Republic v Judge Eugenio G.R. No.

174629, February 14, 2008

Facts: The AMLC filed an application to examine the deposits of Alvarez,

Trinidad, Liongson and Cheng Yong before the RTC of Makati, Branch 138,
presided by Judge Sixto Marella, Jr.

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

Special Prosecutor of the Office of the Ombudsman, Dennis Villa-Ignacio, wrote a

letter dated 2 November 2005, requesting the AMLC to investigate the accounts of
Alvarez, PIATCO, and several other entities involved in the nullified contract.

The letter adverted to probable cause to believe that the bank accounts were used
in the commission of unlawful activities that were committed in relation to the
criminal cases then pending before the Sandiganbayan. Attached to the letter was a
memorandum on why the investigation of the accounts is necessary in the
prosecution of the above criminal cases before the Sandiganbayan.

In response to the letter of the Special Prosecutor, the AMLC promulgated on 9

December 2005 Resolution No. 121 Series of 2005, which authorized the
executive director of the AMLC to inquire into and examine the accounts named in
the letter, including one maintained by Alvarez with DBS Bank and two other
accounts in the name of Cheng Yong with Metrobank.

The Resolution characterized the memorandum attached to the Special Prosecutors

letter as extensively justifying the existence of probable cause that the bank
accounts of the persons and entities mentioned in the letter are related to the
unlawful activity of violation of Sections 3(g) and 3(e) of Rep. Act No. 3019, as
amended.
Issue: Whether or not the bank accounts of respondents can be examined.

Held: Sec. 2 of the Bank Secrecy Act itself prescribes exceptions whereby these
bank accounts may be examined by any person, government official, bureau
or offial; namely when: (1) upon written permission of the depositor; (2) in
cases of impeachment; (3) the examination of bank accounts is upon order of a
competent court in cases of bribery or dereliction of duty of public officials; and
(4) the money deposited or invested is the subject matter of the litigation. Section
8 of R.A. Act No. 3019, the Anti-Graft and Corrupt Practices Act, has been
recognized by this Court as constituting an additional exception to the rule of
absolute confidentiality, and there have been other similar recognitions as well

Any exception to the rule of absolute confidentiality must be specifically

legislated. Section 2 of the Bank Secrecy Act itself prescribes exceptions whereby
these bank accounts may be examined by any person, government official, bureau
or offial; namely when: (1) upon written permission of the depositor; (2) in cases
of impeachment; (3) the examination of bank accounts is upon order of a
competent court in cases of bribery or dereliction of duty of public officials; and
(4) the money deposited or invested is the subject matter of the litigation. Section 8
of R.A. Act No. 3019, the Anti-Graft and Corrupt Practices Act, has been
recognized by this Court as constituting an additional exception to the rule of
absolute confidentiality, and there have been other similar recognitions as well.
The AMLA also provides exceptions to the Bank Secrecy Act. Under Section 11,
the AMLC may inquire into a bank account upon order of any competent court in
cases of violation of the AMLA, it having been established that there is probable
cause that the deposits or investments are related to unlawful activities as defined
in Section 3(i) of the law, or a money laundering offense under Section 4 thereof.
Further, in instances where there is probable cause that the deposits or investments
are related to kidnapping for ransom,[certain violations of the Comprehensive
Dangerous Drugs Act of 2002,hijacking and other violations under R.A. No. 6235,
destructive arson and murder, then there is no need for the AMLC to obtain a court
order before it could inquire into such accounts. It cannot be successfully argued
the proceedings relating to the bank inquiry order under Section 11 of the AMLA is
a litigation encompassed in one of the exceptions to the Bank Secrecy Act which is
when money deposited or invested is the subject matter of the litigation. The
orientation of the bank inquiry order is simply to serve as a provisional relief or
remedy. As earlier stated, the application for such does not entail a full-blown trial.
Nevertheless, just because the AMLA establishes additional exceptions to the Bank
Secrecy Act it does not mean that the later law has dispensed with the general
principle established in the older law that all deposits of whatever nature with
banks or banking institutions in the Philippines x x x are hereby considered as of
an absolutely confidential nature. Indeed, by force of statute, all bank deposits are
absolutely confidential, and that nature is unaltered even by the legislated
exceptions referred to above.
NEW SAMPAGUITA BUILDERS CONSTRUCTION, INC. (NSBCI) V.
PHILIPPINE NATIONAL BANK

G.R. No. 148753

FACTS:

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

On August 15, 1989, Resolution No. 77 was approved by granting the

request of Respondent PNB thru its Board NSBCI for an P8 Million loan broken
down into a revolving credit line of P7.7M and an unadvised line of P0.3M for
additional operating and working capital to mobilize its various construction
projects.

The loan of Petitioner NSBCI was secured by a first mortgage on the

following: a) three (3) parcels of residential land located at Mangaldan,
Pangasinan; b) six (6) parcels of residential land situated at San Fabian,
Pangasinan; and c) a residential lot and improvements thereon located at
Mangaldan. The loan was further secured by the joint and several signatures of
Petitioners Eduardo Dee and Arcelita Marquez Dee, who signed as
accommodation-mortgagors since all the collaterals were owned by them and
registered in their names. Moreover Petitioner NSBCI executed three promissory
notes. In addition, petitioner corporation also signed the Credit Agreement dated
August 31, 1989 relating to the revolving credit line of P7.7 Million x x x and the
Credit Agreement dated September 5, 1989 to support the unadvised line of
P300,000.00.
 On August 31, 1989, petitioner-spouses executed a Joint and Solidary
Agreement (JSA) in favor of Respondent PNB unconditionally and irrevocably
binding themselves to be jointly and severally liable with the borrower for the
payment of all sums due and payable to the Bank under the Credit Document.
Later on, Petitioner NSBCI failed to comply with its obligations under the
promissory notes.

On June 18, 1991, Petitioner Eduardo R. Dee on behalf of Petitioner NSBCI

sent a letter to the Branch Manager of the PNB Dagupan Branch requesting for a
90-day extension for the payment of interests and restructuring of its loan for
another term. Subsequently, NSBCI tendered payment to Respondent PNB of
three (3) checks aggregating P1,000,000.00.

In a meeting held on August 12, 1991, Respondent PNBs representative,

Mr. Rolly Cruzabra, was informed by [Petitioner] Eduardo Dee of his intention to
remit to Respondent PNB post-dated checks covering interests, penalties and part
of the loan principals of his due account.

On August 22, 1991, Respondent banks Crispin Carcamo wrote Petitioner

Eduardo Dee, informing him that Petitioner NSBCIs proposal was acceptable,
provided the total payment should be P4,128,968.29 that would cover the amount
of P1,019,231.33 as principal, P3,056,058.03 as interests and penalties, and
P53,678.93 for insurance[,] with the issuance of post-dated checks to be dated not
later than November 29, 1991.

On September 6, 1991, Petitioner Eduardo Dee wrote the PNB Branch

Manager reiterating his proposals for the settlement of Petitioner NSBCIs past due
loan account amounting to P7,019,231.33. Petitioner Eduardo Dee later tendered
four (4) post-dated Interbank checks aggregating P1,111,306.67 in favor of
Respondent PNB

Upon presentment, however, x x x check nos. 03500087 and 03500088 dated

September 29 and October 29, 1991 were dishonored by the drawee bank and
returned due to a stop payment order from petitioners.

On November 12, 1991, PNBs Mr. Carcamo wrote Petitioner Eduardo Dee
informing him that unless the dishonored checks were made good, said PNB
branch shall recall its recommendation to the Head Office for the restructuring of
the loan account and refer the matter to its legal counsel for legal action.
Petitioners did not heed respondents warning and as a result, the PNB Dagupan
Branch sent demand letters to Petitioner NSBCI at its office address at 1611 ERDC
Building, E. Rodriguez Sr. Avenue, Quezon City, asking it to settle its past due loan
account.

Petitioners nevertheless failed to pay their loan obligations within the time
frame given them and as a result, Respondent PNB filed with the Provincial Sheriff
of Pangasinan at Lingayen a Petition for Sale

The sheriff foreclosed the real estate mortgage and sold at public auction the
mortgaged properties of petitioner-spouses, with Respondent PNB being declared
the highest bidder for the amount of P10,334,000.00.

Copies of the Sheriffs Certificate of Sale were sent by registered mail to

petitioner corporations address petitioner-spouses address.

On April 6, 1992, the PNB Dagupan Branch Manager sent a letter to

petitioners at their address informing them that the properties securing their loan
account had been sold at public auction, that the Sheriffs Certificate of Sale had
been registered with the Registry of Deeds of Pangasinan and that a period of one
(1) year therefrom was granted to them within which to redeem their properties.

Petitioners failed to redeem their properties within the one-year redemption

period and so Respondent PNB executed a Deed of Absolute Sale consolidating
title to the properties in its name.

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

Petitioners refused to pay the above deficiency claim which compelled

Respondent PNB to institute the instant Complaint for the collection of its
deficiency claim.
ISSUE:

Whether or not the escalation clause is valid and whether or not it is violates
of the principle of mutuality of contracts.

RULING:

In each drawdown, the Promissory Notes specified the interest rate to be

charged: 19.5 percent in the first, and 21.5 percent in the second and again in the
third. However, a uniform clause therein permitted respondent to increase the rate
within the limits allowed by law at any time depending on whatever policy it may
adopt in the future x x x, without even giving prior notice to petitioners. The
Court holds that petitioners accessory duty to pay interest did not give respondent
unrestrained freedom to charge any rate other than that which was agreed upon.
No interest shall be due, unless expressly stipulated in writing. It would be the
zenith of farcicality to specify and agree upon rates that could be subsequently
upgraded at whim by only one party to the agreement.

The unilateral determination and imposition of increased rates is violative

of the principle of mutuality of contracts ordained in Article 1308 of the Civil
Code. One-sided impositions do not have the force of law between the parties,
because such impositions are not based on the parties essential equality.

Although escalation clauses are valid in maintaining fiscal stability and

retaining the value of money on long-term contracts, giving respondent an
unbridled right to adjust the interest independently and upwardly would completely
take away from petitioners the right to assent to an important modification in their
agreement and would also negate the element of mutuality in their contracts. The
clause cited earlier made the fulfillment of the contracts dependent exclusively
upon the uncontrolled will of respondent and was therefore void. Besides, the pro
forma promissory notes have the character of a contract dadhsion, where the
parties do not bargain on equal footing, the weaker partys the debtors
participation being reduced to the alternative to take it or leave it.
PRUDENTIAL BANK AND TRUST COMPANY (now BANK OF THE
PHILIPPINE ISLANDS vs. LIWAYWAY ABASOLO

Leonor Valenzuela-Rosales inherited two parcels of land situated in Palanan,

Sta.Cruz, Laguna. After she passed away, her heirs executed on June 14, 1993 a
Special Power of Attorney (SPA) in favor of Liwayway Abasolo empowering her
to sell the properties.[2]

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

On Corazon and respondents consultation with PBTCs Head Office, its employee,
Norberto Mendiola, allegedly advised respondent to issue an authorization for
Corazon to mortgage the properties, and for her (respondent) to act as one of the
co-makers so that the proceeds could be released to both of them.

To guarantee the payment of the property, Corazon executed on August 25,

1995 a Promissory Note for P2,448,960 in favor of respondent.

By respondents claim, in October 1995, Mendiola advised her to transfer the

properties first to Corazon for the immediate processing of Corazons loan
application with assurance that the proceeds thereof would be paid directly to her
(respondent), and the obligation would be reflected in a bank guarantee.

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

Corazons application for a loan with PBTCs Tondo Branch was approved on
December 1995. She thereupon executed a real estate mortgage covering the
properties to secure the payment of the loan. In the absence of a written request for
a bank guarantee, the PBTC released the proceeds of the loan to Corazon.
Respondent later got wind of the approval of Corazons loan application and the
release of its proceeds to Corazon who, despite repeated demands, failed to pay the
purchase price of the properties.

Respondent eventually accepted from Corazon partial payment in kind consisting

of one owner type jeepney and four passenger jeepney plus installment payments,
which, by the trial courts computation, totaled P665,000.

In view of Corazons failure to fully pay the purchase price, respondent filed a
complaint for collection of sum of money and annulment of sale and mortgage
with damages, against Corazon and PBTC (hereafter petitioner), before the
Regional Trial Court (RTC) of Sta. Cruz, Laguna

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

Petitioner also denied that there was any arrangement between it and respondent
that the proceeds of the loan would be released to her.[6] It claimed that it may
process a loan application of the registered owner of the real property who requests
that proceeds of the loan or part thereof be payable directly to a third party [but]
the applicant must submit a letter request to the Bank.[7]

On pre-trial, the parties stipulated that petitioner was not a party to the contract of
sale between respondent and Corazon; that there was no written request that the
proceeds of the loan should be paid to respondent; and that respondent received
five vehicles as partial payment of the properties.[8]

Despite notice, Corazon failed to appear during the trial to substantiate her claims.

By Decision of March 12, 2004,[9] Branch 91 of the Sta. Cruz, Laguna RTC
rendered judgment in favor of respondent and against Corazon who was made
directly liable to respondent, and against petitioner who was made subsidiarily
liable in the event that Corazon fails to pay. Thus the trial court disposed:
 WHEREFORE, premises considered, finding the plaintiff has
established her claim against the defendants, Corazon Marasigan and
Prudential Bank and Trust Company, judgment is hereby rendered in
favor of the plaintiff ordering:

Defendant Corazon Marasigan to pay the plaintiff the amount of

P1,783,960.00 plus three percent (3%) monthly interest per month
from August 25, 1995 until fully paid. Further, to pay the plaintiff the
sum equivalent to twenty percent five [sic] (25%) of P1,783,960.00 as
attorneys fees.

Defendant Prudential Bank and Trust Company to pay the plaintiff the
amount of P1,783,960.00 or a portion thereof plus the legal rate of
interest per annum until fully paid in the event that Defendant
Corazon Marasigan fails to pay the said amount or a portion thereof.

Other damages claimed not duly proved are hereby dismissed.

So Ordered.[10] (emphasis in the original; underscoring partly in the

original, partly supplied)
In finding petitioner subsidiarily liable, the trial court held that petitioner breached
its understanding to release the proceeds of the loan to respondent:

Liwayway claims that the bank should also be held responsible for
breach of its obligation to directly release to her the proceeds of the loan
or part thereof as payment for the subject lots. The evidence shows that
her claim is valid. The Bank had such an obligation as proven by
evidence. It failed to rebut the credible testimony of Liwayway which
was given in a frank, spontaneous, and straightforward manner and
withstood the test of rigorous cross-examination conducted by the
counsel of the Bank. Her credibility is further strengthened by the
corroborative testimony of Miguela delos Reyes who testified that she
went with Liwayway to the bank for several times. In her presence,
Norberto Mendiola, the head of the loan department, instructed
Liwayway to transfer the title over the subject lots to Corazon to
facilitate the release of the loan with the guarantee that Liwayway will
be paid upon the release of the proceeds.

Further, Liwayway would not have executed the deed of sale in

favor of Corazon had Norberto Mendiola did not promise and guarantee
that the proceeds of the loan would be directly paid to her. Based on
 ordinary human experience, she would not have readily transferred the
title over the subject lots had there been no strong and reliable guarantee.
In this case, what caused her to transfer title is the promise and guarantee
made by Norberto Mendiola that the proceeds of the loan would be
directly paid to her. [11] (emphasis underscoring supplied)

On appeal, the Court of Appeals by Decision of January 14, 2008[12], affirmed the
trial courts decision with modification on the amount of the balance of the
purchase price which was reduced from P1,783,960 to P1,753,960. It disposed:

WHEREFORE, premises considered, the assailed Decision dated

March 12, 2004 of the Regional Trial Court of Sta. Cruz, Laguna,
Branch 91, is AFFIRMED WITH MODIFICATION as to the amount
to be paid which is P1,753,960.00.

SO ORDERED.[13] (emphasis in the original; underscoring

supplied)

Petitioners motion for reconsideration having been denied by the appellate court by
Resolution of February 23, 2009, the present petition for review was filed.

The only issue petitioner raises is whether it is subsidiarily liable.

Held: The petition is meritorious.

In the absence of a lender-borrower relationship between petitioner and

Liwayway, there is no inherent obligation of petitioner to release the proceeds of
the loan to her.

To a banking institution, well-defined lending policies and sound lending practices

are essential to perform its lending function effectively and minimize the risk
inherent in any extension of credit.

The principle of relativity of contracts in Article 1311 of the Civil Code

supports petitioners cause:
 Art. 1311. Contracts take effect only between the parties, their
assigns and heirs, except in case where the rights and obligations arising
from the contract are not transmissible by their nature, or by stipulation
or by provision of law. The heir is not liable beyond the value of the
property he received from the decedent.

If a contract should contain some stipulation in favor of a third person,

he may demand its fulfillment provided he communicated his acceptance
to the obligor before its revocation. A mere incidental benefit or interest
of a person is not sufficient. The contracting parties must have clearly
and deliberately conferred a favor upon a third person. (underscoring
supplied)

For Liwayway to prove her claim against petitioner, a clear and deliberate act of
conferring a favor upon her must be present. A written request would have sufficed
to prove this, given the nature of a banking business, not to mention the amount
involved.

Since it has not been established that petitioner had an obligation to

Liwayway, there is no breach to speak of. Liwayways claim should only be
directed against Corazon.Petitioner cannot thus be held subisidiarily liable.

To the Court, Liwayway did not rely on Mendiolas representations, even if he

indeed made them. The contract for Liwayway to sell to Corazon was perfected
from the moment there was a meeting of minds upon the properties-object of the
contract and upon the price. Only the source of the funds to pay the purchase price
was yet to be resolved at the time the two inquired from Mendiola. Consider
Liwayways testimony:

Q: We are referring to the promissory note which you aforementioned a

while ago, why did this promissory note come about?

A: Because the negotiation was already completed, sir, and the deed of
sale will have to be executed, I asked the defendant (Corazon)
to execute the promissory note first before I could execute a
 deed of absolute sale, for assurance that she really pay me , sir.
[14]
(emphasis and underscoring supplied)

That it was on Corazons execution of a promissory note that prompted Liwayway

to finally execute the Deed of Sale is thus clear.

The trial Courts reliance on the doctrine of apparent authority that the principal, in
this case petitioner, is liable for the obligations contracted by its agent, in this case
Mendiola, does not lie. Prudential Bank v. Court of Appeals[15] instructs:

[A] banking corporation is liable to innocent third persons where

the representation is made in the course of its business by an agent acting
within the general scope of his authority even though, in the particular
case, the agent is secretly abusing his authority and attempting to
perpetuate fraud upon his principal or some person, for his own ultimate
benefit.[16] (underscoring supplied)

The onus probandi that attempt to commit fraud attended petitioners

employee Mendiolas acts and that he abused his authority lies on Liwayway. She,
however, failed to discharge the onus. It bears noting that Mendiola was not privy
to the approval or disallowance of Corazons application for a loan nor that he
would benefit by the approval thereof.

Aside from Liwayways bare allegations, evidence is wanting to show that

there was collusion between Corazon and Mendiola to defraud her. Even in
Liwayways Complaint, the allegation of fraud is specifically directed against
Corazon.[17]

IN FINE, Liwayways cause of action lies against only Corazon.

WHEREFORE, the Decision of January 14, 2008 of the Court of Appeals, in so

far as it holds petitioner, Prudential Bank and Trust Company (now Bank of the
Philippine Islands), subsidiary liable in case its co-defendant Corazon Marasigan,
who did not appeal the trial courts decision, fails to pay the judgment debt,
is REVERSED and SET ASIDE. The complaint against petitioner is
accordingly DISMISSED.