GREGORIO H. REYES AND CONSUELO PUYAT-REYES, PETITIONERS, VS.

THE
HON. COURT OF APPEALS AND FAR EAST BANK AND TRUST COMPANY,
RESPONDENTS.
G.r. no. 118492, august 15, 2001
De leon, jr., j.:
Doctrine: The degree of extraordinary diligence applies only to cases where banks act under their
fiduciary capacity, that is, as depositary of the deposits of their depositors.
Facts:
Petitioners spouses Gregorio H. Reyes and Consuelo Puyat-Reyes left for Australia to
attend a racing conference in Sydney as representative of the Philippine Racing Club, Inc. . Prior
to their flight, the club secretary apply for a demand draft in the amount One Thousand Six
Hundred Ten Australian Dollars (AU$1,610.00) payable to the order of the 20th Asian Racing
Conference Secretariat of Sydney, Australia at Far East Bank and Trust Company Buendia Branch.
Respondent bank’s assistant cashier accommodate the application upon the insistence of the club
secretary, with reservation since the bank do not have an Australian dollar account in any bank in
Sydney. The respondent bank approved the said application of PRCI and issued Foreign Exchange
Demand Draft (FXDD) No. 209968 in the sum applied for, that is, One Thousand Six Hundred
Ten Australian Dollars (AU$1,610.00), payable to the order of the 20th Asian Racing Conference
Secretariat of Sydney, Australia, and addressed to Westpac-Sydney as the drawee bank. Petitioner
spouses Gregorio H. Reyes and Consuelo Puyat-Reyes was humiliated upon registration they could
not register because the foreign exchange demand draft for his registration fee had been
dishonored. Petitioners sued Far East Bank due to their humiliation.
Issue :
The honorable court of appeals erred in finding private respondent not negligent by
erroneously applying the standard of diligence of an “ordinary prudent person” when in truth a
higher degree of diligence is imposed by law upon the banks.
Ruling :
Upholding a long standing doctrine, the Court ruled that the degree of diligence required
of banks, is more than that of a good father of a family where the fiduciary nature of their
relationship with their depositors is concerned. In other words banks are duty bound to treat the
deposit accounts of their depositors with the highest degree of care. But the said ruling applies
only to cases where banks act under their fiduciary capacity, that is, as depositary of the deposits
of their depositors. But the same higher degree of diligence is not expected to be exerted by banks
in commercial transactions that do not involve their fiduciary relationship with their depositors.
Considering the foregoing, the respondent bank was not required to exert more than the diligence
of a good father of a family in regard to the sale and issuance of the subject foreign exchange
demand draft. The case at bar does not involve the handling of petitioners’ deposit, if any, with the
respondent bank. Instead, the relationship involved was that of a buyer and seller, that is, between
the respondent bank as the seller of the subject foreign exchange demand draft, and PRCI as the
buyer of the same, with the 20th Asian Racing Conference Secretariat in Sydney, Australia as the
payee thereof.
COMSAVINGS BANK (NOW GSIS FAMILY BANK) vs. SPOUSES DANILO AND
ESTRELLA CAPISTRANO G.R. No. 170942 August 28, 2013
BERSAMIN, J.:

Doctrine : A banking institution like Comsavings Bank is obliged to exercise the highest degree
of diligence as well as high standards of integrity and performance in all its transactions because
its business is imbued with public interest.

Facts :
Spouses Capistrano availed themselves of the Unified Home Lending Program (UHLP)
implemented by the National Home Mortgage Finance Corporation (NHMFC), executed a
construction contract on May 28, 1992 with Cruz-Bay, the proprietor of GCB Builders, for the
total contract price of ₱265,000.00 with GCB Builders undertaking to complete the construction
of their house within 75 days. To finance the construction, GCB Builders facilitated their loan
application with Comsavings Bank, an NHFMC-accredited originator.
Respondents received on May 30, 1993 a letter from NHMFC advising them to start
paying their monthly amortization because their loan had been released on April 20, 1993
directly to Comsavings Bank. Estrella Capistrano found that the house was still unfinished.

Issue :
Whether or not petitioner Comsavings Bank is jointly and severally liable with GCB
Builders.

Ruling :
The court agreed with the Court of Appeals. The Court of Appeals rightfully declared
Comsavings Bank solidarily liable with GCB Builders for the damages sustained by the
respondents, however, the court ruled that the petitioner’s liability was not based on its purchase
of loan agreement with NHMFC but on Art. 20 and Art. 1170 of the Civil Code.
The court ruled that the petitioner was grossly negligent in its dealings with respondents
by letting them pre-sign the certificate of acceptance/completion despite the construction of the
house not yet even started. As a banking institution, it must be fully aware that the purpose of the
certificate was to affirm that the construction had been completed according to the approved
plans and specifications, and that the respondents had accepted the delivery of the complete
house.
G.R. No. 142411 October 14, 2005
WINIFREDA URSAL vs. COURT OF APPEALS, THE RURAL BANK OF LARENA
(SIQUIJOR), INC. and SPOUSES JESUS MONESET and CRISTITA MONESET,
Respondents.

Doctrine:
Banks cannot merely rely on certificates of title in ascertaining the status of mortgaged properties;
as their business is impressed with public interest, they are expected to exercise more care and
prudence in their dealings than private individuals.

Facts:
Spouses Jesus and Cristita Moneset are the registered owners of a land together with a house
thereon situated at Sitio Laguna, Basak, Cebu City. On January 9, 1985, they executed a "Contract
to Sell Lot & House" in favor of petitioner Winifreda Ursal. Petitioner paid the down payment and
took possession of the property but after paying six monthly installments, petitioner stopped
paying due to the Monesets’ failure to deliver to her the transfer certificate of title of the property
as per their agreement. Unknown to petitioner, the Monesets executed another absolute deed of
sale in favor of Dr. Rafael Canora, Jr. and another subsequent sale, this time with pacto de retro
with Restituto Bundalo. On the same day, Bundalo, as attorney-in-fact of the Monesets, executed
a real estate mortgage over said property with Rural Bank of Larena located in Siquijor for the
amount of ₱100,000.00. Ursal filed an action for declaration of non-effectivity of mortgage against
the Bank. She claimed that the Bank acted in bad faith since it granted the real estate mortgage in
spite of its knowledge that the property was in the possession of petitioner.

Issue:
Whether or not the Bank, as mortgagee, failed to look beyond the transfer certificate of title of the
property for which it must be held liable.

Ruling:
Yes. Banks cannot merely rely on certificates of title in ascertaining the status of mortgaged
properties; as their business is impressed with public interest, they are expected to exercise more
care and prudence in their dealings than private individuals. Indeed, the rule that persons dealing
with registered lands can rely solely on the certificate of title does not apply to banks. As
enunciated in Cruz vs. Bancom:
Respondent… is not an ordinary mortgagee; it is a mortgagee-bank. As such, unlike private
individuals, it is expected to exercise greater care and prudence in its dealings, including those
involving registered lands. A banking institution is expected to exercise due diligence before
entering into a mortgage contract. The ascertainment of the status or condition of a property offered
to it as security for a loan must be a standard and indispensable part of its operations.
PHILIPPINE NATIONAL BANK VS VILA
G.R. NO. 213241 | AUGUST 01, 2016
PEREZ, J.:
(Diligence Required of Banks)

Doctrine : It is standard operating procedure for banks to conduct an ocular

inspection of the property offered for mortgage and to determine the owners thereof.

FACTS:
Sometime in 1986, Spouses Reynaldo Cormsta and Erlinda Gamboa Cornista (Spouses Cornista)
obtained a loan from Traders Royal Bank and secured the same by mortgage of a parcel of land
with TCT title in their names by the R.O.D of Pangasinan. For failure to pay on due, the mortgage
was foreclosed. After the notice and publication, the subject property was sold at the public auction
where respondent Juan F. Vila (Vila) was declared the highest bidder. Vila immediately took
possession of the subject property however, he was prevented from consolidating the ownership
because the owner's copy was not turned over to him by the Sheriff. Despite the lapse of the
redemption period and the fact of issuance of a Certificate of Final Sale to Vila, the Spouses
Cormsta were nonetheless allowed to buy back the subject property.
Claiming that the Spouses Cornista already lost their right to redeem the subject property, Vila
filed an action for nullification of redemption against the Spouses Cornista and Alfredo Vega in
his capacity as the R.O.D of Pangasinan. RTC and CA both decided in favor of Vila. But the
Sheriff could not successfully enforce the decision because title was no longer registered to
Spouses Cornista because it was foreclosed by PNB as mortgage to their P532,000 loan. Vila filed
a case against Spouses Cornista and PNB before the RTC Pangasinan and sought for the
nullification of the TCT under PNB but the latter invoked they were mortgagee in good faith
because at the time it mortgaged, it was still free from any liens and encumbrances. RTC rendered
a decision in favor of Vila. CA affirmed the decision. Hence, the case.

ISSUES:
1. W/N PNB is a mortgagee in good faith;
2. W/N PNB is liable for damages.

RULING:
NO. There was no credible proof on the records could substantiate the claim of PNB that a physical
inspection of the property was conducted. The failure of the mortgagee to take precautionary steps
would mean negligence on his part and would thereby preclude it from invoking that it is a
mortgagee in good faith. When the purchaser or the mortgagee is a bank, the rule on innocent
purchasers or mortgagees for value is applied more strictly. Being in the business of extending
loans secured by real estate mortgage, banks are presumed to be familiar with the rules on land
registration. Having laid down that the PNB is not in good faith, they are liable for the award of
moral damages, exemplary damages, attorney's fees and costs of litigation in favor of Vila.
ONOFRE ANDRES V. PNB
G.R. No. 173548
October 15, 2014

Doctrine : Banks, as businesses impressed with public interest, must exercise greater care,
prudence, and due diligence in all their property dealings.
Facts:
The Spouses Victor and Filomena Andres acquired during their marriage a 4,634 square-meter
parcel of land in Sto. Domingo, Nueva Ecija covered by TCT No. NT-7267. They had nine children among
them were Onofre Andres. The property was subjected to extrajudicial partition with sale but provides that
for 1,000, they all sold, transferred and conveyed to Roman Andres their respective rights. Consequently,
TCT No. NT-7267 was cancelled, but a new title was issued, the Spouses Roman and Lydia Andres
mortgaged the property to PNB Bank for P3,000.00. The new title was eventually cancelled with the
mortgage and the title was transferred to Reynaldo Andres and Janette De Leon who mortgaged the property
to PNB for a P1.2 Million loan without the consent of Onofre Andres. Petitioner filed a complaint alleging
that he is the rightful owner of the property through continuous possession and that Reynaldo Andres was
in collusion with his mother in falsifying a document denominated as “Self Adjudication of Sole Heir”.PNB
denied the material allegations of Andres but, the RTC ruled in favour of Andres. CA modified the decision
and ruled that PNB has a valid title because it was in the hands of an innocent purchase for value.
Issue:
Whether or not PNB is an innocent mortgagee in value and in good faith?
Held:
YES. Preliminarily, the Court of Appeals mentioned that it is "in quandary as to whether or not the
appellant PNB indeed was able to present evidence for and on its own behalf but aclose scrutiny of the
records of this case would disclose that Gerardo Pestaño was presented as a witness for the defendant-PNB
and his testimony was adopted by the defendants-spouses."
It then found that PNB followed the standard practice of banks before approving a loan by sending
representatives to inspect the property offered as collateral. PNB even investigated on "where and from
whom the title originated."
PNB is an innocent mortgagee for value in which the good faith doctrine is applied in the 2012 case of
Philippine Banking Corportation vs Dy:
While it is settled that a simulated deed of sale is null and void and therefore, does not convey any right
that could ripen into a valid title, it has been equally ruled that, for reasons of public policy, the subsequent
nullification of title to a property is not a ground to annul the contractual right which may have been derived
by a purchaser, mortgagee or other transferee who acted in good faith.
Considering these arguments,
It is undisputed that PNB sent its appraiser and credit investigator Gerardo Pestaño to conduct an ocular
inspection of the property. He also went to the relevant government offices to verify the ownership status
of the property. There was an on-going construction of a residential building during his inspection, so he
appraised this building as well, in case the land proved insufficient to cover the applied loan. These acts
complied with the standard operating practice expected of banks when dealing with real property.
In sum, this court reiterates the rule that banks, as businesses impressed with public interest, must exercise
greater care, prudence, and due diligence in all their property dealings. This court upholds the Court of
Appeals' findings that PNB complied with the standard operating practice of banks, which met the requisite
level of diligence, when it sent Gerardo Pestano to conduct an ocular inspection of the property and verify
the status of its ownership and title.
Philippine National Bank vs. Corpuz
G.R. No. 180945. February 12, 2010.
ABAD, J.

Doctrine:
Banks are expected to be more cautious than ordinary individuals in dealing with lands,even
registered ones, since the business of banks is imbued with public interest.

Facts:

Mercedes Corpuz delivered her owner’s duplicate copy of TCT 32815 to Dagupan City Rural Bank
as security against any liability she might incur as its cashier, which she later left and went to
United States, however, without Corpuz’s knowledge and consent, Natividad Alano, the rural
bank’s manager, turned over Corpuz’s title to Julita Camacho and Amparo Callejo. Alano,
Camacho, and Callejo prepared a falsified deed of sale, making it appear that Corpuz sold her land
to one “Mary Bondoc” and caused the registration of the deed of sale, resulting in the cancellation
of TCT 32815 and the issuance of TCT 63262 in Bondoc’s name. Subsequent transfers were made
to Rufo and Teresa Palaganas and to Virgilio and Elene Songcuan, which resulted in the issuance
of TCT 63528. Finally, the Songcuans took out a loan of P1.1 million from petitioner Philippine
National Bank (PNB) and, to secure payment, they executed a real estate mortgage on their title.

A complaint was filed by Corpuz against Mary Bondoc, the Palaganases, the Songcuans, and
petitioner PNB, asking for the annulment of the layers of deeds of sale covering the land, the
cancellation of TCTs 63262, 63466, and 63528, and the reinstatement of TCT 32815 in her name.

Issue:

Whether or not petitioner PNB is a mortgagee in good faith, entitling it to its lien on the title to the
property in dispute.

Ruling:
No, PNB is not a mortgagee in good faith. As a rule, the Court would not expect amortgagee
to conduct an exhaustive investigation of the history of the mortgagor’s title before he extends a
loan. But petitioner PNB is not an ordinary mortgagee; it is a bank. Banks are expected to be more
cautious than ordinary individuals in dealing with lands, even registered ones, since the business
of banks is imbued with public interest. It is of judicial notice that the standard practice for banks
before approving a loan is to send a staff to the property offered as collateral and verify the
genuineness of the title to determine the real owner or owners.
ANNA MARIE L. GUMABON, Petitioner, v. PHILIPPINE NATIONAL BANK,
Respondent
G.R. No. 202514
July 25, 2016
BRION, J.:

Doctrine:
Diligence Required of Banks; The bank is required to assume a degree of diligence higher
than that of a good father of a family.

Facts:
Petitioner Anna Marie Gumabon, together with her mother Angeles and her siblings Anna,
Elena, and Santiago deposited with the PNB Delta Branch $10,945.28 and $16,830.91, for which
they were issued FXCTD Nos. A-993902 and A-993992 in 2001. Petitioner decided to consolidate
her deposits with her family's eight (8) savings accounts and to withdraw P-2,727,235.85 from the
consolidated savings account to help her sister's financial needs. After withdrawals, the balance of
her consolidated savings account was P250,741.82.
PNB sent letters to Anna Marie to inform her that the PNB refused to honor its obligation
under FXCTD Nos. 993902 and 993992, and that the PNB withheld the release of the balance of
P-250,741.82 in the consolidated savings account. According to the PNB, Anna Marie pre-
terminated, withdrew and/or debited sums against her deposits. Gumabon filed a complaint
for recovery of sum of money and damages before the RTC against the Philippine National Bank
(PNB) and the PNB Delta branch manager Silverio Fernandez on August 12, 2004.
The RTC awarded damages to Anna Marie due to the PNB's mishandling of her account
through its employee, Salvoro.
The CA reversed the RTC's ruling.

Issue:
Whether or not PNB is liable for actual, Moral, and exemplary damages as well as
attorney's fees for its negligent acts as a banking institution?

Ruling:

Philippine National Bank is ORDERED to pay Anna Marie Gumabon who filed her
complaint on August 12, 2004. PNB is therefore liable for legal interest of 12% per annum from
August 12, 2004 until June 30, 2013, and 6% per annum from J
uly 1, 2013, until its full satisfaction.
Section 2of Republic Act No. 8791, declares the State’s recognition of the “fiduciary nature
of banking that requires high standards of integrity and performance.” It cannot be over
emphasized that the banking business is impressed with public interest. The trust and confidence
of the public to the industry is given utmost importance. Thus, the bank is under obligation totreat
its depositor’s accounts with meticulous care, having in mind the nature of their relationship. The
bank is required to assume a degree of diligence higher than that of a good father of a family.
Same; Same; The bank is not absolved from liability by the fact that it was the bank’s employee
who committed the wrong and caused damage to the depositor.
Banco De Oro, et al. vs. Republic of the Philippines, et al., G.R. No 198756, promulgated on January
15, 2015 and August 16, 2016
LEONEN, J.:

Doctrine : SEC. 95. Definition of Deposit Substitutes. The term "deposit substitutes" is defined as an
alternative form of obtaining funds from the public, other than deposits, through the issuance, endorsement,
or acceptance of debt instruments for the borrower's own account, for the purpose of relending or
purchasing of receivables and other obligations.

Facts:
This resolves separate motions for reconsideration and clarification filed by the Office of the Solicitor
General[1] and petitioners-intervenors Rizal Commercial Banking Corporation and RCBC Capital
Corporation[2] of the Court’s Decision dated January 13, 2015.This case involves P35 billion worth of 10-
year zero-coupon treasury bonds issued by the Bureau of Treasury (BTr) denominated as the Poverty
Eradication and Alleviation Certificates or the PEACe Bonds. With this BTr made a public offering of the
PEACe Bonds to the Government Securities Eligible Dealers (GSED) wherby RCBC won as the highest
bidder for approximately 10.17 billion, resulting in a discount of approximately 24.83 billion. RCBC
Capital Capital entered into an underwriting agreement with CODE-NGO, whereby RCBC Capital was
appointed as the Issue Manager and Lead Underwriter for the offering of the PEACe Bonds. The
Commissioner of Internal Revenue issued BIR Ruling No. 370-2011 declaring that the PEACe Bonds,
being deposit substitutes, were subject to 20% final withholding tax.

Issue:
Are PEACe Bonds should be treated as deposit substitutes subject to the 20% FWT?

Ruling:
No. The Supreme Court did not consider the PEACe Bonds as deposit substitutes and therefore not subject
to the 20 percent final withholding tax on the interest on deposit substitutes, due to the failure to adequately
show that there was borrowing from the public. the Supreme Court first clarified that the 20-lender rule –
20 or more individuals or corporate lenders at any one time, is determinative of whether a debt instrument
should be considered a deposit substitute and consequently subject to 20 percent final withholding tax.

The court likewise expounded on the meaning of the phrase “at any one time”. The Supreme Court ruled
that for the purpose of determining the “20 or more lenders”, the phrase “at any one time” would mean
every transaction executed in the primary or secondary market in connection with the purchase or sale of
securities. The court further ruled that when funds are simultaneously obtained from 20 or more
lenders/investors, there is deemed to be a public borrowing and the bonds at that point in time are deemed
deposit substitutes.

The Supreme Court also ruled that should there have been a simultaneous sale to 20 or more
lenders/investors, the PEACe Bonds are deemed deposit substitutes within the meaning of Section 22(Y)
of the Tax Code and RCBC/CODE-NGO would have been obliged to pay the 20 percent final withholding
tax on the interest or discount from the PEACe Bonds. Further, the obligation to withhold the 20 percent
final tax on the corresponding interest from the PEACe Bonds would likewise be required of any
lender/investor had the latter turned around and sold the PEACe Bonds, in whole or in part, simultaneously
to 20 or more lenders or investors.
SPS. CARBONELL v. METROBANK
Sps. Cristino and Edna Carbonell Vs. Metropolitan Bank and Trust Company
G.R. No. 178467
April 26, 2017

DOCTRINE : The General Banking Act of 2000 demands of banks the highest standards of integrity and performance.
As such, the banks are under obligation to treat the accounts of their depositors with meticulous care. [13] However,
the banks' compliance with this degree of diligence is to be determined in accordance with the particular
circumstances of each case.

FACTS:

The petitioners alleged that they had experienced emotional shock, mental anguish, public ridicule, humiliation, insults
and embarrassment during their trip to Bangkok, Thailand because of the respondent's release to them of five US$
100 bills that turned out to be counterfeit.

Upon the petitioners’ return to the Philippines, they had confronted the manager of the respondent's Pateros branch on
the fake dollar bills, but the latter had insisted that the dollar bills she had released to them were genuine, for the bills
were certified by Bangko Sentral ng Pilipinas (BSP) after examination. They had demanded moral damages of ₱10
Million and exemplary damages.

Prior to the filing of the suit in the RTC, the petitioners had two meetings with the respondent's representatives. In the
course of the two meetings, the latter's representatives reiterated their sympathy and regret over the troublesome
experience that the petitioners had encountered, and offered to reinstate US$500 in their dollar account, and, in
addition, to underwrite a round-trip all-expense-paid trip to Hong Kong, but they were adamant and staged a walk-
out.

The RTC ruled in favor of the respondent. The petitioners appealed, but the CA ultimately promulgated its assailed
decision affirming the judgment of the RTC with the modification of deleting the award of attorney's fees.

ISSUE:

Whether or not the CA gravely erred in affirming the judgment of the RTC.

HELD:

No. The court affirmed with the judgment of the RTC. Injury is the illegal invasion of a legal right, damage is the loss,
hurt, or harm which results from the injury; and damages are the recompense or compensation awarded for the damage
suffered. Thus, there can be damage without injury in those instances in which the loss or harm was not the result of
a violation of a legal duty. These situations are often called dmimum absque injuria.

In every situation of damnum absque injuria, therefore, the injured person alone bears the consequences because the
law affords no remedy for damages resulting from an act that does not amount to a legal injury or wrong. a legal duty
towards the plaintiff. In such situation, the injured person alone should bear the consequences because the law afforded
no remedy for damages resulting from an act that did not amount to a legal injury For instance, in BP I Express Card
Corporation v. Court of Appeals, the Court turned down the claim for damages of a cardholder whose credit card had
been cancelled after several defaults in payment, holding therein that there could be damage without injury where the
loss or harm was not the result of a violation of or wrong. Indeed, the lack of malice in the conduct complained of
precluded the recovery of damages.

Here, although the petitioners suffered humiliation resulting from their unwitting use of the counterfeit US dollar bills,
the respondent, by virtue of its having observed the proper protocols and procedure in handling the US dollar bills
involved, did not violate any legal duty towards them. Being neither guilty of negligence nor remiss in its exercise of
the degree of diligence required by law or the nature of its obligation as a banking institution, the latter was not liable
for damages. Given the situation being one of damnum absque injuria, they could not be compensated for the damage
sustained.
FIRST PLANTERS PAWNSHOP VS. CIR
G.R. No. 174134
July 30, 2008

Doctrine : The Court finds that pawnshops should have been treated as non-bank financial intermediaries from the very
beginning, subject to the appropriate taxes provided by law. Financial intermediaries are defined as "persons or entities whose
principal functions include the lending, investing or placement of funds or evidences of indebtedness or equity deposited with them,
acquired by them, or otherwise coursed through them, either for their own account or for the account of others."

FACTS: In a Pre-assessment Notice, petitioner was informed by the BIR that it has an existing tax deficiency on its VAT and
Documentary Stamp Tax (DST) liabilities for the year 2000. Petitioner protested the assessment for lack of legal and factual bases.

Petitioner subsequently received a Formal Assessment Notice, directing payment of VAT deficiency and DST deficiency, inclusive
of surcharge and interest. Petitioner filed a protest, which was denied by the Acting Regional Director.

Petitioner then filed a petition for review with the CTA, which upheld the deficiency assessment. Petitioner filed an MR which
was denied.

Petitioner appealed to the CTA En Banc which denied the Petition for Review. Petitioner sought reconsideration but this was denied
by the CTA.. Hence, the present petition for review under Rule 45 of the ROC.

The core of petitioner’s argument is that it is not a lending investor within the purview of Section 108(A) of the NIRC, as amended,
and therefore not subject to VAT. Petitioner also contends that a pawn ticket is not subject to DST because it is not proof of the
pledge transaction, and even assuming that it is so, still, it is not subject to tax since a DST is levied on the document issued and
not on the transaction.

ISSUE: is petitioner in this case liable for VAT?

HELD:

NO .The determination of petitioner’s tax liability depends on the tax treatment of a pawnshop business. It was the CTA’s view
that the services rendered by pawnshops fall under the general definition of “sale or exchange of services” under Section 108(A)
of the Tax Code of 1997.

The Court finds that pawnshops should have been treated as non-bank financial intermediaries from the very beginning, subject to
the appropriate taxes provided by law.

At the time of the disputed assessment, that is, for the year 2000, pawnshops were not subject to 10% VAT under the general
provision on “sale or exchange of services” as defined under Section 108(A) of the Tax Code of 1997. Instead, due to the specific
nature of its business, pawnshops were then subject to 10% VAT under the category of non-bank financial intermediaries, as
provided in the same Section 108(A), which reads:

SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. –

(A) xx

The phrase “sale or exchange of services” means the performance of all kinds or services in the Philippines for others for a fee,
remuneration or consideration, including x x x services of banks, non-bank financial intermediaries and finance companies; and
non-life insurance companies (except their crop insurances), including surety, fidelity, indemnity and bonding companies..xx

Coming now to the issue at hand – Since petitioner is a non-bank financial intermediary, it is subject to 10% VAT for the tax years
1996 to 2002; however, with the levy, assessment and collection of VAT from non-bank financial intermediaries being specifically
deferred by law, then petitioner is not liable for VAT during these tax years. But with the full implementation of the VAT system
on non-bank financial intermediaries starting January 1, 2003, petitioner is liable for 10% VAT for said tax year. And beginning
2004 up to the present, by virtue of R.A. No. 9238, petitioner is no longer liable for VAT but it is subject to percentage tax on gross
receipts from 0% to 5 %, as the case may be.
PDIC vs. CITIBANK
G.R. No. 170290, April 11, 2012
Mendoza, J.:

Doctrine:
The Philippine branch of a foreign bank is without a separate legal personality from its
parent company because as the name implies, it is merely a branch, subject to the supervision and
control of the parent bank.
Facts:
Petitioner Philippine Deposit Insurance Corporation (PDIC) conducted an examination on
the books of account of respondent Citibank and Bank of America. PDIC discovered that Citibank
and BA received from its head office and other foreign branches certain amounts in dollar that
were interest-bearing with corresponding maturity dates. These funds were not reported to PDIC
as deposit liabilities that were subject to assessment for insurance; hence PDIC sought the
remittance of deficiency premium assessments for dollar deposits.
Issue:
Whether or not the Philippine branch of a foreign bank has a separate legal personality with
its foreign head office for the purpose of PDIC.
Ruling:
The Philippine branch of a foreign bank has no separate legal personality with its foreign
head office.
The Court began by examining the manner by which a foreign corporation can establish its
presence in the Philippines. It may choose to incorporate its own subsidiary as a domestic
corporation, in which case such subsidiary would have its own separate and independent legal
personality to conduct business in the country. In the alternative, it may create a branch in the
Philippines, which would not be a legally independent unit, and simply obtain a license to do
business in the Philippines.
Based on the foregoing, it is clear that the head office of a bank and its branches are
considered as one under the eyes of the law. While branches are treated as separate business units
for commercial and financial reporting purposes, in the end, the head office remains responsible
and answerable for the liabilities of its branches which are under its supervision and control. As
such, it is unreasonable for PDIC to require the respondents to insure the money placements made
by their home office and other branches. Deposit insurance is superfluous and entirely unnecessary
when, as in this case, the institution holding the funds and the one which made the placements are
one and the same legal entity.
Areza vs. Express Savings Bank

(G.R. No. 176697, September 10, 2014)

Doctrines: A depositary/collecting bank where a check is deposited, and which endorses the check
upon presentment with the drawee bank, is an endorser. Under Section 66 of the Negotiable
Instruments Law, an endorser warrants “that the instrument is genuine and in all respects what it
purports to be; that he has good title to it; that all prior parties had capacity to contract; and that
the instrument is at the time of his endorsement valid and subsisting.”

It is well-settled that the relationship of the depositors and the Bank or similar institution is that
of creditor-debtor. Article 1980 of the New Civil Code provides that fixed, savings and current
deposits of money in banks and similar institutions shall be governed by the provisions concerning
simple loans. The bank is the debtor and the depositor is the creditor. The depositor lends the bank
money and the bank agrees to pay the depositor on demand. The savings deposit agreement
between the bank and the depositor is the contract that determines the rights and obligations of
the parties.

Facts: Petitioners received an order for the purchase of a motor vehicle from Gerry Mambuay
where the latter paid petitioners with nine (9) Philippine Veterans Affairs Office (PVAO) checks
payable to different payees and drawn against the Philippine Veterans Bank (drawee), each valued
at Two Hundred Thousand Pesos (₱200,000.00). Petitioners deposited the said checks in their
savings account with the Express Savings Bank which, in turn, deposited the checks with its
depositary bank, Equitable-PCI Bank and the latter presented the checks to the drawee, the
Philippine Veterans Bank, which honored the checks. However, the subject checks were returned
by PVAO to the drawee on the ground that the amount on the face of the checks was altered from
the original amount of ₱4,000.00 to ₱200,000.00. After informing Express Savings Bank that the
drawee dishonored the checks, Equitable-PCI Bank debited the deposit account of ESB in the
amount of P1.8M. Express Savings Bank then withdrew the amount of P1.8M representing the
returned checks from petitioners saving account.

Issue: Whether or not Express Savings Bank had the right to debit₱1,800,000.00 from
petitioners’ accounts.

Held: No, Express Savings Bank cannot debit the savings account of petitioners. A
depositary/collecting bank where a check is deposited, and which endorses the check upon
presentment with the drawee bank, is an endorser. Under Section 66 of the Negotiable Instruments
Law, an endorser warrants “that the instrument is genuine and in all respects what it purports to
be; that he has good title to it; that all prior parties had capacity to contract; and that the instrument
is at the time of his endorsement valid and subsisting.” As collecting bank, Express Savings Bank
is liable for the amount of the materially altered checks. It cannot further pass the liability back to
the petitioners absent any showing in the negligence on the part of the petitioners which
substantially contributed to the loss from alteration
CITIBANK vs. SABENIANO
G.R.No. 156132, October 16, 2006

FACTS: Petitioner Citibank is a banking corporation duly authorized under the laws of the USA
to do commercial banking activities n the Philippines. Sabeniano was a client of both Petitioners
Citibank and FNCB Finance. Respondent filed a complaint against petitioners claiming to have
substantial deposits, the proceeds of which were supposedly deposited automatically and directly
to respondent’s account with the petitioner Citibank and that allegedly petitioner refused to despite
repeated demands. Petitioner alleged that respondent obtained several loans from the former and
in default, Citibank exercised its right to set-off respondent’s outstanding loans with her deposits
and money. RTC declared the act illegal, null and void and ordered the petitioner to refund the
amount plus interest, ordering Sabeniano, on the other hand to pay Citibank her indebtedness. CA
affirmed the decision entirely in favor of the respondent.

ISSUE: Whether petitioner may exercise its right to set-off respondent’s loans with her deposits
and money in Citibank-Geneva

RULING: Petition is partly granted with modification.

1. Citibank is ordered to return to respondent the principal amount of P318,897.34 and
P203,150.00 plus 14.5% per annum
2. The remittance of US $149,632.99 from respondent’s Citibank-Geneva account is declared
illegal, null and void, thus Citibank is ordered to refund said amount in Philippine currency or its
equivalent using exchange rate at the time of payment.
3. Citibank to pay respondent moral damages of P300,000, exemplary damages for P250,000,
attorney’s fees of P200,000.
4. Respondent to pay petitioner the balance of her outstanding loans of P1,069,847.40 inclusive
off interest.
G.R. No. L-60033 April 4, 1984
TEOFISTO GUINGONA, JR., ANTONIO I. MARTIN, and TERESITA SANTOS, vs.
THE CITY FISCAL OF MANILA, HON. JOSE B. FLAMINIANO, ASST. CITY FISCAL
FELIZARDO N. LOTA and CLEMENT DAVID

DOCTRINE: Bank deposits are in the nature of irregular deposits. They are really 'loans
because they earn interest. All kinds of bank deposits, whether fixed, savings, or current are to
be treated as loans and are to be covered by the law on loans

FACTS: David charged petitioners with estafa and violation of Central Bank Circular No. 364
and related Central Bank regulations on foreign exchange transactions, allegedly committed
David invested with the Nation Savings and Loan Association on nine deposit. N LA then was
placed under receivership by the Central Bank, so that David filed claims therewith for his
investments and those of his sister; that on July 22, 1981 David received a report from the
Central Bank that only P305,821.92 of those investments were entered in the records of NSLA;
that, therefore, the respondents in I.S. No. 81-31938 misappropriated the balance of the
investments, at the same time violating Central Bank Circular No. 364 and related Central Bank
regulations on foreign exchange transactions; that after demands, petitioner Guingona Jr. paid
only P200,000.00.
Petitioner, Guingona, Jr., in his counter-affidavit said thathe had no hand whatsoever in the
transactions between David and NSLA since he (Guingona Jr.) had resigned as NSLA president
in March 1978, or prior to those transactions; that he assumed a portion o; the liabilities of NSLA
to David because of the latter's insistence that he placed his investments with NSLA because of
his faith in Guingona, Jr.
petitioners moved to dismiss the charges against them for lack of jurisdiction because
David's claims allegedly comprised a purely civil obligation which was itself novated.
Fiscal Lota denied the motion to dismiss.

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

RULING: There is merit in the contention of the petitioners that their liability is civil in nature
and therefore, public respondents have no jurisdiction over the charge of estafa.Petitioners
Guingona and Martin assumed the obligation of the bank to private respondent David, thereby
resulting in the novation of the original contractual obligation arising from deposit into a contract
of loan and converting the original trust relation between the bank and private respondent David
into an ordinary debtor-creditor relation between the petitioners and private respondent.
Consequently, the failure of the bank or petitioners Guingona and Martin to pay the deposits of
private respondent would not constitute a breach of trust but would merely be a failure to pay the
obligation as a debtor.In conclusion, considering that the liability of the petitioners is purely civil
in nature and that there is no clear showing that they engaged in foreign exchange transactions,
We hold that the public respondents acted without jurisdiction when they investigated the
charges against the petitioners. Consequently, public respondents should be restrained from
further proceeding with the criminal case.
Far East Bank and Trust Co v Queremit
G.R. No. 148582
January 16, 2002

Doctrine : The principle that payment, in order to discharge a debt, must be made to someone
authorized to receive it is applicable to the payment of certificates of deposit.

Facts:
Respondent Estrella Querimit opened a dollar savings account in FEBTC for which she was issued
4 Certificates of Deposit. In 1989, respondent accompanied her husband to the US for medical
treatment. In 1993, her husband died and Estrella Querimit returned to the Philippines. She went
to petitioner FEBTC to withdraw her deposit but she was told that her husband had withdrawn the
money in deposit. Respondent demanded payment including interests earned. Respondent filed a
complaint upon refusal of petitioner to pay.

The trial court rendered its judgment in favor of respondent. Petitioner appealed but the CA
affirmed the trial court’s decision. It ruled that FEBTC failed to prove that the certificates of
deposit had been paid out of its funds.

Issue:
Whether or not petitioner bank is liable in paying the certificates of deposit without the production
of such certificates.

Held:
Yes. A certificate of deposit is defined as a written acknowledgement by a bank or banker of the
receipt of a sum of money on deposit which the bank or banker promises to pay to the depositor,
to the order of the depositor, or to some other person or his order, whereby the relation of debtor
and creditor between the bank and the depositor is created. The principle that payment, in order to
discharge a debt, must be made to someone authorized to receive it is applicable to the payment of
certificates of deposit.

In this case, the certificates of deposit were clearly marked payable to “bearer”, which means – to
the “person in possession of an instrument, document of title or security payable to bearer or
indorsed in blank”. Petitioner should not have paid respondent’s husband or any third party without
requiring the surrender of the certificates of deposit. The subject certificates of deposit until now
remain unendorsed, undelivered and unwithdrawn by respondent Estrella Querimit.

Petitioner FEBTC thus failed to exercise that degree of diligence required by the nature of its
business.
BPI vs. FERNANDEZ
G.R. No. 173134, September 2, 2015
Brion, J.:

Doctrine:
A bank acts at its peril when it pays deposits evidenced by a certificate of deposit, without
its production and surrender after proper indorsement. As a rule, one who pleads payment has
the burden of proving it.
Facts:
The present case arose from respondent Tarcila “Baby” Fernandez claim to her
proportionate share in the proceeds of four joint and/or accounts that the petitioner BPI released to
her estranged husband Manuel Fernandez without the presentation of the requisite certificates of
deposit.
On September 24, 1991, Tarcila, with the certificates of time deposit and the passbook,
went to BPI Shaw Blvd. Branch to pre-terminate their joint account. BPI however, refused the
request and its branch manager insisted on contacting Manuel, alleging in this regard that this is
an integral part of its standard operation procedure. Shortly after Tarcila left the branch, Manuel
arrived and likewise requested the pre-termination of the said account, claiming that he had lost
the same certificates of deposits that Tarcila had earlier presented. The branch manager, this time
acceded to the pre-termination request, blindly believed Manuel’s claim and requested him to
accomplish BPI’s pro-forma affidavit, and eventually released the payment after two days.
Tarcila never received her proportionate share, demand from BPI the amounts due her as
co-depositor. When her demands remained unheeded, she initiated a complaint for damaged with
the RTC. The RTC ruled in favor of Tarcila and ordered BPI to pay Tarcila including P50,000.00
for exemplary damages and P500,000.00 as attorney’s fee. The CA denied BPI’s appeal.
Issue :
The honorable court of appeals erred in finding private respondent guilty of bad faith.
Ruling :
The bias and bad faith on the part of BPI officers become readily apparent in the face of
the fact that BPI’s officers did not require the presentation of the certificates of deposit from
Manuel but even assisted and facilitated the pre-termination transaction by a mere pro-forma and
defective affidavit of loss, which the bank itself supplied, despite the fact that BPI officers were
fully aware that the certificates were not lost but in the possession of Tarcila.
BPI did not only fail to exercise that degree of diligence required by the nature of its
business, it also manifest partiality against Tarcila.
BPI is sternly reminded that the business of banks is impressed with public interest. The
fiduciary nature of their relationship with their depositors requires it to treat the accounts of its
clients with the highest degree of integrity, care and respect.
 CA Agro-Industrial Development Corporation vs CA GR No. 90027. March 3, 1993

DOCTRINE: The renting out of the safety deposit boxes is not independent from, but related to or in conjunction
with, this principal function.

FACTS:

CA Agro (through its President, Aguirre) and spouses Pugao entered into an agreement whereby the
former purchased two parcels of land for P350, 525 with a P75, 725 down payment while the balance was
covered by three (3) postdated checks. Among the terms embodied in a Memorandum of True and Actual
Agreement of Sale of Land were that titles to the lots shall be transferred to the petitioner upon full payment of
the purchase price and that the owner’s copies of the certificates of titles thereto shall be deposited in a safety
deposit box of any bank. The same could be withdrawn only upon the joint signatures of a representative of the
petitioner upon full payment of the purchase price. They then rented Safety Deposit box of private respondent
Security Bank and Trust Company (SBTC). For this purpose, both signed a contract of lease which contains the
following conditions:

13. The bank is not a depositary of the contents of the safe and it has neither the possession nor control
of the same.

14. The bank has no interest whatsoever in said contents, except herein expressly provided, and it
assumes absolutely no liability in connection therewith.

After the execution of the contract, two (2) renter’s key were given to Aguirre, and Pugaos. A key guard
remained with the bank. The safety deposit box has two key holes and can be opened with the use of both keys.
Petitioner claims that the CTC were placed inside the said box.

Thereafter, a certain Mrs. Ramos offered to buy from the petitioner the two (2) lots at a price of P225
per sqm. Mrs. Ramose demanded the execution of a deed of sale which necessarily entailed the production of
the CTC. Aguirre and Pugaos then proceeded to the bank to open the safety deposit box. However, when opened
in the presence of bank’s representative, the box yielded no certificates. Because of the delay in reconstitution
of title, Mrs. Ramos withdrew her earlier offer and as a consequence petitioner failed to realize the expected
profit of P280 , 500. Hence, the latter filed a complaint for damages. RTC: Dismissed the complaint; CA:
Affirmed

ISSUE: Whether or not the contractual relation between a commercial bank and another party in the contract
of rent of a safety deposit box is one of bailor and bailee.

RULING: Yes.

The contract in the case at bar is a special kind of deposit. It cannot be characterized as an ordinary
contract of lease under Article 1643 because the full and absolute possession and control of the safety deposit
box was not given to the joint renters – the petitioner and Pugaos.

American Jurisprudence:

The prevailing rule is that the relation between a bank renting out safe-deposit boxes and its customer
with respect to the contents of the box is that of a bail or bailee, the bailment being for hire and mutual benefit.

Our provisions on safety deposit boxes are governed by Section 72 (a) of the General Banking Act, and
this primary function is still found within the parameters of a contract of deposit like the receiving in custody of
funds, documents and other valuable objects for safekeeping. The renting out of the safety deposit boxes is not
independent from, but related to or in conjunction with, this principal function. Thus, depositary’s liability is
governed by our civil code rules on obligation and contracts, and thus the SBTC would be liable if, in performing
its obligation, it is found guilty of fraud, negligence, delay or contravention of the tenor of the agreement.
G.R. No. 102970 May 13, 1993
LUZAN SIA, vs.COURT OF APPEALS and SECURITY BANK and TRUST COMPANY

Doctrine: The function of a bank in receiving in custody funds, documents, and valuable objects,
and rent safety deposit boxes for the safeguarding of such effects is not a contract of lease nor of
a deposit, but a special kind of deposit. The relation between a bank renting out safe deposit boxes
and its customer with respect to the contents of the box is that of a bailor and bailee.

Facts:
Plaintiff Luzan Sia rented Safety Deposit Box No. 54 of the defendant bank Security and Trust
Company at its Binondo Branch wherein he placed his collection of stamps. During the floods that
took place in 1985 and 1986, floodwater entered into the defendant bank's premises, seeped into
the safety deposit box leased by the plaintiff and caused damage to his stamps collection. The
defendant bank rejected the plaintiff's claim for compensation for his damaged stamps collection,
contending that its contract with the plaintiff over safety deposit box No. 54 was one of lease and
not of deposit and is limited to the exercise of the diligence to prevent the opening of the Safe by
any person other than the Renter, his authorized agent or legal representative.
Issues:
1. Whether or not the contract entered is of a Deposit
2. Whether or not the bank is liable for the damages

Ruling:

1. In the recent case CA Agro-Industrial Development Corp. vs. Court of Appeals, the Supreme
Court explicitly rejected the contention that a contract for the use of a safety deposit box is a
contract of lease governed by Title VII, Book IV of the Civil Code. Nor did they fully subscribe
to the view that it is a contract of deposit to be strictly governed by the Civil Code provision on
deposit; it is, as the Court declared, a special kind of deposit. The prevailing rule in American
jurisprudence — that the relation between a bank renting out safe deposit boxes and its customer
with respect to the contents of the box is that of a bailor and bailee, the bailment for hire and mutual
benefit — has been adopted in this jurisdiction.
2. Defendant bank was aware of the floods of 1985 and 1986; it also knew that the floodwaters
inundated the room where Safe Deposit Box No. 54 was located. In view thereof, it should have
lost no time in notifying the petitioner in order that the box could have been opened to retrieve the
stamps, thus saving the same from further deterioration and loss. In this respect, it failed to exercise
the reasonable care and prudence expected of a good father of a family, thereby becoming a party
to the aggravation of the injury or loss. Those who in the performance of their obligation are guilty
of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable
for damages (Article 1170 of the NCC).
G.R. No. 179096
February 06, 2013
JOSEPH GOYANKO, JR., as administrator of the Estate of Joseph Goyanko, Sr., Petitioner,
vs.
UNITED COCONUT PLANTERS BANK, MANGO AVENUE BRANCH, Respondent.

(Art. 1444. No particular words are required for the creation of an express trust, it being sufficient
that a trust is clearly intended.)

Doctrine : A trust, either express or implied, is the fiduciary relationship “x x x between one
person having an equitable ownership of property and another person owning the legal title to
such property, the equitable ownership of the former entitling him to the performance of certain
duties and the exercise of certain powers by the latter.”

Facts:
In 1995, the late Goyanko invested P2,000,000.00 with Philippine Asia Lending Investors, Inc.
(PALII) family, represented by the petitioner, and his illegitimate family presented conflicting
claims to PALII for the release of the investment. Pending the investigation of the conflicting
claims, PALII deposited the proceeds of the investment with UCPB under the name "Phil Asia:
ITF (In Trust For) The Heirs of Joseph Goyanko, Sr." The deposit was P1,509,318.76.

On December 11, 1997, UCPB allowed PALII to withdraw P1,500,000.00 from the Account,
leaving a balance of only P9,318.76. When UCPB refused the demand to restore the amount
withdrawn plus legal interest from December 11, 1997, the petitioner filed a complaint before the
RTC. In its answer to the complaint, UCPB admitted, among others, the opening of the ACCOUNT
under the name "ITF (In Trust For) The Heirs of Joseph Goyanko, Sr.," (ITF HEIRS) and the
withdrawal on December 11, 1997.

Issue:
Whether or not there is a trust agreement between PALII and UCPB

Ruling:
No, In Rizal Surety & Insurance Co. v. CA,31 the court laid down the requirements before an
express trust will be recognized. Basically, these elements include (1) a competent trustor and
trustee, (2) an ascertainable trust res, and (3) sufficiently certain beneficiaries.

Each of the above elements is required to be established, and, if any one of them is missing, it is
fatal to the trusts. Furthermore, there must be a present and complete disposition of the trust
property, notwithstanding that the enjoyment in the beneficiary will take place in the future. It is
essential, too, that the purpose be an active one to prevent trust from being executed into a legal
estate or interest, and one that is not in contravention of some prohibition of statute or rule of
public policy. There must also be some power of administration other than a mere duty to perform
a contract although the contract is for a third party beneficiary. A declaration of terms is essential,
and these must be stated with reasonable certainty in order that the trustee may administer, and
that the court, if called upon so to do, may enforce, the trust.
DOMINADOR M. APIQUE, petitioner v. EVANGELINE APIQUE FAHNENSTICH, respondent
G.R. No. 205705, August 5, 2015

DOCTRINE:
A joint bank account is one that is held jointly by two or more natural persons, or by two or more juridical
persons or entities. Under such setup, the depositors are joint owners or co owners of the said account, and
their share in the deposits shall be presumed equal, unless the contrary is proved.

FACTS:
The parties to the case are siblings. Respondent Evangeline then left the country to work abroad. Evangeline
executed General and Special Powers of Attorney constituting Dominador as her attorney-in-fact to
purchase real property for her, and to manage or supervise her business affairs in the Philippines. Because
of such, they opened a joint account at EPCIB.

Dominador then withdrew the amount of ₱980,000.00 from the subject account and, thereafter, deposited
the money to his own savings account with the same bank. This prompted Evangeline to demand for the
return of the amount, but to no avail. Evangeline then filed a case against Dominador impleading EPCIB
as a party defendant.

In his answer, Dominador asserted, among others, that he was authorized to withdraw funds from the subject
account to answer for the expenses of Evangeline/s projects, considering: (a)1 that it was a joint account,
and (b)1 the General and special powers of attorney executed by
Evangeline in his favor.

Issue:
Whether or not Dominador may validly withdraw from the joint account without the prior consent of
Evangeline.

Ruling:
Yes, Dominador may validly withdraw from the joint account without Evangeline/s consent. A joint
account is one that is held jointly by two or more natural persons, or by two or more juridical persons or
entities. Under such setup, the depositors are joint owners or co-owners of the said account, and their share
in the deposits shall be presumed equal, unless the contrary is proved, pursuant to Article 485 of the Civil
Code.

The common banking practice is that regardless of who puts the money into the account, each of the named
account holder has an undivided right to the entire balance, and any of them may deposit and6or withdraw,
partially or wholly, the funds without the need or consent of the other, during their lifetime. 7evertheless,
as between the account holders, their right against each other may depend on what they have agreed upon,
and the purpose for which the account was opened and how it will be operated.

Since Evangeline and Dominador entered into a joint account, Dominador is a co-owner of the subject
account as far as the bank is concerned - and may, thus, validly deposit and or withdraw funds without the
consent of his co-depositor, Evangeline - as between him and Evangeline his authority to withdraw, as well
as the amount to be withdrawn, is circumscribed by the purpose for which the subject account was opened.
ROMARICO VITUG VS. HON. COURT OF APPEALS
G.R. NO. 82027 MARCH 29, 1990

SARMIENTO, J.:

Doctrine : A will is personal, solemn, revocable and free act by which a capacitated person
disposes of his property and rights and declares or complies with duties to take effect after his
death.

Facts :
Private respondent Rowena Faustino-Corona, as executrix, opposed the motion asking
authority to sell certain shares of stocks and real properties filed by the widower, Romarico Vitug,
which he insisted that the said funds are his exclusive property having acquired through a
survivorship agreement executed with his late wife and the bank. The lower courts found the
agreement to be valid and granted the motion. The Court of Appeals ruled otherwise. The Court
of Appeals ruled that the said survivorship agreement constitutes mortis causa which did not
comply with the formalities of a valid will as prescribed by Art. 805 of the Civil Code, moreover,
assuming that it is mere donation inter vivos, it is a prohibited donation under the provisions of
Art 133 of the Civil Code.

Issue :
Whether or not the survivorship agreement executed by the spouses is valid.

Ruling :
The court ruled in favor of petitioner Vitug. The court ruled that the survivorship agreement
did not demonstrate any unlawful purposes, or, as held by the respondent court, in order to frustrate
our laws on will, donations, and conjugal partnership.
The court found that the funds were conjugal and it cannot be said that one spouse could
have pressured the other in placing his or her deposits in the money pool. Moreover, there is no
showing that the funds exclusively belonged to one party, and hence it must be presumed to be
conjugal, having been acquired during the existence of the marital relations. The court ruled that
neither is the survivorship agreement a donation inter vivos, for obvious reasons, because it was to
take effect after the death of one party. Secondly, it is not a donation between the spouses because
it involved no conveyance of a spouse's own properties to the other. Further, the court emphasized
that the validity of the contract seems debatable by reason of its “survivor-take-all” feature, but in
reality, that contract imposed a mere obligation with a term, the term being death. Such agreements
are permitted by the Civil Code.
GAMES AND GARMENTS DEVELOPERS, INC. vs. ALLIED BANKING
CORPORATION
G.R. No. 181426; July 13, 2015
LEONARDO- DE CASTRO, J.:

Doctrine:
Banks are prohibited from entering into any guaranty or suretyship agreement

Facts:
Spouses Benedicto and Bienvenida Pantaleon agreed to purchase a parcel of land registered in
the name of Games and Garments Developers, Inc. (GDDI), in the amount of P14 Million the
P10 Million payable to GGDI and the P4 Million payable to the Cosay Family. The Allied
banking Corporation in this agreement was made as a guarantor. Mercado, the bank manager of a
branch of Allied Banking wrote a letter to Atty. Lao of GGDI wherein it guaranteed the spouses
obligation considering there is an approved real estate loan by the spouses. As a result, a Deed of
Sale was entered into between the spouses and GGDI, and as a result, the property was registered
in the name of Bienvenida Pantaleon. Subsequently, the property was mortgaged by Bienvenida
with the Allied Bank for her loan application in the amount of P14 Million. Said loan was
released to Bienvenida unbeknownst to GGDI. GGDI demanded payment from the bank
however, no reply was given.

Issue:
Was there a contract of guaranty entered into in this case?

Held:
None. Section 74 of Republic Act No. 337 prohibits banks from entering into contracts of
guaranty. There was no express undertaking in Mercado's letters dated August 22, 1996 and
January 27, 1997 to pay Bienvenida's debt to GGDI in case Bienvenida failed to do so. In said
letters, Mercado merely acknowledged that Bienvenida and/or her company had an approved real
estate loan with Allied Bank and guaranteed that subsequent releases from the loan would be
made directly to GGDI provided that the certificate of title over the subject property would be
transferred to Bienvenida's name and the real estate mortgage constituted on the subject property
in favor of Allied Bank would be annotated on the said certificate. Mercado, by the plain
language of his letters, merely committed to the manner by which the proceeds of Bienvenida's
approved loan from Allied Bank would be released, but did not obligate Allied Bank to be
answerable with its own money to GGDI should Bienvenida default on the payment of the
purchase price for the subject property. For this reason, Mercado's letters may not be deemed as
contracts of guaranty, although they may be binding as innominate contracts.
BPI EXPRESS vs ARMOVIT G.R. NO. 163654, 8 October 2014

DOCTRINE: In case of breach of contracts, moral damages may be recovered on the ground of
bad faith. It implies a conscious and intentional design to do a wrongful act for a dishonest purpose
or moral obliquity, that design, however, need not always be present because negligence may
occasionally be so gross as to amount to malice or bad faith.

FACTS: Armovit treated her British friends to lunch at a restaurant where she handed to the waiter
her BPI Express Credit Card to settle the bill but to her astonishment, the waiter returned and
informed that her card had been cancelled upon verification with the BPI Express Credit (BPI).
Armovit called BPI and the latter told her that her credit card had been summarily cancelled for
failure to pay her outstanding obligations where she denied having defaulted on her payments and
demanded for compensation for the shame and embarrassment she suffered. BPI claimed that it
send Armovit a telegraphic message requesting her to pay her arrears for three consecutive months
where it temporarily suspended her credit card with due notice to her and further claimed that
Armovit failed to submit the required application form in order to reactivate her credit card
privileges. Later on, Armovit received a telegraphic message from BPI apologizing for its error of
inadvertently including her credit card in Caution List sent to its affiliated merchants. Armovit
sued BPI for damages insisting that she had been a credit card holder in good standing, and that
she did not have any unpaid bills at the time of the incident.

ISSUE: Is Armovit entitled to moral damages?

HELD: Yes, the relationship between the credit card issuer and the credit card holder is a
contractual one that is governed by the terms and conditions found in the card membership
agreement where such terms and conditions constitute the law between the parties and in case of
their breach, moral damages may be recovered where the defendant is shown to have acted
fraudulently or in bad faith. The terms and Conditions governing the Issuance and Use of the BPI
Express Credit Card printed on the credit card application form spelled out the terms and
conditions of the contract between BPI Express Credit and its card holders, including Armovit
which determined the rights and obligations of the parties. Yet, a review of such terms and
conditions did not reveal that Armovit needed to submit her new application as the antecedent
condition for her credit card to be taken out of the list of suspended cards( BPI Express Credit0s
negligence was even confirmed by the telegraphic message it had addressed and sent to Armovit
apologizing for the inconvenience caused in inadvertently including her credit card in the caution
list. It was of no consequence that the telegraphic message could have been intended for another
client, as BPI Express Credit apparently sought to convey subsequently, because the tenor of the
apology included its admission of negligence in dealing with its clients, Armovit included.
SORIANO VS PEOPLE AND BSP
G.R. NO. 162336 | FEBRUARY 1, 2010
DEL CASTILLO, J.:
(DOSRI Law)
Doctrine : A bank officer violates the DOSRI2 law when he acquires bank funds for his personal
benefit, even if such acquisition was facilitated by a fraudulent loan application. Directors, officers,
stockholders, and their related interests cannot be allowed to interpose the fraudulent nature of the loan
as a defense to escape culpability for their circumvention of Section 83 of Republic Act (RA) No. 337.
FACTS:
Soriano was charged for estafa through falsification of commercial documents for allegedly
securing a loan of 48 million in the name of two (2) persons when in fact these individuals did not make
any loan in the bank, nor did the bank's officers approved or had any information about the said loan. The
state prosecutor conducted a Preliminary Investigation on the basis of letters sent by the officers of Special
Investigation of BSP together with 5 affidavits and filed two (2) separate information against Soriano for
estafa through falsification of commercial documents and violation of Directors, Officers, Stockholders and
their Related Interests (DORSI) Law.
Petitioner moved to quash these information. Essentially, the petitioner theorized that the
characterization of possession is different in the two offenses. If petitioner acquired the loan as DOSRI, he
owned the loaned money and therefore, cannot misappropriate or convert it as contemplated in the offense
of estafa. Conversely, if petitioner committed estafa, then he merely held the money in trust for someone
else and therefore, did not acquire a loan in violation of DOSRI rules. The trial court denied petitioner’s
Motion to Quash for lack of merit. The MR was denied as well. Aggrieved, petitioner filed a Petition
for Certiorari before the CA which was also denied. Hence, this petition.
ISSUE:
Whether a loan transaction within the ambit of the DOSRI law (violation of Section 83 of RA 337,
as amended) could also be the subject of Estafa under Article 315 (1) (b) of the Revised Penal Code.
RULING:
YES, petitioner’s theory is based on the false premises that the loan was extended to him by the
bank in his own name, and that he became the owner of the loan proceeds. Under the circumstances, it
cannot be said that petitioner became the legal owner of the P8 million. Thus, petitioner remained the banks
fiduciary with respect to that money, which makes it capable of misappropriation or conversion in his hands.
The prohibition in Sec. 83 is broad enough to cover various modes of borrowing and is intended to
protect the public. It has been said that banking institutions are not created for the benefit of the directors
[or officers]. A direct borrowing is obviously one that is made in the name of the DOSRI himself or where
the DOSRI is a named party, while an indirect borrowing includes one that is made by a third party, but the
DOSRI has a stake in the transaction. The latter type indirect borrowing applies here.
JOSE C. GO, Petitioner, vs.BANGKO SENTRAL NG PILIPINAS, Respondent.

Doctrine: The language of the law is broad enough to encompass either act of borrowing or guaranteeing,
or both. Banks were not created for the benefit of their directors and officers; they cannot use the assets of
the bank for their own benefit, except as may be permitted by law. Congress has thus deemed it essential to
impose restrictions on borrowings by bank directors and officers in order to protect the public, especially
the depositors. Hence, when the law prohibits directors and officers of banking institutions from becoming
in any manner an obligor of the bank (unless with the approval of the board), the terms of the prohibition
shall be the standards to be applied to directors’ transactions such as those involved in the present case.

Facts: Jose Go, the Director and the President and Chief Executive Officer of the Orient Commercial
Banking Corporation (Orient Bank) was charged before the RTC for violation of Section 83 of RA 337 or
the General Banking Act. Go allegedly borrowed the deposits/funds of the Orient Bank and/or acting as
guarantor, indorser of obligor for loans to other persons. He then used the borrowed deposits/funds in
facilitating and granting and/or of credit lines/loans to the New Zealand Accounts loans in the total amount
of PHP 2,754,905,857. He completed the alleged transaction without the written approval of the majority
of the Board of Directors of said Orient Bank. Go then filed a motion to quash the Information. He averred
that the use of the word "and/or" meant that he was charged for being either a borrower or a guarantor, or
for being both. Thus the charge do not constitute an offense. That the Section 83 of RA 337 penalized only
directors and officers xxx who acted either as borrower or as guarantor, but not as both. Also that the
Information did not constitute an offense since the information failed to state the amount he purportedly
borrowed. According to Go, the second paragraph of Section 83, serves as an exception to the first
paragraph which allows the banks to extend credit accommodations to their directors, officers, and
stockholders, provided it is "limited to an amount equivalent to the respective outstanding deposits and
book value of the paid-in capital contribution in the bank." The RTC granted Go’s motion to quash the
Information.

The prosecution filed a petition for certiorari before the CA. The CA granted the petition. It explained that
the allegation that Go acted either as a borrower or a guarantor or both did not necessarily mean that Go
acted both as borrower and guarantor for the same loan at the same time. It agreed with the prosecution’s
stand that the second paragraph of Section 83 of RA 337 is not an exception to the first paragraph. Hence,
this petition.

Issue: whether or not the allegation that Go acted as borrower or gurantor rendered the information
defective?

Ruling: No, the information was not defective. The following elements of violation of Section 83 of RA
337 which must be present to constitute a violation of its first paragraph: 1. the offender is a director or
officer of any banking institution; 2. the offender, either directly or indirectly, for himself or as
representative or agent of another, performs any of the following acts: a. he borrows any of the deposits or
funds of such bank; or b. he becomes a guarantor, indorser, or surety for loans from such bank to others, or
c. he becomes in any manner an obligor for money borrowed from bank or loaned by it; 3. the offender has
performed any of such acts without the written approval of the majority of the directors of the bank,
excluding the offender, as the director concerned.
ARNEL SY VS. COURT OF APPEALS

April 2, 1989

Doctrine/s: In the event of foreclosure, whether judicially or extrajudicially, of any mortgage on

real estate which is security for any loan granted, the mortgagor or debtor whose real property
has been sold at public auction, judicially or extrajudicially, for the full or partial payment of an
obligation to any bank, banking or credit institution, within one year after the sale of the real
estate as a result of the foreclosure of the respective mortgage, to redeem the property by paying
the amount fixed by court in the order of execution.

Facts:

On March 2, 1979, Carlos Coquinco executed in favor of private respondent State

Investment House, Inc. (hereinafter referred to as SIHI) a real estate mortgage over a 952 square-
meter parcel of land in San Juan, Metro-Manila, together with all the improvements thereon,
issued in his name, as security for the payment of a loan in the amount of P1,000,000.00. For
failure of Carlos Coquinco to pay his outstanding balance of P1,126,220.56 computed as of , the
mortgaged property extrajudicially foreclosed by SIHI and was sold at public auction on
February 10, 1983 for P760,000.00 to SIHI as the bidder. SIHI filed before the Regional Trial
Court of Manila an action against Carlos Coquinco for the collection of the sum of P612,031.84,
representing the deficiency of his debt. In the meantime, petitioner acquired by virtue of a deed
of assignment Carlos Coquinco’s for the right of redemption for consideration of P500,000.00.
SIHI rejected this offer. Thus, petitioner filed for consignation of the aforesaid amount with the
RTC. On July 7, 1986, the court a quo dismissed petitioner’s complaint holding that it stated no
cause of action because petitioner failed to effect a valid redemption as required under Section
78 of the General Banking Act, as amended by P.D. No. 1828. Petitioner then appealed to
respondent appellate court, raising as error: (1) the application of Section 78 of the General
Banking Act.

Issue:

Whether or not, Section 78 of Rep. Act No. 337 is the applicable law in determining the
redemption price?

Held:

YES. The Court finds that respondent appellate court committed no reversible error.
Citing the case of Ponce de Leon v. Rehabilitation Finance, applied Section 78 of the General
Banking Act, as amended by P.D. No. 1828, and consequently held that no valid redemption was
effected by petitioner because the amount tendered to SIHI and thereafter paid to the sheriff was
insufficient, it being less than the amount due under the real estate mortgage outstanding balance.
G.R. No. 134068 June 25, 2001
UNION BANK OF THE PHILIPPINES, petitioner,
vs.COURT OF APPEALS, APOLONIA DE JESUS GREGORIO, GONZALO VINCOY, married to
TRINIDAD GREGORIO VINCOY, respondents.
DE LEON, JR., J.:
Doctrine : Pursuant to Section 78 of the General Banking Act, a mortgagor whose real property has been sold
at a public auction, judicially or extrajudicially, for the full or partial payment of an obligation to any bank,
shall have the right, within one year after be reckoned from the date of registration of the sale the sale of the
real estate to redeem the property.
FACTS:
Respondents, Spouses Vincoy, mortgaged their residence in favor of Union Bank, petitioner, to secure the
payment of a loan to Delco Industries in the amount of P2,000,000. Spouses failed to pay. Union Bank
extrajudicially foreclosed the mortgage and had a foreclosure sale wherein they won as highest bidder.
Prior to the expiration of the redemption period on May 8, 1992, the respondents filed a complaint for annulment
of mortgage with the lower court. Property was a family home as contemplated by Article 158 of the Family
Code prohibiting execution, forced sale, and any other encumbrance. They assailed the validity of the mortgage.
On the hand, petitioner maintained that the mortgaged property of respondents could not be legally constituted
as a family home because its actual value exceeded Three Hundred Thousand Pesos (P300,000.00), the
maximum value for a family home in urban areas as stipulated in Article 157 of the Family Code.
Lower court ruled in favor of Union Bank since family home value exceeded P300,000.
Court of Appeals upheld the validity of mortgage in favor of petitioner. However, CA also recognized right of
redemption in favor of respondent.
Petitioner filed a petition for review on certiorari with SC: The Court of Appeals resolves an issue of redemption
which was not even directly raised by the parties and contrary to the evidence on record. SC dismissed petition
and ruled CA did not commit any error. Hence, this MR.
ISSUE: Whether or not respondent have right to redeem. NOPE. We are persuaded to reconsider.
HELD:
A careful scrutiny of the pleadings filed by the respondents before the lower court reveals that at no time did the
respondents pray that they be allowed to redeem the subject foreclosed property. On the other hand, respondents
never wavered from the belief that the mortgage over the said property is, in the first place, void for having been
executed over a duly constituted family home without the consent of the beneficiaries thereof.
Respondents raised the issue of redemption for the first time only on appeal in contesting the amount ordered by
the lower court to be paid by respondents to the petitioner. It is settled jurisprudence that an issue which was
neither averred in the complaint nor raised during the trial in the court below cannot be raised for the first time
on appeal as it would be offensive to the basic rules of fair play, justice and due process. On this ground alone,
the Court of Appeals should have completely ignored the issue of respondents' right to redeem the subject
foreclosed property.
In addition, a reason just as glaringly obvious exists for declaring the respondents' right of redemption already
non-existent one year after May 8, 1991, the date of the registration of the sale at public auction. Pursuant to
Section 78 of the General banking Act, a mortgagor whose real property has been sold at a public auction,
judicially or extrajudicially, for the full or partial payment of an obligation to any bank, shall have the right,
within one year after the sale of the real estate to redeem the property.
It cannot also be argued that the action for annulment of the mortgage filed by the respondents tolled the running
of the one-year period of redemption. Vaca vs. CA: the pendency of an action questioning the validity of a
mortgage cannot bar the issuance of the writ of possession after title to the property has been consolidated in the
mortgagee. The implication is clear: the period of redemption is not interrupted by the filing of an action assailing
the validity of the mortgage, so that at the expiration thereof, the mortgagee who acquires the property at the
foreclosure sale can proceed to have the title consolidated in his name and a writ of possession issued in his
favor.
WHEREFORE, the motion for reconsideration is hereby GRANTED. This Court's Resolution dated July 12,
1999 is MODIFIED insofar as respondents are found to have lost their right to redeem the subject foreclosed
property.
GOLDENWAY MERCHANDISING CORPORATION, Petitioner, v. EQUITABLE PCI
BANK, Respondent.
G.R. NO. 195540 : March 13, 2013
VILLARAMA, JR., J.:

Doctrine:
. The difference in the treatment of juridical persons and natural persons was based on the
nature of the properties foreclosed whether these are used as residence, for which the more liberal
one-year redemption period is retained, or used for industrial or commercial purposes, in which
case a shorter term is deemed necessary to reduce the period of uncertainty in the ownership of
property and enable mortgagee-banks to dispose sooner of these acquired assets.
The right of redemption being statutory, it must be exercised in the manner prescribed by
the statute, and within the prescribed time limit, to make it effective. Furthermore, as with other
individual rights to contract and to property, it has to give way to police power exercised for public
welfare.

Facts:
Equitable PCI Bank (respondent) foreclosed the Real Estate Mortgage executed by
Goldenway Merchandising Corporation when it failed to settle its P2,000,000 peso loan from the
respondent. Petitioner tried to redeem property by offering a check worth P3,500,000. However,
petitioner was told that such redemption is no longer possible because the certificate of sale had
already been registered. On December 7, 2001, petitioner filed a complaint 7 for specific
performance and damages against the respondent, asserting that it is the one-year period of
redemption under Act No. 3135 which should apply and not the shorter redemption period
provided in Republic Act (R.A.) No. 8791. Petitioner then argues that applying Section 47 of R.A.
No. 8791 to the present case would be a substantial impairment of its vested right of redemption
under the real estate mortgage contract and violative of the constitutional proscription against
impairment of obligations of contract.

Issue:
Whether or not Sec.47 R.A. 8791 can be declared unconstitutional?

Ruling:

No. The difference in the treatment of juridical persons and natural persons was based on
the nature of the properties foreclosed whether these are used as residence, for which the more
liberal one-year redemption period is retained, or used for industrial or commercial purposes, in
which case a shorter term is deemed necessary to reduce the period of uncertainty in the
ownership of property and enable mortgagee-banks to dispose sooner of these acquired assets. It
must be underscored that the General Banking Law of 2000, crafted in the aftermath of the 1997
Southeast Asian financial crisis, sought to reform the General Banking Act of 1949 by
fashioning a legal framework for maintaining a safe and sound banking system.28 In this context,
the amendment introduced by Section 47 embodied one of such safe and sound practices aimed
at ensuring the solvency and liquidity of our banks. It cannot therefore be disputed that the said
provision amending the redemption period in Act 3135 was based on a reasonable classification
and germane to the purpose of the law.
WHITE MARKETING DEVELOPMENT CORPORATION vs GRANDWOOD FURNITURE & WOODWORK,
INC
G.R. No. 222407

Doctrine : Pursuant to Section 47 of R.A. No. 8791, it only had three (3) months from foreclosure or before the
registration of the certificate of foreclosure sale, whichever came first, to redeem the property sole in the extrajudicial
sale.

FACTS:

Respondent Grandwood obtained a loan in the amount of ₱40,000,000.00 from Metrobank. The loan was secured by a real
estate mortgage over a parcel of land covered by Transfer Certificate of Title (TCT) No. 63678. Metrobank eventually sold
its rights and interests over the loan and mortgage contract to Asia Recovery Corporation (ARC). The latter then assigned
the same rights and interests to Cameron Granville 3 Asset Management, Inc. (CGAM3).

Respondent’s failure to pay the loan prompted CGAM3 to initiate extrajudicial foreclosure proceedings of the real estate
mortgage and petitioner White Marketing Development Corporation (White Marketing) was declared the highest bidder and
a certificate of sale was issued in its favor.

On September 30, 2013, the certificate of sale was registered and annotated on TCT No. 63678. On November 21, 2013,
White Marketing received a letter from the sheriff informing it that Grandwood intended to redeem the foreclosed property.
In response, White Marketing sent a letter informing the sheriff that Grandwood no longer had the right to redeem citing
Section 47 of R.A. No. 8791 or the "General Banking Law of 2000; "Grandwood should have redeemed the property before
the registration of the certificate of sale”.

Grandwood reiterated its right to redeem the property subject of the foreclosure sale under Act No. 3135 in relation to
Republic Act (R.A.) No. 337 and Sections 27 and 28 of Rule 39 of the Rules of Court.

RTC dismissed the petition for mandamus. The trial court ruled that the redemption period applicable in the mortgage
between Metro bank and Grandwood was Section 47 of R.A. No. 8791 or the "General Banking Law of 2000. It further
stressed that White Marketing acquired all the rights of Metrobank in the mortgage contract, which was eventually assigned
to CGAM3.

CA reversed the RTC ruling and remanded the case to the latter for the determination of the amount of the redemption price.

ISSUE:

WON SEC. 47 of R.A. NO. 8791 (THE GENERAL BANKING LAW) IS NOT APPLICABLE IN THE CASE AT
BAR.

HELD:

R.A. NO. 8791 is the applicable law. When Metrobank assigned its rights in the mortgage to ARC, which later assigned
the same to CGAM3. After Grandwood defaulted in its loan obligation, CGAM3 foreclosed the mortgaged property. As
White Marketing emerged as the winning bidder in the foreclosure sale, it stepped into the shoes of Metro bank.

Through the assignment of credit, the new creditor is entitled to the rights and remedies available to the previous
creditor,and includes accessory rights such as mortgage or pledge. Consequently, ARC acquired all the rights, benefits
and obligations of Metrobank under its mortgage contract with Grandwood. The same could be said for subsequent assignees
or successors-in-interest after ARC like White Marketing.

The Court finds that Grandwood's redemption was made out of time as it was done after the certificate of sale was registered
on September 30, 2013. Pursuant to Section 47 of R.A. No. 8791, it only had three (3) months from foreclosure or before
the registration of the certificate of foreclosure sale, whichever came first, to redeem the property sole in the
extrajudicial sale.
G.R. No. 218390, February 28, 2018
HONGKONG BANK INDEPENDENT LABOR UNION (HBILU), Petitioner, v. HONGKONG AND SHANGHAI BANKING CORPORATION
LIMITED, Respondent.

Doctrine: It is inaccurate to state that credit checking is necessary, or even indispensable, in the grant of salary loans to the
bank's employees, since the business of banking is imbued with public interest and there is a fiduciary relationship between
the depositor and the bank. It is also incorrect to state that allowing bank employees to borrow funds from their employer
via salary loans without the prior conduct of a credit check is inconsistent with this fiduciary obligation. This is so because
there are other ways of securing payment of said salary loans other than ascertaining whether the borrowing employee has
the capacity to pay the loan.
FACTS:
The Bangko Sentral ng Pilipinas (BSP) issued the Manual of Regulations for Banks (MoRB). Relevant to the instant case is Section X338
thereof which reads:
Banks may provide financial assistance to their officers and employees, as part of their fringe benefits program, to meet housing,
transportation, household and personal needs of their officers and employees. Financing plans and amendments thereto shall be with
prior approval of the BSP.

Pursuant to the above-cited provision, respondent Hongkong and Shanghai Banking Corporation Limited (HSBC), submitted its Financial
Assistance Plan (Plan) to the BSP for approval. The Plan allegedly contained a credit checking proviso stating that "[r]epayment defaults on
existing loans and adverse information on outside loans will be considered in the evaluation of loan applications." The BSP approved the
Plan. Said Plan was later amended thrice, all of which amendments were approved by the BSP.

Meanwhile, petitioner Hongkong Bank Independent Labor Union (HBILU), the incumbent bargaining agent of HSBC's rank-and-file
employees, entered into a CBA with the bank.
ISSUE:

Whether or not 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.
HELD:
NO. It is crucial to stress that no less than the basic law of the land guarantees the rights of workers to collective bargaining and negotiations
as well as to participate in policy and decision-making processes affecting their rights and benefits. Section 3, Article XIII of the 1987
Constitution provides:
Section 3. The State shall afford full protection to labor, local and overseas, organized and unorganized, and promote full employment and
equality of employment opportunities for all.

It shall guarantee the rights of all workers to self-organization, collective bargaining and negotiations, and peaceful concerted activities,
including the right to strike in accordance with law. They shall be entitled to security of tenure, humane conditions of work, and a living wage.
They shall also participate in policy and decision-making processes affecting their rights and benefits as may be provided by law.

Pursuant to said guarantee, Article 211 of the Labor Code, as amended, declares it a policy of the State:
(a) To promote and emphasize the primacy of free collective bargaining and negotiations, including voluntary arbitration, mediation
and conciliation, as modes of settling labor or industrial disputes;

xxxx

(d) To promote the enlightenment of workers concerning their rights and obligations as union members and as employees;

xxxx

(g) To ensure the participation of workers in decision and policy-making processes affecting their rights, duties and welfare.
(Emphasis ours)
Corollary thereto, Article 255 of the same Code provides:

ART. 255. EXCLUSIVE BARGAINING REPRESENTATION AND WORKERS PARTICIPATION IN POLICY AND DECISION-MAKING.

xxxx

Any provision of law to the contrary notwithstanding, workers shall have the right,subject to such rules and regulations as the Secretary of
Labor and Employment may promulgate, to participate in policy and decision-making process of the establishment where they are
employed insofar as said processes will directly affect their rights, benefits and welfare. For this purpose, workers and employers may
form labor-management councils: Provided, That the representatives of the workers in such labor management councils shall be elected by
at least the majority of all employees in said establishment. (Emphasis and underscoring ours)

We deem it necessary to remind HSBC of the basic and well entrenched rule that although jurisprudence recognizes the validity of the
exercise by an employer of its management prerogative and will ordinarily not interfere with such, this prerogative is not absolute and is
subject to limitations imposed by law, collective bargaining agreement, and general principles of fair play and justice.20

Indeed, being a product of said constitutionally-guaranteed right to participate, the CBA is, therefore, the law between the parties and they
are obliged to comply with its provisions.
BANCO FILIPINO SAVINGS AND MORTGAGE BANK, petitioner, vs. JUANITA B. YBAÑEZ, CHARLES
B. YBAÑEZ, JOSEPH B. YBAÑEZ and JEROME B. YBAÑEZ, respondents.
G.R. No. 148163 December 6, 2004
Doctrine : A penal clause is an accessory undertaking to assume greater liability in case of breach and is attached
to an obligation in order to secure its performance. The penalty shall substitute the indemnity for damages and the
payment of interests in case of non-compliance. But if such stipulation is found contrary to law for being usurious, it
can be nullified by the courts without affecting the principal obligation.

FACTS:
On March 7, 1978, respondents obtained a loan secured by a Deed of Real Estate Mortgage over Transfer
Certificate of Title (TCT) from petitioner bank. The loan was used for the construction of a commercial building in
Cebu City. On October 25, 1978, respondents obtained an additional loan from the petitioner thus increasing their
obligation to one million pesos. A corresponding Amendment of Real Estate Mortgage was thereafter executed.
On December 24, 1982, the loan was again re-structured, increasing the loan obligation to P1,225,000 and
the Real Estate Mortgage was again amended. Respondents executed a Promissory Note for the sum of P1,225,000
payable in fifteen years, with a stipulated interest of 21% per annum, and stipulating monthly payments.
Respondents’ total payment from 1983 to 1988 amounted to P1,455,385.07, However, From 1989 onwards,
respondents did not pay a single centavo. They aver that Banco Filipino had ceased operations and/or was not allowed
to continue business, having been placed under liquidation by the Central Bank.
On January 15, 1990, respondents’ lawyer wrote Special Acting Liquidator, Renan Santos, and requested that plaintiff
return the mortgaged property of the respondents since it had sufficiently profited from the loan and that the interest
and penalty charges were excessive. Petitioner bank denied the request.
Banco Filipino was closed on January 1, 1985 and re-opened for business on July 1, 1994. From its closure to its re-
opening, petitioner bank did not transact any business with its customers.
On August 24, 1994, respondents were served a Notice of Extra Judicial Sale of their property covered by
TCT No. 69836 to satisfy their indebtedness allegedly of P6,174,337.46 which includes the principal, interest,
surcharges and 10% attorney’s fees.
On September 19, 1994, respondents filed a suit for Injunction, Accounting and Damages, alleging that
there was no legal and factual basis for the foreclosure proceedings since the loan had already been fully paid. A
restraining order was issued the following day by the lower court enjoining petitioner to cease and desist from selling
the property at a public auction.
Lower court rendered a Decision, directing defendant Banco Filipino Savings and Mortgage Bank to render
a correct accounting of the obligations of plaintiffs with it after eliminating interest from January 1, 1985 to July 1,
1994 when it was closed, and reducing interest from 21% to 17% per annum, at the time it was in operation, and totally
eliminating [the] surcharge of 1% per month, within a period of fifteen (15) days from the time the judgment shall
have become final and executory.
Not satisfied with the decision, both parties appealed the case to the Court of Appeals. The Court of Appeals rendered
a Decision affirming the decision of the trial court. Hence, this Petition.
ISSUE:
THE COURT OF APPEALS COMMITTED AN ERROR IN RULING THAT THE PLAINTIFFS-BORROWERS
(HEREIN RESPONDENTS) CANNOT BE CONSIDERED TO HAVE DEFAULTED IN THEIR PAYMENT
SINCE DEFENDANT BANK CEASED OPERATION FROM 1985 TO 1991.
HELD:
To resolve the controversy we shall address the following pertinent question: (1) What is the effect of the
temporary closure of Banco Filipino from January 1, 1985 to July 1, 1994 on the loan?
In Banco Filipino Savings and Mortgage Bank v. Monetary Board, the validity of the closure and receivership of
Banco Filipino was put in issue. But the pendency of the case did not diminish the authority of the designated
liquidator to administer and continue the bank’s transactions. The Court allowed the bank’s liquidator to continue
receiving collectibles and receivables or paying off creditor’s claims and other transactions pertaining to normal
operations of a bank. Among these transactions were the prosecution of suits against debtors for collection and for
foreclosure of mortgages. The bank was allowed to collect interests on its loans while under liquidation, provided
that the interests were legal.
Spouses Bautista vs Pilar Devt Corp 312 SCRA 611

DOCTRINE: The circular declared that the rate of interest on any loan or forbearance of any
money, goods or credit, regardless of maturity and whether secured or unsecured, "shall not be
subject to any ceiling prescribed under or pursuant to the Usury Law, as amended." In short,
Circular No 905 removed the ceiling on interest rate for secured and unsecured loans, regardless
of majority.

FACTS:
In 1978, petitioner spouses Florante and Laarni Bautista purchased a house and lot. To
partially finance the purchase, and then obtained from Apex a loan in the amount of P100,180.
They executed a promissory note obligating themselves, jointly and severally to pay the
principal sum with interest rate of 12% for 240 months or 2 years. In the same promissory note,
petitioners authorized Apex to "increase the rate of interest and/or service charge" without notice
to them in the event a law, Presidential Decree or any Central Bank regulation should be enacted
increasing the lawful rate of interest.
The spouses failed to pay several installment. In 1982, they executed another promissory note in
favour of Apex at the increased interest rate promissory note to respondent Pilar Dev’t. In 1987,
respondent Pilar instituted against. Petitioners a case for collection of the unpaid balance including
the interest rate of 21%. Petitioners claim that the interest rate of per annum.

ISSUE: Whether or not the rate should be 12% per annum

RULING:
The court ruled that at the time the parties executed the first promissory note in 1978, the
interest of 12% was the maximum rate fixed by the Usury Law for loans secured by a mortgage
upon registered estate.
CB Circular No 905 series of 1982, took effect. The circular declared that the rate of interest
on any loan or forbearance of any money, goods or credit, regardless of maturity and whether
secured or unsecured, "shall not be subject to any ceiling prescribed under or pursuant to the Usury
Law, as amended." In short, Circular No 905 removed the ceiling on interest rate for secured and
unsecured loans, regardless of majority.

When the second promissory note was executed on September 20, 1982, Central Bank Circulars
Nos 705 and 712 were already in effect. These circulars fixed the effective interest rate for secured
loans transactions with maturities of more than 730 days, i.e., 2years at 21% per annum. The
interest rate of 21% provided in the second promissory note was therefore authorized under these
Circulars.
Nacar v. Gallery Frames
G.R. No. 189871, August 13, 2013, 703 SCRA 439

Doctrine : Promulgation of the Bangko Sentral ng Pilipinas Monetary Board Resolution No. 796 which lowered the legal rate of interest
from 12% to 6%.

FACTS:

Dario Nacar filed a labor case against Gallery Frames and its owner Felipe Bordey, Jr. Nacar alleged that he was dismissed without cause
by Gallery Frames on January 24, 1997. On October 15, 1998, the Labor Arbiter (LA) found Gallery Frames guilty of illegal dismissal
hence the Arbiter awarded Nacar P158,919.92 in damages consisting of backwages and separation pay.
Gallery Frames appealed all the way to the Supreme Court (SC). The Supreme Court affirmed the decision of the Labor Arbiter and the
decision became final on May 27, 2002. After the finality of the SC decision, Nacar filed a motion before the LA for recomputation as he
alleged that his backwages should be computed from the time of his illegal dismissal (January 24, 1997) until the finality of the SC decision
(May 27, 2002) with interest. The LA denied the motion as he ruled that the reckoning point of the computation should only be from the
time Nacar was illegally dismissed (January 24, 1997) until the decision of the LA (October 15, 1998). The LA reasoned that the said date
should be the reckoning point because Nacar did not appeal hence as to him, that decision became final and executory.

ISSUE:

Whether or not the 12% or 6% will be applied on the interest of backwages

RULING:

No. There are two parts of a decision when it comes to illegal dismissal cases (referring to cases where the dismissed employee wins, or
loses but wins on appeal). The first part is the ruling that the employee was illegally dismissed. This is immediately final even if the
employer appeals – but will be reversed if employer wins on appeal. The second part is the ruling on the award of backwages and/or
separation pay. For backwages, it will be computed from the date of illegal dismissal until the date of the decision of the Labor Arbiter.
But if the employer appeals, then the end date shall be extended until the day when the appellate court’s decision shall become final. Hence,
as a consequence, the liability of the employer, if he loses on appeal, will increase – this is just but a risk that the employer cannot avoid
when it continued to seek recourses against the Labor Arbiter’s decision. This is also in accordance with Article 279 of the Labor Code.

Anent the issue of award of interest in the form of actual or compensatory damages, the Supreme Court ruled that the old case of Eastern
Shipping Lines vs CA is already modified by the promulgation of the Bangko Sentral ng Pilipinas Monetary Board Resolution No. 796
which lowered the legal rate of interest from 12% to 6%. Specifically, the rules on interest are now as follows:

1. Monetary Obligations ex. Loans:

a. If stipulated in writing:
a.1. shall run from date of judicial demand (filing of the case)
a.2. rate of interest shall be that amount stipulated

b. If not stipulated in writing

b.1. shall run from date of default (either failure to pay upon extra-judicial demand or upon judicial demand whichever is appropriate and
subject to the provisions of Article 1169 of the Civil Code)
b.2. rate of interest shall be 6% per annum

2. Non-Monetary Obligations (such as the case at bar)

a. If already liquidated, rate of interest shall be 6% per annum, demandable from date of judicial or extra-judicial demand (Art. 1169, Civil
Code)
b. If unliquidated, no interest

Except: When later on established with certainty. Interest shall still be 6% per annum demandable from the date of judgment because such
on such date, it is already deemed that the amount of damages is already ascertained.

3. Compounded Interest– This is applicable to both monetary and non-monetary obligations– 6% per annum computed against award of
damages (interest) granted by the court. To be computed from the date when the court’s decision becomes final and executory until the
award is fully satisfied by the losing party.

4. The 6% per annum rate of legal interest shall be applied prospectively:– Final and executory judgments awarding damages prior to July
1, 2013 shall apply the 12% rate;– Final and executory judgments awarding damages on or after July 1, 2013 shall apply the 12% rate for
unpaid obligations until June 30, 2013; unpaid obligations with respect to said judgments on or after July 1, 2013 shall still incur the 6%
rate.
PNB v. CA
G.R. No. 108052, 24 July 1996

DOCTRINE:
A local bank, while acting a local correspondent bank, intercepted funds being coursed through it
by its foreign counterpart for transmittal and deposit to the account of an individual with another local
bank and applied the said funds to certain obligations owed to it by said individual.

FACTS:
PNB, herein petitioner, double credited the private respondent’s account erroneously. Petitioner
then demanded the private respondent to return the amount in excess, equal to P34,340.58. Thereafter,
remittances from abroad to the private respondent were coursed through petitioner PNB. Without his
knowledge and consent, the bank deducted P34,340.58 from the remittances, by virtue of compensation.
Private respondent averred contending that the bank does not have a legal justification to make
compensation on the remittances. The trial and the CA ruled in favor of the private respondent and ordered
the amount taken by the petitioner to be returned the private respondent.

ISSUE:
WON a local correspondent bank can make compensation against remittances coursed through it.

RULING:
No. The Court affirms the decision of the lower courts. The trial court correctly ruled that the
petitioner and the private respondent are not debtors and creditors of each other. Article 1279 of the Civil
Code provides in order that compensation may prosper, it is necessary:
 That each one of the obligors be bound principally, and that he be at the same time a principal
creditor of the other;
 That both debts consist in a sum of money, or if the things due are consumable, they are of the same
kind, and also of the same quality if the latter has been stated;
 That the two debts be due;
 That they are liquidated and demandable;
 That over neither of them there by any retention or controversy commenced by third persons and
communicated in due time to the debtor.

A contract between a foreign bank and local bank asking the latter to pay an amount to a beneficiary
is a stipulation pour autrui. The parties are not both principally bound with respect to the $2,627.11 from
Jeddah; neither are they at the same time principal creditor of the other. Therefore, the parties’ obligations
are not subject to compensation or set off under Art. 1279 of the Civil Code, for the reason that the defendant
is not a principal debtor nor, is the plaintiff a principal creditor insofar as the amount of $2,627.11 is
concerned. They are debtor and creditor only with respect to the double payments; but are trustee-
beneficiary as to the fund transfer of $2,627.11.
PNB vs. MANALO
G.R. No. 174433 February 24, 2014
Bersamin, J.:
Doctrine:
Although banks are free to determine the rate of interest they could impose on their borrowers,
they can do so only reasonably, not arbitrarily. Hence, any stipulation on interest unilaterally imposed and
increased by them shall be struck down as violative of the principle of mutuality of contracts.

Facts:
Respondent Spouses Manalo executed a Real Estate Mortgage in favor of petitioner, PNB, over
their property as security for their All-Purpose Credit Facility loan amounting to P1,000,000.00. The credit
facility was renewed and increased several times over the years until it reach P7,000,000.00. It was agreed
upon that the Spouses Manalo would make monthly payments on the interest. However, the spouses Manalo
defaulted in their monthly payment. After the Spouses Manalo failed to settle their unpaid account despite
the two demand letters, PNB foreclosed the mortgage. PNB was the highest bidder for P15,127,000.00
during the foreclosure sale.
After more than a year after the Certificate of Sale had been issued to PNB, the Spouses Manalo
instituted an action for the nullification of the foreclosure proceedings and damages. They questioned the:
1) validity of the foreclosure; and 2) the interest rates and penalty charges imposed were iniquitous,
unconscionable and therefore void.
The RTC rendered its decision in favor of PNB. In its March 28, 2006 decision, the CA affirmed
the decision of the RTC insofar as it upheld the validity of the foreclosure proceedings, but modified the
Spouses Manalo’s liability for interest.

Issue:
Whether or not the CA was correct in nullifying the interest rates imposed on respondent spouses’
loan and in fixing the same at 12% from default, despite the existence of facts and circumstances showing
their assent to the interest rates imposed by PNB on the loan.

Held:
The Court has declared that unilateral determination of the interest rates contravened the principle
of mutuality of contracts embodied in Article 1308 of the Civil Code and the credit agreement had explicitly
provided that prior notice would be necessary before PNB could increase the interest rates. In failing to
notify the Spouses Manalo, the varying interest rates imposed by PNB have to be vacated and declared null
and void, and in their place an interest rate of 12% per annum computed from their default is fixed
The Court affirms the decision promulgated by the CA subject to the modification that any amount
to be refunded to the Spouses Manalo shall bear interest of 12% per annum computed from March 28, 2006
until June 30, 2013, and 6% per annum computed from July 1, 2013 until finality hereof; that the amount
to be refunded and its accrued interest shall earn interest at 6% per annum until full refund; and directs PNB
to pay the costs of suit.
 Lotto Restaurant Corp vs. BPI Family Savings Bank, 30 March 2011

DOCTRINE: The Court has previously upheld as valid the proviso in loans that the interest rate
would be made to depend on the prevailing market rate. Such provision does not signify an
automatic increase in the interest. It simply means that the bank may adjust the interest according
to the prevailing market rate. This may result to either an increase or a decrease in the interest.

FACTS:

On December 23, 1999 petitioner Lotto got a loan of P3,000,000.00 from the DBS Bank
at an interest rate of 11.5% per annum. The promissory note it executed provided that Lotto would
pay DBS a monthly amortization of P35,045.69 for 180 months. To secure payment of the loan,
Lotto, represented by Suat Kim Go (Go), its General Manager, mortgaged to DBS a condominium
unit that belonged to it.

Lotto paid its monthly amortizations for 12 months from December 24, 1999 to December
24, 2000. But in January 2001, after DBS increased the interest to 19% per annum, Lotto contested
the increase and stopped paying the loan. After respondent BPI Family Savings Bank, Inc. (BPI)
acquired DBS, Lotto tried to negotiate with BPI for reduction of interest but the latter agreed to
reduce it to only 14.7% per annum, which was still unacceptable to Lotto. The collateral was taken
and CA found that the 11.5% rate provided in the promissory note pertained only to the period
from December 24, 1999 to December 24, 2000.

ISSUE: Whether or not DBS, now BPI, validly adjusted the rate of interest on Lotto's loan from
11.5% to 19% per annum beginning on December 24, 2000

RULING:

The 11.5% per annum interest was to apply to the period December 24, 1999 to December
24, 2000. They form but one statement of the stipulated interest rate and the period to which such
interest rate applied. Additionally, the statement of applicable interest rate bears an asterisk sign,
which footnoted the information that "[t]hereafter interest to be based on prevailing market rate."
This means that the rate of interest would be adjusted to the prevailing market rate after December
24, 2000.

The Court has previously upheld as valid the proviso in loans that the interest rate would
be made to depend on the prevailing market rate. Such provision does not signify an automatic
increase in the interest. It simply means that the bank may adjust the interest according to the
prevailing market rate. This may result to either an increase or a decrease in the interest.
G.R. No. 201264 January 11, 2016

FLORANTE VITUG, Petitioner,

vs.
EVANGELINE A. ABUDA, Respondent.

Doctrine: In stipulating interest rates, parties must ensure that the rates are neither iniquitous nor
unconscionable. Iniquitous or unconscionable interest rates are illegal and, therefore, void for being
against public morals.

Facts:

Respondent Abuda loaned P250,000.00 to Vitug and his wife, Narcisa Vitug. As security for the loan, Vitug
mortgaged to Abuda his property in Tondo, Manila which was then subject of a conditional Contract to Sell
between the National Housing Authority and Vitug. On November 17, 1997, the parties executed a
"restructured" mortgage contract on the property to secure the amount of P600,000.00 representing the
original P250,000.00 loan, additional loans, and subsequent credit accommodations given by Abuda to
Vitug with an interest of five (5) percent per month. Spouses Vitug failed to pay their loans despite Abuda's
demands.

On appeal, the Court of Appeals found that the interest rates imposed on Vitug's loan were "iniquitous,
unconscionable and exorbitant." It instead ruled that a legal interest of 1 % per month or 12% per annum
should apply from the judicial demand.

Issue: Whether or not the interest rate is iniquitous, unconscionable and exorbitant

Ruling:

Yes. In stipulating interest rates, parties must ensure that the rates are neither iniquitous nor unconscionable.
Iniquitous or unconscionable interest rates are illegal and, therefore, void for being against public morals.
Voluntariness of stipulations on interest rates is not sufficient to make the interest rates valid. In Castro v.
Tan:

The imposition of an unconscionable rate of interest on a money debt, even if knowingly

and voluntarily assumed, is immoral and unjust. It is tantamount to a repugnant spoliation and an
iniquitous deprivation of property, repulsive to the common sense of man. It has no support in law,
in principles of justice, or in the human conscience nor is there any reason whatsoever which may
justify such imposition as righteous and as one that may be sustained within the sphere of public or
private morals.

Thus, even if the parties voluntarily agree to an interest rate, courts are given the discretionary power to
equitably reduce it if it is later found to be iniquitous or unconscionable. Under the circumstances of this
case, the Court find no reason to uphold the stipulated interest rates of 5% to 10% per month on petitioner's
loan. Petitioner obtained the loan out of extreme necessity. As pointed out by respondent, the property
would have been earlier foreclosed by the National Housing Authority if not for the loan. Moreover, it
would be unjust to impose a heavier burden upon petitioner, who would already be losing his and his
family's home. Respondent would not be unjustly deprived if the interest rate is reduced. After all,
respondent still has the right to foreclose the property.
G.R. No. 158622
January 27, 2016

SPOUSES ROBERT ALAN L. and NANCY LEE LIMSO, Petitioners,

vs.
PHILIPPINE NATIONAL BANK and THE REGISTER OF DEEDS OF DAVAO CITY,
Respondents.

(The principle of mutuality of contracts dictates that a contract must be rendered void when the execution
of its terms is skewed in favor of one party)

Facts:
In 1993, Spouses Limso and Davao Sunrise Investment and Development Corporation (Davao Sunrise)
took out a loan secured by real estate mortgages from PNB. The loan was in the total amount of P700
million, divided into two (2) kinds of loan accommodations: a revolving credit line of P300 million, and a
seven-year long-term loan of P400 million. To secure the loan, real estate mortgages were constituted on
four (4) parcels of land. The parcels of land covered by TCT Nos. T-147820, T-151138, and T-147821 were
registered in the name of Davao Sunrise, while the parcel of land covered by TCT No. T-140122 was
registered in the name of Spouses Limso. Spouses Limso and Davao Sunrise had difficulty in paying their
loan. In 1999, they requested that their loan be restructured. After negotiations, Spouses Limso, Davao
Sunrise, and Philippine National Bank executed a Conversion, Restructuring and Extension Agreement.
The principal obligation in the restructured agreement totalled ₱1.067 billion. This included ₱217.15
million unpaid interest. Spouses Limso and Davao Sunrise encountered financial difficulties. Despite the
restructuring of their loan, they were still unable to pay. PNB sent demand letters. Still, Spouses Limso and
Davao Sunrise failed to pay. The Sps. and Davao Sunrise filed a complaint in court praying for the
declaration of nullity of unilateral imposition and increases of interest rates.

Issue:
Whether or not the interest rates imposed by PNB were usurious and unconscionable

Ruling:
Yes, from the terms of the loan agreements, there was no way for Spouses Limso and Davao Sunrise to
determine the interest rate imposed on their loan because it was always at the discretion of PNB. Nor could
Spouses Limso and Davao Sunrise determine the exact amount of their obligation because of the frequent
changes in the interest rates imposed. As found by the Court of Appeals, the loan agreements merely stated
that interest rates would be imposed. However, the specific interest rates were not stipulated, and the
subsequent increases in the interest rates were all at the discretion of PNB.

According to the SC, there was no mutuality of contract between the parties since the interest rates imposed
were based on the sole discretion of Philippine National Bank. Further, the escalation clauses in the real
estate mortgage did not specify a fixed or base interest. Thus, the interest rates are invalid.
VICENTE D. CABANTING AND LALAINE V. CABANTING, v.BPI FAMILY SAVINGS BANK,
INC.
G.R. No. 201927
February 17, 2016

DOCTRINE : a loan or forbearance of money, the interest due should be that which may have been
stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is
judicially demanded. In the absence of stipulation, the rate of interest shall be 6% per annum to be
computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of
Article 1169 of the Civil Code.
Facts:

Cabanting bought a Mitsubishi Adventure from Diamond Motors on installment basis. He also executed a
Promissory note with Chattel Mortgage on the vehicle in favor of Diamond Motors wherein the parties
stipulated that in case of failure to pay “the entire sum outstanding under this note shall immediately become
due and payable without the necessity of notice or demand which I/We hereby waive." On the same day,
Diamond motors assigned to BPI Bank all its right, title and interest to the Promissory note.

When Cabanting failed to pay his monthly amortizations, BPI filed a case for Replevin and damages against
Cabanting. RTC rendered a decision in favor of BPI and ordered Cabanting to pay his unpaid balance. The
decision was affirmed by the CA on appeal. Cabanting now raised as error that there was no proof of prior
demand and that the stipulation on its waiver must be deemed invalid for being a contract of adhesion.

Issue:
Whether or not the stipulation on contract of adhesion be valid.

Held :
With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as
the accrual
chanRoblesvirtualLawlibrary
thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance
of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest
due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate
of interest shall be 6% per annum to be computed from default, i.e., from judicial or extrajudicial demand under
and subject to the provisions of Article 1169 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of
damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest,
however, shall be adjudged on unliquidated claims or damages, except when or until the demand can be
established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty,
the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil
Code), but when such certainty cannot be so reasonably established at the time the demand is made, the interest
shall begin to run only from the date the judgment of the court is made (at which time the quantification of
damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal
interest shall, in any case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal
interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 6% per annum from such
finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of
credit.