Republic of the
Supreme Court
THIRD DIVISION
|
PHILIPPINE DEPOSIT INSURANCE CORPORATION, Petitioner, - versus CITIBANK, N.A. and BANK OF Respondents. |
|
G.R. No. 170290 Present: VELASCO, JR., J., Chairperson, PERALTA,
ABAD,
REYES,* JJ. Promulgated: April
11, 2012 |
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D E C I S I O
N
MENDOZA, J.:
This
is a petition for review under Rule 45 of the 1997 Revised Rules of Civil
Procedure, assailing the October 27, 2005 Decision[1]
of the Court of Appeals (CA) in CA-G.R. CV No. 61316, entitled Citibank,
N.A. and Bank of America, S.T. & N.A. v. Philippine Deposit Insurance Corporation.
The
Facts
Petitioner
Philippine Deposit Insurance Corporation (PDIC) is a government
instrumentality created by virtue of Republic Act (R.A.) No. 3591, as
amended by R.A. No. 9302.[2]
Respondent
Citibank, N.A. (Citibank) is a banking corporation while respondent Bank
of America, S.T. & N.A. (BA) is a national banking association, both
of which are duly organized and existing under the laws of the
In 1977, PDIC
conducted an examination of the books of account of Citibank. It discovered
that Citibank, in the course of its banking business, from September 30, 1974
to June 30, 1977, received from its head office and other foreign branches a
total of P11,923,163,908.00 in dollars, covered by Certificates of
Dollar Time Deposit that were interest-bearing with corresponding maturity
dates.[4] These funds, which were lodged in the books
of Citibank under the account Their Account-Head Office/Branches-Foreign
Currency, were not reported to PDIC as deposit liabilities that were subject
to assessment for insurance.[5] As such, in a letter dated P1,595,081.96.[6]
Similarly,
sometime in 1979, PDIC examined the books of accounts of BA which revealed that
from September 30, 1976 to June 30, 1978, BA received from its head office and
its other foreign branches a total of P629,311,869.10 in dollars,
covered by Certificates of Dollar Time Deposit that were interest-bearing with
corresponding maturity dates and lodged in their books under the account Due
to Head Office/Branches.[7] Because BA also excluded these from its
deposit liabilities, PDIC wrote to BA on P109,264.83
representing deficiency premium assessments for dollar deposits.[8]
Believing that
litigation would inevitably arise from this dispute, Citibank and BA each filed
a petition for declaratory relief before the Court of First Instance (now the
Regional Trial Court) of Rizal on
On June 29, 1998,
the Regional Trial Court, Branch 163, Pasig City (RTC) promulgated its
Decision[12]
in favor of Citibank and BA, ruling that the subject money placements were not
deposits and did not give rise to insurable deposit liabilities, and that the
deficiency assessments issued by PDIC were improper and erroneous. Therefore, Citibank and BA were not liable to
pay the same. The RTC reasoned out that
the money placements subject of the petitions were not assessable for insurance
purposes under the PDIC Charter because said placements were deposits made
outside of the
Aggrieved, PDIC
appealed to the CA which affirmed the ruling of the RTC in its
Hence, this petition.
The Issues
PDIC
raises the issue of whether or not the subject dollar deposits are assessable
for insurance purposes under the PDIC Charter with the following assigned
errors:
A.
The
appellate court erred in ruling that the subject dollar deposits are money
placements, thus, they are not subject to the provisions of Republic Act No.
6426 otherwise known as the Foreign Currency Deposit Act of the
B.
The appellate
court erred in ruling that the subject dollar deposits are not covered by the
PDIC insurance.[18]
Respondents
similarly identify only one issue in this case:
Whether
or not the money placements subject matter of these petitions are assessable
for insurance purposes under the PDIC Act.[19]
The
sole question to be resolved in this case is whether the funds placed in the
Philippine branch by the head office and foreign branches of Citibank and BA
are insurable deposits under the PDIC Charter and, as such, are subject to
assessment for insurance premiums.
The Courts Ruling
The
Court rules in the negative.
A
branch has no separate legal personality;
Purpose of the PDIC
PDIC
argues that the head offices of Citibank and BA and their individual foreign
branches are separate and independent entities.
It insists that under American jurisprudence, a banks head office and
its branches have a principal-agent relationship only if they operate in the
same jurisdiction. In the case of
foreign branches, however, no such relationship exists because the head office
and said foreign branches are deemed to be two distinct entities.[20] Under Philippine law, specifically, Section
3(b) of R.A. No. 3591, which defines the terms bank and banking
institutions, PDIC contends that the law treats a branch of a foreign bank as
a separate and independent banking unit.[21]
The
respondents, on the other hand, initially point out that the factual findings
of the RTC and the CA, with regard to the nature of the money placements, the
capacity in which the same were received by the respondents and the exclusion
of inter-branch deposits from assessment, can no longer be disturbed and should
be accorded great weight by this Court.[22] They also argue that the money placements are
not deposits. They postulate that for a
deposit to exist, there must be at least two parties a depositor and a
depository each with a legal personality distinct from the other. Because the respondents respective head
offices and their branches form only a single legal entity, there is no
creditor-debtor relationship and the funds placed in the Philippine branch
belong to one and the same bank. A bank
cannot have a deposit with itself.[23]
This Court is of
the opinion that the key to the resolution of this controversy is the
relationship of the Philippine branches of Citibank and BA to their respective head
offices and their other foreign branches.
The
Court begins by examining the manner by which a foreign corporation can
establish its presence in the
In
the case of Citibank and BA, it is apparent that they both did not incorporate a separate domestic corporation to
represent its business interests in the
For
lack of judicial precedents on this issue, the Court seeks guidance from American
jurisprudence. In the leading case of Sokoloff v. The National City Bank of
Where
a bank maintains branches, each branch becomes a separate business entity with
separate books of account. A depositor
in one branch cannot issue checks or drafts upon another branch or demand
payment from such other branch, and in many other respects the branches are
considered separate corporate entities and as distinct from one another as any
other bank. Nevertheless, when considered with
relation to the parent bank they are not independent agencies; they are, what
their name imports, merely branches, and are subject to the supervision and
control of the parent bank, and are instrumentalities whereby the parent
bank carries on its business, and are established for its own particular
purposes, and their business conduct and policies are controlled by the parent
bank and their property and assets belong to the parent bank, although
nominally held in the names of the particular branches. Ultimate liability for a debt of a branch
would rest upon the parent bank. [Emphases supplied]
This ruling was
later reiterated in the more recent case of United States v. BCCI Holdings
Luxembourg[26]
where the United States Court of Appeals, District of Columbia Circuit,
emphasized that while individual bank branches may be treated as independent
of one another, each branch, unless separately incorporated, must be viewed as
a part of the parent bank rather than as an independent entity.
In
addition, Philippine banking laws also support the conclusion that the head
office of a foreign bank and its branches are considered as one legal
entity. Section 75 of R.A. No. 8791 (The
General Banking Law of 2000) and Section 5 of R.A. No. 7221 (An Act
Liberalizing the Entry of Foreign Banks) both require the head office of a
foreign bank to guarantee the prompt payment of all the liabilities of its
Philippine branch, to wit:
Republic Act
No. 8791:
Sec. 75. Head
Office Guarantee. In order to provide effective protection of the interests
of the depositors and other creditors of Philippine branches of a foreign bank,
the head office of such branches shall fully guarantee the prompt payment of
all liabilities of its Philippine branch.
Residents
and citizens of the
Republic Act
No. 7721:
Sec. 5. Head
Office Guarantee. The head office of foreign bank branches shall guarantee
prompt payment of all liabilities of its Philippine branches.
Moreover, PDIC
must be reminded of the purpose for its creation, as espoused in Section 1 of R.A.
No. 3591 (The PDIC Charter) which provides:
Section
1. There is hereby created a Philippine
Deposit Insurance Corporation hereinafter referred to as the Corporation
which shall insure, as herein provided, the deposits of all banks which are entitled
to the benefits of insurance under this Act, and which shall have the powers
hereinafter granted.
The
Corporation shall, as a basic policy, promote and safeguard the interests of
the depositing public by way of providing permanent and continuing insurance
coverage on all insured deposits.
R.A. No. 9576,
which amended the PDIC Charter, reaffirmed the rationale for the establishment
of the PDIC:
Section 1.
Statement of State Policy and Objectives. - It is hereby declared to be the
policy of the State to strengthen the mandatory deposit insurance coverage
system to generate, preserve, maintain faith and confidence in the country's
banking system, and protect it from illegal schemes and machinations.
Towards this
end, the government must extend all means and mechanisms necessary for the
Philippine Deposit Insurance Corporation to effectively fulfill its vital task
of promoting and safeguarding the interests of the depositing public by way of
providing permanent and continuing insurance coverage on all insured deposits,
and in helping develop a sound and stable banking system at all times.
The purpose of
the PDIC is to protect the depositing public in the event of a bank
closure. It has already been
sufficiently established by
Finally,
the Court agrees with the CA ruling that there is nothing in the definition of
a bank and a banking institution in Section 3(b) of the PDIC Charter[27]
which explicitly states that the head office of a foreign bank and its other
branches are separate and distinct from their Philippine branches.
There
is no need to complicate the matter when it can be solved by simple logic
bolstered by law and jurisprudence. Based
on the foregoing, it is clear that the head office of a bank and its branches
are considered as one under the eyes of the law. While branches are treated as separate
business units for commercial and financial reporting purposes, in the end, the
head office remains responsible and answerable for the liabilities of its
branches which are under its supervision and control. As such, it is unreasonable for PDIC to require
the respondents, Citibank and BA, to insure the money placements made by their home
office and other branches. Deposit
insurance is superfluous and entirely unnecessary when, as in this case, the
institution holding the funds and the one which made the placements are one and
the same legal entity.
Funds
not a deposit under the definition
of
the PDIC Charter;
Excluded
from assessment
PDIC avers that
the funds are dollar deposits and not money placements. Citing R.A. No. 6848, it defines money
placement as a deposit which is received with authority to invest. Because there is no evidence to indicate that
the respondents were authorized to invest the subject dollar deposits, it
argues that the same cannot be considered money placements.[28] PDIC then goes on to assert that the funds
received by Citibank and BA are deposits, as contemplated by Section 3(f) of R.A.
No. 3591, for the following reasons: (1) the dollar deposits were received by
Citibank and BA in the course of their banking operations from their respective
head office and foreign branches and were recorded in their books as
Account-Head Office/Branches-Time Deposits pursuant to Central Bank Circular
No. 343 which implements R.A. No. 6426; (2) the dollar deposits were credited
as dollar time accounts and were covered by Certificates of Dollar Time Deposit
which were interest-bearing and payable upon maturity, and (3) the respondents
maintain 100% foreign currency cover for their deposit liability arising from
the dollar time deposits as required by Section 4 of R.A. No. 6426.[29]
To refute PDICs
allegations, the respondents explain the inter-branch transactions which
necessitate the creation of the accounts or placements subject of this
case. When the Philippine branch needs
to procure foreign currencies, it will coordinate with a branch in another
country which handles foreign currency purchases. Both branches have existing accounts with
their head office and when a money placement is made in relation to the
acquisition of foreign currency from the international market, the amount is credited
to the account of the Philippine branch with its head office while the same is
debited from the account of the branch which facilitated the purchase. This is further documented by the issuance of
a certificate of time deposit with a stated interest rate and maturity
date. The interest rate represents the
cost of obtaining the funds while the maturity date represents the date on
which the placement must be returned. On
the maturity date, the amount previously credited to the account of the Philippine
branch is debited, together with the cost for obtaining the funds, and credited
to the account of the other branch. The respondents insist that the interest
rate and maturity date are simply the basis for the debit and credit entries
made by the head office in the accounts of its branches to reflect the
inter-branch accommodation.[30] As regards the maintenance of currency cover
over the subject money placements, the respondents point out that they maintain
foreign currency cover in excess of what is required by law as a matter of
prudent banking practice.[31]
PDIC attempts to
define money placement in order to impugn the respondents claim that the funds
received from their head office and other branches are money placements and not
deposits, as defined under the PDIC Charter.
In the process, it loses sight of the important issue in this case,
which is the determination of whether the funds in question are subject to
assessment for deposit insurance as required by the PDIC Charter. In its struggle to find an adequate
definition of money placement, PDIC desperately cites R.A. No. 6848, The
Charter of the Al-Amanah Islamic Investment Bank of the
Furthermore, PDIC
heavily relies on the fact that the respondents documented the money placements
with certificates of time deposit to simply conclude that the funds involved
are deposits, as contemplated by the PDIC Charter, and are consequently subject
to assessment for deposit insurance. It
is this kind of reasoning that creates non-existent obscurities in the law and
obstructs the prompt resolution of what is essentially a straightforward issue,
thereby causing this case to drag on for more than three decades.
Noticeably, PDIC
does not dispute the veracity of the internal transactions of the respondents
which gave rise to the issuance of the certificates of time deposit for the
funds the subject of the present dispute.
Neither does it question the findings of the RTC and the CA that the
money placements were made, and were payable, outside of the
As explained by the
respondents, the transfer of funds, which resulted from the inter-branch
transactions, took place in the books of account of the respective branches in
their head office located in the
Sec. 3(f) The
term deposit means 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 to a commercial, checking, savings, time or thrift account or
which is evidenced by its certificate of deposit, and trust funds held by such
bank whether retained or deposited in any department of said bank or deposit in
another bank, together with such other obligations of a bank as the Board of
Directors shall find and shall prescribe by regulations to be deposit
liabilities of the Bank; Provided, 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; Provided
further, that any insured bank which is incorporated under the laws of the
Philippines may elect to include for insurance its deposit obligation payable
only at such branch. [Emphasis supplied]
The
testimony of Mr. Shaffer as to the treatment of such inter-branch deposits by
the FDIC, after which PDIC was modelled, is also persuasive. Inter-branch deposits refer to funds of one
branch deposited in another branch and both branches are part of the same
parent company and it is the practice of the FDIC to exclude such inter-branch
deposits from a banks total deposit liabilities subject to assessment.[34]
All things considered, the
Court finds that the funds in question are not deposits within the definition
of the PDIC Charter and are, thus, excluded from assessment.
WHEREFORE, the petition is DENIED. The October 27, 2005 Decision of
the Court of Appeals in CA-G.R. CV No. 61316 is AFFIRMED.
JOSE CATRAL
Associate Justice
WE CONCUR:
PRESBITERO J. VELASCO, JR.
Associate
Justice
Chairperson
DIOSDADO M.
PERALTA ROBERTO A.
ABAD
Associate Justice Associate Justice
BIENVENIDO L. REYES
Associate
Justice
A T T
E S T A T I O N
I attest that
the conclusions in the above Decision had been reached in consultation before
the case was assigned to the writer of the opinion of the Courts Division.
PRESBITERO J.
VELASCO, JR.
Associate Justice
Chairperson,
Third Division
C E R
T I F I C A T I O N
Pursuant to
Section 13, Article VIII of the Constitution and the Division Chairpersons
Attestation, I certify that the conclusions in the above Decision had been
reached in consultation before the case was assigned to the writer of the
opinion of the Courts Division.
RENATO
C. CORONA
Chief Justice
* Designated as
additional member of the Third Division in lieu of Associate Justice Estela M.
Perlas-Bernabe, per Special Order No. 1210 dated
[1] Rollo, pp.
34-46; penned by Associate Justice Aurora Santiago-Lagman and concurred in by
Associate Justice Ruben T. Reyes (retired member of this Court) and Associate
Justice Rebecca de Guia-Salvador of the Fourth Division.
[2]
[3]
[4]
[5]
[6]
[7]
[8]
[9]
[10]
[11] Id
at 36.
[12]
[13] Section 3.05 Exclusions from Deposit Liabilities. For assessment purposes, the following items
may be excluded in computing the total deposit liabilities:
xxx
b. Deposit liabilities
of a bank which are payable at an office of the bank located outside the
Philippines unless the insured bank which is incorporated under the laws of the
Philippines and which maintains a branch outside the Philippines has elected to
include for insurance its deposit obligations payable only at such branch in
which case such deposit liabilities should be included as part of the total
deposit liabilities.
[14] Rollo,
pp. 41-42.
[15] Id.
at 42.
[16] Id.
at 43.
[17] Id.
at 45.
[18] Id.
at 21, 247-248.
[19] Id.
at 283.
[20]
[21]
[22]
[23]
[24]
[25] 130 Misc. 66, 224
N.Y.S. 102 (Sup.
[26] 48 F.3d 551,
554 (D.C.Cir.1995), aff'd 833 F.Supp.
32 (D.D.C.1993), cert. denied sub nom. Liquidation Commission for
BCCI (Overseas) Ltd., Macau v. United States, 516 U.S. 1008, 116 S.Ct. 563,
133 L.Ed.2d 489 (1995).
[27] The term Bank and
Banking Institution shall be synonymous and interchangeable and shall include
banks, commercial banks, savings banks, mortgage banks, rural banks,
development banks, cooperative banks, stock savings and loan associations and
branches and agencies in the Philippines of foreign banks and all other
corporations authorized to perform banking functions in the Philippines (as
amended by Republic Act No. 7400 and 9302).
[28] Rollo, p. 252.
[29]
[30]
[31]
[32] Republic Act No.
6848, The Charter of the Al-Amanah Islamic Investment Bank of the
[33] Eterton
Multi-Resources Corporation v. Filipino Pipe and Foundry Corporation, G.R.
No. 179812,
[34] Rollo, p. 90.