CASES

TOPIC: EXCEPTIONS ON FOREIGN CURRENCY DEPOSIT

1. INTENGAN V. CA
Facts:
Citibank thru its VP, VIC LIM, filed a complaint against Citibank’s
own officers, named Dante (treasurer of Global Consumer
Group of the bank) and Malou (Assistant VP and account
officer) for violation of section 31 of the Corporation code in
relation to sec 144.

Allegedly, Vic received a tip from the higher management of

Citibank, that Dante and Malou were conducting business
endeavors that were in conflict with the business of the bank.
It should be noted in this case, that Dante and Marilou were
also employees in another corporation, namely Torrance
Development Corporation and Global Pacific Corporation.

Dante and Malou deceived the depositors of Citibank to divert

their U.S dollar deposits from Citibank to products offered by
other companies that were commanding higher rate of yields.
This was done by transferring first the monies of the depositors
from the Citibank to Torrance and Global which in turn placed
the monies of the bank clients into securities, shares of stock
and other certificated of 3 rd parties. As a result, Dante and
Marilou derived substantial financial gains.

The victims of the scheme were INTENGAN, NERI and RITA

Procedure of the scheme:

a. Deception (Budol Budol)- Dante and Marilou would tell the

client to invest their money on financial products of other
companies that bear higher interest rates, causing such
transfer of funds from Citbank to Global and Torrance;

b. After transferee, Global and Torrance would issue check in

favor of the companies intended to be invested upon by the
clients;
c. Upon maturity dates of the placements made by Global and
Torrance, the other companies who were given checks
would then issue their own checks in favor of Global and
Torrance, this time there is an interest already;

d. After which, Global and Torrance would issue a check in

favor of Dante and Malou, as a form of their commission;

e. Lastly, Global and Torrance would then issue checks in favor

of their bank clients, with the lesser interest, agreed upon.

Consequently, VIC LIM and JOVEN REYES (VP of the Global

consumer group of Citibank), in order for them to file an estafa
case against DANTE and MARILOU, caused the bank accounts
of INTENGAN, NERI and RITA, its depositors to be examined
and inquired into. As a result, INTENGAN, NERI and RITA filed an
action against VIC LIM and JOVEN REYES for violating the R.A
1405 or “BANK SECRECY LAW”.

Issue:
1. Whether CITIBANK violated the “BANK SECRECY LAW”.
2. What law shall apply in cases of U.S. dollar accounts?

Held:

1. No. Citibank cannot be held liable under the Bank

secrecy law, because what is involved here is a Foreign
Currency Deposit Account.

2. However, LIM AND JOVEN may be held liable under R.A

6426, sec 8, which provides:

Sec. 8. Secrecy of Foreign Currency Deposits.- All foreign

currency deposits authorized under this Act, as amended by
Presidential Decree No. 1035, as well as foreign currency
deposits authorized under Presidential Decree No. 1034, are
hereby declared as and considered of an absolutely confidential
nature and, except upon the written permission of the
depositor, in no instance shall such foreign currency deposits be
examined, inquired or looked into by any person, government
official bureau or office whether judicial or administrative or
legislative or any other entity whether public or
private: Provided, however, that said foreign currency deposits
shall be exempt from attachment, garnishment, or any other
order or process of any court, legislative body, government
agency or any administrative body whatsoever.
In this case, a case for violation of Republic Act No. 6426 should
have been the proper case brought against private
respondents. Private respondents Lim and Reyes admitted that
they had disclosed details of petitioners’ dollar deposits without
the latter’s written permission.
Finally, the case was dismissed not because of wrong action,
but because of prescription.

2.PSBANK V. SENATE IMPEACHMENT COURT

PSBANK and PASCUAL (president), filed a petition for certiorari
and prohibition seeking to nullify the resolution of the Senate
impeachment court, granting the prosecution’s request to
inquire into the foreign currency accounts of PSBANK, in
connection with the bank accounts of the late Chief Justice
Corona.
PSBANK invokes the rule on confidentiality of bank accounts, as
provided in R.A 6426. However, in this case Chief Justice Corona
during the impeachment proceedings, waived his rights to be
examined of his bank account, whether peso or foreign
currency.
Hence, the case becoming moot and academic, the petition was
denied.
(NOTE: The foreign bank accounts of Chief Justice Corona may
be examined because there was an express waiver made by
him).
3. KAREN E. SALVACION, vs. CENTRAL BANK OF THE
PHILIPPINES, CHINA BANKING CORPORATION and GREG
BARTELLI y NORTHCOTT. G.R. No. 94723 August 21, 1997
Facts:
Greg Bartelli, an American tourist, was arrested for committing
four counts of rape and serious illegal detention against Karen
Salvacion. Police recovered from him several dollar checks and a
dollar account in the China Banking Corp. He was, however,
able to escape from prison. In a civil case filed against him, the
trial court awarded Salvacion moral, exemplary and attorney’s
fees amounting to almost P1,000,000.00.
Salvacion tried to execute the judgment on the dollar deposit of
Bartelli with the China Banking Corp. but it refused, arguing that
Section 11 of Central Bank Circular No. 960 exempts foreign
currency deposits from attachment, garnishment, or any other
order or process of any court, legislative body, government
agency or any administrative body whatsoever. Salvacion
therefore filed this action for declaratory relief in the Supreme
Court.
Issue: May the dollar deposit of Bartelli be the subject of
attachment, garnishment, or any other process?
Ruling:
Yes. The provisions of Section 113 of Central Bank Circular No.
960 and PD No. 1246, insofar as it amends Section 8 of Republic
Act No. 6426, are INAPPLICABLE to this case because of its
peculiar circumstances. China Banking must comply with the
writ of execution issued in the civil case and to release to
Salvacion the dollar deposit of Bartelli in such amount as would
satisfy the judgment in her favor.
The questioned law makes futile the favorable judgment and
award of damages that Salvacion and her parents fully deserve.
It then proceeded to show that the economic basis for the
enactment of RA No. 6426 is not anymore present; and even if
it still exists, the questioned law still denies those entitled to
due process of law for being unreasonable and oppressive. The
intention of the law may be good when enacted. The law failed
to anticipate the iniquitous effects producing outright injustice
and inequality such as the case before us.
The Offshore Banking System and the Foreign Currency Deposit
System were designed to draw deposits from foreign lenders
and investors and, subsequently, to give them protection.
However, the foreign currency deposit made by a transient or a
tourist is not the kind of deposit encouraged by PD Nos. 1034
and 1035 and given incentives and protection by said laws
because such depositor stays only for a few days in the country
and, therefore, will maintain his deposit in the bank only for a
short time. Considering that Bartelli is just a tourist or a
transient, he is not entitled to the protection of Section 113 of
Central Bank Circular No. 960 and PD No. 1246 against
attachment, garnishment or other court processes.
If the exemption from attachment, garnishment, or any other
order or process of any court, legislative body, government
agency or any administrative body whatsoever under Section
113 of Central Bank Circular No. 960 is made applicable to a
foreign transient, injustice would result, especially to a citizen
aggrieved by a foreign guest like Greg Bartelli. This would
negate Article 10 of the New Civil Code which provides that in
case of doubt in the interpretation or application of laws, it is
presumed that the lawmaking body intended right and justice
to prevail.

One of the principal purposes of the protection accorded to

foreign currency deposits is to assure the development and
speedy growth of the Foreign Currency Deposit system and the
Offshore Banking in the Philippines.
The Offshore Banking System and the Foreign Currency Deposit
System were designed to draw deposits from foreign lenders
and investors. It is these deposits that are induced by the two
laws and given protection and incentives by them.
Obviously, the foreign currency deposit made by a transient or a
tourist is not the kind of deposit encouraged by PD Nos. 1034
and 1035 and given incentives and protection by said laws
because such depositor stays only for a few days in the country
and, therefore, will maintain his deposit in the bank only for a
short time.
Greg Bartelli is just a tourist or a transient. He deposited his
dollars with China Banking Corporation only for safekeeping
during his temporary stay in the Philippines.
The dollar deposit of respondent Greg Bartelli is not entitled to
the protection of Section 113 of Central Bank Circular No. 960
and PD No. 1246 against attachment, garnishment or other
court processes.

4. CHINA BANKING CORPORATION V. CA

Facts:
A complaint for recovery of sums of money and annulment of
sales of real properties and shares of stock was filed by JOSE
against his son in law, GEORGE and his daughter MARY, before
the RTC of CEBU.
According to JOSE, MARY stole his U.S dollar deposits with
CITIBANK amounting to not less than Php 35,000,000 AND
$864,000.00. JOSE, alleged that MARY upon receipt of said
amounts deposited the same to her bank account in China
bank.
JOSE added, that GEORGE transferred for himself, JOSE’S real
properties and shares of stock without any consideration.
Eventually, JOSE died. So, he was substituted by his other
daughter ELIZABETH. During trial, ELIZABETH was able to
produce the checks issued by MARY. To support her evidence,
she requested for the testimony of ISABEL and CRISOSTA,
employees of CHINA BANK to testify regarding the “foreign
currency deposits” of CHINA BANK.

CHINABANK moved for reconsideration to deny such subpoena

for confidentiality, it was denied by the RTC, so the case was
elevated to the CA, which also denied CHINABANK’S appeal.

Issue:
Whether CHINABANK may be compelled to divulge its foreign
currency deposits, for purposes of determining the money
allegedly stolen by MARY and GEORGE?
Held:
YES. Although, PD 1246 provides:

SEC. 8. Secrecy of Foreign Currency Deposits. – All foreign

currency deposits authorized under this Act, as amended by
Presidential Decree No. 1035, as well as foreign currency
deposits authorized under Presidential Decree No. 1034, are
hereby declared as and considered of an absolutely confidential
nature and, except upon the written permission of the
depositor, in no instance shall such foreign currency deposits be
examined, inquired or looked into by any person, government
official, bureau or office whether judicial or administrative or
legislative or any other entity whether public or
private: Provided, however, that said foreign currency deposits
shall be exempt from attachment, garnishment, or any other
order or process of any court, legislative body, government
agency or any administrative body whatsoever.
Although there is only one exception, to allow the examination
of foreign currency deposits, and that is by the written consent
of the depositor. There are other peculiar circumstances where
the court granted the inquiry of foreign currency funds.
The SC held that, a co- depositor regarding a foreign currency
deposit with a bank, has the right to inquire into said account
without, his co-depositor’s consent.
In this case, JOSE is regarded as a co-depositor because the
funds that were taken by MARY and deposited in her own bank
account in CHINABANK, without the JOSE’S permission
constitutes fraud. Hence, being a co-depositor, JOSE is entitled
to inquire into such foreign currency deposits, without violating
PD. 1246.
TOPIC: ASCERTAINMENT OF BORROWER’S CAPACITY
5. SECURITY BANK v. RODOLFO CUENCA, GR No.
138544, OCTOBER 3, 2000

Facts: Sta. Ines Melale was a holder of a Timber License Agreement

issued by the DENR. Security Bank granted a credit line in the amount of
P8,000,000.00 to assist the corporation in its additional capitalization
requirements for its logging operations. The credit expires on November
30, 1981 and one of the conditions is that the bank reserves the right to
amend any of the terms upon written notice to the borrower. Rodolfo
Cuenca, Sta Ines’ President, executed a Joint and Solidary Signature to
bind himself solidarily with Sta. Ines Melale as an additional security for
the credit line.

Cuenca resigned as President and Chairman of the Board of Sta. Ines

Melale, and his shares were sold to Adolfo Angala in 1985. Then, Sta.
Ines Melale obtained 6 other loans from Security Bank in the aggregate
amount of P6, 369,019.50, and it executed a promissory note to cover the
additional loans against the credit line. It requested Security Bank for
complete restructuring of indebtedness when it had difficulty in making
amortization payments. This was approved in 1989 without notice to
Cuenca. Sta. Ines Melale eventually defaulted its obligation, thus
Security Bank filed a case against Sta. Ines Melale and Cuenca.

Cuenca appealed with the CA, and it found that Cuenca should not be
liable because he was no longer a stockholder, and the terms were
amended without notice to him. It also noted the expiration of the credit
line.
Issue: Should Cuenca be liable for Sta. Ines Melale Corporation’s
default in paying the second credit line even when he was not given due
notice?

Ruling: No. Cuenca was only liable for the 1980 credit line that expired
on 1981. A contract of surety cannot extend to more than what is
stipulated. It is strictly construed against the creditor, and every doubt is
resolved in favor of the solidary debtor. The fundamental rules of fair
play require the creditor to obtain the consent of the surety to any
material alteration in the principal loan agreement, or at least to notify it.
Hence, the bank cannot hold Cuenca liable for loans obtained in excess
of the amount or beyond the period stipulated in the original agreement,
absent any clear stipulation showing that the latter waived his right to be
notified, or to give consent. This is especially true where, as in this case,
Cuenca was no longer the principal officer or major stockholder of the
corporate-debtor at the time the subsequent obligations were incurred. He
was thus no longer in a position to compel the corporation to pay the
creditor and had no more reason to bind himself anew to the subsequent
obligations.
On the special nature of a JSS- It was illogical for the bank or Sta. Ines
to assume, however, that Cuenca would still agree to act as Surety in the
1989 Loan Agreement when he was no longer an officer or stockholder
of Sta. Ines Melale. Neither did he have reason to bind himself further to
a bigger and more onerous obligation. Thus, the Loan Agreement in
1989 without informing Cuenca smacks negligence and bad faith on the
part of the principal debtor.

Bridge Financing
De Vera vs. Court of Appeals, 367 SCRA 781
Facts:
Q. P. San Diego Construction, Inc. (QPSDCI), entered into a
Syndicate Loan to finance a construction of a building with with
respondents Asiatrust Development Bank (ASIATRUST) as lead
bank, and Second Laguna Development Bank (LAGUNA) and
Capitol City Development Bank (CAPITOL) as participating
banks (hereafter collectively known as FUNDERS). QPSDCI
mortgaged Panay Avenue property and the condominium
constructed on it.
Gregorio de Vera Jr. and QPSDCI, through its authorized agent
Fil-Estate Realty Corporation (FIL-ESTATE), entered into a
Condominium Reservation Agreement where De Vera
undertook to buy Unit 211-2C of the condominium for
P325,000.00.
Pending release of the loan, De Vera was to avail of a bridge
financing loan with ASIATRUST or any accredited originating
bank of the Pag-IBIG program.
Issue: Whether ASIATRUST can refuse to release the bridge
financing loan without first securing the PAGIBIG loan.
Ruling:
Yes. Respondent ASIATRUST had made several representations
to petitioner that his loan had been approved. The tenor of the
letters sent by ASIATRUST would lead a reasonable man to
believe that there was nothing left to do but await the release
of the loan. ASIATRUST cannot hide behind the pithy excuse
that the grant of the bridge financing loan was subject to the
release of the Pag-IBIG loan. The essence of bridge financing
loans is to obtain funds through an interim loan while the Pag-
IBIG funds are not yet available. To await the release of the Pag-
IBIG loan would render any bridge financing nugatory. Thus, we
agree with the trial court when it said that "the conclusion is
inevitable that although the plaintiff was not able to pay, he
was a victim of circumstances and his failure was not due to his
own fault."
TOPIC: FIXED v. FLOATING INTEREST RATE AND ESCALATION
CLAUSES
 6. SECURITY BANK V. RTC OF MAKATI CITY
Facts:
In this case MAGTANGGOL executed a promissory note in favor
of SECURITY BANK, in the total amount of Php 100,000.00,
payable in 6 months installments with a stipulated interest of
23% per annum up to 5th installment.
4 months after, MAGTANGGOL again executed a promissory
note in favor of SECURITY BANK, in the amount of Php
65,000.00. MAGTANGGOL promised to pay this note in 6
monthly installments with interest at the rate of 23% per annum
A month after, MAGTANGGOL again executed a promissory
note in the amount of Php 65,000.00. MAGTANGGOL promised
to pay this note in 6 monthly installments with interest at the
rate of 23% per annum. These promissory notes had also been
signed by LEILA as co-maker.
Upon maturity of the promissory notes, MAGTANGGOL refused
to pay said obligations promised. So, a collection suit was filed
by SECURITY BANK against MAGTANGGOL.
The RTC ruled in favor of SECURITY BANK. It order
MAGTANGGOL and LEILA to pay said obligation. However, the
interest rate of 23% was limited to no more than 12% as it is the
prevailing legal interest required by law.
Issue:
Whether the 23% rate of interest per annum agreed upon by the
parties, is allowed and not against the usury law.
Held:
Yes. Although the law provides as wit:
Central Bank Circular No. 905: (GENERAL RULE)
Sec. 1. The rate of interest, including commissions, premiums,
fees and other charges, on a loan or forbearance of any money,
goods or credits, regardless of maturity and whether secured or
unsecured, that may be charged or collected by any person,
whether natural or judicial, shall not be subject to any ceiling
prescribed under or pursuant to the Usury Law, as amended.
Sec. 2. The rate of interest for the loan or forbearance of any
money, goods or credits and the rate allowed in judgments, in
the absence of express contract as to such rate of interest, shall
continue to be twelve per cent (12%)  per annum.

EXCPETIONS:
One of the exceptions to this rule is that when the rate of
interest is agreed upon by the parties.
Article 1306 of the New Civil Code provides that contracting
parties may establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided they are
not contrary to law, morals, good customs, public order, or
public policy.
In this case, the SC court held that a stipulation increasing the
rate of interest more than 12% is not contrary to law. IN A LOAN
OR FORBEARANCE OF MONEY, THE INTEREST DUE SHOULD BE
THAT STIPULATED IN WRITING, AND IN THE ABSENCE
THEREOF, THE RATE SHALL BE 12%  PER ANNUM. HENCE, ONLY
IN THE ABSENCE OF A STIPULATION CAN THE COURT IMPOSE
THE 12% RATE OF INTEREST.

7. CONSOLIDATED BANK AND TRUST v. COURT OF

APPEALS, GR No. 114286, APRIL 19, 2001

FACTS: Continental Cement Corporation (CCC) and Gregory Lim

obtained a Letter of Credit from Consolidated Bank and Trust in the
amount of P1,068,150.00. CCC paid a marginal deposit of P320,445 to
Consolidated Bank. The letter of credit was used to purchase around
500,000L of bunker fuel oil from Petrophil Corporation, which the latter
delivered directly to CCC in its Bulacan Plant. In relation to this, a trust
receipt in the amount of P1,001,520.93 was executed by CCC with Lim
as its signatory.
Note that in this case, there was a stipulation in the trust receipt that the
parties agree on any increase or decrease of the interest rate which may
occur after July 1, 1981 when the Central Bank floated the interest rate,
and to pay an additional penalty of 1% per month until the amounts or
installments due and unpaid under the trust receipt is fully paid.
Consolidated Bank filed a complaint for collection of sum of money with
preliminary attachment when CCC and Lim allegedly failed to turn over
the goods covered by the trust receipt of the proceeds thereof.
CCC contended that Consolidated Bank did not take into account the
payments they already made. Lim contended that he has no personal
liability over the transactions.
The RTC dismissed the complaint and ordered Consolidated Bank to pay
CCC the amount representing its overpayment. The CA affirmed the
RTC’s decision.

Issue: Is the agreement of the parties as to the floating interest rate is

valid?

Ruling: No. While it may be acceptable, for practical reasons given the
fluctuating economic conditions, for banks to stipulate that interest rates
on a loan not be fixed and instead be made dependent upon prevailing
market conditions, there should always be a reference rate upon which to
peg such variable interest rates. The SC cited the case of Polotan, Sr. v.
CA where it was held that a valid floating interest is when there is a
contractual provision that provides for the market rate as basis or the new
interest rate becoming the guiding rate in computing the interest due on
the outstanding obligation without the need to serve notice. The new
interest rate may be an increase or decrease in the prevailing market rate
as the basis of the computation of the outstanding obligation.
As to whether the contract was a trust receipt transaction or a loan-
The transaction was a loan, not a trust receipt. In a trust receipt, the
ownership over the goods belong to the bank and they will only be
released to the importer in trust after the loan is granted. In this case, the
debtor (CCC) received the goods subject of the “trust receipt” long
before the “trust receipt” was entered into. Ownership over the goods
was already transferred to the debtor. This is inconsistent with the
definition of a trust receipt.

8. Almeda vs. Court of Appeals 256 SCRA 292 (1996) ;

Petitioners: Spouses Almeda
Facts:
Philippine National Bank granted several loan/credit
accommodations totaling P18.0 Million pesos payable in a
period of six years at an interest rate of 21% per annum to the
spouses Ponciano L. Almeda and Eufemia P. Almeda. To secure
the loan, the spouses Almeda executed a Real Estate Mortgage
Contract covering a 3,500 square meter parcel of land, together
with the building erected thereon (the Marvin Plaza) located at
Pasong Tamo, Makati, Metro Manila. Between 1981 and 1984,
petitioners made several partial payments on the loan totaling.
P7,735,004.66, a substantial portion of which was applied to
accrued interest. On March 31, 1984, respondent bank, over
petitioners’ protestations, raised the interest rate to 28%,
allegedly pursuant to Section III-c (1) of its credit agreement.
Said interest rate thereupon increased from an initial 21% to a
high of 68% between March of 1984 to September of 1986.
The Almedas protested the increase in interest rates, to no
avail. Before the loan was to mature in March, 1988, the
spouses filed on, February 6, 1988 a petition for declaratory
relief with prayer for a writ of preliminary injunction and
temporary restraining order. Invoking the Law on Mandatory
Foreclosure (Act 3135, as amended and P.D. 385), the PNB
countered by ordering the extrajudicial foreclosure of
petitioner’s mortgaged properties and scheduled an auction
sale for March 14, 1989. Upon motion by the Almedas, however,
the lower court granted a supplemental writ of preliminary
injunction, staying the public auction of the mortgaged
property.
Was PNB authorized to raise its interest rates from 21% to as
high as 68% under the credit agreement?
No. Any contact which appears to be heavily weighted in favor
of one of the parties so as to lead to an unconscionable result is
void. Likewise, any stipulation regarding the validity or
compliance of the contract which is left solely to the will of one
of the parties is invalid. The binding effect of any agreement
between parties to a contract is premised on two settled
principle: that any obligation arising from the contact has the
force of law between the parties; and that there must be
mutuality between the parties based on their essential equality.
The Bank reserves the right to increase the interest rate within
the limits allowed by law at any time depending on whatever
policy it may adopt in the future; provided, that the interest rate
on this/these accommodations shall be correspondingly
decreased in the event that the applicable maximum interest
rate is reduced by law or by the Monetary Board. In either case,
the adjustment in the interest rate agreed upon shall take effect
on the effectivity date of the increase or decrease of the
maximum interest rate.

9. PNB v. COURT OF APPEALS and MARIA AMOR

BASCOS & MARCIANO BASCOS 259 SCRA 174

Facts: Sps. Bascos obtained a loan from PNB in the amount of Php
15,000.00 as evidenced by a promissory note and secured by a real estate
mortgage. The promissory note stipulated an interest of 12% per annum
which the Bank may at any time, without notice, raise within the limits
allowed by law. On the back side, it was also agreed that any extension
will give the Bank the right to charge the interest rates prescribed under
its policies from the date the account was originally granted. The real
estate mortgage also contained such stipulation. PNB extended the period
of payment of loan to June 5, 1981 and converted the loan from a short-
term to medium-term loan which matured over tow or five years, and an
increased interest to 14% effective December 1, 1979 then 22% effective
on February 21, 1983, then 22.5% from June 20, 1983; 23% starting
November 2, 1983; 25% effective March 2, 1984; and lastly 28% from
April 10, 1984. Sps. Bascos defaulted in their obligation, and as such
PNB extrajudicially foreclosed the mortgage to pay their indebtedness,
which according to PNB from 15,000 pesos to 35,125.84 pesos plus 28%
annual interest.

Issue: Is the escalation clause valid?

Ruling: No. The escalation clause cannot be given effect because of the
absence of a de-escalation clause in the event a reduction of interest was
ordered by law. When there is an escalation, there must be a de-
escalation clause to mitigate the one-sidedness of the escalation clause.
This is because of the unequal status of borrowers vis-a-vis the banks.
The successive increase in interest unilaterally imposed by PNB violates
the principle of mutuality of contracts, leaving the validity and
compliance of the contract to one of the parties. In this case no attempt
was made by PNB to secure the conformity of private respondents to the
successive increases in the interest rate. Private respondents' assent to the
increase can not be implied from their lack of response to the letters sent
by PNB, informing them of the increases. For as stated in one case, no
one receiving a proposal to change a contract is obliged to answer the
proposal.