LAW ON BANKING AND FINANCE

CASE DIGEST

Submitted by:

HELEN JOY D. GRIJALDO

CASE DIGEST

Submitted by: HELEN JOY D. GRIJALDO

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

FACTS:

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

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

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

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

ISSUE:

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

HELD:

1. Section 2 of the Bank Secrecy Act itself prescribes exceptions whereby these bank accounts may be
examined by any person, government official, and bureau namely when:
 upon written permission of the depositor;
 in cases of impeachment;
 the examination of bank accounts is upon order of a competent court in cases of bribery or dereliction
of duty of public officials; and
 the money deposited or invested is the subject matter of the litigation. Any exception to the rule of
absolute confidentiality must be specifically legislated.

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

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

2.
New Sampaguita Builders Construction v. PNB, G.R. 148753, (2004)

FACTS:

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

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

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

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

As to the misapplication of loan payments, the CA held that the subsidiary ledgers of NSBCIs loan
accounts with respondent reflected all the loan proceeds as well as the partial payments that had been
applied either to the principal or to the interests, penalties and other charges. Having been made in the
ordinary and usual course of the banking business of respondent, its entries were presumed accurate,
regular and fair under Section 5(q) of Rule 131 of the Rules of Court. Petitioners failed to rebut this
presumption
 The increases in the interest rates on NSBCIs loan were also held to be authorized by law and the
Monetary Board and -- like the increases in penalty rates -- voluntarily and freely agreed upon by the
parties in the Credit Agreements they executed. Thus, these increases were binding upon petitioners.

ISSUE:

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

HELD:

1. The Decision of the Court of Appeals is AFFIRMED . The lifting of ceiling on interest rates (CB Circular
905) does not give lender acarte blanche authority to raise the interest. Rates found to be iniquitous
orunconscionable are void, as if there was no express contract thereto.

3.
Prudential Bank And Trust Company (Now Bank Of The Philippine Islands, Vs. Liwayway
Abasolo

FACTS:

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

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

Norberto Mendiola, an employee of PBTC’s head office, allegedly advised respondent to issue an
authorization for Corazon to mortgage the properties, and for her (respondent) to act as one of the co-
makers so that the proceeds could be released to both of them.

Corazon executed on August 25, 1995 a Promissory Note for P2,448,960 in favor of respondent.
Respondents claim, in October 1995, Mendiola advised her to transfer the properties first to Corazon
for the immediate processing of Corazons loan application with assurance that the proceeds thereof
would be paid directly to her (respondent), and the obligation would be reflected in a bank guarantee.

By Mendiola’s Advise, respondent executed a Deed of Absolute Sale over the properties in favor of
Corazon following which or on December 4, 1995, Transfer Certificates of Title Nos. 164159 and 164160
were issued in the name of Corazon.

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

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

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

ISSUE:
1. Whether petitioner is subsidiarily liable.

HELD:

1. The petition is meritorious.

The doctrine of apparent authority does not lie.

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

It has not been established that petitioner had an obligation to Liwayway, there is no breach to speak
of. Liwayway’s claim should only be directed against Corazon. Petitioner cannot thus be held
subisidiarily liable.

4.
Banco de Oro vs. JAPRL Development Corporation G.R. No. 179901, April 14, 2008

FACTS:

Banco de Oro-EPCI, Inc. extended credit facilities to it amounting to P230,000,000 on March 28,

2003. Respondents Rapid Forming Corporation (RFC) and Jose U. Arollado acted as JAPRLs sureties.

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

Petitioner later learned from MRM Management, JAPRLs financial adviser, that JAPRL had altered
and falsified its financial statements. It allegedly bloated its sales revenues to post a big income from
operations for the concerned fiscal years to project itself as a viable investment.

BDO demanded immediate payment of JAPRLs outstanding obligations amounting to P194,493,388.98

ISSUES:

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

HELD:

1. Yes.

Section 40. Requirement for Grant of Loans or Other Credit Accommodations. Before granting a
loan or other credit accommodation, a bank must ascertain that the debtor is capable of
fulfilling his commitments to the bank.
 Towards this end, a bank may demand from its credit applicants a statement of their
assets and liabilities and of their income and expenditures and such information as may
be prescribed by law or by rules and regulations of the Monetary Board to enable the bank
to properly evaluate the credit application which includes the corresponding financial
statements submitted for taxation purposes to the Bureau of Internal Revenue. Should
such statements prove to be false or incorrect in any material detail, the bank may
terminate any loan or credit accommodation granted on the basis of said statements and
shall have the right to demand immediate repayment or liquidation of the obligation.

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

5.
PREMIERE DEVELOPMENT BANK vs. COURT OF APPEALS, PANACOR MARKETING
CORPORATION And ARIZONA TRANSPORT CORPORATION
FACTS:

October 1994, Panacor Marketing Corporation, a newly formed corporation, acquired an exclusive
distributorship of products manufactured by Colgate Palmolive Philippines, Inc.

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

Since the P2.7 million released by Premiere Bank fell short of the P4.1 million credit line which was
previously approved, Panacor negotiated for a take-out loan with Iba Finance Corporation (hereinafter
referred to as Iba-Finance) in the sum of P10 million, P7.5 million of which will be released outright in
order to take-out the loan from Premiere Bank and the balance of P2.5 million (to complete the needed
capital of P4.1 million with Colgate) to be released after the cancellation by Premiere of the collateral
mortgage on the property covered by TCT No. T-3475. Pursuant to the said take-out agreement, Iba-
Finance was authorized to pay Premiere Bank the prior existing loan obligations of Arizona in an
amount not to exceed P6 million.
On October 5, 1995, Iba-Finance sent a letter to Ms. Arlene R. Martillano, officer-in-charge of Premiere
Banks San Juan Branch, informing her of the approved loan in favor of Panacor and Arizona, and
requesting for the release of TCT No. T-3475. Martillano, after reading the letter, affixed her signature
of conformity thereto and sent the original copy to Premiere Banks legal office.
 Premiere Bank appealed to the Court of Appeals contending that the trial court erred in finding, inter
alia, that it had maliciously downgraded the credit-line of Panacor from P4.1 million to P2.7 million.

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

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

ISSUE:
Whether or not the decision of HONORABLE COURT OF APPEALS exceeded and went beyond the
facts, the issues and evidence presented in the appeal taking into consideration the argument of
petitioner bank and advent of the duly approved compromise agreement between the petitioner bank
and IBA finance corporation.
HELD:

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

On October 5, 1995, Iba-Finance informed Premiere Bank of its approval of Panacors loan application
in the amount of P10 million to be secured by a real estate mortgage over a parcel of land covered by
TCT No. T-3475. It was agreed that Premiere Bank shall entrust to Iba-Finance the owners duplicate
copy of TCT No. T-3475 in order to register its mortgage, after which Iba-Finance shall pay off
Arizonas outstanding indebtedness. Accordingly, Iba-Finance remitted P6,235,754.79 to Premiere Bank
on the understanding that said amount represented the full payment of Arizonas loan obligations.
Despite performance by Iba-Finance of its end of the bargain, Premiere Bank refused to deliver the

mortgage document. As a consequence, Iba-Finance failed to release the remaining P2.5 million loan it
earlier pledged to Panacor, which finally led to the revocation of its distributorship agreement with
Colgate.

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

While the compromise agreement may have resulted in the satisfaction of Iba-Finances legal claims.

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

6.
Restituta M. Imperial vs Alexa Jaucian

FACTS:

A case of collection of money, filed by Alex A. Jaucian herein respondent against Restituta Imperial
(now petitioner).

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

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

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

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

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

ISSUES:

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

HELD:

Petition has NO MERIT.

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

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

7. Ocampos vs Landbank

FACTS:

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

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

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

RTC issued TRO on the public auction and favored Ocampoand Tan when they filed a Complaint for
Declaration of Nullityand Damages with Application of a Writ of PreliminaryInjunction against
Landbank and the Sheriff on the basis onforgery regarding the REM on the 20% of the loan.
Upon Landbank’s appeal, the CA granted its petition and reversed the RTC’s decision.

ISSUES:

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

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

HELD:
 NO. There is no forgery. The Deed of REM was valid. Ocampo and Tan failed to presentany evidence
to disprove the genuineness or authenticityof their signatures. In fact, Ocampo admitted in
directexamination that such signature was hers, although sheclaimed that she was made to sign a
blank form (printedform with blanks yet to be filled up). Moreover, the bankpersonnel who were also
signatories to the deed confirmed their appearances despite her testimony that she cannot say for
certain if she appeared before thenotary public.It is well-settled that a document acknowledged before
anotary public is a public document that enjoys thepresumption of regularity. It is a prima facie
evidence of the truth of the facts stated therein and a conclusivepresumption of its existence and due
execution.
The real issue is fraud and not forgery. Ocampo claimedthat she was led to believe by Landbank that
the form shesigned was to process her PhP5M loan application andnot to secure the subject 20% of the
loan.However, Ocampo was unable to establish clearly andprecisely how Landbank committed the
alleged fraud. Shefailed to lay down the deception through insidious words or machinations or
misrepresentations made by Landbank sothat she signed the blank form.Granting for the sake of
argument that there was fraud,such contract was merely voidable where an action shouldhave been
instituted within 4 years from discovery, i.e.when the REM was registered with the Register of Deeds

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

Dacion en pago is the delivery and transmission of ownership of a thing by the debtor to the creditor
as anaccepted equivalent of the performance of an obligation. As properly ruled by the CA, the
required consent isabsent in this case. Landbank had no participation muchless consented to the
execution of the Deed of Assignment. Hence, no extinguishment of loan can behad.Even if the Deed
of Assignment has the effect of validpayment, 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.

8.
REPUBLIC OF THE PHILIPPINES vs.
SANDIGANBAYAN (FIRST DIVISION), EDUARDO M. COJUANGCO, JR.,

FACTS:

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

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

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

ISSUES:

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

HELD:

The Supreme Court affirm the decision of November 28, 2007, because the Republic did not discharge
its burden as the plaintiff to establish by preponderance of evidence that the respondents’ SMC shares
were illegally acquired with coconut-levy funds.
The Republic mainly relied on the statement made by Mr. Conjuangco on his Pre-trial brief and hastily
derived conclusions from the defendants’ statements in their previous pleadings although such
conclusions were not supported by categorical facts but only mere inferences.
"According to Cojuangco’s own Pre-Trial Brief, these so-called ‘various sources’, i.e., the sources from
which he obtained the funds he claimed to have used in buying the 20% SMC shares are not in fact
‘various’ as he claims them to be. He says he obtained ‘loans’ from UCPB and ‘advances’ from the CIIF
Oil Mills. He even goes as far as to admit that his only evidence in this case would have been ‘records
of UCPB’ and a ‘representative of the CIIF Oil Mills’ obviously the ‘records of UCPB’ relate to the
‘loans’ that Cojuangco claims to have obtained from UCPB – of which he was President and CEO –
while the ‘representative of the CIIF Oil Mills’ will obviously testify on the ‘advances’ Cojuangco
obtained from CIIF Oil Mills – of which he was also the President and CEO."

From the foregoing premises, plaintiff went on to conclude that:

"These admissions of defendant Cojuangco are outright admissions that he (1) took money from the
bank entrusted by law with the administration of coconut levy funds and (2) took more money from
the very corporations/oil mills in which part of those coconut levy funds (the CIIF) was placed –
treating the funds of UCPB and the CIIF as his own personal capital to buy ‘his’ SMC shares."

Plaintiff’s contention that the defendant’s statements in his Pre-Trial Brief regarding the presentation
of a possible CIIF witness as well as UCPB records, can already be considered as admissions of the
defendant’s exclusive use and misuse of coconut levy funds to acquire the subject SMC shares and
defendant Cojuangco’s alleged taking advantage of his positions to acquire the subject SMC shares is
unacceptable.. Moreover, in ruling on a motion for summary judgment, the court "should take that
view of the evidence most favorable to the party against whom it is directed, giving such party the
benefit of all inferences." Inasmuch as this issue cannot be resolved merely from an interpretation of
the defendant’s statements in his brief, the UCPB records must be produced and the CIIF witness must
be heard to ensure that that the conclusions that will be derived have factual basis and are thus, valid.

The Court is given a very clear impression that the plaintiff does not know what documents will be or
whether they are even available to prove the causes of action in the complaint. The Court has pursued
and has exerted every form of inquiry to see if there is a way by which the plaintiff could explain in
any significant particularity the acts and the evidence which will support its claim of wrong-doing by
the defendants. The plaintiff has failed to do so.
 9. GO vs. BSP

FACTS:

Go, Director and the President and Chief Executive Officer of the Orient Commercial Banking
Corporation (Orient Bank), a commercial banking institution created, organized and existing
under Philippines laws, with its main branch located at C.M. Recto Avenue, this City, was
accused of taking advantage of his position as such officer/director of the said bank, did then
and there wilfully, unlawfully and knowingly borrow, either directly or indirectly, for himself
or as the representative of his other related companies, the deposits or funds of the said
banking institution and/or become a guarantor, indorser or obligor for loans from the said
bank to others, by then and there using said borrowed deposits/funds of the said bank in
facilitating and granting and/or caused the facilitating and granting of credit lines/loans and,
among others, to the New Zealand Accounts loans in the total amount of TWO BILLION AND
SEVEN HUNDRED FIFTY-FOUR MILLION NINE HUNDRED FIVE THOUSAND AND
EIGHT HUNDRED FIFTY-SEVEN AND 0/100 PESOS, Philippine Currency, said accused
knowing fully well that the same has been done by him without the written approval of the
majority of the Board of Directors of said Orient Bank and which approval the said accused
deliberately failed to obtain and enter the same upon the records of said banking institution
and to transmit a copy of which to the supervising department of the said bank, as required by
the General Banking Act.

ISSUE:
 Whether or not the Information failed to allege the acts or omissions complained of with sufficient
particularity to enable him to know the offense being charged; to allow him to properly prepare his
defense; and likewise to allow the court to render proper judgment.

HELD:

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

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

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

2. the offender, either directly or indirectly, for himself or as representative or agent of another, performs
any of the following acts:

a. he borrows any of the deposits or funds of such bank; or

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

c. he becomes in any manner an obligor for money borrowed from bank or loaned by it;

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

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

10. ZULUETA VS ASIA BREWERY

FACTS:

Respondent Asia Brewery, Inc., is engaged in the manufacture, the distribution and sale of beer; while
Petitioner Perla Zulueta is a dealer and an operator of an outlet selling the formers beer products. A
Dealership Agreement governed their contractual relations.

On March 30, 1992, petitioner filed before the Regional Trial Court (RTC) of Iloilo, Branch 22, a
Complaint against respondent for Breach of Contract, Specific Performance and Damages. The
Complaint, docketed as Civil Case No. 20341 (hereafter referred to as the Iloilo case), was grounded on
the alleged violation of the Dealership Agreement.

On July 7, 1994, during the pendency of the Iloilo case, respondent filed with the Makati Regional Trial
Court, Branch 66, a Complaint docketed as Civil Case No. 94-2110 (hereafter referred to as the Makati
case). The Complaint was for the collection of a sum of money in the amount of P463,107.75
representing the value of beer products, which respondent had delivered to petitioner.

In view of the pendency of the Iloilo case, petitioner moved to dismiss the Makati case on the ground
that it had split the cause of action and violated the rule against the multiplicity of suits. The Motion
was denied by the Makati RTC through Judge Eriberto U. Rosario.

Upon petitioners Motion, however, Judge Rosario inhibited himself. The case was raffled again and
thereafter assigned to Branch 142 of the Makati RTC, presided by Judge Jose Parentala Jr.

On January 3, 1997, petitioner moved for the consolidation of the Makati case with the Iloilo case.
Granting the Motion, Judge Parentala ordered on February 13, 1997, the consolidation of the two cases.
Respondent filed a Motion for Reconsideration, which was denied in an Order dated May 19, 1997.
 On August 18, 1997, respondent filed before the Court of Appeals a Petition for Certiorari assailing
Judge Parentalas February 13, 1997 and May 19, 1997 Orders.

ISSUE:

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

HELD:

Apart from procedural problems, respondents cause is also afflicted with substantial defects. The CA
ruled that there was no common issue in law or in fact between the Makati case and the Iloilo case.
The former involved petitioners indebtedness to respondent for unpaid beer products, while the latter
pertained to an alleged breach of the Dealership Agreement between the parties. We disagree.

True, petitioners obligation to pay for the beer products delivered by respondent can exist regardless
of an alleged breach in the Dealership Agreement. Undeniably, however, this obligation and the
relationship between respondent and petitioner, as supplier and distributor respectively, arose from
the Dealership Agreement which is now the subject of inquiry in the Iloilo case. In fact, petitioner
herself claims that her obligation to pay was negated by respondents contractual breach. In other
words, the non-payment -- the res of the Makati case -- is an incident of the Iloilo case.

Inasmuch as the binding force of the Dealership Agreement was put in question, it would be more
practical and convenient to submit to the Iloilo court all the incidents and their consequences. The
issues in both civil cases pertain to the respective obligations of the same parties under the Dealership
Agreement. Thus, every transaction as well as liability arising from it must be resolved in the judicial
forum where it is put in issue. The consolidation of the two cases then becomes imperative to a
complete, comprehensive and consistent determination of all these related issues.

Two cases involving the same parties and affecting closely related subject matters must be ordered
consolidated and jointly tried in court, where the earlier case was filed.i[18] The consolidation of cases
is proper when they involve the resolution of common questions of law or facts.ii

11. METRO CONCAST STEEL CORPORATION, SPOUSES JOSE S. DYCHIAO AND TIUOH YAN,
SPOUSES GUILLERMO AND MERCEDES DYCHIAO, AND SPOUSES VICENTE AND
FILOMENA DYCHIAO,vs.
ALLIED BANK CORPORATION,

FACTS:

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

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

They also alleged that the economic reverses suffered by the Philippine economy in 1998 as well as the
devaluation of the peso against the US dollar contributed greatly to the downfall of the steel industry,
directly affecting the business of Metro Concast and eventually leading to its 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
Agreement25 dated November 8, 2002 (MoA) was drawn between Metro Concast, represented by
petitioner Jose Dychiao, and Peakstar, through Camiling, under which Peakstar obligated itself to
purchase the scrap metal for a total consideration of P34,000,000.00,

ISSUE:

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

HELD:

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

In the present case, petitioners essentially argue that their loan obligations to Allied Bank had already
been extinguished due to 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 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. As
discussed in Sicam v. Jorge:39

Fortuitous events by definition are extraordinary events not foreseeable or avoidable. It is therefore,
not enough that the event should not have been foreseen or anticipated, as is commonly believed but
it must be one impossible to foresee or to avoid. The mere difficulty to foresee the happening is not
impossibility to foresee the same. To constitute a fortuitous event, the following elements must
concur: (a) the cause of the unforeseen and unexpected occurrence or of the failure of the debtor to
comply with obligations must be independent of human will; (b) it must be impossible to foresee the
event that constitutes the caso fortuito or, if it can be foreseen, it must be impossible to avoid; (c) the
occurrence must be such as to render it impossible for the debtor to fulfill obligations in a normal
manner; and (d) the obligor must be free from any participation in the aggravation of the injury or
loss. While it may be argued that 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.
 12. GOLDENWAY MERCHANDISING CORPORATION VS
EQUITABLE PCI BANK

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

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

ISSUE:

Whether or not the redemption period should be the 1-year period provided under Act 3135, and not
the shorter period under RA 8791 as the parties expressly agreed that foreclosure would be in
accordance with Act 3135

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

The shorter period under RA 8791 should apply.

The one-year period of redemption is counted from the date of the registration of the certificate of sale.
In this case,
the parties provided in their real estate mortgage contract that upon 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. 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 well-being of the community may require, or as the
circumstances may change, or as experience may demonstrate the necessity. Settled is the rule that the
non-impairment clause of the Constitution must yield to the loftier purposes targeted by the
Government. The right granted by this provision must submit to the demands and necessities of the
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
 13. GATEWAY ELECTRONICS CORPORATION, vs. LAND BANK OF THE PHILIPPINES

FACTS:

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

After petitioners acceptance of Landbanks financial banking services, the latter prepared an
Information Memorandum which it disseminated to various banks to attract them into providing
additional funding for petitioner. The Information Memorandum stated that the security for the
proposed loan syndication will be the Mortgage Trust Indenture (MTI) on the project assets including
land, building and equipment.1[5] In a letter dated July 30, 1996, Landbank informed petitioner of its
willingness to share the loan collateral which the latter constituted in its favor as part of the collateral
for the syndicated loan from the other banks.2[6] On August 20, 1996, Landbank confirmed its
undertaking to share the said collateral with the other creditor banks, to wit:
 In case of failure of syndication of the loan, allow the banks that have granted loans to GEC [Gateway
Electronics Corporation] in anticipation of the loan syndication to have a registered pari passu
mortgage with you over the property, the intention being that all banks, including Landbank, shall be
on equal footing where the aforesaid collateral is concerned.3[7]

Meanwhile, the negotiations for the execution of an MTI failed because Landbank and the petitioner
were unable to agree on the valuation of the equipment and machineries to be acquired by the latter.
The petitioner insisted on a 70% valuation, while the former wanted a 50% valuation. To break the
impasse, PCIB, RCBC, UBP, and Asiatrust proposed, subject to the approval of their respective
Executive Committees or Board of Directors, to execute a Joint Real Estate Mortgage (JREM)4[10] as
the new mode to secure [their] respective loan vis--vis [petitioners] collaterals.5[11] Under the
proposed JREM, the six hundred million peso-loan granted by Land Bank shall be secured up to
94.42%, while the loans granted by PCIB, RCBC, and UBP would be similarly secured up to
75.22%.6[12] Land Bank, however, refused to agree to the said proposal unless 100% of its loan
exposure is secured, pursuant to the Loan Agreement it executed with petitioner.7[13]

On February 27, 1998, Land Bank informed petitioner of its intention not to share collaterals with the other
banks. In the meantime, 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 petitioners prayer for the issuance of
a writ of preliminary mandatory injunction

Defendant is hereby directed to accede to the terms of the draft MTI and/or to agree to share collaterals under
a joint real estate mortgage [JREM] with long-term creditors of plaintiff (including PCIB) as joint mortgagees
and with defendant as custodian of the titles.

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

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

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

Meanwhile, on January 10, 2003, petitioner filed a petition to cite Landbank President Margarito Teves and
Landbanks lawyer in contempt of Court for proceeding and concluding the foreclosure proceedings and
public auction sale.12[20] Petitioner contended that Landbanks acts constitute improper conduct which
directly or indirectly impede, obstruct, or degrade the administration of justice. The petition was docketed as
G.R. No. 156393.

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

ISSUES

Is Landbank bound to share the properties mortgaged to it by respondent with the other creditor
banks in the loan syndication?

HELD:

First, the Court finds that Landbank is bound by a perfected contract to share petitioners collateral
with the participating banks in the loan syndication. Article 1305 of the Civil Code defines a contract
as a meeting of minds between two persons whereby one binds himself, with respect to the other, to
give something or to render some service. A contract undergoes three distinct stages (1) preparation or
negotiation; (2) perfection; and (3) consummation. Negotiation begins from the time the prospective
contracting parties manifest their interest in the contract and ends at the moment of agreement of the
parties. The perfection or birth of the contract takes place when the parties agree upon the essential
elements of the contract. The last stage is the consummation of the contract wherein the parties fulfill
or perform the terms agreed upon in the contract, culminating in the extinguishment thereof. Article
1315 of the Civil Code, on the other hand, provides that a contract is perfected by mere consent, which
is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to
constitute the contract.

In the case at bar, a perfected contract for the sharing of collaterals is evident from the exchange of
communications between Landbank and petitioner and the participating banks, as well as in the
Memorandum of Understanding executed by petitioner and the participating banks, including
Landbank.

14. UCPB vs. Beluso (2007)

FACTS:

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

The spouses executed three promissory notes which were renewed several times. In 1997, the payment
of the principal and interest of the latter two promissory notes were debited from the spouses 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. The spouses Beluso executed two
more promissory notes for a total of P350 thousand to avail themselves of the P2.35 Million credit line
extended to them by UCPB.

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

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

As the act sought to be restrained has already been accomplished, the spouses Beluso had to file a
different action, that of Annulment of the Foreclosure Sale with RTC Makati.

RTC ruled in favor of the Belusos. CA affirmed.

ISSUE:

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

HELD:

YES. Even if it is assumed for the sake of argument, however, that only one cause of action is involved
in the two civil actions, namely, the violation of the right of the spouses Beluso not to have their
property foreclosed for an amount they do not owe, the Rules of Court nevertheless allows the filing
of the second action. The case in Roxas City was dismissed before the filing of the case with RTC
Makati, since the venue of litigation as provided for in the Credit Agreement is in Makati City. Rule
16, Section 5 bars the refiling of an action previously dismissed only in the following instances: (a)
That the cause of action is barred by a prior judgment or by the statute of limitations; (b) That the
claim or demand set forth in the plaintiff’s pleading has been paid, waived, abandoned, or otherwise
extinguished; and (c) That the claim on which the action is founded is unenforceable under the
provisions of the statute of frauds. When an action is dismissed on the motion of the other party, it is
only when the ground for the dismissal of an action is either of those aforementioned that the action
cannot be refiled. As regards all the other grounds, the complainant is allowed to file same action, but

should take care that, this time, it is filed with the proper court or after the accomplishment of the
erstwhile absent condition precedent, as the case may be. The MR filed by the Belusos in the Roxas
City case that has not yet been resolved upon the filing of the Makati case does not change the SC’s
findings.

It is indeed the general rule that in cases where there are two pending actions between the same
parties on the same issue, it should be the later case that should be dismissed. However, this rule is not
absolute. In the case of Allied Banking v. CA, it was ruled that: “Even if this is not the purpose for the
 filing of the first action, it may nevertheless be dismissed if the later action is the more appropriate
vehicle for the ventilation of the issues between the parties.”

Applying the said ruling in the case at bar, the Court found that the Makati City case is the more
proper action in view of the execution of the foreclosure sale. Moreover, Makati is the proper venue of
the action as mandated by the Credit Agreement.

Hence, the Court deemed that the Makati Case is the more appropriate vehicle for litigating the issues
between the parties, as compared to the Roxas City case.

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

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

FACTS:
 BOMC, is primarily engaged in providing and/or handling support services for banks and other
financial institutions, is a subsidiary of the Bank of Philippine Islands (BPI) operating and functioning
as an entirely separate and distinct entity. A service agreement between BPI and BOMC was initially
implemented in BPI’s Metro Manila branches. BOMC undertook to provide services such as check
clearing, delivery of bank statements, fund transfers, card production, operations accounting and
control, and cash servicing, conformably with BSP Circular No. 1388. Not a single BPI employee was
displaced and those performing the functions, which were transferred to BOMC, were given other
assignments.

The Manila chapter of BPI Employees Union (BPIEU-Metro ManilaFUBU) then filed a complaint for
unfair labor practice (ULP). The Labor Arbiter (LA) decided the case in favor of the union. The
decision was, however, reversed on appeal by the NLRC. BPIEU-Metro Manila-FUBU filed a petition
for certiorari before the CA which denied it, holding that BPI transferred the employees in the affected
departments in the pursuit of its legitimate business. The employees were neither demoted nor were
their salaries, benefits and other privileges diminished. On January 1, 1996, the service agreement was
likewise implemented in Davao City.

Later, a merger between BPI and Far East Bank and Trust Company (FEBTC) took effect on April 10,
2000 with BPI as the surviving corporation. Thereafter, BPI’s cashiering function and FEBTC’s
cashiering, distribution and bookkeeping functions were handled by BOMC. Consequently, twelve
(12) former FEBTC employees were transferred to BOMC to complete the latter’s service complement.
BPI Davao’s rank and file collective bargaining agent, BPI Employees Union-Davao City-FUBU
(Union), objected to the transfer of the functions and the twelve (12) personnel to BOMC contending
that the functions rightfully belonged to the BPI employees and that the Union was deprived of
membership of former FEBTC personnel who, by virtue of the merger, would have formed part of the
bargaining unit represented by the Union pursuant to its union shop provision in the CBA.

The Union then filed a formal protest on June 14, 2000 addressed to BPI Vice Presidents Claro M.
Reyes and Cecil Conanan reiterating its objection. On the other hand, the Union charged that BOMC
undermined the existence of the union since it reduced or divided the bargaining unit. While BOMC
employees perform BPI functions, they were beyond the bargaining unit’s coverage. In contracting out
FEBTC functions to BOMC, BPI effectively deprived the union of the membership of employees
handling said functions as well as curtailed the right of those employees to join the union.

Thereafter, the Union demanded that the matter be submitted to the grievance machinery as the resort
to the LMC was unsuccessful. As BPI allegedly ignored the demand, the Union filed a notice of strike
before the National Conciliation and Mediation Board (NCMB) on the following grounds: a)
Contracting out services/functions performed by union members that interfered with, restrained
and/or coerced the employees in the exercise of their right to self-organization; b) Violation of duty to
bargain; and c) Union busting. BPI then filed a petition for assumption of jurisdiction/certification with
the Secretary of the Department of Labor and Employment (DOLE), who subsequently issued an order
certifying the labor dispute to the NLRC for compulsory arbitration. On December 21, 2001, the NLRC
came out with a resolution upholding the validity of the service agreement between BPI and BOMC
and dismissing the charge of ULP. It ruled that the engagement by BPI of BOMC to undertake some of
its activities was clearly a valid exercise of its management prerogative.

It further stated that the spinning off by BPI to BOMC of certain services and functions did not
interfere with, restrain or coerce employees in the exercise of their right to self-organization.The Union
did not present even an iota of evidence showing that BPI had terminated employees, who were its
members. In fact, BPI exerted utmost diligence, care and effort to see to it that no union member was
terminated.

The NLRC also stressed that Department Order (D.O.) No. 10 series of 1997, strongly relied upon by
the Union, did not apply in this case as BSP Circular No. 1388, series of 1993, was the applicable rule.
After the denial of its motion for reconsideration, the Union elevated its grievance to the CA via a
petition for certiorari under Rule 65. The CA, however, affirmed the NLRC’s December 21, 2001
Resolution with modification that the enumeration of functions listed under BSP Circular No. 1388 in
the said resolution be deleted.

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

HELD:

Petition is Denied. ART. 261. Jurisdiction of Voluntary Arbitrators or panel of Voluntary Arbitrators. -
x x x Accordingly, violations of a Collective Bargaining Agreement, except those which are gross in
character, shall no longer be treated as unfair labor practice and shall be resolved as grievances under
the Collective Bargaining Agreement. For purposes of this article, gross violations of Collective
Bargaining Agreement shall mean flagrant and/or malicious refusal to comply with the economic
provisions of such agreement. Clearly, only gross violations of the economic provisions of the CBA are
treated as ULP. In the present case, the alleged violation of the union shop agreement in the CBA, even
assuming it was malicious and flagrant, is not a violation of an economic provision in the agreement.
In the case at hand, the union has not presented even an iota of evidence that petitioner bank has
started to terminate certain employees, members of the union. In fact, what appears is that the Bank
has exerted utmost diligence, care and effort to see to it that no union member has been terminated.
The Court agrees with BPI that D.O. No. 10 is but a guide to determine what functions may be
contracted out, subject to the rules and established jurisprudence on legitimate job contracting and
prohibited labor-only contracting. Even if the Court considers D.O. No. 10 only, BPI would still be
within the bounds of D.O. No. 10 when it contracted out the subject functions. This is because the
subject functions were not related or not integral to the main business or operation of the principal
which is the lending of funds obtained in the form of deposits. From the very definition of "banks" as
provided under the General Banking Law, it can easily be discerned that banks perform only two (2)
main or basic functions - deposit and loan functions. Thus, cashiering, distribution and bookkeeping
are but ancillary functions whose outsourcing is sanctioned under CBP Circular No. 1388 as well as
D.O. No. 10. Even BPI itself recognizes that deposit and loan functions cannot be legally contracted out
as they are directly related or integral to the main business or operation of banks. The CBP's Manual of
Regulations has even categorically stated and emphasized on the prohibition against outsourcing
inherent banking functions, which refer to any contract between the bank and a service provider for
the latter to supply, or any act whereby the latter supplies, the manpower to service the deposit
transactions of the former.

In one case, the Court held that it is management prerogative to farm out any of its activities,
regardless of whether such activity is peripheral or core in nature. What is of primordial importance is
that the service agreement does not violate the employee's right to security of tenure and payment of
benefits to which he is entitled under the law.

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