institution and/or become a guarantor, indorser or obligor for
loans from the said bank to others, by then and there using
JOSE C. GO vs BANGKO SENTRAL NG G.R. No. 178429
PILIPINAS,
x ------------------------------------------------------------------------------------------x
BRION, J.:
Through the present petition for review on certiorari,[1] petitioner
Jose C. Go (Go) assails the October 26, 2006 decision[2] of the Court of
Appeals (CA) in CA-G.R. SP No. 79149, as well as its June 4,
2007 resolution.[3] The CA decision and resolution annulled and set aside
the May 20, 2003[4] and June 30, 2003[5] orders of the Regional Trial Court
(RTC), Branch 26, Manila which granted Gos motion to quash the
Information filed against him.
THE FACTS
[6]
On August 20, 1999, an Information for violation of Section 83 of Republic
Act No. 337 (RA 337) or the General Banking Act, as amended by
Presidential Decree No. 1795, was filed against Go before the RTC. The
charge reads:
That on or about and during the period comprised
between June 27, 1996 and September 15, 1997, inclusive, in the
City of Manila, Philippines, the said accused, being then the
Director and the President and Chief Executive Officer of the
Orient Commercial Banking Corporation (Orient Bank), a
commercial banking institution created, organized and existing
under Philippines laws, with its main branch located at C.M. Recto
Avenue, this City, and taking advantage of his position as such
officer/director of the said bank, did then and there wilfully,
unlawfully and knowingly borrow, either directly or indirectly,
for himself or as the representative of his other related
companies, the deposits or funds of the said banking
said borrowed deposits/funds of the said bank in facilitating
and granting and/or caused the facilitating and granting of
credit lines/loans and, among others, to the New Zealand
Accounts loans in the total amount of TWO BILLION AND
SEVEN HUNDRED FIFTY-FOUR MILLION NINE HUNDRED
FIVE THOUSAND AND EIGHT HUNDRED FIFTY-SEVEN
AND 0/100 PESOS, Philippine Currency, said accused knowing
fully well that the same has been done by him without the
written approval of the majority of the Board of Directors of
said Orient Bank and which approval the said accused
deliberately failed to obtain and enter the same upon the records of
said banking institution and to transmit a copy of which to the
supervising department of the said bank, as required by the
General Banking Act.
CONTRARY TO LAW. [Emphasis supplied.]
On May 28, 2001, Go pleaded not guilty to the offense charged.
After the arraignment, both the prosecution and accused Go took part
in the pre-trial conference where the marking of the voluminous evidence for
the parties was accomplished. After the completion of the marking, the trial
court ordered the parties to proceed to trial on the merits.
Before the trial could commence, however, Go filed on February 26,
2003[7] a motion to quash the Information, which motion Go amended
on March 1, 2003.[8] Go claimed that the Information was defective, as
the facts charged therein do not constitute an offense under Section 83 of
RA 337 which states:
No director or officer of any banking institution shall either
directly or indirectly, for himself or as the representative or agent
of another, borrow any of the deposits of funds of such banks, nor
shall he become a guarantor, indorser, or surety for loans from
such bank, to others, or in any manner be an obligor for money
borrowed from the bank or loaned by it, except with the written
Page 1 of 29
 approval of the majority of the directors of the bank, excluding the of RA 337 penalized only directors and officers of banking institutions who
director concerned. Any such approval shall be entered upon the
records of the corporation and a copy of such entry shall be acted either as borrower or as guarantor, but not as both.
transmitted forthwith to the appropriate supervising
department. The office of any director or officer of a bank who
violates the provisions of this section shall immediately become Go further pointed out that the Information failed to state that his
vacant and the director or officer shall be punished by alleged act of borrowing and/or guarantying was not among the exceptions
imprisonment of not less than one year nor more than ten years and
by a fine of not less than one thousand nor more than ten thousand provided for in the law.According to Go, the second paragraph of Section 83
pesos. allowed banks to extend credit accommodations to their directors, officers,
and stockholders, provided it is limited to an amount equivalent to the
The Monetary Board may regulate the amount of credit
accommodations that may be extended, directly or indirectly, by respective outstanding deposits and book value of the paid-in capital
banking institutions to their directors, officers, or contribution in the bank. Extending credit accommodations to bank directors,
stockholders.However, the outstanding credit accommodations
which a bank may extend to each of its stockholders owning two officers, and stockholders is not per se prohibited, unless the amount exceeds
percent (2%) or more of the subscribed capital stock, its directors, the legal limit. Since the Information failed to state that the amount he
or its officers, shall be limited to an amount equivalent to the
respective outstanding deposits and book value of the paid-in purportedly borrowed and/or guarantied was beyond the limit set by law, Go
capital contribution in the bank. Provided, however, that loans and insisted that the acts so charged did not constitute an offense.
advances to officers in the form of fringe benefits granted in
accordance with rules and regulations as may be prescribed by
Monetary Board shall not be subject to the preceding limitation. Finding Gos contentions persuasive, the RTC granted Gos motion to
(As amended by PD 1795) quash the Information on May 20, 2003. It denied on June 30, 2003 the
In addition to the conditions established in the preceding motion for reconsideration filed by the prosecution.
paragraph, no director or a building and loan association shall
engage in any of the operations mentioned in said paragraphs,
except upon the pledge of shares of the association having a total The prosecution did not accept the RTC ruling and filed a petition
withdrawal value greater than the amount borrowed. (As amended for certiorari to question it before the CA. The Information, the prosecution
by PD 1795)
claimed, was sufficient. The word and/or did not materially affect the validity
of the Information, as it merely stated a mode of committing the crime
In support of his motion to quash, Go averred that based on the facts
penalized under Section 83 of RA 337. Moreover, the prosecution asserted
alleged in the Information, he was being prosecuted for borrowing the
that the second paragraph of Section 83 (referring to the credit
deposits or funds of the Orient Bank and/or acting as a guarantor, indorser or
accommodation limit) cannot be interpreted as an exception to what the first
obligor for the banks loans to other persons. The use of the word and/or
paragraph provided. The second paragraph only sets borrowing limits that, if
meant that he was charged for being either a borrower or a guarantor, or for
violated, render the bank, not the director-borrower, liable. A violation of the
being both a borrower and guarantor. Go claimed that the charge was not
second paragraph of Section 83 under which Go is being prosecuted is
only vague, but also did not constitute an offense. He posited that Section 83
therefore separate and distinct from a violation of the first paragraph. Thus,

Page 2 of 29
the prosecution prayed that the orders of the RTC quashing the Information
be set aside and the criminal case against Go be reinstated.
On October 26, 2006, the CA rendered the assailed decision granting
the prosecutions petition for certiorari.[9] The CA declared that the RTC
misread the law when it decided to quash the Information against Go. It
explained that the allegation that Go acted either as a borrower or a guarantor
or as both borrower and guarantor merely set forth the different modes by
which the offense was committed. It did not necessarily mean that Go acted
both as borrower and guarantor for the same loan at the same time. It agreed
with the prosecutions stand that the second paragraph of Section 83 of RA
337 is not an exception to the first paragraph. Thus, the failure of the
Information to state that the amount of the loan Go borrowed or guaranteed
exceeded the legal limits was, to the CA, an irrelevant issue. For these
reasons, the CA annulled and set aside the RTCs orders and ordered the
reinstatement of the criminal charge against Go. After the CAs denial of his
motion for reconsideration,[10] Go filed the present appeal by certiorari.
THE PETITION
In his petition, Go alleges that the appellate court legally erred in
overturning the trial courts orders. He insists that the Information failed to
allege the acts or omissions complained of with sufficient particularity to
enable him to know the offense being charged; to allow him to properly
prepare his defense; and likewise to allow the court to render proper
judgment.
Repeating his arguments in his motion to quash, Go reads Section 83
of RA 337 as penalizing a director or officer of a banking institution for
either borrowing the deposits or funds of the bank, or guaranteeing or
indorsing loans to others, but not for assuming both capacities. He claimed
that the prosecutions shotgun approach in alleging that he acted as borrower
and/or guarantor rendered the Information highly defective for failure to
specify with certainty the specific act or omission complained of. To
petitioner Go, the prosecutions approach was a clear violation of his
constitutional right to be informed of the nature and cause of the accusation
against him.
Additionally, Go reiterates his claim that credit accommodations by
banks to their directors and officers are legal and valid, provided that these
are limited to their outstanding deposits and book value of the paid-in capital
contribution in the bank. The failure to state that he borrowed deposits and/or
guaranteed loans beyond this limit rendered the Information defective. He
thus asks the Court to reverse the CA decision to reinstate the criminal
charge.
In its Comment,[11] the prosecution raises the same defenses against
Gos contentions. It insists on the sufficiency of the allegations in the
Information and prays for the denial of Gos petition.
THE COURTS RULING
The Court does not find the petition meritorious and accordingly denies
it.
The Accuseds Right to be
Informed
Under the Constitution, a person who stands charged of a criminal
offense has the right to be informed of the nature and cause of the accusation
against him.[12] The Rules of Court, in implementing the right, specifically
require that the acts or omissions complained of as constituting the offense,
Page 3 of 29
including the qualifying and aggravating circumstances, must be stated in
ordinary and concise language, not necessarily in the language used in the
statute, but in terms sufficient to enable a person of common understanding
to know what offense is being charged and the attendant qualifying and
aggravating circumstances present, so that the accused can properly defend
himself and the court can pronounce judgment.[13] To broaden the scope of
the right, the Rules authorize the quashal, upon motion of the accused, of an
Information that fails to allege the acts constituting the
offense.[14] Jurisprudence has laid down the fundamental test in appreciating
a motion to quash an Information grounded on the insufficiency of the facts
alleged therein. We stated in People v. Romualdez[15] that:
The determinative test in appreciating a motion to quash xxx
is the sufficiency of the averments in the information, that is,
whether the facts alleged, if hypothetically admitted, would
establish the essential elements of the offense as defined by
law without considering matters aliunde. As Section 6, Rule
110 of the Rules of Criminal Procedure requires, the
information only needs to state the ultimate facts; the
evidentiary and other details can be provided during the
trial.
To restate the rule, an Information only needs to state the
ultimate facts constituting the offense, not the finer
details of why and how the illegal acts alleged amounted
to undue injury or damage matters that are appropriate for
the trial. [Emphasis supplied]
The facts and circumstances necessary to be included in the Information are
determined by reference to the definition and elements of the specific
crimes. The Information must allege clearly and accurately the elements
of the crime charged.[16]
Elements of Violation of
Section 83 of RA 337
Under Section 83, RA 337, the following elements must be present to
constitute a violation of its first paragraph:
1. the offender is a director or officer of any banking institution;
2. the offender, either directly or indirectly, for himself or as
representative or agent of another, performs any of the following
acts:
a. he borrows any of the deposits or funds of such bank; or
b. he becomes a guarantor, indorser, or surety for loans from
such bank to others, or
c. he becomes in any manner an obligor for money
borrowed from bank or loaned by it;
3. the offender has performed any of such acts without the written
approval of the majority of the directors of the bank, excluding the
offender, as the director concerned.
A simple reading of the above elements easily rejects Gos contention
that the law penalizes a bank director or officer only either for borrowing the
banks deposits or funds or for guarantying loans by the bank, but not for
acting in both capacities. The essence of the crime is becoming an obligor
of the bank without securing the necessary written approval of the
majority of the banks directors.
The second element merely lists down the various modes of
committing the offense. The third mode, by declaring that [no director or
officer of any banking institution shall xxx] in any manner be an obligor for
money borrowed from the bank or loaned by it, in fact serves a catch-all
phrase that covers any situation when a director or officer of the bank
Page 4 of 29
becomes its obligor. The prohibition is directed against a bank director nor is it an element of the
offense
or officer who becomes in any manner an obligor for money borrowed
from or loaned by the bank without the written approval of the majority
Contrary to Gos claims, the second paragraph of Section 83, RA 337
of the banks board of directors. To make a distinction between the act of
does not provide for an exception to a violation of the first paragraph thereof,
borrowing and guarantying is therefore unnecessary because in either
nor does it constitute as an element of the offense charged. Section 83 of RA
situation, the director or officer concerned becomes an obligor of the bank
337 actually imposes three restrictions: approval, reportorial, and ceiling
against whom the obligation is juridically demandable.
requirements.

The language of the law is broad enough to encompass either act of

The approval requirement (found in the first sentence of the first
borrowing or guaranteeing, or both. While the first paragraph of Section 83 is
paragraph of the law) refers to the written approval of the majority of the
penal in nature, and by principle should be strictly construed in favor of the
banks board of directors required before bank directors and officers can in
accused, the Court is unwilling to adopt a liberal construction that would
any manner be an obligor for money borrowed from or loaned by the bank.
defeat the legislatures intent in enacting the statute.The objective of the law
Failure to secure the approval renders the bank director or officer concerned
should allow for a reasonable flexibility in its construction. Section 83 of RA
liable for prosecution and, upon conviction, subjects him to the penalty
337, as well as other banking laws adopting the same prohibition,[17] was
provided in the third sentence of first paragraph of Section 83.
enacted to ensure that loans by banks and similar financial institutions to
their own directors, officers, and stockholders are above board.[18] Banks
The reportorial requirement, on the other hand, mandates that any
were not created for the benefit of their directors and officers; they cannot
such approval should be entered upon the records of the corporation, and a
use the assets of the bank for their own benefit, except as may be permitted
copy of the entry be transmitted to the appropriate supervising
by law. Congress has thus deemed it essential to impose restrictions on
department. The reportorial requirement is addressed to the bank itself,
borrowings by bank directors and officers in order to protect the public,
which, upon its failure to do so, subjects it to quo warrantoproceedings under
especially the depositors.[19] Hence, when the law prohibits directors and
Section 87 of RA 337.[20]
officers of banking institutions from becoming in any manner an obligor of
the bank (unless with the approval of the board), the terms of the prohibition
The ceiling requirement under the second paragraph of Section 83
shall be the standards to be applied to directors transactions such as those
regulates the amount of credit accommodations that banks may extend to
involved in the present case.
their directors or officers by limiting these to an amount equivalent to the
respective outstanding deposits and book value of the paid-in capital
Credit accommodation
limit is not an exception contribution in the bank. Again, this is a requirement directed at the bank. In
Page 5 of 29
this light, a prosecution for violation of the first paragraph of Section 83, information still suffers from the same defect despite the
amendment. [Emphasis supplied]
such as the one involved here, does not require an allegation that the loan
exceeded the legal limit. Even if the loan involved is below the legal limit, a
Although an Information may be defective because the facts charged do not
written approval by the majority of the banks directors is still required;
constitute an offense, the dismissal of the case will not necessarily
otherwise, the bank director or officer who becomes an obligor of the bank is
follow. The Rules specifically require that the prosecution should be given a
liable. Compliance with the ceiling requirement does not dispense with the
chance to correct the defect; the court can order the dismissal only upon the
approval requirement.
prosecutions failure to do so. The RTCs failure to provide the prosecution
this opportunity twice[21] constitutes an arbitrary exercise of power that was
Evidently, the failure to observe the three requirements under
correctly addressed by the CA through the certiorari petition. This defect in
Section 83 paves the way for the prosecution of three different offenses, each
the RTCs action on the case, while not central to the issue before us,
with its own set of elements. A successful indictment for failing to comply
strengthens our conclusion that this criminal case should be resolved through
with the approval requirement will not necessitate proof that the other two
full-blown trial on the merits.
were likewise not observed.

WHEREFORE, we DENY the petitioners petition for review

Rules of Court allow
amendment of insufficient on certiorari and AFFIRM the decision of the Court of Appeals in CA-G.R.
Information SP No. 79149, promulgated on October 26, 2006, as well as its resolution
Assuming that the facts charged in the Information do not constitute an of June 4, 2007. The Regional Trial Court, Branch 26, Manila is directed
offense, we find it erroneous for the RTC to immediately order the dismissal to PROCEED with the hearing of Criminal Case No. 99-178551. Costs
of the Information, without giving the prosecution a chance to amend against the petitioner.
it. Section 4 of Rule 117 states:
SO ORDERED.
SEC. 4. Amendment of complaint or information.If the
motion to quash is based on an alleged defect of the complaint
or information which can be cured by amendment, the court
shall order that an amendment be made.

If it is based on the ground that the facts charged do not

constitute an offense, the prosecution shall be given by the
court an opportunity to correct the defect by
amendment. The motion shall be granted if the prosecution
fails to make the amendment, or the complaint or

Page 6 of 29
G.R. No. 178429 October 23, 2009
Facts: Jose Go, the Director and the President and Chief Executive Officer of the
Orient Commercial Banking Corporation (Orient Bank) was charged before the RTC
for violation of Section 83 of RA 337 or the General Banking Act. Go allegedly
borrowed the deposits/funds of the Orient Bank and/or acting as guarantor, indorser
of obligor for loans to other persons. He then used the borrowed deposits/funds in
facilitating and granting and/or of credit lines/loans to the New Zealand Accounts
loans in the total amount of PHP 2,754,905,857. He completed the alleged
transaction without the written approval of the majority of the Board of Directors of
said Orient Bank. Go then filed a motion to quash the Information. He averred that the
use of the word "and/or" meant that he was charged for being either a borrower or a
guarantor, or for being both. Thus the charge do not constitute an offense. That the
Section 83 of RA 337 penalized only directors and officers xxx who acted either as
borrower or as guarantor, but not as both. Also that the Information did not constitute
an offense since the information failed to state the amount he purportedly borrowed.
According to Go, the second paragraph of Section 83, serves as an exception to the
first paragraph which allows the banks to extend credit accommodations to their
directors, officers, and stockholders, provided it is "limited to an amount equivalent to
the respective outstanding deposits and book value of the paid-in capital contribution
in the bank." The RTC granted Go’s motion to quash the Information.
The prosecution filed a petition for certiorari before the CA. The CA granted the
petition. It explained that the allegation that Go acted either as a borrower or a
guarantor or both did not necessarily mean that Go acted both as borrower and
guarantor for the same loan at the same time. It agreed with the prosecution’s stand
that the second paragraph of Section 83 of RA 337 is not an exception to the first
paragraph. Hence, this petition.
Issue: whether or not the allegation that Go acted as borrower or gurantor rendered
the information defective?
Whether or not the failure to state that Go borrowed beyond the limit of his
outstanding deposits and book value of the paid-in capital contribution in the bank
rendered the Information defective?
Ruling: No, the information was not defective. The following elements of violation of
Section 83 of RA 337 which must be present to constitute a violation of its first
paragraph: 1. the offender is a director or officer of any banking institution; 2. the
offender, either directly or indirectly, for himself or as representative or agent of
another, performs any of the following acts: a. he borrows any of the deposits or
funds of such bank; or b. he becomes a guarantor, indorser, or surety for loans from
such bank to others, or c. he becomes in any manner an obligor for money borrowed
from bank or loaned by it; 3. the offender has performed any of such acts without the
written approval of the majority of the directors of the bank, excluding the offender, as
the director concerned.
The language of the law is broad enough to encompass either act of borrowing or
guaranteeing, or both. Banks were not created for the benefit of their directors and
officers; they cannot use the assets of the bank for their own benefit, except as may
be permitted by law. Congress has thus deemed it essential to impose restrictions on
borrowings by bank directors and officers in order to protect the public, especially the
depositors. Hence, when the law prohibits directors and officers of banking institutions
from becoming in any manner an obligor of the bank (unless with the approval of the
board), the terms of the prohibition shall be the standards to be applied to directors’
transactions such as those involved in the present case. Credit accommodation limit
is not an exception nor is it an element of the offense as contrary to Go’s claims.
Section 83 of RA 337 actually imposes three restrictions: approval, reportorial, and
ceiling requirements.
The approval requirement (found in the first sentence of the first paragraph of the
law) refers to the written approval of the majority of the bank’s board of directors
required before bank directors and officers can in any manner be an obligor for
money borrowed from or loaned by the bank. Failure to secure the approval renders
the bank director or officer concerned liable for prosecution and, upon conviction,
subjects him to the penalty provided in the third sentence of first paragraph of Section
83. The reportorial requirement, on the other hand, mandates that any such
approval should be entered upon the records of the corporation, and a copy of the
entry be transmitted to the appropriate supervising department. The reportorial
requirement is addressed to the bank itself, which, upon its failure to do so, subjects it
to quo warranto proceedings under Section 87 of RA 337.
The ceiling requirement under the second paragraph of Section 83 regulates the
amount of credit accommodations that banks may extend to their directors or officers
by limiting these to an amount equivalent to the respective outstanding deposits and
book value of the paid-in capital contribution in the bank. Again, this is a requirement
directed at the bank. In this light, a prosecution for violation of the first paragraph of
Section 83, such as the one involved here, does not require an allegation that the
loan exceeded the legal limit. Even if the loan involved is below the legal limit, a
written approval by the majority of the bank’s directors is still required; otherwise, the
bank director or officer who becomes an obligor of the bank is liable. Compliance with
the ceiling requirement does not dispense with the approval requirement. Evidently,
the failure to observe the three requirements under Section 83 paves the way for the
prosecution of three different offenses, each with its own set of elements. A
successful indictment for failing to comply with the approval requirement will not
necessitate proof that the other two were likewise not observed.
Page 7 of 29
G.R. No. 162336 February 1, 2010
HILARIO P. SORIANO, Petitioner,
vs.
PEOPLE OF THE PHILIPPINES, BANGKO SENTRAL NG PILIPINAS (BSP),
PHILIPPINE DEPOSIT INSURANCE CORPORATION (PDIC), PUBLIC
PROSECUTOR ANTONIO C.BUAN, and STATE PROSECUTOR ALBERTO R.
FONACIER, Respondents.
DECISION
DEL CASTILLO, J.:
A bank officer violates the DOSRI2 law when he acquires bank funds for
his personal benefit, even if such acquisition was facilitated by a
fraudulent loan application. Directors, officers, stockholders, and their
related interests cannot be allowed to interpose the fraudulent nature of
the loan as a defense to escape culpability for their circumvention of
Section 83 of Republic Act (RA) No. 337.3
Before us is a Petition for Review on Certiorari4 under Rule 45 of the
Rules of Court, assailing the September 26, 2003 Decision5 and the
February 5, 2004 Resolution6 of the Court of Appeals (CA) in CA-G.R. SP
No. 67657. The challenged Decision disposed as follows:
WHEREFORE, premises considered, the instant petition for certiorari is
hereby DENIED.7
Factual Antecedents
Sometime in 2000, the Office of Special Investigation (OSI) of
the Bangko Sentral ng Pilipinas (BSP), through its officers,8 transmitted a
letter9 dated March 27, 2000 to Jovencito Zuño, Chief State Prosecutor of
the Department of Justice (DOJ). The letter attached as annexes five
affidavits,10 which would allegedly serve as bases for filing criminal
charges for Estafa thru Falsification of Commercial Documents, in
relation to Presidential Decree (PD) No. 1689,11 and for Violation of
Section 83 of RA 337, as amended by PD 1795,12 against, inter
alia, petitioner herein Hilario P. Soriano. These five affidavits, along with
other documents, stated that spouses Enrico and Amalia Carlos
appeared to have an outstanding loan of ₱8 million with the Rural Bank
of San Miguel (Bulacan), Inc. (RBSM), but had never applied for nor
received such loan; that it was petitioner, who was then president of
RBSM, who had ordered, facilitated, and received the proceeds of the
loan; and that the ₱8 million loan had never been authorized by RBSM's
Board of Directors and no report thereof had ever been submitted to the
Department of Rural Banks, Supervision and Examination Sector of the
BSP. The letter of the OSI, which was not subscribed under oath, ended
with a request that a preliminary investigation be conducted and the
corresponding criminal charges be filed against petitioner at his last
known address.
Acting on the letter-request and its annexes, State Prosecutor Albert R.
Fonacier proceeded with the preliminary investigation. He issued a
subpoena with the witnesses’ affidavits and supporting documents
attached, and required petitioner to file his counter-affidavit. In due
course, the investigating officer issued a Resolution finding probable
cause and correspondingly filed two separate informations against
petitioner before the Regional Trial Court (RTC) of Malolos, Bulacan.13
The first Information,14 dated November 14, 2000 and docketed as
Criminal Case No. 237-M-2001, was for estafa through falsification of
commercial documents, under Article 315, paragraph 1(b), of the Revised
Penal Code (RPC), in relation to Article 172 of the RPC and PD 1689. It
basically alleged that petitioner and his co-accused, in abuse of the
confidence reposed in them as RBSM officers, caused the falsification of
a number of loan documents, making it appear that one Enrico Carlos
filled up the same, and thereby succeeded in securing a loan and
converting the loan proceeds for their personal gain and benefit.15 The
information reads:
That in or about the month of April, 1997, and thereafter, in San Miguel,
Bulacan, and within the jurisdiction of this Honorable Court, the said
accused HILARIO P. SORIANO and ROSALINDA ILAGAN, as principals
by direct participation, with unfaithfulness or abuse of confidence and
taking advantage of their position as President of the Rural Bank of San
Miguel (Bulacan), Inc. and Branch Manager of the Rural Bank of San
Miguel – San Miguel Branch [sic], a duly organized banking institution
under Philippine Laws, conspiring, confederating and mutually helping
one another, did then and there, willfully and feloniously falsify loan
documents consisting of undated loan application/information sheet,
credit proposal dated April 14, 1997, credit proposal dated April 22, 1997,
credit investigation report dated April 15, 1997, promissory note dated
April 23, 1997, disclosure statement on loan/credit transaction dated April
Page 8 of 29
23, 1997, and other related documents, by making it appear that one
Enrico Carlos filled up the application/information sheet and filed the
aforementioned loan documents when in truth and in fact Enrico Carlos
did not participate in the execution of said loan documents and that by
virtue of said falsification and with deceit and intent to cause damage, the
accused succeeded in securing a loan in the amount of eight million
pesos (PhP8,000,000.00) from the Rural Bank of San Miguel – San
Ildefonso branch in the name of Enrico Carlos which amount of PhP8
million representing the loan proceeds the accused thereafter converted
the same amount to their own personal gain and benefit, to the damage
and prejudice of the Rural Bank of San Miguel – San Ildefonso branch, its
creditors, the Bangko Sentral ng Pilipinas, and the Philippine Deposit
Insurance Corporation.
CONTRARY TO LAW.16
The other Information17 dated November 10, 2000 and docketed as
Criminal Case No. 238-M-2001, was for violation of Section 83 of RA
337, as amended by PD 1795. The said provision refers to the prohibition
against the so-called DOSRI loans. The information alleged that, in his
capacity as President of RBSM, petitioner indirectly secured an ₱8 million
loan with RBSM, for his personal use and benefit, without the written
consent and approval of the bank's Board of Directors, without entering
the said transaction in the bank's records, and without transmitting a copy
of the transaction to the supervising department of the bank. His ruse
was facilitated by placing the loan in the name of an unsuspecting RBSM
depositor, one Enrico Carlos.18 The information reads:
That in or about the month of April, 1997, and thereafter, and within the
jurisdiction of this Honorable Court, the said accused, in his capacity as
President of the Rural Bank of San Miguel (Bulacan), Inc., did then and
there, willfully and feloniously indirectly borrow or secure a loan with the
Rural Bank of San Miguel – San Ildefonso branch, a domestic rural
banking institution created, organized and existing under Philippine laws,
amounting to eight million pesos (PhP8,000,000.00), knowing fully well
that the same has been done by him without the written consent and
approval of the majority of the board of directors of the said bank, and
which consent and approval the said accused deliberately failed to obtain
and enter the same upon the records of said banking institution and to
transmit a copy thereof to the supervising department of the said bank,
as required by the General Banking Act, by using the name of one
depositor Enrico Carlos of San Miguel, Bulacan, the latter having no
knowledge of the said loan, and one in possession of the said amount of
eight million pesos (PhP8,000,000.00), accused converted the same to
his own personal use and benefit, in flagrant violation of the said law.
CONTRARY TO LAW.19
Both cases were raffled to Branch 79 of the RTC of Malolos, Bulacan.20
On June 8, 2001, petitioner moved to quash21 these informations on two
grounds: that the court had no jurisdiction over the offense charged, and
that the facts charged do not constitute an offense.
On the first ground, petitioner argued that the letter transmitted by the
BSP to the DOJ constituted the complaint and hence was defective for
failure to comply with the mandatory requirements of Section 3(a), Rule
112 of the Rules of Court, such as the statement of address of petitioner
and oath and subscription.22 Moreover, petitioner argued that the officers
of OSI, who were the signatories to the "letter-complaint," were not
authorized by the BSP Governor, much less by the Monetary Board, to
file the complaint. According to petitioner, this alleged fatal oversight
violated Section 18, pars. (c) and (d) of the New Central Bank Act (RA
7653).
On the second ground, petitioner contended that the commission of
estafa under paragraph 1(b) of Article 315 of the RPC is inherently
incompatible with the violation of DOSRI law (as set out in Section 8323 of
RA 337, as amended by PD 1795),24 hence a person cannot be charged
for both offenses. He argued that a violation of DOSRI law requires the
offender to obtain a loan from his bank, without complying with
procedural, reportorial, or ceiling requirements. On the other hand, estafa
under par. 1(b), Article 315 of the RPC requires the offender to
misappropriate or convert something that he holds in trust, or on
commission, or for administration, or under any other obligation
involving the duty to return the same.25
Essentially, the petitioner theorized that the characterization of
possession is different in the two offenses. If petitioner acquired the loan
as DOSRI, he owned the loaned money and therefore, cannot
misappropriate or convert it as contemplated in the offense of estafa.
Conversely, if petitioner committed estafa, then he merely held the
Page 9 of 29
money in trust for someone else and therefore, did not acquire a loan in
violation of DOSRI rules.
Ruling of the Regional Trial Court
In an Order dated August 8, 2001, the trial court denied petitioner's
26
Motion to Quash for lack of merit. The lower court agreed with the
prosecution that the assailed OSI letter was not the complaint-affidavit
itself; thus, it need not comply with the requirements under the Rules of
Court. The trial court held that the affidavits, which were attached to the
OSI letter, comprised the complaint-affidavit in the case. Since these
affidavits were duly subscribed and sworn to before a notary public, there
was adequate compliance with the Rules. The trial court further held that
the two offenses were separate and distinct violations, hence the
prosecution of one did not pose a bar to the other.27
Petitioner’s Motion for Reconsideration was likewise denied in an Order
dated September 5, 2001.28
Aggrieved, petitioner filed a Petition for Certiorari29 with the CA,
reiterating his arguments before the trial court.
Ruling of the Court of Appeals
The CA denied the petition on both issues presented by petitioner.
On the first issue, the CA determined that the BSP letter, which petitioner
characterized to be a fatally infirm complaint, was not actually a
complaint, but a transmittal or cover letter only. This transmittal letter
merely contained a summary of the affidavits which were attached to it. It
did not contain any averment of personal knowledge of the events and
transactions that constitute the elements of the offenses charged. Being
a mere transmittal letter, it need not comply with the requirements of
Section 3(a) of Rule 112 of the Rules of Court.30
The CA further determined that the five affidavits attached to the
transmittal letter should be considered as the complaint-affidavits that
charged petitioner with violation of Section 83 of RA 337 and for Estafa
thru Falsification of Commercial Documents. These complaint-affidavits
complied with the mandatory requirements set out in the Rules of Court –
they were subscribed and sworn to before a notary public and
subsequently certified by State Prosecutor Fonacier, who personally
examined the affiants and was convinced that the affiants fully
understood their sworn statements.31
Anent the second ground, the CA found no merit in petitioner's argument
that the violation of the DOSRI law and the commission of estafa thru
falsification of commercial documents are inherently inconsistent with
each other. It explained that the test in considering a motion to quash on
the ground that the facts charged do not constitute an offense, is whether
the facts alleged, when hypothetically admitted, constitute the elements
of the offense charged. The appellate court held that this test was
sufficiently met because the allegations in the assailed
informations, when hypothetically admitted, clearly constitute the
elements of Estafa thru Falsification of Commercial Documents and
Violation of DOSRI law.32
Petitioner’s Motion for Reconsideration33 was likewise denied for lack of
merit.
Hence, this petition.
Issues
Restated, petitioner raises the following issues34 for our consideration:
I Whether the complaint complied with the mandatory requirements
provided under Section 3(a), Rule 112 of the Rules of Court and Section
18, paragraphs (c) and (d) of RA 7653.
II Whether a loan transaction within the ambit of the DOSRI law (violation
of Section 83 of RA 337, as amended) could also be the subject of Estafa
under Article 315 (1) (b) of the Revised Penal Code.
III Is a petition for certiorari under Rule 65 the proper remedy against an
Order denying a Motion to Quash?
IV Whether petitioner is entitled to a writ of injunction.
Our Ruling
Page 10 of 29
The petition lacks merit.
First Issue:
Whether the complaint complied with the mandatory requirements
provided under Section 3(a), Rule 112 of the Rules of Court and
Section 18, paragraphs (c) and (d) of
Republic Act No. 7653
Petitioner moved to withdraw the first issue from the instant petition
On March 5, 2007, the Court noted35 petitioner's Manifestation and
Motion for Partial Withdrawal of the Petition36dated February 7, 2007. In
the said motion, petitioner informed the Court of the promulgation of a
Decision entitled Soriano v. Hon. Casanova,37 which also involved
petitioner and similar BSP letters to the DOJ. According to petitioner, the
said Decision allegedly ruled squarely on the nature of the BSP letters
and the validity of the sworn affidavits attached thereto. For this reason,
petitioner moved for the partial withdrawal of the instant petition insofar
as it involved the issue of "whether or not a court can legally acquire
jurisdiction over a complaint which failed to comply with the mandatory
requirements provided under Section 3(a), Rule 112 of the Rules of Court
and Section 18, paragraphs (c) and (d) of RA 7653".38
Given that the case had already been submitted for resolution of the
Court when petitioner filed his latest motion, and that all respondents had
presented their positions and arguments on the first issue, the Court
deems it proper to rule on the same.
In Soriano v. Hon. Casanova, the Court held that the affidavits attached
to the BSP transmittal letter complied with the mandatory requirements
under the Rules of Court.
To be sure, the BSP letters involved in Soriano v. Hon.
Casanova39 are not the same as the BSP letter involved in the instant
case. However, the BSP letters in Soriano v. Hon. Casanova and the
BSP letter subject of this case are similar in the sense that they are all
signed by the OSI officers of the BSP, they were not sworn to by the said
officers, they all contained summaries of their attached affidavits, and
they all requested the conduct of a preliminary investigation and the filing
of corresponding criminal charges against petitioner Soriano. Thus, the
principle of stare decisis dictates that the ruling in Soriano v. Hon.
Casanova be applied in the instant case – once a question of law has
been examined and decided, it should be deemed settled and closed to
further argument.40
We held in Soriano v. Hon. Casanova, after a close scrutiny of the letters
transmitted by the BSP to the DOJ, that these were not intended to be
the complaint, as envisioned under the Rules. They did not contain
averments of personal knowledge of the events and transactions
constitutive of any offense. The letters merely transmitted for preliminary
investigation the affidavits of people who had personal knowledge of the
acts of petitioner. We ruled that these affidavits, not the letters
transmitting them, initiated the preliminary investigation. Since these
affidavits were subscribed under oath by the witnesses who executed
them before a notary public, then there was substantial compliance with
Section 3(a), Rule 112 of the Rules of Court.
Anent the contention that there was no authority from the BSP Governor
or the Monetary Board to file a criminal case against Soriano, we held
that the requirements of Section 18, paragraphs (c) and (d) of RA 7653
did not apply because the BSP did not institute the complaint but merely
transmitted the affidavits of the complainants to the DOJ.
We further held that since the offenses for which Soriano was charged
were public crimes, authority holds that it can be initiated by "any
competent person" with personal knowledge of the acts committed by the
offender. Thus, the witnesses who executed the affidavits clearly fell
within the purview of "any competent person" who may institute the
complaint for a public crime.
The ruling in Soriano v. Hon. Casanova has been adopted and
elaborated upon in the recent case of Santos-Concio v. Department of
Justice.41 Instead of a transmittal letter from the BSP, the Court in
Santos-Concio was faced with an NBI-NCR Report, likewise with
affidavits of witnesses as attachments. Ruling on the validity of the
witnesses’ sworn affidavits as bases for a preliminary investigation, we
held:
The Court is not unaware of the practice of incorporating all allegations in
one document denominated as "complaint-affidavit." It does not
Page 11 of 29
pronounce strict adherence to only one approach, however, for there are
cases where the extent of one’s personal knowledge may not cover the
entire gamut of details material to the alleged offense. The private
offended party or relative of the deceased may not even have witnessed
the fatality, in which case the peace officer or law enforcer has to rely
chiefly on affidavits of witnesses. The Rules do not in fact preclude the
attachment of a referral or transmittal letter similar to that of the NBI-
NCR. Thus, in Soriano v. Casanova, the Court held:
A close scrutiny of the letters transmitted by the BSP and PDIC to the
DOJ shows that these were not intended to be the complaint envisioned
under the Rules. It may be clearly inferred from the tenor of the letters
that the officers merely intended to transmit the affidavits of the bank
employees to the DOJ. Nowhere in the transmittal letters is there any
averment on the part of the BSP and PDIC officers of personal
knowledge of the events and transactions constitutive of the criminal
violations alleged to have been made by the accused. In fact, the letters
clearly stated that what the OSI of the BSP and the LIS of the PDIC did
was to respectfully transmit to the DOJ for preliminary investigation the
affidavits and personal knowledge of the acts of the petitioner. These
affidavits were subscribed under oath by the witnesses who executed
them before a notary public. Since the affidavits, not the letters
transmitting them, were intended to initiate the preliminary investigation,
we hold that Section 3(a), Rule 112 of the Rules of Court was
substantially complied with.
Citing the ruling of this Court in Ebarle v. Sucaldito, the Court of Appeals
correctly held that a complaint for purposes of preliminary investigation by
the fiscal need not be filed by the offended party. The rule has been
that, unless the offense subject thereof is one that cannot be
prosecuted de oficio, the same may be filed, for preliminary
investigation purposes, by any competent person. The crime of estafa
is a public crime which can be initiated by "any competent person." The
witnesses who executed the affidavits based on their personal knowledge
of the acts committed by the petitioner fall within the purview of "any
competent person" who may institute the complaint for a public crime. x x
x (Emphasis and italics supplied)
A preliminary investigation can thus validly proceed on the basis of an
affidavit of any competent person, without the referral document, like the
NBI-NCR Report, having been sworn to by the law enforcer as the
nominal complainant. To require otherwise is a needless exercise. The
cited case of Oporto, Jr. v. Judge Monserate does not appear to dent this
proposition. After all, what is required is to reduce the evidence into
affidavits, for while reports and even raw information may justify the
initiation of an investigation, the preliminary investigation stage can be
held only after sufficient evidence has been gathered and evaluated
which may warrant the eventual prosecution of the case in court.42
Following the foregoing rulings in Soriano v. Hon. Casanova and Santos-
Concio v. Department of Justice, we hold that the BSP letter, taken
together with the affidavits attached thereto, comply with the
requirements provided under Section 3(a), Rule 112 of the Rules of Court
and Section 18, paragraphs (c) and (d) of RA 7653.
Second Issue:
Whether a loan transaction within the ambit of the DOSRI law (violation of
Section 83 of RA 337, as amended) could be the subject of Estafa under
Article 315 (1) (b) of the
Revised Penal Code
The second issue was raised by petitioner in the context of his Motion to
Quash Information on the ground that the facts charged do not constitute
an offense.43 It is settled that in considering a motion to quash on such
ground, the test is "whether the facts alleged, if hypothetically admitted,
would establish the essential elements of the offense charged as defined
by law. The trial court may not consider a situation contrary to that set
forth in the criminal complaint or information. Facts that constitute the
defense of the petitioner[s] against the charge under the information must
be proved by [him] during trial. Such facts or circumstances do not
constitute proper grounds for a motion to quash the information on the
ground that the material averments do not constitute the offense". 44
We have examined the two informations against petitioner and we find
that they contain allegations which, if hypothetically admitted, would
establish the essential elements of the crime of DOSRI violation and
estafa thru falsification of commercial documents.
In Criminal Case No. 238-M-2001 for violation of DOSRI rules, the
information alleged that petitioner Soriano was the president of RBSM;
that he was able to indirectly obtain a loan from RBSM by putting the loan
Page 12 of 29
in the name of depositor Enrico Carlos; and that he did this without
complying with the requisite board approval, reportorial, and ceiling
requirements.
In Criminal Case No. 237-M-2001 for estafa thru falsification of
commercial documents, the information alleged that petitioner, by taking
advantage of his position as president of RBSM, falsified various loan
documents to make it appear that an Enrico Carlos secured a loan of ₱8
million from RBSM; that petitioner succeeded in obtaining the loan
proceeds; that he later converted the loan proceeds to his own personal
gain and benefit; and that his action caused damage and prejudice to
RBSM, its creditors, the BSP, and the PDIC.
Significantly, this is not the first occasion that we adjudge the sufficiency
of similarly worded informations. In Soriano v. People,45 involving the
same petitioner in this case (but different transactions), we also reviewed
the sufficiency of informations for DOSRI violation and estafa thru
falsification of commercial documents, which were almost identical,
mutatis mutandis, with the subject informations herein. We held
in Soriano v. People that there is no basis for the quashal of the
informations as "they contain material allegations charging Soriano with
violation of DOSRI rules and estafa thru falsification of commercial
documents".
Petitioner raises the theory that he could not possibly be held liable for
estafa in concurrence with the charge for DOSRI violation. According to
him, the DOSRI charge presupposes that he acquired a loan, which
would make the loan proceeds his own money and which he could
neither possibly misappropriate nor convert to the prejudice of another,
as required by the statutory definition of estafa.46 On the other hand, if
petitioner did not acquire any loan, there can be no DOSRI violation to
speak of. Thus, petitioner posits that the two offenses cannot co-exist.
This theory does not persuade us.
Petitioner’s theory is based on the false premises that the loan was
extended to him by the bank in his own name, and that he became the
owner of the loan proceeds. Both premises are wrong.
The bank money (amounting to ₱8 million) which came to the possession
of petitioner was money held in trust or administration by him for the
bank, in his
fiduciary capacity as the President of said bank.47 It is not accurate to say
that petitioner became the owner of the ₱8 million because it was the
proceeds of a loan. That would have been correct if the bank knowingly
extended the loan to petitioner himself. But that is not the case here.
According to the information for estafa, the loan was supposed to be for
another person, a certain "Enrico Carlos"; petitioner, through falsification,
made it appear that said "Enrico Carlos" applied for the loan when in fact
he ("Enrico Carlos") did not. Through such fraudulent device, petitioner
obtained the loan proceeds and converted the same. Under these
circumstances, it cannot be said that petitioner became the legal owner
of the ₱8 million. Thus, petitioner remained the bank’s fiduciary with
respect to that money, which makes it capable of misappropriation or
conversion in his hands.
The next question is whether there can also be, at the same time, a
charge for DOSRI violation in such a situation wherein the accused bank
officer did not secure a loan in his own name, but was alleged to have
used the name of another person in order to indirectly secure a loan from
the bank. We answer this in the affirmative. Section 83 of RA 337 reads:
Section 83. No director or officer of any banking institution shall, either
directly or indirectly, for himself or as the representative or agent of
others, borrow any of the deposits of funds of such bank, nor shall he
become a guarantor, indorser, or surety for loans from such bank to
others, or in any manner be an obligor for moneys borrowed from the
bank or loaned by it, except with the written approval of the majority of
the directors of the bank, excluding the director concerned. Any such
approval shall be entered upon the records of the corporation and a copy
of such entry shall be transmitted forthwith to the Superintendent of
Banks. The office of any director or officer of a bank who violates the
provisions of this section shall immediately become vacant and the
director or officer shall be punished by imprisonment of not less than one
year nor more than ten years and by a fine of not less than one thousand
nor more than ten thousand pesos. x x x
The prohibition in Section 83 is broad enough to cover various modes of
borrowing.[48] It covers loans by a bank director or officer (like herein
petitioner) which are made either: (1) directly, (2) indirectly, (3) for
himself, (4) or as the representative or agent of others. It applies even if
the director or officer is a mere guarantor, indorser or surety for someone
else's loan or is in any manner an obligor for money borrowed from the
bank or loaned by it. The covered transactions are prohibited unless the
Page 13 of 29
approval, reportorial and ceiling requirements under Section 83 are
complied with. The prohibition is intended to protect the public, especially
the depositors,[49] from the overborrowing of bank funds by bank
officers, directors, stockholders and related interests, as such
overborrowing may lead to bank failures.[50] It has been said that
"banking institutions are not created for the benefit of the directors [or
officers]. While directors have great powers as directors, they have no
special privileges as individuals. They cannot use the assets of the bank
for their own benefit except as permitted by law. Stringent restrictions are
placed about them so that when acting both for the bank and for one of
themselves at the same time, they must keep within certain prescribed
lines regarded by the legislature as essential to safety in the banking
business".51
A direct borrowing is obviously one that is made in the name of the
DOSRI himself or where the DOSRI is a named party, while an indirect
borrowing includes one that is made by a third party, but the DOSRI has
a stake in the transaction.52 The latter type – indirect borrowing – applies
here. The information in Criminal Case 238-M-2001 alleges that
petitioner "in his capacity as President of Rural Bank of San Miguel – San
Ildefonso branch x x x indirectly borrow[ed] or secure[d] a loan with
[RBSM] x x x knowing fully well that the same has been done by him
without the written consent and approval of the majority of the board of
directors x x x, and which consent and approval the said accused
deliberately failed to obtain and enter the same upon the records of said
banking institution and to transmit a copy thereof to the supervising
department of the said bank x x x by using the name of one depositor
Enrico Carlos x x x, the latter having no knowledge of the said loan, and
once in possession of the said amount of eight million pesos (₱8 million),
[petitioner] converted the same to his own personal use and benefit".53
The foregoing information describes the manner of securing the loan
as indirect; names petitioner as the benefactor of the indirect loan; and
states that the requirements of the law were not complied with. It contains
all the required elements54 for a violation of Section 83, even if petitioner
did not secure the loan in his own name.
The broad interpretation of the prohibition in Section 83 is justified by the
fact that it even expressly covers loans to third parties where the third
parties are aware of the transaction (such as principals represented by
the DOSRI), and where the DOSRI’s interest does not appear to be
beneficial but even burdensome (such as in cases when the DOSRI acts
as a mere guarantor or surety). If the law finds it necessary to protect the
bank and the banking system in such situations, it will surely be illogical
for it to exclude a case like this where the DOSRI acted for his own
benefit, using the name of an unsuspecting person. A contrary
interpretation will effectively allow a DOSRI to use dummies to
circumvent the requirements of the law.
In sum, the informations filed against petitioner do not negate each other.
Third Issue:
Is a Rule 65 petition for certiorari the proper remedy against an
Order denying a Motion to Quash?
This issue may be speedily resolved by adopting our ruling in Soriano v.
People,55 where we held:
In fine, the Court has consistently held that a special civil action
for certiorari is not the proper remedy to assail the denial of a motion to
quash an information. The proper procedure in such a case is for the
accused to enter a plea, go to trial without prejudice on his part to present
the special defenses he had invoked in his motion to quash and if after
trial on the merits, an adverse decision is rendered, to appeal therefrom
in the manner authorized by law. Thus, petitioners should not have
forthwith filed a special civil action for certiorari with the CA and instead,
they should have gone to trial and reiterated the special defenses
contained in their motion to quash. There are no special or exceptional
circumstances in the present case that would justify immediate resort to a
filing of a petition for certiorari. Clearly, the CA did not commit any
reversible error, much less, grave abuse of discretion in dismissing the
petition.56
Fourth Issue:
Whether petitioner is entitled to a writ of injunction
The requisites to justify an injunctive relief are: (1) the right of the
complainant is clear and unmistakable; (2) the invasion of the right
sought to be protected is material and substantial; and (3) there is an
urgent and paramount necessity for the writ to prevent serious damage.
A clear legal right means one clearly founded in or granted by law or is
Page 14 of 29
"enforceable as a matter of law." Absent any clear and unquestioned
legal right, the issuance of an injunctive writ would constitute grave abuse
of discretion.57 Caution and prudence must, at all times, attend the
issuance of an injunctive writ because it effectively disposes of the main
case without trial and/or due process.58 In Olalia v. Hizon,59 the Court held
as follows:
It has been consistently held that there is no power the exercise of which
is more delicate, which requires greater caution, deliberation and sound
discretion, or more dangerous in a doubtful case, than the issuance of an
injunction. It is the strong arm of equity that should never be extended
unless to cases of great injury, where courts of law cannot afford an
adequate or commensurate remedy in damages.
Every court should remember that an injunction is a limitation upon the
freedom of action of the [complainant] and should not be granted lightly
or precipitately. It should be granted only when the court is fully satisfied
that the law permits it and the emergency demands it.
Given this Court's findings in the earlier issues of the instant case, we
find no compelling reason to grant the injunctive relief sought by
petitioner.
WHEREFORE, the petition is DENIED. The assailed September 26, 2003
Decision as well as the February 5, 2004 Resolution of the Court of
Appeals in CA-G.R. SP No. 67657 are AFFIRMED. Costs against
petitioner. SO ORDERED.
Agan v PIATCO G.R. No. 155001. May 5, 2003
In August 1989, the DOTC engaged the services of Aeroport de Paris (ADP) to
conduct a comprehensive study of the Ninoy Aquino International Airport (NAIA)
and determine whether the present airport can cope with the traffic development up
to the year 2010.
Some time in 1993, six business leaders consisting of John Gokongwei, Andrew
Gotianun, Henry Sy, Sr., Lucio Tan, George Ty and Alfonso Yuchengco met with
then President Fidel V. Ramos to explore the possibility of investing in the
construction and operation of a new international airport terminal. They formed the
Asia’s Emerging Dragon Corp. (AEDC) which was registered with the SEC.
On October 5, 1994, AEDC submitted an unsolicited proposal to the Government
through the DOTC/MIAA for the development of NAIA IPT III)
On December 2, 1994, the DOTC issued Dept. Order No. 94-832 constituting the
Prequalification Bids and Awards Committee (PBAC) for the implementation of the
NAIA IPT III project.
On June 7, 14, and 21, 1996, DOTC/MIAA caused the publication in two daily
newspapers of an invitation for competitive or comparative proposals on AEDC’s
unsolicited proposal, in accordance with Sec. 4-A of RA 6957, as amended. The
alternative bidders were required to submit three (3) sealed envelopes on or before
5:00 p.m. of September 20, 1996. The first envelope should contain the
Prequalification Documents, the second envelope the Technical Proposal, and the
third envelope the Financial Proposal of the proponent.
The Bid Documents provided among others that the proponent must have adequate
capability to sustain the financing requirement for the detailed engineering,
design, construction, operation, and maintenance phases of the project. The
proponent would be evaluated based on its ability to provide a minimum amount of
equity to the project, and its capacity to secure external financing for the
project.
On September 20, 1996, the consortium composed of People’s Air Cargo and
Warehousing Co., Inc. (Paircargo), Phil. Air and Grounds Services, Inc. (PAGS) and
Security Bank Corp. (Security Bank) (collectively, Paircargo Consortium) submitted
their competitive proposal to the PBAC. On September 23, 1996, the PBAC opened
the first envelope containing the prequalification documents of the Paircargo
Consortium. On the following day, September 24, 1996, the PBAC prequalified the
Paircargo Consortium.
On September 26, 1996, AEDC informed the PBAC in writing of its reservations as
regards the Paircargo Consortium, which include:
a. The lack of corporate approvals and financial capability of PAIRCARGO;
b. The lack of corporate approvals and financial capability of PAGS;
c. The prohibition imposed by RA 337, as amended (the General Banking Act) on
the amount that Security Bank could legally invest in the project;
d. The inclusion of Siemens as a contractor of the PAIRCARGO Joint Venture, for
prequalification purposes; and
Page 15 of 29
e. The appointment of Lufthansa as the facility operator, in view of the Philippine
requirement in the operation of a public utility.
The PBAC gave its reply on October 2, 1996, informing AEDC that it had
considered the issues raised by the latter, and that based on the documents submitted
by Paircargo and the established prequalification criteria, the PBAC had found that
the challenger, Paircargo, had prequalified to undertake the project. The Secretary of
the DOTC approved the finding of the PBAC.
The PBAC then proceeded with the opening of the second envelope of the Paircargo
Consortium which contained its Technical Proposal.
On October 3, 1996, AEDC reiterated its objections, particularly with respect to
Paircargo’s financial capability, in view of the restrictions imposed by Section
21-B of the General Banking Act and Sections 1380 and 1381 of the Manual
Regulations for Banks and Other Financial Intermediaries.
On October 16, 1996, the PBAC opened the third envelope submitted by AEDC and
the Paircargo Consortium containing their respective financial proposals. Both
proponents offered to build the NAIA Passenger Terminal III for at least $350
million at no cost to the government and to pay the government: 5% share in gross
revenues for the first five years of operation, 7.5% share in gross revenues for the
next ten years of operation, and 10% share in gross revenues for the last ten years of
operation, in accordance with the Bid Documents. However, in addition to the
foregoing, AEDC offered to pay the government a total of P135 million as
guaranteed payment for 27 years while Paircargo Consortium offered to pay
the government a total of P17.75 billion for the same period.
Thus, the PBAC formally informed AEDC that it had accepted the price proposal
submitted by the Paircargo Consortium, and gave AEDC 30 working days to match
the said bid,
As AEDC failed to match the proposal within the 30-day period, a notice to
Paircargo Consortium was sent regarding AEDC’s failure to match the proposal.
On February 27, 1997, Paircargo Consortium incorporated into Philippine
International Airport Terminals Co., Inc. (PIATCO).
AEDC subsequently protested the alleged undue preference given to PIATCO and
reiterated its objections as regards the prequalification of PIATCO.
AEDC filed with the Regional Trial Court of Pasig a Petition for Declaration of
Nullity of the Proceedings, Mandamus and Injunction against the Secretary of the
DOTC, the Chairman of the PBAC, the voting members of the PBAC and Pantaleon
D. Alvarez, in his capacity as Chairman of the PBAC Technical Committee.
On July 9, 1997, the DOTC issued the notice of award for the project to PIATCO.
On July 12, 1997, the Government, through then DOTC Secretary Arturo T.
Enrile, and PIATCO, through its President, Henry T. Go, signed the
“Concession Agreement for the Build-Operate-and-Transfer Arrangement of
the Ninoy Aquino International Airport Passenger Terminal III” (1997
Concession Agreement).
On November 26, 1998, the Government and PIATCO signed an Amended and
Restated Concession Agreement (ARCA).
Subsequently, the Government and PIATCO signed three Supplements to the
ARCA. The First Supplement was signed on August 27, 1999; the Second
Supplement on September 4, 2000; and the Third Supplement on June 22, 2001.
Meanwhile, the MIAA which is charged with the maintenance and operation of the
NAIA Terminals I and II, had existing concession contracts with various service
providers to offer international airline airport services, such as in-flight catering,
passenger handling, ramp and ground support, aircraft maintenance and provisions,
cargo handling and warehousing, and other services, to several international airlines
at the NAIA. Some of these service providers are the Miascor Group, DNATA-
Wings Aviation Systems Corp., and the MacroAsia Group. Miascor, DNATA and
MacroAsia, together with Philippine Airlines (PAL), are the dominant players in the
industry with an aggregate market share of 70%.
On September 17, 2002, the workers of the international airline service providers,
claiming that they stand to lose their employment upon the implementation of the
questioned agreements, filed before this Court a petition for prohibition to
During the pendency of the case before this Court, President Gloria Macapagal
Arroyo, on November 29, 2002, in her speech at the 2002 Golden Shell Export
Awards at Malacañang Palace, stated that she will not “honor (PIATCO) contracts
which the Executive Branch’s legal offices have concluded (as) null and void.”
Respondent PIATCO filed its Comments to the present petitions on November 7 and
27, 2002.
Page 16 of 29
On December 10, 2002, the Court heard the case on oral argument.
In their consolidated Memorandum, the Office of the Solicitor General and the
Office of the Government Corporate Counsel prayed that the present petitions be
given due course and that judgment be rendered declaring the 1997 Concession
Agreement, the ARCA and the Supplements thereto void for being contrary to
the Constitution, the BOT Law and its Implementing Rules and Regulations.
Petitioners’ Legal Standing to File
the present Petitions
Shortened:
- as to contractors of NAIA 1 and 2.. they will be affected. Might lose their jobs.
- HREP – tax payers and since involves serious legal questions
- Legal questions of law = SC jurisdiction
- Arbitration Proceedings – some petitioners are not partirs to the contract so not
bound by it. arbit proceedings does not divest SC of jurisdiction.,
PRIMARY ISSUES
I. Is PIATCO a qualified bidder?
Public respondents argue that the Paircargo Consortium, PIATCO’s predecessor, was
not a duly pre-qualified bidder on the unsolicited proposal submitted by AEDC as
the Paircargo Consortium failed to meet the financial capability required under the
BOT Law and the Bid Documents. They allege that in computing the ability of the
Paircargo Consortium to meet the minimum equity requirements for the project, the
entire net worth of Security Bank, a member of the consortium, should not be
considered.
Under the BOT Law, in case of a build-operate-and-transfer arrangement, the
contract shall be awarded to the bidder “who, having satisfied the minimum
financial, technical, organizational and legal standards” required by the law, has
submitted the lowest bid and most favorable terms of the project. Further, the 1994
Implementing Rules and Regulations of the BOT Law provide:
Section 5.4 Pre-qualification Requirements.
c. Financial Capability: The project proponent must have adequate capability to
sustain the financing requirements for the detailed engineering design, construction
and/or operation and maintenance phases of the project, as the case may be. For
purposes of pre-qualification, this capability shall be measured in terms of (i) proof
of the ability of the project proponent and/or the consortium to provide a
minimum amount of equity to the project, and (ii) a letter testimonial from
reputable banks attesting that the project proponent and/or members of the
consortium are banking with them, that they are in good financial standing, and
that they have adequate resources. The government agency/LGU concerned shall
determine on a project-to-project basis and before pre-qualification, the minimum
amount of equity needed.
Pursuant to this provision, the PBAC issued PBAC Bulletin No. 3 dated August 16,
1996 amending the financial capability requirements for pre-qualification of the
project proponent as follows:
6. Basis of Pre-qualification
The minimum amount of equity to which the proponent’s financial capability will be
based shall be thirty percent (30%) of the project cost instead of the twenty
percent (20%) specified in Section 3.6.4 of the Bid Documents. This is to
correlate with the required debt-to-equity ratio of 70:30 in Section 2.01a of the draft
concession agreement. The debt portion of the project financing should not exceed
70% of the actual project cost.
Accordingly, based on the above provisions of law, the Paircargo Consortium or any
challenger to the unsolicited proposal of AEDC has to show that it possesses the
requisite financial capability to undertake the project in the minimum amount of
30% of the project cost through (i) proof of the ability to provide a minimum
amount of equity to the project, and (ii) a letter testimonial from reputable banks
attesting that the project proponent or members of the consortium are banking with
them, that they are in good financial standing, and that they have adequate resources.
As the minimum project cost was estimated to be US$350,000,000.00 or roughly
P9,183,650,000.00, the Paircargo Consortium had to show to the satisfaction of
the PBAC that it had the ability to provide the minimum equity for the project
in the amount of at least P2,755,095,000.00.
Paircargo’s Audited Financial Statements as of 1993 and 1994 indicated that it had a
net worth of P2,783,592.00 and P3,123,515.00 respectively. PAGS’ Audited
Financial Statements as of 1995 indicate that it has approximately P26,735,700.00 to
invest as its equity for the project. Security Bank’s Audited Financial Statements as
Page 17 of 29
of 1995 show that it has a net worth equivalent to its capital funds in the amount of
P3,523,504,377.00.
We agree with public respondents that with respect to Security Bank, the entire
amount of its net worth could not be invested in a single undertaking or
enterprise, whether allied or non-allied in accordance with the provisions of
R.A. No. 337, as amended or the General Banking Act:
Sec. 21-B - ... Provided, That (a) the total investment in equities shall not exceed
fifty percent (50%) of the net worth of the bank; (b) the equity investment in any
one enterprise whether allied or non-allied shall not exceed fifteen percent
(15%) of the net worth of the bank...
Further, the 1993 Manual of Regulations for Banks provides:
SECTION X383. Other Limitations and Restrictions. — The following
limitations and restrictions shall also apply regarding equity investments of
banks.
a. In any single enterprise. — The equity investments of banks in any single
enterprise shall not exceed at any time fifteen percent (15%) of the net worth of
the investing bank as defined in Sec. X106 and Subsec. X121.5.
Thus, the maximum amount that Security Bank could validly invest in the
Paircargo Consortium is only P528,525,656.55, representing 15% of its entire
net worth. The total net worth therefore of the Paircargo Consortium, after
considering the maximum amounts that may be validly invested by each of its
members is P558,384,871.55 or only 6.08% of the project cost, an amount
substantially less than the prescribed minimum equity investment required for
the project in the amount of P2,755,095,000.00 or 30% of the project cost.
With respect to the bidder’s financial capacity at the pre-qualification stage, the law
requires the government agency to examine and determine the ability of the bidder to
fund the entire cost of the project by considering the maximum amounts that each
bidder may invest in the project at the time of pre-qualification.
With respect to Security Bank, the maximum amount which may be invested by it
would only be 15% of its net worth in view of the restrictions imposed by the
General Banking Act. Disregarding the investment ceilings provided by
applicable law would not result in a proper evaluation of whether or not a
bidder is pre-qualified to undertake the project as for all intents and purposes,
such ceiling or legal restriction determines the true maximum amount which a
bidder may invest in the project.
Thus, if the maximum amount of equity that a bidder may invest in the project at
the time the bids are submitted falls short of the minimum amounts required to be
put up by the bidder, said bidder should be properly disqualified. Considering that at
the pre-qualification stage, the maximum amounts which the Paircargo Consortium
may invest in the project fell short of the minimum amounts prescribed by the
PBAC, we hold that Paircargo Consortium was not a qualified bidder. Thus the
award of the contract by the PBAC to the Paircargo Consortium, a disqualified
bidder, is null and void.
II. Is the 1997 Concession Agreement valid?
Petitioners and public respondents contend that the 1997 Concession Agreement is
invalid as it contains provisions that substantially depart from the draft Concession
Agreement included in the Bid Documents. They maintain that a substantial
departure from the draft Concession Agreement is a violation of public policy
and renders the 1997 Concession Agreement null and void.
It is inherent in public biddings that there shall be a fair competition among the
bidders. The specifications in such biddings provide the common ground or basis for
the bidders. The specifications should, accordingly, operate equally or
indiscriminately upon all bidders.
While we concede that a winning bidder is not precluded from modifying or
amending certain provisions of the contract bidded upon, such changes must not
constitute substantial or material amendments that would alter the basic
parameters of the contract and would constitute a denial to the other bidders of
the opportunity to bid on the same terms. Hence, the determination of whether or
not a modification or amendment of a contract bidded out constitutes a substantial
amendment rests on whether the contract, when taken as a whole, would contain
substantially different terms and conditions that would have the effect of altering the
technical and/or financial proposals previously submitted by other bidders. The
alterations and modifications in the contract executed between the government and
the winning bidder must be such as to render such executed contract to be an
entirely different contract from the one that was bidded upon.
Hence, the question that comes to fore is this: is the 1997 Concession Agreement
the same agreement that was offered for public bidding, i.e., the draft Concession
Agreement attached to the Bid Documents? A close comparison of the draft
Concession Agreement attached to the Bid Documents and the 1997 Concession
Agreement reveals that the documents differ in at least two material respects:
Page 18 of 29
a. Modification on the Public
Utility Revenues and Non-Public
Utility Revenues that may be
collected by PIATCO
The fees that may be imposed and collected by PIATCO under the draft Concession
Agreement and the 1997 Concession Agreement may be classified into three distinct
categories: (1) fees which are subject to periodic adjustment of once every two
years in accordance with a prescribed parametric formula and adjustments are
made effective only upon written approval by MIAA; (2) fees other than those
included in the first category which maybe adjusted by PIATCO whenever it
deems necessary without need for consent of DOTC/MIAA; and (3) new fees
and charges that may be imposed by PIATCO which have not been previously
imposed or collected at the Ninoy Aquino International Airport Passenger
Terminal I, pursuant to Administrative Order No. 1, Series of 1993, as
amended. The glaring distinctions between the draft Concession Agreement and the
1997 Concession Agreement lie in the types of fees included in each category and
the extent of the supervision and regulation which MIAA is allowed to exercise in
relation thereto.
For fees under the first category, i.e., those which are subject to periodic adjustment
in accordance with a prescribed parametric formula and effective only upon written
approval by MIAA, the draft Concession Agreement includes the following:
(1) aircraft parking fees;
(2) aircraft tacking fees;
(3) groundhandling fees;
(4) rentals and airline offices;
(5) check-in counter rentals; and
(6) porterage fees.
Under the 1997 Concession Agreement, fees which are subject to adjustment and
effective upon MIAA approval are classified as “Public Utility Revenues” and
include:
(1) aircraft parking fees;
(2) aircraft tacking fees;
(3) check-in counter fees; and
(4) Terminal Fees.
The implication of the reduced number of fees that are subject to MIAA approval is
best appreciated in relation to fees included in the second category identified above.
Under the 1997 Concession Agreement, fees which PIATCO may adjust whenever
it deems necessary without need for consent of DOTC/MIAA are “Non-Public
Utility Revenues” and is defined as “all other income not classified as Public Utility
Revenues derived from operations of the Terminal and the Terminal Complex.”
Thus, under the 1997 Concession Agreement, groundhandling fees, rentals from
airline offices and porterage fees are no longer subject to MIAA regulation.
Further, under Section 6.03 of the draft Concession Agreement, MIAA reserves the
right to regulate (1) lobby and vehicular parking fees and (2) other new fees and
charges that may be imposed by PIATCO. Such regulation may be made by periodic
adjustment and is effective only upon written approval of MIAA. The full text of
said provision is quoted below:
Section 6.03. Periodic Adjustment in Fees and Charges.
...The MIAA reserves the right to regulate under the foregoing terms and
conditions the lobby and vehicular parking fees and other new fees and charges
as contemplated in paragraph 2 of Section 6.01 if in its judgment the users of
the airport shall be deprived of a free option for the services they cover.
On the other hand, the equivalent provision under the 1997 Concession Agreement
reads:
Section 6.03 Periodic Adjustment in Fees and Charges.
(c) Concessionaire shall at all times be judicious in fixing fees and charges
constituting Non-Public Utility Revenues in order to ensure that End Users are not
unreasonably deprived of services. While the vehicular parking fee, porterage fee
and greeter/well wisher fee constitute Non-Public Utility Revenues of
Concessionaire, GRP may intervene and require Concessionaire to explain and
justify the fee it may set from time to time, if in the reasonable opinion of GRP the
said fees have become exorbitant resulting in the unreasonable deprivation of End
Users of such services.
Page 19 of 29
Thus, under the 1997 Concession Agreement, with respect to (1) vehicular
parking fee, (2) porterage fee and (3) greeter/well wisher fee, all that MIAA can
do is to require PIATCO to explain and justify the fees set by PIATCO. In the
draft Concession Agreement, vehicular parking fee is subject to MIAA
regulation and approval under the second paragraph of Section 6.03 thereof
while porterage fee is covered by the first paragraph of the same provision.
There is an obvious relaxation of the extent of control and regulation by MIAA
with respect to the particular fees that may be charged by PIATCO.
Finally, under the 1997 Concession Agreement, “Public Utility Revenues,” except
terminal fees, are denominated in US Dollars while payments to the Government are
in Philippine Pesos. In the draft Concession Agreement, no such stipulation was
included. By stipulating that “Public Utility Revenues” will be paid to PIATCO in
US Dollars while payments by PIATCO to the Government are in Philippine
currency under the 1997 Concession Agreement, PIATCO is able to enjoy the
benefits of depreciations of the Philippine Peso, while being effectively insulated
from the detrimental effects of exchange rate fluctuations.
The 1997 Concession Agreement, in this respect, clearly gives PIATCO more
favorable terms than what was available to other bidders at the time the
contract was bidded out. It is not very difficult to see that the changes in the 1997
Concession Agreement translate to direct and concrete financial advantages for
PIATCO which were not available at the time the contract was offered for bidding.
It cannot be denied that under the 1997 Concession Agreement only “Public Utility
Revenues” are subject to MIAA regulation. Adjustments of all other fees
imposed and collected by PIATCO are entirely within its control. Moreover,
with respect to terminal fees, under the 1997 Concession Agreement, the same is
further subject to “Interim Adjustments” not previously stipulated in the draft
Concession Agreement. Finally, the change in the currency stipulated for “Public
Utility Revenues” under the 1997 Concession Agreement, except terminal fees, gives
PIATCO an added benefit which was not available at the time of bidding.
b. Assumption by the
Government of the liabilities of
PIATCO in the event of the latter’s
default thereof
Under the draft Concession Agreement, default by PIATCO of any of its
obligations to creditors who have provided, loaned or advanced funds for the NAIA
IPT III project does not result in the assumption by the Government of these
liabilities.
However, the 1997 Concession Agreement provides:
Section 4.04 Assignment.
(b) In the event Concessionaire should default in the payment of an Attendant
Liability, and the default has resulted in the acceleration of the payment due date of
the Attendant Liability prior to its stated date of maturity, the Unpaid Creditors and
Concessionaire shall immediately inform GRP in writing of such default. GRP shall,
within one hundred eighty (180) Days from receipt of the joint written notice of the
Unpaid Creditors and Concessionaire, either (i) take over the Development Facility
and assume the Attendant Liabilities, or (ii) allow the Unpaid Creditors, if
qualified, to be substituted as concessionaire and operator of the Development
Facility in accordance with the terms and conditions hereof, or designate a
qualified operator acceptable to GRP to operate the Development Facility,
likewise under the terms and conditions of this Agreement; Provided that if at the
end of the 180-day period GRP shall not have served the Unpaid Creditors and
Concessionaire written notice of its choice, GRP shall be deemed to have elected to
take over the Development Facility with the concomitant assumption of Attendant
Liabilities.
(c) If GRP should, by written notice, allow the Unpaid Creditors to be substituted
as concessionaire, the latter shall form and organize a concession company qualified
to take over the operation of the Development Facility. If the concession company
should elect to designate an operator for the Development Facility, the concession
company shall in good faith identify and designate a qualified operator acceptable to
GRP within one hundred eighty (180) days from receipt of GRP’s written notice. If
the concession company, acting in good faith and with due diligence, is unable to
designate a qualified operator within the aforesaid period, then GRP shall at the
end of the 180-day period take over the Development Facility and assume
Attendant Liabilities.
The term “Attendant Liabilities” under the 1997 Concession Agreement is
defined as:
Attendant Liabilities refer to all amounts recorded and from time to time outstanding
in the books of the Concessionaire as owing to Unpaid Creditors who have
provided, loaned or advanced funds actually used for the Project, including all
interests, penalties, associated fees, charges, surcharges, indemnities,
reimbursements and other related expenses, and further including amounts owed by
Concessionaire to its suppliers, contractors and sub-contractors.
Under the above quoted portions of Section 4.04 in relation to the definition of
“Attendant Liabilities,” default by PIATCO of its loans used to finance the
NAIA IPT III project triggers the occurrence of certain events that leads to the
assumption by the Government of the liability for the loans. Only in one
Page 20 of 29
instance may the Government escape the assumption of PIATCO’s liabilities,
i.e., when the Government so elects and allows a qualified operator to take over
as Concessionaire. However, this circumstance is dependent on the existence
and availability of a qualified operator who is willing to take over the rights and
obligations of PIATCO under the contract, a circumstance that is not entirely
within the control of the Government.
Without going into the validity of this provision at this juncture, suffice it to state
that Section 4.04 of the 1997 Concession Agreement may be considered a form of
security for the loans PIATCO has obtained to finance the project, an option
that was not made available in the draft Concession Agreement. Section 4.04 is
an important amendment to the 1997 Concession Agreement because it grants
PIATCO a financial advantage or benefit which was not previously made
available during the bidding process. This financial advantage is a significant
modification that translates to better terms and conditions for PIATCO.
It is inevitable for the awardee of the contract to seek alternate sources of funds to
support the project. Be that as it may, this Court maintains that amendments to the
contract bidded upon should always conform to the general policy on public
bidding if such procedure is to be faithful to its real nature and purpose. By its
very nature and characteristic, competitive public bidding aims to protect the public
interest by giving the public the best possible advantages through open competition.
It has been held that the three principles in public bidding are (1) the offer to the
public; (2) opportunity for competition; and (3) a basis for the exact comparison
of bids.
Thus, upon a concrete showing that, as in this case, the contract signed by the
government and the contract-awardee is an entirely different contract from the
contract bidded, courts should not hesitate to strike down said contract in its entirety
for violation of public policy on public bidding.
Any government action which permits any substantial variance between the
conditions under which the bids are invited and the contract executed after the
award thereof is a grave abuse of discretion amounting to lack or excess of
jurisdiction which warrants proper judicial action.
In view of the above discussion, the fact that the foregoing substantial amendments
were made on the 1997 Concession Agreement renders the same null and void for
being contrary to public policy. These amendments convert the 1997 Concession
Agreement to an entirely different agreement from the contract bidded out or the
draft Concession Agreement
III. Direct Government Guarantee
Article IV, Section 4.04(b) and (c), in relation to Article 1.06, of the 1997
Concession Agreement provides:
Section 4.04 Assignment
(b) In the event Concessionaire should default in the payment of an
Attendant Liability, and the default resulted in the acceleration of the payment
due date of the Attendant Liability prior to its stated date of maturity, the
Unpaid Creditors and Concessionaire shall immediately inform GRP in
writing of such default. GRP shall within one hundred eighty (180) days from
receipt of the joint written notice of the Unpaid Creditors and Concessionaire, either
(i) take over the Development Facility and assume the Attendant Liabilities, or (ii)
allow the Unpaid Creditors, if qualified to be substituted as concessionaire and
operator of the Development facility in accordance with the terms and conditions
hereof, or designate a qualified operator acceptable to GRP to operate the
Development Facility, likewise under the terms and conditions of this Agreement;
Provided, that if at the end of the 180-day period GRP shall not have served the
Unpaid Creditors and Concessionaire written notice of its choice, GRP shall be
deemed to have elected to take over the Development Facility with the
concomitant assumption of Attendant Liabilities.
(c) If GRP, by written notice, allow the Unpaid Creditors to be substituted as
concessionaire, the latter shall form and organize a concession company qualified to
takeover the operation of the Development Facility. If the concession company
should elect to designate an operator for the Development Facility, the concession
company shall in good faith identify and designate a qualified operator acceptable to
GRP within one hundred eighty (180) days from receipt of GRP’s written notice. If
the concession company, acting in good faith and with due diligence, is unable to
designate a qualified operator within the aforesaid period, then GRP shall at the
end of the 180-day period take over the Development Facility and assume
Attendant Liabilities.
Section 1.06. Attendant Liabilities
Attendant Liabilities refer to all amounts recorded and from time to time
outstanding in the books of the Concessionaire as owing to Unpaid Creditors
who have provided, loaned or advanced funds actually used for the Project,
including all interests, penalties, associated fees, charges, surcharges,
indemnities, reimbursements and other related expenses, and further including
amounts owed by Concessionaire to its suppliers, contractors and sub-contractors.
It is clear from the above-quoted provisions that Government, in the event that
PIATCO defaults in its loan obligations, is obligated to pay “all amounts recorded
Page 21 of 29
and from time to time outstanding from the books” of PIATCO which the latter owes
to its creditors.
It should be noted, however, that even if the Government chooses the second option,
which is to allow PIATCO’s unpaid creditors operate NAIA IPT III, the Government
is still at a risk of being liable to PIATCO’s creditors should the latter be unable to
designate a qualified operator within the prescribed period. In effect, whatever
option the Government chooses to take in the event of PIATCO’s failure to
fulfill its loan obligations, the Government is still at a risk of assuming
PIATCO’s outstanding loans. Thus, the Government’s assumption of liability is
virtually out of its control. The Government under the circumstances provided for
in the 1997 Concession Agreement is at the mercy of the existence, availability and
willingness of a qualified operator. The above contractual provisions constitute a
direct government guarantee which is prohibited by law.
As such, direct guarantee, subsidy and equity by the government in these projects are
strictly prohibited. This is but logical for if the government would in the end still
be at a risk of paying the debts incurred by the private entity in the BOT
projects, then the purpose of the law is subverted.
Section 2(n) of the BOT Law defines direct guarantee as follows:
(n) Direct government guarantee — An agreement whereby the government or any
of its agencies or local government units assume responsibility for the repayment of
debt directly incurred by the project proponent in implementing the project in
case of a loan default.
Clearly by providing that the Government “assumes” the attendant liabilities, which
consists of PIATCO’s unpaid debts, the 1997 Concession Agreement provided for a
direct government guarantee for the debts incurred by PIATCO in the
implementation of the NAIA IPT III project. It is of no moment that the relevant
sections are subsumed under the title of “assignment”. The provisions providing for
direct government guarantee which is prohibited by law is clear from the terms
thereof.
IV. Temporary takeover of business affected with public interest
Article XII, Section 17 of the 1987 Constitution provides:
Section 17. In times of national emergency, when the public interest so requires, the
State may, during the emergency and under reasonable terms prescribed by it,
temporarily take over or direct the operation of any privately owned public utility or
business affected with public interest.
The above provision pertains to the right of the State in times of national emergency,
and in the exercise of its police power, to temporarily take over the operation of any
business affected with public interest. In the 1986 Constitutional Commission, the
term “national emergency” was defined to include threat from external aggression,
calamities or national disasters, but not strikes “unless it is of such proportion that
would paralyze government service.” The duration of the emergency itself is the
determining factor as to how long the temporary takeover by the government would
last. The temporary takeover by the government extends only to the operation of the
business and not to the ownership thereof. As such the government is not required
to compensate the private entity-owner of the said business as there is no
transfer of ownership, whether permanent or temporary. The private entity-owner
affected by the temporary takeover cannot, likewise, claim just compensation for the
use of the said business and its properties as the temporary takeover by the
government is in exercise of its police power and not of its power of eminent
domain.
Article V, Section 5.10 (c) of the 1997 Concession Agreement provides:
Section 5.10 Temporary Take-over of operations by GRP.
(c) In the event the development Facility or any part thereof and/or the operations
of Concessionaire or any part thereof, become the subject matter of or be included in
any notice, notification, or declaration concerning or relating to acquisition, seizure
or appropriation by GRP in times of war or national emergency, GRP shall, by
written notice to Concessionaire, immediately take over the operations of the
Terminal and/or the Terminal Complex. During such take over by GRP, the
Concession Period shall be suspended; provided, that upon termination of war,
hostilities or national emergency, the operations shall be returned to Concessionaire,
at which time, the Concession period shall commence to run again. Concessionaire
shall be entitled to reasonable compensation for the duration of the temporary
take over by GRP, which compensation shall take into account the reasonable
cost for the use of the Terminal and/or Terminal Complex, (which is in the
amount at least equal to the debt service requirements of Concessionaire, if the
temporary take over should occur at the time when Concessionaire is still servicing
debts owed to project lenders), any loss or damage to the Development Facility, and
other consequential damages. If the parties cannot agree on the reasonable
compensation of Concessionaire, or on the liability of GRP as aforesaid, the matter
shall be resolved in accordance with Section 10.01 [Arbitration]. Any amount
determined to be payable by GRP to Concessionaire shall be offset from the amount
next payable by Concessionaire to GRP.
Page 22 of 29
PIATCO cannot, by mere contractual stipulation, contravene the Constitutional
provision on temporary government takeover and obligate the government to
pay “reasonable cost for the use of the Terminal and/or Terminal Complex.”
V. Regulation of Monopolies
A monopoly is “a privilege or peculiar advantage vested in one or more persons or
companies, consisting in the exclusive right (or power) to carry on a particular
business or trade, manufacture a particular article, or control the sale of a particular
commodity.” The 1987 Constitution strictly regulates monopolies, whether private
or public, and even provides for their prohibition if public interest so
requires. Article XII, Section 19 of the 1987 Constitution states:
Sec. 19. The state shall regulate or prohibit monopolies when the public interest so
requires. No combinations in restraint of trade or unfair competition shall be
allowed.
Clearly, monopolies are not per se prohibited by the Constitution but may be
permitted to exist to aid the government in carrying on an enterprise or to aid in the
performance of various services and functions in the interest of the public.
Nonetheless, a determination must first be made as to whether public interest
requires a monopoly. As monopolies are subject to abuses that can inflict severe
prejudice to the public, they are subject to a higher level of State regulation than an
ordinary business undertaking.
In the cases at bar, PIATCO, under the 1997 Concession Agreement and the ARCA,
is granted the “exclusive right to operate a commercial international passenger
terminal within the Island of Luzon” at the NAIA IPT III. This is with the exception
of already existing international airports in Luzon such as those located in the Subic
Bay Freeport Special Economic Zone (“SBFSEZ”), Clark Special Economic Zone
(“CSEZ”) and in Laoag City. As such, upon commencement of PIATCO’s operation
of NAIA IPT III, Terminals 1 and 2 of NAIA would cease to function as
international passenger terminals. This, however, does not prevent MIAA to use
Terminals 1 and 2 as domestic passenger terminals or in any other manner as it may
deem appropriate except those activities that would compete with NAIA IPT III in
the latter’s operation as an international passenger terminal. The right granted to
PIATCO to exclusively operate NAIA IPT III would be for a period of twenty-five
(25) years from the In-Service Date and renewable for another twenty-five (25) years
at the option of the government. Both the 1997 Concession Agreement and the
ARCA further provide that, in view of the exclusive right granted to PIATCO,
the concession contracts of the service providers currently servicing Terminals
1 and 2 would no longer be renewed and those concession contracts whose
expiration are subsequent to the In-Service Date would cease to be effective on
the said date.
The operation of an international passenger airport terminal is no doubt an
undertaking imbued with public interest. In entering into a Build–Operate-and-
Transfer contract for the construction, operation and maintenance of NAIA IPT III,
the government has determined that public interest would be served better if private
sector resources were used in its construction and an exclusive right to operate be
granted to the private entity undertaking the said project, in this case
PIATCO. Nonetheless, the privilege given to PIATCO is subject to reasonable
regulation and supervision by the Government through the MIAA, which is the
government agency authorized to operate the NAIA complex, as well as DOTC, the
department to which MIAA is attached.
This is in accord with the Constitutional mandate that a monopoly which is not
prohibited must be regulated. While it is the declared policy of the BOT Law to
encourage private sector participation by “providing a climate of minimum
government regulations,” the same does not mean that Government must completely
surrender its sovereign power to protect public interest in the operation of a public
utility as a monopoly. The operation of said public utility can not be done in an
arbitrary manner to the detriment of the public which it seeks to serve. The right
granted to the public utility may be exclusive but the exercise of the right cannot run
riot. Thus, while PIATCO may be authorized to exclusively operate NAIA IPT III
as an international passenger terminal, the Government, through the MIAA, has the
right and the duty to ensure that it is done in accord with public interest. PIATCO’s
right to operate NAIA IPT III cannot also violate the rights of third parties.
Section 3.01(e) of the 1997 Concession Agreement and the ARCA provide:
3.01 Concession Period
(e) GRP confirms that certain concession agreements relative to certain
services and operations currently being undertaken at the Ninoy Aquino International
Airport passenger Terminal I have a validity period extending beyond the In-
Service Date. GRP through DOTC/MIAA, confirms that these services and
operations shall not be carried over to the Terminal and the Concessionaire is under
no legal obligation to permit such carry-over except through a separate agreement
duly entered into with Concessionaire. In the event Concessionaire becomes
involved in any litigation initiated by any such concessionaire or operator, GRP
undertakes and hereby holds Concessionaire free and harmless on full indemnity
basis from and against any loss and/or any liability resulting from any such litigation,
including the cost of litigation and the reasonable fees paid or payable to
Concessionaire’s counsel of choice, all such amounts shall be fully deductible by
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way of an offset from any amount which the Concessionaire is bound to pay GRP
under this Agreement.
During the oral arguments on December 10, 2002, the counsel for the petitioners-in-
intervention for G.R. No. 155001 stated that there are two service providers whose
contracts are still existing and whose validity extends beyond the In-Service
Date. One contract remains valid until 2008 and the other until 2010.
We hold that while the service providers presently operating at NAIA Terminal 1 do
not have an absolute right for the renewal or the extension of their respective
contracts, those contracts whose duration extends beyond NAIA IPT III’s In-Service-
Date should not be unduly prejudiced. These contracts must be respected not just by
the parties thereto but also by third parties. PIATCO cannot, by law and certainly
not by contract, render a valid and binding contract nugatory. PIATCO, by the mere
expedient of claiming an exclusive right to operate, cannot require the Government
to break its contractual obligations to the service providers. In contrast to the arrastre
and stevedoring service providers in the case of Anglo-Fil Trading Corporation v.
Lazaro whose contracts consist of temporary hold-over permits, the affected service
providers in the cases at bar, have a valid and binding contract with the Government,
through MIAA, whose period of effectivity, as well as the other terms and conditions
thereof, cannot be violated.
VI. CONCLUSION
In sum, this Court rules that in view of the absence of the requisite financial capacity
of the Paircargo Consortium, predecessor of respondent PIATCO, the award by the
PBAC of the contract for the construction, operation and maintenance of the NAIA
IPT III is null and void. Further, considering that the 1997 Concession Agreement
contains material and substantial amendments, which amendments had the effect of
converting the 1997 Concession Agreement into an entirely different agreement from
the contract bidded upon, the 1997 Concession Agreement is similarly null and void
for being contrary to public policy. The provisions under Sections 4.04(b) and (c) in
relation to Section 1.06 of the 1997 Concession Agreement and Section 4.04(c) in
relation to Section 1.06 of the ARCA, which constitute a direct government
guarantee expressly prohibited by, among others, the BOT Law and its Implementing
Rules and Regulations are also null and void. The Supplements, being accessory
contracts to the ARCA, are likewise null and void.
WHEREFORE, the 1997 Concession Agreement, the Amended and Restated
Concession Agreement and the Supplements thereto are set aside for being null
and void.SO ORDERED.
Development Bank of the Philippines v. Arcilla
Petition for certiorari June 30, 2005 Ponente: Callejo, Sr., J.
FACTS:
Atty. Felipe P. Arcilla, Jr. was employed by the Development Bank of
the Philippines (DBP) in October 1981. He availed of an Individual Housing
Project loan sometime in 1982. In 1983, DBP and Arcilla executed a Deed of
Conditional Sale over a parcel of land, including the house to be constructed
on the property, for P160,000.00. Arcilla borrowed the amount from DBP
for the purchase of the lot and the construction of the house. The loan was
payable in 25 years, with a P1,417.91 amortization per month, at 9%
interest per annum.
DBP gave Arcilla the option of converting his loan into a regular loan if
he retired early. By 1985, the amortization amount increased to P1,691.51.
Arcilla opted for early retirement in 1986, and so the loan was converted
into a regular loan. In 1987, Arcilla signed three promissory notes
amounting to P186,364.15, and was obliged to pay service charges and
interest. DBP reserved the right to increase or decrease the interest rate of
the loan as well as other charges and fees, with prior notice to Arcilla. DBP
later granted Arcilla a cash advance of P32,000.00, at 9% per annum, which
was consolidated to the oustanding balance of Arcilla’s original balance.
Arcilla later defaulted on payments. As of October 31, 1990, the
outstanding balance was P241,940.93, including interest, fees, and
penalties. DBP rescinded the Conditional Sale Agreement in 1990, but in
January 1992 DBP offered Arcilla the opportunity to repurchase the lot upon
full payment of the current appraisal or the updated total, whichever was
higher. This offer was reiterated in October 7, 1992. Arcilla did not respond.
DBP placed the property up for sale at public bidding on February 14, 1994.
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 Arcilla filed a case against DBP, alleging that DBP failed to furnish him strictly with R.A. No. 3765 did not affect the validity and enforceability of
with the disclosure statement required by Republic Act (R.A.) No. 37651 and the loan agreement. DBP interposed a counterclaim for the possession of
Central Bank (CB) Circular No. 1582 prior to the execution of the deed of the property.
conditional sale and the conversion of his loan account with the bank into a
regular housing loan account. DBP countered that it substantially complied The RTC ruled in Arcilla’s favor, ordering DBP to furnish Arcilla with the
with R.A. No. 3765 and CB Circular No. 158 because the details required required disclosures, and rendered DBP’s rescission null and void. On
were disclosed in the promissory notes, deed of conditional sale and the appeal, however, the Court of Appeals reversed the RTC, ruling that DBP
required notices sent to Arcilla. DBP further argued that its failure to comply substantially complied with R.A. No. 3765 and CB Circular No. 158. Both
parties appealed to the Supreme Court: Arcilla, for a reversal of the CA
ruling and reversion to the RTC ruling, and DBP for partial reconsideration in
1 From the case: Section 1 of R.A. No. 3765 provides that prior to the asking the CA to order Arcilla to vacate the property.
consummation of a loan transaction, the bank, as creditor, is obliged to furnish a
client with a clear statement, in writing, setting forth, to the extent applicable and in
accordance with the rules and regulations prescribed by the Monetary Board of the Issues:
Central Bank of the Philippines, the following information:
1. Was DBP compliant with R.A. No. 3765 and CB Circular No. 158?
(1) the cash price or delivered price of the property or service to 2. Was Arcilla liable to vacate the property and pay rentals for his
be acquired;
occupation of the property from the time of the notarial rescission?
(2) the amounts, if any, to be credited as down payment and/or
trade-in;
(3) the difference between the amounts set forth under clauses (1)
and (2) Ratio: If the borrower is not duly informed of the data required by the law
(4) the charges, individually itemized, which are paid or to be prior to the consummation of the availment or drawdown, the lender will
paid by such person in connection with the transaction but which are
not incident to the extension of credit;
have no right to collect such charge or increases thereof, even if stipulated in
(5) the total amount to be financed; the promissory note. However, such failure shall not affect the validity or
(6) the finance charges expressed in terms of pesos and centavos; enforceability of any contract or transaction.
and
(7) the percentage that the finance charge bears to the total
Held:
amount to be financed expressed as a simple annual rate on the
outstanding unpaid balance of the obligation.
1. Yes, DBP substantially complied with R.A. No. 3765 and CB Circular
2 Also from the case: Under Circular No. 158 of the Central Bank, the information required by No. 158. The Court found that DBP failed to disclose the requisite
R.A. No. 3765 shall be included in the contract covering the credit transaction or any other
document to be acknowledged and signed by the debtor, thus: information in the disclosure statement form. Ordinarily, the lender has no
right to collect any interest, charges, or fees without due notice to the
The contract covering the credit transaction, or any other document to be acknowledged and
signed by the debtor, shall indicate the above seven items of information. In addition, the borrower. However, DBP , did include such information on interests,
contract or document shall specify additional charges, if any, which will be collected in case charges, fees, and penalties in the loan transaction documents between it
certain stipulations in the contract are not met by the debtor.
and Arcilla. The Court considered this as subtantial compliance. Additionally,
Furthermore, the contract or document shall specify additional charges, if any, which will be
collected in case certain stipulations in the contract are not met by the debtor.
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there was no evidence that DBP sought to collect interest, charges, or fees
beyond what was contained in the documents provided to Arcilla.
2. Yes, Arcilla is liable to vacate the property, but the Court made no
ruling on the issue of rentals. The Court adopted the findings of the CA,
stating that had Arcilla been an ordinary borrower, it would have been
inclined to be stricter in the application of the Truth in Lending Act, insisting
that the borrower be fully informed of what he is entering into. However,
the Court noted that Arcilla was a lawyer, and so presumed that Arcilla
would not be so negligent as to sign papers he had not carefully studied.
Additionally, as an employee of DBP, Arcilla ought to have known the terms
of the loan he was applying for.
The Court remanded the matter of the determination of rental
payments to the RTC, as no evidence was adduced by DBP with respect to
such rentals.
Disposition: Arcilla’s appeal is DENIED, CA ruling is UPHELD; case remanded
to RTC for determination of reasonable rental payments.
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 T-27828, 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 Beluso’s 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.
1. The spouses Beluso, however, failed to make any payment of the
foregoing amounts.
2. On 2 September 1998, UCPB demanded that the spouses Beluso
pay their total obligation of P2,932,543.00 plus 25% attorney’s
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.
3. On 9 February 1999, the spouses Beluso filed a Petition for
Annulment, Accounting and Damages against UCPB with the RTC
of Makati City.
4. Trial court declared in its judgment that:
a. the interest rate used by [UCPB] void
b. the foreclosure and Sheriff’s Certificate of Sale void
c. UCPB is ordered to return to [the spouses Beluso] the
properties subject of the foreclosure
d. UCPB to pay [the spouses Beluso] the amount of P50,000.00
by way of attorney’s fees
e. UCPB to pay the costs of suit.
f. 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 attorney’s
fees or the costs of suit.
ISSUES:
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
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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.
Sia vs. Court of Appeals G.R. No. 102970, May 13, 1990
Contract of the use of a safety deposit box of a bank is not a deposit but a lease
under Sec 72, A of General Banking Act. Accordingly, it should have lost no time
in notifying the petitioner in order that the box could have been opened to retrieve
the stamps, thus saving the same from further deterioration and loss. The bank’s
negligence aggravated the injury or damage to the stamp collection..
Facts: Plaintiff Luzon Sia rented a safety deposit box of Security Bank and Trust
Co. (Security Bank) at its Binondo Branch wherein he placed his collection of
stamps. The said safety deposit box leased by the plaintiff was at the bottom or at the
lowest level of the safety deposit boxes of the defendant bank. During the floods that
took place in 1985 and 1986, floodwater entered into the defendant bank’s premises,
seeped into the safety deposit box leased by the plaintiff and caused, according
damage to his stamps collection. Security Bank rejected the plaintiff’s claim for
compensation for his damaged stamps collection.
Sia, thereafter, instituted an action for damages against the defendant bank. Security
Bank contended that its contract with the Sia over safety deposit box was one of
lease and not of deposit and, therefore, governed by the lease agreement which
should be the applicable law; the destruction of the plaintiff’s stamps collection was
due to a calamity beyond obligation on its part to notify the plaintiff about the
floodwaters that inundated its premises at Binondo branch which allegedly seeped
into the safety deposit box leased to the plaintiff. The trial court rendered in favor of
plaintiff Sia and ordered Sia to pay damages.
Issue: Whether or not the Bank is liable for negligence.
Held: Contract of the use of a safety deposit box of a bank is not a deposit but a
lease. Section 72 of the General Banking Act [R.A. 337, as amended] pertinently
provides: In addition to the operations specifically authorized elsewhere in this Act,
banking institutions other than building and loan associations may perform the
following services (a) Receive in custody funds, documents, and valuable objects,
and rent safety deposit boxes for the safequarding of such effects.
As correctly held by the trial court, Security Bank was guilty of negligence. The
bank’s negligenceaggravated the injury or damage to the stamp collection. SBTC
was aware of the floods of 1985 and 1986; it also knew that the floodwaters
inundated the room where the safe deposit box was located. In view thereof, it
should have lost no time in notifying the petitioner in order that the box could have
been opened to retrieve the stamps, thus saving the same from further deterioration
and loss. In this respect, it failed to exercise the reasonable care and prudence
expected of a good father of a family, thereby becoming a party to the aggravation of
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the injury or loss. Accordingly, the aforementioned fourth characteristic of a
fortuitous event is absent. Article 1170 of the Civil Code, which reads “Those who in
the performance of their obligation are guilty of fraud, negligence, or delay, and
those who in any manner contravene the tenor thereof, are liable for damages” is
applicable. Hence, the petition was granted.
The provisions contended by Security Bank in the lease agreement which are meant
to exempt SBTC from any liability for damage, loss or destruction of the contents of
the safety deposit box which may arise from its own agents’ fraud, negligence or
delay must be stricken down for being contrary to law and public policy.
Transfield Philippines vs Luzon Hydro Electric Corp. GR No 146717, Nov
22, 2004
The independent nature of the letter of credit may be: (a) independence in toto
where the credit is independent from the justification aspect and is a separate
obligation from the underlying agreement like for instance a typical standby; or
(b) independence may be only as to the justification aspect like in a commercial
letter of credit or repayment standby, which is identical with the same obligations
under the underlying agreement. In both cases the payment may be enjoined if in
the light of the purpose of the credit the payment of the credit would constitute
fraudulent abuse of the credit.
Facts: Transfield Philippines (Transfield) entered into a turn-key contract with Luzon
Hydro Corp. (LHC).Under the contract, Transfield were to construct a hydro-electric
plants in Benguet and Ilocos. Transfield was given the sole responsibility for the
design, construction, commissioning, testing and completion of the Project. The
contract provides for a period for which the project is to be completed and also
allows for the extension of the period provided that the extension is based on
justifiable grounds such as fortuitous event. In order to guarantee performance by
Transfield, two stand-by letters of credit were required to be opened. During the
construction of the plant, Transfield requested for extension of time citing typhoon
and various disputes delaying the construction. LHC did not give due course to the
extension of the period prayed for but referred the matter to arbitration committee.
Because of the delay in the construction of the plant, LHC called on the stand-by
letters of credit because of default. However, the demand was objected by Transfield
on the ground that there is still pending arbitration on their request for extension of
time.
Issue: Whether or not LHC can collect from the letters of credit despite the pending
arbitration case
Held: Transfield’s argument that any dispute must first be resolved by the parties,
whether through negotiations or arbitration, before the beneficiary is entitled to call
on the letter of credit in essence would convert the letter of credit into a mere
guarantee.
The independent nature of the letter of credit may be: (a) independence in toto where
the credit is independent from the justification aspect and is a separate obligation
from the underlying agreement like for instance a typical standby; or (b)
independence may be only as to the justification aspect like in a commercial letter of
credit or repayment standby, which is identical with the same obligations under the
underlying agreement. In both cases the payment may be enjoined if in the light of
the purpose of the credit the payment of the credit would constitute fraudulent abuse
of the credit.
Jurisprudence has laid down a clear distinction between a letter of credit and a
guarantee in that the settlement of a dispute between the parties is not a pre-requisite
for the release of funds under a letter of credit. In other words, the argument is
incompatible with the very nature of the letter of credit. If a letter of credit is
drawable only after settlement of the dispute on the contract entered into by the
applicant and the beneficiary, there would be no practical and beneficial use for
letters of credit in commercial transactions.
The engagement of the issuing bank is to pay the seller or beneficiary of the credit
once the draft and the required documents are presented to it. The so-called
“independence principle” assures the seller or the beneficiary of prompt payment
independent of any breach of the main contract and precludes the issuing bank from
determining whether the main contract is actually accomplished or not. Under this
principle, banks assume no liability or responsibility for the form, sufficiency,
accuracy, genuineness, falsification or legal effect of any documents, or for the
general and/or particular conditions stipulated in the documents or superimposed
thereon, nor do they assume any liability or responsibility for the description,
quantity, weight, quality, condition, packing, delivery, value or existence of the
goods represented by any documents, or for the good faith or acts and/or omissions,
solvency, performance or standing of the consignor, the carriers, or the insurers of
the goods, or any other person whomsoever.
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