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Ongteco, Erika Therese Gonzaga

Banking Laws
Atty. Palic

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


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

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

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

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

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

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

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


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


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

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

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Ongteco, Erika Therese Gonzaga
Banking Laws
Atty. Palic

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

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

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

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

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Ongteco, Erika Therese Gonzaga
Banking Laws
Atty. Palic

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



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

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

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

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

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

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

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

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

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Ongteco, Erika Therese Gonzaga
Banking Laws
Atty. Palic


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

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

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Ongteco, Erika Therese Gonzaga
Banking Laws
Atty. Palic

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

Islands, Vs. Liwayway Abasolo


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

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

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

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

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

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

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

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

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

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

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

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


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Ongteco, Erika Therese Gonzaga
Banking Laws
Atty. Palic

1. Whether petitioner is subsidiarily liable.


1. The petition is meritorious.

The doctrine of apparent authority does not lie.

A banking corporation is liable to innocent third persons where the

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

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

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

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Ongteco, Erika Therese Gonzaga
Banking Laws
Atty. Palic

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

179901, April 14, 2008


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

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

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

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

Petitioner later learned from MRM Management, JAPRLs financial adviser,

that JAPRL had altered and falsified its financial statements. It allegedly
bloated its sales revenues to post a big income from operations for the
concerned fiscal years to project itself as a viable investment.
BDO demanded immediate payment of JAPRLs outstanding obligations

amounting to P194,493,388.98


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


1. Yes.

Section 40. Requirement for Grant of Loans or Other Credit

Accommodations. Before granting a loan or other credit
accommodation, a bank must ascertain that the debtor is capable
of fulfilling his commitments to the bank.

Towards this end, a bank may demand from its credit applicants a
statement of their assets and liabilities and of their income and
expenditures and such information as may be prescribed by law
or by rules and regulations of the Monetary Board to enable the
bank to properly evaluate the credit application which includes
the corresponding financial statements submitted for taxation
purposes to the Bureau of Internal Revenue. Should such
statements prove to be false or incorrect in any material
detail, the bank may terminate any loan or credit
accommodation granted on the basis of said statements
and shall have the right to demand immediate repayment
or liquidation of the obligation.

Under this provision, banks have the right to annul any credit accommodation or
loan, and demand the immediate payment thereof, from borrowers proven to be
guilty of fraud. Petitioner would then be entitled to the immediate payment
of P194,493,388.98 and other appropriate damages.

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Ongteco, Erika Therese Gonzaga
Banking Laws
Atty. Palic



October 1994, Panacor Marketing Corporation, a newly formed

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

To meet the capital requirements of the exclusive distributorship, which

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

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

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

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

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

A compromise agreement was entered into between Iba-Finance and

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

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Ongteco, Erika Therese Gonzaga
Banking Laws
Atty. Palic

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


Whether or not the decision of HONORABLE COURT OF APPEALS exceeded

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

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

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

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

The conduct of Premiere Bank in its dealings with respondent corporations

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

While the compromise agreement may have resulted in the satisfaction of

Iba-Finances legal claims.

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

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

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Ongteco, Erika Therese Gonzaga
Banking Laws
Atty. Palic

6. Restituta M. Imperial vs Alexa Jaucian


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

against Restituta Imperial (now petitioner).

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

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

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

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

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


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


Petition has NO MERIT.

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

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

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Ongteco, Erika Therese Gonzaga
Banking Laws
Atty. Palic

7. Ocampos vs Landbank


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

Quedan Rural Credit Guarantee Corporation (Quedancor) guaranteed to

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

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

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


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

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


NO. There is no forgery. The Deed of REM was valid. Ocampo and Tan
failed to present any evidence to disprove the genuineness or authenticity
of their signatures. In fact, Ocampo admitted in direct examination that
such signature was hers, although she claimed that she was made to sign
a blank form (printed form with blanks yet to be filled up). Moreover, the
bank personnel who were also signatories to the deed confirmed their

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Ongteco, Erika Therese Gonzaga
Banking Laws
Atty. Palic

appearances despite her testimony that she cannot say for certain if she
appeared before the notary public. It is well-settled that a document
acknowledged before a notary public is a public document that enjoys the
presumption of regularity. It is a prima facie evidence of the truth of the
facts stated therein and a conclusive presumption of its existence and due
The real issue is fraud and not forgery. Ocampo claimed that she was led
to believe by Landbank that the form she signed was to process her
PhP5M loan application and not to secure the subject 20% of the loan.
However, Ocampo was unable to establish clearly and precisely how
Landbank committed the alleged fraud. She failed to lay down the
deception through insidious words or machinations or misrepresentations
made by Landbank so that she signed the blank form. Granting for the
sake of argument that there was fraud, such contract was merely voidable
where an action should have been instituted within 4 years from discovery,
i.e.when the REM was registered with the Register of Deeds

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

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

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

Petition denied.

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Ongteco, Erika Therese Gonzaga
Banking Laws
Atty. Palic




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

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

The Republic avers that defendant Eduardo Cojuangco, Jr. taking undue
advantage of his association, influence and connection, acting in unlawful
concert with Defendants Ferdinand E. Marcos and Imelda R. Marcos, and
other individuals closely associated with the Marcoses, embarked upon
devices, schemes and stratagems, including the use of various
corporations as fronts, to unjustly enrich themselves at the expense of
Plaintiff and the Filipino people, such as when he misused coconut levy
funds to buy out majority of the outstanding shares of stock of San Miguel
Corporation in order to control the largest agri-business, foods and
beverage company in the Philippines.
These so called front companies, which ACCRA Law Offices organized for
Defendant Cojuangco to be able to control more than 60% of SMC shares,
were funded by institutions which depended upon the coconut levy such as
the UCPB, UNICOM, United Coconut Planters Assurance Corp. (COCOLIFE),
among others. Cojuangco and his ACCRA lawyers used the funds from 6
large coconut oil mills and 10 copra trading companies to borrow money
from the UCPB and purchase these holding companies and the SMC
stocks. Cojuangco used $150 million from the coconut levy.
Herein defendant specifically denies the allegations including any
insinuation that whatever association he may have had with the late
Ferdinand Marcos or Imelda Marcos has been in connection with any of the
acts or transactions alleged in the complaint or for any unlawful purpose.
During the pre-trial Sandiganbayan advised the plaintiff to present more
factual evidence to substantiate its allegations. The Republic nonetheless
choosing not to adduce evidence proving the factual allegations,
particularly the matters specifically asked by the Court, instead plaintiff
opted to pursue its claims by Motion for Summary Judgment.
On November 28, 2007, the Sandiganbayan dismissed the case for failure
of plaintiff to prove by preponderance of evidence its causes of action
against defendants.

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Ongteco, Erika Therese Gonzaga
Banking Laws
Atty. Palic


What are the "various sources" of funds, which the defendant Cojuangco
and his companies claim they utilized to acquire the disputed SMC shares?
Whether or not such funds acquired from alleged "various sources" can be
considered coconut levy funds;
Whether or not defendant Cojuangco had indeed served in the governing
bodies of PC, UCPB and/or CIIF Oil Mills at the time the funds used to
purchase the SMC shares were obtained such that he owed a fiduciary
duty to render an account to these entities as well as to the coconut


The Supreme Court affirm the decision of November 28, 2007, because
the Republic did not discharge its burden as the plaintiff to establish by
preponderance of evidence that the respondents SMC shares were illegally
acquired with coconut-levy funds.
The Republic mainly relied on the statement made by Mr. Conjuangco on
his Pre-trial brief and hastily derived conclusions from the defendants
statements in their previous pleadings although such conclusions were not
supported by categorical facts but only mere inferences.
"According to Cojuangcos own Pre-Trial Brief, these so-called various
sources, i.e., the sources from which he obtained the funds he claimed to
have used in buying the 20% SMC shares are not in fact various as he
claims them to be. He says he obtained loans from UCPB and advances
from the CIIF Oil Mills. He even goes as far as to admit that his only
evidence in this case would have been records of UCPB and a
representative of the CIIF Oil Mills obviously the records of UCPB relate
to the loans that Cojuangco claims to have obtained from UCPB of
which he was President and CEO while the representative of the CIIF Oil
Mills will obviously testify on the advances Cojuangco obtained from CIIF
Oil Mills of which he was also the President and CEO."
From the foregoing premises, plaintiff went on to conclude that:
"These admissions of defendant Cojuangco are outright admissions that he
(1) took money from the bank entrusted by law with the administration of
coconut levy funds and (2) took more money from the very
corporations/oil mills in which part of those coconut levy funds (the CIIF)
was placed treating the funds of UCPB and the CIIF as his own personal
capital to buy his SMC shares."
Plaintiffs contention that the defendants statements in his Pre-Trial Brief
regarding the presentation of a possible CIIF witness as well as UCPB
records, can already be considered as admissions of the defendants
exclusive use and misuse of coconut levy funds to acquire the subject SMC
shares and defendant Cojuangcos alleged taking advantage of his
positions to acquire the subject SMC shares is unacceptable.. Moreover, in
ruling on a motion for summary judgment, the court "should take that
view of the evidence most favorable to the party against whom it is
directed, giving such party the benefit of all inferences." Inasmuch as this
issue cannot be resolved merely from an interpretation of the defendants
statements in his brief, the UCPB records must be produced and the CIIF
witness must be heard to ensure that that the conclusions that will be
derived have factual basis and are thus, valid.
The Court is given a very clear impression that the plaintiff does not know
what documents will be or whether they are even available to prove the
causes of action in the complaint. The Court has pursued and has exerted
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Ongteco, Erika Therese Gonzaga
Banking Laws
Atty. Palic

every form of inquiry to see if there is a way by which the plaintiff could
explain in any significant particularity the acts and the evidence which will
support its claim of wrong-doing by the defendants. The plaintiff has failed
to do so.

9. GO vs. BSP

Go, Director and the President and Chief Executive Officer of the
Orient Commercial Banking Corporation (Orient Bank), a commercial
banking institution created, organized and existing under Philippines
laws, with its main branch located at C.M. Recto Avenue, this City,
was accused of taking advantage of his position as such
officer/director of the said bank, did then and there wilfully,
unlawfully and knowingly borrow, either directly or indirectly, for
himself or as the representative of his other related companies, the
deposits or funds of the said banking institution and/or become a
guarantor, indorser or obligor for loans from the said bank to others,
by then and there using said borrowed deposits/funds of the said
bank in facilitating and granting and/or caused the facilitating and
granting of credit lines/loans and, among others, to the New Zealand
Accounts loans in the total amount of TWO BILLION AND SEVEN
Currency, said accused knowing fully well that the same has been
done by him without the written approval of the majority of the
Board of Directors of said Orient Bank and which approval the said
accused deliberately failed to obtain and enter the same upon the
records of said banking institution and to transmit a copy of which to
the supervising department of the said bank, as required by the
General Banking Act.


Whether or not the Information failed to allege the acts or omissions

complained of with sufficient particularity to enable him to know the
offense being charged; to allow him to properly prepare his defense; and
likewise to allow the court to render proper judgment.


The Court does not find the petition meritorious and accordingly denies it.
Elements of Violation of
Section 83 of RA 337

Under Section 83, RA 337, the following elements must be present to constitute
a violation of its first paragraph:

1. the offender is a director or officer of any banking institution;

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Ongteco, Erika Therese Gonzaga
Banking Laws
Atty. Palic

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.

A simple reading of the above elements easily rejects Gos contention that the
law penalizes a bank director or officer only either for borrowing the banks
deposits or funds or for guarantying loans by the bank, but not for acting in both
capacities. The essence of the crime is becoming an obligor of the bank without
securing the necessary written approval of the majority of the banks directors.

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10. Zulueta vs Asia Brewery


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

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


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


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Apart from procedural problems, respondents cause is also afflicted with

substantial defects. The CA ruled that there was no common issue in law
or in fact between the Makati case and the Iloilo case. The former involved
petitioners indebtedness to respondent for unpaid beer products, while the
latter pertained to an alleged breach of the Dealership Agreement between
the parties. We disagree.
True, petitioners obligation to pay for the beer products delivered by
respondent can exist regardless of an alleged breach in the Dealership
Agreement. Undeniably, however, this obligation and the relationship
between respondent and petitioner, as supplier and distributor
respectively, arose from the Dealership Agreement which is now the
subject of inquiry in the Iloilo case. In fact, petitioner herself claims that
her obligation to pay was negated by respondents contractual breach. In
other words, the non-payment -- the res of the Makati case -- is an
incident of the Iloilo case.
Inasmuch as the binding force of the Dealership Agreement was put in
question, it would be more practical and convenient to submit to the Iloilo
court all the incidents and their consequences. The issues in both civil
cases pertain to the respective obligations of the same parties under the
Dealership Agreement. Thus, every transaction as well as liability arising
from it must be resolved in the judicial forum where it is put in issue. The
consolidation of the two cases then becomes imperative to a complete,
comprehensive and consistent determination of all these related issues.
Two cases involving the same parties and affecting closely related subject
matters must be ordered consolidated and jointly tried in court, where the
earlier case was filed.i[18] The consolidation of cases is proper when they
involve the resolution of common questions of law or facts. ii

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On various dates and for different amounts, Metro Concast, a corporation

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

The interest rate under Promissory Note No. 96-21301 was pegged at
15.25% per annum (p.a.), with penalty charge of 3% per month in case of
default; while the twelve (12) trust receipts uniformly provided for an
interest rate of 14% p.a. and 1% penalty charge. By way of security, the
individual petitioners executed several Continuing
Guaranty/Comprehensive Surety Agreements19 in favor of Allied Bank.
Petitioners failed to settle their obligations under the aforementioned
promissory note and trust receipts, hence, Allied Bank, through counsel,
sent them demand letters,20 all dated December 10, 1998, seeking
payment of the total amount of P51,064,093.62, but to no avail. Thus,
Allied Bank was prompted to file a complaint for collection of sum of
money21 (subject complaint) against petitioners before the RTC, docketed
as Civil Case No. 00-1563. In their second22 Amended Answer,23
petitioners admitted their indebtedness to Allied Bank but denied liability
for the interests and penalties charged, claiming to have paid the total
sum of P65,073,055.73 by way of interest charges for the period covering
1992 to 1997.24

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

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


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


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

In the present case, petitioners essentially argue that their loan

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

The MoA is a sale of assets contract, while petitioners obligations to Allied

Bank arose from various loan transactions. Absent any showing that the

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terms and conditions of the latter transactions have been, in any way,
modified or novated by the terms and conditions in the MoA, said
contracts should be treated separately and distinctly from each other,
such that the existence, performance or breach of one would not depend
on the existence, performance or breach of the other. In the foregoing
respect, the issue on whether or not Allied Bank expressed its conformity
to the assets sale transaction between Metro Concast and Peakstar (as
evidenced by the MoA) is actually irrelevant to the issues related to
petitioners loan obligations to the bank. Besides, as the CA pointed out,
the fact of Allied Banks representation has not been proven in this case
and hence, cannot be deemed as a sustainable defense to exculpate
petitioners from their loan obligations to Allied Bank. Now, anent
petitioners reliance on force majeure, suffice it to state that Peakstars
breach of its obligations to Metro Concast arising from the MoA cannot be
classified as a fortuitous event under jurisprudential formulation. As
discussed in Sicam v. Jorge:39

Fortuitous events by definition are extraordinary events not foreseeable

or avoidable. It is therefore, not enough that the event should not have
been foreseen or anticipated, as is commonly believed but it must be one
impossible to foresee or to avoid. The mere difficulty to foresee the
happening is not impossibility to foresee the same. To constitute a
fortuitous event, the following elements must concur: (a) the cause of the
unforeseen and unexpected occurrence or of the failure of the debtor to
comply with obligations must be independent of human will; (b) it must
be impossible to foresee the event that constitutes the caso fortuito or, if
it can be foreseen, it must be impossible to avoid; (c) the occurrence
must be such as to render it impossible for the debtor to fulfill obligations
in a normal manner; and (d) the obligor must be free from any
participation in the aggravation of the injury or loss. While it may be
argued that Peakstars breach of the MoA was unforseen by petitioners,
the same us clearly not "impossible"to foresee or even an event which is
independent of human will." Neither has it been shown that said
occurrence rendered it impossible for petitioners to pay their loan
obligations to Allied Bank and thus, negates the formers force majeure
theory altogether.

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On November 29, 1985, petitioner Goldenway Merchandising Corporation

executed a Real Estate Mortgage in favor of Equitable PCI Bank over three
parcels of land as security for a Php2,000,000 loan granted to the
petitioner. Petitioner eventually failed to settles its loan obligation, leading
respondent to extrajudicially foreclose the mortgage on December 13,
2000. Subsequently, a Certificate of Sale was issued to respondent on
January 26, 2001. In a letter dated March 7, 2001, petitioner offered to
redeem the foreclosed properties by tendering a check.
Petitioner and respondent met on March 12, 2001. However, petitioner
was told that redemption was no longer possible since the certificate of
sale had already been registered; the title to the foreclosed properties
were consolidated in favor of the respondent on March 9, 2001. Petitioner
filed a complaint for specific performance and damages contending that
the 1-year period of redemption under Act 3135 should apply, and not the
shorter redemption period under RA 8791 as applying RA 8791 would
result in the impairment of obligations of contracts and would violate the
equal protection clause under the constitution.
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The RTC dismissed the action of the petitioner ruling that redemption was
made belatedly and that there was no redemption made at all. The Court
of Appeals affirmed the RTC.


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

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


Section 47 did not divest juridical persons of the right to redeem their
foreclosed properties but only modified the time for the exercise of such
right by reducing the one-year period originally provided in Act No. 3135.
The new redemption period commences from the date of foreclosure sale,
and expires upon registration of the certificate of sale or three months
after foreclosure, whichever is earlier. There is likewise no retroactive
application of the new redemption period because Section 47 exempts
from its operation those properties foreclosed prior to its effectivity and
whose owners shall retain their redemption rights under Act No. 3135.

The shorter period under RA 8791 should apply.

The one-year period of redemption is counted from the date of the
registration of the certificate of sale. In this case,
the parties provided in their real estate mortgage contract that upon
petitioners default and the latters entire loan
obligation becoming due, respondent may immediately foreclose the
mortgage judicially in accordance with the Rules of Court, or
extrajudicially in accordance with Act No. 3135, as amended. But under
Sec 47 of RA 8791, an exception is thus made in the case of juridical
persons which are allowed to exercise the right of redemption only "until,
but not after, the registration of the certificate of foreclosure sale" and in
no case more than three (3) months after foreclosure, whichever comes
Section 47 did not divest juridical persons of the right to redeem their
foreclosed properties but only modified the time for the exercise of such
right by reducing the one-year period originally provided in Act No. 3135.
The new redemption period commences from the date of foreclosure sale,
and expires upon registration of the certificate of sale or three months
after foreclosure, whichever is earlier. There is likewise no retroactive
application of the new redemption period because Section 47 exempts
from its operation those properties foreclosed prior to its effectivity and
whose owners shall retain their redemption rights under Act No. 3135. We
agree with the CA that the legislature clearly intended to shorten the
period of redemption for juridical persons whose properties were
foreclosed and sold in accordance with the provisions of Act No. 3135. The
difference in the treatment of juridical persons and natural persons was
based on the nature of the properties foreclosed

whether these are used as residence, for which the more liberal one-year
redemption period is retained, or used for industrial or commercial
purposes, in which case a shorter term is deemed necessary to reduce the

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of uncertainty in the ownership of property and enable mortgagee-banks

to dispose sooner of these acquired assets. It must be underscored that
the General Banking Law of 2000, crafted in the aftermath of the 1997
Southeast Asian financial crisis, sought to reform the General Banking Act
of 1949 by fashioning a legal framework for maintaining a safe and sound
banking system. In this context, the amendment introduced by Section 47
embodied one of such safe and sound practices aimed at ensuring the
solvency and liquidity of our banks.

It cannot therefore be disputed that the said provision amending the

redemption period in Act 3135 was based on a reasonable classification
and germane to the purpose of the law. The right of redemption being
statutory, it must be exercised in the manner prescribed by the statute,
and within the prescribed time limit, to make it effective. Furthermore, as
with other individual rights to contract and to property, it has to give way
to police power exercised for public welfare.

The concept of police power is well-established in this jurisdiction. It has

been defined as the "state authority to enact legislation that may interfere
with personal liberty or property in order to promote the general welfare."
Its scope, ever-expanding to meet the exigencies of the times, even to
anticipate the future where it could be done, provides enough room for an
efficient and flexible response to conditions and circumstances thus
assuming the greatest benefits. The freedom to contract is not absolute;
all contracts and all rights are subject to the police power of the State and
not only may regulations which affect them be established by the State,
but all such regulations must be subject to change from time to time, as
the general well-being of the community may require, or as the
circumstances may change, or as experience may demonstrate the
necessity. Settled is the rule that the non-impairment clause of the
Constitution must yield to the loftier purposes targeted by the
Government. The right granted by this provision must submit to the
demands and necessities of the States power of regulation.

Such authority to regulate businesses extends to the banking industry

which, as this Court has time and again emphasized, is undeniably imbued
with public interest. Having ruled that the assailed Section 47 of R.A. No.
8791 is constitutional, we find no reversible error committed by the CA in
holding that petitioner can no longer exercise the right of redemption over
its foreclosed properties after the certificate of sale in favor of respondent
had been registered

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

billion pesos with respondent Landbank to finance the construction and
acquisition of machineries and equipment for a semi-conductor plant at
Gateway Business Park in Javalera, General Trias, Cavite. However,
Landbank was only able to extend petitioner a loan in the amount of six
hundred million pesos (P600,000,000.00). Hence, it offered to assist
petitioner in securing additional funding through its investment banking
services, which offer petitioner accepted.
Thereafter, Landbank released to petitioner the initial amount of
P250,000,000.00, with the balance of P350,000,000.00 to be released in
June 1996. As security for the said loans, petitioner mortgaged in favor of
Landbank two parcels of land

After petitioners acceptance of Landbanks financial banking services, the

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

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

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

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

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

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

defendant as custodian of the titles.

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

In a decision rendered on April 12, 2002, the Court of Appeals annulled the
assailed order of the trial court. 8[16] It ruled that petitioner failed to prove the
requisite clear and legal right that would justify the issuance of the writ of
preliminary mandatory injunction; and that respondent cannot be compelled to
accede to the terms of the MTI and/or JREM which was supposed to cover the
syndicated loan of petitioner inasmuch as the said schemes were never executed
nor approved by the petitioner and the participating banks.

Hence, the instant petition for review filed by petitioner which was docketed as
G.R. No. 155217. On December 10, 2002, petitioner filed an omnibus motion
seeking, inter alia, the issuance of a temporary restraining order enjoining
Landbank from proceeding and completing the foreclosure proceedings over its
mortgaged properties.9[17] On January 22, 2003, the Court denied said motion
for lack of merit.10[18] Petitioners motion for reconsideration was likewise denied
on March 26, 2003.11[19]

Meanwhile, on January 10, 2003, petitioner filed a petition to cite Landbank

President Margarito Teves and Landbanks lawyer in contempt of Court for
proceeding and concluding the foreclosure proceedings and public auction sale. 12
[20] Petitioner contended that Landbanks acts constitute improper conduct
which directly or indirectly impede, obstruct, or degrade the administration of
justice. The petition was docketed as G.R. No. 156393.

On March 12, 2003, the consolidation of G.R. No. 156393 and G.R. No. 155217
was ordered.13[21]


Is Landbank bound to share the properties mortgaged to it by respondent

with the other creditor banks in the loan syndication?


First, the Court finds that Landbank is bound by a perfected contract to

share petitioners collateral with the participating banks in the loan
syndication. Article 1305 of the Civil Code defines a contract as a meeting





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of minds between two persons whereby one binds himself, with respect to
the other, to give something or to render some service. A contract
undergoes three distinct stages (1) preparation or negotiation; (2)
perfection; and (3) consummation. Negotiation begins from the time the
prospective contracting parties manifest their interest in the contract and
ends at the moment of agreement of the parties. The perfection or birth of
the contract takes place when the parties agree upon the essential
elements of the contract. The last stage is the consummation of the
contract wherein the parties fulfill or perform the terms agreed upon in the
contract, culminating in the extinguishment thereof. Article 1315 of the
Civil Code, on the other hand, provides that a contract is perfected by
mere consent, which is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to constitute the

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

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

14. UCPB vs. Beluso (2007)


UCPB granted the spouses Beluso a Promissory Notes Line under a Credit
Agreement whereby the latter could avail from the former credit of up to a
maximum amount of P1.2 Million pesos for a term ending in April 1997.
Spouses Beluso also constituted a real estate mortgage over parcels of
land in Roxas City. Subsequently, the said Credit Arrangement was
amended to extend the amount of the Promissory Notes Line to a
maximum of P2.35 Million pesos and to extend the term thereof to
February 1998.
The spouses executed three promissory notes which were renewed several
times. In 1997, the payment of the principal and interest of the latter two
promissory notes were debited from the spouses Belusos account with

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UCPB; yet, a consolidated loan for P1.3 Million was again released to the
spouses Beluso under one promissory note with a due date of 28 February
1998. The spouses Beluso executed two more promissory notes for a total
of P350 thousand to avail themselves of the P2.35 Million credit line
extended to them by UCPB.
However, the spouses Beluso alleged that the amounts covered by these
last two promissory notes were never released or credited to their account
and, thus, claimed that the principal indebtedness was only P2 Million. In
any case, UCPB applied interest rates on the different promissory notes
ranging from 18% to 34%. During the term of these promissory notes, the
Belusos were able to pay the total sum of about P760 thousand. However,
they failed to pay for the interest and penalty on their obligations. As a
result, UCPB demanded that they pay their total obligation of P2.9
millionbut the spouses Beluso failed to comply therewith.
Thereafter, UCPB foreclosed the properties mortgaged by the spouses
Beluso to secure their credit line, which, by that time, already ballooned to
nearly P3.8 million. Two months after the foreclosure, the spouses Beluso
filed a Petition for Annulment, Accounting and Damages against UCPB with
the RTC of Makati City. UCPB moved to dismiss the case on the ground
that the spouses Beluso instituted another case before the RTC of Roxas
City, involving the same parties and issues. UCPB claims that while the
Roxas City case initially appears to be a different action, as it prayed for
the issuance of a temporary restraining order and/or injunction to stop
foreclosure of spouses Belusos properties, it poses issues which are
similar to those of the present case. The spouses Beluso claim that the
issue in the Roxas City case is the propriety of the foreclosure before the
true account of spouses Beluso is determined. On the other hand, the
issue in the Makati case is the validity of the interest rate provision. The
spouses Beluso claim that the Roxas City case has become moot because,
before RTC Roxas City could act on the restraining order, UCPB proceeded
with the foreclosure and auction sale.
As the act sought to be restrained has already been accomplished, the
spouses Beluso had to file a different action, that of Annulment of the
Foreclosure Sale with RTC Makati.

RTC ruled in favor of the Belusos. CA affirmed.


Whether or not the case should be dismissed due to forum shopping


YES. Even if it is assumed for the sake of argument, however, that only
one cause of action is involved in the two civil actions, namely, the
violation of the right of the spouses Beluso not to have their property
foreclosed for an amount they do not owe, the Rules of Court nevertheless
allows the filing of the second action. The case in Roxas City was
dismissed before the filing of the case with RTC Makati, since the venue of
litigation as provided for in the Credit Agreement is in Makati City. Rule
16, Section 5 bars the refiling of an action previously dismissed only in the

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following instances: (a) That the cause of action is barred by a prior

judgment or by the statute of limitations; (b) That the claim or demand
set forth in the plaintiffs pleading has been paid, waived, abandoned, or
otherwise extinguished; and (c) That the claim on which the action is
founded is unenforceable under the provisions of the statute of frauds.
When an action is dismissed on the motion of the other party, it is only
when the ground for the dismissal of an action is either of those
aforementioned that the action cannot be refiled. As regards all the other
grounds, the complainant is allowed to file same action, but should take
care that, this time, it is filed with the proper court or after the
accomplishment of the erstwhile absent condition precedent, as the case
may be. The MR filed by the Belusos in the Roxas City case that has not
yet been resolved upon the filing of the Makati case does not change the
SCs findings.
It is indeed the general rule that in cases where there are two pending
actions between the same parties on the same issue, it should be the later
case that should be dismissed. However, this rule is not absolute. In the
case of Allied Banking v. CA, it was ruled that: Even if this is not the
purpose for the filing of the first action, it may nevertheless be dismissed
if the later action is the more appropriate vehicle for the ventilation of the
issues between the parties.
Applying the said ruling in the case at bar, the Court found that the Makati
City case is the more proper action in view of the execution of the
foreclosure sale. Moreover, Makati is the proper venue of the action as
mandated by the Credit Agreement.
Hence, the Court deemed that the Makati Case is the more appropriate
vehicle for litigating the issues between the parties, as compared to the
Roxas City case.

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

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


BOMC, is primarily engaged in providing and/or handling support services

for banks and other financial institutions, is a subsidiary of the Bank of
Philippine Islands (BPI) operating and functioning as an entirely separate
and distinct entity. A service agreement between BPI and BOMC was
initially implemented in BPIs Metro Manila branches. BOMC undertook to
provide services such as check clearing, delivery of bank statements, fund
transfers, card production, operations accounting and control, and cash
servicing, conformably with BSP Circular No. 1388. Not a single BPI

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Banking Laws
Atty. Palic

employee was displaced and those performing the functions, which were
transferred to BOMC, were given other assignments.
The Manila chapter of BPI Employees Union (BPIEU-Metro ManilaFUBU)
then filed a complaint for unfair labor practice (ULP). The Labor Arbiter
(LA) decided the case in favor of the union. The decision was, however,
reversed on appeal by the NLRC. BPIEU-Metro Manila-FUBU filed a petition
for certiorari before the CA which denied it, holding that BPI transferred
the employees in the affected departments in the pursuit of its legitimate
business. The employees were neither demoted nor were their salaries,
benefits and other privileges diminished. On January 1, 1996, the service
agreement was likewise implemented in Davao City.
Later, a merger between BPI and Far East Bank and Trust Company
(FEBTC) took effect on April 10, 2000 with BPI as the surviving
corporation. Thereafter, BPIs cashiering function and FEBTCs cashiering,
distribution and bookkeeping functions were handled by BOMC.
Consequently, twelve (12) former FEBTC employees were transferred to
BOMC to complete the latters service complement. BPI Davaos rank and
file collective bargaining agent, BPI Employees Union-Davao City-FUBU
(Union), objected to the transfer of the functions and the twelve (12)
personnel to BOMC contending that the functions rightfully belonged to the
BPI employees and that the Union was deprived of membership of former
FEBTC personnel who, by virtue of the merger, would have formed part of
the bargaining unit represented by the Union pursuant to its union shop
provision in the CBA.
The Union then filed a formal protest on June 14, 2000 addressed to BPI
Vice Presidents Claro M. Reyes and Cecil Conanan reiterating its objection.
On the other hand, the Union charged that BOMC undermined the
existence of the union since it reduced or divided the bargaining unit.
While BOMC employees perform BPI functions, they were beyond the
bargaining units coverage. In contracting out FEBTC functions to BOMC,
BPI effectively deprived the union of the membership of employees
handling said functions as well as curtailed the right of those employees to
join the union.
Thereafter, the Union demanded that the matter be submitted to the
grievance machinery as the resort to the LMC was unsuccessful. As BPI
allegedly ignored the demand, the Union filed a notice of strike before the
National Conciliation and Mediation Board (NCMB) on the following
grounds: a) Contracting out services/functions performed by union
members that interfered with, restrained and/or coerced the employees in
the exercise of their right to self-organization; b) Violation of duty to
bargain; and c) Union busting. BPI then filed a petition for assumption of
jurisdiction/certification with the Secretary of the Department of Labor and
Employment (DOLE), who subsequently issued an order certifying the
labor dispute to the NLRC for compulsory arbitration. On December 21,
2001, the NLRC came out with a resolution upholding the validity of the
service agreement between BPI and BOMC and dismissing the charge of
ULP. It ruled that the engagement by BPI of BOMC to undertake some of
its activities was clearly a valid exercise of its management prerogative.
It further stated that the spinning off by BPI to BOMC of certain services
and functions did not interfere with, restrain or coerce employees in the
exercise of their right to self-organization.The Union did not present even
an iota of evidence showing that BPI had terminated employees, who were
its members. In fact, BPI exerted utmost diligence, care and effort to see
to it that no union member was terminated.
The NLRC also stressed that Department Order (D.O.) No. 10 series of
1997, strongly relied upon by the Union, did not apply in this case as BSP

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Ongteco, Erika Therese Gonzaga
Banking Laws
Atty. Palic

Circular No. 1388, series of 1993, was the applicable rule. After the denial
of its motion for reconsideration, the Union elevated its grievance to the
CA via a petition for certiorari under Rule 65. The CA, however, affirmed
the NLRCs December 21, 2001 Resolution with modification that the
enumeration of functions listed under BSP Circular No. 1388 in the said
resolution be deleted.


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


Petition is Denied. ART. 261. Jurisdiction of Voluntary Arbitrators or panel

of Voluntary Arbitrators. - x x x Accordingly, violations of a Collective
Bargaining Agreement, except those which are gross in character, shall no
longer be treated as unfair labor practice and shall be resolved as
grievances under the Collective Bargaining Agreement. For purposes of
this article, gross violations of Collective Bargaining Agreement shall mean
flagrant and/or malicious refusal to comply with the economic provisions
of such agreement. Clearly, only gross violations of the economic
provisions of the CBA are treated as ULP. In the present case, the alleged
violation of the union shop agreement in the CBA, even assuming it was
malicious and flagrant, is not a violation of an economic provision in the
agreement. In the case at hand, the union has not presented even an iota
of evidence that petitioner bank has started to terminate certain
employees, members of the union. In fact, what appears is that the Bank
has exerted utmost diligence, care and effort to see to it that no union
member has been terminated. The Court agrees with BPI that D.O. No. 10
is but a guide to determine what functions may be contracted out, subject
to the rules and established jurisprudence on legitimate job contracting
and prohibited labor-only contracting. Even if the Court considers D.O. No.
10 only, BPI would still be within the bounds of D.O. No. 10 when it
contracted out the subject functions. This is because the subject functions
were not related or not integral to the main business or operation of the
principal which is the lending of funds obtained in the form of deposits.
From the very definition of "banks" as provided under the General Banking
Law, it can easily be discerned that banks perform only two (2) main or
basic functions - deposit and loan functions. Thus, cashiering, distribution
and bookkeeping are but ancillary functions whose outsourcing is
sanctioned under CBP Circular No. 1388 as well as D.O. No. 10. Even BPI
itself recognizes that deposit and loan functions cannot be legally
contracted out as they are directly related or integral to the main business
or operation of banks. The CBP's Manual of Regulations has even
categorically stated and emphasized on the prohibition against outsourcing
inherent banking functions, which refer to any contract between the bank
and a service provider for the latter to supply, or any act whereby the
latter supplies, the manpower to service the deposit transactions of the
In one case, the Court held that it is management prerogative to farm out
any of its activities, regardless of whether such activity is peripheral or
core in nature. What is of primordial importance is that the service
agreement does not violate the employee's right to security of tenure and
payment of benefits to which he is entitled under the law.

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Ongteco, Erika Therese Gonzaga
Banking Laws
Atty. Palic

Furthermore, the outsourcing must not squarely fall under labor-only

contracting where the contractor or sub-contractor merely recruits,
supplies or places workers to perform a job, work or service for a principal
or if any of the following elements are present: i) The contractor or
subcontractor does not have substantial capital or investment which
relates to the job, work or service to be performed and the employees
recruited, supplied or placed by such contractor or subcontractor are
performing activities which are directly related to the main business of the
principal; or ii) The contractor does not exercise the right to control over
the performance of the work of the contractual employee.

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