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(1) 4 scra 1147

G.R. No. L-11964

April 28, 1962

REGISTER of DEEDS OF MANILA, petitioner-appellee,


vs.
CHINA BANKING CORPORATION, respondent-appellant.
DIZON, J.:
Appeal from a resolution of the Land Registration Commission holding "that the deed of
transfer in favor of an alien bank, subject of the present Consulta, is unregisterable for being
in contravention of the Constitution of the Philippines".
In an information filed on June 16, 1953 in the Court of First Instance of Manila (Criminal Case
No. 22908) Alfonso Pangilinan and one Guillermo Chua were charged with qualified theft, the
money involved amounting to P275,000.00. On September 18, 1956, Pangilinan and his wife,
Belen Sta. Ana, executed a public instrument entitled DEED OF TRANSFER whereby, after
admitting his civil liability in favor of his employer, the China Banking Corporation, in relation
to the offense aforesaid, he ceded and transferred to the latter, in satisfaction thereof, a
parcel of land located in the City of Manila, registered in the name of "Belen Sta. Ana, married
to Alfonso Pangilinan" (Transfer Certificate of Title No. 32230). On October 24, 1956 the deed
was presented for registration to the Register of Deeds of the City of Manila, but because the
transferee the China Banking Corporation was alien-owned and, as such, barred from
acquiring lands in the Philippines, in accordance with the provisions of Section 5, Article XIII of
the Constitution of the Philippines, said officer submitted the matter of its registration to the
Land Registration Commission for resolution. After granting the parties concerned ample
opportunity to submit their views upon the issue, the Commission issued the resolution
appealed from.
Plainly stated, the question before Us is whether appellant an alien-owned bank can
acquire ownership of the residential lot covered by Transfer Certificate of Title No. 32230 by
virtue of the deed of transfer mentioned heretofore (Vide pages 1-6 of the Record on Appeal).
Maintaining the affirmative, appellant argues that: (a) the temporary holding of land by an
alien-owned commercial bank under a public instrument such as the deed of transfer in
question "bears no reasonable connection with the constitutional purpose" underlying the
provisions of Section 5, Article XIII of the Constitution of the Philippines; hence, such holding
or acquisition "was not within the contemplation of the framers of the Constitution"; (b) by
judicial as well as by executive-administrative an legislative construction, the constitutional
prohibition against alien landholding does not preclude enjoyment by aliens of temporary
rights and land; (c) under the provisions of Section 25 of Republic Act No. 337 (General
Banking Act) an alien or an alien-owned commercial bank may acquire land in the Philippines
subject to the obligation of disposing of it within 5 years from the date of its acquisition.
1wph1.t
Upon the other hand, the argument supporting the appealed resolution is that the privilege of
acquiring real estate granted to commercial banks under the provisions of Section 25 of
Republic Act No. 337 was not intended as an amendment, much less as a nullification of the
constitutional prohibition against alien acquisition of lands in the Philippines, the same being
merely an exception to the general rule, under existing banking and corporation laws, that
banks and corporations can engage only in the particular business for which they were
specifically created; that a mere statute, like the republic act relied upon by, appellant,
cannot amend the Constitution; that in connection with the particular constitutional
prohibition involved herein, it is the character and nature of the possession whether in

strict ownership or otherwise and not the length of possession that is material, the result
being that, if real property is to be held in ownership, an alien may not legally do so even for
a single day.
After considering the arguments adduced by appellant in its brief, jointly with those
expounded in the briefs submitted by Alfonso Ponce Enrile and William H. Quasha and
Associates, as amici curiae, on the one hand, and on the other, those relied upon in the brief
submitted by the Office of the Solicitor General on behalf of the Commission, we are inclined
to uphold, as we do uphold, the appealed resolution.
To support its view appellant relies particularly upon paragraphs (c) and (d), Section 25 of
Republic Act 337 which read as follows: .
SEC. 25. Any commercial bank may purchase, hold, and convey real estate for the following
purposes:
xxx

xxx

xxx

(c) Such shall be conveyed to it in satisfaction of debts previously contracted in the course of
its dealings; .
(d) Such as it shall purchase at sales under judgments, decrees, mortgages, or trust deeds
held by it and such as it shall purchase to secure debts due to it.
But no such bank shall hold the possession of any real estate under mortgage or trust deed,
or the title and possession of any real estate purchased to secure any debt due to it, for a
longer period than five years.
Assuming, arguendo, that under the provisions of the aforesaid Act any commercial bank,
whether alien-owned or controlled or not, may purchase and hold real estate for the specific
purposes and in the particular cases enumerated in Section 25 thereof, we find that the case
before Us does not fall under anyone of them.
Paragraph (c), Section 25 of Republic Act 337 allows a commercial bank to purchase and hold
such real estate as shall be conveyed to it in satisfaction of debts previously contracted in the
course of its dealings, We deem it quite clear and free from doubt that the "debts" referred to
in this provision are only those resulting from previous loans and other similar transactions
made or entered into by a commercial bank in the ordinary course of its business as such.
Obviously, whatever "civil liability" arising from the criminal offense of qualified theft
was admitted in favor of appellant bank by its former employee, Alfonso Pangilinan, was not a
debt resulting from a loan or a similar transaction had between the two parties in the ordinary
course of banking business.
Neither do the provisions of paragraph (d) of the Same section apply to the present case
because the deed of transfer in question can in no sense be considered as a sale made by
virtue of a judgment, decree, mortgage, or trust deed held by appellant bank. In the same
manner it cannot be said that the real property in question was purchased by appellant "to
secure debts due to it", considering that, as stated heretofore, the term debt employed in the
pertinent legal provision can logically refer only to such debts as may become payable to
appellant bank as a result of a banking transaction.
That the constitutional prohibition under consideration has for its purpose the preservation of
the patrimony of the nation can not be denied, but appellant and the amici curiae claim that it
should be liberally construed so that the prohibition be limited to the permanent acquisition
of real estate by aliens whether natural or juridical persons. This, of course, would make

legal the ownership acquired by appellant bank by virtue of the deed of transfer mentioned
heretofore, subject to its obligation to dispose of it in accordance with law, within 5 years
from the date of its acquisition. We can not give assent to this contention, in view of the fact
that the constitutional prohibition in question is absolute in terms. We have so held in Ong Sui
Si Temple vs. The Register of Deeds of Manila (G. R. No. L-6776, prom. May 21, 1955) where
we said, inter alia, the following:
We are of the opinion that the Court below has correctly held that in view of the absolute
terms of section 5, Title XIII, of the Constitution, the provisions of Act 271 of the old Philippine
Commission must be deemed repealed since the Constitution was enacted, in so far as
incompatible therewith. In providing that
Save in cases of hereditary succession no private agricultural land shall be transferred or
assigned except to individuals, corporations or associations qualified to acquire or hold lands
of the public domain in the Philippines.
the Constitution makes no exception in favor of religious associations. Neither is there any
such saving found in Sections 1 and 2 of Article XIII, restricting the acquisition of public
agricultural lands and other natural resources to "corporations or associations at least sixty
per centum of the capital of which is owned by such citizens" (of the Philippines). (Emphasis
ours) .
Even in the case of Smith Bell & Co. vs. Register of Deeds of Davao (50 O.G., 5239) where a
lease of a parcel of land for a total period of 50 years in favor of an alien corporation was held
to be registerable, the reason we gave for such ruling was that a lease unlike a sale does
not involve the transfer of dominion over the land, the clear implication from this being that
transfer of ownership over land, even for a limited period of time, is not permissible in view of
the constitutional prohibition. The reason for this is manifestly the desire and purpose of the
Constitution to place and keep in the hands of the people the ownership over private lands in
order not to endanger the integrity of the nation. Inasmuch as when an alien buys land he
acquires and will naturally exercise ownership over the same, either permanently or
temporarily, to that extent his acquisition jeopardizes the purpose of the Constitution.
Some may say that this construction is too narrow and unwise; to this we answer that it is not
our privilege to determine the wisdom or lack of wisdom of this constitutional mandate. It is,
rather, Our sworn duty to enforce it free from qualifications and distinctions that tend to
render futile the constitutional intent.
WHEREFORE, the resolution appealed from is hereby affirmed, with costs.
Bengzon, C.J., Bautista Angelo, Concepcion, Reyes, J.B.L., Barrera and Paredes, JJ., concur.
Padilla and Labrador, JJ., took no part.

(2) 19 scra 58
G.R. No. L-20583

January 23, 1967

REPUBLIC OF THE PHILIPPINES, petitioner,


vs.
SECURITY CREDIT AND ACCEPTANCE CORPORATION, ROSENDO T. RESUELLO, PABLO
TANJUTCO, ARTURO SORIANO, RUBEN BELTRAN, BIENVENIDO V. ZAPA, PILAR G. RESUELLO,
RICARDO D. BALATBAT, JOSE SEBASTIAN and VITO TANJUTCO JR., respondents.
Office of the Solicitor General Arturo A. Alafriz and Solicitor E. M. Salva for petitioner.
Sycip, Salazar, Luna, Manalo & Feliciano for respondents.
Natalio M. Balboa and F. E. Evangelista for the receiver.
This is an original quo warranto proceeding, initiated by the Solicitor General, to dissolve the
Security and Acceptance Corporation for allegedly engaging in banking operations without
the authority required therefor by the General Banking Act (Republic Act No. 337). Named as
respondents in the petition are, in addition to said corporation, the following, as alleged
members of its Board of Directors and/or Executive Officers, namely:
NAME POSITION
Rosendo T. Resuello
President & Chairman of the Board
Pablo Tanjutco
Director
Arturo Soriano
Director
Ruben Beltran
Director
Bienvenido V. ZapaDirector & Vice-President
Pilar G. Resuello
Director & Secretary-Treasurer
Ricardo D. BalatbatDirector & Auditor
Jose R. Sebastian Director & Legal Counsel
Vito Tanjutco Jr.
Director & Personnel Manager
The record shows that the Articles of Incorporation of defendant corporation1 were registered
with the Securities and Exchange Commission on March 27, 1961; that the next day, the
Board of Directors of the corporation adopted a set of by-laws,2 which were filed with said
Commission on April 5, 1961; that on September 19, 1961, the Superintendent of Banks of
the Central Bank of the Philippines asked its legal counsel an opinion on whether or not said
corporation is a banking institution, within the purview of Republic Act No. 337; that, acting
upon this request, on October 11, 1961, said legal counsel rendered an opinion resolving the
query in the affirmative; that in a letter, dated January 15, 1962, addressed to said
Superintendent of Banks, the corporation through its president, Rosendo T. Resuello, one of
defendants herein, sought a reconsideration of the aforementioned opinion, which
reconsideration was denied on March 16, 1962; that, prior thereto, or on March 9, 1961, the

corporation had applied with the Securities and Exchange Commission for the registration and
licensing of its securities under the Securities Act; that, before acting on this application, the
Commission referred it to the Central Bank, which, in turn, gave the former a copy of the
above-mentioned opinion, in line with which, the Commission advised the corporation on
December 5, 1961, to comply with the requirements of the General Banking Act; that, upon
application of members of the Manila Police Department and an agent of the Central Bank, on
May 18, 1962, the Municipal Court of Manila issued Search Warrant No. A-1019; that,
pursuant thereto, members of the intelligence division of the Central Bank and of the Manila
Police Department searched the premises of the corporation and seized documents and
records thereof relative to its business operations; that, upon the return of said warrant, the
seized documents and records were, with the authority of the court, placed under the custody
of the Central Bank of the Philippines; that, upon examination and evaluation of said
documents and records, the intelligence division of the Central Bank submitted, to the Acting
Deputy Governor thereof, a memorandum dated September 10, 1962, finding that the
corporation is:
1. Performing banking functions, without requisite certificate of authority from the Monetary
Board of the Central Bank, in violation of Secs. 2 and 6 of Republic Act 337, in that it is
soliciting and accepting deposit from the public and lending out the funds so received;
2. Soliciting and accepting savings deposits from the general public when the company's
articles of incorporation authorize it only to engage primarily in financing agricultural,
commercial and industrial projects, and secondarily, in buying and selling stocks and bonds of
any corporation, thereby exceeding the scope of its powers and authority as granted under its
charter; consequently such acts are ultra-vires:
3. Soliciting subscriptions to the corporate shares of stock and accepting deposits on account
thereof, without prior registration and/or licensing of such shares or securing exemption
therefor, in violation of the Securities Act; and
4. That being a private credit and financial institution, it should come under the supervision of
the Monetary Board of the Central Bank, by virtue of the transfer of the authority, power,
duties and functions of the Secretary of Finance, Bank Commissioner and the defunct Bureau
of Banking, to the said Board, pursuant to Secs. 139 and 140 of Republic Act 265 and Secs.
88 and 89 of Republic Act 337." (Emphasis Supplied.) that upon examination and evaluation
of the same records of the corporation, as well as of other documents and pertinent pipers
obtained elsewhere, the Superintendent of Banks, submitted to the Monetary Board of the
Central Bank a memorandum dated August 28, 1962, stating inter alia.
11. Pursuant to the request for assistance by the Chief, Intelligence Division, contained in his
Memorandum to the Governor dated May 23, 1962 and in accordance with the written
instructions of Governor Castillo dated May 31, 1962, an examination of the books and
records of the Security Credit and Loans Organizations, Inc. seized by the combined MPD-CB
team was conducted by this Department. The examination disclosed the following findings:
a. Considering the extent of its operations, the Security Credit and Acceptance Corporation,
Inc., receives deposits from the public regularly. Such deposits are treated in the
Corporation's financial statements as conditional subscription to capital stock. Accumulated
deposits of P5,000 of an individual depositor may be converted into stock subscription to the
capital stock of the Security Credit and Acceptance Corporation at the option of the depositor.
Sale of its shares of stock or subscriptions to its capital stock are offered to the public as part
of its regular operations.

b. That out of the funds obtained from the public through the receipt of deposits and/or the
sale of securities, loans are made regularly to any person by the Security Credit and
Acceptance Corporation.
A copy of the Memorandum Report dated July 30, 1962 of the examination made by
Examiners of this Department of the seized books and records of the Corporation is attached
hereto.
12. Section 2 of Republic Act No. 337, otherwise known as the General Banking Act, defines
the term, "banking institution" as follows:
Sec. 2. Only duly authorized persons and entities may engage in the lending of funds
obtained from the public through the receipts of deposits or the sale of bonds, securities, or
obligations of any kind and all entities regularly conducting operations shall be considered as
banking institutions and shall be subject to the provisions of this Act, of the Central Bank Act,
and of other pertinent laws. ...
13. Premises considered, the examination disclosed that the Security Credit and Acceptance
Corporation is regularly lending funds obtained from the receipt of deposits and/or the sale of
securities. The Corporation therefore is performing 'banking functions' as contemplated in
Republic Act No. 337, without having first complied with the provisions of said Act.
Recommendations:
In view of all the foregoing, it is recommended that the Monetary Board decide and declare:
1. That the Security Credit and Acceptance Corporation is performing banking functions
without having first complied with the provisions of Republic Act No. 337, otherwise known as
the General Banking Act, in violation of Sections 2 and 6 thereof; and
2. That this case be referred to the Special Assistant to the Governor (Legal Counsel) for
whatever legal actions are warranted, including, if warranted criminal action against the
Persons criminally liable and/or quo warranto proceedings with preliminary injunction against
the Corporation for its dissolution. (Emphasis supplied.)
that, acting upon said memorandum of the Superintendent of Banks, on September 14, 1962,
the Monetary Board promulgated its Resolution No. 1095, declaring that the corporation is
performing banking operations, without having first complied with the provisions of Sections 2
and 6 of Republic Act No. 337;3 that on September 25, 1962, the corporation was advised of
the aforementioned resolution, but, this notwithstanding, the corporation, as well as the
members of its Board of Directors and the officers of the corporation, have been and still are
performing the functions and activities which had been declared to constitute illegal banking
operations; that during the period from March 27, 1961 to May 18, 1962, the corporation had
established 74 branches in principal cities and towns throughout the Philippines; that through
a systematic and vigorous campaign undertaken by the corporation, the same had managed
to induce the public to open 59,463 savings deposit accounts with an aggregate deposit of
P1,689,136.74; that, in consequence of the foregoing deposits with the corporation, its
original capital stock of P500,000, divided into 20,000 founders' shares of stock and 80,000
preferred shares of stock, both of which had a par value of P5.00 each, was increased, in less
than one (1) year, to P3,000,000 divided into 130,000 founders' shares and 470,000 preferred
shares, both with a par value of P5.00 each; and that, according to its statement of assets
and liabilities, as of December 31, 1961, the corporation had a capital stock aggregating
P1,273,265.98 and suffered, during the year 1961, a loss of P96,685.29. Accordingly, on
December 6, 1962, the Solicitor General commenced this quo warranto proceedings for the
dissolution of the corporation, with a prayer that, meanwhile, a writ of preliminary injunction

be issued ex parte, enjoining the corporation and its branches, as well as its officers and
agents, from performing the banking operations complained of, and that a receiver be
appointed pendente lite.
Upon joint motion of both parties, on August 20, 1963, the Superintendent of Banks of the
Central Bank of the Philippines was appointed by this Court receiver pendente lite of
defendant corporation, and upon the filing of the requisite bond, said officer assumed his
functions as such receiver on September 16, 1963.
In their answer, defendants admitted practically all of the allegations of fact made in the
petition. They, however, denied that defendants Tanjutco (Pablo and Vito, Jr.), Soriano,
Beltran, Zapa, Balatbat and Sebastian, are directors of the corporation, as well as the validity
of the opinion, ruling, evaluation and conclusions, rendered, made and/or reached by the
legal counsel and the intelligence division of the Central Bank, the Securities and Exchange
Commission, and the Superintendent of Banks of the Philippines, or in Resolution No. 1095 of
the Monetary Board, or of Search Warrant No. A-1019 of the Municipal Court of Manila, and of
the search and seizure made thereunder. By way of affirmative allegations, defendants
averred that, as of July 7, 1961, the Board of Directors of the corporation was composed of
defendants Rosendo T. Resuello, Aquilino L. Illera and Pilar G. Resuello; that on July 11, 1962,
the corporation had filed with the Superintendent of Banks an application for conversion into
a Security Savings and Mortgage Bank, with defendants Zapa, Balatbat, Tanjutco (Pablo and
Vito, Jr.), Soriano, Beltran and Sebastian as proposed directors, in addition to the defendants
first named above, with defendants Rosendo T. Resullo, Zapa, Pilar G. Resuello, Balatbat and
Sebastian as proposed president, vice-president, secretary-treasurer, auditor and legal
counsel, respectively; that said additional officers had never assumed their respective offices
because of the pendency of the approval of said application for conversion; that defendants
Soriano, Beltran, Sebastian, Vito Tanjutco Jr. and Pablo Tanjutco had subsequently withdrawn
from the proposed mortgage and savings bank; that on November 29, 1962 or before the
commencement of the present proceedings the corporation and defendants Rosendo T.
Resuello and Pilar G. Resuello had instituted Civil Case No. 52342 of the Court of First
Instance of Manila against Purificacion Santos and other members of the savings plan of the
corporation and the City Fiscal for a declaratory relief and an injunction; that on December 3,
1962, Judge Gaudencio Cloribel of said court issued a writ directing the defendants in said
case No. 52342 and their representatives or agents to refrain from prosecuting the plaintiff
spouses and other officers of the corporation by reason of or in connection with the
acceptance by the same of deposits under its savings plan; that acting upon a petition filed
by plaintiffs in said case No. 52342, on December 6, 1962, the Court of First Instance of
Manila had appointed Jose Ma. Ramirez as receiver of the corporation; that, on December 12,
1962, said Ramirez qualified as such receiver, after filing the requisite bond; that, except as
to one of the defendants in said case No. 52342, the issues therein have already been joined;
that the failure of the corporation to honor the demands for withdrawal of its depositors or
members of its savings plan and its former employees was due, not to mismanagement or
misappropriation of corporate funds, but to an abnormal situation created by the mass
demand for withdrawal of deposits, by the attachment of property of the corporation by its
creditors, by the suspension by debtors of the corporation of the payment of their debts
thereto and by an order of the Securities and Exchange Commission dated September 26,
1962, to the corporation to stop soliciting and receiving deposits; and that the withdrawal of
deposits of members of the savings plan of the corporation was understood to be subject, as
to time and amounts, to the financial condition of the corporation as an investment firm.
In its reply, plaintiff alleged that a photostat copy, attached to said pleading, of the
anniversary publication of defendant corporation showed that defendants Pablo Tanjutco,
Arturo Soriano, Ruben Beltran, Bienvenido V. Zapa, Ricardo D. Balatbat, Jose R. Sebastian and
Vito Tanjutco Jr. are officers and/or directors thereof; that this is confirmed by the minutes of
a meeting of stockholders of the corporation, held on September 27, 1962, showing that said

defendants had been elected officers thereof; that the views of the legal counsel of the
Central Bank, of the Securities and Exchange Commission, the Intelligence Division, the
Superintendent of Banks and the Monetary Board above referred to have been expressed in
the lawful performance of their respective duties and have not been assailed or impugned in
accordance with law; that neither has the validity of Search Warrant No. A-1019 been
contested as provided by law; that the only assets of the corporation now consist of accounts
receivable amounting approximately to P500,000, and its office equipment and appliances,
despite its increased capitalization of P3,000,000 and its deposits amounting to not less than
P1,689,136.74; and that the aforementioned petition of the corporation, in Civil Case No.
52342 of the Court of First Instance of Manila, for a declaratory relief is now highly improper,
the defendants having already committed infractions and violations of the law justifying the
dissolution of the corporation.
Although, admittedly, defendant corporation has not secured the requisite authority to
engage in banking, defendants deny that its transactions partake of the nature of banking
operations. It is conceded, however, that, in consequence of a propaganda campaign
therefor, a total of 59,463 savings account deposits have been made by the public with the
corporation and its 74 branches, with an aggregate deposit of P1,689,136.74, which has been
lent out to such persons as the corporation deemed suitable therefor. It is clear that these
transactions partake of the nature of banking, as the term is used in Section 2 of the General
Banking Act. Indeed, a bank has been defined as:
... a moneyed institute [Talmage vs. Pell 7 N.Y. (3 Seld. ) 328, 347, 348] founded to facilitate
the borrowing, lending and safe-keeping of money (Smith vs. Kansas City Title & Trust Co., 41
S. Ct. 243, 255 U.S. 180, 210, 65 L. Ed. 577) and to deal, in notes, bills of exchange, and
credits (State vs. Cornings Sav. Bank, 115 N.W. 937, 139 Iowa 338). (Banks & Banking, by
Zellmann Vol. 1, p. 46).
Moreover, it has been held that:
An investment company which loans out the money of its customers, collects the interest and
charges a commission to both lender and borrower, is a bank. (Western Investment Banking
Co. vs. Murray, 56 P. 728, 730, 731; 6 Ariz 215.)
... any person engaged in the business carried on by banks of deposit, of discount, or of
circulation is doing a banking business, although but one of these functions is exercised.
(MacLaren vs. State, 124 N.W. 667, 141 Wis. 577, 135 Am. S.R. 55, 18 Ann. Cas. 826; 9 C.J.S.
30.)
Accordingly, defendant corporation has violated the law by engaging in banking without
securing the administrative authority required in Republic Act No. 337.
That the illegal transactions thus undertaken by defendant corporation warrant its dissolution
is apparent from the fact that the foregoing misuser of the corporate funds and franchise
affects the essence of its business, that it is willful and has been repeated 59,463 times, and
that its continuance inflicts injury upon the public, owing to the number of persons affected
thereby.
It is urged, however, that this case should be remanded to the Court of First Instance of
Manila upon the authority of Veraguth vs. Isabela Sugar Co. (57 Phil. 266). In this connection,
it should be noted that this Court is vested with original jurisdiction, concurrently with courts
of first instance, to hear and decide quo warranto cases and, that, consequently, it is
discretionary for us to entertain the present case or to require that the issues therein be
taken up in said Civil Case No. 52342. The Veraguth case cited by herein defendants, in
support of the second alternative, is not in point, because in said case there were issues of

fact which required the presentation of evidence, and courts of first instance are, in general,
better equipped than appellate courts for the taking of testimony and the determination of
questions of fact. In the case at bar, there is, however, no dispute as to the principal facts or
acts performed by the corporation in the conduct of its business. The main issue here is one
of law, namely, the legal nature of said facts or of the aforementioned acts of the corporation.
For this reason, and because public interest demands an early disposition of the case, we
have deemed it best to determine the merits thereof.
Wherefore, the writ prayed for should be, as it is hereby granted and defendant corporation
is, accordingly, ordered dissolved. The appointment of receiver herein issued pendente lite is
hereby made permanent, and the receiver is, accordingly, directed to administer the
properties, deposits, and other assets of defendant corporation and wind up the affairs
thereof conformably to Rules 59 and 66 of the Rules of Court. It is so ordered.
Reyes, J.B.L., Dizon, Regala, Makalintal, Bengzon, J.P., Zaldivar, Sanchez and Castro, JJ.,
concur.
Footnotes
1Which, as amended on May 8, 1961, authorized it:
"1. To extend credit facilities for home building and agricultural, commercial and industrial
projects;
2. To extend credit, give loans, mortgages and pledges, either as principal, agent, broker or
attorney-in-fact, upon every and all kind and classes of products, materials, goods,
merchandise, and other properties, real or personal of every kind and nature;
3. To draw, accept, endorse, purchase, own, sell, discount, mortgage, assign or otherwise
dispose of, negotiate or collect accounts or notes receivables, negotiable instruments, letters
of credit and other evidence of indebtedness;
4. To purchase, acquire, and take over, all or any part of the rights, assets and business of
any person, partnership, corporation or association, and to undertake and assume the
liabilities and obligations of such person, partnership, corporation or association whose rights,
assets, business or property may be purchased, acquired or taken over;
5. To issue bonds, debentures, securities, collaterals and other obligations or otherwise incur
indebtedness in such manner as may be ascertained by the corporation; and
6. To undertake the management, promotion, financing and/or collection services of the
operation of the business, industry or enterprises of any person, partnership, corporation or
association in so far as may be permitted under the laws of the Philippines." (Emphasis
supplied.).
2Empowering said Board, inter alia:
"c) To pay for any property or rights acquired by the corporation or to discharge obligations of
the corporation either wholly or partly in money or in stock, bonds, debentures or other
securities of the corporation;
"d) To lend or borrow money for the corporation with or without security and for such purpose
to accept or create, make and issue mortgages, bonds, deeds of trust and negotiable
instruments or securities, secured by mortgage or pledge of property belonging to the
corporation; provided, that as hereinafter provided, the proper officers of the corporation

shall have these powers, unless expressly limited by the Board of Directors: ... (Emphasis
supplied).
3"Sec. 2. Only duly authorized persons and entities may engage in the lending of funds
obtained from the public through the receipts of deposits or the sale of bonds, securities, or
obligations of any kind, and all entities regularly conducting such operations shall be
considered as banking institutions and shall be subject to the provisions of this Act, of the
General Bank Act, and of other pertinent laws. The terms 'banking institution and 'bank', as
used in this Act, are synonymous and interchangeable and specially include banks, banking
institutions, commercial banks, savings banks, mortgage banks, trust companies, building
and loan associations, branches and agencies in the Philippines of foreign banks, hereinafter
called Philippine branches, and all other corporations, companies, partnerships, and
associations performing banking functions in the Philippines.
"Persons and entities which receive deposits only occasionally shall not be considered as
banks, but such persons and entities shall be subject to regulation by the Monetary Board of
the Central Bank; nevertheless in no case may the Central Bank authorize the drawing of
checks against deposits not maintained in banks, or branches or agencies thereof.
"The Monetary Board may similarly regulate the activities of persons and entities which act as
agents of banks.
"Sec. 6. No person, association or corporation not conducting the business of a commercial
banking corporation, trust corporation, savings and mortgage banks, or building and loan
association, as defined in this Act, shall advertise or hold itself out as being engaged in the
business of such bank, corporation or association, or use in connection with its business title
the word or words, 'bank', 'banking,' 'banker,' 'building and loan association,' 'trust
corporation,' 'trust company,' or words of similar import, or solicit or receive deposits of
money for deposit, disbursement, safekeeping, or otherwise, or transact in any manner the
business of any such bank, corporation or association without having first complied with the
provisions of this Act in so far as it relates to commercial banking corporations, trust
corporations, savings and mortgage banks, or building and loan association as the case may
be. For any violation of the provisions of this section by a corporation, the officers and
directors thereof shall be jointly and severally liable. Any violation of the provisions of this
section shall be punished by a fine of five hundred pesos for each day during which such
violation is continued or repeated, and, in default of the payment thereof, subsidiary
imprisonment as prescribed by law."

(3)
20 scra 592
G.R. No. L-23307

June 30, 1967

DAMASO P. PEREZ and REPUBLIC BANK, ETC., ET AL., petitioners-appellants,


vs.
MONETARY BOARD, THE SUPERINTENDENT OF BANKS,
CENTRAL BANK OF THE PHILIPPINES and SECRETARY OF JUSTICE, respondents-appellees.
AURORA R. RECTO, MIGUEL CANIZARES, LEON ANCHETA, PABLO ROMAN,
VICTORIA B. ROMAN and NORBERTO J. QUISUMBING, intervenors-appellees.
BENGZON, J.P., J.:
Petitioner-appellant Damaso P. Perez, for himself and in a derivative capacity on behalf of the
Republic Bank, instituted mandamus proceedings in the Court of First Instance of Manila on
June 23, 1962, against the Monetary Board, the Superintendent of Banks, the Central Bank
and the Secretary of Justice. His object was to compel these respondents to prosecute, among
others, Pablo Roman and several other Republic Bank officials for violations of the General
Banking Act (specifically secs. 76-78 and 83 thereof) and the Central Bank Act, and for
falsification of public or commercial documents in connection with certain alleged anomalous
loans amounting to P1,303,400.00 authorized by Roman and the other bank officials.
Respondents assailed, in their respective answers, the propriety of mandamus. The Secretary
of Justice claimed that it was not their specific duty to prosecute the persons denounced by
Perez. The Central Bank and its respondent officials, on the other hand, averred that they had
already done their duty under the law by referring to the special prosecutors of the
Department of Justice for criminal investigation and prosecution those cases involving the
alleged anomalous loans.1
On July 10, 1962, respondents moved for the dismissal of the petition for lack of cause of
action. Petitioners opposed. The lower court denied the motion.
Subsequently, herein intervenors-appellees, as the incumbent directors of the Board of the
Republic Bank, filed motion to intervene in the proceedings. Petitioners opposed the motion
but the lower court approved the same.
On January 20, 1964, the Monetary Board of the Central Bank passed Resolution No. 81
granting the request of Republic Bank for credit accommodations to cover the unusual
withdrawal of deposits by its depositors in view of the fact that said Bank was under
investigation then by the authorities. The grant, however, was conditioned upon the
execution by the management and controlling stockholders of the Republic Bank of a voting
trust agreement in favor of a Board of Trustees to be chosen by the latter with the approval of
the Central Bank.
Pursuant to this resolution, Pablo Roman and his family, is the controlling stockholders of
Republic Bank, executed a voting trust agreement in favor of a board of trustees composed of
former Chief Justice Ricardo Paras, Hon. Miguel Cuaderno and Mr. Felix de la Costa.
Subsequently, or on March 13, 1964, this agreement was superseded by another one with the
Philippine National Bank as the trustee.2
In view of these developments, the intervenors-appellees filed a motion to dismiss before the
lower court claiming that the ouster of Pablo Roman and his family from the management of
the Republic Bank effected by the voting trust agreement rendered the mandamus case moot
and academic. Respondents-appellees also filed motion to dismiss in which they again raised
the impropriety of mandamus. Acting upon the two motions and the oppositions thereto filed

by petitioners, the lower court granted the motions and dismissed the case. Hence, this
appeal.
Appellants, contending that the ouster of Pablo Roman from Republic Bank's management
and control has not altered or rendered moot the issues in the case, argue that the remedy of
mandamus lies3 to compel respondents to prosecute the aforementioned Pablo Roman and
company. Addressing Ourselves directly to this issue raised on the propriety of the petition for
mandamus, We rule that petitioners cannot seek by mandamus to compel respondents to
prosecute criminally those alleged violators of the banking laws. Although the Central Bank
and its respondent officials may have the duty under the Central Bank Act and the General
Banking Act to cause the prosecution of those alleged violators, yet We find nothing in said
laws that imposes a clear, specific duty on the former to do the actual prosecution of the
latter. The Central Bank is a government corporation created principally to administer the
monetary and banking system of the Republic,4 not a prosecution agency5 like the fiscal's
office. Being an artificial person, The Central Bank is limited to its statutory powers and the
nearest power to which prosecution of violators of banking laws may be attributed is its
power to sue and be sued.6 But this corporate power of litigation evidently refers to civil
cases only.
The Central Bank and its respondent officials have already done all they could, within the
confines of their powers, to cause the prosecution of those persons denounced by Perez.
Annexes 5 to 7-C CBP of respondents' answer and even petitioners' opposition to the first
motion to dismiss7 show that the cases of the alleged anomalous loans had already been
referred by the Central Bank to the special prosecutors of the Department of Justice for
criminal investigation and prosecution. For respondents to do the actual prosecuting
themselves, as petitioners would have it, would be tantamount to an ultra vires act already.
As for the Secretary of Justice, while he may have the power to prosecute through the
office of the Solicitor General criminal cases, yet it is settled rule that mandamus will not
lie to compel a prosecuting officer to prosecute a criminal case in court.8
Moreover, it does not appear from the law that only the Central Bank or its respondent
officials can cause the prosecution of alleged violations of banking laws. Said violations
constitute a public offense, the prosecution of which is a matter of public interest and hence,
anyone even private individuals can denounce such violations before the prosecuting
authorities. Since Perez himself could cause the filing of criminal complaints against those
allegedly involved in the anomalous loans, if any, then he has a plain, adequate and speedy
remedy in the ordinary course of law, which makes mandamus against respondents improper.
But petitioners-appellants would insist that the impropriety of mandamus could no longer be
raised before the lower court for the second time since it had already been invoked in
previous motion to dismiss which was denied. This is untenable. The lower court was not
estopped from changing its opinion while it was under its jurisdiction to do so and on the
same ground of lack of cause of action raised before, because the former order was purely
interlocutory (issued provisionally) and thus remained constantly subject to alteration,
modification or reversal by it before the rendition of final judgment on its merits.9
Wherefore, the order of dismissal appealed from is, as it is hereby, affirmed. Costs against
petitioner-appellant Perez. So ordered.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez and Castro JJ., concur.

(4)
93 scra 443
G.R. No. L-49568 October 17, 1979
BANCO DE ORO, petitioner-appellant,
vs.
JAIME Z. BAYUGA and ROBERTO P. TOLENTINO, respondents- appellees, THE COURT OF
APPEALS and HON. FRANCISCO DE LA ROSA in his capacity as Judge of the CFI-Rizal, Branch
VII-Pasay City, respondents.
MELENCIO-HERRERA, J.:
A Petition for Review by certiorari of the Decision of the Court of Appeals * upholding with
modification the Special Order, dated March 10, 1978, issued by the Court of First Instance of
Rizal, Branch VI I. Pasay City, directing the issuance of a Writ of Execution pending appeal.
Factual Antecedents
Respondent Roberto P. Tolentino is a lawyer appearing on his own behalf and as counsel for
his co-respondent Jaime Z. Bayuga.
On November 2, 1976, as security for a loan of P375,000.00 respondent Jaime Z. Bayuga, as
attorney-in-fact of respondent Roberto P. Tolentino, and Leonardo Zaballero, executed a Real
Estate Mortgage in favor of the Acme Savings Bank (now Banco de Oro, petitioner herein)
over a parcel of land covered by TCT No. 4841.8 in the names of TOLENTINO and Zaballero,
with an area of 2 hectares, more or less, situated at Mabato, Calamba, Laguna. 1 The purpose
of the loan was for the "acquisition of real estate property." 2 The mortgage was duly
registered.
According to petitioner BANK, it approved the loan subject to the following terms and
conditions:
1. That the interest rate shall be l9% per annum;
2. That the monthly amortization shall be P7,000.12;
3. That the loan shall be payable within ten (10) years;
4. That the property sought to be acquired which is located in Tagaytay City, covered and
described under TCT No. 2703, Lot B (LRC) Psd-1537 registered in the name of Algue
Incorporated shall be given as additional collateral;
5. That the property located at Calamba, Laguna (TCT No. T48418, Lot 1995-U (LRC) Psd6481) shall first be registered provided, however, that the release of tile proceeds shall be
paid directly to the owner of the property above-mentioned, and
6. That the loan shall be subject to availability of funds. 3
Private respondents contend, however, that they were unaware of the foregoing conditions,
the same having been embodied only in the Minutes of the meeting of "the Board of

Directors/Executive Committee" of petitioner BANK, and, therefore, self-serving, as held by


the trial Court.
On November 15, 1976, the BANK made a partial release of P200,000.00 less charges of
P6,000.00, which amount was credited to the account of TOLENTINO in the said BANK. On the
same date, out of the balance of P194,000.00, TOLENTINO purchased from the BANK a
certificate of time deposit in the amount of P50,000.00. He also withdrew on the said date
P100,000.00, and on November 16, 1976, the amount of P44,000.00. TOLENTINO then
purchased from the BANK a Manager's check in the total amount of P144,000.00,
P135,000.00 of which he deposited in his savings account, and P9,000.00 in his checking
account, both with the Far East Bank & Trust Company.
Thereafter, claiming that the borrowers showed no indication of complying with his obligation
to pay the amount of the loan to the vendor (Algue, Inc.) of the Tagaytay City property, which
constituted diversion in violation of Sec. 77, Republic Act No. 337, the BANK stopped payment
of its Manager's check at the same time that it refused to release the balance of the loan.
That action was necessary, according to the BANK, in order to prevent private respondent
from perpetrating a fraud against it.
On December 2, 1976, private respondents TOLENTINO and Bayuga, as plaintiffs, brought an
action for Specific Performance with Damages against the BANK before the Court of First
Instance of Rizal, Branch VI I, Pasay City, docketed as CC No. 5271-B. On December 27, 1976,
after a preliminary hearing, the trial Court ordered the issuance of a Writ of Preliminary
Mandatory Injunction directing the BANK to comply with the mortgage contract by releasing
immediately to Bayuga the consideration thereof in the amount of P375,000.00 upon private
respondents' posting of a bond of P200,000.00. 4 Apparently, however, the BANK did not
release the amount.
On December 12, 1977, the trial Court rendered its Decision with the following decretal
portion:
WHEREFORE, judgment is hereby rendered in favor of plaintiffs (private respondents herein):
a) Ordering Defendant Bank (petitioner in this case) to comply with its obligations towards
Plaintiff Bayuga under the Real Estate Mortgage (Exhibit "E", Exhibit 14);
b) Ordering Defendant Bank to pay to Plaintiff Tolentino P144,000.00 in its manager's check
and P50,000.00 in its Certificate of Time Deposit;
c) Ordering Defendant Bank to pay to Plaintiff Bayuga the balance of P175,000-00 in cash or
in check, as said Plaintiff Bayuga may demand;
d)
1)
2)
3)
4)

Ordering Defendant Bank to pay to Plaintiff Bayuga the following:


P5,000.00 - as nominal damages,
P20,000.00-as moral damages;
P 10,000.00 -as exemplary damages,
P10,000.00 - as attorney's fees;

e) Ordering Defendant Bank to pay Plaintiff Tolentino the following:


1) P80,000.00 - as actual damages,
2) P20,000-00 - as moral damages,
3) P10,000.00 - as exemplary damages,
4) P10,000.00 - as attorney's fees.
COSTS AGAINST DEFENDANT BANK.

On December 27, 1977, the BANK filed its Notice of Appeal to the Court of Appeals, posted an
appeal bond, and moved for extension of time within which to submit its Record on Appeal.
Before the perfection of said appeal, however, and upon private respondents' "Petition for
Execution with Prayer for Contempt", the trial Court issued an Order, dated February 10,
1978, confirming and reiterating the Writ of Preliminary Mandatory Injunction it had issued on
December 27, 1976 and ordering the BANK to comply therewith.
The BANK challenged the aforestated Orders of December 27, 1976 and February 10, 1978 in
a Petition for certiorari and Prohibition filed before the Court of Appeals on February 16, 1978
in CA-G. R. No. SP-07-D73.
On March 10, 1978, upon private respondents' Motion for Execution Pending Appeal, the trial
Court released a "Special Order" authorizing execution in this wise:
WHEREFORE, independently of whatever resolution the Honorable Court of Appeals may hand
down in the Petition now pending before it (CA-G.R. No. 07573), and without the necessity of
passing upon the issue of delay allegedly intended by the Defendant Bank, this Court finds
that there is a good reason for the granting of the writ of execution pending the appeal
herein-to deny the issuance of the writ of execution pending appeal will be to deny from the
Plaintiffs the relief from the substantial injustice which they have been burdened, which
injustice started from the time the parcel of land of Plaintiff Tolentino was mortgaged in favor
of Defendant Bank, and the same will continue for some time more unless the writ of
execution is immediately granted. It bears repeating that their substantial injustice consists of
having said parcel of land mortgaged to Defendant Bank and said Defendant Bank not paying
any single centavo of the loan guaranteed by the mortgage. Plaintiffs are willing to post
sufficient bonds, as a token of good faith, to cover the award of damages of P120,000.00 in
favor of Plaintiff Tolentino and of P45,000.00 in favor of Plaintiff Bayuga. It is therefore,
hereby ordered that a writ of execution pending appeal be issued immediately for the
enforcement and execution of the DECISION of this Court dated December 12, 1977, upon the
posting, in favor of Defendant Bank, a bond in the amount of P45,000.00 by Plaintiff Tolentino
and a bond in the amount of P15,000.00 by Plaintiff Bayuga.
On March 13, 1978, private respondents posted the required bonds for special execution in
the total sum of P55,000.00. 5 The bonds were approved by the trial Court on the same date.
On March 14, 1978, the corresponding Writ of Execution was issued by the trial Court, by
virtue of which the amount of P389,000.00 the BANK'S deposit with the Central Bank, was
garnished.
On March 16, 1978, a Supplemental Petition for certiorari was filed by the BANK with the
Court of Appeals in the same CA-G.R. No. SP-07573, seeking the nullification of the
aforementioned Special Order of March 10, 1978 and the issuance of a Restraining Order
enjoining the enforcement of execution pending appeal.
On March 17, 1978, the Court of Appeals issued a Restraining Order as prayed for by the
BANK.
On October 16, 1978, the Court of Appeals ruled that the trial Court committed no grave
abuse of discretion in granting execution pending appeal but excluded the images awarded to
private respondents. Its Decision, in CA-G.R. No. SP-07573. reads thus in its dispositive
portion:

WHEREFORE, the herein petition is denied. The challenged order is accordingly modified in
order to exclude the damages assessed in favor of respondent Bayuga and respondent
Tolentino (letters D and C of the dispositive portion of the decision a quo). In an other
respects, the challenged order dated March 10, 1978 and all other orders flowing therefrom
stand. With costs.
On October 20, 1978, in virtue of said Decision of the Court of Appeals, the trial Court issued
its Order granting private respondents' ex-parte Motion for the enforcement of the Writ and/or
the issuance of an Alias Writ. On October 25, 1978, the BANK filed a Motion to Quash/Lift
Order dated October 20, 1978 or in the alternative, a Motion for Authority to File Supersedeas
Bond to stay execution pending appeal.
On December 11, 1978, the trial Court denied quashal of the Writ as well as the BANK'S
alternative prayer to be allowed to file a superdeas bond, and ordered the Central Bank, upon
receipt of the Order, to deliver to the Deputy Sheriff the amount of P389,000.00 the amount
garnished by virtue of the Writ of Execution of March 14, 1978, for said Sheriff to deliver the
mentioned amount to the Clerk of Court, and for the latter, in turn, to deliver the same to
private respondents. 6
On December 15, 1978, the Court of Appeals, upon the BANK'S Motion, issued a Restraining
Order enjoining the execution of its Decision until the BANK would be able to elevate an
appeal to this Court. 7 On January 22, 1979, the Court of Appeals lifted its Restraining Order
since a Petition for Review on certiorari had actually been filed with this Court. 8
In the meantime, or on August 10, 1978, the trial Court approved the BANK'S Record on
Appeal. In the Court of Appeals, the appealed case was docketed as CA-G.R. No. 64130R,
where it is still pending.
G.R. No. L,49568 before the Supreme Court
On January 12, 1979, after an extension having been granted, the BANK filed the instant
appeal by way of certiorari before this Court impugning the Decision of the Court of Appeals,
as well as the trial Court Orders a) of December 27, 1976 ordering the issuance of a Writ of
Preliminary Mandatory Injunction, b) of February 10, 1978 reiterating the said Order, and c)
the Special Order of March 10, 1978 granting execution pending appeal. On January 19, 1979,
the BANK filed an Urgent Petition for the Issuance of Preliminary Injunction with Restraining
Order, 9 to enjoin the trial Court "from further proceeding with any matter in connection with
Civil Case No. 5271-P of this Court" and praying that Injunction be made permanent until the
final outcome of the appeal on the merits in C.A.-G.R. No. 64130 of the Court of Appeals is
known.
In a Resolution dated January 24, 1979, we required private respondents to submit their
Comment and issued a Restraining Order enjoining the trial Judge from further proceeding
with Civil Case No. 5271-P and from enforcing his Order dated December 11, 1978,
authorizing the Central Bank to release the amount of P389,000.00. Private respondents'
Comment, which included a prayer for the dismissal of the Petition and the immediate
quashing of the Restraining Order, was filed on January 29, 1979, 10 and connected mainly
that execution pending appeal is a necessity in order to serve the interest of justice.
On February 14, 1979, we denied the Petition for lack of merit and, on February 21, 1979,
lifted the Restraining Order. 11 The BANK moved for reconsideration and for the restoration of
the Restraining Order, which was opposed by private respondents. In support of its Motion for
Reconsideration, the BANK claimed that the amount of P375,000.00 would be secured only by
the Calamba property, with a loan value of only P157,889.76; that the bonds posted by
private respondents totalling P55,000.00 only are grossly inadequate; that it would be made

to violate the General Banking Act, R. A. No. 337, which mandates that the loan in question
should be used only for the purpose of acquiring urban or rural land; and that release of the
loan would render its appeal in CA-G.R. No. 64130-R moot and academic.
In the interim, in view of the lifting of the Restraining Order, a check for P389,000.00 was
released by the Central Bank to the Deputy Sheriff on February 26, 1979. The check was
encashed on the same date and turned over to private respondents. The BANK claims that
execution was implemented with irregularity and haste, with no explanation as to why the
amount of P369,000.00 was raised to P389,000.00.
In a Motion filed before the trial Court on March 15, 1979, the BANK prayed for an Order
directing private respondents to execute the corresponding promissory note in its favor. 12
This was followed by a Manifestation that it was without prejudice to whatever action the
Supreme Court may take in the premises. 13
In our Resolution of March 19,1979, we required the BANK to file a Reply to private
respondents' Opposition to the Motion for Reconsideration, and we reinstated the Restraining
Order lifted on February 21, 1979, unaware that execution had been implemented. 14 The
BANK filed its Reply on March 26, 1979 and reiterated its prayer for the restoration of the
amount of P389,000.00.
We set the Petition and all pending incidents for hearing, which was tantamount to a due
course Order, on April 16, 1979. 15 This was reset to-May 14, 1979 for non-service of the
notice of hearing of April 16 on TOLENTINO. On the date of the first hearing on April 16,
however, the same having been attended by the BANK's counsel, the Court required the
BANK to submit such pertinent documents as would give the Court a complete picture of the
controversy. In its Compliance, petitioner submitted Application for Loan of Jaime Z. Bayuga
(Annex "A"); Application for Loan of Roberto P. Tolentino (Annex "A-1 "); Resolution No. 76-93
G M of the Board of petitioner Bank (Annex "B"); Real Estate Mortgage (Annex "C"); Affidavit
of Undertaking signed by Bayuga (Annex "D"); Letter of the Bank dated April 4, 1979
addressed to Bayuga, Zaballero and TOLENTINO reminding them of the monthly amortization
due (Annex "E"). For its part, private respondents claimed that those documents were
misleading, 16 that the Application for Loan, which he had signed (Annex "A-1 "), had nothing
to do with the transaction in question; that the excerpt of the Minutes of the meeting of
petitioner Bank (Annex "B") is self- serving, that the Real Estate Mortgage (Annex "C") was
executed only between Bayuga and the BANK; that the Affidavit of undertaking signed by
Bayuga (Annex "D") should not be given any value; that the subject mortgage is not yet due
and the BANK's letter dated April 14, 1979 (Annex "E") is "a worthless piece of paper coming
from (the BANK'S) dirty heart."
The hearing of May 14, 1979 was further postponed to June 6,1979 after denying
TOLENTINO's prayer that said hearing of May 14, 1979 be cancelled for being "unnecessary,
the facts of the case being beyond dispute." We resolved to impose upon Atty. TOLENTINO a
fine of P200.00, and instead we required the personal appearance of both private
respondents Bayuga and TOLENTINO at the hearing set fortune 6,1979.
During the oral argument, the Bank was required to submit copies of the Record on Appeal
filed in CA-G.R. No. 64130- R of the Court of Appeals and a chronology of relevant incidents.
Its Compliance was filed on June 8, 1979. TOLENTINO was also required to submit, not later
than the close of office hours of June 7, 1979, copy of the alleged deed showing the purchase
by him of about eight hectares of real estate in Tagaytay City on account of which he
allegedly paid P350,000.00 out of the P389,000.00 received by him from the loan proceeds.
TOLENTINO complied by submitting on June 7, 1979, at 11:00 A.M., a Deed of Sale dated
March 9, 1979 of a parcel of land of 5 hectares in Tagaytay City for which he is shown to have
made a down payment of P280,000.00. At 3:00 P.M. of the same day, he submitted another

Deed of Sale dated April 2, 1979 over a piece of property of 2 hectares in Tagaytay City for
which he obligated himself to make a down payment of P70,000.00. Both sales, while duly
acknowledged before a Notary Public, do not disclose any evidence of registration.
On July 2, 1979, we granted private respondents' prayer for 10 days within which to file a
comment to the BANK's Compliance dated June 7, 1979, but the said comment was not filed.
On August 3, 1979, the case was considered submitted for resolution, with the Court noting a
Motion for Early Resolution filed by the BANK on, July 31, 1979. In this Petition before us, the
BANK contends:
I
RESPONDENT COURT OF APPEALS ERRED IN DISREGARDING THE ELEMENTARY PRINCIPLE OF
LAW THAT A MORTGAGE CONTRACT IS MERELY AN ACCESSORY CONTRACT, THUS DISPLAYING
LACK OF INSIGHT IN THE LAW AND THE REASONS OR PRINCIPLES UNDERLYING THE SAME;
II
RESPONDENT COURT OF APPEALS COMMITTED ERRORS OF LAW BY NOT CONSIDERING THE
LEGAL PROVISION ATTENDANT TO THE ORDERS COMPLAINED OF BEFORE IT ISSUED BY THE
RESPONDENT JUDGE;
III
RESPONDENT COURT OF APPEALS ENTIRELY DISREGARDED THE SPECIFIC DIRECTION LAID
DOWN BY R. A. NO. 337;
IV
RESPONDENT COURT OF APPEALS ERRED IN ARRIVING AT A DECISION OBVIOUSLY CONTRARY
TO PUBLIC INTEREST AND TO PUBLIC POLICY; and
V
RESPONDENT COURT OF APPEALS ERRED IN NOT CONSIDERING THE FACT THAT A WRIT OF
EXECUTION IS NOT PROPER IN THE ABOVE-ENTITLED CASE, AGAIN DISPLAYING LACK OF
INSIGHT IN THE LAW.
The critical issue posed before us is the propriety of the issuance of the Writ of execution
pending appeal by the trial Court, and its affirmance, except as to the aspect of damages. by
the Court of Appeals. The trial Court opined that to deny execution pending appeal would
have Been to deny the borrowers relief from the substantial injustice with which they have
been burdened considering that their land had been mortgaged without the BANK having paid
any centavo for the loan. The Court of Appeals, in turn ruled that the issuance of a Writ of
execution pending appeal is a matter of discretion on the part of the issuing Court and as
long as it is not exercised in a capricious or whimsical manner, and a special reason for its
issuance is stated in the Order, appellate Courts will not, disturb the same. The Court of
Appeals was most persuaded by the fact that the loan is intended to buy real estate property,
the price of which varies as days go by." Upon the other hand, the BANK maintains that the
issuance of the Writ would patently work violence with justice and equity because the
property given as collateral as well as the bonds which have been posted are inadequate, and
petitioner would be made to violate the General Banking Act. 17 Which provides that the loan
in question should be for the purpose only of acquiring urban or rural land; and that the
appeal in CA-G.R. NO. 64130 would be rendered moot and academic.
While, prima facie, execution pending appeal seemed justified because of the unilateral
cancellation of the release of the loan by the BANK without notice, and the absence of
complete supporting documents to the Petition, disclosures by the parties during the hearing
and pleadings and documents subsequently filed uphold a contrary view. Thus, during the
hearing as well as in his Comments filed on May 30, 1979, 'TOLENTINO contended that he is
not a party to the mortgage contract which was executed only between the BANK and
Bayuga; that he became a party only because he was "injured and damaged by the bad faith

of the BANK;" that he is not willing to co-sign a promissory note in the BANK's favor for the
amount of P389,000.00, alleging that Bayuga had already signed a promissory note in
November, 1976 in the sum of P200,000.00; and that neither he nor Bayuga had obligated
himself to put up any additional collateral. Bayuga, for his part, during the hearing, assumed
a very passive role admitting that he was but an employee of TOLENTINO who was the prime
mover in the entire transaction. The lack of good faith and of a sense of fair play on the part
of private respondents was all too evident. 'They were treating the release of the amount of
P389,000.00 in their favor more as a money judgment, which it is not, rather than as a loan
which it is. They want to avail of the full benefits of the loan without assumption of the
corresponding obligations, or very minimally at, that. Since receipt of the aforestated amount,
they have even refused to make any monthly amortizations even upon demand by the BANK,
contending that "no amount of the said loan is due. It will only be paid ten (10) years after the
execution of the mortgage contract as interpreted by our Courts." 18
The unfairness and inequity of this posture to the banking business is too evident to require
elaboration. Funds of a bank are, in a sense, held in trust. There are the interests of
depositors to be protected. The collateral the BANK has in its favor, with a loan value of only
P157,889.76, is far from adequate to answer for the amount of P389,000.00 that is now in the
hands of private respondents. The manner of repayment by private respondents of that
amount remains nebulous (unclear). Of course, the BANK is not without fault for this sorry
state of affairs.
The special reason cited by the trial Court and upheld by the Court of Appeals, i.e., the
"substantial injustice" wrought on private respondents whose land had been mortgaged
without any centavo paid for the loan, does not exist in law. As pointed out by the BANK, the
Calamba property need not have remained subject to the mortgage, the mortgage being but
an accessory contract to the contract of loan which is the principal obligation and which has
been cancelled. The consideration of the mortgage is the same consideration of the principal
contract without which it cannot exist as an independent contract. 19 The "persuasive" factor
considered by the Court of Appeals "that the loan is intended to buy real estate property, the
price of which varies as days go by" was disproved by the fact that TOLENTINO utilized the
amount initially released to purchase a certificate of time deposit and to open bank accounts
in his name rather than pay for the Algue property.
In the absence of good reasons, 20 private respondents have not shown a clear entitlement
to execution pending appeal. Moreover, after having received the loan proceeds of
P389,000.00 on February 26, 1979 by means of the execution pending appeal improvidently
granted, they refused to make any monthly amortizations since March, 1979, notwithstanding
the BANK's demands, on the outrageous claim against all banking practice that they are not
obligated to pay any amount on the loan until the lapse of ten (10) years after the execution
of the mortgage contract. Under the circumstances, defendants are clearly in default on their
loan and are liable to repay the whole amount with the stipulated interest.
WHEREFORE, the judgment of the Court of Appeals in CA-G.R. No. SP-07573 is hereby set
aside. Private respondents are hereby jointly and severally ordered to restore and repay
petitioner Banco de Oro the sum of P389,000.00 with the stipulated interest of nineteen per
cent (19%) per annum from February 26, 1979 until the whole amount due shall have been
fully paid. The property given in mortgage by respondents under the mortgage contract as
well as the bonds totalling P55,000.00 posted by respondents for the issuance of the
questioned order of execution pending appeal shall stand liable for satisfaction of the
judgment herein rendered in favor of petitioner bank.
In effect, this conclusion renders the appeal in CA-G.R. No. 64130-R moot and academic and
tile judgment of the trial court is accordingly set aside. the interests of substantial justice and
demands of fair play so dictate.

Costs against private respondents-appellees jointly and severally.


This judgment shall be immediately executory upon its promulgation.
SO ORDERED.
Teehankee, Actg. C.J., (Chairman), Makasiar, Fernandez, Guerrero and De Castro JJ., concur.

(5)
122 scra 588
G.R. No. L-57555 May 30, 1983
THE PEOPLE OF THE PHILIPPINES, plaintiff-appellee
vs.
TERESA JALANDONI, accused-appellant.
ABAD SANTOS, J:
In the defunct Circuit Criminal Court of Manila, an information for estafa was filed against
TERESA L. JALANDONI. it alleged:
That in or about and during the period comprised between September 8, 9 and 10, 1976,
inclusive, in the City of Manila, Philippines, the said accused, with intent to defraud, and with
grave abuse of confidence reposed upon her by the Bank of the Philippine Islands, a banking
institution duly organized and existing under the laws of the Republic of the Philippines,
engaged in the general banking business in said City, did then and there wilfully, unlawfully
and feloniously defraud said bank by means of the following fraudulent acts and false
pretenses, to wit: the said accused making use of a current account she had earlier opened in
the Rizal Commercial Banking Corporation Greenhills Branch, current account No. 6-06061,
issued against said account the following personal checks paid to cash, to wit:
Check No.
RCBC
RCBC
RCBC
RCBC
RCBC
RCBC
RCBC
RCBC
RCBC

2424526
2424527
2424528
2424529
2424530
2424531
2424532
2424533
2424534

Amount
P300,000.00
200,000.00
250,000.00
300,000.00
200,000.00
150,000.00
300,000.00
200,000.00
250,000.00

all in the total amount of TWO MILLION ONE HUNDRED FIFTY THOUSAND PESOS
(P2,150,000.00). Philippine currency, the accused knowing fully well that she did not have
sufficient funds to cover the total amount of her said personal checks which she then
deposited in the Bank of the Philippine Islands, Mandaluyong Branch, for credit to her current
account No. 2274-11 in the Bank of the Philippine Islands, Plaza Cervantes Branch, and even
before her said personal checks could be collected and cleared by the Bank of the Philippine
Islands, Plaza Cervantes Branch, the said accused, by means of false statements and
fraudulent representations made to the Manager, Bank of the Philippine Islands, Plaza
Cervantes Branch to the effect that her said deposited personal checks are good and covered
with sufficient funds and would be honored by the Rizal Commercial Banking Corporation
Greenhills Branch, the drawee bank thereof, and by means of other similar deceits induced
and succeeded in inducing the Manager of the Bank of the Philippine Islands Plaza Cervantes
Branch-, to honor checks drawn by her against her said deposited personal checks, in favor of
other parties in the aggregate amount of P2,041,780.00, the said accused knowing fully well
that all her said pretenses and representations were false and untrue for the reason that upon
presentation of her said deposited personal checks to the drawee bank Rizal Commercial
Banking Corporation, Greenhills Branch, for payment, the said checks, with the exception of
RCBC No. 2424530 in the amount of P200,000.00, were dishonored and payment thereof
refused, the drawer thereof, accused herein, not having the funds to cover the amount of her
said personal checks, and the said accused notwithstanding due notice to her from the Bank
of the Philippine Islands of said dishonor and demands from the same bank to make good her

dishonored personal checks, failed and refused to deposit the necessary amount to cover the
amounts of her said dishonored personal checks or the amounts of the checks drawn by her
in favor of other persons, which had been honored by the Bank of the Philippine Islands Plaza
Cervantes Branch on the strength of her said false pretenses and fraudulent representations
that her deposited personal checks against which they were drawn, were good and covered
with sufficient funds, to the damage and prejudice of the Bank of the Philippine Islands as
represented by Mr. Alberto F. de Villa Abrille its President in the sum of at least
P1,391,780.00, Philippine Currency. (Expedients, pp. 1-2.)
After trial, the court rendered the following judgment:
WHEREFORE, the Court finds the accused guilty beyond reasonable doubt of the crime of
estafa defined under Article 315, 2(a), and hereby sentences her to a penalty of reclusion
perpetua; to indemnify the bank of the Philippine Islands, Cervantes Branch, in the sum of
P1,600,000.00 representing the balance of the amount which she swindled from the said
bank; and to pay the costs. (Expediente, p. 603.)
The case is now before Us on appeal.
The People's version of the facts is as follows:
On July 30, 1962, the spouses, H. M. Jalandoni and appellant Teresa Jalandoni, opened a joint
current account with the Bank of the Philippine Islands (BPI, for short), Plaza Cervantes
Branch and were assigned current account No. 2274-1.
On November 22,1973, after the death of husband H. M. Jalandoni, Ma. Teresa Macapagal,
daughter of appellant herein, replaced her father as co- owner with her mother, of current
account No. 22741 .
Appellant Teresa Jalandoni, likewise, opened a current account with the Rizal Commercial
Banking Corporation (RCBC, for short), Greenhills Branch and was assigned current account
No. 6-06061.
On September 8, 1976, appellant Teresa Jalandoni drew three checks totalling P750,000.00,
all payable to cash, against her current account No. 6-06061 with the Rizal Commercial
Banking Corporation and deposited same in her current account No. 2274-1, with the Bank of
the Philippine Islands Plaza Cervantes Branch. Prior to, or simultaneously, with, said deposit,
she issued 25 checks in the total amount of P745,980.00 which the drawee bank honored,
and paid, on her assurance made to the bank manager that the RCBC checks which she had
issued and deposited were funded. At the same time and upon appellant's request, the bank
returned to her the other eleven checks which were also issued against her current account
No. 2274-1.
On September 9, 1976, appellant drew three checks totalling P650,000.00, all payable to
cash, against her current account No. 606061 with the RCBC, and deposited the same in her
current account No. 2274-1, with the BPI, Cervantes Branch. Prior to, or simultaneous with,
said deposit, appellant, likewise, issued 26 checks totalling P639,700.00, which the drawee
bank honored and paid on the same date of deposit, on her assurance made to the bank
manager that t he RCBC checks which she had issued and deposited were funded, Again, on
the same date, and upon her request, the bank returned to her the other eleven checks which
were also issued against her current account No. 2274-1.
On September 10, 1976, appellant for the third time drew three checks, Lot ailing
P750,000.00 all payable to cash against her current account No. 6-06061 with the RCBC, and
deposited the same with her current account No. 2274-1 with the BPI, Cervantes Branch.

Again, prior to, or simultaneously with, said deposit, she issued 22 checks in the total amount
of P656,100.00 which the drawee bank honored and paid on the same date of deposit, on her
assurance made to the bank manager that the RCBC checks which she had issued and
deposited were funded. At the same time, and upon her request, the bank manager returned
to her the other six checks which she also issued against her current account No. 2274-1.
All of the above RCBC checks, except Check No. 2424530, in the amount of P200,000.00,
when presented for payment were dishonored for lack of sufficient funds.
The appellant does not question the veracity of the transactions, but alleges as a defense that
she had been previously granted an overdraft, and that it was not her intention to defraud the
bank. (Brief, pp. 2-4.)
The People's statement that the appellant does not question the veracity of the transactions
is true. In fact, the appellant makes the following admissions:
(a) accused-appellant issued nine (9) RCBC personal checks;
(b) the sum total of the face value of said nine (9) checks is P2,150,000.00;
(c) of said nine (9) checks, one (1) was honored, namely, RCBC check No. 2424530 in the
amount of P200,000.00, when the checks went through clearing;
(d) the checks drawn by accused-appellant against said personal checks aggregated
(P2,041,780.00);
(e) said checks were drawn in favor of third parties, not the accused-appellant; and
(f) out of the P2,150,000.00 worth of the nine (9) checks involved, the damage suffered is
only P1,391,780.00.
The crucial question which has to be resolved is whether or not the appellant acted
fraudulently in her transactions with the Plaza Cervantes Branch of the Bank of the Philippine
Islands (BPI).
We hold that the appellant did not act fraudulently.
The record shows that the appellant had been accorded overdraft (OD) or drawn against
uncollected deposit (DAUD) privileges, not just for the nine (9) RCBC checks mentioned in the
information, but for many other past transactions. Why she was accorded the privileges was
explained by Manuel L.Garcia who was the manager of the Plaza Cervantes branch of BPI
when the transactions took place. He said:
Q. [Atty. Jimenez] Did I get you correctly when you said that the checks which you have
Identified here earlier were honored by your bank considering that the accused depositor
Teresa Jalandoni had been a depositor of long standing?
A. Yes, sir.
Q. In other words, these checks were honored because the bank considered her at least prior
to the transaction involving these checks that she had a good credit standing with the bank,
that is correct?
A. Yes, sir.
Q. Did I get you correctly when you said that these checks which were honored by your bank
apparently through you were drawn against uncollected deposits of Teresa Jalandoni?
A. Yes. sir.
Q. And precisely you allowed this practice of honoring checks drawn against uncollected
deposit only if the check depositor precisely has a good credit standing with the bank, that is
right?

A . Yes, sir. (TSN, July 19, 1979, pp. 106-107.)


Eriberto M. Ignacio who first testified on February 18, 1980, and who became manager of the
Plaza Cervantes branch of BPI in November, 1976, succeeding Manager Garcia, was also
utilized as a defense witness. He testified as follows:
Atty. Jimenez:
Mr. Ignacio, I have here statements, xerox copies of the Bank Statements on current account
No. 2274-1 in the name of Teresa Jalandoni and/or Maria Teresa J. Macapagal with the Bank of
the Philippine Islands which have been marked as Exhibits I to 32 with submarkings. Will you
go over these xerox copies and tell us what relation they have to the xerox copies of Bank
Statements of herein accused signature which we have marked and sub-marked indicating
overdrawings are they the same xerox copies of the Bank Statements beginning January,
1974?
Witness:
(Witness going over the xerox copies of the statements shown to him by the counsel of the
defense)
A. Yes, sir they are.
Q. I invite your attention to the sub-markings in Exhibit "1" to "32" inclusive, will you go over
the sub-markings and tell us if they represent overdrawings as of the date opposite, the
individual sub- markings in each exhibits?
A. The individual sub-markings here represent the sub-total overdrafts on the date of the
markings.
Q. Is that true with respect to an the submarkings in all exhibits 1 to 32?
A. The sub-total are overdrafts.
Q. These are overdraft balances?
A. No, overdrafts but sub-total as of the date opposite the sub markings.
Q. Overdrafts.?
A. Yes, sir.
Q. I invite your attention for clarificatory purposes, Mr. Ignacio, shows the number appearing
under the column checks numbers, what do these numbers represent?
A. They represent the number of checks.
Q. Checks issued?
A. Serial number of the checks issued.
Q. Checks issued by whom?
A. By the owner of the account.
Q. How about the number or figures under the column checks amount, what do they
represent?
A. It's the amount of the checks.
Q. The amount of the checks drawn by the owner of the account?
A. Yes, sir.
Q. How about the number under the column deposits, what do they represent?

A. The deposits made by the owner of the account.


Q. How about the abbreviations of "months and dates" under the column date, what do they
represent?
A. The dates of the transactions.
Q. Meaning the posting of checks drawn by the owner or of the accourt or the deposits made
on the account
A. That is correct.
Q. And the figures or the numbers under the column "balance" would indicate what?
A. The sub-total and the balance.
Q. As of what date?
A. As of the date of the transactions.
Q. Referring to the date under the column date?
A. That is correct.
Q. I notice Mr. Ignacio that under the column "deposits" there is a symbol after the deposits
made which reads "JE" can you tell us what the symbol stands for?
A. Journal Entry.
Q. Does that mean that the deposit followed by the symbol "JE" as of the date the deposit
made is withdrawable or is it in cash?
A. In check.
Q. Now, I invite your attention to Exhibit "1". Under deposit we have here P28,000.00 and
then you have "JE" and afterwards the abbreviation of January and the date of "2, "74", what
does that mean. Does it mean P28,000.00 was deposited on January 2, 1974?
A. That is correct.
Q. And the deposit here is by means of check?
A. Yes, sir.
Q. So, as of the date January 2, 1974 this deposit was in check?
A. Yes, sir.
Q. And this is true with respect to these deposits which are followed by "JE " in Exhibits 1 to
32 are inclusive?
A. Yes, sir.
Q. I invite your attention to the bracketed figures in Exhibit 1 denominated as Exhibit 1-a
which reads P29,727.59 and there is a symbol which appears to read OD, that symbol stands
for what?
A. Overdraft.
Q. And now, there is an overdraft when check posted against the account is over and above
the outstanding cash balance?
A. That is correct.

Q. So that based on what appears on Exhibit 1, Mr. Ignacio, the first line which is 532.41
followed by an asterisk, what does this stand for?
A. Credit Balance, previous dates.
Q. And taking into account the amounts under check amount of P22,250.00 and P6,000.00
deposited on January 2 and then P2,000.00 deposited on the same date and the figure under
balance P29,727.59 overdraft, does that mean Mr. Ignacio that this amount followed by the
symbol OD overdraft was arrived at by summing up the amounts deposited on January 2 and
deducting therefrom the credit balance of P532.41?
A. That sub-total was arrived at that way.
Q. And this is the same procedure followed also throughout in Exhibits 1 to 32, that is, checks
that are posted are totalled and balance debited against the credit balance to arrive at that
sub-total, is that the procedure?
A. Yes, sir.
Q. Therefore by doing so if the total amount of the checks posted exceeds the credit balance,
it results in a sub-total debit balance or an overdraft?
A. That is correct.
Q. That is the same procedure in Exhibits 1 to 32?
A. Yes, sir.
Q. And that is the same procedure followed and effected all throughout Exhibits 1 to 32?
A. That is correct.
Q. Now, you said earlier with particular reference refers to this entry P28,000.00-JE January 2,
1974, that this is a check deposit?
A. Yes, sir,
Q. Is there a way of determining if this check deposit in the amount of P28,000.00 on January
2, 1974, was cleared on the basis of the Bankl Statement? You examine Exhibit 1?
A. Yes, sir.
Q. Now how do you determine whether a check issued on a particular date was subsequently
cleared on the basis of the Bank Statement?
A. If after the clearing time there is no debit account, then the check deposit on that day
would have been cleared.
Q. Is there a way of determining after the P28,000.00 deposited January 2, 1974 and posted
on that day if it was not returned or it was not made good.?
A. The deposit on January 2 which is not returned, no debit account.
Q. How long, more or less, based on your experience as a bank executive, does it take for a
check from the tune of deposit to be cleared?
A. Ordinarily three days.
Q. So, based on your testimony that usually it takes three days to be cleared, then the
P28,000.00 deposited on January 2, 1974 was apparently cleared on January 5, 1974, that is
the minimum time for clearing checks deposited?
A. Yes, sir.
Q. Out of town checks take longer to be cleared?
A. That is right.

Q. I invite your attention to Exhibit 32 now, particularly the portion thereof bracketed and
submarked as Exhibit 32-p as appearing on the third sheet, sheet no. 3 of these exhibits in
the amount of P1,083,740.48 as of August 9, 1976, now will you tell us Mr. Ignacio if this
balance is a credit balance or is it an overdraft?
A. It is an overdraft.
Q. Now, how about the figure bracketed and submarked Exhibit 32-q on the same sheet in the
amount reading P1,178,980.48, is this a credit balance or an overdraft?
A. That is an overdraft.
Q. Now, immediately below that amount and under the column "Deposit" the figures
P300,000.00-JE as of August 9, 1976, does this mean again that it is a deposit of P300,000.00
by means of a check?
A. That is correct.
Q. And that said sum was deducted from the debit balance or overdraft of P1,178.980.48 and
reduced it to P878,980.48 marked as Exhibit "32-r"?
A. That is correct.
Q. When this debit balance or overdraft of P878,980.48 was arrived at, the deposit of
P300.000.00 was not yet cleared?
A. That is correct.
Q. I invite your attention to the bracketed figure marked as Exhibit "32-u" reading
P1,111.427.48, is this a credit balance or an overdraft?
A. Debit balance or overdraft.
Q. And how about this figure P1,155.227.48 bracketed and marked as Exhibit "32-v",
overdraft or credit balance?
A. It is an overdraft.
Q. Reduced only afterwards by the deposit by means of a check for P300,000.00 and another
also for P300,000.00 on 11th and 12th, respectively?
A. That is correct.
Q. How about the P1,101,727.48 marked as Exhibit "32-x," is that a credit balance?
A. That is an overdraft.
Q. I will show you Exhibit "D", Mr. Ignacio, which is a xerox copy of the monthly Bank
Statement on account No. 2274-1 in the name of Teresa L. Jalandoni and/or Maria Teresa J.
Macapagal, particularly the last sheet thereof submarked Exhibit "D-4", will you tell us if the
entry which reads P 1,473,403.15 or overdraft was the last transaction on this account?
A. That is correct.
Q. And there is nothing to show, Mr. Ignacio, that account no. 2274-1 was ever, the account
was closed?
A. None, sir. (TSN, Oct. 2, 1980, pp. 438-451.)
Lending credence to the claim of the appellant that she had been given OD and/or DAUD
privileges is the fact that Branch Manager Manuel L. Garcia was not accused as a co-principal.
During the hearing held on January 12, 1983, the Court was informed that Mr. Garcia was
allowed to retire. If the appellant had in fact acted fraudulently she could not have done so

without the active cooperation of Mr. Garcia. Hence, if Mr. Garcia was innocent of any criminal
act, the same can be said for the appellant.
Other circumstances militate against the imputation of fraud. The circumstances have been
stated by the appellant thus:
If the accused-appellant had criminal intent to defraud aforethought (a) why did she still fund or allow to be honored one of the nine (9) checks involved in the
amount of P200,000.00.
(b) why did she draw the checks aggregating P2,041,780.00, drawn against the nine (9)
checks, in favor of third parties, instead of withdrawing said amount of P2,041,780.00 for
herself.
(c) why did she minimize or reduce the resulting damage to complainant bank to
P1,391,780.00 (actually much less as will be shown later), instead of grabbing the full value of
the nine (9) checks in question, which is P2,150,000.00. (Brief, p. 6.)
It is to be noted that the nine (9) RCBC checks had a total face value of P2,150,000.00. One of
the checks with a face value of P200.000.00 was honored, leaving an initial balance of
P1,950.000.00. However, the appellant was able to reduce this balance by other payments to
BPI such that in the judgment she was ordered to pay only the amount of P1,600.000.00.
Upon the other hand, the appellant claims that the resulting damage to BPI was reduced to
P1,391,780.00. The appellant states without contradiction "that, with the authority of her son,
she mortgaged to the bank a lot belonging to the latter for a loan of P250,000.00, which was
applied to one of the dishonored checks in dispute, as shown by Exhibits 37 (promissory note
signed by the son), 37-a (crime estate mortgage), 37-b (Trans. Cert. of Title No. T- 71084),
37-c (Special Power of Attorney), and 38 (check for P 250,000.00); additionally, she also gave
the president of the bank, Mr. Alberto F. de Villa-Abrifle, a family friend, jewelry worth
P300,000.00 as a token of her sincerity to pay (Id., pp. 13-17, 19-28). If the accused-appellant
had the criminal intent to defraud the bank, would she have encumbered the property of her
son, obviously worth more than P250,000.00. Would she have given up jewelry worth
P300,000.00." (Brief, pp. 15-16.)
WHEREFORE, the guilt of the appellant not having been demonstrated beyond reasonable
doubt, the appealed judgment is hereby set aside and another one is entered acquitting her
of the charge. No costs.
SO ORDERED.
Aquino, Concepcion, Jr., Guerrero, De Castro and Escolin, JJ., concur.

Separate Opinions
Separate Opinions
MAKASIAR, J., dissenting:
The conviction of the accused herein should be affirmed. It is amply proven that the personal
checks drawn by her in favor of other persons had been honored by the Bank of the Philippine

Islands, Plaza Cervantes Branch, because of her active false pretenses and fraudulent
representations to the branch manager that her deposited personal checks against which
they were drawn, were good and covered with sufficient funds, when in fact they were not so
covered.

(5)

G.R. No. L-57555

August 28, 1984

THE PEOPLE OF THE PHILIPPINES, plaintiff-appellee,


vs.
TERESA JALANDONI, accused-appellant.
RESOLUTION
This refers to the MOTION TO MODIFY JUDGMENT (as to appellant's civil liability) filed by the
Bank of the Philippine Islands, the private complainant.
In Criminal Case No. CCC-VI-2866 of the defunct Circuit Criminal Court of Manila, Teresa
Jalandoni was accused of estafa. The information alleged that she issued several checks
drawn against the Rizal Commercial Banking Corporation in favor of the Bank of the Philippine
Islands (BPI); that the checks were dishonored for lack of funds, a fact which was known by
the accused; and that as a result thereof the BPI suffered damage in the amount of
P1,391,780.00.
The trial court rendered the following judgment against the accused:
WHEREFORE, the Court finds the accused guilty beyond reasonable doubt of the crime of
estafa defined under Article 315, 2(a), and hereby sentences her to a penalty of reclusion
perpetua; to indemnify the bank of the Philippine Islands, Cervantes Branch, in the sum of

P1,600,000.00 representing the balance of the amount which she swindled from the said
bank; and to pay the costs. (Expediente, p. 603.)
Jalandoni appealed to this Court which in turn pronounced:
WHEREFORE, the guilt of the appellant not having been demonstrated beyond reasonable
doubt, the appealed judgment is hereby set aside and another one is entered acquitting her
of the charge. No costs. (People vs. Jalandoni G.R. No. 57555, May 30, 1983, 122 SCRA 588,
600.)
Subsequently, BPI filed the aforesaid Motion to Modify Judgment. BPI invoked a Court of
Appeals decision (People vs. De Castillo, 48 O.G. 4890) where the court acquitted the
appellant who was accused of malversation of public funds on the ground of reasonable doubt
but nonetheless ordered her to pay the amount of her civil liability. Accordingly, BPI prayed
that in the interest of justice and to avoid multiplicity of suits, a second paragraph be added
to Our judgment, to wit:
As to appellant's civil liability, considering that the civil action was instituted at the
commencement of the criminal action, judgment is hereby rendered ordering appellant to pay
the Bank of the Philippine Islands, Cervantes branch, the amount of P1,491,780.00 with
interests at the legal rate from the filing of the action until paid. (Rollo, p. 139.)
In its Sur-Rejoinder, BPI reduced the amount claimed to P1,391,780.00 for the following
reason:
Accused-appellant admits that per information for estafa, complainant suffered by her
transactions a damage of P1,391,780.00 which represents P100,000.00 less than
complainant's computation. To shorten the proceedings, as manifested in the oral arguments
of 17 October 1983, complainant is willing to accept P1,391,780.00 as accused-appellant's
civil liability to private complainant plus interest at the legal rate of 12% per annum from the
time of demand for payment until full payment (Rollo, p. 168.)
The appellant opposed the Motion on the following grounds: (a) People vs. de Castillo is not in
point because it was decided under the old Rules of Court; and (b) the amount of civil liability,
if any, is unsettled and requires necessarily the introduction of proof.
At this stage, the Motion was before the Second Division of this Court which rendered the
decision acquitting the appellant on reasonable doubt. And because the Motion called for the
application of a novel doctrine, the case was prudently referred to the Court En Banc on
February 28, 1984.
On May 31, 1984, the Court En Banc promulgated its decision in the case of Padilla, et al. vs.
Court of Appeals (G.R. No. L-39999) where it held "that the respondent Court of Appeals did
not err in awarding damages despite a judgment of acquittal." The reason therefor has been
stated thus:
There appear to be no sound reasons to require a separate civil action to still be filed
considering that the facts to be proved in the civil case have already been established in the
criminal proceedings where the accused was acquitted. Due process has been accorded the
accused. He was, in fact, exonerated of the criminal charge. The constitutional presumption
of innocence called for more vigilant efforts on the part of prosecuting attorneys and defense
counsel, a keener awareness by all witnesses of the serious implications of perjury, and a
more studied consideration by the judge of the entire records and of applicable statutes and
precedents. To require a separate civil action simply because the accused was acquitted

would mean needless clogging of court dockets and unnecessary duplication of litigation with
all its attendant loss of time, effort, and money on the part of all concerned.
In the instant case, the appellant made the following ad missions in her brief:
The following facts are admitted in the information aforequoted:
(a) accused-appellant issued nine (9) RCBC personal checks;
(b) the sum total of the face value of said nine (9) checks is P2,150,000.00;
(c) of said nine (9) checks, one (1) was honored, namely, RCBC check No. 2424530 in the
amount of 200,000.00, when the checks went through clearing;
(d) the checks drawn by accused-appellant against said personal checks aggregated
P2,041,780.00;
(e) said checks were drawn in favor of third parties, not the accused-appellant; and
(f) out of the P2,150,000.00 worth of the nine (9) checks involved, the damaged suffered is
only P1,391,780.00. (emphasis supplied.) (pp. 56.)
Jalandoni's claim that "[t]he amount of the civil liability, if any, is unsettled and requires
necessarily the introduction of proof (Rollo, p. 161) is utterly devoid of merit. As shown above
the appellant has formally admitted that BPI suffered damage in the amount of
P1,391,780.00. For her now to assert that the civil liability, if any, is unsettled is an insult to
the dignity of this Court. We cannot allow a party to state a fact only to disown it afterwards
because of convenience.
WHEREFORE, the Motion is hereby granted; the judgment of this Court is modified in that the
appellant is ordered to pay the Bank of the Philippine Islands the amount of P1,391,780.00
with interest at the legal rate of 12% per annum from the filing of the action until paid.
SO ORDERED.
Teehankee, Actg. C.J., Aquino, Concepcion, Jr., Guerrero, Melencio-Herrera, Plana, Escolin,
Relova, Gutierrez, Jr., De la Fuente and Cuevas, JJ., concur.
Fernando, C.J., and Makasiar, J., are on leave.

(6)
173 scra 102)
G.R. No. L-41014 November 28, 1988
PACIFIC BANKING CORPORATION, petitioner,
vs.
COURT OF APPEALS and ORIENTAL ASSURANCE CORPORATION, respondents.
PARAS, J.:
This is a petition for review on certiorari of the decision of respondent Court of Appeals * in
CA-G.R. No. 41735-R, entitled "Pacific Banking Corporation vs. Oriental Assurance
Corporation", which set aside the decision of the Court of First Instance (CFI) of Manila, **
which had in turn granted the complaint for a sum of money in Civil Case No. 56889.

As gathered from the records, the undisputed facts of this case are as follows:
On October 21,1963, Fire Policy No. F-3770 (Exhibit "A"), an open policy, was issued to the
Paramount Shirt Manufacturing Co. (hereinafter referred to as the insured, for brevity), by
which private respondent Oriental Assurance Corporation bound itself to indemnify the
insured for any loss or damage, not exceeding P61,000.00, caused by fire to its property
consisting of stocks, materials and supplies usual to a shirt factory, including furniture,
fixtures, machinery and equipment while contained in the ground, second and third floors of
the building situated at number 256 Jaboneros St., San Nicolas, Manila, for a period of one
year commencing from that date to October 21, 1964.
The insured was at the time of the issuance of the policy and is up to this time, a debtor of
petitioner in the amount of not less than Eight Hundred Thousand Pesos (P800,000.00) and
the goods described in the policy were held in trust by the insured for the petitioner under
thrust receipts (Record on Appeal, p. 4).
Said policy was duly endorsed to petitioner as mortgagee/ trustor of the properties insured,
with the knowledge and consent of private respondent to the effect that "loss if any under
this policy is payable to the Pacific Banking Corporation".
On January 4, 1964, while the aforesaid policy was in full force and effect, a fire broke out on
the subject premises destroying the goods contained in its ground and second floors (Record
on Appeal, p.5)
On January 24, 1964, counsel for the petitioner sent a letter of demand to private respondent
for indemnity due to the loss of property by fire under the endorsement of said policy (Brief
for Plaintiff-Appellee, pp. 16-17).
On January 28, 1964, private respondent informed counsel for the petitioner that it was not
yet ready to accede to the latter's demand as the former is awaiting the final report of the
insurance adjuster, H.H. Bayne Adjustment Company (Brief for Plaintiff-Appellee, pp. 17-18).
On March 25, 1964, the said insurance adjuster notified counsel for the petitioner that the
insured under the policy had not filed any claim with it, nor submitted proof of loss which is a
clear violation of Policy Condition No.11, and for which reason, determination of the liability of
private respondent could not be had (Supra, pp. 19-20).
On April 24, 1964, petitioner's counsel replied to aforesaid letter asking the insurance
adjuster to verify from the records of the Bureau of Customs the entries of merchandise taken
into the customs bonded warehouse razed by fire as a reliable proof of loss (Supra, pp. 2122). For failure of the insurance company to pay the loss as demanded, petitioner (plaintiff
therein) on April 28, 1 964, filed in the court a quo an action for a sum of money against the
private respondent, Oriental Assurance Corporation, in the principal sum of P61,000.00 issued
in favor of Paramount Shirt Manufacturing Co. (Record on Appeal, pp. 1-36).
On May 25, 1964, private respondent raised the following defenses in its answer to wit: (a)
lack of formal claim by insured over the loss and (b) premature filing of the suit as neither
plaintiff nor insured had submitted any proof of loss on the basis of which defendant would
determine its liability and the amount thereof, either to the private respondent or its ad .
adjuster H.H. Bayne Adjustment Co., both in violation of Policy Condition No.11 (Record on
Appeal, pp. 37-38).
At the trial, petitioner presented in evidence Exhibit "H", which is a communication dated
December 22, 1965 of the insurance adjuster, H.H. Bayne Adjustment Co. to Asian Surety
Insurance Co., Inc., revealing undeclared co-insurances with the following: P30,000.00 with

Wellington Insurance; P25,000. 00 with Empire Surety and P250,000.00 with Asian Surety;
undertaken by insured Paramount on the same property covered by its policy with private
respondent whereas the only co-insurances declared in the subject policy are those of
P30,000.00 with Malayan P50,000.00 with South Sea and P25.000.00 with Victory (Brief for
the Defendant pp. 13-14).
It will be noted that the defense of fraud and/or violation of Condition No. 3 in the Policy, in
the form of non-declaration of co-insurances which was not pleaded in the answer was also
not pleaded in the Motion to Dismiss.
At any rate, on June 30, 1967, the trial court denied private respondent's motion on the
ground that the defense of lack of proof of loss or defects therein was raised for the first time
after the commencement of the suit and that it must be deemed to have waived the
requirement of proof of loss (Sections 83 and 84, Insurance Act; Record on Appeal, p. 61).
On September 9, 1967, the case was considered submitted for decision from which order
private respondent filed a motion for reconsideration to set the case or further reception of
private respondent's additional evidence, "in order to prove that 'insured has committed a
violation of condition No. 3 of the policy in relation to the other Insurance Clause.' " (Record
on Appeal, pp. 61-69).
On September 30,1967, the case was set for the continuation of the hearing for the reception
merely of the testimony of Alejandro Tan Gatue, Manager of the Adjustment Co., over the
vehement opposition of the petitioner (Record on Appeal, p. 129).
On April 18, 1 968, the trial court rendered a decision adjudging private respondent liable to
the petitioner under the said contract of insurance, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered ordering the defendant to pay the plaintiff
P61,000.00, with interest at the rate of 8% per annum from January 4, 1964, to April 28,
1964, and 12% from April 29, 1964, until the amount is fully paid, P6,100.00, as attorney's
fees, and the costs.
SO ORDERED. (Record on Appeal, pp. 140-141)
On appeal, the Court of Appeals reversed the decision of the trial court (Decision promulgated
on April 23, 1975, Rollo, pp. 21-33).
Petitioner filed a motion for reconsideration of the said decision of the respondent Court of
Appeals, but this was denied on July 3,1975 for lack of merit (Rollo, pp. 54-67), resulting in
this petition with the following assigned errors;
I
RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ERROR OF LAW IN CONCLUDING
FRAUD FROM THE BARE FACT THAT THE INSURED PARAMOUNT PROCURED ADDITIONAL
INSURANCES OTHER THAN THOSE STATED IN THE POLICY IN SPITE OF THE EXISTENCE OF
CONTRARY PRESUMPTIONS AND ADMITTED FACT AND CIRCUMSTANCES WHICH NEGATE THE
CORRECTNESS OF SAID CONCLUSION.
(a) The respondent Court did not consider the legal presumption against the existence of
fraud, which should be established with such quantum of proof as is required for any crime.
(b) The record of the case is bereft of proof of such fraud.

(c) The private respondent insurer did not even plead or in anywise raise fraud as a defense
in its answer or motion to dismiss and, therefore, it should have been considered waived.
(d) The total amount of insurance procured by the insured from the different companies
amounted to hardly onehalf () of the value of the goods insured.
II
RESPONDENT COURT ERRED IN NOT HOLDING THAT CONSIDERING THE VOTING ON THE
PARTICULAR QUESTION OF FRAUD, THE FINDING OF THE TRIAL COURT THEREON SHOULD BE
CONSIDERED AFFIRMED.
III
THE CONCURRING OPINION OF MR. JUSTICE CHANCO IS LEGALLY ERRONEOUS IN HOLDING
THAT THE ACTION WAS PREMATURELY BROUGHT BECAUSE THE REQUIRED CLAIM UNDER THE
INSURANCE LAW HAS NOT BEEN FILED, NOTWITHSTANDING THE LETTER, (EXHIBIT "C") OF
PETITIONER-APPELLANT'S LAWYER WHICH IS A SUBSTANTIAL COMPLIANCE OF THE LEGAL
REQUIREMENTS AND NOT HOLDING THAT PRIVATE RESPONDENT INSURER HAD ALREADY
WAIVED THE SUPPOSED DEFECTS IN THE CLAIM FILED BY PETITIONER-APPELLANT FOR ITS
FAILURE TO CALL THE ATTENTION OF THE LAYER TO SUCH ALLEGED DEFECTS AND FOR
ENDORSING THE CLAIM TO ITS ADJUSTER FOR PROCESSING.
IV
RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ERROR OF LAW IN NOT
INTERPRETING THE PROVISIONS OF THE POLICY LIBERALLY IN FAVOR OF THE HEREIN
PETITIONER-APPELLANT, WHO IS NOT THE INSURED BUT ONLY THE ASSIGNEE/MORTGAGEE
OF THE PROPERTY INSURED.

V
RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ERROR OF LAW IN DISMISSING THE
CASE AND IN NOT AFFIRMING THE APPEALED DECISION OF THE TRIAL COURT. (Brief for
Petitioners, pp. 1-3)
The crux of the controversy centers on two points: (a) unrevealed co-insurances which
violated policy conditions No. 3 and (b) failure of the insured to file the required proof of loss
prior to court action. Policy Condition No. 3 explicitly provides:
3. The Insured shall give notice to the Company of any insurance already effected, or which
may subsequently be effected, covering any of the property hereby insured, and unless such
notice be given and the particulars of such insurance or insurances be stated in or endorsed
on this Policy by or on behalf of the Company before the occurrence of any loss or damage,
all benefit under this policy shall be forfeited. (Record on Appeal, p. 12)
It is not disputed that the insured failed to reveal before the loss three other insurances. As
found by the Court of Appeals, by reason of said unrevealed insurances, the insured had been
guilty of a false declaration; a clear misrepresentation and a vital one because where the
insured had been asked to reveal but did not, that was deception. Otherwise stated, had the
insurer known that there were many co-insurances, it could have hesitated or plainly desisted
from entering into such contract. Hence, the insured was guilty of clear fraud (Rollo, p. 25).

Petitioner's contention that the allegation of fraud is but a mere inference or suspicion is
untenable. In fact, concrete evidence of fraud or false declaration by the insured was
furnished by the petitioner itself when the facts alleged in the policy under clauses "CoInsurances Declared" and "Other Insurance Clause" are materially different from the actual
number of co-insurances taken over the subject property. Consequently, "the whole
foundation of the contract fails, the risk does not attach and the policy never becomes a
contract between the parties. Representations of facts are the foundation of the contract and
if the foundation does not exist, the superstructure does not arise. Falsehood in such
representations is not shown to vary or add to the contract, or to terminate a contract which
has once been made, but to show that no contract has ever existed (Tolentino, Commercial
Laws of the Philippines, p. 991, Vol. II, 8th Ed.) A void or inexistent contract is one which has
no force and effect from the very beginning, as if it had never been entered into, and which
cannot be validated either by time or by ratification Tongoy v. C.A., 123 SCRA 99 [1983];
Avila v. C.A. 145 SCRA [1986]).
As the insurance policy against fire expressly required that notice should be given by the
insured of other insurance upon the same property, the total absence of such notice nullifies
the policy (Sta. Ana v. Commercial Union Assurance Co., 55 Phil. 333 [1930]; Union
Manufacturing Co., Inc. vs. Philippine Guaranty Co., Inc., 47 SCRA 276 [1972]; Pioneer Ins. &
Surety Corp., v. Yap, 61 SCRA 432 [1974]).
The argument that notice of co-insurances may be made orally is preposterous and negates
policy condition No. 20 which requires every notice and other communications to the insurer
to be written or printed.
Petitioner points out that Condition No. 3 in the policy in relation to the "other insurance
clause" supposedly to have been violated, cannot certainly defeat the right of the petitioner
to recover the insurance as mortgagee/assignee. Particularly referring to the mortgage clause
of the policy, petitioner argues that considering the purpose for which the endorsement or
assignment was made, that is, to protect the mortgagee/assignee against any untoward act
or omission of the insured, it would be absurd to hold that petitioner is barred from recovering
the insurance on account of the alleged violation committed by the insured (Rollo, Brief for
the petitioner, pp, 33-35).
It is obvious that petitioner has missed all together the import of subject mortgage clause
which specifically provides:
Mortgage Clause
Loss, if any, under this policy, shall be payable to the PACIFIC BANKING CORPORATION Manila
mortgagee/trustor as its interest may appear, it being hereby understood and agreed that
this insurance as to the interest of the mortgagee/trustor only herein, shall not be invalidated
by any act or neglectexcept fraud or misrepresentation, or arsonof the mortgagor or
owner/trustee of the property insured; provided, that in case the mortgagor or owner/ trustee
neglects or refuses to pay any premium, the mortgagee/ trustor shall, on demand pay the
same. (Rollo, p. 26)
The paragraph clearly states the exceptions to the general rule that insurance as to the
interest of the mortgagee, cannot be invalidated; namely: fraud, or misrepresentation or
arson. As correctly found by the Court of Appeals, concealment of the aforecited
co-insurances can easily be fraud, or in the very least, misrepresentation (Rollo, p. 27).
Undoubtedly, it is but fair and just that where the insured who is primarily entitled to receive
the proceeds of the policy has by its fraud and/or misrepresentation, forfeited said right, with

more reason petitioner which is merely claiming as indorsee of said insured, cannot be
entitled to such proceeds.
Petitioner further stressed that fraud which was not pleaded as a defense in private
respondent's answer or motion to dismiss, should be deemed to have been waived.
It will be noted that the fact of fraud was tried by express or at least implied consent of the
parties. Petitioner did not only object to the introduction of evidence but on the contrary,
presented the very evidence that proved its existence.
Be that as it may, it is established that the Supreme Court has ample authority to give
beyond the pleadings where in the interest of justice and the promotion of public policy, there
is a need to make its own finding to support its conclusion. Otherwise stated, the Court can
consider a fact which surfaced only after trial proper (Maharlika Publishing Corp. v. Tagle, 142
SCRA 561 [1986]).
Generally, the cause of action on the policy accrues when the loss occurs, But when the policy
provides that no action shall be brought unless the claim is first presented extrajudicially in
the manner provided in the policy, the cause of action will accrue from the time the insurer
finally rejects the claim for payment (Eagle Star Insurance v. Chia Yu, 55 Phil 701 [1955]).
In the case at bar, policy condition No. 11 specifically provides that the insured shall on the
happening of any loss or damage give notice to the company and shall within fifteen (15)
days after such loss or damage deliver to the private respondent (a) a claim in writing giving
particular account as to the articles or goods destroyed and the amount of the loss or damage
and (b) particulars of all other insurances, if any. Likewise, insured was required "at his own
expense to produce, procure and give to the company all such further particulars, plans,
specifications, books, vouchers, invoices, duplicates or copies thereof, documents, proofs and
information with respect to the claim". (Record on Appeal, pp. 18-20).
The evidence adduced shows that twenty-four (24) days after the fire, petitioner merely wrote
letters to private respondent to serve as a notice of loss, thereafter, the former did not furnish
the latter whatever pertinent documents were necessary to prove and estimate its loss.
Instead, petitioner shifted upon private respondent the burden of fishing out the necessary
information to ascertain the particular account of the articles destroyed by fire as well as the
amount of loss. It is noteworthy that private respondent and its adjuster notified petitioner
that insured had not yet filed a written claim nor submitted the supporting documents in
compliance with the requirements set forth in the policy. Despite the notice, the latter
remained unheedful. Since the required claim by insured, together with the preliminary
submittal of relevant documents had not been complied with, it follows that private
respondent could not be deemed to have finally rejected petitioner's claim and therefore the
latter's cause of action had not yet arisen. Compliance with condition No. 11 is a requirement
sine qua non to the right to maintain an action as prior thereto no violation of petitioner's
right can be attributable to private respondent. This is so, as before such final rejection, there
was no real necessity for bringing suit. Petitioner should have endeavored to file the formal
claim and procure all the documents, papers, inventory needed by private respondent or its
adjuster to ascertain the amount of loss and after compliance await the final rejection of its
claim. Indeed, the law does not encourage unnecessary litigation (Eagle Star Insurance Co.,
Ltd., et al. v. Chia Yu, p. 701, supra).<re||an1w>
Verily, petitioner prematurely filed Civil Case No. 56889 and dismissal thereof was warranted
under the circumstances. While it is a cardinal principle of insurance law that a policy or
contract of insurance is to be construed liberally in favor of the insured and strictly as against
the insurer company (Eagle Star Insurance Co., Ltd., et al. v. Chia Yu, p. 702, supra; Taurus
Taxi Co., Inc. v. The Capital Ins. & Surety Co., Inc., 24 SCRA 458 [1968]; National Power Corp.

v. CA, 145 SCRA 533 [1986]), yet, contracts of insurance, like other contracts, are to be
construed according to the sense and meaning of the terms which the parties themselves
have used. If such terms are clear and unambiguous, they must be taken and understood in
their plain, ordinary and popular sense (Young v. Midland Textile Ins. Co., 30 Phil. 617 [1919];
Union Manufacturing Co., Inc. v. Phil. Guaranty Co., Inc., p. 277 supra; Pichel v. Alonzo, III
SCRA 341 [1982]; Gonzales v. CA, 124 SCRA 630 [1983]; GSIS v. CA, 145 SCRA 311 [1986];
Herrera v. Petrophil Corp., 146 SCRA 385 [1986]).
Contracts of insurance are contracts of indemnity upon the terms and conditions specified in
the policy. The parties have a right to impose such reasonable conditions at the time of the
making of the contract as they may deem wise and necessary. The agreement has the force
of law between the parties. The terms of the policy constitute the measure of the insurer's
liability, and in order to recover, the insured must show himself within those terms. The
compliance of the insured with the terms of the policy is a condition precedent to the light of
recovery (Stokes v. Malayan Insurance Co., Inc., 127 SCRA 766 [1984]).
It appearing that insured has violated or failed to perform the conditions under No. 3 and 11
of the contract, and such violation or want of performance has not been waived by the
insurer, the insured cannot recover, much less the herein petitioner. Courts are not permitted
to make contracts for the parties; the function and duty of the courts is simply to enforce and
carry out the contracts actually made (Young v. Midland Textile Ins. Co., 30 Phil. 617 [1915];
Union Manufacturing Co. Inc. v. Phil. Guaranty Co. Inc., p. 276 supra).
Finally, the established rule in this jurisdiction that findings of fact of the Court of Appeals
when supported by substantial evidence, are not reviewable on appeal by certiorari, deserves
reiteration. Said findings of the appellate court are final and cannot be disturbed by the
Supreme Court except in certain cases Lereos v. CA, 117 SCRA 395 [1985]; Dalida v. CA, 117
SCRA 480 [1982] Director of Lands v. CA, 117 SCRA 346 [1982]; Montesa v. CA, 117 SCRA
770 [1982]; Sacay v. Sandiganbayan, 142 SCRA 609 [1986]; Guita v. CA, 139 SCRA 576
[1985]; Manlapaz v. CA, 147 SCRA 238-239 [1987]).
PREMISES CONSIDERED, the petition is DISMISSED for lack of merit, and the decision
appealed from is AFFIRMED. No costs.
SO ORDERED.
Melencio-Herrera, (Chairman), Padilla, Sarmiento and Regalado, JJ., concur.

(7)
183 scra 360
G.R. No. 88013 March 19, 1990
SIMEX INTERNATIONAL (MANILA), INCORPORATED, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and TRADERS ROYAL BANK, respondents.
CRUZ, J.:
We are concerned in this case with the question of damages, specifically moral and
exemplary damages. The negligence of the private respondent has already been established.
All we have to ascertain is whether the petitioner is entitled to the said damages and, if so, in
what amounts.
The parties agree on the basic facts. The petitioner is a private corporation engaged in the
exportation of food products. It buys these products from various local suppliers and then
sells them abroad, particularly in the United States, Canada and the Middle East. Most of its
exports are purchased by the petitioner on credit.
The petitioner was a depositor of the respondent bank and maintained a checking account in
its branch at Romulo Avenue, Cubao, Quezon City. On May 25, 1981, the petitioner deposited
to its account in the said bank the amount of P100,000.00, thus increasing its balance as of
that date to P190,380.74. 1 Subsequently, the petitioner issued several checks against its
deposit but was suprised to learn later that they had been dishonored for insufficient funds.
The dishonored checks are the following:
1. Check No. 215391 dated May 29, 1981, in favor of California Manufacturing Company, Inc.
for P16,480.00:
2. Check No. 215426 dated May 28, 1981, in favor of the Bureau of Internal Revenue in the
amount of P3,386.73:
3. Check No. 215451 dated June 4, 1981, in favor of Mr. Greg Pedreo in the amount of
P7,080.00;
4. Check No. 215441 dated June 5, 1981, in favor of Malabon Longlife Trading Corporation in
the amount of P42,906.00:
5. Check No. 215474 dated June 10, 1981, in favor of Malabon Longlife Trading Corporation in
the amount of P12,953.00:
6. Check No. 215477 dated June 9, 1981, in favor of Sea-Land Services, Inc. in the amount of
P27,024.45:
7. Check No. 215412 dated June 10, 1981, in favor of Baguio Country Club Corporation in the
amount of P4,385.02: and
8. Check No. 215480 dated June 9, 1981, in favor of Enriqueta Bayla in the amount of
P6,275.00. 2

As a consequence, the California Manufacturing Corporation sent on June 9, 1981, a letter of


demand to the petitioner, threatening prosecution if the dishonored check issued to it was not
made good. It also withheld delivery of the order made by the petitioner. Similar letters were
sent to the petitioner by the Malabon Long Life Trading, on June 15, 1981, and by the G. and
U. Enterprises, on June 10, 1981. Malabon also canceled the petitioner's credit line and
demanded that future payments be made by it in cash or certified check. Meantime, action on
the pending orders of the petitioner with the other suppliers whose checks were dishonored
was also deferred.
The petitioner complained to the respondent bank on June 10, 1981. 3 Investigation disclosed
that the sum of P100,000.00 deposited by the petitioner on May 25, 1981, had not been
credited to it. The error was rectified on June 17, 1981, and the dishonored checks were paid
after they were re-deposited. 4
In its letter dated June 20, 1981, the petitioner demanded reparation from the respondent
bank for its "gross and wanton negligence." This demand was not met. The petitioner then
filed a complaint in the then Court of First Instance of Rizal claiming from the private
respondent moral damages in the sum of P1,000,000.00 and exemplary damages in the sum
of P500,000.00, plus 25% attorney's fees, and costs.
After trial, Judge Johnico G. Serquinia rendered judgment holding that moral and exemplary
damages were not called for under the circumstances. However, observing that the plaintiff's
right had been violated, he ordered the defendant to pay nominal damages in the amount of
P20,000.00 plus P5,000.00 attorney's fees and costs. 5 This decision was affirmed in toto by
the respondent court. 6
The respondent court found with the trial court that the private respondent was guilty of
negligence but agreed that the petitioner was nevertheless not entitled to moral damages. It
said:
The essential ingredient of moral damages is proof of bad faith (De Aparicio vs. Parogurga,
150 SCRA 280). Indeed, there was the omission by the defendant-appellee bank to credit
appellant's deposit of P100,000.00 on May 25, 1981. But the bank rectified its records. It
credited the said amount in favor of plaintiff-appellant in less than a month. The dishonored
checks were eventually paid. These circumstances negate any imputation or insinuation of
malicious, fraudulent, wanton and gross bad faith and negligence on the part of the
defendant-appellant.
It is this ruling that is faulted in the petition now before us.
This Court has carefully examined the facts of this case and finds that it cannot share some of
the conclusions of the lower courts. It seems to us that the negligence of the private
respondent had been brushed off rather lightly as if it were a minor infraction requiring no
more than a slap on the wrist. We feel it is not enough to say that the private respondent
rectified its records and credited the deposit in less than a month as if this were sufficient
repentance. The error should not have been committed in the first place. The respondent
bank has not even explained why it was committed at all. It is true that the dishonored
checks were, as the Court of Appeals put it, "eventually" paid. However, this took almost a
month when, properly, the checks should have been paid immediately upon presentment.
As the Court sees it, the initial carelessness of the respondent bank, aggravated by the lack of
promptitude in repairing its error, justifies the grant of moral damages. This rather
lackadaisical attitude toward the complaining depositor constituted the gross negligence, if

not wanton bad faith, that the respondent court said had not been established by the
petitioner.
We also note that while stressing the rectification made by the respondent bank, the decision
practically ignored the prejudice suffered by the petitioner. This was simply glossed over if
not, indeed, disbelieved. The fact is that the petitioner's credit line was canceled and its
orders were not acted upon pending receipt of actual payment by the suppliers. Its business
declined. Its reputation was tarnished. Its standing was reduced in the business community.
All this was due to the fault of the respondent bank which was undeniably remiss in its duty to
the petitioner.
Article 2205 of the Civil Code provides that actual or compensatory damages may be received
"(2) for injury to the plaintiff s business standing or commercial credit." There is no question
that the petitioner did sustain actual injury as a result of the dishonored checks and that the
existence of the loss having been established "absolute certainty as to its amount is not
required." 7 Such injury should bolster all the more the demand of the petitioner for moral
damages and justifies the examination by this Court of the validity and reasonableness of the
said claim.
We agree that moral damages are not awarded to penalize the defendant but to compensate
the plaintiff for the injuries he may have suffered. 8 In the case at bar, the petitioner is
seeking such damages for the prejudice sustained by it as a result of the private respondent's
fault. The respondent court said that the claimed losses are purely speculative and are not
supported by substantial evidence, but if failed to consider that the amount of such losses
need not be established with exactitude precisely because of their nature. Moral damages are
not susceptible of pecuniary estimation. Article 2216 of the Civil Code specifically provides
that "no proof of pecuniary loss is necessary in order that moral, nominal, temperate,
liquidated or exemplary damages may be adjudicated." That is why the determination of the
amount to be awarded (except liquidated damages) is left to the sound discretion of the
court, according to "the circumstances of each case."
From every viewpoint except that of the petitioner's, its claim of moral damages in the
amount of P1,000,000.00 is nothing short of preposterous. Its business certainly is not that
big, or its name that prestigious, to sustain such an extravagant pretense. Moreover, a
corporation is not as a rule entitled to moral damages because, not being a natural person, it
cannot experience physical suffering or such sentiments as wounded feelings, serious
anxiety, mental anguish and moral shock. The only exception to this rule is where the
corporation has a good reputation that is debased, resulting in its social humiliation. 9
We shall recognize that the petitioner did suffer injury because of the private respondent's
negligence that caused the dishonor of the checks issued by it. The immediate consequence
was that its prestige was impaired because of the bouncing checks and confidence in it as a
reliable debtor was diminished. The private respondent makes much of the one instance
when the petitioner was sued in a collection case, but that did not prove that it did not have a
good reputation that could not be marred, more so since that case was ultimately settled. 10
It does not appear that, as the private respondent would portray it, the petitioner is an
unsavory and disreputable entity that has no good name to protect.
Considering all this, we feel that the award of nominal damages in the sum of P20,000.00 was
not the proper relief to which the petitioner was entitled. Under Article 2221 of the Civil Code,
"nominal damages are adjudicated in order that a right of the plaintiff, which has been
violated or invaded by the defendant, may be vindicated or recognized, and not for the
purpose of indemnifying the plaintiff for any loss suffered by him." As we have found that the
petitioner has indeed incurred loss through the fault of the private respondent, the proper

remedy is the award to it of moral damages, which we impose, in our discretion, in the same
amount of P20,000.00.
Now for the exemplary damages.
The pertinent provisions of the Civil Code are the following:
Art. 2229. Exemplary or corrective damages are imposed, by way of example or correction for
the public good, in addition to the moral, temperate, liquidated or compensatory damages.
Art. 2232. In contracts and quasi-contracts, the court may award exemplary damages if the
defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner.
The banking system is an indispensable institution in the modern world and plays a vital role
in the economic life of every civilized nation. Whether as mere passive entities for the
safekeeping and saving of money or as active instruments of business and commerce, banks
have become an ubiquitous presence among the people, who have come to regard them with
respect and even gratitude and, most of all, confidence. Thus, even the humble wage-earner
has not hesitated to entrust his life's savings to the bank of his choice, knowing that they will
be safe in its custody and will even earn some interest for him. The ordinary person, with
equal faith, usually maintains a modest checking account for security and convenience in the
settling of his monthly bills and the payment of ordinary expenses. As for business entities
like the petitioner, the bank is a trusted and active associate that can help in the running of
their affairs, not only in the form of loans when needed but more often in the conduct of their
day-to-day transactions like the issuance or encashment of checks.
In every case, the depositor expects the bank to treat his account with the utmost fidelity,
whether such account consists only of a few hundred pesos or of millions. The bank must
record every single transaction accurately, down to the last centavo, and as promptly as
possible. This has to be done if the account is to reflect at any given time the amount of
money the depositor can dispose of as he sees fit, confident that the bank will deliver it as
and to whomever he directs. A blunder on the part of the bank, such as the dishonor of a
check without good reason, can cause the depositor not a little embarrassment if not also
financial loss and perhaps even civil and criminal litigation.
The point is that as a business affected with public interest and because of the nature of its
functions, the bank is under obligation to treat the accounts of its depositors with meticulous
care, always having in mind the fiduciary nature of their relationship. In the case at bar, it is
obvious that the respondent bank was remiss in that duty and violated that relationship. What
is especially deplorable is that, having been informed of its error in not crediting the deposit
in question to the petitioner, the respondent bank did not immediately correct it but did so
only one week later or twenty-three days after the deposit was made. It bears repeating that
the record does not contain any satisfactory explanation of why the error was made in the
first place and why it was not corrected immediately after its discovery. Such ineptness
comes under the concept of the wanton manner contemplated in the Civil Code that calls for
the imposition of exemplary damages.
After deliberating on this particular matter, the Court, in the exercise of its discretion, hereby
imposes upon the respondent bank exemplary damages in the amount of P50,000.00, "by
way of example or correction for the public good," in the words of the law. It is expected that
this ruling will serve as a warning and deterrent against the repetition of the ineptness and
indefference that has been displayed here, lest the confidence of the public in the banking
system be further impaired.

ACCORDINGLY, the appealed judgment is hereby MODIFIED and the private respondent is
ordered to pay the petitioner, in lieu of nominal damages, moral damages in the amount of
P20,000.00, and exemplary damages in the amount of P50,000.00 plus the original award of
attorney's fees in the amount of P5,000.00, and costs.
SO ORDERED.
Narvasa, Gancayco, Grino-Aquino and Medialdea, JJ., concur.

(8)
184 scra 141
G.R. No. L-46208 April 5, 1990
FIDELITY SAVINGS AND MORTGAGE BANK, petitioner,
vs.
HON. PEDRO D. CENZON, in his capacity as Presiding Judge of the Court of First Instance of
Manila (Branch XL) and SPOUSES TIMOTEO AND OLIMPIA SANTIAGO, respondents.
Agapito S. Fajardo and Marino E. Eslao for petitioner.
Leovillo C. Agustin Law Offices for private respondents.

REGALADO, J.:
The instant petition seeks the review, on pure questions of law, of the decision rendered by
the Court of First Instance of Manila (now Regional Trial Court), Branch XL, on December 3,
1976 in Civil Case No. 84800, 1 ordering herein petitioner to pay private respondents the
following amounts:
(a) P90,000.00 with accrued interest in accordance with Exhibits A and B until fully paid;
(b) P30,000,00 as exemplary damages; and
(c) P10,000.00 as and for attorney's fees.
The payment by the defendant Fidelity Savings and Mortgage Bank of the aforementioned
sums of money shall be subject to the Bank Liquidation Rules and Regulations embodied in
the Order of the Court of First Instance of Manila, Branch XIII, dated October 3, 1972, Civil
Case No. 86005, entitled, "IN RE: Liquidation of the Fidelity Savings Bank versus Central Bank
of the Philippines, Liquidator."
With costs against the defendant Fidelity Savings and Mortgage Bank.
SO ORDERED.
Private respondents instituted this present action for a sum of money with damages against
Fidelity Savings and Mortgage Bank, Central Bank of the Philippines, Eusebio Lopez, Jr.,
Arsenio M. Lopez, Sr., Arsenio S. Lopez, Jr., Bibiana E. Lacuna, Jose C. Morales, Leon P. Cusi,
Pilar Y. Pobre-Cusi and Ernani A. Pacana. On motion of herein private respondents, as
plaintiffs, the amended complaint was dismissed without prejudice against defendants Jose C.
Morales, Leon P. Cusi, Pilar Y. Pobre-Cusi and Ernani A. Pacana. 2 In its aforesaid decision of
December 3, 1976, the court a quo dismissed the complaint as against defendants Central
Bank of the Philippines, Eusebio Lopez, Jr., Arsenio S. Lopez, Jr., Arsenio M. Lopez, Sr. and
Bibiana S. Lacuna.
Back on August 10, 1973, the plaintiffs (herein private respondents) and the defendants
Fidelity Savings and Mortgage Bank (petitioner herein), Central Bank of the Philippines and
Bibiana E. Lacuna had filed in said case in the lower court a partial stipulation of facts, as
follows:
COME NOW herein plaintiffs, SPOUSES TIMOTEO M. SANTIAGO and OLIMPIA R. SANTIAGO,
herein defendants FIDELITY SAVINGS AND MORTGAGE BANK and the CENTRAL BANK OF THE
PHILIPPINES, and herein defendant BIBIANA E. LACUNA, through their respective undersigned
counsel, and before this Honorable Court most respectfully submit the following Partial
Stipulation of Facts:
1. That herein plaintiffs are husband and wife, both of legal age, and presently residing at No.
480 C. de la Paz Street, Sta. Elena, Marikina, Rizal;
2. That herein defendant Fidelity Savings and Mortgage Bank is a corporation duly organized
and existing under and by virtue of the laws of the Philippines; that defendant Central Bank of
the Philippines is a corporation duly organized and existing under and by virtue of the laws of
the Philippines;
3. That herein defendant Bibiana E. Lacuna is of legal age and a resident of No. 42 East Lawin
Street, Philamlife Homes, Quezon City, said defendant was an assistant Vice-President of the
defendant fidelity Savings and Mortgage Bank,

4. That sometime on May 16, 1968, here in plaintiffs deposited with the defendant Fidelity
Savings Bank the amount of FIFTY THOUSAND PESOS (P50,000.00) under Savings Account No.
16-0536; that likewise, sometime on July 6, 1968, herein plaintiff,- deposited with the
defendant Fidelity Savings and Mortgage Bank the amount of FIFTY THOUSAND PESOS
(P50,000.00) under Certificate of Time Deposit No. 0210; that the aggregate amount of
deposits of the plaintiffs with the defendant Fidelity Savings and Mortgage Bank is ONE
HUNDRED THOUSAND PESOS (P100,000.00);
5. That on February 18, 1969, the Monetary Board, after finding the report of the
Superintendent of Banks, that the condition of the defendant Fidelity Savings and Mortgage
Bank is one of insolvency, to be true, issued Resolution No. 350 deciding, among others, as
follows:
1) To forbid the Fidelity Savings Bank to do business in the Philippines;
2) To instruct the Acting Superintendent of Banks to take charge, in the name of the Monetary
Board, of the Bank's assets
6. That pursuant to the above-cited instructions of the Monetary Board, the Superintendent of
Banks took charge in the name of the Monetary Board, of the assets of defendant Fidelity
Savings Bank on February 19, 1969; and that since that date up to this date, the
Superintendent of Banks (now designated as Director, Department of Commercial and
Savings Banks) has been taking charge of the assets of defendant Fidelity Savings and
Mortgage Bank;
7. That sometime on October 10, 1969 the Philippine Deposit Insurance Corporation paid the
plaintiffs the amount of TEN THOUSAND PESOS (P10,000.00) on the aggregate deposits of
P100,000.00 pursuant to Republic Act No. 5517, thereby leaving a deposit balance of
P90,000.00;
8. That on December 9, 1969, the Monetary Board issued its Resolution No. 2124 directing
the liquidation of the affairs of defendant Fidelity Savings Bank;
9. That on January 25, 1972, the Solicitor General of the Philippines filed a "Petition for
Assistance and Supervision in Liquidation" of the affairs of the defendant Fidelity Savings and
Mortgage Bank with the Court of First Instance of Manila, assigned to Branch XIII and
docketed as Civil Case No. 86005;
10. That on October 3, 1972, the Liquidation Court promulgated the Bank Rules and
Regulations to govern the liquidation of the affairs of defendant Fidelity Savings and
Mortgage Bank, prescribing the rules on the conversion of the Bank's assets into money,
processing of claims against it and the manner and time of distributing the proceeds from the
assets of the Bank;
11. That the liquidation proceedings has not been terminated and is still pending up to the
present;
12. That herein plaintiffs, through their counsel, sent demand letters to herein defendants,
demanding the immediate payment of the aforementioned savings and time deposits.
WHEREFORE, it is respectfully prayed that the foregoing Partial Stipulation of Facts be
approved by this Honorable Court, without prejudice to the presentation of additional
documentary or testimonial evidence by herein parties.
Manila, Philippines, August 10, 1973. 3

Assigning error in the judgment of the lower court quoted ab antecedents, petitioner raises
two questions of law, to wit:
1. Whether or not an insolvent bank like the Fidelity Savings and Mortgage Bank may be
adjudged to pay interest on unpaid deposits even after its closure by the Central Bank by
reason of insolvency without violating the provisions of the Civil Code on preference of
credits; and
2. Whether or not an insolvent bank like the Fidelity Savings and Mortgage Bank may be
adjudged to pay moral and exemplary damages, attorney's fees and costs when the
insolvency is caused b the anomalous real estate transactions without violating the provisions
of the Civil Code on preference of credits.
There is merit in the petition.
It is settled jurisprudence that a banking institution which has been declared insolvent and
subsequently ordered closed by the Central Bank of the Philippines cannot be held liable to
pay interest on bank deposits which accrued during the period when the bank is actually
closed and non-operational.
In The Overseas Bank of Manila vs. Court of Appeals and Tony D. Tapia, 4 we held that:
It is a matter of common knowledge, which We take judicial notice of, that what enables a
bank to pay stipulated interest on money deposited with it is that thru the other aspects of its
operation it is able to generate funds to cover the payment of such interest. Unless a bank
can lend money, engage in international transactions, acquire foreclosed mortgaged
properties or their proceeds and generally engage in other banking and financing activities
from which it can derive income, it is inconceivable how it can carry on as a depository
obligated to pay stipulated interest. Conventional wisdom dictates this inexorable fair and just
conclusion. And it can be said that all who deposit money in banks are aware of such a simple
economic proposition. Consequently, it should be deemed read into every contract of deposit
with a bank that the obligation to pay interest on the deposit ceases the moment the
operation of the bank is completely suspended by the duly constituted authority, the Central
Bank.
This was reiterated in the subsequent case of The Overseas Bank of Manila vs. The Hon. Court
of Appeals and Julian R. Cordero. 5 and in the recent cases of Integrated Realty Corporation,
et al. vs. Philippine National Bank, et al. and the Overseas Bank of Manila vs. Court of
appeals, et al. 6
From the aforecited authorities, it is manifest that petitioner cannot be held liable for interest
on bank deposits which accrued from the time it was prohibited by the Central Bank to
continue with its banking operations, that is, when Resolution No. 350 to that effect was
issued on February 18, 1969.
The order, therefore, of the Central Bank as receiver/liquidator of petitioner bank allowing the
claims of depositors and creditors to earn interest up to the date of its closure on February
18, 1969, 7 in line with the doctrine laid down in the jurisprudence above cited.
Although petitioner's formulation of the second issue that it poses is slightly inaccurate and
defective, we likewise find the awards of moral and exemplary damages and attorney's fees
to be erroneous.

The trial court found, and it is not disputed, that there was no fraud or bad faith on the part of
petitioner bank and the other defendants in accepting the deposits of private respondents.
Petitioner bank could not even be faulted in not immediately returning the amount claimed by
private respondents considering that the demand to pay was made and Civil Case No. 84800
was filed in the trial court several months after the Central Bank had ordered petitioner's
closure. By that time, petitioner bank was no longer in a position to comply with its
obligations to its creditors, including herein private respondents. Even the trial court had to
admit that petitioner bank failed to pay private respondents because it was already insolvent.
8 Further, this case is not one of the specified or analogous cases wherein moral damages
may be recovered. 9
There is no valid basis for the award of exemplary damages which is supposed to serve as a
warning to other banks from dissipating their assets in anomalous transactions. It was not
proven by private respondents, and neither was there a categorical finding made by the trial
court, that petitioner bank actually engaged in anomalous real estate transactions. The same
were raised only during the testimony of the bank examiner of the Central Bank, 10 but no
documentary evidence was ever presented in support thereof. Hence, it was error for the
lower court to impose exemplary damages upon petitioner bank since, in contracts, such
sanction requires that the offending party acted in a wanton, fraudulent, reckless, oppressive
or malevolent manner. 11 Neither does this case present the situation where attorney's fees
may be awarded. 12
In the absence of fraud, bad faith, malice or wanton attitude, petitioner bank may, therefore,
not be held responsible for damages which may be reasonably attributed to the nonperformance of the obligation. 13 Consequently, we reiterate that under the premises and
pursuant to the aforementioned provisions of law, it is apparent that private respondents are
not justifiably entitled to the payment of moral and exemplary damages and attorney's fees.
While we tend to agree with petitioner bank that private respondents' claims should he been
filed in the liquidation proceedings in Civil Case No. 86005, entitled "In Re: Liquidation of the
Fidelity Savings and Mortgage Bank," pending before Branch XIII of the then Court of First
Instance of Manila, we do not believe that the decision rendered in the instant case would be
violative of the legal provisions on preference and concurrence of credits. As the trial court
puts it:
. . . But this order of payment should not be understood as raising these deposits to the
category of preferred credits of the defendant Fidelity Savings and Mortgage Bank but shall
be paid in accordance with the Bank Liquidation Rules and Regulations embodied in the Order
of the. Court of First Instance of Manila, Branch XIII dated October 3, 1972 (Exh. 3). . . . 14
WHEREFORE, the judgment appealed from is hereby MODIFIED. Petitioner Fidelity Savings
and Mortgage Bank is hereby declared liable to pay private respondents Timoteo and Olimpia
Santiago the sum of P90,000.00, with accrued interest in accordance with the terms of
Savings Account Deposit No. 16-0536 (Exhibit A) and Certificate of Time Deposit No. 0210
(Exhibit B) until February 18, 1969. The awards for moral and exemplary damages, and
attorney's fees are hereby DELETED. No costs.
SO ORDERED.
Melencio-Herrera, Paras, Padilla and Sarmiento, JJ., concur.

11
(255 scra 299)
G.R. No. 97785 March 29, 1996
PHILIPPINE COMMERCIAL INTERNATIONAL BANK, petitioner,
vs.
COURT OF APPEALS and RORY W. LIM, respondents.
FRANCISCO, J.:
This is a petition for review on certiorari seeking the reversal of the Decision of the Court of
Appeals in CA-G.R. No. 18843 promulgated on July 30, 1990, and the Resolution dated March
11, 1991, affirming with modification the judgment of the Regional Trial Court of Gingoog City
which held petitioner Philippine Commercial International Bank (PCIB) liable for damages
resulting from its breach of contract with private respondent Rory W. Lim.
Disputed herein is the validity of the stipulation embodied in the standard application
form/receipt furnished by petitioner for the purchase of a telegraphic transfer which relieves it
of any liability resulting from loss caused by errors or delays in the course of the discharge of
its services.
The antecedent facts are as follows:
On March 13, 1986, private respondent Rory Lim delivered to his cousin Lim Ong Tian PCIB
Check No. JJJ 24212467 in the amount of P200,000.00 for the purpose of obtaining a
telegraphic transfer from petitioner PCIB in the same amount. The money was to be
transferred to Equitable Banking Corporation, Cagayan de Oro Branch, and credited to private
respondent's account at the said bank. Upon purchase of the telegraphic transfer, petitioner
issued the corresponding receipt dated March 13, 1986 [T/T No. 284] 1 which contained the
assailed provision, to wit:
AGREEMENT
xxx xxx xxx
In case of fund transfer, the undersigned hereby agrees that such transfer will be made
without any responsibility on the part of the BANK, or its correspondents, for any loss
occasioned by errors, or delays in the transmission of message by telegraph or cable
companies or by the correspondents or agencies, necessarily employed by this BANK in the
transfer of this money, all risks for which are assumed by the undersigned.
Subsequent to the purchase of the telegraphic transfer, petitioner in turn issued and
delivered eight (8) Equitable Bank checks 2 to his suppliers in different amounts as payment
for the merchandise that he obtained from them. When the checks were presented for
payment, five of them bounced for insufficiency of funds, 3 while the remaining three were
held overnight for lack of funds upon presentment. 4 Consequent to the dishonor of these
checks, Equitable Bank charged and collected the total amount of P1,100.00 from private
respondent. The dishonor of the checks came to private respondent's attention only on April

2, 1986, when Equitable Bank notified him of the penalty charges and after receiving letters
from his suppliers that his credit was being cut-off due to the dishonor of the checks he
issued.
Upon verification by private respondent with the Gingoog Branch Office of petitioner PCIB, it
was confirmed that his telegraphic transfer (T/T No. 284) for the sum of P200,000.00 had not
yet been remitted to Equitable Bank, Cagayan de Oro branch. In fact, petitioner PCIB made
the corresponding transfer of funds only on April 3, 1986, twenty one (21) days after the
purchase of the telegraphic transfer on March 13, 1986.
Aggrieved, private respondent demanded from petitioner PCIB that he be compensated for
the resulting damage that he suffered due to petitioner's failure to make the timely transfer
of funds which led to the dishonor of his checks. In a letter dated April 23, 1986, PCIB's
Branch Manager Rodolfo Villarmia acknowledged their failure to transmit the telegraphic
transfer on time as a result of their mistake in using the control number twice and the
petitioner bank's failure to request confirmation and act positively on the disposition of the
said telegraphic transfer. 5
Nevertheless, petitioner refused to heed private respondent's demand prompting the latter to
file a complaint for damages with the Regional Trial Court of Gingoog City 6 on January 16,
1987. In his complaint, private respondent alleged that as a result of petitioner's total
disregard and gross violation of its contractual obligation to remit and deliver the sum of Two
Hundred Thousand Pesos (P200,000.00) covered by T/T No. 284 to Equitable Banking
Corporation, Cagayan de Oro Branch, private respondent's checks were dishonored for
insufficient funds thereby causing his business and credit standing to suffer considerably for
which petitioner should be ordered to pay damages. 7
Answering the complaint, petitioner denied any liability to private respondent and interposed
as special and affirmative defense the lack of privity between it and private respondent as it
was not private respondent himself who purchased the telegraphic transfer from petitioner.
Additionally, petitioner pointed out that private respondent is nevertheless bound by the
stipulation in the telegraphic transfer application/form receipt 8 which provides:
. . . . In case of fund transfer, the undersigned hereby agrees that such transfer will be made
without any responsibility on the part of the BANK, or its correspondents, for any loss
occasioned by errors or delays in the transmission of message by telegraph or cable
companies or by correspondents or agencies, necessarily employed by this BANK in the
transfer of this money, all risks for which are assumed by the undersigned.
According to petitioner, they utilized the services of RCPI-Gingoog City to transmit the
message regarding private respondent's telegraphic transfer because their telex machine was
out of order at that time. But as it turned out, it was only on April 3, 1986 that petitioner's
Cagayan de Oro Branch had received information about the said telegraphic transfer. 9
In its decision dated July 27, 1988 10 the Regional Trial Court of Gingoog City held petitioner
liable for breach of contract and struck down the aforecited provision found in petitioner's
telegraphic transfer application form/receipt exempting it from any liability and declared the
same to be invalid and unenforceable. As found by the trial court, the provision amounted to
a contract of adhesion wherein the objectionable portion was unilaterally inserted by
petitioner in all its application forms without giving any opportunity to the applicants to
question the same and express their conformity thereto. 11 Thus, the trial court adjudged
.petitioner liable to private respondent for the following amounts:
WHEREFORE, judgment is hereby rendered in favor of plaintiff and against the defendant,
ordering the latter to pay the former as follows:

P 960,000.00 as moral damages;


P 50,000.00 as exemplary damages;
P 40,000.00 as attorney's fees; and
P 1,100.00 as reimbursement for the surcharges paid by plaintiff to the Equitable Banking
Corporation, plus costs, all with legal interest of 6% per annum from the date of this judgment
until the same shall have been paid in full. 12
Upon appeal by petitioner to the Court of Appeals, respondent court affirmed with
modifications the judgment of the trial court and ordered as follows:
WHEREFORE, premises considered, judgment is hereby rendered affirming the appealed
decision with modification, as follows:
The defendant-appellant is ordered to pay to the plaintiff-appellee the following:
1. The sum of Four Hundred Thousand (P400,000.00) Pesos as/for moral damages;
2. The sum of Forty Thousand (P40,000.00) Pesos as exemplary damage to serve as an
example for the public good;
3. The sum of Thirty Thousand (P30,000.00) Pesos representing attorney's fees;
4. The sum of One Thousand One Hundred (P1,100.00) Pesos as actual damage, and
5. To pay the costs.
SO ORDERED. 13
A motion for reconsideration was filed by petitioner but respondent Court of Appeals denied
the same. 14
Still unconvinced, petitioner elevated the case to this Court through the instant petition for
review on certiorari invoking the validity of the assailed provision found in the application
form/receipt exempting it from any liability in case of loss resulting from errors or delays in
the transfer of funds.
Petitioner mainly argues that even assuming that the disputed provision is a contract of
adhesion, such fact alone does not make it invalid because this type of contract is not
absolutely prohibited. Moreover, the terms thereof are expressed clearly, leaving no room for
doubt, and both contracting parties understood and had full knowledge of the same.
Private respondent however contends that the agreement providing non-liability on
petitioner's part in case of loss caused by errors or delays despite its recklessness and
negligence is void for being contrary to public policy and interest. 15
A contract of adhesion is defined as one in which one of the parties imposes a ready-made
form of contract, which the other party may accept or reject, but which the latter cannot
modify. 16 One party prepares the stipulation in the contract, while the other party merely
affixes his signature or his "adhesion" thereto, 17 giving no room for negotiation and
depriving the latter of the opportunity to bargain on equal footing. 18 Nevertheless, these
types of contracts have been declared as binding as ordinary contracts, the reason being that
the party who adheres to the contract is free to reject it entirely. 19 It is equally important to
stress, though, that the Court is not precluded from ruling out blind adherence to their terms

if the attendant facts and circumstances show that they should be ignored for being obviously
too one-sided. 20
On previous occasions, it has been declared that a contract of adhesion may be struck down
as void and unenforceable, for being subversive to public policy, only when the weaker party
is imposed upon in dealing with the dominant bargaining party and is reduced to the
alternative of taking it or leaving it, completely deprived of the opportunity to bargain on
equal footing. 21 And when it has been shown that the complainant is knowledgeable enough
to have understood the terms and conditions of the contract, or one whose stature is such
that he is expected to be more prudent and cautious with respect to his transactions, such
party cannot later on be heard to complain for being ignorant or having been forced into
merely consenting to the contract. 22
The factual backdrop of the instant case, however, militates against applying the aforestated
pronouncements. That petitioner failed to discharge its obligation to transmit private
respondent's telegraphic transfer on time in accordance with their agreement is already a
settled matter as the same is no longer disputed in this petition. Neither is the finding of
respondent Court of Appeals that petitioner acted fraudulently and in bad faith in the
performance of its obligation, being contested by petitioner. Perforce, we are bound by these
factual considerations.
Having established that petitioner acted fraudulently and in bad faith, we find it implausible
to absolve petitioner from its wrongful acts on account of the assailed provision exempting it
from any liability. In Geraldez vs. Court of Appeals, 23 it was unequivocally declared that
notwithstanding the enforceability of a contractual limitation, responsibility arising from a
fraudulent act cannot be exculpated because the same is contrary to public policy. Indeed,
Article 21 of the Civil Code is quite explicit in providing that "[a]ny person who willfully causes
loss or injury to another in a manner that is contrary to morals, good customs or public policy
shall compensate the latter for the damage". Freedom of contract is subject to the limitation
that the agreement must not be against public policy and any agreement or contract made in
violation of this rule is not binding and will not be enforced. 24
The prohibition against this type of contractual stipulation is moreover treated by law as void
which may not be ratified or waived by a contracting party. Article 1409 of the Civil Code
states:
Art. 1409. The following contracts are inexistent and void from the beginning:
(1) Those whose cause, object or purpose is contrary to law, morals, good customs, public
order or public policy;
xxx xxx xxx
These contracts cannot be ratified. Neither can the right to set up the defense of illegality be
waived.
Undoubtedly, the services being offered by a banking institution like petitioner are imbued
with public interest. 25 The use of telegraphic transfers have now become commonplace
among businessmen because it facilitates commercial transactions. Any attempt to
completely exempt one of the contracting parties from any liability in case of loss
notwithstanding its bad faith, fault or negligence, as in the instant case, cannot be sanctioned
for being inimical to public interest and therefore contrary to public policy. Resultingly, there
being no dispute that petitioner acted fraudulently and in bad faith, the award of moral 26
and exemplary damages were proper.

But notwithstanding petitioner's liability for the resulting loss and damage to private
respondent, we find the amount of moral damages adjudged by respondent court in the sum
of P400,000.00 exorbitant. Bearing in mind that moral damages are awarded, not to penalize
the wrongdoer, but rather to compensate the claimant for the injuries that he may have
suffered, 27 we believe that an award of Two Hundred Thousand Pesos (P200,000.00) is
reasonable under the circumstances.
WHEREFORE, subject to the foregoing modification reducing the amount awarded as moral
damages to the sum of Two Hundred Thousand Pesos (P200,000.00), the appealed decision is
hereby AFFIRMED.
SO ORDERED.
Narvasa, Davide, Jr., Melo and Panganiban, JJ., concur.

12.
343 scra 527
[G.R. No. 128703. October 18, 2000]
TEODORO BAAS,* C. G. DIZON CONSTRUCTION, INC., and CENEN DIZON, petitioners, vs.
ASIA PACIFIC FINANCE CORPORATION,[1] substituted by INTERNATIONAL CORPORATE BANK
now known as UNION BANK OF THE PHILIPPINES, respondent.
DECISION
BELLOSILLO, J.:
C. G. DIZON CONSTRUCTION INC. and CENEN DIZON in this petition for review seek the
reversal of the 24 July 1996 Decision of the Court of Appeals dismissing their appeal for lack
of merit and affirming in toto the decision of the trial court holding them liable to Asia Pacific
Finance Corporation in the amount of P87,637.50 at 14% interest per annum in addition to
attorney's fees and costs of suit, as well as its 21 March 1997 Resolution denying
reconsideration thereof.[2]
On 20 March 1981 Asia Pacific Finance Corporation (ASIA PACIFIC for short) filed a complaint
for a sum of money with prayer for a writ of replevin against Teodoro Baas, C. G. Dizon
Construction and Cenen Dizon. Sometime in August 1980 Teodoro Baas executed a
Promissory Note in favor of C. G. Dizon Construction whereby for value received he promised
to pay to the order of C. G. Dizon Construction the sum of P390,000.00 in installments of

"P32,500.00 every 25th day of the month starting from September 25, 1980 up to August 25,
1981."[3]
Later, C. G. Dizon Construction endorsed with recourse the Promissory Note to ASIA PACIFIC,
and to secure payment thereof, C. G. Dizon Construction, through its corporate officers,
Cenen Dizon, President, and Juliette B. Dizon, Vice President and Treasurer, executed a Deed
of Chattel Mortgage covering three (3) heavy equipment units of Caterpillar Bulldozer Crawler
Tractors with Model Nos. D8-14A, D8-2U and D8H in favor of ASIA PACIFIC.[4] Moreover,
Cenen Dizon executed on 25 August 1980 a Continuing Undertaking wherein he bound
himself to pay the obligation jointly and severally with C. G. Dizon Construction.[5]
In compliance with the provisions of the Promissory Note, C. G. Dizon Construction made the
following installment payments to ASIA PACIFIC: P32,500.00 on 25 September 1980,
P32,500.00 on 27 October 1980 and P65,000.00 on 27 February 1981, or a total of
P130,000.00. Thereafter, however, C. G. Dizon Construction defaulted in the payment of the
remaining installments, prompting ASIA PACIFIC to send a Statement of Account to Cenen
Dizon for the unpaid balance of P267,737.50 inclusive of interests and charges, and
P66,909.38 representing attorney's fees. As the demand was unheeded, ASIA PACIFIC sued
Teodoro Baas, C. G. Dizon Construction and Cenen Dizon.
While defendants (herein petitioners) admitted the genuineness and due execution of the
Promissory Note, the Deed of Chattel Mortgage and the Continuing Undertaking, they
nevertheless maintained that these documents were never intended by the parties to be
legal, valid and binding but a mere subterfuge to conceal the loan of P390,000.00 with
usurious interests.
Defendants claimed that since ASIA PACIFIC could not directly engage in banking business, it
proposed to them a scheme wherein plaintiff ASIA PACIFIC could extend a loan to them
without violating banking laws: first, Cenen Dizon would secure a promissory note from
Teodoro Baas with a face value of P390,000.00 payable in installments; second, ASIA
PACIFIC would then make it appear that the promissory note was sold to it by Cenen Dizon
with the 14% usurious interest on the loan or P54,000.00 discounted and collected in advance
by ASIA PACIFIC; and, lastly, Cenen Dizon would provide sufficient collateral to answer for the
loan in case of default in payment and execute a continuing guaranty to assure continuous
and prompt payment of the loan. Defendants also alleged that out of the loan of P390,000.00
defendants actually received only P329,185.00 after ASIA PACIFIC deducted the discounted
interest, service handling charges, insurance premium, registration and notarial fees.
Sometime in October 1980 Cenen Dizon informed ASIA PACIFIC that he would be delayed in
meeting his monthly amortization on account of business reverses and promised to pay
instead in February 1981. Cenen Dizon made good his promise and tendered payment to ASIA
PACIFIC in an amount equivalent to two (2) monthly amortizations. But ASIA PACIFIC
attempted to impose a 3% interest for every month of delay, which he flatly refused to pay
for being usurious.
Afterwards, ASIA PACIFIC allegedly made a verbal proposal to Cenen Dizon to surrender to it
the ownership of the two (2) bulldozer crawler tractors and, in turn, the latter would treat the
former's account as closed and the loan fully paid. Cenen Dizon supposedly agreed and
accepted the offer. Defendants averred that the value of the bulldozer crawler tractors was
more than adequate to cover their obligation to ASIA PACIFIC.
Meanwhile, on 21 April 1981 the trial court issued a writ of replevin against defendant C. G.
Dizon Construction for the surrender of the bulldozer crawler tractors subject of the Deed of
Chattel Mortgage. Of the three (3) bulldozer crawler tractors, only two (2) were actually
turned over by defendants - D8-14A and D8-2U - which units were subsequently foreclosed by

ASIA PACIFIC to satisfy the obligation. D8-14A was sold for P120,000.00 and D8-2U for
P60,000.00 both to ASIA PACIFIC as the highest bidder.
During the pendency of the case, defendant Teodoro Baas passed away, and on motion of
the remaining defendants, the trial court dismissed the case against him. On the other hand,
ASIA PACIFIC was substituted as party plaintiff by International Corporate Bank after the
disputed Promissory Note was assigned and/or transferred by ASIA PACIFIC to International
Corporate Bank. Later, International Corporate Bank merged with Union Bank of the
Philippines. As the surviving entity after the merger, and having succeeded to all the rights
and interests of International Corporate Bank in this case, Union Bank of the Philippines was
substituted as a party in lieu of International Corporate Bank.[6]
On 25 September 1992 the Regional Trial Court ruled in favor of ASIA PACIFIC holding the
defendants jointly and severally liable for the unpaid balance of the obligation under the
Promissory Note in the amount of P87,637.50 at 14% interest per annum, and attorney's fees
equivalent to 25% of the monetary award.[7]
On 24 July 1996 the Court of Appeals affirmed in toto the decision of the trial court thus Defendant-appellants' contention that the instruments were executed merely as a subterfuge
to skirt banking laws is an untenable defense. If that were so then they too were parties to
the illegal scheme. Why should they now be allowed to take advantage of their own knavery
to escape the liabilities that their own chicanery created?
Defendant-appellants also want us to believe their story that there was an agreement
between them and the plaintiff-appellee that if the former would deliver their 2 bulldozer
crawler tractors to the latter, the defendant-appellants' obligation would fully be
extinguished. Again, nothing but the word that comes out between the teeth supports such
story. Why did they not write down such an important agreement? Is it believable that
seasoned businessmen such as the defendant-appellant Cenen G. Dizon and the other officers
of the appellant corporation would deliver the bulldozers without a receipt of acquittance
from the plaintiff-appellee x x x x In our book, that is not credible.
The pivotal issues raised are: (a) Whether the disputed transaction between petitioners and
ASIA PACIFIC violated banking laws, hence, null and void; and (b) Whether the surrender of
the bulldozer crawler tractors to respondent resulted in the extinguishment of petitioners'
obligation.
On the first issue, petitioners insist that ASIA PACIFIC was organized as an investment house
which could not engage in the lending of funds obtained from the public through receipt of
deposits. The disputed Promissory Note, Deed of Chattel Mortgage and Continuing
Undertaking were not intended to be valid and binding on the parties as they were merely
devices to conceal their real intention which was to enter into a contract of loan in violation of
banking laws.
We reject the argument. An investment company refers to any issuer which is or holds itself
out as being engaged or proposes to engage primarily in the business of investing,
reinvesting or trading in securities.[8] As defined in Sec. 2, par. (a), of the Revised Securities
Act,[9] securities "shall include x x x x commercial papers evidencing indebtedness of any
person, financial or non-financial entity, irrespective of maturity, issued, endorsed, sold,
transferred or in any manner conveyed to another with or without recourse, such as
promissory notes x x x x" Clearly, the transaction between petitioners and respondent was
one involving not a loan but purchase of receivables at a discount, well within the purview of
"investing, reinvesting or trading in securities" which an investment company, like ASIA

PACIFIC, is authorized to perform and does not constitute a violation of the General Banking
Act.[10] Moreover, Sec. 2 of the General Banking Act provides in part Sec. 2. Only entities duly authorized by the Monetary Board of the Central Bank may engage
in the lending of funds obtained from the public through the receipt of deposits of any kind,
and all entities regularly conducting such operations shall be considered as banking
institutions and shall be subject to the provisions of this Act, of the Central Bank Act, and of
other pertinent laws (underscoring supplied).
Indubitably, what is prohibited by law is for investment companies to lend funds obtained
from the public through receipts of deposit, which is a function of banking institutions. But
here, the funds supposedly "lent" to petitioners have not been shown to have been obtained
from the public by way of deposits, hence, the inapplicability of banking laws.
On petitioners' submission that the true intention of the parties was to enter into a contract of
loan, we have examined the Promissory Note and failed to discern anything therein that
would support such theory. On the contrary, we find the terms and conditions of the
instrument clear, free from any ambiguity, and expressive of the real intent and agreement of
the parties. We quote the pertinent portions of the Promissory Note FOR VALUE RECEIVED, I/We, hereby promise to pay to the order of C.G. Dizon Construction,
Inc. the sum of THREE HUNDRED NINETY THOUSAND ONLY (P390,000.00), Philippine Currency
in the following manner:
P32,500.00 due every 25th of the month starting from September 25, 1980 up to August 25,
1981.
I/We agree that if any of the said installments is not paid as and when it respectively falls
due, all the installments covered hereby and not paid as yet shall forthwith become due and
payable at the option of the holder of this note with interest at the rate of 14% per annum on
each unpaid installment until fully paid.
If any amount due on this note is not paid at its maturity and this note is placed in the hands
of an attorney for collection, I/We agree to pay in addition to the aggregate of the principal
amount and interest due, a sum equivalent to TEN PERCENT (10%) thereof as Attorney's fees,
in case no action is filed, otherwise, the sum will be equivalent to TWENTY FIVE (25%) of the
said principal amount and interest due x x x x
Makati, Metro Manila, August 25, 1980.
(Sgd) Teodoro Baas
ENDORSED TO ASIA PACIFIC FINANCE CORPORATION WITH RECOURSE, C.G. DIZON
CONSTRUCTION, INC.
By: (Sgd.) Cenen Dizon (Sgd.) Juliette B. Dizon
President VP/Treasurer
Likewise, the Deed of Chattel Mortgage and Continuing Undertaking were duly acknowledged
before a notary public and, as such, have in their favor the presumption of regularity. To
contradict them there must be clear, convincing and more than merely preponderant
evidence. In the instant case, the records do not show even a preponderance of evidence in
favor of petitioners' claim that the Deed of Chattel Mortgage and Continuing Undertaking

were never intended by the parties to be legal, valid and binding. Notarial documents are
evidence of the facts in clear and unequivocal manner therein expressed.[11]
Interestingly, petitioners' assertions were based mainly on the self-serving testimony of
Cenen Dizon, and not on any other independent evidence. His testimony is not only
unconvincing, as found by the trial court and the Court of Appeals, but also self-defeating in
light of the documents presented by respondent, i.e., Promissory Note, Deed of Chattel
Mortgage and Continuing Undertaking, the accuracy, correctness and due execution of which
were admitted by petitioners. Oral evidence certainly cannot prevail over the written
agreements of the parties. The courts need only rely on the faces of the written contracts to
determine their true intention on the principle that when the parties have reduced their
agreements in writing, it is presumed that they have made the writings the only repositories
and memorials of their true agreement.
The second issue deals with a question of fact. We have ruled often enough that it is not the
function of this Court to analyze and weigh the evidence all over again, its jurisdiction being
limited to reviewing errors of law that might have been committed by the lower court.[12] At
any rate, while we are not a trier of facts, hence, not required as a rule to look into the factual
bases of the assailed decision of the Court of Appeals, we did so just the same in this case if
only to satisfy petitioners that we have carefully studied and evaluated the case, all too
mindful of the tenacity and vigor with which the parties, through their respective counsel,
have pursued this case for nineteen (19) years.
Petitioners contend that the parties already had a verbal understanding wherein ASIA PACIFIC
actually agreed to consider petitioners' account closed and the principal obligation fully paid
in exchange for the ownership of the two (2) bulldozer crawler tractors.
We are not persuaded. Again, other than the bare allegations of petitioners, the records are
bereft of any evidence of the supposed agreement. As correctly observed by the Court of
Appeals, it is unbelievable that the parties entirely neglected to write down such an important
agreement. Equally incredulous is the fact that petitioner Cenen Dizon, a seasoned
businessman, readily consented to deliver the bulldozers to respondent without a
corresponding receipt of acquittance. Indeed, even the testimony of petitioner Cenen Dizon
himself negates the supposed verbal understanding between the parties Q: You said and is it not a fact that you surrendered the bulldozers to APCOR by virtue of the
seizure order?
A: There was no seizure order. Atty. Carag during that time said if I surrender the two
equipment, we might finally close a deal if the equipment would come up to the balance of
the loan. So I voluntarily surrendered, I pulled them from the job site and returned them to
APCOR x x x x
Q: You mentioned a certain Atty. Carag, who is he?
A: He was the former legal counsel of APCOR. They were handling cases. In fact, I talked with
Atty. Carag, we have a verbal agreement if I surrender the equipment it might suffice to pay
off the debt so I did just that (underscoring ours).[13]
In other words, there was no binding and perfected contract between petitioners and
respondent regarding the settlement of the obligation, but only a conditional one, a mere
conjecture in fact, depending on whether the value of the tractors to be surrendered would
equal the balance of the loan plus interests. And since the bulldozer crawler tractors were
sold at the foreclosure sale for only P180,000.00,[14] which was not enough to cover the
unpaid balance of P267,637.50, petitioners are still liable for the deficiency.

Barring therefore a showing that the findings complained of are totally devoid of support in
the records, or that they are so glaringly erroneous as to constitute serious abuse of
discretion, we see no valid reason to discard them. More so in this case where the findings of
both the trial court and the appellate court coincide with each other on the matter.
With regard to the computation of petitioners' liability, the records show that petitioners
actually paid to respondent a total sum of P130,000.00 in addition to the P180,000.00
proceeds realized from the sale of the bulldozer crawler tractors at public auction. Deducting
these amounts from the principal obligation of P390,000.00 leaves a balance of P80,000.00,
to which must be added P7,637.50 accrued interests and charges as of 20 March 1981, or a
total unpaid balance of P87,637.50 for which petitioners are jointly and severally liable.
Furthermore, the unpaid balance should earn 14% interest per annum as stipulated in the
Promissory Note, computed from 20 March 1981 until fully paid.
On the amount of attorney's fees which under the Promissory Note is equivalent to 25% of the
principal obligation and interests due, it is not, strictly speaking, the attorney's fees
recoverable as between the attorney and his client regulated by the Rules of Court. Rather,
the attorney's fees here are in the nature of liquidated damages and the stipulation therefor
is aptly called a penal clause. It has been said that so long as such stipulation does not
contravene the law, morals and public order, it is strictly binding upon the obligor. It is the
litigant, not the counsel, who is the judgment creditor entitled to enforce the judgment by
execution.[15]
Nevertheless, it appears that petitioners' failure to fully comply with their part of the bargain
was not motivated by ill will or malice, but due to financial distress occasioned by legitimate
business reverses. Petitioners in fact paid a total of P130,000.00 in three (3) installments, and
even went to the extent of voluntarily turning over to respondent their heavy equipment
consisting of two (2) bulldozer crawler tractors, all in a bona fide effort to settle their
indebtedness in full. Article 1229 of the New Civil Code specifically empowers the judge to
equitably reduce the civil penalty when the principal obligation has been partly or irregularly
complied with. Upon the foregoing premise, we hold that the reduction of the attorney's fees
from 25% to 15% of the unpaid principal plus interests is in order.
Finally, while we empathize with petitioners, we cannot close our eyes to the overriding
considerations of the law on obligations and contracts which must be upheld and honored at
all times. Petitioners have undoubtedly benefited from the transaction; they cannot now be
allowed to impugn its validity and legality to escape the fulfillment of a valid and binding
obligation.
WHEREFORE, no reversible error having been committed by the Court of Appeals, its assailed
Decision of 24 July 1996 and its Resolution of 21 March 1997 are AFFIRMED. Accordingly,
petitioners C.G. Construction Inc. and Cenen Dizon are ordered jointly and severally to pay
respondent Asia Pacific Finance Corporation, substituted by International Corporate Bank
(now known as Union Bank of the Philippines), P87,637.50 representing the unpaid balance
on the Promissory Note, with interest at fourteen percent (14%) per annum computed from
20 March 1981 until fully paid, and fifteen percent (15%) of the principal obligation and
interests due by way of attorney's fees. Costs against petitioners.
SO ORDERED.
Mendoza, Quisumbing, Buena and De Leon, Jr., JJ., concur.

(13) 363 scra 51


G.R. No. 118492

August 15, 2001

GREGORIO H. REYES and CONSUELO PUYAT-REYES, petitioners,


vs.
THE HON. COURT OF APPEALS and FAR EAST BANK AND TRUST COMPANY, respondents.
DE LEON, JR., J.:
Before us is a petition for review of the Decision1 dated July 22, 1994 and Resolution2 dated
December 29, 1994 of the Court of Appeals3 affirming with modification the Decision4 dated
November 12, 1992 of the Regional Trial Court of Makati, Metro Manila, Branch 64, which
dismissed the complaint for damages of petitioners spouses Gregorio H. Reyes and Consuelo
Puyat-Reyes against respondent Far East Bank and Trust Company.
The undisputed facts of the case are as follows:
In view of the 20th Asian Racing Conference then scheduled to be held in September, 1988 in
Sydney, Australia, the Philippine Racing Club, Inc. (PRCI, for brevity) sent four (4) delegates to
the said conference. Petitioner Gregorio H. Reyes, as vice-president for finance, racing
manager, treasurer, and director of PRCI, sent Godofredo Reyes, the club's chief cashier, to
the respondent bank to apply for a foreign exchange demand draft in Australian dollars.
Godofredo went to respondent bank's Buendia Branch in Makati City to apply for a demand
draft in the amount One Thousand Six Hundred Ten Australian Dollars (AU$1,610.00) payable
to the order of the 20th Asian Racing Conference Secretariat of Sydney, Australia. He was
attended to by respondent bank's assistant cashier, Mr. Yasis, who at first denied the
application for the reason that respondent bank did not have an Australian dollar account in
any bank in Sydney. Godofredo asked if there could be a way for respondent bank to
accommodate PRCI's urgent need to remit Australian dollars to Sydney. Yasis of respondent
bank then informed Godofredo of a roundabout way of effecting the requested remittance to
Sydney thus: the respondent bank would draw a demand draft against Westpac Bank in
Sydney, Australia (Westpac-Sydney for brevity) and have the latter reimburse itself from the
U.S. dollar account of the respondent in Westpac Bank in New York, U.S.A. (Westpac-New York
for brevity). This arrangement has been customarily resorted to since the 1960's and the
procedure has proven to be problem-free. PRCI and the petitioner Gregorio H. Reyes, acting
through Godofredo, agreed to this arrangement or approach in order to effect the urgent
transfer of Australian dollars payable to the Secretariat of the 20th Asian Racing Conference.
On July 28, 1988, the respondent bank approved the said application of PRCI and issued
Foreign Exchange Demand Draft (FXDD) No. 209968 in the sum applied for, that is, One
Thousand Six Hundred Ten Australian Dollars (AU$ 1,610.00), payable to the order of the 20th
Asian Racing Conference Secretariat of Sydney, Australia, and addressed to Westpac-Sydney
as the drawee bank.1wphi1.nt

On August 10, 1988, upon due presentment of the foreign exchange demand draft,
denominated as FXDD No. 209968, the same was dishonored, with the notice of dishonor
stating the following: "xxx No account held with Westpac." Meanwhile, on August 16, 1988,
Wespac-New York sent a cable to respondent bank informing the latter that its dollar account
in the sum of One Thousand Six Hundred Ten Australian Dollars (AU$ 1,610.00) was debited.
On August 19, 1988, in response to PRCI's complaint about the dishonor of the said foreign
exchange demand draft, respondent bank informed Westpac-Sydney of the issuance of the
said demand draft FXDD No. 209968, drawn against the Wespac-Sydney and informing the
latter to be reimbursed from the respondent bank's dollar account in Westpac-New York. The
respondent bank on the same day likewise informed Wespac-New York requesting the latter
to honor the reimbursement claim of Wespac-Sydney. On September 14, 1988, upon its
second presentment for payment, FXDD No. 209968 was again dishonored by WestpacSydney for the same reason, that is, that the respondent bank has no deposit dollar account
with the drawee Wespac-Sydney.
On September 17, 1988 and September 18, 1988, respectively, petitioners spouses Gregorio
H. Reyes and Consuelo Puyat-Reyes left for Australia to attend the said racing conference.
When petitioner Gregorio H. Reyes arrived in Sydney in the morning of September 18, 1988,
he went directly to the lobby of Hotel Regent Sydney to register as a conference delegate. At
the registration desk, in the presence of other delegates from various member of the
conference secretariat that he could not register because the foreign exchange demand draft
for his registration fee had been dishonored for the second time. A discussion ensued in the
presence and within the hearing of many delegates who were also registering. Feeling terribly
embarrassed and humiliated, petitioner Gregorio H. Reyes asked the lady member of the
conference secretariat that he be shown the subject foreign exchange demand draft that had
been dishonored as well as the covering letter after which he promised that he would pay the
registration fees in cash. In the meantime he demanded that he be given his name plate and
conference kit. The lady member of the conference secretariat relented and gave him his
name plate and conference kit. It was only two (2) days later, or on September 20, 1988, that
he was given the dishonored demand draft and a covering letter. It was then that he actually
paid in cash the registration fees as he had earlier promised.
Meanwhile, on September 19, 1988, petitioner Consuelo Puyat-Reyes arrived in Sydney. She
too was embarassed and humiliated at the registration desk of the conference secretariat
when she was told in the presence and within the hearing of other delegates that she could
not be registered due to the dishonor of the subject foreign exchange demand draft. She felt
herself trembling and unable to look at the people around her. Fortunately, she saw her
husband, coming toward her. He saved the situation for her by telling the secretariat member
that he had already arranged for the payment of the registration fee in cash once he was
shown the dishonored demand draft. Only then was petitioner Puyat-Reyes given her name
plate and conference kit.
At the time the incident took place, petitioner Consuelo Puyat-Reyes was a member of the
House of Representatives representing the lone Congressional District of Makati, Metro
Manila. She has been an officer of the Manila Banking Corporation and was cited by
Archbishop Jaime Cardinal Sin as the top lady banker of the year in connection with her
conferment of the Pro-Ecclesia et Pontifice Award. She has also been awarded a plaque of
appreciation from the Philippine Tuberculosis Society for her extraordinary service as the
Society's campaign chairman for the ninth (9th) consecutive year.
On November 23, 1988, the petitioners filed in the Regional Trial Court of Makati, Metro
Manila, a complaint for damages, docketed as Civil Case No. 88-2468, against the respondent
bank due to the dishonor of the said foreign exchange demand draft issued by the
respondent bank. The petitioners claim that as a result of the dishonor of the said demand

draft, they were exposed to unnecessary shock, social humiliation, and deep mental anguish
in a foreign country, and in the presence of an international audience.
On November 12, 1992, the trial court rendered judgment in favor of the defendant
(respondent bank) and against the plaintiffs (herein petitioners), the dispositive portion of
which states:
WHEREFORE, judgment is hereby rendered in favor of the defendant, dismissing plaintiff's
complaint, and ordering plaintiffs to pay to defendant, on its counterclaim, the amount of
P50,000.00, as reasonable attorney's fees. Costs against the plaintiff.
SO ORDERED.5
The petitioners appealed the decision of the trial court to the Court of Appeals. On July 22,
1994, the appellate court affirmed the decision of the trial court but in effect deleted the
award of attorney's fees to the defendant (herein respondent bank) and the pronouncement
as to the costs. The decretal portion of the decision of the appellate court states:
WHEREFORE, the judgment appealed from, insofar as it dismissed plaintiff's complaint, is
hereby AFFIRMED, but is hereby REVERSED and SET ASIDE in all other respect. No special
pronouncement as to costs.
SO ORDERED.6
According to the appellate court, there is no basis to hold the respondent bank liable for
damages for the reason that it exerted every effort for the subject foreign exchange demand
draft to be honored. The appellate court found and declared that:
xxx

xxx

xxx

Thus, the Bank had every reason to believe that the transaction finally went through
smoothly, considering that its New York account had been debited and that there was no
miscommunication between it and Westpac-New York. SWIFT is a world wide association used
by almost all banks and is known to be the most reliable mode of communication in the
international banking business. Besides, the above procedure, with the Bank as drawer and
Westpac-Sydney as drawee, and with Westpac-New York as the reimbursement Bank had
been in place since 1960s and there was no reason for the Bank to suspect that this particular
demand draft would not be honored by Westpac-Sydney.
From the evidence, it appears that the root cause of the miscommunications of the Bank's
SWIFT message is the erroneous decoding on the part of Westpac-Sydney of the Bank's
SWIFT message as an MT799 format. However, a closer look at the Bank's Exhs. "6" and "7"
would show that despite what appears to be an asterick written over the figure before "99",
the figure can still be distinctly seen as a number "1" and not number "7", to the effect that
Westpac-Sydney was responsible for the dishonor and not the Bank.
Moreover, it is not said asterisk that caused the misleading on the part of the WestpacSydney of the numbers "1" to "7", since Exhs. "6" and "7" are just documentary copies of the
cable message sent to Wespac-Sydney. Hence, if there was mistake committed by WestpacSydney in decoding the cable message which caused the Bank's message to be sent to the
wrong department, the mistake was Westpac's, not the Bank's. The Bank had done what an
ordinary prudent person is required to do in the particular situation, although appellants
expect the Bank to have done more. The Bank having done everything necessary or usual in
the ordinary course of banking transaction, it cannot be held liable for any embarrassment
and corresponding damage that appellants may have incurred.7

xxx

xxx

xxx

Hence, this petition, anchored on the following assignment of errors:


I
THE HONORABLE COURT OF APPEALS ERRED IN FINDING PRIVATE RESPONDENT NOT
NEGLIGENT BY ERRONEOUSLY APPLYING THE STANDARD OF DILIGENCE OF AN "ORDINARY
PRUDENT PERSON" WHEN IN TRUTH A HIGHER DEGREE OF DILIGENCE IS IMPOSED BY LAW
UPON THE BANKS.
II
THE HONORABLE COURT OF APPEALS ERRED IN ABSOLVING PRIVATE RESPONDENT FROM
LIABILITY BY OVERLOOKING THE FACT THAT THE DISHONOR OF THE DEMAND DRAFT WAS A
BREACH OF PRIVATE RESPONDENT'S WARRANTY AS THE DRAWER THEREOF.
III
THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT AS SHOWN
OVERWHELMINGLY BY THE EVIDENCE, THE DISHONOR OF THE DEMAND DRAFT AS DUE TO
PRIVATE RESPONDENT'S NEGLIGENCE AND NOT THE DRAWEE BANK.8
The petitioners contend that due to the fiduciary nature of the relationship between the
respondent bank and its clients, the respondent should have exercised a higher degree of
diligence than that expected of an ordinary prudent person in the handling of its affairs as in
the case at bar. The appellate court, according to petitioners, erred in applying the standard
of diligence of an ordinary prudent person only. Petitioners also claim that the respondent
bank violate Section 61 of the Negotiable Instruments Law9 which provides the warranty of a
drawer that "xxx on due presentment, the instrument will be accepted or paid, or both,
according to its tenor xxx." Thus, the petitioners argue that respondent bank should be held
liable for damages for violation of this warranty. The petitioners pray this Court to re-examine
the facts to cite certain instances of negligence.
It is our view and we hold that there is no reversible error in the decision of the appellate
court.
Section 1 of Rule 45 of the Revised Rules of Court provides that "(T)he petition (for review)
shall raise only questions of law which must be distinctly set forth." Thus, we have ruled that
factual findings of the Court of Appeals are conclusive on the parties and not reviewable by
this Court and they carry even more weight when the Court of Appeals affirms the factual
findings of the trial court.10
The courts a quo found that respondent bank did not misrepresent that it was maintaining a
deposit account with Westpac-Sydney. Respondent bank's assistant cashier explained to
Godofredo Reyes, representing PRCI and petitioner Gregorio H. Reyes, how the transfer of
Australian dollars would be effected through Westpac-New York where the respondent bank
has a dollar account to Westpac-Sydney where the subject foreign exchange demand draft
(FXDD No. 209968) could be encashed by the payee, the 20th Asian Racing Conference
Secretariat. PRCI and its Vice-President for finance, petitioner Gregorio H. Reyes, through
their said representative, agreed to that arrangement or procedure. In other words, the
petitioners are estopped from denying the said arrangement or procedure. Similar
arrangements have been a long standing practice in banking to facilitate international
commercial transactions. In fact, the SWIFT cable message sent by respondent bank to the

drawee bank, Westpac-Sydney, stated that it may claim reimbursement from its New York
branch, Westpac-New York, where respondent bank has a deposit dollar account. The facts as
found by the courts a quo show that respondent bank did not cause an erroneous transmittal
of its SWIFT cable message to Westpac-Sydney. It was the erroneous decoding of the cable
message on the part of Westpac-Sydney that caused the dishonor of the subject foreign
exchange demand draft. An employee of Westpac-Sydney in Sydney, Australia mistakenly
read the printed figures in the SWIFT cable message of respondent bank as "MT799" instead
of as "MT199". As a result, Westpac-Sydney construed the said cable message as a format for
a letter of credit, and not for a demand draft. The appellate court correct found that "the
figure before '99' can still be distinctly seen as a number '1' and not number '7'." Indeed, the
line of a "7" is in a slanting position while the line of a "1" is in a horizontal position. Thus, the
number "1" in "MT199" cannot be construed as "7".11
The evidence also shows that the respondent bank exercised that degree of diligence
expected of an ordinary prudent person under the circumstances obtaining. Prior to the first
dishonor of the subject foreign exchange demand draft, the respondent bank advised
Westpac-New York to honor the reimbursement claim of Westpac-Sydney and to debit the
dollar account12 of respondent bank with the former. As soon as the demand draft was
dishonored, the respondent bank, thinking that the problem was with the reimbursement and
without any idea that it was due to miscommunication, re-confirmed the authority of
Westpac-New York to debit its dollar account for the purpose of reimbursing WestpacSydney.13 Respondent bank also sent two (2) more cable messages to Westpac-New York
inquiring why the demand draft was not honored.14
With these established facts, we now determine the degree of diligence that banks are
required to exert in their commercial dealings. In Philippine Bank of Commerce v. Court of
Appeals15 upholding a long standing doctrine, we ruled that the degree of diligence required
of banks, is more than that of a good father of a family where the fiduciary nature of their
relationship with their depositors is concerned. In other words banks are duty bound to treat
the deposit accounts of their depositors with the highest degree of care. But the said ruling
applies only to cases where banks act under their fiduciary capacity, that is, as depositary of
the deposits of their depositors. But the same higher degree of diligence is not expected to be
exerted by banks in commercial transactions that do not involve their fiduciary relationship
with their depositors.
Considering the foregoing, the respondent bank was not required to exert more than the
diligence of a good father of a family in regard to the sale and issuance of the subject foreign
exchange demand draft. The case at bar does not involve the handling of petitioners' deposit,
if any, with the respondent bank. Instead, the relationship involved was that of a buyer and
seller, that is, between the respondent bank as the seller of the subject foreign exchange
demand draft, and PRCI as the buyer of the same, with the 20th Asian Racing conference
Secretariat in Sydney, Australia as the payee thereof. As earlier mentioned, the said foreign
exchange demand draft was intended for the payment of the registration fees of the
petitioners as delegates of the PRCI to the 20th Asian Racing Conference in Sydney.
The evidence shows that the respondent bank did everything within its power to prevent the
dishonor of the subject foreign exchange demand draft. The erroneous reading of its cable
message to Westpac-Sydney by an employee of the latter could not have been foreseen by
the respondent bank. Being unaware that its employee erroneously read the said cable
message, Westpac-Sydney merely stated that the respondent bank has no deposit account
with it to cover for the amount of One Thousand Six Hundred Ten Australian Dollar (AU
$1610.00) indicated in the foreign exchange demand draft. Thus, the respondent bank had
the impression that Westpac-New York had not yet made available the amount for
reimbursement to Westpac-Sydney despite the fact that respondent bank has a sufficient
deposit dollar account with Westpac-New York. That was the reason why the respondent bank

had to re-confirm and repeatedly notify Westpac-New York to debit its (respondent bank's)
deposit dollar account with it and to transfer or credit the corresponding amount to WestpacSydney to cover the amount of the said demand draft.
In view of all the foregoing, and considering that the dishonor of the subject foreign exchange
demand draft is not attributable to any fault of the respondent bank, whereas the petitioners
appeared to be under estoppel as earlier mentioned, it is no longer necessary to discuss the
alleged application of Section 61 of the Negotiable Instruments Law to the case at bar. In any
event, it was established that the respondent bank acted in good faith and that it did not
cause the embarrassment of the petitioners in Sydney, Australia. Hence, the Court of Appeals
did not commit any reversable error in its challenged decision.
WHEREFORE, the petition is hereby DENIED, and the assailed decision of the Court of Appeals
is AFFIRMED. Costs against the petitioners.
SO ORDERED.1wphi1.nt
Bellosillo, Mendoza, Quisumbing, and Buena, JJ., concur.

(14) 410 scra 562


[G.R. No. 138569. September 11, 2003]
THE CONSOLIDATED BANK and TRUST CORPORATION, petitioner, vs. COURT OF APPEALS and
L.C. DIAZ and COMPANY, CPAs, respondents.
DECISION
CARPIO, J.:
The Case
Before us is a petition for review of the Decision[1] of the Court of Appeals dated 27 October
1998 and its Resolution dated 11 May 1999. The assailed decision reversed the Decision[2]
of the Regional Trial Court of Manila, Branch 8, absolving petitioner Consolidated Bank and
Trust Corporation, now known as Solidbank Corporation (Solidbank), of any liability. The
questioned resolution of the appellate court denied the motion for reconsideration of

Solidbank but modified the decision by deleting the award of exemplary damages, attorneys
fees, expenses of litigation and cost of suit.
The Facts
Solidbank is a domestic banking corporation organized and existing under Philippine laws.
Private respondent L.C. Diaz and Company, CPAs (L.C. Diaz), is a professional partnership
engaged in the practice of accounting.
Sometime in March 1976, L.C. Diaz opened a savings account with Solidbank, designated as
Savings Account No. S/A 200-16872-6.
On 14 August 1991, L.C. Diaz through its cashier, Mercedes Macaraya (Macaraya), filled up
a savings (cash) deposit slip for P990 and a savings (checks) deposit slip for P50. Macaraya
instructed the messenger of L.C. Diaz, Ismael Calapre (Calapre), to deposit the money with
Solidbank. Macaraya also gave Calapre the Solidbank passbook.
Calapre went to Solidbank and presented to Teller No. 6 the two deposit slips and the
passbook. The teller acknowledged receipt of the deposit by returning to Calapre the
duplicate copies of the two deposit slips. Teller No. 6 stamped the deposit slips with the
words DUPLICATE and SAVING TELLER 6 SOLIDBANK HEAD OFFICE. Since the transaction
took time and Calapre had to make another deposit for L.C. Diaz with Allied Bank, he left the
passbook with Solidbank. Calapre then went to Allied Bank. When Calapre returned to
Solidbank to retrieve the passbook, Teller No. 6 informed him that somebody got the
passbook.[3] Calapre went back to L.C. Diaz and reported the incident to Macaraya.
Macaraya immediately prepared a deposit slip in duplicate copies with a check of P200,000.
Macaraya, together with Calapre, went to Solidbank and presented to Teller No. 6 the deposit
slip and check.
The teller stamped the words DUPLICATE and SAVING TELLER 6
SOLIDBANK HEAD OFFICE on the duplicate copy of the deposit slip. When Macaraya asked
for the passbook, Teller No. 6 told Macaraya that someone got the passbook but she could
not remember to whom she gave the passbook. When Macaraya asked Teller No. 6 if Calapre
got the passbook, Teller No. 6 answered that someone shorter than Calapre got the passbook.
Calapre was then standing beside Macaraya.
Teller No. 6 handed to Macaraya a deposit slip dated 14 August 1991 for the deposit of a
check for P90,000 drawn on Philippine Banking Corporation (PBC). This PBC check of L.C.
Diaz was a check that it had long closed.[4] PBC subsequently dishonored the check
because of insufficient funds and because the signature in the check differed from PBCs
specimen signature. Failing to get back the passbook, Macaraya went back to her office and
reported the matter to the Personnel Manager of L.C. Diaz, Emmanuel Alvarez.
The following day, 15 August 1991, L.C. Diaz through its Chief Executive Officer, Luis C. Diaz
(Diaz), called up Solidbank to stop any transaction using the same passbook until L.C. Diaz
could open a new account.[5] On the same day, Diaz formally wrote Solidbank to make the
same request. It was also on the same day that L.C. Diaz learned of the unauthorized
withdrawal the day before, 14 August 1991, of P300,000 from its savings account. The
withdrawal slip for the P300,000 bore the signatures of the authorized signatories of L.C. Diaz,
namely Diaz and Rustico L. Murillo. The signatories, however, denied signing the withdrawal
slip. A certain Noel Tamayo received the P300,000.
In an Information[6] dated 5 September 1991, L.C. Diaz charged its messenger, Emerano
Ilagan (Ilagan) and one Roscon Verdazola with Estafa through Falsification of Commercial
Document. The Regional Trial Court of Manila dismissed the criminal case after the City
Prosecutor filed a Motion to Dismiss on 4 August 1992.

On 24 August 1992, L.C. Diaz through its counsel demanded from Solidbank the return of its
money. Solidbank refused.
On 25 August 1992, L.C. Diaz filed a Complaint[7] for Recovery of a Sum of Money against
Solidbank with the Regional Trial Court of Manila, Branch 8.
After trial, the trial court
rendered on 28 December 1994 a decision absolving Solidbank and dismissing the complaint.
L.C. Diaz then appealed[8] to the Court of Appeals. On 27 October 1998, the Court of Appeals
issued its Decision reversing the decision of the trial court.
On 11 May 1999, the Court of Appeals issued its Resolution denying the motion for
reconsideration of Solidbank. The appellate court, however, modified its decision by deleting
the award of exemplary damages and attorneys fees.
The Ruling of the Trial Court
In absolving Solidbank, the trial court applied the rules on savings account written on the
passbook. The rules state that possession of this book shall raise the presumption of
ownership and any payment or payments made by the bank upon the production of the said
book and entry therein of the withdrawal shall have the same effect as if made to the
depositor personally.[9]
At the time of the withdrawal, a certain Noel Tamayo was not only in possession of the
passbook, he also presented a withdrawal slip with the signatures of the authorized
signatories of L.C. Diaz. The specimen signatures of these persons were in the signature
cards. The teller stamped the withdrawal slip with the words Saving Teller No. 5. The teller
then passed on the withdrawal slip to Genere Manuel (Manuel) for authentication. Manuel
verified the signatures on the withdrawal slip. The withdrawal slip was then given to another
officer who compared the signatures on the withdrawal slip with the specimen on the
signature cards. The trial court concluded that Solidbank acted with care and observed the
rules on savings account when it allowed the withdrawal of P300,000 from the savings
account of L.C. Diaz.
The trial court pointed out that the burden of proof now shifted to L.C. Diaz to prove that the
signatures on the withdrawal slip were forged. The trial court admonished L.C. Diaz for not
offering in evidence the National Bureau of Investigation (NBI) report on the authenticity of
the signatures on the withdrawal slip for P300,000. The trial court believed that L.C. Diaz did
not offer this evidence because it is derogatory to its action.
Another provision of the rules on savings account states that the depositor must keep the
passbook under lock and key.[10] When another person presents the passbook for
withdrawal prior to Solidbanks receipt of the notice of loss of the passbook, that person is
considered as the owner of the passbook. The trial court ruled that the passbook presented
during the questioned transaction was now out of the lock and key and presumptively ready
for a business transaction.[11]
Solidbank did not have any participation in the custody and care of the passbook. The trial
court believed that Solidbanks act of allowing the withdrawal of P300,000 was not the direct
and proximate cause of the loss. The trial court held that L.C. Diazs negligence caused the
unauthorized withdrawal. Three facts establish L.C. Diazs negligence: (1) the possession of
the passbook by a person other than the depositor L.C. Diaz; (2) the presentation of a signed
withdrawal receipt by an unauthorized person; and (3) the possession by an unauthorized
person of a PBC check long closed by L.C. Diaz, which check was deposited on the day of
the fraudulent withdrawal.

The trial court debunked L.C. Diazs contention that Solidbank did not follow the
precautionary procedures observed by the two parties whenever L.C. Diaz withdrew
significant amounts from its account. L.C. Diaz claimed that a letter must accompany
withdrawals of more than P20,000. The letter must request Solidbank to allow the withdrawal
and convert the amount to a managers check. The bearer must also have a letter
authorizing him to withdraw the same amount.
Another person driving a car must
accompany the bearer so that he would not walk from Solidbank to the office in making the
withdrawal. The trial court pointed out that L.C. Diaz disregarded these precautions in its
past withdrawal. On 16 July 1991, L.C. Diaz withdrew P82,554 without any separate letter of
authorization or any communication with Solidbank that the money be converted into a
managers check.
The trial court further justified the dismissal of the complaint by holding that the case was a
last ditch effort of L.C. Diaz to recover P300,000 after the dismissal of the criminal case
against Ilagan.
The dispositive portion of the decision of the trial court reads:
IN VIEW OF THE FOREGOING, judgment is hereby rendered DISMISSING the complaint.
The Court further renders judgment in favor of defendant bank pursuant to its counterclaim
the amount of Thirty Thousand Pesos (P30,000.00) as attorneys fees.
With costs against plaintiff.
SO ORDERED.[12]
The Ruling of the Court of Appeals
The Court of Appeals ruled that Solidbanks negligence was the proximate cause of the
unauthorized withdrawal of P300,000 from the savings account of L.C. Diaz. The appellate
court reached this conclusion after applying the provision of the Civil Code on quasi-delict, to
wit:
Article 2176. Whoever by act or omission causes damage to another, there being fault or
negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no
pre-existing contractual relation between the parties, is called a quasi-delict and is governed
by the provisions of this chapter.
The appellate court held that the three elements of a quasi-delict are present in this case,
namely: (a) damages suffered by the plaintiff; (b) fault or negligence of the defendant, or
some other person for whose acts he must respond; and (c) the connection of cause and
effect between the fault or negligence of the defendant and the damage incurred by the
plaintiff.
The Court of Appeals pointed out that the teller of Solidbank who received the withdrawal slip
for P300,000 allowed the withdrawal without making the necessary inquiry. The appellate
court stated that the teller, who was not presented by Solidbank during trial, should have
called up the depositor because the money to be withdrawn was a significant amount. Had
the teller called up L.C. Diaz, Solidbank would have known that the withdrawal was
unauthorized. The teller did not even verify the identity of the impostor who made the
withdrawal. Thus, the appellate court found Solidbank liable for its negligence in the
selection and supervision of its employees.

The appellate court ruled that while L.C. Diaz was also negligent in entrusting its deposits to
its messenger and its messenger in leaving the passbook with the teller, Solidbank could not
escape liability because of the doctrine of last clear chance. Solidbank could have averted
the injury suffered by L.C. Diaz had it called up L.C. Diaz to verify the withdrawal.
The appellate court ruled that the degree of diligence required from Solidbank is more than
that of a good father of a family. The business and functions of banks are affected with public
interest. Banks are obligated to treat the accounts of their depositors with meticulous care,
always having in mind the fiduciary nature of their relationship with their clients. The Court of
Appeals found Solidbank remiss in its duty, violating its fiduciary relationship with L.C. Diaz.
The dispositive portion of the decision of the Court of Appeals reads:
WHEREFORE, premises considered, the decision appealed from is hereby REVERSED and a
new one entered.
1.
Ordering defendant-appellee Consolidated Bank and Trust Corporation to pay plaintiffappellant the sum of Three Hundred Thousand Pesos (P300,000.00), with interest thereon at
the rate of 12% per annum from the date of filing of the complaint until paid, the sum of
P20,000.00 as exemplary damages, and P20,000.00 as attorneys fees and expenses of
litigation as well as the cost of suit; and
2.
Ordering the dismissal of defendant-appellees counterclaim in the amount of
P30,000.00 as attorneys fees.
SO ORDERED.[13]
Acting on the motion for reconsideration of Solidbank, the appellate court affirmed its
decision but modified the award of damages. The appellate court deleted the award of
exemplary damages and attorneys fees. Invoking Article 2231[14] of the Civil Code, the
appellate court ruled that exemplary damages could be granted if the defendant acted with
gross negligence. Since Solidbank was guilty of simple negligence only, the award of
exemplary damages was not justified. Consequently, the award of attorneys fees was also
disallowed pursuant to Article 2208 of the Civil Code. The expenses of litigation and cost of
suit were also not imposed on Solidbank.
The dispositive portion of the Resolution reads as follows:
WHEREFORE, foregoing considered, our decision dated October 27, 1998 is affirmed with
modification by deleting the award of exemplary damages and attorneys fees, expenses of
litigation and cost of suit.
SO ORDERED.[15]
Hence, this petition.
The Issues
Solidbank seeks the review of the decision and resolution of the Court of Appeals on these
grounds:
I.
THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER BANK SHOULD SUFFER
THE LOSS BECAUSE ITS TELLER SHOULD HAVE FIRST CALLED PRIVATE RESPONDENT BY
TELEPHONE BEFORE IT ALLOWED THE WITHDRAWAL OF P300,000.00 TO RESPONDENTS
MESSENGER EMERANO ILAGAN, SINCE THERE IS NO AGREEMENT BETWEEN THE PARTIES IN

THE OPERATION OF THE SAVINGS ACCOUNT, NOR IS THERE ANY BANKING LAW, WHICH
MANDATES THAT A BANK TELLER SHOULD FIRST CALL UP THE DEPOSITOR BEFORE ALLOWING
A WITHDRAWAL OF A BIG AMOUNT IN A SAVINGS ACCOUNT.
II.
THE COURT OF APPEALS ERRED IN APPLYING THE DOCTRINE OF LAST CLEAR CHANCE
AND IN HOLDING THAT PETITIONER BANKS TELLER HAD THE LAST OPPORTUNITY TO
WITHHOLD THE WITHDRAWAL WHEN IT IS UNDISPUTED THAT THE TWO SIGNATURES OF
RESPONDENT ON THE WITHDRAWAL SLIP ARE GENUINE AND PRIVATE RESPONDENTS
PASSBOOK WAS DULY PRESENTED, AND CONTRARIWISE RESPONDENT WAS NEGLIGENT IN
THE SELECTION AND SUPERVISION OF ITS MESSENGER EMERANO ILAGAN, AND IN THE
SAFEKEEPING OF ITS CHECKS AND OTHER FINANCIAL DOCUMENTS.
III.
THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE INSTANT CASE IS A LAST
DITCH EFFORT OF PRIVATE RESPONDENT TO RECOVER ITS P300,000.00 AFTER FAILING IN ITS
EFFORTS TO RECOVER THE SAME FROM ITS EMPLOYEE EMERANO ILAGAN.
IV.
THE COURT OF APPEALS ERRED IN NOT MITIGATING THE DAMAGES AWARDED AGAINST
PETITIONER UNDER ARTICLE 2197 OF THE CIVIL CODE, NOTWITHSTANDING ITS FINDING THAT
PETITIONER BANKS NEGLIGENCE WAS ONLY CONTRIBUTORY.[16]
The Ruling of the Court
The petition is partly meritorious.
Solidbanks Fiduciary Duty under the Law
The rulings of the trial court and the Court of Appeals conflict on the application of the law.
The trial court pinned the liability on L.C. Diaz based on the provisions of the rules on savings
account, a recognition of the contractual relationship between Solidbank and L.C. Diaz, the
latter being a depositor of the former. On the other hand, the Court of Appeals applied the
law on quasi-delict to determine who between the two parties was ultimately negligent. The
law on quasi-delict or culpa aquiliana is generally applicable when there is no pre-existing
contractual relationship between the parties.
We hold that Solidbank is liable for breach of contract due to negligence, or culpa contractual.
The contract between the bank and its depositor is governed by the provisions of the Civil
Code on simple loan.[17] Article 1980 of the Civil Code expressly provides that x x x savings
x x x deposits of money in banks and similar institutions shall be governed by the provisions
concerning simple loan. There is a debtor-creditor relationship between the bank and its
depositor. The bank is the debtor and the depositor is the creditor. The depositor lends the
bank money and the bank agrees to pay the depositor on demand. The savings deposit
agreement between the bank and the depositor is the contract that determines the rights and
obligations of the parties.
The law imposes on banks high standards in view of the fiduciary nature of banking. Section
2 of Republic Act No. 8791 (RA 8791),[18] which took effect on 13 June 2000, declares that
the State recognizes the fiduciary nature of banking that requires high standards of integrity
and performance.[19] This new provision in the general banking law, introduced in 2000, is a
statutory affirmation of Supreme Court decisions, starting with the 1990 case of Simex
International v. Court of Appeals,[20] holding that the bank is under obligation to treat the
accounts of its depositors with meticulous care, always having in mind the fiduciary nature of
their relationship.[21]

This fiduciary relationship means that the banks obligation to observe high standards of
integrity and performance is deemed written into every deposit agreement between a bank
and its depositor. The fiduciary nature of banking requires banks to assume a degree of
diligence higher than that of a good father of a family. Article 1172 of the Civil Code states
that the degree of diligence required of an obligor is that prescribed by law or contract, and
absent such stipulation then the diligence of a good father of a family.[22] Section 2 of RA
8791 prescribes the statutory diligence required from banks that banks must observe high
standards of integrity and performance in servicing their depositors. Although RA 8791 took
effect almost nine years after the unauthorized withdrawal of the P300,000 from L.C. Diazs
savings account, jurisprudence[23] at the time of the withdrawal already imposed on banks
the same high standard of diligence required under RA No. 8791.
However, the fiduciary nature of a bank-depositor relationship does not convert the contract
between the bank and its depositors from a simple loan to a trust agreement, whether
express or implied. Failure by the bank to pay the depositor is failure to pay a simple loan,
and not a breach of trust.[24] The law simply imposes on the bank a higher standard of
integrity and performance in complying with its obligations under the contract of simple loan,
beyond those required of non-bank debtors under a similar contract of simple loan.
The fiduciary nature of banking does not convert a simple loan into a trust agreement
because banks do not accept deposits to enrich depositors but to earn money for themselves.
The law allows banks to offer the lowest possible interest rate to depositors while charging
the highest possible interest rate on their own borrowers. The interest spread or differential
belongs to the bank and not to the depositors who are not cestui que trust of banks. If
depositors are cestui que trust of banks, then the interest spread or income belongs to the
depositors, a situation that Congress certainly did not intend in enacting Section 2 of RA
8791.
Solidbanks Breach of its Contractual Obligation
Article 1172 of the Civil Code provides that responsibility arising from negligence in the
performance of every kind of obligation is demandable. For breach of the savings deposit
agreement due to negligence, or culpa contractual, the bank is liable to its depositor.
Calapre left the passbook with Solidbank because the transaction took time and he had to
go to Allied Bank for another transaction. The passbook was still in the hands of the
employees of Solidbank for the processing of the deposit when Calapre left Solidbank.
Solidbanks rules on savings account require that the deposit book should be carefully
guarded by the depositor and kept under lock and key, if possible. When the passbook is in
the possession of Solidbanks tellers during withdrawals, the law imposes on Solidbank and its
tellers an even higher degree of diligence in safeguarding the passbook.
Likewise, Solidbanks tellers must exercise a high degree of diligence in insuring that they
return the passbook only to the depositor or his authorized representative. The tellers know,
or should know, that the rules on savings account provide that any person in possession of
the passbook is presumptively its owner. If the tellers give the passbook to the wrong person,
they would be clothing that person presumptive ownership of the passbook, facilitating
unauthorized withdrawals by that person. For failing to return the passbook to Calapre, the
authorized representative of L.C. Diaz, Solidbank and Teller No. 6 presumptively failed to
observe such high degree of diligence in safeguarding the passbook, and in insuring its return
to the party authorized to receive the same.
In culpa contractual, once the plaintiff proves a breach of contract, there is a presumption
that the defendant was at fault or negligent. The burden is on the defendant to prove that he
was not at fault or negligent. In contrast, in culpa aquiliana the plaintiff has the burden of

proving that the defendant was negligent. In the present case, L.C. Diaz has established that
Solidbank breached its contractual obligation to return the passbook only to the authorized
representative of L.C. Diaz. There is thus a presumption that Solidbank was at fault and its
teller was negligent in not returning the passbook to Calapre. The burden was on Solidbank
to prove that there was no negligence on its part or its employees.
Solidbank failed to discharge its burden. Solidbank did not present to the trial court Teller No.
6, the teller with whom Calapre left the passbook and who was supposed to return the
passbook to him. The record does not indicate that Teller No. 6 verified the identity of the
person who retrieved the passbook. Solidbank also failed to adduce in evidence its standard
procedure in verifying the identity of the person retrieving the passbook, if there is such a
procedure, and that Teller No. 6 implemented this procedure in the present case.
Solidbank is bound by the negligence of its employees under the principle of respondeat
superior or command responsibility. The defense of exercising the required diligence in the
selection and supervision of employees is not a complete defense in culpa contractual, unlike
in culpa aquiliana.[25]
The bank must not only exercise high standards of integrity and performance, it must also
insure that its employees do likewise because this is the only way to insure that the bank will
comply with its fiduciary duty. Solidbank failed to present the teller who had the duty to
return to Calapre the passbook, and thus failed to prove that this teller exercised the high
standards of integrity and performance required of Solidbanks employees.
Proximate Cause of the Unauthorized Withdrawal
Another point of disagreement between the trial and appellate courts is the proximate cause
of the unauthorized withdrawal. The trial court believed that L.C. Diazs negligence in not
securing its passbook under lock and key was the proximate cause that allowed the impostor
to withdraw the P300,000. For the appellate court, the proximate cause was the tellers
negligence in processing the withdrawal without first verifying with L.C. Diaz. We do not
agree with either court.
Proximate cause is that cause which, in natural and continuous sequence, unbroken by any
efficient intervening cause, produces the injury and without which the result would not have
occurred.[26] Proximate cause is determined by the facts of each case upon mixed
considerations of logic, common sense, policy and precedent.[27]
L.C. Diaz was not at fault that the passbook landed in the hands of the impostor. Solidbank
was in possession of the passbook while it was processing the deposit. After completion of
the transaction, Solidbank had the contractual obligation to return the passbook only to
Calapre, the authorized representative of L.C. Diaz. Solidbank failed to fulfill its contractual
obligation because it gave the passbook to another person.
Solidbanks failure to return the passbook to Calapre made possible the withdrawal of the
P300,000 by the impostor who took possession of the passbook. Under Solidbanks rules on
savings account, mere possession of the passbook raises the presumption of ownership. It
was the negligent act of Solidbanks Teller No. 6 that gave the impostor presumptive
ownership of the passbook. Had the passbook not fallen into the hands of the impostor, the
loss of P300,000 would not have happened. Thus, the proximate cause of the unauthorized
withdrawal was Solidbanks negligence in not returning the passbook to Calapre.
We do not subscribe to the appellate courts theory that the proximate cause of the
unauthorized withdrawal was the tellers failure to call up L.C. Diaz to verify the withdrawal.
Solidbank did not have the duty to call up L.C. Diaz to confirm the withdrawal. There is no

arrangement between Solidbank and L.C. Diaz to this effect. Even the agreement between
Solidbank and L.C. Diaz pertaining to measures that the parties must observe whenever
withdrawals of large amounts are made does not direct Solidbank to call up L.C. Diaz.
There is no law mandating banks to call up their clients whenever their representatives
withdraw significant amounts from their accounts. L.C. Diaz therefore had the burden to
prove that it is the usual practice of Solidbank to call up its clients to verify a withdrawal of a
large amount of money. L.C. Diaz failed to do so.
Teller No. 5 who processed the withdrawal could not have been put on guard to verify the
withdrawal. Prior to the withdrawal of P300,000, the impostor deposited with Teller No. 6 the
P90,000 PBC check, which later bounced. The impostor apparently deposited a large amount
of money to deflect suspicion from the withdrawal of a much bigger amount of money. The
appellate court thus erred when it imposed on Solidbank the duty to call up L.C. Diaz to
confirm the withdrawal when no law requires this from banks and when the teller had no
reason to be suspicious of the transaction.
Solidbank continues to foist the defense that Ilagan made the withdrawal. Solidbank claims
that since Ilagan was also a messenger of L.C. Diaz, he was familiar with its teller so that
there was no more need for the teller to verify the withdrawal. Solidbank relies on the
following statements in the Booking and Information Sheet of Emerano Ilagan:
xxx Ilagan also had with him (before the withdrawal) a forged check of PBC and indicated the
amount of P90,000 which he deposited in favor of L.C. Diaz and Company. After successfully
withdrawing this large sum of money, accused Ilagan gave alias Rey (Noel Tamayo) his share
of the loot. Ilagan then hired a taxicab in the amount of P1,000 to transport him (Ilagan) to
his home province at Bauan, Batangas. Ilagan extravagantly and lavishly spent his money
but a big part of his loot was wasted in cockfight and horse racing. Ilagan was apprehended
and meekly admitted his guilt.[28] (Emphasis supplied.)
L.C. Diaz refutes Solidbanks contention by pointing out that the person who withdrew the
P300,000 was a certain Noel Tamayo. Both the trial and appellate courts stated that this Noel
Tamayo presented the passbook with the withdrawal slip.
We uphold the finding of the trial and appellate courts that a certain Noel Tamayo withdrew
the P300,000. The Court is not a trier of facts. We find no justifiable reason to reverse the
factual finding of the trial court and the Court of Appeals. The tellers who processed the
deposit of the P90,000 check and the withdrawal of the P300,000 were not presented during
trial to substantiate Solidbanks claim that Ilagan deposited the check and made the
questioned withdrawal. Moreover, the entry quoted by Solidbank does not categorically state
that Ilagan presented the withdrawal slip and the passbook.
Doctrine of Last Clear Chance
The doctrine of last clear chance states that where both parties are negligent but the
negligent act of one is appreciably later than that of the other, or where it is impossible to
determine whose fault or negligence caused the loss, the one who had the last clear
opportunity to avoid the loss but failed to do so, is chargeable with the loss.[29] Stated
differently, the antecedent negligence of the plaintiff does not preclude him from recovering
damages caused by the supervening negligence of the defendant, who had the last fair
chance to prevent the impending harm by the exercise of due diligence.[30]
We do not apply the doctrine of last clear chance to the present case. Solidbank is liable for
breach of contract due to negligence in the performance of its contractual obligation to L.C.
Diaz. This is a case of culpa contractual, where neither the contributory negligence of the

plaintiff nor his last clear chance to avoid the loss, would exonerate the defendant from
liability.[31] Such contributory negligence or last clear chance by the plaintiff merely serves
to reduce the recovery of damages by the plaintiff but does not exculpate the defendant from
his breach of contract.[32]
Mitigated Damages
Under Article 1172, liability (for culpa contractual) may be regulated by the courts, according
to the circumstances. This means that if the defendant exercised the proper diligence in the
selection and supervision of its employee, or if the plaintiff was guilty of contributory
negligence, then the courts may reduce the award of damages. In this case, L.C. Diaz was
guilty of contributory negligence in allowing a withdrawal slip signed by its authorized
signatories to fall into the hands of an impostor. Thus, the liability of Solidbank should be
reduced.
In Philippine Bank of Commerce v. Court of Appeals,[33] where the Court held the depositor
guilty of contributory negligence, we allocated the damages between the depositor and the
bank on a 40-60 ratio. Applying the same ruling to this case, we hold that L.C. Diaz must
shoulder 40% of the actual damages awarded by the appellate court. Solidbank must pay the
other 60% of the actual damages.
WHEREFORE, the decision of the Court of Appeals is AFFIRMED with MODIFICATION.
Petitioner Solidbank Corporation shall pay private respondent L.C. Diaz and Company, CPAs
only 60% of the actual damages awarded by the Court of Appeals. The remaining 40% of the
actual damages shall be borne by private respondent L.C. Diaz and Company, CPAs.
Proportionate costs.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Vitug, and Ynares-Santiago, JJ., concur.
488 scra 517
G.R. No. 146918

May 2, 2006

CITIBANK, N.A., Petitioner,


vs.
SPS. LUIS and CARMELITA CABAMONGAN and their sons LUISCABAMONGAN, JR. and LITO
CABAMONGAN, Respondents.
DECISION
AUSTRIA-MARTINEZ, J.:
Before the Court is a petition for review on certiorari of the Decision1 dated January 26, 2001
and the Resolution2 dated July 30, 2001 of the Court of Appeals (CA) in CA-G.R. CV No. 59033.
The factual background of the case is as follows:
On August 16, 1993, spouses Luis and Carmelita Cabamongan opened a joint "and/or" foreign
currency time deposit in trust for their sons Luis, Jr. and Lito at the Citibank, N.A., Makati
branch, with Reference No. 60-22214372, in the amount of $55,216.69 for a term of 182 days
or until February 14, 1994, at 2.5625 per cent interest per annum.3 Prior to maturity, or on
November 10, 1993, a person claiming to be Carmelita went to the Makati branch and preterminated the said foreign currency time deposit by presenting a passport, a Bank of
America Versatele Card, an ATM card and a Mabuhay Credit Card.4 She filled up the
necessary forms for pre-termination of deposits with the assistance of Account Officer Yeye

San Pedro. While the transaction was being processed, she was casually interviewed by San
Pedro about her personal circumstances and investment plans.5 Since the said person failed
to surrender the original Certificate of Deposit, she had to execute a notarized release and
waiver document in favor of Citibank, pursuant to Citibank's internal procedure, before the
money was released to her.6 The release and waiver document7 was not notarized on that
same day but the money was nonetheless given to the person withdrawing.8 The transaction
lasted for about 40 minutes.9
After said person left, San Pedro realized that she left behind an identification card.10 Thus,
San Pedro called up Carmelita's listed address at No. 48 Ranger Street, Moonwalk Village, Las
Pinas, Metro Manila on the same day to have the card picked up.11 Marites, the wife of Lito,
received San Pedro's call and was stunned by the news that Carmelita preterminated her
foreign currency time deposit because Carmelita was in the United States at that time.12 The
Cabamongan spouses work and reside in California. Marites made an overseas call to
Carmelita to inform her about what happened.13 The Cabamongan spouses were shocked at
the news. It seems that sometime between June 10 and 16, 1993, an unidentified person
broke in at the couple's residence at No. 3268 Baldwin Park Boulevard, Baldwin Park,
California. Initially, they reported that only Carmelita's jewelry box was missing, but later on,
they discovered that other items, such as their passports, bank deposit certificates, including
the subject foreign currency deposit, and identification cards were also missing.14 It was only
then that the Cabamongan spouses realized that their passports and bank deposit certificates
were lost.15
Through various overseas calls, the Cabamongan spouses informed Citibank, thru San Pedro,
that Carmelita was in the United States and did not preterminate their deposit and that the
person who did so was an impostor who could have also been involved in the break-in of their
California residence. San Pedro told the spouses to submit the necessary documents to
support their claim but Citibank concluded nonetheless that Carmelita indeed preterminated
her deposit. In a letter dated September 16, 1994, the Cabamongan spouses, through
counsel, made a formal demand upon Citibank for payment of their preterminated deposit in
the amount of $55,216.69 with legal interests.16 In a letter dated November 28, 1994,
Citibank, through counsel, refused the Cabamongan spouses' demand for payment, asserting
that the subject deposit was released to Carmelita upon proper identification and
verification.17
On January 27, 1995, the Cabamongan spouses filed a complaint against Citibank before the
Regional Trial Court of Makati for Specific Performance with Damages, docketed as Civil Case
No 95-163 and raffled to Branch 150 (RTC).18
In its Answer dated April 20, 1995, Citibank insists that it was not negligent of its duties since
the subject deposit was released to Carmelita only upon proper identification and
verification.19
At the pre-trial conference the parties failed to arrive at an amicable settlement.20 Thus, trial
on the merits ensued.
For the plaintiffs, the Cabamongan spouses themselves and Florenda G. Negre, Documents
Examiner II of the Philippine National Police (PNP) Crime Laboratory in Camp Crame, Quezon
City, testified. The Cabamongan spouses, in essence, testified that Carmelita could not have
preterminated the deposit account since she was in California at the time of the incident.21
Negre testified that an examination of the questioned signature and the samples of the
standard signatures of Carmelita submitted in the RTC showed a significant divergence. She
concluded that they were not written by one and the same person.22

For the respondent, Citibank presented San Pedro and Cris Cabalatungan, Vice-President and
In-Charge of Security and Management Division. Both San Pedro and Cabalatungan testified
that proper bank procedure was followed and the deposit was released to Carmelita only
upon proper identification and verification.23
On July 1, 1997, the RTC rendered a decision in favor of the Cabamongan spouses and
against Citibank, the dispositive portion of which reads, thus:
WHEREFORE, premises considered, defendant Citibank, N.A., is hereby ordered to pay the
plaintiffs the following:
1) the principal amount of their Foreign Currency Deposit (Reference No. 6022214372)
amounting to $55,216.69 or its Phil. Currency equivalent plus interests from August 16, 1993
until fully paid;
2) Moral damages of P50,000.00;
3) Attorney's fees of P50,000.00; and
4) Cost of suit.
SO ORDERED.24
The RTC reasoned that:
xxx Citibank, N.A., committed negligence resulting to the undue suffering of the plaintiffs. The
forgery of the signatures of plaintiff Carmelita Cabamongan on the questioned documents has
been categorically established by the handwriting expert. xxx Defendant bank was clearly
remiss in its duty and obligations to treat plaintiff's account with the highest degree of care,
considering the nature of their relationship. Banks are under the obligation to treat the
accounts of their depositors with meticulous care. This is the reason for their established
procedure of requiring several specimen signatures and recent picture from potential
depositors. For every transaction, the depositor's signature is passed upon by personnel to
check and countercheck possible irregularities and therefore must bear the blame when they
fail to detect the forgery or discrepancy.25
Despite the favorable decision, the Cabamongan spouses filed on October 1, 1997 a motion
to partially reconsider the decision by praying for an increase of the amount of the damages
awarded.26 Citibank opposed the motion.27 On November 19, 1997, the RTC granted the
motion for partial reconsideration and amended the dispositive portion of the decision as
follows:
From the foregoing, and considering all the evidence laid down by the parties, the dispositive
portion of the court's decision dated July 1, 1997 is hereby amended and/or modified to read
as follows:
WHEREFORE, defendant Citibank, N.A., is hereby ordered to pay the plaintiffs the following:
1) the principal amount of their foreign currency deposit (Reference No. 6022214372)
amounting to $55,216.69 or its Philippine currency equivalent (at the time of its actual
payment or execution) plus legal interest from Aug. 16, 1993 until fully paid.
2) moral damages in the amount of P200,000.00;
3) exemplary damages in the amount of P100,000.00;

4) attorney's fees of P100,000.00;


5) litigation expenses of P200,000.00;
6) cost of suit.
SO ORDERED.28
Dissatisfied, Citibank filed an appeal with the CA, docketed as CA-G.R. CV No. 59033.29 On
January 26, 2001, the CA rendered a decision sustaining the finding of the RTC that Citibank
was negligent, ratiocinating in this wise:
In the instant case, it is beyond dispute that the subject foreign currency deposit was preterminated on 10 November 1993. But Carmelita Cabamongan, who works as a nursing aid
(sic) at the Sierra View Care Center in Baldwin Park, California, had shown through her
Certificate of Employment and her Daily Time Record from the [sic] January to December
1993 that she was in the United States at the time of the incident.
Defendant Citibank, N.A., however, insists that Carmelita was the one who pre-terminated the
deposit despite claims to the contrary. Its basis for saying so is the fact that the person who
made the transaction on the incident mentioned presented a valid passport and three (3)
other identification cards. The attending account officer examined these documents and even
interviewed said person. She was satisfied that the person presenting the documents was
indeed Carmelita Cabamongan. However, such conclusion is belied by these following
circumstances.
First, the said person did not present the certificate of deposit issued to Carmelita
Cabamongan. This would not have been an insurmountable obstacle as the bank, in the
absence of such certificate, allows the termination of the deposit for as long as the depositor
executes a notarized release and waiver document in favor of the bank. However, this simple
procedure was not followed by the bank, as it terminated the deposit and actually delivered
the money to the impostor without having the said document notarized on the flimsy excuse
that another department of the bank was in charge of notarization. The said procedure was
obviously for the protection of the bank but it deliberately ignored such precaution. At the
very least, the conduct of the bank amounts to negligence.
Second, in the internal memorandum of Account Officer Yeye San Pedro regarding the
incident, she reported that upon comparing the authentic signatures of Carmelita
Cabamongan on file with the bank with the signatures made by the person claiming to be
Cabamongan on the documents required for the termination of the deposit, she noticed that
one letter in the latter [sic] signatures was different from that in the standard signatures. She
requested said person to sign again and scrutinized the identification cards presented.
Presumably, San Pedro was satisfied with the second set of signatures made as she
eventually authorized the termination of the deposit. However, upon examination of the
signatures made during the incident by the Philippine National Police (PNP) Crime Laboratory,
the said signatures turned out to be forgeries. As the qualifications of Document Examiner
Florenda Negre were established and she satisfactorily testified on her findings during the
trial, we have no reason to doubt the validity of her findings. Again, the bank's negligence is
patent. San Pedro was able to detect discrepancies in the signatures but she did not exercise
additional precautions to ascertain the identity of the person she was dealing with. In fact, the
entire transaction took only 40 minutes to complete despite the anomalous situation.
Undoubtedly, the bank could have done a better job.

Third, as the bank had on file pictures of its depositors, it is inconceivable how bank
employees could have been duped by an impostor. San Pedro admitted in her testimony that
the woman she dealt with did not resemble the pictures appearing on the identification cards
presented but San Pedro still went on with the sensitive transaction. She did not mind such
disturbing anomaly because she was convinced of the validity of the passport. She also
considered as decisive the fact that the impostor had a mole on her face in the same way
that the person in the pictures on the identification cards had a mole. These explanations do
not account for the disparity between the pictures and the actual appearance of the impostor.
That said person was allowed to withdraw the money anyway is beyond belief.
The above circumstances point to the bank's clear negligence. Bank transactions pass
through a successive [sic] of bank personnel, whose duty is to check and countercheck
transactions for possible errors. While a bank is not expected to be infallible, it must bear the
blame for failing to discover mistakes of its employees despite established bank procedure
involving a battery of personnel designed to minimize if not eliminate errors. In the instant
case, Yeye San Pedro, the employee who primarily dealt with the impostor, did not follow
bank procedure when she did not have the waiver document notarized. She also openly
courted disaster by ignoring discrepancies between the actual appearance of the impostor
and the pictures she presented, as well as the disparities between the signatures made
during the transaction and those on file with the bank. But even if San Pedro was negligent,
why must the other employees in the hierarchy of the bank's work flow allow such thing to
pass unnoticed and unrectified?30
The CA, however, disagreed with the damages awarded by the RTC. It held that, insofar as
the date from which legal interest of 12% is to run, it should be counted from September 16,
1994 when extrajudicial demand was made. As to moral damages, the CA reduced it to
P100,000.00 and deleted the awards of exemplary damages and litigation expenses. Thus,
the dispositive portion of the CA decision reads:
WHEREFORE, the decision of the trial court dated 01 July 1997, and its order dated 19
November 1997, are hereby AFFIRMED with the MODIFICATION that the legal interest for
actual damages awarded in the amount of $55,216.69 shall run from 16 September 1994;
exemplary damages amounting to P100,000.00 and litigation expenses amounting to
P200,000.00 are deleted; and moral damages is reduced to P100,000.00.
Costs against defendant.
SO ORDERED.31
The Cabamongan spouses filed a motion for partial reconsideration on the matter of the
award of damages in the decision.32 On July 30, 2001, the
CA granted in part said motion and modified its decision as follows:
1. The actual damages in amount of $55,216.69, representing the amount of appellees'
foreign currency time deposit shall earn an interest of 2.5625% for the period 16 August 1993
to 14 February 1994, as stipulated in the contract;
2. From 16 September 1994 until full payment, the amount of $55,216.69 shall earn interest
at the legal rate of 12% per annum, and;
3. The award of moral damages is reduced to P50,000.00.33
Dissatisfied, both parties filed separate petitions for review on certiorari with this Court. The
Cabamongan spouses' petition, docketed as G.R. No. 149234, was denied by the Court per its

Resolution dated October 17, 2001.34 On the other hand, Citibank's petition was given due
course by the Court per Resolution dated December 10, 2001 and the parties were required
to submit their respective memoranda.35
Citibank poses the following errors for resolution:
1. THE HONORABLE COURT OF APPEALS GRAVELY ERRED AND GRAVELY ABUSED ITS
DISCRETION IN UPHOLDING THE LOWER COURT'S DECISION WHICH IS NOT BASED ON CLEAR
EVIDENCE BUT ON GRAVE MISAPPREHENSION OF FACTS.
2. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN UPHOLDING THE DECISION OF
THE TRIAL COURT AWARDING MORAL DAMAGES WHEN IN FACT THERE IS NO BASIS IN LAW
AND FACT FOR SAID AWARD.
3. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN RULING THAT THE PRINCIPAL
AMOUNT OF US$55,216.69 SHOULD EARN INTEREST AT THE RATE OF 12% PER ANNUM FROM
16 SEPTEMBER 1994 UNTIL FULL PAYMENT.36
Anent the first ground, Citibank contends that the CA erred in affirming the RTC's finding that
it was negligent since the said courts failed to appreciate the extra diligence of a good father
of a family exercised by Citibank thru San Pedro.
As to the second ground, Citibank argues that the Cabamongan spouses are not entitled to
moral damages since moral damages can be awarded only in cases of breach of contract
where the bank has acted willfully, fraudulently or in bad faith. It submits that it has not been
shown in this case that Citibank acted willfully, fraudulently or in bad faith and mere
negligence, even if the Cabamongan spouses suffered mental anguish or serious anxiety on
account thereof, is not a ground for awarding moral damages.
On the third ground, Citibank avers that the interest rate should not be 12% but the
stipulated rate of 2.5625% per annum. It adds that there is no basis to pay the interest rate of
12% per annum from September 16, 1994 until full payment because as of said date there
was no legal ground yet for the Cabamongan spouses to demand payment of the principal
and it is only after a final judgment is issued declaring that Citibank is obliged to return the
principal amount of US$55,216.69 when the right to demand payment starts and legal
interest starts to run.
On the other hand, the Cabamongan spouses contend that Citibank's negligence has been
established by evidence. As to the interest rate, they submit that the stipulated interest of
2.5635% should apply for the 182-day contract period from August 16, 1993 to February 14,
1993; thereafter, 12% should apply. They further contend that the RTC's award of exemplary
damages of P100,000.00 should be maintained. They submit that the CA erred in treating the
award of litigation expenses as lawyer's fees since they have shown that they incurred actual
expenses in litigating their claim against Citibank. They also contend that the CA erred in
reducing the award of moral damages in view of the degree of mental anguish and emotional
fears, anxieties and nervousness suffered by them.37
Subsequently, Citibank, thru a new counsel, submitted a Supplemental Memorandum,38
wherein it posits that, assuming that it was negligent, the Cabamongan spouses were guilty
of contributory negligence since they failed to notify Citibank that they had migrated to the
United States and were residents thereat and after having been victims of a burglary, they
should have immediately assessed their loss and informed Citibank of the disappearance of
the bank certificate, their passports and other identification cards, then the fraud would not
have been perpetuated and the losses avoided. It further argues that since the Cabamongan
spouses are guilty of contributory negligence, the doctrine of last clear chance is inapplicable.

Citibank's assertion that the Cabamongan spouses are guilty of contributory negligence and
non-application of the doctrine of last clear chance cannot pass muster since these
contentions were raised for the first time only in their Supplemental Memorandum. Indeed,
the records show that said contention were neither pleaded in the petition for review and the
memorandum nor in Citibank's Answer to the complaint or in its appellant's brief filed with the
CA. To consider the alleged facts and arguments raised belatedly in a supplemental pleading
to herein petition for review at this very late stage in the proceedings would amount to
trampling on the basic principles of fair play, justice and due process.391avvphil.net
The Court has repeatedly emphasized that, since the banking business is impressed with
public interest, of paramount importance thereto is the trust and confidence of the public in
general. Consequently, the highest degree of diligence40 is expected,41 and high standards
of integrity and performance are even required, of it.42 By the nature of its functions, a bank
is "under obligation to treat the accounts of its depositors with meticulous care,43 always
having in mind the fiduciary nature of their relationship."44
In this case, it has been sufficiently shown that the signatures of Carmelita in the forms for
pretermination of deposits are forgeries. Citibank, with its signature verification procedure,
failed to detect the forgery. Its negligence consisted in the omission of that degree of
diligence required of banks. The Court has held that a bank is "bound to know the signatures
of its customers; and if it pays a forged check, it must be considered as making the payment
out of its own funds, and cannot ordinarily charge the amount so paid to the account of the
depositor whose name was forged."45 Such principle equally applies here.
Citibank cannot label its negligence as mere mistake or human error. Banks handle daily
transactions involving millions of pesos.46 By the very nature of their works the degree of
responsibility, care and trustworthiness expected of their employees and officials is far
greater than those of ordinary clerks and employees.47 Banks are expected to exercise the
highest degree of diligence in the selection and supervision of their employees.48
The Court agrees with the observation of the CA that Citibank, thru Account Officer San
Pedro, openly courted disaster when despite noticing discrepancies in the signature and
photograph of the person claiming to be Carmelita and the failure to surrender the original
certificate of time deposit, the pretermination of the account was allowed. Even the waiver
document was not notarized, a procedure meant to protect the bank. For not observing the
degree of diligence required of banking institutions, whose business is impressed with public
interest, Citibank is liable for damages.
As to the interest rate, Citibank avers that the claim of the Cabamongan spouses does not
constitute a loan or forbearance of money and therefore, the interest rate of 6%, not 12%,
applies.
The Court does not agree.
The time deposit subject matter of herein petition is a simple loan. The provisions of the New
Civil Code on simple loan govern the contract between a bank and its depositor. Specifically,
Article 1980 thereof categorically provides that ". . . savings . . . deposits of money in banks
and similar institutions shall be governed by the provisions concerning simple loan." Thus, the
relationship between a bank and its depositor is that of a debtor-creditor, the depositor being
the creditor as it lends the bank money, and the bank is the debtor which agrees to pay the
depositor on demand.
The applicable interest rate on the actual damages of $55,216.69, should be in accordance
with the guidelines set forth in Eastern Shipping Lines, Inc. v. Court of Appeals49 to wit:

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or
quasi-delicts is breached, the contravenor can be held liable for damages. The provisions
under Title XVIII on "Damages" of the Civil Code govern in determining the measure of
recoverable damages.
II. With regard particularly to an award of interest, in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a
loan or forbearance of money, the interest due should be that which may have been
stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the
time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12%
per annum to be computed from default, i.e., from judicial or extrajudicial demand under and
subject to the provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an
interest on the amount of damages awarded may be imposed at the discretion of the court at
the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or
damages except when or until the demand can be established with reasonable certainty.
Accordingly, where the demand is established with reasonable certainty, the interest shall
begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code)
but when such certainty cannot be so reasonably established at the time the demand is
made, the interest shall begin to run only from the date the judgment of the court is made (at
which time the quantification of damages may be deemed to have been reasonably
ascertained). The actual base for the computation of legal interest shall, in any case, be on
the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory,
the rate of legal interest whether the case falls under paragraph 1 or paragraph 2, above,
shall be 12% per annum from such finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of credit.50
Thus, in a loan or forbearance of money, the interest due should be that stipulated in writing,
and in the absence thereof, the rate shall be 12% per annum counted from the time of
demand. Accordingly, the stipulated interest rate of 2.562% per annum shall apply for the
182-day contract period from August 16, 1993 to February 14, 1994. For the period from the
date of extra-judicial demand, September 16, 1994, until full payment, the rate of 12% shall
apply. As for the intervening period between February 15, 1994 to September 15, 1994, the
rate of interest then prevailing granted by Citibank shall apply since the time deposit
provided for roll over upon maturity of the principal and interest.51
As to moral damages, in culpa contractual or breach of contract, as in the case before the
Court, moral damages are recoverable only if the defendant has acted fraudulently or in bad
faith,52 or is found guilty of gross negligence amounting to bad faith, or in wanton disregard
of his contractual obligations.53 The act of Citibank's employee in allowing the pretermination
of Cabamongan spouses' account despite the noted discrepancies in Carmelita's signature
and photograph, the absence of the original certificate of time deposit and the lack of
notarized waiver dormant, constitutes gross negligence amounting to bad faith under Article
2220 of the Civil Code.
There is no hard-and-fast rule in the determination of what would be a fair amount of moral
damages since each case must be governed by its own peculiar facts. The yardstick should be
that it is not palpably and scandalously excessive.54 The amount of P50,000.00 awarded by
the CA is reasonable and just. Moreover, said award is deemed final and executory insofar as

respondents are concerned considering that their petition for review had been denied by the
Court in its final and executory Resolution dated October 17, 2001 in G.R. No. 149234.
Finally, Citibank contends that the award of attorney's fees should be deleted since such
award appears only in the dispositive portion of the decision of the RTC and the latter failed
to elaborate, explain and justify the same.
Article 2208 of the New Civil Code enumerates the instances where such may be awarded
and, in all cases, it must be reasonable, just and equitable if the same were to be granted.
Attorney's fees as part of damages are not meant to enrich the winning party at the expense
of the losing litigant. They are not awarded every time a party prevails in a suit because of
the policy that no premium should be placed on the right to litigate.55 The award of
attorney's fees is the exception rather than the general rule. As such, it is necessary for the
court to make findings of facts and law that would bring the case within the exception and
justify the grant of such award. The matter of attorney's fees cannot be mentioned only in the
dispositive portion of the decision.56 They must be clearly explained and justified by the trial
court in the body of its decision. Consequently, the award of attorney's fees should be
deleted.
WHEREFORE, the instant petition is PARTIALLY GRANTED. The assailed Decision and
Resolution are AFFIRMED with MODIFICATIONS, as follows:
1. The interest shall be computed as follows:
a. The actual damages in principal amount of $55,216.69, representing the amount of foreign
currency time deposit shall earn interest at the stipulated rate of 2.5625% for the period
August 16, 1993 to February 14, 1994;
b. From February 15, 1994 to September 15, 1994, the principal amount of $55,216.69 and
the interest earned as of February 14, 1994 shall earn interest at the rate then prevailing
granted by Citibank;
c. From September 16, 1994 until full payment, the principal amount of $55,216.69 and the
interest earned as of September 15, 1994, shall earn interest at the legal rate of 12% per
annum;
2. The award of attorney's fees is DELETED.
No pronouncement as to costs.
SO ORDERED.
MA. ALICIA AUSTRIA-MARTINEZ
Associate Justice
CITIBANK N.A V. CABAMONGAN
488 SCRA 517
FACTS:
Spouses Cabamongan opened a joint and/or foreign currency time deposit in favor of their
two children with Citibank. On a material date, a person who claimed to be Carmelita
sought the pretermination of the account. She presented identification cards to
ascertain her identity to the then account officer. When she left with the money, she
left an identification card.
The account officer then called up the address.
The

spouses and their family knew of the incident. They were presently residing in the US and
there was a prior incident wherein they got robbed in their house with the jewelry box and
cards stolen. Spouses made several demands for the return of the amount but Citibank
refused to do so.
HELD:
Citibank was negligent. First, the depositor didnt present the Certificate of Deposit.
Second, from the internal memorandum issued by the Account Officer, he admitted to the
fact that the specimen signature was different from the one who misrepresented herself
as Carmelita.
Third, the bank kept in its records pictures of its depositors.
It is
inconceivable how the bank was duped by an impostor.

(16) 551 scra 342


G.R. No. 179901

April 14, 2008

BANCO DE ORO-EPCI, INC.,* petitioner,


vs.
JAPRL DEVELOPMENT CORPORATION, RAPID FORMING CORPORATION and JOSE U. AROLLADO,
respondents.
DECISION
CORONA, J.:
This petition for review on certiorari1 seeks to set aside the decision2 of the Court of Appeals
(CA) in CA-G.R. SP No. 95659 and its resolution3 denying reconsideration.
After evaluating the financial statements of respondent JAPRL Development Corporation
(JAPRL) for fiscal years 1998, 1999 and 2000,4 petitioner Banco de Oro-EPCI, Inc. extended
credit facilities to it amounting to P230,000,0005 on March 28, 2003. Respondents Rapid
Forming Corporation (RFC) and Jose U. Arollado acted as JAPRL's sureties.
Despite its seemingly strong financial position, JAPRL defaulted in the payment of four trust
receipts soon after the approval of its loan.6 Petitioner later learned from MRM Management,
JAPRL's financial adviser, that JAPRL had altered and falsified its financial statements. It
allegedly bloated its sales revenues to post a big income from operations for the concerned
fiscal years to project itself as a viable investment.7 The information alarmed petitioner.
Citing relevant provisions of the Trust Receipt Agreement,8 it demanded immediate payment
of JAPRL's outstanding obligations amounting to P194,493,388.98.9
SP Proc. No. Q-03-064

On August 30, 2003, JAPRL (and its subsidiary, RFC) filed a petition for rehabilitation in the
Regional Trial Court (RTC) of Quezon City, Branch 90 (Quezon City RTC).10 It disclosed that it
had been experiencing a decline in sales for the three preceding years and a staggering loss
in 2002.11
Because the petition was sufficient in form and substance, a stay order12 was issued on
September 28, 2003.13 However, the proposed rehabilitation plan for JAPRL and RFC was
eventually rejected by the Quezon City RTC in an order dated May 9, 2005.14
Civil Case No. 03-991
Because JAPRL ignored its demand for payment, petitioner filed a complaint for sum of money
with an application for the issuance of a writ of preliminary attachment against respondents
in the RTC of Makati City, Branch 145 (Makati RTC) on August 21, 2003.15 Petitioner
essentially asserted that JAPRL was guilty of fraud because it (JAPRL) altered and falsified its
financial statements.16
The Makati RTC subsequently denied the application (for the issuance of a writ of preliminary
attachment) for lack of merit as petitioner was unable to substantiate its allegations.
Nevertheless, it ordered the service of summons on respondents.17 Pursuant to the said
order, summonses were issued against respondents and were served upon them.
Respondents moved to dismiss the complaint due to an allegedly invalid service of
summons.18 Because the officer's return stated that an "administrative assistant" had
received the summons,19 JAPRL and RFC argued that Section 11, Rule 14 of the Rules of
Court20 contained an exclusive list of persons on whom summons against a corporation must
be served.21 An "administrative assistant" was not one of them. Arollado, on the other hand,
cited Section 6, Rule 14 thereof22 which mandated personal service of summons on an
individual defendant.23
The Makati RTC, in its October 10, 2005 order,24 noted that because corporate officers are
often busy, summonses to corporations are usually received only by administrative assistants
or secretaries of corporate officers in the regular course of business. Hence, it denied the
motion for lack of merit.
Respondents moved for reconsideration25 but withdrew it before the Makati RTC could
resolve the matter.26
RTC SEC Case No. 68-2008-C
On February 20, 2006, JAPRL (and its subsidiary, RFC) filed a petition for rehabilitation in the
RTC of Calamba, Laguna, Branch 34 (Calamba RTC). Finding JAPRL's petition sufficient in form
and in substance, the Calamba RTC issued a stay order27 on March 13, 2006.
In view of the said order, respondents hastily moved to suspend the proceedings in Civil Case
No. 03-991 pending in the Makati RTC.28
On July 7, 2006, the Makati RTC granted the motion with regard to JAPRL and RFC but ordered
Arollado to file an answer. It ruled that, because he was jointly and solidarily liable with JAPRL
and RFC, the proceedings against him should continue.29 Respondents moved for
reconsideration30 but it was denied.31
On August 11, 2006, respondents filed a petition for certiorari32 in the CA alleging that the
Makati RTC committed grave abuse of discretion in issuing the October 10, 2005 and July 7,

2006 orders.33 They asserted that the court did not acquire jurisdiction over their persons
due to defective service of summons. Thus, the Makati RTC could not hear the complaint for
sum of money.34
In its June 7, 2007 decision, the CA held that because the summonses were served on a mere
administrative assistant, the Makati RTC never acquired jurisdiction over respondents. Thus, it
granted the petition.35
Petitioner moved for reconsideration but it was denied.36 Hence, this petition.
Petitioner asserts that respondents maliciously evaded the service of summonses to prevent
the Makati RTC from acquiring jurisdiction over their persons. Furthermore, they employed
bad faith to delay proceedings by cunningly exploiting procedural technicalities to avoid the
payment of their obligations.37
We grant the petition.
Respondents, in their petition for certiorari in the CA, questioned the jurisdiction of the Makati
RTC over their persons (i.e., whether or not the service of summons was validly made).
Therefore, it was only the October 10, 2005 order of the said trial court which they in effect
assailed.38 However, because they withdrew their motion for reconsideration of the said
order, it became final. Moreover, the petition was filed 10 months and 1 day after the assailed
order was issued by the Makati RTC,39 way past the 60 days allowed by the Rules of Court.
For these reasons, the said petition should have been dismissed outright by the CA.
More importantly, when respondents moved for the suspension of proceedings in Civil Case
No. 03-991 before the Makati RTC (on the basis of the March 13, 2006 order of the Calamba
RTC), they waived whatever defect there was in the service of summons and were deemed to
have submitted themselves voluntarily to the jurisdiction of the Makati RTC.40
We withhold judgment for the moment on the July 7, 2006 order of the Makati RTC
suspending the proceedings in Civil Case No. 03-991 insofar as JAPRL and RFC are concerned.
Under the Interim Rules of Procedure on Corporate Rehabilitation, a stay order defers all
actions or claims against the corporation seeking rehabilitation41 from the date of its
issuance until the dismissal of the petition or termination of the rehabilitation proceedings.42
The Makati RTC may proceed to hear Civil Case No. 03-991 only against Arollado if there is no
ground to go after JAPRL and RFC (as will later be discussed). A creditor can demand payment
from the surety solidarily liable with the corporation seeking rehabilitation.43
Respondents abused procedural technicalities (albeit unsuccessfully) for the sole purpose of
preventing, or at least delaying, the collection of their legitimate obligations. Their
reprehensible scheme impeded the speedy dispensation of justice. More importantly,
however, considering the amount involved, respondents utterly disregarded the significance
of a stable and efficient banking system to the national economy.44
Banks are entities engaged in the lending of funds obtained through deposits45 from the
public.46 They borrow the public's excess money (i.e., deposits) and lend out the same.47
Banks therefore redistribute wealth in the economy by channeling idle savings to profitable
investments.
Banks operate (and earn income) by extending credit facilities financed primarily by deposits
from the public.48 They plough back the bulk of said deposits into the economy in the form of
loans.49 Since banks deal with the public's money, their viability depends largely on their
ability to return those deposits on demand. For this reason, banking is undeniably imbued

with public interest. Consequently, much importance is given to sound lending practices and
good corporate governance.50
Protecting the integrity of the banking system has become, by large, the responsibility of
banks. The role of the public, particularly individual borrowers, has not been emphasized.
Nevertheless, we are not unaware of the rampant and unscrupulous practice of obtaining
loans without intending to pay the same.
In this case, petitioner alleged that JAPRL fraudulently altered and falsified its financial
statements in order to obtain its credit facilities. Considering the amount of petitioner's
exposure in JAPRL, justice and fairness dictate that the Makati RTC hear whether or not
respondents indeed committed fraud in securing the credit accomodation.
A finding of fraud will change the whole picture. In this event, petitioner can use the finding of
fraud to move for the dismissal of the rehabilitation case in the Calamba RTC.
The protective remedy of rehabilitation was never intended to be a refuge of a debtor guilty
of fraud.
Meanwhile, the Makati RTC should proceed to hear Civil Case No. 03-991 against the three
respondents guided by Section 40 of the General Banking Law which states:
Section 40. Requirement for Grant of Loans or Other Credit Accommodations. Before granting
a loan or other credit accommodation, a bank must ascertain that the debtor is capable of
fulfilling his commitments to the bank.
Towards this end, a bank may demand from its credit applicants a statement of their assets
and liabilities and of their income and expenditures and such information as may be
prescribed by law or by rules and regulations of the Monetary Board to enable the bank to
properly evaluate the credit application which includes the corresponding financial
statements submitted for taxation purposes to the Bureau of Internal Revenue. Should such
statements prove to be false or incorrect in any material detail, the bank may terminate any
loan or credit accommodation granted on the basis of said statements and shall have the
right to demand immediate repayment or liquidation of the obligation.
In formulating the rules and regulations under this Section, the Monetary Board shall
recognize the peculiar characteristics of microfinancing, such as cash flow-based lending to
the basic sectors that are not covered by traditional collateral. (emphasis supplied)
Under this provision, banks have the right to annul any credit accommodation or loan, and
demand the immediate payment thereof, from borrowers proven to be guilty of fraud.
Petitioner would then be entitled to the immediate payment of P194,493,388.98 and other
appropriate damages.51
Finally, considering that respondents failed to pay the four trust receipts, the Makati City
Prosecutor should investigate whether or not there is probable cause to indict respondents for
violation of Section 13 of the Trust Receipts Law.52
ACCORDINGLY, the petition is hereby GRANTED. The June 7, 2007 decision and August 31,
2007 resolution of the Court of Appeals in CA-G.R. SP No. 95659 are REVERSED and SET
ASIDE.
The Regional Trial Court of Makati City, Branch 145 is ordered to proceed expeditiously with
the trial of Civil Case No. 03-991 with regard to respondent Jose U. Arollado, and the other
respondents if warranted.

SO ORDERED.
RENATO C. CORONA
Associate Justice
WE CONCUR:
REYNATO S. PUNO
Chief Justice
Chairperson
ANTONIO T. CARPIO
Associate Justice

(17) 557 SCRA 318


[G.R. No. 177526, July 04, 2008]
PHILIPPINE SAVINGS BANK, PETITIONER, VS. CHOWKING FOOD CORPORATION, RESPONDENT.
DECISION
REYES, R.T., J.:
IT is the peculiar quality of a fool to perceive the fault of others and to forget his own. Ang
isang kakatuwang katangian ng isang hangal ay punahin ang kamalian ng iba at kalimutan
naman ang sa kanya.

This is a petition for review on certiorari of the Decision[1] of the Court of Appeals (CA)
reinstating the Decision of the Regional Trial Court (RTC), Manila, Branch 5. The RTC ordered
petitioner Philippine Savings Bank (PSBank) and its Bustos Branch Head, Erlinda O. Santos, to
reimburse respondent Chowking Food Corporation (Chowking) the amount corresponding to
five (5) illegally encashed checks.
The Facts
Between March 15, 1989 and August 10, 1989, Joe Kuan Food Corporation issued in favor of
Chowking five (5) PSBank checks with the following numbers, dates and denominations:
Check No.
Amount
Date
017069 P 44,120.00 15 March 1989
053528 P135,052.87
09 May 1989
074602 P160,138.12
08 August 1989
074631 P159,634.13
08 August 1989
017096 P 60,036.74 10 August 1989[2]
The total amount of the subject checks reached P556,981.86.
On the respective due dates of each check, Chowking's acting accounting manager, Rino T.
Manzano, endorsed and encashed said checks with the Bustos branch of respondent PSBank.
[3]
All the five checks were honored by defendant Santos, even with only the endorsement of
Manzano approving them. The signatures of the other authorized officers of respondent
corporation were absent in the five (5) checks, contrary to usual banking practice.[4]
Unexpectedly, Manzano absconded with and misappropriated the check proceeds.[5]
When Chowking found out Manzano's scheme, it demanded reimbursement from PSBank.[6]
When PSBank refused to pay, Chowking filed a complaint[7] for a sum of money with
damages before the RTC. Likewise impleaded were PSBank's president, Antonio S. Abacan,
and Bustos branch head, Santos.[8]
Both PSBank and Santos filed cross claims and third party complaints against Manzano.[9]
Despite all
diligent efforts, summonses were not served upon third party defendant Manzano. Santos did
not take any further action and her third party complaint was archived.[10]
Meanwhile, petitioner caused the service of its summons on the cross-claim and third party
complaints through publication. On its subsequent motion, Manzano was declared in default
for failure to file a responsive pleading.[11]
Respondent filed a motion for summary judgment. Petitioner opposed the motion. On
February 1, 1995, the trial court denied the motion via an order of even date.[12]
In its Answer, petitioner did not controvert the foregoing facts, but denied liability to
respondent for the encashed checks.[13] Petitioner bank maintained it exercised due
diligence in the supervision of all its employees. It even dismissed defendant Santos after she
was found guilty of negligence in the performance of her duties.[14]
Defendant Santos, on the other hand, denied that she had been negligent in her job. She
averred that she merely followed the bank's practice of honoring respondent's checks even if
accompanied only by Manzano's endorsement. [15]

Defendant Abacan likewise denied any liability to respondent. He alleged that, as president
and officer of petitioner bank, he played no role in the transactions complained of. [16] Thus,
respondent has no cause of action against him.
Petitioner, Santos and Abacan were unanimous in asserting that respondent is estopped from
claiming reimbursement and damages since it was negligent in allowing Manzano to take
hold, endorse, and encash its checks. Petitioner pointed out that the proximate cause of
respondent's loss was its own negligence.[17]
RTC Disposition
On August 24, 1998, the RTC rendered judgment in favor of respondent, the dispositive
portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiff and as
against defendant Philippine Savings Bank and Erlinda O. Santos ordering the said defendants
to pay plaintiff, jointly and severally:
1. The amount of P556,981.86 plus interest at the rate of 12% per annum from August
15, 1989 until said amount shall have been paid;
2. 20% of the total amount due plaintiff as attorney's fees;
3. The sum of P100,000.00 as exemplary damages;
4. The sum of P1,000,000.00 for plaintiff's unrealized profits.
The complaint with respect to defendant Antonio Abacan, Jr. as well as his counterclaim
and cross claim are hereby DISMISSED.
With respect to the cross claim of defendant PSBank against Erlinda Santos and its thirdparty complaint against Rino T. Manzano, both Santos and Manzano are hereby ordered to
jointly and severally, reimburse defendant PSBank whatever amount the latter shall be
constrained to pay plaintiff in connection with this case.
SO ORDERED.[18]
Aggrieved, petitioner filed a motion for reconsideration. Through an Order dated January 11,
1999, the RTC reversed its earlier ruling and held that it was respondent's own negligence
that was the proximate cause of the loss. The fallo of the amended RTC decision now reads:
In light of the foregoing grounds and observations, the Decision of August 24, 1998, by this
Court is accordingly modified as follows:
1. Ordering the dismissal of the complaint by the plaintiff Chowking Food Corporation
against the defendants, Philippine Savings Bank (PSBank) and Erlinda Santos for lack of basis
in fact and law;
2. Ordering the third party defendant, Regino or Rino T. Manzano to pay the plaintiff
Chowking Food Corporation, the following:
1. To reimburse the plaintiff the amount of P556,981.86 plus interest at the rate of
12% per annum from August 15, 1989, until said amount has been fully satisfied;

2. To pay an attorney's fee equivalent to 20% of the total amount due the
plaintiff;
3. To pay an amount of P100,000.00 the plaintiff for actual and compensatory
damages, plus the costs of this suit.
SO ORDERED.[19]
Dissatisfied with the modified ruling of the RTC, respondent appealed to the CA.
CA Disposition
In its appeal, respondent Chowking contended, inter alia, that the RTC erred in ruling that the
proximate cause of the loss was its own negligence; and that its claim was barred by
estoppel.
On January 31, 2007, the CA granted the appeal, disposing as follows:
WHEREFORE, the instant appeal is GRANTED. The order appealed from is hereby SET ASIDE
and the 24 August 1998 decision is consequently REINSTATED with modification that the
awards of attorney's fees, exemplary damages, and alleged P1,000,000.00 unrealized profits
of the appellant are DELETED.
IT IS SO ORDERED. [20]
The CA held that both petitioner PSBank and Santos should bear the loss. Said the appellate
court:
It is admitted that PSB cashed, over the counter, the checks of the appellant indorsed by
Manzano alone. Since there is no more dispute on the negligent act of Santos in honoring the
appellant's checks, over the counter, despite the proper indorsements, the categorical finding
of negligence against her, remaining unrebutted, is deemed established. This in effect
warrants a finding that Santos is liable for damages to the appellant. The lower court
therefore erred in dismissing the complaint against her.[21]
Further, the CA held that:
Contrary to PSB's contention that it should not be held liable because it neither consented
to nor had knowledge of Santos' (sic) violations, such liability of Santos is solidary with PSB
pursuant to Article 2176 in relation to Article 2180 of the Civil Code which states:
"Art. 2176. Whoever by act or omission causes damage to another, there being fault or
negligence, is obliged to pay for the damage done....
Art. 2180. The obligation imposed by Art. 2176 is demandable not only for one's own
acts or omissions but also for those of persons for whom one is responsible.
xxxx
Employers shall be liable for the damage caused by their employees and household
helpers acting within the scope of their assigned tasks even though the former are not
engaged in any business or activity.
xxxx

The responsibility treated of in this article shall cease when the persons herein
mentioned prove that they observed all the diligence of a good father of a family to prevent
damage."
x x x However, with banks like PSB, the degree of diligence required is more than that of a
good father of a family considering that the business of banking is imbued with public interest
due to the nature of its functions. Highest degree of diligence is needed which PSB, in this
case, failed to observe.
x x x Its argument that it should no be held responsible for the negligent acts of Santos
because those were independent acts x x x perpetrated without its knowledge and consent is
without basis in fact and in law. Assuming that PSB did not err in hiring Santos for her
position, its lack of supervision over her made it solidarily liable for the unauthorized
encashment of the checks involved. In the supervision of employees, the employer must
formulate standard operating procedures, monitor their implementation and impose
disciplinary measures for the breach thereof. The appellee, in this case, presented no
evidence that it formulated rules/guidelines for the proper performance of functions of its
employees and that it strictly implemented and monitored compliance therewith. x x x[22]
The CA also disagreed with petitioner's contention that respondent's own negligence was the
proximate cause of its loss. The CA opined that even assuming that respondent was also
negligent in allowing Manzano to encash its checks, petitioner had the last clear chance to
avert injury and loss to
respondent. This could have been done if petitioner, through Santos, faithfully and carefully
observed its encashment rules and procedures.
The CA ratiocinated:
x x x Had Santos not been remiss in verifying the indorsements of the checks involved, she
would not have cashed the same because Manzano, whose only signature appears therein, is
apparently not an authorized signatory of the appellant x x x had every means to determine
the validity of those indorsements but for one reason or another she was neglectful of her
duty x x x as admitted by PSB, such over the counter encashments are not even sanctioned
by its policies but Santos simply ignored the same. It appears clear that Santos let the
opportunity slip by when an exercise of ordinary prudence expected of bank employees would
have sufficed to prevent the loss.[23]
Issues
Petitioner has resorted to the present recourse and assigns to the CA the following errors:
I
THE HONORABLE COURT OF APPEALS ERRED IN NOT RULING THAT RESPONDENT WAS
ESTOPPED FROM ASSERTING ITS CLAIM AGAINST PETITIONER.
II
THE HONORABLE COURT OF APPEALS ERRED WHEN IT DID NOT RULE THAT RESPONDENT'S
NEGLIGENCE WAS THE PROXIMATE CAUSE OF ITS OWN LOSS (Underscoring supplied)
Our Ruling
The doctrine of equitable estoppel or estoppel in pais finds no application in the present case.
The equitable doctrine of estoppel was explained by this Court in Caltex (Philippines ), Inc.

v. Court of Appeals:[24]
Under the doctrine of estoppel, an admission or representation is rendered conclusive upon
the person making it, and cannot be denied or disproved as against the person relying
thereon. A party may not go back on his own acts and representations to the prejudice of the
other party who relied upon them. In the law of evidence, whenever a party has, by his own
declaration, act, or omission, intentionally and deliberately led another to believe a particular
thing true, to act upon such belief, he cannot, in any litigation arising out of such declaration,
act, or omission, be permitted to falsify it.[25]
The principle received further elaboration in Maneclang v. Baun:[26]
In estoppel by pais, as related to the party sought to be estopped, it is necessary that there
be a concurrence of the following requisites: (a) conduct amounting to false representation or
concealment of material facts or at least calculated to convey the impression that the facts
are otherwise than, and inconsistent with, those which the party subsequently attempts to
assert; (b) intent, or at least expectation that this conduct shall be acted upon, or at least
influenced by the other party; and (c) knowledge, actual or constructive of the actual facts.
[27]
Estoppel may vary somewhat in definition, but all authorities agree that a party invoking the
doctrine must have been misled to one's prejudice. That is the final and, in reality, most
important of the elements of equitable estoppel.[28] It is this element that is lacking here.
We agree with the CA that Chowking did not make any false representation or concealment of
material facts in relation to the encashments of the previous checks. As adverted to earlier,
respondent may have allowed Manzano to previously encash its checks, but it has always
been accompanied with the endorsements of the other authorized signatories. Respondent
did not allow petitioner to have its checks encashed without the signature of all of its
authorized signatories.
The CA pointed out:
We find at the back of those checks, whereon indorsement usually appears, the signature
of Manzano together with other signature/signatures though mostly are illegible. It appears
then that, assuming the appellant impliedly tolerated the act of Manzano in indorsing the
checks, it did not allow Manzano "alone" to indorse its checks as what actually happened in
this case because his previous indorsements were coupled with other indorsements of the
appellant's signatories. There is, therefore, no sufficient evidence to sustain PSB's submission.
On this score alone, the defense of estoppel must fail.[29] (Underscoring and emphasis
supplied)
Neither can estoppel be appreciated in relation to petitioner itself. In Kalalo v. Luz,[30] the
Court enumerated the elements of estoppel in this wise:
x x x As related to the party claiming the estoppel, the essential elements are (1) lack of
knowledge and of the means of knowledge of the truth as the facts in question; (2) reliance,
in good faith, upon the conduct and statements of the party to be estopped; (3) action or
inaction based thereon of such character as to change the position or status of the party
claiming the estoppel, to his injury, detriment or prejudice.[31]
Here, the first two elements are wanting. Petitioner has knowledge of the truth and the
means to it as to the proper endorsements necessary in encashing respondent's checks.
Respondent has an account with petitioner bank and, as such, is privy to the proper
signatories to endorse respondent's checks.

Neither can petitioner claim good faith.


It is elementary that estoppel cannot be sustained in doubtful inference. Absent the
conclusive proof that its essential elements are present, estoppel must fail. Because estoppel,
when misapplied, becomes a most effective weapon to accomplish an injustice, inasmuch as
it shuts a man's mouth from speaking the truth. [32]
Petitioner failed to prove that it has observed the due diligence required of banks under the
law. Contrary to petitioner's view, its negligence is the proximate cause of respondent's loss.
It cannot be over emphasized that the banking business is impressed with public interest. Of
paramount importance is the trust and confidence of the public in general in the banking
industry. Consequently, the diligence required of banks is more than that of a Roman pater
familias or a good father of a family.[33] The highest degree of diligence is expected.[34]
In its declaration of policy, the General Banking Law of 2000[35] requires of banks the highest
standards of integrity and performance. Needless to say, a bank is "under obligation to treat
the accounts of its depositors with meticulous care.[36] The fiduciary nature of the
relationship between the bank and the depositors must always be of paramount concern.[37]
checks with the lone endorsement of Manzano. In the similar case of Philippine Bank of
Commerce v. Court of Appeals,[38] an employee of Rommel's Marketing Corporation (RMC)
was able to illegally deposit in a different account the checks of the corporation. This Court
found that it was the bank teller's failure to exercise extraordinary diligence to validate the
deposit slips that caused the crime to be perpetrated.
The Court held thus:
Negligence here lies not only on the part of Ms. Mabayad but also on the part of the bank
itself in its lackadaisical selection and supervision of Ms. Mabayad. This was exemplified in
the testimony of Mr. Romeo Bonifacio, then Manager of the Pasig Branch of the petitioner
bank and now its Vice-President, to the effect that, while he ordered the investigation of the
incident, he never came to know that blank deposit slips were validated in total disregard of
the bank's validation procedures, viz.:
Q:
Did he ever tell you that one of your cashiers affixed the stamp mark of the bank on the
deposit slips and they validated the same with the machine, the fact that those deposit slips
were unfilled up, is there any report similar to that?

A:

No, it was not the cashier but the teller.

Q:

The teller validated the blank deposit slip?

A:

No it was not reported.

Q:
You did not know that any one in the bank tellers or cashiers validated the blank
deposit slip?

A:

I am not aware of that.

Q:

It is only now that you are aware of that?

A:

Yes, Sir.

xxxx
It was this negligence x x x coupled by the negligence of the petitioner bank in the
selection and supervision of its bank teller, which was the proximate cause of the loss
suffered by private respondent, and not the latter's act of entrusting cash to a dishonest
employee, as insisted by the petitioners.[39]
Proximate cause is determined by the facts of the case. It is that cause which, in natural and
continuous sequence, unbroken by any efficient intervening cause, produces the injury, and
without which the result would not have occurred.[40]
Measured by the foregoing yardstick, the proximate cause of the loss is not respondent's
alleged negligence in allowing Manzano to take hold and encash respondent's checks. The
proximate cause is petitioner's own negligence in the supervision of its employees when it
overlooked the irregular practice of encashing checks even without the requisite
endorsements.
In Bank of the Philippine Islands v. Casa Montessori Internationale,[41] this Court similarly
held:
For allowing payment on the checks to a wrongful and fictitious payee, BPI - the drawee
bank - becomes liable to its depositor-drawer. Since the encashing bank is one of its
branches, BPI can easily go after it and hold it liable for reimbursement. x x x In both law and
equity, when one of two innocent persons "must suffer by the wrongful act of a third person,
the loss must be borne by the one whose negligence was the proximate cause of the loss or
who put it into the power of the third person to perpetrate the wrong.[42]
Further, the Court ruled:
Pursuant to its prime duty to ascertain well the genuineness of the signatures of its clientdepositors on checks being encashed, BPI is "expected to use reasonable business prudence."

In the performance of that obligation, it is bound by its internal banking rules and regulations
that form part of the contract it enters into with its depositors.
Unfortunately, it failed in that regard. x x x Without exercising the required prudence on its
part, BPI accepted and encashed the eight checks presented to it. As a result, it proximately
contributed to the fraud and should be held primarily liable for the "negligence of its officers
or agents when acting within the course and scope of their employment." It must bear the
loss.[43]
WHEREFORE, the petition is DENIED for lack of merit.
SO ORDERED.
Ynares-Santiago, (Chairperson), Austria-Martinez, Chico-Nazario, and Nachura, JJ., concur.

PHILIPPINE SAVINGS BANK (PSBank) VS. CHOWKING FOOD CORPORATION (Chowking)


G.R. No. 177526, July 04, 2008
Petition for review on certiorari of the Decision of the CA
REYES, R.T., J.:
Facts: The RTC ordered petitioner PSBank and its Bustos Branch Head, Erlinda O. Santos, to
reimburse respondent Chowking the amount corresponding to five (5) illegally encashed
checks. The total amount of the subject checks reached P556,981.86. On the respective due
dates of each check, Chowking's acting accounting manager, Rino T. Manzano, endorsed and
encashed said checks with the Bustos branch of respondent PSBank. All the five checks were
honored by defendant Santos, even with only the endorsement of Manzano approving them.
The signatures of the other authorized officers of respondent corporation were absent in the
five (5) checks, contrary to usual banking practice. Unexpectedly, Manzano absconded with
and misappropriated the check proceeds. When Chowking found out Manzano's scheme, it
demanded reimbursement from PSBank. When PSBank refused to pay, Chowking filed a
complaint for a sum of money with damages before the RTC. In its Answer, petitioner did not
controvert the foregoing facts, but denied liability to respondent for the encashed checks.
RTC rendered judgment in favor of respondent. On motion for reconsideration of the plaintiff,
the RTC reversed its earlier decision and dismissed Chowking's complaint. In its appeal, CA
granted the petition reinstating the first decision of the RTC.
Issue: WON banks' required diligence is that of pater familias.
Ruling: CA decision affirmed. Petition Denied.
It cannot be over emphasized that the banking business is impressed with public interest. Of
paramount importance is the trust and confidence of the public in general in the banking
industry. Consequently, the diligence required of banks is more than that of a Roman pater
familias or a good father of a family. The highest degree of diligence is expected. In its
declaration of policy, the General Banking Law of 2000 requires of banks the highest
standards of integrity and performance. Needless to say, a bank is "under obligation to treat
the accounts of its depositors with meticulous care. The fiduciary nature of the relationship
between the bank and the depositors must always be of paramount concern.
"Art. 2176. Whoever by act or omission causes damage to another, there being fault or
negligence, is obliged to pay for the damage done....Art. 2180. The obligation imposed by Art.

2176 is demandable not only for one's own acts or omissions but also for those of persons for
whom one is responsible.
x x x xEmployers shall be liable for the damage caused by their employees and household
helpers acting within the scope of their assigned tasks even though the former are not
engaged in any business or activity.
x x x xThe responsibility treated of in this article shall cease when the persons herein
mentioned prove that they observed all the diligence of a good father of a family to prevent
damage."x x x
However, with banks like PSB, the degree of diligence required is more than that of a good
father of a family considering that the business of banking is imbued with public interest due
to the nature of its functions. Highest degree of diligence is needed which PSB, in this case,
failed to observe. x x x Its argument that it should no be held responsible for the negligent
acts of Santos because those were independent acts x x x perpetrated without its knowledge
and consent is without basis in fact and in law. Assuming that PSB did not err in hiring Santos
for her position, its lack of supervision over her made it solidarily liable for the unauthorized
encashment of the checks involved. In the supervision of employees, the employer must
formulate standard operating procedures, monitor their implementation and impose
disciplinary measures for the breach thereof. The appellee, in this case, presented no
evidence that it formulated rules/guidelines for the proper performance of functions of its
employees and that it strictly implemented and monitored compliance therewith. x x x
(18) 566 scra 513
G.R. No. 170325

September 26, 2008

PHILIPPINE NATIONAL BANK, Petitioner,


vs.
ERLANDO T. RODRIGUEZ and NORMA RODRIGUEZ, Respondents.
DECISION
REYES, R.T., J.:
WHEN the payee of the check is not intended to be the true recipient of its proceeds, is it
payable to order or bearer? What is the fictitious-payee rule and who is liable under it? Is
there any exception?
These questions seek answers in this petition for review on certiorari of the Amended
Decision1 of the Court of Appeals (CA) which affirmed with modification that of the Regional
Trial Court (RTC).2
The Facts
The facts as borne by the records are as follows:
Respondents-Spouses Erlando and Norma Rodriguez were clients of petitioner Philippine
National Bank (PNB), Amelia Avenue Branch, Cebu City. They maintained savings and
demand/checking accounts, namely, PNBig Demand Deposits (Checking/Current Account No.
810624-6 under the account name Erlando and/or Norma Rodriguez), and PNBig Demand
Deposit (Checking/Current Account No. 810480-4 under the account name Erlando T.
Rodriguez).

The spouses were engaged in the informal lending business. In line with their business, they
had a discounting3 arrangement with the Philnabank Employees Savings and Loan
Association (PEMSLA), an association of PNB employees. Naturally, PEMSLA was likewise a
client of PNB Amelia Avenue Branch. The association maintained current and savings
accounts with petitioner bank.
PEMSLA regularly granted loans to its members. Spouses Rodriguez would rediscount the
postdated checks issued to members whenever the association was short of funds. As was
customary, the spouses would replace the postdated checks with their own checks issued in
the name of the members.
It was PEMSLAs policy not to approve applications for loans of members with outstanding
debts. To subvert this policy, some PEMSLA officers devised a scheme to obtain additional
loans despite their outstanding loan accounts. They took out loans in the names of unknowing
members, without the knowledge or consent of the latter. The PEMSLA checks issued for
these loans were then given to the spouses for rediscounting. The officers carried this out by
forging the indorsement of the named payees in the checks.
In return, the spouses issued their personal checks (Rodriguez checks) in the name of the
members and delivered the checks to an officer of PEMSLA. The PEMSLA checks, on the other
hand, were deposited by the spouses to their account.
Meanwhile, the Rodriguez checks were deposited directly by PEMSLA to its savings account
without any indorsement from the named payees. This was an irregular procedure made
possible through the facilitation of Edmundo Palermo, Jr., treasurer of PEMSLA and bank teller
in the PNB Branch. It appears that this became the usual practice for the parties.
For the period November 1998 to February 1999, the spouses issued sixty nine (69) checks,
in the total amount of P2,345,804.00. These were payable to forty seven (47) individual
payees who were all members of PEMSLA.4
Petitioner PNB eventually found out about these fraudulent acts. To put a stop to this scheme,
PNB closed the current account of PEMSLA. As a result, the PEMSLA checks deposited by the
spouses were returned or dishonored for the reason "Account Closed." The corresponding
Rodriguez checks, however, were deposited as usual to the PEMSLA savings account. The
amounts were duly debited from the Rodriguez account. Thus, because the PEMSLA checks
given as payment were returned, spouses Rodriguez incurred losses from the rediscounting
transactions.
RTC Disposition
Alarmed over the unexpected turn of events, the spouses Rodriguez filed a civil complaint for
damages against PEMSLA, the Multi-Purpose Cooperative of Philnabankers (MCP), and
petitioner PNB. They sought to recover the value of their checks that were deposited to the
PEMSLA savings account amounting to P2,345,804.00. The spouses contended that because
PNB credited the checks to the PEMSLA account even without indorsements, PNB violated its
contractual obligation to them as depositors. PNB paid the wrong payees, hence, it should
bear the loss.
PNB moved to dismiss the complaint on the ground of lack of cause of action. PNB argued
that the claim for damages should come from the payees of the checks, and not from spouses
Rodriguez. Since there was no demand from the said payees, the obligation should be
considered as discharged.

In an Order dated January 12, 2000, the RTC denied PNBs motion to dismiss.
In its Answer,5 PNB claimed it is not liable for the checks which it paid to the PEMSLA account
without any indorsement from the payees. The bank contended that spouses Rodriguez, the
makers, actually did not intend for the named payees to receive the proceeds of the checks.
Consequently, the payees were considered as "fictitious payees" as defined under the
Negotiable Instruments Law (NIL). Being checks made to fictitious payees which are bearer
instruments, the checks were negotiable by mere delivery. PNBs Answer included its crossclaim against its co-defendants PEMSLA and the MCP, praying that in the event that judgment
is rendered against the bank, the cross-defendants should be ordered to reimburse PNB the
amount it shall pay.
After trial, the RTC rendered judgment in favor of spouses Rodriguez (plaintiffs). It ruled that
PNB (defendant) is liable to return the value of the checks. All counterclaims and cross-claims
were dismissed. The dispositive portion of the RTC decision reads:
WHEREFORE, in view of the foregoing, the Court hereby renders judgment, as follows:
1. Defendant is hereby ordered to pay the plaintiffs the total amount of P2,345,804.00 or
reinstate or restore the amount of P775,337.00 in the PNBig Demand Deposit
Checking/Current Account No. 810480-4 of Erlando T. Rodriguez, and the amount of
P1,570,467.00 in the PNBig Demand Deposit, Checking/Current Account No. 810624-6 of
Erlando T. Rodriguez and/or Norma Rodriguez, plus legal rate of interest thereon to be
computed from the filing of this complaint until fully paid;
2. The defendant PNB is hereby ordered to pay the plaintiffs the following reasonable amount
of damages suffered by them taking into consideration the standing of the plaintiffs being
sugarcane planters, realtors, residential subdivision owners, and other businesses:
(a) Consequential damages, unearned income in the amount of P4,000,000.00, as a result of
their having incurred great dificulty (sic) especially in the residential subdivision business,
which was not pushed through and the contractor even threatened to file a case against the
plaintiffs;
(b) Moral damages in the amount of P1,000,000.00;
(c) Exemplary damages in the amount of P500,000.00;
(d) Attorneys fees in the amount of P150,000.00 considering that this case does not involve
very complicated issues; and for the
(e) Costs of suit.
3. Other claims and counterclaims are hereby dismissed.6
CA Disposition
PNB appealed the decision of the trial court to the CA on the principal ground that the
disputed checks should be considered as payable to bearer and not to order.
In a Decision7 dated July 22, 2004, the CA reversed and set aside the RTC disposition. The CA
concluded that the checks were obviously meant by the spouses to be really paid to PEMSLA.
The court a quo declared:

We are not swayed by the contention of the plaintiffs-appellees (Spouses Rodriguez) that
their cause of action arose from the alleged breach of contract by the defendant-appellant
(PNB) when it paid the value of the checks to PEMSLA despite the checks being payable to
order. Rather, we are more convinced by the strong and credible evidence for the defendantappellant with regard to the plaintiffs-appellees and PEMSLAs business arrangement that
the value of the rediscounted checks of the plaintiffs-appellees would be deposited in
PEMSLAs account for payment of the loans it has approved in exchange for PEMSLAs checks
with the full value of the said loans. This is the only obvious explanation as to why all the
disputed sixty-nine (69) checks were in the possession of PEMSLAs errand boy for
presentment to the defendant-appellant that led to this present controversy. It also appears
that the teller who accepted the said checks was PEMSLAs officer, and that such was a
regular practice by the parties until the defendant-appellant discovered the scam. The logical
conclusion, therefore, is that the checks were never meant to be paid to order, but instead, to
PEMSLA. We thus find no breach of contract on the part of the defendant-appellant.
According to plaintiff-appellee Erlando Rodriguez testimony, PEMSLA allegedly issued postdated checks to its qualified members who had applied for loans. However, because of
PEMSLAs insufficiency of funds, PEMSLA approached the plaintiffs-appellees for the latter to
issue rediscounted checks in favor of said applicant members. Based on the investigation of
the defendant-appellant, meanwhile, this arrangement allowed the plaintiffs-appellees to
make a profit by issuing rediscounted checks, while the officers of PEMSLA and other
members would be able to claim their loans, despite the fact that they were disqualified for
one reason or another. They were able to achieve this conspiracy by using other members
who had loaned lesser amounts of money or had not applied at all. x x x.8 (Emphasis added)
The CA found that the checks were bearer instruments, thus they do not require indorsement
for negotiation; and that spouses Rodriguez and PEMSLA conspired with each other to
accomplish this money-making scheme. The payees in the checks were "fictitious payees"
because they were not the intended payees at all.
The spouses Rodriguez moved for reconsideration. They argued, inter alia, that the checks on
their faces were unquestionably payable to order; and that PNB committed a breach of
contract when it paid the value of the checks to PEMSLA without indorsement from the
payees. They also argued that their cause of action is not only against PEMSLA but also
against PNB to recover the value of the checks.
On October 11, 2005, the CA reversed itself via an Amended Decision, the last paragraph and
fallo of which read:
In sum, we rule that the defendant-appellant PNB is liable to the plaintiffs-appellees Sps.
Rodriguez for the following:
1. Actual damages in the amount of P2,345,804 with interest at 6% per annum from 14 May
1999 until fully paid;
2. Moral damages in the amount of P200,000;
3. Attorneys fees in the amount of P100,000; and
4. Costs of suit.
WHEREFORE, in view of the foregoing premises, judgment is hereby rendered by Us
AFFIRMING WITH MODIFICATION the assailed decision rendered in Civil Case No. 99-10892, as
set forth in the immediately next preceding paragraph hereof, and SETTING ASIDE Our
original decision promulgated in this case on 22 July 2004.

SO ORDERED.9
The CA ruled that the checks were payable to order. According to the appellate court, PNB
failed to present sufficient proof to defeat the claim of the spouses Rodriguez that they really
intended the checks to be received by the specified payees. Thus, PNB is liable for the value
of the checks which it paid to PEMSLA without indorsements from the named payees. The
award for damages was deemed appropriate in view of the failure of PNB to treat the
Rodriguez account with the highest degree of care considering the fiduciary nature of their
relationship, which constrained respondents to seek legal action.
Hence, the present recourse under Rule 45.
Issues
The issues may be compressed to whether the subject checks are payable to order or to
bearer and who bears the loss?
PNB argues anew that when the spouses Rodriguez issued the disputed checks, they did not
intend for the named payees to receive the proceeds. Thus, they are bearer instruments that
could be validly negotiated by mere delivery. Further, testimonial and documentary evidence
presented during trial amply proved that spouses Rodriguez and the officers of PEMSLA
conspired with each other to defraud the bank.
Our Ruling
Prefatorily, amendment of decisions is more acceptable than an erroneous judgment attaining
finality to the prejudice of innocent parties. A court discovering an erroneous judgment before
it becomes final may, motu proprio or upon motion of the parties, correct its judgment with
the singular objective of achieving justice for the litigants.10
However, a word of caution to lower courts, the CA in Cebu in this particular case, is in order.
The Court does not sanction careless disposition of cases by courts of justice. The highest
degree of diligence must go into the study of every controversy submitted for decision by
litigants. Every issue and factual detail must be closely scrutinized and analyzed, and all the
applicable laws judiciously studied, before the promulgation of every judgment by the court.
Only in this manner will errors in judgments be avoided.
Now to the core of the petition.
As a rule, when the payee is fictitious or not intended to be the true recipient of the proceeds,
the check is considered as a bearer instrument. A check is "a bill of exchange drawn on a
bank payable on demand."11 It is either an order or a bearer instrument. Sections 8 and 9 of
the NIL states:
SEC. 8. When payable to order. The instrument is payable to order where it is drawn
payable to the order of a specified person or to him or his order. It may be drawn payable to
the order of
(a) A payee who is not maker, drawer, or drawee; or
(b) The drawer or maker; or
(c) The drawee; or

(d) Two or more payees jointly; or


(e) One or some of several payees; or
(f) The holder of an office for the time being.
Where the instrument is payable to order, the payee must be named or otherwise indicated
therein with reasonable certainty.
SEC. 9. When payable to bearer. The instrument is payable to bearer
(a) When it is expressed to be so payable; or
(b) When it is payable to a person named therein or bearer; or
(c) When it is payable to the order of a fictitious or non-existing person, and such fact is
known to the person making it so payable; or
(d) When the name of the payee does not purport to be the name of any person; or
(e) Where the only or last indorsement is an indorsement in blank.12 (Underscoring supplied)
The distinction between bearer and order instruments lies in their manner of negotiation.
Under Section 30 of the NIL, an order instrument requires an indorsement from the payee or
holder before it may be validly negotiated. A bearer instrument, on the other hand, does not
require an indorsement to be validly negotiated. It is negotiable by mere delivery. The
provision reads:
SEC. 30. What constitutes negotiation. An instrument is negotiated when it is transferred
from one person to another in such manner as to constitute the transferee the holder thereof.
If payable to bearer, it is negotiated by delivery; if payable to order, it is negotiated by the
indorsement of the holder completed by delivery.
A check that is payable to a specified payee is an order instrument. However, under Section
9(c) of the NIL, a check payable to a specified payee may nevertheless be considered as a
bearer instrument if it is payable to the order of a fictitious or non-existing person, and such
fact is known to the person making it so payable. Thus, checks issued to "Prinsipe Abante" or
"Si Malakas at si Maganda," who are well-known characters in Philippine mythology, are
bearer instruments because the named payees are fictitious and non-existent.
We have yet to discuss a broader meaning of the term "fictitious" as used in the NIL. It is for
this reason that We look elsewhere for guidance. Court rulings in the United States are a
logical starting point since our law on negotiable instruments was directly lifted from the
Uniform Negotiable Instruments Law of the United States.13
A review of US jurisprudence yields that an actual, existing, and living payee may also be
"fictitious" if the maker of the check did not intend for the payee to in fact receive the
proceeds of the check. This usually occurs when the maker places a name of an existing
payee on the check for convenience or to cover up an illegal activity.14 Thus, a check made
expressly payable to a non-fictitious and existing person is not necessarily an order
instrument. If the payee is not the intended recipient of the proceeds of the check, the payee
is considered a "fictitious" payee and the check is a bearer instrument.
In a fictitious-payee situation, the drawee bank is absolved from liability and the drawer bears
the loss. When faced with a check payable to a fictitious payee, it is treated as a bearer

instrument that can be negotiated by delivery. The underlying theory is that one cannot
expect a fictitious payee to negotiate the check by placing his indorsement thereon. And
since the maker knew this limitation, he must have intended for the instrument to be
negotiated by mere delivery. Thus, in case of controversy, the drawer of the check will bear
the loss. This rule is justified for otherwise, it will be most convenient for the maker who
desires to escape payment of the check to always deny the validity of the indorsement. This
despite the fact that the fictitious payee was purposely named without any intention that the
payee should receive the proceeds of the check.15
The fictitious-payee rule is best illustrated in Mueller & Martin v. Liberty Insurance Bank.16 In
the said case, the corporation Mueller & Martin was defrauded by George L. Martin, one of its
authorized signatories. Martin drew seven checks payable to the German Savings Fund
Company Building Association (GSFCBA) amounting to $2,972.50 against the account of the
corporation without authority from the latter. Martin was also an officer of the GSFCBA but did
not have signing authority. At the back of the checks, Martin placed the rubber stamp of the
GSFCBA and signed his own name as indorsement. He then successfully drew the funds from
Liberty Insurance Bank for his own personal profit. When the corporation filed an action
against the bank to recover the amount of the checks, the claim was denied.
The US Supreme Court held in Mueller that when the person making the check so payable did
not intend for the specified payee to have any part in the transactions, the payee is
considered as a fictitious payee. The check is then considered as a bearer instrument to be
validly negotiated by mere delivery. Thus, the US Supreme Court held that Liberty Insurance
Bank, as drawee, was authorized to make payment to the bearer of the check, regardless of
whether prior indorsements were genuine or not.17
The more recent Getty Petroleum Corp. v. American Express Travel Related Services
Company, Inc.18 upheld the fictitious-payee rule. The rule protects the depositary bank and
assigns the loss to the drawer of the check who was in a better position to prevent the loss in
the first place. Due care is not even required from the drawee or depositary bank in accepting
and paying the checks. The effect is that a showing of negligence on the part of the
depositary bank will not defeat the protection that is derived from this rule.
However, there is a commercial bad faith exception to the fictitious-payee rule. A showing of
commercial bad faith on the part of the drawee bank, or any transferee of the check for that
matter, will work to strip it of this defense. The exception will cause it to bear the loss.
Commercial bad faith is present if the transferee of the check acts dishonestly, and is a party
to the fraudulent scheme. Said the US Supreme Court in Getty:
Consequently, a transferees lapse of wary vigilance, disregard of suspicious circumstances
which might have well induced a prudent banker to investigate and other permutations of
negligence are not relevant considerations under Section 3-405 x x x. Rather, there is a
"commercial bad faith" exception to UCC 3-405, applicable when the transferee "acts
dishonestly where it has actual knowledge of facts and circumstances that amount to bad
faith, thus itself becoming a participant in a fraudulent scheme. x x x Such a test finds
support in the text of the Code, which omits a standard of care requirement from UCC 3-405
but imposes on all parties an obligation to act with "honesty in fact." x x x19 (Emphasis
added)
Getty also laid the principle that the fictitious-payee rule extends protection even to non-bank
transferees of the checks.
In the case under review, the Rodriguez checks were payable to specified payees. It is
unrefuted that the 69 checks were payable to specific persons. Likewise, it is uncontroverted

that the payees were actual, existing, and living persons who were members of PEMSLA that
had a rediscounting arrangement with spouses Rodriguez.
What remains to be determined is if the payees, though existing persons, were "fictitious" in
its broader context.
For the fictitious-payee rule to be available as a defense, PNB must show that the makers did
not intend for the named payees to be part of the transaction involving the checks. At most,
the banks thesis shows that the payees did not have knowledge of the existence of the
checks. This lack of knowledge on the part of the payees, however, was not tantamount to a
lack of intention on the part of respondents-spouses that the payees would not receive the
checks proceeds. Considering that respondents-spouses were transacting with PEMSLA and
not the individual payees, it is understandable that they relied on the information given by
the officers of PEMSLA that the payees would be receiving the checks.
Verily, the subject checks are presumed order instruments. This is because, as found by both
lower courts, PNB failed to present sufficient evidence to defeat the claim of respondentsspouses that the named payees were the intended recipients of the checks proceeds. The
bank failed to satisfy a requisite condition of a fictitious-payee situation that the maker of
the check intended for the payee to have no interest in the transaction.
Because of a failure to show that the payees were "fictitious" in its broader sense, the
fictitious-payee rule does not apply. Thus, the checks are to be deemed payable to order.
Consequently, the drawee bank bears the loss.20
PNB was remiss in its duty as the drawee bank. It does not dispute the fact that its teller or
tellers accepted the 69 checks for deposit to the PEMSLA account even without any
indorsement from the named payees. It bears stressing that order instruments can only be
negotiated with a valid indorsement.
A bank that regularly processes checks that are neither payable to the customer nor duly
indorsed by the payee is apparently grossly negligent in its operations.21 This Court has
recognized the unique public interest possessed by the banking industry and the need for the
people to have full trust and confidence in their banks.22 For this reason, banks are minded
to treat their customers accounts with utmost care, confidence, and honesty.23
In a checking transaction, the drawee bank has the duty to verify the genuineness of the
signature of the drawer and to pay the check strictly in accordance with the drawers
instructions, i.e., to the named payee in the check. It should charge to the drawers accounts
only the payables authorized by the latter. Otherwise, the drawee will be violating the
instructions of the drawer and it shall be liable for the amount charged to the drawers
account.24
In the case at bar, respondents-spouses were the banks depositors. The checks were drawn
against respondents-spouses accounts. PNB, as the drawee bank, had the responsibility to
ascertain the regularity of the indorsements, and the genuineness of the signatures on the
checks before accepting them for deposit. Lastly, PNB was obligated to pay the checks in
strict accordance with the instructions of the drawers. Petitioner miserably failed to discharge
this burden.
The checks were presented to PNB for deposit by a representative of PEMSLA absent any type
of indorsement, forged or otherwise. The facts clearly show that the bank did not pay the
checks in strict accordance with the instructions of the drawers, respondents-spouses.
Instead, it paid the values of the checks not to the named payees or their order, but to
PEMSLA, a third party to the transaction between the drawers and the payees.alf-ITC

Moreover, PNB was negligent in the selection and supervision of its employees. The
trustworthiness of bank employees is indispensable to maintain the stability of the banking
industry. Thus, banks are enjoined to be extra vigilant in the management and supervision of
their employees. In Bank of the Philippine Islands v. Court of Appeals,25 this Court cautioned
thus:
Banks handle daily transactions involving millions of pesos. By the very nature of their work
the degree of responsibility, care and trustworthiness expected of their employees and
officials is far greater than those of ordinary clerks and employees. For obvious reasons, the
banks are expected to exercise the highest degree of diligence in the selection and
supervision of their employees.26
PNBs tellers and officers, in violation of banking rules of procedure, permitted the invalid
deposits of checks to the PEMSLA account. Indeed, when it is the gross negligence of the
bank employees that caused the loss, the bank should be held liable.27
PNBs argument that there is no loss to compensate since no demand for payment has been
made by the payees must also fail. Damage was caused to respondents-spouses when the
PEMSLA checks they deposited were returned for the reason "Account Closed." These PEMSLA
checks were the corresponding payments to the Rodriguez checks. Since they could not
encash the PEMSLA checks, respondents-spouses were unable to collect payments for the
amounts they had advanced.
A bank that has been remiss in its duty must suffer the consequences of its negligence. Being
issued to named payees, PNB was duty-bound by law and by banking rules and procedure to
require that the checks be properly indorsed before accepting them for deposit and payment.
In fine, PNB should be held liable for the amounts of the checks.
One Last Note
We note that the RTC failed to thresh out the merits of PNBs cross-claim against its codefendants PEMSLA and MPC. The records are bereft of any pleading filed by these two
defendants in answer to the complaint of respondents-spouses and cross-claim of PNB. The
Rules expressly provide that failure to file an answer is a ground for a declaration that
defendant is in default.28 Yet, the RTC failed to sanction the failure of both PEMSLA and MPC
to file responsive pleadings. Verily, the RTC dismissal of PNBs cross-claim has no basis. Thus,
this judgment shall be without prejudice to whatever action the bank might take against its
co-defendants in the trial court.
To PNBs credit, it became involved in the controversial transaction not of its own volition but
due to the actions of some of its employees. Considering that moral damages must be
understood to be in concept of grants, not punitive or corrective in nature, We resolve to
reduce the award of moral damages to P50,000.00.29
WHEREFORE, the appealed Amended Decision is AFFIRMED with the MODIFICATION that the
award for moral damages is reduced to P50,000.00, and that this is without prejudice to
whatever civil, criminal, or administrative action PNB might take against PEMSLA, MPC, and
the employees involved.
SO ORDERED.
RUBEN T. REYES
Associate Justice

28 Rules of Civil Procedure, Rule 9, Sec. 3. Default: declaration of. If the defending party
fails to answer within the time allowed therefor, the court shall, upon motion of the claiming
party with notice to the defending party, and proof of such failure, declare the defending
party in default. Thereupon, the court shall proceed to render judgment granting the claimant
such relief as his pleading may warrant, unless the court in its discretion requires the
claimant to submit evidence. Such reception of evidence may be delegated to the clerk of
court.

(19) 578 scra 27


G.R. No. 141835

February 4, 2009

CENTRAL BANK OF THE PHILIPPINES, Petitioner,


vs.
CITYTRUST BANKING CORPORATION, Respondent.
DECISION
CARPIO MORALES, J.:
Pursuant to Republic Act No. 625, the old Central Bank Law, respondent Citytrust Banking
Corporation (Citytrust), formerly Feati Bank, maintained a demand deposit account with
petitioner Central Bank of the Philippines, now Bangko Sentral ng Pilipinas.
As required, Citytrust furnished petitioner with the names and corresponding signatures of
five of its officers authorized to sign checks and serve as drawers and indorsers for its
account. And it provided petitioner with the list and corresponding signatures of its roving
tellers authorized to withdraw, sign receipts and perform other transactions on its behalf.
Petitioner later issued security identification cards to the roving tellers one of whom was
"Rounceval Flores" (Flores).
On July 15, 1977, Flores presented for payment to petitioners Senior Teller Iluminada dela
Cruz (Iluminada) two Citytrust checks of even date, payable to Citytrust, one in the amount of
P850,000 and the other in the amount of P900,000, both of which were signed and indorsed
by Citytrusts authorized signatory-drawers.
After the checks were certified by petitioners Accounting Department, Iluminada verified
them, prepared the cash transfer slip on which she affixed her signature, stamped the checks
with the notation "Received Payment" and asked Flores to, as he did, sign on the space above
such notation. Instead of signing his name, however, Flores signed as "Rosauro C. Cayabyab"
a fact Iluminada failed to notice.1avvphi1
Iluminada thereupon sent the cash transfer slip and checks to petitioners Cash Department
where an officer verified and compared the drawers signatures on the checks against their
specimen signatures provided by Citytrust, and finding the same in order, approved the cash

transfer slip and paid the corresponding amounts to Flores. Petitioner then debited the
amount of the checks totaling P1,750,000 from Citytrusts demand deposit account.
More than a year and nine months later, Citytrust, by letter dated April 23, 1979, alleging that
the checks were already cancelled because they were stolen, demanded petitioner to restore
the amounts covered thereby to its demand deposit account. Petitioner did not heed the
demand, however.
Citytrust later filed a complaint for estafa, with reservation on the filing of a separate civil
action, against Flores. Flores was convicted.
Citytrust thereafter filed before the Regional Trial Court (RTC) of Manila a complaint for
recovery of sum of money with damages against petitioner which it alleged erred in
encashing the checks and in charging the proceeds thereof to its account, despite the lack of
authority of "Rosauro C. Cayabyab."
By Decision1 of November 13, 1991, Branch 32 of the RTC of Manila found both Citytrust and
petitioner negligent and accordingly held them equally liable for the loss. Both parties
appealed to the Court of Appeals which, by Decision2 dated July 16, 1999, affirmed the trial
courts decision, it holding that both parties contributed equally to the fraudulent encashment
of the checks, hence, they should equally share the loss in consonance with Article 21793 vis
a vis Article 11724 of the Civil Code.
In arriving at its Decision, the appellate court noted that while "Citytrust failed to take
adequate precautionary measures to prevent the fraudulent encashment of its checks,"
petitioner was not entirely blame-free in light of its failure to verify the signature of Citytrusts
agent authorized to receive payment.
Brushing aside petitioners contention that it cannot be sued, the appellate court held that
petitioners Charter specifically clothes it with the power to sue and be sued.
Also brushing aside petitioners assertion that Citytrusts reservation of the filing of a
separate civil action against Flores precluded Citytrust from filing the civil action against it,
the appellate court held that the "action for the recovery of sum of money is separate and
distinct and is grounded on a separate cause of action from that of the criminal case for
estafa."
Hence, the present appeal, petitioner maintaining that Flores having been an authorized
roving teller, Citytrust is bound by his acts. Also maintaining that it was not negligent in
releasing the proceeds of the checks to Flores, the failure of its teller to properly verify his
signature notwithstanding, petitioner contends that verification could be dispensed with,
Flores having been known to be an authorized roving teller of Citytrust who had had
numerous transactions with it (petitioner) on its (Citytrusts) behalf for five years prior to the
questioned transaction.
Attributing negligence solely to Citytrust, petitioner harps on Citytrusts allowing Flores to
steal the checks and failing to timely cancel them; allowing Flores to wear the issued
identification card issued by it (petitioner); failing to report Flores absence from work on the
day of the incident; and failing to explain the circumstances surrounding the supposed theft
and cancellation of the checks.
Drawing attention to Citytrusts considerable delay in demanding the restoration of the
proceeds of the checks, petitioners argue that, assuming arguendo that its teller was
negligent, Citytrusts negligence, which preceded that committed by the teller, was the
proximate cause of the loss or fraud.

The petition is bereft of merit.


Petitioners teller Iluminada did not verify Flores signature on the flimsy excuse that Flores
had had previous transactions with it for a number of years. That circumstance did not excuse
the teller from focusing attention to or at least glancing at Flores as he was signing, and to
satisfy herself that the signature he had just affixed matched that of his specimen signature.
Had she done that, she would have readily been put on notice that Flores was affixing, not his
but a fictitious signature.
Given that petitioner is the government body mandated to supervise and regulate banking
and other financial institutions, this Courts ruling in Consolidated Bank and Trust Corporation
v. Court of Appeals5 illumines:
The contract between the bank and its depositor is governed by the provisions of the Civil
Code on simple loan. Article 1980 of the Civil Code expressly provides that "x x x savings x x
x deposits of money in banks and similar institutions shall be governed by the provisions
concerning simple loan." There is a debtor-creditor relationship between the bank and its
depositor. The bank is the debtor and the depositor is the creditor. The depositor lends the
bank money and the bank agrees to pay the depositor on demand. The savings deposit
agreement between the bank and the depositor is the contract that determines the rights and
obligations of the parties.
The law imposes on banks high standards in view of the fiduciary nature of banking. Section 2
of Republic Act No. 8791 ("RA 8791"), which took effect on 13 June 2000, declares that the
State recognizes the "fiduciary nature of banking that requires high standards of integrity and
performance." This new provision in the general banking law, introduced in 2000, is a
statutory affirmation of Supreme Court decisions, starting with the 1990 case of Simex
International v. Court of Appeals, holding that "the bank is under obligation to treat the
accounts of its depositors with meticulous care, always having in mind the fiduciary nature of
their relationship."
This fiduciary relationship means that the banks obligation to observe "high standards of
integrity and performance" is deemed written into every deposit agreement between a bank
and its depositor. The fiduciary nature of banking requires banks to assume a degree of
diligence higher than that of a good father of a family. Article 1172 of the Civil Code states
that the degree of diligence required of an obligor is that prescribed by law or contract, and
absent such stipulation then the diligence of a good father of a family. Section 2 of RA 8791
prescribes the statutory diligence required from banks that banks must observe "high
standards of integrity and performance" in servicing their depositors. Although RA 8791 took
effect almost nine years after the unauthorized withdrawal of the P300,000 from L.C. Diazs
savings account, jurisprudence at the time of the withdrawal already imposed on banks the
same high standard of diligence required under RA No. 8791. (Emphasis supplied)
Citytrusts failure to timely examine its account, cancel the checks and notify petitioner of
their alleged loss/theft should mitigate petitioners liability, in accordance with Article 2179 of
the Civil Code which provides that if the plaintiffs negligence was only contributory, the
immediate and proximate cause of the injury being the defendants lack of due care, the
plaintiff may recover damages, but the courts shall mitigate the damages to be awarded. For
had Citytrust timely discovered the loss/theft and/or subsequent encashment, their proceeds
or part thereof could have been recovered.
In line with the ruling in Consolidated Bank, the Court deems it proper to allocate the loss
between petitioner and Citytrust on a 60-40 ratio.

WHEREFORE, the assailed Court of Appeals Decision of July 16, 1999 is hereby AFFIRMED with
MODIFICATION, in that petitioner and Citytrust should bear the loss on a 60-40 ratio.
SO ORDERED.
CONCHITA CARPIO MORALES*
Associate Justice
Acting Chairperson
WE CONCUR:
DANTE O. TINGA
Associate Justice
PRESBITERO J. VELASCO, JR.
Associate Justice ANTONIO EDUARDO B. NACHURA**
Associate Justice
ARTURO D. BRION
Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the
above decision had been reached in consultation before the case was assigned to the writer
of the opinion of the Courts Division.
REYNATO S. PUNO
Chief Justice
Footnotes
* Acting Chairperson in lieu of Justice Leonardo A. Quisumbing who inhibited himself from the
case due to close relation to a party, per Raffle dated January 26, 2009.
** Additional member per Raffle dated January 26, 2009.
1 CA rollo, pp. 160-172. Penned by Assisting Judge Benjamin P. Martinez.
2 Id. at 287-300. Penned by Associate Justice Oswaldo D. Agcaoili and concurred in by
Associate Justices Corona Ibay-Somera and Andres B. Reyes, Jr.
3 Art. 2179. When the plaintiffs own negligence was the immediate and proximate cause of
his injury, he cannot recover damages. But if his negligence was only contributory, the
immediate and proximate cause of the injury being the defendants lack of due care, the
plaintiff may recover damages, but the courts shall mitigate the damages to be awarded.
4 Art. 1172. Responsibility arising from negligence in the performance of every kind of
obligation is also demandable, but such liability may be regulated by the courts, according to
the circumstances.
5 G.R. No. 138569, September 11, 2003, 410 SCRA 562, 574-575.

(20) 588 scra 51


G.R. No. 141001

May 21, 2009

BANK OF AMERICA, NT & SA, Petitioner,


vs.
ASSOCIATED CITIZENS BANK, BA-FINANCE CORPORATION, MILLER OFFSET PRESS, INC., UY
KIAT CHUNG, CHING UY SENG, UY CHUNG GUAN SENG, and COURT OF APPEALS,
Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 141018

May 21, 2009

ASSOCIATED CITIZENS BANK (now UNITED OVERSEAS BANK PHILS.), Petitioner,


vs.
BA-FINANCE CORPORATION, MILLER OFFSET PRESS, INC., UY KIAT CHUNG, CHING UY SENG,
UY CHUNG GUAN SENG, and BANK OF AMERICA, NT & SA, Respondents.
DECISION
CARPIO, J.:

The Case
Before the Court are consolidated cases docketed as G.R. No. 141001 and G.R. No. 141018.
These two cases are petitions for review on certiorari1 of the Decision2 dated 26 February
1999 and the Resolution dated 6 December 1999 of the Court of Appeals in CA-G.R. CV No.
48821. The Court of Appeals affirmed with modifications the Decision of the Regional Trial
Court of Makati, Branch 64 (RTC).
The Antecedent Facts
On 6 October 1978, BA-Finance Corporation (BA-Finance) entered into a transaction with
Miller Offset Press, Inc. (Miller), through the latters authorized representatives, i.e., Uy Kiat
Chung, Ching Uy Seng, and Uy Chung Guan Seng. BA-Finance granted Miller a credit line
facility through which the latter could assign or discount its trade receivables with the former.
On 20 October 1978, Uy Kiat Chung, Ching Uy Seng, and Uy Chung Guan Seng executed a
Continuing Suretyship Agreement with BA-Finance whereby they jointly and severally
guaranteed the full and prompt payment of any and all indebtedness which Miller may incur
with BA-Finance.
Miller discounted and assigned several trade receivables to BA-Finance by executing Deeds of
Assignment in favor of the latter. In consideration of the assignment, BA-Finance issued four
checks payable to the "Order of Miller Offset Press, Inc." with the notation "For Payees
Account Only." These checks were drawn against Bank of America and had the following
details:3
Check No. Date Amount
128274
13 February 1981 P222,363.33
129067
26 February 1981 252,551.16
132133
20 April 1981
206,450.57
133057
7 May 1981 59,862.72
Total P741,227.78
The four checks were deposited by Ching Uy Seng (a.k.a. Robert Ching), then the corporate
secretary of Miller, in Account No. 989 in Associated Citizens Bank (Associated Bank). Account
No. 989 is a joint bank account under the names of Ching Uy Seng and Uy Chung Guan Seng.
Associated Bank stamped the checks with the notation "all prior endorsements and/or lack of
endorsements guaranteed," and sent them through clearing. Later, the drawee bank, Bank of
America, honored the checks and paid the proceeds to Associated Bank as the collecting
bank.
Miller failed to deliver to BA-Finance the proceeds of the assigned trade receivables.
Consequently, BA-Finance filed a Complaint against Miller for collection of the amount of
P731,329.63 which BA-Finance allegedly paid in consideration of the assignment, plus interest
at the rate of 16% per annum and penalty charges.4 Likewise impleaded as party defendants
in the collection case were Uy Kiat Chung, Ching Uy Seng, and Uy Chung Guan Seng.
Miller, Uy Kiat Chung, and Uy Chung Guan Seng filed a Joint Answer (to the BA-Finances
Complaint) with Cross-Claim against Ching Uy Seng, wherein they denied that (1) they
received the amount covered by the four Bank of America checks, and (2) they authorized
their co-defendant Ching Uy Seng to transact business with BA-Finance on behalf of Miller. Uy
Kiat Chung and Uy Chung Guan Seng also denied having signed the Continuing Suretyship
Agreement with BA-Finance. In view thereof, BA-Finance filed an Amended Complaint
impleading Bank of America as additional defendant for allegedly allowing encashment and

collection of the checks by person or persons other than the payee named thereon. Ching Uy
Seng, on the other hand, did not file his Answer to the complaint.
Bank of America filed a Third Party Complaint against Associated Bank. In its Answer to the
Third Party Complaint, Associated Bank admitted having received the four checks for deposit
in the joint account of Ching Uy Seng (a.k.a. Robert Ching) and Uy Chung Guan Seng, but
alleged that Robert Ching, being one of the corporate officers of Miller, was duly authorized to
act for and on behalf of Miller.
On 28 September 1994, the RTC rendered a Decision, the dispositive portion of which reads:
WHEREFORE, in view of the foregoing, judgment is hereby rendered against defendant Bank
of America to pay plaintiff BA Finance Corporation the sum of P741,277.78, the value of the
four (4) checks subject matter of this case, with legal interest thereon from the time of the
filing of this complaint until payment is made and attorneys fees corresponding to 15% of the
amount due and to pay the costs of the suit.
Judgment is likewise rendered ordering the third-party defendant Associated Citizens Bank to
reimburse Bank of America, the defendant third-party plaintiff, of the aforestated amount.
SO ORDERED.5
The Court of Appeals Ruling
On appeal, the Court of Appeals rendered judgment,6 affirming with modifications the
decision of the RTC, thus:
WHEREFORE, judgment is hereby rendered, as follows:
(1) Defendant and third-party plaintiff-appellant, Bank of America, NT & SA, is ordered to pay
plaintiff-appellee BA-Finance Corporation the sum of P741,277.78, with legal interest thereon
from the time of the filing of the complaint until the whole amount is fully paid;
(2) Third-party defendant-appellant Associated Citizens Bank is likewise ordered to reimburse
Bank of America the aforestated amount;
(3) Defendants Ching Uy Seng and/or Uy Chung Guan Seng are also ordered to pay
Associated Citizens Bank the aforestated amount; and
(4) The award of attorneys fees is ordered deleted.
SO ORDERED.7
Associated Bank and Bank of America filed their respective Motions for Reconsideration, but
these were denied by the Court of Appeals in its Resolution of 6 December 1999.8
Hence, these petitions.
The Issue
The issues raised in these consolidated cases may be summarized as follows:
Whether the Court of Appeals erred in rendering judgment finding (1) Bank of America liable
to pay BA-Finance the amount of the four checks; (2) Associated Bank liable to reimburse

Bank of America the amount of the four checks; and (3) Ching Uy Seng and/or Uy Chung Guan
Seng liable to pay Associated Bank the amount of the four checks.
The Courts Ruling
We find the petitions unmeritorious.
The Court of Appeals did not err in finding Bank of America
liable to pay BA-Finance the amount of the four checks.
Bank of America denies liability for paying the amount of the four checks issued by BAFinance to Miller, alleging that it (Bank of America) relied on the stamps made by Associated
Bank stating that "all prior endorsement and/or lack of endorsement guaranteed," through
which Associated Bank assumed the liability of a general endorser under Section 66 of the
Negotiable Instruments Law. Moreover, Bank of America contends that the proximate cause
of BA-Finances injury, if any, is the gross negligence of Associated Bank which allowed Ching
Uy Seng (Robert Ching) to deposit the four checks issued to Miller in the personal joint bank
account of Ching Uy Seng and Uy Chung Guan Seng.
We are not convinced.
The bank on which a check is drawn, known as the drawee bank, is under strict liability, based
on the contract between the bank and its customer (drawer), to pay the check only to the
payee or the payees order. The drawers instructions are reflected on the face and by the
terms of the check. When the drawee bank pays a person other than the payee named on the
check, it does not comply with the terms of the check and violates its duty to charge the
drawers account only for properly payable items.9 Thus, we ruled in Philippine National Bank
v. Rodriguez10 that a drawee should charge to the drawers accounts only the payables
authorized by the latter; otherwise, the drawee will be violating the instructions of the drawer
and shall be liable for the amount charged to the drawers account.
Among the different types of checks issued by a drawer is the crossed check. The Negotiable
Instruments Law is silent with respect to crossed checks, although the Code of Commerce11
makes reference to such instruments.12 This Court has taken judicial cognizance of the
practice that a check with two parallel lines in the upper left hand corner means that it could
only be deposited and could not be converted into cash.13 Thus, the effect of crossing a
check relates to the mode of payment, meaning that the drawer had intended the check for
deposit only by the rightful person, i.e., the payee named therein.14 The crossing may be
"special" wherein between the two parallel lines is written the name of a bank or a business
institution, in which case the drawee should pay only with the intervention of that bank or
company, or "general" wherein between two parallel diagonal lines are written the words
"and Co." or none at all, in which case the drawee should not encash the same but merely
accept the same for deposit.15 In Bataan Cigar v. Court of Appeals,16 we enumerated the
effects of crossing a check as follows: (a) the check may not be encashed but only deposited
in the bank; (b) the check may be negotiated only once to one who has an account with a
bank; and (c) the act of crossing the check serves as a warning to the holder that the check
has been issued for a definite purpose so that he must inquire if he has received the check
pursuant to that purpose; otherwise, he is not a holder in due course.17
In this case, the four checks were drawn by BA-Finance and made payable to the "Order of
Miller Offset Press, Inc." The checks were also crossed and issued "For Payees Account Only."
Clearly, the drawer intended the check for deposit only by Miller Offset Press, Inc. in the
latters bank account. Thus, when a person other than Miller, i.e., Ching Uy Seng, a.k.a.
Robert Ching, presented and deposited the checks in his own personal account (Ching Uy
Sengs joint account with Uy Chung Guan Seng), and the drawee bank, Bank of America, paid

the value of the checks and charged BA-Finances account therefor, the drawee Bank of
America is deemed to have violated the instructions of the drawer, and therefore, is liable for
the amount charged to the drawers account.
The Court of Appeals did not err in finding Associated Bank liable to reimburse Bank of
America the amount of the four checks.
A collecting bank where a check is deposited, and which endorses the check upon
presentment with the drawee bank, is an endorser.18 Under Section 66 of the Negotiable
Instruments Law, an endorser warrants "that the instrument is genuine and in all respects
what it purports to be; that he has good title to it; that all prior parties had capacity to
contract; and that the instrument is at the time of his endorsement valid and subsisting." This
Court has repeatedly held that in check transactions, the collecting bank or last endorser
generally suffers the loss because it has the duty to ascertain the genuineness of all prior
endorsements considering that the act of presenting the check for payment to the drawee is
an assertion that the party making the presentment has done its duty to ascertain the
genuineness of the endorsements.19
When Associated Bank stamped the back of the four checks with the phrase "all prior
endorsements and/or lack of endorsement guaranteed," that bank had for all intents and
purposes treated the checks as negotiable instruments and, accordingly, assumed the
warranty of an endorser. Being so, Associated Bank cannot deny liability on the checks. In
Banco de Oro Savings and Mortgage Bank v. Equitable Banking Corporation,20 we held that:
x x x the law imposes a duty of diligence on the collecting bank to scrutinize checks deposited
with it for the purpose of determining their genuineness and regularity. The collecting bank
being primarily engaged in banking holds itself out to the public as the expert and the law
holds it to a high standard of conduct. x x x In presenting the checks for clearing and for
payment, the defendant [collecting bank] made an express guarantee on the validity of "all
prior endorsements." Thus, stamped at the back of the checks are the defendants clear
warranty: ALL PRIOR ENDORSEMENTS AND/OR LACK OF ENDORSEMENTS GUARANTEED.
Without such warranty, plaintiff [drawee] would not have paid on the checks. No amount of
legal jargon can reverse the clear meaning of defendants warranty. As the warranty has
proven to be false and inaccurate, the defendant is liable for any damage arising out of the
falsity of its representation.
Associated Bank was also clearly negligent in disregarding established banking rules and
regulations by allowing the four checks to be presented by, and deposited in the personal
bank account of, a person who was not the payee named in the checks. The checks were
issued to the "Order of Miller Offset Press, Inc.," but were deposited, and paid by Associated
Bank, to the personal joint account of Ching Uy Seng (a.k.a. Robert Ching) and Uy Chung
Guan Seng. It could not have escaped Associated Banks attention that the payee of the
checks is a corporation while the person who deposited the checks in his own account is an
individual. Verily, when the bank allowed its client to collect on crossed checks issued in the
name of another, the bank is guilty of negligence.21 As ruled by this Court in Jai-Alai
Corporation of the Philippines v. Bank of the Philippine Islands,22 one who accepts and
encashes a check from an individual knowing that the payee is a corporation does so at his
peril. Accordingly, we hold that Associated Bank is liable for the amount of the four checks
and should reimburse the amount of the checks to Bank of America.
The Court of Appeals did not err in finding Ching Uy Seng
and/or Uy Chung Guan Seng liable to pay Associated
Bank the amount of the four checks.

It is well-settled that a person who had not given value for the money paid to him has no right
to retain the money he received.23 This Court, therefore, quotes with approval the ruling of
the Court of Appeals in its decision:
It appearing, however, from the evidence on record that since Ching Uy Seng and/or Uy
Chung Guan Seng received the proceeds of the checks as they were deposited in their
personal joint account with Associated Bank, they should, therefore, be obliged to reimburse
Associated Bank for the amount it has to pay to Bank of America, in line with the rule that no
person should be allowed to unjustly enrich himself at the expense of another.241avvphi1
As regards the trial courts grant of attorneys fees to BA-Finance, the Court of Appeals found
that there was no sufficient justification therefor; hence, the deletion of the award is proper.
An award of attorneys fees necessitates a factual, legal, or equitable justification. Without
such justification, the award is a conclusion without a premise, its basis being improperly left
to speculation and conjecture.25
We note that the Decision of the Court of Appeals provides for the amount of P741,277.78 as
the sum of the four checks subject of this case.26 This amount should be modified as records
show that the total value of the four checks is P741,227.78.27
WHEREFORE, we DENY the petitions. We AFFIRM the Court of Appeals Decision dated 26
February 1999 in CA-G.R. CV No. 48821 with the MODIFICATION that Bank of America, NT &
SA is ordered to pay BA-Finance Corporation the amount of P741,227.78, with legal interest
from the time of filing of the complaint until the amount is fully paid. Associated Citizens Bank
is ordered to reimburse Bank of America the abovementioned amount. Ching Uy Seng and/or
Uy Chung Guan Seng are also ordered to pay Associated Citizens Bank the abovementioned
amount.
SO ORDERED.
ANTONIO T. CARPIO
Associate Justice
11 Article 541 of the Code of Commerce states: "The maker or any legal holder of a check
shall be entitled to indicate therein that it be paid to a certain banker or institution, which he
shall do by writing across the face the name of said banker or institution, or only the words
and company."
23 Applying Article 22 of the Civil Code of the Philippines which provides: "Every person who
through an act of performance by another, or any other means, acquires or comes into
possession of something at the expense of the latter without just or legal ground, shall return
the same to him."

(21) 41 scra 565


G.R. No. L-29352 October 4, 1971
EMERITO M. RAMOS, SUSANA B. RAMOS, EMERITO B. RAMOS, JR., JOSEFA RAMOS DE LA
RAMA, HORACIO DE LA RAMA, ANTONIO B. RAMOS, FILOMENA RAMOS LEDESMA, RODOLFO
RAMOS, VICTORIA RAMOS TANJUATCO, and TEOFILO TANJUATCO, petitioners,
vs.
CENTRAL BANK OF THE PHILIPPINES, respondent.
Francisco Carreon, Feliciano C. Tumale and Araneta, Mendoza & Papa for petitioners.
Office of the Solicitor General Felix Q. Antonio and F. E. Evangelista, Clara Cruz-Espritu & Iigo
B. Regalado, Jr. for respondent Bank.

REYES, J.B.L., J.:


This is a petition for Certiorari, Prohibition and Mandamus with prayer for the issuance of a
writ of preliminary injunction to restrain respondent Central Bank of the Philippines
(hereinafter designated as the CB) from enforcing and implementing the Monetary Board
Resolution No. 1263, adopted on 30 July 1968, excluding the Overseas Bank of Manila
(hereinafter termed the OBM) from clearing with the Central Bank, that was ordered
implemented on 31 July 1968 (Annex "11"), and Resolution No. 1290, adopted on 1 August
1968, granting authority to the OBM Board of Directors to suspend operations thereof, which
was implemented on 2 August 1968 (Annex "13").
The herein petition is based on the following grounds:
(a) That the aforesaid resolutions were not legally issued and were promulgated by
respondent CB through the Monetary Board in excess of jurisdiction and with grave abuse of
discretion;
(b) That the said resolutions are prejudicial to the national interest and against public policy,
as they would erode confidence in the banking system and undermine the integrity and
stability thereof, contrary to the purpose and spirit of the Central Bank Act;
(c) That said resolutions have caused and will cause further irreparable losses, damages and
injuries to the depositors, creditors and stockholders of the OBM;
(d) That said resolutions were promulgated without due process of law, would constitute
deprivation of property likewise without due process of law, and will amount to impairment of
the obligations of contract; and
(e) That there is no appeal nor any plain, speedy and adequate remedy in the ordinary course
of law.

From the pleadings and annexes, the following appears:


The OBM is a commercial banking corporation duly organized and existing under the laws of
the Philippines with principal office at Rosario Street, Manila. Petitioners are the majority and
controlling stockholders thereof. The OBM was opened for business on 6 January 1964 with
authorized capital of P30 million, P10 million subscribed and P8 million thereof paid, but had
been suspended by respondent from clearing with the CB and from lending operations for
various violations of the banking laws and implementing regulations. Petitioners charged that
the OBM became financially distressed because of this suspension and the deprivation by the
CB of all the usual credit facilities and accommodations accorded to the other banks. The
alleged exactions of onerous fines and penalties by respondent was likewise blamed for the
aggravated situation. For its deficiencies it was made subject to penalties of 12% interest on
overdrawings and 36% per annum on reserve deficiencies, which by 1968 amounted to
several millions.
By April, 1967, the financial situation of the OBM had caused mounting concern in the CB.
Petitioner Ramos and the OBM management finally met with respondent CB on the necessity
and urgency of rehabilitating the OBM through the extension of necessary financial
assistance.
The upshot of these conferences appears from the correspondence exchanged between the
CB and the OBM.
On 2 May 1967, the Governor of the Central Bank, Andres Castillo, upon instructions of the
Monetary Board, wrote a letter (Petition, Annex "B") stating:
This is with reference to the conference had between Mr. Emerito Ramos, Sr., Chairman of
your Board, and the undersigned, the Deputy Governor, the Acting Superintendent of Banks,
and the Officer-in-Charge, Accounting Department of this Bank, last Friday evening on the
present very precarious condition of the Overseas. In the conference, we described to Mr.
Ramos at length the circumstances which led to the present precarious conditions of the
bank. We stressed the imminent danger of the bank's being thrown out of clearing, in
accordance with existing Central Bank regulations, on account of its continuous adverse
clearing balances, and of the immediate necessity of putting up additional capital in the
amount of at least P3 million, which Mr. Ramos promised to put up when he last appeared
before the Monetary Board.
I informed Mr. Ramos that if his bank is thrown out of clearing, the Central Bank will proceed
in accordance with the existing policy under which he and other stockholders representing a
majority will have to sign a trusteeship agreement with the Philippine National Bank pursuant
to which the Overseas Bank will be managed by the Philippine National Bank. If the PNB takes
over management in such eventuality, the Central Bank could also announce that it is ready
to support the Philippine National Bank in order to allay the fears of depositors and creditors.
In view of the OBM stockholders' reluctance to execute the Voting Trust suggested, the
Monetary Board adopted Resolution No. 2015 dated 16 October 1967, having the following
terms (Petition, Annex "F"):
(1) To require Mr. Emerito M. Ramos, Sr., the principal stockholder of the Overseas Bank of
Manila, to submit a listing of his properties and to mortgage or assign the same to the Central
Bank to cover the overdraft balance therewith of the Overseas Bank of Manila;
(2) To require the stockholders of the Overseas Bank of Manila to subscribe to an appropriate
voting trust agreement so that the Central Bank may be able to effect a complete

reorganization and/or transfer the management of the bank to a nominee of the Monetary
Board;
Further conference ensued, and on 30 October 1967 Governor Castillo of the CB wrote again
(Petition, Annex "G" ):
I wish to refer to the conference had between your goodself and the members of the
Monetary Board at Malacaang of 16 October 1967, relative to the financial condition and
state of affairs of the Overseas Bank of Manila, of which the substantial majority of stock is
owned by you and your family and corporations controlled by you.
Among other things, the Monetary Board, having in mind the overdrawing in your deposit
account with the Central Bank which, on that date, stood at P22.3 million, together with the
balance of your past due emergency loan with the Central Bank amounting to P10.3 million
exclusive of accumulated interest, decided that, as a measure to stave off liquidation, a
voting trust agreement should be executed by you and your family and the corporations
controlled by you in favor of the Superintendent of Banks, in an instrument similar to the one
executed by stockholders of the Republic Bank in favor of the Philippine National Bank. On 23
October 1967, the Legal Counsel of this Bank submitted to you a draft of such "Voting Trust
Agreement" desired by the Monetary Board. However, on 25 October 1967, you handed the
legal Counsel your own draft of a "Trust Agreement" which, in essence, is not a voting trust
agreement as desired by the Monetary Board and reiterated in its Resolution No. 2020 dated
20 October 1967 and confirmed on 24 October 1967.
This was followed up by another letter of 8 November 1967 (Petition, Annex "H"):
In line with the conference this morning between your goodself and the undersigned, the
Deputy Governor, the Acting Superintendent of Banks, and the Central Bank Legal Counsel,
and your manifestation of readiness to abide by the decisions of the Monetary Board on all
matters involving the Overseas Bank of Manila, it is requested that the voting trust
agreement prepared by the Legal Counsel of this Bank be now signed by you and other
members of your family and by the proper officials of the corporations which are stockholders
of the bank and which are controlled by you and your family.
It is also requested that the execution of the mortgages on the properties you offered as
security for the obligations of the Overseas Bank of Manila to the Central Bank be finalized,
and the shares of stock belonging to you and your family in your corporations and enterprises
be endorsed in favor of the Central Bank and delivered to us as soon as possible.
Finally, on 20 November 1967, the petitioners herein executed the Voting Trust Agreement
prepared by attorneys of the CB (Petition, Annex "A") with petitioners as Cestuis Que Trust 1
and respondent CB's Superintendent of Banks as the Trustee. The Trustee entered into the
agreement pursuant to the authority given by respondent's Monetary Board under M. B.
Resolution No. 2017, dated 17 October 1967. The salient features of the said Voting Trust
Agreement are the following:
(a) Objectives. The objectives are stated in the "Whereas Clauses", the pertinent portions of
which read: "... the abovenamed stockholders of the Overseas Bank of Manila believe that it is
for and/or the interest and benefit of the bank depositors, creditors and stockholders that this
trust agreement should be entered into by them for the rehabilitation, normalization and
stabilization of the Overseas Bank of Manila;" and "... TRUSTEE has likewise signified his
willingness to accept such trust in pursuance of the objectives above-mentioned;" (Emphasis
supplied)

(b) Term. The life of the trust shall be for three (3) years from 20 November 1967, but the
Trustee at its option, may relinquish the trust upon approval of the Monetary Board. It is
provided further that if, at the expiration of the three-year period the purposes for which the
trust has been constituted have not as yet been fully achieved, the trust agreement shall be
considered automatically extended for such period to be determined by the Monetary Board,
similarly terminable within such further period at the discretion of the Monetary Board;
(c) Powers and authority. The trustee is given all and full authority, subject to the limitations
set forth in the law and other conditions in the contract to: (1) direct the management of the
affairs and accounts and properties of the OBM; (2) vote its directors and choose the officers
and employees; (3) improve, modify, reorganize its operation policies, standards, systems,
methods, structure, organization, personnel, staffing pattern, etc.; (4) hold and vote on the
shares of stocks transferred to him as trustee; (5) safeguard the interests of depositors,
creditors and stockholders; and (6) in general, to exercise all such powers and discharge all
such functions as inherently pertain to the cestui que trust as owners, and/or for the sound
management of a banking institution;
(d) Consideration. The cestui que trust hound themselves, among others, to pay the trustee
during the life of the trust an annual honorarium subject to certain conditions.
Petitioners likewise conveyed by way of mortgage to the CB all their private properties and
holdings to secure the obligations of the OBM to the CB, but there is no agreement as to the
value of these properties, petitioners contending that they are worth over 141 million, but the
CB appraised them at around 67 million (Petition, Annexes "B" and "C").
But as early as 25 September 1967, Mr. Martin Oliva, who had become president of OBM only
since 13 March 1967, had written to the Superintendent of Banks that transactions worth
around P48 million, of which over P43 million were time deposits, at usurious rates of interest,
had not been incorporated in the Bank's books nor reported to the Board of Directors. It was
explained 2 that the OBM management had resorted to these unrecorded transactions
because the suspension of its lending activities after 14 months of operation reduced OBM to
virtual inactivity, and it had to agree to pay high premiums or interests on such deposits
because this high costs is comparatively cheaper than the Central Bank's interests on
overdrawings at the rate of 12% per annum and a penalty of 36% per annum on reserve
deficiencies.
Oliva's letter prompted a further investigation of OBM records by the CB examiners that
revealed allegedly unrecorded deposits and transactions (which is disputed by Petitioners)
amounting to 48,007,211 as of 13 September 1967 (reduced to P35 million when petition was
filed); diversion of deposits to accounts controlled by certain OBM officials (so-called COFICO
and EMRACO accounts) and loans to the Ramos family and firms controlled by them. 3
Petitioners contend that these transactions were recorded in subsidiary ledger accounts that
were linked to the general ledger accounts of the Bank under the so-called EMRACO and
COFICO accounts, and finally incorporated in OBM's regular books in September, 1967 upon
instructions of President Martin Oliva. 4 And as to the loans to the Ramos family and firms,
the same had been written off when around 31 July 1967 the Ramoses conveyed to the OBM
properties worth P54.096 million.
On 27 October 1967, the Superintendent of Banks reported that the condition of the OBM was
one of insolvency, calling for application of Section 29 of the Central Bank Act and liquidation
of OBM. However, with the listing of Ramos properties worth 100 million, it was added, a new
possibility emerged to recapitalize the OBM in 100 million. 5

2. However, with the letter dated October 26, 1967 of Mr. Martin R. Oliva, President of the
Overseas Bank of Manila, giving a list of the Ramos properties worth P100 million (?), a
radically different possibility has emerged.
If the valuation of the P100 million (net of encumbrances to the parties other than the CB and
TOBM) to the properties is true, or substantially true, then the new "possibility" may be briefly
stated thus:
A Recapitalization of the Overseas Bank of Manila on the amount of P100 million will save the
bank, because as a general proposition, subject of course to corroborative quantification
such a magnitude of capital can make good the bad loans as well as the funds that cannot be
legitimately accounted for, and can absorb the losses in bad debts, can provide it with funds
for viable operations, and thus ultimately give adequate protection to depositors and
creditors.
In the same memorandum report, considering the need for liquid funds, the Superintendent of
Banks suggested the following alternatives:
(1) The OBM be required to acquire the properties in payment for frozen or bad loans or for
unaccountable funds, and then mortgage the properties to CB for emergency advances, or
(2) The owners be required to mortgage the properties to the CB directly, and for CB to
extend loans to OBM depending on the needs.
Three days later, 30 October 1967, the Central Bank governor wrote to the petitioner, Emerito
Ramos, reiterating the need for the OBM stockholders to execute a voting trust agreement "to
stave of liquidation", which letter was followed by another of 8 November 1967, requiring the
execution of the Voting Trust Agreement by the OBM stockholders and of the mortgage of
their properties to secure OBM obligations to the Central Bank and the endorsement of the
shares of stock held by them in their corporations and enterprises (Petition, Annexes "G" and
"H", quoted previously). Petitioners duly complied (Annexes "A", "C" and "S") in November,
1967.
On 5 December 1967, new directors and officers drafted from the CB itself, the PNB and DBP
were elected and installed and they took over the management and control of the Overseas
bank.
On 14 June 1968, the CB announced that only P10 million were available as emergency loan
to OBM and requested the management of the latter (appointed under the Voting Trust
Agreement to replace the old Board elected by the stockholders) to project how it could help
bail out OBM.
OBM president, Mr. Orosa, submitted a "Projected Cash Flow Statement" 6, concluding
It is pointed out here that with the P10 million loan from the CB, the extremely distressed
financial condition of TOBM will continue to prevail. At best, the P10 million loan will enable
TOBM to resume limited lending operations on a highly selected basis and diminish its
estimated loss by some P492.5 thousand assuming that the loans to be extended have a high
turnover rate and a 100% repayment ratio. Thus, with the P10 million CB loan, the annual loss
has been estimated to be P8.9 million. To be able to breakdown in operations, therefore,
TOBM needs loanable funds estimated at P196 million, placing the cost of such funds at 1
%.
In a memorandum submitted to Governor Calalang 12 days later, 22 July, Mr. Orosa
unburdened himself and deployed CB for hemming and hawing. This caused, he said the loss

of "psychological advantage" initially gained by PNB's take over of the OBM management. He
reminded the CB Governor about the OBM management's request on 6 January 1968 for a
P20 million loan to enable OBM to get on its feet. "At that time", he said, "the aid we are
recommending, properly used, would have staved off panic and restored some confidence."
Eight months of indecision has made depositors lose faith and as a result, we are faced with
more court suits and withdrawals than ever before and more obligations have matured. 7
The next day, 23 July 1968, the Superintendent of Banks recommended to the Monetary
Board that OBM be liquidated under Section 29, Republic Act 265, if its "capital structure
cannot be strengthened to meet the requirements of Section 22 of RA 337", 8 and if "massive
financing cannot be given to enable the bank to expand its risk assets." He concluded that:
... The bank's continuance in business under its present extremely precarious financial
condition, without the necessary capital injection and financial aid, will involve not merely
probable, but certain further losses to its depositors and other creditors and may have further
adverse effects on the banking system.
Thereafter, on 13 August 1968, as heretofore stated, the CB Monetary Board adopted
Resolution No. 1333, ordering the Superintendent of Banks to proceed to the liquidation of
the OBM, under Section 29 of the Central Bank Act. As already noted, implementation of this
resolution was restrained by this Court.
Petitioners aver that no adequate financial assistance was granted to the OBM after the
execution of the Voting Trust Agreement. They further ]claim that the said agreement is not
only bilateral, imposing reciprocal obligations for valuable consideration, but was also entered
into by respondent CB in the performance of its duties under the law; and that under said
agreement the obligation of the CB was to act and work for the "rehabilitation, normalization
and stabilization" of the OBM, through the extension of adequate and necessary financial
assistance to stave off liquidation, is legally demandable, as well as a duty specifically
enjoined and imposed by law. And that in violation of its obligations, the CB, "after eight
months of delay", adopted the questioned resolutions, without notice to or hearing the
petitioners.
By resolution of this Court, the respondents were required to answer the petition and set for
hearing the petition for a writ of injunction. However, on 13 August 1968, the CB adopted
Resolution No. 1333 (Annex "12", Answer) forbidding the OBM from doing business and
instructing the Superintendent of Banks to take charge of the Bank's assets and to take
action under Section 29 of the Central Bank Act (Republic Act 265), which amounted to a
directive for the liquidation of the OBM. Implementation of the resolution was, upon
petitioners' motion, restrained by the Court on 14 August 1968.
Justifying Resolutions 1263 and 1290, CB in its answer cited specific instances of OBM's
"unusual and irregular transactions" discovered by examiners or "revealed by OBM officials
themselves". By way of affirmative defenses, CB averred that:
1. The CB is not a party to the Voting Trust agreement, and therefore cannot be compelled to
implement it.
2. Assuming that CB is obliged to rehabilitate OBM, it cannot give more loans to the latter
than that already given to it as of 30 July 1968, without violating Section 90 of the Central
Bank Act since neither OBM nor its stockholders could put up additional capital and additional
collaterals to secure CB's future advances.

3. It would be illegal and contrary to public interest to construe the voting trust agreement as
imposing upon CB the duty to rescue OBM at all cost.
4. No bank has an absolute right to take part in inter-bank clearing, because Section 100,
Republic Act 265, requires a bank as a condition to such participation to keep deposit
reserves, which the OBM does not have in fact it had overdrawn its reserve account with
the CB beyond the maximum fixed by law.
Several petitions for intervention were denied by the Court.
The issues involved appear to be:
(a) Whether or not this Supreme Court has jurisdiction to restrain the implementation of CB
Resolution No. 1333;
(b) Whether or not the CB had agreed to rehabilitate, normalize and stabilize OBM;
(c) Whether or not CB Resolutions Nos. 1263, 1290 and 1333 were adopted in abuse of
discretion.
On the first issue of jurisdiction, the respondent Central Bank defines its position in its
Rejoinder Memorandum, pages 3-5, as follows:
"We respectfully maintain,"..., that even as this Honorable Court had ample jurisdiction over
the said petition, any action based on the approval and implementation of the third
resolution, Res. 1333 on 13 August 1968 comes already within the exclusive original
jurisdiction of the Court of First Instance, in accordance with the provisions itself of Section 29
of the Central Bank Act, Rep. Act 265, under which said resolution was promulgated.
xxx xxx xxx
The point ... is that the situation has changed entirely because of the approval of Res. 1333
on August 13, 1968, after the main petition had already been filed and given due course. This
resolution has made the two previous questioned resolutions academic and the main petition
pointless.
The CB stand is that to assail Resolution 1333 of the Monetary Board ordering the liquidation
of the Overseas Bank, an action must be filed in the Court of First Instance of Manila by the
Bank itself, and not by petitioning stockholders, allegedly in view of the provisions of Section
29, Republic Act No. 265, paragraph 3, reading:
At any time within ten days after the Monetary Board has taken charge of the assets of any
banking institution, such institution may apply to the Court of First Instance for an order
requiring the Monetary Board to show cause why it should not be enjoined from continuing
such charge of its assets, and the court may direct the Board to refrain from further
proceedings and to surrender charge of its assets.
This argument must be rejected, for it overlooks the fact that before the Central Bank
adopted said Resolution No. 1333 on 13 August 1968 this Court had already taken cognizance
of the petition herein, assailing Resolutions Nos. 1263 and 1290 of the Monetary Board as
"patent acts of liquidation," violative of its alleged commitment to rehabilitate the overseas
Bank; and the Court, in fact, already had required the Central Bank to answer the petition on
12 August 1962, prior to the adoption of Resolution No. 1333. The latter resolution is clearly
an act in pursuance of the policy outlined in the previous resolutions (1263 and 1290)
enjoined by this Court. Hence, if jurisdiction was already acquired ito delve into the validity of

Resolutions 1263 and 1290 (and this the Central Bank admits), there is no cogent reason
why, after such jurisdiction had been acquired, the Court should be deprived thereof by the
subsequent adoption of Resolution 1333, particularly because the latter, in relation to the
antecedent facts, appears to be no more than a deliberate effort to evade the jurisdiction of
this Court, and have the case thrown back to the Court of First Instance.
In People vs. Pegarum, this Court quoted with approval the rule that:
... the jurisdiction of a court depends upon the state of facts existing at the time it is invoked,
and if the jurisdiction once attaches to the person and subject matter of the litigation, the
subsequent happening of events, although they are of such a character as would have
prevented jurisdiction from attaching in the first instance, will not operate to oust jurisdiction
already attached.
This rule coincides with well-established principles of American law 9 to the same effect.
The basic guidelines in the exercise of this Court's original jurisdiction to issue prerogative
writs were expressed in Dimayuga vs. Fernandez, 43 Phil. 306-307, thus:
... It is true, as respondents contend, that as a general rule, a court of equity will not restrain
the authorities of either a state or municipality from the enforcement of a criminal law, and
among the earlier decisions, there was no exception to that rule. By the modern authorities,
an exception is sometimes made, and the writ is granted, where it is necessary for the orderly
administration of justice, or to prevent the use of the strong arm of the law in an oppressive
or vindictive manner, or a multiplicity of actions.
In legal effect, that was the decision of this court in Kwong Sing vs. City of Manila. (41 Phil.
103)
The writ of prohibition is somewhat sui generis, and is more or less in the sound legal
discretion of the court and is intended to prevent the unlawful and oppressive exercise of
legal authority, and to bring about the orderly administration of justice.
Nor would it serve the interest of justice to dismiss the case at this stage and let a new
petition be filed in another court. In Bay View vs. Manila Hotel Worker's Union (L-21803, 17
December 1966), this Court, through Mr. Justice Conrado V. Sanchez, pointed out the evils
attending split jurisdictions, saying:
To draw a tenuous jurisdictional line is to undermine stability in ... litigations. A piece meal
resort to one Court and another gives rise to multiplicity of suits. ... The time to be lost, effort
wasted, anxiety augmented, additional expense incurred these are considerations which
weigh heavily against split jurisdiction. Indeed it is more in keeping with orderly
administration of justice that all the causes of action here be cognizable and heard by only
one court... (Cas. cit., 18 SCRA 953).
On Previous occasions, this Court has overruled the defense of jurisdiction in the interest of
public welfare and for the advanced agreement of public policy, where, as in this case, an
extraordinary situation existed. 10 There is no denying that creditors, depositors and the
banking community are all interested in a quick determination whether the Overseas Bank
may, under the circumstances, be closed or allowed to continue operating at the exclusive
discretion of respondent Central Bank.
The plea that the Overseas Bank is not a party to the case at bar need not give concern. The
petitioners are the controlling stockholders of that Bank, and are qualified to represent its
interests, so that a judgment may be enforced for or against it, although it is not impleaded

by name in the suits (V. Albert vs. Court of First Instance, L-26361, 29 May 1968, 23 SCRA
948, 964). This is particularly true considering that the present management of the OBM
(Overseas Bank of Manila) is at present composed of respondent's nominees, pursuant to the
Trust Agreement, and they can hardly be expected to resist the plans and actions of
respondent Central Bank (CB).
On the second issue, whether or not the respondent CB agreed to rehabilitate the OBM, Of
which petitioner are the majority stockholders, it is believed that a review of the letters from
the CB to the petitioners (hereinbefore quoted), considered together with the terms of the
Voting Trust Agreement, leaves no doubt that the CB did agree and commit itself to the
continued operation of, and rehabilitation of, the OBM. As early as 2 May 1967, the
respondent CB, through its Monetary Board, caused then Governor Castillo to advise
petitioners that
he and other stockholders representing a majority will have to sign a trusteeship agreement
with the Philippine National Bank pursuant to which the Overseas Bank will be managed by
the Philippine National Bank. If the PNB takes over management in such eventuality, the
Central Bank could also announce that it is ready to support the Philippine National Bank in
order to allay the fears of depositors and creditors. (Pet., Annex "B") (Emphasis supplied)
CB Resolution No. 2015 of 16 October 1967 (Petition, Annex "F"), in addition to requiring a
mortgage or assignment of petitioners' personal properties to CB, confirmed the quoted
memorandum by requiring the stockholders of OBM to subscribe to an appropriate trust
agreement, with the only difference that instead of the Philippine National Bank, the trust
would be executed in favor of the CB as trustee to enable it to reorganize and transfer
management to a nominee of the Monetary Board." Two weeks later, on 30 October 1967,
after a conference at Malacaang, the CB governor once more wrote to Ramos that the
Monetary Board
decided that, as a measure to stave off liquidation, a voting trust agreement should be
executed by you and your family and the corporations controlled by you in favor of the
Superintendent of Banks, in an instrument similar to the one executed by stockholders of the
Republic Bank in favor of the Philippine National Bank (Petition, Annex "G") (Emphasis
supplied)
The reference to the case of the Republic Bank clarifies the purpose and scope of the demand
for a voting trust agreement "as a measure to stave off liquidation"; for it is well-known, and it
is not denied, that when the Republic Bank previously became distressed, the CB had
advanced funds, to rehabilitate it and allow it to resume operating.
Accordingly, the voting trust agreement that was finally executed (Annex "A"), and which was
admittedly prepared by the Legal Counsel of the Central Bank, recited in its preamble as an
objective of the voting trust agreement, that:
... the above named stockholders of the Overseas Bank of Manila believe that it is for and/or
interest and benefit of the bank depositors, creditors, and stockholders, that this trust
agreement should be entered into by them for the rehabilitation, normalization and
stabilization of the Overseas Bank of Manila.
and that the Superintendent of Banks as
... Trustee has likewise signified his willingness to accept such trust in pursuance of the
objectives above mentioned. ... (Emphasis supplied)

While the trust agreement on its face creates obligations only for the Superintendent of Banks
as trustee, his commitments were undeniably those of the Central Bank itself, since it was the
latter that had from the very beginning insisted upon such voting trust being executed. For
the Superintendent of Banks was an officer of the CB, the chief of its Department of
Supervision and Examination of all banking institutions operating in the country, subject to
the instructions of the Monetary Board at all times, pursuant to Section 25 of the CB charter,
Republic Act No. 265; and it is not credible that he should have understand that he was
entering into the trust agreement in his personal capacity.
Bearing in mind that the communications, Annexes "B" and "G," as well as the voting trust
agreement, Annex "A," had been prepared by the CB, and the well-known rule that
ambiguities therein are to be construed against the party that caused them, 11 the record
becomes clear that, in consideration of the execution of the voting trust agreement by the
petitioner stockholders of OBM, and of the mortgage or assignment of their personal
properties to the CB (Res. No. 2015, 16 October 1967, Annex "F," Petition), the CB had agreed
to announce its readiness to support the new management "in order to allay the fears of
depositors and creditors." (Annex "B"), and to stave off liquidation" by providing adequate
funds for "the rehabilitation, normalization and stabilization" of the OBM, in a manner similar
to what the CB had previously done with the Republic Bank (Portion, Annex "G," ante). While
no express terms in the documents refer to the provision of funds by CB for the purpose, the
same is necessarily implied, for in no other way could it rehabilitate, normalize and stabilize a
distressed bank.
Even in the absence of contract, the record plainly shows that the CB made express
representations to petitioners herein that it would support the OBM, and avoid its liquidation if
the petitioners would execute (a) the Voting Trust Agreement turning over the management
of OBM to the CB or its nominees, and (b) mortgage or assign their properties to the Central
Bank to cover the overdraft balance of OBM. The petitioners having complied with these
conditions and parted with value to the profit of the CB (which thus acquired additional
security for its own advances), the CB may not now renege on its representations and
liquidate the OBM, to the detriment of its stockholders, depositors and other creditors, under
the rule of promissory estoppel (19 Am. Jur., pages 657-658; 28 Am. Jur. 2d, 656-657; Ed.
Note, 115 ALR, 157).
The broad general rule to the effect that a promise to do or not to do something in the future
does not work an estoppel must be qualified, since there are numerous cases in which an
estoppel has been predicated on promises or assurances as to future conduct. The doctrine of
"promissory estoppel" is by no means new, although the name has been adopted only in
comparatively recent years. According to that doctrine, an estoppel may arise from the
making of a promise, even though without consideration, if it was intended that the promise
should be relied upon and in fact it was relied upon, and if a refusal to enforce it would be
virtually to sanction the perpetration of fraud or would result in other injustice. In this respect,
the reliance by the promisee is generally evidenced by action or forbearance on his part, and
the idea has been expressed that such action or forbearance would reasonably have been
expected by the promissor. Mere omission by the promisee to do whatever the promisor
promised to do has been held insufficient "forbearance" to give rise to a promissory estoppel.
(19 Am. Jur., loc. cit.)
Disingenuously, the CB pleaded that the Voting Trust agreement was binding only upon the
trustee, the Superintendent of Banks. But as already pointed out this proposition is
unacceptable since the trust could have no private interest in the matters. Not only that, but
CB subsequently caused its own team of nominees to take over the direction and
management of the OBM, through the voting of the shares conveyed to the trustee. Even
more, in August, 1970, the CB gave notice that it would not extend or renew the voting trust,
and attempted to turn back the shares covered by it to the petitioners, thereby recognizing

the obligations under the agreement as its own, and repudiating its original disclaimer
thereof.
How did the CB subsequently treat its commitments?
After execution of the Voting Trust Agreement, on 20 November 1967, the CB elected and
installed new directors and officers drafted from the Central Bank itself, the Philippine
National Bank and the Development Bank of the Philippines. The new team assumed the
management and control of the OBM and elected Augusto E. Orosa as bank president. On 6
January 1968, the new management requested for a thirty million peso loan to enable the
OBM to get on its feet. How this request for aid was treated appears in a memorandum to the
new CB governor, dated 22 July 1968 (Petitioner's Reply Memorandum, Annex "X," Record,
pages 526-527). Mr. Orosa stated:
MEMORANDUM TO:
Governor Alfonso Calalang
SUBJECT: POSITION PAPER OF THE OVERSEAS BANK
OF MANILA
BACKGROUND
A selected PNB team formally took over the management of the Overseas Bank of Manila on
December 7, 1967.
On January 16, 1968 we completed a report on the financial standing of the Bank, the original
of which is in your possession. In that report, we recommended that the balance of the unpaid
capital stock of P11 million be fully paid and P20 million be advanced by the Central Bank to
enable the Bank to resume normal operations. At that time, we gathered from the books of
account that the Bank faced obligations to be immediately met amounting to about P30
million as against liquid assets of more than P12 million or an immediate cash requirement of
about P17 million. Nevertheless, and this is a very important point, our feeling was that at
that time the aid we are recommending, properly used, would have staved off panic and
restored some confidence.
The entrance of the PNB team actually was a great initial psychological advantage; we have
used that advantage to full extent: the advantage has faded.
PRESENT POSITION
Eight months of indecision has made depositors lose faith and as a result, we are faced with
more court suits and withdrawals than ever before and more obligations have matured.
We are made to understand that an advance of P19 million has been approved for the Bank
and that an initial release of P10 million is under study. Last July 10, 1968, we wrote the
Superintendent of Banks complying with his request to render a projection of what we can do
with P10 million.
There is a great leeway with what we can do with P10 million depending on the conditions
which will accompany its grant. Even under the most liberal conditions that we can imagine,
P10 million will not save the Bank. We are, however, not aware whether this proposed P10
million will be the start of a series of advances nor as to how much ultimately the Central
Bank will be willing to finance the rehabilitation.

We are faced with both internal and external problems that are daily increasing in difficulty. If
we are requested to make a projection which we believe is a reasonable request, the present
management should be made privy to the following:
(1) What is the real policy of the Central Bank regarding the future of TOBM;
(2) What is the policy of the Central Bank regarding present rates of interest and penalties on
prevailing deficiencies;
(3) What is the rate of interest to be charged on the fresh advances;
(4) What are the conditions to be meted out regarding leeway and operations of TOBM;
(5) Any other strings that may be attached.
(6) What is the policy of Central Banking regarding unrecorded time deposits.
All these points will greatly affect any projection.
REQUEST:
That the PNB management team be withdrawn from TOBM.
It is obvious from this memorandum that far from heeding the request of its own team for an
advance of P30 million (or P17 million in cash) to enable the OBM to resume normal
operations, the Central Bank did nothing to support the OBM between 6 January to 14 June,
for almost six months, and kept even its own management team largely in the dark as to
what to expect. 0n 14 June, CB advised that only P10 million were to be made available (i.e.,
one third of the requirements estimated necessary by its own representatives). This amount
was naturally considered insufficient to normalize, much less rehabilitate, the OBM. And yet
all this while, the CB was holding petitioners' mortgages on their private properties worth at
least P67 million in 1967 by the CB's own appraisal. Petitioners claimed they were worth P100
million which can not be very far from the truth, considering the continual rise in real estate
values.
Not content with procrastinating for 6 months, without taking positive steps to normalize OBM
as it had agreed to do, nor even announcing its support of its own management team or
disclosing its policy regarding the future of OBM, (the CB finally adopted the resolutions now
attacked by herein petitioner stockholders. On 30 July 1968, it excluded the OBM from
clearing with the CB (Resol. No. 1263) the contingency that the Voting Trust and the
mortgage of the petitioners' private properties were to guard against. On 1 August 1968, CB
authorized (and virtually directed) its nominee Board of Directors to suspend operations
(Resol. No. 1290); and thirteen days thereafter (13 August 1968), the CB directed its
Superintendent of Banks to proceed to liquidate OBM (Resol. No. 1333) under Section 29 of
Republic Act No. 265 (Central Bank Charter), providing that
SEC. 29. Proceedings upon insolvency. Whenever, upon examination by the Superintendent
or his examiners or agents into the condition of any banking institution, it shall be disclosed
that the condition of the same is one of insolvency, or that its continuance in business would
involve probable loss to its depositors or creditors, it shall be the duty of the Superintendent
forthwith, in writing, to inform the Monetary Board of the facts, and the Board, upon finding
the statements of the Superintendent to be true, shall forthwith forbid the institution to do
business in the Philippines and shall take charge of its assets and proceeds according to law.

If the Monetary Board shall determine that the banking institution cannot resume business
with safety to its creditors, it shall, by the Solicitor General, file a petition in the Court of First
Instance reciting the proceedings which have been taken and praying the assistance and
supervision of the court in the liquidation of the affairs of the same. The Superintendent shall
thereafter, upon order of the Monetary Board and under the supervision of the court and with
all convenient speed, convert the assets of the banking institution to money.
We are constrained to agree with petitioners that the conduct of the CB from and after
January, 1968, reveals a calculated attempt to evade rehabilitating OBM despite its promises.
What is more aggravating is that by the ordered liquidation, depositors and other creditors
would have to share in the assets of the OBM, while the CB's own credits for advances were
secured by the new mortgages it had obtained from the petitioners, thereby gaining for it
what amounts to an illegal preference. To cap it all, the CB disregarded its representations
and promises to rehabilitate and normalize the financial condition of OBM, as it had
previously done with the Republic Bank, without even offering to discharge the mortgages,
given by petitioners in consideration for its promises, or notifying petitioners that it desired to
rescind its contract, or bringing action in court for the purpose. And all the while CB knew that
the situation of the OBM was deteriorating daily, with penalties at 3% per month continually
accumulating, while its creditors, depositors and stockholders awaited the promised aid that
never came, and which apparently CB never intended to give.
The deception practiced by the Central Bank, not only on petitioners but on its own
management team, was in violation of Articles 1159 and 1315 of the Civil Code of the
Philippines:
ART. 1159. Obligations arising from contracts have the force of law between the contracting
parties and should be complied with in good faith.
ART. 1315. Contracts are perfected by mere consent, and from that moment the parties are
bound not only to the fulfillment of what has been expressly stipulated but also to all the
consequences which, according to their nature, may be in keeping with good faith, usage and
law. (Emphasis supplied)
The Supreme Court expounded the import of these legal provisions in Abelarde vs. Lopez, 74
Phil. 344, 348, stating:
Cleverness should never take the place of the loyal, upright and straightforward observance
of plighted undertakings.
The CB excuses itself by pleading that the OBM officers had resorted to non-recording of time
deposits in the Bank's books and diverting such deposits to accounting controlled by certain
bank officials, and other irregularities. It is well to note, however, that these "unrecorded"
deposits were revealed to the CB as early as 25 September 1967 by the then President of the
OBM, Mr. Martin Oliva, who had no hand in such irregularities and who informed the
Superintendent of Banks that time deposits worth P43,188,009.29 had not been carried in the
books and had not been reported to the OBM directors. 12 In fact, on 29 September 1967, the
CB had already ordered its examiners to investigate the Bank's records and determine the
parties responsible. 13 Notwithstanding knowledge of these irregularities, the CB did not
withdraw its promised support, and insisted on the execution of the Voting Trust Agreement
on 20 November 1967. Such attitude imports that, in its opinion, the irregularities disclosed
were not to be blamed on the OBM itself or its depositors and creditors, but on the officials
responsible; and further, that the OBM could still be saved by adequate aid and management
reform, which was required by CB's duty to maintain the stability of the banking system and
the preservation of public confidence in it.

Respondent CB likewise urges in its defense that the rehabilitation of the OBM has become
impossible, and points out to the reports of the Superintendent of Banks and of Mr. Augusto
Orosa (the President of OBM elected by the CB nominees under the Voting Trust) that the
Bank's loanable funds had to be expanded to P136 million to break even. 14 It is to be borne
in mind, however, that these reports were made in July, 1968, after six months of inaction on
the part of the CB, without positive action on its part to comply with its previous
commitments. Furthermore, while the stabilization of the OBM required injections of capital, it
would be erroneous to assume that such capital would have to reach P130 million, or that it
would have to be advanced all at once. For had the CB furnished the original aid of 30 million
asked by the Orosa team early in January, 1968, and the OBM allowed to resume operations
with CB support, the restored confidence would have stimulated new deposits, which, as is
well-known, become in turn a source of loanable funds. It thus becomes apparent that most of
the difficulties invoked now by the CB are of its own making, and are not a lawful excuse for
its refusal to comply with its commitments. Finally, in the computations by the CB examiners,
there are included a total of P16.994 million for estimated losses, interests and penalties 15
that did not represent amounts to be disbursed. More concretely, even in July, 1968, after six
months of CB dilly-dallying, the actual amount needed to be loaned to the OBM for capital
requirements "to support the necessary expansion in risk assets of P126.334 million in order
to break even in its operations" was estimated by the Superintendent of Banks at no more
than P40.730
million. 16 This amount tallies with Mr. A. Orosa's estimate that an advance of P30 million in
January, 1968 would have saved OBM. 17 There is no showing that these amounts were
beyond the capacity of CB to make, 18 nor is it proved that they exceeded the amounts
supplied for the rehabilitation of the Republic Bank (the CB, for reasons of its own, refused to
disclose the latter amounts despite requests from the court). Certainly, the ten million
increase in advance capital requirements between January and July of 1968 can not be
blamed on the petitioners herein, and was not of their own making.
The respondent CB cites American cases to the effect that the courts can not interfere with
CB's discretion in determining whether or not a distressed bank should be supported or
liquidated. In none of the cases cited, however, does it appear that the CB engaged to
support the distressed bank in exchange for control of its management and additional
mortgages in its favor, and, therefore, the authorities cited are not in point. Discretion has its
limits and has never been held to include arbitrariness, discrimination or bad faith.
We conclude that having induced the petitioners to part with additional security in reliance
upon its (CB's) promises and commitments to avert liquidation and to support, normalize and
rehabilitate the OBM, the respondent CB is duty bound to comply in good faith with such
promises. Consequently, being contrary thereto, CB Resolutions Nos. 1263, 1290 and 1333
should be annulled and set aside for having been adopted in abuse of discretion, equivalent
to excess of jurisdiction. And never having attempted to comply, nor even to begin
compliance, with its commitments and promises, the respondent CB is precluded to invoke
the expiration of the period specified for the duration of its obligations under the Voting Trust
Agreement. Such period should, in justice and equity, be deemed to start running from and
after the CB begins due performance of its commitments, promises and representations in
good faith.
WHEREFORE, the writs prayed for in the petition are hereby granted, and respondent Central
Bank's resolutions Nos. 1263, 1290 and 1333 (that prohibit the Overseas Bank of Manila to
participate in clearing, direct the suspension of its operations, and ordering liquidation of said
bank) are hereby annulled and set aside; and said respondent Central Bank of the Philippines
is directed to comply with it obligations under the Voting Trust Agreement, and to desist from
taking action in violation thereof. Costs against respondent Central Bank of the Philippines.
Dizon, Teehankee, and Villamor, JJ., concur.

Concepcion, Barredo and Makasiar, C.J., took no part.


Zaldivar, J., concurs in the result.

(22) 106 SCRA 143


G.R. No. 81846 March 10, 1988
(CENTRAL BANK, ET AL.,
vs.
COURT OF APPEALS, ET AL.)

Pursuant to its authority under the Central Bank Act, the Monetary Board of the Central Bank
adopted on May 22,1987, Resolution No. 505(i) placing the Manila Banking Corporation

(Manila Bank) under receivership after finding that the had bank had become insolvent. On
May 29, 1987, Manila Bank filed in the regional trial court of Manila a complaint to set aside
the resolution and secured on July 14, 1987, after hearing, a writ of preliminary injunction
against its enforcement upon posting by the plaintiff of a bond in the sum of P10,000,000.00.
On July 16,1987, the Central Bank moved for the lifting of the injunction, posting a
counterbond of P20,000,000.00 in accordance with Section 29 of the Central Bank Act. The
motion was denied, prompting the Central Bank to elevate the matter to the Court of Appeals,
where the trial court was sustained by a 3-2 vote of the special ninth division. The Central
Bank then came to this Court on certiorari under Rule 65' to challenge the decision of the
Court of Appeals as tainted with grave abuse of discretion.
We reverse.
The applicable law is Section 29 which clearly expresses the mandate and intention of the
legislature. The language is plain and unequivocal, leaving no doubt that the court is under
obligation . to dissolve the injunction once the counterbond in the required amount is posted.
Commenting on injunctions in general under Rule 58 of the Rules of Court, Chief Justice Moran
observed that "a wide latitude is given by this provision to the trial judge to grant, refuse,
continue, modify or dissolve the injunction as justice may require." 1 By contrast, Section 29
of the Central Bank Act grants no similar discretion, being cast in a quite different and
peremptory tenor, thus:
SEC. 29. ... The restraining order or injunction shall be refused or if granted, shall be dissolved
upon filing by the Central Bank of a bond, which shall be in the form of cash or Central Bank
cashier's check, in an amount twice the amount of the bond of the petitioner or plaintiff
conditioned that it will pay the damages which the petitioner or plaintiff may suffer by the
refusal or the dissolution of the injunction. ... .
It is axiomatic that the word "shall" imports a mandatory sense as distinguished from the
discretion that is allowed by use of the word "may." 2 Although this is not an absolute rule,
the exception does not apply in the case at bar in view of the urgency of the measure
contemplated in Section 29 and the adverse consequences that are sure to follow if the
injunction is not lifted and the bank is allowed to reopen. After its earlier closure had been
announced to the public, its depositors will be frantically pounding at its doors to recover
their money. A bank run is inevitable. The old management will be reinstated to pursue the
policies that made the bank insolvent in the first place. The purpose of the receivership will
be frustrated. It is clearly for the purpose of guarding against such eventualities that the law
makes it obligatory upon the court to dissolve the injunction once the required counterbond is
posted by the Central Bank, as was done in this case.
Parenthetically, it may not be amiss to note at note point that, as Manila Bank has itself
admitted, it received, before it was closed, emergency loans from the Central Bank in the sum
of P6.2 billion. Even this astronomical amount was insufficient.
There is here no derogation of judicial power, considering the imperative reasons for the
provision. Neither is due process violated for there are urgent situations, such as the one
before us, where notice and hearing may be validly dispensed with. 3 It should also be
stressed that at the time the above-cited provision was incorporated in the Central Bank Act
in 1976, 4 the procedural rules promulgated by the Supreme Court could be repealed, altered
or supplemented by the Congress under Article X, Section 5(5), of the 1973 Constitution.
The private respondent's claim of arbitrariness in the adoption of the resolution in question is
not for the Court to decide as it is not a trier of facts. This is a matter to be resolved by the
court a quo in the light of the evidence to be adduced by the parties during the trial on the
merits of this case. Suffice it now for the Court to reiterate that the factual findings of

administrative agencies in their areas of expertise are entitled to great respect as long as
they are based on substantial evidence. 5 While this does not mean that these findings may
not be rejected by the courts if found to be arbitrary or oppressive, such a step should be
taken with the utmost caution and only on the basis of the strongest and most convincing
proof . 6
WHEREFORE, the petition is GRANTED, without prejudice to the writing of an extended
opinion, the Decision of February 5, 1988, promulgated by the respondent court, and the
Orders of the trial court dated July 14, 1987, and July 27, 1987, are SET ASIDE. The writ of
preliminary injunction dated July 14, 1987, is DISSOLVED. The temporary restraining order
issued by this Court on February 16, 1988, is made PERMANENT This resolution is
immediately executory. Paras, Feliciano and Padilla, JJ., took no part.

(23) 139 SCRA 46


G.R. No. L-45710 October 3, 1985

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 100-hectare
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 vicepresident 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. 65-76, 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 nonfulfillment 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 non-existing 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 over-valued. 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.
Concepcion, Jr., Escolin, Cuevas and Alampay, JJ., concur.
Aquino (Chairman) and Abad Santos, JJ., took no part.

Central Bank of the Philippines v. CA, 139 SCRA 46 (1985)


Tolentino made a loan from Island Savings Bank secured by a mortgage. The Bank did not
release the whole amount but only a portion thereof. Later, the Bank experienced liquidity
problems and the Monetary Board of Central Bank prohibited it from making new loans and
much later, from doing business in the Philippines. Thereafter, the Acting Superintendent of
Central Bank took charge of its assets. Upon expiration of the loan term, the Bank filed

extrajudicial foreclosure of the mortgage. Was there a perfected contract of loan when only a
portion of the amount was delivered?
The Supreme Court held that there was only partial delivery. As such, the contract is deemed
perfect only in so far as what has been delivered. The mortgage cannot be entirely
foreclosed, except for up to the amount of the actual amount released, but the Bank can
recover the interest of the partial loan. Tolentino cannot anymore demand the remaining
amount of the loan from the Bank because he defaulted on his payment. His liability offsets
the liability of the Bank to him.

(24) 143 SCRA 590


G.R. No. L-17620 August 19, 1986
APOLLO M. SALUD, as Attorney-in-Fact for its Stockholders, in his behalf and for and in behalf
of the Rural Bank of Muntinlupa, Inc., Hon. VICENTE R. CAMPOS, Presiding Judge, Regional
Trial Court, National Capital Region, Br. CLXIV, petitioners,
vs.
CENTRAL BANK OF THE PHILIPPINES, AND CONSOLACION V. ODRA, in her capacity as
Liquidator of the Rural Bank of Muntinlupa, Inc., respondents.
NARVASA, J.:
The Rural Bank of Muntinlupa, Inc. and its stockholders (hereafter collectively referred to
simply as the Muntinlupa Bank) have petitioned this Court for a writ of certiorari to annul two
(2) resolutions of the Intermediate Appellate Court dated January 4, 1985 and July 23, 1985
upon the theory that said resolutions are so far contrary to the provisions of Section 29 of the
Central Bank Act1 and relevant rulings of this Court as to constitute grave abuse of discretion.
The provision in question reads as follows:
SEC. 29. Proceedings upon insolvency. Whenever, upon examination by the head of the
appropriate supervising and examining department or his examiners or agents into the
condition of any banking institution, it shall be disclosed that the condition of the same is one
of insolvency, or that its continuance in business would involve probable loss to its depositors
or creditors, it shall be the duty of the department head concerned forthwith, in writing, to
inform the Monetary Board of the facts, and the Board may, upon finding the statements of
the department head to be true, forbid the institution to do business in the Philippines and
shall designate an official of the Central Bank, or a person of recognized competence in
banking, as receiver to immediately take charge of its assets and liabilities, as expeditiously
as possible collect and gather all the assets and administer the same for the benefit of its

creditors, exercising all the powers necessary for these purposes including, but not limited to,
bringing suits and foreclosing mortgages in the name of the banking institution.
The Monetary Board shall thereupon determine within sixty days whether the institution may
be recognized or otherwise placed in such a condition so that it may be permitted to resume
business with safety to its depositors and creditors and the general public and shall prescribe
the conditions under which such redemption of business, shall take place as wen as the time
for fulfillment of such conditions. In such case, the expenses and fees in the collection and
administration of the assets of the institution shall be determined by the Board and shall be
paid to the Central Bank out of the assets of such banking institution.
If the Monetary Board shall determine and confirm within the said period that the, banking
institution is insolvent or cannot resume business with safety to its depositors, creditors and
the general public, it shall, if the public interest requires, order its liquidation, indicate the
manner of its liquidation and approve a liquidation plan. The Central Bank shall by the
Solicitor General file a petition in the Court of First Instance reciting the proceedings which
have been taken and praying the assistance of the court in the liquidation of the banking
institution The court shall have jurisdiction in the same proceedings to adjudicate disputed
claims against the bank and enforce individual liabilities of the stockholders and do all that is
necessary to preserve the assets of the banking institution and to implement the liquidation
plan approved by the Monetary Board. The Monetary Board shall designate an official of the
Central Bank or a person of recognized competence in banking, as liquidator who shall take
over the functions of the receiver previously appointed by the Monetary Board under this
Section. The liquidator shall with all convenient speed, convert the assets of the banking
institution to money or sell, assign or otherwise dispose of the same to creditors and other
parties for the purpose of paying the debts of such bank and he may, in the name of the
banking institution, institute such actions as may be necessary in the appropriate court to
collect and recover accounts and assets of the banking institution.
The provisions of any law to the contrary notwithstanding the actions of the Monetary Board
under this Section and the second paragraph of Section 34 of this Act shall be final and
executory, and can be set aside by the court only if there is convincing proof that the action is
plainly arbitrary and made in bad faith. No restraining order or injunction shall be issued by
the court enjoining the Central Bank from implementing its actions under this Section and the
second paragraph of Section 34 of this Act, unless there is convincing proof that the action of
the Monetary Board is plainly arbitrary and made in bad faith and the petitioner or plaintiff
files with the clerk or judge of the court in which the action is pending a bond executed in
favor of the Central Bank, in an amount to be fixed by the court. The restraining order or
injunction shall be refused or, if granted, shall be dissolved upon filing by the Central Bank of
a bond, which shall be in the form of cash or Central Bank cashier's check, in an amount twice
the amount of the bond of the petitioner, or plaintiff conditioned that it will pay the damages
which the petitioner or plaintiff may suffer by the refusal or the dissolution of the injunction.
The provisions of Rule 58 of the New Rules of Court insofar as they are applicable and not
inconsistent with the provisions of this Section shall govern the issuance and dissolution of
the restraining order or injunction contemplated in this Section.
Insolvency, under this Act, shall be understood to mean the inability of a banking institution
to pay its liabilities as they fall due in the usual and ordinary course of business: Provided
however, that this shall not include the inability to pay of an otherwise non-insolvent bank
caused by extraordinary demands induced by financial panic commonly evidenced by a run
on the banks in the banking community.
The appointment of a conservator under Section 28-A of this Act or the appointment of
receiver under this Section shall be vested exclusively with the Monetary Board, the provision
of any law, general or special to the contrary notwithstanding.

As will be noted, whenever it shall appear prima facie that a banking institution is in "a
condition of insolvency" or so situated "that its continuance in business would involve
probable loss to its depositors or creditors," the Monetary Board has authority:
First, to forbid the institution to do business and appoint a receiver therefor; and
Second, to determine, within 60 days, whether or not:
1) the institution may be reorganized and rehabilitated to such an extent as to be permitted
to resume business with safety to depositors, creditors and the general public; or
2) it is indeed insolvent or cannot resume business with safety to depositors, creditors and
the general public, and public interest requires that it be liquidated.
In this latter case (i.e., the bank can no longer resume business with safety to depositors,
creditors and the public, etc.) its liquidation will be ordered and a liquidator appointed by the
Monetary Board. The Central Bank shall thereafter file a petition in the Regional Trial Court
praying for the Court's assistance in the liquidation of the bank.
It is noteworthy that the actions of the Monetary Board in this regard are explicitly declared to
be "final and executory." They may not be set aside or even restrained or enjoined by the
court, except only upon "convincing proof that the action is plainly arbitrary and made in bad
faith."
It was on the basis of this Section 29, expressly invoked, that on April 6, 1982, a "Petition for
Assistance in the Liquidation of the Rural Bank of Muntinlupa, 1 Inc." was filed with the Court
of First Instance at Pasay City by the Central Bank and the designated Liquidator, Consolacion
Odra. 2 The petition alleged that on the strength of said provision, the Monetary Board had
adopted two (2) resolutions, viz:
1) Resolution No. 213 (February 3, 1978), forbidding the Muntinlupa Bank to do business and
designating Consolacion Odra its statutory receiver; and
2) Resolution No. 1523 (August 28, 1981), ordering liquidation of the Muntinlupa Bank after
confirmation that it was insolvent and could not resume business with safety to all concerned,
and that public interest did require said liquidation.
The petition prayed that the Court "approve petitioners' request for assistance," that it render
such assistance in fact, and also that it "grant such other reliefs as may be just and
equitable."
Against this petition, docketed as Sp. Proc. No. 9697, Muntinlupa Bank filed a pleading
denominated "OPPOSITION." 3 It pleaded the following defenses, or grounds of objection, viz:
1) The liquidation of Muntinlupa Bank decreed by the Monetary Board under Section 29 was
premature and void, because Section 28-A of the same Central Bank Act mandates that prior
to liquidation, it is the Central Bank's "primordial duty to reorganize the management (of
Muntinlupa Bank) and to restore its viability;"
2) The action of liquidation was "arbitrary and in bad faith" because (a) contrary to the
actuality that Muntinlupa Bank is still capable of rehabilitation, and (b) inconsistent with prior
actions of the Central Bank of rehabilitating "similarly distressed banks, the Republic Bank
and the Overseas Bank of Manila, among several others" (citing Central Bank vs. Court of
Appeals July 27, 1981).

After a REPLY to the Opposition was in due course presented, 4 and then a REJOINDER to the
reply, 5 the Regional Trial Court promulgated an ORDER on June 6, 1983 6 in which, deeming
the OPPOSITION to be "tantamount to a Motion to Dismiss," it declared the actions taken by
the Monetary Board to be arbitrary and dismissed the petition for assistance in liquidation for
lack of merit. The Court opined that "based on the figures provided by the petitioners
themselves," Muntinlupa Bank "had more assets as against liabilities" and hence could not,
"under any circumstance, be considered in the state of insolvency." It also ruled that
conservatorship under Section 28-A, and not liquidation under Section 29, was the
appropriate and "mandatory" remedy.
Failing in two attempts to have this Order reconsidered, 7 the Central Bank and its Liquidator
instituted in this Court a special civil action of certiorari and mandamus, under Rule 65 of the
Rules of Court, praying that the Regional Trial Court's orders be annulled because "issued
without or in excess of jurisdiction or with grave abuse of discretion," and that it be compelled
to grant their application for assistance. 8
The petition was referred to the Intermediate Appellate Court. 9
The IAC rendered judgment on November 22, 1984. 10 It declared that:
1) while the Monetary Board had power to determine "whether a rural bank's continuance in
business would involve probable loss to its clients or creditors, etc.," the matter of "whether
or not such findings by the Monetary Board is equipped with abuse in its issuance is subject
to judicial inquiry," citing Central Bank vs. Court of Appeals; 11
2) however, because the Region Trial Court "dismissed outright the petition for assistance ...
on the basis of respondents' opposition" without a "hearing held for both parties to
substantiate their allegations ... in their respective pleadings, "it had exceeded its authority.
On these premises, the Court "remanded (the case) to the respondent court for further
proceeding"
But upon motion for reconsideration of the Central Bank and its Liquidator, 12 the IAC"
clarified, if not modified" its Decision. By a resolution dated January 4, 1985, after simply
adverting to the motion for reconsideration which it found "to be in accordance with law and
jurisprudence," it amended the dispositive part of its decision to read as follows:
WHEREFORE, the challenged Orders dated June 6, 1983, October 20, 1983 and February 24,
1984, having been issued with a grave abuse of discretion, amounting to lack of, or in excess
of jurisdiction, are hereby declared NULL AND VOID.
This petition for certiorari is GRANTED and is; hereby GIVEN DUE COURSE; The respondent
court is ordered to approve the petition for Assistance in the Liquidation of the Rural Bank of
Muntinlupa, Inc., in Sp. Proc. No. 9697 pending in his sala, and assists in its liquidation.
With costs against the private respondent. 13
This resolution of January 4, 1985, and that of July 23, 1985 denying reconsideration, 14 are
now in turn assailed in this Court: by Muntinlupa Bank on the ground that they were "issued
without or in excess of jurisdiction or with grave abuse of discretion." 15
Essentially, Muntinlupa Bank's position is that under Section 29 of the Central Bank Act, as
amended, the Regional Trial Court has jurisdiction to adjudicate the question of whether the
action of the Monetary Board in directing its dissolution (instead of its rehabilitation) was in

the premises, and in the language of the statute, "arbitrary and made in bad faith;" and
therefore the Decision of the Intermediate Appellate Court of November 22, 1984 16
remanding the case to the Regional Trial Court for hearing so that "both parities ... (might)
substantiate their, allegations in their respective pleadings" on that precise question, was "in
complete accord with the ... law." Under said Decision, Muntinlupa Bank states:
... it well be given an opportunity to adduce convincing proof that respondents' Monetary
Board Resolution No. 213 directing dissolution of the bank was arbitrary and made in bad
faith. ... 17
The Central Bank and its liquidator assert the contrary. According to them, a Regional Trial
Court-in which a petition for assistance in the liquidation of a rural bank is filed by the Central
Bank pursuant to resolution of the Monetary Board-has no jurisdiction of the issue of whether
or not the Monetary Board resolution is "arbitrary and made in bad faith," where that issue is
raised in the same proceeding either by an opposition or motion to dismiss. They argue that
that issue may only be raised in a separate action or proceeding. They say that
... To raise the question of whether liquidation is justified in the assistance proceeding is to
conduct a collateral attack on the liquidation. This can not be done. An attack on the validity
of the liquidation must be made directly. A proceeding specifically for that purpose must be
initiated. This is so because the factual basis of the liquidation- the insolvency of the bank-has
to have a full-blown hearing. 18
The contention is untenable.
Resolutions of the Monetary Board under Section 29 of the Central Bank Act-e.g., forbidding
banking institutions to do business on account of a "condition of insolvency" or because "its
continuance in business would involve probable loss to depositors or creditors;" or appointing
a receiver to take charge of the bank's assets and liabilities; or determining whether the
banking institutions may be rehabilitated, or should be liquidated and appointing a liquidator
towards this end are by law "final and executory," as earlier pointed out. But they "can be set
aside by the court" on one specific ground, and that is, "if there is convincing proof that the
action is plainly arbitrary and made in bad faith." The Central Bank concedes this power in
"the court," but insists that that setting aside can not be done in the same proceeding for
assistance in liquidation, but in a separate action instituted specifically for the purpose, as
was the case in Central Bank v. Court of appeals, 19 where
... the aggrieved parties (Fernandez and Jayme) filed a petition for certiorari, prohibition and
mandamus precisely to annul and set aside the Monetary Board resolution directing the
liquidation of the Provident Savings Bank ... (and the) petition was heard by the then Court of
First Instance of Manila jointly with the Petition for Assistance and Supervision in the
Liquidation of the Provident Savings Bank. ... 20
This Court perceives no reason whatever why a banking institution's claim that a resolution of
the Monetary Board under Section 29 of the Central Bank Act should be set aside as plainly
arbitrary and made in bad faith cannot be asserted as an affirmative defense 21 or a
counterclaim 22 in the proceeding for assistance in liquidation, but only as a cause of action
in a separate and distinct action. Nor can this Court see why "a full-blown hearing" on the
issue is possible only if it is asserted as a cause of action, but not when set up by way of an
affirmative defense, or a counterclaim. There is no provision of law which expressly or even
by implication imposes the requirement for a separate proceeding exclusively occupied with
adjudicating this issue. Moreover, to declare the issue as beyond the scope of matters
cognizable in a proceeding for assistance in liquidation would be to engender that multiplicity
of proceedings which the law abhors. Indeed, the failure to assert, as a ground of defense or
objection to a proceeding for assistance in liquidation, the fact that the resolution of the

Monetary Board authorizing the initiation of such a proceeding is "arbitrary and made in bad
faith" would constitute a waiver thereof, conformably with the rule of "Waiver of Defenses,"
23 to the effect that "defenses and objections not pleaded either in a motion to dismiss or in
the answer are (generally) deemed waived," or the "Omnibus Motion Rule," 24 providing that
"A motion attacking a pleading or a proceeding shall include all objections then available, and
all objections not so included shall be deemed waived." 25
It is inconsequential that in the cited case of Central Bank v. Court of Appeals, there were two
(2) separate proceedings. This was entirely fortuitous. It came about merely because by pure
chance the petition to annul the Monetary Board resolution authorizing liquidation was filed
ahead of the petition for assistance in liquidation. In fact, the two (2) proceedings were at the
parties' instance jointly heard and decided, a certain indication of the intimate relationship in
issues between said proceedings, if not in truth of the preferential nature of the question of
whether or not the Monetary Board resolution was "plainly arbitrary and made in bad faith."
Central Bank v. Court of Appeals is not and canot thus be regarded as supportive of the
Central Bank's theory in the case at bar, On the contrary, it is opposed to that theory, for in
that case, this Court in fact ruled that
... While the closure and liquidation of a bank may be considered an exercise of police power,
the validity of such exercise of police power is subject to judicial inquiry and could be set
aside if it is either capricious, discriminatory, whimsical, arbitrary, unjust or a denial of the
due process and equal protection clauses of the Constitution.
... 26
No reason exists to preclude determination of this question in the very proceeding for
assistance in liquidation instituted pursuant to Section 29 of the Central Bank Act.
The Central Bank and its Liquidator also postulate, for the very first time, that the Monetary
Board is among the "quasi-judicial ... boards" whose judgments are within the exclusive
appellate jurisdiction of the IAC ; 27 hence, it is only said Court, "to the exclusion of the
Regional Trial Courts," that may review the Monetary Board's resolutions.
The contention is utterly devoid of merit. The IAC has no appellate jurisdiction over
resolutions or orders of the Monetary Board, No law prescribes any mode of appeal from the
Monetary Board to the IAC. The contention is moreover inconsistent with the text of Section
29 of the Central Bank Act. It is inconsistent as well with the Central Bank's own theory in this
case, which concedes original jurisdiction over the matter in the Regional Trial Court provided
it is alleged as a cause of action in a suit distinct from a proceeding for assistance in
liquidation.
WHEREFORE, the Resolutions of the Intermediate Appellate Court in AC-G.R. No. SP-03808
dated January 4, 1985 and July 23, 1985 are set aside, and the Decision dated November 22,
1984 is reinstated and affirmed. No costs.
SO ORDERED.
Yap, Melencio-Herrera, Cruz and Paras, JJ., concur.

(27) 204 SCRA 767


G.R. No. 70054 December 11, 1991

BANCO FILIPINO SAVINGS AND MORTGAGE BANK, petitioner,


vs.
THE MONETARY BOARD, CENTRAL BANK OF THE PHILIPPINES, JOSE B. FERNANDEZ, CARLOTA
P. VALENZUELA, ARNULFO B. AURELLANO and RAMON V. TIAOQUI, respondents.
G.R. No. 68878 December 11, 1991
BANCO FILIPINO SAVINGS AND MORTGAGE BANK, petitioner,
vs.
HON. INTERMEDIATE APPELLATE COURT and CELESTINA S. PAHIMUNTUNG, assisted by her
husband, respondents.
G.R. No. 77255-58 December 11, 1991
TOP MANAGEMENT PROGRAMS CORPORATION AND PILAR DEVELOPMENT CORPORATION,
petitioners,
vs.
THE COURT OF APPEALS, The Executive Judge of the Regional Trial Court of Cavite, Ex-Officio
Sheriff REGALADO E. EUSEBIO, BANCO FILIPINO SAVINGS AND MORTGAGE BANK, CARLOTA P.
VALENZUELA AND SYCIP, SALAZAR, HERNANDEZ AND GATMAITAN, respondents.
G.R. No. 78766 December 11, 1991
EL GRANDE CORPORATION, petitioner,
vs.
THE COURT OF APPEALS, THE EXECUTIVE JUDGE of The Regional Trial Court and Ex-Officio
Sheriff REGALADO E. EUSEBIO, BANCO FILIPINO SAVINGS AND MORTGAGE BANK, CARLOTA P.
VALENZUELA AND SYCIP, SALAZAR, FELICIANO AND HERNANDEZ, respondents.
G.R. No. 78767 December 11, 1991
METROPOLIS DEVELOPMENT CORPORATION, petitioner,
vs.
COURT OF APPEALS, CENTRAL BANK OF THE PHILIPPINES, JOSE B. FERNANDEZ, JR., CARLOTA
P. VALENZUELA, ARNULFO AURELLANO AND RAMON TIAOQUI, respondents.
G.R. No. 78894 December 11, 1991
BANCO FILIPINO SAVINGS AND MORTGAGE BANK, petitioner
vs.
COURT OF APPEALS, THE CENTRAL BANK OF THE PHILIPPINES, JOSE B. FERNANDEZ, JR.,
CARLOTA P. VALENZUELA, ARNULFO B. AURELLANO AND RAMON TIAOQUI, respondents.
G.R. No. 81303 December 11, 1991
PILAR DEVELOPMENT CORPORATION, petitioner
vs.
COURT OF APPEALS, HON. MANUEL M. COSICO, in his capacity as Presiding Judge of Branch
136 of the Regional Trial Court of Makati, CENTRAL BANK OF THE PHILIPPINES AND CARLOTA
P. VALENZUELA, respondents.
G.R. No. 81304 December 11, 1991
BF HOMES DEVELOPMENT CORPORATION, petitioner,
vs.

THE COURT OF APPEALS, CENTRAL BANK AND CARLOTA P. VALENZUELA, respondents.


G.R. No. 90473 December 11, 1991
EL GRANDE DEVELOPMENT CORPORATION, petitioner,
vs.
THE COURT OF APPEALS, THE EXECUTIVE JUDGE of the Regional Trial Court of Cavite, CLERK
OF COURT and Ex-Officio Sheriff ADORACION VICTA, BANCO FILIPINO SAVINGS AND
MORTGAGE BANK, CARLOTA P. VALENZUELA AND SYCIP, SALAZAR, HERNANDEZ AND
GATMAITAN, respondents.
Panganiban, Benitez, Barinaga & Bautista Law Offices collaborating counsel for petitioner.
Florencio T. Domingo, Jr. and Crisanto S. Cornejo for intervenors.

MEDIALDEA, J.:p
This refers to nine (9) consolidated cases concerning the legality of the closure and
receivership of petitioner Banco Filipino Savings and Mortgage Bank (Banco Filipino for
brevity) pursuant to the order of respondent Monetary Board. Six (6) of these cases, namely,
G.R. Nos. 68878, 77255-68, 78766, 81303, 81304 and 90473 involve the common issue of
whether or not the liquidator appointed by the respondent Central Bank (CB for brevity) has
the authority to prosecute as well as to defend suits, and to foreclose mortgages for and in
behalf of the bank while the issue on the validity of the receivership and liquidation of the
latter is pending resolution in G.R. No. 7004. Corollary to this issue is whether the CB can be
sued to fulfill financial commitments of a closed bank pursuant to Section 29 of the Central
Bank Act. On the other hand, the other three (3) cases, namely, G.R. Nos. 70054, which is the
main case, 78767 and 78894 all seek to annul and set aside M.B. Resolution No. 75 issued by
respondents Monetary Board and Central Bank on January 25, 1985.

The antecedent facts of each of the nine (9) cases are as follows:
G.R No. 68878
This is a motion for reconsideration, filed by respondent Celestina Pahimuntung, of the
decision promulgated by thisCourt on April 8, 1986, granting the petition for review on
certiorari and reversing the questioned decision of respondent appellate court, which
annulled the writ of possession issued by the trial court in favor of petitioner.
The respondent-movant contends that the petitioner has no more personality to continue
prosecuting the instant case considering that petitioner bank was placed under receivership
since January 25, 1985 by the Central Bank pursuant to the resolution of the Monetary Board.
G.R. Nos. 77255-58
Petitioners Top Management Programs Corporation (Top Management for brevity) and Pilar
Development Corporation (Pilar Development for brevity) are corporations engaged in the
business of developing residential subdivisions.
Top Management obtained a loan of P4,836,000 from Banco Filipino as evidenced by a
promissory note dated January 7, 1982 payable in three years from date. The loan was

secured by real estate mortgage in its various properties in Cavite. Likewise, Pilar
Development obtained loans from Banco Filipino between 1982 and 1983 in the principal
amounts of P6,000,000, P7,370,000 and P5,300,000 with maturity dates on December 28,
1984, January 5, 1985 and February 16, 1984, respectively. To secure the loan, Pilar
Development mortgaged to Banco Filipino various properties in Dasmarias, Cavite.
On January 25, 1985, the Monetary Board issued a resolution finding Banco Filipino insolvent
and unable to do business without loss to its creditors and depositors. It placed Banco Filipino
under receivership of Carlota Valenzuela, Deputy Governor of the Central Bank.
On March 22, 1985, the Monetary Board issued another resolution placing the bank under
liquidation and designating Valenzuela as liquidator. By virtue of her authority as liquidator,
Valenzuela appointed the law firm of Sycip, Salazar, et al. to represent Banco Filipino in all
litigations.
On March 26, 1985, Banco Filipino filed the petition for certiorari in G.R. No. 70054
questioning the validity of the resolutions issued by the Monetary Board authorizing the
receivership and liquidation of Banco Filipino.
In a resolution dated August 29, 1985, this Court in G.R. No. 70054 resolved to issue a
temporary restraining order, effective during the same period of 30 days, enjoining the
respondents from executing further acts of liquidation of the bank; that acts such as receiving
collectibles and receivables or paying off creditors' claims and other transactions pertaining
to normal operations of a bank are not enjoined. The Central Bank is ordered to designate a
comptroller for Banco Filipino.
Subsequently, Top Management failed to pay its loan on the due date. Hence, the law firm of
Sycip, Salazar, et al. acting as counsel for Banco Filipino under authority of Valenzuela as
liquidator, applied for extra-judicial foreclosure of the mortgage over Top Management's
properties. Thus, the Ex-Officio Sheriff of the Regional Trial Court of Cavite issued a notice of
extra-judicial foreclosure sale of the properties on December 16, 1985.
On December 9, 1985, Top Management filed a petition for injunction and prohibition with the
respondent appellate court docketed as CA-G.R. SP No. 07892 seeking to enjoin the Regional
Trial Court of Cavite, the ex-officio sheriff of said court and Sycip, Salazar, et al. from
proceeding with foreclosure sale.
Similarly, Pilar Development defaulted in the payment of its loans. The law firm of Sycip,
Salazar, et al. filed separate applications with the ex-officio sheriff of the Regional Trial Court
of Cavite for the extra-judicial foreclosure of mortgage over its properties.
Hence, Pilar Development filed with the respondent appellate court a petition for prohibition
with prayer for the issuance of a writ of preliminary injunction docketed as CA-G.R SP Nos.
08962-64 seeking to enjoin the same respondents from enforcing the foreclosure sale of its
properties. CA-G.R. SP Nos. 07892 and 08962-64 were consolidated and jointly decided.
On October 30, 1986, the respondent appellate court rendered a decision dismissing the
aforementioned petitions.
Hence, this petition was filed by the petitioners Top Management and Pilar Development
alleging that Carlota Valenzuela, who was appointed by the Monetary Board as liquidator of
Banco Filipino, has no authority to proceed with the foreclosure sale of petitioners' properties
on the ground that the resolution of the issue on the validity of the closure and liquidation of
Banco Filipino is still pending with this Court in G.R. 70054.

G.R. No. 78766


Petitioner El Grande Development Corporation (El Grande for brevity) is engaged in the
business of developing residential subdivisions. It was extended by respondent Banco Filipino
a credit accommodation to finance its housing program. Hence, petitioner was granted a loan
in the amount of P8,034,130.00 secured by real estate mortgages on its various estates
located in Cavite.
On January 15, 1985, the Monetary Board forbade Banco Filipino to do business, placed it
under receivership and designated Deputy Governor Carlota Valenzuela as receiver. On
March 22, 1985, the Monetary Board confirmed Banco Filipino's insolvency and designated
the receiver Carlota Valenzuela as liquidator.
When petitioner El Grande failed to pay its indebtedness to Banco Filipino, the latter thru its
liquidator, Carlota Valenzuela, initiated the foreclosure with the Clerk of Court and Ex-officio
sheriff of RTC Cavite. Subsequently, on March 31, 1986, the ex-officio sheriff issued the notice
of extra-judicial sale of the mortgaged properties of El Grande scheduled on April 30, 1986.
In order to stop the public auction sale, petitioner El Grande filed a petition for prohibition
with the Court of Appeals alleging that respondent Carlota Valenzuela could not proceed with
the foreclosure of its mortgaged properties on the ground that this Court in G.R. No. 70054
issued a resolution dated August 29, 1985, which restrained Carlota Valenzuela from acting
as liquidator and allowed Banco Filipino to resume banking operations only under a Central
Bank comptroller.
On March 2, 1987, the Court of Appeals rendered a decision dismissing the petition.
Hence this petition for review on certiorari was filed alleging that the respondent court erred
when it held in its decision that although Carlota P. Valenzuela was restrained by this
Honorable Court from exercising acts in liquidation of Banco Filipino Savings & Mortgage
Bank, she was not legally precluded from foreclosing the mortgage over the properties of the
petitioner through counsel retained by her for the purpose.
G.R. No. 81303
On November 8, 1985, petitioner Pilar Development Corporation (Pilar Development for
brevity) filed an action against Banco Filipino, the Central Bank and Carlota Valenzuela for
specific performance, docketed as Civil Case No. 12191. It appears that the former
management of Banco Filipino appointed Quisumbing & Associates as counsel for Banco
Filipino. On June 12, 1986 the said law firm filed an answer for Banco Filipino which confessed
judgment against Banco Filipino.
On June 17, 1986, petitioner filed a second amended complaint. The Central Bank and Carlota
Valenzuela, thru the law firm Sycip, Salazar, Hernandez and Gatmaitan filed an answer to the
complaint.
On June 23, 1986, Sycip, et al., acting for all the defendants including Banco Filipino moved
that the answer filed by Quisumbing & Associates for defendant Banco Filipino be expunged
from the records. Despite opposition from Quisumbing & Associates, the trial court granted
the motion to expunge in an order dated March 17, 1987. Petitioner Pilar Development moved
to reconsider the order but the motion was denied.
Petitioner Pilar Development filed with the respondent appellate court a petition for certiorari
and mandamus to annul the order of the trial court. The Court of Appeals rendered a decision

dismissing the petition. A petition was filed with this Court but was denied in a resolution
dated March 22, 1988. Hence, this instant motion for reconsideration.
G.R. No. 81304
On July 9, 1985, petitioner BF Homes Incorporated (BF Homes for brevity) filed an action with
the trial court to compel the Central Bank to restore petitioner's; financing facility with Banco
Filipino.
The Central Bank filed a motion to dismiss the action. Petitioner BF Homes in a supplemental
complaint impleaded as defendant Carlota Valenzuela as receiver of Banco Filipino Savings
and Mortgage Bank.
On April 8, 1985, petitioner filed a second supplemental complaint to which respondents filed
a motion to dismiss.
On July 9, 1985, the trial court granted the motion to dismiss the supplemental complaint on
the grounds (1) that plaintiff has no contractual relation with the defendants, and (2) that the
Intermediate Appellate Court in a previous decision in AC-G.R. SP. No. 04609 had stated that
Banco Filipino has been ordered closed and placed under receivership pending liquidation,
and thus, the continuation of the facility sued for by the plaintiff has become legally
impossible and the suit has become moot.
The order of dismissal was appealed by the petitioner to the Court of Appeals. On November
4, 1987, the respondent appellate court dismissed the appeal and affirmed the order of the
trial court.
Hence, this petition for review on certiorari was filed, alleging that the respondent court erred
when it found that the private respondents should not be the ones to respond to the cause of
action asserted by the petitioner and the petitioner did not have any cause of action against
the respondents Central Bank and Carlota Valenzuela.
G.R. No. 90473
Petitioner El Grande Development Corporation (El Grande for brevity) obtained a loan from
Banco Filipino in the amount of P8,034,130.00, secured by a mortgage over its five parcels of
land located in Cavite which were covered by Transfer Certificate of Title Nos. T-82187, T109027, T-132897, T-148377, and T-79371 of the Registry of Deeds of Cavite.
When Banco Filipino was ordered closed and placed under receivership in 1985, the
appointed liquidator of BF, thru its counsel Sycip, Salazar, et al. applied with the ex-officio
sheriff of the Regional Trial Court of Cavite for the extrajudicial foreclosure of the mortgage
constituted over petitioner's properties. On March 24, 1986, the ex-officio sheriff issued a
notice of extrajudicial foreclosure sale of the properties of petitioner.
Thus, petitioner filed with the Court of Appeals a petition for prohibition with prayer for writ of
preliminary injunction to enjoin the respondents from foreclosing the mortgage and to nullify
the notice of foreclosure.
On June 16, 1989, respondent Court of Appeals rendered a decision dismissing the petition.
Not satisfied with the decision, petitioner filed the instant petition for review on certiorari.
G.R. No. 70054

Banco Filipino Savings and Mortgage Bank was authorized to operate as such under M.B.
Resolution No. 223 dated February 14, 1963. It commenced operations on July 9, 1964. It has
eighty-nine (89) operating branches, forty-six (46) of which are in Manila, with more than
three (3) million depositors.
As of July 31, 1984, the list of stockholders showed the major stockholders to be: Metropolis
Development Corporation, Apex Mortgage and Loans Corporation, Filipino Business
Consultants, Tiu Family Group, LBH Inc. and Anthony Aguirre.
Petitioner Bank had an approved emergency advance of P119.7 million under M.B. Resolution
No. 839 dated June 29, 1984. This was augmented with a P3 billion credit line under M.B.
Resolution No. 934 dated July 27, 1984.
On the same date, respondent Board issued M.B. Resolution No. 955 placing petitioner bank
under conservatorship of Basilio Estanislao. He was later replaced by Gilberto Teodoro as
conservator on August 10, 1984. The latter submitted a report dated January 8, 1985 to
respondent Board on the conservatorship of petitioner bank, which report shall hereinafter be
referred to as the Teodoro report.
Subsequently, another report dated January 23, 1985 was submitted to the Monetary Board
by Ramon Tiaoqui, Special Assistant to the Governor and Head, SES Department II of the
Central Bank, regarding the major findings of examination on the financial condition of
petitioner BF as of July 31, 1984. The report, which shall be referred to herein as the Tiaoqui
Report contained the following conclusion and recommendation:
The examination findings as of July 31, 1984, as shown earlier, indicate one of insolvency and
illiquidity and further confirms the above conclusion of the Conservator.
All the foregoing provides sufficient justification for forbidding the bank from engaging in
banking.
Foregoing considered, the following are recommended:
1. Forbid the Banco Filipino Savings & Mortgage Bank to do business in the Philippines
effective the beginning of office January 1985, pursuant to Sec. 29 of R.A No. 265, as
amended;
2. Designate the Head of the Conservator Team at the bank, as Receiver of Banco Filipino
Savings & Mortgage Bank, to immediately take charge of the assets and liabilities, as
expeditiously as possible collect and gather all the assets and administer the same for the
benefit of all the creditors, and exercise all the powers necessary for these purposes including
but not limited to bringing suits and foreclosing mortgages in the name of the bank.
3. The Board of Directors and the principal officers from Senior Vice Presidents, as listed in
the attached Annex "A" be included in the watchlist of the Supervision and Examination
Sector until such time that they shall have cleared themselves.
4. Refer to the Central Bank's Legal Department and Office of Special Investigation the report
on the findings on Banco Filipino for investigation and possible prosecution of directors,
officers, and employees for activities which led to its insolvent position. (pp- 61-62, Rollo)
On January 25, 1985, the Monetary Board issued the assailed MB Resolution No. 75 which
ordered the closure of BF and which further provides:

After considering the report dated January 8, 1985 of the Conservator for Banco Filipino
Savings and Mortgage Bank that the continuance in business of the bank would involve
probable loss to its depositors and creditors, and after discussing and finding to be true the
statements of the Special Assistant to the Governor and Head, Supervision and Examination
Sector (SES) Department II as recited in his memorandum dated January 23, 1985, that the
Banco Filipino Savings & Mortgage Bank is insolvent and that its continuance in business
would involve probable loss to its depositors and creditors, and in pursuance of Sec. 29 of RA
265, as amended, the Board decided:
1. To forbid Banco Filipino Savings and Mortgage Bank and all its branches to do business in
the Philippines;
2. To designate Mrs. Carlota P. Valenzuela, Deputy Governor as Receiver who is hereby
directly vested with jurisdiction and authority to immediately take charge of the bank's assets
and liabilities, and as expeditiously as possible collect and gather all the assets and
administer the same for the benefit of its creditors, exercising all the powers necessary for
these purposes including but not limited to, bringing suits and foreclosing mortgages in the
name of the bank;
3. To designate Mr. Arnulfo B. Aurellano, Special Assistant to the Governor, and Mr. Ramon V.
Tiaoqui, Special Assistant to the Governor and Head, Supervision and Examination Sector
Department II, as Deputy Receivers who are likewise hereby directly vested with jurisdiction
and authority to do all things necessary or proper to carry out the functions entrusted to them
by the Receiver and otherwise to assist the Receiver in carrying out the functions vested in
the Receiver by law or Monetary Board Resolutions;
4. To direct and authorize Management to do all other things and carry out all other measures
necessary or proper to implement this Resolution and to safeguard the interests of
depositors, creditors and the general public; and
5. In consequence of the foregoing, to terminate the conservatorship over Banco Filipino
Savings and Mortgage Bank. (pp. 10-11, Rollo, Vol. I)
On February 2, 1985, petitioner BF filed a complaint docketed as Civil Case No. 9675 with the
Regional Trial Court of Makati to set aside the action of the Monetary Board placing BF under
receivership.
On February 28, 1985, petitioner filed with this Court the instant petition for certiorari and
mandamus under Rule 65 of the Rules of Court seeking to annul the resolution of January 25,
1985 as made without or in excess of jurisdiction or with grave abuse of discretion, to order
respondents to furnish petitioner with the reports of examination which led to its closure and
to afford petitioner BF a hearing prior to any resolution that may be issued under Section 29
of R.A. 265, also known as Central Bank Act.
On March 19, 1985, Carlota Valenzuela, as Receiver and Arnulfo Aurellano and Ramon Tiaoqui
as Deputy Receivers of Banco Filipino submitted their report on the receivership of BF to the
Monetary Board, in compliance with the mandate of Sec. 29 of R.A. 265 which provides that
the Monetary Board shall determine within sixty (60) days from date of receivership of a bank
whether such bank may be reorganized/permitted to resume business or ordered to be
liquidated. The report contained the following recommendation:
In view of the foregoing and considering that the condition of the banking institution
continues to be one of insolvency, i.e., its realizable assets are insufficient to meet all its
liabilities and that the bank cannot resume business with safety to its depositors, other
creditors and the general public, it is recommended that:

1. Banco Filipino Savings & Mortgage Bank be liquidated pursuant to paragraph 3, Sec. 29 of
RA No. 265, as amended;
2. The Legal Department, through the Solicitor General, be authorized to file in the proper
court a petition for assistance in th liquidation of the Bank;
3. The Statutory Receiver be designated as the Liquidator of said bank; and
4. Management be instructed to inform the stockholders of Banco Filipino Savings & Mortgage
Bank of the Monetary Board's decision liquidate the Bank. (p. 167, Rollo, Vol. I)
On July 23, 1985, petitioner filed a motion before this Court praying that a restraining order or
a writ of preliminary injunction be issued to enjoin respondents from causing the dismantling
of BF signs in its main office and 89 branches. This Court issued a resolution on August 8,
1985 ordering the issuance of the aforesaid temporary restraining order.
On August 20, 1985, the case was submitted for resolution.
In a resolution dated August 29, 1985, this Court Resolved direct the respondents Monetary
Board and Central Bank hold hearings at which the petitioner should be heard, and terminate
such hearings and submit its resolution within thirty (30) days. This Court further resolved to
issue a temporary restraining order enjoining the respondents from executing further acts of
liquidation of a bank. Acts such as receiving collectibles and receivables or paying off
creditors' claims and other transactions pertaining to normal operations of a bank were no
enjoined. The Central Bank was also ordered to designate comptroller for the petitioner BF.
This Court also ordered th consolidation of Civil Cases Nos. 8108, 9676 and 10183 in Branch
136 of the Regional Trial Court of Makati.
However, on September 12, 1985, this Court in the meantime suspended the hearing it
ordered in its resolution of August 29, 1985.
On October 8, 1985, this Court submitted a resolution order ing Branch 136 of the Regional
Trial Court of Makati the presided over by Judge Ricardo Francisco to conduct the hear ing
contemplated in the resolution of August 29, 1985 in the most expeditious manner and to
submit its resolution to this Court.
In the Court's resolution of February 19, 1987, the Court stated that the hearing
contemplated in the resolution of August 29, 1985, which is to ascertain whether substantial
administrative due process had been observed by the respondent Monetary Board, may be
expedited by Judge Manuel Cosico who now presides the court vacated by Judge Ricardo
Francisco, who was elevated to the Court of Appeals, there being no legal impediment or
justifiable reason to bar the former from conducting such hearing. Hence, this Court directed
Judge Manuel Cosico to expedite the hearing and submit his report to this Court.
On February 20, 1988, Judge Manuel Cosico submitted his report to this Court with the
recommendation that the resolutions of respondents Monetary Board and Central Bank
authorizing the closure and liquidation of petitioner BP be upheld.
On October 21, 1988, petitioner BF filed an urgent motion to reopen hearing to which
respondents filed their comment on December 16, 1988. Petitioner filed their reply to
respondent's comment of January 11, 1989. After having deliberated on the grounds raised in
the pleadings, this Court in its resolution dated August 3, 1989 declared that its intention as
expressed in its resolution of August 29, 1985 had not been faithfully adhered to by the
herein petitioner and respondents. The aforementioned resolution had ordered a healing on

the reports that led respondents to order petitioner's closure and its alleged pre-planned
liquidation. This Court noted that during the referral hearing however, a different scheme was
followed. Respondents merely submitted to the commissioner their findings on the
examinations conducted on petitioner, affidavits of the private respondents relative to the
findings, their reports to the Monetary Board and several other documents in support of their
position while petitioner had merely submitted objections to the findings of respondents,
counter-affidavits of its officers and also documents to prove its claims. Although the records
disclose that both parties had not waived cross-examination of their deponents, no such
cross-examination has been conducted. The reception of evidence in the form of affidavits
was followed throughout, until the commissioner submitted his report and recommendations
to the Court. This Court also held that the documents pertinent to the resolution of the instant
petition are the Teodoro Report, Tiaoqui Report, Valenzuela, Aurellano and Tiaoqui Report and
the supporting documents which were made as the bases by the reporters of their
conclusions contained in their respective reports. This Court also Resolved in its resolution to
re-open the referral hearing that was terminated after Judge Cosico had submitted his report
and recommendation with the end in view of allowing petitioner to complete its presentation
of evidence and also for respondents to adduce additional evidence, if so minded, and for
both parties to conduct the required cross-examination of witnesses/deponents, to be done
within a period of three months. To obviate all doubts on Judge Cosico's impartiality, this
Court designated a new hearing commissioner in the person of former Judge Consuelo
Santiago of the Regional Trial Court, Makati, Branch 149 (now Associate Justice of the Court of
Appeals).
Three motions for intervention were filed in this case as follows: First, in G.R. No. 70054 filed
by Eduardo Rodriguez and Fortunate M. Dizon, stockholders of petitioner bank for and on
behalf of other stockholders of petitioner; second, in G.R. No. 78894, filed by the same
stockholders, and, third, again in G.R. No. 70054 by BF Depositors' Association and others
similarly situated. This Court, on March 1, 1990, denied the aforesaid motions for
intervention.
On January 28, 1991, the hearing commissioner, Justice Consuelo Santiago of the Court of
Appeals submitted her report and recommendation (to be hereinafter called, "Santiago
Report") on the following issues stated therein as follows:
l) Had the Monetary Board observed the procedural requirements laid down in Sec. 29 of R.A.
265, as amended to justify th closure of the Banco Filipino Savings and Mortgage Bank?
2) On the date of BF's closure (January 25, 1985) was its condition one of insolvency or would
its continuance in business involve probable loss to its depositors or creditors?
The commissioner after evaluation of the evidence presented found and recommended the
following:
1. That the TEODORO and TIAOQUI reports did not establish in accordance with See. 29 of the
R.A. 265, as amended, BF's insolvency as of July 31, 1984 or that its continuance in business
thereafter would involve probable loss to its depositors or creditors. On the contrary, the
evidence indicates that BF was solvent on July 31, 1984 and that on January 25, 1985, the day
it was closed, its insolvency was not clearly established;
2. That consequently, BF's closure on January 25, 1985, not having satisfied the requirements
prescribed under Sec. 29 of RA 265, as amended, was null and void.
3. That accordingly, by way of correction, BF should be allowed to re-open subject to such
laws, rules and regulations that apply to its situation.

Respondents thereafter filed a motion for leave to file objections to the Santiago Report. In
the same motion, respondents requested that the report and recommendation be set for oral
argument before the Court. On February 7, 1991, this Court denied the request for oral
argument of the parties.
On February 25, 1991, respondents filed their objections to the Santiago Report. On March 5,
1991, respondents submitted a motion for oral argument alleging that this Court is confronted
with two conflicting reports on the same subject, one upholding on all points the Monetary
Board's closure of petitioner, (Cosico Report dated February 19, 1988) and the other
(Santiago Report dated January 25, 1991) holding that petitioner's closure was null and void
because petitioner's insolvency was not clearly established before its closure; and that such a
hearing on oral argrument will therefore allow the parties to directly confront the issues
before this Court.
On March 12, 1991 petitioner filed its opposition to the motion for oral argument. On March
20, 1991, it filed its reply to respondents' objections to the Santiago Report.
On June 18, 1991, a hearing was held where both parties were heard on oral argument before
this Court. The parties, having submitted their respective memoranda, the case is now
submitted for decision.
G.R. No. 78767
On February 2, 1985, Banco Filipino filed a complaint with the trial court docketed as Civil
Case No. 9675 to annul the resolution of the Monetary Board dated January 25, 1985, which
ordered the closure of the bank and placed it under receivership.
On February 14, 1985, the Central Bank and the receivers filed a motion to dismiss the
complaint on the ground that the receivers had not authorized anyone to file the action. In a
supplemental motion to dismiss, the Central Bank cited the resolution of this Court dated
October 15, 1985 in G.R. No. 65723 entitled, "Central Bank et al. v. Intermediate Appellate
Court" whereby We held that a complaint questioning the validity of the receivership
established by the Central Bank becomes moot and academic upon the initiation of
liquidation proceedings.
While the motion to dismiss was pending resolution, petitioner herein Metropolis
Development Corporation (Metropolis for brevity) filed a motion to intervene in the
aforestated civil case on the ground that as a stockholder and creditor of Banco Filipino, it has
an interest in the subject of the action.
On July 19, 1985, the trial court denied the motion to dismiss and also denied the motion for
reconsideration of the order later filed by Central Bank. On June 5, 1985, the trial court
allowed the motion for intervention.
Hence, the Central Bank and the receivers of Banco Filipino filed a petition for certiorari with
the respondent appellate court alleging that the trial court committed grave abuse of
discretion in not dismissing Civil Case No. 9675.
On March 17, 1986, the respondent appellate court rendered a decision annulling and setting
aside the questioned orders of the trial court, and ordering the dismissal of the complaint
filed by Banco Filipino with the trial court as well as the complaint in intervention of petitioner
Metropolis Development Corporation.
Hence this petition was filed by Metropolis Development Corporation questioning the decision
of the respondent appellate court.

G.R. No. 78894


On February 2, 1985, a complaint was filed with the trial court in the name of Banco Filipino
to annul the resolution o the Monetary Board dated January 25, 1985 which ordered the
closure of Banco Filipino and placed it under receivership. The receivers appointed by the
Monetary Board were Carlota Valenzuela, Arnulfo Aurellano and Ramon Tiaoqui.
On February 14, 1985, the Central Bank and the receiver filed a motion to dismiss the
complaint on the ground that the receiver had not authorized anyone to file the action.
On March 22, 1985, the Monetary Board placed the bank under liquidation and designated
Valenzuela as liquidator and Aurellano and Tiaoqui as deputy liquidators.
The Central Bank filed a supplemental motion to dismiss which was denied. Hence, the latter
filed a petition for certiorari with the respondent appellate court to set aside the order of the
trial court denying the motion to dismiss. On March 17, 1986, the respondent appellate court
granted the petition and dismissed the complaint of Banco Filipino with the trial court.
Thus, this petition for certiorari was filed with the petitioner contending that a bank which has
been closed and placed under receivership by the Central Bank under Section 29 of RA 265
could file suit in court in its name to contest such acts of the Central Bank, without the
authorization of the CB-appointed receiver.
After deliberating on the pleadings in the following cases:
1. In G.R. No. 68878, the respondent's motion for reconsideration;
2. In G.R. Nos. 77255-58, the petition, comment, reply, rejoinder and sur-rejoinder;
2. In G.R. No. 78766, the petition, comment, reply and rejoinder;
3. In G.R. No. 81303, the petitioner's motion for reconsideration;
4. In G.R.No. 81304, the petition, comment and reply;
5. Finally, in G.R. No. 90473, the petition comment and reply.
We find the motions for reconsideration in G.R. Nos. 68878 and 81303 and the petitions in
G.R. Nos. 77255-58, 78766, 81304 and 90473 devoid of merit.
Section 29 of the Republic Act No. 265, as amended known as the Central Bank Act, provides
that when a bank is forbidden to do business in the Philippines and placed under receivership,
the person designated as receiver shall immediately take charge of the bank's assets and
liabilities, as expeditiously as possible, collect and gather all the assets and administer the
same for the benefit of its creditors, and represent the bank personally or through counsel as
he may retain in all actions or proceedings for or against the institution, exercising all the
powers necessary for these purposes including, but not limited to, bringing and foreclosing
mortgages in the name of the bank. If the Monetary Board shall later determine and confirm
that banking institution is insolvent or cannot resume business safety to depositors, creditors
and the general public, it shall, public interest requires, order its liquidation and appoint a
liquidator who shall take over and continue the functions of receiver previously appointed by
Monetary Board. The liquid for may, in the name of the bank and with the assistance counsel
as he may retain, institute such actions as may necessary in the appropriate court to collect

and recover a counts and assets of such institution or defend any action ft against the
institution.
When the issue on the validity of the closure and receivership of Banco Filipino bank was
raised in G.R. No. 70054, pendency of the case did not diminish the powers and authority of
the designated liquidator to effectuate and carry on the a ministration of the bank. In fact
when We adopted a resolute on August 25, 1985 and issued a restraining order to
respondents Monetary Board and Central Bank, We enjoined me further acts of liquidation.
Such acts of liquidation, as explained in Sec. 29 of the Central Bank Act are those which
constitute the conversion of the assets of the banking institution to money or the sale,
assignment or disposition of the s to creditors and other parties for the purpose of paying
debts of such institution. We did not prohibit however acts a as receiving collectibles and
receivables or paying off credits claims and other transactions pertaining to normal operate of
a bank. There is no doubt that the prosecution of suits collection and the foreclosure of
mortgages against debtors the bank by the liquidator are among the usual and ordinary
transactions pertaining to the administration of a bank. their did Our order in the same
resolution dated August 25, 1985 for the designation by the Central Bank of a comptroller
Banco Filipino alter the powers and functions; of the liquid insofar as the management of the
assets of the bank is concerned. The mere duty of the comptroller is to supervise counts and
finances undertaken by the liquidator and to d mine the propriety of the latter's expenditures
incurred behalf of the bank. Notwithstanding this, the liquidator is empowered under the law
to continue the functions of receiver is preserving and keeping intact the assets of the bank in
substitution of its former management, and to prevent the dissipation of its assets to the
detriment of the creditors of the bank. These powers and functions of the liquidator in
directing the operations of the bank in place of the former management or former officials of
the bank include the retaining of counsel of his choice in actions and proceedings for
purposes of administration.
Clearly, in G.R. Nos. 68878, 77255-58, 78766 and 90473, the liquidator by himself or through
counsel has the authority to bring actions for foreclosure of mortgages executed by debtors in
favor of the bank. In G.R. No. 81303, the liquidator is likewise authorized to resist or defend
suits instituted against the bank by debtors and creditors of the bank and by other private
persons. Similarly, in G.R. No. 81304, due to the aforestated reasons, the Central Bank cannot
be compelled to fulfill financial transactions entered into by Banco Filipino when the
operations of the latter were suspended by reason of its closure. The Central Bank possesses
those powers and functions only as provided for in Sec. 29 of the Central Bank Act.
While We recognize the actual closure of Banco Filipino and the consequent legal effects
thereof on its operations, We cannot uphold the legality of its closure and thus, find the
petitions in G.R. Nos. 70054, 78767 and 78894 impressed with merit. We hold that the
closure and receivership of petitioner bank, which was ordered by respondent Monetary
Board on January 25, 1985, is null and void.
It is a well-recognized principle that administrative and discretionary functions may not be
interfered with by the courts. In general, courts have no supervising power over the
proceedings and actions of the administrative departments of the government. This is
generally true with respect to acts involving the exercise of judgment or discretion, and
findings of fact. But when there is a grave abuse of discretion which is equivalent to a
capricious and whimsical exercise of judgment or where the power is exercised in an arbitrary
or despotic manner, then there is a justification for the courts to set aside the administrative
determination reached (Lim, Sr. v. Secretary of Agriculture and Natural Resources, L-26990,
August 31, 1970, 34 SCRA 751)
The jurisdiction of this Court is called upon, once again, through these petitions, to undertake
the delicate task of ascertaining whether or not an administrative agency of the government,

like the Central Bank of the Philippines and the Monetary Board, has committed grave abuse
of discretion or has acted without or in excess of jurisdiction in issuing the assailed order.
Coupled with this task is the duty of this Court not only to strike down acts which violate
constitutional protections or to nullify administrative decisions contrary to legal mandates but
also to prevent acts in excess of authority or jurisdiction, as well as to correct manifest
abuses of discretion committed by the officer or tribunal involved.
The law applicable in the determination of these issues is Section 29 of Republic Act No. 265,
as amended, also known as the Central Bank Act, which provides:
SEC. 29. Proceedings upon insolvency. Whenever, upon examination by the head of the
appropriate supervising or examining department or his examiners or agents into the
condition of any bank or non-bank financial intermediary performing quasi-banking functions,
it shall be disclosed that the condition of the same is one of insolvency, or that its
continuance in business would involve probable loss to its depositors or creditors, it shall be
the duty of the department head concerned forthwith, in writing, to inform the Monetary
Board of the facts. The Board may, upon finding the statements of the department head to be
true, forbid the institution to do business in the Philippines and designate an official of the
Central Bank or a person of recognized competence in banking or finance, as receiver to
immediately take charge of its assets and liabilities, as expeditiously as possible collect and
gather all the assets and administer the same for the benefit's of its creditors, and represent
the bank personally or through counsel as he may retain in all actions or proceedings for or
against the institution, exercising all the powers necessary for these purposes including, but
not limited to, bringing and foreclosing mortgages in the name of the bank or non-bank
financial intermediary performing quasi-banking functions.
The Monetary Board shall thereupon determine within sixty days whether the institution may
be reorganized or otherwise placed in such a condition so that it may be permitted to resume
business with safety to its depositors and creditors and the general public and shall prescribe
the conditions under which such resumption of business shall take place as well as the time
for fulfillment of such conditions. In such case, the expenses and fees in the collection and
administration of the assets of the institution shall be determined by the Board and shall be
paid to the Central Bank out of the assets of such institution.
If the Monetary Board shall determine and confirm within the said period that the bank or
non-bank financial intermediary performing quasi-banking functions is insolvent or cannot
resume business with safety to its depositors, creditors, and the general public, it shall, if the
public interest requires, order its liquidation, indicate the manner of its liquidation and
approve a liquidation plan which may, when warranted, involve disposition of any or all assets
in consideration for the assumption of equivalent liabilities. The liquidator designated as
hereunder provided shall, by the Solicitor General, file a petition in the regional trial court
reciting the proceedings which have been taken and praying the assistance of the court in the
liquidation of such institutions. The court shall have jurisdiction in the same proceedings to
assist in the adjudication of the disputed claims against the bank or non-bank financial
intermediary performing quasi-banking functions and in the enforcement of individual
liabilities of the stockholders and do all that is necessary to preserve the assets of such
institutions and to implement the liquidation plan approved by the Monetary Board. The
Monetary Board shall designate an official of the Central bank or a person of recognized
competence in banking or finance, as liquidator who shall take over and continue the
functions of the receiver previously appointed by the Monetary Board under this Section. The
liquidator shall, with all convenient speed, convert the assets of the banking institutions or
non-bank financial intermediary performing quasi-banking function to money or sell, assign or
otherwise dispose of the same to creditors and other parties for the purpose of paying the
debts of such institution and he may, in the name of the bank or non-bank financial
intermediary performing quasi-banking functions and with the assistance of counsel as he

may retain, institute such actions as may be necessary in the appropriate court to collect and
recover accounts and assets of such institution or defend any action filed against the
institution: Provided, However, That after having reasonably established all claims against the
institution, the liquidator may, with the approval of the court, effect partial payments of such
claims for assets of the institution in accordance with their legal priority.
The assets of an institution under receivership or liquidation shall be deemed in custodia legis
in the hands of the receiver or liquidator and shall from the moment of such receivership or
liquidation, be exempt from any order of garnishment, levy, attachment, orexecution.
The provisions of any law to the contrary notwithstanding, the actions of the Monetary Board
under this Section, Section 28-A, an the second paragraph of Section 34 of this Act shall be
final an executory, and can be set aside by a court only if there is convince proof, after
hearing, that the action is plainly arbitrary and made in bad faith: Provided, That the same is
raised in an appropriate pleading filed by the stockholders of record representing the majority
of th capital stock within ten (10) days from the date the receiver take charge of the assets
and liabilities of the bank or non-bank financial intermediary performing quasi-banking
functions or, in case of conservatorship or liquidation, within ten (10) days from receipt of
notice by the said majority stockholders of said bank or non-bank financial intermediary of the
order of its placement under conservatorship o liquidation. No restraining order or injunction
shall be issued by an court enjoining the Central Bank from implementing its actions under
this Section and the second paragraph of Section 34 of this Act in th absence of any
convincing proof that the action of the Monetary Board is plainly arbitrary and made in bad
faith and the petitioner or plaintiff files a bond, executed in favor of the Central Bank, in an
amount be fixed by the court. The restraining order or injunction shall be refused or, if
granted, shall be dissolved upon filing by the Central Bank of a bond, which shall be in the
form of cash or Central Bank cashier's check, in an amount twice the amount of the bond of
th petitioner or plaintiff conditioned that it will pay the damages which the petitioner or
plaintiff may suffer by the refusal or the dissolution of the injunction. The provisions of Rule
58 of the New Rules of Court insofar as they are applicable and not inconsistent with the
provision of this Section shall govern the issuance and dissolution of the re straining order or
injunction contemplated in this Section.
xxx xxx xxx
Based on the aforequoted provision, the Monetary Board may order the cessation of
operations of a bank in the Philippine and place it under receivership upon a finding of
insolvency or when its continuance in business would involve probable loss its depositors or
creditors. If the Monetary Board shall determine and confirm within sixty (60) days that the
bank is insolvent or can no longer resume business with safety to its depositors, creditors and
the general public, it shall, if public interest will be served, order its liquidation.
Specifically, the basic question to be resolved in G.R. Nos. 70054, 78767 and 78894 is
whether or not the Central Bank and the Monetary Board acted arbitrarily and in bad faith in
finding and thereafter concluding that petitioner bank is insolvent, and in ordering its closure
on January 25, 1985.
As We have stated in Our resolution dated August 3, 1989, the documents pertinent to the
resolution of these petitions are the Teodoro Report, Tiaoqui Report, and the Valenzuela,
Aurellano and Tiaoqui Report and the supporting documents made as bases by the supporters
of their conclusions contained in their respective reports. We will focus Our study and
discussion however on the Tiaoqui Report and the Valenzuela, Aurellano and Tiaoqui Report.
The former recommended the closure and receivership of petitioner bank while the latter
report made the recommendation to eventually place the petitioner bank under liquidation.
This Court shall likewise take into consideration the findings contained in the reports of the

two commissioners who were appointed by this Court to hold the referral hearings, namely
the report by Judge Manuel Cosico submitted February 20, 1988 and the report submitted by
Justice Consuelo Santiago on January 28, 1991.
There is no question that under Section 29 of the Central Bank Act, the following are the
mandatory requirements to be complied with before a bank found to be insolvent is ordered
closed and forbidden to do business in the Philippines: Firstly, an examination shall be
conducted by the head of the appropriate supervising or examining department or his
examiners or agents into the condition of the bank; secondly, it shall be disclosed in the
examination that the condition of the bank is one of insolvency, or that its continuance in
business would involve probable loss to its depositors or creditors; thirdly, the department
head concerned shall inform the Monetary Board in writing, of the facts; and lastly, the
Monetary Board shall find the statements of the department head to be true.
Anent the first requirement, the Tiaoqui report, submitted on January 23, 1985, revealed that
the finding of insolvency of petitioner was based on the partial list of exceptions and findings
on the regular examination of the bank as of July 31, 1984 conducted by the Supervision and
Examination Sector II of the Central Bank of the PhilippinesCentral Bank (p. 1, Tiaoqui Report).
On December 17, 1984, this list of exceptions and finding was submitted to the petitioner
bank (p. 6, Tiaoqui Report) This was attached to the letter dated December 17, 1984, of
examiner-in-charge Dionisio Domingo of SES Department II of the Central Bank to Teodoro
Arcenas, president of petitione bank, which disclosed that the examination of the petitioner
bank as to its financial condition as of July 31, 1984 was not yet completed or finished on
December 17, 1984 when the Central Bank submitted the partial list of findings of
examination to th petitioner bank. The letter reads:
In connection with the regular examination of your institution a of July 31, 1984, we are
submitting herewith a partial list of our exceptions/findings for your comments.
Please be informed that we have not yet officially terminated our examination (tentatively
scheduled last December 7, 1984) and that we are still awaiting for the unsubmitted replies
to our previous letters requests. Moreover, other findings/ observations are still being
summarized including the classification of loans and other risk assets. These shall be
submitted to you in due time (p. 810, Rollo, Vol. III; emphasis ours).
It is worthy to note that a conference was held on January 21, 1985 at the Central Bank
between the officials of the latter an of petitioner bank. What transpired and what was agreed
upon during the conference was explained in the Tiaoqui report.
... The discussion centered on the substantial exposure of the bank
which would have a relationship with the bank; the manner by which
made indirectly available to several entities within the group; and
status of these firms in which the bank was additionally exposed
refinancing accommodation including accrued interest.

to the various entities


some bank funds were
the unhealth financial
through new funds or

Queried in the impact of these clean loans, on the bank solvency Mr. Dizon (BF Executive Vice
President) intimated that, collectively these corporations have large undeveloped real estate
properties in the suburbs which can be made answerable for the unsecured loans a well as
the Central Bank's credit accommodations. A formal reply of the bank would still be
forthcoming. (pp. 58-59, Rollo, Vol. I; emphasis ours)
Clearly, Tiaoqui based his report on an incomplete examination of petitioner bank and
outrightly concluded therein that the latter's financial status was one of insolvency or
illiquidity. He arrived at the said conclusion from the following facts: that as of July 31, 1984,

total capital accounts consisting of paid-in capital and other capital accounts such as surplus,
surplus reserves and undivided profits aggregated P351.8 million; that capital adjustments,
however, wiped out the capital accounts and placed the bank with a capital deficiency
amounting to P334.956 million; that the biggest adjustment which contributed to the deficit is
the provision for estimated losses on accounts classified as doubtful and loss which was
computed at P600.4 million pursuant to the examination. This provision is also known as
valuation reserves which was set up or deducted against the capital accounts of the bank in
arriving at the latter's financial condition.
Tiaoqui however admits the insufficiency and unreliability of the findings of the examiner as
to the setting up of recommended valuation reserves from the assets of petitioner bank. He
stated:
The recommended valuation reserves as bases for determining the financial status of the
bank would need to be discussed with the bank, consistent with standard examination
procedure, for which the bank would in turn reply. Also, the examination has not been
officially terminated. (p. 7. Tiaoqui report; p. 59, Rollo, Vol. I)
In his testimony in the second referral hearing before Justice Santiago, Tiaoqui testified that
on January 21, 1985, he met with officers of petitioner bank to discuss the advanced findings
and exceptions made by Mr. Dionisio Domingo which covered 70%-80% of the bank's loan
portfolio; that at that meeting, Fortunato Dizon (BF's Executive Vice President) said that as
regards the unsecured loans granted to various corporations, said corporations had large
undeveloped real estate properties which could be answerable for the said unsecured loans
and that a reply from BF was forthcoming, that he (Tiaoqui) however prepared his report
despite the absence of such reply; that he believed, as in fact it is stated in his report, that
despite the meeting on January 21, 1985, there was still a need to discuss the recommended
valuation reserves of petitioner bank and; that he however, did not wait anymore for a
discussion of the recommended valuation reserves and instead prepared his report two days
after January 21, 1985 (pp. 3313-3314, Rollo).
Records further show that the examination of petitioner bank was officially terminated only
when Central Bank Examination-charge Dionisio Domingo submitted his final report of
examination on March 4,1985.
It is evident from the foregoing circumstances that the examination contemplated in Sec. 29
of the CB Act as a mandatory requirement was not completely and fully complied with.
Despite the existence of the partial list of findings in the examination of the bank, there were
still highly significant items to be weighed and determined such as the matter of valuation
reserves, before these can be considered in the financial condition of the bank. It would be a
drastic move to conclude prematurely that a bank is insolvent if the basis for such conclusion
is lacking and insufficient, especially if doubt exists as to whether such bases or findings
faithfully represent the real financial status of the bank.
The actuation of the Monetary Board in closing petitioner bank on January 25, 1985 barely
four days after a conference with the latter on the examiners' partial findings on its financial
position is also violative of what was provided in the CB Manual of Examination Procedures.
Said manual provides that only after the examination is concluded, should a pre-closing
conference led by the examiner-in-charge be held with the officers/representatives of the
institution on the findings/exception, and a copy of the summary of the findings/violations
should be furnished the institution examined so that corrective action may be taken by them
as soon as possible (Manual of Examination Procedures, General Instruction, p. 14). It is hard
to understand how a period of four days after the conference could be a reasonable
opportunity for a bank to undertake a responsive and corrective action on the partial list of
findings of the examiner-in-charge.

We recognize the fact that it is the responsibility of the Central Bank of the Philippines to
administer the monetary, banking and credit system of the country and that its powers and
functions shall be exercised by the Monetary Board pursuant to Rep. Act No. 265, known as
the Central Bank Act. Consequently, the power and authority of the Monetary Board to close
banks and liquidate them thereafter when public interest so requires is an exercise of the
police power of the state. Police power, however, may not be done arbitratrily or
unreasonably and could be set aside if it is either capricious, discriminatory, whimsical,
arbitrary, unjust or is tantamount to a denial of due process and equal protection clauses of
the Constitution (Central Bank v. Court of Appeals, Nos. L-50031-32, July 27, 1981, 106 SCRA
143).
In the instant case, the basic standards of substantial due process were not observed. Time
and again, We have held in several cases, that the procedure of administrative tribunals must
satisfy the fundamentals of fair play and that their judgment should express a well-supported
conclusion.
In the celebrated case of Ang Tibay v. Court of Industrial Relations, 69 Phil. 635, this Court
laid down several cardinal primary rights which must be respected in a proceeding before an
administrative body.
However, as to the requirement of notice and hearing, Sec. 29 of RA 265 does not require a
previous hearing before the Monetary Board implements the closure of a bank, since its
action is subject to judicial scrutiny as provided for under the same law (Rural Bank of Bato v.
IAC, G.R. No. 65642, October 15, 1984, Rural Bank v. Court of Appeals, G.R. 61689, June 20,
1988,162 SCRA 288).
Notwithstanding the foregoing, administrative due process does not mean that the other
important principles may be dispensed with, namely: the decision of the administrative body
must have something to support itself and the evidence must be substantial. Substantial
evidence is more than a mere scintilla. It means such relevant evidence as a reasonable mind
might accept as adequate to support a conclusion (Ang Tibay vs. CIR, supra). Hence, where
the decision is merely based upon pieces of documentary evidence that are not sufficiently
substantial and probative for the purpose and conclusion they are presented, the standard of
fairness mandated in the due process clause is not met. In the case at bar, the conclusion
arrived at by the respondent Board that the petitioner bank is in an illiquid financial position
on January 23, 1985, as to justify its closure on January 25, 1985 cannot be given weight and
finality as the report itself admits the inadequacy of its basis to support its conclusion.
The second requirement provided in Section 29, R.A. 265 before a bank may be closed is that
the examination should disclose that the condition of the bank is one of insolvency.
As to the concept of whether the bank is solvent or not, the respondents contend that under
the Central Bank Manual of Examination Procedures, Central Bank examiners must
recommend valuation reserves, when warranted, to be set up or deducted against the
corresponding asset account to determine the bank's true condition or net worth. In the case
of loan accounts, to which practically all the questioned valuation reserves refer, the manual
provides that:
1. For doubtful loans, or loans the ultimate collection of which is doubtful and in which a
substantial loss is probable but not yet definitely ascertainable as to extent, valuation
reserves of fifty per cent (50%) of the accounts should be recommended to be set up.

2. For loans classified as loss, or loans regarded by the examiner as absolutely uncollectible
or worthless, valuation reserves of one hundred percent (100%) of the accounts should be
recommended to be set up (p. 8, Objections to Santiago report).
The foregoing criteria used by respondents in determining the financial condition of the bank
is based on Section 5 of RA 337, known as the General Banking Act which states:
Sec. 5. The following terms shall be held to be synonymous and interchangeable:
... f. Unimpaired Capital and Surplus, "Combined capital accounts," and "Net worth," which
terms shall mean for the purposes of this Act, the total of the "unimpaired paid-in capital,
surplus, and undivided profits net of such valuation reserves as may be required by the
Central Bank."
There is no doubt that the Central Bank Act vests authority upon the Central Bank and
Monetary Board to take charge and administer the monetary and banking system of the
country and this authority includes the power to examine and determine the financial
condition of banks for purposes provided for by law, such as for the purpose of closure on the
ground of insolvency stated in Section 29 of the Central Bank Act. But express grants of
power to public officers should be subjected to a strict interpretation, and will be construed as
conferring those powers which are expressly imposed or necessarily implied (Floyd Mechem,
Treatise on the Law of Public Offices and Officers, p. 335).
In this case, there can be no clearer explanation of the concept of insolvency than what the
law itself states. Sec. 29 of the Central Bank Act provides that insolvency under the Act, shall
be understood to mean that "the realizable assets of a bank or a non-bank financial
intermediary performing quasi-banking functions as determined by the Central Bank are
insufficient to meet its liabilities."
Hence, the contention of the Central Bank that a bank's true financial condition is
synonymous with the terms "unimpaired capital and surplus," "combined capital accounts"
and net worth after deducting valuation reserves from the capital, surplus and unretained
earnings, citing Sec. 5 of RA 337 is misplaced.
Firstly, it is clear from the law that a solvent bank is one in which its assets exceed its
liabilities. It is a basic accounting principle that assets are composed of liabilities and capital.
The term "assets" includes capital and surplus" (Exley v. Harris, 267 p. 970, 973, 126 Kan.,
302). On the other hand, the term "capital" includes common and preferred stock, surplus
reserves, surplus and undivided profits. (Manual of Examination Procedures, Report of
Examination on Department of Commercial and Savings Banks, p. 3-C). If valuation reserves
would be deducted from these items, the result would merely be the networth or the
unimpaired capital and surplus of the bank applying Sec. 5 of RA 337 but not the total
financial condition of the bank.
Secondly, the statement of assets and liabilities is used in balance sheets. Banks use
statements of condition to reflect the amounts, nature and changes in the assets and
liabilities. The Central Bank Manual of Examination Procedures provides a format or checklist
of a statement of condition to be used by examiners as guide in the examination of banks.
The format enumerates the items which will compose the assets and liabilities of a bank.
Assets include cash and those due from banks, loans, discounts and advances, fixed assets
and other property owned or acquired and other miscellaneous assets. The amount of loans,
discounts and advances to be stated in the statement of condition as provided for in the
manual is computed after deducting valuation reserves when deemed necessary. On the
other hand, liabilities are composed of demand deposits, time and savings deposits, cashier's,
manager's and certified checks, borrowings, due to head office, branches; and agencies,

other liabilities and deferred credits (Manual of Examination Procedure, p. 9). The amounts
stated in the balance sheets or statements of condition including the computation of
valuation reserves when justified, are based however, on the assumption that the bank or
company will continue in business indefinitely, and therefore, the networth shown in the
statement is in no sense an indication of the amount that might be realized if the bank or
company were to be liquidated immediately (Prentice Hall Encyclopedic Dictionary of
Business Finance, p. 48). Further, based on respondents' submissions, the allowance for
probable losses on loans and discounts represents the amount set up against current
operations to provide for possible losses arising from non-collection of loans and advances,
and this account is also referred to as valuation reserve (p. 9, Objections to Santiago report).
Clearly, the statement of condition which contains a provision for recommended valuation
reserves should not be used as the ultimate basis to determine the solvency of an institution
for the purpose of termination of its operations.
Respondents acknowledge that under the said CB manual, CB examiners must recommend
valuation reserves, when warranted, to be set up against the corresponding asset account (p.
8, Objections to Santiago report). Tiaoqui himself, as author of the report recommending the
closure of petitioner bank admits that the valuation reserves should still be discussed with the
petitioner bank in compliance with standard examination procedure. Hence, for the Monetary
Board to unilaterally deduct an uncertain amount as valuation reserves from the assets of a
bank and to conclude therefrom without sufficient basis that the bank is insolvent, would be
totally unjust and unfair.
The test of insolvency laid down in Section 29 of the Central Bank Act is measured by
determining whether the realizable assets of a bank are leas than its liabilities. Hence, a bank
is solvent if the fair cash value of all its assets, realizable within a reasonable time by a
reasonable prudent person, would equal or exceed its total liabilities exclusive of stock
liability; but if such fair cash value so realizable is not sufficient to pay such liabilities within a
reasonable time, the bank is insolvent. (Gillian v. State, 194 N.E. 360, 363, 207 Ind. 661).
Stated in other words, the insolvency of a bank occurs when the actual cash market value of
its assets is insufficient to pay its liabilities, not considering capital stock and surplus which
are not liabilities for such purpose (Exley v. Harris, 267 p. 970, 973,126 Kan. 302; Alexander
v. Llewellyn, Mo. App., 70 S.W. 2n 115,117).
In arriving at the computation of realizable assets of petitioner bank, respondents used its
books which undoubtedly are not reflective of the actual cash or fair market value of its
assets. This is not the proper procedure contemplated in Sec. 29 of the Central Bank Act.
Even the CB Manual of Examination Procedures does not confine examination of a bank solely
with the determination of the books of the bank. The latter is part of auditing which should
not be confused with examination. Examination appraises the soundness of the institution's
assets, the quality and character of management and determines the institution's compliance
with laws, rules and regulations. Audit is a detailed inspection of the institution's books,
accounts, vouchers, ledgers, etc. to determine the recording of all assets and liabilities.
Hence, examination concerns itself with review and appraisal, while audit concerns itself with
verification (CB Manual of Examination Procedures, General Instructions, p. 5). This Court
however, is not in the position to determine how much cash or market value shall be assigned
to each of the assets and liabilities of the bank to determine their total realizable value. The
proper determination of these matters by using the actual cash value criteria belongs to the
field of fact-finding expertise of the Central Bank and the Monetary Board. Notwithstanding
the fact that the figures arrived at by the respondent Board as to assets and liabilities do not
truly indicate their realizable value as they were merely based on book value, We will
however, take a look at the figures presented by the Tiaoqui Report in concluding insolvency
as of July 31, 1984 and at the figures presented by the CB authorized deputy receiver and by
the Valenzuela, Aurellano and Tiaoqui Report which recommended the liquidation of the bank
by reason of insolvency as o January 25,1985.

The Tiaoqui report dated January 23, 1985, which was based on partial examination findings
on the bank's condition as of July 31, 1984, states that total liabilities of P5,282.1 million
exceeds total assets of P4,947.2 million after deducting from the assets valuation reserves of
P612.2 million. Since, as We have explained in our previous discussion that valuation reserves
can not be legally deducted as there was no truthful and complete evaluation thereof as
admitted by the Tiaoqui report itself, then an adjustment of the figures win show that the
liabilities of P5,282.1 million will not exceed the total assets which will amount to P5,559.4 if
the 612.2 million allotted to valuation reserves will not be deducted from the assets. There
can be no basis therefore for both the conclusion of insolvency and for the decision of the
respondent Board to close petitioner bank and place it under receivership.
Concerning the financial position of the bank as of January 25, 1985, the date of the closure of
the bank, the consolidated statement of condition thereof as of the aforesaid date shown in
the Valenzuela, Aurellano and Tiaoqui report on the receivership of petitioner bank, dated
March 19, 1985, indicates that total liabilities of 4,540.84 million does not exceed the total
assets of 4,981.53 million. Likewise, the consolidated statement of condition of petitioner
bank as of January 25, 1985 prepared by the Central Bank Authorized Deputy Receiver
Artemio Cruz shows that total assets amounting to P4,981,522,996.22 even exceeds total
liabilities amounting to P4,540,836,834.15. Based on the foregoing, there was no valid reason
for the Valenzuela, Aurellano and Tiaoqui report to finally recommend the liquidation of
petitioner bank instead of its rehabilitation.
We take note of the exhaustive study and findings of the Cosico report on the petitioner
bank's having engaged in unsafe, unsound and fraudulent banking practices by the granting
of huge unsecured loans to several subsidiaries and related companies. We do not see,
however, that this has any material bearing on the validity of the closure. Section 34 of the
RA 265, Central Bank Act empowers the Monetary Board to take action under Section 29 of
the Central Bank Act when a bank "persists in carrying on its business in an unlawful or
unsafe manner." There was no showing whatsoever that the bank had persisted in
committing unlawful banking practices and that the respondent Board had attempted to take
effective action on the bank's alleged activities. During the period from July 27, 1984 up to
January 25, 1985, when petitioner bank was under conservatorship no official of the bank was
ever prosecuted, suspended or removed for any participation in unsafe and unsound banking
practices, and neither was the entire management of the bank replaced or substituted. In
fact, in her testimony during the second referral hearing, Carlota Valenzuela, CB Deputy
Governor, testified that the reason for petitioner bank's closure was not unsound, unsafe and
fraudulent banking practices but the alleged insolvency position of the bank (TSN, August 3,
1990, p. 3316, Rollo, Vol. VIII).
Finally, another circumstance which point to the solvency of petitioner bank is the granting by
the Monetary Board in favor of the former a credit line in the amount of P3 billion along with
the placing of petitioner bank under conservatorship by virtue of M.B. Resolution No. 955
dated July 27, 1984. This paved the way for the reopening of the bank on August 1, 1984 after
a self-imposed bank holiday on July 23, 1984.
On emergency loans and advances, Section 90 of RA 265 provides two types of emergency
loans that can be granted by the Central Bank to a financially distressed bank:
Sec. 90. ... In periods of emergency or of imminent financial panic which directly threaten
monetary and banking stability, the Central Bank may grant banking institutions
extraordinary advances secured by any assets which are defined as acceptable by by a
concurrent vote of at least five members of the Monetary Board. While such advances are
outstanding, the debtor institution may not expand the total volume of its loans or
investments without the prior authorization of the Monetary Board.

The Central Bank may, at its discretion, likewise grant advances to banking institutions, even
during normal periods, for the purpose of assisting a bank in a precarious financial condition
or under serious financial pressures brought about by unforeseen events, or events which,
though foreseeable, could not be prevented by the bank concerned. Provided, however, That
the Monetary Board has ascertained that the bank is not insolvent and has clearly realizable
assets to secure the advances. Provided, further, That a concurrent vote of at least five
members of the Monetary Board is obtained. (Emphasis ours)
The first paragraph of the aforequoted provision contemplates a situation where the whole
banking community is confronted with financial and economic crisis giving rise to serious and
widespread confusion among the public, which may eventually threaten and gravely
prejudice the stability of the banking system. Here, the emergency or financial confusion
involves the whole banking community and not one bank or institution only. The second
situation on the other hand, provides for a situation where the Central Bank grants a loan to a
bank with uncertain financial condition but not insolvent.
As alleged by the respondents, the following are the reasons of the Central Bank in approving
the resolution granting the P3 billion loan to petitioner bank and the latter's reopening after a
brief self-imposed banking holiday:
WHEREAS, the closure by Banco Filipino Savings and Mortgage Bank of its Banking offices on
its own initiative has worked serious hardships on its depositors and has affected confidence
levels in the banking system resulting in a feeling of apprehension among depositors and
unnecessary deposit withdrawals;
WHEREAS, the Central Bank is charged with the function of administering the banking
system;
WHEREAS, the reopening of Banco Filipino would require additional credit resources from the
Central Bank as well as an independent management acceptable to the Central Bank;
WHEREAS, it is the desire of the Central Bank to rapidly diffuse the uncertainty that presently
exists;
... (M.B. Min. No. 35 dated July 27, 1984 cited in Respondents' Objections to Santiago Report,
p. 26; p. 3387, Rollo, Vol. IX; Emphasis ours).
A perusal of the foregoing "Whereas" clauses unmistakably show that the clear reason for the
decision to grant the emergency loan to petitioner bank was that the latter was suffering from
financial distress and severe bank "run" as a result of which it closed on July 23, 1984 and
that the release of the said amount is in accordance with the Central Bank's full support to
meet Banco Filipino's depositors' withdrawal requirements (Excerpts of minutes of meeting on
MB Min. No. 35, p. 25, Rollo, Vol. IX). Nothing therein shows that an extraordinary emergency
situation exists affecting most banks, not only as regards petitioner bank. This Court thereby
finds that the grant of the said emergency loan was intended from the beginning to fall under
the second paragraph of Section 90 of the Central Bank Act, which could not have occurred if
the petitioner bank was not solvent. Where notwithstanding knowledge of the irregularities
and unsafe banking practices allegedly committed by the petitioner bank, the Central Bank
even granted financial support to the latter and placed it under conservatorship, such
actuation means that petitioner bank could still be saved from its financial distress by
adequate aid and management reform, which was required by Central Bank's duty to
maintain the stability of the banking system and the preservation of public confidence in it
(Ramos v. Central Bank, No. L-29352, October 4, 1971, 41 SCRA 565).

In view of the foregoing premises, We believe that the closure of the petitioner bank was
arbitrary and committed with grave abuse of discretion. Granting in gratia argumenti that the
closure was based on justified grounds to protect the public, the fact that petitioner bank was
suffering from serious financial problems should not automatically lead to its liquidation.
Section 29 of the Central Bank provides that a closed bank may be reorganized or otherwise
placed in such a condition that it may be permitted to resume business with safety to its
depositors, creditors and the general public.
We are aware of the Central Bank's concern for the safety of Banco Filipino's depositors as
well as its creditors including itself which had granted substantial financial assistance up to
the time of the latter's closure. But there are alternatives to permanent closure and
liquidation to safeguard those interests as well as those of the general public for the failure of
Banco Filipino or any bank for that matter may be viewed as an irreversible decline of the
country's entire banking system and ultimately, it may reflect on the Central Bank's own
viability. For one thing, the Central Bank and the Monetary Board should exercise strict
supervision over Banco Filipino. They should take all the necessary steps not violative of the
laws that will fully secure the repayment of the total financial assistance that the Central
Bank had already granted or would grant in the future.
ACCORDINGLY, decision is hereby rendered as follows:
1. The motion for reconsideration in G.R. Nos. 68878 and 81303, and the petitions in G.R.
Nos. 77255-58, 78766, 81304 and 90473 are DENIED;
2. The petitions in G.R. No. 70054, 78767 and 78894 are GRANTED and the assailed order of
the Central Bank and the Monetary Board dated January 25, 1985 is hereby ANNULLED AND
SET ASIDE. The Central Bank and the Monetary Board are ordered to reorganize petitioner
Banco Filipino Savings and Mortgage Bank and allow the latter to resume business in the
Philippines under the comptrollership of both the Central Bank and the Monetary Board and
under such conditions as may be prescribed by the latter in connection with its reorganization
until such time that petitioner bank can continue in business with safety to its creditors,
depositors and the general public.
SO ORDERED.
Narvasa, C.J., Gutierrez, Jr., Cruz, Bidin and Regalado, JJ., concur.
Paras, Feliciano, Padilla, Davide, Jr. and Nocon, JJ., took no part.

(28) 252 SCRA 259


G.R. No. 115849

January 24, 1996

FIRST PHILIPPINE INTERNATIONAL BANK (Formerly Producers Bank of the Philippines) and
MERCURIO RIVERA, petitioners,
vs.
COURT OF APPEALS, CARLOS EJERCITO, in substitution of DEMETRIO DEMETRIA, and JOSE
JANOLO, respondents.
DECISION
PANGANIBAN, J.:
In the absence of a formal deed of sale, may commitments given by bank officers in an
exchange of letters and/or in a meeting with the buyers constitute a perfected and
enforceable contract of sale over 101 hectares of land in Sta. Rosa, Laguna? Does the
doctrine of "apparent authority" apply in this case? If so, may the Central Bank-appointed
conservator of Producers Bank (now First Philippine International Bank) repudiate such
"apparent authority" after said contract has been deemed perfected? During the pendency of
a suit for specific performance, does the filing of a "derivative suit" by the majority
shareholders and directors of the distressed bank to prevent the enforcement or
implementation of the sale violate the ban against forum-shopping?
Simply stated, these are the major questions brought before this Court in the instant Petition
for review on certiorari under Rule 45 of the Rules of Court, to set aside the Decision
promulgated January 14, 1994 of the respondent Court of Appeals1 in CA-G.R CV No. 35756
and the Resolution promulgated June 14, 1994 denying the motion for reconsideration. The
dispositive portion of the said Decision reads:
WHEREFORE, the decision of the lower court is MODIFIED by the elimination of the damages
awarded under paragraphs 3, 4 and 6 of its dispositive portion and the reduction of the award
in paragraph 5 thereof to P75,000.00, to be assessed against defendant bank. In all other
aspects, said decision is hereby AFFIRMED.
All references to the original plaintiffs in the decision and its dispositive portion are deemed,
herein and hereafter, to legally refer to the plaintiff-appellee Carlos C. Ejercito.
Costs against appellant bank.
The dispositive portion of the trial court's2 decision dated July 10, 1991, on the other hand, is
as follows:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs and
against the defendants as follows:
1. Declaring the existence of a perfected contract to buy and sell over the six (6) parcels of
land situated at Don Jose, Sta. Rosa, Laguna with an area of 101 hectares, more or less,

covered by and embraced in Transfer Certificates of Title Nos. T-106932 to T-106937,


inclusive, of the Land Records of Laguna, between the plaintiffs as buyers and the defendant
Producers Bank for an agreed price of Five and One Half Million (P5,500,000.00) Pesos;
2. Ordering defendant Producers Bank of the Philippines, upon finality of this decision and
receipt from the plaintiffs the amount of P5.5 Million, to execute in favor of said plaintiffs a
deed of absolute sale over the aforementioned six (6) parcels of land, and to immediately
deliver to the plaintiffs the owner's copies of T.C.T. Nos. T-106932 to T- 106937, inclusive, for
purposes of registration of the same deed and transfer of the six (6) titles in the names of the
plaintiffs;
3. Ordering the defendants, jointly and severally, to pay plaintiffs Jose A. Janolo and Demetrio
Demetria the sums of P200,000.00 each in moral damages;
4. Ordering the defendants, jointly and severally, to pay plaintiffs the sum of P100,000.00 as
exemplary damages ;
5. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount of
P400,000.00 for and by way of attorney's fees;
6. Ordering the defendants to pay the plaintiffs, jointly and severally, actual and moderate
damages in the amount of P20,000.00;
With costs against the defendants.
After the parties filed their comment, reply, rejoinder, sur-rejoinder and reply to sur-rejoinder,
the petition was given due course in a Resolution dated January 18, 1995. Thence, the parties
filed their respective memoranda and reply memoranda. The First Division transferred this
case to the Third Division per resolution dated October 23, 1995. After carefully deliberating
on the aforesaid submissions, the Court assigned the case to the undersigned ponente for the
writing of this Decision.
The Parties
Petitioner First Philippine International Bank (formerly Producers Bank of the Philippines;
petitioner Bank, for brevity) is a banking institution organized and existing under the laws of
the Republic of the Philippines. Petitioner Mercurio Rivera (petitioner Rivera, for brevity) is of
legal age and was, at all times material to this case, Head-Manager of the Property
Management Department of the petitioner Bank.
Respondent Carlos Ejercito (respondent Ejercito, for brevity) is of legal age and is the
assignee of original plaintiffs-appellees Demetrio Demetria and Jose Janolo.
Respondent Court of Appeals is the court which issued the Decision and Resolution sought to
be set aside through this petition.
The Facts
The facts of this case are summarized in the respondent Court's Decision3 as follows:
(1) In the course of its banking operations, the defendant Producer Bank of the Philippines
acquired six parcels of land with a total area of 101 hectares located at Don Jose, Sta. Rose,
Laguna, and covered by Transfer Certificates of Title Nos. T-106932 to T-106937. The
property used to be owned by BYME Investment and Development Corporation which had
them mortgaged with the bank as collateral for a loan. The original plaintiffs, Demetrio

Demetria and Jose O. Janolo, wanted to purchase the property and thus initiated negotiations
for that purpose.
(2) In the early part of August 1987 said plaintiffs, upon the suggestion of BYME investment's
legal counsel, Jose Fajardo, met with defendant Mercurio Rivera, Manager of the Property
Management Department of the defendant bank. The meeting was held pursuant to plaintiffs'
plan to buy the property (TSN of Jan. 16, 1990, pp. 7-10). After the meeting, plaintiff Janolo,
following the advice of defendant Rivera, made a formal purchase offer to the bank through a
letter dated August 30, 1987 (Exh. "B"), as follows:
August 30, 1987
The Producers Bank of the Philippines
Makati, Metro Manila
Attn. Mr. Mercurio Q. Rivera
Manager, Property Management Dept.
Gentleman:
I have the honor to submit my formal offer to purchase your properties covered by titles listed
hereunder located at Sta. Rosa, Laguna, with a total area of 101 hectares, more or less.
TCT NO.
AREA
T-106932
113,580 sq. m.
T-106933
70,899 sq. m.
T-106934
52,246 sq. m.
T-106935
96,768 sq. m.
T-106936
187,114 sq. m.
T-106937

481,481 sq. m.
My offer is for PESOS: THREE MILLION FIVE HUNDRED THOUSAND (P3,500,000.00) PESOS, in
cash.
Kindly contact me at Telephone Number 921-1344.
(3) On September 1, 1987, defendant Rivera made on behalf of the bank a formal reply by
letter which is hereunder quoted (Exh. "C"):
September 1, 1987
JP M-P GUTIERREZ ENTERPRISES
142 Charisma St., Doa Andres II
Rosario, Pasig, Metro Manila
Attention: JOSE O. JANOLO
Dear Sir:
Thank you for your letter-offer to buy our six (6) parcels of acquired lots at Sta. Rosa, Laguna
(formerly owned by Byme Industrial Corp.). Please be informed however that the bank's
counter-offer is at P5.5 million for more than 101 hectares on lot basis.
We shall be very glad to hear your position on the on the matter.
Best regards.
(4) On September 17, 1987, plaintiff Janolo, responding to Rivera's aforequoted reply, wrote
(Exh. "D"):
September 17, 1987
Producers Bank
Paseo de Roxas
Makati, Metro Manila
Attention: Mr. Mercurio Rivera
Gentlemen:
In reply to your letter regarding my proposal to purchase your 101-hectare lot located at Sta.
Rosa, Laguna, I would like to amend my previous offer and I now propose to buy the said lot
at P4.250 million in CASH..
Hoping that this proposal meets your satisfaction.
(5) There was no reply to Janolo's foregoing letter of September 17, 1987. What took place
was a meeting on September 28, 1987 between the plaintiffs and Luis Co, the Senior VicePresident of defendant bank. Rivera as well as Fajardo, the BYME lawyer, attended the
meeting. Two days later, or on September 30, 1987, plaintiff Janolo sent to the bank, through
Rivera, the following letter (Exh. "E"):
The Producers Bank of the Philippines

Paseo de Roxas, Makati


Metro Manila
Attention: Mr. Mercurio Rivera
Re: 101 Hectares of Land
in Sta. Rosa, Laguna
Gentlemen:
Pursuant to our discussion last 28 September 1987, we are pleased to inform you that we are
accepting your offer for us to purchase the property at Sta. Rosa, Laguna, formerly owned by
Byme Investment, for a total price of PESOS: FIVE MILLION FIVE HUNDRED THOUSAND
(P5,500,000.00).
Thank you.
(6) On October 12, 1987, the conservator of the bank (which has been placed under
conservatorship by the Central Bank since 1984) was replaced by an Acting Conservator in
the person of defendant Leonida T. Encarnacion. On November 4, 1987, defendant Rivera
wrote plaintiff Demetria the following letter (Exh. "F"):
Attention: Atty. Demetrio Demetria
Dear Sir:
Your proposal to buy the properties the bank foreclosed from Byme investment Corp. located
at Sta. Rosa, Laguna is under study yet as of this time by the newly created committee for
submission to the newly designated Acting Conservator of the bank.
For your information.
(7) What thereafter transpired was a series of demands by the plaintiffs for compliance by the
bank with what plaintiff considered as a perfected contract of sale, which demands were in
one form or another refused by the bank. As detailed by the trial court in its decision, on
November 17, 1987, plaintiffs through a letter to defendant Rivera (Exhibit "G") tendered
payment of the amount of P5.5 million "pursuant to (our) perfected sale agreement."
Defendants refused to receive both the payment and the letter. Instead, the parcels of land
involved in the transaction were advertised by the bank for sale to any interested buyer (Exh,
"H" and "H-1"). Plaintiffs demanded the execution by the bank of the documents on what was
considered as a "perfected agreement." Thus:
Mr. Mercurio Rivera
Manager, Producers Bank
Paseo de Roxas, Makati
Metro Manila
Dear Mr. Rivera:
This is in connection with the offer of our client, Mr. Jose O. Janolo, to purchase your 101hectare lot located in Sta. Rosa, Laguna, and which are covered by TCT No. T-106932 to
106937.

From the documents at hand, it appears that your counter-offer dated September 1, 1987 of
this same lot in the amount of P5.5 million was accepted by our client thru a letter dated
September 30, 1987 and was received by you on October 5, 1987.
In view of the above circumstances, we believe that an agreement has been perfected. We
were also informed that despite repeated follow-up to consummate the purchase, you now
refuse to honor your commitment. Instead, you have advertised for sale the same lot to
others.
In behalf of our client, therefore, we are making this formal demand upon you to consummate
and execute the necessary actions/documentation within three (3) days from your receipt
hereof. We are ready to remit the agreed amount of P5.5 million at your advice. Otherwise,
we shall be constrained to file the necessary court action to protect the interest of our client.
We trust that you will be guided accordingly.
(8) Defendant bank, through defendant Rivera, acknowledged receipt of the foregoing letter
and stated, in its communication of December 2, 1987 (Exh. "I"), that said letter has been
"referred . . . to the office of our Conservator for proper disposition" However, no response
came from the Acting Conservator. On December 14, 1987, the plaintiffs made a second
tender of payment (Exh. "L" and "L-1"), this time through the Acting Conservator, defendant
Encarnacion. Plaintiffs' letter reads:
PRODUCERS BANK OF
THE PHILIPPINES
Paseo de Roxas,
Makati, Metro Manila
Attn.: Atty. NIDA ENCARNACION
Central Bank Conservator
We are sending you herewith, in - behalf of our client, Mr. JOSE O. JANOLO, MBTC Check No.
258387 in the amount of P5.5 million as our agreed purchase price of the 101-hectare lot
covered by TCT Nos. 106932, 106933, 106934, 106935, 106936 and 106937 and registered
under Producers Bank.
This is in connection with the perfected agreement consequent from your offer of P5.5 Million
as the purchase price of the said lots. Please inform us of the date of documentation of the
sale immediately.
Kindly acknowledge receipt of our payment.
(9) The foregoing letter drew no response for more than four months. Then, on May 3, 1988,
plaintiff, through counsel, made a final demand for compliance by the bank with its
obligations under the considered perfected contract of sale (Exhibit "N"). As recounted by the
trial court (Original Record, p. 656), in a reply letter dated May 12, 1988 (Annex "4" of
defendant's answer to amended complaint), the defendants through Acting Conservator
Encarnacion repudiated the authority of defendant Rivera and claimed that his dealings with
the plaintiffs, particularly his counter-offer of P5.5 Million are unauthorized or illegal. On that
basis, the defendants justified the refusal of the tenders of payment and the non-compliance
with the obligations under what the plaintiffs considered to be a perfected contract of sale.
(10) On May 16, 1988, plaintiffs filed a suit for specific performance with damages against the
bank, its Manager Rivers and Acting Conservator Encarnacion. The basis of the suit was that
the transaction had with the bank resulted in a perfected contract of sale, The defendants

took the position that there was no such perfected sale because the defendant Rivera is not
authorized to sell the property, and that there was no meeting of the minds as to the price.
On March 14, 1991, Henry L. Co (the brother of Luis Co), through counsel Sycip Salazar
Hernandez and Gatmaitan, filed a motion to intervene in the trial court, alleging that as owner
of 80% of the Bank's outstanding shares of stock, he had a substantial interest in resisting the
complaint. On July 8, 1991, the trial court issued an order denying the motion to intervene on
the ground that it was filed after trial had already been concluded. It also denied a motion for
reconsideration filed thereafter. From the trial court's decision, the Bank, petitioner Rivera
and conservator Encarnacion appealed to the Court of Appeals which subsequently affirmed
with modification the said judgment. Henry Co did not appeal the denial of his motion for
intervention.
In the course of the proceedings in the respondent Court, Carlos Ejercito was substituted in
place of Demetria and Janolo, in view of the assignment of the latters' rights in the matter in
litigation to said private respondent.
On July 11, 1992, during the pendency of the proceedings in the Court of Appeals, Henry Co
and several other stockholders of the Bank, through counsel Angara Abello Concepcion
Regala and Cruz, filed an action (hereafter, the "Second Case") purportedly a "derivative
suit" with the Regional Trial Court of Makati, Branch 134, docketed as Civil Case No. 921606, against Encarnacion, Demetria and Janolo "to declare any perfected sale of the
property as unenforceable and to stop Ejercito from enforcing or implementing the sale"4 In
his answer, Janolo argued that the Second Case was barred by litis pendentia by virtue of the
case then pending in the Court of Appeals. During the pre-trial conference in the Second
Case, plaintiffs filed a Motion for Leave of Court to Dismiss the Case Without Prejudice.
"Private respondent opposed this motion on the ground, among others, that plaintiff's act of
forum shopping justifies the dismissal of both cases, with prejudice."5 Private respondent, in
his memorandum, averred that this motion is still pending in the Makati RTC.
In their Petition6 and Memorandum7, petitioners summarized their position as follows:
I.
The Court of Appeals erred in declaring that a contract of sale was perfected between Ejercito
(in substitution of Demetria and Janolo) and the bank.
II.
The Court of Appeals erred in declaring the existence of an enforceable contract of sale
between the parties.
III.
The Court of Appeals erred in declaring that the conservator does not have the power to
overrule or revoke acts of previous management.
IV.
The findings and conclusions of the Court of Appeals do not conform to the evidence on
record.
On the other hand, petitioners prayed for dismissal of the instant suit on the ground8 that:
I.

Petitioners have engaged in forum shopping.


II.
The factual findings and conclusions of the Court of Appeals are supported by the evidence on
record and may no longer be questioned in this case.
III.
The Court of Appeals correctly held that there was a perfected contract between Demetria
and Janolo (substituted by; respondent Ejercito) and the bank.
IV.
The Court of Appeals has correctly held that the conservator, apart from being estopped from
repudiating the agency and the contract, has no authority to revoke the contract of sale.
The Issues
From the foregoing positions of the parties, the issues in this case may be summed up as
follows:
1) Was there forum-shopping on the part of petitioner Bank?
2) Was there a perfected contract of sale between the parties?
3) Assuming there was, was the said contract enforceable under the statute of frauds?
4) Did the bank conservator have the unilateral power to repudiate the authority of the bank
officers and/or to revoke the said contract?
5) Did the respondent Court commit any reversible error in its findings of facts?
The First Issue: Was There Forum-Shopping?
In order to prevent the vexations of multiple petitions and actions, the Supreme Court
promulgated Revised Circular No. 28-91 requiring that a party "must certify under oath . . .
[that] (a) he has not (t)heretofore commenced any other action or proceeding involving the
same issues in the Supreme Court, the Court of Appeals, or any other tribunal or agency; (b)
to the best of his knowledge, no such action or proceeding is pending" in said courts or
agencies. A violation of the said circular entails sanctions that include the summary dismissal
of the multiple petitions or complaints. To be sure, petitioners have included a
VERIFICATION/CERTIFICATION in their Petition stating "for the record(,) the pendency of Civil
Case No. 92-1606 before the Regional Trial Court of Makati, Branch 134, involving a
derivative suit filed by stockholders of petitioner Bank against the conservator and other
defendants but which is the subject of a pending Motion to Dismiss Without Prejudice.9
Private respondent Ejercito vigorously argues that in spite of this verification, petitioners are
guilty of actual forum shopping because the instant petition pending before this Court
involves "identical parties or interests represented, rights asserted and reliefs sought (as
that) currently pending before the Regional Trial Court, Makati Branch 134 in the Second
Case. In fact, the issues in the two cases are so interwined that a judgement or resolution in
either case will constitute res judicata in the other." 10

On the other hand, petitioners explain 11 that there is no forum-shopping because:


1) In the earlier or "First Case" from which this proceeding arose, the Bank was impleaded as
a defendant, whereas in the "Second Case" (assuming the Bank is the real party in interest in
a derivative suit), it was plaintiff;
2) "The derivative suit is not properly a suit for and in behalf of the corporation under the
circumstances";
3) Although the CERTIFICATION/VERIFICATION (supra) signed by the Bank president and
attached to the Petition identifies the action as a "derivative suit," it "does not mean that it is
one" and "(t)hat is a legal question for the courts to decide";
4) Petitioners did not hide
VERIFICATION/CERTIFICATION.

the

Second

Case

at

they mentioned

it in the

said

We rule for private respondent.


To begin with, forum-shopping originated as a concept in private international law.12, where
non-resident litigants are given the option to choose the forum or place wherein to bring their
suit for various reasons or excuses, including to secure procedural advantages, to annoy and
harass the defendant, to avoid overcrowded dockets, or to select a more friendly venue. To
combat these less than honorable excuses, the principle of forum non conveniens was
developed whereby a court, in conflicts of law cases, may refuse impositions on its jurisdiction
where it is not the most "convenient" or available forum and the parties are not precluded
from seeking remedies elsewhere.
In this light, Black's Law Dictionary 13 says that forum shopping "occurs when a party
attempts to have his action tried in a particular court or jurisdiction where he feels he will
receive the most favorable judgment or verdict." Hence, according to Words and Phrases14,
"a litigant is open to the charge of "forum shopping" whenever he chooses a forum with slight
connection to factual circumstances surrounding his suit, and litigants should be encouraged
to attempt to settle their differences without imposing undue expenses and vexatious
situations on the courts".
In the Philippines, forum shopping has acquired a connotation encompassing not only a
choice of venues, as it was originally understood in conflicts of laws, but also to a choice of
remedies. As to the first (choice of venues), the Rules of Court, for example, allow a plaintiff
to commence personal actions "where the defendant or any of the defendants resides or may
be found, or where the plaintiff or any of the plaintiffs resides, at the election of the plaintiff"
(Rule 4, Sec, 2 [b]). As to remedies, aggrieved parties, for example, are given a choice of
pursuing civil liabilities independently of the criminal, arising from the same set of facts. A
passenger of a public utility vehicle involved in a vehicular accident may sue on culpa
contractual, culpa aquiliana or culpa criminal each remedy being available independently
of the others although he cannot recover more than once.
In either of these situations (choice of venue or choice of remedy), the litigant actually shops
for a forum of his action, This was the original concept of the term forum shopping.
Eventually, however, instead of actually making a choice of the forum of their actions,
litigants, through the encouragement of their lawyers, file their actions in all available courts,
or invoke all relevant remedies simultaneously. This practice had not only resulted to (sic)
conflicting adjudications among different courts and consequent confusion enimical (sic) to an
orderly administration of justice. It had created extreme inconvenience to some of the parties
to the action.

Thus, "forum shopping" had acquired a different concept which is unethical professional
legal practice. And this necessitated or had given rise to the formulation of rules and canons
discouraging or altogether prohibiting the practice. 15
What therefore originally started both in conflicts of laws and in our domestic law as a
legitimate device for solving problems has been abused and mis-used to assure scheming
litigants of dubious reliefs.
To avoid or minimize this unethical practice of subverting justice, the Supreme Court, as
already mentioned, promulgated Circular 28-91. And even before that, the Court had
prescribed it in the Interim Rules and Guidelines issued on January 11, 1983 and had struck
down in several cases 16 the inveterate use of this insidious malpractice. Forum shopping as
"the filing of repetitious suits in different courts" has been condemned by Justice Andres R.
Narvasa (now Chief Justice) in Minister of Natural Resources, et al., vs. Heirs of Orval Hughes,
et al., "as a reprehensible manipulation of court processes and proceedings . . ." 17 when
does forum shopping take place?
There is forum-shopping whenever, as a result of an adverse opinion in one forum, a party
seeks a favorable opinion (other than by appeal or certiorari) in another. The principle applies
not only with respect to suits filed in the courts but also in connection with litigations
commenced in the courts while an administrative proceeding is pending, as in this case, in
order to defeat administrative processes and in anticipation of an unfavorable administrative
ruling and a favorable court ruling. This is specially so, as in this case, where the court in
which the second suit was brought, has no jurisdiction.18
The test for determining whether a party violated the rule against forum shopping has been
laid dawn in the 1986 case of Buan vs. Lopez 19, also by Chief Justice Narvasa, and that is,
forum shopping exists where the elements of litis pendentia are present or where a final
judgment in one case will amount to res judicata in the other, as follows:
There thus exists between the action before this Court and RTC Case No. 86-36563 identity of
parties, or at least such parties as represent the same interests in both actions, as well as
identity of rights asserted and relief prayed for, the relief being founded on the same facts,
and the identity on the two preceding particulars is such that any judgment rendered in the
other action, will, regardless of which party is successful, amount to res adjudicata in the
action under consideration: all the requisites, in fine, of auter action pendant.
xxx

xxx

xxx

As already observed, there is between the action at bar and RTC Case No. 86-36563, an
identity as regards parties, or interests represented, rights asserted and relief sought, as well
as basis thereof, to a degree sufficient to give rise to the ground for dismissal known as auter
action pendant or lis pendens. That same identity puts into operation the sanction of twin
dismissals just mentioned. The application of this sanction will prevent any further delay in
the settlement of the controversy which might ensue from attempts to seek reconsideration
of or to appeal from the Order of the Regional Trial Court in Civil Case No. 86-36563
promulgated on July 15, 1986, which dismissed the petition upon grounds which appear
persuasive.
Consequently, where a litigant (or one representing the same interest or person) sues the
same party against whom another action or actions for the alleged violation of the same right
and the enforcement of the same relief is/are still pending, the defense of litis pendencia in
one case is bar to the others; and, a final judgment in one would constitute res judicata and
thus would cause the dismissal of the rest. In either case, forum shopping could be cited by

the other party as a ground to ask for summary dismissal of the two 20 (or more) complaints
or petitions, and for imposition of the other sanctions, which are direct contempt of court,
criminal prosecution, and disciplinary action against the erring lawyer.
Applying the foregoing principles in the case before us and comparing it with the Second
Case, it is obvious that there exist identity of parties or interests represented, identity of
rights or causes and identity of reliefs sought.
Very simply stated, the original complaint in the court a quo which gave rise to the instant
petition was filed by the buyer (herein private respondent and his predecessors-in-interest)
against the seller (herein petitioners) to enforce the alleged perfected sale of real estate. On
the other hand, the complaint 21 in the Second Case seeks to declare such purported sale
involving the same real property "as unenforceable as against the Bank", which is the
petitioner herein. In other words, in the Second Case, the majority stockholders, in
representation of the Bank, are seeking to accomplish what the Bank itself failed to do in the
original case in the trial court. In brief, the objective or the relief being sought, though worded
differently, is the same, namely, to enable the petitioner Bank to escape from the obligation
to sell the property to respondent. In Danville Maritime, Inc. vs. Commission on Audit. 22, this
Court ruled that the filing by a party of two apparently different actions, but with the same
objective, constituted forum shopping:
In the attempt to make the two actions appear to be different, petitioner impleaded different
respondents therein PNOC in the case before the lower court and the COA in the case
before this Court and sought what seems to be different reliefs. Petitioner asks this Court to
set aside the questioned letter-directive of the COA dated October 10, 1988 and to direct said
body to approve the Memorandum of Agreement entered into by and between the PNOC and
petitioner, while in the complaint before the lower court petitioner seeks to enjoin the PNOC
from conducting a rebidding and from selling to other parties the vessel "T/T Andres
Bonifacio", and for an extension of time for it to comply with the paragraph 1 of the
memorandum of agreement and damages. One can see that although the relief prayed for in
the two (2) actions are ostensibly different, the ultimate objective in both actions is the same,
that is, approval of the sale of vessel in favor of petitioner and to overturn the letter-directive
of the COA of October 10, 1988 disapproving the sale. (emphasis supplied).
In an earlier case 23 but with the same logic and vigor, we held:
In other words, the filing by the petitioners of the instant special civil action for certiorari and
prohibition in this Court despite the pendency of their action in the Makati Regional Trial
Court, is a species of forum-shopping. Both actions unquestionably involve the same
transactions, the same essential facts and circumstances. The petitioners' claim of absence of
identity simply because the PCGG had not been impleaded in the RTC suit, and the suit did
not involve certain acts which transpired after its commencement, is specious. In the RTC
action, as in the action before this Court, the validity of the contract to purchase and sell of
September 1, 1986, i.e., whether or not it had been efficaciously rescinded, and the propriety
of implementing the same (by paying the pledgee banks the amount of their loans, obtaining
the release of the pledged shares, etc.) were the basic issues. So, too, the relief was the
same: the prevention of such implementation and/or the restoration of the status quo ante.
When the acts sought to be restrained took place anyway despite the issuance by the Trial
Court of a temporary restraining order, the RTC suit did not become functus oficio. It
remained an effective vehicle for obtention of relief; and petitioners' remedy in the premises
was plain and patent: the filing of an amended and supplemental pleading in the RTC suit, so
as to include the PCGG as defendant and seek nullification of the acts sought to be enjoined
but nonetheless done. The remedy was certainly not the institution of another action in
another forum based on essentially the same facts, The adoption of this latter recourse

renders the petitioners amenable to disciplinary action and both their actions, in this Court as
well as in the Court a quo, dismissible.
In the instant case before us, there is also identity of parties, or at least, of interests
represented. Although the plaintiffs in the Second Case (Henry L. Co. et al.) are not name
parties in the First Case, they represent the same interest and entity, namely, petitioner
Bank, because:
Firstly, they are not suing in their personal capacities, for they have no direct personal
interest in the matter in controversy. They are not principally or even subsidiarily liable; much
less are they direct parties in the assailed contract of sale; and
Secondly, the allegations of the complaint in the Second Case show that the stockholders are
bringing a "derivative suit". In the caption itself, petitioners claim to have brought suit "for
and in behalf of the Producers Bank of the Philippines" 24. Indeed, this is the very essence of
a derivative suit:
An individual stockholder is permitted to institute a derivative suit on behalf of the
corporation wherein he holdsstock in order to protect or vindicate corporate rights, whenever
the officials of the corporation refuse to sue, or are the ones to be sued or hold the control of
the corporation. In such actions, the suing stockholder is regarded as a nominal party, with
the corporation as the real party in interest. (Gamboa v. Victoriano, 90 SCRA 40, 47 [1979];
emphasis supplied).
In the face of the damaging admissions taken from the complaint in the Second Case,
petitioners, quite strangely, sought to deny that the Second Case was a derivative suit,
reasoning that it was brought, not by the minority shareholders, but by Henry Co et al., who
not only own, hold or control over 80% of the outstanding capital stock, but also constitute
the majority in the Board of Directors of petitioner Bank. That being so, then they really
represent the Bank. So, whether they sued "derivatively" or directly, there is undeniably an
identity of interests/entity represented.
Petitioner also tried to seek refuge in the corporate fiction that the personality Of the Bank is
separate and distinct from its shareholders. But the rulings of this Court are consistent:
"When the fiction is urged as a means of perpetrating a fraud or an illegal act or as a vehicle
for the evasion of an existing obligation, the circumvention of statutes, the achievement or
perfection of a monopoly or generally the perpetration of knavery or crime, the veil with
which the law covers and isolates the corporation from the members or stockholders who
compose it will be lifted to allow for its consideration merely as an aggregation of individuals."
25
In addition to the many cases 26 where the corporate fiction has been disregarded, we now
add the instant case, and declare herewith that the corporate veil cannot be used to shield an
otherwise blatant violation of the prohibition against forum-shopping. Shareholders, whether
suing as the majority in direct actions or as the minority in a derivative suit, cannot be
allowed to trifle with court processes, particularly where, as in this case, the corporation itself
has not been remiss in vigorously prosecuting or defending corporate causes and in using and
applying remedies available to it. To rule otherwise would be to encourage corporate litigants
to use their shareholders as fronts to circumvent the stringent rules against forum shopping.
Finally, petitioner Bank argued that there cannot be any forum shopping, even assuming
arguendo that there is identity of parties, causes of action and reliefs sought, "because it (the
Bank) was the defendant in the (first) case while it was the plaintiff in the other (Second

Case)",citing as authority Victronics Computers, Inc., vs. Regional Trial Court, Branch 63,
Makati, etc. et al., 27 where Court held:
The rule has not been extended to a defendant who, for reasons known only to him,
commences a new action against the plaintiff instead of filing a responsive pleading in the
other case setting forth therein, as causes of action, specific denials, special and
affirmative defenses or even counterclaims, Thus, Velhagen's and King's motion to dismiss
Civil Case No. 91-2069 by no means negates the charge of forum-shopping as such did not
exist in the first place. (emphasis supplied)
Petitioner pointed out that since it was merely the defendant in the original case, it could not
have chosen the forum in said case.
Respondent, on the other hand, replied that there is a difference in factual setting between
Victronics and the present suit. In the former, as underscored in the above-quoted Court
ruling, the defendants did not file any responsive pleading in the first case. In other words,
they did not make any denial or raise any defense or counter-claim therein In the case before
us however, petitioners filed a responsive pleading to the complaint as a result of which,
the issues were joined.
Indeed, by praying for affirmative reliefs and interposing counterclaims in their responsive
pleadings, the petitioners became plaintiffs themselves in the original case, giving unto
themselves the very remedies they repeated in the Second Case.
Ultimately, what is truly important to consider in determining whether forum-shopping exists
or not is the vexation caused the courts and parties-litigant by a party who asks different
courts and/or administrative agencies to rule on the same or related causes and/or to grant
the same or substantially the same reliefs, in the process creating the possibility of conflicting
decisions being rendered by the different fora upon the same issue. In this case, this is
exactly the problem: a decision recognizing the perfection and directing the enforcement of
the contract of sale will directly conflict with a possible decision in the Second Case barring
the parties front enforcing or implementing the said sale. Indeed, a final decision in one would
constitute res judicata in the other 28.
The foregoing conclusion finding the existence of forum-shopping notwithstanding, the only
sanction possible now is the dismissal of both cases with prejudice, as the other sanctions
cannot be imposed because petitioners' present counsel entered their appearance only
during the proceedings in this Court, and the Petition's VERIFICATION/CERTIFICATION
contained sufficient allegations as to the pendency of the Second Case to show good faith in
observing Circular 28-91. The Lawyers who filed the Second Case are not before us; thus the
rudiments of due process prevent us from motu propio imposing disciplinary measures
against them in this Decision. However, petitioners themselves (and particularly Henry Co, et
al.) as litigants are admonished to strictly follow the rules against forum-shopping and not to
trifle with court proceedings and processes They are warned that a repetition of the same will
be dealt with more severely.
Having said that, let it be emphasized that this petition should be dismissed not merely
because of forum-shopping but also because of the substantive issues raised, as will be
discussed shortly.
The Second Issue: Was The Contract Perfected?
The respondent Court correctly treated the question of whether or not there was, on the basis
of the facts established, a perfected contract of sale as the ultimate issue. Holding that a
valid contract has been established, respondent Court stated:

There is no dispute that the object of the transaction is that property owned by the defendant
bank as acquired assets consisting of six (6) parcels of land specifically identified under
Transfer Certificates of Title Nos. T-106932 to T-106937. It is likewise beyond cavil that the
bank intended to sell the property. As testified to by the Bank's Deputy Conservator, Jose
Entereso, the bank was looking for buyers of the property. It is definite that the plaintiffs
wanted to purchase the property and it was precisely for this purpose that they met with
defendant Rivera, Manager of the Property Management Department of the defendant bank,
in early August 1987. The procedure in the sale of acquired assets as well as the nature and
scope of the authority of Rivera on the matter is clearly delineated in the testimony of Rivera
himself, which testimony was relied upon by both the bank and by Rivera in their appeal
briefs. Thus (TSN of July 30, 1990. pp. 19-20):
A: The procedure runs this way: Acquired assets was turned over to me and then I published
it in the form of an inter-office memorandum distributed to all branches that these are
acquired assets for sale. I was instructed to advertise acquired assets for sale so on that
basis, I have to entertain offer; to accept offer, formal offer and upon having been offered, I
present it to the Committee. I provide the Committee with necessary information about the
property such as original loan of the borrower, bid price during the foreclosure, total claim of
the bank, the appraised value at the time the property is being offered for sale and then the
information which are relative to the evaluation of the bank to buy which the Committee
considers and it is the Committee that evaluate as against the exposure of the bank and it is
also the Committee that submit to the Conservator for final approval and once approved, we
have to execute the deed of sale and it is the Conservator that sign the deed of sale, sir.
The plaintiffs, therefore, at that meeting of August 1987 regarding their purpose of buying the
property, dealt with and talked to the right person. Necessarily, the agenda was the price of
the property, and plaintiffs were dealing with the bank official authorized to entertain offers,
to accept offers and to present the offer to the Committee before which the said official is
authorized to discuss information relative to price determination. Necessarily, too, it being
inherent in his authority, Rivera is the officer from whom official information regarding the
price, as determined by the Committee and approved by the Conservator, can be had. And
Rivera confirmed his authority when he talked with the plaintiff in August 1987. The
testimony of plaintiff Demetria is clear on this point (TSN of May 31,1990, pp. 27-28):
Q: When you went to the Producers Bank and talked with Mr. Mercurio Rivera, did you ask him
point-blank his authority to sell any property?
A: No, sir. Not point blank although it came from him, (W)hen I asked him how long it would
take because he was saying that the matter of pricing will be passed upon by the committee.
And when I asked him how long it will take for the committee to decide and he said the
committee meets every week. If I am not mistaken Wednesday and in about two week's (sic)
time, in effect what he was saying he was not the one who was to decide. But he would refer
it to the committee and he would relay the decision of the committee to me.
Q Please answer the question.
A He did not say that he had the authority (.) But he said he would refer the matter to the
committee and he would relay the decision to me and he did just like that.
"Parenthetically, the Committee referred to was the Past Due Committee of which Luis Co was
the Head, with Jose Entereso as one of the members.
What transpired after the meeting of early August 1987 are consistent with the authority and
the duties of Rivera and the bank's internal procedure in the matter of the sale of bank's

assets. As advised by Rivera, the plaintiffs made a formal offer by a letter dated August 20,
1987 stating that they would buy at the price of P3.5 Million in cash. The letter was for the
attention of Mercurio Rivera who was tasked to convey and accept such offers. Considering
an aspect of the official duty of Rivera as some sort of intermediary between the plaintiffsbuyers with their proposed buying price on one hand, and the bank Committee, the
Conservator and ultimately the bank itself with the set price on the other, and considering
further the discussion of price at the meeting of August resulting in a formal offer of P3.5
Million in cash, there can be no other logical conclusion than that when, on September 1,
1987, Rivera informed plaintiffs by letter that "the bank's counter-offer is at P5.5 Million for
more than 101 hectares on lot basis," such counter-offer price had been determined by the
Past Due Committee and approved by the Conservator after Rivera had duly presented
plaintiffs' offer for discussion by the Committee of such matters as original loan of borrower,
bid price during foreclosure, total claim of the bank, and market value. Tersely put, under the
established facts, the price of P5.5 Million was, as clearly worded in Rivera's letter (Exh. "E"),
the official and definitive price at which the bank was selling the property.
There were averments by defendants below, as well as before this Court, that the P5.5 Million
price was not discussed by the Committee and that price. As correctly characterized by the
trial court, this is not credible. The testimonies of Luis Co and Jose Entereso on this point are
at best equivocal and considering the gratuitous and self-serving character of these
declarations, the bank's submission on this point does not inspire belief. Both Co ad Entereso,
as members of the Past Due Committee of the bank, claim that the offer of the plaintiff was
never discussed by the Committee. In the same vein, both Co and Entereso openly admit that
they seldom attend the meetings of the Committee. It is important to note that negotiations
on the price had started in early August and the plaintiffs had already offered an amount as
purchase price, having been made to understand by Rivera, the official in charge of the
negotiation, that the price will be submitted for approval by the bank and that the bank's
decision will be relayed to plaintiffs. From the facts, the official bank price. At any rate, the
bank placed its official, Rivera, in a position of authority to accept offers to buy and negotiate
the sale by having the offer officially acted upon by the bank. The bank cannot turn around
and later say, as it now does, that what Rivera states as the bank's action on the matter is not
in fact so. It is a familiar doctrine, the doctrine of ostensible authority, that if a corporation
knowingly permits one of its officers, or any other agent, to do acts within the scope of an
apparent authority, and thus holds him out to the public as possessing power to do those
acts, the corporation will, as against any one who has in good faith dealt with the corporation
through such agent, he estopped from denying his authority (Francisco v. GSIS, 7 SCRA 577,
583-584; PNB v. Court of Appeals, 94 SCRA 357, 369-370; Prudential Bank v. Court of
Appeals, G.R. No. 103957, June 14, 1993). 29
Article 1318 of the Civil Code enumerates the requisites of a valid and perfected contract as
follows: "(1) Consent of the contracting parties; (2) Object certain which is the subject matter
of the contract; (3) Cause of the obligation which is established."
There is no dispute on requisite no. 2. The object of the questioned contract consists of the
six (6) parcels of land in Sta. Rosa, Laguna with an aggregate area of about 101 hectares,
more or less, and covered by Transfer Certificates of Title Nos. T-106932 to T-106937. There
is, however, a dispute on the first and third requisites.
Petitioners allege that "there is no counter-offer made by the Bank, and any supposed
counter-offer which Rivera (or Co) may have made is unauthorized. Since there was no
counter-offer by the Bank, there was nothing for Ejercito (in substitution of Demetria and
Janolo) to accept." 30 They disputed the factual basis of the respondent Court's findings that
there was an offer made by Janolo for P3.5 million, to which the Bank counter-offered P5.5
million. We have perused the evidence but cannot find fault with the said Court's findings of
fact. Verily, in a petition under Rule 45 such as this, errors of fact if there be any - are, as a

rule, not reviewable. The mere fact that respondent Court (and the trial court as well) chose
to believe the evidence presented by respondent more than that presented by petitioners is
not by itself a reversible error. In fact, such findings merit serious consideration by this Court,
particularly where, as in this case, said courts carefully and meticulously discussed their
findings. This is basic.
Be that as it may, and in addition to the foregoing disquisitions by the Court of Appeals, let us
review the question of Rivera's authority to act and petitioner's allegations that the P5.5
million counter-offer was extinguished by the P4.25 million revised offer of Janolo. Here, there
are questions of law which could be drawn from the factual findings of the respondent Court.
They also delve into the contractual elements of consent and cause.
The authority of a corporate officer in dealing with third persons may be actual or apparent.
The doctrine of "apparent authority", with special reference to banks, was laid out in
Prudential Bank vs. Court of Appeals31, where it was held that:
Conformably, we have declared in countless decisions that the principal is liable for
obligations contracted by the agent. The agent's apparent representation yields to the
principal's true representation and the contract is considered as entered into between the
principal and the third person (citing National Food Authority vs. Intermediate Appellate
Court, 184 SCRA 166).
A bank is liable for wrongful acts of its officers done in the interests of the bank or in the
course of dealings of the officers in their representative capacity but not for acts outside the
scape of their authority (9 C.J.S., p. 417). A bank holding out its officers and agents as worthy
of confidence will not be permitted to profit by the frauds they may thus be enabled to
perpetrate in the apparent scope of their employment; nor will it be permitted to shirk its
responsibility for such frauds even though no benefit may accrue to the bank therefrom (10
Am Jur 2d, p. 114). Accordingly, a banking corporation is liable to innocent third persons
where the representation is made in the course of its business by an agent acting within the
general scope of his authority even though, in the particular case, the agent is secretly
abusing his authority and attempting to perpetrate a fraud upon his principal or some other
person, for his own ultimate benefit (McIntosh v. Dakota Trust Co., 52 ND 752, 204 NW 818,
40 ALR 1021).
Application of these principles is especially necessary because banks have a fiduciary
relationship with the public and their stability depends on the confidence of the people in
their honesty and efficiency. Such faith will be eroded where banks do not exercise strict care
in the selection and supervision of its employees, resulting in prejudice to their depositors.
From the evidence found by respondent Court, it is obvious that petitioner Rivera has
apparent or implied authority to act for the Bank in the matter of selling its acquired assets.
This evidence includes the following:
(a) The petition itself in par. II-i (p. 3) states that Rivera was "at all times material to this case,
Manager of the Property Management Department of the Bank". By his own admission, Rivera
was already the person in charge of the Bank's acquired assets (TSN, August 6, 1990, pp. 89);
(b) As observed by respondent Court, the land was definitely being sold by the Bank. And
during the initial meeting between the buyers and Rivera, the latter suggested that the
buyers' offer should be no less than P3.3 million (TSN, April 26, 1990, pp. 16-17);
(c) Rivera received the buyers' letter dated August 30, 1987 offering P3.5 million (TSN, 30 July
1990, p.11);

(d) Rivera signed the letter dated September 1, 1987 offering to sell the property for P5.5
million (TSN, July 30, p. 11);
(e) Rivera received the letter dated September 17, 1987 containing the buyers' proposal to
buy the property for P4.25 million (TSN, July 30, 1990, p. 12);
(f) Rivera, in a telephone conversation, confirmed that the P5.5 million was the final price of
the Bank (TSN, January 16, 1990, p. 18);
(g) Rivera arranged the meeting between the buyers and Luis Co on September 28, 1994,
during which the Bank's offer of P5.5 million was confirmed by Rivera (TSN, April 26, 1990,
pp. 34-35). At said meeting, Co, a major shareholder and officer of the Bank, confirmed
Rivera's statement as to the finality of the Bank's counter-offer of P5.5 million (TSN, January
16, 1990, p. 21; TSN, April 26, 1990, p. 35);
(h) In its newspaper advertisements and announcements, the Bank referred to Rivera as the
officer acting for the Bank in relation to parties interested in buying assets owned/acquired by
the Bank. In fact, Rivera was the officer mentioned in the Bank's advertisements offering for
sale the property in question (cf. Exhs. "S" and "S-1").
In the very recent case of Limketkai Sons Milling, Inc. vs. Court of Appeals, et. al.32, the
Court, through Justice Jose A. R. Melo, affirmed the doctrine of apparent authority as it held
that the apparent authority of the officer of the Bank of P.I. in charge of acquired assets is
borne out by similar circumstances surrounding his dealings with buyers.
To be sure, petitioners attempted to repudiate Rivera's apparent authority through
documents and testimony which seek to establish Rivera's actual authority. These pieces of
evidence, however, are inherently weak as they consist of Rivera's self-serving testimony and
various inter-office memoranda that purport to show his limited actual authority, of which
private respondent cannot be charged with knowledge. In any event, since the issue is
apparent authority, the existence of which is borne out by the respondent Court's findings,
the evidence of actual authority is immaterial insofar as the liability of a corporation is
concerned 33.
Petitioners also argued that since Demetria and Janolo were experienced lawyers and their
"law firm" had once acted for the Bank in three criminal cases, they should be charged with
actual knowledge of Rivera's limited authority. But the Court of Appeals in its Decision (p. 12)
had already made a factual finding that the buyers had no notice of Rivera's actual authority
prior to the sale. In fact, the Bank has not shown that they acted as its counsel in respect to
any acquired assets; on the other hand, respondent has proven that Demetria and Janolo
merely associated with a loose aggrupation of lawyers (not a professional partnership), one of
whose members (Atty. Susana Parker) acted in said criminal cases.
Petitioners also alleged that Demetria's and Janolo's P4.25 million counter-offer in the letter
dated September 17, 1987 extinguished the Bank's offer of P5.5 million 34 .They disputed the
respondent Court's finding that "there was a meeting of minds when on 30 September 1987
Demetria and Janolo through Annex "L" (letter dated September 30, 1987) "accepted"
Rivera's counter offer of P5.5 million under Annex "J" (letter dated September 17, 1987)",
citing the late Justice Paras35, Art. 1319 of the Civil Code 36 and related Supreme Court
rulings starting with Beaumont vs. Prieto 37.
However, the above-cited authorities and precedents cannot apply in the instant case
because, as found by the respondent Court which reviewed the testimonies on this point,
what was "accepted" by Janolo in his letter dated September 30, 1987 was the Bank's offer of

P5.5 million as confirmed and reiterated to Demetria and Atty. Jose Fajardo by Rivera and Co
during their meeting on September 28, 1987. Note that the said letter of September 30, 1987
begins with"(p)ursuant to our discussion last 28 September 1987 . . .
Petitioners insist that the respondent Court should have believed the testimonies of Rivera
and Co that the September 28, 1987 meeting "was meant to have the offerors improve on
their position of P5.5. million."38 However, both the trial court and the Court of Appeals found
petitioners' testimonial evidence "not credible", and we find no basis for changing this finding
of fact.
Indeed, we see no reason to disturb the lower courts' (both the RTC and the CA) common
finding that private respondents' evidence is more in keeping with truth and logic that
during the meeting on September 28, 1987, Luis Co and Rivera "confirmed that the P5.5
million price has been passed upon by the Committee and could no longer be lowered (TSN of
April 27, 1990, pp. 34-35)"39. Hence, assuming arguendo that the counter-offer of P4.25
million extinguished the offer of P5.5 million, Luis Co's reiteration of the said P5.5 million price
during the September 28, 1987 meeting revived the said offer. And by virtue of the
September 30, 1987 letter accepting this revived offer, there was a meeting of the minds, as
the acceptance in said letter was absolute and unqualified.
We note that the Bank's repudiation, through Conservator Encarnacion, of Rivera's authority
and action, particularly the latter's counter-offer of P5.5 million, as being "unauthorized and
illegal" came only on May 12, 1988 or more than seven (7) months after Janolo' acceptance.
Such delay, and the absence of any circumstance which might have justifiably prevented the
Bank from acting earlier, clearly characterizes the repudiation as nothing more than a lastminute attempt on the Bank's part to get out of a binding contractual obligation.
Taken together, the factual findings of the respondent Court point to an implied admission on
the part of the petitioners that the written offer made on September 1, 1987 was carried
through during the meeting of September 28, 1987. This is the conclusion consistent with
human experience, truth and good faith.
It also bears noting that this issue of extinguishment of the Bank's offer of P5.5 million was
raised for the first time on appeal and should thus be disregarded.
This Court in several decisions has repeatedly adhered to the principle that points of law,
theories, issues of fact and arguments not adequately brought to the attention of the trial
court need not be, and ordinarily will not be, considered by a reviewing court, as they cannot
be raised for the first time on appeal (Santos vs. IAC, No. 74243, November 14, 1986, 145
SCRA 592).40
. . . It is settled jurisprudence that an issue which was neither averred in the complaint nor
raised during the trial in the court below cannot be raised for the first time on appeal as it
would be offensive to the basic rules of fair play, justice and due process (Dihiansan vs. CA,
153 SCRA 713 [1987]; Anchuelo vs. IAC, 147 SCRA 434 [1987]; Dulos Realty & Development
Corp. vs. CA, 157 SCRA 425 [1988]; Ramos vs. IAC, 175 SCRA 70 [1989]; Gevero vs. IAC, G.R.
77029, August 30, 1990).41
Since the issue was not raised in the pleadings as an affirmative defense, private respondent
was not given an opportunity in the trial court to controvert the same through opposing
evidence. Indeed, this is a matter of due process. But we passed upon the issue anyway, if
only to avoid deciding the case on purely procedural grounds, and we repeat that, on the
basis of the evidence already in the record and as appreciated by the lower courts, the
inevitable conclusion is simply that there was a perfected contract of sale.

The Third Issue: Is the Contract Enforceable?


The petition alleged42:
Even assuming that Luis Co or Rivera did relay a verbal offer to sell at P5.5 million during the
meeting of 28 September 1987, and it was this verbal offer that Demetria and Janolo
accepted with their letter of 30 September 1987, the contract produced thereby would be
unenforceable by action there being no note, memorandum or writing subscribed by the
Bank to evidence such contract. (Please see article 1403[2], Civil Code.)
Upon the other hand, the respondent Court in its Decision (p, 14) stated:
. . . Of course, the bank's letter of September 1, 1987 on the official price and the plaintiffs'
acceptance of the price on September 30, 1987, are not, in themselves, formal contracts of
sale. They are however clear embodiments of the fact that a contract of sale was perfected
between the parties, such contract being binding in whatever form it may have been entered
into (case citations omitted). Stated simply, the banks' letter of September 1, 1987, taken
together with plaintiffs' letter dated September 30, 1987, constitute in law a sufficient
memorandum of a perfected contract of sale.
The respondent Court could have added that the written communications commenced not
only from September 1, 1987 but from Janolo's August 20, 1987 letter. We agree that, taken
together, these letters constitute sufficient memoranda since they include the names of
the parties, the terms and conditions of the contract, the price and a description of the
property as the object of the contract.
But let it be assumed arguendo that the counter-offer during the meeting on September 28,
1987 did constitute a "new" offer which was accepted by Janolo on September 30, 1987. Still,
the statute of frauds will not apply by reason of the failure of petitioners to object to oral
testimony proving petitioner Bank's counter-offer of P5.5 million. Hence, petitioners by
such utter failure to object are deemed to have waived any defects of the contract under
the statute of frauds, pursuant to Article 1405 of the Civil Code:
Art. 1405. Contracts infringing the Statute of Frauds, referred to in No. 2 of article 1403, are
ratified by the failure to object to the presentation of oral evidence to prove the same, or by
the acceptance of benefits under them.
As private respondent pointed out in his Memorandum, oral testimony on the reaffirmation of
the counter-offer of P5.5 million is a plenty and the silence of petitioners all throughout the
presentation makes the evidence binding on them thus;
A Yes, sir, I think it was September 28, 1987 and I was again present because Atty. Demetria
told me to accompany him we were able to meet Luis Co at the Bank.
xxx

xxx

xxx

Q Now, what transpired during this meeting with Luis Co of the Producers Bank?
A Atty. Demetria asked Mr. Luis Co whether the price could be reduced, sir.
Q What price?
A The 5.5 million pesos and Mr. Luis Co said that the amount cited by Mr. Mercurio Rivera is
the final price and that is the price they intends (sic) to have, sir.

Q What do you mean?.


A That is the amount they want, sir.
Q What is the reaction of the plaintiff Demetria to Luis Co's statement (sic) that the defendant
Rivera's counter-offer of 5.5 million was the defendant's bank (sic) final offer?
A He said in a day or two, he will make final acceptance, sir.
Q What is the response of Mr. Luis Co?.
A He said he will wait for the position of Atty. Demetria, sir.
[Direct testimony of Atty. Jose Fajardo, TSN, January 16, 1990, at pp. 18-21.]
Q What transpired during that meeting between you and Mr. Luis Co of the defendant Bank?
A We went straight to the point because he being a busy person, I told him if the amount of
P5.5 million could still be reduced and he said that was already passed upon by the
committee. What the bank expects which was contrary to what Mr. Rivera stated. And he told
me that is the final offer of the bank P5.5 million and we should indicate our position as soon
as possible.
Q What was your response to the answer of Mr. Luis Co?
A I said that we are going to give him our answer in a few days and he said that was it. Atty.
Fajardo and I and Mr. Mercurio [Rivera] was with us at the time at his office.
Q For the record, your Honor please, will you tell this Court who was with Mr. Co in his Office
in Producers Bank Building during this meeting?
A Mr. Co himself, Mr. Rivera, Atty. Fajardo and I.
Q By Mr. Co you are referring to?
A Mr. Luis Co.
Q After this meeting with Mr. Luis Co, did you and your partner accede on (sic) the counter
offer by the bank?
A Yes, sir, we did.? Two days thereafter we sent our acceptance to the bank which offer we
accepted, the offer of the bank which is P5.5 million.
[Direct testimony of Atty. Demetria, TSN, 26 April 1990, at pp. 34-36.]
Q According to Atty. Demetrio Demetria, the amount of P5.5 million was reached by the
Committee and it is not within his power to reduce this amount. What can you say to that
statement that the amount of P5.5 million was reached by the Committee?
A It was not discussed by the Committee but it was discussed initially by Luis Co and the
group of Atty. Demetrio Demetria and Atty. Pajardo (sic) in that September 28, 1987 meeting,
sir.
[Direct testimony of Mercurio Rivera, TSN, 30 July 1990, pp. 14-15.]

The Fourth Issue: May the Conservator Revoke


the Perfected and Enforceable Contract.
It is not disputed that the petitioner Bank was under a conservator placed by the Central Bank
of the Philippines during the time that the negotiation and perfection of the contract of sale
took place. Petitioners energetically contended that the conservator has the power to revoke
or overrule actions of the management or the board of directors of a bank, under Section 28A of Republic Act No. 265 (otherwise known as the Central Bank Act) as follows:
Whenever, on the basis of a report submitted by the appropriate supervising or examining
department, the Monetary Board finds that a bank or a non-bank financial intermediary
performing quasi-banking functions is in a state of continuing inability or unwillingness to
maintain a state of liquidity deemed adequate to protect the interest of depositors and
creditors, the Monetary Board may appoint a conservator to take charge of the assets,
liabilities, and the management of that institution, collect all monies and debts due said
institution and exercise all powers necessary to preserve the assets of the institution,
reorganize the management thereof, and restore its viability. He shall have the power to
overrule or revoke the actions of the previous management and board of directors of the
bank or non-bank financial intermediary performing quasi-banking functions, any provision of
law to the contrary notwithstanding, and such other powers as the Monetary Board shall
deem necessary.
In the first place, this issue of the Conservator's alleged authority to revoke or repudiate the
perfected contract of sale was raised for the first time in this Petition as this was not
litigated in the trial court or Court of Appeals. As already stated earlier, issues not raised
and/or ventilated in the trial court, let alone in the Court of Appeals, "cannot be raised for the
first time on appeal as it would be offensive to the basic rules of fair play, justice and due
process."43
In the second place, there is absolutely no evidence that the Conservator, at the time the
contract was perfected, actually repudiated or overruled said contract of sale. The Bank's
acting conservator at the time, Rodolfo Romey, never objected to the sale of the property to
Demetria and Janolo. What petitioners are really referring to is the letter of Conservator
Encarnacion, who took over from Romey after the sale was perfected on September 30, 1987
(Annex V, petition) which unilaterally repudiated not the contract but the authority of
Rivera to make a binding offer and which unarguably came months after the perfection of
the contract. Said letter dated May 12, 1988 is reproduced hereunder:
May 12, 1988
Atty. Noe C. Zarate
Zarate Carandang Perlas & Ass.
Suite 323 Rufino Building
Ayala Avenue, Makati, Metro-Manila
Dear Atty. Zarate:
This pertains to your letter dated May 5, 1988 on behalf of Attys. Janolo and Demetria
regarding the six (6) parcels of land located at Sta. Rosa, Laguna.
We deny that Producers Bank has ever made a legal counter-offer to any of your clients nor
perfected a "contract to sell and buy" with any of them for the following reasons.
In the "Inter-Office Memorandum" dated April 25, 1986 addressed to and approved by former
Acting Conservator Mr. Andres I. Rustia, Producers Bank Senior Manager Perfecto M. Pascua

detailed the functions of Property Management Department (PMD) staff and officers (Annex
A.), you will immediately read that Manager Mr. Mercurio Rivera or any of his subordinates
has no authority, power or right to make any alleged counter-offer. In short, your lawyerclients did not deal with the authorized officers of the bank.
Moreover, under Sec. 23 and 36 of the Corporation Code of the Philippines (Bates Pambansa
Blg. 68.) and Sec. 28-A of the Central Bank Act (Rep. Act No. 265, as amended), only the
Board of Directors/Conservator may authorize the sale of any property of the
corportion/bank..
Our records do not show that Mr. Rivera was authorized by the old board or by any of the
bank conservators (starting January, 1984) to sell the aforesaid property to any of your
clients. Apparently, what took place were just preliminary discussions/consultations between
him and your clients, which everyone knows cannot bind the Bank's Board or Conservator.
We are, therefore, constrained to refuse any tender of payment by your clients, as the same
is patently violative of corporate and banking laws. We believe that this is more than
sufficient legal justification for refusing said alleged tender.
Rest assured that we have nothing personal against your clients. All our acts are official, legal
and in accordance with law. We also have no personal interest in any of the properties of the
Bank.
Please be advised accordingly.
Very truly yours,
(Sgd.) Leonida T. Encarnacion
LEONIDA T. EDCARNACION
Acting Conservator
In the third place, while admittedly, the Central Bank law gives vast and far-reaching powers
to the conservator of a bank, it must be pointed out that such powers must be related to the
"(preservation of) the assets of the bank, (the reorganization of) the management thereof and
(the restoration of) its viability." Such powers, enormous and extensive as they are, cannot
extend to the post-facto repudiation of perfected transactions, otherwise they would infringe
against the non-impairment clause of the Constitution 44. If the legislature itself cannot
revoke an existing valid contract, how can it delegate such non-existent powers to the
conservator under Section 28-A of said law?
Obviously, therefore, Section 28-A merely gives the conservator power to revoke contracts
that are, under existing law, deemed to be defective i.e., void, voidable, unenforceable or
rescissible. Hence, the conservator merely takes the place of a bank's board of directors.
What the said board cannot do such as repudiating a contract validly entered into under
the doctrine of implied authority the conservator cannot do either. Ineluctably, his power is
not unilateral and he cannot simply repudiate valid obligations of the Bank. His authority
would be only to bring court actions to assail such contracts as he has already done so in
the instant case. A contrary understanding of the law would simply not be permitted by the
Constitution. Neither by common sense. To rule otherwise would be to enable a failing bank
to become solvent, at the expense of third parties, by simply getting the conservator to
unilaterally revoke all previous dealings which had one way or another or come to be
considered unfavorable to the Bank, yielding nothing to perfected contractual rights nor
vested interests of the third parties who had dealt with the Bank.
The Fifth Issue: Were There Reversible Errors of Facts?

Basic is the doctrine that in petitions for review under Rule 45 of the Rules of Court, findings
of fact by the Court of Appeals are not reviewable by the Supreme Court. In Andres vs.
Manufacturers Hanover & Trust Corporation, 45, we held:
. . . The rule regarding questions of fact being raised with this Court in a petition for certiorari
under Rule 45 of the Revised Rules of Court has been stated in Remalante vs. Tibe, G.R. No.
59514, February 25, 1988, 158 SCRA 138, thus:
The rule in this jurisdiction is that only questions of law may be raised in a petition for
certiorari under Rule 45 of the Revised Rules of Court. "The jurisdiction of the Supreme Court
in cases brought to it from the Court of Appeals is limited to reviewing and revising the errors
of law imputed to it, its findings of the fact being conclusive " [Chan vs. Court of Appeals, G.R.
No. L-27488, June 30, 1970, 33 SCRA 737, reiterating a long line of decisions]. This Court has
emphatically declared that "it is not the function of the Supreme Court to analyze or weigh
such evidence all over again, its jurisdiction being limited to reviewing errors of law that
might have been committed by the lower court" (Tiongco v. De la Merced, G. R. No. L-24426,
July 25, 1974, 58 SCRA 89; Corona vs. Court of Appeals, G.R. No. L-62482, April 28, 1983, 121
SCRA 865; Baniqued vs. Court of Appeals, G. R. No. L-47531, February 20, 1984, 127 SCRA
596). "Barring, therefore, a showing that the findings complained of are totally devoid of
support in the record, or that they are so glaringly erroneous as to constitute serious abuse of
discretion, such findings must stand, for this Court is not expected or required to examine or
contrast the oral and documentary evidence submitted by the parties" [Santa Ana, Jr. vs.
Hernandez, G. R. No. L-16394, December 17, 1966, 18 SCRA 973] [at pp. 144-145.]
Likewise, in Bernardo vs. Court of Appeals 46, we held:
The resolution of this petition invites us to closely scrutinize the facts of the case, relating to
the sufficiency of evidence and the credibility of witnesses presented. This Court so held that
it is not the function of the Supreme Court to analyze or weigh such evidence all over again.
The Supreme Court's jurisdiction is limited to reviewing errors of law that may have been
committed by the lower court. The Supreme Court is not a trier of facts. . . .
As held in the recent case of Chua Tiong Tay vs. Court of Appeals and Goldrock Construction
and Development Corp. 47:
The Court has consistently held that the factual findings of the trial court, as well as the Court
of Appeals, are final and conclusive and may not be reviewed on appeal. Among the
exceptional circumstances where a reassessment of facts found by the lower courts is
allowed are when the conclusion is a finding grounded entirely on speculation, surmises or
conjectures; when the inference made is manifestly absurd, mistaken or impossible; when
there is grave abuse of discretion in the appreciation of facts; when the judgment is premised
on a misapprehension of facts; when the findings went beyond the issues of the case and the
same are contrary to the admissions of both appellant and appellee. After a careful study of
the case at bench, we find none of the above grounds present to justify the re-evaluation of
the findings of fact made by the courts below.
In the same vein, the ruling of this Court in the recent case of South Sea Surety and Insurance
Company Inc. vs. Hon. Court of Appeals, et al. 48 is equally applicable to the present case:
We see no valid reason to discard the factual conclusions of the appellate court, . . . (I)t is not
the function of this Court to assess and evaluate all over again the evidence, testimonial and
documentary, adduced by the parties, particularly where, such as here, the findings of both
the trial court and the appellate court on the matter coincide. (emphasis supplied)

Petitioners, however, assailed the respondent Court's Decision as "fraught with findings and
conclusions which were not only contrary to the evidence on record but have no bases at all,"
specifically the findings that (1) the "Bank's counter-offer price of P5.5 million had been
determined by the past due committee and approved by conservator Romey, after Rivera
presented the same for discussion" and (2) "the meeting with Co was not to scale down the
price and start negotiations anew, but a meeting on the already determined price of P5.5
million" Hence, citing Philippine National Bank vs. Court of Appeals 49, petitioners are asking
us to review and reverse such factual findings.
The first point was clearly passed upon by the Court of Appeals 50, thus:
There can be no other logical conclusion than that when, on September 1, 1987, Rivera
informed plaintiffs by letter that "the bank's counter-offer is at P5.5 Million for more than 101
hectares on lot basis, "such counter-offer price had been determined by the Past Due
Committee and approved by the Conservator after Rivera had duly presented plaintiffs' offer
for discussion by the Committee . . . Tersely put, under the established fact, the price of P5.5
Million was, as clearly worded in Rivera's letter (Exh. "E"), the official and definitive price at
which the bank was selling the property. (p. 11, CA Decision)
xxx

xxx

xxx

. . . The argument deserves scant consideration. As pointed out by plaintiff, during the
meeting of September 28, 1987 between the plaintiffs, Rivera and Luis Co, the senior vicepresident of the bank, where the topic was the possible lowering of the price, the bank official
refused it and confirmed that the P5.5 Million price had been passed upon by the Committee
and could no longer be lowered (TSN of April 27, 1990, pp. 34-35) (p. 15, CA Decision).
The respondent Court did not believe the evidence of the petitioners on this point,
characterizing it as "not credible" and "at best equivocal and considering the gratuitous and
self-serving character of these declarations, the bank's submissions on this point do not
inspire belief."
To become credible and unequivocal, petitioners should have presented then Conservator
Rodolfo Romey to testify on their behalf, as he would have been in the best position to
establish their thesis. Under the rules on evidence 51, such suppression gives rise to the
presumption that his testimony would have been adverse, if produced.
The second point was squarely raised in the Court of Appeals, but petitioners' evidence was
deemed insufficient by both the trial court and the respondent Court, and instead, it was
respondent's submissions that were believed and became bases of the conclusions arrived at.
In fine, it is quite evident that the legal conclusions arrived at from the findings of fact by the
lower courts are valid and correct. But the petitioners are now asking this Court to disturb
these findings to fit the conclusion they are espousing, This we cannot do.
To be sure, there are settled exceptions where the Supreme Court may disregard findings of
fact by the Court of Appeals 52. We have studied both the records and the CA Decision and
we find no such exceptions in this case. On the contrary, the findings of the said Court are
supported by a preponderance of competent and credible evidence. The inferences and
conclusions are seasonably based on evidence duly identified in the Decision. Indeed, the
appellate court patiently traversed and dissected the issues presented before it, lending
credibility and dependability to its findings. The best that can be said in favor of petitioners
on this point is that the factual findings of respondent Court did not correspond to petitioners'
claims, but were closer to the evidence as presented in the trial court by private respondent.
But this alone is no reason to reverse or ignore such factual findings, particularly where, as in

this case, the trial court and the appellate court were in common agreement thereon. Indeed,
conclusions of fact of a trial judge as affirmed by the Court of Appeals are conclusive
upon this Court, absent any serious abuse or evident lack of basis or capriciousness of any
kind, because the trial court is in a better position to observe the demeanor of the witnesses
and their courtroom manner as well as to examine the real evidence presented.
Epilogue.
In summary, there are two procedural issues involved forum-shopping and the raising of
issues for the first time on appeal [viz., the extinguishment of the Bank's offer of P5.5 million
and the conservator's powers to repudiate contracts entered into by the Bank's officers]
which per se could justify the dismissal of the present case. We did not limit ourselves
thereto, but delved as well into the substantive issues the perfection of the contract of sale
and its enforceability, which required the determination of questions of fact. While the
Supreme Court is not a trier of facts and as a rule we are not required to look into the factual
bases of respondent Court's decisions and resolutions, we did so just the same, if only to find
out whether there is reason to disturb any of its factual findings, for we are only too aware of
the depth, magnitude and vigor by which the parties through their respective eloquent
counsel, argued their positions before this Court.
We are not unmindful of the tenacious plea that the petitioner Bank is operating abnormally
under a government-appointed conservator and "there is need to rehabilitate the Bank in
order to get it back on its feet . . . as many people depend on (it) for investments, deposits
and well as employment. As of June 1987, the Bank's overdraft with the Central Bank had
already reached P1.023 billion . . . and there were (other) offers to buy the subject properties
for a substantial amount of money." 53
While we do not deny our sympathy for this distressed bank, at the same time, the Court
cannot emotionally close its eyes to overriding considerations of substantive and procedural
law, like respect for perfected contracts, non-impairment of obligations and sanctions against
forum-shopping, which must be upheld under the rule of law and blind justice.
This Court cannot just gloss over private respondent's submission that, while the subject
properties may currently command a much higher price, it is equally true that at the time of
the transaction in 1987, the price agreed upon of P5.5 million was reasonable, considering
that the Bank acquired these properties at a foreclosure sale for no more than P3.5 million 54.
That the Bank procrastinated and refused to honor its commitment to sell cannot now be
used by it to promote its own advantage, to enable it to escape its binding obligation and to
reap the benefits of the increase in land values. To rule in favor of the Bank simply because
the property in question has algebraically accelerated in price during the long period of
litigation is to reward lawlessness and delays in the fulfillment of binding contracts. Certainly,
the Court cannot stamp its imprimatur on such outrageous proposition.
WHEREFORE, finding no reversible error in the questioned Decision and Resolution, the Court
hereby DENIES the petition. The assailed Decision is AFFIRMED. Moreover, petitioner Bank is
REPRIMANDED for engaging in forum-shopping and WARNED that a repetition of the same or
similar acts will be dealt with more severely. Costs against petitioners.
SO ORDERED.
Narvasa, C.J., Davide Jr., Melo and Francisco, JJ., concur.

(29) 253 SCRA 105


G.R. No. 112830

February 1, 1996

JERRY ONG, petitioner,


vs.
COURT OF APPEALS and RURAL BANK OF OLONGAPO, INC., represented by its Liquidator,
GUILLERMO G. REYES, JR. and Deputy Liquidator ABEL ALLANIGUE, respondents.
DECISION
BELLOSILLO, J.:
The jurisdiction of a regular court over a bank undergoing liquidation is the issue in this
petition for review of the decision of the Court of Appeals.1
On 5 February 1991 Jerry Ong filed with the Regional Trial Court of Quezon City a petition for
the surrender of TCT Nos. 13769 and 13770 pursuant to the provisions of Secs. 63(b) and 107
of P.D. 15292 against Rural Bank of Olongapo, Inc. (RBO), represented by its liquidator
Guillermo G. Reyes, Jr. and deputy liquidator Abel Allanigue.3 The petition averred inter alia
that
2. The RBO was the owner in fee simple of two parcels of land including the improvements
thereon situated in Tagaytay City . . . particularly described in TCT Nos. 13769 and
13770 . . . .
3. Said parcels of land were duly mortgaged by RBO in favor of petitioner on December 29,
1983 to guarantee the payment of Omnibus Finance, Inc., which is likewise now undergoing
liquidation proceedings of its money market obligations to petitioner in the principal amount
of P863,517.02 . . . .
4. Omnibus Finance, Inc., not having seasonably settled its obligations to petitioner, the latter
proceeded to effect the extrajudicial foreclosure of said mortgages, such that on March 23,
1984, the City Sheriff of Tagaytay City issued a Certificate of Sale in favor of petitioner . . . .
5. Said Certificate of Sale . . . was duly registered with the Registry of Deeds of Tagaytay City
on July 16, 1985, as shown in the certified true copies of the aforementioned titles . . . .
6. Respondents failed to seasonably redeem said parcels of land, for which reason, petitioner
has executed an Affidavit of Consolidation of Ownership which, to date, has not been
submitted to the Registry of Deeds of Tagaytay City, in view of the fact that possession of the
aforesaid titles or owner's duplicate certificates of title remains with the RBO.

7. To date, petitioner has not been able to effect the registration of said parcels of land in his
name in view of the persistent refusal of respondents, despite demand, to surrender RBO's
copies of its owner's certificates of title for the parcels of land covered by TCT Nos. 13769 and
13770.4
Respondent RBO filed a motion to dismiss on the ground of res judicata alleging that
petitioner had earlier sought a similar relief from Br. 18 of the Regional Trial Court of
Tagaytay City, which case was dismissed with finality on appeal before the Court of Appeals.
In a supplemental motion to dismiss, respondent RBO contended that it was undergoing
liquidation and, pursuant to prevailing jurisprudence, it is the liquidation court which has
exclusive jurisdiction to take cognizance of petitioner's claim.
On 7 May 1991 the trial court denied the motion to dismiss because it found that the causes
of action in the previous and present cases were different although it was silent on the
jurisdictional issue. Accordingly, respondent RBO filed a motion for reconsideration but the
same was similarly rejected in the order of June 11 1991 holding that: (a) subject parcels of
land were sold to petitioner through public bidding on 23 March 1984 and, consequently, said
pieces of realty were no longer part of the assets of respondent RBO; and, (b) in the same
token, subject lots were no longer considered assets of respondent RBO when its liquidation
was commenced by the Central Bank on 9 November 1984 and when the petition for
assistance in its liquidation was approved by the Regional Trial Court of Olongapo City on 30
May 1985.
On 5 July 1991 respondent RBO filed a manifestation and urgent motion for reconsideration
arguing that the validity of the certificate of sale issued to petitioner was still at issue in
another case between them and therefore the properties covered by said certificate were still
part and parcel of its assets.
Still unpersuaded by respondent RBO's arguments, the trial court denied reconsideration in its
order of 18 September 1991 prompting the bank to elevate the case to respondent Court of
Appeals by way of a petition for certiorari and prohibition. On 12 February 1992 respondent
court rendered a decision annulling the challenged order of the court a quo dated 19 June
1991 which sustained the jurisdiction of the trial court as well as the order of 18 September
1991 denying reconsideration thereof. Moreover, the trial judge was ordered to dismiss Civil
Case No. Q-91-8019 without prejudice to the right of petitioner to file his claim in the
liquidation proceedings (Sp. Proc. No. 170-0-85) pending before Br. 73 of the Regional Trial
Court of Olongapo City.5
In reversing the trial court the appellate court noted that Sec. 29, par. 3, of R.A. 265 as
amended by P.D. 18276 does not limit the jurisdiction of the liquidation court to claims
against the assets of the insolvent bank. The provision is general in that it clearly and
unqualifiedly states that the liquidation court shall have jurisdiction to adjudicate disputed
claims against the bank. "Disputed claims" refer to all claims, whether they be against the
assets of the insolvent bank, for specific performance, breach of contract, damages, or
whatever. To limit the jurisdiction of the liquidation court to those claims against the asset's
of the bank is to remove significantly and without basis the cases that may be brought
against a bank in case of insolvency.
Respondent court also noted that the certificates of title are still in the name of respondent
RBO. As far as third persons are concerned (and these include claimants in the liquidation
court), registration is the operative act which would convey title to the property.

Petitioner submits that Civil Case No. Q-91-8019 may proceed independently of Sp. Proc. No.
170-0-85. He argues that the disputed parcels of land have been extrajudicially foreclosed
and the corresponding certificate of sale issued in his favor; that considering that respondent
RBO failed to redeem said properties he should now be allowed to consolidate his title
thereto; that respondent RBO's mortgage of TCT Nos. 13769 and 13770 in favor of petitioner
and its subsequent foreclosure are presumed valid and regular; and, that the liquidation court
has no jurisdiction over subject parcels of land since they are no longer assets of respondent
RBO.
We find no merit in the petition. Section 29, par. 3, of R.A. 265 as amended by P. D. 1827
provides
If the Monetary Board shall determine and confirm within (sixty days) that the bank . . . is
insolvent or cannot resume business with safety to its depositors, creditors and the general
public, it shall, if the public interest requires, order its liquidation, indicate the manner of its
liquidation and approve a liquidation plan. The Central Bank shall, by the Solicitor General, file
a petition in the Court of First Instance 7 reciting the proceedings which have been taken and
praying the assistance of the court in the liquidation of such institution. The court shall have
jurisdiction in the same proceedings to adjudicate disputed claims against the bank . . . . and
enforce individual liabilities of the stockholders and do all that is necessary to preserve the
assets of such institution and to implement the liquidation plan approved by the Monetary
Board (emphasis supplied).
Applying the aforequoted provision in Hernandez v. Rural Bank of Lucena, Inc., 8 this Court
ruled
The fact that the insolvent bank is forbidden to do business, that its assets are turned over to
the Superintendent of Banks, as a receiver, for conversion into cash, and that its liquidation is
undertaken with judicial intervention means that, as far as lawful and practicable, all claims
against the insolvent bank should be filed in the liquidation proceeding (emphasis supplied).
We explained therein the rationale behind the provision, i.e., the judicial liquidation is
intended to prevent multiplicity of actions against the insolvent bank. It is a pragmatic
arrangement designed to establish due process and orderliness in the liquidation of the bank,
to obviate the proliferation of litigations and to avoid injustice and arbitrariness. The
lawmaking body contemplated that for convenience only one court, if possible, should pass
upon the claims against the insolvent bank and that the liquidation court should assist the
Superintendent of Banks and regulate his operations.
The phrase "(T)he court shall have jurisdiction in the same proceedings to adjudicate disputed
claims against the bank" appears to have misled petitioner. He argues that to the best of his
personal knowledge there is no pending action filed before any court or agency which
contests his right over subject properties. Thus his petition before the Regional Trial Court of
Quezon City cannot be considered a "disputed claim" as contemplated by law.
It is not necessary that a claim be initially disputed in a court or agency before it is filed with
the liquidation court. As may be gleaned in the Hernandez case, the term "disputed claim" in
the provision simply connotes that
[i]n the course of the liquidation, contentious cases might arise wherein a full-dress hearing
would be required and legal issues would have to be resolved. Hence, it would be necessary
in justice to all concerned that a Court of First Instance (now Regional Trial Court) . . . assist
and supervise the liquidation and . . . . act as umpire or arbitrator in the allowance and
disallowance of claims.

Petitioner must have overlooked the fact that since respondent RBO is insolvent other
claimants not privy to their transaction may be involved. As far as those claimants are
concerned, in the absence of certificates of title in the name of petitioner, subject lots still
form part of the assets of the insolvent bank.
On the basis of the Hernandez case as well as Sec. 29, par. 3, of R.A. 265 as amended by P.D.
1827, respondent Court of Appeals was correct in holding that the Regional Trial Court of
Quezon City, Br. 79, did not have jurisdiction over the petition, much less in ordering the
dismissal of Civil Case No. Q-91-8019, without prejudice to petitioner's right to file his claim in
Sp. Proc. No. 170-0-85 before the Regional Trial Court of Olongapo City, Br. 73.
WHEREFORE, the petition is DENIED. The decision of respondent Court of Appeals dated 12
February 1992 is AFFIRMED. Costs against petitioner.
SO ORDERED.
Padilla, Vitug, Kapunan and Hermosisima, Jr., JJ., concur.

(31) 455 scra 97


[G.R. No. 162270. April 06, 2005]
ABACUS REAL ESTATE DEVELOPMENT CENTER, INC., petitioner, vs. THE MANILA BANKING
CORPORATION, respondent.
DECISION
GARCIA, J.:
Thru this appeal by way of a petition for review on certiorari under Rule 45 of the Rules of
Court, petitioner Abacus Real Estate Development Center, Inc. seeks to set aside the
following issuances of the Court of Appeals in CA-G.R. CV No. 64877, to wit:
1. Decision dated May 26, 2003,[1] reversing an earlier decision of the Regional Trial Court at
Makati City, Branch 59, in an action for specific performance and damages thereat
commenced by the petitioner against the herein respondent Manila Banking Corporation; and
2. Resolution of February 17, 2004,[2] denying petitioners motion for reconsideration.
The petition is casts against the following factual backdrop:
Respondent Manila Banking Corporation (Manila Bank, for brevity), owns a 1,435-square
meter parcel of land located along Gil Puyat Avenue Extension, Makati City and covered by

Transfer Certificate of Title (TCT) No. 132935 of the Registry of Deeds of Makati. Prior to
1984, the bank began constructing on said land a 14-storey building. Not long after, however,
the bank encountered financial difficulties that rendered it unable to finish construction of the
building.
On May 22, 1987, the Central Bank of the Philippines, now Bangko Sentral ng Pilipinas,
ordered the closure of Manila Bank and placed it under receivership, with Feliciano Miranda,
Jr. being initially appointed as Receiver. The legality of the closure was contested by the bank
before the proper court.
On November 11, 1988, the Central Bank, by virtue of Monetary Board (MB) Resolution No.
505, ordered the liquidation of Manila Bank and designated Atty. Renan V. Santos as
Liquidator. The liquidation, however, was held in abeyance pending the outcome of the
earlier suit filed by Manila Bank regarding the legality of its closure. Consequently, the
designation of Atty. Renan V. Santos as Liquidator was amended by the Central Bank on
December 22, 1988 to that of Statutory Receiver.
In the interim, Manila Banks then acting president, the late Vicente G. Puyat, in a bid to save
the banks investment, started scouting for possible investors who could finance the
completion of the building earlier mentioned. On August 18, 1989, a group of investors,
represented by Calixto Y. Laureano (hereafter referred to as Laureano group), wrote Vicente
G. Puyat offering to lease the building for ten (10) years and to advance the cost to complete
the same, with the advanced cost to be amortized and offset against rental payments during
the term of the lease. Likewise, the letter-offer stated that in consideration of advancing the
construction cost, the group wanted to be given the exclusive option to purchase the
building and the lot on which it was constructed.
Since no disposition of assets could be made due to the litigation concerning Manila Banks
closure, an arrangement was thought of whereby the property would first be leased to Manila
Equities Corporation (MEQCO, for brevity), a wholly-owned subsidiary of Manila Bank, with
MEQCO thereafter subleasing the property to the Laureano group.
In a letter dated August 30, 1989, Vicente G. Puyat accepted the Laureano groups offer and
granted it an exclusive option to purchase the lot and building for One Hundred Fifty Million
Pesos (P150,000,000.00). Later, or on October 31, 1989, the building was leased to MEQCO
for a period of ten (10) years pursuant to a contract of lease bearing that date. On March 1,
1990, MEQCO subleased the property to petitioner Abacus Real Estate Development Center,
Inc. (Abacus, for short), a corporation formed by the Laureano group for the purpose, under
identical provisions as that of the October 31, 1989 lease contract between Manila Bank and
MEQCO.
The Laureano group was, however, unable to finish the building due to the economic crisis
brought about by the failed December 1989 coup attempt. On account thereof, the Laureano
group offered its rights in Abacus and its exclusive option to purchase to Benjamin Bitanga
(Bitanga hereinafter), for Twenty Million Five Hundred Thousand Pesos (P20,500,000.00).
Bitanga would later allege that because of the substantial amount involved, he first had to
talk with Atty. Renan Santos, the Receiver appointed by the Central Bank, to discuss Abacus
offer. Bitanga further alleged that, over lunch, Atty. Santos then verbally approved his entry
into Abacus and his take-over of the sublease and option to purchase.
On March 30, 1990, the Laureano group transferred and assigned to Bitanga all of its rights in
Abacus and the exclusive option to purchase the subject land and building.

On September 16, 1994, Abacus sent a letter to Manila Bank informing the latter of its desire
to exercise its exclusive option to purchase. However, Manila Bank refused to honor the
same.
Such was the state of things when, on November 10, 1995, in the Regional Trial Court (RTC)
at Makati, Abacus Real Estate Development Center, Inc. filed a complaint[3] for specific
performance and damages against Manila Bank and/or the Estate of Vicente G. Puyat. In its
complaint, docketed as Civil Case No. 96-1638 and raffled to Branch 59 of the court, plaintiff
Abacus prayed for a judgment ordering Manila Bank, inter alia, to sell, transfer and convey
unto it for P150,000,000.00 the land and building in dispute free from all liens and
encumbrances, plus payment of damages and attorneys fees.
Subsequently, defendant Manila Bank, followed a month later by its co-defendant Estate of
Vicente G. Puyat, filed separate motions to dismiss the complaint.
In an Order dated April 15, 1996, the trial court granted the motion to dismiss filed by the
Estate of Vicente G. Puyat, but denied that of Manila Bank and directed the latter to file its
answer.
Before plaintiff Abacus could adduce evidence but after pre-trial, defendant Manila Bank filed
a Motion for Partial Summary Judgment, followed by a Supplement to Motion for Partial
Summary Judgment.
While initially opposed, Abacus would later join Manila Bank in
submitting the case for summary judgment.
Eventually, in a decision dated May 27, 1999,[4] the trial court rendered judgment for Abacus
in accordance with the latters prayer in its complaint, thus:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff as
follows:
1.
Ordering the defendant [Manila Bank] to immediately sell to plaintiff the parcel of land
and building, with an area of 1,435 square meters and covered by TCT No. 132935 of the
Makati Registry of Deeds, situated along Sen. Gil J. Puyat Ave. in Makati City, at the price of
One Hundred Fifty Million (P150,000.000.00) Pesos in accordance with the said exclusive
option to purchase, and to execute the appropriate deed of sale therefor in favor of plaintiff;
2.
Ordering the defendant [Manila Bank] to pay plaintiff the amount of Two Million
(P2,000,000.00) Pesos representing reasonable attorneys fees;
3.

Ordering the DISMISSAL of defendants counterclaim, for lack of merit; and

4.

With costs against the defendant.

SO ORDERED.
Its motion for reconsideration of the aforementioned decision having been denied by the trial
court in its Order of August 17, 1999,[5] Manila Bank then went on to the Court of Appeals
whereat its appellate recourse was docketed as CA-G.R. CV No. 64877.
As stated at the threshold hereof, the Court of Appeals, in a decision dated May 26, 2003,[6]
reversed and set aside the appealed decision of the trial court, thus:
WHEREFORE, finding serious reversible error, the appeal is GRANTED.

The Decision dated May 27, 1999 of the Regional Trial Court of Makati City, Branch 59 is
REVERSED and SET ASIDE.
Cost of the appeal to be paid by the appellee.
SO ORDERED.
On June 25, 2003, Abacus filed a Motion for Reconsideration, followed, with leave of court, by
an Amended Motion for Reconsideration. Pending resolution of its motion for reconsideration,
as amended, Abacus filed a Motion to Dismiss Appeal,[7] therein praying for the dismissal of
Manila Banks appeal from the RTC decision of May 27, 1999, contending that said appeal was
filed out of time.
In its Resolution of February 17, 2004,[8] the appellate court denied Abacus aforementioned
motion for reconsideration.
Hence, this recourse by petitioner Abacus Real Estate Development Center, Inc.
As we see it, two (2) issues commend themselves for the resolution of the Court, namely:
WHETHER OR NOT RESPONDENT BANKS APPEAL TO THE COURT OF APPEALS WAS FILED ON
TIME; and
WHETHER OR NOT PETITIONER ABACUS HAS ACQUIRED THE RIGHT TO PURCHASE THE LOT
AND BUILDING IN QUESTION.
We rule for respondent Manila Bank on both issues.
Addressing the first issue, petitioner submits that respondent banks appeal to the Court of
Appeals from the adverse decision of the trial court was belatedly filed. Elaborating thereon,
petitioner alleges that respondent bank received a copy of the May 27, 1999 RTC decision on
June 22, 1999, hence, petitioner had 15 days, or only up to July 7, 1999 within which to take
an appeal from the same decision or move for a reconsideration thereof. Petitioner alleges
that respondent furnished the trial court with a copy of its Motion for Reconsideration only on
July 7, 1999, the last day for filing an appeal. Under Section 3, Rule 41 of the 1997 Rules of
Civil Procedure, the period of appeal shall be interrupted by a timely motion for new trial or
reconsideration.
Since, according to petitioner, respondent filed its Motion for
Reconsideration on the last day of the period to appeal, it only had one (1) more day within
which to file an appeal, so much so that when it received on August 23, 1999 a copy of the
trial courts order denying its Motion for Reconsideration, respondent bank had only up to
August 24, 1999 within which to file the corresponding appeal. As respondent bank appealed
the decision of the trial court only on August 25, 1999, petitioner thus argues that
respondents appeal was filed out of time.
As a counterpoint, respondent alleges that it sent the trial court a copy of its Motion for
Reconsideration on July 6, 1999, through registered mail. Having sent a copy of its Motion for
Reconsideration to the trial court with still two (2) days left to appeal, respondent then claims
that its filing of an appeal on August 25, 1999, two (2) days after receiving the Order of the
trial court denying its Motion for Reconsideration, was within the reglementary period.
Agreeing with respondent, the appellate court declared that respondents appeal was filed on
time. Explained that court in its Resolution of February 17, 2004, denying petitioners motion
for reconsideration:

Firstly, the file copy of the motion for reconsideration contains the written annotations
Registry Receipt No. 1633 Makati P.O. 7-6-99 in its page 13. The presence of the
annotations proves that the motion for reconsideration was truly filed by registered mail on
July 6, 1999 through registry receipt no. 1633.
Secondly, the appellants manifestation filed in the RTC personally on July 7, 1999 contains
the following self-explanatory statements, to wit:
2. Defendant [Manila Bank] also filed with this Honorable Court a Motion for Reconsideration
of the Decision dated 27 May 1999 promulgated by this Honorable Court in this case, and
served a copy thereof to the plaintiff, by registered mail yesterday, 6 July 1999, due to lack of
material time and messenger to effect personal service and filing.
3. In order for this Honorable Court to be able to review defendant [Manila Banks] Motion for
Reconsideration without awaiting the mailed copy, defendant [Manila Bank] is now furnishing
this Honorable Court with a copy of said motion, as well as the entry of appearance, by
personal service.
The aforecited reference in the manifestation to the mailing of the motion for reconsideration
on July 6, 1999, in light of the handwritten annotations adverted to herein, renders beyond
doubt the appellants insistence of filing through registered mail on July 6, 1999.
Thirdly, the registry return cards attached to the envelopes separately addressed and mailed
to the RTC and the appellees counsel, found in pages 728 and 729 of the rollo, indicate that
the contents were the motion for reconsideration and the formal entry of appearance.
Although the appellee argues that the handwritten annotations of what were contained by the
envelopes at the time of mailing was easily self-serving, the fact remains that the envelope
addressed to the appellees counsel appears thereon to have been received on July 6, 1999
(7/6/99), which enhances the probability of the motion for reconsideration being mailed,
hence filed, on July 6, 1999, as claimed by the appellant.
Fourthly, the certification issued on October 2, 2003 by Atty. Jayme M. Luy, Branch Clerk of
Court, Branch 59, RTC in Makati City, has no consequence because Atty. Luy based his data
only on page 3 of the 1995 Civil Case Docket Book without reference to the original records
which were already with the Court of Appeals.
Fifthly, since the appellant received the denial of the motion for reconsideration on August 23,
1999, it had until August 25, 1999 within which to perfect its appeal from the decision of the
RTC because 2 days remained in its reglementary period to appeal. It is not disputed that the
appellant filed its notice of appeal and paid the appellate court docket fees on August 25,
1999.
These circumstances preponderantly demonstrate that the appellants appeal was not late by
one day. (Emphasis in the original)
Petitioner would, however, contest the above findings of the appellate court, stating, among
other things, that if it were true that respondent filed its Motion for Reconsideration by
registered mail and then furnished the trial court with a copy of said Motion the very next
day, then the rollo should have had two copies of the Motion for Reconsideration in question.
Respondent, on the other hand, insists that it indeed filed a Motion for Reconsideration on July
6, 1999 through registered mail.
It is evident that the issue raised by petitioner relates to the correctness of the factual finding
of the Court of Appeals as to the precise date when respondent filed its motion for
reconsideration before the trial court. Such issue, however, is beyond the province of this

Court to review. It is not the function of the Court to analyze or weigh all over again the
evidence or premises supportive of such factual determination.[9] The Court has consistently
held that the findings of the Court of Appeals and other lower courts are, as a rule, accorded
great weight, if not binding upon it,[10] save for the most compelling and cogent reasons.[11]
As nothing in the record indicates any of such exceptions, the factual conclusion of the
appellate court that respondent filed its appeal on time, supported as it is by substantial
evidence, must be affirmed.
Going to the second issue, petitioner insists that the option to purchase the lot and building in
question granted to it by the late Vicente G. Puyat, then acting president of Manila Bank, was
binding upon the latter. On the other hand, respondent has consistently maintained that the
late Vicente G. Puyat had no authority to act for and represent Manila Bank, the latter having
been placed under receivership by the Central Bank at the time of the granting of the
exclusive option to purchase.
There can be no quibbling that respondent Manila Bank was under receivership, pursuant to
Central Banks MB Resolution No. 505 dated May 22, 1987, at the time the late Vicente G.
Puyat granted the exclusive option to purchase to the Laureano group of investors. Owing
to this defining reality, the appellate court was correct in declaring that Vicente G. Puyat was
without authority to grant the exclusive option to purchase the lot and building in question.
The invocation by the appellate court of the following pronouncement in Villanueva vs. Court
of Appeals[12] was apropos, to say the least:
the assets of the bank pass beyond its control into the possession and control of the
receiver whose duty it is to administer the assets for the benefit of the creditors of the bank.
Thus, the appointment of a receiver operates to suspend the authority of the bank and of its
directors and officers over its property and effects, such authority being reposed in the
receiver, and in this respect, the receivership is equivalent to an injunction to restrain the
bank officers from intermeddling with the property of the bank in any way.
With respondent bank having been already placed under receivership, its officers, inclusive of
its acting president, Vicente G. Puyat, were no longer authorized to transact business in
connection with the banks assets and property. Clearly then, the exclusive option to
purchase granted by Vicente G. Puyat was and still is unenforceable against Manila Bank.
[13]
Petitioner, however, asseverates that the exclusive option to purchase was ratified by
Manila Banks receiver, Atty. Renan Santos, during a lunch meeting held with Benjamin
Bitanga in March 1990.
Petitioners argument is tenuous at best. Concededly, a contract unenforceable for lack of
authority by one of the parties may be ratified by the person in whose name the contract was
executed. However, even assuming, in gratia argumenti, that Atty. Renan Santos, Manila
Banks receiver, approved the exclusive option to purchase granted by Vicente G. Puyat,
the same would still be of no force and effect.
Section 29 of the Central Bank Act, as amended,[14] pertinently provides:
Sec. 29. Proceedings upon insolvency. Whenever, upon examination by the head of the
appropriate supervising and examining department or his examiners or agents into the
condition of any banking institution, it shall be disclosed that the condition of the same is one
of insolvency, or that its continuance in business would involve probable loss to its depositors
or creditors, it shall be the duty of the department head concerned forthwith, in writing, to
inform the Monetary Board of the facts, and the Board may, upon finding the statements of
the department head to be true, forbid the institution to do business in the Philippines and

shall designate an official of the Central Bank as receiver to immediately take charge of its
assets and liabilities, as expeditiously as possible collect and gather all the assets and
administer the same for the benefit of its creditors, exercising all the powers necessary for
these purposes including, but not limited to, bringing suits and foreclosing mortgages in the
name of the banking institution. (Emphasis supplied)
Clearly, the receiver appointed by the Central Bank to take charge of the properties of Manila
Bank only had authority to administer the same for the benefit of its creditors. Granting or
approving an exclusive option to purchase is not an act of administration, but an act of
strict ownership, involving, as it does, the disposition of property of the bank. Not being an
act of administration, the so-called approval by Atty. Renan Santos amounts to no approval
at all, a bank receiver not being authorized to do so on his own.
For sure, Congress itself has recognized that a bank receiver only has powers of
administration. Section 30 of the New Central Bank Act[15] expressly provides that [t]he
receiver shall immediately gather and take charge of all the assets and liabilities of the
institution, administer the same for the benefit of its creditors, and exercise the general
powers of a receiver under the Revised Rules of Court but shall not, with the exception of
administrative expenditures, pay or commit any act that will involve the transfer or
disposition of any asset of the institution
In all, respondent banks receiver was without any power to approve or ratify the exclusive
option to purchase granted by the late Vicente G. Puyat, who, in the first place, was himself
bereft of any authority, to bind the bank under such exclusive option. Respondent Manila
Bank may not thus be compelled to sell the land and building in question to petitioner Abacus
under the terms of the latters exclusive option to purchase.
WHEREFORE, the instant petition is DENIED and the challenged issuances of the Court of
Appeals AFFIRMED.
Costs against petitioner.
SO ORDERED.
Panganiban, (Chairman), Sandoval-Gutierrez, Corona, and Carpio-Morales, JJ., concur.

(32) 8 SCRA 413


G.R. No. L-17927

June 29, 1963

LOURDES DE LA RAMA, plaintiff-appellee,


vs.
AUGUSTO R. VILLAROSA, ET AL., defendants,
LUZON SURETY COMPANY, INC., defendant-appellant.
Hilado and Hilado for plaintiff-appellee.
Tolentino, Garcia and D. R. Cruz for defendant-appellant.
LABRADOR, J.:
Appeal from an order of the Court of First Instance of Negros Occidental, dated August 6,
1960, Hon. Jose R. Querubin, presiding, issuing a fourth alias writ of execution directing the
sheriff of Manila to enforce the judgment of the Court of Appeals on the sum of P33,002.72
out of a total of P71,533.99 garnished by the sheriff after judgment of the Court of First
Instance, and especially in so far as it denies a petition of defendant-appellant for an order
against the sheriff of Manila and plaintiff to pay to appellant or return to him the sum of
P39,998.42 plus interests and costs.1wph1.t
The background of the present appeal is as follows: Plaintiff lessor Lourdes de la Rama
brought an action in the Court of first Instance of Negros Occidental against defendant lessee
Augusto R. Villarosa and the latter's surety, the Luzon Surety Co., Inc. for judicial confirmation
of the cancellation, rescission and annulment of a contract of lease of sugarland, Annex "A"
(and the payment of the unpaid balance of the rental for the 1953-54 sugarcane crop year,
the rental for the 1954-55 crop year, rental and partly the reasonable value for the use and
occupation of the leased premises for the 1955-56 crop year, with stipulated attorney's fees,
and interests, etc. On June 25, 1955, the court rendered a partial summary judgment
decreeing the lease rescinded, cancelled and annulled from the 14th day of January 1955 and
ordering defendant Augusto R. Villarosa to surrender and deliver to plaintiff or her
representatives the possession of the leased premises, etc. After trial the court rendered a
decision dated March 28, 1957, ordering the lessee and his surety to pay:
(a) Unpaid balance of rental for the 1953-54 crop year . . . . . . . . . P11,885.35
(b) Unpaid balance of rental for the 1954-55 crop year . . . . . . . . . P18,799.31
(c) Unpaid balance partly of rental and partly of reasonable
value of the use and occupation of the leased premises for the
1955-56 crop year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P21,318.92
(d) 10% for attorney's fees stipulated in paragraph 4(e) of the
lease contract aforesaid, based upon the total of the sums
stated in (a), (b) and (c) above . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 5,200.36

On January 22, 1958, the lower court issued an order for the immediate execution of the
above judgment. Again on August 8, 1959, the lower court, upon motion of plaintiff-appellee
Lourdes de la Rama, issued in order for the issuance of a third alias writ of execution directing
the sheriff of Manila to satisfy the judgment dated march 28, 1957. Accordingly, the sheriff of
Manila garnished the deposit of defendant-appellant with the Philippine Trust Co. to the
amount of P71,533.99. and required the latter not to deliver, transfer or otherwise dispose of
the said amount belonging to the defendant, to any person except to the sheriff, or suffer the
penalties prescribed by law. The Philippine Trust Co., complying with such notice, set aside
the amount of P71,533.99 out of the deposit of the defendant-appellant in its possession for
the benefit of the sheriff of Manila and the plaintiff-appellee.
In the meantime and on July 5, 1958, the Luzon Surety Co., Inc. perfected an appeal and the
record on appeal was forwarded to the Honorable Court of Appeals and docketed therein as
CA-G.R. No. 23537-R.
The garnishee, the Philippine Trust Co., refused to deliver to the sheriff of Manila, the amount
garnished by the latter to satisfy the writ of execution, so the lower court on September 3,
1959, ordered said company to pay the sheriff out of the deposit of the Luzon Surety Co., Inc.
the amount stated in the amended garnishment dated August 18, 1959. On September 18,
1959, before the order could be complied with by the garnishee, the defendant Luzon Surety
Co. filed a petition for certiorari with preliminary injunction with the Court of Appeals (CA-G.R.
No. 25322-R) against plaintiff-appellee, the Court of First Instance of Negros Occidental, the
sheriff of Manila and the Philippine Trust Co. Upon filing of the petition the sheriff of Manila
was enjoined from enforcing the order of September 3, 1959, against the Philippine Trust Co.
So the garnishee did not deliver to the sheriff of Manila any portion of the amount garnished
and plaintiff-appellee never received any amount either in full or partial satisfaction of the
original judgment of the trial court then under execution.
On January 14, 1960, the Court of Appeals issued a joint decision on the main case (CA-G.R.
No. 23537-R) and on the petition for certiorari (CA-G.R. No. 25322-R). The dispositive portion
of the decision reads:
Defendant Luzon Surety is hereby ordered to pay the sum of P24,864.78 solidarity with
defendant-Villarosa, to plaintiff Lourdes de la Rama, in regard to the sums mentioned in
subparagraphs (a), (b) and (d) above and for the reasons mentioned elsewhere in this
decision, plus the legal interest on the sum of P24,864.78 from the time of the filing of the
complaint until full payment, even if addition of such legal interest would make its judgment
debt in excess of the liability of P25,000.00 stated in the bond.
On July 25, 1960, the defendant-appellant, invoking the provisions of section 5 of Rule 39,
Rules of Court, filed with the lower court a verified motion for the restitution of the amount of
P39,998.42 (?) (P71,533.99 minus P33,002.72 equals P38,531.27), plus interest thereon at
the rate of 6% per annum from August 18, 1959 until paid. The above amount represents the
balance refundable to it after the Court of Appeals modified the decision of the lower court,
plus a 6% interest thereon, invoking the provision of section 5 of Rule 39.
Plaintiff-appellee opposed the motion, alleging that by virtue of the writ of preliminary
injunction issued by the Court of Appeals the sheriff of Manila was never able to collect from
the Philippine Trust Company any portion of the amount garnished, and so section 5 of Rule
39, invoked by appellant has no application, there being no property belonging to the
defendant company which has been delivered to the sheriff on the plaintiff and which has to
be restituted.

On August 6, 1960, the lower court denied the motion of the Luzon Surety Co., Inc. filed by
plaintiff De la Rama well-founded, issued fourth alias writ of execution directing the sheriff of
Manila to enforce the judgment of the Court of Appeals on the sum of P33,002.72 then under
garnishment and in the possession of the Philippine Trust Co. plus the legal sheriff's fees, and
directing the Philippine Trust Co. to pay the sheriff of Manila the sum of P33,002.72.
The above order of August 6. 1960, is the subject of this appeal to this Court.
The gist of the appellant's appeal is inasmuch as the full amount of P71,533.99 was garnished
but only the sum of P31,535.57 was paid, the amount of the judgment awarded in the Court
of Appeals, plaintiff-appellee should pay an interest of 6% of the difference between the total
sum actually garnished and the sum obtained by the plaintiff in the final judgment or an
interest of 6% etc. Basis for this petition is Section 5 of Rule 39 which reads as follows:
SEC. 5. Effect of reversal of judgment executed. Where the judgment executed is reversed
totally or partially on appeal the trial court, on motion, after the case is remanded to it, may
issue such orders of restitution as equity and justice may warrant under the circumstances.
(Rules of Court)
There are various reasons why the petition for interest on the balance of the amount
garnished cannot be awarded to the defendant-appellant. In the first place, the amount
garnished was not actually taken possession of by the sheriff, even from the time of the
garnishment, because upon the perfection of the defendant-appellant's appeal to the Court of
Appeals this Court issued an injunction prohibiting execution of the judgment. The plaintiffappellee was, therefore, able to secure a full satisfaction of the judgment only upon final
judgment of the Court on August 6, 1960. The total sum garnished was not delivered to the
sheriff in execution, because the order for the execution of the judgment of the lower court
was suspended in time by the appeal and the preliminary injunction issue on appeal.
In the second place, the mere garnishment of funds belonging to the party upon order of the
court does not have the effect of delivering the money garnished to the sheriff or to the party
in whose favor the attachment is issued. The fund is retained by the garnishee or the person
holding the money for the defendant.
The garnishee, or one in whose hands property is attached or garnished, is universally
regarded as charged with its legal custody pending the outcome of the attachment of
garnishment, unless, by local statute and practice, he is permitted to surrender or pay the
garnished property or funds into court, to the attaching officer, or to a receiver or trustee
appointed to receive them. (5 Am. Jur. 14)
The effect of the garnishment, therefore, was to require the Philippine Trust Company, holder
of the funds of the Luzon Surety Co., to set aside said amount from the funds of the Luzon
Surety Co. and keep the same subject to the final orders of the Court. In the case at bar there
was never in order to deliver the full amount garnished to the plaintiff-appellee; all that was
ordered to be delivered after the judgment had become final was the amount found by the
Court of Appeals to be due. The balance of the amount garnished, therefore, remained all the
time in the possession of the bank as part of the funds of the Luzon Surety Co., although the
same could not be disposed of by the owner.
In the third place, the motion by the defendant-appellant for the payment of damages or
interest was presented when the judgment had already become final. Damages incident to
the issuance of an attachment may only be claimed before final judgment. (Rule 59, See. 20).
In the case at bar the judgment of the Court of Appeals was issued on January 14, 1960. But
the defendant-appellant's request for interest or damages is dated July 22, 1960. The
defendant-appellant's own record on appeal shows that the decision of the Court of Appeals

had already become final and executory time of the perfection of the appeal to this Court. A
last reason is the absence of any allegation to the effect that the garnishment of appellant's
funds in the Philippine Trust Company caused actual damages to defendant-appellant, for
example, that the funds could not be utilized to pay a pending obligation as a result of which
interest was paid on such obligation.
FOR ALL THE FOREGOING, the judgment of the court below denying
defendant-appellant's petition for interest on its fund garnished is affirmed, with costs against
defendant-appellant.
Padilla, Bautista Angelo, Concepcion, Reyes, J.B.L., Paredes, Dizon, Regala and Makalintal, JJ.,
concur.
Bengzon, C.J., took no part.

(33) 15 SCRA 91
G.R. No. L-18343

September 30, 1965

PHILIPPINE NATIONAL BANK and EDUARDO Z. ROMUALDEZ, in his capacity as President of the
Philippine National Bank, plaintiffs-appellants,
vs.
EMILIO A. GANCAYCO and FLORENTINO FLOR, Special Prosecutors of the Dept. of Justice,
defendants-appellees.
Ramon B. de los Reyes and Zoilo P. Perlas for plaintiffs-appellants.
Villamor & Gancayco for defendants-appellees.

REGALA, J.:
The principal question presented in this case is whether a bank can be compelled to
disclose the records of accounts of a depositor who is under investigation for unexplained
wealth.
This question arose when defendants Emilio A. Gancayco and Florentino Flor, as special
prosecutors of the Department of Justice, required the plaintiff Philippine National Bank to
produce at a hearing to be held at 10 a.m. on February 20, 1961 the records of the bank
deposits of Ernesto T. Jimenez, former administrator of the Agricultural Credit and
Cooperative Administration, who was then under investigation for unexplained wealth. In
declining to reveal its records, the plaintiff bank invoked Republic Act No. 1405 which
provides:

SEC. 2. All deposits of whatever nature with banks or banking institutions in the
Philippines including investments in bonds issued by the Government of the Philippines, its
political subdivisions and its instrumentalities, are hereby considered as of an absolutely
confidential nature and may not be examined, inquired or looked into by any person,
government official, bureau or office, except upon written permission of the depositor, or in
cases of impeachment, or upon order of a competent court in cases of bribery or dereliction
of duty of public officials, or in cases where the money deposited or invested is the subject
matter of the litigation.
The plaintiff bank also called attention to the penal provision of the law which reads:
SEC. 5. Any violation of this law will subject the offender upon conviction, to an
imprisonment of not more than five years or a fine of not more than twenty thousand pesos
or both, in the discretion of the court.
On the other hand, the defendants cited the Anti-Graft and Corrupt Practices Act
(Republic Act No. 3019) in support of their claim of authority and demanded anew that
plaintiff Eduardo Z. Romualdez, as bank president, produce the records or he would be
prosecuted for contempt. The law invoked by the defendant states:
SEC. 8. Dismissal due to unexplained wealth. If in accordance with the provisions of
Republic Act Numbered One thousand three hundred seventy-nine, a public official has been
found to have acquired during his incumbency, whether in his name or in the name of other
persons, an amount of property and/or money manifestly out of proportion to his salary and
to his other lawful income, that fact shall be a ground for dismissal or removal. Properties in
the name of the spouse and unmarried children of such public official may be taken into
consideration, when their acquisition through legitimate means cannot be satisfactorily
shown. Bank deposits shall be taken into consideration in the enforcement of this section,
notwithstanding any provision of law to the contrary.
Because of the threat of prosecution, plaintiffs filed an action for declaratory judgment
in the Manila Court of First Instance. After trial, during which Senator Arturo M. Tolentino,
author of the Anti-Graft and Corrupt Practices Act testified, the court rendered judgment,
sustaining the power of the defendants to compel the disclosure of bank accounts of ACCFA
Administrator Jimenez. The court said that, by enacting section 8 of, the Anti-Graft and
Corrupt Practices Act, Congress clearly intended to provide an additional ground for the
examination of bank deposits. Without such provision, the court added prosecutors would be
hampered if not altogether frustrated in the prosecution of those charged with having
acquired unexplained wealth while in public office.1awphl.nt
From that judgment, plaintiffs appealed to this Court. In brief, plaintiffs' position is that
section 8 of the Anti-Graft Law "simply means that such bank deposits may be included or
added to the assets of the Government official or employee for the purpose of computing his
unexplained wealth if and when the same are discovered or revealed in the manner
authorized by Section 2 of Republic Act 1405, which are (1) Upon written permission of the
depositor; (2) In cases of impeachment; (3) Upon order of a competent court in cases of
bribery or dereliction of duty of public officials; and (4) In cases where the money deposited
or invested is the subject matter of the litigation."
In support of their position, plaintiffs contend, first, that the Anti-Graft Law (which took
effect on August 17, 1960) is a general law which cannot be deemed to have impliedly
repealed section 2 of Republic Act No. 1405 (which took effect on Sept. 9, 1955), because of
the rule that repeals by implication are not favored. Second, they argue that to construe
section 8 of the Anti-Graft Law as allowing inquiry into bank deposits would be to negate the
policy expressed in section 1 of Republic Act No. 1405 which is "to give encouragement to the

people to deposit their money in banking institutions and to discourage private hoarding so
that the same may be utilized by banks in authorized loans to assist in the economic
development of the country."
Contrary to their claim that their position effects a reconciliation of the provisions of the
two laws, plaintiffs are actually making the provisions of Republic Act No. 1405 prevail over
those of the Anti-Graft Law, because even without the latter law the balance standing to the
depositor's credit can be considered provided its disclosure is made in any of the cases
provided in Republic Act No. 1405.
The truth is that these laws are so repugnant to each other than no reconciliation is
possible. Thus, while Republic Act No. 1405 provides that bank deposits are "absolutely
confidential ... and [therefore] may not be examined, inquired or looked into," except in those
cases enumerated therein, the Anti-Graft Law directs in mandatory terms that bank deposits
"shall be taken into consideration in the enforcement of this section, notwithstanding any
provision of law to the contrary." The only conclusion possible is that section 8 of the AntiGraft Law is intended to amend section 2 of Republic Act No. 1405 by providing additional
exception to the rule against the disclosure of bank deposits.
Indeed, it is said that if the new law is inconsistent with or repugnant to the old law, the
presumption against the intent to repeal by implication is overthrown because the
inconsistency or repugnancy reveals an intent to repeal the existing law. And whether a
statute, either in its entirety or in part, has been repealed by implication is ultimately a
matter of legislative intent. (Crawford, The Construction of Statutes, Secs. 309-310. Cf. Iloilo
Palay and Corn Planters Ass'n v. Feliciano, G.R. No. L-24022, March 3, 1965).
The recent case of People v. De Venecia, G.R. No. L-20808, July 31, 1965 invites
comparison with this case. There it was held:
The result is that although sec. 54 [Rev. Election Code] prohibits a classified civil
service employee from aiding any candidate, sec. 29 [Civil Service Act of 1959] allows such
classified employee to express his views on current political problems or issues, or to mention
the name of his candidate for public office, even if such expression of views or mention of
names may result in aiding one particular candidate. In other words, the last paragraph of
sec. 29 is an exception to sec. 54; at most, an amendment to sec. 54.
With regard to the claim that disclosure would be contrary to the policy making bank
deposits confidential, it is enough to point out that while section 2 of Republic Act 1405
declares bank deposits to be "absolutely confidential," it nevertheless allows such disclosure
in the following instances: (1) Upon written permission of the depositor; (2) In cases of
impeachment; (3) Upon order of a competent court in cases of bribery or dereliction of duty of
public officials; (4) In cases where the money deposited is the subject matter of the litigation.
Cases of unexplained wealth are similar to cases of bribery or dereliction of duty and no
reason is seen why these two classes of cases cannot be excepted from the rule making bank
deposits confidential. The policy as to one cannot be different from the policy as to the other.
This policy express the motion that a public office is a public trust and any person who enters
upon its discharge does so with the full knowledge that his life, so far as relevant to his duty,
is open to public scrutiny.
WHEREFORE, the decision appealed from is affirmed, without pronouncement as to
costs.
Concepcion, Reyes, J.B.L., Makalintal, Bengzon, and Zaldivar, JJ., concur.
Bengzon, C.J., Bautista Angelo and Barrera, JJ., are on leave.

(34) 168 scra 49


G.R. No. L-34548 November 29, 1988
RIZAL COMMERCIAL BANKING CORPORATION, Petitioner, vs. THE HONORABLE PACIFICO P. DE
CASTRO and PHILIPPINE VIRGINIA TOBACCO ADMINISTRATION, respondents
CORTES, J.:
The crux of the instant controversy dwells on the liability of a bank for releasing its
depositor's funds upon orders of the court, pursuant to a writ of garnishment. If in compliance
with the court order, the bank delivered the garnished amount to the sheriff, who in turn

delivered it to the judgment creditor, but subsequently, the order of the court directing
payment was set aside by the same judge, should the bank be held solidarily liable with the
judgment creditor to its depositor for reimbursement of the garnished funds? The Court does
not think so.chanroblesvirtualawlibrary chanrobles virtual law library
In Civil Case No. Q-12785 of the Court of First Instance of Rizal, Quezon City Branch IX
entitled "Badoc Planters, Inc. versus Philippine Virginia Tobacco Administration, et al.," which
was an action for recovery of unpaid tobacco deliveries, an Order (Partial Judgment) was
issued on January 15, 1970 by the Hon. Lourdes P. San Diego, then Presiding Judge, ordering
the defendants therein to pay jointly and severally, the plaintiff Badoc Planters, Inc.
(hereinafter referred to as "BADOC") within 48 hours the aggregate amount of P206,916.76,
with legal interests thereon.chanroblesvirtualawlibrary chanrobles virtual law library
On January 26,1970, BADOC filed an Urgent Ex-Parte Motion for a Writ of Execution of the said
Partial Judgment which was granted on the same day by the herein respondent judge who
acted in place of the Hon. Judge San Diego who had just been elevated as a Justice of the
Court of Appeals. Accordingly, the Branch Clerk of Court on the very same day, issued a Writ
of Execution addressed to Special Sheriff Faustino Rigor, who then issued a Notice of
Garnishment addressed to the General Manager and/or Cashier of Rizal Commercial Banking
Corporation (hereinafter referred to as RCBC), the petitioner in this case, requesting a reply
within five (5) days to said garnishment as to any property which the Philippine Virginia
Tobacco Administration (hereinafter referred to as "PVTA") might have in the possession or
control of petitioner or of any debts owing by the petitioner to said defendant. Upon receipt of
such Notice, RCBC notified PVTA thereof to enable the PVTA to take the necessary steps for
the protection of its own interest [Record on Appeal, p. 36] chanrobles virtual law library
Upon an Urgent Ex-Parte Motion dated January 27, 1970 filed by BADOC, the respondent
Judge issued an Order granting the Ex-Parte Motion and directing the herein petitioner "to
deliver in check the amount garnished to Sheriff Faustino Rigor and Sheriff Rigor in turn is
ordered to cash the check and deliver the amount to the plaintiff's representative and/or
counsel on record." [Record on Appeal, p. 20; Rollo, p. 5.] In compliance with said Order,
petitioner delivered to Sheriff Rigor a certified check in the sum of P
206,916.76.chanroblesvirtualawlibrary chanrobles virtual law library
Respondent PVTA filed a Motion for Reconsideration dated February 26,1970 which was
granted in an Order dated April 6,1970, setting aside the Orders of Execution and of Payment
and the Writ of Execution and ordering petitioner and BADOC "to restore, jointly and
severally, the account of PVTA with the said bank in the same condition and state it was
before the issuance of the aforesaid Orders by reimbursing the PVTA of the amount of P 206,
916.76 with interests at the legal rate from January 27, 1970 until fully paid to the account of
the PVTA This is without prejudice to the right of plaintiff to move for the execution of the
partial judgment pending appeal in case the motion for reconsideration is denied and appeal
is taken from the said partial judgment." [Record on Appeal, p. 58] chanrobles virtual law
library
The Motion for Reconsideration of the said Order of April 6, 1970 filed by herein petitioner
was denied in the Order of respondent judge dated June 10, 1970 and on June 19, 1970,
which was within the period for perfecting an appeal, the herein petitioner filed a Notice of
Appeal to the Court of Appeals from the said Orders.chanroblesvirtualawlibrary chanrobles
virtual law library
This case was then certified by the Court of Appeals to this Honorable Court, involving as it
does purely questions of law.chanroblesvirtualawlibrary chanrobles virtual law library

The petitioner raises two principal queries in the instant case: 1) Whether or not PVTA funds
are public funds not subject to garnishment; and 2) Whether or not the respondent Judge
correctly ordered the herein petitioner to reimburse the amount paid to the Special Sheriff by
virtue of the execution issued pursuant to the Order/Partial Judgment dated January 15,
1970.chanroblesvirtualawlibrary chanrobles virtual law library
The record reveals that on February 2, 1970, private respondent PVTA filed a Motion for
Reconsideration of the Order/ Partial Judgment of January 15, 1970. This was granted and the
aforementioned Partial Judgment was set aside. The case was set for hearings on November
4, 9 and 11, 1970 [Rollo, pp. 205-207.] However, in view of the failure of plaintiff BADOC to
appear on the said dates, the lower court ordered the dismissal of the case against PVTA for
failure to prosecute [Rollo, p. 208.] chanrobles virtual law library
It must be noted that the Order of respondent Judge dated April 6, 1970 directing the plaintiff
to reimburse PVTA t e amount of P206,916.76 with interests became final as to said plaintiff
who failed to even file a motion for reconsideration, much less to appeal from the said Order.
Consequently, the order to restore the account of PVTA with RCBC in the same condition and
state it was before the issuance of the questioned orders must be upheld as to the plaintiff,
BADOC.chanroblesvirtualawlibrary chanrobles virtual law library
However, the questioned Order of April 6, 1970 must be set aside insofar as it ordered the
petitioner
RCBC,
jointly
and
severally
with
BADOC,
to
reimburse
PVTA.chanroblesvirtualawlibrary chanrobles virtual law library
The petitioner merely obeyed a mandatory directive from the respondent Judge dated January
27, 1970, ordering petitioner 94 "to deliver in check the amount garnished to Sheriff Faustino
Rigor and Sheriff Rigor is in turn ordered to cash the check and deliver the amount to the
plaintiffs representative and/or counsel on record." [Record on Appeal, p. 20.] chanrobles
virtual law library
PVTA however claims that the manner in which the bank complied with the Sheriffs Notice of
Garnishment indicated breach of trust and dereliction of duty on the part of the bank as
custodian of government funds. It insistently urges that the premature delivery of the
garnished amount by RCBC to the special sheriff even in the absence of a demand to deliver
made by the latter, before the expiration of the five-day period given to reply to the Notice of
Garnishment, without any reply having been given thereto nor any prior authorization from its
depositor, PVTA and even if the court's order of January 27, 1970 did not require the bank to
immediately deliver the garnished amount constitutes such lack of prudence as to make it
answerable jointly and severally with the plaintiff for the wrongful release of the money from
the deposit of the PVTA. The respondent Judge in his controverted Order sustained such
contention and blamed RCBC for the supposed "hasty release of the amount from the deposit
of the PVTA without giving PVTA a chance to take proper steps by informing it of the action
being taken against its deposit, thereby observing with prudence the five-day period given to
it by the sheriff." [Rollo, p. 81.] chanrobles virtual law library
Such allegations must be rejected for lack of merit. In the first place, it should be pointed out
that RCBC did not deliver the amount on the strength solely of a Notice of Garnishment;
rather, the release of the funds was made pursuant to the aforesaid Order of January 27,
1970. While the Notice of Garnishment dated January 26, 1970 contained no demand of
payment as it was a mere request for petitioner to withold any funds of the PVTA then in its
possession, the Order of January 27, 1970 categorically required the delivery in check of the
amount garnished to the special sheriff, Faustino Rigor.chanroblesvirtualawlibrary chanrobles
virtual law library

In the second place, the bank had already filed a reply to the Notice of Garnishment stating
that it had in its custody funds belonging to the PVTA, which, in fact was the basis of the
plaintiff in filing a motion to secure delivery of the garnished amount to the sheriff. [See Rollo,
p. 93.] chanrobles virtual law library
Lastly, the bank, upon the receipt of the Notice of Garnishment, duly informed PVTA thereof
to enable the latter to take the necessary steps for the protection of its own interest [Record
on Appeal, p. 36] chanrobles virtual law library
It is important to stress, at this juncture, that there was nothing irregular in the delivery of the
funds of PVTA by check to the sheriff, whose custody is equivalent to the custody of the court,
he being a court officer. The order of the court dated January 27, 1970 was composed of two
parts, requiring: 1) RCBC to deliver in check the amount garnished to the designated sheriff
and 2) the sheriff in turn to cash the check and deliver the amount to the plaintiffs
representative and/or counsel on record. It must be noted that in delivering the garnished
amount in check to the sheriff, the RCBC did not thereby make any payment, for the law
mandates that delivery of a check does not produce the effect of payment until it has been
cashed. [Article 1249, Civil Code.] chanrobles virtual law library
Moreover, by virtue of the order of garnishment, the same was placed in custodia legis and
therefore, from that time on, RCBC was holding the funds subject to the orders of the court a
quo. That the sheriff, upon delivery of the check to him by RCBC encashed it and turned over
the proceeds thereof to the plaintiff was no longer the concern of RCBC as the responsibility
over the garnished funds passed to the court. Thus, no breach of trust or dereliction of duty
can be attributed to RCBC in delivering its depositor's funds pursuant to a court order which
was merely in the exercise of its power of control over such funds.
... The garnishment of property to satisfy a writ of execution operates as an attachment and
fastens upon the property a lien by which the property is brought under the jurisdiction of the
court issuing the writ. It is brought into custodia legis, under the sole control of such court [De
Leon v. Salvador, G.R. Nos. L-30871 and L-31603, December 28,1970, 36 SCRA 567, 574.]
The respondent judge however, censured the petitioner for having released the funds "simply
on the strength of the Order of the court which. far from ordering an immediate release of the
amount involved, merely serves as a standing authority to make the release at the proper
time as prescribed by the rules." [Rollo, p. 81.] chanrobles virtual law library
This argument deserves no serious consideration. As stated earlier, the order directing the
bank to deliver the amount to the sheriff was distinct and separate from the order directing
the sheriff to encash the said check. The bank had no choice but to comply with the order
demanding delivery of the garnished amount in check. The very tenor of the order called for
immediate compliance therewith. On the other hand, the bank cannot be held liable for the
subsequent encashment of the check as this was upon order of the court in the exercise of its
power of control over the funds placed in custodia legis by virtue of the
garnishment.chanroblesvirtualawlibrary chanrobles virtual law library
In a recent decision [Engineering Construction Inc., v. National Power Corporation, G.R. No. L34589, June 29, 1988] penned by the now Chief Justice Marcelo Fernan, this Court absolved a
garnishee from any liability for prompt compliance with its order for the delivery of the
garnished funds. The rationale behind such ruling deserves emphasis in the present case:
But while partial restitution is warranted in favor of NPC, we find that the Appellate Court
erred in not absolving MERALCO, the garnishee, from its obligations to NPC with respect to
the payment of ECI of P 1,114,543.23, thus in effect subjecting MERALCO to double liability.
MERALCO should not have been faulted for its prompt obedience to a writ of garnishment.

Unless there are compelling reasons such as: a defect on the face of the writ or actual
knowledge on the part of the garnishee of lack of entitlement on the part of the garnisher, it
is not incumbent upon the garnishee to inquire or to judge for itself whether or not the order
for the advance execution of a judgment is valid.
Section 8, Rule 57 of the Rules of Court provides:
Effect of attachment of debts and credits.-All persons having in their possession or under their
control any credits or other similar personal property belonging to the party against whom
attachment is issued, or owing any debts to the same, all the time of service upon them of a
copy of the order of attachment and notice as provided in the last preceding section, shall be
liable to the applicant for the amount of such credits, debts or other property, until the
attachment be discharged, or any judgment recovered by him be satisfied, unless such
property be delivered or transferred, or such debts be paid, to the clerk, sheriff or other
proper officer of the court issuing the attachment.
Garnishment is considered as a specie of attachment for reaching credits belonging to the
judgment debtor and owing to him from a stranger to the litigation. Under the above-cited
rule, the garnishee [the third person] is obliged to deliver the credits, etc. to the proper officer
issuing the writ and "the law exempts from liability the person having in his possession or
under his control any credits or other personal property belonging to the defendant, ..., if
such property be delivered or transferred, ..., to the clerk, sheriff, or other officer of the court
in which the action is pending. [3 Moran, Comments on the Rules of Court 34 (1970 ed.)]
Applying the foregoing to the case at bar, MERALCO, as garnishee, after having been
judicially compelled to pay the amount of the judgment represented by funds in its
possession belonging to the judgment debtor or NPC, should be released from all
responsibilities over such amount after delivery thereof to the sheriff. The reason for the rule
is self-evident. To expose garnishees to risks for obeying court orders and processes would
only undermine the administration of justice. [Emphasis supplied.] chanrobles virtual law
library
The aforequoted ruling thus bolsters RCBC's stand that its immediate compliance with the
lower court's order should not have been met with the harsh penalty of joint and several
liability. Nor can its liability to reimburse PVTA of the amount delivered in check be premised
upon the subsequent declaration of nullity of the order of delivery. As correctly pointed out by
the petitioner:
xxx xxx xxx chanrobles virtual law library
That the respondent Judge, after his Order was enforced, saw fit to recall said Order and
decree its nullity, should not prejudice one who dutifully abided by it, the presumption being
that judicial orders are valid and issued in the regular performance of the duties of the Court"
[Section 5(m) Rule 131, Revised Rules of Court]. This should operate with greater force in
relation to the herein petitioner which, not being a party in the case, was just called upon to
perform an act in accordance with a judicial flat. A contrary view will invite disrespect for the
majesty of the law and induce reluctance in complying with judicial orders out of fear that
said orders might be subsequently invalidated and thereby expose one to suffer some penalty
or prejudice for obeying the same. And this is what will happen were the controversial orders
to
be
sustained.
We
need
not
underscore
the
danger
of
this
as
a
precedent.chanroblesvirtualawlibrary chanrobles virtual law library
xxx xxx xxx chanrobles virtual law library
[ Brief for the Petitioner, Rollo, p. 212; Emphasis supplied.]

From the foregoing, it may be concluded that the charge of breach of trust and/or dereliction
of duty as well as lack of prudence in effecting the immediate payment of the garnished
amount is totally unfounded. Upon receipt of the Notice of Garnishment, RCBC duly informed
PVTA thereof to enable the latter to take the necessary steps for its protection. However, right
on the very next day after its receipt of such notice, RCBC was already served with the Order
requiring delivery of the garnished amount. Confronted as it was with a mandatory directive,
disobedience to which exposed it to a contempt order, it had no choice but to
comply.chanroblesvirtualawlibrary chanrobles virtual law library
The respondent Judge nevertheless held that the liability of RCBC for the reimbursement of
the garnished amount is predicated on the ruling of the Supreme Court in the case of
Commissioner of Public Highways v. Hon. San Diego [G.R. No. L-30098, February 18, 1970, 31
SCRA
616]
which
he
found
practically
on
all
fours
with
the
case
at
bar.chanroblesvirtualawlibrary chanrobles virtual law library
The Court disagrees.chanroblesvirtualawlibrary chanrobles virtual law library
The said case which reiterated the rule in Republic v. Palacio [G.R. No. L-20322, May 29,
1968, 23 SCRA 899] that government funds and properties may not be seized under writs of
execution or garnishment to satisfy such judgment is definitely distinguishable from the case
at bar.chanroblesvirtualawlibrary chanrobles virtual law library
In the Commissioner of Public Highways case [supra], the bank which precipitately allowed
the garnishment and delivery of the funds failed to inform its depositor thereof, charged as it
was with knowledge of the nullity of the writ of execution and notice of garnishment against
government funds. In the aforementioned case, the funds involved belonged to the Bureau of
Public Highways, which being an arm of the executive branch of the government, has no
personality of its own separate from the National Government. The funds involved were
government
funds
covered
by
the
rule
on
exemption
from
execution.chanroblesvirtualawlibrary chanrobles virtual law library
This brings us to the first issue raised by the petitioner: Are the PVTA funds public funds
exempt from garnishment? The Court holds that they are not.chanroblesvirtualawlibrary
chanrobles virtual law library
Republic Act No. 2265 created the PVTA as an ordinary corporation with all the attributes of a
corporate entity subject to the provisions of the Corporation Law. Hence, it possesses the
power "to sue and be sued" and "to acquire and hold such assets and incur such liabilities
resulting directly from operations authorized by the provisions of this Act or as essential to
the proper conduct of such operations." [Section 3, Republic Act No. 2265.] chanrobles virtual
law library
Among the specific powers vested in the PVTA are: 1) to buy Virginia tobacco grown in the
Philippines for resale to local bona fide tobacco manufacturers and leaf tobacco dealers
[Section 4(b), R.A. No. 2265]; 2) to contracts of any kind as may be necessary or incidental to
the attainment of its purpose with any person, firm or corporation, with the Government of
the Philippines or with any foreign government, subject to existing laws [Section 4(h), R.A. No.
22651; and 3) generally, to exercise all the powers of a corporation under the Corporation
Law, insofar as they are not inconsistent with the provisions of this Act [Section 4(k), R.A. No.
2265.] chanrobles virtual law library
From the foregoing, it is clear that PVTA has been endowed with a personality distinct and
separate from the government which owns and controls it. Accordingly, this Court has
heretofore declared that the funds of the PVTA can be garnished since "funds of public

corporation which can sue and be sued were not exempt from garnishment" [Philippine
National Bank v. Pabalan, G.R. No. L-33112, June 15, 1978, 83 SCRA 595, 598.] chanrobles
virtual law library
In National Shipyards and Steel Corp. v. CIR [G.R. No. L-17874, August 31, 1964, 8 SCRA 781],
this Court held that the allegation to the effect that the funds of the NASSCO are public funds
of the government and that as such, the same may not be garnished, attached or levied upon
is untenable for, as a government-owned or controlled corporation, it has a personality of its
own, distinct and separate from that of the government. This court has likewise ruled that
other govemment-owned and controlled corporations like National Coal Company, the
National Waterworks and Sewerage Authority (NAWASA), the National Coconut Corporation
(NACOCO) the National Rice and Corn Corporation (NARIC) and the Price Stabilization Council
(PRISCO) which possess attributes similar to those of the PVTA are clothed with personalities
of their own, separate and distinct from that of the government [National Coal Company v.
Collector of Internal Revenue, 46 Phil. 583 (1924); Bacani and Matoto v. National Coconut
Corporation et al., 100 Phil. 471 (1956); Reotan v. National Rice & Corn Corporation, G.R. No.
L-16223, February 27, 1962, 4 SCRA 418.] The rationale in vesting it with a separate
personality is not difficult to find. It is well-settled that when the government enters into
commercial business, it abandons its sovereign capacity and is to be treated like any other
corporation [Manila Hotel Employees' Association v. Manila Hotel Co. and CIR, 73 Phil. 734
(1941).] chanrobles virtual law library
Accordingly, as emphatically expressed by this Court in a 1978 decision, "garnishment was
the appropriate remedy for the prevailing party which could proceed against the funds of a
corporate entity even if owned or controlled by the government" inasmuch as "by engaging in
a particular business thru the instrumentality of a corporation, the government divests itself
pro hac vice of its sovereign character, so as to render the corporation subject to the rules of
law governing private corporations" [Philippine National Bank v. CIR, G.R No. L-32667, January
31, 1978, 81 SCRA 314, 319.] chanrobles virtual law library
Furthermore, in the case of PVTA, the law has expressly allowed it funds to answer for various
obligations, including the one sought to be enforced by plaintiff BADOC in this case (i.e. for
unpaid deliveries of tobacco). Republic Act No. 4155, which discounted the erstwhile support
given by the Central Bank to PVTA, established in lieu thereof a "Tobacco Fund" to be
collected from the proceeds of fifty per centum of the tariff or taxes of imported leaf tobacco
and also fifty per centum of the specific taxes on locally manufactured Virginia type
cigarettes.chanroblesvirtualawlibrary chanrobles virtual law library
Section 5 of Republic Act No. 4155 provides that this fund shall be expended for the support
or payment of:
1. Indebtedness of the Philippine Virginia Tobacco Administration and the former Agricultural
Credit and Cooperative Financing Administration to FACOMAS and farmers and planters
regarding Virginia tobacco transactions in previous years; chanrobles virtual law library
2. Indebtedness of the Philippine Virginia Tobacco Administration and the former Agricultural
Credit and Cooperative Financing Administration to the Central Bank in gradual amounts
regarding Virginia tobacco transactions in previous years; chanrobles virtual law library
3. Continuation of the Philippine Virginia Tobacco Administration support and subsidy
operations including the purchase of locally grown and produced Virginia leaf tobacco, at the
present support and subsidy prices, its procurement, redrying, handling, warehousing and
disposal thereof, and the redrying plants trading within the purview of their contracts;
chanrobles virtual law library

4. Operational, office and field expenses, and the establishment of the Tobacco Research and
Grading Institute. [Emphasis supplied.]
Inasmuch as the Tobacco Fund, a special fund, was by law, earmarked specifically to answer
obligations incurred by PVTA in connection with its proprietary and commercial operations
authorized under the law, it follows that said funds may be proceeded against by ordinary
judicial processes such as execution and garnishment. If such funds cannot be executed upon
or garnished pursuant to a judgment sustaining the liability of the PVTA to answer for its
obligations, then the purpose of the law in creating the PVTA would be defeated. For it was
declared to be a national policy, with respect to the local Virginia tobacco industry, to
encourage the production of local Virginia tobacco of the qualities needed and in quantities
marketable in both domestic and foreign markets, to establish this industry on an efficient
and economic basis, and to create a climate conducive to local cigarette manufacture of the
qualities desired by the consuming public, blending imported and native Virginia leaf tobacco
to improve the quality of locally manufactured cigarettes [Section 1, Republic Act No. 4155.]
chanrobles virtual law library
The Commissioner of Public Highways case is thus distinguishable from the case at bar. In
said case, the Philippine National Bank (PNB) as custodian of funds belonging to the Bureau of
Public Highways, an agency of the government, was chargeable with knowledge of the
exemption of such government funds from execution and garnishment pursuant to the
elementary precept that public funds cannot be disbursed without the appropriation required
by law. On the other hand, the same cannot hold true for RCBC as the funds entrusted to its
custody, which belong to a public corporation, are in the nature of private funds insofar as
their susceptibility to garnishment is concerned. Hence, RCBC cannot be charged with lack of
prudence for immediately complying with the order to deliver the garnished amount. Since
the funds in its custody are precisely meant for the payment of lawfully-incurred obligations,
RCBC cannot rightfully resist a court order to enforce payment of such obligations. That such
court order subsequently turned out to have been erroneously issued should not operate to
the detriment of one who complied with its clear order.chanroblesvirtualawlibrary chanrobles
virtual law library
Finally, it is contended that RCBC was bound to inquire into the legality and propriety of the
Writ of Execution and Notice of Garnishment issued against the funds of the PVTA deposited
with said bank. But the bank was in no position to question the legality of the garnishment
since it was not even a party to the case. As correctly pointed out by the petitioner, it had
neither the personality nor the interest to assail or controvert the orders of respondent Judge.
It had no choice but to obey the same inasmuch as it had no standing at all to impugn the
validity of the partial judgment rendered in favor of the plaintiff or of the processes issued in
execution of such judgment.chanroblesvirtualawlibrary chanrobles virtual law library
RCBC cannot therefore be compelled to make restitution solidarily with the plaintiff BADOC.
Plaintiff BADOC alone was responsible for the issuance of the Writ of Execution and Order of
Payment and so, the plaintiff alone should bear the consequences of a subsequent annulment
of such court orders; hence, only the plaintiff can be ordered to restore the account of the
PVTA.chanroblesvirtualawlibrary chanrobles virtual law library
WHEREFORE, the petition is hereby granted and the petitioner is ABSOLVED from any liability
to respondent PVTA for reimbursement of the funds garnished. The questioned Order of the
respondent Judge ordering the petitioner, jointly and severally with BADOC, to restore the
account of PVTA are modified accordingly.chanroblesvirtualawlibrary chanrobles virtual law
library
SO ORDERED.

Fernan, C.J., Gutierrez, Jr., Feliciano and Bidin, JJ., concur.

(35) G.R. No. 71479 October 18, 1990


MELLON BANK, N.A., petitioner,
vs.
HON. CELSO L. MAGSINO, in his capacity as Presiding Judge of Branch CLIX of the Regional
Trial Court at Pasig; MELCHOR JAVIER, JR., VICTORIA JAVIER; HEIRS OF HONORIO POBLADOR,
JR., namely: Elsa Alunan Poblador, Honorio Poblador III, Rafael Poblador, Manuel Poblador, Ma.
Regina Poblador, Ma. Concepcion Poblador & Ma. Dolores Poblador; F.C. HAGEDORN & CO.,
INC.; DOMINGO JHOCSON, JR.; JOSE MARQUEZ; ROBERTO GARINO; ELNOR INVESTMENT CO.,
INC.; PARAMOUNT FINANCE CORPORATION; RAFAEL CABALLERO; and TRI-ARC INVESTMENT
and MANAGEMENT CO., INC. respondents.
Romulo, Mabanta, Buenaventura, Sayoc & De los Angeles for petitioner.
Jose Buendia for respondent Jose Marquez.
Raul L. Cornea & Associates for Jhocson and Garino.
Jesus L. Santos and Conrado Valera for Tri-Arc Investment, etc.
Bernardo D. Calderon for respondent ELNOR and Rafael Caballero.

Nazareno, Azada, Sabado & Dizon for Movants.


Balgos & Perez for Paramount Finance Corporation.
Meer, Meer & Meer for Hagedorn.
Alberto Villareza for F.C. Hagedorn & Co.

FERNAN, C.J.:
The issue in the instant special civil action of certiorari is whether or not, by virtue of the
principle of election of remedies, an action filed in California, U.S.A., to recover real property
located therein and to constitute a constructive trust on said property precludes the filing in
our jurisdiction of an action to recover the purchase price of said real property.
On May 27, 1977, Dolores Ventosa requested the transfer of $1,000 from the First National
Bank of Moundsville, West Virginia, U.S.A. to Victoria Javier in Manila through the Prudential
Bank. Accordingly, the First National Bank requested the petitioner, Mellon Bank, to effect the
transfer. Unfortunately the wire sent by Mellon Bank to Manufacturers Hanover Bank, a
correspondent of Prudential Bank, indicated the amount transferred as "US$1,000,000.00"
instead of US$1,000.00. Hence Manufacturers Hanover Bank transferred one million dollars
less bank charges of $6.30 to the Prudential Bank for the account of Victoria Javier.
On June 3, 1977, Javier opened a new dollar account (No. 343) in the Prudential Bank and
deposited $999,943.70. Immediately their, Victoria Javier and her husband, Melchor Javier, Jr.,
made withdrawals from the account, deposited them in several banks only to withdraw them
later in an apparent plan to conceal, "launder" and dissipate the erroneously sent amount.
On June 14, 1977, Javier withdrew $475,000 from account No. 343 and converted it into eight
cashier's checks made out to the following: (a) F.C. Hagedorn & Co., Inc., two cheeks for the
total amount of P1,000,000; (b) Elnor Investment Co., Inc., two checks for P1,000,000; (c)
Paramount Finance Corporation, two checks for P1,000,000; and (d) M. Javier, Jr., two checks
for P496,000. The first six checks were delivered to Jose Marquez and Honorio Poblador, Jr.
It appears that Melchor Javier, Jr. had requested Jose Marquez, a realtor, to look for properties
for sale in the United States. Marquez offered a 160-acre lot in the Mojave desert in California
City which was owned by Honorio Poblador, Jr. Javier, without having seen the property,
agreed to buy it for P3,236,800 (US$437,405) although it was actually appraised at around
$38,500. Consequently, as Poblador's agent, Marquez executed in Makati a deed of absolute
sale in favor of the Javiers and had the document notarized in Manila before an associate of
Poblador. Marquez executed another deed of sale indicating receipt of the purchase price and
sent the deed to the Kern County Registrar in California for registration.
Inasmuch as Poblador had requested that the purchase price should not be paid directly to
him, the payment of P3,000,000 was coursed through Elnor Investment Co., Inc., allegedly
Poblador's personal holding company; Paramount Finance, allegedly headed by Poblador's
brother, and F.C. Hagedorn, allegedly a stock brokerage with extensive dealings with
Poblador. The payment was made through the aforementioned six cashier's checks while the
balance of P236,000 was paid in cash by Javier who did not even ask for a receipt.
The two checks totalling P1,000,000 was delivered by Poblador to F.C. Hagedorn with specific
instructions to purchase Atlas, SMC and Philex shares. The four checks for P2,000,000 with

Elnor Investment and Paramount Finance as payees were delivered to the latter to purchase
"bearer" notes.
Meanwhile, in July, 1977, Mellon Bank filed a complaint docketed as No. 148056 in the
Superior Court of California, County of Kern, against Melchor Javier, Jane Doe Javier, Honorio
Poblador, Jrn, and Does I through V. In its first amended complaint to impose constructive
trust dated July 14, 1977, 1 Mellon Bank alleged that it had mistakenly and inadvertently
cause the transfer of the sum of $999,000.00 to Jane Doe Javier; that it believes that the
defendants had withdrawn said funds; that "the defendants and each of them have used a
portion of said funds to purchase real property located in Kern County, California"; and that
because of defendants' knowledge of Mellon Bank's mistake and inadvertence and their use
of the funds to purchase the property, they and "each of them are involuntary or constructive
trustees of the real property and of any profits therefrom, with a duty to convey the same to
plaintiff forthwith." It prayed that the defendants and each of them be declared as holders of
the property in trust for the plaintiff; that defendants be compelled to transfer legal title and
possession of the property to the plaintiff; that defendants be made to pay the costs of the
suit, and that other reliefs be granted them.
On July 29, 1977, Mellon Bank also filed in the Court of First Instance of Rizal, Branch X, a
complaint against the Javier spouses, Honorio Poblador, Jr., Domingo L. Jhocson, Jr., Jose
Marquez, Roberto Gario, Elnor Investment Co., Inc., F.C. Hagedorn & Co., Inc. and Paramount
Finance Corporation. After its amendment, Rafael Caballero and Tri-Arc Investment &
Management Company, Inc. were also named defendants. 2
The amended and supplemental complaint alleged the facts set forth above and added that
Roberto Gario, chief accountant of Prudential Bank, and who was the reference of Mrs.
Ventosa's dollar remittances to Victoria Javier, immediately informed the Javiers of the receipt
of US$1,000,000.00; that knowing the financial circumstances of Mrs. Ventosa and the fact
that a mistake had been committed, the Javiers, with undue haste, took unlawful advantage
of the mistake, withdrew the whole amount and transferred the same to a "343 dollar
account"; that, aided and abetted by Poblador and Domingo L. Jhocson, the Javiers
"compounded and completed the conversion" of the funds by withdrawing from the account
dollars or pesos equivalent to US $975,000; that by force of law, the Javiers had been
constituted trustees of an implied trust for the benefit of Mellon Bank with a clear duty to
return to said bank the moneys mistakenly paid to them; that, upon request of Mellon Bank
and Manufacturers Hanover Bank, Prudential Bank informed the Javiers of the erroneous
transmittal of one million dollars first orally and later by letter-demand; that conferences
between the representatives of the Javiers, led by Jhocson and Poblador, in the latter's
capacity as legal and financial counsel, and representatives of Mellon Bank, proved futile as
the Javiers claimed that most of the moneys had been irretrievably spent; that the Javiers
could only return the amount if the Mellon Bank should agree to make an absolute quitclaim
and waiver of future rights against them, and that in a scheme to conceal and dissipate the
funds, through the active participation of Jose Marquez, the Javiers bought the California
property of Poblador.
It further alleged that trust fund moneys totalling P3,000,000.00 were made payable to
Hagedorn Paramount and Elnor; that Hagedorn on instructions of Poblador, purchased shares
of stock at a stock exchange for P1,000,000.00 but later, it hastily sold said shares at a loss of
approximately P150,000.00 to the prejudice of the plaintiff; that proceeds of the sale were
deposited by Hagedorn in the name of Poblador and/or the law office of Poblador, Nazareno,
Azada, Tomacruz and Paredes; that dividends declared on the shares were delivered by
Hagedorn to Caballero after the complaint had been filed and thereafter, Caballero deposited
the dividends in his personal account; that after receiving the P1,000,000.00 trust money,
Paramount issued promissory notes upon maturity of which Paramount released the amount
to unknown persons; that Elnor also invested P1,000,000.00 in Paramount for which the latter

also issued promissory notes; that after the filing of the complaint, counsel for plaintiff
requested Paramount not to release the amount after maturity; that in evident bad faith,
Elnor transferred the non-negotiable Paramount promissory notes to Tri-Arc. that when the
notes matured, Paramount delivered the proceeds of P1,000,000.00 to Tri-Arc; that Poblador
knew or should have known that the attorney's fees he received from the Javiers came from
the trust funds; and that despite formal demands even after the filing of the complaint, the
defendants refused to return the trust funds which they continued concealing and dissipating.
It prayed that: (a) the Javiers, Poblador, Elnor, Jhocson and Gario be ordered to account for
and pay jointly and severally unto the plaintiff US$999,000.00 plus increments, additions,
fruits and interests earned by the funds from receipt thereof until fully paid; (b) the other
defendants be ordered to account for and pay unto the plaintiff jointly and severally with the
Javiers to the extent of the amounts which each of them may have received directly or
indirectly from the US$999,000.00 plus increments, additions, fruits and interests; (c)
Marquez be held jointly and severally liable with Poblador for the amount received by the
latter for the sale of the 160-acre lot in California City; and (d) defendants be likewise held
liable jointly and severally for attomey's fees and litigation expenses plus exemplary
damages.
In due course, the defendants filed their answers and hearing of the case ensued. In his
testimony, Jose Marquez stated that Prudential Bank and Trust Company checks Nos. 2530
and 2531 in the respective amounts of P100,000 and P900,000 payable to F. C. Hagedorn
were delivered to him by Melchor Javier, Jr. as partial consideration for the sale of Poblador's
property in California. After receiving the checks, Hagedorn purchased shares of Atlas Mining,
Philex, Marcopper and San Miguel Corporation for Account No. 3000, which, according to Fred
Hagedorn belonged to the law office of Poblador. 3
F.C. Hagedorn & Co., Inc. then sold the shares for P874,490.75 as evidenced by HSBC check
No. 339736 for P400,000 and HSBC check No. 339737 for P474,490.75 payable to "cash".
Mellon Bank traced these checks to Account 2825-1 of the Philippine Veterans Bank in the
name of Cipriano Azada, Poblador's law partner and counsel to the Javiers. 4
An employee of the Philippine Veterans Bank thereafter introduced the specimen signature
cards for Account No. 2825-1 thereby confirming Azada's ownership of the account.
Defendants objected to this testimony on the grounds of Azada's absence, the confidentiality
of the bank account, and the best evidence rule. The court overruled the objection. Another
employee of the Philippine Veterans Bank then presented the ledger card for Account No.
2825-1, a check deposit slip and a daily report of returned items. The defendants objected
but they were again overruled by the court.
Mellon Bank then subpoenaed Erlinda Baylosis of the Philippine Veterans Bank to show that
Azada deposited HSBC checks No. 339736 and 339737 amounting to P874,490.75 in his
personal current account with said bank. It also subpoenaed Pilologo Red, Jr. of Hongkong &
Shanghai Banking Corporation to prove that said amount was returned by Azada to Hagedorn.
The testimonies of these witnesses were objected to by the defense on the grounds of res
inter alios acta, immateriality, irrelevancy and confidentiality. To resolve the matter, the court
ordered the parties to submit memoranda. The defendants' objections were also discussed at
the hearing on July 13, 1982. For the first time, Poblador's counsel raised the matter of
"election of remedies." 5
At the July 20, 1982 hearing, the lower court, then presided by Judge Eficio Acosta,
conditionally allowed the testimonies of Baylosis and Red. Baylosis afffirmed that Azada
deposited checks Nos. 339736 and 339737 in the total amount of P874,490.75 in his personal
account with the Philippine Veterans Bank but almost simultaneously, Azada issued his PVB

check for the same amount in favor of Hagedorn Consequently, Azada's check initially
bounced. For his part, Red testified that Azada's check for P874,490.75 was received by the
Hongkong & Shanghai Banking Corporation and credited to the account of Hagedorn .
The defendants then moved to strike off the testimonies of Baylosis and Red from the record.
Defendant Paramount Finance Corporation, which is not a party to the California case,
thereafter filed its memorandum raising the matter of "election of remedies". It averred that
inasmuch as the Mellon Bank had filed in California an action to impose constructive trust on
the California property and to recover the same, Mellon Bank can no longer try to regain the
purchase price of the same property through Civil Case No. 26899. The other defendants
adopted Paramount's stand.
After Mellon Bank filed its reply to the memorandum of Paramount, on September 10, 1982,
Judge Acosta issued a resolution ordering that the testimonies of Baylosis and Red and the
documents they testified on, which were conditionally allowed, be stricken from the records. 6
Judge Acosta explained:
After a judicious evaluation of the arguments of the parties the Court is of the view that in
cases where money held in trust was diverted by the trustee, under the "rule of trust pursuit"
the beneficiary "may elect whether to accept the trust estate in its new form or hold the
trustee responsible for it in its original condition" (Lathrop vs. Hampton, 31 Cal. 17; Zodos vs.
Marefalos 48 Idaho 291; Bahle vs. Hasselbrach 64 NW Eq. 334, 51 Sections 508-76 Am Jur. 2d
p. 475), and that "an election to pursue one remedy waives and bars pursuit of any
inconsistent remedy"(76 Am Jur. 2d S253). The instant complaint among others is for the
recovery of the purchase price of the Kern property as held in trust for the plaintiff while in
the California case the plaintiff maintains that the Kern property is held in trust for the
plaintiff, which positions are inconsistent with each other. Neither can the plaintiff now
abandon his complaint for the recovery of the Kern property and pursue his complaint for the
recovery of the purchase price of said property for "if he has first sought to follow the res, the
plaintiff cannot thereafter hold the trustee personally responsible" and "when once there has
been an election to do one of two things, you cannot retract it and do the other thing. The
election once made is finally made." (Fowler vs. Bowvery Savings Bank 113 N.Y. 450, 21 N.E.
172, 4 LRA 145, 10 Am. S.R. 479. 2 Silv. 280, 23, Abb. N. Cos. 133065 C. J. p. 980 Note 32).
The fact that the California case has been stayed pending determination of the instant case
only means that should this case be dismissed, the California case can proceed to its final
determination.
Furthermore, when the plaintiff filed the California case for the transfer of legal title and
possession of the Kern property to the plaintiff it in effect ratified the transaction for "by
taking the proceeds or product of a wrongful transfer of trust property or funds, the
beneficiary ratifies the transaction" (Board of Commissioner vs. Strawn [CA6 Ohio] 157 F. 49,
76 Am Jur. 2d Section 253). Consequently the purchase price of the California property
received by defendant Poblador from Javier is no longer the proper subject matter of litigation
and the movement and disposition of the purchase price is therefore within the scope of the
absolutely confidential nature of bank deposits as provided by Sec. 2, R.A. 1405 as amended
by PD No. 1792.
Mellon Bank moved for reconsideration, alleging that said order prevented the presentation of
evidence on the purchase price of the California property; that the California case cannot be
considered a waiver of the pursuit of the purchase price as even if said case was filed fifteen
days prior to the filing of the original complaint in this case, except for the Javiers, no other
defendants raised in their answers the affirmative defense of the filing of the California case;
that after the amendment of the complaint, none of the defendants raised the matter of
"election of remedies" in their answers; that realizing this procedural error, Paramount sought

the amendment of its answer to reflect the "defence" of "election of remedies"; that,
disregarding its previous orders allowing evidence and testimonies on Account No. 2825-1,
the court made a turnabout and ruled that the testimonies on said account were irrelevant
and confidential under Republic Act No. 1405; that Philippine law and jurisprudence does not
require the election of remedies for they favor availment of all remedies; that even United
States jurisprudence frowns upon election of remedies if it will lead to an inequitable result;
that, as held by this Court in Radiowealth vs. Javier, 7 there can be no binding election of
remedies before the decision on the merits is had; that until Mellon Bank gets full recovery of
the trust moneys, any contention of election of remedy is premature, and that, the purchase
price being the subject of litigation, inquiring into its movement, including its deposit in
banks, is allowed under Republic Act No. 1405.
Defendants filed their respective comments and oppositions to the motion for
reconsideration. In its reply, the Mellon Bank presented proof to the effect that in the
California case, defendants filed motions to stake out the cross-complaint of Mellon Bank, for
summary judgment and to stay or dismiss the action on the ground of inconvenient forum but
the first two motions and the motion to dismiss were denied "without prejudice to renew upon
determination of the Philippine action." The motion to stay proceedings was "granted until
determination of the Philippine action." 8
On October 28, 1983, the lower court, through Judge Acosta, denied the motion for
reconsideration and ordered the continuation of the hearing (Rollo, p. 182). The plaintiff filed
a motion for the reconsideration of both the September 10, 1982 and October 28, 1983
orders. After the parties had filed comments, opposition and reply, the court, through Judge
Celso L. Magsino, denied Mellon Bank's second motion for reconsideration on the ground that
it was "prescribed by the 1983 Interim Rules of Court" in an order dated July 9, 1985. 9
The court ruled that the determination of the relevancy of the testimonies of Baylosis and Red
was "premised directly and principally" on whether or not Mellon Bank could still recover the
purchase price of the California property notwithstanding the filing of the case in California to
recover title and possession of the said property. After quoting the resolution of September
10, 1982, the Court ruled that it was a "final order or a definitive judgment with respect to the
claim of plaintiff for the recovery" of the purchase price of the California property. It stated:
The adjudication in the Order of September 10, 1982 and the Order of October 28, 1983,
which has the effect of declaring that plaintiff has no cause of action against the defendants
for the recovery of the proceeds of the sale of Kern property in the amount of Three Million
Three Hundred Fifty Thousand Pesos (P3,500,000.00 [sic]) for having filed a complaint for the
recovery of the Kern property in the Superior Court of California, County of Kern is a final and
definitive disposition of the claim of the plaintiff to recover in the instant action the proceeds
of sale of said property against the defendants. The issue of "election of remedy" by the
plaintiff was lengthily and thoroughly discussed and argued by the parties before the
rendition of the resolution of September 10, 1982, and in the motion for reconsideration and
oppositions thereto before its resolution in the Order of October 28, 1983. Such issue is a
substantive one as it refers to the existence of plaintiffs cause of action to recover the
proceeds of the sale of the Kern property in this action, and that issue was presented to the
Court as if a motion to dismiss or a preliminary hearing of an affirmative defense on the
ground that plaintiff has no cause of action, and was resolved against plaintiff in the Order of
September 10, 1982, after a full hearing of all the parties. Said Order of September 10, 1982
has the effect of putting an end to the controversy between the parties as to the right of
plaintiff to claim or recover the proceeds of the sale of the Kern property from the
defendants. It is therefore an adjudication upon the merits. 10
Hence, Mellon Bank filed the instant petition for certiorari claiming that the resolution of
September 10, 1982 and the orders of October 28, 1983 and July 9, 1985 are void for being

unlawful and oppressive exercises of legal authority, subversive of the fair administration of
justice, and in excess of jurisdiction. The petition is founded on its allegations that: (a) the
resolution of September 10, 1982 is interlocutory as it does not dispose of Civil Case No.
26899 completely: (b) the evidence stricken from the records is relevant on the basis of the
allegations of the amended and supplemental complaint, and (c) the doctrine of election of
remedies, which has long been declared obsolete in the United States, is not applicable in this
case.
With the exception of the Javiers, all the respondents filed their respective comments on the
petition. Having failed to file said comment, the Javiers' counsel of record, Azada, Tomacruz &
Cacanindin, 11 was required to show cause why disciplinary action should not be taken
against it. And, having also failed to show cause, it was fined P300.
In his motion for reconsideration of the resolution imposing said fine, Cipriano Azada alleged
that in Civil Case No. 26899, the Javiers were indeed represented by the law firm of Poblador,
Azada, Tomacruz & Cacanindin but he was never the lawyer of the Javiers' in his personal
capacity; that after the death of Honorio Poblador, Jr., he had withdrawn from the partnership;
that he is the counsel of the Administratrix of the Estate of Honorio Poblador, Jr. for which he
had filed a comment, and that should the Court still require him to file comment for the
Javiers despite the lack of client-lawyer relationship, he would adopt the comment he had
filed for the said Administratrix. 12
In its effort to locate the Javiers so that their side could be heard, we required the petitioner
to furnish us with the Javiers' address as well as the name and address of their counsel. 13 In
compliance therewith, counsel for petitioner manifested that the Javiers had two known
addresses in San Juan, Metro Manila and in Sampaloc, Manila; that since their conviction in
Crim. Case No. CCC-VII 2369-P.C. of the Pasig Regional Trial Court, the Javiers had gone into
hiding and warrants for their arrest still remain unserved; 14 that the Javiers' counsel of
record in Civil Case No. 26899 is Atty. Cipriano Azada; that the same counsel appeared for the
Javiers in Criminal Case No. 39851 of the Pasig Regional Trial Court which is a tax evasion
case filed by the Republic of the Philippines, and that during the hearings of the civil and tax
evasion cases against the Javiers, Atty. Cipriano Azada, Jr. represented them. 15
Inasmuch as copies of the resolution requiring comment on the petition and the petition itself
addressed to Melchor Javier were returned with the notations "moved" and "deceased", the
Court required that said copies be sent to Mrs. Javier herself and that petitioner should inform
the Court of the veracity of Javier's death. 16 A copy of the resolution addressed to Mrs. Javier
was returned also with the notation "deceased." 17
Counsel for petitioner accordingly informed the Court that he learned that the Javiers had fled
the country and that he had no way of verifying whether Melchor Javier had indeed died. 18
In view of these circumstances, the Javiers' comment on the petition shall be dispensed with
as the Court deems the pleadings filed by the parties sufficient bases for resolving this case.
The Javiers shall be served copies of this decision in accordance with Section 6, Rule 13 of the
Rules of Court by delivering said copies to the clerk of court of the lower court, with proof of
failure of both personal service and service by mail.
We hold that the lower court gravely abused its discretion in ruling that the resolution of
September 10, 1982 is a "final and definitive disposition" of petitioner's claim for the
purchase price of the Kern property. The resolution is interlocutory and means no more than
what it states in its dispositive portion-the testimonies of Baylosis and Red and the
documents they testified on, should be stricken from the record.

That the resolution discusses the common-law principle of election of remedies, a subject
matter which shall be dealt with later, is beside the point. It is interlocutory because the issue
resolved therein is merely the admissibility of the plaintiff's evidence. 19 As such, it does not
dispose of the case completely but leaves something more to be done upon its merits. 20
There are things left undone in Civil Case No. 26899 after the issuance of the September 10,
1982 resolution not only because of its explicit dispositive portion but also due to the fact that
even until now, the case is still pending and being heard. 21
Furthermore, the lower court's holding in its July 9, 1985 order that petitioner's second motion
for reconsideration is proscribed by the 1983 Interim Rules of Court which disallows such
motion on a final order or judgment, should be rectified. As explained above, the resolution of
September 10, 1982 is not a final one. It also contains conclusions on procedural matters
which, if left unchecked, would prejudice petitioner's substantive rights.
In effect, therefore, the July 9, 1985 order is a shortcut disposition of Civil Case No. 26899 in
total disregard of petitioner's right to a thorough ventilation of its claims. By putting a
premium on procedural technicalities over the resolution of the merits of the case, the lower
court rode roughshod over the basic judicial tenet that litigations should, as much as possible,
be decided on their merits and not on technicalities. 22 The trial court's patent grave abuse of
discretion therefore forces us to exercise supervisory authority to correct its errors
notwithstanding the fact that ordinarily, this Court would not entertain a petition for certiorari
questioning the legality and validity of an interlocutory order. 23
Respondents' principal objection to the testimonies of Baylosis and Red is their alleged
irrelevance to the issues raised in Civil Case No. 26899. The fallacy of this objection comes to
fore upon a scrutiny of the complaint. Petitioner's theory therein is that after the Javiers had
maliciously appropriated unto themselves $999,000, the other private respondents conspired
and participated in the concealment and dissipation of said amount. The testimonies of
Baylosis and Red are therefore needed to establish the scheme to hide the erroneously sent
amount.
Private respondents' protestations that to allow the questioned testimonies to remain on
record would be in violation of the provisions of Republic Act No. 1405 on the secrecy of bank
deposits, is unfounded. Section 2 of said law allows the disclosure of bank deposits in cases
where the money deposited is the subject matter of the litigation. 24 Inasmuch as Civil Case
No. 26899 is aimed at recovering the amount converted by the Javiers for their own benefit,
necessarily, an inquiry into the whereabouts of the illegally acquired amount extends to
whatever is concealed by being held or recorded in the name of persons other than the one
responsible for the illegal acquisition. 25
We view respondents' reliance on the procedural principle of election of remedies as part of
their ploy to terminate Civil Case No. 26899 prematurely. With the exception of the Javiers,
respondents failed to raise it as a defense in their answers and therefore, by virtue of Section
2, Rule 9 of the Rules of Court, such defense is deemed waived. 26 Notwithstanding its
lengthy and thorough discussion during the hearing and in pleadings subsequent to the
answers, the issue of election of remedies has not, contrary to the lower court's assertion,
been elevated to a "substantive one." Having been waived as a defense, it cannot be treated
as if it has been raised in a motion to dismiss based on the nonexistence of a cause of action.
Moreover, granting that the defense was properly raised, it is inapplicable in this case. In its
broad sense, election of remedies refers to the choice by a party to an action of one of two or
more coexisting remedial rights, where several such rights arise out of the same facts, but
the term has been generally limited to a choice by a party between inconsistent remedial
rights, the assertion of one being necessarily repugnant to, or a repudiation of, the other. In

its technical and more restricted sense, election of remedies is the adoption of one of two or
more coexisting remedies, with the effect of precluding a resort to the others. 27
As a technical rule of procedure, the purpose of the doctrine of election of remedies is not to
prevent recourse to any remedy, but to prevent double redress for a single wrong. 28 It is
regarded as an application of the law of estoppel, upon the theory that a party cannot, in the
assertion of his right occupy inconsistent positions which form the basis of his respective
remedies. However, when a certain state of facts under the law entitles a party to alternative
remedies, both founded upon the Identical state of facts, these remedies are not considered
inconsistent remedies. In such case, the invocation of one remedy is not an election which will
bar the other, unless the suit upon the remedy first invoked shall reach the stage of final
adjudication or unless by the invocation of the remedy first sought to be enforced, the
plaintiff shall have gained an advantage thereby or caused detriment or change of situation
to the other. 29 It must be pointed out that ordinarily, election of remedies is not made until
the judicial proceedings has gone to judgment on the merits. 30
Consonant with these rulings, this Court, through Justice J.B.L. Reyes, opined that while some
American authorities hold that the mere initiation of proceedings constitutes a binding choice
of remedies that precludes pursuit of alternative courses, the better rule is that no binding
election occurs before a decision on the merits is had or a detriment to the other party
supervenes. 31 This is because the principle of election of remedies is discordant with the
modern procedural concepts embodied in the Code of Civil Procedure which Permits a party
to seek inconsistent remedies in his claim for relief without being required to elect between
them at the pleading stage of the litigation. 32
It should be noted that the remedies pursued in the California case and in Civil Case No.
26899 are not exactly repugnant or inconsistent with each other. If ever, they are merely
alternative in view of the inclusion of parties in the latter case who are not named defendants
in the former. The causes of action, although they all stem from the erroneous transmittal of
dollars, are distinct as shown by the complaints lengthily set out above. The bar of an election
of remedies does not apply to the assertion of distinct causes of action against different
persons arising out of independent transactions. 33
As correctly pointed out by the petitioner, the doctrine of election of remedies is not favored
in the United States for being harsh. 34 Its application with regard to two cases filed in two
different jurisdictions is also circumscribed by jurisprudence on abatement of suits. Thus, in
Brooks Erection Co. v. William R. Montgomery & Associates, Inc., 35 it is held:
The pendency of an action in the courts of one state or country is not a bar to the institution
of another action between the same parties and for the same cause of action in a court of
another state or country, nor is it the duty of the court in which the latter action is brought to
stay the same pending a determination of the earlier action, even though the court in which
the earlier action is brought has jurisdiction sufficient to dispose of the entire controversy.
Nevertheless, sometimes stated as a matter of comity not of right, it is usual for the court in
which the later action is brought to stay proceedings under such circumstances until the
earlier action is determined.
However, in view of the fact that the California court wherein the case for recovery of the
Kern property was first filed against the Javiers had stayed proceedings therein until after the
termination of Civil Case No. 26899, the court below can do no less than expedite the
disposition of said case.
We cannot dispose of this case without condemning in the strongest terms possible the acts
of chicanery so apparent from the records. The respective liabilities of the respondents are
still being determined by the court below. We must warn, however, against the use of

technicalities and obstructive tactics to delay a just settlement of this case. The taking
advantage of the petitioner's mistake to gain sudden and undeserved wealth is marked by
circumstances so brazen and shocking that any further delay will reflect poorly on the kind of
justice our courts dispense. The possible involvement of lawyers in this sorry scheme stamps
a black mark on the legal profession. The Integrated Bar of the Philippines (IBP) must be
made aware of the ostensible participation, if not instigation, in the spiriting away of the
missing funds. The IBP must take the proper action at the appropriate time against all lawyers
involved in any misdeeds arising from this case.
WHEREFORE, the resolution of September 10, 1982 and the orders of October 28, 1982 and
July 9, 1985 are hereby annulled. The lower court is ordered to proceed with dispatch in the
disposition of Civil case No. 26899, considering that thirteen (13) years have gone by since
the original erroneous remittance.
Service of this decision on the Javier spouses shall be in accordance with Section 6, Rule 13 of
the Rules of Court. A copy of this decision shall be served on the Integrated Bar of the
Philippines.
The decision is immediately executory. Costs against private respondents.
SO ORDERED.
Gutierrez, Jr., Feliciano, Bidin and Cortes,JJ., concur.

(36) 321 SCRA 563


[G.R. No. 134699. December 23, 1999]
UNION BANK OF THE PHILIPPINES, petitioner, vs. COURT OF APPEALS and ALLIED BANK
CORPORATION, respondents. ULANDU
DECISION
KAPUNAN, J.:
Section 2 of the Law on Secrecy of Bank Deposits,1 [Republic Act No. 1405.] as amended,
declares bank deposits to be "absolutely confidential" except:
(1).......In an examination made in the course of a special or general examination of a bank
that is specifically authorized by the Monetary Board after being satisfied that there is
reasonable ground to believe that a bank fraud or serious irregularity has been or is being
committed and that it is necessary to look into the deposit to establish such fraud or
irregularity,
(2).......In an examination made by an independent auditor hired by the bank to conduct its
regular audit provided that the examination is for audit purposes only and the results thereof
shall be for the exclusive use of the bank,
(3).......Upon written permission of the depositor,
(4).......In cases of impeachment,

(5).......Upon order of a competent court in cases of bribery or dereliction of duty of public


officials, or
(6).......In cases where the money deposited or invested in the subject matter of the litigation.
Whether or not the case at bar falls under the last exception is the issue in the instant
petition.
The facts are not disputed.
On March 21, 1990, a check (Check No. 11669677) dated March 31, 1990 in the amount of
One Million Pesos (P1,000,000.00) was drawn against Account No. 0111-01854-8 with private
respondent Allied Bank payable to the order of one Jose Ch. Alvarez. The payee deposited the
check with petitioner Union Bank who credited the P1,000,000.00 to the account of Mr.
Alvarez. On May 21, 1990, petitioner sent the check for clearing through the Philippine
Clearing House Corporation (PCHC). When the check was presented for payment, a clearing
discrepancy was committed by Union Banks clearing staff when the amount of One Million
Pesos (P1,000,000.00) was erroneously "under-encoded" to One Thousand Pesos (P1,000.00)
only. Acctmis
Petitioner only discovered the under-encoding almost a year later. Thus, on May May 7, 1991,
Union Bank Notified Allied of the discrepancy by way of a charge slip for Nine Hundred NinetyNine Thousand Pesos (P999,000.00) for automatic debiting against the account of Allied Bank.
The latter, however, refused to accept the charge slip "since [the] transaction was completed
per your [Union Banks] original instruction and clients account is now insufficiently funded."
Subsequently, Union Bank filed a complaint against Allied Bank before the PCHC Arbitration
Committee (Arbicom), praying that:
judgment be rendered in favor of plaintiff against defendant sentencing it to pay plaintiff:
1........The sum of NINE HUNDRED NINETY-NINE THOUSAND PESOS (P999,000.00);
2........The sum of THREE HUNDRED SIXTY-ONE AND FOUR HUNDRED EIGHTY AND 20/XX
P361,480.20 as of October 9, 1991 representing reimbursements for opportunity losses and
interest at the rate of 24% per annum arising from actual losses sustained by plaintiff as of
May 21, 1990;
3........The amount for attorneys fees at the rate of 25% of any and all sums due;
4........Penalty Charges at the rate of 1/8 of 1% of P999,000.00 from May 22, 1990 until
payment thereof.
5........Exemplary and punitive damages against the defendant in such amounts as may be
awarded by this Tribunal in order to serve a lesson to all member-Banks under the PCHC
umbrella to striclty comply with the provisions thereof;
6........The costs of suit which includes filing fee in addition to litigation expenses which shall
be proven in the course of arbitration.
7........Such other damages thay may be awarded by this Tribunal.2 [Rollo, pp. 70-71.]

Thereafter, Union Bank filed in the Regional Trial court (RTC) of Makati a petition for the
examination of Account No. 111-01854-8. Judgment on the arbitration case was held in
abeyance pending the resolution of said petition.
Upon motion of private respondent, the RTC dismissed Union Banks petition. The RTC held
that: Misact
The case of the herein petitioner does not fall under any of the foregoing exceptions to
warrant a disclosure of or inquiry into the ledgers/books of account of Allied Checking Account
No. 111-01854-8. Needless to say, the complaint filed by herein petitioner against Allied
Banking Corporation before the Philippine Clearing House Corporation (PCHC) Arbitration
Committee and docketed therein as Arb[i]com Case No. 91-068 (Annex "A", petition) is not
one for bribery or derelictionof duty of public officials much less is there any showing that the
subject matter thereof is the money deposited in the account in question. Petitioners
complaint primarily hing[e]s on the alleged deliberate violation by Allied Bank Corporation of
the provisions of the PCHC Rule Book, Sec. 25[.]3, and as principal reliefs, it seeks for [sic] the
recovery of amounts of money as a consequence of an alleged under-coding of check amount
to P1,000,000.00 and damage[s] by way of loss of interest income.3 [Id., at 77-78.]
The Court of Appeals affirmed the dismissal of the petition, ruling that the case was not one
where the money deposited is the subject matter of the litigation.
Petitioner collecting bank itself in its complaint filed before the PCHC, Arbicom Case No. 91068, clearly stated that its "cause of action against defendant arose from defendants
deliberate violation of the provisions of the PCHC Rule Book, Sec. 25.3, specifically on UnderEncoding of check amouting to P1,000,000.00 drawn upon defendants Tondo Branch which
was deposited with plaintiff herein on May 20, 1990, xxx which was erroneously encoded at
P1,000.00 which defendant as the receiving bank thereof, never called nor notified the
plaintiff of the error committed thus causing actual losses to plaintiff in the principal amount
of P999,000.00 exclusive of opportunity losses and interest."
Furthermore, a reading of petitioner collecting banks complaint in the Arbicom case shows
thast its thrust is directed against respondnet drawee banks alleged failure to inform the
former of the under-encoding when Sec. 25.3 of the PCHC Rule Book is clear that it is
receiving banks (respondent drawee bank herein) duty and obligation to notify the erring
bank (petitioner collecting bank herein) of any such under-encoding of any check amount
submitted for clearing within the member banks of the PCHC not later than 10:00 a.m. of the
following clearing day and prays that respondent drawee bank be held liable to petitioner
collecting bank for penalties in view of the latters violation of the notification requirement.
Prescinding from the above, we see no cogent reason to depart from the time-honored
general banking rule that all deposits of whatever nature with banks are considered of
absolutely confidential nature and may not be examined, inquired or looked into by any
person, government official, bureau or office and corollarily, that it is unlawful for any official
or employee of a bank to disclose to any person any information concerning deposits.
Nowhere in petitioner collecting banks complaint filed before the PCHC does it mention of the
amount it seeks to recover from Account No. 0111-018548 itself, but speaks of P999,000.00
only as an incident of its alleged opportunity losses and interest as a result of its own
employees admitted error in encoding the check. Sdjad
The money depositied in Account No. 0111-018548 is not the subject matter of the litigation
in the Arbicom case for as clearly stated by petitioner itself, it is the alleged violation by
respondent of the rules and regulations of the PCHC.4 [Id. at 51-53. Italics in the original.]

Union Bank is now before this Court insisting that the money deposited in Account No. 011101854-8 is the subject matter of the litigation Petitioner cites the case of Mathay vs.
Consolidated Bank and Trust Company,5 [58 SCRA 559 (1974)] where we defined "subject
matter of the action," thus:
xxx By the phrase "subject matter of the action" is meant "the physical facts, the things real
or personal, the money, lands, chattels, and the like, in relation to which the suit is
prosecuted, and not the delict or wrong committed by the defendant."
Petitioner contends that the Court of Appeals confuses the "cause of action" with the "subject
of the action." In Yusingco vs. Ong Hing Lian,6 [42 SCRA 589 (1971)] petitioner points out,
this Court distinguished the two concepts.
xxx "The cause of action is the legal wrong threatened or committed, while the object of the
action is to prevent or redress the wrong by obtaining some legal relief; but the subject of the
action is neither of these since it is not the wrong or the relief demanded, the subject of the
action is the matter or thing with respect to which the controversy has arisen, concerning
which the wrong has been done, and this ordinarily is the property or the contract and its
subject matter, or the thing in dispute."
The argument is well taken. We note with approval the difference between the "subject of the
action" from the "cause of action." We also find petitioners definition of the phrase "subject
matter of the action" is consistent with the term "subject matter of the litigation," as the
latter is used in the Bank Deposits Secrecy Act.
In Mellon Bank, N.A. vs. Magsino,7 [190 SCRA 633 (1990)] where the petitioner bank
inadvertently caused the transfer of the amount of US$1,000,000.00 instead of only
US$1,000.00, the Court sanctioned the examination of the bank accounts where part of the
money was subsequently caused to be deposited:
Section 2 of [Republic Act No. 1405] allows the disclosure of bank deposits in cases where
the money depsoited is the subject matter of the litigation. Inasmuch as Civil Case No. 26899
is aimed at recovering the amount converted by the Javiers for their own benefit, necessarily,
an inquiry into the wherabouts of the illegally acquired amount extends to whatever is
concealed by being held or recorded in the name of persons other than the one responsible
for the illegal acquisition. Sppedsc
Clearly, Mellon Bank involved a case where the money deposited was the subject matter of
the litigation since the money so deposited was the very thing in dispute. This, however, is
not the case here.
Petitioners theory is that private respondent Allied Bank should have informed petitioner of
the under-encoding pursuant to the provisions of Section 25.3.1 of the PCHC Handbook, which
states:
25.3.1........The Receiving Bank should inform the erring Bank about the under-encoding of
amount not later than 10:00 A.M. of the following clearing day.
Failing in that duty, petitioner holds private respondent directly liable for the P999,000.00 and
other damages. It does not appear that petitioner is seeking reimbursement from the account
of the drawer. This much is evident in petitioners complaint before the Arbicom.
xxx plaintiffs cause of action against defendant arose from defendants deliberate violation
of the provisions of the PCHC Rule Book, Sec. 25.3, specifically on Under-Encoding of check
amounting to P1,000,000.00 drawn upon defendants Tondo Branch which was deposited with

plaintiff herein sometime on May 20, 1990. From the check amount of P1,000,000.00, it was
instead erroneously encoded at P1,000.00 which defendant as the receiving bank thereof,
never called nor notified the plaintiff of the error committed thus causing actual losses to
plaintiff in the principal amount of P999,000.00 exclusive of opportunity losses and interest
threon whatsoever. xxx8 [Rollo, pp. 58-59. Underscoring supplied.]
Petitioner even requested private respondents Branch Manager for reimbursement from
private respondents account through the automatic debiting system.
2.7........On May 6, 1991, plaintiffs Senior Vice-President, Ms. ERLINDA V. VALENTON wrote
defendants Tondo Branch Manager, Mr. RODOLFO JOSE on the incident and requested
assistance in facilitating correction of the erroneous coding with request for reimbursement
thru the industrys automatic debiting of defendants account.9 [Id., at 61. Underscoring
supplied.]
Further, petitioner rejected private respondents proposal that the drawer issue postdated
checks in favor of petitioner since the identity and credit standing of the depositor were
unknown to petitioner. Ca-lrsc
2.9........On May 23, 1991, defendants Branch Manager, the same Mr. Rodolfo Jose wrote
plaintiffs Ms. Erlinda Valenton again insisting on the execution of the Quitclaim and Release
in favor of defendant as the Branch has endeavored to negotiate with its client for the
collection of such amount. Upon a reading of the terms of the Quitclaim and Release being
proposed by defendant, the unmistakable fact lies that again defendant attempts for the
second time to take advantage of plaintiffs plight by indicating that the terms of the payment
of the principal amount of P999,000.00 is by way of several personal postdated checks up to
March 21, 1992 from a person whose identity is not even disclosed to plaintiff.
To an ordinary persons aggrieved already by having been taken advantage of for 620 days
more or less, the proposal of defendant could not be acceptable for the reason that aside
from the interest lost already for the use of its money by another party, no assurance is made
as to the actual collection thereof from a party whose credit standing, the recipient is not at
all aware of.10 [Id., at 62-63.]
Petitioner also believed that it had no privity with the depositor:
2.12........Plaintiff then replied to defendants letter by requesting that in lieu of the postdated checks from defendants client with whom plaintiff has no privity whatsoever, if the
defendant could tender the full payment of the amount of P999,000.00 in defendants own
Managers check and that plaintiff is willing to forego its further claims for interest and losses
for a period of 620 days, more or less.11 [Id., at 63.]
The following argument adduced by petitioner in the Arbicom case leaves no doubt that
petitioner is holding private respondent itself liable for the discrepancy: Scc-alr
Defendant by its acceptance thru the clearing exchange of the check deposit from its client
cannot be said to be free from any liability for the unpaid portion of the check amount
considering that defendant as the drawee bank, is remissss in its duty of verifying possible
technicalities on the face of the check.
Since the provisions of the PCHC Rule Book has so imposed upon the defendant being the
Receiving Bank of a discrepant check item to give that timely notification and defendant
failing to comply with such requirement, then it can be said that defendant is guilty of
negligence. He who is guilty of negligence in the performance of its [sic] duty is liable for
damages. (Art. 1170, New Civil Code.)

Art. 1172 of the Civil Code provides that:


"Responsibility arising from negligence in the performance of every kind of obligation is also
demandable, but such liability may be regulated by the courts, according to the
circumstances.["]12 [Id., at 70. Underscoring supplied.]
Petitioner points to its prayer in its complaint to show that it sought reimbursement from the
drawers account. The prayer, however, does not specifically state that it was seeking
recovery of the amount from the depositors account. Petitioner merely asked that "judgment
be rendered in favor of plaintiff against defendant sentencing it to pay plaintiff: 1. The sum of
NINE HUNDRED NINETY-NINE THOUSAND PESOS (P999,000.00)."13 [Id., at 71. Underscoring
supplied.]
On the other hand, the petition before this court reveals that the true purpose for the
examination is to aid petitioner in proving the extent of Allied Banks liability:
Hence, the amount actually debited from the subject account becomes very material and
germane to petitioners claim for reimbursement as it is only upon examination of subject
account can it be proved that indeed a discrepancy in the amount credited to petitioner was
committed, thereby, rendering respondent Allied Bank liable to petitioner for the deficiency.
The money deposited in aforesaid account is undeniably the subject matter of the litigation
since the issue in the Arbicom case is whether respondent Bank should be held liable to
petitioner for reimbursement of the amount of money constituting the difference between the
amount of the check and the amount credited to petitioner, that is, P999,000.00, which has
remained deposited in aforesaid account.
On top of the allegations in the complaint, which can be verified only by examining the
subject bank account, the defense of respondent Allied Bank that the reimbursement cannot
be made since clients account is not sufficiently funded at the time petitioner sent its Charge
Slip, bolsters petitioners contention that the money in subject account is the very subject
matter of the pending Arbicom case. Calrs-pped
Indeed, to prove the allegations in its Complaint before the PCHC Arbitration Committee, and
to rebut private respondents defense on the matter, petitioner needs to determine:
1........how long respondent Allied Bank had willfully or negligently allowed the difference of
P999,000.00 to be maintained in the subject account without remitting the same to
petitioner;
2........whether indeed the subject account was no longer sufficiently funded when petitioner
sent its charge slip for reimbursement to respondent bank on May 7, 1991; and
3........whether or not respondent Allied Banks actuations in refusing to immediately
reimburse the discrepancy was attended by good or bad faith.
In other words, only a disclosure of the pertinent details and information relating to the
transactions involving subject account will enable petitioner to prove its allegations in the
pending Arbicom case. xxx14 [Id., at 28-29. Underscoring in the original.]
In short, petitioner is fishing for information so it can determine the culpability of private
respondent and the amount of damages it can recover from the latter. It does not seek
recovery of the very money contained in the deposit. The subject matter of the dispute may
be the amount of P999,000.00 that petitioner seeks from private respondent as a result of the
latters alleged failure to inform the former of the discrepancy; but it is not the P999,000.00

deposited in the drawers account. By the terms of R.A. No. 1405, the "money deposited"
itself should be the subject matter of the litigation.
That petitioner feels a need for such information in order to establish its case against private
respondent does not, by itself, warrant the examination of the bank deposits. The necessity of
the inquiry, or the lack thereof, is immaterial since the case does not come under any of the
exceptions allowed by the Bank Deposits Secrecy Act.
WHEREFORE, the petition is DENIED.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Puno, Pardo, and Ynares-Santiago, JJ., concur.2/17/00 10:03 AM

(37) 193 SCRA 452


G.R. No. 84526 January 28, 1991
PHILIPPINE COMMERCIAL & INDUSTRIAL BANK and JOSE HENARES, petitioners,
vs.
THE HON. COURT OF APPEALS and MARINDUQUE MINING AND INDUSTRIAL CORPORATION,
respondents.
SARMIENTO, J.:p
This is a petition for review on certiorari which assails both the resolution 1 dated June 27,
1988 of the Court of Appeals 2 which reconsidered and set aside its earlier decisions 3 dated
February 26, 1988 reversing the decision 4 of the trial court and the subsequent resolution 5
dated August 3, 1988 which denied the petitioners' motion for reconsideration. The
dispositive portion of the resolution in question dated June 27, 1988 reads as follows:
xxx xxx xxx
For the reasons above adduced, We are constrained to reconsider Our aforesaid decision and
to set it aside and in lieu thereof hereby enter another decision AFFIRMING the decision dated
January 15, 1985 of the Regional Trial Court of Manila, Branch 11, in Civil Case No. 103100
entitled "Marinduque Mining and Industrial Corporation (MMIC) vs. Philippine Commercial and
Industrial Bank, et al." 6
The undisputed facts 7 as gathered from the findings of the trial court are as follows:
The instant case originated from an action 8 filed with the National Labor Relations
Commission (NLRC) by a group of laborers who obtained therefrom a favorable judgment for
the payment of backwages amounting to P205,853.00 against the private respondent.
On April 26, 1976, the said Commission issued a writ of execution directing the Deputy Sheriff
of Negros Occidental, one Damian Rojas, to enforce the aforementioned judgment. The
pertinent portion of the said writ reads as follows:
xxx xxx xxx
Further, you are to collect from same respondent the total amount of P205,853.00 as their
backwage (sic) for twelve (12) months and then turn over said amount to this commission for
further disposition. In case you fail to collect said amount in cash, you are to cause the
satisfaction of the same on the movable or immovable properties of the respondent not
exempt from execution. (Exhs. G, G-1 and G-3, also Exh. 3; Emphasis supplied). 9
Accordingly, on April 28, 1976, the aforenamed deputy sheriff went to the mining site of the
private respondent and served the writ of execution on the persons concerned, but nothing
seemed to have happened thereat.
Thereafter, the Sheriff prepared on his own a Notice of Garnishment dated April 29, 1976
addressed to six (6) banks, all located in Bacolod City, one of which being the petitioner
herein, directing the bank concerned to immediately issue a check in the name of the Deputy
Provincial Sheriff of Negros Occidental in an amount equivalent to the amount of the
garnishment and that proper receipt would be issued therefor.

Incidentally, the house lawyer of the private respondent, Atty. Rexes V. Alejano, acting on a
tip regarding the existence of the said notice of garnishment, communicated with the bank
manager, the petitioner Jose Henares, verbally at first at around 2:00 o'clock in the afternoon
of that day, April 29, 1976, and later confirmed in a formal letter received by the petitioner
Henares at about 5:00 o'clock of that same day, requesting the withholding of any release of
the deposit of the private respondent with the petitioner bank.
Meanwhile, at about 9:30 in the morning of April 29, 1976, the deputy sheriff presented the
Notice of Garnishment and the Writ of Execution attached therewith to the petitioner Henares
and later in the afternoon, demanded from the latter, under pain of contempt, the release of
the deposit of the private respondent.
The petitioner Henares, upon knowing from the Acting Provincial Sheriff that there was no
restraining order from the National Labor Relations Commission and on the favorable advice
of the bank's legal counsel, issued a debit memo for the full balance of the private
respondent's account with the petitioner bank. Thereafter, he issued a manager's check in
the name of the Deputy Provincial Sheriff of Negros Occidental for the amount of P37,466.18,
which was the exact balance of the private respondent's account as of that day.
On the following day, April 30, 1976, at about 1:00 o'clock in the afternoon, the deputy sheriff
returned to the bank in order to encash the check but before the actual encashment, the
petitioner Henares once again inquired about any existing restraining order from the NLRC
and upon being told that there was none, the latter allowed the said encashment.
On July 6, 1976, the private respondent, then plaintiff, filed a complaint before the Regional
Trial Court of Manila, Branch II, against the petitioners and Damian Rojas, the Deputy
Provincial Sheriff of Negros Occidental, then defendants, alleging that the former's current
deposit with the petitioner bank was levied upon, garnished, and with undue haste unlawfully
allowed to be withdrawn, and notwithstanding the alleged unauthorized disclosure of the said
current deposit and unlawful release thereof, the latter have failed and refused to restore the
amount of P37,466.18 to the former's account despite repeated demands.
Both the petitioners and the Deputy Sheriff filed their respective answers denying the
material averments of the said complaint and alleged that their actuations were all in
accordance with law and likewise filed counterclaims for damages, including a cross-claim of
the former against the latter. The third-party complaint of the petitioners against the fortynine (49) laborers in the NLRC case was, however, dismissed for failure of the sheriff to serve
summons upon the latter.
On January 23, 1982, after several postponements, the pre-trial was finally conducted and
terminated with only the petitioners and the private respondent participating, through their
respective counsel.
On January 15, 1985, the trial court rendered its judgment in favor of the private respondent,
the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the three (3)
defendants by ordering the latter to pay, jointly and severally, the plaintiff the following
amounts, to wit:
(a) the sum of P37,466.18, with interest thereon at the rate of 12% per annum from date of
first demand on April 29, 1976 until the amount shall have been fully and completely restored
and paid;

(b) the sum of P10,000.00 as attorney's fees.


Defendants are ordered to pay, jointly and severally, double costs. 10
xxx xxx xxx
On appeal, the respondent court in a decision dated February 26, 1988, first reversed the said
judgment of the lower court, but however, on the motion for reconsideration filed by the
private respondent, subsequently annulled and set aside its said decision in the resolution
dated June 27, 1988. On August 3, 1988, the respondent court denied the petitioner's own
motion for reconsideration.
Hence, this petition.
The petitioners raise two issues, 11 to wit:
1. Whether or not petitioners had legal basis in releasing the garnished deposit of private
respondent to the sheriff.
2. Whether or not petitioners violated Republic Act No. 1405, otherwise known as the Secrecy
of Bank Deposits Act, when they allowed the sheriff to garnish the deposit of private
respondent.
The petition is impressed with merit.
The crux of the instant controversy boils down to the question of whether or not a bank is
liable for releasing its depositor's funds on the strength of the notice of garnishment made by
the deputy sheriff pursuant to a writ of execution issued by the National Labor Relations
Commission (NLRC).
The respondent court in its questioned resolution dated June 27, 1988, held that the
petitioners were liable, in this wise:
In the case at bar, defendant-appellant PCIB, despite vigorous objections from plaintiffappellee, with indecent haste disclosed and released the deposit of plaintiff-appellee on the
strength of a mere notice of garnishment which the Honorable Supreme Court ruled upon is
no authority for the release of the deposit, thus:
In the second place, the mere garnishment of funds belonging to a party upon order of the
court does not have the effect of delivering the money garnished to the sheriff or to the party
in whose favor the attachment is issued. The fund is retained by the garnishee or the person
holding the money for the defendant.
The garnishee, or one in whose hands property is attached or garnished, is universally
regarded as charged with its legal custody pending outcome of the attachment or
garnishment unless, by local statute and practice, he is permitted to surrender or pay the
garnished property or funds into court, to the attaching officer, or to a receiver or trustee
appointed to receive them. (5 Am. Jur. 14)
The effect of the garnishment, therefore, was to require the Philippine Trust Company, holder
of the funds of the Luzon Surety Co., to set aside said amount from the funds of the Luzon
Surety Co., and keep the same subject to the final orders of the Court. In the case at bar
there was never an order to deliver the full amount garnished to the plaintiff-appellee; all that
was ordered to be delivered after the judgment had become final was the amount found by
the Court of Appeals to be due. The balance of the amount garnished, therefore, remained all

the time in the possession of the bank as part of the funds of the Luzon Surety Co. although
the same could not be disposed of by the owner. (De la Rama vs. Villarosa, et al., L-17927,
June 29, 1963, 8 SCRA 413, 418-419; Emphasis supplied). 12
The above-mentioned contention citing De la Rama is not exactly on all fours with the facts of
the case at bar. In De la Rama, the amount garnished was not actually taken possession of by
the sheriff, even from the time of garnishment, because the judgment debtor was able to
appeal to the Court of Appeals and obtain from the Court an injunction prohibiting execution
of the judgment.
On the other hand, nowhere in the record of the present case is there any evidence of an
appeal by the private respondent from the decision of the NLRC or the existence of any
restraining order to prevent the release of the private respondent's deposit to the deputy
sheriff at the time of the service of the notice of garnishment and writ of execution to the
petitioners.
On the contrary, the uncontroverted statements in the deposition of the petitioner Henares
that he had previously sought the advice of the bank's counsel and that he had checked twice
with the Acting Provincial Sheriff who had informed him of the absence of any restraining
order, belie any allegation of undue and indecent haste in the release of the said deposit in
question.
The cases more in point to the present controversy are the recent decisions in Engineering
Construction Inc. v. National Power Corporation 13 and Rizal Commercial Banking Corporation
(RCBC) vs. De Castro 14 where the Court absolved both garnishees, MERALCO and RCBC,
respectively, from any liability for their prompt compliance in the release of garnished funds,
The rationale behind Engineering Construction, Inc. and which was quoted in Rizal
Commercial Banking Corporation is persuasive
xxx xxx xxx
But while partial restitution is warranted in favor of NPC, we find that the Appellate Court
erred in not absolving MERALCO, the garnishee, from its obligations to NPC with respect to
the payment to ECI of P1,114,543.23, thus in effect subjecting MERALCO to double liability.
MERALCO should not have been faulted for its prompt obedience to a writ of garnishment.
Unless there are compelling reasons such as: a defect on the face of the writ or actual
knowledge on the part of the garnishee of lack of entitlement on the part of the garnisher, it
is not incumbent upon the garnishee to inquire or to judge for itself whether or not the order
for the advance execution of a judgment is valid.
Section 8, Rule 57 of the Rules of Court provides:
Effect of attachment of debts and credits. All persons having in their possession or under
their control any credits or other similar personal property belonging to the party against
whom attachment is issued, or owing any debts to the same, at the time of service upon
them of a copy of the order of attachment and notice as provided in the last preceding
section, shall be liable to the applicant of the amount of such credits, debts or other property,
until the attachment be discharged, or any judgment recovered by him be satisfied, unless
such property be delivered or transferred, or such debts be paid, to the clerk, sheriff or other
proper officer of the court issuing the attachment.
Garnishment is considered as a specie of attachment for reaching credits belonging to the
judgment debtor and owing to him from a stranger to the litigation. Under the above-cited
rule, the garnishee [the third person] is obliged to deliver the credits, etc. to the proper officer

issuing the writ and "the law exempts from liability the person having in his possession or
under his control any credits or other personal property belonging to the defendant, . . . if
such property be delivered or transferred, . . . to the clerk, sheriff, or other officer of the court
in which the action is pending."
Applying the foregoing to the case at bar, MERALCO, as garnishee, after having been
judicially compelled to pay the amount of the judgment represented by funds in its
possession belonging to the judgment debtor or NPC, should be released from all
responsibilities over such amount after delivery thereof to the sheriff. The reason for the rule
is self evident. To expose garnishees to risks for obeying court orders and processes would
only undermine the administration of justice. (Emphasis ours.) 15
xxx xxx xxx
Moreover, there is no issue concerning the indebtedness of the petitioner bank to the private
respondent since the latter has never denied the existence of its deposit with the former, the
said deposit being considered a credit in favor of the depositor against the bank. 16 We
therefore see no application for Sec. 39, Rule 39 of the Rules of Court invoked by the private
respondent as to necessitate the "examination of the debtor of the judgment debtor." 17
Rather, we find the immediate release of the funds by the petitioners on the strength of the
notice of garnishment and writ of execution, whose issuance, absent any patent defect,
enjoys the presumption of regularity, sufficiently supported by Sec. 41, Rule 39 of the Rules
of Court which reads:
xxx xxx xxx
After an execution against property has issued, a person indebted to the judgment debtor,
may pay to the officer holding the execution the amount of his debt or so much thereof as
may be necessary to satisfy the execution, and the officer's receipt shall be a sufficient
discharge for the amount so paid or directed to be credited by the judgment creditor on the
execution.
xxx xxx xxx
Finally, we likewise take cognizance of the subject of the judgment sought to be enforced in
the writ of execution in question, namely, laborers' backwages. We believe that the
petitioners should rather be commended for having acted with urgent dispatch despite
attempts by the private respondent, as with so many scheming employers, to frustrate or
unjustifiably delay the prompt satisfaction of final judgments which often result in undue
prejudice to the legitimate claims of labor.
With regard to the second issue, we find no violation whatsoever by the petitioners of
Republic Act No. 1405, otherwise known as the Secrecy of Bank Deposits Act. The Court in
China Banking Corporation vs. Ortega 18 had the occasion to dispose of this issue when it
stated, thus:
It is clear from the discussion of the conference committee report on Senate Bill No. 351 and
House Bill No. 3977, which later became Republic Act 1405, that the prohibition against
examination of or inquiry into a bank deposit under Republic Act 1405 does not preclude its
being garnished to insure satisfaction of a judgment. Indeed there is no real inquiry in such a
case, and if existence of the deposit is disclosed the disclosure is purely incidental to the
execution process. It is hard to conceive that it was ever within the intention of Congress to
enable debtors to evade payment of their just debts, even if ordered by the Court, through
the expedient of converting their assets into cash and depositing the same in a bank.

Since there is no evidence that the petitioners themselves divulged the information that the
private respondent had an account with the petitioner bank and it is undisputed that the said
account was properly the object of the notice of garnishment and writ of execution carried out
by the deputy sheriff, a duly authorized officer of the court, we can not therefore hold the
petitioners liable under R.A. 1405.
While the general rule is that the findings of fact of the appellate court are binding on this
Court, the said rule however admits of exceptions, such as when the Court of Appeals clearly
misconstrued and misapplied the law, drawn from the incorrect conclusions of fact
established by evidence and otherwise at certain conclusions which are based on
misapprehension of facts, 19 as in the case at bar.
The petitioners are therefore absolved from any liability for the disclosure and release of the
private respondent's deposit to the custody of the deputy sheriff in satisfaction of the final
judgment for the laborers' backwages.
WHEREFORE, the petition is GRANTED and the challenged Resolutions dated June 27, 1988
and August 13, 1988 of the Court of Appeals are hereby ANNULLED and SET ASIDE and its
Decision dated February 26, 1988 dismissing the complaint is hereby REINSTATED. With costs
against the private respondent.
SO ORDERED.
Melencio-Herrera, Padilla and Regalado, JJ., concur.

(38) 278 SCRA 27


Salvacion v. Central Bank of the Philippines
278 SCRA 27
FACTS:
Greg Bartelli, an American tourist, was arrested for committing four counts of rape and
serious illegal detention against Karen Salvacion. Police recovered from him several dollar
checks and a dollar account in the China Banking Corp. He was, however, able to escape from
prison. In a civil case filed against him, the trial court awarded Salvacion moral, exemplary
and attorneys fees amounting to almost P1,000,000.00.
Salvacion tried to execute the judgment on the dollar deposit of Bartelli with the China
Banking Corp. but the latter refused arguing that Section 11 of Central Bank Circular No. 960
exempts foreign currency deposits from attachment, garnishment, or any other order or
process of any court, legislative body, government agency or any administrative body
whatsoever.
Salvacion therefore filed this action for declaratory relief in the Supreme Court.

ISSUE:
Should Section 113 of Central Bank Circular No. 960 and Section 8 of Republic Act
No. 6426, as amended by PD 1246, otherwise known as the Foreign Currency Deposit Act be
made applicable to a foreign transient?
HELD:
The provisions of Section 113 of Central Bank Circular No. 960 and PD No. 1246,
insofar as it amends Section 8 of Republic Act No. 6426, are hereby held to be INAPPLICABLE
to this case because of its peculiar circumstances. Respondents are hereby required to
comply with the writ of execution issued in the civil case and to release to petitioners the
dollar deposit of Bartelli in such amount as would satisfy the judgment.
RATIO:
Supreme Court ruled that the questioned law makes futile the favorable judgment
and award of damages that Salvacion and her parents fully deserve. It then proceeded to
show that the economic basis for the enactment of RA No. 6426 is not anymore present; and
even if it still exists, the questioned law still denies those entitled to due process of law for
being unreasonable and oppressive. The intention of the law may be good when enacted. The
law failed to anticipate the iniquitous effects producing outright injustice and inequality such
as the case before us.
The SC adopted the comment of the Solicitor General who argued that the Offshore Banking
System and the Foreign Currency Deposit System were designed to draw deposits from
foreign lenders and investors and, subsequently, to give the latter protection. However, the
foreign currency deposit made by a transient or a tourist is not the kind of deposit
encouraged by PD Nos. 1034 and 1035 and given incentives and protection by said laws
because such depositor stays only for a few days in the country and, therefore, will maintain
his deposit in the bank only for a short time. Considering that Bartelli is just a tourist or a
transient, he is not entitled to the protection of Section 113 of Central Bank Circular No. 960
and PD No. 1246 against attachment, garnishment or other court processes.
Further, the SC said: In fine, the application of the law depends on the extent of its justice.
Eventually, if we rule that the questioned Section 113 of Central Bank Circular No. 960 which
exempts from attachment, garnishment, or any other order or process of any court,
legislative body, government agency or any administrative body whatsoever, is applicable to
a foreign transient, injustice would result especially to a citizen aggrieved by a foreign guest
like accused Greg Bartelli. This would negate Article 10 of the New Civil Code which provides
that in case of doubt in the interpretation or application of laws, it is presumed that the
lawmaking body intended right and justice to prevail.

(38) 278 SCRA 27


G.R. No. 94723 August 21, 1997
KAREN E. SALVACION, minor, thru Federico N. Salvacion, Jr., father and Natural Guardian, and
Spouses FEDERICO N. SALVACION, JR., and EVELINA E. SALVACION, petitioners,
vs.
CENTRAL BANK OF THE PHILIPPINES, CHINA BANKING CORPORATION and GREG BARTELLI y
NORTHCOTT, respondents.

TORRES, JR., J.:

In our predisposition to discover the "original intent" of a statute, courts become the
unfeeling pillars of the status quo. Ligle do we realize that statutes or even constitutions are
bundles of compromises thrown our way by their framers. Unless we exercise vigilance, the
statute may already be out of tune and irrelevant to our day.
The petition is for declaratory relief. It prays for the following reliefs:
a.) Immediately upon the filing of this petition, an Order be issued restraining the respondents
from applying and enforcing Section 113 of Central Bank Circular No. 960;
b.) After hearing, judgment be rendered:
1.) Declaring the respective rights and duties of petitioners and respondents;
2.) Adjudging Section 113 of Central Bank Circular No. 960 as contrary to the provisions of the
Constitution, hence void; because its provision that "Foreign currency deposits shall be
exempt from attachment, garnishment, or any other order or process of any court, legislative
body, government agency or any administrative body whatsoever
i.) has taken away the right of petitioners to have the bank deposit of defendant Greg Bartelli
y Northcott garnished to satisfy the judgment rendered in petitioners' favor in violation of
substantive due process guaranteed by the Constitution;
ii.) has given foreign currency depositors an undue favor or a class privilege in violation of the
equal protection clause of the Constitution;
iii.) has provided a safe haven for criminals like the herein respondent Greg Bartelli y
Northcott since criminals could escape civil liability for their wrongful acts by merely
converting their money to a foreign currency and depositing it in a foreign currency deposit
account with an authorized bank.
The antecedent facts:
On February 4, 1989, Greg Bartelli y Northcott, an American tourist, coaxed and lured
petitioner Karen Salvacion, then 12 years old to go with him to his apartment. Therein, Greg
Bartelli detained Karen Salvacion for four days, or up to February 7, 1989 and was able to
rape the child once on February 4, and three times each day on February 5, 6, and 7, 1989.
On February 7, 1989, after policemen and people living nearby, rescued Karen, Greg Bartelli
was arrested and detained at the Makati Municipal Jail. The policemen recovered from Bartelli
the following items: 1.) Dollar Check No. 368, Control No. 021000678-1166111303, US
3,903.20; 2.) COCOBANK Bank Book No. 104-108758-8 (Peso Acct.); 3.) Dollar Account
China Banking Corp., US$/A#54105028-2; 4.) ID-122-30-8877; 5.) Philippine Money (P234.00)
cash; 6.) Door Keys 6 pieces; 7.) Stuffed Doll (Teddy Bear) used in seducing the complainant.
On February 16, 1989, Makati Investigating Fiscal Edwin G. Condaya filed against Greg
Bartelli, Criminal Case No. 801 for Serious Illegal Detention and Criminal Cases Nos. 802, 803,
804, and 805 for four (4) counts of Rape. On the same day, petitioners filed with the Regional
Trial Court of Makati Civil Case No. 89-3214 for damages with preliminary attachment against
Greg Bartelli. On February 24, 1989, the day there was a scheduled hearing for Bartelli's
petition for bail the latter escaped from jail.
On February 28, 1989, the court granted the fiscal's Urgent Ex-Parte Motion for the Issuance
of Warrant of Arrest and Hold Departure Order. Pending the arrest of the accused Greg
Bartelli y Northcott, the criminal cases were archived in an Order dated February 28, 1989.

Meanwhile, in Civil Case No. 89-3214, the Judge issued an Order dated February 22, 1989
granting the application of herein petitioners, for the issuance of the writ of preliminary
attachment. After petitioners gave Bond No. JCL (4) 1981 by FGU Insurance Corporation in the
amount of P100,000.00, a Writ of Preliminary Attachment was issued by the trial court on
February 28, 1989.
On March 1, 1989, the Deputy Sheriff of Makati served a Notice of Garnishment on China
Banking Corporation. In a letter dated March 13, 1989 to the Deputy Sheriff of Makati, China
Banking Corporation invoked Republic Act No. 1405 as its answer to the notice of
garnishment served on it. On March 15, 1989, Deputy Sheriff of Makati Armando de Guzman
sent his reply to China Banking Corporation saying that the garnishment did not violate the
secrecy of bank deposits since the disclosure is merely incidental to a garnishment properly
and legally made by virtue of a court order which has placed the subject deposits in custodia
legis. In answer to this letter of the Deputy Sheriff of Makati, China Banking Corporation, in a
letter dated March 20, 1989, invoked Section 113 of Central Bank Circular No. 960 to the
effect that the dollar deposits or defendant Greg Bartelli are exempt from attachment,
garnishment, or any other order or process of any court, legislative body, government agency
or any administrative body, whatsoever.
This prompted the counsel for petitioners to make an inquiry with the Central Bank in a letter
dated April 25, 1989 on whether Section 113 of CB Circular No. 960 has any exception or
whether said section has been repealed or amended since said section has rendered nugatory
the substantive right of the plaintiff to have the claim sought to be enforced by the civil
action secured by way of the writ of preliminary attachment as granted to the plaintiff under
Rule 57 of the Revised Rules of Court. The Central Bank responded as follows:
May 26, 1989
Ms. Erlinda S. Carolino
12 Pres. Osmena Avenue
South Admiral Village
Paranaque, Metro Manila
Dear Ms. Carolino:
This is in reply to your letter dated April 25, 1989 regarding your inquiry on Section 113, CB
Circular No. 960 (1983).
The cited provision is absolute in application. It does not admit of any exception, nor has the
same been repealed nor amended.
The purpose of the law is to encourage dollar accounts within the country's banking system
which would help in the development of the economy. There is no intention to render futile
the basic rights of a person as was suggested in your subject letter. The law may be harsh as
some perceive it, but it is still the law. Compliance is, therefore, enjoined.
Very truly yours,
(SGD) AGAPITO S. FAJARDO
Director 1
Meanwhile, on April 10, 1989, the trial court granted petitioners' motion for leave to serve
summons by publication in the Civil Case No. 89-3214 entitled "Karen Salvacion, et al. vs.
Greg Bartelli y Northcott." Summons with the complaint was a published in the Manila Times

once a week for three consecutive weeks. Greg Bartelli failed to file his answer to the
complaint and was declared in default on August 7, 1989. After hearing the case ex-parte, the
court rendered judgment in favor of petitioners on March 29, 1990, the dispositive portion of
which reads:
WHEREFORE, judgment is hereby rendered in favor of plaintiffs and against defendant,
ordering the latter:
1. To pay plaintiff Karen E. Salvacion the amount of P500,000.00 as moral damages;
2. To pay her parents, plaintiffs spouses Federico N. Salvacion, Jr., and Evelina E. Salvacion
the amount of P150,000.00 each or a total of P300,000.00 for both of them;
3. To pay plaintiffs exemplary damages of P100,000.00; and
4. To pay attorney's fees in an amount equivalent to 25% of the total amount of damages
herein awarded;
5. To pay litigation expenses of P10,000.00; plus
6. Costs of the suit.
SO ORDERED.
The heinous acts of respondent Greg Bartelli which gave rise to the award were related in
graphic detail by the trial court in its decision as follows:
The defendant in this case was originally detained in the municipal jail of Makati but was able
to escape therefrom on February 24, 1989 as per report of the Jail Warden of Makati to the
Presiding Judge, Honorable Manuel M. Cosico of the Regional Trial Court of Makati, Branch
136, where he was charged with four counts of Rape and Serious Illegal Detention (Crim.
Cases Nos. 802 to 805). Accordingly, upon motion of plaintiffs, through counsel, summons
was served upon defendant by publication in the Manila Times, a newspaper of general
circulation as attested by the Advertising Manager of the Metro Media Times, Inc., the
publisher of the said newspaper. Defendant, however, failed to file his answer to the
complaint despite the lapse of the period of sixty (60) days from the last publication; hence,
upon motion of the plaintiffs, through counsel, defendant was declared in default and
plaintiffs were authorized to present their evidence ex parte.
In support of the complaint, plaintiffs presented as witnesses the minor Karen E. Salvacion,
her father, Federico N. Salvacion, Jr., a certain Joseph Aguilar and a certain Liberato Madulio,
who gave the following testimony:
Karen took her first year high school in St. Mary's Academy in Pasay City but has recently
transferred to Arellano University for her second year.
In the afternoon of February 4, 1989, Karen was at the Plaza Fair Makati Cinema Square, with
her friend Edna Tangile whiling away her free time. At about 3:30 p.m. while she was finishing
her snack on a concrete bench in front of Plaza Fair, an American approached her. She was
then alone because Edna Tangile had already left, and she was about to go home. (TSN, Aug.
15, 1989, pp. 2 to 5)
The American asked her name and introduced himself as Greg Bartelli. He sat beside her
when he talked to her. He said he was a Math teacher and told her that he has a sister who is

a nurse in New York. His sister allegedly has a daughter who is about Karen's age and who
was with him in his house along Kalayaan Avenue. (TSN, Aug. 15, 1989, pp. 4-5)
The American asked Karen what was her favorite subject and she told him it's Pilipino. He
then invited her to go with him to his house where she could teach Pilipino to his niece. He
even gave her a stuffed toy to persuade her to teach his niece. (Id., pp. 5-6)
They walked from Plaza Fair along Pasong Tamo, turning right to reach the defendant's house
along Kalayaan Avenue. (Id., p. 6)
When they reached the apartment house, Karen noticed that defendant's alleged niece was
not outside the house but defendant told her maybe his niece was inside. When Karen did not
see the alleged niece inside the house, defendant told her maybe his niece was upstairs, and
invited Karen to go upstairs. (Id., p. 7)
Upon entering the bedroom defendant suddenly locked the door. Karen became nervous
because his niece was not there. Defendant got a piece of cotton cord and tied Karen's hands
with it, and then he undressed her. Karen cried for help but defendant strangled her. He took
a packing tape and he covered her mouth with it and he circled it around her head. (Id., p. 7)
Then, defendant suddenly pushed Karen towards the bed which was just near the door. He
tied her feet and hands spread apart to the bed posts. He knelt in front of her and inserted his
finger in her sex organ. She felt severe pain. She tried to shout but no sound could come out
because there were tapes on her mouth. When defendant withdrew his finger it was full of
blood and Karen felt more pain after the withdrawal of the finger. (Id., p. 8)
He then got a Johnson's Baby Oil and he applied it to his sex organ as well as to her sex
organ. After that he forced his sex organ into her but he was not able to do so. While he was
doing it, Karen found it difficult to breathe and she perspired a lot while feeling severe pain.
She merely presumed that he was able to insert his sex organ a little, because she could not
see. Karen could not recall how long the defendant was in that position. (Id. pp. 8-9)
After that, he stood up and went to the bathroom to wash. He also told Karen to take a
shower and he untied her hands. Karen could only hear the sound of the water while the
defendant, she presumed, was in the bathroom washing his sex organ. When she took a
shower more blood came out from her. In the meantime, defendant changed the mattress
because it was full of blood. After the shower, Karen was allowed by defendant to sleep. She
fell asleep because she got tired crying. The incident happened at about 4:00 p.m. Karen had
no way of determining the exact time because defendant removed her watch. Defendant did
not care to give her food before she went to sleep. Karen woke up at about 8:00 o'clock the
following morning. (Id., pp. 9-10)
The following day, February 5, 1989, a Sunday, after a breakfast of biscuit and coke at about
8:30 to 9:00 a.m. defendant raped Karen while she was still bleeding. For lunch, they also
took biscuit and coke. She was raped for the second time at about 12:00 to 2:00 p.m. In the
evening, they had rice for dinner which defendant had stored downstairs; it was he who
cooked the rice that is why it looks like "lugaw". For the third time, Karen was raped again
during the night. During those three times defendant succeeded in inserting his sex organ but
she could not say whether the organ was inserted wholly.
Karen did not see any firearm or any bladed weapon. The defendant did not tie her hands and
feet nor put a tape on her mouth anymore but she did not cry for help for fear that she might
be killed; besides, all the windows and doors were closed. And even if she shouted for help,
nobody would hear her. She was so afraid that if somebody would hear her and would be able
to call the police, it was still possible that as she was still inside the house, defendant might

kill her. Besides, the defendant did not leave that Sunday, ruling out her chance to call for
help. At nighttime he slept with her again. (TSN, Aug. 15, 1989, pp. 12-14)
On February 6, 1989, Monday, Karen was raped three times, once in the morning for thirty
minutes after a breakfast of biscuits; again in the afternoon; and again in the evening. At first,
Karen did not know that there was a window because everything was covered by a carpet,
until defendant opened the window for around fifteen minutes or less to let some air in, and
she found that the window was covered by styrofoam and plywood. After that, he again
closed the window with a hammer and he put the styrofoam, plywood, and carpet back. (Id.,
pp. 14-15)
That Monday evening, Karen had a chance to call for help, although defendant left but kept
the door closed. She went to the bathroom and saw a small window covered by styrofoam
and she also spotted a small hole. She stepped on the bowl and she cried for help through the
hole. She cried: "Maawa no po kayo so akin. Tulungan n'yo akong makalabas dito. Kinidnap
ako!" Somebody heard her. It was a woman, probably a neighbor, but she got angry and said
she was "istorbo". Karen pleaded for help and the woman told her to sleep and she will call
the police. She finally fell asleep but no policeman came. (TSN, Aug. 15, 1989, pp. 15-16)
She woke up at 6:00 o'clock the following morning, and she saw defendant in bed, this time
sleeping. She waited for him to wake up. When he woke up, he again got some food but he
always kept the door locked. As usual, she was merely fed with biscuit and coke. On that day,
February 7, 1989, she was again raped three times. The first at about 6:30 to 7:00 a.m., the
second at about 8:30 9:00, and the third was after lunch at 12:00 noon. After he had raped
her for the second time he left but only for a short while. Upon his return, he caught her
shouting for help but he did not understand what she was shouting about. After she was
raped the third time, he left the house. (TSN, Aug. 15, 1989, pp. 16-17) She again went to the
bathroom and shouted for help. After shouting for about five minutes, she heard many voices.
The voices were asking for her name and she gave her name as Karen Salvacion. After a
while, she heard a voice of a woman saying they will just call the police. They were also
telling her to change her clothes. She went from the bathroom to the room but she did not
change her clothes being afraid that should the neighbors call for the police and the
defendant see her in different clothes, he might kill her. At that time she was wearing a Tshirt of the American because the latter washed her dress. (Id., p. 16)
Afterwards, defendant arrived and he opened the door. He asked her if she had asked for help
because there were many policemen outside and she denied it. He told her to change her
clothes, and she did change to the one she was wearing on Saturday. He instructed her to tell
the police that she left home and willingly; then he went downstairs but he locked the door.
She could hear people conversing but she could not understand what they were saying. (Id.,
p. 19)
When she heard the voices of many people who were conversing downstairs, she knocked
repeatedly at the door as hard as she could. She heard somebody going upstairs and when
the door was opened, she saw a policeman. The policeman asked her name and the reason
why she was there. She told him she was kidnapped. Downstairs, he saw about five
policemen in uniform and the defendant was talking to them. "Nakikipag-areglo po sa mga
pulis," Karen added. "The policeman told him to just explain at the precinct. (Id., p. 20)
They went out of the house and she saw some of her neighbors in front of the house. They
rode the car of a certain person she called Kuya Boy together with defendant, the policeman,
and two of her neighbors whom she called Kuya Bong Lacson and one Ate Nita. They were
brought to Sub-Station I and there she was investigated by a policeman. At about 2:00 a.m.,
her father arrived, followed by her mother together with some of their neighbors. Then they
were brought to the second floor of the police headquarters. (Id., p. 21)

At the headquarters, she was asked several questions by the investigator. The written
statement she gave to the police was marked as Exhibit A. Then they proceeded to the
National Bureau of Investigation together with the investigator and her parents. At the NBI, a
doctor, a medico-legal officer, examined her private parts. It was already 3:00 in the early
morning of the following day when they reached the NBI. (TSN, Aug. 15, 1989, p. 22) The
findings of the medico-legal officer has been marked as Exhibit B.
She was studying at the St. Mary's Academy in Pasay City at the time of the incident but she
subsequently transferred to Apolinario Mabini, Arellano University, situated along Taft
Avenue, because she was ashamed to be the subject of conversation in the school. She first
applied for transfer to Jose Abad Santos, Arellano University along Taft Avenue near the Light
Rail Transit Station but she was denied admission after she told the school the true reason for
her transfer. The reason for their denial was that they might be implicated in the case. (TSN,
Aug. 15, 1989, p. 46)
xxx xxx xxx
After the incident, Karen has changed a lot. She does not play with her brother and sister
anymore, and she is always in a state of shock; she has been absent-minded and is ashamed
even to go out of the house. (TSN, Sept. 12, 1989, p. 10) She appears to be restless or sad,
(Id., p. 11) The father prays for P500,000.00 moral damages for Karen for this shocking
experience which probably, she would always recall until she reaches old age, and he is not
sure if she could ever recover from this experience. (TSN, Sept. 24, 1989, pp. 10-11)
Pursuant to an Order granting leave to publish notice of decision, said notice was published in
the Manila Bulletin once a week for three consecutive weeks. After the lapse of fifteen (15)
days from the date of the last publication of the notice of judgment and the decision of the
trial court had become final, petitioners tried to execute on Bartelli's dollar deposit with China
Banking Corporation. Likewise, the bank invoked Section 113 of Central Bank Circular No.
960.
Thus, petitioners decided to seek relief from this Court.
The issues raised and the arguments articulated by the parties boil down to two:
May this Court entertain the instant petition despite the fact that original jurisdiction in
petitions for declaratory relief rests with the lower court? Should Section 113 of Central Bank
Circular No. 960 and Section 8 of R.A. 6426, as amended by P.D. 1246, otherwise known as
the Foreign Currency Deposit Act be made applicable to a foreign transient?
Petitioners aver as heretofore stated that Section 113 of Central Bank Circular No. 960
providing that "Foreign currency deposits shall be exempt from attachment, garnishment, or
any other order or process of any court, legislative body, government agency or any
administrative body whatsoever." should be adjudged as unconstitutional on the grounds
that: 1.) it has taken away the right of petitioners to have the bank deposit of defendant Greg
Bartelli y Northcott garnished to satisfy the judgment rendered in petitioners' favor in
violation of substantive due process guaranteed by the Constitution; 2.) it has given foreign
currency depositors an undue favor or a class privilege in violation of the equal protection
clause of the Constitution; 3.) it has provided a safe haven for criminals like the herein
respondent Greg Bartelli y Northcott since criminals could escape civil liability for their
wrongful acts by merely converting their money to a foreign currency and depositing it in a
foreign currency deposit account with an authorized bank; and 4.) The Monetary Board, in
issuing Section 113 of Central Bank Circular No. 960 has exceeded its delegated quasilegislative power when it took away: a.) the plaintiffs substantive right to have the claim

sought to be enforced by the civil action secured by way of the writ of preliminary attachment
as granted by Rule 57 of the Revised Rules of Court; b.) the plaintiffs substantive right to
have the judgment credit satisfied by way of the writ of execution out of the bank deposit of
the judgment debtor as granted to the judgment creditor by Rule 39 of the Revised Rules of
Court, which is beyond its power to do so.
On the other hand, respondent Central Bank, in its Comment alleges that the Monetary Board
in issuing Section 113 of CB Circular No. 960 did not exceed its power or authority because
the subject Section is copied verbatim from a portion of R.A. No. 6426 as amended by P.D.
1246. Hence, it was not the Monetary Board that grants exemption from attachment or
garnishment to foreign currency deposits, but the law (R.A. 6426 as amended) itself; that it
does not violate the substantive due process guaranteed by the Constitution because a.) it
was based on a law; b.) the law seems to be reasonable; c.) it is enforced according to regular
methods of procedure; and d.) it applies to all members of a class.
Expanding, the Central Bank said; that one reason for exempting the foreign currency
deposits from attachment, garnishment or any other order or process of any court, is to
assure the development and speedy growth of the Foreign Currency Deposit System and the
Offshore Banking System in the Philippines; that another reason is to encourage the inflow of
foreign currency deposits into the banking institutions thereby placing such institutions more
in a position to properly channel the same to loans and investments in the Philippines, thus
directly contributing to the economic development of the country; that the subject section is
being enforced according to the regular methods of procedure; and that it applies to all
foreign currency deposits made by any person and therefore does not violate the equal
protection clause of the Constitution.
Respondent Central Bank further avers that the questioned provision is needed to promote
the public interest and the general welfare; that the State cannot just stand idly by while a
considerable segment of the society suffers from economic distress; that the State had to
take some measures to encourage economic development; and that in so doing persons and
property may be subjected to some kinds of restraints or burdens to secure the general
welfare or public interest. Respondent Central Bank also alleges that Rule 39 and Rule 57 of
the Revised Rules of Court provide that some properties are exempted from
execution/attachment especially provided by law and R.A. No. 6426 as amended is such a
law, in that it specifically provides, among others, that foreign currency deposits shall be
exempted from attachment, garnishment, or any other order or process of any court,
legislative body, government agency or any administrative body whatsoever.
For its part, respondent China Banking Corporation, aside from giving reasons similar to that
of respondent Central Bank, also stated that respondent China Bank is not unmindful of the
inhuman sufferings experienced by the minor Karen E. Salvacion from the beastly hands of
Greg Bartelli; that it is only too willing to release the dollar deposit of Bartelli which may
perhaps partly mitigate the sufferings petitioner has undergone; but it is restrained from
doing so in view of R.A. No. 6426 and Section 113 of Central Bank Circular No. 960; and that
despite the harsh effect of these laws on petitioners, CBC has no other alternative but to
follow the same.
This Court finds the petition to be partly meritorious.
Petitioner deserves to receive the damages awarded to her by the court. But this petition for
declaratory relief can only be entertained and treated as a petition for mandamus to require
respondents to honor and comply with the writ of execution in Civil Case No. 89-3214.
This Court has no original and exclusive jurisdiction over a petition for declaratory relief. 2
However, exceptions to this rule have been recognized. Thus, where the petition has far-

reaching implications and raises questions that should be resolved, it may be treated as one
for mandamus. 3
Here is a child, a 12-year old girl, who in her belief that all Americans are good and in her
gesture of kindness by teaching his alleged niece the Filipino language as requested by the
American, trustingly went with said stranger to his apartment, and there she was raped by
said American tourist Greg Bartelli. Not once, but ten times. She was detained therein for four
(4) days. This American tourist was able to escape from the jail and avoid punishment. On the
other hand, the child, having received a favorable judgment in the Civil Case for damages in
the amount of more than P1,000,000.00, which amount could alleviate the humiliation,
anxiety, and besmirched reputation she had suffered and may continue to suffer for a long,
long time; and knowing that this person who had wronged her has the money, could not,
however get the award of damages because of this unreasonable law. This questioned law,
therefore makes futile the favorable judgment and award of damages that she and her
parents fully deserve. As stated by the trial court in its decision,
Indeed, after hearing the testimony of Karen, the Court believes that it was undoubtedly a
shocking and traumatic experience she had undergone which could haunt her mind for a
long, long time, the mere recall of which could make her feel so humiliated, as in fact she had
been actually humiliated once when she was refused admission at the Abad Santos High
School, Arellano University, where she sought to transfer from another school, simply because
the school authorities of the said High School learned about what happened to her and
allegedly feared that they might be implicated in the case.
xxx xxx xxx
The reason for imposing exemplary or corrective damages is due to the wanton and bestial
manner defendant had committed the acts of rape during a period of serious illegal detention
of his hapless victim, the minor Karen Salvacion whose only fault was in her being so naive
and credulous to believe easily that defendant, an American national, could not have such a
bestial desire on her nor capable of committing such a heinous crime. Being only 12 years old
when that unfortunate incident happened, she has never heard of an old Filipino adage that
in every forest there is a
snake, . . . . 4
If Karen's sad fate had happened to anybody's own kin, it would be difficult for him to fathom
how the incentive for foreign currency deposit could be more important than his child's rights
to said award of damages; in this case, the victim's claim for damages from this alien who
had the gall to wrong a child of tender years of a country where he is a mere visitor. This
further illustrates the flaw in the questioned provisions.
It is worth mentioning that R.A. No. 6426 was enacted in 1983 or at a time when the country's
economy was in a shambles; when foreign investments were minimal and presumably, this
was the reason why said statute was enacted. But the realities of the present times show that
the country has recovered economically; and even if not, the questioned law still denies those
entitled to due process of law for being unreasonable and oppressive. The intention of the
questioned law may be good when enacted. The law failed to anticipate the iniquitous effects
producing outright injustice and inequality such as the case before us.
It has thus been said that
But I also know, 5 that laws and institutions must go hand in hand with the progress of the
human mind. As that becomes more developed, more enlightened, as new discoveries are
made, new truths are disclosed and manners and opinions change with the change of
circumstances, institutions must advance also, and keep pace with the times. . . We might as

well require a man to wear still the coat which fitted him when a boy, as civilized society to
remain ever under the regimen of their barbarous ancestors.
In his Comment, the Solicitor General correctly opined, thus:
The present petition has far-reaching implications on the right of a national to obtain redress
for a wrong committed by an alien who takes refuge under a law and regulation promulgated
for a purpose which does not contemplate the application thereof envisaged by the alien.
More specifically, the petition raises the question whether the protection against attachment,
garnishment or other court process accorded to foreign currency deposits by PD No. 1246 and
CB Circular No. 960 applies when the deposit does not come from a lender or investor but
from a mere transient or tourist who is not expected to maintain the deposit in the bank for
long.
The resolution of this question is important for the protection of nationals who are victimized
in the forum by foreigners who are merely passing through.
xxx xxx xxx
. . . Respondents China Banking Corporation and Central Bank of the Philippines refused to
honor the writ of execution issued in Civil Case No. 89-3214 on the strength of the following
provision of Central Bank Circular No. 960:
Sec. 113. Exemption from attachment. Foreign currency deposits shall be exempt from
attachment, garnishment, or any other order or process of any court, legislative body,
government agency or any administrative body whatsoever.
Central Bank Circular No. 960 was issued pursuant to Section 7 of Republic Act No. 6426:
Sec. 7. Rules and Regulations. The Monetary Board of the Central Bank shall promulgate such
rules and regulations as may be necessary to carry out the provisions of this Act which shall
take effect after the publication of such rules and regulations in the Official Gazette and in a
newspaper of national circulation for at least once a week for three consecutive weeks. In
case the Central Bank promulgates new rules and regulations decreasing the rights of
depositors, the rules and regulations at the time the deposit was made shall govern.
The aforecited Section 113 was copied from Section 8 of Republic Act NO. 6426, as amended
by P.D. 1246, thus:
Sec. 8. Secrecy of Foreign Currency Deposits. All foreign currency deposits authorized
under this Act, as amended by Presidential Decree No. 1035, as well as foreign currency
deposits authorized under Presidential Decree No. 1034, are hereby declared as and
considered of an absolutely confidential nature and, except upon the written permission of
the depositor, in no instance shall such foreign currency deposits be examined, inquired or
looked into by any person, government official, bureau or office whether judicial or
administrative or legislative or any other entity whether public or private: Provided, however,
that said foreign currency deposits shall be exempt from attachment, garnishment, or any
other order or process of any court, legislative body, government agency or any
administrative body whatsoever.
The purpose of PD 1246 in according protection against attachment, garnishment and other
court process to foreign currency deposits is stated in its whereases, viz.:

WHEREAS, under Republic Act No. 6426, as amended by Presidential Decree No. 1035,
certain Philippine banking institutions and branches of foreign banks are authorized to accept
deposits in foreign currency;
WHEREAS, under the provisions of Presidential Decree No. 1034 authorizing the
establishment of an offshore banking system in the Philippines, offshore banking units are
also authorized to receive foreign currency deposits in certain cases;
WHEREAS, in order to assure the development and speedy growth of the Foreign Currency
Deposit System and the Offshore Banking System in the Philippines, certain incentives were
provided for under the two Systems such as confidentiality of deposits subject to certain
exceptions and tax exemptions on the interest income of depositors who are nonresidents
and are not engaged in trade or business in the Philippines;
WHEREAS, making absolute the protective cloak of confidentiality over such foreign currency
deposits, exempting such deposits from tax, and guaranteeing the vested rights of depositors
would better encourage the inflow of foreign currency deposits into the banking institutions
authorized to accept such deposits in the Philippines thereby placing such institutions more in
a position to properly channel the same to loans and investments in the Philippines, thus
directly contributing to the economic development of the country;
Thus, one of the principal purposes of the protection accorded to foreign currency deposits is
"to assure the development and speedy growth of the Foreign Currency Deposit system and
the Offshore Banking in the Philippines" (3rd Whereas).
The Offshore Banking System was established by PD No. 1034. In turn, the purposes of PD No.
1034 are as follows:
WHEREAS, conditions conducive to the establishment of an offshore banking system, such as
political stability, a growing economy and adequate communication facilities, among others,
exist in the Philippines;
WHEREAS, it is in the interest of developing countries to have as wide access as possible to
the sources of capital funds for economic development;
WHEREAS, an offshore banking system based in the Philippines will be advantageous and
beneficial to the country by increasing our links with foreign lenders, facilitating the flow of
desired investments into the Philippines, creating employment opportunities and expertise in
international finance, and contributing to the national development effort.
WHEREAS, the geographical location, physical and human resources, and other positive
factors provide the Philippines with the clear potential to develop as another financial center
in Asia;
On the other hand, the Foreign Currency Deposit system was created by PD. No. 1035. Its
purposes are as follows:
WHEREAS, the establishment of an offshore banking system in the Philippines has been
authorized under a separate decree;
WHEREAS, a number of local commercial banks, as depository bank under the Foreign
Currency Deposit Act (RA No. 6426), have the resources and managerial competence to more
actively engage in foreign exchange transactions and participate in the grant of foreign
currency loans to resident corporations and firms;

WHEREAS, it is timely to expand the foreign currency lending authority of the said depository
banks under RA 6426 and apply to their transactions the same taxes as would be applicable
to transaction of the proposed offshore banking units;
It is evident from the above [Whereas clauses] that the Offshore Banking System and the
Foreign Currency Deposit System were designed to draw deposits from foreign lenders and
investors (Vide second Whereas of PD No. 1034; third Whereas of PD No. 1035). It is these
deposits that are induced by the two laws and given protection and incentives by them.
Obviously, the foreign currency deposit made by a transient or a tourist is not the kind of
deposit encouraged by PD Nos. 1034 and 1035 and given incentives and protection by said
laws because such depositor stays only for a few days in the country and, therefore, will
maintain his deposit in the bank only for a short time.
Respondent Greg Bartelli, as stated, is just a tourist or a transient. He deposited his dollars
with respondent China Banking Corporation only for safekeeping during his temporary stay in
the Philippines.
For the reasons stated above, the Solicitor General thus submits that the dollar deposit of
respondent Greg Bartelli is not entitled to the protection of Section 113 of Central Bank
Circular No. 960 and PD No. 1246 against attachment, garnishment or other court processes.
6
In fine, the application of the law depends on the extent of its justice. Eventually, if we rule
that the questioned Section 113 of Central Bank Circular No. 960 which exempts from
attachment, garnishment, or any other order or process of any court, legislative body,
government agency or any administrative body whatsoever, is applicable to a foreign
transient, injustice would result especially to a citizen aggrieved by a foreign guest like
accused Greg Bartelli. This would negate Article 10 of the New Civil Code which provides that
"in case of doubt in the interpretation or application of laws, it is presumed that the
lawmaking body intended right and justice to prevail. "Ninguno non deue enriquecerse
tortizeramente con dano de otro." Simply stated, when the statute is silent or ambiguous, this
is one of those fundamental solutions that would respond to the vehement urge of
conscience. (Padilla vs. Padilla, 74 Phil. 377).
It would be unthinkable, that the questioned Section 113 of Central Bank No. 960 would be
used as a device by accused Greg Bartelli for wrongdoing, and in so doing, acquitting the
guilty at the expense of the innocent.
Call it what it may but is there no conflict of legal policy here? Dollar against Peso?
Upholding the final and executory judgment of the lower court against the Central Bank
Circular protecting the foreign depositor? Shielding or protecting the dollar deposit of a
transient alien depositor against injustice to a national and victim of a crime? This situation
calls for fairness against legal tyranny.
We definitely cannot have both ways and rest in the belief that we have served the ends of
justice.
IN VIEW WHEREOF, the prov