FULTRON IRON WORKS CO.

, plaintiff-appellee,
vs.
CHINA BANKING CORPORATION, ET AL., defendants.
CHINA BANKING CORPORATION, appellant.
Feria and La O, and Gibbs and McDonough for appellant.
Claro M. Recto and DeWitt, Perkins and Brady for appellee.

STREET, J.:
This action was instituted on June 23, 1926, in the Court of First Instance of the City of Manila by the Fulton Iron Works Co., a
Delaware corporation having its principal place of business in St. Louis, Missouri, and duly authorized under the laws of the
Philippine Islands to engage in business in this country. The defendants named in the complaint are the China Banking Corporation,
a domestic corporation having its principal place of business in the City of Manila, and one S. C. Schwarzkopf. In the petitory part of
the complaint judgment is sought against the two defendants jointly and severally for the sum of P131,197.10, with interest. As a
ground of action against the two defendants it is asserted in the complaint that the amount claimed by the plaintiff is part of a larger
sum of money (P176, 197.10) belonging to the plaintiff which had been deposited in the defendant bank by Schwarzkopf during the
year 1922, and which had been misappropriated and embezzled by him, with the full knowledge and consent of the defendant bank.
The idea underlying the action, as against the bank, is that it has been guilty of what may perhaps be styled a civil complicity in the
misappropriation of the money for which recovery is sought.
Upon hearing the cause, upon the separate answers of the two defendants, the trial court absolved Schwarckopf from the
complaint, for the reason that in two prior criminal proceedings he had been convicted of the offense of estafa, based upon his
misappropriated of the same money, and in said proceedings the obligation to indemnify the plaintiff had been imposed upon him in
the amount of P146,197.40. His Honor, however, gave judgment in favor of the plaintiff, the Fulton Iron Works Co., to recover of the
defendant bank the sum of P127,200.36, with lawful interest from June 23, 1926, the date of the filing of the complaint, and with
costs. From this judgment the defendant bank appealed.
It appears that in the month of March, 1921, the plaintiff the Fulton Iron Works Co., of St. Louis, Missouri, sold to the
Binalbagan Estate, Inc., a Philippine corporation, machinery for a sugar mill, for which the purchaser executed three notes
amounting to about $80,000. The first of these notes became due October 1, 1921, and the other two on April 1, 1922. Neither of
the three notes was paid at maturity, owing to the fact that, before the notes fell due, the Binalbagan Estate, Inc. suspended
payments and passed into the hands of the Philippine National Bank, its principal creditor, for administration.
The consequently delay in the payments of the notes caused the plaintiff to employ a firm of lawyers in Manila, of which S. C.
Schwarzkopf was then a member, to represent the plaintiff in an effort to obtain security for the indebtedness, with a view to its later
collection. At the time this retainer was effect, Schwarzkopf was in St. Louis, on a visit to the United States, and in order that the
plaintiff might comply with the laws of the Philippine Islands in the matter of obtaining a license to transact business here, the
plaintiff executed a formal power of attorney authorizing the members of Schwarzkopf's firm jointly and severally to accept service in
actions and to do other things necessary to enable the plaintiff to secure the contemplated license. It is noteworthy that the authority
of Schwarzkopf's firm to represent the plaintiff in the collection of the claims above mentioned did not proceed from this power, but
had its origin in the employment of said firm as attorneys in the matter.
Schwarzkopf returned to Manila in the early part of November, 1921, and the law firm to which he pertained was dissolved on
November 15, 1921. Under the dissolution agreement the matter of handling this collection devolved upon Schwarzkopf, and he
alone was thereafter concerned in the matter.
On December 13, 1921, Schwarzkopf opened a personal account, as a depositor, in the China Banking Corporation by
making a deposit, on that date, of the sum of P578. This account was at all times modest in sized, and on January 1, 1922, the
credit balance therein was P543.35. This account has little or no significance in the case, and it became defunct by September 1,
1922. It may be observed, however, that a few of the deposits in this account appear to have been taken from account No. 2 to
which reference will presently be made.
In the early part of the year 1922, the financial condition of the Binalbagan Estate, Inc. began to improve; and on January 13,
1922, D. M. Semple, manager of the Philippine Sugar Centrals Agency, a department of the Philippine National Bank, drew check
No. 574 for the sum of P10,000, payable to the order of Sydney C. Schwarzkopf, and delivered the same to him in part payment of
the indebtedness owing to the plaintiff from the Binalbagan Estate, Inc. Upon receiving this check Schwarzkopf signed a receipt as
"attorney-in-fact of Fulton Iron Works Co." The character of attorney-in-fact, thus assumed by Schwarzkopf, was of course a mere
fiction, as the power of attorney which he really possessed was limited to other matters. The point, however, is really of no moment.
The check for P10,000 above mentioned was duly indorsed by Schwarzkopf and deposited by him in a new account with the
defendant bank, known as "No. 2 account." This money was thereafter withdrawn from the bank from time to time by Schwarzkopf,

upon his personal checks, and used for his individual purposes. In the appealed judgment the defendant is held liable for this
money, a mere oversight resulting apparently, from a confusion of this matter with the more important issues involved in other parts
of the case. There is no proof that the defendant bank had any knowledge, or was chargeable with notice, that the P10,000 thus
deposited and drawn out belonged to any person other than Schwarzkopf himself; and, as depositor, Schwarzkopf of course had
absolute control of the account. A depositor is presumed to be the owner of funds standing in his name in a bank deposit; and where
a bank is not chargeable with notice that the money deposited in such account is the property of some other person than the
depositor, the bank is justified in paying out the money to the depositor or upon his order, and cannot be liable to any other person
as the true owner. It is hardly necessary to cite authority upon a proposition so manifestly in accord with the usage and the common
sense of the commercial community. The proposition stated is implicit in all the cases concerned with the question of the liability of a
bank to its depositors and other persons claiming an interest in the deposits.
Proceeding to the next collection effected by Schwarzkopf upon account of the plaintiff's claim against the Binalbagan Estate,
Inc., we find that on April 11, 1922, Schwarkopf received, from the manager of the Philippine Sugar Centrals Agency, a check for the
sum of P61,237.50. This check was made payable on its face to "S. C. Schwarkopf Attorney-in-Fact, Fulton Iron Works Co., or
order." After indorsing this check in the form in which it was drawn, Schwarzkopf opened a new account with the defendant bank,
entitled "S. C. Schwarzkopf, Attorney- in-Fact, Fulton Iron Works Co.," and deposited said check therein. This account remained
undisputed on the books of the bank for some two months, during which period it had an accretion of about P130.
Meanwhile, the No. 2 account which had been established back in January, became depleted, but the manager of the bank, in
view, no doubt, of the funds to Schwarzkopf's credit in the third account conceded to him a credit in No. 2 account of P25,000. By
June 15, 1922, said account became overdrawn to the extend of P22, 144.39, and it was obvious that the limit of the conceded
credit would soon be reached. The manager of the bank then intervened and requested Schwarzkopf to settle the overdraft. To
accomplish this Schwarkopf merely transferred, by check, the money to his credit in his special account as plaintiff's attorney-in-fact
to the No. 2 account. The amount thus transferred was P61,360.81, and the effect of the transfer was to absorb the overdraft and
place a credit balance of nearly P40,000 in No. 2 account. Schwarzkopf then purchased a draft on New York in the amount of
$15,000, and after some delay transmitted the same by mail to the plaintiff. This draft cost Schwarzkopf the sum of P30,375.02, and
it was the only remittance ever made by him to his client.
The principal question that arises upon the facts above stated is, whether the defendant bank is liable to the plaintiff for the
sum of P22, 144.39 which was thus applied to the payment of Schwarzkopf's personal indebtedness resulting from his overdraft in
the No. 2 account. Upon this point the first thing to be noted is that the very form in which the third account was carried on the books
of the defendant bank was sufficient to charge the bank with notice of the fact that the money deposited in said account belonged to
the Fulton Iron Works Co. and not to Schwarzkopf. It is commonly said, and truly said in a legal sense, that money has no earmarks.
But bank accounts and commercial paper can have earmarks, and these earmarks consist of the word or words which infallibly
convey to the mind notice that the money or credit represented by the account with which they are associated or the instrument
upon which they are written rightfully belongs to some other person than the one having control thereof. A bank cannot permit, much
less require, a depositor who is in control of a trust fund to apply any part of the same to his individual indebtedness to the bank.
The decisions to this effect are uniformly accordant and it is believed no creditable authority to the contrary can be produced from
any source. The expression "trust fund," in this connection, is not a technical term, and is applied in a loose sense to indicate the
situation where a bank account or negotiable securities of any sort are under the control of a person other than the true owner. The
following decisions are instructive as illustrating different phases of the rule above stated, the selection having been made with a
view to the fact that the cases cited are for the most part accessible in one or more series of annotated reports; Central Nat. Bank of
Baltimore vs. Conn. Mut. Life Ins. Co., 104 U. S., 54; 26 Law. ed., 693; Union Stock Yards Nat. Bank vs. Moore, 25 C. C. A., 150; 79
Fed., 705 Sayre vs. Weil, 94 Ala., 466; 15 L. R. A., 544; Am. Trust & Banking Co. vs. Boone, 102 Ga., 202; 40 L. R. A., 250; 66 Am.
St. Rep., 167; First Denton Nat. Bank vs. Kenney, 116 Md., 24; Ann. Cas. 19193B, 1337; Allen vs. Puritan Trust Co., 211 Mass.,
409; L. R. A. 1915C, 518 (and note); Emerado Farmers' El. Co. vs. Farmers' Bank, 20 N. D., 270; 29 L. R. A. (N. S.), 567; Baird vs.
Lorenz (N. D.), 61 L. R. A., 1385, 1389 (note); Walters Nat. Bank vs. Bantock, 41 Okla.,, 153; L. R. A. 1915C, 531; Interstate Nat.
Bank vs. Claxton 97 Tex., 569; 65 L. R. A., 820; 104 Am. St. Rep., 885; Boyle vs. Northwestern Nat. Bank of Superior, 125 Wis.,
498; 1 L. R. A. (N. S.) 1110 Am. St. Rep., 851; United States Fidelity & Gy. Co. vs. Adoue, 104 Tex., 379; 37 L. R. A. (N. S.), 409;
Ann. Cas. 1914B, 667; Underwood Ltd. vs. Bank of Liverpool (1924), 1 K. B., 755.
Upon the facts before us it is evident that when credit to the extent of P25,000 was conceded to Schwarzkopf in his personal
account No. 2, the eye of the banker was fixed upon the large amount then upon deposit to Schwarkopf's credit in his account as
attorney-in-fact; but of course, if a bank cannot apply the money in such an account, or even permit it to be applied, to the personal
indebtedness of the fiduciary depositor, it is not permissible for the bank to extend personal credit to such depositor upon the faith of
the trust account. From any point that the matter be viewed, the liability of the bank is clear to the extent of P22144.39 this being the
amount derived from Schwarkopf's account as attorney-in-fact which was absorbed by his overdraft in account No. 2 when the
transfer of the balance in the former account to the latter account was effected, in the manner already stated.
We next proceed to consider the disposition made of the proceeds of the third check collected by Schwarzkopf upon account
of plaintiff's claim against the Binalbagan Estate, Inc., from the Philippine National Bank. The amount of this collection was P104,
959.60, and it was paid, on October 11, 1922, by a cashier's check on the Philippine National Bank, payable "to the order of S. C.
Schwarzkopf, attorney-in-fact, Fulton Iron Works Co." Upon receiving this check, Schwarzkopf indorsed it in proper form, by writing
thereon the words "S. C. Schwarzkopf, attorney-in-fact, Fulton Iron Works Co.," to which he added another indorsement consisting
of his own name alone, and deposited the check in his personal account No. 2 with the defendant bank. The check thus delivered to
the bank was collected by it from the Philippine National Bank in ordinary course. Thereafter, in the course of the next few months,

Schwarzkopf withdrew, upon checks written by himself, the entire amount of the money to his credit in account No. 2, thus
misappropriating the money in said account to his own use.
It will be noted that the money thus squandered comprised not only the proceeds of the check last mentioned but the residue,
consisting of a few thousand pesos, which had been left in No. 2 account after the overdraft had been paid and Schwarzkopf had
remitted the draft of $15,000 to his principal in the United States. We consider that, from a legal point of view, the situation with
respect to this money is precisely the same as that presented with respect to the money which came into the account later by
deposit of the check for P104,959.60 above mentioned, because as to both funds, liability is sought to be fixed upon the bank by
reason of its knowledge of the source from which said funds were derived; and in this connection it should be noted that there is no
proof showing that the defendant bank had any knowledge of the misappropriation of this money by Schwarzkopf other than such as
might have been derived from an inspection of its own books and the checks by which the money was paid in and paid out.
The feature of the case now under consideration brings us, it must be admitted, into debatable territory, but a discriminating
analysis of the legal principles involved leads to the conclusion that the defendant cannot be held liable for money paid out by it in
ordinary course on checks, in regular form, drawn by Schwarzkopf on the No. 2 account.
The specialized function of bank is to serve as a place of deposit for money, to keep it safely while on deposit, and to pay it
out, upon demand to the person who effected the deposit or upon his order. A bank is not a guardian of trust funds deposited with it
in the sense that it must see to their proper application nor is it its business to pry into the uses to which moneys on deposit in its
vault are being put; and so long as it serves its function and pays the money out in good faith to the person who deposited it, or
upon his order, without knowledge or notice that it is in fact assisting in the misappropriation of the fund, the bank will be protected.
As is well said by the author of the monographic article on Banks and Banking in Ruling Case Law, It would seriously interfere with
commercial transactions to charge banks with the duty of supervising the administration of trust funds, when, in due course of
business, they receive checks and drafts in proper form drawn upon such funds in their custody. The law imposes no such duty
upon them (3 R. C. L., 549; see also cases cited in 7 C. J., 644, 645, note 25).
There are, it is true, decisions from a few courts, deservedly held in high esteem, to the effect that a bank makes itself an
effective accomplice in the conversion of a trust fund when, with notice of the character of such fund, it permits the person in control
thereof to deposit it in his personal account. But the decided weight of judicial authority is to the contrary; and it is generally held that
the mere act of a bank in entering a trust fund to the personal account of the fiduciary, knowing it to be a trust fund, will not make the
bank liable in case of the subsequent misappropriation of the money by the fiduciary. (United States Fidelity & Gy. Co. vs. First Nat.
Bank, 18 Cal. App., 437: Goodwin vs. Am. Nat. Bank, 48 Conn., 550; Batchelder vs. Cen. Nat. Bank of Boston, 188 Mass., 25; Allen
vs. Puritan Trust Co., 211 Mass., 409; L. R. A. 1915C, 518; Gate City Bldg. & Loan Assoc. vs. National Bank of Commerce, 126
Mo., 82; 27 L. R. A., 401; 47 Am. St. Rep., 630; Bischoff vs. Yorkville Bank, 218 N. Y., 106; Havana C. R. Co. vs. Knickerbocker
Trust Co., 198 N. Y., 422; L. R. A. 1915B, 720). The bank has the right to presume that the fiduciary will apply a trust fund to its
proper purpose, and at any rate the bank is not required to send a courier with the money to see that it reaches a proper destination.
In the case before us an intimate study of the checks which came into the defendant bank against account No. 2 over a series
of months, would have led a discerning person to the conclusion that the plaintiff's money was being squandered, but such an
inference could not legitimately have been drawn from the first few checks which were drawn upon the fund, and it would be hard to
say just where the bank, supposing its suspicions to have been aroused, should have intervened. No such a duty is imposed. Of
course, when the bank became a party to the application of part of the plaintiff's money to the satisfaction of the overdraft in No. 2
account, it was directly chargeable with knowledge of the misappropriation of the fund to the extent of the overdraft and that fact, as
we have already said, made the bank liable. But this rule cannot be extented to subsequent acts of malversation and
misappropriation committed by the fiduciary against the real owner of the fund.
Furthermore, it is undeniable that a bank may incur liability by assisting the fiduciary to accomplish a misappropriation,
although the bank does not actually profit by the misappropriation. A decision illustrating this aspect of the law is found in Washborn
vs. Linscott State Bank (87 Kan., 698), where a bank, to help the treasurer of a lodge to conceal his defalcations, permitted him to
overdraw, and when his account were to be audited, issued to him a deposit certificate for the shortage, payable to the lodge. After
the audit was made, the certificate was returned and cancelled, and the shortage reappeared. The court held that a loan had been
made to the treasurer personally, and that the bank became liable to the lodge upon cancelling the deposit certificate.lawphil.net
Our discussion of this phase of the case should not be concluded without reference to Bischoff vs. Yorville Bank (218 N. Y.,
106), which undoubtedly affords some support to the contention of the appellee that the defendant bank is liable not only for the
proceeds of the last check collected by Schwarzkopf, but for all of the money which was transferred to account No. 2 from the
account of Schawarzkopf as attorney-in-fact. This decision comes, it must be admitted, from a court of high repute. But we are
unable to accept the court's conclusions, as applicable to the facts before us. In the case mentioned it appeared that an executor,
named Poggenburg, having money on deposit in a certain bank to his credit as executor, gradually withdrew about $13,000 from
said deposit by checks drawn by him, over a long period of time, in the character of executor. These checks were indorsed by
Poggenburg in his own name simply and deposited in the defendant Yorkville Bank to his personal credit. At the inception of this
series of transactions Poggenburg was indebted by note to the defendant and payments were made on this note and other notes
thereafter executed in favor of the bank, out of the funds transferred as above stated. The court held, upon the facts before, it that
the defendant knew at all times that the credits created by the various deposits through checks of the executor were assets
pertaining to the estate of which Poggenburg was executor; and from this fact, in connection with the misapplication of part of the

money to the payment of the personal notes of Poggenburg, the court held that the defendant bank was liable to the extent of the
whole amount misappropriated by means of the personal account.
It will be noted that this decision was made in third instance, after a trial in first instance possibly before a jury and after the
judgment against the bank been affirmed upon appeal in the appellate division of the Supreme Court. The prior history of the case
was therefore such as to entitle the findings of fact of the two prior courts of great weight, and these courts had found in effect that
the defendant bank had acted in bad faith. If not explicable upon this ground, the decision in the Court of Appeals must be
considered a unique variant from accepted doctrine in this that while repudiating the idea, favored by a few courts that the act of
depositing a trust fund in the personal accounts of the fiduciary is an effective act of conversion on the part both of bank and
fiduciary, the court nevertheless held that the act of the bank in permitting the application of part of the money to the personal
indebtedness of the fiduciary afforded a sufficient basis for finding the bank to have been an accomplice in the subsequent
misapplication, by the fiduciary, of other portions of the deposit. We can accede to the first of these propositions but not to the
second. In this connection we refer to the Annotation appended to Allen vs. Puritan Trust Co. (L. R. A. 1915C, 518, 529), where the
pertinent cases are analyzed and the conclusion stated 1 that, by the weight of authority, the placing of a trust fund in the personal
account of the fiduciary does not make the bank liable for a subsequent misappropriation of the money by the former. For the rest it
is enough to say that there is no proof in this case that the defendant bank had any guilty connection in fact with the dishonest acts
of Schwarzkopf, in squandering the contents of the No. 2 account after he had made his remittance of $15,000 to his principal.
In conclusion we ought to add that the legal principles involved in this decision are not directly deducible from the provisions
of the Negotiable Instruments Law, which is in force in this jurisdiction (Act No. 2031); and there is no provision of the Civil Code or
Code of Commerce directly bearing upon the point under consideration. The liability of the defendant bank, to the extent recognized
in this decision proceeds upon the fundamental idea that a creditor cannot apply to the obligation of his debtor money which as he
knows belongs to another, without the consent of the latter, a principle implicit in all law. We note that the attorneys for the
appellant bank have suggested in their brief that, supposing the bank to have been an accomplice of Schwarzkopf in the
misappropriation of the plaintiff's money, its subsidiary liability was extinguished as a result of the criminal proceedings against
Schwarzkopf. This suggestion is clearly untenable, with respect to the liability which is fixed upon the bank by this decision.
From what has been said it follows that the appealed judgment must be modified and the same is hereby modified by
reducing the amount of the judgment against the bank to the sum of P22,144.39 with lawful interest from June 23, 1926 until date of
payment, 2without pronouncement as to costs. So ordered.
Jai alai vs bpi
FACTS:
Checks were deposited by petitioner in its current account with the
bank. These checks were from a certain Ramirez, a consistent better in its games, who was a sales agent from InterIsland Gas. Inter-Island later found out that of the forgeries committed in the checks and thus, it informed all the parties
concerned. Upon the demands on the bank as the collecting bank, it debited the account of petitioner. Thereafter, petitioner
tried to issue a check for payment of shares of stock but such was dishonored for insufficient funds. It filed a complaint
against the bank.

HELD:
Respondent bank acted within legal bounds when it debited the account of
petitioner. When the petitioner deposited the checks to its account, the relationship created was one of agency still and not
of creditor-debtor. The bank was to collect from the drawees of the checks with the corresponding
proceeds.
The Bank may have the proceeds already when it debited the account of petitioner. Nonetheless, there is still no creditordebtor relationship.
Following Section 23, a forged signature is wholly inoperative and no right to discharge it or enforce its payment can be acquired
through or under the forged signature except against a party who cannot invoke its forgery or
want of authority. It stands to reason that as a collecting bank which
indorsed the checks to the drawee-banks for clearing, should be liable to the latter for reimbursement for the indorsements on
the checks had been forged prior to their delivery to the petitioner. The payments made by the
drawee banks to respondent were ineffectivethe creditor-debtor relationship hadnt been validly effected.

Republic vs Sandiganbayan Case Digest

Republic of the Philippines (Presidential Commission on Good Government) vs. Sandiganbayan
[GR 107789, 30 April 2003];
Africa vs. Sandiganbayan [GR 147214]

Facts: On 7 August 1991, the Presidential Commission on Good Government (PCGG) conducted an Eastern Telecommunications,
Philippines, Inc. (ETPI) stockholders meeting during which a PCGG controlled board of directors was elected. A special
stockholders meeting was later convened by the registered ETPI stockholders wherein another set of board of directors was
elected, as a result of which two sets of such board and officers were elected. Victor Africa, a stockholder of ETPI, alleging that the
PCGG had since 29 January 1988 been "illegally 'exercising' the rights of stockholders of ETPI," especially in the election of the
members of the board of directors, filed a motion before the Sandiganbayan, prayed that said court order the "calling and holding of
the Eastern Telecommunications, Philippines, Inc. (ETPI) annual stockholders meeting for 1992 under the [c]ourt's control and
supervision and prescribed guidelines." The PCGG did not object to Africa's motion provided that "(1) An Order be issued upholding
the right of PCGG to vote all the Class "A" shares of ETPI; (2) In the alternative, in the remote event that PCGG's right to vote the
sequestered shares be not upheld, an Order be issued (a) disregarding the Stock and Transfer Book and Booklet of Stock
Certificates of ETPI in determining who can vote the shares in an Annual Stockholders Meeting of ETPI, (b) allowing PCGG to vote
23.9% of the total subscription in ETPI, and (c) directing the amendment of the Articles of Incorporation and By-laws of ETPI
providing for the minimum safeguards for the conservation of assets prior to the calling of a stockholders meeting. By the assailed
Resolution of 13 November 1992, the Sandiganbayan resolved Africa's motion, ordering the conduct of an annual stockholders
meeting of ETPI, for 1992. Assailing the foregoing resolution, the PCGG filed before the Supreme Court a petition (GR 107789) for
Certiorari, Mandamus and Prohibition.

By Resolution of 26 November 1992, the Supreme Court enjoined the Sandiganbayan from (a) implementing its Resolution of 13
November 1992, and (b) holding the stockholders' meeting of ETPI scheduled on 27 November 1992. On 7 December 1992,
Aerocom Investors and Managers, Inc. (AEROCOM), Benito Nieto, Carlos Nieto, Manuel Nieto III, Ramon Nieto, Rosario Arellano,
Victoria Legarda, Angela Lobregat, Ma. Rita de los Reyes, Carmen Tuazon and Rafael Valdez, all stockholders of record of ETPI,
filed a motion to intervene in GR 107789. Their motion was granted by the Supreme Court by Resolution of 14 January 1993. After
the parties submitted their respective memoranda, the PCGG, in early 1995, filed a "VERY URGENT PETITION FOR AUTHORITY
TO HOLD SPECIAL STOCKHOLDERS' MEETING FOR [THE] SOLE PURPOSE OF INCREASING [ETPI's] AUTHORIZED
CAPITAL STOCK," it claiming that the increase in authorized capital stock was necessary in light of the requirements laid down by
Executive Order 109 and Republic Act 7975. By Resolution of 7 May 1996, the Supreme Court resolved to refer the PCGG's very
urgent petition to hold the special stockholders' meeting to the Sandiganbayan for reception of evidence and resolution. In
compliance therewith, the Sandiganbayan issued a Resolution of 13 December 1996, granting the PCGG "authority to cause the
holding of a special stockholders' meeting of ETPI for the sole purpose of increasing ETPI's authorized capital stock and to vote
therein the sequestered Class 'A' shares of stock." The PCGG-controlled ETPI board of directors thus authorized the ETPI Chair
and Corporate Secretary to call the special stockholders meeting. Notices were sent to those entitled to vote for a meeting on 17
March 1997. The meeting was held as scheduled and the increase in ETPI's authorized capital stock from P250 Million to P2.6
Billion was "unanimously approved." On 1 April 1997, Africa filed before the Supreme Court a motion to cite the PCGG "and its
accomplices" in contempt and "to nullify the 'stockholders meeting' called/conducted by PCGG and its accomplices," he contending
that only this Court, and not the Sandiganbayan, has the power to authorize the PCGG to call a stockholders meeting and vote the
sequestered shares. Africa went on to contend that, assuming that the Sandiganbayan had such power, its Resolution of 13
December 1996 authorizing the PCGG to hold the stockholders meeting had not yet become final because the motions for
reconsideration of said resolution were still pending. Further, Africa alleged that he was not given notice of the meeting, and the
PCGG had no right to vote the sequestered Class "A" shares. A motion for leave to intervene relative to Africa's "Motion to Cite the
PCGG and its Accomplices in Contempt" was filed by ETPI. The Supreme Court granted the motion for leave but ETPI never filed
any pleading relative to Africa's motion to cite the PCGG in contempt. By Resolution of 16 February 2001, the Sandiganbayan finally
resolved to deny the motions for reconsideration of its Resolution of 13 December 1996, prompting Africa to file on 6 April 2001
before the Supreme Court a petition for Review on Certiorari (GR 147214), challenging the Sandiganbayan Resolutions of 13
December 1996 (authorizing the holding of a stockholders meeting to increase ETPI's authorized capital stock and to vote therein
the sequestered Class "A" shares of stock) and 16 February 2001 (denying reconsideration of the December 13, 1996 Resolution).
The petitions were consolidated.

Issue:

1.
2.

Whether the PCGG can vote the sequestered ETPI Class "A" shares in the stockholders meeting for the election of the
board of directors.
Whether the Sandiganbayan can order the Division Clerk of Court to call the stockholders meeting and in appointing then
Sandiganbayan Associate Justice Sabino de Leon, Jr. to control and supervise the same.

Held:

1. When sequestered shares registered in the names of private individuals or entities are alleged to have been acquired with illgotten wealth, then the two-tiered test is applied. However, when the sequestered shares in the name of private individuals or
entities are shown, prima facie, to have been (1) originally government shares, or (2) purchased with public funds or those affected
with public interest, then the two-tiered test does not apply. Rather, the public character exception in Baseco v. PCGG and
Cojuangco Jr. v. Roxas prevail; that is, the government shall vote the shares.

2. The Clerk of Court, who is already saddled with judicial responsibilities, need not be burdened with the additional duties of a
corporate secretary. Moreover, the Clerk of Court may not have the requisite knowledge and expertise to discharge the functions of
a corporate secretary. The case of Board of Directors and Election Committee of SMB Workers Savings and Loan Asso., Inc. v.
Tan, etc., et al. (105 Phil. 426 (1959). Vide also 5 Fletcher Cyc Corp (Perm Ed) 2074; 18A Am Jur 2d ) provides a solution to the
Sandiganbayan's dilemma of calling a meeting when ETPI had two sets of officers. There, the Supreme Court upheld the creation of
a committee empowered to call, conduct and supervise the election of the board of directors. Such a committee composed of
impartial persons knowledgeable in corporate proceedings would provide the needed expertise and objectivity in the calling and the
holding of the meeting without compromising the Sandiganbayan or its officers. The appointment of the committee members and the
delineation of the scope of the duties of the committee may be made pursuant to an agreement by the parties or in accordance with
the provisions of Rule 9 (Management Committee) of the Interim Rules of Procedure for Intra-Corporate Controversies insofar as
they are applicable.

JOSE C. GO, Petitioner,

vs.
BANGKO SENTRAL NG PILIPINAS, Respondent.
DECISION
BRION, J.:
Through the present petition for review on certiorari,1 petitioner Jose C. Go (Go) assails the October 26, 2006 decision2 of the Court
of Appeals (CA) in CA-G.R. SP No. 79149, as well as its June 4, 2007 resolution. 3 The CA decision and resolution annulled and set
aside the May 20, 20034 and June 30, 20035 orders of the Regional Trial Court (RTC), Branch 26, Manila which granted Gos motion
to quash the Information filed against him.
THE FACTS
On August 20, 1999, an Information6 for violation of Section 83 of Republic Act No. 337 (RA 337) or the General Banking Act, as
amended by Presidential Decree No. 1795, was filed against Go before the RTC. The charge reads:
That on or about and during the period comprised between June 27, 1996 and September 15, 1997, inclusive, in the City of Manila,
Philippines, the said accused, being then the Director and the President and Chief Executive Officer of the Orient Commercial
Banking Corporation (Orient Bank), a commercial banking institution created, organized and existing under Philippines laws, with its
main branch located at C.M. Recto Avenue, this City, and taking advantage of his position as such officer/director of the said bank,
did then and there wilfully, unlawfully and knowingly borrow, either directly or indirectly, for himself or as the representative of his
other related companies, the deposits or funds of the said banking institution and/or become a guarantor, indorser or obligor for
loans from the said bank to others, by then and there using said borrowed deposits/funds of the said bank in facilitating and granting
and/or caused the facilitating and granting of credit lines/loans and, among others, to the New Zealand Accounts loans in the total
amount of TWO BILLION AND SEVEN HUNDRED FIFTY-FOUR MILLION NINE HUNDRED FIVE THOUSAND AND EIGHT
HUNDRED FIFTY-SEVEN AND 0/100 PESOS, Philippine Currency, said accused knowing fully well that the same has been done
by him without the written approval of the majority of the Board of Directors of said Orient Bank and which approval the said
accused deliberately failed to obtain and enter the same upon the records of said banking institution and to transmit a copy of which
to the supervising department of the said bank, as required by the General Banking Act.
CONTRARY TO LAW. [Emphasis supplied.]
On May 28, 2001, Go pleaded not guilty to the offense charged.
After the arraignment, both the prosecution and accused Go took part in the pre-trial conference where the marking of the
voluminous evidence for the parties was accomplished. After the completion of the marking, the trial court ordered the parties to
proceed to trial on the merits.
Before the trial could commence, however, Go filed on February 26, 20037 a motion to quash the Information, which motion Go
amended on March 1, 2003.8 Go claimed that the Information was defective, as the facts charged therein do not constitute an
offense under Section 83 of RA 337 which states:
No director or officer of any banking institution shall either directly or indirectly, for himself or as the representative or agent of
another, borrow any of the deposits of funds of such banks, nor shall he become a guarantor, indorser, or surety for loans from such
bank, to others, or in any manner be an obligor for money borrowed from the bank or loaned by it, except with the written approval
of the majority of the directors of the bank, excluding the director concerned. Any such approval shall be entered upon the records of
the corporation and a copy of such entry shall be transmitted forthwith to the appropriate supervising department. The office of any
director or officer of a bank who violates the provisions of this section shall immediately become vacant and the director or officer
shall be punished by imprisonment of not less than one year nor more than ten years and by a fine of not less than one thousand
nor more than ten thousand pesos.
The Monetary Board may regulate the amount of credit accommodations that may be extended, directly or indirectly, by banking
institutions to their directors, officers, or stockholders. However, the outstanding credit accommodations which a bank may extend to
each of its stockholders owning two percent (2%) or more of the subscribed capital stock, its directors, or its officers, shall be limited
to an amount equivalent to the respective outstanding deposits and book value of the paid-in capital contribution in the bank.
Provided, however, that loans and advances to officers in the form of fringe benefits granted in accordance with rules and
regulations as may be prescribed by Monetary Board shall not be subject to the preceding limitation. (As amended by PD 1795)
In addition to the conditions established in the preceding paragraph, no director or a building and loan association shall engage in
any of the operations mentioned in said paragraphs, except upon the pledge of shares of the association having a total withdrawal
value greater than the amount borrowed. (As amended by PD 1795)

In support of his motion to quash, Go averred that based on the facts alleged in the Information, he was being prosecuted for
borrowing the deposits or funds of the Orient Bank and/or acting as a guarantor, indorser or obligor for the banks loans to other
persons. The use of the word "and/or" meant that he was charged for being either a borrower or a guarantor, or for being both a
borrower and guarantor. Go claimed that the charge was not only vague, but also did not constitute an offense. He posited that
Section 83 of RA 337 penalized only directors and officers of banking institutions who acted either as borrower or as guarantor, but
not as both.
Go further pointed out that the Information failed to state that his alleged act of borrowing and/or guarantying was not among the
exceptions provided for in the law. According to Go, the second paragraph of Section 83 allowed banks to extend credit
accommodations to their directors, officers, and stockholders, provided it is "limited to an amount equivalent to the respective
outstanding deposits and book value of the paid-in capital contribution in the bank." Extending credit accommodations to bank
directors, officers, and stockholders is not per se prohibited, unless the amount exceeds the legal limit. Since the Information failed
to state that the amount he purportedly borrowed and/or guarantied was beyond the limit set by law, Go insisted that the acts so
charged did not constitute an offense.
Finding Gos contentions persuasive, the RTC granted Gos motion to quash the Information on May 20, 2003. It denied on June 30,
2003 the motion for reconsideration filed by the prosecution.
The prosecution did not accept the RTC ruling and filed a petition for certiorari to question it before the CA. The Information, the
prosecution claimed, was sufficient. The word "and/or" did not materially affect the validity of the Information, as it merely stated a
mode of committing the crime penalized under Section 83 of RA 337. Moreover, the prosecution asserted that the second paragraph
of Section 83 (referring to the credit accommodation limit) cannot be interpreted as an exception to what the first paragraph
provided. The second paragraph only sets borrowing limits that, if violated, render the bank, not the director-borrower, liable. A
violation of the second paragraph of Section 83 under which Go is being prosecuted is therefore separate and distinct from a
violation of the first paragraph. Thus, the prosecution prayed that the orders of the RTC quashing the Information be set aside and
the criminal case against Go be reinstated.
On October 26, 2006, the CA rendered the assailed decision granting the prosecutions petition for certiorari. 9 The CA declared that
the RTC misread the law when it decided to quash the Information against Go. It explained that the allegation that Go acted either
as a borrower or a guarantor or as both borrower and guarantor merely set forth the different modes by which the offense was
committed. It did not necessarily mean that Go acted both as borrower and guarantor for the same loan at the same time. It agreed
with the prosecutions stand that the second paragraph of Section 83 of RA 337 is not an exception to the first paragraph. Thus, the
failure of the Information to state that the amount of the loan Go borrowed or guaranteed exceeded the legal limits was, to the CA,
an irrelevant issue. For these reasons, the CA annulled and set aside the RTCs orders and ordered the reinstatement of the
criminal charge against Go. After the CAs denial of his motion for reconsideration, 10 Go filed the present appeal by certiorari.
THE PETITION
In his petition, Go alleges that the appellate court legally erred in overturning the trial courts orders. He insists that the Information
failed to allege the acts or omissions complained of with sufficient particularity to enable him to know the offense being charged; to
allow him to properly prepare his defense; and likewise to allow the court to render proper judgment.
Repeating his arguments in his motion to quash, Go reads Section 83 of RA 337 as penalizing a director or officer of a banking
institution for either borrowing the deposits or funds of the bank, or guaranteeing or indorsing loans to others, but not for assuming
both capacities. He claimed that the prosecutions shotgun approach in alleging that he acted as borrower and/or guarantor
rendered the Information highly defective for failure to specify with certainty the specific act or omission complained of. To petitioner
Go, the prosecutions approach was a clear violation of his constitutional right to be informed of the nature and cause of the
accusation against him.
Additionally, Go reiterates his claim that credit accommodations by banks to their directors and officers are legal and valid, provided
that these are limited to their outstanding deposits and book value of the paid-in capital contribution in the bank. The failure to state
that he borrowed deposits and/or guaranteed loans beyond this limit rendered the Information defective. He thus asks the Court to
reverse the CA decision to reinstate the criminal charge.
In its Comment,11 the prosecution raises the same defenses against Gos contentions. It insists on the sufficiency of the allegations
in the Information and prays for the denial of Gos petition.
THE COURTS RULING
The Court does not find the petition meritorious and accordingly denies it.
The Accuseds Right to be Informed

Under the Constitution, a person who stands charged of a criminal offense has the right to be informed of the nature and cause of
the accusation against him.12 The Rules of Court, in implementing the right, specifically require that the acts or omissions
complained of as constituting the offense, including the qualifying and aggravating circumstances, must be stated in ordinary and
concise language, not necessarily in the language used in the statute, but in terms sufficient to enable a person of common
understanding to know what offense is being charged and the attendant qualifying and aggravating circumstances present, so that
the accused can properly defend himself and the court can pronounce judgment. 13 To broaden the scope of the right, the Rules
authorize the quashal, upon motion of the accused, of an Information that fails to allege the acts constituting the offense. 14
Jurisprudence has laid down the fundamental test in appreciating a motion to quash an Information grounded on the insufficiency of
the facts alleged therein. We stated in People v. Romualdez15 that:
The determinative test in appreciating a motion to quash xxx is the sufficiency of the averments in the information, that is, whether
the facts alleged, if hypothetically admitted, would establish the essential elements of the offense as defined by law without
considering matters aliunde. As Section 6, Rule 110 of the Rules of Criminal Procedure requires, the information only needs to state
the ultimate facts; the evidentiary and other details can be provided during the trial.
To restate the rule, an Information only needs to state the ultimate facts constituting the offense, not the finer details of why and how
the illegal acts alleged amounted to undue injury or damage matters that are appropriate for the trial. [Emphasis supplied]
The facts and circumstances necessary to be included in the Information are determined by reference to the definition and elements
of the specific crimes. The Information must allege clearly and accurately the elements of the crime charged.16
Elements of Violation of
Section 83 of RA 337
Under Section 83, RA 337, the following elements must be present to constitute a violation of its first paragraph:
1. the offender is a director or officer of any banking institution;
2. the offender, either directly or indirectly, for himself or as representative or agent of another, performs any of the
following acts:
a. he borrows any of the deposits or funds of such bank; or
b. he becomes a guarantor, indorser, or surety for loans from such bank to others, or
c. he becomes in any manner an obligor for money borrowed from bank or loaned by it;
3. the offender has performed any of such acts without the written approval of the majority of the directors of the bank,
excluding the offender, as the director concerned.
A simple reading of the above elements easily rejects Gos contention that the law penalizes a bank director or officer only either for
borrowing the banks deposits or funds or for guarantying loans by the bank, but not for acting in both capacities. The essence of the
crime is becoming an obligor of the bank without securing the necessary written approval of the majority of the banks directors.
The second element merely lists down the various modes of committing the offense. The third mode, by declaring that "[no director
or officer of any banking institution shall xxx] in any manner be an obligor for money borrowed from the bank or loaned by it," in fact
serves a catch-all phrase that covers any situation when a director or officer of the bank becomes its obligor. The prohibition is
directed against a bank director or officer who becomes in any manner an obligor for money borrowed from or loaned by the bank
without the written approval of the majority of the banks board of directors. To make a distinction between the act of borrowing and
guarantying is therefore unnecessary because in either situation, the director or officer concerned becomes an obligor of the bank
against whom the obligation is juridically demandable.
The language of the law is broad enough to encompass either act of borrowing or guaranteeing, or both. While the first paragraph of
Section 83 is penal in nature, and by principle should be strictly construed in favor of the accused, the Court is unwilling to adopt a
liberal construction that would defeat the legislatures intent in enacting the statute. The objective of the law should allow for a
reasonable flexibility in its construction. Section 83 of RA 337, as well as other banking laws adopting the same prohibition, 17 was
enacted to ensure that loans by banks and similar financial institutions to their own directors, officers, and stockholders are above
board.18 Banks were not created for the benefit of their directors and officers; they cannot use the assets of the bank for their own
benefit, except as may be permitted by law. Congress has thus deemed it essential to impose restrictions on borrowings by bank
directors and officers in order to protect the public, especially the depositors.19 Hence, when the law prohibits directors and officers

of banking institutions from becoming in any manner an obligor of the bank (unless with the approval of the board), the terms of the
prohibition shall be the standards to be applied to directors transactions such as those involved in the present case.
Credit accommodation limit is not an exception nor is it an element of the offense
Contrary to Gos claims, the second paragraph of Section 83, RA 337 does not provide for an exception to a violation of the first
paragraph thereof, nor does it constitute as an element of the offense charged. Section 83 of RA 337 actually imposes three
restrictions: approval, reportorial, and ceiling requirements.
The approval requirement (found in the first sentence of the first paragraph of the law) refers to the written approval of the majority
of the banks board of directors required before bank directors and officers can in any manner be an obligor for money borrowed
from or loaned by the bank. Failure to secure the approval renders the bank director or officer concerned liable for prosecution and,
upon conviction, subjects him to the penalty provided in the third sentence of first paragraph of Section 83.
The reportorial requirement, on the other hand, mandates that any such approval should be entered upon the records of the
corporation, and a copy of the entry be transmitted to the appropriate supervising department. The reportorial requirement is
addressed to the bank itself, which, upon its failure to do so, subjects it to quo warranto proceedings under Section 87 of RA 337.20
The ceiling requirement under the second paragraph of Section 83 regulates the amount of credit accommodations that banks
may extend to their directors or officers by limiting these to an amount equivalent to the respective outstanding deposits and book
value of the paid-in capital contribution in the bank. Again, this is a requirement directed at the bank. In this light, a prosecution for
violation of the first paragraph of Section 83, such as the one involved here, does not require an allegation that the loan exceeded
the legal limit. Even if the loan involved is below the legal limit, a written approval by the majority of the banks directors is still
required; otherwise, the bank director or officer who becomes an obligor of the bank is liable. Compliance with the ceiling
requirement does not dispense with the approval requirement.
Evidently, the failure to observe the three requirements under Section 83 paves the way for the prosecution of three different
offenses, each with its own set of elements. A successful indictment for failing to comply with the approval requirement will not
necessitate proof that the other two were likewise not observed.
Rules of Court allow amendment of insufficient Information
Assuming that the facts charged in the Information do not constitute an offense, we find it erroneous for the RTC to immediately
order the dismissal of the Information, without giving the prosecution a chance to amend it. Section 4 of Rule 117 states:
SEC. 4. Amendment of complaint or information.If the motion to quash is based on an alleged defect of the complaint or
information which can be cured by amendment, the court shall order that an amendment be made.
If it is based on the ground that the facts charged do not constitute an offense, the prosecution shall be given by the court an
opportunity to correct the defect by amendment. The motion shall be granted if the prosecution fails to make the amendment, or the
complaint or information still suffers from the same defect despite the amendment. [Emphasis supplied]
Although an Information may be defective because the facts charged do not constitute an offense, the dismissal of the case will not
necessarily follow. The Rules specifically require that the prosecution should be given a chance to correct the defect; the court can
order the dismissal only upon the prosecutions failure to do so. The RTCs failure to provide the prosecution this opportunity twice21
constitutes an arbitrary exercise of power that was correctly addressed by the CA through the certiorari petition. This defect in the
RTCs action on the case, while not central to the issue before us, strengthens our conclusion that this criminal case should be
resolved through full-blown trial on the merits.
WHEREFORE, we DENY the petitioners petition for review on certiorari and AFFIRM the decision of the Court of Appeals in CAG.R. SP No. 79149, promulgated on October 26, 2006, as well as its resolution of June 4, 2007. The Regional Trial Court, Branch
26, Manila is directed to PROCEED with the hearing of Criminal Case No. 99-178551. Costs against the petitioner.
SO ORDERED.

CENTRAL BANK OF THE PHILIPPINES and ACTING DIRECTOR ANTONIO T. CASTRO, JR. OF THE DEPARTMENT OF
COMMERCIAL AND SAVINGS BANK, in his capacity as statutory receiver of Island Savings Bank, petitioners,
vs.
THE HONORABLE COURT OF APPEALS and SULPICIO M. TOLENTINO, respondents.
I.B. Regalado, Jr., Fabian S. Lombos and Marino E. Eslao for petitioners.
Antonio R. Tupaz for private respondent.
MAKASIAR, CJ.:
This is a petition for review on certiorari to set aside as null and void the decision of the Court of Appeals, in C.A.-G.R. No. 52253-R
dated February 11, 1977, modifying the decision dated February 15, 1972 of the Court of First Instance of Agusan, which dismissed
the petition of respondent Sulpicio M. Tolentino for injunction, specific performance or rescission, and damages with preliminary
injunction.
On April 28, 1965, Island Savings Bank, upon favorable recommendation of its legal department, approved the loan application for
P80,000.00 of Sulpicio M. Tolentino, who, as a security for the loan, executed on the same day a real estate mortgage over his 100hectare land located in Cubo, Las Nieves, Agusan, and covered by TCT No. T-305, and which mortgage was annotated on the said
title the next day. The approved loan application called for a lump sum P80,000.00 loan, repayable in semi-annual installments for a
period of 3 years, with 12% annual interest. It was required that Sulpicio M. Tolentino shall use the loan proceeds solely as an
additional capital to develop his other property into a subdivision.
On May 22, 1965, a mere P17,000.00 partial release of the P80,000.00 loan was made by the Bank; and Sulpicio M. Tolentino and
his wife Edita Tolentino signed a promissory note for P17,000.00 at 12% annual interest, payable within 3 years from the date of
execution of the contract at semi-annual installments of P3,459.00 (p. 64, rec.). An advance interest for the P80,000.00 loan
covering a 6-month period amounting to P4,800.00 was deducted from the partial release of P17,000.00. But this pre-deducted
interest was refunded to Sulpicio M. Tolentino on July 23, 1965, after being informed by the Bank that there was no fund yet
available for the release of the P63,000.00 balance (p. 47, rec.). The Bank, thru its vice-president and treasurer, promised
repeatedly the release of the P63,000.00 balance (p. 113, rec.).
On August 13, 1965, the Monetary Board of the Central Bank, after finding Island Savings Bank was suffering liquidity problems,
issued Resolution No. 1049, which provides:
In view of the chronic reserve deficiencies of the Island Savings Bank against its deposit liabilities, the Board, by
unanimous vote, decided as follows:
1) To prohibit the bank from making new loans and investments [except investments in government securities]
excluding extensions or renewals of already approved loans, provided that such extensions or renewals shall be
subject to review by the Superintendent of Banks, who may impose such limitations as may be necessary to
insure correction of the bank's deficiency as soon as possible;
xxx xxx xxx
(p. 46, rec.).
On June 14, 1968, the Monetary Board, after finding thatIsland Savings Bank failed to put up the required capital to restore its
solvency, issued Resolution No. 967 which prohibited Island Savings Bank from doing business in the Philippines and instructed the
Acting Superintendent of Banks to take charge of the assets of Island Savings Bank (pp. 48-49, rec).
On August 1, 1968, Island Savings Bank, in view of non-payment of the P17,000.00 covered by the promissory note, filed an
application for the extra-judicial foreclosure of the real estate mortgage covering the 100-hectare land of Sulpicio M. Tolentino; and
the sheriff scheduled the auction for January 22, 1969.
On January 20, 1969, Sulpicio M. Tolentino filed a petition with the Court of First Instance of Agusan for injunction, specific
performance or rescission and damages with preliminary injunction, alleging that since Island Savings Bank failed to deliver the
P63,000.00 balance of the P80,000.00 loan, he is entitled to specific performance by ordering Island Savings Bank to deliver the
P63,000.00 with interest of 12% per annum from April 28, 1965, and if said balance cannot be delivered, to rescind the real estate
mortgage (pp. 32-43, rec.).
On January 21, 1969, the trial court, upon the filing of a P5,000.00 surety bond, issued a temporary restraining order enjoining the
Island Savings Bank from continuing with the foreclosure of the mortgage (pp. 86-87, rec.).

On January 29, 1969, the trial court admitted the answer in intervention praying for the dismissal of the petition of Sulpicio M.
Tolentino and the setting aside of the restraining order, filed by the Central Bank and by the Acting Superintendent of Banks (pp. 6576, rec.).
On February 15, 1972, the trial court, after trial on the merits rendered its decision, finding unmeritorious the petition of Sulpicio M.
Tolentino, ordering him to pay Island Savings Bank the amount of PI 7 000.00 plus legal interest and legal charges due thereon, and
lifting the restraining order so that the sheriff may proceed with the foreclosure (pp. 135-136. rec.
On February 11, 1977, the Court of Appeals, on appeal by Sulpicio M. Tolentino, modified the Court of First Instance decision by
affirming the dismissal of Sulpicio M. Tolentino's petition for specific performance, but it ruled that Island Savings Bank can neither
foreclose the real estate mortgage nor collect the P17,000.00 loan pp. 30-:31. rec.).
Hence, this instant petition by the central Bank.
The issues are:
1. Can the action of Sulpicio M. Tolentino for specific performance prosper?
2. Is Sulpicio M. Tolentino liable to pay the P17,000.00 debt covered by the promissory note?
3. If Sulpicio M. Tolentino's liability to pay the P17,000.00 subsists, can his real estate mortgage be foreclosed
to satisfy said amount?
When Island Savings Bank and Sulpicio M. Tolentino entered into an P80,000.00 loan agreement on April 28, 1965, they undertook
reciprocal obligations. In reciprocal obligations, the obligation or promise of each party is the consideration for that of the other
(Penaco vs. Ruaya, 110 SCRA 46 [1981]; Vda. de Quirino vs, Pelarca 29 SCRA 1 [1969]); and when one party has performed or is
ready and willing to perform his part of the contract, the other party who has not performed or is not ready and willing to perform
incurs in delay (Art. 1169 of the Civil Code). The promise of Sulpicio M. Tolentino to pay was the consideration for the obligation of
Island Savings Bank to furnish the P80,000.00 loan. When Sulpicio M. Tolentino executed a real estate mortgage on April 28, 1965,
he signified his willingness to pay the P80,000.00 loan. From such date, the obligation of Island Savings Bank to furnish the
P80,000.00 loan accrued. Thus, the Bank's delay in furnishing the entire loan started on April 28, 1965, and lasted for a period of 3
years or when the Monetary Board of the Central Bank issued Resolution No. 967 on June 14, 1968, which prohibited Island
Savings Bank from doing further business. Such prohibition made it legally impossible for Island Savings Bank to furnish the
P63,000.00 balance of the P80,000.00 loan. The power of the Monetary Board to take over insolvent banks for the protection of the
public is recognized by Section 29 of R.A. No. 265, which took effect on June 15, 1948, the validity of which is not in question.
The Board Resolution No. 1049 issued on August 13,1965 cannot interrupt the default of Island Savings Bank in complying with its
obligation of releasing the P63,000.00 balance because said resolution merely prohibited the Bank from making new loans and
investments, and nowhere did it prohibit island Savings Bank from releasing the balance of loan agreements previously contracted.
Besides, the mere pecuniary inability to fulfill an engagement does not discharge the obligation of the contract, nor does it constitute
any defense to a decree of specific performance (Gutierrez Repide vs. Afzelius and Afzelius, 39 Phil. 190 [1918]). And, the mere
fact of insolvency of a debtor is never an excuse for the non-fulfillment of an obligation but 'instead it is taken as a breach of the
contract by him (vol. 17A, 1974 ed., CJS p. 650)
The fact that Sulpicio M. Tolentino demanded and accepted the refund of the pre-deducted interest amounting to P4,800.00 for the
supposed P80,000.00 loan covering a 6-month period cannot be taken as a waiver of his right to collect the P63,000.00 balance.
The act of Island Savings Bank, in asking the advance interest for 6 months on the supposed P80,000.00 loan, was improper
considering that only P17,000.00 out of the P80,000.00 loan was released. A person cannot be legally charged interest for a nonexisting debt. Thus, the receipt by Sulpicio M. 'Tolentino of the pre-deducted interest was an exercise of his right to it, which right
exist independently of his right to demand the completion of the P80,000.00 loan. The exercise of one right does not affect, much
less neutralize, the exercise of the other.
The alleged discovery by Island Savings Bank of the over-valuation of the loan collateral cannot exempt it from complying with its
reciprocal obligation to furnish the entire P80,000.00 loan. 'This Court previously ruled that bank officials and employees are
expected to exercise caution and prudence in the discharge of their functions (Rural Bank of Caloocan, Inc. vs. C.A., 104 SCRA 151
[1981]). It is the obligation of the bank's officials and employees that before they approve the loan application of their customers,
they must investigate the existence and evaluation of the properties being offered as a loan security. The recent rush of events
where collaterals for bank loans turn out to be non-existent or grossly over-valued underscore the importance of this responsibility.
The mere reliance by bank officials and employees on their customer's representation regarding the loan collateral being offered as
loan security is a patent non-performance of this responsibility. If ever bank officials and employees totally reIy on the representation
of their customers as to the valuation of the loan collateral, the bank shall bear the risk in case the collateral turn out to be overvalued. The representation made by the customer is immaterial to the bank's responsibility to conduct its own investigation.
Furthermore, the lower court, on objections of' Sulpicio M. Tolentino, had enjoined petitioners from presenting proof on the alleged
over-valuation because of their failure to raise the same in their pleadings (pp. 198-199, t.s.n. Sept. 15. 1971). The lower court's

action is sanctioned by the Rules of Court, Section 2, Rule 9, which states that "defenses and objections not pleaded either in a
motion to dismiss or in the answer are deemed waived." Petitioners, thus, cannot raise the same issue before the Supreme Court.
Since Island Savings Bank was in default in fulfilling its reciprocal obligation under their loan agreement, Sulpicio M. Tolentino,
under Article 1191 of the Civil Code, may choose between specific performance or rescission with damages in either case. But since
Island Savings Bank is now prohibited from doing further business by Monetary Board Resolution No. 967, WE cannot grant specific
performance in favor of Sulpicio M, Tolentino.
Rescission is the only alternative remedy left. WE rule, however, that rescission is only for the P63,000.00 balance of the
P80,000.00 loan, because the bank is in default only insofar as such amount is concerned, as there is no doubt that the bank failed
to give the P63,000.00. As far as the partial release of P17,000.00, which Sulpicio M. Tolentino accepted and executed a
promissory note to cover it, the bank was deemed to have complied with its reciprocal obligation to furnish a P17,000.00 loan. The
promissory note gave rise to Sulpicio M. Tolentino's reciprocal obligation to pay the P17,000.00 loan when it falls due. His failure to
pay the overdue amortizations under the promissory note made him a party in default, hence not entitled to rescission (Article 1191
of the Civil Code). If there is a right to rescind the promissory note, it shall belong to the aggrieved party, that is, Island Savings
Bank. If Tolentino had not signed a promissory note setting the date for payment of P17,000.00 within 3 years, he would be entitled
to ask for rescission of the entire loan because he cannot possibly be in default as there was no date for him to perform his
reciprocal obligation to pay.
Since both parties were in default in the performance of their respective reciprocal obligations, that is, Island Savings Bank failed to
comply with its obligation to furnish the entire loan and Sulpicio M. Tolentino failed to comply with his obligation to pay his
P17,000.00 debt within 3 years as stipulated, they are both liable for damages.
Article 1192 of the Civil Code provides that in case both parties have committed a breach of their reciprocal obligations, the liability
of the first infractor shall be equitably tempered by the courts. WE rule that the liability of Island Savings Bank for damages in not
furnishing the entire loan is offset by the liability of Sulpicio M. Tolentino for damages, in the form of penalties and surcharges, for
not paying his overdue P17,000.00 debt. The liability of Sulpicio M. Tolentino for interest on his PI 7,000.00 debt shall not be
included in offsetting the liabilities of both parties. Since Sulpicio M. Tolentino derived some benefit for his use of the P17,000.00, it
is just that he should account for the interest thereon.
WE hold, however, that the real estate mortgage of Sulpicio M. Tolentino cannot be entirely foreclosed to satisfy his P 17,000.00
debt.
The consideration of the accessory contract of real estate mortgage is the same as that of the principal contract (Banco de Oro vs.
Bayuga, 93 SCRA 443 [1979]). For the debtor, the consideration of his obligation to pay is the existence of a debt. Thus, in the
accessory contract of real estate mortgage, the consideration of the debtor in furnishing the mortgage is the existence of a valid,
voidable, or unenforceable debt (Art. 2086, in relation to Art, 2052, of the Civil Code).
The fact that when Sulpicio M. 'Tolentino executed his real estate mortgage, no consideration was then in existence, as there was
no debt yet because Island Savings Bank had not made any release on the loan, does not make the real estate mortgage void for
lack of consideration. It is not necessary that any consideration should pass at the time of the execution of the contract of real
mortgage (Bonnevie vs. C.A., 125 SCRA 122 [1983]). lt may either be a prior or subsequent matter. But when the consideration is
subsequent to the mortgage, the mortgage can take effect only when the debt secured by it is created as a binding contract to pay
(Parks vs, Sherman, Vol. 176 N.W. p. 583, cited in the 8th ed., Jones on Mortgage, Vol. 2, pp. 5-6). And, when there is partial failure
of consideration, the mortgage becomes unenforceable to the extent of such failure (Dow. et al. vs. Poore, Vol. 172 N.E. p. 82, cited
in Vol. 59, 1974 ed. CJS, p. 138). Where the indebtedness actually owing to the holder of the mortgage is less than the sum named
in the mortgage, the mortgage cannot be enforced for more than the actual sum due (Metropolitan Life Ins. Co. vs. Peterson, Vol.
19, F(2d) p. 88, cited in 5th ed., Wiltsie on Mortgage, Vol. 1, P. 180).
Since Island Savings Bank failed to furnish the P63,000.00 balance of the P8O,000.00 loan, the real estate mortgage of Sulpicio M.
Tolentino became unenforceable to such extent. P63,000.00 is 78.75% of P80,000.00, hence the real estate mortgage covering 100
hectares is unenforceable to the extent of 78.75 hectares. The mortgage covering the remainder of 21.25 hectares subsists as a
security for the P17,000.00 debt. 21.25 hectares is more than sufficient to secure a P17,000.00 debt.
The rule of indivisibility of a real estate mortgage provided for by Article 2089 of the Civil Code is inapplicable to the facts of this
case.
Article 2089 provides:
A pledge or mortgage is indivisible even though the debt may be divided among the successors in interest of
the debtor or creditor.
Therefore, the debtor's heirs who has paid a part of the debt can not ask for the proportionate extinguishment of
the pledge or mortgage as long as the debt is not completely satisfied.

Neither can the creditor's heir who have received his share of the debt return the pledge or cancel the
mortgage, to the prejudice of other heirs who have not been paid.
The rule of indivisibility of the mortgage as outlined by Article 2089 above-quoted presupposes several heirs of the debtor or creditor
which does not obtain in this case. Hence, the rule of indivisibility of a mortgage cannot apply
WHEREFORE, THE DECISION OF THE COURT OF APPEALS DATED FEBRUARY 11, 1977 IS HEREBY MODIFIED, AND
1. SULPICIO M. TOLENTINO IS HEREBY ORDERED TO PAY IN FAVOR OF HEREIN PETITIONERS THE SUM OF P17.000.00,
PLUS P41,210.00 REPRESENTING 12% INTEREST PER ANNUM COVERING THE PERIOD FROM MAY 22, 1965 TO AUGUST
22, 1985, AND 12% INTEREST ON THE TOTAL AMOUNT COUNTED FROM AUGUST 22, 1985 UNTIL PAID;
2. IN CASE SULPICIO M. TOLENTINO FAILS TO PAY, HIS REAL ESTATE MORTGAGE COVERING 21.25 HECTARES SHALL
BE FORECLOSED TO SATISFY HIS TOTAL INDEBTEDNESS; AND
3. THE REAL ESTATE MORTGAGE COVERING 78.75 HECTARES IS HEREBY DECLARED UNEN FORCEABLE AND IS
HEREBY ORDERED RELEASED IN FAVOR OF SULPICIO M. TOLENTINO.
NO COSTS. SO ORDERED.

HUERTA ALBA RESORT INC. vs. COURT OF APPEALS and SYNDICATED MANAGEMENT GROUP INC. (G.R. No. 128567,
September 1, 2000)
Security Transactions: Equity of Redemption and Right of Redemption; Estoppel
The right of redemption in relation to a mortgage understood in the sense of a prerogative to re-acquire mortgaged property after
registration of the foreclosure sale exists only in the case of the extrajudicial foreclosure of the mortgage. No such right is
recognized in a judicial foreclosure except only where the mortgagee is the Philippine National Bank or a bank or banking institution.
Where a mortgage is foreclosed extrajudicially, Act 3135 grants to the mortgagor the right of redemption within one (1) year from the
registration of the sheriffs certificate of foreclosure sale. Where the foreclosure is judicially effected, however, no equivalent right of
redemption exists. The law declares that a judicial foreclosure sale when confirmed be an order of the court. . . . shall operate to
divest the rights of all the parties to the action and to vest their rights in the purchaser, subject to such rights of redemption as may
be allowed by law. Such rights exceptionally allowed by law (i.e., even after confirmation by an order of the court) are those
granted by the charter of the Philippine National Bank (Acts No. 2747 and 2938), and the General Banking Act (R.A. 337). These
laws confer on the mortgagor, his successors in interest or any judgment creditor of the mortgagor, the right to redeem the property
sold on foreclosure after confirmation by the court of the foreclosure sale which right may be exercised within a period of one
(1) year, counted from the date of registration of the certificate of sale in the Registry of Property.
To repeat, no such right of redemption exists in case of judicial foreclosure of a mortgage if the mortgagee is not the PNB or a bank
or banking institution. In such a case, the foreclosure sale, when confirmed by an order of the court. . . shall operate to divest the
rights of all the parties to the action and to vest their rights in the purchaser. There then exists only what is known as the equity of
redemption. This is simply the right of the defendant mortgagor to extinguish the mortgage and retain ownership of the property by
paying the secured debt within the 90-day period after the judgment becomes final, in accordance with Rule 68, or even after the
foreclosure sale but prior to its confirmation.
HUERTA ALBA RESORT INC., petitioner,
vs.
COURT OF APPEALS and SYNDICATED MANAGEMENT GROUP INC., respondents.
PURISIMA, J.:
Litigation must at some time be terminated, even at the risk of occasional errors. Public policy dictates that once a judgment
becomes final, executory and unappealable, the prevailing party should not be denied the fruits of his victory by some subterfuge
devised by the losing party. Unjustified delay in the enforcement of a judgment sets at naught the role of courts in disposing
justiciable controversies with finality.
The Case
At bar is a petition assailing the Decision, dated November 14, 1996, and Resolution, dated March 11, 1997, of the Court of Appeals
in CA-G.R. No. 38747, which set aside the Order, dated July 21, 1995 and Order, dated September 4, 1997, of the Regional Trial
Court of Makati City, in Civil Case No. 89-5424. The aforesaid orders of the trial court held that petitioner had the right to redeem
subject pieces of property within the one-year period prescribed by Section 78 of Republic Act No. 337 otherwise known as the
General Banking Act.
Section 78 of R.A. No. 337 provides that "in case of a foreclosure of a mortgage in favor of a bank, banking or credit institution,
whether judicially or extrajudicially, the mortgagor shall have the right, within one year after the sale of the real estate as a result of
the foreclosure of the respective mortgage, to redeem the property."
The Facts
The facts that matter are undisputed:
In a complaint for judicial foreclosure of mortgage with preliminary injunction filed on October 19, 1989, docketed as Civil Case No.
89-5424 before the Regional Trial Court of Makati City, the herein private respondent sought the foreclosure of four (4) parcels of
land mortgaged by petitioner to Intercon Fund Resource, Inc. ("Intercon").
Private respondent instituted Civil Case No. 89-5424 as mortgagee-assignee of a loan amounting to P8.5 million obtained by
petitioner from Intercon, in whose favor petitioner mortgaged the aforesaid parcels of land as security for the said loan.
In its answer below, petitioner questioned the assignment by Intercon of its mortgage right thereover to the private respondent, on
the ground that the same was ultra vires. Petitioner also questioned during the trial the correctness of the charges and interest on
the mortgage debt in question.
On April 30, 1992, the trial court, through the then Judge now Court of Appeals Justice Buenaventura J. Guerrero, came out with its
decision "granting herein private respondent SMGI's complaint for judicial foreclosure of mortgage", disposing as follows:

"WHEREFORE, judgment is hereby rendered ordering defendant to pay plaintiff the following:
(1) P8,500,000.00 representing the principal of the amount due;
(2) P850,000.00 as penalty charges with interest at 6% per annum, until fully paid;
(3) 22% per annum interest on the above principal from September 6, 1998, until fully paid;
(4) 5% of the sum total of the above amounts, as reasonable attorney's fees; and,
(5) Costs.
All the above must be paid within a period of not less than 150 days from receipt hereof by the defendant. In default of
such payment, the four parcels of land subject matter of the suit including its improvements shall be sold to realize the
mortgage debt and costs, in the manner and under the regulations that govern sales of real estate under execution." 1
Petitioner appealed the decision of the trial court to the Court of Appeals, the appeal docketed as CA-G.R. CV No. 39243 before the
Sixth Division of the appellate court, which dismissed the case on June 29, 1993 on the ground of late payment of docket fees.
Dissatisfied with the dismissal of CA-G.R. No. 39243, petitioner came to this Court via a petition for certiorari, docketed as G.R. No.
112044, which this court resolved to dismiss on December 13, 1993, on the finding that the Court of Appeals erred not in dismissing
the appeal of petitioner.
Petitioner's motion for reconsideration of the dismissal of its petition in G.R. No. 112044 was denied with finality in this Court's
Resolution promulgated on February 16, 1994. On March 10, 1994, leave to present a second motion for reconsideration in G.R.
No. 112044 or to submit the case for hearing by the Court en banc was filed, but to no avail. The Court resolved to deny the same
on May 11, 1994.
On March 14, 1994, the Resolution dated December 13, 1993, in G.R. No. 112044 became final and executory and was entered in
the Book of Entries of Judgment.
On July 4, 1994, private respondent filed with the trial court of origin a motion for execution of the Decision promulgated on April 30,
1992 in Civil Case No. 89-5424. The said motion was granted on July 15, 1994.
Accordingly, on July 15, 1994 a writ of execution issued and, on July 20, 1994, a Notice of Levy and Execution was issued by the
Sheriff concerned, who issued on August 1, 1994 a Notice of Sheriff's Sale for the auction of subject properties on September 6,
1994.
On August 23, 1994, petitioner filed with the same trial court an Urgent Motion to Quash and Set Aside Writ of Execution ascribing
to it grave abuse of discretion in issuing the questioned Writ of Execution. To support its motion, petitioner invited attention and
argued that the records of the case were still with the Court of Appeals and therefore, issuance of the writ of execution was
premature since the 150-day period for petitioner to pay the judgment obligation had not yet lapsed and petitioner had not yet
defaulted in the payment thereof since no demand for its payment was made by the private respondent. In petitioner's own words,
the dispute between the parties was "principally on the issue as to when the 150-day period within which Huerta Alba may exercise
its equity of redemption should be counted."
In its Order of September 2, 1994, the lower court denied petitioner's urgent motion to quash the writ of execution in Civil Case No.
89-5424, opining that subject judgment had become final and executory and consequently, execution thereof was a matter of right
and the issuance of the corresponding writ of execution became its ministerial duty.
Challenging the said order granting execution, petitioner filed once more with the Court of Appeals another petition for certiorari and
prohibition with preliminary injunction, docketed as C.A.-G.R. SP No. 35086, predicated on the same grounds invoked for its Motion
to Quash Writ of Execution.
On September 6, 1994, the scheduled auction sale of subject pieces of properties proceeded and the private respondent was
declared the highest bidder. Thus, private respondent was awarded subject bidded pieces of property. The covering Certificate of
Sale issued in its favor was registered with the Registry of Deeds on October 21, 1994.
On September 7, 1994, petitioner presented an Ex-Parte Motion for Clarification asking the trial court to "clarify" whether or not the
twelve (12) month period of redemption for ordinary execution applied in the case.

On September 26, 1994, the trial court ruled that the period of redemption of subject property should be governed by the rule on the
sale of judicially foreclosed property under Rule 68 of the Rules of Court.
Thereafter, petitioner then filed an Exception to the Order dated September 26, 1994 and Motion to Set Aside Said Order,
contending that the said Order materially altered the Decision dated April 30, 1992 "which declared that the satisfaction of the
judgment shall be in the manner and under the regulation that govern sale of real estate under execution."
Meanwhile, in its Decision of September 30, 1994, the Court of Appeals resolved the issues raised by the petitioner in C.A.-G.R. SP
No. 35086, holding that the one hundred-fifty day period within which petitioner may redeem subject properties should be computed
from the date petitioner was notified of the Entry of Judgment in G.R. No. 112044; and that the 150-day period within which
petitioner may exercise its equity of redemption expired on September 11, 1994.
Thus:
"Petitioner must have received the resolution of the Supreme Court dated February 16, 1994 denying with finality its
motion for reconsideration in G.R. No. 112044 before March 14, 1994, otherwise the Supreme Court would not have
made an entry of judgment on March 14, 1994. While, computing the 150-day period. Petitioner may have until
September 11, 1994. within which to pay the amounts covered by the judgment, such period has already expired by this
time, and therefore, this Court has no more reason to pass upon the parties' opposing contentions, the same having
become moot and academic."2 (Emphasis supplied).
Petitioner moved for reconsideration of the Decision of the Court of Appeals in C.A.-G.R. SP No. 35086. In its Motion for
Reconsideration dated October 18, 1994, petitioner theorized that the period of one hundred fifty (150) days should not be reckoned
with from Entry of Judgment but from receipt on or before July 29, 1994 by the trial court of the records of Civil Case No. 89-5424
from the Court of Appeals. So also, petitioner maintained that it may not be considered in default, even after the expiration of 150
days from July 29, 1994, because prior demand to pay was never made on it by the private respondent. According to petitioner, it
was therefore, premature for the trial court to issue a writ of execution to enforce the judgment.
The trial court deferred action on the Motion for Confirmation of the Certificate of Sale in view of the pendency of petitioner's Motion
for Reconsideration in CA-G.R. SP No. 35086.
On December 23, 1994, the Court of Appeals denied petitioner's motion for reconsideration in CA-G.R. SP No. 35086. Absent any
further action with respect to the denial of the subject motion for reconsideration, private respondent presented a Second Motion for
Confirmation of Certificate of Sale before the trial court.
As regards the Decision rendered on September 30, 1994 by the Court of Appeals in CA G.R. SP No. 35086 it became final and
executory on January 25, 1995.
On February 10, 1995, the lower court confirmed the sale of subject properties to the private respondent. The pertinent Order
declared that all pending incidents relating to the Order dated September 26, 1994 had become moot and academic. Conformably,
the Transfer Certificates of Title to subject pieces of property were then issued to the private respondent.
On February 27, 1995, petitioner filed with the Court of Appeals a Motion for Clarification seeking "clarification" of the date of
commencement of the one (1) year period for the redemption of the properties in question.
In its Resolution dated March 20, 1995, the Court of Appeals merely noted such Motion for Clarification since its Decision
promulgated on September 30, 1994 had already become final and executory; ratiocinating thus:
"We view the motion for clarification filed by petitioner, purportedly signed by its proprietor, but which we believe was
prepared by a lawyer who wishes to hide under the cloak of anonymity, as a veiled attempt to buy time and to delay
further the disposition of this case.
Our decision of September 30, 1994 never dealt on the right and period of redemption of petitioner, but was merely
circumscribed to the question of whether respondent judge could issue a writ of execution in its Civil Case No. 89-5424 . .
.
We further ruled that the one-hundred fifty day period within which petitioner may exercise its equity of redemption should
be counted, not from the receipt of respondent court of the records of Civil Case No. 89-5424 but from the date petitioner
was notified of the entry of judgment made by the appellate court.
But we never made any pronouncement on the one-year right of redemption of petitioner because, in the first place, the
foreclosure in this case is judicial. and as such the mortgagor has only the equity not the right of redemption . . . While it

may be true that under Section 78 of R.A. 337 as amended, otherwise known as the General Banking Act, a mortgagor of
a bank, banking or credit institution, whether the foreclosure was done judicially or extrajudicially, has a period of one year
from the auction sale within which to redeem the foreclosed property, the question of whether the Syndicated
Management Group,. Inc., is a bank or credit institution was never brought before us squarely, and it is indeed odd and
strange that petitioner would now sarcastically ask a rhetorical question in its motion for clarification." 3 (Emphasis
supplied).
Indeed, if petitioner did really act in good faith, it would have ventilated before the Court of Appeals in CA-G.R. No. 35086 its
pretended right under Section 78 of R.A. No. 337 but it never did so.
At the earliest opportunity, when it filed its answer to the complaint for judicial foreclosure, petitioner should have averred in its
pleading that it was entitled to the beneficial provisions of Section 78 of R.A. No. 337; but again, petitioner did not make any such
allegation in its answer.
From the said Resolution, petitioner took no further step such that on March 31, 1995, the private respondent filed a Motion for
Issuance of Writ of Possession with the trial court.
During the hearing called on April 21, 1995, the counsel of record of petitioner entered appearance and asked for time to interpose
opposition to the Motion for Issuance of Writ of Possession.
On May 2, 1995, in opposition to private respondent's Motion for Issuance of writ of Possession, petitioner filed a "Motion to Compel
Private Respondent to Accept Redemption." It was the first time petitioner ever asserted the right to redeem subject properties
under Section 78 of R.A. No. 337, the General Banking Act; theorizing that the original mortgagee, being a credit institution, its
assignment of the mortgage credit to petitioner did not remove petitioner from the coverage of Section 78 of R.A. No. 337.
Therefore, it should have the right to redeem subject properties within one year from registration of the auction sale, theorized the
petitioner which concluded that in view of its "right of redemption," the issuance of the titles over subject parcels of land to the
private respondent was irregular and premature.
In its Order of July 21, 1995, the trial court, presided over by Judge Napoleon Inoturan, denied private respondent's motion for a writ
of possession, opining that Section 78 of the General Banking Act was applicable and therefore, the petitioner had until October 21,
1995 to redeem the said parcels of land, said Order ruled as follows:
"It is undisputed that Intercon is a credit institution from which defendant obtained a loan secured with a real estate
mortgage over four (4) parcels of land. Assuming that the mortgage debt had not been assigned to plaintiff, there is then
no question that defendant would have a right of redemption in case of foreclosure, judicially or extrajudicially, pursuant to
the above quoted Section 78 of RA 337, as amended.
However, the pivotal issue here is whether or not the defendant lost its right of redemption by virtue of the assignment of
its mortgage debt by Intercon to plaintiff, which is not a bank or credit institution. The issue is resolved in the negative. The
right of redemption in this case is vested by law and is therefore an absolute privilege which defendant may not lose even
though plaintiff-assignee is not a bank or credit institution (Tolentino versus Court of Appeals, 106 SCRA 513). Indeed, a
contrary ruling will lead to a possible circumvention of Section 78 because all that may be needed to deprive a defaulting
mortgagor of his right of redemption is to assign his mortgage debt from a bank or credit institution to one which is not.
Protection of defaulting mortgagors, which is the avowed policy behind the provision, would not be achieved if the ruling
were otherwise. Consequently, defendant still possesses its right of redemption which it may exercise up to October 21,
1995 only, which is one year from the date of registration of the certificate of sale of subject properties (GSIS versus Iloilo,
175 SCRA 19, citing Limpin versus IAC, 166 SCRA 87).
Since the period to exercise defendant's right of redemption has not yet expired, the cancellation of defendant's transfer
certificates of title and the issuance of new ones in lieu thereof in favor of plaintiff are therefore illegal for being premature,
thereby necessitating reconveyance (see Sec. 63 (a) PD 1529, as amended).
WHEREFORE, the Court hereby rules as follows:
(1) The Motion for Issuance of Writ of Possession is hereby denied;
(2) Plaintiff is directed to accept the redemption on or before October 21, 1995 in an amount computed
according to the terms stated in the Writ of Execution dated July 15, 1994 plus all other related costs and
expenses mentioned under Section 78, RA 337, as amended; and
(3) The Register of Deeds of Valenzuela, Bulacan is directed (a) to reconvey to the defendant the following titles
of the four (4) parcels of land, namely TCT Nos. V-38878, V-38879, V-38880, and V-38881, now in the name of
plaintiff, and (b) to register the certificate of sale dated October 7, 1994 and the Order confirming the sale dated

February 10, 1995 by a brief memorandum thereof upon the transfer certificates of title to be issued in the name
of defendant, pursuant to Sec. 63 (a) PD 1529, as amended.
The Omnibus Motion dated June 5, 1995, together with the Opposition thereto, is now deemed resolved.
SO ORDERED."4
Private respondent interposed a Motion for Reconsideration seeking the reversal of the Order but to no avail. In its Order dated
September 4, 1995, the trial court denied the same.
To attack and challenge the aforesaid order of July 21, 1995 and subsequent Order of September 4, 1995 of the trial court, the
private respondent filed with this court a Petition for Certiorari, Prohibition and Mandamus, docketed as G.R. No. 121893, but absent
any special and cogent reason shown for entertaining the same, the Court referred the petition to the Court of Appeals, for proper
determination.
Docketed as G.R. No. 387457 on November 14, 1996, the Court of Appeals gave due course to the petition and set aside the trial
court's Order dated July 21, 1995 and Order dated September 4, 1995.
In its Resolution of March 11, 1997, the Court of Appeals denied petitioner's Motion for Reconsideration of the Decision promulgated
on November 14, 1996 in CA-G.R. No. 38747.
Undaunted, petitioner has come to this Court via the present petition, placing reliance on the assignment of errors, that:
I
THE RESPONDENT COURT OF APPEALS ERRED GRAVELY IN HOLDING THAT THE COURT OF APPEALS
(TWELFTH DIVISION) IN CA G.R. SP NO. 35086 HAD RESOLVED "WITH FINALITY" THAT PETITIONER HUERTA
ALBA HAD NO RIGHT OF REDEMPTION BUT ONLY THE EQUITY OF REDEMPTION.
II
THE RESPONDENT COURT OF APPEALS ERRED GRAVELY IN IGNORING THAT PETITIONER HUERTA ALBA
POSSESSES THE ONE-YEAR RIGHT OF REDEMPTION UNDER SECTION 78, R.A. NO. 337 (THE GENERAL
BANKING ACT).
III
THE RESPONDENT COURT OF APPEALS ERRED GRAVELY IN HOLDING THAT PRIVATE RESPONDENT
SYNDICATED MANAGEMENT GROUP, INC. IS ENTITLED TO THE ISSUANCE OF A WRIT OF POSSESSION OVER
THE SUBJECT PROPERTY.5
In its comment on the petition, private respondent countered that:
"A. THE HONORABLE COURT OF APPEALS CORRECTLY HELD THAT IT RESOLVED WITH FINALITY IN C.A.-G.R.
SP NO. 35086 THAT PETITIONER ONLY HAD THE RIGHT OF REDEMPTION IN RESPECT OF THE SUBJECT
PROPERTIES.
B. THE PETITION IS AN INSIDIOUS AND UNDERHANDED ATTEMPT TO EVADE THE FINALITY OF VARIOUS
DECISIONS, RESOLUTIONS AND ORDERS WHICH HELD THAT, PETITIONER ONLY POSSESSES THE EQUITY OF
REDEMPTION IN RESPECT OF THE SUBJECT PROPERTIES.
C. PETITIONER IS BARRED BY ESTOPPEL FROM BELATEDLY RAISING THE ISSUE OF ITS ALLEGED 'RIGHT OF
REDEMPTION. HDAECI
D. IN HOLDING THAT THE PETITIONER HAD THE 'RIGHT OF REDEMPTION' OVER THE SUBJECT PROPERTIES,
THE TRIAL COURT MADE A MOCKERY OF THE 'LAW OF THE CASE."'6
And by way of Reply, petitioner argued, that:
I.

THE COURT OF APPEALS IN CA G.R. SP NO. 35086 COULD NOT HAVE POSSIBLY RESOLVED THEREIN
WHETHER WITH FINALITY OR OTHERWISE - THE ISSUE OF PETITIONER HUERTA ALBA'S RIGHT OF
REDEMPTION UNDER SECTION 78, R.A. NO. 337.
II.
THERE IS NO ESTOPPEL HERE. PETITIONER HUERTA ALBA INVOKED ITS RIGHT OF REDEMPTION UNDER
SECTION 78, R.A. NO. 337 IN TIMELY FASHION, i.e., AFTER CONFIRMATION BY THE COURT OF THE
FORECLOSURE SALE, AND WITHIN ONE (1) YEAR FROM THE DATE OF REGISTRATION OF THE CERTIFICATE
OF SALE.
III.
THE PRINCIPLE OF 'THE LAW OF THE CASE' HAS ABSOLUTELY NO BEARING HERE:
(1)
THE RIGHT OF REDEMPTION UNDER SECTION 78, R.A. NO. 337 IS IN FACT PREDICATED UPON THE FINALITY
AND CORRECTNESS OF THE DECISION IN CIVIL CASE NO. 89-5424.
(2)
THUS, THE RTC'S ORDER RECOGNIZING PETITIONER HUERTA ALBA'S RIGHT OF REDEMPTION UNDER
SECTION 78, R.A. NO. 37 DOES NOT IN ANY WAY HAVE THE EFFECT OF AMENDING, MODIFYING, OR SETTING
ASIDE THE DECISION IN CIVIL CASE NO. 89-5424.
The above arguments and counter-arguments advanced relate to the pivotal issue of whether or not the petitioner has the one-year
right of redemption of subject properties under Section 78 of Republic Act No. 337 otherwise known as the General Banking Act.
The petition is not visited by merit.
Petitioner's assertion of right of redemption under Section 78 of Republic Act No. 337 is premised on the submission that the Court
of Appeals did not resolve such issue in CA-G.R. SP No. 35086; contending thus:
(1)
BY NO STRETCH OF LOGIC CAN THE 20 MARCH 1995 RESOLUTION IN CA G.R. SP NO. 35086 BE INTERPRETED
TO MEAN THE COURT OF APPEALS HAD RESOLVED 'WITH FINALITY' THE ISSUE OF WHETHER PETITIONER
HUERTA ALBA HAD THE RIGHT OF REDEMPTION WHEN ALL THAT THE RESOLUTION DID WAS TO MERELY
NOTE THE MOTION FOR CLARIFICATION.
(2)
THE 20 MARCH 1995 RESOLUTION IN CA G.R. SP NO. 35086 IS NOT A FINAL JUDGMENT, ORDER OR DECREE. IT
IS NOT EVEN A JUDGMENT OR ORDER TO BEGIN WITH. IT ORDERS NOTHING; IT ADJUDICATES NOTHING.
(3)
PETITIONER HUERTA ALBA'S RIGHT OF REDEMPTION UNDER SECTION 78, R.A. NO. 37 WAS NOT AN ISSUE
AND WAS NOT IN ISSUE, AND COULD NOT HAVE POSSIBLY BEEN AN ISSUE NOR IN ISSUE, IN CA G.R. SP NO.
35086.
(4)
THE 30 SEPTEMBER 1994 DECISION IN CA G.R. SP NO. 35086 HAVING ALREADY BECOME FINAL EVEN BEFORE
THE FILING OF THE MOTION FOR CLARIFICATION, THE COURT OF APPEALS NO LONGER HAD ANY
JURISDICTION TO ACT OF THE MOTION OR ANY OTHER MATTER IN CA G.R. SP NO. 35086, EXCEPT TO
MERELY NOTE THE MOTION. EASIHa
II.

IN STARK CONTRAST, THE ISSUE OF PETITIONER HUERTA ALBA'S RIGHT OF REDEMPTION UNDER SECTION
78, R.A. NO. 337 WAS DIRECTLY RAISED AND JOINED BY THE PARTIES, AND THE SAME DULY RESOLVED BY
THE TRIAL COURT.
III.
THE RIGHT OF REDEMPTION UNDER SECTION 78 OF R.A. NO. 337 IS MANDATORY AND AUTOMATICALLY
EXISTS BY LAW. THE COURTS ARE DUTY-BOUND TO RECOGNIZE SUCH RIGHT.
IV.
EQUITABLE CONSIDERATIONS WEIGH HEAVILY IN FAVOR OF PETITIONER HUERTA ALBA, NOT THE LEAST OF
WHICH IS THE WELL-SETTLED POLICY OF THE LAW TO AID RATHER THAN DEFEAT THE RIGHT OF
REDEMPTION.
V.
THEREFORE THE 21 JULY 1995 AND 04 SEPTEMBER 1995 ORDERS OF THE TRIAL COURT ARE VALID AND
PROPER IN ACCORDANCE WITH THE MANDATE OF THE LAW.
From the various decisions, resolutions and orders a quo it can be gleaned that what petitioner has been adjudged to have was only
the equity of redemption over subject properties. On the distinction between the equity of redemption and right of redemption, the
case of Gregorio Y. Limpin vs. Intermediate Appellate Court,7 comes to the fore. Held the Court in the said case:
"The equity of redemption is, to be sure, different from and should not be confused with the right of redemption.
The right of redemption in relation to a mortgage understood in the sense of a prerogative to re-acquire mortgaged
property after registration of the foreclosure sale exists only in the case of the extrajudicial foreclosure of the mortgage.
No such right is recognized in a judicial foreclosure except only where the mortgagee is the Philippine National Bank or a
bank or banking institution.
Where a mortgage is foreclosed extrajudicially, Act 3135 grants to the mortgagor the right of redemption within one (1)
year from the registration of the sheriff's certificate of foreclosure sale.
Where the foreclosure is judicially effected, however, no equivalent right of redemption exists. The law declares that a
judicial foreclosure sale 'when confirmed be an order of the court. . . . shall operate to divest the rights of all the parties to
the action and to vest their rights in the purchaser, subject to such rights of redemption as may be allowed by law.' Such
rights exceptionally 'allowed by law' (i.e., even after confirmation by an order of the court) are those granted by the charter
of the Philippine National Bank (Acts No. 2747 and 2938), and the General Banking Act (R.A. 337). These laws confer on
the mortgagor, his successors in interest or any judgment creditor of the mortgagor, the right to redeem the property sold
on foreclosure after confirmation by the court of the foreclosure sale which right may be exercised within a period of
one (1) year, counted from the date of registration of the certificate of sale in the Registry of Property.
But, to repeat, no such right of redemption exists in case of judicial foreclosure of a mortgage if the mortgagee is not the
PNB or a bank or banking institution. In such a case, the foreclosure sale, 'when confirmed by an order of the court. . .
shall operate to divest the rights of all the parties to the action and to vest their rights in the purchaser.' There then exists
only what is known as the equity of redemption. This is simply the right of the defendant mortgagor to extinguish the
mortgage and retain ownership of the property by paying the secured debt within the 90-day period after the judgment
becomes final, in accordance with Rule 68, or even after the foreclosure sale but prior to its confirmation.
Section 2, Rule 68 provides that
'. . If upon the trial . . the court shall find the facts set forth in the complaint to be true, it shall ascertain the amount due to
the plaintiff upon the mortgage debt or obligation, including interest and costs, and shall render judgment for the sum so
found due and order the same to be paid into court within a period of not less than ninety (90) days from the date of the
service of such order, and that in default of such payment the property be sold to realize the mortgage debt and costs.'
This is the mortgagor's equity (not right) of redemption which, as above stated, may be exercised by him even beyond the
90-day period 'from the date of service of the order,' and even after the foreclosure sale itself, provided it be before the
order of confirmation of the sale. After such order of confirmation, no redemption can be effected any longer." 8 (Emphasis
supplied)

Petitioner failed to seasonably invoke its purported right under Section 78 of R.A. No. 337.
Petitioner avers in its petition that the Intercom, predecessor in interest of the private respondent, is a credit institution, such that
Section 78 of Republic Act No. 337 should apply in this case. Stated differently, it is the submission of petitioner that it should be
allowed to redeem subject properties within one year from the date of sale as a result of the foreclosure of the mortgage constituted
thereon.
The pivot of inquiry here therefore, is whether the petitioner seasonably invoked its asserted right under Section 78 of R.A. No. 337
to redeem subject properties.
Petitioner theorizes that it invoked its "right" in "timely fashion", that is, after confirmation by the court of the foreclosure sale, and
within one (1) year from the date of registration of the certificate of sale. Indeed, the facts show that it was only on May 2, 1995
when, in opposition to the Motion for Issuance of Writ of Possession, did petitioner file a Motion to Compel Private Respondent to
Accept Redemption, invoking for the very first time its alleged right to redeem subject properties under to Section 78 of R.A. No.
337.
In light of the aforestated facts, it was too late in the day for petitioner to invoke a right to redeem under Section 78 of R.A. No. 337.
Petitioner failed to assert a right to redeem in several crucial stages of the proceedings.
For instance, on September 7, 1994, when it filed with the trial court an Ex-part Motion for Clarification, petitioner failed to allege and
prove that private respondent's predecessor in interest was a credit institution and therefore, Section 78 of R.A. No. 337 was
applicable. Petitioner merely asked the trial court to clarify whether the sale of subject properties was execution sale or judicial
foreclosure sale.
So also, when it presented before the trial court an Exception to the Order and Motion to Set Aside Said Order dated October 13,
1994, petitioner again was silent on its alleged right under Section 78 of R.A. No. 337, even as it failed to show that private
respondent's predecessor in interest is a credit institution. Petitioner just argued that the aforementioned Order materially altered the
trial court's Decision of April 30, 1992.
Then, too, nothing was heard from petitioner on its alleged right under Section 78 of R.A. No. 337 and of the predecessor in interest
of private respondent as a credit institution, when the trial court came out with an order on February 10, 1995, confirming the sale of
subject properties in favor of private respondent and declaring that all pending incidents with respect to the Order dated September
26, 1994 had become moot and academic.
Similarly, when petitioner filed on February 27, 1995 a Motion for Clarification with the Court of Appeals, seeking "clarification" of the
date of commencement of the one (1) year redemption period for the subject properties, petitioner never intimated any alleged right
under Section 78 of R.A. No. 337 nor did it invite attention to its present stance that private respondent's predecessor-in-interest
was a credit institution. Consequently, in its Resolution dated March 20, 1995, the Court of Appeals ruled on the said motion thus:
"But we never made any pronouncement on the one-year right of redemption of petitioner because, in the first place, the
foreclosure in this case is judicial, and as such. the mortgagor has only the equity. not the right of redemption . . . While it
may be true that under Section 78 of R.A. 337 as amended, otherwise known as the General Banking Act, a mortgagor of
a bank, banking or credit institution, whether the foreclosure was done judicially or extrajudicially, has a period of one year
from the auction sale within which to redeem the foreclosed property, the question of whether the Syndicated
Management Group. Inc., is bank or credit institution was never brought before us squarely, and it is indeed odd and
strange that petitioner would now sarcastically ask a rhetorical question in its motion for clarification." 9 (Emphasis
supplied).
If petitioner were really acting in good faith, it would have ventilated before the Court of Appeals in CA-G.R. No. 35086 its alleged
right under Section 78 of R.A. No. 337; but petitioner never did do so.
Indeed, at the earliest opportunity, when it submitted its answer to the complaint for judicial foreclosure, petitioner should have
alleged that it was entitled to the beneficial provisions of Section 78 of R.A. No. 337 but again, it did not make any allegation in its
answer regarding any right thereunder. It bears stressing that the applicability of Section 78 of R.A. No. 337 hinges on the factual
question of whether or not private respondent's predecessor in interest was a credit institution. As was held in Limpin, a judicial
foreclosure sale, "when confirmed by an order of the court, . . shall operate to divest the rights of all the parties to the action and to
vest their rights in the purchaser, subject to such rights of redemption as may be allowed by law',"10 which confer on the mortgagor,
his successors in interest or any judgment creditor of the mortgagor, the right to redeem the property sold on foreclosure after
confirmation by the court of the judicial foreclosure sale. Thus, the claim that petitioner is entitled to the beneficial provisions of
Section 78 of R.A. No. 337 since private respondent's predecessor-in-interest is a credit institution is in the nature of a
compulsory counterclaim which should have been averred in petitioner's answer to the compliant for judicial foreclosure.
". . . A counterclaim is, most broadly, a cause of action existing in favor of the defendant against the plaintiff. More
narrowly, it is a claim which. if established, will defeat or in some way qualify a judgment or relief to which plaintiff is

otherwise entitled It is sometimes defined as any cause of action arising in contract available against any action also
arising in contract and existing at the time of the commencement of such an action. It is frequently defined by the codes
as a cause of action arising out of the contract or transaction set forth in the complaint as the foundation of the plaintiff's
claim, or connected with the subject of the action."11 (emphasis supplied)
"The counterclaim is in itself a distinct and independent cause of action, so that when properly stated as such, the
defendant becomes, in respect to the matters stated by him, an actor, and there are two simultaneous actions pending
between the same parties, wherein each is at the same time both a plaintiff and a defendant. Counterclaim is an offensive
as well as a defensive plea and is not necessarily confined to the justice of the plaintiff's claim. It represents the right of
the defendant to have the claims of the parties counterbalanced in whole or in part, and judgment to be entered in excess,
if any. A counterclaim stands on the same footing, and is to be tested be the same rules, as if it were an independent
action."12 (emphasis supplied)
The very purpose of a counterclaim would have been served had petitioner alleged in its answer its purported right under Section 78
of R.A. No. 337:
". . . The rules of counterclaim are designed to enable the disposition of a whole controversy of interested parties'
conflicting claims, at one time and in one action, provided all parties' be brought before the court and the matter decided
without prejudicing the rights of any party."13
The failure of petitioner to seasonably assert its alleged right under Section 78 of R.A. No. 337 precludes it from so doing at this late
stage case. Estoppel may be successfully invoked if the party fails to raise the question in the early stages of the proceedings.14
Thus, "a party to a case who failed to invoked his claim in the main case, while having the opportunity to do so, will be precluded,
subsequently, from invoking his claim, even if it were true, after the decision has become final, otherwise the judgment may be
reduced to a mockery and the administration of justice may be placed in disrepute." 15
All things viewed in proper perspective, it is decisively clear that the trial court erred in still allowing petitioner to introduce evidence
that private respondent's predecessor-in-interest was a credit institution, and to thereafter rule that the petitioner was entitled to avail
of the provisions of Section 78 of R.A. No. 337. In effect, the trial court permitted the petitioner to accomplish what the latter failed to
do before the Court of Appeals, that is, to invoke its alleged right under Section 78 of R.A. No. 337 although the Court of Appeals in
CA-G.R. no. 35086 already found that 'the question of whether the Syndicated Management Council Group, Inc. is a bank or credit
institution was never brought before (the Court of Appeals) squarely." The said pronouncement by the Court of Appeals unerringly
signified that petitioner did not make a timely assertion of any right under Section 78 of R.A. No. 337 in all the stages of the
proceedings below.
Verily, the petitioner has only itself to blame for not alleging at the outset that the predecessor-in-interest of the private respondent is
a credit institution. Thus, when the trial court, and the Court of Appeals repeatedly passed upon the issue of whether or not
petitioner had the right of redemption or equity of redemption over subject properties in the decisions, resolutions and orders,
particularly in Civil Case no. 89-5424, CA-G.R. CV No. 39243, CA-G.R. SP No. 35086, and CA-G.R. SP No. 38747, it was
unmistakable that the petitioner was adjudged to just have the equity of redemption without any qualification whatsoever, that is,
without any right of redemption allowed by law.
The "law of case" holds that petitioner has the equity of redemption without any qualification.
There is, therefore, merit in private respondent's contention that to allow petitioner to belatedly invoke its right under Section 78 of
R.A. No. 337 will disturb the "law of the case." However, private respondent's statement of what constitutes the "law of the case" is
not entirely accurate. The "law of the case" is not simply that the defendant possesses an equity of redemption. As the Court has
stated, the "law of the case" holds that petitioner has the equity of the redemption without any qualification whatsoever, that is,
without the right of redemption afforded by Section 78 of R.A. No. 337. Whether or not the "law of the case" is erroneous is
immaterial, it still remains the "law of the case". A contrary rule will contradict both the letter and spirit of the rulings of the Court of
Appeals in CA-G.R. SP No. 35086, CA-G.R. CV No. 39243, and CA-G.R. 38747, which clearly saw through the repeated attempts
of petitioner to forestall so simple a matter as making the security given for a just debt to answer for its payment.
Hence, in conformity with the ruling in Limpin, the sale of the subject properties, as confirmed by the Order dated February 10, 1995
of the trial court in Civil Case No. 89-5424 operated to divest the rights of all the parties to the action and to vest their rights in
private respondent. There then existed only what is known as the equity of redemption, which is simply the right of the petitioner to
extinguish the mortgage and retain ownership of the property by paying the secured debt within the 90-day period after the judgment
became final. There being an explicit finding on the part of the Court of Appeals in its Decision of September 30, 1994 in CA-G.R.
No. 35086 that the herein petitioner failed to exercise its equity of redemption within the prescribed period, redemption can no
longer be effected. The confirmation of the sale and the issuance of the transfer certificates of title covering the subject properties to
private respondent was then, in order. The trial court therefore, has the ministerial duty to place private respondent in the
possession of subject properties.

UCPB vs. Beluso (2007)

Post under case digests, Remedial Law at Wednesday, February 29, 2012 Posted by Schizophrenic Mind
Facts: In 1996, UCPB granted the spouses Beluso a Promissory Notes Line under a Credit Agreement whereby the latter could
avail from the former credit of up to a maximum amount of P1.2 Million pesos for a term ending in April 1997. In addition to the
promissory notes, the spouses Beluso also constituted a real estate mortgage over parcels of land in Roxas City. Subsequently, the
said Credit Arrangement was amended to extend the amount of the Promissory Notes Line to a maximum of P2.35 Million pesos
and to extend the term thereof to February 1998.

The spouses executed three promissory notes which were renewed several times. In 1997, the payment of the principal and interest
of the latter two promissory notes were debited from the spouses Belusos account with UCPB; yet, a consolidated loan for P1.3
Million was again released to the spouses Beluso under one promissory note with a due date of 28 February 1998.

To completely avail themselves of the P2.35 Million credit line extended to them by UCPB, the spouses Beluso executed two more
promissory notes for a total of P350 thousand. However, the spouses Beluso alleged that the amounts covered by these last two
promissory notes were never released or credited to their account and, thus, claimed that the principal indebtedness was only P2
Million.

In any case, UCPB applied interest rates on the different promissory notes ranging from 18% to 34%. During the term of these
promissory notes, the Belusos were able to pay the total sum of about P760 thousand. However, they failed to pay for the interest
and penalty on their obligations. As a result, UCPB demanded that they pay their total obligation of P2.9 millionbut the spouses
Beluso failed to comply therewith. Thereafter, UCPB foreclosed the properties mortgaged by the spouses Beluso to secure their
credit line, which, by that time, already ballooned to nearly P3.8 million.

Two months after the foreclosure, the spouses Beluso filed a Petition for Annulment, Accounting and Damages against UCPB with
the RTC of Makati City. UCPB moved to dismiss the case on the ground that the spouses Beluso instituted another case before the
RTC of Roxas City, involving the same parties and issues. UCPB claims that while the Roxas City case initially appears to be a
different action, as it prayed for the issuance of a temporary restraining order and/or injunction to stop foreclosure of spouses
Belusos properties, it poses issues which are similar to those of the present case.

The spouses Beluso claim that the issue in the Roxas City case is the propriety of the foreclosure before the true account of
spouses Beluso is determined. On the other hand, the issue in the Makati case is the validity of the interest rate provision. The
spouses Beluso claim that the Roxas City case has become moot because, before RTC Roxas City could act on the restraining
order, UCPB proceeded with the foreclosure and auction sale. As the act sought to be restrained has already been accomplished,
the spouses Beluso had to file a different action, that of Annulment of the Foreclosure Sale with RTC Makati.

RTC ruled in favor of the Belusos. CA affirmed.

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

Held: YES. Even if it is assumed for the sake of argument, however, that only one cause of action is involved in the two civil actions,
namely, the violation of the right of the spouses Beluso not to have their property foreclosed for an amount they do not owe, the
Rules of Court nevertheless allows the filing of the second action. The case in Roxas City was dismissed before the filing of the
case with RTC Makati, since the venue of litigation as provided for in the Credit Agreement is in Makati City.

Rule 16, Section 5 bars the refiling of an action previously dismissed only in the following instances:

(a) That the cause of action is barred by a prior judgment or by the statute of limitations;

(b) That the claim or demand set forth in the plaintiffs pleading has been paid, waived, abandoned, or otherwise extinguished; and

(c) That the claim on which the action is founded is unenforceable under the provisions of the statute of frauds.

When an action is dismissed on the motion of the other party, it is only when the ground for the dismissal of an action is either of
those aforementioned that the action cannot be refiled. As regards all the other grounds, the complainant is allowed to file same
action, but should take care that, this time, it is filed with the proper court or after the accomplishment of the erstwhile absent
condition precedent, as the case may be.

The MR filed by the Belusos in the Roxas City case that has not yet been resolved upon the filing of the Makati case does not
change the SCs findings. It is indeed the general rule that in cases where there are two pending actions between the same parties
on the same issue, it should be the later case that should be dismissed. However, this rule is not absolute. In the case of Allied
Banking v. CA, it was ruled that: Even if this is not the purpose for the filing of the first action, it may nevertheless be dismissed if
the later action is the more appropriate vehicle for the ventilation of the issues between the parties.

Applying the said ruling in the case at bar, the Court found that the Makati City case is the more proper action in view of the
execution of the foreclosure sale. Moreover, Makati is the proper venue of the action as mandated by the Credit Agreement. Hence,
the Court deemed that the Makati Case is the more appropriate vehicle for litigating the issues between the parties, as compared to
the Roxas City case.