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BANGKO SENTRAL NG PILIPINAS

MONETARY BOARD
and
CHUCHI
FONACIER,
Petitioners,

G.R. No. 184778

Present:
- versus HON. NINA G. ANTONIO-VALENZUELA,
in her capacity as Regional Trial Court Judge
of Manila, Branch 28; RURAL BANK OF
PARAAQUE, INC.; RURAL BANK OF
SAN JOSE (BATANGAS), INC.; RURAL
BANK OF CARMEN (CEBU), INC.;
PILIPINO
RURAL
BANK,
INC.;
PHILIPPINE COUNTRYSIDE RURAL
BANK,
INC.;
RURAL
BANK
OF
CALATAGAN (BATANGAS), INC. (now
DYNAMIC RURAL BANK); RURAL BANK
OF DARBCI, INC.; RURAL BANK OF
KANANGA (LEYTE), INC. (now FIRST
INTERSTATE RURAL BANK); RURAL
BANK OF BISAYAS MINGLANILLA (now
BANK OF EAST ASIA); and SAN PABLO
CITY DEVELOPMENT BANK, INC.,
Respondents.

YNARES-SANTIAGO, J.,
Chairperson,
CHICO-NAZARIO,
VELASCO, JR.,
NACHURA, and
PERALTA, JJ.

Promulgated:
October 2, 2009
x-----------------------------------------------------------------------------------------x
DECISION
VELASCO, JR., J.:
The Case
This is a Petition for Review on Certiorari under Rule 45 with Prayer for Issuance of a Temporary
Restraining Order (TRO)/Writ of Preliminary Injunction, questioning the Decision dated September 30,
2008[1] of the Court of Appeals (CA) in CA-G.R. SP No. 103935. The CA Decision upheld the
Order[2] dated June 4, 2008 of the Regional Trial Court (RTC), Branch 28 in Manila, issuing writs of
preliminary injunction in Civil Case Nos. 08-119243, 08-119244, 08-119245, 08-119246, 08-119247, 08-

119248, 08-119249, 08-119250, 08-119251, and 08-119273, and the Order dated May 21, 2008 that
consolidated the civil cases.
The Facts
In September of 2007, the Supervision and Examination Department (SED) of the Bangko Sentral ng
Pilipinas (BSP) conducted examinations of the books of the following banks: Rural Bank of Paraaque,
Inc. (RBPI), Rural Bank of San Jose (Batangas), Inc., Rural Bank of Carmen (Cebu), Inc., Pilipino Rural
Bank, Inc., Philippine Countryside Rural Bank, Inc., Rural Bank of Calatagan (Batangas), Inc. (now
Dynamic Rural Bank), Rural Bank of Darbci, Inc., Rural Bank of Kananga (Leyte), Inc. (now First
Interstate Rural Bank), Rural Bank de Bisayas Minglanilla (now Bank of East Asia), and San Pablo City
Development Bank, Inc.
After the examinations, exit conferences were held with the officers or representatives of the banks
wherein the SED examiners provided them with copies of Lists of Findings/Exceptions containing the
deficiencies discovered during the examinations. These banks were then required to comment and to
undertake the remedial measures stated in these lists within 30 days from their receipt of the lists, which
remedial measures included the infusion of additional capital. Though the banks claimed that they made
the additional capital infusions, petitioner Chuchi Fonacier, officer-in-charge of the SED, sent separate
letters to the Board of Directors of each bank, informing them that the SED found that the banks failed to
carry out the required remedial measures. In response, the banks requested that they be given time to
obtain BSP approval to amend their Articles of Incorporation, that they have an opportunity to seek
investors. They requested as well that the basis for the capital infusion figures be disclosed, and noted
that none of them had received the Report of Examination (ROE) which finalizes the audit
findings. They also requested meetings with the BSP audit teams to reconcile audit figures. In response,
Fonacier reiterated the banks failure to comply with the directive for additional capital infusions.
On May 12, 2008, the RBPI filed a complaint for nullification of the BSP ROE with application for a
TRO and writ of preliminary injunction before the RTC docketed as Civil Case No. 08-119243 against
Fonacier, the BSP, Amado M. Tetangco, Jr., Romulo L. Neri, Vicente B. Valdepenas, Jr., Raul A. Boncan,
Juanita D. Amatong, Alfredo C. Antonio, and Nelly F. Villafuerte. RBPI prayed that Fonacier, her
subordinates, agents, or any other person acting in her behalf be enjoined from submitting the ROE or any
similar report to the Monetary Board (MB), or if the ROE had already been submitted, the MB be
enjoined from acting on the basis of said ROE, on the allegation that the failure to furnish the bank with a
copy of the ROE violated its right to due process.
The Rural Bank of San Jose (Batangas), Inc., Rural Bank of Carmen (Cebu), Inc., Pilipino Rural Bank,
Inc., Philippine Countryside Rural Bank, Inc., Rural Bank of Calatagan (Batangas), Inc., Rural Bank of
Darbci, Inc., Rural Bank of Kananga (Leyte), Inc., and Rural Bank de Bisayas Minglanilla followed suit,
filing complaints with the RTC substantially similar to that of RBPI, including the reliefs prayed for,
which were raffled to different branches and docketed as Civil Cases Nos. 08-119244, 08-119245, 08119246, 08-119247, 08-119248, 08-119249, 08-119250, and 08-119251, respectively.

On May 13, 2008, the RTC denied the prayer for a TRO of Pilipino Rural Bank, Inc. The bank filed a
motion for reconsideration the next day.
On May 14, 2008, Fonacier and the BSP filed their opposition to the application for a TRO and writ of
preliminary injunction in Civil Case No. 08-119243 with the RTC. Respondent Judge Nina AntonioValenzuela of Branch 28 granted RBPIs prayer for the issuance of a TRO.
The other banks separately filed motions for consolidation of their cases in Branch 28, which
motions were granted. Judge Valenzuela set the complaint of Rural Bank of San Jose (Batangas), Inc. for
hearing on May 15, 2008. Petitioners assailed the validity of the consolidation of the nine cases before
the RTC, alleging that the court had already prejudged the case by the earlier issuance of a TRO in Civil
Case No. 08-119243, and moved for the inhibition of respondent judge. Petitioners filed a motion for
reconsideration regarding the consolidation of the subject cases.
On May 16, 2008, San Pablo City Development Bank, Inc. filed a similar complaint against the
same defendants with the RTC, and this was docketed as Civil Case No. 08-119273 that was later on
consolidated with Civil Case No. 08-119243. Petitioners filed an Urgent Motion to Lift/Dissolve the
TRO and an Opposition to the earlier motion for reconsideration of Pilipino Rural Bank, Inc.
On May 19, 2008, Judge Valenzuela issued an Order granting the prayer for the issuance of TROs
for the other seven cases consolidated with Civil Case No. 08-119243. On May 21, 2008, Judge
Valenzuela issued an Order denying petitioners motion for reconsideration regarding the consolidation of
cases in Branch 28. On May 22, 2008, Judge Valenzuela granted the urgent motion for reconsideration of
Pilipino Rural Bank, Inc. and issued a TRO similar to the ones earlier issued.
On May 26, 2008, petitioners filed a Motion to Dismiss against all the complaints (except that of
the San Pablo City Development Bank, Inc.), on the grounds that the complaints stated no cause of action
and that a condition precedent for filing the cases had not been complied with. On May 29, 2008, a
hearing was conducted on the application for a TRO and for a writ of preliminary injunction of San Pablo
City Development Bank, Inc.
The Ruling of the RTC
After the parties filed their respective memoranda, the RTC, on June 4, 2008, ruled that the banks
were entitled to the writs of preliminary injunction prayed for. It held that it had been the practice of the
SED to provide the ROEs to the banks before submission to the MB. It further held that as the banks are
the subjects of examinations, they are entitled to copies of the ROEs. The denial by petitioners of the
banks requests for copies of the ROEs was held to be a denial of the banks right to due process.
The dispositive portion of the RTCs order reads:
WHEREFORE, the Court rules as follows:

1)
Re: Civil Case No. 08-119243. Pursuant to Rule 58, Section 4(b) of the Revised Rules of Court,
plaintiff Rural Bank of Paranaque Inc. is directed to post a bond executed to the defendants, in the amount
of P500,000.00 to the effect that the plaintiff will pay to the defendants all damages which they may
sustain by reason of the injunction if the Court should finally decide that the plaintiff was not entitled
thereto. After posting of the bond and approval thereof, let a writ of preliminary injunction be issued to
enjoin and restrain the defendants from submitting the Report of Examination or any other similar report
prepared in connection with the examination conducted on the plaintiff, to the Monetary Board. In case
such a Report on Examination [sic] or any other similar report prepared in connection with the
examination conducted on the plaintiff has been submitted to the Monetary Board, the latter and its
members (i.e. defendants Tetangco, Neri, Valdepenas, Boncan, Amatong, Antonio, and Villafuerte) are
enjoined and restrained from acting on the basis of said report.
2)
Re: Civil Case No. 08-119244. Pursuant to Rule 58, Section 4(b) of the Revised Rules of Court,
plaintiff Rural Bank of San Jose (Batangas), Inc. is directed to post a bond executed to the defendants, in
the amount of P500,000.00 to the effect that the plaintiff will pay to the defendants all damages which
they may sustain by reason of the injunction if the Court should finally decide that the plaintiff was not
entitled thereto. After posting of the bond and approval thereof, let a writ of preliminary injunction be
issued to enjoin and restrain the defendants from submitting the Report of Examination or any other
similar report prepared in connection with the examination conducted on the plaintiff, to the Monetary
Board. In case such a Report on Examination [sic] or any other similar report prepared in connection
with the examination conducted on the plaintiff has been submitted to the Monetary Board, the latter and
its members (i.e. defendants Tetangco, Neri, Valdepenas, Boncan, Amatong, Antonio, and Villafuerte) are
enjoined and restrained from acting on the basis of said report.
3)
Re: Civil Case No. 08-119245. Pursuant to Rule 58, Section 4(b) of the Revised Rules of Court,
plaintiff Rural Bank of Carmen (Cebu), Inc. is directed to post a bond executed to the defendants, in the
amount of P500,000.00 to the effect that the plaintiff will pay to the defendants all damages which they
may sustain by reason of the injunction if the Court should finally decide that the plaintiff was not entitled
thereto. After posting of the bond and approval thereof, let a writ of preliminary injunction be issued to
enjoin and restrain the defendants from submitting the Report of Examination or any other similar report
prepared in connection with the examination conducted on the plaintiff, to the Monetary Board. In case
such a Report on Examination [sic] or any other similar report prepared in connection with the
examination conducted on the plaintiff has been submitted to the Monetary Board, the latter and its
members (i.e. defendants Tetangco, Neri, Valdepenas, Boncan, Amatong, Antonio, and Villafuerte) are
enjoined and restrained from acting on the basis of said report.
4)
Re: Civil Case No. 08-119246. Pursuant to Rule 58, Section 4(b) of the Revised Rules of Court,
plaintiff Pilipino Rural Bank Inc. is directed to post a bond executed to the defendants, in the amount of
P500,000.00 to the effect that the plaintiff will pay to the defendants all damages which they may sustain
by reason of the injunction if the Court should finally decide that the plaintiff was not entitled
thereto. After posting of the bond and approval thereof, let a writ of preliminary injunction be issued to
enjoin and restrain the defendants from submitting the Report of Examination or any other similar report
prepared in connection with the examination conducted on the plaintiff, to the Monetary Board. In case
such a Report on Examination [sic] or any other similar report prepared in connection with the

examination conducted on the plaintiff has been submitted to the Monetary Board, the latter and its
members (i.e. defendants Tetangco, Neri, Valdepenas, Boncan, Amatong, Antonio, and Villafuerte) are
enjoined and restrained from acting on the basis of said report.
5)
Re: Civil Case No. 08-119247. Pursuant to Rule 58, Section 4(b) of the Revised Rules of Court,
plaintiff Philippine Countryside Rural Bank Inc. is directed to post a bond executed to the defendants, in
the amount of P500,000.00 to the effect that the plaintiff will pay to the defendants all damages which
they may sustain by reason of the injunction if the Court should finally decide that the plaintiff was not
entitled thereto. After posting of the bond and approval thereof, let a writ of preliminary injunction be
issued to enjoin and restrain the defendants from submitting the Report of Examination or any other
similar report prepared in connection with the examination conducted on the plaintiff, to the Monetary
Board. In case such a Report on Examination [sic] or any other similar report prepared in connection
with the examination conducted on the plaintiff has been submitted to the Monetary Board, the latter and
its members (i.e. defendants Tetangco, Neri, Valdepenas, Boncan, Amatong, Antonio, and Villafuerte) are
enjoined and restrained from acting on the basis of said report.
6)
Re: Civil Case No. 08-119248. Pursuant to Rule 58, Section 4(b) of the Revised Rules of Court,
plaintiff Dynamic Bank Inc. (Rural Bank of Calatagan) is directed to post a bond executed to the
defendants, in the amount of P500,000.00 to the effect that the plaintiff will pay to the defendants all
damages which they may sustain by reason of the injunction if the Court should finally decide that the
plaintiff was not entitled thereto. After posting of the bond and approval thereof, let a writ of preliminary
injunction be issued to enjoin and restrain the defendants from submitting the Report of Examination or
any other similar report prepared in connection with the examination conducted on the plaintiff, to the
Monetary Board. In case such a Report on Examination [sic] or any other similar report prepared in
connection with the examination conducted on the plaintiff has been submitted to the Monetary Board,
the latter and its members (i.e. defendants Tetangco, Neri, Valdepenas, Boncan, Amatong, Antonio, and
Villafuerte) are enjoined and restrained from acting on the basis of said report.
7)
Re: Civil Case No. 08-119249. Pursuant to Rule 58, Section 4(b) of the Revised Rules of Court,
plaintiff Rural Bank of DARBCI, Inc. is directed to post a bond executed to the defendants, in the amount
of P500,000.00 to the effect that the plaintiff will pay to the defendants all damages which they may
sustain by reason of the injunction if the Court should finally decide that the plaintiff was not entitled
thereto. After posting of the bond and approval thereof, let a writ of preliminary injunction be issued to
enjoin and restrain the defendants from submitting the Report of Examination or any other similar report
prepared in connection with the examination conducted on the plaintiff, to the Monetary Board. In case
such a Report on Examination [sic] or any other similar report prepared in connection with the
examination conducted on the plaintiff has been submitted to the Monetary Board, the latter and its
members (i.e. defendants Tetangco, Neri, Valdepenas, Boncan, Amatong, Antonio, and Villafuerte) are
enjoined and restrained from acting on the basis of said report.
8)
Re: Civil Case No. 08-119250. Pursuant to Rule 58, Section 4(b) of the Revised Rules of Court,
plaintiff Rural Bank of Kananga Inc. (First Intestate Bank), is directed to post a bond executed to the
defendants, in the amount of P500,000.00 to the effect that the plaintiff will pay to the defendants all
damages which they may sustain by reason of the injunction if the Court should finally decide that the

plaintiff was not entitled thereto. After posting of the bond and approval thereof, let a writ of preliminary
injunction be issued to enjoin and restrain the defendants from submitting the Report of Examination or
any other similar report prepared in connection with the examination conducted on the plaintiff, to the
Monetary Board. In case such a Report on Examination [sic] or any other similar report prepared in
connection with the examination conducted on the plaintiff has been submitted to the Monetary Board,
the latter and its members (i.e. defendants Tetangco, Neri, Valdepenas, Boncan, Amatong, Antonio, and
Villafuerte) are enjoined and restrained from acting on the basis of said report.
9)
Re: Civil Case No. 08-119251. Pursuant to Rule 58, Section 4(b) of the Revised Rules of Court,
plaintiff Banco Rural De Bisayas Minglanilla (Cebu) Inc. (Bank of East Asia) is directed to post a bond
executed to the defendants, in the amount of P500,000.00 to the effect that the plaintiff will pay to the
defendants all damages which they may sustain by reason of the injunction if the Court should finally
decide that the plaintiff was not entitled thereto. After posting of the bond and approval thereof, let a writ
of preliminary injunction be issued to enjoin and restrain the defendants from submitting the Report of
Examination or any other similar report prepared in connection with the examination conducted on the
plaintiff, to the Monetary Board. In case such a Report on Examination [sic] or any other similar report
prepared in connection with the examination conducted on the plaintiff has been submitted to the
Monetary Board, the latter and its members (i.e. defendants Tetangco, Neri, Valdepenas, Boncan,
Amatong, Antonio, and Villafuerte) are enjoined and restrained from acting on the basis of said report.
10) Re: Civil Case No. 08-119273. Pursuant to Rule 58, Section 4(b) of the Revised Rules of Court,
plaintiff San Pablo City Development Bank, Inc. is directed to post a bond executed to the defendants, in
the amount of P500,000.00 to the effect that the plaintiff will pay to the defendants all damages which
they may sustain by reason of the injunction if the Court should finally decide that the plaintiff was not
entitled thereto. After posting of the bond and approval thereof, let a writ of preliminary injunction be
issued to enjoin and restrain the defendants from submitting the Report of Examination or any other
similar report prepared in connection with the examination conducted on the plaintiff, to the Monetary
Board. In case such a Report on Examination [sic] or any other similar report prepared in connection
with the examination conducted on the plaintiff has been submitted to the Monetary Board, the latter and
its members (i.e. defendants Tetangco, Neri, Valdepenas, Boncan, Amatong, Antonio, and Villafuerte) are
enjoined and restrained from acting on the basis of said report.[3]
The Ruling of the CA
Petitioners then brought the matter to the CA via a petition for certiorari under Rule 65 claiming
grave abuse of discretion on the part of Judge Valenzuela when she issued the orders dated May 21, 2008
and June 4, 2008.
The CA ruled that the RTC committed no grave abuse of discretion when it ordered the issuance of
a writ of preliminary injunction and when it ordered the consolidation of the 10 cases.
It held that petitioners should have first filed a motion for reconsideration of the assailed orders,
and failed to justify why they resorted to a special civil action of certiorari instead.

The CA also found that aside from the technical aspect, there was no grave abuse of discretion on
the part of the RTC, and if there was a mistake in the assessment of evidence by the trial court, that should
be characterized as an error of judgment, and should be correctable via appeal.
The CA held that the principles of fairness and transparency dictate that the respondent banks are
entitled to copies of the ROE.
Regarding the consolidation of the 10 cases, the CA found that there was a similarity of facts,
reliefs sought, issues raised, defendants, and that plaintiffs and defendants were represented by the same
sets of counsels. It found that the joint trial of these cases would prejudice any substantial right of
petitioners.
Finding that no grave abuse of discretion attended the issuance of the orders by the RTC, the CA
denied the petition.
On November 24, 2008, a TRO was issued by this Court, restraining the CA, RTC, and respondents
from implementing and enforcing the CA Decision dated September 30, 2008 in CA-G.R. SP No. 103935.
[4]
By reason of the TRO issued by this Court, the SED was able to submit their ROEs to the MB. The MB
then prohibited the respondent banks from transacting business and placed them under receivership under
Section 53 of Republic Act No. (RA) 8791[5] and Sec. 30 of RA
7653[6] through MB Resolution No. 1616 dated December 9, 2008; Resolution Nos. 1637 and 1638
dated December 11, 2008; Resolution Nos. 1647, 1648, and 1649 dated December 12, 2008; Resolution
Nos. 1652 and 1653 dated December 16, 2008; and Resolution Nos. 1692 and 1695 dated December 19,
2008, with the Philippine Deposit Insurance Corporation as the appointed receiver.
Grounds in Support of Petition
I.
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN NOT FINDING THAT
THE INJUNCTION ISSUED BY THE REGIONAL TRIAL COURT VIOLATED SECTION 25 OF THE
NEW CENTRAL BANK ACT AND EFFECTIVELY HANDCUFFED THE BANGKO SENTRAL
FROM DISCHARGING ITS FUNCTIONS TO THE GREAT AND IRREPARABLE DAMAGE OF THE
COUNTRYS BANKING SYSTEM;
II.
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT
RESPONDENTS ARE ENTITLED TO BE FURNISHED COPIES OF THEIR RESPECTIVE
ROEs BEFORE THE SAME IS SUBMITTED TO THE MONETARY BOARD IN VIEW OF THE
PRINCIPLES OF FAIRNESS AND TRANSPARENCY DESPITE LACK OF EXPRESS PROVISION
IN THE NEW CENTRAL BANK ACT REQUIRING BSP TO DO THE SAME
III.
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN DEPARTING FROM
WELL-ESTABLISHED PRECEPTS OF LAW AND JURISPRUDENCE

A.
THE EXCEPTIONS CITED BY PETITIONER JUSTIFIED RESORT TO PETITION FOR
CERTIORARI UNDER RULE 65 INSTEAD OF FIRST FILING A MOTION FOR
RECONSIDERATION
B.
RESPONDENT BANKS ACT OF RESORTING IMMEDIATELY TO THE COURT WAS
PREMATURE SINCE IT WAS MADE IN UTTER DISREGARD OF THE PRINCIPLE OF PRIMARY
JURISDICTION AND EXHAUSTION OF ADMINISTRATIVE REMEDY
C.
THE ISSUANCE OF A WRIT OF PRELIMINARY INJUNCTION BY THE REGIONAL
TRIAL COURT WAS NOT ONLY IMPROPER BUT AMOUNTED TO GRAVE ABUSE OF
DISCRETION[7]
Our Ruling
The petition is meritorious.
In Lim v. Court of Appeals it was stated:
The requisites for preliminary injunctive relief are: (a) the invasion of right sought to be protected is
material and substantial; (b) the right of the complainant is clear and unmistakable; and (c) there is an
urgent and paramount necessity for the writ to prevent serious damage.
As such, a writ of preliminary injunction may be issued only upon clear showing of an actual existing
right to be protected during the pendency of the principal action. The twin requirements of a valid
injunction are the existence of a right and its actual or threatened violations. Thus, to be entitled to an
injunctive writ, the right to be protected and the violation against that right must be shown.[8]
These requirements are absent in the present case.
In granting the writs of preliminary injunction, the trial court held that the submission of the ROEs to the
MB before the respondent banks would violate the right to due process of said banks.
This is erroneous.
The respondent banks have failed to show that they are entitled to copies of the ROEs. They can point to
no provision of law, no section in the procedures of the BSP that shows that the BSP is required to give
them copies of the ROEs. Sec. 28 of RA 7653, or the New Central Bank Act, which governs
examinations of banking institutions, provides that the ROE shall be submitted to the MB; the bank
examined is not mentioned as a recipient of the ROE.
The respondent banks cannot claim a violation of their right to due process if they are not provided with
copies of the ROEs. The same ROEs are based on the lists of findings/exceptions containing the
deficiencies found by the SED examiners when they examined the books of the respondent banks. As
found by the RTC, these lists of findings/exceptions were furnished to the officers or representatives of
the respondent banks, and the respondent banks were required to comment and to undertake remedial

measures stated in said lists. Despite these instructions, respondent banks failed to comply with the
SEDs directive.
Respondent banks are already aware of what is required of them by the BSP, and cannot claim violation
of their right to due process simply because they are not furnished with copies of the ROEs. Respondent
banks were held by the CA to be entitled to copies of the ROEs prior to or simultaneously with their
submission to the MB, on the principles of fairness and transparency. Further, the CA held that if the
contents of the ROEs are essentially the same as those of the lists of findings/exceptions provided to said
banks, there is no reason not to give copies of the ROEs to the banks. This is a flawed conclusion, since if
the banks are already aware of the contents of the ROEs, they cannot say that fairness and transparency
are not present. If sanctions are to be imposed upon the respondent banks, they are already well aware of
the reasons for the sanctions, having been informed via the lists of findings/exceptions, demolishing that
particular argument. The ROEs would then be superfluities to the respondent banks, and should not be the
basis for a writ of preliminary injunction. Also, the reliance of the RTC on Banco Filipino v. Monetary
Board[9] is misplaced. The petitioner in that case was held to be entitled to annexes of the Supervision
and Examination Sectors reports, as it already had a copy of the reports themselves. It was not the subject
of the case whether or not the petitioner was entitled to a copy of the reports. And the ruling was made
after the petitioner bank was ordered closed, and it was allowed to be supplied with annexes of the reports
in order to better prepare its defense. In this instance, at the time the respondent banks requested copies
of the ROEs, no action had yet been taken by the MB with regard to imposing sanctions upon said
banks.
The issuance by the RTC of writs of preliminary injunction is an unwarranted interference with the
powers of the MB. Secs. 29 and 30 of RA 7653[10] refer to the appointment of a conservator or a
receiver for a bank, which is a power of the MB for which they need the ROEs done by the supervising or
examining department. The writs of preliminary injunction issued by the trial court hinder the MB from
fulfilling its function under the law. The actions of the MB under Secs. 29 and 30 of RA 7653 may not
be restrained or set aside by the court except on petition for certiorari on the ground that the action taken
was in excess of jurisdiction or with such grave abuse of discretion as to amount to lack or excess of
jurisdiction. The writs of preliminary injunction order are precisely what cannot be done under the law
by preventing the MB from taking action under either Sec. 29 or Sec. 30 of RA 7653.
As to the third requirement, the respondent banks have shown no necessity for the writ of preliminary
injunction to prevent serious damage. The serious damage contemplated by the trial court was the
possibility of the imposition of sanctions upon respondent banks, even the sanction of closure. Under the
law, the sanction of closure could be imposed upon a bank by the BSP even without notice and
hearing. The apparent lack of procedural due process would not result in the invalidity of action by the
MB. This was the ruling in Central Bank of the Philippines v. Court of Appeals.[11] This close now,
hear later scheme is grounded on practical and legal considerations to prevent unwarranted dissipation of
the banks assets and as a valid exercise of police power to protect the depositors, creditors, stockholders,
and the general public. The writ of preliminary injunction cannot, thus, prevent the MB from taking
action, by preventing the submission of the ROEs and worse, by preventing the MB from acting on such
ROEs.

The trial court required the MB to respect the respondent banks right to due process by allowing the
respondent banks to view the ROEs and act upon them to forestall any sanctions the MB might
impose. Such procedure has no basis in law and does in fact violate the close now, hear later
doctrine. We held in Rural Bank of San Miguel, Inc. v. Monetary Board, Bangko Sentral ng Pilipinas:
It is well-settled that the closure of a bank may be considered as an exercise of police power. The action
of the MB on this matter is final and executory. Such exercise may nonetheless be subject to judicial
inquiry and can be set aside if found to be in excess of jurisdiction or with such grave abuse of discretion
as to amount to lack or excess of jurisdiction.[12]
The respondent banks cannotthrough seeking a writ of preliminary injunction by appealing to lack of
due process, in a roundabout manner prevent their closure by the MB. Their remedy, as stated, is a
subsequent one, which will determine whether the closure of the bank was attended by grave abuse of
discretion. Judicial review enters the picture only after the MB has taken action; it cannot prevent such
action by the MB. The threat of the imposition of sanctions, even that of closure, does not violate their
right to due process, and cannot be the basis for a writ of preliminary injunction.
The close now, hear later doctrine has already been justified as a measure for the protection of the
public interest. Swift action is called for on the part of the BSP when it finds that a bank is in dire
straits. Unless adequate and determined efforts are taken by the government against distressed and
mismanaged banks, public faith in the banking system is certain to deteriorate to the prejudice of the
national economy itself, not to mention the losses suffered by the bank depositors, creditors, and
stockholders, who all deserve the protection of the government.[13]
The respondent banks have failed to show their entitlement to the writ of preliminary injunction. It must
be emphasized that an application for injunctive relief is construed strictly against the pleader.[14] The
respondent banks cannot rely on a simple appeal to procedural due process to prove entitlement. The
requirements for the issuance of the writ have not been proved. No invasion of the rights of respondent
banks has been shown, nor is their right to copies of the ROEs clear and unmistakable. There is also no
necessity for the writ to prevent serious damage. Indeed the issuance of the writ of preliminary injunction
tramples upon the powers of the MB and prevents it from fulfilling its functions. There is no right that
the writ of preliminary injunction would protect in this particular case. In the absence of a clear legal
right, the issuance of the injunctive writ constitutes grave abuse of discretion.[15] In the absence of proof
of a legal right and the injury sustained by the plaintiff, an order for the issuance of a writ of preliminary
injunction will be nullified.[16]
Courts are hereby reminded to take greater care in issuing injunctive relief to litigants, that it would not
violate any law. The grant of a preliminary injunction in a case rests on the sound discretion of the court
with the caveat that it should be made with great caution.[17] Thus, the issuance of the writ of
preliminary injunction must have basis in and be in accordance with law. All told, while the grant or
denial of an injunction generally rests on the sound discretion of the lower court, this Court may and
should intervene in a clear case of abuse.[18]

WHEREFORE, the petition is hereby GRANTED. The assailed CA Decision dated September 30,
2008 in CA-G.R. SP No. 103935 is herebyREVERSED. The assailed order and writ of preliminary
injunction of respondent Judge Valenzuela in Civil Case Nos. 08-119243, 08-119244, 08-119245, 08119246, 08-119247, 08-119248, 08-119249, 08-119250, 08-119251, and 08-119273 are hereby
declared NULL and VOID.
Summary of the ruling:
In the recent case of BANGKO SENTRAL NG PILIPINAS, etc., et. al. vs. HON. NINA G. ANTONIOVALENZUELA, et. al., G.R. No. 184778, October 2, 2009, the Philippine Supreme Court, guided by the
old adage that justice delayed is justice denied, rejected the writ of preliminary injunction issued by a trial
court to restrain a legal action commenced by the Monetary Board against banks in Visayas and
Mindanao belonging to the notorious Legacy Group which has victimized thousands of middle-class
Filipino depositors and investors throughout the Philippines.
May I quote below the doctrinal pronouncements of the Supreme Court in the said case:
1. The requisites for preliminary injunctive relief are: (a) the invasion of right sought to be protected is
material and substantial; (b) the right of the complainant is clear and unmistakable; and (c) there is an
urgent and paramount necessity for the writ to prevent serious damage.
As such, a writ of preliminary injunction may be issued only upon clear showing of an actual existing
right to be protected during the pendency of the principal action. The twin requirements of a valid
injunction are the existence of a right and its actual or threatened violations. Thus, to be entitled to an
injunctive writ, the right to be protected and the violation against that right must be shown.
2. The issuance by the RTC of writs of preliminary injunction is an unwarranted interference with the
powers of the Monetary Board (MB). Secs. 29 and 30 of RA 7653 refer to the appointment of a
conservator or a receiver for a bank, which is a power of the MB for which they need the ROEs done by
the supervising or examining department. The writs of preliminary injunction issued by the trial court
hinder the MB from fulfilling its function under the law. The actions of the MB under Secs. 29 and 30 of
RA 7653 may not be restrained or set aside by the court except on petition for certiorari on the ground
that the action taken was in excess of jurisdiction or with such grave abuse of discretion as to amount to
lack or excess of jurisdiction. The writs of preliminary injunction order are precisely what cannot be
done under the law by preventing the MB from taking action under either Sec. 29 or Sec. 30 of RA 7653.
3. As to the third requirement, the respondent banks have shown no necessity for the writ of preliminary
injunction to prevent serious damage. The serious damage contemplated by the trial court was the
possibility of the imposition of sanctions upon respondent banks, even the sanction of closure. Under the
law, the sanction of closure could be imposed upon a bank by the BSP even without notice and hearing.
The apparent lack of procedural due process would not result in the invalidity of action by the MB. This
was the ruling in Central Bank of the Philippines v. Court of Appeals. This close now, hear later scheme
is grounded on practical and legal considerations to prevent unwarranted dissipation of the banks assets
and as a valid exercise of police power to protect the depositors, creditors, stockholders, and the general
public. The writ of preliminary injunction cannot, thus, prevent the MB from taking action, by preventing

the submission of the ROEs and worse, by preventing the MB from acting on such ROEs.
4. The trial court required the MB to respect the respondent banks right to due process by allowing the
respondent banks to view the ROEs and act upon them to forestall any sanctions the MB might impose.
Such procedure has no basis in law and does in fact violate the close now, hear later doctrine. We held
in Rural Bank of San Miguel, Inc. v. Monetary Board, Bangko Sentral ng Pilipinas:
It is well-settled that the closure of a bank may be considered as an exercise of police power. The action
of the MB on this matter is final and executory. Such exercise may nonetheless be subject to judicial
inquiry and can be set aside if found to be in excess of jurisdiction or with such grave abuse of discretion
as to amount to lack or excess of jurisdiction.
5. The respondent banks cannotthrough seeking a writ of preliminary injunction by appealing to lack of
due process, in a roundabout manner prevent their closure by the MB. Their remedy, as stated, is a
subsequent one, which will determine whether the closure of the bank was attended by grave abuse of
discretion. Judicial review enters the picture only after the MB has taken action; it cannot prevent such
action by the MB. The threat of the imposition of sanctions, even that of closure, does not violate their
right to due process, and cannot be the basis for a writ of preliminary injunction.
6. The close now, hear later doctrine has already been justified as a measure for the protection of the
public interest. Swift action is called for on the part of the BSP when it finds that a bank is in dire straits.
Unless adequate and determined efforts are taken by the government against distressed and mismanaged
banks, public faith in the banking system is certain to deteriorate to the prejudice of the national economy
itself, not to mention the losses suffered by the bank depositors, creditors, and stockholders, who all
deserve the protection of the government
.
7. The respondent banks have failed to show their entitlement to the writ of preliminary injunction. It
must be emphasized that an application for injunctive relief is construed strictly against the pleader. The
respondent banks cannot rely on a simple appeal to procedural due process to prove entitlement. The
requirements for the issuance of the writ have not been proved. No invasion of the rights of respondent
banks has been shown, nor is their right to copies of the ROEs clear and unmistakable. There is also no
necessity for the writ to prevent serious damage. Indeed the issuance of the writ of preliminary injunction
tramples upon the powers of the MB and prevents it from fulfilling its functions. There is no right that the
writ of preliminary injunction would protect in this particular case. In the absence of a clear legal right,
the issuance of the injunctive writ constitutes grave abuse of discretion. In the absence of proof of a legal
right and the injury sustained by the plaintiff, an order for the issuance of a writ of preliminary injunction
will be nullified.
8. Courts are hereby reminded to take greater care in issuing injunctive relief to litigants, that it would not
violate any law. The grant of a preliminary injunction in a case rests on the sound discretion of the court
with the caveat that it should be made with great caution. Thus, the issuance of the writ of preliminary
injunction must have basis in and be in accordance with law. All told, while the grant or denial of an
injunction generally rests on the sound discretion of the lower court, this Court may and should intervene
in a clear case of abuse.

Rural Bank of San Miguel v Monetary Board G.R. No. 150886 February 16, 2007
It is well-settled that the closure of a bank may be considered as an exercise of police power. The action
of the MB on this matter is final and executory. Such exercise may nonetheless be subject to judicial
inquiry and can be set aside if found to be in excess of jurisdiction or with such grave abuse of discretion
as to amount to lack or excess of jurisdiction.
Facts:
Monetary Board (MB), the governing board of respondent Bangko Sentral ng Pilipinas (BSP), issued
Resolution No. 105 prohibiting RBSM from doing business in the Philippines, placing it under
receivership and designating respondent Philippine Deposit Insurance Corporation (PDIC) as receiver on
the basis of the comptrollership reports of the banks supervising head. To assist its impaired liquidity and
operations, the RBSM was granted emergency loans on different occasions in the aggregate amount
of P375. As early as November 18, 1998, Land Bank of the Philippines (LBP) advised RBSM that it will
terminate the clearing of RBSMs checks in view of the latters frequent clearing losses and continuing
failure to replenish its Special Clearing Demand Deposit with LBP. The BSP interceded with LBP not to
terminate the clearing arrangement of RBSM to protect the interests of RBSMs depositors and creditors.
On the basis of reports prepared by PDIC stating that RBSM could not resume business with sufficient
assurance of protecting the interest of its depositors, creditors and the general public, the MB passed
Resolution No. 966 directing PDIC to proceed with the liquidation of RBSM under Section 30 of RA
7653.
Issue:
Whether or not the Monetary Board can unilaterally close a bank without prior hearing
Held:
No. It is well-settled that the closure of a bank may be considered as an exercise of police power. The
action of the MB on this matter is final and executory. Such exercise may nonetheless be subject to
judicial inquiry and can be set aside if found to be in excess of jurisdiction or with such grave abuse of
discretion as to amount to lack or excess of jurisdiction.
This case essentially boils down to one core issue: whether Section 30 of RA 7653 (also known as the
New Central Bank Act) and applicable jurisprudence require a current and complete examination of the
bank before it can be closed and placed under receivership. The actions of the Monetary Board taken
under this section or under Section 29 of this Act shall be final and executory, and may not be restrained
or set aside by the court except on petition for certiorari on the ground that the action taken was in excess
of jurisdiction or with such grave abuse of discretion as to amount to lack or excess of jurisdiction. The
petition for certiorari may only be filed by the stockholders of record representing the majority of the
capital stock within ten (10) days from receipt by the board of directors of the institution of the order
directing receivership, liquidation or conservatorship.

Central Bank of the Philippines v. Court of Appeals, 208 SCRA 652 (1992)
Facts:
At the height of the controversy surrounding the discovery of the anomalous loans, several blind items
about a family-owned bank in Binondo which granted fictitious loans to its stockholders appeared in
major newspapers. These news items triggered a bank-run in PBP which resulted in continuous overdrawings on the bank's demand deposit account with the Central Bank. Hence, on the basis of the report
submitted by the Supervision and Examination Sector, Department I of the CB, the Monetary Board
(MB), pursuant to its authority under Section 28-A of R.A. No. 265 and by virtue of MB Board
Resolution No. 164, placed PBP under conservatorship.
While PBP admits that it had no choice but to submit to the conservatorship, it nonetheless requested that
the same be lifted by the CB. Consequently, the MB issued Resolution directing the principal
stockholders of PBP to increase its capital accounts by such an amount that would be necessary for the
elimination of PBP's negative net worth. CB senior deputy Governor Gabriel Singson informed PBP that
pursuant to MB Resolution, the CB would be willing to lift the conservatorship under the following
conditions: (a) PBP's unsecured overdraft with the Central Bank will be converted into an emergency
loan, to be secured by sufficient collateral, including but not limited to the properties offered by PBP's
principal stockholders.
MB adopted Resolution approving the consolidation of PBP's other unsecured obligations to the CB with
its overdraft and authorizing the conversion thereof into an emergency loan. The same resolution
authorized the CB Governor to lift the conservatorship and return PBP's management to its principal
stockholders upon completion of the documentation and full collateralization of the emergency loan, but
directed PBP to pay the emergency loan in five (5) equal annual installments, with interest and penalty
rates at MRR 180 days plus 48% per annum, and liquidated damages of 5% for delayed payments.
PBP submitted a rehabilitation plan to the CB which proposed the transfer to PBP of three (3) buildings
owned by Producers Properties, Inc. (PPI), its principal stockholder and the subsequent mortgage of said
properties to the CB as collateral for the bank's overdraft obligation. Although said proposal was explored
and discussed, no program acceptable to both the CB and PPI was arrived at because of disagreements on
certain matters such as interest rates, penalties and liquidated damages.
No other rehabilitation program was submitted by PBP for almost three (3) years; as a result thereof, its
overdrafts with the CB continued to accumulate. The CB Monetary Board decided to approve in principle
what it considered a viable rehabilitation program for PBP.
PBP, without responding to the communications of the CB, filed a complaint verified against the CB, the
MB and CB Governor Jose B. Fernandez, Jr., asserting that the conservatorship was unwarranted, illmotivated, illegal, utterly unnecessary and unjustified; that the appointment of the conservator was
arbitrary; that herein petitioners acted in bad faith; that the CB-designated conservators committed bank
frauds and abuses; that the CB is guilty of promissory estoppel; and that by reason of the conservatorship,
it suffered losses exclusive of loss of profits and loss of goodwill.

The trial court and the Court of Appeals is into lifting the conservatorship. (However, there is nothing in
the amended complaint to reflect an unequivocal intention to ask for its lifting.)
Held:
If it were to lift the conservatorship because it was arbitrarily imposed, then the case should have been
dismissed on the grounds of prescription and lack of personality to bring action.
The following requisites must be present before the order of conservatorship may be set aside by a court:
The appropriate pleading must be filed by the stockholders of record representing majority of the capital
stock of the bank in the proper court;
Said pleading must be filed within 10 days from receipt of notice by said majority stockholders of the
order placing the bank under conservatorship; and
There must be convincing proof after hearing that the action is plainly arbitrary and made in bad faith.

First Philippine International Bank v. Court of Appeals, 252 SCRA 259 (1996)
Facts:
In the course of its banking operations Producers Bank of the Philippines acquired six parcels of land
which used to be owned by BYMC Investment and Development Corporation which was mortgaged to
the bank as collateral for a loan.
Demetrio Demetria and Jose Janolo wanted to purchase the property and thus initiated negotiations for
that purpose. They met with Mercurio Rivera, manager of the Property Management Department of the
bank, who advised them to make formal offer.
Janolo following the advice of Rivera made a formal purchase offer, through a letter, for 3P3.5M in cash,
which was counter-offered by Rivera, on behalf of the bank, to P5.5M, in which Janolo made an amended
offer of P4.250M.
There was reply on Janolos last offer, instead they met with Luis Co, Senior Vice-President of the Bank,
sticked to their counter offer of P5.5M, which Janolo et al., accepted after two days.
The bank was placed under conservatorship by CB and through a letter, Rivera informed Demetria that
their proposal to purchase the property is under study yet by the newly created committee for submission
to the Acting Consrvator.
Series of demands were made by Janolo et al for compliance by the bank with what Janolo et al
considered as perfected contract of sale which demands were refused by the bank, and refused to receive
tender of payment.
Instead the land was advertised for sale.
Final demand was made in which acting conservator replied that the bank through the acting Conservator
repudiated the authority of Rivera and all his dealings and counter-offer were unauthorized and illegal,
and that there was no perfected contract of sale as there was no meeting of minds as to the price.
Hence, Janolo et al filed a suit for specific performance against the bank.
CA:
Ruled that there was perfected contract of sale and conservator has no authority to revoke it.
Issue:
Whether or not a conservator has the authority to revoke a perfected contract of sale entered into by the
bank through its officers before conservatorship.

Held:
The power of conservator, enormous and extensive as they are, cannot extend to the post-facto
repudiation of perfected transactions, otherwise they would infringe the non-impairment clause of the
Constitution. What the conservator may revoke are contracts which are, under existing law, deemed
defective- such as void, voidable, unenforceable or rescissible. Hence, the conservator merely takes place
of a banks board of directors. What said board cannot dosuch as repudiating a contract validly entered
into under the doctrine of implied authoritythe conservator cannot do either.

Banco Filipino Savings and Mortgage Bank v. Central Bank, 204 SCRA 767 (1991)
Facts:
On different occasions, Top Management Program Corporation, Pilar Development Corporation, El
Grande Development Corporation obtained a loan from Banco Filipino and Savings and Mortgage Bank
secured by Real Estate Mortgages.
When the bank suffered serious financial problems, the Monetary Board issued resolution finding the
bank insolvent and placed it under receivership.
Banco Filipino filed a complaint to set aside the said action of MB.
Subsequently, MB issued another resolution placing the bank under liquidation and designating a
liquidator.
Banco Filipino filed another petition questioning the validity of the said resolution.
A temporary restraining order was issued, however, acts pertaining to normal operations of a bank are not
enjoined.
A resolution was also issued ordering the conduct of hearings.
In the meantime, Top Management Program Corporation, Pilar Development Corporation, El Grande
Development Corporation failed to pay their obligations.
The liquidator extra judicially foreclosed the Real Estate Mortgages.
Each filed separately a petition for injunction and prohibition seeking to enjoin the sheriff from
proceeding with the foreclosure sale.
Petitions were dismissed. Hence, petitions were filed by Top Management Program Corporation, Pilar
Development Corporation, El Grande Development Corporation alleging that the liquidator has no
authority to proceed with the foreclosure sale pending the resolution of the issue on the validity of the
closure and liquidation of Banco Filipino.
Issue:
Whether or not the liquidator has the authority to prosecute as well as to defend suits and foreclose
mortgages for and in behalf of the bank while the issue on the validity of the receivership and liquidation
is still pending resolution.
Held:

The Central bank is vested with the authority to take charge and administer the monetary and banking
systems of the country and this authority includes the power to examine and determine the financial
condition of banks for the purpose of closure ion the ground of insolvency.
Even if the bank is questioning the validity of its closure, during the pendency of the case, the liquidator
can continue prosecution suits for collection and foreclosure of mortgages, as they are acts done In the
usual course of administration of the banks.

G.R. No. 76118 March 30, 1993


THE CENTRAL BANK OF THE PHILIPPINES and RAMON V. TIAOQUI, petitioners,
vs.
COURT OF APPEALS and TRIUMPH SAVINGS BANK, respondents.
Sycip, Salazar, Hernandez & Gatmaitan for petitioners.
Quisumbing, Torres & Evangelista for Triumph Savings Bank.
BELLOSILLO, J.:
May a Monetary Board resolution placing a private bank under receivership be annulled on the ground of
lack of prior notice and hearing?
This petition seeks review of the decision of the Court of Appeals in CA G.R. S.P. No. 07867 entitled
"The Central Bank of the Philippines and Ramon V. Tiaoqui vs. Hon. Jose C. de Guzman and Triumph
Savings Bank," promulgated 26 September 1986, which affirmed the twin orders of the Regional Trial
Court of Quezon City issued 11 November 1985 1 denying herein petitioners' motion to dismiss Civil
Case No. Q-45139, and directing petitioner Ramon V. Tiaoqui to restore the private management of
Triumph Savings Bank (TSB) to its elected board of directors and officers, subject to Central Bank
comptrollership.
The antecedent facts: Based on examination reports submitted by the Supervision and Examination Sector
(SES), Department II, of the Central Bank (CB) "that the financial condition of TSB is one of insolvency
and its continuance in business would involve probable loss to its depositors and creditors," 3 the
Monetary Board (MB) issued on 31 May 1985 Resolution No. 596 ordering the closure of TSB,
forbidding it from doing business in the Philippines, placing it under receivership, and appointing Ramon
V. Tiaoqui as receiver. Tiaoqui assumed office on 3 June 1985.
On 11 June 1985, TSB filed a complaint with the Regional Trial Court of Quezon City, docketed as Civil
Case No. Q-45139, against Central Bank and Ramon V. Tiaoqui to annul MB Resolution No. 596, with
prayer for injunction, challenging in the process the constitutionality of Sec. 29 of R.A. 269, otherwise
known as "The Central Bank Act," as amended, insofar as it authorizes the Central Bank to take over a
banking institution even if it is not charged with violation of any law or regulation, much less found guilty
thereof.
On 1 July 1985, the trial court temporarily restrained petitioners from implementing MB Resolution No.
596 "until further orders", thus prompting them to move for the quashal of the restraining order (TRO) on
the ground that it did not comply with said Sec. 29, i.e., that TSB failed to show convincing proof of
arbitrariness and bad faith on the part of petitioners;' and, that TSB failed to post the requisite bond in
favor of Central Bank.
On 19 July 1985, acting on the motion to quash the restraining order, the trial court granted the relief
sought and denied the application of TSB for injunction. Thereafter, Triumph Savings Bank filed with Us
a petition forcertiorari under Rule 65 of the Rules of Court 6 dated 25 July 1985 seeking to enjoin the
continued implementation of the questioned MB resolution.

Meanwhile, on 9 August 1985; Central Bank and Ramon Tiaoqui filed a motion to dismiss the complaint
before the RTC for failure to state a cause of action, i.e., it did not allege ultimate facts showing
that the action was plainly arbitrary and made in bad faith, which are the only grounds for the annulment
of Monetary Board resolutions placing a bank under conservatorship, and that TSB was without legal
capacity to sue except through its receiver.
On 9 September 1985, TSB filed an urgent motion in the RTC to direct receiver Ramon V. Tiaoqui to
restore TSB to its private management. On 11 November 1985, the RTC in separate orders denied
petitioners' motion to dismiss and ordered receiver Tiaoqui to restore the management of TSB to its
elected board of directors and officers, subject to CB comptrollership.
Since the orders of the trial court rendered moot the petition for certiorari then pending before this Court,
Central Bank and Tiaoqui moved on 2 December 1985 for the dismissal of G.R. No. 71465 which We
granted on 18 December 1985.
Instead of proceeding to trial, petitioners elevated the twin orders of the RTC to the Court of Appeals on a
petition for certiorari and prohibition under Rule 65. 9 On 26 September 1986, the appellate court, upheld
the orders of the trial court thus Petitioners' motion to dismiss was premised on two grounds, namely,
that the complaint failed to state a cause of action and that the Triumph Savings Bank was without
capacity to sue except through its appointed receiver.
Concerning the first ground, petitioners themselves admit that the Monetary Board resolution placing the
Triumph Savings Bank under the receivership of the officials of the Central Bank was done without prior
hearing, that is, without first hearing the side of the bank. They further admit that said resolution can be
the subject of judicial review and may be set aside should it be found that the same was issued with
arbitrariness and in bad faith.
The charge of lack of due process in the complaint may be taken as constitutive of allegations of
arbitrariness and bad faith. This is not of course to be taken as meaning that there must be previous
hearing before the Monetary Board may exercise its powers under Section 29 of its Charter. Rather,
judicial review of such action not being foreclosed, it would be best should private respondent be given
the chance to show and prove arbitrariness and bad faith in the issuance of the questioned resolution,
especially so in the light of the statement of private respondent that neither the bank itself nor its officials
were even informed of any charge of violating banking laws.
In regard to lack of capacity to sue on the part of Triumph Savings Bank, we view such argument as being
specious, for if we get the drift of petitioners' argument, they mean to convey the impression that only the
CB appointed receiver himself may question the CB resolution appointing him as such. This may be
asking for the impossible, for it cannot be expected that the master, the CB, will allow the receiver it has
appointed to question that very appointment. Should the argument of petitioners be given circulation, then
judicial review of actions of the CB would be effectively checked and foreclosed to the very bank
officials who may feel, as in the case at bar, that the CB action ousting them from the bank deserves to be
set aside.
xxx xxx xxx

On the questioned restoration order, this Court must say that it finds nothing whimsical, despotic,
capricious, or arbitrary in its issuance, said action only being in line and congruent to the action of the
Supreme Court in the Banco Filipino Case (G.R. No. 70054) where management of the bank was restored
to its duly elected directors and officers, but subject to the Central Bank comptrollership. 10
On 15 October 1986, Central Bank and its appointed receiver, Ramon V. Tiaoqui, filed this petition under
Rule 45 of the Rules of Court praying that the decision of the Court of Appeals in CA-G.R. SP No. 07867
be set aside, and that the civil case pending before the RTC of Quezon City, Civil Case No.
Q-45139, be dismissed. Petitioners allege that the Court of Appeals erred
(1) in affirming that an insolvent bank that had been summarily closed by the Monetary Board should be
restored to its private management supposedly because such summary closure was "arbitrary and in bad
faith" and a denial of "due process";
(2) in holding that the "charge of lack of due process" for "want of prior hearing" in a complaint to annul
a Monetary Board receivership resolution under Sec. 29 of R.A. 265 "may be taken as . . allegations of
arbitrariness and bad faith"; and
(3) in holding that the owners and former officers of an insolvent bank may still act or sue in the name
and corporate capacity of such bank, even after it had been ordered closed and placed under receivership.
The respondents, on the other hand, allege inter alia that in the Banco Filipino case, 12 We held that CB
violated the rule on administrative due process laid down in Ang Tibay vs. CIR (69 Phil. 635) and Eastern
Telecom Corp. vs. Dans, Jr. (137 SCRA 628) which requires that prior notice and hearing be afforded to
all parties in administrative proceedings. Since MB Resolution No. 596 was adopted without TSB being
previously notified and heard, according to respondents, the same is void for want of due process;
consequently, the bank's management should be restored to its board of directors and officers. 13
Petitioners claim that it is the essence of Sec. 29 of R.A. 265 that prior notice and hearing in cases
involving bank closures should not be required since in all probability a hearing would not only cause
unnecessary delay but also provide bank "insiders" and stockholders the opportunity to further dissipate
the bank's resources, create liabilities for the bank up to the insured amount of P40,000.00, and even
destroy evidence of fraud or irregularity in the bank's operations to the prejudice of its depositors and
creditors. 14 Petitioners further argue that the legislative intent of Sec. 29 is to repose in the Monetary
Board exclusive power to determine the existence of statutory grounds for the closure and liquidation of
banks, having the required expertise and specialized competence to do so.
The first issue raised before Us is whether absence of prior notice and hearing may be considered acts of
arbitrariness and bad faith sufficient to annul a Monetary Board resolution enjoining a bank from doing
business and placing it under receivership. Otherwise stated, is absence of prior notice and hearing
constitutive of acts of arbitrariness and bad faith?
Under Sec. 29 of R.A. 265, 15 the Central Bank, through the Monetary Board, is vested with exclusive
authority to assess, evaluate and determine the condition of any bank, and finding such condition to be
one of insolvency, or that its continuance in business would involve probable loss to its depositors or
creditors, forbid the bank or non-bank financial institution to do business in the Philippines; and shall
designate an official of the CB or other competent person as receiver to immediately take charge of its
assets and liabilities. The fourth paragraph, 16 which was then in effect at the time the action was

commenced, allows the filing of a case to set aside the actions of the Monetary Board which are tainted
with arbitrariness and bad faith.
Contrary to the notion of private respondent, Sec. 29 does not contemplate prior notice and hearing before
a bank may be directed to stop operations and placed under receivership. When par. 4 (now par. 5, as
amended by E.O. 289) provides for the filing of a case within ten (10) days after the receiver takes charge
of the assets of the bank, it is unmistakable that the assailed actions should precede the filing of the case.
Plainly, the legislature could not have intended to authorize "no prior notice and hearing" in the closure of
the bank and at the same time allow a suit to annul it on the basis of absence thereof.
In the early case of Rural Bank of Lucena, Inc. v. Arca [1965], 17 We held that a previous hearing is
nowhere required in Sec. 29 nor does the constitutional requirement of due process demand that the
correctness of the Monetary Board's resolution to stop operation and proceed to liquidation be first
adjudged before making the resolution effective. It is enough that a subsequent judicial review be
provided.
Even in Banco Filipino, 18 We reiterated that Sec. 29 of R.A. 265 does not require a previous hearing
before the Monetary Board can implement its resolution closing a bank, since its action is subject to
judicial scrutiny as provided by law.
It may be emphasized that Sec. 29 does not altogether divest a bank or a non-bank financial institution
placed under receivership of the opportunity to be heard and present evidence on arbitrariness and bad
faith because within ten (10) days from the date the receiver takes charge of the assets of the bank, resort
to judicial review may be had by filing an appropriate pleading with the court. Respondent TSB did in
fact avail of this remedy by filing a complaint with the RTC of Quezon City on the 8th day following the
takeover by the receiver of the bank's assets on 3 June 1985.
This "close now and hear later" scheme is grounded on practical and legal considerations to prevent
unwarranted dissipation of the bank's assets and as a valid exercise of police power to protect the
depositors, creditors, stockholders and the general public.
In Rural Bank of Buhi, Inc. v. Court of Appeals, 19 We stated that
. . . due process does not necessarily require a prior hearing; a hearing or an opportunity to be heard may
be subsequent to the closure. One can just imagine the dire consequences of a prior hearing: bank runs
would be the order of the day, resulting in panic and hysteria. In the process, fortunes may be wiped out
and disillusionment will run the gamut of the entire banking community.
We stressed in Central Bank of the Philippines v. Court of Appeals 20 that
. . . the banking business is properly subject to reasonable regulation under the police power of the state
because of its nature and relation to the fiscal affairs of the people and the revenues of the state (9 CJS
32). Banks are affected with public interest because they receive funds from the general public in the form
of deposits. Due to the nature of their transactions and functions, a fiduciary relationship is created
between the banking institutions and their depositors. Therefore, banks are under the obligation to treat

with meticulous care and utmost fidelity the accounts of those who have reposed their trust and
confidence in them (Simex International [Manila], Inc., v. Court of Appeals, 183 SCRA 360 [1990]).
It is then the Government's responsibility to see to it that the financial interests of those who deal with the
banks and banking institutions, as depositors or otherwise, are protected. In this country, that task is
delegated to the Central Bank which, pursuant to its Charter (R.A. 265, as amended), is authorized to
administer the monetary, banking and credit system of the Philippines. Under both the 1973 and 1987
Constitutions, the Central Bank is tasked with providing policy direction in the areas of money, banking
and credit; corollarily, it shall have supervision over the operations of banks (Sec. 14, Art. XV, 1973
Constitution, and Sec. 20, Art. XII, 1987 Constitution). Under its charter, the CB is further authorized to
take the necessary steps against any banking institution if its continued operation would cause prejudice
to its depositors, creditors and the general public as well. This power has been expressly recognized by
this Court. In Philippine Veterans Bank Employees Union-NUBE v. Philippine Veterans Banks (189
SCRA 14 [1990], this Court held that:
. . . [u]nless adequate and determined efforts are taken by the government against distressed and
mismanaged banks, public faith in the banking system is certain to deteriorate to the prejudice of the
national economy itself, not to mention the losses suffered by the bank depositors, creditors, and
stockholders, who all deserve the protection of the government. The government cannot simply cross its
arms while the assets of a bank are being depleted through mismanagement or irregularities. It is the duty
of the Central Bank in such an event to step in and salvage the remaining resources of the bank so that
they may not continue to be dissipated or plundered by those entrusted with their management.
Section 29 of R.A. 265 should be viewed in this light; otherwise, We would be subscribing to a situation
where the procedural rights invoked by private respondent would take precedence over the substantive
interests of depositors, creditors and stockholders over the assets of the bank.
Admittedly, the mere filing of a case for receivership by the Central Bank can trigger a bank run and drain
its assets in days or even hours leading to insolvency even if the bank be actually solvent. The procedure
prescribed in Sec. 29 is truly designed to protect the interest of all concerned, i.e., the depositors, creditors
and stockholders, the bank itself, and the general public, and the summary closure pales in comparison to
the protection afforded public interest. At any rate, the bank is given full opportunity to
prove arbitrariness and bad faith in placing the bank under receivership, in which event, the resolution
may be properly nullified and the receivership lifted as the trial court may determine.
The heavy reliance of respondents on the Banco Filipino case is misplaced in view of factual
circumstances therein which are not attendant in the present case. We ruled in Banco Filipino that the
closure of the bank was arbitrary and attendant with grave abuse of discretion, not because of the absence
of prior notice and hearing, but that the Monetary Board had no sufficient basis to arrive at a sound
conclusion of insolvency to justify the closure. In other words, the arbitrariness, bad faith and abuse of
discretion were determined only after the bank was placed under conservatorship and evidence thereon
was received by the trial court. As this Court found in that case, the Valenzuela, Aurellano and Tiaoqui
Reports contained unfounded assumptions and deductions which did not reflect the true financial
condition of the bank. For instance, the subtraction of an uncertain amount as valuation reserve from the
assets of the bank would merely result in its net worth or the unimpaired capital and surplus; it did not
reflect the total financial condition of Banco Filipino.

Furthermore, the same reports showed that the total assets of Banco Filipino far exceeded its total
liabilities. Consequently, on the basis thereof, the Monetary Board had no valid reason to liquidate the
bank; perhaps it could have merely ordered its reorganization or rehabilitation, if need be. Clearly, there
was in that case a manifest arbitrariness, abuse of discretion and bad faith in the closure of Banco
Filipino by the Monetary Board. But, this is not the case before Us. For here, what is being raised as
arbitrary by private respondent is the denial of prior notice and hearing by the Monetary Board, a matter
long settled in this jurisdiction, and not the arbitrariness which the conclusions of the Supervision and
Examination Sector (SES), Department II, of the Central Bank were reached.
Once again We refer to Rural Bank of Buhi, Inc. v. Court of Appeals, 21 and reiterate Our pronouncement
therein that
. . . the law is explicit as to the conditions prerequisite to the action of the Monetary Board to forbid the
institution to do business in the Philippines and to appoint a receiver to immediately take charge of the
bank's assets and liabilities. They are: (a) an examination made by the examining department of the
Central Bank; (b) report by said department to the Monetary Board; and (c) prima facieshowing that its
continuance in business would involve probable loss to its depositors or creditors.
In sum, appeal to procedural due process cannot just outweigh the evil sought to be prevented; hence, We
rule that Sec. 29 of R.A. 265 is a sound legislation promulgated in accordance with the Constitution in the
exercise of police power of the state. Consequently, the absence of notice and hearing is not a valid
ground to annul a Monetary Board resolution placing a bank under receivership. The absence of prior
notice and hearing cannot be deemed acts of arbitrariness and bad faith. Thus, an MB resolution placing a
bank under receivership, or conservatorship for that matter, may only be annulled after a determination
has been made by the trial court that its issuance was tainted with arbitrariness and bad faith. Until such
determination is made, the status quo shall be maintained, i.e., the bank shall continue to be under
receivership.
As regards the second ground, to rule that only the receiver may bring suit in behalf of the bank is, to
echo the respondent appellate court, "asking for the impossible, for it cannot be expected that the master,
the CB, will allow the receiver it has appointed to question that very appointment." Consequently, only
stockholders of a bank could file an action for annulment of a Monetary Board resolution placing the
bank under receivership and prohibiting it from continuing operations. 22 In Central Bank v. Court of
Appeals, 23 We explained the purpose of the law
. . . in requiring that only the stockholders of record representing the majority of the capital stock may
bring the action to set aside a resolution to place a bank under conservatorship is to ensure that it be not
frustrated or defeated by the incumbent Board of Directors or officers who may immediately resort to
court action to prevent its implementation or enforcement. It is presumed that such a resolution is directed
principally against acts of said Directors and officers which place the bank in a state of continuing
inability to maintain a condition of liquidity adequate to protect the interest of depositors and creditors.
Indirectly, it is likewise intended to protect and safeguard the rights and interests of the stockholders.
Common sense and public policy dictate then that the authority to decide on whether to contest the
resolution should be lodged with the stockholders owning a majority of the shares for they are expected to
be more objective in determining whether the resolution is plainly arbitrary and issued in bad faith.

It is observed that the complaint in this case was filed on 11 June 1985 or two (2) years prior to 25 July
1987 when E.O. 289 was issued, to be effective sixty (60) days after its approval (Sec. 5). The implication
is that before E.O. 289, any party in interest could institute court proceedings to question a Monetary
Board resolution placing a bank under receivership. Consequently, since the instant complaint was filed
by parties representing themselves to be officers of respondent Bank (Officer-in-Charge and Vice
President), the case before the trial court should now take its natural course. However, after the effectivity
of E.O. 289, the procedure stated therein should be followed and observed.
PREMISES considered, the Decision of the Court of Appeals in CA-G.R. SP No. 07867 is AFFIRMED,
except insofar as it upholds the Order of the trial court of 11 November 1985 directing petitioner
RAMON V. TIAOQUI to restore the management of TRIUMPH SAVINGS BANK to its elected Board of
Directors and Officers, which is hereby SET ASIDE.
Let this case be remanded to the Regional Trial Court of Quezon City for further proceedings to
determine whether the issuance of Resolution No. 596 of the Monetary Board was tainted with
arbitrariness and bad faith and to decide the case accordingly.
SO ORDERED.
Narvasa, C.J., Cruz, Padilla, Bidin, Grio-Aquino, Regalado, Davide, Jr., Romero, Nocon, Campos, Jr.
and Quiason, JJ., concur.
Feliciano and Melo, JJ., took no part.

SECOND DIVISION

LUCIA
BARRAMEDA
BALLESTEROS,
Petitioner,

VDA.

DE

- versus -

RURAL
BANK
OF
CANAMAN
INC., represented by its Liquidator, THE
PHILIPPINE DEPOSIT INSURANCE
CORPORATION,
Respondent.

G.R. No. 176260


Present:
CARPIO, J., Chairperson,
NACHURA,
PERALTA,
ABAD, and
MENDOZA, JJ.

Promulgated:
November 24, 2010

X -------------------------------------------------------------------------------------- X
DECISION

MENDOZA, J.:
This is a petition for review on certiorari under Rule 45 of the Revised Rules of Civil Procedure assailing
the August 15, 2006 Decision[1] of the Court of Appeals (CA) in CA-G.R. No. 82711, modifying the
decision of the Regional Trial Court of Iriga City, Branch 36 (RTC-Iriga), in Civil Case No. IR-3128, by
ordering the consolidation of the said civil case with Special Proceeding Case No. M-5290 (liquidation
case) before the Regional Trial Court of Makati City, Branch 59 (RTC-Makati).
It appears from the records that on March 17, 2000, petitioner Lucia Barrameda Vda. De
Ballesteros (Lucia) filed a complaint for Annulment of Deed of Extrajudicial Partition, Deed of Mortgage
and Damages with prayer for Preliminary Injunction against her children, Roy, Rito, Amy, Arabel, Rico,
Abe, Ponce Rex and Adden, all surnamed Ballesteros, and the Rural Bank of Canaman, Inc., Baao
Branch (RBCI) before the RTC-Iriga. The case was docketed as Civil Case No. IR-3128.
In her complaint, Lucia alleged that her deceased husband, Eugenio, left two (2) parcels of land located in
San Nicolas, Baao, Camarines Sur, each with an area of 357 square meters; that on March 6, 1995,
without her knowledge and consent, her children executed a deed of extrajudicial partition and waiver of
the estate of her husband wherein all the heirs, including Lucia, agreed to allot the two parcels to Rico

Ballesteros (Rico); that, still, without her knowledge and consent, Rico mortgaged Parcel B of the estate
in favor of RBCI which mortgage was being foreclosed for failure to settle the loan secured by the lot;
and that Lucia was occupying Parcel B and had no other place to live. She prayed that the deed of
extrajudicial partition and waiver, and the subsequent mortgage in favor of RBCI be declared null and
void having been executed without her knowledge and consent. She also prayed for damages.
In its Answer, RBCI claimed that in 1979, Lucia sold one of the two parcels to Rico which represented
her share in the estate of her husband. The extrajudicial partition, waiver and mortgage were all executed
with the knowledge and consent of Lucia although she was not able to sign
the document. RBCI
further claimed that Parcel B had already
been foreclosed way back in 1999 which fact was
known to Lucia through the auctioning notary public. Attorneys fees were pleaded as counterclaim.
The case was then set for pre-trial conference. During the pre-trial, RBCIs counsel filed a motion to
withdraw after being informed that Philippine Deposit Insurance Corporation (PDIC) would handle the
case as RBCI had already been closed and placed under the receivership of the PDIC. Consequently,
on February 4, 2002, the lawyers of PDIC took over the case of RBCI.
On May 9, 2003, RBCI, through PDIC, filed a motion to dismiss on the ground that the RTC-Iriga has no
jurisdiction over the subject matter of the action. RBCI stated that pursuant to Section 30, Republic Act
No. 7653 (RA No. 7653), otherwise known as the New Central Bank Act, the RTC-Makati, already
constituted itself, per its Order dated August 10, 2001, as the liquidation court to assist PDIC in
undertaking the liquidation of RBCI. Thus, the subject matter of Civil Case No. IR-3128 fell within the
exclusive jurisdiction of such liquidation court. Lucia opposed the motion.
On July 29, 2003, the RTC-Iriga issued an order[2] granting the Motion to Dismiss, to wit:
This resolves the Motion to Dismiss filed by the defendant Rural Bank of Canaman, Inc., premised on the
ground that this court has no jurisdiction over the subject matter of the action. This issue of jurisdiction
was raised in view of the pronouncement of the Supreme Court in Ong v. C.A. 253 SCRA 105 and in the
case of Hernandez v. Rural Bank of Lucena, Inc., G.R. No. L-29791 dated January 10, 1978, wherein it
was held that the liquidation court shall have jurisdiction to adjudicate all claims against the bank
whether they be against assets of the insolvent bank, for Specific Performance, Breach of Contract,
Damages or whatever.
It is in view of this jurisprudential pronouncement made by no less than the Supreme Court, that this case
is, as far as defendant Rural Bank of Canaman Inc., is concerned, hereby ordered DISMISSED without
prejudice on the part of the plaintiff to ventilate their claim before the Liquidation Court now, RTC
Branch 59, Makati City.
SO ORDERED.
Not in conformity, Lucia appealed the RTC ruling to the CA on the ground that the RTC-Iriga erred in
dismissing the case because it had jurisdiction over Civil Case No. IR-3128 under the rule on adherence
of jurisdiction.

On August 15, 2006, the CA rendered the questioned decision ordering the consolidation of Civil
Case No. IR-3128 and the liquidation case pending before RTC-Makati. The appellate court ratiocinated
thus:
The consolidation is desirable in order to prevent confusion, to avoid multiplicity of suits and to
save unnecessary cost and expense. Needless to add, this procedure is well in accord with the principle
that the rules of procedure shall be liberally construed in order to promote their object and to assist the
parties in obtaining just, speedy and inexpensive determination of every action and proceeding (Vallacar
Transit, Inc. v. Yap, 126 SCRA 500 [1983]; Suntay v. Aguiluz, 209 SCRA 500 [1992] citing Ramos v.
Ebarle, 182 SCRA 245 [1990]). It would be more in keeping with the demands of equity if the cases are
simply ordered consolidated. Pursuant to Section 2, Rule 1, Revised Rules of Court, the rules on
consolidation should be liberally construed to achieve the object of the parties in obtaining just, speedy
and inexpensive determination of their cases (Allied Banking Corporation v. Court of Appeals, 259 SCRA
371 [1996]).
The dispositive portion of the decision reads:
IN VIEW OF ALL THE FOREGOING, the appealed decision is hereby MODIFIED, in such a way that
the dismissal of this case (Civil Case No. IR-3128) is set aside and in lieu thereof another one is entered
ordering the consolidation of said case with the liquidation case docketed as Special Proceeding No. M5290 before Branch 59 of the Regional Trial Court of Makati City, entitled In Re: Assistance in the
Judicial Liquidation of Rural Bank of Canaman, Camarines Sur, Inc., Philippine Deposit Corporation,
Petitioner. No pronouncement as to cost.
SO ORDERED.[3]
Lucia filed a motion for reconsideration[4] but it was denied by the CA in its Resolution dated December
14, 2006.[5]
Hence, the present petition for review on certiorari anchored on the following
GROUNDS
(I)
THE
COURT
OF
APPEALS
ERRED
IN
NOT
FINDING
THAT
THE REGIONAL TRIAL COURT OF IRIGA CITY, BRANCH 36 IS VESTED WITH JURISDICTION
TO CONTINUE TRYING AND ULTIMATELY DECIDE CIVIL CASE NO. IR-3128.
(II)
THE COURT OF APPEALS ERRED AND GRAVELY ABUSED ITS DISCRETION IN ORDERING
THE CONSOLIDATION OF CIVIL CASE NO. IR-3128 WITH THE LIQUIDATION CASE

DOCKETED AS SPECIAL PROCEEDINGS NO.


THE REGIONAL TRIAL COURT OF MAKATI CITY.[6]

M-5290

BEFORE

BRANCH

59

OF

Given the foregoing arguments, the Court finds that the core issue to be resolved in this petition
involves a determination of whether a liquidation court can take cognizance of a case wherein the main
cause of action is not a simple money claim against a bank ordered closed, placed under receivership of
the PDIC, and undergoing a liquidation proceeding.
Lucia contends that the RTC-Iriga is vested with jurisdiction over Civil Case No. 3128, the constitution of
the liquidation court notwithstanding. According to her, the case was filed before the RTC-Iriga
on March 17, 2000 at the time RBCI was still doing business or before the defendant bank was placed
under receivership of PDIC in January 2001.
She further argues that the consolidation of the two cases is improper. Her case, which is for annulment
of deed of partition and waiver, deed of mortgage and damages, cannot be legally brought before the
RTC-Makati with the liquidation case considering that her cause of action against RBCI is not a simple
claim arising out of a creditor-debtor relationship, but one which involves her rights and interest over a
certain property irregularly acquired by RBCI. Neither is she a creditor of the bank, as only the creditors
of the insolvent bank are allowed to file and ventilate claims before the liquidator, pursuant to the August
10, 2001 Order of the RTC-Makati which granted the petition for assistance in the liquidation of RBCI.
In its Comment,[7] PDIC, as liquidator of RBCI, counters that the consolidation of Civil Case No. 3128
with the liquidation proceeding is proper. It posits that the liquidation court of RBCI, having been
established, shall have exclusive jurisdiction over all claims against the said bank.
After due consideration, the Court finds the petition devoid of merit.
Lucias argument, that the RTC-Iriga is vested with jurisdiction to continue trying Civil Case No. IR-3128
until its final disposition, evidently falls out from a strained interpretation of the law and
jurisprudence. She contends that:

Since the RTC-Iriga has already obtained jurisdiction over the case it should continue exercising such
jurisdiction until the final termination of the case. The jurisdiction of a court once attached cannot be
ousted by subsequent happenings or events, although of a character which would have prevented
jurisdiction from attaching in the first instance, and the Court retains jurisdiction until it finally disposes
of the case (Aruego Jr. v. Court of Appeals, 254 SCRA 711).
When a court has already obtained and is exercising jurisdiction over a controversy, its jurisdiction to
proceed to final determination of the case is not affected by a new legislation transferring jurisdiction over
such proceedings to another tribunal. (Alindao v. Joson, 264 SCRA 211). Once jurisdiction is vested, the
same is retained up to the end of the litigation (Bernate v. Court of Appeals, 263 SCRA 323).[8]

The afore-quoted cases, cited by Lucia to bolster the plea for the continuance of her case, find no
application in the case at bench.
Indeed, the Court recognizes the doctrine on adherence of jurisdiction. Lucia, however, must be reminded
that such principle is not without exceptions. It is well to quote the ruling of the CA on this matter, thus:
This Court is not unmindful nor unaware of the doctrine on the adherence of jurisdiction. However, the
rule on adherence of jurisdiction is not absolute and has exceptions. One of the exceptions is that when
the change in jurisdiction is curative in character (Garcia v. Martinez, 90 SCRA 331 [1979]; Calderon, Sr.
v. Court of Appeals, 100 SCRA 459 [1980]; Atlas Fertilizer Corporation v. Navarro, 149 SCRA 432
[1987]; Abad v. RTC of Manila, Br. Lll, 154 SCRA 664 [1987]).
For sure, Section 30, R.A. 7653 is curative in character when it declared that the liquidation court shall
have jurisdiction in the same proceedings to assist in the adjudication of the disputed claims against the
Bank. The interpretation of this Section (formerly Section 29, R.A. 265) becomes more obvious in the
light of its intent. In Manalo v. Court of Appeals (366 SCRA 752, [2001]), the Supreme Court says:
xxx The requirement that all claims against the bank be pursued in the liquidation proceedings filed by
the Central Bank is intended to prevent multiplicity of actions against the insolvent bank and 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 (citing Ong v. CA, 253 SCRA 105 [1996]). 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 Superintendents of Banks
and regulate his operations (citing Central Bank of the Philippines, et al. v. CA, et al., 163 SCRA 482
[1988]).[9]
As regards Lucias contention that jurisdiction already attached when Civil Case No. IR-3128 was
filed with, and jurisdiction obtained by, the RTC-Iriga prior to the filing of the liquidation case before the
RTC-Makati, her stance fails to persuade this Court. In refuting this assertion, respondent PDIC cited the
case of Lipana v. Development Bank of Rizal[10] where it was held that the time of the filing of the
complaint is immaterial, viz:
It is the contention of petitioners, however, that the placing under receivership of Respondent Bank long
after the filing of the complaint removed it from the doctrine in the said Morfe Case.
This contention is untenable. The time of the filing of the complaint is immaterial. It is the execution
that will obviously prejudice the other depositors and creditors. Moreover, as stated in the said Morfe
case, the effect of the judgment is only to fix the amount of the debt, and not to give priority over other
depositors and creditors.
The cited Morfe case[11] held that after the Monetary Board has declared that a bank is insolvent and
has ordered it to cease operations, the Board becomes the trustee of its assets for the equal benefit of all
the creditors, including depositors. The assets of the insolvent banking institution are held in trust for the

equal benefit of all creditors, and after its insolvency, one cannot obtain an advantage or a preference over
another by an attachment, execution or otherwise.
Thus, to allow Lucias case to proceed independently of the liquidation case, a possibility of favorable
judgment and execution thereof against the assets of RBCI would not only prejudice the other creditors
and depositors but would defeat the very purpose for which a liquidation court was constituted as well.
Anent the second issue, Lucia faults the CA in directing the consolidation of Civil Case No. IR-3128 with
Special Proceedings No. M-5290. The CA committed no error. Lucias complaint involving annulment
of deed of mortgage and damages falls within the purview of a disputed claim in contemplation of Section
30 of R.A. 7653 (The New Central Bank Act). The jurisdiction should be lodged with the liquidation
court. Section 30 provides:
Sec. 30. Proceedings in Receivership and Liquidation. - Whenever, upon report of the head of the
supervising or examining department, the Monetary Board finds that a bank or quasi-bank:
(a) is unable to pay its liabilities as they become due in the ordinary course of business: Provided, That
this shall not include inability to pay caused by extraordinary demands induced by financial panic in the
banking community;
(b) has insufficient realizable assets, as determined by the Bangko Sentral, to meet its liabilities; or
(c) cannot continue in business without involving probable losses to its depositors or creditors; or
(d) has willfully violated a cease and desist order under Section 37 that has become final, involving acts
or transactions which amount to fraud or a dissipation of the assets of the institution; in which cases, the
Monetary Board may summarily and without need for prior hearing forbid the institution from doing
business in the Philippines and designate the Philippine Deposit Insurance Corporation as receiver of the
banking institution.
For a quasi-bank, any person of recognized competence in banking or finance may be designated as
receiver.
The 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: Provided, That the
receiver may deposit or place the funds of the institution in non-speculative investments. The receiver
shall determine as soon as possible, but not later than ninety (90) days from takeover, whether the
institution may be rehabilitated or otherwise placed in such a condition that it may be permitted to resume
business with safety to its depositors and creditors and the general public: Provided, That any
determination for the resumption of business of the institution shall be subject to prior approval of the
Monetary Board.
If the receiver determines that the institution cannot be rehabilitated or permitted to resume business in
accordance with the next preceding paragraph, the Monetary Board shall notify in writing the board of
directors of its findings and direct the receiver to proceed with the liquidation of the institution. The
receiver shall:

(1) file ex parte with the proper regional trial court, and without requirement of prior notice or any other
action, a petition for assistance in the liquidation of the institution pursuant to a liquidation plan adopted
by the Philippine Deposit Insurance Corporation for general application to all closed banks. In case of
quasi-banks, the liquidation plan shall be adopted by the Monetary Board. Upon acquiring jurisdiction,
the court shall, upon motion by the receiver after due notice, adjudicate disputed claims against the
institution, assist the enforcement of individual liabilities of the stockholders, directors and officers, and
decide on other issues as may be material to implement the liquidation plan adopted. The receiver shall
pay the cost of the proceedings from the assets of the institution.
(2) convert the assets of the institution to money, dispose of the same to creditors and other parties, for the
purpose of paying the debts of such institution in accordance with the rules on concurrence and
preference of credit under the Civil Code of the Philippines and he may, in the name of the institution, and
with the assistance of counsel as he may retain, institute such actions as may be necessary to collect and
recover accounts and assets of, or defend any action against, the institution. The assets of an institution
under receivership or liquidation shall be deemed in custodia legis in the hands of the receiver and shall,
from the moment the institution was placed under such receivership or liquidation, be exempt from any
order of garnishment, levy, attachment, or execution. [Emphasis supplied]
xxx
Disputed claims refers to all claims, whether they be against the assets of the insolvent bank, for
specific performance, breach of contract, damages, or whatever.[12] Lucias action being a claim against
RBCI can properly be consolidated with the liquidation proceedings before the RTC-Makati. A
liquidation proceeding has been explained in the case of In Re: Petition For Assistance in the Liquidation
of the Rural Bank of BOKOD (Benguet), Inc. v. Bureau of Internal Revenue[13] as follows:
A liquidation proceeding is a single proceeding which consists of a number of cases properly classified as
"claims." It is basically a two-phased proceeding. The first phase is concerned with the approval and
disapproval of claims. Upon the approval of the petition seeking the assistance of the proper court in the
liquidation of a closed entity, all money claims against the bank are required to be filed with the
liquidation court. This phase may end with the declaration by the liquidation court that the claim is not
proper or without basis. On the other hand, it may also end with the liquidation court allowing the claim.
In the latter case, the claim shall be classified whether it is ordinary or preferred, and thereafter included
Liquidator. In either case, the order allowing or disallowing a particular claim is final order, and may be
appealed by the party aggrieved thereby.
The second phase involves the approval by the Court of the distribution plan prepared by the duly
appointed liquidator. The distribution plan specifies in detail the total amount available for distribution to
creditors whose claim were earlier allowed. The Order finally disposes of the issue of how much property
is available for disposal. Moreover, it ushers in the final phase of the liquidation proceeding - payment of
all allowed claims in accordance with the order of legal priority and the approved distribution plan.
xxx
A liquidation proceeding is commenced by the filing of a single petition by the Solicitor General with a
court of competent jurisdiction entitled, "Petition for Assistance in the Liquidation of e.g., Pacific

Banking Corporation. All claims against the insolvent are required to be filed with the liquidation court.
Although the claims are litigated in the same proceeding, the treatment is individual. Each claim is heard
separately. And the Order issued relative to a particular claim applies only to said claim, leaving the other
claims unaffected, as each claim is considered separate and distinct from the others. x x x [Emphasis
supplied.]
It is clear, therefore, that the liquidation court has jurisdiction over all claims, including that of Lucia
against the insolvent bank. As declared in Miranda v. Philippine Deposit Insurance Corporation,
[14] regular courts do not have jurisdiction over actions filed by claimants against an insolvent bank,
unless there is a clear showing that the action taken by the BSP, through the Monetary Board, in the
closure of financial institutions was in excess of jurisdiction, or with grave abuse of discretion. The same
is not obtaining in this present case.
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, is subject to
judicial inquiry. It may not be exercised arbitrarily 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.[15]
In sum, this Court holds that the consolidation is proper considering that the liquidation court has
jurisdiction over Lucias action. It would be more in keeping with law and equity if Lucias case is
consolidated with the liquidation case in order to expeditiously determine whether she is entitled to
recover the property subject of mortgage from RBCI and, if so, how much she is entitled to receive from
the remaining assets of the bank.
WHEREFORE, the petition is DENIED.

G.R. No. 114870 May 26, 1995


MIGUELA R. VILLANUEVA, RICHARD R. VILLANUEVA, and MERCEDITA VILLANUEVATIRADOS, petitioners,
vs.
COURT OF APPEALS, CENTRAL BANK OF THE PHILIPPINES, ILDEFONSO C. ONG, and
PHILIPPINE VETERANS BANK, respondents.
DAVIDE, JR., J.:
Do petitioners have a better right than private respondent Ildefonso Ong to purchase from the Philippine
Veterans Bank (PVB) the two parcels of land described as Lot No. 210-D-1 and Lot No. 210-D-2 situated
at Muntinglupa, Metro Manila, containing an area of 529 and 300 square meters, respectively? This is the
principal legal issue raised in this petition.
In its decision of 27 January 1994 in CA-G.R. CV No. 35890, 1 the Court of Appeals held for Ong, while
the trial court, Branch 39 of the Regional Trial Court (RTC) of Manila, ruled for the petitioners in its joint
decision of 31 October 1991 in Civil Case No. 87-42550 2 and Sp. Proc. No. 85-32311. 3
The operative antecedent facts are set forth in the challenged decision as follows:
The disputed lots were originally owned by the spouses Celestino Villanueva and
Miguela Villanueva, acquired by the latter during her husband's sojourn in the United
States since 1968. Sometime in 1975, Miguela Villanueva sought the help of one Jose
Viudez, the then Officer-in-Charge of the PVB branch in Makati if she could obtain a
loan from said bank. Jose Viudez told Miguela Villanueva to surrender the titles of said
lots as collaterals. And to further facilitate a bigger loan, Viudez, in connivance with one
Andres Sebastian, swayed Miguela Villanueva to execute a deed of sale covering the two
(2) disputed lots, which she did but without the signature of her husband Celestino.
Miguela Villanueva, however, never got the loan she was expecting. Subsequent attempts
to contact Jose Viudez proved futile, until Miguela Villanueva thereafter found out that
new titles over the two (2) lots were already issued in the name of the PVB. It appeared
upon inquiry from the Registry of Deeds that the original titles of these lots were
canceled and new ones were issued to Jose Viudez, which in turn were again canceled
and new titles issued in favor of Andres Sebastian, until finally new titles were issued in
the name of PNB [should be PVB] after the lots were foreclosed for failure to pay the
loan granted in the name of Andres Sebastian.
Miguela Villanueva sought to repurchase the lots from the PVB after being informed that
the lots were about to be sold at auction. The PVB told her that she can redeem the lots
for the price of P110,416.00. Negotiations for the repurchase of the lots nevertheless were
stalled by the filing of liquidation proceedings against the PVB on August of 1985.
Plaintiff-appellant [Ong] on the other hand expounds on his claim over the disputed lots
in this manner:
In October 1984, plaintiff-appellant offered to purchase two pieces of
Land that had been acquired by PVB through foreclosure. To back-up
plaintiff-appellant's offer he deposited the sum of P10,000.00.

In 23 November 1984, while appellant was still abroad, PVB approved


his subject offer under Board Resolution No. 10901-84. Among the
conditions imposed by PVB is that: "The purchase price shall be
P110,000.00 (Less deposit of P10,000.00) payable in cash within fifteen
(15) days from receipt of approval of the offer."
In mid-April 1985, appellant returned to the country. He immediately
verified the status of his offer with the PVB, now under the control of
CB, where he was informed that the same had already been approved. On
16 April 1985, appellant formally informed CB of his desire to pay the
subject balance provided the bank should execute in his favor the
corresponding deed of conveyance. The letter was not answered.
Plaintiff-appellant sent follow-up Letters that went unheeded, the last of
which was on 21 May 1987. On 26 May 1987, appellant's payment for
the balance of the subject properties were accepted by CB under Official
Receipt #0816.
On 17 September 1987, plaintiff-appellant through his counsel, sent a
letter to CB demanding for the latter to execute the corresponding deed
of conveyance in favor of appellant. CB did not bother to answer the
same. Hence, the instant case.
While appellant's action for specific performance against CB was
pending, Miguela Villanueva and her children filed their claims with the
Liquidation court. (Appellant's Brief, pp. 3-4). 4
From the pleadings, the following additional or amplificatory facts are established:
The efforts of Miguela Villanueva to reacquire the property began on 8 June 1983 when she offered to
purchase
the
lots
for
P60,000.00
with
a
20%
downpayment and the balance payable in five years on a quarterly amortization basis. 5
Her offer not having been accepted, 6 Miguela Villanueva increased her bid to P70,000.00. It was only at
this time that she disclosed to the bank her private transactions with Jose Viudez. 7
After this and her subsequent offers were rejected, 8 Miguela sent her sealed bid of P110,417.00 pursuant
to the written advice of the vice president of the PVB. 9
The PVB was placed under receivership pursuant to Monetary Board (MB) Resolution No. 334 dated 3
April 1985 and later, under liquidation pursuant to MB Resolution No. 612 dated 7 June 1985.
Afterwards, a petition for liquidation was filed with the RTC of Manila, which was docketed as Sp. Proc.
No. 85-32311 and assigned to Branch 39 of the said court.
On 26 May 1987, Ong tendered the sum of P100,000.00 representing the balance of the purchase price of
the litigated lots. 10 An employee of the PVB received the amount conditioned upon approval by the
Central
Bank
liquidator. 11 Ong's demand for a deed of conveyance having gone unheeded, he filed on 23 October 1987
with the RTC of Manila an action for specific performance against the Central Bank. 12 It was raffled to

Branch 47 thereof. Upon learning that the PVB had been placed under liquidation, the presiding judge of
Branch 47 ordered the transfer of the case to Branch 39, the liquidation court. 13
On 15 June 1989, then Presiding Judge Enrique B. Inting issued an order allowing the purchase of the two
lots at the price of P150,000.00. 14 The Central Bank liquidator of the PVB moved for the reconsideration
of the order asserting that it is contrary to law as the disposal of the lots should be made through public
auction. 15
On 26 July 1989, Miguela Villanueva filed her claim with the liquidation court. She averred, among
others, that she is the lawful and registered owner of the subject lots which were mortgaged in favor of
the PVB thru the falsification committed by Jose Viudez, the manager of the PVB Makati Branch, in
collusion with Andres Sebastian; that upon discovering this fraudulent transaction, she offered to purchase
the property from the bank; and that she reported the matter to the PC/INP Criminal Investigation Service
Command, Camp Crame, and after investigation, the CIS officer recommended the filing of a complaint
for estafa through falsification of public documents against Jose Viudez and Andres Sebastian. She then
asked that the lots be excluded from the assets of the PVB and be conveyed back to her. 16 Later, in view
of the death of her husband, she amended her claim to include her children, herein petitioners Mercedita
Villanueva-Tirados and Richard Villanueva. 17
On 31 October 1991, the trial court rendered judgment 18 holding that while the board resolution
approving Ong's offer may have created in his favor a vested right which may be enforced against the
PVB at the time or against the liquidator after the bank was placed under liquidation proceedings, the said
right was no longer enforceable, as he failed to exercise it within the prescribed 15-day period. As to
Miguela's claim, the court ruled that the principle of estoppel bars her from questioning the transaction
with Viudez and the subsequent transactions because she was a co-participant thereto, though only with
respect to her undivided one-half (1/2) conjugal share in the disputed lots and her one-third (1/3)
hereditary share in the estate of her husband.
Nevertheless, the trial court allowed her to purchase the lots if only to restore their status as conjugal
properties. It further held that by reason of estoppel, the transactions having been perpetrated by a
responsible officer of the PVB, and for reasons of equity, the PVB should not be allowed to charge
interest on the price of the lots; hence, the purchase price should be the PVB's claim as of 29 August 1984
when it considered the sealed bids, i.e., P110,416.20, which should be borne by Miguela Villanueva
alone.
The dispositive portion of the decision of the trial court reads as follows:
WHEREFORE, judgment is hereby rendered as follows:
1. Setting aside the order of this court issued on June 15,
1989 under the caption Civil Case No. 87-42550 entitled
"Ildefonso Ong vs. Central Bank of the Phils., et al.;
2. Dismissing the claim of Ildefonso Ong over the two
parcels of land originally covered by TCT No. 438073
and 366364 in the names of Miguela Villanueva and
Celestino Villanueva, respectively which are now
covered by TCT No. 115631 and 115632 in the name of
the PVB;

3. Declaring the Deed of Absolute Sale bearing the


signature of Miguela Villanueva and the falsified
signature of Celestino [sic] Viudez under date May 6,
1975 and all transactions and related documents
executed thereafter referring to the two lots covered by
the above stated titles as null and void;
4. Ordering the Register of Deeds of Makati which has
jurisdiction over the two parcels of land in question to
re-instate in his land records, TCT No. 438073 in the
name of Miguela Villanueva and TCT No. 366364 in the
name of Celestino Villanueva who were the registered
owners thereof, and to cancel all subsequent titles
emanating therefrom; and
5. Ordering the Liquidator to reconvey the two lots
described in TCT No. 115631 and 115632 and executing
the corresponding deed of conveyance of the said lots
upon the payment of One Hundred Ten Thousand Four
Hundred Sixteen and 20/100 (P110,416.20) Pesos
without interest and less the amount deposited by the
claimant, Miguela Villanueva in connection with the
bidding where she had participated and conducted by the
PVB on August 29, 1984.
Cost against Ildefonso Ong and the PVB.
SO ORDERED. 19
Only Ong appealed the decision to the Court of Appeals. The appeal was docketed as CA-G.R. CV No.
35890. In its decision of 27 January 1994, the Court of Appeals reversed the decision of the trial court and
ruled as follows:
WHEREFORE, premises considered, the assailed decision is hereby REVERSED and
SET ASIDE, and a new one entered ordering the disputed-lots be awarded in favor of
plaintiff-appellant Ildefonso Ong upon defendant-appellee Central Bank's execution of
the corresponding deed of sale in his favor. 20
In support thereof, the Court of Appeals declared that Ong's failure to pay the balance within the
prescribed period was excusable because the PVB neither notified him of the approval of his bid nor
answered his letters manifesting his readiness to pay the balance, for which reason he could not have
known when to reckon the 15-day period prescribed under its resolution. It went further to suggest that
the Central Bank was in estoppel because it accepted Ong's late-payment of the balance. As to the
petitioners' claim, the Court of Appeals stated:
The conclusion reached by the lower court favorable to Miguela Villanueva is, as aptly
pointed out by plaintiff-appellant, indeed confusing. While the lower court's decision
declared Miguela Villanueva as estopped from recovering her proportionate share and
interest in the two (2) disputed lots for being a "co-participant" in the fraudulent scheme
perpetrated by Jose Viudez and Andres Sebastian a factual finding which We conform

to and which Miguela Villanueva does not controvert in this appeal by not filing her
appellee's brief, yet it ordered the reconveyance of the disputed lots to Miguela
Villanueva as the victorious party upon her payment of P110,416.20. Would not estoppel
defeat the claim of the party estopped? If so, which in fact must be so, would it not then
be absurd or even defiant for the lower court to finally entitle Miguela Villanueva to the
disputed lots after having been precluded from assailing their subsequent conveyance in
favor of Jose Viudez by reason of her own negligence and/or complicity therein? The
intended punitive effect of estoppel would merely be a dud if this Court leaves the lower
court's conclusion unrectified. 21
Their motion for reconsideration 22 having been denied, 23 the petitioners filed this petition for review
on certiorari. 24
Subsequently, the respondent Central Bank apprised this Court that the PVB was no longer under
receivership or liquidation and that the PVB has been back in operation since 3 August 1992. It then
prayed that it be dropped from this case or at least be substituted by the PVB, which is the real party in
interest. 25
In its Manifestation and Entry of Appearance, the PVB declared that it submits to the jurisdiction of this
Court and that it has no objection to its inclusion as a party respondent in this case in lieu of the Central
Bank. 26 The petitioners did not object to the substitution. 27
Later, in its Comment dated 10 October 1994, the PVB stated that it "submits to and shall abide by
whatever judgment this Honorable Supreme Tribunal may announce as to whom said lands may be
awarded without any touch of preference in favor of one or the other party litigant in the instant
case." 28
In support of their contention that the Court of Appeals gravely erred in holding that Ong is better entitled
to purchase the disputed lots, the petitioners maintain that Ong is a disqualified bidder, his bid of
P110,000.00 being lower than the starting price of P110,417.00 and his deposit of P10,000.00 being less
than the required 10% of the bid price; that Ong failed to pay the balance of the price within the 15-day
period from notice of the approval of his bid; and that his offer of payment is ineffective since it was
conditioned on PVB's execution of the deed of absolute sale in his favor.
On the other hand, Ong submits that his offer, though lower than Miguela ViIlanueva's bid by P417.00, is
much better, as the same is payable in cash, while Villanueva's bid is payable in installment; that his
payment could not be said to have been made after the expiration of the 15-day period because this period
has not even started to run, there being no notice yet of the approval of his offer; and that he has a legal
right to compel the PVB or its liquidator to execute the corresponding deed of conveyance.
There is no doubt that the approval of Ong's offer constitutes an acceptance, the effect of which is to
perfect the contract of sale upon notice thereof to Ong. 29 The peculiar circumstances in this case,
however, pose a legal obstacle to his claim of a better right and deny support to the conclusion of the
Court of Appeals.
Ong did not receive any notice of the approval of his offer. It was only sometime in mid-April 1985 when
he returned from the United States and inquired about the status of his bid that he came to know of the
approval.

It must be recalled that the PVB was placed under receivership pursuant to the MB Resolution of 3 April
1985 after a finding that it was insolvent, illiquid, and could not operate profitably, and that its
continuance in business would involve probable loss to its depositors and creditors. The PVB was then
prohibited from doing business in the Philippines, and the receiver appointed was directed 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."
Under Article 1323 of the Civil Code, an offer becomes ineffective upon the death, civil interdiction,
insanity, or insolvency of either party before acceptance is conveyed. The reason for this is that:
[T]he contract is not perfected except by the concurrence of two wills which exist and
continue until the moment that they occur. The contract is not yet perfected at any time
before acceptance is conveyed; hence, the disappearance of either party or his loss of
capacity before perfection prevents the contractual tie from being formed. 30
It has been said that where upon the insolvency of a bank a receiver therefor is appointed, 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. 31 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. 32
Section 29 of the Central Bank Act, as amended, provides thus:
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,
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 of its creditors . . . exercising all the powers necessary for these purposes. . . .
xxx xxx xxx
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 exemp from any order of garnishment, levy, attachment, or
execution.
In a nutshell, the insolvency of a bank and the consequent appointment of a receiver restrict the bank's
capacity to act, especially in relation to its property, Applying Article 1323 of the Civil Code, Ong's offer
to purchase the subject lots became ineffective because the PVB became insolvent before the bank's
acceptance of the offer came to his knowledge. Hence, the purported contract of sale between them did

not reach the stage of perfection. Corollarily, he cannot invoke the resolution of the bank approving his
bid as basis for his alleged right to buy the disputed properties.
Nor may the acceptance by an employee of the PVB of Ong's payment of P100,000.00 benefit him since
the receipt of the payment was made subject to the approval by the Central Bank liquidator of the PVB
thus:
Payment for the purchase price of the former property of Andres Sebastian per approved
BR No. 10902-84 dated 11/13/84, subject to the approval of CB liquidator. 33
This payment was disapproved on the ground that the subject property was already in custodia
legis, and hence, disposable only by public auction and subject to the approval of the liquidation
court. 34
The Court of Appeals therefore erred when it held that Ong had a better right than the petitioners to the
purchase of the disputed lots.
Considering then that only Ong appealed the decision of the trial court, the PVB and the Central Bank, as
well as the petitioners, are deemed to have fully and unqualifiedly accepted the judgment, which thus
became final as to them for their failure to appeal.
WHEREFORE, the instant petition is GRANTED and the challenged decision of the Court of Appeals of
27 January 1994 in CA-G.R. CV No. 35890 is hereby SET ASIDE. The decision of Branch 39 of the
Regional Trial Court of Manila of 31 October 1991 in Civil Case No. 87-42550 and Sp. Proc. No. 8532311 is hereby REINSTATED.
Respondent Philippine Veterans Bank is further directed to return to private respondent Ildefonso C. Ong
the amount of P100,000.00.
No pronouncement as to costs.
SO ORDERED.

Abacus Real Estate Development v Manila Banking Corp G.R. No. 162270. April 06, 2005
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.
Facts:
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. 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. 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.
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. 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. 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.
Issue:
Whether or not Vicente Puyat, acting as president of Manila Bank, has the power to sell the disputed
properties.
Held:
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 inVillanueva vs. Court of Appeals 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.
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.

Republic of the Philippines


Supreme Court
Manila
FIRST DIVISION

SPOUSES MANUEL A. AGUILAR

G.R. No. 157911

and YOLANDA C. AGUILAR,


Petitioners,

Present:

PANGANIBAN, CJ.,
Chairperson,
- versus -

YNARES-SANTIAGO,
AUSTRIA-MARTINEZ,
CALLEJO, SR. and
CHICO-NAZARIO, JJ.

THE MANILA BANKING


CORPORATION,
Respondent.

Promulgated:
September 19, 2006

x------------------------------------------------x
DECISION
AUSTRIA-MARTINEZ, J.:
The sad and lamentable spectacle that this case presents, that is, the execution of a final and
executory decision forestalled by perpetual dilatory tactics employed by a litigant, makes a blatant
mockery of justice. The Court cannot countenance, and in fact, condemns, the outrageous abuse of the
judicial process by Spouses Manuel A. Aguilar and Yolanda C. Aguilar (petitioners) and their counsel.
Before the Court is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil
Procedure assailing the Decision[1] dated October 29, 2002 of the Court of Appeals (CA) in CA-G.R. SP

No. 71849 which dismissed petitioners Petition for Certiorari, and the CA Resolution[2] dated April 29,
2003 which denied petitioners Motion for Reconsideration.
The procedural antecedents and factual background of the case are as follows:
Sometime in 1979, petitioners obtained a P600,000.00 loan from the Manila Banking Corporation
(respondent), secured by a real estate mortgage over their 419-square meter property located at No. 8 Pia
St., Valle Verde, Pasig City, covered by Transfer Certificate of Title (TCT) No. 11082. When petitioners
failed to pay their obligation, the mortgaged property was extra-judicially foreclosed. Respondent was
the winning bidder at public auction sale on May 20, 1982. Consequently, a Certificate of Sale was
issued in its favor on June 23, 1982.
Subsequently, on May 30, 1983, instead of redeeming the property, petitioners filed a complaint
for annulment of the foreclosure sale of the property before the Regional Trial Court, Branch 165, Pasig
City (RTC Branch 165), docketed as Civil Case No. 49793. While the case was pending, the parties
entered into a compromise agreement.[3]
Under the Compromise Agreement dated January 23, 1987, the petitioners admitted the validity
of

the

extra-judicial

foreclosure

and

agreed

to

purchase

the

property

from

respondent

for P2,548,000.00. Parties agreed that the amount of P100,000.00 shall be payable upon execution of the
agreement and the balance of P2,448,000.00, which shall earn twenty-six per cent (26%) interest per
annum, shall be payable in eighteen installments from February 23, 1987 to July 27, 1988. They further
agreed that in case of default: (a) all outstanding installments and/or interest thereon shall be immediately
due; (b) petitioners shall immediately vacate the property and deliver possession thereof to respondent;
(c) respondent shall be entitled to register all documents needed to transfer title over the property in their
favor; and, (d) respondent shall be entitled to ask for the execution of the judgment or an ancillary remedy
necessary to place it in possession of the property. On January 30, 1987, RTC Branch 165 adopted and
approved the Compromise Agreement. [4]
Petitioners failed to pay the balance of P2,448,000.00 within the eighteen-installment period from
February 23, 1987 to July 27, 1988. A year and three months later, or on October 20, 1989, respondent
filed a Motion for Issuance of Writ of Execution to enforce the Decision dated January 30, 1987. [5]
On November 28, 1989, RTC Branch 165 issued an Order granting the motion and issuing a writ
of execution: (a) directing petitioners to immediately vacate the property and surrender possession to the
respondent; (b) directing the Register of Deeds of Metro Manila, District II to register any and all
documents needed to transfer title over the property to respondent and to issue a new certificate of title

respondents favor free from any liens, adverse claims and/or encumbrances; (c) issuing a writ of
possession in respondents favor to place it in possession of the property. [6]
However, on January 22, 1990, petitioners filed a Manifestation praying for deferment of the
enforcement of the writ of execution until July 31, 1990 because petitioners have a pending proposal for
the settlement of their judgment debt. [7] The manifestation was with the conformity of respondents. [8] On
January 24, 1990, RTC Branch 165 issued an Order granting the motion and holding in abeyance the
enforcement of the writ of execution until July 31, 1990. [9] However, no settlement was reached by the
parties during the period.
One year and four months later, petitioners still failed to settle their judgment
debt. Consequently, respondent filed on December 2, 1991 a Manifestation reiterating its motion for the
issuance of a writ of execution. [10] On December 5, 1991, RTC Branch 165 issued an Order granting the
manifestation and directing the issuance of a writ of execution to enforce the Decision dated January 30,
1987.[11]
To evade the implementation of the writ, petitioners filed on December 20, 1991 an ExParte Motion to Recall the Courts Order dated December 5, 1991 claiming that their obligation was
novated by the Letter dated June 7, 1991 from respondents Statutory Receiver. [12] In said letter,
respondents Statutory Receiver approved the purchase of the property on installment basis over a threeyear period at an interest rate of twelve per cent (12%) with P481,265.00 due on September 30,
1991, P481,265.00 due on September 30, 1992, and P724,064.79 due on September 30, 1993.[13]
On December 2, 1992, respondent filed a Manifestation and Motion for Issuance of Alias Writ of
Execution manifesting that the Letter dated June 7, 1991 did not novate the Decision dated January 30,
1987 but was a mere accommodation of the petitioners request for a liberal mode of payment of their
account and petitioners still failed to comply with such approved mode of payment. [14]
On December 14, 1992, petitioners filed their Comment and Manifestation praying for a
humanitarian and liberal judicial dispensation since that they have been paying their obligations to
respondent despite delay due to financial restraints for family subsistence and their childrens
educational expenses.[15]
On February 1, 2000, respondent filed an Urgent Ex-Parte Manifestation praying for resolution of
the pending incidents.[16] On March 3, 2000, petitioners filed their Opposition claiming that Section 6,
Rule 39 of the Rules of Court bars execution, by mere motions, of judgment which is more than five years
old. On March 14, 2000, respondent filed its Reply stating that the peculiar circumstances of the case
warrant its exclusion from the scope of said Rule.

On March 20, 2000, RTC Branch 165 issued its Order which resolved the pending motions with
the Court. With respect to petitioners ex-parte motion to recall, the Court said that for failure to comply
with Sections 4, 5 and 6 of Rule 15 of the Revised Rules of Court and considering the nature of
petitioners motion, it treated petitioners motion as a mere scrap of paper.[17] As to respondents motion
for issuance of a writ of execution, it granted the same, holding that Section 6, Rule 39 of the Rules of
Court does not apply since the delay in the execution of the judgment was due to petitioners who made
several alternative payment proposals, requested several extensions of time to pay their account, filed
dilatory motions and pleadings and it would be a blatant injustice to allow them to profit from the delays
they deliberately caused to escape completely and absolutely the satisfaction of their admitted and
confessed obligation by sheer literal adherence to technicality. [18]
On March 30, 2000, petitioners filed their Motion for Reconsideration [19] but RTC Branch 165
denied it in its Order dated May 30, 2000.[20]
On June 20, 2000, petitioners filed a Notice of Appeal [21] but RTC Branch 165 denied it in its
Order dated August 21, 2000 on the ground that an order of execution is not appealable. [22]
Thereafter, petitioners filed a six-page Petition for Review on Certiorari with this Court,
docketed as G.R. No. 144719, reiterating that the Decision dated January 30, 1987 can no longer be
executed on mere motion since it is more than five years old. [23]
In a Resolution dated October 11, 2000, the First Division of this Court denied the petition for
violation of the rule on hierarchy of courts and failure to show special and important reasons or
exceptional and compelling circumstances that justify a disregard of the rule. [24] Petitioners filed a Motion
for Reconsideration but the Court denied it with finality in its Resolution dated December 11, 2000. [25]
Since the Resolution in G.R. No. 144719 became final and executory on January 16, 2001, RTC
Branch 165 issued a writ of execution on February 19, 2001 to enforce the Decision dated January 30,
1987.[26] On February 23, 2001, the Sheriff issued a Notice for Compliance of the said writ. [27]
Undaunted by their previous setbacks, petitioners filed on March 6, 2001 in RTC Branch 165 an
Omnibus Motion to quash the Writ of Execution insisting anew on their novation and prescription
theories.[28] They also moved for consignation of the amount of their obligation under the Letter dated
June 7, 1991 of respondents Statutory Receiver.
On March 14, 2001, respondent filed an Ex-Parte Motion for Order to Divest Plaintiffs Title and
to Direct the Register of Deeds to Transfer Title to Defendant [29] based on Section 10, Rule 39 of the 1997
Rules of Civil Procedure. On March 19, 2001, respondent filed its Opposition (to petitioners Omnibus
Motion) and Motion to Cite Plaintiffs in Contempt claiming that the Omnibus Motion is nothing but

petitioners desperate attempt to thwart or delay the payment of their obligations and they should be
declared guilty of indirect contempt for their improper conduct calculated to impede, obstruct and degrade
the administration of justice.[30]
On May 2, 2001, petitioners filed an Urgent Motion for Inhibition. [31] While RTC Branch 165
Presiding Judge Marietta A. Legaspi denied the motion for inhibition in her Order dated June 5, 2001, she
voluntarily inhibited herself from further participating in the case to show that she has no interest therein.
[32]

Respondent filed a Motion for Partial Reconsideration [33] to no avail.[34] The case was re-raffled and

was assigned to
Branch 268 presided by Judge Amelia C. Manalastas.
On September 17, 2001 and January 4, 2002, respondent filed two Motions to Resolve Pending
Incidents.[35] Despite the fact that Judge Manalastas has not actively participated in the case since she has
not acted on the pending incidents, petitioners filed on February 5, 2002 a Motion for Inhibition. [36] A day
later, on February 6, 2002, Judge Manalastas granted the motion for inhibition. [37] Thus, the case was
again re-raffled and was assigned to Branch 167 presided by Judge Jesus G. Bersamira. On February 13,
2002, respondent filed again a Motion to Resolve Pending Incidents. [38]
On March 22 and 26, 2002, both parties filed separate Urgent Motions to Resolve the case.
[39]

Subsequently, petitioners filed a Manifestation and Motion that the Letter dated June 7, 1991 be

marked as their exhibit.[40] RTC Branch 167 in its Order dated April 30, 2002 admitted the exhibit over
the objections of respondent.[41]
On May 24, 2002, RTC Branch 167 rendered its Omnibus Order denying the Omnibus Motion to
quash the writ of execution and for consignation, as well as the motion to cite petitioners in contempt and
the ex parte motion for an order to divest petitioners title to respondent. It held that there was no
novation because there was no incompatibility between the Letter dated June 7, 1991 and the Decision
dated January 30, 1987 with the former only providing for a more liberal scheme of payment and grant of
reduced interest; that petitioners claim that respondents receivership and the Letter dated June 7, 1991
are supervening events which rendered the execution unjust and impossible is unavailing since there is
nothing on record to indicate that such circumstances resulted in unfairness and injustice to petitioners if
execution of judgment is carried out; that petitioners claim that the judgment could no longer be executed
by mere motion after the five-year period had elapsed from its finality is specious since any interruption
or delay occasioned by petitioners will extend the time within which the judgment may be executed by
motion.[42]

No motion for reconsideration was filed by the petitioners. Accordingly, RTC Branch 167 issued
a Writ of Execution on July 4, 2002. [43] On July 23, 2002, the Sheriff issued the Notice for Compliance of
the said writ.[44]
Petitioners filed on July 26, 2002 a petition for certiorari with the CA, docketed as CA-G.R. SP
No. 71849.[45] They reiterated that the Decision dated January 30, 1987 cannot be executed by mere
motion filed on February 1, 2000 since more than five years have elapsed.
On October 29, 2002, the CA denied the petition for certiorari.[46] It held that since the delays
were occasioned by petitioners own initiative and for their own advantage, the five-year period allowed
for the enforcement of the judgment by motion have been interrupted or suspended.
On November 13, 2002, petitioners filed a Motion for Reconsideration [47] but the CA denied it in
its Resolution dated April 29, 2003.[48]
Hence, the present petition anchored on the following grounds:
1. THE HONORABLE COURT OF APPEALS ERRED IN NOT RECOGNIZING
THAT PRESCRIPTION HAS SET IN IN THIS CASE CONSIDERING THAT
MORE THAN FIVE (5) YEARS, NAY, MORE THAN TEN (10) YEARS, HAD
ELAPSED SINCE THE DECISION BASED ON COMPROMISE AGREEMENT
BECAME FINAL AND EXECUTORY.
2. THE HONORABLE COURT OF APPEALS ERRED IN NOT RECOGNIZING
THAT EVENTS AND CIRCUMSTANCES IN THIS CASE HAVE TRANSPIRED
AFTER THE DECISION HAD BECOME FINAL AND EXECUTORY THAT
WARRANTS AND CALLS FOR STAY OR PRECLUSION OF EXECUTION,
CONSIDERING THAT THE LETTER-APPROVAL OF THE STATUTORY
RECEIVER OF RESPONDENT PARTAKES OF AN EXCEPTION TO THE
GENERAL RULE WHICH HAS BEEN CONSISTENTLY UPHELD BY THIS
HONORABLE SUPREME COURT.
3. THE HONORABLE COURT OF APPEALS ERRED IN NOT RECOGNIZING
THAT THE LETTER APPROVAL OF THE STATUTORY RECEIVER NOVATED
THE COMPROMISE AGREEMENT AND DECISION BASED ON
COMPROMISE AGREEMENT.
4. THE HONORABLE COURT OF APPEALS ERRED IN NOT RECOGNIZING
THAT THE EQUITIES OF THE CASE FAVOR HEREIN PETITIONERS. [49]
Anent the first ground, petitioners reiterate that under Section 6 of Rule 39, Rules of Court, the
execution of the judgment by mere motion was barred by prescription, given that more than five years
had lapsed since the Decision dated January 30, 1987 became final and executory and they cannot be

faulted for the delay as they have done nothing that warrants the conclusion that they employed
unscrupulous machinations and dilatory tactics.
As to the second ground, petitioners argue that respondents receivership is a supervening event
that rendered execution of the Decision dated January 30, 1987 impossible, if not unjust; that since a bank
under receivership is relieved of its obligation to pay interest on the deposits of its depositors, they
(petitioners) are also not obliged to pay interest on a loan due it and interest shall commence again only
after respondents resumption of banking operations.
On the third ground, petitioners maintain that the Letter dated June 7, 1991 of respondents
Statutory Receiver novated the Decision dated January 30, 1987 considering the substantial differences in
their principal terms and conditions.
On the fourth ground, petitioners aver that the acceleration clause provision of the Compromise
Agreement is iniquitous and void for being violative of morals and public policy.
In their Comment, respondent contends that the present petition should be dismissed outright
because it is barred by res judicata or the final judgment of this Court in G.R. No. 144719 and petitioners
engaged in forum-shopping by deliberately failing to state that they previously filed G.R. No. 144719
where the issue of prescription was raised. Even if the petition is given due course, respondent argues
that execution of the Decision dated January 30, 1987 is not barred by prescription; that respondents
receivership and the Letter dated June 7, 1991 of respondents Statutory Receiver are not circumstances
that would render the execution of the judgment unjust, inequitable or even merit a stay of execution; that
the Letter dated June 7, 1991 of respondents Statutory Receiver did not novate the Decision dated
January 30, 1987 since there was no intent to novate petitioners judgment obligation. [50]
In Reply, petitioners argue that res judicata is not applicable since the minute Resolution of the
Court in G.R. No. 144719: (a) does not operate as adjudication on the merits, (b) was not
rendered with jurisdiction over the
parties; and (c) involved different subject matters and causes of action. [51]
In the Resolution dated May 15, 2003, upon motion of petitioner, the Court directed the parties to
maintain the status quo until further orders from this Court.[52]
The petition is bereft of merit.
Prefatorily, the Court notes that the petition for certiorari before the CA should have been
dismissed outright since petitioners failed to file a motion for reconsideration from the RTC Omnibus
Order dated May 24, 2002. Section 1 of Rule 65 of the 1997 Rules of Civil Procedure provides:

SECTION 1. Petition for certiorari. When any tribunal, board or officer


exercising judicial or quasi-judicial functions has acted without or in excess of his
jurisdiction, or with grave abuse of discretion amounting to lack of or excess of
jurisdiction, and there is no appeal, or any plain, speedy, and adequate remedy in the
ordinary course of the law, a person aggrieved thereby may file a verified petition in the
proper court, alleging the facts with certainty and praying that judgment be rendered
annulling or modifying the proceedings of such tribunal, board or officer, and granting
such incidental reliefs as law and justice may require. (Emphasis supplied)
The plain and adequate remedy referred to in the rule is a motion for reconsideration of the assailed
decision or order. The purpose for this requirement is to grant an opportunity for the court or agency to
correct any actual or perceived error attributed to it by the re-examination of the legal and factual
circumstances of the case[53] without the intervention of a higher court. [54] Thus, the filing of a motion for
reconsideration is a condition sine qua non to the institution of a special civil action for certiorari.
While jurisprudence has recognized several exceptions to the rule, such as: (a) where the order is
a patent nullity, as where the court a quo has no jurisdiction; (b) where the questions raised in
the certiorari proceedings have been duly raised and passed upon by the lower court, or are the same as
those raised and passed upon in the lower court; (c) where there is an urgent necessity for the resolution
of the question and any further delay would prejudice the interests of the Government or of the petitioner
or the subject matter of the action is perishable; (d) where, under the circumstances, a motion for
reconsideration would be useless; (e) where petitioner was deprived of due process and there is extreme
urgency for relief; (f) where, in a criminal case, relief from an order of arrest is urgent and the granting of
such relief by the trial court is improbable; (g) where the proceedings in the lower court are a nullity for
lack of due process; (h) where the proceedings was ex parte or in which the petitioner had no opportunity
to object; and (i) where the issue raised is one purely of law or where public interest is involved, [55] none
of these exceptions apply here.
In the present case, the petitioners not only failed to explain their failure to file a motion for
reconsideration before the RTC, they also failed to show sufficient justification for dispensing with the
requirement. A motion for reconsideration is not only expected to be but would actually have provided an
adequate and more speedy remedy than the petition for certiorari.[56] Certiorari cannot be resorted to as a
shield from the adverse consequences of petitioners own omission to file the required motion for
reconsideration.[57]
In any case, even if petitioners procedural faux pas is ignored, their contentions on the substantive
aspect of the case fail to invite judgment in their favor.

Petitioners are barred from raising the issue on the prescription of execution of the decision by
mere motion under the principle of the law of the case, which is the practice of courts in refusing to
reopen what has been decided. It means that whatever is once irrevocably established as the
controlling legal rule or decision between the same parties in the same case continues to be the law
of the case, whether correct on general principles or not, so long as the facts on which such decision
was predicated continue to be the facts of the case before the court.[58]
The law of the case on the issue of prescription of the execution of the decision by mere motion
or applicability of Section 6, Rule 39 of the Rules of Court has been settled in the Order dated March 20,
2000 of RTC Branch 165. Upon denial of petitioners motion for reconsideration, they erroneously sought
review with this Court which dismissed their petition for review on certiorari for violation of the rule on
hierarchy of courts and for failure to show special and important reasons or exceptional and compelling
circumstances that justify a disregard of the rule. [59] This Courts Resolution became final and executory
on January 16, 2001. Thus, petitioners are bound thereby. The question of prescription has been settled
with finality and may no longer be resurrected by petitioners. It is not subject to review or reversal
in any court, even this Court.
The CA failed to consider this principle of law of the case, which is totally different from the
concept of res judicata. In Padillo v. Court of Appeals,[60] the Court distinguished the two as follows:
x x x Law of the case does not have the finality of the doctrine of res judicata, and applies
only to that one case, whereas res judicata forecloses parties or privies in one case by
what has been done in another case. In the 1975 case of Comilang v. Court of Appeals
(Fifth Division.), a further distinction was made in this manner:
The doctrine of law of the case is akin to that of former
adjudication, but is more limited in its application. It relates entirely to
questions of law, and is confined in its operation to subsequent
proceedings in the same case. The doctrine of res judicata differs
therefrom in that it is applicable to the conclusive determination of issues
of fact, although it may include questions of law, and although it may
apply to collateral proceedings in the same action or general proceeding,
it is generally concerned with the effect of an adjudication in a wholly
independent proceeding.[61]
To elucidate further, res judicata or bar by prior judgment is a doctrine which holds that a matter
that has been adjudicated by a court of competent jurisdiction must be deemed to have been finally and
conclusively settled if it arises in any subsequent litigation between the same parties and for the same
cause.[62] The four requisites for res judicata to apply are: (a) the former judgment or order must be final;
(b) it must have been rendered by a court having jurisdiction over the subject matter and the parties; (c) it

must be a judgment or an order on the merits; and (d) there must be, between the first and the second
actions, identity of parties, of subject matter and of cause of action. [63] The fourth requisite is wanting in
the present case. There is only one case involved. There is no second independent proceeding or
subsequent litigation between the parties. The present petition concerns subsequent proceedings in the
same case, with petitioners raising the same issue long settled by a prior appeal.
On the matter of forum shopping, while the Court has held that forum shopping exists only where
the elements of litis pendentia are present or where a final judgment in one case will amount
to res judicata in another,[64] it must be recalled that the doctrines of law of the case and res judicata are
founded on a public policy against reopening that which has previously been decided. [65] Both doctrines
share the policy consideration of putting an end to litigation. [66] Thus, the principle of forum shopping
should apply by analogy to a case involving the principle of law of the case.
Moreover, although forum shopping exists when, as a result of an adverse opinion in one forum,
a party seeks a favorable opinion, other than by appeal or certiorari, in another, or when a party
institutes two or more suits in different courts, either simultaneously or successively, in order to ask the
courts to rule on the same or related causes and/or to grant the same or substantially the same reliefs on
the supposition that one or the other court would make a favorable disposition or increase a partys
chances of obtaining a favorable decision or action, [67] the peculiar circumstances attendant in this case
bate out a situation akin to forum shopping - there is only one court involved, RTCPasig City, but the
issue of prescription was ultimately resolved by two different branches thereof Branches 165 and 167.
Petitioners first raised before RTC Branch 165 the issue of prescription of the execution of the
decision by mere motion. Said RTC Branch 165 ruled against petitioners and the courts order thereon
became final and executory. Petitioners raised the issue again in an Omnibus Motion with the same RTC
Branch 165. However, they moved for the inhibition of the presiding judge hearing the issue not only
once, but twice, both motions
granted in their favor and the case was successively raffled and assigned to two different branches of
RTC Pasig, first to Branch 268 and then to Branch 167, which ruled against petitioners.
Through the motions for inhibition of the presiding judges and the assignment of the case to
different branches of the same court, petitioners sought to obtain from one branch a ruling more favorable
than the ruling of another branch. They deliberately sought a friendly branch of the same court to grant
them the relief that they wanted, despite the finality of the resolution of one branch on the matter. This is
a permutation of forum shopping. It trifles with the courts, abuses their processes, degrades the
administration of justice, and congests court dockets. [68]

Be it remembered that the grave evil sought to be avoided by the rules against forum shopping is
the rendition by two competent tribunals of two separate, and contradictory decisions. Unscrupulous
party-litigants, taking advantage of a variety of competent tribunals, may repeatedly try their luck in
several different fora until a favorable result is reached. This would make a complete mockery of the
judicial system.[69]
As to petitioners arguments on the inequity of the acceleration clause of the Compromise
Agreement, respondents receivership as a supervening event, and novation of the Compromise
Agreement by the Letter dated June 7, 1991, the Court holds that these were raised as mere
afterthought. If petitioners sincerely believed in the merits of their arguments, they should have raised
them at the earliest opportunity and pursued their ultimate resolution. However, petitioners did not.
Petitioners are barred from raising arguments concerning the inequity of the acceleration clause
of the Compromise Agreement since they only raised it for the first time before the CA in their Petition
for Certiorari[70] in CA-G.R. SP No. 71849. To consider the argument raised belatedly in a pleading filed
in the appellate court, especially in the executory stage of the proceedings, would amount to trampling on
the basic principles of fair play, justice and due process.
In addition, after adopting and agreeing to the terms and conditions of the Compromise
Agreement, petitioners cannot be permitted to subsequently make a complete volte face and attack the
validity of the said agreement when they miserably failed to comply with its provisions. Our law and
policy do not sanction such a somersault. What's more, petitioners also failed to comply with the reduced
purchase amount and interest rate granted in the Letter dated June 7, 1991. They can hardly evoke
judicial compassion.
On the arguments relating to the effect of respondents receivership, petitioners brought this
matter for the first time in RTC Branch 165 in their Omnibus Motion dated March 5, 2001, fourteen years
after respondent was placed under receivership and was ordered to close operation in 1987. The belated
invocation of such circumstance speaks strongly of the staleness of their claim.
Besides, it would be absurd to adopt petitioners position that they are not obliged to pay interest
on their obligation when respondent was placed under receivership. When a bank is placed under
receivership, it would only not be able to do new business, that is, to grant new loans or to
accept new deposits. However, the receiver of the bank is in fact obliged to collect debts owing to the
bank, which debts form part of the assets of the bank. [71] Thus, petitioners obligation to pay interest
subsists even when respondent was placed under receivership. The respondents receivership is an
extraneous circumstance and has no effect on petitioners obligation.

On the claim of novation, petitioners raised it for the first time before RTC Branch 165 in
their Ex-Parte Motion to Recall the Courts Order dated December 5, 1991 [72]but they did not pursue the
matter after their ex-parte motion was denied. They did not raise said issue in their motion for
reconsideration or in their first petition for review oncertiorari with this Court in G.R. No. 144719. Thus,
they are deemed to have abandoned their claim of novation. They cannot be allowed to revive the issue
as it is offensive to basic rules of fair play, justice and due process.
Moreover, the Court cannot see how novation can take place considering that the surrounding
circumstances negate the same. The established rule is that novation is never presumed; it must be clearly
and unequivocally shown.[73] Novation will not be allowed unless it is clearly shown by express
agreement, or by acts of equal import. Thus, to effect an objective novation it is imperative that the new
obligation expressly declares that the old obligation is thereby extinguished or that the new obligation be
on every point incompatible with the new one.[74]
In the present case, there is no clear intent of the parties to make the Letter dated June 7, 1991
completely supersede and abolish the Compromise Agreement adopted and approved by the RTC in its
Decision dated January 30, 1987. Petitioners were merely granted a more liberal scheme of payment and
reduced rate of interest but the conditions relating to the consequences of default in payment remained,
such that when petitioners failed to comply with the approved mode of payment in the Letter dated June
7, 1991, respondents were entitled to call for enforcement of the Decision dated January 30, 1987 and
eject petitioners from the property. The well-settled rule is that, with respect to obligations to pay a sum
of money, the obligation is not novated by an instrument that expressly recognizes the old, changes only
the terms of payment, adds other obligations not incompatible with the old ones, or the new contract
merely supplements the old one.[75] Hence, there is no merit to petitioners claim of novation.
Without a doubt, the present case is an instance where the due process routine vigorously pursued
by petitioners is but a clear-cut devise meant to perpetually forestall execution of an otherwise final and
executory decision. Aside from clogging court dockets, the strategy is deplorably a common course
resorted to by losing litigants in the hope of evading manifest obligations. The Court condemns this
outrageous abuse of the judicial process by the petitioners and their counsels.
It is an important fundamental principle in the judicial system that every litigation must come to
an end. Access to the courts is guaranteed. But there must be a limit thereto. Once a litigants rights have
been adjudicated in a valid and final judgment of a competent court, he should not be granted an
unbridled license to come back for another try. The prevailing party should not be harassed by
subsequent suits. For, if endless litigations were to be encouraged, then unscrupulous litigants will
multiply to the detriment of the administration of justice. [76]

The Court reminds petitioners counsel of the duty of lawyers who, as officers of the court, must
see to it that the orderly administration of justice must not be unduly impeded. It is the duty of a counsel
to advise his client, ordinarily a layman on the intricacies and vagaries of the law, on the merit or lack of
merit of his case. If he finds that his clients cause is defenseless, then it is his bounden duty to advise the
latter to acquiesce and submit, rather than traverse the incontrovertible. A lawyer must resist the whims
and caprices of his client, and temper his clients propensity to litigate. A lawyers oath to uphold the
cause of justice is superior to his duty to his client; its primacy is indisputable. [77]
There should be a greater awareness on the part of litigants and counsels that the time of the
judiciary, much more so of this Court, is too valuable to be wasted or frittered away by efforts, far from
commendable, to evade the operation of a decision final and executory, especially so, where, as shown in
the present case, the clear and manifest absence of any right calling for vindication, is quite obvious and
indisputable.
Verily, by the undue delay in the execution of a final judgment in their favor, respondents have
suffered an injustice. The Court views with disfavor the unjustified delay in the enforcement of the final
decision and orders in the present case. Once a judgment becomes final and executory, the prevailing
party should not be denied the fruits of his victory by some subterfuge devised by the losing party.
[78]

Unjustified delay in the enforcement of a judgment sets at naught the role of courts in disposing

justiciable controversies with finality.


WHEREFORE, the present petition is DENIED. The assailed Decision and Resolution of the
Court of Appeals in CA-G.R. SP No. 71849 are AFFIRMED. The status quo order issued by this Court
on May 15, 2003 is LIFTED. The Regional Trial Court, Branch 167, Pasig City, is directed to issue the
corresponding writ of execution and the Sheriff of the court is ordered to enforce the same to its ultimate
conclusion.
Triple costs against petitioners.
SO ORDERED.

G.R. No. 97218 May 17, 1993

PROVIDENT SAVINGS BANK, petitioner,


vs.
COURT OF APPEALS, Former SPECIAL EIGHTH DIVISION and WILSON CHUA, respondents.
Gonzales, Batiller, Bilog & Associates for petitioner.
Resty R. Villanueva for private respondent.
MELO, J.:
The error, if error it be, of respondent Court of Appeals which petitioner seeks to rectify via the petitioner
forcertiorari before us refers to respondent court's major conclusion arrived at in CA-G.R. CV No. 21312
(Javellana (P), Kalalo, Dayrit, JJ) barring petitioner from foreclosing the subject realty on account of
prescription. Petitioner begs to differ, insisting that the period during which it was placed under
receivership by the Central Bank is akin to a caso fortuito and should not thus be reckoned against it.
Both petitioner and private respondent accepted the synthesized factual backdrop formulated by
respondent court, to wit:
This an appeal by both plaintiff and defendant from the decision of the Regional Trial Court of the
National Capital Judicial 29 September 1988, in Civil Case No. 977-NW, which directed plaintiffappellant to pay defendant-appellant the personal obligation of the spouses Guarin to defendant-appellant
in the amount of P62,500.00, together with the interest, penalties, and bank charges due thereon, and
ordering defendant-appellant thereafter to: (1) release the real estate mortgage executed by the spouses
Lorenzo K. Guarin and Liwayway J. Guarin in favor of defendant bank on 16 February 1967; (2) return to
surrender to plaintiff-appellant, as successor-in-interest of the spouses Guarin, the latter's Owner's
Duplicate of Title No. 177014; (3) pay plaintiff-appellant P20,000.00 as and for attorney's fees; and, (4)
pay the costs of suit.
The established fact are:
On 16 February 1967, the spouses Lorenzo K. Guarin and Liwayway J. Guarin (Guarins) obtained a loan
from defendant-appellant in the amount of P62,500.00 payable on or before 20 June 1967. As security for
the loan, they executed a real estate mortgage in favor of defendant-appellant over a parcel of land
covered by TCT No. 177014. (Exhs. C and D).
In September, 1972, defendant-appellant was placed under receivership by the Central Bank of the
Philippines until 27 July 1981 when the receivership was set aside by the Honorable Supreme Court.
On 11 December 1984, Lorenzo K. Guarin, in reply to the letter of latter's counsel informing that the
mortgaged property would be sold at public auction on 27 December 1984, assured he and his wife had
every intention of paying their obligation and requesting for a recomputation of their account and a
postponement of the foreclosure sale. (Exh. 1).
On 10 February 1986, the Guarins received a Statement of Account from defendant-appellant showing
two outstanding accounts as of 15 February 1986. One was account of Lorenzo K. Guarin in the amount
of P591,088.80, and the other was the account of L.K. Guarin Manufacturing Co., Inc. in the amount of
P6,287,380.27 (Attachment to Exh. 2)

On 26 February 1986, Lorenzo K. Guarin wrote defendant-appellant stating that he was ready and willing
to pay his obligation in the total amount of P591,088.80 as recomputed by defendant-appellant whenever
defendant-appellant was already to receive the payment and inquiring as to when his mortgaged title
would be available for him to pick up. (Exh. 2)
Defendant-appellant replied on 27 February 1986 that Lorenzo K. Guarin may make payment at its office
in Makati, Metro Manila, but that the mortgaged title could not be released to him even after the payment
of the obligation of P591,088.80 as it also served as security for the indebtedness of L.Y. Guarin
Manufacturing Co., Inc., to defendant-appellant which was undertaken by Lorenzo K. Guarin in his
personal capacity and as president of the corporation. (Exh. 3)
On 20 May 1986, plaintiff-appellant wrote defendant-appellant saying that the mortgaged property of the
Guarins had been offered to him as payment of the judgment he obtained against the Guarins in Civil
Case No. Q-47465 entitled, "Wilson Chua vs. Lorenzo K. Guarin", and requesting for defendantappellant's conformity to the assignment and expressing his willingness to pay for the obligation of Mr.
Guarin so that the title could be released by defendant-appellant. (Exh. 4)
On 10 July 1986, the Guarins and plaintiff-appellant executed a Deed of Absolute Sale With Assumption
of Mortgaged whereby the Guarins sold the mortgaged property to Guarins sold the appellant for the sum
of P250,000.00 and plaintiff-appellant undertook to assume the mortgaged obligation of the Guarins with
defendant-appellant which as of 15 February 1985 amounted to P591,088.80.(Exh. B).
On 5 August 1986, plaintiff-appellant informed defendant-appellant that as a result of the judgment in
Civil Case No. Q-47645, the mortgaged property had been sold to him by the Guarins, as evidenced by
the Deed of Sale enclosed for guidance and information of defendant-appellant. He requested that he be
allowed to pay the loan secured by the mortgaged, otherwise, he would be constrained to bring the matter
to court. (Exh. 5) In reply, defendant-appellant, on 11 August 1986, informed plaintiff-appellant that his
request could be granted if he would settle the obligation of L.K. Guarin Manufacturing Co., Inc., as well
and defendant-appellant's letter to Mr. Guarin dated 27 February 1986. (Exh. 6)
On 3 August 1987, counsel for plaintiff-appellant addressed a letter to defendant-appellant informing that
plaintiff-appellant had purchased the mortgaged property from the Guarin's and requesting that the
owner's copy of TCT No. 177014 in the possession of defendant-appellant be released to him so that he
can register the sale and have the title to the property transferred in his name. He likewise, informed
defendant-appellant that it had lost whatever right or action had against the Guarins because of
prescription. (Exh. E) Defendant-appellant replied on 10 August 1987 stating the reasons why they could
not comply with plaintiff-appellant's demands. (Exh. F)
On 21 August 1986, plaintiff-appellant filed a complaint against defendant-appellant to compel the latter
to: (1) release the real estate mortgaged executed by the Guarins in favor of defendant-appellant on 16
February 1967; (2) return or surrender to plaintiff-appellant, as successor-in-interest of the Guarins, the
latter's owner's duplicate of TCT No. 177014; and (3) pay plaintiff-appellant P2,750,000.00 as actual
and/or consequential damages, moral damages as may be proved during the trial, exemplary damages as

may be reasonably assessed by the court, and attorney's fees of P50,00.00. Defendant-appellant answered
the complaint thereof and setting up special and affirmative defenses. After trial, judgment was rendered
as stated in the opening paragraph hereof from which both parties appealed . . . . (pp. 35-37, Rollo.)
Concerning the challenge posed by Provident Saving Bank against the personality of Wilson Chua to
initiate the action to compel the release of the real estate mortgage and the delivery of the owner's
duplicate copy of the certificate of title, respondent court noted that Wilson Chua can be considered a
real-property-in-interest because he is the successor-in-interest of the Guarins who is naturally entitled to
the realty as against the so-called right of Provident Savings Bank, as mortgagee, to foreclose the
mortgage which had become stale through sheer lapse of time. The matter of novation in the form of
substitution of the debtor without corresponding acquiesence of the mortgagee was viewed by respondent
court to be legally inconsequential due to the demeanor of the mortgagee-bank in requiring Wilson Chua
to pay the indebtedness of Lorenzo Guarin, posterior to the change of obligors, which act was construed
as equivalent to consent.
To the question of whether petitioner can still foreclose the subject realty, respondent court gave a
negative response on account of the absence of proof to indicate that the bank was precluded from
collecting indebtedness while it was under receivership from September, 1972 until July 20,1981. Thus,
there was no legal interruption of the pres-criptive period to speak of, said respondent court, which
intervened between June 20, 1967, the date the mortgage matured, and June 20, 1977 the last day within
which petitioner could have foreclosed the mortgage.
Respondent court did not also heed the suggestion of the petitioner bank to interpret Wilson Chua's
assumption of the mortgage on July 10, 1986 as tantamount to an explicit acknowledgement that the
obligation was outstanding and had not yet prescribed.
As a result of these observations, respondent court reversed the decision of the trial court insofar as it
ordered Wilson Chua to pay the sum of P591,088.80 to the bank and affirmed the other dispositions made
the court of origin (p. 42, Rollo).
Following the unfavorable judgment, the bank filed a motion for reconsideration and a motion for new
trial premised on newly discovered evidence relative to a statement of account unearthed by the bank's
liaison officer from the loose folders on October 18, 1990 which it believed to be of legal significance to
the case. But respondent court was unperturbed, observing that the vital piece of document could have
been located in the course of trial had the slightest degree of prudence been exercised, considering that
the statement of account sprouted the same day the liaison officer was advised to take an inventory of the
records ( p. 45, Rollo).
Hence, the petitioner at bar.
Consistent with its theory premised on fuerza major, petitioner insists that it can not be blamed for not
lifting a finger, so speak, during the period when it was enjoined by the Central Bank on September 15,
1972 from transacting business until this Court affirmed on July 27,1981 the decision of the Court of
Appeals annulling the proscription against petitioner in Central Bank vs. Court of Appeals (106 SCRA
143 [1981]. We are not unaware of the rule laid down in Teal Motor Co. vs. Court of First Instance of

Manila (51 Phil. 549 [1928]; Martin, Commentaries and Jurisprudence on the Philippine Commercial
Laws, 1986 Revised ed., p.125) that the appointment of a receiver does not dissolve the corporation nor
does it interfere with the exercise of its corporate rights. But this principles is, of course, applicable to a
situation where there is no restraint imposed on the corporation, unlike in the case at bar where petitioner
Provident Savings Bank was specifically forbidden and immobilized from doing business in the
Philippines on September 15, 1972 through Monetary Board Resolution No. 1766 until 1981 when the
decision in Central Bank vs. Court of Appeals (supra, at p. 150) was rendered. The question which
immediately crops up is whether a foreclose proceeding falls within the purview of the phrase "doing
business". In Mentholatum Co., Inc., et al. vs. Mangaliman, et al. (72 Phil. 524 [1941]; Moreno,
Philippine Law Dictionary, Second ed., 1972, p. 186), the term was construed by Justice Laurel to refer
to:
. . . a continuity of commercial dealings and arrangements, and contemplates to that extent, the exercise of
some of the words or the normally incident to, and in progressive prosecution of, the purpose ands object
of its organizations. (p. 528; emphasis supplied.)
Withal, we believe that a foreclose is deemed embraced by the phrase "doing business" as a preparatory
measure to acquiring or holding property for petitioner as a saving bank under Section 34 of the General
Banking Act. Like any other banking institution, petitioner is vested with the usual attributes and powers
of a corporation under Section 36 of the Corporation Code (Vitug, Pandect of Commercial Law and
Jurisprudence, 1990 ed., p. 475). The prerogative of a bank to foreclose is implicit from and is even
necessary to enforce collection of secured debts under Section 36(11) and 45 of the Corporation Code, in
conjunction with Section 29 of the General Banking Act (6 Fletcher, 206; Agbayani, Commentaries and
Jurisprudence on the Commercial Laws of the Philippines, 1990 ed., p. 325).
When a bank is prohibited to do business by the Central Bank and a receiver is appointed for such bank,
that bank would not be able to do new business, i.e., to grant new loans or to accept new deposits.
However, the receiver of the bank is obliged to collect debts owing to the bank, which debts form part of
the assets of the bank. The receiver must assemble the assets and pay the obligation of the bank under
receivership, and take steps to prevent dissipation of such assets. Accordingly, the the receiver of the bank
is obliged to collect pre-existing debts due to the bank, and in connection therewith, to foreclose
mortgages securing debts. This is not to ignoreThe Philippine Trust Co. vs. HSBC (67 Phil. 204 [1939],
for in that case, the Court simply rejected the objections of certain creditors to the report of a receiver, that
is, objections that the receiver did not report the collection made before the beginning of his receivership.
It would follow that the bank is bound by the acts, or failure to act, of the receiver. At the same time, the
receiver is liable to the bank for culpable or negligent failure to collect the assets of such bank and to
safeguard said assets.
Having arrived at the conclusion that the foreclosure is part of bank's business activity which could not
have been pursued by the receiver then because of the circumstances discussed in the Central Bank case,
we are thus convinced that the prescriptive period was legally interrupted by fuerza mayor in 1972 on
account on the prohibition imposed by the Monetary Board against petitioner from transacting business,
until the directive of the board was nullified in 1981. Indeed, the period during which the obligee was
prevented by a caso fortuito from enforcing his right is not reckoned against him (Article 1154, New Civil
Code). When prescription is interrupted, all the benefits acquired so far from the possession cease and

when prescription starts anew, it will be entirely a new one. This concept should not be equated with
suspension where the past period is included in the computation being added to the period after
prescription is resumed (4 Tolentino, Commentaries and Jurisprudence on the Civil Code of the
Philippines, 1991 ed., pp. 18-19). Consequently, when the closure of was set aside in 1981, the period of
ten years within which to foreclose under Article 1142 of the New Civil Code began to run again and,
therefore, the action filed on August 21, 1986 to compel petitioner to release the mortgage carried with it
the mistaken notion that petitioner's own suit foreclosure had prescribed. What exacerbates the situation is
the letter of private respondent requesting petitioner on August 6, 1986 that private respondent be allowed
to pay the loan secured by the mortgage as the result of the Deed of Sale executed by the Guarins in his
favor on July 10, 1986 (pp. 36-37, Rollo). In point of law, this written communication is synonymous to
an express acknowledgment of the obligation and had the effect of interrupting the prescription for the
second time (Article 1155, New Civil Code; Osmea vs. Rama, 14 Phil. 99 [1909]; 4 Tolentino, supra at
p. 50). And this piece of document necessarily estops private respondent from setting up prescription visa-vis his unfounded supposition that acknowledgment of the debt is of no moment because the right of the
petitioner to foreclose had long prescribed in 1977 (p. 13, Petition; p. 7, Comment; pp. 19 and 58, Rollo).
Contrary to respondent court's prescription of the existence of novation, the evidence at hand does not
buttress a finding along this line from the mere fact that petitioner supposedly did not question the
substitution when the bank reacted to private respondent's offer to pay the loan (p. 39, Rollo). What seems
to have escaped respondent court's attention was the condition imposed by the petitioner that it will grant
private respondent's request if the latter will also shoulder the obligation incurred by Lorenzo Guarin in
his capacity as president of the corporation (p.37, Rollo). The consent of the petitioner to the substitution,
as creditor, was thus erroneously appreciated.
With the conclusions reached, we need not discuss the other issues raised in the petition.
WHEREFORE, the petition is hereby GRANTED. The decision dated August 31, 1990, including the
resolution dated February 6, 1991 of respondent court are hereby set aside and another one entered
dismissing Wilson Chua's complaint. No special pronouncement is made to costs.
Bidin, Davide, Jr., and Romero, JJ., concur.
Feliciano, J., concurs in the result.

SPS. CESAR A. LARROBIS, JR. and VIRGINIA S. LARROBIS, petitioners, vs. PHILIPPINE
VETERANS BANK, respondent.

DECISION
AUSTRIA-MARTINEZ, J.:
Before us is a petition for review of the decision of the Regional Trial Court (RTC), Cebu City, Branch
24, dated April 17, 1998,[1] and the order denying petitioners motion for reconsideration dated August
25, 1998, raising pure questions of law.[2]
The following facts are uncontroverted:
On March 3, 1980, petitioner spouses contracted a monetary loan with respondent Philippine Veterans
Bank in the amount of P135,000.00, evidenced by a promissory note, due and demandable on February
27, 1981, and secured by a Real Estate Mortgage executed on their lot together with the improvements
thereon.
On March 23, 1985, the respondent bank went bankrupt and was placed under receivership/liquidation by
the Central Bank from April 25, 1985 until August 1992.[3]
On August 23, 1985, the bank, through Francisco Go, sent the spouses a demand letter for accounts
receivable in the total amount of P6,345.00 as of August 15, 1984,[4] which pertains to the insurance
premiums advanced by respondent bank over the mortgaged property of petitioners.[5]
On August 23, 1995, more than fourteen years from the time the loan became due and demandable,
respondent bank filed a petition for extrajudicial foreclosure of mortgage of petitioners property. [6] On
October 18, 1995, the property was sold in a public auction by Sheriff Arthur Cabigon with Philippine
Veterans Bank as the lone bidder.
On April 26, 1996, petitioners filed a complaint with the RTC, Cebu City, to declare the extra-judicial
foreclosure and the subsequent sale thereof to respondent bank null and void.[7]
In the pre-trial conference, the parties agreed to limit the issue to whether or not the period within which
the bank was placed under receivership and liquidation was a fortuitous event which suspended the
running of the ten-year prescriptive period in bringing actions.[8]
On April 17, 1998, the RTC rendered its decision, the fallo of which reads:
WHEREFORE, premises considered judgment is hereby rendered dismissing the complaint for lack of
merit. Likewise the compulsory counterclaim of defendant is dismissed for being unmeritorious.[9]
It reasoned that:
defendant bank was placed under receivership by the Central Bank from April 1985 until 1992. The
defendant bank was given authority by the Central Bank to operate as a private commercial bank and
became fully operational only on August 3, 1992. From April 1985 until July 1992, defendant bank was
restrained from doing its business. Doing business as construed by Justice Laurel in 222 SCRA 131
refers to:

.a continuity of commercial dealings and arrangements and contemplates to that extent, the
performance of acts or words or the exercise of some of the functions normally incident to and in
progressive prosecution of the purpose and object of its organization.
The defendant banks right to foreclose the mortgaged property prescribes in ten (10) years but such
period was interrupted when it was placed under receivership. Article 1154 of the New Civil Code to this
effect provides:
The period during which the obligee was prevented by a fortuitous event from enforcing his right is not
reckoned against him.
In the case of Provident Savings Bank vs. Court of Appeals, 222 SCRA 131, the Supreme Court said.
Having arrived at the conclusion that a foreclosure is part of a banks activity which could not have been
pursued by the receiver then because of the circumstances discussed in the Central Bank case, we are thus
convinced that the prescriptive period was legally interrupted by fuerza mayor in 1972 on account of the
prohibition imposed by the Monetary Board against petitioner from transacting business, until the
directive of the Board was nullified in 1981. Indeed, the period during which the obligee was prevented
by a caso fortuito from enforcing his right is not reckoned against him. (Art. 1154, NCC) When
prescription is interrupted, all the benefits acquired so far from the possession cease and when
prescription starts anew, it will be entirely a new one. This concept should not be equated with
suspension where the past period is included in the computation being added to the period after the
prescription is presumed (4 Tolentino, Commentaries and Jurisprudence on the Civil Code of the
Philippines 1991 ed. pp. 18-19), consequently, when the closure of the petitioner was set aside in 1981,
the period of ten years within which to foreclose under Art. 1142 of the N.C.C. began to run and,
therefore, the action filed on August 21, 1986 to compel petitioner to release the mortgage carried with it
the mistaken notion that petitioners own suit for foreclosure has prescribed.
Even assuming that the liquidation of defendant bank did not affect its right to foreclose the plaintiffs
mortgaged property, the questioned extrajudicial foreclosure was well within the ten (10) year prescriptive
period. It is noteworthy to mention at this point in time, that defendant bank through authorized Deputy
Francisco Go made the first extrajudicial demand to the plaintiffs on August 1985. Then on March 24,
1995 defendant bank through its officer-in-charge Llanto made the second extrajudicial demand. And we
all know that a written extrajudicial demand wipes out the period that has already elapsed and starts anew
the prescriptive period. (Ledesma vs. C.A., 224 SCRA 175.)[10]
Petitioners filed a motion for reconsideration which the RTC denied on August 25, 1998.[11] Thus, the
present petition for review where petitioners claim that the RTC erred:
I
IN RULING THAT THE PERIOD WITHIN WHICH RESPONDENT BANK WAS PUT UNDER
RECEIVERSHIP AND LIQUIDATION WAS A FORTUITOUS EVENT THAT INTERRUPTED THE
RUNNING OF THE PRESCRIPTIVE PERIOD.
II

IN RULING THAT THE WRITTEN EXTRA-JUDICIAL DEMAND MADE BY RESPONDENT ON


PETITIONERS WIPED OUT THE PERIOD THAT HAD ALREADY ELAPSED.
III
IN DENYING PETITIONERS MOTION FOR RECONSIDERATION OF ITS HEREIN ASSAILED
DECISION.[12]
Petitioners argue that: since the extra-judicial foreclosure of the real estate mortgage was effected by the
bank on October 18, 1995, which was fourteen years from the date the obligation became due on
February 27, 1981, said foreclosure and the subsequent sale at public auction should be set aside and
declared null and void ab initio since they are already barred by prescription; the court a quo erred in
sustaining the respondents theory that its having been placed under receivership by the Central Bank
between April 1985 and August 1992 was a fortuitous event that interrupted the running of the
prescriptive period;[13] the court a quos reliance on the case of Provident Savings Bank vs. Court of
Appeals[14]is misplaced since they have different sets of facts; in the present case, a liquidator was duly
appointed for respondent bank and there was no judgment or court order that would legally or physically
hinder or prohibit it from foreclosing petitioners property; despite the absence of such legal or physical
hindrance, respondent banks receiver or liquidator failed to foreclose petitioners property and therefore
such inaction should bind respondent bank;[15] foreclosure of mortgages is part of the
receivers/liquidators duty of administering the banks assets for the benefit of its depositors and
creditors, thus, the ten-year prescriptive period which started on February 27, 1981, was not interrupted
by the time during which the respondent bank was placed under receivership; and the Monetary Boards
prohibition from doing business should not be construed as barring any and all business dealings and
transactions by the bank, otherwise, the specific mandate to foreclose mortgages under Sec. 29 of R.A.
No. 265 as amended by Executive Order No. 65 would be rendered nugatory.[16] Said provision reads:
Section 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 nonbank 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 the official of the
Central Bank or a person of recognized competence in banking or finance, as receiver to immediately take
charge its 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.
Petitioners further contend that: the demand letter, dated March 24, 1995, was sent after the ten-year
prescriptive period, thus it cannot be deemed to have revived a period that has already elapsed; it is also
not one of the instances enumerated by Art. 1115 of the Civil Code when prescription is interrupted;
[17] and the August 23, 1985 letter by Francisco Go demanding P6,345.00, refers to the insurance
premium on the house of petitioners, advanced by respondent bank, thus such demand letter referred to

another obligation and could not have the effect of interrupting the running of the prescriptive period in
favor of herein petitioners insofar as foreclosure of the mortgage is concerned.[18]
Petitioners then prayed that respondent bank be ordered to pay them P100,000.00 as moral
damages, P50,000.00 as exemplary damages and P100,000.00 as attorneys fees.[19]
Respondent for its part asserts that: the period within which it was placed under receivership and
liquidation was a fortuitous event that interrupted the running of the prescriptive period for the
foreclosure of petitioners mortgaged property; within such period, it was specifically restrained and
immobilized from doing business which includes foreclosure proceedings; the extra-judicial demand it
made on March 24, 1995 wiped out the period that has already lapsed and started anew the prescriptive
period; respondent through its authorized deputy Francisco Go made the first extra-judicial demand on
the petitioners on August 23, 1985; while it is true that the first demand letter of August 1985 pertained to
the insurance premium advanced by it over the mortgaged property of petitioners, the same however
formed part of the latters total loan obligation with respondent under the mortgage instrument and
therefore constitutes a valid extra-judicial demand made within the prescriptive period.[20]
In their Reply, petitioners reiterate their earlier arguments and add that it was respondent that insured the
mortgaged property thus it should not pass the obligation to petitioners through the letter dated August
1985.[21]
To resolve this petition, two questions need to be answered: (1) Whether or not the period within which
the respondent bank was placed under receivership and liquidation proceedings may be considered a
fortuitous event which interrupted the running of the prescriptive period in bringing actions; and (2)
Whether or not the demand letter sent by respondent banks representative on August 23, 1985 is
sufficient to interrupt the running of the prescriptive period.
Anent the first issue, we answer in the negative.
One characteristic of a fortuitous event, in a legal sense and consequently in relations to contract, is that
its occurrence must be such as to render it impossible for a party to fulfill his obligation in a normal
manner.[22]
Respondents claims that because of a fortuitous event, it was not able to exercise its right to foreclose the
mortgage on petitioners property; and that since it was banned from pursuing its business and was placed
under receivership from April 25, 1985 until August 1992, it could not foreclose the mortgage on
petitioners property within such period since foreclosure is embraced in the phrase doing business, are
without merit.
While it is true that foreclosure falls within the broad definition of doing business, that is:
a continuity of commercial dealings and arrangements and contemplates to that extent, the performance
of acts or words or the exercise of some of the functions normally incident to and in progressive
prosecution of the purpose and object of its organization.[23]

It should not be considered included, however, in the acts prohibited whenever banks are prohibited from
doing business during receivership and liquidation proceedings.
This we made clear in Banco Filipino Savings & Mortgage Bank vs. Monetary Board, Central Bank of
the Philippines[24] where we explained that:
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 banks 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.[25]
This is consistent with the purpose of receivership proceedings, i.e., to receive collectibles and preserve
the assets of the bank in substitution of its former management, and prevent the dissipation of its assets to
the detriment of the creditors of the bank.[26]
When a bank is declared insolvent and placed under receivership, the Central Bank, through the Monetary
Board, determines whether to proceed with the liquidation or reorganization of the financially distressed
bank. A receiver, who concurrently represents the bank, then takes control and possession of its assets for
the benefit of the banks creditors. A liquidator meanwhile assumes the role of the receiver upon the
determination by the Monetary Board that the bank can no longer resume business. His task is to dispose
of all the assets of the bank and effect partial payments of the banks obligations in accordance with legal
priority. In both receivership and liquidation proceedings, the bank retains its juridical personality
notwithstanding the closure of its business and may even be sued as its corporate existence is assumed by
the receiver or liquidator. The receiver or liquidator meanwhile acts not only for the benefit of the bank,
but for its creditors as well.[27]
In Provident Savings Bank vs. Court of Appeals,[28] we further stated that:
When a bank is prohibited from continuing to do business by the Central Bank and a receiver is appointed
for such bank, that bank would not be able to do new business, i.e., to grantnew loans or to
accept new deposits. However, the receiver of the bank is in fact obliged to collect debts owing to the
bank, which debts form part of the assets of the bank. The receiver must assemble the assets and pay the
obligation of the bank under receivership, and take steps to prevent dissipation of such assets.
Accordingly, the receiver of the bank is obliged to collect pre-existing debts due to the bank, and in
connection therewith, to foreclose mortgages securing such debts.[29] (Emphasis supplied.)
It is true that we also held in said case that the period during which the bank was placed under
receivership was deemed fuerza mayor which validly interrupted the prescriptive period.[30] This is
being invoked by the respondent and was used as basis by the trial court in its decision. Contrary to the
position of the respondent and court a quo however, such ruling does not find application in the case at
bar.

A close scrutiny of the Provident case, shows that the Court arrived at said conclusion, which is an
exception to the general rule, due to the peculiar circumstances of Provident Savings Bank at the time. In
said case, we stated that:
Having arrived at the conclusion that a foreclosure is part of a banks business activity which could not
have been pursued by the receiver then because of the circumstances discussed in the Central Bank case,
we are thus convinced that the prescriptive period was legally interrupted by fuerza mayor in 1972 on
account of the prohibition imposed by the Monetary Board against petitioner from transacting business,
until the directive of the Board was nullified in 1981.[31] (Emphasis supplied.)
Further examination of the Central Bank case reveals that the circumstances of Provident Savings Bank at
the time were peculiar because after the Monetary Board issued MB Resolution No. 1766 on September
15, 1972, prohibiting it from doing business in the Philippines, the banks majority stockholders
immediately went to the Court of First Instance of Manila, which prompted the trial court to issue its
judgment dated February 20, 1974, declaring null and void the resolution and ordering the Central Bank
to desist from liquidating Provident. The decision was appealed to and affirmed by this Court in 1981.
Thus, the Superintendent of Banks, which was instructed to take charge of the assets of the bank in the
name of the Monetary Board, had no power to act as a receiver of the bank and carry out the obligations
specified in Sec. 29 of the Central Bank Act.[32]
In this case, it is not disputed that Philippine Veterans Bank was placed under receivership by the
Monetary Board of the Central Bank by virtue of Resolution No. 364 on April 25, 1985, pursuant to
Section 29 of the Central Bank Act on insolvency of banks. [33]
Unlike Provident Savings Bank, there was no legal prohibition imposed upon herein respondent to deter
its receiver and liquidator from performing their obligations under the law. Thus, the ruling laid down in
the Provident case cannot apply in the case at bar.
There is also no truth to respondents claim that it could not continue doing business from the period of
April 1985 to August 1992, the time it was under receivership. As correctly pointed out by petitioner,
respondent was even able to send petitioners a demand letter, through Francisco Go, on August 23, 1985
for accounts receivable in the total amount ofP6,345.00 as of August 15, 1984 for the insurance
premiums advanced by respondent bank over the mortgaged property of petitioners. How it could send a
demand letter on unpaid insurance premiums and not foreclose the mortgage during the time it was
prohibited from doing business was not adequately explained by respondent.
Settled is the principle that a bank is bound by the acts, or failure to act of its receiver.[34] As we held
in Philippine Veterans Bank vs. NLRC,[35] a labor case which also involved respondent bank,
all the acts of the receiver and liquidator pertain to petitioner, both having assumed petitioners
corporate existence. Petitioner cannot disclaim liability by arguing that the non-payment of MOLINAs
just wages was committed by the liquidators during the liquidation period.[36]
However, the bank may go after the receiver who is liable to it for any culpable or negligent failure to
collect the assets of such bank and to safeguard its assets.[37]

Having reached the conclusion that the period within which respondent bank was placed under
receivership and liquidation proceedings does not constitute a fortuitous event which interrupted the
prescriptive period in bringing actions, we now turn to the second issue on whether or not the extrajudicial demand made by respondent bank, through Francisco Go, on August 23, 1985 for the amount
of P6,345.00, which pertained to the insurance premiums advanced by the bank over the mortgaged
property, constitutes a valid extra-judicial demand which interrupted the running of the prescriptive
period. Again, we answer this question in the negative.
Prescription of actions is interrupted when they are filed before the court, when there is a written extrajudicial demand by the creditors, and when there is any written acknowledgment of the debt by the debtor.
[38]
Respondents claim that while its first demand letter dated August 23, 1985 pertained to the insurance
premium it advanced over the mortgaged property of petitioners, the same formed part of the latters total
loan obligation with respondent under the mortgage instrument, and therefore, constitutes a valid extrajudicial demand which interrupted the running of the prescriptive period, is not plausible.
The real estate mortgage signed by the petitioners expressly states that:
This mortgage is constituted by the Mortgagor to secure the payment of the loan and/or credit
accommodation granted to the spouses Cesar A. Larrobis, Jr. and Virginia S. Larrobis in the amount of
ONE HUNDRED THIRTY FIVE THOUSAND (P135,000.00) PESOS ONLY Philippine Currency in
favor of the herein Mortgagee.[39]
The promissory note, executed by the petitioners, also states that:
FOR VALUE RECEIVED, I/WE, JOINTLY AND SEVERALLY, PROMISE TO PAY THE
PHILIPPINE VETERANS BANK, OR ORDER, AT ITS OFFICE AT CEBU CITY THE SUM OF ONE
HUNDRED THIRTY FIVE THOUSAND PESOS (P135,000.00), PHILIPPINE CURRENCY WITH
INTEREST AT THE RATE OF FOURTEEN PER CENT (14%) PER ANNUM FROM THIS DATE
UNTIL FULLY PAID.[40]
Considering that the mortgage contract and the promissory note refer only to the loan of petitioners in the
amount of P135,000.00, we have no reason to hold that the insurance premiums, in the amount
of P6,345.00, which was the subject of the August 1985 demand letter, should be considered as pertaining
to the entire obligation of petitioners.
In Quirino Gonzales Logging Concessionaire vs. Court of Appeals,[41] we held that the notices of
foreclosure sent by the mortgagee to the mortgagor cannot be considered tantamount to written
extrajudicial demands, which may validly interrupt the running of the prescriptive period, where it does
not appear from the records that the notes are covered by the mortgage contract.[42]
In this case, it is clear that the advanced payment of the insurance premiums is not part of the mortgage
contract and the promissory note signed by petitioners. They pertain only to the amount of P135,000.00

which is the principal loan of petitioners plus interest. The arguments of respondent bank on this point
must therefore fail.
As to petitioners claim for damages, however, we find no sufficient basis to award the same. For moral
damages to be awarded, the claimant must satisfactorily prove the existence of the factual basis of the
damage and its causal relation to defendants acts.[43] Exemplary damages meanwhile, which are
imposed as a deterrent against or as a negative incentive to curb socially deleterious actions, may be
awarded only after the claimant has proven that he is entitled to moral, temperate or compensatory
damages.[44] Finally, as to attorneys fees, it is demanded that there be factual, legal and equitable
justification for its award.[45] Since the bases for these claims were not adequately proven by the
petitioners, we find no reason to grant the same.
WHEREFORE, the decision of the Regional Trial Court, Cebu City, Branch 24, dated April 17, 1998, and
the order denying petitioners motion for reconsideration dated August 25, 1998 are hereby REVERSED
and SET ASIDE. The extra-judicial foreclosure of the real estate mortgage on October 18, 1995, is
hereby declared null and void and respondent is ordered to return to petitioners their owners duplicate
certificate of title.
Costs against respondent.
SO ORDERED.

Larrobis Jr vs. Philippin Veterans Bank 440 SCRA 34 (2004)


Facts:
On march 3, 1980, petitioner spouses contracted a monetary loan with respondent Philippine Veterans
Bank in the amount of P135,000,
Evidenced by a promissory note, due and demandable on February 27, 1981,
Secured a Real Estate Mortgage executed on their lot together with the improvements,

On March 23, 1985, the respondent bank went bankrupt and was placed under receivership/liquidation,
the Central Bank from April 23, 1985 until august 1992,
On August 23, 185, the bank through Francisco Go, sent the spouses a demand letter for accounts
receivable in the total amount of P6345 as of August 15, 1984, which pertains to the insurance premiums
advanced by respondent bank over the mortgaged property of petitioners,
On august 23, 1995, more than 14 years from the time the load become due and demandable,
Respondent bank filed a petition for extra judicial foreclosure of mortgage of petitioners property.
Issue:
Whether or not the period within which the bank was placed under receivership and liquidation was a
fortuitous event which suspended the running of the ten year prescriptive period in bringing actions.
Held:
Wherefore, premises considered judgment is hereby rendered dismissing the complaint for lack of
merit. Likewise the compulsory counter claim of defendant is dismissed for being unmeritorious.
It reasoned that defendant bank was placed under receivership by the Central Bank for April1985 until
1992,
From april 1985 until July 1992, defendant bank was restrained from doing its business.
The defendant banks right to foreclosure the mortgaged property prescribes in 10 years but such period
was interrupted when it was placed under receivership.
Article 1154 of the NCC to this effective provides the period during which the obliged was prevented
by a fortuitous event from enforcing his right is not reckoned against him.

Lipana vs. Development Bank of the Philippines G.R. No. 73884, September 24, 1987
After the Monetary Board has declared that a bank is insolvent and has ordered it to cease operations,
the Board becomes the trustee of its assets for the equal benefit of all the creditors, including depositors.
To execute the judgment would unduly deplete the assets of respondent bank to the obvious prejudice of
other depositors and creditors.
Facts:

Petitioners opened and maintained both time and savings deposits with the respondent Development Bank
of Rizal. When some of the time deposit certificates matured, petitioners were not able to cash them but
instead were issued a managers check which was dishonored upon presentment. Demands for the
payment of both time and savings deposits have failed. Hence, petitioners filed with the RTC a collection
suit with prayer for issuance of a writ of preliminary attachment which was granted by the court. The
RTC rendered judgment in favor of petitioners. Meanwhile, the Monetary Board placed the respondent
bank under receivership. Subsequently, the motion for execution pending appeal filed by petitioners was
granted by the court but was also stayed by the trial judge. The motion filed by petitioners to lift the stay
order having been denied, this petition was filed.
Issue:
Whether or not respondent judge could legally stay execution of judgment that has already become final
and executor
Held:
In the instant case, the stay of the execution of judgment is warranted by the fact that respondent bank
was placed under receivership. To execute the judgment would unduly deplete the assets of respondent
bank to the obvious prejudice of other depositors and creditors, since, as aptly stated in Central Bank of
the Philippines vs. Morfe (63 SCRA 114), after the Monetary Board has declared that a bank is insolvent
and has ordered it to cease operations, the Board becomes the trustee of its assets for the equal benefit of
all the creditors, including depositors. The assets of the insolvent banking institution are held in trust for
the equal benefit of all creditors, and after its insolvency, one cannot obtain an advantage or a preference
over another by an attachment, execution or otherwise.
After the Monetary Board has declared that a bank is insolvent and has ordered it to cease operations, the
Board becomes the trustee of its assets for the equal benefit of all the creditors, including depositors. The
assets of the insolvent banking institution are held in trust for the equal benefit of all creditors, and after
its insolvency, one cannot obtain an advantage or a preference over another by an attachment, execution
or otherwise. To execute the judgment would unduly deplete the assets of respondent bank to the obvious
prejudice of other depositors and creditors.

FIRST DIVISION
[G.R. No. 130439. October 26, 1999]
PHILIPPINE VETERANS BANK, petitioner, vs. HONORABLE NATIONAL LABOR
RELATIONS COMMISSION, HON. POTENCIANO CAIZARES, JR., and DR. TEODORICO
V. MOLINA, respondents.

DECISION
DAVIDE, JR., C.J.:
In this petition for certiorari under Rule 65 of the Rules of Court, petitioner seeks to set aside the
resolution[1] of the National Labor Relations Commission (NLRC) in NLRC Case No. 05-02940-91 and
its order[2]denying the motion for reconsideration thereof.
In 1983, petitioner Philippine Veterans Bank was placed under receivership by the Central Bank
(now Bangko Sentral)[3] by virtue of Resolution No. 334 issued by the Monetary Board. Petitioner was
subsequently placed under liquidation on 15 June 1985. Consequently, its employees, including private
respondent Dr. Jose Teodorico V. Molina (MOLINA), were terminated from work and given their
respective separation pay and other benefits. To assist in the liquidation, some of petitioners former
employees were rehired, among them MOLINA, whose re-employment commenced on 15 June 1985.
On 11 May 1991, MOLINA filed a complaint [4] against Renan V. Santos,[5] Pacifico U. Cervantes and
Alfredo L. Dizon, members of the liquidation team. [6] Docketed as NLRC-NCR Case No. 05-02940-91,
the complaint demanded the implementation of Wage Orders Nos. NCR-01 and NCR-02 (hereafter W.O.
1 and W.O. 2) as well as moral damages and attorneys fees in the amount of P300,000.
In his position paper, MOLINA alleged that he started working for petitioner as a legal assistant on
17 March 1974. When petitioner was placed under liquidation in 1985, he was retained as Manager II in
the Legal Department, where he continued to receive a monthly salary of P3,754.60.
Meanwhile, W.O. 1 took effect on 10 November 1990, prescribing a P17-increase in the daily wage
of employees whose monthly salary did not exceed P3,802.08. On the other hand, W.O. 2, which became
effective on 8 January 1991, mandated a P12-increase in the daily wage of employees whose monthly
salary did not exceed P4,319.16. MOLINA claimed that his salary should have been adjusted in
compliance with said wage orders.
In their position paper, the liquidation team countered that MOLINA was not entitled to any salary
increase because he was already receiving a monthly salary of P6,654.60 broken down as
follows: P3,754.60 as basic compensation, P2,000 as representation and transportation allowance
(RATA), and a special allowance of P900.
In his decision,[7] Labor Arbiter Potenciano S. Caizares, Jr. rejected the 26.16 factor used by the
liquidators in computing the daily wage of MOLINA, adopting instead the factor of 365
days. Consequently, they were ordered to pay MOLINA P4,136.64 and P2,190 representing the wage
differentials due him under W.O. 1 and W.O. 2. They were also required to pay him P100,000 in moral
damages and attorneys fees.
On appeal, the NLRC sustained the labor arbiters ruling after concluding that MOLINA was a
regular employee of petitioner with a basic monthly salary of P3,754.60 at the time of his dismissal on 31
January 1992. He was, therefore, entitled to the wage increases mandated by the aforesaid wage orders.
In its assailed resolution of 7 April 1997, the NLRC decreed thus:
WHEREFORE, the respondents [members of herein petitioners liquidation team] are hereby directed to
pay the complainant [MOLINA] the total sum [sic] of P112,501.20 broken down as follows:
WO# NCR-01 & 01-A P17.00/day

Nov. 1990 ~ Jan. 7, 1991

WO# NCR-02 & 02-A P12.00/day

Jan. 8, 1991 ~ Jan.31,1992

(Date of termination)
Wage Differential:
WO# NCR-01 (Nov. 1990 Jan. 31, 1992 ~ 15 mos.)
P17.00 x 365 12 = P517.08 x 15 mos. ~ P7,756.20
WO# NCR-02 (Jan. 8, 1991 Jan. 31, 1992 ~ 13 mos.)
P12.00 x 365 12 = P365.00 x 13 mos. ~ P4,745.00
Total Wage Differential
Moral Damages & Attorneys Fees
TOTAL AWARD

P 12,501.20
P100,000.00
P112,501.20

SO ORDERED.[8]
As MOLINA moved for the execution of the NLRC resolution, petitioner, in turn, moved for its
reconsideration. In its order of 27 June 1997, the NLRC denied petitioners motion, prompting the latter
to file the instant petition with a prayer for the issuance of a temporary restraining order and writ of
preliminary injunction.
In this action, petitioner questions the propriety of its substitution as a party-respondent below on the
pretext that it was thereby deprived of its right to due process. Second, MOLINA was alluding to acts
committed by the representatives of the then Central Bank. Petitioner emphasizes that he
was rehired only to assist in the liquidation process. [9] In fact, all its employees were dismissed and given
their corresponding separation pay and benefits. At that moment, the employer-employee relationship
between petitioner and MOLINA ceased to exist. Third, petitioner maintains that MOLINA is estopped
from claiming that it continued to be his employer during the rehabilitation period since the admissions in
his pleadings, one of which is that the liquidators were his employers, are binding and conclusive.
Nonetheless, petitioner reiterates the arguments raised by the original respondents, particularly that
the factor of 26.16 should have been applied in determining MOLINAs daily wage. Doing so would
show that MOLINAs daily pay exceeded the minimum wage and, therefore, was beyond the scope of the
wage orders.
Petitioner also avers that the award of P100,000 in moral damages and attorneys fees was
inappropriate since the complaint did not specify the same, and it was clearly excessive, considering that
the case was decided based on the pleadings and without the benefit of trial. In fact, MOLINA failed to
prove his claim for both moral damages and attorneys fees. Even if due, the amount far surpassed any
actual damage that MOLINA may have suffered. In any event, moral damages may only be recovered in
labor cases when the dismissal is attended by bad faith or fraud, or when it constitutes an act oppressive
to labor or committed in a manner contrary to good morals, good customs or public policy. MOLINAs
dismissal was made in the ordinary course of business.
On the other hand, MOLINA primarily asserts that upon petitioners rehabilitation it assumed all the
rights and obligations of the liquidator, including the NLRCs monetary award arising from the labor
complaint he filed against the liquidation team.

The Office of the Solicitor General supports the NLRCs finding that MOLINA was entitled to the
wage increases because it was never disputed that his salary of P3,754.60 was clearly covered by the
wage orders. The liquidators, however, used the 26.16 instead of the 365 factor in computing his daily
wage. The OSG cites the ruling of the National Wages Council in its letter [10] to the Philippine Veterans
Bank Retained Employees, where the Council opined that the retained employees were entitled to the
wage increase computed on the basis of 365 days. It also agrees with the NLRCs conclusion that
MOLINA is entitled to moral damages and attorneys fees, although they must be separately
specified. Finally, the OSG opines that upon the rehabilitation of petitioner, it assumed all the assets,
liabilities, rights and obligations of the liquidation team. This would include the salaries of the employees
hired for liquidation purposes, such as MOLINA.
In its reply, petitioner insists that when it was placed under liquidation, it lost its juridical personality,
such that it could no longer enter into contracts or transact business. All its assets and liabilities were
turned over to the Central Bank. MOLINAs complaint pertained to acts committed during liquidation
and so was correctly filed against the liquidation team. Its substitution as party-respondent was clearly
erroneous.
Hence, the issues to be resolved are: (1) Are W.O. 1 and W.O. 2 applicable to MOLINA? (2) Is
MOLINA entitled to moral damages and attorneys fees? (3) If so, who is liable to pay MOLINAs
claims?
We see no reason to disturb the factual finding of the labor arbiter, and affirmed by the NLRC, that
MOLINAs salary was within the coverage of the cited wage orders. Well-settled is the rule that the
findings of fact of quasi-judicial bodies are generally accorded respect and finality where they are
supported by substantial evidence. [11] Indeed, MOLINAs monthly salary of P3,754.60 was never at
issue. What was in dispute was thecomputation of his daily wage.
W.O. 1 expressly states that employees having a monthly salary of not more than P3,802.08 are
entitled to receive the mandated wage increase. Undeniably, MOLINA was receiving a monthly salary
of P3,754.60. This fact alone leaves no doubt that he should benefit from said wage order.
On the other hand, W.O. 2 raised the ceiling for entitlement to the wage increase. If MOLINA was
covered by the earlier wage order, with more reason should the later wage order apply to him.
Worth mentioning is the opinion[12] rendered by the National Wages Council on the query of the
Philippines Veterans Bank Retained Employees, on whether they were entitled to a wage increase under
Republic Act No. 6640,[13] viz.:
The documents attached to your query show that the Bank has been consistently using the factor of 365
days in computing your equivalent monthly salary prior to its being placed under receivership by the
Central Bank. This is evident in the wage and allowance increases granted under previous Presidential
Decrees and Wage Orders, which were given by the Bank on monthly basis, i.e., where the rest days are
unworked [sic] but paid. This is also indicated in the appointment and service records of bank personnel
who started out as daily paid employees and were eventually promoted as permanent employees with
fixed monthly salaries. However, when R.A. 6640 went into force, the Bank unilaterally reduced the
factor to 262 instead of maintaining factor 365 as was the practice/policy long before the effectivity of the
Act. And when R.A 6727 took effect, the Bank reverted to the old practice/policy of using factor 365
days in computing your equivalent monthly rate salary. xxx
May we add that the old practice of the bank in using factor 365 days in a year in determining your
equivalent monthly salary cannot unilaterally be changed by your employer without the consent of the
employees, such practice being now a part of the terms and conditions of your employment. An

employment agreement, whether written or unwritten, is a bilateral contract and as such either party
thereto cannot change or amend the terms thereof without the consent of the other party thereto.
From the foregoing, it is clear that you are entitled to the wage increase under R.A. 6440 computed on the
basis of 365 paid days and to the corresponding salary differentials as a result of the application of this
factor. [Emphasis supplied]
Evidently, the use of the 365 factor is binding and conclusive, forming as it did part of the
employment contract. Petitioner can no longer invoke the 26.16 factor after it voluntarily adopted
the 365 factor as a policy even prior to its receivership. To abandon such policy and revert to its old
practice of using the 26.16 factor would be a diminution of a labor benefit, which is prohibited by the
Labor Code.[14] It cannot be doubted that the 365 factor favors petitioners employees, including
MOLINA, because it results in a higher determination of their monthly salary.
As to the second issue, we agree with the NLRC that MOLINA is entitled to moral damages and
attorneys fees. He may have omitted such claims in his complaint, but he certainly included them in his
position paper. We hold that such allegation is sufficient to enable the complainant to seek an award
thereof. The complaint being pro forma, MOLINAs omission to specify a claim for damages does not
bar recovery thereof especially when, as in this case, such a claim was prayed for in his position paper. [15]
The NLRC, however, did not distinguish between attorneys fees and moral damages in affirming the
award of P100,000 to MOLINA. We hold that awards for moral damages and attorneys fees cannot be
consolidated for they are different in nature and each must be separately determined. [16] Since the Labor
Code limits attorneys fees to ten percent of the wages awarded, [17] and the total wage differential due
MOLINA was computed at P12,501.20, only P1,250.12 should have been awarded as attorneys fees.
Moving on to the issue of moral damages, the records show that MOLINA based his claim on the
alleged failure of the liquidation team to implement the benefits of the wage orders, without submitting
any proof in support thereof. It is basic, however, that for moral damages to be awarded, the claimant
must satisfactorily prove its factual basis and causal connection with the respondents acts. [18] In this,
MOLINA failed, for which reason the award of moral damages must be deleted.
Finally, we rule that the payment of MOLINAs claims devolves upon petitioner, not the liquidation
team. When a bank is declared insolvent and placed under receivership, the Monetary Board of the
Central Bank determines whether to proceed with the liquidation or reorganization of the financially
distressed bank.[19] A receiver takes control and possession of the assets of the bank for the benefit of its
creditors[20] and concurrently represents the bank. [21] On the other hand, a liquidator assumes the role of the
receiver upon the determination by the Monetary Board that the bank can no longer resume business. His
task is to dispose of all the assets of the bank and effect partial payments of its obligations in accordance
with their legal priority.[22] In both receivership and liquidation proceedings, the bank retains its juridical
personality notwithstanding the closure of its business; in fact, the bank may even be sued. [23] Its corporate
existence is assumed by the receiver or liquidator. The latter, however, acts not only for the benefit of the
bank, but for the banks creditors as well.[24]
In the instant case, petitioner was initially closed and put under receivership and
liquidation. Subsequently, its rehabilitation was effected by virtue of Republic Act No. 7169 [25] and
Monetary Board Resolution No. 348 dated 10 April 1992. Rehabilitation contemplates a continuance of
corporate life and activities in an effort to restore and reinstate the corporation to its former position of
successful operation and solvency.[26] Upon its rehabilitation, petitioner assumed the rights and obligations
of the receiver and liquidator. This includes MOLINAs claim for unpaid wages. It must be borne in mind
that all the acts of the receiver and liquidator pertain to petitioner, both having assumed petitioners
corporate existence. Petitioner cannot disclaim liability by arguing that the non-payment of MOLINAs
just wages was committed by the liquidators during the liquidation period.

WHEREFORE, this case is DISMISSED. The assailed Resolution of 7 April 1997 and Order of 27
June 1997 of the National Labor Relations in NLRC Case No. 05-02940-91 are AFFIRMED with the
MODIFICATION that the award of moral damages is deleted and the award of attorneys fees is reduced
to ONE THOUSAND TWO HUNDRED FIFTY & 12/100 PESOS (P1,250.12).
No pronouncement as to costs.
SO ORDERED.

PCGG v SANDIGANBAYAN
Facts:
1976: General Bank & Trust Company (Gen bank) encountered financial difficulties. Central Bank
extended loans to Gen bank in the hope of rehabilitating it (P310M). Nonetheless, Gen bank failed to
recover.

1977: Gen bank was declared insolvent. A public bidding of Gen banks assets was held with the Lucio
Tan Group winning the bid. Solicitor General Mendoza, representing the government, intervened with the
liquidation of Gen bank.
1986: after EDSA I, Cory established the PCGG to recover the ill-gotten wealth of Marcos, his family
and cronies.
1987: PCGG filed a case against Lucio Tan and certain other people. In relation to this case, PCGG
issued several writs of sequestration on properties allegedly acquired by the respondents by taking
advantage of their close relationship and influence with Marcos. Sandiganbayan heard the case.
Estelito Mendoza (Solicitor General during the time of Marcos) represented the respondents.
1991: PCGG filed a motion to disqualify Mendoza, because of his participation in the liquidation of
Genbank. Genbank (now Allied Bank) is one of the properties that PCGG is seeking to be sequestered
from the Lucion Tan group. PCGG invoked Rule 6.03 of the Code of Professional Responsibility.
Sandiganbayan denied PCGGs motion. According to the Sandiganbayan, Mendoza did not take an
adverse position to that taken on behalf of the Central Bank. And Mendozas appearance as counsel was
beyondthe 1 year prohibitory period since he retired in 1986.
Issue:
W/N Rule 6.03 of the Code of Professional Responsibility apllies to Estelito Mendoza
Held:
No, it does not apply to Mendoza. Sandiganbayan decision is affirmed.
The matter (see 3rdnote), or the act of Mendoza as Solicitor General is advising the Central Bank on
how to proceed with the liquidation of Gen bank. This is not the matter contemplated by Rule 6.03 of
the Code of Professional Responsibility.
The matter involved in the liquidation of Gen bank is entirely different from the matter involved in the
PCGG case against the Lucio Tan group.
The intervention contemplated in Rule 6.03 should be substantial and important. The role of Mendoza
in the liquidation of Genbank is considered insubstantial.
SC is even questioning why PCGG took such a long time to revive the motion to disqualify Mendoza.
Apparently, PCGG already lost a lot of cases against Mendoza. Kyles interpretation: PCGG getting
desperate
Something to think about: SC is somehow of the opinion that Rule 6.03 will make it harder for the
government to get good lawyers in the future to work for them because of the prohibition of accepting
cases in the future that were related to ones work as a government counsel.
Concurring Opinions:
Panganiban & Carpio: the congruent interest prong of Rule 6.03 should have a prescriptive period
Tinga: Rule 6.03 cannot apply retroactively to Mendoza (when he was Solicitor General, no Rule 6.03
yet)
Bottom line, they are all questioning the unfairness of the rule if applied without any prescriptive
period and if applied retroactively
Notes:

Adverse-interest conflicts where the matter in which the former government lawyer represents a
client in private practice is substantially related to a matter that the lawyer dealt with while employed with
the government and the interests of the current and former are adverse
Congruent-interest conflicts the use of the word conflict is a misnomer, it does not involve
conflicts at all, as it prohibits lawyers from representing a private person even if the interests of the
former government client and the new client are entirely parallel
Matter any discrete, isolatable act as well as identifiable transaction or conduct involving a particular
situation and specific party
Intervention interference that may affect the interests of others

In Re: Petition for Assistance in the Rural Bank of Bokod G.R. No. 158261 December 18, 2006
The 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

Facts:
Rural Bank of Bokod (Benguet), Inc. (RBBI) conducted a special examination of RBBI was conducted by
the Supervision and Examination Sector (SES) Department III of what is now the Bangko Sentral ng
Pilipinas (BSP),4 wherein various loan irregularities were uncovered. In a letter, dated 20 May 1986, the
SES Department III required the RBBI management to infuse fresh capital into the bank, within 30 days
from date of the advice, and to correct all the exceptions noted. However, up to the termination of the
subsequent general examination conducted by the SES Department III, no concrete action was taken by
the RBBI management. A memorandum and report, dated 28 August 1990, were submitted by the
Director of the SES Department III concluding that the RBBI remained in insolvent financial condition
and it can no longer safely resume business with the depositors, creditors, and the general public.
BSP liquidator of RBBI caused the filing with the RTC of a Petition for Assistance in the Liquidation of
RBBI, the Monetary Board transferred to herein petitioner Philippine Deposit Insurance Corporation
(PDIC) the receivership/liquidation of RBBI.The respondent Bureau of Internal Revenue (BIR), through
Atty. Justo Reginaldo, manifested that PDIC should secure a tax clearance certificate from the appropriate
BIR Regional Office, pursuant to Section 52(C) of Republic Act No. 842. PDIC argues that the closure of
banks under Section 30 of the New Central Bank Act is summary in nature and procurement of tax
clearance as required under Section 52(C) of the Tax Code of 1997 is not a condition precedent.
Issue:
Whether or not a bank ordered closed and placed under receivership by the Monetary Board of the BSP
still needs to secure a tax clearance certificate
Held:
Section 52(C) of the Tax Code of 1997 and the BIR-SEC Regulations No. 1 regulate the relations only as
between the SEC and the BIR, making a certificate of tax clearance a prior requirement before the SEC
could approve the dissolution of a corporation. In Spec. Proc. No. 91-SP-0060 pending before the RTC,
RBBI was placed under receivership and ordered liquidated by the BSP, not the SEC; and the SEC is not
even a party in the said case, although the BIR is. This Court cannot find any basis to extend the SEC
requirements for dissolution of a corporation to the liquidation proceedings of RBBI before the RTC
when the SEC is not even involved therein.
The 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: Provided, That the
receiver may deposit or place the funds of the institution in non-speculative investments. The receiver
shall determine as soon as possible, but not later than ninety (90) days from take over, whether the
institution may be rehabilitated or otherwise placed in such a condition that it may be permitted to resume
business with safety to its depositors and creditors and the general public: Provided, That any
determination for the resumption of business of the institution shall be subject to prior approval of the
Monetary Board.
FIRST DIVISION

SPOUSES ZACARIAS BACOLOR and


CATHERINE BACOLOR,
Petitioners,

G.R. No. 148491


Present:

versus

BANCO FILIPINO SAVINGS AND


MORTGAGE
BANK,DAGUPAN CITY BRANCH and
MARCELINO C. BONUAN,
Respondents.

PUNO, C.J., Chairperson,


SANDOVAL-GUTIERREZ,
*
CORONA,
AZCUNA, and
**
GARCIA, JJ.
Promulgated:
February 8, 2007

x --------------------------------------------------------------------------------------x
DECISION
SANDOVAL-GUTIERREZ, J.:
Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as
amended, assailing the Decision[1] of the Court of Appeals in CA-G.R. CV No. 47732 promulgated
on February 23, 2001 and its Resolution dated May 30, 2001.
On February 11, 1982, spouses Zacarias and Catherine Bacolor, herein petitioners, obtained a loan
of P244,000.00 from Banco Filipino Savings and Mortgage Bank, Dagupan City Branch, respondent.
They executed a promissory note providing that the amount shall be payable within a period of ten (10)
years with a monthly amortization of P5,380.00 beginning March 11, 1982 and every 11 th day of the
month thereafter; that the interest rate shall be twenty-four percent (24%) per annum, with a penalty of
three percent (3%) on any unpaid monthly amortization; that there shall be a service charge of three
percent (3%) per annum on the loan; and that in case respondent bank seeks the assistance of counsel to
enforce the collection of the loan, petitioners shall be liable for ten percent (10%) of the amount due as
attorneys fees and fifteen percent (15%) of the amount due as liquidated damages.
As security for the loan, petitioners mortgaged with respondent bank their parcel of land located
in Dagupan City, Pangasinan, registered under Transfer Certificate of Title No. 40827.
From March 11, 1982 to July 10, 1991, petitioners paid respondent bank P412, 199.36. Thereafter,
they failed to pay the remaining balance of the loan.
On August 7, 1992, petitioners received from respondent bank a statement of account stating that
their indebtedness as of July 31, 1992 amounts to P840,845.61.
In its letter dated January 13, 1993, respondent bank informed petitioners that should they fail to
pay their loan within fifteen (15) days from notice, appropriate action shall be taken against them.

Due to petitioners failure to settle their obligation, respondent instituted, on March 5, 1993, an
action for extra-judicial foreclosure of mortgage.
Prior thereto, or on February 1, 1993, petitioners filed with Branch 40 of the same RTC, a
complaint for violation of the Usury Law against respondent, docketed as Civil Case No. D-10480. They
alleged that the provisions of the promissory note constitute a usurious transaction considering the (1)
rate of interest, (2) the rate of penalties, service charge, attorneys fees and liquidated damages, and (3)
deductions for surcharges and insurance premium. In their amended complaint, petitioners further alleged
that, during the closure of respondent bank, it ceased to be a banking institution and, therefore, could not
charge interests and institute foreclosure proceeding.
On August 25, 1994, the RTC rendered its decision dismissing petitioners complaint, holding
that:
(1)
The terms and conditions of the Deed of Mortgage and the Promissory Note are
legal and not usurious.
The plaintiff freely signed the Deed of Mortgage and the Promissory Note with
full knowledge of its terms and conditions.
The interest rate of 24% per annum is not usurious and does not violate the Usury
Law (Act 2655) as amended by P.D. No. 166.
The rate of interest, including commissions, premiums, fees and other charges, on
a loan or forbearance of any money etc., regardless of maturity x x x, shall not be
subject to any ceiling under or pursuant to the Usury Law, as amended (CB Circular no.
905). Hence, the 24% interest per annum is allowed under P.D. No. 166.
For sometime now, usury has been legally non-existent. Interest can now be as
lender and borrower may agree upon (Verdejo v. CA, Jan. 29, 1988. 157 SCRA 743).
The imposition of penalties in case the obligation is not fulfilled is not prohibited
by the Usury Law. Parties to a contract of loan may validly agree upon the imposition of
penalty charges in case of delay or non-payment of the loan. The purpose is to compel
the debtor to pay his debt on time (Go Chioco v. Martinez, 45 Phil. 256, 265).
(2)
The closure of Banco Filipino did not suspend or stop its usual and normal
banking operations like the collection of loan receivables and foreclosures of mortgages.
In view of the foregoing, plaintiffs failed to substantiate their cause of action against the
defendant.[2]
On appeal, the Court of Appeals rendered its Decision affirming the Decision of the trial
court. Petitioners subsequent motion for reconsideration was denied.
Hence, this present petition for review on certiorari raising this lone issue: whether the interest
rate is excessive and unconscionable.
It is the petitioners contention that while the Usury Law ceiling on interest rates was lifted by
Central Bank Circular No. 905, there is nothing in the said circular which grants respondent bank carte

blanche authority to raise interest rates to levels which either enslave the borrower or lead to a
hemorrhaging of their assets.[3]
In its comment [4], respondent bank maintained that petitioner, by signing the Deed of Mortgage
and Promissory Note, knowingly and freely consented to its terms and conditions. A contract between
the parties must not be impaired. The interest rate of 24% per annum is not usurious and does not
violate the Usury Law.[5]
The petition lacks merit.
Article 1956 of the Civil Code provides that no interest shall be due unless it has been expressly
stipulated in writing. Here, the parties agreed in writing on February 11, 1982 that the rate of interest on
the petitioners loan shall be 24% per annum.
At the time the parties entered into the loan transaction, the applicable law was the Usury Law
(Act 2655), as amended by P.D. No. 166, which provides that the rate of interest for the forbearance of
money when secured by a mortgage upon real estate, should not be more than 6% per annum or the
maximum rate prescribed by the Monetary Board of the Central Bank of the Philippines in force at the
time the loan was granted. Central Bank Circular No. 783, which took effect on July 1, 1981, removed
the ceiling on interest rates on a certain class of loans, thus:
SECTION 2. The interest rate on a loan forbearance of any money, goods,
or credits with a maturity of more than seven hundred thirty (730) days shall not be
subject to any ceiling.[6]
In the present case, the term of the subject loan is for a period of 10 years. Considering that its
maturity is more than 730 days, the interest rate is not subject to any ceiling following the above
provision. Therefore, the 24% interest rate agreed upon by parties does not violate the Usury Law, as
amended by P.D. 116.
This Court has consistently held that for sometime now, usury has been legally non-inexistent and
that interest can now be charged as lender and borrower may agree upon. [7] As a matter of fact, Section 1
of Central Bank Circular No. 905 states that:
SECTION 1. The rate of interest, including commissions, premiums, fees and other
charges , on a loan or forbearance of any money, goods, or credits, regardless of maturity
and whether secured or unsecured, that may be charged or collected by any person,
whether natural or judicial, shall not be subject to any ceiling prescribed under or
pursuant to the Usury Law, as amended.[8]
Moreover, in Trade & Investment Development Corporation of the Philippines v. Roblett
Industrial Construction Corporation,[9] this Court has ruled that:
With the suspension of the Usury Law and the removal of interest ceiling, the
parties are free to stipulate the interest to be imposed on monetary obligations. Absent
any evidence of fraud, undue influence, or any vice of consent exercised by one party
against the other, the interest rate agreed upon is binding upon them.

There is no indication in the records that any of the incidents which vitiate consent on the part of
petitioners is present. Indeed, the interest rate agreed upon is binding on them. With respect to the
penalty and service charges, the same are unconscionable or excessive.
Petitioners invoke this Courts rulings in Almeda vs. Court of Appeals[10] and Medel vs. Court of
Appeals to show that the interest rate in the subject promissory note is unconscionable. Their reliance
on these cases is misplaced. In Almeda, what this Court struck down as being unconscionable and
excessive was the unilateral increase in the interest rates from 18% to 68%. This Court ruled thus:
[11]

It is plainly obvious, therefore, from the undisputed facts of the case that
respondent bank unilaterally altered the terms of its contract by increasing the
interest rates of the loan without the prior assent of the latter. In fact, the manner of
agreement is itself explicitly stipulated by the Civil Code when it provides, in Article
1956, that No interest shall be due unless it has been expressly stipulated in
writing. What has been stipulated in writing from a perusal of the interest rate
provision of the credit agreement signed between the parties is that petitioners were
bound merely to pay 21% interest x x x.
Petitioners also cannot find refuge in Medel. In this case, what this Court declared as
unconscionable was the imposition of a 66% interest rate per annum. In the instant case, the interest rate
is only 24% per annum, agreed upon by both parties. By no means can it be considered unconscionable
or excessive.
Verily, petitioners cannot now renege on their obligation to comply with what is incumbent upon
them under the loan agreement. A contract is the law between the parties and they are bound by its
stipulations.[12]
Petitioners further contend that during the closure of respondent bank (from January 1, 1985 to July
1, 1994), it lost its function as a banking institution and, therefore, could no longer charge interests and
institute foreclosure proceedings.
In the case of Banco Filipino Savings & Mortgage Bank vs. Monetary Board, Central Bank of the
Philippines,[13] this Court ruled that the banks closure did not diminish the authority and powers of the
designated liquidator to effectuate and carry on the administration of the bank, thus:
x x x. We did not prohibit however acts such as receiving collectibles and
receivables or paying off creditors claims and other transactions pertaining to the normal
operations of a bank. There is no doubt that that the prosecution of suits for collection
and the foreclosure of mortgages against debtors of the bank by the liquidator are among
the usual and ordinary transactions pertaining to the administration of a bank. x x x.
Likewise, in Banco Filipino Savings and Mortgage Bank vs. Ybaez,[14] where one of the issues
was whether respondent bank can collect interest on its loans during its period of liquidation and closure,
this Court held:

In Banco Filipino Savings and Mortgage Bank v. Monetary Board, the validity of
the closure and receivership of Banco Filipino was put in issue. But the pendency of the
case did not diminish the authority of the designated liquidator to administer and continue
the banks transactions. The Court allowed the bank liquidator to continue receiving
collectibles and receivables or paying off creditors claims and other transactions
pertaining to normal operations of a bank. Among these transactions were the
prosecution of suits against debtors for collection and for foreclosure of mortgages. The
bank was allowed to collect interests on its loans while under liquidation, provided
that the interests were legal.
In fine, we hold that the interest rate on the loan agreed upon between the parties is not excessive or
unconscionable; and that during the closure of respondent bank, it could still function as a bonding
institution, hence, could continue collecting interests from petitioners.
WHEREFORE, we DENY the petition and AFFIRM the challenged Decision and Resolution
of the Court of Appeals in CA-G.R. CV No. 47732. Costs against petitioners.
SO ORDERED.

FIDELITY SAVINGS AND MORTGAGE BANK vs. JUDGE PEDRO D. CENZON et. Al.
NATURE OF THE CASE

Petition for review on certiorari under Rule 45


This petition seeks to review the decision of Judge Cenzon in Civil Case No. 84800, ordering petitioner
Fidelity Savings and Mortgage Bank 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.
Facts:
Herein private respondents are husband and wife who deposited with the defendant Fidelity Savings Bank
the amount of FIFTY THOUSAND PESOS (P50,000.00) under Savings Account No. 16-0536; that
likewise, and another FIFTY THOUSAND PESOS (P50,000.00) under Certificate of Time Deposit No.
0210; that the aggregate amount of deposits of the petitioners with Fidelity Savings and Mortgage Bank is
ONE HUNDRED THOUSAND PESOS (P100,000.00);
On February 18, 1969, petitioner Fidelity Savings Bank was placed under insolvency. On February 19,
1969 and up to the date that the petition for review is filed with the Supreme Court, the
Superintendent of Banks has been taking charge of the assets of defendant Fidelity Savings and Mortgage
Bank In pursuant to Resolution No. 350, as issued by the Monetary Board;
On October 10, 1969 the PDIC 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;
On December 9, 1969, the Monetary Board issued its Resolution No. 2124 directing the liquidation of the
affairs of defendant Fidelity Savings Bank;
On January 25, 1972, the OSG filed a "Petition for Assistance and Supervision in Liquidation" of the
affairs of Fidelity Savings and Mortgage Bank. The liquidation proceeding has not been terminated and is
still pending up to the time that the petition is filed before the Supreme Court;
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; The petitioners through their
counsel, sent demand letters to respondents, demanding the immediate payment of the aforementioned
savings and time deposits;
On August 10, 1973, private respondents instituted action for a sum of money with damages against
Fidelity Savings and Mortgage Bank et.al. The case against other defendants was dismissed
Issues
(PURE QUESTIONS OF LAW)
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 by the anomalous
real estate transactions without violating the provisions of the Civil Code on preference of credits.
Held
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 non-performance of the
obligation. 13Consequently, 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.

Philippine Veterans Bank Employees Union vs Vega


Facts:

In 1985, Central Bank of the Philippines filed a petition for assistance in the liquidation of the Philippine
Veterans Bank (PVB), in the RTC of Manila Branch 39. Thereafter, the PVB employees union herein
petitioner filed claim for accrued and unpaid employee wages and benefits.
On January 2, 1992, RA 7169 (An Act to Rehabilitate the PVB) which was signed into law by Pres.
Corazon Aquino and which was published in the Official Gazette on February 24, 1992.
Thereafter, petitioners filed with the labor tribunals their residual claims for benefits and for reinstatement
upon reopening of the bank.
In May 1992, Central Bank issued a certificate of authority allowing the PVB to reopen despite the late
mandate for rehabilitation and reopening, respondent Judge Vega continued with the liquidation
proceedings of the bank alleging further that RA 7169 became effective only on March 10, 1992 or 15
days after its publication in the OfficialGazette on February 24, 1992.

Issue:
Whether or not RA 7169 became effective on January 2, 1992.

Held:
The Supreme Court upheld that while as a rule laws take effect after 15 days following completion of
their publication in the Official Gazette or in a newspaper of general circulation in the Philippines, the
legislature has the authority to provide for exceptions as indicated in the clause unless otherwise
provided. Citing Tanada vs Tuvera, this clause refers to the date of effectivity and not to
the requirement of publication, which cannot in any event be omitted. The reason is that such omission
would affect due process in so far as it would deny the public knowledge of the laws that are supposed to
govern it.

People vs. Dick Ong 204 SCRA 942 (1991)


Facts:

Accused Dick Ong, one of the depositors of the Home Savings Bank and Trust Company (HSBTC)
opened a savings account with HSBTC with an initial deposit of P22.14 in cash and P10,000.00 in check.
Ong was allowed to withdraw from his savings account with the Bank the sum of P5,000.00, without his
check undergoing the usual and reglementary clearance. The withdrawal slip was signed and approved by
Lino Morfe, then the Branch Manager, and accused Lucila Talabis, the Branch Cashier. Subsequently,
Ong deposited eleven checks in his savings account with the Bank and against which he made
withdrawals against its amount. Again, the withdrawal of the amount by Ong was made before said
checks were cleared and the Bank had collected their amounts and with the approval of Talabis. However,
when the Bank presented the eleven checks issued, deposited and against which Ong made withdrawals
against its amounts, to their respective drawee banks for payment, they were all dishonored for lack or
insufficiency of funds. Because of this, the Bank filed a criminal action for Estafa against Ong, and the
Banks officer in charge Villaran andTalabis.Talabis testified that the approval of the withdrawals of Ong
against his uncleared checks was in accordance with the instruction of their then bank manager and that it
is a kind of accommodation given to Ong and also a common practice of the Bank. RTC ruled Ong as
guilty for the crime of estafa but acquitted Villarin and Talabis as their guilt were not proven beyond
reasonable doubt. CA affirmed RTCs decisions.
Issues:
1.What is the nature of bank deposits?
2.Whether or not Ong is guilty of Estafa. No.
Held:
1. The Supreme Court held that bank deposits are in the nature of irregular deposits. Bank deposits are
really loans because they earn interest. Whether fixed, savings, or current, all bank A deposits are to be
treated as loans and are to be covered by the law on loans.
2. The elements of this kind of estafa are the following: (1) postdating or issuance of a check in payment
of an obligation contracted at the time the check was issued; (2) lack or insufficiency of funds to cover the
check; and(3) damage to the payee thereof. In this case, the fact was established that Ong either issued or
indorsed the subject checks. However, it must be remembered that the reason for the conviction of an
accused of the crime of estafa is his guilty knowledge of the fact that he had no funds in the bank when he
negotiated the spurious check. In the present case, however, the prosecution failed to prove that Ong had
knowledge with respect to the check she indorsed. Moreover, it has also been proven that it was the Bank
which granted him a drawn against uncollected deposit(DAUD) privilege without need of any pretensions
on his part. The privilege this privilege was not only for the subject checks, but for other past transactions.
If ever, he, indeed acted fraudulently, he could not have done so without the active cooperation of the
Banks employees. Since Talabis and Villaran were declared innocent of the crimes charged against them,
the same should be said for the Ong. Thus, Ong cannot be held criminally liable against the Bank. He can
only be held civilly liable as the Bank incurred damages.

G.R. No. 104612 May 10, 1994

BANK OF THE PHILIPPINE ISLANDS (successor-in- interest of COMMERCIAL AND TRUST


CO.), petitioner,
vs.
HON. COURT OF APPEALS, EASTERN PLYWOOD CORP. and BENIGNO D. LIM,respondents.
Leonen, Ramirez & Associates for petitioner.
Constante A. Ancheta for private respondents.
DAVIDE, JR., J.:
The petitioner urges us to review and set aside the amended Decision 1 of 6 March 1992 of respondent
Court of Appeals in CA- G.R. CV No. 25739 which modified the Decision of 15 November 1990 of
Branch 19 of the Regional Trial Court (RTC) of Manila in Civil Case No. 87-42967, entitled Bank of the
Philippine Islands (successor-in-interest of Commercial Bank and Trust Company) versus Eastern
Plywood Corporation and Benigno D. Lim. The Court of Appeals had affirmed the dismissal of the
complaint but had granted the defendants' counterclaim for P331,261.44 which represents the outstanding
balance of their account with the plaintiff.
As culled from the records and the pleadings of the parties, the following facts were duly established:
Private
respondents
Eastern
Plywood
Corporation
(Eastern)
and
Benigno D. Lim (Lim), an officer and stockholder of Eastern, held at least one joint bank account
("and/or" account) with the Commercial Bank and Trust Co. (CBTC), the predecessor-in-interest of
petitioner Bank of the Philippine Islands (BPI). Sometime in March 1975, a joint checking account ("and"
account) with Lim in the amount of P120,000.00 was opened by Mariano Velasco with funds withdrawn
from the account of Eastern and/or Lim. Various amounts were later deposited or withdrawn from the
joint account of Velasco and Lim. The money therein was placed in the money market.
Velasco died on 7 April 1977. At the time of his death, the outstanding balance of the account stood at
P662,522.87. On 5 May 1977, by virtue of an Indemnity Undertaking executed by Lim for himself and as
President and General Manager of Eastern, 2 one-half of this amount was provisionally released and
transferred to one of the bank accounts of Eastern with CBTC. 3
Thereafter, on 18 August 1978, Eastern obtained a loan of P73,000.00 from CBTC as "Additional
Working Capital," evidenced by the "Disclosure Statement on Loan/Credit Transaction" (Disclosure
Statement) signed by CBTC through its branch manager, Ceferino Jimenez, and Eastern, through Lim, as
its President and General Manager. 4 The loan was payable on demand with interest at 14%per annum.
For this loan, Eastern issued on the same day a negotiable promissory note for P73,000.00 payable on
demand to the order of CBTC with interest at 14% per annum. 5 The note was signed by Lim both in his
own capacity and as President and General Manager of Eastern. No reference to any security for the loan
appears on the note. In the Disclosure Statement, the box with the printed word "UNSECURED" was
marked with "X" meaning unsecured, while the line with the words "this loan is wholly/partly secured
by" is followed by the typewritten words "Hold-Out on a 1:1 on C/A No. 2310-001-42," which refers to
the joint account of Velasco and Lim with a balance of P331,261.44.
In addition, Eastern and Lim, and CBTC signed another document entitled "Holdout Agreement," also
dated 18 August 1978, 6 wherein it was stated that "as security for the Loan [Lim and Eastern] have
offered [CBTC] and the latter accepts a holdout on said [Current Account No. 2310-011-42 in the joint
names of Lim and Velasco] to the full extent of their alleged interests therein as these may appear as a
result of final and definitive judicial action or a settlement between and among the contesting parties
thereto." 7 Paragraph 02 of the Agreement provides as follows:
Eastply [Eastern] and Mr. Lim hereby confer upon Comtrust [CBTC], when and if their alleged interests
in the Account Balance shall have been established with finality, ample and sufficient power as shall be

necessary to retain said Account Balance and enable Comtrust to apply the Account Balance for the
purpose of liquidating the Loan in respect of principal and/or accrued interest.
And paragraph 05 thereof reads:
The acceptance of this holdout shall not impair the right of Comtrust to declare the loan payable on
demand at any time, nor shall the existence hereof and the non-resolution of the dispute between the
contending parties in respect of entitlement to the Account Balance, preclude Comtrust from instituting an
action for recovery against Eastply and/or Mr. Lim in the event the Loan is declared due and payable and
Eastply and/or Mr. Lim shall default in payment of all obligations and liabilities thereunder.
In the meantime, a case for the settlement of Velasco's estate was filed with Branch 152 of the RTC of
Pasig, entitled "In re Intestate Estate of Mariano Velasco," and docketed as Sp. Proc. No. 8959. In the
said case, the whole balance of P331,261.44 in the aforesaid joint account of Velasco and Lim was being
claimed as part of Velasco's estate. On 9 September 1986, the intestate court granted the urgent motion of
the heirs of Velasco to withdraw the deposit under the joint account of Lim and Velasco and authorized
the heirs to divide among themselves the amount withdrawn. 8
Sometime in 1980, CBTC was merged with BPI. 9 On 2 December 1987, BPI filed with the RTC of
Manila a complaint against Lim and Eastern demanding payment of the promissory note for P73,000.00.
The complaint was docketed as Civil Case No. 87- 42967 and was raffled to Branch 19 of the said court,
then presided over by Judge Wenceslao M. Polo. Defendants Lim and Eastern, in turn, filed a
counterclaim against BPI for the return of the balance in the disputed account subject of the Holdout
Agreement and the interests thereon after deducting the amount due on the promissory note.
After
due
proceedings,
the
trial
court
rendered
its
decision
on
15 November 1990 dismissing the complaint because BPI failed to make out its case. Furthermore, it
ruled that "the promissory note in question is subject to the 'hold-out' agreement," 10 and that based on this
agreement, "it was the duty of plaintiff Bank [BPI] to debit the account of the defendants under the
promissory note to set off the loan even though the same has no fixed maturity." 11 As to the defendants'
counterclaim, the trial court, recognizing the fact that the entire amount in question had been withdrawn
by Velasco's heirs pursuant to the order of the intestate court in Sp. Proc. No. 8959, denied it because the
"said claim cannot be awarded without disturbing the resolution" of the intestate court. 12
Both parties appealed from the said decision to the Court of Appeals. Their appeal was docketed as CAG.R. CV No. 25739.
On 23 January 1991, the Court of Appeals rendered a decision affirming the decision of the trial court. It,
however, failed to rule on the defendants' (private respondents') partial appeal from the trial court's denial
of their counterclaim. Upon their motion for reconsideration, the Court of Appeals promulgated on 6
March 1992 an Amended Decision 13 wherein it ruled that the settlement of Velasco's estate had nothing to
do with the claim of the defendants for the return of the balance of their account with CBTC/BPI as they
were not privy to that case, and that the defendants, as depositors of CBTC/BPI, are the latter's creditors;
hence, CBTC/BPI should have protected the defendants' interest in Sp. Proc. No. 8959 when the said
account was claimed by Velasco's estate. It then ordered BPI "to pay defendants the amount of
P331,261.44 representing the outstanding balance in the bank account of defendants." 14
On 22 April 1992, BPI filed the instant petition alleging therein that the Holdout Agreement in question
was subject to a suspensive condition stated therein,viz., that the "P331,261.44 shall become a security for
respondent Lim's promissory note only if respondents' Lim and Eastern Plywood Corporation's interests
to that amount are established as a result of a final and definitive judicial action or a settlement between

and among the contesting parties thereto." 15 Hence, BPI asserts, the Court of Appeals erred in affirming
the trial court's decision dismissing the complaint on the ground that it was the duty of CBTC to debit the
account of the defendants to set off the amount of P73,000.00 covered by the promissory note.
Private respondents Eastern and Lim dispute the "suspensive condition" argument of the petitioner. They
interpret the findings of both the trial and appellate courts that the money deposited in the joint account of
Velasco and Lim came from Eastern and Lim's own account as a finding that the money deposited in the
joint account of Lim and Velasco "rightfully belong[ed] to Eastern Plywood Corporation and/or Benigno
Lim." And because the latter are the rightful owners of the money in question, the suspensive condition
does not find any application in this case and the bank had the duty to set off this deposit with the loan.
They add that the ruling of the lower court that they own the disputed amount is the final and definitive
judicial action required by the Holdout Agreement; hence, the petitioner can only hold the amount of
P73,000.00 representing the security required for the note and must return the rest. 16
The petitioner filed a Reply to the aforesaid Comment. The private respondents filed a Rejoinder thereto.
We gave due course to the petition and required the parties to submit simultaneously their memoranda.
The key issues in this case are whether BPI can demand payment of the loan of P73,000.00 despite the
existence of the Holdout Agreement and whether BPI is still liable to the private respondents on the
account subject of the Holdout Agreement after its withdrawal by the heirs of Velasco.
The collection suit of BPI is based on the promissory note for P73,000.00. On its face, the note is an
unconditional promise to pay the said amount, and as stated by the respondent Court of Appeals, "[t]here
is no question that the promissory note is a negotiable instrument." 17 It further correctly ruled that BPI
was not a holder in due course because the note was not indorsed to BPI by the payee, CBTC. Only a
negotiation by indorsement could have operated as a valid transfer to make BPI a holder in due course. It
acquired the note from CBTC by the contract of merger or sale between the two banks. BPI, therefore,
took the note subject to the Holdout Agreement.
We disagree, however, with the Court of Appeals in its interpretation of the Holdout Agreement. It is clear
from paragraph 02 thereof that CBTC, or BPI as its successor-in-interest, had every right to demand that
Eastern and Lim settle their liability under the promissory note. It cannot be compelled to retain and apply
the deposit in Lim and Velasco's joint account to the payment of the note. What the agreement conferred
on CBTC was a power, not a duty. Generally, a bank is under no duty or obligation to make the
application. 18 To apply the deposit to the payment of a loan is a privilege, a right of set-off which the
bank has the option to exercise. 19
Also, paragraph 05 of the Holdout Agreement itself states that notwithstanding the agreement, CBTC was
not in any way precluded from demanding payment from Eastern and from instituting an action to recover
payment of the loan. What it provides is an alternative, not an exclusive, method of enforcing its claim on
the note. When it demanded payment of the debt directly from Eastern and Lim, BPI had opted not to
exercise its right to apply part of the deposit subject of the Holdout Agreement to the payment of the
promissory note for P73,000.00. Its suit for the enforcement of the note was then in order and it was error
for the trial court to dismiss it on the theory that it was set off by an equivalent portion in C/A No. 2310001-42 which BPI should have debited. The Court of Appeals also erred in affirming such dismissal.
The "suspensive condition" theory of the petitioner is, therefore, untenable.
The Court of Appeals correctly decided on the counterclaim. The counterclaim of Eastern and Lim for the
return of the P331,261.44 20 was equivalent to a demand that they be allowed to withdraw their deposit
with the bank. Article 1980 of the Civil Code expressly provides that "[f]ixed, savings, and current
deposits of money in banks and similar institutions shall be governed by the provisions concerning simple
loan." In Serrano vs. Central Bank of the Philippines, 21 we held that bank deposits are in the nature of

irregular deposits; they are really loans because they earn interest. The relationship then between a
depositor and a bank is one of creditor and debtor. The deposit under the questioned account was an
ordinary bank deposit; hence, it was payable on demand of the depositor. 22
The account was proved and established to belong to Eastern even if it was deposited in the names of Lim
and Velasco. As the real creditor of the bank, Eastern has the right to withdraw it or to demand payment
thereof. BPI cannot be relieved of its duty to pay Eastern simply because it already allowed the heirs of
Velasco to withdraw the whole balance of the account. The petitioner should not have allowed such
withdrawal because it had admitted in the Holdout Agreement the questioned ownership of the money
deposited in the account. As early as 12 May 1979, CBTC was notified by the Corporate Secretary of
Eastern that the deposit in the joint account of Velasco and Lim was being claimed by them and that onehalf was being claimed by the heirs of Velasco. 23
Moreover, the order of the court in Sp. Proc. No. 8959 merely authorized the heirs of Velasco to withdraw
the account. BPI was not specifically ordered to release the account to the said heirs; hence, it was under
no judicial compulsion to do so. The authorization given to the heirs of Velasco cannot be construed as a
final determination or adjudication that the account belonged to Velasco. We have ruled that when the
ownership of a particular property is disputed, the determination by a probate court of whether that
property is included in the estate of a deceased is merely provisional in character and cannot be the
subject of execution. 24
Because the ownership of the deposit remained undetermined, BPI, as the debtor with respect thereto, had
no right to pay to persons other than those in whose favor the obligation was constituted or whose right or
authority to receive payment is indisputable. The payment of the money deposited with BPI that will
extinguish its obligation to the creditor-depositor is payment to the person of the creditor or to one
authorized by him or by the law to receive it. 25 Payment made by the debtor to the wrong party does not
extinguish the obligation as to the creditor who is without fault or negligence, even if the debtor acted in
utmost good faith and by mistake as to the person of the creditor, or through error induced by fraud of a
third person. 26 The payment then by BPI to the heirs of Velasco, even if done in good faith, did not
extinguish its obligation to the true depositor, Eastern.
In the light of the above findings, the dismissal of the petitioner's complaint is reversed and set aside. The
award on the counterclaim is sustained subject to a modification of the interest.
WHEREFORE, the instant petition is partly GRANTED. The challenged amended decision in CA-G.R.
CV No. 25735 is hereby MODIFIED. As modified:
(1) Private respondents are ordered to pay the petitioner the promissory note for P73,000.00 with interest
at:
(a) 14% per annum on the principal, computed from 18 August 1978 until payment;
(b) 12% per annum on the interest which had accrued up to the date of the filing of the complaint,
computed from that date until payment pursuant to Article 2212 of the Civil Code.
(2) The award of P331,264.44 in favor of the private respondents shall bear interest at the rate of 12% per
annum computed from the filing of the counterclaim.

Republic of the Philippines


SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-60033 April 4, 1984
TEOFISTO GUINGONA, JR., ANTONIO I. MARTIN, and TERESITA SANTOS, petitioners,
vs.
THE CITY FISCAL OF MANILA, HON. JOSE B. FLAMINIANO, ASST. CITY FISCAL
FELIZARDO N. LOTA and CLEMENT DAVID, respondents.
MAKASIAR, Actg. C.J.:+.wph!1
This is a petition for prohibition and injunction with a prayer for the immediate issuance of restraining
order and/or writ of preliminary injunction filed by petitioners on March 26, 1982.
On March 31, 1982, by virtue of a court resolution issued by this Court on the same date, a temporary
restraining order was duly issued ordering the respondents, their officers, agents, representatives and/or
person or persons acting upon their (respondents') orders or in their place or stead to refrain from
proceeding with the preliminary investigation in Case No. 8131938 of the Office of the City Fiscal of
Manila (pp. 47-48, rec.). On January 24, 1983, private respondent Clement David filed a motion to lift
restraining order which was denied in the resolution of this Court dated May 18, 1983.
As can be gleaned from the above, the instant petition seeks to prohibit public respondents from
proceeding with the preliminary investigation of I.S. No. 81-31938, in which petitioners were charged by
private respondent Clement David, with estafa and violation of Central Bank Circular No. 364 and related
regulations regarding foreign exchange transactions principally, on the ground of lack of jurisdiction in
that the allegations of the charged, as well as the testimony of private respondent's principal witness and
the evidence through said witness, showed that petitioners' obligation is civil in nature.
For purposes of brevity, We hereby adopt the antecedent facts narrated by the Solicitor General in its
Comment dated June 28,1982, as follows:t.hqw
On December 23,1981, private respondent David filed I.S. No. 81-31938 in the Office of
the City Fiscal of Manila, which case was assigned to respondent Lota for preliminary
investigation (Petition, p. 8).
In I.S. No. 81-31938, David charged petitioners (together with one Robert Marshall and
the following directors of the Nation Savings and Loan Association, Inc., namely Homero
Gonzales, Juan Merino, Flavio Macasaet, Victor Gomez, Jr., Perfecto Manalac, Jaime V.
Paz, Paulino B. Dionisio, and one John Doe) with estafa and violation of Central Bank
Circular No. 364 and related Central Bank regulations on foreign exchange transactions,
allegedly committed as follows (Petition, Annex "A"):t.hqw
"From March 20, 1979 to March, 1981, David invested with the Nation
Savings and Loan Association, (hereinafter called NSLA) the sum of
P1,145,546.20 on nine deposits, P13,531.94 on savings account deposits
(jointly with his sister, Denise Kuhne), US$10,000.00 on time deposit,

US$15,000.00 under a receipt and guarantee of payment and


US$50,000.00 under a receipt dated June 8, 1980 (au jointly with Denise
Kuhne), that David was induced into making the aforestated investments
by Robert Marshall an Australian national who was allegedly a close
associate of petitioner Guingona Jr., then NSLA President, petitioner
Martin, then NSLA Executive Vice-President of NSLA and petitioner
Santos, then NSLA General Manager; that on March 21, 1981 N LA was
placed under receivership by the Central Bank, so that David filed claims
therewith for his investments and those of his sister; that on July 22,
1981 David received a report from the Central Bank that only
P305,821.92 of those investments were entered in the records of NSLA;
that, therefore, the respondents in I.S. No. 81-31938 misappropriated the
balance of the investments, at the same time violating Central Bank
Circular No. 364 and related Central Bank regulations on foreign
exchange transactions; that after demands, petitioner Guingona Jr. paid
only P200,000.00, thereby reducing the amounts misappropriated to
P959,078.14 and US$75,000.00."
Petitioners, Martin and Santos, filed a joint counter-affidavit (Petition, Annex' B') in
which they stated the following.t.hqw
"That Martin became President of NSLA in March 1978 (after the
resignation of Guingona, Jr.) and served as such until October 30, 1980,
while Santos was General Manager up to November 1980; that because
NSLA was urgently in need of funds and at David's insistence, his
investments were treated as special- accounts with interest above the
legal rate, an recorded in separate confidential documents only a portion
of which were to be reported because he did not want the Australian
government to tax his total earnings (nor) to know his total investments;
that all transactions with David were recorded except the sum of
US$15,000.00 which was a personal loan of Santos; that David's check
for US$50,000.00 was cleared through Guingona, Jr.'s dollar account
because NSLA did not have one, that a draft of US$30,000.00 was
placed in the name of one Paz Roces because of a pending transaction
with her; that the Philippine Deposit Insurance Corporation had already
reimbursed David within the legal limits; that majority of the
stockholders of NSLA had filed Special Proceedings No. 82-1695 in the
Court of First Instance to contest its (NSLA's) closure; that after NSLA
was placed under receivership, Martin executed a promissory note in
David's favor and caused the transfer to him of a nine and on behalf (9
1/2) carat diamond ring with a net value of P510,000.00; and, that the
liabilities of NSLA to David were civil in nature."
Petitioner, Guingona, Jr., in his counter-affidavit (Petition, Annex' C') stated the
following:t.hqw
"That he had no hand whatsoever in the transactions between David and
NSLA since he (Guingona Jr.) had resigned as NSLA president in March
1978, or prior to those transactions; that he assumed a portion o; the
liabilities of NSLA to David because of the latter's insistence that he

placed his investments with NSLA because of his faith in Guingona, Jr.;
that in a Promissory Note dated June 17, 1981 (Petition, Annex "D") he
(Guingona, Jr.) bound himself to pay David the sums of P668.307.01 and
US$37,500.00 in stated installments; that he (Guingona, Jr.) secured
payment of those amounts with second mortgages over two (2) parcels of
land under a deed of Second Real Estate Mortgage (Petition, Annex "E")
in which it was provided that the mortgage over one (1) parcel shall be
cancelled upon payment of one-half of the obligation to David; that he
(Guingona, Jr.) paid P200,000.00 and tendered another P300,000.00
which David refused to accept, hence, he (Guingona, Jr.) filed Civil Case
No. Q-33865 in the Court of First Instance of Rizal at Quezon City, to
effect the release of the mortgage over one (1) of the two parcels of land
conveyed to David under second mortgages."
At the inception of the preliminary investigation before respondent Lota, petitioners
moved to dismiss the charges against them for lack of jurisdiction because David's claims
allegedly comprised a purely civil obligation which was itself novated. Fiscal Lota denied
the motion to dismiss (Petition, p. 8).
But, after the presentation of David's principal witness, petitioners filed the instant
petition because: (a) the production of the Promisory Notes, Banker's Acceptance,
Certificates of Time Deposits and Savings Account allegedly showed that the transactions
between David and NSLA were simple loans, i.e., civil obligations on the part of NSLA
which were novated when Guingona, Jr. and Martin assumed them; and (b) David's
principal witness allegedly testified that the duplicate originals of the aforesaid
instruments of indebtedness were all on file with NSLA, contrary to David's claim that
some of his investments were not record (Petition, pp. 8-9).
Petitioners alleged that they did not exhaust available administrative remedies because to
do so would be futile (Petition, p. 9) [pp. 153-157, rec.].
As correctly pointed out by the Solicitor General, the sole issue for resolution is whether public
respondents acted without jurisdiction when they investigated the charges (estafa and violation of CB
Circular No. 364 and related regulations regarding foreign exchange transactions) subject matter of I.S.
No. 81-31938.
There is merit in the contention of the petitioners that their liability is civil in nature and therefore, public
respondents have no jurisdiction over the charge of estafa.
A casual perusal of the December 23, 1981 affidavit. complaint filed in the Office of the City Fiscal of
Manila by private respondent David against petitioners Teopisto Guingona, Jr., Antonio I. Martin and
Teresita G. Santos, together with one Robert Marshall and the other directors of the Nation Savings and
Loan Association, will show that from March 20, 1979 to March, 1981, private respondent David,
together with his sister, Denise Kuhne, invested with the Nation Savings and Loan Association the sum of
P1,145,546.20 on time deposits covered by Bankers Acceptances and Certificates of Time Deposits and
the sum of P13,531.94 on savings account deposits covered by passbook nos. 6-632 and 29-742, or a total
of P1,159,078.14 (pp. 15-16, roc.). It appears further that private respondent David, together with his
sister, made investments in the aforesaid bank in the amount of US$75,000.00 (p. 17, rec.).

Moreover, the records reveal that when the aforesaid bank was placed under receivership on March 21,
1981, petitioners Guingona and Martin, upon the request of private respondent David, assumed the
obligation of the bank to private respondent David by executing on June 17, 1981 a joint promissory note
in favor of private respondent acknowledging an indebtedness of Pl,336,614.02 and US$75,000.00 (p. 80,
rec.). This promissory note was based on the statement of account as of June 30, 1981 prepared by the
private respondent (p. 81, rec.). The amount of indebtedness assumed appears to be bigger than the
original claim because of the added interest and the inclusion of other deposits of private respondent's
sister in the amount of P116,613.20.
Thereafter, or on July 17, 1981, petitioners Guingona and Martin agreed to divide the said indebtedness,
and petitioner Guingona executed another promissory note antedated to June 17, 1981 whereby he
personally acknowledged an indebtedness of P668,307.01 (1/2 of P1,336,614.02) and US$37,500.00 (1/2
of US$75,000.00) in favor of private respondent (p. 25, rec.). The aforesaid promissory notes were
executed as a result of deposits made by Clement David and Denise Kuhne with the Nation Savings and
Loan Association.
Furthermore, the various pleadings and documents filed by private respondent David, before this Court
indisputably show that he has indeed invested his money on time and savings deposits with the Nation
Savings and Loan Association.
It must be pointed out that when private respondent David invested his money on nine. and savings
deposits with the aforesaid bank, the contract that was perfected was a contract of simple loan
or mutuum and not a contract of deposit. Thus, Article 1980 of the New Civil Code provides that:t.
hqw
Article 1980. Fixed, savings, and current deposits of-money in banks and similar
institutions shall be governed by the provisions concerning simple loan.
In the case of Central Bank of the Philippines vs. Morfe (63 SCRA 114,119 [1975], We said:t.hqw
It should be noted that fixed, savings, and current deposits of money in banks and similar
institutions are hat true deposits. are considered simple loans and, as such, are not
preferred credits (Art. 1980 Civil Code; In re Liquidation of Mercantile Batik of China
Tan Tiong Tick vs. American Apothecaries Co., 66 Phil 414; Pacific Coast Biscuit Co. vs.
Chinese Grocers Association 65 Phil. 375; Fletcher American National Bank vs. Ang
Chong UM 66 PWL 385; Pacific Commercial Co. vs. American Apothecaries Co., 65
PhiL 429; Gopoco Grocery vs. Pacific Coast Biscuit CO.,65 Phil. 443)."
This Court also declared in the recent case of Serrano vs. Central Bank of the Philippines (96 SCRA 102
[1980]) that:t.hqw
Bank deposits are in the nature of irregular deposits. They are really 'loans because they
earn interest. All kinds of bank deposits, whether fixed, savings, or current are to be
treated as loans and are to be covered by the law on loans (Art. 1980 Civil Code Gullas
vs. Phil. National Bank, 62 Phil. 519). Current and saving deposits, are loans to a bank
because it can use the same. The petitioner here in making time deposits that earn
interests will respondent Overseas Bank of Manila was in reality a creditor of the
respondent Bank and not a depositor. The respondent Bank was in turn a debtor of
petitioner. Failure of the respondent Bank to honor the time deposit is failure to pay its

obligation as a debtor and not a breach of trust arising from a depositary's failure to
return the subject matter of the deposit (Emphasis supplied).
Hence, the relationship between the private respondent and the Nation Savings and Loan Association is
that of creditor and debtor; consequently, the ownership of the amount deposited was transmitted to the
Bank upon the perfection of the contract and it can make use of the amount deposited for its banking
operations, such as to pay interests on deposits and to pay withdrawals. While the Bank has the obligation
to return the amount deposited, it has, however, no obligation to return or deliver the same money that was
deposited. And, the failure of the Bank to return the amount deposited will not constitute estafa through
misappropriation punishable under Article 315, par. l(b) of the Revised Penal Code, but it will only give
rise to civil liability over which the public respondents have no- jurisdiction.
WE have already laid down the rule that:t.hqw
In order that a person can be convicted under the above-quoted provision, it mus t be
proven that he has the obligation to deliver or return the some money, goods or personal
property that he receivedPetitioners had no such obligation to return the same money, i.e.,
the bills or coins, which they received from private respondents. This is so because as
clearly as stated in criminal complaints, the related civil complaints and the supporting
sworn statements, the sums of money that petitioners received were loans.
The nature of simple loan is defined in Articles 1933 and 1953 of the Civil Code.t.
hqw
"Art. 1933. By the contract of loan, one of the parties delivers to
another, either something not consumable so that the latter may use the
same for a certain time- and return it, in which case the contract is called
a commodatum; or money or other consumable thing, upon the condition
that the same amount of the same kind and quality shall he paid in which
case the contract is simply called a loan or mutuum.
"Commodatum is essentially gratuitous.
"Simple loan may be gratuitous or with a stipulation to pay interest.
"In commodatum the bailor retains the ownership of the thing loaned
while in simple loan, ownership passes to the borrower.
"Art. 1953. A person who receives a loan of money or any other
fungible thing acquires the ownership thereof, and is bound to pay to the
creditor an equal amount of the same kind and quality."
It can be readily noted from the above-quoted provisions that in simple loan (mutuum),
as contrasted to commodatum the borrower acquires ownership of the money, goods or
personal property borrowed Being the owner, the borrower can dispose of the thing
borrowed (Article 248, Civil Code) and his act will not be considered misappropriation
thereof' (Yam vs. Malik, 94 SCRA 30, 34 [1979]; Emphasis supplied).
But even granting that the failure of the bank to pay the time and savings deposits of private respondent
David would constitute a violation of paragraph 1(b) of Article 315 of the Revised Penal Code,

nevertheless any incipient criminal liability was deemed avoided, because when the aforesaid bank was
placed under receivership by the Central Bank, petitioners Guingona and Martin assumed the obligation
of the bank to private respondent David, thereby resulting in the novation of the original contractual
obligation arising from deposit into a contract of loan and converting the original trust relation between
the bank and private respondent David into an ordinary debtor-creditor relation between the petitioners
and private respondent. Consequently, the failure of the bank or petitioners Guingona and Martin to pay
the deposits of private respondent would not constitute a breach of trust but would merely be a failure to
pay the obligation as a debtor.
Moreover, while it is true that novation does not extinguish criminal liability, it may however, prevent the
rise of criminal liability as long as it occurs prior to the filing of the criminal information in court. Thus,
in Gonzales vs. Serrano ( 25 SCRA 64, 69 [1968]) We held that:t.hqw
As pointed out in People vs. Nery, novation prior to the filing of the criminal information
as in the case at bar may convert the relation between the parties into an ordinary
creditor-debtor relation, and place the complainant in estoppel to insist on the original
transaction or "cast doubt on the true nature" thereof.
Again, in the latest case of Ong vs. Court of Appeals (L-58476, 124 SCRA 578, 580-581 [1983] ), this
Court reiterated the ruling in People vs. Nery ( 10 SCRA 244 [1964] ), declaring that:t.hqw
The novation theory may perhaps apply prior to the filling of the criminal information in
court by the state prosecutors because up to that time the original trust relation may be
converted by the parties into an ordinary creditor-debtor situation, thereby placing the
complainant in estoppel to insist on the original trust. But after the justice authorities
have taken cognizance of the crime and instituted action in court, the offended party may
no longer divest the prosecution of its power to exact the criminal liability, as
distinguished from the civil. The crime being an offense against the state, only the latter
can renounce it (People vs. Gervacio, 54 Off. Gaz. 2898; People vs. Velasco, 42 Phil. 76;
U.S. vs. Montanes, 8 Phil. 620).
It may be observed in this regard that novation is not one of the means recognized by the
Penal Code whereby criminal liability can be extinguished; hence, the role of novation
may only be to either prevent the rise of criminal habihty or to cast doubt on the true
nature of the original basic transaction, whether or not it was such that its breach would
not give rise to penal responsibility, as when money loaned is made to appear as a
deposit, or other similar disguise is resorted to (cf. Abeto vs. People, 90 Phil. 581; U.S.
vs. Villareal, 27 Phil. 481).
In the case at bar, there is no dispute that petitioners Guingona and Martin executed a promissory note on
June 17, 1981 assuming the obligation of the bank to private respondent David; while the criminal
complaint for estafa was filed on December 23, 1981 with the Office of the City Fiscal. Hence, it is clear
that novation occurred long before the filing of the criminal complaint with the Office of the City Fiscal.
Consequently, as aforestated, any incipient criminal liability would be avoided but there will still be a
civil liability on the part of petitioners Guingona and Martin to pay the assumed obligation.
Petitioners herein were likewise charged with violation of Section 3 of Central Bank Circular No. 364 and
other related regulations regarding foreign exchange transactions by accepting foreign currency deposit in
the amount of US$75,000.00 without authority from the Central Bank. They contend however, that the

US dollars intended by respondent David for deposit were all converted into Philippine currency before
acceptance and deposit into Nation Savings and Loan Association.
Petitioners' contention is worthy of behelf for the following reasons:
1. It appears from the records that when respondent David was about to make a deposit of bank draft
issued in his name in the amount of US$50,000.00 with the Nation Savings and Loan Association, the
same had to be cleared first and converted into Philippine currency. Accordingly, the bank draft was
endorsed by respondent David to petitioner Guingona, who in turn deposited it to his dollar account with
the Security Bank and Trust Company. Petitioner Guingona merely accommodated the request of the
Nation Savings and loan Association in order to clear the bank draft through his dollar account because
the bank did not have a dollar account. Immediately after the bank draft was cleared, petitioner Guingona
authorized Nation Savings and Loan Association to withdraw the same in order to be utilized by the bank
for its operations.
2. It is safe to assume that the U.S. dollars were converted first into Philippine pesos before they were
accepted and deposited in Nation Savings and Loan Association, because the bank is presumed to have
followed the ordinary course of the business which is to accept deposits in Philippine currency only, and
that the transaction was regular and fair, in the absence of a clear and convincing evidence to the contrary
(see paragraphs p and q,Sec. 5, Rule 131, Rules of Court).
3. Respondent David has not denied the aforesaid contention of herein petitioners despite the fact that it
was raised. in petitioners' reply filed on May 7, 1982 to private respondent's comment and in the July 27,
1982 reply to public respondents' comment and reiterated in petitioners' memorandum filed on October
30, 1982, thereby adding more support to the conclusion that the US$75,000.00 were really converted
into Philippine currency before they were accepted and deposited into Nation Savings and Loan
Association. Considering that this might adversely affect his case, respondent David should have
promptly denied petitioners' allegation.
In conclusion, considering that the liability of the petitioners is purely civil in nature and that there is no
clear showing that they engaged in foreign exchange transactions, We hold that the public respondents
acted without jurisdiction when they investigated the charges against the petitioners. Consequently, public
respondents should be restrained from further proceeding with the criminal case for to allow the case to
continue, even if the petitioners could have appealed to the Ministry of Justice, would work great injustice
to petitioners and would render meaningless the proper administration of justice.
While as a rule, the prosecution in a criminal offense cannot be the subject of prohibition and injunction,
this court has recognized the resort to the extraordinary writs of prohibition and injunction in extreme
cases, thus:t.hqw
On the issue of whether a writ of injunction can restrain the proceedings in Criminal Case
No. 3140, the general rule is that "ordinarily, criminal prosecution may not be blocked by
court prohibition or injunction." Exceptions, however, are allowed in the following
instances:t.hqw
"1. for the orderly administration of justice;
"2. to prevent the use of the strong arm of the law in an oppressive and
vindictive manner;

"3. to avoid multiplicity of actions;


"4. to afford adequate protection to constitutional rights;
"5. in proper cases, because the statute relied upon is unconstitutional or
was held invalid" ( Primicias vs. Municipality of Urdaneta, Pangasinan,
93 SCRA 462, 469-470 [1979]; citing Ramos vs. Torres, 25 SCRA 557
[1968]; and Hernandez vs. Albano, 19 SCRA 95, 96 [1967]).
Likewise, in Lopez vs. The City Judge, et al. ( 18 SCRA 616, 621-622 [1966]), We held that:t.hqw
The writs of certiorari and prohibition, as extraordinary legal remedies, are in the ultimate
analysis, intended to annul void proceedings; to prevent the unlawful and oppressive
exercise of legal authority and to provide for a fair and orderly administration of justice.
Thus, in Yu Kong Eng vs. Trinidad, 47 Phil. 385, We took cognizance of a petition for
certiorari and prohibition although the accused in the case could have appealed in due
time from the order complained of, our action in the premises being based on the public
welfare policy the advancement of public policy. In Dimayuga vs. Fajardo, 43 Phil. 304,
We also admitted a petition to restrain the prosecution of certain chiropractors although,
if convicted, they could have appealed. We gave due course to their petition for the
orderly administration of justice and to avoid possible oppression by the strong arm of
the law. And in Arevalo vs. Nepomuceno, 63 Phil. 627, the petition for certiorari
challenging the trial court's action admitting an amended information was sustained
despite the availability of appeal at the proper time.
WHEREFORE, THE PETITION IS HEREBY GRANTED; THE TEMPORARY RESTRAINING
ORDER PREVIOUSLY ISSUED IS MADE PERMANENT. COSTS AGAINST THE PRIVATE
RESPONDENT.
SO ORDERED.

G.R. No. 173654-765


PEOPLE
OF
THE
PHILIPPINES,
ROMEOPORRAS,Respondent.

Petitioners,

vs.

TERESITA

PUIG

and

Facts:
The petitioners filed before the RTC of Iloilo 112 cases of Qualified Theft against respondents Teresita
Puig (Puig) and Romeo Porras (Porras) who were the Cashier and Bookkeeper, respectively, of private
complainant Rural Bank of Pototan, Inc for taking various amounts of money with grave abuse of
confidence, and without the knowledge and consent of the bank, to the damage and prejudice of the bank.
The RTC dismissed the cases and refused to issue a warrant of arrest against Puig and Porras on the
ground of lack of probable cause because the complaint failed to state the facts constituting the qualifying
circumstance of grave abuse of confidence and the element of taking without the consent of the owner,
since the owner of the money is not the Bank, but the depositors therein. MR was filed but it was also
denied.
Issue:
Whether or not the 112 information for qualified theft sufficiently allege the element of taking without the
consent of the owner, and the qualifying circumstance of grave abuse of confidence
Held:
Yes. Qualified Theft, as defined and punished under Article 310 of the Revised Penal Code, is committed
as follows:
ART. 310. Qualified Theft. The crime of theft shall be punished by the penalties next higher by two
degrees than those respectively specified in the next preceding article, if committed by a domestic
servant, or with grave abuse of confidence, or if the property stolen is motor vehicle, mail matter or large
cattle or consists of coconuts taken from the premises of a plantation, fish taken from a fishpond or
fishery or if property is taken on the occasion of fire, earthquake, typhoon, volcanic eruption, or any other
calamity, vehicular accident or civil disturbance. (Emphasis supplied.)
Theft, as defined in Article 308 of the Revised Penal Code, requires the physical taking of anothers
property without violence or intimidation against persons or force upon things. The elements of the crime
under this Article are:
1. Intent to gain;
2. Unlawful taking;
3. Personal property belonging to another;
4. Absence of violence or intimidation against persons or force upon things.
To fall under the crime of Qualified Theft, the following elements must concur:
1. Taking of personal property;
2. That the said property belongs to another;
3. That the said taking be done with intent to gain;
4. That it be done without the owners consent;

5. That it be accomplished without the use of violence or intimidation against persons, nor of force upon
things;
6. That it be done with grave abuse of confidence.
On the sufficiency of the Information, Section 6, Rule 110 of the Rules of Court requires, inter alia, that
the information must state the acts or omissions complained of as constitutive of the offense. On the
manner of how the Information should be worded, Section 9, Rule 110 of the Rules of Court, is
enlightening:
Section 9. Cause of the accusation. The acts or omissions complained of as constituting the offense and
the qualifying and aggravating circumstances must be stated in ordinary and concise language and not
necessarily in the language used in the statute but in terms sufficient to enable a person of common
understanding to know what offense is being charged as well as its qualifying and aggravating
circumstances and for the court to pronounce judgment. It is evident that the Information need not use the
exact language of the statute in alleging the acts or omissions complained of as constituting the offense.
The test is whether it enables a person of common understanding to know the charge against him, and the
court to render judgment properly.
[5]The portion of the Information relevant to this discussion reads: [A]bove-named [respondents],
conspiring, confederating, and helping one another, with grave abuse of confidence, being the Cashier and
Bookkeeper of the Rural Bank of Pototan, Inc., Pototan, Iloilo, without the knowledge and/or consent of
the management of the Bank x x x. It is beyond doubt that tellers, Cashiers, Bookkeepers and other
employees of a Bank who come into possession of the monies deposited therein enjoy the confidence
reposed in them by their employer. Banks, on the other hand, where monies are deposited, are considered
the owners thereof. This is very clear not only from the express provisions of the law, but from
established jurisprudence. The relationship between banks and depositors has been held to be that of
creditor and debtor. Articles 1953 and 1980 of the New Civil Code, as appropriately pointed out by
petitioner, provide as follows: Article 1953. A person who receives a loan of money or any other fungible
thing acquires the ownership thereof, and is bound to pay to the creditor an equal amount of the same
kind and quality. Article 1980. Fixed, savings, and current deposits of money in banks and similar
institutions shall be governed by the provisions concerning loan. In a long line of cases involving
Qualified Theft, this Court has firmly established the nature of possession by the Bank of the money
deposits therein, and the duties being performed by its employees who have custody of the money or have
come into possession of it. The Court has consistently considered the allegations in the Information that
such employees acted with grave abuse of confidence, to the damage and prejudice of the Bank, without
particularly referring to it as owner of the money deposits, as sufficient to make out a case of Qualified
Theft Where the Information merely alleged the positions of the respondents; that the crime was
committed with grave abuse of confidence, with intent to gain and without the knowledge and consent of
the Bank, without necessarily stating the phrase being assiduously insisted upon by respondents, of a
relation by reason of dependence, guardianship or vigilance, between the respondents and the offended
party that has created a high degree of confidence between them, which respondents abused, [12] and
without employing the word owner in lieu of the Bank were considered to have satisfied the test of
sufficiency of allegations. As regards the respondents who were employed as Cashier and Bookkeeper of
the Bank in this case, there is even no reason to quibble on the allegation in the Information that they

acted with grave abuse of confidence. In fact, the Information which alleged grave abuse of confidence by
accused herein is even more precise, as this is exactly the requirement of the law in qualifying the crime
of Theft. In summary, the Bank acquires ownership of the money deposited by its clients; and the
employees of the Bank, who are entrusted with the possession of money of the Bank due to the
confidence reposed in them, occupy positions of confidence. The Information, therefore, sufficiently
allege all the essential elements constituting the crime of Qualified Theft.

ASSOCIATED BANK (Now WESTMONT BANK) vs. TAN


G.R. No. 156940 December 14, 2004
Facts:
Respondent Tan is a businessman and a regular depositor-creditor of the petitioner, Associated Bank.
Sometime in September 1990, he deposited a postdated check with the petitioner in the amount of
P101,000 issued to him by a certain Willy Cheng from Tarlac. The check was duly entered in his bank
record. Allegedly, upon advice and instruction of petitioner that theP101,000 check was already cleared
and backed up by sufficient funds, respondent, on the same date, withdrew the sum of P240,000 from his
account leaving a balance of P57,793.45. A day after, TAN deposited the amount of P50,000 making his
existing balance in the amount of P107,793.45, because he has issued several checks to his business
partners. However, his suppliers and business partners went back to him alleging that the checks he issued
bounced for insufficiency of funds. Thereafter, respondent informed petitioner to take positive steps
regarding the matter for he has adequate and sufficient funds to pay the amount of the subject checks.
Nonetheless, petitioner did not bother nor offer any apology regarding the incident. Respondent Tan filed
a Complaint for Damages on December 19, 1990, with the RTC against petitioner. The trial court
rendered a decision in favor of respondent and ordered petitioner to pay damages and attorneys ees.
Appellate court affirmed the lower courts decision. CA ruled that the bank should not have authorized the
withdrawal of the value of the deposited check prior to its clearing. Petitioner filed a Petition for Review
before the Supreme Court.
Issue:
Whether or not petitioner has the right to debit the amount of the dishonored check from the account of
respondent on the ground that the check was withdrawn by respondent prior to its clearing
Held:
The Petition has no merit. The real issue here is not so much the right of petitioner to debit respondents
account but, rather, the manner in which it exercised such right. Banks are granted by law the right to
debit the value of a dishonored check from a depositors account but they must do so with the highest
degree of care, so as not to prejudice the depositor unduly. 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 this case, petitioner did not treat respondents account with the highest degree
of care. Respondent withdrew his money upon the advice of petitioner that his money was already
cleared. It is petitioners premature authorization of the withdrawal that caused the respondents account
balance to fall to insufficient levels, and the subsequent dishonor of his own checks for lack of funds.

FIRST DIVISION
EQUITABLE PCI BANK,*
AIMEE YU and BEJAN
LIONEL APAS,
Petitioners,
-versus-

NG SHEUNG NGOR** doing


business under the name
and style KEN MARKETING,
KEN APPLIANCE DIVISION,
INC. and BENJAMIN E. GO,
Respondents.

G.R. No. 171545


Present:
PUNO, C.J., Chairperson,
SANDOVAL-GUTIERREZ,
CORONA,
AZCUNA and
LEONARDO-DE CASTRO, JJ.

Promulgated:
December 19, 2007

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DECISION
CORONA, J.:
This petition for review on certiorari [1] seeks to set aside the decision [2] of the Court of Appeals
(CA) in CA-G.R. SP No. 83112 and its resolution[3] denying reconsideration.
On October 7, 2001, respondents Ng Sheung Ngor,[4] Ken Appliance Division, Inc. and Benjamin
E. Go filed an action for annulment and/or reformation of documents and contracts [5] against petitioner
Equitable PCI Bank (Equitable) and its employees, Aimee Yu and Bejan Lionel Apas, in the Regional
Trial Court (RTC), Branch 16 of Cebu City. [6] They claimed that Equitable induced them to avail of its
peso and dollar credit facilities by offering low interest rates [7] so they accepted Equitable's proposal and
signed the bank's pre-printed promissory notes on various dates beginning 1996. They, however, were
unaware that the documents contained identical escalation clauses granting Equitable authority to increase
interest rates without their consent.[8]
Equitable, in its answer, asserted that respondents knowingly accepted all the terms and conditions
contained in the promissory notes.[9] In fact, they continuously availed of and benefited from Equitable's
credit facilities for five years. [10]
After trial, the RTC upheld the validity of the promissory notes. It found that, in 2001 alone,
Equitable restructured respondents' loans amounting to US$228,200 andP1,000,000.[11] The trial court,
however, invalidated the escalation clause contained therein because it violated the principle of mutuality
of contracts.[12] Nevertheless, it took judicial notice of the steep depreciation of the peso during the
intervening period[13] and declared the existence of extraordinary deflation. [14] Consequently, the RTC
ordered the use of the 1996 dollar exchange rate in computing respondents' dollar-denominated loans.

[15]

Lastly, because the business reputation of respondents was (allegedly) severely damaged when
Equitable froze their accounts,[16] the trial court awarded moral and exemplary damages to them. [17]
The dispositive portion of the February 5, 2004 RTC decision[18] provided:
WHEREFORE, premises considered, judgment is hereby rendered:
A)

Ordering [Equitable] to reinstate and return the amount of [respondents'] deposit


placed on hold status;

B)

Ordering [Equitable] to pay [respondents] the sum of P12 [m]illion [p]esos as


moral damages;

C)

Ordering [Equitable] to pay [respondents] the sum of P10 [m]illion [p]esos as


exemplary damages;

D)

Ordering defendants Aimee Yu and Bejan [Lionel] Apas to pay [respondents],


jointly and severally, the sum of [t]wo [m]illion [p]esos as moral and exemplary
damages;

E)

Ordering [Equitable, Aimee Yu and Bejan Lionel Apas], jointly and severally, to
pay [respondents'] attorney's fees in the sum of P300,000; litigation expenses in
the sum of P50,000 and the cost of suit;

F)

Directing plaintiffs Ng Sheung Ngor and Ken Marketing to pay [Equitable] the
unpaid principal obligation for the peso loan as well as the unpaid obligation for
the dollar denominated loan;

G)

Directing plaintiff Ng Sheung Ngor and Ken Marketing to pay [Equitable]


interest as follows:
1)
2)

H)

12% per annum for the peso loans;


8% per annum for the dollar loans. The basis for the payment of the dollar
obligation is the conversion rate of P26.50 per dollar availed of at the time of
incurring of the obligation in accordance with Article 1250 of the Civil Code
of the Philippines;

Dismissing [Equitable's] counterclaim except the payment of the aforestated


unpaid principal loan obligations and interest.
SO ORDERED.[19]

Equitable and respondents filed their respective notices of appeal. [20]


In the March 1, 2004 order of the RTC, both notices were denied due course because Equitable and
respondents failed to submit proof that they paid their respective appeal fees. [21]
WHEREFORE, premises considered, the appeal interposed by defendants from
the Decision in the above-entitled case is DENIED due course. As of February 27,
2004, the Decision dated February 5, 2004, is considered final and executory in so

far as [Equitable, Aimee Yu and Bejan Lionel Apas] are concerned.[22] (emphasis
supplied)
Equitable moved for the reconsideration of the March 1, 2004 order of the RTC [23] on the ground
that it did in fact pay the appeal fees. Respondents, on the other hand, prayed for the issuance of a writ of
execution.[24]
On March 24, 2004, the RTC issued an omnibus order denying Equitable's motion for
reconsideration for lack of merit [25] and ordered the issuance of a writ of execution in favor of
respondents.[26] According to the RTC, because respondents did not move for the reconsideration of the
previous order (denying due course to the parties notices of appeal), [27] the February 5, 2004 decision
became final and executory as to both parties and a writ of execution against Equitable was in order. [28]
A writ of execution was thereafter issued[29] and three real properties of Equitable were levied upon.
[30]

On March 26, 2004, Equitable filed a petition for relief in the RTC from the March 1, 2004 order.
It, however, withdrew that petition on March 30, 2004 [32] and instead filed a petition for certiorari with
an application for an injunction in the CA to enjoin the implementation and execution of the March 24,
2004 omnibus order.[33]
[31]

On June 16, 2004, the CA granted Equitable's application for injunction. A writ of preliminary
injunction was correspondingly issued.[34]
Notwithstanding the writ of injunction, the properties of Equitable previously levied upon were
sold in a public auction on July 1, 2004. Respondents were the highest bidders and certificates of sale
were issued to them. [35]
On August 10, 2004, Equitable moved to annul the July 1, 2004 auction sale and to cite the sheriffs
who conducted the sale in contempt for proceeding with the auction despite the injunction order of the
CA.[36]
On October 28, 2005, the CA dismissed the petition for certiorari. [37] It found Equitable guilty of
forum shopping because the bank filed its petition for certiorari in the CA several hours before
withdrawing its petition for relief in the RTC. [38] Moreover, Equitable failed to disclose, both in the
statement of material dates and certificate of non-forum shopping (attached to its petition for certiorari in
the CA), that it had a pending petition for relief in the RTC. [39]
Equitable moved for reconsideration[40] but it was denied.[41] Thus, this petition.
Equitable asserts that it was not guilty of forum shopping because the petition for relief was
withdrawn on the same day the petition for certiorari was filed. [42] It likewise avers that its petition for
certiorari was meritorious because the RTC committed grave abuse of discretion in issuing the March 24,
2004 omnibus order which was based on an erroneous assumption. The March 1, 2004 order denying its
notice of appeal for non payment of appeal fees was erroneous because it had in fact paid the required
fees.[43] Thus, the RTC, by issuing its March 24, 2004 omnibus order, effectively prevented Equitable
from appealing the patently wrong February 5, 2004 decision.[44]
This petition is meritorious.
EQUITABLE WAS NOT GUILTY OF FORUM SHOPPING

Forum shopping exists when two or more actions involving the same transactions, essential facts and
circumstances are filed and those actions raise identical issues, subject matter and causes of action. [45] The
test is whether, in two or more pending cases, there is identity of parties, rights or causes of actions and
reliefs.[46]
Equitable's petition for relief in the RTC and its petition for certiorari in the CA did not have
identical causes of action. The petition for relief from the denial of its notice of appeal was based on the
RTCs judgment or final order preventing it from taking an appeal by fraud, accident, mistake or
excusable negligence.[47] On the other hand, its petition for certiorari in the CA, a special civil action,
sought to correct the grave abuse of discretion amounting to lack of jurisdiction committed by the RTC. [48]
In a petition for relief, the judgment or final order is rendered by a court with competent
jurisdiction. In a petition for certiorari, the order is rendered by a court without or in excess of its
jurisdiction.
Moreover, Equitable substantially complied with the rule on non-forum shopping when it moved to
withdraw its petition for relief in the RTC on the same day (in fact just four hours and forty minutes after)
it filed the petition for certiorari in the CA. Even if Equitable failed to disclose that it had a pending
petition for relief in the RTC, it rectified what was doubtlessly a careless oversight by withdrawing the
petition for relief just a few hours after it filed its petition for certiorari in the CA a clear indication that
it had no intention of maintaining the two actions at the same time.
THE TRIAL COURT COMMITTED GRAVE ABUSE OF DISCRETION IN ISSUING ITS
MARCH 1, 2004 AND MARCH 24, 2004 ORDERS
Section 1, Rule 65 of the Rules of Court provides:
Section 1. Petition for Certiorari. When any tribunal, board or officer exercising
judicial or quasi-judicial function has acted without or in excess of its or his
jurisdiction, or with grave abuse of discretion amounting to lack or excess of
jurisdiction, and there is no appeal, nor any plain, speedy or adequate remedy in the
ordinary course of law, a person aggrieved thereby may file a verified petition in the
proper court, alleging the facts with certainty and praying that judgment be rendered
annulling or modifying the proceedings of such tribunal, board or officer, and granting
such incidental reliefs as law and justice may require.
The petition shall be accompanied by a certified true copy of the judgment, order
or resolution subject thereof, copies of all pleadings and documents relevant and pertinent
thereto, and a sworn certificate of non-forum shopping as provided in the third paragraph
of Section 3, Rule 46.
There are two substantial requirements in a petition for certiorari. These are:
1.

that the tribunal, board or officer exercising judicial or quasi-judicial functions


acted without or in excess of his or its jurisdiction or with grave abuse of
discretion amounting to lack or excess of jurisdiction; and

2.

that there is no appeal or any plain, speedy and adequate remedy in the
ordinary course of law.

For a petition for certiorari premised on grave abuse of discretion to prosper, petitioner must show
that the public respondent patently and grossly abused his discretion and that abuse amounted to an
evasion of positive duty or a virtual refusal to perform a duty enjoined by law or to act at all in
contemplation of law, as where the power was exercised in an arbitrary and despotic manner by reason of
passion or hostility.[49]
The March 1, 2004 order denied due course to the notices of appeal of both Equitable and
respondents. However, it declared that the February 5, 2004 decision was final and executory only with
respect to Equitable.[50] As expected, the March 24, 2004 omnibus order denied Equitable's motion for
reconsideration and granted respondents'motion for the issuance of a writ of execution.[51]
The March 1, 2004 and March 24, 2004 orders of the RTC were obviously intended to prevent
Equitable, et al. from appealing the February 5, 2004 decision. Not only that. The execution of the
decision was undertaken with indecent haste, effectively obviating or defeating Equitable's right to avail
of possible legal remedies. No matter how we look at it, the RTC committed grave abuse of discretion in
rendering those orders.
With regard to whether Equitable had a plain, speedy and adequate remedy in the ordinary course
of law, we hold that there was none. The RTC denied due course to its notice of appeal in the March 1,
2004 order. It affirmed that denial in the March 24, 2004 omnibus order. Hence, there was no way
Equitable could have possibly appealed the February 5, 2004 decision. [52]
Although Equitable filed a petition for relief from the March 24, 2004 order, that petition was not a
plain, speedy and adequate remedy in the ordinary course of law.[53] A petition for relief under Rule 38 is
an equitable remedy allowed only in exceptional circumstances or where there is no other available or
adequate remedy.[54]
Thus, we grant Equitable's petition for certiorari and consequently give due course to its appeal.
EQUITABLE RAISED PURE QUESTIONS OF LAW IN ITS PETITION FOR REVIEW
The jurisdiction of this Court in Rule 45 petitions is limited to questions of law. [55] There is a
question of law when the doubt or controversy concerns the correct application of law or jurisprudence
to a certain set of facts; or when the issue does not call for the probative value of the evidence presented,
the truth or falsehood of facts being admitted. [56]
Equitable does not assail the factual findings of the trial court. Its arguments essentially focus on
the nullity of the RTCs February 5, 2004 decision. Equitable points out that that decision was patently
erroneous, specially the exorbitant award of damages, as it was inconsistent with existing law and
jurisprudence.[57]
THE PROMISSORY NOTES WERE VALID
The RTC upheld the validity of the promissory notes despite respondents assertion that those
documents were contracts of adhesion.
A contract of adhesion is a contract whereby almost all of its provisions are drafted by one party.
The participation of the other party is limited to affixing his signature or his adhesion to the contract.
[59]
For this reason, contracts of adhesion are strictly construed against the party who drafted it. [60]
[58]

It is erroneous, however, to conclude that contracts of adhesion are invalid per se. They are, on the
contrary, as binding as ordinary contracts. A party is in reality free to accept or reject it. A contract of
adhesion becomes void only when the dominant party takes advantage of the weakness of the other party,
completely depriving the latter of the opportunity to bargain on equal footing. [61]
That was not the case here. As the trial court noted, if the terms and conditions offered by Equitable
had been truly prejudicial to respondents, they would have walked out and negotiated with another bank
at the first available instance. But they did not. Instead, they continuously availed of Equitable's credit
facilities for five long years.
While the RTC categorically found that respondents had outstanding dollar- and peso-denominated
loans with Equitable, it, however, failed to ascertain the total amount due (principal, interest and
penalties, if any) as of July 9, 2001. The trial court did not explain how it arrived at the amounts of
US$228,200 and P1,000,000.[62] In Metro Manila Transit Corporation v. D.M. Consunji, [63] we reiterated
that this Court is not a trier of facts and it shall pass upon them only for compelling reasons which
unfortunately are not present in this case. [64] Hence, we ordered the partial remand of the case for the sole
purpose of determining the amount of actual damages. [65]
ESCALATION CLAUSE VIOLATED THE PRINCIPLE OF MUTUALITY OF CONTRACTS
Escalation clauses are not void per se. However, one which grants the creditor an unbridled right
to adjust the interest independently and upwardly, completely depriving the debtor of the right to assent to
an important modification in the agreement is void. Clauses of that nature violate the principle of
mutuality of contracts.[66] Article 1308[67] of the Civil Code holds that a contract must bind both
contracting parties; its validity or compliance cannot be left to the will of one of them. [68]
For this reason, we have consistently held that a valid escalation clause provides:
1.

that the rate of interest will only be increased if the applicable maximum
rate of interest is increased by law or by the Monetary Board; and

2.

that the stipulated rate of interest will be reduced if the applicable


maximum rate of interest is reduced by law or by the Monetary Board (deescalation clause).[69]

The RTC found that Equitable's promissory notes uniformly stated:


If subject promissory note is extended, the interest for subsequent extensions shall be at
such rate as shall be determined by the bank. [70]
Equitable dictated the interest rates if the term (or period for repayment) of the loan was
extended. Respondents had no choice but to accept them. This was a violation of Article 1308 of the Civil
Code. Furthermore, the assailed escalation clause did not contain the necessary provisions for validity,
that is, it neither provided that the rate of interest would be increased only if allowed by law or the
Monetary Board, nor allowed de-escalation. For these reasons, the escalation clause was void.
With regard to the proper rate of interest, in New Sampaguita Builders v. Philippine National
Bank[71] we held that, because the escalation clause was annulled, the principal amount of the loan was
subject to the original or stipulated rate of interest. Upon maturity, the amount due was subject to legal
interest at the rate of 12% per annum. [72]

Consequently, respondents should pay Equitable the interest rates of 12.66% p.a. for their dollardenominated loans and 20% p.a. for their peso-denominated loans from January 10, 2001 to July 9, 2001.
Thereafter, Equitable was entitled to legal interest of 12% p.a. on all amounts due.
THERE WAS NO EXTRAORDINARY DEFLATION
Extraordinary inflation exists when there is an unusual decrease in the purchasing power of
currency (that is, beyond the common fluctuation in the value of currency) and such decrease could not be
reasonably foreseen or was manifestly beyond the contemplation of the parties at the time of the
obligation. Extraordinary deflation, on the other hand, involves an inverse situation. [73]
Article 1250 of the Civil Code provides:
Article 1250. In case an extraordinary inflation or deflation of the currency stipulated
should intervene, the value of the currency at the time of the establishment of the
obligation shall be the basis of payment, unless there is an agreement to the contrary.
For extraordinary inflation (or deflation) to affect an obligation, the following requisites must be
proven:
1.
2.
3.

that there was an official declaration of extraordinary inflation or deflation


from the Bangko Sentral ng Pilipinas (BSP);[74]
that the obligation was contractual in nature; [75] and
that the parties expressly agreed to consider the effects of the extraordinary
inflation or deflation.[76]

Despite the devaluation of the peso, the BSP never declared a situation of extraordinary
inflation. Moreover, although the obligation in this instance arose out of a contract, the parties did not
agree to recognize the effects of extraordinary inflation (or deflation). [77] The RTC never mentioned that
there was a such stipulation either in the promissory note or loan agreement. Therefore, respondents
should pay their dollar-denominated loans at the exchange rate fixed by the BSP on the date of maturity.
[78]

THE AWARD OF MORAL AND EXEMPLARY DAMAGES LACKED BASIS


Moral damages are in the category of an award designed to compensate the claimant for actual
injury suffered, not to impose a penalty to the wrongdoer. [79] To be entitled to moral damages, a claimant
must prove:
1.
2.

That he or she suffered besmirched reputation, or physical, mental or


psychological suffering sustained by the claimant;
That the defendant committed a wrongful act or omission;

3.

That the wrongful act or omission was the proximate cause of the damages the
claimant sustained;

4.

The case is predicated on any of the instances expressed or envisioned by


Article 2219[80] and 2220[81]. [82]

In culpa contractual or breach of contract, moral damages are recoverable only if the defendant
acted fraudulently or in bad faith or in wanton disregard of his contractual obligations. [83] The breach must
be wanton, reckless, malicious or in bad faith, and oppressive or abusive. [84]
The RTC found that respondents did not pay Equitable the interest due on February 9, 2001 (or any
month thereafter prior to the maturity of the loan) [85] or the amount due (principal plus interest) due on
July 9, 2001.[86] Consequently, Equitable applied respondents' deposits to their loans upon maturity.
The relationship between a bank and its depositor is that of creditor and debtor. [87] For this reason, a
bank has the right to set-off the deposits in its hands for the payment of a depositor's indebtedness. [88]
Respondents indeed defaulted on their obligation. For this reason, Equitable had the option to
exercise its legal right to set-off or compensation. However, the RTC mistakenly (or, as it now appears,
deliberately) concluded that Equitable acted fraudulently or in bad faith or in wanton disregard of its
contractual obligations despite the absence of proof. The undeniable fact was that, whatever damage
respondents sustained was purely the consequence of their failure to pay their loans. There was
therefore absolutely no basis for the award of moral damages to them.
Neither was there reason to award exemplary damages. Since respondents were not entitled to
moral damages, neither should they be awarded exemplary damages. [89] And if respondents were not
entitled to moral and exemplary damages, neither could they be awarded attorney's fees and litigation
expenses.[90]
ACCORDINGLY, the petition is hereby GRANTED.
The October 28, 2005 decision and February 3, 2006 resolution of the Court of Appeals in CA-G.R.
SP No. 83112 are hereby REVERSED and SET ASIDE.
The March 24, 2004 omnibus order of the Regional Trial Court, Branch 16, Cebu City in Civil Case
No. CEB-26983 is hereby ANNULLED for being rendered with grave abuse of discretion amounting to
lack or excess of jurisdiction. All proceedings undertaken pursuant thereto are likewise declared null and
void.
The March 1, 2004 order of the Regional Trial Court, Branch 16 of Cebu City in Civil Case No.
CEB-26983 is hereby SET ASIDE. The appeal of petitioners Equitable PCI Bank, Aimee Yu and Bejan
Lionel Apas is therefore given due course.
The February 5, 2004 decision of the Regional Trial Court, Branch 16 of Cebu City in Civil Case
No. CEB-26983 is accordingly SET ASIDE. New judgment is hereby entered:
1.

ordering respondents Ng Sheung Ngor, doing business under the name and style of
Ken Marketing, Ken Appliance Division, Inc. and Benjamin E. Go to pay petitioner
Equitable PCI Bank the principal amount of their dollar- and peso-denominated loans;

2.

3.

ordering respondents Ng Sheung Ngor, doing business under the name and style of
Ken Marketing, Ken Appliance Division, Inc. and Benjamin E. Go to pay petitioner
Equitable PCI Bank interest at:
a)
12.66% p.a. with respect to their dollar-denominated loans from January 10,
2001 to July 9, 2001;
b)
20% p.a. with respect to their peso-denominated loans from January 10, 2001
to July 9, 2001;[91]
c)
pursuant to our ruling in Eastern Shipping Lines v. Court of Appeals, [92] the
total amount due on July 9, 2001 shall earn legal interest at 12% p.a. from the
time petitioner Equitable PCI Bank demanded payment, whether judicially or
extra-judicially; and
d)
after this Decision becomes final and executory, the applicable rate shall be
12% p.a. until full satisfaction;
all other claims and counterclaims are dismissed.

As a starting point, the Regional Trial Court, Branch 16 of Cebu City shall compute the exact
amounts due on the respective dollar-denominated and peso-denominated loans, as of July 9, 2001, of
respondents Ng Sheung Ngor, doing business under the name and style of Ken Marketing, Ken
Appliance Division and Benjamin E. Go.
SO ORDERED.

THIRD DIVISION
[G.R. No. 123896. June 25, 2003]
ROSALINDA SERRANO, petitioner, vs. COURT OF APPEALS and PEOPLE OF THE
PHILIPPINES, respondents.
DECISION
CARPIO-MORALES, J.:
Assailed in this Petition for Review on Certiorari under Rule 45 of the Rules of Court are the
Decision[1] of December 18, 1992 and Resolution[2] of February 13, 1996 of the Court of Appeals in CAG. R. No. 10802, People of the Philippines v. Rosalinda Serrano, which affirmed the decision [3] of the
Regional Trial Court of Pasay City, Branch 117, finding Rosalinda Serrano guilty beyond reasonable
doubt of estafa through falsification of commercial documents.
Three informations were filed on June 18, 1985, charging petitioner, along with Nelia Giron (Nelia)
and Edna Sibal (Edna), with estafa through falsification of commercial documents as follows:

Criminal Case No. 85-8239


That on or about the 21st day of September, 1984 in Pasay, Metro Manila, Philippines and within the
jurisdiction of this Honorable Court, the above-named accused, conspiring and confederating together and
mutually helping one another, with intent to deceive and defraud one Ramon C. Mojica thru Centerre
Bank, New York, USA, did then and there willfully, unlawfully and feloniously falsify a Centerre Bank
draft No. 00362562 dated September 7, 1984 payable to cash for the amount of $12,000.00 United States
currency, by making it appear that the said draft was drawn and issued by said bank in St. Louis, Misouri
(sic), USA and signed by its authorized officers, when in truth and in fact as said accused well knew, the
said draft was fraudulent/fictitious in that the same was not issued by the bank and that the signature
appearing thereon was not of an officer of the bank but fictitious, and once in possession of, and armed
with said draft falsified in the manner aforesaid, the above-named accused, through fraudulent
manifestations and false representation gave and delivered the same to Ramon C. Mojica in exchange of
(sic) the sum of P246,000.00 which amount the herein accused willfully, unlawfully and feloniously
converted to their personal use and benefit; that when the said draft was presented to the drawee bank for
payment, the same was dishonored for being fraudulent and despite repeated demands made upon the
accused to pay the amount of $12,000.00 or its equivalent in peso, said accused failed and refused and
still fails and refuses to do so, to the damage and prejudice of the complainant Ramon C. Mojica in the
aforesaid amount.
Contrary to law.[4]
Criminal Case No. 85-8238-P
That on or about the 24th day of September, 1984 in Pasay, Metro Manila, Philippines and within the
jurisdiction of this Honorable Court, the above-named accused, conspiring and confederating together and
mutually helping one another, with intent to deceive and defraud one Ramon C. Mojica thru Centerre
Bank, New York, USA, did then and there willfully, unlawfully and feloniously falsify a Centerre Bank
draft No. 00362563 dated September 7, 1984 payable to cash for the amount of $10,000.00 United States
currency, by making it appear that the said draft was drawn and issued by said bank, in St. Louis,

Missouri, USA, and signed by its authorized officers, when in truth and in fact as said accused well knew,
the said draft was fraudulent/fictitious in that the same was not issued by the bank and that the signature
appearing thereon was not of an officer of the bank but fictitious, and once in possession of, and armed
with said draft falsified in the manner aforesaid, the above-named accused, through fraudulent
manifestations and false representation, gave and delivered the same to Ramon C. Mojica in exchange of
(sic) the sum of P160,000.00 which amount the herein accused willfully, unlawfully and feloniously
converted to their personal use and benefit; that when the said draft was presented to the drawee bank for
payment, the same was dishonored for being fraudulent and despite repeated demands made upon the
accused to pay the amount of $10,000.00 or its equivalent in peso, said accused failed and refused and
still fails and refuses to do so, to the damage and prejudice of the complainant Ramon C. Mojica in the
aforesaid amount.
Contrary to law.[5]

Criminal Case No. 85-8237-P


That on or about the 25th day of September, 1984 in Pasay, Metro Manila, Philippines and within the
jurisdiction of this Honorable Court, the above-named accused, conspiring and confederating together and
mutually helping one another, with intent to deceive and defraud one Ramon C. Mojica thru Citizens
National Bank, San Francisco, California, did then and there willfully, unlawfully and feloniously falsify
a Citizens National Bank draft No. 68534807 dated August 24, 1984 payable to cash for the amount of
$5,000.00 United States currency, by making it appear that the said draft was drawn and issued by said
bank in San Francisco, California, USA, and signed by its authorized officers when in truth and in fact as
said accused well knew, the said draft was fraudulent/fictitious in that the same was not issued by the
bank and that the signature appearing thereon was not of an officer of the bank but fictitious, and once in
possession of, and armed with said draft falsified in the manner, aforesaid, the above-named accused,
through fraudulent manifestations and false representation gave and delivered the same to Ramon C.
Mojica in exchange of (sic) the sum of P102,000.00 which amount the herein accused willfully,
unlawfully and feloniously converted to their personal use and benefit; that when the said draft was
presented to the drawee bank for payment, the same was dishonored and refused payment for being
fraudulent and despite repeated demands made upon the accused to pay the amount of P102,000.00 or its
equivalent in peso, said accused failed and refused and still fails and refuses to do so, to the damage and
prejudice of the complainant Ramon C. Mojica in the aforesaid amount.
Contrary to law.[6]
Of the three accused, only petitioner was brought to the jurisdiction of the trial court, Nelia and Edna
having remained at large. When duly arraigned on February 18, 1987, [7] petitioner entered a plea of not
guilty.
The facts of the case are as follows:
On September 21, 1984, businessman Ramon C. Mojica (Mojica) contacted his friend Nelia Oliva
(Oliva), who worked at Banco Filipino (the bank) in Makati, for the purpose of buying U.S. dollars for
the importation of machinery spare parts for his blanket factory in Cainta, Rizal.
As Oliva told Mojica that her co-employee Mel Lazo (Mel) knew people who were in the business of
selling dollars, Mojica, by telephone, talked to Mel who informed him that she was acquainted with
people who had cashiers checks drawn from US banks. After the two agreed on the exchange rate

at P20.50 to a US dollar and to meet at the bank, Mojica repaired that same day, September 21, 1984, to
the bank where he was introduced by Oliva to Mel, petitioner and Nelia.
Petitioner then instructed Mojica to go with her and Nelia to the lobby of the then Regent of Manila
Hotel (the Regent), now the Heritage Hotel, in Roxas Boulevard, Pasay City, telling him that the check to
be sold to him was with a certain Edna Sibal (Sibal) who would meet them there. [8]
At the lobby of the Regent, petitioner, Nelia and Edna presented Check No. 00362562 [9] dated
September 7, 1984 drawn by and against Centerre Bank, St. Louis, Missouri, U.S.A. for
$12,000.00. Assured that it was fully funded, [10] Mojica accepted the check in exchange for which he
handed them Metrobank Cashiers Check No. CC-002880 [11] dated September 21, 1984 in the amount
of P246,000.00. Nelia and petitioner later returned the cashiers check and, upon petitioners request,
Mojica replaced it with Metrobank Cashiers Check Nos. CC-002882 [12] and CC-002883,[13] both dated
September 21, 1984, for P168,000.00 and P78,000.00, respectively.
The Metrobank checks were encashed on September 24, 1984 by petitioner whose signature, address
and voters affidavit number[14] appear at the checks dorsal portions.
On September 24, 1984, petitioner phoned Mojica and inquired whether he was still willing to
purchase some dollars, informing him that she, Nelia and Edna had another dollar check in the amount of
$10,000.00 and that they were willing to sell the same to him at the same rate of exchange. [15] Mojica,
who accepted the offer, met with them that afternoon at the hotel, bringing with him, on their request, two
cashiers checks, one for P150,000.00 and the other for P45,000.00.[16]
At the Regent, Nelia, Edna and petitioner handed Mojica Check No. 00362563 [17] dated September 7,
1984 drawn by and against Centerre Bank, St. Louis, Missouri, U.S.A. for $10,000.00 in exchange for
Metrobank Cashiers Check Nos. 002891[18] and 002890,[19] both dated September 24, 1984,
for P160,000.00 and P45,000.00, respectively. Nelia, Edna, and petitioner once again assured Mojica that
the dollar check was sufficiently funded. [20] On that same day, petitioner encashed the Metrobank
cashiers checks.[21]
The following day, September 25, 1984, petitioner phoned Mojica again and offered to sell a
$5,000.00 check to him at the same exchange rate of P20.50 to a U.S. dollar.[22] Mojica agreed and as
usual, as instructed, he brought a cashiers check for P102,500.00 when they met that same afternoon at
the Regent.[23]
As was their agreement, Mojica was handed by petitioner Check No. 68534807 [24] dated August 24,
1984 drawn by and against the Citizens National Bank of San Francisco, California for $5,000.00 in
exchange for Metrobank Check No. 002894[25] dated September 25, 1982 for P102,500.00. Nelia, Edna
and petitioner again assured Mojica that the dollar check was genuine and sufficiently funded. [26] They
later returned the Metrobank checks to Mojica and requested him to replace it with two checks, one
for P80,000.00, and the other for P22,500.00. Obliging, Mojica delivered to them replacement
Metrobank Cashiers Check Nos. CC-002897 [27] and CC-002898,[28] both dated September 25, 1984
for P80,000.00 and P22,500.00, respectively, which checks were encashed by petitioner on the same day,
September 25, 1984.[29]
Mojica deposited the dollar checks to his Foreign Currency Deposit Unit (FCDU) Savings Account
at the Cubao branch of Metrobank several weeks after which he was notified that all the dollar checks
were fraudulent,[30] drawing him to demand the return of his money from Nelia, Edna and petitioner who,
however, failed to comply. Hence, the filing of the three criminal cases against them.
By Decision of May 29, 1990, the trial court found petitioner guilty beyond reasonable doubt of
three (3) counts of estafa through falsification of commercial documents. The dispositive portion of the
decision reads:

WHEREFORE, the Court finds the accused Rosalinda Serrano GUILTY beyond reasonable doubt for
estafa thru falsification of [commercial] documents defined and penalized under paragraph 2(a) of Article
315 and paragraph 1 of Article 172 of the Revised Penal Code on three (3) counts and sentences her as
follows:
1. In Criminal Case No. 85-8237-P, to an indeterminate penalty ranging from SIX (6) YEARS and ONE
(1) DAY of prision mayor as minimum to EIGHT (8) YEARS of prision mayor as maximum; to
indemnify Ramon C. Mojica the amount of P102,000.00, without subsidiary imprisonment in case of
insolvency and to pay 1/3 of the proportionate costs.
2. In Criminal Case No. 85-8238-P, to an indeterminate penalty ranging from TEN (10) YEARS and ONE
(1) DAY of prision mayor as minimum to FOURTEEN (14) YEARS and EIGHT (8) MONTHS of
reclusion temporal as maximum; to indemnify Ramon C. Mojica the amount of P160,000.00, without
subsidiary imprisonment in case of insolvency and to pay 1/3 of the proportionate costs.
3. In Criminal Case No. 85-8239-P, to an indeterminate penalty ranging from TEN (10) YEARS and ONE
(1) DAY of prision mayor as minimum to FOURTEEN (14) and EIGHT (8) MONTHS of reclusion
temporal as maximum; to indemnify Ramon C. Mojica the amount of P246,000.00, without subsidiary
imprisonment in case of insolvency and to pay 1/3 of the proportionate costs.
SO ORDERED.[31]
Petitioner interposed an appeal with the Court of Appeals which, by Decision of December 18, 1992,
affirmed the judgment of conviction but modified the penalties as follows:
1.) In Criminal Case No. 85-8237-P, six (6) years and one (1) day of Prision Mayor as minimum to
twelve (12) years and one (1) day of Reclusion Temporal as maximum; to indemnify private complainant
Ramon C. Mojica the amount of P102,000.00 without subsidiary imprisonment in case of insolvency; and
to pay 1/3 of the proportionate costs.
2.) In Criminal Case No. 85-8238-P, ten (10) years and one (1) day of Prision Mayor as minimum to
seventeen (17) years, four (4) months and one (1) day of Reclusion Temporal as maximum; to indemnify
the private complainant Ramon C. Mojica the amount of P160,000.00 without subsidiary imprisonment in
case of insolvency; and to pay 1/3 proportionate costs.
3.) In Criminal Case No. 85-8239-P, ten (10) years and one (1) day of Prision Mayor as minimum to
seventeen (17) years, four (4) months and one (1) day of Reclusion Temporal as maximum; to indemnify
the private complainant Ramon C. Mojica the amount of P246,000.00 without subsidiary imprisonment in
case of insolvency; and to pay 1/3 of the proportionate costs.
SO ORDERED.[32]
Petitioners motion for reconsideration having been denied by the Court of Appeals by Resolution of
February 13, 1996, the present petition was filed.
Petitioner posits that from the handwritten memorandum dated June 8, 1988 reading:
Witnesses hereat confirms (sic) that Edna Sibal signed a promissory note for P553,500.- dated October 9,
1984 in favor of Mr. Ramon C. Mojica. This supersedes the promissory note of Edna Sibal signed in
favor of Rosalina (sic) Serrano.[33]

below which Mojica affixed his signature along with two others, she is exculpated from criminal liability.
By petitioners claim, under the promissory note dated October 9, 1984 mentioned in the abovequoted handwritten memorandum which note was, by the way, never presented in evidence, Edna
undertook to return the proceeds of the subject dollar transactions, which undertaking was allegedly
unconditionally accepted by Mojica. To petitioner, the acceptance by Mojica of Ednas promise to pay
effectively converted or novated the transactions of the parties into ordinary creditor-debtor relationship,
hence, Mojica is in estoppel to insist on their original relationship. [34]
Petitioners position is bereft of merit. Novation is not one of the grounds prescribed by the Revised
Penal Code for the extinction of criminal liability.[35]
x x x, [I]t is well-settled that criminal liability for estafa is not affected by compromise or novation of
contract, for it is a public offense which must be prosecuted and punished by the Government on its own
motion though complete reparation should have been made of the damage suffered by the offended
party. As was said in the case of People vs. Gervacio, a criminal offense is committed against the People
and the offended party may not waive or extinguish the criminal liability that the law imposes for the
commission of the offense. The fact, therefore, that the accused herein had, with the consent of the
offended party, assumed the obligation of paying the rentals, which he collected, out of his own salary
after he had committed the misappropriation, does not obliterate the criminal liability incurred.
[36]
(Underscoring supplied)
The handwritten memorandum, even assuming that the alleged promissory note of Edna mentioned
therein actually exists, cannot exculpate petitioner from criminal liability, especially in the absence of a
showing that there was an unmistakable intent to extinguish the original relationship between Mojica on
the one hand, and petitioner, Nelia and Edna on the other.
Petitioner then avers that her participation in the questioned dollar transactions was limited to her act
of introducing Nelia and Edna to Mel who in turn introduced them to Oliva and eventually to
Mojica. Such role, she submits, cannot in any way be considered criminal and cannot be construed as
part of a conspiracy,[37] her interest in the success of the dollar transactions having been solely motivated
by her desire to enforce and collect outstanding obligations of Nelia and Edna to her.[38]
This Court is not persuaded. Direct proof of previous agreement to commit a crime is not necessary
to prove conspiracy as it may be deduced from the acts of the perpetrators before, during and after the
commission of the crime which are indicative of a common design, concerted action and concurrence of
sentiments.[39]
As the trial court found:
Serrano claims that she had no participation in the transactions and was merely present to collect the
alleged indebtedness of her co-accused Giron and Sibal to her. However, in her direct and cross
examination on April 11, 1989, it clearly showed that Serrano knew every single detail of the three (3)
transactions. She was not only a participant, but was also an instrument in the commencement and
consequently in the consumation (sic) of the three (3) transactions. She arranged their meeting with
Mojica and in all these transactions aside from being present she personally called and advised him to buy
additional bank drafts in the September 24 & 25, 1984 transactions. It was also shown that Serrano
personally received all the proceeds of the Metrobank Cashiers Checks issued and/or exchanged by
Mojica with the subject bank drafts. As a matter of fact, she admitted that she was the one who encashed
and received the proceeds of the three (3) fraudulent checks; that she likewise caused and formally
applied for the issuance of Metrobank Cashiers Check No. 002897 dated September 25, 1984 in the
amount of P80,000.00 (t.s.n., August 23, 1988, pp. 34-35). It has also been established that Serrano,
Giron, and Sibal guaranteed the genuineness of the three (3) subject bank drafts and that they were

sufficiently funded (t.s.n., October 14, 1987, pp. 11-12). So that because of this (sic) false pretenses and
fraudulent representations of the three accused, Mojica was induced to part with his money in the amount
of P550,000.00 All these facts belied the claim of Serrano that she has no participation. As a matter of
fact, she admitted that she kept part of the proceeds, but claim (sic) that it was in payment of the alleged
indebtedness of Giron and Sibal to her. In each transactions (sic) she received P25,000.00, so that she
received a total of P75,000.00 which shows that this was her share in the subject fraudulent transactions.
[40]

Factual findings of the trial court, when adopted and confirmed by the Court of Appeals, are final
and conclusive and may not be reviewed on appeal except: (1) when the inference made is manifestly
mistaken, absurd or impossible; (2) when there is a grave abuse of discretion; (3) when the finding is
grounded entirely on speculations, surmises or conjectures; (4) when the judgment of the Court of
Appeals is based on a misapprehension of facts; (5) when the findings of fact are conflicting; (6) when the
Court of Appeals, in making its findings went beyond the issues of the case and the same is contrary to
the admissions of both appellant and appellee; (7) when the findings of the Court of Appeals are contrary
to those of the trial court; (8) when the findings of fact are conclusions without citation of specific
evidence on which they are based; (9) when the Court of Appeals manifestly overlooked certain relevant
facts not disputed by the parties and which, if properly considered, would justify a different conclusion;
and (10) when the findings of fact of the Court of Appeals are premised on the absence of evidence and
are contradicted by the evidence on record. [41]
From a review of the evidence on record, there is no cogent reason to disturb the factual findings of
the trial court and the Court of Appeals which both found that there was proof beyond reasonable doubt
that the acts committed by petitioner constitute the complex crime of estafa through falsification of
commercial documents.
Article 172 of the Revised Penal Code punishes any private individual who shall commit any of the
acts of falsification enumerated in Article 171 in any public or official document or letter of exchange or
any other kind of commercial document.
Article 171 provides:
Art. 171. Falsification by public officer, employee or notary or ecclesiastic minister.- The penalty
of prision mayor and a fine not to exceed 5,000 pesos shall be imposed upon any public officer,
employee, or notary who, taking advantage of his official position, shall falsify a document by
committing any of the following acts:
1. Counterfeiting or imitating any handwriting, signature or rubric;
2. Causing it to appear that persons have participated in any act or proceeding when they did not in
fact so participate;
3. Attributing to persons who have participated in any act or proceeding statements other than those in
fact made by them;
4. Making untruthful statements in a narration of facts;
5. Altering true dates;
6. Making any alteration or intercalation in a genuine document which changes its meaning;

7. Issuing in an authenticated form a document purporting to be a copy of an original document when no


such original exists, or including in such a copy a statement contrary to, or different from, that of the
genuine original; or
8. Intercalating any instrument or note relative to the issuance thereof in a protocol, registry, or official
book.
The same penalty shall be imposed upon any ecclesiastical minister who shall commit any of the offenses
enumerated in the preceding paragraphs of this article, with respect to any record or document of such
character that its falsification may affect the civil status of persons. (Emphasis supplied)
Under the three above-quoted informations, the mode of falsification attributed to petitioner and her
co-conspirators is that of making it appear that the dollar checks were drawn and issued by Centerre
Bank, St. Louis, Missouri, U.S.A. and Citizens National Bank, San Francisco, California, U.S.A., when
petitioner knew very well that they were fraudulent in that they were not issued by the aforementioned
banks and the signatures appearing thereon were not the signatures of officers of the bank.
The dollar checks were undeniably spurious. While there is no direct proof that petitioner and her
co-conspirators were the authors of the falsification, since petitioner was the possessor and utterer of the
dollar checks and benefited from the proceeds of the cashiers checks which were exchanged therefor, the
inevitable conclusion is that she falsified them. It is an established rule that when it is proved that a
person has in his possession a falsified document and makes use of the same, the presumption or
inference is justified that such person is the forger.[42]
The rule is that if a person had in his possession a falsified document and he made use of it (uttered it),
taking advantage of it and profiting thereby, the presumption is that he is the material author of the
falsification. This is especially true if the use or uttering of the forged documents was so closely
connected in time with the forgery that the user or possessor may be proven to have the capacity of
committing the forgery, or to have close connection with the forgers, and, therefore, had complicity in the
forgery.
In the absence of a satisfactory explanation, one who is found in possession of a forged document and
who used or uttered it is presumed to be the forger.[43]
The falsification of the dollar checks was the necessary means for the commission of estafa. The
informations allege, and the evidence established by the prosecution shows, the essential elements of
estafa or swindling under paragraph 2(a) of Article 315 of the Revised Penal Code: [44]
1. That there must be a false pretense, fraudulent act or fraudulent means.
2. That such false pretense, fraudulent act or fraudulent means must be made or executed prior to or
simultaneously with the commission of the fraud.
3. That the offended party must have relied on the false pretense, fraudulent act, or fraudulent means, that
is, he was induced to part with his money or property because of the false pretense, fraudulent act, or
fraudulent means.
4. That as a result thereof, the offended party suffered damage. [45]

The acts of petitioner in falsifying the dollar checks and misrepresenting to Mojica that they were
genuine and sufficiently funded on account of which he parted with, in exchange therefor, the Metrobank
cashiers checks constitute the fraud contemplated under the provision of Article 315, paragraph 2(a) of
the Penal Code. That petitioner encashed the Metrobank checks and appropriated the proceeds thereof to
the damage and prejudice of Mojica seals her liability.
Accordingly, petitioner is liable for 3 counts of estafa through falsification of commercial documents
under paragraph 2(a) of Article 315 and Article 172 in relation to Article 171(2) of the Revised Penal
Code.
The indeterminate penalty imposed by the appellate court on petitioner needs modification,
however. Estafa is punished as follows:
ART. 315. Swindling (estafa) Any person who shall defraud another by any of the means mentioned
hereinbelow shall be punished by:
1st The penalty of prision correccional in its maximum period to prision mayor in its minimum period, if
the amount of the fraud is over 12,000 pesos but does not exceed 22,000 pesos; and if such amount
exceeds the latter sum, the penalty provided in this paragraph shall be imposed in its maximum period,
adding one year for each additional 10,000 pesos; but the total penalty which may be imposed shall not
exceed twenty years. In such case, and in connection with the accessory penalties which may be imposed
and for the purpose of the other provisions of this Code, the penalty shall be termed prision
mayor or reclusion temporal, as the case may be;
xxx
In complex crimes, under Article 48 [46] of the Revised Penal Code, the penalty for the more serious
crime shall be applied in its maximum period.
In imposing a prison sentence under the Revised Penal Code, or its amendments, the Indeterminate
Sentence Law provides that the maximum term of the penalty shall be that which, in view of the attending
circumstances, could be properly imposed under the rules of the said Code, and the minimum shall be
within the range of the penalty next lower to that prescribed by the Code for the offense. [47]
The penalty next lower should be based on the penalty prescribed by the Revised Penal Code for the
offense, without first considering any modifying circumstance attendant to the commission of the
crime. The minimum of the indeterminate penalty is left to the sound discretion of the court, to be fixed
from within the range of the penalty next lower without reference to the periods into which it may be
subdivided. The modifying circumstances are considered only in the imposition of the maximum term of
the indeterminate sentence.[48]
That the amount involved in each of the cases at bar exceeds P22,000.00 should not be considered in
the initial determination of the indeterminate penalty; instead, the matter should be so taken as analogous
to modifying circumstances in the imposition of the maximum term of the full indeterminate
sentence. This interpretation of the law accords with the rule that penal laws should be construed in favor
of the accused. Since the penalty prescribed by law for the estafa committed by petitioner is prision
correccional maximum to prision mayor minimum, the penalty next lower would be prision
correccional minimum to medium. Thus, the minimum term of the indeterminate sentence for each case
should be anywhere within Six (6) Months and One (1) Day to Four (4) Years and Two (2) Months while
the maximum term should at least be Six (6) Years and One (1) Day because the amount involved in each
case exceeds P22,000.00, plus an additional one (1) year for each additional P10,000.00.[49]

In Criminal Case No. 85-8239-P, the amount involved is P246,000.00. Hence, the minimum penalty
should be reduced to Four (4) Years and Two (2) Months of prision correccional which is the maximum
of the allowable minimum penalty of the indeterminate sentence. The maximum penalty should at least
be Six (6) Years and One (1) Day of prision mayor plus a period of twenty-two (22) years (one [1] year
for each additional P10,000.00). However, since the law states that the total penalty shall not exceed
twenty years, the maximum penalty is fixed at twenty (20) years ofreclusion temporal.
In Criminal Case No. 85-8238-P, the amount involved is P160,000.00. The minimum penalty should
then be reduced to Four (4) Years and Two (2) Months of prision correccional. The maximum penalty
should at least be Six (6) Years and One (1) Day of prision mayor plus a period of thirteen (13) years,
hence, the maximum imposable penalty should be Nineteen (19) Years and One (1) Day of reclusion
temporal.
In Criminal Case No. 85-8237-P, the amount involved is P102,000.00. Hence, the minimum penalty
should be reduced to Four (4) Years and Two (2) Months of prision correccional. The maximum penalty
should at least be Six (6) Years and One (1) Day of prision mayor plus a period of eight (8) years for a
total maximum period of Fourteen (14) Years and One (1) Day ofreclusion temporal.
WHEREFORE,
MODIFICATIONS:

the

challenged

Decision

is

hereby AFFIRMED

with

the

following

1. In Criminal Case No. 85-8239-P, petitioner is sentenced to suffer the indeterminate penalty of
Four (4) Years and Two (2) Months of prision correccional, as minimum, to Twenty (20) Years
of reclusion temporal, as maximum.
2. In Criminal Case No. 85-8238-P, petitioner is sentenced to suffer the indeterminate penalty of
Four (4) Years and Two (2) Months of prision correccional, as minimum, to Nineteen (19) Years and One
(1) Day of reclusion temporal, as maximum.
3. In Criminal Case No. 85-8237-P, petitioner is sentenced to suffer the indeterminate penalty of
Four (4) Years and Two (2) Months of prision correccional, as minimum, to Fourteen (14) Years and One
(1) Day of reclusion temporal, as maximum.
SO ORDERED.

Phil. Bank of Commerce v. CA


G.R. No. 97626, March 14, 1997

The negligence must be the proximate cause of the loss

Facts:
Rommels Marketing Corporation (RMC) maintained two separate current accounts with PBC in
connection with its business of selling appliances. The RMC General Manager Lipana entrusted to his
secretary, Irene Yabut, RMC funds amounting to P300,000+ for the purpose of depositing the same to
RMCs account with PBC. However, it turned out that Yabut deposited the amounts in her husbands
account instead of RMC. Lipana never checked his monthly statement of accounts regularly furnished by
PBC so that Yabuts modus operandi went on for the span of more than one year.

Issue:
What is the proximate cause of the loss Lipanas negligence in not checking his monthly statements or
the banks negligence through its teller in validating the deposit slips?

Held:
The bank teller was negligent in validating, officially stamping and signing all the deposit slips prepared
and presented by Yabut, despite the glaring fact that the duplicate copy was not completely accomplished
contrary to the self-imposed procedure of the bank with respect to the proper validation of deposit slips,
original or duplicate.
The bank tellers negligence, as well as the negligence of the bank in the selection and supervision of its
bank teller, is the proximate cause of the loss suffered by the private respondent, not the latters entrusting
cash to a dishonest employee. Xxx Even if Yabut had the fraudulent intention to misappropriate the funds,
she would not have been able to deposit those funds in her husbands current account, and then make
plaintiff believe that it was in the latters accounts wherein she had deposited them, had it not been for the
bank tellers aforesaid gross and reckless negligence.

SECOND DIVISION
BANK OF THE PHILIPPINE
ISLANDS,
Petitioner,

G.R. No. 176434


Present:

- versus -

LIFETIME MARKETING
CORPORATION,
Respondent.

QUISUMBING, J.,
Chairperson,
CARPIO MORALES,
TINGA,
VELASCO, JR., and
BRION, JJ.

Promulgated:
June 25, 2008

x ---------------------------------------------------------------------------------x
DECISION
TINGA, J.:

The Bank of the Philippine Islands (BPI) seeks the reversal of the Decision [1] of the Court of
Appeals dated 31 July 2006 in CA-G.R. CV No. 62769 which ordered it to pay Lifetime Marketing
Corporation (LMC) actual damages in the amount of P2,075,695.50 on account of its gross negligence in
handling LMCs account.
The following facts, quoted from the decision of the Court of Appeals, are undisputed:
On October 22, 1981, Lifetime Marketing Corporation (LMC, for brevity),
opened a current account with the Bank of the Philippine Islands (BPI, for brevity),
Greenhills-Edsa branch, denominated as Account No. 3101-0680-63. In this account, the
sales agents of LMC would have to deposit their collections or payments to the latter.
As a result, LMC and BPI, made a special arrangement that the formers agents will
accomplish three (3) copies of the deposit slips, the third copy to be retained and held by
the teller until LMCs authorized representatives, Mrs. Virginia Mongon and Mrs. Violeta
Ancajas, shall retrieve them on the following banking day.
Sometime in 1986, LMC availed of the BPIs inter-branch banking network
services in Metro Manila, whereby the formers agents could make [a] deposit to any BPI
branch in Metro Manila under the same account. Under this system, BPIs bank tellers
were no longer obliged to retain the extra copy of the deposit slips instead, they will rely

on the machine-validated deposit slip, to be submitted by LMCs agents. For its part, BPI
would send to LMC a monthly bank statement relating to the subject account. This
practice was observed and complied with by the parties.
As a business practice, the registered sales agents or the Lifetime Educational
Consultants of LMC, can get the books from the latter on consignment basis, then they
would go directly to their clients to sell. These agents or Lifetime Educational
Consultants would then pay to LMC, seven (7) days after they pick up all the books to be
sold. Since LMC have several agents around the Philippines, it required to remit their
payments through BPI, where LMC maintained its current account. It has been LMCs
practice to require its agents to present a validated deposit slip and, on that basis, LMC
would issue to the latter an acknowledgement receipt.
Alice Laurel, is one of LMCs Educational Consultants or agents. On various
dates covering the period from May, [sic] 1991 up to August, 1992, Alice Laurel
deposited checks to LMCs subject account at different branches of BPI, specifically: at
the Harrison/Buendia branch-8 checks; at Arrangue branch-4 checks; at Araneta branch-1
check; at Binondo branch-3 checks; at Ermita branch-5 checks; at Cubao Shopping
branch-1 check; at Escolta branch-4 checks; at the Malate branch-2 checks; at Taft
Avenue branch-2 checks; at Paseo de Roxas branch-1 check; at J. Ruiz, San Juan branch,
at West Avenue and Commonwealth Quezon City branch- 2 checks; and at Vito Cruz
branch-2 checks.
Each check thus deposited were retrieved by Alice Laurel after the deposit slips
were machine-validated, except the following thirteen (13) checks, which bore no
machine validation, to wit: CBC Check No. 484004, RCBC Check No. 419818, CBC
Check No. 484042, FEBTC Check No. 171857, RCBC Check No. 419847, CBC Check
No. 484053, MBTC Check No. 080726, CBC Check No. 484062, PBC Check No.
158076, CBC Check No. 484027, CBC Check No. 484017, CBC Check No. 484023 and
CBC Check No. 218190.
A verification with BPI by LMC showed that Alice Laurel made check deposits
with the named BPI branches and, after the check deposit slips were machine-validated,
requested the teller to reverse the transactions. Based on general banking practices,
however, the cancellation of deposit or payment transactions upon request by any
depositor or payor, requires that all copies of the deposit slips must be retrieved or
surrendered to the bank. This practice, in effect, cancels the deposit or payment
transaction, thus, it leaves no evidence for any subsequent claim or misrepresentation
made by any innocent third person. Notwithstanding this, the verbal requests of Alice
Laurel and her husband to reverse the deposits even after the deposit slips were already
received and consummated were accommodated by BPI tellers.
Alice Laurel presented the machine-validated deposit slips to LMC which, on the
strength thereof, considered her account paid. LMC even granted her certain privileges or
prizes based on the deposits she made.
The total aggregate amount covered by Alice Laurels deposit slips was Two
Million Seven Hundred Sixty Seven Thousand, Five Hundred Ninety Four Pesos
(P2,767,594.00) and, for which, LMC paid Laurel the total sum of Five Hundred Sixty
Thousand Seven Hundred Twenty Six Pesos (P560,726.00) by way of sales discount and
promo prizes.

The above fraudulent transactions of Alice Laurel and her husband was made
possible through BPI tellers failure to retrieve the duplicate original copies of the deposit
slips from the former, every time they ask for cancellation or reversal of the deposit or
payment transaction.
Upon discovery of this fraud in early August 1992, LMC made queries from the
BPI branches involved. In reply to said queries, BPI branch managers formally admitted
that they cancelled, without the permission of or due notice to LMC, the deposit
transactions made by Alice and her husband, and based only upon the latters verbal
request or representation.
Thereafter, LMC immediately instituted a criminal action for Estafa against Alice
Laurel and her husband Thomas Limoanco, before the Regional Trial Court of Makati,
Branch 65, docketed as Criminal Case No. 93-7970 to 71, entitled People of
the Philippines v. Thomas Limoanco and Alice Laurel. This case for estafa, however, was
archived because summons could not be served upon the spouses as they have absconded.
Thus, the BPIs apparent reluctance to admit liability and settle LMCs claim for
damages, and a hopeless case of recovery from Alice Laurel and her husband, has left
LMC, with no option but to recover damages from BPI.
On July 24, 1995, LMC, through its representative, Miss Consolacion C.
Rogacion, the President of the company, filed a Complaint for Damages against BPI,
docketed as Civil Case No. 95-1106, and was raffled to Regional Trial Court of Makati
City, Branch 141.
After trial on the merits, the court a quo rendered a Decision in favor of LMC.
The dispositive portion of which reads, as follows:
WHEREFORE, decision is hereby rendered ordering defendant bank to pay
plaintiff actual damages equitably reduced to one (1) million pesos plus
attorneys fees of P100,000.00.
No pronouncement as to costs.
SO ORDERED.[2]
Only BPI filed an appeal. The Court of Appeals affirmed the decision of the trial court but
increased the award of actual damages to P2,075,695.50 and deleted the award of P100,000.00 as
attorneys

fees.[3] Citing

public

interest,

the

appellate

court

denied

reconsideration

in

Resolution[4] dated 30 January 2007.


In this Petition for Review[5] dated 19 March 2007, BPI insists that LMC should have presented
evidence to prove not only the amount of the checks that were deposited and subsequently reversed, but
also the actual delivery of the books and the payment of sales and promo prizes to Alice Laurel. Failing
this, there was allegedly no basis for the award of actual damages. Moreover, the actual damages should

not have been increased because the decision of the trial court became conclusive as regards LMC when it
did not appeal the said decision.
BPI further avers that LMCs negligence in considering the machine-validated check deposit slips
as evidence of Alice Laurels payment was the proximate cause of its own loss. Allegedly, by allowing its
agents to make deposits with other BPI branches, LMC violated its own special arrangement with BPIs
Greenhills-EDSA branch for the latter to hold on to an extra copy of the deposit slip for pick up by
LMCs authorized representatives. BPI points out that the deposits were in check and not in cash. As
such, LMC should have borne in mind that the machine validation in the deposit slips is still subject to the
sufficiency of the funds in the drawers account. Furthermore, LMC allegedly ignored the express notice
indicated in its monthly bank statements and consequently failed to check the accuracy of the transactions
reflected therein.
In its Manifestation of Compliance by Respondent on the Order Dated 20 June 2007 Received
on 29 July 2007 to Submit Comment,[6] dated 9 August 2007, LMC insists that it is indeed entitled to the
actual damages awarded to it by the appellate court.
BPI filed a Reply[7] dated 15 January 2008, in reiteration of its submissions.
We have repeatedly emphasized that the banking industry is impressed with public interest. Of
paramount importance thereto is the trust and confidence of the public in general. Accordingly, the
highest degree of diligence is expected, and high standards of integrity and performance are required of
it. By the nature of its functions, a bank is under obligation to treat the accounts of its depositors with
meticulous care, always having in mind the fiduciary nature of its relationship with them. [8] The fiduciary
nature of banking, previously imposed by case law, is now enshrined in Republic Act No. 8791 or the
General Banking Law of 2000. Section 2 thereof specifically says that the state recognizes the fiduciary
nature of banking that requires high standards of integrity and performance. [9]
Whether BPI observed the highest degree of care in handling LMCs account is the subject of the
inquiry in this case.
LMC sought recovery from BPI on a cause of action based on tort. Article 2176 of the Civil
Code provides, 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."
There are three elements of quasi-delict: (a) fault or negligence of the defendant, or some other person for

whose acts he must respond; (b) damages suffered by the plaintiff; and (c) the connection of cause and
effect between the fault or negligence of the defendant and the damages incurred by the plaintiff. [10]
In this case, both the trial court and the Court of Appeals found that the reversal of the
transactions in question was unilaterally undertaken by BPIs tellers without following normal banking
procedure which requires them to ensure that all copies of the deposit slips are surrendered by the
depositor. The machine-validated deposit slips do not show that the transactions have been cancelled,
leading LMC to rely on these slips and to consider Alice Laurels account as already paid.
Negligence is the omission to do something which a reasonable man, guided by those
considerations which ordinarily regulate the conduct of human affairs, would do, or the doing of
something which a prudent and reasonable man would not do. [11] Negligence in this case lies in the
tellers disregard of the validation procedures in place and BPIs utter failure to supervise its
employees. Notably, BPIs managers admitted in several correspondences with LMC that the deposit
transactions were cancelled without LMCs knowledge and consent and based only upon the request of
Alice Laurel and her husband.[12]
It is well to reiterate that the degree of diligence required of banks is more than that of a
reasonable man or a good father of a family. In view of the fiduciary nature of their relationship with their
depositors, banks are duty-bound to treat the accounts of their clients with the highest degree of care. [13]
BPI cannot escape liability because of LMCs failure to scrutinize the monthly statements sent to
it by the bank. This omission does not change the fact that were it not for the wanton and reckless
negligence of BPIs tellers in failing to require the surrender of the machine-validated deposit slips before
reversing the deposit transactions, the loss would not have occurred. BPIs negligence is undoubtedly the
proximate cause of the loss. Proximate cause is that cause which, in a natural and continuous sequence,
unbroken by any efficient intervening cause, produces the injury, and without which the result would not
have occurred.[14]
It is also true, however, that LMC should have been more vigilant in managing and overseeing its
own financial affairs. The damages awarded to it were correctly reduced on account of its own
contributory negligence in accordance with Article 1172 of the Civil Code. [15]
Parenthetically, we find no merit in BPIs allegation that LMC should have presented evidence of
delivery of the books and payment of sales and promo prizes to Alice Laurel. The evidence presented by
LMC in the form of BPIs own admission that the deposit transactions were reversed at the instance of

Alice Laurel and her husband, coupled with the machine-validated deposit slips [16] which were supposed
to have been deposited to LMCs account but were cancelled without its knowledge and consent,
sufficiently form the bases for the actual damages claimed because they are the very same documents
relied upon by LMC in considering Alice Laurels account paid and in granting her monetary privileges
and prizes.
Be that as it may, we find the appellate courts decision increasing the award of actual damages in
favor of LMC improper since the latter did not appeal from the decision of the trial court. It is wellsettled that a party who does not appeal from the decision may not obtain any affirmative relief from the
appellate court other than what he has obtained from the lower court whose decision is brought up on
appeal. The exceptions to this rule, such as where there are (1) errors affecting the lower courts
jurisdiction over the subject matter, (2) plain errors not specified, and (3) clerical errors, do not apply in
this case.[17]
WHEREFORE, the Decision of the Court of Appeals in CA-G.R. CV No. 62769 dated 31
July 2006 and its Resolution dated January 30, 2007 are AFFIRMED with the MODIFICATION that the
Bank

of

the Philippine Islands is ordered to pay actual damages to Lifetime

Marketing

Corporation in the amount of One Million Pesos (P1,000,000.00). No pronouncement as to costs.


SO ORDERED.

BPI vs. CA 326 SCRA 641 (2000)


Facts:
Private respondent Benjamin Napiza deposited in his foreign current deposit with BPI a dollar check
owned by Henry Chan in which he affixed his signature at the dorsal side thereof. For this purpose,
Napiza gave Chan a signed blank withdrawal slip. However, Gayon Jr. got hold of the withdrawal slip and
used it to withdraw the proceeds of the dollar check, even before the check was cleared and without the
presentation of the bank passbook.
Issues:
(1) Whether or not petitioner can hold private respondent liable for the proceeds of the check for having
affixed his signature at the dorsal side as indorser; and
(2) Whether or not the bank was negligent as the proximate cause of the loss and should be held liable.
Held:
(1) No. Ordinarily, private respondent may be held liable as an indorser of the check or even as an
accommodation party. However, to hold him liable would result in an injustice. The interest of justice thus
demands looking into the events that led to the encashment of the check.
Under the rules appearing in the passbook that BPI issued to privaterespondent, to be able to withdraw
under the Philippine foreign currency deposit system, two requisites must be presented to petitioner BPI
by the person withdrawing an amount:
1) A duly filled-up withdrawal slip; and
2) The depositors passbook.
Petitioner bank alleged that had private respondent indicated therein the person authorized to receive the
money, then Gayon could not have withdrawn any amount. However, the withdrawal slip itself indicates a
special instruction that the amount is payable to Ramon de Guzman and/or Agnes de Guzman. Such
being the case, petitioners personnel should have been duly warned that Gayon was not the proper payee
of the proceeds of the check. Moreover, the fact that private respondents passbook was not presented
during the withdrawal is evidenced by the entries therein showing that the last transaction that he made
was when he deposited the subject check.
(2) Yes. A bank is under obligation to treat the accounts of its depositors with meticulous care, always
having in mind the fiduciary nature of their relationship. Petitioner failed to exercise the diligence of a
good father of a family. In total disregard of its own rules, petitioners personnel negligently handled
private respondents account to petitioners detriment.
The proximate cause of the withdrawal and eventual loss of the amount of $2,500.00 on petitioners part
was its personnels negligence in allowing such withdrawal in disregard of its own rules and the
clearing requirement in the banking system. In so doing, petitioner assumed the risk of incurring a loss on
account of a forged or counterfeit foreign check and hence, it should suffer the resulting damage.

Citytrust banking Corp., vs. Intermediate Appellate Court


GR No. 84281 May 27, 1994
Vitug, J:
Facts:
Emme Herrero, businesswoman, made regular deposits with Citytrust Banking Corp. at its Burgoa
branch in Calamba, Laguna. She deposited the amount of P31, 500 in order to amply cover 6 postdated
checks she issued. All checks were dishonored due to insufficiency of funds upon the presentment for
encashment. Citytrust banking Corp. asserted that it was due to Herreros fault that her checks were
dishonored, for he inaccurately wrote his account number in the deposit slip. RTC dismissed the
complaint for lack of merit. CA reversed the decision of RTC.
Issue:
Whether or not Citytrust banking Corp. has the duty to honor checks issued by Emme Herrero
despite the failure to accurately stating the account number resulting to insufficiency of funds for the
check.
Held:
Yes, even it is true that there was error on the account number stated in the deposit slip, its is,
however, indicated the name of Emme Herrero. This is controlling in determining in whose account the
deposit is made or should be posted. This is so because it is not likely to commit an error in ones name
than merely relying on numbers which are difficult to remember. Numbers are for the convenience of the
bank but was never intended to disregard the real name of its depositors. The bank is engaged in business
impressed with public trust, and it is its duty to protect in return its clients and depositors who transact
business with it. It should not be a matter of the bank alone receiving deposits, lending out money and
collecting interests. It is also its obligation to see to it that all funds invested with it are properly
accounted for and duly posted in its ledgers.

Republic of the Philippines


SUPREME COURT
Manila
THIRD DIVISION
G.R. No. L-68138 May 13, 1991
AGUSTIN Y. GO and THE CONSOLIDATED BANK AND TRUST CORPORATION
(Solidbank), petitioners,
vs.
HONORABLE INTERMEDIATE APPELLATE COURT and FLOVERTO JAZMIN, respondents.
C.M. De los Reyes & Associates for petitioners.
Millora & Maningding Law Offices for private respondent.
FERNAN, C. J.:p
The instant petition for review on certiorari questions the propriety of the respondent appellate court's
award of nominal damages and attorney's fees to private respondent whose name was used by a syndicate
in encashing two U.S. treasury checks at petitioner bank.
Floverto Jazmin is an American citizen and retired employee of the United States Federal Government.
He had been a visitor in the Philippines since 1972 residing at 34 Maravilla Street, Mangatarem,
Pangasinan. Aspensionado of the U.S. government, he received annuity checks in the amounts of $ 67.00
for disability and $ 620.00 for retirement through the Mangatarem post office. He used to encash the
checks at the Prudential Bank branch at Clark Air Base, Pampanga.
In January, 1975, Jazmin failed to receive one of the checks on time thus prompting him to inquire from
the post offices at Mangatarem and Dagupan City. As the result of his inquiries proved unsatisfactory, on
March 4, 1975, Jazmin wrote the U.S. Civil Service Commission, Bureau of Retirement at Washington,
D.C. complaining about the delay in receiving his check. Thereafter, he received a substitute check which
he encashed at the Prudential Bank at Clark Air Base.
Meanwhile, on April 22, 1975, Agustin Go, in his capacity as branch manager of the then Solidbank
(which later became the Consolidated Bank and Trust Corporation) in Baguio City, allowed a person
named "Floverto Jazmin" to open Savings Account No. BG 5206 by depositing two (2) U. S. treasury
checks Nos. 5-449-076 and 5-448-890 in the respective amounts of $1810.00 and $913.40 1 equivalent to
the total amount of P 20,565.69, both payable to the order of Floverto Jasmin of Maranilla St.,
Mangatarem, Pangasinan and drawn on the First National City Bank, Manila.
The savings account was opened in the ordinary course of business. Thus, the bank, through its manager
Go, required the depositor to fill up the information sheet for new accounts to reflect his personal
circumstances. The depositor indicated therein that he was Floverto Jazmin with mailing address at
Mangatarem, Pangasinan and home address at Maravilla St., Mangatarem, Pangasinan; that he was a
Filipino citizen and a security officer of the US Army with the rank of a sergeant bearing AFUS Car No.

H-2711659; that he was married to Milagros Bautista; and that his initial deposit was P3,565.35. He wrote
CSA No. 138134 under remarks or instructions and left blank the spaces under telephone number,
residence certificate/alien certificate of registration/passport, bank and trade performance and as to who
introduced him to the bank. 2 The depositor's signature specimens were also taken.
Thereafter, the deposited checks were sent to the drawee bank for clearance. Inasmuch as Solidbank did
not receive any word from the drawee bank, after three (3) weeks, it allowed the depositor to withdraw
the amount indicated in the checks.
On June 29, 1976 or more than a year later, the two dollar cheeks were returned to Solidbank with the
notation that the amounts were altered. 3 Consequently, Go reported the matter to the Philippine
Constabulary in Baguio City.
On August 3, 1976, Jazmin received radio messages requiring him to appear before the Philippine
Constabulary headquarters in Benguet on September 7, 1976 for investigation regarding the complaint
filed by Go against him for estafa by passing altered dollar checks. Initially, Jazmin was investigated by
constabulary officers in Lingayen, Pangasinan and later, at Camp Holmes, La Trinidad, Benguet. He was
shown xerox copies of U.S. Government checks Nos. 5-449-076 and 5-448-890 payable to the order of
Floverto Jasmin in the respective amounts of $1,810.00 and $913.40. The latter amount was actually for
only $13.40; while the records do not show the unaltered amount of the other treasury check.
Jazmin denied that he was the person whose name appeared on the checks; that he received the same and
that the signature on the indorsement was his. He likewise denied that he opened an account with
Solidbank or that he deposited and encashed therein the said checks. Eventually, the investigators found
that the person named "Floverto Jazmin" who made the deposit and withdrawal with Solidbank was an
impostor.
On September 24, 1976, Jazmin filed with the then Court of First Instance of Pangasinan, Branch II at
Lingayen a complaint against Agustin Y. Go and the Consolidated Bank and Trust Corporation for moral
and exemplary damages in the total amount of P90,000 plus attorney's fees of P5,000. He alleged therein
that Go allowed the deposit of the dollar checks and the withdrawal of their peso equivalent "without
ascertaining the identity of the depositor considering the highly suspicious circumstances under which
said deposit was made; that instead of taking steps to establish the correct identity of the depositor, Go
"immediately and recklessly filed (the) complaint for estafa through alteration of dollar check" against
him; that Go's complaint was "an act of vicious and wanton recklessness and clearly intended for no other
purpose than to harass and coerce the plaintiff into paying the peso equivalent of said dollar checks to the
CBTC branch office in Baguio City" so that Go would not be "disciplined by his employer;" that by
reason of said complaint, he was "compelled to present and submit himself" to investigations by the
constabulary authorities; and that he suffered humiliation and embarrassment as a result of the filing of
the complaint against him as well as "great inconvenience" on account of his age (he was a
septuagenarian) and the distance between his residence and the constabulary headquarters. He averred
that his peace of mind and mental and emotional tranquility as a respected citizen of the community
would not have suffered had Go exercised "a little prudence" in ascertaining the identity of the depositor
and, for the "grossly negligent and reckless act" of its employee, the defendant CBTC should also be held
responsible. 4
In their answer, the defendants contended that the plaintiff had no cause of action against them because
they acted in good faith in seeking the "investigative assistance" of the Philippine Constabulary on the
swindling operations against banks by a syndicate which specialized in the theft, alteration and
encashment of dollar checks. They contended that contrary to plaintiff s allegations, they verified the

signature of the depositor and their tellers conducted an Identity check. As counterclaim, they prayed for
the award of P100,000 as compensatory and moral damages; P20,000 as exemplary damages; P20,000 as
attorney's fees and P5,000 as litigation, incidental expenses and costs. 5
In its decision of March 27, 1978 6 the lower court found that Go was negligent in failing to exercise
"more care, caution and vigilance" in accepting the checks for deposit and encashment. It noted that the
checks were payable to the order of Floverto Jasmin, Maranilla St., Mangatarem, Pangasinan and not to
Floverto Jazmin, Maravilla St., Mangatarem, Pangasinan and that the differences in name and address
should have put Go on guard. It held that more care should have been exercised by Go in the encashment
of the U.S. treasury checks as there was no time limit for returning them for clearing unlike in ordinary
checks wherein a two to three-week limit is allowed.
Emphasizing that the main thrust of the complaint was "the failure of the defendants to take steps to
ascertain the identity of the depositor," the court noted that the depositor was allegedly a security officer
while the plaintiff was a retiree-pensioner. It considered as "reckless" the defendants' filing of the
complaint with the Philippine Constabulary noting that since the article on a fake dollar check ring
appeared on July 18, 1976 in the Baguio Midland Courier, it was only on August 24, 1976 or more than a
month after the bank had learned of the altered checks that it filed the complaint and therefore, it had
sufficient time to ascertain the identity of the depositor.
The court also noted that instead of complying with the Central Bank Circular Letter of January 17, 1973
requesting all banking institutions to report to the Central Bank all crimes involving their property within
48 hours from knowledge of the crime, the bank reported the matter to the Philippine Constabulary.
Finding that the plaintiff had sufficiently shown that prejudice had been caused to him in the form of
mental anguish, moral shock and social humiliation on account of the defendants' gross negligence, the
court, invoking Articles 2176, 2217 and 2219 (10) in conjunction with Article 21 of the Civil Code, ruled
in favor of the plaintiff. The dispositive portion of the decision states:
WHEREFORE, this Court finds for plaintiff and that he is entitled to the reliefs prayed
for in the following manner: Defendant Agustin Y. Co and the CONSOLIDATED BANK
AND TRUST CORPORATION are hereby ordered to pay, jointly and severally, to the
plaintiff the amount of SIX THOUSAND PESOS (P6,000.00) as moral damages; ONE
THOUSAND PESOS (P1,000.00) as attorney's fees and costs of litigation and to pay the
costs and defendant AGUSTIN Y. Go in addition thereto in his sole and personal capacity
to pay the plaintiff the amount of THREE THOUSAND PESOS (P3,000.00) as
exemplary damages, all with interest at six (6) percent per annum until fully paid.
SO ORDERED.
The defendants appealed to the Court of Appeals. On January 24, 1984, said court (then named
Intermediate Appellate Court) rendered a decision 7 finding as evident negligence Go's failure to notice
the substantial difference in the identity of the depositor and the payee in the check, concluded that Go's
negligence in the performance of his duties was "the proximate cause why appellant bank was swindled"
and that denouncing the crime to the constabulary authorities "merely aggravated the situation." It ruled
that there was a cause of action against the defendants although Jazmin had nothing to do with the
alteration of the checks, because he suffered damages due to the negligence of Go. Hence, under Article
2180 of the Civil Code, the bank shall be held liable for its manager's negligence.

The appellate court, however, disallowed the award of moral and exemplary damages and granted
nominal damages instead. It explained thus:
While it is true that denouncing a crime is not negligence under which a claim for moral
damages is available, still appellants are liable under the law for nominal damages. The
fact that appellee did not suffer from any loss is of no moment for nominal damages are
adjudicated in order that a right of the plaintiff, which has been violated or invaded by the
defendant, maybe vindicated or recognized and not for the purpose of indemnifying the
plaintiff for any loss suffered by him (Article 2221, New Civil Code). These are damages
recoverable where a legal right is technically violated and must be vindicated against an
invasion that has produced no actual present loss of any kind, or where there has been a
breach of contract and no substantial injury or actual damages whatsoever have been or
can be shown (Elgara vs. Sandijas, 27 Phil. 284). They are not intended for
indemnification of loss suffered but for the vindication or recognition of a right violated
or invaded (Ventanilla vs. Centeno, L-14333, January 28, 1961). And, where the plaintiff
as in the case at bar, the herein appellee has established a cause of action, but was not
able to adduce evidence showing actual damages then nominal damages may be
recovered (Sia vs. Espenilla CA-G.R. Nos. 45200-45201-R, April 21, 1975).
Consequently, since appellee has no right to claim for moral damages, then he may not
likewise be entitled to exemplary damages (Estopa vs. Piansay, No. L-14503, September
30, 1960). Considering that he had to defend himself in the criminal charges filed against
him, and that he was constrained to file the instant case, the attorney's fees to be amended
(sic) to plaintiff should be increased to P3,000.00.
Accordingly, the appellate court ordered Go and Consolidated Bank and Trust Corporation to pay jointly
and severally Floverto Jazmin only NOMINAL DAMAGES in the sum of Three Thousand Pesos (P
3,000.00) with interest at six (6%) percent per annum until fully paid and One Thousand Pesos (P
1,000.00) as attorney's fees and costs of litigation.
Go and the bank filed a motion for the reconsideration of said decision contending that in view of the
finding of the appellate court that "denouncing a crime is not negligence under which a claim for moral
damages is available," the award of nominal damages is unjustified as they did not violate or invade
Jazmin's rights. Corollarily, there being no negligence on the part of Go, his employer may not be held
liable for nominal damages.
The motion for reconsideration having been denied, Go and the bank interposed the instant petition for
review oncertiorari arguing primarily that the employer bank may not be held "co-equally liable" to pay
nominal damages in the absence of proof that it was negligent in the selection of and supervision over its
employee. 8
The facts of this case reveal that damages in the form of mental anguish, moral shock and social
humiliation were suffered by private respondent only after the filing of the petitioners' complaint with the
Philippine Constabulary. It was only then that he had to bear the inconvenience of travelling to Benguet
and Lingayen for the investigations as it was only then that he was subjected to embarrassment for being
a suspect in the unauthorized alteration of the treasury checks. Hence, it is understandable why petitioners
appear to have overlooked the facts antecedent to the filing of the complaint to the constabulary
authorities and to have put undue emphasis on the appellate court's statement that "denouncing a crime is
not negligence."

Although this Court has consistently held that there should be no penalty on the right to litigate and that
error alone in the filing of a case be it before the courts or the proper police authorities, is not a ground for
moral damages, 9 we hold that under the peculiar circumstances of this case, private respondent is entitled
to an award of damages.
Indeed, it would be unjust to overlook the fact that petitioners' negligence was the root of all the
inconvenience and embarrassment experienced by the private respondent albeit they happened after the
filing of the complaint with the constabulary authorities. Petitioner Go's negligence in fact led to the
swindling of his employer. Had Go exercised the diligence expected of him as a bank officer and
employee, he would have noticed the glaring disparity between the payee's name and address on the
treasury checks involved and the name and address of the depositor appearing in the bank's records. The
situation would have been different if the treasury checks were tampered with only as to their amounts
because the alteration would have been unnoticeable and hard to detect as the herein altered check bearing
the amount of $ 913.40 shows. But the error in the name and address of the payee was very patent and
could not have escaped the trained eyes of bank officers and employees. There is therefore, no other
conclusion than that the bank through its employees (including the tellers who allegedly conducted an
identification check on the depositor) was grossly negligent in handling the business transaction herein
involved.
While at that stage of events private respondent was still out of the picture, it definitely was the start of
his consequent involvement as his name was illegally used in the illicit transaction. Again, knowing that
its viability depended on the confidence reposed upon it by the public, the bank through its employees
should have exercised the caution expected of it.
In crimes and quasi-delicts, the defendant shall be liable for all damages which are the natural and
probable consequences of the act or omission complained of. It is not necessary that such damages have
been foreseen or could have reasonably been foreseen by the defendant. 10 As Go's negligence was the
root cause of the complained inconvenience, humiliation and embarrassment, Go is liable to private
respondents for damages.
Anent petitioner bank's claim that it is not "co-equally liable" with Go for damages, under the fifth
paragraph of Article 2180 of the Civil Code, "(E)mployers shall be liable for the damages caused by their
employees . . . acting within the scope of their assigned tasks." Pursuant to this provision, the bank is
responsible for the acts of its employee unless there is proof that it exercised the diligence of a good
father of a family to prevent the damage. 11 Hence, the burden of proof lies upon the bank and it cannot
now disclaim liability in view of its own failure to prove not only that it exercised due diligence to
prevent damage but that it was not negligent in the selection and supervision of its employees.
WHEREFORE, the decision of the respondent appellate court is hereby affirmed. Costs against the
petitioners.
SO ORDERED.

Philippine Savings Bank v. Chowking Food Corporation G.R. No. 177526


The General Banking Law 2000 imposes to all banks to observe meticulous care in treating the accounts
of their depositors. The banks negligence contributed to the fraud committed by Manzano as it is
primarily liable for the negligence of its officers and agents who are acting within the scope of their
employment.
For estoppel to occur the following requisites should be met: (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.
Facts:
Rino Manzano, acting accounting manager of Chowking, endorsed and encashed from the petitioner 5
checks amounting to a total of P556,981.86. The checks were encashed without the signatures of the other
authorized officials of Chowking but was accepted and honored by Santos. Manzano misappropriated the
amount and when Chowking found out it demanded reimbursement from the bank. The bank refused thus
the respondent filed a complaint for the sum of money with damages. It impleaded the bank president,
Antonio Abacan and the bank branch manager, Santos who in turn filed a cross claim and third party
complaint against Manzano.
The bank maintained it exercised due diligence in the supervision of its employees while Santos denied to
be negligent on her job. Abacan invokes that the respondent does not have any cause of action against him
because he has no involvement to the transaction. Santos and Abacan both contend that Chowking is
estopped from claiming reimbursement and damages because of its negligence for allowing Manzano to
take hold, endorse and encash its checks.
Issue:
1) Whether or not Chowking is estopped from its claim against for the wrongful encashment of the checks
2) whether Chowking should bear the loss from its own negligence.
Held:
1) Whether or not Chowking is estopped from its claim against for the wrongful encashment of the checks
No. For estoppel to occur the following requisites should be met: (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.
Chowking did not in any way show misrepresentation on the material facts on the encashment of checks.
They do not allow the encashment of checks without the signature of all its authorized signatories. This
the bank knows this as the customary practice of Chowking. However, the bank failed to provide
evidence to show they observe due diligence required from banks by the law.
2) whether Chowking should bear the loss from its own negligence.
No. The General Banking Law 2000 imposes to all banks to observe meticulous care in treating the
accounts of their depositors. The banks negligence contributed to the fraud committed by Manzano as it
is primarily liable for the negligence of its officers and agents who are acting within the scope of their
employment. Petition was denied.

UNITED COCONUT PLANTERS BANK vs. TEOFIL RAMOSGR NO. 147800. November 11,
2003
CALLEJO, SR., J:
Facts:
United Coconut Planters Bank (UCPB) granted a loan amounting to Zamboanga Development
Corporation (ZDC) with Venicio Ramos, and the Spouses Teofilo Sr. and Amelita Ramos as sureties.
Teofilo Ramos, Sr. was the Executive Officer of the Iglesia ni Cristo. UPCB granted an additional loan to
ZDC with the same sureties. However, ZDC failed to pay its account to the petitioner despite demands.
Thus, a complaint was filed against ZDC and the said sureties. Judgment was rendered in favor of the
petitioner. A Writ of execution to enforce such decision was issued and Deputy Sheriff Pioquinto P.
Villapana was ordered to levy and attach all the real and personal properties of the defendants to satisfy
the judgment. Eduardo C. Reniva the head of the Litigation and Enforcement Division was requested to
investigate on the properties of the defendants. Reniva went to one of the properties covered by TCT No.
275167 (PR-13108) and inspected it. Per information gathered from the neighborhood, Reniva confirmed
that the owners of such property were Spouses Teofilo and Rebecca Ramos. The Sheriff prepared a notice
of levy. On the other hand, Ramdustrial Corporation applied for a loan with UPCB using the property
covered by the same TCT as collateral. Upon verification of the said property, it was found that the same
property was subjected to a notice of levy on a civil case. The respondent was shocked and he alleged that
he was not a party in the said case and he was also not aware that his property had been levied by the
sheriff. An affidavit of denial was executed by the respondent stating that he is not one of the judgment
debtors in the previous case and that Teofilo Ramos, Sr., one of the judgment debtors, were not one and
the same person. The responded also wrote tothe Sheriff alleging that the notice of levy on the property
was unlawful considering that the respondent was not Teofilo Ramos, Sr. and cause the cancellation of the
said annotation five days from notice thereof, otherwise, the respondent would take the appropriate civil,
criminal or administrative action against him. The respondent was informed by the UCPB that
Ramdustrial Corporations credit line application had been approved. Subsequently, the respondent
executed a promissory note for the said amount payable to UCPB. The business did not go well,
Ramdustrial Corporation found it difficult to pay the loan. The company again applied for another loan
with UCPB which was however denied. The corporation then applied for a loan with the Planters
Development Bank (PDB), the proceeds of which would be utilized to pay its account to the UCPB. The
respondent offered his property covered by TCT No. 275167 as collateral with the loan obtained from
PDB. It was then discovered that the notice of levy had not yet been cancelled so PDB withheld the
release of the loan pending the cancellation of the notice of levy. An order was issued ordering the
Register of Deeds to cancel the levy.
Issue:
Whether or not the petitioner acted negligently in causing the annotation of levy on the title of the
respondent
Held:
The CA ruled that the petitioner was negligent in causing the annotation of notice of levy on the title of
the petitioner for its failure to determine with certainty whether the defendant Teofilo Ramos, Sr. in Civil
Case No.16453 was the registered owner of the property covered by TCT No. 275167. It was held that the
petitioner acted negligently when it caused the annotation of the notice of levy in TCT No. 275167. It
bears stressing that the petitioner is a banking corporation, a financial institution with power to issue its
promissory notes intended to circulate as money (known as bank notes); or to receive the money of others
on general deposit, to form a joint fund that shall be used by the institution for its own benefit, for one or
more of the purposes of making temporary loans and discounts, of dealing in notes, foreign and domestic
bills of exchange, coin bullion, credits, and the remission of money; or with both these powers, and with
the privileges, in addition to these basic powers, of receiving special deposits, and making collection for

the holders of negotiable paper, if the institution sees fit to engage in such business. In funding these
businesses, the bank invests the money that it holds in trust of its depositors. For this reason, we have held
that the business of a bank is one affected with public interest, for which reason the bank should guard
against loss due to negligence or bad faith. In approving the loan of an applicant, the bank concerns itself
with proper information regarding its debtors. The petitioner, as a bank and a financial institution
engaged in the grant of loans, is expected to ascertain and verify the identities of the persons it transacts
business with. In this case, the petitioner knew that the sureties to the loan granted to ZDC and the
defendants in Civil Case No. 94-1822 were the Spouses Teofilo Ramos, Sr. and Amelita Ramos. The
names of the Spouses Teofilo Ramos, Sr. and Amelita Ramos were specified in the writ of execution
issued by the trial court.

BPI vs. Casa Montessori Internationale, G. R. No. 149454 & 149507, May 28, 2004
Facts:
CASA Montessori International opened an account with BPI, with CASAs President as one of its
authorized signatories. It discovered that 9 of its checks had been encashed by a certain Sonny D. Santos
whose name turned out to be fictitious, and was used by a certain Yabut, CASAs external auditor. He
voluntarily admitted that he forged the signature and encashed the checks.
RTC granted the Complaint for Collection with Damages against BPI ordering to reinstate the amount in
the account, with interest. CA took account of CASAs contributory negligence and apportioned the loss
between CASA and BPI, and ordred Yabut to reimburse both.
BPI contends that the monthly statements it issues to its clients contain a notice worded as follows: If no
error is reported in 10 days, account will be correct and as such, it should be considered a waiver.
Issue:
Whether or not waiver or estoppel results from failure to report the error in the bank statement
Held:
Such notice cannot be considered a waiver, even if CASA failed to report the error. Neither is it estopped
from questioning the mistake after the lapse of the ten-day period.
This notice is a simple confirmation or "circularization" -- in accounting parlance -- that requests clientdepositors to affirm the accuracy of items recorded by the banks. Its purpose is to obtain from the
depositors a direct corroboration of the correctness of their account balances with their respective banks.
Every right has subjects -- active and passive. While the active subject is entitled to demand its
enforcement, the passive one is duty-bound to suffer such enforcement. On the one hand, BPI could not
have been an active subject, because it could not have demanded from CASA a response to its notice.
CASA, on the other hand, could not have been a passive subject, either, because it had no obligation to
respond. It could -- as it did -- choose not to respond.
Estoppel precludes individuals from denying or asserting, by their own deed or representation, anything
contrary to that established as the truth, in legal contemplation. Our rules on evidence even make a juris et
de jure presumption that whenever one has, by ones own act or omission, intentionally and deliberately
led another to believe a particular thing to be true and to act upon that belief, one cannot -- in any
litigation arising from such act or omission -- be permitted to falsify that supposed truth.
In the instant case, CASA never made any deed or representation that misled BPI. The formers omission,
if any, may only be deemed an innocent mistake oblivious to the procedures and consequences of periodic
audits. Since its conduct was due to such ignorance founded upon an innocent mistake, estoppel will not
arise. A person who has no knowledge of or consent to a transaction may not be estopped by it. "Estoppel
cannot be sustained by mere argument or doubtful inference x x x." CASA is not barred from questioning
BPIs error even after the lapse of the period given in the notice.

SECOND DIVISION
CENTRAL BANK OF THEPHILIPPINES,
Petitioner,

G.R. No. 141835


Present:

- versus -

CITYTRUST
CORPORATION,

BANKING

CARPIO MORALES,* J., Acting


Chairperson,
TINGA,
NAZARIO,
NACHURA,** and
BRION, JJ.

Respondent.
Promulgated:
February 4, 2009
x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
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.

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 Decision[1] 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 Decision[2] 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 2179[3] vis a vis Article 1172[4] 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
Appeals[5] 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.

PCIB v. CA
Facts:
This case is composed of three consolidated petitions involving several checks, payable to the Bureau of
Internal Revenue, but was embezzled allegedly by an organized syndicate.
I. G. R. Nos. 121413 and 121479
On October 19, 1977, plaintiff Ford issued a Citibank check amounting to P4,746,114.41 in favor of the
Commissioner of Internal Revenue for the payment of manufacturers taxes. The check was deposited
with defendant IBAA (now PCIB), subsequently cleared the the Central Bank, and paid by Citibank to
IBAA. The proceeds never reached BIR, so plaintiff was compelled to make a second payment.
Defendant refused to reimburse plaintiff, and so the latter filed a complaint. An investigation revealed that
the check was recalled by Godofredo Rivera, the general ledger accountant of Ford, and was replaced by
a managers check. Alleged members of a syndicate deposited the two managers checks with Pacific
Banking Corporation. Ford filed a third party complaint against Rivera and PBC. The case against PBC
was dismissed. The case against Rivera was likewise dismissed because summons could not be served.
The trial court held Citibank and PCIB jointly and severally liable to Ford, but the Court of Appeals only
held PCIB liable.
II. G. R. No. 128604
Ford drew two checks in favor of the Commissioner of Internal Revenue, amounting to P5,851,706.37
and P6,311,591.73. Both are crossed checks payable to payees account only. The checks never reached
BIR, so plaintiff was compelled to make second payments. Plaintiff instituted an action for recovery
against PCIB and Citibank.
On investigation of NBI, the modus operandi was discovered. Gorofredo Rivera made the checks but
instead of delivering them to BIR, passed it to Castro, who was the manager of PCIB San Andres. Castro
opened a checking account in the name of a fictitious person Reynaldo Reyes. Castro deposited a
worthless Bank of America check with the same amount as that issued by Ford. While being routed to the
Central Bank for clearing, the worthless check was replaced by the genuine one from Ford.
The trial court absolved PCIB and held Citibank liable, which decision was affirmed in toto by the Court
of Appeals.
Issues:
(1) Whether there is contributory negligence on the part of Ford
(2) Has petitioner Ford the right to recover from the collecting bank (PCIBank) and the drawee bank
(Citibank) the value of the checks intended as payment to the Commissioner of Internal Revenue?
Held:
(2) The general rule is that if the master is injured by the negligence of a third person and by the
concuring contributory negligence of his own servant or agent, the latter's negligence is imputed to his
superior and will defeat the superior's action against the third person, asuming, of course that the
contributory negligence was the proximate cause of the injury of which complaint is made. As defined,
proximate cause is that which, in the natural and continuous sequence, unbroken by any efficient,

intervening cause produces the injury and without the result would not have occurred. It appears that
although the employees of Ford initiated the transactions attributable to an organized syndicate, in our
view, their actions were not the proximate cause of encashing the checks payable to the CIR. The degree
of Ford's negligence, if any, could not be characterized as the proximate cause of the injury to the parties.
The mere fact that the forgery was committed by a drawer-payor's confidential employee or agent, who
by virtue of his position had unusual facilities for perpertrating the fraud and imposing the forged paper
upon the bank, does notentitle the bank toshift the loss to the drawer-payor, in the absence of some
circumstance raising estoppel against the drawer. This rule likewise applies to the checks fraudulently
negotiated or diverted by the confidential employees who hold them in their possession.
(2) We have to scrutinize, separately, PCIBank's share of negligence when the syndicate achieved its
ultimate agenda of stealing the proceeds of these checks.
a. G. R. Nos. 121413 and 121479
On record, PCIBank failed to verify the authority of Mr. Rivera to negotiate the checks. The neglect of
PCIBank employees to verify whether his letter requesting for the replacement of the Citibank Check No.
SN-04867 was duly authorized, showed lack of care and prudence required in the circumstances.
Furthermore, it was admitted that PCIBank is authorized to collect the payment of taxpayers in behalf of
the BIR. As an agent of BIR, PCIBank is duty bound to consult its principal regarding the unwarranted
instructions given by the payor or its agent. It is a well-settled rule that the relationship between the payee
or holder of commercial paper and the bank to which it is sent for collection is, in the absence of an
argreement to the contrary, that of principal and agent. A bank which receives such paper for collection is
the agent of the payee or holder.
Indeed, the crossing of the check with the phrase "Payee's Account Only," is a warning that the check
should be deposited only in the account of the CIR. Thus, it is the duty of the collecting bank PCIBank to
ascertain that the check be deposited in payee's account only. Therefore, it is the collecting bank
(PCIBank) which is bound to scrutinize the check and to know its depositors before it could make the
clearing indorsement "all prior indorsements and/or lack of indorsement guaranteed".
Lastly, banking business requires that the one who first cashes and negotiates the check must take some
precautions to learn whether or not it is genuine. And if the one cashing the check through indifference or
other circumstance assists the forger in committing the fraud, he should not be permitted to retain the
proceeds of the check from the drawee whose sole fault was that it did not discover the forgery or the
defect in the title of the person negotiating the instrument before paying the check. For this reason, a bank
which cashes a check drawn upon another bank, without requiring proof as to the identity of persons
presenting it, or making inquiries with regard to them, cannot hold the proceeds against the drawee when
the proceeds of the checks were afterwards diverted to the hands of a third party. In such cases the drawee
bank has a right to believe that the cashing bank (or the collecting bank) had, by the usual proper
investigation, satisfied itself of the authenticity of the negotiation of the checks. Thus, one who encashed
a check which had been forged or diverted and in turn received payment thereon from the drawee, is
guilty of negligence which proximately contributed to the success of the fraud practiced on the drawee
bank. The latter may recover from the holder the money paid on the check.
b. G. R. No. 128604
In this case, there was no evidence presented confirming the conscious participation of PCIBank in the
embezzlement. As a general rule, however, a banking corporation is liable for the wrongful or tortuous
acts and declarations of its officers or agents within the course and scope of their employment. A bank
will be held liable for the negligence of its officers or agents when acting within the course and scope of

their employment. It may be liable for the tortuous acts of its officers even as regards that species of tort
of which malice is an essential element. In this case, we find a situation where the PCIBank appears also
to be the victim of the scheme hatched by a syndicate in which its own management employees had
participated. But in this case, responsibility for negligence does not lie on PCIBank's shoulders alone.
Citibank failed to notice and verify the absence of the clearing stamps. For this reason, Citibank had
indeed failed to perform what was incumbent upon it, which is to ensure that the amount of the checks
should be paid only to its designated payee. 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. Thus,
invoking the doctrine of comparative negligence, we are of the view that both PCIBank and Citibank
failed in their respective obligations and both were negligent in the selection and supervision of their
employees resulting in the encashment of Citibank Check Nos. SN 10597 AND 16508. Thus, we are
constrained to hold them equally liable for the loss of the proceeds of said checks issued by Ford in favor
of the CIR.

Republic of the Philippines


SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 160260

October 24, 2012

WESTMONT BANK, formerly ASSOCIATED BANK now UNITED OVERSEAS BANK


PHILIPPINES, Petitioner,
vs.
MYRNA DELA ROSA-RAMOS, DOMINGO TAN and WILLIAM CO, Respondents.
DECISION
MENDOZA, J.:
This is a Petition for Review under Rule 45 of the 1997 Rules of Court procedure seeking a partial review
of the February 14, 2003 Decision1 and the October 2, 2003 Resolution2 of the Court of Appeals (CA), in
CA-G.R. CV No. 63983, which modified the September 16, 1998 Decision of the Regional Trial Court,
Branch 7, Manila (RTC) in Civil Case No. 89-17926 entitled, Myrna Dela Rosa-Ramos v. Westmont
Bank, formerly Associated Bank, Domingo Tan, and William Co.
The petition was filed on November 24, 2003 and received by this Court on December 15, 2003. The case
was given due course on February 6, 2008.
The Facts
From 1986, respondent Myrna Dela Rosa-Ramos (Dela Rosa-Ramos) maintained a checking/current
account with the United Overseas Bank Philippines 3 (Bank) at the latters Sto. Cristo Branch, Binondo,
Manila. In her several transactions with the Bank, Dela Rosa-Ramos got acquainted with its Signature
Verifier, respondent Domingo Tan (Tan).4
In the course of their acquaintance, Tan offered Dela Rosa-Ramos a "special arrangement" 5 wherein he
would finance or place sufficient funds in her checking/current account whenever there would be an
overdraft or when the amount of said checks would exceed the balance of her current account. It was their
arrangement to make sure that the checks she would issue would not be dishonored. Tan offered the
service for a fee of P50.00 a day for every P40,000.00 he would finance. This financier-debtor
relationship started in 1987 and lasted until1998.6
In order to guarantee payment for such funding, Dela Rosa-Ramos issued postdated checks covering the
principal amount plus interest as computed by Tan on specified date. There were also times when she just
paid in cash.7Relative to their said agreement, Dela Rosa-Ramos issued and delivered to Tan the
following Associated Bank checks8 drawn against her current account and payable to "cash," to wit:
CHECK NO.

CURRENT ACCT.

DATE

AMOUNT

467322 (Exh. A)

1008-08341-0

May 8, 1988

PhP200,000.00

510290 (Exh. C)

1008-08734-3

June 10, 1988

232,500.00

613307 (Exh. E)

1008-08734-3

June 14, 1988

200,000.00

613306 (Exh. D)

1008-08734-3

July 4, 1988

290,595.00

According to Dela Rosa-Ramos, Check No. 467322 for P200,000.00 was a "stale" guarantee check. The
check was originally dated August 28, 1987 but was altered to make it appear that it was dated May 8,
1988. Tan then deposited the check in the account of the other respondent, William Co (Co), despite the
obvious superimposed date. As a result, the amount of P200,00.00 or the value indicated in the check was
eventually charged against her checking account. 9
Check No. 510290 for P232,500.00, dated June 10, 1988, was issued in payment of cigarettes that Dela
Rosa-Ramos bought from Co. This check allegedly "bounced" so she replaced it with her "good
customers check and cash" and gave it to Tan. The latter, however, did not return the bounced check to
her. Instead, he "redeposited" it in Cos account.10
Check No. 613307 for P200,000.00, was another guarantee check that was also "undated." Dela RosaRamos claimed that it was Tan who placed the date "June 14, 1988." For this check, an order to stop
payment was issued because of insufficient funds. Expectedly, the words
"PAYMENT STOPPED" were stamped on both sides of the check. This check was not returned to her
either and, instead, it was "redeposited" in Cos account. 11
Check Nos. 510290 and 613307 were both dishonored for insufficient funds.1wphi1 When Dela RosaRamos got the opportunity to confront Co regarding their deposit of the two checks, the latter disclosed
that her two checks were deposited in his account to cover for his P432,500.00 cash which was taken by
Tan. Then, with a threat to expose her relationship with a married man, Tan and Co were able to coerce
her to replace the two above-mentioned checks with Check No. 598648 12 in the amount of P432,500.00
which was equivalent to the total amount of the two dishonored checks. 13
Check No. 613306 for P290,595.00, was also undated when delivered to Tan who later placed the date,
July 4, 1988. Dela Rosa-Ramos pointed out that as of July 5, 1988, her checking account had P121,989.66
which was insufficient to answer for the value of said check. A check of a certain Lee See Bin in the
amount of P170,000.00 was, however, deposited in her checking account. As a result, Tan was able to
encash Check No. 613306 and withdrew her P121,989.66 balance. Later, Dela Rosa-Ramos found out that
the Lee See Bin Check was not funded because the Banks bookkeeper demanded from her the return of
the deficiency.14
Claiming that the four checks mentioned were deposited by Tan without her consent, Dela Rosa-Ramos
instituted a complaint15 against Tan and the Bank before the RTC seeking, among other things, to recover
from the Bank the sum of 754,689.66 representing the total amount charged or withdrawn from her
current account. Dela Rosa-Ramos subsequently amended her complaint to include Co. 16

During the trial, Tans partial direct testimony was ordered stricken off the records because he failed to
complete it and make himself available for cross-examination. Later, it was found out that he had passed
away.17
On September 16, 1998, the RTC resolved the case in this wise:
WHEREFORE, judgment is hereby rendered, sentencing defendant Associated Bank now the Westmont
Bank and defendants DOMINGO TAN and WILLIAM CO, to pay the plaintiff, jointly and severally:
1. The sum of P754,689.66, representing plaintiffs lost deposit, plus interest thereon at the legal
rate of 12% per annum from the filing of the complaint, until fully paid;
2. The sum of P1,000,000.00, as moral damages;
3. The sum equivalent to 10% thereof, as exemplary damages;
4. The sum equivalent to 25% of the total amount due, as and for attorneys fees; and
5. Costs.
Defendants counterclaims are hereby dismissed for lack of merit.
SO ORDERED.18
Co and the Bank appealed their cases to the CA. As Co failed to file a brief within the period prescribed,
his appeal was dismissed. 19 The CA then proceeded to resolve the appeal of the Bank. On February 14,
2003, the CA rendered its appealed decision, the dispositive portion of which reads:
WHEREFORE, premises considered, Decision dated September 16, 1998 of the Regional Trial Court of
Manila, National Capital Region, Branch 7, in Civil Case No. 89-17926, is hereby AFFIRMED with the
MODIFICATION that: (a) the defendants are liable only for the amount of 521,989.00 covering Check
Nos. 467322, 613307 and 121,989.66 covered by Check No. 613306 and (b) deleting the award for
moral damages and attorneys fees.
SO ORDERED.20
Still not satisfied, the Bank moved for partial reconsideration. On October 2, 2003, the CA denied it for
lack of merit. In the case of Co, he never appealed the CA decision. Thus, only the Bank is now before
this Court raising the following issues:
I.
WITHOUT DELINEATING THE SOURCE OF THE RESPECTIVE OBLIGATIONS OF
PETITIONER BANK, RESPONDENT TAN AND RESPONDENT CO IN RELATION TO
RESPONDENT DELA ROSA-RAMOS, THE HONORABLE COURT OF APPEALS
UTTERLY AND GRAVELY ERRED WHEN IT SWEEPINGLY AFFIRMED THE JUDGMENT
OF THE HONORABLE TRIAL COURT MAKING THEM JOINTLY AND SEVERALLY
LIABLE FOR THE JUDGMENT AWARD IN FAVOR OF RESPONDENT DELA ROSARAMOS.

II.
THE JUDGMENT AWARD AGAINST PETITIONER BANK UNDER CHECK NO. 467322
(EXH. A) IS TOTALLY WITHOUT LEGAL BASIS AS THE SAME WAS MERELY BASED
ON SPECULATIVE ASSUMPTION OR PURE SPECULATION.
III.
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT THE
ACCOUNT OF RESPONDENT DELA ROSA-RAMOS WAS DEBITED WITH THE FACE
AMOUNT OF CHECK NO. 613307 (EXH. E) AS SUCH FINDING IS CONTRARY TO THE
FINDING OF THE HONORABLE TRIAL COURT THAT THE SAID CHECK WAS
DISHONORED TOGETHER WITH CHECK NO. 510290 (EXH. C) FOR THE REASON
THAT BOTH CHECKS WERE DRAWN AGAINST INSUFFICIENT FUNDS.
IV.
NOTWITHSTANDING AND CLEARLY CONTRADICTING ITS VERY FINDING THAT "AS
TO CHECK NO. 613306 (EXH.D), THIS COURT OPINES THAT NO MANIFEST
IRREGULARITY EXISTS," THE HONORABLE COURT OF APPEALS GROSSLY ERRED
WHEN IT ERRONEOUSLY FOUND PETITIONER BANK LIABLE IN THE AMOUNT OF
P121,989.96 COVERED BY SAID CHECK.
V.
ASSUMING ARGUENDO THAT PETITIONER BANK IS LIABLE TO ANSWER FOR THE
ALLEGED DAMAGES SUFFERED BY RESPONDENT DELA ROSA-RAMOS, THE
HONORABLE COURT OF APPEALS GROSSLY ERRED WHEN IT FAILED TO PASS UPON
PETITIONER BANKS CROSS-CLAIM AGAINST RESPONDENT TAN.21
It must be remembered that public interest is intimately carved into the banking industry because the
primordial concern here is the trust and confidence of the public. This fiduciary nature of every banks
relationship with its clients/depositors impels it to exercise the highest degree of care, definitely more
than that of a reasonable man or a good father of a family. 22 It is, therefore, required to treat the accounts
and deposits of these individuals with meticulous care. 23 The rationale behind this is well-expressed in
Sandejas v. Ignacio,24
The banking system has become an indispensable institution in the modern world and plays a vital role in
the economic life of every civilized society banks have attained a ubiquitous presence among the
people, who have come to regard them with respect and even gratitude and most of all, confidence, and it
is for this reason, banks should guard against injury attributable to negligence or bad faith on its part.
Considering that banks can only act through their officers and employees, the fiduciary obligation laid
down for these institutions necessarily extends to their employees. Thus, banks must ensure that their
employees observe the same high level of integrity and performance for it is only through this that banks
may meet and comply with their own fiduciary duty. 25 It has been repeatedly held that "a banks liability
as an obligor is not merely vicarious, but primary" 26 since they are expected to observe an equally high
degree of diligence, not only in the selection, but also in the supervision of its employees. Thus, even if it
is their employees who are negligent, the banks responsibility to its client remains paramount making its
liability to the same to be a direct one.

Guided by the following standard, the Bank, given the fiduciary nature of its relationship with Dela RosaRamos, should have exerted every effort to safeguard and protect her money which was deposited and
entrusted with it. As found by both the RTC and the CA, Ramos was defrauded and she lost her money
because of the negligence attributable to the Bank and its employees. Indeed, it was the employees who
directly dealt with Dela Rosa-Ramos, but the Bank cannot distance itself from them. That they were the
ones who gained at the expense of Dela Rosa-Ramos will not excuse it of its fundamental responsibility
to her. As stated by the RTC,
The factual circumstances attending the repeated irregular entries and transactions involving the current
account of the plaintiff-appellee is evidently due to, if not connivance, gross negligence of other bank
officers since the repeated assailed transactions could not possibly be committed by defendant Tan alone
considering the fact that the processing of the questioned checks would pass the hands of various bank
officers who positively identified their initials therein. Having a number of employees commit mistake or
gross negligence at the same situation is so puzzling and obviates the appellant banks laxity in hiring and
supervising its employees. Hence, this Court is of the opinion that the appellant bank should be held liable
for the damages suffered by the plaintiff-appellee in the case at bench. 27
That matter being settled, the next matter to be determined is the amount of liability of the Bank.
As regards Check No. 467322, the Bank avers that Dela Rosa- Ramos acquiesced to the change of the
date in the said check. It argues that her continued acts of dealing and transacting with the Bank like
subsequently issuing checks despite her experience with this check only shows her acquiescence which is
tantamount to giving her consent. Obviously, the Bank has not taken to heart its fiduciary responsibility to
its clients. Rather than ask and wonder why there were indeed subsequent transactions, the more
paramount issue is why the Bank through its several competent employees and officers, did not stop,
double check and ascertain the genuineness of the date of the check which displayed an obvious
alteration. This failure on the part of the Bank makes it liable for that loss. As the RTC held:
x x x defendant-bank is not faultless in the irregularities of its signature-verifier. In the first place, it
should have readily rejected the obviously altered plaintiffs P200,000.00-check, thus, avoid its
unwarranted deposit in defendant-Cos account and its corollary loss from plaintiffs deposit, had its other
employees, even excepting TAN, performed their duties efficiently and well. x x x 28
The glaring error did not escape the observation of the CA either. On the matter, it hastened to add:
A careful scrutiny of the evidence shows that indeed the date of Check No. 467322 had been materially
altered from August 1987 to May 8, 1988 in accordance with Section 125 of the Negotiable Instruments
Law. It is worthy to take note of the fact that such alteration was not countersigned by the drawer to make
it a valid correction of its date as consented by its drawer as the standard operating procedure of the
appellant bank in such situation as admitted by its Sto. Cristo Branch manager, Mabini Z. Millan. x x x. 29
On Check No. 613307, the Bank argues that the CA erred in considering that the said check was debited
against the account of Dela Rosa-Ramos when the fact was that it was dishonored for having been drawn
against insufficient funds. This means that the check was not charged against her account.
In this regard, the Court agrees with the Bank. Indeed, the admission made by Dela Rosa-Ramos that she
had to issue a replacement check for Check No. 613307 as well as for Check No. 510290 only proves that
these checks were never paid and charged or debited against her account. The replacement check is, of
course, a totally different matter and is not covered as an issue in this case.

Lastly, with respect to Check No. 613306, the Court agrees with the CA when it found:
x x x that no manifest irregularity exists as shown from the Statement of Accounts for the month of July
1988 that as of July 4, 1988, the plaintiff-appellee had an outstanding deposit of P121,989.66. It was also
cleared therein that, on July 5, 1988, P170,000.00, through the check of Lee See Bin with the same
UNITED OVERSEAS BANK-Sto. Cristo Branch, was deposited on the account of the plaintiff-appellee
and on the very same day Check No. 613306 in the amount of P290,595.00 was approved and processed
and its equivalent was debited from the account of the plaintiff-appellee since the check is an on-us
check which is deposited to an account of another with the same branch as that of the drawer of the said
check, and is considered as good as cash if funded, hence, may be withdrawn on the very same day it was
deposited.30
The Court has reviewed the findings of the RTC on the matter and agrees with the CA that there was no
irregularity. The burden of proof was on Dela Rosa-Ramos to establish that Lee See Bin was fictitious and
that the money which purportedly came from him was merely simulated. She unfortunately failed to
discharge this burden.
Withal, the Bank should only be made to answer the value of Check No. 467322 in the amount of
P200,000.00 plus the legal rate of interest. This must be further tempered down for there is no denying
that it was Dela Rosa-Ramos who exposed herself to risk when she entered into that "special
arrangement" with Tan. While the Bank reneged on its responsibility to Dela Rosa-Ramos, she is
nevertheless equally guilty of contributory negligence. It has been held that where the bank and a
depositor are equally negligent, they should equally suffer the loss. The two must both bear the
consequences of their mistakes.31 Thus, the Bank should only pay 50% of the actual damages awarded
while Dela Rosa-Ramos should have to shoulder the remaining 50%.
Considering that Tan was primarily responsible for the damages caused to Dela Rosa-Ramos, the Bank
can seek compensation from his estate, subject to the applicable laws and rules.
The reinstatement of deleted damages sought by Dela Rosa-Ramosin her comment may not be entertained
for she did not appeal the CA decision.
WHEREFORE, the petition for review is PARTIALLY GRANTED. The February 14, 2003 Decision and
the October 2, 2003 Resolution of the Court of Appeals in CA-G.R. CV No. 63983 are MODIFIED.
Petitioner United Overseas Bank Philippines (formerly Westmont Bank) is hereby ordered to pay
respondent Myrna Dela Rosa-Ramos the amount of P100,000.00, representing 50% of the actual damages
awarded plus legal interest.
SO ORDERED.

FIRST DIVISION
SOLIDBANK CORPORATION/
METROPOLITAN BANK AND
TRUST COMPANY, *
Petitioner,

- versus -

SPOUSES PETER and SUSAN


TAN,
Respondents.

G.R. No. 167346


Present:
PUNO, C.J., Chairperson,
SANDOVAL-GUTIERREZ,
CORONA,
AZCUNA and
GARCIA, JJ.

Promulgated:

April 2, 2007
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
CORONA, J.:
Assailed in this petition for review by certiorari under Rule 45 of the Rules of Court are the
decision[1] and resolution[2] of the Court of Appeals (CA) dated November 26, 2004 and March 1, 2005,
respectively, in CA-G.R. CV No. 58618, [3] affirming the decision of the Regional Trial Court (RTC) of
Manila, Branch 31.[4]
On December 2, 1991, respondents representative, Remigia Frias, deposited with petitioner ten
checks worth P455,962. Grace Neri, petitioners teller no. 8 in its Juan Luna, Manila Branch, received
two deposit slips for the checks, an original and a duplicate. Neri verified the checks and their amounts in
the deposit slips then returned the duplicate copy to Frias and kept the original copy for petitioner.
In accordance with the usual practice between petitioner and respondents, the latters passbook
was left with petitioner for the recording of the deposits on the banks ledger. Later, respondents retrieved
the passbook and discovered that one of the checks, Metropolitan Bank and Trust Company (Metrobank)
check no. 403954, payable to cash in the sum of P250,000 was not posted therein.
Immediately, respondents notified petitioner of the problem. Petitioner showed respondent Peter
Tan a duplicate copy of a deposit slip indicating the list of checks deposited by Frias. But it did not
include the missing check. The deposit slip bore the stamp mark teller no. 7 instead of teller no. 8
who previously received the checks.
Still later, respondent Peter Tan learned from Metrobank (where he maintained an account) that
Metrobank check no. 403954 had cleared after it was inexplicably deposited by a certain Dolores Lagsac
in Premier Bank in San Pedro, Laguna. Respondents demanded that petitioner pay the amount of the
check but it refused, hence, they filed a case for collection of a sum of money in the RTC of Manila,
Branch 31.

In its answer, petitioner averred that the deposit slips Frias used when she deposited the checks
were spurious. Petitioner accused respondents of engaging in a scheme to illegally exact money from it. It
added that, contrary to the claim of respondents, it was teller no. 7 who received the deposit slips and,
although respondents insisted that Frias deposited ten checks, only nine checks were actually received by
said teller. By way of counterclaim, it sought payment of P1,000,000 as actual and moral damages
and P500,000 as exemplary damages.
After trial, the RTC found petitioner liable to respondents:
Upon examination of the oral, as well as of the documentary evidence which the
parties presented at the trial in support of their respective contentions, and after taking
into consideration all the circumstances of the case, this Court believes that the loss of
Metrobank Check No. 403954 in the sum of P250,000.00 was due to the fault of
[petitioner][It] retained the original copy of the [deposit slip marked by Teller No.
7]. There is a presumption in law that evidence willfully suppressed would be adverse if
produced.
Art. 1173 of the Civil Code states that the fault or negligence of the obligor
consists in the omission of that diligence which is required by the nature of the obligation
and corresponds with the circumstances of the person of the time and of the place; and
that if the law or contract does not state the diligence which is to be observed in the
performance, the same as expected of a good father of a family shall be required.
For failure to comply with its obligation, [petitioner] is presumed to have been
at fault or to have acted negligently unless they prove that they observe extraordinary
diligence as prescribed in Arts. 1733 and 1735 of the Civil Code (Art. 1756)
xxx

xxx

xxx

WHEREFORE, premises considered, judgment is hereby rendered in favor of


[respondents], ordering [petitioner] to pay the sum of P250,000, with legal interest from
the time the complaint [for collection of a sum of money] was filed until
satisfied; P25,000.00 moral damages; P25,000.00 exemplary damages plus 20% of the
amount due [respondents] as and for attorneys fees. With costs.
SO ORDERED.[5]
Petitioner appealed to the CA which affirmed in toto the RTCs assailed decision:
Serious doubt [was] engendered by the fact that [petitioner] did not present the
original of the deposit slip marked with Teller No. 7 and on which the entry as to
Metrobank Check No. 403954 did not appear. Even the most cursory look at the
handwriting thereon reveal[ed] a very marked difference with that in the other deposit
slips filled up [by Frias] on December 2, 1991. Said circumstances spawn[ed] the belief
thus, the said deposit slip was prepared by [petitioner] itself to cover up for the lost
check.[6]
Petitioner filed a motion for reconsideration but the CA dismissed it. Hence, this appeal.

Before us, petitioner faults the CA for upholding the RTC decision. Petitioner argues that: (1) the
findings of the RTC and the CA were not supported by the evidence and records of the case; (2) the award
of damages in favor of respondents was unwarranted and (3) the application by the RTC, as affirmed by
the CA, of the provisions of the Civil Code on common carriers to the instant case was erroneous. [7]
The petition must fail.
On the first issue, petitioner contends that the lower courts erred in finding it negligent for the
loss of the subject check. According to petitioner, the fact that the check was deposited in Premier Bank
affirmed its claim that it did not receive the check.
At the outset, the Court stresses that it accords respect to the factual findings of the trial court
and, unless it overlooked substantial matters that would alter the outcome of the case, this Court will not
disturb such findings.[8] We meticulously reviewed the records of the case and found no reason to deviate
from the rule. Moreover, since the CA affirmed these findings on appeal, they are final and conclusive on
us.[9] We therefore sustain the RTCs and CAs findings that petitioner was indeed negligent and
responsible for respondents lost check.
On the issue of damages, petitioner argues that the moral and exemplary damages awarded by the
lower courts had no legal basis. For the award of moral damages to stand, petitioner avers that
respondents should have proven the existence of bad faith by clear and convincing evidence. According to
petitioner, simple negligence cannot be a basis for its award. It insists that the award of exemplary
damages is justified only when the act complained of was done in a wanton, fraudulent and oppressive
manner.[10]
We disagree.
While petitioner may argue that simple negligence does not warrant the award of moral damages,
it nonetheless cannot insist that that was all it was guilty of. It refused to produce the original copy of the
deposit slip which could have proven its claim that it did not receive respondents missing check. Thus, in
suppressing the best evidence that could have bolstered its claim and confirmed its innocence, the
presumption now arises that it withheld the same for fraudulent purposes. [11]
Moreover, in presenting a false deposit slip in its attempt to feign innocence, petitioners bad faith
was apparent and unmistakable. Bad faith imports a dishonest purpose or some moral obliquity or
conscious doing of a wrong that partakes of the nature of fraud. [12]
As to the award of exemplary damages, the law allows it by way of example for the public good.
The business of banking is impressed with public interest and great reliance is made on the banks sworn
profession of diligence and meticulousness in giving irreproachable service. [13] For petitioners failure to
carry out its responsibility and to account for respondents lost check, we hold that the lower courts did
not err in awarding exemplary damages to the latter.
On the last issue, we hold that the trial court did not commit any error. A cursory reading of its
decision reveals that it anchored its conclusion that petitioner was negligent on Article 1173 of the Civil
Code.[14]
In citing the different provisions of the Civil Code on common carriers, [15] the trial court merely
made reference to the kind of diligence that petitioner should have performed under the circumstances. In

other words, like a common carrier whose business is also imbued with public interest, petitioner should
have exercised extraordinary diligence to negate its liability to respondents.
Assuming arguendo that the trial court indeed used the provisions on common carriers to pin
down liability on petitioner, still we see no reason to strike down the RTC and CA rulings on this ground
alone.
In one case,[16] the Court did not hesitate to apply the doctrine of last clear chance (commonly
used in transportation laws involving common carriers) to a banking transaction where it adjudged the
bank responsible for the encashment of a forged check. There, we enunciated that the degree of diligence
required of banks is more than that of a good father of a family in keeping with their responsibility to
exercise the necessary care and prudence in handling their clients money.
We find no compelling reason to disallow the application of the provisions on common carriers to
this case if only to emphasize the fact that banking institutions (like petitioner) have the duty to exercise
the highest degree of diligence when transacting with the public. By the nature of their business, they are
required to observe the highest standards of integrity and performance, and utmost assiduousness as well.
[17]

WHEREFORE, the assailed decision and resolution of the Court of Appeals dated November 26,
2004 and March 1, 2005, respectively, in CA-G.R. CV No. 58618 are hereby AFFIRMED. Accordingly,
the petition is DENIED.
Costs against petitioner.
SO ORDERED.

G.R. No. 167173 December 27 2007


STANDARD CHARTERED BANK (Philippine Branch), PAUL SIMON MORRIS,
SUNDARARAMESH, OWEN BELMAN, SANJAYAGGARWAL, RAJAMANI
CHANDRASHEKAR, MARIVEL GONZALES, MA. ELLEN VICTOR, CHONA G. REYES,
ZENAIDA IGLESIAS,RAMONA BERNAD, MICHAELANGELOAGUILAR, and FERNAND
TANSINGCO, Petitioners,
vs.
SENATE COMMITTEE ONBANKS, FINANCIAL INSTITUTIONS ANDCURRENCIES, as
represented by its Chairperson, HON. EDGARDO J. ANGARA, Respondent.
Facts:
Before us is a Petition for Prohibition (With Prayer for Issuance of Temporary Restraining Order and/or
Injunction) dated and filed on March 11, 2005 by petitioners against respondent Senate Committee on
Banks, Financial Institutions and Currencies, as represented by Edgardo Angara. Petitioner SCB is a bank
instituted in England. Petitioners are Executive officers of said. Respondent is one of the permanent
committees of the Senate of the Philippines. The petition seeks the issuance of a temporary restraining
order (TRO) to enjoin respondent from (1) proceeding with its inquiry pursuant to Philippine Senate (P.S.)
Resolution No.166; (2) compelling petitioners who are officers of petitioner SCB-Philippines to attend
and testify before any further hearing to be conducted by respondent, particularly that set on March 15,
2005; and (3) enforcing any hold-departure order (HDO) and/or putting the petitioners on the Watch List.
It also prays that judgment be rendered (1) annulling the subpoenaead testificandum and duces tecum
issued to petitioners, and (2) prohibiting the respondent from compelling petitioners to appear and testify
in the inquiry being conducted pursuant to P.S. Resolution No. 166.Senator Juan Ponce Enrile, Vice
Chairperson of respondent, delivered a privilege speech entitled Arrogance of Wealth before the Senate
based on a letter from Atty. Mark R. Bocobo denouncing SCB-Philippines for selling unregistered foreign
securities in violation of the Securities Regulation Code (R.A. No. 8799) and urging the Senate to
immediately conduct an inquiry, in aid of legislation, to prevent the occurrence of a similar fraudulent
activity in the future. Upon motion of Senator Francis Pangilinan, the speech was referred to respondent.
Prior to the privilege speech, Senator Enrile had introduced P.S. Resolution No. 166, DIRECTING THE
COMMITTEE ON BANKS, FINANCIAL INSTITUTIONS AND CURRENCIES,TO CONDUCT AN
INQUIRY, IN AID OF LEGISLATION, INTO THE ILLEGAL SALE OF UNREGISTERED AND
HIGH-RISK SECURITIES BY STANDARD CHARTERED BANK, WHICH RESULTED IN
BILLIONS OF PESOS OF LOSSES TO THE INVESTING PUBLIC.
Acting on the referral, respondent, through its Chairperson, Senator Edgardo J. Angara, set the initial
hearing on February 28, 2005 to investigate, in aid of legislation, the subject matter of the speech and
resolution filed by Senator Enrile. Respondent invited petitioners to attend the hearing, requesting them to
submit their written position paper. Petitioners, through counsel, submitted to respondent a letter dated
February 24, 2005 presenting their position, particularly stressing that there were cases pending in court
allegedly involving the same issues subject of the legislative inquiry, thereby posing a challenge to the
jurisdiction of respondent to continue with the inquiry. On February 28, 2005, respondent commenced the
investigation. Senator Enrile inquired who among those invited as resource persons were present and who
were absent. Thereafter, Senator Enrile moved that subpoenae be issued to those who did not attend the
hearing and that the Senate request the Department of Justice, through the Bureau of Immigration and
Deportation, to issue an HDO against them and/or include them in the Bureaus Watch List. Senator Juan
Flavier seconded the motion and the motion was approved. Respondent then proceeded with the
investigation proper. Towards the end of the hearing, petitioners, through counsel, made an Opening
Statement that brought to the attention of respondent the lack of proper authorization from affected clients
for the bank to make disclosures of their accounts and the lack of copies of the accusing documents
mentioned in Senator Enrile's privilege speech, and reiterated that there were pending court cases
regarding the alleged sale in the Philippines by SCB-Philippines of unregistered foreign securities.

Issue:
Petitioners claim that since the issue of whether or not SCB-Philippines illegally sold unregistered foreign
securities is already preempted by the courts that took cognizance of the foregoing cases, the respondent,
by this investigation, would encroach upon the judicial powers vested solely in these courts.
Held:
Contention is UNTENABLE.P.S. Resolution No. 166 is explicit on the subject and nature of the inquiry
to be (and already being) conducted by the respondent Committee, as found in the last three
Whereas clauses thereof. The unmistakable objective of the investigation, as set forth in the said
resolution, exposes the error in petitioners allegation that the inquiry, as initiated in a privilege speech by
the very same Senator Enrile, was simply to denounce the illegal practice committed by a foreign bank
in selling unregistered foreign securities x x x. This fallacy is made more glaring when we consider that,
at the conclusion of his privilege speech, Senator Enrile urged the Senate to immediately conduct an
inquiry, in aid of legislation, so as to prevent the occurrence of a similar fraudulent activity in the future.
Indeed, the mere filing of a criminal or an administrative complaint before a court or a quasi- judicial
body should not automatically bar the conduct of legislative investigation. Otherwise, it would be
extremely easy to subvert any intended inquiry by Congress through the convenient ploy of instituting
criminal or an administrative complaint. Surely, the exercise of sovereign legislative authority, of which
the power of legislative inquiry is an essential component, cannot be made subordinate to a criminal or an
administrative investigation. In Arnault vs. Nazareno, the power of inquiry with process to enforce it
is an essential and appropriate auxiliary to the legislative function. A legislative body cannot legislate
wisely or effectively in the absence of information respecting the conditions which the legislation is
intended to affect or change; and where the legislative body does not itself possess the requisite
information which is not infrequently true recourse must be had to others who possess it. The Court
has already expounded on the essence of the contempt power of Congress and its committees in this wise
The principle that Congress or any of its bodies has the power to punish recalcitrant witnesses is
founded upon reason and policy. Said power must be considered implied or incidental to the exercise of
legislative power. How could a legislative body obtain the knowledge and information on which to base
intended legislation if it cannot require and compel the disclosure of such knowledge and information, if
it is impotent to punish a defiance of its power and authority? When the framers of the Constitution
adopted the principle of separation of powers, making each branch supreme within the realm of its
respective authority, it must have intended each departments authority to be full and complete,
independently of each others authority or power. And how could the authority and power become
complete if for every act of refusal, every act of defiance, every act of contumacy against it, the
legislative body must resort to the judicial department for the appropriate remedy, because it is impotent
by itself to punish or deal therewith, with affronts committed against its authority or dignity. The exercise
by Congress or by any of its committees of the power to punish contempt is based on the principle of selfpreservation. As the branch of the government vested with the legislative power, independently of the
judicial branch, it can assert its authority and punish contumacious acts against it. Such power is sui
generis, as it attaches not to the discharge of legislative functions per se, but to the sovereign character of
the legislature as one of the three independent and coordinate branches of government. In this case,
petitioners imputation that the investigation was in aid of collection is a direct challenge against the
authority of the Senate Committee, as it ascribes ill motive to the latter. In this light, we find the contempt
citation against the petitioners reasonable and justified. The power of legislative investigation includes the
power to compel the attendance of witnesses. Corollary to the power to compel the attendance of
witnesses is the power to ensure that said witnesses would be available to testify in the legislative
investigation. In the case at bench, considering that most of the officers of SCB-Philippines are not
Filipino nationals who may easily evade the compulsive character of respondents summons by leaving
the country, it was reasonable for the respondent to request the assistance of the Bureau of Immigration
and Deportation to prevent said witnesses from evading the inquiry and defeating its purpose. In any

event, no HDO was issued by a court. The BID instead included them only in the Watch List, which had
the effect of merely delaying petitioners intended travel abroad for five (5) days, provided no HDO is
issued against them

BSB Group Inc. vs. Sally GoG.R. No. 168644 February 16, 2010Peralta,
Facts:
Petitioner, the BSB Group, Inc., is a duly organized domestic corporation presided by its herein
representative, Ricardo Bangayan (Bangayan). Respondent Sally Go, alternatively referred to as Sally Sia
Go and Sally Go-Bangayan, is Bangayan's wife, who was employed in the company as a cashier, and was
engaged, among others, to receive and account for the payments made by the various customers of the
company. In 2002, Bangayan filed with the Manila Prosecutor's Office a complaint for estafa and/or
qualified theft against respondent, alleging that several checks representing the aggregate amount of
P1,534,135.50 issued by the company's customers in payment of their obligation were, instead of being
turned over to the company's coffers, indorsed by respondent who deposited the same to her personal
banking account maintained at Security Bank and Trust Company (Security Bank) in Divisoria, Manila
Branch. Upon a finding that the evidence adduced was uncontroverted, the assistant city prosecutor
recommended the filing of the Information for qualified theft against respondent. Accordingly, respondent
was charged before the Regional Trial Court of Manila. She was found guilty; that in the commission of
the said offense, said accused acted with grave abuse of confidence, being then employed as cashier by
said complainant at the time of the commission of the said offense and as such she was entrusted with the
said amount of money. Respondent entered a negative plea when arraigned. The trial ensued. On the
premise that respondent had allegedly encashed the subject checks and deposited the corresponding
amounts thereof to her personal banking account. Petitioner, opposing respondent's move, argued for the
relevancy of the Metrobank account on the ground that the complaint-affidavit showed that there were
two checks which respondent allegedly deposited in an account with the said bank. To this, respondent
filed a supplemental motion to quash, invoking the absolutely confidential nature of the Metrobank
account under the provisions of Republic Act(R.A.) No. 1405. The trial court did not sustain respondent;
hence, it denied the motion to quash for lack of merit. Meanwhile, the prosecution was able to present in
court the testimony of Elenita Marasigan (Marasigan), the representative of Security Bank. In a
nutshell ,Marasigan's testimony sought to prove that between 1988 and 1989, respondent ,while engaged
as cashier at the BSB Group, Inc., was able to run away with the checks issued to the company by its
customers, endorse the same, and credit the corresponding amounts to her personal deposit account with
Security Bank. In the course of the testimony, the subject checks were presented to Marasigan for
identification and marking as the same checks received by respondent, endorsed, and then deposited in
her personal account with Security Bank. CA affirmed RTCs decision.
Issue:
Whether or not there is no difference between cash and check for purposes of prosecuting respondent for
theft of cash
Held:
In theft, the act of unlawful taking connotes deprivation of personal property of one by another with intent
to gain, and it is immaterial that the offender is able or unable to freely dispose of the property stolen
because the deprivation relative to the offended party has already ensued from such act of execution. The
allegation of theft of money, hence, necessitates that evidence presented must have a tendency to prove
that the offender has unlawfully taken money belonging to another. Interestingly, petitioner has taken
pains in attempting to draw a connection between the evidence subject of the instant review, and the
allegation of theft in the Information by claiming that respondent had fraudulently deposited the checks in
her own name. But this line of argument works more prejudice than favor, because it in effect, seeks to
establish the commission, not of theft, but rather of some other crime probably estafa. Moreover, that

there is no difference between cash and check is true in other instances. In estafa by conversion, for
instance, whether the thing converted is cash or check, is immaterial in relation to the formal allegation in
an information for that offense; a check, after all, while not regarded as legal tender, is normally accepted
under commercial usage as a substitute for cash, and the credit it represents instated monetary value is
properly capable of appropriation. And it is in this respect that what the offender does with the check
subsequent to the act of unlawfully taking it becomes material inasmuch as this offense is a continuing
one. In other words, in pursuing a case for this offense, the prosecution may establish its cause by the
presentation of the checks involved. These checks would then constitute the best evidence to establish
their contents and to prove the elemental act of conversion in support of the proposition that the offender
has indeed indorsed the same in his own name.

Joseph Victor Ejercito vs. Sandiganbayan


G.R. Nos. 157294-95 - 30 November 2006
Carpio-Morales, J.:
Facts:
The Office of the Ombudsman requested the Sandiganbayan to issue subpoena duces tecum against the
Urban Bank relative to the case against President Joseph Estrada. Ms. Dela Paz, receiver of the Urban
Bank, furnished the Office of the Ombudsman certified copies of manager checks detailed in the
subpoena duces tecum. The Sandiganbayan granted the same. However, Ejercito claims that the
subpoenas issued by the Sandiganbayan are invalid and may not be enforced because the information
found therein, given their extremely detailed character and could only have been obtained by the Special
Prosecution Panel through an illegal disclosure by the bank officials. Ejercito thus contended that,
following the fruit of the poisonous tree doctrine, the subpoenas must be quashed. Moreover, the
extremely-detailed information obtained by the Ombudsman from the bank officials concerned during a
previous investigation of the charges against him, such inquiry into his bank accounts would itself be
illegal.
Issue:
Whether or not subpoena duces tecum/ad testificandum may be issued to order the production of
statement of bank accounts even before a case for plunder is filed in court
Held:
The Supreme Court held that plunder is analogous to bribery, and therefore, the exception to R.A. 1405
must also apply to cases of plunder. The court also reiterated the ruling in Marquez v. Desierto that before
an in camera inspection may be allowed there must be a pending case before a court of competent
jurisdiction. Further, the account must be clearly identified, the inspection limited to the subject matter of
pending case before the court of competent jurisdiction. As no plunder case against then President Estrada
had yet been filed before a court of competent jurisdiction at the time the Ombudsman conducted an
investigation, he concludes that the information about his bank accounts were acquired illegally, hence, it
may not be lawfully used to facilitate a subsequent inquiry into the same bank accounts. Thus, his attempt
to make the exclusionary rule applicable to the instant case fails. The high Court, however, rejected the
arguments of the petitioner Ejercito that the bank accounts which where demanded from certain banks
even before the case was filed before the proper court is inadmissible in evidence being fruits of
poisonous tree. This is because the Ombudsman issued the subpoenas bearing on the bank accounts of
Ejercito about four months before Marquez was promulgated on June 27, 2001. While judicial
interpretations of statutes, such as that made in Marquez with respect to R.A. No. 6770 or the
Ombudsman Act of 1989 are deemed part of the statute as of the date it was originally passed, the rule is
not absolute. Thus, the Court referred to the teaching of Columbia Pictures Inc., v. Court of Appeals, that:
It is consequently clear that a judicial interpretation becomes a part of the law as of the date that law was
originally passed, subject only to the qualification that when a doctrine of this Court is overruled and a
different view is adopted, and more so when there is a reversal thereof, the new doctrine should be
applied prospectively and should not apply to parties who relied on the old doctrine and acted in good
faith.

CA Agro Industrial Development Corp., vs Court of Appeals


Facts:
Petitioner and the spouses Ramon and Paula Pugao entered into an agreement whereby the former
purchased from the latter two (2) parcels of land. Among the terms and conditions of the agreement were
that the titles to the lots shall be transferred to the petitioner upon full payment of the purchase price and
that the owner's copies of the certificates of titles thereto, and that title shall be deposited shall be
deposited in a safety deposit box of any bank. Petitioner and the Pugaos then rented Safety Deposit Box
of private respondent Security Bank and Trust Company. Thereafter, a certain Mrs. Margarita Ramos
offered to buy from the petitioner the two(2) lots. Mrs. Ramos demanded the execution of a deed of sale
which necessarily entailed the production of the certificates of title. In view thereof, Aguirre,
accompanied by the Pugaos, then proceeded to the respondent Bank to open the safety deposit box and
get the certificates of title. However, when opened in the presence of the Bank's representative, the box
yielded no such certificates.
Issue:
Is the contractual relation between a commercial bank and another party in a contract of rent of a safety
deposit box with respect to its contents placed by the latter one of bailor and bailee or one of lessor and
lessee?
Held:
The contract for the rent of the safety deposit box is not an ordinary contract of lease as defined in Article
1643 of the Civil Code. However, we do not fully subscribe to its view that the same is a contract of
deposit that is to be strictly governed by the provisions in the Civil Code on deposit; the contract in the
case at bar is a special kind of deposit. It cannot be characterized as an ordinary contract of lease under
Article 1643 because the full and absolute possession and control of the safety deposit box was not given
to the joint renters the petitioner and the Pugaos. The guard key of the box remained with the
respondent Bank; without this key, neither of the renters could open the box. On the other hand, the
respondent Bank could not likewise open the box without the renter's key. In this case, the said key had a
duplicate which was made so that both renters could have access to the box.

Sia v. CA
Facts:
The plaintiff rented on March 22, 1985 the Safety Deposit Box No. 54 of the defendant bank at its
Binondo Branch located at the Fookien Times Building, Soler St., Binondo, Manila wherein he placed his
collection of stamps. The said safety deposit box leased by the plaintiff was at the bottom or at the lowest
level of the safety deposit boxes of the defendant bank at its aforesaid Binondo Branch.
During the floods that took place in 1985 and 1986, floodwater entered into the defendant bank's
premises, seeped into the safety deposit box leased by the plaintiff and caused, according to the plaintiff,
damage to his stamps collection. The defendant bank rejected the plaintiff's claim for compensation for
his damaged stamps collection, so, the plaintiff instituted an action for damages against the defendant
bank. The defendant bank denied liability for the damaged stamps collection of the plaintiff on the basis
of the "Rules and Regulations Governing the Lease of Safe Deposit Boxes [The liability of the Bank by
reason of the lease, is limited to the exercise of the diligence to prevent the opening of the safe by any
person other than the Renter, his authorized agent or legal representative] [The Bank is not a depository of
the contents of the safe and it has neither the possession nor the control of the same. The Bank has no
interest whatsoever in said contents, except as herein provided, and it assumes absolutely no liability in
connection therewith] The defendant bank also contended that its contract with the plaintiff over safety
deposit box No. 54 was one of lease and not of deposit and, therefore, governed by the lease agreement
which should be the applicable law; that the destruction of the plaintiff's stamps collection was due to a
calamity beyond obligation on its part to notify the plaintiff about the floodwaters that inundated its
premises at Binondo branch which allegedly seeped into the safety deposit box leased to the plaintiff. The
trial court then directed that an ocular inspection on the contents of the safety deposit box be conducted.
That the Safety Box Deposit No. 54 was opened by both plaintiff Luzan Sia and the Acting Branch
Manager Jimmy B. Ynion in the presence of the undersigned, plaintiff's and defendant's counsel. Said
Safety Box when opened contains two albums of different sizes and thickness, length and width and a tin
box with printed word 'Tai Ping Shiang Roast Pork in pieces with Chinese designs and character. Both
albums are wet, moldy and badly damaged. RTC ruled in favor of Sia, CA reversed.
Issue:
Whether or not the bank is liable for damages.
Held:
In the recent case, CA Agro-Industrial Development Corp. vs. Court of Appeals, this Court explicitly
rejected the contention that a contract for the use of a safety deposit box is a contract of lease governed by
Title VII, Book IV of the Civil Code. Nor did We fully subscribe to the view that it is a contract of deposit
to be strictly governed by the Civil Code provision on deposit; it is, as We declared, a special kind of
deposit. The prevailing rule in American jurisprudence - that the relation between a bank renting out safe
deposit boxes and its customer with respect to the contents of the box is that of a bailor and bailee, the
bailment for hire and mutual benefit - has been adopted in this jurisdiction, thus: In the context of our
laws which authorize banking institutions to rent out safety deposit boxes, it is clear that in this
jurisdiction, the prevailing rule in the United States has been adopted. Section 72 of the General Banking
Act [R.A. 337, as amended] pertinently provides: "Sec. 72. In addition to the operations specifically
authorized elsewhere in this Act, banking institutions other than building and loan associations may
perform the following services:(a) Receive in custody funds, documents, and valuable objects, and rent
safety deposit boxes for the safeguarding of such effects. The banks shall perform the services permitted

under subsections (a), (b) and (c) of this section as depositories or as agents. . . ." (emphasis supplied)
Note that the primary function is still found within the parameters of a contract of deposit, i.e, the
receiving in custody of funds, documents and other valuable objects for safekeeping. The renting out of
the safety deposit boxes is not independent from, but related to or in conjunction with, this principal
function. A contract of deposit may be entered into orally or in writing (Art. 1969, Civil Code]and,
pursuant to Article 1306 of the Civil Code, the parties thereto may establish such stipulations, clauses,
terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good
customs, public order or public policy. The depositary's responsibility for the safekeeping of the objects
deposited in the case at bar is governed by Title I, Book IV of the Civil Code. Accordingly, the depositary
would be liable if, in performing its obligation, it is found guilty of fraud, negligence, delay or
contravention of the tenor of the agreement [Art. 1170, id]. In the absence of any stipulation prescribing
the degree of diligence required, that of a good father of a family is to be observed [Art. 1173, id]. Hence,
any stipulation exempting the depositary from any liability arising from the loss of the thing deposited on
account of fraud, negligence or delay would be void for being contrary to law and public policy. In the
instant case, petitioner maintains that conditions 13and l4 of the questioned contract of lease of the safety
deposit box, which read: The bank is a depositary of the contents of the safe and it has neither the
possession nor control of the same. The bank has no interest whatsoever in said contents, except as herein
expressly provided, and it assumes absolutely no liability in connection therewith." are void as they are
contrary to law and public policy. We find Ourselves in agreement with this proposition for indeed, said
provisions are inconsistent with the respondent Bank's responsibility as a depositary under Section 72 (a)
of the General Banking Act. Both exempt the latter from any liability except as contemplated in condition
8 thereof which limits its duty to exercise reasonable diligence only with respect to who shall be admitted
to any rented safe, to wit:"8. The Bank shall use due diligence that no unauthorized person shall be
admitted to any rented safe and beyond this, the Bank will not be responsible for the contents of any safe
rented from it." Furthermore condition 13 stands on a wrong premise and is contrary to the actual practice
of the Bank. It is not correct to assert that the Bank has neither the possession nor control of the contents
of the box since in fact, the safety deposit box itself is located in its premises and is under its absolute
control; moreover, the respondent Bank keeps the guard key to the said box. As stated earlier, renters
cannot open their respective boxes unless the Bank cooperates by presenting and using this guard key.
Clearly then, to the extent above stated, the foregoing conditions in the contract in question are void and
ineffective. It has been said:" With respect to property deposited in a safe-deposit box by a customer of a
safe-deposit company, the parties, since the relation is a contractual one, may by special contract define
their respective duties or provide for increasing or limiting the liability of the deposit company, provided
such contract is not in violation of law or public policy. It must clearly appear that there actually was such
a special contract, however, in order to vary the ordinary obligations implied by law from the relationship
of the parties; liability of the deposit company will not be enlarged or restricted by words of doubtful
meaning. The company, in renting safe-deposit boxes, cannot exempt itself from liability for loss of the
contents by its own fraud or negligence or that, of its agents or servants, and if a provision of the contract
may be construed as an attempt to do so, it will be held ineffective for the purpose. Although it has been
held that the lessor of a safe-deposit box cannot limit its liability for loss of the contents thereof through
its own negligence, the view has been taken that such a lessor may limit its liability to some extent by
agreement or stipulation." It must be noted that conditions No. 13 and No. 14 in the Contract of Lease of
Safety Deposit Box in CA Agro-Industrial Development Corp. are strikingly similar to condition No. 13
in the instant case. On the other hand, both condition No. 8 in CA Agro-Industrial Development Corp. and
condition No. 9 in the present case limit the scope of the exercise of due diligence by the banks involved
to merely seeing to it that only the renter, his authorized agent or his legal representative should open o
have access to the safety deposit box. In short, in all other situations, it would seem that SBTC is not
bound to exercise diligence of any kind at all. Assayed in the light of Our aforementioned
pronouncements in CA Agro-lndustrial Development Corp., it is not at all difficult to conclude that both
conditions No. 9 and No. 13 of the "Lease Agreement" covering the safety deposit box in question
(Exhibits "A" and "1") must be stricken down for being contrary to law and public policy as they are

meant to exempt SBTC from any liability for damage, loss or destruction of the contents of the safety
deposit box which may arise from its own or its agents' fraud, negligence or delay. Accordingly, SBTC
cannot take refuge under the said conditions. Public respondent further postulates that SBTC cannot be
held responsible for the destruction or loss of the stamp collection because the flooding was a fortuitous
event and there was no showing of SBTC's participation in the aggravation of the loss or injury. It states:
Article 1174 of the Civil Code provides:" Except in cases expressly specified by the law, or when it is
otherwise declared by stipulation, or when the nature of the obligation requires the assumption of risk, no
person shall be responsible for those events which could not be foreseen, or which, though foreseen, were
inevitable.' In its dissertation of the phrase "caso fortuito" the Enciclopedia Jurisdicada Espaola says: "In
a legal sense and, consequently, also in relation to contracts, a "caso fortuito" prevents (sic) the following
essential characteristics: (1) the cause of the unforeseen and unexpected occurrence, or of the failure of
the debtor to comply with his obligation, must be independent of the human will; (2) it must be
impossible to foresee the event which constitutes the "caso fortuito," or if it can before seen, it must be
impossible to avoid; (3) the occurrence must be such as to render it impossible for one debtor to fulfill his
obligation in a normal manner; and(4) the obligor must be free from any participation in the aggravation
of the injury resulting to the creditor." (cited in Servando vs. Phil., Steam Navigation Co., supra).Here, the
unforeseen or unexpected inundating floods were independent of the will of the appellant bank and the
latter was not shown to have participated in aggravating damage (sic) to the stamps collection of the
appellee. In fact, the appellant bank offered its services to secure the assistance of an expert to save most
of the then good stamps but the appellee refused and let (sic) these recoverable stamps inside the safety
deposit box until they were ruined. Both the law and authority cited are clear enough and require no
further elucidation. Unfortunately, however, the public respondent failed to consider that in the instant
case, as correctly held by the trial court, SBTC was guilty of negligence. The facts constituting negligence
are enumerated in the petition and have been summarized in this ponencia. SBTC's negligence aggravated
the injury or damage to the stamp collection. SBTC was aware of the floods of 1985 and 1986; it also
knew that the floodwaters inundated the room where Safe Deposit Box No. 54 was located. In view
thereof, it should have lost no time in notifying the petitioner in order that the box could have been
opened to retrieve the stamps, thus saving the same from further deterioration and loss. In this respect, it
failed to exercise the reasonable care and prudence expected of a good father of a family, thereby
becoming a party to the aggravation of the injury or loss. Accordingly, the aforementioned fourth
characteristic of a fortuitous event is absent Article 1170 of the Civil Code, which reads: Those who in the
performance of their obligation are guilty of fraud, negligence, or delay, and those who in any manner
contravene the tenor thereof, are liable for damages, thus comes to the succor of the petitioner. The
destruction or loss of the stamp collection which was, in the language of the trial court, the "product of
27years of patience and diligence" caused the petitioner pecuniary loss; hence, he must be compensated
therefor. We cannot, however, place Our imprimatur on the trial court's award of moral damages. Since
the relationship between the petitioner and SBTC is based on a contract, either of them may be held liable
for moral damages for breach thereof only if said party had acted fraudulently or in bad faith. There is
here no proof of fraud or bad faith on the part of SBTC. Petition granted.

Marquez v Desierto G.R. No. 135882 June 27, 2001


Before an in camera inspection may be allowed, there must be a pending case before a court of competent
jurisdiction. Further, the account must be clearly identified, the inspection limited to the subject matter of
the pending case before the court of competent jurisdiction. The bank personnel and the account holder
must be notified to be present during the inspection, and such inspection may cover only the account
identified in the pending case.
Facts:
Pursuant to an investigation regarding the PEA AMARI project, Ombudsman Desierto ordered
petitioner Marquez to produce several bank documents for purposes of inspection in camera relative to
various accounts maintained at Union Bank of the Philippines, Julia Vargas Branch, where petitioner is
the branch manager..
The order of the Ombudsman to produce for in camera inspection the subject accounts with the Union
Bank of the Philippines, Julia Vargas Branch, was based on a pending investigation at the Office of the
Ombudsman against Amado Lagdameo, et. al. for violation of R.A. No. 3019, Sec. 3 (e) and (g) relative
to the Joint Venture Agreement between the Public Estates Authority and AMARI.
Marquez filed a petition for declaratory relief, seeking to clarify if such an action will violate RA. No.
1405.
Issue:
Whether the order of the Ombudsman to have an in camera inspection of the questioned account is
allowed as an exception to the law on secrecy of bank deposits (R.A. No.1405).
Held:
No. Before an in camera inspection may be allowed, there must be a pending case before a court of
competent jurisdiction. Further, the account must be clearly identified, the inspection limited to the
subject matter of the pending case before the court of competent jurisdiction. The bank personnel and the
account holder must be notified to be present during the inspection, and such inspection may cover only
the account identified in the pending case.
In the case at bar, there is yet no pending litigation before any court of competent authority. What is
existing is an investigation by the Office of the Ombudsman. In short, what the office of the ombudsman
would wish to do is to fish for additional evidence to formally charge Amado Lagdameo, et. al., with the
Sandiganbayan. Clearly, there was no pending case in court which would warrant the opening of the bank
account for inspection.
Zones of privacy are recognized and protected in our laws. The Civil Code provides that [e]very person
shall respect the dignity, personality, privacy and peace of mind of his neighbors and other persons and
punishes as actionable torts several acts for meddling and prying into the privacy of another. It also holds
public officer or employee or any private individual liable for damages for any violation of the rights and
liberties of another person, and recognizes the privacy of letters and other private communications. The
Revised Penal Code makes a crime of the violation of secrets by an officer, revelation of trade and
industrial secrets, and trespass to dwelling. Invasion of privacy is an offense in special laws like the AntiWiretapping Law, the Secrecy of Bank Deposits Act, and the Intellectual Property Code.

Philippine National Bank v. Gancayco GR No. 18343, 30 September 1965


Section 8 of the Anti-Graft Law is intended to amend Section 2 of Republic Act No. 1405 by providing an
additional exception to the rule against the disclosure of bank deposits.
Facts:
Emilio Gancayco and Florentino Flor, as special prosecutors of the Department of Justice, required the
Philippine National Bank to produce at a hearing the records of the bank deposits of Ernesto Jimenez,
former administrator of the Agricultural Credit and Cooperative Administration, who was then under
investigation for unexplained wealth.
PNB refused to disclose his bank deposits, invoking Section 2 of Republic Act No. 1405. On the other
hand, the prosecutors cited the Anti-Graft and Corrupt Practices Act, particularly Section 8 therewith, to
wit:
Section 8. Dismissal due to unexplained wealth. If in accordance with the provisions of RA 1379, 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. PNB then filed an action for declaratory judgment in the CFI of Manila which ruled that
Section 8 of the Anti-Graft and Corrupt Practices Act clearly intended to provide an additional ground for
the examination of bank deposits. Hence, this appeal.
Issue:
Whether or not a bank can be compelled to disclose the records of accounts of a depositor who is under
investigation for unexplained wealth
Held:
Yes. While Republic Act No. 1405 provides that bank deposits are absolutely confidential and may
not be examined, inquired or looked into, , the Anti-Graft Law directs in mandatory terms that bank
deposits shall be taken into consideration notwithstanding any provision of law to the contrary
While No reconciliation is possible between Republic Act No. 1405 and Republic Act No. 3019 as the
two laws are so repugnant to each other. Thus, while Section 2 of 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, Section 8 of Republic Act No. 3019 (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 Anti-Graft Law is intended to amend Section 2 of Republic Act No. 1405 by providing an
additional exception to the rule against the disclosure of bank deposits.
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 No. 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 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 expresses the notion 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.

Banco Filipino Savings and Mortgage Bank v. Purisima GR No. 56429, 28 May 1988 (Bank Secrecy)
The inquiry into illegally acquired property or property not legitimately acquired , under the exception
under RA 1405 extends to cases where such property is concealed by being held by or recorded in the
name of other persons. This proposition is made clear by RA 3019 which quite categorically states that
the term legitimately acquired property of a public officer or employee shall not include property
unlawfully acquired by the respondent, but its ownership is concealed by its being recorded in the name
of, of held by, respondents spouse, ascendants, descendants, relatives or any other persons.
Facts:
The Bureau of Internal Revenue accused Customs special agent Manuel Caturla before the Tanodbayan of
having illegal acquired property manifestly out of proportion to his salary and other lawful income.
During the preliminary investigation, the Tanodbayan issued a subpoena duces tecum to the Banco
Filipino Savings and Mortgage Bank, commanding its representative to appear at a specified time at the
Office of the Tanodbayan and furnish the latter with duly certified copies of the records in all its branches
and extension offices of the loans, savings and time deposits and other banking transactions, in the names
of Caturla, his wife, Purita, their children, and/or Pedro Escuyos.
Caturla moved to quash the subpoena for violating Sections 2 and 3 of RA 1405 which was denied by the
Tanodbayan. In fact, the Tanodbayan issued another subpoena which expanded its scope including the
production of bank records not only of the persons enumerated above but of additional persons and
entities as well. The Banco Filipino filed an action for declaratory relief with the CFI of Manila which
was denied by the lower court.
Issue:
Whether or not the Law on Secrecy of Bank Deposits precludes production by subpoena duces tecumof
bank records of transactions by or in the names of the wife, children and friends of a special agent of the
Bureau of Customs accused before the Tanodbayan of having allegedly acquired property manifestly out
of proportion to his salary and other lawful income in violation of RA 3019.
Held:
The inquiry into illegally acquired property or property not legitimately acquired extends to cases
where such property is concealed by being held by or recorded in the name of other persons. This
proposition is made clear by RA 3019 which quite categorically states that the term legitimately acquired
property of a public officer or employee shall not include property unlawfully acquired by the
respondent, but its ownership is concealed by its being recorded in the name of, of held by, respondents
spouse, ascendants, descendants, relatives or any other persons.
In PNB v. Gancayco, we ruled that: while Section 2 of 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, Section 8 of Republic Act No. 3019 (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 Anti-Graft Law is intended to amend Section 2 of Republic Act No. 1405 by providing an additional
exception to the rule against the disclosure of bank deposits.
To sustain the petitioners theory, and
restrict the inquiry only to property held by or in the name of the government official or employee, or his
spouse and unmarried children is unwarranted in the light of the provisions of the statutes in question, and
would make available to persons in government who illegally acquire property an easy and fool-proof
means of evading investigation and prosecution; all they have to do would be to simply place the property
in the possession or name of persons other than their spouse and unmarried children. This is an absurdity
that we will not ascribe to the lawmakers.
Mellon Bank vs. Magsino G.R. No. 71479 October 18, 1990

Section 2 of said law allows the disclosure of bank deposits in cases where the money deposited 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 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.
Facts:
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.
Javier withdrew $475,000 from account No. 343 and converted it into eight cashiers 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. Javier also brought several properties in the
United States including the one of his lawyer, Poblador.
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. The testimonies of these witnesses were objected to by
the defense on the grounds of res inter alios acta, immateriality, irrelevancy and confidentiality due to RA
1405. The Javier spouses also contend 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.
Issue:
1) Whether or not an account deposit which is relevant and material to the resolution of the case may be
covered under R.A. No. 1405.
2) Whether or not the principle of election of remedies bars recovery of Mellon Bank
Held:
1) Whether or not an account deposit which is relevant and material to the resolution of the case may be
covered under R.A. No. 1405.
Yes. 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.
2) Whether or not the principle of election of remedies bars recovery of Mellon Bank
The spouses Javiers 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 courts 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.

Union Bank of the Philippines v. CA, 321 SCRA 563 (1999)

Facts:
A check in the amount of One Million Pesos (P1,000,000.00) was drawn against Account No. 011101854-8 with Allied Bank payable to the order of one Jose Ch. Alvarez. The payee deposited the check
with Union Bank who credited the P1,000,000.00 to the account of Mr. Alvarez.-Union Bank 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.-Union Bank only discovered the under-encoding almost a year later.-Thus, Union
Bank Notified Allied Bank of the discrepancy by way of a charge slip for Nine Hundred Ninety-Nine 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), alleging that
Allied Bank should have informed it of the under coding pursuant to the Section 25 of PCHC handbook
which states that: The receiving bank should inform the erring bank about the under coding of the
amount not later than 10 am of the following clearing day.-The judgment on the arbitration case was held
in abeyance pending the resolution of the petition filed by Union Bank.-RTC, affirmed by CA dismissed
the petition holding that case of Union Bank does not fall under any of the exceptions to warrant a
disclosure of or inquiry into the ledger/books of account in dispute.-CA held that the case was not one
where the money deposited is the subject matter of the litigation, particularly nowhere in Union Banks
complaint does it mention of the amount it seeks to recover from the Account itself, but seeks of
P999,000 only as an incident of its alleged opportunity losses and interest as a result of its own
employees admitted error in encoding the check.-Hence, this petition.
Issue:
Whether or not the case at bar falls under the last exception.
Held:
A collecting bank which sued the drawee bank to recover the deficiency between the amount credited to
the account of the depositor and the amount obtained from the drawee bank because the latter had
erroneously undercoded the amount of the check it presented for clearing from P1M to P1,000 is not
entitled to examine the account of the drawer of the check, because the money in the account of the
drawer is not the subject matter of the litigation. The collecting bank was only fishing for information so
it could determine the culpability of the drawee bank and the amounts of damages it could recover from
the latter. It does not seek the recovery of the very money contained in the deposit. The subject matter of
the dispute may be the amount of P999,000 that the collecting bank seeks from the drawee bank as a
result of the latters alleged failure to inform the former of the discrepancy ; but it is not the P999,000
deposited in the drawers account. By the terms of RA 1405, the money deposited itself should be the
subject matter of the litigation.

Republic v. Eugenio, 545 SCRA 384 (2008)

Facts:
A series of investigation concerning the award of the NAIA 3 contracts to PIATCO were undertaken by
the Ombudsman and the compliance and Investigation Staff (CIS) of Anti-Money Laundering Council.The OSG wrote AMLC requesting the latters assistance in obtaining more evidence to completely
reveal the financial trail of corruption surrounding the NAIA 3 Project.-The CIS conducted an intelligence
database search on the financial transactions of certain individuals involved in the award, including
Pontaleon Alvarez who had been the chairman of the PBAC Technical committee, NAIA 3Project.-The
search revealed that Alvarez maintained 8 bank accounts with 6 different banks
AMLC issued resolution whereby the council resolved to authorize the executive director of the AMLC
to sign and verify an application to inquire into and/or examine the deposits or investments of Pantaleon
Alvarez et al., and their related web of accounts wherever theses may be found and to authorize the
AMLC Secretariat to conduct an inquiry into the subject accounts once the RTC-Makati grants the
application to inquire into and/or examine bank accounts of those persons. RTC grants the application.Pursuant to the order, CIS proceeded to inquire and examine the deposits, investments and related web
accounts.-Special Prosecutor of the Ombudsman wrote a letter requesting AMLC to investigate the
accounts of Alvarez et al, which AMLC likewise heeded. Again, AMLC filed an application, this time
with RTC Manila, to inquire into and/or examine 13 accounts and 2related web of accounts allegedly
having been used to facilitate corruption in NAIA 3 Project. Manila RTC issued an order granting Exparte the application. Alvarez filed an Urgent Motion to stay enforcement of the order. RTC stayed the
order but soon after, reinstated the same.
Held:
There is no need for a pre-existing or pending case in court for violation of the Anti- Money Laundering
Law before a bank inquiry order may be issued by the court. However it does not follow that such order
may be availed of ex-parte. A bank inquiry order, unlike a freeze order cannot be issued unless notice is
given to the owners of the account, allowing them the opportunity to contest the issuance of such order.

Onate v. Abrogar, 241 SCRA 659 (1995)


Facts:

Oate offered to sell to Sunlife Assurance Company of Canada treasury bills at a discounted price.Sunlife paid the price by means of a check payable to Brunner Development Corporation.-Brunner issued
to it receipt with the undertaking to deliver the treasury bills to Sunlife.-However, Brunner delivered
instead promissory note in which it was made to appear that the transaction was a money placement
instead of sale of treasury bills.-Hence, Sunlife sued Oate, Econ and Brunner for the delivery of the
treasury bills.-During trial, the judge ordered the examination of the books of accounts and ledgers of
Brunner at the Urban Bank and the records of account of Oate at BPI, even ordered PNB to produce the
records regarding certain checks deposited in it.-The court orders were based on the allegations of Sunlife
that the money paid by it to Brunner was subsequently withdrawn from Urban Bank after it had been
deposited by Brunner and then transferred to Oates account in the BPI and to the unnamed account in
the PNB.-These orders were contended by Oate as a fishing expedition which the trial court should not
have allowed.
Issue:
Whether or not the examination of the bank account in this case is prohibited by RA 1405.
Held:
The examination of the bank account in which the money paid by an insurance company for treasury bills
was deposited is prohibited by RA 1405 even if the insurance company sued the seller of the treasury bills
for failure to deliver the treasury bills, for the money is not subject matter of the litigation.-Whether the
transaction is considered a sale or money placement does not make the money the subject matter of
litigation within the meaning of Sec.2 of RA 1405 which prohibits the disclosure or inquiry into bank
deposits except in cases where the money deposited or interested is the subject matter of litigation nor
will it matter whether the money was swindled as Sunlife contends. However, since the attachment of the
properties was invalid, the examination ordered with such attachment must also be considered invalid.

G.R. No. 189206 June 8, 2011


GOVERNMENT SERVICE INSURANCE SYSTEM,

Petitioner, vs.
THE HONORABLE 15th DIVISION OF THE COURT OF APPEALS and INDUSTRIAL BANK
OF KOREA,TONG YANG MERCHANT BANK, HANAREUM BANKING CORP., LAND BANK
OF THE PHILIPPINES,WESTMONT BANK and DOMSAT HOLDINGS, INC.,
Respondents.
Facts:
On December 13, 1996, a surety bond was agreed with DOMSAT HOLDINGS, INC. as the principal and
the GSIS as administrator and the obliges are Land Bank of the Philippines, Tong Yang Merchant Bank,
Industrial Bank of Korea and First Merchant Banking Corporation collectively known as The Banks
with the loan granted to DOMSAT of US $ 11,000,000.00 to be used for the financing of the two-year
lease of a Russian Satellite from INTERSPUTNIK. Domsat failed to pay the loan and GSIS refused to
comply with its obligation reasoning that Domsat did not use the loan proceeds for the payment of rental
for the satellite. GSIS alleged that Domsat, with Westmont Bank as the conduit, transferred the U.S. $11
Million loan proceeds from the Industrial Bank of Korea to Citibank New York account of Westmont
Bank and from there to the Binondo Branch of Westmont Bank. The Banks filed a complaint before the
RTC of Makati against Domsat and GSIS.GSIS requested for the issuance of a subpoena duces tecum to
the custodian of records of Westmont Bank to produce bank ledger covering the account of Domsat with
the Westmont Bank (now United Overseas Bank) and other pertinent documents. The RTC issued the
subpoena but nonetheless, the RTC then granted the second motion for reconsideration by The Banks to
quash the subpoena granted to GSIS.
GSIS assailed its case to the CA and CA partially granted its petition allowing it to look into documents
but not the bank ledger because the US $ 11,000,000.00 deposited by Domsat to Westmont Bank is
covered by R.A. 6426 or the Bank Secrecy Law. GSIS now filed a petition for certiorari in the Supreme
Court for the decision of CA allowing the quashal by the RTC of a subpoena for the production of bank
ledger.
Issue:
Whether or not the deposited US $ 11,000,000.00 by Domsat, Inc. to Westmont Bank is covered by R.A.
6426 as what The Banks contend or it is covered by R.A. 1405 as what GSIS contends.
Held:
The Supreme Court ruled in favor of R.A. 6426 and thereby AFFIRMING the decision of Court of
Appeals. R.A. 1405 was enacted on 1955 while R.A. 6426 was enacted on 1974. These two laws both
support the confidentiality of bank deposits. There is no conflict between them. Republic Act No. 1405
was enacted for the purpose of giving encouragement to the people to deposit their money in banking
institutions and to discourage private hoarding so that the same may be properly utilized by banks in
authorized loans to assist in the economic development of the country. It covers all bank deposits in the
Philippines and no distinction was made between domestic and foreign deposits. Thus, Republic Act No.
1405 is considered a law of general application. On the other hand, Republic Act No. 6426 was intended
to encourage deposits from foreign lenders and investors. It is a special law designed especially for
foreign currency deposits in the Philippines. A general law does not nullify a specific or special law.
Generalia specialibus non derogant. Therefore, it is beyond cavil that Republic Act No. 6426 applies in

this case. Intengan v. Court of Appeals affirmed the above-cited principle and categorically declared that
for foreign currency deposits, such as U.S. dollar deposits, the applicable law is Republic Act No. 6426.In
said case, Citibank filed an action against its officers for persuading their clients to transfer their dollar
deposits to competitor banks. Bank records, including dollar deposits of petitioners, purporting to
establish the deception practiced by the officers, were annexed to the complaint. Petitioners now
complained that Citibank violated Republic Act No. 1405. Supreme Court ruled that since the accounts in
question are U.S. dollar deposits, the applicable law therefore is not Republic Act No. 1405 but Republic
Act No. 6426.

Intengan v. Court of Appeals, 377 SCRA 63 (2002)


Facts:

Citibank filed a complaint for violation of section 31 in relation to section 144 of the Corporation Code
against two(2) of its officers, Dante L. Santos and Marilou Genuino for allegedly managing and causing
existing bank clients/depositors to divert their money from Citibank to products offered by other
companies that were commanding higher rate of yields.-This was done by transferring bank clients
monies to Torrance Development Corporation and Global Pacific Corporation, two companies in which
they have financial interests, who in turn placed the monies of the bank clients in securities, shares of
stock and other certificates. Out of these transactions, they both derived substantial financial gains.-When
these anomalous/ highly irregular activities were discovered Citibank filed a complaint for violation of
Sec. 31of the Corporation Code against Santos and Genuino. Documents were presented to substantiate
the case, which included documents pertaining to US dollar deposits of Intengan, Neri and Brawner.-As
an incident thereto, Intengan et al., filed their respective motions for the exclusion and physical
withdrawal of their bank records that were attached.-Thereafter the Provincial Prosecutor directed the
filing of information against Officers of Citibank for violation of RA1405.-On appeal, DOJ secretary
ordered the withdrawal of the information. Hence, this petition.
Issue:
Whether or not Respondents are liable for violation of Secrecy of Bank Deposits Act, RA 1405.
Held:
A case for violation of Republic Act No. 6426 should have been the proper case brought against private
respondents. Private respondents Lim and Reyes admitted that they had disclosed details of petitioners
dollar deposits without the latters written permission.
It does not matter if that such disclosure was necessary to establish Citibanks case against Dante L.
Santos and Marilou Genuino. Lims act of disclosing details of petitioners bank records regarding their
foreign currency deposits, with the authority of Reyes, would appear to belong to that species of criminal
acts punishable by special laws, called malum prohibitum.
Ordinarily, the dismissal of the instant petition would have been without prejudice to the filing of the
proper charges against private respondents. The matter would have ended here were it not for the
intervention of time, specifically the lapse thereof. So as not to unduly prolong the settlement of the case,
we are constrained to rule on a material issue even though it was not raised by the parties. We refer to the
issue of prescription.-The filing of the complaint or information in the case at bar for alleged violation of
Republic Act No. 1405 did not have the effect of tolling the prescriptive period. For it is the filing of the
complaint or information corresponding to the correct offense which produces that effect. It may well be
argued that the foregoing disquisition would leave petitioners with no remedy in law. We point out,
however, that the confidentiality of foreign currency deposits mandated by Republic Act No. 6426, as
amended by Presidential Decree No. 1246, came into effect as far back as 1977.
Hence, ignorance thereof cannot be pretended. On one hand, the existence of laws is a matter of
mandatory judicial notice; on the other, ignorantia legis nonexcusat.

Even during the pendency of this appeal, nothing prevented the petitioners from filing a complaint
charging the correct offense against private respondents. This was not done, as everyone involved was
content to submit the case on the basis of an alleged violation of Republic Act No. 1405 (Bank Secrecy
Law), however, incorrectly invoked.

China Banking Corporation and Tan Kim Liong vs. Hon. Wenceslao Ortega et. alG.R. No. L-34964
31 January 1973Makalintal, J.:

Facts:
Tan Kim Liong was ordered to inform the Court whether or not there is a deposit in the China Banking
Corporation of defendant B & B Forest Development Corporation, and if there is any deposit, to hold the
same intact and not allow any withdrawal until further order from the Court. Petitioners in this case refuse
to comply with a court process garnishing the bank deposit of a judgment debtor by invoking the
provisions of Republic Act No. 1405 ( Secrecy of Bank Deposits Act) which allegedly prohibits the
disclosure of any information concerning to bank deposits.
Issue:
Whether or not a banking institution may validly refuse to comply with a court processes garnishing the
bank deposit of a judgment debtor, by invoking the provisions of Republic Act No. 1405.
Held:
No. The lower court did not order an examination of or inquiry into deposit of B & BForest Development
Corporation, as contemplated in the law. It merely required Tan Kim Liong to inform the court whether or
not the defendant B & B Forest Development Corporation had a deposit in the China Banking
Corporation only for the purposes of the garnishment issued by it, so that the bank would hold the same
intact and not allow any withdrawal until further order. It is sufficiently clear that the prohibition against
examination of or inquiry into bank deposit under RA 1405 does not preclude its being garnished to
insure satisfaction of a judgment. Indeed there is no real inquiry in such a case, and the existence of the
deposit is disclosed the disclosure is purely incidental to the execution process. WHEREFORE, the orders
of the lower court dated March 4 and 27, 1972, respectively, are hereby affirmed, with costs against the
petitioners-appellants.

RCBC v. De Castro, 168 SCRA 49 (1988)


Facts:

In an action for recovery of unpaid tobacco deliveries, Phil. Virginia Tobacco Administration was ordered
to pay BADOC Planters Inc. within 48 hours. Upon Motion of BADOC, a writ of execution was issued.Accordingly, Special sheriff Faustino Rigor issued a notice of garnishment addressed to the Gen. Manager
and/or cahier of Rizal Banking Corporation. Upon receipt of such notice RCBC duly informed PVTA
thereof, to enable the latter to take the necessary steps for its protection. On the very next day, however,
RCBC was served with the order requiring it to deliver in check the amount garnished to the designated
sheriff and sheriff in turn, to cash the check and deliver the amount to judgment creditor. RCBC complied
and delivered a certified check.-PVTA filed a motion for reconsideration-BADOC failed to appear on the
scheduled dates of hearing. The case was dismissed for failure to prosecute and BADOC and RCBC were
ordered to jointly and severally restore the account of PVTA with RCBC.-Only RCBC filed a petition for
review of the order of CFI.
Issue:
Whether or not the bank should be held solidarily liable with the judgment creditor for reimbursement of
the garnished funds delivered to the sheriff who in turn delivered it to the judgment creditor in
compliance with a court order.
Held:
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 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. [Article1249, Civil Code.]-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- 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.
FIRST DIVISION

LEIDEN E.
FERNANDEZ,
GLORIA
B.
ADRIANO, EMELDA A. NEGAPATAN, JESUS
P. TOMONGHA, ELEONOR A. QUIANOLA,
ASTEMA
C.
CAMPO,
FLORIDA
VILLACERAN, FLORIDA B. TALLEDO AND
BRENDA GADIANO,
Petitioners,

G.R. No. 138967


Present:
PUNO, C.J., Chairperson,
SANDOVAL-GUTIERREZ,
CORONA,
AZCUNA, and
GARCIA, JJ.

- versus Promulgated:
NICASIO C. ANION, the Labor Arbiter of the
April 24, 2007
Regional Arbitration Branch VII-Cebu City;
MARGUERITE LHUILLIER; and ALVAREZ
CAETE LOPEZ PANGANDOYON AHAT &
PAREDES LAW OFFICES, represented by
ATTY. WILFREDO S. PANGANDOYON,
JR.,
Respondents.
x-----------------------------------------------------------------------------------x
DECISION
GARCIA, J.:
The instant petition is a proceeding for contempt in connection with the execution of a final and
executory Decision[1] of this Court in G.R. No. 105892, entitled Leiden E. Fernandez, et al., v. National
Labor Relations Commission, et al., a labor case involving the illegal dismissal of herein petitioners by
respondent Marguerite Lhuillier from their employment at Agencia Cebuana-H. Lhuillier Pawnshop
(Agencia Cebuana, hereafter), of which the latter is the sole proprietor. Via the present recourse,
petitioners pray the Court to hold the respondents guilty of civil and criminal contempts for failure to
comply with and implement the Decision of the Court in G.R. No. 105892. They also seek the inhibition
of respondent Labor Arbiter Nicasio C. Anion from taking part in further execution proceedings relative
to the same case, and request that a final computation be made by the Court of the exact amount of the
monetary awards due them under the same Decision.
Stripped to the bare essentials, the material facts briefly stated as follows:
In 1990, petitioners filed their respective complaints against respondent Marguerite Lhuillier
and/or Agencia Cebuana with the Regional Arbitration Branch VII, Cebu City, for illegal dismissal,
service incentive pay, reinstatement with full back wages, and damages. Their complaints were

consolidated and assigned to then Labor Arbiter Gavino Velasquez, Jr. who, in a decision [2] dated August
30, 1991, found for the petitioners, to wit:
WHEREFORE, judgment is hereby rendered in favor of the complainants
[petitioners] and against the respondent. The respondent is hereby ordered:
1.
To reinstate the complainants to their respective position at the
Agencia Cebuana with full back wages without qualifications; if reinstatement is
not feasible, for one reason or another, to pay to the complainants their respective
separation pay, service incentive leave pay with full back wages without
qualification computed hereunder as follows:
xxx

xxx

xxx

2.
To pay to all the complainants the amount of P100,000.00 for moral
damages and the amount of another P100,000.00 for exemplary damages, plus
the amount of P98,018.25 as attorneys fees representing 10% of the total award
and the amount of P30,000.00 for litigation expenses.
Claiming denial of due process, respondent Marguerite Lhuillier appealed to the National Labor
Relations Commission (NLRC), in connection with which she filed a cash bond of P748,411.34. In a
decision dated March 11, 1992, the NLRC vacated the decision of Labor Arbiter Velasquez, Jr. and
remanded the case to the Regional Arbitration Branch VII, Cebu City, for further proceedings.
Following the NLRCs denial of their motion for reconsideration, petitioners went to this Court
on a petition for certiorari in G.R. 105892.
In a Decision[3] promulgated on January 28, 1998, the Court granted the certiorari petition,
reversed and set aside the assailed decision and resolution of the NLRC and reinstated with modifications
the decision of Labor Arbiter Velasquez, Jr., thus:

WHEREFORE, the petition is hereby GRANTED and the assailed Decision and
Resolution are REVERSED and SET ASIDE. The labor arbiters decision
is REINSTATED withMODIFICATIONS, such that the award of separation pay is deleted
and the service incentive leave pay is computed from December 16, 1975 up to the
petitioners actual reinstatement. Full back wages, including the accrued thirteenth
month pay, are also awarded to the nine petitioners - - Leiden Fernandez, Brenda
Gadiano, Gloria Adriano, Emelia Negapatan, Jesus Tomongha, Eleonor
Quianola, Asteria Campo, Florida Villaceran and Florida Talledo - - from the date of
their illegal dismissal to the time of their actual reinstatement. Petitioners Lim and
Canonigo, whom we find to have voluntarily resigned, are not entitled to any benefit.
SO ORDERED.

On April 28, 1998, the Decision became final and executory and an Entry of Judgment was made
thereon in the Book of Entries of Judgment.
What transpired next lies at the core of the instant petition for contempt.
On April

8,

1999,

herein

public

respondent

Labor

Arbiter

Nicasio

C.

Anion,

[4]

by way enforcing this Courts Decision in G.R. No. 105892, issued a writ of execution commanding the
Deputy Sheriff to:
x x x REINSTATE the complainants [petitioners] at the respondent Agencia
Cebuana and to proceed to the premises of the respondent located at Calderon St., Cebu
City or wherever the same could be found and collect from the respondent the sum of
P3,505,092.33 representing complainants award plus execution fee of P34,550.92 and the
deposit fee of P17,535.46 or a total sum of P3,556,178.71 and thereafter turn over the
said sum to this Office for appropriate disposition. Should you fail to collect said sum in
cash, you are hereby authorized to cause the satisfaction of the same on the movable or
immovable properties of the respondent not exempt from execution.

On April 15 and 16, 1999, the Deputy Sheriff, garnished the Citibank and Metrobank accounts of
respondent Marguerite Lhuillier and levied on a parcel of land belonging to her located in Mandaue City.
On April

20,

1999,

petitioners

filed

with

the

same

Regional Arbitration

Branch

VII, Cebu City, a motion for the release to them of respondents cash bond earlier posted by her in
connection with her appeal to the NLRC from the adverse decision of Labor Arbiter Velasquez, Jr. On the
very same day, respondent Labor Arbiter Anion issued an Order directing the release of the cash bond to
the petitioners. Petitioners received the amount of P748,411.34.
Then, on May 14, 1999, respondents Alvarez Caete Lopez Pangandoyon Ahat & Paredes Law
Offices, through respondent Atty. Wilfredo S. Pangandoyon, Jr., filed with Labor Arbiter Nicasio C.
Anion, on behalf of Marguerite Lhuillier, a motion [5] to lift or set aside the writ of garnishment alleging
that the garnished accounts were not in the name of Marguerite Lhuillier alone but were joint accounts
with Christopher Darza and Claudine Darza. The motion further claims that the writ of execution was
directed only againstAgencia Cebuana, hence, not even Marguerite Lhuillier can be made personally
liable thereunder.
Petitioners vigorously opposed the motion to lift, arguing that respondents Alvarez Caete Lopez
Pangandoyon Ahat & Paredes Law Offices have no legal personality to represent Margruerite Lhuillier as
they are not her counsels on record. Petitioners point out that the counsels on record for Marguerite
Lhuillier are Atty. Amadeo D. Seno and Atty. Luis V. Diores and that there had been no proper
substitution of counsel made. Moreover, petitioners claim in the same opposition that the garnished bank

accounts are not joint accounts but are accounts only in the name of Marguerite Lhuillier,
who, contrary to the allegations in the motion, is just as liable under the writ as Agencia Cebuana.
In a resolution dated June 10, 1999, respondent Labor Arbiter Nicasio C. Anion granted the
motion to lift or set aside the writ of garnishment and directed the Deputy Sheriff to enforce this Courts
Decision in G.R. No. 105892 only on the properties of Agencia Cebuana.
On June 21, 1999, petitioners appealed the aforementioned resolution of Labor Arbiter Ainon to
the NLRC. Subsequently, they also filed with this Court the instant petition for civil and criminal
contempt and other disciplinary sanctions; inhibition of the respondent labor arbiter; final
computation of the exact figure of petitioners monetary awards including separation pay; with request
to consolidate petitioners recent appeal filed with the [NLRC] to this instant petition. In
sum, petitioners submit that the collective acts of the public and private respondents constitute contempt
of this Court in that they thwarted the implementation of the final and executory Decision of the Court
in G.R. No. 105892.
First off, it

greatly

saddens

the

Court

that

petitioner

employees,

who

were illegally dismissed way back in 1990 -- seventeen (17) years before this date -- have yet to be
fully compensated for the injustice that had befallen them almost two decades ago despite the final and
executory judgment of this very Court in their favor. It is in the interests of justice, therefore, that the
Court must make conclusive clarifications as to the execution of its final Decision against respondent
Marguerite Lhuillier.
In an individual proprietorship, the owner has unlimited personal liability for all the debts and
obligations of the business.[6] As sole proprietor of Agencia Cebuana, from whose employment the
petitioners were unlawfully removed, Marguerite Lhuillier is the party against whom the Courts final and
executory Decision in G.R. No. 105892 is enforceable. Put differently, Marguerite Lhuillier is personally
liable under the same Decision. Garnishment and levy over her property are proper in the dispensation of
justice.
Be that as it may, we do not find, however, any contumacious act to have been committed by both
the public and private respondents, either individually or collectively. As it were, there was never an
attempt on their part to subvert or hold at bay the final implementation of the executory Decision of the
Court in the main case. Quite the contrary, recognizing the executory character of this Courts Decision in
question, respondent Labor Arbiter Nicasio Anion issued a writ of execution for its implementation. For
their part, the private respondents did not actually or maliciously resist the writ thus issued. What they
opposed was the garnishment of the bank accounts allegedly jointly owned by respondent Marguerite

Lhuillier and two others, not the writ of execution itself. We hold, however, that such accounts, even if
joint as claimed by the private respondents, are subject to garnishment. It is in the nature of joint accounts
that anyone of the depositors has access to the entire funds therein. If, afterwards, there should be
squabbling amongst the supposed joint depositors as to the share of each, they can sort it out amongst
themselves.
We reiterate for the purpose of clarity that private respondent Marguerite Lhuillier is personally
liable under this Courts Decision in dispute. Her co-respondent AgenciaCebuana is a sole proprietorship
without a juridical personality of its own. But while the position taken by the public and private
respondents that the judgment in question is not enforceable against respondent Marguerite Lhuillier, but
solely against Agencia Cebuana is wrong, they are not liable for contempt.
For one, the filing of the respondent law firm of Alvarez Caete Lopez Pangandoyon Ahat &
Paredes Law Offices of its motion to lift the order of garnishment cannot be adjudged contumacious
simply because they do not appear as counsel of record of respondent Marguerite Lhuillier/Agencia
Cebuana. Their engagement to file that particular motion does not appear to be a replacement or
substitution of counsel where the withdrawal or consent of former counsel is required. There was no
intention on their part to replace or substitute the counsels on record of Marguerite Lhuillier and/or
Agencia Cebuana. For sure, the services of the counsels on record were never terminated. In this light, we
are inclined to believe that the engagement of the law firm of Alvarez Caete Lopez Pangandoyon &
Paredes Law Offices appears to have been on collaborative effort basis. Besides, it is settled rule in our
jurisdiction that a lawyer is presumed to be properly authorized to represent any cause in which he
appears.[7] It is hard to imagine that the respondent law firm who has no personal interest in the case
would fight for and defend a case with persistence and vigor if it had not been authorized or employed by
the party concerned.[8] Besides, it must be stressed that the respondent law firm merely filed a motion to
lift the order of garnishment, an appearance which is basically limited in character.
On the part of the respondent Labor Arbiter, it appears clear to us that it was never his intent to
defy the final and executory Decision of this Court in the main case, much less to delay its enforcement.
He did, after all, issue a writ of execution on April 8, 1999. Not only that. When the petitioners filed their
motion for the release to them of respondents cash bond in connection with her appeal to the NLRC from
the earlier adverse decision of Labor Arbiter Velasquez Jr., respondent Labor Arbiter Nicasio C. Anion
issued an order directing such release that very same day and petitioners did receive the amount
of P748,411.34. Hence, the Decision of this Court in question had, in fact, already been partially
executed. For this reason, we do not see the need for the inhibition of Labor Arbiter Nicasio Anion in the
enforcement process of the same Decision. He is, however, directed with all dispatch to satisfy the final
and executory Decision of this Court in G.R. No. 105892. The petitioners have waited long enough for

the justly deserved fruits of their labor. As regards the companion request of the petitioners for a final
computation by the Court of the exact amounts of monetary awards due them under the same Decision,
the Court is not inclined to venture thereon considering that said computation had already been done by
Labor Arbiter Velasquez, Jr., in his decision of March 11, 1992, as affirmed with modifications by the
Court in its Decision in G.R. No. 105892.
IN VIEW WHEREOF, and finding no contumacious act on the part of the herein respondents,
the instant petition is DISMISSED but the respondent Labor Arbiter Nicasio C. Ainon
is DIRECTED to IMMEDIATELY IMPLEMENT this Courts Decision in G.R. No. 105892.
No Costs.

SO ORDERED.

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.

Van Twest v. Court of Appeals, 230 SCRA 42 (1994)


Facts:
Alexander Van Twest and Gloria Anacleto opened a joint foreign currency savings account with Interbank
to hold funds which "belonged entirely and exclusively" to Van Twest, to "facilitate the funding of certain
business undertakings" of both of them and which funds were to be "temporarily (held) in trust" by Gloria
Anacleto, who "shall turnover the same to plaintiff upon demand."-Van Twest further alleged that

withdrawals from the account were always made through their joint signatures; that when his business
relationship with Gloria Anacleto turned sour, the latter unilaterally closed their joint account, withdrew
the remaining balance of and placed the money in her own personal account with the same bank.
Van Twest thus sought an injunctive writ to prevent Gloria Anacleto from withdrawing the money at any
time and thereby defeat Van Twest's main and pending action.-The RTC granted the writ of preliminary
injunction.CA reversed the order holding that Anacleto is a co-owner of the funds who could unilaterally
control the application thereof.-Hence, petition for review seeking the reinstatement of writ of preliminary
injunction. Anacleto contends for the first time that the personal currency deposit she is maintaining is
exempt from process issued by courts pursuant to RA 6426.
Issue:
Whether or not Anacleto may invoke RA 6426.
Held:
Anacletos contentions do not persuade. Her belated invocation of the provisions of R.A. No. 6426 as
amended violates basic procedural due process by interposing a new matter before this Court the
consideration of which would further delay a final disposition on the propriety of petitioner of petitioner's
application for an injunctive writ.-On a substantive, the Court holds that the privileges extended by the
statute cited by private respondent are actually enjoyed, and are invocable only, by the petitioner, both
because private respondent's transactions fall outside the ambit of the statute, and because petitioner is the
owner of the foreign exchange fund subject of this case. This conclusion is anchored on the consistent and
contemporaneous administrative construction by the Central Bank of the basic statute, as manifested in
the relevant circulars issued by it in implementation of that law, which are entitled to great respect by the
courts.

Fultron Iron Works Co. vs. China Banking Corporation


G.R. No. 32576 November 6, 1930Street, J.:
Facts:
In the month of March, 1921, the plaintiff the Fulton Iron Works Co., of St. Louis, Missouri, sold to the
Binalbagan Estate, Inc. for which the purchaser executed three notes amounting to about $80,000. The
consequently delay in the payments of the notes caused the plaintiff to employ a firm of lawyers in
Manila, of which S. C. Schwarzkopf was then a member. Schwarzkopf opened a new account with the

defendant bank, known as "No. 2account." Meanwhile, the No. 2 account became depleted, but the
manager of the bank, in view, of the funds to Schwarzkopf's credit in the third account conceded to him a
credit in No. 2 account of P25,000. By June 15, 1922, said account became overdrawn to the extend of
P22, 144.39, and it was obvious that the limit of the conceded credit would soon be reached. The manager
of the bank then intervened and requested Schwarzkopf to settle the overdraft. To accomplish this
Schwarkopf merely transferred, by check, the money to his credit in his special account as plaintiff's
attorney-in-fact to the No. 2 account. The amount thus transferred was P61,360.81, and the effect of the
transfer was to absorb the overdraft and place a credit balance of nearly P40,000 in No. 2 account.
Schwarzkopf then purchased a draft on New York in the amount of $15,000, and after some delay
transmitted the same by mail to the plaintiff. This draft cost Schwarzkopf the sum of P30,375.02, and it
was the only remittance ever made by him to his client. On June 23, 1926, an action was instituted In the
Court of First Instance of the City of Manila by the Fulton Iron Works Co. against Schwarzkopf and
China Banking for misappropriation of its funds with the full knowledge and consent of the defendant
bank. Upon hearing the cause, His Honor gave judgment in favor of the plaintiff, the Fulton Iron Works
Co.
Issue:
Whether or not the defendant bank is liable to the plaintiff for the sum of P22,144.39 which was thus
applied to the payment of Schwarzkopf's personal indebtedness resulting from his overdraft in the No. 2
account?
Held:
The appealed judgment must be modified by reducing the amount of the judgment against the bank to the
sum of P22,144.39. When the bank became a party to the application of part of the plaintiff's money to the
satisfaction of the overdraft in No. 2 account, it was directly chargeable with knowledge of the
misappropriation of the fund to the extent of the overdraft and that fact, as we have already said, made the
bank liable. But this rule cannot be extented to subsequent acts of malversation and misappropriation
committed by the fiduciary against the real owner of the fund. Furthermore, it is undeniable that a bank
may incur liability by assisting the fiduciary to accomplish a misappropriation, although the bank does
not actually profit by the misappropriation. The liability of the defendant bank, to the extent recognized in
this decision proceeds upon the fundamental idea that a creditor cannot apply to the obligation of his
debtor money which as he knows belongs to another, without the consent of the latter,
a principle implicit in all law.

Jai-Alai Corp. of the Phil. vs. Bank of the Phil. Islands


G.R. No. L-29432 August 6, 1975 66 SCRA 29
-forgery
Facts:
Petitioner deposited 10 checks in its current account with BPI. The checks which were acquired by
petitioner from Ramirez, a sales agent of the Inter-Island Gas were all payable to Inter-Island Gas Service,
Inc. or order. After the checks had been submitted to Inter-bank clearing, Inter-Island Gas discovered that

all the indorsements made on the checks purportedly by its cashiers were forgeries. BPI thus debited the
value of the checks against petitioner's current account and forwarded to the latter the checks containing
the forged indorsements which petitioner refused to accept.
Issue:
Whether BPI had the right to debit from petitioner's current account the value of the checks with the
forged indorsements.
Held:
BPI acted within legal bounds when it debited the petitioner's account. Having indorsed the checks to
respondent bank, petitioner is deemed to have given the warranty prescribed in Section 66 of the NIL that
every single one of those checks "is genuine and in all respects what it purports to be." Respondent which
relied upon the petitioner's warranty should not be held liable for the resulting loss.
**The depositor of a check as indorser warrants that it is genuine and in all respects what it purports to
be. Having indorsed the checks to respondent bank, petitioner is deemed to have given the warranty
prescribed in Section 66 of the NIL that every single one of those checks " is genuine and in all respects
what it purports to be."

REPUBLIC VS. SANDIGANBAYAN


[ G.R. No. 166859, April 12, 2011 ]
REPUBLIC OF THE PHILIPPINES, PETITIONER, VS. SANDIGANBAYAN (FIRST DIVISION),
EDUARDO M. COJUANGCO, JR., AGRICULTURAL CONSULTANCY SERVICES, INC.,
ARCHIPELAGO REALTY CORP., BALETE RANCH, INC., BLACK STALLION RANCH, INC.,
CHRISTENSEN PLANTATION COMPANY, DISCOVERY REALTY CORP., DREAM
PASTURES, INC., ECHO RANCH, INC., FAR EAST RANCH, INC., FILSOV SHIPPING
COMPANY, INC., FIRST UNITED TRANSPORT, INC., HABAGAT REALTY DEVELOPMENT,

INC., KALAWAKAN RESORTS, INC., KAUNLARAN AGRICULTURAL CORP., LABAYUG


AIR TERMINALS, INC., LANDAIR INTERNATIONAL MARKETING CORP., LHL CATTLE
CORP., LUCENA OIL FACTORY, INC., MEADOW LARK PLANTATIONS, INC., METROPLEX
COMMODITIES, INC., MISTY MOUNTAIN AGRICULTURAL CORP., NORTHEAST
CONTRACT TRADERS, INC., NORTHERN CARRIERS CORP., OCEANSIDE MARITIME
ENTERPRISES, INC., ORO VERDE SERVICES, INC., PASTORAL FARMS, INC., PCY OIL
MANUFACTURING CORP., PHILIPPINE TECHNOLOGIES, INC., PRIMAVERA FARMS,
INC., PUNONG-BAYAN HOUSING DEVELOPMENT CORP., PURA ELECTRIC COMPANY,
INC., RADIO AUDIENCE DEVELOPERS INTEGRATED ORGANIZATION, INC., RADYO
PILIPINO CORP., RANCHO GRANDE, INC., REDDEE DEVELOPERS, INC., SAN ESTEBAN
DEVELOPMENT CORP., SILVER LEAF PLANTATIONS, INC., SOUTHERN SERVICE
TRADERS, INC., SOUTHERN STAR CATTLE CORP., SPADE ONE RESORTS CORP.,
UNEXPLORED LAND DEVELOPERS, INC., VERDANT PLANTATIONS, INC., VESTA
AGRICULTURAL CORP. AND WINGS RESORTS CORP., RESPONDENTS.
[G.R. NO. 169203]
REPUBLIC OF THE PHILIPPINES, PETITIONER, VS. SANDIGANBAYAN (FIRST DIVISION),
EDUARDO M. COJUANGCO, JR., MEADOW LARK PLANTATIONS, INC., SILVER LEAF
PLANTATIONS, INC., PRIMAVERA FARMS, INC., PASTORAL FARMS, INC., BLACK
STALLION RANCH, INC., MISTY MOUNTAINS AGRICULTURAL CORP., ARCHIPELAGO
REALTY CORP., AGRICULTURAL CONSULTANCY SERVICES, INC., SOUTHERN STAR
CATTLE CORP., LHL CATTLE CORP., RANCHO GRANDE, INC., DREAM PASTURES, INC.,
FAR EAST RANCH, INC., ECHO RANCH, INC., LAND AIR INTERNATIONAL MARKETING
CORP., REDDEE DEVELOPERS, INC., PCY OIL MANUFACTURING CORP., LUCENA OIL
FACTORY, INC., METROPLEX COMMODITIES, INC., VESTA AGRICULTURAL CORP.,
VERDANT PLANTATIONS, INC., KAUNLARAN AGRICULTURAL CORP., ECJ & SONS
AGRICULTURAL ENTERPRISES, INC., RADYO PILIPINO CORP., DISCOVERY REALTY
CORP., FIRST UNITED TRANSPORT, INC., RADIO AUDIENCE DEVELOPERS
INTEGRATED ORGANIZATION, INC., ARCHIPELAGO FINANCE AND LEASING CORP.,
SAN ESTEBAN DEVELOPMENT CORP., CHRISTENSEN PLANTATION COMPANY,
NORTHERN CARRIERS CORP., VENTURE SECURITIES, INC., BALETE RANCH, INC.,
ORO VERDE SERVICES, INC., AND KALAWAKAN RESORTS, INC., RESPONDENTS.
[G.R. NO. 180702]
REPUBLIC OF THE PHILIPPINES, PETITIONER, VS. EDUARDO M. COJUANGCO, JR.,
FERDINAND E. MARCOS, IMELDA R. MARCOS, EDGARDO J. ANGARA,* JOSE C.
CONCEPCION, AVELINO V. CRUZ, EDUARDO U. ESCUETA, PARAJA G. HAYUDINI, JUAN
PONCE ENRILE, TEODORO D. REGALA, DANILO URSUA, ROGELIO A. VINLUAN,
AGRICULTURAL CONSULTANCY SERVICES, INC., ANGLO VENTURES, INC.,
ARCHIPELAGO REALTY CORP., AP HOLDINGS, INC., ARC INVESTMENT, INC., ASC
INVESTMENT, INC., AUTONOMOUS DEVELOPMENT CORP., BALETE RANCH, INC.,
BLACK STALLION RANCH, INC., CAGAYAN DE ORO OIL COMPANY, INC.,
CHRISTENSEN PLANTATION COMPANY, COCOA INVESTORS, INC., DAVAO
AGRICULTURAL AVIATION, INC., DISCOVERY REALTY CORP., DREAM PASTURES, INC.,
ECHO RANCH, INC., ECJ & SONS AGRI. ENT., INC., FAR EAST RANCH, INC., FILSOV

SHIPPING COMPANY, INC., FIRST MERIDIAN DEVELOPMENT, INC., FIRST UNITED


TRANSPORT, INC., GRANEXPORT MANUFACTURING CORP., HABAGAT REALTY
DEVELOPMENT, INC., HYCO AGRICULTURAL, INC., ILIGAN COCONUT INDUSTRIES,
INC., KALAWAKAN RESORTS, INC., KAUNLARAN AGRICULTURAL CORP., LABAYOG
AIR TERMINALS, INC., LANDAIR INTERNATIONAL MARKETING CORP., LEGASPI OIL
COMPANY, LHL CATTLE CORP., LUCENA OIL FACTORY, INC., MEADOW LARK
PLANTATIONS, INC., METROPLEX COMMODITIES, INC., MISTY MOUNTAIN
AGRICULTURAL CORP., NORTHEAST CONTRACT TRADERS, INC., NORTHERN
CARRIERS CORP., OCEANSIDE MARITIME ENTERPRISES, INC., ORO VERDE SERVICES,
INC., PASTORAL FARMS, INC., PCY OIL MANUFACTURING CORP., PHILIPPINE RADIO
CORP., INC., PHILIPPINE TECHNOLOGIES, INC., PRIMAVERA FARMS, INC., PUNONGBAYAN HOUSING DEVELOPMENT CORP., PURA ELECTRIC COMPANY, INC., RADIO
AUDIENCE DEVELOPERS INTEGRATED ORGANIZATION, INC., RADYO PILIPINO CORP.,
RANCHO GRANDE, INC., RANDY ALLIED VENTURES, INC., REDDEE DEVELOPERS, INC.,
ROCKSTEEL RESOURCES, INC., ROXAS SHARES, INC., SAN ESTEBAN DEVELOPMENT
CORP., SAN MIGUEL CORPORATION OFFICERS, INC., SAN PABLO MANUFACTURING
CORP., SOUTHERN LUZON OIL MILLS, INC., SILVER LEAF PLANTATIONS, INC.,
SORIANO SHARES, INC., SOUTHERN SERVICE TRADERS, INC., SOUTHERN STAR
CATTLE CORP., SPADE 1 RESORTS CORP., TAGUM AGRICULTURAL DEVELOPMENT
CORP., TEDEUM RESOURCES, INC., THILAGRO EDIBLE OIL MILLS, INC., TODA
HOLDINGS, INC., UNEXPLORED LAND DEVELOPERS, INC., VALHALLA PROPERTIES,
INC., VENTURES SECURITIES, INC., VERDANT PLANTATIONS, INC., VESTA
AGRICULTURAL CORP. AND WINGS RESORTS CORP., RESPONDENTS.
JOVITO R. SALONGA, WIGBERTO E. TAADA, OSCAR F. SANTOS, VIRGILIO M. DAVID,
ROMEO C. ROYANDAYAN FOR HIMSELF AND FOR SURIGAO DEL SUR FEDERATION OF
AGRICULTURAL COOPERATIVES (SUFAC), MORO FARMERS ASSOCIATION OF
ZAMBOANGA DEL SUR (MOFAZS) AND COCONUT FARMERS OF SOUTHERN LEYTE
COOPERATIVE (COFA-SL); PHILIPPINE RURAL RECONSTRUCTION MOVEMENT
(PRRM), REPRESENTED BY CONRADO S. NAVARRO; COCONUT INDUSTRY REFORM
MOVEMENT, INC. (COIR) REPRESENTED BY JOSE MARIE T. FAUSTINO; VICENTE FABE
FOR HIMSELF AND FOR PAMBANSANG KILUSAN NG MGA SAMAHAN NG MAGSASAKA
(PAKISAMA); NONITO CLEMENTE FOR HIMSELF AND FOR THE NAGKAKAISANG
UGNAYAN NG MGA MALILIIT NA MAGSASAKA AT MANGGAGAWA SA NIYUGAN
(NIUGAN); DIONELO M. SUANTE, SR. FOR HIMSELF AND FOR KALIPUNAN NG
MALILIIT NA MAGNINIYOG NG PILIPINAS (KAMMPIL), INC., PETITIONERSINTERVENORS.
Facts:
A complaint was filed against the defendants Eduardo Cojuangco Jr., the ACCRA lawyers, Danilo Ursua
and 71 corporations by the Presidential Commission on Good Government (PCGG) referred here as
Republic of the Philippines with regard to a block of San Miguel Corporation (SMC) stock which were
allegedly bought through the CIIF Holding Companies and funded by the coconut levy fund passing
through the Unicom Oil Mills and directly from UCPB. The coconut levy funds were considered as
government funds since this came from contributions from the coconut farmers with the purpose of
improving and stabilizing the coconut farming industry, however these were said to be privatized under
presidential directives of then Pres. Marcos. Defendant Cojuangco Jr., being close with the Marcoses is

said to have taken undue advantage of his association, influence and connection, embarked upon different
devices and schemes including the use of the ACCRA Lawyers as nominee shareholders and the
defendant corporations as fronts to unjustly enrich themselves at the expense of the Filipino people when
he misused the coconut levy fund, amounting to $150 million, to purchase 33 million shares of the SMC
through the holding companies. Hence with the allegations mentioned and with different cases and issues
which remain unresolved, the block of shares representing 20% of the outstanding capital stock of SMC
remained sequestered by the government.
During the pre-trial brief, the Sandiganbayan sought clarification from the parties, particularly the
Republic, on their respective positions, but at the end it found the clarifications "inadequately"
enlightening. To resolve various pending motions and pleadings, Sandiganbayan lifted and declared the
Writs of Sequestration null and void.
Despite the lifting of the writs of sequestration, since the Republic continues to hold a claim on the shares
which is yet to be resolved, it is hereby ordered that the following shall be annotated in the relevant
corporate books of San Miguel Corporation:
(1) any sale, pledge, mortgage or other disposition of any of the shares of the Defendants Eduardo
Cojuangco, et al. shall be subject to the outcome of this case;
(2) the Republic through the PCGG shall be given twenty (20) days written notice by Defendants
Eduardo Cojuangco, et al. prior to any sale, pledge, mortgage or other disposition of the shares;
(3) in the event of sale, mortgage or other disposition of the shares, by the Defendants Cojuangco, et al.,
the consideration therefore, whether in cash or in kind, shall be placed in escrow with Land Bank of the
Philippines, subject to disposition only upon further orders of this Court; and
(4) any cash dividends that are declared on the shares shall be placed in escrow with the Land Bank of
the Philippines, subject to disposition only upon further orders of this Court. If in case stock dividends
are declared, the conditions on the sale, pledge, mortgage and other disposition of any of the shares as
above-mentioned in conditions 1, 2 and 3, shall likewise apply.
Sandiganbayan denied both Motion for Reconsideration and Motion for Modification but eventually
reduced its resolution deleting the last 2 provisions. Cojuangco, et al. filed a Motion for Authority to Sell
San Miguel Corporation (SMC) shares, praying for leave to allow the sale of SMC shares and
Sandiganbayan granted the motion. Cojuangco, et al. later rendered a complete accounting of the
proceeds from the sale of the Cojuangco block of shares of SMC stock, informing that a total amount of P
4,786,107,428.34 had been paid to the UCPB as loan repayment.
Issue:
Whether or not Sandiganbayan has committed grave abuse of dicretion in:
(a) in lifting the Writ of Sequestrations on the sequestered SMC shares.
(b) in deleting the last two conditions the Sandiganbayan had earlier imposed on the subject shares of
stock.
Held:
Among the WOS issued, only one writ WOS 87-0218 complied with PCGG Rules and Regulations
requirement that the issuance be made by at least two Commissioners. However, even if Writ of
Sequestration No. 87-0218 complied with the requirement that the same be issued by at least two

Commissioners, the records fail to show that it was issued with factual basis or with factual foundation. It
is the absence of a prima facie basis for the issuance of a writ of sequestration and not the lack of
authority of two (2) Commissioners which renders the said writ void ab initio. Thus, being the case, Writ
of Sequestration No. 87-0218 must be automatically lifted. Consequently, the writs of sequestration nos.
86-0062, 86-0069, 86-0085, 86-0095, 86-0096, 86-0097 and 86-0098 must be lifted for not having
complied with the pertinent provisions of the PCGG Rules and Regulations, all of which were issued by
only one Commissioner.
Nor did the Sandiganbayan gravely abuse its discretion in reducing from four to only two the conditions
imposed for the lifting of the WOS. The Sandiganbayan thereby acted with the best of intentions, being
all too aware that the claim of the Republic to the sequestered assets and properties might be prejudiced
or harmed pendente lite unless the protective conditions were annotated in the corporate books of SMC.
Moreover, the issue became academic following the Sandiganbayans promulgation of its decision
dismissing the Republic's Amended Complaint, which thereby removed the stated reason - "the Republic
continues to hold a claim on the shares which is yet to be resolved" - underlying the need for the
annotation of the conditions (whether four or two).

Go vs. BSP
Facts:
Through the present petition for review on certiorari, petitioner assails the decision of the CA. The CA
decision and resolution annulled and set aside the orders of the RTC which granted Gos motion to quash
the Information filed against him. In his petition, Go alleges that the appellate court legally erred in
overturning the trial courts orders. He insists that the Information failed to allege the acts or omissions
complained of with sufficient particularity to enable him to know the offense being charged; to allow him
to properly prepare his defense; and likewise to allow the court to render proper judgment.
Issue:

What is the extent of the right to be informed under Section 15, Article III? What can the accused do if
this right is violated? Can defective information be a ground to dismiss the case?
Held:
Under the Constitution, a person who stands charged of a criminal offense has the right to be informed of
the nature and cause of the accusation against him. Information must allege clearly and accurately the
elements of the crime charged. The case may be dismissed if this right is violated.
Although the information may be defective because the facts charged do not constitute an offense, the
dismissal of the case will not necessarily follow. The Rules specifically require that the prosecution
should be given a chance to correct the defect; the court can order the dismissal only upon the
prosecutions failure to do so.

Central Bank of the Philippines v. CA (1985)


Ponente: Makasiar, C.J.
Topic: Delay (Art. 1169)
Facts:
April 28, 1965 - Island Savings Bank (ISB) approved the loan application for P80,000 of Sulpicio
Tolentino, who, as a security for the loan, also executed a real estate mortgage over his 100-ha land. The
approved loan application called for P80,000 loan, repayable in semi-annual installments for a period of 3
years, with 12% interest.

May 22, 1965 a mere P17,000 partial release of the loan was made by ISB, and Tolentino and his wife
Edita signed a promissory note for P17,000 at 12% annual interest, payable within 3 years from the date
of execution of the contract at semi-annual installments of P3,459.
An advance interest for the P80,000 loan covering a 6-mo period amounting to P4,800was deducted from
the partial release of P17,000, but this was refunded to Tolentino on July 23, 1965, after being informed
by ISB that there was no fund yet available for the release of the P63,000 balance.
Aug. 13, 1965 the Monetary Board of the Central Bank issued Resolution No. 1049, which prohibited
ISB from making new loans and investments, after finding that it was suffering liquidity problems.
June 14, 1968 the Monetary Board issued Resolution No. 967, which prohibited ISB from doing
business in the Philippines, after finding that it failed to put up the required capital to restore its solvency.
Aug. 1, 1968 ISB, in view of non-payment of the P17,000 covered by the promissory note, filed an
application for the extra-judicial foreclosure of the real estate mortgage covering the 100-ha land; and the
sheriff scheduled auction.
Tolentino filed a petition with the CFI for injunction, specific performance or rescission and damages
with preliminary injunction, alleging that since ISB failed to deliver the P63,000 remaining balance of the
loan, he is entitled to specific performance by ordering ISB to deliver it with interest of 12% per annum
from April 28, 1965, and if said balance cannot be delivered, to rescind the real estate mortgage.
CFI issued a TRO enjoining ISB from continuing with the foreclosure of the mortgage, however, after
finding Tolentinos petition unmeritorious, ordered the latter to pay ISB P17,000 plus legal interest and
legal charges and lifting the TRO so the sheriff may proceed with the foreclosure.
CA, on appeal by Tolentino, modified CFIs decision by affirming dismissal of Tolentinos petition for
specific performance, but ruled that ISB can neither foreclose the mortgage nor collect the P17,000 loan.
SC: The parties, in the P80,000 loan agreement, undertook reciprocal obligations, wherein the
obligation/promise of each party is the consideration for that of the other; 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, CC).
When Tolentino executed a real estate mortgage, he signified his willingness to pay the P80,000 loan, and
from such date, the obligation of ISB to furnish the loan accrued. Thus, ISBs delay started on April 28,
1965 and lasted 3 years or when Resolution No. 967 was issued prohibiting ISB from doing further
business, which made it legally impossible from ISB to furnish the P63,000 of the loan.
Resolution No. 1049 cannot interrupt the default of ISB in complying with its obligation to release the
P63,000 balance because it merely prohibited ISB from making new loans and investments, not from
releasing the balance of loan agreements previously contracted.
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; and the mere fact of insolvency of

a debtor is never an excuse for the nonfulfillment of an obligation, but instead, is taken as a breach of
contract.
The fact that Tolentino demanded and accepted the refund of the pre-deducted interest cannot be taken as
a waiver of his right to collect the P63,000 balance. The act of ISB in asking for the advance interest was
improper considering that only P17,000 out of the P80,000 loan was released.
The alleged discovery by ISB of the overvaluation of the loan collateral cannot exempt it from complying
with its obligation to furnish the entire P80,000 loan because bank officials/employees have the obligation
to investigate the existence and valuation of the properties being offered as a loan security before
approving the loan application.
Issues/Held/Ratio
Whether or not the action of Tolentino for specific performance can prosper. NO.
Since ISB was in default under the agreement, Tolentino may choose between specific performance or
rescission, but since ISB is now prohibited from doing further business, the only remedy left is Rescission
only for the P63,000 balance of the loan.
Whether or not Tolentino is liable to pay the P17,000 debt covered by the promissory note. YES.
The bank was deemed to have complied with its reciprocal obligation to furnish a P17,000 loan. The
promissory note gave rise to Tolentinos reciprocal obligation to pay such loan when it falls due and his
failure to pay the overdue amortizations under the promissory note made him a party in default, hence not
entitled to rescission (Art. 1191, CC). ISB has the right to rescind the promissory note, being the
aggrieved party.
Since both parties were in default in the performance of their reciprocal obligations, both are liable for
damages. In case both parties have committed a breach of their reciprocal obligations, the liability of the
first infractor shall be equirably tempered by the courts (Art. 1192, CC). The liability of ISB for damages
in not furnishing the entire loan is offset by the liability of Tolentino for damages (penalties and
surcharges) for not paying his overdue P17,000 debt. Since Tolentino derived some benefit for his use of
the P17,000, he should account for the interest thereon (interest was not included in the offsetting).
Whether or not Tolentinos real estate mortgage can be foreclosed to satisfy the P17,000 if his liability to
pay therefor subsists. NO.
The fact that when Tolentino executed his real estate mortgage, no consideration was then in existence, as
there was no debt yet because ISB 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. When the consideration is subsequent to the mortgage, the latter can take effect only when the
debt secured by it is created as a binding contract to pay. And when there is partial failure of
consideration, the mortgage becomes unenforceable to the extent of such failure. 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.

Since ISB failed to furnish the P63,000 balance, the real estate mortgage of Tolentino became
unenforceable to such extent. P63,000 is 78.75% of P80,000, hence the mortgage covering 100 ha is
unenforceable to the extent of 78.75 ha. The mortgage covering the remainder of 21.25 ha subsists as a
security for the P17,000 debt.
Judgment:
Tolentino is ordered to pay ISB P17,000 plus P41, 210 (12% interest per annum)
In case Tolentino fails to pay, his real estate mortgage covering 21.25 ha shall be foreclosed to satisfy his
total indebtedness
The real estate mortgage covering 78.75 ha is unenforceable and ordered released in favor of Tolentino

HUERTA ALBA RESORT, INC. vs. CA & SYNDICATED MANAGEMENT GROUP, INC.
Facts:
September 1, 2000 Private respondent instituted a civil case as mortgagee-assignee of a loan amounting to
P8.5 million obtained by petitioner from Intercon. In a complaint for judicial foreclosure of mortgage
private respondent sought the foreclosure of (4) parcels of land mortgaged by petitioner to Intercon Fund
Resource, Inc. (Intercon), which was granted by the CA. On September 6, 1994, private respondent was
declared the highest bidder during the auction sale and the Certificate of Sale issued in its favor was
registered on October 21, 1994. in opposition to the Motion for Issuance of Writ of Possession, petitioner
filed a Motion to Compel Private Respondent to Accept Redemption on May 2, 1995 ,invoking for the

very first time its alleged right to redeem subject properties under to Section 78 of R.A. No. 337 (General
Banking Act).
Section 78 of R.A. No. 337 provides that in case of a foreclosure of a mortgage in favor of a bank,
banking or credit institution, whether judicially or extrajudicially, the mortgagor shall have the right,
within one year after the sale of the real estate as a result of the foreclosure of the respective mortgage, to
redeem th
e property.
Issue:
Whether petitioner had the right of redemption or equity of redemption over subject properties
Held:
From the various decisions, resolutions and orders a quo , petitioner has been adjudged to have was only
the equity of redemption over subject properties. The right of redemption in relation to a mortgage understood in the sense of a prerogative to re-acquire mortgaged property after registration of the
foreclosure sale - exists only in the case of theextrajudicial foreclosure of the mortgage. No such right is
recognized in a judicial foreclosure except only where the mortgagee is the Philippine National Bank or a
bank or banking institution. Where a mortgage is foreclosed extrajudicially, Act 3135 grants to the
mortgagor the right of redemption within one (1) year from the registration of the sheriffs certificate
of foreclosure sale. In light of the aforestated facts, it was too late in the day for petitioner to invoke a
right to redeem under Section 78 of R.A.No. 337. Thus, the claim that petitioner is entitled to the
beneficial provisions of the said law - since private respondents predecessor-in-interest is a credit
institution - is in the nature of a compulsory counterclaim which should have been averred in petitioners
answer to the compliant for judicial foreclosure. There then existed only what is known as the equity of
redemption, which is simply the right of the petitioner to extinguish the mortgage and retain ownership of
the property by paying the secured debt within the 90-day period after the judgment became final. There
being an explicit finding on the part of the CA - that the petitioner failed to exercise its equity
of redemption within the prescribed period, redemption can no longer be effected.

Spouses Ricardo Rosales and Erlinda Sibug vs Spouses Alfonso and Lourdes Suba
Facts:
The spouses Ricardo Rosales and Erlinda Sibug were indebted to a certain Felicisimo Macaspac. Later,
Macaspac sued the spouses for their failure to pay. During trial, it was found out that there existed
an equitable mortgage between the spouses and Macaspac. The court ordered the spouses to pay
Macaspac and if they fail to do so, their property shall be foreclosed.
The spouses failed to pay Macaspac hence the court ordered the sale at a public auction of their land in
May 1998. The highest bidder was the spouses Alfonso and Lourdes Suba. In June 1998, the trial court
issued an order confirming the sale made to the spouses Suba. The spouses Rosales then filed a motion

for reconsideration. The trial court ruled against their motion as it ruled that there is no right of
redemption in judicial foreclosures. The Court of Appeals affirmed the decision of the trial court.
Issue:
Whether or not the debtor-mortgagor can exercise the right of redemption in judicial foreclosure.
Held:
No. There is no right of redemption in judicial foreclosure. What can be exercised is equity of
redemption.
Equity of redemption is simply the right of the mortgagor to extinguish the mortgage and retain
ownership of the property by paying the secured debt within the 90-day period after the judgment
becomes final, in accordance with Rule 68 of the Rules of Court, or even after the foreclosure sale but
prior to its confirmation by the court (prior to the courts confirmation of the sale).
In this case, unfortunately, the spouses Rosales never exercised their equity of redemption.
When can equity of redemption be exercised?
The mortgagor may exercise his equity of redemption even beyond the 90-day period from the date of
service of the order, and even after the foreclosure sale itself, provided it be before the order of
confirmation of the sale.
Are there any exceptions to the rule that there is no right of redemption in judicial foreclosure?
Yes, the only exemption is when the mortgagee is the Philippine National Bank or a bank or a banking
institution. In such cases, the mortgagor can exercise the right of redemption.

UCPB vs Spouses Beluso


GR No. 159912, August 17, 2007
Ponente: Chico-Nazario, J.
Facts:
Petition for Review on Certiorari declaring void the interest rate provided in the promissory notes
executed by the respondents Spouses Samuel and Odette Beluso (spouses Beluso) in favor of petitioner
United Coconut Planters Bank (UCPB)

UCPB granted the spouses Beluso a Promissory Notes Line under a Credit Agreement whereby the latter
could avail from the former credit of up to a maximum amount of P1.2 Million pesos for a term ending
on 30 April 1997. The spouses Beluso constituted, other than their promissory notes, a real estate
mortgage over parcels of land in Roxas City, covered by Transfer Certificates of Title No. T-31539 and T27828, as additional security for the obligation. The Credit Agreement was subsequently amended to
increase the amount of the Promissory Notes Line to a maximum of P2.35 Million pesos and to extend the
term thereof to 28 February 1998.
On 30 April 1997, the payment of the principal and interest of the latter two promissory notes were
debited from the spouses Belusos account with UCPB; yet, a consolidated loan for P1.3 Million was
again released to the spouses Beluso under one promissory note with a due date of 28 February 1998. To
completely avail themselves of the P2.35 Million credit line extended to them by UCPB, the spouses
Beluso executed two more promissory notes for a total of P350,000.00. However, the spouses Beluso
alleged that the amounts covered by these last two promissory notes were never released or credited to
their account and, thus, claimed that the principal indebtedness was only P2 Million.
The spouses Beluso, however, failed to make any payment of the foregoing amounts.
On 2 September 1998, UCPB demanded that the spouses Beluso pay their total obligation
of P2,932,543.00 plus 25% attorneys fees, but the spouses Beluso failed to comply therewith. On 28
December 1998, UCPB foreclosed the properties mortgaged by the spouses Beluso to secure their credit
line, which, by that time, already ballooned to P3,784,603.00.
On 9 February 1999, the spouses Beluso filed a Petition for Annulment, Accounting and Damages against
UCPB with the RTC of Makati City.
Trial court declared in its judgment that:
the interest rate used by [UCPB] void
the foreclosure and Sheriffs Certificate of Sale void
UCPB is ordered to return to [the spouses Beluso] the properties subject of the foreclosure
UCPB to pay [the spouses Beluso] the amount of P50,000.00 by way of attorneys fees
UCPB to pay the costs of suit.
Spouses Beluso] are hereby ordered to pay [UCPB] the sum of P1,560,308.00.
8. Court of Appeals affirmed Trial court's decision subject to the modification that defendant-appellant
UCPB is not liable for attorneys fees or the costs of suit.
Issues/Held:
1. Whether or not interest rate stipulated was void
Yes, stipulated interest rate is void because it contravenes on the principle of mutuality of contracts and it
violates the Truth in lending Act.
The provision stating that the interest shall be at the rate indicative of DBD retail rate or as determined
by the Branch Head is indeed dependent solely on the will of petitioner UCPB. Under such provision,
petitioner UCPB has two choices on what the interest rate shall be: (1) a rate indicative of the DBD retail

rate; or (2) a rate as determined by the Branch Head. As UCPB is given this choice, the rate should be
categorically determinable in both choices. If either of these two choices presents an opportunity for
UCPB to fix the rate at will, the bank can easily choose such an option, thus making the entire interest
rate provision violative of the principle of mutuality of contracts.
In addition, the promissory notes, the copies of which were presented to the spouses Beluso after
execution, are not sufficient notification from UCPB. As earlier discussed, the interest rate provision
therein does not sufficiently indicate with particularity the interest rate to be applied to the loan covered
by said promissory notes which is required in TRuth in Lending Act
2. Whether or not Spouses Beluso are subject to 12% interest and compounding interest stipulations even
if declared amount by UCPB was excessive.
Yes. Default commences upon judicial or extrajudicial demand.[26] The excess amount in such a
demand does not nullify the demand itself, which is valid with respect to the proper amount. There being
a valid demand on the part of UCPB, albeit excessive, the spouses Beluso are considered in default with
respect to the proper amount and, therefore, the interests and the penalties began to run at that point. As
regards the award of 12% legal interest in favor of petitioner, the RTC actually recognized that said legal
interest should be imposed, thus: There being no valid stipulation as to interest, the legal rate of interest
shall be charged.[27] It seems that the RTC inadvertently overlooked its non-inclusion in its
computation. It must likewise uphold the contract stipulation providing the compounding of interest. The
provisions in the Credit Agreement and in the promissory notes providing for the compounding of interest
were neither nullified by the RTC or the Court of Appeals, nor assailed by the spouses Beluso in their
petition with the RTC. The compounding of interests has furthermore been declared by this Court to be
legal.
3. Whether or not foreclosure was void
No. The foreclosure proceedings are valid since there was a valid demand made by UCPB upon the
spouses Beluso. Despite being excessive, the spouses Beluso are considered in default with respect to the
proper amount of their obligation to UCPB and, thus, the property they mortgaged to secure such amounts
may be foreclosed. Consequently, proceeds of the foreclosure sale should be applied to the extent of the
amounts to which UCPB is rightfully entitled.

THE CONSOLIDATED BANK (SOLIDBANK) vs. COURT OF APPEALS, GEORGE AND


GEORGE TRADE, INC., GEORGE KING TIM PUA and PUA KE SENG
G.R. No. 91494 July 14, 1995
Justice Quiason

Facts:
Defendant George and George Trade Inc., through defendant George King Tim Pua, obtained a loan of
P300,000.00 from the plaintiff, for which defendant George King Tim Pua executed a promissory note on

behalf of defendant corporation, with defendants George King Tim Pua and Pua Ke Seng as co-makers,
which loan bears an interest of 13.23% per annum.
On April 19, 1979, defendant George and George Trade Inc., through defendant George King Tim Pua,
applied for, and was granted, another loan of P200,000.00 from the plaintiff bank, for which defendant
George King Tim Pua executed a promissory note on behalf of defendant corporation, with defendants
George King Tim Pua and Pua Ke Seng as co-makers, which loan bears an interest of 14% per annum and
is payable on May 21, 1979.
On August 2, 1979, defendant George and George Trade Inc., through defendant George King Tim Pua,
once more secured a loan for P150,000.00, for which defendant George King Tim Pua executed a
promissory note on behalf of defendant corporation, with defendants George King Tim Pua and Pua Ke
Seng as co-makers, which loan bears an interest of 14% per annum and is payable on September 17,
1979.
The three promissory notes covering loans in the corporate account of defendant George and George
Trade Inc. provides also that in case of default of payment, the defendants agree to pay interest at an
increased rate of 14% per annum on the amount due, compounded monthly, until fully paid, as well as an
additional sum equivalent to 10% of the total amount due as and for attorney's fees in addition to
expenses and costs of suit, such amount to bear interest at the rate of 1% per month until paid.
Under the two promissory notes the defendants further bound themselves to pay a penalty at the rate of
3% per annum on the amount due until fully paid. According to petitioner bank, after it had deducted
from the insurance proceeds the entirety of respondent George King Tim Pua's personal account, there
remained of the insurance proceeds the amount of P383,302.42. It then proceeded to apply said amount to
the unpaid loans of respondent George and George Trade, Inc. which amounted to P671,772.22 as of
September 7, 1979, thus leaving a balance of P288,469.80 of the loans.
Hence, Petitioner instituted an action against private respondents for the recovery of the unpaid balances
on the three promissory notes.
Issues:
Whether or not compounded interest are proper.
Whether or not the handling charge imposed by the bank are legal
Held:
No. Decision of the Court of Appeals is AFFIRMED with the MODIFICATION that the amount which
petitioner is ordered to reimburse respondent George King Tim Pua is reduced to THREE THOUSAND
SIX HUNDRED SIXTEEN & 65/100 PESOS (P3,616.65), with legal interest thereon from September 8,
1979 until said amount is fully paid.
Rationale:

All of these loans bore a 14% rate of interest, which was to be compounded monthly, in case of failure on
the part of respondent George King Tim Pua to pay on maturity. In which case, he further undertook to
pay an additional sum equivalent to 10% of the total amount due but in no case less than P200.00 as
attorney's fees. The maturity dates of the loans were extended up to either December 1 or December 5,
1977 and all interests were paid up to March 5, 1978.
The first loan bore an annual interest of 13.23%, which was to be increased to 14% in case of failure to
pay on due date, compounded monthly, until fully paid. An additional amount equivalent to 10% of the
total amount but not less than P200.00 was to be imposed in case of failure to pay on due date as
attorney's fees. The second and third loans bore an interest rate of 14% per annum and carried a penalty of
3% per annum on the amount due in case of failure to pay on the date of maturity. An additional sum
equivalent to 10% of the total amount due, but not less than P200.00, was to be imposed as and for
attorney's fees. Interests were paid on the loans up to their date of maturity.
The 14% interest rate charged by petitioner was within the limits set by Section 3 of the Usury Law, as
amended. The charging of compounded interest has been held as proper as long as the payment thereof
has been agreed upon by the parties. In Mambulao Lumber Company v. Philippine National Bank, 22
SCRA 359 (1968), SC ruled that the parties may, by stipulation, capitalize the interest due and unpaid,
which as added principal shall earn new interest. In the instant case, private respondents agreed to the
payment of 14% interest per annum, compounded monthly, should they fail to pay the principal loan on
the date of maturity.
As
to
handling
charges,
banks
are
authorized
under
Central
Bank
Circular
No. 504 to collect such charges on loans over P500,000.00 with a maturity of 730 days or less at the rate
of 2% per annum, on the principal or the outstanding balance thereof, whichever is lower; 1.75% on loans
over P500,000.00 but not over P1,000,000.00; 1.50% on loans over P1,000,000.00 but not over
2,000,000.00, etc. Section 7 of the same Circular, however, provides that all banks and non-bank financial
intermediaries authorized to engage in quasi-banking functions are required to strictly adhere to the
provisions of Republic Act No. 3765 otherwise known as the "Truth in Lending Act" and shall make the
true and effective cost of borrowing an integral part of every loan contract. The promissory notes signed
by private respondents do not contain any stipulation on the payment of handling charges. Petitioner bank
cannot, therefore, charge private respondents such handling charges.
The payment of penalty is sanctioned by law, although the penalty may be reduced by the courts if it is
iniquitous or unconscionable (Equitable Banking Corporation v. Liwanag, 32 SCRA 293 [1970]). The
payment of penalty was provided for under the terms and conditions of the promissory notes for Loans B
and C of George and George Trade, Inc. The penalty actually imposed, being only 3% per annum of the
unpaid balance of the principal of said Loan B, is considered reasonable and proper.

SAMPAGUITA BUILDERS v PNB


Sampaguita loaned money from PNB. PNB unilaterally increased rates of interest in the loan w/o
informing Sampaguita. PNB claimed they were authorized to do it as there was a clause in the agreement
that they may do so. Besides, Usury law was no longer in force= SC said NO! PNB cannot do so; it will
violate mutuality of contracts
under1308. Besides, SC may intervene when amount of interest isunconscionable.
Facts:

Sampaguita secured a loan from PNB in an aggregate amount of 8M pesos,mortgaging the properties of
Sampaguitas president and chairman of the
board. Sampaguita also executed several promissory notes due ondifferent dates (payment dates).
The first promissory note had 19.5%interest rate. The 2nd and 3rd had 21.5%. a uniform clause therein
permitted PNB to increase the rate within the limits allowed by law at any time depending on whatever
policy it may adopt in the future x x x, without even giving prior notice to petitioners. There was also a
clause in the promissory note that stated that if the same is not paid 2 years after release then it shall be
converted to a medium term loan and the interest rate for such loan would apply. Later on, Sampaguita
defaulted on its payments and failed to comply with obligations on promissory notes. Sampaguita thus
requested for a 90 day extension to pay the loan. Again they defaulted, so they asked for loan
restructuring.
It
partly
paid
the
loan
and
promised
to
pay
the
balance
lateron. AGAIN they failed to pay so PNB extrajudicially foreclosed themortgaged properties. It was sold
for 10M. PNB claimed that Sampaguita owed it 12M so they filed a case in court asking Sampaguita to
pay fordeficiency.RTC found that Sampaguita was automatically entitled to the debt relief package of
PNB and ruled that the latter had no cause of action against the former. CA reversed, saying
Sampaguita was not entitled, thus orderedthem to pay the deficiency Appeal = Went to SC. Sampaguita
claims the loan was bloated so they dont really owe PNB anymore, but it just overcharged them!
Issues/Held:
Whether or not the loan accounts are bloated: YES. There is no deficiency; there isactually an
overpayment of more than 3M based on the computation of the SC.
Whether PNB could unilaterally increase interest rates: NO
Ratio:
Sampaguitas accessory duty to pay interest did not give PNB unrestrained freedom to charge any rate
other than that which was agreed upon. No interest shall be due, unless expressly stipulated in writing. It
would be the zenith of farcicality to specify and agree upon rates that could be subsequently upgraded at
whim by only one party to
the agreement. The unilateral determination and imposition of increased rates isviolative of the
principle of mutuality of contracts ordained in Article 1308of the Civil Code. One-sided impositions do
not have the force of law between the parties, because such impositions are not based on the parties
essential equality. Although escalation clauses are valid in maintaining fiscal stability and retaining the
value of money on long-term contracts, giving respondent an unbridled right to adjust the interest
independently and upwardly would completely take away from petitioners the right to assent to an
important modification in their agreement and would also negate the element of mutuality in their
contracts. The clause cited earlier made the fulfillment of the contracts dependent exclusively upon
the uncontrolled will of respondent and was therefore void. Besides, the pro forma promissory notes
have the character of a contract dadhsion, where the parties do
not bargain on equal footing, the weaker partys [the debtors]participation being reduced to the
alternative to take it or leave it. Circular that lifted the ceiling of interest rates of usury law did not
authorize either party to unilaterally raise the interest rate without theothers consent. The interest ranging
from 26 percent to 35 percent in the statements of account -- must be equitably reduced for being

iniquitous, unconscionable and exorbitant. Rates found to be iniquitous or unconscionable are void, as if
it there were no express contract thereon. Above all, it is undoubtedly against public policy to charge
excessively for the use of money. It cannot be argued that assent to the increases can be implied either
from the June 18, 1991 request of petitioners for loan restructuring or from their lack of response to the
statements of account sent by respondent. Such request does not indicate any agreement to an interest
increase; there can be no implied waiver of a right when there is no clear, unequivocal and decisive
act showing such purpose. Besides, the statements were not letters of information sent to secure their
conformity; and even if we were to presume these as an offer, there was no acceptance.
No one receivinga proposal to modify a loan contract, especially interest -- a vitalcomponent -- is
obliged to answer the proposal. Besides, PNB did not comply with its own stipulation that should the
loan not be paid 2 years after release of money then it shall be converted to a medium term loan.*Court
applied 12% interest rate instead for being a forbearance of money(there were some pieces of
evidence presented by PNB in court that Sampaguita objected to. Lower courts overruled the objections
but SC said the objections were correct and the evidence should not have been admitted. i.e. contract
wasnt signed by the parties, a part of the contract wasnt properly annexed/no reference was made in the
main contract.)In addition to the preceding discussion, it is then useless to labor the point
that the increase in rates violates the impairment clause of theConstitution, because the sole purpose of
this provision is to safeguard the integrity of valid contractual agreements against unwarranted
interference by the State in the form of laws. Private individuals intrusions on interest rates is governed
by statutory enactments like the Civil Code

RCBC vs. Hi-Tri Development Corp. and Luz R. Bakunawa, G.R. No. 192413, June 13, 2012
Facts:
Millan paid the spouses Bakunawa P1,019,514.29 as down payment for the purchase of six (6) lots with
the Spouses Bakunawa giving Millan the Owners Copies of TCTs of said lots.
Due to some obstacles, the sale did not push through; so Spouses Bakunawa rescinded the sale and
offered to return to Millan her down. However, Millan refused to accept back the down payment.
Consequently, the Spouses Bakunawa, through their company, Hi-Tri took out on October 28, 1991, a

Managers Check from RCBC-Ermita in the amount of P 1,019,514.29, payable to Millans company
Rosmil and used this as one of their basis for a complaint against Millan.
The Spouses Bakunawa retained custody of RCBC Managers Check and refrained from cancelling or
negotiating it. Millan was also informed that the Managers Check was available for her withdrawal, she
being the payee.
On January 31, 2003, without the knowledge of Spouses Bakunawa, RCBC reported the "P 1,019,514.29credit existing in favor of Rosmil to the Bureau of Treasury as among its "unclaimed balances" as of
January 31, 2003. On December 14, 2006, the Republic, through the Office of the Solicitor General
(OSG), filed with the RTC the action for Escheat.
On April 30, 2008, Spouses Bakunawa settled amicably their dispute with Millan. Spouses Bakunawa
tried to recover the P1,019,514.29 under Managers Check but they were informed that the amount was
already subject of the escheat proceedings before the RTC.
The trial court ordered the deposit of the escheated balances with the Treasurer and credited in favor of
the Republic. Respondents claim that they were not able to participate in the trial, as they were not
informed of the ongoing escheat proceedings. Later motion for reconsideration was denied.
CA reversed the RTC ruling. CA pronounced that RTC Clerk of Court failed to issue individual notices
directed to all persons claiming interest in the unclaimed balances. CA held that the Decision and Order
of the RTC were void for want of jurisdiction.
Issue:
Whether or not the allocated funds may be escheated in favor of the Republic
Held:
There are sufficient grounds to affirm the CA on the exclusion of the funds allocated for the payment of
the Managers Check in the escheat proceedings.
An ordinary check refers to a bill of exchange drawn by a depositor (drawer) on a bank
(drawee), requesting the latter to pay a person named therein (payee) or to the order of the payee or to the
bearer, a named sum of money. The issuance of the check does not of itself operate as an assignment of
any part of the funds in the bank to the credit of the drawer. Here, the bank becomes liable only after it
accepts or certifies the check. After the check is accepted for payment, the bank would then debit the
amount to be paid to the holder of the check from the account of the depositor-drawer.
There are checks of a special type called managers or cashiers checks. These are bills of exchange
drawn by the banks manager or cashier, in the name of the bank, against the bank itself. Typically, a
managers or a cashiers check is procured from the bank by allocating a particular amount of funds to be
debited from the depositors account or by directly paying or depositing to the bank the value of the check
to be drawn. Since the bank issues the check in its name, with itself as the drawee, the check is deemed
accepted in advance. Ordinarily, the check becomes the primary obligation of the issuing bank and
constitutes its written promise to pay upon demand.

Nevertheless, the mere issuance of a managers check does not ipso facto work as an automatic transfer of
funds to the account of the payee. In case the procurer of the managers or cashiers check retains custody
of the instrument, does not tender it to the intended payee, or fails to make an effective delivery, we find
the following provision on undelivered instruments under the Negotiable Instruments Law applicable:
Sec. 16. Delivery; when effectual; when presumed. Every contract on a negotiable instrument is
incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto. As
between immediate parties and as regards a remote party other than a holder in due course, the delivery, in
order to be effectual, must be made either by or under the authority of the party making, drawing,
accepting, or indorsing, as the case may be; and, in such case, the delivery may be shown to have been
conditional, or for a special purpose only, and not for the purpose of transferring the property in the
instrument. But where the instrument is in the hands of a holder in due course, a valid delivery thereof by
all parties prior to him so as to make them liable to him is conclusively presumed. And where the
instrument is no longer in the possession of a party whose signature appears thereon, a valid and
intentional delivery by him is presumed until the contrary is proved.
Petitioner acknowledges that the Managers Check was procured by respondents, and that the amount to
be paid for the check would be sourced from the deposit account of Hi-Tri. When Rosmil did not accept
the Managers Check offered by respondents, the latter retained custody of the instrument instead of
cancelling it. As the Managers Check neither went to the hands of Rosmil nor was it further negotiated to
other persons, the instrument remained undelivered. Petitioner does not dispute the fact that respondents
retained custody of the instrument.
Since there was no delivery, presentment of the check to the bank for payment did not occur. An order to
debit the account of respondents was never made. In fact, petitioner confirms that the Managers Check
was never negotiated or presented for payment to its Ermita Branch, and that the allocated fund is still
held by the bank. As a result, the assigned fund is deemed to remain part of the account of Hi-Tri, which
procured the Managers Check. The doctrine that the deposit represented by a managers check
automatically passes to the payee is inapplicable, because the instrument although accepted in advance
remains undelivered. Hence, respondents should have been informed that the deposit had been left
inactive for more than 10 years, and that it may be subjected to escheat proceedings if left unclaimed.

Republic vs. CA and Tabangao Realty


Facts:
On January 8, 1991, Tabangao Realty, Inc. filed an application for Original Registration of Title over
three parcels of land.
Applicant Tabangao Realty, Inc. alleged in its application that it acquired the above-mentioned lots by
purchase from its previous owners as evidenced by the corresponding Deeds of Sale; that it is the owner
of all adjoining lots; that it had been in actual possession of the lots since the time it acquired the same
from the previous owners up to the present; and that its possession and occupation as owners including

that of its predecessor-in-interest has been open, peaceful, continuous, adverse to the whole world and in
the concept of an owner.
Tabangao Realty alleged that the plant of the Liquefied Petroleum Gas (LPG) Company is partly erected
on the subject lots which improvements are owned by it (applicant). {There is a lease contract between
LPG and Tabangao}
Should the property registration decree invoked not be allowed, the applicant in the alternative applied for
the benefits under CA No. 141 as amended and thus alleged that together with its predecessors-in-interest
it had been in open, continuous, public, peaceful and adverse possession of the subject lots for more than
30 years.
Geron (Tabangos witness) testified that the applicant-corporation was duly organized and registered with
the Securities and Exchange Commission and is authorized to acquire land by purchase and develop,
subdivide, sell, mortgage, exchange, lease and hold for investment or otherwise, real estate of all kinds.
He also testified that the subject properties in this case were purchased by Tabangao Realty as evidenced
by Deed of Sale and that the taxes of the properties were properly paid by the corporation.
Marasigan corroborated the testimony of Romeo Geron with regard to the ownership, possession and the
status of the lots subject of the application.
Loida Maglinao (from the Bureau of Forest Development) testified that the subject properties are within
the alienable and disposable area of the public domain and no forestry interest is adversely interposed by
the Bureau of Forest Development.
RTC and CA granted the petition of Tabangao. Hence, this appeal by the Republic.
Issue:
Whether or not Tabangao Realty, Inc. has registerable title over three (3) parcels of land situated in
Tabangao, Batangas City applied for.
Held:
NO. The ruling of the CA was erroneous.

There is a presumption that all lands belong to the public domain of the State
An applicant seeking to establish ownership over land must conclusively show that he is the owner
thereof in fee simple, for the standing presumption is that all lands belong to the public domain of the
State, unless acquired from the Government either by purchase or by grant, except lands possessed by an
occupant and his predecessors since time immemorial, for such possession would justify the presumption
that the land had never been part of the public domain or that it had been private property even before the
Spanish conquest.
The land in question is admittedly public

The applicant has no title at all. Its claim of acquisition of ownership is solely based on possession. In
fact, the parcels of land applied for were declared public land by decision of the Cadastral Court. Such
being the case, the application for voluntary registration under P. D. No. 1529 (Property Registration
Decree) is barred by the prior judgment of the Cadastral Court.
The land having been subjected to compulsory registration under the Cadastral Act and declared public
land can no longer be the subject of registration by voluntary application under Presidential Decree No.
1529. The second application is barred by res-judicata. As previously held, "[W]here the applicant
possesses no title or ownership over the parcel of land, he cannot acquire one under the Torrens System of
registration."
There is no sufficient evidence that Tabangao Realty was in open, continuous, exclusive and notorious
possession of the lands for 30 years
Applicant failed to prove specific acts showing the nature of its possession and that of its predecessors in
interest. "The applicant must present specific acts of ownership to substantiate the claim and cannot just
offer general statements which are mere conclusions of law than factual evidence of possession." "Actual
possession of land consists in the manifestation of acts of dominion over it of such a nature as a party
would naturally exercise over his own property."
In other words, facts constituting possession must be duly established by competent evidence.
Hence, the application for registration of the properties must be denied. (Ruled in favor of the Republic.)

SECOND DIVISION

PHILIPPINE DEPOSIT
INSURANCE CORPORATION
(PDIC),
Petitioner,

G.R. No. 176438


Present:
CARPIO, J., Chairperson,
NACHURA,

- versus -

PHILIPPINE COUNTRYSIDE
RURAL BANK, INC., RURAL
BANK OF CARMEN (CEBU),
INC., BANK OF EAST
ASIA(MINGLANILLA, CEBU), INC.,
and PILIPINO RURAL BANK (CEBU), INC.,
Respondents.

PERALTA,
ABAD, and
MENDOZA, JJ.

Promulgated:
January 24, 2011

x ----------------------------------------------------------------------------------------x
DECISION
MENDOZA, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court filed by the Philippine
Deposit Insurance Corporation (PDIC) assailing the September 18, 2006 Decision of the Court of
Appeals-Cebu (CA-Cebu), which granted the petition for injunction filed by respondents Philippine
Countryside Rural Bank, Inc. (PCRBI), Rural Bank of Carmen (Cebu), Inc. (RBCI), Bank of East Asia
(Minglanilla, Cebu), Inc. (BEAI), and Pilipino Rural Bank (Cebu), Inc. (PRBI), all collectively referred to
as Banks. The dispositive portion of the CA-Cebu decision reads:
WHEREFORE, in view of all the foregoing premises, the petition for injunction is
hereby GRANTED. The respondent PDIC is restrained from further conducting investigations or
examination on petitioners-banks without the requisite approval from the Monetary Board.
SO ORDERED.[1]

In a resolution dated January 25, 2007, the CA-Cebu denied petitioners motion for reconsideration
for lack of merit.[2]
THE FACTS
On March 9, 2005, the Board of Directors of the PDIC (PDIC Board) adopted Resolution No.
2005-03-032[3] approving the conduct of an investigation, in accordance with Section 9(b-1) of
Republic Act (R.A.) No. 3591, as amended, on the basis of the Reports of Examination of the Bangko
Sentral ng Pilipinas (BSP) on ten (10) banks, four (4) of which are respondents in this petition for

review. The said resolution also created a Special Investigation Team to conduct the said investigation,
with the authority to administer oaths, to examine, take and preserve testimony of any person relating to
the subject of the investigation, and to examine pertinent bank records.
On May 25, 2005, the PDIC Board adopted another resolution, Resolution No. 2005-05-056,
[4] approving the conduct of an investigation on PCRBI based on a Complaint-Affidavit filed by a
corporate depositor, the Philippine School of Entrepreneurship and Management (PSEMI) through its
president, Jacinto L. Jamero.
On June 3, 2005, in accordance with the two PDIC Board resolutions, then PDIC President and
Chief Executive Officer Ricardo M. Tan issued the Notice of Investigation[5] to the President or The
Highest Ranking Officer of PCRBI.
On June 7, 2005, the PDIC Investigation Team personally served the Notice of Investigation on
PCRBI at its Head Office in Pajo, Lapu-Lapu City.[6]
According to PDIC, in the course of its investigation, PCRBI was found to have granted loans to
certain individuals, which were settled by way of dacion of properties. These properties, however, had
already been previously foreclosed and consolidated under the names of PRBI, BEAI and RBCI.[7]
On June 15, 2005, PDIC issued similar notices of investigation to PRBI[8] and BEAI.[9]
The notices stated that the investigation was to be conducted pursuant to Section 9 (b-1) of the
PDIC Charter and upon authority of PDIC Board Resolution No. 2005-03-032 authorizing the twelve (12)
named representatives of PDIC to conduct the investigation.[10]
The investigation was sought because the Banks were found to be among the ten (10) banks
collectively known as Legacy Banks. The Reports of General and Special Examinations of the BSP as
of June 30, 2004, disclosed, among others, that the Legacy Banks were commonly owned and/or
controlled by Legacy Plans Inc. (now Legacy Consolidated Plans, Inc.), and Celso Gancayco delos
Angles, Jr. and his family.[11]
The notice of investigation was served on PRBI the next day, June 16, 2005.[12]
On June 25, 2005, a separate notice of investigation[13] was served on RBCI. The latter provided
the PDIC Investigation Team with certified copies of the loan documents they had requested, until its
president received an order directing him not to allow the investigation.[14]
Subsequently, PRBI and BEAI refused entry to their bank premises and access to their records and
documents by the PDIC Investigation Team, upon advice of their respective counsels.[15]
On June 16 and 17, 2005, Atty. Victoria G. Noel (Atty. Noel) of the Tiongson & Antenor Cruz Law
Office sent letters to the PDIC[16] informing it of her legal advice to PCRBI and BEAI not to submit to
PDIC investigation on the ground that its investigatory power pursuant to Section 9(b-1) of R.A. No.

3591, as amended(An Act Establishing The Philippine Deposit Insurance Corporation, Defining Its
Powers And Duties And For Other Purposes), cannot be differentiated from the examination powers
accorded to PDIC under Section 8, paragraph 8 of the same law, under which, prior approval from the
Monetary Board is required.
On June 17, 2005, PDIC General Counsel Romeo M. Mendoza sent a reply to Atty. Noel stating
that PDICs investigation power, as distinguished from the examination power of the PDIC under
Section 8 of the same law, does not need prior approval of the Monetary Board.[17] PDIC then urged
PRBI and BEAI not to impede the conduct of PDICs investigation as the same constitutes a violation
of the PDIC Charter for which PRBI and BEAI may be held criminally and/or administratively
liable.[18]
On June 27 and 28, 2005, the Banks, through counsel, sought further clarification from PDIC on its
source of authority to conduct the impending investigations and requested that PDIC refrain from
proceeding with the investigations.[19]
Simultaneously, the Banks wrote to the Monetary Board requesting a clarification on the parameters
of PDICs power of investigation/examination over the Banks and for an issuance of a directive to PDIC
not to pursue the investigations pending the requested clarification.[20]
On June 28, 2005, PRBI and BEAI again received letters from PDIC, dated June 24, 2005, which
appeared to be final demands on them to allow its investigation.[21] PRBI and BEAI replied that letters
of clarification had been sent to PDIC and the Monetary Board.[22] Pending action on such requests,
PDIC was requested to refrain from proceeding with the investigation.[23]
Notwithstanding, on July 11, 2005, the Banks received a letter, dated July 8, 2005, from the PDIC
General Counsel reiterating its position that prior Monetary Board approval was not a pre-requisite to
PDICs exercise of its investigative power.[24]
Not in conformity, on July 28, 2005, the Banks filed a Petition for Declaratory Relief with a Prayer
for the Issuance of a TRO and/or Writ of Preliminary Injunction (RTC Petition) before the Regional Trial
Court of Makati (RTC-Makati) which was docketed as Civil Case No. 05-697.[25]
In the RTC Petition, the Banks prayed for a judgment interpreting Section 9(b-1) of the PDIC
Charter, as amended, to require prior Monetary Board approval before PDIC could exercise its
investigation/examination power over the Banks.[26]
PDIC filed a motion to dismiss alleging that the RTC had no jurisdiction over the said petition since
a breach had already been committed by the Banks when they received the notices of investigation, and
because PDIC need not secure prior Monetary Board approval since examination and investigation
are two different terms.[27]
Later, the Banks withdrew their application for a temporary restraining order (TRO) reasoning that
lower courts cannot issue injunctions against PDIC. Thus, the Banks instituted a petition for injunction

with application for TRO and/or Preliminary Injunction (CA-Manila petition) before the Court of
Appeals-Manila (CA-Manila). The case was docketed as CA-G.R. SP No. 91038.[28]
Even before the CA-Manila could rule on the application for a TRO and/or writ of preliminary
injunction, the RTC-Makati dismissed the petition on the ground that there already existed a breach of law
that isolated the case from the jurisdiction of the trial court.[29]
The Banks filed a motion for reconsideration but it was denied by the RTC for lack of merit.
[30] On February 10, 2006, the Banks filed a notice of appeal[31]which they later withdrew on February
28, 2006.[32]
In view of the dismissal of the RTC-Makati petition, the CA-Manila dismissed the petition for
injunction for being moot and academic. In its Decision, datedFebruary 1, 2006,[33] the CA-Manila
wrote:
What remained for the petitioners to do was to litigate over the breach or violation by ordinary
action, as the circumstances ensuing from the breach or violation warrant. The ordinary action may either
be in the same case, if the RTC permitted the conversion, in which event the RTC may allow the parties
to file such pleadings as may be necessary or proper, pursuant to Sec. 5, Rule 63; or the petitioners may
file another action in the proper court (e.g. including the Court of Appeals, should injunction be among
the reliefs to be sought) upon some cause of action that has arisen from the breach or violation.[34]

Thereafter, on March 14, 2006, the Banks filed their Petition for Injunction with Prayer for Preliminary
Injunction[35] (CA-Cebu Petition) with the CA-Cebu(CA-Cebu).
On March 15, 2006, the CA-Cebu issued a resolution granting the Banks application for a TRO. This
enjoined the PDIC, its representatives or agents or any other persons or agency assisting them or acting
for and in their behalf from conducting examinations/investigations on the Banks head and branch offices
without securing the requisite approval from the Monetary Board of BSP.[36]
During the pendency of the CA-Cebu petition, PDIC filed with this Court a Petition for Certiorari,
Prohibition and Mandamus with Prayer for Issuance of Temporary Restraining Order and/or Writ of
Preliminary Injunction under Rule 65 docketed as G.R. No. 173370.[37] It alleged that the CA-Cebu
committed grave abuse of discretion amounting to lack or excess of jurisdiction in taking cognizance of
the Banks petition, and in issuing a TRO and a writ of preliminary injunction.[38]
On July 31, 2006, this Court issued a resolution dismissing the petition for certiorari in G.R. No.
173370. The Resolution reads:
Considering the allegations, issues and arguments adduced in the petition for certiorari,
prohibition and mandamus with prayer for preliminary injunction and/or restraining order dated 19 July
2006, the Court resolves to DISMISS the petition for failure to sufficiently show that the questioned
resolution of the Court of Appeals is tainted with grave abuse of discretion. Moreover, the petition failed

to conform with Rule 65 and other related provisions of the 1997 Rules of Civil Procedure, as amended,
governing petitions for certiorari, prohibition and mandamus filed with the Supreme Court, since
petitioner failed to submit a verified statement of material date of receipt of the assailed resolution dated
16 May 2006 in accordance with Section 4, Rule 65 in relation to the second paragraph of Section 3, Rule
46. In any event, the petition is premature since no motion for reconsideration of the questioned
resolution of the Court of Appeals was filed prior to the availment of this special civil action and there
are no sufficient allegations to bring the case within the recognized exceptions to this rule.[39]
On September 18, 2006, after both parties had submitted their respective memoranda, the CA-Cebu
rendered a decision granting the writ of preliminary injuction,[40] pertinent portions of which read:
[A]fter undergoing a series of amendments, the controlling law with respect to PDICs power to
conduct examination of banks is-prior approval of the Monetary Board is a condition sine qua non for
PDIC to exercise its power of examination. To rule otherwise would disregard the amendatory law of the
PDICs charter.
The Court is not also swayed by the contention of respondent that what it seeks to conduct is an
investigation and not an examination of petitioners transactions, hence prior approval of the Monetary
Board is a mere surplusage.
The ordinary definition of the words examination and investigation would lead one to
conclude that both pertain to the same thing and there seems to be no fine line differentiating one from the
other. Blacks Law Dictionary defines the word investigate as to examine and inquire into with care
and accuracy; to find out by careful inquisition; examination and the word examination as an
investigation. In Collins Dictionary of Banking and Finance, the word investigation is defined as an
examination to find out what is wrong.
In the case of Anti-Graft League of the Philippines, Inc. vs. Hon. Ortega, et al.,[41] the Supreme
Court using Ballentines Law Dictionary defines an investigation as an inquiry, judicial or otherwise,
for the discovery or collection of facts concerning the matter or matters involved. Such common
definitions would show that there is really nothing to distinguish between these two (2) terms as to
support the PDIC view differentiating Section 9 (b-1) from paragraph 8, Section 8 of the PDIC Charter.
In the realm of the PDIC rules, specifically under Section 3 of PDIC Regulatory Issuance No.
2205-02[42] investigation is defined as: Investigation shall refer to fact-finding examination, study,
inquiry, for determining whether the allegations in a complaint or findings in a final report of examination
may properly be the subject of an administrative, criminal or civil action.
From the foregoing definition alone, it can be easily deduced that investigation and examination are
synonymous terms. Simply stated, investigation encompasses a fact-finding examination. Thus, it is
inconsistent with the rules if respondent PDIC be (sic) allowed to conduct an investigation without the
approval of the Monetary Board.

Moreover, the Court sees that the rationale of the law in requiring a (sic) prior approval from the
Monetary Board whenever an examination or in this case an investigation needs to be conducted by the
PDIC is obviously to ensure that there is no overlapping of efforts, duplication of functions and more
importantly to provide a check and balance to the otherwise unrestricted power of respondent PDIC to
conduct investigations on banks insured by it.
With the foregoing premises, this Court rules that a prior approval from the Monetary Board is necessary
before respondent PDIC can proceed with its investigations on petitioners-banks.[43]
PDIC moved for reconsideration but it was denied in a resolution dated January 25, 2007.[44]
Hence, this petition.
THE ISSUES
I.
WHETHER RESPONDENT BANKS VIOLATED THE RULE AGAINST FORUM SHOPPING WHEN
THEY FILED THE PETITION FOR INJUNCTION BEFORE THE COURT OF APPEALS-CEBU.
II.
WHETHER THE PRONOUNCEMENT OF THE REGIONAL TRIAL COURT OF MAKATI IN THE
PETITION FOR DECLARATORY RELIEF CONSTITUTES RES JUDICATA TO THE PETITION FOR
INJUNCTION IN THE COURT OF APPEALS-CEBU.
III.
WHETHER PETITIONER WAS DEPRIVED OF ITS OPPORTUNITY TO BE HEARD WHEN THE
COURT OF APPEALS-CEBU ISSUED THE WRIT OF INJUNCTION.
IV.
WHETHER THE ISSUES RAISED BY PETITIONERS ARE THE SAME ISSUES RAISED IN G.R.
NO. 173370 WHICH WAS EARLIER DISMISSED BY THIS COURT.
V.
WHETHER THE COURT OF APPEALS ERRED IN FINDING THAT PRIOR APPROVAL OF THE
MONETARY BOARD OF THE BANGKO SENTRAL NG PILIPINAS IS NECESSARY BEFORE THE
PDIC MAY CONDUCT AN INVESTIGATION OF RESPONDENT BANKS.
THE COURTS RULING

I - Whether respondent banks violated the rule against forum shopping when they filed the petition for
injunction before the Court of Appeals-Cebu.

II - Whether the pronouncement of the Regional Trial Court of Makati in the petition for declaratory
relief constitutes res judicata to the petition for injunction in the Court of Appeals-Cebu.
In the recent case of Sameer Oversees Placement Agency, Inc. v. Mildred R. Santos,[45] the Court
discussed the matter of forum shopping:
Forum shopping is defined as an act of a party, against whom an adverse judgment or order has
been rendered in one forum, of seeking and possibly getting a favorable opinion in another forum, other
than by appeal or special civil action for certiorari. It may also be the institution of two or more actions
or proceedings grounded on the same cause on the supposition that one or the other court would make a
favorable disposition. There is forum shopping where the elements of litis pendentia are present, namely:
(a) there is identity of parties, or at least such parties as represent the same interest in both actions; (b)
there is identity of rights asserted and relief prayed for, the relief being founded on the same set of facts;
and (c) the identity of the two preceding particulars is such that any judgment rendered in the pending
case, regardless of which party is successful, would amount to res judicata in the other. It is expressly
prohibited by this Court because it trifles with and abuses court processes, degrades the administration of
justice, and congests court dockets. A willful and deliberate violation of the rule against forum shopping
is a ground for summary dismissal of the case, and may also constitute direct contempt.[46]
Juxtaposing the RTC-Makati, CA-Manila and CA-Cebu petitions, what must be determined here, is
whether the elements of litis pendentia are present between and among these petitions, i.e. whether (a)
there is identity of parties, or at least such parties as represent the same interest in both actions; (b) there
is identity of rights asserted and relief prayed for, the relief being founded on the same set of facts; and (c)
the identity of the two preceding particulars is such that any judgment rendered in the pending case,
regardless of which party is successful, would amount to res judicata in the other.
The first element is clearly present as between the RTC-Makati petition and the CA-Cebu petition. Both
involved the Banks on one hand, and the PDIC on the other.
The second and third elements of litis pendentia, however, are patently wanting. The rights asserted and
reliefs prayed for were different, though founded on the same set of facts. The RTC-Makati Petition was
one for declaratory relief while the CA-Manila Petition was one for injunction with a prayer for
preliminary injunction.
A petition for declaratory relief is filed by any person interested under a deed, will, contract or other
written instrument, or whose rights are affected by a statute, executive order or regulation, ordinance, or
any other governmental regulation, before breach or violation, thereof, to determine any question of
construction or validity arising, and for a declaration of his rights or duties thereunder.[47]

Injunction, on the other hand, is a judicial writ, process or proceeding whereby a party is directed either
to do a particular act, in which case it is called a mandatory injunction, or to refrain from doing a
particular act, in which case it is called a prohibitory injunction. As a main action, injunction seeks to
permanently enjoin the defendant through a final injunction issued by the court and contained in the
judgment.[48]
Clearly, there is a marked difference between the reliefs sought under an action for declaratory relief and
an action for injunction. While an action for declaratory relief seeks a declaration of rights or duties, or
the determination of any question or validity arising under a statute, executive order or regulation,
ordinance, or any other governmental regulation, or under a deed, will, contract or other written
instrument, under which his rights are affected, and before breach or violation, an action for injunction
ultimately seeks to enjoin or to compel a party to perform certain acts.
Moreover, as stated in the RTC-Makati Decision, because the Banks had already breached the provisions
of law on which declaratory judgment was being sought, it was without jurisdiction to take cognizance of
the same. Any judgment rendered in the RTC-Makati petition would not amount to res judicata in the
CA-Manila Petition. Thus, the RTC was correct in dismissing the case, having been bereft of jurisdiction
to take cognizance of the action for declaratory judgment.
As between the CA-Manila and the CA-Cebu petitions, the second and third elements of litis
pendentia are absent. The rights asserted and reliefs prayed for were different, although founded on the
same set of facts.
The CA-Manila Petition is a petition for injunction wherein the Banks prayed that:
1) Immediately upon filing of this Petition, a Writ of Preliminary Injunction and/or Temporary
Restraining Order be issued commanding the respondent and all its officers, employees and agents to
cease and desist from proceeding with the investigations sought to be conducted on the petitioners head
and branch officeswhile the Petition for Declaratory Relief before Branch 58 of the Makati Regional Trial
Court is pending.
2) After due proceedings, judgment be rendered declaring as permanent the Writ of Preliminary
Injunction and/or Temporary Restraining Order prayed for above.
Other equitable reliefs are likewise prayed for.[49]
[Underscoring supplied]

The CA-Cebu Petition, on the other hand, is denominated as a Petition for Injunction With Prayer for Writ
of Preliminary Injunction and/or Restraining Order. The Banks prayed therein that:
1) Upon filing of this Petition, a Writ of Preliminary Injunction and/or Temporary Restraining
Order be issued forthwith, enjoining Respondent PDIC and all its officers, employees and agents to cease
and desist from conducting examinations/investigations on Petitioner Banks head and branch offices

without securing the requisite approval from the Monetary Board of the Bangko Sentral ng Pilipinas, as
required by Sec. 8, Paragraph 8 of the PDIC Charter, as amended;
2) After due proceedings, judgment be rendered declaring as permanent the Writ of Preliminary
Injunction and/or Temporary Restraining Order prayed for above.
Other equitable reliefs are likewise prayed for.[50]
As can be gleaned from the above-cited portions of the CA-Manila and CA-Cebu petitions, the petitions
seek different reliefs.
Therefore, as between and among the RTC Makati, and the CA-Manila and CA-Cebu petitions, there is
no forum shopping.
III - Whether petitioner was deprived of its opportunity to be heard when the Court of Appeals-Cebu
issued the writ of injunction.
PDIC alleges that the CA-Cebu, in issuing the TRO in its March 15, 2006 Resolution, and
subsequently, the preliminary injunction in its May 16, 2006 Resolution, violated the fundamental rule
that courts should avoid issuing injunctive relief which would in effect dispose of the main case without
trial.[51] PDIC argues that a TRO is intended only as a restraint until the propriety of granting a
temporary injunction can be determined, and it goes no further than to preserve
the status until that determination.[52] Moreover, its purpose is merely to suspend proceedings until
such time when there may be an opportunity to inquire whether any injunction should be granted, and it is
not intended to operate as an injunction pendente lite, and should not, in effect, determine the issues
involved before the parties can have their day in court, or give an advantage to either party by proceeding
in the acquisition or alteration of the property the right to which is disputed while the hands of the other
party are tied.[53]
On the other hand, the Banks claim that PDIC was given every opportunity to present its arguments
against the issuance of the injunction.[54] Its active participation in the proceedings negates its assertion
that it was denied procedural due process in the issuance of the writ of injunction.[55] Citing Salonga v.
Court of Appeals,[56] the Banks state that the essence of due process is the reasonable opportunity to be
heard and to submit evidence one may have in support of ones defense,[57] and PDIC was able to do so.
On March 15, 2006, the CA-Cebu issued a resolution granting their prayer for a 60-day TRO, and
requiring PDIC to file its comment.[58] The
latter thereafter filed its Comment ad Cautelam dated March 30, 2006.[59] [Underscoring ours]
On May 16, 2006, the CA-Cebu issued another resolution, this time granting the prayer for a preliminary
injunction and requiring the parties to file their respective memoranda. PDIC thereafter filed its
memorandum dated July 31, 2006.[60]

On September 18, 2006, the CA-Cebu promulgated its Decision granting the Petition for Injunction.
[61] PDIC filed a motion for reconsideration dated October 10, 2006,[62] which was subsequently
denied.
The essence of procedural due process is found in the reasonable opportunity to be heard and submit
ones evidence in support of his defense.[63] The Court finds that procedural due process was observed
by the CA-Cebu. The parties were afforded equal opportunity to present their arguments. In the absence
of any indication to the contrary, the CA-Cebu must be accorded the presumption of regularity in the
performance of their functions. However, as discussed herein, the matter of whether it erred in its
conclusion and issuance of the TRO, preliminary injunction and final injunction is another matter
altogether.
IV Whether the issues raised by petitioner are the same issues raised in G.R. No. 173370 which was
earlier dismissed by this Court.
In G.R. 173370, a petition for certiorari under Rule 65 of the Rules of Court, PDIC alleged that the CACebu committed grave abuse of discretion amounting to lack or excess of jurisdiction in taking
cognizance of the Banks petition, and in issuing a TRO and a writ of preliminary injunction.[64]
In the case at bench, a petition for review under Rule 45, PDICs core contention is that the CA-Cebu
erred in finding that prior approval of the

Monetary Board of the BSP is necessary before it may conduct an investigation of the Banks.
Clearly then, the two petitions were of different nature raising different issues.
G.R. 173370 challenged the CA-Cebus having taken cognizance of the Banks petition and interlocutory
orders on the issuance of a TRO and a writ of preliminary injunction. This case, however, strikes at the
core of the final decision on the merits of the CA-Cebu, and not merely the interlocutory orders. While
both G.R. 173370 and the present case may have been anchored on the same set of facts, that is, the

refusal of the Banks to allow PDIC to conduct an investigation without the prior consent of the Monetary
Board, the issues raised in the two petitions are not identical. Moreover, the disposal of the first case does
not amount to res judicata in this case.
V Whether the Court of Appeals-Cebu erred in finding that prior approval of the Monetary Board of the
Bangko Sentral ng Pilipinas is necessary before the PDIC may conduct an investigation of respondent
banks.
PDIC is of the position that in order for it to exercise its power of investigation, the law requires
that:
(a) The investigation is based on a complaint of a depositor or any other government agency, or
on the report of examination of [the] Bangko Sentral ng Pilipinas (BSP) and/or PDIC; and,
(b) The complaint alleges, or the BSP and/or PDIC Report of Examination contains adverse
findings of, fraud, irregularities or anomalies committed by the Bank and/or its directors, officers,
employees or agents; and,
(c) The investigation is upon the authority of the PDIC Board of Directors.[65]
It argues that when it commenced its investigation on the Banks, all of the aforementioned
requirements were met. PDIC stresses that its power of examination is different from its power of
investigation, in such that the former requires prior approval of the Monetary Board while the latter
requires merely the approval of the PDIC Board.[66] It further claims that the power of examination
cannot be exercised within twelve (12) months from the last examination conducted, whereas the power
of investigation is without limitation as to the frequency of its conduct. It states that the purpose of the
PDICs power of examination is merely to look into the condition of the bank, whereas the power of
investigation aims to address fraud, irregularities and anomalies based on complaints from depositors and
other government agencies or upon reports of examinations conducted by the PDIC itself or by the BSP.
[67]
The Banks, on the other hand, are of the opinion that a holistic reading of the PDIC charter shows
that petitioners power of examination is synonymous with its power of investigation.[68] They cite, as
bases, the law

dictionary definitions, Section 8, Eighth paragraph[69] and Section 9(b-1)[70] of the PDIC Charter, and
Rule 1, Section 3(1) of PDIC Regulatory Issuance No. 2005-02, which defines investigation as follows:
(l) Investigation shall refer to fact-finding examination, study or inquiry for determining whether the
allegations in a complaint or findings in a final report of examination may properly be the subject of an
administrative, criminal or civil action.
The Banks further cite Section X658 of the Manual of Regulations for Banks, which states:
Sec. X658
Examination by the BSP. The term examination shall, henceforth, refer to
an investigation of an institution under the supervisory authority of the BSP to determine compliance with
laws and regulations. It shall include determination that the institution is conducting its business on a safe
and sound basis. Examination requires full and comprehensive looking into the operations and books of
institutions, and shall include, but need not be limited to the following:
a. Determination of the banks solvency and liquidity position;
b. Evaluation of asset quality as well as determination of sufficiency of valuation reserves on loans and
other risk assets;
c. Review of all aspects of bank operations;
d. Assessment of risk management system, including the evaluation of the effectiveness of the bank
managements oversight functions, policies, procedures, internal control and audit;
e. Appraisal of overall management of the bank;
f. Review of compliance and applicable laws, rules and regulations; and any other activities relevant to
the above.
After an evaluation of the respective positions of the parties, the Court is of the view that the
Monetary Board approval is not required for PDIC to conduct an investigation on the Banks.
The disagreement stems from the interpretation of these two key provisions of the PDIC
Charter. The confusion can be attributed to the fact that although investigation and examination are
two separate and distinct procedures under the charter of the PDIC and the BSP, the words seem to be
used loosely and interchangeably.
It does not help that indeed these terms are very closely related in a generic sense. However, while
examination connotes a mere generic perusal or inspection, investigation refers to a more intensive
scrutiny for a more specific fact-finding purpose. The latter term is also usually associated with
proceedings conducted prior to criminal prosecution.

The PDIC was created by R.A. No. 3591 on June 22, 1963 as an insurer of deposits in all banks
entitled to the benefits of insurance under the PDIC Charter to promote and safeguard the interests of the
depositing public by way of providing permanent and continuing insurance coverage of all insured
deposits. It is a government instrumentality that operates under the Department of Finance. Its primary
purpose is to act as deposit insurer, as a co-regulator of banks, and as receiver and liquidator of closed
banks.[71]
Section 1 of the PDIC Charter states:
SECTION 1. There is hereby created a Philippine Deposit Insurance Corporation hereinafter
referred to as the Corporation which shall insure, as herein provided, the deposits of all banks which are
entitled to the benefits of insurance under this Act, and which shall have the powers hereinafter granted.
The Corporation shall, as a basic policy, promote and safeguard the interests of the depositing
public by way of providing permanent and continuing insurance coverage on all insured deposits.
Section 1 of R.A. No. 9576 further provides: An Act Increasing the Maximum Deposit Insurance
Coverage, and in connection therewith, to Strengthen the Regulatory and Administrative Authority, and
Financial Capability of the Philippine Deposit Insurance Corporation (PDIC), amending for this purpose
R.A. No. 3591, as Amended, otherwise known as the PDIC Charter.
SECTION 1. Statement of State Policy and Objectives. - It is hereby declared to be the policy of
the State to strengthen the mandatory deposit insurance coverage system to generate, preserve, maintain
faith and confidence in the countrys banking system, and protect it from illegal schemes and
machinations.
Towards this end, the government must extend all means and mechanisms necessary for the
Philippine Deposit Insurance Corporation to effectively fulfill its vital task of promoting and safeguarding
the interests of the depositing public by way of providing permanent and continuing insurance coverage
on all insured deposits, and in helping develop a sound and stable banking system at all times.
Under its charter, the PDIC is empowered to conduct examination of banks with prior approval of the
Monetary Board:
Eighth To conduct examination of banks with prior approval of the Monetary Board: Provided,
That no examination can be conducted within twelve (12) months from the
last examination date: Provided, however, That the Corporation may, in coordination with the Bangko
Sentral, conduct a special examination as the Board of Directors, by an affirmative vote of a majority of
all its members, if there is a threatened or impending closure of a bank; Provided, further, That,
notwithstanding the provisions of Republic Act No. 1405, as amended, Republic Act No. 6426, as
amended, Republic Act No. 8791, and other laws, the Corporation and/or the Bangko Sentral, may inquire
into or examine deposit accounts and all information related thereto
in case there is a finding of
unsafe or unsound banking practice; Provided, That to avoid overlapping of efforts, the examination shall
maximize the efficient use of the relevant reports, information, and findings of the Bangko Sentral,

which it shall make available to the Corporation; (As amended by R.A. 9302, 12 August 2004, R.A. 9576,
1 June 2009)
xxx. [Underlining supplied]
Section 9(b-1) of the PDIC Charter further provides that the PDIC Board shall have the power to:
POWERS AND RESPONSIBILITIES AND PROHIBITIONS
SECTION 9. xxx
(b) The Board of Directors shall appoint examiners who shall have power, on behalf of the
Corporation to examine any insured bank. Each such examiner shall have the power to make a thorough
examination of all the affairs of the bank and in doing so, he shall have the power to administer oaths, to
examine and take and preserve the testimony of any of the officers and agents thereof, and, to compel the
presentation of books, documents, papers, or records necessary in his judgment to ascertain the facts
relative to the condition of the bank; and shall make a full and detailed report of the condition of the bank
to the Corporation. The Board of Directors in like manner shall appoint claim agents who shall have the
power to investigate and examine all claims for insured deposits and transferred deposits. Each claim
agent shall have the power to administer oaths and to examine under oath and take and preserve testimony
of any person relating to such claim. (As amended by E.O. 890, 08 April 1983; R.A. 7400, 13 April
1992)
(b-1) The investigators appointed by the Board of Directors shall have the power on behalf of the
Corporation to conduct investigations on frauds, irregularities and anomalies committed in banks, based
on reports of examination conducted by the Corporation and Bangko Sentral ng Pilipinas or complaints
from depositors or from other government agency. Each such investigator shall have the power to
administer oaths, and to examine and take and preserve the testimony of any person relating to the
subject of investigation. (As added by R.A. 9302, 12 August 2004)
xxx. [Underscoring supplied]
As stated above, the charter empowers the PDIC to conduct an investigation of a bank and to appoint
examiners who shall have the power to examine any insured bank. Such investigators are authorized to
conduct investigations on frauds, irregularities and anomalies committed in banks, based on an
examinationconducted by the PDIC and the BSP or on complaints from depositors or from other
government agencies.
The distinction between the power to investigate and the power to examine is emphasized by the
existence of two separate sets of rules governing the procedure in the conduct of investigation and
examination. Regulatory Issuance (RI) No. 2005-02 or the PDIC Rules on Fact-Finding Investigation of
Fraud, Irregularities and Anomalies Committed in Banks covers the procedural requirements of the
exercise of the PDICs power of investigation. On the other hand, RI No. 2009-05 sets forth the
guidelines for the conduct of the power of examination.

The definitions provided under the two aforementioned regulatory issuances elucidate on the distinction
between the power of examination and the power of investigation.
Section 2 of RI No. 2005-02 states that its coverage shall be applicable to all factfinding investigations on fraud, irregularities and/or anomalies committed in banks that are conducted by
PDIC based on: [a] complaints from depositors or other government agencies; and/or [b] final reports of
examinations of banks conducted by the Bangko Sentral ng Pilipinas and/or PDIC.
The same issuance states that the Final Report of Examination[72] is one of the three pre-requisites to the
conduct of an investigation, in addition to the authorization of the PDIC Board[73] and a complaint.
[74] Juxtaposing this provision with Section 9(b-1) of the PDIC Charter, since an examination is
explicitly made the basis of a fact-finding examination, then clearly examination and investigation are
two different proceedings. It would obviously defy logic to make the result of an investigation the basis
of the same proceeding. Thus, RI No. 2005-02 defines an investigation as a fact-finding examination,
study or inquiry for determining whether the allegations in a complaint or findings in a final report of
examination may properly be the subject of an administrative, criminal or civil action.[75]
The Banks cite the dictionary definitions of examination and investigation to justify their conclusion
that these terms refer to one and the same proceeding. It is tempting to use these two terms
interchangeably, which practice may be perfectly justified in a purely literary sense. Indeed, a reading of
the PDIC Charter shows that the two terms have been used interchangeably at some point. However,
based on the provisions aforecited, the intention of the laws is clearly to differentiate between the process
of investigation and that of examination.
In 2009, to clarify procedural matters, PDIC released RI No. 2009-05 or the Rules and Regulations on
Examination of Banks. Section 2 thereof differentiated between the two types of examination as follows:
Section 2. Types of Examination
a. Regular Examination - An examination conducted independently or jointly with the BSP. It
requires the prior approval of the PDIC Board of Directors and the Monetary Board (MB). It may be
conducted only after an interval of at least twelve (12) months from the closing date of the last Regular
Examination.
b. Special Examination An examination conducted at any time in coordination with the BSP, by
an affirmative vote of a majority of all the members of the PDIC Board of Directors, without need of
prior MB approval, if there is a threatened or impending bank closure as determined by the PDIC Board
of Directors. [Underscoring supplied]

Section 3 of RI No. 2009-05 provides for the general scope of the PDIC examination:
Section 3. Scope of Examination

The examination shall include, but need not be limited to, the following:
a. Determination of the banks solvency and liquidity position;
b. Evaluation of asset quality as well as determination of sufficiency of valuation reserves on loans
and other risk assets;
c.

Review of all aspects of bank operations;

d. Assessment of risk management system, including the evaluation of the effectiveness of the bank
managements oversight functions, policies, procedures, internal control and audit;
e. Appraisal of overall management of the bank;
f. Review of compliance with applicable banking laws, and rules and regulations, including PDIC
issuances;
g. Follow-through of specific exceptions/ violations noted during a previous examination; and
h.

Any other activity relevant to the above.

Rule 2, Section 1 of PDIC RI No. 2005-02 or the PDIC Rules on Fact-Finding Investigation of Fraud,
Irregularities and Anomalies Committed in Banksprovides for the scope of fact-finding investigations as
follows:
SECTION 1. Scope of the Investigation.
Fact-finding Investigations shall be limited to the particular acts or omissions subject of a complaint or a
Final Report of Examination.

From the above-cited provisions, it is clear that the process of examination covers a wider scope than that
of investigation.
Examination involves an evaluation of the current status of a bank and determines its compliance with the
set standards regarding solvency, liquidity, asset valuation, operations, systems, management, and
compliance with banking laws, rules and regulations.

Investigation, on the other hand, is conducted based on specific findings of certain acts or omissions
which are subject of a complaint or a Final Report of Examination.
Clearly, investigation does not involve a general evaluation of the status of a bank. An investigation
zeroes in on specific acts and omissions uncovered via an examination, or which are cited in a complaint.
An examination entails a review of essentially all the functions and facets of a bank and its operation. It
necessitates poring through voluminous documents, and requires a detailed evaluation thereof. Such a
process then involves an intrusion into a banks records.
In contrast, although it also involves a detailed evaluation, an investigation centers on specific acts of
omissions and, thus, requires a less invasive assessment.
The practical justification for not requiring the Monetary Board approval to conduct an investigation of
banks is the administrative hurdles and paperwork it entails, and the correspondent time to complete those
additional steps or requirements. As in other types of investigation, time is always of essence, and it is
prudent to expedite the proceedings if an accurate conclusion is to be arrived at, as an investigation is
only as precise as the evidence on which it is based. The promptness with which such evidence is
gathered is always of utmost importance because evidence, documentary evidence in particular, is
remarkably fungible. A PDIC investigation is conducted to determine[e] whether the allegations in a
complaint or findings in a final report of examination may properly be the subject of an administrative,
criminal or civil action.[76] In other words, an investigation is based on reports of examination and an
examination is conducted with prior Monetary Board approval. Therefore, it would be unnecessary to
secure a separate approval for the conduct of an investigation. Such would merely prolong the process
and provide unscrupulous individuals the opportunity to cover their tracks.
Indeed, while in a literary sense, the two terms may be used interchangeably, under the PDIC Charter,
examination and investigation refer to two different processes. To reiterate, an examination of banks
requires the prior consent of the Monetary Board, whereas an investigation based on an examination
report, does not.
WHEREFORE, the petition is GRANTED. The Decision and Resolution of the Court of Appeals in CA
G.R. CEB SP. No. 01550, dated September 18, 2006 and January 25, 2007 are REVERSED and SET
ASIDE.
SO ORDERED.

Philippine Deposit Insurance Corporation vs. Citibank


GR NO.170290 April 11, 2012
Mendoza, J.:
Facts:
Petitioner Philippine Deposit Insurance Corporation (PDIC) is a government instrumentality created by
virtue of Republic Act (R.A.) No. 3591, as amended by R.A. No. 9302.
Respondent Citibank, N.A. (Citibank) is a banking corporation while respondent Bank of
America, S.T. & N.A. (BA) is a national banking association, both of which are duly organized and
existing under the laws of the United States of America and duly licensed to do business in
the Philippines, with offices in Makati City.
In 1977, PDIC conducted an examination of the books of account of Citibank. It discovered that
Citibank, in the course of its banking business, from September 30, 1974 to June 30, 1977, received from
its head office and other foreign branches a total of P11,923,163,908.00 in dollars, covered by Certificates
of Dollar Time Deposit that were interest-bearing with corresponding maturity dates. These funds, which
were lodged in the books of Citibank under the account Their Account-Head Office/Branches-Foreign
Currency, were not reported to PDIC as deposit liabilities that were subject to assessment for
insurance. As such, in a letter dated March 16, 1978, PDIC assessed Citibank for deficiency in the sum
of P1,595,081.96.
Similarly, sometime in 1979, PDIC examined the books of accounts of BA which revealed that
from September 30, 1976 to June 30, 1978, BA received from its head office and its other foreign
branches a total of P629,311,869.10 in dollars, covered by Certificates of Dollar Time Deposit that were
interest-bearing with corresponding maturity dates and lodged in their books under the account Due to
Head Office/Branches. Because BA also excluded these from its deposit liabilities, PDIC wrote to BA
on October 9, 1979, seeking the remittance of P109,264.83 representing deficiency premium assessments
for dollar deposits.
Believing that litigation would inevitably arise from this dispute, Citibank and BA each filed a
petition for declaratory relief before the Court of First Instance (now the Regional Trial Court) of Rizal
on July 19, 1979 and December 11, 1979, respectively. In their petitions, Citibank and BA sought a
declaratory judgment stating that the money placements they received from their head office and other
foreign branches were not deposits and did not give rise to insurable deposit liabilities under Sections 3
and 4 of R.A. No. 3591 (the PDIC Charter) and, as a consequence, the deficiency assessments made by
PDIC were improper and erroneous. The cases were then consolidated.
On June 29, 1998, the Regional Trial Court, Branch 163, Pasig City (RTC) promulgated its
Decision in favor of Citibank and BA. Aggrieved, PDIC appealed to the CA which affirmed the ruling of
the RTC in its October 27, 2005 Decision. Hence, this petition.
Issue:
Whether or not a branch of a bank has a separate legal Personality.

Held:
No. A branch has no separate legal personality. This Court is of the opinion that the key to the resolution
of this controversy is the relationship of the Philippine branches of Citibank and BA to their respective
head offices and their other foreign branches.
The Court begins by examining the manner by which a foreign corporation can establish its
presence in the Philippines. It may choose to incorporate its own subsidiary as a domestic corporation, in
which case such subsidiary would have its own separate and independent legal personality to conduct
business in the country. In the alternative, it may create a branch in the Philippines, which would not be a
legally independent unit, and simply obtain a license to do business in the Philippines.
In the case of Citibank and BA, it is apparent that they both did not incorporate a separate
domestic corporation to represent its business interests in the Philippines. Their Philippine branches are,
as the name implies, merely branches, without a separate legal personality from their parent company,
Citibank and BA. Thus, being one and the same entity, the funds placed by the respondents in their
respective branches in the Philippines should not be treated as deposits made by third parties subject to
deposit insurance under the PDIC Charter. The purpose of the PDIC is to protect the depositing public in
the event of a bank closure. It has already been sufficiently established by US jurisprudence and
Philippine statutes that the head office shall answer for the liabilities of its branch. Now, suppose the
Philippine branch of Citibank suddenly closes for some reason. Citibank N.A. would then be required to
answer for the deposit liabilities of Citibank Philippines. If the Court were to adopt the posture of PDIC
that the head office and the branch are two separate entities and that the funds placed by the head office
and its foreign branches with the Philippine branch are considered deposits within the meaning of the
PDIC Charter, it would result to the incongruous situation where Citibank, as the head office, would be
placed in the ridiculous position of having to reimburse itself, as depositor, for the losses it may incur
occasioned by the closure of Citibank Philippines. Surely our law makers could not have envisioned such
a preposterous circumstance when they created PDIC.
Finally, the Court agrees with the CA ruling that there is nothing in the definition of a bank and
a banking institution in Section 3(b) of the PDIC Charter[27] which explicitly states that the head office
of a foreign bank and its other branches are separate and distinct from their Philippine branches
.
There is no need to complicate the matter when it can be solved by simple logic bolstered by
law and jurisprudence. Based on the foregoing, it is clear that the head office of a bank and its branches
are considered as one under the eyes of the law. While branches are treated as separate business units for
commercial and financial reporting purposes, in the end, the head office remains responsible and
answerable for the liabilities of its branches which are under its supervision and control. As such, it is
unreasonable for PDIC to require the respondents, Citibank and BA, to insure the money placements
made by their home office and other branches. Deposit insurance is superfluous and entirely unnecessary
when, as in this case, the institution holding the funds and the one which made the placements are one and
the same legal entity.

[G.R. No. 118917. December 22, 1997]


PHILIPPINE DEPOSIT INSURANCE CORPORATION, petitioner, vs. COURT OF APPEALS,
ROSA AQUERO, GERARD YU, ERIC YU, MINA YU, ELIZABETH NGKAION, MERLY
CUESCANO, LETICIA TAN, FELY RUMBANA, LORNA ACUB, represented by their Attorneyin-Fact, JOHN FRANCIS COTAACO, respondents.
DECISION
KAPUNAN, J.:
Petitioner Philippine Deposit Insurance Corporation (PDIC) seeks the reversal of the decision of the
Court of Appeals affirming with modification the decision of the Regional Trial Court holding petitioner
liable for the value of thirteen (13) certificates of time deposit (CTDs) in the possession of private
respondents.
The facts, as found by the Court of Appeals, are as follows:
On September 22, 1983, plaintiffs-appellees invested in money market placements with the Premiere
Financing Corporation (PFC) in the sum of P10,000.00 each for which they were issued by the PFC
corresponding promissory notes and checks. On the same date (September 22, 1983), John Francis
Cotaoco, for and in behalf of plaintiffs-appellees, went to the PFC to encash the promissory notes and
checks, but the PFC referred him to the Regent Saving Bank (RSB). Instead of paying the promissory
notes and checks, the RSB, upon agreement of Cotaoco, issued the subject 13 certificates of time deposit
with Nos. 09648 to 09660, inclusive, each stating, among others, that the same certifies that the bearer
thereof has deposited with the RSB the sum of P10,000.00; that the certificate shall bear 14% interest per
annum; that the certificate is insured up to P15,000.00 with the PDIC; and that the maturity date thereof is
on November 3, 1983 (Exhs. B, B-1 to B-12).
On the aforesaid maturity dated (November 3, 1983), Cotaoco went to the RSB to encash the said
certificates. Thereat, RSB Executive Vice President Jose M. Damian requested Cotaoco for a deferment
or an extension of a few days to enable the RSB to raise the amount to pay for the same (Exh.
D). Cotaoco agreed. Despite said extension, the RSB still failed to pay the value of the
certificates. Instead, RSB advised Cotaoco to file a claim with the PDIC.
Meanwhile, on June 15, 1984, the Monetary Board of the Central Bank issued Resolution No. 788 (Exh.
2, Records, p. 159) suspending the operations of the RSB. Eventually, the records of RSB were secured
and its deposit liabilities were eventually determined. On December 7, 1984, the Monetary Board issued
Resolution No. 1496 (Exh. 1) liquidating the RSB. Subsequently, a masterlist or inventory of the RSB
assets and liabilities was prepared. However, the certificates of time deposit of plaintiffs-appellees were
not included in the list on the ground that the certificates were not funded by the PFC or duly recorded as
liabilities of RSB.
On September 4, 1984, plaintiffs-appellees filed with the PDIC their respective claims for the amount of
the certificates (Exhs. C, C-1, to C-12). Sabina Yu, James Ngkaion, Elaine Ngkaion and Jeffrey
Ngkaion, who have similar claims on their certificates of time deposit with the RSB, likewise filed their
claims with the PDIC. To their dismay, PDIC refused the aforesaid claims on the ground that the Traders

Royal Bank Check No. 299255 dated September 22, 1983 for the amount of P125,846.07 (Exh. B)
issued by PFC for the aforementioned certificates was returned by the drawee bank for having been
drawn against insufficient funds; and said check was not replaced by the PFC, resulting in the
cancellation of the certificates as indebtedness or liabilities of RSB.[1]
Consequently, on March 31, 1987, private respondents filed an action for collection against PDIC, RSB
and the Central Bank.
On September 14, 1987, the trial court, declared the Central Bank in default for failing to file an answer.
On May 29, 1989, the trial court rendered its decision ordering the defendants therein to pay plaintiffs,
jointly and severally, the amount corresponding to the latters certificates of time deposit.
Both PDIC and RSB appealed. The Central Bank, on the other hand, filed a petition for certiorari,
prohibition and mandamus before the Court of Appeals praying that the writ of execution issued by the
trial court against it be set aside.
On February 8, 1995, the Court of Appeals rendered its decision granting the Central Banks petition but
dismissing the appeals of PDIC and RSB. Hence, this petition by PDIC assigning the following errors:
I
THE CA ERRED IN HOLDING THAT THE SUBJECT CTDS ARE NEGOTIABLE INSTRUMENTS
II
THE CA ERRED INHOLDING THAT THE CTDS WERE ACQUIRED FOR VALUE AND
CONSIDERATION
III
THE CA ERRED WHEN IT HELD THAT BECAUSE THE CTDS STATE THAT THESE WERE
INSURED, PETITIONER SHOULD BE HELD LIABLE FOR THE SAME.
We deal jointly with petitioners first and third assigned errors.
Relying on this Courts ruling in Caltex (Philippines), Inc. v. Court of Appeals and Security Bank and
Trust Company,[2] the Court of Appeals concluded that the subject CTDs are negotiable. Petitioner, on
the other hand, contends that the CTDs are non-negotiable since they do not contain an unconditional
promise or order to pay a sum in money are they made payable to order or bearer, as required by Section
1 of the Negotiable Instruments Law.
Whether the CTDs in question are negotiable or not is, however, immaterial in the present case. The
Philippine Deposit Insurance Corporation was created by law and, as such, is governed primarily by the
provisions of the special law creating it.[3] The liability of the PDIC for insured deposits therefore
is statutory and, under Republic Act No. 3591,[4] as amended, such liability rests upon the existence of
deposits with the insured bank, not on the negotiability or non-negotiability of the certificates evidencing
these deposits.
The authority for this conclusion finds support in decisions by American state courts applying their
respective bank guaranty laws. Invariably, the plaintiffs in these cases argued that the negotiability of the

certificates of deposits in their possession entitled them to be paid out of the bank guaranty fund, a
contention that the courts uniformly rejected.
Thus, the plaintiffs in Fourth Nat. Bank of Wichita v. Wilson[5] argued that:
x x x the court should hold the certificates to be guaranteed because they are negotiable instruments, and
were acquired by the present holders in due course; otherwise it is said certificates of deposit will be
deprived of the quality of commercial paper. Certificates of deposit have been regarded as the highest
form of collateral. They are of wide currency in the banking and business worlds, and are particularly
useful to persons of small means, because they bear interest, and may be readily cashed; therefore to
deprive them of the benefit of the guaranty fund would be a calamity. x x x
The Supreme Court of Kansas, however, found the plaintiffs contention to be without merit, ruling thus:
x x x The argument confuses negotiability of commercial paper with statutory guaranty of deposits. The
guaranty is something extrinsic to all forms of evidence of bank obligation; and negotiability of
instruments has no dependence on existence or nonexistence of the guaranty.
x x x Whatever the status of the plaintiffs may be as holders in due course under the Negotiable
Instruments Law, they cannot be assignees of a deposit which was not made, and cannot be entitled to the
benefit of a guaranty which did not come into existence. x x x
In arriving at the above decision, the Kansas Supreme Court relied on its earlier ruling in American State
Bank v. Foster, [6] which arose from the same facts as the Fourth National Bank case. There, the Court
held:
x x x Even if the plaintiff were to be regarded as an innocent purchaser of the certificates as negotiable
instruments, its situation would be in no wise bettered so far as relate to a claim against the guaranty
fund. The fund protects deposits only. And if no deposit is made, or no deposit within the protection of
the guaranty law, the transfer of a certificate cannot impose a liability on the fund. xxx where a certificate
of deposit is given under such circumstances that it is not protected by the guaranty fund, although that
fact is not indicated by anything on its face, its indorsement to an innocent holder cannot confer that
qualify upon it.
In like fashion did the Supreme Court of Nebraska brush aside a similar contention in State v. Farmers
State Bank:[7]
In this contention we think the appellants fail to distinguish between the liability of the maker of a
negotiable instrument, which rests upon the law pertaining to negotiable paper, and the liability of the
guaranty fund, which is purely statutory. The circumstances under which the guaranty fund may be liable
are entirely apart from the law pertaining to negotiable paper. A holder of a certificate of deposit in a
bank who seeks to hold the guaranty fund liable for its payment must show that the transaction leading up
to the issuance of the certificate was such that the law holds the guaranty fund liable for its payment. x x
x

The Farmers State Bank ruling was reiterated by the Nebraska Supreme Court in State v. Home State
Bank of Dunning[8] and in State v. Kilgore State Bank.[9] The same ruling was adopted by the Supreme
Court of South Dakota in Mildenstein v. Hirning.[10]
In the case at bar, the Court of Appeals initially found the subject CTDs to be negotiable. Subsequently,
however, respondent court deemed the issue immaterial, albeit for entirely different reasons.
x x x Besides, whether the certificates are negotiable or not is of no moment. The fact remains that the
certificates categorically state that their bearer [sic] have a deposit in the RSB; that the same will mature
on November 3, 1993; and that the certificates are insured by PDIC.[11]
We disagree with respondent courts rationale. The fact that the certificates state that the certificates are
insured by PDIC does not ipso facto make the latter liable for the same should the contingency insured
against arise. As stated earlier, the deposit liability of PDIC is determined by the provisions of R.A. No.
3519, and statements in the certificates that the same are insured by PDIC are not binding upon the latter.
x x x The mere fact that a certificate recites on its face that a certain sum has been deposited, or that
officers of the bank may have stated that the deposit is protected by the guaranty law, does not make the
guaranty fund liable for payment, if in fact a deposit has not been made xxx. The banks have nothing to
do with the guaranty fund as such. It is a fund raised by assessments against all state banks, administered
by officers of the state to protect deposits in banks. x x x[12]
We come now to petitioners second assigned error.
In order that a claim for deposit insurance with the PDIC may prosper, the law requires that a
corresponding deposit be placed in the insured bank. This is implicit from a reading of the following
provisions of R.A. 3519:
SECTION 1. There is hereby created a Philippine Deposit Insurance Corporation. xxx which shall insure,
as provided, the deposits of all banks which are entitled to the benefits of insurance under this Act
xxx. (Italics supplied).
xxx
SEC. 10 (a) xxx
xxx
(c) Whenever an insured bank shall have been closed on account of insolvency, payment of the
insured deposits in such bank shall be made by the Corporation as soon as possible xxx. (Italics
supplied.)
A deposit as defined in Section 3(f) of R.A. No. 3591, may be constituted only if money or the equivalent
of money is received by a bank:
SEC. 3. As used in this Act(f) The term deposit means the unpaid balance of money or its equivalent received by a bank in the
usual course of business and for which it has given or is obliged to give credit to a commercial, checking,
savings, time or thrift account or which is evidence by passbook, check and/or certificate of deposit
printed or issued in accordance with Central Bank rules and regulations and other applicable laws,
together with such other obligations of a bank which, consistent with banking usage and practices, the

Board of Directors shall determine and prescribe by regulations to be deposit liabilities of the Bank
xxx. (Italics ours.)
Did RSB receive money or its equivalent when it issued the certificates of time deposit? The Court of
Appeals, in resolving who between RSB and PFC issued the certificates to private respondents, answered
this question in the negative. A perusal of the impugned decision, however, reveals that such finding is
grounded entirely on speculation, and thus, cannot bind this Court: [13]
Equally unimpressive is the contention of PDIC and RSB that the certificates were issued to PFC which
did not acquire the same for value because the check issued by the latter for the certificates bounced for
insufficiency of funds. First, granting arguendo that the certificates were originally issued in favor of
PFC, such issuance could only give rise to the presumption that the amount stated in the certificates have
been deposited to RSB. Had not PFC deposited the amount stated therein, then RSB would have surely
refused to issue the certificates certifying to such fact. Second, why did not RSB demand that PFC pay
the certificates or file a claim against PFC on the ground that the latter failed to pay for the value of the
certificates? It could very well be that the reason why RSB did not run after PFC for payment of the
value of the certificates was because the instruments were issued to the latter by RSB for value or were
already paid to RSB by plaintiffs-appellees. Third, if it is true at the time RSB issued the certificates to
PFC, the instruments were paid for with checks still to be encashed, then why did not RSB specifically
state in the certificates that the validity thereof hinges on the encashment of said check? Fourth, even if it
is true that PFC did not deposit with or pay the RSB the amount stated in the certificates, the latter is not
be such reason freed from civil liability to plaintiffs-appellees. For, by issuing the certificates, RSB
bound itself to pay the amount stated therein to whoever is the bearer upon its presentment for
encashment. Truly, there is no reason to depart from the established principle that were a bank issues a
certificate of deposit acknowledging a deposit made with a third person or an officer of the bank, or with
another bank representing it to be the certificate of the bank, upon which assurance the depositor accepts
it, the bank is liable for the amount of the deposit (Michis, Banks and Banking, Vol. 5A, pp. 48-49, as
cited in the Decision on p. 3 thereof).[14]
Moreover, such finding totally ignores the evidence presented by defendants. Cardola de Jesus, RSB
Deputy Liquidator, testified that RSB received three (3) checks in consideration for the issuance of
several CTDs, including the ones in dispute. The first check amounted to P159,153.93, the
second, P121,665.95, and the third, P125,846.07. In consideration of the third check, private respondents
received thirteen (13) certificates of deposit with Nos. 09648 to 09660, inclusive, with a value
of P10,000.00 each or a total ofP130,000.00. To conform with the value of the third check, CTD No.
09648 was chopped, and only the sum of P5,846.07 was credited in favor of private respondents. The
first two checks made good in the clearing while the third was returned for being drawn against
insufficient funds.
The check in question appears on the records as Exhibit 3 (for Regent),[15] and is described in RSBs
offer of evidence as Traders Royal Bank Check No. 292555 dated September 22, 1983 covering the
amount or P125,846.07 xxx issued by Premiere Financing Corporation.[16] At the back of said check
are the words Refer to Drawer,[17] indicating that the drawee bank (Traders Royal Bank) refused to

pay the value represented by said check. By reason of the checks dishonor, RSB cancelled the
corresponding as evidenced by an RSB ticket dated November 4, 1983.[18]
These pieces of evidence convincingly show that the subject CTDs were indeed issued without RSB
receiving any money therefor. No deposit, as defined in Section 3 (f) of R.A. No. 3591, therefore came
into existence. Accordingly, petitioner PDIC cannot be held liable for value of the certificates of time
deposit held by private respondents.
ACCORDINGLY, the instant petition is hereby GRANTED and the decision of the Court of Appeals
REVERSED. Petitioner is absolved from any liability to private respondents.
SO ORDERED

Philippine Deposit Insurance Corporation vs. Court of Appeals


G.R. No. 126911 April 30, 2003
Carpio-Morales, J.:
Facts:
Prior to May 22, 1997, respondents had 71 certificates of time deposits denominated as "Golden Time
Deposits" (GTD) with an aggregate face value of P1,115,889.96. May 22, 1987, a Friday, the Monetary
Board (MB) of the Central Bank of the Philippines, now Bangko Sentral ng Pilipinas, issued
Resolution 5052 prohibiting Manila Banking Corporation to do business in the Philippines, and placing
its assets and affairs under receivership. The Resolution, however, was not served on MBC until Tuesday
the following week, or on May 26, 1987, when the designated Receiver took over. On May 25, 1987 - the
next banking day following the issuance of the MB Resolution, respondent Jose Abad was at the MBC at
9:00 a.m. for the purpose of pre-terminating the71 aforementioned GTDs and re-depositing the fund
represented thereby into 28 new GTDs in denominations of P40,000.00 or less under the names of herein
respondents individually or jointly with each others Of the 28 new GTDs, Jose Abad pre-terminated 8 and
withdrew the value thereof in the total amount of P320,000.00. Respondents thereafter filed their
claims with the PDIC for the payment of the remaining 20 insured GTDs. February 11, 1988, PDIC paid
respondents the value of 3 claims in the total amount of P120,000.00. PDIC, however, withheld payment
of the 17 remaining claims after Washington Solidum, Deputy Receiver of MBC-Iloilo, submitted a report
to the PDIC that there was massive conversion and substitution of trust and deposit accounts on May 25,
1987 at MBC-Iloilo. Because of the report, PDIC entertained serious reservation in recognizing
respondents' GTDs as deposit liabilities of MBC-Iloilo. Thus, PDIC filed a petition for declaratory relief
against respondents with the RTC of Iloilo City, for a judicial declaration determination of the insurability
of respondents' GTD sat MBC-Iloilo. In their Answer respondents set up a counterclaim against PDIC
whereby they asked for payment of their insured deposits. The Trial Court ordered petitioners to pay the
balance of the deposit insurance to respondents. The Court of Appeals affirmed the decision of the lower
court. Petitioner posits that the trial court erred in ordering it to pay the balance of the deposit insurance to
respondents, maintaining that the instant petition stemmed from a petition for declaratory relief which
does not essentially entail an executory process, and the only relief that should have been granted by the
trial court is a declaration of the parties' rights and duties. As such, petitioner continues, no order of
payment may arise from the case as this is beyond the office of declaratory relief proceedings.
Issue:
Whether or not the trial court order the payment of the balance even if the petition stemmed from a
petition for declaratory relief which does not essentially entail an executor process.
Held:
YES. Without doubt, a petition for declaratory relief does not essentially entail an executory process.
There is nothing in its nature, however, that prohibits a counter claim from being set-up in the same
action. There is nothing in the nature of a special civil action for declaratory relief that prescribes the
filing of a counterclaim based on the same transaction, deed or contract subject of the complaint. A
special civil action is after all not essentially different from an ordinary civil action, which is generally
governed by Rules 1 to 56 of the Rules of Court, except that the former deals with a special subject
matter which makes necessary some special regulation. But the identity between their fundamental nature

is such that the same rules governing ordinary civil suits may and do apply to special civil actions if not
inconsistent with or if they may serve to supplement the provisions of the peculiar rules governing special
laws.

Republic v Cabrini
Facts:
AMLC issued freeze orders against various bank accounts of respondents. The frozenaccounts were
previously found prima facie to be related to the unlawful activities of therespondents. The AMLC filed
with the CA various petitions. It invoked the jurisdiction of the CAin the belief that the power given to the
CA to issue a TRO or writ of injunction against anyfreeze order issued by the AMLC carried with it the
power to extend the effectivity of a freezeorder. The CA disagreed and dismissed the petitions.
Issue:
Which court has jurisdiction to extend the effectivity of a freeze order?
Held:
The amendment by RA 9194 of RA 9160 erased any doubt on the jurisdiction of the CAover the
extension of freeze orders. As the law now stands, it is solely the CA which has theauthority to issue
a freeze
order
as
well
as to
extend
its
effectivity. It
also
has the
exclusive jurisdiction to extend existing freeze orders previously issued by the AMLC vis-
vis accountsand deposits related to money-laundering activities

REPUBLIC OF THE PHILIPPINES, represented by the ANTI-MONEYLAUNDERING


COUNCIL VS. GLASGOW CREDIT ANDCOLLECTION SERVICES, INC. and
CITYSTATE SAVINGS BANK, INC.
Facts:
On July 18, 2003, petitioner filed a complaint for civil forfeiture of assets withthe RTC of Manila against
the bank deposits in account number CS 005-10-000121-5 maintained by GLASGOW in CSBI. The
case was filed pursuant to RA 9160 or theAnti-Money Laundering Act of 2001.On July 21, 2003, the RTC
of Manila issued a 72-hour TRO.
And on August8, 2003 a writ of preliminary injunction was issued. Meanwhile, summons toGLASGOW
was returned unserved as it could no longer be found at its last knownaddress.On October 8, 2003,
petitioner filed a verified omnibus motion for a) issuanceof alias summons and b) leave of court to serve
summons by publication. On October 15, 2003, the trial court directed the issuance of alias summons. No
mention wasmade of the motion for leave of court to serve summons by
publication.On January 30, 2004, the trial court archived the case for failure of theRepublic to serve alias
summons. The Republic filed an ex parte omnibus motion toreinstate the case and resolve the motion for
leave of court to serve summons by publication.
On May 31, 2004, the trial court ordered the reinstatement of the casedirecting the Republic to serve the
alias summons to Glasgow and CSBI within 15days.On July 12, 2004, petitioner received a copy of the
sheriffs return stating thatthe alias summons was returned unserved as GLASGOW was no longer
holdingoffice at the given address since July 2002.On August 11, 2005, petitioner filed a manifestation
and ex parte motion toresolve its motion for leave of court to serve summons by publication.On August
12, 2005, the OSG received a copy of GLASGOWs motion todismiss by way of special appearance
alleging that 1) the court had no jurisdictionover its person as summons had not yet been served on it 2)
the complaint was premature and stated no cause of action and 3) there was failure to prosecute on
the part of the Republic.On October 17, 2005, the trial court dismissed the case on the grounds of
1)improper venue 2) insufficiency of the complaint in form and substance and 3) failureto prosecute and
lifted the writ of preliminary injunction.Petitioner filed a petition for review.
Issue:
Whether or not the complaint for civil forfeiture was properly instituted.
Held:
Sec. 12 (a) of RA 9160 provides two conditions when applying for civilforfeiture:
1. When there is suspicious transaction report or a covered transactionreport deemed suspicious after
investigation by the AMLC;
2. The court has, in a petition filed for the purpose; ordered the seizure of any monetary instrument or
property, in whole or in part, directly or indirectly, related to said report.
The writ of preliminary injuction issued on August 8, 2003 removed account no. CA-005-10-0001215 from the effective control of either GLASGOW or CSBI or their representatives or agents and subjected

it to the process of the court. Since this account was covered by several suspiciousreports and placed
under the control of the trial court upon the issuance of thewrit, the conditions provided in Section 12 (a)
of RA 9160 were satisfied. The petitioner properly instituted the complaint for civil forfeiture

Republic v Judge Eugenio G.R. No. 174629, February 14, 2008


Sec. 2 of the Bank Secrecy Act itself prescribes exceptions whereby these bank accounts may be examined
by any person, government official, bureau or offial; namely when: (1) upon written permission of the
depositor; (2) in cases of impeachment; (3) the examination of bank accounts is upon order of a
competent court in cases of bribery or dereliction of duty of public officials; and (4) the money deposited
or invested is the subject matter of the litigation. Section 8 of R.A. Act No. 3019, the Anti-Graft and
Corrupt Practices Act, has been recognized by this Court as constituting an additional exception to the
rule of absolute confidentiality, and there have been other similar recognitions as well.
Facts:
Under the authority granted by the Resolution, the AMLC filed an application to inquire into or examine
the deposits or investments of Alvarez, Trinidad, Liongson and Cheng Yong before the RTC of Makati,
Branch 138, presided by Judge (now Court of Appeals Justice) Sixto Marella, Jr. The application was
docketed as AMLC No. 05-005. The Makati RTC heard the testimony of the Deputy Director of the
AMLC, Richard David C. Funk II, and received the documentary evidence of the AMLC.[14] Thereafter,
on 4 July 2005, the Makati RTC rendered an Order (Makati RTC bank inquiry order) granting the AMLC
the authority to inquire and examine the subject bank accounts of Alvarez, Trinidad, Liongson and Cheng
Yong, the trial court being satisfied that there existed p]robable cause [to] believe that the deposits in
various bank accounts, details of which appear in paragraph 1 of the Application, are related to the
offense of violation of Anti-Graft and Corrupt Practices Act now the subject of criminal prosecution
before the Sandiganbayan as attested to by the Informations, Exhibits C, D, E, F, and G Pursuant to the
Makati RTC bank inquiry order, the CIS proceeded to inquire and examine the deposits, investments and
related web accounts of the four.[16]
Meanwhile, the Special Prosecutor of the Office of the Ombudsman, Dennis Villa-Ignacio, wrote a letter
dated 2 November 2005, requesting the AMLC to investigate the accounts of Alvarez, PIATCO, and
several other entities involved in the nullified contract. The letter adverted to probable cause to believe
that the bank accounts were used in the commission of unlawful activities that were committed a in
relation to the criminal cases then pending before the Sandiganbayan. Attached to the letter was a
memorandum on why the investigation of the [accounts] is necessary in the prosecution of the above
criminal cases before the Sandiganbayan. In response to the letter of the Special Prosecutor, the AMLC
promulgated on 9 December 2005 Resolution No. 121 Series of 2005,[19] which authorized the executive
director of the AMLC to inquire into and examine the accounts named in the letter, including one
maintained by Alvarez with DBS Bank and two other accounts in the name of Cheng Yong with
Metrobank. The Resolution characterized the memorandum attached to the Special Prosecutors letter as
extensively justif[ying] the existence of probable cause that the bank accounts of the persons and entities
mentioned in the letter are related to the unlawful activity of violation of Sections 3(g) and 3(e) of Rep.
Act No. 3019, as amended.
Issue:
Whether or not the bank accounts of respondents can be examined.

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