Case Summary (G.R. No. 118917)
Petitioner
PDIC sought review of the Court of Appeals decision that affirmed with modification the Regional Trial Court’s ruling holding PDIC liable for the value of the thirteen CTDs in the possession of the private respondents.
Respondents
Private respondents are holders of the thirteen CTDs. Other respondents in the underlying litigation included RSB and the Central Bank, the latter of which was declared in default at trial and later involved in separate appellate proceedings.
Key Dates
September 22, 1983 — plaintiffs invested with PFC and corresponding promissory notes and checks were issued; same date Cotaoco presented papers to PFC and was referred to RSB; CTDs were issued by RSB. November 3, 1983 — maturity date of CTDs; Cotaoco sought payment and agreed to an extension when RSB requested a few days. June 15, 1984 — Monetary Board suspended RSB operations. September 4, 1984 — private respondents filed claims with PDIC. December 7, 1984 — Monetary Board liquidated RSB. March 31, 1987 — private respondents filed action for collection against PDIC, RSB, and the Central Bank. May 29, 1989 — trial court ordered defendants to pay plaintiffs the CTD values. February 8, 1995 — Court of Appeals rendered decision dismissing PDIC’s and RSB’s appeals. December 22, 1997 — Supreme Court decision under review.
Applicable Law and Constitutional Basis
Applicable constitutional framework: 1987 Philippine Constitution (decision date after 1990). Statutory basis governing PDIC liability: Republic Act No. 3591 (the PDIC law) and the statutory definition of “deposit” in Section 3(f) of R.A. No. 3591. Negotiable Instruments Law provisions (Section 1) were invoked by parties in arguing negotiability of the CTDs, but the Supreme Court’s analysis emphasized the statutory nature of PDIC’s obligations under R.A. No. 3591.
Factual Background — creation and issuance of CTDs
On September 22, 1983, plaintiffs invested P10,000 each with PFC and received promissory notes and checks. Cotaoco presented those instruments to PFC; PFC referred him to RSB. RSB, with Cotaoco’s agreement, issued the thirteen CTDs that recited (among other terms) that the bearer had deposited P10,000 with RSB, that the certificates bore 14% interest per annum, that they were insured up to P15,000 by PDIC, and that maturity was November 3, 1983.
Factual Background — maturity, nonpayment, bank suspension, and PDIC claim
At maturity (November 3, 1983) Cotaoco presented the CTDs for payment; RSB requested a short deferment to raise funds, which Cotaoco accepted, but RSB thereafter failed to pay and advised filing claims with PDIC. The Monetary Board suspended RSB on June 15, 1984 and liquidated it on December 7, 1984. Private respondents filed claims with PDIC on September 4, 1984; PDIC denied the claims because the check said to have funded the CTDs (Traders Royal Bank Check No. 299255/292555 issued by PFC for P125,846.07) was returned for insufficient funds and was not replaced by PFC, so PDIC treated the certificates as not recorded liabilities of RSB.
Procedural History
Private respondents filed a collection action against PDIC, RSB, and the Central Bank on March 31, 1987. The trial court rendered judgment on May 29, 1989 ordering defendants to pay plaintiffs the amounts of the CTDs. On appeal, the Court of Appeals affirmed with modification, initially finding the CTDs negotiable instruments but later deeming negotiability immaterial. PDIC elevated the case to the Supreme Court by petition for review.
Issues Presented
The Supreme Court considered the following principal issues (as pressed by PDIC): (1) whether the CTDs are negotiable instruments; (2) whether the CTDs were acquired for value and consideration; and (3) whether a recital on the face of the CTDs that they were insured by PDIC operated to bind PDIC to pay.
Court’s Rationale on Negotiability and Its Relevance
Although the Court of Appeals had concluded the CTDs were negotiable (relying on precedent), the Supreme Court held that negotiability or non-negotiability was immaterial to PDIC’s liability. The Court emphasized that PDIC’s liability is purely statutory under R.A. No. 3591 and rests upon the existence of a deposit with the insured bank. Whether the certificates qualify as negotiable instruments does not by itself generate a statutory deposit protected by PDIC.
Reliance on Foreign Precedents Illustrating Distinction Between Negotiability and Guaranty Fund Liability
The Supreme Court cited decisions from various U.S. state courts (Kansas, Nebraska, South Dakota) demonstrating the legal principle that negotiability and holder-in-due-course status under negotiable instruments law do not convert an instrument into a deposit protected by a statutory guaranty fund. Those authorities denied guaranty-fund recovery where no deposit existed, notwithstanding negotiability or innocent holder status.
Court’s Rejection of Binding Effect of PDIC Recitals on CTD Face
The Court reject
...continue readingCase Syllabus (G.R. No. 118917)
Procedural Posture
- Petitioner Philippine Deposit Insurance Corporation (PDIC) sought reversal of the Court of Appeals decision that had affirmed with modification a Regional Trial Court (RTC) decision holding PDIC liable for the value of thirteen (13) certificates of time deposit (CTDs) in the possession of private respondents.
- Private respondents as plaintiffs-appellees filed suit for collection against PDIC, Regent Saving Bank (RSB), and the Central Bank on March 31, 1987.
- The RTC rendered judgment on May 29, 1989 ordering the defendants to pay plaintiffs the amounts corresponding to the CTDs; both PDIC and RSB appealed.
- The Central Bank filed a petition for certiorari, prohibition and mandamus with the Court of Appeals; the trial court declared the Central Bank in default for failing to file an answer.
- On February 8, 1995, the Court of Appeals granted the Central Bank’s petition but dismissed the appeals of PDIC and RSB.
- PDIC elevated the matter to the Supreme Court, assigning three errors: (I) that the CTDs are negotiable instruments, (II) that the CTDs were acquired for value and consideration, and (III) that because the CTDs state that they were insured, PDIC should be held liable.
Undisputed Chronology and Primary Facts
- On September 22, 1983, plaintiffs-appellees invested in money market placements with Premiere Financing Corporation (PFC) in the sum of P10,000.00 each; PFC issued corresponding promissory notes and checks.
- On the same date, John Francis Cotaoco, representing plaintiffs-appellees, presented the promissory notes and checks to PFC to encash but was referred to Regent Savings Bank (RSB).
- Instead of paying the promissory notes and checks in cash, and upon agreement with Cotaoco, RSB issued thirteen (13) certificates of time deposit numbered 09648 to 09660, each:
- Certifying that the bearer had deposited with RSB the sum of P10,000.00;
- Bearing 14% interest per annum;
- Stating that the certificate is insured up to P15,000.00 with PDIC;
- Stating maturity date of November 3, 1983 (Exhs. aBa, aB-1a to aB-12a).
- On the maturity date of November 3, 1983, Cotaoco presented the certificates for encashment; RSB requested a deferment/extension of a few days to raise payment; Cotaoco agreed but RSB still failed to pay and advised him to file a claim with PDIC (Exh. aDa).
- On June 15, 1984, the Monetary Board of the Central Bank issued Resolution No. 788 suspending RSB’s operations (Exh. a2a, Records, p. 159); on December 7, 1984 the Monetary Board issued Resolution No. 1496 liquidating RSB (Exh. a1a).
- A masterlist/inventory of RSB assets and liabilities was prepared during liquidation; the plaintiffs’ CTDs were not included on the ground that they were not funded by PFC or duly recorded as liabilities of RSB.
- On September 4, 1984, plaintiffs-appellees filed claims with PDIC for the amounts of the certificates (Exhs. aCa, aC-1a to aC-12a); other holders with similar claims also filed with PDIC.
- PDIC refused the claims because the Traders Royal Bank Check No. 299255 dated September 22, 1983 for P125,846.07 (Exh. aBa) issued by PFC for the CTDs was returned by the drawee bank for insufficient funds and was not replaced by PFC, resulting in cancellation of the certificates as indebtedness/liabilities of RSB.
Trial Court and Court of Appeals Disposition
- RTC (May 29, 1989) ordered defendants jointly and severally to pay the plaintiffs the amounts corresponding to the CTDs.
- On appeal, the Court of Appeals (Feb 8, 1995) granted Central Bank’s petition but dismissed PDIC’s and RSB’s appeals, effectively affirming the judgment against PDIC and RSB insofar as the latter appeals were concerned.
- The Court of Appeals found the subject CTDs to be negotiable instruments (relying on Caltex (Philippines), Inc. v. Court of Appeals and Security Bank and Trust Company, 212 SCRA 448 (1992)), and treated certain issues in a manner discussed in the Supreme Court’s review.
Issues Presented on Certiorari
- Whether the subject CTDs are negotiable instruments.
- Whether the CTDs were acquired for value and consideration by the present holders.
- Whether the mere recitation on the CTDs that they were insured by PDIC makes PDIC liable for their value.
- Whether, as a matter of fact, RSB received money or its equivalent when it issued the CTDs — i.e., whether a deposit as defined by the relevant statute came into existence.
Law and Statutory Framework Relied Upon
- PDIC is a statutory corporation created by law and is governed primarily by the provisions of the special law creating it (citing the Corporation Code concept).
- The liability of PDIC for insured deposits is statutory under Republic Act No. 3591 (referred to in the decision) and, in another passage of the decision, the text refers to R.A. 3519; the decision emphasizes that PDIC’s liability rests upon the existence of deposits with the insured bank, not upon negotiability of certificates evidencing deposits.
- Pertinent statutory excerpts quoted in the decision:
- SECTION 1 of R.A. 3519 (as quoted in the decision): creation of PDIC and that it "shall insure, as provided, the deposits of all banks which are entitled to the benefits of insurance under this Act."
- SEC. 10 (a) and (c) (as quoted): that whenever an insured bank is closed for insolvency, payment of insured deposits in such bank shall be made by the Corporation.
- SEC. 3(f) of R.A. No. 3591 (as quoted): defines "deposita" as "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 ... or which is evidenced by passbook, check and/or certificate of deposit printed or issued in accordance with Central Bank rules and regulations ..."
Court’s Analysis — Negotiability Issue and its Relevance
- The Supreme Court noted the Court of Appeals concluded the CTDs were negotiable, relyin