, DEMETRIA GABRIEL, WILSON PASANA, NIDA PASANA, JESUSA ARBOLEDA, RODRIGO ARBOLEDA, GLORIA BERNAL, ANTONIO BERNAL, REMEDIOS FLORES, RITCHE PASANA, PEREGRINA PASANA, ETHOL ROSARIO, GUILLERMO GABRIEL, ERLINDA P. GABRIEL, JUANITO DE GUZMAN, AMADO NICOMEDES, PABLO LAGUIT, GENOVEVA LAGUIT, IMELDA LAGUIT, ERNESTO LAGUIT, JOSEPHINE V. LAGUIT, ALBERT ROSARIO, CECILIA ROSARIO, FILIPINAS ROSARIO, MARICEL ROSARIO, ALEJANDRO ROSARIO, NATIVIDAD ROSARIO, FREDDIE ROSARIO, JUANITA SOLOMON, JULIO SOLOMON, LEOPOLDO SOLOMON, WOODY ROSARIO, MADILYN SOLOMON, RODOLFO SOLOMON, MARCELINO ROSARIO, RODOLFO PLACIDO, LETECIA PLACIDO, HAROLD PLACIDO, ROWENA PLACIDO,

ARGENTINA PLACIDO, FLORDELIZA PLACIDO, MARGARITA ARBOLEDA, JOHNNY ARBOLEDA, GREGORIO ROSARIO, JR., JUANITO ROSARIO, ERLINDA ROSARIO, JOEL ROSARIO, JAY ROSARIO, FREDDIE ROSARIO, VICENTE SOLOMON,

ERLINDA P. GABRIEL, MARCELINO ROSARIO, ALBERT T. ROSARIO, CECILIA ROSARIO, GREGORIO ROSARIO, SR., RICHARD F. ROSARIO, ALEJANDRO ROSARIO, JOHNNY ARBOLEDA, MARGARITA ARBOLEDA, BERNABE PASANA, REGINA ESPIRITU, LOLITA ESPIRITU, MYRNA DE GUZMAN and CAMILINIA GABRIEL, petitioners,

vs. PHILIPPINE DEPOSIT INSURANCE CORPORATION, RURAL BANK OF ALCALA, PANGASINAN, INC., MARGIE G. GOB AND SPOUSE; JACINTO GOMEZ and SPOUSE; FE G. ALEJANDRO and SPOUSE; BENITO O. ROCES and SPOUSE; ALEJO Y. GOMEZ, JR. and SPOUSE; PIO V. GOB and MELCHORA L. AGALOOS and SPOUSE, respondents. Ratio Decidendi: The Supreme Court is tasked to resolve the following issues: (1) Whether or not the Motion for Reconsideration filed by petitioners with the Court of Appeals on 04 November 1999 was filed on time; and (2) Whether or not the Court of Appeals was correct in affirming the dismissal by the RTC of San Carlos City, Pangasinan, Branch 57, of petitioners? complaint for lack of jurisdiction in view of the pendency of the liquidation proceedings involving the Bank in the RTC of Villasis, Pangasinan, Branch 50. The petition is denied.

At the outset, the Court notes that the petition should have been denied outright for non-compliance with the requirements under Rule 45 of the 1997 Rules of Civil Procedure. In their Motion for Extension of Time to File Petition for Review on Certiorari, petitioners alleged that they received a copy of the 03 March 1999 Resolution of the Court of Appeals, denying their motion for reconsideration, on 10 March 1999. Thus, they had fifteen (15) days there from, or until 25 March 1999 within which to file their petition for review before this Court. However, they requested an extension of thirty (30) days from 25 March 1999, or until 24 April 1999 to file their petition. Petitioners motion was granted by this Court in a Resolution dated 28 April 1999, with the qualification that said extension was the last extension that the Court would grant them.21 Since 24 April 1999 was a Saturday, petitioners had until the next working day, 26 April 1999, a Monday, within which to file their petition for review. Petitioners filed by registered mail a copy of the petition for review on 26 April 1999. However, the petition mailed that day was not accompanied by either a duplicate original or a certified true copy of the assailed Decision and Resolution of the Court of Appeals. Moreover, it did not include proof of service thereof on the Court of Appeals and the respondents. It is clear that under Rule 45, Section 5 of the 1997 Rules of Civil Procedure failure of the petitioner to comply with the requirements regarding, among others, proof of service of the petition and the documents which should accompany the petition shall be sufficient ground for the dismissal thereof.

Even if the petition complied with the requirements under Rule 45, the same must nevertheless be dismissed in view of petitioners late filing of their Motion for Reconsideration of the Court of Appeals Decision. The appellate court discovered that a copy of the Decision was delivered to the address of petitioners counsel on 12 October 1998 and was received by a certain Mr. Magalang. Accordingly, petitioners should have filed their Motion for Reconsideration within fifteen (15) days from said date or until 27 October 1999. However, petitioners erroneously computed the fifteen-day period for filing said motion from 26 October 1999, the date when petitioners counsel allegedly actually saw the copy of the Decision. Thus, when they filed their Motion for Reconsideration on 04 November 1999, there was nothing for the Court of Appeals to reconsider because by then its Decision had already become final and executory. As such, this Court has no jurisdiction over the present petition and cannot resolve the substantive issues raised thereby.

H. CASE EIGHT G.R. No. 118917 December 22, 1997 PHILIPPINE DEPOSIT INSURANCE CORPORATION, petitioner, vs. COURT OF

APPEALS, ROSA AQUERO, GERARD YU, ERIC YU, MINA YU, ELIZABETH NGKAION, MERLY CUESCANO, LETICIA TAN, FELY RUMBANA, LORNA ACUB, represented by their Attorney-in-Fact, JOHN FRANCIS COTAOCO, respondents. Ratio Decidendi:

The Instant Petition is granted and the Decision of the Court of Appeals is Reversed. The Petitioner is absolved from any liability to the private respondents On February 8, 1995, the Court of Appeals rendered its decision granting the Central Bank's petition but dismissing the appeals of PDIC and RSB. Hence, this petition by PDIC assigning the following errors: I THE CA ERRED IN HOLDING THAT THE SUBJECT CTDS ARE NEGOTIABLE INSTRUMENTS II THE CA ERRED IN HOLDING THAT THE CTDS WERE ACQUIRED FOR VALUE AND CONSIDERATION III THE CA ERRED WHEN IT HELD THAT BECAUSE THE CTDS STATE THAT THESE WERE INSURED PETITIONER SHOULD BE HELD LIABLE FOR THE SAME. The Supreme Court deal jointly with petitioner's first and third assigned errors. Relying on the Supreme Court's ruling in Caltex (Philippines), Inc. v. Court of Appeals and Security Bank and Trust Company, the Court of Appeals concluded that the subject CTDs are negotiable. Petitioner, on the other hand, contends that the CTDs are non-negotiable since they do not contain an unconditional promise or order to pay a

sum certain in money nor are they made payable to order or bearer, as required by Section 1 of the Negotiable Instruments Law. Whether the CTDs in question are negotiable or not is, however, immaterial in the present case. The Philippine Deposit Insurance Corporation was created by law and, as such, is governed primarily by the provisions of the special law creating it. The liability of the PDIC for insured deposits therefore is statutory and, under Republic Act No. 3591, as amended, such liability rests upon the existence of deposits with the insured bank, not on the negotiability or non-negotiability of the certificates evidencing these deposits. The authority for this conclusion finds support in decisions by American state courts applying their respective bank guaranty laws. Invariably, the plaintiffs in these cases argued that the negotiability of the certificates of deposit in their possession entitled them to be paid out of the bank guaranty fund, a contention that the courts uniformly rejected. Thus, the plaintiffs in Fourth Nat. Bank of Wichita v. Wilson argued that: . . . the court should hold the certificates to be guaranteed because they are negotiable instruments, and were acquired by the present holders in due course; otherwise it is said certificates of deposit will be deprived of the quality of commercial paper. Certificates of deposit have been regarded as the highest form of collateral. They are of wide currency in the banking and business worlds, and are particularly useful to persons of

small means, because they bear interest, and may be readily cashed; therefore to deprive them of the benefit of the guaranty fund would be a calamity. . . . The Supreme Court of Kansas, however, found the plaintiffs' contention to be without merit, ruling thus: . . . The argument confuses negotiability of commercial paper with statutory guaranty of deposits. The guaranty is something extrinsic to all forms of evidence of bank obligation; and negotiability of instruments has no dependence on existence or nonexistence of the guaranty. . . . Whatever the status of the plaintiffs may be as holders in due course under the Negotiable Instruments Law, they cannot be assignees of a deposit which was not made, and cannot be entitled to the benefit of a guaranty which did not come into existence. . . . In arriving at the above decision, the Kansas Supreme Court relied on its earlier ruling in American State Bank v. Foster, which arose from the same facts as the Fourth National Bank case. There, the Court held: . . . Even if the plaintiff were to be regarded as an innocent purchaser of the certificates as negotiable instruments, its situation would be in no wise bettered so far as relate to a claim against the guaranty fund. The fund protects deposits only. And if no deposit is made, or no deposit within the protection of the guaranty law, the transfer of a certificate cannot impose a

liability on the fund. . . . where a certificate of deposit is given under such circumstances that it is not protected by the guaranty fund, although that fact is not indicated by anything on its face, its indorsement to an innocent holder cannot confer that quality upon it. In like fashion did the Supreme Court of Nebraska brush aside a similar contention in State v. Farmers' Stale Bank: In this contention we think the appellants fail to distinguish between the liability of the maker of a negotiable instrument, which rests upon the law pertaining to negotiable paper, and the liability of the guaranty fund, which is purely statutory. The circumstances under which the guaranty fund may be liable are entirely apart from the law pertaining to negotiable paper. A holder of a certificate of deposit in a bank who seeks to hold the guaranty fund liable for its payment must show that the transaction leading up to the issuance of the certificate was such that the law holds the guaranty fund liable for its payment. . . . The Farmers' State Bank ruling was reiterated by the Nebraska Supreme Court in State v. Home State Bank of Dunning 8 and in State v. Kilgore State Bank. The same ruling was adopted by the Supreme Court of South Dakota in Mildenstein v. Hirning. In the case at bar, the Court of Appeals initially found the subject CTDs to be negotiable. Subsequently, however, respondent court deemed the issue immaterial, albeit for entirely different reasons.

. . . Besides, whether the certificates are negotiable or not is of no moment. The fact remains that the certificates categorically state that their bearer [sic] have a deposit in the RSB; that the same will mature on November 3, 1993; and that the certificates are insured by PDIC. The Supreme Court disagree with respondent court's rationale. The fact that the certificates state that the certificates are insured by PDIC does not ipso facto make the latter liable for the same should the contingency insured against arise. As stated earlier, the deposit liability of PDIC is determined by the provisions of R.A. No. 3519, and statements in the certificates that the same are insured by PDIC are not binding upon the latter. . . . The mere fact that a certificate recites on its face that a certain sum has been deposited, or that officers of the bank may have stated that the deposit is protected by the guaranty law, does not make the guaranty fund liable for payment, if in fact a deposit has not been made . . . . The banks have nothing to do with the guaranty fund as such. It is a fund raised by assessments against all state banks, administered by officers of the state to protect deposits in banks. . . . The Supreme Court come now to petitioner's second assigned error. In order that a claim for deposit insurance with the PDIC may prosper, the law requires that a corresponding deposit be placed in the insured bank. This is implicit from a reading of the following provisions of R.A. 3519:

Sec. 1. There is hereby created a Philippine Deposit Insurance Corporation . . . which shall insure, as provided, the deposits of all banks which are entitled to the benefits of insurance under this Act . . . . (Emphasis supplied). xxx xxx xxx Sec. 10(a) . . . xxx xxx xxx (c) Whenever an insured bank shall have been closed on account of insolvency, payment of the insured deposits in such bank shall be made by the Corporation as soon as possible . . . .(Emphasis supplied.) A deposit as defined in Section 3(f) of R.A. No. 3591, may be constituted only if money or the equivalent of money is received by a bank: Sec. 3. As used in this Act: (f) The term "deposit" means the unpaid balance of money or its equivalent received by a bank in the usual course of business and for which it has given or is obliged to give credit to a commercial, checking, savings, time or thrift account or which is evidenced by passbook, check and/or certificate of deposit printed or issued in accordance with Central Bank rules and regulations and other applicable laws, together with such other obligations of a bank which, consistent with banking usage and

practices, the Board of Directors shall determine and prescribe by regulations to be deposit liabilities of the Bank . . . . (Emphasis ours.) Did RSB receive money or its equivalent when it issued the certificates of time deposit? The Court of Appeals, in resolving who between RSB and PFC issued the certificates to private respondents, answered this question in the negative. A perusal of the impugned decision, however, reveals that such finding is grounded entirely on speculation, and thus, cannot bind the Supreme Court: Equally unimpressive is the contention of PDIC and RSB that the certificates were issued to PFC which did not acquire the same for value because the check issued by the latter for the certificates bounced for insufficiency of funds. First, granting arguendo that the certificates were originally issued in favor of PFC, such issuance could only give rise to the presumption that the amount stated in the certificates have been deposited to RSB. Had not PFC deposited the amount stated therein, then RSB would have surely refused to issue the certificates certifying to such fact. Second, why did not RSB demand that PFC pay the certificates or file a claim against PFC on the ground that the latter failed to pay for the value of the certificates? It could very well be that the reason why RSB did not run after PFC for payment of the value of the certificates was because the instruments were issued to the latter by RSB for value or were already paid to RSB by plaintiffs-appellees. Third, if it is true that at the time RSB issued the certificates to PFC, the instruments were paid for with checks

still to be encashed, then why did not RSB specifically state in the certificates that the validity thereof hinges on the encashment of said check? Fourth, even if it is true that PFC did not deposit with or pay the RSB the amount stated in the certificates, the latter is not be such reason freed from civil liability to plaintiffs-appellees. For, by issuing the certificates, RSB bound itself to pay the amount stated therein to whoever is the bearer upon its presentment for encashment. Truly, there is no reason to depart from the established principle that where a bank issues a certificate of deposit acknowledging a deposit made with a third person or an officer of the bank, or with another bank representing it to be the certificate of the bank, upon which assurance the depositor accepts it, the bank is liable for the amount of the deposit (Michis, Banks and Banking, Vol. 5A, pp. 48-49, as cited in the Decision on p. 3 thereof). Moreover, such finding totally ignores the evidence presented by defendants. Cardola de Jesus, RSB Deputy Liquidator, testified that RSB received three (3) checks in consideration for the issuance of several CTDs, including the ones in dispute. The first check amounted to P159,153.93, the second, P121,665.95, and the third, P125,846.07 In consideration of the third check, private respondents received thirteen (13) certificates of deposit with Nos. 09648 to 09660, inclusive, with a value of P10,000.00 each or a total of P130,000.00. To conform with the value of the third check, CTD No. 09648 was "chopped," and only the sum of P5,846.07 was credited in favor of private respondents. The first two checks "made good in the clearing" while the third was returned for being "drawn against insufficient funds."

The check in question appears on the records as Exhibit "3" (for Regent), and is described in RSB's offer or evidence as "Traders Royal Bank Check No. 292555 dated September 22, 1983 covering the amount or P125,846.07 . . . issued by Premiere Financing Corporation."
16

At the back of said check are the words "Refer to Drawer,"

indicating that the drawee bank (Traders Royal Bank) refused to pay the value represented by said check. By reason of the check's dishonor, RSB cancelled the corresponding as evidence by an RSB "ticket" dated November 4, 1983. 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. I. CASE NINE G.R. No. 136350 SPOUSES IKE S. October 25, 2004 BARZA and ZENAIDA A. BARZA, petitioners,

vs. SPOUSES RAFAEL S. DINGLASAN, JR., and MA. ELENA Y. DINGLASAN, RURAL BANK OF MAAYON (CAPIZ), INC., RURAL BANK OF CAPIZ (ROXAS CITY), INC., PHILIPPINE DEPOSIT INSURANCE CORPORATION and the PROVINCIAL SHERIFF OF CAPIZ, respondents. Ratio Decidendi: Petitioners prayed that the following be annulled and set aside:

a. The Order issued by the Regional Trial Court, Sixth Judicial Region, Branch 17, Roxas City on April 17, 1991, which dismissed the complaint filed by petitioners against respondents in Civil Case No. V-4941; b. The Order issued by said Court in the same civil case on September 4, 1991, which denied Petitioners? Motion for Reconsideration of the Order dated April 17, 1991; and c. The Decision rendered by the Court of Appeals on October 23, 1998 in CAG.R. CV No. 38517, which affirmed the aforesaid two Orders. They also prayed that the Supreme Court issue a Decision: a. Declaring null and void the real estate mortgage in question as well as the extra-judicial foreclosure sales conducted by respondent Provincial Sheriff of Capiz involving the 145-ha fish pond owned by petitioners; b. In the alternative, admitting petitioners? oral and documentary evidence which were adduced during the trial conducted by the court a quo. Philippine Deposit Insurance Corporation (PDIC), as the receiver/liquidator of respondents Maayon Bank and Capiz Bank countered that: the validity of the loan obligations of petitioners is beyond question since petitioners applied for and obtained the same willingly and voluntarily; the anomaly would not have been perpetrated without the willing and voluntary cooperation of petitioners; the eventual foreclosure of their properties is the natural consequence of their failure to pay their loan obligations;

petitioners failed to adduce any evidence during the trial which would support their cause of action; and settled is the rule that negligence of the lawyer binds the client; if petitioners were not satisfied with the way their lawyer was handling their case, they could have changed their counsel earlier on. Respondent spouses Rafael and Ma. Elena Dinglasan in their comment stated that: they are adopting the comments of the PDIC; the present petition was merely filed by petitioners to avoid paying their debts; the filing of criminal charges for falsification of the bank documents against them is baseless because they are not party signatories to said loan documents which petitioners have voluntarily executed and signed; and it is not the negligence of petitioners counsel that caused the dismissal of the case but the utter lack of merit of petitioners case which demoralized petitioner Zenaida Barza from appearing in the case to be cross-examined. In essence, petitioners are asking this Court to annul the decisions and orders of the courts a quo because of the alleged negligence of their lawyers. They insist that they have a meritorious case such that whatever negligence they or their counsels might have committed should be overlooked in the greater interest of justice. The Supreme Court is not persuaded. Settled is the rule that a client is bound by the mistakes of his counsel. The only exception is when the negligence of the counsel is so gross, reckless and inexcusable that the client is deprived of his day in court. In such instance, the remedy is to reopen

the case and allow the party who was denied his day in court to adduce evidence. Perusing the case at bar, we find no reason to depart from the general rule. Petitioners, as plaintiffs a quo, were given ample opportunity to present their case despite the several postponements asked by their counsel. Records show that the trial court allowed petitioners a total of twenty-eight postponements, in a span of seven years, from the time the case was filed on March 22, 1984 until its dismissal on April 17, 1991. They cannot claim, therefore, that they were deprived of their day in court. As we have repeatedly stated, due process is simply an opportunity to be heard. So long as a party is given the opportunity to advocate her cause or defend her interest in due course, it cannot be said that there was denial of due process. The trial court in its assailed Order dated September 4, 1991 explained that: It should not be said that this Presiding Judge lacks the compassion of a Godloving man. But in this case, if he stretches any further that compassion, it would constitute a grave abuse of discretion, a manifest and apparent injustice. If plaintiffs failed to gather all their exhibits in eight (8) months, then it is doubted if they are really serious in gathering and presenting those exhibits, with more reason when plaintiffs are in America. To the mind of this Court, the requirement of due process is more than satisfied. The Court of Appeals also correctly noted that: . . . plaintiffs have been afforded all the opportunity to present their evidence but they did not take full advantage of the leniency of the court which granted them

countless postponements to finish the testimony of Zenaida Barza, and several months more for the formal offer of evidence. The court, in an unusual display of liberality and leniency, patiently waited for the return of plaintiff Zenaida Barza from the United States to complete her testimony and to allow defendants to cross-examine her, but apparently, she never came back. Plaintiffs, in fact, are now in the United States as manifested by their counsel, and it is likely that they are already permanent residents there. Due process was accorded plaintiffs. They cannot now claim that their rights were violated. If the problem really was with their lawyers, petitioners should have changed counsels early on in the proceedings or as soon as Atty. Arungayan already showed lack of dedication to their case. But it took them seven years before looking for another lawyer and they chose Atty. Alovera, who comes from the same law firm. As the Supreme Court held in Villaruel Jr. vs. Fernando: . . . petitioner is not entirely blameless . . . After the OSGs failure to file the answer to the petition for mandamus and damages and to have the order declaring petitioner in default lifted, petitioner should have already replaced the OSG with another lawyer. However, petitioner still retained the services of the OSG, despite its apparent lack of interest in petitioners case, until the trial courts decision became final. In Salva vs. Court of Appeals, the Supreme Court also held that:

. . . Her chosen counsel did not diligently exhaust all legal remedies to advance respondents cause, yet respondent did not terminate his services. She was aware of the repeated negligence of her counsel and cannot now complain of counsels errors. Hence, there is no justifiable reason to exempt her from the general rule that clients should suffer the consequences of the negligence, mistake or lack of competence of the counsel whom they themselves hired and had the full authority to fire at any time and replace with another even without justifiable reason. (Emphasis supplied.) As petitioners themselves pointed out, they were represented by a law firm. This meant that any of its members could lawfully act as their counsel during the trial. Petitioners, however, should not have expected that all they needed to do was sit back, relax and await the outcome of their case. To do so would enable every party to render inutile any adverse order or decision through the simple expedience of alleging gross negligence on the part of its counsel. Thus, the Supreme Court find that the Court of Appeals did not commit any error in its assailed decision.

III. The Concurring and Dissenting Opinions

Should the Philippine Deposit Insurance Corporation be allowed to examine Bank Accounts while they are still alive? Concurring Opinion: VIRGILIO ANGELO G. GENER

In my own personal opinion and based from what our group has researched about the Philippine Deposit Insurance Corporation, the PDIC should be allowed to examine bank accounts while they are still alive since that the said GovernmentControlled Corporation serves as the Statutory Receiver and Liquidator of closed or insolvent Banking Institutions. As provided in the Republic Act 3591 and Republic Act 7400 of 1992, the Charters that established the Corporation, the Philippine Deposit Insurance Corporation should be allowed to examine Bank Accounts because it has been given the independent authority and right under the provisions of law to do so. As a Statutory Receiver, the Philippine Deposit Insurance Corporation, should be allowed to examine bank accounts so that it will have the birds eye view on the particular bank deposits the Corporation should shoulder in case of the insolvency of the Banking Institution and so that the payments made by the member Banking Institutions to the PDIC would be sufficient to cover all of the bank deposits made in an insolvent bank. As a Statutory Liquidator, the Philippine Deposit Insurance Corporation should be allowed to examine bank accounts so that it will be able to identify in advance what particular interest, mortgage or pledge, and loan should be liquidated in case of the insolvency of the Banking Institution. In the Case of Miranda vs. Philippine Deposit Insurance Corporation, et.al. (Gazette Report Number 169334 dated September 8, 2006), Petitioner Leticia G.

Miranda was a depositor of Prime Savings Bank, Santiago City Branch. On June 3, 1999, she withdrew substantial amounts from her account, but instead of cash she

opted to be issued a crossed cashiers check. She was thus issued cashiers check no. 0000000518 in the sum of P2,500,000.00 and cashiers check no. 0000000514 in the amount of P3,002,000.00.

Petitioner deposited the two checks into her account in another bank on the same day, however, Bangko Sentral ng Pilipinas (BSP) suspended the clearing privileges of Prime Savings Bank effective 2:00 p.m. of June 3, 1999. The two checks of petitioner were returned to her unpaid

On June 4, 1999, Prime Savings Bank declared a bank holiday. On January 7, 2000, the BSP placed Prime Savings Bank under the receivership of the Philippine Deposit Insurance Corporation (PDIC).

In this Supreme Court decided Jurisprudence, the Philippine Deposit Insurance Corporation should be allowed to examine Bank Accounts while they are still alive in order for the Corporation (PDIC) to be able to identify whether or not a Depositor is entitled to a preference in the assets of the insolvent Banking Institution in its liquidation and whether or not the Corporation (PDIC) is liable to pay for the amount deposited by the Depositor under Republic Act Number 7653.

Concurring Opinion: PAULINE BERNADETTE RODRIGUEZ

PDICs role as envisioned by the Congress is to encourage savings in banks and draw idle funds into the banking system, protect insured deposits in the event of bank disclosures, help promote a sound and stable banking system, and foster public confidence in the banking system.

PDICs role should only be limited as personal information regarding accounts should be kept private in so far as the company still opts to manage their assets. Congress vision to move towards a better public banking service, the rights of its key playersbank companies and stakeholders- are being compromised thus it becomes unjust.

Banking companies, as well all know, or at least most of the companies are private sectors. And as private sectors, government intervention in its internal affairs intervene the companies operation. It is enough that the government is concerned with banking companies only up to some extent i.e., in liquidating its assets when its almost insolvent. It is good in principle because it will have good effects as mentioned in the quoted statement but it will curtail the rights of the companies which makes it faulty to begin with.

The stake holders confidence, on the other hand will also be put at risk. The fact that the public placed their money in the hands of these banks clearly implies that their confidence in the company is already present and the intervention of any entity will affect their confidence.

Concurring Opinion: DAVID LAWRENZ OLIVER SAMONTE "(c) The term 'receiver' includes a receiver, commission, person or other agency charged by law with the duty to take charge of the assets and liabilities of a bank which has been forbidden from doing business in the Philippines, as well as the duty to gather, preserve and administer such assets and liabilities for the benefit of the depositors and creditors of said bank, and to continue into liquidation whenever authorized under this Act other laws, and to dispose of the assets and to wind up the affairs of such bank." (as stated in Republic Act no.7400)

As explained in the above provision, we can see that the Philippine Deposit Insurance Corporation is authorized to take charge of assets and liabilities of banks which are unauthorized from doing business here in the Philippines. Along with this duty, the PDIC is required to preserve and administer these assets and liabilities for the benefit of the depositors and creditors of the particular bank. They also have the power to liquidate whenever authorized by law. Concurring Opinion: MIKHAIL IVAN RAMOS

As to what Section 29 of Central Bank Act notifies and connote that whenever a bank is in its juddering insolvent state, it is irrefutably and concretely ordered for to go bust and prohibited to do business in the Philippines. Since there was an extensive

probe by appropriate people into the condition of the bank and corroboration of the financial condition of the bank, this MANDATORY examination have proved the respondents not viable for operation.

Concurring Opinion: ROBERT SALAO

I do agree that the Philippine Deposit Insurance Corporation should examine Bank Accounts because its for the own benefit of each and every account holders here in the Philippines. The PDIC, ensures the security of the accounts thats why they have to know what are the progress of each accounts. As provided in the Republic Act 3591 and Republic Act 7400 of 1992, the Charters that established the Corporation, the Philippine Deposit Insurance Corporation should be allowed to examine Bank Accounts because it has been given the independent authority and right under the provisions of law to do so. Concurring Opinion: JEROME MIRASOL I do agree that the Philippine Deposit Insurance Corporation should examine bank accounts while they are still alive because in the case of PDIC vs. Court of Appeals Petitioner was unsuccessful to prevail over the presumption that the ordinary course of business was followed; I believe that the GTDs were deposited in usual course of business of MBC. Petitioner fails the respondents for availing of the legal

limits of the PDIC law assuming that the behavior of respondents discerned of the impending closure of MBC. Petitioner attributes bad faith to respondent, Jose Abad in managing the questioned deposits, and requests to disqualify him from availing the benefits under the court of law.

Concurring Opinion: JONA MARIE RAMOS

There is no question that under Section 29 of the Central Bank Act, the following are the mandatory requirements to be complied with before a bank found to be insolvent is ordered closed and forbidden to do business in the Philippines: Firstly, an examination shall be conducted by the head of the appropriate supervising or examining department or his examiners or agents into the condition of the bank; secondly, it shall be disclosed in the examination that the condition of the bank is one of insolvency, or that its continuance in business would involve probable loss to its depositors or creditors; thirdly, the department head concerned shall inform the Monetary Board in writing, of the facts; and lastly, the Monetary Board shall find the statements of the department head to be true.

Concurring Opinion: PATRICK OSORIO

I am in favor that PDIC examine bank accounts of depositors so that the money deposited in banks will be safe and protected by them. Also to avoid confusion or

discrepancy regarding the money of the depositors. PDIC would know how much interest rate would be avail for the amount of money deposited by the depositors. People will be aware of their money by the help of the PDIC. And to know how much the money are insured.

Concurring Opinion: MARK ANTHONY VILLANUEVA

PDIC should not examine bank accounts because according to the law on secrecy of bank deposits or Republic Act number 1405 declares that all types of deposits in banking institutions including investments in bonds issued by the Philippine government and its political subdivisions and instrumentalities are considered of absolutely confidential in nature. As provided, deposits may not be examined, injured or looked into by any person, government official, bureau or office. It is also unlawful for any official or employee of a bank to disclose to any person any information concerning deposits. Violation against this law subjects gives the offender certain penalties. That is why I think PDIC shouldnt examine bank accounts because it would create confusion for the public, frauds and injustice, but there are exemptions which are stated in the law. Deposit records may be disclosed only (a) upon written permission of the depositor, (b) in cases of impeachment, and (c) upon order of a competent court in the case of bribery or dereliction of duty of public officials.

Dissenting Opinion: ANGELIQUE ASHLEY MARTIN

No, PDIC should not be allowed to examine bank accounts while they are still alive, because the essence of the corporation will not be mandated if it worked that way. According to PDIC itself, their purpose is to encourage savings in banks and draw idle funds into the banking system, protect insured deposits in the event of bank closures, help promote a sound and stable banking system, and foster public confidence in the banking system. I believe that preventing or helping banks from their liabilities is a different aspect in the line of PDIC, Im not being inconsiderate to other banks, but to face the fact, the less bank disclosures and distress will lessen PDICs job. Without any insured deposits to protect what more could be the use of this corporation? For me, PDIC will serve as a threat if it will be allowed to examine bank accounts, because there is a possibility that may issue cease and desist orders against banks following unsafe and unsound banking practices. And Banks should be practicing their security and maintenance to avoid such things to happen.

IV. The References

The Philippine Deposit Insurance Corporation Official Website (www.pdic.gov.ph) The Supreme Court Reports Annotated The Lawphil Project- Arellano Law Founation (www.lawphil.net) International Association of Deposit Insurers (www.iadi.org)

President Norberto Nazareno, President of the Philippine Deposit Insurance Corporation