Philippine Deposit Insurance Corporation vs. Ilio

A bank officer cannot be held administratively liable for the bank's failure to file a collection suit against a debtor absent a specific delegation of authority from the board of directors, because the corporate power to sue is vested exclusively in the board and individual officers cannot exercise corporate powers without board authorization. The duty to file collection suits is not encompassed within the general duties and responsibilities of bank officers under Section 142.3 of the 2016 Manual of Regulations for Banks.

LBC Development Bank (LBC Bank), an affiliate of LBC Express, Inc., operated under interlocking directors from 2005 to 2010: Santiago G. Araneta, Juan Carlos G. Araneta, Fernando G. Araneta, Carlos G. Araneta, and Joseph Jeffrey B. Rodriguez. In 2005, the bank and LBC Express entered into a Remittance Service Agreement (RSA), renewed annually until the bank's closure in 2011. Under the RSA, LBC Bank serviced remittance transactions for LBC Express through its ATM network; LBC Express paid service fees at rates fixed by the parties, covered by monthly billing statements prepared by respondent Jurado and countersigned by Ofelia F. Cuevas, Head of the Treasury Department. LBC Bank was placed under PDIC receivership in 2011. PDIC subsequently alleged that the Board of Directors and officers never enforced payment, allowing unpaid service fees from January 2005 to August 2011 to balloon to PHP 1,824,686,644.00, excluding interest and penalties, while LBC Express's net income grew and the bank reported losses.

The Parties and the RSA: - LBC Development Bank (LBC Bank) and LBC Express, Inc. were affiliates under LBC Development Corporation, with interlocking directors from 2005 to 2010: Santiago G. Araneta, Juan Carlos G. Araneta, Fernando G. Araneta, Carlos G. Araneta, and Joseph Jeffrey B. Rodriguez. - In 2005, LBC Bank and LBC Express entered into a Remittance Service Agreement (RSA), annually renewed until LBC Bank's closure in 2011. Under the RSA, LBC Bank serviced remittance transactions for LBC Express; LBC Express paid service fees at rates fixed by the parties. - Monthly billing statements were prepared and signed by respondent Arlan T. Jurado (cashier at the Treasury Department) and countersigned by Ofelia F. Cuevas (Head of the Treasury Department).

PDIC's Allegations: - PDIC, as statutory receiver of the closed LBC Bank, alleged that from January 2005 to August 2011, the Board of Directors and officers never enforced payment from LBC Express, resulting in ballooning unpaid service fees of PHP 1,824,686,644.00, excluding interest, penalties, and surcharges. - PDIC alleged that LBC Express's net income steadily grew at LBC Bank's expense, with the bank reporting losses in its 2009 Audited Financial Statements. - PDIC filed an administrative complaint against the interlocking directors and the following bank officers: Ma. Eliza G. Berenguer (Chairman, President, and CEO), Ofelia F. Cuevas (Head of Treasury), respondent Jurado, and respondent Apolonia L. Ilio. PDIC claimed their acts or omissions caused undue injury and material loss to depositors and creditors, violating Section 21(f) of the PDIC Charter, in relation to BSP Circular No. 341, series of 2002, as amended by BSP Circular No. 640, series of 2009.

Respondent Ilio's Defense: - Respondent Ilio was Head of the Finance Department from 2006 until promotion to Vice President of the Finance Department in 2009. - She asserted that the Finance Department was not in charge of billing and collection of service fees from LBC Express, and she was not involved in negotiating or executing the RSAs. - She recalled that LBC Express paid service fees annually and presented a Consolidated Statement of Account dated July 6, 2011, showing unpaid fees of only PHP 665,819.80 as of May 2011, with current charges for June 2011 of PHP 507,604.16 — a total of PHP 1,173,423.96, far less than PDIC's claimed amount.

Respondent Jurado's Defense: - Respondent Jurado was supervisor at the Treasury Department from September 2004 to September 2011, under the immediate supervision of Cuevas. - He prepared and signed billing statements for LBC Express from January 2005 to August 2011 based on Cuevas's instructions. - He stressed that collection and monitoring of service fees was not the Treasury Department's responsibility, and he had no involvement in the execution of the RSAs.

OSI-BSP Findings: - The OSI-BSP found prima facie case against Berenguer and the interlocking directors, recommending formal charges for violation of Section 56 of R.A. No. 8791 in relation to BSP Circular No. 341, but dismissed the complaint against Cuevas and respondents Ilio and Jurado for insufficiency of evidence. - The OSI-BSP held that bank officers cannot be expected to enforce what the Board of Directors did not set and approve, citing Section 142.3 of the 2016 Manual of Regulations for Banks — officers promote good governance by ensuring board-approved policies are adopted, but cannot act beyond board directives. - The CA noted that Cuevas regularly informed the LBC Board of Directors about the unpaid service fees, but the information remained unheeded and no action was taken by the board.

• Duty of Bank Officers Independent of Board Policies: PDIC contended that bank officers have an inherent fiduciary duty to the public and a duty to promote and strengthen checks and balances systems in a bank, independent of specific policies set by the Board of Directors. The CA allegedly failed to recognize this broader obligation.

• Failure to Report as Prima Facie Evidence of Liability: Even assuming respondents Ilio and Jurado had no obligation or authority to enforce the RSAs, PDIC argued that their continued failure to report the unpaid billings constituted prima facie evidence for administrative liability under Section 21(f) of the PDIC Charter in relation to the relevant BSP Circulars.

• Respondent Officers' Responsibility for Collections: PDIC maintained that respondents Ilio (as Head/VP of Finance) and Jurado (as cashier who prepared billing statements) bore responsibility for the bank's failure to collect the unpaid service fees from LBC Express.

The decision does not detail separate arguments submitted by respondents Ilio and Jurado at the Supreme Court level, as the petition was filed by PDIC alone and respondents had prevailed in all lower adjudicatory bodies. Their positions, as reflected in the counter-affidavits before the OSI-BSP, were that their departments were not responsible for billing and collection, and that no board authorization to file a collection suit had been delegated to them.

• Prima Facie Case for Administrative Liability: Whether the Court of Appeals erred in affirming the BSP Monetary Board's finding that no prima facie case existed to hold respondents Ilio and Jurado administratively liable for violation of Section 21(f) of the PDIC Charter, in relation to BSP Circular Nos. 341 and 640.

• Scope of Bank Officers' Duty to Enforce Collections: Whether bank officers, absent a specific board resolution, have the duty or authority to file collection suits against a bank's debtors on behalf of the bank.

• Prima Facie Case for Administrative Liability: No reversible error was found. The question of whether prima facie evidence existed to hold respondents administratively liable was a question of fact — requiring review of evidence presented before the BSP — and was thus beyond the scope of a Rule 45 petition, which is limited to questions of law. The Court is not a trier of fact in such proceedings.

• Scope of Bank Officers' Duty to Enforce Collections: As bank officers, respondents Ilio and Jurado could not be faulted for LBC Bank's failure to collect unpaid service fees from LBC Express. Under Section 141.3 of the 2016 Manual of Regulations for Banks (now Section 132 of the 2021 MoRB), the corporate powers of a bank are exercised, its business conducted, and all its property controlled and held by its board of directors. The power of a corporation to sue and be sued is lodged with the board; an individual corporate officer cannot solely exercise any corporate power without board authority. The duties and responsibilities of bank officers under Section 142.3 of the 2016 MoRB — to promote good governance, oversee day-to-day management, delegate duties effectively, and strengthen checks and balances — cannot be construed to include the power and duty to file collection suits against bank debtors. PDIC failed to proffer any evidence, such as a board resolution, authorizing respondents Ilio or Jurado to file a collection suit against LBC Express. Furthermore, PDIC's complaint merely lumped respondents with the directors without specifically establishing any particular duty or responsibility they neglected. Bare allegations, unsubstantiated by evidence, are not equivalent to proof.

• Corporate Power to Sue Vested in the Board of Directors — The power of a corporation to sue and be sued in any court is lodged with the board of directors that exercises its corporate powers. An individual corporate officer cannot solely exercise any corporate power pertaining to the corporation without authority from the board of directors. This doctrine applies with equal force to banks, consistent with Section 141.3 of the 2016 Manual of Regulations for Banks, which provides that "[t]he corporate powers of a bank shall be exercised, its business conducted and all its property controlled and held, by its board of directors."

• Derivative Suit by Stockholders — Even in cases of mismanagement where wrongful acts were committed by the directors, the power or right to file a derivative suit on behalf of a corporation belongs to the stockholders, not to corporate officers acting without board authorization.

• Distinction Between Directors' and Officers' Duties in Banking — A clear distinction must be drawn between the board of directors, which exercises original corporate powers (including the power to sue), and mere bank officers, whose duties under Section 142.3 of the 2016 MoRB encompass promoting governance policies, overseeing day-to-day management, ensuring accountability in delegation, and strengthening internal controls — but do not extend to instituting collection suits without express board authority.

• "It is elementary that the power of a corporation to sue and be sued in any court is lodged with the board of directors that exercises its corporate powers — an individual corporate officer cannot solely exercise any corporate power pertaining to the corporation without authority from the board of directors." — This passage articulates the controlling legal principle that defeated PDIC's claim against the respondent officers.

• "By no stretch of imagination would the duties and responsibilities of a bank officer under Section 142.3 of the 2016 MoRB be construed so as to include the power and duty to file collection suits against a bank's debtors." — This excerpt categorically delineates the scope of bank officer duties, excluding the initiation of legal action for debt collection.

• "It is basic in the rule of evidence that bare allegations, unsubstantiated by evidence, are not equivalent to proof." — Applied to PDIC's failure to present evidence of any specific act or omission by respondents in relation to the RSAs.

• Alberto v. Spouses Flores, 896 Phil. 625 (2021) — Cited for the rule that a Rule 45 petition should only raise questions of law, as the Court is not a trier of fact. Applied to dismiss PDIC's attempt to secure factual review.

• Leoncio v. Vera, 569 Phil. 512 (2008) — Cited for the definitions distinguishing a question of law (doubt as to what the law is on a given state of facts) from a question of fact (doubt as to the truth or falsity of alleged facts). Applied to characterize the prima facie evidence issue as factual.

• Philippine Numismatic and Antiquarian Society v. Aquino, 804 Phil. 508 (2017) — Cited for the principle that the power to sue is lodged with the board of directors. Incorporated the ruling from Swedish Match Phils., Inc. v. The Treasurer of the City of Manila that individual corporate officers cannot exercise corporate powers without board authority.

• Cua, Jr. v. Tan, 622 Phil. 661 (2009) — Cited for the principle that the power to file a derivative suit on behalf of a corporation belongs to stockholders, not officers.

• GSIS v. Prudential Guarantee and Assurance, Inc., 721 Phil. 740 (2013), citing Real v. Belo, 542 Phil. 109 (2007) — Cited for the evidentiary rule that bare allegations, unsubstantiated by evidence, are not equivalent to proof.

• Section 21(f), Republic Act No. 3591 (PDIC Charter), as amended — Penal provision imposing prision mayor or a fine on any director, officer, employee, or agent of a bank for willful failure or refusal to comply with the Act, or commission of irregularities and/or conducting business in an unsafe or unsound manner as determined by the Board of Directors. This was the statutory basis of PDIC's administrative complaint. The Court affirmed that PDIC failed to produce evidence linking respondents to any violative act under this provision.

• Section 141.3, 2016 Manual of Regulations for Banks (now Section 132, 2021 MoRB) — Provides that corporate powers of a bank shall be exercised, its business conducted, and all its property controlled and held by its board of directors. The board's powers as conferred by law are original and cannot be revoked by stockholders. Applied to establish that only the board, not individual officers, could authorize collection suits.

• Section 142.3, 2016 Manual of Regulations for Banks (now Section 134, 2021 MoRB) — Enumerates the duties and responsibilities of bank officers: setting the tone of good governance, overseeing day-to-day management, ensuring effective delegation of duties, and promoting checks and balances. The Court construed these provisions narrowly, holding they do not encompass the power and duty to file collection suits against debtors.

• BSP Circular No. 341, series of 2002, as amended by BSP Circular No. 640, series of 2009 — Defined deposit-related activities that may be considered unsafe and/or unsound banking practices. Cited in the complaint but did not independently impose on respondent officers the duty to file collection suits.

Associate Justice Alfredo Benjamin S. Caguioa (Chairperson), Associate Justice Samuel H. Gaerlan, Associate Justice Japar B. Dimaampao, and Associate Justice Maria Filomena D. Singh concurred without separate opinions.

N/A — The decision was unanimous.