G.R. No.

111243 May 25, 1994 the Bangko Sentral as the Central Monetary Authority of the
Philippines. Section 6, Article II of R.A. No. 7653 provides:
JESUS ARMANDO A.R. TARROSA, petitioner, 
vs. Sec. 6. Composition of the Monetary Board.
GABRIEL C. SINGSON and HON. SALVADOR M. The powers and functions of the Bangko
ENRIQUEZ III, respondents Sentral shall be exercised by the Bangko
Sentral Monetary Board, hereafter referred to
Marlon B. Llaunder for petitioner. as the Monetary Board, composed of seven (7)
members appointed by the President of the
Philippines for a term of six (6) years.

QUIASON, J.: The seven (7) members are:

This is a petition for prohibition filed by petitioner as a
"taxpayer," questioning the appointment of respondent Gabriel
Singson as Governor of the Bangko Sentral Ng Pilipinas for
not having been confirmed by the Commission on
Appointments. The petition seeks to enjoin respondent
Singson from the performance of his functions as such official
until his appointment is confirmed by the Commission on
Appointments and respondent Salvador M. Enriquez,
Secretary of Budget and Management, from disbursing public
funds in payment of the salaries and emoluments of
respondent Singson.
I
Respondent Singson was appointed Governor of the Bangko
Sentral by President Fidel V. Ramos on July 2, 1993, effective
on July 6, 1993 (Rollo, p. 10).
Petitioner argues that respondent Singson's appointment is
null and void since it was not submitted for confirmation to the
Commission on Appointments. The petition is anchored on the
provisions of Section 6 of R.A. No. 7653, which established
(a) The Governor of the Bangko Sentral, who
shall be the Chairman of the Monetary
Board. The Governor of the Bangko Sentral
shall be head of a department and his
appointment shall be subject to confirmation by
the Commission on Appointments. Whenever
the Governor is unable to attend a meeting of
the Board, he shall designate a Deputy
Governor to act as his alternate: Provided, That
in such event, the Monetary Board shall
designate one of its members as acting
Chairman . . . (Emphasis supplied).
In their comment, respondents claim that Congress exceeded
its legislative powers in requiring the confirmation by the
Commission on Appointments of the appointment of the
Governor of the Bangko Sentral. They contend that an
appointment to the said position is not among the
appointments which have to be confirmed by the Commission
on Appointments, citing Section 16 of Article VII of the
Constitution which provides that:

1
 Sec. 16. The President shall nominate and, with
the consent of the Commission on
Appointments, appoint the heads of the
executive departments, ambassadors, other
public ministers and consuls, or officers of the
armed forces from the rank of colonel or naval
captain, and other officers whose appointments
are vested in him in this Constitution. He shall
also appoint all other officers of the
Government whose appointments are not
otherwise provided for by law, and those whom
he may be authorized by law to appoint. The
Congress may, by law, vest the appointment of
other officers lower in rank in the President
alone, in the courts, or in the heads of
department, agencies, commissions, or
boards . . . (Emphasis supplied).
Respondents also aver that the Bangko Sentral has its own
budget and accordingly, its budgetary requirements are not
subject to the provisions of the General Appropriations Act.
We dismiss the petition.
II
The instant petition is in the nature of a quo
warranto proceeding as it seeks the ouster of respondent
Singson and alleges that the latter is unlawfully holding or
exercising the powers of Governor of the Bangko Sentral (Cf.
Castro v. Del Rosario, 19 SCRA 196 [1967]). Such a special
civil action can only be commenced by the Solicitor General or
by a "person claiming to be entitled to a public office or
position unlawfully held or exercised by another" (Revised
Rules of Court, Rule 66, Sec. 6; Acosta v. Flor, 5 Phil. 18
[1905]).
2
In Sevilla v. Court of Appeals, 209 SCRA 637 (1992), we held
that the petitioner therein, who did not aver that he was
entitled to the office of the City Engineer of Cabanatuan City,
could not bring the action for quo warranto to oust the
respondent from said office as a mere usurper.
Likewise in Greene v. Knox, 175 N.Y. 432 (1903), 67 N.E. 910,
it was held that the question of title to an office, which must be
resolved in a quo warranto proceeding, may not be determined
in a suit to restrain the payment of salary to the person holding
such office, brought by someone who does not claim to be the
one entitled to occupy the said office.
It is obvious that the instant action was improvidently brought
by petitioner. To uphold the action would encourage every
disgruntled citizen to resort to the courts, thereby causing
incalculable mischief and hindrance to the efficient operation
of the governmental machinery (See Roosevelt v. Draper, 7
Abb. Pr. 108, 23 N.Y. 218).
Its capstone having been removed, the whole case of
petitioner collapses. Hence, there is no need to resolve the
question of whether the disbursement of public funds to pay
the salaries and emoluments of respondent Singson can be
enjoined. Likewise, the Court refrains from passing upon the
constitutionality of Section 6, R.A. No. 7653 in deference to the
principle that bars a judicial inquiry into a constitutional
question unless the resolution thereof is indispensable for the
determination of the case (Fernandez v. Torres, 215 SCRA
489 [1992]).
However for the information of all concerned, we call attention
to our decision in Calderon v. Carale, 208 SCRA 254 (1992),
with Justice Isagani A. Cruz dissenting, where we ruled that
Congress cannot by law expand the confirmation powers of
the Commission on Appointments and require confirmation of
appointment of other government officials not expressly
mentioned in the first sentence of Section 16 of Article VII of
the Constitution.
WHEREFORE, the petition is DENIED. No pronouncement as
to costs.
SO ORDERED.
G.R. No. 88435            January 16, 2002
DEVELOPMENT BANK OF THE PHILIPPINES, JESUS P.
ESTANISLAO, DOLORES A. SANTIAGO, LYNN H.
CATUNCAN, NORMA O. TERREL, MA. ANTONIA G.
REBUENO, petitioners,  government's commitment was embodied in the Policy
vs.
COMMISSION ON AUDIT, respondent.
In 1986, the Philippine government, under the administration
of then President Corazon C. Aquino, obtained from the World
Bank an Economic Recovery Loan ("ERL" for brevity) in the
amount of US$310 million. The ERL was intended to support
the recovery of the Philippine economy, at that time suffering
severely from the financial crisis that hit the country during the
latter part of the Marcos regime.
As a condition for granting the loan, the World Bank required
the Philippine government to rehabilitate the DBP which was
then saddled with huge non-performing loans. Accordingly, the
government committed to rehabilitate the DBP to make it a
viable and self-sustaining financial institution in recognition of
its developmental role in the economy. The DBP was expected
to continue "providing principally medium and long-term
financing to projects with risks higher than the private sector
may be willing to accept under reasonable terms." 4 The
Statement for the Development Bank of the Philippines which
stated in part:

CARPIO, J.: "4. Furthermore, like all financial institutions under

Central Bank supervision, DBP will now be required to
The Case have a private external audit, and its Board of Directors
will now be opened to adequate private sector
This is a petition for review on certiorari1 of the letter-decision representation. It is hoped that with these
of the Chairman of the Commission on Audit2 ("COA" for commitments, DBP can avoid the difficulties of the past
brevity) and the letter-decision of the COA en and can function as a competitive and viable financial
banc3 , prohibiting the Development Bank of the Philippines institution within the Philippine financial
("DBP" for brevity) from hiring a private external auditor. This system."5 (Emphasis supplied)
petition raises a question of first impression, whether or not the
constitutional power of the COA to examine and audit the DBP On November 28, 1986, the Monetary Board adopted
is exclusive and precludes a concurrent audit of the DBP by a Resolution No. 1079 amending the Central Bank's Manual of
private external auditor. Regulations for Banks and other Financial Intermediaries, in
line with the government's commitment to the World Bank to
The Antecedent Facts require a private external auditor for DBP. Thus, on December

3
5, 1986, the Central Bank Governor issued Central Bank
Circular No. 1124, providing that:
"SECTION 1. Subsection 1165.5 (Book I) is amended
to read as follows:
1165.5 Financial Audit. - Each Bank, whether
Government-owned or controlled or private,
shall cause an annual financial audit to be
conducted by an external independent auditor
not later than thirty (30) days after the close of
the calendar year or the fiscal year adopted by
the bank. x x x.
x x x The Audit of a Government-owned or
controlled bank by an external independent
auditor shall be in addition to and without
prejudice to that conducted by the Commission
on Audit in the discharge of its mandate under
existing law. x x x.
xxx
"SECTION 3. The requirement for an annual financial
audit by an external independent auditor shall extend
to specialized and unique government banks such as
the Land Bank of the Philippines and the Development
Bank of the Philippines."6
On December 12, 1986, pursuant to Central Bank Circular No.
1124 and the government's commitment to the World Bank,
DBP Chairman Jesus Estanislao wrote the COA seeking
approval of the DBP's engagement of a private external
auditor in addition to the COA.7
4
On January 2, 1987, to formalize its request for the ERL, the
Philippine government sent the World Bank a letter assuring
the World Bank that pursuant to Central Bank Circular No.
1124, "all Banks, including government banks, shall be fully
audited by external independent auditors x x x in addition to
that provided by the Commission on Audit." The letter was
signed by the Central Bank Governor and the Ministers of
Finance, Trade and Industry, and Economic Planning of the
Philippine government.8
On January 8, 1987, the Philippine government and World
Bank negotiating panels reached final agreement on the
private audit of the DBP, as follows:
"13. With respect to the draft Policy Statement, it was
agreed that Sections 4, 7 and 11 would be amended as
follows:
x x x (iii) Section 11 should in line with the letter
of Development Policy, confirm that the external
independent audits would commence with a
balance sheet audit as of December 31, 1986
and a full financial audit, including income
statements, starting with the period July 1 to
December 31, 1986. A copy of COA's letter
(referred to in par. 1, a draft of which is
attached as Annex VIII) regarding DBP's
appointment of a private external auditor will be
sent to the Bank before the distribution of the
loan documents to the Bank's Board, along with
a copy of the scope of audit as approved by
COA and satisfactory to the Bank.
With regard to the scope of the audit to be
undertaken by the private external auditors, the
terms of reference which will be issued to the
 selected auditors should be generally
consistent with the attached model terms of
reference for financial audits (Annex IX). These
general terms of reference were discussed
during negotiations and form a part of the World
Bank's guidelines for financial information on
financial institutions."9
On January 20, 1987, then COA Chairman Teofisto Guingona,
Jr. replied to the December 12, 1986 letter of the DBP
Chairman. The COA Chairman's reply stated that:
"x x x the Commission on Audit (COA) will interpose no
objection to your engagement of a private external
auditor as required by the Economic Recovery
Program Loan Agreements of 1987 provided that the
terms for said audit are first reviewed and approved by
the Commission."10
The following day, the COA Chairman also informed the
Consultant of the Central Bank that the COA interposed no
objection to the proposed scope of audit services to be
undertaken by the private external auditors to be engaged by
the DBP.11
On February 18, 1987, the Board of Directors of the DBP
approved the hiring of Joaquin Cunanan & Co. as the DBP's
private external auditor for calendar year 1986 as required by
Central Bank Circular No. 1124 and the World Bank. The DBP
Board of Directors placed a ceiling on the amount of
reimbursable out-of-pocket expenses that could be charged by
the private auditor.12
On February 23, 1987, the World Bank President, in his
Report to the Bank's Executive Directors on the Philippine
government's application for the ERL, certified that the
5
Philippine government was complying with the requirement of
a private external auditor. The World Bank President's
certification stated that:
"74. Accounting and Auditing. All banks both
government and private are now subject to accounting
and auditing standards as established by the Central
Bank. To ensure full public accountability, the Monetary
Board now requires that all government banks be
subject to annual audits by independent private
auditing firms, in addition to those normally undertaken
by the Government's Commission on Audit. DBP and
PNB have already selected private auditors, and
audited accounts for 1986 and 1987 will be a
requirement for the releases of the second and third
tranches, respectively, of the ERL."13
However, a change in the leadership of the COA suddenly
reversed the course of events. On April 27, 1987, the new
COA Chairman, Eufemio Domingo, wrote the Central Bank
Governor protesting the Central Bank's issuance of Circular
No. 1124 which allegedly encroached upon the COA's
constitutional and statutory power to audit government
agencies. The COA Chairman's letter informed the Governor
that:
"This Commission hereby registers its strong objection
to that portion of the CBP Circular No. 1124 which
requires government banks to engage private auditors
in addition to that conducted by the Commission on
Audit, and urges the immediate amendment thereof. It
is the position of this Commission that the said
requirement: (a) infringes on Article IX-D of the
Philippine Constitution; (b) violates Section 26 and 32
of the Government Auditing Code of the Philippines; (c)
exposes the financial programs and strategies of the
 Philippine Government to high security risks; (d) allows
the unnecessary and unconscionable expenditure of
government funds; and (e) encourages unethical
encroachment among professionals."14
On May 13, 1987, after learning that the DBP had signed a
contract with a private auditing firm for calendar year 1986, the
new COA Chairman wrote the DBP Chairman that the COA
resident auditors were under instructions to disallow any
payment to the private auditor whose services were
unconstitutional, illegal and unnecessary.15
On July 1, 1987, the DBP Chairman sent to the COA
Chairman a copy of the DBP's contract with Joaquin Cunanan
& Co., signed four months earlier on March 5, 1987. The DBP
Chairman's covering handwritten note sought the COA's
concurrence to the contract.16
During the pendency of the DBP Chairman's note-request for
concurrence, the DBP paid the billings of the private auditor in
the total amount of P487,321.1417 despite the objection of the
COA. On October 30, 1987, the COA Chairman issued a
Memorandum disallowing the payments, and holding the
following persons personally liable for such payment:
"SVP Fajardo who approved the voucher for payment;
VP Santiago who certified that the expenditure was
authorized, necessary and lawful; SM Terrel, Catuncan
and Rebueno who signed the checks; and the head of
office who signed the contract and who is immediately
and primarily responsible for the funds of the Bank."18
On January 19, 1988, the DBP Chairman wrote the COA
Chairman seeking reconsideration of the COA Chairman's
Memorandum.19 However, the DBP received no response until
August 29, 1988 when the COA Chairman issued a letter-
6
decision denying petitioner's July 1, 1987 note-request for
concurrence. The letter-decision, one of the two COA
decisions assailed in this petition, declared in part as follows:
"(a) In the letter to the Central Bank Governor x x x,
this Commission clearly stated its non-negotiable stand
on the issue in the following terms:
' x x x the very essence of the Commission on
Audit as an independent constitutional
commission in the total scheme of Government,
is its singular function to '[E]xamine, audit, and
settle x x x all accounts pertaining to x x x the
Government, or any of its subdivisions, x x x
including government-owned or controlled
corporations.' To allow private firms to interfere
in this governmental audit domain would be to
derogate the Constitutional supremacy of State
audit as the Government's guardian of the
people's treasury, and as the prime advocate of
economy in the use of government resources.'
xxx
"(c) In the letter to the Secretary of Finance dated
January 28, 1988 x x x, this Commission maintains:
1. 'COA is in no way prepared to permit 'use of
private auditors' except insofar as the law
allows, which is 'to deputize and retain in the
name of the Commission such certified public
accountants and other licensed professionals
not in the public service as it may deem
necessary to assist government auditors in
undertaking specialized audit engagements'
(Sec. 31, PD No 1445). Outside of this, the
 Commission does not consider the matter of
hiring private auditing firms a negotiable matter,
and this we want to emphasize to avoid future
embarrassment to the Government. The
Commission on Audit is a constitutionally-
created independent and separate body, and
neither Congress nor the Executive Department
has the power to detract from its mandated
duties, functions, and powers.
2. 'Since the proceeds of the proposed loan
accrue to the Republic of the Philippines as
borrower, it follows that its accounting and audit
must comply with the laws of this country. To
specify in the Loan Agreement that the loan
account, once released to the Government,
shall be 'audited by independent auditors
acceptable to the Bank' is not only to entirely
by-pass this Commission but to ignore as well
the Constitution and the laws of this country
which vests in this Commission the 'power,
authority, and duty to examine, audit, and settle
all accounts pertaining to the revenue and
receipts of, and expenditures or uses of funds
and property x x x pertaining to the
Government.' (Sec. 2, Art. IX-D, Phil.
Const.).1âwphi1.nêt
'Such brazen disregard of the fundamental law
of this country cannot be countenanced by this
Commission.'
"In view of all the foregoing, you are hereby advised:
7
"1. To desist from proceeding with the audit of Joaquin
Cunanan & Co. of the Bank's financial statements for
the year ending December 31, 1987.
"2. To refrain from making any payments out of the
funds of the Development Bank of the Philippines, in
the event that such audit services have already been
rendered, attention being invited to the following
provisions of the Government Auditing Code of the
Philippines:
'Sec. 108. General liability for unlawful
expenditures – Expenditures of government
funds or uses of government property in
violation of law or regulations shall be a
personal liability of the official or employee
found to be directly responsible therefore.'
"3. To restitute, within thirty (30) days from receipt
hereof, the total amount of ₱513,549.24 under CV Nos.
9136, 5014, 6201 and 4082 for professional services
rendered in the audit of the 1986 financial operations of
the Bank. Pursuant to the aforequoted provisions of
law, such unlawful expenditure is the personal liability
of the official directly responsible therefore.
"Please be guided accordingly."20
On September 26, 1988, the DBP Chairman appealed the
letter-decision to the COA en banc. On May 20, 1989, the
COA en banc, in a letter-decision, denied the DBP's appeal.
This letter-decision, now also assailed by the DBP, held that:
"Upon a circumspect evaluation of the grounds upon
which your instant request is predicated, this
Commission finds the same to be devoid of merit. As
hereunder demonstrated, the justifications offered do
not inspire rational belief in the mind of this
Commission.
"First, it bears stress that CB Circular No. 1124, series
of 1986, which has earlier been shown to be
constitutionally and legally infirm, cannot by any means
possess any binding and conclusive effect upon this
Commission and, hence, may not be properly invoked
in support of the instant appeal.
"Secondly, it was not the International Bank for
Reconstruction and Development which required the
audit of government banks by private auditing firm, but
the Central Bank itself.
"Thirdly, insofar as this Commission is concerned, PD
2029 is an anachronism of sorts if viewed in the light of
the present Constitution recognizing this Commission
as the supreme and exclusive audit institution of the
government. This is necessarily implicit from the bare
language of Section 2(1), Article IX-D thereof which,
despite the absence of the qualifying adjective
"exclusive" that anyway would be a surplusage, ought
to be reasonably construed as vesting in this
Commission the "power, authority, and duty" to audit all
government accounts to the exclusion of any other
person or entity, whether in the public or the private
sector. Expressio unius est exclusio alterius. A contrary
interpretation, such as that being pressed upon this
Commission, would reduce this constitutional
ordinance to an absurdity (reductio ad absurdum) as it
thereby would give rise to the rather confusing
spectacle, as it were, of a government agency or
corporation being audited not only by this Commission
but also and in addition thereto by one or two or
8
several private accounting firms – certainly a situation
never intended by the framers of the Constitution.
"Lastly, while this Commission has not lost sight of the
letter of then COA Chairman Guingona, Jr. to the DBP
Chairman, dated January 20, 1987, it has opted to be
guided and influenced by the more persuasive and
controlling COA Circular No. 860254 dated March 24,
1986, which in categorical and precise terms ordained
that:
'Accordingly, by way of reassertion and
reaffirmation of its primary audit jurisdiction, as
herein above defined, the Commission on Audit
hereby issues the following directives:
1. Any ongoing audit of a government-
owned and/or controlled corporation or
any of its subsidiaries or corporate
offsprings being conducted by a private
auditor or accounting firm shall cease
and terminate on April 15, 1986.
Henceforth, from and after said date, the
audit of said corporate entity shall be
undertaken solely and exclusively by the
Commission on Audit. x x x.'
"Premises considered, it is regretted that your instant
request for reconsideration has to be, as it is hereby,
denied."21
Hence, on June 14, 1989 the DBP filed this petition for review
with prayer for a temporary restraining order, assailing the two
COA letter-decisions for being contrary to the Constitution and
existing laws. On June 15, 1989 this Court issued a temporary
restraining order directing the COA to cease and desist from
enforcing its challenged letter-decisions. The Office of the
Solicitor General, in a Manifestation dated October 18, 1989,
declined to appear on behalf of the COA on the ground that
the Solicitor General was "taking a position adverse to that of
the COA." Consequently, a private counsel on pro bono basis
represented the COA.
The Issues
The DBP's petition raises the following issues:
1. Does the Constitution vest in the COA the sole and
exclusive power to examine and audit government
banks so as to prohibit concurrent audit by private
external auditors under any circumstance?
2. Is there an existing statute that prohibits government
banks from hiring private auditors in addition to the
COA? If there is none, is there an existing statute that
authorizes government banks to hire private auditors in
addition to the COA?
3. If there is no legal impediment to the hiring by
government banks of a private auditor, was the hiring
by the DBP of a private auditor in the case at bar
necessary, and were the fees paid by DBP to the
private auditor reasonable, under the circumstances?
The Court's Ruling
The DBP's petition is meritorious.
First Issue: Power of COA to Audit under the Constitution
The resolution of the primordial issue of whether or not the
COA has the sole and exclusive power to examine and audit
9
government banks involves an interpretation of Section 2,
Article IX-D of the 1987 Constitution. This Section provides as
follows:
"Sec. 2. (1) The Commission on Audit shall have the
power, authority, and duty to examine, audit, and
settleall accounts pertaining to the revenue and
receipts of, and expenditures or uses of funds and
property, owned and held in trust by, or pertaining to,
the Government, or any of its subdivisions, agencies,
or instrumentalities, including government-owned or
controlled corporations with original charters, x x x.
"(2) The Commission shall have the exclusive
authority, subject to the limitations in this Article, to
define the scope of its audit and examination, establish
the techniques and methods required therefore, and
promulgate accounting and auditing rules and
regulations, including those for the prevention and
disallowance of irregular, unnecessary, excessive,
extravagant, or unconscionable expenditures, or uses
of government funds and properties." (Emphasis
supplied)
The COA vigorously asserts that under the first paragraph of
Section 2, the COA enjoys the sole and exclusivepower to
examine and audit all government agencies, including the
DBP. The COA contends this is similar to its sole and
exclusive authority, under the second paragraph of the same
Section, to define the scope of its audit, promulgate auditing
rules and regulations, including rules on the disallowance of
unnecessary expenditures of government agencies. The bare
language of Section 2, however, shows that the COA's power
under the first paragraph is not declared exclusive, while its
authority under the second paragraph is expressly declared
"exclusive." There is a significant reason for this marked
difference in language.
During the deliberations of the Constitutional Commission,
Commissioner Serafin Guingona proposed the addition of the
word "exclusive" in the first paragraph of Section 2, thereby
granting the COA the sole and exclusive power to examine
and audit all government agencies. However, the
Constitutional Commission rejected the addition of the word
"exclusive" in the first paragraph of Section 2 and Guingona
was forced to withdraw his proposal. Commissioner Christian
Monsod explained the rejection in this manner:
"MR. MONSOD. Earlier Commissioner Guingona, in
withdrawing his amendment to add "EXCLUSIVE"
made a statement about the preponderant right of
COA.
"For the record, we would like to clarify the reason for
not including the word. First, we do not want an Article
that would constitute a disincentive or an obstacle to
private investment. There are government institutions
with private investments in them, and some of these
investors - Filipinos, as well as in some cases,
foreigners - require the presence of private auditing
firms, not exclusively, but concurrently. So this does
not take away the power of the Commission on Audit.
Second, there are certain instances where private
auditing may be required, like the listing in the stock
exchange. In other words, we do not want this
provision to be an unnecessary obstacle to
privatization of these companies or attraction of
investments."22 (Emphasis supplied)
Shortly thereafter, Commissioner Guingona attempted to
resurrect his amendment by proposing the following provision:
10
"Private auditing firms may not examine or audit
accounts pertaining to the revenue and receipts of, and
expenditures or uses of funds and property owned or
held in trust by or pertaining to the Government or any
of its subdivisions, agencies or instrumentalities."23
Guingona argued that a private audit in addition to the COA
audit would be a useless duplication and an unnecessary
expense on the part of government.
The Constitutional Commission also rejected this proposed
provision, after Commissioner Monsod made the following
explanation:
"MR. MONSOD. x x x But it is also a fact that even
government agencies, instrumentalities and
subdivisions sometimes borrow money from abroad.
And if we are at all going to preclude the possibility of
any concurrent auditing, if that is required, and insist
that it is only exclusively the government which can
audit, we may be unnecessarily tying their hands
without really accomplishing much more than what we
want. As long as the COA is there, and the COA's
power cannot be eliminated by law, by decree or
anything of that sort, then the government funds are
protected.
As far as the question of fees is concerned, this is
always negotiable. Besides, if one talks about auditing
fees, these are governed by certain regulations within
the auditing profession, beyond which auditing firms
cannot go. Furthermore, the government can always
refuse to pay unconscionable fees. So, that matter
really is not that relevant. But I think what we want to
insist on is that there should be some flexibility so that
a procedural requirement does not impede a
 substantive transaction as long as COA is
there."24 (Emphasis supplied)
The rejection of Guingona's second proposal put an end to all
efforts to grant the COA the sole and exclusive power to
examine and audit government agencies.
In sharp contrast, the Constitutional Commission placed the
word "exclusive" to qualify the authority of the COA under the
second paragraph of the same Section 2. The word
"exclusive" did not appear in the counterpart provisions of
Section 2 in the 1935 and 1973 Constitutions. 25 There is no
dispute that the COA's authority under the second paragraph
of Section 2 is exclusive as the language of the Constitution
admits of no other meaning. Thus, the COA has the exclusive
authority to decide on disallowances of unnecessary
government expenditures. Other government agencies and
their officials, as well as private auditors engaged by them,
cannot in any way intrude into this exclusive function of the
COA.
The qualifying word "exclusive" in the second paragraph of
Section 2 cannot be applied to the first paragraph which is
another sub-section of Section 2. A qualifying word is intended
to refer only to the phrase to which it is immediately
associated, and not to a phrase distantly located in another
paragraph or sub-section.26 Thus, the first paragraph of Section
2 must be read the way it appears, without the word
"exclusive", signifying that non-COA auditors can also
examine and audit government agencies. Besides, the framers
of the Constitution intentionallyomitted the word "exclusive" in
the first paragraph of Section 2 precisely to allow concurrent
audit by private external auditors.
The clear and unmistakable conclusion from a reading of the
entire Section 2 is that the COA's power to examine and audit
11
is non-exclusive. On the other hand, the COA's authority to
define the scope of its audit, promulgate auditing rules and
regulations, and disallow unnecessary expenditures is
exclusive.
Moreover, as the constitutionally mandated auditor of all
government agencies, the COA's findings and conclusions
necessarily prevail over those of private auditors, at least
insofar as government agencies and officials are concerned.
The superiority or preponderance of the COA audit over
private audit can be gleaned from the records of the
Constitutional Commission, as follows:
"MR. GUINGONA. Madam President, after consultation
with the honorable members of the Committee, I have
amended my proposed amendment by deleting the
word EXCLUSIVE because I was made to understand
that the Commission on Audit will still have
the preponderant power and authority to examine,
audit and settle."27 (Emphasis supplied)
The findings and conclusions of the private auditor may guide
private investors or creditors who require such private audit.
Government agencies and officials, however, remain bound by
the findings and conclusions of the COA, whether the matter
falls under the first or second paragraph of Section 2, unless of
course such findings and conclusions are modified or reversed
by the courts.
The power of the COA to examine and audit government
agencies, while non-exclusive, cannot be taken away from the
COA. Section 3, Article IX-D of the Constitution mandates that:
"Sec. 3. No law shall be passed exempting any entity
of the Government or its subsidiary in any guise
 whatsoever, or any investment of public funds, from the
jurisdiction of the Commission on Audit."
The mere fact that private auditors may audit government
agencies does not divest the COA of its power to examine and
audit the same government agencies. The COA is neither by-
passed nor ignored since even with a private audit the COA
will still conduct its usual examination and audit, and its
findings and conclusions will still bind government agencies
and their officials. A concurrent private audit poses no danger
whatsoever of public funds or assets escaping the usual
scrutiny of a COA audit.
Manifestly, the express language of the Constitution, and the
clear intent of its framers, point to only one indubitable
conclusion - the COA does not have the exclusive power to
examine and audit government agencies. The framers of the
Constitution were fully aware of the need to allow independent
private audit of certain government agencies in addition to the
COA audit, as when there is a private investment in a
government-controlled corporation, or when a government
corporation is privatized or publicly listed, or as in the case at
bar when the government borrows money from abroad.
In these instances the government enters the marketplace and
competes with the rest of the world in attracting investments or
loans. To succeed, the government must abide with the
reasonable business practices of the marketplace. Otherwise
no investor or creditor will do business with the government,
frustrating government efforts to attract investments or secure
loans that may be critical to stimulate moribund industries or
resuscitate a badly shattered national economy as in the case
at bar. By design the Constitution is flexible enough to meet
these exigencies. Any attempt to nullify this flexibility in the
instances mentioned, or in similar instances, will be ultra vires,
in the absence of a statute limiting or removing such flexibility.
12
The deliberations of the Constitutional Commission reveal
eloquently the intent of Section 2, Article IX-D of the
Constitution. As this Court has ruled repeatedly, the intent of
the law is the controlling factor in the interpretation of the
law.28 If a law needs interpretation, the most dominant
influence is the intent of the law.29 The intent of the law is that
which is expressed in the words of the law, which should be
discovered within its four corners aided, if necessary, by its
legislative history.30 In the case of Section 2, Article IX-D of the
Constitution, the intent of the framers of the Constitution is
evident from the bare language of Section 2 itself. The
deliberations of the Constitutional Commission confirm
expressly and even elucidate further this intent beyond any
doubt whatsoever.
There is another constitutional barrier to the COA's insistence
of exclusive power to examine and audit all government
agencies. The COA's claim clashes directly with the Central
Bank's constitutional power of "supervision" over banks under
Section 20, Article XII of the Constitution. This provision states
as follows:
"Sec. 20. The Congress shall establish an independent
central monetary authority, the members of whose
governing board must be natural-born Filipino citizens,
of known probity, integrity, and patriotism, the majority
of whom shall come from the private sector. They shall
also be subject to such other qualifications and
disabilities as may be prescribed by law. The authority
shall provide policy direction in the areas of money,
banking, and credit. It shall have supervision over the
operations of banks and exercise such regulatory
powers as may be provided by law over the operations
of finance companies and other institutions performing
similar functions." (Emphasis supplied)
Historically, the Central Bank has been conducting periodic
and special examination and audit of banks to determine the
soundness of their operations and the safety of the deposits of
the public. Undeniably, the Central Bank's power of
"supervision" includes the power to examine and audit banks,
as the banking laws have always recognized this power of the
Central Bank.31 Hence, the COA's power to examine and audit
government banks must be reconciled with the Central Bank's
power to supervise the same banks. The inevitable conclusion
is that the COA and the Central Bank have concurrent
jurisdiction, under the Constitution, to examine and audit
government banks.
However, despite the Central Bank's concurrent jurisdiction
over government banks, the COA's audit still prevails over that
of the Central Bank since the COA is the constitutionally
mandated auditor of government banks. And in matters falling
under the second paragraph of Section 2, Article IX-D of the
Constitution, the COA's jurisdiction is exclusive. Thus, the
Central Bank is devoid of authority to allow or disallow
expenditures of government banks since this function belongs
exclusively to the COA.
Second Issue: Statutes Prohibiting or Authorizing Private
Auditors
The COA argues that Sections 26, 31 and 32 of PD No. 1445,
otherwise known as the Government Auditing Code of the
Philippines, prohibit the hiring of private auditors by
government agencies. Section 26 of PD No. 1445 provides
that:
"Section 26. General Jurisdiction. The authority and
powers of the Commission shall extend to and
comprehend all matters relating to auditing procedures,
systems and controls, the keeping of the general
13
accounts of the Government, the preservation of
vouchers pertaining thereto for a period of ten years,
the examination and inspection of the books, records,
and papers relating to those accounts; and the audit
and settlement of the accounts of all persons
respecting funds or property received or held by them
in an accountable capacity, as well as the examination,
audit, and settlement of all debts and claims of any sort
due or owing to the Government or any of its
subdivisions, agencies or instrumentalities. The said
jurisdiction extends to all government-owned or
controlled corporations, including their subsidiaries,
and other self-governing boards, commissions, or
agencies of the Government, and as herein prescribed,
including non-governmental entities subsidized by the
government, those funded by donations through the
government, those required to pay levies or
government share, and those for which the government
has put up a counterpart fund or those partly funded by
the government."
Section 26 defines the extent and scope of the powers of the
COA. Considering the comprehensive definition in Section 26,
the COA's jurisdiction covers all government agencies, offices,
bureaus and units, including government-owned or controlled
corporations, and even non-government entities enjoying
subsidy from the government. However, there is nothing in
Section 26 that states, expressly or impliedly, that the COA's
power to examine and audit government banks is exclusive,
thereby preventing private audit of government agencies
concurrently with the COA audit.
Section 26 is a definition of the COA's "general jurisdiction."
Jurisdiction may be exclusive or concurrent. Section 26 of PD
No. 1445 does not state that the COA's jurisdiction is
exclusive, and there are other laws providing for concurrent
jurisdiction. Thus, Section 26 must be applied in harmony with
Section 5832 of the General Banking Law of 2000 (RA No.
8791) which authorizes unequivocally the Monetary Board to
require banks to hire independent auditors. Section 58 of the
General Banking Law of 2000 states as follows:
"Section 58. Independent Auditor. - The Monetary
Board may require a bank, quasi-bank or trust entity to
engage the services of an independent auditor to be
chosen by the bank, quasi-bank or trust entity
concerned from a list of certified public accountants
acceptable to the Monetary Board. The term of the
engagement shall be as prescribed by the Monetary
Board which may either be on a continuing basis where
the auditor shall act as resident examiner, or on the
basis of special engagements; but in any case, the
independent auditor shall be responsible to the bank's,
quasi-bank's or trust entity's board of directors. A copy
of the report shall be furnished to the Monetary Board.
x x x." (Emphasis supplied)
Moreover, Section 26 must also be applied in conformity with
Sections 25 and 2833 of the New Central Bank Act (RA No.
7653) which authorize expressly the Monetary Board to
conduct periodic or special examination of all banks. Sections
25 and 28 of the New Central Bank Act state as follows:
"Sec. 25. Supervision and Examination. The Bangko
Sentral shall have supervision over, and conduct
periodic or special examinations of, banking
institutions x x x. (Emphasis supplied)
xxx
"Sec. 28. Examination and Fees. The supervising and
examining department head, personally or by deputy,
14
shall examine the books of every banking
institution once in every twelve (12) months, and at
such other time as the Monetary Board by an
affirmative vote of five (5) members may deem
expedient and to make a report on the same to the
Monetary Board: x x x." (Emphasis supplied)
The power vested in the Monetary Board under Section 58 of
the General Banking Law of 2000, and Sections 25 and 28 of
the New Central Bank Act, emanates from the Central Bank's
explicit constitutional mandate to exercise "supervision over
the operations of banks." Under Section 4 of the General
Banking Law of 2000, the term "supervision"34 is defined as
follows:
"Section 4. Supervisory Powers. The operations and
activities of banks shall be subject to supervision of the
Bangko Sentral. "Supervision" shall include the
following:
xxx
4.2. The conduct of examination to determine
compliance with laws and regulations if the
circumstances so warrant as determined by the
Monetary Board;
xxx
4.4. Regular investigation which shall not be
oftener than once a year from the last date
of examinationto determine whether an
institution is conducting its business on a safe
or sound basis: Provided, That the
deficiencies/irregularities found by or
 discovered by an audit shall immediately be
addressed;
x x x." (Emphasis supplied)
Clearly, under existing laws, the COA does not have the sole
and exclusive power to examine and audit government banks.
The Central Bank has concurrent jurisdiction to examine and
audit, or cause the examination and audit, of government
banks.
Section 31 of PD No. 1445, another provision of law claimed
by the COA to prohibit the hiring of private auditors by
government agencies, provides as follows:
"Section 31. Deputization of private licensed
professionals to assist government auditors. - (1) The
Commission may, when the exigencies of the service
so require, deputize and retain in the name of the
Commission such certified public accountants and
other licensed professionals not in the public service as
it may deem necessary to assist government auditors
in undertaking specialized audit engagements.
"(2) The deputized professionals shall be entitled to
such compensation and allowances as may be
stipulated, subject to pertinent rules and regulations on
compensation and fees."
According to the COA, Section 31 is the maximum extent that
private auditors can participate in auditing government
agencies and anything beyond this is without legal basis.
Hence, the COA maintains that the hiring of private auditors
who act in their own name and operate independently of the
COA is unlawful.
15
Section 31 is bereft of any language that prohibits, expressly
or impliedly, the hiring of private auditors by government
agencies. This provision of law merely grants authority to the
COA to hire and deputize private auditors to assist the COA in
the auditing of government agencies. Such private auditors
operate under the authority of the COA. By no stretch of
statutory construction can this provision be interpreted as an
absolute statutory ban on the hiring of private auditors by
government agencies. Evidently, the language of the law does
not support the COA's claim.
Moreover, the COA further contends that Section 32 of PD No.
1445 is another provision of law that prohibits the hiring of
private auditors by government agencies. Section 32 provides
as follows:
"Section 32. Government contracts for auditing,
accounting, and related services. (1) No government
agency shall enter into any contract with any private
person or firm for services to undertake studies and
services relating to government auditing, including
services to conduct, for a fee, seminars or workshops
for government personnel on these topics, unless the
proposed contract is first submitted to the Commission
to enable it to determine if it has the resources to
undertake such studies or services. The Commission
may engage the services of experts from the public or
private sector in the conduct of these studies.
"(2) Should the Commission decide not to undertake
the study or service, it shall nonetheless have the
power to review the contract in order to determine the
reasonableness of its costs." (Emphasis supplied)
Section 32 refers to contracts for studies and services "relating
to government auditing" which the COA may or may not want
to undertake itself for a government agency. Stated another
way, Section 32 speaks of studies and services that the COA
may choose not to render to a government agency.
Obviously, the subject of these contracts is not the audit itself
of a government agency because the COA is compelled to
undertake such audit and cannot choose not to conduct such
audit. The Constitution and existing law mandate the COA to
audit all government agencies. Section 2, Article IX-D of the
Constitution commands that the COA "shall have the x x
x duty to examine, audit, and settle all accounts" of
government agencies (Emphasis supplied). Similarly, the
Revised Administrative Code of 1987 directs that the
"Commission on Audit shall have the x x x duty to examine,
audit, and settle all accounts"35 of government agencies
(Emphasis supplied). Hence, the COA cannot refuse to audit
government agencies under any circumstance.
The subject of the contracts referred to in Section 32 is
necessarily limited to studies, seminars, workshops,
researches and other services on government auditing which
the COA may or may not undertake at its discretion, thereby
excluding the audit itself of government agencies. Since the
COA personnel have the experience on government auditing
and are in fact the experts on this subject, it is only proper for
the COA to be granted the right of first refusal to undertake
such services if required by government agencies. This is what
Section 32 is all about and nothing more. Plainly, there is
nothing in Section 32 which prohibits the hiring of private
auditors to audit government agencies concurrently with the
COA audit.1âwphi1.nêt
On the other hand, the DBP cites Central Bank Circular No.
112436 as legal basis for hiring a private auditor. This Circular
amended Subsection 1165.5 (Book I) of the Manual of
Regulations for Banks and other Financial Intermediaries to
require "[E]ach bank, whether government-owned or controlled
16
or private, x x x (to) cause an annual financial audit to be
conducted by an external auditor x x x." Moreover, the Circular
states that the "audit of a government-owned or controlled
bank by an external independent auditor shall be in addition to
and without prejudice to that conducted by the Commission on
Audit in the discharge of its mandate under existing law."
Furthermore, the Circular provides that the "requirement for an
annual audit by an external independent auditor shall extend
to specialized and unique government banks such as the Land
Bank of the Philippines and the Development Bank of the
Philippines."
The Central Bank promulgated Circular No. 1124 on
December 5, 1986 pursuant to its power under the Freedom
Constitution, the fundamental law then in force, as well as
pursuant to its general rule making authority under the General
Banking Act (RA No. 337), the banking law in effect at that
time. Under the Freedom Constitution, the Central Bank
exercised supervisory authority over the banking system.
Section 14, Article XV of the 1973 Constitution, which was re-
adopted in the Freedom Constitution, provided as follows:
"SEC. 14. The Batasang Pambansa shall establish a
central monetary authority which shall provide policy
direction in the areas of money, banking and credit. It
shall have supervisory authority over the operations of
banks and exercise such regulatory authority as may
be provided by law over the operations of finance
companies and other institutions performing similar
functions. Until the Batasang Pambansa shall
otherwise provide, the Central Bank of the Philippines,
operating under existing laws, shall function as the
central monetary authority." (Emphasis supplied)
Section 6-D of the General Banking Act (RA No. 337) vested
the Monetary Board with the specific power to "require a bank
to engage the services of an independent auditor to be chosen
by the bank concerned from a list of certified public
accountants acceptable to the Monetary Board."
The 1987 Constitution created an independent central
monetary authority with substantially the same powers as the
Central Bank under the 1973 Constitution and the Freedom
Constitution. Section 20, Article XII of the 1987 Constitution
provides that the Monetary Board "shall have supervision over
the operations of banks". The specific power of the Central
Bank under the General Banking Act (RA No. 337) to require
an independent audit of banks was re-enacted in Section 58 of
the General Banking Law of 2000 (RA No. 8791).
Indubitably, the Central Bank had the express constitutional
and statutory power to promulgate Circular No. 1124 on
December 5, 1986. The power granted to the Central Bank to
issue Circular No. 1124 with respect to the independent audit
of banks is direct, unambiguous, and beyond dispute.
The Bangko Sentral ng Pilipinas, which succeeded the Central
Bank, retained under the 1987 Constitution and the General
Banking Law of 2000 (RA No. 8791) the same constitutional
and statutory power the Central Bank had under the Freedom
Constitution and the General Banking Act (RA No. 337) with
respect to the independent audit of banks.
Circular No. 1124 has the force and effect of law. In a long line
of decisions,37 this Court has held consistently that the rules
and regulations issued by the Central Bank pursuant to its
supervisory and regulatory powers have the force and effect of
law. The DBP, being a bank under the constitutional and
statutory supervision of the Central Bank, was under a clear
legal obligation to comply with the requirement of Circular No.
1124 on the private audit of banks. Refusal by the DBP to
comply with the Circular would have rendered the DBP and its
officers liable to the penal provisions of the General Banking
17
Act,38 as well as the administrative and penal sanctions under
the Central Bank Act.39
The DBP also relies on Section 8 of PD No. 2029 as its
statutory basis for hiring a private auditor. This Section states
in part as follows:
"The audit of government corporations by the
Commission on Audit shall not preclude government
corporations from engaging the services of private
auditing firms: Provided, however, that even if the
services of the latter are availed of, the audit report of
the Commission on Audit shall serve as the report for
purposes of compliance with audit requirements as
required of government corporations under applicable
law."
Section 8 of PD No. 2029, however, also provides that the
"policy of withdrawal of resident auditors shall be fully
implemented x x x." Section 2 of the same decree also
excludes from the term "government-owned or controlled
corporation" two classes of corporations. The first are originally
private corporations the majority of the shares of stock of
which are acquired by government financial institutions
through foreclosure or dacion en pago. The second are
subsidiary corporations of government corporations, which
subsidiaries are organized exclusively to own, manage or
lease physical assets acquired by government financial
institutions through foreclosure or dacion en pago. Claiming
that PD No. 2029 operates to exempt certain government-
owned corporations from the COA's jurisdiction in violation of
Section 3, Article IX-D of the Constitution, the COA is
questioning the constitutionality of PD No. 2029.
There is, however, no compelling need to pass upon the
constitutionality of PD No. 2029 because the Constitution and
existing banking laws allow such hiring. The issues raised in
this case can be resolved adequately without resolving the
constitutionality of PD No. 2029. This Court will leave the issue
of the constitutionality of PD No. 2029 to be settled in another
case where its resolution is an absolute necessity.40
Third Issue: Necessity of Private Auditor and
Reasonableness of the Fees
The remaining issue to be resolved is whether or not the
DBP's hiring of a private auditor was necessary and the fees it
paid reasonable under the circumstances. The hiring by the
DBP of a private auditor was a condition imposed by the World
Bank for the grant to the Philippine government in early 1987
of a US$310 million Economic Recovery Loan, at a time when
the government desperately needed funds to revive a badly
battered economy. One of the salient objectives of the US$310
million loan was the rehabilitation of the DBP which was then
burdened with enormous bad loans. The rehabilitation of the
DBP was important in the overall recovery of the national
economy.
On February 23, 1986, the World Bank President reported to
the Bank's Executive Directors that the privately audited
accounts of the DBP for 1986 and 1987 "will be
a requirement for the releases of the second and third
tranches, respectively, of the ERL" (Emphasis supplied).
Moreover, the Agreed Minutes of Negotiations on the
Philippine Economic Recovery Program41 signed by the
Philippine government and World Bank negotiating panels on
January 8, 1987, required that "a copy of COA's letter x x x
regarding DBP's appointment of a private external auditor will
be sent to the (World) Bank before the distribution of the loan
documents to the Bank's Board, along with a copy of the
scope of audit as approved by COA and satisfactory to the
Bank" (Emphasis supplied).
18
As a creditor, the World Bank needed the private audit for its
own information to monitor the progress of the DBP's
rehabilitation. This is apparent from the said Agreed
Minutes which provided that the "general terms of reference
(for the hiring of private external audit) were discussed during
the negotiations and form part of the World Bank's guidelines
for financial information on financial institutions"42 (Emphasis
supplied).
The hiring of a private auditor being an express condition for
the grant of the US$310 million Economic Recovery Loan, a
major objective of which was the DBP's rehabilitation, the
same was a necessary corporate act on the part of the DBP.
The national government, represented by the Central Bank
Governor, as well as the Ministers of Finance, Trade, and
Economic Planning, had already committed to the hiring by all
government banks of private auditors in addition to the COA.
For the DBP to refuse to hire a private auditor would have
aborted the vital loan and derailed the national economic
recovery, resulting in grave consequences to the entire nation.
The hiring of a private auditor was not only necessary based
on the government's loan covenant with the World Bank, it was
also necessary because it was mandated by Central Bank
Circular No. 1124 under pain of administrative and penal
sanctions.
The last matter to determine is the reasonableness of the fees
charged by Joaquin C. Cunanan & Co., the private auditor
hired by the DBP. The COA describes the private auditor's
fees as an "excessive, extravagant or unconscionable
expenditure" of government funds. For the audit of the DBP's
financial statements in 1986, the private auditor billed the DBP
the amount of ₱487,321.14.43 In 1987, the private auditor billed
the DBP the amount of ₱529,947.00.44 In comparison, the COA
billed the DBP an audit fee of ₱27,015,963.0045 in 1988, and
₱15,421,662.0046 in 1989. Even granting that the COA's scope
of audit services was broader,47 still it could not be said that the
private auditor's fees are excessive, extravagant or
unconscionable compared to the COA's billings.
The hiring of a private auditor by the DBP being a condition of
the US$310 million World Bank loan to the Philippine
government, the fees of such private auditor are in reality part
of the government's cost of borrowing from the World Bank.
The audit report of the private auditor is primarily intended for
the World Bank's information48 on the financial status of the
DBP whose rehabilitation was one of the objectives of the
loan. An annual private audit fee of about half a million pesos
added to the interest on a US$310 million loan would hardly
make the cost of borrowing excessive, extravagant or
unconscionable. Besides, the condition imposed by a lender,
whose money is at risk, requiring the borrower or its majority-
owned subsidiaries to submit to audit by an independent public
accountant, is a reasonable and normal business
practice. 1âwphi1.nêt
WHEREFORE, the petition is hereby GRANTED. The letter-
decision of the Chairman of the Commission on Audit dated
August 29, 1988, and the letter-decision promulgated by the
Commission on Audit en banc dated May 20, 1989, are
hereby SET ASIDE, and the temporary restraining order
issued by the court enjoining respondent Commission on Audit
from enforcing the said decisions is hereby
made PERMANENT.
SO ORDERED.
G.R. No. 168859               June 30, 2009
19
UNITED COCONUT PLANTERS BANK, JERONIMO U.
KILAYKO, LORENZO V. TAN, ENRIQUE L. GANA, JAIME
W. JACINTO and EMILY R. LAZARO, petitioners, 
vs.
E. GANZON, INC., Respondent.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 168897               June 30, 2009
E. GANZON, INC., petitioner, 
vs.
UNITED COCONUT PLANTERS BANK, JAIME W. JACINTO
and EMILY R. LAZARO, Respondents.
DECISION
CHICO-NAZARIO, J.:
These are two consolidated1 Petitions for Review on Certiorari
under Rule 45 of the 1997 Revised Rules of Civil Procedure.
United Coconut Planters Bank (UCPB) is a universal bank duly
organized and existing under Philippine Laws. In G.R. No.
168859, UCPB and its corporate officers, i.e., Jeronimo U.
Kilayko, Lorenzo V. Tan, Enrique L. Gana, Jaime W. Jacinto
and Emily R. Lazaro (UCPB, et al.) seek the reversal and
setting aside of the Decision2 dated 14 October 2004 and
Resolution3 dated 7 July 2005 of the Court of Appeals in CA-
G.R. SP No. 81385 and the affirmation, instead, of the letter-
decision4 dated 16 September 2003 of the Monetary Board of
the Bangko Sentral ng Pilipinas (BSP). The Court of Appeals,
in its assailed Decision, set aside the aforesaid letter-decision
of the BSP Monetary Board and remanded the case to the
latter for further proceedings; and in its questioned Resolution,
denied for lack of merit the Motion for Reconsideration of
UCPB, et al., as well as the Partial Motion for Reconsideration
of E. Ganzon, Inc. (EGI).
On the other hand, EGI is a corporation duly organized and
existing under Philippine laws and engaged in real estate
construction and development business. In G.R. No. 168897,
EGI prays for this Court to review the same Decision dated 14
October 2004 and Resolution dated 7 July 2005 of the Court of
Appeals in CA-G.R. SP No. 81385, and to order the appellate
court to (1) act on its findings in the case instead of remanding
the same to the BSP Monetary Board for further proceedings;
(2) direct the BSP Monetary Board to impose the applicable
administrative sanctions upon UCPB, et al.; and (3) to amend
its assailed Decision and Resolution by deleting therefrom the
statements requiring the BSP Monetary Board to scrutinize
and dig deeper into the acts of UCPB, et al., and to determine
if, indeed, there were irregular and unsound practices in its
business dealings with EGI.
The factual antecedents of these consolidated petitions are as
follows:
Beginning 1995 to 1998, EGI availed itself of credit facilities
from UCPB to finance its business expansion. To secure said
credit facilities, EGI mortgaged to UCPB its condominium unit
inventories in EGI Rufino Plaza, located at the intersection of
Buendia and Taft Avenues, Manila.
Initially, EGI was able to make periodic amortization payments
of its loans to UCPB. When the negative effects of the Asian
economic crisis on the property development sector finally
caught up with the corporation in the middle of 1998, EGI
started defaulting in its payment of amortizations, thus, making
all of its obligations due and demandable. Subsequently, EGI
was declared in default by UCPB in its letters dated 2 October
20
19985 and 16 February 1999.6Thereafter, UCPB stopped
sending EGI monthly statements of its accounts.
In 1999, EGI and UCPB explored the possibility of using the
mortgaged condominium unit inventories of EGI in EGI Rufino
Plaza as payment for the loans of EGI to UCPB. Upon
agreeing on the valuation of said mortgaged properties, EGI
and UCPB entered into a Memorandum of Agreement
(MOA)7 on 28 December 1998 in settlement of the loans of
EGI from UCPB. Based on this MOA, the outstanding loan
obligations of EGI with UCPB amounted to ₱915,838,822.50,
inclusive of all interest, charges and fees. UCPB, through its
corporate officers, assured EGI that the said amount already
represented the total loan obligations of EGI to UCPB.
On 18 January 2000, EGI and UCPB executed an Amendment
of Agreement8 to reflect the true and correct valuation of the
properties of EGI listed in the MOA that would be transferred
to UCPB in settlement of the total loan obligations of the
former with the latter. The properties of EGI to be used in
paying for its debt with UCPB were valued at
₱904,491,052.00.
According to the MOA and its amendments, titles to the
properties of EGI shall be transferred to UCPB by the following
modes: (1) foreclosure of mortgage; (2) dacion en pago; (3)
creation of a holding company; and (4) use of other
alternatives as may be deemed appropriate by UCPB.
UCPB proceeded to foreclose some of the properties of EGI
listed in the MOA. Per the Certificate of Sale 9 dated 13 April
2000, the foreclosure proceeds of said properties amounted
only to ₱723,592,000.00, less than the value of the properties
of EGI stipulated in its amended MOA with UCPB.
UCPB applied the entire foreclosure proceeds of
₱723,592,000.00 to the principal amount of the loan
obligations of EGI, pursuant to BSP Circular No. 239,10 which
provided that partial property payments shall first be applied to
the principal. After deducting the said amount from the total
loan obligations of EGI, there was still an unpaid balance of
₱192,246,822.50.
On 8 May 2001, some of the other properties of EGI at EGI
Rufino Plaza, valued at ₱166,127,369.50, were transferred by
way of dacion en pago to UCPB. However, during the signing
of the transaction papers for the dacion en pago, EGI Senior
Vice-President, Architect Grace S. Layug (Layug), noticed that
said papers stated that the remaining loan balance of EGI in
the amount of ₱192,246,822.50 had increased to
₱226,963,905.50. The increase was allegedly due to the
addition of the transaction costs amounting to ₱34,717,083.00.
EGI complained to UCPB about the increase, yet UCPB did
not take any action on the matter.
This prompted EGI President Engineer Eulalio Ganzon
(Ganzon) and Senior Vice-President Layug to review their files
to verify the figures on the loan obligations of EGI as
computed by UCPB. In the process, they discovered the
UCPB Internal Memorandum dated 22 February
2001,11 signed by UCPB corporate officers. The said Internal
Memorandum presented two columns, one with the heading
"ACTUAL" and the other "DISCLOSED TO EGI." The figures
in the two columns were conflicting. The figures in the
"DISCLOSED TO EGI" column computed the unpaid balance
of the loan obligations of EGI to be ₱226,967,194.80, the
amount which UCPB actually made known to and demanded
from EGI. The figures in the "ACTUAL" column calculated the
remaining loan obligations of EGI to be only ₱146,849,412.58.
21
Consequently, EGI wrote UCPB a letter dated 21 May
2001,12 which included, among other demands, the refund by
UCPB to EGI of the over-payment of ₱83,000,000.00;13 return
to EGI of all the remaining Transfer Certificates of Title
(TCTs)/Condominium Certificates of Title (CCTs) in the
possession of UCPB; and cost of damage to EGI for the delay
in the release of its certificates of title.
In response, UCPB explained14 that the "ACTUAL" column in
its Internal Memorandum dated 22 February 2001 contained
the same amounts reflected or recorded in its financial
statements, in accordance with the Manual of Accounts for
Banks, Manual of Regulations for Banks15 and BSP Circular
No. 202,16 Series of 1999. In contrast, the "DISCLOSED TO
EGI" column showed the total amount still due from EGI,
including the total principal, interests, transaction and other
costs after the foreclosure, whether reflected in the financial
books of UCPB or not. Further, UCPB maintained that the
difference in the figures in the two columns was because BSP
Circular No. 202 and Section X305.4 of the Manual of
Regulations for Bank disallowed banks from accruing in its
books interest on loans which had become non-performing.
Despite the explanation of UCPB, EGI insisted that the figures
appearing in the "ACTUAL" column of the former’s Internal
Memorandum dated 22 February 2001 revealed the true and
actual amount of its loan obligations to UCPB,
₱146,849,412.58.
EGI Senior Vice-President Layug met with UCPB Vice-
President, Jaime W. Jacinto (Jacinto) to discuss the demand
of EGI for the return of its overpayment. UCPB Vice-President
Jacinto, however, refused to concede that UCPB had any
obligation to make a refund to EGI and, instead, insisted that
EGI Senior Vice-President Layug disclose who gave her a
copy of the UCPB Internal Memorandum dated 22 February
2001.
Based on the possession by EGI of the UCPB Internal
Memorandum dated 22 February 2001, UCPB filed a criminal
case for theft and/or discovery of secrets against EGI
President Ganzon and Senior Vice-President Layug, but the
said case was dismissed.17
On 5 November 2002, EGI, also on the basis of the UCPB
Internal Memorandum dated 22 February 2001, EGI filed with
the BSP an administrative complaint18 against UCPB, et al., for
violation of Sections 3619 and 37,20 Article IV of Republic Act
No. 7653,21 in relation to Section 55.1(a)22 of Republic Act No.
8791;23 and for the commission of irregularities and conducting
business in an unsafe or unsound manner.
In a letter-decision24 dated 16 September 2003, the BSP
Monetary Board dismissed the administrative complaint of
EGI, holding as follows:
Please be informed that the Monetary Board decided to
dismiss the complaint based on the evaluation conducted by
the Supervision and Examination Department I and the Office
of the General Counsel and Legal Services to the effect that:
1. UCPB computed interest on the loans based on BSP
rules and regulations which prohibit banks from
accruing interest on loans that have become non-
performing (BSP Circular No. 202). This is different
from interest which may have run and accrued based
on the promissory notes/loan documents from the date
of default up to settlement date.
2. Fair market value of assets to be foreclosed is
different from the bid price submitted during foreclosure
22
and there is no statutory obligation for the latter to be
equivalent to the former.
3. Regarding the alleged ₱145,163,000.00 fabricated
loan, the documents showed that there were the EGI
Board Resolution to borrow, promissory note signed by
Mr. Eulalio Ganzon, and Loan Agreement stating that
the proceeds shall be used to pay outstanding
availments and interest servicing.
4. There is no finding by Supervision and Examination
Department I on the alleged double charging and/or
padding of transaction costs.25
EGI filed a Motion for Reconsideration and a Supplemental
Motion for Reconsideration of the aforequoted letter-decision
of the BSP Monetary Board. The BSP Monetary Board denied
both motions in its letter26 dated 8 December 2003 as there
was no sufficient basis to grant the same.
EGI then filed a Petition for Review under Rule 43 of the 1997
Revised Rules of Civil Procedure with the Court of Appeals
raising the sole issue of "whether the Bangko Sentral ng
Pilipinas erred in dismissing the administrative complaint filed
by EGI against UCPB, et al." The case was docketed as CA-
G.R. SP No. 81385.
On 14 October 2004, the Court of Appeals rendered its
assailed Decision granting the Petition for Review of EGI, thus,
setting aside the BSP letter-decision dated 16 September
2003 and remanding the case to the BSP Monetary Board for
further proceedings.
UCPB, et al., moved for the reconsideration of the 14 October
2004 Decision of the appellate court, praying for a new
judgment dismissing the appeal of EGI for lack of jurisdiction
and/or lack of merit. EGI also filed a Partial Motion for
Reconsideration of the same Court of Appeals Decision, with
the prayer that the appellate court, instead of still remanding
the case to the BSP Monetary Board for further proceedings,
already direct the latter to impose the applicable administrative
sanctions upon UCPB, et al.,.
In a Resolution dated 7 July 2005, the Court of Appeals denied
for lack of merit both the Motion for Reconsideration of UCPB,
et al. and the Motion for Partial Reconsideration of EGI.
G.R. No. 168859
Aggrieved by the 14 October 2004 Decision and 7 July 2005
Resolution of the Court of Appeals, UCPB, et al. comes before
this Court, via a Petition for Review on Certiorari under Rule
45 of the 1997 Revised Rules of Civil Procedure, based on the
following assignment of errors:
I. THE HONORABLE COURT OF APPEALS ACTED
WITHOUT JURISDICTION AND GRAVELY ERRED IN
HOLDING THAT IT HAS APPELLATE JURISDICTION OVER
DECISIONS OF THE BSP/MONETARY BOARD.
II. THE HONORABLE COURT OF APPEALS GRAVELY
ERRED IN HOLDING THAT THE BANGKO SENTRAL
SUMMARILY DISMISSED THE COMPLAINT OF [EGI].
III. THE HONORABLE COURT OF APPEALS GRAVELY
ERRED IN DISREGARDING THE FINDINGS OF FACT OF
THE BANGKO SENTRAL AND IN HOLDING THAT [UCPB, et
al.] COMMITTED IRREGULAR AND UNSOUND BANKING
PRACTICES IN THE SUBJECT TRANSACTIONS.27
The Petition is docketed as G.R. No. 168859.
23
UCPB, et al., aver that the Court of Appeals has no appellate
jurisdiction over decisions, orders and/or resolutions of the
BSP Monetary Board on administrative matters. The BSP
Monetary Board is not among the quasi-judicial agencies
enumerated under Rule 43 of the 1997 Revised Rules of Civil
Procedure, over which the Court of Appeals has appellate
jurisdiction. Further, there is nothing in Republic Act No. 7653
or in Republic Act No. 8791 which explicitly allows an appeal
of the decisions or orders of the BSP Monetary Board to the
Court of Appeals. Resultantly, the Court of Appeals has no
power to review, much less set aside, the findings of fact of the
BSP Monetary Board as contained in its letter-decision dated
16 September 2003.
UCPB, et al. also claim that, contrary to the ruling of the Court
of Appeals, the letter-decision dated 16 September 2003 of the
BSP Monetary Board plainly reveals that the administrative
complaint of EGI against UCPB, et al. was not summarily
dismissed. The charges of EGI against UCPB, et al. was
resolved only after the BSP Monetary Board thoroughly
reviewed pertinent bank records and studied the arguments
raised by EGI in its complaint and Motion for Partial
Reconsideration. In its letter-decision dated 16 September
2003, the BSP Monetary Board stated in no uncertain terms
that the dismissal of the complaint of EGI was based on the
evaluation conducted by its Supervision and Examination
Department I and the Office of the General Counsel and Legal
Services. Also, in its letter dated 8 December 2003, the BSP
Monetary Board denied the Motion for Reconsideration and
Supplemental Motion for Reconsideration of EGI because the
latter did not present any new evidence in support of its
motions. Hence, there is no basis for the claim of EGI that the
BSP Monetary Board overlooked and completely ignored its
accusations of irregular and unsound banking practice against
UCPB, et al.
Finally, UCPB, et al., maintain that the findings of fact of
administrative bodies like the BSP Monetary Board are
accorded great respect, if not finality, especially if supported
by substantial evidence. Such findings are to be respected by
the courts, especially in the absence of grave abuse of
discretion or grave errors by the BSP Monetary Board. No
other office, much less an appellate tribunal, can substitute its
own findings of fact over that of the concerned administrative
agency in view of the expertise and specialized knowledge
acquired by it on matters falling within its areas of concern.
UCPB, et al. insist that it is the BSP which has the necessary
expertise to draft guidelines for the evaluation of the
performance and conduct of banks. Thus, the Court of
Appeals committed grave error in disregarding the findings of
fact of the BSP Monetary Board which justified the latter’s
dismissal of the administrative complaint of EGI against
UCPB, et al.
The issue of jurisdiction of the Court of Appeals over appeals
of decisions, orders and/or resolutions of the BSP Monetary
Board on administrative matters must first be resolved, before
the other issues raised herein by UCPB, et al.
Truly, there is nothing in Republic Act No. 7653 or in Republic
Act No. 8791 which explicitly allows an appeal of the decisions
of the BSP Monetary Board to the Court of Appeals. However,
this shall not mean that said decisions are beyond judicial
review.
Section 9(3) of Batas Pambansa Blg. 129, otherwise known as
The Judiciary Reorganization Act of 1980, as amended, reads:
SEC. 9. Jurisdiction. – The Court of Appeals shall exercise:
xxxx
24
(3) Exclusive appellate jurisdiction over all final judgments,
decisions, resolutions, orders or awards of Regional Trial
Courts and quasi-judicial agencies, instrumentalities, boards or
commissions, including the Securities and Exchange
Commission, the Social Security Commission, the Employees
Compensation Commission and the Civil Service Commission,
except those falling within the appellate jurisdiction of the
Supreme Court in accordance with the Constitution, the Labor
Code of the Philippines under Presidential Decree No. 442, as
amended, the provisions of this Act, and of subparagraph (1)
of the third paragraph and subparagraph 4 of the fourth
paragraph of Section 17 of the Judiciary Act of 1948.
(Emphasis ours.)
In accordance with the afore-quoted provision, Rule 43 of the
1997 Revised Rules of Civil Procedure, on Appeals from the
Court of Tax Appeals and Quasi-Judicial Agencies to the Court
of Appeals, defines its scope as follows:
SECTION 1. Scope. - This Rule shall apply to appeals from
judgments or final orders of the Court of Tax Appeals and
from awards, judgments, final orders or resolutions of or
authorized by any quasi-judicial agency in the exercise of
its quasi-judicial functions. Among these agencies are the
Civil Service Commission, Central Board of Assessment
Appeals, Securities and Exchange Commission, Office of the
President, Land Registration Authority, Social Security
Commission, Civil Aeronautics Board, Bureau of Patents,
Trademarks and Technology Transfer, National Electrification
Administration, Energy Regulatory Board, National
Telecommunications Commission, Department of Agrarian
Reform under Republic Act No. 6657, Government Service
Insurance System, Employees Compensation Commission,
Agricultural Inventions Board, Insurance Commission,
Philippine Atomic Energy Commission, Board of Investments,
Construction Industry Arbitration Commission, and voluntary
arbitrators authorized by law. (Emphasis ours.)
A perusal of Section 9(3) of Batas Pambansa Blg. 129, as
amended, and Section 1, Rule 43 of the 1997 Revised Rules
of Civil Procedure reveals that the BSP Monetary Board is not
included among the quasi-judicial agencies explicitly named
therein, whose final judgments, orders, resolutions or awards
are appealable to the Court of Appeals. Such omission,
however, does not necessarily mean that the Court of Appeals
has no appellate jurisdiction over the judgments, orders,
resolutions or awards of the BSP Monetary Board.
It bears stressing that Section 9(3) of Batas Pambansa Blg.
129, as amended, on the appellate jurisdiction of the Court of
Appeals, generally refers to quasi-judicial agencies,
instrumentalities, boards, or commissions. The use of the word
"including" in the said provision, prior to the naming of several
quasi-judicial agencies, necessarily conveys the very idea of
non-exclusivity of the enumeration. The principle of expressio
unius est exclusio alterius does not apply where other
circumstances indicate that the enumeration was not intended
to be exclusive, or where the enumeration is by way of
example only.28
Similarly, Section 1, Rule 43 of the 1997 Revised Rules of Civil
Procedure merely mentions several quasi-judicial agencies
without exclusivity in its phraseology.29 The enumeration of the
agencies therein mentioned is not exclusive.30 The introductory
phrase "[a]mong these agencies are" preceding the
enumeration of specific quasi-judicial agencies only highlights
the fact that the list is not meant to be exclusive or conclusive.
Further, the overture stresses and acknowledges the
existence of other quasi-judicial agencies not included in the
enumeration but should be deemed included.31
25
A quasi-judicial agency or body is an organ of government
other than a court and other than a legislature, which affects
the rights of private parties through either adjudication or rule-
making.32 The very definition of an administrative agency
includes its being vested with quasi-judicial powers. The ever
increasing variety of powers and functions given to
administrative agencies recognizes the need for the active
intervention of administrative agencies in matters calling for
technical knowledge and speed in countless controversies
which cannot possibly be handled by regular courts.33 A
"quasi-judicial function" is a term which applies to the action,
discretion, etc., of public administrative officers or bodies, who
are required to investigate facts, or ascertain the existence of
facts, hold hearings, and draw conclusions from them, as a
basis for their official action and to exercise discretion of a
judicial nature.34
Undoubtedly, the BSP Monetary Board is a quasi-judicial
agency exercising quasi-judicial powers or functions. As aptly
observed by the Court of Appeals, the BSP Monetary Board is
an independent central monetary authority and a body
corporate with fiscal and administrative autonomy, mandated
to provide policy directions in the areas of money, banking and
credit.35 It has power to issue subpoena, to sue for contempt
those refusing to obey the subpoena without justifiable
reason,36 to administer oaths and compel presentation of
books, records and others, needed in its examination,37 to
impose fines and other sanctions and to issue cease and
desist order.38 Section 37 of Republic Act No. 7653,39 in
particular, explicitly provides that the BSP Monetary Board
shall exercise its discretion in determining whether
administrative sanctions should be imposed on banks and
quasi-banks, which necessarily implies that the BSP Monetary
Board must conduct some form of investigation or hearing
regarding the same.
Having established that the BSP Monetary Board is indeed a
quasi-judicial body exercising quasi-judicial functions; then as
such, it is one of those quasi-judicial agencies, though not
specifically mentioned in Section 9(3) of Batas Pambansa Blg.
129, as amended, and Section 1, Rule 43 of the 1997 Revised
Rules of Civil Procedure, are deemed included therein.
Therefore, the Court of Appeals has appellate jurisdiction over
final judgments, orders, resolutions or awards of the BSP
Monetary Board on administrative complaints against banks
and quasi-banks, which the former acquires through the filing
by the aggrieved party of a Petition for Review under Rule 43
of the 1997 Revised Rules of Civil Procedure.
As a futile effort of UCPB, et al. to convince this Court that the
Court of Appeals has no appellate jurisdiction over the final
judgments, orders, resolutions or awards of the BSP Monetary
Board, it cited Salud v. Central Bank of the Philippines.40
The invocation of UCPB, et al. of Salud is evidently misplaced.
The present case involves a decision of the BSP Monetary
Board as regards an administrative complaint against a bank
and its corporate officers for the alleged violation of Sections
36 and 37, Article IV of Republic Act No. 7653, in relation to
Section 55.1(a) of Republic Act No. 8791, and for
the commission of irregularity and unsafe or unsound
banking practice. There is nothing in the aforesaid laws
which state that the final judgments, orders, resolutions or
awards of the BSP Monetary Board on administrative
complaints against banks or quasi-banks shall be final and
executory and beyond the subject of judicial review. Without
being explicitly excepted or exempted, the final judgments,
orders, resolutions or awards of the BSP Monetary Board are
among those appealable to the Court of Appeals by way of
Petition for Review, as provided in Section 9(3) of Batas
26
Pambansa Blg. 129, as amended, and Section 1, Rule 43 of
the 1997 Revised Rules of Civil Procedure.
Although in Salud, this Court declared that the Intermediate
Appellate Court (now Court of Appeals) has no appellate
jurisdiction over resolutions or orders of the Monetary Board of
the Central Bank of the Philippines (CBP, now BSP), because
no law prescribes any mode of appeal therefrom, the factual
settings of the said case are totally different from the one
presently before us. Salud involved a resolution issued by the
Monetary Board, pursuant to Section 29 of Republic Act No.
265, otherwise known as the old Central Bank Act,
forbidding banking institutions to do business on account of a
"condition of insolvency" or because "its continuance in
business would involve probable loss to depositors or
creditors;" or appointing a receiver to take charge of the assets
and liabilities of the bank; or determining whether the banking
institutions should be rehabilitated or liquidated, and if in the
latter case, appointing a liquidator towards this end. The said
Section 29 of the old Central Bank Act was explicit that the
determination by the Monetary Board of whether a banking
institution is insolvent, or should
be rehabilitated or liquidated, is final and executory.
However, said determination could be set aside by the trial
court if there was convincing proof that the Monetary Board
acted arbitrarily or in bad faith. Under the circumstances
obtaining in Salud, it is apparent that our ruling therein is
limited to cases of insolvency, and not to all cases
cognizable by the Monetary Board.
At any rate, under the new law, i.e., Section 30 of Republic Act
No. 7653, otherwise known as The New Central Bank Act,
which took effect on 3 July 1993, the order of the BSP
Monetary Board, even regarding the liquidation of a bank, can
be questioned via a Petition for Certiorari before a court when
the same was issued in excess of jurisdiction or with such
grave abuse of discretion as to amount to lack or excess of
jurisdiction. The court referred to therein can be construed to
mean the Court of Appeals because it is in the said court
where a Petition for Certiorari can be filed following the
hierarchy of courts.
Moreover, the appellate jurisdiction of the Court of Appeals
over the final judgments, orders, resolutions or awards of the
BSP Monetary Board in administrative cases involving
directors and officers of banks, quasi-banks, and trust entities,
is affirmed in BSP Circular No. 477, Series of 2005. The said
BSP Circular expressly provides that the resolution rendered
by the BSP Monetary Board in administrative cases may be
appealed to the Court of Appeals within the period and the
manner provided under Rule 43 of the 1997 Revised Rules of
Civil Procedure.
With all the foregoing, it cannot now be questioned that the
Court of Appeals has appellate jurisdiction over the final
judgments, orders, resolutions or awards rendered by the BSP
Monetary Board in administrative cases against banks and
their directors and officers, such as UCPB, et al.
The Court then proceeds to resolve the issue of whether the
Court of Appeals erred in holding that the BSP Monetary
Board summarily dismissed the administrative complaint of
EGI against UCPB, et al.
After a meticulous scrutiny of the 16 September 2003 letter-
decision of the BSP Monetary Board, this Court rules in the
negative and affirms the finding of the Court of Appeals that
the BSP Monetary Board did, indeed, summarily dismiss
administrative complaint of EGI against UCPB, et al., for
violation of Sections 36 and 37, Article IV of Republic Act No.
7653, in relation to Section 55.1(a) of Republic Act No. 8791,
27
and for the commission of irregularity and unsafe or unsound
banking practice.
Given the gravity and seriousness of the charges of EGI
against UCPB, et al., the sweeping statement of the BSP
Monetary Board that it was inclined to dismiss the complaint of
EGI based on the evaluation made by its Supervision and
Examination Department I and Office of the General Counsel
and Legal Services, is simply insufficient and unsatisfactory.
Worse, the BSP Monetary Board merely presented the
following conclusions without bothering to explain its bases for
the same: (1) UCPB computed interest on loans based on
BSP rules and regulations which prohibit banks from accruing
interest on loans that have become non-performing (BSP
Circular No. 202); (2) fair market value of assets to be
foreclosed is different from the bid price submitted during
foreclosure and there is no statutory obligation for the latter to
be equivalent to the former; (3) regarding the alleged
₱145,163,000.00 fabricated loan, the documents showed that
there were the EGI Board resolution to borrow, promissory
note signed by Mr. Eulalio Ganzon, and Loan Agreement
stating the proceeds shall be used to pay outstanding
availments and interest servicing; and (4) there is no finding by
Supervision and Examination Department I on the alleged
double charging and/or padding of transaction costs.
Further, in resolving the matter before it, the BSP Monetary
Board never considered the UCPB Internal Memorandum
dated 22 February 2001, which was the heart of the
administrative complaint of EGI against UCPB, et al. The BSP
Monetary Board did not even attempt to establish whether it
was regular or sound practice for a bank to keep a record of its
borrower’s loan obligations with two different sets of figures,
one higher than the other; and to disclose to the borrower only
the higher figures. The explanation of UCPB, et al., adopted by
the BSP Monetary Board – that the figures in the "ACTUAL"
column were lower than those in the "DISCLOSED TO EGI"
column because the former was computed in accordance with
BSP rules and regulations prohibiting the accrual of interest on
loans that have become non-performing – gives rise to more
questions than answers. Examples of some of these questions
would be whether the loan obligations of EGI have become
non-performing; whether the differences between the figures in
the "ACTUAL" and "DISCLOSED TO EGI" columns indeed
corresponded to the interest that should be excluded from the
figures in the first column per BSP rules and regulations; and
whether the computations of the figures in both columns
should have been freely disclosed and sufficiently explained to
EGI in the name of transparency.
The BSP Monetary Board similarly failed to clarify whether
UCPB can foreclose the mortgaged properties of EGI in
amounts that were less than the values of the said properties
as determined and stipulated by EGI and UCPB in their
amended MOA. The Court once more agrees in the ruling of
the Court of Appeals that the MOA entered into by EGI and
UCPB serves as a contract between them, and it is the law
that should govern their relationship, which neither of the
parties can simply abrogate, violate, or disregard.
Unfortunately, the BSP Monetary Board never even referred to
the MOA executed by the parties in its letter-decision dated 16
September 2003.
Moreover, the BSP Monetary Board found that the
₱145,163,000.00 loan of EGI from UCPB was not fabricated
based on several documents. However, there is absolute lack
of explanation by the BSP Monetary Board as to why said
documents deserved more weight vis-à-vis evidence of EGI of
suspicious circumstances surrounding the said loan, such as
UCPB granting EGI said loan even when the latter was
already in default on its prior loan obligations, and without
28
requiring additional security, detailed business plan, and
financial projections from EGI.
The disregard by BSP Monetary Board of all the foregoing
facts and issues in its letter-decision dated 16 September
2003 leads this Court to declare that it summarily dismissed
the administrative complaint of EGI against UCPB, et al. There
can be no complete resolution of the administrative complaint
of EGI without consideration of these facts and judgment on
said issues.
Finally, there is no merit in the assertion of UCPB, et al. that
the Court of Appeals erred in disregarding the findings of fact
of the BSP Monetary Board in the absence of grave abuse of
discretion or lack of basis for the same.
Although, as a general rule, findings of facts of an
administrative agency, which has acquired expertise in the
particular field of its endeavor, are accorded great weight on
appeal, such rule cannot be applied with respect to the
assailed findings of the BSP Monetary Board in this case.
Rather, what applies is the recognized exception that if such
findings are not supported by substantial evidence, the Court
can make its own independent evaluation of the facts.41
The standard of substantial evidence required in administrative
proceedings is more than a mere scintilla. It means such
relevant evidence as a reasonable mind might accept as
adequate to support a conclusion. While rules of evidence
prevailing in courts of law and equity shall not be controlling,
the obvious purpose being to free administrative boards from
the compulsion of technical rules so that the mere admission
of matter which would be deemed incompetent in judicial
proceedings would not invalidate the administrative order, this
assurance of a desirable flexibility in administrative procedure
does not go so far as to justify orders without basis in evidence
having rational probative force.42
It cannot be convincingly said herein that the factual findings of
the BSP Monetary Board in its letter-decision dated 16
September 2003 was supported by substantial evidence since
(1) most of the findings were not supported by references to
specific evidence; and (2) the findings were made without
consideration of the primary evidence presented by EGI (i.e.,
the MOA and its amendments and the UCPB Internal
Memorandum dated 22 February 2001).
Even then, the Court of Appeals stopped short of categorically
ruling that UCPB, et al. committed irregularities, or unsound or
unsafe banking practice in its transactions with EGI. What the
Court of Appeals positively pronounced was that the BSP
Monetary Board failed to give the necessary consideration to
the administrative complaint of EGI, summarily dismissing the
same in its 16 September 2003 letter-decision. The 14
October 2004 Decision of the Court of Appeals clearly
remanded the case to the BSP for further proceedings since
the BSP, with its specialized knowledge and expertise on
banking matters, is more up to task to receive evidence, hold
hearings, and thereafter resolve the issues based on its
findings of fact and law.
G.R. No. 168897
Also unsatisfied with the Decision dated 14 October 2004 and
Resolution dated 7 July 2005 of the Court of Appeals, EGI filed
with this Court its own Petition for Review on Certiorari under
Rule 45 of the 1997 Revised Rules of Civil Procedure, raising
the following issues:
29
I. The Honorable Court of Appeals does have appellate
jurisdiction over decisions, orders, and resolutions of
the BSP/Monetary Board.
II. The Honorable Court of Appeals was correct in
FINDING that the [BSP] summarily dismissed the
complaint of EGI.
III. Whether or not the Honorable Court of Appeals
committed patent, grave, and reversible error when it
remanded the case to the [BSP] for further proceedings
instead of acting upon its findings as narrated in its
Decision.
IV. Whether or not the Honorable Court of Appeals
committed patent, grave, and reversible error in not
directing the [BSP] to impose the appropriate penalties
against [UCPB, et al.].43
The Petition is docketed as G.R. No. 168897.
Since the first two "issues" have already been addressed by
this Court in its previous discussion herein on G.R. No.
168859, we now proceed to resolve the next two issues raised
by EGI in its Petition in G.R. No. 168897.
EGI avers that the Court of Appeals committed reversible error
when it remanded the case to the BSP for further proceedings
instead of directing the BSP to impose the applicable
sanctions on UCPB, et al. EGI reasons that the appellate
court, in its Decision dated 14 October 2004, already found
that UCPB had committed several acts of serious irregularity
and conducted business in an unsafe and unsound manner.
By reason thereof, there was no more need for the Court of
Appeals to remand this case to the BSP for a further
determination of whether there were irregular and unsound
practices by UCPB, et al. in its dealings with EGI. Should this
case be remanded to the BSP, there would be nothing to
prevent the BSP from ruling again that UCPB, et al., did not
commit any irregularity and unsafe or unsound business
practice. To require that this case be reviewed by the BSP
would only lead to multiplicity of suits, promote unnecessary
delay and negate the constitutional rights of all persons to a
speedy disposition of their cases before all judicial, quasi-
judicial or administrative bodies.
The Court reiterates that the Court of Appeals did not yet
make conclusive findings in its Decision dated 14 October
2004, that UCPB, et al., committed irregularities and unsound
or unsafe banking practices in their business dealings with
EGI. The appellate court only adjudged that the BSP Monetary
Board summarily dismissed the administrative complaint of
EGI, without fully appreciating the facts and evidence
presented by the latter. Given the seriousness of the charges
of EGI against UCPB, et al., the BSP Monetary Board should
have conducted a more intensive inquiry and rendered a more
comprehensive decision.1avvphi1.zw+
By remanding the case to the BSP Monetary Board, the Court
of Appeals only acted in accordance with Republic Act No.
7653 and Republic Act No. 8791, which tasked the BSP,
through the Monetary Board, to determine whether a particular
act or omission, which is not otherwise prohibited by any law,
rule or regulation affecting banks, quasi-banks or trust entities,
may be deemed as conducting business in an unsafe or
unsound manner. Also, the BSP Monetary Board is the proper
body to impose the necessary administrative sanctions for the
erring bank and its directors or officers.
The Court of Appeals did not deem it appropriate, on appeal,
to outright reverse the judgment of the BSP Monetary Board.
The Court of Appeals held that the BSP Monetary Board did
30
not have sufficient basis for dismissing the administrative
complaint of EGI in its 16 September 2003 letter-decision; yet,
the appellate court likewise did not find enough evidence on
record to already resolve the administrative complaint in favor
of EGI and against UCPB, et al., precisely the reason why it
still remanded the case to the BSP Monetary Board for further
proceedings. The Court of Appeals never meant to give EGI
an assurance of a favorable judgment; it only ensured that the
BSP Monetary Board shall accord all parties concerned to
equal opportunity for presentation and consideration of their
allegations, arguments, and evidence. While the speedy
disposition of cases is a constitutionally mandated right, the
paramount duty of the courts, as well as quasi-judicial bodies,
is to render justice by following the basic rules and principles
of due process and fair play.
WHEREFORE, premises considered, the Petition for Review
on Certiorari of United Coconut Planters Bank, Jeronimo U.
Kilayko, Lorenzo V. Tan, Enrique L. Gana, Jaime W. Jacinto
and Emily R. Lazaro, in G.R. No. 168859; as well as the
Petition for Review on Certiorari of E. Ganzon, Inc. in G.R. No.
168897, are hereby DENIED. The Decision dated 14 October
2004 and Resolution dated 7 July 2005 of the Court of
Appeals in CA-G.R. SP No. 81385 are hereby AFFIRMED in
toto. No costs.
SO ORDERED.
G.R. No. L-46591               July 28, 1987
BANCO FILIPINO SAVINGS and MORTGAGE
BANK, petitioner, 
vs.
HON. MIGUEL NAVARRO, Presiding Judge, Court of First
Instance of Manila, Branch XXXI and FLORANTE DEL
VALLE, respondents.
MELENCIO-HERRERA, J.:
This is a Petition to review on certiorari the Decision of
respondent Court, the dispositive portion of which decrees:
WHEREFORE, the Court finds that the enforcement of
the escalation clause retroactively before the lapse of
the 15-year period stated in the promissory note is
contrary to Sec. 3 of Presidential Decree No. 116 and
Sec. 109 of Republic Act No. 265, and hereby declares
null and void the said escalation clause. The
respondent Banco Filipino Savings and Mortgage Bank
is hereby ordered to desist from enforcing the
increased rate of interest on petitioner's loan.
SO ORDERED.
The facts are not in dispute:
On May 20, 1975, respondent Florante del Valle (the
BORROWER) obtained a loan secured by a real estate
mortgage (the LOAN, for short) from petitioner BANCO
FILIPINO1 in the sum of Forty-one Thousand Three Hundred
(P41,300.00) Pesos, payable and to be amortized within
fifteen (15) years at twelve (12%) per cent interest annually.
Hence, the LOAN still had more than 730 days to run by
January 2, 1976, the date when CIRCULAR No. 494 was
issued by the Central Bank.
Stamped on the promissory note evidencing the loan is an
Escalation Clause, reading as follows:
31
I/We hereby authorize Banco Filipino to
correspondingly increase the interest rate stipulated in
this contract without advance notice to me/us in the
event law should be enacted increasing the lawful rates
of interest that may be charged on this particular kind
of loan.
The Escalation Clause is based upon Central Bank
CIRCULAR No. 494 issued on January 2, 1976, the pertinent
portion of which reads:
3. The maximum rate of interest, including
commissions, premiums, fees and other charges on
loans with maturity of more than seven hundred thirty
(730) days, by banking institutions, including thrift
banks and rural banks, or by financial intermediaries
authorized to engage in quasi-banking functions shall
be nineteen percent (19%) per annum.
x x x           x x x          x x x
7. Except as provided in this Circular and Circular No.
493, loans or renewals thereof shall continue to be
governed by the Usury Law, as amended."
CIRCULAR No. 494 was issued pursuant to the authority
granted to the Monetary Board by Presidential Decree No. 116
(Amending Further Certain Sections of the Usury Law)
promulgated on January 29, 1973, the applicable section of
which provides:
Sec. 2. The same Act is hereby amended by adding
the following section immediately after section one
thereof, which reads as follows:
 Sec. 1-a. The Monetary Board is hereby authorized to
prescribe the maximum rate or rates of interest for the
loan or renewal thereof or the forbearance of any
money, goods or credits, and to change such rate or
rates whenever warranted by prevailing economic and
social conditions: Provided, that such changes shall not
be made oftener than once every twelve months.
The same grant of authority appears in P.D. No. 858,
promulgated on December 31, 1975, except that the limitation
on the frequency of changes was eliminated.
On the strength of CIRCULAR No. 494 BANCO FILIPINO
gave notice to the BORROWER on June 30, 1976 of the
increase of interest rate on the LOAN from 12% to 17% per
annum effective on March 1, 1976.
On September 24, 1976, Ms. Mercedes C. Paderes of the
Central Bank wrote a letter to the BORROWER as follows:
September 24, 1976
Mr. Florante del Valle
14 Palanca Street
B.F. Homes, Paranaque
Rizal
Dear Mr. del Valle:
This refers to your letter dated August 28, 1976 addressed to
the Governor, Central Bank of the Philippines, seeking
clarification and our official stand on Banco Filipino's recent
decision to raise interest rates on lots bought on installment
from 12% to 17% per annum.
32
A verification made by our Examiner of the copy of your
Promissory Note on file with Banco Filipino showed that the
following escalation clause with your signature is stamped on
the Promissory Note:
I /We hereby authorize Banco Filipino to
correspondingly increase the interest rate stipulated in
this contract without advance notice to me/us in the
event a law should be enacted increasing the lawful
rates of interest that may be charged on this particular
kind of loan.
In this connection, please be advised that the Monetary Board,
in its Resolution No. 1155 dated June 11, 1976, adopted the
following guidelines to govern interest rate adjustments by
banks and non-banks performing quasi-banking functions on
loans already existing as of January 3, 1976, in the light of
Central Bank Circulars Nos. 492-498:
l. Only banks and non-bank financial intermediaries
performing quasi-banking functions may increase
interest rates on loans already existings of January 2,
1976, provided that:
a. The pertinent loan contracts/documents
contain escalation clauses expressly
authorizing lending bank or non-bank
performing quasi-banking functions to increase
the rate of interest stipulated in the contract, in
the event that any law or Central Bank
regulation is promulgated increasing the
maximum interest rate for loans; and
b. Said loans were directly granted by them and
the remaining maturities thereof were more
than 730 days as of January 2, 1976; and
 2. The increase in the rate of interest can be effective
only as of January 2, 1976 or on a later date.
The foregoing guidelines, however, shall not be understood as
precluding affected parties from questioning before a
competent court of justice the legality or validity of such
escalation clauses.
We trust the above guidelines would help you resolve your
problems regarding additional interest charges of Banco
Filipino.
Very truly yours,
(Sgd.) MERCEDES C. PAREDES
Director
Contending that CIRCULAR No. 494 is not the law
contemplated in the Escalation Clause of the promissory note,
the BORROWER filed suit against BANCO FILIPINO for
"Declaratory Relief" with respondent Court, praying that the
Escalation Clause be declared null and void and that BANCO
FILIPINO be ordered to desist from enforcing the increased
rate of interest on the BORROWER's real estate loan.
For its part, BANCO FILIPINO maintained that the Escalation
Clause signed by the BORROWER authorized it to increase
the interest rate once a law was passed increasing the rate of
interest and that its authority to increase was provided for by
CIRCULAR No. 494.
In its judgment, respondent Court nullified the Escalation
Clause and ordered BANCO FILIPINO to desist from enforcing
the increased rate of interest on the BORROWER's loan. It
reasoned out that P.D. No. 116 does not expressly grant the
Central Bank authority to maximize interest rates with
33
retroactive effect and that BANCO FILIPINO cannot legally
impose a higher rate of interest before the expiration of the 15-
year period in which the loan is to be paid other than the 12%
per annum in force at the time of the execution of the loan.
It is from that Decision in favor of the BORROWER that
BANCO FILIPINO has come to this instance on review by
Certiorari. We gave due course to the Petition, the question
being one of law.
On February 24, 1983, the parties represented by their
respective counsel, not only moved to withdraw the appeal on
the ground that it had become moot and academic "because
of recent developments in the rules and regulations of the
Central Bank," but also prayed that "the decision rendered in
the Court of First Instance be therefore vacated and declared
of no force and effect as if the case was never filed," since the
parties would like to end this matter once and for all."
However, "considering the subject matter of the controversy in
which many persons similarly situated are interested and
because of the need for a definite ruling on the question," the
Court, in its Resolution of February 24, 1983, impleaded the
Central Bank and required it to submit its Comment, and
encouraged homeowners similarly situated as the
BORROWER to intervene in the proceedings.
At the hearing on February 24, 1983, one Leopoldo Z. So, a
mortgage homeowner at B.F. Resort Subdivision, was present
and manifested that he was in a similar situation as the
BORROWER. Since then, he has written several letters to the
Court, pleading for early resolution of the case. The Court
allowed the intervention of Lolita Perono2and issued a
temporary restraining order enjoining the Regional Trial Court
(Pasay City Branch) in the case entitled "Banco Filipino
Savings and Mortgage Bank vs. Lolita Perono" from issuing a
writ of possession over her mortgaged property. Also snowed
to intervene were Enrique Tabalon, Jose Llopis, et als., who
had obtained loans with Identical escalation clauses from Apex
Mortgage and Loans Corporation, apparently an affiliate of
BANCO FILIPINO, Upon motion of Jose Llopis, a Temporary
Restraining Order was likewise issued enjoining the
foreclosure of his real estate mortgage by BANCO FILIPINO.
The Court made it explicit, however, that intervention was
allowed only for the purpose of "joining in the discussion of the
legal issue involved in this proceedings, to wit, the validity of
the so-called "escalation clause," or its applicability to existing
contracts of loan."
The Central Bank has submitted its Comment and
Supplemental Comment and like BANCO FILIPINO, has taken
the position that the issuance of its Circulars is a valid exercise
of its authority to scribe maximum rates of interest and that,
based on general principles of contract, the Escalation Clause
is a valid provision in the loan agreement provided that "(1) the
increased rate imposed or charged by petitioner does not
exceed the ceiling fixed by law or the Monetary Board; (2) the
increase is made effective not earlier than the effectivity of the
law or regulation authorizing such an increase; and (3) the
remaining maturities of the loans are more than 730 days as of
the effectivity of the law or regulation authorizing such an
increase. However, with respect to loan agreements entered
into,on or after March 17, 1980, such agreement, in order to
be valid, must also include a de-escalation clause as required
by Presidential Decree No. 1684."3
The substantial question in this case is not really whether the
Escalation Clause is a valid or void stipulation. There should
be no question that the clause is valid.
34
Some contracts contain what is known as an "escalator
clause," which is defined as one in which the contract
fixes a base price but contains a provision that in the
event of specified cost increases, the seller or
contractor may raise the price up to a fixed percentage
of the base. Attacks on such a clause have usually
been based on the claim that, because of the open
price-provision, the contract was too indefinite to be
enforceable and did not evidence an actual meeting of
the minds of the parties, or that the arrangement left
the price to be determined arbitrarily by one party so
that the contract lacked mutuality. In most instances,
however, these attacks have been unsuccessful.4
The Court further finds as a matter of law that the cost
of living index adjustment, or escalator clause, is not
substantively unconscionable.
Cost of living index adjustment clauses are widely used
in commercial contracts in an effort to maintain fiscal
stability and to retain "real dollar" value to the price
terms of long term contracts. The provision is a
common one, and has been universally upheld and
enforced. Indeed, the Federal government has
recognized the efficacy of escalator clauses in tying
Social Security benefits to the cost of living index, 42
U.S.C.s 415(i). Pension benefits and labor contracts
negotiated by most of the major labor unions are other
examples. That inflation, expected or otherwise, will
cause a particular bargain to be more costly in terms of
total dollars than originally contemplated can be of little
solace to the plaintiffs.5
What should be resolved is whether BANCO FILIPINO can
increase the interest rate on the LOAN from 12% to 17% per
annum under the Escalation Clause. It is our considered
opinion that it may not.
The Escalation Clause reads as follows:
I/We hereby authorize Banco Filipino
to correspondingly increase
the interest rate stipulated in this contract without
advance notice to me/us in the event
a law
increasing
the lawful rates of interest that may be charged
on this particular
kind of loan. (Paragraphing and emphasis supplied)
It is clear from the stipulation between the parties that the
interest rate may be increased "in the event a law should be
enacted increasing the lawful rate of interest that may be
charged on this particular kind of loan." " The Escalation
Clause was dependent on an increase of rate made by "law"
alone.
CIRCULAR No. 494, although it has the effect of law, is not a
law. "Although a circular duly issued is not strictly a statute or
a law, it has, however, the force and effect of law."6 (Italics
supplied). "An administrative regulation adopted pursuant to
law has the force and effect of law."7 "That administrative rules
and regulations have the force of law can no longer be
questioned. "8
35
The distinction between a law and an administrative regulation
is recognized in the Monetary Board guidelines quoted in the
letter to the BORROWER of Ms. Paderes of September 24,
1976 (supra). According to the guidelines, for a loan's interest
to be subject to the increases provided in CIRCULAR No. 494,
there must be an Escalation Clause allowing the increase "in
the event that any law or Central Bank regulation is
promulgated increasing the maximum interest rate for loans."
The guidelines thus presuppose that a Central Bank regulation
is not within the term "any law."
The distinction is again recognized by P.D. No. 1684,
promulgated on March 17, 1980, adding section 7-a to the
Usury Law, providing that parties to an agreement pertaining
to a loan could stipulate that the rate of interest agreed upon
may be increased in the event that the applicable maximum
rate of interest is increased "by law or by the Monetary Board."
To quote:
Sec. 7-a Parties to an agreement pertaining to a loan
or forbearance of money, goods or credits may
stipulate that the rate of interest agreed upon may be
increased in the event that the applicable maximum
rate of interest
is increased by law or by the Monetary Board:
Provided, That such stipulation shall be valid only
if there is also a stipulation in the agreement that the
rate of interest agreed upon shall be reduced in the
event that the applicable maximum rate of interest is
reduced by law or by the Monetary Board;
Provided, further, That the adjustment in the rate of
interest agreed upon shall take effect on or after the
 effectivity of the increase or decrease in the maximum
rate of interest. (Paragraphing and emphasis supplied).
It is now clear that from March 17, 1980, escalation clauses to
be valid should specifically provide: (1) that there can be an
increase in interest if increased by law or by the Monetary
Board; and (2) in order for such stipulation to be valid, it must
include a provision for reduction of the stipulated interest "in
the event that the applicable maximum rate of interest is
reduced by law or by the Monetary Board."
While P.D. No. 1684 is not to be given retroactive effect, the
absence of a de-escalation clause in the Escalation Clause in
question provides another reason why it should not be given
effect because of its one-sidedness in favor of the lender.
2. The Escalation Clause specifically stipulated that the
increase in interest rate was to be "on this particular kind of
loan, " meaning one secured by registered real estate
mortgage.
Paragraph 7 of CIRCULAR No. 494 specifically directs that
"loans or renewals continue to be governed by the Usury Law,
as amended." So do Circular No. 586 of the Central Bank,
which superseded Circular No. 494, and Circular No. 705,
which superseded Circular No. 586. The Usury Law, as
amended by Acts Nos. 3291, 3998 and 4070, became
effective on May 1, 1916. It provided for the maximum yearly
interest of 12% for loans secured by a mortgage upon
registered real estate (Section 2), and a maximum annual
interest of 14% for loans covered by security other than
mortgage upon registered real estate (Section 3). Significant is
the separate treatment of registered real estate loans and
other loans not secured by mortgage upon registered real
estate. It appears clear in the Usury Law that the policy is to
make interest rates for loans guaranteed by registered real
36
estate lower than those for loans guaranteed by properties
other than registered realty.
On June 15, 1948, Congress approved Republic Act No. 265,
creating the Central Bank, and establishing the Monetary
Board. That law provides that "the Monetary Board may, within
the limits prescribed in the Usury law,9 fix the maximum rates
of interest which banks may charge for different types of loans
and for any other credit operations, ... " and that "any
modification in the maximum interest rates permitted for the
borrowing or lending operations of the banks shall apply only
to future operations and not to those made prior to the date on
which the modification becomes effective" (Section
109).1avvphi1
On January 29, 1973, P.D. No. 116 was promulgated
amending the Usury Law. The Decree gave authority to the
Monetary Board "to prescribe maximum rates of interest for
the loan or renewal thereof or the forbearance of any money
goods or credits, and to change such rate or rates whenever
warranted by prevailing economic and social conditions. In one
section,10 the Monetary Board could prescribe the maximum
rate of interest for loans secured by mortgage upon registered
real estate or by any document conveying such real estate or
an interest therein and, in another separate section,11 the
Monetary Board was also granted authority to fix the maximum
interest rate for loans secured by types of security other than
registered real property. The two sections read:
SEC. 3. Section two of the same Act is hereby
amended to read as follows:
SEC. 2. No person or corporation shall directly
or indirectly take or receive in money or other
property, real or personal, or choses in action, a
higher rate of interest or greater sum or value,
 including commissions, premiums, fines and
penalties, for the loan or renewal thereof or
forbearance of money, goods, or credits, where
such loan or renewal or forbearance is secured
in whole or in part by a mortgage upon real
estate the title to which is duly registered or by
any document conveying such real estate or an
interest therein, than twelve per centum per
annum or the maximum rate prescribed by the
Monetary Board and in force at the time the
loan or renewal thereof or forbearance is
granted: Provided, That the rate of interest
under this section or the maximum rate of
interest that may be prescribed by the Monetary
Board under this section may likewise apply to
loans secured by other types of security as may
be specified by the Monetary Board.
SEC. 4. Section three of the same Act is hereby
amended to read as follows:
SEC. 3. No person or corporation shall directly
or indirectly demand, take, receive, or agree to
charge in money or other property, real or
personal, a higher rate or greater sum or value
for the loan or forbearance of money, goods, or
credits, where such loan or forbearance is not
secured as provided in Section two hereof, than
fourteen per centum per annum or the
maximum rate or rates prescribed by the
Monetary Board and in force at the time the
loan or forbearance is granted.
Apparent then is that the separate treatment for the two
classes of loans was maintained. Yet, CIRCULAR No. 494
makes no distinction as to the types of loans that it is
37
applicable to unlike Circular No. 586 dated January 1, 1978
and Circular No. 705 dated December 1, 1979, which fix the
effective rate of interest on loan transactions with maturities of
more than 730 days to not exceeding 19% per annum
(Circular No. 586) and not exceeding 21% per annum (Circular
No. 705) "on both secured and unsecured loans as defined by
the Usury Law, as amended."
In the absence of any indication in CIRCULAR No. 494 as to
which particular type of loan was meant by the Monetary
Board, the more equitable construction is to limit CIRCULAR
No. 494 to loans guaranteed by securities other than mortgage
upon registered realty.
WHEREFORE, the Court rules that while an escalation clause
like the one in question can ordinarily be held valid,
nevertheless, petitioner Banco Filipino cannot rely thereon to
raise the interest on the borrower's loan from 12% to 17% per
annum because Circular No. 494 of the Monetary Board was
not the "law" contemplated by the parties, nor should said
Circular be held as applicable to loans secured by registered
real estate in the absence of any such specific indication and
in contravention of the policy behind the Usury Law. The
judgment appealed from is, therefore, hereby affirmed in so far
as it orders petitioner Banco Filipino to desist from enforcing
the increased rate of interest on petitioner's loan.
The Temporary Restraining Orders heretofore issued are
hereby made permanent if the escalation clauses are Identical
to the one herein and the loans involved have applied the
increased rate of interest authorized by Central Bank Circular
No. 494. SO ORDERED.