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This article was originally published on June 1, 2022 and has been updated to reflect recent legal developments.

The following post does not create a lawyer-client relationship between Alburo Alburo and Associates Law Offices (or any of its lawyers) and the reader. It is still best for you to engage the services of a lawyer or you may directly contact and consult Alburo Alburo and Associates Law Offices to address your specific legal concerns, if there is any.

Also, the matters contained in the following were written in accordance with the law, rules, and jurisprudence prevailing at the time of writing and posting, and do not include any future developments on the subject matter under discussion.

AT A GLANCE:

Whenever an insured bank shall have been closed by the Monetary Board pursuant to Section 30 of Republic Act No. 7653, or upon expiration or revocation of a bank’s corporate term, payment of the insured deposits on such closed bank shall be made by the Corporation as soon as possible either (1) by cash or (2) by making available to each depositor a transferred deposit in another insured bank in an amount equal to insured deposit of such depositor. (Section 19 of Republic Act No. 3591, as amended)

“Many folks think that they aren’t good at earning money, when what they don’t know is how to use it.” 

– Frank A. Clark

Managing and protecting your money is just as important as earning it. In the Philippines, the Philippine Deposit Insurance Corporation (PDIC) exists to safeguard depositors’ funds in the event a bank fails. Understanding when PDIC pays claims and its limitations can help depositors make informed financial decisions.

Republic Act No. 3591, as amended by Republic Act No. 10846, established the PDIC. Pursuant to Section 1 of the law, the PDIC is mandated to insure the deposits of all banks entitled to insurance under this Act and is vested with the powers necessary to carry out this mandate.

When should PDIC Pay a Claim?

Section 19 of Republic Act No. 3591, as amended, states that whenever an insured bank shall have been closed by the Monetary Board pursuant to Section 30 of Republic Act No. 7653, or upon expiration or revocation of a bank’s corporate term, payment of the insured deposits on such closed bank shall be made by the Corporation as soon as possible either (1) by cash or (2) by making available to each depositor a transferred deposit in another insured bank in an amount equal to insured deposit of such depositor.

By law, PDIC’s liability is dependent on the existence of deposit.

For a better understanding, let us take the case of Philippine Deposit Insurance Corporation vs. Court of Appeals et.al., G.R. No. 118917, December 22, 1997, wherein several individuals invested in money market placements with Premiere Financing Corporation (PFC) in the sum of P10,000.00 each for which they were issued by the PFC corresponding promissory notes and checks. 

John Francis Cotaoco (Cotaoco), for and on behalf of the said individuals, went to PFC to encash the promissory notes and checks, but the PFC referred him to the Regent Savings Bank (RSB). Instead of paying the promissory notes and checks, the RSB, upon agreement of Cotaoco, issued thirteen (13) Certificates of Time Deposit (CTD) that the same certifies that the bearer of the corresponding CTD has deposited with the RSB the sum of Ten Thousand Pesos (Php10,000.00) and that the deposit was insured up to Fifteen Thousand Pesos (PhP15,000.00) with the PDIC.

When the CTDs were presented for encashment, RSB failed to pay the value of the CTDs and advised Cotaoco to file a claim with the PDIC. PDIC refused, explaining that the Traders Royal Bank Check check issued by PFC for the CTDs was returned by the drawee bank due to insufficient funds and was not replaced, and said check was not replaced, resulting in the cancellation of the CTDs as indebtedness or liabilities of RSB.

However, PDIC was ordered by the lower court to pay the individuals the amount corresponding to their CTDs.

Is PDIC liable to pay the amount of the subject CTDs?

The Supreme Court says: No.

The fact that the certificates state that the certificates are insured by PDIC does not ipso facto make the latter liable for the same should the contingency insured against arise. As stated earlier, the deposit liability of PDIC is determined by the provisions of Republic Act No. 3519, and statements in the certificates that the same are insured by PDIC are not binding upon the latter.

The mere fact that a certificate recites on its face that a certain sum has been deposited, or that officers of the bank may have stated that the deposit is protected by the guaranty law, does not make the guaranty fund liable for payment, if in fact a deposit has not been made. The banks have nothing to do with the guaranty fund as such. It is a fund raised by assessments against all state banks, administered by officers of the state to protect deposits in banks.

In this case, there is no deposit to speak of. RSB did not receive money or its equivalent when it issued the CTDs. Evidence convincingly show that the subject CTDs were indeed issued without RSB receiving any money. No deposit as defined under the law came into existence. 

Accordingly, PDIC cannot be held liable for the value of subject CTDs.

Proof of Claims and Payment Procedures

In payment of the insured deposits, may the PDIC require proof of claims before payment of the insured deposits?

The law says: Yes.

Section 19 of Republic Act No. 3591, as amended states that the Corporation, in its discretion, may require proof of claims to be filed before paying the insured deposits, and that in any case where the Corporation is not satisfied as to the validity of a claim for an insured deposit, it may require final determination of a court of competent jurisdiction before paying such claim.

Additionally, the failure to settle the claim, within six (6) months from the date of filing of claim for insured deposit, where such failure was due to grave abuse of discretion, gross negligence, bad faith, or malice, shall, upon conviction, subject the directors, officers or employees of the Corporation responsible for the delay, to imprisonment from six (6) months to one (1) year.

However, the period shall not apply if the validity of the claim requires the resolution of issues of facts and or law by another office, body or agency including the case mentioned in the first proviso or by the Corporation together with such other office, body or agency.

Related Articles: 

• ON INSURED DEPOSITS
• WHAT TYPE OF DEPOSITS ARE INSURED BY PDIC?
• WHO IS ENTITLED TO THE INSURED DEPOSIT?
• FILING OF CLAIM FOR INSURED DEPOSIT

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Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries regarding legal services, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/ 09175772207/ 09778050020.

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