[CASE DIGEST] LAND BANK OF

THE PHILIPPINES vs. NARCISO

L. KHO [G.R. No. 205839, July
07, 2016]
Facts:

The respondent Narciso Kho is the sole proprietor of United Oil

Petroleum, a business engaged in trading diesel fuel. Sometime in

December 2006, he entered into a verbal agreement to purchase

lubricants from Red Orange International Trading (Red Orange),

represented by one Rudy Medel. Red Orange insisted that it would

only accept a Land Bank manager’s check as payment.

On December 28, 2005, Kho opened an account with Land Bank in

order to leverage a business deal with Red Orange;

He purchased Land Bank Manager’s check No. 07410 worth

₱25,000,000.00 payable to Red Orange and dated January 2, 2006;

He also gave Rudy Medel a photocopy of the check that the bank had

given him;

After his visit to the Bank, the deal with Medel and Red Orange did

not push through;

He picked up check No. 07410 from the bank on January 2, 2006,

without informing the bank that the deal did not materialize;
Afterwards, Red Orange presented a spurious copy of check No.

07410 to BPI, Kamuning for payment;

Land Bank cleared the check;

However, Kho never negotiated the actual check. It was in his

possession the whole time.

Hence, on January 23, 2006, Kho filed a Complaint for Specific

Performance and Damages against Land Bank.

Kho asserted that the manager’s check No. 07410 was still in his

possession and that he had no obligation to inform Land Bank

whether or not he had already negotiated the check.

On the other hand, Land Bank argued that Kho was negligent

because he handed Medel a photocopy of the manager’s check and

that this was the proximate cause of his loss.

On April 30, 2009, the RTC dismissed the complaint.

Citing Associated Bank v. Court of Appeals, the RTC reasoned that the

failure of the purchaser/drawer to exercise ordinary care that

substantially contributed to the making of the forged check precludes

him from asserting the forgery.

Kho appealed to the CA.

On August 30, 2012, the CA set aside the RTC’s decision and remanded

the case for further proceedings.

Dissatisfied, Land Bank, Flores, and Cruz, filed separately petitions

for review on certiorari before this Court.

Issue:

Whether or not the Kho’s handing of the photocopy of the Manager’s

check to Medel was the proximate cause of the fraudulent act.

Ruling:

That said, we cannot agree that the proximate causes of the loss were

Kho’s act of giving Medel a photocopy of check No. 07410 and his

failure to inform Land Bank that his deal with Red Orange did not

push through.

The genuine check No. 07410 remained in Kho’s possession the entire

time and Land Bank admits that the check it cleared was a fake.

When Land Bank’s CCD forwarded the deposited check to its Araneta

branch for inspection, its officers had every opportunity to recognize

the forgery of their signatures or the falsity of the check. Whether by

error or neglect, the bank failed to do so, which led to the withdrawal

and eventual loss of the ₱25,000,000.00.

This is the proximate cause of the loss. Land Bank breached its duty

of diligence and assumed the risk of incurring a loss on account of a

forged or counterfeit check. Hence, it should suffer the resulting

damage.

Philippine National Bank v. Caguimbal

G.R. No. 248821 (October 10, 2022)

PNB held grossly negligent for wrongfully debiting P1M, leading to

damages and fees awarded to Caguimbals.

Facts:

The case revolves around a dispute between the Philippine National

Bank (PNB) and the spouses Pedro and Vivian Caguimbal.
Respondent Vivian is a sub-contractor for logs associated with the
SAMMILIA Federation, which sells logs to Baganga Plywood
Corporation (Baganga Ply). In 2010, Baganga Ply issued six checks
totaling P3,494,129.50 to Vivian, which were payable through PNB's
Mati branch.

On August 9, 2010, Vivian's daughter, Faith, inquired about the

status of the checks at PNB's Butuan branch and was informed by
Sales and Service Officer Grace Besa that a Stop Payment Order
(SPO) had been issued on the checks by Baganga Ply. Despite this,
Faith deposited the checks at PNB on August 12, 2010. The branch
head, Carlos Lim, accepted the checks for clearing without
recognizing the prior inquiry about the SPO.

Five of the checks were subsequently returned with the notation

“SPO-funded,” while the sixth check (Check No. 42399) remained
unreturned at first. The Caguimbals assumed that the SPO might
have been lifted when they found that the amount corresponding to
Check No. 42399 was still reflected in their account balance.
Between August 18 and August 31, 2010, Faith continued to
withdraw funds assuming the check was valid.

On September 1, 2010, after a withdrawal, Faith discovered that the

account balance had been drastically reduced due to the unnoted
debit of P1,000,000.00 for Check No. 42399. PNB later informed the
Caguimbals about the SPO on September 2, 2010, indicating that
the check had erroneously cleared due to a mistake.

The Caguimbals filed a complaint against PNB when the bank

refused to return the debited amount, alleging wrongful debiting
and claiming damages. PNB argued that the Caguimbals had no
cause of action as they were aware of the SPO, and insisted that the
check could not be honored.

Legal Issues:

1. Whether PNB was liable for the wrongful debit of the

Caguimbals’ account due to its failure to properly manage the
account despite prior knowledge of the SPO.
2. Whether the Caguimbals were entitled to moral damages,
exemplary damages, and attorney’s fees due to the actions of PNB.

Arguments Presented:

Appellant (PNB):

 PNB contended that it acted correctly in debiting the account

in compliance with the SPO issued by Baganga Ply. The bank argued
that the Caguimbals should not have assumed that the check would
be honored, given their awareness of the SPO.
 PNB claimed that the wrongful clearance of the check was an
honest mistake and did not warrant the imposition of moral or
exemplary damages.

Appellees (Caguimbals):

 The Caguimbals asserted that the bank was grossly negligent

for debiting the amount without prior notification, especially after
allowing the funds to remain in their account for over two weeks.
 They claimed damages based on the mental anguish,
humiliation, and financial repercussions of the bank's negligence in
handling their account.

Court's Decision and Legal Reasoning:

The Court of Appeals ruled in favor of the Caguimbals, finding that

while PNB had the right to debit the amount from the account due to
the SPO, it was grossly negligent in managing the account and did
not fulfill its fiduciary duty. The court emphasized that banks are
expected to exercise a higher degree of diligence in transactions to
protect depositors’ interests.

The Supreme Court upheld the CA's decision, noting that PNB’s
negligence was evidenced by its failure to adequately communicate
with the Caguimbals about the status of the checks and the
erroneous debit. The bank was found to have not acted promptly
upon discovering its mistake and failed to notify the Caguimbals
before debiting their account.

The Court also underscored that moral damages, rooted in the

distress caused by PNB's negligence, were justified. The bank’s
failure to manage the account prudently and to maintain accurate
records led to the anxiety and social humiliation suffered by the
Caguimbals.

Significant Legal Principles Established:

 Banks must exercise the highest degree of diligence and care

in managing depositors' accounts, as they have an inherent
fiduciary duty.
 Even without malicious intent, a bank's negligence in handling
transactions may justify the imposition of moral and exemplary
damages.
 The right to damages in banking disputes underscores the
significant trust the public places in financial institutions and the
need for accountability.

Sia vs. Court of Appeals G.R.

No. 102970, May 13, 1990
MARCH 16, 2014LEAVE A COMMENT

Contract of the use of a safety deposit box of a bank is not a deposit but a
lease under Sec 72, A of General Banking Act. Accordingly, it should have
lost no time in notifying the petitioner in order that the box could have been
opened to retrieve the stamps, thus saving the same from further
deterioration and loss. The bank’s negligence aggravated the injury or
damage to the stamp collection..
Facts: Plaintiff Luzon Sia rented a safety deposit box of Security Bank and Trust Co.
(Security Bank) at its Binondo Branch wherein he placed his collection of stamps. The
said safety deposit box leased by the plaintiff was at the bottom or at the lowest level
of the safety deposit boxes of the defendant bank. During the floods that took place in
1985 and 1986, floodwater entered into the defendant bank’s premises, seeped into
the safety deposit box leased by the plaintiff and caused, according damage to his
stamps collection. Security Bank rejected the plaintiff’s claim for compensation for his
damaged stamps collection.

Sia, thereafter, instituted an action for damages against the defendant bank. Security
Bank contended that its contract with the Sia over safety deposit box was one of lease
and not of deposit and, therefore, governed by the lease agreement which should be
the applicable law; the destruction of the plaintiff’s stamps collection was due to a
calamity beyond obligation on its part to notify the plaintiff about the floodwaters that
inundated its premises at Binondo branch which allegedly seeped into the safety
deposit box leased to the plaintiff. The trial court rendered in favor of plaintiff Sia and
ordered Sia to pay damages.
Issue: Whether or not the Bank is liable for negligence.
Held: Contract of the use of a safety deposit box of a bank is not a deposit but a lease.
Section 72 of the General Banking Act [R.A. 337, as amended] pertinently provides: In
addition to the operations specifically authorized elsewhere in this Act, banking
institutions other than building and loan associations may perform the following
services (a) Receive in custody funds, documents, and valuable objects, and rent
safety deposit boxes for the safequarding of such effects.
As correctly held by the trial court, Security Bank was guilty of negligence. The bank’s
negligence aggravated the injury or damage to the stamp collection. SBTC was aware
of the floods of 1985 and 1986; it also knew that the floodwaters inundated the room
where the safe deposit box was located. In view thereof, it should have lost no time in
notifying the petitioner in order that the box could have been opened to retrieve the
stamps, thus saving the same from further deterioration and loss. In this respect, it
failed to exercise the reasonable care and prudence expected of a good father of a
family, thereby becoming a party to the aggravation of the injury or loss. Accordingly,
the aforementioned fourth characteristic of a fortuitous event is absent. Article 1170
of the Civil Code, which reads “Those who in the performance of their obligation are
guilty of fraud, negligence, or delay, and those who in any manner contravene the
tenor thereof, are liable for damages” is applicable. Hence, the petition was granted.
The provisions contended by Security Bank in the lease agreement which are meant
to exempt SBTC from any liability for damage, loss or destruction of the contents of
the safety deposit box which may arise from its own agents’ fraud, negligence or
delay must be stricken down for being contrary to law and public policy.
Tan, Tiong, Tick vs. American Hypothecary Co.,
G.R. No. L-43682 March 31, 1938
Tan, Tiong, Tick v. American Hypothecary (case digest)

In Re Liquidation of Mercantile Bank of China.

TAN TIONG TICK, claimant-appellant, vs. AMERICAN APOTHECARIES CO.,
ET AL., claimants-appellees.
G.R. No. L-43682 March 31, 1938

DOCTRINES:
1.The bank can make use as its own the money deposited.
2.Current account and savings deposts are not preferred credits in case of
insolvency and liquidation.
3.The bank can offset the deposit of the client who has a debt with the bank.
4.Deposits should not earn interest from the time the bank cease to do
business. IMPERIAL, J.:

Facts:

In the proceedings for the liquidation of the Mercantile Bank of China, the
appellant presented a written claim alleging: that when this bank ceased to
operate on September 19, 1931, his current account in said bank showed a
balance of P9,657.50 in his favor; that on the same date his savings account
in the said bank also showed a balance in his favor of P20,000 plus interest
then due amounting to P194.78; that on the other hand, he owed the bank in
the amount of P13,262.58, the amount of the trust receipts which he signed
because of his withdrawal from the bank of certain merchandise consigned to
him without paying the drafts drawn upon him by the remittors thereof; that the
credits thus described should be set off against each other according to law,
and on such set off being made it appeared that he was still the creditor of the
bank in the sum of P16,589.70. And he asked that the court order the Bank
Commissioner to pay him the aforesaid balance and that the same be
declared as preferred credit. The claim was referred to the commissioner
appointed by the court, who at the same time acted as referee, and this officer
recommended that the balance claimed be paid without interest and as an
ordinary credit. The court approved the recommendation and entered
judgment in the accordance therewith. The claimant took an appeal.

ISSUES:

1.Whether or not the current account and savings deposits are preferred
credits in cases involving insolvency and liquidation of the bank.

2.Whether or not the deposits could be offset with the debt of the depositor
with the bank.

3.Whether or not the deposits should earn interest from the time the bank
ceased to operate.

RULING:

1.The SC ruled that, these deposits are essentially merchantile contracts and
should, therefore, be governed by the provisions of the Code of Commerce. In
accordance with article 309, the so-called current account and savings
deposits have lost the character of deposits properly so-called, and are
converted into simple commercial loans, because the bank disposed of the
funds deposited by the claimant for its ordinary transactions and for the
banking business in which it was engaged. That the bank had the authority of
the claimant to make use of the money deposited on current and savings
account is deducible from the fact that the bank has been paying interest on
both deposits, and the claimant himself asks that he be allowed interest up to
the time when the bank ceased its operations. Moreover, according to section
125 of the Corporation Law and 9 of Act No. 3154, said bank is authorized to
make use of the current account, savings, and fixed deposits provided it
retains in its treasury a certain percentage of the amounts of said deposits.

2.It appears that even after the enactment of the Insolvency Law there was no
law in this jurisdiction governing the order or preference of credits in case of
insolvency and liquidation of a bank. But the Philippine Legislature
subsequently enacted Act No. 3519, amended various sections of the
Revised Administrative Code, which took effect on February 20, 1929, and
section 1641 of this latter Code. as amended by said Act provides:

SEC. 1641. Distribution of assets. — In the case of the liquidation of a bank or

banking institution, after payment of the costs of the proceeding, including
reasonable expenses, commissions and fees of the Bank Commissioner, to
be allowed by the court, the Bank Commissioner shall pay the debts of the
institution, under of the court in the order of their legal priority.

From this section 1641 we deduce that the intention of the Philippine
Legislature, in providing that the Bank Commissioner shall pay the debts of
the company by virtue of an order of the court in the order of their priority, was
to enforce the provisions of section 48, 49 and 50 of the Insolvency Law in the
sense that they are made applicable to cases of insolvency or bankruptcy and
liquidation of banks. No other deduction can be made from the phrase “in the
order of their legal priority” employed by the law, for there being no law
establishing any priority in the order of payment of credits, the legislature
could not reasonably refer to any legislation upon the subject, unless the
interpretation above stated is accepted.
Examining now the claims of the appellant, it appears that none of them falls
under any of the cases specified by section 48, 49 and 50 of the Insolvency
Law; wherefore, we conclude that the appellant’s claims, consisting of his
current and savings account, are not preferred credits.

3. “It may be stated as a general rule that when a depositor is indebted to a

bank, and the debts are mutual — that is, between the same parties and in
the same right — the bank may apply the deposit, or such portion thereof as
may be necessary, to the payment of the debt due it by the depositor,
provided there is no express agreement to the contrary and the deposit is not
specially applicable to some other particular purposes.” (7 Am. Jur., par. 629,
p.455; United States vs. Butterworth-Judson Corp., 267 U.S., 387; National
Bank vs. Morgan, 207 Ala.., 65; Bank of Guntersville vs. Crayter, 199 Ala.,
699; Tatum vs. Commercial Bank & T. Co., 193 Ala., 120; Desha Bank & T.
Co. vs. Quilling, 118 Ark., 114; Holloway vs. First Nat. Bank, 45 Idaho, 746;
Wyman vs. Ft. Dearborn Nat Bank, 181 Ill., 279; Niblack vs. Park Nat. Bank,
169 Ill., 517; First Nat Bank vs. Stapf., 165 Ind., 162; Bedford Bank vs.
Acoam, 125 Ind., 584.) The situation referred to by the appellees is inevitable
because section 1639 of the Revised Administrative Code, as amended by
Act No. 3519, provides that the Bank Commissioner shall reduce the assets of
the bank into cash and this cannot be done without first liquidating individually
the accounts of the debtors of said bank, and in making this individual
liquidation the debtors are entitled to set off, by way of compensation, their
claims against the bank.

4. Upon this point a distinction must be made between the interest which the
deposits should earn from their existence until the bank ceased to operate,
and that which they may earn from the time the bank’s operations were
stopped until the date of payment of the deposits. As to the first class, it
should be paid because such interest has been earned in the ordinary course
of the bank’s business and before the latter has been declared in a state or
liquidation. Moreover, the bank being authorized by law to make us of the
deposits, with the limitation stated, to invest the same in its business and
other operations, it may be presumed that it bound itself to pay interest to the
depositors as in fact it paid interest prior to the date of the said claims.
As to the interest which may be charged from the date the bank ceased to do
business because it was declared in a state of liquidation, SC held that the
said interest should not be paid. Under articles 1101 and 1108 of the Civil
Code, interest is allowed by way of indemnity for damages suffered, in the
cases wherein the obligation consists in the payment of money. In view of
this, SC held that in the absence of any express law or any applicable
provision of the Code of Commerce, it is not proper to pay this last kind of
interest to the appellant upon his deposits in the bank, for this would be
anomalous and unjustified in a liquidation or insolvency of a bank. This rule
should be strictly observed in the instant case because it is understood that
the assets should be prorated among all the creditors as they are insufficient
to pay all the obligations of the bank.

In view of all the foregoing considerations, SC affirmed the part of the

appealed decision for the reasons stated herein, and it is ordered that the net
claim of the appellant, amounting to P13,611.21, is an ordinary and not a
preferred credit, and that he is entitled to charge interest on said amount up to
September 19, 1931.

Soriano v. People

G.R. No. 240458 (January 8, 2020)

Soriano was convicted for obtaining a loan unlawfully and falsifying

documents; SC upheld the ruling.

Facts

The case revolves around Hilario P. Soriano, who served as the

president of the Rural Bank of San Miguel (RBSM) in Bulacan,
Philippines. He was charged in two separate criminal cases for
serious violations related to banking laws and for committing fraud
through the falsification of commercial documents. The following are
the key facts leading to the charges:

1.
In Criminal Case No. 1719-M-2000, it was alleged that on June 27,
1997, Soriano unlawfully secured an indirect loan amounting to PhP
15 million from RBSM without obtaining the necessary written
consent and approval from the majority of the bank's board of
directors. Instead, he made it appear that the loan was obtained by
Virgilio J. Malang, a depositor of RBSM, who had no knowledge of the
loan. Upon receiving the funds, Soriano converted them to his
personal use.

2.
3.

In Criminal Case No. 1720-M-2000, Soriano, along with co-accused

Rosalinda Ilagan, was accused of conspiring to falsify loan-related
documents. They allegedly created false loan application forms,
promissory notes, and other documents to make it seem that
Malang had applied for and received the loan, despite Malang's later
retraction of any application. Soriano and Ilagan were charged with
willfully misrepresenting facts to withdraw the loan proceeds and
subsequently misappropriating these funds.

4.
5.

The prosecution's case relied on testimonies from several witnesses,

including bank officials and Malang, along with documentary
evidence demonstrating how the loan was processed and the funds
misused.

6.
7.

The Regional Trial Court (RTC) convicted Soriano in both cases,

sentencing him to imprisonment and ordering him to indemnify
RBSM and the Bangko Sentral ng Pilipinas (BSP) for the loan amount
with interest. Soriano appealed the conviction to the Court of
Appeals (CA), which modified the penalties but upheld the RTC's
findings.

8.

Issues

The primary legal issues presented in this case include:

1. Whether Soriano’s guilt for violating Section 83 of Republic Act
No. 337, as amended, was proven beyond reasonable doubt.
2. Whether Soriano's guilt for the complex crime of estafa
through the falsification of commercial documents was likewise
proven beyond reasonable doubt.

Arguments

Petitioner (Soriano) Arguments:

1. Soriano contended that the prosecution's evidence

failed to link him directly to the indirect loan under Malang's name,
arguing that the evidence presented referred to a different loan
under his name totaling PhP 34 million.
2. He asserted that the prosecution's failure to present
Malang's wife (Rayo) as a witness weakened their case and
prevented a full picture of the facts from being established.
3. Soriano claimed that he did not directly process loan
applications as he was not involved in frontline banking operations
and therefore could not be guilty of falsifying documents or
misappropriating funds.

Respondent (People of the Philippines) Arguments:

1. The prosecution maintained that the evidence, including

the testimonies of multiple witnesses and documentary proof,
clearly established Soriano's orchestration of the fraudulent loan
process and subsequent misappropriation of funds, fulfilling all
elements of the charges against him.
2. They argued that Soriano’s claims were mere attempts
to muddy the factual circumstances, emphasizing that he was
indeed the one who directed the scheme which ultimately led to the
fictitious loan being secured under Malang's name.
3. The prosecution pointed out that the testimony of
Malang established he was not aware of, nor did he consent to, any
loan agreement, and that Soriano had manipulated the situation to
his advantage by using documents signed in blank.

Court's Decision and Legal Reasoning

The Supreme Court found no merit in Soriano's petition, affirming

the findings of the lower courts regarding the sufficiency of
evidence. The ruling emphasized:

1.

Violation of the DOSRI Law: The court held that all elements of
the violation of Section 83 of R.A. No. 337 were satisfied. As
president of RBSM, Soriano engaged in prohibited borrowing
practices by indirectly securing a loan without the requisite board
approval. His attempts to exculpate himself by claiming that the
prosecution confused the loan details were dismissed as the
evidence clearly established his culpability.

2.
3.

Estafa through Falsification of Documents: The court affirmed

that the elements of estafa, as defined by the Revised Penal Code,
were met. Soriano was found to have engaged in deceit by making
it appear that Malang had applied for the loan when, in fact, he had
not. The false representations used by Soriano to secure the funds
were integral to the commission of estafa.

4.
5.

The court reinforced the framework within which violations of the

DOSRI law operate, asserting that the prohibition encompasses
various borrowing modes, including indirect borrowing through third
parties. The ruling underscored the principle that banking officials
must not exploit their positions to secure unauthorized loans.

6.

Legal Principles Established

This case underscored critical legal principles surrounding:

 The strict regulation of banking practices, particularly
surrounding the borrowings of bank directors and officers under the
DOSRI law.
 The court's reliance on the credibility of witnesses and the
weight of factual findings by lower courts, reaffirming that fiscal
accountability and integrity are paramount in the banking sector.
 The relationship between falsification of commercial
documents and the crime of estafa, establishing that falsifying
documents can serve as a necessary precursor to committing fraud.

Bank of the Philippine Islands v. LCL Capital

G.R. No. 243396, 243409 (September 14, 2021)

SC upheld full redemption price, including 17% interest, denying

LCL’s rate cut request.

Facts:

In 1997, LCL Capital, Inc. (LCL) secured a loan of P3,000,000 from

Far East Bank & Trust Co. (FEBTC) at an interest rate of 17% per
annum. The loan was secured by a deed of real estate mortgage
over two condominium units owned by LCL. In 2000, the Bank of the
Philippine Islands (BPI) merged with FEBTC, thereby assuming its
assets and liabilities. Following LCL's failure to meet its payment
obligations, BPI initiated an extrajudicial foreclosure of the mortgage
on the condominium units, resulting in BPI acquiring the property at
a public auction on May 21, 2003. On July 11, 2003, BPI executed an
Affidavit of Consolidation of Ownership, raising concerns over the
timing of this action as it was done before the expiration of the
redemption period.

Dissatisfied with the consolidation, LCL filed a case against BPI for
annulment of the certificates of title, asserting the consolidation of
ownership occurred prematurely. The Regional Trial Court (RTC)
ruled in favor of LCL on November 14, 2008, declaring the
consolidation of ownership void and reinstating LCL’s titles, subject
to its right of redemption. LCL was directed to be informed of the
actual amount due for redemption.

Subsequently, BPI sought to withdraw its appeal against the RTC

decision, and on April 4, 2014, the Court of Appeals (CA) affirmed
the RTC decision as final and executory. In the ensuing steps, LCL
sought a determination of the redemption price, which BPI reported
as P9,339,362.93 as of March 15, 2015. The RTC later calculated the
redemption price at P2,513,583.15, applying a 6% per annum
interest rate, and excluding real estate taxes paid by BPI.

BPI filed for reconsideration, asserting the redemption amount

should be calculated using the stipulated 17% interest and included
real estate taxes. The RTC denied this motion, propelling BPI to
elevate the matter to the CA via a petition for certiorari. The CA
partially granted BPI's petition, ruling that the redemption price for
properties mortgaged with banks should adhere to the stipulated
interest rate of 17%, while maintaining exclusion of real estate
taxes.

Both parties later sought partial reconsideration regarding the

inclusion of taxes and the interest rate, resulting in further petitions
before the Supreme Court.

Legal Issues:

1. What is the proper computation of the redemption price,

particularly concerning the applicable interest rate?
2. Should real estate taxes be included as part of the redemption
price?
3. Does the remand for recomputation of the redemption price
violate the doctrine of immutability of a final judgment?

Arguments:

Petitioner (BPI):

 BPI contends that the RTC erroneously applied a 6% interest

rate instead of the stipulated 17% and improperly excluded real
estate taxes from the redemption price. As the mortgagee, BPI
argues that it is entitled to reimbursement for taxes paid during
LCL's retained possession of the properties.

Respondent (LCL):

 LCL maintains that the CA’s order for recomputation of the

redemption price violates the finality of the RTC’s ruling that
declared the consolidation void. LCL insists that the legal interest
applicable should remain at 6%, given the nature of their loan
agreement, and opposes the inclusion of real estate taxes as
unfairly penalizing LCL for BPI's premature actions.
Court’s Decision and Legal Reasoning:

The Supreme Court ruled that the core issues revolved around the
proper computation of the redemption price, which should be
governed by Section 78 of the General Banking Act rather than
general foreclosure rules. The Court clarified that this provision
mandates that the redemption price must reflect not just the
amount due under the mortgage but also the stipulated interest
rate, which was 17% per annum in this case.

In addressing the issue of real estate taxes, the Court emphasized

the distinction between taxes related to the mortgage and those
incurred by virtue of possession. Since LCL maintained possession,
they bore responsibility for the real estate taxes, which should be
accounted for in the redemption price.

Furthermore, the Court upheld that the remand for recomputation of

the redemption price did not infringe upon the doctrine of
immutability of res judicata. The original RTC decision did not
specify the redemption price, leaving the matter open to
recalculation. The failure to reach a final figure on the redemption
price allowed for the current proceedings to refine the amounts
accurately.

Legal Principles Established:

1. Applicability of Section 78 of the General Banking

Act: In mortgage transactions involving banking institutions, the
computation of the redemption price must adhere to the stipulations
of the General Banking Act rather than general foreclosure statutes.
2. Interest Rate Specification: Redemption prices in banking
contexts should include the specified interest rate in loan
agreements, emphasizing the validity of the contractual terms
agreed upon by the parties.
3. Liability for Real Estate Taxes: The mortgagor retains
responsibility for real estate taxes if they maintain possession of the
property, irrespective of ownership status.
4E Steel Builders Corp. et al. vs. Maybank Philippines, Inc. et
al.

G.R. No. 230013 (March 13, 2023)

SC annulled Maybank's foreclosure, citing disqualification as a

foreign bank and invalid loan terms.

Facts:

The case involves two consolidated petitions for review regarding

loan obligations and a foreclosure sale of mortgaged properties.
Maybank Philippines, Inc. (Maybank), a foreign banking corporation,
extended a credit line to 4E Steel Builders Corporation (4E Steel),
which was represented by spouses Filomeno and Virginia Ecraela.
The credit line, established on December 14, 1999, amounted to
PHP 4,800,000.00 and was secured by five parcels of land
documented under several Transfer Certificates of Title (TCTs). The
borrowers executed several promissory notes corresponding to this
loan, which contained acceleration and automatic conversion
clauses that affected their repayment obligations.

After initial acknowledgment of the debt, 4E Steel disputed the total

amount owed and requested a loan restructuring while filing a
complaint for accounting against Maybank. In response, Maybank
initiated an extrajudicial foreclosure process on the mortgaged
properties due to the alleged default on the loan. The foreclosure
sale occurred on November 21, 2003, with Maybank being the
highest bidder and subsequently securing a certificate of sale.

The Ecraelas and 4E Steel then sought to invalidate the foreclosure

on the grounds of Maybank's foreign ownership, claiming it was
disqualified from participating in such proceedings under Philippine
law. The Regional Trial Court (RTC) dismissed their claims, leading
to an appeal to the Court of Appeals (CA). The CA partially granted
the appeal, annulling the foreclosure based on Maybank’s
disqualification due to its foreign ownership and determining the
loan obligations owed to Maybank.

Legal Issues:

1. Is the principal loan obligation of 4E Steel and the Ecraela

spouses PHP 4,800,000.00?
2. Were Maybank's actions in foreclosing and acquiring the
properties legally authorized?
3. Are the stipulations on interest rates and penalty charges
valid and enforceable?
4. Is the appointment of an independent accountant necessary
to ascertain the outstanding loan obligations?

Arguments:

Petitioners (4E Steel and Spouses Ecraela):

 They argued that Maybank, being controlled by foreign

nationals, was disqualified from bidding or participating in the
foreclosure sale under Philippine laws.
 They contended that their actual loan obligation was only PHP
2,500,000.00 and that certain amounts should not be included as
they were accommodations for other entities.
 They questioned the validity of interest rates stipulated in the
promissory notes and asserted the penalty charge of 24% was
unconscionable.

Respondent (Maybank):

 Maybank maintained that its participation in the foreclosure

was legally permissible and affirmed that the five promissory notes
and the consolidation under one note bound the Ecraelas and 4E
Steel to the PHP 4,800,000.00 obligation.
 They countered claims of disqualification by arguing that
foreign banks had the right under existing laws to engage in
foreclosure sales.
 Maybank defended the stipulated interest rates and penalty
charges, asserting they were agreed upon by both parties.

Court's Decision and Legal Reasoning:

The Supreme Court affirmed the ruling of the CA, concluding that:

1. The total loan obligation of 4E Steel was PHP 4,800,000.00

based on the consolidation of several promissory notes which
included interest due as per the contractual agreements.
2. Maybank's participation in the foreclosure sale was deemed
invalid as it did not meet the legal requirements for foreign
corporations under R.A. No. 4882, which prohibits them from bidding
or taking part in foreclosure sales.
3. The stipulations for interest rates were ruled invalid due to a
lack of mutuality, as they conferred unilateral power to Maybank to
determine applicable rates, violating the principle that contracts
should not be left to the discretion of one party alone.
4. An independent accountant was necessary to calculate the
exact loan obligations owed to Maybank accurately, highlighting the
importance of accountability and transparency in financial dealings.

Significant Legal Principles Established:

 Foreign Ownership Limitations: The case underscores the

restriction on foreign banks participating in foreclosure sales and
the disqualification of such entities from acquiring real properties in
the Philippines, consistent with past decisions.
 Mutuality of Contracts: The ruling reinforces the principle
that contracts must bind both parties equally, and unilateral clauses
are susceptible to being voided.
 Need for Independent Accounting: The directive for
appointing an independent accountant illustrates judicial insistence
on accurate financial reckoning in disputes involving loan
obligations.

Sps. Larrobis v. Philippine

Veterans Bank (G.R. No.
135706 )
OCTOBER 16, 2016 JAICDN LEAVE A COMMENT

Facts:

Petitioner spouses contracted a monetary loan with herein respondent bank

secured by a REM executed on their lot. Respondent bank then went
bankrupt and was placed under receivership/liquidation by the Central Bank.
Sometime after, respondent bank sent a demand letter for the amount of the
insurance premiums advanced by it over the mortgaged property of
petitioners. More than 14 years from the time the loan became due and
demandable, respondent bank moved for the extrajudicial foreclosure of the
mortgaged property and was sold to it as being the lone bidder. Petitioners
moved to declare the foreclosure null and void contending that the respondent
bank being placed under receivership did not interrupt the running of the
prescriptive period. RTC ruled in favor of respondents.

Issues:

(1) Whether or not foreclosure of mortgage is included in the acts prohibited

during receivership/liquidation proceedings.

(2) Whether or not the period within which the respondent bank was placed
under receivership and liquidation proceedings interrupted the running of the
prescriptive period in bringing actions.

Ruling: NO.

(1) While it is true that foreclosure falls within the broad definition of “doing
business,” it should not be considered included, however, in the acts
prohibited whenever banks are “prohibited from doing business” during
receivership and liquidation proceedings. This is consistent with the purpose
of receivership proceedings, i.e., to receive collectibles and preserve the
assets of the bank in substitution of its former management, and prevent the
dissipation of its assets to the detriment of the creditors of the bank.

There is also no truth to respondent’s claim that it could not continue doing
business from the time it was under receivership. As correctly pointed out by
petitioner, respondent was even able to send petitioners a demand letter,
through Francisco Go, for the insurance premiums advanced by respondent
bank over the mortgaged property of petitioners. How it could send a demand
letter on unpaid insurance premiums and not foreclose the mortgage during
the time it was “prohibited from doing business” was not adequately explained
by respondent.

(2) A close scrutiny of the Provident case shows that the Court arrived at said
conclusion, which is an exception to the general rule, due to the peculiar
circumstances of Provident Savings Bank at the time. The Superintendent of
Banks, which was instructed to take charge of the assets of the bank in the
name of the Monetary Board, had no power to act as a receiver of the bank
and carry out the obligations specified in Sec. 29 of the Central Bank Act.

In this case, it is not disputed that Philippine Veterans Bank was placed under
receivership by the Monetary Board of the Central Bank pursuant to Section
29 of the Central Bank Act on insolvency of banks. Unlike Provident Savings
Bank, there was no legal prohibition imposed upon herein respondent to deter
its receiver and liquidator from performing their obligations under the law.
Thus, the ruling laid down in the Provident case cannot apply in the case at
bar.