Banking Compiled.docx

Banking Laws Case Digests EMLYN A. PALMES LLB2 LO2 Republic, Petitioner vs. Eugenio, Respondent 545 SCRA 384 (2008) Facts: A series of investigations concerning the award of the NAIA 3 contracts to PIATCO was undertaken by the Ombudsman and the compliance and Investigation Staff (CIS) of Anti-Money Laundering Council. The OSG wrote AMLC requesting the latter’s assistance “in obtaining more evidence to completely reveal the financial trail of corruption surrounding the NAIA 3 Project. The CIS conducted an intelligence database search on the financial transactions of certain individuals involved in the award, including Pantaleon Alvarez who had been the chairman of the PBAC Technical committee, NAIA 3 Project. The search revealed that Alvarez maintained 8 bank accounts with 6 different banks. AMLC issued resolution 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 et al., and their related web of accounts wherever theses may be found and to authorize the AMLC Secretariat “to conduct an inquiry into the subject accounts once the RTC Makati grants the application to inquire into and/or examine bank accounts of those persons. RTC granted the application. Pursuant to the order, CIS proceeded to inquire and examine the deposits, investments and related web accounts. Special Prosecutor of the Ombudsman wrote a letter requesting AMLC to investigate the accounts of Alvarez et al, which AMLC likewise heeded. Again, AMLC filed an application, this time with RTC Manila, to inquire into and/or examine 13 accounts and 2 related web of accounts allegedly having been used to facilitate corruption in NAIA 3 Project. Manila RTC issued an order granting Ex-parte the application. Alvarez filed an Urgent Motion to stay enforcement of the order. RTC stayed the order but soon after, reinstated the same. Issue: Whether or not the Ex-parte granting of the order by the Manila RTC is valid. Ruling: There is no need for a pre existing or pending case in court for violation of the AntiMoney Laundering Law before a bank inquiry order may be issued by the court. However it does not follow that such order may be availed of ex-parte. A bank inquiry order, unlike a freeze order cannot be issued unless notice is given to the owners of the account, allowing them the opportunity to contest the issuance of such order.

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NEW SAMPAGUITA BUILDERS CONSTRUCTION, INC. (NSBCI) and Spouses EDUARDO R. DEE and ARCELITA M. DEE, petitioners, vs. PHILIPPINE NATIONAL BANK, respondent. G.R. No. 148753 July 30, 2004 Facts: The New Sampaguita Builders Construction (Sampaguita), through its President Mr. Dee, had obtained a loan accommodation from PNB amounting to Php 8M, secured by Real Estate Mortgages. As such, Sampaguita executed a promissory note in favor of the bank. It was stipulated that the said promissory notes would earn interest under the following rates; 19.5% in the first, and 21.5% in the second and third. It was also stipulated that the bank may increase the interest rate within the limits prescribed by law at any time depending on the bank policy it may have in the future, without need of notice to Sampaguita. Sampaguita defaulted in its payment, causing PNB to demand payment thereof under the pain of foreclosure. Sampaguita, through its President Mr. Dee had made several arrangements with PNB by tendering several checks. However, the said checks bounced, causing PNB to foreclose the said mortgages and have the properties sold in public auction. Since the proceeds of the auction sale was insufficient to settle the principal amount, PNB instituted a collection suit against Sampaguita for Php 2.1M with interest and other charges. However, the trial court dismissed the action, holding that Sampaguita had availed of the PNB Debt Relief Package, relieving Sampaguita of its loan obligation with the bank. Upon recourse of PNB with the CA, the appellate court reversed the trial court ruling, holding that Sampaguita did not qualify under the PNB Debt Relief Package. Sampaguita sought recourse with the SC and challenged, among other things, the power of the bank to unilaterally increase the interest rate without prior notice to Sampaguita. Issue: Whether or not the stipulation empowering the bank to unilaterally increase the interest rate is valid. Ruling: (1.) NO. The stipulation is void. Such condition cannot give the bank unrestrained freedom to charge any rate other than that which was agreed upon. No interest shall be due unless such is expressly stipulated in writing. The interest rate cannot be unilaterally altered by the bank without consent of Sampaguita. The unilateral determination and imposition of increased rates is violative of the principle of mutuality of contracts ordained in Article 1308 of the Civil Code. One-sided impositions do not have the force of law between the parties on account that such impositions are not based on the parties’ essential equality and mutuality. (2.) Although escalation clauses are valid in maintaining fiscal stability and retaining the value of money on long-term contracts, giving respondent an unbridled right to adjust the interest independently and upwardly would completely take away from petitioners the right to assent to an important modification in their agreement and would also negate the element of mutuality in their contracts.

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The clause which made the fulfillment of the contracts dependent exclusively upon the uncontrolled will of bank and was therefore void. Besides, the pro forma promissory notes have the character of a contract adhesion which is strictly construed against the party making the contract. While the Usury Law ceiling on interest rates was lifted by Central Bank Circular No. 905, nothing in the said Circular grants lenders carte blanche authority to raise interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of their assets.

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PRUDENTIAL BANK AND TRUST COMPANY (now BANK OF THE PHILIPPINE ISLANDS) Petitioner, vs. LIWAYWAY ABASOLO, Respondent. G.R. No. 186738 September 27, 2010

Facts: Leonor Valenzuela-Rosales inherited two parcels of land situated in Palanan, Sta. Cruz, Laguna (the properties), registered as Original Certificates of Title Nos. RO-527 and RO-528. After she passed away, her heirs executed on June 14, 1993 a Special Power of Attorney (SPA) in favor of Liwayway Abasolo (respondent) empowering her to sell the properties. Sometime in 1995, Corazon Marasigan (Corazon) wanted to buy the properties which were being sold for P2,448,960, but as she had no available cash, she broached the idea of first mortgaging the properties to petitioner Prudential Bank and Trust Company (PBTC), the proceeds of which would be paid directly to respondent. Respondent agreed to the proposal. On Corazon and respondent’s consultation with PBTC’s Head Office, its employee, Norberto Mendiola (Mendiola), allegedly advised respondent to issue an authorization for Corazon to mortgage the properties, and for her (respondent) to act as one of the co-makers so that the proceeds could be released to both of them. To guarantee the payment of the property, Corazon executed on August 25, 1995 a Promissory Note for P2,448,960 in favor of respondent. By respondent’s claim, in October 1995, Mendiola advised her to transfer the properties first to Corazon for the immediate processing of Corazon’s loan application with assurance that the proceeds thereof would be paid directly to her (respondent), and the obligation would be reflected in a bank guarantee. Heeding Mendiola’s advice, respondent executed a Deed of Absolute Sale over the properties in favor of Corazon following which or on December 4, 1995, Transfer Certificates of Title Nos. 164159 and 164160 were issued in the name of Corazon. Corazon’s application for a loan with PBTC’s Tondo Branch was approved on December 1995. She thereupon executed a real estate mortgage covering the properties to secure the payment of the loan. In the absence of a written request for a bank guarantee, the PBTC released the proceeds of the loan to Corazon. Respondent later got wind of the approval of Corazon’s loan application and the release of its proceeds to Corazon who, despite repeated demands, failed to pay the purchase price of the properties. Respondent eventually accepted from Corazon partial payment in kind consisting of one owner type jeepney and four passenger jeepneys,3 plus installment payments, which, by the trial court’s computation, totaled P665,000. In view of Corazon’s failure to fully pay the purchase price, respondent filed a complaint for collection of sum of money and annulment of sale and mortgage with damages, against Corazon and PBTC (hereafter petitioner), before the Regional Trial Court (RTC) of Sta. Cruz, Laguna. In her Answer, Corazon denied that there was an agreement that the proceeds of the loan would be paid directly to respondent. And she claimed that the vehicles represented full payment of the properties, and had in fact overpaid P76,040. Petitioner also denied that there was any arrangement between it and respondent that the proceeds of the loan would be released to her. It claimed that it "may process a loan application of the registered owner of the real property who requests that proceeds of the loan or part thereof be payable directly to a third party [but] the applicant must submit a letter request to the Bank."

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On pre-trial, the parties stipulated that petitioner was not a party to the contract of sale between respondent and Corazon; that there was no written request that the proceeds of the loan should be paid to respondent; and that respondent received five vehicles as partial payment of the properties. Despite notice, Corazon failed to appear during the trial to substantiate her claims. By Decision of March 12, 2004, Branch 91 of the Sta. Cruz, Laguna RTC rendered judgment in favor of respondent and against Corazon who was made directly liable to respondent, and against petitioner who was made subsidiarily liable in the event that Corazon fails to pay. Thus the trial court disposed: WHEREFORE, premises considered, finding the plaintiff has established her claim against the defendants, Corazon Marasigan and Prudential Bank and Trust Company, judgment is hereby rendered in favor of the plaintiff ordering: Defendant Corazon Marasigan to pay the plaintiff the amount of P1,783,960.00 plus three percent (3%) monthly interest per month from August 25, 1995 until fully paid. Further, to pay the plaintiff the sum equivalent to twenty percent five [sic] (25%) of P1,783,960.00 as attorney’s fees. Defendant Prudential Bank and Trust Company to pay the plaintiff the amount of P1,783,960.00 or a portion thereof plus the legal rate of interest per annum until fully paid in the event that Defendant Corazon Marasigan fails to pay the said amount or a portion thereof. Other damages claimed not duly proved are hereby dismissed. So Ordered.

In finding petitioner subsidiarily liable, the trial court held that petitioner breached its understanding to release the proceeds of the loan to respondent: Liwayway claims that the bank should also be held responsible for breach of its obligation to directly release to her the proceeds of the loan or part thereof as payment for the subject lots. The evidence shows that her claim is valid. The Bank had such an obligation as proven by evidence. It failed to rebut the credible testimony of Liwayway which was given in a frank, spontaneous, and straightforward manner and withstood the test of rigorous cross-examination conducted by the counsel of the Bank. Her credibility is further strengthened by the corroborative testimony of Miguela delos Reyes who testified that she went with Liwayway to the bank for several times. In her presence, Norberto Mendiola, the head of the loan department, instructed Liwayway to transfer the title over the subject lots to Corazon to facilitate the release of the loan with the guarantee that Liwayway will be paid upon the release of the proceeds. Further, Liwayway would not have executed the deed of sale in favor of Corazon had Norberto Mendiola did not promise and guarantee that the proceeds of the loan would be directly paid to her. Based on ordinary human experience, she would not have readily transferred the title over the subject lots had there been no strong and reliable guarantee. In this case, what caused her to transfer title is the promise and guarantee made by Norberto Mendiola that the proceeds of the loan would be directly paid to her. On appeal, the Court of Appeals¸ by Decision of January 14, 2008, affirmed the trial court’s decision with modification on the amount of the balance of the purchase price which was reduced from P1,783,960 to P1,753,960. It disposed: WHEREFORE, premises considered, the assailed Decision dated March 12, 2004 of the Regional Trial Court of Sta. Cruz, Laguna, Branch 91, is AFFIRMED WITH MODIFICATION as to the amount to be paid which is P1,753,960.00. SO ORDERED.

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Petitioner’s motion for reconsideration having been denied by the appellate court by Resolution of February 23, 2009, the present petition for review was filed. The only issue petitioner raises is whether it is subsidiarily liable. The petition is meritorious. In the absence of a lender-borrower relationship between petitioner and Liwayway, there is no inherent obligation of petitioner to release the proceeds of the loan to her. To a banking institution, well-defined lending policies and sound lending practices are essential to perform its lending function effectively and minimize the risk inherent in any extension of credit. Thus, Section X302 of the Manual of Regulations for Banks provides: X-302. To ensure that timely and adequate management action is taken to maintain the quality of the loan portfolio and other risk assets and that adequate loss reserves are set up and maintained at a level sufficient to absorb the loss inherent in the loan portfolio and other risk assets, each bank shall establish a system of identifying and monitoring existing or potential problem loans and other risk assets and of evaluating credit policies vis-à-vis prevailing circumstances and emerging portfolio trends. Management must also recognize that loss reserve is a stabilizing factor and that failure to account appropriately for losses or make adequate provisions for estimated future losses may result in misrepresentation of the bank’s financial condition. In order to identify and monitor loans that a bank has extended, a system of documentation is necessary. Under this fold falls the issuance by a bank of a guarantee which is essentially a promise to repay the liabilities of a debtor, in this case Corazon. It would be contrary to established banking practice if Mendiola issued a bank guarantee, even if no request to that effect was made. The principle of relativity of contracts in Article 1311 of the Civil Code supports petitioner’s cause: Art. 1311. Contracts take effect only between the parties, their assigns and heirs, except in case where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by provision of law. The heir is not liable beyond the value of the property he received from the decedent. If a contract should contain some stipulation in favor of a third person, he may demand its fulfillment provided he communicated his acceptance to the obligor before its revocation. A mere incidental benefit or interest of a person is not sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a third person. For Liwayway to prove her claim against petitioner, a clear and deliberate act of conferring a favor upon her must be present. A written request would have sufficed to prove this, given the nature of a banking business, not to mention the amount involved. Since it has not been established that petitioner had an obligation to Liwayway, there is no breach to speak of. Liwayway’s claim should only be directed against Corazon. Petitioner cannot thus be held subisidiarily liable. To the Court, Liwayway did not rely on Mendiola’s representations, even if he indeed made them. The contract for Liwayway to sell to Corazon was perfected from the moment there was a meeting of minds upon the properties-object of the contract and upon the price. Only the source of the funds to pay the purchase price was yet to be resolved at the time the two inquired from Mendiola. Consider Liwayway’s testimony: Q: We are referring to the promissory note which you aforementioned a while ago, why did this promissory note come about? A: Because the negotiation was already completed, sir, and the deed of sale will have to be executed, I asked the defendant (Corazon) to execute the promissory note first before I could

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execute a deed of absolute sale, for assurance that she really pay me, sir.14 (emphasis and underscoring supplied) That it was on Corazon’s execution of a promissory note that prompted Liwayway to finally execute the Deed of Sale is thus clear. The trial Court’s reliance on the doctrine of apparent authority – that the principal, in this case petitioner, is liable for the obligations contracted by its agent, in this case Mendiola, – does not lie. Prudential Bank v. Court of Appeals15 instructs: [A] banking corporation is liable to innocent third persons where the representation is made in the course of its business by an agent acting within the general scope of his authority even though, in the particular case, the agent is secretly abusing his authority and attempting to perpetuate fraud upon his principal or some person, for his own ultimate benefit.16 (underscoring supplied) The onus probandi that attempt to commit fraud attended petitioner’s employee Mendiola’s acts and that he abused his authority lies on Liwayway. She, however, failed to discharge the onus. It bears noting that Mendiola was not privy to the approval or disallowance of Corazon’s application for a loan nor that he would benefit by the approval thereof. Aside from Liwayway’s bare allegations, evidence is wanting to show that there was collusion between Corazon and Mendiola to defraud her. Even in Liwayway’s Complaint, the allegation of fraud is specifically directed against Corazon.17 IN FINE, Liwayway’s cause of action lies against only Corazon. WHEREFORE, the Decision of January 14, 2008 of the Court of Appeals, in so far as it holds petitioner, Prudential Bank and Trust Company (now Bank of the Philippine Islands), subsidiary liable in case its co-defendant Corazon Marasigan, who did not appeal the trial court’s decision, fails to pay the judgment debt, is REVERSED and SET ASIDE. The complaint against petitioner is accordingly DISMISSED. SO ORDERED.

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BANCO DE ORO-EPCI, INC., Petitioner, vs. JAPRL DEVELOPMENT CORPORATION, RAPID FORMING CORPORATION and JOSE U. AROLLADO, Respondents. G.R. No. 179901, April 14, 2008 Facts: Petitioner Banco de Oro-EPCI, Inc. extended credit facilities to JAPRL Development Corporation(JAPRL) amounting to P 230,000,000 after evaluating the latter’s financial statements for fiscal years 1998, 1999 and 2000. Respondents Rapid Forming Corporation (RFC) and Jose Arollado acted as JAPRLs sureties. Despite its seemingly strong financial position, JAPRL defaulted in the payment of four trust receipts soon after the approval of its loan. BDO-EPCI later learned from MRM Management, JAPRLs financial adviser, that JAPRL had altered and falsified its financial statements. It allegedly bloated its sales revenues to post a big income from operations for the concerned fiscal years to project itself as a viable investment. The information alarmed petitioner. Citing relevant provisions of the Trust Receipt Agreement, it demanded immediate payment of JAPRLs outstanding obligations amounting to P194,493,388.98. JAPRL (and its subsidiary, RFC) filed a petition for rehabilitation in the Regional Trial Court (RTC) of Quezon City and disclosed that it had been experiencing a decline in sales for the three preceding years and a staggering loss in 2002. As the petition was sufficient in form and substance, a stay order was issued. However, the proposed rehabilitation plan for JAPRL and RFC was eventually rejected by the Quezon City RTC. Petitioner BDO-EPCI filed a complaint for sum of money with an application for the issuance of a writ of preliminary attachment against respondents in Makati RTC since JAPRL is ignoring its demand for payment. BDO-EPCI asserted that JAPRL was guilty of fraud because it (JAPRL) altered and falsified its financial statements. The Makati RTC subsequently denied the application (for the issuance of a writ of preliminary attachment) for lack of merit as petitioner was unable to substantiate its allegations. Nevertheless, it ordered the service of summons on respondents. Respondents moved to dismiss the complaint due to an allegedly invalid service of summons. Because the officers return stated that an administrative assistant had received the summons, JAPRL and RFC argued that Section 11, Rule 14 of the Rules of Court contained an exclusive list of persons on whom summons against a corporation must be served. An administrative assistant was not one of them. Arollado, on the other hand, cited Section 6, Rule 14 thereof which mandated personal service of summons on an individual defendant. Makati RTC noted that because corporate officers are often busy, summonses to corporations are usually received only by administrative assistants or secretaries of corporate officers in the regular course of business. Hence, it denied the motion for lack of merit. JAPRL (and its subsidiary, RFC) filed a petition for rehabilitation in the RTC of Calamba, Laguna, Branch 34 (Calamba RTC). Finding JAPRLs petition sufficient in form and in substance, the Calamba RTC issued a stay order. Respondents hastily moved to suspend the proceedings in Civil Case No. 03-991 pending in the Makati RTC. Makati RTC granted the motion with regard to JAPRL and RFC but ordered Arollado to file an answer. It ruled that, because he was jointly and solidarily liable with JAPRL and RFC, the proceedings against him should continue.

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Respondents moved for reconsideration but it was denied. CA granted the petition and held that because the summonses were served on a mere administrative assistant, the Makati RTC never acquired jurisdiction over respondents. Respondents filed a petition for certiorari in the CA and asserted that the Makati RTC committed grave abuse of discretion as it did not acquire jurisdiction over their persons due to defective service of summons. Thus, the Makati RTC could not hear the complaint for sum of money. BDO-EPCI asserts that respondents maliciously evaded the service of summonses to prevent the Makati RTC from acquiring jurisdiction over their persons. Furthermore, they employed bad faith to delay proceedings by cunningly exploiting procedural technicalities to avoid the payment of their obligations. Petitioner moved for reconsideration but it was denied. Hence, this petition. Issue: Whether or not the bank (BPO-EPCI) may demand the immediate payment of JAPRL’s outstanding obligations. Ruling: YES. When respondents moved for the suspension of proceedings in Civil Case No. 03-991 before the Makati RTC (on the basis of the March 13, 2006 order of the Calamba RTC), they waived whatever defect there was in the service of summons and were deemed to have submitted themselves voluntarily to the jurisdiction of the Makati RTC. Under the Interim Rules of Procedure on Corporate Rehabilitation, a stay order defers all actions or claims against the corporation seeking rehabilitation from the date of its issuance until the dismissal of the petition or termination of the rehabilitation proceedings. The Makati RTC may proceed to hear Civil Case No. 03-991 only against Arollado if there is no ground to go after JAPRL and RFC (as will later be discussed). A creditor can demand payment from the surety solidarily liable with the corporation seeking rehabilitation. Respondents abused procedural technicalities (albeit unsuccessfully) for the sole purpose of preventing, or at least delaying, the collection of their legitimate obligations. Their reprehensible scheme impeded the speedy dispensation of justice. More importantly, however, considering the amount involved, respondents utterly disregarded the significance of a stable and efficient banking system to the national economy. Banks are entities engaged in the lending of funds obtained through deposits from the public. They borrow the public’s excess money (i.e.,deposits) and lend out the same. Banks therefore redistribute wealth in the economy by channeling idle savings to profitable investments. Banks operate (and earn income) by extending credit facilities financed primarily by deposits from the public. They plough back the bulk of said deposits into the economy in the form of loans. Since banks deal with the public’s money, their viability depends largely on their ability to return those deposits on demand. For this reason, ba nking isundeniably imbued with public interest. Protecting the integrity of the banking system has become, by large, the responsibility of banks. The role of the public, particularly individual borrowers, has not been emphasized. Nevertheless, we are not unaware of the rampant and unscrupulous practice of obtaining loans without intending to pay the same. In this case, petitioner BDO-EPCI alleged that JAPRL fraudulently altered and falsified its financial statements in order to obtain its credit facilities. Considering the amount of petitioner’s exposure in JAPRL, justice and fairness dictate that the Makati RTC hear whether or not respondents indeed committed fraud in securing the credit accommodation. 9

The protective remedy of rehabilitation was never intended to be a refuge of a debtor guilty of fraud. Meanwhile, the Makati RTC should proceed to hear Civil Case No. 03-991 against the three respondents guided by Section 40 of the General Banking Law which states: Section 40. Requirement for Grantof Loans or Other Credit Accommodations. Before granting a loan or other credit accommodation, a bank must ascertain that the debtor is capable of fulfilling his commitments to the bank. Towards this end, a bank may demand from its credit applicants a statement of their asse ts and liabilities and of their income and expenditures and such information as may be prescribed by law or by rules and regulations of the Monetary Board to enable the bank to properly evaluate the credit application which includes the corresponding financial statements submitted for taxation purposes to the Bureau of Internal Revenue. Should such statements prove to be false or incorrect in any material detail, the bank may terminate any loan or credit accommodation granted on the basis of said statements and shall have the right to demand immediate repayment or liquidation of the obligation. In formulating the rules and regulations under this Section, the Monetary Board shall recognize the peculiar characteristics of microfinancing, such as cash flow-based lending to the basic sectors that are not covered by traditional collateral. (emphasis supplied)Under this provision, banks have the right to annul any credit accommodation or loan, and demand the immediate payment thereof, from borrowers proven to be guilty of fraud. Petitioner would then be entitled to the immediate payment of P194,493,388.98 and other appropriate damages. Finally, considering that respondents failed to pay the four trust receipts, the Makati City Prosecutor should investigate whether or not there is probable cause to indict respondents for violation of Section 13 of the Trust Receipts Law.

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PREMIERE DEVELOPMENT BANK, petitioner, vs. COURT OF APPEALS, PANACOR MARKETING CORPORATION and ARIZONA TRANSPORT CORPORATION, respondents. G.R. No. 159352 April 14 ,2004 Facts: On or about October 1994, Panacor Marketing Corporation (Panacor), a newly formed corporation, acquired an exclusive distributorship of products manufactured by Colgate Palmolive Philippines, Inc. (Colgate). To meet the capital requirements of the exclusive distributorship, Panacor applied for a loan of P4.1 million with Premiere Development Bank. Premiere Bank rejected the loan application and suggested that its affiliate company, Arizona Transport Corporation (Arizona), should instead apply for the loan on condition that the proceeds thereof shall be made available to Panacor. Eventually, Panacor was granted a P4.1 million credit line as evidenced by a Credit Line Agreement. As suggested, Arizona, which was an existing loan client, applied for and was granted a loan of P6.1 million, P3.4 million of which would be used to pay-off its existing loan accounts and the remaining P2.7 million as credit line of Panacor. As security for the P6.1 million loan, Arizona, executed a Real Estate Mortgage against a parcel of land covered by TCT No. T-3475 as per Entry No. 49507 dated October 2, 1995. Since the P2.7 million released by Premiere Bank fell short of the P4.1 million credit line which was previously approved, Panacor negotiated for a take-out loan with Iba Finance Corporation (Iba-Finance) in the sum of P10 million, P7.5 million of which will be released outright in order to take-out the loan from Premiere Bank and the balance of P2.5 million to be released after the cancellation by Premiere of the collateral mortgage on the property covered by TCT No. T-3475. Pursuant to the said take-out agreement, Iba-Finance was authorized to pay Premiere Bank the prior existing loan obligations of Arizona in an amount not to exceed P6 million. On October 5, 1995, Iba-Finance sent a letter to Ms. Arlene R. Martillano, officer-incharge of Premiere Bank’s San Juan Branch, informing her of the approved loan in favor of Panacor and Arizona, and requesting for the release of TCT No. T-3475. Martillano, after reading the letter, affixed her signature of conformity thereto and sent the original copy to Premiere Bank’s legal office informing the latter of the approved the loan application of ARIZONA TRANSPORT CORP. and PANACOR MARKETING CORPORATION and requesting the latter to surrender the owner’s duplicate copy of TCT No. 3475, current tax declaration, realty tax receipts for the current year and other documents necessary to affect annotation thereof. On October 12, 1995, Premiere Bank refused to turn over the requested documents. Thereafter, Premiere Bank issued to Iba-Finance a Final Statement of Account showing Arizona’s total loan indebtedness. On October 19, 1995, Panacor and Arizona executed in favor of Iba-Finance a promissory note in the amount of 7.5 million. Thereafter, Iba-Finance paid to Premiere Bank the amount of P6,235,754.79 representing the full outstanding loan account of Arizona. Despite such payment, Premiere Bank still refused to release the requested mortgage documents specifically, the owner’s duplicate copy of TCT No. T-3475. On November 2, 1995, Panacor requested Iba-Finance for the immediate approval and release of the remaining P2.5 million loan to meet the required monthly purchases from Colgate. Iba-Finance refused to processing of the P2.5 million loan application due to the nonsubmission of the owner’s duplicate copy of TCT No. 3475 and the cancellation by Premiere Bank of Arizona’s mortgage. Occasioned by Premiere Bank’s adamant refusal to release the mortgage cancellation document, Panacor failed to generate the required capital to meet its distribution and sales targets. Consequently, Colgate terminated its distribution agreement with Panacor.

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On March 13, 1996, Panacor and Arizona filed a complaint for specific performance and damages against Premiere Bank before the Regional Trial Court of Pasig City, docketed as Civil Case No. 65577. On June 11, 1996, Iba-Finance filed a complaint-in-intervention praying that judgment be rendered ordering Premiere Bank to pay damages in its favor. On May 26, 1998, the trial court rendered a decision in favor of Panacor and IbaFinance. Similarly, judgment is hereby rendered in favor of plaintiff-in-intervention IBA-Finance Corporation as against defendant Premiere Bank ordering defendant Premiere Bank to release to plaintiff-intervenor IBA-Finance Corporation the owner’s duplicate copy of Transfer Certificate of Title No. 3475 registered in the name of Arizona Haulers, Inc. including the deed of cancellation of the mortgage constituted thereon and ordering the defendant Premiere Bank to pay damages, attorney’s fees and costs of suit. For lack of sufficient legal and factual basis, the counterclaim of defendant Premiere Bank is DISMISSED. Premiere Bank appealed to the Court of Appeals contending that the trial court erred in finding, inter alia, that it had maliciously downgraded the credit-line of Panacor from P4.1 million to P2.7 million. In the meantime, a compromise agreement was entered into between Iba-Finance and Premiere Bank whereby the latter agreed to return without interest the amount of P6,235,754.79 which Iba-Finance earlier remitted to Premiere Bank to pay off the unpaid loans of Arizona. On March 11, 1999, the compromise agreement was approved. On June 18, 2003, a decision was rendered by the Court of Appeals which affirmed with modification the decision of the trial court dismissing the Appeal and affirming with Modification the decision appealed from in Civil Case No. 65577 wherein the award of exemplary damages in favor of the appellees is hereby reduced to P500,000.00. In view of the Compromise Agreement plaintiff-intervenor IBA-Finance and defendantappellant PREMIERE between plaintiff-intervenor IBA-Finance and defendant-appellant PREMIERE as approved by this Court per Resolution dated March 11, 1999, modification on the present appeal is only with respect to the liability of appellant PREMIERE to the plaintiffappellees with costs against the defendant-appellant. Issues: 1. Whether or not the decision of honorable court of appeals exceeded and went beyond the facts, the issues and evidence presented in the appeal taking into consideration the argument of petitioner bank and advent of the duly approved compromise agreement between the petitioner bank and IBA-Finance Corporation. 2. Whether or not the issues that should have been resolved by the honorable court of appeals, by reason of the existence of the compromise agreement, is limited to the issue of alleged bad faith of petitioner bank in the downgrading of the loan and should not include the rendition of an adverse pronouncement to an already fait accompli- issue on the refusal of the bank to recognize the take-out of the loan and the release of TCT no. 3475. 3. Whether or not petitioner acted in bad faith in the downgrading of the loan of respondents to support an award of actual and exemplary damages now reduced to P500,000.00. 4. Whether or not there is basis or competent piece of evidence presented during the trial to support an award of actual damages of P 4,520,000.00.

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Ruling: Firstly, Premiere Bank argues that considering the compromise agreement it entered with Iba-Finance, the Court of Appeals should have ruled only on the issue of its alleged bad faith in downgrading Panacor’s credit line. It further contends that the Court of Appeals should have refrained from making any adverse pronouncement on the refusal of Premiere Bank to recognize the take-out and its subsequent failure to release the cancellation of the mortgage because they were rendered fait accompli by the compromise agreement. We are not persuaded. In a letter-agreement dated October 5, 1995, Iba-Finance informed Premiere Bank of its approval of Panacor’s loan application in the amount of P10 million to be secured by a real estate mortgage over a parcel of land covered by TCT No. T-3475. It was agreed that Premiere Bank shall entrust to Iba-Finance the owner’s duplicate copy of TCT No. T-3475 in order to register its mortgage, after which Iba-Finance shall pay off Arizona’s outstanding indebtedness. Accordingly, Iba-Finance remitted P6,235,754.79 to Premiere Bank on the understanding that said amount represented the full payment of Arizona’s loan obligations. Despite performance by Iba-Finance of its end of the bargain, Premiere Bank refused to deliver the mortgage document. As a consequence, Iba-Finance failed to release the remaining P2.5 million loan it earlier pledged to Panacor, which finally led to the revocation of its distributorship agreement with Colgate. Undeniably, the not-so-forthright conduct of Premiere Bank in its dealings with respondent corporations caused damage to Panacor and Iba-Finance. It is error for Premiere Bank to assume that the compromise agreement it entered with Iba-Finance extinguished all direct and collateral incidents to the aborted take-out such that it also cancelled its obligations to Panacor. The unjustified refusal by Premiere Bank to release the mortgage document prompted Iba-Finance to withhold the release of the P2.5 million earmarked for Panacor which eventually terminated the distributorship agreement. Both Iba-Finance and Panacor, which are two separate and distinct juridical entities, suffered damages due to the fault of Premiere Bank. Hence, it should be held liable to each of them. While the compromise agreement may have resulted in the satisfaction of Iba-Finance’s legal claims, Premiere Bank’s liability to Panacor remains. We agree with the Court of Appeals that the "present appeal is only with respect to the liability of appellant Premiere Bank to the plaintiffs-appellees (Panacor and Arizona)" taking into account the compromise agreement. For the foregoing reasons, we find that the Court of Appeals did not err in discussing in the assailed decision the abortive take-out and the refusal by Premiere Bank to release the cancellation of the mortgage document. Secondly, Premiere Bank asserts that it acted in good faith when it downgraded the credit line of Panacor from P4.1 million to P2.7 million. It cites the decision of the trial court which, albeit inconsistent with its final disposition, expressly recognized that the downgrading of the loan was not the proximate cause of the damages suffered by respondents. Under the Credit Line Agreement dated September 1995, Premiere Bank agreed to extend a loan of P4.1 million to Arizona to be used by its affiliate, Panacor, in its operations. Eventually, Premiere approved in favor of Arizona a loan equivalent to P6.1 million, P3.4 million of which was allotted for the payment of Arizona’s existing loan obligations and P2.7 million as credit line of Panacor. Since only P2.7 million was made available to Panacor, instead of P4.1 million as previously approved, Panacor applied for a P2.5 loan from Iba-Finance, which, as earlier mentioned, was not released because of Premiere Bank’s refusal to issue the mortgage cancellation. It is clear that Premiere Bank deviated from the terms of the credit line agreement when it unilaterally and arbitrarily downgraded the credit line of Panacor from P4.1 million to P2.7 million. Having entered into a well-defined contractual relationship, it is imperative that the 13

parties should honor and adhere to their respective rights and obligations thereunder. Law and jurisprudence dictate that obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. The appellate court correctly observed, and we agree, that Appellant’s actuations, considering the actual knowledge of its officers of the tight financial situation of appellee PANACOR brought about primarily by the appellant bank’s considerable reduction of the credit line portion of the loan, in relation to the "bail-out" efforts of IBA Finance, whose payment of the outstanding loan account of appellee ARIZONA with appellant was readily accepted by the appellant, were truly marked by bad faith and lack of due regard to the urgency of its compliance by immediately releasing the mortgage cancellation document and delivery of the title to IBA Finance. Premiere Bank cannot justify its arbitrary act of downgrading the credit line on the alleged finding by its project analyst that the distributorship was not financially feasible. Notwithstanding the alleged forewarning, Premiere Bank still extended Arizona the loan of P6.1 million, albeit in contravention of the credit line agreement. This indubitably indicates that Premiere Bank had deliberately and voluntarily granted the said loan despite its claim that the distributorship contract was not viable. Neither can Premiere Bank rely on the puerile excuse that it was the bank’s policy not to release the mortgage cancellation prior to the settlement of outstanding loan obligations. Needless to say, the Final Statement of Account dated October 17, 1995 showing in no uncertain terms Arizona’s outstanding indebtedness, which was subsequently paid by IbaFinance, was the full payment of Arizona’s loan obligations. Equity demands that a party cannot disown it previous declaration to the prejudice of the other party who relied reasonably and justifiably on such declaration. Thirdly, Premiere Bank avers that the appellate court’s reliance on the credit line agreement as the basis of bad faith on its part was inadmissible or self-serving for not being duly notarized, being unsigned in all of its left margins, and undated. According to Premiere Bank, the irregularities in the execution of the credit line agreement bolsters the theory that the same was the product of manipulation orchestrated by respondent corporations through undue influence and pressure exerted by its officers on Martillano. Premiere Bank’s posture deserves scant consideration. As found by the lower court, there are sufficient indicia that demonstrate that the alleged unjust pressure exerted on Martillano was more imagined than real. In her testimony, Martillano claims that she was persuaded and coaxed by Caday of Iba-Finance and Panaligan of Panacor to sign the letter. It was she who provided Iba-Finance with the Final Statement of Account and accepted its payment without objection or qualification. These acts show that she was vested by Premiere Bank with sufficient authority to enter into the said transactions. If a private corporation intentionally or negligently clothes its officers or agents with apparent power to perform acts for it, the corporation will be estopped to deny that the apparent authority is real as to innocent third persons dealing in good faith with such officers or agents. As testified to by Martillano, after she received a copy of the credit line agreement and affixed her signature in conformity thereto, she forwarded the same to the legal department of the Bank at its Head Office. Despite its knowledge, Premiere Bank failed to disaffirm the contract. When the officers or agents of a corporation exceed their powers in entering into contracts or doing other acts, the corporation, when it has knowledge thereof, must promptly disaffirm the contract or act and allow the other party or third persons to act in the belief that it was authorized or has been ratified. If it acquiesces, with knowledge of the facts, or fails to disaffirm, ratification will be implied or else it will be estopped to deny ratification. Finally, Premiere Bank argues that the finding by the appellate court that it was liable for actual damages in the amount of P4,520,000.00 is without basis. It contends that the evidence presented by Panacor in support of its claim for actual damages are not official receipts but selfserving declarations.

14

To justify an award for actual damages, there must be competent proof of the actual amount of loss. Credence can be given only to claims, which are duly supported by receipts. The burden of proof is on the party who will be defeated if no evidence is presented on either side. He must establish his case by a preponderance of evidence which means that the evidence, as a whole, adduced by one side is superior to that of the other. In other words, damages cannot be presumed and courts, in making an award, must point out specific facts that can afford a basis for measuring whatever compensatory or actual damages are borne. In the instant case, the actual damages were proven through the sole testimony of Themistocles Ruguero, the vice president for administration of Panacor. In his testimony, the witness affirmed that Panacor incurred losses, specifically, in terms of training and seminars, leasehold acquisition, procurement of vehicles and office equipment without, however, adducing receipts to substantiate the same. The documentary evidence marked as exhibit "W", which was an ordinary private writing allegedly itemizing the capital expenditures and losses from the failed operation of Panacor, was not testified to by any witness to ascertain the veracity of its contents. Although the lower court fixed the sum of P4,520,000.00 as the total expenditures incurred by Panacor, it failed to show how and in what manner the same were substantiated by the claimant with reasonable certainty. Hence, the claim for actual damages should be admitted with extreme caution since it is only based on bare assertion without support from independent evidence. Premiere’s failure to prove actual expenditure consequently conduces to a failure of its claim. In determining actual damages, the court cannot rely on mere assertions, speculations, conjectures or guesswork but must depend on competent proof and on the best evidence obtainable regarding the actual amount of loss. Even if not recoverable as compensatory damages, Panacor may still be awarded damages in the concept of temperate or moderate damages. When the court finds that some pecuniary loss has been suffered but the amount cannot, from the nature of the case, be proved with certainty, temperate damages may be recovered. Temperate damages may be allowed in cases where from the nature of the case, definite proof of pecuniary loss cannot be adduced, although the court is convinced that the aggrieved party suffered some pecuniary loss. It is obvious that the wrongful acts of Premiere Bank adversely affected the commercial credit of Panacor, greatly contributed to the premature stoppage of its business operations and the consequent loss of business opportunity. Since these losses are not susceptible to pecuniary estimation, temperate damages may be awarded. Under the circumstances, the sum of P200,000.00 as temperate damages is reasonable. WHEREFORE, the petition is DENIED. The Decision dated June 18, 2003 of the Court of Appeals in CA-G.R. CV No. 60750, ordering Premiere Bank to pay Panacor Marketing Corporation P500,000.00 as exemplary damages, P100,000.00 as attorney’s fees, and costs, is AFFIRMED, with the MODIFICATION that the award of P4,520,000.00 as actual damages is DELETED for lack of factual basis. In lieu thereof, Premiere Bank is ordered to pay Panacor P200,000.00 as temperate damages.

15

Restituta M. Imperial, Petitioner, Vs. Alexa Jaucian, Respondent G.R. No. 149004 April 14, 2004 Facts: Controversy Arose from a case of collection of money, filed by Alex A. Jaucian (now respondent) against Restituta Imperial (now petitioner). The complaint alleges that defendant now petitioner obtained from plaintiff now respondent six separate loans for which the former executed in favour of the latter 6 separate promissory notes and issued several checks as guarantee for payment. When said loans became overdue and unpaid, defendant’s (petitioner’s) checks were dishonoured, respondent made repeated oral and written demands for payment. RTC and CA held that the respondent’s clear and detailed computation of petitioner’s outstanding obligation was convincing and satisfactory. Issues: 1. Whether or not the petitioner has fully paid her obligations even before filing of the case. 2. Whether or not the charging of 28% interest per annum without any writing is legal. 3. Whether or not charging of excessive penalties is a guise of hidden interest. Ruling: The court held that the petition has NO MERIT. 1) It involves a question of fact. Such question exists when a doubt or difference arises as to the truth or the falsehood of alleged facts; and when there is need for a calibration of the evidence, considering mainly the credibility of witnesses and the existence and the relevancy of specific surrounding circumstances, their relation to each other and to the whole, and the probabilities of the situation. It is a wellentrenched rule that pure questions of fact may not be the subject of an appeal by certiorari under Rule 45 of the Rules of Court, as this remedy is generally confined to questions of law. 2)

The records show that there was a written agreement between the parties for the payment of interest on the subject loans at the rate of 16 percent per month. As decreed by the lower courts, this rate must be equitably reduced for being iniquitous, unconscionable and exorbitant. “While the Usury Law ceiling on interest rates was lifted by C.B. Circular No. 905, nothing in the said circular grants lenders carte blanche authority to raise interest rates to levels which will either enslave their borrowers or lead to a haemorrhaging of their assets.”

3)

Article 1229 of the Civil Code states thus: “The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable.” Nevertheless, it appears that petitioner’s failure to comply fully with her obligation was not motivated by ill will or malice. The twenty-nine partial payments she made were a manifestation of her good faith. Again, Article 1229 of the Civil Code specifically empowers the judge to reduce the civil penalty equitably, when the principal obligation has been partly or irregularly complied with. Upon this premise, we hold that the RTC’s reduction of attorney’s fees -- from 25 percent to 10 percent of the total amount due and payable -- is reasonable.

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GLORIA OCAMPO AND TERESITA TAN, Petitioner, VS. LANDBANK OF THE PHILIPPINES, URDANETA, PANGASINAN BRANCH AND EX-OFFICIO PROVINCIAL SHERIFF OF PANGASINAN, Respondent. GR No. 164968, July 3, 2009 Facts: In 1991, Ocampo and her daughter, Tan obtained from the Landbank a PhP10M quedan loan upon issuance of promissory notes (PNs) which was released to them by: Amount PhP3.996M PhP6M

Release Date 01/31/1991 04/05/1991

Maturity Date 07/30/1991 10/02/1991

Remarks 2 PNs 3 PNs

Quedan Rural Credit Guarantee Corporation (Quedancor) guaranteed to pay Landbank their loan but only up to 80% of the outstanding loan plus interests at the time of maturity. Pursuant thereto, Ocampo and Tan delivered to Landbank quedans and executed a Deed of Assignment covering 41,690 cavans of palay (equivalent to PhP9.996M – 100% of the loan) in favor of Quedancor. Ocampo and Tan constituted a Real Estate Mortgage (REM) over 2 parcels of unregistered land owned by Ocampo to secure the remaining 20%. Such encumbrance was annotated in the land title when Ocampo filed for the lands’ registration. When Ocampo failed to pay the 3 remaining PNs on Oct. 2, 1991, Lanbank filed the following: Claim for guarantee payment with Quedancor; Criminal case of estafa against Ocampo for disposing stocks of palay covered by the quedans; Extrajudicial foreclosure of REM (re: 20% of loan) The Ex-Officio Provincial Sheriff issued a notice of Extrajudicial Sale (Public Auction). RTC issued TRO on the public auction and favored Ocampo and Tan when they filed a Complaint for Declaration of Nullity and Damages with Application of a Writ of Preliminary Injunction against Landbank and the Sheriff on the basis on forgery regarding the REM on the 20% of the loan. Upon Landbank’s appeal, the CA granted its petition and reversed the RTC’s decision. Hence, this petition. Issues: 1. Whether or not the Deed of Real Estate Mortgage was void. 2. Assuming it was valid, whether or not the loan was already extinguished. Ruling: 1. NO. The Deed of Real Estate Mortgage was valid. There is no forgery. Ocampo and Tan failed to present any evidence to disprove the genuineness or authenticity of their signatures. In fact, Ocampo admitted in her direct examination that such signature was hers, although she claimed that she was made to sign a blank form (printed form with blanks yet to be filled up). Moreover, the bank personnel who were also signatories to the deed confirmed their appearances despite her testimony that she cannot say for certain if she appeared before the notary public.

17

It is well-settled that a document acknowledged before a notary public is a public document that enjoys the presumption of regularity. It is a prima facie evidence of the truth of the facts stated therein and a conclusive presumption of its existence and due execution. The real issue is fraud and not forgery. Ocampo claimed that she was led to believe by Landbank that the form she signed was to process her PhP5M loan application and not to secure the subject 20% of the loan. However, Ocampo was unable to establish clearly and precisely how Landbank committed the alleged fraud. She failed to lay down the deception through insidious words or machinations or misrepresentations made by Landbank so that she signed the blank form. Granting for the sake of argument that there was fraud, such contract was merely voidable where an action should have been instituted within 4 yours from discovery, i.e. when the REM was registered with the Register of Deeds. 2. NO. The loan was not yet extinguished. Ocampo claimed that she already paid the quedan loan when she executed the Deed of Assignment in favor of Quedancor. The loan was between Ocampo and Landbank. Yet, she did not include Landbank party to the Deed of Assignment despite evidence on record showing her indebtedness Landbank (e.g. registration/annotation of REM). Ocampo hastily executed the Deed Assignment and conveyed some of her properties to Quedancor without prior notice Landbank.

as to of to

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

18

Republic, petitioner, vs. Sandiganbayan, respondent. G.R. No. 166859, April 12, 2011 Facts: The Republic commenced Civil Case No. 0033 in the Sandiganbayan by complaint, impleading as defendants respondent Eduardo M. Cojuangco, Jr. (Cojuangco) and 59 individual defendants. Cojuangco allegedly purchased a block of 33,000,000 shares of SMC stock through the 14 holding companies owned by the CIIF Oil Mills. For this reason, the block of 33,133,266 shares of SMC stock shall be referred to as the CIIF block of shares. Republic of the Philippines contended that Cojuangco is the undisputed "coconut king" with unlimited powers to deal with the coconut levy funds, who took undue advantage of his association, influence and connection, acting in unlawful concert with Defendants Ferdinand E. Marcos, misused coconut levy funds to buy out majority of the outstanding shares of stock of San Miguel Corporation. Defendants Eduardo Cojuangco, Jr., and ACCRA law offices plotted, devised, schemed, conspired and confederated with each other in setting up, through the use of coconut levy funds, the financial and corporate framework and structures that led to the establishment of UCPB, UNICOM, COCOLIFE, COCOMARK. CIC, and more than twenty other coconut levy-funded corporations, including the acquisition of San Miguel Corporation shares and its institutionalization through presidential directives of the coconut monopoly. Sandiganbayan dismissed Amended Complaint in Civil Case No. 0033-F for failure of plaintiff to prove by preponderance of evidence its causes of action against defendants with respect to the twenty percent (20%) outstanding shares of stock of San Miguel Corporation registered in defendants’ names Republic of the Philippines appealed the case to the Supreme Court invoking that coconut levy funds are public funds. The SMC shares, which were acquired by respondents Cojuangco, Jr. and the Cojuangco companies with the use of coconut levy funds – in violation of respondent Cojuangco, Jr.’s fiduciary obligation – are, necessarily, public in character and should be reconveyed to the government. Issue: Whether or not Respondent Cojuangco Jr. used the coconut levy funds to acquire SMC shares in violation of the his fiduciary obligation as a public officer. Ruling: Cojuangco violated no fiduciary duties It does not suffice, as in this case, that the respondent is or was a government official or employee during the administration of former Pres. Marcos. There must be a prima facie showing that the respondent unlawfully accumulated wealth by virtue of his close association or relation with former Pres. Marcos and/or his wife. Republic’s burden to establish by preponderance of evidence that respondents’ SMC shares had been illegally acquired with coconut-levy funds was not discharged. The conditions for the application of Articles 1455 and 1456 of the Civil Code (like the trustee using trust funds to purchase, or a person acquiring property through mistake or fraud), 19

and Section 31 of the Corporation Code (like a director or trustee willfully and knowingly voting for or assenting to patently unlawful acts of the corporation, among others) require factual foundations to be first laid out in appropriate judicial proceedings. Hence, concluding that Cojuangco breached fiduciary duties as an officer and member of the Board of Directors of the UCPB without competent evidence thereon would be unwarranted and unreasonable. Thus, the Sandiganbayan could not fairly find that Cojuangco had committed breach of any fiduciary duties as an officer and member of the Board of Directors of the UCPB. For one, the Amended Complaint contained no clear factual allegation on which to predicate the application of Articles 1455 and 1456 of the Civil Code, and Section 31 of the Corporation Code. Although the trust relationship supposedly arose from Cojuangco’s being an officer and member of the Board of Directors of the UCPB, the link between this alleged fact and the borrowings or advances was not established. Nor was there evidence on the loans or borrowings, their amounts, the approving authority, etc. As trial court, the Sandiganbayan could not presume his breach of fiduciary duties without evidence showing so, for fraud or breach of trust is never presumed, but must be alleged and proved. The thrust of the Republic that the funds were borrowed or lent might even preclude any consequent trust implication but is more inclined to be a contract of loan. To say that a relationship is fiduciary when existing laws do not provide for such requires evidence that confidence is reposed by one party in another who exercises dominion and influence. Absent any special facts and circumstances proving a higher degree of responsibility, any dealings between a lender and borrower are not fiduciary in nature. The Court DISMISSES the petitions for certiorari and, AFFIRMS the decision promulgated by the Sandiganbayan on November 28, 2007 in Civil Case No. 0033-F. The Court declares that the block of shares in San Miguel Corporation in the names of respondents Cojuangco, et al. subject of Civil Case No. 0033-F is the exclusive property of Cojuangco, et al. as registered owners.

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JOSE C. GO, Petitioner, vs. BANGKO SENTRAL NG PILIPINAS, Respondent. G.R. No. 178429, October 23, 2009 Facts: Jose Go, the Director and the President and Chief Executive Officer of the Orient Commercial Banking Corporation (Orient Bank) was charged before the RTC for violation of Section 83 of RA 337 or the General Banking Act. Go allegedly borrowed the deposits/funds of the Orient Bank and/or acting as guarantor, indorser of obligor for loans to other persons. He then used the borrowed deposits/funds in facilitating and granting and/or of credit lines/loans to the New Zealand Accounts loans in the total amount of PHP 2,754,905,857. He completed the alleged transaction without the written approval of the majority of the Board of Directors of said Orient Bank. Go then filed a motion to quash the Information. He averred that the use of the word "and/or" meant that he was charged for being either a borrower or a guarantor, or for being both. Thus the charge does not constitute an offense, that Section 83 of RA 337 penalized only directors and officers who acted either as borrower or as guarantor, but not as both. Also that the Information did not constitute an offense since the information failed to state the amount he purportedly borrowed. According to Go, the second paragraph of Section 83, serves as an exception to the first paragraph which allows the banks to extend credit accommodations to their directors, officers, and stockholders, provided it is "limited to an amount equivalent to the respective outstanding deposits and book value of the paid-in capital contribution in the bank." The RTC granted Go’s motion to quash the Information. The prosecution filed a petition for certiorari before the CA. The CA granted the petition. It explained that the allegation that Go acted either as a borrower or a guarantor or both did not necessarily mean that Go acted both as borrower and guarantor for the same loan at the same time. It agreed with the prosecution’s stand that the second paragraph of Section 83 of RA 337 is not an exception to the first paragraph. Hence, this petition. Issues: 1. Whether or not the allegation that Go acted as borrower or guarantor rendered the information defective. 2. Whether or not the failure to state that Go borrowed beyond the limit of his outstanding deposits and book value of the paid-in capital contribution in the bank rendered the Information defective. Ruling: No, the information was not defective. The following elements of violation of Section 83 of RA 337 which must be present to constitute a violation of its first paragraph:1. the offender is a director or officer of any banking institution;2. the offender, either directly or indirectly, for himself or as representative or agent of another, performs any of the following acts:a. he borrows any of the deposits or funds of such bank; 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. The language of the law is broad enough to encompass either act of borrowing or guaranteeing, or both. Banks were not created for the benefit of their directors and officers; they cannot use the assets of the bank for their own benefit, except as may be permitted by 21

law. Congress has thus deemed it essential to impose restrictions on borrowings by bank directors and officers in order to protect the public, especially the depositors.Hence, when the law prohibits directors and officers of banking institutions from becoming in any manner an obligor of the bank (unless with the approval of the board), the terms of the prohibition shall be the standards to be applied to directors’ transactions such as those involved in the present case. Credit accommodation limit is not an exception nor is it an element of the offense as contrary to Go’s claims. Section 83 of RA 337 actually imposes three restrictions: approval, reportorial, and ceiling requirements. The approval requirement (found in the first sentence of the first paragraph of the law) refers to the written approval of the majority of the bank’s 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 bank’s 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.

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PERLA S. ZULUETA, Petitioner, vs. ASIA BREWERY, Inc., Respondent G.R. No. 138137 March 8, 2001 Facts: Respondent Asia Brewery, Inc., is engaged in the manufacture, the distribution and sale of beer while Petitioner Perla Zulueta is a dealer and an operator of an outlet selling the former’s beer products. A Dealership Agreement governed their contractual relations. On March 30, 1992, petitioner filed before the Regional Trial Court (RTC) of Iloilo, Branch 22, a Complaint against respondent for Breach of Contract, Specific Performance and Damages. The Complaint, docketed as Civil Case No. 20341 (Iloilo case), was grounded on the alleged violation of the Dealership Agreement. On July 7, 1994, during the pendency of the Iloilo case, respondent filed with the Makati Regional Trial Court, Branch 66, a Complaint docketed as Civil Case No. 94-2110 (Makati case). The Complaint was for the collection of a sum of money in the amount of P463,107.75 representing the value of beer products, which respondent had delivered to petitioner. On January 3, 1997, petitioner moved for the consolidation of the Makati case with the Iloilo case. Granting the Motion, Judge Parentala ordered on February 13, 1997, the consolidation of the two cases. Respondent filed a Motion for Reconsideration, which was denied in an Order dated May 19, 1997. On August 18, 1997, respondent filed before the Court of Appeals a Petition for Certiorari assailing Judge Parentala’s February 13, 1997 and May 19, 1997 Orders. CA reversed Makati RTC decision. Hence, this Petition Issues: 1. Whether or not procedural or remedial law is applicable in this case. 2. Whether or not respondent’s petition to the CA is valid/appropriate. Ruling: Petitioner avers that the Makati RTC’s February 13, 1997 and May 19, 1997 Orders consolidating the two cases could no longer be assailed. Allegedly, respondent’s Petition for Certiorari was filed with the CA beyond the reglementary sixty-day period prescribed in the 1997 Revised Rules of Civil Procedure, which took effect on July 1, 1997. Hence, the CA should have dismissed it outright. As a general rule, laws have no retroactive effect. But there are certain recognized exceptions, such as when they are remedial or procedural in nature. This Court explained this exception in the following language: procedural laws may operate retroactively as to pending proceedings even without express provision to that effect. Accordingly, rules of procedure can apply to cases pending at the time of their enactment. In fact, statutes regulating the procedure of the courts will be applied on actions undetermined at the time of their effectivity. Procedural laws are retrospective in that sense and to that extent.

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It is a well-established doctrine that rules of procedure may be modified at any time to become effective at once, so long as the change does not affect vested rights. Moreover, it is equally axiomatic that there are no vested rights to rules of procedure. It also bears noting that the ninety-day limit established by jurisprudence cannot be deemed a vested right. It is merely a discretionary prerogative of the courts that may be exercised depending on the peculiar circumstances of each case. Hence, respondent was not entitled, as a matter of right, to the 90-day period for filing a petition for certiorari; neither can it imperiously demand that the same period be extended to it. Upon the effectivity of the 1997 Revised Rules of Civil Procedure on July 1, 1997, respondent’s lawyers still had 21 days or until July 22, 1997 to file a petition for certiorari and to comply with the sixty-day reglementary period. Had they been more prudent and circumspect in regard to the implications of these procedural changes, respondent’s right of action would not have been foreclosed. After all, the 1997 amendments to the Rules of Court were wellpublicized prior to their date of effectivity. At the very least counsel should have asked for as extension of time to file the petition. WHEREFORE, the Petition is hereby GRANTED and the assailed Decision REVERSED and SET ASIDE. The Orders of the Makati RTC (Br. 142) dated February 13, 1997 and May 19, 1997 are hereby REINSTATED. No costs.

24

METRO CONCAST STEEL CORPORATION, SPOUSES JOSE S. DYCHIAO AND TIUOH YAN, SPOUSES GUILLERMO AND MERCEDES DYCHIAO, AND SPOUSES VICENTE AND FILOMENA DYCHIAO, Petitioners, vs. ALLIED BANK CORPORATION, Respondent. G.R. No. 177921 December 4, 2013 Facts: On various dates and for different amounts, Metro Concast, through its officers, herein individual petitioners, obtained several loans from Allied Bank. These loan transactions were covered by a promissory note and separate letters of credit/trust receipts. The interest rate under Promissory Note No. 96-21301 was pegged at 15.25% per annum (p.a.), with penalty charge of 3% per month in case of default; while the twelve (12) trust receipts uniformly provided for an interest rate of 14% p.a. and 1% penalty charge. By way of security, the individual petitioners executed several Continuing Guaranty/Comprehensive Surety Agreements in favor of Allied Bank. Petitioners failed to settle their obligations under the aforementioned promissory note and trust receipts, hence, Allied Bank, through counsel, sent them demand letters, all dated December 10, 1998, seeking payment of the total amount of P51,064,093.62, but to no avail. Thus, Allied Bank was prompted to file a complaint for collection of sum of money (subject complaint) against petitioners before the RTC, docketed as Civil Case No. 00-1563. In their second Amended Answer, petitioners admitted their indebtedness to Allied Bank but denied liability for the interests and penalties charged, claiming to have paid the total sum of P65,073,055.73 by way of interest charges for the period covering 1992 to 1997. They also alleged that the economic reverses suffered by the Philippine economy in 1998 as well as the devaluation of the peso against the US dollar contributed greatly to the downfall of the steel industry, directly affecting the business of Metro Concast and eventually leading to its cessation. Hence, in order to settle their debts with Allied Bank, petitioners offered the sale of Metro Concast’s remaining assets, consisting of machineries and equipment, to Allied Bank, which the latter, however, refused. Instead, Allied Bank advised them to sell the equipment and apply the proceeds of the sale to their outstanding obligations. Accordingly, petitioners offered the equipment for sale, but since there were no takers, the equipment was reduced into ferro scrap or scrap metal over the years. In 2002, Peakstar Oil Corporation (Peakstar), represented by one Crisanta Camiling (Camiling), expressed interest in buying the scrap metal. During the negotiations with Peakstar, petitioners claimed that Atty. Peter Saw (Atty. Saw), a member of Allied Bank’s legal department, acted as the latter’s agent. Eventually, with the alleged conformity of Allied Bank, through Atty. Saw, a Memorandum of Agreement dated November 8, 2002 (MoA) was drawn between Metro Concast, represented by petitioner Jose Dychiao, and Peakstar, through Camiling, under which Peakstar obligated itself to purchase the scrap metal for a total consideration of P34,000,000.00, payable as follows: (a) P4,000,000.00 by way of earnest money – P2,000,000.00 to be paid in cash and the other P2,000,000.00 to be paid in two (2) post-dated checks of P1,000,000.00 each; and (b) the balance of P30,000,000.00 to be paid in ten (10) monthly installments of P3,000,000.00, secured by bank guarantees from Bankwise, Inc. (Bankwise) in the form of separate post-dated checks.27 Unfortunately, Peakstar reneged on all its obligations under the MoA. In this regard, petitioners asseverated that: (a) their failure to pay their outstanding loan obligations to Allied Bank must be considered as force majeure ; and (b) since Allied Bank was the party that accepted the terms and conditions of payment proposed by Peakstar, petitioners must therefore be deemed to have settled their obligations to Allied Bank.

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To bolster their defense, petitioner Jose Dychiao (Jose Dychiao) testified during trial that it was Atty. Saw himself who drafted the MoA and subsequently received the P2,000,000.00 cash and the two (2) Bankwise post-dated checks worth P1,000,000.00 each from Camiling. However, Atty. Saw turned over only the two (2) checks and P1,500,000.00 in cash to the wife of Jose Dychiao. Claiming that the subject complaint was falsely and maliciously filed, petitioners prayed for the award of moral damages in the amount of P20,000,000.00 in favor of Metro Concast and at least P25,000,000.00 for each individual petitioner, P25,000,000.00 as exemplary damages, P1,000,000.00 as attorney’s fees, P500,000.00 for other litigation expenses, including costs of suit. The RTC Ruling After trial on the merits, the RTC, in a Decision dated January 17, 2006, dismissed the subject complaint, holding that the "causes of action sued upon had been paid or otherwise extinguished." It ruled that since Allied Bank was duly represented by its agent, Atty. Saw, in all the negotiations and transactions with Peakstar – considering that Atty. Saw (a) drafted the MoA, (b) accepted the bank guarantee issued by Bankwise, and (c) was apprised of developments regarding the sale and disposition of the scrap metal – then it stands to reason that the MoA between Metro Concast and Peakstar was binding upon said bank. The CA Ruling Allied Bank appealed to the CA which, in a Decision dated February 12, 2007, reversed and set aside the ruling of the RTC, ratiocinating that there was "no legal basis in fact and in law to declare that when Bankwise reneged its guarantee under the MoA, herein petitioners should be deemed to be discharged from their obligations lawfully incurred in favor of Allied Bank." The CA examined the MoA executed between Metro Concast, as seller of the ferro scrap, and Peakstar, as the buyer thereof, and found that the same did not indicate that Allied Bank intervened or was a party thereto. It also pointed out the fact that the post-dated checks pursuant to the MoA were issued in favor of Jose Dychiao. Likewise, the CA found no sufficient evidence on record showing that Atty. Saw was duly and legally authorized to act for and on behalf of Allied Bank, opining that the RTC was "indulging in hypothesis and speculation" when it made a contrary pronouncement. While Atty. Saw received the earnest money from Peakstar, the receipt was signed by him on behalf of Jose Dychiao. It also added that "in the final analysis, the aforesaid checks and receipts were signed by Atty. Saw either as representative of petitioners or as partner of the latter’s legal counsel, and not in any way as representative of Allied Bank." Consequently, the CA granted the appeal and directed petitioners to solidarily pay Allied Bank their corresponding obligations under the aforementioned promissory note and trust receipts, plus interests, penalty charges and attorney’s fees. Petitioners sought reconsideration which was, however, denied in a Resolution dated May 10, 2007. Hence, this petition. Issue: Whether or not the loan obligations incurred by the petitioners under the subject promissory note and various trust receipts have already been extinguished. Ruling: Article 1231 of the Civil Code states that obligations are extinguished either by payment or performance, the loss of the thing due, the condonation or remission of the debt, the confusion or merger of the rights of creditor and debtor, compensation or novation. In the present case, petitioners essentially argue that their loan obligations to Allied Bank had already been extinguished due to Peakstar’s failure to perform its own obligations to Metro Concast pursuant to the MoA. Petitioners classify Peakstar’s default as a form of force 26

majeure in the sense that they have, beyond their control, lost the funds they expected to have received from the Peakstar (due to the MoA) which they would, in turn, use to pay their own loan obligations to Allied Bank. They further state that Allied Bank was equally bound by Metro Concast’s MoA with Peakstar since its agent, Atty. Saw, actively represented it during the negotiations and execution of the said agreement. Petitioners’ arguments are untenable. At the outset, the Court must dispel the notion that the MoA would have any relevance to the performance of petitioners’ obligations to Allied Bank. The MoA is a sale of assets contract, while petitioners’ obligations to Allied Bank arose from various loan transactions. Absent any showing that the terms and conditions of the latter transactions have been, in any way, modified or novated by the terms and conditions in the MoA, said contracts should be treated separately and distinctly from each other, such that the existence, performance or breach of one would not depend on the existence, performance or breach of the other. In the foregoing respect, the issue on whether or not Allied Bank expressed its conformity to the assets sale transaction between Metro Concast and Peakstar (as evidenced by the MoA) is actually irrelevant to the issues related to petitioners’ loan obligations to the bank. Besides, as the CA pointed out, the fact of Allied Bank’s representation has not been proven in this case and hence, cannot be deemed as a sustainable defense to exculpate petitioners from their loan obligations to Allied Bank. Now, anent petitioners’ reliance on force majeure, suffice it to state that Peakstar’s breach of its obligations to Metro Concast arising from the MoA cannot be classified as a fortuitous event under jurisprudential formulation. It is therefore, not enough that the event should not have been foreseen or anticipated, as is commonly believed but it must be one impossible to foresee or to avoid. The mere difficulty to foresee the happening is not impossibility to foresee the same. To constitute a fortuitous event, the following elements must concur: (a) the cause of the unforeseen and unexpected occurrence or of the failure of the debtor to comply with obligations must be independent of human will; (b) it must be impossible to foresee the event that constitutes the caso fortuito or, if it can be foreseen, it must be impossible to avoid; (c) the occurrence must be such as to render it impossible for the debtor to fulfill obligations in a normal manner; and (d) the obligor must be free from any participation in the aggravation of the injury or loss. While it may be argued that Peakstar’s breach of the MoA was unforseen by petitioners, the same us clearly not "impossible" to foresee or even an event which is independent of human will." Neither has it been shown that said occurrence rendered it impossible for petitioners to pay their loan obligations to Allied Bank and thus, negates the former’s force majeure theory altogether. In any case, as earlier stated, the performance or breach of the MoA bears no relation to the performance or breach of the subject loan transactions, they being separate and distinct sources of obligations. The fact of the matter is that petitioners’ loan obligations to Allied Bank remain subsisting for the basic reason that the former has not been able to prove that the same had already been paid or, in any way, extinguished. In this regard, petitioners’ liability, as adjudged by the CA, must perforce stand. Considering, however, that Allied Bank’s extra-judicial demand on petitioners appears to have been made only on December 10, 1998, the computation of the applicable interests and penalty charges should be reckoned only from such date. WHEREFORE, the petition is DENIED. The Decision dated February 12, 2007 and Resolution dated May 10, 2007 of the Court of Appeals in CA-G.R. CV No. 86896 are hereby AFFIRMED with MODIFICATION reckoning the applicable interests and penalty charges from the date of the extrajudicial demand or on December 10, 1998. The rest of the appellate court’s dispositions stand.

27

GOLDENWAY MERCHANDISING CORPORATION, Petitioner, vs. EQUITABLE PCI BANK, Respondent. G.R. No. 195540 March 13, 2013 Facts: On November 29, 1985, petitioner Goldenway Merchandising Corporation executed a Real Estate Mortgage in favor of Equitable PCI Bank over three parcels of land as security for a Php2,000,000 loan granted to the petitioner. Petitioner eventually failed to settles its loan obligation, leading respondent to extrajudicially foreclose the mortgage on December 13, 2000. Subsequently, a Certificate of Sale was issued to respondent on January 26, 2001. In a letter dated March 7, 2001, petitioner offered to redeem the foreclosed properties by tendering a check. Petitioner and respondent met on March 12, 2001. However, petitioner was told that redemption was no longer possible since the certificate of sale had already been registered; the title to the foreclosed properties were consolidated in favor of the respondent on March 9, 2001. Petitioner filed a complaint for specific performance and damages contending that the 1year period of redemption under Act 3135 should apply, and not the shorter redemption period under RA 8791 as applying RA 8791 would result in the impairment of obligations of contracts and would violate the equal protection clause under the constitution. The RTC dismissed the action of the petitioner ruling that redemption was made belatedly and that there was no redemption made at all. The Court of Appeals affirmed the RTC. Issue: Whether or not the redemption period should be the 1-year period provided under Act 3135, and not the shorter period under RA 8791 as the parties expressly agreed that foreclosure would be in accordance with Act 3135. Ruling: The shorter period under RA 8791 should apply. The one-year period of redemption is counted from the date of the registration of the certificate of sale. In this case, the parties provided in their real estate mortgage contract that upon petitioner’s default and the latter’s entire loan obligation becoming due, respondent may immediately foreclose the mortgage judicially in accordance with the Rules of Court, or extrajudicially in accordance with Act No. 3135, as amended. But under Sec 47 of RA 8791, an exception is thus made in the case of juridical persons which are allowed to exercise the right of redemption only "until, but not after, the registration of the certificate of foreclosure sale" and in no case more than three (3) months after foreclosure, whichever comes first. Section 47 did not divest juridical persons of the right to redeem their foreclosed properties but only modified the time for the exercise of such right by reducing the one-year period originally provided in Act No. 3135. The new redemption period commences from the date of foreclosure sale, and expires upon registration of the certificate of sale or three months after foreclosure, whichever is earlier. There is likewise no retroactive application of the new redemption period because Section 47 exempts from its operation those properties foreclosed prior to its effectivity and whose owners shall retain their redemption rights under Act No. 3135.

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We agree with the CA that the legislature clearly intended to shorten the period of redemption for juridical persons whose properties were foreclosed and sold in accordance with the provisions of Act No. 3135. The difference in the treatment of juridical persons and natural persons was based on the nature of the properties foreclosed – whether these are used as residence, for which the more liberal one-year redemption period is retained, or used for industrial or commercial purposes, in which case a shorter term is deemed necessary to reduce the period of uncertainty in the ownership of property and enable mortgagee-banks to dispose sooner of these acquired assets. It must be underscored that the General Banking Law of 2000, crafted in the aftermath of the 1997 Southeast Asian financial crisis, sought to reform the General Banking Act of 1949 by fashioning a legal framework for maintaining a safe and sound banking system. In this context, the amendment introduced by Section 47 embodied one of such safe and sound practices aimed at ensuring the solvency and liquidity of our banks.It cannot therefore be disputed that the said provision amending the redemption period in Act 3135 was based on a reasonable classification and germane to the purpose of the law. The right of redemption being statutory, it must be exercised in the manner prescribed by the statute, and within the prescribed time limit, to make it effective. Furthermore, as with other individual rights to contract and to property, it has to give way to police power exercised for public welfare.The concept of police power is well-established in this jurisdiction. It has been defined as the "state authority to enact legislation that may interfere with personal liberty or property in order to promote the general welfare." Its scope, ever-expanding to meet the exigencies of the times, even to anticipate the future where it could be done, provides enough room for an efficient and flexible response to conditions and circumstances thus assuming the greatest benefits. The freedom to contract is not absolute; all contracts and all rights are subject to the police power of the State and not only may regulations which affect them be established by the State, but all such regulations must be subject to change from time to time, as the general wellbeing of the community may require, or as the circumstances may change, or as experience may demonstrate the necessity. Settled is the rule that the non-impairment clause of the Constitution must yield to the loftier purposes targeted by the Government. The right granted by this provision must submit to the demands and necessities of the State’s power of regulation.Such authority to regulate businesses extends to the banking industry which, as this Court has time and again emphasized, is undeniably imbued with public interest. Having ruled that the assailed Section 47 of R.A. No. 8791 is constitutional, we find no reversible error committed by the CA in holding that petitioner can no longer exercise the right of redemption over its foreclosed properties after the certificate of sale in favor of respondent had been registered.

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GATEWAY ELECTRONICS CORPORATION, petitioner, vs. LAND BANK OF THE PHILIPPINES, respondent. G.R. Nos. 155217 & 156393, July 30, 2003 Facts: In 1995, petitioner Gateway Electronics Corporation applied for a loan in the amount of one billion pesos with respondent Landbank to finance the construction and acquisition of machineries and equipment for a semi-conductor plant at Gateway Business Park in Javalera, General Trias, Cavite. However, Landbank was only able to extend petitioner a loan in the amount of six hundred million pesos (P600,000,000.00) but offered to assist petitioner in securing additional funding to which offer petitioner accepted. Thereafter, Landbank released to petitioner the initial amount of P250,000,000.00, with the balance of P350,000,000.00 to be released in June 1996. As security for the said loans, petitioner mortgaged in favor of Landbank two parcels of land located in Barangay Jalavera, General Trias, Cavite, the movable properties as well as the machineries to be installed therein. After petitioner's acceptance of Landbank's financial banking services, the latter prepared an Information Memorandum. The Information Memorandum stated that the security for the proposed loan syndication will be the "Mortgage Trust Indenture (MTI) on the project assets including land, building and equipment." Landbank confirmed its undertaking to share the said collateral with the other creditor banks. Consequently, Philippine Commercial International Bank (PCIB), Union Bank of the Philippines, (UBP), Rizal Commercial Banking Corporation-Trust Investment Division (RCBC), and Asia Trust Bank (Asia Trust) joined the loan syndication and released various loans to petitioner. On October 10, 1996, a Memorandum of Understanding (MOU) was executed by Landbank, PCIB, UBP, RCBC, Asiatrust and the petitioner, with RCBC as the trustee of the loan syndication. Meanwhile, the negotiations for the execution of an MTI failed because Landbank and the petitioner were unable to agree on the valuation of the equipment and machineries to be acquired by the latter. To break the impasse, PCIB, RCBC, UBP, and Asiatrust proposed to execute a Joint Real Estate Mortgage (JREM) as the "new mode to secure their respective loan in relation to petitioner's collaterals." Under the proposed JREM, the six hundred million pesoloan granted by Land Bank shall be secured up to 94.42%, while the loans granted by PCIB, RCBC, and UBP would be similarly secured up to 75.22%. Land Bank, however, refused to agree to the said proposal unless 100% of its loan exposure is secured, pursuant to the Loan Agreement it executed with petitioner. On February 27, 1998, Land Bank informed petitioner of its intention not to share collaterals with the other banks. In the meantime, petitioner's loan with PCIB became due because of its failure to comply with the collateral requirement under the MTI or JREM, or to provide acceptable substitute collaterals. Hence, petitioner filed with the Regional Trial Court of Makati City, Branch 133, a complaint against Land Bank for specific performance and damages with prayer for the issuance of preliminary mandatory injunction. After hearing, the trial court issued an order on October 18, 2000 granting petitioner's prayer for the issuance of a writ of preliminary mandatory injunction. With the denial of its motion for reconsideration, respondent filed a petition for certiorari with the Court of Appeals, on the ground that the trial court gravely abused its discretion in issuing the assailed writ of preliminary mandatory injunction. On March 23, 2001, the Court of Appeals, on motion of Landbank, issued a temporary restraining order enjoining the trial court from enforcing the October 18, 2000 Order. In a decision rendered on April 12, 2002, the Court of Appeals annulled the assailed order of the trial court. It ruled that petitioner failed to prove the requisite clear and legal right 30

that would justify the issuance of the writ of preliminary mandatory injunction; and that respondent cannot be compelled to accede to the terms of the MTI and/or JREM which was supposed to cover the syndicated loan of petitioner inasmuch as the said schemes were never executed nor approved by the petitioner and the participating banks. Hence, the instant petition for review filed by petitioner which was docketed as G.R. No. 155217. On December 10, 2002, petitioner filed an omnibus motion seeking, inter alia, the issuance of a temporary restraining order enjoining Landbank from proceeding and completing the foreclosure proceedings over its mortgaged properties. On January 22, 2003, the Court denied said motion for lack of merit. Petitioner's motion for reconsideration was likewise denied on March 26, 2003. Meanwhile, on January 10, 2003, petitioner filed a petition to cite Landbank President Margarito Teves and Landbank's lawyer in contempt of Court for proceeding and concluding the foreclosure proceedings and public auction sale. Petitioner contended that Landbank's acts constitute improper conduct which directly or indirectly impede, obstruct, or degrade the administration of justice. The petition was docketed as G.R. No. 156393. On March 12, 2003, the consolidation of G.R. No. 156393 and G.R. No. 155217 was ordered. Issues: 1. Whether or not Landbank is bound to share the properties mortgaged to it by respondent with the other creditor banks in the loan syndication. 2. If the answer is in the affirmative, whether or not Landbank can be compelled to agree with the terms of the MTI or JREM. Ruling: 1. Anent the first issue, the Court finds that Landbank is bound by a perfected contract to share petitioner's collateral with the participating banks in the loan syndication. Article 1305 of the Civil Code defines a contract as a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service. Negotiation begins from the time the prospective contracting parties manifest their interest in the contract and ends at the moment of agreement of the parties. The perfection or birth of the contract takes place when the parties agree upon the essential elements of the contract. The last stage is the consummation of the contract wherein the parties fulfill or perform the terms agreed upon in the contract, culminating in the extinguishment thereof. Article 1315 of the Civil Code, on the other hand, provides that a contract is perfected by mere consent, which is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. In the case at bar, a perfected contract for the sharing of collaterals is evident from the exchange of communications between Landbank and petitioner and the participating banks, as well as in the Memorandum of Understanding executed by petitioner and the participating banks, including Landbank. In its July 31, 1996 letter to petitioner, Landbank stated that it is "willing to submit the properties covered by the real estate mortgage (REM) in its favor as part of petitioner's assets that will be covered by a Mortgage Trust Indenture (MTI)." Thus, the Information Memorandum distributed by Landbank to entice other banks to participate in the loan syndication, expressly stated that the security for the syndicated loan will be the "MTI on project assets including land, building and equipment." Finally, on October 10, 1996, petitioner, Landbank, PCIB, RCBC, UBP, and Asiatrust executed a Memorandum of Understanding confirming the said collateral sharing agreement. To effect said sharing, they decided to enter into a Mortgage Trust Indenture (MTI) which will be secured by the same properties previously mortgaged by petitioner to Landbank. Clearly, there was an acceptance by petitioner and by PCIB, RCBC, UBP, and Asiatrust of Lanbank's offer to share collaterals, culminating in the execution of the Memorandum of 31

Understanding. We agree with petitioner that the MTI and/or the JREM belong to the realm of consummation of said Memorandum of Understanding, being the proposed modes to effect the sharing agreement. Thus, in the JREM which was approved by Landbank, except for its loan security coverage, the participating banks expressly acknowledged that "the Joint Real Estate Mortgage is pursued by them as a new mode to secure their respective loans vis-à-vis GEC's collateral." Verily, the perfection of the collateral sharing agreement is not dependent upon the execution of the MTI or the JREM. The failure to execute said schemes did not affect the perfected and binding collateral sharing contract. 2. With respect, however, to the second issue, we find that the issuance by the trial court of the writ of preliminary mandatory injunction directing Landbank to agree with the terms of the MTI or JREM was premature. This is so because the MTI and/or JREM that were supposed to consummate the perfected collateral sharing agreement have not yet come into existence. As correctly held by the Court of Appeals, Landbank cannot be compelled to agree with the terms of the MTI considering that no such terms were finalized and approved by the petitioner and the participating banks. Simply stated, Landbank cannot be forced to give its conformity to an inexistent contract. So, also, the proposed JREM was never approved by the petitioner and the participating banks. Notably, the JREM expressly stated that "we hereby appeal to the GEC's senior management to decide swiftly and to favorably approve our humble requests so that, in turn, we can seek respective approvals from our senior management to culminate this long term project financing deal of ours." No such approval, however, appears in the records. As to the questioned security coverage under the JREM, Landbank cannot be compelled to agree to the proposed 94.42% loan security coverage over its six hundred million peso-loan to petitioner. The security coverage of the participating banks on the collaterals of petitioner was not agreed upon in the Memorandum of Understanding. While it is true that Landbank informed petitioner in its letter dated July 30, 1996 that "the participating banks in the loan syndication will have equal security position", and that on August 20, 1996, Landbank confirmed to PCIB that the participating banks, "shall be on equal footing where the aforesaid collateral is concerned," no such stipulation was embodied in the Memorandum of Understanding executed by petitioner, Landbank, PCIB, RCBC, UBP, and Asiatrust on October 10, 1996. As the repository of the terms and conditions agreed upon by the parties, the Memorandum of Understanding is considered as containing all their stipulations and there can be no evidence of such terms other than the contents thereof. Inasmuch as the parties to the Memorandum of Understanding did not agree on the terms of the security coverage of the participating banks in the MTI or JREM, we can neither add such a stipulation nor direct Landbank to agree to the security coverage stated in the JREM. Furthermore, the reasonableness of the terms of the MTI and JREM, as well as the good faith or bad faith of the parties in negotiating the terms of the said schemes, are matters that should be determined at the trial, and cannot at this point be passed upon by this Court. Furthermore, the other participating banks, namely PCIB, RCBC, UBP, and Asiatrust, are not parties to the instant case and cannot, therefore, be bound by an order directing Landbank to accede to the terms of the MTI or the JREM. We are not even aware if said banks are amenable to the said schemes or pursuing other modes to effect the sharing agreement. Indeed, the scheme or mode and the terms that would consummate the collateral sharing agreement are matters that the signatories of the Memorandum of Understanding have yet to come up with. The rule in this jurisdiction is that the contracting parties may establish any agreement, term, and condition they may deem advisable, provided they are not contrary to law, morals or public policy. The right to enter into lawful contracts constitutes one of the liberties guaranteed by the Constitution. It cannot be struck down or arbitrarily interfered with without violating the freedom to enter into lawful contracts. A writ of mandatory injunction requires the performance of a particular act and is granted only upon a showing of the following requisites – (1) the invasion of the right is material and substantial; (2) the right of a complainant is clear and unmistakable; and (3) there is an urgent and permanent necessity for the writ to prevent serious damage. Since it commands the performance of an act, a mandatory injunction does not preserve the status quo 32

and is thus more cautiously regarded than a mere prohibitive injunction. Accordingly, the issuance of the former is justified only in a clear case, free from doubt and dispute. While it is true that petitioner has a right to compel Landbank to comply with the collateral sharing agreement, its right to enforce the same by way of an inexistent MTI or JREM is certainly not clear and unmistakable. At this stage, Landbank cannot be compelled to agree to the terms of the MTI and/or JREM. At the most, Landbank can be compelled to comply with its obligation to share with the other participating banks of the loan syndication the properties mortgaged to it by petitioner and to execute the necessary contract that would implement said collateral sharing agreement. Coming now to the petition for contempt, we find that Landbank's acts of foreclosing and selling at public auction the lots mortgaged by petitioner were not contumacious. Landbank instituted the foreclosure proceedings upon an honest belief that petitioner had defaulted in the payment of its obligation. Having acted in good faith, the officers of the bank cannot be held in contempt of court. However, in order not to render this decision moot and ineffectual, the sale at public auction should be annulled. The petition in G.R. No. 155217 is GRANTED. The decision of the Court of Appeals dated April 12, 2002 in CA-G.R. SP. No. 62658 is SET ASIDE. The assailed Order dated October 18, 2000 of the Regional Trial Court of Makati City, Branch 133, in Civil Case No. 98-782 is MODIFIED as follows: respondent Landbank is directed to implement its agreement under the Memorandum of Understanding dated October 10, 1996 to share with Philippine Commercial International Bank (PCIB), Union Bank of the Philippines, (UBP), Rizal Commercial Banking Corporation-Trust Investment Division (RCBC), and Asia Trust Bank (Asia Trust) the properties mortgaged to it by petitioner Gateway Electronics Corporation, as collaterals for the syndicated loan. In G.R. No. 156393, the petition to cite Landbank President Margarito Teves and Landbank's lawyer in contempt of Court is DENIED for lack of merit.

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UCPB, Petitioner, Vs. Spouses Beluso, Respondents. GR No. 159912, August 17, 2007 Facts: UCPB granted the spouses Beluso a Promissory Notes Line under a Credit Agreement whereby the latter could avail from the former credit of up to a maximum amount of P1.2 Million pesos for a term ending on 30 April 1997. The spouses Beluso constituted, other than their promissory notes, a real estate mortgage over parcels of land in Roxas City, covered by Transfer Certificates of Title No. T-31539 and T-27828, as additional security for the obligation. The Credit Agreement was subsequently amended to increase the amount of the Promissory Notes Line to a maximum of P2.35 Million pesos and to extend the term thereof to 28 February 1998. On 30 April 1997, the payment of the principal and interest of the latter two promissory notes were debited from the spouses Beluso’s account with UCPB; yet, a consolidated loan for P1.3 Million was again released to the spouses Beluso under one promissory note with a due date of 28 February 1998. To completely avail themselves of the P2.35 Million credit line extended to them by UCPB, the spouses Beluso executed two more promissory notes for a total of P350,000.00. However, the spouses Beluso alleged that the amounts covered by these last two promissory notes were never released or credited to their account and, thus, claimed that the principal indebtedness was only P2 Million. The spouses Beluso, however, failed to make any payment of the foregoing amounts. On 2 September 1998, UCPB demanded that the spouses Beluso pay their total obligation of P2,932,543.00 plus 25% attorney’s fees, but the spouses Beluso failed to comply therewith. On 28 December 1998, UCPB foreclosed the properties mortgaged by the spouses Beluso to secure their credit line, which, by that time, already ballooned to P3,784,603.00. On 9 February 1999, the spouses Beluso filed a Petition for Annulment, Accounting and Damages against UCPB with the RTC of Makati City. Trial court declared in its judgment that: 1. the interest rate used by UCPB void 2. the foreclosure and Sheriff’s Certificate of Sale void 3. UCPB is ordered to return to the spouses Beluso the properties subject of the foreclosure 4. UCPB to pay the spouses Beluso the amount of P50,000.00 by way of attorney’s fees 5. UCPB to pay the costs of suit. 6. Spouses Beluso are hereby ordered to pay UCPB the sum of P1,560,308.00. 7. Court of Appeals affirmed Trial court's decision subject to the modification that defendant-appellant UCPB is not liable for attorney’s fees or the costs of suit. Issues: 1. Whether or not interest rate stipulated was void. 2. Whether or not Spouses Beluso are subject to 12% interest and compounding interest stipulations even if declared amount by UCPB was excessive. 3. Whether or not foreclosure was void. Ruling: 1. Yes, stipulated interest rate is void because it contravenes on the principle of mutuality of contracts and it violates the Truth in lending Act. The provision stating that the interest shall be at the “rate indicative of DBD retail rate or as determined by the Branch Head” is indeed dependent solely on the will of petitioner UCPB. Under such provision, petitioner UCPB has two choices on what the 34

interest rate shall be: (1) a rate indicative of the DBD retail rate; or (2) a rate as determined by the Branch Head. As UCPB is given this choice, the rate should be categorically determinable in both choices. If either of these two choices presents an opportunity for UCPB to fix the rate at will, the bank can easily choose such an option, thus making the entire interest rate provision violative of the principle of mutuality of contracts. In addition, the promissory notes, the copies of which were presented to the spouses Beluso after execution, are not sufficient notification from UCPB. As earlier discussed, the interest rate provision therein does not sufficiently indicate with particularity the interest rate to be applied to the loan covered by said promissory notes which is required in TRuth in Lending Act. 2. Yes. Default commences upon judicial or extrajudicial demand. The excess amount in such a demand does not nullify the demand itself, which is valid with respect to the proper amount. There being a valid demand on the part of UCPB, albeit excessive, the spouses Beluso are considered in default with respect to the proper amount and, therefore, the interests and the penalties began to run at that point. As regards the award of 12% legal interest in favor of petitioner, the RTC actually recognized that said legal interest should be imposed, thus: “There being no valid stipulation as to interest, the legal rate of interest shall be charged.” It seems that the RTC inadvertently overlooked its non-inclusion in its computation. It must likewise uphold the contract stipulation providing the compounding of interest. The provisions in the Credit Agreement and in the promissory notes providing for the compounding of interest were neither nullified by the RTC or the Court of Appeals, nor assailed by the spouses Beluso in their petition with the RTC. The compounding of interests has furthermore been declared by this Court to be legal. 3. No. The foreclosure proceedings are valid since there was a valid demand made by UCPB upon the spouses Beluso. Despite being excessive, the spouses Beluso are considered in default with respect to the proper amount of their obligation to UCPB and, thus, the property they mortgaged to secure such amounts may be foreclosed. Consequently, proceeds of the foreclosure sale should be applied to the extent of the amounts to which UCPB is rightfully entitled.

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BPI EMPLOYEES UNION-DAVAO CITY-FUBU (BPIEU-DAVAO CITY-FUBU), Petitioner, vs. BANK OF THE PHILIPPINE ISLANDS (BPI), and BPI OFFICERS CLARO M. REYES, CECIL CONANAN and GEMMA VELE, Respondents GR No. 174912 July 24, 2013 Facts: BPI Operations Management Corporation (BOMC) , which was created pursuant to Central Bank Circular No. 1388 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. 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. 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. The Union objected to the transfer of the functions and the twelve (12) personnel to BOMC contending that the functions rightfully belonged to the BPI employees and that the Union was deprived of membership of former FEBTC personnel who, by virtue of the merger, would have formed part of the bargaining unit represented by the Union pursuant to its union shop provision in the CBA. 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. The NLRC came out with a resolution upholding the validity of the service agreement between BPI and BOMC. It ruled that the engagement by BPI of BOMC to undertake some of its activities was clearly a valid exercise of its management prerogative. It further stated that the spinning off by BPI to BOMC of certain services and functions did not interfere with, restrain or coerce employees in the exercise of their right to self-organization. The Union did not present even an iota of evidence showing that BPI had terminated employees, who were its members. In fact, BPI exerted utmost diligence, care and effort to see to it that no union member was terminated. The NLRC also stressed that Department Order (D.O.) No. 10 series of 1997, strongly relied upon by the Union, did not apply in this case as BSP Circular No. 1388, series of 1993, was the applicable rule. Issues: 1. Whether or not outsourcing is allowed. 2. Whether or not D.O. No. 10 or CBP Circular No. 1388 is applicable in this case.

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Ruling: There is no conflict between D.O. No. 10 and CBP Circular No. 1388. In fact, they complement each other. While the Central Bank regulates banking, the Labor Code and its implementing rules regulate the employment relationship. Since banking institutions are specialized industries, 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. The Distributing, Clearing and Bookkeeping 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 because they are ancillary to the business of the bank. Hence, they can be outsourced.

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