International Business Law

Atty. Karen G. Climaco

EH407

Florizza N. Alolor

General Banking Law Reading List Case Digest

1. WESTMONT BANK, formerly ASSOCIATED BANK now UNITED OVERSEAS BANK PHILIPPINES vs .
MYRNA DELA ROSARAMOS, DOMINGO TAN and WILLIAM CO, G.R. No. 160260, October 24, 2012

FACTS: Respondent Dela Rosa-Ramos maintained a checking/current account with the United Overseas
Bank Philippines 3 (Bank) at the latter's Sto. Cristo Branch, Binondo, Manila. In her several transactions
with the Bank, Dela Rosa- Ramos got acquainted with its Signature Verifier, respondent Tan.

Tan offered Dela Rosa-Ramos a "special arrangement" wherein he would finance or place sufficient
funds in her checking/current account whenever there would be an overdraft or when the amount of
said checks would exceed the balance of her current account. It was their arrangement to make sure
that the checks she would issue would not be dishonored. This financier-debtor relationship started in
1987 and lasted until 1998. Dela Rosa-Ramos issued postdated checks covering the principal amount
plus interest as computed by Tan on specified date. She delivered four checks to Associated Bank.

1. Check No. 467322 for P200,000.00 was a "stale" guarantee check which was originally dated August
28, 1987 but was altered to make it appear that it was dated May 8, 1988. Tan then deposited the check
in the account of the other respondent, William Co (Co), despite the obvious superimposed date. As a
result, thenamount of P200,000.00 was eventually charged against her checking account.

2. Check No. 510290 for P232,500.00, dated June 10, 1988, was issued in payment of cigarettes that
Dela Rosa-Ramos bought from Co. This check allegedly "bounced" so she replaced it with her "good
customer's check and cash" and gave it to Tan. But he did not return the bounced check to her. Instead,
he "redeposited" it in Co's account.

3. Check Check No. 613307 for P200,000.00, was another guarantee check that was also "undated." But
Tan placed the date "June 14, 1988." For this check, an order to stop payment was issued because of
insufficient funds. This check was not returned to her either and, instead, it was "redeposited" in Co's
account.

4. Check Nos. 510290 and 613307 were both dishonored for insufficient funds. When Dela Rosa-Ramos
got the opportunity to confront Co regarding their deposit of the two checks, the latter disclosed that
her two checks were deposited in his account to cover for his P432,500.00 cash which was taken by Tan.
Then, with a threat to expose her relationship with a married man, Tan and Co were able to coerce her
to replace the two above-mentioned checks with Check No. 598648 12 in the amount of P432,500.00
which was equivalent to the total amount of the two dishonored checks.

Dela Rosa-Ramos filed a complaint in the RTC stating that the checks were deposited by TAN without her
permission or consent. During the trial, Tan passed away. On the other hand, the RTC rendered a
decision in favor of Dela Rosa-Ramos. Co and the Bank appealed their case to the CA. It affirmed the
ruling of the RTC but with modification that: (a) the defendants are liable only for the amount of
P521,989.00 covering Check Nos. 467322, 613307 and P121,989.66 covered by Check No. 613306 and
(b) deleting the award for moral damages and attorney's fees.

The Bank was not satisfied with the judgement of the CA. It appealed for partial reconsideration but the
CA denied it for lack of merit. Thus, this petition.

ISSUES: Whether or not the CA erred in affirming the decision of the RTC.

RULING: No. The CA did not err in affirming the decision of the RTC. The Court stated that public interest
is intimately carved into the banking industry because the primordial concern here is the trust and
confidence of the public. This fiduciary nature of every bank's relationship with its clients/depositors
impels it to exercise the highest degree of care, definitely more than that of a reasonable man or a good
father of a family. It is, therefore, required to treat the accounts and deposits of these individuals with
meticulous care.As ruled by the SC, the rationale behind this is that “The banking system has become an
indispensable institution in the modern world and plays a vital role in the economic life of every civilized
society — banks have attained a ubiquitous presence among the people, who have come to regard them
with respect and even gratitude and most of all, confidence, and it is for this reason, banks should guard
against injury attributable to negligence or bad faith on its part.

Considering that banks can only act through their officers and employees, the fiduciary obligation laid
down for these institutions necessarily extends to their employees. Thus, banks must ensure that their
employees observe the same high level of integrity and performance for it is only through this that
banks may meet and comply with their own fiduciary duty. Guided by the following standard, the Bank,
given the fiduciary nature of its relationship with Dela Rosa-Ramos, should have exerted every effort to
safeguard and protect her money which was deposited and entrusted with it. As found by both the RTC
and the CA, Ramos was defrauded and she lost her money because of the negligence attributable to the
Bank and its employees. Indeed, it was the employees who directly dealt with Dela Rosa-Ramos, but the
Bank cannot distance itself from them. That they were the ones who gained at the expense of Dela
Rosa-Ramos will not excuse it of its fundamental responsibility to her. Although she was also at fault for
entering in a special arrangement with Tan, the Bank still reneged responsibility to Dela Rosa-Ramos.
The two must both bear the consequences of their mistakes. Thus, the Bank should only pay 50% of the
actual damages awarded while Dela Rosa-Ramos should have to shoulder the remaining 50%.

2. EQUITABLE PCI BANK vs . ARCELITO B. TAN G.R. No. 165339. August 23, 2010

FACTS: Tan maintained a current and savings account with Philippine Commercial International Bank
(PCIB), now petitioner Equitable PCI Bank. He issued PCIB Check No. 275100 postdated May 30, 1992 in
the amount of P34,588.72 in favor of Sulpicio Lines, Inc. As of May 14, 1992, respondent's balance with
petitioner was P35,147.59.

On May 14, 1992, Sulpicio Lines, Inc. deposited the aforesaid check to its account with Solid Bank,
Carbon Branch, Cebu City. After clearing, the amount of the check was immediately debited by
petitioner from respondent's account leaving him with a balance of only P558.87. Meanwhile,
respondent issued another three checks payable to Agusan del Sur Electric Cooperative, Inc. (ASELCO)
for the amount of P6,427.68. They were dishonored for being drawn against insufficient funds. Because
of this, the electric supply to his two mini-sawmills was cut off, the business operations thereof were
stopped, and purchase orders were not duly served causing tremendous losses to him.

In its defense, petitioner denied that the questioned check was postdated May 30, 1992 and claimed
that it was a current check dated May 3, 1992. It alleged further that the disconnection of the electric
supply to respondent's sawmills was not due to the dishonor of the checks, but for other reasons not
attributable to the bank. After trial, the RTC, in its Decision dated June 21, 1993, ruled in favor of
petitioner and dismissed the complaint. Respondent filed an Appeal to the CA which reversed the
decision of the trial court and directed petitioner to pay respondent the sum of P1,864,500.00 as actual
damages, P50,000.00 by way of moral damages, P50,000.00 as exemplary damages and attorney's fees
in the amount of P30,000.00.

Hence, this petition.

ISSUE: Whether or not the Court of Appeals erred in reversing the finding of the RTC that the check was
dated May 3, 1992 and in holding that respondent’s way of writing the date on the said check was the
proximate cause of the dishonor of his three other checks.

RULING: No. The Court of Appeals did not err in reversing the finding of the RTC. The RTC concluded that
the check was dated May 3, 1992 and not May 30, 1992, because the same check was not issued to pay
for Bills of Lading Nos. 15, 16 and 17, as respondent claims. The trial court's conclusion is preposterous
and illogical. The purpose for the issuance of the check has no logical connection with the date of the
check. Besides, the trial court need not look into the purpose for which the check was issued. A reading
of Check No. 275100 14 would readily show that it was dated May 30, 1992. The presence of the figure
"0" after the number "3" is quite significant. In fact, a close examination thereof would unerringly show
that the said number zero or "0" is connected to the preceding number "3." In other words, the drawer
of the check wrote the figures "30" in one continuous stroke, thereby contradicting appellee's theory
that the number "3" is separated from the figure "0" by a bar. Besides, appellee's theory that the date of
the check is May 3, 1992 is clearly untenable considering the presence of the figure "0" after "3" and
another bar before the year 1992.

Had not appellee bank prematurely debited the amount of the check from appellant's account before its
due date, the two other checks (Exhs. LLLL and GGGG) successively dated May 9, 1992 and May 16, 1992
which were paid by appellant to ASELCO and ANECO, respectively, would not have been dishonored and
the said payees would not have disconnected their supply of electric power to appellant's sawmills, and
the latter would not have suffered losses. The law imposes on banks high standards in view of the
fiduciary nature of banking. Section 2 of R.A. 8791 15 decrees:

Declaration of Policy. — The State recognizes the vital role of banks in providing an environment
conducive to the sustained development of the national economy and the fiduciary nature of banking
that requires high standards of integrity and performance. In furtherance thereof, the State shall
promote and maintain a stable and efficient banking and financial system that is globally competitive,
dynamic and responsive to the demands of a developing economy. Although R.A. 8791 took effect only
in the year 2000, the Court had already imposed on banks the same high standard of diligence required
under R.A. 8791 at the time of the untimely debiting of respondent's account by petitioner in May 1992.
It is clear that petitioner bank did not exercise the degree of diligence that it ought to have exercised in
dealing with its client. The Court also finds that its negligence is the proximate cause of respondent's
loss. The proximate cause of the loss is not respondent's manner of writing the date of the check, as it
was very clear that he intended Check No. 275100 to be dated May 30, 1992 and not May 3, 1992. The
proximate cause is petitioner's own negligence in debiting the account of the respondent prior to the
date as appearing in the check, which resulted in the subsequent dishonor of several checks issued by
the respondent and the disconnection by ASELCO and ANECO of his electric supply.

The bank on which the check is drawn, known as the drawee bank, is under strict liability to pay to the
order of the payee in accordance with the drawer's instructions as reflected on the face and by the
terms of the check. Thus, payment made before the date specified by the drawer is clearly against the
drawee bank's duty to its client. It is apparent that respondent suffered pecuniary loss. The negligence
of petitioner triggered the disconnection of his electrical supply, which temporarily halted his business
operations and the consequent loss of business opportunity thus respondent therein was entitled to
recover reasonable moral damages.

3. CENTRAL BANK OF THE PHILIPPINES vs . CITYTRUST BANKING CORPORATION G.R. No. 141835.
February 4, 2009

FACTS: Pursuant to Republic Act No. 265, the old Central Bank Law, respondent Citytrust Banking
Corporation (Citytrust), formerly Feati Bank, maintained a demand deposit account with petitioner
Central Bank of the Philippines, now Bangko Sentral ng Pilipinas. Citytrust furnished petitioner with the
names and corresponding signatures of five of its officers authorized to sign checks and serve as drawers
and indorsers for its account. And it provided petitioner with the list and corresponding signatures of its
roving tellers authorized to withdraw, sign receipts and perform other transactions on its behalf.
Petitioner later issued security identification cards to the roving tellers one of whom was "Rounceval
Flores". Flores presented for payment to petitioner's Senior Teller Iluminada two Citytrust checks of
even date, payable to Citytrust, one in the amount of P850,000 and the other in the amount of
P900,000, both of which were signed and indorsed by Citytrust's authorized signatory-drawers. After the
checks were certified by petitioner's Accounting Department, Iluminada verified them, prepared the
cash transfer slip on which she affixed her signature, stamped the checks with the notation "Received
Payment" and asked Flores to, as he did, sign on the space above such notation. Instead of signing his
name, however, Flores signed as "Rosauro C. Cayabyab" which Iluminada failed to notice.

More than a year and nine months later, Citytrust, alleging that the checks were already cancelled
because they were stolen, demanded petitioner to restore the amounts covered thereby to its demand
deposit account.

Petitioner did not heed the demand, thus Citytrust later filed a complaint for estafa against Flores. Flores
was convicted. Citytrust thereafter filed before the Regional Trial Court (RTC) of Manila a complaint for
recovery of sum of money with damages against petitioner which it alleged erred in encashing the
checks and in charging the proceeds thereof to its account, despite the lack of authority of "Rosauro C.
Cayabyab". RTC of Manila found both Citytrust and petitioner negligent and accordingly held them
equally liable for the loss. Both parties appealed to the Court of Appeals which, by Decision 2 dated July
16, 1999, affirmed the trial court's decision. The appellate court noted that while "Citytrust failed to take
adequate precautionary measures to prevent the fraudulent encashment of its checks", petitioner was
not entirely blame-free in light of its failure to verify the signature of Citytrust's agent authorized to
receive payment.

Hence this petition.

ISSUE: Whether or not Citytrust must also be held liable for the negligence of its teller.

RULING: Yes. Citytrust must also be held liable. Its failure to timely examine its account, cancel the
checks and notify petitioner of their alleged loss/theft should mitigate petitioner's liability, in accordance
with Article 2179 of the Civil Code which provides that if the plaintiff's negligence was only contributory,
the immediate and proximate cause of the injury being the defendant's lack of due care, the plaintiff
may recover damages, but the courts shall mitigate the damages to be awarded. For had Citytrust timely
discovered the loss/theft and/or subsequent encashment, their proceeds or part thereof could have
been recovered. Thus, the Court deems it proper to allocate the loss between the petitioner and
Citytrust on a 60-40 ratio.

4. TAN vs. THE HONORABLE COURT OF APPEALS and RIZAL COMMERCIAL BANKING CORPORATION
G.R. No. 108555. December 20, 1994

FACTS: Petitioner Tan had maintained a bank account with the respondent’s bank in Binondo Branch. To
avoid carrying cash while enroute to Manila, he secured a Cashier's Check from the Philippine
Commercial Industrial Bank (PCIB), Puerto Princesa branch, in the amount of Thirty Thousand
(P30,000.00) Pesos, payable to his order. He deposited the check in his account with RCBC Binondo on
March 15. On the same day, RCBC erroneously sent the same cashier's check for clearing to the Central
Bank which was returned for having been "missent" or "misrouted." RCBC debited the amount covered
by the same cashier's check from the account of the petitioner. Respondent bank at this time had not
informed the petitioner of its action which the latter claims he learned of only 42 days after, specifically
on March 16, when he received the bank's debit memo. Relying on the common knowledge that a
cashier's check was as good as cash, that the usual banking practice that local checks are cleared within
three (3) working days and regional checks within seven (7) working days, and the fact that the cashier's
check was accepted, petitioner issued two (2) personal checks both dated March 18. But the check was
returned twice for insufficiency of funds.

Petitioner, alleging to have suffered humiliation and loss of face in the business sector due to the
bounced checks, filed a complaint against RCBC for damages in the Regional Trial Court of Palawan and
Puerto Princesa. In its defense, RCBC disowning any negligence, put the blame for the "misrouting" on
the petitioner for using the wrong check deposit slip. It insisted that the misuse of a local check deposit
slip, instead of a regional check deposit slip, triggered the "misrouting" by RCBC of the cashier's check to
the Central Bank and it was petitioner's negligent "misuse" of a local deposit slip which was the
proximate cause of the "misrouting", thus he should bear the consequence. RCBC further asseverated it
was merely acting as petitioner's collecting agent and it assumed no responsibility beyond care in
selecting correspondents under the theory that where a check is deposited with a collecting bank the
relationship created is that of agency and not creditor-debtor, thus it cannot be liable.

RTC ruled in favor of the petitioner. RCBC appealed to the Court of Appeals contending that the trial
court erred in holding RCBC liable to petitioner on account of its alleged negligence and in awarding
petitioner moral and exemplary damages and attorney's fees. Petitioner now seeks to reverse the
decision of the Court of Appeals and affirm that of the lower court.

ISSUE: Whether or not the Court of Appeals was correct in reversing the judgment of the trial court.

RULING: The Court of Appeals was not correct in reversing the judgement of the trial court. The
respondent bank cannot exculpate itself from liability by claiming that its depositor "impliedly
instructed" the bank to clear his check with the Central Bank by filling a local check deposit slip. Such
posture is disingenuous, to say the least. First, why would RCBC follow a patently erroneous act born of
ignorance or inattention or both. Second, bank transactions pass through a succession of bank personnel
whose duty is to check and countercheck transactions for possible errors. In the instant case, the teller
should not have accepted the local deposit slip with the cashier's check that on its face was clearly a
regional check without calling the depositor's attention to the mistake at the very moment this was
presented to her. Neither should everyone else down the line who processed the same check for
clearing have allowed the check to be sent to Central Bank. Depositors do not pretend to be past master
of banking technicalities, much more of clearing procedures. As soon as their deposits are accepted by
the bank teller, they wholly repose trust in the bank personnel's mastery of banking, their and the
bank's sworn profession of diligence and meticulousness in giving irreproachable service.

It is also wrong to assert that petitioner’s use of wrong deposit slip was the proximate cause of the
clearing fiasco. RCBC had been remiss in the performance of its duty and obligation to its client, as well
as to itself. The two dishonored checks issued by petitioner, Check No. 040719 and Check No. 040718
were presented for payment more than 45 days from the day the cashier's check was deposited. This
gave RCBC more than ample time to have cleared the cashier's check had it corrected its "missending"
the same upon return from Central Bank using the correct slip this time so it can be cleared properly.
Instead, RCBC promptly debited the amount of P30,000.00 against petitioner's account and left it at
that. Petitioner's reliance on the layman's perception that a cashier's check is as good as cash is not
entirely misplaced, as it is rooted in practice, tradition, and principle. We see no reason thus why this so-
called discretion was not exercised in favor of petitioner, specially since PCIB and RCBC are members of
the same clearing house group relying on each other's solvency. RCBC could surely rely on the solvency
of PCIB when the latter issued its cashier's check.

Note: An ordinary check is not a mere undertaking to pay an amount of money. There is an element of
certainty or assurance that it will be paid upon presentation that is why it is perceived as a convenient
substitute for currency in commercial and financial transactions. The basis of the perception being
confidence. Any practice that destroys that confidence will impair the usefulness of the check as a
currency substitute and create havoc in trade circles and the banking community. A cashier's check is a
primary obligation of the issuing bank and accepted in advance by its mere issuance. By its very nature,
a cashier's check is the bank's order to pay drawn upon itself, committing in effect its total resources,
integrity and honor behind the check. A cashier's check by its peculiar character and general use in the
commercial world is regarded substantially to be as good as the money which it represents.

5. THE CONSOLIDATED BANK and TRUST CORPORATION vs . COURT OF APPEALS and L.C. DIAZ and
COMPANY, CPA's G.R. No. 138569. September 11, 2003

FACTS: LC Diaz opened a savings account with SolidBank. L.C. Diaz through its cashier, Mercedes
Macaraya filled up a savings (cash) deposit slip for P990 and a savings (checks) deposit slip for P50.
Macaraya instructed the messenger of L.C. Diaz, Calapre, to deposit the money with Solidbank.
Macaraya also gave Calapre the Solidbank passbook. He then proceeded to bank and presented the two
deposit slips with the "DUPLICATE" and "SAVING TELLER 6 SOLIDBANK HEAD OFFICE." Since the
transaction took time and Calapre had to make another deposit for L.C. Diaz with Allied Bank, he left the
passbook with Solidbank. Calapre then went to Allied Bank. When Calapre returned to Solidbank to
retrieve the passbook, Teller No. 6 informed him that "somebody got the passbook. Calapre went back
to L.C. Diaz and reported the incident to Macaraya. When Macaraya went to the bank, Teller No. 6
handed to her a deposit slip dated 14 August 1991 for the deposit of a check for P90,000 drawn on
Philippine Banking Corporation. This PBC check of L.C. Diaz was a check that it had "long closed." PBC
subsequently dishonored the check because of insufficient funds and because the signature in the check
differedfrom PBC's specimen signature. Failing to get back the passbook, Macaraya went back to her
office and reported the matter to the Personnel Manager of L.C. Diaz, Emmanuel Alvarez.

The CEO of LC Diaz called the SolidBank to stop any transaction using the same passbook until they get a
new one. Bu LC Diaz learned that despite their calls and written letter about their request, an
unauthorized withdrawal of P300,000.00 from its savings account received by a certain Noel Tamayo.

L.C. Diaz charged its messenger, Ilagan and one Roscon Verdazola with Estafa through Falsification of
Commercial Document. The Regional Trial Court of Manila dismissed the criminal case after the City
Prosecutor filed a Motion to Dismiss on 4 August 1992. On 24 August 1992, L.C. Diaz through its counsel
demanded from Solidbank the return of its money. Solidbank refused. They filed a case in the RTC for
recovery of sum of money but the RTC absolved Solidbank and dismissed their complaint. LC Diaz filed
an appeal to the CA, it granted their appeal and rendered judgment against Solidbank. The appellate
court stated that the teller, who was not presented by Solidbank during trial, should have called up the
depositor because the money to be withdrawn was a significant amount. Had the teller called up L.C.
Diaz, Solidbank would have known that the withdrawal was unauthorized. The teller did not even verify
the identity of the impostor who made the withdrawal. Thus, the appellate court found Solidbank liable
for its negligence in the selection and supervision of its employees. It ruled that while L.C. Diaz was also
negligent in entrusting its deposits to its messenger and its messenger in leaving the passbook with the
teller, Solidbank could not escape liability because of the doctrine of "last clear chance." Solidbank could
have averted the injury suffered by L.C. Diaz had it called up L.C. Diaz to verify the withdrawal.

The appellate court ruled that the degree of diligence required from Solidbank is more than that of a
good father of a family. Banks are obligated to treat the accounts of their depositors with meticulous
care, always having in mind the fiduciary nature of their relationship with their clients. The Court of
Appeals found Solidbank remiss in its duty, violating its fiduciary relationship with L.C. Diaz. Hence, this
petition for review by Solidbank to the SC.

ISSUE: Whether or not the CA erred in holding Solidbank liable.

RULING: The Supreme Court held that the CA partly erred in holding Solidbank liable.

As for Solidbank’s Fiduciary Duty under the law, it is liable for breach of contract due to negligence or
culpa contractual. The contract between the bank and its depositor is governed by the provisions of the
Civil Code on simple loan. Article 1980 of the Civil Code expressly provides that ". . . savings . . . deposits
of money in banks and similar institutions shall be governed by the provisions concerning simple loan."
There is a debtor-creditor relationship between the bank and its depositor. The bank is the debtor and
the depositor is the creditor. The depositor lends the bank money and the bank agrees to pay the
depositor on demand. The savings deposit agreement between the bank and the depositor is the
contract that determines the rights and obligations of the parties. Section 2 of Republic Act No. 8791
("RA 8791"), which took effect on 13 June 2000, declares that the State recognizes the "fiduciary nature
of banking that requires high standards of integrity and performance." Although RA 8791 took effect
almost nine years after the unauthorized withdrawal of the P300,000 from L.C. Diaz's savings account,
jurisprudence at the time of the withdrawal already imposed on banks the same high standard of
diligence required under RA No. 8791.

However, the fiduciary nature of a bank-depositor relationship does not convert the contract between
the bank and its depositors from a simple loan to a trust agreement, whether express or implied. Failure
by the bank to pay the depositor is failure to pay a simple loan, and not a breach of trust. The law
simply imposes on the bank a higher standard of integrity and performance in complying with its
obligations under the contract of simple loan, beyond those required of non-bank debtors under a
similar contract of simple loan.

In this case, Calapre left the passbook with Solidbank because the "transaction took time" and he had to
go to Allied Bank for another transaction. The passbook was still in the hands of the employees of
Solidbank for the processing of the deposit when Calapre left Solidbank. Solidbank's rules on savings
account require that the "deposit book should be carefully guarded by the depositor and kept under
lock and key, if possible." When the passbook is in the possession of Solidbank's tellers during
withdrawals, the law imposes on Solidbank and its tellers an even higher degree of diligence in
safeguarding the passbook. In the present case, L.C. Diaz has established that Solidbank breached its
contractual obligation to return the passbook only to the authorized representative of L.C. Diaz. There is
thus a presumption that Solidbank was at fault and its teller was negligent in not returning the passbook
to Calapre. The burden was on Solidbank to prove that there was no negligence on its part or its
employees. Solidbank failed to discharge its burden. Solidbank did not present to the trial court Teller
No. 6, the teller with whom Calapre left the passbook and who was supposed to return the passbook to
him. Solidbank is bound by the negligence of its employees under the principle of respondeat superior
or command responsibility. L.C. Diaz was not at fault that the passbook landed in the hands of the
impostor. Solidbank was in possession of the passbook while it was processing the deposit. After
completion of the transaction, Solidbank had the contractual obligation to return the passbook only to
Calapre, the authorized representative of L.C. Diaz. Solidbank failed to fulfill its contractual obligation
because it gave the passbook to another person. Solidbank's failure to return the passbook to Calapre
made possible the withdrawal of the P300,000 by the impostor who took possession of the passbook.
Under Solidbank's rules on savings account, mere possession of the passbook raises the presumption of
ownership. It was the negligent act of Solidbank's Teller No. 6 that gave the impostor presumptive
ownership of the passbook.

The Court did not apply the doctrine of Last Clear Chance as Solidbank is liable for breach of contract
due to negligence in the performance of its contractual obligation to L.C. Diaz. This is a case of culpa
contractual, where neither the contributory negligence of the plaintiff nor his last clear chance to avoid
the loss, would exonerate the defendant from liability. Such contributory negligence or last clear chance
by the plaintiff merely serves to reduce the recovery of damages by the plaintiff but does not exculpate
the defendant from his breach of contract. Thus, the decision of the Court of Appeals is AFFIRMED with
MODIFICATION. Petitioner Solidbank Corporation shall pay private respondent L.C. Diaz and Company,
CPA's only 60% of the actual damages awarded by the Court of Appeals. The remaining 40% of the
actual damages shall be borne by private respondent L.C. Diaz and Company, CPA's.

Note: Doctrine of Last Clear Chance

Where both parties are negligent but the negligent act of one is appreciably later than that of the other,
or where it is impossible to determine whose fault or negligence caused the loss, the one who had the
last clear opportunity to avoid the loss but failed to do so, is chargeable with the loss. Stated differently,
the antecedent negligence of the plaintiff does not preclude him from recovering damages caused by
the supervening negligence of the defendant, who had the last fair chance to prevent the impending
harm by the exercise of due diligence.

6. TEOFISTO GUINGONA vs. THE CITY FISCAL OF MANILA G.R. No. 60033. April 4, 1984

FACTS: This petition seeks to prohibit public respondents from proceeding with the preliminary
investigation of I.S. No. 81-31938 on the ground of lack of jurisdiction, in which petitioners were charged
by private respondent Clement David, with estafa and violation of Central Bank Circular No. 364 and
related regulations regarding foreign exchange transactions. "'From March 20, 1979 to March, 1981,
David invested with the Nation Savings and Loan Association, (hereinafter called NSLA) the sum of
P1,145,546.20 on time deposits, P13,531.94 on savings account deposits (jointly with his sister, Denise
Kuhne), US$10,000.00 on time deposit, US$15,000.00 under a receipt and guarantee of payment and
US$50,000.00. David was induced into making the investments by Robert Marshall, an Australian
national who was allegedly a close associate of petitioner Guingona Jr. NSLA was placed under
receivership by the Central Bank, so that David filed claims therewith for his investments and those of
his sister; that on July 22, 1981 David received a report from the Central Bank that only P305,821.92 of
those investments were entered in the records of NSLA; that, therefore, the respondents in I.S. No. 81-
31938 misappropriated the balance of the investments, at the same time violating Central Bank Circular
No. 364 and related Central Bank regulations on foreign exchange transactions; that after demands,
petitioner Guingona Jr. paid only P200,000.00, thereby reducing the amounts misappropriated to
P959,078.14 and US$75,000.00.

Petitioners claimed that because NSLA was urgently in need of funds and at David's insistence, his
investments were treated as special accounts with interests above the legal rate, and recorded in
separate confidential documents only a portion of which were to be reported because he did not want
the Australian government to tax his total earnings (nor) to know his total investments; that all
transactions with David were recorded except the sum of US$15,000.00 which was a personal loan of
Santos; that David's check for US$50,000.00 was cleared through Guingona, Jr.'s dollar account because
NSLA did not have one, that a draft of US$30,000.00 was placed in the name of one Paz Roces because
of a pending transaction with her. At the inception of the preliminary investigation before respondent
Lota, petitioners moved to dismiss the charges against them for lack of jurisdiction because David's
claims allegedly comprised a purely civil obligation which was itself novated. Fiscal Lota denied the
motion to dismiss. But, after the presentation of David's principal witness, petitioners filed the instant
petition because: (a) the production of the Promissory Notes, Banker's Acceptance, Certificates of Time
Deposits and Savings Account allegedly showed that the transactions between David and NSLA were
simple loans, i.e., civil obligations on the part of NSLA which were novated when Guingona, Jr. and
Martin assumed them; and (b) David's principal witness allegedly testified that the duplicate originals of
the aforesaid instruments of indebtedness were all on file with NSLA, contrary to David's claim that
some of his investments were not recorded.

ISSUE: whether public respondents acted without jurisdiction when they investigated the charges
(estafa and violation of CB Circular No. 364 and related regulations regarding foreign exchange
transactions) subject matter of I.S. No. 81-31938.

RULING: There is merit in the contention of the petitioners that their liability is civil in nature and
therefore, public respondents have no jurisdiction over the charge of estafa.

When David invested his money on time and savings deposits with NSLA, the contract that was
perfected was a contract of simple loan or mutuum and not a contract of deposit. Hence, the
relationship between David and NSLA is that of creditor and debtor,  consequently, the ownership of the
amount deposited was transmitted to the Bank upon the perfection of the contract and it can make use
of the amount deposited for its banking operations, such as to pay interests on deposits and to pay
withdrawals..

While the Bank has the obligation to return the amount deposited, it has no obligation to return or
deliver the same money that was deposited. NSLA’s failure to return the amount deposited will not
constitute estafa through misappropriation punishable under Article 315, par. L (b) of the Revised Penal
Code, but it will only give rise to civil liability over which the public respondents have no jurisdiction.

Considering that petitioners’ liability is purely civil in nature and that there is no clear showing that they
engaged in foreign exchange transactions, public respondents acted without jurisdiction when they
investigated the charges against the petitioners. Public respondents should be restrained from further
proceeding with the criminal case for to allow the case to continue would work great injustice to
petitioners and would render meaningless the proper administration of justice.

Even granting that NSLA’s failure to pay the time and savings deposits would constitute a violation of
RPC 315, paragraph 1(b), any incipient criminal liability was deemed avoided. When NSLA was placed
under receivership, Guingona and Martin assumed the obligation to David, thereby resulting in the
novation of the original contractual obligation. The original trust relation between NSLA and David was
converted into an ordinary debtor-creditor relation between the petitioners and David. While it is true
that novation does not extinguish criminal liability, it may prevent the rise of criminal liability as long as
it occurs prior to the filing of the criminal information in court.

Petitioner Guingona merely accommodated the request of the Nation Savings and loan Association in
order to clear the bank draft through his dollar account because the bank did not have a dollar account.
Immediately after the bank draft was cleared, petitioner Guingona authorized Nation Savings and Loan
Association to withdraw the same in order to be utilized by the bank for its operations. It is safe to
assume that the U.S. dollars were converted first into Philippine pesos before they were accepted and
deposited in Nation Savings and Loan Association, because the bank is presumed to have followed the
ordinary course of the business which is to accept deposits in Philippine currency only, and that the
transaction was regular and fair, in the absence of a clear and convincing evidence to the contrary.
In conclusion, considering that the liability of the petitioners is purely civil in nature and that there is no
clear showing that they engaged in foreign exchange transactions, We hold that the public respondents
acted without jurisdiction when they investigated the charges against the petitioners. Consequently,
public respondents should be restrained from further proceeding with the criminal case for to allow the
case to continue, even if the petitioners could have appealed to the Ministry of Justice, would work
great injustice to petitioners and would render meaningless the proper administration of justice.

7. ASSOCIATED BANK (Now WESTMONT BANK) vs . VICENTE HENRY TAN G.R. No. 156940. December
14, 2004

FACTS: Tan is a depositor-creditor of the Associated Bank. In September 1990, he deposited a postdated
UCPB check with the said BANK in the amount of P101,000.00 issued to him by a certain Willy Cheng
from Tarlac. After such deposit, the amount in his account is in the amount of P297,000.00. Upon advice
and instruction of the BANK that the P101,000.00 check was already cleared and backed up by sufficient
funds, Tan, on the same date, withdrew the sum of P240,000.00, leaving a balance of P57,793.45. The
following day Tan deposited the amount of P50,000.00 making his existing balance in the amount of
P107,793.45.

Tan, as a businessman, issued several checks to his partners but when these checks were received by his
partners, they alleged that such checks bounced because of insufficient funds. Thereafter, Tan, thru his
lawyer, informed the BANK to take positive steps regarding the matter for he has adequate and
sufficient funds to pay the amount of the subject checks. Nonetheless, the BANK did not bother nor
offer any apology regarding the incident. Consequently, TAN, as plaintiff, filed a Complaint for Damages
with the Regional Trial Court of Cabanatuan City.

The bank denied the allegations and stated that no banking institution would give an assurance to any of
its client/depositor that the check deposited by him had already been cleared and backed up by
sufficient funds but it could only presume that the same has been honored by the drawee bank in view
of the lapse of time that ordinarily takes for a check to be cleared. For its part, Bank alleged that on
October 2, 1990, it gave notice to the [respondent] as to the return of his UCPB check deposit in the
amount of P101,000.00, hence, on even date, TAN deposited the amount of P50,000.00 to cover the
returned check. The BANK also stated that TAN had no cause of action against it and argued that it has
all the right to debit from the account and that it has no liability with respect to the clearing of
deposited checks as the clearing is being undertaken by the Central Bank and in accepting [the] check
deposit, it merely obligates itself as depositor's collecting agent subject to actual payment by the
drawee bank.

The RTC ruled in favor of TAN. It ruled that the bank manager was negligent in handling the particular
checking account of the [respondent] stating that such lapses caused all the inconveniences to the
[respondent]. The trial court also took into consideration that [respondent's] mother was originally
maintaining with the . . . BANK [a] current account as well as [a] time deposit, but [o]n one occasion,
although his mother made a deposit, the same was not credited in her favor but in the name of
another." On appeal, the CA affirmed the ruling of the RTC. It CA ruled that the bank should not have
authorized the withdrawal of the value of the deposited check prior to its clearing. Having done so,
contrary to its obligation to treat respondent's account with meticulous care, the bank violated its own
policy. It thereby took upon itself the obligation to officially inform respondent of the status of his
account before unilaterally debiting the amount of P101,000. Without such notice, it is estopped from
blaming him for failing to fund his account.

ISSUE: whether or not the petitioner, which is acting as a collecting bank, has the right to debit the
account of its client for a check deposit which was dishonored by the drawee bank.

RULING: No, the bank has no right ot debit the account if its client for a check deposit which was
dishonored by the drawee bank. A bank generally has a right of setoff over the deposits therein for the
payment of any withdrawals on the part of a depositor. 8 The right of a collecting bank to debit a client's
account for the value of a dishonored check that has previously been credited has fairly been
established by jurisprudence. To begin with, Article 1980 of the Civil Code provides that "[f]ixed, savings,
and current deposits of money in banks and similar institutions shall be governed by the provisions
concerning simple loan." Hence, the relationship between banks and depositors has been held to be
that of creditor and debtor. The liability of petitioner in this case ultimately revolves around the issue of
whether it properly exercised its right of setoff. The determination thereof hinges, in turn, on the bank's
role and obligations, first, as respondent's depositary bank; and second, as collecting agent for the check
in question.

The Bank did not treat the account of Tan with the highest degree of care. Petitioner allowed the
withdrawal of the face value of the deposited check prior to its clearing. That act certainly disregarded
the clearance requirement of the banking system. Such a practice is unusual, because a check is not legal
tender or money; and its value can properly be transferred to a depositor's account only after the check
has been cleared by the drawee bank. Under ordinary banking practice, after receiving a check deposit,
a bank either immediately credit the amount to a depositor's account; or infuse value to that account
only after the drawee bank shall have paid such amount. 23 Before the check shall have been cleared for
deposit, the collecting bank can only "assume" at its own risk — as herein petitioner did — that the
check would be cleared and paid out.

Petitioner failed to show that it had immediately and duly informed respondent of the debiting of his
account. Notice was proper and ought to be expected. By the bank manager's account, respondent was
considered a "valued client" whose checks had always been sufficiently funded from 1987 to 1990, 36
until the October imbroglio. Thus, he deserved nothing less than an official notice of the precarious
condition of his account. Second, under the provisions of the Negotiable Instruments Law regarding the
liability of a general indorser, and the procedure for a notice of dishonor, it was incumbent on the bank
to give proper notice to respondent.

8. PHILIPPINE NATIONAL BANK vs. EMILIO A. GANCAYCO, and FLORENTINO FLOR G.R. No. L-18343.
September 30, 1965

FACTS: Special Prosecutors of DOJ in this case required PNB to produce at a hearing the records of the
bank deposits of Ernesto T. Jimenez, former administrator of the Agricultural Credit and Cooperative
Administration, who was then under investigation for unexplained wealth. PNB declined the request to
reveal its records, the bank invoked republic Act No. 1405 which provides:
SEC. 2. All deposits of whatever nature with banks or banking institutions in the Philippines including
investments in bonds issued by the Government of the Philippines, its political subdivisions and its
instrumentalities, are hereby considered as of an absolutely confidential nature and may not be
examined, inquired or looked into by any person, government official, bureau or office, except upon
written permission of the depositor, or in cases of impeachment, or upon order of a competent court in
cases of bribery or dereliction of duty of public officials, or in cases where the money deposited or
invested is the subject matter of the litigation.

Plaintiffs filed an action for declaratory judgment in the Manila Court of First Instance. After trial, during
which Senator Arturo M. Tolentino, author of the Anti-Graft and Corrupt Practices Act testified, the
court rendered judgment sustaining the power of the defendants to compel the disclosure of bank
accounts of ACCFA Administrator Jimenez. The court said that, by enacting section 8 of the Anti-Graft
and Corrupt Practices Act, Congress clearly intended to provide an additional ground for the
examination of bank deposits. Without such provision, the court added, prosecutors would be
hampered if not altogether frustrated in the prosecution of those charged with having acquired
unexplained wealth while in public office.

ISSUE: whether a bank can be compelled to disclose the records of accounts of a depositor who is under
investigation for unexplained wealth.

RULING: With regard to the claim that disclosure would be contrary to the policy making bank deposits
confidential, it is enough to point out that while section 2 of Republic Act No. 1405 declares bank
deposits to be "absolutely confidential" it nevertheless allows such disclosure in the following instances:
(1) Upon written permission of the depositor; (2) In cases of impeachment; (2) Upon order of a
competent court in cases of bribery or dereliction of duty of public officials; (4) In cases where the
money deposited is the subject of the litigation. Cases of unexplained wealth are similar to cases of
bribery or dereliction of duty and no reason is seen why these two classes of cases cannot be excepted
from the rule making bank deposits confidential. The policy as to one cannot be different from the policy
as to the other. This policy expresses the notion that a public office is a public trust and any person who
enters upon its discharge does so with the full knowledge that his life, so far as relevant to his duty, is
open to public scrutiny.

9. BSB GROUP, INC. vs . SALLY GO G.R. No. 168644. February 16, 2010

FACTS: Petitioner, the BSB Group, Inc., is a duly organized domestic corporation presided by its herein
representative, Ricardo Bangayan. Respondent Sally Go is Bangayan's wife, who was employed in the
company as a cashier who receive and account for the payments made by the various customers of the
company. In 2002, Bangayan filed with the Manila Prosecutor's Office a complaint for estafa and/or
qualified theft against respondent, alleging that several checks representing the aggregate amount of
P1,534,135.50 issued by the company's customers in payment of their obligation were, instead of being
turned over to the company's coffers, indorsed by respondent who deposited the same to her personal
banking account maintained at Security Bank.

The RTC rendered judgment against the respondent. Respondent filed a motion for reconsideration but
this was also dismissed. The prosecution was able to present in court the testimony of Elenita Marasigan
(Marasigan), the representative of Security Bank. In a nutshell, Marasigan's testimony sought to prove
that between 1988 and 1989, respondent, while engaged as cashier at the BSB Group, Inc., was able to
run away with the checks issued to the company by its customers, endorse the same, and credit the
corresponding amounts to her personal deposit account with Security Bank. In the course of the
testimony, the subject checks were presented to Marasigan for identification and marking as the sa me
checks received by respondent, endorsed, and then deposited in her personal account with Security
Bank. 17 But before the testimony could be completed, respondent filed a Motion to Suppress, seeking
the exclusion of Marasigan's testimony and accompanying documents thus far received, bearing on the
subject. Security Bank account. This time respondent invokes, in addition to irrelevancy, the privilege of
confidentiality under R.A. No. 1405. The respondent appeals to the CA but it affirmed the ruling of the
RTC. Hence this petition. Petitioner averred in the main that the Court of Appeals had seriously erred in
reversing the assailed orders of the trial court, and in effect striking out Marasigan's testimony dealing
with respondent's deposit account with Security Bank. It asserted that apart from the fact that the said
evidence had a direct relation to the subject matter of the case for qualified theft and, hence, brings the
case under one of the exceptions to the coverage of con􀀽dentiality under R.A. 1405

ISSUE: Whether the admission of Marasigan's testimony on the particulars of respondent's account with
Security Bank, as well as of the corresponding evidence of the checks allegedly deposited in said
account, constitutes an unallowable inquiry under R.A. 1405.

RULING: No. The testimony of Marasigan on the particulars of respondent's supposed bank account
with Security Bank and the documentary evidence represented by the checks adduced in support
thereof, are not only incompetent for being excluded by operation of R.A. No. 1405. They are likewise
irrelevant to the case, inasmuch as they do not appear to have any logical and reasonable connection to
the prosecution of respondent for qualified theft. We find full merit in and affirm respondent's objection
to the evidence of the prosecution. The Court of Appeals was, therefore, correct in reversing the
assailed orders of the trial court. A final note. In any given jurisdiction where the right of privacy extends
its scope to include an individual's financial privacy rights and personal financial matters, there is an
intermediate or heightened scrutiny given by courts and legislators to laws infringing such rights. Should
there be doubts in upholding the absolutely confidential nature of bank deposits against a􀁂rming the
authority to inquire into such accounts, then such doubts must be resolved in favor of the former. This
attitude persists unless congress lifts its finger to reverse the general state policy respecting the
absolutely confidential nature of bank deposits.

10. DOÑA ADELA 1 EXPORT INTERNATIONAL, INC. vs . TRADE AND INVESTMENT DEVELOPMENT
CORPORATION (TIDCORP), AND THE BANK OF THE PHILIPPINE ISLANDS (BPI) G.R. No. 201931.
February 11, 2015

FACTS: Petitioner in this case filed for voluntary insolvency. The RTC granted the petition and issued an
order declaring petitioner as insolvent and staying all civil proceedings against petitioner. Thereafter a
Compromise Agreement was executed by Atty. Gonzales assigning the remaining assets of the petitioner
to its creditors, one of which is TIDCORP and BPI. These two creditors filed a Joint Motion with terms
that the parties agree that the outstanding principal obligation of petitioner to TIDCORP shall be in the
amount of P9,044,708.15, while to BPI in the amount of P11,069,575.82. The settlement is that
TIDCORP and BPI both agree to accept all the machineries in petitioner's inventory set aside pursuant to
the Motion for Parties to Enter Into Compromise Agreement filed by the Receiver, Atty. Arlene T.
Gonzales. The said machineries valued at P350,000.00 shall be divided equally between TIDCORP and
BPI. TIDCORP and BPI agree that acceptance of the settlement shall constitute payment of petitioner's
obligation pursuant to Act No. 1956 (Insolvency Act) . However, the benefit of payment under the said
Insolvency Act shall only be in favor of petitioner and shall not in any manner affect the claims of
TIDCORP and BPI as against its sureties and/or guarantors. Epifanio Ramos, Jr. filed a Manifestation and
Motion to the Proposed Compromise Agreement of TIDCORP and BPI wherein he stated that petitioner
has a personality separate and distinct from its stockholders and officers. He argued that he cannot be
held liable for the expenses and taxes as a consequence of the auction or distribution/payment of said
machineries to the creditors; hence, his name should be deleted as a party to the Compromise
Agreement. The RTC granted their agreement.

Petitioner filed a motion for partial reconsideration and claimed that TIDCORP and BPI's agreement
imposes on it several obligations such as payment of expenses and taxes and waiver of confidentiality of
its bank deposits but it is not a party and signatory to the said agreement. the RTC denied the motion
and held that petitioner's silence and acquiescence to the joint motion to approve compromise
agreement while it was set for hearing by creditors BPI and TIDCORP is tantamount to admission and
acquiescence thereto. There was no objection filed by petitioner to the joint motion to approve
compromise agreement prior to its approval, said the RTC. The RTC also noted that petitioner's
President attended every hearing of the case but did not interpose any objection to the said motion
when its conditions were being discussed and formulated by the parties and Atty. Gonzales. Hence, this
petition.

ISSUE: whether the petitioner is bound by the provision in the BPI-TIDCORP Joint Motion to Approve
Agreement that petitioner shall waive its rights to confidentiality of its bank deposits under R.A. No.
1405, as amended, otherwise known as the Law on Secrecy of Bank Deposits and R.A. No. 8791,
otherwise known as The General Banking Law of 2000.

RULING: No. The petitioner is not bound by the provisions of the Agreement between BPI-TIDCORP. In
this case, the Joint Motion to Approve Agreement was executed by BPI and TIDCORP only. There was no
written consent given by petitioner or its representative, Epifanio Ramos, Jr., that petitioner is waiving
the confidentiality of its bank deposits. The provision on the waiver of the confidentiality of petitioner's
bank deposits was merely inserted in the agreement. It is clear therefore that petitioner is not bound by
the said provision since it was without the express consent of petitioner who was not a party and
signatory to the said agreement.

Neither can petitioner be deemed to have given its permission by failure to interpose its objection
during the proceedings. It is an elementary rule that the existence of a waiver must be positively
demonstrated since a waiver by implication is not normally countenanced. The norm is that a waiver
must not only be voluntary, but must have been made knowingly, intelligently, and with sufficient
awareness of the relevant circumstances and likely consequences. There must be persuasive evidence to
show an actual intention to relinquish the right. Mere silence on the part of the holder of the right
should not be construed as a surrender thereof; the courts must indulge every reasonable presumption
against the existence and validity of such waiver.

11. REPUBLIC OF THE PHILIPPINES vs . HON. ANTONIO M. EUGENIO, JR. G.R. No. 174629. February 14,
2008
FACTS: The case stemmed from the promulgation of Agan. (OSG) wrote the AMLC requesting the latter's
assistance "in obtaining more evidence to completely reveal the financial trail of corruption surrounding
the [NAIA 3] Project," and also noting that petitioner Republic of the Philippines was presently defending
itself in two international arbitration cases filed in relation to the NAIA 3 Project. The CIS conducted an
intelligence database search on the financial transactions of certain individuals involved in the award,
including respondent Pantaleon Alvarez (Alvarez) who had been the Chairman of the PBAC Technical
Committee, NAIA-IPT3 Project. 5 By this time, Alvarez had already been charged by the Ombudsman
with violation of Section 3 (j) of R.A. No. 3019. The search revealed that Alvarez maintained eight (8)
bank accounts with six (6) different banks. On 27 June 2005, the AMLC issued Resolution No. 75
whereby the Council resolved to authorize the Executive Director of the AMLC "to sign and verify an
application to inquire into and/or examine the [deposits] or investments of Pantaleon Alvarez, Wilfredo
Trinidad, Alfredo Liongson, and Cheng Yong, and their related web of accounts wherever these may be
found, as defined under Rule 10.4 of the Revised Implementing Rules and Regulations;" and to authorize
the AMLC Secretariat "to conduct an inquiry into subject accounts once the Regional Trial Court grants
the application to inquire into and/or examine the bank accounts" of those four individuals. Under the
authority granted by the Resolution, the AMLC filed an application to inquire into or examine the
deposits or investments of Alvarez, Trinidad, Liongson and Cheng Yong before the RTC.

RTC rendered an Order (Makati RTC bank inquiry order) granting the AMLC the authority to inquire and
examine the subject bank accounts of Alvarez, Trinidad, Liongson and Cheng Yong, the trial court being
satisfied that there existed "[p]robable cause [to] believe that the deposits in various bank accounts,
details of which appear in paragraph 1 of the Application, are related to the offense of violation of Anti-
Graft and Corrupt Practices Act now the subject of criminal prosecution before the Sandiganbayan as
attested to by the Informations, Exhibits C, D, E, F, and G." Pursuant to the Makati RTC bank inquiry
order, the CIS proceeded to inquire and examine the deposits, investments and related web accounts of
the four. Meanwhile Alvarez filed an urgent motion and manifestation. Manila RTC, acting on Alvarez's
latest motion, issued an Order directing the AMLC "to refrain from enforcing the order dated January 12,
2006 until the expiration of the period to appeal, without any appeal having been filed”.

Special Prosecutor of the Office of the Ombudsman, Dennis Villa-Ignacio, wrote a letter dated 2
November 2005, requesting the AMLC to investigate the accounts of Alvarez, PIATCO, and several other
entities involved in the nullified contract. The letter adverted to probable cause to believe that the bank
accounts were used in the commission of unlawful activities that were committed a in relation to the
criminal cases then pending before the Sandiganbayan. Attached to the letter was a memorandum on
why the investigation of the [accounts] is necessary in the prosecution of the above criminal cases
before the Sandiganbayan. In response to the letter of the Special Prosecutor, the AMLC promulgated
on 9 December 2005 Resolution No. 121 Series of 2005,[19] which authorized the executive director of
the AMLC to inquire into and examine the accounts named in the letter, including one maintained by
Alvarez with DBS Bank and two other accounts in the name of Cheng Yong with Metrobank. The
Resolution characterized the memorandum attached to the Special Prosecutors letter as extensively
justif[ying] the existence of probable cause that the bank accounts of the persons and entities
mentioned in the letter are related to the unlawful activity of violation of Sections 3(g) and 3(e) of Rep.
Act No. 3019, as amended.

On July 2006, or one day after Alvarez filed his motion, the Manila RTC issued an Order wherein it
clarified that "the Ex Parte Order of this Court dated January 12, 2006 cannot be implemented against
the deposits or accounts of any of the persons enumerated in the AMLC Application until the appeal of
movant Alvarez is finally resolved, otherwise, the appeal would be rendered moot and academic or even
nugatory." In addition, the AMLC was ordered "not to disclose or publish any information or document
found or obtained in [v]iolation of the May 11, 2006 Order of this Court." The Manila RTC reasoned that
the other persons mentioned in AMLC's application were not served with the court's 12 January 2006
Order. This 25 July 2006 Manila RTC Order is the first of the four rulings being assailed through this
petition. In response, the Republic filed an Urgent Omnibus Motion for Reconsideration dated 27 July
2006, urging that it be allowed to immediately enforce the bank inquiry order against Alvarez.

Lilia Cheng filed in the CA a petition for certiorari, mandamus with Application for TRO against the
Republic of the Philippines through AMLC. The CA granted this petition. Petitioner's argument is that the
bank inquiry orders issued by the Manila and Makati RTCs are valid and immediately enforceable
whereas the assailed rulings, which effectively stayed the enforcement of the Manila and Makati RTCs
bank inquiry orders, are sullied with grave abuse of discretion. These conclusions flow from the posture
that a bank inquiry order, issued upon a finding of probable cause, may be issued ex parte and, once
issued, is immediately executory. Petitioner further argues that the information obtained following the
bank inquiry is necessarily beneficial, if not indispensable, to the AMLC in discharging its awesome
responsibility regarding the effective implementation of the AMLA and that any restraint in the
disclosure of such information to appropriate agencies or other judicial fora would render meaningless
the relief supplied by the bank inquiry order.

ISSUE: whether a bank inquiry order issued in accordance with Section 10 of the AMLA may be stayed
by injunction.

RULING: Yes. While petitioner would premise that the inquiry into Lilia Cheng's accounts finds root in
Section 11 of the AMLA, it cannot be denied that the authority to inquire under Section 11 is only
exceptional in character, contrary as it is to the general rule preserving the secrecy of bank deposits.
Even though she may not have been the subject of the inquiry orders, her bank accounts nevertheless
were, and she thus has the standing to vindicate the right to secrecy that attaches to said accounts and
their owners. This statutory right to privacy will not prevent the courts from authorizing the inquiry
anyway upon the fulfillment of the requirements set forth under Section 11 of the AMLA or Section 2 of
the Bank Secrecy Act; at the same time, the owner of the accounts have the right to challenge whether
the requirements were indeed complied with. However, prior to the enactment of the AMLA, the fact
that bank accounts or deposits were involved in activities later on enumerated in Section 3 of the law
did not, by itself, remove such accounts from the shelter of absolute confidentiality. Prior to the AMLA,
in order that bank accounts could be examined, there was need to secure either the written permission
of the depositor or a court order authorizing such examination, assuming that they were involved in
cases of bribery or dereliction of duty of public officials, or in a case where the money deposited or
invested was itself the subject matter of the litigation. The passage of the AMLA stripped another layer
off the rule on absolute confidentiality that provided a measure of lawful protection to the account
holder. For that reason, the application of the bank inquiry order as a means of inquiring into records of
transactions entered into prior to the passage of the AMLA would be constitutionally infirm, offensive as
it is to the ex post facto clause.

The AMLA also provides exceptions to the Bank Secrecy Act. Under Section 11, the AMLC may inquire
into a bank account upon order of any competent court in cases of violation of the AMLA, it having been
established that there is probable cause that the deposits or investments are related to unlawful
activities as defined in Section 3(i) of the law, or a money laundering offense under Section 4 thereof.
Further, in instances where there is probable cause that the deposits or investments are related to
kidnapping for ransom,[certain violations of the Comprehensive Dangerous Drugs Act of 2002,hijacking
and other violations under R.A. No. 6235, destructive arson and murder, then there is no need for the
AMLC to obtain a court order before it could inquire into such accounts. It cannot be successfully argued
the proceedings relating to the bank inquiry order under Section 11 of the AMLA is a litigation
encompassed in one of the exceptions to the Bank Secrecy Act which is when money deposited or
invested is the subject matter of the litigation. The orientation of the bank inquiry order is simply to
serve as a provisional relief or remedy. As earlier stated, the application for such does not entail a full-
blown trial. Nevertheless, just because the AMLA establishes additional exceptions to the Bank Secrecy
Act it does not mean that the later law has dispensed with the general principle established in the older
law that all deposits of whatever nature with banks or banking institutions in the Philippines x x x are
hereby considered as of an absolutely confidential nature. Indeed, by force of statute, all bank deposits
are absolutely confidential, and that nature is unaltered even by the legislated exceptions referred to in
Sec. 2 of the Bank Secrecy Act which prescribes exceptions whereby these bank accounts may be
examined by any person, government official, bureau or offial; namely when: (1) upon written
permission of the depositor; (2) in cases of impeachment; (3) the examination of bank accounts is upon
order of a competent court in cases of bribery or dereliction of duty of public officials; and (4) the money
deposited or invested is the subject matter of the litigation. Section 8 of R.A. Act No. 3019, the Anti-Graft
and Corrupt Practices Act, has been recognized by this Court as constituting an additional exception to
the rule of absolute confidentiality, and there have been other similar recognitions as well.

12. GOVERNMENT SERVICE INSURANCE SYSTEM, vs. COURT OF APPEALS G.R. No. 189206. June 8, 2011

FACTS: This case is incident to a civil case which is the main case for collection of sum of money with
damages filed by Industrial Bank of Korea, Tong Yang Merchant Bank, First Merchant Banking
Corporation, Land Bank of the Philippines, and Westmont Bank (now United Overseas Bank), collectively
known as “the Banks" against Domsat and the Government Service Insurance System (GSIS). Said case
stemmed from a Loan Agreement, whereby the Banks agreed to lend United States (U.S.) $11 Million to
Domsat for the purpose of financing the lease and/or purchase of a Gorizon Satellite from the
International Organization of Space Communications (Intersputnik).

The controversy originated from a surety agreement by which Domsat obtained a surety bond from GSIS
to secure the payment of the loan from the Banks. Domsat failed to pay the loan and GSIS refused to
comply with its obligation reasoning that Domsat did not use the loan proceeds for the payment of
rental for the satellite. GSIS alleged that Domsat, with Westmont Bank as the conduit, transferred the
U.S. $11 Million loan proceeds from the Industrial Bank of Korea to Citibank New York account of
Westmont Bank and from there to the Binondo Branch of Westmont Bank. The Banks filed a complaint
before the RTC of Makati against Domsat and GSIS.

GSIS requested the Westmont Bank to produce the ledger covering the account of DOMSAT with
Westmont Bank and all documents or materials, including managers check and ledger account with
Philippine Agila Satellite and anything relating to the transaction of DOMSAT to the WESTMONT BANK.
RTC granted the subpoena duces tecum. A motion to quash was filed by the banks on three grounds: 1)
the subpoena is unreasonable, oppressive and does not establish the relevance of the documents
sought; 2) request for the documents will violate the Law on Secrecy of Bank Deposits; and 3) GSIS failed
to advance the reasonable cost of production of the documents. Domsat also joined the banks' motion
to quash through its Manifestation/Comment. But the RTC denied their motion to quash for lack of
merit. It ruled that the objection appears to be that the subpoena is violative of the Law on Secrecy of
Bank Deposit, as amended. The law declares bank deposits to be "absolutely confidential" except: . . . (6)
In cases where the money deposited or invested is the subject matter of the litigation. The case at bench
is for the collection of a sum of money from defendants that obtained a loan from the plaintiff. The loan
was secured by defendant GSIS which was the surety. It is the contention of defendant GSIS that the
proceeds of the loan was deviated to purposes other than to what the loan was extended. The quashal
of the subpoena would deny defendant GSIS its right to prove its defenses.

But another Order was issued by the RTC denying the motion for reconsideration filed by the banks. On
1 September 2003 however, the trial court granted the second motion for reconsideration filed by the
banks. The previous subpoenas issued were consequently quashed. The trial court invoked the ruling in
Intengan v. Court of Appeals, where it was ruled that foreign currency deposits are absolutely
confidential and may be examined only when there is a written permission from the depositor. The
motion for reconsideration filed by GSIS was denied on 30 December 2003. On appeal, the CA modified
the ruling of the RTC and granted the subpoena, directing the banks to bring the requested documents
to the court.

ISSUE: Whether or not DOMSAT’S deposit with the Bank can be examined and inquired.

RULING: No, DOMSAT’s deposit with the Bank cannot be examined and inquired. Applying Section 8 of
Republic Act No. 6426, absent the written permission from Domsat, Westmont Bank cannot be legally
compelled to disclose the bank deposits of Domsat, otherwise, it might expose itself to criminal liability
under the same act. The basis for the application of subpoena is to prove that the loan intended for
Domsat by the Banks and guaranteed by GSIS, was diverted to a purpose other than that stated in the
surety bond.

Note: GSIS invokes Republic Act No. 1405 to justify the issuance of the subpoena while the banks cite
Republic Act No. 6426 to oppose it. The core issue is which of the two laws should apply in the instant
case. Republic Act No. 1405 was enacted in 1955. Section 2 thereof was first amended by Presidential
Decree No. 1792 in 1981 and further amended by Republic Act No. 7653 in 1993. It now reads:

Section 2. All deposits of whatever nature with banks or banking institutions in the Philippines including
investments in bonds issued by the Government of the Philippines, its political subdivisions and its
instrumentalities, are hereby considered as of an absolutely confidential nature and may not be
examined, inquired or looked into by any person, government official, bureau or office, except upon
written permission of the depositor, or in cases of impeachment, or upon order of a competent court in
cases of bribery or dereliction of duty of public officials, or in cases where the money deposited or
invested is the subject matter of the litigation.

Section 8 of Republic Act No. 6426, which was enacted in 1974, and amended by Presidential Decree No.
1035 and later by Presidential Decree No. 1246, provides:
Section 8. Secrecy of Foreign Currency Deposits. — All foreign currency deposits authorized under this
Act, as amended by Presidential Decree No. 1035, as well as foreign currency deposits authorized under
Presidential Decree No. 1034, are hereby declared as and considered of an absolutely confidential
nature and, except upon the written permission of the depositor, in no instance shall foreign currency
deposits be examined, inquired or looked into by any person, government official, bureau or office
whether judicial or administrative or legislative or any other entity whether public or private; Provided,
however, That said foreign currency deposits shall be exempt from attachment, garnishment, or any
other order or process of any court, legislative body, government agency or any administrative body
whatsoever. (As amended by PD No. 1035, and further amended by PD No. 1246, prom. Nov. 21, 1977.)

On the one hand, Republic Act No. 1405 provides for four (4) exceptions when records of deposits may
be disclosed. These are under any of the following instances: a) upon written permission of the
depositor, (b) in cases of impeachment, (c) upon order of a competent court in the case of bribery or
dereliction of duty of public officials or, (d) when the money deposited or invested is the subject matter
of the litigation, and e) in cases of violation of the Anti-Money Laundering Act (AMLA), the Anti-Money
Laundering Council (AMLC) may inquire into a bank account upon order of any competent court. 22 On
the other hand, the lone exception to the non-disclosure of foreign currency deposits, under Republic
Act No. 6426, is disclosure upon the written permission of the depositor.

13. CARMEN LL. INTENGAN vs . COURT OF APPEALS G.R. No. 128996. February 15, 2002

FACTS: Citibank filed a complaint for violation of Section 31, in relation to Section 144 5 of the
Corporation Code against two (2) of its officers, Dante L. Santos and Marilou Genuino as they have been
actively engaged in business endeavors that were in conflict with the business of the bank. It was found
that with the use of two (2) companies in which they have personal financial interest, namely Torrance
Development Corporation and Global Pacific Corporation, they managed or caused existing bank
clients/depositors to divert their money from Citibank, N.A., such as those placed in peso and dollar
deposits and money placements, to products offered by other companies that were commanding higher
rate of yields. This was done by first transferring bank clients' monies to Torrance and Global which in
turn placed the monies of the bank clients in securities, shares of stock and other certificates of third
parties. It also appeared that out of these transactions, Mr. Dante L. Santos and Ms. Marilou Genuino
derived substantial financial gains. The bank clients who caused to divert the deposits placements with
CitiBank were named Carmen Intengan, Rosario Ll. Neri, and Rita P. Brawner.

Joven Reyes, vice-president/business manager of Citibank, admits to having authorized Lim to state the
names of the clients involved and to attach the pertinent bank records, including those of petitioners.
He states that private respondents Aziz Rajkotwala and William Ferguson, Citibank, N.A. Global
Consumer Banking Country Business Manager and Country Corporate Officer, respectively, had no hand
in the disclosure, and that he did so upon the advice of counsel. The complaints were amended to
include estafa under Article 315, paragraph 1(b) of the Revised Penal Code. As an incident to the
foregoing, petitioners filed respective motions for the exclusion and physical withdrawal of their bank
records that were attached to Lim's affidavit. Provincial Prosecutor Hermino T. Ubana, Sr.
recommended the dismissal of petitioners' complaints. The recommendation was overruled by
Provincial Prosecutor Mauro M. Castro who, in a Resolution directed the filing of informations against
private respondents for alleged violation of Republic Act No. 1405, otherwise known as the Bank Secrecy
Law. Private respondents' counsel then filed an appeal before the Department of Justice (DOJ) then it
issued a Resolution ordering, inter alia, the withdrawal of the aforesaid informations against private
respondents. On appeal, the CA dismissed their petitions. It ruled that although petitioners were not the
parties involved in I.S. No. 93-8469, their accounts were relevant to the complete prosecution of the
case against Santos and Genuino and the respondent DOJ properly ruled that the disclosure of the same
falls under the last exception of R.A. No. 1405.

ISSUE: Whether or not the CA erred in dismissing their petitions and ruling that the disclosure falls under
the exception under R.A. No. 1405.

Ruling: No. The finest legal minds in the country — from the parties' respective counsel, the Provincial
Prosecutor, the Department of Justice, the Solicitor General, and the Court of Appeals — all appear to
have overlooked a single fact which dictates the outcome of the entire controversy. The accounts in
question are U.S. dollar deposits; consequently, the applicable law is not Republic Act No. 1405 ; but
Republic Act (RA) No. 6426 , known as the "Foreign Currency Deposit Act of the Philippines," Section 8 of
which provides:

Sec. 8. Secrecy of Foreign Currency Deposits. — All foreign currency deposits authorized under this Act,
as amended by Presidential Decree No. 1035, as well as foreign currency deposits authorized under
Presidential Decree No. 1034, are hereby declared as and considered of an absolutely confidential
nature and, except upon the written permission of the depositor, in no instance shall such foreign
currency deposits be examined, inquired or looked into by any person, government official bureau or
office whether judicial or administrative or legislative or any other entity whether public or private:
Provided, however, that said foreign currency deposits shall be exempt from attachment, garnishment,
or any other order or process of any court, legislative body, government agency or any administrative
body whatsoever. (emphasis supplied)

Thus, under R.A. No. 6426 there is only a single exception to the secrecy of foreign currency deposits,
that is, disclosure is allowed only upon the written permission of the depositor. Incidentally, the acts of
private respondents complained of happened before the enactment on September 29, 2001 of R.A. No.
9160 otherwise known as the Anti- Money Laundering Act of 2001.

A case for violation of Republic Act No. 6426 should have been the proper case brought against private
respondents. Private respondents Lim and Reyes admitted that they had disclosed details of petitioners'
dollar deposits without the latter's written permission. It does not matter if that such disclosure was
necessary to establish Citibank's case against Dante L. Santos and Marilou Genuino. Lim's act of
disclosing details of petitioners' bank records regarding their foreign currency deposits, with the
authority of Reyes, would appear to belong to that species of criminal acts punishable by special laws,
called malum prohibitum.

14. CENTRAL BANK OF THE PHILIPPINES vs. COURT OF APPEALS G.R. No. L-45710. October 3, 1985

FACTS: Island Savings Bank approved a loan application or P80,000.00 of Sulpicio M. Tolentino, who, as a
security for the loan, executed on the same day a real estate mortgage over his 100-hectare land. The
approved loan application called for a lump sum P80,000.00 loan, repayable in semi-annual installments
for a period of 3 years, with 12% annual interest. It was required that Sulpicio M. Tolentino shall use the
loan proceeds solely as an additional capital to develop his other property into a subdivision. A
P17,000.00 partial release of the P80,000.00 loan was made by the Bank; Tolentino signed a promissory
note for P17,000.00 at 12% annual interest, payable within 3 years from the date of execution of the
contract at semi-annual installments of P3,459.00. An advance interest for the P80,000.00 loan covering
a 6-month period amounting to P4,800.00 was deducted from the partial release of P17,000.00. But this
pre-deducted interest was refunded to Tolentino after being informed by the Bank that there was no
fund yet available for the release of the P63,000.00 balance.The Bank, thru its vice-president and
treasurer, promised repeatedly the release of the P63,000.00 balance. But it was found out that the
Bank was suffering liquidity problems. Monetary Board, after finding that Island Savings Bank failed to
put up the required capital to restore its solvency, issued Resolution No. 967 which prohibited Island
Savings Bank from doing business in the Philippines and instructed the Acting Superintendent of Banks
to take charge of the assets of Island Savings Bank.

Island Savings Bank, in view of non-payment of the P17,000.00 covered by the promissory note, filed an
application for the extra-judicial foreclosure of the real estate mortgage covering the 100-hectare land
of Sulpicio M. Tolentino. Tolentino filed a petition with the Court of First Instance for injunction, specific
performance or rescission and damages with preliminary injunction against Island Savings Bank. The trial
court issued temporary restraining order enjoining the Island Savings Bank from continuing with the
foreclosure of the mortgage but after trial on the merits, rendered its decision, finding unmeritorious
the petition of Tolentino, ordering him to pay Island Savings Bank the amount of P17,000.00 plus legal
interest and legal charges due thereon, and lifting the restraining order so that the sheriff may proceed
with the foreclosure. On appeal, the CA affirmed the decision if the RTC.

ISSUE: Whether or not Tolentino should be liable to pay the 17,000.

RULING: Tolentino is still liable to pay the 17,000. The liability of Sulpicio M. Tolentino for interest on his
P17,000.00 debt shall not be included in offsetting the liabilities of both parties. Since Sulpicio M.
Tolentino derived some benefit for his use of the P17,000.00, it is just thathe should account for the
interest thereon. Since Island Savings Bank failed to furnish the P63,000.00 balance of the P80,000.00
loan, the real estate mortgage of Sulpicio M. Tolentino became unenforceable to such extent.
P63,000.00 is 78.75% of P80,000.00, hence the real estate mortgage covering 100 hectares is
unenforceable to the extent of 78.75 hectares. The mortgage covering the remainder of 21.25 hectares
subsists as a security for the P17,000.00 debt. 21.25 hectares is more than sufficient to secure a
P17,000.00 debt.

15. PRUDENTIAL BANK, vs . DON A. ALVIAR and GEORGIA B. ALVIAR G.R. No. 150197. July 28, 2005

FACTS: Don A. Alviar and Georgia B. Alviar, are the registered owners of a parcel of land in San Juan,
Metro Manila. they executed a deed of real estate mortgage in favor of petitioner Prudential Bank to
secure the payment of a loan worth P250,000.00. 2 This mortgage was annotated at the back of TCT No.
438157. On 4 August 1975, respondents executed the corresponding promissory note covering the said
loan, which provides that the loan matured on 4 August 1976 at an interest rate of 12% per annum with
a 2% service charge, and that the note is secured by a real estate mortgage. On the promissory note, it
was stated that for and in consideration of certain loans, overdraft and other credit accommodations
obtained from the Mortgagee by the Mortgagor hereinafter referred to, irrespective of number, as
DEBTOR, and to secure the payment of the same and those that may hereafter be obtained, the
principal or all of which is hereby fixed at Two Hundred Fifty Thousand (P250,000.00) Pesos, Philippine
Currency, as well as those that the Mortgagee may extend to the Mortgagor and/or DEBTOR, including
interest and expenses or any other obligation owing to the Mortgagee, whether direct or indirect,
principal or secondary as appears in the accounts, books and records of   the Mortgagee, the Mortgagor
does hereby transfer and convey by way of mortgage unto the Mortgagee, its successors or assigns, the
parcels of land which are described in the list inserted  on the back of this document, and/or appended
hereto, together with all the buildings and improvements now existing or which may hereafter be
erected or constructed thereon, of which the Mortgagor declares that he/it is the... absolute owner free
from all liens and incumbrances.

 The promissory note was secured by a "hold-out" on the mortgagor's foreign currency savings account
with the bank under Account No. 129, and that the mortgagor's passbook is to be surrendered to the
bank until the amount secured by the "hold-out" is settled.

Later on, respondent spouses  executed for Donalco Trading, Inc., of which the husband and wife were
President and Chairman of the Board and Vice President,[6] respectively, PN BD#76/C-430 covering
P545,000.000.  As provided in the note, the loan is secured by "Clean-Phase out TOD CA 3923," which
means that the temporary overdraft incurred by Donalco Trading, Inc. with petitioner is to be converted
into an ordinary loan in compliance with a Central Bank circular directing the discontinuance of
overdrafts petitioner wrote Donalco Trading, Inc., informing the latter of its approval of a straight loan
of  P545,000.00, the proceeds of which shall be used to liquidate the outstanding loan of P545,000.00
TOD. The letter likewise mentioned that the securities for the loan were the deed of assignment on two
promissory notes executed by Bancom Realty Corporation with Deed of Guarantee in favor of A.U.
Valencia and Co. and the chattel mortgage on various heavy  and transportation equipment.

Respondents paid petitioner P2,000,000.00, to be applied to the obligations of G.B. Alviar Realty and
Development, Inc. and for the release of the real estate mortgage for the P450,000.00 loan covering the
two (2) lots located at Greenhills, San Juan, Metro Manila. The payment was acknowledged by petitioner
who accordingly released the mortgage over the two properties. Petitioner moved for the extrajudicial
foreclosure of the mortgage on the property covered by TCT No. 438157.  Per petitioner's computation,
respondents had the total obligation of P1,608,256.68, covering the three (3) promissory notes,
Respondents filed a complaint for damages with a prayer for the issuance of a writ of preliminary
injunction with the RTC of Pasig,[11] claiming that they have paid their principal loan secured by the
mortgaged property, and thus the mortgage should not be foreclosed. For its part, petitioner averred
that the payment of P2,000,000.00 made on 6 March 1979 was not a payment made by respondents,
but by G.B. Alviar Realty and Development Inc., which has a separate loan with the bank secured by a
separate mortgage.

The Court of Appeals affirmed the Order of the trial court but deleted the award of attorney's fees. It
ruled that while a continuing loan or credit accommodation based on only one security or mortgage is a
common practice in financial and commercial institutions, such agreement must be clear and
unequivocal.  In the instant case, the parties executed different promissory notes agreeing to a
particular security for each loan.  Thus, the appellate court ruled that the extrajudicial foreclosure sale of
the property for the three loans is improper.

The Court of Appeals, however, found that respondents have not yet paid the P250,000.00 covered by
PN BD#75/C-252. Petitioner maintains that the "blanket mortgage clause" or the  "dragnet clause" in the
real estate mortgage expressly covers not only the P250,000.00 under PN BD#75/C-252, but also the
two other promissory notes included in the application for extrajudicial foreclosure of... real estate
mortgage.[20] Thus, it claims that it acted within the terms of the mortgage contract when it filed its
petition for extrajudicial foreclosure of real estate mortgage.

For their part, respondents claim that the "dragnet clause" cannot be applied to the subsequent loans
extended to Don Alviar and Donalco Trading, Inc. since these loans are covered by separate promissory
notes that expressly provide for a different form of security.[33] They reiterate the holding of the trial
court that the "blanket mortgage clause" would apply only to loans obtained jointly by respondents, and
not to loans obtained by other parties. Respondents also place a premium on the finding of the lower
courts that the real estate mortgage clause is a contract of adhesion and must be strictly construed
against petitioner bank.

ISSUES: Whether the "blanket mortgage" clause applies even to subsequent advancements for which
other securities were intended, or particularly, to PN BD#76/C-345.

RULING: The "blanket mortgage" clause in the instant case states:

That for and in consideration of certain loans, overdraft and other credit accommodations obtained
from the Mortgagee by the Mortgagor and/or ________________ hereinafter referred to, irrespective
of number, as DEBTOR, and to secure the payment of the same and those that may hereafter be
obtained, the principal or all of which is hereby fixed at Two Hundred Fifty Thousand (P250,000.00)
Pesos, Philippine Currency, as well as those that the Mortgagee may extend to the Mortgagor and/or
DEBTOR, including interest and expenses or... any other obligation owing to the Mortgagee, whether
direct or indirect, principal or secondary as appears in the accounts, books and records of  the
Mortgagee, the Mortgagor does hereby transfer and convey by way of  mortgage unto the Mortgagee,
its successors or... assigns, the parcels of land which are described in the list inserted on the back of this
document, and/or appended hereto, together with all the buildings and improvements now existing or
which may hereafter be erected or constructed thereon, of which the Mortgagor declares that he/it is
the absolute owner free from all liens and incumbrances.

Thus, contrary to the finding of the Court of Appeals, petitioner and respondents intended the real
estate mortgage to secure not only the P250,000.00 loan from the petitioner, but also future credit
facilities and advancements that may be obtained by the respondents. The terms of the above provision
being clear and unambiguous, there is neither need nor excuse to construe it otherwise.

Under American jurisprudence, two schools of thought have emerged on this question. One school
advocates that a "dragnet clause" so worded as to be broad enough to cover all other debts in addition
to the one specifically secured will be construed to cover a different debt, although such other debt is
secured by another mortgage.[44] The contrary thinking maintains that a mortgage with such a clause
will not secure a note that expresses on its face that it is otherwise secured as to its entirety, at least to
anything other... than a deficiency after exhausting the security specified therein, such deficiency being
an indebtedness within the meaning of the mortgage, in the absence of a special contract excluding it
from the arrangement.

The latter school represents the better position. The parties having conformed to the "blanket mortgage
clause" or "dragnet clause," it is reasonable to conclude that they also agreed to an implied
understanding that subsequent loans need not be secured by other securities, as the subsequent loans
will be secured by the first mortgage.  In other words, the sufficiency of the first security is a corollary
component of the "dragnet clause."  But of course,  there is no prohibition, as in the mortgage contract
in issue, against contractually requiring other securities for the subsequent loans. Thus, when the
mortgagor takes another loan for which another security was given it could not be inferred that such
loan was made in reliance solely on the original security with the "dragnet clause," but rather on the
new security given.  This is the "reliance on the security test."

Note: A "blanket mortgage clause," also known as a "dragnet clause" in American jurisprudence, is one
which is specifically phrased to subsume all debts of past or future origins.  Such clauses are "carefully
scrutinized and strictly construed." Mortgages of this character enable the parties to provide continuous
dealings, the nature or extent of which may not be known or anticipated at the time, and they avoid the
expense and inconvenience of executing a new security on each new transaction. A "dragnet clause"
operates as a convenience and accommodation to the borrowers as it makes available additional funds
without their having to execute additional security documents, thereby saving time, travel, loan closing
costs, costs of extra legal services, recording fees, et cetera. Indeed, it has been settled in a long line of
decisions that mortgages given to secure future advancements are valid and legal contracts, and the
amounts named as consideration in said contracts do not limit the amount for which the mortgage may
stand as security if from the four corners of the instrument the intent to secure future and other
indebtedness can be gathered.

16. REPUBLIC PLANTERS BANK vs . SARMIENTO G.R. No. 170785. October 19, 2007

FACTS: Respondents spouses Sarmiento, their son, Jose, and the latter's spouse, Elizabeth, executed a
promissory note, obligating themselves to pay Maybank, then known as Republic Planters Bank, the
amount of P80,000.00 due 360 days after date plus interest at the rate of 12 percent per annum. Earlier,
all four respondents executed a Real Estate Mortgage over two parcels of land covered by OCT No. 5781
and TCT No. 145850 and registered under the names of respondents Jesusa and Jose, respectively. The
mortgage secured the payment of the principal loan of P80,000.00 and all other obligations, overdrafts
and other credit accommodations obtained and those that may be obtained in the future from
Maybank.

Vivencio for himself and as attorney-in-fact of Jesusa and Jose, executed a promissory note in which he
undertook to pay the amount of P100,000.00 plus 14% interest per annum on or before April 1981. In
the same month, all four respondents executed an amendment to the real estate mortgage changing
the consideration of the mortgage from P80,000.00 to P100,000.00 but adopting all the terms and
conditions of the previous mortgage as integral parts of the later one. Vivencio was the owner of V.
Sarmiento Rattan Furniture, a sole proprietorship engaged in export business. On various occasions in
1981, he incurred loan obligations from Maybank by way of export advances. On 3 September 1981,
Vivencio, Jose and Elizabeth executed a Suretyship Agreement, whereby they agreed to be solidarily
liable with V. Sarmiento Rattan Furniture for the payment of P100,000.00 plus all obligations which the
latter incurred or would incur from Maybank. Respondents defaulted in the payment of the export
advances, prompting Maybank to institute an extrajudicial foreclosure of the real estate mortgage on 9
November 1982. At the foreclosure sale, Maybank was awarded the property for its bid of P254,000.00
and issued a certificate of sale.
Maricel Sarmiento, sister of respondent Jose, purchased a manager's check from Maybank in the
amount of P300,000. A week later, respondent Jesusa deposited the amount of P12,000.00. Maybank
treated the total amount of P312,000.00 as a deposit and did not grant respondents' request for
certificate of redemption releasing the foreclosed property. Sometime in November 1983, Maybank
demanded the payment of all outstanding loans under the export bills transactions. Respondents
tendered the amount of P302,333.33 in the name of V. Sarmiento Rattan Furniture.

On 4 July 1990, Maybank consolidated its ownership over the foreclosed property. On 12 November
1997, Maybank and Philmay executed a deed of absolute sale, transferring ownership of the foreclosed
property to the latter. On 15 July 1998, Philmay sold the same to Fabra. On 3 September 1998,
respondents Vivencio and Jose instituted an action for specific performance against Maybank, Philmay
and Fabra. RTC ruled that the Deed of Sale executed by Republic Planters Bank, now Maybank, in favor
of Philmay Property, Inc., and thereafter, from Philmay Property, Inc. to Clara Fabra, are revoked and
rescinded as well as Certificate of Title No. 139161 registered in the latter's name for being null and void.
The RTC based its finding that respondents were able to tender to Maybank within the redemption
period the redemption price of P312,000.00 on the testimony of respondent Jose on and the official
bank receipts evidencing the separate payments totaling said amount made by Maricel Sarmiento and
respondent Jesusa.

On appeal, the CA rendered the assailed Decision affirming the trial court's judgment, particularly the
latter's finding that respondents made a valid tender of the redemption price and that the export
advances in the name of V. Sarmiento Rattan Furniture did not belong to the species of obligations
secured by the real estate mortgage. Furthermore, the appellate court construed as a contract of
adhesion the proviso in the mortgage contract that included "interest and expenses or any other
obligation owing to the Mortgagee, whether direct or indirect, principal or secondary, as appears in the
accounts, books and records of the Mortgagee." Describing the same as a "dragnet clause," the
appellate court held that it should be carefully scrutinized and strictly construed.

Maybank argues that respondents' outstanding obligation amounted to more than P1 million as of the
date of the foreclosure sale. Hence, the tender by respondents of an amount less than that did not
constitute a valid redemption of the foreclosed property. For their part, respondents contend that the
factual finding of both the trial court and the Court of Appeals to the effect that they were able to make
a valid tender of the redemption price, is binding on this Court

Hence, this petition.

ISSUE: Whether the deposits made by respondents constituted a valid tender of the redemption price
and whether it is sufficient to cover for the redemption price.

RULING: No. The deposits made by the respondents does not constitute a valid tender of the
redemption price and is not sufficient to cover for the redemption price. At the time of the foreclosure
sale of the mortgaged property, the outstanding obligation arising from the export bills transactions had
already amounted to more than P1 million. In accordance with Section 78 of the General Banking Act, as
amended, then governing the foreclosure of the mortgaged property, redemption may only be made by
paying the amount due under the mortgage deed within one year from the sale of the property. Since
respondents failed to satisfy the full amount of the indebtedness to Maybank, the latter was justified in
refusing to grant respondents' demand for redemption of the foreclosed property.
Although at the time of the execution of the real estate mortgage the export advances had not yet been
incurred and the principal obligation was fixed at P80,000.00 and thereafter amended to P100,000.00,
the express tenor of the mortgage contract contemplated the inclusion of future loans and obligations
obtained from Maybank to be secured by the mortgaged property. Nothing in the mortgage contract
would suggest that the parties actually intended to limit the security to only the principal amount of the
loan fixed therein. The stipulations of the mortgage contract being clear, there is no necessity to
ascertain the real intention of the parties. Be that as it may, nothing in the records would reveal that by
the parties' acts contemporaneous and subsequent to the execution of the real estate mortgage, they
intended to be bound by terms and conditions other than those provided in the mortgage contract.

17. COMMISSIONER OF INTERNAL REVENUE vs . UNITED COCONUT PLANTERS BANK G.R. No. 179063.
October 23, 2009

FACTS: Respondent United Coconut Planters Bank (UCPB) granted loans of P68,840,000.00 and
P335,000,000.00 to George C. Co, Go Tong Electrical Supply Co., Inc., and Tesco Realty Co. that the
borrowers caused to be secured by several real estate mortgages. When the latter later failed to pay
their loans, UCPB filed a petition for extrajudicial foreclosure of the mortgaged properties. Pursuant to
that petition, on December 31, 2001 a notary public for Manila held a public auction sale of the
mortgaged properties. UCPB made the highest winning bid of P504,785,000.00 for the whole lot.

Thereafter, the notary public submitted the Certificate of Sale to the Executive Judge of Regional Trial
Court (RTC) of Manila for his approval. But, on February 18, 2002 the executive judge returned it with
instruction to the notary public to explain an inconsistency in the tax declaration of one mortgaged
property.

On June 18, 2002 UCPB presented the certificate of sale to the Register of Deeds of Manila for
annotation on the transfer certificates of title of the foreclosed properties. On July 5, 2002 the bank paid
creditable withholding taxes (CWT) of P28,640,700.00 and documentary stamp taxes (DST) of
P7,160,165.00 in relation to the extrajudicial foreclosure sale. It then submitted an affidavit of
consolidation of ownership to the Bureau of Internal Revenue (BIR) with proof of tax payments and
other documents in support of the bank's application for a tax clearance authorizing registration.

Petitioner Commissioner of Internal Revenue (CIR), however, charged UCPB with late payment of the
corresponding DST and CWT, citing Section 2.58 of Revenue Regulation 2-98, which stated that the CWT
must be paid within 10 days after the end of each month, and Section 5 of Revenue Regulation 06-01,
which required payment of DST within five days after the close of the month when the taxable
document was made, signed, accepted or transferred.

But the CIR stated that the three-month redemption period was to be counted from the date of the
foreclosure sale. Here, he said, the redemption period lapsed three months from December 31, 2001 or
on March 31, 2002. Thus, UCPB was in default for having paid the CWT and DST only on July 5, 2002. For
this reason the CIR issued a Pre- Assessment Notice and, subsequently, a Final Assessment Notice to
UCPB for deficiency CWT of P8,617,210.00 and deficiency DST of P2,173,051.75.

UCPB protested the assessment. It claimed that the redemption period lapsed on June 1, 2002 or three
months after the executive judge of Manila approved the issuance of the certificate of sale.
"Foreclosure" under Section 47 of the General Banking Law, said UCPB, referred to the date of approval
by the executive judge, and not the date of the auction sale. But the CIR denied UCPB's protest,
prompting UCPB to file a petition for review with the CTA. The CTA Second Division set aside the
decision of the CIR and held that the redemption period lapsed three months after the executive judge
approved the certificate of sale. It said that "foreclosure" under the law referred to the whole process of
foreclosure which included the approval and issuance of the certificate of sale. There was no sale to
speak of which could be taxed prior to such approval and issuance. Since the executive judge approved
the issuance only on March 1, 2002, the redemption period expired on June 1, 2002. Hence, UCPB's
payments of CWT and DST in early July were well within the prescribed period. On appeal to the CTA En
Banc in CTA EB 234, the latter affirmed the decision of the Second Division on June 5, 2007. Petitioner’s
motion for reconsideration was denied, hence this petition.

ISSUE: The key issue in this case is whether or not the three-month redemption period for juridical
persons should be reckoned from the date of the auction sale.

RULING: No. Here, the executive judge approved the issuance of the certificate of sale to UCPB on
March 1, 2002. Consequently, the three-month redemption period ended only on June 1, 2002. Only on
this date then did the deadline for payment of CWT and DST on the extrajudicial foreclosure sale
become due.

Under Section 2.58 of Revenue Regulation 2-98, the CWT return and payment become due within 10
days after the end of each month, except for taxes withheld for the month of December of each year,
which shall be filed on or before January 15 of the following year. On the other hand, under Section 5 of
Revenue Regulation 06-01, the DST return and payment become due within five days after the close of
the month when the taxable document was made, signed, accepted, or transferred. UCPB had,
therefore, until July 10, 2002 to pay the CWT and July 5, 2002 to pay the DST. Since it paid both taxes on
July 5, 2002, it is not liable for deficiencies. Thus, the Court finds no reason to reverse the decision of the
CTA. Besides, on August 15, 2008, the Bureau of Internal Revenue issued Revenue Memorandum
Circular 58-2008 10 which clarified among others, the time within which to reckon the redemption
period of real estate mortgages which reads “For purposes of reckoning the one-year redemption period
in the case of individual mortgagors, or the three-month redemption period for juridical
persons/mortgagors, the same shall be reckoned from the date of the confirmation of the auction sale
which is the date when the certificate of sale is issued.”

18. GC DALTON INDUSTRIES, INC. , petitioner, vs . EQUITABLE PCI BANK , respondent G.R. No. 171169.
August 24, 2009

FACTS: Respondent Equitable PCI Bank extended a P30-million credit line to Camden Industries, Inc. (CII)
allowing the latter to avail of several loans (covered by promissory notes) and to purchase trust receipts.
To facilitate collection, CII executed a "hold-out" agreement in favor of respondent authorizing it to
deduct from its savings account any amounts due. To guarantee payment, petitioner GC Dalton
Industries, Inc. executed a third-party mortgage of its real properties in Quezon City and Malolos,
Bulacan as security for CII's loans. CII did not pay its obligations despite respondent's demands until its
outstanding consolidated promissory notes and unpaid trust receipts had reached a staggering
P68,149,132.40.

The bank filed a petition for extrajudicial foreclosure of petitioner's Bulacan properties in the Regional
Trial Court (RTC). On August 3, 2004, the mortgaged properties were sold at a public auction where
respondent was declared the highest bidder. Consequently, a certificate of sale was issued in
respondent's favor on August 3, 2004. On September 13, 2004, respondent filed the certificate of sale
and an affidavit of consolidation of ownership in the Register of Deeds of Bulacan pursuant to Section
47 of the General Banking Law. Hence, petitioner's TCTs covering the Bulacan properties were cancelled
and new ones were issued in the name of respondent.

Meanwhile CII had filed an action for specific performance and damages in the RTC of Pasig, asserting
that it had allegedly paid its obligation in full to respondent. CII sought to compel respondent to render
an accounting in order to prove that the bank fraudulently foreclosed on petitioner's mortgaged
properties. RTC ruled in favor of CII. Respondent filed a notice of appeal but the Pasig RTC dismissed the
notice of appeal.

Meanwhile, Bulacan RTC granted the motion and a writ of possession was issued in respondent's favor
on December 19, 2005. Petitioner immediately assailed the December 10, 2005 order of the Bulacan
RTC via a petition for certiorari in the Court of Appeals (CA). The CA dismissed the petition for lack of
merit on the ground that an order involving the issuance of a writ of possession is not a judgment on the
merits.

ISSUE: Whether or not the writ of possession was valid in favor of the respondent.

RULING: Yes. The CA correctly upheld the December 10, 2005 order of the Bulacan RTC.

Furthermore, the mortgagor loses all legal interest over the foreclosed property after the expiration of
the redemption period. Under Section 47 of the General Banking Law, if the mortgagor is a juridical
person, it can exercise the right to redeem the foreclosed property until, but not after, the registration
of the certificate of foreclosure sale within three months after foreclosure, whichever is earlier.
Thereafter, such mortgagor loses its right of redemption.

Respondent filed the certificate of sale and affidavit of consolidation with the Register of Deeds of
Bulacan on September 13, 2004. This terminated the redemption period granted by Section 47 of the
General Banking Law. Because consolidation of title becomes a right upon the expiration of the
redemption period, respondent became the owner of the foreclosed properties. Therefore, when
petitioner opposed the ex parte motion for the issuance of the writ of possession on January 10, 2005 in
the Bulacan RTC, it no longer had any legal interest in the Bulacan properties.

19. ASIATRUST DEVELOPMENT BANK vs . CARMELO H. TUBLE G.R. No. 183987. July 25, 2012

FACTS: Respondent Carmelo H. Tuble, who served as the vice-president of petitioner Asiatrust
Development Bank, availed himself of the car incentive plan and loan privileges offered by the bank. He
was also entitled to the bank's Senior Managers Deferred Incentive Plan (DIP).

As regards the loan privileges, Tuble obtained three separate loans. The first, a real estate loan
evidenced by the 18 January 1993 Promissory Note No. 0142 3 with maturity date of 1 January 1999,
was secured by a mortgage over his property covered by Transfer Certificate of Title No. T-145794. No
interest on this loan was indicated. The second was a consumption loan, evidenced by the 10 January
1994 Promissory Note No. 0143 4 with the maturity date of 31 January 1995 and interest at 18% per
annum. Aside from the said indebtedness, Tuble allegedly obtained a salary loan, his third loan.
When he retired from Asiatrust, Tuble had outstanding obligations of ₱421,800 from the real estate loan
and ₱100,000 on consumption loan. When Tuble refused to settle his loans, Asiatrust filed a Petition for
Extra-judicial Foreclosure of real estate mortgage over his property. The Petition was based only on his
real estate loan, which at that time amounted to ₱421,800. Asiatrust emerged as the highest bidder.
Subsequently, Tuble timely redeemed the property for ₱1,318,401.91.

Despite his payment of the redemption price, Tuble questioned how the foreclosure basis of ₱421,800
ballooned to ₱1,318,401.91 in a matter of one year. Thus, Tuble filed a Complaint for recovery of sum of
money against Asiatrust seeking to recover the excess charges on the redemption price. He averred that
Asiatrust erroneously imposed an 18% annual interest rate to the real estate loan. Asiatrust contended
that the 18% annual interest was supported by Promissory Note No. 0143. Both the RTC and the CA
ruled in favor of Tuble. The appellate court only expounded the rule that, at the time of redemption, the
one who redeemed is liable to pay only 1% monthly interest plus taxes. Thus, the CA also concluded that
there was practically no basis to impose the additional charges. Petitioner emphasizes that an 18%
interest rate allegedly referred to in the mortgage deed is the proper basis of the interest. Pointing to
the Real Estate Mortgage Contract, the bank highlights the blanket security clause or "dragnet clause"
that purports to cover all obligations owed by Tuble.

ISSUE: Whether or not Asiatrust erred in imposing the 18% annual interest rate.

RULING: Yes. Petitioner is correct that Asiatrust erred in imposing the 18% annual interest rate.

The statute referred to requires that in the event of judicial or extrajudicial foreclosure of any mortgage
on real estate that is used as security for an obligation to any bank, banking institution, or credit
institution, the mortgagor can redeem the property by paying the amount fixed by the court in the order
of execution, with interest thereon at the rate specified in the mortgage.

As already ruled by the Court, in foreclosures, the mortgaged property is subjected to the proceedings
for the satisfaction of the obligation. As a result, payment is effected by abnormal means whereby the
debtor is forced by a judicial proceeding to comply with the presentation or to pay indemnity.

Once the proceeds from the sale of the property are applied to the payment of the obligation, the
obligation is already extinguished. Consequently, since the Real Estate Mortgage Contract is already
extinguished, petitioner can no longer rely on it or invoke its provisions, including the dragnet clause
stipulated therein. It follows that the bank cannot refer to the 18% annual interest charged in
Promissory Note No. 0143, an obligation allegedly covered by the terms of the Contract. Neither can the
bank use the consummated contract to collect on the rest of the obligations, which were not included
when it earlier instituted the foreclosure proceedings. It cannot be allowed to use the same security to
collect on the other loans. To do so would be akin to foreclosing an already foreclosed property. Rather
than relying on an expired contract, the bank should have collected on the excluded loans by instituting
the proper actions for recovery of sums of money. Simply put, petitioner should have run after Tuble
separately, instead of hostaging the same property to cover all of his liabilities.

Despite the extinguishment of the Real Estate Mortgage Contract, Tuble had the right to redeem the
security by paying the redemption price. The right of redemption of foreclosed properties was a
statutory privilege he enjoyed. Redemption is by force of law, and the purchaser at public auction is
bound to accept it. It is the law that provides the terms of the right; the mortgagee cannot dictate them.
The terms of this right, based on Section 47 of the General Banking Law, are as follows:

1. The redemptioner shall have the right within one year after the sale of the real estate, to redeem the
property.

2. The redemptioner shall pay the amount due under the mortgage deed, with interest thereon at rate
specified in the mortgage, and all the costs and expenses incurred by the bank or institution from the
sale and custody of said property less the income derived therefrom.

3. In case of redemptioners who are considered by law as juridical persons, they shall have the right to
redeem not after the registration of the certificate of foreclosure sale with the applicable Register of
Deeds which in no case shall be more than three (3) months after foreclosure, whichever is earlier.

Consequently, the bank cannot alter that right by imposing additional charges and including other loans.
The power to decide whether or not to foreclose is the prerogative of the mortgagee; however, once it
has made the decision by filing a petition with the sheriff, the acts of the latter shall thereafter be
governed by the provisions of the mortgage laws, and not by the instructions of the mortgagee. In direct
contravention of this ruling, though, the bank included numerous charges and loans in the redemption
price, which inexplicably ballooned to ₱1,318,401.91. On this error alone, the claims of petitioner
covering all the additional charges should be denied.

20. WHITE MARKETING DEVELOPMENT CORPORATION , petitioner, vs. GRANDWOOD FURNITURE &
WOODWORK, INC., respondent. G.R. No. 222407. November 23, 2016

FACTS: respondent Grandwood Furniture & Woodwork, Inc. (Grandwood) obtained a loan in the
amount of P40,000,000.00 from Metropolitan Bank and Trust Company (Metrobank). The loan was
secured by a real estate mortgage over a parcel of land covered by Transfer Certificate of Title (TCT) No.
63678. Metrobank eventually sold its rights and interests over the loan and mortgage contract to Asia
Recovery Corporation (ARC). The latter then assigned the same rights and interests to Cameron Granville
3 Asset Management, Inc. (CGAM3).

Grandwood failed to pay the loan which already amounted to P68,941,239.46, CGAM3 initiated
extrajudicial foreclosure proceedings of the real estate mortgage. During the September 17, 2013
Auction Sale, petitioner White Marketing Development Corporation (White Marketing) was declared the
highest bidder and a certificate of sale was issued in its favor. The certificate of sale was registered and
annotated on TCT No. 63678. On November 21, 2013, White Marketing received a letter from the sheriff
informing it that Grandwood intended to redeem the foreclosed property. Insisting on its right to
redeem the property, Grandwood sent a letter, dated December 3, 2013, to the Office of the Clerk of
Court of the RTC (OCC-RTC) insisting that it was the latter's ministerial duty to recognize its right of
redemption, to accept the tender of payment and to issue a certificate of redemption. The OCC-RTC,
however, refused to accept the tender of payment on the ground that it was confronted with the
conflicting applicable laws on the matter of the redemption period. Thus, Grandwood filed Petition for
Consignation, Mandamus and Damages before the RTC. It reiterated its right to redeem the property
subject of the foreclosure sale under Act No. 3135 in relation to Republic Act (R.A.) No. 337 and Sections
27 and 28 of Rule 39 of the Rules of Court. RTC dismissed this and ruled that the redemption period
applicable in the mortgage between Metrobank and Grandwood was Section 47 8 of R.A. No. 8791 or
the "General Banking Law of 2000." The RTC wrote that by virtue of the said law, Grandwood should
have redeemed the property before the registration of the certificate of sale on September 30, 2013,
which was an earlier date than December 17, 2013, or three months after the foreclosure on September
17, 2013. It further stressed that White Marketing acquired all the rights of Metrobank in the mortgage
contract, which was eventually assigned to CGAM3.

On appea, the CA reversed the decision of the RTC. It ordered the OCC-RTC to accept the consigned
amount and to issue the corresponding certificate of redemption in Grandwood's favor. It emphasized
that Section 47 of R.A. No. 8791 applied only in cases of foreclosure of real estate by a mortgagee bank
in order to provide sufficient legal remedies to banks in case of unpaid debts or loans.

ISSUE: Whether or not the CA erred in reversing the decision of the RTC when it declared that Sec. 47 of
RA8791 or the Gen. Banking law is not applicable in this case.

RULING: Yes. In the case at bench, it is undisputed that Metrobank assigned its rights in the mortgage to
ARC, which later assigned the same to CGAM3. After Grandwood defaulted in its loan obligation, CGAM3
foreclosed the mortgaged property. As earlier stated, White Marketing emerged as the winning bidder
in the foreclosure sale. Thus, White Marketing, stepped into the shoes of Metrobank. By virtue of the
Deed of Assignment, the assignee is deemed subrogated to the rights and obligations of the assignor
and is bound by exactly the same conditions as those which bound the assignor. Accordingly, an
assignee cannot acquire greater rights than those pertaining to the assignor. The general rule is that an
assignee of a non-negotiable chose in action acquires no greater right than what was possessed by his
assignor and simply stands into the shoes of the latter.

In an assignment of credit, the assignee is subrogated to the rights of the original creditor, such that he
acquires the power to enforce it, to the same extent as the assignor could have enforced it against the
debtor. Through the assignment of credit, the new creditor is entitled to the rights and remedies
available to the previous creditor, and includes accessory rights such as mortgage or pledge.
Consequently, ARC acquired all the rights, benefits and obligations of Metrobank under its mortgage
contract with Grandwood. The same could be said for subsequent assignees or successors-in-interest
after ARC like White Marketing. The mortgage between Grandwood and Metrobank, as the original
mortgagee, was subject to the provisions of Section 47 of R.A. No. 8791. Section 47 provides that when a
property of a juridical person is sold pursuant to an extrajudicial foreclosure, it "shall have the right to
redeem the property in accordance with this provision until, but not after, the registration of the
Certificate of foreclosure sale with the applicable Register of Deeds which in no case shall be more than
three (3) months after foreclosure, whichever is earlier."

Applied in the present case, Grandwood had three months from the foreclosure or before the certificate
of foreclosure sale was registered to redeem the foreclosed property. This holds true even when
Metrobank ceased to be the mortgagee in view of its assignment to ARC of its credit, because the latter
acquired all the rights of the former under the mortgage contract — including the shorter redemption
period. The shorter redemption period should also redound to the benefit of White Marketing as the
highest bidder in the foreclosure sale as it stepped into the shoes of the assignee mortgagee. Measured
by the foregoing parameters, the Court finds that Grandwood's redemption was made out of time as it
was done after the certificate of sale was registered on September 30, 2013. Pursuant to Section 47 of
R.A. No. 8791, it only had three (3) months from foreclosure or before the registration of the certificate
of foreclosure sale, whichever came first, to redeem the property sole in the extrajudicial sale.
21. SPOUSES RODOLFO and MARCELINA GUEVARRA , petitioners, vs . THE COMMONER LENDING
CORPORATION, INC., respondent. G.R. No. 204672. February 18, 2015

FACTS: On December 16, 1996, Sps. Guevarra obtained a P320,000.00 loan from TCLC, which was
secured by a real estate mortgage 6 over a 5,532-square meter parcel of land. Sps. Guevarra, however,
defaulted in the payment of their loan, prompting TCLC to extra-judicially foreclose the mortgage on the
subject property in accordance with Act No. 3135, as amended. In the process, TCLC emerged as the
highest bidder at the public auction sale held on June 15, 2000 for the bid amount of P150,000.00, and
on August 25, 2000, the certiAficate of sale was registered with the Registry of Deeds of Iloilo.

Eventually, Sps. Guevarra failed to redeem the subject property within the one-year reglementary
period, which led to the cancellation of OCT No. F-31900 and the issuance of Transfer Certificate of Title
No. T-16187 13 in the name of TCLC. Thereafter, TCLC demanded that Sps. Guevarra vacate the
property, but to no avail. TCLC applied for a writ of possession before the RTC, docketed as Cadastral
Case No. 118. Sps. Guevarra opposed the same. Sps. Guevarra also assailed the issuance by the Sheriff of
Iloilo of a Final Deed of Sale 17 to be premature, as they were still entitled to redeem the subject
property within five (5) years from the expiration of the one-year period to repurchase. The RTC granted
TCLC's petition in Cadastral Case No. 118, resulting in the issuance of the corresponding Writ of
Possession and Notice to Vacate which were duly served upon Sps. Guevarra. But Sps. Guevarra was
granted petition in Cadastral Case No. 122. In so doing, the RTC recognized Sps. Guevarra's right to
repurchase the subject property, pointing out that they were able to file their petition within the five-
year period provided under Section 119 of Commonwealth Act No. 141, 31 otherwise known as the
Public Land Act (Public Land Act).

TLCL appealed to the CA. The CA affirmed the RTC's October 20, 2008 Order, upholding Sps. Guevarra's
right to repurchase the subject property pursuant to Section 119 of the Public Land Act, with
modification that the same be conditioned upon the payment of the purchase price fixed by TCLC. It
ruled that after the expiration of the redemption period, the present owner, i.e., TCLC, has the
discretion to set a higher price.

ISSUE: whether or not the CA committed a reversible error in ruling that the repurchase price for the
subject property should be fixed by TCLC.

RULING: The RTC and CA both correctly ruled that Sps. Guevarra's right to repurchase the subject
property had not yet expired when Cadastral Case No. 122 was filed on September 8, 2005. That being
said, the Court now proceeds to determine the proper amount of the repurchase price. Sps. Guevarra
insist that the repurchase price should be the purchase price at the auction sale plus interest of one
percent (1%) per month and other assessment fees, citing the rulings in the cases of Belisario v.
Intermediate Appellate Court 48 (Belisario) and Salenillas v. CA 49 (Salenillas). On the other hand, TCLC
maintains that it is entitled to its total claims under the promissory note and the mortgage contract in
accordance with Section 47 of the General Banking Law of 2000. TCLC's argument is partly correct.
redemptions from lending or credit institutions, like TCLC, are governed by Section 78 57 of the General
Banking Act (now Section 47 of the General Banking Law of 2000), which amended Section 6 of Act No.
3135 in relation to the proper redemption price when the mortgagee is a bank, or a banking or credit
institution.
Nonetheless, the Court cannot subscribe to TCLC's contention that it is entitled to its total claims under
the promissory note and the mortgage contract in view of the settled rule that an action to foreclose
must be limited to the amount mentioned in the mortgage . Hence, amounts not stated therein must be
excluded, like the penalty charges of three percent (3%) per month included in TCLC's claim. A penalty
charge is likened to a compensation for damages in case of breach of the obligation. Being penal in
nature, it must be specific and fixed by the contracting parties.

Moreover, the Court notes that the stipulated three percent (3%) monthly interest is excessive and
unconscionable. In a plethora of cases, the Court has affirmed that stipulated interest rates of three
percent (3%) per month and higher are excessive, iniquitous, unconscionable, and exorbitant, 63 hence,
illegal and void for being contrary to morals.

22. UNION BANK OF PHILIPPINES v. SPS. RODOLFO T. TIU AND VICTORIA N. TIU, GR Nos. 173090-91,
September 7, 2011

FACTS: Union Bank and spouses Tiu entered into a Credit Line Agreement (CLA) whereby Union Bank
agreed to make available to the spouses Tiu credit facilities in such amounts as may be approved. The
spouses Tiu took out various loans pursuant to this CLA in the total amount of three million six hundred
thirty-two thousand dollars (US$3,632,000.00). Union Bank advised the spouses Tiu through a letter
that, in view of the existing currency risks, the loans shall be redenominated to their equivalent
Philippine peso amount. The spouses Tiu wrote to Union Bank authorizing the latter to redenominate
the loans at the rate of US$1=P41.40[6] with interest of 19% for one year.

Union Bank and the spouses Tiu entered into a Restructuring Agreement. The Restructuring Agreement
contains a clause wherein the spouses Tiu confirmed their debt and waived any action on account
thereof. The restructured amount (P155,364,800.00) is the sum of the following figures:

(1) P150,364,800.00, which is the value of the US$3,632,000.00 loan as redenominated under the
above-mentioned exchange rate of US$1=P41.40; and (2) P5,000,000.00, an additional loan given to the
spouses Tiu to update their interest payments. Under the same Restructuring Agreement, the parties
declared that the loan obligation to be restructured (after deducting the dacion price of properties
ceded by the Tiu spouses and adding:

[1] the taxes, registration fees and other expenses advanced by Union Bank in registering the Deeds of
Dation in Payment; and [2] other fees and charges incurred by the Indebtedness) is one hundred four
million six hundred sixty-eight thousand seven hundred forty-one pesos (P104,668,741.00) (total
restructured amount).

As likewise provided in the Restructuring Agreement, the spouses Tiu executed a Real Estate Mortgage
in favor of Union Bank over their "residential property inclusive of lot and improvements". The spouses
Tiu undertook to pay the total restructured amount (P104,668,741.00) via three loan facilities (payment
schemes).

The spouses Tiu claim to have made the following payments: (1) P15,000,000.00 on August 3, 1999; and
(2) another P13,197,546.79 as of May 8, 2001. Adding the amounts paid under the Deeds of Dation in
Payment, the spouses Tiu postulate that their payments added up to P89,407,546.79.
Asserting that the spouses Tiu failed to comply with the payment schemes set up in the Restructuring
Agreement, Union Bank initiated extrajudicial foreclosure proceedings on the residential property of the
spouses Tiu.

The spouses Tiu, together with Juanita T. Tiu, Rosalinda T. King, Rufino T. Tiu, Rosalie T. Young and
Rosenda T. Tiu, filed with the Regional Trial Court (RTC) of Mandaue City a Complaint seeking to have
the Extrajudicial Foreclosure declared null and void. RTC rendered its Decision in favor of Union Bank, it
uphold the restructuring agreement and held that the spouses Tiu failed to present any evidence to
prove either fraud or intimidation or any other act vitiating their consent to the same.

On appeal, the Court of Appeals ruled in favor of the spouses Tiu. It held that the loan transactions were
in pesos, since there was supposedly no stipulation the loans will be paid in dollars

ISSUES: Whether or not the CA committed grave abuse ad reversible error when it concluded that there
were no dollar loans obtained by the spouses from Union Bank and in nullifying the restructuring
agreement.

RULING: Union Bank does not dispute that the spouses Tiu received the loaned amount of
US$3,632,000.00 in Philippine pesos, not dollars, at the prevailing exchange rate of US$1=P26. Although
indeed, the spouses Tiu received peso equivalents of the borrowed amounts, the loan documents
presented as evidence, i.e., the promissory notes, expressed the amount of the loans in dollars and not
in any other currency. This clearly indicates that the spouses Tiu were bound to pay Union Bank in
dollars, the amount stipulated in said loan documents. Before the Restructuring Agreement, the spouses
Tiu were bound to pay Union Bank the amount of US$3,632,000.00 plus the interest stipulated in the
promissory notes, without converting the same to pesos. The spouses Tiu, who are in the construction
business and appear to be dealing primarily in Philippine currency, should therefore purchase the
necessary amount of dollars to pay Union Bank, who could have justly refused payment in any currency
other than that which was stipulated in the promissory notes.

Article 1249 of the Civil Code provides that the payment of debts in money shall be made in the
currency stipulated, and if it is not possible to deliver such currency, then in the currency which is legal
tender in the Philippines. Pursuant to Section 1 of Republic Act No. 529, any agreement to pay an
obligation in a currency other than the Philippine currency is void; the most that could be demanded is
to pay said obligation in Philippine currency to be measured in the prevailing rate of exchange at the
time the obligation was incurred. On July 5, 1996, Republic Act No. 8183 took effect, expressly repealing
Republic Act No. 529 in Section 2 thereof. The same statute also explicitly provided that parties may
agree that the obligation or transaction shall be settled in a currency other than Philippine currency at
the time of payment. Although the Credit Line Agreement between the spouses Tiu and Union Bank was
entered into on November 21, 1995, when the agreement to pay in foreign currency was still considered
void under Republic Act No. 529, the actual loans, as shown in the promissory notes, were taken out
from September 22, 1997 to March 26, 1998, during which time Republic Act No. 8183 was already in
effect.

Having established that Union Bank and the spouses Tiu validly entered into dollar loans, the conclusion
of the Court of Appeals that there were no dollar loans to novate into peso loans must necessarily fail. In
the case at bar, the Restructuring Agreement was signed at the height of the financial crisis when the
Philippine peso was rapidly depreciating. Since the spouses Tiu were bound to pay their debt in dollars,
the cost of purchasing the required currency was likewise swiftly increasing. If the parties did not enter
into the Restructuring Agreement in December 1999 and the peso continued to deteriorate, the ability
of the spouses Tiu to pay and the ability of Union Bank to collect would both have immensely suffered.
As shown by the evidence presented by Union Bank, the peso indeed continued to deteriorate, climbing
to US$1=P50.01 on December 2000.[69] Hence, in order to ensure the stability of the loan agreement,
Union Bank and the spouses Tiu agreed in the Restructuring Agreement to peg the principal loan at
P150,364,800.00 and the unpaid interest at P5,000,000.00.

Before this Court, the spouses Tiu belatedly argue that their consent to the Restructuring Agreement
was vitiated by fraud and mistake, alleging that (1) the Restructuring Agreement did not take into
consideration their substantial payment in the amount of P40,447,185.60 before. its execution; and (2)
the dollar loans had already been redenominated in 1997 at the rate of US$1=P26.34. but failed to find
any documentary evidence of the alleged payment of P40,447,185.60 before the execution of the
Restructuring Agreement. Therefore rules that the Restructuring Agreement is valid and, as such, a valid
and binding novation of loans of the spouses Tiu entered into from September 22, 1997 to March 26,
1998 which had a total amount of US$3,632,000.00.

23. THE HONORABLE MONETARY BOARD and GAIL U. FULE, Director, Supervision and Examination
Department II, and BANGKO SENTRAL NG PILIPINAS, petitioners, vs . PHILIPPINE VETERANS BANK,
respondent G.R. No. 189571. January 21, 2015

FACTS: Respondent established a pension loan product for bona fide veterans or their surviving spouses,
as well as salary loan product for teachers and low-salaried employees pursuant to its mandate under
Republic Act (RA) Nos. 3518 and 7169 to provide financial assistance to veterans and teachers.

As its clientele usually do not have real estate or security to cover their pension or salary loan, other
than their continuing good health and/or employment, respondent devised a program by charging a
premium in the form of a higher fee known as Credit Redemption Fund (CRF) from said borrowers.
Resultantly, Special Trust Funds were established by respondent for the pension loans of the veteran-
borrowers, salary loans of teachers and low-salaried employees. These trust funds were, in turn,
managed by respondent's Trust and Investment Department, with respondent as beneficiary. The fees
charged against the borrowers were credited to the respective trust funds, which would be used to fully
pay the outstanding obligation of the borrowers in case of death.

An examination was conducted by the Supervision and Examination Department (SED) II of the Bangko
Sentral ng Pilipinas (BSP). It found that respondent's collection of premiums from the proceeds of
various salary and pension loans of borrowers to guarantee payment of outstanding loans violated
Section 54 of RA No. 8791 which states that banks shall not directly engage in insurance business as
insurer. On September 16, 2005, petitioners issued Monetary Board (MB) Resolution No. 1139 directing
respondent's Trust and Investment Department to return to the borrowers all the balances of the CRF in
the amount of P144,713,224.54 as of August 31, 2004, and to preserve the records of borrowers who
were deducted CRFs from their loan proceeds pending resolution or ruling of the Office of the General
Counsel of the BSP.

The RTC allowed the respondent’s petition for delaratory relief. It stated that [respondent], when it
collected additional fees known as "Credit Redemption Fund (CRF)" from its loan borrowers was not
directly engaged in insurance business as insurer; hence, it did not violate Sec. 54, R.A. 8791, otherwise
known as the "General Banking Law of 2000." The Monetary Board Resolution No. 1139 dated August
26, 2005 is hereby DECLARED null and void.

Petitioners filed a motion for reconsideration against said decision, but the same was denied in an Order
dated August 25, 2009. Hence, the present petition

ISSUE: whether or not the petition for declaratory relief is proper.

RULING: No. The declaratory relief is not proper. Court decisions cannot be the proper subjects of a
petition for declaratory relief, decisions of quasi-judicial agencies cannot be subjects of a petition for
declaratory relief for the simple reason that if a party is not agreeable to a decision either on questions
of law or of fact, it may avail of the various remedies provided by the Rules of Court.

In view of the foregoing, the decision of the BSP Monetary Board cannot be a proper subject matter for
a petition for declaratory relief since it was issued by the BSP Monetary Board in the exercise of its
quasi-judicial powers or functions. The authority of the petitioners to issue the questioned MB
Resolution emanated from its powers under Section 37 11 of RA No. 7653 and Section 66 of RA No.
8791 to impose, at its discretion, administrative sanctions, upon any bank for violation of any banking
law.

The nature of the BSP Monetary Board as a quasi-judicial agency, and the character of its determination
of whether or not appropriate sanctions may be imposed upon erring banks, as an exercise of quasi-
judicial function.

A quasi-judicial agency or body is an organ of government other than a court and other than a
legislature, which affects the rights of private parties through either adjudication or rule-making.

A "quasi-judicial function" is a term which applies to the action, discretion, etc. of public administrative
officers or bodies, who are required to investigate facts, or ascertain the existence of facts, hold
hearings, and draw conclusions from them, as a basis for their official action and to exercise discretion of
a judicial nature. Undoubtedly, the BSP Monetary Board is a quasi-judicial agency exercising quasi-
judicial powers or functions. As aptly observed by the Court of Appeals, the BSP Monetary Board is an
independent central monetary authority and a body corporate with fiscal and administrative autonomy,
mandated to provide policy directions in the areas of money, banking, and credit. It has the power to
issue subpoena, to sue for contempt those refusing to obey the subpoena without justifiable reason, to
administer oaths and compel presentation of books, records and others, needed in its examination, to
impose fines and other sanctions and to issue cease and desist order. Section 37 of Republic Act No.
7653, in particular, explicitly provides that the BSP Monetary Board shall exercise its discretion in
determining whether administrative sanctions should be imposed on banks and quasi-banks, which
necessarily implies that the BSP Monetary Board must conduct some form of investigation or hearing
regarding the same. A priori, having established that the BSP Monetary Board is indeed a quasi-judicial
body exercising quasi-judicial functions, then its decision in MB Resolution No. 1139 cannot be the
proper subject of declaratory relief.

24. BPI EMPLOYEES UNION-DAVAO CITY-FUBU (BPIEU-DAVAO CITYFUBU), petitioner, vs . BANK OF

THE PHILIPPINE ISLANDS (BPI), and BPI OFFICERS CLARO M. REYES, CECIL CONANAN and GEMMA
VELEZ, respondents. G.R. No. 174912. July 24, 2013
FACTS: BOMC, which was primarily engaged in providing and/or handling support services for banks and
other financial institutions, is a subsidiary of the Bank of Philippine Islands operating and functioning as
an entirely separate and distinct entity. A service agreement between BPI and BOMC was initially
implemented in BPI's Metro Manila branches. In this agreement, BOMC undertook to provide services
such as check clearing, delivery of bank statements, fund transfers, card production, operations
accounting and control, and cash servicing, conformably with BSP Circular No. 1388.

Not a single BPI employee was displaced and those performing the functions, which were transferred to
BOMC, were given other assignments.  The Manila chapter of BPI Employees Union then filed a
complaint for unfair labor practice. The Labor Arbiter decided the case in favor of the union. The
decision was, however, reversed on appeal by the NLRC. BPIEU-Metro Manila-FUBU filed a petition
for certiorari before the CA which denied it, holding that BPI transferred the employees in the affected
departments in the pursuit of its legitimate business. The employees were neither demoted nor were
their salaries, benefits and other privileges diminished. 

The service agreement was likewise implemented in Davao City. Later, a merger between BPI and Far
East Bank and Trust Company took effect with BPI as the surviving corporation. Thereafter, BPI's
cashiering function and FEBTC's cashiering, distribution and bookkeeping functions were handled by
BOMC. Consequently, twelve (12) former FEBTC employees were transferred to BOMC to complete the
latter's service complement. BPI Davao's rank and file collective bargaining agent, BPI Employees Union-
Davao City-FUBU, objected to the transfer of the functions and the twelve (12) personnel to BOMC
contending that the functions rightfully belonged to the BPI employees and that the Union was deprived
of membership of former FEBTC personnel who, by virtue of the merger, would have formed part of the
bargaining unit represented by the Union pursuant to its union shop provision in the CBA.   The Union
then filed a formal protest addressed to BPI Vice Presidents Claro M. Reyes and Cecil Conanan
reiterating its objection. It requested the BPI management to submit the BOMC issue to the grievance
procedure under the CBA, but BPI did not consider it as "grievable." Instead, BPI proposed a Labor
Management Conference between the parties. 

During the LMC, BPI invoked management prerogative stating that the creation of the BOMC was to
preserve more jobs and to designate it as an agency to place employees where they were most needed.

On the other hand, the Union charged that BOMC undermined the existence of the union since it
reduced or divided the bargaining unit. While BOMC employees perform BPI functions, they were
beyond the bargaining unit's coverage. In contracting out FEBTC functions to BOMC, BPI effectively
deprived the union of the membership of employees handling said functions as well as curtailed the
right of those employees to join the union. Thereafter, the Union demanded that the matter be
submitted to the grievance machinery as the resort to the LMC was unsuccessful. As BPI allegedly
ignored the demand, the Union filed a notice of strike before the National Conciliation and Mediation
Board.

BPI then filed a petition for assumption of jurisdiction/certification with the Secretary of the Department
of Labor and Employment, who subsequently issued an order certifying the labor dispute to the NLRC
for compulsory arbitration.

Respondents maintained that the service agreement with BOMC is valid on three (3) grounds: 1] that it
was pursuant to the prevailing law at that time, CBP Circular No. 1388; 2] that the creation of BOMC was
within management prerogatives intended to streamline the operations and provide focus for BPI's core
activities; and 3] that the Union recognized, in its CBA, the exclusive right and prerogative of BPI to
conduct the management and operation of its business.The CA  affirmed the NLRC's Resolution of the
validity of the service agreement between BPI and BOMC

ISSUE: Whether the act of BPI to outsource the cashiering, distribution and bookkeeping functions to
BOMC is in conformity with the law.

RULING: Yes. In the process of the consolidation or merger of the two banks which resulted in increased
diversification of functions, some of these non-banking functions were merely transferred to the BOMC
without affecting the union membership.  BPI also stresses that not a single employee or union member
was or would be dislocated or terminated from their employment as a result of the Service
Agreement. Neither had it resulted in any diminution of salaries and benefits nor led to any reduction of
union membership.

In this case, bad faith cannot be attributed to BPI because its actions were authorized by CBP Circular
No. 1388, Series of 1993 issued by the Monetary Board of the then Central Bank of the Philippines . The
Union submits that while the Central Bank regulates banking, the Labor Code and its implementing rules
regulate the employment relationship. To this, the Court agrees. The fact that banks are of a specialized
industry must, however, be taken into account. The competence in determining which banking functions
may or may not be outsourced lies with the BSP. This does not mean that banks can simply outsource
banking functions allowed by the BSP through its circulars, without giving regard to the guidelines set
forth under D.O. No. 10 issued by the DOLE. While D.O. No. 10, Series of 1997, enumerates the
permissible contracting or subcontracting activities, it is to be observed that, particularly in Sec. 6 (d)
invoked by the Union, the provision is general in character — ". . . Works or services not directly related
or not integral to the main business or operation of the principal . . . ." This does not limit or prohibit the
appropriate government agency, such as the BSP, to issue rules, regulations or circulars to further and
specifically determine the permissible services to be contracted out. CBP Circular No. 1388 38
enumerated functions which are ancillary to the business of banks, hence, allowed to be outsourced.
Thus, sanctioned by said circular, BPI outsourced the cashiering (i.e., cash-delivery and deposit pick-up)
and accounting requirements of its Davao City branches. D.O. No. 10 is but a guide to determine what
functions may be contracted out, subject to the rules and established jurisprudence on legitimate job
contracting and prohibited labor-only contracting. Even if the Court considers D.O. No. 10 only, BPI
would still be within the bounds of D.O. No. 10 when it contracted out the subject functions. This is
because the subject functions were not related or not integral to the main business or operation of the
principal which is the lending of funds obtained in the form of deposits. From the very definition of
"banks" as provided under the General Banking Law, it can easily be discerned that banks perform only
two (2) main or basic functions — deposit and loan functions. Thus, cashiering, distribution and
bookkeeping are but ancillary functions whose outsourcing is sanctioned under CBP Circular No. 1388 as
well as D.O. No. 10. Even BPI itself recognizes that deposit and loan functions cannot be legally
contracted out as they are directly related or integral to the main business or operation of banks. The
CBP's Manual of Regulations has even categorically stated and emphasized on the prohibition against
outsourcing inherent banking functions, which refer to any contract between the bank and a service
provider for the latter to supply, or any act whereby the latter supplies, the manpower to service the
deposit transactions of the former
25. CITIBANK, N.A. (Formerly First National City Bank) and INVESTORS' FINANCE CORPORATION, doing
business under the name and style of FNCB Finance, petitioners, vs . MODESTA R. SABENIANO G.R.
No. 156132. February 6, 2007

FACTS: Respondent was a client of petitioners. She had several deposits and market placements with
petitioners, among which were her savings account with the local branch of petitioner Citibank
(Citibank-Manila); 3 money market placements with petitioner FNCB Finance; and dollar accounts with
the Geneva branch of petitioner Citibank (Citibank- Geneva). At the same time, respondent had
outstanding loans with petitioner Citibank, incurred at Citibank-Manila, the principal amounts
aggregating to P1,920,000.00, all of which had become due and demandable by May 1979. Despite
repeated demands by petitioner Citibank, respondent failed to pay her outstanding loans. Thus,
petitioner Citibank used respondent's deposits and money market placements to off-set and liquidate
her outstanding obligations. Respondent, however, denied having any outstanding loans with petitioner
Citibank. She likewise denied that she was duly informed of the off-setting or compensation thereof
made by petitioner Citibank using her deposits and money market placements with petitioners. Hence,
respondent sought to recover her deposits and money market placements.

Respondent instituted a complaint for "Accounting, Sum of Money and Damages" against petitioners,
before the Regional Trial Court (RTC) of Makati City. After trial proper, which lasted for a decade, the
RTC rendered a Decision against the respondent. On appeal, the CA affirmed the decision of the RTC
with modification. CA declared as illegal, null and void the set-off effected by the defendant-appellant
Bank of the plaintiff-appellant's dollar deposit with Citibank, Switzerland, in the amount of
US$149,632.99, and ordering defendant-appellant Citibank to refund the said amount to the plaintiff-
appellant with legal interest at the rate of twelve percent (12%) per annum, compounded yearly, from
31 October 1979 until fully paid, or its peso equivalent at the time of payment and that defendant-
appellant Citibank failed to establish by competent evidence the alleged indebtedness of plaintiff-
appellant, the set-off of P1,069,847.40 in the account of Ms. Sabeniano is hereby declared as without
legal and factual basis. Since the Court of Appeals Decision, dated 26 March 2002, as modified by the
Resolution of the same court, dated 20 November 2002, was still principally in favor of respondent,
petitioners filed the instant Petition for Review.

ISSUE: Whether or not respondent's Declaration of Pledge, by virtue of which she supposedly assigned
her dollar accounts with Citibank-Geneva as security for her loans with petitioner Citibank, is authentic
and, thus, valid and binding upon respondent and whether the foreign bank can use the principle for a
reverse purpose, in order to extend the liability of a client to the foreign bank's Philippine branch to its
head office, as well as to its branches in other countries

RULING: It is the petitioners' contention that the term "Citibank, N.A." used therein should be deemed
to refer to all branches of petitioner Citibank in the Philippines and abroad; thus, giving petitioner
Citibank the authority to apply as payment for the PNs even respondent's dollar accounts with Citibank-
Geneva. Still proceeding from the premise that all branches of petitioner Citibank should be considered
as a single entity, then it should not matter that the respondent obtained the loans from Citibank-Manila
and her deposits were with Citibank-Geneva. Respondent should be considered the debtor (for the
loans) and creditor (for her deposits) of the same entity, petitioner Citibank.

Since petitioner Citibank and respondent were principal creditors of each other, in compliance with the
requirements under Article 1279 of the Civil Code, then the former could have very well used off-setting
or compensation to extinguish the parties' obligations to one another. And even without the PNs, off-
setting or compensation was still authorized because according to Article 1286 of the Civil Code,
"Compensation takes place by operation of law, even though the debts may be payable at different
places, but there shall be an indemnity for expenses of exchange or transportation to the place of
payment."

Pertinent provisions of Republic Act No. 8791, otherwise known as the General Banking Law of 2000,
governing bank branches are reproduced below — SEC. 20. Bank Branches. — Universal or commercial
banks may open branches or other offices within or outside the Philippines upon prior approval of the
Bangko Sentral. Branching by all other banks shall be governed by pertinent laws.

A bank may, subject to prior approval of the Monetary Board, use any or all of its branches as outlets for
the presentation and/or sale of the financial products of its allied undertaking or its investment house
units. A bank authorized to establish branches or other offices shall be responsible for all business
conducted in such branches and offices to the same extent and in the same manner as though such
business had all been conducted in the head office. A bank and its branches and offices shall be treated
as one unit.

SEC. 74. Local Branches of Foreign Banks. — In case of a foreign bank which has more than one (1)
branch in the Philippines, all such branches shall be treated as one (1) unit for the purpose of this Act,
and all references to the Philippine branches of foreign banks shall be held to refer to such units.

It is true that the afore-quoted Section 20 of the General Banking Law of 2000 expressly states that the
bank and its branches shall be treated as one unit. It should be pointed out, however, that the said
provision applies to a universal or commercial bank, duly established and organized as a Philippine
corporation in accordance with Section 8 of the same statute, and authorized to establish branches
within or outside the Philippines. The General Banking Law of 2000, however, does not make the same
categorical statement as regards to foreign banks and their branches in the Philippines. What Section 74
of the said law provides is that in case of a foreign bank with several branches in the country, all such
branches shall be treated as one unit. Contrary to petitioners' assertion that the accounts of Citibank-
Manila and Citibank- Geneva should be deemed as a single account under its head office, the foregoing
provision mandates that the accounts of foreign branches of an American bank shall be conducted
independently of each other.

Therefore, this Court maintains its original position in the Decision that the offsetting or compensation
of respondent's loans with Citibank-Manila using her dollar accounts with Citibank-Geneva cannot be
effected. The parties cannot be considered principal creditor of the other. As for the dollar accounts,
respondent was the creditor and Citibank-Geneva was the debtor; and as for the outstanding loans,
petitioner Citibank, particularly Citibank-Manila, was the creditor and respondent was the debtor. Since
legal compensation was not possible, petitioner Citibank could only use respondent's dollar accounts
with Citibank-Geneva to liquidate her loans if she had expressly authorized it to do so by contract.