Ongteco, Erika Therese Gonzaga

LLB-L01
Banking Laws
Atty. Palic

1. Republic v Judge Eugenio G.R. No. 174629, February 14, 2008

Facts:

AMLC filed an application to inquire into or examine the deposits or

investments of Alvarez, Trinidad, Liongson and Cheng Yong before the RTC
of Makati, Branch 138, presided by Judge Sixto Marella, Jr. The Makati RTC
heard the testimony of the Deputy Director of the AMLC, Richard David C.
Funk II, and received the documentary evidence of the AMLC.

4 July 2005, the Makati RTC rendered an Order (granting the AMLC the
authority to inquire and examine the subject bank accounts of Alvarez,
Trinidad, Liongson and Cheng Yong, the trial court being satisfied that
there existed probable cause to believe that the deposits in various bank
accounts, details of which appear in paragraph 1 of the Application, are
related to the offense of violation of Anti-Graft and Corrupt Practices Act
now the subject of criminal prosecution before the Sandiganbayan as
attested to by the Informations, Exhibits C, D, E, F, and G Pursuant to the
Makati RTC bank inquiry order, the CIS proceeded to inquire and examine
the deposits, investments and related web accounts of the four.

Special Prosecutor of the Office of the Ombudsman, Dennis Villa-Ignacio,

wrote a letter dated 2 November 2005, requesting the AMLC to investigate
the accounts of Alvarez, PIATCO, and several other entities involved in the
nullified contract. The letter adverted to probable cause to believe that the
bank accounts were used in the commission of unlawful activities that
were committed a in relation to the criminal cases then pending before the
Sandiganbayan.

Attached to the letter was a memorandum on why the investigation of the

accounts is necessary in the prosecution of the above criminal cases
before the Sandiganbayan. In response to the letter of the Special
Prosecutor, the AMLC promulgated on 9 December 2005 Resolution No.
121 Series of 2005, which authorized the executive director of the AMLC to
inquire into and examine the accounts named in the letter, including one
maintained by Alvarez with DBS Bank and two other accounts in the name
of Cheng Yong with Metrobank. The Resolution characterized the
memorandum attached to the Special Prosecutors letter as extensively
justifying the existence of probable cause that the bank accounts of the
persons and entities mentioned in the letter are related to the unlawful
activity of violation of Sections 3(g) and 3(e) of Rep. Act No. 3019, as
amended.

Issue:

1. Whether or not the bank accounts of respondents can be examined.

Held:

1. Section 2 of the Bank Secrecy Act itself prescribes exceptions whereby

these bank accounts may be examined by any person, government official,
and bureau namely when:
upon written permission of the depositor;
in cases of impeachment;

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Ongteco, Erika Therese Gonzaga
LLB-L01
Banking Laws
Atty. Palic

the examination of bank accounts is upon order of a competent court in

cases of bribery or dereliction of duty of public officials; and
the money deposited or invested is the subject matter of the litigation.
Any exception to the rule of absolute confidentiality must be specifically
legislated.

Section 8 of R.A. Act No. 3019, the Anti-Graft and Corrupt Practices Act, has
been recognized by this Court as constituting an additional exception to the rule
of absolute confidentiality, and there have been other similar recognitions as
well.

AMLC may inquire into a bank account upon order of any competent court in
cases of violation of the AMLA, it having been established that there is probable
cause that the deposits or investments are related to unlawful activities as
defined in Section 3(i) of the law, or a money laundering offense under Section
4 thereof.

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Ongteco, Erika Therese Gonzaga
LLB-L01
Banking Laws
Atty. Palic

2. New Sampaguita Builders Construction v. PNB, G.R. 148753,

(2004)

Facts:

February 11, 1989, Board Resolution No. 05, Series of 1989 was approved
by NSBCI authorizing the company to apply for or secure a commercial
loan with the PNB in an aggregate amount of P8.0M, under such terms
agreed by the Bank and the NSBCI, using or mortgaging the real estate
properties registered in the name of its President and Chairman of the
Board Eduardo R. Dee as collateral; authorizing petitioner-spouses to
secure the loan and to sign any and all documents which may be required
by PNB, and that petitioner-spouses shall act as sureties or co-obligors
who shall be jointly and severally liable with NSBCI for the payment of any
and all obligations.

August 15, 1989, Resolution No. 77 was approved by granting the request
of Respondent PNB thru its Board NSBCI for an P8 Million loan broken
down into a revolving credit line of P7.7M and an unadvised line of P0.3M
for additional operating and working capital to mobilize its various
construction projects.

August 4, 1992, PNB informed NSBCI that the proceeds of the sale
conducted on February 26, 1992 were not sufficient to cover its total claim
amounting to P12,506,476.43, and thus demanded from the latter the
deficiency of P2,172,476.43 plus interest and other charges, until the
amount was fully paid.

Petitioners refused to pay the above deficiency claim which compelled PNB
to institute the instant complaint for the collection of its deficiency claim.

As to the misapplication of loan payments, the CA held that the subsidiary

ledgers of NSBCIs loan accounts with respondent reflected all the loan
proceeds as well as the partial payments that had been applied either to
the principal or to the interests, penalties and other charges. Having been
made in the ordinary and usual course of the banking business of
respondent, its entries were presumed accurate, regular and fair under
Section 5(q) of Rule 131 of the Rules of Court. Petitioners failed to rebut
this presumption

The increases in the interest rates on NSBCIs loan were also held to be
authorized by law and the Monetary Board and -- like the increases in
penalty rates -- voluntarily and freely agreed upon by the parties in the
Credit Agreements they executed. Thus, these increases were binding
upon petitioners.

Issue:
1. Whether or not the Honorable Court of Appeals seriously erred in not
holding that the Respondent PNB bloated the loan account of petitioner
corporation by imposing interests, penalties and attorneys fees without
legal, valid and equitable justification.

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Ongteco, Erika Therese Gonzaga
LLB-L01
Banking Laws
Atty. Palic

Held:

1. The Decision of the Court of Appeals is AFFIRMED . The lifting of ceiling on

interest rates (CB Circular 905) does not give lender a carte blanche
authority to raise the interest. Rates found to be iniquitous or
unconscionable are void, as if there was no express contract thereto.

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Ongteco, Erika Therese Gonzaga
LLB-L01
Banking Laws
Atty. Palic

3. Prudential Bank And Trust Company (Now Bank Of The Philippine

Islands, Vs. Liwayway Abasolo

Facts:

After Rosales passed away, her heirs executed on June 14, 1993 a Special
Power of Attorney (SPA) in favor of Liwayway Abasolo empowering her to
sell the properties.

Corazon Marasigan wanted to buy the properties which were being sold for
P2,448,960, but as she had no available cash, she broached the idea of
first mortgaging the properties to petitioner Prudential Bank and Trust
Company (PBTC), the proceeds of which would be paid directly to
respondent. Respondent agreed to the proposal.

Norberto Mendiola, an employee of PBTCs head office, allegedly advised

respondent to issue an authorization for Corazon to mortgage the
properties, and for her (respondent) to act as one of the co-makers so
that the proceeds could be released to both of them.

Corazon executed on August 25, 1995 a Promissory Note for P2,448,960

in favor of respondent. Respondents claim, in October 1995, Mendiola
advised her to transfer the properties first to Corazon for the immediate
processing of Corazons loan application with assurance that the proceeds
thereof would be paid directly to her (respondent), and the obligation
would be reflected in a bank guarantee.

By Mendiolas Advise, respondent executed a Deed of Absolute Sale over

the properties in favor of Corazon following which or on December 4,
1995, Transfer Certificates of Title Nos. 164159 and 164160 were issued in
the name of Corazon.

In the absence of a written request for a bank guarantee, the PBTC

released the proceeds of the loan to Corazon. Respondent later got wind of
the approval of Corazons loan application and the release of its proceeds
to Corazon who, despite repeated demands, failed to pay the purchase
price of the properties and eventually accepted from Corazon partial
payment in kind consisting of one owner type jeepney and four passenger
jeepneys, plus installment payments, which, by the trial courts
computation, totaled P665,000. In view of Corazons failure to fully pay the
purchase price, respondent filed a complaint for collection of sum of
money and annulment of sale and mortgage with damages, against
Corazon and PBTC before the Regional Trial Court (RTC) of Sta. Cruz,
Laguna.

Corazon denied that there was an agreement that the proceeds of the loan
would be paid directly to respondent. And she claimed that the vehicles
represented full payment of the properties, and had in fact overpaid
P76,040.

Petitioner also denied that there was any arrangement between it and
respondent that the proceeds of the loan would be released to her. Despite
notice, Corazon failed to appear during the trial to substantiate her claims.

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Ongteco, Erika Therese Gonzaga
LLB-L01
Banking Laws
Atty. Palic

Issue:
1. Whether petitioner is subsidiarily liable.

Held:

1. The petition is meritorious.

The doctrine of apparent authority does not lie.

A banking corporation is liable to innocent third persons where the

representation is made in the course of its business by an agent acting
within l scope of his authority even though, in the particular case, the
agent is secretly abusing his authority and attempting to perpetuate fraud
upon his principal or some person, for his own ultimate benefit.

It has not been established that petitioner had an obligation to Liwayway,

there is no breach to speak of. Liwayways claim should only be directed
against Corazon. Petitioner cannot thus be held subisidiarily liable.

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Ongteco, Erika Therese Gonzaga
LLB-L01
Banking Laws
Atty. Palic

4. Banco de Oro vs. JAPRL Development Corporation G.R. No.

179901, April 14, 2008

Facts:

Banco de Oro-EPCI, Inc. extended credit facilities to it amounting

to P230,000,000 on March 28, 2003. Respondents Rapid Forming

Corporation (RFC) and Jose U. Arollado acted as JAPRLs sureties.

JAPRL defaulted in the payment of four trust receipts soon after the
approval of its loan.

Petitioner later learned from MRM Management, JAPRLs 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.
BDO demanded immediate payment of JAPRLs outstanding obligations

amounting to P194,493,388.98

Issue:

1. Whether Banco de Oro have the right to demand immediate payment from
respondents legitimate obligation

Held:

1. Yes.

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.

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.

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Ongteco, Erika Therese Gonzaga
LLB-L01
Banking Laws
Atty. Palic

5. PREMIERE DEVELOPMENT BANK vs. COURT OF APPEALS, PANACOR

MARKETING CORPORATION And ARIZONA TRANSPORT
CORPORATION
Facts:

October 1994, Panacor Marketing Corporation, a newly formed

corporation, acquired an exclusive distributorship of products
manufactured by Colgate Palmolive Philippines, Inc.

To meet the capital requirements of the exclusive distributorship, which

required an initial inventory level of P7.5 million, Panacor applied for a
loan of P4.1 million with Premiere Development Bank. After an extensive
study of Panacors creditworthiness, Premiere Bank rejected the loan
application and suggested that its affiliate company, Arizona Transport
Corporation should instead apply for the loan on condition that the
proceeds thereof shall be made available to Panacor.

Since the P2.7 million released by Premiere Bank fell short of the P4.1
million credit line which was previously approved, Panacor negotiated for a
take-out loan with Iba Finance Corporation (hereinafter referred to as Iba-
Finance) in the sum of P10 million, P7.5 million of which will be released
outright in order to take-out the loan from Premiere Bank and the balance
of P2.5 million (to complete the needed capital of P4.1 million with
Colgate) to be released after the cancellation by Premiere of the collateral
mortgage on the property covered by TCT No. T-3475. Pursuant to the
said take-out agreement, Iba-Finance was authorized to pay Premiere
Bank the prior existing loan obligations of Arizona in an amount not to
exceed P6 million.

On October 5, 1995, Iba-Finance sent a letter to Ms. Arlene R. Martillano,

officer-in-charge of Premiere Banks San Juan Branch, informing her of the
approved loan in favor of Panacor and Arizona, and requesting for the
release of TCT No. T-3475. Martillano, after reading the letter, affixed her
signature of conformity thereto and sent the original copy to Premiere
Banks legal office.

Premiere Bank appealed to the Court of Appeals contending that the trial
court erred in finding, inter alia, that it had maliciously downgraded the
credit-line of Panacor from P4.1 million to P2.7 million.

A compromise agreement was entered into between Iba-Finance and

Premiere Bank whereby the latter agreed to return without interest the
amount of P6,235,754.79 which Iba-Finance earlier remitted to Premiere
Bank to pay off the unpaid loans of Arizona. On March 11, 1999, the
compromise agreement was approved.

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Ongteco, Erika Therese Gonzaga
LLB-L01
Banking Laws
Atty. Palic

On June 18, 2003, a decision was rendered by the Court of Appeals which
affirmed with modification the decision of the trial court.

Issue:

1. Whether or not the decision of HONORABLE COURT OF APPEALS

exceeded and went beyond the facts, the issues and evidence
presented in the appeal taking into consideration the argument of
petitioner bank and advent of the duly approved compromise
agreement between the petitioner bank and IBA finance corporation.
Held:

1. Court of Appeals did not err in discussing in the assailed decision the
abortive take-out and the refusal by Premiere Bank to release the
cancellation of the mortgage document.

On October 5, 1995, Iba-Finance informed Premiere Bank of its approval

of Panacors loan application in the amount of P10 million to be secured by
a real estate mortgage over a parcel of land covered by TCT No. T-3475. It
was agreed that Premiere Bank shall entrust to Iba-Finance the owners
duplicate copy of TCT No. T-3475 in order to register its mortgage, after
which Iba-Finance shall pay off Arizonas outstanding indebtedness.
Accordingly, Iba-Finance remitted P6,235,754.79 to Premiere Bank on the
understanding that said amount represented the full payment of Arizonas
loan obligations. Despite performance by Iba-Finance of its end of the
bargain, Premiere Bank refused to deliver the mortgage document. As a
consequence, Iba-Finance failed to release the remaining P2.5 million loan
it earlier pledged to Panacor, which finally led to the revocation of its
distributorship agreement with Colgate.

The conduct of Premiere Bank in its dealings with respondent corporations

caused damage to Panacor and Iba-Finance. It is error for Premiere Bank
to assume that the compromise agreement it entered with Iba-Finance
extinguished all direct and collateral incidents to the aborted take-out such
that it also cancelled its obligations to Panacor. The unjustified refusal by
Premiere Bank to release the mortgage document prompted Iba-Finance
to withhold the release of the P2.5 million earmarked for Panacor which
eventually terminated the distributorship agreement. Both Iba-Finance
and Panacor, which are two separate and distinct juridical entities, suffered
damages due to the fault of Premiere Bank. Hence, it should be held liable
to each of them.

While the compromise agreement may have resulted in the satisfaction of

Iba-Finances legal claims.

Therefore, Premiere Banks liability to Panacor remains. We agree with the

Court of Appeals that the present appeal is only with respect to the liability
of appellant Premiere Bank to the plaintiffs-appellees (Panacor and
Arizona) taking into account the compromise agreement.

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Ongteco, Erika Therese Gonzaga
LLB-L01
Banking Laws
Atty. Palic

2. Restituta M. Imperial vs Alexa Jaucian

Facts:

A case of collection of money, filed by Alex A. Jaucian herein respondent

against Restituta Imperial (now petitioner).

The complaint alleges that Imperial obtained from Jaucian, six separate
loans for which the former executed in favour of the latter 6 separate
promissory notes and issued several checks as guarantee for payment.
When said loans became overdue and unpaid, defendants (petitioners)
checks were dishonoured, respondent made repeated oral and written
demands for payment.

The promissory notes indicate the interest of 16% per month.

Defendant claims that she was extended loans by the plaintiff on several
occasions, i.e., from November 13, 1987 to January 13, 1988, in the total
sum of P320,000.00 at the rate of sixteen percent (16%) per month. The
notes matured every four (4) months with unearned interest compounding
every four (4) months if the loan was not fully paid.

The loan on November 13, 1987 and January 6, 1988 had been fully paid
including the usurious interests of 16% per month.

RTC and CA held that the respondents clear and detailed computation of
petitioners outstanding obligation was convincing and satisfactory.

Issues:

1. Whether or not the charging of 28% interest per annum without any
writing is legal.

HELD:

1. Petition has NO MERIT.

There was a written agreement between the parties for the payment of
interest on the subject loans at the rate of 16 percent per month. As
decreed by the lower courts, this rate must be equitably reduced for being
iniquitous, unconscionable and exorbitant.

While the Usury Law ceiling on interest rates was lifted by C.B. Circular
No. 905, nothing in the said circular grants lenders carte blanche authority
to raise interest rates to levels which will either enslave their borrowers or
lead to a hemorrhaging of their assets.

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Ongteco, Erika Therese Gonzaga
LLB-L01
Banking Laws
Atty. Palic

2. Ocampos vs Landbank

Facts:

1991, Ocampo and her daughter, Tan obtained from the Landbank a 10M
quedan loan upon issuance of promissory notes.

Quedan Rural Credit Guarantee Corporation (Quedancor) guaranteed to

pay Landbank their loan but only up to 80% of the outstanding loan plus
interests at the time of maturity. Pursuant thereto, Ocampo and Tan
delivered to Landbank quedans and executed a Deed of Assignment
covering 41,690cavans of palay (equivalent to PhP9.996M 100% of the
loan)in favor of Quedancor. Ocampo and Tan constituted a Real Estate
Mortgage (REM)over 2 parcels of unregistered land owned by Ocampo to
secure the remaining 20%. Such encumbrance was annotate in the land
title when Ocampo filed for the lands registration.

When Ocampo failed to pay the 3 remaining PNs on Oct. 2,1991, Lanbank
filed the following:
Claim for guarantee payment with Quedancor;
Criminal case of estafa against Ocampo for disposingstocks of palay
covered by the quedans;
Extrajudicial foreclosure of REM (re: 20% of loan)The Ex-Officio Provincial
Sheriff issued a notice of Extrajudicial Sale (Public Auction).

RTC issued TRO on the public auction and favored Ocampo and Tan when
they filed a Complaint for Declaration of Nullity and Damages with
Application of a Writ of Preliminary Injunction against Landbank and the
Sheriff on the basis on forgery regarding the REM on the 20% of the loan.
Upon Landbanks appeal, the CA granted its petition and reversed the
RTCs decision.

Issues:

1. Whether or not the Deed of Real Estate Mortgage was void?

2. Assuming it was valid, whether or not the loan was already extinguished?

Held:

1. NO. There is no forgery. The Deed of REM was valid. Ocampo and Tan
failed to present any evidence to disprove the genuineness or authenticity
of their signatures. In fact, Ocampo admitted in direct examination that
such signature was hers, although she claimed that she was made to sign
a blank form (printed form with blanks yet to be filled up). Moreover, the
bank personnel who were also signatories to the deed confirmed their
appearances despite her testimony that she cannot say for certain if she
appeared before the notary public. It is well-settled that a document

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Ongteco, Erika Therese Gonzaga
LLB-L01
Banking Laws
Atty. Palic

acknowledged before a notary public is a public document that enjoys the

presumption of regularity. It is a prima facie evidence of the truth of the
facts stated therein and a conclusive presumption of its existence and due
execution.

The real issue is fraud and not forgery. Ocampo claimed that she was led
to believe by Landbank that the form she signed was to process her
PhP5M loan application and not to secure the subject 20% of the loan.
However, Ocampo was unable to establish clearly and precisely how
Landbank committed the alleged fraud. She failed to lay down the
deception through insidious words or machinations or misrepresentations
made by Landbank so that she signed the blank form. Granting for the
sake of argument that there was fraud, such contract was merely voidable
where an action should have been instituted within 4 years from discovery,
i.e.when the REM was registered with the Register of Deeds

2. NO. The loan was not yet extinguished. Ocampo claimed that she already
paid the quedan loan when she executed the Deed of Assignment in favor
of Quedancor. The loan was between Ocampo and Landbank. Yet, she did
not include Landbank as party to the Deed of Assignment despite
evidence on record showing her indebtedness to Landbank (e.g.
registration/annotation of REM). Ocampo hastily executed the Deed of
Assignment and conveyed some of her properties to Quedancor without
prior notice to Landbank.

Dacion en pago is the delivery and transmission of ownership of a thing by

the debtor to the creditor as an accepted equivalent of the performance of
an obligation. As properly ruled by the CA, the required consent is absent
in this case. Landbank had no participation much less consented to the
execution of the Deed of Assignment. Hence, no extinguishment of loan
can be had.Even if the Deed of Assignment has the effect of valid
payment, the extinguishment is only up to the extent of 80% of the
quedan loan. Thus, it leaves a balance of 20%which can be fully satisfied
by the foreclosure of the REM.

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Ongteco, Erika Therese Gonzaga
LLB-L01
Banking Laws
Atty. Palic

8. REPUBLIC OF THE PHILIPPINES

vs.
SANDIGANBAYAN (FIRST DIVISION), EDUARDO M. COJUANGCO, JR.,

Facts:

For over two decades, the issue of whether the sequestered sizable block
of shares representing 20% of the outstanding capital stock of San Miguel
Corporation (SMC) at the time of acquisition belonged to their registered
owners or to the coconut farmers has remained unresolved.

On July 31, 1987, the Republic commenced Civil Case No. 0033 in the
Sandiganbayan by complaint, impleading as defendants respondent
Eduardo M. Cojuangco, Jr. and 59 individual defendants.

The Republic avers that defendant Eduardo Cojuangco, Jr. taking undue
advantage of his association, influence and connection, acting in unlawful
concert with Defendants Ferdinand E. Marcos and Imelda R. Marcos, and
other individuals closely associated with the Marcoses, embarked upon
devices, schemes and stratagems, including the use of various
corporations as fronts, to unjustly enrich themselves at the expense of
Plaintiff and the Filipino people, such as when he misused coconut levy
funds to buy out majority of the outstanding shares of stock of San Miguel
Corporation in order to control the largest agri-business, foods and
beverage company in the Philippines.

These so called front companies, which ACCRA Law Offices organized for
Defendant Cojuangco to be able to control more than 60% of SMC shares,
were funded by institutions which depended upon the coconut levy such as
the UCPB, UNICOM, United Coconut Planters Assurance Corp. (COCOLIFE),
among others. Cojuangco and his ACCRA lawyers used the funds from 6
large coconut oil mills and 10 copra trading companies to borrow money
from the UCPB and purchase these holding companies and the SMC
stocks. Cojuangco used $150 million from the coconut levy.

Herein defendant specifically denies the allegations including any

insinuation that whatever association he may have had with the late
Ferdinand Marcos or Imelda Marcos has been in connection with any of the
acts or transactions alleged in the complaint or for any unlawful purpose.
During the pre-trial Sandiganbayan advised the plaintiff to present more
factual evidence to substantiate its allegations. The Republic nonetheless
choosing not to adduce evidence proving the factual allegations,
particularly the matters specifically asked by the Court, instead plaintiff
opted to pursue its claims by Motion for Summary Judgment.

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Ongteco, Erika Therese Gonzaga
LLB-L01
Banking Laws
Atty. Palic

On November 28, 2007, the Sandiganbayan dismissed the case for failure
of plaintiff to prove by preponderance of evidence its causes of action
against defendants.

Issue:
1. Is there a violation of DOSRI and Single Borrowers Limit restrictions

Held:
1. DOSRI is the acronym derived from the first letters of the words
Directors, Officers, Stockholders and their Related Interests. The
DOSRI restriction is designed to prevent undue advantage to be
granted to such bank officers and their related interests in the grant of
bank loans, credit accommodations, and guarantees that may be
extended, directly or indirectly, by a bank to its directors, officers,
stockholders and their related interests; and limits the outstanding
loans, credit accommodations, and guarantees that a bank may extend
to each of its stockholders, directors, or officers and their related
interest to an amount equivalent to their respective unencumbered
deposits and book value of their paid-in capital contributions in the
bank.

The applicable DOSRI provision was Section 83 of Republic Act No. 337
(General Banking Law), as amended by P.D. No. 1795, to wit:

Section 83. No director or officer of any banking institution shall, either

directly or indirectly, for himself or as the representative or agent of other,
borrow any of the deposits of funds of such banks, nor shall he become a
guarantor, indorser, or surety for loans from such bank to others, or in any
manner be an obligor for money borrowed from the bank or loaned by it,
except with the written approval of the majority of the directors of the
bank, excluding the director concerned. Any such approval shall be
entered upon the records of the corporation and a copy of such entry shall
be transmitted forthwith to the Superintendent of Banks. The office of any
director or officer of a bank who violates the provisions of this section shall
immediately become vacant and the director or officer shall be punished
by imprisonment of not less than one year nor more than ten years and by
a fine of not less than one thousand nor more than ten thousand pesos.
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.

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.

The Republic could not out rightly 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
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LLB-L01
Banking Laws
Atty. Palic

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.

9. GO vs. BSP

Facts:

Go, Director and the President and Chief Executive Officer of the
Orient Bank, was accused of taking advantage of his position as such
officer/director of the said bank. That he 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 and which approval the said accused
deliberately failed to obtain and enter the same upon the records of
said banking institution and to transmit a copy of which to the
supervising department of the said bank, as required by the General
Banking Act.

Issue:

1. Whether or not there is a violation of RA 337

Held:

1. Yes. RA 337 is violated. 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.

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; or

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b. he becomes a guarantor, indorser, or surety for loans from such bank to

others, or

c. he becomes in any manner an obligor for money borrowed from bank or

loaned by it;

3. the offender has performed any of such acts without the written approval
of the majority of the directors of the bank, excluding the offender, as the
director concerned.

10.Zulueta vs Asia Brewery

Facts:

Respondent Asia Brewery, Inc., is engaged in the manufacture, the

distribution and sale of beer; while Petitioner Perla Zulueta is a dealer and
an operator of an outlet selling the formers beer products. A Dealership
Agreement governed their contractual relations.
On March 30, 1992, petitioner filed before the Regional Trial Court (RTC)
of Iloilo, Branch 22, a Complaint against respondent for Breach of
Contract, Specific Performance and Damages. The Complaint, docketed as
Civil Case No. 20341 (hereafter referred to as the Iloilo case), was
grounded on the alleged violation of the Dealership Agreement.
On July 7, 1994, during the pendency of the Iloilo case, respondent filed
with the Makati Regional Trial Court, Branch 66, a Complaint docketed as
Civil Case No. 94-2110 (hereafter referred to as the Makati case). The
Complaint was for the collection of a sum of money in the amount of
P463,107.75 representing the value of beer products, which respondent
had delivered to petitioner.
In view of the pendency of the Iloilo case, petitioner moved to dismiss the
Makati case on the ground that it had split the cause of action and violated
the rule against the multiplicity of suits. The Motion was denied by the
Makati RTC through Judge Eriberto U. Rosario.
Upon petitioners Motion, however, Judge Rosario inhibited himself. The
case was raffled again and thereafter assigned to Branch 142 of the Makati
RTC, presided by Judge Jose Parentala Jr.
On January 3, 1997, petitioner moved for the consolidation of the Makati
case with the Iloilo case. Granting the Motion, Judge Parentala ordered on
February 13, 1997, the consolidation of the two cases. Respondent filed a
Motion for Reconsideration, which was denied in an Order dated May 19,
1997.
On August 18, 1997, respondent filed before the Court of Appeals a
Petition for Certiorari assailing Judge Parentalas February 13, 1997 and
May 19, 1997 Orders.

Issue:

Did the Makati RTC, Branch 142, correctly order the consolidation of the
Makati case (which was filed later) with the Iloilo Case (which was filed
earlier) for the reason that the obligation sought to be collected in the
Makati case is the same obligation that is also one of the subject matters
of the Iloilo case?

Held:

The consolidation of cases is proper when they involve the resolution of

common questions of law or facts

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Petitioners obligation to pay for the beer products delivered by respondent

can exist regardless of an alleged breach in the Dealership Agreement.
Undeniably, however, this obligation and the relationship between
respondent and petitioner, as supplier and distributor respectively, arose
from the Dealership Agreement which is now the subject of inquiry in the
Iloilo case. In fact, petitioner herself claims that her obligation to pay was
negated by respondents contractual breach.
The non-payment -- the res of the Makati case -- is an incident of the
Iloilo case.
Inasmuch as the binding force of the Dealership Agreement was put in
question, it would be more practical and convenient to submit to the Iloilo
court all the incidents and their consequences. The issues in both civil
cases pertain to the respective obligations of the same parties under the
Dealership Agreement. Thus, every transaction as well as liability arising
from it must be resolved in the judicial forum where it is put in issue. The
consolidation of the two cases then becomes imperative to a complete,
comprehensive and consistent determination of all these related issues.

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11. METRO CONCAST STEEL CORPORATION, SPOUSES JOSE S.

DYCHIAO AND TIUOH YAN, SPOUSES GUILLERMO AND
MERCEDES DYCHIAO, AND SPOUSES VICENTE AND FILOMENA
DYCHIAO, vs.
ALLIED BANK CORPORATION,

Facts:

Metro Concast, a corporation duly organized and existing under and by

virtue of Philippine laws and engaged in the business of manufacturing
steel,5 through its officers, herein individual petitioners, obtained several
loans from Allied Bank. These loan transactions were covered by a
promissory note and separate letters of credit/trust receipts

The interest rate under Promissory Note No. 96-21301 was pegged at
15.25% per annum (p.a.), with penalty charge of 3% per month in case of
default; while the twelve (12) trust receipts uniformly provided for an
interest rate of 14% p.a. and 1% penalty charge. By way of security, the
individual petitioners executed several Continuing
Guaranty/Comprehensive Surety Agreements19 in favor of Allied Bank.
Petitioners failed to settle their obligations under the aforementioned
promissory note and trust receipts, hence, Allied Bank, through counsel,
sent them demand letters,20 all dated December 10, 1998, seeking
payment of the total amount of P51,064,093.62, but to no avail.

Thus, Allied Bank was prompted to file a complaint for collection of sum of
money21 (subject complaint) against petitioners before the RTC, docketed
as Civil Case No. 00-1563. In their second22 Amended Answer,23
petitioners admitted their indebtedness to Allied Bank but denied liability
for the interests and penalties charged, claiming to have paid the total
sum of P65,073,055.73 by way of interest charges for the period covering
1992 to 1997.24

They also alleged that the economic reverses suffered by the Philippine
economy in 1998 as well as the devaluation of the peso against the US
dollar contributed greatly to the downfall of the steel industry, directly
affecting the business of Metro Concast and eventually leading to its
cessation.

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Hence, in order to settle their debts with Allied Bank, petitioners offered
the sale of Metro Concasts remaining assets, consisting of machineries
and equipment, to Allied Bank, which the latter, however, refused. Instead,
Allied Bank advised them to sell the equipment and apply the proceeds of
the sale to their outstanding obligations. Accordingly, petitioners offered
the equipment for sale, but since there were no takers, the equipment was
reduced into ferro scrap or scrap metal over the years. In 2002, Peakstar
Oil Corporation (Peakstar), represented by one Crisanta Camiling
(Camiling), expressed interest in buying the scrap metal. During the
negotiations with Peakstar, petitioners claimed that Atty. Peter Saw (Atty.
Saw), a member of Allied Banks legal department, acted as the latters
agent. Eventually, with the alleged conformity of Allied Bank, through Atty.
Saw, a Memorandum of Agreement25 dated November 8, 2002 (MoA) was
drawn between Metro Concast, represented by petitioner Jose Dychiao,
and Peakstar, through Camiling, under which Peakstar obligated itself to
purchase the scrap metal for a total consideration of P34,000,000.00,

Issue:

Whether or not the loan obligations incurred by the petitioners under the
subject promissory note and various trust receipts have already been
extinguished.

Held:

Article 1231 of the Civil Code states that obligations are extinguished
either by payment or performance, the loss of the thing due, the
condonation or remission of the debt, the confusion or merger of the
rights of creditor and debtor, compensation or novation.

In the present case, petitioners essentially argue that their loan

obligations to Allied Bank had already been extinguished due to Peakstars
failure to perform its own obligations to Metro Concast pursuant to the
MoA. Petitioners classify Peakstars default as a form of force majeure in
the sense that they have, beyond their control, lost the funds they
expected to have received from the Peakstar (due to the MoA) which they
would, in turn, use to pay their own loan obligations to Allied Bank. They
further state that Allied Bank was equally bound by Metro Concasts MoA
with Peakstar since its agent, Atty. Saw, actively represented it during the
negotiations and execution of the said agreement. Petitioners arguments
are untenable. At the outset, the Court must dispel the notion that the
MoA would have any relevance to the performance of petitioners
obligations to Allied Bank.

To constitute a fortuitous event, the following elements must concur: (a)

the cause of the unforeseen and unexpected occurrence or of the failure
of the debtor to comply with obligations must be independent of human
will; (b) it must be impossible to foresee the event that constitutes the

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caso fortuito or, if it can be foreseen, it must be impossible to avoid; (c)

the occurrence must be such as to render it impossible for the debtor to
fulfill obligations in a normal manner; and (d) the obligor must be free
from any participation in the aggravation of the injury or loss.

While it may be argued that Peakstars breach of the MoA was unforseen
by petitioners, the same us clearly not "impossible to foresee or even an
event which is independent of human will." Neither has it been shown
that said occurrence rendered it impossible for petitioners to pay their
loan obligations to Allied Bank and thus, negates the formers force
majeure theory altogether.

12. GOLDENWAY MERCHANDISING CORPORATION VS

EQUITABLE PCI BANK

Facts:

November 29, 1985, Goldenway Merchandising Corporation executed a

Real Estate Mortgage in favor of Equitable PCI Bank over three parcels of
land as security for a Php2,000,000 loan granted to the petitioner.
Petitioner eventually failed to settles its loan obligation, leading
respondent to extrajudicially foreclose the mortgage on December 13,
2000. Subsequently, a Certificate of Sale was issued to respondent on
January 26, 2001. In a letter dated March 7, 2001, petitioner offered to
redeem the foreclosed properties by tendering a check.

Petitioner and respondent met on March 12, 2001. However, petitioner

was told that redemption was no longer possible since the certificate of
sale had already been registered; the title to the foreclosed properties
were consolidated in favor of the respondent on March 9, 2001.

Petitioner filed a complaint for specific performance and damages

contending that the 1-year period of redemption under Act 3135 should
apply, and not the shorter redemption period under RA 8791 as applying
RA 8791 would result in the impairment of obligations of contracts and
would violate the equal protection clause under the constitution.

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The RTC dismissed the action of the petitioner ruling that redemption was
made belatedly and that there was no redemption made at all. The Court
of Appeals affirmed the RTC.

Issue:

Whether or not the redemption period should be the 1-year period

provided under Act 3135, and not the shorter period under RA 8791 as
the parties expressly agreed that foreclosure would be in accordance with
Act 3135

Held:
The CA is correct that the legislature clearly intended to shorten the period
of redemption for juridical persons whose properties were foreclosed and
sold in accordance with the provisions of Act No. 3135.
Under the new law, an exception is thus made in the case of juridical
persons which are allowed to exercise the right of redemption only "until,
but not after, the registration of the certificate of foreclosure sale" and in
no case more than three (3) months after foreclosure, whichever comes
first.16

13. GATEWAY ELECTRONICS CORPORATION, vs. LAND BANK OF

THE PHILIPPINES,

Facts:

Gateway Electronics Corporation applied for a loan in the amount of one

billion pesos with respondent Landbank to finance the construction and
acquisition of machineries and equipment for a semi-conductor plant at
Gateway Business Park in Javalera, General Trias, Cavite. However,
Landbank was only able to extend petitioner a loan in the amount of six
hundred million pesos (P600,000,000.00). Hence, it offered to assist
petitioner in securing additional funding through its investment banking
services, which offer petitioner accepted.

Thereafter, Landbank released to petitioner the initial amount of

P250,000,000.00, with the balance of P350,000,000.00 to be released in
June 1996. As security for the said loans, petitioner mortgaged in favor of
Landbank two parcels of land

After petitioners acceptance of Landbanks financial banking services, the

latter prepared an Information Memorandum which it disseminated to
various banks to attract them into providing additional funding for
petitioner. The Information Memorandum stated that the security for the
proposed loan syndication will be the Mortgage Trust Indenture (MTI) on

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the project assets including land, building and equipment. 1[5] In a letter
dated July 30, 1996, Landbank informed petitioner of its willingness to
share the loan collateral which the latter constituted in its favor as part of
the collateral for the syndicated loan from the other banks. 2[6] On August
20, 1996, Landbank confirmed its undertaking to share the said collateral
with the other creditor banks, to wit:
In case of failure of syndication of the loan, allow the banks that have
granted loans to GEC [Gateway Electronics Corporation] in anticipation of
the loan syndication to have a registered pari passu mortgage with you
over the property, the intention being that all banks, including Landbank,
shall be on equal footing where the aforesaid collateral is concerned. 3[7]
Meanwhile, the negotiations for the execution of an MTI failed because
Landbank and the petitioner were unable to agree on the valuation of the
equipment and machineries to be acquired by the latter. The petitioner
insisted on a 70% valuation, while the former wanted a 50% valuation. To
break the impasse, PCIB, RCBC, UBP, and Asiatrust proposed, subject to
the approval of their respective Executive Committees or Board of
Directors, to execute a Joint Real Estate Mortgage (JREM) 4[10] as the new
mode to secure [their] respective loan vis--vis [petitioners] collaterals. 5
[11] Under the proposed JREM, the six hundred million peso-loan granted
by Land Bank shall be secured up to 94.42%, while the loans granted by
PCIB, RCBC, and UBP would be similarly secured up to 75.22%. 6[12] Land
Bank, however, refused to agree to the said proposal unless 100% of its
loan exposure is secured, pursuant to the Loan Agreement it executed
with petitioner.7[13]

On February 27, 1998, Land Bank informed petitioner of its intention not to
share collaterals with the other banks. In the meantime, petitioners loan with
PCIB became due because of its failure to comply with the collateral requirement
under the MTI or JREM, or to provide acceptable substitute collaterals. Hence,
petitioner filed with the Regional Trial Court of Makati City, Branch 133, a
complaint against Land Bank for specific performance and damages with prayer
for the issuance of preliminary mandatory injunction.

After hearing, the trial court issued an order on October 18, 2000 granting
petitioners prayer for the issuance of a writ of preliminary mandatory injunction

Defendant is hereby directed to accede to the terms of the draft MTI and/or to
agree to share collaterals under a joint real estate mortgage [JREM] with long-

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term creditors of plaintiff (including PCIB) as joint mortgagees and with

defendant as custodian of the titles.

Respondent filed a petition for certiorari with the Court of Appeals, on the
ground that the trial court gravely abused its discretion in issuing the assailed
writ of preliminary mandatory injunction.

In a decision rendered on April 12, 2002, the Court of Appeals annulled the
assailed order of the trial court. It ruled that petitioner failed to prove the
requisite clear and legal right that would justify the issuance of the writ of
preliminary mandatory injunction; and that respondent cannot be compelled to
accede to the terms of the MTI and/or JREM which was supposed to cover the
syndicated loan of petitioner inasmuch as the said schemes were never executed
nor approved by the petitioner and the participating banks.

Issue:

1. Is Landbank bound to share the properties mortgaged to it by

respondent with the other creditor banks in the loan syndication?

Held:

1. Clearly, there was an acceptance by petitioner and by PCIB, RCBC,

UBP, and Asiatrust of Lanbanks offer to share collaterals, culminating in
the execution of the Memorandum of Understanding.

Land Bank is bound by a perfected contract to share petitioners collateral

with the participating banks in the loan syndication.

Article 1305 of the Civil Code defines a contract as a meeting of minds

between two persons whereby one binds himself, with respect to the other,
to give something or to render some service.

A contract undergoes three distinct stages (1) preparation or

negotiation; (2) perfection; and (3) consummation. Negotiation begins
from the time the prospective contracting parties manifest their
interest in the contract and ends at the moment of agreement of the
parties. The perfection or birth of the contract takes place when the
parties agree upon the essential elements of the contract. The last
stage is the consummation of the contract wherein the parties fulfill or
perform the terms agreed upon in the contract, culminating in the
extinguishment thereof.

Article 1315 of the Civil Code, on the other hand, provides that a
contract is perfected by mere consent, which is manifested by the
meeting of the offer and the acceptance upon the thing and the cause
which are to constitute the contract.

In the case at bar, a perfected contract for the sharing of collaterals is

evident from the exchange of communications between Landbank and
petitioner and the participating banks, as well as in the Memorandum
of Understanding executed by petitioner and the participating banks,
including Landbank.

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14. UCPB vs. Beluso (2007)

Facts:

UCPB granted the spouses Beluso a Promissory Notes Line under a Credit
Agreement whereby the latter could avail from the former credit of up to a
maximum amount of P1.2 Million pesos for a term ending in April 1997.
Spouses Beluso also constituted a real estate mortgage over parcels of
land in Roxas City. Subsequently, the said Credit Arrangement was
amended to extend the amount of the Promissory Notes Line to a
maximum of P2.35 Million pesos and to extend the term thereof to
February 1998.

The spouses executed three promissory notes which were renewed several
times. In 1997, the payment of the principal and interest of the latter two
promissory notes were debited from the spouses Belusos account with
UCPB; yet, a consolidated loan for P1.3 Million was again released to the
spouses Beluso under one promissory note with a due date of 28 February
1998. The spouses Beluso executed two more promissory notes for a total
of P350 thousand to avail themselves of the P2.35 Million credit line
extended to them by UCPB.

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However, the spouses Beluso alleged that the amounts covered by these
last two promissory notes were never released or credited to their account
and, thus, claimed that the principal indebtedness was only P2 Million. In
any case, UCPB applied interest rates on the different promissory notes
ranging from 18% to 34%. During the term of these promissory notes, the
Belusos were able to pay the total sum of about P760 thousand. However,
they failed to pay for the interest and penalty on their obligations. As a
result, UCPB demanded that they pay their total obligation of P2.9
millionbut the spouses Beluso failed to comply therewith.

Thereafter, UCPB foreclosed the properties mortgaged by the spouses

Beluso to secure their credit line, which, by that time, already ballooned to
nearly P3.8 million. Two months after the foreclosure, the spouses Beluso
filed a Petition for Annulment, Accounting and Damages against UCPB with
the RTC of Makati City. UCPB moved to dismiss the case on the ground
that the spouses Beluso instituted another case before the RTC of Roxas
City, involving the same parties and issues. UCPB claims that while the
Roxas City case initially appears to be a different action, as it prayed for
the issuance of a temporary restraining order and/or injunction to stop
foreclosure of spouses Belusos properties, it poses issues which are
similar to those of the present case. The spouses Beluso claim that the
issue in the Roxas City case is the propriety of the foreclosure before the
true account of spouses Beluso is determined. On the other hand, the
issue in the Makati case is the validity of the interest rate provision. The
spouses Beluso claim that the Roxas City case has become moot because,
before RTC Roxas City could act on the restraining order, UCPB proceeded
with the foreclosure and auction sale.

As the act sought to be restrained has already been accomplished, the

spouses Beluso had to file a different action, that of Annulment of the
Foreclosure Sale with RTC Makati.

RTC ruled in favor of the Belusos. CA affirmed.

Issue:

1. Whether or not the spouses were duly notified of the terms

thereof, in substantial compliance with the Truth in Lending
Act as UCPB states that they have been duly given copies
thereof.
Held:

1. NO.

Section 4 of the Truth in Lending Act clearly provides that the disclosure
statement must be furnished prior to the consummation of the transaction:

SEC. 4. Any creditor shall furnish to each person to whom credit is

extended, prior to the consummation of the transaction, a clear statement in writing
setting forth, to the extent applicable and in accordance with rules and regulations
prescribed by the Board, the following information:

(1) the cash price or delivered price of the property or service to be acquired;

(2) the amounts, if any, to be credited as down payment and/or trade-in;

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(3) the difference between the amounts set forth under clauses (1) and (2)

(4) the charges, individually itemized, which are paid or to be paid by such
person in connection with the transaction but which are not incident to the
extension of credit;

(5) the total amount to be financed;

(6) the finance charge expressed in terms of pesos and centavos; and

(7) the percentage that the finance bears to the total amount to be financed
expressed as a simple annual rate on the outstanding unpaid balance of the
obligation.

The rationale of this provision is to protect users of credit from a lack of

awareness of the true cost thereof, proceeding from the experience that banks are
able to conceal such true cost by hidden charges, uncertainty of interest rates,
deduction of interests from the loaned amount, and the like. The law thereby
seeks to protect debtors by permitting them to fully appreciate the true cost of
their loan, to enable them to give full consent to the contract, and to properly
evaluate their options in arriving at business decisions.

Upholding UCPBs claim of substantial compliance would defeat these purposes

of the Truth in Lending Act. The belated discovery of the true cost of credit will
too often not be able to reverse the ill effects of an already consummated
business decision.

In addition, the promissory notes, the copies of which were presented to the
spouses Beluso after execution, are not sufficient notification from UCPB. As
earlier discussed, the interest rate provision therein does not sufficiently indicate
with particularity the interest rate to be applied to the loan covered by said
promissory notes.

15. BPI Employees Union-Davao city-Fubu (BPIEU-Davao City-

Fubu) vs. Bank of the Philippine Islands (BPI), and BPI Officers
Claro M. Reyes, Cecil Conanan and Gemma Velez

Facts:

BPI Operations Management Corporation primarily engaged in providing

and/or handling support services for banks and other financial institutions,
is a subsidiary of the Bank of Philippine Islands (BPI) operating and
functioning as an entirely separate and distinct entity.

BOMC undertook to provide services such as check clearing, delivery of

bank statements, fund transfers, card production, operations accounting
and control, and cash servicing, conformably with BSP Circular No. 1388.

April 10, 2000 -A merger between BPI and Far East Bank and Trust
Company (FEBTC) took effect with BPI as the surviving corporation.
Thereafter, BPIs cashiering function and FEBTCs cashiering, distribution
and bookkeeping functions were handled by BOMC. Consequently, twelve

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(12) former FEBTC employees were transferred to BOMC to complete the

latters service complement.

The Union objected to the transfer of the functions and the twelve (12)
personnel to BOMC contending that the functions rightfully belonged to the
BPI employees and that the Union was deprived of membership of former
FEBTC personnel who, by virtue of the merger, would have formed part of
the bargaining unit represented by the Union pursuant to its union shop
provision in the CBA.

Management prerogative was invoked by BPI stating that the creation of

the BOMC was to preserve more jobs and to designate it as an agency to
place employees where they were most needed.

The Union charged that BOMC undermined the existence of the union
since it reduced or divided the bargaining unit. While BOMC employees
perform BPI functions, they were beyond the bargaining units coverage.
In contracting out FEBTC functions to BOMC, BPI effectively deprived the
union of the membership of employees handling said functions as well as
curtailed the right of those employees to join the union.

The NLRC came out with a resolution upholding the validity of the service
agreement between BPI and BOMC. It ruled that the engagement by BPI
of BOMC to undertake some of its activities was clearly a valid exercise of
its management prerogative. It further stated that the spinning off by BPI
to BOMC of certain services and functions did not interfere with, restrain
or coerce employees in the exercise of their right to self-organization. The
Union did not present even an iota of evidence showing that BPI had
terminated employees, who were its members. In fact, BPI exerted utmost
diligence, care and effort to see to it that no union member was
terminated. The NLRC also stressed that Department Order (D.O.) No. 10
series of 1997, strongly relied upon by the Union, did not apply in this
case as BSP Circular No. 1388, series of 1993, was the applicable rule.

Contracting out of services is exercise of business judgment or

management prerogative. Absent proof that the management acted in a
malicious or arbitrary manner, the Court will not interfere with the exercise
of judgment by an employer.

BPIs policy of contracting out cashiering and bookkeeping services was

considered as a valid exercise of management prerogative which is further
authorized by the Central Bank in CBP Circular No. 1388, Series of 199.

Issues:

1. Whether or not the act of BPI to outsource the cashiering, distribution and
bookkeeping functions to BOMC is in conformity with the law and the
existing CBA.

Held:

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1. Yes. The outsourcing of BPI is not illegal. Bad faith cannot be attributed to
BPI because its actions were authorized by CBP Circular No. 1388, Series
of 1993 issued by the Monetary Board of the then Central Bank of the
Philippines (now Bangko Sentral ng Pilipinas). The circular covered
amendments in Book I of the Manual of Regulations for Banks and Other
Financial Intermediaries, particularly on the matter of bank service
contracts

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