Philippine Deposit Insurance Corporation vs. Court of Appeals

Deposits created by the pre-termination and re-deposit of existing funds into smaller time deposit certificates within the P40,000 insurance limit, made before a Monetary Board resolution placing the bank under receivership is actually served, constitute deposits received “in the usual course of business” under Section 3(f) of Republic Act No. 3591, for which the PDIC is liable as statutory insurer. A counterclaim for payment of insured deposits, arising from the same transaction subject of a petition for declaratory relief, may be adjudicated in the same proceeding; a declaratory relief action does not inherently prohibit the grant of executory monetary relief on a properly pleaded counterclaim.

Prior to May 22, 1987, respondents held 71 certificates of time deposit denominated as “Golden Time Deposits” with the Manila Banking Corporation (MBC), Iloilo Branch, with an aggregate face value of P1,115,889.96. On May 22, 1987, a Friday, the Monetary Board issued Resolution No. 505 prohibiting MBC from doing business and placing it under receivership, but the resolution was not served on the bank until May 26, 1987. On the next banking day, May 25, 1987, respondent Jose Abad pre-terminated the 71 GTDs and re-deposited the entire balance into 28 new GTDs in denominations of P40,000 or less, apportioned among the respondents. Eight of the new GTDs were later pre-terminated and their value withdrawn. Respondents subsequently filed claims with PDIC for the remaining 20 GTDs, asserting deposit insurance coverage. PDIC paid three claims but withheld payment on the rest after a deputy receiver reported massive conversions of accounts at MBC-Iloilo on May 25, 1987. PDIC thereafter filed a petition for declaratory relief to determine the insurability of the deposits; respondents counterclaimed for payment of the insured amounts.

• The Original Deposits: Respondents, individually or jointly, held 71 certificates of “Golden Time Deposits” with Manila Banking Corporation (MBC), Iloilo Branch, with an aggregate face value of P1,115,889.96, prior to May 22, 1987.

• The Monetary Board Resolution: On May 22, 1987, a Friday, the Monetary Board of the Central Bank issued Resolution No. 505 prohibiting MBC from doing business and placing its assets and affairs under receivership. The resolution was not served on MBC until May 26, 1987, a Tuesday, when the designated receiver took over.

• The May 25, 1987 Transactions: On May 25, 1987, the next banking day, respondent Jose Abad appeared at MBC-Iloilo at 9:00 a.m. He pre-terminated the 71 existing GTDs and re-deposited the entire fund balance into 28 new GTDs, each in denominations of P40,000 or less, under the names of the various respondents individually or jointly. Of these, 8 GTDs were pre-terminated the same day, and their value of P320,000 was withdrawn. The remaining 20 GTDs became the subject of the insurance claim.

• The Bank’s Cash Position: At the start of banking operations on May 25, 1987, MBC had P2,841,711.90 cash on hand, more than double the outstanding balance of respondents’ original 71 GTDs. By the end of the day, the branch’s cash position was significantly depleted due to heavy withdrawals, but the branch had initially sufficient cash to honor respondents’ restructuring.

• Claims with PDIC and the Deputy Receiver’s Report: Respondents filed claims with PDIC for the 20 remaining GTDs. PDIC initially paid 3 claims totaling P120,000 on February 11, 1988 but withheld payment on the 17 remaining claims after Deputy Receiver Washington Solidum submitted a report stating that on May 25, 1987, MBC-Iloilo recorded “unusually heavy movements” in deposit and trust accounts, with an apparent intention to “maximize the availment of PDIC coverage limited to P40,000 by spreading out big accounts to as many certificates under various nominees.”

• PDIC’s Petition and Respondents’ Counterclaim: Because of the report, PDIC entertained serious reservation about recognizing the GTDs as deposit liabilities. On August 30, 1991, it filed a petition for declaratory relief with the RTC of Iloilo City for a judicial determination of the insurability of the GTDs. Respondents, in their Answer and Amended Answer, set up a counterclaim demanding payment of the insured deposits.

• RTC and CA Rulings: The RTC declared the 20 GTDs to be deposit liabilities of MBC and ordered PDIC to pay their value. The Court of Appeals affirmed, deleting only the award of legal interest.

• Not in the Usual Course of Business: Petitioner argued that the Monetary Board Resolution of May 22, 1987 prohibited MBC from doing business as of that date; thus, all transactions after May 22, 1987—including the May 25 restructuring—were not done “in the usual course of business” and could not give rise to insured deposits under Section 3(f) of R.A. No. 3591.

• Lack of Consideration: Petitioner maintained that the new GTDs issued on May 25, 1987 were not supported by any fresh consideration because no actual cash was deposited—respondents merely converted existing account balances. Given that MBC was in serious financial distress and had virtually no cash after that day’s massive withdrawals, the new GTDs were mere book entries that could not have been honored if presented for cash, and thus no valid deposit liability was created.

• Improper Monetary Award in Declaratory Relief: Petitioner contended that an action for declaratory relief does not entail an executory process. The trial court should have been limited to a declaration of the rights and duties of the parties under the PDIC charter; an order to pay the balance of deposit insurance exceeded the office of declaratory relief proceedings.

• Bad Faith and Presumed Knowledge: Petitioner posited that respondents, through the conduct of Jose Abad, “somehow knew” of MBC’s impending closure and deliberately restructured their deposits to maximize insurance coverage, thus acting in bad faith and disqualifying themselves from the benefits of the law.

• Validity of the Deposits: Respondents countered that the 28 GTDs were legitimate deposit liabilities received by MBC in the ordinary course of business. The funds came from the pre-termination of existing deposits and were simply re-deposited; the Monetary Board resolution was not yet effective or known when the transactions occurred, and no irregularity attended the restructuring.

• Permissive Counterclaim: Respondents maintained that their counterclaim for payment of the insured deposits arose from the same transaction, deed, or contract subject of the declaratory relief petition, and that nothing in the nature of a special civil action for declaratory relief prohibits such a counterclaim. Accordingly, the trial court could properly grant monetary relief after adjudicating the rights of the parties.

• Insurability of the Deposits: Whether the 20 GTDs, created on May 25, 1987 by restructuring pre-existing time deposits into smaller denominations, constitute “deposits” received “in the usual course of business” under Section 3(f) of Republic Act No. 3591, thereby making PDIC liable as statutory insurer.

• Propriety of Monetary Award in Declaratory Relief: Whether the trial court erred in ordering PDIC to pay the balance of deposit insurance in an action that originated as a petition for declaratory relief, which allegedly allows only a declaration of rights and duties without an executory process.

• Bad Faith: Whether respondents acted in bad faith when they restructured their deposits on the eve of MBC’s receivership, thereby barring them from claiming insurance benefits.

• Insurability of the Deposits: The Monetary Board resolution, although issued on May 22, 1987, was served on MBC only on May 26, 1987. Until actual service, the bank continued to operate, and its transactions were presumed to be in the ordinary course of business. No evidence was adduced to show that MBC or respondents had prior knowledge of the resolution. The argument that no consideration passed because no physical cash changed hands was rejected: the new GTDs were funded by the outstanding balance of the pre-terminated 71 GTDs, which represented a valid money obligation of the bank. The restructuring was therefore a deposit transaction for value. Moreover, at the start of banking operations on May 25, 1987, MBC had P2,841,711.90 in cash—more than sufficient to cover respondents’ accounts—and petitioner’s contrary presumption was not borne out. Petitioner having failed to overcome the legal presumption that the ordinary course of business was followed, the 20 GTDs were held to be insured deposits.

• Propriety of Monetary Award in Declaratory Relief: A petition for declaratory relief does not, by its nature, preclude a counterclaim based on the same transaction. A special civil action is not essentially different from an ordinary civil action; the same rules governing ordinary suits apply to special civil actions where not inconsistent. Since respondents’ counterclaim for payment arose from the very deposits whose insurability was in issue, the trial court did not err in ordering payment after declaring the rights of the parties. The question of whether the specific amount of insurance due had been finally determined was raised for the first time on appeal and could not be entertained.

• Bad Faith: Good faith is always presumed. Petitioner did not overcome this presumption, offering only conjectures that respondents “somehow knew” of the impending closure. Mere restructuring of deposits to maximize insurance coverage, without more, does not constitute bad faith, especially where the bank was still legally operating and its cash position was sufficient to honor the transactions at the time.

• Doctrine of Effectivity of Bank Receivership upon Service: The appointment of a receiver by the Monetary Board may be made without prior notice and hearing; due process does not necessarily require a prior hearing, and a hearing may be had subsequent to the closure. The dire consequences of prior notice—bank runs, panic, and hysteria—justify confidentiality. The resolution placing a bank under receivership takes legal effect only upon service to the bank; transactions prior to service are deemed done in the usual course of business.

• Deposit Restructuring Within Insurance Limit as a Valid Deposit: The conversion of existing deposit balances into new certificates in smaller denominations, effectuated while the bank is still operating and before actual service of a receivership order, is a deposit transaction for value and constitutes a “deposit” received “in the usual course of business” within the meaning of Section 3(f) of R.A. No. 3591. The absence of physical delivery of cash does not negate consideration, as the pre-existing credit constitutes sufficient value.

• Permissive Counterclaim in Declaratory Relief Proceedings: An action for declaratory relief does not inherently bar a counterclaim based on the same transaction, deed, or contract. Special civil actions are governed by the ordinary rules of civil procedure where not inconsistent; a counterclaim for affirmative monetary relief may be litigated and adjudicated in the same proceeding once the legal rights of the parties have been declared.

• “One can just imagine the dire consequences of a prior hearing: bank runs would be the order of the day, resulting in panic and hysteria. In the process, fortunes may be wiped out, and disillusionment will run the gamut of the entire banking community.” — This passage underscores the rationale for allowing the Monetary Board to place a bank under receivership without prior notice, anchoring the ruling that the resolution becomes effective only upon service.

• “The evident implication of the law, therefore, is that the appointment of a receiver may be made by the Monetary Board without notice and hearing but its action is subject to judicial inquiry to insure the protection of the banking institution. Stated otherwise, due process does not necessarily require a prior hearing; a hearing or an opportunity to be heard may be subsequent to the closure.” — Affirms the constitutionality of the ex parte nature of bank receivership, a principle frequently invoked in banking law.

• “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… 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…” — Establishes the rule that a counterclaim for payment may be adjudicated in a declaratory relief suit, preventing multiplicity of actions.

• Rural Bank of Buhi v. Court of Appeals, 162 SCRA 288 (1988) — Cited as controlling authority for the proposition that the appointment of a receiver by the Monetary Board may be made without prior notice and hearing, and that a resolution placing a bank under receivership must be kept confidential to prevent bank runs. The decision underscored that due process is satisfied by a subsequent judicial inquiry.

• Visayan Packing Corp. v. Reparations Commission, 155 SCRA 542 (1987) — Followed for the rule that a special civil action for declaratory relief does not prohibit the filing of a counterclaim based on the same transaction, and that ordinary rules of civil procedure apply supplementarily. The Court reiterated that a counterclaim for affirmative relief may properly be adjudicated in such proceedings.

• Philippine Basketball Association v. Court of Appeals, 337 SCRA 358 (2000) — Cited for the procedural rule that issues not raised in the court a quo cannot be raised for the first time on appeal, applied to PDIC’s belated contention that the amount of deposit insurance due had not been finally determined.

• Section 3(f), Republic Act No. 3591 (PDIC Charter), as amended — Defines “deposit” 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 its certificate of deposit…” The provision was interpreted to cover the restructured GTDs because they were created while MBC was still operating in the ordinary course, using funds already on deposit, and evidenced by certificates of time deposit.

• Section 3(q), Rule 131, Rules of Court — Presumption “that the ordinary course of business has been followed.” The Court invoked this presumption and held that PDIC failed to rebut it with competent evidence that MBC did not receive the deposits in the usual course of business.

Puno, Panganiban, Sandoval-Gutierrez, and Corona, JJ., concurred.