Case Summary (G.R. No. 170290)
Factual Background — nature and recording of the transactions
PDIC's examinations revealed that Citibank received from its head office and foreign branches, between September 30, 1974 and June 30, 1977, P11,923,163,908.00 in dollar funds recorded under "Account-Head Office/Branches-Foreign Currency" and covered by Certificates of Dollar Time Deposit. BA received from its head office and foreign branches, between September 30, 1976 and June 30, 1978, P629,311,869.10 in dollars recorded under "Due to Head Office/Branches" and likewise evidenced by Certificates of Dollar Time Deposit. These amounts were not reported to PDIC as deposit liabilities; PDIC assessed deficiency premiums (P1,595,081.96 against Citibank and P109,264.83 against BA).
Procedural history — consolidation and lower courts' rulings
Citibank and BA separately filed petitions for declaratory relief in 1979, which were consolidated. The Regional Trial Court (Branch 163, Pasig City) rendered judgment on June 29, 1998 in favor of respondents, ruling the subject money placements were not assessable deposit liabilities under the PDIC Charter. The Court of Appeals affirmed by decision dated October 27, 2005, finding the placements to be inter-branch/internal transactions not giving rise to a depositor-depository relationship. PDIC filed the present petition for review under Rule 45.
Legal issue presented
The single legal question: whether the funds placed in the Philippine branches by their head offices and foreign branches are insurable deposits under the PDIC Charter and thus subject to assessment for insurance premiums.
Parties' contentions
PDIC contended the head offices and foreign branches are separate and independent entities and that the placements constituted dollar deposits assessable under the PDIC Charter and related rules; PDIC relied on statutory and regulatory markers (e.g., recording as time deposits and compliance with foreign currency cover requirements). Respondents argued the placements were inter-branch money placements within a single legal entity (head office and branches are the same bank where branches lack separate legal personality), therefore no creditor-debtor relationship arose and the funds were not third-party deposits subject to PDIC insurance.
Legal framework on corporate and branch personality
The Court examined how foreign banks may operate in the Philippines: either by incorporating a domestic subsidiary with separate legal personality or by establishing a branch that is not legally independent but licensed to do business in the Philippines. The Court emphasized that Citibank and BA chose the branch form; hence their Philippine branches lacked separate legal personality from their head offices. Statutory provisions requiring head office guarantees (Section 75 of R.A. No. 8791; Section 5 of R.A. No. 7221) supported the conclusion that head offices remain ultimately liable for branch obligations.
Precedential and comparative authority on branches
The Court relied on cited American jurisprudence for guidance in the absence of extensive local precedent. Sokoloff explained that while branches may be treated as separate business units commercially, they are not independent corporations and remain part of the parent bank; United States v. BCCI emphasized that unless separately incorporated, branches must be viewed as parts of the parent bank. The Court used these authorities to support the conclusion that head office and branches form a single legal entity for purposes relevant to deposit-insurance assessment.
Statutory interpretation of the PDIC Charter — Section 3(f)
The Court interpreted Section 3(f) of R.A. No. 3591, which defines "deposita" and expressly provides that "any obligation of a bank which is payable at the office of the bank located outside of the Philippines shall not be a deposit for any of the purposes of this Act or included as part of the total deposits or of the insured deposits." The Court found that the inter-branch placements at issue were payable and recorded in the head offices outside the Philippines and, therefore, fell squarely within this statutory exclusion.
Treatment of inter-branch transactions and FDIC practice
The Court accepted factual findings of the lower courts regarding the manner of the inter-branch transactions: funds were transferred through head-office bookkeeping entries in the United States and documented by certificates reflecting interest and maturity for internal accounting. The Court also found persuasive the testimony of an FDIC official that the FDIC excludes inter-branch deposits from assessment base—a practice relevant because PDIC was patterned after the FDIC. Given these findings and practices, the Court treated the funds as inter-branch accommodations rather than third-party deposits.
Rejection of PDIC's alternative arguments
PDIC had attempted to characterize the placements as deposits by citing internal documentation (time deposit certi
...continue readingCase Syllabus (G.R. No. 170290)
Case Citation and Procedural Posture
- Decided by the Supreme Court, Third Division, G.R. No. 170290, April 11, 2012; decision penned by Justice Mendoza, J.
- Petition for review under Rule 45 of the 1997 Revised Rules of Civil Procedure challenging the Court of Appeals (CA) Decision dated October 27, 2005 in CA-G.R. CV No. 61316 (Citibank, N.A. and Bank of America, S.T. & N.A. v. Philippine Deposit Insurance Corporation).
- The petition assails the CA’s affirmation of the Regional Trial Court (RTC), Branch 163, Pasig City, Decision promulgated June 29, 1998 in favor of Citibank and Bank of America.
- Composition note: the Supreme Court Decision lists Velasco, Jr. (Chairperson), Peralta, Abad, and Reyes, JJ., as concurring; Justice Estela M. Perlas-Bernabe was replaced by designation per Special Order No. 1210.
Parties and Institutional Background
- Petitioner: Philippine Deposit Insurance Corporation (PDIC), a government instrumentality created by Republic Act No. 3591, as amended by R.A. No. 9302; statutory purpose is deposit insurance and protection of the depositing public.
- Respondents: Citibank, N.A. (Citibank) — a banking corporation organized under U.S. law licensed to do business in the Philippines with offices in Makati; Bank of America, S.T. & N.A. (BA) — a national banking association similarly organized and licensed.
- Both respondents operated Philippine branches (not incorporated Philippine subsidiaries according to the factual record).
Factual Background — Citibank
- PDIC’s 1977 examination of Citibank’s books found that from September 30, 1974 to June 30, 1977, Citibank received a total of P11,923,163,908.00 in dollars from its head office and other foreign branches.
- These receipts were recorded under the ledger account “Their Account-Head Office/Branches-Foreign Currency.”
- The dollar placements were covered by Certificates of Dollar Time Deposit, interest-bearing with stated maturities.
- Citibank did not report these funds to PDIC as deposit liabilities subject to insurance assessment.
- PDIC assessed Citibank for deficiency amounting to P1,595,081.96 by letter dated March 16, 1978.
Factual Background — Bank of America
- PDIC’s 1979 examination of BA’s books found that from September 30, 1976 to June 30, 1978, BA received P629,311,869.10 in dollars from its head office and other foreign branches.
- These were recorded under the account “Due to Head Office/Branches.”
- These placements were also interest-bearing, evidenced by Certificates of Dollar Time Deposit with maturity dates.
- BA excluded these from deposit liabilities; PDIC sought remittance of P109,264.83 in deficiency premium assessments by letter dated October 9, 1979.
Procedural History — Trial and Appeal
- Citibank filed a petition for declaratory relief July 19, 1979; BA filed December 11, 1979. The cases were consolidated in the RTC.
- RTC, Branch 163, Pasig City, Decision dated June 29, 1998 ruled for respondents (Citibank and BA): the money placements were not deposits giving rise to insurable deposit liabilities and the PDIC deficiency assessments were improper and erroneous.
- RTC reasoning:
- The placements were deposits made outside the Philippines and thus excluded from deposit liabilities under Section 3.05(b) of PDIC Rules and Regulations.
- Section 3(f) of R.A. No. 3591 excludes obligations payable at an office of the bank outside the Philippines from the definition of “deposita.”
- No depositor-depository relationship existed between respondents’ Philippine branches and their head offices/foreign branches; transactions were inter-branch accommodations.
- The practice of the U.S. Federal Deposit Insurance Corporation (FDIC), after which PDIC was patterned, excludes inter-branch deposits from assessment.
- CA affirmed the RTC in its October 27, 2005 Decision (CA-G.R. CV No. 61316), adopting similar reasoning and findings:
- The money placements were internal dealings; head office and Philippine branch viewed as same entity; therefore no bank deposit rose from transactions between branch and head office.
- PDIC’s purpose is to protect deposits of depositors in the Philippines, not inter-branch transfers.
- In absence of law/jurisprudence in the Philippines on inter-branch deposits, CA relied on FDIC practice treating such deposits as non-assessable.
- Cited Section 3(f) of R.A. No. 3591 excluding obligations payable at offices located outside the Philippines.
Issue Presented
- Whether the funds placed in the Philippine branches by the head offices and foreign branches of Citibank and BA are insurable deposits under the PDIC Charter and therefore subject to assessment for insurance premiums.
- PDIC’s assigned errors condensed into:
- (A) CA erred in ruling the subject dollar deposits are money placements not subject to R.A. No. 6426 (Foreign Currency Deposit Act).
- (B) CA erred in ruling the subject dollar deposits are not covered by PDIC insurance.
Parties’ Contentions — PDIC
- PDIC contends head offices and foreign branches are separate and independent entities, invoking American jurisprudence that head office-branch principal-agent relationship exists only when branches operate in same jurisdiction; foreign branches and head office are distinct.
- Relies on Section 3(b) of R.A. No. 3591 (definition of “bank” and “banking institution”) to argue a branch of a foreign bank is treated as a separate and independent banking unit.
- Asserts that funds are dollar deposits (not money placements) because:
- They were received in course of banking operations from head office/foreign branches and recorded pursuant to Central Bank Circular No. 343 implementing R.A. No. 6426.
- They were credited as dollar time accounts, evidenced by Certificates of Dollar Time Deposit (interest-bearing, payable upon maturity).
- Respondents maintained 100% foreign currency cover for their dollar time deposit liabilities as required by Section 4 of R.A. No. 6426.
- Attempts to define “money placement” by reference to R.A. No. 6848 (alleging money placement as a deposit received with authority to invest), thereby seeking to challenge respondents’ characterization of the transactions as money placements.
Parties’ Contentions — Respondents (Citibank and BA)
- Respondents emphasize RTC and CA factual findings regarding the nature of the placements, the capacity in which they were received, and the treatment as inter-branch placements; they assert such findings are binding and should be accorded great weight.
- Argue the funds are not deposits because a deposit requires two distinct legal personalities (depositor and depository). The head office and its branch form a single legal entity, so no creditor-debtor relationship arose.
- Explain mechanics of inter-branc