China Banking Corp. vs.

CA
511 scra 110
FCDA

FACTS: - Jose Gotianuy accused his daughter Mary Margaret Dee of stealing, among
his other properties, US dollar deposits with Citibank N.A. amounting to not less than
P35,000,000.00 and US$864,000.00. Mary Margaret Dee received these amounts
from Citibank N.A. through checks which she allegedly deposited at China Banking
Corporation (China Bank). He likewise accused his son-in-law, George Dee, husband
of his daughter, Mary Margaret, of transferring his real properties and shares of stock
in George Dees name without any consideration. Jose Gotianuy, died during the
pendency of the case before the trial court. He was substituted by his daughter,
Elizabeth Gotianuy Lo. The latter presented the US Dollar checks withdrawn by Mary
Margaret Dee from his US dollar placement with Citibank.-Upon motion of Elizabeth
Gotianuy Lo, the trial court issued a subpoena to Cristota Labios and Isabel Yap,
employees of China Bank, to testify on the case.-China Bank opposed.

TC: -The disclosure is only as to the name or whose name the said fund is deposited
is not violative of the law

CA: -Affirmed TC. The law protects only the deposit itself but not the name of
depositor.

CBs Contention: -Jose Gotianuy is not the owner of the questioned foreign currency
deposit, thus, he cannot invoke the aid of the court in compelling the disclosure of
someone elses foreign currency deposit.

ISSUE: -Whether or not Jose Gotianuy as co payee of a foreign currency depositor in
checks deposited in the account of Mary Margaret Dee is a depositor.

HELD: -The law provides that all foreign currency deposits authorized under Republic
Act No. 6426, as amended by Sec. 8, Presidential Decree No. 1246, Presidential
Decree No. 1035, as well as foreign currency deposits authorized under Presidential
Decree No. 1034 are considered absolutely confidential in nature and may not be
inquired into. There is only one exception to the secrecy of foreign currency deposits,
that is, disclosure is allowed upon the written permission of the depositor.-As the
owner of the funds unlawfully taken and which are undisputably now deposited with
China Bank, Jose Gotianuy has the right to inquire into the said deposits.-A depositor,
in cases of bank deposits, is one who pays money into the bank in the usual course of
business, to be placed to his credit and subject to his check or the beneficiary of the
funds held by the bank as trustee.-As CA ruled: Furthermore, it is indubitable that the
Citibank checks were drawn against the foreign currency account with Citibank, NA.
The monies subject of said checks originally came from the late Jose Gotianuy, the
owner of the account. Thus, he also has legal rights and interests in the CBC account
where said monies were deposited. More importantly, the Citibank checks readily
demonstrate that the late Jose Gotianuy is one of the payees of said checks. Being a
co-payee thereof, then he or his estate can be considered as a co-depositor of said
checks. Ergo, since the late Jose Gotianuy is a co-depositor of the CBC account, then
his request for the assailed subpoena is tantamount to an express permission of a
depositor for the disclosure of the name of the account holder.

China Banking Corporation vs. CA,
511 SCRA 110 (2006)

Facts: Jose Gotianuy accused his daughter Mary Margaret Dee of stealing, among his
other properties, US dollar deposit with Citibank. Mary Margaret Dee received these
amounts from Citibank through checks which she allegedly deposited at China
Banking Corp. He likewise accused his son-in-law, George Dee, husband of his
daughter, Mary Margaret, of transferring real properties and shares of stock in George
Dees name without any consideration. Jose Gotianuy, died during the pendency of
the case before the trial court. He was substituted by his daughter, Elizabeth Gotianuy
Lo.The latter presented US dollar checks withdrawn by Mary Margaret Dee from his
US dollar placement with Citibank.

Issue: Whether or not China Bank is correct in its submission that the Citibank dollar
checks with both Jose Gotianuy and/or Margaret Dee as payees, deposited with China
Bank, may not be looked into under the law on secrecy of foreign currency deposits

Ruling: Yes. It is indubitable that the Citibank checks were drawn against the foreign
currency account with Citibank, NA. The monies subject of said checks originally came
from the late Jose Gotianuy, the owner of the account. Thus, he also has legal rights
and interests in the CBC account where said monies were deposited. More
importantly, the Citibank checks readily demonstrate (sic) that the late Jose Gotianuy
is one of the payees of said checks. Being a co-payee thereof, then him or his estate
can be considered as a co-depositor of said checks. Ergo, since the late Jose
Gotianuy is a co-depositor of the CBC account, then his request for the assailed
subpoena is tantamount to an express permission of a depositor for the disclosure of
the name of the account holder

GOVERNMENT SERVICE INSURANCE SYSTEM, Petitioner,-versus- THE
HONORABLE 15TH DIVISION OF THE COURT OF APPEALS and INDUSTRIAL
BANK OF KOREA, TONG YANG MERCHANT BANK, HANAREUM BANKING
CORP., LAND BANK OF THE PHILIPPINES, WESTMONT BANK and DOMSAT
HOLDINGS, INC., Respondents.
G.R. No. 189206
Present: CORONA, C.J. Chairperson VELASCO, JR., LEONARDO-DE
CASTRO, DEL CASTILLO, and PEREZ, JJ.
Promulgated: June 8, 2011x ---------------------------------------------------------------------
-------------------xD E C I S I O N
PEREZ, J.:

The subject of this petition for certiorari is the Decision[1] of the Court of Appeals in
CA-G.R. SP No. 82647 allowing the quashal by the Regional Trial Court (RTC) of
Makati of a subpoena for the production of bank ledger. This case is incident to Civil
Case No. 99-1853, which is the main case for collection of sum of money with
damages filed by Industrial Bank of Korea, Tong Yang Merchant Bank, First Merchant
Banking Corporation, Land Bank of the Philippines, and Westmont Bank (now United
Overseas Bank), collectively known as the Banks against Domsat Holdings, Inc.
(Domsat) and the Government Service Insurance System (GSIS). Said case stemmed
from a Loan Agreement,[2] whereby the Banks agreed to lend United States (U.S.)
$11 Million to Domsat for the purpose of financing the lease and/or purchase of a
Gorizon Satellite from the International Organization of Space Communications
(Intersputnik).[3]

The controversy originated from a surety agreement by which Domsat obtained a
surety bond from GSIS to secure the payment of the loan from the Banks. We quote
the terms of the Surety Bond in its entirety.[4]

Republic of the Philippines
GOVERNMENT SERVICE INSURANCE SYSTEM
GENERAL INSURANCE FUND
GSIS Headquarters, Financial Center
Roxas Boulevard, Pasay City

G(16) GIF Bond 027461

S U R E T Y B O N D

KNOW ALL MEN BY THESE PRESENTS:

That we, DOMSAT HOLDINGS, INC., represented by its President as PRINCIPAL,
and the GOVERNMENT SERVICE INSURANCE SYSTEM, as Administrator of the
GENERAL INSURANCE FUND, a corporation duly organized and existing under and
by virtue of the laws of the Philippines, with principal office in the City of Pasay, Metro
Manila, Philippines as SURETY, are held and firmly bound unto the OBLIGEES: LAND
BANK OF THE PHILIPPINES, 7th Floor, Land Bank Bldg. IV. 313 Sen. Gil J. Puyat
Avenue, Makati City; WESTMONT BANK, 411 Quintin Paredes St., Binondo, Manila:
TONG YANG MERCHANT BANK, 185, 2-Ka, Ulchi-ro, Chungk-ku, Seoul, Korea;
INDUSTRIAL BANK OF KOREA, 50, 2-Ga, Ulchi-ro, Chung-gu, Seoul, Korea; and
FIRST MERCHANT BANKING CORPORATION, 199-40, 2-Ga, Euliji-ro, Jung-gu,
Seoul, Korea, in the sum, of US $ ELEVEN MILLION DOLLARS ($11,000,000.00) for
the payment of which sum, well and truly to be made, we bind ourselves, our heirs,
executors, administrators, successors and assigns, jointly and severally, firmly by
these presents.

THE CONDITIONS OF THE OBLIGATION ARE AS FOLLOWS:

WHEREAS, the above bounden PRINCIPAL, on the 12th day of December, 1996
entered into a contract agreement with the aforementioned OBLIGEES to fully and
faithfully

Guarantee the repayment of the principal and interest on the loan granted the
PRINCIPAL to be used for the financing of the two (2) year lease of a Russian Satellite
from INTERSPUTNIK, in accordance with the terms and conditions of the credit
package entered into by the parties.

This bond shall remain valid and effective until the loan including interest has been
fully paid and liquidated,

a copy of which contract/agreement is hereto attached and made part hereof;

WHEREAS, the aforementioned OBLIGEES require said PRINCIPAL to give a good
and sufficient bond in the above stated sum to secure the full and faithful performance
on his part of said contract/agreement.

NOW, THEREFORE, if the PRINCIPAL shall well and truly perform and fulfill
all the undertakings, covenants, terms, conditions, and agreements stipulated in said
contract/agreements, then this obligation shall be null and void; otherwise, it shall
remain in full force and effect.

WITNESS OUR HANDS AND SEALS this 13th day of December 1996 at
Pasay City, Philippines.


DOMSAT HOLDINGS, INC GOVERNMENT SERVICE INSURANCE
Principal SYSTEM
General Insurance Fund

By: By:
CAPT. RODRIGO A. SILVERIO AMALIO A. MALLARI
President Senior Vice-President
General Insurance Group

When Domsat failed to pay the loan, GSIS refused to comply with its obligation
reasoning that Domsat did not use the loan proceeds for the payment of rental for the
satellite. GSIS alleged that Domsat, with Westmont Bank as the conduit, transferred
the U.S. $11 Million loan proceeds from the Industrial Bank of Korea to Citibank New
York account of Westmont Bank and from there to the Binondo Branch of Westmont
Bank.[5] The Banks filed a complaint before the RTC of Makati against Domsat and
GSIS.

In the course of the hearing, GSIS requested for the issuance of a subpoena duces
tecum to the custodian of records of Westmont Bank to produce the following
documents:

1. Ledger covering the account of DOMSAT Holdings, Inc. with Westmont
Bank (now United Overseas Bank), any and all documents, records, files, books,
deeds, papers, notes and other data and materials relating to the account or
transactions of DOMSAT Holdings, Inc. with or through the Westmont Bank (now
United Overseas Bank) for the period January 1997 to December 2002, in his/her
direct or indirect possession, custody or control (whether actual or constructive),
whether in his/her capacity as Custodian of Records or otherwise;

2. All applications for cashiers/ managers checks and bank transfers
funded by the account of DOMSAT Holdings, Inc. with or through the Westmont Bank
(now United Overseas Bank) for the period January 1997 to December 2002, and all
other data and materials covering said applications, in his/her direct or indirect
possession, custody or control (whether actual or constructive), whether in his/her
capacity as Custodian of Records or otherwise;

3. Ledger covering the account of Philippine Agila Satellite, Inc. with
Westmont Bank (now United Overseas Bank), any and all documents, records, files,
books, deeds, papers, notes and other data and materials relating to the account or
transactions of Philippine Agila Satellite, Inc. with or through the Westmont bank (now
United Overseas Bank) for the period January 1997 to December 2002, in his/her
direct or indirect possession, custody or control (whether actual or constructive),
whether in his/her capacity as Custodian of Records or otherwise;

4. All applications for cashiers/managers checks funded by the account of
Philippine Agila Satellite, Inc. with or through the Westmont Bank (now United
Overseas Bank) for the period January 1997 to December 2002, and all other data
and materials covering said applications, in his/her direct or indirect possession,
custody or control (whether actual or constructive), whether in his/her capacity as
Custodian of Records or otherwise.[6]

The RTC issued a subpoena decus tecum on 21 November 2002.[7] A motion to
quash was filed by the banks on three grounds: 1) the subpoena is unreasonable,
oppressive and does not establish the relevance of the documents sought; 2) request
for the documents will violate the Law on Secrecy of Bank Deposits; and 3) GSIS
failed to advance the reasonable cost of production of the documents.[8] Domsat also
joined the banks motion to quash through its Manifestation/Comment.[9] On 9 April
2003, the RTC issued an Order denying the motion to quash for lack of merit. We
quote the pertinent portion of the Order, thus:

After a careful consideration of the arguments of the parties, the Court did not find
merit in the motion.

The serious objection appears to be that the subpoena is violative of the Law on
Secrecy of Bank Deposit, as amended. The law declares bank deposits to be
absolutely confidential except: x x x (6) In cases where the money deposited or
invested is the subject matter of the litigation.

The case at bench is for the collection of a sum of money from defendants that
obtained a loan from the plaintiff. The loan was secured by defendant GSIS which
was the surety. It is the contention of defendant GSIS that the proceeds of the loan
was deviated to purposes other than to what the loan was extended. The quashal of
the subpoena would deny defendant GSIS its right to prove its defenses.

WHEREFORE, for lack of merit the motion is DENIED.[10]

On 26 June 2003, another Order was issued by the RTC denying the motion for
reconsideration filed by the banks.[11] On 1 September 2003 however, the trial court
granted the second motion for reconsideration filed by the banks. The previous
subpoenas issued were consequently quashed.[12] The trial court invoked the ruling
in Intengan v. Court of Appeals,[13] where it was ruled that foreign currency deposits
are absolutely confidential and may be examined only when there is a written
permission from the depositor. The motion for reconsideration filed by GSIS was
denied on 30 December 2003.

Hence, these assailed orders are the subject of the petition for certiorari before
the Court of Appeals. GSIS raised the following arguments in support of its petition:

I.
Respondent Judge acted with grave abuse of discretion when it favorably considered
respondent banks (second) Motion for Reconsideration dated July 9, 2003 despite the
fact that it did not contain a notice of hearing and was therefore a mere scrap of paper.

II.
Respondent judge capriciously and arbitrarily ignored Section 2 of the Foreign
Currency Deposit Act (RA 6426) in ruling in his Orders dated September 1 and
December 30, 2003 that the US$11,000,000.00 deposit in the account of respondent
Domsat in Westmont Bank is covered by the secrecy of bank deposit.

III.
Since both respondent banks and respondent Domsat have disclosed during the trial
the US$11,000,000.00 deposit, it is no longer secret and confidential, and petitioner
GSIS right to inquire into what happened to such deposit can not be suppressed.[14]

The Court of Appeals addressed these issues in seriatim.

The Court of Appeals resorted to a liberal interpretation of the rules to avoid
miscarriage of justice when it allowed the filing and acceptance of the second motion
for reconsideration. The appellate court also underscored the fact that GSIS did not
raise the defect of lack of notice in its opposition to the second motion for
reconsideration. The appellate court held that failure to timely object to the admission
of a defective motion is considered a waiver of its right to do so.

The Court of Appeals declared that Domsats deposit in Westmont Bank is
covered by Republic Act No. 6426 or the Bank Secrecy Law. We quote the pertinent
portion of the Decision:

It is our considered opinion that Domsats deposit of $11,000,000.00 in
Westmont Bank is covered by the Bank Secrecy Law, as such it cannot be examined,
inquired or looked into without the written consent of its owner. The ruling in Van
Twest vs. Court of Appeals was rendered during the effectivity of CB Circular No. 960,
Series of 1983, under Sec. 102 thereof, transfer to foreign currency deposit account or
receipt from another foreign currency deposit account, whether for payment of
legitimate obligation or otherwise, are not eligible for deposit under the System.

CB Circular No. 960 has since been superseded by CB Circular 1318 and later
by CB Circular 1389. Section 102 of Circular 960 has not been re-enacted in the later
Circulars. What is applicable now is the decision in Intengan vs. Court of Appeals
where the Supreme Court has ruled that the under R.A. 6426 there is only a single
exception to the secrecy of foreign currency deposits, that is, disclosure is allowed
only upon the written permission of the depositor. Petitioner, therefore, had
inappropriately invoked the provisions of Central Bank (CB) Circular Nos. 343 which
has already been superseded by more recently issued CB Circulars. CB Circular 343
requires the surrender to the banking system of foreign exchange, including proceeds
of foreign borrowings. This requirement, however, can no longer be found in later
circulars.

In its Reply to respondent banks comment, petitioner appears to have
conceded that what is applicable in this case is CB Circular 1389. Obviously, under
CB 1389, proceeds of foreign borrowings are no longer required to be surrendered to
the banking system.
Undaunted, petitioner now argues that paragraph 2, Section 27 of CB Circular
1389 is applicable because Domsats $11,000,000.00 loan from respondent banks
was intended to be paid to a foreign supplier Intersputnik and, therefore, should have
been paid directly to Intersputnik and not deposited into Westmont Bank. The fact that
it was deposited to the local bank Westmont Bank, petitioner claims violates the
circular and makes the deposit lose its confidentiality status under R.A. 6426.
However, a reading of the entire Section 27 of CB Circular 1389 reveals that the
portion quoted by the petitioner refers only to the procedure/conditions of drawdown
for service of debts using foreign exchange. The above-said provision relied upon by
the petitioner does not in any manner prescribe the conditions before any foreign
currency deposit can be entitled to the confidentiality provisions of R.A. 6426.[15]

Anent the third issue, the Court of Appeals ruled that the testimony of the incumbent
president of Westmont Bank is not the written consent contemplated by Republic Act
No. 6426.

The Court of Appeals however upheld the issuance of subpoena praying for the
production of applications for cashiers or managers checks by Domsat through
Westmont Bank, as well as a copy of an Agreement and/or Contract and/or
Memorandum between Domsat and/or Philippine Agila Satellite and Intersputnik for
the acquisition and/or lease of a Gorizon Satellite. The appellate court believed that
the production of these documents does not involve the examination of Domsats
account since it will never be known how much money was deposited into it or
withdrawn therefrom and how much remains therein.

On 29 February 2008, the Court of Appeals rendered the assailed Decision, the
decretal portion of which reads:

WHEREFORE, the petition is partially GRANTED. Accordingly, the assailed
Order dated December 30, 2003 is hereby modified in that the quashal of the
subpoena for the production of Domsats bank ledger in Westmont Bank is upheld
while respondent court is hereby ordered to issue subpoena duces tecum ad
testificandum directing the records custodian of Westmont Bank to bring to court the
following documents:

a) applications for cashiers or managers checks by respondent Domsat through
Westmont Bank from January 1997 to December 2002;

b) bank transfers by respondent Domsat through Westmont Bank from January
1997 to December 2002; and

c) copy of an agreement and/or contract and/or memorandum between respondent
Domsat and/or Philippine Agila Satellite and Intersputnik for the acquisition and/or
lease of a Gorizon satellite.

No pronouncement as to costs.[16]

GSIS filed a motion for reconsideration which the Court of Appeals denied on 19 June
2009. Thus, the instant petition ascribing grave abuse of discretion on the part of the
Court of Appeals in ruling that Domsats deposit with Westmont Bank cannot be
examined and in finding that the banks second motion for reconsideration in Civil
Case No. 99-1853 is procedurally acceptable.[17]

This Court notes that GSIS filed a petition for certiorari under Rule 65 of the Rules of
Court to assail the Decision and Resolution of the Court of Appeals. Petitioner availed
of the improper remedy as the appeal from a final disposition of the Court of Appeals is
a petition for review under Rule 45 and not a special civil action under Rule 65.[18]
Certiorari under Rule 65 lies only when there is no appeal, nor plain, speedy and
adequate remedy in the ordinary course of law. That action is not a substitute for a
lost appeal in general; it is not allowed when a party to a case fails to appeal a
judgment to the proper forum.[19] Where an appeal is available, certiorari will not
prosper even if the ground therefor is grave abuse of discretion. Accordingly, when a
party adopts an improper remedy, his petition may be dismissed outright.[20]

Yet, even if this procedural infirmity is discarded for the broader interest of justice, the
petition sorely lacks merit.

GSIS insists that Domsats deposit with Westmont Bank can be examined and inquired
into. It anchored its argument on Republic Act No. 1405 or the Law on Secrecy of
Bank Deposits, which allows the disclosure of bank deposits in cases where the
money deposited is the subject matter of the litigation. GSIS asserts that the subject
matter of the litigation is the U.S. $11 Million obtained by Domsat from the Banks to
supposedly finance the lease of a Russian satellite from Intersputnik. Whether or not it
should be held liable as a surety for the principal amount of U.S. $11 Million, GSIS
contends, is contingent upon whether Domsat indeed utilized the amount to lease a
Russian satellite as agreed in the Surety Bond Agreement. Hence, GSIS argues that
the whereabouts of the U.S. $11 Million is the subject matter of the case and the
disclosure of bank deposits relating to the U.S. $11 Million should be allowed.

GSIS also contends that the concerted refusal of Domsat and the banks to divulge the
whereabouts of the U.S. $11 Million will greatly prejudice and burden the GSIS
pension fund considering that a substantial portion of this fund is earmarked every
year to cover the surety bond issued.

Lastly, GSIS defends the acceptance by the trial court of the second motion for
reconsideration filed by the banks on the grounds that it is pro forma and did not
conform to the notice requirements of Section 4, Rule 15 of the Rules of Civil
Procedure.[21]

Domsat denies the allegations of GSIS and reiterates that it did not give a
categorical or affirmative written consent or permission to GSIS to examine its bank
statements with Westmont Bank.

The Banks maintain that Republic Act No. 1405 is not the applicable law in the instant
case because the Domsat deposit is a foreign currency deposit, thus covered by
Republic Act No. 6426. Under said law, only the consent of the depositor shall serve
as the exception for the disclosure of his/her deposit.

The Banks counter the arguments of GSIS as a mere rehash of its previous arguments
before the Court of Appeals. They justify the issuance of the subpoena as an
interlocutory matter which may be reconsidered anytime and that the pro forma rule
has no application to interlocutory orders.

It appears that only GSIS appealed the ruling of the Court of Appeals pertaining to the
quashal of the subpoena for the production of Domsats bank ledger with Westmont
Bank. Since neither Domsat nor the Banks interposed an appeal from the other
portions of the decision, particularly for the production of applications for cashiers or
managers checks by Domsat through Westmont Bank, as well as a copy of an
agreement and/or contract and/or memorandum between Domsat and/or Philippine
Agila Satellite and Intersputnik for the acquisition and/or lease of a Gorizon satellite,
the latter became final and executory.

GSIS invokes Republic Act No. 1405 to justify the issuance of the subpoena while the
banks cite Republic Act No. 6426 to oppose it. The core issue is which of the two laws
should apply in the instant case.

Republic Act No. 1405 was enacted in 1955. Section 2 thereof was first amended by
Presidential Decree No. 1792 in 1981 and further amended by Republic Act No. 7653
in 1993. It now reads:

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

Section 8 of Republic Act No. 6426, which was enacted in 1974, and amended by
Presidential Decree No. 1035 and later by Presidential Decree No. 1246, provides:

Section 8. Secrecy of Foreign Currency Deposits. All foreign currency deposits
authorized under this Act, as amended by Presidential Decree No. 1035, as well as
foreign currency deposits authorized under Presidential Decree No. 1034, are hereby
declared as and considered of an absolutely confidential nature and, except upon the
written permission of the depositor, in no instance shall foreign currency deposits be
examined, inquired or looked into by any person, government official, bureau or office
whether judicial or administrative or legislative or any other entity whether public or
private; Provided, however, That said foreign currency deposits shall be exempt from
attachment, garnishment, or any other order or process of any court, legislative body,
government agency or any administrative body whatsoever. (As amended by PD No.
1035, and further amended by PD No. 1246, prom. Nov. 21, 1977.)

On the one hand, Republic Act No. 1405 provides for four (4) exceptions when
records of deposits may be disclosed. These are under any of the following instances:
a) upon written permission of the depositor, (b) in cases of impeachment, (c) upon
order of a competent court in the case of bribery or dereliction of duty of public officials
or, (d) when the money deposited or invested is the subject matter of the litigation, and
e) in cases of violation of the Anti-Money Laundering Act (AMLA), the Anti-Money
Laundering Council (AMLC) may inquire into a bank account upon order of any
competent court.[22] On the other hand, the lone exception to the non-disclosure of
foreign currency deposits, under Republic Act No. 6426, is disclosure upon the written
permission of the depositor.

These two laws both support the confidentiality of bank deposits. There is no conflict
between them. Republic Act No. 1405 was enacted for the purpose of giving
encouragement to the people to deposit their money in banking institutions and to
discourage private hoarding so that the same may be properly utilized by banks in
authorized loans to assist in the economic development of the country.[23] It covers
all bank deposits in the Philippines and no distinction was made between domestic
and foreign deposits. Thus, Republic Act No. 1405 is considered a law of general
application. On the other hand, Republic Act No. 6426 was intended to encourage
deposits from foreign lenders and investors.[24] It is a special law designed especially
for foreign currency deposits in the Philippines. A general law does not nullify a
specific or special law. Generalia specialibus non derogant.[25] Therefore, it is
beyond cavil that Republic Act No. 6426 applies in this case.

Intengan v. Court of Appeals affirmed the above-cited principle and categorically
declared that for foreign currency deposits, such as U.S. dollar deposits, the applicable
law is Republic Act No. 6426.

In said case, Citibank filed an action against its officers for persuading their clients to
transfer their dollar deposits to competitor banks. Bank records, including dollar
deposits of petitioners, purporting to establish the deception practiced by the officers,
were annexed to the complaint. Petitioners now complained that Citibank violated
Republic Act No. 1405. This Court ruled that since the accounts in question are U.S.
dollar deposits, the applicable law therefore is not Republic Act No. 1405 but Republic
Act No. 6426.

The above pronouncement was reiterated in China Banking Corporation v. Court of
Appeals,[26] where respondent accused his daughter of stealing his dollar deposits
with Citibank. The latter allegedly received the checks from Citibank and deposited
them to her account in China Bank. The subject checks were presented in evidence.
A subpoena was issued to employees of China Bank to testify on these checks. China
Bank argued that the Citibank dollar checks with both respondent and/or her
daughter as payees, deposited with China Bank, may not be looked into under the law
on secrecy of foreign currency deposits. This Court highlighted the exception to the
non-disclosure of foreign currency deposits, i.e., in the case of a written permission of
the depositor, and ruled that respondent, as owner of the funds unlawfully taken and
which are undisputably now deposited with China Bank, he has the right to inquire into
the said deposits.

Applying Section 8 of Republic Act No. 6426, absent the written permission from
Domsat, Westmont Bank cannot be legally compelled to disclose the bank deposits of
Domsat, otherwise, it might expose itself to criminal liability under the same act.[27]

The basis for the application of subpoena is to prove that the loan intended for Domsat
by the Banks and guaranteed by GSIS, was diverted to a purpose other than that
stated in the surety bond. The Banks, however, argue that GSIS is in fact liable to
them for the proper applications of the loan proceeds and not vice-versa. We are
however not prepared to rule on the merits of this case lest we pre-empt the findings of
the lower courts on the matter.

The third issue raised by GSIS was properly addressed by the appellate court. The
appellate court maintained that the judge may, in the exercise of his sound discretion,
grant the second motion for reconsideration despite its being pro forma. The appellate
court correctly relied on precedents where this Court set aside technicality in favor of
substantive justice. Furthermore, the appellate court accurately pointed out that
petitioner did not assail the defect of lack of notice in its opposition to the second
motion of reconsideration, thus it can be considered a waiver of the defect.

WHEREFORE, the petition for certiorari is DISMISSED. The Decision dated 29
February 2008 and 19 June 2009 Resolution of the Court of Appeals are hereby
AFFIRMED.


UCPB vs Beluso

(1) FACTS: On April 1997, spouses Beluso constituted other than promissory notes, a
real estate mortgage over parcels of land. 3 of their promissory notes were renewed
several times. Subsequently, spouses failed to deliver payment upon UPCBs demand.
As a result, their mortgage was foreclosed. Spouses filed Petition for Annulment,
Accounting and Damages against UCPB. Trial court ruled in favor of the spouses. CA
affirmed the same decision.

ISSUE: Whether the contract between the spouses Beluso and UPCB is valid.

HELD: No. Article 1308 of the Civil Code provides: Art. 1308. The contract must bind
both contracting parties; its validity or compliance cannot be left to the will of one of
them.
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
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.

(2) Facts: In 1996, 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. In addition to
the promissory notes, the spouses Beluso also constituted a real estate mortgage over
parcels of land in Roxas City. Subsequently, the said Credit Arrangement was
amended to extend the amount of the Promissory Notes Line to a maximum of P2.35
Million pesos and to extend the term thereof to February 1998. The spouses executed
three promissory notes which were renewed several times. In 1997, the payment of
the principal and interest of the latter two promissory notes were debited from the
spouses Belusos account with 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 thousand. However, the spouses Beluso alleged that the amounts
covered by these last two promissory notes were never released or credited to their
account and, thus, claimed that the principal indebtedness was only P2 Million. In any
case, UCPB applied interest rates on the different promissory notes ranging from 18%
to 34%. During the term of these promissory notes, the Belusos were able to pay the
total sum of about P760 thousand. However, they failed to pay for the interest and
penalty on their obligations. As a result, UCPB demanded that they pay their total
obligation of P2.9 millionbut the spouses Beluso failed to comply therewith. Thereafter,
UCPB foreclosed the properties mortgaged by the spouses Beluso to secure their
credit line, which, by that time, already ballooned to nearly P3.8 million. Two months
after the foreclosure, the spouses Beluso filed a Petition for Annulment, Accounting
and Damages against UCPB with the RTC of Makati City. UCPB moved to dismiss the
case on the ground that the spouses Beluso instituted another case before the RTC of
Roxas City, involving the same parties and issues. UCPB claims that while the Roxas
City case initially appears to be a different action, as it prayed for the issuance of a
temporary restraining order and/or injunction to stop foreclosure of spouses Belusos
properties, it poses issues which are similar to those of the present case. The spouses
Beluso claim that the issue in the Roxas City case is the propriety of the foreclosure
before the true account of spouses Beluso is determined. On the other hand, the issue
in the Makati case is the validity of the interest rate provision. The spouses Beluso
claim that the Roxas City case has become moot because, before RTC Roxas City
could act on the restraining order, UCPB proceeded with the foreclosure and auction
sale. As the act sought to be restrained has already been accomplished, the spouses
Beluso had to file a different action, that of Annulment of the Foreclosure Sale with
RTC Makati. RTC ruled in favor of the Belusos. CA affirmed.

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

UCPB v Beluso
under
a Credit Agreement whereby the spouses could avail from the UCPB, credit of up to a
maximum amount of P1.2 M for a term ending on Apr. 30, 1997. The spouses Beluso
constituted, other than their promissory notes, a real estate mortgage over parcels of
land in Roxas City, as additional security for the obligation.

Promissory Notes Line to a maximum of P2.35 M and to extend the term to Feb.28,
1998.

notes
were debited from the spouses Belusos account with UCPB; yet, a
consolidated loan for P 1.3 Million was again released to the spouses Beluso under
one promissory note with a due date of Feb. 28, 1998.
UCPB, the spouses Beluso executed two more promissory notes for a total of P350,
000.
from 18% to 34%.
l
sum of about P 763,692.03. However, they failed to pay for the interest and penalty on
their obligations.
the spouses Beluso failed to comply therewith.
d the properties mortgaged by the spouses to secure their credit line,
which, by that time, already ballooned to P3.7 M
Damages against UCPB with the RTC of Makati City.RTC: interest rate provided in the
promissory notes are void.CA: affirmed because the rates were determined solely by
UCPB.

Issue: W/N the interest rates provided in the promissory notes are void.
Held: YES
Ratio:
:Art. 1308. The contract must bind both
contracting parties; its validity or compliance cannot be left to the will of one of them.

:In order that obligations arising from contracts may have the force of law between the
parties, there must be mutuality between the parties based on their essential equality.
A contract containing a condition, which makes its fulfillment dependent exclusively
upon the uncontrolled will of one of the contracting parties, is void.
e 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.
O Under such provision, petitioner UCPB has two choices on what the interest rate
shall be:(1) a rate indicative of the DBD retail rate; or(2) a rate as determined by the
Branch Head.
O As UCPB is given this choice, the rate should be categorically determinable in both
choices.
ortunity 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.
on the will of
UCPB.
o As determined by the Branch Head
- gives the latter unfettered discretion on what the rate may be. The Branch Head may
choose any rate he or she desires.
o Indicative of the DBD retail rate, the same cannot be considered as valid for being
akin to a prevailing rate because the provision in the case at bar does not specify any
margin above or below the DBD retail rate. UCPB can peg the interest at any
percentage above or below the DBD retail rate, again giving it unfettered discretion in
determining the interest rate.
render the imposition by UCPB of interest rates on the obligations of the spouses
Beluso valid. According to said stipulation: The interest rate shall be subject to review
and may be increased or decreased by the LENDER considering among others the
prevailing financial and monetary conditions; or the rate of interest and charges which
other banks or financial institutions charge or offer to charge for similar
accommodations; and/or the resulting profitability to the LENDER after due
consideration of all dealings with he BORROWER.
alone as the lender
. Moreover, UCPB may apply the considerations enumerated in this provision as it
wishes. As worded in the above provision, UCPB may give as much weight as it
desires to each of the following considerations:(1) The prevailing financial and
monetary condition;(2) The rate of interest and charges which other banks or financial
institutions charge or offer to charge for similar accommodations; and/or(3) The
resulting profitability to the LENDER (UCPB) after due consideration of all dealings
with the BORROWER (the spouses Beluso).
below these considerations. Additional: Spouses cannot be estopped from questioning
the interest rates because estoppel cannot be predicated on an illegal act. As between
the parties to a contract, validity cannot be given to it by estoppel if it is prohibited by
law or is against public policy.

DBP v. Arcilla Jr.

Facts: Atty. Felipe Arcilla Jr. was employed by the DBP. After he was assigned to the
legal department, he decided to avail of a loan under the Individual Housing Project
(IHP) of the bank for the payment of the parcel of land purchased by him and for its
construction. When Arcilla resigned grom DBP, the bank notified him that his loan has
been converted to a regular housing loan. Arcilla agreed to the reservation by the DBP
of its right to increase the rate of interest on the loan, as well as all other fees and
charges on loans and advances pursuant to such policy as it may adopt from time to
time during the period of the loan.



Ruling: Section 1 of R.A. No. 3765 provides that prior to the consummation of a loan
transaction, the bank, as creditor, is obliged to furnish a client with a clear statement,
in writing, setting forth, to the extent applicable and in accordance with the rules and
regulations prescribed by the Monetary Board of the Central Bank of the Philippines,
the following information:
1.the cash price or delivered price of the property or service to be acquired;
2.the amounts, if any, to be credited as down payment and/or trade-in;
3.the difference between the amounts set forth under clauses(1) and (2);
4.the charges, individually itemized, which are paid or to be paid by such person in
connection with the transaction but which are not incident to the extension of credit;
5.the total amount to be financed;
6.the finance charges expressed in terms of pesos and centavos; and
7.the percentage that the finance charge bears to the total amount to be financed
expressed as a simple annual rate on the outstanding unpaid balance of the
obligation.
If the borrower is not duly informed of the data required by the law prior to the
consummation of the availment or drawdown, the lender will have no right to collect
such charge or increases thereof, even if stipulated in the promissory note. However,
such failure shall not affect the validity orenforceability of any contract or transaction.

DBP vs Arcilla
Date: June 30, 2005
Petitioner: DBP
Respondent: Felipe Arcilla
Ponente: Callejo Sr

Facts: Atty. Felipe P. Arcilla, Jr. was employed by the DBP. He decided to avail of a
loan under the Individual Housing Project (IHP) of the bank. DBP and Arcilla executed
a Deed of Conditional Sale over a parcel of land, as well as the house to be
constructed thereon, for P160,000.00. Arcilla borrowed the amount from DBP for the
purchase of the lot and the construction of a residential building. He obliged himself to
pay the loan in 25 years, with a monthly amortization of P1,417.91, with 9% interest
per annum, to be deducted from his monthly salary.DBP obliged itself to transfer the
title of the property upon the payment of the loan, including any increments thereof. It
was also agreed therein that if Arcilla availed of optional retirement, he could elect to
continue paying the loan, provided that the loan/amount would be converted into a
regular real estate loan account with the prevailing interest assigned on real estate
loans, payable within the remaining term of the loan account. Arcilla opted to resign
from the bank in December 1986. Conformably with the Deed of Conditional Sale, the
bank informed him that the balance of his loan account with the bank had been
converted to a regular housing loan. Arcilla signed three PNs for the total amount of
P186,364.15. Arcilla also agreed to pay to DBP insurance premiums, taxes, etc.
However, Arcilla also agreed to the reservation by the DBP of its right to increase (with
notice to him) the rate of interest on the loan, as well as all other fees and charges on
loans and advances pursuant to such policy as it may adopt from time to time during
the period of the loan; Provided, that the rate of interest on the loan shall be reduced
by law or by the Monetary Board; Provided, further, that the adjustment in the rate of
interest shall take effect on or after the effectivity of the increase or decrease in the
maximum rate of interest.

Upon his request, DBP agreed to grant Arcilla an additional cash advance of
P32,000.00. Thereafter, a Supplement to the Conditional Sale Agreement was
executed However, he failed to pay his loan account, advances, penalty charges and
interests which, as of October 31, 1990, amounted to P241,940.93. DBP rescinded the
Deed of Conditional Sale by notarial act on November 27, 1990. DBP tried to give
Arcilla a chance to repurchase the property. Arcilla failed to respond. Consequently,
the property was advertised for sale at public bidding on February 14, 1994.Arcilla filed
a complaint against DBP with the RTC. He alleged that DBP failed to furnish him with
the disclosure statement required by RA 3765 and CB Circular No. 158 prior to the
execution of the deed of conditional sale and the conversion of his loan account with
the bank into a regular housing loan account. Despite this, DBP immediately deducted
the account from his salary as early as 1984.Moreover, the bank applied its own
formula and imposed its usurious interests, penalties and charges on his loan account
and advances.DBP alleged that it substantially complied with R.A. No. 3765 and CB
Circular No. 158 because the details required in said statements were particularly
disclosed in the promissory notes, deed of conditional sale and the required notices
sent to Arcilla. In any event, its failure to comply strictly with R.A. No. 3765 did not
affect the validity and enforceability of the subject contracts or transactions. DBP
interposed a counterclaim for the possession of the property. The trial court ruled in
favor of Arcilla and nullified the notarial rescission of the deeds. The CA reversed.

Issue: WON DBP complied with the disclosure requirement

Held: Yes

Ratio: On the first issue, Arcilla avers that under R.A. No. 3765 and CB Circular No.
158, the DBP, as the creditor bank, was mandated to furnish him with the requisite
information in such form prescribed by the Central Bank before the commutation of the
loan transaction. He avers that the disclosure of the details of the loan contained in the
deed of conditional sale and the supplement thereto, the promissory notes and release
sheet, do not constitute substantial compliance with the law and the CB Circular.DBP,
on the other hand, avers that all the information required by R.A. No. 3765 was
already contained in the loan transaction documents. Also, even if it failed to comply
strictly with the disclosure requirement of R.A. No. 3765, nevertheless, under Section
6(b) of the law, the validity and enforceability of any action or transaction is not
affected. It asserts that Arcilla was estopped from invoking R.A. No.3765 because he
failed to demand compliance with R.A. No. 3765 from the bank before the
consummation of the loan transaction, until the time his complaint was filed with the
trial court. Section 1 of R.A. No. 3765 provides that prior to the consummation of a
loan transaction, the bank, as creditor, is obliged to furnish a client with a clear
statement, in writing, setting forth, to the extent applicable and in accordance with the
rules and regulations prescribed by the Monetary Board of the Central Bank of the
Philippines, the following information:
(1) the cash price or delivered price of the property or service to be acquired;(2) the
amounts, if any, to be credited as down payment and/or trade-in;(3) the difference
between the amounts set forth under clauses (1) and (2);(4) the charges, individually
itemized, which are paid or to be paid by such person in connection with the
transaction but which are not incident to the extension of credit;(5) the total amount to
be financed;(6) the finance charges expressed in terms of pesos and centavos; and(7)
the percentage that the finance charge bears to the total amount to be financed
expressed as a simple annual rate on the outstanding unpaid balance of the
obligation.
Under Circular No. 158 of the Central Bank, the information required by R.A. No. 3765
shall be included in the contract covering the credit transaction or any other document
to be acknowledged and signed by the debtor. If the borrower is not duly informed of
the data required by the law prior to the consummation of the availment or drawdown,
the lender will have no right to collect such charge or increases thereof, even if
stipulated in the promissory note. However, such failure shall not affect the validity or
enforceability of any contract or transaction. In the present case, DBP failed to
disclose the requisite information in the disclosure statement form authorized by the
Central Bank, but did so in the loan transaction documents between it and Arcilla.
There is no evidence on record that DBP sought to collect or collected any interest,
penalty or other charges, from Arcilla other than those disclosed in the said
deeds/documents.
The Court is convinced that Arcillas claim of not having been furnished the
data/information required by R.A. No. 3765 and CB Circular No. 158 was but an
afterthought. Despite the notarial rescission of the conditional sale in 1990, and DBPs
subsequent repeated offers to repurchase the property, the latter maintained his
silence. Moreover, Arcilla, a lawyer, would not be so gullible or negligent as to sign
documents without knowing fully well the legal implications and consequences of his
actions, and that appellee was a former employee of appellant. As such employee, he
is as well presumed knowledgeable with matters relating to appellants business and
fully cognizant of the terms of the loan he applied for, including the charges that had to
be paid.

Issue: WON Arcilla, Jr. is mandated to vacate the property and pay rentals for his
occupation thereof after the notarial rescission of the deed of conditional sale was
rescinded by notarial act, as well as the supplement executed by DBP.

Ratio: Anent the prayer of DBP to order Arcilla to vacate the property and pay rentals
there for from 1990, a review of the records has shown that it failed to adduce
evidence on the reasonable amount of rentals for Arcillas occupancy of the property.
Hence, the Court orders a remand of the case to the court of origin, for the parties to
adduce their respective evidence on the banks counterclaim.


RIZAL COMMERCIAL BANKING CORPORATION, Petitioner, versus HI-TRI
DEVELOPMENT CORPORATION and LUZ R. BAKUNAWA,Respondents.
G.R. No. 192413
Present:CARPIO, J., Chairperson,BRION,PEREZ,SERENO, andREYES, JJ.
Promulgated: June 13, 2012x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - - - - - - - xD E C I S I O N
SERENO, J.:

Before the Court is a Rule 45 Petition for Review on Certiorari filed by petitioner Rizal
Commercial Banking Corporation (RCBC) against respondents Hi-Tri Development
Corporation (Hi-Tri) and Luz R. Bakunawa (Bakunawa). Petitioner seeks to appeal
from the 26 November 2009 Decision and 27 May 2010 Resolution of the Court of
Appeals (CA),[1] which reversed and set aside the 19 May 2008 Decision and 3
November 2008 Order of the Makati City Regional Trial Court (RTC) in Civil Case No.
06-244.[2] The case before the RTC involved the Complaint for Escheat filed by the
Republic of the Philippines (Republic) pursuant to Act No. 3936, as amended by
Presidential Decree No. 679 (P.D. 679), against certain deposits, credits, and
unclaimed balances held by the branches of various banks in the Philippines. The trial
court declared the amounts, subject of the special proceedings, escheated to the
Republic and ordered them deposited with the Treasurer of the Philippines (Treasurer)
and credited in favor of the Republic.[3] The assailed RTC judgments included an
unclaimed balance in the amount of 1,019,514.29, maintained by RCBC in its Ermita
Business Center branch.

We quote the narration of facts of the CA[4] as follows:

x x x Luz [R.] Bakunawa and her husband Manuel, now deceased (Spouses
Bakunawa) are registered owners of six (6) parcels of land covered by TCT Nos.
324985 and 324986 of the Quezon City Register of Deeds, and TCT Nos. 103724,
98827, 98828 and 98829 of the Marikina Register of Deeds. These lots were
sequestered by the Presidential Commission on Good Government [(PCGG)].

Sometime in 1990, a certain Teresita Millan (Millan), through her representative,
Jerry Montemayor, offered to buy said lots for 6,724,085.71, with the promise that
she will take care of clearing whatever preliminary obstacles there may[]be to effect a
completion of the sale. The Spouses Bakunawa gave to Millan the Owners Copies of
said TCTs and in turn, Millan made a down[]payment of 1,019,514.29 for the
intended purchase. However, for one reason or another, Millan was not able to clear
said obstacles. As a result, the Spouses Bakunawa rescinded the sale and offered to
return to Millan her down[]payment of 1,019,514.29. However, Millan refused to
accept back the 1,019,514.29 down[]payment. Consequently, the Spouses
Bakunawa, through their company, the Hi-Tri Development Corporation (Hi-Tri) took
out on October 28, 1991, a Managers Check from RCBC-Ermita in the amount of
1,019,514.29, payable to Millans company Rosmil Realty and Development
Corporation (Rosmil) c/o Teresita Millan and used this as one of their basis for a
complaint against Millan and Montemayor which they filed with the Regional Trial
Court of Quezon City, Branch 99, docketed as Civil Case No. Q-91-10719 [in 1991],
praying that:

1. That the defendants Teresita Mil[l]an and Jerry Montemayor may be ordered to
return to plaintiffs spouses the Owners Copies of Transfer Certificates of Title Nos.
324985, 324986, 103724, 98827, 98828 and 98829;
2. That the defendant Teresita Mil[l]an be correspondingly ordered to receive the
amount of One Million Nineteen Thousand Five Hundred Fourteen Pesos and Twenty
Nine Centavos (1,019,514.29);
3. That the defendants be ordered to pay to plaintiffs spouses moral damages in
the amount of 2,000,000.00; and
4. That the defendants be ordered to pay plaintiffs attorneys fees in the amount of
50,000.00.

Being part and parcel of said complaint, and consistent with their prayer in Civil Case
No. Q-91-10719 that Teresita Mil[l]an be correspondingly ordered to receive the
amount of One Million Nineteen Thousand Five Hundred Fourteen Pesos and Twenty
Nine [Centavos] (1,019,514.29)[], the Spouses Bakunawa, upon advice of their
counsel, retained custody of RCBC Managers Check No. ER 034469 and refrained
from canceling or negotiating it.

All throughout the proceedings in Civil Case No. Q-91-10719, especially during
negotiations for a possible settlement of the case, Millan was informed that the
Managers Check was available for her withdrawal, she being the payee.

On January 31, 2003, during the pendency of the abovementioned case and without
the knowledge of [Hi-Tri and Spouses Bakunawa], x x x RCBC reported the
1,019,514.29-credit existing in favor of Rosmil to the Bureau of Treasury as among
its unclaimed balances as of January 31, 2003. Allegedly, a copy of the Sworn
Statement executed by Florentino N. Mendoza, Manager and Head of RCBCs Asset
Management, Disbursement & Sundry Department (AMDSD) was posted within the
premises of RCBC-Ermita.

On December 14, 2006, x x x Republic, through the [Office of the Solicitor General
(OSG)], filed with the RTC the action below for Escheat [(Civil Case No. 06-244)].

On April 30, 2008, [Spouses Bakunawa] settled amicably their dispute with Rosmil and
Millan. Instead of only the amount of 1,019,514.29, [Spouses Bakunawa] agreed to
pay Rosmil and Millan the amount of 3,000,000.00, [which is] inclusive [of] the
amount of []1,019,514.29. But during negotiations and evidently prior to said
settlement, [Manuel Bakunawa, through Hi-Tri] inquired from RCBC-Ermita the
availability of the 1,019,514.29 under RCBC Managers Check No. ER 034469. [Hi-
Tri and Spouses Bakunawa] were however dismayed when they were informed that
the amount was already subject of the escheat proceedings before the RTC.

On April 17, 2008, [Manuel Bakunawa, through Hi-Tri] wrote x x x RCBC, viz:

We understand that the deposit corresponding to the amount of Php 1,019,514.29
stated in the Managers Check is currently the subject of escheat proceedings pending
before Branch 150 of the Makati Regional Trial Court.

Please note that it was our impression that the deposit would be taken from [Hi-Tris]
RCBC bank account once an order to debit is issued upon the payees presentation of
the Managers Check. Since the payee rejected the negotiated Managers Check,
presentation of the Managers Check was never made.

Consequently, the deposit that was supposed to be allocated for the payment of the
Managers Check was supposed to remain part of the Corporation[s] RCBC bank
account, which, thereafter, continued to be actively maintained and operated. For this
reason, We hereby demand your confirmation that the amount of Php 1,019,514.29
continues to form part of the funds in the Corporations RCBC bank account, since
pay-out of said amount was never ordered. We wish to point out that if there was any
attempt on the part of RCBC to consider the amount indicated in the Managers Check
separate from the Corporations bank account, RCBC would have issued a statement
to that effect, and repeatedly reminded the Corporation that the deposit would be
considered dormant absent any fund movement. Since the Corporation never received
any statements of account from RCBC to that effect, and more importantly, never
received any single letter from RCBC noting the absence of fund movement and
advising the Corporation that the deposit would be treated as dormant.

On April 28, 2008, [Manuel Bakunawa] sent another letter to x x x RCBC reiterating
their position as above-quoted.

In a letter dated May 19, 2008, x x x RCBC replied and informed [Hi-Tri and Spouses
Bakunawa] that:

The Banks Ermita BC informed Hi-Tri and/or its principals regarding the inclusion of
Managers Check No. ER034469 in the escheat proceedings docketed as Civil Case
No. 06-244, as well as the status thereof, between 28 January 2008 and 1 February
2008.

xxx xxx xxx
Contrary to what Hi-Tri hopes for, the funds covered by the Managers Check No.
ER034469 does not form part of the Banks own account. By simple operation of law,
the funds covered by the managers check in issue became a deposit/credit
susceptible for inclusion in the escheat case initiated by the OSG and/or Bureau of
Treasury.
xxx xxx xxx
Granting arguendo that the Bank was duty-bound to make good the check, the Banks
obligation to do so prescribed as early as October 2001.
(Emphases, citations, and annotations were omitted.)

The RTC Ruling

The escheat proceedings before the Makati City RTC continued. On 19 May
2008, the trial court rendered its assailed Decision declaring the deposits, credits, and
unclaimed balances subject of Civil Case No. 06-244 escheated to the Republic.
Among those included in the order of forfeiture was the amount of 1,019,514.29 held
by RCBC as allocated funds intended for the payment of the Managers Check issued
in favor of Rosmil. The trial court ordered the deposit of the escheated balances with
the Treasurer and credited in favor of the Republic. Respondents claim that they were
not able to participate in the trial, as they were not informed of the ongoing escheat
proceedings.

Consequently, respondents filed an Omnibus Motion dated 11 June 2008, seeking the
partial reconsideration of the RTC Decision insofar as it escheated the fund allocated
for the payment of the Managers Check. They asked that they be included as party-
defendants or, in the alternative, allowed to intervene in the case and their motion
considered as an answer-in-intervention. Respondents argued that they had
meritorious grounds to ask reconsideration of the Decision or, alternatively, to seek
intervention in the case. They alleged that the deposit was subject of an ongoing
dispute (Civil Case No. Q-91-10719) between them and Rosmil since 1991, and that
they were interested parties to that case.[5]

On 3 November 2008, the RTC issued an Order denying the motion of respondents.
The trial court explained that the Republic had proven compliance with the
requirements of publication and notice, which served as notice to all those who may be
affected and prejudiced by the Complaint for Escheat. The RTC also found that the
motion failed to point out the findings and conclusions that were not supported by the
law or the evidence presented, as required by Rule 37 of the Rules of Court. Finally, it
ruled that the alternative prayer to intervene was filed out of time.

The CA Ruling

On 26 November 2009, the CA issued its assailed Decision reversing the 19 May 2008
Decision and 3 November 2008 Order of the RTC. According to the appellate court,[6]
RCBC failed to prove that the latter had communicated with the purchaser of the
Managers Check (Hi-Tri and/or Spouses Bakunawa) or the designated payee (Rosmil)
immediately before the bank filed its Sworn Statement on the dormant accounts held
therein. The CA ruled that the banks failure to notify respondents deprived them of an
opportunity to intervene in the escheat proceedings and to present evidence to
substantiate their claim, in violation of their right to due process. Furthermore, the CA
pronounced that the Makati City RTC Clerk of Court failed to issue individual notices
directed to all persons claiming interest in the unclaimed balances, as well as to
require them to appear after publication and show cause why the unclaimed balances
should not be deposited with the Treasurer of the Philippines. It explained that the
jurisdictional requirement of individual notice by personal service was distinct from the
requirement of notice by publication. Consequently, the CA held that the Decision and
Order of the RTC were void for want of jurisdiction.

Issue

After a perusal of the arguments presented by the parties, we cull the main issues as
follows:
I. Whether the Decision and Order of the RTC were void for failure to send
separate notices to respondents by personal service
II. Whether petitioner had the obligation to notify respondents immediately
before it filed its Sworn Statement with the Treasurer
III. Whether or not the allocated funds may be escheated in favor of the
Republic

Discussion

Petitioner bank assails[7] the CA judgments insofar as they ruled that notice by
personal service upon respondents is a jurisdictional requirement in escheat
proceedings. Petitioner contends that respondents were not the owners of the
unclaimed balances and were thus not entitled to notice from the RTC Clerk of Court.
It hinges its claim on the theory that the funds represented by the Managers Check
were deemed transferred to the credit of the payee or holder upon its issuance.

We quote the pertinent provision of Act No. 3936, as amended, on the rule on service
of processes, to wit:

Sec. 3. Whenever the Solicitor General shall be informed of such unclaimed balances,
he shall commence an action or actions in the name of the People of the Republic of
the Philippines in the Court of First Instance of the province or city where the bank,
building and loan association or trust corporation is located, in which shall be joined as
parties the bank, building and loan association or trust corporation and all such
creditors or depositors. All or any of such creditors or depositors or banks, building and
loan association or trust corporations may be included in one action. Service of
process in such action or actions shall be made by delivery of a copy of the complaint
and summons to the president, cashier, or managing officer of each defendant bank,
building and loan association or trust corporation and by publication of a copy of such
summons in a newspaper of general circulation, either in English, in Filipino, or in a
local dialect, published in the locality where the bank, building and loan association or
trust corporation is situated, if there be any, and in case there is none, in the City of
Manila, at such time as the court may order. Upon the trial, the court must hear all
parties who have appeared therein, and if it be determined that such unclaimed
balances in any defendant bank, building and loan association or trust corporation are
unclaimed as hereinbefore stated, then the court shall render judgment in favor of the
Government of the Republic of the Philippines, declaring that said unclaimed balances
have escheated to the Government of the Republic of the Philippines and
commanding said bank, building and loan association or trust corporation to forthwith
deposit the same with the Treasurer of the Philippines to credit of the Government of
the Republic of the Philippines to be used as the National Assembly may direct.

At the time of issuing summons in the action above provided for, the clerk of court
shall also issue a notice signed by him, giving the title and number of said action, and
referring to the complaint therein, and directed to all persons, other than those named
as defendants therein, claiming any interest in any unclaimed balance mentioned in
said complaint, and requiring them to appear within sixty days after the publication or
first publication, if there are several, of such summons, and show cause, if they have
any, why the unclaimed balances involved in said action should not be deposited with
the Treasurer of the Philippines as in this Act provided and notifying them that if they
do not appear and show cause, the Government of the Republic of the Philippines will
apply to the court for the relief demanded in the complaint. A copy of said notice shall
be attached to, and published with the copy of, said summons required to be published
as above, and at the end of the copy of such notice so published, there shall be a
statement of the date of publication, or first publication, if there are several, of said
summons and notice. Any person interested may appear in said action and become a
party thereto. Upon the publication or the completion of the publication, if there are
several, of the summons and notice, and the service of the summons on the defendant
banks, building and loan associations or trust corporations, the court shall have full
and complete jurisdiction in the Republic of the Philippines over the said unclaimed
balances and over the persons having or claiming any interest in the said unclaimed
balances, or any of them, and shall have full and complete jurisdiction to hear and
determine the issues herein, and render the appropriate judgment thereon. (Emphasis
supplied.)

Hence, insofar as banks are concerned, service of processes is made by delivery of a
copy of the complaint and summons upon the president, cashier, or managing officer
of the defendant bank.[8] On the other hand, as to depositors or other claimants of the
unclaimed balances, service is made by publication of a copy of the summons in a
newspaper of general circulation in the locality where the institution is situated.[9] A
notice about the forthcoming escheat proceedings must also be issued and published,
directing and requiring all persons who may claim any interest in the unclaimed
balances to appear before the court and show cause why the dormant accounts
should not be deposited with the Treasurer.

Accordingly, the CA committed reversible error when it ruled that the issuance of
individual notices upon respondents was a jurisdictional requirement, and that failure
to effect personal service on them rendered the Decision and the Order of the RTC
void for want of jurisdiction. Escheat proceedings are actions in rem,[10] whereby an
action is brought against the thing itself instead of the person.[11] Thus, an action may
be instituted and carried to judgment without personal service upon the depositors or
other claimants.[12] Jurisdiction is secured by the power of the court over the res.[13]
Consequently, a judgment of escheat is conclusive upon persons notified by
advertisement, as publication is considered a general and constructive notice to all
persons interested.[14]

Nevertheless, we find sufficient grounds to affirm the CA on the exclusion of the funds
allocated for the payment of the Managers Check in the escheat proceedings.

Escheat proceedings refer to the judicial process in which the state, by virtue of its
sovereignty, steps in and claims abandoned, left vacant, or unclaimed property,
without there being an interested person having a legal claim thereto.[15] In the case
of dormant accounts, the state inquires into the status, custody, and ownership of the
unclaimed balance to determine whether the inactivity was brought about by the fact of
death or absence of or abandonment by the depositor.[16] If after the proceedings the
property remains without a lawful owner interested to claim it, the property shall be
reverted to the state to forestall an open invitation to self-service by the first
comers.[17] However, if interested parties have come forward and lain claim to the
property, the courts shall determine whether the credit or deposit should pass to the
claimants or be forfeited in favor of the state.[18] We emphasize that escheat is not a
proceeding to penalize depositors for failing to deposit to or withdraw from their
accounts. It is a proceeding whereby the state compels the surrender to it of
unclaimed deposit balances when there is substantial ground for a belief that they
have been abandoned, forgotten, or without an owner.[19]

Act No. 3936, as amended, outlines the proper procedure to be followed by banks and
other similar institutions in filing a sworn statement with the Treasurer concerning
dormant accounts:

Sec. 2. Immediately after the taking effect of this Act and within the month of January
of every odd year, all banks, building and loan associations, and trust corporations
shall forward to the Treasurer of the Philippines a statement, under oath, of their
respective managing officers, of all credits and deposits held by them in favor of
persons known to be dead, or who have not made further deposits or withdrawals
during the preceding ten years or more, arranged in alphabetical order according to
the names of creditors and depositors, and showing:

(a) The names and last known place of residence or post office addresses of the
persons in whose favor such unclaimed balances stand;
(b) The amount and the date of the outstanding unclaimed balance and whether the
same is in money or in security, and if the latter, the nature of the same;
(c) The date when the person in whose favor the unclaimed balance stands died, if
known, or the date when he made his last deposit or withdrawal; and
(d) The interest due on such unclaimed balance, if any, and the amount thereof.

A copy of the above sworn statement shall be posted in a conspicuous place in the
premises of the bank, building and loan association, or trust corporation concerned for
at least sixty days from the date of filing thereof: Provided, That immediately before
filing the above sworn statement, the bank, building and loan association, and trust
corporation shall communicate with the person in whose favor the unclaimed balance
stands at his last known place of residence or post office address.

It shall be the duty of the Treasurer of the Philippines to inform the Solicitor General
from time to time the existence of unclaimed balances held by banks, building and
loan associations, and trust corporations. (Emphasis supplied.)

As seen in the afore-quoted provision, the law sets a detailed system for notifying
depositors of unclaimed balances. This notification is meant to inform them that their
deposit could be escheated if left unclaimed. Accordingly, before filing a sworn
statement, banks and other similar institutions are under obligation to communicate
with owners of dormant accounts. The purpose of this initial notice is for a bank to
determine whether an inactive account has indeed been unclaimed, abandoned,
forgotten, or left without an owner. If the depositor simply does not wish to touch the
funds in the meantime, but still asserts ownership and dominion over the dormant
account, then the bank is no longer obligated to include the account in its sworn
statement.[20] It is not the intent of the law to force depositors into unnecessary
litigation and defense of their rights, as the state is only interested in escheating
balances that have been abandoned and left without an owner.

In case the bank complies with the provisions of the law and the unclaimed balances
are eventually escheated to the Republic, the bank shall not thereafter be liable to any
person for the same and any action which may be brought by any person against in
any bank xxx for unclaimed balances so deposited xxx shall be defended by the
Solicitor General without cost to such bank.[21] Otherwise, should it fail to comply with
the legally outlined procedure to the prejudice of the depositor, the bank may not raise
the defense provided under Section 5 of Act No. 3936, as amended.

Petitioner asserts[22] that the CA committed a reversible error when it required RCBC
to send prior notices to respondents about the forthcoming escheat proceedings
involving the funds allocated for the payment of the Managers Check. It explains that,
pursuant to the law, only those whose favor such unclaimed balances stand are
entitled to receive notices. Petitioner argues that, since the funds represented by the
Managers Check were deemed transferred to the credit of the payee upon issuance of
the check, the proper party entitled to the notices was the payee Rosmil and not
respondents. Petitioner then contends that, in any event, it is not liable for failing to
send a separate notice to the payee, because it did not have the address of Rosmil.
Petitioner avers that it was not under any obligation to record the address of the payee
of a Managers Check.

In contrast, respondents Hi-Tri and Bakunawa allege[23] that they have a legal interest
in the fund allocated for the payment of the Managers Check. They reason that, since
the funds were part of the Compromise Agreement between respondents and Rosmil
in a separate civil case, the approval and eventual execution of the agreement
effectively reverted the fund to the credit of respondents. Respondents further posit
that their ownership of the funds was evidenced by their continued custody of the
Managers Check.

An ordinary check refers to a bill of exchange drawn by a depositor (drawer) on a bank
(drawee),[24] requesting the latter to pay a person named therein (payee) or to the
order of the payee or to the bearer, a named sum of money.[25] The issuance of the
check does not of itself operate as an assignment of any part of the funds in the bank
to the credit of the drawer.[26] Here, the bank becomes liable only after it accepts or
certifies the check.[27] After the check is accepted for payment, the bank would then
debit the amount to be paid to the holder of the check from the account of the
depositor-drawer.

There are checks of a special type called managers or cashiers checks. These are
bills of exchange drawn by the banks manager or cashier, in the name of the bank,
against the bank itself.[28] Typically, a managers or a cashiers check is procured
from the bank by allocating a particular amount of funds to be debited from the
depositors account or by directly paying or depositing to the bank the value of the
check to be drawn. Since the bank issues the check in its name, with itself as the
drawee, the check is deemed accepted in advance.[29] Ordinarily, the check becomes
the primary obligation of the issuing bank and constitutes its written promise to pay
upon demand.[30]

Nevertheless, the mere issuance of a managers check does not ipso facto work as an
automatic transfer of funds to the account of the payee. In case the procurer of the
managers or cashiers check retains custody of the instrument, does not tender it to
the intended payee, or fails to make an effective delivery, we find the following
provision on undelivered instruments under the Negotiable Instruments Law
applicable:[31]

Sec. 16. Delivery; when effectual; when presumed. Every contract on a negotiable
instrument is incomplete and revocable until delivery of the instrument for the purpose
of giving effect thereto. As between immediate parties and as regards a remote party
other than a holder in due course, the delivery, in order to be effectual, must be made
either by or under the authority of the party making, drawing, accepting, or indorsing,
as the case may be; and, in such case, the delivery may be shown to have been
conditional, or for a special purpose only, and not for the purpose of transferring the
property in the instrument. But where the instrument is in the hands of a holder in due
course, a valid delivery thereof by all parties prior to him so as to make them liable to
him is conclusively presumed. And where the instrument is no longer in the possession
of a party whose signature appears thereon, a valid and intentional delivery by him is
presumed until the contrary is proved. (Emphasis supplied.)

Petitioner acknowledges that the Managers Check was procured by
respondents, and that the amount to be paid for the check would be sourced from the
deposit account of Hi-Tri.[32] When Rosmil did not accept the Managers Check
offered by respondents, the latter retained custody of the instrument instead of
cancelling it. As the Managers Check neither went to the hands of Rosmil nor was it
further negotiated to other persons, the instrument remained undelivered. Petitioner
does not dispute the fact that respondents retained custody of the instrument.[33]

Since there was no delivery, presentment of the check to the bank for payment did not
occur. An order to debit the account of respondents was never made. In fact, petitioner
confirms that the Managers Check was never negotiated or presented for payment to
its Ermita Branch, and that the allocated fund is still held by the bank.[34] As a result,
the assigned fund is deemed to remain part of the account of Hi-Tri, which procured
the Managers Check. The doctrine that the deposit represented by a managers check
automatically passes to the payee is inapplicable, because the instrument although
accepted in advance remains undelivered. Hence, respondents should have been
informed that the deposit had been left inactive for more than 10 years, and that it may
be subjected to escheat proceedings if left unclaimed.

After a careful review of the RTC records, we find that it is no longer necessary to
remand the case for hearing to determine whether the claim of respondents was valid.
There was no contention that they were the procurers of the Managers Check. It is
undisputed that there was no effective delivery of the check, rendering the instrument
incomplete. In addition, we have already settled that respondents retained ownership
of the funds. As it is obvious from their foregoing actions that they have not abandoned
their claim over the fund, we rule that the allocated deposit, subject of the Managers
Check, should be excluded from the escheat proceedings. We reiterate our
pronouncement that the objective of escheat proceedings is state forfeiture of
unclaimed balances. We further note that there is nothing in the records that would
show that the OSG appealed the assailed CA judgments. We take this failure to
appeal as an indication of disinterest in pursuing the escheat proceedings in favor of
the Republic.

WHEREFORE the Petition is DENIED. The 26 November 2009 Decision and 27 May
2010 Resolution of the Court of Appeals in CA-G.R. SP No. 107261 are hereby
AFFIRMED.


PDIC v. Court of Appeals,
402 SCRA 194 (2003)

FACTS: - Respondents had, individually or jointly with each other, 71 certificates of
time deposits denominated as Golden Time Deposits (GTD) with an aggregate face
value of P1,115,889.96.
-On May 22, 1987, a Friday, the Monetary Board (MB) of the Central Bank of the
Philippines, now Bangko Sentral ng Pilipinas, issued Resolution 505 prohibiting MBC
to do business in the Philippines, and placing its assets and affairs under receivership.
The Resolution, however, was not served on MBC until Tuesday the following week, or
on May 26, 1987, when the designated Receiver took over.
-On May 25, 1987, the next banking day following the issuance of the MB Resolution,
respondent Jose Abad was at the MBC at 9:00 a.m. for the purpose of pre-terminating
the 71 aforementioned GTDs and re-depositing the fund represented thereby into 28
new GTDs in denominations of P40,000.00 or less under the names of herein
respondents individually or jointly with each other. Of the 28 new GTDs, Jose Abad
pre-terminated 8 and withdrew the value thereof in the total amount of P320,000.00.
-Respondents thereafter filed their claims with the PDIC for the payment of the
remaining 20 insured GTDs.
-On February 11, 1988, PDIC paid respondents the value of 3 claims in the total
amount of P120,000.00. PDIC, however, withheld payment of the 17 remaining claims
after Washington Solidum, Deputy Receiver of MBC-Iloilo, submitted a report to the
PDIC that there was massive conversion and substitution of trust and deposit accounts
on May 25, 1987 at MBC-Iloilo.
-Because of the report, PDIC entertained serious reservation in recognizing
respondents GTDs as deposit liabilities of MBC-Iloilo. Thus, on August 30, 1991, it
filed a petition for declaratory relief against respondents with the Regional Trial Court
(RTC) of Iloilo City, for a judicial declaration determination of the insurability of
respondents GTDs at MBC-Iloilo.
-In their Answer filed on October 24, 1991 and Amended Answer filed on January 9,
1992, respondents set up a Counterclaim against PDIC whereby they asked for
payment of their insured deposits. In its Decision of February 22, 1994, Branch 30 of
the Iloilo RTC declared the 20 GTDs of respondents to be deposit liabilities of MBC,
hence, are liabilities of PDIC as statutory insurer.

ISSUE:- Whether or not the transaction covering the 28 GTDs is not considered done
in the ordinary course of business

Hence, PDIC is not liable.

HELD: PDIC is liable only for deposits received by a bank "in the usual course of
business. MBC and its clients could be given the benefit of the doubt that they were
not aware that the MB resolution had been passed, given the necessity of
confidentiality of placing a banking institution under receivership.


Republic v. Eugenio,
545 SCRA 384 (2008)
AMLA

FACTS: -A series of investigation concerning the award of the NAIA 3 contracts to
PIATCO were undertaken by the Ombudsman and the compliance and Investigation
Staff (CIS) of Anti-Money Laundering Council.-The OSG wrote AMLC requesting the
latters 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 Pontaleon Alvarez who had been the chairman of the PBAC
Technical committee, NAIA 3Project.-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 grants 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.

HELD: - There is no need for a pre existing or pending case in court for violation of the
Anti- Money 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.

Republic vs. Eugenio,
545 SCRA 384 (2008)

Facts: Ombudsman and AMLC conducted a series of investigations concerning the
award of the NAIA 3 contracts to PIATCO.AMLC conducted an intelligence database
search of financial transactions involved in the award including Alvarez. Alvarez was
charged by the Ombudsman with violation of RA 3019.AMLC filed an application to
inquire into or examine the deposits or investments of Alvarez et.al. before RTC
Makati. The court granted the application after being satisfied that there is a probable
cause to believe that the deposits in various bank accounts are related to the offense
of violation of RA 3019 which is the subject of criminal prosecution before
Sandiganbayan. Then, another application to inquire into or examine the deposits
were filed by AMLC before RTC Manila of accounts alleged as having been used to
facilitate corruption in the NAIA 3 project. Manila RTC granted the Ex Parte
application. AMLC was then granted the authority to inquire into the accounts listed
therein. Alvarez alleges that bank inquiry order cannot be issued ex parte.

ISSUE: Whether or not bank inquiry can be issued ex parte

HELD: No. Although pending case is not necessary to issue a bank inquiry order, it
does not follow that such order may be availed of ex parte. This is to differentiate it
from a freeze order which can be issued ex parte. The only exceptions for ex parte
bank inquiry order are: kidnapping for ransom, violation of Dangerous Drugs Act,
hijacking, destructive arson and murder. A freeze order on the one hand is aimed at
preserving monetary instruments or property in any way deemed related to unlawful
activities as defined in Section 3(i) of the AMLA. The owner of such monetary
instruments or property would thus be inhibited from utilizing the same for the duration
of the freeze order. To make such freeze order anteceded by a judicial proceeding
with notice to the account holder would allow for or lead to the dissipation of such
funds even before the order could be issued. On the other hand, a bank inquiry order
does not necessitate any form of physical seizure of property of the account holder.
What the bank inquiry order authorizes is the examination of the particular deposits or
investments in banking institutions or non-bank financial institutions. The monetary
instruments or property deposited with such banks or financial institutions are not
seized in a physical sense, but are examined on particular details such as the account
holders record of deposits and transactions. Unlike the assets subject of the freeze
order, the records to be inspected under a bank inquiry order cannot be physically
seized or hidden by the account holder. Said records are in the possession of the bank
and therefore cannot be destroyed at the instance of the account holder alone as that
would require the extraordinary cooperation and devotion of the bank


ASIA TRUST DEVELOPMENT BANK, Petitioner, vs. CARMELO H.
TUBLE, Respondent. G.R. No. 183987 July 25, 2012
D E C I S I O N SERENO, J.:
Before this Court is a Petition for Review on Certiorari under Rule 45 of the Revised
Rules of Court, seeking to review the Court of Appeals (CA) 28 March 2008 Decision
and 30 July 2008 Resolution in CA-G.R. CV No. 87410. The CA affirmed the Regional
Trial Court (RTC) Decision of 15 May 2006 in Civil Case No. 67973, which granted to
respondent the refund of P845,805.49
1
representing the amount he had paid in excess
of the redemption price.
The antecedent facts are as follows:
2

Respondent Carmelo H. Tuble, who served as the vice-president of petitioner Asiatrust
Development Bank, availed himself of the car incentive plan and loan privileges
offered by the bank. He was also entitled to the banks Senior Managers Deferred
Incentive Plan (DIP).
Respondent acquired a Nissan Vanette through the companys car incentive plan. The
arrangement was made to appear as a lease agreement requiring only the payment of
monthly rentals. Accordingly, the lease would be terminated in case of the employees
resignation or retirement prior to full payment of the price.
As regards the loan privileges, Tuble obtained three separate loans. The first, a real
estate loan evidenced by the 18 January 1993 Promissory Note No. 0142
3
with
maturity date of 1 January 1999, was secured by a mortgage over his property
covered by Transfer Certificate of Title No. T 145794. No interest on this loan was
indicated.
The second was a consumption loan, evidenced by the 10 January 1994 Promissory
Note No. 0143
4
with the maturity date of 31 January 1995 and interest at 18% per
annum. Aside from the said indebtedness, Tuble allegedly obtained a salary loan,
his third loan.
On 30 March 1995, he resigned. Subsequently, he was given the option to either
return the vehicle without any further obligation or retain the unit and pay its remaining
book value.
Respondent had the following obligations to the bank after his retirement: (1) the
purchase or return of the Nissan Vanette; (2) P100,000 as consumption loan;
(3) P421,800 as real estate loan; and (4) P16,250 as salary loan.
5

In turn, petitioner owed Tuble (1) his pro-rata share in the DIP, which was to be issued
after the bank had given the resigned employees clearance; and (2) P25,797.35
representing his final salary and corresponding 13th month pay.
Respondent claimed that since he and the bank were debtors and creditors of each
other, the offsetting of loans could legally take place. He then asked the bank to simply
compute his DIP and apply his receivables to his outstanding loans.
6
However, instead
of heeding his request, the bank sent him a 1 June 1995 demand letter
7
obliging him to
pay his debts. The bank also required him to return the Nissan Vanette. Despite this
demand, the vehicle was not surrendered.
On 14 August 1995, Tuble wrote the bank again to follow up his request to offset the
loans. This letter was not immediately acted upon. It was only on 13 October 1995 that
the bank finally allowed the offsetting of his various claims and liabilities. As a result,
his liabilities were reduced to P970,691.46 plus the unreturned value of the vehicle.
In order to recover the Nissan Vanette, the bank filed a Complaint for replevin against
Tuble. Petitioner obtained a favorable judgment. Then, to collect the liabilities of
respondent, it also filed a Petition for Extra-judicial Foreclosure of real estate mortgage
over his property. The Petition was based only on his real estate loan, which at that
time amounted to P421,800. His other liabilities to the bank were excluded. The
foreclosure proceedings terminated, with the bank emerging as the purchaser of the
secured property.
Thereafter, Tuble timely redeemed the property on 17 March 1997
for P1,318,401.91.
8
Notably, the redemption price increased to this figure, because the
bank had unilaterally imposed additional interest and other charges.
With the payment of P1,318,401.91, Tuble was deemed to have fully paid his
accountabilities. Thus, three years after his payment, the bank issued him a Clearance
necessary for the release of his DIP share. Subsequently, he received a Managers
Check in the amount of P166,049.73 representing his share in the DIP funds.
Despite his payment of the redemption price, Tuble questioned how the foreclosure
basis of P421,800 ballooned to P1,318,401.91 in a matter of one year. Belatedly, the
bank explained that this redemption price included the Nissan Vanettes book value,
the salary loan, car insurance, 18% annual interest on the banks redemption price
of P421,800, penalty and interest charges on Promissory Note No. 0142, and litigation
expenses.
9
By way of note, from these items, the amounts that remained to be
collected as stated in the Petition before us, are (1) the 18% annual interest on the
redemption price and (2) the interest charge on Promissory Note No. 0142.
Because Tuble disputed the redemption price, he filed a Complaint for recovery of a
sum of money and damages before the RTC. He specifically sought to
collect P896,602.02
10
representing the excess charges on the redemption price.
Additionally, he prayed for moral and exemplary damages.
The RTC ruled in favor of Tuble. The trial court characterized the redemption price as
excessive and arbitrary, because the correct redemption price should not have
included the above-mentioned charges. Moral and exemplary damages were also
awarded to him.
According to the trial court,
11
the value of the car should not have been included,
considering that the bank had already recovered the Nissan Vanette. The obligations
arising from the salary loan and car insurance should have also been excluded, for
there was no proof that these debts existed. The interest and penalty charges should
have been deleted, too, because Promissory Note No. 0142 did not indicate any
interest or penalty charges. Neither should litigation expenses have been added, since
there was no proof that the bank incurred those expenses.
As for the 18% annual interest on the bid price of P421,800, the RTC agreed with
Tuble that this charge was unlawful. Act 3135
12
as amended, in relation to Section 28
of Rule 39 of the Rules of Court,
13
only allows the mortgagee to charge an interest of
1% per month if the foreclosed property is redeemed. Ultimately, under the principle
of solutio indebiti, the trial court required the refund of these amounts charged in
excess of the correct redemption price.
On appeal, the CA affirmed the findings of the RTC.
14
The appellate court only
expounded the rule that, at the time of redemption, the one who redeemed is liable to
pay only 1% monthly interest plus taxes. Thus, the CA also concluded that there was
practically no basis to impose the additional charges.
Before this Court, petitioner reiterates its claims regarding the inclusion in the
redemption price of the 18% annual interest on the bid price of P421,800 and the
interest charges on Promissory Note No. 0142. Petitioner emphasizes that an 18%
interest rate allegedly referred to in the mortgage deed is the proper basis of the
interest. Pointing to the Real Estate Mortgage Contract, the bank highlights the blanket
security clause or "dragnet clause" that purports to cover all obligations owed by
Tuble:
15

All obligations of the Borrower and/or Mortgagor, its renewal, extension, amendment or
novation irrespective of whether such obligations as renewed, extended, amended or
novated are in the nature of new, separate or additional obligations;
All other obligations of the Borrower and/or Mortgagor in favor of the Mortgagee,
executed before or after the execution of this document whether presently owing or
hereinafter incurred and whether or not arising from or connection with the aforesaid
loan/Credit accommodation; x x x.
Tubles obligations are defined in Promissory Note Nos. 0142 and 0143. By way of
recap, Promissory Note No. 0142 refers to the real estate loan; it does not contain any
stipulation on interest. On the other hand, Promissory Note No. 0143 refers to the
consumption loan; it charges an 18% annual interest rate. Petitioner uses this latter
rate to impose an interest over the bid price of P421,800.
Further, the bank sees the inclusion in the redemption price of an addition 12% annual
interest on Tubles real estate loan.
On top of these claims, the bank raises a new item the cars rental fee to be
included in the redemption price. In dealing with this argument raised for the first time
on certiorari, this Court dismisses the contention based on the well-entrenched
prohibition on raising new issues, especially factual ones, on appeal.
16

Thus, the pertinent issue in the instant appeal is whether or not the bank is entitled to
include these items in the redemption price: (1) the interest charges on Promissory
Note No. 0142; and (2) the 18% annual interest on the bid price of P421,800.
RULING OF THE COURT
The 18% Annual Interest on the Bid Price of P421,800
The Applicable Law
The bank argues that instead of referring to the Rules of Court to compute the
redemption price, the courts a quoshould have applied the General Banking
Law,
17
considering that petitioner is a banking institution.
The statute referred to requires that in the event of judicial or extrajudicial foreclosure
of any mortgage on real estate that is used as security for an obligation to any bank,
banking institution, or credit institution, the mortgagor can redeem the property by
paying the amount fixed by the court in the order of execution, with interest thereon at
the rate specified in the mortgage.
18

Petitioner is correct. We have already established in Union Bank of the Philippines v.
Court of Appeals,
19
citingPonce de Leon v. Rehabilitation Finance
Corporation
20
and Sy v. Court of Appeals,
21
that the General Banking Act being a
special and subsequent legislation has the effect of amending Section 6 of Act No.
3135, insofar as the redemption price is concerned, when the mortgagee is a bank.
Thus, the amount to be paid in redeeming the property is determined by the General
Banking Act, and not by the Rules of Court in Relation to Act 3135.
The Remedy of Foreclosure
In reviewing the banks additional charges on the redemption price as a result of the
foreclosure, this Court will first clarify certain vital points of fact and law that both
parties and the courts a quo seem to have missed.
Firstly, at the time respondent resigned, which was chronologically before the
foreclosure proceedings, he had several liabilities to the bank. Secondly, when the
bank later on instituted the foreclosure proceedings, it foreclosed only the mortgage
secured by the real estate loan of P421,800.
22
It did not seek to include, in the
foreclosure, the consumption loan under Promissory Note No. 0143 or the other
alleged obligations of respondent. Thirdly, on 28 February 1996, the bank availed itself
of the remedy of foreclosure and, in doing so, effectively gained the property.
As a result of these established facts, one evident conclusion surfaces: the Real
Estate Mortgage Contract on the secured property is already extinguished.
In foreclosures, the mortgaged property is subjected to the proceedings for the
satisfaction of the obligation.
23
As a result, payment is effected by abnormal means
whereby the debtor is forced by a judicial proceeding to comply with the presentation
or to pay indemnity.
24

Once the proceeds from the sale of the property are applied to the payment of the
obligation, the obligation is already extinguished.
25
Thus, in Spouses Romero v. Court
of Appeals,
26
we held that the mortgage indebtedness was extinguished with the
foreclosure and sale of the mortgaged property, and that what remained was the right
of redemption granted by law.
Consequently, since the Real Estate Mortgage Contract is already extinguished,
petitioner can no longer rely on it or invoke its provisions, including the dragnet clause
stipulated therein. It follows that the bank cannot refer to the 18% annual interest
charged in Promissory Note No. 0143, an obligation allegedly covered by the terms of
the Contract.
Neither can the bank use the consummated contract to collect on the rest of the
obligations, which were not included when it earlier instituted the foreclosure
proceedings. It cannot be allowed to use the same security to collect on the other
loans. To do so would be akin to foreclosing an already foreclosed property.
Rather than relying on an expired contract, the bank should have collected on the
excluded loans by instituting the proper actions for recovery of sums of money. Simply
put, petitioner should have run after Tuble separately, instead of hostaging the same
property to cover all of his liabilities.
The Right of Redemption
Despite the extinguishment of the Real Estate Mortgage Contract, Tuble had the right
to redeem the security by paying the redemption price.
The right of redemption of foreclosed properties was a statutory privilege
27
he enjoyed.
Redemption is by force of law, and the purchaser at public auction is bound to accept
it.
28
Thus, it is the law that provides the terms of the right; the mortgagee cannot
dictate them. The terms of this right, based on Section 47 of the General Banking Law,
are as follows:1. The redemptioner shall have the right within one year after the sale of
the real estate, to redeem the property.2. The redemptioner shall pay the amount due
under the mortgage deed, with interest thereon at rate specified in the mortgage, and
all the costs and expenses incurred by the bank or institution from the sale and
custody of said property less the income derived therefrom.3. In case of redemptioners
who are considered by law as juridical persons, they shall have the right to redeem not
after the registration of the certificate of foreclosure sale with the applicable Register of
Deeds which in no case shall be more than three (3) months after foreclosure,
whichever is earlier.
Consequently, the bank cannot alter that right by imposing additional charges and
including other loans. Verily, the freedom to stipulate the terms and conditions of an
agreement is limited by law.
29

Thus, we held in Rural Bank of San Mateo, Inc. v. Intermediate Appellate Court
30
that
the power to decide whether or not to foreclose is the prerogative of the mortgagee;
however, once it has made the decision by filing a petition with the sheriff, the acts of
the latter shall thereafter be governed by the provisions of the mortgage laws, and not
by the instructions of the mortgagee. In direct contravention of this ruling, though, the
bank included numerous charges and loans in the redemption price, which inexplicably
ballooned to P1,318,401.91. On this error alone, the claims of petitioner covering all
the additional charges should be denied. Thus, considering the undue inclusions of the
additional charges, the bank cannot impose the 18% annual interest on the
redemption price.
The Dragnet Clause
In any event, assuming that the Real Estate Mortgage Contract subsists, we rule that
the dragnet clause therein does not justify the imposition of an 18% annual interest on
the redemption price.
This Court has recognized that, through a dragnet clause, a real estate mortgage
contract may exceptionally secure future loans or advancements.
31
But an obligation is
not secured by a mortgage, unless, that mortgage comes fairly within the terms of the
mortgage contract.
32

We have also emphasized that the mortgage agreement, being a contract of adhesion,
is to be carefully scrutinized and strictly construed against the bank, the party that
prepared the agreement.
33

Here, after reviewing the entire deed, this Court finds that there is no specific mention
of interest to be added in case of either default or redemption. The Real Estate
Mortgage Contract itself is silent on the computation of the redemption price. Although
it refers to the Promissory Notes as constitutive of Tubles secured obligations, the
said contract does not state that the interest to be charged in case of redemption
should be what is specified in the Promissory Notes.
In Philippine Banking Communications v. Court of Appeals,
34
we have construed such
silence or omission of additional charges strictly against the bank. In that case, we
affirmed the findings of the courts a quo that penalties and charges are not due for
want of stipulation in the mortgage contract.
Worse, when petitioner invites us to look at the Promissory Notes in determining the
interest, these loan agreements offer different interest charges: Promissory Note No.
0142, which corresponds exactly to the real estate loan, contains no stipulation on
interest; while Promissory Note No. 0143, which in turn corresponds to the
consumption loan, provides a charge of 18% interest per annum.
Thus, an ambiguity results as to which interest shall be applied, for to apply an 18%
interest per annum based on Promissory Note No. 0143 will negate the existence of
the 0% interest charged by Promissory Note No. 0142. Notably, it is this latter
Promissory Note that refers to the principal agreement to which the security attaches.
In resolving this ambiguity, we refer to a basic principle in the law of contracts: "Any
ambiguity is to be taken contra proferentem, that is, construed against the party who
caused the ambiguity which could have avoided it by the exercise of a little more
care."
35
Therefore, the ambiguity in the mortgage deed whose terms are susceptible of
different interpretations must be read against the bank that drafted it. Consequently,
we cannot impute grave error on the part of the courts a quo for not appreciating a
charge of 18% interest per annum.
Furthermore, this Court refuses to be blindsided by the dragnet clause in the Real
Estate Mortgage Contract to automatically include the consumption loan, and its
corresponding interest, in computing the redemption price.
As we have held in Prudential Bank v. Alviar,
36
in the absence of clear and supportive
evidence of a contrary intention, a mortgage containing a dragnet clause will not be
extended to cover future advances, unless the document evidencing the subsequent
advance refers to the mortgage as providing security therefor.
In this regard, this Court adopted the "reliance on the security test" used in the above-
mentioned cases, Prudential Bank
37
and Philippine Bank of Communications.
38
In
these Decisions, we elucidated the test as follows:
x x x A mortgage with a "dragnet clause" is an "offer" by the mortgagor to the bank to
provide the security of the mortgage for advances of and when they were made. Thus,
it was concluded that the "offer" was not accepted by the bank when a subsequent
advance was made because (1) the second note was secured by a chattel mortgage
on certain vehicles, and the clause therein stated that the note was secured by such
chattel mortgage; (2) there was no reference in the second note or chattel mortgage
indicating a connection between the real estate mortgage and the advance; (3) the
mortgagor signed the real estate mortgage by her name alone, whereas the second
note and chattel mortgage were signed by the mortgagor doing business under an
assumed name; and (4) there was no allegation by the bank, and apparently no proof,
that it relied on the security of the real estate mortgage in making the
advance.
39
(Emphasis supplied)
Here, the second loan agreement, or Promissory Note No. 0143, referring to the
consumption loan makes no reference to the earlier loan with a real estate mortgage.
Neither does the bank make any allegation that it relied on the security of the real
estate mortgage in issuing the consumption loan to Tuble.
It must be remembered that Tuble was petitioners previous vice-president. Hence, as
one of the senior officers, the consumption loan was given to him not as an ordinary
loan, but as a form of accommodation or privilege.
40
The banks grant of the salary loan
to Tuble was apparently not motivated by the creation of a security in favor of the
bank, but by the fact the he was a top executive of petitioner.
Thus, the bank cannot claim that it relied on the previous security in granting the
consumption loan to Tuble. For this reason, the dragnet clause will not be extended to
cover the consumption loan. It follows, therefore, that its corresponding interest 18%
per annum is inapplicable. Consequently, the courts a quo did not gravely abuse
their discretion in refusing to apply an annual interest of 18% in computing the
redemption price. A finding of grave abuse of discretion necessitates that the judgment
must have been exercised arbitrarily and without basis in fact and in law.
41

The Interest Charges on Promissory Note No. 0142
In addition to the 18% annual interest, the bank also claims a 12% interest per annum
on the consumption loan. Notwithstanding that Promissory Note No. 0142 contains no
stipulation on interest payments, the bank still claims that Tuble is liable to pay the
legal interest. This interest is currently at 12% per annum, pursuant to Central Bank
Circular No. 416 and Article 2209 of the Civil Code, which provides:
If the obligation consists in the payment of a sum of money, and the debtor incurs in
delay, the indemnity for damages, there being no stipulation to the contrary, shall be
the payment of the interest agreed upon, and in the absence of stipulation, the legal
interest, which is six per cent per annum. (Emphasis supplied)
While Article 2209 allows the recovery of interest sans stipulation, this charge is
provided not as a form of monetary interest, but as one of compensatory interest.
42

Monetary interest refers to the compensation set by the parties for the use or
forbearance of money.
43
On the other hand, compensatory interest refers to the
penalty or indemnity for damages imposed by law or by the courts.
44
Compensatory
interest, as a form of damages, is due only if the obligor is proven to have defaulted in
paying the loan.
45

Thus, a default must exist before the bank can collect the compensatory legal interest
of 12% per annum. In this regard, Tuble denies being in default since, by way of legal
compensation, he effectively paid his liabilities on time.
This argument is flawed. The bank correctly explains in its Petition that in order for
legal compensation to take effect, Article 1279 of the Civil Code requires that the debts
be liquidated and demandable. This provision reads:
(1) That each one of the obligors be bound principally, and that he be at the same time
a principal creditor of the other;(2) That both debts consist in a sum of money, or if the
things due are consumable, they be of the same kind, and also of the same quality if
the latter has been stated;(3) That the two debts be due;(4) That they be liquidated
and demandable;(5) That over neither of them there be any retention or controversy,
commenced by third persons and communicated in due time to the debtor. (Emphasis
supplied)
Liquidated debts are those whose exact amount has already been determined.
46
In this
case, the receivable of Tuble, including his DIP share, was not yet determined; it was
the petitioners policy to compute and issue the computation only after the retired
employee had been cleared by the bank. Thus, Tuble incorrectly invoked legal
compensation in addressing this issue of default.
Nevertheless, based on the findings of the RTC and the CA, the obligation of Tuble as
evidenced by Promissory Note No. 0142, was set to mature on 1 January 1999. But
then, he had already settled his liabilities on 17 March 1997 by paying P1,318,401.91
as redemption price. Then, in 1999, the bank issued his Clearance and share in the
DIP in view of the full settlement of his obligations. Thus, there being no substantial
delay on his part, the CA did not grievously err in not declaring him to be in default.
The Award of Moral and Exemplary Damages
The courts a quo awarded Tuble P200,000 as moral damages and P50,000 as
exemplary damages.1wphi1 As appreciated by the RTC, which had the opportunity to
examine the parties,
47
the bank treated Tuble unfairly and unreasonably by refusing to
lend even a little charity and human consideration when it immediately foreclosed the
loans of its previous vice-president instead of heeding his request to make a
straightforward calculation of his receivables and offset them against his liabilities.
48

To the mind of the trial court, this was such a simple request within the control of the
bank to grant; and if petitioner had only acceded, the troubles of the lawsuit would
have been avoided.1wphi1
Moreover, the RTC found that the bank caused Tuble severe humiliation when the
Nissan Vannette was seized from his new office at Kuok Properties Philippines. The
trial court also highlighted the fact that respondent as the previous vice-president of
petitioner was no ordinary employee he was a man of good professional standing,
and one who actively participated in civic organizations. The RTC then concluded that
a man of his standing deserved fair treatment from his employer, especially since they
served common goals.
This Court affirms the dispositions of the RTC and the CA. They correctly ruled that the
award of moral damages also includes cases of besmirched reputation, moral shock,
social humiliation and similar injury. In this regard, the social and financial standings of
the parties are additional elements that should be taken into account in the
determination of the amount of moral damages.
49
Based on their findings that Tuble
suffered undue embarrassment, given his social standing, the courts a quo had factual
Basis
50
to justify the award of moral damages and, consequently, exemplary
damages
51
in his favor.
From all the foregoing, we rule that the appellate court correctly deleted the 18%
annual interest charges, albeit for different reasons. First, the interest cannot be
imposed, because any reference to it under the Real Estate Mortgage Contract is
misplaced, as the contract is already extinguished. Second, the said interest cannot be
collected without any basis in terms of Tuble's redemption rights. Third, assuming that
the Real Estate Mortgage Contract subsists, the bank cannot collect the interest
because of the contract's ambiguity. Fourth, the dragnet clause referred to in the
contract cannot be presumed to include the 18% annual interest specified in the
consumption loan. Fifth, with respect to the compensatory interest claimed by the
bank, we hold that neither is the interest due, because Tuble cannot be deemed to be
in default of his obligations.
IN VIEW THEREOF, the assailed 28 March 2008 Decision and 30 July 2008
Resolution of the Court of Appeals in CA-G.R. CV No. 87410 are hereby AFFIRMED.
SO ORDERED.