B.
GENERAL BANKING LAW OF 2000 Issues: Whether the disputed transaction between ASIA
1. TEODORO BANAS V. ASIA PACIFIC FINANCE CORP,
G.R. NO. 128703, 10/18/2000
Facts: Teodoro Bañas executed a Promissory Note in
favor of C. G. Dizon Construction whereby for value
received he promised to pay to the order of C. G. Dizon
Construction the sum of P390,000.00 in installments of
“P32,500.00 every 25th day of the month starting from
September 25, 1980 up to August 25, 1981.”Later, C. G.
Dizon Construction endorsed with recourse the
Promissory Note to ASIA PACIFIC, and to secure
payment thereof, C. G. Dizon Construction, through its
corporate officers, Cenen Dizon, President, and Juliette B.
Dizon, Vice President and Treasurer, executed a Deed of
Chattel Mortgage covering three heavy equipment units of
Caterpillar Bulldozer Crawler Tractors. Moreover, Cenen
Dizon executed a Continuing Undertaking wherein he
bound himself to pay the obligation jointly and severally
with C. G. Dizon Construction.
In compliance thereof, C. G. Dizon Construction made
three installment payments to ASIA PACIFIC for a total of
P130,000.00. Thereafter, however, C. G. Dizon
Construction defaulted in the payment of the remaining
installments, prompting ASIA PACIFIC to send a
Statement of Account to Cenen Dizon for the unpaid
balance of P267,737.50 inclusive of interests and charges,
and P66,909.38 representing attorney’s fees. As the
demand was unheeded, ASIA PACIFIC filed a complaint
for a sum of money with prayer for a writ of replevin
against Teodoro Bañas, C. G. Dizon Construction and
Cenen Dizon. The trial court issued a writ of replevin
against defendant C. G. Dizon Construction for the
surrender of the bulldozer crawler tractors. Of the three
bulldozer crawler tractors, only two were actually turned
over by defendants which units were subsequently
foreclosed by ASIA PACIFIC to satisfy the obligation. The
two bulldozers were sold both to ASIA PACIFIC as the
highest bidder.
Petitioners insist that ASIA PACIFIC was organized as
an investment house which could not engage in the
lending of funds obtained from the public through
receipt of deposits. The disputed Promissory Note, Deed
of Chattel Mortgage and Continuing Undertaking were not
intended to be valid and binding on the parties as they
were merely devices to conceal their real intention which
was to enter into a contract of loan in violation of banking
laws. The Regional Trial Court ruled in favor of ASIA
PACIFIC holding the defendants jointly and severally liable
for the unpaid balance of the obligation under the
Promissory Note. The Court of Appeals affirmed the
decision of the trial court
PACIFIC was engaged in banking activities.
Held: An investment company refers to any issuer which is
or holds itself out as being engaged or proposes to
engage primarily in the business of investing,
reinvesting or trading in securities. As defined in
Revised Securities Act, securities “shall include
commercial papers evidencing indebtedness of any
person, financial or non-financial entity, irrespective of
maturity, issued, endorsed, sold, transferred or in any
manner conveyed to another with or without recourse,
such as promissory notes” Clearly, the transaction
between petitioners and respondent was one involving not
a loan but purchase of receivables at a discount, well
within the purview of “investing, reinvesting or trading in
securities” which an investment company, like ASIA
PACIFIC, is authorized to perform and does not constitute
a violation of the General Banking Act.
What is prohibited by law is for investment companies
to lend funds obtained from the public through
receipts of deposit, which is a function of banking
institutions. But here, the funds supposedly “lent” to
petitioners have not been shown to have been obtained
from the public by way of deposits, hence, the
inapplicability of banking laws. Wherefore, the assailed
decision of the Court of Appeals was affirmed.
2. BDO-EPCI INC. V. JAPRL DEVELOPMENT CORP,
G.R. NO. 179901, 4/14/0
FACTS: Banco de Oro-EPCI, Inc. extended credit facilities
amounting to P230,000,0005 to JAPRL and respondents
Rapid Forming Corporation (RFC) and Jose U. Arollado
are JAPRL's sureties. Petitioner later learned from MRM
Management, JAPRL's financial adviser, that JAPRL had
altered and falsified its financial statements. It allegedly
bloated its sales revenues to post a big income from
operations for the concerned fiscal years to project itself
as a viable investment. Petitioner demanded immediate
payment of JAPRL's outstanding obligations amounting to
P194,493,388.98. Because JAPRL ignored its demand for
payment, petitioner filed a complaint for sum of money
with an application for the issuance of a writ of
preliminary attachment against respondents in the
RTC of Makati City. The Makati RTC subsequently
denied the application (for the issuance of a writ of
preliminary attachment) for lack of merit as petitioner was
unable to substantiate its allegations. Nevertheless, it
ordered the service of summons on respondents.
Respondents moved to dismiss the complaint due to an
allegedly invalid service of summons. Because the
officer's return stated that an "administrative assistant"
had received the summons, JAPRL and RFC argued that
Section 11, Rule 14 of the Rules of Court contained an
exclusive list of persons on whom summons against a
corporation must be served. They are president,
managing partner, general manager, corporate
secretary, treasurer, inhouse counsel. An
"administrative assistant" was not one of them. Arollado,
on the other hand, cited Section 6, Rule 14 thereof which
mandated personal service of summons on an individual
defendant.
The Makati RTC, in its October 10, 2005 order, noted that
because corporate officers are often busy, summonses to
corporations are usually received only by administrative
assistants or secretaries of corporate officers in the
regular course of business. Hence, it denied the motion for
lack of merit.
Petitioner essentially asserted that JAPRL was guilty of
fraud because it (JAPRL) altered and falsified its financial
statements. JAPRL (and its subsidiary, RFC) filed a
petition for rehabilitation in the RTC of Calamba which was
granted. As a result, the complaint was dismissed with
respect to JAPRL and RFC. Arollado remain as a
defendant. It ruled that, because he was jointly and
solidarily liable with JAPRL and RFC, the proceedings
against him should continue. Respondents filed a petition
for certiorari before the CA, contending that the trial court
did not acquire jurisdiction. CA granted, hence this
petition.
ISSUE: Whether or not JAPRL are liable to pay their
obligations
RULING:
1) Whether or not the trial court acquired jurisdiction
over respondents? (YES)
Respondents, in their petition for certiorari in the CA,
questioned the jurisdiction of the Makati RTC over their
persons (i.e., whether or not the service of summons was
validly made). Therefore, it was only the October 10, 2005
order of the said trial court which they in effect assailed.
However, because they withdrew their motion for
reconsideration of the said order, it became final.
Moreover, the petition was filed 10 months and 1 day
after the assailed order was issued by the Makati RTC,
way past the 60 days allowed by the Rules of Court.
For these reasons, the said petition should have been
dismissed outright by the CA.
More importantly, when respondents moved for the
suspension of proceedings in Civil Case No. 03-991
before the Makati RTC (on the basis of the March 13,
2006 order of the Calamba RTC), they waived
whatever defect there was in the service of summons
and were deemed to have submitted themselves
voluntarily to the jurisdiction of the Makati RTC.
2) Whether or not JARL needs to pay his obligations?
(REMANDED TO RTC to determine fraud)
Respondents abused procedural technicalities (albeit
unsuccessfully) for the sole purpose of preventing, or at
least delaying, the collection of their legitimate obligations.
Their reprehensible scheme impeded the speedy
dispensation of justice. More importantly, however,
considering the amount involved, respondents utterly
disregarded the significance of a stable and efficient
banking system to the national economy.
Banks are entities engaged in the lending of funds
obtained through deposits from the public. They borrow
the public's excess money (i.e., deposits) and lend out the
same. Banks therefore redistribute wealth in the economy
by channeling idle savings to profitable investments.
Banks operate (and earn income) by extending credit
facilities financed primarily by deposits from the public.
They plough back the bulk of said deposits into the
economy in the form of loans. Since banks deal with the
public's money, their viability depends largely on their
ability to return those deposits on demand. For this
reason, banking is undeniably imbued with public
interest. Consequently, much importance is given to
sound lending practices and good corporate governance.
Protecting the integrity of the banking system has
become, by large, the responsibility of banks. The role
of the public, particularly individual borrowers, has
not been emphasized. Nevertheless, we are not unaware
of the rampant and unscrupulous practice of obtaining
loans without intending to pay the same.
In this case, petitioner alleged that JAPRL fraudulently
altered and falsified its financial statements in order to
obtain its credit facilities. Considering the amount of
petitioner's exposure in JAPRL, justice and fairness
dictate that the Makati RTC hear whether or not
respondents indeed committed fraud in securing the credit
accomodation.
A finding of fraud will change the whole picture. In this
event, petitioner can use the finding of fraud to move for
the dismissal of the rehabilitation case in the Calamba
RTC.
The protective remedy of rehabilitation was never intended
to be a refuge of a debtor guilty of fraud.
Meanwhile, the Makati RTC should proceed to hear Civil
Case No. 03-991 against the three respondents guided by
Section 40 of the General Banking Law which states:

Section 40. Requirement for Grant of Loans or Other
Credit Accommodations. Before granting a loan or other
credit accommodation, a bank must ascertain that the
debtor is capable of fulfilling his commitments to the bank.
Towards this end, a bank may demand from its credit
applicants a statement of their assets and liabilities and of
their income and expenditures and such information as
may be prescribed by law or by rules and regulations of
the Monetary Board to enable the bank to properly
evaluate the credit application which includes the
corresponding financial statements submitted for taxation
purposes to the Bureau of Internal Revenue. Should such
statements prove to be false or incorrect in any
material detail, the bank may terminate any loan or
credit accommodation granted on the basis of said
statements and shall have the right to demand
immediate repayment or liquidation of the obligation.
In formulating the rules and regulations under this Section,
the Monetary Board shall recognize the peculiar
characteristics of microfinancing, such as cash flow-based
lending to the basic sectors that are not covered by
traditional collateral.
Under this provision, banks have the right to annul any
credit accommodation or loan, and demand the immediate
payment thereof, from borrowers proven to be guilty of
fraud. Petitioner would then be entitled to the immediate
payment of P194,493,388.98 and other appropriate
damages.
The Regional Trial Court of Makati City, Branch 145 is
ordered to proceed expeditiously with the trial of Civil
Case No. 03-991 with regard to respondent Jose U.
Arollado, and the other respondents if warranted.
3. SPOUSES PANLILIO V. CITIBANK NA, G.R. NO.
156335, 11/28/2007
Nature of the Case: Petition for Review on Certiorari
under Rule 45 of the Rules of Court, seeking to reverse
the Decision of the Court of Appeals (CA)
Facts of the Case: On October 10, 1997, petitioner
Amalia Panlilio (Amalia) visited respondent's Makati City
office and deposited one million pesos (PhP1 million) in
the bank's Citihi account, a fixed-term savings account
with a higher-than-average interest. On the same day,
Amalia also opened a current or checking account with
respondent, to which interest earnings of the Citihi account
were to be credited. Respondent assigned one of its
employees, Jinky Suzara Lee (Lee), to personally transact
with Amalia and to handle the accounts.
Amalia opened the accounts as ITF or in trust for
accounts, as they were intended to benefit her minor
children. To open these accounts, Amalia signed two
documents: a Relationship Opening Form (ROF) and an
Investor Profiling and Suitability Questionnaire
(Questionnaire).
Amalia's initial intention was to invest the money in a
Citibank product called the Peso Repriceable
Promissory Note (PRPN), a product which had a higher
interest. However, as the PRPN was not available that
day, Amalia put her money in the Citihi savings account.
More than a month later, or on November 28, 1997,
Amalia phoned Citibank saying she wanted to place an
investment, this time in the amount of three million pesos
(PhP3 million). Again, she spoke with Lee, the bank
employee, who introduced her to Citibank's various
investment offerings. After the phone conversation,
apparently decided on where to invest the money, Amalia
went to Citibank bringing a PCIBank check in the amount
of three million pesos (PhP3 million). During the visit,
Amalia instructed Lee on what to do with the PhP3 million.
Later, she learned that out of the said amount,
PhP2,134,635.87 was placed by Citibank in a Long-Term
Commercial Paper (LTCP), a debt instrument that paid a
high interest, issued by the corporation Camella and
Palmera Homes (C&P Homes). The rest of the money was
placed in two PRPN accounts, in trust for each of Amalia's
two children.
An LTCP is an evidence of indebtedness, with a maturity
period of more than 365 days, issued by a corporation to
any person or entity. It is in effect a loan obtained by a
corporation (as borrower) from the investing public (as
lender) and is one of many instruments that investment
banks can legally buy on behalf of their clients, upon the
latter's express instructions, for investment purposes.
LTCPs' attraction is that they usually have higher yields
than most investment instruments. In the case of the
LTCP issued by C&P Homes, the gross interest rate was
16.25% per annum at the time Amalia made her
investment.
On November 28, 1997, the day she made the
PhP3million investment, Amalia signed the following
documents: a Directional Investment Management
Agreement (DIMA), Term Investment Application (TIA),
and Directional Letter/Specific Instructions. Key features
of the DIMA and the Directional Letter are provisions
that essentially clear Citibank of any obligation to
guarantee the principal and interest of the investment,
absent fraud or negligence on the latter's part. The
provisions likewise state that all risks are to be
assumed by the investor (petitioner).
As to the amount invested, only PhP2,134,635.87 out of
the PhP3 million brought by Amalia was placed in the
LTCP since, according to Lee, this was the only amount of
LTCP then available. According to Lee, the balance of the
PhP3 million was placed in two PRPN accounts, each one
in trust for Amalia's two children, per her instructions.
Following this investment, respondent claims to have
regularly sent confirmations of investment (COIs) to
petitioners. A COI is a one-page, computer generated
document informing the customer of the investment earlier
made with the bank. The first of these COIs was received
by petitioners on or about December 9, 1997, as admitted
by Amalia, which is around a week after the investment
was made. Respondent claims that other succeeding
COIs were sent to and received by petitioners.
Amalia claims to have called Lee as soon as she
received the first COI in December 1997, and
demanded that the investment in LTCP be withdrawn
and placed in a PRPN. Respondent, however, denies
this, claiming that Amalia merely called to clarify
provisions in the COI and did not demand a withdrawal.
On August 6, 1998, petitioners met with respondent's
other employee, Lizza Colet, to pre-terminate the LTCP
and their other investments. Petitioners were told that as
to the LTCP, liquidation could be made only if there is a
willing buyer, a prospect which could be difficult at that
time because of the economic crisis. Still, petitioners
signed three sets of Sales Order Slip to sell the LTCP and
left these with Colet.
Amalia, through counsel, sent a written demand to
respondent for a withdrawal of her investment as
soon as possible. In answer to the letters, respondent
noted that the investment had a 2003 maturity, was
not a deposit, and thus, its return to the investor was
not guaranteed by respondent; however, it added that
the LTCP may be sold prior to maturity and had in fact
been put up for sale, but such sale was subject to the
availability of buyers in the secondary market. At that time,
respondent was not able to find a buyer for the LTCP.
Amalia again wrote respondent, a final demand letter,
asking for a reconsideration and a return of the money she
invested. In reply, respondent wrote a letter dated October
12, 1998 stating that despite efforts to sell the LTCP, no
willing buyers were found and that even if a buyer would
come later, the price would be lower than Amalia's original
investment.
Thus, petitioners filed with the RTC their complaint against
respondent for a sum of money and damages.
The Complaint essentially demanded a return of the
investment, alleging that Amalia never instructed
respondent's employee Lee to invest the money in an
LTCP; and that far from what Lee executed, Amalia's
instructions were to invest the money in a trust account
with an interest of around 16.25% with a term of 91 days.
Further, petitioners alleged that it was only later, or on
December 8, 1997, when Amalia received the first
confirmation of investment (COI) from respondent, that
she and her husband learned of Lee's infidelity to her
orders. The COI allegedly informed petitioners that the
money was placed in an LTCP of C&P Homes with a
maturity in 2003, and that the investment was not
guaranteed by respondent. Petitioners also claimed that
as soon as Amalia received the COI, she immediately
called Lee; however, the latter allegedly convinced her to
ignore the COI, that C&P Homes was an Ayala company,
that the investment was secure, and that it could be easily
withdrawn; hence, Amalia decided not to immediately
withdraw the investment. Several months later, or on
August 6, 1998, petitioners allegedly wanted to withdraw
the investment to buy a property; however, they failed to
do so, since respondent told them the LTCP had not yet
matured, and that no buyers were willing to buy it. Hence,
they sent various demand letters to respondent, asking for
a return of their money; and when these went unheeded,
they filed the complaint.
Answer of Respondent: Admitted that, indeed, Amalia
was its client and that she invested the amounts stated in
the complaint. However, respondent disputed the claim
that Amalia opened a trust account with a request for an
interest rate of around 16.25% with a term of 91 days;
instead, respondent presented documents stating that
Amalia opened a directional investment management
account, with investments to be made in C&P Homes'
LTCP with a 2003 maturity. Respondent disputed
allegations that it violated petitioners' express instructions.
Respondent likewise denied that Amalia, upon her receipt
of the COI, immediately called respondent and protested
the investment in LTCP, its 2003 maturity and Citibank's
lack of guarantee. According to respondent, no such
protest was made and petitioners actually decided to
liquidate their investment only months later, after the
newspapers reported that Ayala Land, Inc. was cancelling
plans to invest in C&P Homes.
The rest of respondent's Answer denied (1) that it
convinced Amalia not to liquidate or withdraw her
investment or to ignore the contents of the COI; (2) that it
assured Amalia that the investment could be easily or
quickly withdrawn or sold; (3) that it misrepresented that
C&P was an Ayala company, implying that C&P had
secure finances; and (4) that respondent had been
unfaithful to and in breach of its contractual obligations.
RTC Ruling: In favor of the Plaintiffs
The RTC upheld all the allegations of petitioners and
concluded that Amalia never instructed Citibank to invest
the money in an LTCP. Thus, the RTC found Citibank in
violation of its contractual and fiduciary duties and held it
liable to return the money invested by petitioners plus
damages.
CA Ruling: Reversed RTC
The CA held that with respect to the amount of
PhP2,134,635.87, the account opened by Amalia was an
investment management account; as a result, the
money invested was the sole and exclusive obligation of
C&P Homes, the issuer of the LTCP, and was not
guaranteed or insured by herein respondent Citibank; that
Amalia opened such an account as evidenced by the
documents she executed with Citibank, namely, the
Directional Investment Management Agreement (DIMA),
Term Investment Application (TIA), and Directional
Letter/Specific Instructions, which were all dated
November 28, 1997, the day Amalia brought the money to
Citibank. Further, the CA brushed aside petitioners'
arguments that Amalia failed to understand the true nature
of the LTCP investment, and that she failed to read the
documents as they were written in fine print. The CA ruled
that petitioners could not seek the court's aid to extricate
them from their contractual obligations. Citing
jurisprudence, the CA held that the courts protected only
those who were innocent victims of fraud, and not those
who simply made bad bargains or exercised unwise
judgment.
ISSUES:
1) Whether petitioners are bound by the terms and
conditions of the Directional Investment
Management Agreement (DIMA), Term Investment
Application (TIA), Directional Letter/Specific
Instructions, and Confirmations of Investment
(COIs); YES.
2) Whether petitioners are entitled to take back the
money they invested from respondent bank; or
stated differently, whether respondent is obliged to
return the money to petitioners upon their demand
prior to maturity. NO
RULING: WHEREFORE, the Petition is DENIED.
Petitioners Contention: Petitioners contend that they are
not bound by the terms and conditions of the DIMA,
Directional Letter and COIs because these were
inconsistent with the TIA and other documents they
signed. Further, they claim that the DIMA and the
Directional letter were signed in blank or contained
unauthorized intercalations by Citibank. Petitioners argue
that contrary to the contents of the documents, they did
not instruct Citibank to invest in an LTCP or to put their
money in such high-risk, long-term instruments.
RATIO:
1. YES
The DIMA, Directional Letter and COIs are evidence of the
contract between the parties and are binding on them,
following Article 1159 of the Civil Code which states that
contracts have the force of law between the parties and
must be complied with in good faith. In particular,
petitioner Amalia affixed her signatures on the DIMA,
Directional Letter and TIA, a clear evidence of her consent
which, under Article 1330 of the same Code, she cannot
deny absent any evidence of mistake, violence,
intimidation, undue influence or fraud.
As the documents have the effect of law, an examination
is in order to reveal what underlies petitioners' zeal to
exclude these from consideration.
The DIMA, Directional Letter, TIA and COIs, read
together, establish the agreement between the parties as
an investment management agreement, which created
a principal-agent relationship between petitioners as
principals and respondent as agent for investment
purposes. The agreement is not a trust or an ordinary
bank deposit; hence, no trustor-trustee-beneficiary or even
borrower-lender relationship existed between petitioners
and respondent with respect to the DIMA account.
Respondent purchased the LTCPs only as agent of
petitioners; thus, the latter assumed all obligations or
inherent risks entailed by the transaction under Article
1910 of the Civil Code.
As for any obligation wherein the agent has exceeded his
power, the principal is not bound except when he ratifies it
expressly or tacitly.
The transaction is perfectly legal, as investment
management activities may be exercised by a banking
institution, pursuant to Republic Act No. 337 or the
General Banking Act of 1948, as amended, which was the
law then in effect. Section 72 of said Act provides:
Sec. 72. In addition to the operations specifically
authorized elsewhere in this Act, banking
institutions other than building and loan
associations may perform the following services:
 (a) Receive in custody funds, documents, and
valuable objects, and rent safety deposit
boxes for the safeguarding of such effects;
(b) Act as financial agent and buy and sell, by
order of and for the account of their
customers, shares, evidences of indebtedness
and all types of securities;
(c) Make collections and payments for the
account of others and perform such other
services for their customers as are not
incompatible with banking business.
(d) Upon prior approval of the Monetary Board,
act as managing agent, adviser, consultant or
administrator of investment management/
advisory/consultancy accounts.
The banks shall perform the services permitted under
subsections (a), (b) and (c) of this section as depositories
or as agents. Accordingly, they shall keep the funds,
securities and other effects which they thus receive duly
separated and apart from the bank's own assets and
liabilities.
The Monetary Board may regulate the operations
authorized by this section in order to insure that said
operations do not endanger the interests of the
depositors and other creditors of the banks.
(Emphasis supplied.)
While Section 74 prohibits banks from
guaranteeing obligations of any person, thus:
Sec. 74. - No bank or banking institution shall
enter, directly, or indirectly into any contract of
guaranty or suretyship, or shall guarantee the
interest or principal of any obligation of any
person, copartnership, association, corporation or
other entity. The provisions of this section shall,
however, not apply to the following: (a) borrowing
of money by banking institution through the
rediscounting of receivables; (b) acceptance of
drafts or bills of exchange (c) certification of
checks; (d) transactions involving the release
of documents attached to items received for
collection; (e) letters of credit transaction,
including stand-by arrangements; (f) repurchase
agreements; (g) shipside bonds; (h) ordinary
guarantees or indorsements in favor of foreign
creditors where the principal obligation
involves loans and credits extended directly
by foreign investment purposes; and (i) other
transactions which the Monetary Board may, by
regulation, define or specify as not covered by the
prohibition. (Emphasis supplied.)
Nothing also taints the legality of the LTCP bought in
behalf of petitioners. C&P Homes' LTCP was
duly registered with the Securities and Exchange
Commission while the issuer was accredited by the
Philippine Trust Committee.
The evidence also sustains respondent's claim that its
trust department handled the account only because it was
the department tasked to oversee the trust, and other
fiduciary and investment management services of the
bank. Contrary to petitioners' claim, this did not mean that
petitioners opened a trust account. This is consistent with
Bangko Sentral ng Pilipinas (BSP) regulations, specifically
the Manual of Regulations for Banks (MORB), which
groups a bank's trust, and other fiduciary and investment
management activities under the same set of regulations,
to wit:
PART FOUR: TRUST, OTHER FIDUCIARY
BUSINESS AND INVESTMENT MANAGEMENT
ACTIVITIES
xxxx
Sec. X402 Scope of Regulations. These
regulations shall govern the grant of authority to
and the management, administration and conduct
of trust, other fiduciary business and investment
management activities (as these terms are
defined in Sec. X403) of banks. The regulations
are divided into three (3) Sub-Parts where:
A. Trust and Other Fiduciary Business shall apply
to banks authorized to engage in trust and other
fiduciary business including investment
management activities;
B. Investment Management Activities shall apply
to banks without trust authority but with authority
to engage in investment management activities;
and
C. General Provisions shall apply to both.
xxxx
Sec. X403 Definitions. For purposes of regulating
the operations of trust and other fiduciary
business and investment management activities,
unless the context clearly connotes otherwise, the
following shall have the meaning indicated.
 a. Trust business shall refer to any activity
resulting from a trustor-trustee relationship
(trusteeship) involving the appointment of a
trustee by a trustor for the administration, holding,
management of funds and/or properties of the
trustor by the trustee for the use, benefit or
advantage of the trustor or of others called
beneficiaries.
b. Other fiduciary business shall refer to any
activity of a trust-licensed bank resulting from a
contract or agreement whereby the bank binds
itself to render services or to act in a
representative capacity such as in an agency,
guardianship, administratorship of wills, properties
and estates, executorship, receivership, and other
similar services which do not create or result in a
trusteeship. It shall exclude collecting or paying
agency arrangements and similar fiduciary
services which are inherent in the use of the
facilities of the other operating departments of
said bank. Investment management activities,
which are considered as among other fiduciary
business, shall be separately defined in the
succeeding item to highlight its being a major
source of fiduciary business.
c. Investment management activity shall refer to
any activity resulting from a contract or agreement
primarily for financial return whereby the bank (the
investment manager) binds itself to handle or
manage investible funds or any investment
portfolio in a representative capacity as financial
or managing agent, adviser, consultant or
administrator of financial or investment
management, advisory, consultancy or any similar
arrangement which does not create or result in a
trusteeship. (Emphasis supplied.)
The Court finds no proof to sustain petitioners' contention
that the DIMA and Directional Letter contradict other
papers on record, or were signed in blank, or had
unauthorized intercalations. Petitioners themselves admit
that Amalia signed the DIMA and the Directional Letter,
which bars them from disowning the contract on the
belated claim that she signed it in blank or did not read it
first because of the fine print. On the contrary, the
evidence does not support these latter allegations, and it
is highly improbable that someone fairly educated and with
investment experience would sign a document in blank or
without reading it first.
2. Petitioners may not seek a return of their
investment directly from respondent at or prior to
maturity. As earlier explained, the investment is not a
deposit and is not guaranteed by respondent. Absent
any fraud or bad faith, the recourse of petitioners in the
LTCP is solely against the issuer, C&P Homes, and only
upon maturity.
It is clear that since the money is committed to C&P
Homes via LTCP for five years, or until 2003, petitioners
may not seek its recovery from respondent prior to the
lapse of this period. Petitioners must wait and meanwhile
just be content with receiving their interest regularly. If
petitioners want the immediate return of their investment
before the maturity date, their only way is to find a willing
buyer to purchase the LTCP at an agreed price, or to go
directly against the issuer C&P Homes, not against the
respondent.
The nature of the DIMA and the other documents signed
by the parties calls for this condition. The DIMA states
that respondent is a mere agent of petitioners and that
losses from both the principal and interest of the
investment are strictly on petitioners' account.
Meanwhile, the Directional Letter clearly states that the
investment is to be made in an LTCP which, by definition,
has a term of more than 365 days. Prior to the expiry of
the term, which in the case of the C&P Homes LTCP is
five years, petitioners may not claim back their investment,
especially not from respondent bank.
Having bound themselves under the contract Petitioners
are governed by its provisions. Petitioners as principals
in an agency relationship are solely obliged to
observe the solemnity of the transaction entered into
by the agent on their behalf, absent any proof that the
latter acted beyond its authority. Concomitant to this
obligation is that the principal also assumes the risks that
may arise from the transaction. Indeed, as in the instant
case, bank regulations prohibit banks from guaranteeing
profits or the principal in an investment management
account.
4. REYES V. CA, G.R. NO. 118492, 8/15/01
th
FACTS: In view of the 20 Asian Racing Conference
then scheduled to be held in September, 1988 in Sydney,
Australia, the Philippine Racing Club, Inc. (PRCI, for
brevity) sent four (4) delegates to the said conference.
Petitioner Gregorio H. Reyes, as vice-president for
finance, racing manager, treasurer, and director of PRCI,
sent Godofredo Reyes, the clubs chief cashier, to the
respondent bank to apply for a foreign exchange
demand draft in Australian dollars.
Godofredo went to respondent banks Buendia Branch in
Makati City and he was attended to by respondent banks
assistant cashier, Mr. Yasis, who at first denied the
application for the reason that respondent bank did not
have an Australian dollar account in any bank in Sydney.
Yasis of respondent bank then informed Godofredo of a
roundabout way of effecting the requested remittance
to Sydney thus: the respondent bank would draw a
demand draft against Westpac Bank in Sydney, Australia
(Westpac-Sydney for brevity) and have the latter
reimburse itself from the U.S. dollar account of the
respondent in Westpac Bank in New York, U.S.A
(Westpac-New York for brevity). This arrangement has
been customarily resorted to since the 1960s and the
procedure has proven to be problem-free. PRCI and the
petitioner Gregorio H. Reyes, acting through Godofredo,
agreed to this arrangement or approach in order to effect
the urgent transfer of Australian dollars payable to the
th
Secretariat of the 20 Asian Racing Conference.
On July 28, 1988, the respondent bank approved the
said application of PRCI and issued Foreign Exchange
Demand Draft in the sum applied for payable to the order
th
of the 20 Asian Racing Conference Secretariat of
Sydney, Australia, and addressed to Westpac-Sydney as
the drawee bank.
On August 10, 1988, upon due presentment of the
foreign exchange demand draft, the same was
dishonored, with the notice of dishonor for the reason
that defendant bank has no deposit dollar account with the
drawee Westpac-Sydney. Meanwhile, six days later,
Westpac-New York sent a cable to respondent bank
informing the latter that its dollar account in the sum of
One Thousand Six Hundred Ten Australian Dollars
(AU$1,610.00) was debited. In response to PRCIs
complaint about the dishonor of the said foreign exchange
demand draft, respondent bank informed Westpac-Sydney
of the issuance of the said demand draft, drawn against
the Westpac-Sydney and informing the latter to be
reimbursed from the respondent banks dollar account
in Westpac-New York. The respondent bank on the same
day likewise informed Westpac-New York requesting the
latter to honor the reimbursement claim of Westpac-
Sydney. Upon its second presentment for payment, the
demand draft was again dishonored by Westpac-Sydney
for the same reason, that is, that the respondent bank has
no deposit dollar account with the drawee Westpac-
Sydney.
On September 17, 1988 and September 18, 1988,
respectively, petitioners spouses Gregorio H. Reyes and
Consuelo Puyat-Reyes left for Australia to attend the
said racing conference. When petitioner Gregorio H.
Reyes arrived in Sydney in the morning of September 18,
1988, he went directly to the lobby of Hotel Regent
Sydney to register as a conference delegate. At the
registration desk, in the presence of other delegates from
various member countries, he was told by a lady member
of the conference secretariat that he could not register
because the foreign exchange demand draft for his
registration fee had been dishonored for the second
time. He was given the dishonored demand draft and a
covering letter. It was then that he actually paid in cash
the registration fees for himself and for his wife, who, at
the time the incident took place, was a member of the
House of Representatives representing the lone
Congressional District of Makati, Metro Manila and has
been an officer of the Manila Banking Corporation and
was cited by Archbishop Jaime Cardinal Sin as the top
lady banker of the year in connection with her conferment
of the Pro-Ecclesia et Pontifice Award.
Petitioners filed in the Regional Trial Court of Makati,
Metro Manila, a complaint for damages against the
respondent bank due to the dishonor of the said foreign
exchange demand draft issued by the respondent bank.
The petitioners claim that as a result of the dishonor of the
said demand draft, they were exposed to unnecessary
shock, social humiliation, and deep mental anguish in a
foreign country, and in the presence of an international
audience.
RTC rendered judgment in favour of the respondent bank.
CA affirmed decision of the RTC for the reason that there
is no basis to hold the respondent bank liable for damages
for the reason that it exerted every effort for the subject
foreign exchange demand draft to be honored.
ISSUE: Whether the respondent bank have exercised a
higher degree of diligence than that expected of an
ordinary prudent person in the handling of its affairs as in
the case at bar
RATIO:
Respondent bank was not negligent.
There is no reversible error in the decision of the
appellate court.
Petitioners are estopped from denying the said
arrangement or procedure. Similar arrangements have
been a long standing practice in banking to facilitate
international commercial transactions. In fact, the
SWIFT cable message sent by respondent bank to the
drawee bank, Westpac-Sydney, stated that it may
claim reimbursement from its New York branch,
Westpac-New York where respondent bank has a
deposit dollar account.
The facts as found by the courts a quo show that
respondent bank did not cause an erroneous transmittal of
its SWIFT cable message to Westpac-Sydney. It was the
erroneous decoding of the cable message on the part of
Westpac-Sydney that caused the dishonor of the subject
foreign exchange demand draft. An employee of
Westpac-Sydney in Sydney, Australia mistakenly read
the printed figures in the SWIFT cable message of
respondent bank as MT799 instead of as MT199. As a
result, Westpac-Sydney construed the said cable
message as a format for a letter of credit, and not for a
demand draft.
The evidence also shows that the respondent bank
exercised that degree of diligence expected of an ordinary
prudent person under the circumstances obtaining. Prior
to the first dishonor of the subject foreign exchange
demand draft, the respondent bank advised Westpac-New
York to honor the reimbursement claim of Westpac-
Sydney and to debit the dollar account of respondent bank
with the former.As soon as the demand draft was
dishonored, the respondent bank, thinking that the
problem was with the reimbursement and without any idea
that it was due to miscommunication, re-confirmed the
authority of Westpac-New York to debit its dollar account
for the purpose of reimbursing Westpac-Sydney.
Respondent bank also sent two (2) more cable messages
to Westpac-New York inquiring why the demand draft was
not honored.
With these established facts, we now determine the
degree of diligence that banks are required to exert in their
commercial dealings. In Philippine Bank of Commerce v.
Court of Appeals upholding a long standing doctrine, we
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
th
same, with the 20 Asian Racing Conference Secretariat
in Sydney, Australia as the payee thereof. As earlier
mentioned, the said foreign exchange demand draft was
intended for the payment of the registration fees of the
th
petitioners as delegates of the PRCI to the 20 Asian
Racing Conference in Sydney.
The evidence shows that the respondent bank did
everything within its power to prevent the dishonor of the
subject foreign exchange demand draft. The erroneous
reading of its cable message to Westpac-Sydney by
an employee of the latter could not have been
foreseen by the respondent bank.
RULING: Petition denied. In view of all the foregoing, and
considering that the dishonor of the subject foreign
exchange demand draft is not attributable to any fault of
the respondent bank, whereas the petitioners appeared to
be under estoppel as earlier mentioned, it is no longer
necessary to discuss the alleged application of Section 61
of the Negotiable Instruments Law to the case at bar. In
any event, it was established that the respondent bank
acted in good faith and that it did not cause the
embarrassment of the petitioners in Sydney, Australia.
Hence, the Court of Appeals did not commit any
reversable error in its challenged decision.
5. CITIBANK NA V. SPOUSES CABAMONGAN, 146918,
5/2/06
FACTS: On August 16, 1993, Spouses Cabamongan
opened a joint "and/or" foreign currency time deposit in
trust for their two sons at Citibank Makati in the amount of
$55,216.69 for a term of 182 days at 2.5625 per cent
interest per annum. Prior to maturity, a person claiming to
be Carmelita went to the bank and pre-terminated the said
foreign currency time deposit by presenting a passport,
credit card and other identification cards.
The person failed to surrender the original Certificate of
Deposit. Supposedly, she had to execute a notarized
release and waiver document in favor of Citibank
before the money will be released to her. However, the
money was given to the person withdrawing even though
the release and waiver document was not notarized.
After the transaction, the person left behind an
identification card. San Pedro, the account officer, called
to have the card picked up. It was the daughter-in-law of
Carmelita who received the call and that was when the
family knew of the incident. The Cabamongan spouses
informed Citibank that Carmelita was in the US and didn’t
preterminate their deposit and that the person who did so
was an impostor who could have also been involved in the
break-in of their California residence.
In a letter dated September 16, 1994, the spouses made a
formal demand upon Citibank for payment of their
preterminated deposit with legal interests. Citibank
refused. The spouses filed a complaint against Citibank
before the RTC of Makati for Specific Performance with
Damages.

RTC rendered a decision in favor of the spouses. Citibank
filed an appeal with the CA. CA affirmed RTC’s decision.
CA, however, disagreed with the damages awarded by the
RTC. It held that, insofar as the date from which legal
interest of 12% is to run, it should be counted from
September 16, 1994 when extrajudicial demand was
made.
ISSUES:
(1) Whether the bank is negligent and therefore should be
held liable when it allowed the pretermination of the TD in
favor of the impostor.
(2) Whether the interest rate should be fixed at 6%.
HELD: (1) Yes. In the instant case, San Pedro, the
employee who primarily dealt with the impostor, did not
follow bank procedure when she did not have the waiver
document notarized. The said procedure was obviously for
the protection of the bank but it deliberately ignored such
precaution. At the very least, the conduct of the bank
amounts to negligence. Citibank, thru San Pedro, openly
courted disaster when despite noticing discrepancies in
the signature and photograph of the person claiming to be
Carmelita and the failure to surrender the original
certificate of time deposit, the pretermination of the
account was allowed.
In this case, it has been sufficiently shown that the
signatures of Carmelita in the forms for pretermination of
deposits are forgeries. Citibank, with its signature
verification procedure, failed to detect the forgery. Its
negligence consisted in the omission of that degree of
diligence required of banks. The Court has held that a
bank is "bound to know the signatures of its customers;
and if it pays a forged check, it must be considered as
making the payment out of its own funds, and cannot
ordinarily charge the amount so paid to the account of the
depositor whose name was forged.”
The Court has repeatedly emphasized that, since the
banking business is impressed with public interest, of
paramount importance thereto is the trust and confidence
of the public in general. Consequently, the highest degree
of diligence is expected, and high standards of integrity
and performance are even required of it. By the nature of
its functions, a bank is "under obligation to treat the
accounts of its depositors with meticulous care, always
having in mind the fiduciary nature of their relationship.”
(2) No. Citibank avers that the claim of the Cabamongan
spouses does not constitute a loan or forbearance of
money and therefore, the interest rate of 6% applies. The
Court does not agree. The time deposit subject matter of
herein petition is a simple loan. The provisions of the New
Civil Code on simple loan govern the contract between a
bank and its depositor. Specifically, Article 1980 thereof
categorically provides that ". . . savings . . . deposits of
money in banks and similar institutions shall be governed
by the provisions concerning simple loan." Thus, the
relationship between a bank and its depositor is that of a
debtor-creditor, the depositor being the creditor as it lends
the bank money, and the bank is the debtor which agrees
to pay the depositor on demand.
Thus, in a loan or forbearance of money, the interest due
should be that stipulated in writing, and in the absence
thereof, the rate shall be 12% per annum counted from the
time of demand. Accordingly, the stipulated interest rate of
2.562% per annum shall apply for the 182-day contract
period from August 16, 1993 to February 14, 1994. For the
period from the date of extra-judicial demand, September
16, 1994, until full payment, the rate of 12% shall apply.
As for the intervening period between February 15, 1994
to September 15, 1994, the rate of interest then prevailing
granted by Citibank shall apply since the time deposit
provided for roll over upon maturity of the principal and
interest.
6. CENTRAL BANK OF THE PHILIPPINES V. CITYTRUST
BANKING CORP, G.R. NO. 141835, 2/4/09
FACTS: Pursuant to Republic Act No. 625, the old Central
Bank Law, respondent Citytrust Banking Corporation
(Citytrust), formerly Feati Bank, maintained a demand
deposit account with petitioner Central Bank of the
Philippines, now Bangko Sentral ng Pilipinas.
As required, Citytrust furnished petitioner with the names
and corresponding signatures of five of its officers
authorized to sign checks and serve as drawers and
indorsers for its account. And it provided petitioner with
the list and corresponding signatures of its roving tellers
authorized to withdraw, sign receipts and perform other
transactions on its behalf. Petitioner later issued
security identification cards to the roving tellers one
of whom was Rounceval Flores (Flores).
On July 15, 1977, Flores presented for payment to
petitioners Senior Teller Iluminada dela Cruz (Iluminada)
two Citytrust checks of even date, payable to Citytrust,
one in the amount of P850,000 and the other in the
amount of P900,000, both of which were signed and
indorsed by Citytrusts authorized signatory-drawers.
After the checks were certified by petitioners Accounting
Department, Iluminada verified them, prepared the cash
transfer slip on which she affixed her signature, stamped
the checks with the notation Received Payment and asked
Flores to, as he did, sign on the space above such
notation. Instead of signing his name, however, Flores
signed as Rosauro C. Cayabyab a fact Iluminada failed to
notice.
Iluminada thereupon sent the cash transfer slip and
checks to petitioners Cash Department where an officer
verified and compared the drawers signatures on the
checks against their specimen signatures provided by
Citytrust, and finding the same in order, approved the cash
transfer slip and paid the corresponding amounts to
Flores. Petitioner then debited the amount of the checks
totaling P1,750,000 from Citytrusts demand deposit
account.
More than a year and nine months later, Citytrust, by letter
dated April 23, 1979, alleging that the checks were already
cancelled because they were stolen, demanded petitioner
to restore the amounts covered thereby to its demand
deposit account. Petitioner did not heed the demand,
however.
RTC found both Citytrust and petitioner negligent and
accordingly held them equally liable for the loss. CA
affirmed RTC’s decision holding both parties contributed
equally to the fraudulent encashment of the checks,
hence, they should equally share the loss in consonance
with Art.2179 vis a vis Art. 1172 of the Civil Code.
ISSUE: Whether or not Central Bank and Citytrust are
equally liable for the loss
HELD: Yes, but modified into allocating the loss between
petitioner and Citytrust in a 60-40 ratio. Petitioner’s liability
mitigated for Citytrust’s failure to timely examine its
account, cancel the checks and notify petitioner, in
accordance with Article 2179 of the Civil Code which
provides that if the plaintiff’s negligence was only
contributory, the immediate and proximate cause of the
injury being the defendant’s lack of due care, the plaintiff
may recover damages, but the courts shall mitigate the
damages to be awarded. If Citytrust timely discovered the
loss/theft and/or subsequent encashment, their proceeds
or part thereof could have been recovered.
Petitioner’s teller non-verification of Flores’ signature is not
an excuse from focusing attention to or at least glancing at
Flores as he was signing, and to satisfy herself that the
signature he had just affixed matched that of his specimen
signature. Had she done that, she would have readily
been put on notice that Flores was affixing, not his but a
fictitious signature.
RATIO DECIDENDI:
Given that petitioner is the government body mandated to
supervise and regulate banking and other financial
institutions, this Courts’ ruling in Consolidated Bank and
Trust Corporation v. Court of Appeals illumines:
The contract between the bank and its depositor is
governed by the provisions of the Civil Code on
simple loan. Article 1980 of the Civil Code
expressly provides that x x x savings x x x
deposits of money in banks and similar institutions
shall be governed by the provisions concerning
simple loan. There is a debtor-creditor relationship
between the bank and its depositor. The bank is
the debtor and the depositor is the creditor. The
depositor lends the bank money and the bank
agrees to pay the depositor on demand. The
savings deposit agreement between the bank and
the depositor is the contract that determines the
rights and obligations of the parties.
The law imposes on banks high standards in view
of the fiduciary nature of banking. Section 2 of
Republic Act No. 8791 (RA 8791), which took
effect on 13 June 2000, declares that the State
recognizes the fiduciary nature of banking that
requires high standards of integrity and
performance. This new provision in the general
banking law, introduced in 2000, is a statutory
affirmation of Supreme Court decisions, starting
with the 1990 case of Simex International v. Court
of Appeals, holding that the bank is under
obligation to treat the accounts of its depositors
with meticulous care, always having in mind the
fiduciary nature of their relationship.
This fiduciary relationship means that the
banks obligation to observe high standards of
integrity and performance is deemed written
into every deposit agreement between a bank
and its depositor. The fiduciary nature of
banking requires banks to assume a degree of
diligence higher than that of a good father of a
family. Article 1172 of the Civil Code states that
the degree of diligence required of an obligor is
that prescribed by law or contract, and absent
such stipulation then the diligence of a good father
of a family. Section 2 of RA 8791 prescribes the
statutory diligence required from banks that banks
must observe high standards of integrity and
performance in servicing their depositors.
Although RA 8791 took effect almost nine
years after the unauthorized withdrawal of the
P300,000 from L.C. Diazs savings account,
jurisprudence at the time of the withdrawal
already imposed on banks the same high
standard of diligence required under RA No.
8791. (Emphasis supplied)
 7. DBP V. GUARINA AGRICULTURAL AND REALTY
DEVELOPMENT CORP, G.R. NO. 160758, 1/15/14
FACTS: In July 1976, Guariña Corporation applied for a
loan from DBP to finance the development of its resort
complex. The loan, in the amount of P3,387,000.00, was
approved on August 5, 1976. Guariña Corporation
executed a promissory note that would be due on
November 3, 1988. On October 5, 1976, Guariña
Corporation executed a real estate mortgage over several
real properties in favor of DBP as security for the
repayment of the loan. On May 17, 1977, Guariña
Corporation executed a chattel mortgage over the
personal properties existing at the resort complex and
those yet to be acquired out of the proceeds of the loan,
also to secure the performance of the obligation. Prior to
the release of the loan, DBP required Guariña Corporation
to put up a cash equity of P1,470,951.00 for the
construction of the buildings and other improvements on
the resort complex.
The loan was released in several installments, and
Guariña Corporation used the proceeds to defray the cost
of additional improvements in the resort complex. In all,
the amount released totaled P3,003,617.49, from which
DBP withheld P148,102.98 as interest.
Guariña Corporation demanded the release of the balance
of the loan, but DBP refused. Instead, DBP directly paid
some suppliers of Guariña Corporation over the latter’s
objection. DBP found upon inspection of the resort project,
its developments and improvements that Guariña
Corporation had not completed the construction works. In
a letter dated February 27, 1978, and a telegram dated
June 9, 1978, DBP thus demanded that Guariña
Corporation expedite the completion of the project, and
warned that it would initiate foreclosure proceedings
should Guariña Corporation not do so.
Unsatisfied with the non-action and objection of Guariña
Corporation, DBP initiated extrajudicial foreclosure
proceedings. On January 6, 1979, Guariña Corporation
sued DBP in the RTC to demand specific performance of
the latter's obligations under the loan agreement, and to
stop the foreclosure of the mortgages (Civil Case No.
12707). However, DBP moved for the dismissal of the
complaint, stating that the mortgaged properties had
already been sold to satisfy the obligation of Guariña
Corporation at a public auction held on January 15, 1979
at the Costa Mario Resort Beach Resort in Oton, Iloilo.
In the meantime, DBP applied for the issuance of a writ of
possession by the RTC. At first, the RTC denied the
application but later granted it upon DBP's motion for
reconsideration. Aggrieved, Guariña Corporation assailed
the granting of the application before the CA on certiorari.
After the CA dismissed the petition for certiorari, DBP
sought the implementation of the order for the issuance of
the writ of possession. Over Guariña Corporation's
opposition, the RTC issued the writ of possession.
CIVIL CASE NO. 12707: RTC ruled in favor of Guariña
Corporation, declaring the extrajudicial sale of mortgaged
properties null and void. CA affirmed.
ISSUE: Whether or not Guariña Corporation was in
default in performing its obligation making DBP’s action to
foreclose the mortgage proper?
HELD: NO. The Court held that the foreclosure of a
mortgage prior to the mortgagor’s default on the principal
obligation is premature, and should be undone for being
void and ineffectual. The mortgagee who has been
meanwhile given possession of the mortgaged property by
virtue of a writ of possession issued to it as the purchaser
at the foreclosure sale may be required to restore the
possession of the property to the mortgagor and to pay
reasonable rent for the use of the property during the
intervening period.
The agreement between DBP and Guariña Corporation
was a loan. Under the law, a loan requires the delivery of
money or any other consumable object by one party
to another who acquires ownership thereof, on the
condition that the same amount or quality shall be paid.
Loan is a reciprocal obligation, as it arises from the same
cause where one party is the creditor, and the other the
debtor. The obligation of one party in a reciprocal
obligation is dependent upon the obligation of the other,
and the performance should ideally be simultaneous. This
means that in a loan, the creditor should release the full
loan amount and the debtor repays it when it becomes
due and demandable.
The loan agreement between the parties is a reciprocal
obligation. Appellant in the instant case bound itself to
grant appellee the loan amount of P3,387,000.00 condition
on appellee’s payment of the amount when it falls due.
The appellant did not release the total amount of the
approved loan. Appellant therefore could not have made a
demand for payment of the loan since it had yet to fulfil its
own obligation. Moreover, the fact that appellee was not
yet in default rendered the foreclosure proceedings
premature and improper.
Being a banking institution, DBP owed it to Guariña
Corporation to exercise the highest degree of diligence, as
well as to observe the high standards of integrity and
performance in all its transactions because its business
was imbued with public interest. The high standards were
also necessary to ensure public confidence in the banking
system, for, according to Philippine National Bank v. Pike:
"The stability of banks largely depends on the confidence
of the people in the honesty and efficiency of banks."
Thus, DBP had to act with great care in applying the
stipulations of its agreement with Guariña Corporation, lest
it erodes such public confidence. Yet, DBP failed in its
duty to exercise the highest degree of diligence by
prematurely foreclosing the mortgages and unwarrantedly
causing the foreclosure sale of the mortgaged properties
despite Guariña Corporation not being yet in default. DBP
wrongly relied on Stipulation No. 26 as its basis to
accelerate the obligation of Guariña Corporation, for the
stipulation was relevant to an Omnibus Agricultural Loan,
to Guariña Corporation's loan which was intended for a
project other than agricultural in nature.
By its failure to release the proceeds of the loan in their
entirety, DBP had no right yet to exact on Guariña
Corporation the latter’s compliance with its own obligation
under the loan. Indeed, if a party in a reciprocal contract
like a loan does not perform its obligation, the other party
cannot be obliged to perform what is expected of it while
the other’s obligation remains unfulfilled. In other words,
the latter party does not incur delay.
8. THE CONSOLIDATED BANK AND TRUST
CORPORATION VS. COURT OF APPEALS AND L.C.
DIAZ AND COMPANY, CPA’S
G.R. NO. 138569, SEP 11, 2003.
FACTS:
Petitioner Solidbank is a domestic banking corporation
organized and existing under Philippine laws. Private
respondent L.C. Diaz and Company, CPA’s, is a
professional partnership engaged in the practice of
accounting.
In March 1976, L.C. Diaz opened a savings account with
Solidbank. On 14 August 1991, L.C. Diaz through its
cashier, Mercedes Macaraya, filled up a savings (cash)
deposit slip for P990 and a savings (checks) deposit slip
for P50. Macaraya instructed the messenger of L.C. Diaz,
Ismael Calapre, to deposit the money with Solidbank.
Macaraya also gave Calapre the Solidbank passbook.
Calapre went to Solidbank and presented to Teller No. 6
the two deposit slips and the passbook. The teller
acknowledged the receipt of the deposit by returning to
Calapre the duplicate copies of the two deposit slips.
Teller No. 6 stamped the deposit slips with the words
“DUPLICATE” and “SAVING TELLER 6 SOLIDBANK
HEAD OFFICE.” Since the transaction took time and
Calapre had to make another deposit for L.C. Diaz with
Allied Bank, he left the passbook with Solidbank. Calapre
then went to Allied Bank. When Calapre returned to
Solidbank to retrieve the passbook, Teller No. 6 informed
him that “somebody got the passbook.” Calapre went
back to L.C. Diaz and reported the incident to
Macaraya.
The following day L.C. Diaz learned of the unauthorized
withdrawal the day before (14 August 1991) of P300,000
from its savings account. The withdrawal slip for the
P300,000 bore the signatures of the authorized signatories
of L.C. Diaz, namely Diaz and Rustico L. Murillo. The
signatories, however, denied signing the withdrawal slip. A
certain Noel Tamayo received the P300,000.
L.C. Diaz demanded from Solidbank the return of its
money. Solidbank refused. L.C. Diaz filed a Complaint for
Recovery of a Sum of Money against Solidbank. The trial
court absolved Solidbank. L.C. Diaz appealed to the CA.
CA reversed the ecision of the trial court. CA denied the
motion for reconsideration of Solidbank. But it modified its
decision by deleting the award of exemplary damages and
attorney’s fees.
ISSUE:
Whether or not Solidbank must be held liable for the
fraudulent withdrawal on private respondent’s account.
HELD: Yes. Solidbank is liable for breach of contract
due to negligence, or culpa contractual.
The contract between the bank and its depositor is
governed by the provisions of the Civil Code on simple
loan. Article 1980 of the Civil Code expressly provides that
“x x x savings x x x deposits of money in banks and similar
institutions shall be governed by the provisions concerning
simple loan.” There is a debtor-creditor relationship
between the bank and its depositor. The bank is the
debtor and the depositor is the creditor. The depositor
lends the bank money and the bank agrees to pay the
depositor on demand. The savings deposit agreement
between the bank and the depositor is the contract that
determines the rights and obligations of the parties.
The law imposes on banks high standards in view of the
fiduciary nature of banking. The bank is under obligation to
treat the accounts of its depositors with meticulous care,
always having in mind the fiduciary nature of their
relationship.
This fiduciary relationship means that the bank’s obligation
to observe “high standards of integrity and performance” is
deemed written into every deposit agreement between a
bank and its depositor. The fiduciary nature of banking
requires banks to assume a degree of diligence higher
than that of a good father of a family. Article 1172 of the
Civil Code states that the degree of diligence required of
an obligor is that prescribed by law or contract, and absent
such stipulation then the diligence of a good father of a
family. Section 2 of RA 8791 prescribes the statutory
diligence required from banks – that banks must
observe “high standards of integrity and
performance” in servicing their depositors.
However, the fiduciary nature of a bank-depositor
relationship does not convert the contract between the
bank and its depositors from a simple loan to a trust
agreement, whether express or implied. Failure by the
bank to pay the depositor is failure to pay a simple loan,
and not a breach of trust. The law simply imposes on the
bank a higher standard of integrity and performance in
complying with its obligations under the contract of simple
loan, beyond those required of non-bank debtors under a
similar contract of simple loan.
The fiduciary nature of banking does not convert a simple
loan into a trust agreement because banks do not accept
deposits to enrich depositors but to earn money for
themselves.
Solidbank’s Breach of its Contractual Obligation
Article 1172 of the Civil Code provides that “responsibility
arising from negligence in the performance of every kind
of obligation is demandable.” For breach of the savings
deposit agreement due to negligence, or culpa
contractual, the bank is liable to its depositor.
Calapre left the passbook with Solidbank because the
“transaction took time” and he had to go to Allied Bank for
another transaction. The passbook was still in the hands
of the employees of Solidbank for the processing of the
deposit when Calapre left Solidbank. When the passbook
is in the possession of Solidbank’s tellers during
withdrawals, the law imposes on Solidbank and its tellers
an even higher degree of diligence in safeguarding the
passbook.
Solidbank’s tellers must exercise a high degree of
diligence in insuring that they return the passbook only to
the depositor or his authorized representative. For failing
to return the passbook to Calapre, the authorized
representative of L.C. Diaz, Solidbank and Teller No. 6
presumptively failed to observe such high degree of
diligence in safeguarding the passbook, and in insuring its
return to the party authorized to receive the same.
In culpa contractual, once the plaintiff proves a breach of
contract, there is a presumption that the defendant was at
fault or negligent. The burden is on the defendant to prove
that he was not at fault or negligent. In contrast, in culpa
aquiliana the plaintiff has the burden of proving that the
defendant was negligent. In the present case, L.C. Diaz
has established that Solidbank breached its contractual
obligation to return the passbook only to the authorized
representative of L.C. Diaz. There is thus a presumption
that Solidbank was at fault and its teller was negligent in
not returning the passbook to Calapre. The burden was on
Solidbank to prove that there was no negligence on its
part or its employees. But Solidbank failed to discharge its
burden. Solidbank did not present to the trial court Teller
No. 6, the teller with whom Calapre left the passbook and
who was supposed to return the passbook to him.
Solidbank also failed to adduce in evidence its standard
procedure in verifying the identity of the person retrieving
the passbook, if there is such a procedure, and that Teller
No. 6 implemented this procedure in the present case.
Solidbank is bound by the negligence of its employees
under the principle of respondeat superior or command
responsibility. The defense of exercising the required
diligence in the selection and supervision of employees is
not a complete defense in culpa contractual, unlike in
culpa aquiliana. The bank must not only exercise “high
standards of integrity and performance,” it must also
insure that its employees do likewise because this is the
only way to insure that the bank will comply with its
fiduciary duty
Proximate Cause of the Unauthorized Withdrawal
Proximate cause is that cause which, in natural and
continuous sequence, unbroken by any efficient
intervening cause, produces the injury and without which
the result would not have occurred. Proximate cause is
determined by the facts of each case upon mixed
considerations of logic, common sense, policy and
precedent.
L.C. Diaz was not at fault that the passbook landed in the
hands of the impostor. Solidbank was in possession of
the passbook while it was processing the deposit.
After completion of the transaction, Solidbank had the
contractual obligation to return the passbook only to
Calapre, the authorized representative of L.C. Diaz.
Solidbank failed to fulfill its contractual obligation because
it gave the passbook to another person.
Had the passbook not fallen into the hands of the
impostor, the loss of P300,000 would not have happened.
Thus, the proximate cause of the unauthorized withdrawal
was Solidbank’s negligence in not returning the passbook
to Calapre.
WHEREFORE, the decision of the Court of Appeals is
AFFIRMED with MODIFICATION.
9. ADVOCATES FOR TRUTH IN LENDING V. BSP, G.R.
NO. 192986, 1/15/13
Facts: "Advocates for Truth in Lending, Inc." (AFTIL) is a
non-profit, non-stock corporation organized to engage in
pro bono concerns and activities relating to money lending
issues. It was incorporated on July 9, 2010,and a month
later, it filed this petition, joined by its founder and
president, Eduardo B. Olaguer, suing as a taxpayer and a
citizen.
R.A. No. 265, which created the Central Bank on June 15,
1948, empowered the CB-MB to set the maximum interest
rates which banks may charge for all types of loans and
other credit operations.
The Usury Law was amended by P.D.1684, giving the CB-
MB authority to prescribe different maximum rates of
interest which may be imposed for a loan or renewal
thereof or the forbearance of any money, goods or credits,
provided that the changes are effected gradually and
announced in advance.
In its Resolution No. 2224 dated December 3, 1982, the
CB-MB issued CB Circular No. 905, Series of 1982,
effective on January 1, 1983. It removed the ceilings on
interest rates on loans or forbearance of any money,
goods or credits.
Petitioners contend that under Section 1-a of Act No.
2655, as amended by P.D. No. 1684, the CB-MB was
authorized only to prescribe or set the maximum rates of
interest for a loan or renewal thereof or for the forbearance
of any money, goods or credits, and to change such rates
whenever warranted by prevailing economic and social
conditions, the changes to be effected gradually and on
scheduled dates; that nothing in P.D. No. 1684 authorized
the CB-MB to lift or suspend the limits of interest on all
credit transactions, when it issued CB Circular No. 905.
They further insist that under Section 109 of R.A. No. 265,
the authority of the CB-MB was clearly only to fix the
banks’ maximum rates of interest, but always within the
limits prescribed by the Usury Law.
Issue: whether the CB-MB exceeded its authority when it
issued CB Circular No. 905, which removed all interest
ceilings and thus suspended Act No. 2655 as regards
usurious interest rates
Held:
CB-MB merely suspended the effectivity of the Usury Law
when it issued CB Circular No. 905.
In Medel v. CA, it was said that the circular did not repeal
nor amend the Usury Law but simply suspended its
effectivity; that a Circular cannot repeal a low; that by
virtue of CB the Usury Law has been rendered ineffective;
that the Usury has been legally non-existent in our
jurisdiction and interest can now be charged as lender and
borrow may agree upon.
Circular upheld the parties’ freedom of contract to agree
freely on the rate of interest citing Art. 1306 under which
the contracting parties may establish such stipulations,
clauses terms and conditions as they may deem
convenient provided they are not contrary to law, morals,
good customs, public order or public policy.
BSP-MB has authority to enforce CB Circular No. 905.
RA 265 covered only banks while Section 1-a of the Usury
Law, empowers the Monetary Board, BSP for that matter,
to prescribe the maximum rate or rates of interest for all
loans or renewals thereof or the forbearance of any
money, good or credits …
The Usury Law is broader in scope than RA 265, now RA
7653, the later merely supplemented the former as it
provided regulation for loans by banks and other financial
institutions. RA 7653 was not unequivocally repealed by
RA 765.
CB Circular 905 is essentially based on Section 1-a of the
Usury Law and the Usury Law being broader in scope
than the law that created the Central Bank was not
deemed repealed when the law replacing CB with the
Bangko Sentral was enacted despite the non-reenactment
in the BSP Law of a provision in the CB Law which the
petitioners purports to be the basis of Circular 905. Magulo
ba? Hahaha. Basta the present set up is: The power of the
BSP Monetary Board to determine interest rates emanates
from the Usury Law [which was further specified by
Circular 905].
Granting that the CB had power to "suspend" the Usury
Law, the new BSP-MB did not retain this power of its
predecessor, in view of Section 135 of R.A. No. 7653,
which expressly repealed R.A. No. 265. The petitioners
point out that R.A. No. 7653 did not reenact a provision
similar to Section 109 of R.A. No. 265.
A closer perusal shows that Section 109 of R.A. No. 265
covered only loans extended by banks, whereas under
Section 1-a of the Usury Law, as amended, the BSP-MB
may prescribe the maximum rate or rates of interest for all
loans or renewals thereof or the forbearance of any
money, goods or credits, including those for loans of low
priority such as consumer loans, as well as such loans
made by pawnshops, finance companies and similar credit
institutions. It even authorizes the BSP-MB to prescribe
different maximum rate or rates for different types of
borrowings, including deposits and deposit substitutes, or
loans of financial intermediaries.
Act No. 2655, an earlier law, is much broader in scope,
whereas R.A. No. 265, now R.A. No. 7653, merely
supplemented it as it concerns loans by banks and other
financial institutions. Had R.A. No. 7653 been intended to
repeal Section 1-a of Act No. 2655, it would have so
stated in unequivocal terms.
Moreover, the rule is settled that repeals by implication are
not favored, because laws are presumed to be passed
with deliberation and full knowledge of all laws existing
pertaining to the subject. An implied repeal is predicated
upon the condition that a substantial conflict or
repugnancy is found between the new and prior laws.
Thus, in the absence of an express repeal, a subsequent
law cannot be construed as repealing a prior law unless
an irreconcilable inconsistency and repugnancy exists in
the terms of the new and old laws. We find no such
conflict between the provisions of Act 2655 and R.A. No.
7653.
10. GO V. BSP, G.R. NO. 178429, 10/23/2009
An information was filed for violation of Sec 83 of RA 337
or the General Banking Act. It read: said accused, being
then the Director and the President and Chief
Executive Officer of the Orient Commercial Banking
Corporation (Orient Bank) wilfully, unlawfully and
knowingly borrow, either directly or indirectly, for
himself or as the representative of his other related
companies, the deposits or funds of the said banking
institution and/or become a guarantor, indorser or
obligor for loans from the said bank to others, by then
and there using said borrowed deposits/funds of the
said bank in facilitating and granting and/or caused
the facilitating and granting of credit lines/loans and,
among others, to the New Zealand Accounts loans in
the total amount of TWO BILLION AND SEVEN
HUNDRED FIFTY-FOUR MILLION NINE HUNDRED FIVE
THOUSAND AND EIGHT HUNDRED FIFTY-SEVEN AND
0/100 PESOS, Philippine Currency, said accused
knowing fully well that the same has been done by
him without the written approval of the majority of the
Board of Directors of said Orient Bank
A motion to quash the Information was filed on the ground
that the Information was defective, as the facts
charged therein do not constitute an offense. RTC
granted the motion to quash. CA Reversed. Hence this
petition.
Ruling: Petition Denied. CA Affirmed.
Elements of violation of section 83 of RA 337
Under Section 83, RA 337, the following elements 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
b. He becomes a guarantor, indorser, or surety
for loans from such banks 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.
A simple reading of the above elements easily rejects Gos
contention that the law penalizes a bank director or officer
only either for borrowing the banks deposits or funds or for
guarantying loans by the bank, but not for acting in both
capacities. The essence of the crime is becoming an
obligor of the bank without securing the necessary
written approval of the majority of the banks directors.
The second element merely lists down the various modes
of committing the offense. The third mode, by declaring
that [no director or officer of any banking institution shall
xxx] in any manner be an obligor for money borrowed
from the bank or loaned by it, in fact serves a catch-all
phrase that covers any situation when a director or officer
of the bank becomes its obligor. The prohibition is
directed against a bank director or officer who
becomes in any manner an obligor for money
borrowed from or loaned by the bank without the
written approval of the majority of the banks board of
directors. To make a distinction between the act of
borrowing and guarantying is therefore unnecessary
because in either situation, the director or officer
concerned becomes an obligor of the bank against whom
the obligation is juridically demandable.
The language of the law is broad enough to encompass
either act of borrowing or guaranteeing, or both. While the
first paragraph of Section 83 is penal in nature, and by
principle should be strictly construed in favor of the
accused, the Court is unwilling to adopt a liberal
construction that would defeat the legislatures intent in
enacting the statute. The objective of the law should
allow for a reasonable flexibility in its construction. Section
83 of RA 337, as well as other banking laws adopting the
same prohibition, was enacted to ensure that loans by
banks and similar financial institutions to their own
directors, officers, and stockholders are above board.
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.
Credit accommodation limit is not an exception nor is
it an element of the offense
Go reiterates his claim that credit accommodations by
banks to their directors and officers are legal and valid,
provided that these are limited to their outstanding
deposits and book value of the paid-in capital
contribution in the bank. The failure to state that he
borrowed deposits and/or guaranteed loans beyond this
limit rendered the Information defective.
Contrary to Gos claims, the second paragraph of Section
83, RA 337 does not provide for an exception to a violation
of the first paragraph thereof, nor does it constitute as an
element of the offense charged. Section 83 of RA 337
actually imposes three restrictions: approval, reportorial,
and ceiling requirements.
The approval requirement (found in the first sentence of
the first paragraph of the law) refers to the written approval
of the majority of the banks board of directors required
before bank directors and officers can in any manner be
an obligor for money borrowed from or loaned by the
bank. Failure to secure the approval renders the bank
director or officer concerned liable for prosecution and,
upon conviction, subjects him to the penalty provided in
the third sentence of first paragraph of Section 83.
The reportorial requirement, on the other hand,
mandates that any such approval should be entered upon
the records of the corporation, and a copy of the entry be
transmitted to the appropriate supervising department.
The reportorial requirement is addressed to the bank
itself, which, upon its failure to do so, subjects it to quo
warranto proceedings under Section 87 of RA 337.
The ceiling requirement under the second paragraph of
Section 83 regulates the amount of credit
accommodations that banks may extend to their directors
or officers by limiting these to an amount equivalent to the
respective outstanding deposits and book value of the
paid-in capital contribution in the bank. Again, this is a
requirement directed at the bank. In this light, a
prosecution for violation of the first paragraph of Section
83, such as the one involved here, does not require an
allegation that the loan exceeded the legal limit. Even
if the loan involved is below the legal limit, a written
approval by the majority of the banks directors is still
required; otherwise, the bank director or officer who
becomes an obligor of the bank is liable. Compliance with
the ceiling requirement does not dispense with the
approval requirement.
Evidently, the failure to observe the three requirements
under Section 83 paves the way for the prosecution of
three different offenses, each with its own set of elements.
A successful indictment for failing to comply with the
approval requirement will not necessitate proof that the
other two were likewise not observed.
11. RP V. SANDIGANBAYAN, G.R. NO. 166859,
4/12/2011
FACTS: This case is base on three cases:
(a) G.R. No. 166859 (petition for certiorari), to
assail the resolution promulgated on December
10, 2004 denying the Republics Motion For
Partial Summary Judgment;
(b) G.R. No. 169023 (petition for certiorari), to
nullify and set aside, firstly, the resolution
promulgated on October 8, 2003, and, secondly,
the resolution promulgated on June 24, 2005
modifying the resolution of October 8, 2003; and
(c) G.R. No. 180702 (petition for review on
certiorari), to appeal the decision promulgated
on November 28, 2007.
The Republic commenced a complaint (Civil Case No.
0033) against Eduardo Conjuangco Jr. and 59 individuals.
Such complaint was subject to several amendments to
implead additional defendants. On March 24, 1999, the
Sandiganbayan (SB) allowed the subdivision of the
complaint into eight (Civil Case 0033 A-H), each pertaining
to distinct transactions and properties and impleading as
defendants only the parties alleged to have participated in
the relevant transactions or to have owned the specific
properties involved. Allegedly, Cojuangco purchased a
block of 33,000,000 shares of SMC stock through the 14
holding companies owned by the CIIF Oil Mills. For this
reason, the block of 33,133,266 shares of SMC stock shall
be referred to as the CIIF block of shares. The
Conjuangcos also has several corporations under their
control and were allegedly used to acquire block of shares
of SMC stock totaling 16,276,879 (20% capital stock of
SMC). Conjuangco and Conjuangco corporations shall
referred to as Cojuangco, et al.
The material averments of the third amended complaint
provides that Conjuangco, during the period of his
incumbency as a public officer, he acquired assets, funds,
and other property grossly and manifestly disproportionate
to his salaries and income. It was alleged that Conjuangco
together with the Ferdinand and Imelda Marco, and other
defendants misused coconut levy funds to buy out majority
of the outstanding shares of stock of SMC to control the
largest agri-business, foods and beverage company. All
together, Conjuangco purchased 33 million shares through
14 holding companies, such holding companies were
owned by 6 CIIF companies. With his entry into the said
Company, it began to get favors from the Marcos
government, significantly the lowering of the excise taxes
(sales and specific taxes) on beer, one of the main
products of SMC. Conjuangco controlled SMC from 1983
until his co-defendant Marcos was deposed in 1986. Along
with Cojuangco, Defendant Enrile and ACCRA also had
interests in SMC. That defendants, conspired and
confederated with each other in setting up, through the
use of coconut levy funds, the financial and corporate
framework and structures that led to the establishment of
UCPB, UNICOM, COCOLIFE, COCOMARK. CIC, and
more than twenty other coconut levy-funded corporations,
including the acquisition of San Miguel Corporation shares
and its institutionalization through presidential directives of
the coconut monopoly.
The shares were under sequestration. Supreme Court
ruled that the voting of sequestered shares of stock is
governed by two considerations: (1) if there is prima facie
evidence that the shares are ill-gotten, it belongs to the
State; and (2) whether there is an imminent danger of
dissipation thus necessitating their continued
sequestration and voting by the PCGG while the main
issue pends with the SB. Consequently, the SB issued a
writ of preliminary injunction to enjoin the PCGG from
voting the sequestered shares of stock of the UCPB.
Sandiganbayan (resolving the various pending motions
and pleadings relative to the writs of sequestration issued
against the defendants) held that despite the lifting of the
writs of sequestration, since the Republic continues to
hold a claim on the shares which is yet to be resolved,
ordered that the following shall be annotated in the
relevant corporate books of SMC: that any sale, pledge,
mortgage or disposition of any shares of Conjuangco
et al shall be subject to the outcome of the case, and
that the Republic shall be given a written notice in
case of sale, pledge, etc.
Sandiganbayan, resolution dated May 7, 2004, granted
Republic’s motion for judgment on the pleadings and/or
summary judgment and held that the blocks shares (33M
shares) are declared owned by the government in trust for
all coconut farmers and ordered reconveyed to the
government. Relative to the resolution of May 7, 2004, the
Sandiganbayan issued its resolution of December 10,
[52]
2004, denying the Republics Motion for Partial
Summary Judgment saying that while there are facts
which appear to be undisputed, there are also genuine
factual issues raised by the defendants which need to
be threshed out in a full-blown trial.
During the pendency of the Republics motion for
execution, Cojuangco, et al. filed a Motion for Authority to
Sell San Miguel Corporation (SMC) shares, praying for
leave to allow the sale of SMC shares to proceed. Which
the Sandiganbayan granted. Cojuangco, et al. manifested
to the Sandiganbayan that the shares would be sold to the
San Miguel Corporation Retirement Plan. Cojuangco, et
al. later rendered a complete accounting of the proceeds
from the sale of the Cojuangco block of shares of SMC
stock, informing that a total amount of P4,786,107,428.34
had been paid to the UCPB as loan repayment.
Thereafter, on February 23, 2007, the Sandiganbayan
considered the case submitted for decision
ISSUES AND RULINGS:
WHEREFORE, the Court dismisses the petitions for
certiorari in G.R. Nos. 166859 and 169023; denies the
petition for review on certiorari in G.R. No. 180702; and,
accordingly, affirms the decision promulgated by the
Sandiganbayan on November 28, 2007 in Civil Case No.
0033-F. The Court declares that the block of shares in San
Miguel Corporation in the names of respondents
Cojuangco, et al. subject of Civil Case No. 0033-F is the
exclusive property of Cojuangco, et al. as registered
owners.
I. WON the lifting of the writ of sequestration constitute
grave abuse of discretion.
Lifting of nine WOS for violation of PCGG Rules did
not constitute grave abuse of discretion. In this present
case, of all the questioned writs of sequestration issued
after the effectivity of the PCGG Rules and Regulations,
only writ no. 87-0218 issued on May 27, 1987 complied
with the requirement that it be issued by at least two
Commissioners. However, even if Writ of Sequestration
No. 87-0218 complied with the requirement that the same
be issued by at least two Commissioners, the records fail
to show that it was issued with factual basis or with factual
foundation as can be seen from the Certification of the
Commission Secretary of the PCGG. Nothing in the
certificate shows that there was a prior determination of a
factual basis or factual foundation. It is the absence of a
prima facie basis for the issuance of a writ of
sequestration and not the lack of authority of two (2)
Commissioners which renders the said writ void ab
initio. Being void ab initio, it is deemed nonexistent, as
though it had never been issued, and therefore is not
subject to ratification by the PCGG. While the other writs
of sequestration were issued by only one PCGG
Commissioner, thus the PCGG Rules and Regulations
were not complied with.
II. What is ill-gotten wealth?
Two concurring elements to be present before assets or
properties were considered as ill-gotten wealth, namely:
(a) they must have originated from the government itself,
and (b) they must have been taken by former President
Marcos, his immediate family, relatives, and close
associates by illegal means. Consequently, the factual
premises of the Executive Orders cannot simply be
assumed. They will have to be duly established by
adequate proof in each case, in a proper judicial
proceeding, so that the recovery of the ill-gotten
wealth may be validly and properly adjudged and
consummated. Concerning respondents shares of stock
here, there is no evidence presented by petitioner that
they belong to the Government of the Philippines or any of
its branches, instrumentalities, enterprises, banks or
financial institutions. Nor is there evidence that
respondents, taking undue advantage of their connections
or relationship with former President Marcos or his family,
relatives and close associates, were able to acquire those
shares of stock. Accordingly, the Republic should furnish
to the Sandiganbayan in proper judicial proceedings the
competent evidence proving who were the close
associates of President Marcos who had amassed assets
and properties that would be rightly considered as ill-
gotten wealth
III. WON Summary judgment is warranted.
Summary Judgment was not warranted; The Republic
should have adduced evidence to substantiate its
allegations against the Respondents. Even assuming
that, as plaintiff prayed for, the Court takes judicial notice
of the evidence it offered with respect to the Cojuangco
block of SMC shares of stock, as contained in plaintiffs
manifestation of purposes, still its evidence do not suffice
to prove the material allegations in the complaint that
Cojuangco took advantage of his positions in UCPB and
PCA in order to acquire the said shares. As above-quoted,
the Court, itself, has already ruled, and hereby stress that
UCPB records must be produced and the CIIF witness
must be heard to ensure that the conclusions that will be
derived have factual basis and are thus, valid. Besides,
the Court found that there are genuine factual issues
raised by defendants that need to be threshed out in a full-
blown trial, and which plaintiff had the burden to
substantially prove. Answers to these issues are not
evident from the submissions of plaintiff and must
therefore be proven through the presentation of
relevant and competent evidence during trial. A
perusal of the subject Motion shows that the plaintiff
hastily derived conclusions from the defendants
statements in their previous pleadings although such
conclusions were not supported by categorical facts
but only mere inferences.
It was plain, indeed, that Cojuangco, et al. had tendered
genuine issues through their responsive pleadings and did
not admit that the acquisition of the Cojuangco block of
SMC shares had been illegal, or had been made with
public funds. As a result, the Republic needed to establish
its allegations with preponderant competent evidence,
because, as earlier stated, the fact that property was ill
gotten could not be presumed but must be substantiated
with competent proof adduced in proper judicial
proceedings. That the Republic opted not to adduce
competent evidence thereon despite stern reminders and
warnings from the Sandiganbayan to do so revealed that
the Republic did not have the competent evidence to
prove its allegations against Cojuangco, et al.
The statements found under the heading of Proposed
Evidence in the joint Pre-Trial Brief were incomplete and
inadequate on the important details of the supposed
transactions (i.e., alleged borrowings and advances). As
such, they could not constitute admissions that the funds
had come from borrowings by Cojuangco, et al. from the
UCPB or had been credit advances from the CIIF Oil
Companies. Here, the Republic, being the plaintiff, was
the party that carried the burden of proof. That burden
required it to demonstrate through competent evidence
that the respondents, as defendants, had purchased the
SMC shares of stock with the use of public funds; and that
the affected shares of stock constituted ill-gotten wealth.
A summary judgment under Rule 35 of the Rules of Court
is a procedural technique that is proper only when there is
no genuine issue as to the existence of a material fact and
the moving party is entitled to a judgment as a matter of
law
IV. Republics burden to establish by preponderance of
evidence that respondents SMC shares had been
illegally acquired with coconut-levy funds was not
discharged. We cannot reverse the decision of November
28, 2007 on the basis alone of judicial pronouncements to
the effect that the coconut levy funds were prima facie
public funds, but without any competent evidence linking
the acquisition of the block of SMC shares by Cojuangco,
et al. to the coconut levy funds
V. No violation of the DOSRI and Single Borrowers
Limit restrictions. The Republics lack of proof on the
source of the funds by which Cojuangco, et al. had
acquired their block of SMC shares has made it shift its
position, that it now suggests that Cojuangco had been
enabled to obtain the loans by the issuance of LOI 926
exempting the UCPB from the DOSRI and the Single
Borrowers Limit restrictions.

Firstly, as earlier pointed out, the Republic adduced no
evidence on the significant particulars of the supposed
loan, like the amount, the actual borrower, the approving
official, etc. It did not also establish whether or not the
loans were DOSRI or issued in violation of the Single
Borrowers Limit. Secondly, the Republic could not
outrightly assume that President Marcos had issued LOI
926 for the purpose of allowing the loans by the UCPB in
favor of Cojuangco. There must be competent evidence to
that effect. And, finally, the loans, assuming that they were
of a DOSRI nature or without the benefit of the required
approvals or in excess of the Single Borrowers Limit,
would not be void for that reason. Instead, the bank or the
officers responsible for the approval and grant of the
DOSRI loan would be subject only to sanctions under the
law.
VI. Did Cojuangco breach his fiduciary duties as an
officer and member of the Board of Directors of the
UCPB? Did his acquisition and holding of the contested
SMC shares come under a constructive trust in favor of
the Republic? Cojuangco violated no fiduciary duties
The conditions for the application of Articles 1455 and
1456 of the Civil Code (like the trustee using trust funds to
purchase, or a person acquiring property through mistake
or fraud), and Section 31 of the Corporation Code (like a
director or trustee willfully and knowingly voting for or
assenting to patently unlawful acts of the corporation,
among others) require factual foundations to be first laid
out in appropriate judicial proceedings. Hence, concluding
that Cojuangco breached fiduciary duties as an officer and
member of the Board of Directors of the UCPB without
competent evidence thereon would be unwarranted and
unreasonable. The resulting relationship between a
creditor and debtor in a contract of loan cannot be
characterized as fiduciary. As owner, the debtor can
dispose of the thing borrowed and his act will not be
considered misappropriation of the thing. The only liability
on his part is to pay the loan together with the interest that
is either stipulated or provided under existing laws
12. NACAR V. GALLERY FRAMES, G.R. NO. 189871,
8/13/2013
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: WON petitioner is also entitled to the payment of
interest from the finality of the decision until full payment
by the respondents.
RULING: WHEREFORE, premises considered, the
Decision of the Court of Appeals, and the Resolution
dated are REVERSED and SET ASIDE. Respondents are
Ordered to Pay petitioner.
RATIO: The petition is meritorious. Anent the payment of
legal interest. In the landmark case of Eastern Shipping
Lines, Inc. v. Court of Appeals, the Court laid down the
guidelines regarding the manner of computing legal
interest, to wit:
II. 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 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 12% 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 12%
per annum from such finality until its satisfaction,
this interim period being deemed to be by then an
equivalent to a forbearance of credit.
Recently, however, the Bangko Sentral ng Pilipinas
Monetary Board (BSP-MB), in its Resolution No. 796
dated May 16, 2013, approved the amendment of Section
2 of Circular No. 905, Series of 1982 and, accordingly,
issued Circular No. 799, Series of 2013, effective July 1,
2013, the pertinent portion of which reads:
The Monetary Board, in its Resolution No. 796 dated 16
May 2013, approved the following revisions governing the
rate of interest in the absence of stipulation in loan
contracts, thereby amending Section 2 of Circular No. 905,
Series of 1982:
Section 1. The rate of interest for the loan or forbearance
of any money, goods or credits and the rate allowed in
judgments, in the absence of an express contract as to
such rate of interest, shall be six percent (6%) per annum.
Section 2. In view of the above, Subsection X305.1 of the
Manual of Regulations for Banks and Sections 4305Q.1,
4305S.3 and 4303P.1 of the Manual of Regulations for
Non-Bank Financial Institutions are hereby amended
accordingly.
This Circular shall take effect on 1 July 2013.
Thus, from the foregoing, in the absence of an express
stipulation as to the rate of interest that would govern the
parties, the rate of legal interest for loans or forbearance
of any money, goods or credits and the rate allowed in
judgments shall no longer be twelve percent (12%) per
annum - as reflected in the case of Eastern Shipping Lines
and Subsection X305.1 of the Manual of Regulations for
Banks and Sections 4305Q.1, 4305S.3 and 4303P.1 of the
Manual of Regulations for Non-Bank Financial Institutions,
before its amendment by BSP-MB Circular No. 799 - but
will now be six percent (6%) per annum effective July 1,
2013. It should be noted, nonetheless, that the new rate
could only be applied prospectively and not retroactively.
Consequently, the twelve percent (12%) per annum legal
interest shall apply only until June 30, 2013. Come July 1,
2013 the new rate of six percent (6%) per annum shall be
the prevailing rate of interest when applicable.
Corollarily, in the recent case of Advocates for Truth in
Lending, Inc. and Eduardo B. Olaguer v. Bangko Sentral
Monetary Board, this Court affirmed the authority of the
BSP-MB to set interest rates and to issue and enforce
Circulars when it ruled that "the BSP-MB may prescribe
the maximum rate or rates of interest for all loans or
renewals thereof or the forbearance of any money, goods
or credits, including those for loans of low priority such as
consumer loans, as well as such loans made by
pawnshops, finance companies and similar credit
institutions. It even authorizes the BSP-MB to prescribe
different maximum rate or rates for different types of
borrowings, including deposits and deposit substitutes, or
loans of financial intermediaries."
Nonetheless, with regard to those judgments that have
become final and executory prior to July 1, 2013, said
judgments shall not be disturbed and shall continue to be
implemented applying the rate of interest fixed therein.
13. OLIVER V. PSBANK, G.R. NO. 214567, 4/4/2016
FACTS: Oliver alleged that sometime in 1997, she made
an initial deposit of P12 million into her PSBank account.
During that time, Castro convinced her to loan out her
deposit as interim or bridge financing for the approved
loans of bank borrowers who were waiting for the actual
release of their loan proceeds. Because Oliver earned
substantial profit, she was further convinced by Castro to
avail of an additional credit line in the amount of P10
million. The said credit line was secured by a real estate
mortgage on her house and lot in Ayala Alabang.
Beginning September 1998, Castro stopped rendering an
accounting for Oliver. The latter then demanded the return
of her passbook. When Castro showed her the passbook
sometime in late January or early February 1995, she
noticed several erasures and superimpositions therein.
She became very suspicious of the many erasures
pertaining to the December 1998 entries so she requested
a copy of her transaction history register from PSBank.
When her transaction history register 6 was shown to her,
Oliver was surprised to discover that the amount of
P4,491,250.00 (estimated at P4.5 million) was entered into
her account on December 21, 1998. While a total of P7
million was withdrawn from her account on the same day.
RTC DECISION
The RTC dismissed the complaint and rendered judgment
in favor of PSBank and Castro. According to the RTC,
PSBank and Castro should not be held liable for the loan
of P4.5 million and the withdrawal of the P7 million. Castro
was able to submit the Debit Credit Memo 24 and the
Savings Account Check Deposit Slip 25 to prove that there
were some previous loan transactions between Oliver and
Lim. Considering that neither PSBank nor Castro obtained
the P7 million, there was no obligation on their part to
return the amount.
RTC ORDER
On July 22, 2010, the RTC resolved the motion and issued
an order reversing its earlier decision. According to the
RTC, Oliver’s assertion that the withdrawal was made
without her consent prevailed in the absence of any proof
to the contrary. The cash savings withdrawal slips should
have been offered in evidence by either PSBank or Castro
to settle the issue of whether the amount of P7 million was
actually withdrawn by Oliver or by her authorized
representative or agent. With regard to PSBank, the RTC
stated that it failed to exercise utmost diligence in
safekeeping Oliver’s deposit. Had it not been for the
unauthorized, withdrawal which was attributable to the
bank and Castro, the P4.5 million and the P1,396,310.45
loans would not have remained outstanding, considering
that the improperly withdrawn P7 million was more than
sufficient to discharge those liabilities.
CA DECISION
On October 25, 2013, the CA granted the appeal. It
reversed the July 22, 2010 of the RTC order and
reinstated its March 30, 2010 decision. The CA also found
that PSBank exercised extraordinary diligence in handling
Oliver’s account, thus, the awards of damages were
deleted.
ISSUE: WHETHER OR NOT THE COURT OF APPEALS
GRAVELY ERRED WHEN IT RULED THAT THE
RESPONDENTS TREATED THE PETITIONER’S
ACCOUNT WITH EXTRAORDINARY DILIGENCE. (YES)
RULING: YES. WHEREFORE, the petition is GRANTED.
The October 25, 2013 Decision and the September 12,
2014 Resolution of the Court of Appeals in CA-G.R. CV
No. 95656 are REVERSED and SET ASIDE. The July 22,
2010 Order of the Regional Trial Court, Branch 276,
Muntinlupa City in Civil Case No. 99-278 is hereby
REINSTATED.
RATIO: In the case of banks, the degree of diligence
required is more than that of a good father of a family.
Considering the fiduciary nature of their relationship with
their depositors, banks are duty bound to treat the
accounts of their clients with the highest degree of care.
The point is that as a business affected with public interest
and because of the nature of its functions, the bank is
under obligation to treat the accounts of its depositors with
meticulous care, always having in mind the fiduciary
nature of their relationship. Time and again, the Court has
emphasized that the bank is expected to ensure that the
depositor’s funds shall only be given to him or his
authorized representative. In Producers Bank of the Phil.
v. Court of Appeals, the Court held that the usual banking
procedure was that withdrawals of savings deposits could
only be made by persons whose authorized signatures
were in the signature cards on file with the bank. In the
said case, the bank therein allowed an unauthorized
person to withdraw from its depositor’s savings account,
thus, it failed to exercise the required diligence of banks
and must be held liable. With respect to withdrawal slips,
the Court declared in Philippine National Bank v. Pike that
"[o]rdinarily, banks allow withdrawal by someone who is
not the account holder so long as the account holder
authorizes his representative to withdraw and receive from
his account by signing on the space provided particularly
for such transactions, usually found at the back of
withdrawal slips." There, the bank violated its fiduciary
duty because it allowed a withdrawal by a representative
even though the authorization portion of the withdrawal
slip was not signed by the depositor. In the case at
bench, it must be determined whether the P7 million
was withdrawn from the bank with the authority of
Oliver. As testified to by Castro, every withdrawal
from the bank was duly evidenced by a cash
withdrawal slip, a copy of which is given both to the
bank and to its client. Contrary to the position of the
CA and that of the respondents, Oliver cannot be
required to produce the cash withdrawal slip for the
said transaction because, precisely, she consistently
denied giving authority to withdraw such amount from
her account.
Necessarily, the party that must have access to such
crucial document would either be PSBank or Castro. They
must present the said cash withdrawal slip, duly signed by
Oliver, to prove that the withdrawal of P7 million was
indeed sanctioned. Unfortunately, both PSBank and
Castro failed to present the cash withdrawal slip.
14. SPOUSES GUEVARA V. THE COMMONER LENDING
CORPORATION, G.R. NO. 204672, FEBRUARY 18, 2015
FACTS: Sps. Guevarra obtained a 320,000.00 loan from
TCLC, which was secured by a real estate mortgage over
a 5,532-square meter parcel of land situated in Guimbal,
Iloilo, emanating from a free patent granted to Sps.
Guevarra.
Sps. Guevarra, however, defaulted in the payment of their
loan, prompting TCLC to extra-judicially foreclose the
mortgage on the subject property in accordance with Act
No. 3135, as amended. In the process, TCLC emerged as
the highest bidder at the public auction sale held on June
15, 2000 for the bid amount of 150,000.00, and on August
25, 2000, the certificate of sale was registered with the
Registry of Deeds of Iloilo.
Eventually, Sps. Guevarra failed to redeem the subject
property within the one-year reglementary period, which
led to the cancellation of OCT No. F-31900 and the
issuance of Transfer Certificate of Title No. T-16187 in the
name of TCLC. Thereafter, TCLC demanded that Sps.
Guevarra vacate the property, but to no avail.
The RTC directed TCLC to reconvey the subject property
to Sps. Guevarra and execute the corresponding deed of
reconveyance upon payment of the purchase price of
150,000.00, plus one percent (1%) interest per month from
the date of the auction sale on June 15, 2000 up to August
8, 2006, as well as the corresponding tax assessments
and foreclosure expenses.
The CA affirmed the RTC’s October 20, 2008 Order,
upholding Sps. Guevarra’s right to repurchase the subject
property pursuant to Section 119 of the Public Land Act,
with modification that the same be conditioned upon the
payment of the purchase price fixed by TCLC. It ruled that
after the expiration of the redemption period, the present
owner, i.e., TCLC, has the discretion to set a higher price.
ISSUE: WON the CA committed a reversible error in ruling
that the repurchase price for the subject property should
be fixed by TCLC.
RULING: Yes.
WHEREFORE, the petition is DENIED. The Decision
dated October 3, 2011 and the Resolution dated October
17, 2012 of the Court of Appeals in CA-G.R. CV No.
02895 are hereby AFFIRMED with MODIFICATION
allowing petitioners-spouses Rodolfo and Marcelina
Guevarra to repurchase the subject property from
respondent The Commoner Lending Corporation, Inc.
(TCLC) within thirty (30) days from the finality of this
Decision for the price of 689,460.11, less the amount of
240,000.00 previously consigned to the court a quo, or the
net amount P449,460.l l, for which the corresponding deed
of absolute conveyance shall be executed by TCLC.
RATIO: The Court has, however, ruled that redemptions
from lending or credit institutions, like TCLC, are governed
by Section 78 of the General Banking Act (now Section 47
of the General Banking Law of 2000), which amended
Section 6 of Act No. 3135 in relation to the proper
redemption price when the mortgagee is a bank, or a
banking or credit institution.
Nonetheless, the Court cannot subscribe to TCLC’s
contention that it is entitled to its total claims under the
promissory note and the mortgage contract in view of the
settled rule that an action to foreclose must be limited to
the amount mentioned in the mortgage. Hence, amounts
not stated therein must be excluded, like the penalty
charges of three percent (3%) per month included in
TCLC’s claim. A penalty charge is likened to a
compensation for damages in case of breach of the
obligation. Being penal in nature, it must be specific and
fixed by the contracting parties. Moreover, the Court notes
that the stipulated three percent (3%) monthly interest is
excessive and unconscionable.
As such, the stipulated three percent (3%) monthly interest
should be equitably reduced to one percent (1%) per
month or twelve percent (12%) per annum reckoned from
the execution of the real estate mortgage on December
12, 1996, until the filing of the petition in Cadastral Case
No. 122 on September 8, 2005.
In addition to the principal and interest, the repurchase
price should also include all the expenses of
foreclosure, i.e., Judicial Commission, Publication Fee,
and Sheriff’s Fee, in accordance with Section 47 of the
General Banking Law of 2000.
15. SINAMBAN V. CHINA BANKING CORPORATION,
G.R. NO. 193890, MARCH 11, 2015
Facts: On Februaiy 19, 1990, the spouses Danilo and
Magdalena Manalastas (spouses Manalastas) executed a
Real Estate Mortgage (REM) in favor of respondent China
Banking Corporation (Chinabank) over two real estate
properties covered by Transfer Certificate of Title Nos.
173532-R and 173533-R, Registry of Deeds of
Pampanga, to secure a loan from Chinabank of
P700,000.00 intended as working capital in their rice
milling business. During the next few years, they executed
several amendments to the mortgage contract
progressively increasing their credit line secured by the
aforesaid mortgage. Thus, from P700,000.00 in 1990, their
loan limit was increased to P1,140,000.00 on October 31,
1990, then to P1,300,000.00 on March 4, 1991, and then
to P2,450,000.00 on March 23, 1994.The spouses
Manalastas executed several promissory notes (PNs) in
favor of Chinabank. In two of the PNs, petitioners
Estanislao and Africa Sinamban (spouses Sinamban)
signed as co-makers.
On November 18, 1998, Chinabank filed a Complaint for
sum of money against the spouses Manalastas and the
spouses Sinamban (collectively called the defendants)
before the RTC. The complaint alleged that they reneged
on their loan obligations under the PNs which the spouses
Manalastas executed in favor of Chinabank on different
dates. Three of the three promissory notes carried an
acceleration clause stating that if the borrowers failed to
pay any stipulated interest, installment or loan
amortization as they accrued, the notes shall, at the option
of Chinabank and without need of notice, immediately
become due and demandable. A penalty clause also
provides that an additional amount shall be paid
equivalent to 1/10 of 1% per day of the total amount due
from date of default until fully paid, and the further sum of
10% of the total amount due, inclusive of interests,
charges and penalties, as and for attorney's fees and
costs.
On the basis of the above statement of account, and
pursuant to the promissory notes, Chinabank instituted
extrajudicial foreclosure proceedings against the mortgage
security. The foreclosure sale was held on May 18, 1998,
with Chinabank offering the highest bid of P4,600,000.00,
but by then the defendants' total obligations on the three
promissory notes had risen to P5,401,975.00, before
attorney's fees of 10% and auction expenses, leaving a
loan deficiency of P1,758,427.87. Thus, in the complaint
before the RTC, Chinabank prayed to direct the
defendants to jointly and severally settle the said
deficiency, plus 12% interest per annum after May 18,
1998, the date of the auction sale.
The spouses Sinamban, in their Answer dated February
26, 1999, averred that they do not recall having executed
PN No. OACL 636-95 for P325,000.00 on May 23, 1995,
or PN No. CLF 5-93 for P1,300,000.00 on February 26,
1991, and had no participation in the execution of PN No.
OACL 634-95 for P1,800,000.00 on April 24, 1995. They
however admitted that they signed some PN forms as co-
makers upon the request of the spouses Manalastas who
are their relatives; although they insisted that they derived
no money or other benefits from the loans. They denied
knowing about the mortgage security provided by the
spouses Manalastas, or that the latter defaulted on their
loans.
The spouses Manalastas were declared in default in the
RTC Order dated April 6, 1999, and Chinabank was
allowed to present evidence ex parte as against them, but
at the pre-trial conference held on July 5, 1999, the
spouses Sinamban and their counsel also did not appear;
hence, in the Order dated July 5, 1999, the RTC allowed
Chinabank to present evidence ex parte against the
defendants before the Branch Clerk of Court. During the
testimony of Rosario D. Yabut, Branch Manager of
Chinabank-San Fernando Branch, all the foregoing facts
were adduced and confirmed, particularly the identity of
the pertinent loan documents and the signatures of the
defendants. On July 21, 1999, the court admitted the
exhibits of Chinabank and declared the case submitted for
decision.
On July 30, 1999, the RTC rendered its Decision with the
following dispositive portion:
WHEREFORE, premises considered, judgment is hereby
rendered in favor of plaintiff China Banking Corporation
and against defendant Sps. Danilo and Magdalena
Manalastas and defendant Sps. Estanislao and Africa
Sinamban to jointly and severally pay [Chinabank] the
amount of P1,758,427.87, representing the deficiency
between the acquisition cost of the foreclosed real estate
properties and the outstanding obligation of defendants at
the time of the foreclosure sale; interest at the legal rate of
12% per annum from and after May 18, 1998; attorney's
fees equivalent to 10% of the aforesaid deficiency amount
and the litigation and costs of suit. The spouses Sinamban
appealed to to the CA but the latter affirmed the decision
of the RTC.
Issue: WHETHER OR NOT THE LOWER COURT
ERRED WHEN IT HELD DEFENDANTS-APPELLANTS
SPS. SINAMBAN LIABLE TO PAY A PERCENTAGE OF
P1,758,427.87, JOINTLY AND SEVERALLY WITH THE
DEFENDANTS SPS. MANALASTAS ON THE TWO
PROMISSORY NOTES (EXHIBITS 'C' AND 'A').
Held:
The Court modifies the CA decision.
A co-maker of a PN who binds himself with the maker
"jointly and severally" renders himself directly and
primarily liable with the maker on the debt, without
reference to his solvency.
"A promissory note is a solemn acknowledgment of a debt
and a formal commitment to repay it on the date and
under the conditions agreed upon by the borrower and the
lender. A person who signs such an instrument is bound to
honor it as a legitimate obligation duly assumed by him
through the signature he affixes thereto as a token of his
good faith. If he reneges on his promise without cause, he
forfeits the sympathy and assistance of this Court and
deserves instead its sharp repudiation."
Employing words of common commercial usage and well-
accepted legal significance, the three subject PNs
uniformly describe the solidary nature and extent of the
obligation assumed by each of the defendants in Civil
Case No. 11708, to wit:
"FOR VALUE RECEIVED, I/We jointly and severally
promise to pay to the CHINA BANKING CORPORATION
or its order the sum of PESOS x x x[.]" (Emphasis ours)
According to Article 2047 of the Civil Code, if a person
binds himself solidarily with the principal debtor, the
provisions of Articles 1207 to 1222 of the Civil Code
(Section 4, Chapter 3, Title I, Book IV) on joint and
solidary obligations shall be observed. Thus, where there
is a concurrence of two or more creditors or of two or more
debtors in one and the same obligation, Article 1207
provides that among them, "[t]here is a solidary liability
only when the obligation expressly so states, or when the
law or the nature of the obligation requires solidarity." It is
settled that when the obligor or obligors undertake to be
"jointly and severally" liable, it means that the obligation is
solidary. In this case, the spouses Sinamban expressly
bound themselves to be jointly and severally, or solidarily,
liable with the principal makers of the PNs, the spouses
Manalastas.
Moreover, as the CA pointed out, in Paragraph 5 of the
PNs, the borrowers and their co-makers expressly
authorized Chinabank, as follows:
[T]o apply to the payment of this note and/or any other
particular obligation or obligations of all or any one of us to
the CHINA BANKING CORPORATION as the said
Corporation may select, irrespective of the dates of
maturity, whether or not said obligations are then due, any
or all moneys, securities and things of value which are
now or which may hereafter be in its hands on deposit or
otherwise to the credit of, or belonging to, all or any one of
us, and the CHINA BANKING CORPORATION is hereby
authorized to sell at public or private sale such securities
or things of value for the purpose of applying their
proceeds to such payments.
Pursuant to Article 1216 of the Civil Code, as well as
Paragraph 5 of the PNs, Chinabank opted to proceed
against the co-debtors simultaneously, as implied in its
May 18, 1998 statement of account when it applied the
entire amount of its auction bid to the aggregate amount of
the loan obligations.
The PNs were executed to acknowledge each loan
obtained from the credit line extended by Chinabank,
which the principal makers and true beneficiaries, the
spouses Manalastas, secured with a REM they executed
over their properties. As the RTC noted in its Order dated
December 8, 1999, "the real estate mortgage was
constituted to secure all the three (3) promissory notes,"
concluding that "[j]ust as the liability of the [spouses]
Sinamban was lessened by the foreclosure proceedings,
so must they also share in the deficiency judgment, in
proportion to the PNs they co-signed with the [spouses]
Manalastas, but not the entire deficiency judgment of
P1,758,427.87."
Significantly, in modifying the RTC's second amended
decision, which provides for the pro rata distribution of the
loan deficiency of P1,758,427.87, the C A first applied the
entire net proceeds of the auction sale of P4,183,744.63
(after auction expenses of P416,255.37), to PN No. OACL
634-95, which on May 18, 1998 had an outstanding
balance of P4,264,987.50, inclusive of interest and
penalties, plus 10% attorney's fees, or a total of
P4,691,486.25. Thus, P4,691,486.25 less P4,183,744.63
leaves a deficiency on PN No. OACL 634-95 of
P507/741.62, which is due solely from the spouses
Manalastas.
As for PN No. OACL 636-95, the CA ordered the spouses
Sinamban to pay, solidarity with the spouses Manalastas,
the entire amount due thereon, P844,501.90, consisting of
the loan principal of P767,729.00 plus accrued interest,
penalties and 10% attorney's fees; concerning PN No.
CLF 5-93, the CA ordered the spouses Sinamban to pay,
solidarity with the spouses Manalastas, the amount of
P406,184.35, consisting of the balance of the loan
principal of P369,258.50 plus accrued interest, penalties
and 10% attorney's fees. The CA further ordered the
payment of 12% interest per annum from November 18,
1998, the date of judicial demand, until fully paid, on the
above deficiencies.
Article 1216 of the Civil Code provides that "[t]he creditor
may proceed against any one of the solidary debtors or
some or all of them simultaneously. The demand made
against one of them shall not be an obstacle to those
which may subsequently be directed against the others, so
long as the debt has not been fully collected." Article 1252
of the Civil Code does not apply, as urged by the
petitioners, because in the said article the situation
contemplated is that of a debtor with several debts due,
whereas the reverse is true, with each solidary debt
imputable to several debtors.
While the CA correctly noted that the choice is given to the
solidary creditor to determine against whom he wishes to
enforce payment, the CA stated that Chinabank, in the
exercise of the aforesaid option, chose to apply the net
proceeds of the extrajudicial foreclosure sale first to the
PN solely signed by spouses Manalastas. Thus, the net
proceeds were applied first to PN No. OACL 634-95 in the
principal amount of P1,800,000.00, instead of pro rata to
all three PNs due.
16. METROPOLITAN BANK V. SF NAGUIAT
ENTERPRISES INC, G.R. NO. 178407, MARCH 18, 2015
FACTS: Sometime in April 1997, Spouses Rommel
Naguiat and Celestina Naguiat and S.F. Naguiat
Enterprises, Inc. (S.F. Naguiat) executed a real estate
mortgage in favor of Metropolitan Bank and Trust
Company (Metrobank) to secure certain credit
accommodations obtained from the latter amounting to 17
million.
On March 3, 2005, S.F. Naguiat represented by Celestina
T. Naguiat, Eugene T. Naguiat, and Anna N. Africa
obtained a loan from Metrobank in the amount of
1,575,000.00. The loan was likewise secured by the 1997
real estate mortgage by virtue of the Agreement on
Existing Mortgages executed between the parties on
March 15, 2004.
On July 7, 2005, S.F. Naguiat filed a Petition for Voluntary
Insolvency with Application for the Appointment of a
Receiver pursuant to Act No. 1956, as amended, before
the RTC of Angeles City. Among the assets declared in
the Petition was the property covered by TCT No. 58676
(one of the properties mortgaged to Metrobank).
Presiding Judge Buan issued the Order declaring S.F.
Naguiat insolvent; directing the Deputy Sheriff to take
possession of all the properties of S.F. Naguiat until the
appointment of a receiver/assignee; and forbidding
payment of any debts due, delivery of properties, and
transfer of any of its properties.
Pending the appointment of a receiver, Judge Buan
directed the creditors, including Metrobank, to file their
respective Comments on the Petition. In lieu of a
Comment, Metrobank filed a Manifestation and Motion
informing the court of Metrobank’s decision to withdraw
from the insolvency proceedings because it intended to
extrajudicially foreclose the mortgaged property to satisfy
its claim against S.F. Naguiat.
Subsequently, S.F. Naguiat defaulted in paying its loan.
On November 8, 2005, Metrobank instituted an
extrajudicial foreclosure proceeding against the mortgaged
property covered by TCT No. 5867620 and sold the
property at a public auction held on December 9, 2005 to
Phoenix Global Energy, Inc., the highest bidder.
Afterwards, Sheriff Claude B. Balasbas prepared the
Certificate of Sale and submitted it for approval to Clerk of
Court Fernandez, Jr. and Executive Judge Gabitan-Erum.
However, Executive Judge Gabitan-Erum issued the
Order dated December 15, 2005 denying her approval of
the Certificate of Sale in view of the July 12, 2005 Order
issued by the insolvency court. Metrobank’s subsequent
Motion for Reconsideration was also denied in the Order.
The CA rendered its Decision dismissing the Petition on
the basis of Metrobank’s failure to "obtain the permission
of the insolvency court to extrajudicially foreclose the
mortgaged property." The CA declared that "a suspension
of the foreclosure proceedings is in order, until an
assignee or receiver, is elected or appointed by the
insolvency court so as to afford the insolvent debtor proper
representation in the foreclosure proceedings."
Metrobank filed a MR and Clarification, which was denied
by the CA in its Resolution. The CA held that leave of
court must be obtained from the insolvency court whether
the foreclosure suit was instituted judicially or
extrajudicially so as to afford the insolvent estate’s proper
representation through the assignee in such action and "to
avoid the dissipation of the insolvent debtor’s assets in
possession of the insolvency court without the latter’s
knowledge.
ISSUE:
Whether the approval and consent of the insolvency court
is required under Act No. 1956, otherwise known as the
Insolvency Law, before a secured creditor like petitioner
Metropolitan Bank and Trust Company can proceed with
the extrajudicial foreclosure of the mortgaged property
Petitioner argues that nowhere in Act No. 1956 does it
require that a secured creditor must first obtain leave or
permission from the insolvency court before said creditor
can foreclose on the mortgaged property.36 It adds that
this procedural requirement applies only to civil suits, and
not when the secured creditor opts to exercise the right to
foreclose extrajudicially the mortgaged property under Act
No. 3135, as amended, because extrajudicial foreclosure
is not a civil suit.37 Thus, the CA allegedly imposed a new
condition that was tantamount to unauthorized judicial
legislation when it required petitioner to file a Motion for
Leave of the insolvency court.38 Said condition, petitioner
argues, defeated and rendered inutile its right or
prerogative under Act No. 1956 to independently initiate
extrajudicial foreclosure of the mortgaged property.
RULING: YES
RATIO: Act No. 1956 impliedly requires a secured creditor
to ask the permission of the insolvent court before said
creditor can foreclose the mortgaged property.
With the declaration of insolvency of the debtor,
insolvency courts "obtain full and complete jurisdiction
over all property of the insolvent and of all claims by and
against it." It follows that the insolvency court has
exclusive jurisdiction to deal with the property of the
insolvent. Consequently, after the mortgagor-debtor has
been declared insolvent and the insolvency court has
acquired control of his estate, a mortgagee may not,
without the permission of the insolvency court, institute
proceedings to enforce its lien. In so doing, it would
interfere with the insolvency court’s possession and
orderly administration of the insolvent’s properties.
It is true that under Section 59 of Act No. 1956, the
creditor is given the option to participate in the insolvency
proceedings by proving the balance of his debt, after
deducting the value of the mortgaged property as agreed
upon with the receiver or determined by the court or by a
sale of the property as directed by the court; or proving his
whole debt, after releasing his claim to the receiver/sheriff
before the election of an assignee, or to the assignee.
However, Section 59 of Act No. 1956 proceeds to state
that when "the property is not sold or released, and
delivered up, or its value fixed, the creditor is not allowed
to prove any part of his debt," but the assignee shall
deliver to the creditor the mortgaged property. Hence,
explicitly under Section 59 and as a necessary
consequence flowing from the exclusive jurisdiction of the
insolvency court over the estate of the insolvent, the
mortgaged property must first be formally delivered by the
court or the assignee if one has already been elected
before a mortgagee-creditor can initiate proceedings for
foreclosure.
Here, the foreclosure and sale of the mortgaged property
of the debtor, without leave of court, contravene the
provisions of Act No. 1956 and violate the Order of the
insolvency court which declared S.F. Naguiat insolvent
and forbidden from making any transfer of any of its
properties to any person.
Executive Judge Gabitan-Erum did not unlawfully neglect
to perform her duty when she refused to approve and sign
the Certificate of Sale, as would warrant the issuance of a
writ of mandamus against her.
An executive judge has the administrative duty in
extrajudicial foreclosure proceedings to ensure that all the
conditions of Act No. 3135 have been complied with
before approving the sale at public auction of any
mortgaged property.
"Certain requisites must be established before a creditor
can proceed to an extrajudicial foreclosure, namely: first,
there must have been the failure to pay the loan obtained
from the mortgagee-creditor; second, the loan obligation
must be secured by a real estate mortgage; and third, the
mortgagee-creditor has the right to foreclose the real
estate mortgage either judicially or extrajudicially."
Furthermore, Act No. 3135 outlines the notice and
publication requirements and the procedure for the
extrajudicial foreclosure which constitute a condition sine
qua non for its validity. Specifically, Sections 2, 3, and 4 of
the law prescribe the formalities of the extrajudicial
foreclosure proceeding:
SEC. 2. Said sale cannot be made legally outside of the
province in which the property sold is situated; and in case
the place within said province in which the sale is to be
made is the subject of stipulation, such sale shall be made
in said place or in the municipal building of the municipality
in which the property or part thereof is situated.
SEC. 3. Notice shall be given by posting notices of the
sale for not less than twenty days in at least three public
places of the municipality or city where the property is
situated, and if such property is worth more than four
hundred pesos, such notice shall also be published once a
week for at least three consecutive weeks in a newspaper
of general circulation in the municipality or city.
SEC. 4. The sale shall be made at public auction, between
the hours of nine in the morning and four in the afternoon;
and shall be under the direction of the sheriff of the
province, the justice or auxiliary justice of the peace of the
municipality in which such sale has to be made, or a
notary public of said municipality, who shall be entitled to
collect a fee of five pesos for each day of actual work
performed, in addition to his expenses.
"Mandamus will not issue to enforce a right which is in
substantial dispute or to which a substantial doubt exists."
There was a valid reason for Executive Judge Gabitan-
Erum to doubt the propriety of the foreclosure sale. Her
verification with the records of the Clerk of Court showed
that a Petition for Insolvency had been filed and had
already been acted upon by the insolvency court prior to
the application for extrajudicial foreclosure of the
mortgaged properties. Among the inventoried unpaid
debts and properties attached to the Petition for
Insolvency was the loan secured by the real estate
mortgage subject of the application for extrajudicial
foreclosure sale. With the pendency of the insolvency
case, substantial doubt exists to justify the refusal by
Executive Judge Gabitan-Erum to approve the Certificate
of Sale as the extrajudicial foreclosure sale without leave
of the insolvency court may contravene the policy and
purpose of Act No. 1956.
Act No. 3135 is silent with respect to mortgaged properties
that are in custodia legis, such as the property in this case,
which was placed under the control and supervision of the
insolvency court. This court has declared that "a court
which has control of such property, exercises exclusive
jurisdiction over the same, retains all incidents relative to
the conduct of such property. No court, except one having
supervisory control or superior jurisdiction in the premises,
has a right to interfere with and change that possession."
The extrajudicial foreclosure and sale of the mortgaged
property of the debtor would clearly constitute an
interference with the insolvency court's possession of the
property.