Conservatorship and Receivership Digest

PHILIPPINE VETERANS BANK V.COURT OF APPEALS, 317 SCRA 510 (1999) FACTS: In 1983, Phil Veterans Bank (PVB) was placed under receivership by BSP by virtue of a resolution issued by the Monetary Board. Petitioner bank was subsequently placed under liquidation in 1985. 1. Consequently, the bank’s employees including private respondent Molina were terminated from work and given their respective separation pay and other benefits. 2. To assist in the liquidation, Molina and other former employees of PVB were rehired. 3. Molina filed an action against petitioner bank’s liquidation team arguing that he was entitled an increase in his salary by virtue of Work Order 1 (P17 increase in the daily wage in 1990) and Work Order 2 (P12 increase in 1991) 4. Petitioner bank argued that when it was placed under liquidation, it lost its juridical personality, as such it could no longer enter into contracts or transact business, since all its assets and liabilities were turned over to the Central Bank. Since Molina’s complaint pertained to acts committed during the liquidation, the substitution of PVB as party-respondent was erroneous ISSUE: WON the bank is liable to pay Molina’s claims HELD: Yes. When a bank is declared insolvent and placed under receivership, the Monetary Board determines whether to proceed with the liquidation or reorganization of the financially distressed bank. A receiver takes control and possession of the assets of the bank for the benefit of its creditors and concurrently represents the bank. On the other hand, a liquidator assumes the role of the receiver upon the determination by the Monetary Board that the bank can no longer resume business. The liquidator’s task is to dispose all of the assets of the bank and effect partial payments of its obligations in accordance with their legal priority. In both receivership and liquidation proceedings, the bank retains its juridical personality despite the closure of its business; in fact, the bank may be even sued. Its corporate existence is assumed by the receiver or liquidator. The latter, however, acts not only for the benefit of the bank, but for the bank’s creditors as well. CAB: PVB was initially closed and put under receivership and liquidation. Upon its rehabilitation, petitioner assumed the rights and obligations of the receiver and liquidator. This includes Molina’s claim for unpaid wages. It must be borne in mind that all the acts of the receiver and liquidator pertain to the petitioner, having assumed petitioner’s corporate existence. Petitioner cannot disclaim liability by arguing that the non-payment of Molina’s wages was committed by the liquidators during the liquidation period. BANGKO SENTRAL NG PILIPINAS V. VALENZUELA, 602 SCRA 698 (2009) FACTS: In September 2007, the Supervision and Examination Department of BSP conducted examinations of the books of the following banks: Rural Bank of Paranaque Inc (RBPI), Rural Bank of San Jose (Batangas), Rural Bank of Carmen Cebu Inc, Pilipino Rural Bank Inc, Phil Countryside Rural Bank Inc, Rural Bank of Calatagan (Batangas), Rural Bank of Darbci Inc, Rural bank of Kananga (Leyte), Rural Bank de Bisayas Minglanilla, and San Pablo City Development Bank Inc 1. After the examinations, SED officers provided the banks with copies of Lists of Findings. These banks were then required to comment and undertake the remedial measures within 30 days from their receipt of the lists, including the infusion of additional capital. However, according to SED, said banks failed to carry out the required remedial measures 2. In response, the banks requested that the basis for the capital infusion be disclosed and noted that none of them received the Report of Examination (ROE) which finalizes the audit findings. 3. RBPI then filed an action to nullify the BSP ROE with an application for a TRO and a writ of preliminary injunction. RBPI prayed that petitioners be enjoined from submitting the ROE or any similar report to the Monetary Board; or if the ROE had already been submitted, that the Monetary Board be enjoined them from acting on the basis of the said ROE (due process). The other banks filed a similar suit. 4. SED and BSP filed an opposition to the application for a TRO and writ of preliminary injunction. However, respondent judge granted RBPI’s prayer for the issuance of a TRO. When the cases were consolidated, respondent judge issued an order granting the issuance of TROs 5. RTC ruled that the banks were entitled to writs of preliminary injunction. It ruled that it had been the practice of SED to provide ROES to the banks before the submission to the Monetary Board. And since the banks are the subject of said examinations, they are entitled to the copies of the ROEs and denial of such constitute a denial of their right to due process. 6. CA affirmed the same, ruling that the principles fairness and transparency dictate that the respondent banks are entitled to copies of ROE ISSUE: WON the issuance of a writ of preliminary injunction is proper HELD: No. The requisites for preliminary injunctive relief are: (a) the invasion of right sought to be protected is material and substantial; (b) the right of the complainant is clear and unmistakable; and (c) there is an urgent and paramount necessity for the writ to prevent serious damage. Such requirements are absent in the present case. The respondent banks failed to show that they are entitled to the copies of ROEs. There is no provision of law, no section in the procedures of BSP that shows that BSP is required to give them copies of ROEs. Sec 28 NCBA, which governs the examinations of banking institutions, provides that the ROE shall be submitted to the Monetary Board; the bank examined is not mentioned as a recipient of the ROE. The issuance by the RTC of writs of preliminary injunction is an unwarranted interference with the powers of the Monetary Board. Sec 29 and 30 NCBA refer to the appointment of a conservator or a receiver for a bank, which is a power of the Monetary Board for which they need the ROEs done by the supervising or examining department. The writs of preliminary injunction issued by the RTC hinder the Monetary Board from fulfilling its function under the law. The actions of the Monetary Board under Sec 29 and 30 NCBA may not be restrained or set aside except on petition for certiorari on the ground that the action taken was in excess of jurisdiction, or with such grave abuse of discretion tantamount to lack or excess of jurisdiction. Therefore, the writs of preliminary injunction cannot enjoin the Monetary Board from taking action under the provisions of NCBA. As to the third requirement, the banks have shown no necessity for the preliminary injunctive relief to prevent serious damage. The serious damage contemplated by the RTC was the possibility of imposition of sanctions upon respondent bank, even the imposition of closure. However, under the law, the sanction of closure could be imposed by BSP even without notice and hearing. The ―close now, hear later,‖ scheme is grounded on practical and legal considerations to prevent unwarranted dissipation of the bank’s assets and as a valid exercise of police power to protect depositors, creditors, stockholders and the general public. PDIC V. PHIL COUNTRYSIDE RURAL BANK, 640 SCRA 322 (2011) FACTS: In May 2005, the Board of Directors of PDIC adopted a resolution approving the conduct of an investigation in accordance with Sec 9(b-1) RA 3591, on the basis of the ROE of BSP on 10 banks. The notice of investigation as then served on the president of respondent Phil Countryside Rural Bank Inc (PCRBI). 1. In the course of its investigation, PDIC found that PCRBI granted loans to certain individuals, which were settled by way of dacion of properties. These properties, however, had already been previously foreclosed and consolidated. A similar investigation was sought against PRBI, RBCI and BEAI because said banks were among the 10 banks collectively known as the ―legacy banks‖ (Legacy scam) 2. However, PRBI, RBCI and BEAI refused access to their records and documents. 3. The banks then filed an action against PDIC and prayed for a judgment interpreting Sec 9(b-1) PDIC charter to require prior Monetary Board approval before PDIC could exercise investigation/examination power over the banks 4. PDIC filed a motion to dismiss alleging that RTC had no jurisdiction over said petition since a breach had already been committed by the banks when they received the notices of investigation and because PDIC need not secure prior MB approval since ―examination‖ and ―investigation‖ are two different terms. 5. Later, the banks withdrew their application for TRO reasoning that the lower courts cannot issue injunctions against PDIC. The banks then filed a petition for injunction and TRO with CA-Manila 6. But before CA-Manila could rule on the petition, RTC Makati dismissed the petition on the ground that there already existed a breach of law that isolated the case from the jurisdiction of the trial court. As such, CA-Manila dismissed the petition for being moot and academic 7. The banks then filed their petition for injunction and preliminary injunction with CA-Cebu. CA-Cebu granted the TRO. It ruled that the definition of ―examination‖ and ―investigation‖ pertain to the same thing. ISSUE: WON prior approval of the Monetary Board is necessary before PDIC may conduct an investigation of respondent banks HELD: No. The disagreement stems from the interpretation of meaning of ―examination‖ and ―investigation‖, which are two distinct procedures under the charter of PDIC and BSP. Under the PDIC charter, an examination of banks requires the prior consent of the Monetary Board whereas an investigation based on an examination report does not. Examination involves an evaluation of the current status of a bank and determines its compliance with the set standards regarding solvency, liquidity, asset valuation, operations, systems, management, and compliance with banking laws, rules and regulations. Investigation, on the other hand, is conducted based on specific findings of certain acts or omissions whicha re subject of a complaint of a final ROE. It is clear then that investigation does not involve the general evaluation of the status of a bank. An investigation zeroes in on specific acts and omissions uncovered via an examination, or which are cited in a complaint. An examination entails a review of essentially all the functions and facets of a bank and its operation. It necessitates poring through voluminous documents, and requires a detailed evaluation thereof. Such a process then involves an intrusion into bank’s records. In contrast, an investigation centers on specific acts or omissions, and thus, requires a less invasive treatment. CENTRAL BANK V. MORFE, 62 SCRA 114 (1975) FACTS: On February 18, 1969, the Monetary Board found Fidelity Savings Bank (FSB) to be insolvent. As such, MB directed the Superintendent of Banks to take charge of its assets and forbade it to do business. 1. On December 9, 1969, MB sought the court’s assistance in the liquidation of the bank. The resolution was implemented only on January 25, 1972 when Central Bank filed the petition for assistance before CFI Manila 2. Prior to the institution of the liquidation proceedings but after the declaration of insolvency (March 1971), spouses Elizes and Padilla filed an action against FSB for recovery of sum of money 3. CFI ordered Central Bank, as liquidator, to pay private respondents time deposits as preferred credits within the meaning of Art 2244(14-b) NCC, if there are enough funds in the liquidator’s custody in excess of the credits more preferred under Sec 30 NCBA in relation to Art 2244 and 225a NCC. 4. Central Bank contended that after MB has declared that ah bank is insolvent and has ordered it to cease operations, the Board becomes the trustee of its assets for the ―equal benefit of all creditors, including the depositors.‖ As such, one cannot obtain an advantage or preference over another by attachment, execution or otherwise. ISSUE: WON deposits are considered preferred credits HELD: No. Sec 29 Central Bank’s charter explicitly provides that when a bank is found to be insolvent, MB shall forbid it to do business and shall take charge of its assets. One purpose in prohibiting the insolvent bank from doing business is to prevent some depositors from having an undue or fraudulent preference over other creditors and depositors. That purpose would be nullified if, as in this case, after the bank is declared insolvent, suits by some depositors could be maintained and judgments would be rendered for the payments of their deposits and then such judgments could be considered preferred credits under Art 2244 (14-b) NCC. To recognize such judgments as entitled to priority would mean that depositors in insolvent banks, after learning that the bank is insolvent as shown by the fact that it can no longer pay withdrawals or that it has closed its doors or has been enjoined by MB from doing business, would rush to the courts to secure judgments for the payment of their deposits. FIRST PHILIPPINE INTERNATIONAL BANK V. CA, 252 SCRA 258 (1996) FACTS: First Phil Intl Bank (FPIB) which has been in conservatorship since 1984, is the owner of 6 parcels of land. The bank had an agreement with Demetrio and Janolo for the two to purchase the parcels of land for P5.5 million. The said agreement was made by Demetria and Janolo with the Bank’s manager, Rivera. 1. Later, the bank, through its new conservator, Encarnacion, sought the repudiation of the agreement as it alleged that Rivera was not authorized to enter into such an agreement, hence there was no valid contract of sale. 2. Subsequently, Demetria and Janolo sued FPIB. The RTC ruled in favor of Demetria. 3. CA affirmed the RTC decision that there was a perfected contract of sale between plaintiffs and the bank ISSUES: 1. WON there was a perfected contract of sale in this case 2. WON the conservator can revoke the contract HELD: FIRST ISSUE: SECOND ISSUE: No. In the first place, the issue of the conservator’s alleged authority or repudiate the perfected contract of sale was raised for the first time—it was not litigated in the trial court or CA. It is well- settled that issues not raised in the trial court cannot be raised for the first time on appeal as it would be offensive to the basic rules of fair play, justice and due process. Moreover, there is no evidence that the conservator, at the time the contract was perfected, actually repudiated or overruled said contract. The bank’s acting conservator at the time never objected to the sale of the property to Demetria and Janolo. What petitioners are really referring to is the letter of the new conservator Encarnacion, who took over after the sale was perfected which unilaterally repudiated—not the contract—but the authority of Rivera to make a binding offer. SECOND ISSUE: No. Sec 28-A merely gives the conservator power to revoke the contracts that are, under the existing law, deemed to be defective, i.e. void, voidable, unenforceable or rescissible. Hence, the conservator merely takes the place of a bank’s board of directors. What the board cannot do—such as repudiating a contract it validly entered into under the doctrine of implied authority—the conservator cannot do either. His power is not unilateral and he cannot simply repudiate valid obligations of the Bank. His authority would be only to bring court actions to assail such contracts. A contrary understanding of the law would not simply be permitted by the Constitution. To rule otherwise would be to enable a failing bank to become solvent, at the expense of third parties, by simply getting the conservator to unilaterally revoke all previous dealings with the which had become one way or another come to be considered unfavorable to the Bank, yielding nothing to perfected contractual rights nor vested interests of the third who had dealt with the Bank. IN RE RURAL BANK OF BOKOD INC (RBBI) V. PDIC, 511 SCRA 123 (2006) FACTS: 1986, The Supervision and Examination Sector (SES) Department of BSP discovered several loan irregularities in petitioner RBBI. The bank was given 30 days within which to infuse fresh capital into the bank but no concrete action was taken by RBBI. 1. SES filed a report to the Monetary Board finding that the bank remained insolvent and that it can no longer safely resume business with the depositors, creditors and the general public. As such, MB ordered the liquidation of the bank and designated SES director as liquidator 2. In 1991, the bank’s liquidator filed with RTC a petition for assistance in the liquidation of RBBI. Subsequently, MB assigned PDIC as liquidator of RBBI 3. During the hearing, respondent BIR manifested that PDIC should first secure a tax clearance certificate from BIR pursuant to Sec 52(C) Tax Code of 1997, before it could proceed with the dissolution of RBBI. RTC ordered PDIC to comply with Sec 52(C) Tax Code. 4. PDIC argues that the closure of banks under Sec 30 NCBA is summary in nature and procurement of tax clearance under Sec 52(C) is not a condition precedent thereto; under Sec 30 NCBA, asset distribution of a closed bank requires only the approval of the liquidation court 5. BIR, on the other hand, contends that Sec 52(C) applies to all corporations, including banks ordered closed by MB; that RTC may order PDIC to obtain a tax clearance before proceeding to rule on the motion for approval of project of distribution of assets of RBBI ISSUE: WON a bank closed and placed under receivership by MB still needs to secure a tax clearance certificate from BIR before the liquidation court approves the project of distribution of the bank’s assets HELD: No. Sec 52(C) refer to a voluntary dissolution and/or liquidation of a corporation through its adoption of a resolution or plan to that effect, or an involuntary dissolution of a corporation by order of SEC. They make no reference at all to a situation similar to the one at bar in which a banking corporation is closed and placed under receivership by BSP and its assets judicially liquidated. To replace SEC with BSP in Sec 52© would be to read into law and regulations something that is not there, tantamount to judicial legislation. The Corporation Code is a general law applying to all types of corporations while NCBA regulates specifically banks and other financial institutions. Between a general and special law, the latter shall prevail. Corporation Code 1. SEC may dissolve a corporation upon filing of verified complaint and after proper notice and hearing 2. Upon receipt of order of suspension, corporation is to submit copy of order and file its final tax return. 3. BIR shall issue a tax clearance certificate 30 days from receipt 4. Final order of dissolution shall be issued by SEC only after the corporation has submitted its final tax clearance 5. Corporation is allowed to continue as a body corporate for 3 years after dissolution New Central Bank Act 1. MB may summarily and without need for prior hearing, forbid the banking corporation from doing business in the Philippines for causes under Sec 30 NCBA 2. MB shall appoint PDIC as receiver of the bank 3. PDIC shall immediately gather and take charge of all the assets and liabilities of the closed bank and administer the same for the benefit of its creditors 4. Actions of MB under Sec 29 NCBA shall be final and executory and may only be restrained or set aside on a petition for certiorari filed by the stockholders representing the majority of the capital stock 5. PDIC as receiver shall file ex parte with proper RTC a petition for assistance in the liquidation Liquidation proceedings cannot be summary in nature. It requires the holding of hearings and presentation of evidence of the parties concerned. It also allows for multiple appeals, so that each creditor may appeal a final order rendered against its claim. FIDELITY SAVINGS & MORTGAGE BANK V. CENZON, 184 SCRA 141 (1990) FACTS: Spouses Santiago deposited with Fidelity Savings & Mortgage Bank (FSMB) P50,000 under a savings account and another P50,000 time deposit. 1. Subsequently, MB issued a resolution declaring FSMB insolvent and forbid the bank from doing business 2. PDIC as liquidator was only able to pay the spouses P10,000 leaving a deposit balance of P90,000. 3. After a demand for the payment of the deposit balance, the spouses filed an action for sum of money with damages against the bank. The lower court ruled in favor of the spouses Santiago and ordered the bank to pay interest on unpaid deposits even after its closure plus moral and exemplary damages with attorney’s fees and costs ISSUES: 1. WON an insolvent bank may be adjudged to pay interest on unpaid deposits even after its closure by reason of insolvency 2. WON an insolvent bank may be adjudged to pay moral and exemplary damages when the insolvency is because of the anomalous real estate transactions HELD: FIRST ISSUE: No. It is well-settled that a banking institution which has been declared insolvent and subsequently closed by the Central Bank cannot be liable to pay interest on bank deposits which accrued during the period when the bank is actually closed and non-operational. Unless a bank can lend money, engage in international transactions, acquire foreclosed mortgage properties or their process and generally engage in other banking and financing activities from which it can derive income, it is inconceivable how it can carry on as a depository obligated to pay stipulated interest. Therefore, the order of the Central bank allowing the claims of depositors and creditors to earn interest up to the date of its closure in February 1969 is in line with jurisprudence. SECOND ISSUE: No, the award of moral and exemplary damages is erroneous. It is not disputed that there was no fraud or bad faith on the part of the bank in accepting deposits of private respondents. Petitioner bank could not even be faulted in not immediately returning the amount considering that the case was filed several months after Central Bank ordered FSMB’s closure. By that time, the bank was no longer in a position to comply with its obligations to its creditors. Moreover, this case is not one of the specified or analogous cases wherein moral damages may be recovered. In the absence of fraud, bad faith, malice or wanton attitude, petitioner bank cannot be held responsible for damages which may be reasonably attributed to the nonperformance of the obligation. MIRANDA V. PDIC, 5O1 SCRA 188 (2006) FACTS: Petitioner Miranda was a depositor of Prime Savings Bank (PSB). On June 3, 1999, she withdrew substantial amounts from her account but instead of cash, she opted to be issued a crossed cashier’s check 1. On the same day she deposited the check, BSP suspended the clearing privileges of PSB. The checks were then returned to her unpaid 2. Subsequently, BSP placed PSB under receiveship of PDIC 3. Petitioner then filed an action for sum of money with RTC to recover her funds from her unpaid checks against PSB, PDIC and BSP 4. Petitioner argued that by the mere issuance of the cashier’s check, the funds represented by the check are transferred from the credit of the maker to that of the payee or holder. Hence, she cannot be placed in the same footing with the ordinary creditors of the bank because Sec 30 NCBA is for equality among creditors 5. Respondents contend that the instant case involves a disputed claim of sum of money against a closed financial institution. Sec 30-31 NCBA vests BSP with authority to evaluate and determine the condition of any bank while PDIC has the primary responsibility of acting as receiver or liquidator of the closed financial institution. Since the relationship between Miranda and PSB is one of creditor and debtor, petitioner should file her claim with the liquidation court constituted precisely for purposes of adjudicating claims against the bank in accordance with the rules on concurrence and preference of credits. ISSUE: WON petitioner’s claim falls within the provisions of Sec 30 NCBA and therefore under the jurisdiction of the liquidation court HELD: Yes, petitioner’s claim qualifies as a disputed claim subject to the jurisdiction of the liquidation court. Regular courts do not have jurisdiction over actions filed by claimants under an insolvent bank, unless there is clear showing that the action taken by the BSP in the closure of the financial institution was in excess of jurisdiction or with grave abuse of discretion. The rationale behind judicial liquidation is intended to prevent multiplicity of actions against insolvent bank. The Congress contemplated that for convenience, only one court, if possible, should pass upon the claims against the insolvent bank and that the liquidation court should assist the Superintendent of Banks and regulate his operations. Consequently, it is only PSB is liable to pay for the amount of the two checks. Solidary liability cannot attach to BSP in its capacity as government liquidator of banks and PDIC as statutory receiver under NCBA, 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 latter’s insolvency. REYES V. RURAL BANK OF SAN MIGUEL (BULACAN), 399 SCRA 226 (2004) FACTS: Petitioners are officials of BSP. At the time Reyes was Deputy Governor and Head of SES, Domo-ong was Director of the Department of Rural Banks, while Principio was examiner of DRB. 1. Rural Bank of San Miguel (RBSM) which had a history of major violations, underwent periodic examinations by BSP. 2. Upon a Rural Bank Director’s (Ilagan) request, she was furnished a list of violations found by Principio. This, however, was made unreadable making it impossible to react 3. During the exit conference, RBSM found about the findings and requested for a 30 day extension 4. Based on the report, MB issued a resolution requiring the bank to explain in writing and directed DRB to monitor the bank until the violations have been corrected 5. Another examination team, headed by Principi conducted another examination of the bank a. During this examination, RBSM president claimed that he was pressured into issuing a memo to bank employees authorizing Principio to review the bank’s accounting and internal control system. Then later, Reyes urged him to sell the bank b. Soriano also alleged that Reyes introduced Soriano (RBSM president) to TA Bank president Villacorta. c. Reyes even asked him (Soriano) whether he wanted another buyer and introduced Soriano to Castillo of Export & Industry Bank (EIB) 6. In a resolution, MB ordered RBSM to correct the vioaltons within 30 days and remit P2 million fines. RBSM asked for the reversal of the penalty to be debited on its demand deposit because at the time, Soriano was under a state of extreme pressure to sell the bank at a low price 7. RBSM charged petitioners with violating RA 3019 (Anti-graft and corrupt practices Act) and RA 6713 (Code of Conduct and Ethical Standards for Public Officials and Employees). ISSUE: WON Reyes commit any act of unprofessionalism by reason of his alleged ―illegal and unethical act of brokering the sale of RBSM‖ HELD: Yes, Reyes cannot escape administrative liability for the charge of having displayed undue interest in brokering the sale of petitioner bank. His acts are unprofessional as he concerned himself with transactions that had nothing to do with his official function as BSP Deputy Governor. It is not correct to say that Reyes did not act as a broker simply because he was not paid. There is no law which defines brokering, in terms of payment. It is enough that Reyes introduced and brought the parties together to try to negotiate a sale. A broker’s duty is mainly to bring prospective buyers and sellers together. The circulars presented by Reyes indicate that it is indeed BSP’s policy to promote mergers and consolidations by providing incentives for banks which would undergo such corporate combinations. However, these circulars did not state the BSP officials should take an active role in bringing parties together for the possibility of a buy-in or sell-out Sec 4(A)(b) RA 6713: Norms of Conduct of Public Officials and Employees – (A) Every public official and employee shall observe the following as standards of personal conduct in the discharge and execution of official duties. (b) Professionalism – Public officials and employees shall perform and discharge their duties with the highest degree of excellence, professionalism, intelligence and skill. They shall enter public service with utmost devotion and dedication to duty. The shall endeavor to discourage wrong perceptions of their roles as dispensers or peddlers of undue patronage. Soriano was not subjected to undue pressure since he was also interested in selling the bank. Still, Reyes’ active participation in looking for possible buyers for RBSM was a violation of standards of professionalism. PAPA V. VALENCIA, 284 SCRA 643 (1998) FACTS: Papa, acting as attorney-in-fact of Angela Butte, allegedly sold a parcel of land to Penarroyo. However, prior to the alleged sale, the land was mortgaged by Butte to Associated Banking Corp along with other properties. After the alleged sale but prior to the property’s release by delivery, Butte died. 1. The bank refused to release the property to Penarroyo unless and until the other mortgaged properties by Butte had been redeemed and because of this, Penarroyo caused the annotation on the title of an adverse claim 2. It was later discovered that the mortgage rights of the bank were transferred to Parpana, the administrator of the estate of Ramon Papa Jr. and he has been since then collecting monthly rents. Despite repeated demands of Penarroyo and Valencia, Papa refused to deliver the property which led to an action for specific performance. The court rule in favor of Penarroyo and Valencia 3. Papa alleged that the sale was not consummated since the check issued by Penarroyo for payment was not encashed by him. However, CA saw that Papa did in fact encashed the check by means of a receipt 4. Papa also argued that Art 1249 NCC provides that payment of checks only produce effect once they have been encashed and he insisted that he never encashed the check. It must be noted that Papa was in possession of the check for 10 years from the time payment was made to him ISSUE: WON the check can be considered as payment HELD: Yes. While it is true that the delivery of a check produces the effect of payment only when it is cashed, pursuant to Art 1249 NCC, the rule is otherwise if the debtor is prejudiced by the creditor’s unreasonable delay in presentment. The acceptance of a check implies an undertaking of due diligence in presenting it for payment, and if he from whom it is received sustains loss by want of such diligence, it will be held to operate as actual payment of the debt or obligation for which it was given. ] It has, likewise, been held that if no presentment is made at all, the drawer cannot be held liable irrespective of loss or injury unless presentment is otherwise excused. This is in harmony with Art 1249 NCC under which payment by way of check or other negotiable instrument is conditioned on its being cashed, except when through the fault of the creditor, the instrument is impaired. The payee of a check would be a creditor under this provision and if its non-payment is caused by his negligence, payment will be deemed effected and the obligation for which the check was given as conditional payment will be discharge. NEW PACIFIC TIMBER V. SENERIS, 101 SCRA 686 (1980) FACTS: New Pacific failed to comply with its judgment obligation. Judge issued writ of execution for P63,130 to which the Sheriff levied upon personal properties and set the auction sale on January 15. Prior to the scheduled sale, New Timber deposited with the Clerk of Court the P50,000 check and P13,130 in cash. Seneris refused to accept check and cash. Sheriff proceeded with the auction sale. ISSUE: WON Seneris can validly refuse acceptance of the payment of the judgment obligation made by New Timber, consisting of the Cashier’s check and cash. HELD: Yes. Sec 63 of Central Bank act provides that checks representing money are not considered legal tender and acceptance is at the option of the creditor. However, a check that has been cleared and credited to the account of the creditor is equivalent to delivery of cash. What was issued is a cashier’s check from a bank of good standing and reputation. It is a well-known and accepted practice in business that a cashier’s check is deemed as cash. Moreover, since the check had been certified by the drawee bank, by the certification, the funds represented by the checks are transferred from the credit of the maker to that of the payee or holder, and for all intents and purposes, the latter becomes the depositor of the drawee bank, with rights and duties of one in such situation. The certification is equivalent to acceptance. Said certification implies that the check is drawn upon sufficient funds the hands of the drawee, that they have been set apart for its satisfaction, and that they shall be so applied whenever the check is presented for payment. The object of certifying a check as to both parties is to enable the holder to use it as money. CAB: The present case is an except to Sec 63 Central Bank Act FEBTC V. DIAZ REALTY, 363 SCRA 659 (2001) FACTS: Diaz and Co. obtained a loan from Pacific Banking Corp. in 1974 in the amount of P720,000 at 12% interest p.a. which was increased thereafter. The said loan was secured with a real estate mortgage over two parcels of land owned by Diaz Realty, herein respondent. Subsequently, the loan account was purchased by the petitioner Far East Bank (FEBTC). 1. Two years after, the respondent through its President inquired about its obligation and upon learning of the outstanding obligation, it tendered payment in the form of an Interbank check in the amount of P1,450,000 in order to avoid the further imposition of interests. T 2. he payment was with a notation for the full settlement of the obligation. 3. The petitioner accepted the check but it alleged in its defense that it was merely a deposit. When the petitioner refused to release the mortgage, the respondent filed a suit. 4. The lower court ruled that there was a valid tender of payment and ordered the petitioner to cancel the mortgage. Upon appeal, the appellate court affirmed the decision. ISSUE: WON there was a valid tender of payment to extinguish the obligation of the respondent RULING: Yes. Although jurisprudence tells us that a check is not a legal tender and a creditor may validly refuse it, this dictum does not prevent a creditor from accepting a check as payment. Herein, the petitioner accepted the check and the same was cleared. A tender of payment is the definitive act of of offering the creditor what is due him or her, together with the demand that he accepts it. More important is that there must be a concurrence of intent, ability and capability to make good such offer, and must be absolute and must cover the amount due. The acts of the respondent manifest its intent, ability and capability. Hence, there was a valid tender of payment. Meanwhile, the transfer of credit from Pacific Bank to the petitioner did not involve an effective novation but an assignment of credit. Petitioner’s acquisition of respondent’s credit did not involve any changes in the original agreement between PaBC and respondent; neither did it vary the rights and the obligations of the parties. Thus, no novation by conventional subrogation could have taken place. An assignment of credit is an agreement by virtue of which the owner of a credit (known as the assignor), by a legal cause -- such as sale, dation in payment, exchange or donation -- and without the need of the debtor’s consent, transfers that credit and its accessory rights to another (known as the assignee), who acquires the power to enforce it, to the same extent as the assignor could have enforced it against the debtor. As such, the petitioner has the right to collect the full value of the credit from the respondent subject to the conditions of the promissory note previously executed.