A.

Nature of Deposits
a. THE CONSOLIDATED BANK and TRUST CORPORATION, petitioner, vs.
COURT OF APPEALS and L.C. DIAZ and COMPANY, CPA's, respondents.
G.R. No. 138569, Sep 11, 2003.

FACT:
Petitioner Solidbank is a domestic banking corporation organized and existing
under Philippine laws. Private respondent L.C. Diaz and Company, CPAs, 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.

Macaraya immediately prepared a deposit slip in duplicate copies with a check of

P200,000. Macaraya and Calapre went to Solidbank and presented to Teller No.
6 the deposit slip and check. The teller stamped the words DUPLICATE and
SAVING TELLER 6 SOLIDBANK HEAD OFFICE on the duplicate copy of the
deposit slip. When Macaraya asked for the passbook, Teller No. 6 told Macaraya
that someone got the passbook but she could not remember to whom she gave
the passbook. When Macaraya asked Teller No. 6 if Calapre got the passbook,
Teller No. 6 answered that someone shorter than Calapre got the passbook.
Calapre was then standing beside 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 decision 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 attorneys fees. Hence this petition.

ISSUE:
WON petitioner Solidbank is liable.

RULING:
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 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.

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.

Solidbanks 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 Solidbanks
tellers during withdrawals, the law imposes on Solidbank and its tellers an even
higher degree of diligence in safeguarding the passbook.

Solidbanks 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 Solidbanks negligence in not returning the passbook to Calapre.

Doctrine of Last Clear Chance

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

We do not apply the doctrine of last clear chance to the present case. This is a
case of culpa contractual, where neither the contributory negligence of the
plaintiff nor his last clear chance to avoid the loss, would exonerate the
defendant from liability. Such contributory negligence or last clear chance by the
plaintiff merely serves to reduce the recovery of damages by the plaintiff but does
not exculpate the defendant from his breach of contract

Mitigated Damages
Under Article 1172, liability (for culpa contractual) may be regulated by the
courts, according to the circumstances. This means that if the defendant
 exercised the proper diligence in the selection and supervision of its employee,
or if the plaintiff was guilty of contributory negligence, then the courts may reduce
the award of damages. In this case, L.C. Diaz was guilty of contributory
negligence in allowing a withdrawal slip signed by its authorized signatories to fall
into the hands of an impostor. Thus, the liability of Solidbank should be reduced.

In PBC v. CA where the Court held the depositor guilty of contributory

negligence, we allocated the damages between the depositor and the bank on a
40-60 ratio. Applying the same ruling to this case, we hold that L.C. Diaz must
shoulder 40% of the actual damages awarded by the appellate court. Solidbank
must pay the other 60% of the actual damages.

WHEREFORE, the decision of the Court of Appeals is AFFIRMED with

MODIFICATION

b. TEOFISTO GUINGONA, JR., ANTONIO I. MARTIN, and TERESITA SANTOS,

petitioners, vs. THE CITY FISCAL OF MANILA, HON. JOSE B. FLAMINIANO,
ASST. CITY FISCAL FELIZARDO N. LOTA and CLEMENT DAVID,
respondents.

David invested several deposits with the Nation Savings and Loan Association [NSLA].
He said that he was induced into making said investments by an Australian national who
was a close associate of the petitioners [NSLA officials]. On March 1981, NSLA was
placed under receivership by the Central Bank, so David filed claims for his and his
sisters investments.
On June 1981, Guingona and Martin, upon Davids request, assumed the banks
obligation to David by executing a joint promissory note. On July 1981, David received a
report that only a portion of his investments was entered in the NSLA records.
On December 1981, David filed I.S. No. 81-31938 in the Office of the City Fiscal, which
case was assigned to Asst. City Fiscal Lota for preliminary investigation. David charged
petitioners with estafa and violation of Central Bank Circular No. 364 and related
regulations on foreign exchange transactions.
Petitioners moved to dismiss the charges against them for lack of jurisdiction because
David's claims allegedly comprised a purely civil obligation, but the motion was denied.
After the presentation of David's principal witness, petitioners filed this petition for
prohibition and injunction because:
a. The production of various documents showed that the transactions between David
and NSLA were simple loans (civil obligations which were novated when Guingona and
Martin assumed them)
b. David's principal witness testified that the duplicate originals of the instruments of
indebtedness were all on file with NSLA.
A TRO was issued ordering the respondents to refrain from proceeding with the
preliminary investigation in I.S. No. 81-31938.
Petitioners liability is civil in nature, so respondents have no jurisdiction over the estafa
charge. TRO CORRECTLY ISSUED.

GENERAL RULE: Criminal prosecution may not be blocked by court prohibition or

injunction.
EXCEPTIONS
1. For the orderly administration of justice
2. To prevent the use of the strong arm of the law in an oppressive and vindictive
manner
3. To avoid multiplicity of actions
4. To afford adequate protection to constitutional rights
5. In proper cases, because the statute relied upon is unconstitutional or was held
invalid

When David invested his money on time and savings deposits with NSLA, the contract
that was perfected was a contract of simple loan or mutuum and not a contract of
deposit. The relationship between David and NSLA is that of creditor and debtor. While
the Bank has the obligation to return the amount deposited, it has no obligation to return
or deliver the same money that was deposited. NSLAs failure to return the amount
deposited will not constitute estafa through misappropriation, but it will only give rise to
civil liability over which the public respondents have no jurisdiction.
Considering that petitioners liability is purely civil in nature and that there is no clear
showing that they engaged in foreign exchange transactions, public respondents acted
without jurisdiction when they investigated the charges against the petitioners. Public
respondents should be restrained from further proceeding with the criminal case for to
allow the case to continue would work great injustice to petitioners and would render
meaningless the proper administration of justice.
Even granting that NSLAs failure to pay the time and savings deposits would constitute
a violation of RPC 315, paragraph 1(b), any incipient criminal liability was deemed
avoided. When NSLA was placed under receivership, Guingona and Martin assumed the
obligation to David, thereby resulting in the novation of the original contractual obligation.
The original trust relation between NSLA and David was converted into an ordinary
debtor-creditor relation between the petitioners and David. While it is true that novation
does not extinguish criminal liability, it may prevent the rise of criminal liability as long as
it occurs prior to the filing of the criminal information in court.

c. ASSOCIATED BANK (Now WESTMONT BANK), petitioner, vs. VICENTE

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

FACTS:
Respondent Tan is a businessman and a regular depositor-creditor of the
petitioner, Associated Bank. Sometime in September 1990, he deposited a
 postdated check with the petitioner in the amount of P101,000 issued to him by a
certain Willy Cheng from Tarlac. The check was duly entered in his bank record.
Allegedly, upon advice and instruction of petitioner that theP101,000 check was
already cleared and backed up by sufficient funds, respondent, on the same
date, withdrew the sum of P240,000 from his account leaving a balance of
P57,793.45. A day after, TAN deposited the amount of P50,000 making his
existing balance in the amount of P107,793.45, because he has issued several
checks to his business partners. However, his suppliers and business partners
went back to him alleging that the checks he issued bounced for insufficiency of
funds. Thereafter, respondent informed petitioner to take positive steps regarding
the matter for he has adequate and sufficient funds to pay the amount of the
subject checks. Nonetheless, petitioner did not bother nor offer any apology
regarding the incident. Respondent Tan filed a Complaint for Damages on
December 19, 1990, with the RTC against petitioner. The trial court rendered a
decision in favor of respondent and ordered petitioner to pay damages and
attorneys fees. Appellate court affirmed the lower courts decision. CA ruled
that the bank should not have authorized the withdrawal of the value of the
deposited check prior to its clearing. Petitioner filed a Petition for Review before
the Supreme Court.
ISSUE:
W/N petitioner has the right to debit the amount of the dishonored check from the
account of respondent on the ground that the check was withdrawn by
respondent prior to its clearing
HELD:
The Petition has no merit.
The real issue here is not so much the right of petitioner to debit respondents
account but, rather, the manner in which it exercised such right. Banks are
granted by law the right to debit the value of a dishonored check from a
depositors account but they must do so with the highest degree of care, so as
not to prejudice the depositor unduly. 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 this case, petitioner did not
treat respondents account with the highest degree of care. Respondent
withdrew his money upon the advice of petitioner that his money was already
cleared. It is petitioners premature authorization of the withdrawal that caused
the respondents account balance to fall to insufficient levels, and the subsequent
dishonor of his own checks for lack of funds.

d. CENTRAL BANK OF THE PHILIPPINES as Liquidator of the FIDELITY

SAVINGS BANK,petitioner, vs. HONORABLE JUDGE JESUS P. MORFE, as
Presiding Judge of Branch XIII, Court of First Instance of Manila, Spouses
AUGUSTO and ADELAIDA PADILLA and Spouses MARCELA and JOB
ELIZES, respondents No. L-38427, March 12, 1975
Ponente: Aquino, J.
Facts
On February 18, 1969 the Monetary Board found the Fidelity Savings Bank to be
insolvent. The Board directed the Superintendent of Banks to take charge of its
assets and forbade it to do business. On December 9, 1969, the Board resolved
to seek the courts assistance and supervision in the liquidation of the bank. The
resolution was implemented only on January 25, 1972 when the Central Bank of
the Philippines filed the corresponding petition for assistance and supervision in
the CFI of Manila.

Prior to the institution of the liquidation proceeding but after the declaration of
insolvency, the spouses Job Elizes and Marcela Elizes filed a complaint in the
CFI of Manila against the Fidelity Savings Bank for the recovery of the balance of
their time deposits, which was granted by that court. In another case, the
spouses Augusto Padilla and Adelaida Padilla secured a judgment against the
Fidelity Savings Bank for the balance of their time deposits plus interests.

The lower court, upon motion of the Elizes and Padilla spouses and over the
opposition of the Central Bank, directed the latter, as liquidator, to pay their time
deposits as preferred credits, evidenced by the final judgments, within the
meaning of Article 2244 (14) (b) of the Civil Code, if there are enough funds in
the liquidators custody in excess of the creditors more preferred. The Central
Bank appealed, contending that the Elizes and Padilla spouses do not enjoy any
preference because: (a) they were rendered after the Fidelity Savings Bank was
declared insolvent, and (2) under the charter of the Central Bank and the General
Banking Law, no final judgment can be validly obtained against an insolvent
bank.

Issue
Whether or not a final judgment for the payment of a time deposit in a savings
bank, which judgment was obtained after the bank was declared insolvent, is a
preferred claim against the bank

Held
NO. It should be noted that fixed, savings, and current deposits of money in
banks and similar institutions are not true deposits. They are considered simple
loans and, as such, are not preferred credits. One purpose in prohibiting the
insolvent bank from doing business is to prevent so9 8me depositors from having
an undue or fraudulent preference over other creditors and depositors. That
purpose would be nullified if, as in this case, after the bank is declared insolvent,
suits by some depositors could be maintained and judgments would be rendered
for the payment of their deposits and then such judgments would be considered
preferred credits under Article 2244 (14)(b) of the Civil Code. We are of the
opinion that such judgments cannot be considered preferred and that Article
 2244 (14)(b) does not apply to such judgments for the payment of the deposits in
an insolvent savings bank which were obtained after the declaration of
insolvency. Considering that the deposits in question, in their inception, were not
preferred credits, it does not seem logical and just that they should be raised to
the category of preferred credits simply because the depositors, taking
advantage of the long interval between the declaration of insolvency and the
filing of the petition for judicial assistance and supervision, were able to secure
judgments for the payment of their time deposits. The lower courts orders are
reversed and set aside.

B. Secrecy of Bank Deposits

a. PHILIPPINE NATIONAL BANK, and EDUARDO Z. ROMUALDEZ, in his
capacity as President of the Philippine National Bank, plaintiffs-appellants,
vs. EMILIO A. GANCAYCO, and FLORENTINO FLOR, Special Prosecutors
of the Dept. of Justice, defendants-appellees.

G.R. No. L-18343 September 30, 1965

FACTS:
Defendants Emilio Gancayco and Florentino Flor, as special prosecutors of the
Department of Justice, required the plaintiff Philippine National Bank to produce
at a hearing the records of the bank deposits of Ernesto Jimenez, former
administrator of the Agricultural Credit and Cooperative Administration, who was
then under investigation for unexplained wealth. In declining to reveal its records,
the plaintiff bank invoked Section 2 of Republic Act No. 1405.

On the other hand, the defendants cited Section 8 of the Anti-Graft and Corrupt
Practices Act (Republic Act No. 3019) in support of their claim of authority,which
allegedly provides an additional ground for the examination of bank deposits.

ISSUE:
Whether Section 8 of Republic Act No. 3019 provides an additional ground for
the examination of bank deposits.

HELD:
Yes. The truth is that these laws are so repugnant to each other than no
reconciliation is possible. x x x. The only conclusion possible is that section 8 of
the Anti-Graft Law is intended to amend section 2 of Republic Act No. 1405 by
providing additional exception to the rule against the disclosure of bank deposits.

x x x [W]hile section 2 of Republic Act 1405 declares bank deposits to be

"absolutely confidential," it nevertheless allows such disclosure in the following
instances:
(1) Upon written permission of the depositor;
(2) In cases of impeachment;
(3) Upon order of a competent court in cases of bribery or dereliction of duty of
public officials;
(4) In cases where the money deposited is the subject matter of the litigation.
Cases of unexplained wealth are similar to cases of bribery or dereliction of duty
x x x.

b. BSB GROUP, INC., represented by its President, Mr. RICARDO BANGAYAN,

plaintiff-appellee,vs. SALLY GO a.k.a. SALLY GO-BANGAYAN, accused-
appellant.

G.R. No. 168644 | February 16, 2010 | PERALTA, J.

Short Title: BSB Group, Inc v Go

FACTS: Petitioner BSB Group, Inc. is a duly organized domestic corporation presided by
its representative, Ricardo Bangayan (Bangayan). Respondent Sally Go is Bangayans
wife who was employed in the company as a cashier, and was engaged, among others,
to receive and account for the payments made by the various customers of the
company.

In 2002, Bangayan filed with the Manila Prosecutor Office a complaint for estafa and/or
qualified theft against respondent, alleging that several checks representing the
aggregate amount of P1,534,135.50 issued by the company customers were, instead of
being turned over to the company coffers, indorsed by respondent who deposited the
same to her personal banking account maintained at Security Bank and Trust Company
(Security Bank) in Divisoria Branch.

Respondent was charged before the RTC Manila for grave abuse of confidence being
then employed as cashier, and with intent to gain and without the knowledge and
consent of the owner when she took, stole, and carried away cash money in the total
amount of P1,534,135.50 belonging to BSB GROUP OF COMPANIES represented by
RICARDO BANGAYAN, to the damage and prejudice of said owner in the aforesaid
amount of P1,534,135.50, Philippine currency.

When arraigned, respondent entered a negative plea and the trial ensued. The
prosecution moved for the issuance of subpoena duces tecum /ad testificandum against
the respective managers or records custodians of Security Bank Divisoria Branch, as
well as of the Asian Savings Bank (now Metropolitan Bank & Trust Co. [Metrobank]).
When the trial court granted the motion and issued the corresponding subpoena, the
respondent filed a motion to quash the subpoena noting to the court that there was no
mention made of the said bank account in the complaint-affidavit.

Since Petitioner argued for the relevancy of the Metrobank account as there were two
checks which respondent allegedly deposited with the said bank, respondent filed a
supplemental motion to quash, invoking the absolutely confidential nature of the
Metrobank account under the provisions of Republic Act (R.A.) No. 1405, to which the
trial court did not sustain for lack of merit.

The prosecution then presented Elenita Marasigan (Marasigan), the representative of

Security Bank, to prove that respondent was able to run away with the checks issued to
the company by its customers, endorse the same, and credit the corresponding amounts
to her personal deposit account with Security Bank.

When the subject checks were presented to Marasigan for identification and marking,
respondent filed a Motion to Suppress seeking the exclusion of Marasigan testimony and
accompanying documents on the subject Security Bank account, and invoked in addition
to irrelevancy, the privilege of confidentiality under R.A. No. 1405.

RTC Manila denied the motion filed by respondent Sally Go for the suppression of the
testimonial and documentary evidence relative to a Security Bank account, and denied
reconsideration.

CA reversed and set aside the two orders issued by the RTC Manila.

Hence, this Petition for Review under Rule 45.

ISSUE:
1. WON CA had seriously erred in reversing the assailed orders of the trial court.

2. WON Marasigan's testimony dealing with respondent deposit account with Security
Bank constitutes an unallowable inquiry under R.A. 1405.

RULING:
1. No. The Court of Appeals was correct in reversing the assailed orders of the trial
court.
As the Information in this case accuses respondent of having stolen cash, proof tending
to establish that respondent has actualized her criminal intent by indorsing the checks
and depositing the proceeds thereof in her personal account, becomes not only
irrelevant but also immaterial and, on that score, inadmissible in evidence.

2. No. Marasigan's testimony is not an allowable inquiry under RA1405. While the
fundamental law has not bothered with the triviality of specifically addressing privacy
rights relative to banking accounts, there, nevertheless, exists in our jurisdiction a
legitimate expectation of privacy governing such accounts. The source of this right of
expectation is statutory, and it is found in R.A. No. 1405, otherwise known as the Bank
Secrecy Act of 1955.
Should there be doubts in upholding the absolutely confidential nature of bank deposits
against affirming the authority to inquire into such accounts, then such doubts must be
resolved in favor of the former. This attitude persists unless congress lifts its finger to
reverse the general state policy respecting the absolutely confidential nature of bank
deposits.
R.A. No. 1405 has two allied purposes. It hopes to discourage private hoarding and at
the same time encourage the people to deposit their money in banking institutions, so
that it may be utilized by way of authorized loans and thereby assist in economic
development. Owing to this piece of legislation, the confidentiality of bank deposits
remains to be a basic state policy in the Philippines. Section 2 of the law institutionalized
this policy by characterizing as absolutely confidential in general all deposits of whatever
nature with banks and other financial institutions in the country.

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

Subsequent statutory enactments have expanded the list of exceptions to this policy yet
the secrecy of bank deposits still lies as the general rule, falling as it does within the
legally recognized zones of privacy. There is, in fact, much disfavor to construing these
primary and supplemental exceptions in a manner that would authorize unbridled
discretion, whether governmental or otherwise, in utilizing these exceptions as authority
for unwarranted inquiry into bank accounts. It is then perceivable that the present legal
order is obliged to conserve the absolutely confidential nature of bank deposits.

The admission of testimonial and documentary evidence relative to respondent Security

Bank account serves no other purpose than to establish the existence of such account,
 its nature and the amount kept in it. It constitutes an attempt by the prosecution at an
impermissible inquiry into a bank deposit account the privacy and confidentiality of which
is protected by law.
In any given jurisdiction where the right of privacy extends its scope to include an
individuals financial privacy rights and personal financial matters, there is an
intermediate or heightened scrutiny given by courts and legislators to laws infringing
such rights. Should there be doubts in upholding the absolutely confidential nature of
bank deposits against affirming the authority to inquire into such accounts, then such
doubts must be resolved in favor of the former. This attitude persists unless congress
lifts its finger to reverse the general state policy respecting the absolutely confidential
nature of bank deposits.

WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R.
SP No. 87600 dated April 20, 2005, reversing the September 13, 2004 and November 5,
2004 Orders of the Regional Trial Court of Manila, Branch 36 in Criminal Case No. 02-
202158, is AFFIRMED.

c. REPUBLIC OF THE PHILIPPINES, Represented by THE ANTI-MONEY

LAUNDERING COUNCIL (AMLC), petitioner, vs. HON. ANTONIO M.
EUGENIO, JR., AS PRESIDING JUDGE OF RTC, MANILA, BRANCH 34,
PANTALEON ALVAREZ and LILIA CHENG, respondents.

Sec. 2 of the Bank Secrecy Act itself prescribes exceptions whereby these bank
accounts may be examined by any person, government official, bureau or offial;
namely when: (1) upon written permission of the depositor; (2) in cases of
impeachment; (3) the examination of bank accounts is upon order of a competent
court in cases of bribery or dereliction of duty of public officials; and (4) the money
deposited or invested is the subject matter of the litigation. Section 8 of R.A. Act No.
3019, the Anti-Graft and Corrupt Practices Act, has been recognized by this Court as
constituting an additional exception to the rule of absolute confidentiality, and there
have been other similar recognitions as well.[

Facts: Under the authority granted by the Resolution, the AMLC filed an application to
inquire into or examine the deposits or investments of Alvarez, Trinidad, Liongson and
Cheng Yong before the RTC of Makati, Branch 138, presided by Judge (now Court of
Appeals Justice) Sixto Marella, Jr. The application was docketed as AMLC No. 05-005. 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.[14] Thereafter, on 4 July
2005, the Makati RTC rendered an Order (Makati RTC bank inquiry order) granting the
AMLC the authority to inquire and examine the subject bank accounts of Alvarez, Trinidad,
Liongson and Cheng Yong, the trial court being satisfied that there existed p]robable cause
[to] believe that the deposits in various bank accounts, details of which appear in paragraph
1 of the Application, are related to the offense of violation of Anti-Graft and Corrupt
Practices Act now the subject of criminal prosecution before the Sandiganbayan as attested
to by the Informations, Exhibits C, D, E, F, and G Pursuant to the Makati RTC bank inquiry
order, the CIS proceeded to inquire and examine the deposits, investments and related web
accounts of the four.[16]

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

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

Held: Any exception to the rule of absolute confidentiality must be specifically legislated.
Section 2 of the Bank Secrecy Act itself prescribes exceptions whereby these bank
accounts may be examined by any person, government official, bureau or offial; namely
when: (1) upon written permission of the depositor; (2) in cases of impeachment; (3) the
examination of bank accounts is upon order of a competent court in cases of bribery or
dereliction of duty of public officials; and (4) the money deposited or invested is the subject
matter of the litigation. Section 8 of R.A. Act No. 3019, the Anti-Graft and Corrupt Practices
Act, has been recognized by this Court as constituting an additional exception to the rule of
absolute confidentiality, and there have been other similar recognitions as well.

The AMLA also provides exceptions to the Bank Secrecy Act. Under Section 11, the AMLC
may inquire into a bank account upon order of any competent court in cases of violation of
the AMLA, it having been established that there is probable cause that the deposits or
investments are related to unlawful activities as defined in Section 3(i) of the law, or a
money laundering offense under Section 4 thereof. Further, in instances where there is
probable cause that the deposits or investments are related to kidnapping for
ransom,[certain violations of the Comprehensive Dangerous Drugs Act of 2002,hijacking
and other violations under R.A. No. 6235, destructive arson and murder, then there is no
need for the AMLC to obtain a court order before it could inquire into such accounts. It
cannot be successfully argued the proceedings relating to the bank inquiry order under
Section 11 of the AMLA is a litigation encompassed in one of the exceptions to the Bank
Secrecy Act which is when money deposited or invested is the subject matter of the
litigation. The orientation of the bank inquiry order is simply to serve as a provisional relief
or remedy. As earlier stated, the application for such does not entail a full-blown trial.
Nevertheless, just because the AMLA establishes additional exceptions to the Bank
Secrecy Act it does not mean that the later law has dispensed with the general principle
established in the older law that all deposits of whatever nature with banks or banking
institutions in the Philippines x x x are hereby considered as of an absolutely confidential
nature. Indeed, by force of statute, all bank deposits are absolutely confidential, and that
nature is unaltered even by the legislated exceptions referred to above.

C. G.R. No. 189206 June 8, 2011 GOVERNMENT SERVICE INSURANCE SYSTEM,

Petitioner,vs.THE HONORABLE 15th DIVISION OF THE COURT OF APPEALS and
INDUSTRIAL BANK OF KOREA,TONG YANG MERCHANT BANK, HANAREUM
BANKING CORP., LAND BANK OF THE PHILIPPINES,WESTMONT BANK and
DOMSAT HOLDINGS, INC.,

Respondents.

FACTS:On December 13, 1996, a surety bond was agreed with DOMSAT HOLDINGS,
INC. as the principal and the GSIS as administrator and the obligees are Land Bank
of the Philippines, Tong Yang Merchant Bank, Industrial Bank of Korea and First
Merchant Banking Corporation collectively known as The Banks with
the loan granted to DOMSAT of US $ 11,000,000.00 to be used for the financing of the
two-year lease of aRussian Satellite from INTERSPUTNIK.Domsat failed to pay the
loan and GSIS refused to comply with its obligation reasoning that Domsat didnot use
the loan proceeds for the payment of rental for the satellite. GSIS alleged that Domsat,
with WestmontBank as the conduit, transferred the U.S. $11 Million loan proceeds from
the Industrial Bank of Korea toCitibank New York account of Westmont Bank and from
there to the Binondo Branch of Westmont Bank. TheBanks filed a complaint before the
RTC of Makati against Domsat and GSIS.GSIS requested for the issuance of a
subpoena duces tecum to the custodian of records of WestmontBank to produce bank
ledger covering the account of Domsat with the Westmont Bank (now United
OverseasBank) and other pertinent documents. The RTC issued the subpoena but
nonetheless, the RTC then granted
the second motion for reconsideration by The Banks to quash the subpoena granted
to GSIS.
GSIS assailed its case to the CA and CA partially granted its petition allowing it to look
into documents
but not the bank ledger because the US $ 11,000,000.00 deposited by Domsat to
Westmont Bank is coveredby R.A. 6426 or the Bank Secrecy Law.GSIS now filed a
petition for certiorari in the Supreme Court for the decision of CA allowing the quashalby
the RTC of a subpoena for the production of bank ledger.
ISSUE:
Whether or not the deposited US $ 11,000,000.00 by Domsat, Inc. to Westmont Bank is
covered by R.A. 6426
as what The Banks contend or it is covered by R.A. 1405 as what GSIS contends.

RULING:
The Supreme Court ruled in favor of R.A. 6426 and thereby AFFIRMING the decision of
Court of Appeals.R.A. 1405 was enacted on 1955 while R.A. 6426 was enacted on
1974. These two laws both support theconfidentiality of bank deposits. There is no
conflict between them. Republic Act No. 1405 was enacted for thepurpose of giving
encouragement to the people to deposit their money in banking institutions and to
discourageprivate hoarding so that the same may be properly utilized by banks in
authorized loans to assist in theeconomic development of the country. It covers all bank
deposits in the Philippines and no distinction wasmade between domestic and foreign
deposits. Thus, Republic Act No. 1405 is considered a law of generalapplication. On the
other hand, Republic Act No. 6426 was intended to encourage deposits from
foreignlenders and investors. It is a special law designed especially for foreign currency
deposits in the Philippines. Ageneral law does not nullify a specific or special law.
Generalia specialibus non derogant. Therefore, it isbeyond cavil that Republic Act No.
6426 applies in this case.Intengan v. Court of Appeals affirmed the above-cited principle
and categorically declared that for foreigncurrency deposits, such as U.S. dollar
deposits, the applicable law is Republic Act No. 6426.In said case, Citibank filed an
action against its officers for persuading their clients to transfer their dollar deposits to
competitor banks. Bank records, including dollar deposits of petitioners, purporting to
establish thedeception practiced by the officers, were annexed to the complaint.
Petitioners now complained that Citibankviolated Republic Act No. 1405. Supreme
Court ruled that since the accounts in question are U.S. dollar deposits, the applicable
law therefore is not Republic Act No. 1405 but Republic Act No. 6426.

d. [G.R. No. 128996. February 15, 2002.] CARMEN LL. INTENGAN, ROSARIO
LL. NERI, and RITA P. BRAWNER, petitioners, vs. COURT OF APPEALS,
DEPARTMENT OF JUSTICE, AZIZ RAJKOTWALA, WILLIAM FERGUSON,
JOVEN REYES, and VIC LIM,respondents.
G.R. No. 128996
February 15, 2002

Facts:
On September 21, 1993, Citibank filed a complaint for violation of section 31 in relation to
section 144 of the Corporation Code against two (2) of its officers, Dante L. Santos and Marilou
Genuino. Attached to the complaint was an affidavit executed by private respondent Vic Lim, a
vice-president of Citibank

As evidence, Lim annexed bank records purporting to establish the deception practiced by
Santos and Genuino. Some of the documents pertained to the dollar deposits of petitioners
Carmen Ll. Intengan, Rosario Ll. Neri, and Rita P. Brawner.

In turn, private respondent Joven Reyes, vice-president/business manager of the Global

Consumer Banking Group of Citibank, admits to having authorized Lim to state the names of the
clients involved and to attach the pertinent bank records, including those of petitioners.

Petitioners aver that respondents violated RA 1405.

Issue:

Whether or not Respondents are liable for violation of Secrecy of Bank Deposits Act, RA 1405.

Held:

No. The accounts in question are U.S. dollar deposits; consequently, the applicable law is not
Republic Act No. 1405 but Republic Act (RA) No. 6426, known as the Foreign Currency
Deposit Act of the Philippines, However, applying Act No. 3326, the offense prescribes in eight
years, therefore, peravailable records, private respondents may no longer be haled before the
courts for violation of Republic Act No. 6426.

C. Foreclosure of REM
a. [G.R. No. L-45710. October 3, 1985.] CENTRAL BANK OF THE PHILIPPINES
and ACTING DIRECTOR ANTONIO T. CASTRO, JR. OF THE DEPARTMENT
OF COMMERCIAL AND SAVINGS BANK, in his capacity as statutory
receiver of Island Savings Bank,petitioners, vs. THE HONORABLE COURT
OF APPEALS and SULPICIO M. TOLENTINO, respondents.

The banks asking for advance interest for the loan is improper considering that the total
loan hasnt been released. A person cant be charged interest for nonexisting debt. The
alleged discovery by the bank of overvaluation of the loan collateral is not an issue.
Since Island Savings Bank failed to furnish the P63,000.00 balance of the P80,000.00
loan, the real estate mortgage of Sulpicio M. Tolentino became unenforceable to such
extent.

Facts: Island Savings Bank, upon favorable recommendation of its legal department, approved
the loan application for P80,000.00 of Sulpicio M. Tolentino, who, as a security for the loan,
executed on the same day a real estate mortgage over his 100-hectare land located in Cubo,
Las Nieves, Agusan. The loan called for a lump sum of P80,000, repayable in semi-annual
installments for 3 yrs, with 12% annual interest. After the agreement, a mere P17K partial
release of the loan was made by the bank and Tolentino and his wife signed a promissory note
for the P17,000 at 12% annual interest payable w/in 3 yrs. An advance interest was deducted fr
the partial release but this prededucted interest was refunded to Tolentino after being informed
that there was no fund yet for the release of the P63K balance.

Monetary Board of Central Bank, after finding that bank was suffering liquidity problems,
prohibited the bank fr making new loans and investments. And after the bank failed to restore its
solvency, the Central Bank prohibited Island Savings Bank from doing business in the
Philippines. Island Savings Bank in view of the non-payment of the P17K filed an application for
foreclosure of the real estate mortgage. Tolentino filed petition for specific performance or
rescission and damages with preliminary injunction, alleging that since the bank failed to deliver
P63K, he is entitled to specific performance and if not, to rescind the real estate mortgage.

Issues: 1) Whether or not Tolentinos can collect from the bank for damages

2) Whether or not the mortgagor is liable to pay the amount covered by the promissory
note

3) Whether or not the real estate mortgage can be foreclosed

Held:

1) Whether or not Tolentinos can collect from the bank for damages

The loan agreement implied reciprocal obligations. When one party is willing and ready to
perform, the other party not ready nor willing incurs in delay. When Tolentino executed real
estate mortgage, he signified willingness to pay. That time, the banks obligation to furnish the
P80K loan accrued. Now, the Central Bank resolution made it impossible for the bank to furnish
the P63K balance. The prohibition on the bank to make new loans is irrelevant bec it did not
prohibit the bank fr releasing the balance of loans previously contracted. Insolvency of debtor is
not an excuse for non-fulfillment of obligation but is a breach of contract.

The banks asking for advance interest for the loan is improper considering that the total loan
hasnt been released. A person cant be charged interest for nonexisting debt. The alleged
discovery by the bank of overvaluation of the loan collateral is not an issue. The bank officials
should have been more responsible and the bank bears risk in case the collateral turned out to
be overvalued. Furthermore, this was not raised in the pleadings so this issue cant be raised.
The bank was in default and Tolentino may choose bet specific performance or rescission w/
damages in either case. But considering that the bank is now prohibited fr doing business,
specific performance cannot be granted. Rescission is the only remedy left, but the rescission
shld only be for the P63K balance.

2) Whether or not the mortgagor is liable to pay the amount covered by the promissory note

The promissory note gave rise to Sulpicio M. Tolentinos reciprocal obligation to pay the
P17,000.00 loan when it falls due. His failure to pay the overdue amortizations under the
promissory note made him a party in default, hence not entitled to rescission (Article 1191 of the
Civil Code). If there is a right to rescind the promissory note, it shall belong to the aggrieved
party, that is, Island Savings Bank. If Tolentino had not signed a promissory note setting the
date for payment of P17,000.00 within 3 years, he would be entitled to ask for rescission of the
entire loan because he cannot possibly be in default as there was no date for him to perform his
reciprocal obligation to pay. Since both parties were in default in the performance of their
respective reciprocal obligations, that is, Island Savings Bank failed to comply with its obligation
to furnish the entire loan and Sulpicio M. Tolentino failed to comply with his obligation to pay his
P17,000.00 debt within 3 years as stipulated, they are both liable for damages.

3) Whether or not the real estate mortgage can be foreclosed

Since Island Savings Bank failed to furnish the P63,000.00 balance of the P80,000.00 loan,
the real estate mortgage of Sulpicio M. Tolentino became unenforceable to such extent.
P63,000.00 is 78.75% of P80,000.00, hence the real estate mortgage covering 100 hectares is
unenforceable to the extent of 78.75 hectares. The mortgage covering the remainder of 21.25
hectares subsists as a security for the P17,000.00 debt. 21.25 hectares is more than sufficient
to secure a P17,000.00 debt.

b. [G.R. No. 150197. July 28, 2005.] PRUDENTIAL BANK, petitioner, vs. DON A.
ALVIAR and GEORGIA B. ALVIAR, respondents.

PRUDENTIAL BANK VS ALVIAR

Doctrine:
The dragnet clause in the first security instrument constituted a continuing offer
by the borrower to secure further loans under the security of the first security
instrument, and that when the lender accepted a different security he did not
accept the first offer.

Facts:
 Spouses Alviar are the registered owners of a parcel of land in San Juan,
Metro Manila
They executed a deed of real estate mortgage of the said property in favor
of petitioner Prudential Bank to secure the payment of a loan worth P250,000.00.
(PN BD#75/C-252) was then issued covering the said loan, which provides that
the loan matured on 4 August 1976 at an interest rate of 12% per annum with a
2% service charge, and that the note is secured by a real estate mortgage as
aforementioned with a blanket mortgage clause or the dragnet clause.
The spouses thereafter issued other promissory notes (PN):
o PN BD#76/C-345 for P2,640,000.00, secured by D/A SFDX #129, signifying
that the loan was secured by a hold-out on the mortgagors foreign currency
savings account with the bank under Account No. 129
o In the name of Donalco Trading, Inc., PN BD#76/C-430 covering
P545,000.000 to be secured by Clean-Phase out TOD CA 3923. Bank also
mentioned in their approval letter that additional securities for the loan were the
deed of assignment on two PNs executed by Bancom Realtyand the chattel
mortgage on various heavy and transportation equipment.

SpousedAlviarpaid petitioner P2,000,000.00, to be applied to the

obligations of G.B. Alviar Realty and Development, Inc. and for the release of the
real estate mortgage for the P450,000.00 loan covering the two (2) lots in San
Juan, Metro Manila. The payment was acknowledged by petitioner who
accordingly released the mortgage over the two properties

Prudential Bank moved for the extrajudicial foreclosure of the mortgage on

the property since respondents had the total obligation of P1,608,256.68,
covering the three (3) promissory notes.

Respondents then filed a complaint for damages with a prayer for the
issuance of a writ of preliminary injunction with the RTC of Pasig, [11] claiming that
they have paid their principal loan secured by the mortgaged property, and thus
the mortgage should not be foreclosed

RTC, on its final decision, favored respondents saying that the extrajudicial
foreclosure was improper for the mortgage only covers the first loan of P250,000

CA affirmed the decision of the RTC

Issue:WON real estate mortgage secures only the first loan of P250,000.

Held:Yes.While the existence and validity of the dragnet clause cannot be

denied, there is a need to respect the existence of the other securities given for
the two other promissory notes. The foreclosure of the mortgaged property
should only then be for theP250,000.00 loan covered by PN BD#75/C-252, and
for any amount not covered by the security for the second promissory note.

Petitioner and respondents intended the real estate mortgage to secure not only
the P250,000.00 loan from the petitioner, but also future credit facilities and
advancements that may be obtained by the respondents. However, the
subsequent loans obtained by respondents were secured by other securities.

When the mortgagor takes another loan for which another security was given it
could not be inferred that such loan was made in reliance solely on the original
security with the dragnet clause, but rather, on the new security given. This is
the reliance on the security test.

If the parties intended that the blanket mortgage clause shall cover subsequent
advancement secured by separate securities, then the same should have been
indicated in the mortgage contract. This ambiguity shall be interpreted strictly
against petitioner for having drafted the same.

Petitioner, however, is not without recourse. Both the lower courts found that
respondents have not yet paid the P250,000.00. Thus, the mortgaged property
could still be properly subjected to foreclosure proceedings for the unpaid
P250,000.00 loan, and as mentioned earlier, for any deficiency after D/A
SFDX#129, security for PN BD#76/C-345, has been exhausted, subject of
course to defenses which are available to respondents.

Petition is DENIED. CA affirmed.

c. [G.R. No. 170785. October 19, 2007.] REPUBLIC PLANTERS BANK (now
known as MAYBANK PHILIPPINES, INC.) and PHILMAY PROPERTY,
INC.,petitioners, vs. VIVENCIO T. SARMIENTO, JESUSA N. SARMIENTO,
JOSE N. SARMIENTO AND ELIZABETH B. SARMIENTO, respondents
d. [G.R. No. 179063. October 23, 2009.]

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. UNITED COCONUT

PLANTERS BANK, respondent.

SECOND DIVISION

COMMISSIONER OF INTERNAL G.R. No. 179063

REVENUE,
Petitioner, Present:
Quisumbing, J., Chairperson,
- versus - Carpio,*
Carpio Morales,
Bersamin,** and
Abad, JJ.
UNITED COCONUT PLANTERS
BANK, Promulgated:
Respondent.
October 23, 2009
x ---------------------------------------------------------------------------------------- x
DECISION
ABAD, J.:
This is an action involving a disputed assessment for deficiencies in the payment of
creditable withholding tax and documentary stamps tax due from a foreclosure sale.
The Facts and the Case

Respondent United Coconut Planters Bank (UCPB) granted loans of P68,840,000.00

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

On January 4, 2002 the notary public submitted the Certificate of Sale to the Executive
Judge of Regional Trial Court (RTC) of Manila for his approval.[1] But, on February 18,
2002 the executive judge returned it with instruction to the notary public to explain an
inconsistency in the tax declaration of one mortgaged property. The executive judge
further ordered the notary public to show proof of payment of the Sheriffs percentage of
the bid price.[2] The notary public complied.[3] On March 1, 2002 the executive judge
finally signed the certificate of sale and approved its issuance to UCPB as the highest
bidder.[4]

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

Petitioner Commissioner of Internal Revenue (CIR), however, charged UCPB with late
payment of the corresponding DST and CWT, citing Section 2.58 of Revenue Regulation
2-98, which stated that the CWT must be paid within 10 days after the end of each
month, and Section 5 of Revenue Regulation 06-01, which required payment of DST
within five days after the close of the month when the taxable document was made,
signed, accepted or transferred. These taxes accrued upon the lapse of the redemption
period of the mortgaged properties. The CIR pointed out that the mortgagor, a juridical
person, had three months after foreclosure within which to redeem the properties.[5]

The CIR theorized that the three-month redemption period was to be counted from the
date of the foreclosure sale. Here, he said, the redemption period lapsed three months
from December 31, 2001 or on March 31, 2002. Thus, UCPB was in default for having
paid the CWT and DST only on July 5, 2002. For this reason the CIR issued a Pre-
Assessment Notice[6] and, subsequently, a Final Assessment Notice[7] to UCPB for
deficiency CWT of P8,617,210.00 and deficiency DST of P2,173,051.75.

UCPB protested the assessment. It claimed that the redemption period lapsed on June
1, 2002 or three months after the executive judge of Manila approved the issuance of the
certificate of sale. Foreclosure under Section 47 of the General Banking Law, said
UCPB, referred to the date of approval by the executive judge, and not the date of the
auction sale. But the CIR denied UCPBs protest, prompting UCPB to file a petition for
review with the CTA in CTA Case 7164.

On July 26, 2006 the CTA Second Division set aside the decision of the CIR and held
that the redemption period lapsed three months after the executive judge approved the
certificate of sale. It said that foreclosure under the law referred to the whole process of
foreclosure which included the approval and issuance of the certificate of sale. There
was no sale to speak of which could be taxed prior to such approval and issuance. Since
the executive judge approved the issuance only on March 1, 2002, the redemption
period expired on June 1, 2002. Hence, UCPBs payments of CWT and DST in early July
were well within the prescribed period. On appeal to the CTA En Banc in CTA EB 234,
the latter affirmed the decision of the Second Division on June 5, 2007. With the denial
of its motion for reconsideration, petitioner has taken recourse to this Court via a petition
for review on certiorari
Issue
The key issue in this case is whether or not the three-month redemption period for
juridical persons should be reckoned from the date of the auction sale.
Ruling
The CIR argues that he has the more reasonable position: the redemption period should
be reckoned from the date of the auction sale for, otherwise, the taxing authority would
be left at the mercy of the executive judge who may unnecessarily delay the approval of
the certificate of sale and thus prevent the early payment of taxes.

But the Supreme Court had occasion under its resolution in Administrative Matter 99-10-
05-0[8] to rule that the certificate of sale shall issue only upon approval of the executive
judge who must, in the interest of fairness, first determine that the requirements for
extrajudicial foreclosures have been strictly followed. For instance, in United Coconut
Planters Bank v. Yap,[9] this Court sustained a judges resolution requiring payment of
notarial commission as a condition for the issuance of the certificate of sale to the
highest bidder.

Here, the executive judge approved the issuance of the certificate of sale to UCPB on
March 1, 2002. Consequently, the three-month redemption period ended only on June 1,
2002. Only on this date then did the deadline for payment of CWT and DST on the
extrajudicial foreclosure sale become due.

Under Section 2.58 of Revenue Regulation 2-98, the CWT return and payment become
due within 10 days after the end of each month, except for taxes withheld for the month
of December of each year, which shall be filed on or before January 15 of the following
year. On the other hand, under Section 5 of Revenue Regulation 06-01, the DST return
and payment become due within five days after the close of the month when the taxable
document was made, signed, accepted, or transferred.

The BIR confirmed and summarized the above provisions under Revenue Memorandum
Circular 58-2008 in this manner:

[I]f the property is an ordinary asset of the mortgagor, the creditable expanded
withholding tax shall be due and paid within ten (10) days following the end of the month
in which the redemption period expires. x x x Moreover, the payment of the documentary
stamp tax and the filing of the return thereof shall have to be made within five (5) days
from the end of the month when the redemption period expires.

UCPB had, therefore, until July 10, 2002 to pay the CWT and July 5, 2002 to pay the
DST. Since it paid both taxes on July 5, 2002, it is not liable for deficiencies.Thus, the
Court finds no reason to reverse the decision of the CTA.
Besides, on August 15, 2008, the Bureau of Internal Revenue issued Revenue
Memorandum Circular 58-2008 [10] which clarified among others, the time within which
to reckon the redemption period of real estate mortgages. It reads:

For purposes of reckoning the one-year redemption period in the case of individual
mortgagors, or the three-month redemption period for juridical persons/mortgagors, the
same shall be reckoned from the date of the confirmation of the auction sale which is the
date when the certificate of sale is issued.

The CIR must have in the meantime conceded the unreasonableness of the previous
position it had taken on this matter. WHEREFORE, the petition is DENIED.

SO ORDERED: ROBERTO A. ABAD Associate Justice

WE CONCUR:
LEONARDO A. QUISUMBING
Associate Justice

ANTONIO T. CARPIO CONCHITA CARPIO MORALES

Associate Justice Associate Justice

LUCAS P. BERSAMIN
Associate Justice

ATTESTATION

I attest that the conclusions in the above decision were reached in consultation before
the case was assigned to the writer of the opinion of the Courts Division.

LEONARDO A. QUISUMBING.Associate Justice Chairperson, Second Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairpersons
Attestation, it is hereby certified that the conclusions in the above Decision were reached
in consultation before the case was assigned to the writer of the opinion of the Courts
Division.

REYNATO S. PUNO
Chief Justice

* Designated as additional member in lieu of Associate Justice Mariano C. Del Castillo,

per Special Order No. 757 dated October 12, 2009.
** Designated as additional member in lieu of Associate Justice Arturo D. Brion, per
Special Order No. 765 dated October 21, 2009.
[1] CTA rollo, pp. 43-44.
[2] Id. at 46.
[3] Id. at 47-48.
[4] Id. at 53-58.
[5] Section 47 of the General Banking Law (R.A. 8791) reads:
Section 47. Foreclosure of Real Estate Mortgage.
xxxx
Notwithstanding Act 3135, juridical persons whose property is being sold pursuant to an
extrajudicial foreclosure, shall have the right to redeem the property in accordance with
this provisions until, but not after, the registration of the certificate of foreclosure sale
with the applicable Register of Deeds which in no case shall be more than three months
after foreclosure, whichever is earlier. x x x
[6] CTA rollo, p. 74.
[7] Id. at 31-32.
[8] Re: Procedure in Extrajudicial Foreclosure of Mortgage.
[9] 432 Phil. 536 (2002).
[10] Re: Clarifying the Time Within Which to Reckon the Redemption Period on the
Foreclosed Asset and the Period Within Which to Pay Capital Gains Tax or Creditable
Withholding Tax and Documentary Stamp Tax on the Foreclosure of Real Estate
Mortgage by Those Governed by the General Banking Law of 2000 (Republic Act No.
8791), as Well as the Venue for the Payment of These Taxes, August 15, 2008.

e. [G.R. No. 171169. August 24, 2009.] GC DALTON INDUSTRIES, I., petitioner,
vs. EQUITABLE PCI BANK, respondent.

FIRST DIVISION

GC DALTON INDUSTRIES, INC., G.R. No. 171169

Petitioner,
Present:

PUNO, C.J., Chairperson,

QUISUMBING,*
- v e r s u s - CORONA,
LEONARDO-DE CASTRO and
BERSAMIN, JJ.

EQUITABLE PCI BANK,

Respondent. Promulgated:
August 24, 2009

x--------------------------------------------------x

DECISION
CORONA, J.:

In 1999, respondent Equitable PCI Bank extended a P30-million credit line to

Camden Industries, Inc. (CII) allowing the latter to avail of several loans (covered
by promissory notes) and to purchase trust receipts. To facilitate collection, CII
executed a hold-out agreement in favor of respondent authorizing it to deduct
from its savings account any amounts due. To guarantee payment, petitioner GC
Dalton Industries, Inc. executed a third-party mortgage of its real properties in
Quezon City[1] and Malolos, Bulacan[2] as security for CIIs loans.[3]

CII did not pay its obligations despite respondents demands. By 2003, its
outstanding consolidated promissory notes and unpaid trust receipts had
reached a staggering P68,149,132.40.[4]
Consequently, respondent filed a petition for extrajudicial foreclosure of
petitioners Bulacan properties in the Regional Trial Court (RTC) of Bulacan on
May 7, 2004.[5] On August 3, 2004, the mortgaged properties were sold at a
public auction where respondent was declared the highest bidder. Consequently,
a certificate of sale[6] was issued in respondents favor on August 3, 2004.

On September 13, 2004, respondent filed the certificate of sale and an affidavit of
consolidation of ownership[7] in the Register of Deeds of Bulacan pursuant to
Section 47 of the General Banking Law.[8] Hence, petitioners TCTs covering the
Bulacan properties were cancelled and new ones were issued in the name of
respondent.[9]

In view of the foregoing, respondent filed an ex parte motion for the issuance of a
writ of possession[10] in the RTC Bulacan, Branch 10 on January 10, 2005.[11]

Previously, however, on August 4, 2004, CII had filed an action for specific
performance and damages[12] in the RTC of Pasig, Branch 71 (Pasig RTC),
asserting that it had allegedly paid its obligation in full to respondent.[13] CII
sought to compel respondent to render an accounting in order to prove that the
bank fraudulently foreclosed on petitioners mortgaged properties.
Because respondent allegedly failed to appear during the trial, the Pasig RTC
rendered a decision on March 30, 2005[14] based on the evidence presented by
CII. It found that, while CIIs past due obligation amounted only to P14,426,485.66
as of November 30, 2002, respondent had deducted a total of P108,563,388.06
from CIIs savings account. Thus, the Pasig RTC ordered respondent: (1) to
return to CII the overpayment with legal interest of 12% per annum amounting to
P94,136,902.40; (2) to compensate it for lost profits amounting to P2,000,000 per
month starting August 2004 with legal interest of 12% per annum until full
payment and (3) to return the TCTs covering the mortgaged properties to
petitioner. It likewise awarded CII P2,000,000 and P300,000, respectively, as
moral and exemplary damages and P500,000 as attorneys fees.

Respondent filed a notice of appeal. CII, on the other hand, moved for the
immediate entry and execution of the abovementioned decision.

In an order dated December 7, 2005,[15] the Pasig RTC dismissed respondents

notice of appeal due to its failure to pay the appellate docket fees. It likewise
found respondent guilty of forum-shopping for filing the petition for the issuance
of a writ of possession in the Bulacan RTC. Thus, the Pasig RTC ordered the
immediate entry of its March 30, 2005 decision.[16]

Meanwhile, in view of the pending case in the Pasig RTC, petitioner opposed
respondents ex parte motion for the issuance of a writ of possession in the
Bulacan RTC. It claimed that respondent was guilty of fraud and forum-shopping,
and that it was not informed of the foreclosure. Furthermore, respondent
fraudulently foreclosed on the properties since the Pasig RTC had not yet
determined whether CII indeed failed to pay its obligations.

In an order dated December 10, 2005, the Bulacan RTC granted the motion and
a writ of possession was issued in respondents favor on December 19, 2005.

Petitioner immediately assailed the December 10, 2005 order of the Bulacan
RTC via a petition for certiorari in the Court of Appeals (CA). It claimed that the
order violated Section 14, Article VIII of the Constitution[17] which requires that
every decision must clearly and distinctly state its factual and legal bases. In a
resolution dated January 13, 2006,[18] the CA dismissed the petition for lack of
merit on the ground that an order involving the issuance of a writ of possession is
not a judgment on the merits, hence, not covered by the requirement of Section
14, Article VIII of the Constitution.

Petitioner elevated the matter to this Court, assailing the January 13, 2006
resolution of the CA. It insists that the December 10, 2005 order of the Bulacan
RTC was void as it was bereft of factual and legal bases.

Petitioner likewise cites the conflict between the December 10, 2005 order of the
Bulacan RTC and the December 7, 2005 order of the Pasig RTC. Petitioner
claims that, since the Pasig RTC already ordered the entry of its March 30, 2005
decision (in turn ordering respondent to return TCT No. 351231 and all such
other owners documents of title as may have been placed in its possession by
virtue of the subject trust receipt and loan transactions), the same was already
final and executory. Thus, inasmuch as CII had supposedly paid respondent in
full, it was erroneous for the Bulacan RTC to order the issuance of a writ of
possession to respondent.

Respondent, on the other hand, asserts that petitioner is raising a question of

fact as it essentially assails the propriety of the issuance of the writ of
possession. It likewise points out that petitioner did not truthfully disclose the
status of the March 30, 2005 decision of the Pasig RTC because, in an order
dated April 4, 2006, the Pasig RTC partially reconsidered its December 7, 2005
order and gave due course to respondents notice of appeal. (The propriety of the
said April 4, 2006 order is still pending review in the CA.)

We deny the petition.

The issuance of a writ of possession to a purchaser in an extrajudicial

foreclosure is summary and ministerial in nature as such proceeding is merely an
incident in the transfer of title.[19] The trial court does not exercise discretion in
the issuance thereof.[20] For this reason, an order for the issuance of a writ of
possession is not the judgment on the merits contemplated by Section 14, Article
VIII of the Constitution. Hence, the CA correctly upheld the December 10, 2005
order of the Bulacan RTC.

Furthermore, the mortgagor loses all legal interest over the foreclosed property
after the expiration of the redemption period.[21] Under Section 47 of the General
Banking Law,[22] if the mortgagor is a juridical person, it can exercise the right to
redeem the foreclosed property until, but not after, the registration of the
certificate of foreclosure sale within three months after foreclosure, whichever is
earlier. Thereafter, such mortgagor loses its right of redemption.

Respondent filed the certificate of sale and affidavit of consolidation with the
Register of Deeds of Bulacan on September 13, 2004. This terminated the
redemption period granted by Section 47 of the General Banking Law. Because
consolidation of title becomes a right upon the expiration of the redemption
period,[23] respondent became the owner of the foreclosed properties.[24]
Therefore, when petitioner opposed the ex parte motion for the issuance of the
writ of possession on January 10, 2005 in the Bulacan RTC, it no longer had any
legal interest in the Bulacan properties.

Nevertheless, even if the ownership of the Bulacan properties had already been
consolidated in the name of respondent, petitioner still had, and could have
availed of, the remedy provided in Section 8 of Act 3135.[25] It could have filed a
petition to annul the August 3, 2004 auction sale and to cancel the December 19,
2005 writ of possession,[26] within 30 days after respondent was given
possession.[27] But it did not. Thus, inasmuch as the 30-day period to avail of
the said remedy had already lapsed, petitioner could no longer assail the validity
of the August 3, 2004 sale.

Any question regarding the validity of the mortgage or its foreclosure cannot be a
legal ground for the refusal to issue a writ of possession. Regardless of whether
or not there is a pending suit for the annulment of the mortgage or the
foreclosure itself, the purchaser is entitled to a writ of possession, without
prejudice, of course, to the eventual outcome of the pending annulment case.[28]

Needless to say, petitioner committed a misstep by completely relying and

pinning all its hopes for relief on its complaint for specific performance and
damages in the Pasig RTC,[29] instead of resorting to the remedy of annulment
(of the auction sale and writ of possession) under Section 8 of Act 3135 in the
Bulacan RTC.

WHEREFORE, the petition is hereby DENIED.

Costs against petitioner.

SO ORDERED.

RENATO C. CORONA
Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, I certify that the
conclusions in the above decision had been reached in consultation before the
case was assigned to the writer of the opinion of the Courts Division.

REYNATO S. PUNO
Chief Justice

* Additional member per raffle dated August 17, 2009.

[1] Covered by TCT No. 351231. Rollo, p. 53.
[2] Covered by TCT Nos. T-37150, T-37151 and T-37152. Id., pp. 80-82.
[3] Dated August 16, 1999. Id., pp. 76-79.
[4] Petition for Sale, Annex 1. Id., pp. 196-198.
[5] Docketed as Civil Case No. 47-M-2005.
[6] Id., p. 83.
[7] Id., p. 84.
[8] GENERAL BANKING LAW, Sec. 47 provides:
Section 47. Foreclosure of Real Estate Mortgage. In the event of foreclosure,
whether judicially or extrajudicially, of any mortgage on real estate which is
security for any loan or other credit accommodation granted, the mortgagor or
debtor whose real property has been sold for the full or partial payment of his
obligation shall have the right within one year after the sale of the real estate, to
redeem the property by paying the amount due under the mortgage deed, with
interest thereon at the rate specified in the mortgage, and all the costs and
expenses incurred by the bank or institution from the sale and custody of said
property less the income derived therefrom. However, the purchaser at the
auction sale concerned whether in a judicial or extrajudicial foreclosure shall
have the right to enter upon and take possession of such property immediately
after the date of the confirmation of the auction sale and administer the same in
accordance with law. Any petition in court to enjoin or restrain the conduct of
foreclosure proceedings instituted pursuant to this provision shall be given due
course only upon the filing by the petitioner of a bond in an amount fixed by the
court conditioned that he will pay all the damages which the bank may suffer by
the enjoining or the restraint of the foreclosure proceeding.
Notwithstanding Act 3135, juridical persons whose property is being sold
pursuant to an extrajudicial foreclosure, shall have the right to redeem the
property in accordance with this provision until, but not after, the registration of
the certificate of foreclosure sale with the applicable Register of Deeds which in
no case shall be more than three (3) months after foreclosure, whichever is
earlier. Owners of property that has been sold in a foreclosure sale prior to the
effectivity of this Act shall retain their redemption rights until their expiration.
(emphasis supplied)
[9] Rollo, pp. 85-86. The titles were issued sometime in December 2004.
[10] Docketed as LRC Case No. P-47-2005.
[11] Rollo, pp. 70-73.
[12] Docketed as Civil Case No. 70098.
[13] Rollo, pp. 87-90.
[14] Penned by Judge Celso D. Lavia. Id., pp. 52-60.
[15] Penned by Acting Judge David L. Mirasol. Id., pp. 131-138.
[16] Id.
[17] Constitution, Art. VIII, Sec. 14 provides:
Section 14. No decision shall be rendered by any court without expressing
therein clearly and distinctly the facts and the law on which it is based.
[18] Penned by Associate Justice Marina A. Buzon (retired) and concurred in by
Associate Justices Aurora Santiago-Lagman (retired) and Arcangelita Romilla-
Lontok of the Special Sixteenth Division of the Court of Appeals. Rollo, pp. 23-28.
[19] Spouses Yulienco v. Court of Appeals, 441 Phil. 397, 407 (2002).
[20] Mallari v. Banco Filipino Savings & Mortgage Bank, G.R. No. 157660, 29
August 2008.
[21] Spouses Yulienco v. Court of Appeals, supra note 19 at 406.
[22] Supra note 8.
[23] Tarnate v. Court of Appeals, G.R. No. 100635, 13 February 1995, 241 SCRA
254, 260.
[24] Philippine Commercial International Bank v. Court of Appeals, 398 Phil. 534,
540 (2000).
[25] Section 8. The debtor may, in the proceedings in which possession was
requested, but not later than thirty days after the purchaser was given
possession, petition that the sale be set aside and the writ of possession
cancelled, specifying the damages suffered by him, because the mortgage was
not violated or the sale was not made in accordance with the provisions hereof,
and the court shall take cognizance of this petition in accordance with the
summary procedure provided for in section one hundred and twelve of Act
Numbered Four hundred and ninety-six; and if it finds the complaint of the debtor
justified, it shall dispose in his favor of all or part of the bond furnished by the
person who obtained possession. Either of the parties may appeal from the order
of the judge in accordance with section fourteen of Act Numbered Four hundred
and ninety-six; but the order of possession shall continue in effect during the
pendency of the appeal. (emphasis supplied)
[26] Suico Industrial Corporation v. Court of Appeals, 361 Phil. 160, 170 (1999)
 and Sulit v. Court of Appeals, 335 Phil. 914, 924 (1997).
[27] Supra note 25.
[28] Fernandez v. Espinosa, G.R. No. 156421, 14 April 2008.
[29] Suico Industrial Corporation v. Court of Appeals, supra note 26.

f. [G.R. No. 183987. July 25, 2012.] ASIATRUST DEVELOPMENT BANK,

petitioner, vs. CARMELO H. TUBLE, respondent.

Asiatrust v. Tuble
GR # 183987 | July 25, 2012

Petition:
Petition for Review on Certiorari under Rule 45
Petitioner:
Asia Trust Development Bank
Respondent:
Carmelo H. Tuble

FACTS
- Carmelo H. Tuble, who served as the vice-president of Asiatrust, availed himself of the car
incentive plan and loan privileges of the bank and was also entitled to the Senior Managers
Deferred Incentive Plan (DIP).
- He acquired a Nissan Vanette through the companys car incentive plan. The arrangement was
made to appear as a lease agreement requiring only the payment of monthly rentals and would
be terminated in case of resignation or retirement prior to full payment of the price.-
As regards the loan privileges, Tuble obtained three separate loans.
1. Areal estate loan evidenced by Promissory Note No. 0142 and secured by a mortgage
over his property. No interest on this loan was indicated.
2. Consumption loan, evidenced by Promissory Note No. 0143 and interest at18% per
annum.
3. Tuble allegedly obtained a salary loan.
- Tuble subsequently resigned and was given the option to return the vehicle or retain the unit
and pay its remaining book value.
- In all, Tuble had the following obligations to the bank:
1. the purchase or return of the car;
2. P100K as consumption loan;
3. P400K as real estate loan; and
4. P16K as salary loan.
- In turn, the bank owed Tuble:
1. his pro-rata share in the DIP, which was to be issued after the bank had given the
resigned employees clearance; and
2. His final salary and corresponding 13th month pay.
- Tuble claimed that since he and the bank were debtors and creditors of each other, the
offsetting of loans could legally take place. He then asked the bank to simply compute his DIP
and apply his receivables to his loans.
- Instead of heeding his request, the bank sent a demand letter obliging him to pay his debts. The
bank also required him to return the car.
 - Tuble then wrote the bank again to follow up his request to offset the loans. The letter was not
immediately acted upon but the bank finally allowed the offsetting of his various claims and
liabilities. As a result, his liabilities were reduced plus the unreturned value of the vehicle.
- In order to recover the car, the bank filed a Complaint for replevin against Tuble to which it
obtained a favorable judgment. Then, to collect the liabilities of respondent, it also filed a
Petition for Extra-judicial Foreclosure of real estate mortgage over his property which was based
only on his real estate loan, which at that time amounted to P421,800. His other liabilities to the
bank were excluded. The foreclosure proceedings terminated, with the bank emerging as the
purchaser of the secured property.
- Thereafter, Tuble timely redeemed the property for P1,318,401.91.8 Notably, the redemption
price increased to this figure, because the bank had unilaterally imposed additional interest
and other charges.
- Tuble was deemed to have fully paid his accountabilities. Thus, three years after his payment,
the bank issued him a Clearance necessary for the release of his DIP share. Subsequently, he
received a Managers Check in the amount of P166,049.73 representing his share in the DIP
funds.
- Tuble questioned how the foreclosure basis of P421,800 ballooned toP1,318,401.91 in a matter
of one year. The bank explained that this redemption price included the Nissan Vanettes book
value, the salary loan, car insurance, 18% annual interest on the banks redemption price
ofP421,800, penalty and interest charges on Promissory Note No. 0142 (real estate loan), and
litigation expenses.
- Tuble filed a Complaint for recovery of a sum of money and damages before the RTC. He
specifically sought to collect the excess charges on the redemption price and prayed for moral
and exemplary damages.

RTC:
Ruled in favor of Tuble. The trial court characterized the redemption price as excessive and arbitrary,
because the correct redemption price should not have included the above-mentioned charges. Moral
and exemplary damages were also awarded to him.
As for the 18% annual interest on the bid price, such was unlawful. Act 3135in relation to Section 28 of
Rule 39 of the Rules of Court, only allows the mortgagee to charge an interest of 1% per month in case
of redemption.

CA:
Affirmed the findings of the RTC.-The bank went to the SC reiterating its claims regarding the inclusion
in the redemption price of the 18% annual interest on the bid price and the interest charges on
Promissory Note No. 0142. It emphasizes that an 18% interest rate allegedly referred to in the mortgage
deed is the proper basis of the interest. Pointing to the Real Estate Mortgage Contract, the bank
highlights the blanket security clause or "dragnet clause" that purports to cover all obligations owed by
Tuble.-Promissory Note No. 0142 refers to the real estate loan; it does not contain any stipulation on
interest. On the other hand, Promissory Note No. 0143refers to the consumption loan; it charges an 18%
annual interest rate. The bank uses this latter rate to impose an interest over the bid price ofP421,800.
Further, the bank sees the inclusion in the redemption price of an addition 12% annual interest on
Tubles real estate loan.

ISSUE/S
W/N the dragnet clause therein justify the imposition of an 18% annual interest on the redemption price
RULING & RATIO
NO.
- Through a dragnet clause, a real estate mortgage contract may exceptionally secure future loans
or advancements but an obligation is not secured by a mortgage, unless, that mortgage comes
fairly within the terms of the mortgage contract.
- The mortgage agreement, being a contract of adhesion, is to be carefully scrutinized and strictly
construed against the bank.
- In this case, there is no specific mention of interest to be added in case of either default or
redemption. The Real Estate Mortgage Contract itself is silent on the computation of the
redemption price. Although it refers to the Promissory Notes as constitutive of Tubles secured
obligations, the said contract does not state that the interest to be charged in case of
redemption should be what is specified in the Promissory Notes.
- Jurisprudence provides that such silence or omission of additional charges shall be construed
strictly against the bank. In that case, we affirmed the findings of the courts a quo that penalties
and charges are not due for want of stipulation in the mortgage contract.
- The interest in the loan agreements offer different interest charges. Thus, an ambiguity results
as to which interest shall be applied, for to apply an 18%interest per annum based on
Promissory Note No. 0143 will negate the existence of the 0% interest charged by Promissory
Note No. 0142. Notably, it is this latter Promissory Note (0142) that refers to the principal
agreement to which the security attaches.
- To resolve this ambiguity, a basic principle in the law of contracts provides :"Any ambiguity is to
be taken
- contra proferentem, that is, construed against the party who caused the ambiguity which could
have avoided it by the exercise of a little more care."
- The court also refuses to be blindsided by the dragnet clause in the Real Estate Mortgage
Contract to automatically include the consumption loan, and its corresponding interest,
in computing the redemption price.
- As we have held in Prudential Bank v. Alviar , in the absence of clear and supportive evidence of
a contrary intention, a mortgage containing a dragnet clause will not be extended to cover
future advances, unless the document evidencing the subsequent advance refers to the
mortgage as providing security therefore.
- Using the "reliance on the security test," the second loan agreement, or Promissory Note No.
0143, referring to the consumption loan makes no reference to the earlier loan with a real
estate mortgage. Neither does the bank make any allegation that it relied on the security of the
real estate mortgage in issuing the consumption loan.
- It must be remembered that Tuble was petitioners previous vice-president. Hence, as one of
the senior officers, the consumption loan was given to him not as an ordinary loan, but as a
form of accommodation or privilege. The banks grant of the salary loan to Tuble was apparently
not motivated by the creation of a security in favor of the bank, but by the fact the he was a top
executive of petitioner.
- The bank cannot claim that it relied on the previous security in granting the consumption loan to
Tuble. For this reason, the dragnet clause will not be extended to cover the consumption loan. It
follows, therefore, that its corresponding interest 18% per annum is inapplicable.

DISPOSITION
IN VIEW THEREOF, the assailed 28 March 2008 Decision and 30 July 2008Resolution of the Court
of Appeals in CA-G.R. CV No. 87410 are hereby AFFIRMED.
NOTES
On Issue of Foreclosure
- At the time respondent resigned, which was before the foreclosureproceedings, he had several
liabilities to the bank. When the bank later on instituted the foreclosure proceedings, it
foreclosed only the mortgage secured by the real estate loan. It did not seek to include, in the
foreclosure, the consumption loan or the other alleged obligations of Tuble. The bank then
availed itself of the remedy of foreclosure and, in doing so, effectively gained the property.

- As a result of these established facts, one evident conclusion surfaces: the Real Estate Mortgage
Contract on the secured property is already extinguished.

- "All obligations of the Borrower and/or Mortgagor, its renewal, extension, amendment or
novation irrespective of whether such obligations as renewed, extended, amended or novated
are in the nature of new, separate or additional obligations; All other obligations of the
Borrower and/or Mortgagor in favor of the Mortgagee, executed before or after the execution
of this document whether presently owing or hereinafter incurred and whether or not arising
from or connection with the aforesaid loan/Credit accommodation; x x x."

- In foreclosures, the mortgaged property is subjected to the proceedings for the satisfaction of
the obligation. Once the proceeds from the sale of the property are applied to the payment of
the obligation, the obligation is already extinguished.
- Consequently, since the Real Estate Mortgage Contract is already extinguished, the bank can no
longer rely on it or invoke its provisions, including the dragnet clause stipulated therein. It
follows that the bank cannot refer to the 18% annual interest charged in Promissory Note
No.0143, an obligation allegedly covered by the terms of the Contract.
- Neither can the bank use the consummated contract to collect on the rest of the obligations,
which were not included when it earlier instituted the foreclosure proceedings. It cannot be
allowed to use the same security to collect on the other loans. To do so would be akin to
foreclosing an already foreclosed property.
- Despite the extinguishment of the Real Estate Mortgage Contract, Tuble had the right to redeem
the security by paying the redemption price.
- The right of redemption of foreclosed properties is a statutory privilege-Consequently, the bank
cannot alter that right by imposing additional charges and including other loans. Verily, the
freedom to stipulate the terms and conditions of an agreement is limited by law

D. Restriction of Bank Exposure

a. [G.R. No. 178429. October 23, 2009.] JOSE C. GO, petitioner, vs. BANGKO
SENTRAL NG PILIPINAS, respondent.

JOSE C. GO, Petitioner, vs.BANGKO SENTRAL NG PILIPINAS,

Respondent.

G.R. No. 178429

October 23, 2009

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

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

Issue: whether or not the allegation that Go acted as borrower or gurantor rendered the
information defective?
Whether or not the failure to state that Go borrowed beyond the limit of his
outstanding deposits and book value of the paid-in capital contribution in the bank
rendered the Information defective?

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

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

Credit accommodation limit is not an exception nor is it an element of the offense as

contrary to Gos claims.

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.

E. Investments:
 a. [G.R. Nos. 173090-91. September 7, 2011.] UNION BANK OF THE
PHILIPPINES, petitioner, vs. SPOUSES RODOLFO T. TIU AND VICTORIA N.
TIU,respondents.
F. Prohibitions
a. [G.R. No. 174912. July 24, 2013.] BPI EMPLOYEES UNION-DAVAO CITY-
FUBU (BPIEU-DAVAO CITY-FUBU), petitioner, vs. BANK OF THE PHILIPPINE
ISLANDS (BPI), and BPI OFFICERS CLARO M. REYES, CECIL CONANAN and
GEMMA VELEZ,respondents.
G. Foreign Banks
a. [G.R. No. 156132. February 6, 2007.] CITIBANK, N.A. (Formerly First National
City Bank) and INVESTORS' FINANCE CORPORATION, doing business under
the name and style of FNCB Finance, petitioners, vs. MODESTA R.
SABENIFacts:
Facts:
This is a case involving Citibank, N.A., a banking corporation duly registered under US
Laws and is licensed to do commercial banking and trust functions in the Philippines and
Investor's Finance Corporation (aka FNCB Finance), and affiliate company of Citibank,
mainly handling money market placements(MMPs are short term debt instruments that
give the owner an unconditional right to receive a stated, fixed sum of money on a
specified date).
Modesta R. Sabeniano was a client of both petitioners Citibank and FNCB
Finance.Unfortunately, the business relations among the parties subsequently went
awry. Subsequently, Sabeniano filed a complaint with the RTC against petitioners as she
claims to have substantial deposits and money market placements with the petitioners
and other investment companies, the proceeds of which were supposedly deposited
automatically and directly to her account with Citibank. Sabeniano alleged that Citibank
et al refused to return her deposits and the proceeds of her money market placements
despite her repeated demands, thus, the civil case for "Accounting, Sum of Money and
Damages.
In their reply, Citibank et al admitted that Sabeniano had deposits and money market
placements with them, including dollar accounts in other Citibank branches. However,
they also alleged that respondent later obtained several loans from Citibank, executed
through Promissory Notes and secured by a pledge on her dollar accounts, and a deed
of assignment against her MMPS with FNCB Finance. When Sabeniano defaulted,
Citibank exercised its right to off-set or compensate respondent's outstanding loans with
her deposits and money market placements, pursuant to securities she executed.
Citibank supposedly informed Sabeniano of the foregoing compensation through letters,
thus, Citibank et al were surprised when six years later, Sabeniano and her counsel
made repeated requests for the withdrawal of respondent's deposits and MMPs with
Citibank, including her dollar accounts with Citibank-Geneva and her money market
placements with petitioner FNCB Finance. Thus, petitioners prayed for the dismissal of
the Complaint and for the award of actual, moral, and exemplary damages, and
attorney's fees.
The case was eventually decided after 10 years with the Judge declaring the offsetting
done as illegal and the return of the amount with legal interest, while Sabeniano was
ordered to pay her loans to Citibank. The ruling was then appealed. The CA modified the
decision but only to the extent of Sabenianos loans which it ruled that Citibank failed to
establish the indebtedness and is also without legal and factual basis. The case was
thus appealed to the SC.
Issue: Whether or not there was a valid off setting/compensation of loan vis a vis the
a.)Deposits and
b.) MMPs.
Held:
General Requirement of Compensation:
Art. 1278. Compensation shall take place when two persons, in their own right, are
creditors and debtors of each other.
Art. 1279. In order that compensation may be proper, it is necessary;
(1) That each one of the obligors be bound principally, and that he be at the same time a
principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are consumable, they
be of the same kind, and also of the same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by third
persons and communicated in due time to the debtor.

1. Yes. As already found by this Court, petitioner Citibank was the creditor of respondent for her
outstanding loans. At the same time, respondent was the creditor of petitioner Citibank, as far as
her deposit account was concerned, since bank deposits, whether fixed, savings, or current,
should be considered as simple loan or mutuum by the depositor to the banking institution.122
Both debts consist in sums of money. By June 1979, all of respondent's PNs in the second set had
matured and became demandable, while respondent's savings account was demandable anytime.
Neither was there any retention or controversy over the PNs and the deposit account commenced
by a third person and communicated in due time to the debtor concerned. Compensation takes
place by operation of law.

2. Yes, but technically speaking Citibank did not effect a legal compensation or off-set
under Article 1278 of the Civil Code, but rather, it partly extinguished respondent's
obligations through the application of the security given by the respondent for her loans.

Respondent's money market placements were with petitioner FNCB Finance, and after
several roll-overs, they were ultimately covered by PNs No. 20138 and 20139, which, by
3 September 1979, the date the check for the proceeds of the said PNs were issued,
amounted to P1,022,916.66, inclusive of the principal amounts and interests. As to
these money market placements, respondent was the creditor and
petitioner FNCB Finance the debtor (thereby implying that money
market placement is a simple loan or mutuum); while, as to the
outstanding loans, petitioner Citibank was the creditor and
respondent the debtor. Consequently, legal compensation, under Article 1278 of
the Civil Code, would not apply since the first requirement for a valid compensation, that
each one of the obligors be bound principally, and that he be at the same time a
principal creditor of the other, was not met.

What petitioner Citibank actually did was to exercise its rights to the proceeds of
respondent's money market placements with petitioner FNCB Finance by virtue of the
Deeds of Assignment executed by respondent in its favor. Petitioner Citibank was only
acting upon the authority granted to it under the foregoing Deeds when it finally used the
proceeds of PNs No. 20138 and 20139, paid by petitioner FNCB Finance, to partly pay
for respondent's outstanding loans. Strictly speaking, it did not effect a legal
compensation or off-set under Article 1278 of the Civil Code, but rather, it partly
extinguished respondent's obligations through the application of the security given by the
respondent for her loans. Although the pertinent documents were entitled Deeds of
Assignment, they were, in reality, more of a pledge by respondent to petitioner Citibank
of her credit due from petitioner FNCB Finance by virtue of her money market
placements with the latter. According to Article 2118 of the Civil Code
ART. 2118. If a credit has been pledged becomes due before it is redeemed, the pledgee may
collect and receive the amount due. He shall apply the same to the payment of his claim, and
deliver the surplus, should there be any, to the pledgor.