BSB GROUP, INC., represented by its President, Mr. RICARDO BANGAYAN, Petitioner, v SALLY GO a.k.a. SALLY GO-BANGAYAN, Respondent. G.R. No. 168644 Facts: Petitioner, the BSB Group, Inc., is a duly organized domestic corporation presided by its herein representative, Ricardo Bangayan (Bangayan). Respondent Sally Go, alternatively referred to as Sally Sia Go and Sally Go-Bangayan, 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 Prosecutors 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’s customers in payment of their obligation were, instead of being turned over to the company’s coffers, indorsed by respondent who deposited the same to her personal banking account maintained at Security Bank and Trust Company (Security Bank) in Divisoria, Manila Branch. Upon a finding that the evidence adduced was uncontroverted, the assistant city prosecutor recommended the filing of the Information for qualified theft against respondent. On the premise that respondent had allegedly encashed the subject checks and deposited the corresponding amounts thereof to her personal banking account, the prosecution moved for the issuance of subpoena duces tecum /ad testificandum against the respective managers or records custodians of Security Banks Divisoria Branch, as well as of the Asian Savings Bank (now Metropolitan Bank & Trust Co. [Metrobank]), in Jose Abad Santos, Tondo, Manila Branch.

Respondent filed a motion to quash the subpoena dated November 4, 2003, addressed to Metrobank, noting to the court that in the complaint-affidavit filed with the prosecutor, there was no mention made of the said bank account, to which respondent, in addition to the Security Bank account identified as Account No. 01-14-006, allegedly deposited the proceeds of the supposed checks. Interestingly, while respondent characterized the Metrobank account as irrelevant to the case, she, in the same motion, nevertheless waived her objection to the irrelevancy of the Security Bank account mentioned in the same complaint-affidavit, inasmuch as she was admittedly willing to address the allegations with respect thereto. Petitioner, opposing respondents move, argued for the relevancy of the Metrobank account on the ground that the complaint-affidavit showed that there were two checks which respondent allegedly deposited in an account with the said bank. To this, 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. The trial court did not sustain respondent; hence, it denied the motion to quash for lack of merit. Meanwhile, the prosecution was able to present in court the testimony of Elenita Marasigan (Marasigan), the representative of Security Bank. In a nutshell, Marasigans testimony sought to prove that between 1988 and 1989, respondent, while engaged as cashier at the BSB Group, Inc., 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. In the course of the testimony, the subject checks were presented to Marasigan for identification and marking as the same checks received by respondent, endorsed, and then deposited in her personal account with Security Bank. But before the testimony could be completed, respondent filed a Motion to Suppress, seeking the exclusion of Marasigans testimony and accompanying documents thus far received, bearing on the subject Security Bank account. This time respondent invokes, in addition to irrelevancy, the privilege of confidentiality under R.A. No. 1405. Issue/s: 1. WON, the testimony of Marasigan and the accompanying documents are irrelevant to the case.

2. WON, they are violative of the absolutely confidential nature of bank deposits and therefore excluded by operation of RA 1405.

Held/Ratio:1. Yes, they are irrelevant to the case. Thus, whether these pieces of evidence sought to be suppressed in this case the testimony of Marasigan, as well as the checks purported to have been stolen and deposited in respondents Security Bank account are relevant, is to be addressed by considering whether they have such direct relation to the fact in issue as to induce belief in its existence or non-existence; or whether they relate collaterally to a fact from which, by process of logic, an inference may be made as to the existence or non-existence of the fact in issue. The fact in issue appears to be that respondent has taken away cash in the amount of P1,534,135.50 from the coffers of petitioner. In support of this allegation, petitioner seeks to establish the existence of the elemental act of taking by adducing evidence that respondent, at several times between 1988 and 1989, deposited some of its checks to her personal account with Security Bank. Petitioner addresses the incongruence between the allegation of theft of cash in the Information, on the one hand, and the evidence that respondent had first stolen the checks and deposited the same in her banking account, on the other hand, by impressing upon the Court that there obtains no difference between cash and check for purposes of prosecuting respondent for theft of cash. Petitioner is mistaken.

In theft, the act of unlawful taking connotes deprivation of personal property of one by another with intent to gain, and it is immaterial that the offender is able or unable to freely dispose of the property stolen because the deprivation relative to the offended party has already ensued from such act of execution. The allegation of theft of money, hence, necessitates that evidence presented must have a tendency to prove that the offender has unlawfully taken money belonging to another. Interestingly, petitioner has taken pains in attempting to draw a connection between the evidence subject of the instant review, and the allegation of theft in the Information by claiming that respondent had fraudulently deposited the checks in her own name. But this line of argument works more prejudice than favor, because it in effect, seeks to establish the commission, not of theft, but rather of some other crime probably estafa . Moreover, that there is no difference between cash and check is true in other instances. In estafa by conversion, for instance, whether the thing converted is cash or check, is immaterial in relation to the formal allegation in an information for that offense; a check, after all, while not regarded as legal tender, is normally accepted under commercial usage as a substitute for cash, and the credit it represents in stated monetary value is properly capable of appropriation. And it is in this respect that what the offender does with the check subsequent to the act of unlawfully taking it becomes material inasmuch as this offense is a continuing one. In other words, in pursuing a case for this offense, the prosecution may establish its cause by the presentation of the checks involved. These checks would then constitute the best evidence to establish their contents and to prove the elemental act of conversion in support of the proposition that the offender has indeed indorsed the same in his own name.

Theft, however, is not of such character. Thus, for our purposes, 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. Yes, they are violative for they do not appear to have any logical and reasonable connection to the prosecution of respondent for qualified theft.

It is conceded that 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.

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. It declares: Section 2. 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 measure of protection afforded by the law has been explained in China Banking Corporation v. Ortega. That case principally addressed the issue of whether the prohibition against an examination of bank deposits precludes garnishment in satisfaction of a judgment. Ruling on that issue in the negative, the Court found guidance in the relevant portions of the legislative deliberations on Senate Bill No. 351 and House Bill No. 3977, which later became the Bank Secrecy Act, and it held that the absolute confidentiality rule in R.A. No. 1405 actually aims at protection from unwarranted inquiry or investigation if the purpose of such inquiry or investigation is merely to determine the existence and nature, as well as the amount of the deposit in any given bank account. Thus,

x x x The lower court did not order an examination of or inquiry into the deposit of B&B Forest Development Corporation, as contemplated in the law. It merely required Tan Kim Liong to inform the court whether or not the defendant B&B Forest Development Corporation had a deposit in the China Banking Corporation only for purposes of the garnishment issued by it, so that the bank would hold the same intact and not allow any withdrawal until further order. It will be noted from the discussion of the conference committee report on Senate Bill No. 351 and House Bill No. 3977which later became Republic Act No. 1405, that it was not the intention of the lawmakers to place banks deposits beyond the reach of execution to satisfy a final judgment. Thus:

x x x Mr. Marcos: Now, for purposes of the record, I should like the Chairman of the Committee on Ways and Means to clarify this further. Suppose an individual has a tax case. He is being held liable by the Bureau of Internal Revenue [(BIR)] or, say, P1,000.00 worth of tax liability, and because of this the deposit of this individual [has been] attached by the [BIR].

Mr. Ramos: The attachment will only apply after the court has pronounced sentence declaring the liability of such person. But where the primary aim is to determine whether he has a bank deposit in order to bring about a proper assessment by the [BIR], such inquiry is not allowed by this proposed

law.

Mr. Marcos: But under our rules of procedure and under the Civil Code, the attachment or garnishment of money deposited is allowed. Let us assume for instance that there is a preliminary attachment which is for garnishment or for holding liable all moneys deposited belonging to a certain individual, but such attachment or garnishment will bring out into the open the value of such deposit. Is that prohibited by... the law?

Mr. Ramos: It is only prohibited to the extent that the inquiry... is made only for the purpose of satisfying a tax liability already declared for the protection of the right in favor of the government; but when the object is merely to inquire whether he has a deposit or not for purposes of taxation, then this is fully covered by the law. x x x

Mr. Marcos: The law prohibits a mere investigation into the existence and the amount of the deposit.

Mr. Ramos: Into the very nature of such deposit. x x x In taking exclusion from the coverage of the confidentiality rule, petitioner in the instant case posits that the account maintained by respondent with Security Bank contains the proceeds of the checks that she has fraudulently appropriated to herself and, thus, falls under one of the exceptions in Section 2 of R.A. No. 1405 that the money kept in said account is the subject matter in litigation . To highlight this thesis, petitioner avers, citing Mathay v. Consolidated Bank and Trust Co., that the subject matter of the action refers to the physical facts; the things real or personal; the money, lands, chattels and the like, in relation to which the suit is prosecuted, which in the instant case should refer to the money deposited in the Security Bank account. On the surface, however, it seems that petitioners theory is valid to a point, yet a deeper treatment tends to show that it has argued quite off-tangentially. This, because, while Mathay did explain what the subject matter of an action is, it nevertheless did so only to determine whether the class suit in that case was properly brought to the court.

What indeed constitutes the subject matter in litigation in relation to Section 2 of R.A. No. 1405 has been pointedly and amply addressed in Union Bank of the Philippines v. Court of Appeals, in which the Court noted that the inquiry into bank deposits allowable under R.A. No. 1405 must be premised on the fact that the money deposited in the account is itself the subject of the action. Given this perspective, the SC deduced that the subject matter of the action in the case at bar is to be determined from the indictment that charges respondent with the offense, and not from the evidence sought by the prosecution to be admitted into the records. In the criminal Information filed with the trial court, respondent, unqualifiedly and in plain language, is charged with qualified theft by abusing petitioners trust and confidence and stealing cash in the amount of P 1,534,135.50 . The said Information makes no factual allegation that in some material way involves the checks subject of the testimonial and documentary evidence sought to be suppressed . Neither do the allegations in said Information make mention of the supposed bank account in which the funds represented by the checks have allegedly been kept. In other words, it can hardly be inferred from the indictment itself that the Security Bank account is the ostensible subject of the prosecutions inquiry. Without needlessly expanding the scope of what is plainly alleged in the Information, the subject matter of the action in this case is the money amounting to P 1,534,135.50 alleged to have been stolen by respondent, and NOT THE MONEY EQUIVALENT OF THE CHECKS WHICH ARE SOUGHT TO BE ADMITTED IN EVIDENCE. Thus, it is that, which the prosecution is bound to prove with its evidence, and no other. It comes clear that the admission of testimonial and documentary evidence relative to respondents

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. On this score alone, the objection posed by respondent in her motion to suppress should have indeed put an end to the controversy at the very first instance it was raised before the trial court.

A final note. 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.

REPUBLIC OF THE PHILIPPINES, G.R. No. 174629 Represented by THE ANTI-MONEY LAUNDERING COUNCIL (AMLC), v HON. ANTONIO M. EUGENIO, VELASCO, JR., JJ.JR., AS PRESIDING JUDGE OF RTC, MANILA, BRANCH 34,

Facts:Following the promulgation of Agan case, a series of investigations concerning the award of the NAIA 3 contracts to PIATCO were undertaken by the Ombudsman and the Compliance and Investigation Staff (CIS) of petitioner Anti-Money Laundering Council (AMLC). On 24 May 2005, the Office of the Solicitor General (OSG) wrote the AMLC requesting the latters assistance in obtaining more evidence to completely reveal the financial trail of corruption surrounding the [NAIA 3] Project, and also noting that petitioner Republic of the Philippines was presently defending itself in two international arbitration cases filed in relation to the NAIA 3 Project. The CIS conducted an intelligence database search on the financial transactions of certain individuals involved in the award, including respondent Pantaleon Alvarez (Alvarez) who had been the Chairman of the PBAC Technical Committee, NAIA-IPT3 Project. By this time, Alvarez had already been charged by the Ombudsman with violation of Section 3(j) of R.A. No. 3019. The search revealed that Alvarez maintained eight (8) bank accounts with six (6) different banks. On 27 June 2005, the AMLC issued Resolution No. 75, Series of 2005, whereby the Council resolved to authorize the Executive Director of the AMLC to sign and verify an application to inquire into and/or examine the [deposits] or investments of Pantaleon Alvarez, Wilfredo Trinidad, Alfredo Liongson, and Cheng Yong , and their related web of accounts wherever these may be found, as defined under Rule 10.4 of the Revised Implementing Rules and Regulations; and to authorize the AMLC Secretariat to conduct an inquiry into subject accounts once the Regional Trial Court grants the application to inquire into and/or examine the bank accounts of those four individuals. The resolution enumerated the particular bank accounts of Alvarez, Wilfredo Trinidad (Trinidad), Alfredo Liongson (Liongson) and Cheng Yong which were to be the subject of the inquiry. The rationale for the said resolution was founded on the cited findings of the CIS that amounts were transferred from a Hong Kong bank account owned by Jetstream Pacific Ltd. Account to bank accounts in the Philippines maintained by Liongson and Cheng Yong. The Resolution also noted that [b]y awarding the contract to PIATCO despite its lack of financial capacity, Pantaleon Alvarez caused undue injury to the government by giving PIATCO unwarranted benefits, advantage, or preference in the discharge of his official administrative functions through manifest partiality, evident bad faith, or gross inexcusable negligence, in violation of Section 3(e) of Republic Act No. 3019. 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. 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. 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 in relation to the criminal cases then pending before the Sandiganbayan. Attached to the letter was a memorandum on why the investigation of the [accounts] is necessary in the prosecution of the above criminal cases before the Sandiganbayan. In response to the letter of the Special Prosecutor, the AMLC promulgated on 9 December 2005 Resolution No. 121 Series of 2005, which authorized the executive director of the AMLC to inquire into and examine the accounts named in the letter, including one maintained by Alvarez with DBS Bank and two other accounts in the name of Cheng Yong with Metrobank. The Resolution characterized the memorandum attached to the Special Prosecutors letter as extensively justifying the existence of probable cause that the bank accounts of the persons and entities mentioned in the letter are related to the unlawful activity of violation of Sections 3(g) and 3(e) of Rep. Act No. 3019, as amended. Following the December 2005 AMLC Resolution, the Republic, through the AMLC, filed an application before the Manila RTC to inquire into and/or examine thirteen (13) accounts and two (2) related web of accounts alleged as having been used to facilitate corruption in the NAIA 3 Project. Among said accounts were the DBS Bank account of Alvarez and the Metrobank accounts of Cheng Yong. On 12 January 2006, the Manila RTC issued an Order (Manila RTC bank inquiry order) granting the Ex Parte Application expressing therein [that] the allegations in said application to be impressed with merit, and in conformity with Section 11 of R.A. No. 9160, as amended, otherwise known as the Anti-Money Laundering Act (AMLA) of 2001 and Rules 11.1 and 11.2 of the Revised Implementing Rules and Regulations. Authority was thus granted to the AMLC to inquire into the bank accounts listed therein. On 25 January 2006, Alvarez, through counsel, entered his appearance before the Manila RTC in SP Case No. 06-114200 and filed an Urgent Motion to Stay Enforcement of Order of January 12, 2006. Alvarez alleged that he fortuitously learned of the bank inquiry order, which was issued following an ex parte application, and he argued that nothing in R.A. No. 9160 authorized the AMLC to seek the authority to inquire into bank accounts ex parte . The day after Alvarez filed his motion, 26 January 2006, the Manila RTC issued an Order staying the enforcement of its bank inquiry order and giving the Republic five (5) days to respond to Alvarezs motion. The Republic filed an Omnibus Motion for Reconsideration of the 26 January 2006 Manila RTC Order and likewise sought to strike out Alvarez’s motion that led to the issuance of said order. For his part, Alvarez filed a Reply and Motion to Dismiss the application for bank inquiry order. On 2 May 2006, the Manila RTC issued an Omnibus Order granting the Republics Motion for Reconsideration, denying Alvarezs motion to dismiss and reinstating in full force and effect the Order dated 12 January 2006. In the omnibus order, the Manila RTC reiterated that the material allegations in the application for bank inquiry order filed by the Republic stood as the probable cause for the investigation and examination of the bank accounts and investments of the respondents.

Alvarez filed on 10 May 2006 an Urgent Motion expressing his apprehension that the AMLC would immediately enforce the omnibus order and would thereby render the motion for reconsideration he intended to file as moot and academic; thus he sought that the Republic be refrained from enforcing the omnibus order in the meantime. Acting on this motion, the Manila RTC, on 11 May 2006, issued an Order requiring the OSG to file a comment/opposition and reminding the parties that judgments and orders become final and executory upon the expiration of fifteen (15) days from receipt thereof, as it is the period within which a motion for reconsideration could be filed. Alvarez filed his Motion for Reconsideration of the omnibus order on 15 May 2006, but the motion was denied by the Manila RTC in an Order dated 5 July 2006.

On 11 July 2006, Alvarez filed an Urgent Motion and Manifestation wherein he manifested having received reliable information that the AMLC was about to implement the Manila RTC bank inquiry order even though he was intending to appeal from it. On the premise that only a final and executory judgment or order could be executed or implemented, Alvarez sought that the AMLC be immediately ordered to refrain from enforcing the Manila RTC bank inquiry order.

On 12 July 2006, the Manila RTC, acting on Alvarezs latest motion, issued an Order directing the AMLC to refrain from enforcing the order dated January 12, 2006 until the expiration of the period to appeal, without any appeal having been filed. On the same day, Alvarez filed a Notice of Appeal with the Manila RTC.

On 24 July 2006, Alvarez filed an Urgent Ex Parte Motion for Clarification. Therein, he alleged having learned that the AMLC had began to inquire into the bank accounts of the other persons mentioned in the application for bank inquiry order filed by the Republic. Considering that the Manila RTC bank inquiry order was issued ex parte, without notice to those other persons, Alvarez prayed that the AMLC be ordered to refrain from inquiring into any of the other bank deposits and alleged web of accounts enumerated in AMLCs application with the RTC; and that the AMLC be directed to refrain from using, disclosing or publishing in any proceeding or venue any information or document obtained in violation of the 11 May 2006 RTC Order.

On 25 July 2006, or one day after Alvarez filed his motion, the Manila RTC issued an Order wherein it clarified that the Ex Parte Order of this Court dated January 12, 2006 can not be implemented against the deposits or accounts of any of the persons enumerated in the AMLC Application until the appeal of movant Alvarez is finally resolved, otherwise, the appeal would be rendered moot and academic or even nugatory. In addition, the AMLC was ordered not to disclose or publish any information or document found or obtained in [v]iolation of the May 11, 2006 Order of this Court. The Manila RTC reasoned that the other persons mentioned in AMLCs application were not served with the courts 12 January 2006 Order. This 25 July 2006 Manila RTC Order is the first of the four rulings being assailed through this petition.

In response, the Republic filed an Urgent Omnibus Motion for Reconsideration dated 27 July 2006, urging that it be allowed to immediately enforce the bank inquiry order against Alvarez and that Alvarezs notice of appeal be expunged from the records since appeal from an order of inquiry is disallowed under the Anti money Laundering Act (AMLA).

Meanwhile, respondent Lilia Cheng filed with the Court of Appeals a Petition for Certiorari, Prohibition and Mandamus with Application for TRO and/or Writ of Preliminary Injunction dated 10 July 2006, directed against the Republic of the Philippines through the AMLC, Manila RTC Judge Eugenio, Jr. and Makati RTC Judge Marella, Jr.. She identified herself as the wife of Cheng Yong with whom she jointly owns a conjugal bank account with Citibank that is covered by the Makati RTC bank inquiry order, and two conjugal bank accounts with Metrobank that are covered by the Manila RTC bank inquiry order. Lilia Cheng imputed grave abuse of discretion on the part of the Makati and Manila RTCs in granting AMLCs ex

parte applications for a bank inquiry order, arguing among others that the ex parte applications violated her constitutional right to due process, that the bank inquiry order under the AMLA can only be granted in connection with violations of the AMLA and that the AMLA can not apply to bank accounts opened and transactions entered into prior to the effectivity of the AMLA or to bank accounts located outside the Philippines.

On 1 August 2006, the Court of Appeals, acting on Lilia Chengs petition, issued a Temporary Restraining Order enjoining the Manila and Makati trial courts from implementing, enforcing or executing the respective bank inquiry orders previously issued, and the AMLC from enforcing and implementing such orders. On even date, the Manila RTC issued an Order resolving to hold in abeyance the resolution of the urgent omnibus motion for reconsideration then pending before it until the resolution of Lilia Chengs petition for certiorari with the Court of Appeals. The Court of Appeals Resolution directing the issuance of the temporary restraining order is the second of the four rulings assailed in the present petition.

The third assailed ruling was issued on 15 August 2006 by the Manila RTC, acting on the Urgent Motion for Clarification dated 14 August 2006 filed by Alvarez. It appears that the 1 August 2006 Manila RTC Order had amended its previous 25 July 2006 Order by deleting the last paragraph which stated that the AMLC should not disclose or publish any information or document found or obtained in violation of the May 11, 2006 Order of this Court. In this new motion, Alvarez argued that the deletion of that paragraph would allow the AMLC to implement the bank inquiry orders and publish whatever information it might obtain thereupon even before the final orders of the Manila RTC could become final and executory. In the 15 August 2006 Order, the Manila RTC reiterated that the bank inquiry order it had issued could not be implemented or enforced by the AMLC or any of its representatives until the appeal therefrom was finally resolved and that any enforcement thereof would be unauthorized.

Issue/s:WON, a bank inquiry order issued in accordance with Section 10 of the AMLA may be stayed by injunction.

Held/Ratio: The orders were not of themselves in accordance with the law, hence, they should be stayed by injunction.

Money laundering has been generally defined by the International Criminal Police Organization (Interpol) `as any act or attempted act to conceal or disguise the identity of illegally obtained proceeds so that they appear to have originated from legitimate sources. Even before the passage of the AMLA, the problem was addressed by the Philippine government through the issuance of various circulars by the Bangko Sentral ng Pilipinas. Yet ultimately, legislative proscription was necessary, especially with the inclusion of the Philippines in the Financial Action Task Forces list of non-cooperative countries and territories in the fight against money laundering. The original AMLA, Republic Act (R.A.) No. 9160, was passed in 2001. It was amended by R.A. No. 9194 in 2003.

Section 4 of the AMLA states that [m]oney laundering is a crime whereby the proceeds of an unlawful activity as [defined in the law] are transacted, thereby making them appear to have originated from legitimate sources. The section further provides the three modes through which the crime of money laundering is committed. Section 7 creates the AMLC and defines its powers, which generally relate to the enforcement of the AMLA provisions and the initiation of legal actions authorized in the AMLA such as civil forefeiture proceedings and complaints for the prosecution of money laundering offenses.

In addition to providing for the definition and penalties for the crime of money laundering, the AMLA also authorizes certain provisional remedies that would aid the AMLC in the enforcement of the AMLA. These are the freeze order authorized under Section 10, and the bank inquiry order authorized under Section 11. Respondents posit that a bank inquiry order under Section 11 may be obtained only upon the pre-

existence of a money laundering offense case already filed before the courts. The conclusion is based on the phrase upon order of any competent court in cases of violation of this Act, the word cases generally understood as referring to actual cases pending with the courts. We are unconvinced by this proposition, and agree instead with the then Solicitor General who conceded that the use of the phrase in cases of was unfortunate, yet submitted that it should be interpreted to mean in the event there are violations of the AMLA, and not that there are already cases pending in court concerning such violations . If the contrary position is adopted, then the bank inquiry order would be limited in purpose as a tool in aid of litigation of live cases, and wholly inutile as a means for the government to ascertain whether there is sufficient evidence to sustain an intended prosecution of the account holder for violation of the AMLA. Should that be the situation, in all likelihood the AMLC would be virtually deprived of its character as a discovery tool, and thus would become less circumspect in filing complaints against suspect account holders. After all, under such set-up the preferred strategy would be to allow or even encourage the indiscriminate filing of complaints under the AMLA with the hope or expectation that the evidence of money laundering would somehow surface during the trial. Since the AMLC could not make use of the bank inquiry order to determine whether there is evidentiary basis to prosecute the suspected malefactors, not filing any case at all would not be an alternative. Such unwholesome set-up should not come to pass. Thus Section 11 cannot be interpreted in a way that would emasculate the remedy it has established and encourage the unfounded initiation of complaints for money laundering. Still, even if the bank inquiry order may be availed of without need of a pre-existing case under the AMLA, it does not follow that such order may be availed of ex parte. There are several reasons why the AMLA does not generally sanction ex parte applications and issuances of the bank inquiry order. It is evident that Section 11 does not specifically authorize, as a general rule, the issuance ex parte of the bank inquiry order. The provision in full:

SEC. 11. Authority to Inquire into Bank Deposits. ― Notwithstanding the provisions of Republic Act No. 1405, as amended, Republic Act No. 6426, as amended, Republic Act No. 8791, and other laws, the AMLC may inquire into or examine any particular deposit or investment with any banking institution or non bank financial institution upon order of any competent court in cases of violation of this Act, when it has been established that there is probable cause that the deposits or investments are related to an unlawful activity as defined in Section 3(i) hereof or a money laundering offense under Section 4 hereof, except that no court order shall be required in cases involving unlawful activities defined in Sections 3(i)1, (2) and (12).

To ensure compliance with this Act, the Bangko Sentral ng Pilipinas (BSP) may inquire into or examine any deposit of investment with any banking institution or non bank financial institution when the examination is made in the course of a PERIODIC OR SPECIAL EXAMINATION, in accordance with the rules of examination of the BSP. (Emphasis supplied) Of course, Section 11 also allows the AMLC to inquire into bank accounts without having to obtain a judicial order in cases 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. Since such special circumstances do not apply in this case, there is no need for us to pass comment on this proviso. Suffice it to say, the proviso contemplates a situation distinct from that which presently confronts us, and for purposes of the succeeding discussion, our reference to Section 11 of the AMLA excludes said proviso.

In the instances where a court order is required for the issuance of the bank inquiry order, nothing in Section 11 specifically authorizes that such court order may be issued ex parte . It might be argued that

this silence does not preclude the ex parte issuance of the bank inquiry order since the same is not prohibited under Section 11. Yet this argument falls when the immediately preceding provision, Section 10, is examined. SEC. 10. Freezing of Monetary Instrument or Property. ― The Court of Appeals, upon application ex parte by the AMLC and after determination that probable cause exists that any monetary instrument or property is in any way related to an unlawful activity as defined in Section 3(i) hereof, may issue a freeze order which shall be effective immediately. The freeze order shall be for a period of twenty (20) days unless extended by the court. Although oriented towards different purposes, the freeze order under Section 10 and the bank inquiry order under Section 11 are similar in that they are extraordinary provisional reliefs which the AMLC may avail of to effectively combat and prosecute money laundering offenses. Crucially, Section 10 uses specific language to authorize an ex parte application for the provisional relief therein, a circumstance absent in Section 11. If indeed the legislature had intended to authorize ex parte proceedings for the issuance of the bank inquiry order, then it could have easily expressed such intent in the law, as it did with the freeze order under Section 10. Even more tellingly, the current language of Sections 10 and 11 of the AMLA was crafted at the same time, through the passage of R.A. No. 9194. Prior to the amendatory law, it was the AMLC, not the Court of Appeals, which had authority to issue a freeze order, whereas a bank inquiry order always then required, without exception, an order from a competent court. It was through the same enactment that ex parte proceedings were introduced for the first time into the AMLA, in the case of the freeze order which now can only be issued by the Court of Appeals. It certainly would have been convenient, through the same amendatory law, to allow a similar ex parte procedure in the case of a bank inquiry order had Congress been so minded. Yet nothing in the provision itself, or even the available legislative record, explicitly points to an ex parte judicial procedure in the application for a bank inquiry order , unlike in the case of the freeze order.

That the AMLA does not contemplate ex parte proceedings in applications for bank inquiry orders is confirmed by the present implementing rules and regulations of the AMLA, promulgated upon the passage of R.A. No. 9194 . With respect to freeze orders under Section 10, the implementing rules do expressly provide that the applications for freeze orders be filed ex parte, but no similar clearance is granted in the case of inquiry orders under Section 11. These implementing rules were promulgated by the Bangko Sentral ng Pilipinas, the Insurance Commission and the Securities and Exchange Commission, and if it was the true belief of these institutions that inquiry orders could be issued ex parte similar to freeze orders, language to that effect would have been incorporated in the said Rules. This is stressed not because the implementing rules could authorize ex parte applications for inquiry orders despite the absence of statutory basis, but rather because the framers of the law had no intention to allow such ex parte applications. Even the Rules of Procedure adopted by this Court in A.M. No. 05-11-04-SC to enforce the provisions of the AMLA specifically authorize ex parte applications with respect to freeze orders under Section 10 but make no similar authorization with respect to bank inquiry orders under Section 11.

The Court could divine the sense in allowing ex parte proceedings under Section 10 and in proscribing the same under Section 11. A freeze order under Section 10 on the one hand is aimed at preserving monetary instruments or property in any way deemed related to unlawful activities as defined in Section 3(i) of the AMLA. The owner of such monetary instruments or property would thus be inhibited from utilizing the same for the duration of the freeze order . To make such freeze order anteceded by a judicial proceeding with notice to the account holder would allow for or lead to the dissipation of such funds even before the order could be issued.On the other hand, a bank inquiry order under Section 11 does not necessitate any form of physical

seizure of property of the account holder. What the bank inquiry order authorizes is the examination of the particular deposits or investments in banking institutions or non-bank financial institutions . The monetary instruments or property deposited with such banks or financial institutions are not seized in a physical sense, but are examined on particular details such as the account holders record of deposits and transactions. Unlike the assets subject of the freeze order, the RECORDS to be inspected under a bank inquiry order cannot be physically seized or hidden by the account holder . Said records are in the possession of the bank and therefore cannot be destroyed at the instance of the account holder alone as that would require the extraordinary cooperation and devotion of the bank. Interestingly, petitioners’ memorandum does not attempt to demonstrate before the Court that the bank inquiry order under Section 11 may be issued ex parte , although the petition itself did devote some space for that argument. The petition argues that the bank inquiry order is a special and peculiar remedy, drastic in its name, and made necessary because of a public necessity [t]hus, by its very nature, the application for an order or inquiry must necessarily, be ex parte. This argument is insufficient justification in light of the clear disinclination of Congress to allow the issuance ex parte of bank inquiry orders under Section 11, in contrast to the legislatures clear inclination to allow the ex parte grant of freeze orders under Section 10. Without doubt, a requirement that the application for a bank inquiry order be done with notice to the account holder will alert the latter that there is a plan to inspect his bank account on the belief that the funds therein are involved in an unlawful activity or money laundering offense. Still, the account holder so alerted will in fact be unable to do anything to conceal or cleanse his bank account records of suspicious or anomalous transactions, at least not without the whole-hearted cooperation of the bank, which inherently has no vested interest to aid the account holder in such manner.

The necessary implication of this finding that Section 11 of the AMLA does not generally authorize the ISSUANCE EX PARTE OF THE BANK INQUIRY ORDER WOULD BE THAT SUCH ORDERS CANNOT BE ISSUED UNLESS NOTICE IS GIVEN TO THE OWNERS OF THE ACCOUNT, ALLOWING THEM THE OPPORTUNITY TO CONTEST THE ISSUANCE OF THE ORDER. Without such a consequence, the legislated distinction between ex parte proceedings under Section 10 and those which are not ex parte under Section 11 would be lost and rendered useless.

There certainly is fertile ground to contest the issuance of an ex parte order. Section 11 itself requires that it be established that there is probable cause that the deposits or investments are related to unlawful activities, and it obviously is the court which stands as arbiter whether there is indeed such probable cause. The process of inquiring into the existence of probable cause would involve the function of determination reposed on the trial court. Determination clearly implies a function of adjudication on the part of the trial court , and not a mechanical application of a standard pre-determination by some other body. The word "determination" implies deliberation and is, in normal legal contemplation, equivalent to "the decision of a court of justice."

The court receiving the application for inquiry order cannot simply take the AMLCs word that probable cause exists that the deposits or investments are related to an unlawful activity. It will have to exercise its own determinative function in order to be convinced of such fact. The account holder would be certainly capable of contesting such probable cause if given the opportunity to be apprised of the pending application to inquire into his account; hence a notice requirement would not be an empty spectacle. It may be so that the process of obtaining the inquiry order may become more cumbersome or prolonged because of the notice requirement, yet we fail to see any unreasonable burden cast by such circumstance. After all, as earlier stated, requiring notice to the account holder should not, in any way, compromise the integrity of the bank records subject of the inquiry which remain in the possession and control of the bank.

The Constitution and the Rules of Court prescribe particular requirements attaching to search warrants

that are not imposed by the AMLA with respect to bank inquiry orders. A constitutional warrant requires that the judge personally examine under oath or affirmation the complainant and the witnesses he may produce, such examination being in the form of searching questions and answers. Those are impositions which the legislative did not specifically prescribe as to the bank inquiry order under the AMLA, and we cannot find sufficient legal basis to apply them to Section 11 of the AMLA. Simply put, a bank inquiry order is not a search warrant or warrant of arrest as it contemplates a direct object but not the seizure of persons or property.

Even as the Constitution and the Rules of Court impose a high procedural standard for the determination of probable cause for the issuance of search warrants which Congress chose not to prescribe for the bank inquiry order under the AMLA, Congress nonetheless disallowed ex parte applications for the inquiry order. We can discern that in exchange for these procedural standards normally applied to search warrants, Congress chose instead to legislate a right to notice and a right to be heard characteristics of judicial proceedings which are not ex parte. Absent any demonstrable constitutional infirmity, there is no reason for us to dispute such legislative policy choices. The Courts construction of Section 11 of the AMLA is undoubtedly influenced by right to privacy considerations. If sustained, petitioners argument that a bank account may be inspected by the government following an ex parte proceeding about which the depositor would know nothing would have significant implications on the right to privacy, a right innately cherished by all notwithstanding the legally recognized exceptions thereto. The notion that the government could be so empowered is cause for concern of any individual who values the right to privacy which, after all, embodies even the right to be let alone, the most comprehensive of rights and the right most valued by civilized people. One might assume that the constitutional dimension of the right to privacy, as applied to bank deposits, warrants our present inquiry. We decline to do so. Admittedly, that question has proved controversial in American jurisprudence. Notably, the United States Supreme Court in U.S. v. Miller held that there was no legitimate expectation of privacy as to the bank records of a depositor. Moreover, the text of our Constitution has not bothered with the triviality of allocating specific rights peculiar to bank deposits.

However, sufficient for our purposes, we can assert there is a right to privacy governing bank accounts in the Philippines, and that such right finds application to the case at bar. The source of such right is statutory, expressed as it is in R.A. No. 1405 otherwise known as the Bank Secrecy Act of 1955. The right to privacy is enshrined in Section 2 of that law, to wit: SECTION 2. 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. (Emphasis supplied) Because of the Bank Secrecy Act, the confidentiality of bank deposits remains a basic state policy in the Philippines. Subsequent laws, including the AMLA, may have added exceptions to the Bank Secrecy Act, yet the secrecy of bank deposits still lies as the general rule. It falls within the zones of privacy recognized by our laws. The framers of the 1987 Constitution likewise recognized that bank accounts are not covered by either the right to information under Section 7, Article III or under the requirement of full public disclosure under Section 28, Article II. Unless the Bank Secrecy Act is repealed or amended, the legal order is obliged to conserve the absolutely confidential nature of Philippine bank deposits.

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 office; 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 the 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 [a]ll 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. There is disfavor towards construing these exceptions in such a manner that would authorize unlimited discretion on the part of the government or of any party seeking to enforce those exceptions and inquire into bank deposits. If there are 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. Such a stance would persist unless Congress passes a law reversing the general state policy of preserving the absolutely confidential nature of Philippine bank accounts.

We are reasonably convinced that Lilia Cheng has sufficiently demonstrated her joint ownership of the three accounts, and such conclusion leads us to acknowledge that she has the standing to assail via certiorari the inquiry orders authorizing the examination of her bank accounts as the orders interfere with her statutory right to maintain the secrecy of said accounts.

While petitioner would premise that the inquiry into Lilia Chengs accounts finds root in Section 11 of the AMLA, it cannot be denied that the authority to inquire under Section 11 is only exceptional in character , contrary as it is to the general rule preserving the secrecy of bank deposits. Even though she may not have been the subject of the inquiry orders, her bank accounts nevertheless were, and she thus has the standing to vindicate the right to secrecy that attaches to said accounts and their owners. This statutory right to privacy will not prevent the courts from authorizing the inquiry anyway upon the fulfillment of the requirements set forth under Section 11 of the AMLA or Section 2 of the Bank Secrecy Act ; at the same time, the owner of the accounts have the right to challenge whether the requirements were indeed complied with.

Lilia Cheng argues that the AMLA, being a substantive penal statute, has no retroactive effect and the bank inquiry order could not apply to deposits or investments opened prior to the effectivity of Rep. Act No. 9164, or on 17 October 2001. Thus, she concludes, her subject bank accounts, opened between 1989

to 1990, could not be the subject of the bank inquiry order lest there be a violation of the constitutional prohibition against ex post facto laws. No ex post facto law may be enacted, and no law may be construed in such fashion as to permit a criminal prosecution offensive to the ex post facto clause . As applied to the AMLA, it is plain that no person may be prosecuted under the penal provisions of the AMLA for acts committed prior to the enactment of the law on 17 October 2001. As much was understood by the lawmakers since they deliberated upon the AMLA, and indeed there is no serious dispute on that point.

Does the proscription against ex post facto laws apply to the interpretation of Section 11, a provision which does not provide for a penal sanction but which merely authorizes the inspection of suspect accounts and deposits? The answer is in the affirmative. In this jurisdiction, we have defined an ex post facto law as one which either:

(1) Makes criminal an act done before the passage of the law and which was innocent when done, and punishes such an act;

(2) Aggravates a crime, or makes it greater than it was, when committed;(3) Changes the punishment and inflicts a greater punishment than the law annexed to the crime

when committed;(4) Alters the legal rules of evidence, and authorizes conviction upon less or different testimony than

the law required at the time of the commission of the offense;(5) Assuming to regulate civil rights and remedies only, in effect imposes penalty or deprivation of a

right for something which when done was lawful; and(6) Deprives a person accused of a crime of some lawful protection to which he has become

entitled, such as the protection of a former conviction or acquittal, or a proclamation of amnesty. (Emphasis supplied)

Prior to the enactment of the AMLA, the fact that bank accounts or deposits were involved in activities later on enumerated in Section 3 of the law DID NOT, by itself, remove such accounts from the shelter of absolute confidentiality. Prior to the AMLA, in order that bank accounts could be examined, there was need to secure either the written permission of the depositor or a court order authorizing such examination, assuming that they were involved in cases of bribery or dereliction of duty of public officials, or in a case where the money deposited or invested was itself the subject matter of the litigation. The passage of the AMLA stripped another layer off the rule on absolute confidentiality that provided a measure of lawful protection to the account holder. For that reason, the application of the bank inquiry order as a means of inquiring into records of transactions entered into prior to the passage of the AMLA would be constitutionally infirm, offensive as it is to the ex post facto clause. Still, we must note that the position submitted by Lilia Cheng is much broader than what we are willing to affirm. She argues that the proscription against ex post facto laws goes as far as to prohibit any inquiry into deposits or investments included in bank accounts opened prior to the effectivity of the AMLA even if the suspect transactions were entered into when the law had already taken effect. The Court recognizes that if this argument were to be affirmed, it would create a horrible loophole in the AMLA that would in turn supply the means to fearlessly engage in money laundering in the Philippines; all that the criminal has to do is to make sure that the money laundering activity is facilitated through a bank account opened prior to 2001. We can hardly presume that Congress intended to enact a self-defeating law in the first place, and the courts are inhibited from such a construction by the cardinal rule that a law should be interpreted with a view to upholding rather than destroying it. Besides, nowhere in the legislative record cited by Lilia Cheng does it appear that there was an unequivocal intent to exempt from the bank inquiry order all bank accounts opened prior to the passage of the AMLA. There is a cited exchange between Representatives Ronaldo Zamora and Jaime Lopez where the latter confirmed to the former that deposits are supposed to be exempted from scrutiny or monitoring if they are already in place as of the time the law is enacted. That statement does

indicate that transactions already in place when the AMLA was passed are indeed exempt from scrutiny through a bank inquiry order, but it cannot yield any interpretation that records of transactions undertaken after the enactment of the AMLA are similarly exempt. Due to the absence of cited authority from the legislative record that unqualifiedly supports respondent Lilia Chengs thesis, there is no cause for us to sustain her interpretation of the AMLA, fatal as it is to the anima of that law.

GOVERNMENT SERVICE INSURANCE SYSTEM, Petitioner, v 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. || G.R. No. 189206 Facts: The controversy originated from a surety agreement by which Domsat obtained a surety bond from GSIS to secure the payment of the loan from the Banks.

When Domsat failed to pay the loan, GSIS refused to comply with its obligation reasoning that Domsat did not use the loan proceeds for the payment of rental for the satellite. GSIS alleged that Domsat, with Westmont Bank as the conduit, transferred the U.S. $11 Million loan proceeds from the Industrial Bank of Korea to Citibank New York account of Westmont Bank and from there to the Binondo Branch of Westmont Bank. The Banks filed a complaint before the RTC of Makati against Domsat and GSIS. In the course of the hearing, GSIS requested for the issuance of a subpoena duces tecum to the custodian of records of Westmont Bank to produce the following documents: 1. Ledger covering the account of DOMSAT Holdings, Inc. with Westmont Bank (now United Overseas Bank), any and all documents, records, files, books, deeds, papers, notes and other data and materials relating to the account or transactions of DOMSAT Holdings, Inc. with or through the Westmont Bank (now United Overseas Bank) for the period January 1997 to December 2002, in his/her direct or indirect possession, custody or control (whether actual or constructive), whether in his/her capacity as Custodian of Records or otherwise; 2. All applications for cashiers/ managers checks and bank transfers funded by the account of DOMSAT Holdings, Inc. with or through the Westmont Bank (now United Overseas Bank) for the period January 1997 to December 2002, and all other data and materials covering said applications, in his/her direct or indirect possession, custody or control (whether actual or constructive), whether in his/her capacity as Custodian of Records or otherwise; 3. Ledger covering the account of Philippine Agila Satellite, Inc. with Westmont Bank (now United Overseas Bank), any and all documents, records, files, books, deeds, papers, notes and other data and materials relating to the account or transactions of Philippine Agila Satellite, Inc. with or through the Westmont bank (now United Overseas Bank) for the period January 1997 to December 2002, in his/her direct or indirect possession, custody or control (whether actual or constructive), whether in his/her capacity as Custodian of Records or otherwise; 4. All applications for cashiers/managers checks funded by the account of Philippine Agila Satellite, Inc. with or through the Westmont Bank (now United Overseas Bank) for the period January 1997 to December 2002, and all other data and materials covering said applications, in his/her direct or indirect possession, custody or control (whether actual or constructive), whether in his/her capacity as Custodian of Records or otherwise. A motion to quash was filed by the banks on three grounds: 1) the subpoena is unreasonable, oppressive and does not establish the relevance of the documents sought; 2) request for the documents will violate the Law on Secrecy of Bank Deposits; and 3) GSIS failed to advance the reasonable cost of production of

the documents. Domsat also joined the banks motion to quash through its Manifestation/Comment. On 9 April 2003, the RTC issued an Order denying the motion to quash for lack of merit. On 26 June 2003, another Order was issued by the RTC denying the motion for reconsideration filed by the banks. On 1 September 2003 however, the trial court granted the second motion for reconsideration filed by the banks. The previous subpoenas issued were consequently quashed. The trial court invoked the ruling in Intengan v. Court of Appeals, where it was ruled that foreign currency deposits are absolutely confidential and may be examined only when there is a written permission from the depositor. The motion for reconsideration filed by GSIS was denied on 30 December 2003. Issue/s:Which of the two laws should apply in the instant case: Republic Act No. 1405 was enacted in 1955. Section 2 thereof was first amended by Presidential Decree No. 1792 in 1981 and further amended by Republic Act No. 7653 in 1993. It now reads: Section 2. 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.

OR

Section 8 of Republic Act No. 6426, which was enacted in 1974, and amended by Presidential Decree No. 1035 and later by Presidential Decree No. 1246, provides: Section 8. Secrecy of Foreign Currency Deposits. All foreign currency deposits authorized under this Act, as amended by Presidential Decree No. 1035, as well as foreign currency deposits authorized under Presidential Decree No. 1034, are hereby declared as and considered of an absolutely confidential nature and, except upon the written permission of the depositor, in no instance shall foreign currency deposits be examined, inquired or looked into by any person, government official, bureau or office whether judicial or administrative or legislative or any other entity whether public or private; Provided, however, That said foreign currency deposits shall be exempt from attachment, garnishment, or any other order or process of any court, legislative body, government agency or any administrative body whatsoever. (As amended by PD No. 1035, and further amended by PD No. 1246, prom. Nov. 21, 1977.) Held/Ratio:RA 6426 applies since it is a special law but both do not contradict each other. On the one hand, Republic Act No. 1405 provides for four (4) exceptions when records of deposits may be disclosed. These are under any of the following instances: a) upon written permission of the depositor, (b) in cases of impeachment, (c) upon order of a competent court in the case of bribery or dereliction of duty of public officials or, (d) when the money deposited or invested is the subject matter of the litigation, and e) in cases of violation of the Anti-Money Laundering Act (AMLA), the Anti-Money Laundering Council (AMLC) may inquire into a bank account upon order of any competent court. On the other hand, the lone exception to the non-disclosure of foreign currency deposits, under Republic Act No. 6426, is disclosure upon the written permission of the depositor. These two laws both support the confidentiality of bank deposits. There is no conflict between them. Republic Act No. 1405 was enacted for the purpose of giving encouragement to the people to deposit their money in banking institutions and to discourage private hoarding so that the same may be properly

utilized by banks in authorized loans to assist in the economic development of the country. It covers all bank deposits in the Philippines and no distinction was made between domestic and foreign deposits. Thus, Republic Act No. 1405 is considered a law of general application. On the other hand, Republic Act No. 6426 was intended to encourage deposits from foreign lenders and investors. RA 6426 is a special law designed especially for foreign currency deposits in the Philippines . A general law does not nullify a specific or special law. Generalia specialibus non derogant. Therefore, it is beyond 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 foreign currency 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 the deception practiced by the officers, were annexed to the complaint. Petitioners now complained that Citibank violated Republic Act No. 1405. This 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. The above pronouncement was reiterated in China Banking Corporation v. Court of Appeals, where respondent accused his daughter of stealing his dollar deposits with Citibank. The latter allegedly received the checks from Citibank and deposited them to her account in China Bank. The subject checks were presented in evidence. A subpoena was issued to employees of China Bank to testify on these checks. China Bank argued that the Citibank dollar checks with both respondent and/or her daughter as payees, deposited with China Bank, may not be looked into under the law on secrecy of foreign currency deposits. This Court highlighted the exception to the non-disclosure of foreign currency deposits, i.e., in the case of a written permission of the depositor, and ruled that respondent, as owner of the funds unlawfully taken and which are undisputably now deposited with China Bank, he has the right to inquire into the said deposits. Applying Section 8 of Republic Act No. 6426, absent the written permission from Domsat, Westmont Bank cannot be legally compelled to disclose the bank deposits of Domsat, otherwise, it might expose itself to criminal liability under the same act. The basis for the application of subpoena is to prove that the loan intended for Domsat by the Banks and guaranteed by GSIS, was diverted to a purpose other than that stated in the surety bond. The Banks, however, argue that GSIS is in fact liable to them for the proper applications of the loan proceeds and not vice-versa. We are however not prepared to rule on the merits of this case lest we pre-empt the findings of the lower courts on the matter.

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.

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. Pertinent portions of his affidavit are quoted hereunder:2.1 Sometime this year, the higher management of Citibank, N.A. assigned me to assist in the investigation of certain anomalous/highly irregular activities of the Treasurer of the Global Consumer Group of the bank, namely, Dante L. Santos and the Asst. Vice President in the office of Mr. Dante L. Santos, namely Ms. Marilou (also called Malou) Genuino. Ms. Marilou Genuino apart from being an Assistant Vice President in the office of Mr. Dante L. Santos also performed the duties of an Account

Officer. An Account Officer in the office of Mr. Dante L. Santos personally attends to clients of the bank in the effort to persuade clients to place and keep their monies in the products of Citibank, NA., such as peso and dollar deposits, mortgage backed securities and money placements, among others.xxx xxx xxx4.1 The investigation in which I was asked to participate was undertaken because the bank had found records/evidence showing that Mr. Dante L. Santos and Ms. Malou Genuino, contrary to their disclosures and the aforementioned bank policy, appeared to have been actively engaged in business endeavors that were in conflict with the business of the bank. It was found that with the use of two (2) companies in which they have personal financial interest, namely Torrance Development Corporation and Global Pacific Corporation, they managed or caused existing bank clients/depositors to divert their money from Citibank, N.A., such as those placed in peso and dollar deposits and money placements, to products offered by other companies that were commanding higher rate of yields. This was done by first transferring bank clients monies to Torrance and Global which in turn placed the monies of the bank clients in securities, shares of stock and other certificates of third parties. It also appeared that out of these transactions, Mr. Dante L. Santos and Ms. Marilou Genuino derived substantial financial gains.5.1 In the course of the investigation, I was able to determine that the bank clients which Mr. Santos and Ms. Genuino helped/caused to divert their deposits/money placements with Citibank, NA. to Torrance and Global (their family corporations) for subsequent investment in securities, shares of stocks and debt papers in other companies were as follows:xxxb) Carmen Intenganxxxd) Rosario Nerixxxi) Rita BrawnerAll the above persons/parties have long standing accounts with Citibank, N.A. in savings/dollar deposits and/or in trust accounts and/or money placements.

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, as follows:a) Annex A-6 — an Application for Money Transfer in the amount of US $140,000.00, executed by Intengan in favor of Citibank $ S/A No. 24367796, to be debited from her Account No. 22543341;b) Annex A-7— a Money Transfer Slip in the amount of US $45,996.30, executed by Brawner in favor of Citibank $ S/A No. 24367796, to be debited from her Account No. 22543236; andc) Annex A-9 — an Application for Money Transfer in the amount of US $100,000.00, executed by Neri in favor of Citibank $ S/A No. 24367796, to be debited from her Account No. 24501018.

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. He states that private respondents Aziz Rajkotwala and William Ferguson, Citibank, N.A. Global Consumer Banking Country Business Manager and Country Corporate Officer, respectively, had no hand in the disclosure, and that he did so upon the advice of counsel.

In his memorandum, the Solicitor General described the scheme as having been conducted in this manner:First step: Santos and/or Genuino would tell the bank client that they knew of financial products of other companies that were yielding higher rates of interests in which the bank client can place his money. Acting on this information, the bank client would then authorize the transfer of his funds from his Citibank account to the Citibank account of either Torrance or Global.The transfer of the Citibank clients deposits was done through the accomplishment of either an Application For Managers Checks or a Term Investment Application in favor of Global or Torrance that

was prepared/filed by Genuino herself.Upon approval of the Application for Managers Checks or Term Investment Application, the funds of the bank client covered thereof were then deposited in the Citibank accounts of Torrance and/or Global.Second step: Once the said fund transfers had been effected, Global and/or Torrance would then issue its/ their checks drawn against its/their Citibank accounts in favor of the other companies whose financial products, such as securities, shares of stocks and other certificates, were offering higher yields.Third step: On maturity date(s) of the placements made by Torrance and/or Global in the other companies, using the monies of the Citibank client, the other companies would then. return the placements to Global and/or Torrance with the corresponding interests earned.Fourth step: Upon receipt by Global and/or Torrance of the remittances from the other companies, Global and/or Torrance would then issue its/their own checks drawn against their Citibank accounts in favor of Santos and Genuino.The amounts covered by the checks represent the shares of Santos and Genuino in the margins Global and/or Torrance had realized out of the placements [using the diverted monies of the Citibank clients] made with the other companies.Fifth step: At the same time, Global and/or Torrance would also issue its/their check(s) drawn against its/their Citibank accounts in favor of the bank client.The check(s) cover the principal amount (or parts thereof) which the Citibank client had previously transferred, with the help of Santos and/or Genuino, from his Citibank account to the Citibank account(s) of Global and/or Torrance for placement in the other companies, plus the interests or earnings his placements in other companies had made less the spreads made by Global, Torrance, Santos and Genuino.

Issue/s:WON, the disclosure of the petitioner’s bank records was unwarranted and illegal.

Held/Ratio:It could have been but the petitioner filed a wrong case against the respondents. The petitioner should have filed a case for violation of RA 6426.

Actually, this case should have been studied more carefully by all concerned. The finest legal minds in the country - from the parties respective counsel, the Provincial Prosecutor, the Department of Justice, the Solicitor General, and the Court of Appeals - all appear to have overlooked a single fact which dictates the outcome of the entire controversy. A circumspect review of the record shows us the reason. 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, section 8 of which provides:Sec. 8. Secrecy of Foreign Currency Deposits.- All foreign currency deposits authorized under this Act, as amended by Presidential Decree No. 1035, as well as foreign currency deposits authorized under Presidential Decree No. 1034, are hereby declared as and considered of an absolutely confidential nature and, except upon the written permission of the depositor, in no instance shall such foreign currency deposits be examined, inquired or looked into by any person, government official bureau or office whether judicial or administrative or legislative or any other entity whether public or private: Provided, however, that said foreign currency deposits shall be exempt from attachment, garnishment, or any other order or process of any court, legislative body, government agency or any administrative body whatsoever. [if !

supportFootnotes][21][endif] (italics supplied)

Thus, under R.A. No. 6426 there is only a single exception to the secrecy of foreign currency deposits, that is, disclosure is allowed only upon the written permission of the depositor. Incidentally, the acts of private respondents complained of happened before the enactment on September 29, 2001 of R.A. No. 9160 otherwise known as the Anti-Money Laundering Act of 2001.

A case for violation of Republic Act No. 6426 should have been the proper case brought against private

respondents. Private respondents Lim and Reyes admitted that they had disclosed details of petitioners dollar deposits without the latters written permission. It does not matter if that such disclosure was necessary to establish Citibanks case against Dante L. Santos and Marilou Genuino. Lims act of disclosing details of petitioners bank records regarding their foreign currency deposits, with the authority of Reyes, would appear to belong to that species of criminal acts punishable by special laws, called malum prohibitum. In this regard, it has been held that:While it is true that, as a rule and on principles of abstract justice, men are not and should not be held criminally responsible for acts committed by them without guilty knowledge and criminal or at least evil intent xxx, the courts have always recognized the power of the legislature, on grounds of public policy and compelled by necessity, the great master of things, to forbid in a limited class of cases the doing of certain acts, and to make their commission criminal without regard to the intent of the doer. xxx In such cases no judicial authority has the power to require, in the enforcement of the law, such knowledge or motive to be shown. As was said in the case of State vs. McBrayer xxx:It is a mistaken notion that positive, willful intent, as distinguished from a mere intent, to violate the criminal law, is an essential ingredient in every criminal offense, and that where there is the absence of such intent there is no offense; this is especially so as to statutory offenses. When the statute plainly forbids an act to be done, and it is done by some person, the law implies conclusively the guilty intent, although the offender was honestly mistaken as to the meaning of the law he violates. When the language is plain and positive, and the offense is not made to depend upon the positive, willful intent and purpose, nothing is left to interpretation.[if !supportFootnotes][22][endif]

Ordinarily, the dismissal of the instant petition would have been without prejudice to the filing of the proper charges against private respondents. The matter would have ended here were it not for the intervention of time, specifically the lapse thereof. So as not to unduly prolong the settlement of the case, we are constrained to rule on a material issue even though it was not raised by the parties. We refer to the issue of prescription.Republic Act No. 6426 being a special law, the provisions of Act No. 3326, as amended by Act No. 3763, are applicable:

SECTION 1. Violations penalized by special acts shall, unless otherwise provided in such acts, prescribe in accordance with the following rules: (a) after a year for offences punished only by a fine or by imprisonment for not more than one month, or both: (b) after four years for those punished by imprisonment for more than one month, but less than two years; (c) after eight years for those punished by imprisonment for two years or more, but less than six years; and (d) after twelve years for any other offence punished by imprisonment for six years or more, except the crime of treason, which shall prescribe after twenty years: Provided, however, That all offences against any law or part of law administered by the Bureau of Internal Revenue shall prescribe after five years. Violations penalized by municipal ordinances shall prescribe after two months.Violations of the regulations or conditions of certificates of public convenience issued by the Public Service Commission shall prescribe after two months.SEC. 2. Prescription shall begin to run from the day of the commission of the violation of the law, and if the same be not known at the time, from the discovery thereof and the institution of judicial proceedings for its investigation and punishment.The prescription shall be interrupted when proceedings are instituted against the guilty person, and shall begin to run again if the proceedings are dismissed for reasons not constituting jeopardy.

A violation of Republic Act No. 6426 shall subject the offender to imprisonment of not less than one year nor more than five years, or by a fine of not less than five thousand pesos nor more than twenty-five thousand pesos, or both. Applying Act No. 3326, the offense prescribes in eight years. Per available records, private respondents may no longer be haled before the courts for violation of Republic Act No. 6426. Private respondent Vic Lim made the disclosure in September of 1993 in his affidavit submitted before the Provincial Fiscal. In her complaint-affidavit, Intengan stated that she learned of the revelation of the details of her foreign currency bank account on October 14, 1993. On the other hand, Neri asserts

that she discovered the disclosure on October 24, 1993.[As to Brawner, the material date is January 5, 1994. Based on any of these dates, prescription has set in.

The filing of the complaint or information in the case at bar for alleged violation of Republic Act No. 1405 did not have the effect of tolling the prescriptive period. For it is the filing of the complaint or information corresponding to the correct offense which produces that effect.

It may well be argued that the foregoing disquisition would leave petitioners with no remedy in law. We point out, however, that the confidentiality of foreign currency deposits mandated by Republic Act No. 6426, as amended by Presidential Decree No. 1246, came into effect as far back as 1977. Hence, ignorance thereof cannot be pretended. On one hand, the existence of laws is a matter of mandatory judicial notice;[on the other, ignorantia legis non excusat. Even during the pendency of this appeal, nothing prevented the petitioners from filing a complaint charging the correct offense against private respondents. This was not done, as everyone involved was content to submit the case on the basis of an alleged violation of Republic Act No. 1405 (Bank Secrecy Law), however, incorrectly invoked.

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, v THE HONORABLE COURT OF APPEALS and SULPICIO M. TOLENTINO, respondents.

Facts:On April 28, 1965, 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, and covered by TCT No. T-305, and which mortgage was annotated on the said title the next day. The approved loan application called for a lump sum P80,000.00 loan, repayable in semi-annual installments for a period of 3 years, with 12% annual interest. It was required that Sulpicio M. Tolentino shall use the loan proceeds solely as an additional capital to develop his other property into a subdivision.

On May 22, 1965, a mere P17,000.00 partial release of the P80,000.00 loan was made by the Bank; and Sulpicio M. Tolentino and his wife Edita Tolentino signed a promissory note for P17,000.00 at 12% annual interest, payable within 3 years from the date of execution of the contract at semi-annual installments of P3,459.00 (p. 64, rec.). An advance interest for the P80,000.00 loan covering a 6-month period amounting to P4,800.00 was deducted from the partial release of P17,000.00. But this pre-deducted interest was refunded to Sulpicio M. Tolentino on July 23, 1965, after being informed by the Bank that there was no fund yet available for the release of the P63,000.00 balance (p. 47, rec.). The Bank, thru its vice-president and treasurer, promised repeatedly the release of the P63,000.00 balance (p. 113, rec.).

On August 13, 1965, the Monetary Board of the Central Bank, after finding Island Savings Bank was suffering liquidity problems, issued Resolution No. 1049, which provides:In view of the chronic reserve deficiencies of the Island Savings Bank against its deposit liabilities, the Board, by unanimous vote, decided as follows:1) To prohibit the bank from making new loans and investments [except investments in government securities] excluding extensions or renewals of already approved loans, provided that such extensions or renewals shall be subject to review by the Superintendent of Banks, who may impose such limitations as may be necessary to insure correction of the bank's deficiency as soon as possible;xxx xxx xxx(p. 46, rec.).On June 14, 1968, the Monetary Board, after finding that Island Savings Bank failed to put up the required capital to restore its solvency, issued Resolution No. 967 which prohibited Island Savings Bank from doing business in the Philippines and instructed the Acting Superintendent of Banks to take charge of the assets of Island Savings Bank (pp. 48-49, rec).

On August 1, 1968, Island Savings Bank, in view of non-payment of the P17,000.00 covered by the promissory note, filed an application for the extra-judicial foreclosure of the real estate mortgage covering the 100-hectare land of Sulpicio M. Tolentino; and the sheriff scheduled the auction for January 22, 1969.

On January 20, 1969, Sulpicio M. Tolentino filed a petition with the Court of First Instance of Agusan for injunction, specific performance or rescission and damages with preliminary injunction, alleging that since Island Savings Bank failed to deliver the P63,000.00 balance of the P80,000.00 loan, he is entitled to specific performance by ordering Island Savings Bank to deliver the P63,000.00 with interest of 12% per annum from April 28, 1965, and if said balance cannot be delivered, to rescind the real estate mortgage (pp. 32-43, rec.).

The RTC ruled that Tolentino should pay Island Savings Bank the amount of P17,000 plus legal interes and legal charges due thereon, and it lifted the restraining order so that the sheriff might proceed with the foreclosure.

The CA affirmed the dismissal on Tolentino’s petition for specific performance but it ruled that the bank could neither foreclose nor collect the P17,000 loan.

Issue/s:The issues are:1. Can the action of Sulpicio M. Tolentino for specific performance prosper? — NO, prohibited already by the BSP2. Is Sulpicio M. Tolentino liable to pay the P17,000.00 debt covered by the promissory note? — YES, he signed a promissory note that gave rise to his obligation to pay3. If Sulpicio M. Tolentino's liability to pay the P17,000.00 subsists, can his real estate mortgage be foreclosed to satisfy said amount? — Yes but not entirely, this is an exception of the indivisibility of the mortgage rule

Held/Ratio:When Island Savings Bank and Sulpicio M. Tolentino entered into an P80,000.00 loan agreement on April 28, 1965, they undertook reciprocal obligations. In reciprocal obligations, the obligation or promise of each party is the consideration for that of the other and when one party has performed or is ready and willing to perform his part of the contract, the other party who has not performed or is not ready and willing to perform incurs in delay (Art. 1169 of the Civil Code). The promise of Sulpicio M. Tolentino to pay was the consideration for the obligation of Island Savings Bank to furnish the P80,000.00 loan. When Sulpicio M. Tolentino executed a real estate mortgage on April 28, 1965, he signified his willingness to pay the P80,000.00 loan. From such date, the obligation of Island Savings Bank to furnish the P80,000.00 loan accrued. Thus, the Bank's delay in furnishing the entire loan started on April 28, 1965, and lasted for a period of 3 years or when the Monetary Board of the Central Bank issued Resolution No. 967 on June 14, 1968, which prohibited Island Savings Bank from doing further business. Such prohibition made it legally impossible for Island Savings Bank to furnish the P63,000.00 balance of the P80,000.00 loan. The power of the Monetary Board to take over insolvent banks for the protection of the public is recognized by Section 29 of R.A. No. 265, which took effect on June 15, 1948, the validity of which is not in question.

The Board Resolution No. 1049 issued on August 13,1965 cannot interrupt the default of Island Savings Bank in complying with its obligation of releasing the P63,000.00 balance because said resolution merely prohibited the Bank from making new loans and investments, and nowhere did it prohibit island Savings Bank from releasing the balance of loan agreements previously contracted. Besides, the mere pecuniary inability to fulfill an engagement does not discharge the obligation of the contract, nor does it constitute any defense to a decree of specific performance. And, the mere fact of insolvency of a debtor is never an excuse for the non-fulfillment of an obligation but 'instead it is taken as a breach of the contract by him.

The fact that Sulpicio M. Tolentino demanded and accepted the refund of the pre-deducted interest amounting to P4,800.00 for the supposed P80,000.00 loan covering a 6-month period cannot be taken as a waiver of his right to collect the P63,000.00 balance. The act of Island Savings Bank, in asking the advance interest for 6 months on the supposed P80,000.00 loan, was improper considering that only P17,000.00 out of the P80,000.00 loan was released. A person cannot be legally charged interest for a non-existing debt. Thus, the receipt by Sulpicio M. 'Tolentino of the pre-deducted interest was an exercise of his right to it, which right exist independently of his right to demand the completion of the P80,000.00 loan. The exercise of one right does not affect, much less neutralize, the exercise of the other.

The alleged discovery by Island Savings Bank of the over-valuation of the loan collateral cannot exempt it from complying with its reciprocal obligation to furnish the entire P80,000.00 loan. 'This Court previously ruled that bank officials and employees are expected to exercise caution and prudence in the discharge of their functions. It is the obligation of the bank's officials and employees that before they approve the loan application of their customers, they must investigate the existence and evaluation of the properties being offered as a loan security. The recent rush of events where collaterals for bank loans turn out to be non-existent or grossly over-valued underscore the importance of this responsibility. The mere reliance by bank officials and employees on their customer's representation regarding the loan collateral being offered as loan security is a patent non-performance of this responsibility. If ever bank officials and employees totally reIy on the representation of their customers as to the valuation of the loan collateral, the bank shall bear the risk in case the collateral turn out to be over-valued. The representation made by the customer is immaterial to the bank's responsibility to conduct its own investigation. Furthermore, the lower court, on objections of' Sulpicio M. Tolentino, had enjoined petitioners from presenting proof on the alleged over-valuation because of their failure to raise the same in their pleadings. The lower court's action is sanctioned by the Rules of Court, Section 2, Rule 9, which states that "defenses and objections not pleaded either in a motion to dismiss or in the answer are deemed waived." Petitioners, thus, cannot raise the same issue before the Supreme Court.

1) Since Island Savings Bank was in default in fulfilling its reciprocal obligation under their loan agreement, Sulpicio M. Tolentino, under Article 1191 of the Civil Code, may choose between specific performance or rescission with damages in either case. But since Island Savings Bank is now prohibited from doing further business by Monetary Board Resolution No. 967, WE cannot grant specific performance in favor of Sulpicio M, Tolentino.

Rescission is the only alternative remedy left. WE rule, however, that rescission is only for the P63,000.00 balance of the P80,000.00 loan, because the bank is in default only insofar as such amount is concerned, as there is no doubt that the bank failed to give the P63,000.00. As far as the partial release of P17,000.00, which Sulpicio M. Tolentino accepted and executed a promissory note to cover it, the bank was deemed to have complied with its reciprocal obligation to furnish a P17,000.00 loan. 2) The promissory note gave rise to Sulpicio M. Tolentino's 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.

Article 1192 of the Civil Code provides that in case both parties have committed a breach of their

reciprocal obligations, the liability of the first infractor shall be equitably tempered by the courts. WE rule that the liability of Island Savings Bank for damages in not furnishing the entire loan is offset by the liability of Sulpicio M. Tolentino for damages, in the form of penalties and surcharges, for not paying his overdue P17,000.00 debt. The liability of Sulpicio M. Tolentino for interest on his PI 7,000.00 debt shall not be included in offsetting the liabilities of both parties. Since Sulpicio M. Tolentino derived some benefit for his use of the P17,000.00, it is just that he should account for the interest thereon.

WE hold, however, that the real estate mortgage of Sulpicio M. Tolentino cannot be entirely foreclosed to satisfy his P 17,000.00 debt. The consideration of the accessory contract of real estate mortgage is the same as that of the principal contract (Banco de Oro vs. Bayuga, 93 SCRA 443 [1979]). For the debtor, the consideration of his obligation to pay is the existence of a debt. Thus, in the accessory contract of real estate mortgage, the consideration of the debtor in furnishing the mortgage is the existence of a valid, voidable, or unenforceable debt (Art. 2086, in relation to Art, 2052, of the Civil Code).

The fact that when Sulpicio M. 'Tolentino executed his real estate mortgage, no consideration was then in existence, as there was no debt yet because Island Savings Bank had not made any release on the loan, does not make the real estate mortgage void for lack of consideration. It is not necessary that any consideration should pass at the time of the execution of the contract of real mortgage. lt may either be a prior or subsequent matter. But when the consideration is subsequent to the mortgage, the mortgage can take effect only when the debt secured by it is created as a binding contract to pay. 3) And, when there is partial failure of consideration, the mortgage becomes unenforceable to the extent of such failure. Where the indebtedness actually owing to the holder of the mortgage is less than the sum named in the mortgage, the mortgage cannot be enforced for more than the actual sum due.

Since Island Savings Bank failed to furnish the P63,000.00 balance of the P8O,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.

The rule of indivisibility of a real estate mortgage provided for by Article 2089 of the Civil Code is inapplicable to the facts of this case.Article 2089 provides:A pledge or mortgage is indivisible even though the debt may be divided among the successors in interest of the debtor or creditor.Therefore, the debtor's heirs who has paid a part of the debt can not ask for the proportionate extinguishment of the pledge or mortgage as long as the debt is not completely satisfied.Neither can the creditor's heir who have received his share of the debt return the pledge or cancel the mortgage, to the prejudice of other heirs who have not been paid.

PRUDENTIAL BANK, Petitioner, v DON A. ALVIAR and GEORGIA B. ALVIAR, Respondents || G.R. No. 150197 Facts:Respondents, spouses Don A. Alviar and Georgia B. Alviar, are the registered owners of a parcel of land in San Juan, Metro Manila, covered by Transfer Certificate of Title (TCT) No. 438157 of the Register of Deeds of Rizal. On 10 July 1975, they executed a deed of real estate mortgage in favor of petitioner Prudential Bank to secure the payment of a loan worth P250,000.00.This mortgage was annotated at the back of TCT No. 438157. On 4 August 1975, respondents executed the corresponding promissory note, PN BD#75/C-252, 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.

On 22 October 1976, Don Alviar executed another promissory note, 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, and that the mortgagors passbook is to be surrendered to the bank until the amount secured by the hold-out is settled.

On 27 December 1976, respondent spouses executed for Donalco Trading, Inc., of which the husband and wife were President and Chairman of the Board and Vice President, respectively, PN BD#76/C-430 covering P545,000.000. As provided in the note, the loan is secured by Clean-Phase out TOD CA 3923, which means that the temporary overdraft incurred by Donalco Trading, Inc. with petitioner is to be converted into an ordinary loan in compliance with a Central Bank circular directing the discontinuance of overdrafts. On 16 March 1977, petitioner wrote Donalco Trading, Inc., informing the latter of its approval of a straight loan of P545,000.00, the proceeds of which shall be used to liquidate the outstanding loan of P545,000.00 TOD. The letter likewise mentioned that the securities for the loan were the deed of assignment on two promissory notes executed by Bancom Realty Corporation with Deed of Guarantee in favor of A.U. Valencia and Co. and the chattel mortgage on various heavy and transportation equipment. On 06 March 1979, respondents paid 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 located at Vam Buren and Madison Streets, North Greenhills, San Juan, Metro Manila. The payment was acknowledged by petitioner who accordingly released the mortgage over the two properties. On 15 January 1980, petitioner moved for the extrajudicial foreclosure of the mortgage on the property covered by TCT No. 438157. Per petitioners computation, respondents had the total obligation of P1,608,256.68, covering the three (3) promissory notes, to wit: PN BD#75/C-252 for P250,000.00, PN BD#76/C-345 for P382,680.83, and PN BD#76/C-340 for P545,000.00, plus assessed past due interests and penalty charges. The public auction sale of the mortgaged property was set on 15 January 1980.

Respondents filed a complaint for damages with a prayer for the issuance of a writ of preliminary injunction with the RTC of Pasig, claiming that they have paid their principal loan secured by the mortgaged property, and thus the mortgage should not be foreclosed. For its part, petitioner averred that the payment of P2,000,000.00 made on 6 March 1979 was not a payment made by respondents, but by G.B. Alviar Realty and Development Inc., which has a separate loan with the bank secured by a separate mortgage.

RTC dismissed the complaint and ordered the Sheriff to proceed with the extra-judicial foreclosure.

Issue/s:i WON, the blanket mortgage clause or the dragnet clause is valid.ii WON, the coverage of the blanket mortgage clause is valid; and consequently, iii WON, foreclosure was proper.

Held/Ratio:At this point, it is important to note that one of the loans sought to be included in the blanket mortgage clause was obtained by respondents for Donalco Trading, Inc. Indeed, PN BD#76/C-430 was executed by respondents on behalf of Donalco Trading, Inc. and not in their personal capacity. Petitioner asks the Court to pierce the veil of corporate fiction and hold respondents liable even for obligations they incurred for the corporation. The mortgage contract states that the mortgage covers as well as those that the Mortgagee may extend to the Mortgagor and/or DEBTOR, including interest and expenses or any other obligation owing to the Mortgagee, whether direct or indirect, principal or secondary. Well-settled is the rule that a corporation has a personality separate and distinct from that of its officers and stockholders.

Officers of a corporation are not personally liable for their acts as such officers unless it is shown that they have exceeded their authority. However, the legal fiction that a corporation has a personality separate and distinct from stockholders and members may be disregarded if it is used as a means to perpetuate fraud or an illegal act or as a vehicle for the evasion of an existing obligation, the circumvention of statutes, or to confuse legitimate issues. PN BD#76/C-430, being an obligation of Donalco Trading, Inc., and not of the respondents, is not within the contemplation of the blanket mortgage clause. Moreover, petitioner is unable to show that respondents are hiding behind the corporate structure to evade payment of their obligations. Save for the notation in the promissory note that the loan was for house construction and personal consumption, there is no proof showing that the loan was indeed for respondents personal consumption. Besides, petitioner agreed to the terms of the promissory note. If respondents were indeed the real parties to the loan, petitioner, a big, well-established institution of long standing that it is, should have insisted that the note be made in the name of respondents themselves, and not to Donalco Trading Inc., and that they sign the note in their personal capacity and not as officers of the corporation. A blanket mortgage clause, also known as a dragnet clause in American jurisprudence, is one which is specifically phrased to subsume all debts of past or future origins. Such clauses are carefully scrutinized and strictly construed. Mortgages of this character enable the parties to provide continuous dealings, the nature or extent of which may not be known or anticipated at the time, and they avoid the expense and inconvenience of executing a new security on each new transaction. A dragnet clause operates as a convenience and accommodation to the borrowers as it makes available additional funds without their having to execute additional security documents, thereby saving time, travel, loan closing costs, costs of extra legal services, recording fees, et cetera. Indeed, it has been settled in a long line of decisions that mortgages given to secure future advancements are valid and legal contracts, and the amounts named as consideration in said contracts do not limit the amount for which the mortgage may stand as security if from the four corners of the instrument the intent to secure future and other indebtedness can be gathered.

1) Thus, contrary to the finding of the Court of Appeals, 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. The terms of the mortgage contract being clear and unambiguous, there is neither need nor excuse to construe it otherwise. The cases cited by petitioner, while affirming the validity of dragnet clauses or blanket mortgage clauses, are of a different factual milieu from the instant case. There, the subsequent loans were not covered by any security other than that for the mortgage deeds which uniformly contained the dragnet clause. In the case at bar, the subsequent loans obtained by respondents were secured by other securities, thus: PN BD#76/C-345, executed by Don Alviar was secured by a hold-out on his foreign currency savings account, while PN BD#76/C-430, executed by respondents for Donalco Trading, Inc., was secured by Clean-Phase out TOD CA 3923 and eventually by a deed of assignment on two promissory notes executed by Bancom Realty Corporation with Deed of Guarantee in favor of A.U. Valencia and Co., and by a chattel mortgage on various heavy and transportation equipment. The matter of PN BD#76/C-430 has already been discussed. Thus, the critical issue is whether the blanket mortgage clause applies even to subsequent advancements for which other securities were intended, or particularly, to PN BD#76/C-345. Under American jurisprudence, two schools of thought have emerged on this question. One school advocates that a dragnet clause so worded as to be broad enough to cover all other debts in addition to the one specifically secured will be construed to cover a different debt, although such other debt is secured by another mortgage. The contrary thinking maintains that a mortgage with such a clause will not secure a note that expresses on its face that it is otherwise secured as to its entirety, at least to anything other than a deficiency after exhausting the security specified therein, such deficiency being an indebtedness within the meaning of the mortgage, in the absence of a special contract excluding it from

the arrangement. The latter school represents the better position. The parties having conformed to the blanket mortgage clause or dragnet clause, it is reasonable to conclude that they also agreed to an implied understanding that subsequent loans need not be secured by other securities, as the subsequent loans will be secured by the first mortgage. In other words, the sufficiency of the first security is a corollary component of the dragnet clause. But of course, there is no prohibition, as in the mortgage contract in issue, against contractually requiring other securities for the subsequent loans. Thus, 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. Hence, based on the reliance on the security test, the California court in the cited case made an inquiry whether the second loan was made in reliance on the original security containing a dragnet clause. Accordingly, finding a different security was taken for the second loan no intent that the parties relied on the security of the first loan could be inferred, so it was held. The rationale involved, the court said, was that 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 offer.

In another case, it was held that a mortgage with a dragnet clause is an offer by the mortgagor to the bank to provide the security of the mortgage for advances of and when they were made. Thus, it was concluded that the offer was not accepted by the bank when a subsequent advance was made because (1) the second note was secured by a chattel mortgage on certain vehicles, and the clause therein stated that the note was secured by such chattel mortgage; (2) there was no reference in the second note or chattel mortgage indicating a connection between the real estate mortgage and the advance; (3) the mortgagor signed the real estate mortgage by her name alone, whereas the second note and chattel mortgage were signed by the mortgagor doing business under an assumed name; and (4) there was no allegation by the bank, and apparently no proof, that it relied on the security of the real estate mortgage in making the advance. Indeed, in some instances, it has been held that in the absence of clear, 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 therefor. 3) It was therefore improper for petitioner in this case to seek foreclosure of the mortgaged property because of non-payment of all the three promissory notes. While the existence and validity of the dragnet clause cannot be denied, there is a need to respect the existence of the other security given for PN BD#76/C-345. The foreclosure of the mortgaged property should only be for the P250,000.00 loan covered by PN BD#75/C-252, and for any amount not covered by the security for the second promissory note. As held in one case, where deeds absolute in form were executed to secure any and all kinds of indebtedness that might subsequently become due, a balance due on a note, after exhausting the special security given for the payment of such note, was in the absence of a special agreement to the contrary, within the protection of the mortgage, notwithstanding the giving of the special security.This is recognition that while the dragnet clause subsists, the security specifically executed for subsequent loans must first be exhausted before the mortgaged property can be resorted to.

One other crucial point. The mortgage contract, as well as the promissory notes subject of this case, is a contract of adhesion, to which respondents only participation was the affixing of their signatures or adhesion thereto. A contract of adhesion is one in which a party imposes a ready-made form of contract which the other party may accept or reject, but which the latter cannot modify. The real estate mortgage in issue appears in a standard form, drafted and prepared solely by petitioner,

and which, according to jurisprudence must be strictly construed against the party responsible for its preparation. 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. Consequently, any ambiguity is to be taken contra proferentum, that is, construed against the party who caused the ambiguity which could have avoided it by the exercise of a little more care. To be more emphatic, any ambiguity in a contract whose terms are susceptible of different interpretations must be read against the party who drafted it, which is the petitioner in this case. Even the promissory notes in issue were made on standard forms prepared by petitioner, and as such are likewise contracts of adhesion. Being of such nature, the same should be interpreted strictly against petitioner and with even more reason since having been accomplished by respondents in the presence of petitioners personnel and approved by its manager, they could not have been unaware of the import and extent of such contracts.

Petitioner, however, is not without recourse. Both the Court of Appeals and the trial court found that respondents have not yet paid the P250,000.00, and gave no credence to their claim that they paid the said amount when they paid petitioner P2,000,000.00. 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.

REPUBLIC PLANTERS BANK (now known as MAYBANK PHILIPPINES, INC.) and PHILMAY PROPERTY, INC., petitioners, v VIVENCIO T. SARMIENTO, JESUSA N. SARMIENTO, JOSE N. SARMIENTO AND ELIZABETH B. SARMIENTO, respondents || G.R. No. 170785

Facts:On 13 March 1979, respondents spouses Vivencio and Jesusa Sarmiento, their son, Jose, and the latter’s spouse, Elizabeth, executed a promissory note, obligating themselves to pay Maybank, then known as Republic Planters Bank, the amount of P80,000.00 due 360 days after date plus interest at the rate of 12 percent per annum.

Earlier, on 9 March 1979, all four respondents executed a Real Estate Mortgage over two parcels of land covered by OCT No. 5781 and TCT No. 145850 and registered under the names of respondents Jesusa and Jose, respectively. The mortgage secured the payment of the principal loan of P80,000.00 and all other obligations, overdrafts and other credit accommodations obtained and those that may be obtained in the future from Maybank.

On 8 April 1980, Vivencio for himself and as attorney-in-fact of Jesusa and Jose, executed a promissory note in which he undertook to pay the amount of P100,000.00 plus 14% interest per annum on or before April 1981.5 In the same month, all four respondents executed an amendment to the real estate mortgage changing the consideration of the mortgage from P80,000.00 to P100,000.00 but adopting all the terms and conditions of the previous mortgage as integral parts of the later one.

Vivencio was the owner of V. Sarmiento Rattan Furniture, a sole proprietorship engaged in export business. On various occasions in 1981, he incurred loan obligations from Maybank by way of export advances. As of 08 September 1982, the debts incurred under the export bills transactions totaled P1,281,748.03.

On 3 September 1981, Vivencio, Jose and Elizabeth executed a Suretyship Agreement, whereby they agreed to be solidarily liable with V. Sarmiento Rattan Furniture for the payment of P100,000.00 plus all obligations which the latter incurred or would incur from Maybank.

Respondents defaulted in the payment of the export advances, prompting Maybank to institute an

extrajudicial foreclosure of the real estate mortgage on 9 November 1982. At the foreclosure sale, Maybank was awarded the property for its bid of P254,000.00 and issued a certificate of sale. The certificate of sale was registered with the Register of Deeds on 04 March 1983.

Maricel Sarmiento, sister of respondent Jose, purchased a manager’s check from Maybank in the amount of P300,000.00 on 21 July 1983.9 A week later, respondent Jesusa deposited the amount of P12,000.00.10 Maybank treated the total amount of P312,000.00 as a deposit and did not grant respondents’ request for certificate of redemption releasing the foreclosed property. Sometime in November 1983, Maybank demanded the payment of all outstanding loans under the export bills transactions. On 3 December 1983, respondents tendered the amount of P302,333.33 in the name of V. Sarmiento Rattan Furniture.

On 4 July 1990, Maybank consolidated its ownership over the foreclosed property. On 12 November 1997, Maybank and Philmay executed a deed of absolute sale, transferring ownership of the foreclosed property to the latter. On 15 July 1998, Philmay sold the same to Fabra.

On 3 September 1998, respondents Vivencio and Jose instituted an action for specific performance against Maybank, Philmay and Fabra. The Complaint, docketed as Civil Case No. 98-0323, prayed for judgment directing Maybank to execute a deed of redemption in favor of respondents and revoking the subsequent sale of the property to Philmay and Fabra. During the pendency of the trial, Fabra died and was substituted by Kim Caro as the legal representative of the former’s heirs.

RTC granted the Deed of Redemption against the Maybank (Republic Planters). Likewise, the Deed of Sale executed by Republic Planters Bank, now Maybank, in favor of Philmay Property, Inc., and thereafter, from Philmay Property, Inc. to Clara Fabra, are hereby revoked and rescinded as well as Certificate of Title No. 139161 registered in the latter’s name for being null and void. So also, Phimay Property is hereby directed to reimburse Clara Fabra, now represented by Kim Caro, the amount of P4,200,000.00[,] representing the purchase price of the property plus interest thereon at the legal rate computed from the filing of the complaint until fully paid.

The RTC based its finding that respondents were able to tender to Maybank within the redemption period the redemption price of P312,000.00 on the testimony of respondent Jose on and the official bank receipts evidencing the separate payments totaling said amount made by Maricel Sarmiento and respondent Jesusa. Upon this finding, the trial court held that Maybank had no justifiable legal reason to refuse the execution of documents reconveying the titles of the mortgaged property to respondents. Thus, the trial court concluded that the subsequent transfers of the mortgaged property to Philmay and then to Fabra were void because Maybank had not acquired any rights thereto in the first place. The trial court, however, declared Fabra as a purchaser in good faith and, therefore, entitled to reimbursement of the purchase price.

The RTC rejected Maybank’s defense that the suretyship agreement signed by respondents Vivencio, Jose and Elizabeth also constituted the mortgaged property as security for the export advances incurred in the name of V. Sarmiento Rattan Furniture because the real estate mortgage documents were signed by respondents in their personal capacity, whereas the suretyship agreement was signed by Vivencio in his capacity as manager of V. Sarmiento Rattan Furniture. The trial court noted that the suretyship agreement was not even annotated in the titles of the mortgaged property.

Issue/s:WON, the deposits made by respondents constituted a valid tender of the redemption price.

Held/Ratio:No, it was not sufficient to constitute a valid tender as it failed to satisfy the full amount of indebtedness.

The crux of the controversy pertains not to the amount of redemption price tendered by respondents but

rather to the sufficiency of the amount tendered that would warrant the redemption of the foreclosed property. The determination of whether the amount tendered by respondents was enough to redeem the foreclosed property calls for the ascertainment of the liabilities covered and secured by the mortgage based on the text of the mortgage deed. Both the trial court and the appellate court concurred in concluding that the export advances obtained by respondent Vivencio from Maybank did not belong to the species of obligations secured by the mortgage and that, hence, respondents’ tender of an amount exceeding the principal loan of P100,000.00 was sufficient. Whether or not this conclusion is correct is a question of law that is within the purview of a Rule 45 petition.The real estate mortgage provides:x x xThat, for and in consideration of certain loans, overdrafts and other credit accommodations obtained from the Mortgagee, and to secure the payment of the same and those that may hereafter be obtained, the principal of all of which is hereby fixed as EIGHTY THOUSAND ONLY Pesos (P80,000.00), Philippine Currency, as well as those that the Mortgagee may extend to the Mortgagor, including interest and expenses or any other obligation owing to the Mortgagee, whether direct or indirect, principal or secondary, as appears in the accounts, books and records of the Mortgagee, the Mortgagor does hereby transfer and convey by way of mortgage unto the Mortgagee, its successor or assigns, the parcels of land which are described in the list inserted on the back of this document, and/or appended hereto; x x x (Emphasis supplied)

The aforementioned clause is a "blanket mortgage clause." A blanket mortgage clause, also known as a dragnet clause in American jurisprudence, is one that is specifically phrased to subsume all debts of past or future origins. Such clauses are carefully scrutinized and strictly construed. Mortgages of this character enable the parties to provide continuous dealings, the nature or extent of which may not be known or anticipated at the time, and they avoid the expense and inconvenience of executing a new security on each new transaction. A dragnet clause operates as a convenience and accommodation to the borrowers as it makes available additional funds without their having to execute additional security documents, thereby saving time, travel, loan closing costs, costs of extra legal services, recording fees, etc.

It is basic in the interpretation and construction of contracts that the literal meaning of the stipulations shall control if the terms of the contract are clear and leave no doubt on the intention of the contracting parties. It is only when the words appear to contravene the evident intention of the parties that the latter shall prevail over the former. The real nature of a contract may be determined from the express terms of the agreement and from the contemporaneous and subsequent acts of the parties thereto.

Although at the time of the execution of the real estate mortgage the export advances had not yet been incurred and the principal obligation was fixed at P80,000.00 and thereafter amended to P100,000.00, the express tenor of the mortgage contract contemplated the inclusion of future loans and obligations obtained from Maybank to be secured by the mortgaged property. Nothing in the mortgage contract would suggest that the parties actually intended to limit the security to only the principal amount of the loan fixed therein. The stipulations of the mortgage contract being clear, there is no necessity to ascertain the real intention of the parties. Be that as it may, nothing in the records would reveal that by the parties’ acts contemporaneous and subsequent to the execution of the real estate mortgage, they intended to be bound by terms and conditions other than those provided in the mortgage contract.

The trial court reached the conclusion that the export advances were excluded from the security of the real estate mortgage based on the theory that respondent Vivencio agreed to be bound as surety for the payment of the export advances in his capacity as manager of V. Sarmiento Rattan Furniture, whereas he signed the real estate mortgage in his personal capacity.

This theory is defensible if V. Sarmiento Rattan Furniture were a corporation having a personality distinct and separate from its corporate officers and Vivencio signed merely as a corporate representative of V. Sarmiento Rattan Furniture. Even then, a corporate officer may still be held personally liable for the debts

of the corporation if he bound himself to pay the debt of the corporation under a separate contract of surety or guaranty.

It is well settled that mortgages given to secure future advancements or loans are valid and legal contracts, and that the amounts named as consideration in said contracts do not limit the amount for which the mortgage may stand as security if from the four corners of the instrument the intent to secure future and other indebtedness can be gathered. A mortgage given to secure advancements is a continuing security and is not discharged by repayment of the amount named in the mortgage, until the full amount of the advancements is paid.

At the time of the foreclosure sale of the mortgaged property, the outstanding obligation arising from the export bills transactions had already amounted to more than P1 million. In accordance with Section 78 of the General Banking Act, as amended, then governing the foreclosure of the mortgaged property, redemption may only be made by paying the amount due under the mortgage deed within one year from the sale of the property. Since respondents failed to satisfy the full amount of the indebtedness to Maybank, the latter was justified in refusing to grant respondents’ demand for redemption of the foreclosed property. CIR v UCPB

Facts: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. 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.[if !supportFootnotes][2][endif] The notary public complied. On March 1, 2002 the executive judge finally signed the certificate of sale and approved its issuance to UCPB as the highest bidder. 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. 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 and, subsequently, a Final Assessment Notice 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. Issue/sWON, the three-month redemption period for juridical persons should be reckoned from the date of the auction sale. Held/Ratio: 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 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, 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 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.

GC Dalton Industries v EPCI BankFacts: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 and Malolos, Bulacan as security for CIIs loans. 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. Consequently, respondent filed a petition for extrajudicial foreclosure of petitioners Bulacan properties in the Regional Trial Court (RTC) of Bulacan on May 7, 2004. 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 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 in the Register of Deeds of Bulacan pursuant to Section 47 of the General Banking Law. Hence, petitioners TCTs covering the Bulacan properties were cancelled and new ones were issued in the name of respondent. In view of the foregoing, respondent filed an ex parte motion for the issuance of a writ of possession in the RTC Bulacan. Previously, however, on August 4, 2004, CII had filed an action for specific performance and damages in the RTC of Pasig, Branch 71 (Pasig RTC), asserting that it had allegedly paid its obligation in full to respondent. 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 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. In an order dated December 7, 2005, 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. 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 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.) Issue/s:WON, the writ of possession was properly issued by the lower court.Held/Ratio: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. The trial court does not exercise discretion in the issuance thereof. 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. Under Section 47 of the General Banking Law, 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, respondent became the owner of the foreclosed properties. 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. It could have filed a petition to annul the August 3, 2004 auction sale and to cancel the December 19, 2005 writ of possession, within 30 days after respondent was given possession. 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. 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, 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.

Asia Trust Development Bank v TubleFacts:Tuble, who served as the vice-president of petitioner Asiatrust Development Bank, availed himself of the car incentive plan and loan privileges offered by the bank. He was also entitled to the bank’s Senior Managers Deferred Incentive Plan (DIP).

Respondent acquired a Nissan Vanette through the company’s car incentive plan. The arrangement was made to appear as a lease agreement requiring only the payment of monthly rentals. Accordingly, the lease would be terminated in case of the employee’s resignation or retirement prior to full payment of the price.

As regards the loan privileges, Tuble obtained three separate loans. The first, a real estate loan evidenced by the 18 January 1993 Promissory Note No. 01423 with maturity date of 1 January 1999, was secured by a mortgage over his property covered by Transfer Certificate of Title No. T 145794. No interest on this loan was indicated.

The second was a consumption loan, evidenced by the 10 January 1994 Promissory Note No. 01434 with the maturity date of 31 January 1995 and interest at 18% per annum. Aside from the said indebtedness, Tuble allegedly obtained a salary loan, his third loan.

On 30 March 1995, he resigned. Subsequently, he was given the option to either return the vehicle without any further obligation or retain the unit and pay its remaining book value.

After retirement his obligations to the bank were: (1) the purchase or return of the Nissan Vanette; (2) P100,000 as consumption loan; (3) P421,800 as real estate loan; and (4) P16,250 as salary loan.

Asiabank in turn owed Tuble (1) his pro-rata share in the DIP, which was to be issued after the bank had given the resigned employee’s clearance; and (2) P25,797.35 representing his final salary and corresponding 13th month pay.

Tuble wanted compensation to take place as they are both debtors and creditors to each other. He then asked the bank to simply compute his DIP and apply his receivables to his outstanding loans. But on 6/1/995, the bank sent him a demand letter and the vehicle was asked to be returned.

On 14 August 1995, Tuble followed up his request to offset the loans. But it was only on October 12, 1995 that the bank finally allowed the offsetting. As a result, his liabilities were reduced to P970,691.46 plus the unreturned value of the vehicle.

Asiabank filed a complaint for replevin to recover the vehicle and also filed a petition for extra-judicial foreclosure of real estate mortgage over Tuble’s property to collect his liabilities. Other liabilities were excluded as it was based only on his real estate loan. The bank emerged as the purchaser of the secured property.

Tuble redeemed the property within the period at P1,318,401.91. But this price increased to this figure, because the bank had unilaterally imposed additional interest and other charges.

With the payment of P1,318,401.91, 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 Manager’s Check in the amount of P166,049.73 representing his share in the DIP funds.

Despite his payment of the redemption price, Tuble questioned how the foreclosure basis of P421,800 ballooned to P1,318,401.91 in a matter of one year. Belatedly, the bank explained that this redemption price included the Nissan Vanette’s book value, the salary loan, car insurance, 18% annual interest on the bank’s redemption price of P421,800, penalty and interest charges on Promissory Note No. 0142, and litigation expenses. By way of note, from these items, the amounts that remained to be collected as stated in the Petition before us, are (1) the 18% annual interest on the redemption price and (2) the interest charge on Promissory Note No. 0142.

Because Tuble disputed the redemption price, he filed a Complaint for recovery of a sum of money and damages before the RTC. He specifically sought to collect P896,602.0210 representing the excess charges on the redemption price. Additionally, he prayed for moral and exemplary damages.

The RTC ruled in favor of Tuble as it 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.

CA affirmed.

Issue/s:WON, the bank is entitled to include these items in the redemption price: (1) the interest charges on Promissory Note No. 0142; and (2) the 18% annual interest on the bid price of P421,800.

Held/Ratio:No, but the bank was correct on its argument that instead of referring to the Rules of Court to compute the redemption price, the courts a quo should have applied the General Banking Law, considering that petitioner is a banking institution. The statute referred to requires that in the event of judicial or extrajudicial foreclosure of any mortgage on real estate that is used as security for an obligation to any bank, banking institution, or credit institution, the mortgagor can redeem the property by paying the amount fixed by the court in the order of execution, with interest thereon at the rate specified in the mortgage.

SC established in Union Bank of the Philippines v. Court of Appeals, citing Ponce de Leon v. Rehabilitation Finance Corporation20 and Sy v. Court of Appeals, that the General Banking Act – being a special and subsequent legislation – has the effect of amending Section 6 of Act No. 3135, insofar as the redemption price is concerned, when the mortgagee is a bank. Thus, the amount to be paid in redeeming the property is determined by the General Banking Act, and not by the Rules of Court in Relation to Act 3135.

Firstly, at the time respondent resigned, which was chronologically before the foreclosure proceedings, he had several liabilities to the bank. Secondly, when the bank later on instituted the foreclosure proceedings, it foreclosed only the mortgage secured by the real estate loan of P421,800.22 It did not seek to include, in the foreclosure, the consumption loan under Promissory Note No. 0143 or the other alleged obligations of respondent. Thirdly, on 28 February 1996, the bank 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.

In foreclosures, the mortgaged property is subjected to the proceedings for the satisfaction of the obligation. As a result, payment is effected by abnormal means whereby the debtor is forced by a judicial proceeding to comply with the presentation or to pay indemnity.

Once the proceeds from the sale of the property are applied to the payment of the obligation, the obligation is already extinguished. Thus, in Spouses Romero v. Court of Appeals,26 we held that the mortgage indebtedness was extinguished with the foreclosure and sale of the mortgaged property, and that what remained was the right of redemption granted by law.

Consequently, since the Real Estate Mortgage Contract is already extinguished, petitioner 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.

Rather than relying on an expired contract, the bank should have collected on the excluded loans by instituting the proper actions for recovery of sums of money. Simply put, petitioner should have run after Tuble separately, instead of hostaging the same property to cover all of his liabilities.

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 was a statutory privilege he enjoyed. Redemption is by force of law, and the purchaser at public auction is bound to accept it. Thus, it is the law that provides the terms of the right; the mortgagee cannot dictate them. The terms of this right, based on Section 47 of the General Banking Law, are as follows:1. The redemptioner shall have the right within one year after the sale of the real estate, to redeem the property.2. The redemptioner shall pay the amount due under the mortgage deed, with interest thereon at 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.3. In case of redemptioners who are considered by law as juridical persons, they shall have the right to redeem 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.

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.

Thus, we held in Rural Bank of San Mateo, Inc. v. Intermediate Appellate Court that the power to decide whether or not to foreclose is the prerogative of the mortgagee; however, once it has made the decision by filing a petition with the sheriff, the acts of the latter shall thereafter be governed by the provisions of the mortgage laws, and not by the instructions of the mortgagee. Considering the undue inclusions of the additional charges, the bank cannot impose the 18% annual interest on the redemption price.

In any event, assuming that the Real Estate Mortgage Contract subsists, we rule that the dragnet clause therein does not justify the imposition of an 18% annual interest on the redemption price. This Court has recognized that, 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.

We have also emphasized that the mortgage agreement, being a contract of adhesion, is to be carefully

scrutinized and strictly construed against the bank, the party that prepared the agreement.This Court found that 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 Tuble’s 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.

In Philippine Banking Communications v. Court of Appeals, we have construed such silence or omission of additional charges 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.

Worse, when petitioner invites us to look at the Promissory Notes in determining the interest, these loan agreements offer different interest charges: Promissory Note No. 0142, which corresponds exactly to the real estate loan, contains no stipulation on interest; while Promissory Note No. 0143, which in turn corresponds to the consumption loan, provides a charge of 18% interest per annum.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 that refers to the principal agreement to which the security attaches.

In resolving this ambiguity, we refer to a basic principle in the law of contracts: "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." Therefore, the ambiguity in the mortgage deed whose terms are susceptible of different interpretations must be read against the bank that drafted it. Consequently, we cannot impute grave error on the part of the courts a quo for not appreciating a charge of 18% interest per annum.

Furthermore, this Court 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 therefor.

In this regard, this Court adopted the "reliance on the security test" used in the above-mentioned cases, Prudential Bank and Philippine Bank of Communications. In these Decisions, we elucidated the test as follows:x x x A mortgage with a "dragnet clause" is an "offer" by the mortgagor to the bank to provide the security of the mortgage for advances of and when they were made. Thus, it was concluded that the "offer" was not accepted by the bank when a subsequent advance was made because (1) the second note was secured by a chattel mortgage on certain vehicles, and the clause therein stated that the note was secured by such chattel mortgage; (2) there was no reference in the second note or chattel mortgage indicating a connection between the real estate mortgage and the advance; (3) the mortgagor signed the real estate mortgage by her name alone, whereas the second note and chattel mortgage were signed by the mortgagor doing business under an assumed name; and (4) there was no allegation by the bank, and apparently no proof, that it relied on the security of the real estate mortgage in making the advance.

Here, 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 to Tuble.

It must be remembered that Tuble was petitioner’s 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 bank’s 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.

Thus, 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. Consequently, the courts a quo did not gravely abuse their discretion in refusing to apply an annual interest of 18% in computing the redemption price. A finding of grave abuse of discretion necessitates that the judgment must have been exercised arbitrarily and without basis in fact and in law.

Tuble claimed that he could not be in default by way of legal compensation but SC held it as incorrect interpretation of Central Bank Circular 416 and Article 2209. This interest is currently at 12% per annum, pursuant to Central Bank Circular No. 416 and Article 2209 of the Civil Code, which provides:If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the absence of stipulation, the legal interest, which is six per cent per annum.While Article 2209 allows the recovery of interest sans stipulation, this charge is provided not as a form of monetary interest, but as one of compensatory interest.Monetary interest refers to the compensation set by the parties for the use or forbearance of money. On the other hand, compensatory interest refers to the penalty or indemnity for damages imposed by law or by the courts. Compensatory interest, as a form of damages, is due only if the obligor is proven to have defaulted in paying the loan.

The bank correctly explains in its Petition that in order for legal compensation to take effect, Article 1279 of the Civil Code requires that the debts be liquidated and demandable. This provision reads:(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. (Emphasis supplied)Liquidated debts are those whose exact amount has already been determined. In this case, the receivable of Tuble, including his DIP share, was not yet determined; it was the petitioner’s policy to compute and issue the computation only after the retired employee had been cleared by the bank. Thus, Tuble incorrectly invoked legal compensation in addressing this issue of default.

Nevertheless, based on the findings of the RTC and the CA, the obligation of Tuble as evidenced by Promissory Note No. 0142, was set to mature on 1 January 1999. But then, he had already settled his liabilities on 17 March 1997 by paying P1,318,401.91 as redemption price. Then, in 1999, the bank issued his Clearance and share in the DIP in view of the full settlement of his obligations. Thus, there being no substantial delay on his part, the CA did not grievously err in not declaring him to be in default.

As appreciated by the RTC, which had the opportunity to examine the parties, the bank treated Tuble unfairly and unreasonably by refusing to lend even a little charity and human consideration when it immediately foreclosed the loans of its previous vice-president instead of heeding his request to make a straightforward calculation of his receivables and offset them against his liabilities.

To the mind of the trial court, this was such a simple request within the control of the bank to grant; and if petitioner had only acceded, the troubles of the lawsuit would have been avoided.

Moreover, the RTC found that the bank caused Tuble severe humiliation when the Nissan Vannette was seized from his new office at Kuok Properties Philippines. The trial court also highlighted the fact that respondent as the previous vice-president of petitioner was no ordinary employee – he was a man of good professional standing, and one who actively participated in civic organizations.

The RTC then concluded that a man of his standing deserved fair treatment from his employer, especially since they served common goals.

This Court affirms the dispositions of the RTC and the CA. They correctly ruled that the award of moral damages also includes cases of besmirched reputation, moral shock, social humiliation and similar injury. In this regard, the social and financial standings of the parties are additional elements that should be taken into account in the determination of the amount of moral damages. Based on their findings that Tuble suffered undue embarrassment, given his social standing, the courts a quo had factual basis to justify the award of moral damages and, consequently, exemplary damages in his favor.

Go v BSP

Facts:On August 20, 1999, an Information for violation of Section 83 of Republic Act No. 337 (RA 337) or the General Banking Act, as amended by Presidential Decree No. 1795, was filed against Go before the RTC.

Go, being then the 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, and 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 P2.857 Billion, 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. On May 28, 2001, Go pleaded not guilty to the offense charged. Go filed a motion to quash before the RTC. Go claimed that the Information was defective, as the facts charged therein do not constitute an offense under Section 83 of RA 337 which states: No director or officer of any banking institution shall either directly or indirectly, for himself or as the representative or agent of another, borrow any of the deposits of funds of such banks, nor shall he become a guarantor, indorser, or surety for loans from such bank, to others, or in any manner be an obligor for money borrowed from the bank or loaned by it, except with the written approval of the majority of the directors of the bank, excluding the director concerned. Any such approval shall be entered upon the records of the corporation and a copy of such entry shall be transmitted forthwith to the appropriate supervising department. The office of any director or officer of a bank who violates the provisions of this section shall immediately become vacant and the director or officer shall be punished by imprisonment of not less than one year nor more than ten years and by a fine of not less than one thousand nor more than ten thousand pesos.

The Monetary Board may regulate the amount of credit accommodations that may be extended, directly or indirectly, by banking institutions to their directors, officers, or stockholders. However, the outstanding credit accommodations which a bank may extend to each of its stockholders owning two percent (2%) or more of the subscribed capital stock, its directors, or its officers, shall be limited to an amount equivalent to the respective outstanding deposits and book value of the paid-in capital contribution in the bank. Provided, however, that loans and advances to officers in the form of fringe benefits granted in accordance with rules and regulations as may be prescribed by Monetary Board shall not be subject to the preceding limitation. (As amended by PD 1795) In addition to the conditions established in the preceding paragraph, no director or a building and loan association shall engage in any of the operations mentioned in said paragraphs, except upon the pledge of shares of the association having a total withdrawal value greater than the amount borrowed. (As amended by PD 1795) In support of his motion to quash, Go averred that based on the facts alleged in the Information, he was being prosecuted for borrowing the deposits or funds of the Orient Bank and/or acting as a guarantor, indorser or obligor for the banks loans to other persons. The use of the word and/or meant that he was charged for being either a borrower or a guarantor, or for being both a borrower and guarantor. Go claimed that the charge was not only vague, but also did not constitute an offense. He posited that Section 83 of RA 337 penalized only directors and officers of banking institutions who acted either as borrower or as guarantor, but not as both. Go further pointed out that the Information failed to state that his alleged act of borrowing and/or guarantying was not among the exceptions provided for in the law. According to Go, the second paragraph of Section 83 allowed 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. Extending credit accommodations to bank directors, officers, and stockholders is not per se prohibited, unless the amount exceeds the legal limit. Since the Information failed to state that the amount he purportedly borrowed and/or guarantied was beyond the limit set by law, Go insisted that the acts so charged did not constitute an offense. The RTC granted Go’s motion to quash. The prosecution appealed before the CA and it ruled in favor of the prosecution.

The CA explained that the allegation that Go acted either as a borrower or a guarantor or as both borrower and guarantor merely set forth the different modes by which the offense was committed. It 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. Thus, the failure of the Information to state that the amount of the loan Go borrowed or guaranteed exceeded the legal limits was, to the CA, an irrelevant issue.

Issue/s: WON, the CA erred in ruling that the allegation in the information using ‘and/or’ merely set forth the different modes by which the offense was committed and whether Section 83 of RA 337 was not an exception to its first paragraph. Held/Ratio:No, the CA did not commit an error. Under the Constitution, a person who stands charged of a criminal offense has the right to be informed of the nature and cause of the accusation against him. The Rules of Court, in implementing the right, specifically require that the acts or omissions complained of as constituting the offense, including the qualifying and aggravating circumstances, must be stated in ordinary and concise language, not necessarily in the language used in the statute, but in terms sufficient to enable a person of common understanding to know what offense is being charged and the attendant

qualifying and aggravating circumstances present, so that the accused can properly defend himself and the court can pronounce judgment. To broaden the scope of the right, the Rules authorize the quashal, upon motion of the accused, of an Information that fails to allege the acts constituting the offense. Jurisprudence has laid down the fundamental test in appreciating a motion to quash an Information grounded on the insufficiency of the facts alleged therein. We stated in People v. Romualdez that: The determinative test in appreciating a motion to quash xxx is the sufficiency of the averments in the information, that is, whether the facts alleged, if hypothetically admitted, would establish the essential elements of the offense as defined by law without considering matters aliunde. As Section 6, Rule 110 of the Rules of Criminal Procedure requires, the information only needs to state the ultimate facts; the evidentiary and other details can be provided during the trial. To restate the rule, an Information only needs to state the ultimate facts constituting the offense, not the finer details of why and how the illegal acts alleged amounted to undue injury or damage matters that are appropriate for the trial. The facts and circumstances necessary to be included in the Information are determined by reference to the definition and elements of the specific crimes. The Information must allege clearly and accurately the elements of the crime charged.

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

1. the offender is a director or officer of any banking institution;2. the offender, either directly or indirectly, for himself or as representative or agent of another, performs any of the following acts:

a. he borrows any of the deposits or funds of such bank; orb. he becomes a guarantor, indorser, or surety for loans from such bank to others, orc. 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 Go’s contention that the law penalizes a bank director or officer only either for borrowing the banks deposits or funds or for guarantying loans by the bank, but not for acting in both capacities. The essence of the crime is becoming an obligor of the bank without securing the necessary written approval of the majority of the banks directors. The second element merely lists down the various modes of committing the offense. The third mode, by declaring that [no director or officer of any banking institution shall xxx] in any manner be an obligor for money borrowed from the bank or loaned by it, in fact serves a catch-all phrase that covers any situation when a director or officer of the bank becomes its obligor. The prohibition is directed against a bank director or officer who becomes in any manner an obligor for money borrowed from or loaned by the bank without the written approval of the majority of the banks board of directors. To make a distinction between the act of borrowing and guarantying is therefore unnecessary because in either situation, the director or officer concerned becomes an obligor of the bank against whom the obligation is juridically demandable. The language of the law is broad enough to encompass either act of borrowing or guaranteeing, or both. While the first paragraph of Section 83 is penal in nature, and by principle should be strictly construed in favor of the accused, the Court is unwilling to adopt a liberal construction that would defeat the legislatures intent in enacting the statute. The objective of the law should allow for a reasonable flexibility in its construction. Section 83 of RA 337, as well as other banking laws adopting the same prohibition, was enacted to ensure that loans by banks and similar financial institutions to their own directors, officers, and

stockholders are above board. Banks were not created for the benefit of their directors and officers; they cannot use the assets of the bank for their own benefit, except as may be permitted by law . Congress has thus deemed it essential to impose restrictions on borrowings by bank directors and officers in order to protect the public, especially the depositors. Hence, when the law prohibits directors and officers of banking institutions from becoming in any manner an obligor of the bank (unless with the approval of the board), the terms of the prohibition shall be the standards to be applied to directors transactions such as those involved in the present case. Contrary to Gos claims, the second paragraph (accommodation) of Section 83, RA 337 does not provide for an exception to a violation of the first paragraph thereof, nor does it constitute as an element of the offense charged. Section 83 of RA 337 actually imposes three restrictions: approval, reportorial, and ceiling requirements. The approval requirement (found in the first sentence of the first paragraph of the law) refers to the written approval of the majority of the banks board of directors required before bank directors and officers can in any manner be an obligor for money borrowed from or loaned by the bank. Failure to secure the approval renders the bank director or officer concerned liable for prosecution and, upon conviction, subjects him to the penalty provided in the third sentence of first paragraph of Section 83. The reportorial requirement, on the other hand, mandates that any such approval should be entered upon the records of the corporation, and a copy of the entry be transmitted to the appropriate supervising department. The reportorial requirement is addressed to the bank itself, which, upon its failure to do so, subjects it to quo warranto proceedings under Section 87 of RA 337. The ceiling requirement under the second paragraph of Section 83 regulates the amount of credit accommodations that banks may extend to their directors or officers by limiting these to an amount equivalent to the respective outstanding deposits and book value of the paid-in capital contribution in the bank. Again, this is a requirement directed at the bank. In this light, a prosecution for violation of the first paragraph of Section 83, such as the one involved here, does not require an allegation that the loan exceeded the legal limit. Even if the loan involved is below the legal limit, a written approval by the majority of the banks directors is still required; otherwise, the bank director or officer who becomes an obligor of the bank is liable. Compliance with the ceiling requirement does not dispense with the approval requirement. Evidently, the failure to observe the three requirements under Section 83 paves the way for the prosecution of three different offenses, each with its own set of elements. A successful indictment for failing to comply with the approval requirement will not necessitate proof that the other two were likewise not observed. Assuming that the facts charged in the Information do not constitute an offense, we find it erroneous for the RTC to immediately order the dismissal of the Information, without giving the prosecution a chance to amend it. Section 4 of Rule 117 provides that the court shall order for an amendment if it can cure the defect of the complaint/information. Although an Information may be defective because the facts charged do not constitute an offense, the dismissal of the case will not necessarily follow. The Rules specifically require that the prosecution should be given a chance to correct the defect; the court can order the dismissal only upon the prosecution’s failure to do so. The RTCs failure to provide the prosecution this opportunity twice constitutes an arbitrary exercise of power that was correctly addressed by the CA through the certiorari petition. This defect in the RTC’s action on the case, while not central to the issue before us, strengthens our conclusion that this criminal case should be resolved through full-blown trial on the merits.

Union Bank of the Philippines v Sps. Tiu The factual and procedural antecedents of this case are as follows: On November 21, 1995, petitioner Union Bank of the Philippines (Union Bank) and respondent spouses Rodolfo T. Tiu and Victoria N. Tiu (the spouses Tiu) entered into a Credit Line Agreement (CLA) whereby Union Bank agreed to make available to the spouses Tiu credit facilities in such amounts as may be approved. From September 22, 1997 to March 26, 1998, the spouses Tiu took out various loans pursuant to this CLA in the total amount of three million six hundred thirty-two thousand dollars (US$3,632,000.00). On June 23, 1998, Union Bank advised the spouses Tiu through a letter that, in view of the existing currency risks, the loans shall be redenominated to their equivalent Philippine peso amount on July 15, 1998. On July 3, 1998, the spouses Tiu wrote to Union Bank authorizing the latter to redenominate the loans at the rate of US$1=P41.40 with interest of 19% for one year.

On December 21, 1999, Union Bank and the spouses Tiu entered into a Restructuring Agreement. The Restructuring Agreement contains a clause wherein the spouses Tiu confirmed their debt and waived any action on account thereof. To quote said clause: 1. Confirmation of Debt The BORROWER hereby confirms and accepts that as of December 8, 1999, its outstanding principal indebtedness to the BANK under the Agreement and the Notes amount to ONE HUNDRED FIFTY[-]FIVE MILLION THREE HUNDRED SIXTY[-]FOUR THOUSAND EIGHT HUNDRED PESOS (PHP 155,364,800.00) exclusive of interests, service and penalty charges (the Indebtedness) and further confirms the correctness, legality, collectability and enforceability of the Indebtedness. The BORROWER unconditionally waives any action, demand or claim that they may otherwise have to dispute the amount of the Indebtedness as of the date specified in this Section, or the collectability and enforceability thereof. It is the understanding of the parties that the BORROWERs acknowledgment, affirmation, and waiver herein are material considerations for the BANKs agreeing to restructure the Indebtedness which would have already become due and payable as of the above date under the terms of the Agreement and the Notes. The restructured amount (P155,364,800.00) is the sum of the following figures: (1) P150,364,800.00, which is the value of the US$3,632,000.00 loan as redenominated under the above-mentioned exchange rate of US$1=P41.40; and (2) P5,000,000.00, an additional loan given to the spouses Tiu to update their interest payments. Under the same Restructuring Agreement, the parties declared that the loan obligation to be restructured (after deducting the dacion price of properties ceded by the Tiu spouses and adding: [1] the taxes, registration fees and other expenses advanced by Union Bank in registering the Deeds of Dation in Payment; and [2] other fees and charges incurred by the Indebtedness) is one hundred four million six hundred sixty-eight thousand seven hundred forty-one pesos (P104,668,741.00) (total restructured amount).

The Deeds of Dation in Payment referred to are the following: 1. Dation of the Labangon properties Deed executed by Juanita Tiu, the mother of respondent Rodolfo Tiu, involving ten parcels of land with improvements located in Labangon, Cebu City and with a total land area of 3,344 square meters, for the amount of P25,130,000.00. The Deed states that these properties shall be leased to the Tiu spouses at a monthly rate of P98,000.00 for a period of two years. 2. Dation of the Mandaue property Deed executed by the spouses Tiu involving one parcel of land with improvements located in A.S. Fortuna St., Mandaue City, covered by TCT No. T-31604 and with a land area

of 2,960 square meters, for the amount of P36,080,000.00. The Deed states that said property shall be leased to the Tiu spouses at a monthly rate of P150,000.00 for a period of two years. As likewise provided in the Restructuring Agreement, the spouses Tiu executed a Real Estate Mortgage in favor of Union Bank over their residential property inclusive of lot and improvements located at P. Burgos St., Mandaue City, covered by TCT No. T-11951 with an area of 3,096 square meters. The spouses Tiu undertook to pay the total restructured amount (P104,668,741.00) via three loan facilities (payment schemes). The spouses Tiu claim to have made the following payments: (1) P15,000,000.00 on August 3, 1999; and (2) another P13,197,546.79 as of May 8, 2001. Adding the amounts paid under the Deeds of Dation in Payment, the spouses Tiu postulate that their payments added up to P89,407,546.79. Asserting that the spouses Tiu failed to comply with the payment schemes set up in the Restructuring Agreement, Union Bank initiated extrajudicial foreclosure proceedings on the residential property of the spouses Tiu, covered by TCT No. T-11951. The property was to be sold at public auction on July 18, 2002. The spouses Tiu, together with Juanita T. Tiu, Rosalinda T. King, Rufino T. Tiu, Rosalie T. Young and Rosenda T. Tiu, filed with the Regional Trial Court (RTC) of Mandaue City a Complaint seeking to have the Extrajudicial Foreclosure declared null and void. Complainants therein prayed for the following: (1) that the spouses Tiu be declared to have fully paid their obligation to Union Bank; (2) that defendants be permanently enjoined from proceeding with the auction sale; (3) that Union Bank be ordered to return to the spouses Tiu their properties as listed in the Complaint; (4) that Union Bank be ordered to pay the plaintiffs the sum of P10,000,000.00 as moral damages, P2,000,000.00 as exemplary damages, P3,000,000.00 as attorneys fees and P500,000.00 as expenses of litigation; and (5) a writ of preliminary injunction or temporary restraining order be issued enjoining the public auction sale to be held on July 18, 2002. The spouses Tiu claim that from the beginning the loans were in pesos, not in dollars. Their office clerk, Lilia Gutierrez, testified that the spouses Tiu merely received the peso equivalent of their US$3,632,000.00 loan at the rate of US$1=P26.00. The spouses Tiu further claim that they were merely forced to sign the Restructuring Agreement and take up an additional loan of P5,000,000.00, the proceeds of which they never saw because this amount was immediately applied by Union Bank to interest payments. The spouses Tiu allege that the foreclosure sale of the mortgaged properties was invalid, as the loans have already been fully paid. They also allege that they are not the owners of the improvements constructed on the lot because the real owners thereof are their co-petitioners, Juanita T. Tiu, Rosalinda T. King, Rufino T. Tiu, Rosalie T. Young and Rosenda T. Tiu. The spouses Tiu further claim that prior to the signing of the Restructuring Agreement, they entered into a Memorandum of Agreement with Union Bank whereby the former deposited with the latter several certificates of shares of stock of various companies and four certificates of title of various parcels of land located in Cebu. The spouses Tiu claim that these properties have not been subjected to any lien in favor of Union Bank, yet the latter continues to hold on to these properties and has not returned the same to the former. On the other hand, Union Bank claims that the Restructuring Agreement was voluntarily and validly entered into by both parties. Presenting as evidence the Warranties embodied in the Real Estate Mortgage, Union Bank contends that the foreclosure of the mortgage on the residential property of the spouses Tiu was valid and that the improvements thereon were absolutely owned by them. Union Bank denies receiving certificates of shares of stock of various companies or the four certificates of title of

various parcels of land from the spouses Tiu. However, Union Bank also alleges that even if said certificates were in its possession it is authorized under the Restructuring Agreement to retain any and all properties of the debtor as security for the loan. The RTC issued a Temporary Restraining Order and, eventually, a Writ of Preliminary Injunction preventing the sale of the residential property of the spouses Tiu. On December 16, 2004, the RTC rendered its Decision in Civil Case No. MAN-4363 in favor of Union Bank.

In upholding the validity of the Restructuring Agreement, the RTC held that the spouses Tiu failed to present any evidence to prove either fraud or intimidation or any other act vitiating their consent to the same. The exact obligation of the spouses Tiu to Union Bank is therefore P104,668,741.00, as agreed upon by the parties in the Restructuring Agreement. As regards the contention of the spouses Tiu that they have fully paid their indebtedness, the RTC noted that they could not present any detailed accounting as to the total amount they have paid after the execution of the Restructuring Agreement. On January 4, 2005, Union Bank filed a Motion for Partial Reconsideration, protesting the finding in the body of the December 16, 2004 Decision that the residential house on Lot No. 639 is not owned by the spouses Tiu and therefore should be excluded from the real properties covered by the real estate mortgage. On January 6, 2005, the spouses Tiu filed their own Motion for Partial Reconsideration and/or New Trial. They alleged that the trial court failed to rule on their fourth cause of action wherein they mentioned that they turned over the following titles to Union Bank: TCT Nos. 30271, 116287 and 116288 and OCT No. 0-3538. They also prayed for a partial new trial and for a declaration that they have fully paid their obligation to Union Bank. On January 11, 2005, the spouses Tiu received from Sheriff Oano a Second Notice of Extra-judicial Foreclosure Sale of Lot No. 639 to be held on February 3, 2005. To prevent the same, the Tiu spouses filed with the Court of Appeals a Petition for Prohibition and Injunction with Application for TRO/Writ of Preliminary Injunction. The Court of Appeals issued a Temporary Restraining Order on January 27, 2005. On January 19, 2005, the RTC issued an Order denying Union Banks Motion for Partial Reconsideration and the Tiu spouses Motion for Partial Reconsideration and/or New Trial. Both the spouses Tiu and Union Bank appealed the case to the Court of Appeals. On May 9, 2005, Sheriff Oano proceeded to conduct the extrajudicial sale. Union Bank submitted the lone bid of P18,576,000.00. On June 14, 2005, Union Bank filed a motion with the Court of Appeals praying that Sheriff Oano be ordered to issue a definite and regular Certificate of Sale. On July 21, 2005, the Court of Appeals issued a Resolution denying the Motion and suspending the auction sale at whatever stage, pending resolution of the appeal and conditioned upon the filing of a bond in the amount of P18,000,000.00 by the Tiu spouses. The Tiu spouses failed to file said bond. The Court of Appeals dismissed the Petition for Prohibition, CA-G.R. SP No. 00253, on the ground that the proper venue for the same is with the RTC. On the other hand, the Court of Appeals ruled in favor of the spouses Tiu in CA-G.R. CV No. 00190. The Court of Appeals held that the loan transactions were in pesos, since there was supposedly no stipulation the loans will be paid in dollars and since no dollars ever exchanged hands. Considering that the loans were in pesos from the beginning, the Court of Appeals reasoned that there is no need to convert the same. By making it appear that the loans were originally in dollars, Union Bank overstepped its rights as creditor, and made unwarranted interpretations of the original loan agreement. According to the Court of Appeals, the Restructuring Agreement, which purportedly attempts to create a novation of the original loan, was not clearly authorized by the debtors and was not supported by any cause or consideration. Since the Restructuring Agreement is void, the original loan of P94,432,000.00 (representing the amount

received by the spouses Tiu of US$3,632,000.00 using the US$1=P26.00 exchange rate) should subsist. The Court of Appeals likewise invalidated (1) the P5,000,000.00 charge for interest in the Restructuring Agreement, for having been unilaterally imposed by Union Bank; and (2) the lease of the properties conveyed in dacion en pago, for being against public policy.

In sum, the Court of Appeals found Union Bank liable to the spouses Tiu in the amount of P927,546.79.

With regard to the ownership of the improvements on the subject mortgaged property, the Court of Appeals ruled that it belonged to respondent Rodolfo Tius father, Jose Tiu, since 1981. According to the Court of Appeals, Union Bank should not have relied on warranties made by debtors that they are the owners of the property. The appellate court went on to permanently enjoin Union Bank from foreclosing the mortgage not only of the property covered by TCT No. T-11951, but also any other mortgage over any other property of the spouses Tiu. The Court of Appeals likewise found Union Bank liable to return the certificates of stocks and titles to real properties of the spouses Tiu in its possession. The appellate court held that Union Bank made judicial admissions of such possession in its Reply to Plaintiffs Request for Admission. In the event that Union Bank can no longer return these certificates and titles, it was mandated to shoulder the cost for their replacement. Finally, the Court of Appeals took judicial notice that before or during the financial crisis, banks actively convinced debtors to make dollar loans in the guise of benevolence, saddling borrowers with loans that ballooned twice or thrice their original loans. The Court of Appeals, noting the cavalier way with which banks exploited and manipulated the situation, held Union Bank liable to the spouses Tiu for P100,000.00 in moral damages, P100,000.00 in exemplary damages, and P50,000.00 in attorneys fees.

Issue/s:1 WON, the CA committed a grave error when it concluded that there were no dollar loans obtained by

Sps Tiu despite their clear admission of indebtedness. — YES2 WON, the CA was correct in nullifying the restructuring agreement for lack of cause or consideration

despite the admission by Tiu spouse of the due and voluntary execution of such. — NO3 WON, the CA was correct when it enjoined Union Bank from foreclosing the mortgage despite the

spouses’ admission of non-payment. — NO4 WON, the CA correctly held that banks cannot own real properties — NO (This is the applicable part to

our discussion — in RED below) Held/Ratio: 1) The CA made an error when it ruled that there were no dollar loans obtained by the spouses. Union Bank does not dispute that the spouses Tiu received the loaned amount of US$3,632,000.00 in Philippine pesos, not dollars, at the prevailing exchange rate of US$1=P26. However, Union Bank claims that this does not change the true nature of the loan as a foreign currency loan, and proceeded to illustrate in its Memorandum that the spouses Tiu obtained favorable interest rates by opting to borrow in dollars (but receiving the equivalent peso amount) as opposed to borrowing in pesos. Although indeed, the spouses Tiu received peso equivalents of the borrowed amounts, the loan documents presented as evidence, i.e., the promissory notes, expressed the amount of the loans in US dollars and not in any other currency. This clearly indicates that the spouses Tiu were bound to pay Union Bank in dollars, the amount stipulated in said loan documents. Thus, before the Restructuring Agreement, the spouses Tiu were bound to pay Union Bank the amount of US$3,632,000.00 plus the interest stipulated in the promissory notes, without converting the same to pesos. The spouses Tiu, who are in the construction business and appear to be dealing primarily in Philippine currency, should therefore purchase the necessary amount of dollars to pay Union Bank, who could have justly refused payment in

any currency other than that which was stipulated in the promissory notes. We disagree with the finding of the Court of Appeals that the testimony of Lila Gutierrez, which merely attests to the fact that the spouses Tiu received the peso equivalent of their dollar loan, proves the intention of the parties that such loans should be paid in pesos. If such had been the intention of the parties, the promissory notes could have easily indicated the same. Such stipulation of payment in dollars is not prohibited by any prevailing law or jurisprudence at the time the loans were taken. In this regard, Article 1249 of the Civil Code provides: Art. 1249. The payment of debts in money shall be made in the currency stipulated, and if it is not possible to deliver such currency, then in the currency which is legal tender in the Philippines. Although the Civil Code took effect on August 30, 1950, jurisprudence had upheld the continued effectivity of Republic Act No. 529, which took effect earlier on June 16, 1950. Pursuant to Section 1 of Republic Act No. 529, any agreement to pay an obligation in a currency other than the Philippine currency is void; the most that could be demanded is to pay said obligation in Philippine currency to be measured in the prevailing rate of exchange at the time the obligation was incurred. On June 19, 1964, Republic Act No. 4100 took effect, modifying Republic Act No. 529 by providing for several exceptions to the nullity of agreements to pay in foreign currency. On April 13, 1993, Central Bank Circular No. 1389 was issued, lifting foreign exchange restrictions and liberalizing trade in foreign currency. In cases of foreign borrowings and foreign currency loans, however, prior Bangko Sentral approval was required. On July 5, 1996, Republic Act No. 8183 took effect, expressly repealing Republic Act No. 529 in Section 2 thereof. The same statute also explicitly provided that parties may agree that the obligation or transaction shall be settled in a currency other than Philippine currency at the time of payment. Although the Credit Line Agreement between the spouses Tiu and Union Bank was entered into on November 21, 1995, when the agreement to pay in foreign currency was still considered void under Republic Act No. 529, the actual loans, as shown in the promissory notes, were taken out from September 22, 1997 to March 26, 1998, during which time Republic Act No. 8183 was already in effect. In United Coconut Planters Bank v. Beluso, we held that: [O]pening a credit line does not create a credit transaction of loan or mutuum, since the former is merely a preparatory contract to the contract of loan or mutuum. Under such credit line, the bank is merely obliged, for the considerations specified therefor, to lend to the other party amounts not exceeding the limit provided. The credit transaction thus occurred not when the credit line was opened, but rather when the credit line was availed of. x x x. Having established that Union Bank and the spouses Tiu validly entered into dollar loans, the conclusion of the Court of Appeals that there were no dollar loans to novate into peso loans must necessarily fail. 2) Similarly, the Court of Appeals pronouncement that the novation was not supported by any cause or consideration is likewise incorrect. This conclusion suggests that when the parties signed the Restructuring Agreement, Union Bank got something out of nothing or that the spouses Tiu received no benefit from the restructuring of their existing loan and was merely taken advantage of by the bank. It is important to note at this point that in the determination of the nullity of a contract based on the lack of consideration, the debtor has the burden to prove the same. Article 1354 of the Civil Code provides that [a]though the cause is not stated in the contract, it is presumed that it exists and is lawful, unless the debtor proves the contrary.

In the case at bar, the Restructuring Agreement was signed at the height of the financial crisis when the Philippine peso was rapidly depreciating. Since the spouses Tiu were bound to pay their debt in dollars, the cost of purchasing the required currency was likewise swiftly increasing. If the parties did not enter into the Restructuring Agreement in December 1999 and the peso continued to deteriorate, the ability of the spouses Tiu to pay and the ability of Union Bank to collect would both have immensely suffered. As shown by the evidence presented by Union Bank, the peso indeed continued to deteriorate, climbing to US$1=P50.01 on December 2000. Hence, in order to ensure the stability of the loan agreement, Union Bank and the spouses Tiu agreed in the Restructuring Agreement to peg the principal loan at P150,364,800.00 and the unpaid interest at P5,000,000.00. Before this Court, the spouses Tiu belatedly argue that their consent to the Restructuring Agreement was vitiated by fraud and mistake, alleging that (1) the Restructuring Agreement did not take into consideration their substantial payment in the amount of P40,447,185.60 before its execution; and (2) the dollar loans had already been redenominated in 1997 at the rate of US$1=P26.34. We have painstakingly perused over the records of this case, but failed to find any documentary evidence of the alleged payment of P40,447,185.60 before the execution of the Restructuring Agreement. In paragraph 16 of their Amended Complaint, the spouses Tiu alleged payment of P40,447,185.60 for interests before the conversion of the dollar loan. This was specifically denied by Union Bank in paragraph 5 of its Answer with Counterclaim. Respondent Rodolfo Tiu testified that they made 50 million plus in cash payment plus other monthly interest payments, and identified a computation of payments dated July 17, 2002 signed by himself. Such computation, however, was never formally offered in evidence and was in any event, wholly self-serving. As regards the alleged redenomination of the same dollar loans in 1997 at the rate of US$1=P26.34, the spouses Tiu merely relied on the direct testimony of Herbert Hojas, one of the witnesses of Union Bank. Neither party presented any documentary evidence of the alleged redenomination in 1997. Respondent Rodolfo Tiu did not even mention it in his testimony. Furthermore, Hojas was obviously uncertain in his statement that said redenomination was made in 1997. As pointed out by the trial court, the Restructuring Agreement, being notarized, is a public document enjoying a prima facie presumption of authenticity and due execution. Clear and convincing evidence must be presented to overcome such legal presumption. The spouses Tiu, who attested before the notary public that the Restructuring Agreement is their own free and voluntary act and deed, failed to present sufficient evidence to prove otherwise. It is difficult to believe that the spouses Tiu, veteran businessmen who operate a multi-million peso company, would sign a very important document without fully understanding its contents and consequences. This Court therefore rules that the Restructuring Agreement is valid and, as such, a valid and binding novation of loans of the spouses Tiu entered into from September 22, 1997 to March 26, 1998 which had a total amount of US$3,632,000.00. 3) The spouses Tiu challenge the validity of the foreclosure of the mortgage on two grounds, claiming that: (1) the debt had already been fully paid; and (2) they are not the owners of the improvements on the mortgaged property. In the preceding discussion, we have ruled that the Restructuring Agreement is a valid and binding novation of loans of the spouses Tiu entered into from September 22, 1997 to March 26, 1998 in the total amount of US$3,632,000.00. Thus, in order that the spouses Tiu can be held to have fully paid their loan obligation, they should present evidence showing their payment of the total restructured amount under the Restructuring Agreement which was P104,668,741.00. As we have discussed above, however, while respondent Rodolfo Tiu appeared to have identified during his testimony a computation dated July 17, 2002 of the alleged payments made to Union Bank, the same was not formally offered in evidence.

Applying Section 34, Rule 132 of the Rules of Court, such computation cannot be considered by this Court. We have held that a formal offer is necessary because judges are mandated to rest their findings of facts and their judgment only and strictly upon the evidence offered by the parties at the trial. It has several functions: (1) to enable the trial judge to know the purpose or purposes for which the proponent is presenting the evidence; (2) to allow opposing parties to examine the evidence and object to its admissibility; and (3) to facilitate review by the appellate court, which will not be required to review documents not previously scrutinized by the trial court. Moreover, even if such computation were admitted in evidence, the same is self-serving and cannot be given probative weight. In the case at bar, the records do not contain even a single receipt evidencing payment to Union Bank. The Court of Appeals, however, held that several payments made by the spouses Tiu had been admitted by Union Bank. Indeed, Section 11, Rule 8 of the Rules of Court provides that an allegation not specifically denied is deemed admitted. In such a case, no further evidence would be required to prove the antecedent facts. We should therefore examine which of the payments specified by the spouses Tiu in their Amended Complaint were not specifically denied by Union Bank. In paragraphs 4 and 5 of their Answer with Counterclaim,Union Bank specifically denied the allegation in paragraph 9 of the Complaint, but admitted the allegations in paragraphs 17, 18, 19, 20 and 21 thereof. Paragraphs 18, 19 and 20 allege the two deeds of dacion. However, these instruments were already incorporated in the computation of the outstanding debt (i.e., subtracted from the confirmed debt of P155,364,800.00), as can be gleaned from the following provisions in the Restructuring Agreement: The loan obligation to the BANK to be restructured herein after deducting from the Indebtedness of the BORROWER the dacion price of the properties subject of the Deeds of Dacion and adding to the Indebtedness all the taxes, registration fees and other expenses advanced by the bank in registering the Deeds of Dacion, and also adding to the Indebtedness the interest, and other fees and charges incurred by the Indebtedness, amounts to ONE HUNDRED FOUR MILLION SIX HUNDRED SIXTY-EIGHT THOUSAND SEVEN HUNDRED FORTY-ONE PESOS (PHP104,668,741.00) (the TOTAL RESTRUCTURED AMOUNT). As regards the allegations of cash payments in paragraphs 17 and 21 of the Amended Complaint, the date of the alleged payment is critical as to whether they were included in the Restructuring Agreement. The payment of P15,000,000.00 alleged in paragraph 17 of the Amended Complaint was supposedly made on August 3 and 12, 1999. This payment was before the date of execution of the Restructuring Agreement on December 21, 1999, and is therefore already factored into the restructured obligation of the spouses. On the other hand, the payment of P13,197,546.79 alleged in paragraph 21 of the Amended Complaint was dated May, 8, 2001. Said payment cannot be deemed included in the computation of the spouses Tius debt in the Restructuring Agreement, which was assented to more than a year earlier. This amount (P13,197,546.79) is even absent in the computation of Union Bank of the outstanding debt, in contrast with the P15,000,000.00 payment which is included therein. Union Bank did not explain this discrepancy and merely relied on the spouses Tius failure to formally offer supporting evidence. Since this payment of P13,197,546.79 on May 8, 2001 was admitted by Union Bank in their Answer with Counterclaim, there was no need on the part of the spouses Tiu to present evidence on the same. Nonetheless, if we subtract this figure from the total restructured amount (P104,668,741.00) in the Restructuring Agreement, the result is that the spouses Tiu still owe Union Bank P91,471,194.21. (2) The Court of Appeals, taking into consideration its earlier ruling that the loan was already fully paid, permanently enjoined Union Bank from foreclosing the mortgage on the property covered by Transfer Certificate of Title No. 11951 (Lot No. 639) and from pursuing other foreclosure of mortgages over any other properties of the spouses Tiu. Contrary to the ruling of the Court of Appeals, the burden to prove the spouses Tius allegation that they do not own the improvements on Lot No. 639, despite having such improvements included in the mortgage is on the spouses Tiu themselves. The fundamental rule is that he who alleges must prove. The allegations of the spouses Tiu on this matter, which are found in paragraphs

35 to 39of their Amended Complaint, were specifically denied in paragraph 9 of Union Banks Answer with Counterclaim. Upon careful examination of the evidence, we find that the spouses Tiu failed to prove that the improvements on Lot No. 639 were owned by third persons. In fact, the evidence presented by the spouses Tiu merely attempt to prove that the improvements on Lot No. 639 were declared for taxes in the name of respondent Rodolfo Tius father, Jose Tiu, who allegedly died on December 18, 1983. There was no effort to show how their co-plaintiffs in the original complaint, namely Juanita T. Tiu, Rosalinda T. King, Rufino T. Tiu, Rosalie T. Young and Rosenda T. Tiu, became co-owners of the house. The spouses Tiu did not present evidence as to (1) who the heirs of Jose Tiu are; (2) if Juanita T. Tiu, Rosalinda T. King, Rufino T. Tiu, Rosalie T. Young and Rosenda T. Tiu are indeed included as heirs; and (3) why petitioner Rodolfo Tiu is not included as an heir despite being the son of Jose Tiu. No birth certificate of the alleged heirs, will of the deceased, or any other piece of evidence showing judicial or extrajudicial settlement of the estate of Jose Tiu was presented. In light of the foregoing, this Court therefore sets aside the ruling of the Court of Appeals permanently enjoining Union Bank from foreclosing the mortgage on Lot No. 639, including the improvements thereon. 4) The Court of Appeals found the lease contracts over the properties conveyed to Union Bank via dacion en pago to be void for being against public policy. The appellate court held that since the General Banking Law of 2000 mandates banks to immediately dispose of real estate properties that are not necessary for its own use in the conduct of its business, banks should not enter into two-year contracts of lease over properties paid to them through dacion. The Court of Appeals thus ordered Union Bank to return the rentals it collected. To determine the amount of rentals paid by the spouses Tiu to Union Bank, the Court of Appeals simply multiplied the monthly rental stipulated in the Restructuring Agreement by the stipulated period of the lease agreement: For the Labangon property, the Tiu spouses paid rentals in the amount of P98,000.00 per month for two years, or a total amount of P2,352,000.00. For the A.S. Fortuna property, the Tiu spouses paid rentals in the amount of P150,000.00 per month for two years, or a total amount of P3,600,000.00. The total amount in rentals paid by the Tiu spouses to Union Bank is FIVE MILLION NINE HUNDRED FIFTY- TWO THOUSAND PESOS (P5,952,000.00). This Court finds that the return of this amount to the Tiu spouses is called for since it will better serve public policy. These properties that were given by the Tiu spouses to Union Bank as payment should not be used by the latter to extract more money from the former. This situation is analogous to having a debtor pay interest for a debt already paid. Instead of leasing the properties, Union Bank should have instructed the Tiu spouses to vacate the said properties so that it could dispose of them. The Court of Appeals committed a serious error in this regard. As pointed out by petitioner Union Bank, the spouses Tiu did not present any proof of the alleged rental payments. Not a single receipt was formally offered in evidence. The mere stipulation in a contract of the monthly rent to be paid by the lessee is certainly not evidence that the same has been paid. Since the spouses Tiu failed to prove their payment to Union Bank of the amount of P5,952,000.00, we are constrained to reverse the ruling of the Court of Appeals ordering its return. Even assuming arguendo that the spouses Tiu had duly proven that it had paid rent to Union Bank, we nevertheless disagree with the finding of the Court of Appeals that it is against public policy for banks to enter into two-year contracts of lease of properties ceded to them through dacion en pago. The provisions of law cited by the Court of Appeals, namely Sections 51 and 52 of the General Banking Law of 2000, merely provide: SECTION 51. Ceiling on Investments in Certain Assets. Any bank may acquire real estate as shall be necessary for its own use in the conduct of its business: Provided, however, That the total investment in

such real estate and improvements thereof, including bank equipment, shall not exceed fifty percent (50%) of combined capital accounts: Provided, further, That the equity investment of a bank in another corporation engaged primarily in real estate shall be considered as part of the bank's total investment in real estate, unless otherwise provided by the Monetary Board. SECTION 52. Acquisition of Real Estate by Way of Satisfaction of Claims. Notwithstanding the limitations of the preceding Section, a bank may acquire, hold or convey real property under the following circumstances: 52.1. Such as shall be mortgaged to it in good faith by way of security for debts; 52.2. Such as shall be conveyed to it in satisfaction of debts previously contracted in the course of its dealings; or 52.3. Such as it shall purchase at sales under judgments, decrees, mortgages, or trust deeds held by it and such as it shall purchase to secure debts due it. Any real property acquired or held under the circumstances enumerated in the above paragraph shall be disposed of by the bank within a period of five (5) years or as may be prescribed by the Monetary Board: Provided, however, That the bank may, after said period, continue to hold the property for its own use, subject to the limitations of the preceding Section. Section 52.2 contemplates a dacion en pago. Thus, Section 52 undeniably gives banks five years to dispose of properties conveyed to them in satisfaction of debts previously contracted in the course of its dealings, unless another period is prescribed by the Monetary Board. Furthermore, there appears to be no legal impediment for a bank to lease the real properties it has received in satisfaction of debts, within the five-year period that such bank is allowed to hold the acquired realty. We do not dispute the interpretation of the Court of Appeals that the purpose of the law is to prevent the concentration of land holdings in a few hands, and that banks should not be allowed to hold on to the properties contemplated in Section 52 beyond the five-year period unless such bank has exerted its best efforts to dispose of the property in good faith but failed. However, inquiries as to whether the banks exerted best efforts to dispose of the property can only be done if said banks fail to dispose of the same within the period provided. Such inquiry is furthermore irrelevant to the issues in the case at bar. OTHER MATTERS — IN CASE, YOU ARE CURIOUS IF BANKS INDEED HELD THOSE SECURITIES =)

In the Amended Complaint, the spouses Tiu alleged that they delivered several certificates and titles to Union Bank pursuant to a Memorandum of Agreement. These certificates and titles were not subjected to any lien in favor of Union Bank, but the latter allegedly continued to hold on to said properties. The RTC failed to rule on this issue. The Court of Appeals, tackling this issue for the first time, ruled in favor of the Tiu spouses and ordered the return of these certificates and titles. The appellate court added that if Union Bank can no longer return these certificates or titles, it should shoulder the cost for their replacement. Union Bank, asserting that the Memorandum of Agreement did not, in fact, push through, denies having received the subject certificates and titles. Union Bank added that even assuming arguendo that it is in possession of said documents, the Restructuring Agreement itself allows such possession. The evidence on hand lends credibility to the allegation of Union Bank that the Memorandum of Agreement did not push through. The copy of the Memorandum of Agreement attached by the spouses

Tiu themselves to their original complaint did not bear the signature of any representative from Union Bank and was not notarized. We, however, agree with the finding of the Court of Appeals that despite the failure of the Memorandum of Agreement to push through, the certificates and titles mentioned therein do appear to be in the possession of Union Bank. In the first place, notwithstanding the foregoing provision, there is no clear intention on the part of the spouses Tiu to deliver the certificates over certain shares of stock and real properties as security for their debt. From the terms of the Memorandum of Agreement, these certificates were surrendered to Union Bank in order that the said properties described therein be given their corresponding loan values required for the restructuring of the spouses Tius outstanding obligations. However, in the event the parties fail to agree on the valuation of the subject properties, Union Bank agrees to release the same. As Union Bank itself vehemently alleges, the Memorandum of Agreement was not consummated. Moreover, despite the fact that the Bank was aware, or in possession, of these certificates, at the time of execution of the Restructuring Agreement, only the mortgage over the real property covered by TCT No. T-11951 was expressly mentioned as a security in the Restructuring Agreement. In fact, in its Reply to Request for Admission, Union Bank admitted that (1) the titles to the real properties were submitted to it for appraisal but were subsequently rejected, and (2) no real estate mortgages were executed over the said properties. There being no agreement that these properties shall secure respondents obligation, Union Bank has no right to retain said certificates. Assuming arguendo that paragraph 11(b) of the Restructuring Agreement indeed allows the retention of the certificates (submitted to the Bank ostensibly for safekeeping and appraisal) as security for spouses Tius debt, Union Banks position still cannot be upheld. Insofar as said provision permits Union Bank to apply properties of the spouses Tiu in its possession to the full or partial payment of the latters obligations, the same appears to impliedly allow Union Bank to appropriate these properties for such purpose. However, said provision cannot be validly applied to the subject certificates and titles without violating the prohibition against pactum commissorium contained in Article 2088 of the Civil Code, to the effect that [t]he creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of them[;] [a]ny stipulation to the contrary is null and void.

BPI Employees Union v BPIFactsBPI Operations Management Corporation (BOMC), which was created pursuant to Central Bank Circular No. 1388, Series of 1993 (CBP Circular No. 1388, 1993), and 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 BPI’s Metro Manila branches. In this agreement, 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 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, BPI’s cashiering function and FEBTC’s cashiering, distribution and bookkeeping functions were handled by BOMC. Consequently, twelve (12) former FEBTC employees were transferred to BOMC to complete the latter’s service complement.

BPI Davao’s 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. It requested the BPI management to submit the BOMC issue to the grievance procedure under the CBA, but BPI did not consider it as "grievable." Instead, BPI proposed a Labor Management Conference (LMC) between the parties.

During the LMC, BPI invoked management prerogative stating that the creation of the BOMC was to preserve more jobs and to designate it as an agency to place employees where they were most needed. 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 unit’s 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.

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. The DOLE Secretary directed the parties to cease and desist from committing any act that might exacerbate the situation.

On October 27, 2000, a hearing was conducted. Thereafter, the parties were required to submit their respective position papers. On November 29, 2000, the Union filed its Urgent Omnibus Motion to Cease and Desist with a prayer that BPI-Davao and/or Mr. Claro M. Reyes and Mr. Cecil Conanan be held in contempt for the following alleged acts of BPI:1. The Bank created a Task Force Committee on November 20, 2000 composed of six (6) former FEBTC employees to handle the Cashiering, Distributing, Clearing, Tellering and Accounting functions of the former FEBTC branches but the "task force" conducts its business at the office of the BOMC using the latter’s equipment and facilities.2. On November 27, 2000, the bank integrated the clearing operations of the BPI and the FEBTC. The clearing function of BPI, then solely handled by the BPI Processing Center prior to the labor dispute, is now encroached upon by the BOMC because with the merger, differences between BPI and FEBTC operations were diminished or deleted. What the bank did was simply to get the total of all clearing transactions under BPI but the BOMC employees process the clearing of checks at the Clearing House as to checks coming from former FEBTC branches. Prior to the labor dispute, the run-up and distribution of the checks of BPI were returned to the BPI processing center, now all checks whether of BPI or of FEBTC were brought to the BOMC. Since the clearing operations were previously done by the BPI processing center with BPI employees, said function should be performed by BPI employees and not by BOMC.

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.13 The NLRC also stressed that Department Order (D.O.) No. 10 series of 1997, strongly relied upon by the Union, did not apply in this case as BSP Circular No. 1388, series of 1993, was the applicable rule.

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 NLRC’s December 21, 2001 Resolution with modification that the enumeration of functions listed under BSP Circular No. 1388 in the said resolution be deleted. The CA noted at the outset that the petition must be dismissed as it merely touched on factual matters which were beyond the ambit of the remedy availed of. Be that as it may, the CA found that the factual findings of the NLRC were supported by substantial evidence and, thus, entitled to great respect and finality. To the CA, the NLRC did not act with grave abuse of discretion as to merit the reversal of the resolution.

Issue/s:WON, BPI’s act of outsourcing cashiering, distribution, and bookkeeping functions to BOMC is in conformity with the law and the existing CBA.

Held/Ratio:The Union claims that a union shop agreement is stipulated in the existing CBA. It is unfair labor practice for employer to outsource the positions in the existing bargaining unit, citing the case of Shell OilWorkers’ Union v. Shell Company of the Philippines, Ltd.

The Union’s reliance on the Shell Case is misplaced. The rule now is covered by Article 261 of the Labor Code, which took effect on November 1, 1974.25 Article 261 provides: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. Otherwise, they are mere grievances.

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. The provisions relied upon by the Union were those articles referring to the recognition of the union as the sole and exclusive bargaining representative of all rank-and-file employees, as well as the articles on union security, specifically, the maintenance of membership in good standing as a condition for continued employment and the union shop clause. It failed to take into consideration its recognition of the bank’s exclusive rights and prerogatives, likewise provided in the CBA, which included the hiring of employees, promotion, transfers, and dismissals for just cause and the maintenance of order, discipline and efficiency in its operations.

The Union, however, insists that jobs being outsourced to BOMC were included in the existing bargaining unit, thus, resulting in a reduction of a number of positions in such unit. The reduction interfered with the employees’ right to self-organization because the power of a union primarily depends on its strength in number.

It is incomprehensible how the "reduction of positions in the collective bargaining unit" interferes with the employees’ right to self-organization because the employees themselves were neither transferred nor

dismissed from the service. As the NLRC clearly stated: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. In the process of the consolidation or merger of the two banks which resulted in increased diversification of functions, some of these non-banking functions were merely transferred to the BOMC without affecting the union membership.

BPI stresses that not a single employee or union member was or would be dislocated or terminated from their employment as a result of the Service Agreement. Neither had it resulted in any diminution of salaries and benefits nor led to any reduction of union membership.As far as the twelve (12) former FEBTC employees are concerned, the Union failed to substantially prove that their transfer, made to complete BOMC’s service complement, was motivated by ill will, anti-unionism or bad faith so as to affect or interfere with the employees’ right to self-organization.It is to be emphasized that contracting out of services is not illegal per se. It is an exercise of business judgment or management prerogative. Absent proof that the management acted in a malicious or arbitrary manner, the Court will not interfere with the exercise of judgment by an employer. In this case, bad faith cannot be attributed to BPI because its actions were authorized by CBP Circular No. 1388, Series of 199333 issued by the Monetary Board of the then Central Bank of the Philippines (now Bangko Sentral ng Pilipinas). The circular covered amendments in Book I of the Manual of Regulations for Banks and Other Financial Intermediaries, particularly on the matter of bank service contracts. A finding of ULP necessarily requires the alleging party to prove it with substantial evidence. Unfortunately, the Union failed to discharge this burden.

Much has been said about the applicability of D.O. No. 10. Both the NLRC and the CA agreed with BPI that the said order does not apply. With BPI, as a commercial bank, its transactions are subject to the rules and regulations of the governing agency which is the Bangko Sentral ng Pilipinas.34 The Union insists that D.O. No. 10 should prevail.

The Court is of the view, however, that there is no conflict between D.O. No. 10 and CBP Circular No. 1388. In fact, they complement each other.

Consistent with the maxim, interpretare et concordare leges legibus est optimus interpretandi modus, a statute should be construed not only to be consistent with itself but also to harmonize with other laws on the same subject matter, as to form a complete, coherent and intelligible system of jurisprudence. The seemingly conflicting provisions of a law or of two laws must be harmonized to render each effective. It is only when harmonization is impossible that resort must be made to choosing which law to apply.

In the case at bench, the Union submits that while the Central Bank regulates banking, the Labor Code and its implementing rules regulate the employment relationship. To this, the Court agrees. The fact that banks are of a specialized industry must, however, be taken into account. The competence in determining which banking functions may or may not be outsourced lies with the BSP. This does not mean that banks can simply outsource banking functions allowed by the BSP through its circulars, without giving regard to the guidelines set forth under D.O. No. 10 issued by the DOLE.

While D.O. No. 10, Series of 1997, enumerates the permissible contracting or subcontracting activities, it is to be observed that, particularly in Sec. 6(d) invoked by the Union, the provision is general in character – "x x x Works or services not directly related or not integral to the main business or operation of the principal… x x x." This does not limit or prohibit the appropriate government agency, such as the BSP, to issue rules, regulations or circulars to further and specifically determine the permissible services to be contracted out. CBP Circular No. 138838 enumerated functions which are ancillary to the business of banks, hence, allowed to be outsourced. Thus, sanctioned by said circular, BPI outsourced the cashiering (i.e., cash-delivery and deposit pick-up) and accounting requirements of its Davao City branches. The

Union even described the extent of BPI’s actual and intended contracting out to BOMC as follows:"As an initiatory move, the functions of the Cashiering Unit of the Processing Center of BPI, handled by its regular rank and file employees who are members of the Union, xxx [were] transferred to BOMC with the Accounting Department as next in line. The Distributing, Clearing and Bookkeeping functions of the Processing Center of the former FEBTC were likewise contracted out to BOMC."Thus, the subject functions appear to be not in any way directly related to the core activities of banks. They are functions in a processing center of BPI which does not handle or manage deposit transactions. Clearly, the functions outsourced are not inherent banking functions, and, thus, are well within the permissible services under the circular.

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 former.

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. 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; orii) The contractor does not exercise the right to control over the performance of the work of the contractual employee.

Citibank v SabenianoFacts:Sabeniano was a client of petitioners. She had several deposits and market placements with Citibank, among which were her savings account with the local branch of petitioner Citibank (Citibank-Manila3 ); money market placements with petitioner FNCB Finance; and dollar accounts with the Geneva branch of petitioner Citibank (Citibank-Geneva). At the same time, she had outstanding loans with Citibank, incurred at Citibank-Manila, the principal amounts aggregating to P1,920,000.00, all of which had become due and demandable by May 1979. Despite repeated demands by petitioner Citibank, Sabeniano failed to pay her outstanding loans. Thus, petitioner Citibank used Sabeniano’s deposits and money market placements to off-set and liquidate her outstanding obligations

Sabeniano, however, denied having any outstanding loans with petitioner Citibank. She likewise denied that she was duly informed of the off-setting or compensation thereof made by petitioner Citibank using her deposits and money market placements with petitioners. Hence, respondent sought to recover her

deposits and money market placements.

Sabeniano instituted a complaint for "Accounting, Sum of Money and Damages" against Citibank, docketed as Civil Case No. 11336, before the Regional Trial Court (RTC) of Makati City. It ruled in favor of Sabeniano. The CA partially affirmed.

Issue/s:WON, the off-setting was valid.

Held/Ratio:Petitioners’ take exception to the following findings made by this Court in its Decision, dated 16 October 2006, disallowing the off-setting or compensation of the balance of respondent’s outstanding loans using her dollar deposits in Citibank-Geneva:

Without the Declaration of Pledge, petitioner Citibank had no authority to demand the remittance of Sabeniano’s dollar accounts with Citibank-Geneva and to apply them to her outstanding loans. It cannot effect legal compensation under Article 1278 of the Civil Code since, petitioner Citibank itself admitted that Citibank-Geneva is a distinct and separate entity. As for the dollar accounts, Sabeniano was the creditor and Citibank-Geneva is the debtor; and as for the outstanding loans, petitioner Citibank was the creditor and Sabeniano was the debtor. The parties in these transactions were evidently not the principal creditor of each other.

Petitioners maintain that respondent’s Declaration of Pledge, by virtue of which she supposedly assigned her dollar accounts with Citibank-Geneva as security for her loans with petitioner Citibank, is authentic and, thus, valid and binding upon respondent. Alternatively, petitioners aver that even without said Declaration of Pledge, the off-setting or compensation made by petitioner Citibank using respondent’s dollar accounts with Citibank-Geneva to liquidate the balance of her outstanding loans with Citibank-Manila was expressly authorized by respondent herself in the promissory notes (PNs) she signed for her loans, as well as sanctioned by Articles 1278 to 1290 of the Civil Code. This alternative argument is anchored on the premise that all branches of petitioner Citibank in the Philippines and abroad are part of a single worldwide corporate entity and share the same juridical personality. In connection therewith, petitioners deny that they ever admitted that Citibank-Manila and Citibank-Geneva are distinct and separate entities.

At or after the maturity of this note, or when same becomes due under any of the provisions hereof, any money, stocks, bonds, or other property of any kind whatsoever, on deposit or otherwise, to the credit of the undersigned on the books of CITIBANK, N.A. in transit or in their possession, may without notice be applied at the discretion of the said bank to the full or partial payment of this note.

It is the petitioners’ contention that the term "Citibank, N.A." used therein should be deemed to refer to all branches of petitioner Citibank in the Philippines and abroad; thus, giving petitioner Citibank the authority to apply as payment for the PNs even respondent’s dollar accounts with Citibank-Geneva. Still proceeding from the premise that all branches of petitioner Citibank should be considered as a single entity, then it should not matter that Sabeniano obtained the loans from Citibank-Manila and her deposits were with Citibank-Geneva. Respondent should be considered the debtor (for the loans) and creditor (for her deposits) of the same entity, petitioner Citibank. Since petitioner Citibank and respondent were principal creditors of each other, in compliance with the requirements under Article 1279 of the Civil Code, then the former could have very well used off-setting or compensation to extinguish the parties’ obligations to one another. And even without the PNs, off-setting or compensation was still authorized because according to Article 1286 of the Civil Code, "Compensation takes place by operation of law, even though the debts may be payable at different places, but there shall be an indemnity for expenses of exchange or transportation to the place of payment."

Pertinent provisions of Republic Act No. 8791, otherwise known as the General Banking Law of 2000, governing bank branches are reproduced below –SEC. 20. Bank Branches. – Universal or commercial banks may open branches or other offices within or outside the Philippines upon prior approval of the Bangko Sentral.

Branching by all other banks shall be governed by pertinent laws.A bank may, subject to prior approval of the Monetary Board, use any or all of its branches as outlets for the presentation and/or sale of the financial products of its allied undertaking or its investment house units.A bank authorized to establish branches or other offices shall be responsible for all business conducted in such branches and offices to the same extent and in the same manner as though such business had all been conducted in the head office. A bank and its branches and offices shall be treated as one unit.x x x xSEC. 72. Transacting Business in the Philippines. – The entry of foreign banks in the Philippines through the establishment of branches shall be governed by the provisions of the Foreign Banks Liberalization Act.The conduct of offshore banking business in the Philippines shall be governed by the provisions of Presidential Decree No. 1034, otherwise known as the "Offshore Banking System Decree."x x x xSEC. 74. Local Branches of Foreign Banks. – In case of a foreign bank which has more than one (1) branch in the Philippines, all such branches shall be treated as one (1) unit for the purpose of this Act, and all references to the Philippine branches of foreign banks shall be held to refer to such units.SEC. 75. Head Office Guarantee. – In order to provide effective protection of the interests of the depositors and other creditors of Philippine branches of a foreign bank, the head office of such branches shall fully guarantee the prompt payment of all liabilities of its Philippine branch.

Residents and citizens of the Philippines who are creditors of a branch in the Philippines of a foreign bank shall have preferential rights to the assets of such branch in accordance with existing laws.Republic Act No. 7721, otherwise known as the Foreign Banks Liberalization Law, lays down the policies and regulations specifically concerning the establishment and operation of local branches of foreign banks. Relevant provisions of the said statute read –Sec. 2. Modes of Entry. - The Monetary Board may authorize foreign banks to operate in the Philippine banking system through any of the following modes of entry: (i) by acquiring, purchasing or owning up to sixty percent (60%) of the voting stock of an existing bank; (ii) by investing in up to sixty percent (60%) of the voting stock of a new banking subsidiary incorporated under the laws of the Philippines; or (iii) by establishing branches with full banking authority: Provided, That a foreign bank may avail itself of only one (1) mode of entry: Provided, further, That a foreign bank or a Philippine corporation may own up to a sixty percent (60%) of the voting stock of only one (1) domestic bank or new banking subsidiary.Sec. 5. Head Office Guarantee. - The head office of foreign bank branches shall guarantee prompt payment of all liabilities of its Philippine branches.

It is true that the afore-quoted Section 20 of the General Banking Law of 2000 expressly states that the bank and its branches shall be treated as one unit. It should be pointed out, however, that the said provision applies to a universal or commercial bank, duly established and organized as a Philippine corporation in accordance with Section 8 of the same statute, and authorized to establish branches within or outside the Philippines.

The General Banking Law of 2000, however, does not make the same categorical statement as regards to foreign banks and their branches in the Philippines. What Section 74 of the said law provides is that in case of a foreign bank with several branches in the country, all such branches shall be treated as one unit.

As to the relations between the local branches of a foreign bank and its head office, Section 75 of the General Banking Law of 2000 and Section 5 of the Foreign Banks Liberalization Law provide for a "Home Office Guarantee," in which the head office of the foreign bank shall guarantee prompt payment of all

liabilities of its Philippine branches. While the Home Office Guarantee is in accord with the principle that these local branches, together with its head office, constitute but one legal entity, it does not necessarily support the view that said principle is true and applicable in all circumstances.

The Home Office Guarantee is included in Philippine statutes clearly for the protection of the interests of the depositors and other creditors of the local branches of a foreign bank. Since the head office of the bank is located in another country or state, such a guarantee is necessary so as to bring the head office within Philippine jurisdiction, and to hold the same answerable for the liabilities of its Philippine branches. Hence, the principle of the singular identity of that the local branches and the head office of a foreign bank are more often invoked by the clients in order to establish the accountability of the head office for the liabilities of its local branches. It is under such attendant circumstances in which the American authorities and jurisprudence presented by petitioners in their Motion for Partial Reconsideration were rendered.

Now the question that remains to be answered is whether the foreign bank can use the principle for a reverse purpose, in order to extend the liability of a client to the foreign bank’s Philippine branch to its head office, as well as to its branches in other countries. Thus, if a client obtains a loan from the foreign bank’s Philippine branch, does it absolutely and automatically make the client a debtor, not just of the Philippine branch, but also of the head office and all other branches of the foreign bank around the world? This Court rules in the negative.

There being a dearth of Philippine authorities and jurisprudence on the matter, this Court, just as what petitioners have done, turns to American authorities and jurisprudence. American authorities and jurisprudence are significant herein considering that the head office of petitioner Citibank is located in New York, United States of America (U.S.A.).Unlike Philippine statutes, the American legislation explicitly defines the relations among foreign branches of an American bank. Section 25 of the United States Federal Reserve Act13 states that –Every national banking association operating foreign branches shall conduct the accounts of each foreign branch independently of the accounts of other foreign branches established by it and of its home office, and shall at the end of each fiscal period transfer to its general ledger the profit or loss accrued at each branch as a separate item.

Contrary to petitioners’ assertion that the accounts of Citibank-Manila and Citibank-Geneva should be deemed as a single account under its head office, the foregoing provision mandates that the accounts of foreign branches of an American bank shall be conducted independently of each other. Since the head office of petitioner Citibank is in the U.S.A., then it is bound to treat its foreign branches in accordance with the said provision. It is only at the end of its fiscal period that the bank is required to transfer to its general ledger the profit or loss accrued at each branch, but still reporting it as a separate item. It is by virtue of this provision that the Circuit Court of Appeals of New York declared in Pan-American Bank and Trust Co. v. National City Bank of New York that a branch is not merely a teller’s window; it is a separate business entity.

The circumstances in the case of McGrath v. Agency of Chartered Bank of India, Australia & China are closest to the one at bar. In said case, the Chartered Bank had branches in several countries, including one in Hamburg, Germany and another in New York, U.S.A., and yet another in London, United Kingdom. The New York branch entered in its books credit in favor of four German firms. Said credit represents collections made from bills of exchange delivered by the four German firms. The same four German firms subsequently became indebted to the Hamburg branch. The London branch then requested for the transfer of the credit in the name of the German firms from the New York branch so as to be applied or setoff against the indebtedness of the same firms to the Hamburg branch. One of the question brought before the U.S. District Court of New York was "whether or not the debts and the alleged setoffs thereto are mutual," which could be answered by determining first whether the New York and Hamburg branches of Chartered Bank are individual business entities or are one and the same entity. In denying the right of

the Hamburg branch to setoff, the U.S. District Court ratiocinated that –The structure of international banking houses such as Chartered bank defies one rigorous description. Suffice it to say for present analysis, branches or agencies of an international bank have been held to be independent entities for a variety of purposes (a) deposits payable only at branch where made; (b) checks need be honored only when drawn on branch where deposited; (c) subpoena duces tecum on foreign bank’s record barred; (d) a foreign branch separate for collection of forwarded paper; Thus in law there is nothing innately unitary about the organization of international banking institutions.

Going back to the instant Petition, although this Court concedes that all the Philippine branches of petitioner Citibank should be treated as one unit with its head office, it cannot be persuaded to declare that these Philippine branches are likewise a single unit with the Geneva branch. It would be stretching the principle way beyond its intended purpose.

Therefore, this Court maintains its original position in the Decision that the off-setting or compensation of Sabeniano’s loans with Citibank-Manila using her dollar accounts with Citibank-Geneva cannot be effected. The parties cannot be considered principal creditor of the other. As for the dollar accounts, Sabeniano was the creditor and Citibank-Geneva was the debtor; and as for the outstanding loans, petitioner Citibank, particularly Citibank-Manila, was the creditor and respondent was the debtor. Since legal compensation was not possible, petitioner Citibank could only use respondent’s dollar accounts with Citibank-Geneva to liquidate her loans if she had expressly authorized it to do so by contract.

Respondent cannot be deemed to have authorized the use of her dollar deposits with Citibank-Geneva to liquidate her loans with petitioner Citibank when she signed the PNs for her loans which all contained the provision that –At or after the maturity of this note, or when same becomes due under any of the provisions hereof, any money, stocks, bonds, or other property of any kind whatsoever, on deposit or otherwise, to the credit of the undersigned on the books of CITIBANK, N.A. in transit or in their possession, may without notice be applied at the discretion of the said bank to the full or partial payment of this note.

As has been established in the preceding discussion, "Citibank, N.A." can only refer to the local branches of petitioner Citibank together with its head office. Unless there is any showing that respondent understood and expressly agreed to a more far-reaching interpretation, the reference to Citibank, N.A. cannot be extended to all other branches of petitioner Citibank all over the world. Although theoretically, books of the branches form part of the books of the head office, operationally and practically, each branch maintains its own books which shall only be later integrated and balanced with the books of the head office. Thus, it is very possible to identify and segregate the books of the Philippine branches of petitioner Citibank from those of Citibank-Geneva, and to limit the authority granted for application as payment of the PNs to respondent’s deposits in the books of the former.

Moreover, the PNs can be considered a contract of adhesion, the PNs being in standard printed form prepared by petitioner Citibank. Generally, stipulations in a contract come about after deliberate drafting by the parties thereto, there are certain contracts almost all the provisions of which have been drafted only by one party, usually a corporation. Such contracts are called contracts of adhesion, because the only participation of the party is the affixing of his signature or his "adhesion" thereto. This being the case, the terms of such contract are to be construed strictly against the party which prepared it.