COURSE SYLLABUS

BANKING LAWS AND OTHER ALLIED LAWS

1ST Semester, A.Y. 2024-2025
Atty. Martin Gacias

I. GENERAL BANKING LAW OF 2000 (R.A. 8791)

A. Scope and Application of the General Banking Law

B. Definition and Classification of Banks
i. Republic of the Philippines vs. Security Credit and Acceptance Corporation, G.R.
No. L-20583, January 23, 1967.

Facts:

The case "Republic of the Philippines v. Security Credit and Acceptance

Corporation" (G.R. No. L-20583) was decided on January 23, 1967, by the Supreme
Court of the Philippines. The petitioner, Republic of the Philippines, represented by
Solicitor General Arturo A. Alafriz and Solicitor E. M. Salva, initiated a quo
warranto proceeding against the Security Credit and Acceptance Corporation
(SCAC) and its officers, including Rosendo T. Resuello, Pablo Tanjutco, Arturo
Soriano, Ruben Beltran, Bienvenido V. Zapa, Pilar G. Resuello, Ricardo D. Balatbat,
Jose
R. Sebastian, and Vito Tanjutco, Jr. The case arose from allegations that SCAC was
engaging in illegal banking operations without the necessary authority from the
Monetary Board of the Central Bank of the Philippines. The Articles of
Incorporation of SCAC were registered with the Securities and Exchange
Commission on March 27, 1961, and the corporation began accepting savings
deposits from the public, which were then lent out. Despite warnings and a
resolution from the Monetary Board declaring these activities illegal, SCAC
continued its operations. The Solicitor General sought the dissolution of SCAC and
the appointment of a receiver. The lower court had appointed a receiver pendente
lite, and the case was brought before the Supreme Court for resolution.

Issue:

1. Did the Security Credit and Acceptance Corporation engage in banking

operations without the requisite authority from the Monetary Board of
the Central Bank of the Philippines?
2. Should the Security Credit and Acceptance Corporation be dissolved for
engaging in illegal banking operations?

Ruling:

1. Yes, the Security Credit and Acceptance Corporation engaged in

banking operations without the requisite authority.
2. Yes, the Security Credit and Acceptance Corporation should be dissolved
for engaging in illegal banking operations.

Ratio:
The Supreme Court found that SCAC's activities, which included accepting savings
deposits from the public and lending out these funds, constituted banking
operations as defined under Section 2 of the General Banking Act. The Court noted
that a total of 59,463 savings account deposits amounting to P1,689,136.74 had
been made with SCAC and its 74 branches. These transactions were deemed to be
in the nature of banking, and SCAC had not secured the necessary authority to
engage in such operations. The Court cited definitions and precedents that
characterized institutions performing similar functions as banks. The illegal nature
of SCAC's activities warranted its dissolution, as the misuser of corporate funds
and franchise was willful, repeated, and injurious to the public. The Court also
emphasized that it had original jurisdiction to hear and decide quo warranto cases
and that public interest demanded an early disposition of the case. Consequently,
the Supreme Court ordered the dissolution of SCAC and made the appointment of
the receiver permanent to wind up the corporation's affairs.

C. Distinction of banks from quasi-banks and trust entities

i. Teodoro Banas vs. Asia Pacific Finance Corporation, G.R. No. 128703, October 18, 2000.

Facts:

In the case of Bañas v. Asia Pacific Finance Corp., G.R. No. 128703, decided on
October 18, 2000, the petitioners, C.G. Dizon Construction Inc. and its president,
Cenen Dizon, sought the reversal of the Court of Appeals' decision which affirmed
the trial court's ruling holding them liable to Asia Pacific Finance Corporation
(ASIA PACIFIC) for the unpaid balance of a promissory note. The case originated
from a complaint filed by ASIA PACIFIC on March 20, 1981, for a sum of money
with a prayer for a writ of replevin against Teodoro Bañas, C.G. Dizon
Construction, and Cenen Dizon. In August 1980, Teodoro Bañas executed a
promissory note in favor of C.G. Dizon Construction for P390,000.00, payable in
monthly installments. C.G. Dizon Construction endorsed the note to ASIA PACIFIC
and secured it with a deed of chattel mortgage on three heavy equipment units.
Cenen Dizon also executed a continuing undertaking to pay the obligation jointly
and severally with C.G. Dizon Construction. Despite making some payments,
C.G. Dizon Construction defaulted on the remaining installments, leading ASIA
PACIFIC to
demand the unpaid balance. The defendants admitted the genuineness of the
documents but claimed they were a subterfuge to conceal a usurious loan. The trial
court ruled in favor of ASIA PACIFIC, and the Court of Appeals affirmed the
decision. The case was further complicated by the death of Teodoro Bañas and the
substitution of ASIA PACIFIC by International Corporate Bank, which later merged
with Union Bank of the Philippines.
Issue:

1. Did the transaction between the petitioners and ASIA PACIFIC violate
banking laws, rendering it null and void?
 2. Did the surrender of the bulldozer crawler tractors to ASIA PACIFIC
extinguish the petitioners' obligation?

Ruling:

1. The Supreme Court ruled that the transaction did not violate banking laws
and was not null and void.
2. The Court also ruled that the surrender of the bulldozer crawler
tractors did not extinguish the petitioners' obligation.

Ratio:

The Supreme Court found that the transaction between the petitioners and ASIA
PACIFIC was a legitimate purchase of receivables at a discount, which is within
the scope of activities permitted for an investment company under the Revised
Securities Act. The Court clarified that the transaction did not constitute a loan in
violation of the General Banking Act, as the funds involved were not obtained from
the public through deposits. The promissory note, deed of chattel mortgage, and
continuing undertaking were found to be clear, unambiguous, and reflective of the
parties' true intentions. The Court emphasized that notarial documents carry a
presumption of regularity, which the petitioners failed to rebut with convincing
evidence. Regarding the second issue, the Court found no credible evidence of an
agreement that the surrender of the bulldozers would fully settle the obligation.
The sale of the bulldozers at foreclosure did not cover the entire debt, leaving a
deficiency for which the petitioners remained liable. The Court also reduced the
attorney's fees from 25% to 15% of the unpaid principal and interest, considering
the partial compliance by the petitioners. The decision of the Court of Appeals was
affirmed, and the petitioners were ordered to pay the remaining balance with
interest and reduced attorney's fees.

ii. First Planter’s Pawnshop, Inc. vs. Commissioner of Internal Revenue, G.R. No. 174134,
July 30, 2008.

Facts:

First Planters Pawnshop, Inc. (petitioner) contested the deficiency value-added tax
(VAT) and documentary stamp tax (DST) imposed by the Bureau of Internal
Revenue (BIR) for the year 2000. The BIR issued a Pre-Assessment Notice on July
7, 2003, indicating a VAT deficiency of P541,102.79 and a DST deficiency of
P23,646.33. The petitioner protested, claiming it was not a lending investor under
Section 108 (A) of the National Internal Revenue Code (NIRC) and thus not subject
to VAT. They also argued that pawn tickets were not subject to DST. Despite the
protest, the BIR issued a Formal Assessment Notice on December 29, 2003,
reiterating the deficiencies. The petitioner’s subsequent protest was denied by the
Acting Regional Director on January 29, 2004. The petitioner then sought relief
from the Court of Tax Appeals (CTA), which upheld the BIR's assessment. A
motion for reconsideration was denied, and the CTA En Banc
affirmed the decision on June 7, 2006. The petitioner’s appeal for reconsideration
was also denied on August 14, 2006. Consequently, the petitioner filed a petition
for review under Rule 45 of the Rules of Court.

Issue:

1. Is the petitioner liable for VAT?

2. Is the petitioner liable for DST on pawn tickets?

Ruling:

1. The petitioner is not liable for VAT for the year 2000.
2. The petitioner is liable for DST on pawn tickets.

Ratio:

The Supreme Court ruled that pawnshops should be treated as non-bank financial
intermediaries, subject to the appropriate taxes. Under the National Internal
Revenue Code of 1977, pawnshops should have been levied a 5% percentage tax
on gross receipts. With the imposition of the VAT under R.A. No. 7716 (EVAT Law),
pawnshops were subjected to a 10% VAT. However, the levy, collection, and
assessment of the 10% VAT on non-bank financial intermediaries were deferred
until December 31, 2002. Therefore, the petitioner was not liable for VAT for the
year 2000. From January 1, 2003, the VAT system on non-bank financial
intermediaries was fully implemented, making the petitioner liable for VAT from
that year onwards.

Regarding the DST, the Court referenced the case of Michel J. Lhuillier Pawnshop,
Inc. v. Commissioner of Internal Revenue, which established that DST is an excise
tax on the exercise of a privilege, such as entering into a contract of pledge. The
pawn ticket, while not considered evidence of security or indebtedness, is proof of
the exercise of a taxable privilege. Thus, the petitioner is liable for DST on pawn
tickets. The Court emphasized that tax laws must be construed in favor of the
taxpayer and strictly against the government, but in this case, Section
195 of the NIRC clearly subjects all pledges to DST without any specific exemption
for pawnshops.

D. Bank Powers and

Liabilities (a.) Corporate
Powers
i. Register of Deeds of Manila vs. China Banking Corporation, 4 SCRA 1145.

Facts:

In the case of "Register of Deeds of Manila v. China Banking Corp.," the petitioner-
appellee is the Register of Deeds of Manila, and the respondent-appellant is
China Banking Corporation.
The Supreme Court of the Philippines decided the case on April 28, 1962. The case
originated from a criminal case filed on June 16, 1953, in the Court of First
Instance of Manila (Criminal Case No. 22908), where Alfonso Pangilinan and
Guillermo Chua were charged with qualified theft involving P275,000.00. On
September 18, 1956, Pangilinan and his wife, Belen Sta. Ana, executed a public
instrument titled "Deed of Transfer," admitting civil liability to China Banking
Corporation and transferring a parcel of land in Manila to the bank. The land was
registered under Transfer Certificate of Title No. 32230. On October 24, 1956, the
deed was presented for registration to the Register of Deeds of Manila. However,
the registration was questioned because China Banking Corporation was alien-
owned, and Section 5, Article XIII of the Philippine Constitution prohibits alien
acquisition of lands. The matter was submitted to the Land Registration
Commission, which ruled that the deed of transfer was unregisterable for being in
contravention of the Constitution. China Banking Corporation appealed this
resolution.

Issue:

1. Can an alien-owned bank acquire ownership of a residential lot in the

Philippines by virtue of a deed of transfer, despite the constitutional
prohibition against alien acquisition of lands?

Ruling:

The Supreme Court upheld the resolution of the Land Registration Commission,
affirming that the deed of transfer in favor of China Banking Corporation was
unregisterable for being in contravention of the Philippine Constitution.

Ratio:

The Court's decision was based on the absolute terms of Section 5, Article XIII of
the Philippine Constitution, which prohibits the transfer or assignment of private
agricultural land to aliens, whether natural or juridical persons, except in cases of
hereditary succession. The Court emphasized that this prohibition aims to preserve
the patrimony of the nation and cannot be limited to the permanent acquisition of
real estate by aliens. The Court rejected the argument that the temporary holding
of land by an alien-owned commercial bank under a public instrument does not
violate the constitutional purpose. The Court also clarified that the "debts" referred
to in Section 25 of Republic Act 337 (General Banking Act) pertain only to those
resulting from previous loans and similar transactions made in the ordinary course
of banking business. The civil liability arising from the criminal offense of qualified
theft admitted by Pangilinan was not considered a debt resulting from a banking
transaction. The Court further noted that a mere statute, like Republic Act 337,
cannot amend the Constitution. The constitutional prohibition is absolute and aims
to ensure that ownership of private lands remains with Filipino citizens to
safeguard national integrity.
ii. Banco de Oro-EPCI, Inc. vs. JAPRL Development Corporation, G.R. No. 179901, April
14, 2008.

Facts:
In the case of "Banco de Oro-EPCI, Inc. v. JAPRL Development Corporation," the petitioner,
Banco de Oro-EPCI, Inc. (BDO), extended credit facilities amounting to PHP 230,000,000 to
JAPRL Development Corporation (JAPRL) on March 28, 2003, after evaluating JAPRL's
financial statements for fiscal years 1998, 1999, and 2000. Respondents Rapid Forming
Corporation (RFC) and Jose U. Arollado acted as sureties for JAPRL. Despite JAPRL's
seemingly strong financial position, it defaulted on the payment of four trust receipts soon after
the loan approval. BDO later discovered from JAPRL's financial adviser, MRM Management,
that JAPRL had altered and falsified its financial statements to project itself as a viable
investment. Consequently, BDO demanded immediate payment of JAPRL's outstanding
obligations amounting to PHP 194,493,388.98.
On August 30, 2003, JAPRL and RFC filed a petition for rehabilitation in the Regional Trial
Court (RTC) of Quezon City, Branch 90, which issued a stay order on September 28, 2003.
However, the proposed rehabilitation plan was eventually rejected by the Quezon City RTC on
May 9, 2005. Subsequently, BDO filed a complaint for a sum of money with an application for a
writ of preliminary attachment against the respondents in the RTC of Makati City, Branch 145,
on August 21, 2003. The Makati RTC denied the application for a writ of preliminary attachment
but ordered the service of summons on the respondents. The respondents moved to dismiss the
complaint due to allegedly invalid service of summons, arguing that the summons was received
by an "administrative assistant," which was not in compliance with the Rules of Court.
The Makati RTC denied the motion to dismiss, noting that corporate officers are often busy, and
summonses are usually received by administrative assistants or secretaries. The respondents
moved for reconsideration but later withdrew it. On February 20, 2006, JAPRL and RFC filed
another petition for rehabilitation in the RTC of Calamba, Laguna, Branch 34, which issued a
stay order on March 13, 2006. The respondents then moved to suspend the proceedings in the
Makati RTC, which granted the motion with regard to JAPRL and RFC but ordered Arollado to
file an answer. The respondents filed a petition for certiorari in the Court of Appeals (CA),
alleging that the Makati RTC committed grave abuse of discretion. The CA ruled in favor of the
respondents, stating that the Makati RTC never acquired jurisdiction over them due to defective
service of summons. BDO then filed a petition for review on certiorari with the Supreme Court.

Issue:
1. Did the Makati RTC acquire jurisdiction over the respondents despite the alleged
defective service of summons?
2. Did the respondents voluntarily submit to the jurisdiction of the Makati RTC by moving
to suspend the proceedings?

Ruling:
1. Yes, the Makati RTC acquired jurisdiction over the respondents.
2. Yes, the respondents voluntarily submitted to the jurisdiction of the Makati RTC.

Ratio:
The Supreme Court ruled that the Makati RTC acquired jurisdiction over the respondents due to
their voluntary submission. The respondents' motion to suspend the proceedings in the Makati
RTC, based on the stay order issued by the Calamba RTC, constituted a waiver of any defect in
the service of summons and indicated their voluntary submission to the jurisdiction of the Makati
RTC. The Court emphasized the importance of protecting the banking system and investigating
possible fraud in securing credit accommodations. The Court also noted that the respondents'
actions were aimed at delaying the collection of their legitimate obligations and impeding the
speedy dispensation of justice. The Supreme Court reversed and set aside the CA's decision and
resolution, ordering the Makati RTC to proceed expeditiously with the trial of Civil Case No.
03-991 with regard to respondent Jose U. Arollado and the other respondents if warranted.
The Court highlighted the significance of a stable and efficient banking system to the national
economy and the responsibility of banks to protect the integrity of the banking system. It also
underscored the role of borrowers in maintaining sound lending practices and good corporate
governance. The Court directed the Makati RTC to hear whether the respondents committed
fraud in securing the credit accommodation, as a finding of fraud would entitle BDO to
immediate payment and other appropriate damages. Additionally, the Court instructed the
Makati City Prosecutor to investigate whether there was probable cause to indict the respondents
for violating the Trust Receipts Law.

(b.) Banking and Incidental Powers

i. Sps. Raul and Amalia Panlilio vs. Citibank, N.A. G.R. No. 156335, November 28, 2007

Facts:

The case of Spouses Raul and Amalia Panlilio v. Citibank, N.A. originated from a
complaint filed by the Panlilios on March 2, 1999, with the Regional Trial Court
(RTC) of Makati City. The complaint sought a sum of money and damages against
Citibank. On October 10, 1997, Amalia Panlilio deposited one million pesos in a
Citibank "Citihi" account, a fixed-term savings account, and opened a checking
account for interest earnings. The accounts were opened as "in trust for" (ITF)
accounts for her minor children. Amalia initially intended to invest in a Peso
Repriceable Promissory Note (PRPN) but later invested three million pesos, of
which PhP2,134,635.87 was placed in a Long-Term Commercial Paper (LTCP)
issued by C&P Homes, and the rest in PRPN accounts. Disputes arose regarding
whether Amalia instructed Citibank to invest in the LTCP. The RTC ruled in favor
of the Panlilios, ordering Citibank to return the investment and pay damages.
Citibank appealed, and the Court of Appeals (CA) reversed the RTC's decision,
dismissing the complaint. The Panlilios then filed a petition for review with the
Supreme Court.

Issue:

1. Are the petitioners bound by the terms and conditions of the Directional
Investment Management Agreement (DIMA), Term Investment
Application (TIA), Directional Letter/Specific Instructions, and
Confirmations of Investment (COIs)?
2. Are the petitioners entitled to take back their investment from
Citibank prior to maturity?

Ruling:

1. Yes, the petitioners are bound by the terms and conditions of the DIMA, TIA,
Directional Letter, and COIs.
2. No, the petitioners are not entitled to take back their investment from
Citibank prior to maturity.
Ratio:
The Supreme Court affirmed the CA's decision, holding that the DIMA, Directional
Letter, and COIs are binding contracts between the parties, as per Article 1159 of
the Civil Code, which states that contracts have the force of law between the
parties and must be complied with in good faith. Amalia's signatures on these
documents indicated her consent, and there was no evidence of mistake, violence,
intimidation, undue influence, or fraud. The Court found that the investment
management agreement created a principal-agent relationship, not a trust or
ordinary bank deposit. The DIMA and Directional Letter provisions clearly stated
that Citibank was not liable for any loss or damage to the investment, and all risks
were assumed by the investor. The COIs sent to the Panlilios confirmed the nature
of the investment and provided a period for contesting any deviations, which the
Panlilios did not timely protest. The Court also noted that the investment was legal
under the General Banking Act of 1948 and BSP regulations. The Panlilios'
contention that the documents were signed in blank or contained unauthorized
intercalations was unsupported by evidence. The Court concluded that the
Panlilios were experienced investors who understood the nature of the transaction
and that their repudiation of the agreement was an afterthought due to market
conditions. Therefore, the Panlilios were not entitled to recover their investment
from Citibank before the LTCP's maturity in 2003.

ii. White Marketing Development Corporation, Petitioner, Vs. Grandwood

Furniture and Woodwork, Inc., Respondent, G.R. No. 222407, November 23, 2016

Facts:

On May 26, 1995, Grandwood Furniture & Woodwork, Inc. (Grandwood) secured a
loan of P40,000,000.00 from Metropolitan Bank and Trust Company (Metrobank),
using a parcel of land covered by Transfer Certificate of Title (TCT) No. 63678 as
collateral. Metrobank later transferred its rights and interests over the loan and
mortgage contract to Asia Recovery Corporation (ARC), which subsequently
assigned them to Cameron Granville 3 Asset Management, Inc. (CGAM3). After
Grandwood defaulted on the loan, which had increased to P68,941,239.46, CGAM3
initiated extrajudicial foreclosure proceedings. On September 17, 2013, White
Marketing Development Corporation (White Marketing) emerged as the highest
bidder in the auction sale, and a certificate of sale was issued in its favor. This
certificate of sale was registered and annotated on TCT No. 63678 on September
30, 2013. Grandwood attempted to redeem the property, but White Marketing
argued that the redemption period had expired. Consequently, Grandwood filed a
Petition for Consignation, Mandamus, and Damages before the Regional Trial
Court (RTC), which dismissed the petition, ruling that the applicable redemption
period was under Section 47 of the General Banking Law of 2000 (R.A. No. 8791).
The Court of Appeals (CA) reversed the RTC's decision, leading White Marketing to
file a Petition for Review on Certiorari before the Supreme Court.
Issue:

1. Did the Court of Appeals err in ruling that Section 47 of R.A. No. 8791,
the General Banking Law of 2000, is not applicable in this case?

Ruling:

The Supreme Court reversed and set aside the June 22, 2015 Decision and the
December 28, 2015 Resolution of the Court of Appeals. The Court reinstated the
July 21, 2014 Decision of the Regional Trial Court, Branch 166, Pasig City, which
dismissed Grandwood's petition for consignation and mandamus.

Ratio:

The Supreme Court held that the shorter redemption period under Section 47 of
R.A. No. 8791 applies to juridical persons, even when the mortgagee bank assigns
its rights to a non-banking institution. The Court emphasized that the assignee of a
mortgagee bank steps into the shoes of the assignor and acquires all its rights,
including the shorter redemption period. The Court explained that the purpose of
the shorter redemption period is to provide additional security to mortgagee
banks, ensuring their solvency and liquidity. Extending the redemption period
upon assignment would defeat this purpose and hinder banks' ability to quickly
dispose of hard assets. The Court found that Grandwood's redemption was made
out of time, as it was done after the registration of the certificate of sale on
September 30, 2013. The Court underscored that the liberal construction of
redemption laws in favor of the mortgagor does not apply when the statutory
requirements for redemption are not met.

F. Diligence Required of Banks

i. Simex International v. Court of Appeals, March 19, 1990

Facts:

Simex International (Manila), Inc. (petitioner) is a private corporation engaged in

the exportation of food products, purchasing these products on credit from various
local suppliers and selling them abroad. The petitioner maintained a checking
account with Traders Royal Bank (respondent) at its branch on Romulo Avenue,
Cubao, Quezon City. On May 25, 1981, the petitioner deposited P100,000.00 into
its account, increasing its balance to P190,380.74. Subsequently, the petitioner
issued several checks, which were dishonored due to insufficient funds. The
dishonored checks included payments to California Manufacturing Company, Inc.,
the Bureau of Internal Revenue, Malabon Longlife Trading Corporation, Sea-Land
Services, Inc., Baguio Country Club Corporation, and Enriqueta Bayla. As a result,
the petitioner's suppliers sent letters of demand, threatened prosecution, withheld
deliveries, canceled credit lines, and deferred action on pending orders. The
petitioner complained to the respondent bank on June
10, 1981, and the bank rectified the error on June 17, 1981, paying the dishonored
checks after they were re-deposited. The petitioner demanded reparation for the
bank's "gross and wanton negligence," which was not met, leading to a complaint
filed in the Court of First Instance of Rizal. The trial court awarded nominal
damages of P20,000.00 plus P5,000.00 attorney's fees and costs, which was
affirmed by the Court of Appeals. The petitioner then brought the case to the
Supreme Court.

Issue:

1. Is the petitioner entitled to moral damages due to the respondent bank's

negligence?
2. Is the petitioner entitled to exemplary damages due to the respondent bank's
negligence?

Ruling:

1. Yes, the petitioner is entitled to moral damages.

2. Yes, the petitioner is entitled to exemplary damages.

Ratio:

The Supreme Court found that the negligence of the respondent bank was not a
minor infraction but a significant error that should not have occurred. The bank's
failure to promptly rectify the error and the lack of a satisfactory explanation for
the mistake constituted gross negligence, if not wanton bad faith. The Court
emphasized that the petitioner's credit line was canceled, its orders were not acted
upon, its business declined, and its reputation was tarnished due to the bank's
fault. Article 2205 of the Civil Code allows for actual or compensatory damages for
injury to a plaintiff's business standing or commercial credit. The Court noted that
moral damages are not awarded to penalize the defendant but to compensate the
plaintiff for injuries suffered. Although a corporation is generally not entitled to
moral damages, an exception exists when its good reputation is debased, resulting
in social humiliation. The Court found that the petitioner did suffer injury, and the
award of nominal damages was not appropriate. Instead, the Court awarded moral
damages of P20,000.00. Additionally, the Court imposed exemplary damages of
P50,000.00, citing the bank's obligation to treat depositors' accounts with
meticulous care due to the fiduciary nature of their relationship. The bank's failure
to correct the error promptly and the lack of a satisfactory explanation for the
mistake warranted exemplary damages to serve as a warning and deterrent
against similar conduct in the future. The Supreme Court modified the appealed
judgment, awarding the petitioner moral damages of P20,000.00, exemplary
damages of P50,000.00, attorney's fees of P5,000.00, and costs.
ii.Reyes vs. Court of Appeals, 15 August 2001)

Facts:
In the case of "Spouses Reyes v. Court of Appeals," petitioners Gregorio H. Reyes
and Consuelo Puyat-Reyes filed a complaint for damages against Far East Bank
and Trust Company (respondent bank) due to the dishonor of a foreign exchange
demand draft. The demand draft, amounting to AU$1,610.00, was intended for the
registration fees of the petitioners as delegates of the Philippine Racing Club, Inc.
(PRCI) to the 20th Asian Racing Conference in Sydney, Australia. The application
for the demand draft was made on July 28, 1988, and the draft was dishonored
twice upon presentment in Sydney, causing the petitioners embarrassment and
mental anguish. The Regional Trial Court of Makati dismissed the complaint, and
the Court of Appeals affirmed the decision but deleted the award of attorney's fees
and costs. The petitioners then elevated the matter to the Supreme Court, arguing
that the respondent bank should have exercised a higher degree of diligence due
to the fiduciary nature of their relationship.

Issue:

1. Did the respondent bank exercise the required degree of diligence in

handling the foreign exchange demand draft?
2. Is the respondent bank liable for damages due to the dishonor of the demand
draft?
3. Did the respondent bank breach its warranty under Section 61 of
the Negotiable Instruments Law?

Ruling:

1. The Supreme Court ruled that the respondent bank exercised the
degree of diligence expected of an ordinary prudent person under the
circumstances.
2. The Supreme Court held that the respondent bank was not liable for
damages as it acted in good faith and the dishonor was due to
miscommunication with the drawee bank, Westpac-Sydney.
3. The Supreme Court found that the respondent bank did not breach its
warranty under Section 61 of the Negotiable Instruments Law as the
dishonor was not attributable to any fault of the respondent bank.

Ratio:

The Supreme Court emphasized that the degree of diligence required of banks is
higher when they act under their fiduciary capacity, such as handling deposit
accounts. However, in commercial transactions like the sale and issuance of a
foreign exchange demand draft, the standard of diligence is that of an ordinary
prudent person. The Court found that the respondent bank had taken all necessary
steps to ensure the draft would be honored, including advising Westpac-New York
to honor the reimbursement claim and sending multiple cable messages to clarify
the situation. The dishonor was caused by an erroneous reading of the cable
message by an employee of Westpac-Sydney, which was beyond the control of the
respondent bank. Therefore, the respondent bank acted in good faith and was not
liable for the petitioners' embarrassment and mental anguish. The Court of
Appeals' decision was affirmed, and the petition was denied.
iii. Carbonell vs. Metrobank, April 26, 2017

Facts:

The case involves Spouses Cristino and Edna Carbonell (petitioners) against
Metropolitan Bank and Trust Company (respondent). The petitioners filed Civil
Case No. 65725 for damages, alleging emotional shock, mental anguish, public
ridicule, humiliation, insults, and embarrassment during their trip to Thailand due
to the respondent's release of five US$100 bills that turned out to be counterfeit.
The petitioners had withdrawn US$1,000 from their dollar account at the
respondent's Pateros branch before traveling to Bangkok. In Bangkok, they
exchanged five US$100 bills into Baht, but one bill was rejected as "no good." A
bank teller at Norkthon Bank in Bangkok confirmed the bill was fake, confiscated
it, and threatened to report them to the police. Later, they used four remaining
US$100 bills to buy jewelry, but the shop owner confronted them the next day,
claiming the bills were counterfeit and publicly ridiculing them. Upon returning to
the Philippines, the petitioners confronted the bank manager, who insisted the bills
were genuine. The Bangko Sentral ng Pilipinas (BSP) later certified that the four
US$100 bills were near-perfect genuine notes. The petitioners demanded moral
and exemplary damages of P10 million from the respondent, who expressed
sympathy but denied liability, stating they could not guarantee the genuineness of
every foreign currency note. The Regional Trial Court (RTC) dismissed the
complaint for lack of merit and awarded attorney's fees to the respondent. The
Court of Appeals (CA) affirmed the RTC's decision but deleted the award of
attorney's fees. The petitioners appealed to the Supreme Court.

Issue:

1. Did the respondent bank fail to exercise the required degree of diligence,
thereby making it liable for damages due to gross negligence,
misrepresentation, and bad faith?
2. Are the petitioners entitled to moral and exemplary damages for the
embarrassment and humiliation they suffered in Bangkok?

Ruling:

1. The Supreme Court ruled that the respondent bank did not fail to exercise
the required degree of diligence and was not liable for damages due to
gross negligence, misrepresentation, or bad faith.
2. The Supreme Court ruled that the petitioners were not entitled to moral
and exemplary damages.

Ratio:

The Supreme Court emphasized that the General Banking Act of 2000 demands the
highest standards of integrity and performance from banks, requiring them to treat
depositors' accounts with meticulous care. However, the degree of diligence must
be determined based on the specific circumstances of each case. The Court found
that the respondent bank had exercised the required diligence in handling the US
dollar bills, following standard operating procedures and taking necessary
precautions. The BSP certified that the counterfeit bills were "near perfect
genuine notes," making it extremely difficult to detect their falsity even with due
diligence. The Court noted that the petitioners' argument of gross negligence was
unfounded, as gross negligence involves a want of care characterized by a lack of
even slight care, which was not evident in this case. The respondent bank had not
acted fraudulently or in bad faith, and there was no legal basis for awarding moral
and exemplary damages. The Court also highlighted that the petitioners' situation
was one of damnum absque injuria, where there is damage without legal injury,
and thus, no compensation for damages was warranted. The respondent's offer to
reinstate US$500 in the petitioners' account and provide an all-expense-paid trip to
Hong Kong was not an admission of liability. The Court affirmed the CA's decision
and ordered the petitioners to pay the costs of the suit.

iv. BPI vs. Quiaoit, 16 January 2019

Facts:

The case involves the Bank of the Philippine Islands (BPI) and the Spouses
Fernando V. Quiaoit and Nora L. Quiaoit. Fernando maintained both peso and
dollar accounts with BPI's Greenhills-Crossroads Branch. On April 20, 1999,
Fernando, through his representative Merlyn Lambayong, encashed a check for
US$20,000. The money was placed in a large Manila envelope, and Lambayong did
not count the bills. Notably, the dollar bills were not marked with BPI's "chapa,"
nor were their serial numbers recorded. Nora used part of the money to purchase
plane tickets for their travel abroad. On May 19, 1999, while in Madrid, Spain,
Nora faced embarrassment when several banks refused to exchange some of the
US$100 bills, deeming them counterfeit. The couple's friends and relatives also
reported receiving counterfeit bills from them. Upon returning to the Philippines,
the spouses Quiaoit complained to BPI, but the bank failed to resolve their
concerns. The Regional Trial Court of Quezon City ruled in favor of the spouses
Quiaoit, ordering BPI to pay US$4,400 in actual damages, P200,000 in moral
damages, P50,000 in exemplary damages, and P50,000 in attorney's fees. The
Court of Appeals affirmed this decision, leading BPI to seek relief from the
Supreme Court.

Issue:

1. Did the counterfeit US dollar bills come from BPI?

2. Did BPI exercise due diligence in handling the withdrawal of the US dollar
bills?
3. Is BPI liable for damages?

Ruling:

The Supreme Court denied BPI's petition, affirming the Court of Appeals' decision
with a modification to delete the award of exemplary damages.

Ratio:
The Supreme Court held that BPI failed to exercise the highest degree of diligence
required of banking institutions. Despite having ample time to prepare the dollar
bills, BPI did not list the serial numbers, which could have verified the authenticity
of the bills. The court emphasized that banks are obligated to treat their clients'
accounts with meticulous care, as mandated by the General Banking Act of 2000.
BPI's failure to list the serial numbers and inform Lambayong about the "chapa"
markings constituted negligence. The court also applied the doctrine of last clear
chance, stating that BPI had the final opportunity to prevent the harm by listing
the serial numbers. The court sustained the award of moral damages due to the
serious anxiety, embarrassment, and humiliation suffered by the spouses Quiaoit
but deleted the award of exemplary damages, as BPI's negligence was not
attended with malice or bad faith. The award of attorney's fees was upheld
because the spouses Quiaoit were forced to litigate to protect their rights.

v. Poole-Blunden vs. Union Bank, 29 November 2017

Facts:

The case involves petitioner Joseph Harry Walter Poole-Blunden and respondent
Union Bank of the Philippines (UnionBank). In March 2001, Poole-Blunden saw an
advertisement by UnionBank in the Manila Bulletin for a public auction of
properties, including a condominium unit (Unit 2-C of T-Tower Condominium) in
Makati City. The unit was advertised as having an area of 95 square meters. Poole-
Blunden inspected the unit before the auction and found it in poor condition but
did not doubt the advertised area. He won the auction with a bid of P2,650,000.00
and entered into a Contract to Sell with UnionBank on May 7, 2001. Poole-
Blunden fully paid for the unit by July 20, 2003, totaling P3,257,142.49. In late
2003, he discovered that the unit's actual floor area was only about 70 square
meters. Despite his complaints and an independent survey confirming the
discrepancy, UnionBank maintained that the 95 square meters included common
areas. Poole-Blunden filed a Complaint for Rescission of Contract and Damages,
which the Regional Trial Court dismissed on April 20, 2010. The Court of Appeals
affirmed this decision on November 15, 2012, leading Poole-Blunden to file a
Petition for Review on Certiorari with the Supreme Court.

Issue:

1. Did Union Bank of the Philippines commit fraud by falsely advertising the
area of the condominium unit, thereby vitiating Poole-Blunden's consent
and entitling him to void the Contract to Sell?

Ruling:

The Supreme Court granted the petition, reversing and setting aside the decisions
of the Court of Appeals and the Regional Trial Court. The Contract to Sell
was declared null and void.
UnionBank was ordered to refund Poole-Blunden the amount of P3,257,142.49
with legal interest, pay P100,000.00 as exemplary damages, P100,000.00 as
attorney's fees, and cover the costs of litigation.

Ratio:

The Supreme Court found that UnionBank's advertisement of the unit as having 95
square meters, inclusive of common areas, was misleading and constituted causal
fraud. The court emphasized that the advertised area was material to Poole-
Blunden's decision to purchase the unit. The "as-is-where-is" clause in the Contract
to Sell did not absolve UnionBank of liability because it knew the actual area of the
unit did not meet the advertised specifications. The court held that the discrepancy
in the unit's area was substantial and that UnionBank's gross negligence in
verifying the unit's specifications amounted to bad faith. The court also noted that
banks are required to exercise a high degree of diligence in their dealings,
especially when dealing with properties acquired through foreclosure. The decision
was based on the 1987 Philippine Constitution and relevant provisions of the Civil
Code, including Articles 1390, 1338, 1344, 1542, 1561, and 1566.

vi. Comsavings Bank vs. Capistrano, 28 August 2013

Facts:

In the case of Comsavings Bank (now GSIS Family Bank) v. Spouses Danilo and
Estrella Capistrano, the respondents owned a residential lot in Bacoor, Cavite, and
sought to build a house on it. They availed themselves of the Unified Home
Lending Program (UHLP) facilitated by the National Home Mortgage Finance
Corporation (NHMFC). On May 28, 1992, they entered into a construction contract
with GCB Builders for P265,000.00, with the construction to be completed within
75 days. To finance this, GCB Builders facilitated their loan application with
Comsavings Bank, an NHMFC-accredited originator. The respondents submitted
necessary documents, including employment records and an SSS clearance. They
also executed a deed of assignment of the P300,000.00 loan proceeds to GCB
Builders. On July 2, 1992, Comsavings Bank required Estrella Capistrano to sign
various documents, including a certificate of house completion and acceptance,
even though the construction had not started. By October 9, 1992, Comsavings
Bank had released P265,000.00 to GCB Builders in four installments. Despite this,
the house remained unfinished by the end of 1992. In February 1993, GCB
Builders demanded an additional P25,000.00 to complete the construction, later
increasing the demand to P52,511.59. On May 30, 1993, NHMFC informed the
respondents to start paying monthly amortizations, even though the house was still
incomplete. The respondents discovered numerous defects and incomplete work.
They wrote to NHMFC protesting the demand for amortization payments and
requested an inspection, which confirmed the house was unfinished
and defective. On July 12, 1993, the respondents sued GCB Builders and
Comsavings Bank for breach of contract and damages. The RTC ruled in favor of
the respondents, ordering the defendants to complete the house and pay various
damages. The CA affirmed the RTC's decision with modifications, absolving
NHMFC of liability and reducing the moral and exemplary damages.

Issue:

1. Whether the Court of Appeals erred in finding Comsavings Bank jointly and
severally liable with GCB Builders to pay the respondents actual, moral,
and exemplary damages, as well as attorney's fees.

Ruling:

The Supreme Court affirmed the decision of the Court of Appeals, subject to
modifications. Comsavings Bank and GCB Builders were ordered to pay, jointly and
severally, the respondents P25,000.00 as temperate damages, P30,000.00 as
attorney's fees, interest of 6% per annum on all amounts of damages from the
finality of the decision, and the costs of the suit.

Ratio:

The Supreme Court held that Comsavings Bank's liability was based on Articles 20
and 1170 of the Civil Code, which mandate indemnification for damages caused by
willful or negligent acts. As a banking institution, Comsavings Bank was required
to exercise the highest degree of diligence and integrity. The bank was grossly
negligent in making the respondents pre-sign the certificate of house completion
and acceptance, knowing the house was not yet constructed. This act was
fraudulent and caused significant prejudice to the respondents, who were
compelled to start paying amortizations for an incomplete and defective house. The
bank's submission of false documents to NHMFC further demonstrated its gross
negligence. The award of moral and exemplary damages was justified due to the
mental anguish and inconvenience suffered by the respondents. The Supreme
Court also awarded temperate damages in lieu of actual damages, as the
respondents' pecuniary loss could not be proved with certainty. The award of
attorney's fees was upheld due to the exemplary damages awarded and the
respondents' need to protect their interests through litigation.

vii.PNB vs. Villa, August 1, 2016

Facts:

The case involves a dispute over the ownership of a mortgaged property between
the Philippine National Bank (PNB) and Juan F. Vila. The property in question, a
451-square meter parcel of land designated as Lot 555-A-2, was initially mortgaged
by Spouses Reynaldo Cornista and Erlinda Gamboa Cornista to Traders Royal Bank
in 1986 to secure a loan. Due to the Cornistas'
failure to fulfill their loan obligations, the property was foreclosed and sold at a
public auction on December 23, 1987, where Juan F. Vila emerged as the highest
bidder. Vila took possession of the property and paid the real estate taxes. After
the redemption period lapsed without the Cornistas redeeming the property, a
Certificate of Final Sale was issued to Vila on February 11, 1989. However, the
Cornistas were later allowed to redeem the property, leading Vila to file an action
for nullification of redemption, transfer of title, and damages. The Regional Trial
Court (RTC) ruled in favor of Vila, and the decision was affirmed by the Court of
Appeals (CA). Despite this, the Cornistas managed to secure another loan from
PNB using the same property as collateral. When the Cornistas defaulted on this
loan, PNB foreclosed the property and consolidated its ownership. Vila then filed
another case against the Cornistas and PNB, leading to the RTC ruling that PNB
was not a mortgagee in good faith. This decision was affirmed by the CA,
prompting PNB to file a Petition for Review on Certiorari with the Supreme Court.

Issue:

1. Whether or not PNB is a mortgagee in good faith.

2. Whether or not PNB is liable for damages.

Ruling:

The Supreme Court denied the petition, affirming the decisions of the RTC and the
CA. The Court ruled that PNB was not a mortgagee in good faith and upheld the
award of moral damages, exemplary damages, attorney's fees, and litigation
expenses in favor of Vila.

Ratio:

The Court emphasized that the issue of whether a mortgagee is in good faith is a
factual matter, which is generally not entertained in a Rule 45 petition. Both the
RTC and the CA found that PNB failed to exercise the required degree of diligence
expected from banking institutions. PNB accepted the collateral offered by the
Cornistas without making further inquiries into the real status of the property. Had
PNB conducted an ocular inspection, it would have discovered that Vila was in
possession of the property and was paying the real estate taxes. The Court
reiterated that banks are expected to exercise a higher degree of diligence and
prudence in their dealings, especially when dealing with registered lands. The
failure of PNB to take precautionary steps precluded it from invoking the status of
a mortgagee in good faith. The Court also upheld the award of damages, stating
that PNB's negligence caused harm to Vila, justifying the award of moral and
exemplary damages, as well as attorney's fees and litigation expenses.
viii. Catapang v. Lipa Bank, January 27, 2020

Facts:
The case involves petitioners Redentor Catapang and his aunt, Casiana Catapang
Garbin, against respondent Lipa Bank. The Spouses Alejandro and Rosalinda
Catapang, Redentor's parents, obtained a loan from Lipa Bank secured by a Deed
of Real Estate Mortgage over their property in Rosario, Batangas. After failing to
pay the loan, the property was foreclosed and consolidated in Lipa Bank's name in
February 1999. The bank allowed the Spouses Catapang to stay on the property
and later offered to sell it to Redentor for PHP 1,500,000. Redentor paid PHP
200,000 of the required PHP 400,000 downpayment and secured a loan of PHP
270,000 from Lipa Bank, using a property owned by his aunts, including Casiana,
as collateral. Casiana allegedly signed a Promissory Note and Deed of Real Estate
Mortgage without her knowledge and consent. Redentor and Casiana filed a
complaint in the Regional Trial Court (RTC) of Rosario, Batangas, seeking to nullify
the Promissory Note and Deed of Real Estate Mortgage, and to declare the Sales
Contract null and void. The RTC declared the Sales Contract valid but nullified the
Promissory Note and Deed of Real Estate Mortgage, ordering Lipa Bank to release
the title and pay damages. Lipa Bank's appeal to the Court of Appeals (CA)
resulted in the CA declaring the Promissory Note and Deed of Real Estate
Mortgage valid and deleting the damages awarded. The petitioners then brought
the case to the Supreme Court.

Issue:

1. Are the Promissory Note and Deed of Real Estate Mortgage entered
into between petitioner Casiana and respondent Lipa Bank valid and
binding contracts?

Ruling:

The Supreme Court granted the petition, reversing the CA's decision and
reinstating the RTC's decision with modifications. The Promissory Note and Deed
of Real Estate Mortgage were declared null and void due to lack of consent. The
Court ordered Lipa Bank to release and surrender TCT No. T-52886 to Casiana and
to pay her PHP 100,000 in moral damages, PHP 100,000 in exemplary damages,
and PHP 20,000 in attorney's fees, with all monetary awards earning interest at 6%
per annum from the finality of the decision until full satisfaction.

Ratio:

The Supreme Court found that the Promissory Note and Deed of Real Estate
Mortgage lacked the essential element of consent, rendering them null and void.
Consent requires a meeting of the minds on the object and cause of the contract,
which was absent in this case. Casiana, a Grade 6 graduate who did not
understand English, was misled into signing documents she believed were merely
a "garantiya" for Redentor's loan. The Court emphasized that the burden of proof
was on Lipa Bank to show that the terms of the contract were fully explained to
Casiana, as required by Article 1332 of the Civil Code. The bank failed to meet this
burden, and the notarization of the Deed of Real Estate Mortgage was found to
be irregular. The Court also
highlighted the fiduciary duty of banking institutions to act with professionalism
and good faith, awarding exemplary damages to set an example for the public
good.

ix. Consolidated Bank and Trust Corporation vs. Court of Appeals, G.R. No. 138569,
September 11, 2003

Facts:

The case involves the Consolidated Bank and Trust Corporation (Solidbank) and
L.C. Diaz and Company, CPA's (L.C. Diaz). On August 14, 1991, L.C. Diaz's cashier,
Mercedes Macaraya, instructed their messenger, Ismael Calapre, to deposit money
into their savings account at Solidbank. Calapre left the passbook with Teller No. 6
at Solidbank due to the transaction taking time and went to Allied Bank for another
deposit. Upon returning, he was informed that someone else had taken the
passbook. Later that day, Macaraya discovered that a P300,000 unauthorized
withdrawal had been made from their account using a withdrawal slip with forged
signatures of the authorized signatories, Luis C. Diaz and Rustico L. Murillo. L.C.
Diaz immediately requested Solidbank to stop any transactions using the passbook
and demanded the return of the money, which Solidbank refused. L.C. Diaz filed a
complaint for recovery of the sum of money, but the Regional Trial Court of Manila
absolved Solidbank, citing that the bank had followed its rules and that L.C. Diaz
was negligent. The Court of Appeals reversed this decision, holding Solidbank
liable for negligence and breach of fiduciary duty. Solidbank then petitioned for
review.

Issue:

1. Did the Court of Appeals err in holding that Solidbank should have
verified the withdrawal by calling L.C. Diaz before allowing it?
2. Was the doctrine of last clear chance correctly applied by the Court of
Appeals?
3. Is the case a last-ditch effort by L.C. Diaz to recover the P300,000 after the
dismissal of the criminal case against their employee?
4. Should the damages awarded against Solidbank be mitigated due to
contributory negligence by L.C. Diaz?

Ruling:

1. The Supreme Court held that Solidbank was liable for breach of
contract due to negligence.
2. The doctrine of last clear chance was not applicable in this case.
3. The Supreme Court did not find merit in the argument that the case was
a last-ditch effort by L.C. Diaz.
4. The damages awarded were mitigated, with Solidbank liable for 60% and
L.C. Diaz for 40%.

Ratio:
The Supreme Court ruled that Solidbank breached its contractual obligation by
failing to return the passbook to Calapre, the authorized representative of L.C.
Diaz. The bank's fiduciary duty required it to exercise a high degree of diligence,
which it failed to do. The proximate cause of the unauthorized withdrawal was
Solidbank's negligence in not returning the passbook to the authorized person. The
doctrine of last clear chance was not applicable because this was a case of culpa
contractual, where contributory negligence by the plaintiff does not exonerate the
defendant but only reduces the damages. The Court found that L.C. Diaz was also
negligent in allowing the withdrawal slip to fall into the hands of an impostor, thus
reducing Solidbank's liability to 60% of the actual damages.

G. Organization, management and administration of banks and quasi-banks

H. Authority of Bangko Sentral over Banks
i. Central Bank vs. Citytrust Bank, G.R. No. 141835, February 4, 2009

Facts:

The case involves the Central Bank of the Philippines (now Bangko Sentral ng
Pilipinas) and Citytrust Banking Corporation (formerly Feati Bank). Citytrust
maintained a demand deposit account with the Central Bank, providing the names
and signatures of five officers authorized to sign checks and a list of roving tellers
authorized to perform transactions on its behalf. One such teller was "Rounceval
Flores." On July 15, 1977, Flores presented two Citytrust checks totaling
P1,750,000 to the Central Bank's Senior Teller, Iluminada dela Cruz. The checks
were certified, and Iluminada prepared a cash transfer slip, stamped the checks,
and asked Flores to sign. Flores signed as "Rosauro C. Cayabyab," which Iluminada
failed to notice. The checks were then verified by the Central Bank's Cash
Department, and the amount was debited from Citytrust's account. On April 23,
1979, Citytrust demanded the restoration of the amounts, claiming the checks
were stolen and canceled. The Central Bank refused, leading Citytrust to file a
complaint for estafa against Flores, who was convicted. Citytrust then filed a
complaint for recovery of the sum of money with damages against the Central
Bank. The Regional Trial Court (RTC) of Manila found both parties negligent and
equally liable for the loss. The Court of Appeals affirmed this decision, leading to
the present appeal by the Central Bank.

Issue:

1. Was the Central Bank negligent in encashing the checks and charging
the proceeds to Citytrust's account?
2. Is Citytrust solely responsible for the loss due to its alleged negligence in
handling the checks and the delay in reporting the theft?
Ruling:

1. The Supreme Court ruled that both the Central Bank and Citytrust were
negligent and should share the loss on a 60-40 ratio.
 2. The Court affirmed the decision of the Court of Appeals with modification,
allocating the loss between the Central Bank and Citytrust.

Ratio:

The Supreme Court found that the Central Bank's teller, Iluminada, failed to verify
Flores' signature properly, which was a significant lapse given the fiduciary nature
of banking. The Court emphasized that banks are required to observe high
standards of integrity and performance, as mandated by Section 2 of Republic Act
No. 8791 and established jurisprudence. The Central Bank's argument that Flores
was an authorized teller did not excuse the teller's failure to verify the signature.
However, Citytrust's negligence in failing to timely examine its account, cancel the
checks, and notify the Central Bank of their loss also contributed to the fraudulent
encashment. The Court applied Article 2179 of the Civil Code, which allows for the
mitigation of damages when the plaintiff's negligence is contributory.
Consequently, the Court deemed it proper to allocate the loss on a 60-40 ratio,
with the Central Bank bearing the larger share due to its more significant lapse in
duty.

J. Powers of Universal Banks

K. Powers of Commercial Banks
L. Ownership of Banks
(i.) Filipino Stockholdings in Domestic
Banks (ii.) Foreign Shareholdings in
Domestic Banks
(iii.) Determination of proportional
shareholdings (iv.) Foreign Banks
(v.) Capital Requirements for foreign banks seeking to operate in the Philippines

M. Management of
Banks (i.) Fit and
Proper Rule
(ii.) Composition of
Directors (iii.)
Independent Directors
(iv.) Meetings
(v.) Prohibition on Public Officials

N. Deposit Function of Banks

(i.). Nature of Bank funds and Bank Deposits
i. Citibank, N.A. vs. Sabeniano, G.R. No. 156132, October 16, 2006

Facts:

The case involves a dispute between Citibank, N.A. (formerly First National City
Bank) and Investors' Finance Corporation (doing business as FNCB Finance)
against Modesta R. Sabeniano. On August 8, 1985, Sabeniano filed a complaint
against Citibank and FNCB Finance before the Regional Trial Court (RTC) of
Makati City. She alleged that the petitioners refused to return her deposits and
money market placements despite repeated demands. Sabeniano
claimed substantial deposits and money market placements with the petitioners,
including accounts with Citibank-Geneva. The petitioners admitted the existence of
these accounts but contended that Sabeniano had obtained several loans from
Citibank, which were secured by a Declaration of Pledge and Deeds of Assignment.
When Sabeniano failed to pay her loans, Citibank exercised its right to off-set her
deposits and money market placements against her outstanding loans. The RTC
ruled in favor of Sabeniano, declaring the setoff illegal and ordering Citibank to
refund the amount with interest. Both parties appealed to the Court of Appeals,
which affirmed the RTC's decision with modifications. Citibank then filed a Petition
for Review on Certiorari with the Supreme Court.

Issue:

1. Did Citibank have the right to off-set Sabeniano's deposits and

money market placements against her outstanding loans?
2. Were the loans obtained by Sabeniano from Citibank valid and existing?
3. Was the Declaration of Pledge executed by Sabeniano in favor of Citibank
valid?
4. Is Sabeniano entitled to the return of her deposits and money market
placements, and if so, what amounts are due to her?
5. Should Citibank be held liable for damages and attorney's fees?

Ruling:

1. The Supreme Court ruled that Citibank had the right to off-set
Sabeniano's savings account and money market placements with FNCB
Finance against her outstanding loans but declared the off-set of her
dollar accounts with Citibank-Geneva illegal, null, and void.
2. The Court found that the loans obtained by Sabeniano from Citibank
were valid and existing.
3. The Declaration of Pledge was found to be highly suspicious and
irregular, and thus, invalid.
4. Citibank was ordered to return the amounts of PNs No. 23356 and
23357, and the remittance from Citibank-Geneva, with the stipulated
interest.
5. Citibank was ordered to pay moral damages, exemplary damages, and
attorney's fees to Sabeniano.

Ratio:

The Supreme Court's decision was based on several key findings. First, the Court
determined that Citibank had the right to off-set Sabeniano's local deposits and
money market placements with FNCB Finance against her outstanding loans, as
these were secured by valid Deeds of Assignment. However, the off-set of her
dollar accounts with Citibank-Geneva was declared illegal due to the highly
suspicious and irregular nature of the Declaration of Pledge, which was undated,
unnotarized, and contained errors. The Court also found that the loans obtained by
Sabeniano from Citibank were valid and existing, supported by substantial
documentary and testimonial evidence. The Court emphasized the fiduciary duty of
banks to treat their clients' accounts with meticulous care and found that Citibank
failed to exercise the required degree of care and transparency in its transactions
with Sabeniano. Consequently, Citibank was ordered to
return the amounts due to Sabeniano, with interest, and to pay damages and
attorney's fees for the wrongful deprivation of her property.

ii.Serrano vs. Central Bank, G.R. No. L-30511, February 14, 1980

Facts:

The case of "Serrano v. Central Bank of the Philippines" (G.R. No. L-30511) was
decided on February 14, 1980, by the Second Division of the Supreme Court of the
Philippines, with Justice Concepcion, Jr. as the ponente. The petitioner, Manuel M.
Serrano, sought joint and solidary liability against the Central Bank of the
Philippines and the Overseas Bank of Manila, along with several individual
respondents, for the alleged failure of the Overseas Bank of Manila to return time
deposits made by Serrano and assigned to him. Serrano argued that the Central
Bank failed in its duty to exercise strict supervision over the Overseas Bank of
Manila to protect depositors and the general public. Serrano also requested that
the properties listed in Annex "7" of the Central Bank's answer in a related case
(G.R. No. L-29352) be constituted into a trust fund for the benefit of depositors,
and that the respondents be prohibited from honoring deeds of mortgage,
assignment, or conveyance of these properties.

The pertinent facts are as follows: On October 13, 1966, and December 12, 1966,
Serrano made time deposits totaling P150,000 with the Overseas Bank of Manila.
Another depositor, Concepcion Maneja, made a time deposit of P200,000 on March
6, 1967, which she later assigned to Serrano on August 31, 1968. Despite multiple
demands for encashment from December 6, 1967, to March 4, 1968, the Overseas
Bank of Manila did not honor these time deposits. The Central Bank admitted its
supervisory role over banks but denied that it had a duty to exercise the most rigid
supervision over every bank's activities. The Central Bank also denied being a
guarantor of any bank's solvency and argued that publicizing remedial measures
could cause panic. The Central Bank further contended that the Overseas Bank of
Manila was not declared insolvent during the relevant period and that no
constructive trust was created in favor of Serrano or Maneja.

In a related case (G.R. No. L-29352), the Overseas Bank of Manila sought to
prevent the Central Bank from closing and liquidating it. Serrano's motion to
intervene in that case was denied by the Supreme Court, which suggested that his
claims should be addressed in the Court of First Instance. The Supreme Court
eventually ruled in favor of the Overseas Bank of Manila in G.R. No. L-29352,
annulling the Central Bank's resolutions that prohibited the bank from
participating in clearing, suspended its operations, and ordered its liquidation.
Serrano then filed a motion for judgment in the present case, seeking to hold the
Central Bank and the Overseas Bank of Manila jointly and severally liable for the
time deposits and to declare
the bank's assets as trust funds for depositors. The Supreme Court, however,
reiterated that such claims should be pursued in the Court of First Instance and
not through mandamus and prohibition, as there was no clear abuse of discretion
by the Central Bank.

Issue:

1. Whether the Central Bank of the Philippines failed in its duty to

exercise strict supervision over the Overseas Bank of Manila to
protect depositors.
2. Whether a constructive trust was created in favor of the petitioner when
the Overseas Bank of Manila increased its collaterals for overdrafts and
emergency loans using depositors' money.
3. Whether the petitioner can seek joint and solidary liability against the
Central Bank and the Overseas Bank of Manila for the return of time
deposits and the creation of a trust fund.

Ruling:

1. The Supreme Court ruled that the Central Bank did not fail in its duty to
exercise strict supervision over the Overseas Bank of Manila.
2. The Court found that no constructive trust was created in favor of the
petitioner.
3. The petition was dismissed for lack of merit, with costs against the petitioner.

Ratio:

The Supreme Court held that bank deposits are in the nature of irregular deposits
and are essentially loans because they earn interest. Therefore, all kinds of bank
deposits, whether fixed, savings, or current, are to be treated as loans and are
covered by the law on loans. The petitioner, by making time deposits that earn
interest, was in reality a creditor of the Overseas Bank of Manila, and the bank was
a debtor. The failure of the bank to honor the time deposits was a failure to pay its
obligation as a debtor, not a breach of trust. The Court also noted that the claims
for recovery of time deposits and damages should be pursued in the Court of First
Instance, not through mandamus and prohibition, as there was no clear abuse of
discretion by the Central Bank. Additionally, the petitioner was not the proper
party to raise the issue of the Central Bank's supervision, which should have been
raised by the Overseas Bank of Manila itself.

iii. BPI vs. First Metro Investment Corp., G.R. No. 132390, December 8, 2004

Facts:

First Metro Investment Corporation (FMIC), an investment house organized under

Philippine laws, opened a current account with BPI Family Savings Bank, Inc. (BPI
FB) on August 25, 1989, by depositing a Metrobank check worth P100 million. This
transaction was facilitated by FMIC's Executive Vice President, Antonio Ong, upon
the request of Ador de Asis, a close acquaintance of Jaime Sebastian, the Branch
Manager of BPI FB's San Francisco del Monte Branch in Quezon City. The deposit
aimed to increase the branch's deposit level, and BPI FB, through Sebastian,
guaranteed a 17% per annum interest on the deposit, paid in advance. This
agreement was documented through written communications. However, on
August 29, 1989, BPI FB
transferred P80 million from FMIC's account to Tevesteco Arrastre Stevedoring,
Inc.'s savings account based on an allegedly falsified Authority to Debit signed by
Ong and Ma. Theresa David, Senior Manager of FMIC. FMIC denied authorizing
this transfer and, on September 12, 1989, issued a check to recover its deposit,
which BPI FB dishonored due to insufficient funds. Consequently, FMIC filed a civil
case against BPI FB and caused the filing of an estafa case against several
individuals, including Ong, de Asis, and Sebastian. The estafa case was dismissed,
but the Regional Trial Court ruled in favor of FMIC in the civil case, ordering BPI
FB to pay P80 million with interest, attorney's fees, and costs. The Court of
Appeals modified this decision, reducing the amount to P65,332,321.99 plus
interest. BPI FB's motion for reconsideration was denied, leading to the present
petition.

Issue:

1. Did the Court of Appeals err in validating the agreement between FMIC
and BPI FB's Branch Manager?
2. Was the transaction between FMIC and BPI FB illegal under existing bank
regulations?
3. Did the Court of Appeals err in ruling that BPI FB's Branch Manager
had apparent authority to enter into the agreement?
4. Should FMIC be held negligent for the unauthorized transfer of funds?
5. Did the Court of Appeals award an amount beyond what was contemplated
or prayed for by FMIC?
6. Should the case have been consolidated with another pending case involving
Tevesteco?

Ruling:

1. The Court of Appeals did not err in validating the agreement.

2. The transaction was not illegal under existing bank regulations.
3. The Branch Manager had apparent authority to enter into the agreement.
4. FMIC was not negligent in the unauthorized transfer of funds.
5. The Court of Appeals did not award an amount beyond what was
contemplated or prayed for by FMIC.
6. The case did not need to be consolidated with the pending case involving
Tevesteco.

Ratio:

The Supreme Court upheld the Court of Appeals' decision, affirming that the
deposit was intended as a time deposit, earning 17% per annum interest, and not a
demand deposit. The Court emphasized that the unauthorized transfer of funds by
BPI FB constituted a breach of its fiduciary duty, justifying FMIC's withdrawal of
its deposit. The Court also noted that Central Bank regulations allowed interest on
demand deposits, and the transaction was ratified by BPI FB when it paid the
interest in advance. The Court held that BPI FB was estopped from denying the
authority of its Branch Manager, as FMIC had dealt in good faith. The award of
interest was deemed appropriate as it was within the issues framed by the parties.
The Court also found no merit in consolidating the case with the pending
Tevesteco case, as the unauthorized transfer was already established. The
Supreme Court reiterated that banks must treat depositors' accounts with
meticulous care and upheld the lower courts' findings that BPI FB failed to
exercise the required degree of diligence.

iv. Tang Tiong Tick vs. American Apothecaries, G.R. No. L-43682, March 31, 1938

Facts:
In the case of "Tan Tiong Tick v. American Apothecaries Co.," the proceedings
involved the liquidation of the Mercantile Bank of China. The appellant, Tan Tiong
Tick, claimed that when the bank ceased operations on September 19, 1931,
his current account had a balance of
P9,657.50, and his savings account had a balance of P20,000 plus P194.78 in
interest. Conversely, he owed the bank P13,262.58 for trust receipts related to
merchandise consigned to him. Tan Tiong Tick requested that these amounts be
set off against each other, resulting in a net claim of P16,589.70, which he sought
to be declared as a preferred credit. The lower court, following the
recommendation of the commissioner, classified the balance as an ordinary credit
without interest. The appellant contested this decision, leading to the present
appeal. The case was heard by the First Division of the Supreme Court of the
Philippines, with Justice Imperial delivering the decision on March 31, 1938.

Issue:

1. Are current account and savings deposits considered preferred credits in

the liquidation of a bank?
2. Is the appellant entitled to set off his claims against the bank's debts?
3. Should the appellant be awarded interest on his deposits during the
liquidation process?

Ruling:

1. Current account and savings deposits are not considered preferred

credits in the liquidation of a bank.
2. The set off of the appellant's claims against the bank's debts is valid
and should be upheld.
3. The appellant is not entitled to interest on his deposits from the time the
bank ceased operations until the date of payment.

Ratio:

1. Preferred Credits: The court ruled that current account and savings
deposits are essentially mercantile contracts governed by the Code of
Commerce, not the Civil Code. According to Article 309 of the Code of
Commerce, these deposits are converted into simple commercial loans
when the bank uses the funds for its transactions. Therefore, they do not
qualify as preferred credits under the applicable laws, including the
Insolvency Law and Act No. 3519, which govern the order of payment in
bank liquidations.
2. Set Off: The court upheld the set off of mutual debts between the appellant
and the bank. It cited general legal principles and relevant case law, stating
that when a depositor is indebted to a bank, the bank may apply the deposit
to the payment of the debt, provided there is no express agreement to the
contrary. This principle is supported by Section 1639 of the Revised
Administrative Code, which mandates the liquidation of individual accounts
before converting the bank's assets into cash.
3. Interest on Deposits: The court distinguished between interest earned
before and after the bank ceased operations. It held that interest accrued
before the bank's liquidation should be paid, as it was earned in the
ordinary course of business. However, interest from the date the bank
ceased operations until the payment of deposits should not be awarded.
The court reasoned that allowing such interest would be unjustified and
anomalous in a liquidation scenario, where assets must be prorated among
all creditors due to insufficient funds to cover all obligations.

In conclusion, the Supreme Court affirmed the lower court's decision, declaring
the appellant's net claim of P13,611.21 as an ordinary credit and denying interest
from the date of the bank's cessation of operations. The court emphasized the need
for equitable distribution of the bank's limited assets among all creditors.
v. Guingona vs. City Fiscal of Manila, G.R. No. L-60033, April 4, 1984

Facts:

The case "Guingona, Jr. v. City Fiscal of Manila" involves petitioners Teofisto
Guingona, Jr., Antonio I. Martin, and Teresita Santos against respondents,
including the City Fiscal of Manila, Hon. Jose B. Flaminiano, Asst. City Fiscal
Felizardo N. Lota, and Clement David. The case was decided on April 4, 1984,
under G.R. No. 60033, with Justice Makasiar as the ponente. The dispute arose
when Clement David, the private respondent, invested substantial sums in the
Nation Savings and Loan Association (NSLA) through time and savings deposits.
When NSLA was placed under receivership by the Central Bank on March 21,
1981, David filed claims for his investments. Subsequently, David filed a criminal
complaint for estafa and violation of Central Bank Circular No. 364 against the
petitioners and other NSLA directors, alleging misappropriation of funds and
unauthorized foreign exchange transactions. The petitioners contended that their
liability was purely civil, not criminal, and sought to prohibit the public
respondents from proceeding with the preliminary investigation. The lower court
issued a temporary restraining order on March 31, 1982, halting the investigation.
The Solicitor General's comment and the antecedent facts provided by the
petitioners highlighted that the transactions between David and NSLA were simple
loans, not deposits, and that any criminal liability was avoided through novation
when Guingona and Martin assumed NSLA's obligations to David.

Issue:

1. Did the public respondents act without jurisdiction in investigating the

charges of estafa and violation of Central Bank regulations against the
petitioners?
2. Is the liability of the petitioners purely civil in nature, thereby
precluding criminal prosecution?

Ruling:

1. Yes, the public respondents acted without jurisdiction in investigating

the charges against the petitioners.
2. Yes, the liability of the petitioners is purely civil in nature,
precluding criminal prosecution.

Ratio:

The Supreme Court ruled that the contract between David and NSLA was a simple
loan (mutuum) and not a deposit, as governed by Article 1980 of the Civil Code.
This established a creditor-debtor relationship, transferring ownership of the
deposited amount to the bank, which could use the funds for its operations. The
failure of NSLA to return the deposited amount constituted a civil liability, not
estafa through misappropriation under Article 315, par. 1(b) of the Revised Penal
Code. Furthermore, the court noted that any incipient criminal liability was
avoided through novation when Guingona and Martin assumed NSLA's
obligations to David
before the filing of the criminal complaint. The court also found no clear evidence
of unauthorized foreign exchange transactions, as the US dollars were converted
into Philippine currency before being deposited in NSLA. Consequently, the public
respondents lacked jurisdiction to proceed with the criminal investigation, and the
petitioners' liability remained civil. The court emphasized that allowing the
criminal case to continue would result in great injustice to the petitioners and
undermine the proper administration of justice. The court granted the petition,
making the temporary restraining order permanent.

vi. Phil. Banking Corp. vs. Court of Appeals, G.R. No. 127469, January 15, 2004

Facts:

On August 30, 1989, Leonilo Marcos filed a Complaint for Sum of Money with
Damages against the Philippine Banking Corporation (BANK) in the Regional Trial
Court, Fourth Judicial Region, Biñan, Laguna. Marcos alleged that in 1982,
Florencio B. Pagsaligan, an official of the BANK and a close friend, persuaded him
to make time deposits with the BANK. Marcos claimed he made two time deposits:
one on March 11, 1982, for P664,897.67, and another on March 12, 1982, for
P764,897.67. The BANK issued a receipt for the first deposit but only a letter-
certification for the second. Marcos alleged that Pagsaligan kept the time deposit
certificates, assuring him that the BANK would manage them. Marcos claimed he
never received the principal or interest from these deposits.

In March 1983, Marcos attempted to withdraw his time deposits to buy

construction materials but was convinced by Pagsaligan to open several domestic
letters of credit instead. Marcos signed blank forms for these transactions, which
included trust receipt agreements and promissory notes. Marcos executed three
Trust Receipt Agreements totaling P851,250, with a 30% marginal deposit. He
believed the BANK should offset his time deposits against his obligations under
these agreements. Marcos also denied obtaining a P500,000 loan from the BANK,
which the BANK claimed was covered by Promissory Note No. 20-97983.

The BANK, in its defense, claimed that Marcos' total time deposits were only
P764,897.67 and that these were assigned to secure various loan obligations. The
BANK alleged that Marcos defaulted on these loans, leading to the application of
his time deposits to the outstanding obligations. The trial court initially declared
the BANK in default for late filing of its answer but later lifted the default order,
allowing the BANK to present its evidence. The trial court ruled in favor of Marcos,
ordering the BANK to return his time deposits with interest and pay attorney's
fees. The Court of Appeals modified this decision, reducing the amount of actual
damages and deleting the attorney's fees.
Issue:

1. Whether the BANK was able to prove Marcos' outstanding obligations

secured by the assignment of time deposits?
2. Whether the provisions of Section 8, Rule 10 of the then Revised Rules of
Court should be applied to create a judicial admission on the genuineness
and due execution of the actionable documents appended to the BANK's
answer?
3. Whether the BANK was deprived of due process when the trial court
declared it had waived the presentation of further evidence and
considered the case submitted for resolution?

Ruling:

1. The Supreme Court ruled that the BANK failed to prove Marcos'
outstanding obligations secured by the assignment of time deposits.
2. The Court held that the provisions of Section 8, Rule 10 of the then Revised
Rules of Court did not apply to create a judicial admission on the
genuineness and due execution of the actionable documents.
3. The Court found no violation of the BANK's right to procedural due
process when the trial court declared it had waived the presentation of
further evidence.

Ratio:

The Supreme Court found that the BANK failed to produce the original copies of
the loan application and promissory note, relying instead on photocopies, which
have no evidentiary value. The BANK's failure to maintain proper records and
produce the original documents indicated a breach of its fiduciary duty to Marcos.
The Court emphasized that banks are required to observe high standards of
integrity and performance, as mandated by Republic Act No. 8791 (General
Banking Law of 2000) and established jurisprudence. The BANK's inability to
account for Marcos' time deposits and the suspicious circumstances surrounding
the promissory note led the Court to conclude that the note was fictitious.

The Court also addressed procedural issues, noting that the BANK did not request
the right to cross-examine Marcos when seeking to lift the default order. The trial
court's discretion in denying the motion to cross-examine was upheld, as the BANK
failed to follow proper procedures, including providing notice to Marcos. The Court
found that the BANK's procedural lapses and failure to present additional evidence
were due to its own actions, not a denial of due process.

The Court modified the amount due to Marcos, considering the trust receipt
agreements and the interest accrued on his time deposits. The BANK was ordered
to return the remaining principal amount of P500,404.11 with interest, pay the
accumulated interest of P211,622.96, and compensate Marcos with moral and
exemplary damages for the BANK's failure to fulfill its fiduciary duty.
vii.Fulton Iron Works vs. China Banking Corp., G.R. No. 32576, November 6, 1930

Facts:

The case of "Fulton Iron Works Co. vs. China Banking Corp." involves a dispute
between Fulton Iron Works Co., a Delaware corporation with its principal place of
business in St. Louis, Missouri, and China Banking Corporation, a domestic
corporation based in Manila. The case was initiated on June 23, 1926, in the Court
of First Instance of the City of Manila. The plaintiff, Fulton Iron Works Co., sought
to recover a sum of P131,197.10, with interest, from the defendants, China
Banking Corporation and S.C. Schwarzkopf. The plaintiff alleged that Schwarzkopf
had misappropriated and embezzled funds amounting to P176,197.10, which were
deposited in the defendant bank, with the bank's full knowledge and consent. The
trial court absolved Schwarzkopf from the complaint due to his prior conviction of
estafa in criminal proceedings and ordered the defendant bank to pay the plaintiff
P127,200.36 with interest from the date of the complaint filing. The defendant
bank appealed this decision.

The case's background involves the sale of machinery by Fulton Iron Works Co. to
Binalbagan Estate, Inc., a Philippine corporation, in March 1921. The purchaser
issued three notes, which were not paid at maturity due to the financial difficulties
of Binalbagan Estate, Inc. Consequently, Fulton Iron Works Co. employed a law
firm in Manila, including S.C. Schwarzkopf, to secure the indebtedness.
Schwarzkopf, who was in St. Louis at the time, returned to Manila in November
1921 and took over the handling of the collection after the dissolution of his law
firm. Schwarzkopf opened a personal account with China Banking Corporation in
December 1921 and later deposited funds collected on behalf of Fulton Iron Works
Co. into various accounts, including a special account titled "S. C. Schwarzkopf,
Attorney-in-fact, Fulton Iron Works Co." However, Schwarzkopf misappropriated
these funds for personal use, leading to the legal dispute.

Issue:

1. Is China Banking Corporation liable for the misappropriation of funds

deposited by S.C. Schwarzkopf, given that the bank had notice of the trust
nature of the funds?
2. Can the bank be held responsible for allowing Schwarzkopf to transfer
funds from a trust account to his personal account, thereby covering his
personal overdraft?

Ruling:

1. The court ruled that China Banking Corporation is liable for the
misappropriation of funds to the extent of P22,144.39, which was used
to cover Schwarzkopf's personal overdraft.
2. The court held that the bank is not liable for the subsequent
misappropriation of funds by Schwarzkopf after the transfer to his personal
account, as the bank acted in good faith and without knowledge of the
 misappropriation.

Ratio:
The court's decision is based on several legal principles. Firstly, a depositor is
presumed to be the owner of funds standing in their name in a bank deposit. The
bank is justified in paying out the money to the depositor or upon their order
unless it has notice that the money belongs to another person. In this case, the
bank had notice of the trust nature of the funds due to the account's title, "S. C.
Schwarzkopf, Attorney-in-fact, Fulton Iron Works Co." Therefore, the bank could
not permit or require Schwarzkopf to apply the trust funds to his personal
overdraft. The court cited various legal precedents supporting the principle that a
bank cannot apply trust funds to the personal obligations of the fiduciary
depositor.

However, the court also noted that a bank is not a guardian of trust funds in the
sense that it must oversee their proper application. As long as the bank pays out
the money in good faith to the depositor or upon their order, without knowledge of
the misappropriation, it is protected. The court found no evidence that the bank
had knowledge of Schwarzkopf's subsequent misappropriation of funds after the
transfer to his personal account. Therefore, the bank could not be held liable for
those subsequent acts of misappropriation.

The court's decision to reduce the judgment amount to P22,144.39 reflects the
bank's liability for the specific act of applying trust funds to cover Schwarzkopf's
personal overdraft, while absolving the bank of liability for subsequent
misappropriations due to lack of knowledge and good faith actions.

viii. Gullas vs. PNB, G.R. No. 43191, November 13, 1935

Facts:

The case involves Paulino Gullas, a member of the Philippine Bar residing in Cebu,
and the Philippine National Bank (PNB), which has a branch in the same city. On
August 2, 1933, the Treasurer of the United States issued a warrant for $361
payable to Francisco Sabectoria Bacos. Gullas and Pedro Lopez endorsed this
check, which was subsequently cashed by PNB. However, the warrant was
dishonored by the Insular Treasurer. At that time, Gullas had a balance of P509 in
his account with PNB. The bank sequestered this amount to cover the dishonored
warrant, causing checks issued by Gullas, including one for his insurance, to
bounce. Notices of dishonor were sent to Gullas while he was in Manila and were
received by him upon his return to Cebu on August 31, 1933. Gullas immediately
paid the unpaid balance of the warrant. The dishonor of the checks and the
subsequent news coverage caused Gullas significant inconvenience and
mortification. The Court of First Instance of Cebu ruled in favor of Gullas, ordering
PNB to return P509 to his account and pay him damages amounting to P10,000.
Both parties appealed the decision.
Issue:

1. Does the Philippine National Bank have the right to apply a depositor's
funds to cover a debt owed to the bank?
2. What amount of damages, if any, should be awarded to Paulino Gullas?

Ruling:

1. The Philippine National Bank has the right to set off a depositor's funds to
cover a debt owed to the bank.
2. The court modified the trial court's judgment, awarding Gullas nominal
damages of P250 instead of the P10,000 initially awarded.

Ratio:

The court held that the relationship between a depositor and a bank is that of
creditor and debtor, allowing the bank to set off deposits against any indebtedness
of the depositor. This principle is supported by Articles 1195 and 1758 of the Civil
Code and established jurisprudence. However, the bank's action was premature as
it sequestered Gullas' funds before notifying him of the dishonor, which was
necessary since Gullas was merely an indorser. The court found that the bank's
premature action caused inconvenience and financial disturbance to Gullas,
particularly affecting his insurance payments. While the bank was not liable for
libelous articles or loss of business, the court awarded nominal damages of P250 to
Gullas for the inconvenience and financial disturbance caused by the bank's
premature action.

(ii.) Kinds of interests

a. Compensatory
b. Monetary

(ii.a). Floating interest rates and escalation clauses

i. Villa Crista Monte Realty and Development Corporation v. Equitable PCI Bank,
November 21, 2018

Facts:

Villa Crista Monte Realty & Development Corporation (petitioner) was organized in
1994 to engage in real estate development. It acquired an 80,000 square meter
parcel of land in Old Balara, Quezon City, intending to develop it into a residential
subdivision. To finance the project, the petitioner obtained a credit line of PHP
80 million from Equitable PCI Bank (E-PCIB), now Banco De Oro (BDO), secured
by a real estate mortgage over the property. The petitioner later subdivided the
land into 174 lots and obtained an additional PHP 50 million credit accommodation
from E-PCIB, secured by 41 of the subdivided lots. Between March and August
1997, the petitioner drew various amounts from the credit line, each covered by a
promissory note with a provision for monthly repricing of interest rates. E-PCIB
subsequently
increased the interest rates, prompting the petitioner to default on its loan
obligations amounting to PHP 129.7 million. E-PCIB initiated foreclosure
proceedings, leading to the auction of the mortgaged properties, where E-PCIB
emerged as the highest bidder. The petitioner filed a complaint for the nullification
of the promissory notes and mortgage agreements, alleging unilateral imposition
of interest rate increases, among other claims. The Regional Trial Court (RTC)
ruled in favor of E-PCIB, and the Court of Appeals (CA) affirmed the RTC's
decision. The petitioner then appealed to the Supreme Court.

Issue:

1. Did the CA commit reversible error in ruling as valid the bank's repricing
of the interest rates?
2. Are the promissory notes, though contracts of adhesion, binding on the
petitioner absent any proof of domination by the bank?
3. Should the payments made by the petitioner in excess of the original rate
of interest be credited to the principal?

Ruling:

1. The Supreme Court ruled that the CA did not commit reversible error in
affirming the validity of the promissory notes and the corresponding
repricing of interest rates.
2. The Court held that the promissory notes, though contracts of adhesion,
were binding on the petitioner as there was no proof of coercion or trickery
by the bank.
3. The Court did not find any basis to credit the payments made by the
petitioner in excess of the original rate of interest to the principal.

Ratio:

The Supreme Court found that both the RTC and CA correctly upheld the validity
of the real estate mortgage and promissory notes, as well as the subsequent
foreclosure proceedings. The Court noted that the escalation clause in the
promissory notes, which allowed for the repricing of interest rates, was not
inherently invalid. Although the promissory notes did not contain an express de-
escalation clause, the bank had, on some occasions, reduced the interest rates,
thereby eliminating any one-sidedness in favor of the lender. The Court
emphasized that the principle of mutuality of contracts was not violated, as the
petitioner was given notice of the repricing and had the option to reject the new
rates by prepaying the outstanding balance. The Court also held that the
promissory notes, being contracts of adhesion, were not invalid per se and were
binding on the petitioner, who was fully aware of the terms and conditions. The
Court found no evidence of coercion or trickery by the bank and noted that the
petitioner had the opportunity to negotiate the terms of the credit line and
mortgage agreements. The Court concluded that the petitioner's claims lacked
merit and affirmed the CA's decision.
ii.Security Bank Corporation v. Rodrigo, June 27, 2018

Facts:
The case involves Security Bank Corporation (Security Bank) and the spouses
Rodrigo and Erlinda Mercado (spouses Mercado). On September 13, 1996,
Security Bank granted the spouses Mercado a revolving credit line of
P1,000,000.00, secured by a Real Estate Mortgage over properties in Lipa City and
San Jose, Batangas. The agreement included provisions for interest rates and late
payment charges, which were determined solely by Security Bank. The spouses
Mercado defaulted on their payments, leading Security Bank to file for
extrajudicial foreclosure of the mortgaged properties. Notices of the foreclosure
sales were published, but errors in the technical descriptions of the properties
were later corrected through an erratum published only once. Security Bank was
the winning bidder in the foreclosure sales. The spouses Mercado offered to
redeem the properties for P10,000,000.00, but Security Bank countered with
P15,000,000.00. The spouses Mercado then filed a complaint for annulment of
foreclosure sale, damages, injunction, specific performance, and accounting with
the RTC of Batangas City. The RTC declared the foreclosure sales void due to
defective notices and ruled the interest rate provisions void for being potestative.
The CA affirmed the RTC's decision with modifications, leading to the consolidated
petitions before the Supreme Court.

Issue:

1. Whether the foreclosure sales of the parcels of land in Batangas City

and San Jose, Batangas are valid.
2. Whether the provisions on interest rate in the revolving credit line
agreement and its addendum are void for being violative of the principle
of mutuality of contracts.
3. Whether interest and penalty are due and demandable from the date of
auction sale until the finality of the judgment declaring the foreclosure void
under the doctrine of operative facts.

Ruling:

1. The foreclosure sales of the properties in Batangas City and San Jose,
Batangas are void for non-compliance with the publication requirement of
the notice of sale.
2. The interest rate provisions in the revolving credit line agreement and its
addendum are void for being violative of the principle of mutuality of
contracts.
3. Interest and penalty are due and demandable from the date of extrajudicial
demand until the finality of the judgment, with the penalty charges reduced
to 6% per annum.

Ratio:

The Supreme Court ruled that the foreclosure sales were void due to non-
compliance with the publication requirements under Act No. 3135. The errors in
the technical descriptions and the omission of the location in the notices were
substantial and could mislead bidders, depreciate the value of the properties, or
prevent them from fetching a fair price. The single publication of an erratum was
insufficient to cure the defect. The Court also found that the interest rate
provisions violated the principle of mutuality of contracts as they allowed Security
Bank to unilaterally determine the interest rates without the written assent of the
spouses Mercado. The reference rate of "Security Bank's prevailing lending rate"
was not pegged on a market-based reference rate as required by the BSP.
Consequently, the interest stipulations were deemed
potestative and void. The Court imposed legal interest on the outstanding loan
from the time of default, i.e., from the extrajudicial demand on March 31, 1999.
The penalty charges were reduced from 24% per annum to 6% per annum for
being iniquitous and unconscionable. The total outstanding obligation of the
spouses Mercado was computed, taking into account the proceeds from the
foreclosure sale of the Lipa City property.

(ii.b). Stipulations on interest

i. Nacar vs. Gallery Frames, 13 August 2013

Facts:

In the case of Nacar v. Gallery Frames (G.R. No. 189871), decided on August 13,
2013, petitioner Dario Nacar filed a complaint for constructive dismissal against
respondents Gallery Frames and/or Felipe Bordey, Jr. before the Arbitration
Branch of the National Labor Relations Commission (NLRC), docketed as NLRC
NCR Case No. 01-00519-97. Nacar alleged that he was dismissed from
employment without a valid or just cause. On October 15, 1998, the Labor Arbiter
ruled in favor of Nacar, awarding him backwages and separation pay totaling
P158,919.92. The respondents appealed to the NLRC, which dismissed the appeal
for lack of merit. Subsequent motions for reconsideration and petitions for review
were also denied by the Court of Appeals (CA) and the Supreme Court, making the
decision final and executory on May 27, 2002.

Nacar then filed a Motion for Correct Computation, arguing that his backwages
should be computed up to the finality of the Supreme Court's resolution. The
NLRC's Computation and Examination Unit recalculated the amount to
P471,320.31. A Writ of Execution was issued, but respondents filed a Motion to
Quash, which was denied. The NLRC later ordered a recomputation, reducing the
amount to P147,560.19, which Nacar received. Nacar then sought the inclusion of
interest in the recomputation, which the Labor Arbiter partially granted.
Dissatisfied, Nacar appealed to the CA, which denied his petition, stating that the
original decision could no longer be modified. Nacar then filed a petition for review
on certiorari before the Supreme Court.

Issue:

1. Whether the recomputation of backwages and separation pay up to the

finality of the Supreme Court's resolution is proper.
2. Whether Nacar is entitled to interest on the monetary awards.

Ruling:

1. The Supreme Court ruled that the recomputation of backwages and

separation pay up to the finality of the Supreme Court's resolution is
proper.
2. The Supreme Court ruled that Nacar is entitled to interest on the monetary
awards.

Ratio:

The Supreme Court held that the recomputation of backwages and separation pay
is necessary and does not violate the principle of immutability of judgments. The
Court explained that the original computation by the Labor Arbiter was time-bound
and impliedly current only up to the finality of the decision. Since the decision
declared the dismissal illegal, the reliefs continue to add up until full satisfaction,
as per Article 279 of the Labor Code. The recomputation is a necessary
consequence of the illegal dismissal ruling and does not alter the final decision.
Regarding the interest on monetary awards, the Court referred to the guidelines
established in Eastern Shipping Lines, Inc. v. Court of Appeals, which were
modified by BSP-MB Circular No. 799. The Court ruled that the interest rate
should be 12% per annum from the finality of the decision until June 30, 2013, and
6% per annum from July 1, 2013, until full satisfaction. This ensures that the
petitioner is compensated for the delay in the payment of the monetary awards.

The Supreme Court reversed and set aside the CA's decision and ordered the
respondents to pay Nacar backwages from January 24, 1997, to May 27, 2002,
separation pay from August 1990 to May 27, 2002, and interest on the total
monetary awards. The Labor Arbiter was directed to recompute the total monetary
benefits in accordance with the decision.

ii.Macalinao vs. BPI, 17 September 2009

Facts:

Petitioner Ileana Dr. Macalinao was an approved cardholder of a BPI Mastercard

issued by the Bank of the Philippine Islands (BPI). She made several purchases
using the credit card but defaulted on her payments. On January 5, 2004, BPI sent
a demand letter to Macalinao, requiring her to pay PhP141,518.34, which included
previous balances, finance charges, and penalty fees. The terms and conditions of
the BPI credit card stipulated a 3% monthly interest rate and an additional 3%
penalty fee for unpaid balances. Due to her failure to settle the debt, BPI filed a
complaint for a sum of money against Macalinao and her husband, Danilo SJ.
Macalinao, in the Metropolitan Trial Court (MeTC) of Makati City. The MeTC ruled
in favor of BPI, ordering the Macalinao spouses to pay PhP141,518.34 plus 2%
monthly interest and penalty charges. The Regional Trial Court (RTC) of Makati
City affirmed the MeTC's decision. Macalinao appealed to the Court of Appeals
(CA), which modified the RTC's decision by reducing the total amount due and
adjusting the interest rate to 3% per month. Macalinao then filed a petition for
review with the Supreme Court, arguing that the interest rate was unconscionable
and should be further reduced.

Issue:

1. Was the stipulated interest rate of 3% per month (36% per annum)
unconscionable and should it be reduced?
2. Did the Court of Appeals err in modifying the reduced interest rate from
2% to 3% per month?
3. Should the case be dismissed or remanded for further reception of evidence
to determine the correct amount of Macalinao's obligation?

Ruling:

1. The Supreme Court ruled that the interest rate and penalty charge of
3% per month should be reduced to 2% per month.
2. The Court of Appeals' modification of the interest rate from 2% to 3%
per month was reversed.
3. The case should not be dismissed or remanded for further reception of
evidence.

Ratio:
The Supreme Court found the interest rate and penalty charge of 3% per month
(36% per annum) to be excessive and unconscionable. Citing previous
jurisprudence, the Court noted that interest rates of 3% per month and higher
have been deemed excessive and contrary to morals. The Court emphasized that
while Central Bank Circular No. 905-82 removed the ceiling on interest rates, it
did not grant lenders carte blanche authority to impose exorbitant rates. The Court
also highlighted Article 1229 of the Civil Code, which allows for the equitable
reduction of penalties if they are iniquitous or unconscionable. Given that
Macalinao had made partial payments and considering the circumstances, the
Court found it equitable to reduce the interest and penalty charges to 2% per
month. The Court also rejected Macalinao's argument for dismissal or remand,
stating that her failure to file an answer should not prejudice BPI. The Court
affirmed the use of the beginning balance of PhP94,843.70 for re-computation and
found no basis for further evidence reception. The final amount due was
recalculated to PhP112,309.52 plus 2% monthly interest and penalty charges from
January 5, 2004, until fully paid.

iii. PNB vs. Manalo, 24 February 2014

Facts:

The case involves the Philippine National Bank (PNB) and the Spouses Enrique
Manalo and Rosalinda Jacinto (Spouses Manalo), along with their children Arnold,
Arnel, Anthony, and Arma Manalo. On November 3, 1993, the Spouses Manalo
applied for an All-Purpose Credit Facility amounting to P1,000,000.00 with PNB to
finance the construction of their house. They executed a Real Estate Mortgage
over their property as security for the loan. Over the years, the credit facility was
renewed and increased multiple times, reaching P7,000,000.00 by September 20,
1996. The additional security was registered in the names of their children. PNB
claimed that the Spouses Manalo's last recorded payment was in December 1997,
leading to demand letters and eventually foreclosure proceedings. PNB was the
highest bidder at the foreclosure sale, acquiring the mortgaged properties for
P15,127,000.00. The Spouses Manalo filed an action for nullification of the
foreclosure proceedings and damages, alleging misrepresentation and non-
compliance with legal requirements by PNB. The Regional Trial Court (RTC) ruled
in favor of PNB, but the Court of Appeals (CA) modified the decision, addressing
the issue of interest rates and ordering a recomputation of the Spouses Manalo's
indebtedness.

Issue:

1. Whether the Court of Appeals was correct in nullifying the interest rates
 imposed on the Spouses Manalo's loan and fixing the same at twelve
percent (12%) from default.
2. Whether there was mutuality of consent in the imposition of interest
rates on the Spouses Manalo's loan.

Ruling:
 1. The Supreme Court affirmed the CA's decision to nullify the interest rates
imposed by PNB and fix the same at twelve percent (12%) per annum
from default.
2. The Supreme Court ruled that there was no mutuality of consent in the
imposition of interest rates on the Spouses Manalo's loan.

Ratio:

The Supreme Court held that the issues of the validity of the interest rates and the
lack of mutuality between the parties were impliedly raised during the trial, and
PNB's failure to object timely allowed these issues to be considered. The Court
emphasized that a contract must bind both parties, and its validity or compliance
cannot be left to the will of one party, as per Article 1308 of the Civil Code. The
unilateral determination and imposition of interest rates by PNB violated this
principle of mutuality. The Court also noted that the credit agreements were
contracts of adhesion, prepared solely by PNB, and any ambiguity should be
construed against PNB. The CA's directive to recompute the Spouses Manalo's
indebtedness and refund any excess amount was deemed warranted and equitable.
The Court further applied the interest rates in accordance with Monetary Board
Circular No. 799, reducing the interest rates allowed in judgments from 12% per
annum to 6% per annum for judgments becoming final and executory after July 1,
2013.

iv. Cabanting vs. BPI Family Savings Bank, 17 February 2016

Facts:

In the case of "Cabanting v. BPI Family Savings Bank, Inc.," petitioners Vicente D.
Cabanting and Lalaine V. Cabanting purchased a 2002 Mitsubishi Adventure SS
MT on an installment basis from Diamond Motors Corporation on January 14,
2003. They executed a Promissory Note with Chattel Mortgage, obligating
themselves to pay P836,032.00 in monthly installments. Diamond Motors assigned
its rights to the Promissory Note with Chattel Mortgage to BPI Family Savings
Bank, Inc. (BPI Family). On October 16, 2003, BPI Family filed a Complaint for
Replevin and damages before the Regional Trial Court of Manila (RTC) against the
petitioners, alleging non-payment of three consecutive installments and seeking
the unpaid portion of the vehicle's purchase price, accrued interest at 36% per
annum, 25% attorney's fees, and 25% liquidated damages. Despite written
demand, the petitioners failed to comply. The petitioners claimed they sold the
vehicle to Victor S. Abalos, who assumed the obligation but later defaulted on
payments. The RTC ruled in favor of BPI Family, ordering the petitioners to pay
P742,022.92 with 24% interest per annum and P20,000.00 in attorney's fees. The
Court of Appeals (CA) affirmed the RTC's decision with modifications, reducing the
interest rate to 12% per annum and deleting the attorney's fees. The petitioners
then elevated the matter to the Supreme Court.

Issue:

1. Whether BPI Family Savings Bank, Inc. is entitled to possession of the

motor vehicle or payment of its value and damages without proof of prior
demand.
2. Whether the petitioners were deprived of their right to due process
when they were deemed to have waived their right to present evidence.
Ruling:
 1. The Supreme Court ruled that BPI Family Savings Bank, Inc. is entitled to
possession of the motor vehicle or payment of its value and damages
without proof of prior demand.
2. The Supreme Court found that the petitioners were not deprived of their
right to due process.

Ratio:

The Supreme Court held that the Promissory Note with Chattel Mortgage explicitly
waived the necessity of notice or demand, making the obligation due and payable
without prior demand. The Court emphasized that contracts of adhesion, like the
one in question, are not inherently invalid and are binding if the party adheres to
the contract voluntarily. The Court cited previous rulings, such as "Agner v. BPI
Family Savings Bank, Inc.," which upheld the validity of waiving notice or demand
in similar contracts. The Court also noted that Article 1169 of the Civil Code allows
for such waivers. Regarding due process, the Court found that the petitioners were
given multiple opportunities to present evidence but failed to do so. Their failure to
move for reconsideration of the order deeming their right to present evidence
waived further indicated their lack of diligence. Lastly, the Court agreed with the
CA that the interest rate of 36% per annum was unreasonable and reduced it to
12% per annum until June 30, 2013, and 6% per annum thereafter, in line with
Bangko Sentral ng Pilipinas Monetary Board Circular No. 799 and prevailing
jurisprudence.

v. Louh vs. BPI, 08 March 2017

Facts:

The case involves the Spouses William C. Louh, Jr. and Irene L. Louh (petitioners)
against the Bank of the Philippine Islands (BPI, respondent). BPI issued a credit
card to William, with Irene as the extension cardholder. According to the terms
and conditions, a 3.5% finance charge and a 6% late payment charge were to be
imposed monthly on unpaid credit availments. The Spouses Louh used the credit
cards and initially paid their dues regularly. However, starting October 14, 2009,
they defaulted on their payments. By August 15, 2010, their account remained
unsettled, prompting BPI to send demand letters on August 7, 2010, January 25,
2011, and May 19, 2011. By September 14, 2010, the Spouses Louh owed BPI a
total of P533,836.27. Despite repeated demands, they failed to pay, leading BPI to
file a Complaint for Collection of a Sum of Money before the Regional Trial Court
(RTC) of Makati City on August 4, 2011. The Spouses Louh failed to file an answer
within the prescribed period, leading to their being declared in default. The RTC
rendered a decision on November 29, 2012, ordering the Spouses Louh to pay BPI
P533,836.27 plus 12% finance and late payment annual charges, 25% of the
amount due as attorney's fees, and other costs. The Spouses Louh's appeal and
motion for reconsideration were denied by the Court of Appeals (CA), which
affirmed the RTC's decision. The Spouses Louh then filed a petition for review on
certiorari before the Supreme Court.

Issue:

1. Did the Court of Appeals err in sustaining BPI's complaint against the
Spouses Louh?
2. Should the procedural rules be relaxed due to William's medical condition?
3. Did BPI fail to establish its case by preponderance of evidence?

Ruling:

The Supreme Court affirmed the decision and resolution of the Court of Appeals
but modified the principal amount and attorney's fees awarded by the RTC and the
CA. The principal amount due was set at P113,756.83, with finance and late
payment charges of 12% each per annum from October 14, 2009, until full
payment. Attorney's fees were reduced to 5% of the total amount due.
Ratio:
The Supreme Court held that procedural rules are designed to facilitate the
adjudication of cases and should be strictly followed. The Spouses Louh failed to
file their answer within the prescribed period and did not file a motion to set aside
the RTC's order of default. The Court found no justifiable reason to relax the
procedural rules in this case. BPI had presented sufficient evidence, including
delivery receipts, SOAs, and demand letters, which the Spouses Louh failed to
refute. The Court also found the original finance and late payment charges
imposed by BPI to be excessive and unconscionable, reducing them to 12% per
annum each. The attorney's fees were also deemed excessive and were reduced to
5% of the total amount due, in line with the principles of equity and
reasonableness.

vi. Isla v. Estorga, July 2, 2018

Facts:

The case of Isla v. Estorga revolves around a loan obligation dispute between
petitioners Catalina F. Isla, Elizabeth Isla, and Gilbert F. Isla (collectively,
petitioners) and respondent Genevira P. Estorga (respondent). On December 6,
2004, the petitioners borrowed P100,000.00 from the respondent, agreeing to
repay it within six months to one year with an interest rate of ten percent (10%)
per month. To secure the loan, a real estate mortgage was established over a
parcel of land in Pasay City, covered by Transfer Certificate of Title (TCT) No.
132673, registered under the name of Edilberto Isla, Catalina's husband. When the
petitioners failed to repay the loan, the respondent sought assistance from the
barangay, resulting in the execution of a Kasulatan ng Pautang on December 8,
2005. Despite this agreement, the petitioners did not comply with the terms,
prompting the respondent to send a demand letter on November 16, 2006. The
petitioners' continued non-compliance led the respondent to file a Petition for
Judicial Foreclosure before the Regional Trial Court (RTC) of Pasay City, Branch
112.

The RTC, in its Decision dated December 10, 2012, granted the Petition for Judicial
Foreclosure, finding that the petitioners admitted to obtaining the loan and
securing it with a real estate mortgage. The RTC directed the petitioners to pay
the respondent P100,000.00 with twelve percent (12%) interest per annum from
December 2007 until fully paid, and P20,000.00 as attorney's fees. Alternatively, if
the petitioners failed to pay within six months, the property would be foreclosed
and sold at public auction. The petitioners appealed to the Court of Appeals (CA),
which affirmed with modification the RTC's decision on May 31, 2017. The CA
ordered the petitioners to pay the principal amount, twelve percent (12%) interest
per annum from November 16, 2006, six percent (6%) legal interest per annum
from the finality of the CA decision until full payment, and P20,000.00 as attorney's
fees. The CA found the stipulated interest rate of ten percent (10%) per month to
be exorbitant and struck it down. The petitioners sought partial reconsideration,
which was denied, leading to the present petition before the Supreme Court.
Issue:

1. Did the Court of Appeals err in imposing twelve percent (12%) interest on
the principal obligation until full payment?
 2. Did the Court of Appeals err in awarding attorney's fees?

Ruling:

1. The Supreme Court ruled that the Court of Appeals correctly imposed a
twelve percent (12%) interest rate on the principal obligation until full
payment.
2. The Supreme Court deleted the award of attorney's fees due to the lack of
factual, legal, and equitable justification.

Ratio:

The Supreme Court explained that there are two types of interest: monetary
interest and compensatory interest. Monetary interest is the compensation fixed by
the parties for the use or forbearance of money, while compensatory interest is
imposed by law or the courts as a penalty or indemnity for damages. In this case,
the parties had stipulated a monetary interest rate of ten percent (10%) per month,
which the courts found to be unconscionable and thus nullified. The courts then
applied the prevailing legal rate of twelve percent (12%) per annum at the time the
loan was contracted in December 2004. This rate was deemed appropriate as it
was the legal rate of interest for loans and forbearances of money at that time.

The Supreme Court further clarified that the principal amount and the monetary
interest due to the respondent would earn compensatory interest at the legal rate.
This compensatory interest would be twelve percent (12%) per annum from the
date of judicial demand (July 24, 2007) to June 30, 2013, and six percent (6%) per
annum from July 1, 2013, until full payment. The Court also emphasized that the
award of attorney's fees requires clear factual, legal, and equitable justification,
which the CA failed to provide. Therefore, the award of attorney's fees was
deleted.

The decision was based on the 1987 Philippine Constitution, as the case decision
date was July 2, 2018.

vii.Vasquez v. Philippine National Bank, August 28, 2019

Facts:

The case involves Engineer Ricardo O. Vasquez (petitioner) and the Philippine
National Bank (PNB) along with Notary Public Jude Jose F. Latorre, Jr.
(respondents). On November 8, 1996, Vasquez applied for and was granted two
loans by PNB under the Pangkabuhayan ng Bayan Program and the Revolving
Credit Line, amounting to a total of PHP 1,400,000.00. These loans were secured
by four parcels of land located in Trece Martirez, Cavite. Subsequently, Vasquez
filed a complaint against PNB and Latorre, Jr. for specific performance, annulment
of foreclosure proceedings, and damages. He alleged that PNB unilaterally
increased the interest rates without his consent, leading to an inflated debt. The
Regional Trial Court (RTC) dismissed Vasquez's complaint. On appeal, the Court of
Appeals (CA) modified the RTC's decision, declaring the unilateral interest rate
increases void and reducing the penalty interest. Both parties then filed petitions
for review on certiorari under Rule 45, leading to the consolidated case before the
Supreme Court.

Issue:
 1. Whether the interest rate scheme imposed by PNB under the Credit
Agreement and other loan documents is valid.
2. If PNB's imposition of interest rates is found to be null and void, what
are the implications of such holding on the foreclosure of the
mortgaged properties and the principal loan obligation of Vasquez.

Ruling:

1. The Supreme Court ruled that the interest rate scheme imposed by PNB
was null and void due to its unilateral nature, violating the principle of
mutuality of contracts.
2. The foreclosure sale of the subject properties was declared null and void,
and ownership and possession were reverted to Vasquez. The certificates of
title issued as a consequence of the foreclosure sale were ordered canceled
and reconstituted in Vasquez's name.

Ratio:

The Court found that the interest rates imposed by PNB were not fixed and were
subject to unilateral modification by PNB, which violated the principle of mutuality
of contracts as stated in Article 1308 of the Civil Code. The Credit Agreement
allowed PNB to unilaterally increase or decrease the interest rates without
Vasquez's consent, making the contract one-sided and void. The Court also noted
that PNB failed to provide notice of the interest rate increases to Vasquez. As a
result, the interest rate scheme was declared null and void. The Court held that the
foreclosure sale was invalid because Vasquez was not in default due to the illegal
interest rates, and thus, the foreclosure proceedings should not have occurred. The
Court ordered Vasquez to pay the outstanding principal loan obligation with a legal
interest rate of 12% per annum from the date of the loan until June 30, 2013, and
6% per annum from July 1, 2013, until full payment. The foreclosure sale was
nullified, and the titles were ordered reconstituted in Vasquez's name.

viii. Fidelity Savings and Mortgage Bank Vs. Hon. Pedro Cenzon, G.R. No. L-46208, April
5, 1990

Facts:

The case involves the Fidelity Savings and Mortgage Bank (petitioner) and the
spouses Timoteo and Olimpia Santiago (private respondents). In 1968, the private
respondents deposited a total of PHP 100,000 with the petitioner bank. On
February 18, 1969, the Central Bank of the Philippines declared the petitioner
bank insolvent and ordered its closure. Subsequently, the Central Bank took
charge of the bank's assets. The Philippine Deposit Insurance Corporation paid the
private respondents PHP 10,000, leaving a balance of PHP 90,000. The private
respondents demanded the return of their deposits, but the petitioner bank, being
insolvent, could not comply. The private respondents then filed Civil Case No.
84800 in the Court of First Instance of Manila (now Regional Trial Court), which
ruled in their favor on December 3, 1976, ordering the petitioner to pay PHP
90,000 with accrued interest, PHP 30,000 as exemplary damages, and PHP 10,000
as attorney's fees. The petitioner bank sought a review of this decision on pure
questions of law.

Issue:
1. Is an insolvent bank like Fidelity Savings and Mortgage Bank obligated to
pay interest on unpaid deposits after its closure by the Central Bank?
2. Can an insolvent bank be adjudged to pay moral and exemplary damages,
attorney's fees, and costs when the insolvency is caused by anomalous real
estate transactions?
Ruling:

1. The Supreme Court ruled that an insolvent bank is not obligated to

pay interest on deposits during its closure.
2. The awards for moral and exemplary damages and attorney's fees were
deleted.

Ratio:

The Supreme Court held that a banking institution declared insolvent and ordered
closed by the Central Bank cannot be held liable to pay interest on deposits
accrued during the period when the bank is closed and non-operational. The Court
cited the case of The Overseas Bank of Manila vs. Court of Appeals, which
established that a bank's ability to pay interest on deposits is contingent on its
operational activities. Once a bank's operations are suspended, it cannot generate
the funds necessary to pay interest. This principle is deemed to be implicitly
understood in every contract of deposit with a bank.

Regarding the awards for moral and exemplary damages and attorney's fees, the
Court found no evidence of fraud, bad faith, malice, or wanton attitude on the part
of the petitioner bank. The trial court had admitted that the bank's failure to pay
was due to its insolvency. The Court emphasized that moral damages are
recoverable only in specified or analogous cases, which did not apply here.
Similarly, exemplary damages require proof of wanton, fraudulent, reckless,
oppressive, or malevolent conduct, which was not established. The testimony of the
Central Bank's examiner about anomalous real estate transactions was not
supported by documentary evidence. Therefore, the awards for moral and
exemplary damages and attorney's fees were deemed unjustified.

The Court also clarified that the decision did not violate the legal provisions on
preference and concurrence of credits. The order of payment was to be understood
as subject to the Bank Liquidation Rules and Regulations, ensuring that the
deposits were not elevated to the category of preferred credits.

ix.Ileana Macalinao Vs. Bank of The Philippine Islands, G.R. No. 175490, September 17,
2009

Facts:

Petitioner Ileana Dr. Macalinao was an approved cardholder of a BPI Mastercard

issued by the Bank of the Philippine Islands (BPI). She made several purchases
using the credit card but defaulted on her payments. On January 5, 2004, BPI sent
a demand letter to Macalinao, requiring her to pay PhP141,518.34, which included
previous balances, finance charges, and penalty fees. The terms and conditions of
the BPI credit card stipulated a 3% monthly interest rate and an additional 3%
penalty fee for unpaid balances. Due to her failure to settle the debt, BPI filed a
complaint for a sum of money against Macalinao and her husband, Danilo SJ.
Macalinao, in the Metropolitan Trial Court (MeTC) of Makati City. The MeTC ruled
in favor of BPI, ordering the Macalinao spouses to pay PhP141,518.34 plus 2%
monthly interest and penalty charges. The Regional Trial Court (RTC) of Makati
City affirmed the MeTC's decision. Macalinao appealed to the Court of Appeals
(CA), which modified the RTC's decision by reducing the total amount due and
adjusting the interest rate to 3% per month. Macalinao then filed a petition for
review with the Supreme Court, arguing that the interest rate was unconscionable
and should be further reduced.

Issue:

1. Was the stipulated interest rate of 3% per month (36% per annum)
unconscionable and should it be reduced?
2. Did the Court of Appeals err in modifying the reduced interest rate from
2% to 3% per month?
3. Should the case be dismissed or remanded for further reception of evidence
to determine the correct amount of Macalinao's obligation?

Ruling:

1. The Supreme Court ruled that the interest rate and penalty charge of
3% per month should be reduced to 2% per month.
2. The Court of Appeals' modification of the interest rate from 2% to 3%
per month was reversed.
3. The case should not be dismissed or remanded for further reception of
evidence.

Ratio:

The Supreme Court found the interest rate and penalty charge of 3% per month
(36% per annum) to be excessive and unconscionable. Citing previous
jurisprudence, the Court noted that interest rates of 3% per month and higher
have been deemed excessive and contrary to morals. The Court emphasized that
while Central Bank Circular No. 905-82 removed the ceiling on interest rates, it
did not grant lenders carte blanche authority to impose exorbitant rates. The Court
also highlighted Article 1229 of the Civil Code, which allows for the equitable
reduction of penalties if they are iniquitous or unconscionable. Given that
Macalinao had made partial payments and considering the circumstances, the
Court found it equitable to reduce the interest and penalty charges to 2% per
month. The Court also rejected Macalinao's argument for dismissal or remand,
stating that her failure to file an answer should not prejudice BPI. The Court
affirmed the use of the beginning balance of PhP94,843.70 for re-computation and
found no basis for further evidence reception. The final amount due was
recalculated to PhP112,309.52 plus 2% monthly interest and penalty charges from
January 5, 2004, until fully paid.
x. Heirs of Estelita Burgos-Lipat Namely: Alan B. Lipat and Alfredo B. Lipat, Jr. Vs. Heirs of
Eugenio

Facts:
The case of Heirs of Estelita Burgos-Lipat v. Heirs of Eugenio D. Trinidad involves
a loan taken by Estelita Burgos-Lipat and Alfredo Lipat from the Pacific Banking
Corporation (PBC) on April 16, 1979. The loan amount was P583,854, secured by a
real estate mortgage on their property located in Quezon City. Due to the
petitioners' failure to repay the loan, PBC initiated foreclosure proceedings,
resulting in a public auction on January 31, 1989, where Eugenio D. Trinidad
emerged as the highest bidder. A certificate of sale was issued to Trinidad, which
was subsequently registered on April 12, 1989. On November 28, 1989, the
petitioners filed a complaint in the Regional Trial Court (RTC) of Quezon City,
seeking to annul the mortgage, the foreclosure, and the certificate of sale against
PBC, Trinidad, and the sheriff involved. The RTC dismissed the complaint but
granted the petitioners a redemption period of five months and 17 days from the
finality of its decision, a ruling later affirmed by the Supreme Court in April 2003.
During this redemption period, the petitioners assigned their rights to Partas
Transportation Co., Inc. (PTCI), which attempted to redeem the property on June
16, 2004. However, the heirs of Trinidad rejected the redemption payment,
claiming it was insufficient as interest was calculated only for one year. The RTC
ruled in favor of PTCI, ordering the respondents to surrender the certificate of
title. The heirs of Trinidad appealed the decision, which was subsequently denied,
leading to further legal proceedings.

Issue:

1. Did the Court of Appeals err in ruling that the right to redeem the
foreclosed property had expired one year after the registration of the
certificate of sale?
2. Should the computation of the redemption price include interest beyond
the one-year period?

Ruling:

The Supreme Court granted the petitioners' motion for reconsideration, reinstated
the RTC's order allowing the redemption of the property, and reversed the Court of
Appeals' decision. The Court ruled that the petitioners were entitled to redeem the
property despite the expiration of the one-year redemption period due to
exceptional circumstances. Furthermore, the Court modified the computation of
the redemption price, mandating that it be recalculated according to the General
Banking Act, with legal interest set at 12% per annum from April 13, 1990, until
June 16, 2004.

Ratio:

The Supreme Court articulated that while the standard one-year redemption
period typically applies to mortgage foreclosures, the unique circumstances of this
case justified a departure from that norm. The Court highlighted the principle of
"law of the case," which asserts that a final and executory judgment remains
binding on the parties involved. In this instance, the RTC's prior ruling granting
the petitioners a specific redemption period was recognized as the law of the
case, thus overriding the one-year limitation. Additionally, the Court noted that
although the redemption amount was initially calculated at a lower interest rate for
the one-year period, principles of fairness and equity necessitated the application
of a 12% annual interest rate for the extended duration required to redeem the
property. This conclusion was grounded in the provisions of the General Banking
Act, which mandates that the redemption amount must encompass all pertinent
costs and interest as stipulated in the mortgage contract.

xi.Asia Trust Development Bank Vs. Carmelo H. Tuble, G.R. No. 183987, July 25, 2012

Facts:

The case involves Carmelo H. Tuble, a former vice-president of Asiatrust

Development Bank, who availed himself of the bank's car incentive plan and loan
privileges. Tuble acquired a Nissan Vanette through a lease agreement and
obtained three loans: a real estate loan, a consumption loan, and a salary loan.
Upon his resignation on March 30, 1995, Tuble had several obligations to the
bank, including the purchase or return of the Nissan Vanette, and repayment of
the loans. Tuble requested the bank to offset his receivables against his liabilities,
but the bank instead demanded payment and the return of the vehicle. The bank
filed a Complaint for replevin and a Petition for Extra-judicial Foreclosure of the
real estate mortgage. Tuble redeemed the foreclosed property for P1,318,401.91,
which included additional interest and charges imposed by the bank. Tuble then
filed a Complaint for recovery of a sum of money and damages, claiming the
redemption price was excessive. The Regional Trial Court (RTC) ruled in favor of
Tuble, ordering a refund of the excess charges and awarding moral and exemplary
damages. The Court of Appeals (CA) affirmed the RTC's decision, leading to the
bank's petition for review before the Supreme Court.

Issue:

1. Whether the bank is entitled to include the 18% annual interest on the
bid price of P421,800 in the redemption price.
2. Whether the bank can impose interest charges on Promissory Note No.
0142 in the redemption price.

Ruling:

1. The Supreme Court ruled that the bank is not entitled to include the 18%
annual interest on the bid price of P421,800 in the redemption price.
2. The Supreme Court ruled that the bank cannot impose interest charges
on Promissory Note No. 0142 in the redemption price.

Ratio:

The Supreme Court held that the Real Estate Mortgage Contract was extinguished
upon the foreclosure and sale of the mortgaged property, thus the bank could not
rely on it to impose additional charges, including the 18% annual interest. The
Court also noted that the General
Banking Law, not the Rules of Court, should determine the redemption price,
which includes only the amount due under the mortgage deed with interest
specified in the mortgage, and costs and expenses incurred by the bank. The Court
found that the Real Estate Mortgage Contract did not specify any interest for
redemption, and the dragnet clause could not be used to include the 18% interest
from the consumption loan. Additionally, the Court ruled that Tuble was not in
default, as his liabilities were settled before the maturity date, and thus no
compensatory interest was due. The award of moral and exemplary damages was
upheld, as the bank's actions caused undue embarrassment and humiliation to
Tuble, given his social and professional standing.

xii. Advocates For Truth in Lending Vs. BSP, G.R. No. 192986, January 15, 2013

Facts:

The case "Advocates for Truth in Lending, Inc. v. Bangko Sentral Monetary Board"
involves petitioners Advocates for Truth in Lending, Inc. (AFTIL), a non-profit
organization, and its founder Eduardo B. Olaguer. They filed a Petition for
Certiorari under Rule 65 of the 1997 Rules of Court, challenging the authority of
the Bangko Sentral ng Pilipinas Monetary Board (BSP-MB) to enforce Central
Bank Circular No. 905. This circular suspended the Usury Law (Act No. 2655). The
petitioners argued that the BSP-MB, which replaced the Central Bank Monetary
Board (CB-MB) by virtue of Republic Act (R.A.) No. 7653, lacked the authority to
continue enforcing the circular. They contended that the CB-MB exceeded its
authority by removing all interest ceilings and that the BSP-MB could not continue
to enforce the circular. Additionally, the petitioners claimed that the circular was
unconstitutional and violated due process and equal protection clauses. The case
was filed directly with the Supreme Court, bypassing the lower courts, on the
grounds of transcendental importance. The case was decided on January 15, 2013,
with Justice Reyes as the ponente.

Issue:

1. Did the CB-MB have the statutory or constitutional authority to

prescribe maximum interest rates beyond the limits prescribed in the
Usury Law?
2. Did the CB-MB exceed its authority by issuing CB Circular No. 905, which
removed all interest ceilings?
3. Does the BSP-MB have the authority to continue enforcing CB Circular No.
905?

Ruling:

The Supreme Court dismissed the petition.

Ratio:
The Court found the petition procedurally infirm as it was directed against a body
performing executive functions, not judicial or quasi-judicial functions. The CB-MB
and BSP-MB were created to perform executive functions related to banking and
credit institutions, and the issuance of CB Circular No. 905 was an executive
action. Therefore, certiorari was not the appropriate remedy. Additionally, the
petitioners lacked locus standi as they did not demonstrate any direct injury or
misuse of public funds resulting from the circular. The Court also noted that the
issues raised were not of transcendental importance, as there was no allegation of
misuse of public funds and the petitioners did not represent borrowers affected by
the suspension of the Usury Law. The Court further held that the CB-MB had the
authority to suspend the Usury Law under P.D. No. 1684, and this power was
recognized in previous cases. The BSP-MB retained the authority to enforce CB
Circular No. 905, as R.A. No. 7653 did not repeal the relevant provisions of the
Usury Law. The Court emphasized that while the circular lifted interest rate
ceilings, it did not authorize unconscionable or iniquitous interest rates, which
could still be struck down for being contrary to law or public policy.

xiii. Villa Crista Monte Realty & Development Corp. V. Equitable Pci Bank, G.R. No.
208336, November 21, 2018

Facts:

Villa Crista Monte Realty & Development Corporation (petitioner) was organized in
1994 to engage in real estate development. It acquired an 80,000 square meter
parcel of land in Old Balara, Quezon City, intending to develop it into a residential
subdivision. To finance the project, the petitioner obtained a credit line of PHP
80 million from Equitable PCI Bank (E-PCIB), now Banco De Oro (BDO), secured
by a real estate mortgage over the property. The petitioner later subdivided the
land into 174 lots and obtained an additional PHP 50 million credit accommodation
from E-PCIB, secured by 41 of the subdivided lots. Between March and August
1997, the petitioner drew various amounts from the credit line, each covered by a
promissory note with a provision for monthly repricing of interest rates. E-PCIB
subsequently increased the interest rates, prompting the petitioner to default on
its loan obligations amounting to PHP 129.7 million. E-PCIB initiated foreclosure
proceedings, leading to the auction of the mortgaged properties, where E-PCIB
emerged as the highest bidder. The petitioner filed a complaint for the nullification
of the promissory notes and mortgage agreements, alleging unilateral imposition
of interest rate increases, among other claims. The Regional Trial Court (RTC)
ruled in favor of E-PCIB, and the Court of Appeals (CA) affirmed the RTC's
decision. The petitioner then appealed to the Supreme Court.

Issue:

1. Did the CA commit reversible error in ruling as valid the bank's repricing
of the interest rates?
2. Are the promissory notes, though contracts of adhesion, binding on the
petitioner absent any proof of domination by the bank?
3. Should the payments made by the petitioner in excess of the original rate
of interest be credited to the principal?
Ruling:
 1. The Supreme Court ruled that the CA did not commit reversible error in
affirming the validity of the promissory notes and the corresponding
repricing of interest rates.
2. The Court held that the promissory notes, though contracts of adhesion,
were binding on the petitioner as there was no proof of coercion or trickery
by the bank.
3. The Court did not find any basis to credit the payments made by the
petitioner in excess of the original rate of interest to the principal.

Ratio:

The Supreme Court found that both the RTC and CA correctly upheld the validity
of the real estate mortgage and promissory notes, as well as the subsequent
foreclosure proceedings. The Court noted that the escalation clause in the
promissory notes, which allowed for the repricing of interest rates, was not
inherently invalid. Although the promissory notes did not contain an express de-
escalation clause, the bank had, on some occasions, reduced the interest rates,
thereby eliminating any one-sidedness in favor of the lender. The Court
emphasized that the principle of mutuality of contracts was not violated, as the
petitioner was given notice of the repricing and had the option to reject the new
rates by prepaying the outstanding balance. The Court also held that the
promissory notes, being contracts of adhesion, were not invalid per se and were
binding on the petitioner, who was fully aware of the terms and conditions. The
Court found no evidence of coercion or trickery by the bank and noted that the
petitioner had the opportunity to negotiate the terms of the credit line and
mortgage agreements. The Court concluded that the petitioner's claims lacked
merit and affirmed the CA's decision.

xiv. Rey V. Anson, G.R. No. 211206, November 7, 2018

Facts:

The case of "Rey v. Anson" revolves around a dispute concerning excessive interest
rates and overpayments on multiple loans. The petitioner, Rosemarie Q. Rey, is
the President and co-owner of Southern Luzon Technological College Foundation,
Incorporated, a computer school in Legazpi City. In August 2002, Rey required
immediate funds and borrowed money from the respondent, Cesar G. Anson,
through a mutual friend, Ben Del Castillo. On August 23, 2002, Rey borrowed
P200,000 from Anson, with a 7.5% monthly interest rate, secured by a real estate
mortgage on her property, and issued postdated checks for the payments. On
August 26, 2002, she borrowed an additional P350,000 from Anson at a 7%
monthly interest rate, secured by a mortgage on her mother’s property. Rey failed
to repay the principal amounts on time and requested extensions, leading to new
deeds of real estate mortgage with updated terms.

In 2004, Rey obtained two more loans from Anson, each amounting to P100,000,
with verbal agreements of 3% and 4% monthly interest rates, respectively. On
February 25, 2005, Anson sent Rey a statement of account demanding full payment
of all four loans, totaling P2,214,587.50. Rey, through her counsel, contested the
interest rates as excessive and demanded a recomputation at the legal interest
rate, claiming she had overpaid by P283,434.19 and demanded the return of the
excess payment. When Anson did not comply, Rey, along with her husband and
mother, filed a complaint for recomputation of loans, recovery of excess payments,
and cancellation of real estate mortgages with the RTC of Legazpi City.
The RTC ruled in favor of Rey, declaring the interest rates on the first and second
loans void and reducing them to the legal rate of 12% per annum. It also declared
that no interest was due on the third and fourth loans due to the absence of a
written agreement. The RTC ordered Anson to return the excess payments and
cancel the real estate mortgages. Both parties appealed to the Court of Appeals,
which reversed the RTC’s decision, upholding the original interest rates on the
first and second loans and ordering Rey to pay Anson P902,847.87 plus interest.
Rey then filed a petition for review on certiorari with the Supreme Court.

Issue:

1. Are the interest rates on the first and second loans unconscionable and
contrary to morals?
2. Is the computation of payment of interest and the principal amount correct
in Loan 1 and Loan 2, and is interest imposable on the excess payments?
3. Is the petitioner entitled to the award of attorney's fees?

Ruling:

1. The Supreme Court ruled that the interest rates of 7.5% and 7% per month
on the first and second loans, respectively, are unconscionable, iniquitous,
and contrary to law and morals, and therefore void. The Court reinstated
the RTC’s decision to impose the legal interest rate of 12% per annum.
2. The Supreme Court found that the RTC’s recomputation of the loans was
erroneous and that the correct computation should apply each payment to
the interest first and then to the principal. The Court determined that Rey
had made excess payments totaling P269,700.68, which Anson must return,
but without interest on the excess payments.
3. The Supreme Court upheld the denial of attorney's fees and litigation
expenses to Rey, finding no basis for such an award.

Ratio:

1. The Supreme Court emphasized that while parties are generally free to
stipulate interest rates, such stipulations must not be unconscionable or
contrary to morals. The Court cited jurisprudence that declared interest
rates of 3% per month or higher as excessive and void. The interest rates of
7.5% and 7% per month on the first and second loans were found to be
excessively high, thus justifying the imposition of the legal interest rate of
12% per annum.
2. The Court applied Article 1253 of the Civil Code, which states that
payments should first be applied to interest before the principal. The Court
reviewed the payments made by Rey and found that she had overpaid the
loans. The principle of solutio indebiti under Article 2154 of the Civil Code
required Anson to return the excess payments. However, the Court did not
impose interest on the excess payments, following the precedent that
excess payments made by mistake do not warrant interest.
3. The Court found no justification for awarding attorney's fees and litigation
expenses to Rey, as the circumstances did not meet the criteria under
Article 2208 of the Civil Code. The Court noted that the right to litigate
should not bear a premium, and there was no evidence of bad faith or
malice on Anson’s part that would warrant such an award.
4.

(iii.) Minors and Corporations as

depositors (iv.) Married Women
(v.) Corporations not required to open deposit accounts prior to

incorporation (vi.) Suspension of payment on its deposit liabilities

(vii.) Deposit substitutes

BDO vs. Republic, 13 January 2015 and 16 August 2016

Facts:

The case "Banco De Oro v. Republic" involves several petitioners, including Banco
De Oro, Bank of Commerce, China Banking Corporation, and others, against the
Republic of the Philippines and various government agencies. The dispute centers
around the imposition of a 20% final withholding tax on government bonds known
as PEACe Bonds. On October 9, 2001, the Bureau of Treasury announced the
auction of P30 billion worth of 10-year Zero-Coupon Bonds, stating they would not
be subject to the 20% final withholding tax due to a limitation of 19 lenders.
RCBC, on behalf of CODE-NGO, won the bid for these bonds on October 16, 2001.
However, on October 7, 2011, the Commissioner of Internal Revenue issued BIR
Ruling No. 370-2011, declaring the PEACe Bonds as deposit substitutes subject to
the 20% final withholding tax. This led to the Bureau of Treasury withholding the
tax upon the bonds' maturity on October 18, 2011. The petitioners filed for
certiorari, prohibition, and mandamus, leading to a temporary restraining order
from the Supreme Court on October 18, 2011, enjoining the implementation of the
BIR ruling. The Supreme Court's decision on January 13, 2015, nullified the BIR
rulings and ordered the release of the withheld tax to the bondholders. The case
was further complicated by motions for reconsideration and clarification filed by
the respondents and
petitioners-intervenors.

Issue:

1. Should the 20-lender rule under Section 22 (Y) of the National Internal
Revenue Code apply to issuances of government debt instruments?
2. Can the seller in the secondary market be the proper withholding agent
for the final withholding tax on the yield or interest income from
government debt instruments considered as deposit substitutes?
3. Is the government or the Bureau of Internal Revenue estopped from
imposing and/or collecting the 20% final withholding tax from the face
value of the PEACe Bonds?
4. Does the imposition of the 20% final withholding tax violate the non-
impairment clause of the Constitution or constitute a deprivation of
property without due process of law?
5. Is the respondent Bureau of Treasury liable to pay 6% legal interest?

Ruling:

1. The Supreme Court ruled that the 20-lender rule under Section 22 (Y) of
the National Internal Revenue Code applies to all types of securities,
including government debt instruments.
2. The Court held that the successful GSED-bidder, as an agent of the Bureau
of Treasury, has the primary responsibility to withhold the 20% final
withholding tax on the interest valued at present value when its sale and
distribution of the government securities constitute a deposit substitute
transaction.
3. The Court found that the government or the Bureau of Internal Revenue is
not estopped from imposing and/or collecting the 20% final withholding tax
from the face value of the PEACe Bonds.
4. The Court ruled that the imposition of the 20% final withholding tax does
not violate the non-impairment clause of the Constitution or constitute a
deprivation of property without due process of law.
5. The Court ordered the Bureau of Treasury to pay 6% legal interest on
the amount corresponding to the 20% final withholding tax from
October 19, 2011, until full payment.
Ratio:

The Supreme Court's decision was based on a strict interpretation of Section 22

(Y) of the National Internal Revenue Code, which defines "public" as 20 or more
individual or corporate lenders at any one time. The Court emphasized that the
number of lenders at any transaction is determinative of whether a debt
instrument is a deposit substitute subject to the 20% final withholding tax. The
Court also clarified that the withholding tax system aims to maximize and expedite
the collection of income taxes by requiring payment at the source. The Court found
that the Bureau of Treasury, as an agent of the government, had the primary
responsibility to withhold the tax when the bonds were distributed to 20 or more
investors. The Court rejected the respondents' argument that the intended public
distribution of government securities should replace an actual head count of
lenders. The Court also held that the previous BIR rulings, which stated that the
PEACe Bonds were not subject to the 20% final withholding tax, created vested
rights for the petitioners and should be applied prospectively. The Court found that
the Bureau of Treasury's refusal to release the withheld tax was unjustified and
ordered it to pay legal interest for the delay.

(ix.) Safety Deposit

Box (x.) Risk Based

Capital (xi.)

Investment Banks

O. Loan function (Sections 34-

52) (i.) Single borrower’s limit
(ii.) DOSRI loans (include Section 26, R.A. 7653)
i. Soriano vs. People, 1 February 2010

Facts:

In the case of "Soriano v. People," Hilario P. Soriano, the petitioner, served as the
president of the Rural Bank of San Miguel (Bulacan), Inc. (RBSM). In 2000, the
Office of Special Investigation (OSI) of the Bangko Sentral ng Pilipinas (BSP) sent a
letter dated March 27, 2000, to the Chief State Prosecutor of the Department of
Justice (DOJ). This letter included five affidavits alleging that Soriano facilitated
and received the proceeds of an unauthorized P8 million loan, which was neither
applied for nor received by the supposed borrowers, Enrico and Amalia Carlos. The
loan was unauthorized by RBSM's Board of Directors and was not reported to the
BSP. Following a preliminary investigation, two separate informations were filed
against Soriano before the Regional Trial Court (RTC) of Malolos, Bulacan: one for
estafa through falsification of commercial documents and another for violation of
Section 83 of Republic Act (RA) No. 337, as amended by Presidential Decree (PD)
No. 1795, which pertains to the DOSRI (Directors, Officers, Stockholders, and their
Related Interests) law. Soriano moved to quash these informations, arguing that
the court had no jurisdiction and that the facts charged did not constitute an
offense. The RTC denied the motion, and the Court of Appeals (CA) upheld this
decision. Soriano then filed a Petition for Review on Certiorari under Rule 45 of the
Rules of Court, challenging the CA's decision and resolution.
Issue:
 1. Whether the complaint complied with the mandatory requirements under
Section 3(a), Rule 112 of the Rules of Court and Section 18, paragraphs (c)
and (d) of RA 7653.
2. Whether a loan transaction within the ambit of the DOSRI law could also
be the subject of estafa under Article 315 (1) (b) of the Revised Penal
Code.
3. Is a petition for certiorari under Rule 65 the proper remedy against an
Order denying a Motion to Quash?
4. Whether petitioner is entitled to a writ of injunction.

Ruling:

1. The complaint complied with the mandatory requirements under Section

3(a), Rule 112 of the Rules of Court and Section 18, paragraphs (c) and (d)
of RA 7653.
2. A loan transaction within the ambit of the DOSRI law could also be the
subject of estafa under Article 315 (1) (b) of the Revised Penal Code.
3. A petition for certiorari under Rule 65 is not the proper remedy against an
Order denying a Motion to Quash.
4. The petitioner is not entitled to a writ of injunction.

Ratio:

1. The Supreme Court held that the BSP letter, along with the attached
affidavits, complied with the requirements under Section 3(a), Rule 112 of
the Rules of Court and Section 18, paragraphs (c) and (d) of RA 7653. The
affidavits, not the transmittal letter, initiated the preliminary investigation,
and since these affidavits were subscribed under oath, there was
substantial compliance with the Rules. The Court also noted that the
offenses charged were public crimes, which could be initiated by any
competent person with personal knowledge of the acts committed by the
offender.
2. The Court found that the informations against Soriano contained allegations
that, if hypothetically admitted, would establish the essential elements of
both DOSRI violation and estafa through falsification of commercial
documents. The Court explained that the bank money obtained by Soriano
was held in trust or administration by him in his fiduciary capacity as the
bank president. The loan was supposed to be for another person, and
through falsification, Soriano obtained and converted the loan proceeds.
Thus, he did not become the legal owner of the P8 million, making it capable
of misappropriation or conversion. The Court also clarified that the
prohibition in Section 83 of RA 337 is broad enough to cover indirect
borrowings, such as the one alleged in the information.
3. The Supreme Court reiterated its consistent holding that a special civil
action for certiorari is not the proper remedy to assail the denial of a
motion to quash an information. The proper procedure is for the accused
to enter a plea, go to trial, and present the special defenses invoked in
the motion to quash. If an adverse decision is rendered after trial, the
accused may then appeal in the manner authorized by law.
4. The Court found no compelling reason to grant the injunctive relief sought
by Soriano. The requisites for an injunctive relief were not met, as there
was no clear and unmistakable right, material and substantial invasion of
the right, or urgent and paramount necessity for the writ to prevent
serious damage.

ii.Soriano v. People, January 8, 2020

Facts:

In the case of Soriano v. People, G.R. No. 240458, decided on January 8, 2020,
petitioner Hilario P. Soriano, the president of the Rural Bank of San Miguel
(Bulacan), Inc. (RBSM), was found guilty of violating Section 83 of Republic Act
(R.A.) No. 337, as amended by Presidential Decree (P.D.) No. 1795, known as the
General Banking Act, and of estafa through falsification of commercial documents.
The case originated from two separate Informations filed against Soriano. In
Criminal Case No. 1719-M-2000, it was alleged that on June 27, 1997, Soriano
unlawfully obtained a loan of PhP15 million from RBSM without the written
consent of the majority of the bank's board of directors, using the name of
depositor Virgilio J. Malang, who
was unaware of the loan. Soriano then converted the loan proceeds for his
personal use. In Criminal Case No. 1720-M-2000, Soriano and co-accused
Rosalinda Ilagan, the manager of RBSM's San Miguel Branch, were charged with
falsifying loan documents to make it appear that Malang had applied for the loan.
The prosecution presented multiple witnesses and documentary evidence to
substantiate the charges. The Regional Trial Court (RTC) of Malolos City, Bulacan,
found Soriano guilty in its decision dated October 13, 2015. This decision was
affirmed with modification by the Court of Appeals (CA) on February 28, 2018.
Soriano's motion for reconsideration was denied by the CA on June 26, 2018.

Issue:

1. Was Soriano's guilt in Criminal Case No. 1719-M-2000 for violating

Section 83 of R.A. No. 337, as amended, proved beyond reasonable
doubt?
2. Was Soriano's guilt in Criminal Case No. 1720-M-2000 for the complex
crime of estafa through falsification of commercial documents proved
beyond reasonable doubt?

Ruling:

The Supreme Court found no merit in Soriano's petition and affirmed the decision
of the CA with modification as to the interest imposed on the civil indemnity. The
Court held that Soriano was guilty beyond reasonable doubt of violating the DOSRI
law and of the complex crime of estafa through falsification of commercial
documents.

Ratio:

The Court emphasized that the factual findings of the trial courts, especially when
affirmed by the CA, are entitled to great weight and respect. The prosecution's
evidence, including the testimonies of nine witnesses and voluminous documentary
evidence, clearly established Soriano's guilt. The elements of violating Section 83
of R.A. No. 337 were met: Soriano was an officer of RBSM, he indirectly borrowed
funds using Malang's name without board approval, and converted the loan
proceeds for personal use. The Court rejected Soriano's argument that the
prosecution's evidence pertained to a different loan. The testimonies and
documents presented showed that Soriano orchestrated the release of a fictitious
loan under Malang's name and used the proceeds to pay off his previous irregular
loans. For the estafa charge, the elements of falsification under Article 172 of the
Revised Penal Code were also met: Soriano, a private individual, caused it to
appear that Malang applied for the loan, and the falsification was committed in
commercial documents. The falsification was a necessary means to commit estafa,
as Soriano used the falsified documents to defraud the bank. The Court modified
the interest rate on the civil indemnity to 6% per annum from the date of the
decision until full payment.

iii. Go vs. BSP, 23 October 2009

Facts:

The case involves petitioner Jose C. Go, who was charged with violating Section 83
of Republic Act No. 337 (RA 337), also known as the General Banking Act, as
amended by Presidential Decree No. 1795. The Information was filed on August 20,
1999, before the Regional Trial Court (RTC), Branch 26, Manila. Go, who was the
Director, President, and Chief Executive Officer of Orient Commercial Banking
Corporation (Orient Bank), was accused of borrowing deposits or funds from the
bank and/or becoming a guarantor, indorser, or obligor for loans from the bank
without the written approval of the majority of the bank's Board of Directors. The
alleged violations occurred between June 27, 1996, and September 15, 1997,
involving a total amount of PHP 2,754,905,857. Go pleaded not guilty on May 28,
2001, and participated in the pre-trial conference. However, before the trial
commenced, Go filed a motion to quash the Information
on February 26, 2003, claiming that the Information was defective and did not
constitute an offense under Section 83 of RA 337. The RTC granted Go's motion to
quash on May 20, 2003, and denied the prosecution's motion for reconsideration
on June 30, 2003. The prosecution then filed a petition for certiorari before the
Court of Appeals (CA), which annulled and set aside the RTC's orders and
reinstated the criminal charge against Go. Go subsequently filed a petition for
review on certiorari before the Supreme Court.

Issue:

1. Did the Information filed against Jose C. Go sufficiently allege the acts
constituting an offense under Section 83 of RA 337?
2. Does the use of the term "and/or" in the Information render it vague and
defective?
3. Is the credit accommodation limit under the second paragraph of
Section 83 an exception to the offense charged in the first
paragraph?

Ruling:

1. The Supreme Court ruled that the Information filed against Jose C. Go was
sufficient and adequately alleged the acts constituting an offense under
Section 83 of RA 337.
2. The Court held that the use of the term "and/or" in the Information did
not render it vague or defective.
3. The Court determined that the credit accommodation limit under the
second paragraph of Section 83 is not an exception to the offense charged
in the first paragraph.

Ratio:

The Supreme Court emphasized that under the 1987 Philippine Constitution, an
accused has the right to be informed of the nature and cause of the accusation
against him. The Rules of Court require that the acts or omissions constituting the
offense must be stated in ordinary and concise language. The Court found that the
Information against Go met this requirement by clearly alleging the ultimate facts
constituting the offense. The Court rejected Go's argument that Section 83
penalizes only directors or officers who act either as borrowers or guarantors, but
not both. The Court clarified that the essence of the crime is becoming an obligor
of the bank without the necessary written approval from the majority of the bank's
directors. The second paragraph of Section 83, which sets borrowing limits, is
directed at the bank and does not serve as an exception to the first paragraph. The
Court also noted that the RTC erred in dismissing the Information without giving
the prosecution an opportunity to amend it, as required by the Rules of Court. The
Court affirmed the CA's decision to reinstate the criminal charge against Go and
directed the RTC to proceed with the hearing of the case.

iv. Republic vs. Sandiganbayan, 12 April 2011

Facts:
The case, Republic of the Philippines v. Sandiganbayan, centers on the Republic's
efforts to recover assets and shares allegedly acquired illegally by Eduardo M.
Cojuangco, Jr. and other defendants. On July 31, 1987, the Republic filed Civil Case
No. 0033 in the Sandiganbayan, which was later divided into eight separate
complaints, including Civil Case No. 0033-F. This particular case focused on two
blocks of shares in San Miguel Corporation (SMC): the Coconut Industry
Investment Fund (CIIF) block and the Cojuangco block. The Republic claimed that
Cojuangco, a close associate of then-President Ferdinand Marcos, used coconut
levy funds to purchase these shares. The Sandiganbayan granted partial summary
judgment in favor of the Republic for the CIIF block but denied the motion
concerning the Cojuangco block, leading to further litigation. The Republic's claim
was based on allegations that Cojuangco breached his fiduciary duties and misused
public funds for personal gain. Ultimately, the Sandiganbayan dismissed the
Republic's claims regarding the Cojuangco block, prompting the Republic to
appeal to the Supreme Court.

Issue:

1. Did the Sandiganbayan commit grave abuse of discretion in lifting

the writs of sequestration on the subject SMC shares?
2. Did the Sandiganbayan err in denying the Republic's motion for
partial summary judgment regarding the Cojuangco block of SMC
shares?
3. Should the subject SMC shares be reconveyed to the Republic for having
been acquired using coconut levy funds?

Ruling:

1. The Supreme Court affirmed the Sandiganbayan's decision to lift

the writs of sequestration, finding no grave abuse of discretion.
2. The Supreme Court upheld the Sandiganbayan's denial of the Republic's
motion for partial summary judgment, agreeing that there were genuine
factual issues that needed to be resolved through a full trial.
3. The Supreme Court denied the Republic's appeal for the reconveyance of
the subject SMC shares, affirming the Sandiganbayan's decision to dismiss
the Republic's claims for failure to prove by preponderance of evidence that
the shares were acquired using public funds.

Ratio:

1. The Sandiganbayan's lifting of the writs of sequestration was based on the

finding that the writs were issued without the required signatures of at
least two PCGG commissioners and without a prior determination of a
prima facie basis for sequestration. The Supreme Court found no grave
abuse of discretion in this decision, as the safeguards under Section 3 of the
PCGG Rules were not met.
2. The denial of the Republic's motion for partial summary judgment was
justified as there were genuine factual issues regarding the sources of funds
used to acquire the SMC shares, the roles and fiduciary duties of Cojuangco,
and whether he took advantage of his position. The Sandiganbayan correctly
required a full trial to resolve these issues.
3. The Supreme Court held that the Republic failed to provide sufficient
evidence to prove that the SMC shares were acquired using coconut levy
funds. The Republic's reliance on judicial admissions and prima facie
presumptions was insufficient without concrete evidence linking the funds
 to the acquisition of the shares. The Court emphasized the need for
competent evidence to establish the factual allegations of ill-gotten wealth.
4.
v. HBILU vs. HSBC, 28 February 2018

Facts:

The case involves the Hongkong Bank Independent Labor Union (HBILU) and the
Hongkong and Shanghai Banking Corporation Limited (HSBC). The dispute arose
from HSBC's enforcement of a credit-checking requirement for salary loans under
a Collective Bargaining Agreement (CBA) between the parties. The CBA, covering
the period from April 1, 2010, to March 31, 2012, did not mention this
requirement. However, HSBC claimed that the
credit-checking proviso was part of its Financial Assistance Plan (Plan) approved
by the Bangko Sentral ng Pilipinas (BSP) in 2003. The Plan was amended thrice,
with all amendments approved by the BSP. During negotiations for a new CBA for
the period from April 1, 2012, to March 31, 2017, HSBC proposed amendments to
align the CBA with the BSP-approved Plan, including the deletion of the credit
ratio policy and the inclusion of a credit-checking requirement. HBILU objected,
leading HSBC to withdraw its proposal. Despite this, HSBC enforced the credit-
checking requirement, leading to the denial of a loan application by HBILU
member Vince Mananghaya in September 2012. HBILU raised the issue with the
National Conciliation Mediation Board (NCMB), arguing that the requirement was
not sanctioned under the CBA. The NCMB Panel of Accredited Voluntary
Arbitrators ruled in favor of HSBC, stating that the bank's Plan was not a new
policy and was necessary to comply with BSP regulations.
The Court of Appeals (CA) upheld this decision, leading HBILU to seek recourse
from the
Supreme Court.

Issue:

1. Whether HSBC could validly enforce the credit-checking requirement under

its
BSP-approved Plan in processing the salary loan applications of covered
employees even when the said requirement is not recognized under the CBA.

Ruling:

The Supreme Court ruled in favor of HBILU, reversing and setting aside the
decisions of the Court of Appeals and the NCMB Panel of Accredited Voluntary
Arbitrators. The Court declared HSBC's Financial Assistance Plan, insofar as it
unilaterally imposed a credit-checking proviso on the availment of Salary Loans by
its employees under Article XI of the 2010-2012 CBA, legally ineffective and invalid
for being in contravention of Article 253 of the Labor Code.

Ratio:

The Supreme Court emphasized the constitutional right of employees to

participate in matters affecting their benefits and the sanctity of the CBA. The
Court noted that the CBA is the law between the parties and must be complied
with. The unilateral amendments to the CBA by HSBC violated Article 253 of the
Labor Code, which prohibits the unilateral modification of a
CBA during its lifetime. The Court found that the Plan was never made part of the
CBA, and HBILU had vehemently rejected its incorporation. The subsequent
implementation of the Plan's external credit check provisions was an imposition
solely by HSBC, which contravened the express prohibition against unilateral
modification of a CBA. The Court also noted that HSBC failed to present concrete
documentary evidence that the credit-checking requirement had been imposed on
salary loans before the signing of the CBA. The Court concluded that HSBC's
enforcement of the credit-checking requirement invalidly modified the CBA
provisions on salary loans, violating its duty to bargain collectively.

(iii.) Foreclosure of real estate mortgage

i. Goldenway Merchandising vs. Equitable PCI, 13 March 2013

Facts:

Goldenway Merchandising Corporation (petitioner) executed a Real Estate

Mortgage in favor of Equitable PCI Bank (respondent) on November 29, 1985, over
its properties in Valenzuela, Bulacan, securing a loan of Two Million Pesos
(P2,000,000.00). The mortgage was duly registered. Due to the petitioner's failure
to settle the loan, the respondent extrajudicially foreclosed the mortgage on
December 13, 2000, and the properties were sold at a public auction for
P3,500,000.00 to the respondent. A Certificate of Sale was issued on January 26,
2001, and registered on February 16, 2001. On March 8, 2001, the petitioner
offered to redeem the properties by tendering a check for P3,500,000.00, but was
informed that redemption was no longer possible as the certificate of sale had been
registered and new titles issued in the respondent's name on March 9, 2001. The
petitioner filed a complaint for specific performance and damages on December 7,
2001, arguing that the one-year redemption period under Act No. 3135 should
apply, not the shorter period under Republic Act (R.A.) No. 8791. The Regional
Trial Court (RTC) of Valenzuela City dismissed the complaint, noting that the
constitutionality of Section 47 of R.A. No. 8791 was not raised during pre-trial and
trial, and that the petitioner's attempt to redeem was late and unauthorized. The
Court of Appeals (CA) affirmed the RTC's decision, leading to the present petition
for review on certiorari.

Issue:

1. Does Section 47 of R.A. No. 8791 violate the constitutional

proscription against impairment of obligations of contract?
2. Does Section 47 of R.A. No. 8791 infringe the equal protection clause by
discriminating against juridical persons?

Ruling:
1. The Supreme Court ruled that Section 47 of R.A. No. 8791 does
not violate the constitutional proscription against impairment of
obligations of contract.
 2. The Supreme Court ruled that Section 47 of R.A. No. 8791 does not
infringe the equal protection clause.

Ratio:

The Supreme Court held that Section 47 of R.A. No. 8791, which shortens the
redemption period for juridical persons to the registration of the certificate of
foreclosure sale or three months after foreclosure, whichever is earlier, does not
impair the obligation of contracts. The law did not divest juridical persons of the
right to redeem but merely modified the time for its exercise. The Court
emphasized that every statute is presumed valid, and any reasonable doubt should
be resolved in favor of its constitutionality. The non-impairment clause aims to
protect contracts from unwarranted state interference, but it does not preclude the
state from enacting laws that modify contractual terms for public welfare. The
Court also found that the classification between juridical and natural persons
under Section 47 is reasonable and germane to the law's purpose, which is to
maintain a safe and sound banking system. The shorter redemption period for
juridical persons is justified by the need to reduce uncertainty in property
ownership and enable banks to dispose of acquired assets promptly. The Court
concluded that the legitimate public interest pursued by the legislature outweighs
the petitioner's impairment of contract claim. Consequently, the petitioner's right
to redeem the foreclosed properties had expired upon the registration of the
certificate of sale.

ii.White Marketing vs. Grandwood Furniture, 23 November 2016

Facts:

On May 26, 1995, Grandwood Furniture & Woodwork, Inc. (Grandwood) secured a
loan of P40,000,000.00 from Metropolitan Bank and Trust Company (Metrobank),
using a parcel of land covered by Transfer Certificate of Title (TCT) No. 63678 as
collateral. Metrobank later transferred its rights and interests over the loan and
mortgage contract to Asia Recovery Corporation (ARC), which subsequently
assigned them to Cameron Granville 3 Asset Management, Inc. (CGAM3). After
Grandwood defaulted on the loan, which had increased to P68,941,239.46, CGAM3
initiated extrajudicial foreclosure proceedings. On September 17, 2013, White
Marketing Development Corporation (White Marketing) emerged as the highest
bidder in the auction sale, and a certificate of sale was issued in its favor. This
certificate of sale was registered and annotated on TCT No. 63678 on September
30, 2013. Grandwood attempted to redeem the property, but White Marketing
argued that the redemption period had expired. Consequently, Grandwood filed a
Petition for Consignation, Mandamus, and Damages before the Regional Trial
Court (RTC), which dismissed the petition, ruling that the applicable redemption
period was under Section 47 of the General Banking Law of 2000 (R.A. No. 8791).
The Court of Appeals (CA) reversed the RTC's decision, leading White Marketing to
file a Petition for Review on Certiorari before the Supreme Court.

Issue:

1. Did the Court of Appeals err in ruling that Section 47 of R.A. No. 8791,
 the General Banking Law of 2000, is not applicable in this case?

Ruling:
The Supreme Court reversed and set aside the June 22, 2015 Decision and the
December 28, 2015 Resolution of the Court of Appeals. The Court reinstated the
July 21, 2014 Decision of the Regional Trial Court, Branch 166, Pasig City, which
dismissed Grandwood's petition for consignation and mandamus.

Ratio:

The Supreme Court held that the shorter redemption period under Section 47 of
R.A. No. 8791 applies to juridical persons, even when the mortgagee bank assigns
its rights to a non-banking institution. The Court emphasized that the assignee of a
mortgagee bank steps into the shoes of the assignor and acquires all its rights,
including the shorter redemption period. The Court explained that the purpose of
the shorter redemption period is to provide additional security to mortgagee
banks, ensuring their solvency and liquidity. Extending the redemption period
upon assignment would defeat this purpose and hinder banks' ability to quickly
dispose of hard assets. The Court found that Grandwood's redemption was made
out of time, as it was done after the registration of the certificate of sale on
September 30, 2013. The Court underscored that the liberal construction of
redemption laws in favor of the mortgagor does not apply when the statutory
requirements for redemption are not met.

iii. Alan vs. PNB, 27 January 2016

Facts:

The case involves Spouses Robert Alan L. Limso and Nancy Lee Limso (Spouses
Limso) and Davao Sunrise Investment and Development Corporation (Davao
Sunrise) against the Philippine National Bank (PNB) and the Register of Deeds of
Davao City. In 1993, Spouses Limso and Davao Sunrise obtained a loan from PNB
amounting to P700 million, secured by real estate mortgages on four parcels of
land in Davao City. Due to financial difficulties, they requested a loan restructuring
in 1999, resulting in a Conversion, Restructuring, and Extension Agreement with a
principal obligation of P1.067 billion. Despite the restructuring, they failed to pay,
leading PNB to file for extrajudicial foreclosure in 2000. The auction sale was held,
and PNB was declared the highest bidder. Spouses Limso and Davao Sunrise filed
a complaint for reformation or annulment of the contract, claiming the interest
rates were unilaterally imposed and unreasonable. The trial court issued a
temporary restraining order, which was later dissolved by the Court of Appeals.
The case involved multiple petitions and appeals, including issues of interest rates,
foreclosure proceedings, and the issuance of a writ of possession.

Issue:

1. Whether the interest rates imposed by PNB were usurious and

unconscionable.
2. Whether the Conversion, Restructuring, and Extension Agreement novated
the original loan agreement.
3. Whether the registration of the Sheriff's Provisional Certificate of Sale was
completed.
4. Whether PNB is entitled to a writ of possession.
5. Whether the applicable redemption period is one year or three months.

Ruling:
1. The Supreme Court ruled that the interest rates imposed by PNB were
usurious and unconscionable.
2. The Conversion, Restructuring, and Extension Agreement novated the
original loan agreement.
 3. The registration of the Sheriff's Provisional Certificate of Sale was deemed
completed.
4. PNB is entitled to a writ of possession, subject to compliance with all
requirements.
5. The applicable redemption period is three months as provided under
Republic Act No. 8791.

Ratio:

1. The Court found that the interest rates were unilaterally determined by
PNB, violating the principle of mutuality of contracts. The interest rate
provisions were nullified, and the legal interest rate of 12% per annum
was applied.
2. The Conversion, Restructuring, and Extension Agreement changed the
principal obligation and terms of the original loan, constituting a
novation. The outstanding obligation should be computed based on the
restructured agreement.
3. The registration of the Sheriff's Provisional Certificate of Sale was
completed when it was entered in the Primary Entry Book, despite the
Register of Deeds' refusal to annotate it on the titles.
4. PNB is entitled to a writ of possession as the winning bidder in the
foreclosure sale, but must file a bond before the writ can be issued.
5. The redemption period is three months because the mortgaged properties
are owned by a juridical person (Davao Sunrise), and the shorter period
aims to ensure the solvency and liquidity of banks.
6.

iv. Union Bank vs. CA, 25 June 2001

Facts:

On March 2, 1990, respondents-spouses Gonzalo and Trinidad Vincoy mortgaged

their residence to Union Bank of the Philippines to secure a loan of P2,000,000.00
for Delco Industries (Phils.) Inc. Due to non-payment, Union Bank extrajudicially
foreclosed the property, and it was sold at an auction on April 10, 1991, where
Union Bank was the highest bidder with a bid of P3,290,000.00. The certificate of
sale was annotated on the Transfer Certificate of Title on May 8, 1991. Before the
redemption period expired on May 8, 1992, the respondents filed a complaint for
annulment of the mortgage, claiming the property was a family home constituted
on October 27, 1989, and thus protected under Article 158 of the Family Code. The
lower court ruled the family home constitution void and upheld the mortgage's
validity, ordering the respondents to pay P4,816,194.44. On appeal, the Court of
Appeals upheld the lower court's findings but reduced the redemption price to
P3,290,000.00 plus 1% monthly interest from April 19, 1991, to the redemption
date. Union Bank then petitioned the Supreme Court, arguing that the respondents
never raised the issue of redemption in the lower court and had lost their right to
redeem the property. The Supreme Court initially dismissed the petition but
reconsidered upon further review.

Issue:

1. Did the Court of Appeals err in allowing the respondents to redeem

the foreclosed property despite not raising the issue in the lower
 court?
2. What is the correct legal basis for determining the redemption price of
the foreclosed property?
Ruling:

1. The Supreme Court ruled that the respondents lost their right to redeem
the foreclosed property as they did not raise the issue of redemption in the
lower court.
2. The Supreme Court held that Section 78 of the General Banking Act, not
Section 30, Rule 39 of the Rules of Court, governs the determination of the
redemption price when the mortgagee is a bank.

Ratio:

The Supreme Court emphasized that issues not raised in the lower court cannot be
raised for the first time on appeal, as it violates principles of fair play, justice, and
due process. The respondents consistently argued the mortgage's nullity and did
not seek redemption in their pleadings. The Court of Appeals' decision to allow
redemption was thus legally impermissible. Additionally, the one-year redemption
period under Section 78 of the General Banking Act starts from the sale's
registration date, which was May 8, 1991. The respondents failed to redeem the
property within this period, effectively losing their right. The Court also clarified
that the filing of an annulment action does not toll the redemption period. Allowing
such would set a dangerous precedent, encouraging frivolous suits to extend
redemption periods. Lastly, the Court affirmed that Section 78 of the General
Banking Act, being a special and subsequent legislation, supersedes Section 30,
Rule 39 of the Rules of Court in determining the redemption price when the
mortgagee is a bank. The correct redemption price includes the amount due under
the mortgage deed, plus interest and expenses, as stipulated in the General
Banking Act.

P. Other banking services (Section 53)

i. CA Agro-industrial vs. Court of Appeals, 3 March 1993

Facts:

The case involves CA Agro-Industrial Development Corp. (petitioner) and Security

Bank and Trust Company (respondent Bank). On July 3, 1979, CA Agro-Industrial
Development Corp., through its President Sergio Aguirre, entered into an
agreement with spouses Ramon and Paula Pugao to purchase two parcels of land
for PHP 350,625.00. A downpayment of PHP 75,725.00 was made, and the balance
was covered by three postdated checks. The agreement stipulated that the titles to
the lots would be transferred to the petitioner upon full payment and that the
owner's copies of the certificates of titles (TCT Nos. 284655 and 292434) would be
deposited in a safety deposit box at any bank. The certificates could only be
withdrawn upon the joint signatures of a representative of the petitioner and the
Pugaos. Subsequently, Aguirre and the Pugaos rented Safety Deposit Box No. 1448
at Security Bank and Trust Company, signing a contract of lease that included
clauses absolving the bank from liability for the contents of the box. On October 4,
1979, Aguirre and the Pugaos discovered that the certificates were missing from
the safety deposit box. As a result, a potential sale of the lots to Mrs. Margarita
Ramos fell through, causing the petitioner to lose an expected profit of PHP
280,500.00. The petitioner filed a complaint for damages against the respondent
Bank, which the Regional Trial Court of Pasig dismissed, citing the contract
clauses absolving the bank from liability. The Court of Appeals affirmed the trial
court's decision, leading the petitioner to seek review by the Supreme Court.

Issue:
 1. Is the contractual relationship between the bank and the petitioner
regarding the safety deposit box one of bailor and bailee or lessor and
lessee?
2. Are the clauses in the contract absolving the bank from liability for the
contents of the safety deposit box valid and enforceable?

Ruling:

1. The Supreme Court ruled that the relationship between the bank and the
petitioner is one of bailor and bailee, not lessor and lessee.
2. The Supreme Court found the clauses absolving the bank from liability to be
void as they are contrary to law and public policy. However, the Court
ultimately dismissed the petition due to a lack of proof that the bank was
aware of the agreement requiring joint signatures for withdrawal and that
the loss was due to the bank's fraud or negligence.

Ratio:

The Supreme Court determined that the contract for the rent of the safety deposit
box is a special kind of deposit, not an ordinary lease. The bank retained control
over the safety deposit box through the possession of a guard key, which was
necessary to open the box along with the renter's key. This arrangement aligns
more closely with a bailor-bailee relationship, where the bank has a duty to
safeguard the contents. The Court noted that under the General Banking Act,
banks are authorized to rent safety deposit boxes as part of their custodial
services, reinforcing the depositary nature of the contract. The clauses in the
contract absolving the bank from liability were found to be void because they
contravened the bank's responsibility as a depositary to exercise due diligence.
Despite this, the petition was dismissed because there was no evidence that the
bank was aware of the specific agreement between the petitioner and the Pugaos
regarding joint signatures, nor was there proof of the bank's fraud or negligence
in the loss of the certificates. The award for attorney's fees to the respondent Bank
was also deleted, as the petitioner was not found to have acted in bad faith.

ii.Sia vs. Court of Appeals, 13 May 1993

Facts:

The case involves Luzan Sia, the petitioner, and Security Bank and Trust Company
(SBTC), the private respondent, with the Court of Appeals as the public
respondent. On March 22, 1985, Sia rented Safety Deposit Box No. 54 at SBTC's
Binondo Branch in Manila, where he stored his stamp collection. The safety deposit
box was located at the lowest level of the bank's safety deposit boxes. During the
floods of 1985 and 1986, floodwaters entered the bank's premises and seeped into
the safety deposit box, damaging Sia's stamp collection. Sia sought compensation
from SBTC, which the bank denied based on the terms of the lease agreement,
specifically paragraphs 9 and 13, which limited the bank's liability. Sia then filed
an action for damages in the Regional Trial Court (RTC) of Manila, which ruled in
his favor, awarding him actual damages of P20,000, moral damages of P100,000,
and attorney's fees of P5,000. SBTC appealed to the Court of Appeals, which
reversed the RTC's decision, absolving the bank from liability. Sia then filed a
petition for review on certiorari with the Supreme Court.

Issue:
1. Did SBTC fail to exercise the required diligence in maintaining the safety
deposit box?
2. Are the provisions of paragraphs 9 and 13 of the lease agreement valid and
binding?
 3. Should the awards for actual and moral damages, including attorney's
fees and legal expenses, be upheld?

Ruling:

1. Yes, SBTC failed to exercise the required diligence.

2. No, the provisions of paragraphs 9 and 13 of the lease agreement are
not valid and binding.
3. The award for actual damages is upheld, but the award for moral damages is
set aside.

Ratio:

The Supreme Court found that SBTC was negligent in its duty to maintain the
safety deposit box. The bank was aware of the floods and the location of the safety
deposit box but failed to notify Sia or take measures to protect the contents. This
negligence aggravated the damage to Sia's stamp collection. The Court also ruled
that the lease agreement's provisions limiting SBTC's liability were contrary to law
and public policy, as they attempted to exempt the bank from liability for its own
negligence. The relationship between the bank and the customer in the context of
a safety deposit box is that of a bailor and bailee, requiring the bank to exercise
the diligence of a good father of a family. The Court upheld the award for actual
damages but set aside the award for moral damages, as there was no proof of
fraud or bad faith on the part of SBTC. The decision of the Court of Appeals was
set aside, and the RTC's decision was reinstated, except for the award of moral
damages.

Q. Prohibitions (Sections 54-66)

i. BPI Employees Union v. Bank of the Philippine Islands, July 24, 2013

Facts:

The case involves the BPI Employees Union-Davao City-FUBU (Union) and the
Bank of the Philippine Islands (BPI), along with BPI officers Claro M. Reyes, Cecil
Conanan, and Gemma Velez. The dispute arose from BPI's decision to outsource
certain functions to its subsidiary, BPI Operations Management Corporation
(BOMC), which was created under Central Bank Circular No. 1388, Series of 1993.
BOMC provides support services for banks and other financial institutions.
Initially, the service agreement between BPI and BOMC was implemented in Metro
Manila, where no BPI employees were displaced, and those affected were
reassigned. The Manila chapter of the BPI Employees Union filed a complaint for
unfair labor practice (ULP), which was initially decided in favor of the union by the
Labor Arbiter but later reversed by the National Labor Relations Commission
(NLRC) and upheld by the Court of Appeals (CA).
On January 1, 1996, the service agreement was extended to Davao City. Following
a merger between BPI and Far East Bank and Trust Company (FEBTC) on April 10,
2000, BPI's cashiering function and FEBTC's cashiering, distribution, and
bookkeeping functions were
transferred to BOMC. Twelve former FEBTC employees were also transferred to
BOMC. The Union objected, arguing that the functions belonged to BPI employees
and that the Union was deprived of membership of former FEBTC personnel who
would have been part of the bargaining unit. The Union filed a formal protest and
requested that the issue be submitted to the grievance procedure under the
Collective Bargaining Agreement (CBA), but BPI did not consider it "grievable" and
proposed a Labor Management Conference (LMC) instead.

During the LMC, BPI invoked management prerogative, while the Union argued
that BOMC undermined the union by reducing the bargaining unit. The Union then
filed a notice of strike, alleging contracting out of services/functions, violation of
duty to bargain, and union busting. BPI sought the intervention of the Department
of Labor and Employment (DOLE), which certified the dispute to the NLRC for
compulsory arbitration. The NLRC upheld the validity of the service agreement
and dismissed the ULP charge, stating that the outsourcing was a valid exercise
of management prerogative and did not interfere with employees' right to
self-organization. The CA affirmed the NLRC's decision, leading the Union to file
the present petition.

Issue:

1. Did BPI's act of outsourcing functions formerly performed by union

members violate the CBA?
2. Does DOLE Department Order No. 10 apply to this case?

Ruling:

The Supreme Court denied the petition, upholding the validity of the service
agreement between BPI and BOMC. The Court ruled that the outsourcing of
certain functions did not violate the CBA or interfere with employees' right to self-
organization.

Ratio:

The Court reasoned that the outsourcing of functions to BOMC was a valid exercise
of management prerogative, supported by Central Bank Circular No. 1388, Series
of 1993. The Union failed to present substantial evidence that BPI acted in bad
faith or with anti-union motives. The Court emphasized that contracting out
services is not illegal per se and is permissible as long as it does not violate
employees' rights to security of tenure and payment of benefits. The Court also
noted that the alleged violation of the union shop agreement in the CBA did not
constitute a gross violation of an economic provision, and thus, was not treated as
ULP. The Court found no conflict between DOLE Department Order No. 10 and
Central Bank Circular No. 1388, stating that they complement each other. The
functions outsourced were not directly related to the core activities of banks and
were permissible under both the circular and the department order. The Court
concluded that BPI's actions were within the bounds of the law and the existing
CBA.
R. Cessation of banking business (Sections 68-70)
S.Foreign Banks (Sections 72-78)
i. PDIC vs. Citibank, 11 April 2012

Facts:

The case involves the Philippine Deposit Insurance Corporation (PDIC) as the
petitioner and Citibank, N.A. (Citibank) and Bank of America, S.T. & N.A. (BA) as
respondents. PDIC, a government instrumentality created under Republic Act
(R.A.) No. 3591, as amended by R.A. No. 9302, conducted examinations of the
books of Citibank and BA in the late 1970s. It discovered that both banks had
received substantial dollar funds from their head offices and foreign branches,
which were recorded as interest-bearing Certificates of Dollar Time Deposit. These
funds were not reported to PDIC as deposit liabilities subject to insurance
assessment. Consequently, PDIC assessed Citibank and BA for deficiency
premiums. Citibank and BA filed petitions for declaratory relief in the Court of
First Instance (now Regional Trial Court) of Rizal, seeking a judgment that these
funds were not deposits and thus not insurable under the PDIC Charter. The RTC
ruled in favor of Citibank and BA, a decision later affirmed by the Court of Appeals
(CA). The CA held that the funds were part of internal dealings and not deposits,
thus not subject to PDIC insurance. PDIC then petitioned the Supreme Court for
review.

Issue:

1. Are the dollar funds received by Citibank and BA from their head offices
and foreign branches insurable deposits under the PDIC Charter and
subject to assessment for insurance premiums?

Ruling:

The Supreme Court ruled in the negative, affirming the decision of the Court of
Appeals. The funds in question are not considered insurable deposits under the
PDIC Charter and are therefore not subject to assessment for insurance premiums.

Ratio:

The Supreme Court's decision was based on several key points. Firstly, it
emphasized that a branch of a foreign bank does not have a separate legal
personality from its head office. The funds placed by the head office and foreign
branches in the Philippine branches of Citibank and BA are considered internal
transactions within the same legal entity. Therefore, these funds do not create a
depositor-depository relationship, which is essential for a deposit to be insurable
under the PDIC Charter. The Court also noted that the purpose of PDIC is to
protect the depositing public in the event of a bank closure, not to insure internal
funds of a bank. Additionally, the Court referred to American jurisprudence and
Philippine banking laws, which
support the view that a bank and its branches are considered one entity. The Court
also highlighted that the funds were payable outside the Philippines, thus falling
under the exclusions to deposit liabilities as per Section 3(f) of the PDIC Charter.
Finally, the Court found the testimony of John David Shaffer, an expert from the
Federal Deposit Insurance Corporation (FDIC), persuasive. He stated that inter-
branch deposits are excluded from the assessment base, a practice followed by the
FDIC, after which PDIC was modeled. Therefore, the funds in question are not
deposits within the meaning of the PDIC Charter and are excluded from
assessment.

ii.Parcon-Song v. Parcon, July 7, 2020

Facts:

The case of "Parcon-Song v. Parcon" revolves around a property dispute

involving Julie Parcon-Song and her parents, Lilia and Joaquin Parcon. The
property in question was initially
registered in Lilia Parcon's name. In 1995, Lilia and Joaquin obtained two loans
from Maybank Philippines, Inc. (Maybank) and secured these loans with a real
estate mortgage on the property. The Parcon Spouses defaulted on their loans in
2001, leading Maybank to foreclose the mortgage. Maybank emerged as the
highest bidder in the foreclosure sale and subsequently registered the certificate
of sale with the Register of Deeds of Quezon City.

On March 4, 2003, Julie Parcon-Song filed a complaint seeking to annul the title,
mortgage, and foreclosure proceedings. She claimed that she was the true owner of
the property, having purchased it in 1983 and held it in trust under her mother's
name. Julie also sought the reconveyance of the property, a declaration of the
property as a family home, and damages from Maybank. The Parcon Spouses did
not respond to the complaint and were declared in default.
Maybank defended itself by asserting that it was a mortgagee in good faith and for
value, having verified the property's title with the Register of Deeds and found no
defects.

The Regional Trial Court initially dismissed Julie's case due to her failure to
prosecute but later allowed her to present evidence upon reconsideration.
However, Julie's counsels failed to appear, leading the court to deem her to have
waived her right to formally offer her evidence.
The trial court ultimately dismissed her complaint, finding the mortgage valid and
ruling that no trust existed between Julie and her parents. The Court of Appeals
affirmed this decision, ruling that Maybank was a mortgagee in good faith and that
the foreclosure proceedings were valid.
Julie then filed a petition for review on certiorari with the Supreme Court.

Issue:
 1. Are respondents Joaquin and Lilia Parcon holding the property in trust
for petitioner Julie Parcon-Song?
2. Is respondent Maybank Philippines, Inc. a mortgagee in good faith?
3. Is respondent Maybank Philippines, Inc. a foreign bank authorized by
the Monetary Board to operate in the Philippine banking system?
4. Is respondent Maybank Philippines, Inc.'s foreclosure and acquisition of
the properties authorized under the Constitution despite it being a fully-
owned foreign corporation?

Ruling:

1. The Supreme Court did not rule on whether the Parcon Spouses held
the property in trust for Julie Parcon-Song.
2. The Supreme Court affirmed that Maybank Philippines, Inc. is a mortgagee in
good faith.
3. The Supreme Court did not rule on whether Maybank Philippines, Inc. is
authorized by the Monetary Board to operate in the Philippine banking
system.
4. The Supreme Court declared the foreclosure sale of the property in favor
of Maybank Philippines, Inc. as void but upheld the validity of the
mortgage.

Ratio:

The Supreme Court declined to rule on the first and third issues, noting that these
were questions of fact not proper for a Rule 45 petition, which generally only
entertains questions of law. The Court affirmed the lower courts' findings that no
trust existed between Julie and her parents and that Maybank was authorized to
operate as a foreign bank in the Philippines. The Court emphasized that Julie failed
to present clear and convincing evidence to support her claims.

On the second issue, the Court upheld the validity of the mortgage, applying the
doctrine of mortgagee in good faith. The Court noted that Maybank had relied on a
clean title registered in Lilia Parcon's name, with no annotations indicating any
trust, lien, or encumbrance. The Court found no evidence that Maybank was aware
of any defect in the title or any conflicting rights when the property was
mortgaged.

Regarding the fourth issue, the Court ruled that Maybank's acquisition of the
property was void under the law in place at the time of the foreclosure sale, which
was Republic Act No. 4882. This law prohibited foreign banks from bidding or
taking part in any foreclosure sale of real property. The Court noted that Republic
Act No. 10641, which allows foreign banks to participate in foreclosure sales, was
enacted in 2014 and did not apply retroactively to the 2001 foreclosure sale in
question. The Court followed the constitutional policy of avoidance, resolving the
case based on the applicable statute rather than addressing the constitutionality of
the foreclosure.

T.Trust Operations (Sections 79-93)

i. Goyanko vs. UCPB, 6 February 2013 (in trust for account)

Facts:
In the case of "Goyanko, Jr. v. United Coconut Planters Bank," the petitioner,
Joseph Goyanko, Jr., acting as the administrator of the Estate of Joseph Goyanko,
Sr., sought to nullify the decisions of the Court of Appeals (CA) and the Regional
Trial Court (RTC) of Cebu City. The dispute arose from an investment made by the
late Joseph Goyanko, Sr., amounting to Two Million Pesos (P2,000,000.00) with
Philippine Asia Lending Investors, Inc. (PALII). Conflicting claims for the release of
the investment were presented by Goyanko's legitimate and illegitimate families.
Pending the resolution of these claims, PALII deposited the investment proceeds
with United Coconut Planters Bank (UCPB) under the account name "Phil Asia: ITF
(In Trust For) The Heirs of Joseph Goyanko, Sr." On December 11, 1997, UCPB
allowed PALII to withdraw One Million Five Hundred Thousand Pesos
(P1,500,000.00) from the account, leaving a balance of P9,318.76. When UCPB
refused to restore the withdrawn amount plus legal interest, the petitioner filed a
complaint for recovery of the sum of money. The RTC dismissed the complaint, and
the CA affirmed the RTC's decision but deleted the award of attorney's fees and
litigation expenses. The petitioner then brought the case to the Supreme Court.

Issue:

1. Was an express trust created between PALII and UCPB in favor of the
heirs of Joseph Goyanko, Sr.?
2. Was UCPB negligent and in bad faith in allowing the withdrawal from the
account?
3. Did the petitioner have a cause of action against UCPB?

Ruling:

1. No, an express trust was not created between PALII and UCPB in favor
of the heirs of Joseph Goyanko, Sr.
2. No, UCPB was not negligent and did not act in bad faith in allowing the
withdrawal from the account.
3. No, the petitioner did not have a cause of action against UCPB.

Ratio:

The Supreme Court ruled that no express trust was created between PALII and
UCPB. For an express trust to exist, there must be a competent trustor and
trustee, an ascertainable trust res, and sufficiently certain beneficiaries. In this
case, while the account name included "ITF (In Trust For) The Heirs of Joseph
Goyanko, Sr.," this designation alone was insufficient to establish an express trust.
The court found that the contractual relationship was between PALII and UCPB,
creating a debtor-creditor relationship rather than a trust relationship. UCPB's role
was limited to that of a depository bank, and it was obligated to follow the
instructions of the account holder, PALII. The court also noted that the petitioner
changed the theory of his case, which is not permissible at this stage of the
proceedings. The court emphasized that the burden of proving the existence of an
express trust lies with the petitioner, who failed to discharge this burden.
Consequently, the petition was denied, and the decisions of the lower courts were
affirmed.
II. NEW CENTRAL BANK ACT (R.A. No. 7653, as amended by R.A. No. 11211)
A. Constitutional Provisions
(i). Section 20, Article VII
(ii).Section 20, Article
XII (iii.) Section 21,
Article XII
i. Constantino v. Cuisia, 509 Phil. 486 (2005)

Facts:

The case "Spouses Constantino v. Cuisia" involves petitioners Spouses Renato

Constantino, Jr. and Lourdes Constantino, their minor children, Filomeno Sta. Ana
III, and the Freedom from Debt Coalition, who filed a petition on July 17, 1992. The
respondents were Jose B. Cuisia, Governor of the Central Bank, Ramon Del
Rosario, Secretary of Finance, Emmanuel V. Pelaez, Philippine Debt Negotiating
Chairman, and the National Treasurer. The petitioners challenged the
constitutionality of the Philippine Comprehensive Financing Program for 1992,
which aimed to manage the country's external debt through buyback and bond-
conversion schemes. The petitioners sought to enjoin the execution of additional
debt-relief contracts and compel the Secretary of Justice to institute criminal and
administrative cases against the respondents. The lower court did not issue any
injunctive relief, and the Program was signed in London as scheduled. The
petitioners argued that the Program included fraudulent loans and violated
constitutional policies. The respondents disputed these claims and questioned the
standing of the petitioners to file the suit.

Issue:

1. Do the buyback and bond-conversion schemes under the Philippine

Comprehensive Financing Program for 1992 fall within the powers
granted to the President under Section 20, Article VII of the
Constitution?
2. Can the President delegate the power to enter into these debt-relief
contracts to the respondents?
3. Did the Financing Program violate constitutional policies, and were
the contracts executed or to be executed pursuant thereto done with
grave abuse of discretion amounting to lack or excess of jurisdiction?

Ruling:

1. The Court ruled that the buyback and bond-conversion schemes fall
within the powers granted to the President under Section 20, Article VII
of the Constitution.
2. The Court held that the President could delegate the power to enter into
these debt-relief contracts to the respondents.
3. The Court found no violation of constitutional policies and no grave abuse
of discretion in the execution of the Financing Program. The petition was
dismissed.

Ratio:

1. Scope of Section 20, Article VII: The Court explained that the Constitution
allows the President to contract and guarantee foreign loans, and this
power includes the issuance of bonds and buyback schemes. The
Constitution's language is broad and does not restrict the types of debt
instruments the President can use. The Court emphasized that the plain
language of the Constitution should be construed to allow the full exercise
of the President's power. The Court also noted that Republic Act No. 245,
as amended by
 Presidential Decree No. 142, allows the issuance of bonds for public
expenditures and debt management.
2. Delegation of Power: The Court held that the President could delegate the
power to enter into debt-relief contracts to the Secretary of Finance and
other respondents. The Court cited the doctrine of qualified political agency,
which allows the President's alter egos to exercise executive powers. The
Court noted that the Secretary of Finance is responsible for managing the
government's financial resources and is well-equipped to handle debt
negotiations. The Court also referenced Republic Act No. 245, which
authorizes the Secretary of Finance to borrow on the credit of the Republic
with the President's approval.
3. Violation of Constitutional Policies and Grave Abuse of Discretion: The
Court found no evidence that the Financing Program violated
constitutional policies or that the respondents acted with grave abuse of
discretion. The Court noted that the Program aimed to manage the
country's debt burden and was backed by economic expertise and third-
party evaluations. The Court emphasized that the judiciary's role is to
check, not supplant, the Executive's actions and that there is a strong
presumption of regularity in governmental acts. The Court concluded that
the petitioners failed to provide sufficient evidence to declare the
respondents' actions unconstitutional.

B. State Policy (Section 1; Section 5, R.A. No.

8791) (i.) Price stability

C. Creation, responsibilities and corporate

powers (i.) Central Bank of the Philippines
i. DBP vs. COA, 16 January 2002

Facts:

The case involves the Development Bank of the Philippines (DBP) and the
Commission on Audit (COA). The petitioners are DBP and its officials, including
Jesus P. Estanislao, Dolores A. Santiago, Lynn H. Catuncan, Norma O. Terrel, and
Ma. Antonia G. Rebueno. The respondent is the COA. The case arose from the
Philippine government's acquisition of a US$310 million Economic Recovery Loan
(ERL) from the World Bank in 1986, under the administration of President Corazon
C. Aquino. The World Bank required the rehabilitation of DBP as a condition for
the loan, which included the hiring of a private external auditor. The Monetary
Board of the Central Bank issued Circular No. 1124, mandating government banks
to engage private auditors in addition to COA audits. DBP complied by hiring
Joaquin Cunanan & Co. for the calendar year 1986. However, a change in COA
leadership led to the new COA Chairman, Eufemio Domingo, objecting to the
hiring of private auditors, claiming it encroached on COA's constitutional and
statutory powers. Despite COA's objections, DBP paid the private auditor, leading
COA to disallow the payment and hold DBP officials personally liable. DBP's appeal
to COA en banc was denied, prompting DBP to file a petition for review with the
Supreme Court.

Issue:

1. Does the Constitution vest in the COA the sole and exclusive power to
examine and audit government banks, thereby prohibiting concurrent audits
by private external auditors?
2. Is there an existing statute that prohibits government banks from hiring
private auditors in addition to the COA? If not, is there a statute that
authorizes such hiring?
3. Was the hiring of a private auditor by DBP necessary, and were the
fees paid to the private auditor reasonable under the circumstances?

Ruling:
The Supreme Court granted the petition by DBP, setting aside the COA's letter-
decisions. The Court ruled that the COA does not have the sole and exclusive
power to examine and audit government banks, and that the hiring of private
auditors by government banks is permissible
under existing laws. The Court also found that the hiring of a private auditor by
DBP was necessary and the fees paid were reasonable.

Ratio:

The Court's decision was based on several key points. First, the Court interpreted
Section 2, Article IX-D of the 1987 Constitution, concluding that the COA's power
to examine and audit is non-exclusive, while its authority to define the scope of its
audit and promulgate auditing rules is exclusive. The Court noted that the framers
of the Constitution intentionally omitted the word "exclusive" in the first
paragraph of Section 2 to allow concurrent audits by private auditors. The Court
also emphasized that the COA's findings and conclusions prevail over those of
private auditors for government agencies and officials.

Second, the Court examined relevant statutes, including PD No. 1445, the General
Banking Law of 2000 (RA No. 8791), and the New Central Bank Act (RA No. 7653).
The Court found no statutory prohibition against the hiring of private auditors by
government banks. Instead, the laws provided for concurrent jurisdiction, allowing
the Central Bank to require independent audits of banks.

Third, the Court addressed the necessity and reasonableness of hiring a private
auditor. The hiring was a condition imposed by the World Bank for the ERL,
making it a necessary corporate act for DBP. The fees paid to the private auditor
were found to be reasonable, especially when compared to the COA's own audit
fees.

In conclusion, the Court ruled that the COA does not have exclusive power to audit
government banks, and that the hiring of private auditors is permissible and
necessary under certain circumstances. The decision underscores the importance of
flexibility in government auditing practices to meet international loan conditions
and business standards.

ii.Central Bank Employees Association vs. BSP, 15 December 2004

Facts:

The case involves the Central Bank (now Bangko Sentral ng Pilipinas or BSP)
Employees Association, Inc. (petitioner) against the Bangko Sentral ng Pilipinas
(BSP) and the Executive Secretary (respondents). The petitioner filed a petition for
prohibition on June 8, 2001, almost eight years after the effectivity of Republic Act
No. 7653 (the New Central Bank Act), to restrain the respondents from
implementing the last proviso in Section 15(c), Article II of R.A. No. 7653. The
petitioner argued that the proviso, which exempts BSP officers (SG 20 and above)
from the Salary Standardization Law (SSL) while subjecting rank-and-file
employees (SG 19 and below) to the SSL, is unconstitutional. The petitioner
claimed that this classification is arbitrary, capricious, and violates the equal
protection clause of the Constitution. The petitioner also contended that the
classification is discriminatory because subsequent amendments to the charters of
other Government Financial Institutions (GFIs) like GSIS, LBP, DBP, and SSS
exempted all their employees from the SSL, thus discriminating against BSP rank-
and-file employees. The lower court initially upheld the validity of the proviso,
leading to the appeal to the Supreme Court.
Issue:
 1. Does the classification of BSP employees into those exempt from the SSL
(SG 20 and above) and those subject to the SSL (SG 19 and below) violate
the equal protection clause of the Constitution?
2. Does the continued application of the proviso in light of subsequent
amendments to the charters of other GFIs, which exempt all their
employees from the SSL, constitute invidious discrimination against BSP
rank-and-file employees?

Ruling:

1. The Supreme Court ruled that the classification of BSP employees into
those exempt from the SSL (SG 20 and above) and those subject to the SSL
(SG 19 and below) is valid under the Rational Basis Test.
2. However, the Court held that the continued application of the proviso, given
the subsequent amendments to the charters of other GFIs exempting all
their employees from the SSL, constitutes invidious discrimination against
BSP rank-and-file employees. Therefore, the proviso was declared
unconstitutional.

Ratio:

1. Rational Basis Test: The Court found that the classification between BSP
officers (SG 20 and above) and rank-and-file employees (SG 19 and below) is
based on substantial distinctions. The legislative intent was to address the
BSP's lack of competitiveness in attracting competent officers and
executives. This classification was deemed reasonable and not arbitrary, as
it aimed to establish professionalism and excellence within the BSP.
2. Invidious Discrimination: The Court noted that subsequent amendments to
the charters of other GFIs (GSIS, LBP, DBP, SSS, etc.) exempted all their
employees from the SSL, creating a disparity in treatment between BSP
rank-and-file employees and those of other GFIs. This disparity bears the
badge of invidious discrimination, as similarly situated employees were
treated differently without any rational basis. The equal protection clause
requires that all persons be treated alike under like circumstances and
conditions. The lack of real and substantial distinctions justifying the
unequal treatment rendered the continued application of the proviso
unconstitutional.
3. International and Comparative Law: The Court also considered international
human rights principles and comparative law, emphasizing that
discrimination may occur indirectly and that the equal protection clause
should be used to eliminate irrational discrimination in society. The social
justice imperatives in the Constitution, coupled with the special status and
protection afforded to labor, compel a stricter scrutiny of legislative
classifications that result in unequal treatment.
4. Judicial Restraint and Legislative Prerogative: While recognizing the broad
discretion given to Congress in exercising its legislative power, the Court
emphasized that judicial intervention is warranted when legislative
classifications violate fundamental rights or result in invidious
discrimination. The Court's duty is to strike down any law repugnant to the
Constitution and the rights it enshrines, regardless of the actor committing
the unconstitutional act.

iii. UCPB vs. Ganzon, 30 June 2009

Facts:

The case involves two consolidated petitions for review on certiorari under Rule 45
of the 1997 Revised Rules of Civil Procedure. The petitioners in G.R. No. 168859
are United Coconut Planters Bank (UCPB) and its corporate officers Jeronimo U.
Kilayko, Lorenzo V. Tan, Enrique
L. Gana, Jaime W. Jacinto, and Emily R. Lazaro. They seek the reversal of the
Court of Appeals' decision dated October 14, 2004, and resolution dated July 7,
2005, which set aside the BSP Monetary Board's letter-decision dated September
16, 2003, and remanded the case for further proceedings. The respondent in this
petition is E. Ganzon, Inc. (EGI), a corporation engaged in
real estate construction and development. In G.R. No. 168897, EGI is the
petitioner, seeking a review of the same Court of Appeals decision and resolution,
and requesting the appellate court to act on its findings instead of remanding the
case to the BSP Monetary Board. EGI availed itself of credit facilities from UCPB
from 1995 to 1998, secured by mortgaging its condominium unit inventories. Due
to the Asian economic crisis, EGI defaulted on its payments, leading to a series of
agreements and foreclosures. Discrepancies in the loan obligations led EGI to file
an administrative complaint against UCPB, which was dismissed by the BSP
Monetary Board. The Court of Appeals later remanded the case for further
proceedings, prompting the petitions to the Supreme Court.

Issue:

1. Does the Court of Appeals have appellate jurisdiction over decisions of the
BSP Monetary Board?
2. Did the BSP Monetary Board summarily dismiss the administrative
complaint of EGI against UCPB?
3. Should the Court of Appeals have directed the BSP Monetary
Board to impose administrative sanctions on UCPB instead of
remanding the case?

Ruling:

1. Yes, the Court of Appeals has appellate jurisdiction over decisions of the
BSP Monetary Board.
2. Yes, the BSP Monetary Board summarily dismissed the administrative
complaint of EGI against UCPB.
3. No, the Court of Appeals did not err in remanding the case to the BSP
Monetary Board for further proceedings.

Ratio:

The Supreme Court affirmed that the Court of Appeals has appellate jurisdiction
over decisions of the BSP Monetary Board, as the BSP is a quasi-judicial agency
exercising quasi-judicial functions. This jurisdiction is supported by Section 9(3) of
Batas Pambansa Blg. 129, as amended, and Rule 43 of the 1997 Revised Rules of
Civil Procedure, which include quasi-judicial agencies not explicitly named. The
BSP Monetary Board's decision to dismiss EGI's administrative complaint was
found to be summary and lacking in detailed consideration of the evidence and
issues raised by EGI. The Court of Appeals correctly remanded the case to the BSP
Monetary Board for a more thorough investigation and resolution, ensuring due
process and fair play. The appellate court's decision to remand the case was in line
with the BSP's mandate to determine and impose necessary administrative
sanctions, and it did not preclude the possibility of a different outcome upon
further review by the BSP.

iv. Monetary Board vs. Philippine Veterans Bank, 21 January 2015

Facts:
The case involves a legal dispute between the Monetary Board, Gail U. Fule
(Director of the Supervision and Examination Department II), and Bangko Sentral
ng Pilipinas (BSP) as petitioners, and the Philippine Veterans Bank (PVB) as the
respondent. The dispute arose over PVB's collection of premiums for pension and
salary loans. PVB had established a pension loan product for veterans and their
surviving spouses, and a salary loan product for teachers and low-salaried
employees, in line with its mandate under Republic Act (RA) Nos. 3518 and 7169.
Due to the lack of real estate or security from its clientele, PVB charged a premium
known as the Credit Redemption Fund (CRF) to cover the loans in case of the
borrower's death. An examination by the BSP's Supervision and Examination
Department II on April 30, 2002, found that PVB's collection of premiums violated
Section 54 of RA No. 8791, which prohibits banks from directly engaging in
insurance business. Despite PVB's compliance with the BSP's directive to
discontinue the CRF collection, the Monetary Board issued a resolution directing
PVB to return the CRF balances to borrowers. PVB's request for reconsideration
was denied, leading them to file a Petition for Declaratory Relief with the Regional
Trial Court (RTC) of Makati City. The RTC initially dismissed the petition, but later
granted PVB's motion for reconsideration, declaring that PVB did not violate the
law. The Monetary Board then filed a petition for review on certiorari with the
Supreme Court.

Issue:

1. Whether the petition for declaratory relief is proper in this case.

2. Whether the BSP Monetary Board's resolution declaring PVB's CRF
scheme as violative of Section 54 of RA 8791 and directing the return of
the CRF balances to borrowers is valid.
3. Whether the RTC's order dismissing the petition for declaratory relief had
become final and executory.

Ruling:

1. The Supreme Court ruled that the petition for declaratory relief is not proper
in this case.
2. The Supreme Court reversed and set aside the RTC's decision and order,
reinstating the RTC's original order dismissing the petition for declaratory
relief.
3. The Supreme Court held that the RTC's order dismissing the petition for
declaratory relief had long become final and executory.

Ratio:

The Supreme Court explained that a petition for declaratory relief is intended to
determine the construction or validity of a statute, executive order, or regulation
before any breach or violation occurs. In this case, the BSP Monetary Board's
resolution was issued in the exercise of its
quasi-judicial powers, which cannot be the subject of a petition for declaratory
relief. The Court emphasized that decisions of quasi-judicial agencies, like the BSP
Monetary Board, should be challenged through the appropriate remedies provided
by the Rules of Court, not through a petition for declaratory relief. Additionally, the
Court noted that the RTC's order dismissing the petition for declaratory relief had
become final and executory, as evidenced by the certification from the Philippine
Postal Corporation. The respondent's claim of late receipt of the order was
deemed self-serving and insufficient to overturn the finality of the RTC's order.
Therefore, the Supreme Court granted the petition, reinstating the RTC's original
order dismissing the petition for declaratory relief.

v. Central Bank Board of Liquidators vs. Banco Filipino, 21 February 2017

Facts:

The case involves the Central Bank Board of Liquidators (CB-BOL) as the
petitioner and Banco Filipino Savings and Mortgage Bank (Banco Filipino) as the
respondent. The dispute centers on the admission of a Second
Amended/Supplemental Complaint by Banco Filipino, which sought to include the
Bangko Sentral ng Pilipinas (BSP) and its Monetary Board (MB) as new parties
and raised new causes of action. The original complaint was filed against the now-
defunct Central Bank of the Philippines (CB) following a series of resolutions that
placed Banco Filipino under conservatorship, receivership, and eventually
liquidation between 1984 and 1985. The case was initially filed in the Regional
Trial Court (RTC) of Makati City and later consolidated with other related cases.
The RTC admitted the Second Amended/Supplemental Complaint, a decision
affirmed by the Court of Appeals (CA). The CB-BOL contested this admission,
arguing that it improperly included new parties and causes of action unrelated to
the original complaint.

Issue:

1. Did the RTC err in admitting Banco Filipino's Second

Amended/Supplemental Complaint in the consolidated civil cases
before it?

Ruling:

The Supreme Court ruled in favor of the Central Bank Board of Liquidators (CB-
BOL), reversing and setting aside the Decision of the Court of Appeals dated
January 27, 2006, and its Resolution dated June 27, 2006. The RTC was directed to
proceed with the trial of the case with utmost dispatch.

Ratio:

The Supreme Court found that the RTC erred in admitting the Second
Amended/Supplemental Complaint. The Court emphasized that while the rules on
the amendment of pleadings are generally liberal to ensure substantial justice, this
liberality is not without limits. The causes of action in the Second
Amended/Supplemental Complaint arose in 1994, well after the original complaint,
which was based on events from 1984 and 1985. These new causes of action were
unrelated to the original complaint and involved different acts, transactions, and
parties. The Court also noted that the Second Amended/Supplemental Complaint
violated the rules on the joinder of parties and causes of action, as the new claims
did not arise from the same transaction
or series of transactions and did not present common questions of law or fact. The
Court concluded that admitting the Second Amended/Supplemental Complaint
would improperly expand the scope of the dispute and delay the resolution of the
case. The ruling was confined to procedural issues, specifically the propriety of
admitting the Second Amended/Supplemental Complaint, and did not address the
potential liability of the BSP as a successor-in-interest to the defunct CB.

D. Monetary Board
E. Duties of the Governor
i. BSP vs. Legaspi, 2 March 2016

Facts:

In the case of "Bangko Sentral ng Pilipinas v. Legaspi," the petitioner, Bangko

Sentral ng Pilipinas (BSP), filed a complaint for annulment of title, revocation of
certificate, and damages, along with an application for a temporary restraining
order/writ of preliminary injunction, against several defendants. These defendants
included Secretary Jose L. Atienza, Jr., Luningning G. De Leon, Engr. Ramon C.
Angelo, Jr., Ex-Mayor Matilde A. Legaspi, and respondent Feliciano P. Legaspi, the
incumbent Mayor of Norzagaray, Bulacan. The complaint was lodged before the
Regional Trial Court (RTC) of Malolos, Bulacan. On May 13, 2008, the RTC issued
a preliminary injunction, preventing the defendants from continuing the
construction, development, and/or operation of a dumpsite or landfill in Barangay
San Mateo, Norzagaray, Bulacan. Respondent Legaspi filed a Motion to Dismiss on
August 15, 2008, arguing that the RTC lacked jurisdiction over the BSP and that
the BSP's legal representation by a private law firm was unauthorized. The RTC
denied the motion, affirming its jurisdiction and the validity of the BSP's legal
representation. Legaspi's subsequent motion for reconsideration was also denied.
Legaspi then elevated the case to the Court of Appeals (CA) via a petition for
certiorari, which resulted in the CA granting the petition and dismissing the BSP's
complaint.
The BSP sought to reverse this decision through a Petition for Review on Certiorari
under Rule
45, leading to the present case before the Supreme Court.

Issue:

1. Did the Regional Trial Court of Malolos City have exclusive original
jurisdiction over the subject matter of the case?
2. Was the BSP lawfully represented by a private law firm in the legal
proceedings?

Ruling:
1. Yes, the Regional Trial Court of Malolos City had exclusive original
jurisdiction over the subject matter of the case.
2. Yes, the BSP was lawfully represented by a private law firm in the legal
proceedings.
Ratio:

The Supreme Court found the petition meritorious. Under Batas Pambansa Bilang
129, as amended by Republic Act No. 7691, the RTC has exclusive original
jurisdiction over civil actions involving title to possession of real property where
the assessed value exceeds P20,000.00. The BSP's complaint included a tax
declaration showing the assessed value of the property as P215,320.00, which was
sufficient to confer jurisdiction to the RTC. The Court emphasized that annexes to
a complaint are deemed part of the complaint and should be considered together
in determining jurisdiction. The RTC was correct in taking judicial notice of the
assessed value of the property, given the substantial area involved.

Regarding the legal representation, the Supreme Court noted that under Republic
Act No. 7653 (the New Central Bank Act), the BSP Governor is authorized to
represent the BSP, either personally or through counsel, including private counsel,
as authorized by the Monetary Board. The BSP provided sufficient documentation,
including Monetary Board resolutions, authorizing the engagement of the private
law firm Ongkiko Kalaw Manhit and Acorda Law Offices (OKMA Law) to represent it
in the case. The Court found no error in the RTC's acceptance of this
representation, as it was duly authorized by the BSP's governing body.

Consequently, the Supreme Court reversed and set aside the CA's decision and
resolution, affirming the RTC's orders and remanding the case to the trial court for
continuation of proceedings.

ii.Tarrosa vs. Enriquez, 25 May 1994

Facts:

In the case of "Tarrosa v. Gabriel C. Singson," the petitioner, Jesus Armando A.R.
Tarrosa, filed a petition for prohibition against respondents Gabriel C. Singson and
Salvador M. Enriquez III. The case was decided on May 25, 1994, by the Supreme
Court of the Philippines, with Justice Quiason as the ponente. The petitioner,
acting as a taxpayer, challenged the appointment of Gabriel C. Singson as
Governor of the Bangko Sentral ng Pilipinas (BSP), arguing that the appointment
was null and void because it was not confirmed by the Commission on
Appointments. The petitioner sought to enjoin Singson from performing his duties
until his appointment was confirmed and to prevent Enriquez, the Secretary of
Budget and Management, from disbursing public funds for Singson's salary and
emoluments. Singson was appointed by President Fidel V. Ramos on July 2, 1993,
effective July 6, 1993. The petitioner based his argument on Section 6 of R.A. No.
7653, which requires the confirmation of the BSP Governor's appointment by the
Commission on Appointments. The respondents countered that Congress exceeded
its legislative powers by requiring such confirmation, citing Section 16 of Article
VII of
the 1987 Philippine Constitution, which does not list the BSP Governor among
the positions requiring confirmation by the Commission on Appointments. The
lower court dismissed the petition.

Issue:

1. Is the appointment of Gabriel C. Singson as Governor of the Bangko Sentral

ng Pilipinas null and void for lack of confirmation by the Commission on
Appointments?
2. Can the disbursement of public funds for the salary and emoluments
of Gabriel C. Singson be enjoined?

Ruling:

1. The Supreme Court dismissed the petition, ruling that the petitioner lacked
the standing to bring the case.
2. The Court refrained from ruling on the constitutionality of the
appointment and the disbursement of public funds for Singson's salary.

Ratio:

The Supreme Court held that the petition was in the nature of a quo warranto
proceeding, which can only be initiated by the Solicitor General or by a person
claiming to be entitled to the public office in question. Since the petitioner did not
claim to be entitled to the position of BSP Governor, he lacked the standing to
bring the action. The Court cited previous rulings, including Sevilla v. Court of
Appeals and Greene v. Knox, to support its decision. The Court emphasized that
allowing such actions by individuals without standing would cause significant
disruption to the efficient operation of government. Consequently, the Court found
no need to address the issue of whether the disbursement of public funds for
Singson's salary could be enjoined.
Additionally, the Court refrained from ruling on the constitutionality of Section 6 of
R.A. No. 7653, adhering to the principle that constitutional questions should only
be addressed when necessary for the resolution of a case. The Court referenced its
decision in Calderon v. Carale, which held that Congress cannot expand the
confirmation powers of the Commission on Appointments beyond those explicitly
mentioned in the Constitution.

F. Prohibitions on BSP personnel

i. Bangko Sentral ng Pilipinas v. Office of the Ombudsman, June 16, 2021

Facts:

The case "Bangko Sentral ng Pilipinas v. Office of the Ombudsman" involves a

petition for certiorari under Rule 65 of the Rules of Court filed by the Bangko
Sentral ng Pilipinas (BSP) against the Office of the Ombudsman and Benjamin M.
Jamorabo. The BSP challenged the Ombudsman's February 9, 2011 Resolution and
July 28, 2011 Order, which dismissed the BSP's complaint against Jamorabo for lack
of probable cause. Jamorabo, a former Bank Officer I in the BSP's Supervision and
Examination Sector (SES), was accused of violating Section 27(d) of
Republic Act (R.A.) No. 7653 and BSP Office Order No. 423, series of 2002, by
obtaining an unsecured loan from the Rural Bank of Kiamba, Sarangani, Inc.
(RBKSI) while conducting an examination of the bank from July 6 to 22, 2006. The
loan was for P200,000, and Jamorabo issued post-dated checks as payment, which
later bounced due to insufficient funds. The loan was taken out in the name of his
wife, Marites B. Jamorabo, but she neither appeared at the bank nor signed any
documents. The Ombudsman dismissed the complaint, ruling that the violation
entailed only administrative liability, which could not be imposed as Jamorabo had
retired from government service on December 31, 2008. The BSP sought
reconsideration, but the Ombudsman affirmed its decision. The BSP then filed the
present petition for certiorari on April 3, 2012. During the case's pendency, it was
discovered that Jamorabo had migrated to Canada on April 14, 2010. The Supreme
Court ordered the respondents to file their comments, but only the Office of the
Ombudsman complied.

Issue:

1. What liabilities arise from a violation of R.A. No. 7653, Section 27(d)?
2. Can Jamorabo still be held administratively liable even if the present
complaint was filed after his retirement from government service?
3. Is there a prima facie case for Section 3(e) of R.A. No. 3019 against
Jamorabo?

Ruling:

The Supreme Court found the petition partially meritorious. It ruled that a
violation of R.A. No. 7653, Section 27(d) gives rise to both administrative and
criminal liability. The Court also held that Jamorabo could still be held
administratively liable despite his retirement, as his separation from service
appeared to be calculated to pre-empt the charges. However, the Court found no
prima facie case for violation of Section 3(e) of R.A. No. 3019 against Jamorabo.
The Court ordered the Ombudsman to file the necessary information for violation
of Section 27(d) in relation to Section 36 of R.A. No. 7653 against Jamorabo and to
initiate administrative proceedings against him.

Ratio:

The Court explained that Section 27(d) of R.A. No. 7653 prohibits BSP personnel
from borrowing from institutions under BSP supervision or examination unless the
borrowings are adequately secured, fully disclosed to the Monetary Board, and
comply with further rules and regulations. The provision imposes both
administrative and criminal liability for violations. The Court found that the
Ombudsman committed grave abuse of discretion by ruling that the violation
entailed only administrative liability. The Court also noted that Jamorabo's loan did
not meet the requisites of Section 27(d), as amended, which requires transactions
to be conducted on an arm's length basis, fully disclosed to the Monetary Board,
and compliant with prescribed rules and regulations. The Court found prima facie
evidence that Jamorabo violated the arm's length standard and failed to disclose
the loan to the BSP. Regarding administrative
liability, the Court held that Jamorabo's voluntary retirement appeared to be a
calculated move to pre-empt the charges, and thus, he could still be held
administratively liable. However, the Court agreed with the Ombudsman that
there was no prima facie case for violation of Section 3(e) of R.A. No. 3019, as the
BSP failed to prove any actual injury or damage caused by Jamorabo's actions.

G. Supervision over banks and other financial institutions

i. Rural Bank of San Miguel vs. Monetary Board, February 16, 2007

Facts:

The case involves the Rural Bank of San Miguel, Inc. (RBSM), a domestic
corporation engaged in banking since 1962, with 15 branches in Bulacan by the
year 2000. Hilario P. Soriano, the majority stockholder of RBSM, is also a
petitioner. On January 21, 2000, the Monetary Board (MB) of the Bangko Sentral
ng Pilipinas (BSP) issued Resolution No. 105, prohibiting RBSM from doing
business in the Philippines, placing it under receivership, and designating the
Philippine Deposit Insurance Corporation (PDIC) as the receiver. This decision
was based on a comptrollership/monitoring report as of October 31, 1999, which
indicated that RBSM was unable to pay its liabilities, could not continue in
business without probable losses to its depositors and creditors, and had failed to
infuse the necessary additional capital. RBSM had previously received emergency
loans totaling P375 million to assist its liquidity and operations. Despite these
efforts, RBSM declared a bank holiday on January 4, 2000, and closed all its
branches. The petitioners filed a petition for certiorari and prohibition in the
Regional Trial Court (RTC) of Malolos, which they later withdrew, and
subsequently filed a special civil action in the Court of Appeals (CA). The CA
dismissed the petition, leading to the current petition for review on certiorari
before the Supreme Court.

Issue:

1. Whether Section 30 of RA 7653 and applicable jurisprudence require a

current and complete examination of the bank before it can be closed and
placed under receivership.

Ruling:

The Supreme Court denied the petition and affirmed the decision and resolution of
the Court of Appeals, holding that a complete examination is not required before a
bank can be closed and placed under receivership.

Ratio:
The Supreme Court ruled that under Section 30 of RA 7653, only a "report of the
head of the supervising or examining department" is necessary for the Monetary
Board to close a bank and
place it under receivership. The Court emphasized that the term "report" is
distinct from "examination," and the law does not require a thorough and complete
examination before a closure order can be issued. The Court noted that the
purpose of the law is to make the closure of a bank summary and expeditious to
protect public interest. The Monetary Board's decision was based on substantial
evidence, including the comptrollership reports and the declaration of a bank
holiday by RBSM. The Court found that the Monetary Board and BSP complied
with all the requirements of RA 7653, and their actions were not arbitrary. The
Court also highlighted that the legislative intent was to allow the Monetary Board
to act swiftly in such matters, and the insistence on an examination was not
supported by the language of the law. The Supreme Court concluded that the
Monetary Board had sufficient basis to justify RBSM's closure and that the
issuance of Resolution No. 105 was untainted with arbitrariness.

H. Banks in
distress (i.)
Conservatorship
(ii.) Receivership and
liquidation (iii.) R.A. No. 10846
i. BSP vs. Valenzuela, October 2, 2009

Facts:

In September 2007, the Supervision and Examination Department (SED) of the

Bangko Sentral ng Pilipinas (BSP) conducted examinations of the books of several
rural banks, including the Rural Bank of Parañaque, Inc. (RBPI), Rural Bank of San
Jose (Batangas), Inc., Rural Bank of Carmen (Cebu), Inc., Pilipino Rural Bank, Inc.,
Philippine Countryside Rural Bank, Inc., Rural Bank of Calatagan (Batangas), Inc.
(now Dynamic Rural Bank), Rural Bank of Darbci, Inc., Rural Bank of Kananga
(Leyte), Inc. (now First Interstate Rural Bank), Rural Bank de Bisayas Minglanilla
(now Bank of East Asia), and San Pablo City Development Bank, Inc. Following the
examinations, exit conferences were held, and the banks were provided with Lists
of Findings/Exceptions detailing deficiencies. The banks were required to
comment and undertake remedial measures within 30 days, including capital
infusion. Despite claims of compliance, the SED found the banks failed to meet the
requirements. The banks requested more time and the basis for the capital
infusion figures, but were denied copies of the Reports of Examination (ROEs).
Subsequently, the banks filed complaints for nullification of the BSP ROE with
applications for Temporary Restraining Orders (TROs) and writs of preliminary
injunctions before the Regional Trial Court (RTC) of Manila, Branch 28, presided
by Judge Nina
Antonio-Valenzuela. The RTC issued writs of preliminary injunction, which were
upheld by the
Court of Appeals (CA). The BSP and Chuchi Fonacier, officer-in-charge of the
SED, petitioned the Supreme Court to review the CA's decision.

Issue:
 1. Did the issuance of the writs of preliminary injunction by the RTC violate
Section 25 of the New Central Bank Act and hinder the BSP from
performing its functions?
2. Are the respondent banks entitled to copies of their respective ROEs
before submission to the Monetary Board (MB) based on principles of
fairness and transparency?
3. Did the CA err in not finding grave abuse of discretion by the RTC in
issuing the writs of preliminary injunction and consolidating the cases?

Ruling:

1. The Supreme Court ruled that the issuance of the writs of preliminary
injunction by the RTC was improper and constituted grave abuse of
discretion.
2. The respondent banks are not entitled to copies of their ROEs before
submission to the MB.
3. The CA erred in not finding grave abuse of discretion by the RTC in
issuing the writs of preliminary injunction and consolidating the cases.

Ratio:

The Supreme Court found that the respondent banks failed to show a clear legal
right to be furnished copies of the ROEs before submission to the MB. Section 28
of Republic Act No. 7653 (New Central Bank Act) mandates that the ROE be
submitted to the MB, with no requirement to provide copies to the banks. The
banks were already aware of the deficiencies through the Lists of
Findings/Exceptions and had been given the opportunity to comment and
undertake remedial measures. The issuance of the writs of preliminary injunction
by the RTC interfered with the MB's statutory functions under Sections 29 and 30
of RA 7653, which allow the MB to appoint a conservator or receiver for a bank
based on the ROEs. The "close now, hear later" doctrine, upheld in previous
jurisprudence, justifies the BSP's swift action to protect public interest and
prevent the dissipation of a bank's assets. The respondent banks' appeal to
procedural due process did not warrant the issuance of the writs, as no actual or
threatened violation of their rights was demonstrated. The Supreme Court
emphasized that injunctive relief must be based on a clear legal right and
necessity to prevent serious damage, which were absent in this case. The RTC's
issuance of the writs was thus declared null and void.

ii.Central Bank of the Philippines vs. Court of Appeals, 30 March 1993

Facts:

The case involves the Central Bank of the Philippines and its appointed receiver,
Ramon V. Tiaoqui, as petitioners, against the Court of Appeals and Triumph
Savings Bank (TSB) as respondents. On May 31, 1985, the Monetary Board (MB)
of the Central Bank issued Resolution No. 596, ordering the closure of TSB due to
insolvency and placing it under receivership, with Tiaoqui appointed as the
receiver. Tiaoqui assumed office on June 3, 1985. Subsequently, on June 11, 1985,
TSB filed a complaint with the Regional Trial Court (RTC) of Quezon City to annul
the MB resolution, challenging the constitutionality of Section 29 of Republic Act
(R.A.) 265, known as "The Central Bank Act," which allows the Central Bank to
take over a banking
institution without prior notice or hearing. The RTC initially issued a temporary
restraining order (TRO) against the implementation of the MB resolution but later
quashed the TRO and denied TSB's application for injunction. TSB then filed a
petition for certiorari with the Supreme Court, which was rendered moot by
subsequent RTC orders. The RTC denied the petitioners' motion to dismiss the
complaint and ordered the restoration of TSB's management to its elected board of
directors and officers, subject to Central Bank comptrollership. The Court of
Appeals upheld the RTC's orders, leading the petitioners to seek review by the
Supreme Court.

Issue:

1. Can a Monetary Board resolution placing a private bank under receivership

be annulled on the ground of lack of prior notice and hearing?
2. Does the absence of prior notice and hearing constitute acts of
arbitrariness and bad faith sufficient to annul a Monetary Board
resolution?
3. Can the owners and former officers of an insolvent bank act or sue in
the name and corporate capacity of the bank after it has been ordered
closed and placed under receivership?

Ruling:

1. The Supreme Court ruled that the absence of prior notice and hearing
does not constitute acts of arbitrariness and bad faith sufficient to
annul a Monetary Board resolution placing a bank under receivership.
2. The Court held that the absence of prior notice and hearing is not a valid
ground to annul a Monetary Board resolution placing a bank under
receivership.
3. The Court affirmed that only stockholders of a bank could file an action for
annulment of a Monetary Board resolution placing the bank under
receivership and prohibiting it from continuing operations.

Ratio:

The Supreme Court emphasized that under Section 29 of R.A. 265, the Central
Bank, through the Monetary Board, has exclusive authority to assess and
determine the condition of any bank. The law does not require prior notice and
hearing before a bank is directed to stop operations and placed under
receivership. The provision for filing a case within ten days after the receiver takes
charge of the bank's assets indicates that the legislature intended for the actions
to precede the filing of the case. The Court cited previous rulings, including Rural
Bank of Lucena, Inc. v.
Area and Banco Filipino, which established that due process does not necessarily
require a prior hearing and that a subsequent judicial review is sufficient. The
"close now and hear later" scheme is designed to prevent the unwarranted
dissipation of the bank's assets and protect the interests of depositors, creditors,
stockholders, and the general public. The Court also clarified that only
stockholders representing the majority of the capital stock could bring an action to
set aside a resolution placing a bank under receivership, ensuring that the
resolution is not frustrated by the incumbent board of directors or officers. The
case was remanded to the RTC of Quezon City for further proceedings to
determine whether the issuance of Resolution No. 596 was tainted with
arbitrariness and bad faith.
iii. Vivas vs. Monetary Board, 7 August 2013

Facts:

The case involves a petition for prohibition filed by Alfeo D. Vivas on behalf of the
shareholders of EuroCredit Community Bank, Incorporated (ECBI) against the
Monetary Board of the Bangko Sentral ng Pilipinas (BSP) and the Philippine
Deposit Insurance Corporation (PDIC). The petition sought to prevent the closure
and receivership of ECBI and to restore its management to its Board of Directors
(BOD). ECBI, formerly known as the Rural Bank of Faire, Incorporated (RBFI), had
its corporate life extended by the BSP in December 2006. However, a general
examination by the BSP in 2007 revealed serious financial issues, including a
negative capital of P14.674 million and a negative capital adequacy ratio of
18.42%. Consequently, the Monetary Board placed ECBI under the Prompt
Corrective Action (PCA) framework and later issued a cease and desist order.
Despite multiple opportunities to address these issues, ECBI failed to comply with
BSP directives. On March 4, 2010, the Monetary Board issued Resolution No. 276,
placing ECBI under receivership due to its inability to pay liabilities, insufficient
realizable assets, and willful violation of a cease and desist order. Vivas challenged
this decision, arguing that the BSP should have applied the Rural Banks Act of
1992 instead of the New Central Bank Act and that the BSP's actions were
arbitrary and in bad faith.

Issue:

1. Did the Monetary Board commit grave abuse of discretion by applying

Section 30 of the New Central Bank Act instead of Sections 11 and 14 of
the Rural Banks Act of 1992?
2. Was the implementation of the questioned resolution tainted with
arbitrariness and bad faith, violating the constitutional rights of ECBI and
its shareholders?
3. Is Section 30 of the New Central Bank Act unconstitutional for
delegating excessive power to the BSP?

Ruling:

1. The Supreme Court ruled that the Monetary Board did not commit
grave abuse of discretion by applying Section 30 of the New Central
Bank Act.
2. The Court found no arbitrariness or bad faith in the implementation of the
questioned resolution.
3. The Court upheld the constitutionality of Section 30 of the New
Central Bank Act, denying the petition for prohibition.

Ratio:

The Supreme Court held that Vivas availed of the wrong remedy by filing a
petition for prohibition instead of a petition for certiorari. Even if treated as a
petition for certiorari, it should have been filed with the Court of Appeals, not the
Supreme Court, due to the doctrine of hierarchy of courts. The Court emphasized
that the Monetary Board's actions were in accordance with the New Central Bank
Act, which allows for the summary closure and receivership of banks without prior
notice and hearing if certain conditions are met. The Court also noted that ECBI
was given ample opportunity to address its financial issues but failed to do
so. Regarding the constitutionality of Section 30 of the New Central Bank Act, the
Court found that the law provided sufficient guidelines and standards, thus not
constituting an undue delegation of legislative power. The Court reiterated the
"close now, hear later" doctrine, emphasizing the need for swift action to protect
public interest and maintain confidence in the banking system.

iv. Producers Bank vs. NLRC, 15 November 1998

Facts:

In the case of "Producers Bank of the Philippines (now First Philippine

International Bank) v. National Labor Relations Commission and Producers Bank
Employees Association," the dispute centered on the implementation of specific
provisions of a Collective Bargaining Agreement (CBA) between Producers Bank
and its employees' association. The conflict began when the Central Bank of the
Philippines placed Producers Bank under a conservator to safeguard its assets.
The employees' association sought the enforcement of Section I, Article XI of the
CBA, which pertained to the retirement plan, and Section 4, Article X, which
concerned the uniform allowance. The acting conservator objected to these
provisions, resulting in a six-month deadlock. Consequently, the employees'
association filed a complaint for unfair labor practice and violation of the CBA.
Labor Arbiter Jovencio Mayon initially dismissed the complaint, arguing that the
conservator was not obligated to implement the CBA provisions if it was not in the
bank's best interest. However, upon appeal, the National Labor Relations
Commission (NLRC) reversed the Labor Arbiter's decision, ruling in favor of the
employees' association. The bank then sought the reversal of the NLRC's decision
before the Supreme Court.

Issue:

1. Whether the conservator had the authority to disallow the

implementation of the CBA provisions.
2. Whether the Labor Arbiter and the NLRC had jurisdiction over the complaint.
3. Whether the employees' association had the standing to file the complaint
on behalf of retired employees.

Ruling:

1. The Supreme Court affirmed the NLRC's decision, ruling that the
conservator did not have the authority to disallow the implementation of
the CBA provisions.
2. The Supreme Court held that the petitioner was estopped from
questioning the jurisdiction of the Labor Arbiter and the NLRC.
3. The Supreme Court ruled that the employees' association had the
standing to file the complaint on behalf of retired employees.

Ratio:
1. The Supreme Court reasoned that while the Central Bank law grants
extensive powers to a conservator, these powers are limited to preserving
the bank's assets, reorganizing its
 management, and restoring its viability. The conservator cannot unilaterally
revoke valid and existing contracts, including the CBA, as this would violate
the non-impairment clause of the Constitution. The CBA is considered the
law between the contracting parties, and the conservator's authority does
not extend to disallowing its implementation, especially when it involves
social justice and labor protection guaranteed by the Labor Code and the
Constitution.
2. The Court found that the petitioner actively participated in the proceedings
before the Labor Arbiter and the NLRC without raising the issue of
jurisdiction. By doing so, the petitioner was estopped from questioning the
jurisdiction after an unfavorable decision. The Court cited the principle
that a party cannot assail jurisdiction after actively participating in the
proceedings and only raising the issue when the decision is adverse.
3. The Court held that retirement does not affect an employee's status
concerning their rights and benefits under the CBA. The retirement benefits
are part of the employment package and constitute a continuing
consideration for services rendered. The employees' association has the
right to sue on behalf of its members to ensure that their rights under the
CBA are recognized and protected. The Court emphasized that the retired
employees were not pleading for generosity but were demanding their
rightful benefits as stipulated in the CBA.

v. Apex Bancrights vs. BSP, 2 October 2017

Facts:

The case involves Apex Bancrights Holdings, Inc., Lead Bancfund Holdings, Inc.,
Asia Wide Refreshments Corporation, Medco Asia Investment Corporation, Zest-O
Corporation, Harmony Bancshares Holdings, Inc., Excalibur Holdings, Inc., and
Alfredo M. Yao (petitioners) against Bangko Sentral ng Pilipinas (BSP) and
Philippine Deposit Insurance Corporation (PDIC) (respondents). The dispute arose
from the Monetary Board's decision to liquidate Export and Industry Bank (EIB). In
July 2001, EIB merged with Urban Bank, Inc. (UBI) and Urbancorp Investments,
Inc. (UII) to rehabilitate UBI, which was under receivership. By September 2001,
EIB faced financial difficulties, prompting PDIC to extend financial assistance.
Despite additional financial aid in May 2005, EIB failed to meet BSP's capital
requirements, leading to attempts to sell the bank. Banco de Oro (BDO) initially
showed interest but withdrew due to liability issues. On April 26, 2012, EIB's
president and chairman turned over control to BSP, declaring a bank holiday on
April 27, 2012. The BSP issued Resolution No. 686, placing EIB under PDIC
receivership. PDIC's initial report suggested possible rehabilitation, contingent on
certain conditions, but subsequent bidding attempts failed. On April 1, 2013, PDIC
reported EIB's insolvency, leading to the Monetary Board's Resolution No. 571 on
April 4, 2013, directing EIB's liquidation. Petitioners filed a certiorari petition with
the Court of Appeals (CA), blaming PDIC for failed rehabilitation efforts. The CA
dismissed the petition, affirming the Monetary Board's decision. Petitioners sought
reconsideration, which was denied, leading to this Supreme Court petition.

Issue:

1. Did the Court of Appeals correctly rule that the Monetary Board did not
gravely abuse its discretion in issuing Resolution No. 571, which directed
the PDIC to proceed with the liquidation of EIB?

Ruling:

The Supreme Court denied the petition, affirming the CA's Decision dated January
21, 2014, and Resolution dated October 10, 2014, which upheld the Monetary
Board's Resolution No. 571 directing the liquidation of EIB.

Ratio:
The Supreme Court held that the Monetary Board did not gravely abuse its
discretion in ordering EIB's liquidation. Section 30 of Republic Act No. 7653
(The New Central Bank Act)
outlines the procedures for bank receivership and liquidation. The law does not
require the Monetary Board to make an independent factual determination of a
bank's viability before ordering liquidation if the PDIC, as the receiver, has already
made such a determination. The PDIC's findings indicated that EIB could not be
rehabilitated due to failed bidding attempts and insolvency. The Monetary Board's
actions were based on these findings and were in accordance with the law. The
Court emphasized that the Monetary Board's decisions in insolvency proceedings
are final and executory, subject to judicial review only on grounds of grave abuse of
discretion. The petitioners failed to provide convincing proof of arbitrariness or bad
faith in the Monetary Board's decision. Therefore, the Court found no basis to
overturn the CA's ruling.

vi. In re: Petition for Assistance in the Liquidation of the Rural Bank
of Bokod (Benguet) Inc., PDIC vs. BIR, 18 December 2006

Facts:

The case "In Re: Petition for Assistance in the Liquidation of the Rural Bank of
Bokod (Benguet), Inc." involves the Philippine Deposit Insurance Corporation
(PDIC) as the petitioner and the Bureau of Internal Revenue (BIR) as the
respondent. The case was decided on December 18, 2006, under G.R. No. 158261,
with Justice Chico-Nazario as the ponente. The case arose from the liquidation
proceedings of the Rural Bank of Bokod (Benguet), Inc. (RBBI), which was ordered
closed by the Monetary Board of the Bangko Sentral ng Pilipinas (BSP) due to
insolvency and various loan irregularities discovered during examinations in 1986.
Despite warnings and opportunities to infuse fresh capital and correct
irregularities, the bank's management failed to take substantial remedial
measures. Consequently, the Monetary Board placed RBBI under receivership on
January 9, 1987, and later ordered its liquidation on September 7, 1990. The PDIC,
as the designated liquidator, filed a petition for assistance in the liquidation with
the Regional Trial Court (RTC) of La Trinidad, Benguet, which was docketed as
Spec. Proc. No. 91-SP-0060. On January 17, 2003, the RTC directed PDIC to secure
a tax clearance certificate from the BIR before proceeding with the approval of the
Project of Distribution of RBBI's assets. PDIC's motion for reconsideration was
denied on May 13, 2003, leading to the present petition for review on certiorari
under Rule 45 of the revised Rules of Court.

Issue:

1. Is the Petition for Review on Certiorari under Rule 45 the proper remedy to
question the interlocutory orders of the RTC?
2. Does a bank ordered closed and placed under receivership by the Monetary
Board of the BSP need to secure a tax clearance certificate from the BIR
before the liquidation court approves the project of distribution of the
bank's assets?

Ruling:

1. The Supreme Court ruled that the Petition for Review on Certiorari under
Rule 45 is not the proper remedy for questioning interlocutory orders.
However, the Court treated the petition as an original action for certiorari
 under Rule 65 due to the substantial issues involved.
2. The Supreme Court ruled that a tax clearance certificate is not necessary
for the approval of the Project of Distribution in the liquidation of RBBI. The
Court ordered PDIC to
 submit the final tax return of RBBI to the BIR and directed the RTC to resume
the liquidation proceedings to determine all claims, including those of the
National Government, and to review and approve the Project of Distribution
accordingly.

Ratio:

The Supreme Court found that the RTC orders were interlocutory and not final, as
they did not dispose of the case or definitively adjudicate the rights of the parties.
The Court emphasized that liquidation proceedings are not summary in nature and
require hearings and evidence presentation. The Court also clarified that Section
52(C) of the Tax Code of 1997 and BIR-SEC Regulations No. 1, which require a tax
clearance for corporate dissolution, do not apply to banks ordered closed and
placed under receivership by the BSP. The liquidation of banks is governed by
Section 30 of the New Central Bank Act, which does not mention the need for a tax
clearance. The Court noted that the BIR's concern about determining tax liabilities
could be addressed by requiring PDIC to submit the final tax return of RBBI. The
Court highlighted the procedural differences between corporate dissolution under
the Corporation Code and bank liquidation under the New Central Bank Act,
stressing that the latter's summary nature pertains only to the BSP's power to
close banks, not the subsequent judicial liquidation proceedings. The Court
concluded that the RTC committed grave abuse of discretion in requiring a tax
clearance and holding the approval of the Project of Distribution in abeyance.

vii.Provident Savings Bank vs. Court of Appeals, 17 May 1993

Facts:

The case involves Provident Savings Bank (petitioner) and Wilson Chua (private
respondent), with the Court of Appeals (Former Special Eighth Division) as the
respondent. On February 16, 1967, the spouses Lorenzo K. Guarin and Liwayway J.
Guarin obtained a loan of P62,500.00 from Provident Savings Bank, secured by a
real estate mortgage over a parcel of land covered by TCT No. 177014. The loan
was payable on or before June 20, 1967. In September 1972, Provident Savings
Bank was placed under receivership by the Central Bank of the Philippines, which
lasted until July 27, 1981, when the Supreme Court set aside the receivership.
During this period, the bank was prohibited from doing business. On December 11,
1984, Lorenzo Guarin assured the bank of his intention to pay the obligation and
requested a recomputation of the account and a postponement of the foreclosure
sale. On February 26, 1986, Guarin expressed his readiness to pay the recomputed
amount of P591,088.80. However, the bank refused to release the mortgaged title,
stating it also served as security for the indebtedness of L.K. Guarin Manufacturing
Co., Inc. On July 10, 1986, the Guarins sold the mortgaged property to Wilson
Chua, who assumed the mortgage obligation. Chua requested the bank to allow
him to pay the loan, but the bank conditioned its approval on Chua also settling the
manufacturing company's debt. Chua then filed a complaint to compel the bank to
release the mortgage and the title. The
Regional Trial Court of Malabon ruled in favor of Chua, ordering the bank to
release the mortgage and pay damages. The Court of Appeals affirmed this
decision, leading Provident Savings Bank to file a petition for certiorari with the
Supreme Court.

Issue:

1. Whether the prescriptive period for foreclosure was interrupted during the
receivership period of Provident Savings Bank.
2. Whether Wilson Chua had the legal standing to compel the release of
the real estate mortgage and the title.
3. Whether there was a novation of the obligation without the consent of
Provident Savings Bank.

Ruling:

1. The Supreme Court ruled that the prescriptive period for foreclosure
was interrupted during the receivership period.
2. The Supreme Court found that Wilson Chua did not have the legal
standing to compel the release of the real estate mortgage and the title.
3. The Supreme Court held that there was no novation of the obligation
without the consent of Provident Savings Bank.

Ratio:

The Supreme Court reasoned that the prescriptive period for foreclosure was
interrupted by the force majeure event of the bank being placed under receivership
and prohibited from doing business by the Central Bank from September 15, 1972,
until July 27, 1981. This interruption is supported by Article 1154 of the New Civil
Code, which states that the period during which the obligee is prevented by a
fortuitous event from enforcing his right is not counted against him.
The Court also noted that the acknowledgment of the debt by Wilson Chua in his
letter dated August 6, 1986, further interrupted the prescriptive period under
Article 1155 of the New Civil Code. Regarding Chua's legal standing, the Court
found that he could not compel the release of the mortgage and the title because
the bank's consent to the substitution of the debtor was not properly obtained. The
bank's condition that Chua also settle the manufacturing company's debt was not
met, and thus, there was no valid novation of the obligation. The Court concluded
that the decision of the Court of Appeals was erroneous and set it aside, dismissing
Wilson Chua's complaint.

viii. Fidelity Savings and Mortgage Bank vs. Cenzon, 5 April 1990

Facts:

The case involves the Fidelity Savings and Mortgage Bank (petitioner) and the
spouses Timoteo and Olimpia Santiago (private respondents). In 1968, the private
respondents deposited a total of PHP 100,000 with the petitioner bank. On
February 18, 1969, the Central Bank of the Philippines declared the petitioner
bank insolvent and ordered its closure. Subsequently, the
Central Bank took charge of the bank's assets. The Philippine Deposit Insurance
Corporation paid the private respondents PHP 10,000, leaving a balance of PHP
90,000. The private respondents demanded the return of their deposits, but the
petitioner bank, being insolvent, could not comply. The private respondents then
filed Civil Case No. 84800 in the Court of First Instance of Manila (now Regional
Trial Court), which ruled in their favor on December 3, 1976, ordering the
petitioner to pay PHP 90,000 with accrued interest, PHP 30,000 as exemplary
damages, and PHP 10,000 as attorney's fees. The petitioner bank sought a review
of this decision on pure questions of law.

Issue:

1. Is an insolvent bank like Fidelity Savings and Mortgage Bank obligated to

pay interest on unpaid deposits after its closure by the Central Bank?
2. Can an insolvent bank be adjudged to pay moral and exemplary damages,
attorney's fees, and costs when the insolvency is caused by anomalous real
estate transactions?

Ruling:

1. The Supreme Court ruled that an insolvent bank is not obligated to

pay interest on deposits during its closure.
2. The awards for moral and exemplary damages and attorney's fees were
deleted.

Ratio:

The Supreme Court held that a banking institution declared insolvent and ordered
closed by the Central Bank cannot be held liable to pay interest on deposits
accrued during the period when the bank is closed and non-operational. The Court
cited the case of The Overseas Bank of Manila vs. Court of Appeals, which
established that a bank's ability to pay interest on deposits is contingent on its
operational activities. Once a bank's operations are suspended, it cannot generate
the funds necessary to pay interest. This principle is deemed to be implicitly
understood in every contract of deposit with a bank.

Regarding the awards for moral and exemplary damages and attorney's fees, the
Court found no evidence of fraud, bad faith, malice, or wanton attitude on the part
of the petitioner bank. The trial court had admitted that the bank's failure to pay
was due to its insolvency. The Court emphasized that moral damages are
recoverable only in specified or analogous cases, which did not apply here.
Similarly, exemplary damages require proof of wanton, fraudulent, reckless,
oppressive, or malevolent conduct, which was not established. The testimony of
the Central Bank's examiner about anomalous real estate transactions was not
supported by documentary evidence. Therefore, the awards for moral and
exemplary damages and attorney's fees were deemed unjustified.
The Court also clarified that the decision did not violate the legal provisions on
preference and concurrence of credits. The order of payment was to be understood
as subject to the Bank
Liquidation Rules and Regulations, ensuring that the deposits were not elevated to
the category of preferred credits.

ix.Banco Filipino vs. BSP, June 4, 2018

Facts:

Banco Filipino Savings and Mortgage Bank (Banco Filipino), a bank that had been
ordered closed by the Bangko Sentral ng Pilipinas (Bangko Sentral) and placed
under the receivership of the Philippine Deposit Insurance Corporation (PDIC),
filed a Petition for Review on Certiorari against Bangko Sentral and the Monetary
Board. The case stemmed from a series of events beginning with a 1991 Supreme
Court decision that declared void the Monetary Board's order for Banco Filipino's
closure and receivership, directing its reorganization and resumption of business.
Despite resuming operations in 1993, Banco Filipino faced financial difficulties and
sought financial assistance from Bangko Sentral in 2003. Negotiations ensued,
resulting in a proposed P25 billion financial assistance package, which included a
contentious condition requiring Banco Filipino to withdraw all pending cases
against Bangko Sentral. Banco Filipino filed a Petition for Certiorari and
Mandamus in the Regional Trial Court (RTC) of Makati, challenging this condition.
The RTC issued a temporary restraining order against Bangko Sentral, but Bangko
Sentral and the Monetary Board filed a Petition for Certiorari with the Court of
Appeals (CA), which eventually dismissed the RTC case, citing lack of jurisdiction.
Banco Filipino's subsequent Motion for Reconsideration was denied, leading to the
present petition before the Supreme Court.

Issue:

1. Whether a closed bank under receivership can file a petition without joining
its statutory receiver, the PDIC, as a party to the case.
2. Whether trial courts have jurisdiction to take cognizance of a petition
for certiorari against acts and omissions of the Monetary Board.
3. Whether Bangko Sentral and the Monetary Board should have filed a
motion for reconsideration of the trial court's denial of their motion to
dismiss before filing their petition for certiorari before the Court of
Appeals.
4. Whether the trial court validly acquired jurisdiction over Bangko
Sentral and the Monetary Board.

Ruling:

1. The Supreme Court dismissed the petition on the ground of Banco

Filipino's lack of capacity to sue without the authorization of its
statutory receiver, the PDIC.
2. The Supreme Court affirmed that the trial court had no jurisdiction over the
petition for certiorari against the Monetary Board, as such petitions are
cognizable only by the Court of Appeals.
3. The Supreme Court held that Bangko Sentral and the Monetary Board were
excused from filing a motion for reconsideration before the trial court due
to the trial court's lack of jurisdiction.
 4. The Supreme Court found that the trial court did not validly acquire
jurisdiction over Bangko Sentral and the Monetary Board.

Ratio:

The Supreme Court emphasized that under Republic Act No. 7653, a closed bank
under receivership can only sue or be sued through its receiver, the PDIC. The
Court cited the fiduciary relationship between the PDIC and the closed bank,
which mandates that the PDIC administers the bank's assets for the benefit of its
creditors. The Court also noted that the PDIC has the statutory authority to bring
suits on behalf of the closed bank. The Court further clarified that petitions for
certiorari against quasi-judicial agencies like the Monetary Board must be filed
with the Court of Appeals, as stipulated in Rule 65, Section 4 of the Rules of Court.
The Court rejected Banco Filipino's reliance on a Court of Appeals decision that
purportedly allowed exceptions to this rule, stating that such decisions do not
function as stare decisis and cannot amend the Rules of Court. Additionally, the
Court found that Bangko Sentral and the Monetary Board were justified in not
filing a motion for reconsideration before the trial court due to the trial court's lack
of jurisdiction, which is an exception to the general rule requiring such a motion.
The Court concluded that Banco Filipino's petition was procedurally infirm and
lacked merit, leading to its dismissal.

x. Balayan Bay Rural Bank vs. National Livelihood Development

Corporation, 21 September 2015

Facts:

Balayan Bay Rural Bank, Inc. (petitioner bank), a banking institution authorized by
the Central Bank, was placed under receivership by the Bangko Sentral ng
Pilipinas on November 26, 2009. The National Livelihood Development
Corporation (NLDC), a government institution created to promote livelihood and
community-based enterprises, filed a complaint on October 12, 2009, for the
collection of a sum of money amounting to P1,603,179.86 against the petitioner
bank before the Regional Trial Court (RTC) of Makati City. The case was docketed
as Civil Case No.
09-917 and assigned to Branch 147. During the pendency of the case, the
Monetary Board issued MIN-70-26, placing the petitioner bank under receivership
and appointing the Philippine Deposit Insurance Corporation (PDIC) as the
receiver. NLDC subsequently filed a Motion for Substitution of Party, invoking
Section 19, Rule 3 of the Revised Rules of Court, arguing that PDIC should be
substituted as a party due to the transfer of interest. The petitioner bank opposed
this motion, contending that PDIC is not the real party in interest but merely a
statutory receiver/liquidator. On June 11, 2010, the RTC granted NLDC's motion,
ordering PDIC to be substituted or joined as a co-defendant. The petitioner bank
then elevated the matter to the Supreme Court via a Petition for Review on
Certiorari, arguing that the RTC's order was contrary to law. Meanwhile, the RTC
issued a decision on June 18, 2010, in favor of NLDC,
ordering the petitioner bank to pay the amount claimed. The petitioner bank did
not object to this ruling but maintained that the lower court erred in its June 11,
2010, order.

Issue:

Whether the June 11, 2010, RTC order directing the substitution of PDIC as a
defendant or its inclusion as a co-defendant is contrary to law.

Ruling:

The Supreme Court denied the petition.

Ratio:

The Supreme Court held that the case involves a disputed claim against a closed
financial institution. Once the Monetary Board declares a bank insolvent and
orders it to cease operations, the Board becomes the trustee of its assets for the
equal benefit of all creditors. The PDIC, as the statutory receiver/liquidator, is
mandated to gather and manage the bank's assets and liabilities for the benefit of
its creditors. As a fiduciary, PDIC may prosecute or defend the case as a
representative party while the bank remains the real party in interest, pursuant to
Section 3, Rule 3 of the Revised Rules of Court. The Court clarified that the RTC's
reliance on Section 19, Rule 3 regarding the transfer of interest pendente lite was
erroneous. The properties of an insolvent bank are held in trust and not
transferred by operation of law to the receiver/liquidator. The bank retains its
juridical personality even under receivership, and the PDIC acts in a fiduciary
capacity to preserve the bank's assets for its creditors. The Court cited Manalo v.
Court of Appeals to emphasize that a bank under receivership retains its capacity
to sue and be sued through its liquidator. The PDIC's authority to represent the
insolvent bank in legal actions stems from its fiduciary role, tasked with
conserving the bank's properties for the benefit of its creditors. Therefore, the
inclusion of PDIC as a representative party in the case is legally justified.

xi.Cu vs. Small Business Guarantee, April 7, 2017

Facts:

The case "Cu v. Small Business Guarantee and Finance Corp." involves petitioner
Allan S. Cu and respondent Small Business Guarantee and Finance Corporation
(SB Corp.), represented by Hector M. Olmedillo. SB Corp. is a government
financial institution created under Republic Act No. 6977, mandated to provide
easy access to credit for micro, small, and medium enterprises (MSMEs). One of
its clients was Golden 7 Bank (G7 Bank), a rural bank. On August 31, 2007, SB
Corp. granted G7 Bank a credit line of PHP 50 million, which was later increased
to PHP 90 million. The Board of Directors of G7 Bank authorized its officers,
including Cu, to sign loan documents and postdated checks. Cu and co-signatory
Lucia Pascual issued over a hundred postdated checks to cover various
drawdowns on the credit line. On July 31, 2008, the Bangko Sentral ng Pilipinas
(BSP) placed G7 Bank under receivership by the Philippine Deposit
Insurance Corporation (PDIC), which took over the bank's assets and records.
Consequently, PDIC closed all of G7 Bank's deposit accounts, including its
checking account with the Land Bank of the Philippines (LBP). When SB Corp.
deposited the postdated checks in October 2008, they were dishonored due to the
account closure. SB Corp. sent demand letters to Cu and Pascual, who failed to
make good on the checks, leading SB Corp. to file a Complaint-Affidavit for
Violation of Batas Pambansa Blg. 22 (B.P. 22) before the Office of the City
Prosecutor of Makati. The Metropolitan Trial Court (MeTC) of Makati City
dismissed the B.P. 22 cases, citing the receivership as a reason for the inability to
fund the checks. The Regional Trial Court (RTC) of Makati City affirmed the
dismissal. SB Corp. appealed to the Court of Appeals (CA), which reversed the
RTC's decision and remanded the cases to the MeTC. Cu then filed a Petition for
Review on Certiorari under Rule 45 of the Rules of Court.

Issue:

1. Did the CA err in not dismissing SB Corp.'s petition because an appeal

from the dismissal of a criminal case may be undertaken only by the State
through the Solicitor General?
2. Did the CA err in reversing the May 2, 2011 Decision and September 5,
2011 Resolution of the RTC?

Ruling:

1. Yes, the CA erred in not dismissing SB Corp.'s petition because only the
Solicitor General can represent the People of the Philippines on appeal
concerning the criminal aspect.
2. Yes, the CA erred in reversing the RTC's decision, as the MeTC and RTC
acted correctly in dismissing the B.P. 22 cases against Cu.

Ratio:

The Supreme Court held that SB Corp., as a private complainant, lacked the
authority to represent the State in the appeal of the criminal cases before the CA.
This authority is solely vested in the Office of the Solicitor General (OSG). The OSG
is the law office of the Government, representing the Republic and/or the People in
any action affecting public welfare. The Court noted that SB Corp. sought the
reinstatement of the criminal prosecution of Cu, which is an attempt to participate
in the criminal aspect without the OSG's conformity. However, the Court made an
exception in this case to ensure justice and to conclude the criminal cases. On the
second issue, the Court found that the MeTC and RTC correctly dismissed the B.P.
22 cases. The Court cited the Gidwani v. People case, where the SEC's suspension
of payments order created a suspensive condition, temporarily ceasing the
obligation's demandability. Similarly, the closure of G7 Bank and PDIC's takeover
suspended the demandability of G7 Bank's loan obligation to SB Corp. The Court
emphasized that SB Corp. acted in bad faith by depositing the checks knowing G7
Bank was under receivership and its accounts were closed. The exact amount due
to SB Corp. was yet to be determined by the liquidation court. Therefore, Cu could
not be held liable for the dishonored checks, and the demand for payment was
premature. The Court reversed the CA's decision and dismissed the criminal cases,
allowing SB Corp. to pursue its claim against G7 Bank before the liquidation court.

xii. Fil-Agro Rural Bank, Inc. v. Villaseñor Jr., July 28, 2020

Facts:

The case involves Fil-Agro Rural Bank, Inc. (Fil-Agro), represented by the
Philippine Deposit Insurance Corporation (PDIC) as liquidator, and Antonio J.
Villaseñor, Jr. (Antonio). On June 23, 2014, Antonio filed a complaint before the
Regional Trial Court (RTC) of Pasig City for the declaration of nullity of real estate
mortgages and quieting of title with damages. He sought to nullify the mortgages
executed by his wife, Wilfreda V. Villaseñor, in favor of Fil-Agro without
his knowledge and consent while he was working abroad. The properties in
question were covered by Transfer Certificate of Title (TCT) No. PT-90776 and TCT
No. PT-127965. In September 2014, the Bangko Sentral ng Pilipinas (BSP) placed
Fil-Agro under the receivership of the PDIC. Subsequently, Fil-Agro's counsel
withdrew their appearance, and the PDIC filed an entry of appearance with a
motion to suspend proceedings. The RTC set a pre-trial conference for June 29,
2015, but Fil-Agro and Wilfreda failed to appear, leading the RTC to declare them
in default and allow Antonio to present his evidence ex parte. Fil-Agro's motion for
reconsideration was denied, and the RTC admitted Antonio's evidence and
considered the case submitted for decision. Fil-Agro then filed a petition for
certiorari, arguing that the RTC committed grave abuse of discretion and failed to
consolidate the case with the liquidation proceedings. The Court of Appeals (CA)
partly granted Fil-Agro's petition, ordering the consolidation of the case with the
liquidation proceedings but upholding the RTC's orders declaring Fil-Agro and
Wilfreda in default. Both parties then filed petitions for review on certiorari before
the Supreme Court.

Issue:

1. Whether the consolidation of the civil case for annulment of real

estate mortgage, quieting of title, and damages with the liquidation
case is proper.
2. Whether the June 29, 2015 and September 28, 2015 Orders of the RTC are
valid.

Ruling:

The Supreme Court granted Fil-Agro's petition, affirming the consolidation of the
civil case with the liquidation proceedings and declaring the RTC's orders dated
June 29, 2015, and September 28, 2015, null and void for lack of jurisdiction.

Ratio:

The Supreme Court held that the RTC of Pasig City lacked jurisdiction over
Antonio's complaint because Fil-Agro was under the receivership of the PDIC, and
the RTC of Malolos City was constituted as the liquidation court. Under Section 30
of Republic Act No. 7653 (New Central Bank Act), the liquidation court has
exclusive jurisdiction to adjudicate disputed claims against the closed bank. The
Court emphasized that "disputed claims" encompass all claims against the
insolvent bank, regardless of their nature or character. Antonio's complaint for
annulment of the mortgages essentially challenged Fil-Agro's right to foreclose the
mortgages, making it a disputed claim within the jurisdiction of the liquidation
court. The consolidation of the civil case with the liquidation proceedings was
deemed proper to avoid multiplicity of suits, prevent delay, and save unnecessary
costs. Consequently, any decision or order issued by the RTC of Pasig City was null
and void due to lack of jurisdiction.
I. Administrative and penal sanctions
J. Means of payment (Sections 48-57)
i. Legal tender power
ii.Exclusive issue power
iii. Digital and virtual currencies
1. BSP Advisory dated 03 June 2014
2. BSP Circular No. 944 dated 06 February 2017
3. BSP Advisory dated 29 December 2017
4. BSP Circular No. 1108, Series of 2021
iv. BSP Circular No. 537, Series of 2006
v. Penal provisions
1. Arts. 2, 163 to 168, 176, Revised Penal Code

2. P.D. No. 247

K. Guiding principles on monetary

administration (i.) Domestic monetary
stabilization (Section 61)
1. Inflation
2. Deflation
i. Caltex vs. Singson, 04 October 2000

Facts:

The case of "Singson v. Caltex (Philippines), Incorporated" revolves around a lease

contract dispute between Lucia R. Singson (petitioner) and Caltex (Philippines),
Inc. (respondent). On July 16, 1968, both parties entered into a lease agreement
concerning a 1,400 square meter parcel of land located in Cubao, Quezon City. The
land was intended for use as a gasoline service station. The lease was set for a
duration of 20 years, with rental rates fixed at P2.50 per square meter per month
for the first 10 years and P3.00 per square meter per month for the remaining 10
years. The contract explicitly stated that these rates were the maximum rental
amounts collectible during the lease term. In June 1983, five years before the
lease's expiration, Singson requested an adjustment in rental rates, citing
extraordinary inflation. Caltex refused this request, prompting Singson to file a
complaint with the Regional Trial Court (RTC) of Manila.
The RTC dismissed the case for lack of merit, and the Court of Appeals affirmed
this decision. Singson then petitioned for review on certiorari, questioning
whether extraordinary inflation from 1968 to 1983 justified an adjustment in rental
rates under Article 1250 of the Civil Code.

Issue:

1. Was there an extraordinary inflation from 1968 to 1983 that would justify
an adjustment or increase in the rental rates under Article 1250 of the Civil
Code?
2. Should the principle of rebus sic stantibus be applied to adjust the rental
rates due to changes in economic conditions?

Ruling:

1. The Supreme Court ruled that there was no extraordinary inflation during
the period from 1968 to 1983 that would justify an adjustment or increase
 in the rental rates under Article 1250 of the Civil Code.
2. The Court did not find the principle of rebus sic stantibus applicable
to the case, upholding the original terms of the lease contract.
Ratio:

The Supreme Court held that extraordinary inflation, as contemplated by Article

1250 of the Civil Code, involves a significant and unforeseen decrease or increase
in the purchasing power of the currency, beyond common fluctuations. The Court
found that the decline in the peso's value from 1968 to 1983 was a normal erosion
rather than extraordinary inflation. The highest inflation rate during this period
was 50.34% in 1984, which did not meet the threshold for extraordinary inflation.
The Court also noted that the effects of extraordinary inflation require an official
declaration by competent authorities, which was absent in this case. Furthermore,
the lease contract's provisions were clear and categorical, specifying the maximum
rental rates, and there was no basis to alter these terms. The principle of rebus sic
stantibus, which allows for contract adjustments due to significant changes in
circumstances, was deemed inapplicable as the economic conditions cited by the
petitioner were not unforeseen or extraordinary. The Court emphasized that the
contract is the law between the parties, and any adjustment should have been
negotiated by the parties themselves.

ii.Palanca vs. Court of Appeals, 02 December 1994

Facts:

In the case of Simplicio A. Palanca vs. Court of Appeals and Edgardo S. Sanicas,
G.R. No. 106685, decided on December 2, 1994, the petitioner, Simplicio A.
Palanca, and the respondent, Edgardo S. Sanicas, were involved in a contractual
agreement concerning a parcel of land covered by Transfer Certificate of Title No.
T-6771766. The Contract to Sell on Installment was executed on January 22, 1977,
wherein Sanicas was required to make a downpayment of P9,851.00 and pay the
remaining balance of P88,659.00 in 120 monthly installments, with an interest rate
of 14% per annum. Additionally, Sanicas was obligated to pay annual real property
taxes, which would incur a penalty of 50% for any failure to do so, along with 12%
compounded interest per annum. Subsequently, Edgardo Sanicas took over the
account of his brother, Jose S. Sanicas, and appointed him as his authorized
representative. A significant provision in the contract, specifically Paragraph 11,
stipulated that the unpaid balance would be subject to an upward adjustment
based on the exchange rate, pegging it at P6.72 to $1.00. After receiving demands
for updates on his account, Edgardo Sanicas engaged an accountant to compute
his obligations and tendered a payment of P44,955.87, which included interest.
However, Palanca rejected this payment, asserting that the actual liability
amounted to P155,630.40 due to the escalator clause. In response, Sanicas filed a
complaint for reconveyance, seeking a preliminary injunction to prevent the
cancellation of his rights under the contract. The trial court ruled in favor of
Sanicas, stating that the escalator clause was inapplicable due to the absence of
extraordinary inflation or deflation. Palanca subsequently appealed to the Court of
Appeals, which modified the trial court's decision but upheld the ruling concerning
the escalator clause.
Issue:

The main issue raised in this case is: Is the petitioner entitled to a proportionate
increase in payment on the balance of the purchase price for a piece of real
property bought on installment, pursuant to paragraph 11 of the subject Contract to
Sell on Installment?

Ruling:

The Supreme Court denied the petition, affirming the decisions of the lower courts
that the stipulation for an upward adjustment of the purchase price was in
violation of R.A. No. 529, which mandates that obligations in the Philippines must
be paid in Philippine currency without adjustments based on foreign currency
exchange rates.

Ratio:

The Court's ruling was grounded in the interpretation of Article 1250 of the Civil
Code, which permits price adjustments in cases of extraordinary inflation or
deflation. However, the Court underscored that the parties' agreement to adjust the
purchase price based on the exchange rate contravened R.A. No. 529, which
explicitly prohibits stipulations requiring payment in foreign currency or in amounts
determined by foreign currency. The Court reasoned that allowing such provisions
would undermine public policy aimed at preserving the stability and value of the
Philippine peso. It clarified that obligations should be fulfilled in the amounts
specified in Philippine currency, without any adjustments based on the prevailing
exchange rate.
Furthermore, the ruling emphasized that the liberalization of foreign exchange
regulations did not repeal R.A. No. 529, asserting that only a law could amend
another law. Consequently, the Court concluded that the stipulation in the
contract was null and void, and the obligation must be settled in Philippine pesos
as originally specified.

iii. Almeda vs. Bathala Marketing, 28 January 2008

Facts:

In the case of "Almeda v. Bathala Marketing Industries, Inc.," petitioners Eufemia

Almeda and Romel Almeda sought a review of the Court of Appeals' decision dated
September 3, 2001, which affirmed with modification the Regional Trial Court
(RTC) of Makati City, Branch 136's decision dated May 9, 2000. The dispute arose
from a lease contract renewed in May 1997 between Bathala Marketing Industries,
Inc. (respondent), represented by its president Ramon H. Garcia, and Ponciano L.
Almeda (lessor), husband of petitioner Eufemia and father of petitioner Romel. The
contract involved leasing a portion of the Almeda Compound in Makati City for a
monthly rental of P1,107,348.69 for four years. The contract included provisions
for rental adjustments in case of new taxes or extraordinary inflation. After
Ponciano's death, the petitioners demanded VAT on monthly rentals and a 73%
rental increase due to alleged extraordinary inflation. The respondent opposed
these demands, leading to a legal dispute. The RTC ruled in favor of the
respondent, declaring that the respondent was not liable for VAT or rental
adjustments. The Court of Appeals affirmed this decision with modifications,
leading to the petitioners' appeal to the Supreme Court.
Issue:

1. Whether the action for declaratory relief is proper.

2. Whether the respondent is liable to pay 10% VAT pursuant to Republic Act
(RA) 7716.
3. Whether the amount of rentals due to the petitioners should be adjusted
by reason of extraordinary inflation or devaluation.

Ruling:

1. The Supreme Court ruled that the action for declaratory relief was proper.
2. The Supreme Court affirmed that the respondent is not liable to pay the 10%
VAT.
3. The Supreme Court ruled that the amount of rentals due to the petitioners
should not be adjusted due to extraordinary inflation or devaluation.

Ratio:

The Supreme Court found that the action for declaratory relief was proper as the
respondent had not breached the contract and continued to pay the stipulated
rentals. The Court noted that the declaratory relief action was justified to settle the
interpretation of the lease contract's provisions. Regarding the VAT liability, the
Court agreed with the appellate court's reasoning that the lessor, Ponciano, did
not charge VAT when the contract was renewed in May 1997, indicating an
intention not to pass the VAT burden to the lessee. The VAT law (RA 7716) was
already in effect before the contract renewal, and thus, it was not a "new tax"
under the contract's sixth condition. On the issue of rental adjustment due to
extraordinary inflation, the Court held that the decline in the peso's value over
decades did not constitute the extraordinary inflation contemplated by Article 1250
of the Civil Code. The Court emphasized that without an official declaration of
extraordinary inflation, the effects of such inflation could not be applied.
Consequently, the petitioners' demands for VAT and rental adjustments were
denied, and the Court of Appeals' decision was affirmed.

(ii.) International monetary stabilization (Sections 64-67)

L. Instruments to achieve price

stability (i.) Moral suasion (Section
68)
(ii.) Foreign exchange operations (Sections 70, 72-75)
(iii.) Regulation of foreign exchange operations of banks
(Section 76) (iv.) Credit policy (Section 81)

1. Lender of last resort

2. Normal credit operations (Section 82)
3. Special credit operation (Section 83)
4. Emergency credit operation (Section 84)
5. Open market operations (Sections 90-92)
● Bank of Commerce vs. Planters Development Bank, 24 September 2012

Facts:

The case involves a dispute between Bank of Commerce (BOC) and Planters
Development Bank (PDB) regarding the jurisdiction of the Bangko Sentral ng
Pilipinas (BSP) to adjudicate ownership disputes over Central Bank (CB) bills. The
case was initially filed in the Regional Trial Court (RTC) of Makati City, Branch
143, under Civil Case Nos. 94-3233 and 94-3254. The RTC dismissed the petition
filed by PDB, the counterclaim filed by BOC, and the
counter-complaint/cross-claim for interpleader filed by BSP. The dispute centers
around two
sets of CB bills initially owned by Rizal Commercial Banking Corporation (RCBC)
and subsequently transferred through various transactions involving BOC, PDB,
Bancapital Development Corporation (Bancap), and other entities. PDB claimed
ownership based on detached assignments in its possession, while BOC argued
that the transactions were valid sales. The RTC issued temporary restraining
orders and preliminary injunctions but ultimately dismissed the case, leading to
the consolidated petitions for review on certiorari filed by BOC and BSP.

Issue:

1. Does the BSP have jurisdiction to adjudicate ownership disputes over CB

bills?
2. Should the RTC have jurisdiction to resolve the ownership disputes over the
CB bills?
3. Was the dismissal of the BOC's counterclaims and the
BSP's counter-complaint/cross-claim for interpleader by
the RTC proper?

Ruling:

1. The Supreme Court ruled that the BSP does not have jurisdiction to
adjudicate ownership disputes over CB bills.
2. The RTC has jurisdiction to resolve the ownership disputes over the CB bills.
3. The dismissal of the BOC's counterclaims and the BSP's counter-
complaint/cross-claim for interpleader by the RTC was improper.

Ratio:

The Supreme Court held that the BSP's jurisdiction is limited to administrative
functions and does not extend to adjudicating ownership disputes over CB bills.
The applicable circular, CB Circular No. 769-80, only allows the BSP to issue a
"stop order" and withhold action on the certificate until the conflicting claims are
settled by a court or through amicable settlement. The RTC, as a court of general
jurisdiction, has the authority to resolve the issue of ownership of the CB bills.
The Court emphasized that jurisdiction over the subject matter is determined by
the allegations in the complaint and the law in force at the time of filing. The
BSP's role is limited to ensuring compliance with its regulations, and it does not
have the quasi-judicial power to resolve ownership disputes. The Supreme Court
also noted that the doctrine of primary jurisdiction does not apply in this case, as
the BSP does not have the special competence to adjudicate such disputes. The
RTC's dismissal of the BOC's counterclaims and the BSP's
counter-complaint/cross-claim for interpleader was erroneous, and the case
should proceed in the RTC to resolve the conflicting claims of ownership over the
CB bills.

vi. Bank reserves (Sections 94-97)

M. Banker of the government (Sections 110-113)
N. Financial advisor of the government (Sections 123-124)

III. PHILIPPINE DEPOSIT INSURANCE CORPORATION LAW (R.A. No. 3591, as amended)
A. Basic policy
B. Powers and functions of the PDIC; prohibitions
C. Concept of insured deposits
D. Liability to depositors
i. Deposit liabilities required to be insured
ii.Commencement of liability
iii. Deposit accounts not entitled to payment
iv. Extent of liability
v. Determination of insured deposits
vi. Calculation of liability
1. Per depositor, per capacity rule
2. Joint accounts
3. Mode of payment
4. Effect of payment of insured deposits
5. Payment of insured deposits as preferred credit
6. Failure to settle claim of insured depositor
7. Failure of depositor to claim insured deposits
a. Examination of banks and deposit accounts
b. Prohibition against splitting of deposits
c. Prohibition against issuances of temporary restraining order

8. Concept of bank resolution

9. Role of the PDIC in relation to banks in distress
a. Closure and takeover
b. Conservatorship
c. Receivership
d. liquidation
i. Linsangan v. PDIC, 11 February 2019

Facts:

In the case of "Linsangan v. Philippine Deposit Insurance Corp.," petitioner Carlito

B. Linsangan filed a claim for deposit insurance with the Philippine Deposit
Insurance Corporation (PDIC) following the closure of the Cooperative Rural Bank
of Bulacan, Inc. (CRBBI) by the Monetary Board (MB) of the Bangko Sentral ng
Pilipinas (BSP) on May 23, 2013. The PDIC took over CRBBI's assets and examined
its records to determine insured deposits. Linsangan's claim was for his Special
Incentive Savings Account (SISA) No. 00-44-10750-9, which had a balance of
P400,000.00 at the time of the bank's closure. Upon investigation, PDIC found that
Linsangan's account originated from an account held by Cornelio and Ligaya
Linsangan, which was closed and its balance distributed to four accounts,
including Linsangan's. PDIC determined that Linsangan was not a qualified
relative of Cornelio and Ligaya, leading to the consolidation of his account with the
other legitimate deposits of Cornelio and Ligaya for insurance computation
purposes. Consequently, PDIC denied Linsangan's claim on July 12, 2013, and his
request for reconsideration on August 6, 2014. Linsangan then filed a petition for
certiorari before the Court of Appeals (CA), which was denied on March 31, 2016,
and his motion for reconsideration was also denied on December 19, 2016.
Linsangan subsequently filed a petition for review on certiorari before the
Supreme Court.
Issue:

1. Did the PDIC err in denying Carlito B. Linsangan's deposit insurance claim?
2. Was the transfer of funds to Linsangan's account considered deposit
splitting under PDIC Regulatory Issuance No. 2009-03?
3. Did the requirement for transfer documents to be in the bank's custody at
the time of closure violate Linsangan's constitutional right against
deprivation of property without due process?

Ruling:

1. The Supreme Court denied the petition and affirmed the CA's decision,
which upheld the PDIC's denial of Linsangan's deposit insurance claim.
2. The Court ruled that the transfer of funds to Linsangan's account was
subject to scrutiny under PDIC Regulatory Issuance No. 2009-03, and the
PDIC correctly determined that Linsangan was not the beneficial owner of
the account.
3. The Court found that the requirement for transfer documents to be in the
bank's custody at the time of closure did not violate Linsangan's
constitutional rights.

Ratio:

The Supreme Court held that the PDIC acted within its mandate under Republic
Act No. 3591, which established the PDIC to safeguard the interests of the
depositing public by providing insurance coverage for legitimate deposits. The
Court emphasized that the PDIC's determination of beneficial ownership of
deposits is guided by PDIC Regulatory Issuance No. 2009-03.
According to this issuance, the transferee must prove that the transfer was for
valid consideration and that relevant documents were in the bank's custody at the
time of closure. In this case, Linsangan failed to provide such documents, and the
PDIC correctly presumed that the source account remained with Cornelio and
Ligaya. Additionally, Linsangan was not a qualified relative within the second
degree of consanguinity or affinity, further disqualifying him from being
considered the beneficial owner. The Court also dismissed Linsangan's argument
regarding lack of personal notice of the regulatory issuance, citing the principle of
"ignorantia legis non excusat" (ignorance of the law excuses no one). The
publication of the issuance in a newspaper of general circulation was deemed
sufficient notice. Therefore, the PDIC's denial of Linsangan's claim was upheld as
it did not constitute grave abuse of discretion.

ii.PDIC vs. Gidwani, June 20, 2018

Facts:

The case involves the Philippine Deposit Insurance Corporation (PDIC) and
respondent Manu Gidwani, who, along with his wife Champa Gidwani and 86 other
individuals, was implicated in a scheme involving estafa and money laundering.
The case arose after several rural banks owned by the Legacy Group of Companies
were closed and placed under PDIC receivership. The Gidwani spouses and the 86
individuals claimed ownership of 471 deposit accounts in these banks, leading to
the issuance of 683 Landbank checks amounting to P98,733,690.21. These checks,
despite being crossed and marked "Payable to the Payee's Account Only," were
deposited into a single RCBC account controlled by Manu Gidwani. PDIC's
investigation revealed that many of these accounts were in the names of
individuals who lacked the financial capacity to own such deposits, suggesting that
the Gidwani spouses were the true beneficial owners. PDIC
filed a criminal complaint for estafa through falsification and money laundering
against the Gidwani spouses and the 86 individuals. The Department of Justice
(DOJ) initially dismissed the complaint, but this decision was later reversed by
then Secretary of Justice Emmanuel Caparas, who found probable cause to
charge the respondents. The Court of Appeals (CA) subsequently annulled
Caparas' resolution, reinstating the DOJ's initial dismissal. PDIC then petitioned
the Supreme Court to review the CA's decision.

Issue:

1. Whether the Court of Appeals erred in taking cognizance of Manu

Gidwani's petition for certiorari under Rule 65 without him filing a motion
for reconsideration with the DOJ.
2. Whether the Caparas Resolution became final and executory concerning
Manu Gidwani due to his failure to file a motion for reconsideration.
3. Whether the CA erred in finding that SOJ Caparas acted in grave abuse of
discretion in overturning the Justiniano Resolution without new evidence
from PDIC.

Ruling:

The Supreme Court granted PDIC's petition, reversing and setting aside the CA's
January 31, 2017 Decision and October 6, 2017 Resolution. The Court reinstated
the June 3, 2016 Resolution of the DOJ, which found probable cause to charge
Manu Gidwani with estafa through falsification and money laundering.

Ratio:

The Supreme Court held that the CA erred in ruling that SOJ Caparas acted in
grave abuse of discretion. The Court emphasized that the DOJ Secretary has the
authority to review and reassess the evidence and is not bound by the findings of
his predecessors. The Court found that the circumstances presented by PDIC, such
as the use of helpers and employees as account holders and the deposit of crossed
checks into a single account controlled by Manu Gidwani, were sufficient to
establish probable cause for estafa and money laundering. The Court also noted
that the alleged fund management agreement between Manu and the individual
depositors was not substantiated by evidence and that such an agreement would
require registration with the Securities and Exchange Commission. The Court
concluded that the matter should proceed to trial where the evidence can be fully
examined.

iii. PDIC vs. Citibank, 11 April 2012

Facts:

The case involves the Philippine Deposit Insurance Corporation (PDIC) as the
petitioner and Citibank, N.A. (Citibank) and Bank of America, S.T. & N.A. (BA) as
respondents. PDIC, a government instrumentality created under Republic Act
(R.A.) No. 3591, as amended by R.A. No. 9302, conducted examinations of the
books of Citibank and BA in the late 1970s. It discovered that both banks had
received substantial dollar funds from their head offices and foreign branches,
which were recorded as interest-bearing Certificates of Dollar Time Deposit. These
funds were not reported to PDIC as deposit liabilities subject to insurance
assessment. Consequently, PDIC assessed Citibank and BA for deficiency
premiums. Citibank and BA filed petitions for declaratory relief in the Court of
First Instance (now Regional Trial Court) of Rizal, seeking a judgment that these
funds were not deposits and thus not insurable under the PDIC Charter. The RTC
ruled in favor of Citibank and BA, a decision later affirmed by the Court of Appeals
(CA). The CA held that the funds were part of internal dealings and not deposits,
thus not subject to PDIC insurance. PDIC then petitioned the Supreme Court for
review.
Issue:

1. Are the dollar funds received by Citibank and BA from their head offices
and foreign branches insurable deposits under the PDIC Charter and
subject to assessment for insurance premiums?
Ruling:

The Supreme Court ruled in the negative, affirming the decision of the Court of
Appeals. The funds in question are not considered insurable deposits under the
PDIC Charter and are therefore not subject to assessment for insurance premiums.

Ratio:

The Supreme Court's decision was based on several key points. Firstly, it
emphasized that a branch of a foreign bank does not have a separate legal
personality from its head office. The funds placed by the head office and foreign
branches in the Philippine branches of Citibank and BA are considered internal
transactions within the same legal entity. Therefore, these funds do not create a
depositor-depository relationship, which is essential for a deposit to be insurable
under the PDIC Charter. The Court also noted that the purpose of PDIC is to
protect the depositing public in the event of a bank closure, not to insure internal
funds of a bank.
Additionally, the Court referred to American jurisprudence and Philippine banking
laws, which support the view that a bank and its branches are considered one
entity. The Court also highlighted that the funds were payable outside the
Philippines, thus falling under the exclusions to deposit liabilities as per Section
3(f) of the PDIC Charter. Finally, the Court found the testimony of John David
Shaffer, an expert from the Federal Deposit Insurance Corporation (FDIC),
persuasive. He stated that inter-branch deposits are excluded from the assessment
base, a practice followed by the FDIC, after which PDIC was modeled. Therefore,
the funds in question are not deposits within the meaning of the PDIC Charter and
are excluded from assessment.

iv. Chugani v. PDIC, March 19, 2018

Facts:

The case involves Spouses Kishore Ladho Chugani and Prisha Kishore Chugani
(petitioners) against the Philippine Deposit Insurance Corporation (PDIC). The
petitioners, upon the invitation of Raymundo Garan, President of Rural Bank of
Mawab (Davao), Inc. (RBMI), opened Time Deposit Accounts with RBMI through
inter-branch deposits to RBMI's accounts in Metrobank and China Bank-Tagum,
Davao Branches. Certificates of Time Deposits (CTDs) and Official Receipts were
issued to the petitioners. In September 2011, the Monetary Board of the Bangko
Sentral ng Pilipinas placed RBMI under receivership and subsequently closed it.
The petitioners filed claims for insurance of their time deposits, which PDIC denied
on the grounds that the deposits were not part of RBMI's outstanding deposit
liabilities, were fraudulent, and the amounts were credited to Garan's personal
account. The petitioners' request for reconsideration was also denied by PDIC.
Consequently, the petitioners filed a Petition for Certiorari under Rule 65 with the
Regional Trial Court (RTC), which dismissed the petition for lack of jurisdiction.
The petitioners appealed to the Court of Appeals (CA), which also dismissed the
appeal and affirmed the RTC's decision. The petitioners then brought the case to
the Supreme Court.

Issue:

1. Whether the CA was correct in ruling that the RTC had no jurisdiction over
 the Petitions for Certiorari filed by the petitioners.
2. Whether the PDIC committed grave abuse of discretion in denying the
petitioners' claim for deposit insurance.
Ruling:

The Supreme Court denied the petition and affirmed the CA's decision, which
upheld the RTC's dismissal of the Petition for Certiorari for lack of jurisdiction. The
Court also ruled that the PDIC did not commit grave abuse of discretion in denying
the petitioners' claim for deposit insurance.

Ratio:

The Supreme Court held that the PDIC, created by Republic Act No. 3591, has the
duty to grant or deny claims for deposit insurance. Under Section 4(f) of R.A. No.
3591, as amended by R.A. No. 9576, the term "deposit" is defined, and certain
accounts or transactions are excluded from deposit insurance. The PDIC's actions
are final and executory, and can only be challenged through a Petition for
Certiorari on the grounds of excess of jurisdiction or grave abuse of discretion,
which must be filed with the CA. The Court found that the CA correctly held that
the RTC had no jurisdiction over the Petitions for Certiorari filed by the
petitioners. Furthermore, the Court determined that the PDIC did not commit
grave abuse of discretion in denying the petitioners' claim for deposit insurance.
The investigation revealed that the petitioners' deposits were credited to Garan's
personal account, were not part of RBMI's outstanding liabilities, and the CTDs
were mere replicas of unissued CTDs. The petitioners' actions were not in the
ordinary course of business, and the PDIC's decision was based on facts, law, and
regulations.

v. Servo v. Philippine Deposit Insurance

Corporation, December 5, 2019

Facts:

The case of "Servo v. Philippine Deposit Insurance Corp." involves petitioner

Connie L. Servo and respondent Philippine Deposit Insurance Corporation (PDIC).
On August 22, 2014, Servo filed a claim for deposit insurance with PDIC, alleging
that she had lent Teresita Gutierrez PHP 500,000 in October 2011 for bus repairs.
On January 19, 2012, Servo met Gutierrez at the Rural Bank of San Jose Del Monte
to receive the loan repayment, for which Servo opened a time deposit account
under Special Savings Deposit (SSD) Account No. 001 03-00904-1, using
Gutierrez's name as the account holder. When the bank closed down, Servo filed
her claim with PDIC, asserting that the PHP 500,000 in the account was held in
trust for her by Gutierrez. PDIC denied her claim on August 27, 2014, citing the
absence of bank records indicating Servo's ownership of the account. Servo's
Request for Reconsideration (RFR) was also denied on July 16, 2015, due to her
failure to submit documents showing a valid consideration for the transfer of the
deposit. Servo then filed an action for certiorari, claiming grave abuse of discretion
by PDIC. The Regional Trial Court (RTC) dismissed the case on July 27, 2017, for
lack of jurisdiction, stating that the matter fell within the exclusive jurisdiction of
the Court of Appeals.
Servo's subsequent petition to the Court of Appeals was dismissed on September
22, 2017, for lack of jurisdiction, leading to the present petition for review on
certiorari.

Issue:

Did the Court of Appeals err in dismissing the petition for certiorari on the ground
of lack of jurisdiction?

Ruling:

The Supreme Court ruled that the Court of Appeals erred in dismissing Servo's
special civil action for certiorari on the ground of lack of jurisdiction. The Court of
Appeals has jurisdiction over petitions for certiorari under Section 9 of Batas
Pambansa Bilang 129 (BP 129). However, the Supreme Court decided not to
remand the case to the Court of Appeals to avoid further delay and resolved the
jurisdictional issue involving PDIC directly. The Court found that Servo should
have complied with the procedures under Republic Act (RA) 10846, which was
already effective when she initiated her action. The Court also noted that Servo's
petition was filed beyond the 30-day reglementary period prescribed under RA
10846. Consequently, the petition was denied.

Ratio:

The Supreme Court's decision was based on the interpretation of Section 9 of BP

129, which grants the Court of Appeals jurisdiction over petitions for certiorari,
including those involving quasi-judicial agencies like PDIC. The Court emphasized
the importance of adhering to the hierarchy of courts and the procedural
requirements under RA 10846. The Court noted that the Court of Appeals has
concurrent jurisdiction with the RTCs and the Supreme Court over special civil
actions and auxiliary writs, regardless of whether the issues are purely legal or
factual. The Court also highlighted that the amendatory provisions of RA 10846,
effective as of June 11, 2016, should have been followed by Servo, including the
exclusive original jurisdiction granted to PDIC on matters involving bank deposits
and insurance. The Court found that Servo's petition was filed beyond the
prescribed period, rendering the trial court's ruling final. Therefore, the Court
denied the petition to uphold procedural rules and ensure the finality of judicial
decisions.

IV. LAW ON SECRECY OF BANK DEPOSITS (R.A. No. 1405, as amended)

A. Purpose
B. Prohibited acts
C. Deposits covered
D. Exceptions
i. Unclaimed Balances Law (Act No. 3936)
E. Garnishment of deposits
F. Foreign currency deposit act
i. BSB Group Inc. vs. Go, 16 February 2010
Facts:

The case involves BSB Group, Inc., represented by its President, Ricardo
Bangayan, as the plaintiff-appellee, and Sally Go, also known as Sally Go-
Bangayan, as the accused-appellant. Sally Go was employed as a cashier at BSB
Group, Inc., and was responsible for receiving and accounting for payments made
by the company's customers. In 2002, Ricardo Bangayan filed a complaint for
estafa and/or qualified theft against Sally Go, alleging that she endorsed several
checks amounting to P1,534,135.50, which were issued by the company's
customers, and deposited them into her personal bank account at Security Bank
and Trust Company in Divisoria, Manila. The Manila Prosecutor's Office found
sufficient evidence to file an Information for qualified theft against Sally Go. The
Information alleged that between January 1988 and October 1989, Sally Go stole
cash money amounting to P1,534,135.50 from BSB Group, Inc., with grave abuse
of confidence. Sally Go entered a negative plea during arraignment, and the trial
ensued. The prosecution moved for the issuance of a subpoena duces tecum/ad
testificandum against the managers or records custodians of Security Bank and
Asian Savings Bank (now Metrobank) to present evidence of the alleged deposits.
Sally Go filed a motion to quash the subpoena, arguing the irrelevancy and
confidential nature of the bank accounts under Republic Act (R.A.) No. 1405. The
trial court denied her motion, leading to the presentation of testimony from
Elenita Marasigan, a representative of Security Bank.
Marasigan's testimony aimed to prove that Sally Go deposited the checks into
her personal account. Sally Go then filed a Motion to Suppress the testimony and
documents, invoking the confidentiality of bank deposits under R.A. No. 1405.
The trial court denied her motion, prompting her to elevate the matter to the
Court of Appeals via a petition for certiorari under Rule 65. The Court of Appeals
reversed the trial court's orders, striking Marasigan's testimony from the
records. BSB Group, Inc. then filed a Petition for Review under Rule 45,
challenging the Court of Appeals' decision.

Issue:

1. Whether the testimony of Elenita Marasigan and the accompanying

documentary evidence related to Sally Go's Security Bank account are
relevant to the case.
2. Whether the admission of Marasigan's testimony and the documentary
evidence violates the confidentiality of bank deposits under R.A. No. 1405.

Ruling:

1. The Supreme Court ruled that the testimony of Elenita Marasigan and the
accompanying documentary evidence related to Sally Go's Security Bank
account are irrelevant to the case.
2. The Supreme Court ruled that the admission of Marasigan's testimony and
the documentary evidence violates the confidentiality of bank deposits
under R.A. No. 1405.

Ratio:

The Supreme Court emphasized that in criminal prosecutions, the constitutive acts
of the offense must be established with unwavering exactitude and moral
certainty. The elements of qualified theft include the unlawful taking of personal
property belonging to another with intent to gain, without the owner's consent,
and with abuse of confidence. The Court found that the evidence presented by the
prosecution, which sought to establish that Sally Go deposited the checks into her
personal account, was irrelevant to the allegation of theft of cash money stated in
the Information. The Court noted that the Information accused Sally Go of stealing
cash, not checks, and thus the evidence related to the checks was immaterial and
inadmissible.
Furthermore, the Court held that the admission of Marasigan's testimony and the
documentary evidence violated the confidentiality of bank deposits under R.A. No.
1405. The Court explained that the Bank Secrecy Act aims to protect the
absolutely confidential nature of bank deposits, and the exceptions to this rule are
limited. The Court found that the money deposited in Sally Go's Security Bank
account was not the subject matter of the litigation, as the Information charged
her with stealing cash, not the money equivalent of the checks. Therefore, the
inquiry into the bank account was impermissible, and the evidence should have
been excluded. The Supreme Court affirmed the decision of the Court of Appeals,
which reversed the trial court's orders and struck Marasigan's testimony from the
records.
ii.Dona Adela Export vs. TIDCORP, 11 February 2015

Facts:

In the case of Doña Adela Export International, Inc. v. Trade and Investment
Development Corp., the petitioner, Doña Adela Export International, Inc. (Doña
Adela), filed a Petition for Voluntary Insolvency on August 23, 2006, which was
docketed as SEC Case No. MC06-103 and assigned to the Regional Trial Court
(RTC) of Mandaluyong City, Branch 211. The RTC declared Doña Adela insolvent on
August 28, 2006, and appointed Atty. Arlene Gonzales as the receiver. Atty.
Gonzales proposed a compromise agreement to settle the claims of the creditors,
which included the Technology Resource Center (TRC), the Bank of the Philippine
Islands (BPI), and Trade and Investment Development Corporation of the
Philippines (TIDCORP).

On May 26, 2011, Doña Adela and TRC entered into a Dacion En Pago by
Compromise Agreement, transferring a parcel of land to TRC in full payment of
Doña Adela's obligation. Subsequently, on August 11, 2011, TIDCORP and BPI
filed a Joint Motion to Approve Agreement, which included a provision that Doña
Adela and its Board of Directors waive their rights to confidentiality under the Law
on Secrecy of Bank Deposits and the General Banking Law of 2000. Doña Adela's
President, Epifanio C. Ramos, Jr., objected to this provision, arguing that Doña
Adela was not a party to the agreement and had not given express consent to the
waiver.

The RTC approved the Joint Motion to Approve Agreement on November 15,
2011, except for the provision on expenses and taxes. Doña Adela filed a motion
for partial reconsideration, which the RTC denied on May 14, 2012, stating that
Doña Adela's silence and acquiescence to the agreement amounted to admission
and acquiescence. Doña Adela then filed a petition for review on certiorari with
the Supreme Court.

Issue:

1. Is the petitioner, Doña Adela Export International, Inc., bound by the

provision in the Joint Motion to Approve Agreement that waives the
confidentiality of its bank deposits under the Law on Secrecy of Bank
Deposits and the General Banking Law of 2000, despite not being a party
to the agreement?

Ruling:

The Supreme Court ruled that the petitioner, Doña Adela Export International,
Inc., is not bound by the provision in the Joint Motion to Approve Agreement that
waives the confidentiality of its bank deposits, as the petitioner did not give its
express consent and was not a party to the agreement. The Court modified the
RTC's decision to exclude the waiver of confidentiality provision.
Ratio:

The Supreme Court emphasized that under Republic Act No. 1405 (Law on Secrecy
of Bank Deposits) and Republic Act No. 8791 (General Banking Law of 2000), the
waiver of confidentiality of bank deposits requires the express and written consent
of the depositor. In this case, the Joint Motion to Approve Agreement was executed
solely by TIDCORP and BPI, without the written consent of Doña Adela or its
representative. The Court held that mere silence or acquiescence does not
constitute a waiver, as waivers must be voluntary, knowing, and intelligent, with
sufficient awareness of the relevant circumstances and consequences.

Furthermore, the Court noted that since Doña Adela was declared insolvent, all its
property and assets were under the control of the appointed receiver, Atty.
Gonzales. Any waiver of rights, including the confidentiality of bank deposits,
required the approval and conformity of the receiver. Atty. Gonzales did not sign or
approve the Joint Motion to Approve Agreement, and there was no indication that
she consented to the waiver of confidentiality.

The Court also reiterated the principle of relativity of contracts, which states that
contracts bind only the parties who entered into them and cannot prejudice or
benefit third parties. Since Doña Adela was not a party to the agreement between
TIDCORP and BPI, it could not be bound by the waiver provision.

iii. Ejercito vs. Sandiganbayan, 30 November 2006

Facts:

In the case of "Ejercito v. Sandiganbayan," petitioner Joseph Victor G. Ejercito

challenged the Sandiganbayan's issuance of subpoenas duces tecum/ad
testificandum for the production of documents related to his bank accounts. The
subpoenas were issued in connection with Criminal Case No. 26558, "People of the
Philippines v. Joseph Ejercito Estrada, et al.," for plunder under
R.A. 7080. The Special Prosecution Panel requested the subpoenas on January 20
and 23, 2003, targeting documents from Export and Industry Bank (formerly
Urban Bank) and Equitable-PCI Bank. Ejercito learned about the subpoenas
through media reports and filed motions to quash them, arguing that his bank
accounts were protected by the Secrecy of Bank Deposits Law (R.A. 1405) and did
not fall under any exceptions. The Sandiganbayan denied his motions on February
7 and 12, 2003, and his subsequent motion for reconsideration on March 11, 2003.
Ejercito then filed a petition for certiorari under Rule 65, asserting that the
subpoenas violated his rights to due process and privacy.
Issue:
 1. Whether petitioner's Trust Account No. 858 is covered by the term "deposit"
as used in
R.A. 1405.
2. Whether petitioner's Trust Account No. 858 and Savings Account No.
0116-17345-9 are excepted from the protection of R.A. 1405.
3. Whether the "extremely-detailed" information contained in the Special
Prosecution Panel's requests for subpoena was obtained through a
prior illegal disclosure of petitioner's bank accounts, in violation of the
"fruit of the poisonous tree" doctrine.

Ruling:

The Supreme Court dismissed the petition, upholding the Sandiganbayan's

resolutions. The Court ruled that the bank accounts in question were not protected
by the Secrecy of Bank Deposits Law due to applicable exceptions. The Court also
found that the "fruit of the poisonous tree" doctrine did not apply in this case, as
the information was lawfully obtained. Additionally, the Court held that even if the
subpoenas were quashed, the Ombudsman could still conduct a similar inquiry
based on independent information.

Ratio:

The Court reasoned that the term "deposits" under R.A. 1405 is broad enough to
include trust accounts like Trust Account No. 858. The law's policy is to encourage
deposits in banks for economic development, and trust accounts fall within this
scope. The Court identified two exceptions to the confidentiality of bank deposits
that applied in this case: (1) examination of bank accounts upon court order in
cases of bribery or dereliction of duty, and (2) when the money deposited is the
subject matter of litigation. The Court found that plunder is analogous to bribery
and dereliction of duty, thus falling under the first exception. Additionally, the
money in Ejercito's accounts was part of the subject matter of the plunder case
against former President Estrada, satisfying the second exception. The Court also
rejected the application of the "fruit of the poisonous tree" doctrine, noting that
R.A. 1405 does not provide for such a remedy and that the information was
obtained lawfully. The Court emphasized that the Ombudsman had independent
information about the bank accounts, which justified the issuance of the
subpoenas. Finally, the Court addressed Ejercito's due process claim, stating that
any procedural defects were cured when he was given the opportunity to contest
the subpoenas in court.

iv. People vs. Estrada, 2 April 2009

Facts:

On April 4, 2001, an Information for plunder (Crim. Case No. 26558) was filed with
the Sandiganbayan against former Philippine President Joseph Ejercito Estrada,
among other accused. Additionally, a separate Information for illegal use of alias
(Crim. Case No. 26565) was filed against Estrada, alleging that on or about
February 4, 2000, he used the alias "Jose Velarde" in several transactions to
conceal ill-gotten wealth. Another Information for perjury
(Crim. Case No. 26905) was later consolidated with the other two cases. Estrada
was arrested based on a warrant issued by the Sandiganbayan. The prosecution
presented testimonial and documentary evidence, including testimonies from PCIB
officers Clarissa G. Ocampo and Atty. Manuel Curato, who testified that Estrada
opened a numbered trust account (Trust Account
C-163) with PCIB and signed as "Jose Velarde." The Sandiganbayan admitted the
prosecution's evidence but later granted Estrada's demurrer to evidence for the
illegal use of alias and perjury charges, leading to the dismissal of Crim. Case No.
26565. The prosecution then filed a Petition for Review on Certiorari to seek the
reversal of the Sandiganbayan's Joint Resolution dated July 12, 2004.

Issue:

1. Did the Sandiganbayan err in dismissing Crim. Case No. 26565 by holding
that Estrada's use of the alias "Jose Velarde" was not public despite the
presence of non-bank officers?
2. Did the Sandiganbayan err in holding that the use of the alias "Jose
Velarde" was allowable under banking rules despite the prohibition
under Commonwealth Act No. 142?
3. Did the Sandiganbayan err in applying R.A. No. 1405 as an exception to the
illegal use of alias punishable under Commonwealth Act No. 142?
4. Was the harmonization and application of R.A. No. 1405 and
Commonwealth Act No. 142 by the Sandiganbayan proper?
5. Did the Sandiganbayan err in limiting the coverage of the amended
Information in Crim. Case No. 26565 to the use of the alias "Jose Velarde"
on February 4, 2000?
6. Did the Sandiganbayan err in departing from its earlier final finding on the
non-applicability of Ursua v. Court of Appeals and forcing its application to
the instant case?

Ruling:

The Supreme Court denied the petition for lack of merit, upholding the
Sandiganbayan's decision to dismiss Crim. Case No. 26565.

Ratio:

The Supreme Court found no merit in the prosecution's arguments. The Court
emphasized that the law on illegal use of alias, as interpreted in Ursua v. Court of
Appeals, requires the use of an alias to be public and habitual. The evidence
presented by the prosecution did not satisfy these requirements. The Court agreed
with the Sandiganbayan's interpretation that the use of the alias "Jose Velarde" in
a single instance, even if witnessed by non-bank officers, did not constitute public
use. The Court also noted that the transaction involving the alias was protected by
the confidentiality provisions of R.A. No. 1405, which negated any intention of
public use.
Furthermore, the Court found that the Sandiganbayan did not err in limiting the
coverage of the Information to the use of the alias on February 4, 2000, as the
phrasing of the Information did not support the prosecution's broader
interpretation. The Court also rejected the prosecution's argument that the earlier
Sandiganbayan resolution denying Estrada's motion to quash should have
precluded the application of Ursua, noting that the earlier resolution was
interlocutory and
not final. The Court concluded that the prosecution failed to prove Estrada's guilt
beyond reasonable doubt, and thus, the Sandiganbayan's dismissal of the case was
justified.

v. Marquez vs. Desierto, 27 June 2001

Facts:

In the case of "Marquez v. Desierto," the petitioner, Lourdes T. Marquez, served as

the Branch Manager of Union Bank of the Philippines, Julia Vargas Branch. On
April 29, 1998, Marquez received an order from Ombudsman Aniano A. Desierto to
produce several bank documents for an in-camera inspection. These documents
were related to accounts involved in a pending investigation by the Ombudsman
titled "Fact-Finding and Intelligence Bureau (FFIB) vs. Amado Lagdameo, et al."
for violations of R.A. No. 3019, Sections 3(e) and (g). Marquez, along with Union
Bank, filed a petition for declaratory relief, prohibition, and injunction with the
Regional Trial Court (RTC) in Makati City, seeking a declaration of her rights due
to a conflict between
R.A. No. 6770 (The Ombudsman Act of 1989) and R.A. No. 1405 (Secrecy of
Bank Deposits Law). On August 21, 1998, Marquez received a motion to cite her
for contempt, which she opposed on the grounds that the petition was still
pending in the lower court. Despite her opposition, the Ombudsman panel
ordered her to appear for a continuation of the contempt hearing, and her
motion for reconsideration was denied on October 14, 1998. Consequently,
Marquez filed the present petition with the Supreme Court.

Issue:

1. Can the petitioner be cited for indirect contempt for failing to

produce the bank documents requested by the Ombudsman?
2. Is the order of the Ombudsman for an in-camera inspection of the bank
accounts an exception to the law on the secrecy of bank deposits?

Ruling:

The Supreme Court granted the petition. The Court ruled that the Ombudsman
could not compel the production of the bank documents for an in-camera
inspection as there was no pending case before a court of competent
jurisdiction. Consequently, the order for in-camera inspection was not justified,
and the petitioner could not be cited for indirect contempt.

Ratio:

The Court's decision was based on the legal principle that before an in-camera
inspection of bank accounts can be allowed, there must be a pending case before a
court of competent jurisdiction. The accounts must be clearly identified, and the
inspection must be limited to the subject matter of the pending case. Additionally,
both the bank personnel and the account holder must be notified and present
during the inspection. In this case, there was no pending
litigation before any court; the matter was still under investigation by the Office of
the Ombudsman. The Court emphasized that the Ombudsman's investigation did
not meet the criteria for an exception to the Secrecy of Bank Deposits Law (R.A.
No. 1405). The Court also highlighted the importance of protecting zones of
privacy as recognized by various laws, including the Civil Code, the Revised Penal
Code, and special laws like the Anti-Wiretapping Law and the Secrecy of Bank
Deposits Act. The Court concluded that the Ombudsman's order constituted an
unlawful fishing expedition for evidence, which violated the right to privacy and
the law on the secrecy of bank deposits.

vi. Salvacion vs. Central Bank, 21 August 1997

Facts:

The case involves Karen E. Salvacion, a minor, represented by her father Federico
N. Salvacion, Jr., and her parents, Federico N. Salvacion, Jr., and Evelina E.
Salvacion, as petitioners. The respondents are the Central Bank of the Philippines,
China Banking Corporation, and Greg Bartelli y Northcott. On February 4, 1989,
Greg Bartelli, an American tourist, lured 12-year-old Karen to his apartment in
Makati, where he detained and raped her multiple times over four days. Bartelli
was arrested and detained at the Makati Municipal Jail but escaped on the day of
his bail hearing, leading to the archiving of the criminal cases against him. The
Salvacion family filed a civil case for damages with preliminary attachment against
Bartelli. The trial court granted the writ of preliminary attachment, but China
Banking Corporation refused to honor the Notice of Garnishment, citing Section
113 of Central Bank Circular No. 960, which exempts foreign currency deposits
from attachment or garnishment. The trial court eventually ruled in favor of the
Salvacion family, awarding them damages. However, the bank continued to invoke
the exemption, prompting the Salvacion family to seek relief from the Supreme
Court.

Issue:

1. Does the Supreme Court have jurisdiction to entertain the petition for
declaratory relief?
2. Should Section 113 of Central Bank Circular No. 960 and Section 8 of
R.A. 6426, as amended by P.D. 1246, be applicable to a foreign
transient like Greg Bartelli?

Ruling:

1. The Supreme Court ruled that it has no original and exclusive jurisdiction
over a petition for declaratory relief but treated the petition as one for
mandamus due to its far-reaching implications.
2. The Supreme Court held that Section 113 of Central Bank Circular No. 960
and Section 8 of R.A. 6426, as amended by P.D. 1246, are inapplicable to
 this case due to its peculiar circumstances. The respondents were required
to comply with the writ of execution and release Bartelli's dollar deposits to
satisfy the judgment.

Ratio:
The Supreme Court reasoned that while it does not have original jurisdiction over
petitions for declaratory relief, exceptions are made for cases with significant
implications. The Court emphasized that the application of laws should be just and
equitable. Applying Section 113 of Central Bank Circular No. 960 to a foreign
transient like Bartelli would result in injustice to a Filipino citizen aggrieved by a
foreign guest. The Court highlighted that the law's intent is to encourage foreign
currency deposits for economic development, not to shield wrongdoers from civil
liability. The Court cited Article 10 of the New Civil Code, which presumes that laws
are intended to promote right and justice. The Court concluded that protecting
Bartelli's dollar deposits under the questioned law would be unjust and contrary to
the principles of fairness and justice.

vii.China Bank vs. CA, 18 December 2006

Facts:

In the case of "China Banking Corporation vs. Court of Appeals," docketed as G.R.
No. 140687 and decided on December 18, 2006, the petitioner is China Banking
Corporation (China Bank), and the respondents are the Court of Appeals and Jose
"Joseph" Gotianuy, who was substituted by Elizabeth Gotianuy Lo after his death.
The case originated from a complaint filed by Jose Gotianuy against his daughter,
Mary Margaret Dee, and his son-in-law, George Dee, before the Regional Trial
Court (RTC) of Cebu City, Branch 58. The complaint sought the recovery of sums
of money and the annulment of sales of real properties and shares of stock. Jose
Gotianuy accused Mary Margaret Dee of stealing US dollar deposits from his
Citibank N.A. account, amounting to not less than PHP 35,000,000.00 and USD
864,000.00, which she allegedly deposited at China Bank. He also accused George
Dee of transferring his real properties and shares of stock without consideration.
During the trial, Elizabeth Gotianuy Lo presented Citibank checks withdrawn by
Mary Margaret Dee, which were deposited at China Bank. The trial court issued a
subpoena to China Bank employees to testify about these checks. China Bank
moved for reconsideration, but the trial court ordered the disclosure of the name
of the depositor of the foreign currency funds. China Bank then filed a Petition for
Certiorari with the Court of Appeals, which was denied. The case was elevated to
the Supreme Court.

Issue:

1. Does the provision of Section 8 of R.A. 6426, as amended, provide

absolute confidentiality of foreign currency deposits, including the
name of the depositor?
2. Can private respondent Jose Gotianuy, as the alleged owner of the
funds, compel the disclosure of the depositor's name?
3. Can China Bank invoke the provision of Section 8, R.A. 6426, on behalf of
the foreign currency depositor?

Ruling:

1. The Supreme Court ruled that the law on the secrecy of foreign currency
deposits does not extend to the name of the depositor.
2. The Court held that Jose Gotianuy, as the owner of the funds
unlawfully taken and deposited at China Bank, has the right to inquire
into the said deposits.
3. The petition of China Bank was denied, and the decision of the Court of
Appeals was affirmed.
Ratio:
The Supreme Court explained that Section 8 of R.A. 6426, as amended by
Presidential Decree No. 1246, provides absolute confidentiality of foreign currency
deposits, except upon the written permission of the depositor. However, the law
protects only the deposits themselves, not the name of the depositor. The Court
emphasized that the legislative intent was to encourage the inflow of foreign
currency deposits into the Philippines by providing confidentiality and tax
exemptions, but not to shield wrongdoers. The Court cited the case of Salvacion v.
Central Bank of the Philippines, where the inquiry into a foreign currency deposit
was allowed due to the peculiar circumstances of the case. In the present case, the
Court found that Jose Gotianuy, as the owner of the funds and a co-payee of the
Citibank checks, has the right to inquire into the deposits at China Bank. The
Court also noted that Mary Margaret Dee admitted that the funds belonged to her
father, Jose Gotianuy. Therefore, the inquiry into the deposits was justified to
uphold fairness and avoid injustice. The Court rendered a limited pro hac vice
ruling, allowing the inquiry in this specific case to ensure fair play and the proper
administration of justice.

viii. Mellon Bank vs. Magsino, 18 October 1990

Facts:

The case of Mellon Bank, N.A. v. Magsino revolves around a mistaken transfer of
$1,000,000 instead of $1,000 by Mellon Bank to Victoria Javier in Manila through
Prudential Bank. This error occurred on May 27, 1977, when Dolores Ventosa
requested the transfer from the First National Bank of Moundsville, West Virginia.
Mellon Bank erroneously transferred the funds to Manufacturers Hanover Bank,
which then transferred the amount to Prudential Bank for Victoria Javier's account.
Victoria Javier and her husband, Melchor Javier, Jr., subsequently withdrew and
laundered the funds through various banks. They used part of the money to
purchase a 160-acre property in California City from Honorio Poblador, Jr.,
through his agent, Jose Marquez. Mellon Bank filed a complaint in the Superior
Court of California to recover the property and impose a constructive trust.
Simultaneously, Mellon Bank filed a case in the Court of First Instance of Rizal to
recover the purchase price of the property and other amounts dissipated by the
Javiers and their co-conspirators. The lower court ruled that the principle of
election of remedies barred Mellon Bank from pursuing both actions, leading to
the striking off of key testimonies and documents from the record. Mellon Bank
sought certiorari to challenge this ruling.

Issue:

1. Does the principle of election of remedies preclude Mellon Bank from filing
an action in the Philippines to recover the purchase price of the property
after filing an action in California to recover the property itself?
2. Was the lower court correct in striking off the testimonies and documents
related to the bank accounts from the record?

Ruling:

1. The Supreme Court ruled that the principle of election of remedies does
not preclude Mellon Bank from pursuing both actions simultaneously.
2. The Supreme Court annulled the lower court's resolution and orders that
struck off the testimonies and documents from the record.

Ratio:

The Supreme Court held that the lower court gravely abused its discretion by
ruling that the resolution of September 10, 1982, was a final and definitive
disposition of Mellon Bank's claim. The resolution was interlocutory, addressing
only the admissibility of evidence, and did not dispose of the case completely. The
Court emphasized that the principle of election of remedies is not applicable in
this case because the remedies pursued in California and the Philippines are not
inconsistent but rather alternative. The Court noted that the doctrine of election of
remedies is not favored in modern jurisprudence as it can lead to inequitable
results. Furthermore, the testimonies and documents related to the bank accounts
were relevant to establishing the scheme to conceal the erroneously sent amount
and were admissible under Republic Act No.
1405, which allows disclosure of bank deposits when the money deposited is the
subject matter of the litigation. The Court ordered the lower court to proceed with
the disposition of the case with dispatch, considering the significant delay that had
already occurred.

ix.Union Bank vs. Court of Appeals, 23 December 1999

Facts:

On March 21, 1990, a check (Check No. 11669677) dated March 31, 1990,
amounting to One Million Pesos (P1,000,000.00) was drawn against Account No.
0111-01854-8 with Allied Bank Corporation (respondent) payable to Jose Ch.
Alvarez. Alvarez deposited the check with Union Bank of the Philippines
(petitioner), which credited the amount to his account. On May 21, 1990, Union
Bank sent the check for clearing through the Philippine Clearing House Corporation
(PCHC). However, Union Bank's clearing staff erroneously "under-encoded" the
amount to One Thousand Pesos (P1,000.00) instead of One Million Pesos
(P1,000,000.00). The error was discovered almost a year later, and on May 7, 1991,
Union Bank notified Allied Bank of the discrepancy, requesting a charge slip for
Nine Hundred Ninety-Nine Thousand Pesos (P999,000.00) for automatic debiting
against Allied Bank's account. Allied Bank refused, citing insufficient funds in the
client's account. Union Bank then filed a complaint against Allied Bank before the
PCHC Arbitration Committee (Arbicom), seeking reimbursement and damages.
Concurrently, Union Bank filed a petition in the Regional Trial Court (RTC) of
Makati for the examination of Account No. 111-01854-8. The RTC dismissed the
petition, and the Court of Appeals affirmed the dismissal, ruling that the case did
not fall under the exceptions to the Law on Secrecy of Bank Deposits. Union Bank
then brought the case to the Supreme Court.

Issue:

1. Does the case fall under the exception to the Law on Secrecy of Bank
Deposits, allowing the examination of the bank account in question?

Ruling:

The Supreme Court denied the petition, affirming the decisions of the RTC and the
Court of Appeals.

Ratio:

The Supreme Court held that the case did not fall under any of the exceptions to
the Law on Secrecy of Bank Deposits as outlined in Section 2 of Republic Act No.
1405. The Court emphasized that the money deposited in Account No. 0111-
01854-8 was not the subject matter of the litigation. The litigation was centered
on the alleged violation by Allied Bank of the PCHC Rule Book regarding the
under-encoding of the check amount. The Court clarified that the "subject matter
of the action" refers to the physical facts or things in relation to which the suit is
prosecuted, not the delict or wrong committed by the defendant. In this case,
Union Bank's complaint was based on Allied Bank's failure to notify it of the
under-encoding error, not on the money deposited in the account. The Court also
noted that Union Bank's request for the examination of the account was
essentially a fishing expedition to gather information to establish Allied Bank's
liability and the amount of damages. The necessity of the inquiry did not justify the
examination of the bank deposits, as the case did not meet the criteria for any of
the exceptions under the Bank Deposits Secrecy Act.

x. Oñate vs, Abrogar, 23 February 1995

Facts:
In the consolidated cases of G.R. Nos. 107303 and 107491, petitioners Emmanuel C.
Oñate, Econ Holdings Corporation, and Brunner Development Corporation
challenged several orders issued
by Judge Zues C. Abrogar of Branch 150 of the Regional Trial Court (RTC) of
Makati. The dispute originated from a complaint filed by Sun Life Assurance
Company of Canada (Sun Life) on December 23, 1991, seeking a sum of money and
the immediate issuance of a writ of attachment against the petitioners and Noel L.
Dio. The writ was granted on December 24, 1991, and issued on December 27,
1991. On January 3, 1992, the writ was amended to reflect the alleged
indebtedness. Deputy Sheriff Arturo C. Flores attempted to serve the summons
and the amended writ at the petitioners' office but was unable to do so due to the
absence of a responsible officer. Despite this, notices of garnishment were served
on several banks, and properties belonging to Oñate were levied. Summons were
eventually served on January 9 and 16, 1992. Petitioners filed motions to discharge
the writ and nullify proceedings, which were denied by the trial court. They argued
that the writ was issued without jurisdiction and that the examination of bank
records was conducted without notice. The trial court denied their motions,
leading to the filing of the instant petitions.

Issue:

1. Did the trial court err in issuing the writ of preliminary attachment
before acquiring jurisdiction over the petitioners?
2. Was the examination of the bank records without prior notice to the
petitioners valid?

Ruling:

1. The Supreme Court ruled that the trial court did not err in issuing the writ
of preliminary attachment before acquiring jurisdiction over the petitioners.
2. The Supreme Court upheld the validity of the examination of the bank
records without prior notice to the petitioners.

Ratio:

1. The Court explained that a writ of preliminary attachment can be validly

issued even before the defendant is summoned or heard from. This is
because the writ serves as a provisional remedy to secure the satisfaction of
any judgment that may be recovered. The Rules of Court allow for the
issuance of such a writ "at the commencement of the action or any time
thereafter," which includes the period before the service of summons. The
Court emphasized that the writ's issuance is not contingent on the court's
jurisdiction over the defendant but rather on the proper commencement of
the action by filing the complaint and paying the requisite fees. The Court
also noted that the petitioners' argument regarding the absence of fraud in
contracting the obligation delves into the merits of the main case, which is
not a ground for lifting the writ.
2. Regarding the examination of bank records, the Court held that Section 10,
Rule 57 of the Rules of Court allows for the examination of persons indebted
to or holding property of the defendant without requiring notice to the
defendant. The provision only mandates notice to the garnishee. The Court
also clarified that this rule is not incompatible with the Bank Secrecy Law
(Republic Act No. 1405), as the law provides an exception for cases where
the money deposited is the subject matter of the litigation. The examination
of the bank records was deemed a legitimate method for Sun Life to trace
the proceeds of the checks paid to the petitioners, rather than a fishing
expedition.
xi.Intengan vs. CA, 15 February 2002

Facts:
The case "Intengan v. Court of Appeals" involves petitioners Carmen Ll. Intengan,
Rosario Ll. Neri, and Rita P. Brawner against respondents including the Court of
Appeals, the Department of Justice (DOJ), and several individuals. On September
21, 1993, Citibank filed a complaint against two of its officers, Dante L. Santos and
Marilou Genuino, for violating sections of the Corporation Code. Attached to this
complaint was an affidavit by Vic Lim, a vice-president of Citibank, which included
disclosures of the petitioners' U.S. dollar deposits without their written consent.
The Provincial Prosecutor of Rizal initially recommended the dismissal of the
complaints filed by the petitioners, but this was overruled, leading to the filing of
informations for violation of Republic Act No. 1405, the Bank Secrecy Law. Private
respondents appealed to the DOJ, which ordered the withdrawal of the
informations. The petitioners' motion for reconsideration was denied, prompting
them to file a petition for certiorari and mandamus with the Court of Appeals,
which sustained the DOJ's resolution. The petitioners then brought the case to the
Supreme Court, seeking the reversal of the appellate court's decision and the
DOJ's resolutions, and requesting the filing of the corresponding informations for
violation of Republic Act No. 1405.

Issue:

1. Did the disclosure of the petitioners' U.S. dollar deposits by the private
respondents violate Republic Act No. 1405 (Bank Secrecy Law)?
2. Should the correct law applicable to this case be Republic Act No.
6426 (Foreign Currency Deposit Act)?
3. Has the offense prescribed under the applicable law?

Ruling:

1. The Supreme Court ruled that the disclosure of the petitioners' U.S.
dollar deposits by the private respondents did not violate Republic Act
No. 1405, as the applicable law is Republic Act No. 6426.
2. The Supreme Court found that Republic Act No. 6426, not Republic Act No.
1405, is the applicable law for the case.
3. The Supreme Court determined that the offense has prescribed under the
applicable law, Republic Act No. 6426.

Ratio:

The Supreme Court emphasized that the accounts in question were U.S. dollar
deposits, thus falling under Republic Act No. 6426, known as the "Foreign
Currency Deposit Act of the Philippines." Section 8 of R.A. No. 6426 provides that
foreign currency deposits are absolutely confidential and can only be disclosed
with the written permission of the depositor. The Court noted that private
respondents Lim and Reyes admitted to disclosing details of the petitioners' dollar
deposits without such permission. The Court classified this act as malum
prohibitum, meaning it is punishable regardless of intent. However, the Court also
pointed out that the offense prescribed in eight years under Act No. 3326, as the
disclosures occurred in 1993 and the complaint was filed much later. The filing of
the complaint for violation of Republic Act No.
1405 did not toll the prescriptive period because it was not the correct offense. The
Court
concluded that the petitioners' failure to file the correct charges in a timely
manner resulted in the prescription of the offense, leaving them without a legal
remedy.

xii. PSBank vs. Senate Impeachment Tribunal, 20 November 2012

Facts:

The case involves a petition filed by Philippine Savings Bank (PSBank) and its
President, Pascual M. Garcia III, against the Senate Impeachment Court and the
Prosecution Panel of the House of Representatives. The petitioners sought to
nullify and set aside a resolution issued by the Senate Impeachment Court, which
granted the prosecution's request for subpoenas duces tecum ad testificandum.
These subpoenas required PSBank and/or its representatives to testify and
produce documents related to the foreign currency accounts allegedly belonging
to then Supreme Court Chief Justice Renato C. Corona. The petitioners argued
that complying with the subpoenas would force them to violate Republic Act No.
6426 (RA 6426), which ensures the confidentiality of foreign currency deposits, or
face contempt of court for non-compliance.
During the pendency of the petition, the petitioners filed a Motion with Leave of
Court to Withdraw the Petition on November 5, 2012, citing that the impeachment
proceedings had already been terminated, and thus, the issue had become moot
and academic.

Issue:

1. Whether the Senate Impeachment Court acted arbitrarily in issuing the

subpoenas for the foreign currency accounts of Chief Justice Renato C.
Corona, notwithstanding the confidentiality provisions under RA 6426.

Ruling:

The Supreme Court dismissed the petition for being moot and academic and
lifted the temporary restraining order issued on February 9, 2012.

Ratio:

The Supreme Court held that the petition had become moot and academic due to
the termination of the impeachment proceedings against Chief Justice Renato C.
Corona. The Court emphasized that it is a well-settled principle that courts will not
determine questions that have become moot and academic because there is no
longer any justiciable controversy to resolve.
The judgment would not serve any useful purpose or have any practical legal
effect, as it cannot be enforced. The Court cited the case of Gancho-on v. Secretary
of Labor and Employment, which established that courts decline jurisdiction over
moot cases where no actual interests are involved. The supervening events,
including the conviction of Chief Justice Corona on May 29, 2012, and his
execution of a waiver against the confidentiality of all his bank accounts, rendered
the petition moot and academic. Therefore, the Court found it appropriate to
abstain from passing upon the merits of the case, as legal relief was no longer
needed or called for.

xiii. Sibayan vs. Alda, January 17, 2018

Facts:

The case of "Sibayan v. Alda" involves petitioner Norlina G. Sibayan, who served as
the Assistant Manager and Marketing Officer of Banco De Oro Unibank, Inc. (BDO)
San Fernando, La Union Branch, and respondent Elizabeth O. Alda, represented by
her daughter and attorney-in-fact, Ruby O. Alda. The dispute began when Elizabeth
filed a letter-complaint with the Office of Special Investigation of the Bangko
Sentral ng Pilipinas (OSI-BSP), alleging unauthorized deductions from her BDO
savings account and the failure to post certain check deposits.
Elizabeth claimed that her account balance of PHP 1,071,561.73 as of July 22, 2008,
was reduced to PHP 334.47 by October 31, 2008, without any withdrawals on her
part. Additionally, two crossed manager's checks deposited on October 27, 2008,
were not posted to her account.
Norlina contended that the charges were retaliatory, as BDO had previously filed a
criminal case against Elizabeth, Ruby, and others for theft, estafa, and violations of
the Access Device Regulation Act of 1998. BDO discovered that Ruby had
withdrawn PHP 64,229,297.50 from her Fastcard account, despite only PHP
1,645,486 being remitted by Elizabeth. Ruby admitted to the erroneous
withdrawals and executed documents in BDO's favor, including an Undertaking
with Authorization, Special Power of Attorney, and Deed of Dation in Payment.
BDO debited Elizabeth's account and applied the proceeds to Ruby's debt.
Norlina's motions for written interrogatories and production of bank documents
were denied by the Office of the General Counsel and Legal Services of the Bangko
Sentral ng Pilipinas (OGCLS-BSP) and subsequently by the Court of Appeals (CA).
Norlina then filed a petition for certiorari before the Supreme Court.

Issue:

1. Did the OGCLS-BSP commit grave abuse of discretion in denying Norlina's

requests to answer written interrogatories?
2. Was Norlina entitled to the production of bank documents under Section
1, Rule 27 of the Rules of Court?

Ruling:

The Supreme Court denied the petition and affirmed the decisions of the Court
of Appeals, which upheld the OGCLS-BSP's rulings.
Ratio:
The Supreme Court ruled that technical rules of procedure and evidence are not
strictly adhered to in administrative investigations. The proceedings before the
OGCLS-BSP are summary in nature, aimed at achieving an expeditious and
inexpensive determination of cases without regard to technical rules. The Court
emphasized that administrative due process does not require a formal or trial-type
hearing, and it is enough that the party is given a chance to be heard. Norlina was
afforded the opportunity to be heard and to explain her side before the OGCLS-
BSP. The information sought through written interrogatories and bank documents
was already available in the records of the case. The denial of Norlina's motions
was justified as it would have delayed the resolution of the case. The bank
accounts sought to be examined were privileged under the Law on Secrecy of
Bank Deposits, and Ruby's authorization did not equate to the permissions of the
actual account holders, Ferdinand and Jovelyn Oriente. The Supreme Court found
no grave abuse of discretion on the part of the OGCLS-BSP and ruled that
Norlina's right to due process was not violated.

xiv. In the Matter of Intestate Estate of Pacioles and Ching, 15 October 2018

Facts:

The case concerns the intestate estate of Miguelita Ching Pacioles, who passed
away leaving behind various assets, including real properties, stock investments,
bank deposits, and interests. She was survived by her husband, Emilio B. Pacioles,
Jr. (respondent), their two minor children, her mother Miguela Chuatoco-Ching
(now deceased), and her brother Emmanuel C. Ching (petitioner). On August 20,
1992, Emilio filed a petition for the settlement of Miguelita's estate and sought his
appointment as its regular administrator. Both Emilio and Emmanuel were initially
appointed as co-administrators, but Emmanuel's appointment was nullified by the
Court of Appeals (CA) on July 22, 2002, in CA-G.R. CV No. 46763. Among the
properties included in the estate were two dollar accounts with the Bank of the
Philippine Islands (BPI) - San Francisco Del Monte (SFDM) Branch, which were
later consolidated into a single account under the names of Emilio and Miguela or
Emmanuel. On September 30, 2011, Emilio filed a motion to withdraw funds from
the consolidated account to pay property taxes on Miguelita's estate. The Regional
Trial Court (RTC) of Quezon City, Branch 224, granted the motion on November
28, 2011, ordering the release of Php430,000.00 from the account. BPI-SFDM
requested clarification, citing the Foreign Currency Deposit Act, which exempts
such accounts from judicial orders without the written consent of all depositors.
The RTC reiterated its order on May 31, 2012, and Emmanuel's motion for
reconsideration was denied on September 3, 2012. Emmanuel then filed a Petition
for Certiorari with the CA, which was dismissed on February 27, 2014. His
subsequent motion for reconsideration was also denied on September 4, 2014. This
led to the present Petition for Review on Certiorari under Rule 45 of the Rules of
Court.
Issue:

1. Is the order of release of funds from a joint foreign currency deposit

account without securing the consent of a co-depositor proper?

Ruling:

The Supreme Court partly granted the petition, reversing and setting aside the
CA's Decision dated February 27, 2014, and Resolution dated September 4,
2014. The case was remanded to the intestate court for proper proceedings.

Ratio:

The Supreme Court emphasized that the subject BPI account is a joint foreign
currency deposit account under the names of Emilio and Miguela (now deceased)
or Emmanuel. According to Section 8 of Republic Act No. 6426 (Foreign Currency
Deposit Act of the Philippines), foreign currency deposits are of an absolutely
confidential nature and are exempt from any form of attachment, garnishment, or
judicial orders without the written consent of the depositors. The RTC's order to
release funds from the account violated this provision. Additionally, the account
being a joint account requires the consent of all depositors for any withdrawal.
Since Emmanuel's appointment as co-administrator was revoked, his right over the
funds no longer exists, and his name should be removed as an account holder in a
proper forum. The trial court, sitting as an intestate court, has jurisdiction over the
estate until all debts are paid and the remaining estate is delivered to the heirs.
Therefore, proper proceedings must be conducted to allow Emilio to administer
the account solely.

xv.Sibayan v. Alda, January 17, 2018

Facts:

The case of "Sibayan v. Alda" involves petitioner Norlina G. Sibayan, who served as
the Assistant Manager and Marketing Officer of Banco De Oro Unibank, Inc. (BDO)
San Fernando, La Union Branch, and respondent Elizabeth O. Alda, represented by
her daughter and attorney-in-fact, Ruby O. Alda. The dispute began when Elizabeth
filed a letter-complaint with the Office of Special Investigation of the Bangko
Sentral ng Pilipinas (OSI-BSP), alleging unauthorized deductions from her BDO
savings account and the failure to post certain check deposits. Elizabeth claimed
that her account balance of PHP 1,071,561.73 as of July 22, 2008, was reduced to
PHP 334.47 by October 31, 2008, without any withdrawals on her part.
Additionally, two crossed manager's checks deposited on October 27, 2008, were
not posted to her account. Norlina contended that the charges were retaliatory, as
BDO had previously filed a criminal case against Elizabeth, Ruby, and others for
theft, estafa, and violations of the Access Device Regulation Act of 1998. BDO
discovered that Ruby had withdrawn PHP 64,229,297.50 from her
Fastcard account, despite only PHP 1,645,486 being remitted by Elizabeth. Ruby
admitted to the erroneous withdrawals and executed documents in BDO's favor,
including an Undertaking with Authorization, Special Power of Attorney, and Deed
of Dation in Payment. BDO debited Elizabeth's account and applied the proceeds to
Ruby's debt. Norlina's motions for written interrogatories and production of bank
documents were denied by the Office of the General Counsel and Legal Services of
the Bangko Sentral ng Pilipinas (OGCLS-BSP) and subsequently by the Court of
Appeals (CA). Norlina then filed a petition for certiorari before the Supreme Court.

Issue:

1. Did the OGCLS-BSP commit grave abuse of discretion in denying Norlina's

requests to answer written interrogatories?
2. Was Norlina entitled to the production of bank documents under Section
1, Rule 27 of the Rules of Court?

Ruling:

The Supreme Court denied the petition and affirmed the decisions of the Court of
Appeals, which upheld the OGCLS-BSP's rulings.

Ratio:

The Supreme Court ruled that technical rules of procedure and evidence are not
strictly adhered to in administrative investigations. The proceedings before the
OGCLS-BSP are summary in nature, aimed at achieving an expeditious and
inexpensive determination of cases without regard to technical rules. The Court
emphasized that administrative due process does not require a formal or trial-type
hearing, and it is enough that the party is given a chance to be heard. Norlina was
afforded the opportunity to be heard and to explain her side before the OGCLS-
BSP. The information sought through written interrogatories and bank documents
was already available in the records of the case. The denial of Norlina's motions
was justified as it would have delayed the resolution of the case. The bank
accounts sought to be examined were privileged under the Law on Secrecy of Bank
Deposits, and Ruby's authorization did not equate to the permissions of the actual
account holders, Ferdinand and Jovelyn Oriente. The Supreme Court found no
grave abuse of discretion on the part of the OGCLS-BSP and ruled that Norlina's
right to due process was not violated.

V. ANTI-MONEY LAUNDERING ACT (R.A. No. 9160, as amended)

A. State policies
B. Covered institutions
C. Obligations of covered institutions
D. Covered transactions
E. Suspicious transactions
F. Money laundering
G. Unlawful activities or predicate crimes
H. Anti-Money Laundering Council
I. Functions
J. Freezing of monetary instrument or property
K. Authority to inquire into bank deposits
L. Safe harbor provision
M. Mutual assistance among states
N. In relation to R.A. No. 10168 (Terrorism Financing Prevention and Suppression Act) and
R.A. No. 11479 (Anti-Terrorism Act)
O. R.A. No. 9194, R.A. No. 10167, R.A. No. 10365, R.A. No. 10927; R.A. No. 11521
i. PDIC vs. Gidwani, June 20, 2018

Facts:

The case involves the Philippine Deposit Insurance Corporation (PDIC) and
respondent Manu Gidwani, who, along with his wife Champa Gidwani and 86 other
individuals, was implicated in a scheme involving estafa and money laundering.
The case arose after several rural banks owned by the Legacy Group of Companies
were closed and placed under PDIC receivership. The Gidwani spouses and the 86
individuals claimed ownership of 471 deposit accounts in these banks, leading to
the issuance of 683 Landbank checks amounting to P98,733,690.21. These checks,
despite being crossed and marked "Payable to the Payee's Account Only," were
deposited into a single RCBC account controlled by Manu Gidwani. PDIC's
investigation revealed that many of these accounts were in the names of
individuals who lacked the financial capacity to own such deposits, suggesting that
the Gidwani spouses were the true beneficial owners. PDIC filed a criminal
complaint for estafa through falsification and money laundering against the
Gidwani spouses and the 86 individuals. The Department of Justice (DOJ) initially
dismissed the complaint, but this decision was later reversed by then Secretary of
Justice Emmanuel Caparas, who found probable cause to charge the respondents.
The Court of Appeals (CA) subsequently annulled Caparas' resolution, reinstating
the DOJ's initial dismissal. PDIC then petitioned the Supreme Court to review the
CA's decision.

Issue:

1. Whether the Court of Appeals erred in taking cognizance of Manu

Gidwani's petition for certiorari under Rule 65 without him filing a motion
for reconsideration with the DOJ.
2. Whether the Caparas Resolution became final and executory concerning
Manu Gidwani due to his failure to file a motion for reconsideration.
3. Whether the CA erred in finding that SOJ Caparas acted in grave abuse of
discretion in overturning the Justiniano Resolution without new evidence
from PDIC.

Ruling:

The Supreme Court granted PDIC's petition, reversing and setting aside the CA's
January 31, 2017 Decision and October 6, 2017 Resolution. The Court reinstated
the June 3, 2016 Resolution of the DOJ, which found probable cause to charge
Manu Gidwani with estafa through falsification and money laundering.

Ratio:

The Supreme Court held that the CA erred in ruling that SOJ Caparas acted in
grave abuse of discretion. The Court emphasized that the DOJ Secretary has the
authority to review and reassess the evidence and is not bound by the findings of
his predecessors. The Court found that the circumstances presented by PDIC, such
as the use of helpers and employees as account holders and the deposit of crossed
checks into a single account controlled by Manu Gidwani, were sufficient to
establish probable cause for estafa and money laundering. The Court also noted
that the alleged fund management agreement between Manu and the individual
depositors was not substantiated by evidence and that such an agreement would
require
registration with the Securities and Exchange Commission. The Court concluded
that the matter should proceed to trial where the evidence can be fully examined.

ii.Estrada vs. Sandiganbayan, 17 July 2018

Facts:

The case involves petitioners Senator Jose "Jinggoy" P. Ejercito Estrada and his
wife, Ma. Presentacion Vitug Ejercito, who sought to annul the Sandiganbayan's
denial of their motion to suppress evidence in a prosecution for plunder. The case
stems from the Pork Barrel Scam, where whistleblowers revealed the misuse of
the Priority Development Assistance Fund (PDAF) by certain legislators, including
Estrada, in connivance with Janet Lim Napoles. The National Bureau of
Investigation (NBI) conducted an investigation and filed criminal complaints
against Estrada and others. The Office of the Ombudsman requested the Anti-
Money Laundering Council (AMLC) to investigate Estrada's bank accounts. The
AMLC's findings led to an ex parte application for a bank inquiry, which the Court
of Appeals (CA) granted. The AMLC discovered substantial transfers from Estrada
to his wife's accounts, leading to a supplemental ex parte application for further
inquiry. The Sandiganbayan denied Estrada's motion to suppress the AMLC's
Inquiry Report and the testimony of Atty. Orlando C. Negradas, Jr. Estrada's
subsequent motion for reconsideration was also denied, prompting the petitioners
to seek relief from the Supreme Court.

Issue:

1. Does Section 11 of R.A. No. 9160, as amended, violate the

constitutionally mandated right to due process and right to privacy?
2. Should the ex parte application for a bank inquiry order provided for in
Section 11 of R.A. No. 9160, as amended, be applied retroactively?

Ruling:

1. The Supreme Court ruled that Section 11 of R.A. No. 9160, as amended, is
constitutional.
2. The Court held that the amendment to Section 11 of R.A. No. 9160
allowing an ex parte application for the bank inquiry does not violate the
proscription against ex post facto laws.
3. The petition was rendered moot and academic by supervening events,
specifically the grant of bail to Estrada by the Sandiganbayan.

Ratio:

The Court upheld the constitutionality of Section 11 of R.A. No. 9160, as amended,
citing the case of Subido Pagente Certeza Mendoza and Binay Law Offices v. Court
of Appeals. The amendment to Section 11, which allows for ex parte applications
for bank inquiries, does not violate substantive due process as it does not involve
the physical seizure of property. The AMLC acts as an investigatory body, similar
to the NBI, and its ex parte application for a bank inquiry order does not infringe
on procedural due process rights. The right to privacy concerning bank deposits is
statutory, not constitutional, allowing Congress to create exceptions, such as those
in Section 11 of R.A. No. 9160.

Regarding the retroactive application of the amendment, the Court clarified that
R.A. No. 10167, which amended Section 11, is not an ex post facto law. The
amendment does not impose new legal burdens on past transactions but merely
removes the requirement of notice for bank inquiries, which is part of the AMLC's
investigative process. The AMLC and the CA must still ascertain probable cause
before issuing a bank inquiry order, ensuring that the process is not arbitrary. The
holder of a bank account subject to an ex parte inquiry order can challenge the
order after a freeze order is issued.
The petition was ultimately dismissed as moot and academic due to the
Sandiganbayan's grant of bail to Estrada, rendering the issues raised in the
petition irrelevant. The Court emphasized
that it should abstain from expressing opinions in cases where no legal relief is
needed or called for.

iii. Republic vs. Cabrini Green and Ross, 5 May 2005

Facts:

The case involves the Republic of the Philippines, represented by the Anti-Money
Laundering Council (AMLC), as the petitioner, against various respondents
including Cabrini Green & Ross, Inc., Michael J. Findlay, Jane Gelberg, R.A.B.
Realty, Inc., Multinational Telecom Investors Corporation, Rosario A. Baladjay,
Saturnino M. Baladjay, Mario N. Misa, Michael Z. Lafuente, Jesus Silverio,
Reynaldo Nicholas, Rex D. Jao, Alberto De Los Reyes, Lorenzo Castro, Hermie De
Vera, Eduardo Lazo, and Danilo Liwag. The case was decided on May 5, 2006, by
the Second Division of the Supreme Court of the Philippines, with Justice Corona
as the ponente. The AMLC issued freeze orders against various bank accounts of
the respondents, which were found prima facie to be related to unlawful activities.
Under Republic Act (RA) 9160, also known as the Anti-Money Laundering Act of
2001, a freeze order issued by the AMLC is effective for a period not exceeding 15
days unless extended "upon order of the court." Before the lapse of the freeze
orders, the AMLC filed petitions with the Court of Appeals (CA) to extend the
effectivity of these orders. The AMLC believed that the CA had the jurisdiction to
extend the freeze orders, interpreting the phrase "upon order of the court" to refer
to the CA. However, the CA dismissed the petitions, ruling that it was not vested
with the power to extend a freeze order issued by the AMLC. This led to the filing
of consolidated petitions before the Supreme Court to determine which court had
jurisdiction to extend the effectivity of a freeze order. During the pendency of
these petitions, Congress enacted RA 9194 on March 3, 2003, amending Section
10 of RA 9160 to explicitly state that the CA has the authority to issue and extend
freeze orders. The Office of the Solicitor General (OSG) then filed a motion to
remand the cases to the CA and requested a temporary restraining order (TRO) to
prevent the automatic lifting of the freeze orders. The Supreme Court issued a
TRO on April 21, 2003, maintaining the freeze orders until further notice.
Subsequently, the CA granted the extension of the freeze orders in one of the
cases, leading the OSG to request the dismissal of that specific case for being moot
and the remand of the remaining cases to the CA.

Issue:

1. Which court has jurisdiction to extend the effectivity of a freeze order

issued by the AMLC?

Ruling:

1. The Supreme Court ruled that the Court of Appeals has the jurisdiction
to extend the effectivity of a freeze order issued by the AMLC.

Ratio:

The Supreme Court's decision was based on the amendment brought by RA 9194
to RA 9160. The amendment clarified that the Court of Appeals has the authority to
issue a freeze order and to extend its effectivity. Section 10 of RA 9160, as
amended by RA 9194, explicitly states that the CA may issue a freeze order upon
application by the AMLC and that the freeze order shall be effective for 20 days
unless extended by the court. Additionally, Section 12 of RA 9194 provides a
transitory provision that existing freeze orders issued by the AMLC shall remain in
force for 30 days after the effectivity of the Act unless extended by the CA. This
legislative amendment removed any ambiguity regarding the CA's jurisdiction over
the extension of freeze orders.
Consequently, the Supreme Court dismissed G.R. No. 154694 for being moot and
remanded
G.R. Nos. 154522, 155554, and 155711 to the CA for appropriate action,
maintaining the TRO issued on April 21, 2003, until the CA resolves the cases.
iv. Ligot vs. Republic, 6 March 2013
Facts:

The case of "Ligot v. Republic" involves retired Lieutenant General Jacinto C.

Ligot, his wife Erlinda Y. Ligot, and their children Paulo, Riza, and Miguel Ligot,
who are petitioners against the Republic of the Philippines, represented by the
Anti-Money Laundering Council (AMLC). The case was decided on March 6, 2013,
under G.R. No. 176944, with Justice Brion as the ponente. The controversy began
when the AMLC filed an urgent ex-parte application for a freeze order on June 27,
2005, against the Ligots' properties, based on a recommendation from the Office of
the Ombudsman. The Ombudsman had filed a complaint against the Ligots for
perjury and violations of the Anti-Graft and Corrupt Practices Act, citing
unexplained wealth and undeclared assets amounting to over P54 million. The
Court of Appeals (CA) initially granted the freeze order on July 5, 2005, and later
extended it indefinitely on September 20, 2005. The Ligots contested this
extension, arguing it violated their due process rights and was punitive without a
proven predicate crime. The CA denied their motion to lift the freeze order, leading
to the present petition for certiorari before the Supreme Court.

Issue:

1. Did the Court of Appeals commit grave abuse of discretion in extending the
freeze order against the Ligots' properties indefinitely?
2. Is the six-month extension limit for freeze orders under the Rule in Civil
Forfeiture Cases applicable to this case?

Ruling:

1. Yes, the Supreme Court found that the CA committed grave abuse of
discretion in extending the freeze order indefinitely.
2. Yes, the six-month extension limit for freeze orders under the Rule in
Civil Forfeiture Cases is applicable to this case.

Ratio:

The Supreme Court ruled that the CA committed grave abuse of discretion by
extending the freeze order indefinitely, violating the Ligots' right to due process.
The Court emphasized that a freeze order is an interim relief meant to prevent the
dissipation of assets suspected to be related to unlawful activities, not a punitive
measure. The Court noted that the Rule in Civil Forfeiture Cases, which took effect
on December 15, 2005, limits the extension of a freeze order to a maximum of six
months. This rule applies to all pending cases, including the Ligots' case, as their
motion to lift the freeze order was still pending when the rule came into effect. The
Court highlighted that the AMLC failed to file the necessary civil forfeiture case
within the six-month period, rendering the indefinite extension of the freeze order
unjustifiable. The Court also pointed out that the government's delay in filing the
appropriate cases for six years further violated the Ligots' due process rights.
Consequently, the Supreme Court lifted the freeze order issued by the CA, without
prejudice to the preservation orders issued by the lower courts in the pending civil
forfeiture cases.

v. Republic vs. Eugenio, 14 February 2008

Facts:

The case "Republic of the Philippines v. Eugenio, Jr." (G.R. No. 174629) was
decided on February 14, 2008. The petitioner, the Republic of the Philippines,
represented by the
Anti-Money Laundering Council (AMLC), filed the case against Hon. Antonio M.
Eugenio, Jr., the presiding judge of RTC Manila, Branch 34, and respondents
Pantaleon Alvarez and Lilia Cheng. This case emerged following the Supreme
Court's decision in Agan v. PIATCO, which nullified the concession agreement
awarded to the Philippine International Airport Terminal
Corporation (PIATCO) for the NAIA 3 Project. Subsequent investigations by the
Ombudsman and the AMLC into the financial transactions related to the NAIA 3
Project revealed potential corruption. On May 24, 2005, the Office of the Solicitor
General (OSG) sought the AMLC's assistance in tracing the financial trail of
corruption. The AMLC's Compliance and Investigation Staff (CIS) discovered that
Pantaleon Alvarez, charged with violating Section 3(j) of R.A. No.
3019, had multiple bank accounts. Consequently, the AMLC issued resolutions
authorizing inquiries into these accounts. The AMLC filed applications for bank
inquiry orders, which were granted by the Regional Trial Courts (RTCs) of Makati
and Manila. However, Alvarez and Cheng contested these orders, leading to legal
challenges and temporary restraining orders by the courts. The AMLC then filed a
petition for certiorari and prohibition under Rule 65, challenging the orders and
resolutions issued by the RTCs and the Court of Appeals.

Issue:

1. Can a bank inquiry order under Section 11 of the Anti-Money Laundering

Act (AMLA) be issued ex parte, or does it require notice and an opportunity
to be heard?
2. Did the RTC-Manila and the Court of Appeals commit grave abuse of
discretion in issuing orders that deferred the implementation of bank
inquiry orders?
3. Is it proper for the Supreme Court to inquire into and pass upon the
validity of the bank inquiry orders considering the pending case in the
Court of Appeals?

Ruling:

1. The Supreme Court ruled that a bank inquiry order under Section 11 of the
AMLA cannot be issued ex parte and must provide notice and an opportunity
to be heard.
2. The Court found that the RTC-Manila and the Court of Appeals did not
commit grave abuse of discretion in issuing orders that deferred the
implementation of bank inquiry orders.
3. The Supreme Court deemed it proper to inquire into and pass upon the
validity of the bank inquiry orders despite the pending case in the Court
of Appeals.

Ratio:

The Supreme Court's decision was grounded on several key arguments and legal
principles. Firstly, the Court observed that Section 11 of the AMLA does not
explicitly authorize the issuance of bank inquiry orders ex parte. In contrast,
Section 10 of the AMLA explicitly allows ex parte applications for freeze orders,
indicating a legislative intent to differentiate between the two types of orders. The
Court emphasized that the absence of explicit language authorizing ex parte
proceedings for bank inquiry orders in Section 11 suggests that such orders
require notice and an opportunity to be heard. The Court also underscored the
importance of the right to privacy, particularly concerning bank accounts, which
are protected under the Bank Secrecy Act of 1955. While the AMLA provides
exceptions to this rule, these exceptions must be narrowly construed to uphold the
general principle of confidentiality. The Court reasoned that allowing ex parte
bank inquiry orders would undermine the statutory right to privacy and could lead
to potential abuses. Additionally, the Court addressed the issue of retroactivity,
stating that the AMLA cannot be applied retroactively to transactions or accounts
established before its enactment in
2001, as this would violate the constitutional prohibition against ex post facto laws.
Finally, the Court found that the orders issued by the RTC-Manila and the Court of
Appeals were consistent with legal requirements and did not constitute grave
abuse of discretion. The Court concluded that the AMLC's petition lacked merit
and dismissed it, upholding the right to privacy and the procedural safeguards
required for bank inquiry orders.

vi. Subido Pagente vs. Court of Appeals, December 6, 2016

Facts:

In the case of Subido Pagente Certeza Mendoza and Binay Law Offices v. Court of
Appeals, G.R. No. 216914, decided on December 6, 2016, the petitioners, Subido
Pagente Certeza Mendoza & Binay Law Firm (SPCMB), challenged the
constitutionality of Section 11 of Republic Act No.
9160, the Anti-Money Laundering Act (AMLA), as amended. The respondents
included the Court of Appeals (CA), represented by Presiding Justice Andres B.
Reyes, Jr., and the
Anti-Money Laundering Council (AMLC), represented by its members, including
the Governor of the Bangko Sentral ng Pilipinas, the Chairperson of the Securities
and Exchange Commission, and the Insurance Commissioner. The case arose in
2015, amid reports of disproportionate wealth of then Vice President Jejomar
Binay and his family. The AMLC sought an ex-parte application to inquire into the
bank accounts of the Binays and related entities, including SPCMB, where Binay's
daughter was a former partner. SPCMB's request for information about the inquiry
was denied by the CA, prompting SPCMB to file a petition for certiorari and
prohibition, alleging violations of due process and privacy rights.

Issue:

1. Does Section 11 of the Anti-Money Laundering Act, which allows ex-parte

applications for bank inquiries, violate the right to due process?
2. Does Section 11 of the Anti-Money Laundering Act violate the right to
privacy?
3. Did the respondents commit grave abuse of discretion in denying
SPCMB's request for information about the ex-parte application for bank
inquiry?

Ruling:

1. The Supreme Court ruled that Section 11 of the Anti-Money

Laundering Act is constitutional and does not violate the right to
due process.
2. The Supreme Court ruled that Section 11 of the Anti-Money Laundering
Act does not violate the right to privacy.
3. The Supreme Court found no grave abuse of discretion on the part of the
respondents in denying SPCMB's request for information.
Ratio:

The Supreme Court upheld the constitutionality of Section 11 of the AMLA,

emphasizing that the provision for ex-parte applications for bank inquiries is
investigative rather than adjudicatory.
The Court noted that the AMLC's inquiry into bank deposits is a provisional remedy
aimed at investigating potential money laundering activities and does not constitute
a physical seizure of property, thus not violating substantive due process. The Court
also highlighted that the
ex-parte procedure is necessary to achieve a legitimate state objective and that
there is no legitimate expectation of privacy regarding bank records in this
context. The Court further explained that the AMLC's actions are subject to
judicial oversight, as the Court of Appeals must determine probable cause before
granting an inquiry order. The Court found that the safeguards in Section 11,
including the requirement for probable cause and compliance with constitutional
standards, ensure that the provision does not violate privacy rights. Additionally,
the Court clarified that while the AMLC's inquiry is ex-parte, the affected party can
challenge the basis for the inquiry post-issuance of a freeze order, thus providing a
legal remedy to protect their rights.

vii.Republic vs. Bolante, April 17, 2017

Facts:

The case "Republic of the Philippines v. Bolante" involves the Republic,

represented by the Anti-Money Laundering Council (AMLC), filing petitions
against Jocelyn I. Bolante and several other individuals and entities implicated in
the fertilizer fund scam. The scam involved the misuse of P728 million intended
for the Ginintuang Masaganang Ani Program, which was characterized by
massive irregularities and violations of procurement laws. The AMLC sought
freeze orders and bank inquiry orders to investigate suspicious transactions
reported by the Philippine National Bank (PNB) involving the accounts of
Livelihood Corporation (LIVECOR), Molugan Foundation (Molugan), and
Assembly of Gracious Samaritans, Inc. (AGS). The transactions were deemed
suspicious due to their lack of legal or economic justification and the low
capitalization of the involved entities. The AMLC's petitions were initially granted
by the
Regional Trial Court (RTC) and the Court of Appeals (CA), but subsequent petitions
were denied due to findings of forum shopping and lack of probable cause. The case
reached the Supreme Court, which consolidated the petitions under G.R. Nos.
186717 and 190357.

Issue:

1. Did the Republic commit forum shopping in filing CA-G.R. AMLC No. 00024
before the CA?
2. Did the RTC commit grave abuse of discretion in ruling that there exists
no probable cause to allow an inquiry into the total of 76 deposits and
 investments of respondents?

Ruling:

1. Yes, the Republic committed forum shopping.

2. No, the RTC did not commit grave abuse of discretion in ruling that
there was no probable cause to allow an inquiry into the 76 deposits
and investments.
Ratio:

The Supreme Court found that the Republic committed forum shopping by filing
multiple petitions based on the same cause of action and seeking the same relief.
The petitions in CA-G.R. AMLC No. 00024 and CA-G.R. AMLC No. 00014 involved
the same parties, accounts, and underlying facts, thereby meeting the criteria for
forum shopping. The Court emphasized that the finality of the resolution in CA-G.R.
AMLC No. 00014 barred the proceedings in CA-G.R. AMLC No. 00024 by res
judicata. The Republic's argument that the ruling in Republic v.
Eugenio constituted a supervening event was rejected, as Eugenio was already
known before the filing of CA-G.R. AMLC No. 00014.

Regarding the RTC's finding of no probable cause, the Supreme Court upheld the
lower court's decision, stating that the RTC did not act in an arbitrary or
whimsical manner. The evidence presented by the AMLC, primarily Senate
Committee Report No. 54 and the testimony of Thelma Espina, was deemed
insufficient to establish a link between the bank accounts and the alleged unlawful
activity. The RTC's reliance on the Commission on Audit's report, which found no
funds channeled to LIVECOR, Molugan, or AGS, was considered reasonable. The
Supreme Court concluded that the RTC's determination was not tainted with grave
abuse of discretion.

viii. Republic v. Bloomberry Resorts and Hotels, Inc., September 2, 2020

Facts:

The case "Republic of the Philippines v. Bloomberry Resorts and Hotels, Inc." (G.R.
No. 224112) was decided by the Supreme Court on September 2, 2020. The
petitioner, the Republic of the Philippines represented by the Anti-Money
Laundering Council (AMLC), filed a Petition for Review on Certiorari under Rule 45
of the Rules of Court, challenging the Court of Appeals (CA) Resolution dated April
15, 2016. The CA had denied the AMLC's Urgent Motion for Additional Period of
Freeze Order and Urgent Motion for Status Quo Order, while granting Bloomberry
Resorts and Hotels, Inc.'s (BRHI) Urgent Motion to Lift Freeze Order.

In February 2016, it was reported that the Bangladesh Bank's account with the
Federal Reserve Bank of New York (New York Fed) was hacked, resulting in the
fraudulent transfer of US$81,000,000.00 to the Philippine banking system.
Bangladesh Bank Governor Atiur Rahman sought assistance from Bangko Sentral
ng Pilipinas Governor Amando M. Tetangco, Jr. to recover the stolen funds. The
funds were transferred to accounts in Rizal Commercial Banking Corporation
(RCBC) under the names Michael F. Cruz, Jessie Christopher M. Lagrosas, Alfred
S. Vergara, and Enrico T. Vasquez. These funds were subsequently transferred to
the account of William So Go and then to PhilRem Service Corporation (PhilRem),
a remittance company.
PhilRem then transferred US$29,000,000.00 to BRHI's Banco de Oro (BDO)
account.

The AMLC, finding probable cause that BRHI's BDO account was related to the
hacking, filed an ex parte petition for a freeze order, which the CA granted for 30
days starting March 15, 2016.
The CA also granted an application for bank inquiry into BRHI's account. BRHI, the
operator of Solaire Resort and Casino, argued that it was not a covered institution
under the Anti-Money Laundering Act (AMLA) at the time and that the funds were
received in the regular course of business from a Chinese national named Ding
Zhize for use by high rollers during the Chinese New Year. BRHI claimed that the
funds were used to purchase non-negotiable chips and were fully utilized by
February 29, 2016.
The CA lifted the freeze order on April 15, 2016, stating that the AMLC failed to
establish that the funds in BRHI's account were acquired through unlawful
means. The AMLC then filed the present petition, arguing that the freeze order
should be extended and that the funds were related to the hacking incident.

Issue:

1. Did the Court of Appeals err in lifting the freeze order against Bloomberry
Resorts and Hotels, Inc.?

Ruling:

The Supreme Court denied the Petition for Review on Certiorari, ruling that the
case had become moot and academic as more than six months had elapsed since
the issuance of the freeze order.

Ratio:

The Supreme Court held that a freeze order under the Anti-Money Laundering Act
(AMLA) can only be effective for a maximum period of six months. The freeze order
against BRHI was issued on March 15, 2016, and more than six months had passed
since its issuance. Even if the CA had erred in not extending the freeze order, the
six-month period had already elapsed, making the issue moot and academic. The
Court emphasized that a freeze order is an interim relief meant to prevent the
dissipation of assets suspected to be related to unlawful activities. Extending a
freeze order indefinitely would violate the right to due process and the
presumption of innocence. The Court also noted that the funds in BRHI's account
had already been unfrozen by BDO in compliance with the CA's resolution, and re-
freezing the account would be unfair to BRHI. Therefore, the petition was denied,
and the temporary restraining order issued by the Court was lifted.

ix.Republic v. Sandiganbayan, February 15, 2021

Facts:

The case "Republic of the Philippines v. Sandiganbayan" involves the Anti-Money

Laundering Council (AMLC) as the petitioner, and the Sandiganbayan and the
Office of the Ombudsman, represented by the Office of the Special Prosecutor, as
respondents. The case originates from a criminal case, People v. P/Dir. General
Jesus Versoza, where former First Gentleman Jose Miguel T. Arroyo was charged
with plunder for his alleged involvement in the Philippine National Police's
anomalous purchase of two secondhand helicopters. These helicopters were sold
by Lionair, Inc. as brand new, despite being used. Archibald L. Po, Lionair's
president, testified that Arroyo was the real owner of the helicopters and had
deposited partial payment into Lionair's account with Union Bank. The Office of
the Special Prosecutor sought to verify the source of these deposits and presented
Katrina Cruz-Dizon, the manager of the Union Bank branch, who testified that the
account records had been disposed of. Consequently, the Sandiganbayan issued a
Subpoena Duces Tecum and Ad Testificandum directing the AMLC to produce
Lionair's bank records. The AMLC moved to quash the subpoena, citing
confidentiality under Republic Act No. 9160, the Anti-Money Laundering Act. The
Sandiganbayan denied the motion, leading the AMLC to file a Petition for
Certiorari, arguing that it was prohibited by law from disclosing the bank records.
Issue:

1. Is the AMLC required to furnish the respondent a copy of the

Motion for Reconsideration?
2. Does Section 9 (c) of the Anti-Money Laundering Act prohibit the AMLC
from disclosing confidential and suspicious transaction reports?
3. Is the written permission of Lionair, Inc. sufficient to disclose the transaction
reports?
4. Did the Subpoena fail to reasonably describe the documents sought to be
produced?

Ruling:

The Supreme Court dismissed the Petition for Certiorari, affirming the
Sandiganbayan's March 28, 2017 Resolution and May 12, 2017 Order. The Court
ruled that the AMLC is required to furnish the respondent a copy of the Motion
for Reconsideration, that Section 9 (c) of the Anti-Money Laundering Act does
not prohibit the AMLC from disclosing the transaction reports, that Lionair's
written permission is sufficient to disclose the transaction reports, and that the
Subpoena reasonably described the documents sought to be produced.

Ratio:

The Court held that the AMLC is not a nominal party and must comply with the
Rules of Court, including furnishing the respondent a copy of the Motion for
Reconsideration to ensure due process. The Court found that Section 9 (c) of the
Anti-Money Laundering Act applies to covered institutions and their officers, not to
the AMLC, which is mandated to investigate and prosecute money laundering
offenses. The AMLC's role as an investigatory body necessitates the disclosure of
information to fulfill its functions. The Court also noted that Lionair's written
permission to disclose its bank records satisfies the requirement under Republic
Act No. 6426, the Foreign Currency Deposit Act, making the AMLC's
confidentiality argument moot. Lastly, the Court determined that the Subpoena
Duces Tecum and Ad Testificandum issued by the Sandiganbayan met the test of
definiteness and relevancy, as it clearly identified the specific reports and
transactions requested. The AMLC's claim of difficulty in retrieving the records
was dismissed, given the advancements in electronic record-keeping.

VI. LETTERS OF CREDIT

A. Definition and nature of letter of credit
B. Parties to a letter of credit
C. Basic principles of letter of credit
D. Warehouseman’s Lien (Act No. 2137)
i. Transfield Phils vs. Luzon Hydro Corp., November 22, 2004

Facts:
In the case of "Transfield Philippines, Inc. v. Luzon Hydro Corporation," the
petitioner, Transfield Philippines, Inc., entered into a Turnkey Contract with
respondent Luzon Hydro Corporation (LHC) on March 26, 1997. The contract
required Transfield to construct a
70-Megawatt hydro-electric power station at the Bakun River in Benguet and
Ilocos Sur. To secure the performance of its obligations, Transfield opened two
standby letters of credit with Australia and New Zealand Banking Group Limited
(ANZ Bank) and Security Bank Corporation (SBC), each amounting to
US$8,988,907.00. Transfield failed to complete the project on time, leading LHC
to declare it in default and demand liquidated damages of US$75,000.00 per day
of delay. LHC also served notice to call on the securities for payment. Transfield
sought an injunction from the Regional Trial Court (RTC) of Makati to prevent
LHC from calling on the securities and the banks from paying out on them. The
RTC denied the application for a writ of preliminary injunction, and the Court of
Appeals upheld this decision. Transfield then elevated the case to the Supreme
Court.

Issue:

1. Can the "independence principle" on letters of credit be invoked by a

beneficiary where the call is alleged to be wrongful or fraudulent?
2. Does LHC have the right to call and draw on the securities before the
resolution of disputes by the appropriate tribunal?
3. Were ANZ Bank and Security Bank justified in releasing the amounts
due under the securities despite being notified that LHC's call was
wrongful?
4. Will Transfield suffer grave and irreparable damage if LHC is allowed to call
and draw on the remaining balance of the securities before the resolution of
disputes, or if LHC does not return the amounts it had wrongfully drawn?

Ruling:

The Supreme Court denied the petition. It ruled that the Turnkey Contract itself
allowed LHC to call on the securities in the event of default, independent of the
"independence principle." The Court also found that Transfield failed to show a
clear and unmistakable right to restrain LHC's call on the securities, which would
justify the issuance of a preliminary injunction. The Court further noted that the act
sought to be enjoined had already been consummated, rendering the petition moot.
Additionally, the Court required Transfield to respond to charges of
forum-shopping.

Ratio:

The Supreme Court upheld the independence principle of letters of credit, which
ensures that the obligation under the letter of credit is independent of the
underlying contract. This principle liberates the issuing bank from the duty of
ascertaining compliance by the parties in the main contract. The Court emphasized
that the Turnkey Contract explicitly allowed LHC to call on the securities in case of
default, making the call on the securities contractually rooted. The Court also
noted that fraud is an exception to the independence principle, but Transfield
failed to provide clear proof of fraud. The Court reiterated that injunctions are only
granted when there is a clear showing of a right to be protected and that the acts
against which the writ is directed are violative of that right. Since the act of calling
on the securities had already been accomplished, the petition was rendered moot.
The Court also highlighted the seriousness of the charge of forum-shopping and
required Transfield to respond to this charge.

ii.Feati Bank & Trust vs. CA, April 30, 1991

Facts:

The case involves Feati Bank & Trust Company (now Citytrust Banking Corporation)
as the petitioner, and the Court of Appeals and Bernardo E. Villaluz as respondents.
On June 3, 1971, Villaluz agreed to sell 2,000 cubic meters of lauan logs to Axel
Christiansen for $27.00 per cubic meter FOB. Christiansen issued a purchase order
and arranged for the Security Pacific National Bank of Los Angeles to issue an
Irrevocable Letter of Credit No. IC-46268 in favor of Villaluz for
$54,000.00. The letter of credit was sent to Feati Bank with instructions to forward
it to
Villaluz. The letter required several documents, including a certification from
Christiansen, which he refused to issue. Consequently, Feati Bank refused to
advance payment on the letter of credit. Villaluz filed a complaint for mandamus
and specific performance against Christiansen and Feati Bank. The Regional Trial
Court of Rizal ruled in favor of Villaluz, ordering Christiansen and Feati Bank to
pay various sums. Feati Bank appealed, but the Court of Appeals affirmed the
lower court's decision. Feati Bank then filed a petition for review with the
Supreme Court.

Issue:

1. Is Feati Bank liable under the letter of credit despite Villaluz's non-
compliance with its terms?
2. Did Feati Bank confirm the letter of credit by notifying Villaluz?
3. Can Feati Bank be held liable as a trustee or guarantor?

Ruling:

1. No, Feati Bank is not liable under the letter of credit due to Villaluz's
non-compliance with its terms.
2. No, Feati Bank did not confirm the letter of credit by merely notifying
Villaluz.
3. No, Feati Bank cannot be held liable as a trustee or guarantor.

Ratio:

The Supreme Court emphasized the rule of strict compliance in commercial

transactions involving letters of credit. The documents tendered must strictly
conform to the terms of the letter of credit. Feati Bank, as a notifying bank, had no
obligation beyond notifying Villaluz of the letter of credit's existence. The Court
clarified that an irrevocable credit is not synonymous with a confirmed credit.
Feati Bank did not confirm the letter of credit; it merely forwarded it as instructed.
The Court also rejected the lower courts' findings that Feati Bank acted as a
trustee or guarantor. The relationship between the issuing bank and the notifying
bank is more akin to an agency, where the notifying bank's role is limited to
following the issuing bank's instructions. The Court concluded that Feati Bank's
refusal to negotiate the letter of credit was justified due to Villaluz's failure to
comply with its terms, specifically the absence of Christiansen's certification. The
Court also noted that the Central Bank's memorandum disallowing such
certification requirements was issued after the letter of credit had expired, making
it irrelevant to the case.

iii. Landl & Co. vs. Metrobank, July 30, 2004

Facts:

In the case of "Landl & Company (Phil.) Inc. v. Metropolitan Bank & Trust Co.," the
respondent, Metropolitan Bank and Trust Company (Metrobank), filed a complaint
for a sum of money against Landl & Company (Phil.) Inc. (Landl) and its directors,
Percival G. Llaban and Manuel P. Lucente, before the Regional Trial Court of Cebu
City, Branch 19, docketed as Civil Case No.
CEB-4895. The case arose from a commercial transaction where Landl, engaged in
selling
imported welding rods and alloys, opened a Commercial Letter of Credit No. 4998
with Metrobank on June 17, 1983, amounting to US$19,606.77 (equivalent to
P218,733.92). The letter of credit was used to purchase welding rods and
electrodes from Perma Alloys, Inc., New York, U.S.A. Landl put up a marginal
deposit of P50,414.00 from a separate clean loan.
Additionally, Llaban and Lucente executed a Continuing Suretyship Agreement for
P400,000.00 and a Deed of Assignment for P35,000.00 as security for the loan. A
Trust Receipt was executed, requiring Landl to hold the goods in trust for
Metrobank, with the obligation to sell the goods and turn over the proceeds or
return the unsold goods by November 23, 1983.
Landl defaulted on the payment and failed to return the goods by the maturity
date. Metrobank demanded the turnover of the goods on July 24, 1984, and the
goods were turned over on September 24, 1984. The goods were sold at a public
auction on July 31, 1985, for P30,000.00, which was insufficient to cover the
outstanding obligation. Metrobank then demanded the remaining balance, leading
to the filing of the case. The trial court ruled in favor of Metrobank, ordering Landl
and its directors to pay the outstanding obligation, interest, service charges,
attorney's fees, litigation expenses, and penalty charges. The Court of Appeals
affirmed the trial court's decision, leading to the petition for review before the
Supreme Court.

Issue:

1. Whether Metrobank has the right to recover the deficiency after taking
possession and selling the goods covered by the trust receipt.
2. Whether the award of principal obligation, interest, attorney's fees, and
penalty against the petitioners was proper.

Ruling:

1. The Supreme Court ruled that Metrobank has the right to recover the
deficiency after taking possession and selling the goods covered by the
trust receipt.
2. The Supreme Court affirmed the award of principal obligation, interest,
attorney's fees, and penalty against the petitioners but modified the
computation of the total amount of indebtedness.

Ratio:

The Supreme Court's decision was based on the interpretation of Section 7 of

Presidential Decree No. 115, or the Trust Receipts Law, which provides that the
entruster (Metrobank) is entitled to the proceeds from the sale of the goods or the
return of the goods in case of non-sale, and to enforce all other rights conferred by
the trust receipt. The law allows the entruster to cancel the trust, take possession
of the goods, and sell them at public or private sale, with the entrustee (Landl)
being liable for any deficiency. The Court emphasized that a trust receipt is a
security agreement linked to the primary loan agreement, and repossession of the
goods does not extinguish the loan obligation. The Court found that the initial
repossession and subsequent sale of the goods by Metrobank were in accordance
with its statutory and contractual rights. The Court also noted errors in the
computation of the total amount of indebtedness, specifically the failure to deduct
the marginal deposit and auction sale proceeds from the principal obligation. The
Court modified the total amount owed by the petitioners, including interest,
penalty, and attorney's fees, and deleted the service charge. The solidary liability
of the directors was upheld based on the Continuing Suretyship Agreement.

iv. Metrobank vs. Ley Construction, December 3, 2014

Facts:

In the case of "Metropolitan Bank and Trust Co. v. Ley Construction and
Development Corp.," the petitioner, Metropolitan Bank and Trust Company
(Metrobank), filed a complaint against Ley Construction and Development
Corporation (LCDC) and Spouses Manuel and Janet Ley (respondents) for the
recovery of a sum of money and damages. The case originated from an application
by LCDC for the opening of a Letter of Credit (LC) with Metrobank to import
15,000 metric tons of Iraqi cement. The LC, amounting to USD 802,500, was
issued on April 26, 1990, in favor of Global Enterprises Limited. LCDC later
amended the LC twice. The supplier, Global
Enterprises, negotiated the LC with Credit Suisse, which then claimed
reimbursement from American Express Bank, debiting Metrobank's account.
However, the cement never arrived in the Philippines. Despite repeated demands,
LCDC and the spouses Ley failed to pay the overdue obligation. Metrobank's
complaint sought to recover PHP 23,259,124.14 plus interest, attorney's fees, and
costs. The Regional Trial Court (RTC) of Makati City, Branch 56, dismissed the
complaint on the grounds that Metrobank's evidence was insufficient. The Court of
Appeals (CA) affirmed the RTC's decision, leading Metrobank to file a petition for
review on certiorari with the Supreme Court.

Issue:

1. Did the trial court err in granting the demurrer to evidence filed by
LCDC and the spouses Ley on the ground that Metrobank failed to
establish its cause of action?
2. Did the Court of Appeals err in affirming the trial court's decision?

Ruling:

The Supreme Court denied the petition filed by Metrobank, affirming the decisions
of the RTC and the CA.

Ratio:

The Supreme Court held that Metrobank's petition raised questions of fact rather
than questions of law, which are not proper subjects for a petition for review on
certiorari under Rule 45 of the Rules of Court. The Court emphasized that it is not
a trier of facts and that the findings of fact by the trial court, when affirmed by the
appellate court, are conclusive. The Court found no reason to apply any exceptions
to this rule in the case at hand.

The Court also addressed Metrobank's argument that its cause of action was based
on the Trust Receipt rather than the Letter of Credit. The Court clarified that the
nature of the cause of action is determined by the facts alleged in the complaint,
not by the party's characterization of it. The Court found that Metrobank's
complaint was primarily based on the Letter of Credit, not the Trust Receipt. The
Court noted that the Trust Receipt was mentioned only incidentally in the
complaint.

Furthermore, the Court examined the Letter of Credit and found that Metrobank
failed to present preponderant evidence to establish LCDC's liability under the
Letter of Credit. The Court pointed out that the Application and Agreement for
Commercial Letter of Credit, which was supposed to contain the terms and
conditions governing the legal relationship between Metrobank and LCDC, had a
blank reverse side. This absence of terms and conditions meant that Metrobank
could not sufficiently establish its legal rights and LCDC's correlative legal duty.

As a result, the Court concluded that Metrobank failed to prove its cause of action
against LCDC and the spouses Ley. The Court found no reason to disturb the rulings
of the lower courts and denied the petition.

v. HSBC vs. National Steel Corp., February 24, 2016

Facts:

The case involves a dispute between The Hongkong & Shanghai Banking
Corporation, Limited (HSBC) and National Steel Corporation (NSC) over an
irrevocable letter of credit. On October 12, 1993, NSC entered into an Export
Sales Contract with Klockner East Asia Limited (Klockner) to sell 1,200 metric
tons of prime cold rolled coils. Klockner applied for an irrevocable letter of credit
with HSBC in favor of NSC for US$468,000, which was later amended to
US$488,400.
The letter of credit, issued on October 22, 1993, was governed by the International
Chamber of
Commerce Uniform Customs and Practice for Documentary Credits, Publication
No. 400 (UCP 400). NSC shipped the goods on November 21, 1993, and the cargo
arrived in Hong Kong on November 25, 1993. NSC, through CityTrust Banking
Corporation (CityTrust), sought payment from HSBC. CityTrust sent a collection
order to HSBC, which included the necessary documents. HSBC acknowledged
receipt but treated the transaction under the Uniform Rules for Collection (URC
322) instead of UCP 400. Klockner refused payment, and HSBC returned the
documents to CityTrust. NSC filed a complaint against HSBC for the collection of
the sum of money. The Regional Trial Court (RTC) of Makati dismissed NSC's
complaint, ruling that URC 322 governed the transaction. The Court of Appeals
(CA) reversed the RTC's decision, holding that UCP 400 applied and ordered HSBC
to pay NSC. HSBC then filed a petition for review on certiorari before the Supreme
Court.

Issue:

1. Whether UCP 400 or URC 322 governs the transaction.

2. Whether HSBC is liable to pay NSC under the terms of the letter of credit.

Ruling:

1. The Supreme Court ruled that UCP 400 governs the transaction.
2. The Supreme Court upheld the CA's decision, ordering HSBC to pay NSC
the amount of US$485,767.93 with legal interest and deleting the award of
attorney's fees.

Ratio:

The Supreme Court emphasized the nature and purpose of letters of credit, which
are designed to facilitate international trade by providing a secure method of
payment. The Court explained that a letter of credit involves three separate
transactions: the underlying contract of sale, the issuance of the letter of credit by
the bank, and the presentation of documents by the seller to the bank. The Court
highlighted the independence principle, which means that the issuing bank's
obligation to pay is independent of the underlying contract between the buyer and
the seller. The Court found that the letter of credit explicitly stated that it was
governed by UCP 400, and HSBC, as the issuing bank, was bound by its terms. The
Court rejected HSBC's argument that URC 322 applied, noting that HSBC failed to
prove that URC 322 constituted a recognized custom in commerce. The Court held
that HSBC had a duty to pay NSC upon the proper presentation of documents,
regardless of Klockner's refusal to pay. The Court also found that HSBC's refusal
to pay constituted delay, making it liable for damages. However, the Court deleted
the award of attorney's fees, finding no basis for it under Article 2208 of the Civil
Code. The Court also noted that CityTrust, as NSC's agent, failed to follow NSC's
instructions but did not find CityTrust liable to NSC as NSC did not raise any claim
against CityTrust.
vi. PNB vs. San Miguel, January 15, 2014
Facts:

The case involves a legal dispute between San Miguel Corporation (SMC) and the
Philippine National Bank (PNB) concerning the bank's liability under a letter of
credit. On July 1, 1996, SMC entered into an Exclusive Dealership Agreement with
Rodolfo R. Goroza, who was granted the authority to sell SMC's beer products. To
facilitate his transactions, Goroza applied for a credit line with SMC, which
necessitated a letter of credit from PNB. Subsequently, PNB issued a letter of
credit amounting to two million pesos (P2,000,000.00). Initially, Goroza met his
payment obligations; however, he began defaulting in January 1998. This prompted
SMC to demand payment of P3,722,440.88 from both Goroza and PNB. On April
23, 2003, SMC filed a complaint for collection against both parties in the Regional
Trial Court (RTC) of Butuan City. Goroza failed to respond to the summons and
was declared in default. On May 10, 2005, the RTC ruled in favor of SMC, ordering
Goroza to pay the principal amount, interest, attorney's fees, and litigation
expenses. Goroza subsequently appealed the decision, while SMC sought
reconsideration, resulting in an increased award for litigation expenses. PNB later
filed a motion to terminate the proceedings against it, arguing that Goroza's appeal
had stripped the RTC of jurisdiction over the case. The RTC denied this motion,
prompting PNB to file a special civil action for certiorari with the Court of Appeals
(CA), claiming that the RTC had abused its discretion. The CA upheld the RTC's
decision, leading PNB to petition for review on certiorari to the Supreme Court.

Issue:

1. Did the Court of Appeals err in holding that the RTC was correct in
rendering a Supplemental Judgment and Amended Order against PNB
despite the perfection of Goroza's appeal?
2. Did the Court of Appeals err in ruling that proceedings against PNB
may continue despite the complete adjudication of relief in favor of
SMC?

Ruling:

The Supreme Court denied PNB's petition, affirming the decisions of the Court of
Appeals and the RTC. The Court determined that the RTC's actions fell within its
jurisdiction and that separate proceedings against PNB could proceed despite
Goroza's appeal.

Ratio:

The Supreme Court articulated that the RTC intended to conduct separate
proceedings to clarify the liabilities of both Goroza and PNB, which is permissible
under Section 4, Rule 36 of the Rules of Court. The Court highlighted that Goroza's
appeal was solely related to his liability and did not obstruct the ongoing trial
against PNB. The nature of the letter of credit, as established in prior
jurisprudence, indicated that PNB's obligations were independent of Goroza's
liabilities. This independence principle means that the issuing bank (PNB) is
obligated to honor its commitments regardless of any disputes arising from the
underlying contract. Consequently, the
RTC's judgment against Goroza did not exonerate PNB from its potential
liability, and the determination of PNB's obligations under the letter of credit
remained unresolved.

vii.Bangayan vs. RCBC, 04 April 2011

Facts:

Petitioner Ricardo B. Bangayan maintained both a savings and a current account

with Rizal Commercial Banking Corporation (RCBC). These accounts were linked
by an "automatic transfer" condition, allowing checks issued by Bangayan to be
funded from either account. On June 26, 1992, Bangayan allegedly signed a
Comprehensive Surety Agreement with RCBC, guaranteeing the obligations of nine
corporations. Bangayan contested the authenticity of this agreement, asserting
that his signature was forged and the document was not notarized. Despite his
claims, RCBC issued several letters of credit to the corporations, which
subsequently failed to pay customs duties. As a result, RCBC froze Bangayan's
accounts to cover these obligations, leading to the dishonor of seven checks issued
by Bangayan. Consequently, Bangayan filed a complaint for damages against
RCBC, alleging wrongful dishonor of checks and violation of the Bank Secrecy Act.
The trial court dismissed the complaint, finding no malice or bad faith on RCBC's
part. The Court of Appeals affirmed this decision, prompting Bangayan to petition
for review before the Supreme Court.

Issue:

1. Was RCBC justified in dishonoring the checks, and is Bangayan entitled

to damages arising from the dishonor?
2. Did the lower court commit reversible error in allowing the testimony of
Mr. Lao despite its earlier order to strike off the testimony?
3. Did RCBC violate the Bank Secrecy Act?

Ruling:

1. The Supreme Court ruled that RCBC was justified in dishonoring the
checks and that Bangayan was not entitled to damages.
2. The Court found no reversible error in the lower court's decision to
reinstate Mr. Lao's testimony.
3. The Court held that RCBC did not violate the Bank Secrecy Act.

Ratio:

1. The Court found that RCBC acted within its rights under the Surety
Agreement, which Bangayan had signed, to freeze his accounts and apply
the funds to cover the obligations of the corporations. The dishonor of the
checks was a consequence of this action, and there was no malice or bad
faith on RCBC's part. The Surety Agreement was deemed genuine and
binding, despite Bangayan's claims of forgery and lack of notarization. The
Court emphasized that forgery must be proven by clear, positive, and
 convincing evidence, which Bangayan failed to provide.
2. The trial court's decision to reinstate Mr. Lao's testimony was within its
discretionary power. The Court noted that the trial judge has plenary
control over the proceedings and
 can take proper action in the interest of truth and justice. Bangayan was
given the opportunity to cross-examine Mr. Lao, thus his right to due process
was not violated. The Court found no evidence of bias or partiality on the part
of the trial judge.
3. The Court affirmed the findings of the lower courts that there was no
evidence to substantiate Bangayan's claim that RCBC disclosed confidential
information in violation of the Bank Secrecy Act. The alleged disclosure did
not involve any details of Bangayan's bank accounts. The Court noted that
the embarrassment and humiliation Bangayan suffered were due to the
smuggling charges filed by the Bureau of Customs, not any wrongful
disclosure by RCBC.

viii. Land Bank vs. Monet’s Export, 10 March 2005

Facts:

The case involves a dispute between the Land Bank of the Philippines (Land Bank)
and Monet's Export and Manufacturing Corporation (Monet), along with the
spouses Vicente V. Tagle, Sr. and Ma. Consuelo G. Tagle. On June 25, 1981, Land
Bank and Monet executed an Export Packing Credit Line Agreement, initially
amounting to P250,000.00, secured by export letters of credit, a continuing
guaranty by the Tagle spouses, and a third-party mortgage by Pepita C.
Mendigoria. This credit line was renewed and increased several times, eventually
reaching P5,000,000.00. By August 31, 1992, Monet's indebtedness had ballooned
to P11,464,246.19, leading Land Bank to file a complaint for collection of a sum of
money with a prayer for preliminary attachment in the Regional Trial Court of
Manila, docketed as Civil Case No.
93-64350. Monet and the Tagle spouses counterclaimed that Land Bank failed to
collect receivables from Wishbone Trading Company and made unauthorized
payments to Beautilike (H.K.) Ltd., damaging Monet's business. The trial court
ruled in favor of Monet, recognizing their obligation but deleting penalties and
awarding opportunity losses for Land Bank's mismanagement. Land Bank
appealed, but the Court of Appeals affirmed the trial court's decision, leading to
this petition for review on certiorari.

Issue:

1. Did the Court of Appeals err in upholding the trial court's findings and
conclusions regarding the limitation of Monet's liability and the award of
opportunity losses due to Land Bank's alleged disruption of Monet's cash
flow?
2. Did the Court of Appeals err in not clearly establishing Land Bank's right
to collect the full amount of P11,464,246.19 from Monet?

Ruling:

1. The Supreme Court found partial merit in Land Bank's petition. It ruled
that Land Bank was not at fault regarding the Beautilike account but
upheld the trial court's finding of mismanagement in the Wishbone
transaction. Consequently, the award of opportunity losses was reduced to
US$15,000.00.
2. The Supreme Court set aside the Court of Appeals' decision regarding the
 amount of Monet's indebtedness and remanded the case to the trial court
to determine the actual amount owed, deducting the awarded opportunity
losses.

Ratio:
The Supreme Court held that under the "independence principle" of letters of
credit, Land Bank, as the issuing bank, was only required to deal with documents
and not the underlying contract between Monet and Beautilike. Therefore, Land
Bank was not liable for any discrepancies in the shipment. However, regarding the
Wishbone transaction, Land Bank, as Monet's
attorney-in-fact, failed to exercise due diligence in collecting the amount due,
leading to Monet's financial difficulties. The trial court's reliance on Exhibit "39" to
determine Monet's indebtedness was found to be insufficient, necessitating a
remand to the trial court for a thorough determination of the actual amount owed.
The Supreme Court emphasized the need for a comprehensive review of all
relevant documents to establish the correct amount of Monet's indebtedness to
Land Bank.

ix.Bank of America vs. Court of Appeals, 10 December 1993

Facts:

The case involves Bank of America, NT & SA (petitioner) and Inter-Resin Industrial
Corporation (respondent), along with other parties. On March 5, 1981, Bank of
America received an Irrevocable Letter of Credit No. 20272/81, purportedly issued
by Bank of Ayudhya, Samyaek Branch, for the account of General Chemicals, Ltd.,
of Thailand, amounting to US$2,782,000.00. This letter of credit was intended to
cover the sale of plastic ropes and "agricultural files," with Bank of America acting
as the advising bank and Inter-Resin as the beneficiary. On March 11, 1981, Bank
of America informed Inter-Resin of the letter of credit and transmitted it to them.
Inter-Resin, through Atty. Emiliano Tanay, sought confirmation of the letter of
credit from Bank of America, which was not provided. However, a bank employee
assured that the letter of credit would not have been transmitted if it were not
genuine.

Between March 26 and April 10, 1981, Inter-Resin made a partial availment under
the letter of credit by submitting documents for the shipment of 24,000 bales of
polyethylene rope to General Chemicals, valued at US$1,320,600.00. Bank of
America, satisfied with the documents, issued a cashier's check for P10,219,093.20
to Inter-Resin. On April 10, 1981, Bank of America sought reimbursement from
Bank of Ayudhya. Subsequently, Inter-Resin presented documents for a second
availment under the same letter of credit. However, Bank of America received a
telex from Bank of Ayudhya declaring the letter of credit fraudulent, leading to the
suspension of the processing of Inter-Resin's documents. Investigations revealed
that the vans exported by Inter-Resin contained waste materials instead of ropes.
Criminal charges against Inter-Resin's executives were dismissed by the Rizal
Provincial Fiscal.

Bank of America sued Inter-Resin to recover the amount paid under the letter of
credit. The trial court ruled in favor of Inter-Resin, holding that Bank of America
was negligent and that the
telex declaring the letter of credit fraudulent was hearsay. The Court of Appeals
sustained the trial court's decision, leading to the present recourse by Bank of
America.

Issue:

1. Did Bank of America warrant the genuineness and authenticity of the letter
of credit, and did it act as an advising bank or a confirming bank?
2. Did Inter-Resin actually ship the ropes specified by the letter of credit?
3. Can Bank of America recover against Inter-Resin following the dishonor of
the letter of credit by Bank of Ayudhya?

Ruling:

1. Bank of America did not warrant the genuineness and authenticity of the
letter of credit and acted merely as an advising bank, not a confirming
bank.
2. The issue of whether Inter-Resin actually shipped the ropes is not
relevant to the resolution of the case.
3. Bank of America, as a negotiating bank, is entitled to recover the
amount paid to Inter-Resin under the letter of credit.

Ratio:

The Supreme Court held that Bank of America acted merely as an advising bank
and not as a confirming bank. As an advising bank, Bank of America was only
responsible for notifying Inter-Resin of the letter of credit and did not assume any
liability for its genuineness. The court emphasized that the advising bank's role is
limited to checking the "apparent authenticity" of the letter of credit, which Bank
of America did. The court rejected the argument that Bank of America should have
verified the authenticity of the letter of credit with Bank of Ayudhya before
transmitting it to Inter-Resin.

The court also clarified that in the operation of a letter of credit, banks deal only
with documents and not the actual goods described in those documents.
Therefore, the issue of whether Inter-Resin shipped the specified ropes was
irrelevant. The court further explained that as a negotiating bank, Bank of America
had the right of recourse against Inter-Resin for the amount paid under the letter
of credit, especially since Bank of Ayudhya disowned the letter of credit.

The court concluded that Bank of America was entitled to recover the amount
paid to Inter-Resin, as the latter had received the payment and executed the
corresponding draft. The court set aside the decision of the Court of Appeals and
ordered Inter-Resin to refund the amount of P10,219,093.20 to Bank of America,
with legal interest from the filing of the complaint until fully paid.
VII. TRUST RECEIPTS LAW (P.D. No. 115)
A. Concept of trust receipt
B. Rights of the entruster
C. Obligation and liability of the entrustee
D. Remedies available
i. Colinares vs. CA, September 5, 2000

Facts:

In 1979, Melvin Colinares and Lordino Veloso (petitioners) were contracted by the
Carmelite Sisters of Cagayan de Oro City to renovate their convent. On October
30, 1979, the petitioners obtained various construction materials from CM
Builders Centre for the project. The following day, they applied for a commercial
letter of credit with the Philippine Banking Corporation (PBC) in favor of CM
Builders Centre, which was subsequently approved. As security for the loan, the
petitioners signed a pro-forma trust receipt, with the loan due on January 29,
1980.
However, they failed to pay the full amount by the due date, prompting several
demand letters from PBC. The petitioners proposed modifying the payment terms
and made partial payments, but PBC continued to demand the balance and
eventually charged the petitioners with violating
P.D. No. 115 (Trust Receipts Law) in relation to Article 315 of the Revised Penal
Code. The trial court convicted the petitioners, and the Court of Appeals affirmed
the conviction and increased the penalty. The petitioners then raised the issue to
the Supreme Court, arguing that the transaction was a simple loan, not a trust
receipt agreement. They also filed a Motion to Dismiss, claiming they had fully paid
PBC, supported by an affidavit of desistance from PBC. The Supreme Court
ultimately ruled in favor of the petitioners, determining that the transaction was
indeed a simple loan and not a trust receipt agreement. The petitioners were
acquitted.

Issue:

1. Whether the denial of the Motion for New Trial on the ground of newly
discovered evidence constitutes a denial of due process.
2. Whether the petitioners were properly charged, tried, and convicted for
violating Section 13 of P.D. No. 115 in relation to Article 315 of the Revised
Penal Code, despite the alleged novation of the trust receipt agreement into
a creditor-debtor relationship.

Ruling:

1. The Supreme Court ruled that the denial of the Motion for New Trial was
proper as the alleged newly discovered evidence was actually forgotten
evidence and would not have changed the judgment.
2. The Supreme Court ruled that the transaction between the petitioners
and PBC was a simple loan, not a trust receipt agreement, and thus
acquitted the petitioners of the crime charged.

Ratio:

The Supreme Court found that the petitioners could not have been unaware of the
existence of the Disclosure Statement, which they claimed as newly discovered
evidence. The document itself stated that the borrower was entitled to a copy, and
the petitioners could have compelled its production in court. Therefore, the
evidence was not newly discovered but rather forgotten, and its introduction would
not have changed the judgment.
Regarding the nature of the transaction, the Court thoroughly examined the facts
and determined that the transaction was a simple loan. The petitioners received
the construction materials from CM Builders Centre before applying for the loan
from PBC, indicating that ownership of the materials had already transferred to
the petitioners. This situation did not align with a typical trust receipt transaction,
where the bank owns the goods and releases them to the borrower in trust. The
Court noted that trust receipt transactions are intended to aid importers and retail
dealers who lack sufficient funds, which was not the case here. The petitioners
were contractors, not importers, and the materials were for their construction
project. The Court also criticized the practice of banks requiring borrowers to sign
trust receipts under threat of criminal prosecution, deeming it unjust and
inequitable. The Court concluded that the petitioners had neither dishonesty nor
abuse of confidence in handling the money, as they continually endeavored to
meet their obligations. Therefore, the petitioners were acquitted of the crime
charged.

ii.Ng vs. People, April 23, 2010

Facts:

In the case of "Ng v. People," petitioner Anthony L. Ng, a businessman engaged in

building and fabricating telecommunication towers under the trade name "Capitol
Blacksmith and Builders," applied for a credit line of PhP3,000,000 with Asiatrust
Development Bank, Inc. (Asiatrust) in early 1997. To support his application, Ng
submitted contracts with Islacom, Smart, and Infocom, along with a list of projects
and collectible amounts. Asiatrust approved the loan on May 30, 1997, requiring
Ng to sign several documents, including Trust Receipt Agreements and Promissory
Notes. The goods received under the trust receipts were used to fabricate
communication towers for his clients. Due to difficulties in collecting payments
from Islacom, Ng failed to repay the loan, leading Asiatrust to conduct a surprise
inspection, which revealed that most of the goods were no longer in the
warehouse. Efforts to restructure the loan failed, and on March 16, 1999,
Asiatrust's Remedial Account Officer filed a complaint for estafa. Ng was charged
with estafa under Article 315, paragraph 1 (b) of the Revised Penal Code (RPC) in
relation to Section 3 of Presidential Decree No. 115 (Trust Receipts Law). The
Regional Trial Court (RTC) found Ng guilty and sentenced him to an indeterminate
penalty, ordering him to return the amount of PhP2,971,650.00 to Asiatrust. The
Court of Appeals (CA) affirmed the RTC's decision. Ng then filed a Petition for
Review on Certiorari with the Supreme Court.

Issue:
1. Did the prosecution fail to prove beyond a reasonable doubt that there
was misappropriation or conversion of the subject money or property
by the petitioner?
2. Did the state fail to prove that the alleged misappropriation or
conversion was to the prejudice of the real offended party?
 3. Does the absence of a demand on the petitioner necessitate the dismissal of
the criminal case?

Ruling:

The Supreme Court found the petition to be meritorious and acquitted Anthony L.
Ng of the charge of estafa under Article 315, paragraph 1 (b) of the RPC in relation
to the pertinent provision of PD 115. The Court set aside the CA's decision
affirming the RTC's ruling.

Ratio:

The Supreme Court held that the transaction between Ng and Asiatrust was not a
trust receipt transaction but a simple loan. The goods received by Ng were
intended for use in fabricating communication towers, not for sale, which is a key
element of a trust receipt transaction. The Court emphasized that the Trust
Receipts Law was created to aid in financing importers and retail dealers, which
did not apply to Ng's business. The Court also found that there was no
misappropriation or conversion of the goods or proceeds, as Ng had not yet
received full payment from his clients. Additionally, the Trust Receipt Agreement
did not stipulate a maturity date, and Asiatrust did not make a formal demand for
payment. The Court noted that Asiatrust's acceptance of payment from Ng
extinguished his obligation, making any claim for damage baseless. The Court
concluded that the prosecution failed to prove Ng's guilt beyond a reasonable
doubt, and his liability was only civil in nature. The Court also criticized the
practice of banks making borrowers sign trust receipts to facilitate loan collection,
deeming it unjust and inequitable.

iii. Osental vs. People, 05 September 2018

Facts:

Rosien Osental was charged with estafa under Article 315, paragraph 1 (b) of the
Revised Penal Code in relation to Presidential Decree No. 115 (PD 115). The case
stemmed from an incident on August 21, 2008, in Roxas City, where Osental
received P262,225.00 from Maria Emilyn Te under a trust receipt agreement.
Osental was obligated to use the money to purchase
ready-to-wear (RTW) goods, sell them, and remit the proceeds or return the unsold
goods by October 21, 2008. However, Osental failed to fulfill her obligations and did
not return the money despite repeated demands. Te filed a complaint on June 15,
2010, which included an affidavit from Edna Escobar, who witnessed the trust
receipt agreement. Osental denied the allegations, claiming she never received the
money and that her signature on the trust receipt was forged.
The Regional Trial Court (RTC) of Roxas City found Osental guilty of estafa on
December 5, 2012, sentencing her to an indeterminate penalty of two years, four
months, and one day of prision correccional as minimum to twenty years of
reclusion temporal as maximum. The Court
of Appeals (CA) affirmed the RTC's decision on October 29, 2015, with
modifications, including the deletion of the monetary award against Osental due to
a compromise agreement between the parties. Osental then filed a petition for
review with the Supreme Court.

Issue:

1. Whether petitioner Rosien Osental is guilty of estafa under paragraph 1 (b)

of Article 315 of the Revised Penal Code, in relation to PD 115.
2. Whether the execution of the compromise agreement extinguished
Osental's criminal liability.

Ruling:

1. The Supreme Court affirmed the decision of the CA, finding Rosien
Osental guilty of estafa under paragraph 1 (b) of Article 315 of the
Revised Penal Code, in relation to PD 115.
2. The Supreme Court ruled that the execution of the compromise
agreement did not extinguish Osental's criminal liability.

Ratio:

The Supreme Court upheld the CA's decision, affirming that the elements of estafa
under paragraph 1 (b) of Article 315 of the Revised Penal Code, in relation to
Section 4 of PD 115, were established beyond reasonable doubt. The Court noted
that Osental received P262,225.00 from Te in trust for the purchase of RTW goods
and promised to deliver the proceeds or return the goods by October 21, 2008.
Osental's denial of receiving the money and the existence of the trust receipt
agreement, as well as her claim of forgery, were not substantiated by clear and
convincing evidence. The testimonies of Te and Escobar, along with the trust
receipt agreement, were deemed credible. The Court also emphasized that
criminal liability cannot be compromised, as it is committed against the People and
cannot be waived or extinguished by the parties. The penalty was modified in
accordance with Republic Act No. 10951, which amended Article 315 of the
Revised Penal Code, resulting in an indeterminate penalty of arresto menor or
thirty days as minimum to prision correccional or two years and four months as
maximum.

iv. Land Bank vs. Perez, June 13, 2012

Facts:

The case involves the Land Bank of the Philippines (LBP), a government financial
institution, and the respondents Lamberto C. Perez, Nestor C. Kun, Ma. Estelita P.
Angeles-Panlilio, and Napoleon O. Garcia, who are officers and representatives of
Asian Construction and Development Corporation (ACDC). On June 7, 1999, LBP
filed a criminal complaint for estafa against the respondents before the City
Prosecutor's Office in Makati City, alleging that they violated Article 315,
paragraph 1 (b) of the Revised Penal Code in relation to Section 13 of Presidential
Decree No. 115 (Trust Receipts Law). LBP claimed that ACDC used the Letters of
Credit/Trust Receipts Facility to buy construction materials but failed to return the
proceeds or the materials themselves. The Makati Assistant City Prosecutor
dismissed the complaint due to insufficient evidence, a decision later reversed by
the Secretary of Justice. The Court of Appeals, however, dismissed the complaint,
ruling that the transactions were mere loans and not trust receipt transactions. LBP
then filed a petition for review on certiorari before the Supreme Court.

Issue:

1. Did the Court of Appeals err in ruling that the transactions between LBP
and ACDC were mere loans and not trust receipt transactions?
2. Can the respondents be held criminally liable for estafa under Article 315,
paragraph 1
(b) of the Revised Penal Code in relation to Section 13 of P.D. 115?

Ruling:

1. The Supreme Court affirmed the decision of the Court of Appeals,

ruling that the transactions were not trust receipt transactions but
mere loans.
2. The Supreme Court held that the respondents could not be held
criminally liable for estafa as the transactions did not constitute trust
receipt transactions.

Ratio:

The Supreme Court explained that a trust receipt transaction involves the
entruster releasing goods to the possession of the entrustee, who must either sell
the goods and remit the proceeds to the entruster or return the goods if unsold. In
this case, the materials were used for government construction projects, making it
impossible for ACDC to return the materials or the end products. The Court noted
that LBP was aware that the materials were to be used in construction projects
and had authorized their delivery to the construction sites. This awareness
indicated that LBP did not intend to retain ownership of the materials, thus
disqualifying the transactions from being considered trust receipt transactions.
Furthermore, the Court emphasized that the Trust Receipts Law punishes
dishonesty and abuse of confidence, which were not present in this case. The
respondents' inability to return the materials or proceeds was due to the non-
payment by ACDC's clients, not misappropriation or abuse of confidence.
Additionally, the petition was dismissed because it was not filed with the
participation or
consent of the Office of the Solicitor General, and the civil liabilities had already
been settled.

v. MWSS vs. Daway, June 21, 2004

Facts:
The case involves the Metropolitan Waterworks and Sewerage System (MWSS) as
the petitioner and Hon. Reynaldo B. Daway, in his capacity as Presiding Judge of
the Regional Trial Court (RTC) of Quezon City, Branch 90, and Maynilad Water
Services, Inc. (Maynilad) as respondents. On November 17, 2003, the RTC issued a
Stay Order in response to Maynilad's Petition for
Rehabilitation with Prayer for Suspension of Actions and Proceedings. This order
stayed the enforcement of all claims against Maynilad and its guarantors and
sureties not solidarily liable with it. Subsequently, on November 27, 2003, the RTC
issued another order declaring MWSS's act of drawing on a US$120 million
standby letter of credit as violative of the Stay Order and ordered MWSS to
withdraw its certification to Citicorp International Limited. MWSS filed a petition
for certiorari under Rule 65 of the Rules of Court, questioning the legality of the
RTC's order. The case's antecedents trace back to a Concession Agreement on
February 21, 1997, where MWSS granted Maynilad a twenty-year period to
manage water services in the West Zone Service Area. To secure its obligations,
Maynilad arranged for a US$120 million Irrevocable Standby Letter of Credit with
foreign banks led by Citicorp. Disputes arose over foreign exchange losses, leading
to multiple force majeure notices and arbitration, culminating in Maynilad's
petition for rehabilitation and the RTC's Stay Order.

Issue:

1. Did the RTC act without or in excess of its jurisdiction or with grave abuse
of discretion in considering the performance bond or assets of the issuing
banks as part of Maynilad's estate subject to rehabilitation?
2. Did the RTC err in holding that the performance bond obligations of the
banks were not solidary in nature?
3. Did the RTC err in allowing Maynilad to seek a review or appeal of the final
and binding decision of the Appeals Panel?

Ruling:

The Supreme Court ruled in favor of MWSS, declaring the RTC's order null and
void. The Court held that the obligations of the banks under the Irrevocable
Standby Letter of Credit were solidary with Maynilad and not subject to the
rehabilitation court's jurisdiction.

Ratio:

The Supreme Court found that the RTC exceeded its jurisdiction by enjoining
MWSS from drawing on the standby letter of credit. The Court emphasized that
the letter of credit was not part of Maynilad's estate and that the banks'
obligations were solidary with Maynilad's. The Court cited the nature of letters of
credit as primary, direct, and absolute undertakings to pay, which are not
conditioned on the debtor's default. The Court also referenced the Uniform
Customs and Practice for Documentary Credits, which governs letters of credit and
supports their solidary nature. The Court concluded that the RTC's order was
issued in excess of its jurisdiction and that MWSS had a clear right to draw on the
letter of credit. The Court also addressed additional issues, finding that MWSS had
no other adequate remedy and that the call on the letter of credit did not violate
the Stay Order. The Court's decision was based on the 1987 Philippine
Constitution.
vi. BSP vs. Libo-on, 23 November 2015

Facts:

The case involves the Bangko Sentral ng Pilipinas (BSP) and respondent Agustin Libo-

on. On August 29, 1997, and September 17, 1997, Agustin Libo-on and his wife,

Mercedes Libo-on (Spouses Libo-on), secured loans from the Rural Bank of Hinigaran,

Inc., amounting to P100,000.00 and P300,000.00, respectively. They executed

promissory notes payable to the Rural Bank for 360 days, with due dates on August 24,

1998, and September 12, 1998. As security, they executed a Deed of Real Estate

Mortgage over a parcel of land with Transfer Certificate of Title (TCT) No. T-67129 in

favor of the Rural Bank of Hinigaran.

Subsequently, on September 19, 1997, and October 17, 1997, the Rural Bank of

Hinigaran secured loans from BSP amounting to P800,000.00 and P640,000.00,

respectively. The Rural Bank executed a "promissory note with trust receipt

agreement" and pledged the promissory notes and TCTs, including those of the

Spouses Libo-on, to BSP as security.

On May 3, 2000, BSP demanded payment from the Spouses Libo-on for their

outstanding loan with the Rural Bank of Hinigaran. When they failed to pay, BSP filed

for extrajudicial foreclosure against the Spouses Libo-on's mortgaged property.

Agustin Libo-on then filed an action for damages with a prayer for a temporary

restraining order and a writ of preliminary injunction before the RTC of the 6th

Judicial Region in Negros Occidental, which was docketed as Civil Case No. 724 and

raffled to Branch 51.

The Spouses Libo-on contested the foreclosure, arguing that there was no privity of

contract between them and BSP, and that the amount sought was beyond their

contracted amount with the Rural Bank. The RTC issued a preliminary injunction on

October 25, 2000, and later ruled in favor of the Spouses Libo-on on February 25,

2004, declaring the foreclosure application and notice of sale irregular and unlawful,

and making the preliminary injunction permanent. BSP was ordered to pay attorney's

fees and litigation expenses. BSP's appeal to the Court of Appeals was denied on

March 21, 2006, leading to the present petition for review.

Issue:

1. Did BSP have the authority to foreclose the real estate mortgage
constituted by the Spouses Libo-on due to the absence of a notarized deed
of assignment, special power of attorney, or any document of transfer of
rights executed by the Rural Bank of Hinigaran in favor of BSP?
 2. Was there privity of contract between the Spouses Libo-on and BSP?
3. Was the order for BSP to pay attorney's fees and litigation expenses to the
Spouses Libo-on warranted?

Ruling:

1. The Supreme Court ruled that BSP did not have the authority to foreclose
the real estate mortgage.
2. The Court affirmed that there was no privity of contract between the
Spouses Libo-on and BSP.
3. The Court upheld the order for BSP to pay attorney's fees and litigation
expenses to the Spouses Libo-on.

Ratio:

The Supreme Court found that BSP's claim of authority to foreclose the mortgage

was based on an alleged assignment of credit through a "promissory note with trust

receipt agreement" executed by the Rural Bank of Hinigaran. However, BSP failed

to present any document, such as a deed of assignment of credit/mortgage, to

substantiate this claim. The Court emphasized that for an assignment of credit

involving real property to be valid, it must be in a public instrument and registered

to bind third parties. The mere pledge and deposit of the mortgage contract, TCT,

and promissory note did not grant BSP the authority to foreclose the property.

Furthermore, the Rural Bank of Hinigaran did not have the authority to pledge the

security documents to BSP during the term of the real estate mortgage contract with

the Spouses

Libo-on, as the property remained theirs. For a contract of pledge to be valid, the

pledgor must be the absolute owner of the thing pledged, which was not the case

here. The Rural Bank of Hinigaran was not the absolute owner of the property or the

security documents, as they were merely collateral for the Spouses Libo-on's loan.

The Court also noted that the language of the "promissory note with trust receipt

agreement" did not indicate an absolute conveyance of title, which is necessary for

an assignment of credit.

Instead, it suggested a contract of loan with the promissory note and TCT pledged as

collateral. Without a valid assignment of credit, BSP had no authority to foreclose the

property, and any attempt to sell it would violate the prohibition against pactum

commissorium.

The Court concluded that the intent of the parties, as determined by the language

used in the document, did not support BSP's claim of an assignment of credit.

Therefore, BSP's authority to foreclose the property was unfounded, and the lower
courts' decisions were affirmed.
vii.Yang vs. People, August 14, 2013

Facts:

In the case of "Hur Tin Yang v. People," the petitioner, Hur Tin Yang, was charged
with 24 counts of Estafa under Article 315, paragraph 1(b) of the Revised Penal
Code (RPC) in relation to Presidential Decree No. 115 (PD 115) or the Trust
Receipts Law. The charges were filed by the Metropolitan Bank and Trust
Company (Metrobank) and were based on trust receipts signed by Hur Tin Yang as
the Vice-President for Internal Affairs of Supermax Philippines, Inc., a construction
company. The trust receipts were intended to secure several commercial letters of
credit (LCs) extended by Metrobank to Supermax for the purchase of construction
materials.
When Supermax failed to pay or deliver the goods or proceeds to Metrobank
despite repeated demands, Metrobank filed criminal complaints against Hur Tin
Yang. The Regional Trial Court (RTC) of Manila, Branch 20, found Hur Tin Yang
guilty and sentenced him to an indeterminate penalty of 4 years, 2 months, and 1
day of prision correccional to 20 years of reclusion temporal, along with a civil
liability of Php13,156,256.51. The Court of Appeals (CA) upheld the RTC's
decision, leading Hur Tin Yang to file a petition for review with the Supreme Court,
which initially dismissed the petition. Hur Tin Yang then filed a motion for
reconsideration, arguing that the transactions were simple loans rather than trust
receipt agreements.

Issue:

1. Whether or not Hur Tin Yang is liable for Estafa under Article 315,
paragraph 1(b) of the RPC in relation to PD 115, given that Metrobank
knew the goods were not intended for resale but for use in Supermax's
construction business.

Ruling:

The Supreme Court granted the motion for reconsideration and acquitted Hur Tin
Yang of the charges of Estafa under Article 315, paragraph 1(b) of the RPC in
relation to PD 115. The Court found that the transactions between Hur Tin Yang
and Metrobank were simple loans rather than trust receipt agreements.

Ratio:

The Supreme Court emphasized that the nature of a contract is determined by the
intention of the parties, not merely by the terminology used. The Court found that
the dealings between Hur Tin Yang and Metrobank were not trust receipt
transactions but simple loans. The Court noted that Metrobank knew the
construction materials were not intended for resale but for use in Supermax's
construction business. This knowledge indicated that the parties intended a loan
agreement rather than a trust receipt transaction. The Court cited previous cases,
such as "Ng v. People" and "Land Bank of the Philippines v. Perez," which had
similar factual circumstances and where the transactions were also deemed to be
simple loans. The Court also highlighted that
the Trust Receipts Law was designed to aid importers and retail dealers, not
construction companies like Supermax. The Court concluded that the practice of
banks requiring borrowers to sign trust receipts to facilitate loan collection and
subjecting them to criminal prosecution for non-payment was unjust and contrary
to the constitutional provision against imprisonment for non-payment of debts.

viii. Security Bank vs. Great Wall Commercial, January 30, 2017

Facts:

On May 15, 2013, Security Bank Corporation (Security Bank) filed a Complaint for
Sum of Money with an Application for Issuance of a Writ of Preliminary
Attachment against Great Wall Commercial Press Company, Inc. (Great Wall) and
its sureties, Alfredo Buriel Atienza, Fredino Cheng Atienza, and Spouses Frederick
Cheng Atienza and Monica Cu Atienza (respondents), before the Regional Trial
Court (RTC) of Makati City, Branch 59. The complaint sought to recover unpaid
obligations under a credit facility covered by several trust receipts and surety
agreements, amounting to a principal sum of P10,000,000.00, plus interests,
attorney's fees, and costs. Despite the maturity dates of the obligations lapsing
from December 11, 2012, to May 7, 2013, the respondents failed to pay. On May
31, 2013, the RTC granted Security Bank's application for a writ of preliminary
attachment, which was issued after the bank posted a bond of P10,000,000.00.
Respondents filed a Motion to Lift Writ of Preliminary Attachment Ad Cautelam on
June 3, 2013, claiming that the writ was issued with grave abuse of discretion and
lacked prima facie basis, among other grounds. The RTC denied this motion on
July 4, 2013, and a subsequent motion for reconsideration on August 12, 2013.
Dissatisfied, the respondents filed a petition for certiorari before the Court of
Appeals (CA), which lifted the writ of preliminary attachment on December 12,
2014. The CA ruled that the allegations of Security Bank were insufficient to
warrant the provisional remedy of preliminary attachment. Security Bank's motion
for reconsideration was denied by the CA on June 26, 2015. Hence, Security Bank
filed a petition for review on certiorari before the Supreme Court.

Issue:

1. Whether or not the Court of Appeals erred in nullifying the writ of

preliminary attachment issued by the trial court.

Ruling:

The Supreme Court found merit in Security Bank's petition and reversed and set
aside the December 12, 2014 Decision and the June 26, 2015 Resolution of the
Court of Appeals. The issuance of the writ of preliminary attachment by the RTC,
pursuant to its May 31, 2013 Order, was upheld.
Ratio:

The Supreme Court explained that a writ of preliminary attachment is a

provisional remedy issued to prevent the defendant from disposing of property
that may be used to satisfy a judgment. Under Section 1(d), Rule 57 of the Rules of
Court, a writ of preliminary attachment may be issued in an action against a party
who has been guilty of fraud in contracting the debt or in the performance thereof.
The Court emphasized that fraudulent intent cannot be inferred from mere non-
payment of the debt but can be inferred from attendant circumstances. Security
Bank's complaint and supporting documents, including the affidavit of German
Vincent Pulgar IV, detailed how respondents misled the bank by failing to comply
with trust receipt agreements, which required them to turn over the proceeds of
the sale of goods or return the goods if unsold. The Court found that Security Bank
substantiated its allegations of fraud, particularly the violation of the trust receipt
agreements, which warranted the issuance of the writ of preliminary attachment.
The Court also noted that the CA erred in not considering fraud in the
performance of the obligation, as the 1997 Rules of Civil Procedure included this
as a ground for the issuance of a writ of preliminary attachment. The Court
concluded that Security Bank's allegations and evidence were sufficient to support
the issuance of the writ, but clarified that this finding should not affect the merits
of the principal case.

VIII. TRUTH IN LENDING ACT (R.A. No. 3765)

A. Purpose
B. Obligation of creditors to person to whom credit is extended
C. Covered and excluded transactions
D. Consequences of non-compliance with obligation
i. Bank of the Philippine Islands v. Yu, January 20, 2010

Facts:

In the case of "Bank of the Philippine Islands v. Spouses Yu," the respondents,
Norman and Angelina Yu, doing business as Tuanson Trading, and Tuanson
Builders Corporation, borrowed a total of PHP 75 million from Far East Bank and
Trust Company, which later merged with Bank of the Philippine Islands (BPI). The
loans were secured by real estate mortgages on several properties, including lands
in Legazpi City owned by Tuanson Trading. By 1999, the Yus were unable to pay
their loans and requested a loan restructuring, which BPI granted, reducing their
loan balance to PHP 33,400,000. Despite the restructuring, the Yus continued to
face difficulties in making payments and requested BPI to release some of the
mortgaged lands, arguing that their total appraised value exceeded the remaining
debt. BPI ignored this request, leading the Yus to withhold payments, prompting
BPI to extrajudicially foreclose the mortgaged properties in Legazpi City and Pili,
Camarines Sur. The Yus then filed a court action against BPI and the winning
bidder, Magnacraft Development Corporation, seeking the annulment of the
foreclosure sale. Eventually, the Yus and Magnacraft entered into a compromise
agreement, affirming Magnacraft's ownership of three out of the ten auctioned
parcels of land, leading to the dismissal of the complaint against Magnacraft.
Subsequently, the Yus filed a new complaint against BPI in the Regional Trial
Court (RTC) of Legazpi City, Branch 1, for recovery of alleged excessive penalty
charges, attorney's fees, and foreclosure expenses. BPI admitted the foreclosure
and the amounts involved but contended that the charges were justified. The RTC
initially granted a partial summary judgment, reducing the penalty charges from
36% per annum to 12% per annum but maintaining the attorney's fees. Upon
reconsideration, the RTC rendered a summary judgment deleting the penalty
charges for non-compliance with the Truth in Lending Act, reducing the attorney's
fees to 1%, and upholding the foreclosure expenses and cost of publication. BPI
appealed to the Court of Appeals (CA), which affirmed the RTC's decision. BPI then
sought recourse to the Supreme Court.

Issue:

1. Whether or not the case presented no genuine issues of fact such as

to warrant a summary judgment by the RTC.
2. Where summary judgment is proper, whether or not the RTC and the CA:
a) Correctly deleted the penalty charges due to BPI's alleged failure to
comply with the Truth in Lending Act. b) Correctly reduced the attorney's
fees to 1% of the judgment debt. c) Properly dismissed BPI's
counterclaims for moral and exemplary damages, attorney's fees, and
litigation expenses.

Ruling:

The Supreme Court denied the petition and affirmed the Court of Appeals'
decision, subject to the restoration of the penalty charge of 12% per annum or 1%
per month of the amount due, computed from the date of nonpayment or
November 25, 2001.

Ratio:

The Supreme Court held that a summary judgment was appropriate as the
essential facts of the case were uncontested, and the issues could be resolved
based on the pleadings, loan agreements, promissory notes, real estate mortgages,
foreclosure and bidding documents, and admissions during pre-trial. The Court
found that BPI failed to name any document or fact it would have wanted to
present at trial, making a trial unnecessary. Regarding the penalty charges, the
Court noted that although BPI failed to state the penalty charges in the disclosure
statement, the promissory note signed by the Yus contained a penalty clause,
constituting substantial compliance with the Truth in Lending Act. The Court
distinguished this case from New Sampaguita Builders Construction, Inc. v.
Philippine National Bank, where the unilateral increase in penalty charges was
disallowed. The Court found the penalty charges stipulated in the promissory note
valid but reduced them to 12% per annum as the original 36% per annum was
deemed unreasonable and iniquitous. As for attorney's fees, the Court affirmed the
reduction to 1% as it was just and adequate, considering the foreclosure expenses
already
charged and the rote effort involved in extrajudicial foreclosures. The Court also
upheld the dismissal of BPI's counterclaims for moral and exemplary damages,
attorney's fees, and litigation expenses.

ii.Silos v. Philippine National Bank, July 2, 2014

Facts:

Spouses Eduardo and Lydia Silos, the petitioners, operated a department store and
engaged in the buying and selling of ready-to-wear apparel. In August 1987, they
secured a one-year revolving credit line of P150,000.00 from the Philippine
National Bank (PNB) by mortgaging a 370-square meter lot in Kalibo, Aklan. This
credit line was increased to P1.8 million in July 1988 and further to P2.5 million in
July 1989, with additional security provided by a 134-square meter lot. The
petitioners issued eight promissory notes and signed a Credit Agreement in July
1989, which allowed PNB to modify interest rates without notice. The interest
rates on these notes varied from 19.5% to 32% over time. In August 1991, an
Amendment to the Credit Agreement was executed, and the petitioners issued 18
more promissory notes with interest rates ranging from 16% to 26%. The
petitioners paid these interests without objection until 1997 when they defaulted
on a P2.5 million promissory note due to the Asian financial crisis. PNB foreclosed
on the mortgage and sold the properties at auction for P4,324,172.96. The
petitioners filed Civil Case No. 5975 in March 2000, seeking annulment of the
foreclosure sale and an accounting of the credit, arguing that the interest rates
were unilaterally imposed by PNB and thus void. The Regional Trial Court (RTC)
dismissed the case, and the Court of Appeals (CA) affirmed with modifications,
leading to the present petition.

Issue:

1. Were the interest rates on the petitioners' outstanding obligation

unilaterally and arbitrarily imposed by PNB?
2. Should the penalties be included in the secured amount under the real estate
mortgage?
3. Is the extrajudicial foreclosure and sale of the properties valid?
4. Should the attorney's fees be reduced from 10% to 1%?

Ruling:

1. The Supreme Court ruled that the interest rates imposed by PNB were null
and void due to the lack of mutual agreement and violation of the principle
of mutuality in contracts.
2. The penalties should not be included in the secured amount as they were
not specified in the mortgage agreements.
3. The extrajudicial foreclosure and sale were declared null and void if it is
found that the petitioners made overpayments.
4. The trial court's award of 1% attorney's fees was reinstated.

Ratio:

The Supreme Court found that the interest rate provisions in the Credit Agreement
and the Amendment to Credit Agreement violated Article 1308 of the Civil Code,
which mandates mutuality in contracts. The stipulations allowed PNB to
unilaterally modify interest rates based on arbitrary criteria without the
petitioners' consent, making the contract one-sided and void. The Court
emphasized that any modification in a contract, especially concerning interest
rates, must be mutually agreed upon. The penalties were excluded from the
secured amount because the mortgage agreements did not specifically include
them. The Court also noted that the petitioners' payments should be applied first to
the stipulated or legal interest and then to the principal. The case was remanded
to the RTC for proper accounting and computation of overpayments, and the
extrajudicial foreclosure and sale were to be declared null and void if
overpayments were found. The CA's decision to increase attorney's fees to 10%
was overturned as it was not raised by the petitioners in their appeal.

iii. Development Bank of the Philippines v. Arcilla Jr., June 30, 2005

Facts:

Atty. Felipe P. Arcilla, Jr. was employed by the Development Bank of the
Philippines (DBP) starting in October 1981. He later availed of a loan under the
bank's Individual Housing Project (IHP). On September 12, 1983, DBP and Arcilla
executed a Deed of Conditional Sale for a parcel of land and a house to be
constructed on it, amounting to P160,000.00. Arcilla was to repay the loan over 25
years with a monthly amortization of P1,417.91 at an interest rate of 9% per
annum, deducted from his salary. DBP agreed to transfer the title upon full
payment of the loan. Arcilla resigned from DBP in December 1986, and his loan
was converted to a regular housing loan. He signed three promissory notes
totaling P186,364.15 and agreed to pay additional charges, including service
charges, interests, and penalties. Arcilla failed to pay his loan, leading DBP to
rescind the Deed of Conditional Sale by notarial act on November 27, 1990. DBP
offered Arcilla the opportunity to repurchase the property, which he did not
respond to, leading to the property being advertised for public bidding. Arcilla
filed a complaint against DBP on February 21, 1994, alleging DBP's failure to
provide the required disclosure statement under Republic Act (R.A.) No. 3765 and
Central Bank (CB) Circular No. 158. The Regional Trial Court (RTC) ruled in favor
of Arcilla, nullifying the notarial rescission. DBP appealed to the Court of Appeals
(CA), which reversed the RTC's decision, leading to the consolidation of the cases
in the Supreme Court.

Issue:

1. Did DBP comply with the disclosure requirement of R.A. No. 3765 and CB
Circular No. 158 in the execution of the deed of conditional sale, the
supplemental deed, and the promissory notes?
2. Is Felipe Arcilla, Jr. mandated to vacate the property and pay rentals for
his occupation thereof after the notarial rescission of the deed of
conditional sale?

Ruling:

1. The Supreme Court ruled that DBP substantially complied with the
disclosure requirement of R.A. No. 3765 and CB Circular No. 158.
2. The Supreme Court remanded the case to the RTC to resolve DBP's
counterclaim for possession of the property and reasonable rentals for
Arcilla's occupancy after the notarial rescission.

Ratio:

The Supreme Court found that DBP had disclosed the requisite information in the
loan transaction documents, even though it did not use the specific disclosure
statement form authorized by the Central Bank. The Court noted that there was no
evidence that DBP collected any charges other than those disclosed in the
documents. The Court also observed that Arcilla's claim of not being furnished with
the required information was an afterthought, as he remained
silent for four years after the notarial rescission and only filed his complaint in
1994. The Court emphasized that the Truth in Lending Act (R.A. No. 3765) aims to
protect citizens from a lack of awareness of the true cost of credit. Given Arcilla's
background as a lawyer and former DBP employee, the Court held that he was fully
informed of the loan terms and charges.
Consequently, the trial court's annulment of the rescission was unjustified.
Regarding DBP's counterclaim for possession and rentals, the Court remanded the
case to the RTC for further proceedings, as DBP failed to provide evidence on the
reasonable amount of rentals for Arcilla's occupancy.

iv. United Coconut Planters Bank v. Beluso, August 17, 2007

Facts:

In the case of United Coconut Planters Bank (UCPB) v. Spouses Samuel and Odette
Beluso, the dispute originated from a credit agreement and subsequent promissory
notes executed between the parties. On April 16, 1996, UCPB granted the spouses
Beluso a Promissory Notes Line under a Credit Agreement, allowing them to avail
credit up to PHP 1.2 million, which was later increased to PHP 2.35 million. This
credit was secured by a real estate mortgage over parcels of land located in Roxas
City. The spouses executed several promissory notes but contended that the
amounts covered by the last two notes were never released to their account. UCPB
applied interest rates ranging from 18% to 34% on the promissory notes. The
spouses Beluso managed to pay a total of PHP 763,692.03 from 1996 to February
1998 but subsequently failed to make further payments. UCPB demanded payment
of PHP 2,932,543.00 plus attorney's fees, and upon non-compliance, foreclosed the
mortgaged properties. The spouses Beluso then filed a petition for annulment,
accounting, and damages with the Regional Trial Court (RTC) of Makati City,
which ruled in their favor, declaring the interest rate void and the foreclosure
invalid. The Court of Appeals affirmed the RTC's decision, prompting UCPB to file
a petition for review on certiorari with the Supreme Court.

Issue:

1. Whether the Court of Appeals erred in declaring the interest rate

provision in the promissory notes void.
2. Whether the Court of Appeals erred in the computation of the
spouses Beluso's indebtedness.
3. Whether the Court of Appeals erred in annulling the foreclosure of
the mortgaged properties.
4. Whether the Court of Appeals erred in finding UCPB liable for violating
the Truth in Lending Act.
5. Whether the Court of Appeals erred in not dismissing the case due to
alleged forum shopping by the spouses Beluso.
Ruling:
 1. The Supreme Court affirmed the decision of the Court of Appeals
declaring the interest rate provision void.
2. The Supreme Court modified the computation of the spouses Beluso's
indebtedness to include a compounded legal interest of 12% per annum
and a penalty charge of 12% per annum.
3. The Supreme Court declared the foreclosure of the mortgaged properties
valid.
4. The Supreme Court upheld the finding that UCPB violated the Truth in
Lending Act and imposed a civil penalty.
5. The Supreme Court ruled that the RTC of Makati City was correct in not
dismissing the case for forum shopping.

Ratio:

The Supreme Court upheld the voiding of the interest rate provision because it
violated the principle of mutuality of contracts under Article 1308 of the Civil
Code. The interest rates were determined solely by UCPB, making the contract's
fulfillment dependent on the will of one party. The Court also found that the
interest rate provision did not comply with the Truth in Lending Act, which
requires full disclosure of finance charges. The Court modified the computation of
the spouses Beluso's indebtedness to include a 12% legal interest and a 12%
penalty charge, as the RTC inadvertently omitted these in its computation. The
foreclosure was declared valid because a valid demand was made by UCPB, and
the grounds for annulment of foreclosure were not present. The Court also found
that the spouses Beluso's action for violation of the Truth in Lending Act was
within the one-year prescriptive period and that the allegations in the complaint
were sufficient to infer such a violation. Lastly, the Court ruled that the RTC of
Makati City was the proper venue for the case, and the filing of the second action
was justified as the first action was dismissed for improper venue.

IX. SECURITIES REGULATION CODE (R.A. No. 8799)

A. State policy
B. Definition of securities
C. Kinds of securities
i. Exempt securities
ii.Exempt transactions
iii. Non-exempt transactions
D. Powers and functions of the Securities and Exchange Commission
E. Procedure for registration of securities
F. Prohibitions on fraud, manipulation, and insider trading
i. Manipulation of security prices
ii.Short sales
iii. Option trading
iv. Fraudulent transactions
v. Insider trading
G. Protection of shareholder interests
i. Tender offer rule
ii.Rules on proxy solicitation
iii. Disclosure rule
1. Securities and Exchange Commission v. Subic Bay Golf and
Country Club, Inc., March 11, 2015

Facts:

The case involves a dispute between the Securities and Exchange Commission
(SEC) and Subic Bay Golf and Country Club, Inc. (SBGCCI) along with Universal
International Group Development Corporation (UIGDC) over the refund of
investments in a golf course development project. The project, known as Binictican
Valley Golf Course, was initially operated by the Subic Bay Metropolitan Authority
(SBMA) under the Bases Conversion Development Authority (BCDA). On May 25,
1995, SBMA and Universal International Group of Taiwan (UIG) entered into a
Lease and Development Agreement, leasing the golf course to UIG for 50 years,
renewable for another 25 years. UIG later assigned its rights to UIGDC, which
then executed a Deed of Assignment in favor of SBGCCI on April 1, 1996. SBGCCI
and UIGDC entered into a Development Agreement on April 25, 1996, where
UIGDC agreed to finance, construct, and develop the golf course in exchange for
1,530 shares of SBGCCI stock.

The SEC issued an Order for the Registration of 3,000 no par value shares of
SBGCCI on July 8, 1996, and a Certificate of Permit to Offer Securities for Sale to
the Public on August 9, 1996. The shares were sold at P425,000.00 each, with
proceeds intended to pay UIGDC for the golf course development. Complainants
Regina Filart and Margarita Villareal purchased shares in 1996 based on promises
of various amenities, which were not delivered. They requested refunds from
UIGDC, which were ignored. They also faced demands for back dues and threats of
auctioning their shares. The SEC's Corporation Finance Department conducted an
ocular inspection in January 2003 and found that SBGCCI and UIGDC failed to
comply substantially with their commitments. Consequently, the SEC ordered a
refund of the purchase price of the shares and imposed fines on SBGCCI and
UIGDC. The Court of Appeals later declared the SEC's order void for lack of
jurisdiction, leading to the SEC's petition for review.

Issue:

1. Does the SEC have jurisdiction over the case involving the refund of
investments in SBGCCI shares?
2. Does the SEC have the authority to order the refund of the purchase price of
shares?

Ruling:

1. The SEC does not have jurisdiction over the case involving the refund of
investments in SBGCCI shares.
2. The SEC does not have the authority to order the refund of the purchase
price of shares.

Ratio:

The Supreme Court ruled that the case is an intra-corporate dispute, which falls
under the jurisdiction of the Regional Trial Court (RTC) designated as commercial
courts, not the SEC. The dispute involves a corporation (SBGCCI) and its
shareholders (Villareal and Filart), and pertains to corporate rights and
obligations. The SEC's regulatory power includes the approval, rejection,
suspension, or revocation of securities registrations, and the imposition of fines
and penalties for violations of the Securities Regulation Code. However, the SEC's
authority does not extend to ordering refunds of investments, which is a civil
matter requiring judicial determination. The SEC's implementing rules cannot
expand its jurisdiction beyond what is provided by law. Therefore, the issue of
refund should be litigated in the appropriate RTC.
2. Primanila Plans, Inc. v. Securities and Exchange Commission,
August 6, 2014

Facts:
Primanila Plans, Inc. (Primanila), represented by Eduardo S. Madrid, was
registered with the Securities and Exchange Commission (SEC) on October 17,
1988, with the primary purpose of offering pension plans. The company operated
from an office in Makati City. On April 9, 2008, the SEC issued a cease and desist
order against Primanila after an investigation by its Compliance and Enforcement
Department (CED) revealed several violations. These included the closure of
Primanila's office without notice, the offering of a pension plan called Primasa Plan
on its website, failure to renew its Dealer's License for 2008, lack of a secondary
license to act as a dealer or general agent for pre-need pension plans, and under-
declaration of premium collections. The SEC found that Primanila had violated
Republic Act No. 8799 (Securities Regulation Code) and the New Rules on the
Registration and Sale of Pre-Need Plans.
Primanila's motion for reconsideration was denied by the SEC, and the cease and
desist order was made permanent. The Court of Appeals (CA) affirmed the SEC's
decision. Primanila then filed a petition for review on certiorari under Rule 45 of
the Rules of Court, which led to the present case.

Issue:

1. Did the SEC deny Primanila due process by issuing the cease and desist
order without prior notice or hearing?
2. Was the cease and desist order issued by the SEC valid and supported
by sufficient factual and legal bases?

Ruling:

1. The Supreme Court ruled that Primanila was accorded due process
despite the immediate issuance of the cease and desist order.
2. The Supreme Court upheld the validity of the SEC's cease and desist order,
affirming the decisions of the SEC and the CA.

Ratio:

The Supreme Court found that the SEC acted within its authority under Section 64
of the Securities Regulation Code, which allows the issuance of a cease and desist
order without prior hearing if it is necessary to prevent fraud or irreparable injury
to the investing public. The SEC conducted a proper investigation, which revealed
multiple violations by Primanila, including the unauthorized sale and offer for sale
of the Primasa Plan, failure to renew its dealer's license, and under-declaration of
premium collections. The Court emphasized that due process in administrative
proceedings does not always require a trial-type hearing; it is sufficient that the
party is notified of the charges and given an opportunity to respond. Primanila was
given this opportunity through its motion for reconsideration. The Court also noted
that the factual findings of administrative agencies like the SEC are generally
binding and final if supported by substantial evidence. The evidence showed that
Primanila's website offered the Primasa Plan and provided payment instructions,
confirming the company's engagement in unauthorized activities. The Court found
Primanila's argument that the website advertisement was
inadvertent to be implausible. The SEC's actions were justified to protect the
investing public, and Primanila's violations warranted the cease and desist order.

3. Baviera v. Paglinawan, February 8, 2007

Facts:

Manuel V. Baviera, formerly the head of HR Service Delivery and Industrial

Relations at Standard Chartered Bank-Philippines (SCB), filed two consolidated
petitions for review on certiorari against SCB, its officers, and officials from the
Department of Justice (DOJ). The case originated from Baviera's investment in
Global Third Party Mutual Funds (GTPMF) offered by SCB, which were not
registered with the Securities and Exchange Commission (SEC). Despite a Cease
and Desist Order from the SEC and directives from the Bangko Sentral ng Pilipinas
(BSP) to halt such activities, SCB continued to sell these securities. Baviera
invested US$8,000 in GTPMF, which later depreciated significantly. After SCB
refused to compensate for his losses, Baviera filed a complaint for syndicated
estafa and a separate complaint for violation of the Securities Regulation Code.
The DOJ dismissed both complaints, prompting Baviera to seek relief from the
Court of Appeals, which upheld the DOJ's decisions. Baviera then elevated the
matter to the Supreme Court.

Issue:

1. Did the Court of Appeals err in concluding that the DOJ did not commit
grave abuse of discretion in dismissing Baviera's complaint for violation of
the Securities Regulation Code?
2. Did the Court of Appeals err in concluding that the DOJ did not commit
grave abuse of discretion in dismissing Baviera's complaint for syndicated
estafa?

Ruling:

1. The Supreme Court affirmed the Court of Appeals' decision that the DOJ did
not commit grave abuse of discretion in dismissing Baviera's complaint for
violation of the Securities Regulation Code.
2. The Supreme Court also affirmed the Court of Appeals' decision that the DOJ
did not commit grave abuse of discretion in dismissing Baviera's complaint
for syndicated estafa.

Ratio:

The Supreme Court held that under Section 53.1 of the Securities Regulation Code,
a criminal complaint for violation of the Code must first be filed with the SEC, which
then refers the case to the DOJ if probable cause is found. Baviera's failure to follow
this procedural requirement justified the DOJ's dismissal of his complaint. The Court
emphasized the doctrine of primary jurisdiction, which mandates that specialized
disputes be initially referred to the appropriate administrative agency, in this case,
the SEC.
Regarding the syndicated estafa complaint, the Court reiterated that the public
prosecutor has the discretionary power to determine the existence of probable
cause during a preliminary investigation. The Court found no grave abuse of
discretion in the DOJ's dismissal of Baviera's complaint, as the evidence did not
sufficiently establish that SCB's officers induced Baviera to invest through false
representations or acted as a syndicate to misappropriate his funds. The Court
underscored that the prosecutor's duty is to ensure that only those with prima
facie guilt are prosecuted, while protecting innocent individuals from baseless
charges.

The Supreme Court concluded that the Court of Appeals correctly dismissed
Baviera's petitions and affirmed the DOJ's resolutions, as there was no indication
of capricious or arbitrary action by the DOJ.

4. Pua v. Citibank, N.A., September 16, 2013

Facts:

The case involves petitioners Jose U. Pua and Benjamin Hanben U. Pua against
respondent Citibank, N.A. On December 2, 2002, the petitioners filed a complaint
before the Regional Trial Court (RTC) of Cauayan City, Isabela, Branch 19,
docketed as Civil Case No. 19-1159. The complaint sought a declaration of nullity
of contract and sums of money with damages against Citibank. The petitioners,
who had been depositors of Citibank's Binondo Branch since 1996, alleged that in
1999, Jose was invited to a dinner party at the Manila Hotel by Guada Ang,
Citibank Binondo's Branch Manager. There, he was introduced to several officers
and employees of Citibank Hongkong Branch. Subsequently, Chingyee Yau, Vice-
President of Citibank Hongkong, came to the Philippines and sold securities to
Jose, requiring him to open an account with Citibank Hongkong. The securities,
issued by various public limited companies in Jersey, Channel Islands, were
offered, sold, and the subscription agreements signed at Citibank Binondo. The
petitioners later discovered that these securities were not registered with the
Securities and Exchange Commission (SEC) and that the terms and conditions
were not submitted to the SEC for evaluation, approval, and registration. They
claimed that Citibank's actions violated Republic Act No. 8799, the Securities
Regulation Code (SRC), and sought to nullify the subscription agreements.
Citibank filed a motion to dismiss, arguing that the complaint should be filed with
the SEC due to the doctrine of primary jurisdiction. The RTC denied the motion,
asserting its jurisdiction over the case. Citibank's subsequent petition for certiorari
to the Court of Appeals (CA) resulted in the CA reversing the RTC's orders and
dismissing the complaint for violating the doctrine of primary jurisdiction. The
petitioners then brought the case to the Supreme Court.

Issue:
 1. Does the petitioners' action fall within the primary jurisdiction of the SEC?

Ruling:

The Supreme Court ruled in favor of the petitioners, granting the petition and
reversing the CA's Decision dated May 21, 2007, and Resolution dated October 16,
2007. The Court reinstated and remanded Civil Case No. 19-1159 to the RTC of
Cauayan City, Isabela, Branch 19 for further proceedings.

Ratio:

The Supreme Court found that the CA erroneously relied on the Baviera v.
Paglinawan ruling, which pertains to criminal prosecutions under the SRC, not
civil suits. The Court clarified that the petitioners' complaint was a civil suit for the
declaration of nullity of contract and sums of money with damages, stemming from
the alleged sale of unregistered securities by Citibank. The Court emphasized that
jurisdiction is conferred by law and must be explicitly stated. The SRC provisions
governing civil suits, specifically Sections 56 to 63, clearly state that such suits fall
under the exclusive jurisdiction of the regional trial courts. The term "shall" in
Section 63.1 of the SRC indicates a mandatory and compulsory meaning, affirming
that civil suits under the SRC should be brought before the RTC. The Court
distinguished this from criminal cases under the SRC, which must first be referred
to the SEC. Therefore, the petitioners' filing of a civil suit directly before the RTC
was proper and did not require prior filing with the SEC. The Court concluded that
the RTC had the exclusive original jurisdiction to hear and decide the case, and
thus, the CA's dismissal of the complaint was incorrect.

5. Securities and Exchange Commission v. Astra Securities

Corporation, October 22, 2014

Facts:

Omico Corporation (Omico) is a publicly listed company on the Philippine Stock

Exchange, with Astra Securities Corporation (Astra) holding approximately 18% of
its outstanding capital stock. Omico scheduled its annual stockholders' meeting for
November 3, 2008, setting the deadline for proxy submissions on October 23,
2008, and the validation of proxies on October 25, 2008. Astra objected to the
validation of proxies issued in favor of Tommy Kin Hing Tia (Tia), representing
about 38% of Omico's outstanding capital stock, and proxies issued in favor of Tia
and/or Martin Buncio, representing about 2% of the outstanding capital stock.
Astra argued that the brokers issuing these proxies did not obtain the required
express written authorization from their clients, violating SRC Rule 20 (11) (b)
(xviii) of the Amended Securities Regulation Code (SRC or Republic Act No. 8799).
Additionally, Astra claimed that the proxies issued in favor of Tia exceeded 19,
triggering a presumption of solicitation under SRC Rule 20 (2) (B) (ii) (b), and
that Tia did not comply with the rules on proxy solicitation, violating Section 20.1
of the SRC. Despite Astra's objections, Omico's Board of Inspectors validated the
proxies in favor of Tia. Astra then filed a complaint with the Securities and
Exchange Commission (SEC) on October 27, 2008, seeking to invalidate the
proxies and requesting a cease and desist order (CDO) to prevent Omico's
stockholders' meeting until the SEC resolved the proxy validation issues. The SEC
issued the CDO on October 30, 2008, but attempts to serve it on November 3,
2008, failed, and the stockholders' meeting proceeded with 52.3% of the
outstanding capital stock present. Astra subsequently filed a complaint for indirect
contempt against Omico for disobeying the CDO, while Omico filed a petition for
certiorari and prohibition with the Court of Appeals (CA), alleging grave abuse of
discretion by the SEC in issuing the CDO. The CA declared the CDO null and void,
ruling that the controversy was an intra-corporate dispute under the jurisdiction of
the regional trial courts, not the SEC. Aggrieved, the SEC and Astra filed separate
petitions with the Supreme Court, which were consolidated.

Issue:

1. Does the SEC have jurisdiction over controversies arising from the
validation of proxies for the election of corporate directors?

Ruling:

The Supreme Court ruled that the SEC does not have jurisdiction over
controversies arising from the validation of proxies for the election of corporate
directors. The Court affirmed the CA's decision, declaring the SEC's CDO null and
void and expunging the SEC's petition for lack of capacity to file the suit. The
petition filed by Astra was denied.

Ratio:

The Supreme Court's decision was based on the precedent set in GSIS v. CA,
which clarified that the jurisdiction over election-related controversies, including
the validation of proxies for the election of corporate directors, lies with the
regular courts, not the SEC. The Court noted that Section 6(g) of Presidential
Decree No. 902-A, which conferred the power to pass upon the validity of proxies
to the SEC, was incidental to the powers under Section 5 of the same decree. With
the passage of the SRC, these powers were withdrawn from the SEC. The Court
emphasized that the jurisdiction of regular courts over election contests or
controversies is confined to the election of directors or trustees, as specified in
Section 5(c) of Presidential Decree No. 902-A. The Court also highlighted that the
SEC retains the power to regulate proxy solicitation for matters unrelated to the
election of directors. However, when proxies are solicited for the election of
corporate directors, the resulting controversy falls under the jurisdiction of the
regular courts. The Court rejected Astra's argument that the validation of proxies
related to the determination of a quorum should be under the SEC's jurisdiction,
noting that the quorum was for the election of directors. The Court also dismissed
Astra's proposal for
separate jurisdictions before and after the election of directors, stating that all
controversies related to the election of directors, whether before, during, or after,
should be adjudicated by the regular courts. The Court concluded by reiterating
that quasi-judicial agencies like the SEC do not have the right to seek the review of
appellate court decisions reversing their rulings, as they are not real parties-in-
interest.

6. Virata v. Wee, July 5, 2017

Facts:

The case involves multiple parties, with the primary petitioner being Luis Juan L.
Virata and UEM-MARA Philippines Corporation (now known as Cavitex
Infrastructure Corporation), and the primary respondent being Alejandro Ng Wee.
The case revolves around a series of financial transactions that took place in 1998.
Ng Wee, a valued client of Westmont Bank, was enticed by the bank manager to
make money placements with Westmont Investment Corporation (Wincorp), an
investment house affiliated with the bank. Ng Wee was offered "sans recourse"
transactions, which were presented as safe, stable, high-yielding, and low-risk
investments. Ng Wee placed investments under his name and those of his
trustees: Angel Archangel, Elizabeth Ng Wee, Roberto Tabada Tan, and Alex Lim
Tan. These investments were matched with Hottick Holdings Corporation, which
later defaulted on its obligations due to the Asian financial crisis. Subsequently,
Ng Wee's investments were transferred to Power Merge Corporation, another
borrower, which also defaulted. Ng Wee filed a complaint for fraud and deceit
against Wincorp, Power Merge, and several individuals, including Virata, seeking
to recover his investments. The Regional Trial Court (RTC) ruled in favor of Ng
Wee, ordering the defendants to pay him P213,290,410.36 plus interests and
damages. The Court of Appeals (CA) affirmed the RTC's decision with
modifications. The case was then elevated to the Supreme Court.

Issue:

1. Whether Ng Wee is the real party in interest.

2. Whether Ng Wee established his cause of action against Wincorp and Power
Merge.
3. Whether it is proper to pierce the corporate veil under the circumstances of
the case.
4. Whether the counterclaims and cross-claims of the parties should prosper.
5. Whether the award of damages to Ng Wee is proper.

Ruling:

1. Ng Wee is the real party in interest.

2. Ng Wee established his cause of action against Wincorp and Power Merge.
3. Piercing the corporate veil is proper for Power Merge and Virata
 but not for UEM-MARA.
4. The cross-claim of Virata for reimbursement is granted.
5. The award of damages to Ng Wee is proper but modified.

Ratio:
 1. Ng Wee as the Real Party in Interest: The Supreme Court upheld the
previous rulings that Ng Wee is the real party in interest, as he was the
beneficial owner of the investments placed under the names of his
trustees. The Court applied the law of the case doctrine, which bars the
re-litigation of a settled issue.
2. Cause of Action Against Wincorp and Power Merge: The Court found that
Wincorp defrauded Ng Wee through an elaborate scheme involving "sans
recourse" transactions that were, in reality, with recourse. Wincorp's
actions constituted fraud and deceit, making it liable for the damages
suffered by Ng Wee. Power Merge, although not guilty of fraud, was still
liable under the promissory notes it issued.
3. Piercing the Corporate Veil: The Court held that piercing the corporate veil
was justified for Power Merge and Virata due to the latter's complete
control over the former and the use of the corporation to perpetrate fraud.
However, UEM-MARA was not held liable as it was not directly involved in
the fraudulent transactions.
4. Counterclaims and Cross-claims: The Court granted Virata's cross-claim for
reimbursement from Wincorp and its liable directors and officers, as the
Side Agreements indicated that Power Merge was merely an
accommodation party. All other counterclaims and cross-claims were
dismissed for lack of merit.
5. Award of Damages: The Court affirmed the award of P213,290,410.36 to
Ng Wee, with interest rates modified according to the Nacar ruling. The
additional interest of three percent per month was deemed
unconscionable and void. Liquidated damages were reduced to ten
percent, and attorney's fees to five percent of the total amount due. The
award of P100,000.00 as moral damages was upheld.

7. Securities and Exchange Commission v. Prosperity.Com, Inc.,

January 25, 2012

Facts:

Prosperity.Com, Inc. (PCI) engaged in selling computer software and hosting

websites without providing internet service. To generate profit, PCI introduced a
scheme where, for US$234.00 (later increased to US$294), a buyer could acquire
a 15-Mega Byte (MB) capacity internet website. Additionally, buyers could earn
commissions, real estate interests in the Philippines and the United States, and
insurance coverage worth P50,000.00 by referring down-line buyers to PCI. To
benefit, a PCI buyer had to enlist and sponsor at least two other buyers as down-
lines. For each pair of down-lines, the buyer-sponsor received a US$92.00
commission, with a daily referral cap of 16, beyond which commissions would go
to PCI. This scheme was modeled after Golconda Ventures, Inc. (GVI), which
ceased operations following a cease and desist order (CDO) from the Securities
and Exchange Commission (SEC). In 2001, disgruntled GVI elements filed a
complaint with the SEC against PCI, alleging that PCI had taken over GVI's
operations.
The SEC's Compliance and Enforcement unit issued a CDO against PCI, ruling that
PCI's
scheme constituted an investment contract requiring registration under the
Securities Regulation Code (R.A. 8799). Instead of requesting the SEC to lift the
CDO, PCI filed a petition for certiorari with the Court of Appeals (CA) and applied
for a temporary restraining order (TRO) and preliminary injunction. The CA
initially dismissed the petition for forum shopping but later reinstated it. In a joint
resolution, the CA consolidated the case with another raising the same issues and
eventually ruled that PCI's scheme did not constitute an investment contract
requiring registration. The SEC then petitioned the Supreme Court.
Issue:

Does PCI's scheme constitute an investment contract that requires registration

under R.A. 8799?

Ruling:

The Supreme Court denied the petition and affirmed the decision of the Court of
Appeals, ruling that PCI's scheme does not constitute an investment contract
requiring registration under R.A. 8799.

Ratio:

The Securities Regulation Code treats investment contracts as "securities" that

must be registered with the SEC before distribution and sale. An investment
contract involves a person investing money in a common enterprise with an
expectation of profits primarily from the efforts of others. The Howey test,
established by the United States Supreme Court, requires the following elements
for an investment contract: (1) a contract, transaction, or scheme; (2) an
investment of money; (3) investment in a common enterprise; (4) expectation of
profits; and (5) profits arising primarily from the efforts of others. In this case,
PCI's clients did not make investments but purchased a tangible asset—a 15-MB
capacity internet website. The price paid was for the use of the website, not an
investment in PCI's business. The commissions, interest in real estate, and
insurance coverage were incentives for down-line sellers, not profits from an
investment. Therefore, the last requisite of the Howey test was lacking, and PCI's
scheme did not constitute an investment contract requiring registration under R.A.
8799.

8. CEMCO Holdings, Inc. v. National Life Insurance Company

of the Philippines, Inc., August 7, 2007

Facts:

The case involves Cemco Holdings, Inc. (petitioner) and National Life Insurance
Company of the Philippines, Inc. (respondent). The dispute centers on whether
Cemco's acquisition of shares in Union Cement Holdings Corporation (UCHC) is
subject to the Mandatory Offer Rule under Section 19 of Republic Act No. 8799,
also known as the Securities Regulation Code. Union Cement Corporation (UCC), a
publicly-listed company, had two principal stockholders: UCHC, a non-listed
company, holding 60.51% of UCC shares, and Cemco, holding 17.03%. UCHC's
stocks were majorly owned by Bacnotan Consolidated Industries, Inc. (BCI) with
21.31% and Atlas Cement Corporation (ACC) with 29.69%. Cemco owned 9% of
UCHC stocks. On July 5, 2004, BCI disclosed to the Philippine Stock Exchange
(PSE) its resolution to sell its UCHC stocks to Cemco. This acquisition increased
Cemco's beneficial ownership in UCC to 53%. The PSE inquired with the SEC if the
Tender Offer Rule applied to this transaction. Initially, the SEC's
Corporate Finance Department opined that the rule did not apply, but this was
later reversed by the SEC en banc. National Life Insurance, a minority stockholder
of UCC, demanded Cemco comply with the mandatory tender offer rule, which
Cemco refused. Consequently, National Life Insurance filed a complaint with the
SEC, which ruled in favor of the respondent, directing Cemco to make a tender
offer. Cemco challenged this decision in the Court of Appeals, which affirmed the
SEC's ruling. Cemco then filed a petition for review with the Supreme Court.

Issue:

1. Does the SEC have jurisdiction over the respondent's complaint and the
authority to require Cemco to make a tender offer for UCC shares?
2. Does the rule on mandatory tender offer apply to the indirect acquisition
of shares in a listed company, specifically Cemco's indirect acquisition of
36% of UCC through its purchase of UCHC shares?
3. Can the SEC's ruling on the mandatory tender offer rule be applied
retroactively to Cemco's transaction, which was consummated under
the SEC's prior resolution?

Ruling:

1. The Supreme Court ruled that the SEC has jurisdiction over the
respondent's complaint and the authority to require Cemco to make a
tender offer for UCC shares.
2. The Court held that the mandatory tender offer rule applies to the indirect
acquisition of shares in a listed company, including Cemco's indirect
acquisition of 36% of UCC through its purchase of UCHC shares.
3. The Court decided that the SEC's ruling on the mandatory tender offer
rule could be applied retroactively to Cemco's transaction.

Ratio:

The Supreme Court affirmed the SEC's jurisdiction, stating that the SEC has the
authority to regulate, investigate, and supervise activities to ensure compliance
with the Securities Regulation Code. This includes the power to adjudicate
disputes and grant appropriate reliefs. The Court emphasized that the SEC's
authority is not limited to administrative sanctions but extends to issuing orders
that fix the rights and obligations of parties. The Court also highlighted that
Cemco is estopped from questioning the SEC's jurisdiction as it had actively
participated in the proceedings and sought affirmative relief.

Regarding the applicability of the mandatory tender offer rule, the Court noted
that the rule aims to protect minority shareholders by giving them the opportunity
to exit the company under reasonable terms. The legislative intent of Section 19 of
the Securities Regulation Code is to regulate activities related to the acquisition of
control of a listed company, whether through direct or indirect means. The Court
found that the SEC and the Court of Appeals correctly interpreted the rule to
cover indirect acquisitions, as this aligns with the legislative intent to protect
minority shareholders.
On the issue of retroactive application, the Court held that the SEC's initial opinion
was merely advisory and not a conclusive judgment. The subsequent SEC ruling,
which reversed the initial
opinion, should be applied to determine the rights of the parties. The Court cited
jurisprudence that an advisory opinion may be disregarded if it deviates from the
statute's provisions. The Court also dismissed Cemco's argument that the SEC's
decision was incomplete, stating that the decision was clear in ordering a
mandatory tender offer at the highest price paid for the beneficial ownership of
UCC shares.

9. Banco De Oro v. Republic, January 13, 2015

Facts:

The case "Banco De Oro v. Republic" (G.R. No. 198756) decided on January 13,
2015, revolves around the tax treatment of P35 billion worth of 10-year zero-
coupon treasury bonds issued by the Bureau of Treasury on October 18, 2001,
known as the Poverty Eradication and Alleviation Certificates (PEACe Bonds). The
petitioners, a consortium of banks including Banco De Oro, Bank of Commerce,
China Banking Corporation, and others, contested the Bureau of Internal Revenue
(BIR) Ruling No. 370-2011 issued on October 7, 2011. This ruling declared that the
PEACe Bonds were subject to a 20% final withholding tax (FWT) as deposit
substitutes. The Secretary of Finance instructed the Bureau of Treasury to
withhold this tax from the face value of the bonds upon their maturity on October
18, 2011. The petitioners sought to annul the BIR ruling, prevent the withholding
of the tax, and compel the Bureau of Treasury to pay the full face value of the
bonds. The case was filed under Rule 65 of the Rules of Court, seeking certiorari,
prohibition, and/or mandamus. The Caucus of Development NGO Networks (CODE-
NGO), with the assistance of financial advisors including RCBC and RCBC Capital,
initially proposed the issuance of the bonds, which were to be repackaged and sold
to investors, with proceeds used to finance NGO projects. The BIR had previously
issued rulings in 2001 stating that the PEACe Bonds were not deposit substitutes
and thus not subject to the withholding tax. However, subsequent BIR rulings in
2004 and 2005 contradicted this, leading to the 2011 BIR ruling that the bonds
were taxable. The petitioners argued that the bonds were not deposit substitutes
as they were issued to a single entity and that the retroactive application of the
2011 ruling violated their rights.

Issue:

1. Are the PEACe Bonds considered "deposit substitutes" and thus subject to
a 20% final withholding tax under the 1997 National Internal Revenue
Code?
2. If the PEACe Bonds are considered "deposit substitutes," is the government
or the Bureau of Internal Revenue estopped from imposing and/or collecting
the 20% final withholding tax from the face value of these Bonds? a. Does
the imposition of the 20% final withholding tax violate the non-impairment
clause of the Constitution? b. Does it constitute a deprivation of property
without due process of law? c. Does it violate Section 245 of the 1997
National Internal Revenue Code on non-retroactivity of rulings?
Ruling:

The Supreme Court granted the petition for review and the petitions-in-
intervention, nullifying BIR Ruling Nos. 370-2011 and DA 378-2011. The Court
ordered the Bureau of Treasury to immediately release and pay to the bondholders
the amount corresponding to the 20% final withholding tax that it withheld on
October 18, 2011. The Bureau of Treasury was also reprimanded for its continued
retention of the amount despite the Court's directive.

Ratio:

The Court held that the interpretation of "at any one time" for determining the "20
or more lenders" rule under Section 22 (Y) of the 1997 National Internal Revenue
Code should consider transactions in both the primary and secondary markets. The
Court found that the BIR's 2011 ruling, which declared all treasury bonds as
deposit substitutes regardless of the number of lenders at the time of origination,
was erroneous and disregarded the statutory requirement of having 20 or more
lenders. The Court emphasized that tax statutes must be reasonably construed to
give effect to the whole act and that administrative issuances must remain
consistent with the law they seek to apply. The Court also noted that the collection
of the final withholding tax was not barred by prescription, as the 10-year
prescriptive period applies in cases of false returns or failure to file a return. The
Court found that the Bureau of Treasury's withholding of the tax on October 18,
2011, was justified as it received the temporary restraining order only on October
19, 2011. However, the continued retention of the withheld amount was a defiance
of the Court's order. The Court concluded that the proper procedure was for the
Bureau of Treasury to pay the face value of the bonds to the bondholders and for
the BIR to collect the unpaid tax from the withholding agents.

GRADING SYSTEM:

Attendance: 10%
Recitation: 10%
Case Digest: 10%
Midterm Examination: 30%
Final Examination: 40%
TOTAL: 100%

Compilation of case digests shall be written on a yellow pad paper and be submitted
during the scheduled FINAL Examinations.