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G.R. No.

189206 June 8, 2011


KNOW ALL MEN BY THESE PRESENTS:
GOVERNMENT SERVICE INSURANCE
SYSTEM, Petitioner, That we, DOMSAT HOLDINGS, INC.,
vs. represented by its President as PRINCIPAL,
THE HONORABLE 15th DIVISION OF THE and the GOVERNMENT SERVICE INSURANCE
COURT OF APPEALS and INDUSTRIAL SYSTEM, as Administrator of the GENERAL
BANK OF KOREA, TONG YANG INSURANCE FUND, a corporation duly
MERCHANT BANK, HANAREUM BANKING organized and existing under and by virtue of
CORP., LAND BANK OF THE PHILIPPINES, the laws of the Philippines, with principal
WESTMONT BANK and DOMSAT office in the City of Pasay, Metro Manila,
HOLDINGS, INC., Respondents. Philippines as SURETY, are held and firmly
bound unto the OBLIGEES: LAND BANK OF
DECISION THE PHILIPPINES, 7th Floor, Land Bank Bldg.
IV. 313 Sen. Gil J. Puyat Avenue, Makati City;
PEREZ, J.: WESTMONT BANK, 411 Quintin Paredes St.,
Binondo, Manila: TONG YANG MERCHANT
The subject of this petition for certiorari is BANK, 185, 2-Ka, Ulchi-ro, Chungk-ku, Seoul,
the Decision1 of the Court of Appeals in CA- Korea; INDUSTRIAL BANK OF KOREA, 50, 2-
G.R. SP No. 82647 allowing the quashal by Ga, Ulchi-ro, Chung-gu, Seoul, Korea; and
the Regional Trial Court (RTC) of Makati of a FIRST MERCHANT BANKING CORPORATION,
subpoena for the production of bank ledger. 199-40, 2-Ga, Euliji-ro, Jung-gu, Seoul, Korea,
This case is incident to Civil Case No. 99- in the sum, of US $ ELEVEN MILLION
1853, which is the main case for collection of DOLLARS ($11,000,000.00) for the payment
sum of money with damages filed by of which sum, well and truly to be made, we
Industrial Bank of Korea, Tong Yang Merchant bind ourselves, our heirs, executors,
Bank, First Merchant Banking Corporation, administrators, successors and assigns,
Land Bank of the Philippines, and Westmont jointly and severally, firmly by these
Bank (now United Overseas Bank), presents.
collectively known as "the Banks" against
Domsat Holdings, Inc. (Domsat) and the THE CONDITIONS OF THE OBLIGATION ARE
Government Service Insurance System AS FOLLOWS:
(GSIS). Said case stemmed from a Loan
Agreement,2 whereby the Banks agreed to WHEREAS, the above bounden PRINCIPAL, on
lend United States (U.S.) $11 Million to the 12th day of December, 1996 entered into
Domsat for the purpose of financing the a contract agreement with the
lease and/or purchase of a Gorizon Satellite aforementioned OBLIGEES to fully and
from the International Organization of Space faithfully
Communications (Intersputnik).3
Guarantee the repayment of the principal
The controversy originated from a surety and interest on the loan granted the
agreement by which Domsat obtained a PRINCIPAL to be used for the financing of the
surety bond from GSIS to secure the two (2) year lease of a Russian Satellite from
payment of the loan from the Banks. We INTERSPUTNIK, in accordance with the terms
quote the terms of the Surety Bond in its and conditions of the credit package entered
entirety.4 into by the parties.

Republic of the Philippines This bond shall remain valid and effective
GOVERNMENT SERVICE INSURANCE SYSTEM until the loan including interest has been
GENERAL INSURANCE FUND fully paid and liquidated,
GSIS Headquarters, Financial Center
Roxas Boulevard, Pasay City a copy of which contract/agreement is hereto
attached and made part hereof;
G(16) GIF Bond 027461
WHEREAS, the aforementioned OBLIGEES
SURETYBOND require said PRINCIPAL to give a good and
sufficient bond in the above stated sum to custody or control (whether actual or
secure the full and faithful performance on constructive), whether in his/her capacity as
his part of said contract/agreement. Custodian of Records or otherwise;

NOW, THEREFORE, if the PRINCIPAL shall well 2. All applications for cashiers/ managers
and truly perform and fulfill all the checks and bank transfers funded by the
undertakings, covenants, terms, conditions, account of DOMSAT Holdings, Inc. with or
and agreements stipulated in said through the Westmont Bank (now United
contract/agreements, then this obligation Overseas Bank) for the period January 1997
shall be null and void; otherwise, it shall to December 2002, and all other data and
remain in full force and effect. materials covering said applications, in
his/her direct or indirect possession, custody
WITNESS OUR HANDS AND SEALS this 13th or control (whether actual or constructive),
day of December 1996 at Pasay City, whether in his/her capacity as Custodian of
Philippines. Records or otherwise;

DOMSAT HOLDINGS, INC. 3. Ledger covering the account of Philippine


Principal GOVERNMENT SERVICE Agila Satellite, Inc. with Westmont Bank (now
INSURANCE SYSTEM United Overseas Bank), any and all
General Insurance Fund documents, records, files, books, deeds,
By: papers, notes and other data and materials
relating to the account or transactions of
CAPT. RODRIGO A. SILVERIO Philippine Agila Satellite, Inc. with or through
President By: the Westmont bank (now United Overseas
Bank) for the period January 1997 to
AMALIO A. MALLARI December 2002, in his/her direct or indirect
Senior Vice-President possession, custody or control (whether
General Insurance Group actual or constructive), whether in his/her
When Domsat failed to pay the loan, GSIS capacity as Custodian of Records or
refused to comply with its obligation otherwise;
reasoning that Domsat did not use the loan
proceeds for the payment of rental for the 4. All applications for cashiers/managers
satellite. GSIS alleged that Domsat, with checks funded by the account of Philippine
Westmont Bank as the conduit, transferred Agila Satellite, Inc. with or through the
the U.S. $11 Million loan proceeds from the Westmont Bank (now United Overseas Bank)
Industrial Bank of Korea to Citibank New York for the period January 1997 to December
account of Westmont Bank and from there to 2002, and all other data and materials
the Binondo Branch of Westmont Bank.5 The covering said applications, in his/her direct or
Banks filed a complaint before the RTC of indirect possession, custody or control
Makati against Domsat and GSIS. (whether actual or constructive), whether in
his/her capacity as Custodian of Records or
In the course of the hearing, GSIS requested otherwise.6
for the issuance of a subpoena duces tecum
to the custodian of records of Westmont The RTC issued a subpoena decus tecum on
Bank to produce the following documents: 21 November 2002.7 A motion to quash was
filed by the banks on three grounds: 1) the
1. Ledger covering the account of DOMSAT subpoena is unreasonable, oppressive and
Holdings, Inc. with Westmont Bank (now does not establish the relevance of the
United Overseas Bank), any and all documents sought; 2) request for the
documents, records, files, books, deeds, documents will violate the Law on Secrecy of
papers, notes and other data and materials Bank Deposits; and 3) GSIS failed to advance
relating to the account or transactions of the reasonable cost of production of the
DOMSAT Holdings, Inc. with or through the documents.8 Domsat also joined the banks
Westmont Bank (now United Overseas Bank) motion to quash through its
for the period January 1997 to December Manifestation/Comment.9 On 9 April 2003,
2002, in his/her direct or indirect possession, the RTC issued an Order denying the motion
to quash for lack of merit. We quote the the fact that it did not contain a notice of
pertinent portion of the Order, thus: hearing and was therefore a mere scrap of
paper.
After a careful consideration of the
arguments of the parties, the Court did not II.
find merit in the motion.
Respondent judge capriciously and arbitrarily
The serious objection appears to be that the ignored Section 2 of the Foreign Currency
subpoena is violative of the Law on Secrecy Deposit Act (RA 6426) in ruling in his Orders
of Bank Deposit, as amended. The law dated September 1 and December 30, 2003
declares bank deposits to be "absolutely that the US$11,000,000.00 deposit in the
confidential" except: x x x (6) In cases where account of respondent Domsat in Westmont
the money deposited or invested is the Bank is covered by the secrecy of bank
subject matter of the litigation. deposit.

The case at bench is for the collection of a III.


sum of money from defendants that obtained
a loan from the plaintiff. The loan was Since both respondent banks and respondent
secured by defendant GSIS which was the Domsat have disclosed during the trial the
surety. It is the contention of defendant GSIS US$11,000,000.00 deposit, it is no longer
that the proceeds of the loan was deviated to secret and confidential, and petitioner GSIS
purposes other than to what the loan was right to inquire into what happened to such
extended. The quashal of the subpoena deposit can not be suppressed.14
would deny defendant GSIS its right to prove
its defenses. The Court of Appeals addressed these issues
in seriatim.
WHEREFORE, for lack of merit the motion is
DENIED.10 The Court of Appeals resorted to a liberal
interpretation of the rules to avoid
On 26 June 2003, another Order was issued miscarriage of justice when it allowed the
by the RTC denying the motion for filing and acceptance of the second motion
reconsideration filed by the banks.11 On 1 for reconsideration. The appellate court also
September 2003 however, the trial court underscored the fact that GSIS did not raise
granted the second motion for the defect of lack of notice in its opposition
reconsideration filed by the banks. The to the second motion for reconsideration.
previous subpoenas issued were The appellate court held that failure to timely
consequently quashed.12 The trial court object to the admission of a defective motion
invoked the ruling in Intengan v. Court of is considered a waiver of its right to do so.
Appeals,13 where it was ruled that foreign
currency deposits are absolutely confidential The Court of Appeals declared that Domsats
and may be examined only when there is a deposit in Westmont Bank is covered by
written permission from the depositor. The Republic Act No. 6426 or the Bank Secrecy
motion for reconsideration filed by GSIS was Law. We quote the pertinent portion of the
denied on 30 December 2003. Decision:

Hence, these assailed orders are the subject It is our considered opinion that Domsats
of the petition for certiorari before the Court deposit of $11,000,000.00 in Westmont Bank
of Appeals. GSIS raised the following is covered by the Bank Secrecy Law, as such
arguments in support of its petition: it cannot be examined, inquired or looked
into without the written consent of its owner.
I. The ruling in Van Twest vs. Court of Appeals
was rendered during the effectivity of CB
Respondent Judge acted with grave abuse of Circular No. 960, Series of 1983, under Sec.
discretion when it favorably considered 102 thereof, transfer to foreign currency
respondent banks (second) Motion for deposit account or receipt from another
Reconsideration dated July 9, 2003 despite foreign currency deposit account, whether
for payment of legitimate obligation or Anent the third issue, the Court of Appeals
otherwise, are not eligible for deposit under ruled that the testimony of the incumbent
the System. president of Westmont Bank is not the
written consent contemplated by Republic
CB Circular No. 960 has since been Act No. 6426.
superseded by CB Circular 1318 and later by
CB Circular 1389. Section 102 of Circular 960 The Court of Appeals however upheld the
has not been re-enacted in the later issuance of subpoena praying for the
Circulars. What is applicable now is the production of applications for cashiers or
decision in Intengan vs. Court of Appeals managers checks by Domsat through
where the Supreme Court has ruled that the Westmont Bank, as well as a copy of an
under R.A. 6426 there is only a single Agreement and/or Contract and/or
exception to the secrecy of foreign currency Memorandum between Domsat and/or
deposits, that is, disclosure is allowed only Philippine Agila Satellite and Intersputnik for
upon the written permission of the depositor. the acquisition and/or lease of a Gorizon
Petitioner, therefore, had inappropriately Satellite. The appellate court believed that
invoked the provisions of Central Bank (CB) the production of these documents does not
Circular Nos. 343 which has already been involve the examination of Domsats account
superseded by more recently issued CB since it will never be known how much
Circulars. CB Circular 343 requires the money was deposited into it or withdrawn
surrender to the banking system of foreign therefrom and how much remains therein.
exchange, including proceeds of foreign
borrowings. This requirement, however, can On 29 February 2008, the Court of Appeals
no longer be found in later circulars. rendered the assailed Decision, the decretal
portion of which reads:
In its Reply to respondent banks comment,
petitioner appears to have conceded that WHEREFORE, the petition is partially
what is applicable in this case is CB Circular GRANTED. Accordingly, the assailed Order
1389. Obviously, under CB 1389, proceeds of dated December 30, 2003 is hereby modified
foreign borrowings are no longer required to in that the quashal of the subpoena for the
be surrendered to the banking system. production of Domsats bank ledger in
Westmont Bank is upheld while respondent
Undaunted, petitioner now argues that court is hereby ordered to issue subpoena
paragraph 2, Section 27 of CB Circular 1389 duces tecum ad testificandum directing the
is applicable because Domsats records custodian of Westmont Bank to bring
$11,000,000.00 loan from respondent banks to court the following documents:
was intended to be paid to a foreign supplier
Intersputnik and, therefore, should have a) applications for cashiers or managers
been paid directly to Intersputnik and not checks by respondent Domsat through
deposited into Westmont Bank. The fact that Westmont Bank from January 1997 to
it was deposited to the local bank Westmont December 2002;
Bank, petitioner claims violates the circular
and makes the deposit lose its confidentiality b) bank transfers by respondent Domsat
status under R.A. 6426. However, a reading through Westmont Bank from January 1997
of the entire Section 27 of CB Circular 1389 to December 2002; and
reveals that the portion quoted by the
petitioner refers only to the c) copy of an agreement and/or contract
procedure/conditions of drawdown for and/or memorandum between respondent
service of debts using foreign exchange. The Domsat and/or Philippine Agila Satellite and
above-said provision relied upon by the Intersputnik for the acquisition and/or lease
petitioner does not in any manner prescribe of a Gorizon satellite.
the conditions before any foreign currency
deposit can be entitled to the confidentiality No pronouncement as to costs.16
provisions of R.A. 6426.15
GSIS filed a motion for reconsideration which
the Court of Appeals denied on 19 June 2009.
Thus, the instant petition ascribing grave GSIS also contends that the concerted
abuse of discretion on the part of the Court refusal of Domsat and the banks to divulge
of Appeals in ruling that Domsats deposit the whereabouts of the U.S. $11 Million will
with Westmont Bank cannot be examined greatly prejudice and burden the GSIS
and in finding that the banks second motion pension fund considering that a substantial
for reconsideration in Civil Case No. 99-1853 portion of this fund is earmarked every year
is procedurally acceptable.17 to cover the surety bond issued.

This Court notes that GSIS filed a petition for Lastly, GSIS defends the acceptance by the
certiorari under Rule 65 of the Rules of Court trial court of the second motion for
to assail the Decision and Resolution of the reconsideration filed by the banks on the
Court of Appeals. Petitioner availed of the grounds that it is pro forma and did not
improper remedy as the appeal from a final conform to the notice requirements of
disposition of the Court of Appeals is a Section 4, Rule 15 of the Rules of Civil
petition for review under Rule 45 and not a Procedure.21
special civil action under Rule 65.18
Certiorari under Rule 65 lies only when there Domsat denies the allegations of GSIS and
is no appeal, nor plain, speedy and adequate reiterates that it did not give a categorical or
remedy in the ordinary course of law. That affirmative written consent or permission to
action is not a substitute for a lost appeal in GSIS to examine its bank statements with
general; it is not allowed when a party to a Westmont Bank.
case fails to appeal a judgment to the proper
forum.19 Where an appeal is available, The Banks maintain that Republic Act No.
certiorari will not prosper even if the ground 1405 is not the applicable law in the instant
therefor is grave abuse of discretion. case because the Domsat deposit is a foreign
Accordingly, when a party adopts an currency deposit, thus covered by Republic
improper remedy, his petition may be Act No. 6426. Under said law, only the
dismissed outright.20lauuphil consent of the depositor shall serve as the
exception for the disclosure of his/her
Yet, even if this procedural infirmity is deposit.
discarded for the broader interest of justice,
the petition sorely lacks merit. The Banks counter the arguments of GSIS as
a mere rehash of its previous arguments
GSIS insists that Domsats deposit with before the Court of Appeals. They justify the
Westmont Bank can be examined and issuance of the subpoena as an interlocutory
inquired into. It anchored its argument on matter which may be reconsidered anytime
Republic Act No. 1405 or the "Law on and that the pro forma rule has no
Secrecy of Bank Deposits," which allows the application to interlocutory orders.
disclosure of bank deposits in cases where
the money deposited is the subject matter of It appears that only GSIS appealed the ruling
the litigation. GSIS asserts that the subject of the Court of Appeals pertaining to the
matter of the litigation is the U.S. $11 Million quashal of the subpoena for the production
obtained by Domsat from the Banks to of Domsats bank ledger with Westmont
supposedly finance the lease of a Russian Bank. Since neither Domsat nor the Banks
satellite from Intersputnik. Whether or not it interposed an appeal from the other portions
should be held liable as a surety for the of the decision, particularly for the
principal amount of U.S. $11 Million, GSIS production of applications for cashiers or
contends, is contingent upon whether managers checks by Domsat through
Domsat indeed utilized the amount to lease Westmont Bank, as well as a copy of an
a Russian satellite as agreed in the Surety agreement and/or contract and/or
Bond Agreement. Hence, GSIS argues that memorandum between Domsat and/or
the whereabouts of the U.S. $11 Million is the Philippine Agila Satellite and Intersputnik for
subject matter of the case and the disclosure the acquisition and/or lease of a Gorizon
of bank deposits relating to the U.S. $11 satellite, the latter became final and
Million should be allowed. executory.
GSIS invokes Republic Act No. 1405 to justify amended by PD No. 1246, prom. Nov. 21,
the issuance of the subpoena while the 1977.)
banks cite Republic Act No. 6426 to oppose
it. The core issue is which of the two laws On the one hand, Republic Act No. 1405
should apply in the instant case. provides for four (4) exceptions when records
of deposits may be disclosed. These are
Republic Act No. 1405 was enacted in 1955. under any of the following instances: a) upon
Section 2 thereof was first amended by written permission of the depositor, (b) in
Presidential Decree No. 1792 in 1981 and cases of impeachment, (c) upon order of a
further amended by Republic Act No. 7653 in competent court in the case of bribery or
1993. It now reads: dereliction of duty of public officials or, (d)
when the money deposited or invested is the
Section 2. All deposits of whatever nature subject matter of the litigation, and e) in
with banks or banking institutions in the cases of violation of the Anti-Money
Philippines including investments in bonds Laundering Act (AMLA), the Anti-Money
issued by the Government of the Philippines, Laundering Council (AMLC) may inquire into
its political subdivisions and its a bank account upon order of any competent
instrumentalities, are hereby considered as court.22 On the other hand, the lone
of an absolutely confidential nature and may exception to the non-disclosure of foreign
not be examined, inquired or looked into by currency deposits, under Republic Act No.
any person, government official, bureau or 6426, is disclosure upon the written
office, except upon written permission of the permission of the depositor.
depositor, or in cases of impeachment, or
upon order of a competent court in cases of These two laws both support the
bribery or dereliction of duty of public confidentiality of bank deposits. There is no
officials, or in cases where the money conflict between them. Republic Act No. 1405
deposited or invested is the subject matter of was enacted for the purpose of giving
the litigation. encouragement to the people to deposit their
money in banking institutions and to
Section 8 of Republic Act No. 6426, which discourage private hoarding so that the
was enacted in 1974, and amended by same may be properly utilized by banks in
Presidential Decree No. 1035 and later by authorized loans to assist in the economic
Presidential Decree No. 1246, provides: development of the country.23 It covers all
bank deposits in the Philippines and no
Section 8. Secrecy of Foreign Currency distinction was made between domestic and
Deposits. All foreign currency deposits foreign deposits. Thus, Republic Act No. 1405
authorized under this Act, as amended by is considered a law of general application. On
Presidential Decree No. 1035, as well as the other hand, Republic Act No. 6426 was
foreign currency deposits authorized under intended to encourage deposits from foreign
Presidential Decree No. 1034, are hereby lenders and investors.24 It is a special law
declared as and considered of an absolutely designed especially for foreign currency
confidential nature and, except upon the deposits in the Philippines. A general law
written permission of the depositor, in no does not nullify a specific or special law.
instance shall foreign currency deposits be Generalia specialibus non derogant.25
examined, inquired or looked into by any Therefore, it is beyond cavil that Republic Act
person, government official, bureau or office No. 6426 applies in this case.
whether judicial or administrative or
legislative or any other entity whether public Intengan v. Court of Appeals affirmed the
or private; Provided, however, That said above-cited principle and categorically
foreign currency deposits shall be exempt declared that for foreign currency deposits,
from attachment, garnishment, or any other such as U.S. dollar deposits, the applicable
order or process of any court, legislative law is Republic Act No. 6426.
body, government agency or any
administrative body whatsoever. (As In said case, Citibank filed an action against
amended by PD No. 1035, and further its officers for persuading their clients to
transfer their dollar deposits to competitor
banks. Bank records, including dollar appellate court maintained that the judge
deposits of petitioners, purporting to may, in the exercise of his sound discretion,
establish the deception practiced by the grant the second motion for reconsideration
officers, were annexed to the complaint. despite its being pro forma. The appellate
Petitioners now complained that Citibank court correctly relied on precedents where
violated Republic Act No. 1405. This Court this Court set aside technicality in favor of
ruled that since the accounts in question are substantive justice. Furthermore, the
U.S. dollar deposits, the applicable law appellate court accurately pointed out that
therefore is not Republic Act No. 1405 but petitioner did not assail the defect of lack of
Republic Act No. 6426. notice in its opposition to the second motion
of reconsideration, thus it can be considered
The above pronouncement was reiterated in a waiver of the defect.
China Banking Corporation v. Court of
Appeals,26 where respondent accused his WHEREFORE, the petition for certiorari is
daughter of stealing his dollar deposits with DISMISSED. The Decision dated 29 February
Citibank. The latter allegedly received the 2008 and 19 June 2009 Resolution of the
checks from Citibank and deposited them to Court of Appeals are hereby AFFIRMED.
her account in China Bank. The subject
checks were presented in evidence. A SO ORDERED.
subpoena was issued to employees of China
Bank to testify on these checks. China Bank
argued that the Citibank dollar checks with
both respondent and/or her daughter as G.R. No. 140687 December 18,
payees, deposited with China Bank, may not 2006
be looked into under the law on secrecy of CHINA BANKING CORPORATION,
foreign currency deposits. This Court petitioner,
highlighted the exception to the non- vs.
disclosure of foreign currency deposits, i.e., THE HONORABLE COURT OF APPEALS
in the case of a written permission of the and JOSE "JOSEPH" GOTIANUY as
depositor, and ruled that respondent, as substituted by ELIZABETH GOTIANUY
owner of the funds unlawfully taken and LO, respondents.
which are undisputably now deposited with
China Bank, he has the right to inquire into
the said deposits. DECISION

Applying Section 8 of Republic Act No. 6426,


absent the written permission from Domsat, CHICO-NAZARIO, J.:
Westmont Bank cannot be legally compelled
to disclose the bank deposits of Domsat, A Complaint for recovery of sums of money
otherwise, it might expose itself to criminal and annulment of sales of real properties and
liability under the same act.27 shares of stock docketed as CEB-21445 was
filed by Jose "Joseph" Gotianuy against his
The basis for the application of subpoena is son-in-law, George Dee, and his daughter,
to prove that the loan intended for Domsat Mary Margaret Dee, before the Regional Trial
by the Banks and guaranteed by GSIS, was Court (RTC) of Cebu City, Branch 58.
diverted to a purpose other than that stated
in the surety bond. The Banks, however, Jose Gotianuy accused his daughter Mary
argue that GSIS is in fact liable to them for Margaret Dee of stealing, among his other
the proper applications of the loan proceeds properties, US dollar deposits with Citibank
and not vice-versa. We are however not N.A. amounting to not less than
prepared to rule on the merits of this case P35,000,000.00 and US$864,000.00. Mary
lest we pre-empt the findings of the lower Margaret Dee received these amounts from
courts on the matter. Citibank N.A. through checks which she
allegedly deposited at China Banking
The third issue raised by GSIS was properly Corporation (China Bank). He likewise
addressed by the appellate court. The accused his son-in-law, George Dee, husband
of his daughter, Mary Margaret, of (Exhs. "AAA" to "AAA-5") and other matters
transferring his real properties and shares of material and relevant to the issues of this
stock in George Dee's name without any case.4
consideration. Jose Gotianuy, died during the
pendency of the case before the trial court.1 China Bank moved for a reconsideration.
He was substituted by his daughter, Resolving the motion, the trial court issued
Elizabeth Gotianuy Lo. The latter presented an Order dated 16 April 1999 and held:
the US Dollar checks withdrawn by Mary
Margaret Dee from his US dollar placement The Court is of the view that as the foreign
with Citibank. The details of the said checks currency fund (Exhs. "AAA" to "AAA-5") is
are: deposited with the movant China Banking
Corporation, Cebu Main Branch, Cebu City,
1) CITIBANK CHECK NO. 69003194405412 the disclosure only as to the name or in
dated September 29 1997 in the amount of whose name the said fund is deposited is not
US$5,937.52 payable to GOTIANUY: JOSE violative of the law. Justice will be better
AND/OR DEE: MARY MARGARET; served if the name or names of the depositor
of said fund shall be disclosed because such
2) CITIBANK CHECK NO. 69003194405296 a disclosure is material and important to the
dated September 29 1997 in the amount of issues between the parties in the case at bar.
US$7,197.59 payable to GOTIANUY: JOSE
AND/OR DEE: MARY MARGARET; Premises considered, the motion for
reconsideration is denied partly and granted
3) CITIBANK CHECK NO. 69003194405414 partly, in the sense that Isabel Yap and/or
dated September 29 1997 in the amount of Cristuta Labios are directed to appear before
US$1,198.94 payable to GOTIANUY: JOSE this Court and to testify at the trial of this
AND/OR DEE: MARY MARGARET; case on April 20, 1999, May 6 & 7, 1999 at
10:00 o'clock in the morning and only for the
4) CITIBANK CHECK NO. 69003194405413 purpose of disclosing in whose name or
dated September 29 1997 in the amount of names is the foreign currency fund (Exhs.
US$989.04 payable to GOTIANUY: JOSE "AAA" to "AAA-5") deposited with the movant
AND/OR DEE: MARY MARGARET; Bank and not to other matters material and
relevant to the issues in the case at bar.5
5) CITIBANK CHECK NO. 69003194405297
dated October 01 1997 in the amount of From this Order, China Bank filed a Petition
US$766,011.97 payable to GOTIANUY: JOSE for Certiorari6 with the Court of Appeals. In a
AND/OR DEE: MARY MARGARET; and Decision7 dated 29 October 1999, the Court
of Appeals denied the petition of China Bank
6) CITIBANK CHECK NO. 69003194405339 and affirmed the Order of the RTC.
dated October 09 1997 in the amount of
US$83,053.10 payable to GOTIANUY: JOSE In justifying its conclusion, the Court of
AND/OR DEE: MARY MARGARET.2 Appeals ratiocinated:

Upon motion of Elizabeth Gotianuy Lo, the From the foregoing, it is pristinely clear the
trial court3 issued a subpoena to Cristota law specifically encompasses only the money
Labios and Isabel Yap, employees of China or funds in foreign currency deposited in a
Bank, to testify on the case. The Order of the bank. Thus, the coverage of the law extends
trial court dated 23 February 1999, states: only to the foreign currency deposit in the
CBC account where Mary Margaret Dee
Issue a subpoena ad testificandum requiring deposited the Citibank checks in question
MS. ISABEL YAP and CRISTOTA LABIOS of and nothing more.
China Banking Corporation, Cebu Main
Branch, corner Magallanes and D. Jakosalem It has to be pointed out that the April 16,
Sts., Cebu City, to appear in person and to 1999 Order of the court of origin modified its
testify in the hearing of the above entitled previous February 23, 1999 Order such that
case on March 1, 1999 at 8:30 in the the CBC representatives are directed solely
morning, with regards to Citibank Checks to divulge "in whose name or names is the
foreign currency fund (Exhs. "AAA" to "AAA- CURRENCY DEPOSIT ON THE FLIMSY
5") deposited with the movant bank." It PRETEXT THAT THE CHECKS (IN FOREIGN
precluded inquiry on "other materials and CURRENCY) HE HAD ISSUED MAY HAVE
relevant to the issues in the case at bar." We ENDED UP THEREIN.
find that the directive of the court below
does not contravene the plain language of III
RA 6426 as amended by P.D. No. 1246.
PETITIONER CAN RIGHTLY INVOKE THE
The contention of petitioner that the PROVISION OF SEC. 8, R.A. 6426, IN BEHALF
[prescription] on absolute confidentiality OF THE FOREIGN CURRENCY DEPOSITOR,
under the law in question covers even the OWING TO ITS SOLEMN OBLIGATION TO ITS
name of the depositor and is beyond the CLIENT TO EXERCISE EXTRAORDINARY
compulsive process of the courts is palpably DILIGENCE IN THE HANDLING OF THE
untenable as the law protects only the ACCOUNT.9
deposits itself but not the name of the
depositor. To uphold the theory of petitioner As amended by Presidential Decree No.
CBC is reading into the statute "something 1246, the law reads:
that is not within the manifest intention of
the legislature as gathered from the statute SEC. 8. Secrecy of Foreign Currency
itself, for to depart from the meaning Deposits. All foreign currency deposits
expressed by the words, is to alter the authorized under this Act, as amended by
statute, to legislate and not to interpret, and Presidential Decree No. 1035, as well as
judicial legislation should be avoided. foreign currency deposits authorized under
Maledicta expositio quae corrumpit textum Presidential Decree No. 1034, are hereby
It is a dangerous construction which is declared as and considered of an absolutely
against the words. Expressing the same confidential nature and, except upon the
principle is the maxim: Ubi lex non distinguit written permission of the depositor, in no
nec nos distinguere debemos, which simply instance shall such foreign currency deposits
means that where the law does not be examined, inquired or looked into by any
distinguish, we should not make any person, government official, bureau or office
distinction." (Gonzaga, Statutes and their whether judicial or administrative or
Construction, p. 75.)8 legislative or any other entity whether public
or private: Provided, however, that said
From the Decision of the Court of Appeals, foreign currency deposits shall be exempt
China Bank elevated the case to this Court from attachment, garnishment, or any other
based on the following issues: order or process of any court, legislative
body, government agency or any
I administrative body whatsoever. (As
amended by PD No. 1035, and further
THE HONORABLE COURT OF APPEALS HAS amended by PD No. 1246, prom. Nov. 21,
INTERPRETED THE PROVISION OF SECTION 8 1977) (Emphasis supplied.)
OF R.A. 6426, AS AMENDED, OTHERWISE
KNOWN AS THE FOREIGN CURRENCY Under the above provision, the law provides
DEPOSIT ACT, IN A MANNER CONTRARY TO that all foreign currency deposits authorized
THE LEGISLATIVE PURPOSE, THAT IS, TO under Republic Act No. 6426, as amended by
PROVIDE ABSOLUTE CONFIDENTIALITY OF Sec. 8, Presidential Decree No. 1246,
WHATEVER INFORMATION RELATIVE TO THE Presidential Decree No. 1035, as well as
FOREIGN CURRENCY DEPOSIT. foreign currency deposits authorized under
Presidential Decree No. 1034 are considered
II absolutely confidential in nature and may not
be inquired into. There is only one exception
PRIVATE RESPONDENT IS NOT THE OWNER to the secrecy of foreign currency deposits,
OF THE QUESTIONED FOREIGN CURRENCY that is, disclosure is allowed upon the written
DEPOSIT. THUS, HE CANNOT INVOKE THE AID permission of the depositor.
OF THE COURT IN COMPELLING THE
DISCLOSURE OF SOMEONE ELSE'S FOREIGN
This much was pronounced in the case of of the law would result to rank injustice.
Intengan v. Court of Appeals,10 where it was Therein, Greg Bartelli y Northcott, an
held that the only exception to the secrecy of American tourist, was charged with criminal
foreign currency deposits is in the case of a cases for serious illegal detention and rape
written permission of the depositor. committed against then 12 year-old Karen
Salvacion. A separate civil case for damages
It must be remembered that under the with preliminary attachment was filed
whereas clause of Presidential Decree No. against Greg Bartelli. The trial court issued
1246 which amended Sec. 8 of Republic Act an Order granting the Salvacions' application
No. 6426, the Foreign Currency Deposit for the issuance of a writ of preliminary
System including the Offshore Banking attachment. A notice of garnishment was
System under Presidential Decree 1034 were then served on China Bank where Bartelli
intended to draw deposits from foreign held a dollar account. China Bank refused,
lenders and investors, and we quote: invoking the secrecy of bank deposits. The
Supreme Court ruled: "In fine, the application
Whereas, in order to assure the development of the law depends on the extent of its
and speedy growth of the Foreign Currency justice x x x It would be unthinkable, that the
Deposit System and the Offshore Banking questioned law exempting foreign currency
System in the Philippines, certain incentives deposits from attachment, garnishment, or
were provided for under the two Systems any other order or process of any court,
such as confidentiality of deposits subject to legislative body, government agency or any
certain exceptions and tax exemptions on administrative body whatsoever would be
the interest income of depositors who are used as a device by an accused x x x for
nonresidents and are not engaged in trade or wrongdoing, and in so doing, acquitting the
business in the Philippines; guilty at the expense of the innocent.14

Whereas, making absolute the protective With the foregoing, we are now tasked to
cloak of confidentiality over such foreign determine the single material issue of
currency deposits, exempting such deposits whether or not petitioner China Bank is
from tax, and guaranteeing the vested rights correct in its submission that the Citibank
of depositors would better encourage the dollar checks with both Jose Gotianuy and/or
inflow of foreign currency deposits into the Mary Margaret Dee as payees, deposited
banking institutions authorized to accept with China Bank, may not be looked into
such deposits in the Philippines thereby under the law on secrecy of foreign currency
placing such institutions more in a position to deposits. As a corollary issue, sought to be
properly channel the same to loans and resolved is whether Jose Gotianuy may be
investments in the Philippines, thus directly considered a depositor who is entitled to
contributing to the economic development of seek an inquiry over the said deposits.
the country.
The Court of Appeals, in allowing the inquiry,
As to the deposit in foreign currencies considered Jose Gotianuy, a co-depositor of
entitled to be protected under the Mary Margaret Dee. It reasoned that since
confidentiality rule, Presidential Decree No. Jose Gotianuy is the named co-payee of the
1034,11 defines deposits to mean funds in latter in the subject checks, which checks
foreign currencies which are accepted and were deposited in China Bank, then, Jose
held by an offshore banking unit in the Gotianuy is likewise a depositor thereof. On
regular course of business, with the that basis, no written consent from Mary
obligation to return an equivalent amount to Margaret Dee is necessitated.
the owner thereof, with or without interest.12
We agree in the conclusion arrived at by the
It is in this light that the court in the case of Court of Appeals.
Salvacion v. Central Bank of the
Philippines,13 allowed the inquiry of the The following facts are established: (1) Jose
foreign currency deposit in question mainly Gotianuy and Mary Margaret Dee are co-
due to the peculiar circumstances of the case payees of various Citibank checks;15 (2)
such that a strict interpretation of the letter Mary Margaret Dee withdrew these checks
from Citibank;16 (3) Mary Margaret Dee One more point. It must be remembered that
admitted in her Answer to the Request for in the complaint of Jose Gotianuy, he alleged
Admissions by the Adverse Party sent to her that his US dollar deposits with Citibank were
by Jose Gotianuy17 that she withdrew the illegally taken from him. On the other hand,
funds from Citibank upon the instruction of China Bank employee Cristuta Labios
her father Jose Gotianuy and that the funds testified that Mary Margaret Dee came to
belonged exclusively to the latter; (4) these China Bank and deposited the money of Jose
checks were endorsed by Mary Margaret Dee Gotianuy in Citibank US dollar checks to the
at the dorsal portion; and (5) Jose Gotianuy dollar account of her sister Adrienne Chu.20
discovered that these checks were deposited This fortifies our conclusion that an inquiry
with China Bank as shown by the stamp of into the said deposit at China Bank is
China Bank at the dorsal side of the checks. justified. At the very least, Jose Gotianuy as
the owner of these funds is entitled to a
Thus, with this, there is no issue as to the hearing on the whereabouts of these funds.
source of the funds. Mary Margaret Dee
declared the source to be Jose Gotianuy. All things considered and in view of the
There is likewise no dispute that these funds distinctive circumstances attendant to the
in the form of Citibank US dollar Checks are present case, we are constrained to render a
now deposited with China Bank. limited pro hac vice ruling.21 Clearly it was
not the intent of the legislature when it
As the owner of the funds unlawfully taken enacted the law on secrecy on foreign
and which are undisputably now deposited currency deposits to perpetuate injustice.
with China Bank, Jose Gotianuy has the right This Court is of the view that the allowance
to inquire into the said deposits. of the inquiry would be in accord with the
rudiments of fair play,22 the upholding of
A depositor, in cases of bank deposits, is one fairness in our judicial system and would be
who pays money into the bank in the usual an avoidance of delay and time-wasteful and
course of business, to be placed to his credit circuitous way of administering justice.23
and subject to his check or the beneficiary of
the funds held by the bank as trustee.18 WHEREFORE, premises considered, the
Petition is DENIED. The Decision of the Court
On this score, the observations of the Court of Appeals dated 29 October 1999 affirming
of Appeals are worth reiterating: the Order of the RTC, Branch 58, Cebu City
dated 16 April 1999 is AFFIRMED and this
Furthermore, it is indubitable that the case is ordered REMANDED to the trial court
Citibank checks were drawn against the for continuation of hearing with utmost
foreign currency account with Citibank, NA. dispatch consistent with the above
The monies subject of said checks originally disquisition. No costs.
came from the late Jose Gotianuy, the owner
of the account. Thus, he also has legal rights SO ORDERED.
and interests in the CBC account where said
monies were deposited. More importantly,
the Citibank checks (Exhibits "AAA" to "AAA-
5") readily demonstrate (sic) that the late G.R. No. 159912 August 17,
Jose Gotianuy is one of the payees of said 2007
checks. Being a co-payee thereof, then he or
his estate can be considered as a co- UNITED COCONUT PLANTERS BANK,
depositor of said checks. Ergo, since the late Petitioner,
Jose Gotianuy is a co-depositor of the CBC vs.
account, then his request for the assailed SPOUSES SAMUEL and ODETTE BELUSO,
subpoena is tantamount to an express Respondents.
permission of a depositor for the disclosure
of the name of the account holder. The April DECISION
16, 1999 Order perforce must be
sustained.19 (Emphasis supplied.) CHICO-NAZARIO, J.:
This is a Petition for Review on Certiorari Beluso under one promissory note with a due
under Rule 45 of the Rules of Court, which date of 28 February 1998.
seeks to annul the Court of Appeals
Decision1 dated 21 January 2003 and its To completely avail themselves of the P2.35
Resolution2 dated 9 September 2003 in CA- Million credit line extended to them by UCPB,
G.R. CV No. 67318. The assailed Court of the spouses Beluso executed two more
Appeals Decision and Resolution affirmed in promissory notes for a total of P350,000.00:
turn the Decision3 dated 23 March 2000 and
Order4 dated 8 May 2000 of the Regional PN # Date of PN Maturity Date
Trial Court (RTC), Branch 65 of Makati City, in Amount Secured
Civil Case No. 99-314, declaring void the 97-00363-1 11 December 1997 28 February
interest rate provided in the promissory 1998 P 200,000
notes executed by the respondents Spouses 98-00002-4 2 January 1998 28 February
Samuel and Odette Beluso (spouses Beluso) 1998 P 150,000
in favor of petitioner United Coconut Planters However, the spouses Beluso alleged that
Bank (UCPB). the amounts covered by these last two
promissory notes were never released or
The procedural and factual antecedents of credited to their account and, thus, claimed
this case are as follows: that the principal indebtedness was only P2
Million.
On 16 April 1996, UCPB granted the spouses
Beluso a Promissory Notes Line under a In any case, UCPB applied interest rates on
Credit Agreement whereby the latter could the different promissory notes ranging from
avail from the former credit of up to a 18% to 34%. From 1996 to February 1998
maximum amount of P1.2 Million pesos for a the spouses Beluso were able to pay the
term ending on 30 April 1997. The spouses total sum of P763,692.03.
Beluso constituted, other than their
promissory notes, a real estate mortgage From 28 February 1998 to 10 June 1998,
over parcels of land in Roxas City, covered by UCPB continued to charge interest and
Transfer Certificates of Title No. T-31539 and penalty on the obligations of the spouses
T-27828, as additional security for the Beluso, as follows:
obligation. The Credit Agreement was
subsequently amended to increase the PN # Amount Secured Interest
amount of the Promissory Notes Line to a Penalty Total
maximum of P2.35 Million pesos and to 97-00363-1 P 200,000 31% 36% P
extend the term thereof to 28 February 1998. 225,313.24
97-00366-6 P 700,000 30.17%
The spouses Beluso availed themselves of (7 days) 32.786%
the credit line under the following Promissory (102 days) P 795,294.72
Notes: 97-00368-2 P 1,300,000 28%
(2 days) 30.41%
PN # Date of PN Maturity Date (102 days) P 1,462,124.54
Amount Secured 98-00002-4 P 150,000 33%
8314-96-00083-3 29 April 1996 27 (102 days) 36% P 170,034.71
August 1996 P 700,000 The spouses Beluso, however, failed to make
8314-96-00085-0 2 May 1996 30 August any payment of the foregoing amounts.
1996 P 500,000
8314-96-000292-2 20 November 1996 20 On 2 September 1998, UCPB demanded that
March 1997 P 800,000 the spouses Beluso pay their total obligation
The three promissory notes were renewed of P2,932,543.00 plus 25% attorneys fees,
several times. On 30 April 1997, the but the spouses Beluso failed to comply
payment of the principal and interest of the therewith. On 28 December 1998, UCPB
latter two promissory notes were debited foreclosed the properties mortgaged by the
from the spouses Belusos account with spouses Beluso to secure their credit line,
UCPB; yet, a consolidated loan for P1.3 which, by that time, already ballooned to
Million was again released to the spouses P3,784,603.00.
REVERSIBLE ERROR WHEN IT AFFIRMED THE
On 9 February 1999, the spouses Beluso filed COMPUTATION BY THE TRIAL COURT OF
a Petition for Annulment, Accounting and RESPONDENTS INDEBTEDNESS AND
Damages against UCPB with the RTC of ORDERED RESPONDENTS TO PAY PETITIONER
Makati City. THE AMOUNT OF ONLY ONE MILLION FIVE
HUNDRED SIXTY THOUSAND THREE
On 23 March 2000, the RTC ruled in favor of HUNDRED EIGHT PESOS (P1,560,308.00)
the spouses Beluso, disposing of the case as
follows: III

PREMISES CONSIDERED, judgment is hereby WHETHER OR NOT THE HONORABLE COURT


rendered declaring the interest rate used by OF APPEALS COMMITTED SERIOUS AND
[UCPB] void and the foreclosure and Sheriffs REVERSIBLE ERROR WHEN IT AFFIRMED THE
Certificate of Sale void. [UCPB] is hereby DECISION OF THE TRIAL COURT WHICH
ordered to return to [the spouses Beluso] the ANNULLED THE FORECLOSURE BY
properties subject of the foreclosure; to pay PETITIONER OF THE SUBJECT PROPERTIES
[the spouses Beluso] the amount of DUE TO AN ALLEGED "INCORRECT
P50,000.00 by way of attorneys fees; and to COMPUTATION" OF RESPONDENTS
pay the costs of suit. [The spouses Beluso] INDEBTEDNESS
are hereby ordered to pay [UCPB] the sum of
P1,560,308.00.5 IV

On 8 May 2000, the RTC denied UCPBs WHETHER OR NOT THE HONORABLE COURT
Motion for Reconsideration,6 prompting OF APPEALS COMMITTED SERIOUS AND
UCPB to appeal the RTC Decision with the REVERSIBLE ERROR WHEN IT AFFIRMED THE
Court of Appeals. The Court of Appeals DECISION OF THE TRIAL COURT WHICH
affirmed the RTC Decision, to wit: FOUND PETITIONER LIABLE FOR VIOLATION
OF THE TRUTH IN LENDING ACT
WHEREFORE, premises considered, the
decision dated March 23, 2000 of the V
Regional Trial Court, Branch 65, Makati City
in Civil Case No. 99-314 is hereby AFFIRMED WHETHER OR NOT THE HONORABLE COURT
subject to the modification that defendant- OF APPEALS COMMITTED SERIOUS AND
appellant UCPB is not liable for attorneys REVERSIBLE ERROR WHEN IT FAILED TO
fees or the costs of suit.7 ORDER THE DISMISSAL OF THE CASE
BECAUSE THE RESPONDENTS ARE GUILTY OF
On 9 September 2003, the Court of Appeals FORUM SHOPPING8
denied UCPBs Motion for Reconsideration for
lack of merit. UCPB thus filed the present Validity of the Interest Rates
petition, submitting the following issues for
our resolution: The Court of Appeals held that the imposition
of interest in the following provision found in
I the promissory notes of the spouses Beluso
is void, as the interest rates and the bases
WHETHER OR NOT THE HONORABLE COURT therefor were determined solely by petitioner
OF APPEALS COMMITTED SERIOUS AND UCPB:
REVERSIBLE ERROR WHEN IT AFFIRMED THE
DECISION OF THE TRIAL COURT WHICH FOR VALUE RECEIVED, I, and/or We, on or
DECLARED VOID THE PROVISION ON before due date, SPS. SAMUEL AND ODETTE
INTEREST RATE AGREED UPON BETWEEN BELUSO (BORROWER), jointly and severally
PETITIONER AND RESPONDENTS promise to pay to UNITED COCONUT
PLANTERS BANK (LENDER) or order at UCPB
II Bldg., Makati Avenue, Makati City,
Philippines, the sum of ______________ PESOS,
WHETHER OR NOT THE HONORABLE COURT (P_____), Philippine Currency, with interest
OF APPEALS COMMITTED SERIOUS AND
thereon at the rate indicative of DBD retail inception, such defect was cured by the
rate or as determined by the Branch Head.9 subsequent conduct of the spouses Beluso in
availing themselves of the credit line from
UCPB asserts that this is a reversible error, April 1996 to February 1998 without airing
and claims that while the interest rate was any protest with respect to the interest rates
not numerically quantified in the face of the imposed by UCPB. According to UCPB,
promissory notes, it was nonetheless therefore, the spouses Beluso are in
categorically fixed, at the time of execution estoppel.14
thereof, at the "rate indicative of the DBD
retail rate." UCPB contends that said We agree with the Court of Appeals, and find
provision must be read with another no merit in the contentions of UCPB.
stipulation in the promissory notes subjecting
to review the interest rate as fixed: Article 1308 of the Civil Code provides:

The interest rate shall be subject to review Art. 1308. The contract must bind both
and may be increased or decreased by the contracting parties; its validity or compliance
LENDER considering among others the cannot be left to the will of one of them.
prevailing financial and monetary conditions;
or the rate of interest and charges which We applied this provision in Philippine
other banks or financial institutions charge or National Bank v. Court of Appeals,15 where
offer to charge for similar accommodations; we held:
and/or the resulting profitability to the
LENDER after due consideration of all In order that obligations arising from
dealings with the BORROWER.10 contracts may have the force of law between
the parties, there must be mutuality between
In this regard, UCPB avers that these are the parties based on their essential equality.
valid reference rates akin to a "prevailing A contract containing a condition which
rate" or "prime rate" allowed by this Court in makes its fulfillment dependent exclusively
Polotan v. Court of Appeals.11 Furthermore, upon the uncontrolled will of one of the
UCPB argues that even if the proviso "as contracting parties, is void (Garcia vs. Rita
determined by the branch head" is Legarda, Inc., 21 SCRA 555). Hence, even
considered void, such a declaration would assuming that the P1.8 million loan
not ipso facto render the connecting clause agreement between the PNB and the private
"indicative of DBD retail rate" void in view of respondent gave the PNB a license (although
the separability clause of the Credit in fact there was none) to increase the
Agreement, which reads: interest rate at will during the term of the
loan, that license would have been null and
Section 9.08 Separability Clause. If any one void for being violative of the principle of
or more of the provisions contained in this mutuality essential in contracts. It would
AGREEMENT, or documents executed in have invested the loan agreement with the
connection herewith shall be declared character of a contract of adhesion, where
invalid, illegal or unenforceable in any the parties do not bargain on equal footing,
respect, the validity, legality and the weaker party's (the debtor) participation
enforceability of the remaining provisions being reduced to the alternative "to take it or
hereof shall not in any way be affected or leave it" (Qua vs. Law Union & Rock
impaired.12 Insurance Co., 95 Phil. 85). Such a contract is
a veritable trap for the weaker party whom
According to UCPB, the imposition of the the courts of justice must protect against
questioned interest rates did not infringe on abuse and imposition.
the principle of mutuality of contracts,
because the spouses Beluso had the liberty The provision stating that the interest shall
to choose whether or not to renew their be at the "rate indicative of DBD retail rate
credit line at the new interest rates pegged or as determined by the Branch Head" is
by petitioner.13 UCPB also claims that indeed dependent solely on the will of
assuming there was any defect in the petitioner UCPB. Under such provision,
mutuality of the contract at the time of its petitioner UCPB has two choices on what the
interest rate shall be: (1) a rate indicative of
the DBD retail rate; or (2) a rate as It should be pointed out that the authority to
determined by the Branch Head. As UCPB is review the interest rate was given UCPB
given this choice, the rate should be alone as the lender. Moreover, UCPB may
categorically determinable in both choices. If apply the considerations enumerated in this
either of these two choices presents an provision as it wishes. As worded in the
opportunity for UCPB to fix the rate at will, above provision, UCPB may give as much
the bank can easily choose such an option, weight as it desires to each of the following
thus making the entire interest rate provision considerations: (1) the prevailing financial
violative of the principle of mutuality of and monetary condition; (2) the rate of
contracts. interest and charges which other banks or
financial institutions charge or offer to
Not just one, but rather both, of these charge for similar accommodations; and/or
choices are dependent solely on the will of (3) the resulting profitability to the LENDER
UCPB. Clearly, a rate "as determined by the (UCPB) after due consideration of all dealings
Branch Head" gives the latter unfettered with the BORROWER (the spouses Beluso).
discretion on what the rate may be. The Again, as in the case of the interest rate
Branch Head may choose any rate he or she provision, there is no fixed margin above or
desires. As regards the rate "indicative of the below these considerations.
DBD retail rate," the same cannot be
considered as valid for being akin to a In view of the foregoing, the Separability
"prevailing rate" or "prime rate" allowed by Clause cannot save either of the two options
this Court in Polotan. The interest rate in of UCPB as to the interest to be imposed, as
Polotan reads: both options violate the principle of
mutuality of contracts.
The Cardholder agrees to pay interest per
annum at 3% plus the prime rate of Security UCPB likewise failed to convince us that the
Bank and Trust Company. x x x.16 spouses Beluso were in estoppel.

In this provision in Polotan, there is a fixed Estoppel cannot be predicated on an illegal


margin over the reference rate: 3%. Thus, act. As between the parties to a contract,
the parties can easily determine the interest validity cannot be given to it by estoppel if it
rate by applying simple arithmetic. On the is prohibited by law or is against public
other hand, the provision in the case at bar policy.18
does not specify any margin above or below
the DBD retail rate. UCPB can peg the The interest rate provisions in the case at bar
interest at any percentage above or below are illegal not only because of the provisions
the DBD retail rate, again giving it unfettered of the Civil Code on mutuality of contracts,
discretion in determining the interest rate. but also, as shall be discussed later, because
they violate the Truth in Lending Act. Not
The stipulation in the promissory notes disclosing the true finance charges in
subjecting the interest rate to review does connection with the extensions of credit is,
not render the imposition by UCPB of interest furthermore, a form of deception which we
rates on the obligations of the spouses cannot countenance. It is against the policy
Beluso valid. According to said stipulation: of the State as stated in the Truth in Lending
Act:
The interest rate shall be subject to review
and may be increased or decreased by the Sec. 2. Declaration of Policy. It is hereby
LENDER considering among others the declared to be the policy of the State to
prevailing financial and monetary conditions; protect its citizens from a lack of awareness
or the rate of interest and charges which of the true cost of credit to the user by
other banks or financial institutions charge or assuring a full disclosure of such cost with a
offer to charge for similar accommodations; view of preventing the uninformed use of
and/or the resulting profitability to the credit to the detriment of the national
LENDER after due consideration of all economy.19
dealings with the BORROWER.17
Moreover, while the spouses Beluso indeed Petitioner further claims that it is likewise
agreed to renew the credit line, the offending entitled to attorneys fees, pursuant to
provisions are found in the promissory notes Section 9.06 of the Credit Agreement, thus:
themselves, not in the credit line. In fixing
the interest rates in the promissory notes to If the BANK shall require the services of
cover the renewed credit line, UCPB still counsel for the enforcement of its rights
reserved to itself the same two options (1) under this AGREEMENT, the Note(s), the
a rate indicative of the DBD retail rate; or (2) collaterals and other related documents, the
a rate as determined by the Branch Head. BANK shall be entitled to recover attorneys
fees equivalent to not less than twenty-five
Error in Computation percent (25%) of the total amounts due and
outstanding exclusive of costs and other
UCPB asserts that while both the RTC and the expenses.22
Court of Appeals voided the interest rates
imposed by UCPB, both failed to include in Another alleged computational error pointed
their computation of the outstanding out by UCPB is the negation of the
obligation of the spouses Beluso the legal Compounding Interest agreed upon by the
rate of interest of 12% per annum. parties under Section 2.02 of the Credit
Furthermore, the penalty charges were also Agreement:
deleted in the decisions of the RTC and the
Court of Appeals. Section 2.04, Article II on Section 2.02 Compounding Interest. Interest
"Interest and other Bank Charges" of the not paid when due shall form part of the
subject Credit Agreement, provides: principal and shall be subject to the same
interest rate as herein stipulated.23 and
Section 2.04 Penalty Charges. In addition to paragraph 3 of the subject promissory notes:
the interest provided for in Section 2.01 of
this ARTICLE, any principal obligation of the Interest not paid when due shall be added to,
CLIENT hereunder which is not paid when and become part of the principal and shall
due shall be subject to a penalty charge of likewise bear interest at the same rate.24
one percent (1%) of the amount of such
obligation per month computed from due UCPB lastly avers that the application of the
date until the obligation is paid in full. If the spouses Belusos payments in the disputed
bank accelerates teh (sic) payment of computation does not reflect the parties
availments hereunder pursuant to ARTICLE agreement.1avvphi1 The RTC deducted the
VIII hereof, the penalty charge shall be used payment made by the spouses Beluso
on the total principal amount outstanding amounting to P763,693.00 from the principal
and unpaid computed from the date of of P2,350,000.00. This was allegedly
acceleration until the obligation is paid in inconsistent with the Credit Agreement, as
full.20 well as with the agreement of the parties as
to the facts of the case. In paragraph 7 of the
Paragraph 4 of the promissory notes also spouses Belusos Manifestation and Motion
states: on Proposed Stipulation of Facts and Issues
vis--vis UCPBs Manifestation, the parties
In case of non-payment of this Promissory agreed that the amount of P763,693.00 was
Note (Note) at maturity, I/We, jointly and applied to the interest and not to the
severally, agree to pay an additional sum principal, in accord with Section 3.03, Article
equivalent to twenty-five percent (25%) of II of the Credit Agreement on "Order of the
the total due on the Note as attorneys fee, Application of Payments," which provides:
aside from the expenses and costs of
collection whether actually incurred or not, Section 3.03 Application of Payment.
and a penalty charge of one percent (1%) Payments made by the CLIENT shall be
per month on the total amount due and applied in accordance with the following
unpaid from date of default until fully paid.21 order of preference:

1. Accounts receivable and other out-of-


pocket expenses
recognized that said legal interest should be
2. Front-end Fee, Origination Fee, Attorneys imposed, thus: "There being no valid
Fee and other expenses of collection; stipulation as to interest, the legal rate of
interest shall be charged."27 It seems that
3. Penalty charges; the RTC inadvertently overlooked its non-
inclusion in its computation.
4. Past due interest;
The spouses Beluso had even originally
5. Principal amortization/Payment in arrears; asked for the RTC to impose this legal rate of
interest in both the body and the prayer of
6. Advance interest; its petition with the RTC:

7. Outstanding balance; and 12. Since the provision on the fixing of the
rate of interest by the sole will of the
8. All other obligations of CLIENT to the respondent Bank is null and void, only the
BANK, if any.25 legal rate of interest which is 12% per annum
can be legally charged and imposed by the
Thus, according to UCPB, the interest bank, which would amount to only about
charges, penalty charges, and attorneys P599,000.00 since 1996 up to August 31,
fees had been erroneously excluded by the 1998.
RTC and the Court of Appeals from the
computation of the total amount due and xxxx
demandable from spouses Beluso.
WHEREFORE, in view of the foregoing,
The spouses Belusos defense as to all these petiitoners pray for judgment or order:
issues is that the demand made by UCPB is
for a considerably bigger amount and, xxxx
therefore, the demand should be considered
void. There being no valid demand, 2. By way of example for the public good
according to the spouses Beluso, there would against the Banks taking unfair advantage
be no default, and therefore the interests of the weaker party to their contract,
and penalties would not commence to run. declaring the legal rate of 12% per annum,
As it was likewise improper to foreclose the as the imposable rate of interest up to
mortgaged properties or file a case against February 28, 1999 on the loan of 2.350
the spouses Beluso, attorneys fees were not million.28
warranted.
All these show that the spouses Beluso had
We agree with UCPB on this score. Default acknowledged before the RTC their obligation
commences upon judicial or extrajudicial to pay a 12% legal interest on their loans.
demand.26 The excess amount in such a When the RTC failed to include the 12% legal
demand does not nullify the demand itself, interest in its computation, however, the
which is valid with respect to the proper spouses Beluso merely defended in the
amount. A contrary ruling would put appellate courts this non-inclusion, as the
commercial transactions in disarray, as same was beneficial to them. We see,
validity of demands would be dependent on however, sufficient basis to impose a 12%
the exactness of the computations thereof, legal interest in favor of petitioner in the
which are too often contested. case at bar, as what we have voided is
merely the stipulated rate of interest and not
There being a valid demand on the part of the stipulation that the loan shall earn
UCPB, albeit excessive, the spouses Beluso interest.
are considered in default with respect to the
proper amount and, therefore, the interests We must likewise uphold the contract
and the penalties began to run at that point. stipulation providing the compounding of
interest. The provisions in the Credit
As regards the award of 12% legal interest in Agreement and in the promissory notes
favor of petitioner, the RTC actually providing for the compounding of interest
were neither nullified by the RTC or the Court for attorneys fees. Therefore, instead of
of Appeals, nor assailed by the spouses awarding attorneys fees in favor of
Beluso in their petition with the RTC. The petitioner, we shall merely affirm the
compounding of interests has furthermore deletion of the award of attorneys fees to
been declared by this Court to be legal. We the spouses Beluso.
have held in Tan v. Court of Appeals,29 that:
In sum, we hold that spouses Beluso should
Without prejudice to the provisions of Article still be held liable for a compounded legal
2212, interest due and unpaid shall not earn interest of 12% per annum and a penalty
interest. However, the contracting parties charge of 12% per annum. We also hold that,
may by stipulation capitalize the interest due instead of awarding attorneys fees in favor
and unpaid, which as added principal, shall of petitioner, we shall merely affirm the
earn new interest. deletion of the award of attorneys fees to
the spouses Beluso.
As regards the imposition of penalties,
however, although we are likewise upholding Annulment of the Foreclosure Sale
the imposition thereof in the contract, we
find the rate iniquitous. Like in the case of Properties of spouses Beluso had been
grossly excessive interests, the penalty foreclosed, titles to which had already been
stipulated in the contract may also be consolidated on 19 February 2001 and 20
reduced by the courts if it is iniquitous or March 2001 in the name of UCPB, as the
unconscionable.30 spouses Beluso failed to exercise their right
of redemption which expired on 25 March
We find the penalty imposed by UCPB, 2000. The RTC, however, annulled the
ranging from 30.41% to 36%, to be iniquitous foreclosure of mortgage based on an alleged
considering the fact that this penalty is incorrect computation of the spouses
already over and above the compounded Belusos indebtedness.
interest likewise imposed in the contract. If a
36% interest in itself has been declared UCPB alleges that none of the grounds for
unconscionable by this Court,31 what more a the annulment of a foreclosure sale are
30.41% to 36% penalty, over and above the present in the case at bar. Furthermore, the
payment of compounded interest? UCPB annulment of the foreclosure proceedings
itself must have realized this, as it gave us a and the certificates of sale were mooted by
sample computation of the spouses Belusos the subsequent issuance of new certificates
obligation if both the interest and the penalty of title in the name of said bank. UCPB claims
charge are reduced to 12%. that the spouses Belusos action for
annulment of foreclosure constitutes a
As regards the attorneys fees, the spouses collateral attack on its certificates of title, an
Beluso can actually be liable therefor even if act proscribed by Section 48 of Presidential
there had been no demand. Filing a case in Decree No. 1529, otherwise known as the
court is the judicial demand referred to in Property Registration Decree, which
Article 116932 of the Civil Code, which would provides:
put the obligor in delay.
Section 48. Certificate not subject to
The RTC, however, also held UCPB liable for collateral attack. A certificate of title shall
attorneys fees in this case, as the spouses not be subject to collateral attack. It cannot
Beluso were forced to litigate the issue on be altered, modified or cancelled except in a
the illegality of the interest rate provision of direct proceeding in accordance with law.
the promissory notes. The award of
attorneys fees, it must be recalled, falls The spouses Beluso retort that since they
under the sound discretion of the court.33 had the right to refuse payment of an
Since both parties were forced to litigate to excessive demand on their account, they
protect their respective rights, and both are cannot be said to be in default for refusing to
entitled to the award of attorneys fees from pay the same. Consequently, according to
the other, practical reasons dictate that we the spouses Beluso, the "enforcement of
set off or compensate both parties liabilities such illegal and overcharged demand
through foreclosure of mortgage" should be
voided. According to UCPB, the Court of Appeals
even stated that "[a]dmittedly the original
We agree with UCPB and affirm the validity of complaint did not explicitly allege a violation
the foreclosure proceedings. Since we of the Truth in Lending Act and no action to
already found that a valid demand was made formally admit the amended petition [which
by UCPB upon the spouses Beluso, despite expressly alleges violation of the Truth in
being excessive, the spouses Beluso are Lending Act] was made either by
considered in default with respect to the [respondents] spouses Beluso and the lower
proper amount of their obligation to UCPB court. x x x."35
and, thus, the property they mortgaged to
secure such amounts may be foreclosed. UCPB further claims that the action to
Consequently, proceeds of the foreclosure recover the penalty for the violation of the
sale should be applied to the extent of the Truth in Lending Act had been barred by the
amounts to which UCPB is rightfully entitled. one-year prescriptive period provided for in
the Act. UCPB asserts that per the records of
As argued by UCPB, none of the grounds for the case, the latest of the subject promissory
the annulment of a foreclosure sale are notes had been executed on 2 January 1998,
present in this case. The grounds for the but the original petition of the spouses
proper annulment of the foreclosure sale are Beluso was filed before the RTC on 9
the following: (1) that there was fraud, February 1999, which was after the
collusion, accident, mutual mistake, breach expiration of the period to file the same on 2
of trust or misconduct by the purchaser; (2) January 1999.
that the sale had not been fairly and
regularly conducted; or (3) that the price was On the matter of allegation of the violation of
inadequate and the inadequacy was so great the Truth in Lending Act, the Court of Appeals
as to shock the conscience of the court.34 ruled:

Liability for Violation of Truth in Lending Act Admittedly the original complaint did not
explicitly allege a violation of the Truth in
The RTC, affirmed by the Court of Appeals, Lending Act and no action to formally admit
imposed a fine of P26,000.00 for UCPBs the amended petition was made either by
alleged violation of Republic Act No. 3765, [respondents] spouses Beluso and the lower
otherwise known as the Truth in Lending Act. court. In such transactions, the debtor and
the lending institutions do not deal on an
UCPB challenges this imposition, on the equal footing and this law was intended to
argument that Section 6(a) of the Truth in protect the public from hidden or undisclosed
Lending Act which mandates the filing of an charges on their loan obligations, requiring a
action to recover such penalty must be made full disclosure thereof by the lender. We find
under the following circumstances: that its infringement may be inferred or
implied from allegations that when
Section 6. (a) Any creditor who in connection [respondents] spouses Beluso executed the
with any credit transaction fails to disclose to promissory notes, the interest rate
any person any information in violation of chargeable thereon were left blank. Thus,
this Act or any regulation issued thereunder [petitioner] UCPB failed to discharge its duty
shall be liable to such person in the amount to disclose in full to [respondents] Spouses
of P100 or in an amount equal to twice the Beluso the charges applicable on their
finance charge required by such creditor in loans.36
connection with such transaction, whichever
is greater, except that such liability shall not We agree with the Court of Appeals. The
exceed P2,000 on any credit transaction. allegations in the complaint, much more than
Action to recover such penalty may be the title thereof, are controlling. Other than
brought by such person within one year from that stated by the Court of Appeals, we find
the date of the occurrence of the violation, in that the allegation of violation of the Truth in
any court of competent jurisdiction. x x x Lending Act can also be inferred from the
(Emphasis ours.)
same allegation in the complaint we any person any information in violation of
discussed earlier: this Act or any regulation issued thereunder
shall be liable to such person in the amount
b.) In unilaterally imposing an increased of P100 or in an amount equal to twice the
interest rates (sic) respondent bank has finance charge required by such creditor in
relied on the provision of their promissory connection with such transaction, whichever
note granting respondent bank the power to is the greater, except that such liability shall
unilaterally fix the interest rates, which rate not exceed P2,000 on any credit transaction.
was not determined in the promissory note Action to recover such penalty may be
but was left solely to the will of the Branch brought by such person within one year from
Head of the respondent Bank, x x x.37 the date of the occurrence of the violation, in
any court of competent jurisdiction. In any
The allegation that the promissory notes action under this subsection in which any
grant UCPB the power to unilaterally fix the person is entitled to a recovery, the creditor
interest rates certainly also means that the shall be liable for reasonable attorneys fees
promissory notes do not contain a "clear and court costs as determined by the court.
statement in writing" of "(6) the finance
charge expressed in terms of pesos and xxxx
centavos; and (7) the percentage that the
finance charge bears to the amount to be (c) Any person who willfully violates any
financed expressed as a simple annual rate provision of this Act or any regulation issued
on the outstanding unpaid balance of the thereunder shall be fined by not less than
obligation."38 Furthermore, the spouses P1,000 or more than P5,000 or imprisonment
Belusos prayer "for such other reliefs just for not less than 6 months, nor more than
and equitable in the premises" should be one year or both.
deemed to include the civil penalty provided
for in Section 6(a) of the Truth in Lending Act. As can be gleaned from Section 6(a) and (c)
of the Truth in Lending Act, the violation of
UCPBs contention that this action to recover the said Act gives rise to both criminal and
the penalty for the violation of the Truth in civil liabilities. Section 6(c) considers a
Lending Act has already prescribed is criminal offense the willful violation of the
likewise without merit. The penalty for the Act, imposing the penalty therefor of fine,
violation of the act is P100 or an amount imprisonment or both. Section 6(a), on the
equal to twice the finance charge required by other hand, clearly provides for a civil cause
such creditor in connection with such of action for failure to disclose any
transaction, whichever is greater, except that information of the required information to
such liability shall not exceed P2,000.00 on any person in violation of the Act. The
any credit transaction.39 As this penalty penalty therefor is an amount of P100 or in
depends on the finance charge required of an amount equal to twice the finance charge
the borrower, the borrowers cause of action required by the creditor in connection with
would only accrue when such finance charge such transaction, whichever is greater,
is required. In the case at bar, the date of the except that the liability shall not exceed
demand for payment of the finance charge is P2,000.00 on any credit transaction. The
2 September 1998, while the foreclosure was action to recover such penalty may be
made on 28 December 1998. The filing of the instituted by the aggrieved private person
case on 9 February 1999 is therefore within separately and independently from the
the one-year prescriptive period. criminal case for the same offense.

UCPB argues that a violation of the Truth in In the case at bar, therefore, the civil action
Lending Act, being a criminal offense, cannot to recover the penalty under Section 6(a) of
be inferred nor implied from the allegations the Truth in Lending Act had been jointly
made in the complaint.40 Pertinent instituted with (1) the action to declare the
provisions of the Act read: interests in the promissory notes void, and
(2) the action to declare the foreclosure void.
Sec. 6. (a) Any creditor who in connection This joinder is allowed under Rule 2, Section
with any credit transaction fails to disclose to 5 of the Rules of Court, which provides:
Lending Act provision to express the interest
SEC. 5. Joinder of causes of action.A party rate as a simple annual percentage of the
may in one pleading assert, in the alternative loan?42
or otherwise, as many causes of action as he
may have against an opposing party, subject These assertions are so clear and
to the following conditions: unequivocal that any attempt of UCPB to
feign ignorance of the assertion of this issue
(a) The party joining the causes of action in this case as to prevent it from putting up a
shall comply with the rules on joinder of defense thereto is plainly hogwash.
parties;
Petitioner further posits that it is the
(b) The joinder shall not include special civil Metropolitan Trial Court which has jurisdiction
actions or actions governed by special rules; to try and adjudicate the alleged violation of
the Truth in Lending Act, considering that the
(c) Where the causes of action are between present action allegedly involved a single
the same parties but pertain to different credit transaction as there was only one
venues or jurisdictions, the joinder may be Promissory Note Line.
allowed in the Regional Trial Court provided
one of the causes of action falls within the We disagree. We have already ruled that the
jurisdiction of said court and the venue lies action to recover the penalty under Section
therein; and 6(a) of the Truth in Lending Act had been
jointly instituted with (1) the action to
(d) Where the claims in all the causes of declare the interests in the promissory notes
action are principally for recovery of money, void, and (2) the action to declare the
the aggregate amount claimed shall be the foreclosure void. There had been no question
test of jurisdiction. that the above actions belong to the
jurisdiction of the RTC. Subsection (c) of the
In attacking the RTCs disposition on the above-quoted Section 5 of the Rules of Court
violation of the Truth in Lending Act since the on Joinder of Causes of Action provides:
same was not alleged in the complaint, UCPB
is actually asserting a violation of due (c) Where the causes of action are between
process. Indeed, due process mandates that the same parties but pertain to different
a defendant should be sufficiently apprised venues or jurisdictions, the joinder may be
of the matters he or she would be defending allowed in the Regional Trial Court provided
himself or herself against. However, in the 1 one of the causes of action falls within the
July 1999 pre-trial brief filed by the spouses jurisdiction of said court and the venue lies
Beluso before the RTC, the claim for civil therein.
sanctions for violation of the Truth in Lending
Act was expressly alleged, thus: Furthermore, opening a credit line does not
create a credit transaction of loan or
Moreover, since from the start, respondent mutuum, since the former is merely a
bank violated the Truth in Lending Act in not preparatory contract to the contract of loan
informing the borrower in writing before the or mutuum. Under such credit line, the bank
execution of the Promissory Notes of the is merely obliged, for the considerations
interest rate expressed as a percentage of specified therefor, to lend to the other party
the total loan, the respondent bank instead is amounts not exceeding the limit provided.
liable to pay petitioners double the amount The credit transaction thus occurred not
the bank is charging petitioners by way of when the credit line was opened, but rather
sanction for its violation.41 when the credit line was availed of. In the
case at bar, the violation of the Truth in
In the same pre-trial brief, the spouses Lending Act allegedly occurred not when the
Beluso also expressly raised the following parties executed the Credit Agreement,
issue: where no interest rate was mentioned, but
when the parties executed the promissory
b.) Does the expression indicative rate of notes, where the allegedly offending interest
DBD retail (sic) comply with the Truth in rate was stipulated.
contract, and to properly evaluate their
UCPB further argues that since the spouses options in arriving at business decisions.
Beluso were duly given copies of the subject Upholding UCPBs claim of substantial
promissory notes after their execution, then compliance would defeat these purposes of
they were duly notified of the terms thereof, the Truth in Lending Act. The belated
in substantial compliance with the Truth in discovery of the true cost of credit will too
Lending Act. often not be able to reverse the ill effects of
an already consummated business decision.
Once more, we disagree. Section 4 of the
Truth in Lending Act clearly provides that the In addition, the promissory notes, the copies
disclosure statement must be furnished prior of which were presented to the spouses
to the consummation of the transaction: Beluso after execution, are not sufficient
notification from UCPB. As earlier discussed,
SEC. 4. Any creditor shall furnish to each the interest rate provision therein does not
person to whom credit is extended, prior to sufficiently indicate with particularity the
the consummation of the transaction, a clear interest rate to be applied to the loan
statement in writing setting forth, to the covered by said promissory notes.
extent applicable and in accordance with
rules and regulations prescribed by the Forum Shopping
Board, the following information:
UCPB had earlier moved to dismiss the
(1) the cash price or delivered price of the petition (originally Case No. 99-314 in RTC,
property or service to be acquired; Makati City) on the ground that the spouses
Beluso instituted another case (Civil Case No.
(2) the amounts, if any, to be credited as V-7227) before the RTC of Roxas City,
down payment and/or trade-in; involving the same parties and issues. UCPB
claims that while Civil Case No. V-7227
(3) the difference between the amounts set initially appears to be a different action, as it
forth under clauses (1) and (2) prayed for the issuance of a temporary
restraining order and/or injunction to stop
(4) the charges, individually itemized, which foreclosure of spouses Belusos properties, it
are paid or to be paid by such person in poses issues which are similar to those of the
connection with the transaction but which present case.43 To prove its point, UCPB
are not incident to the extension of credit; cited the spouses Belusos Amended Petition
in Civil Case No. V-7227, which contains
(5) the total amount to be financed; similar allegations as those in the present
case. The RTC of Makati denied UCPBs
(6) the finance charge expressed in terms of Motion to Dismiss Case No. 99-314 for lack of
pesos and centavos; and merit. Petitioner UCPB raised the same issue
with the Court of Appeals, and is raising the
(7) the percentage that the finance bears to same issue with us now.
the total amount to be financed expressed as
a simple annual rate on the outstanding The spouses Beluso claim that the issue in
unpaid balance of the obligation. Civil Case No. V-7227 before the RTC of
Roxas City, a Petition for Injunction Against
The rationale of this provision is to protect Foreclosure, is the propriety of the
users of credit from a lack of awareness of foreclosure before the true account of
the true cost thereof, proceeding from the spouses Beluso is determined. On the other
experience that banks are able to conceal hand, the issue in Case No. 99-314 before
such true cost by hidden charges, the RTC of Makati City is the validity of the
uncertainty of interest rates, deduction of interest rate provision. The spouses Beluso
interests from the loaned amount, and the claim that Civil Case No. V-7227 has become
like. The law thereby seeks to protect moot because, before the RTC of Roxas City
debtors by permitting them to fully could act on the restraining order, UCPB
appreciate the true cost of their loan, to proceeded with the foreclosure and auction
enable them to give full consent to the sale. As the act sought to be restrained by
Civil Case No. V-7227 has already been (f) That the cause of action is barred by a
accomplished, the spouses Beluso had to file prior judgment or by the statute of
a different action, that of Annulment of the limitations;
Foreclosure Sale, Case No. 99-314 with the
RTC, Makati City. (g) That the pleading asserting the claim
states no cause of action;
Even if we assume for the sake of argument,
however, that only one cause of action is (h) That the claim or demand set forth in the
involved in the two civil actions, namely, the plaintiffs pleading has been paid, waived,
violation of the right of the spouses Beluso abandoned, or otherwise extinguished;
not to have their property foreclosed for an
amount they do not owe, the Rules of Court (i) That the claim on which the action is
nevertheless allows the filing of the second founded is unenforceable under the
action. Civil Case No. V-7227 was dismissed provisions of the statute of frauds; and
by the RTC of Roxas City before the filing of
Case No. 99-314 with the RTC of Makati City, (j) That a condition precedent for filing the
since the venue of litigation as provided for claim has not been complied with.44
in the Credit Agreement is in Makati City. (Emphases supplied.)

Rule 16, Section 5 bars the refiling of an When an action is dismissed on the motion of
action previously dismissed only in the the other party, it is only when the ground
following instances: for the dismissal of an action is found in
paragraphs (f), (h) and (i) that the action
SEC. 5. Effect of dismissal.Subject to the cannot be refiled. As regards all the other
right of appeal, an order granting a motion to grounds, the complainant is allowed to file
dismiss based on paragraphs (f), (h) and (i) same action, but should take care that, this
of section 1 hereof shall bar the refiling of time, it is filed with the proper court or after
the same action or claim. (n) the accomplishment of the erstwhile absent
condition precedent, as the case may be.
Improper venue as a ground for the dismissal
of an action is found in paragraph (c) of UCPB, however, brings to the attention of
Section 1, not in paragraphs (f), (h) and (i): this Court a Motion for Reconsideration filed
by the spouses Beluso on 15 January 1999
SECTION 1. Grounds.Within the time for with the RTC of Roxas City, which Motion had
but before filing the answer to the complaint not yet been ruled upon when the spouses
or pleading asserting a claim, a motion to Beluso filed Civil Case No. 99-314 with the
dismiss may be made on any of the following RTC of Makati. Hence, there were allegedly
grounds: two pending actions between the same
parties on the same issue at the time of the
(a) That the court has no jurisdiction over the filing of Civil Case No. 99-314 on 9 February
person of the defending party; 1999 with the RTC of Makati. This will still not
change our findings. It is indeed the general
(b) That the court has no jurisdiction over the rule that in cases where there are two
subject matter of the claim; pending actions between the same parties
on the same issue, it should be the later case
(c) That venue is improperly laid; that should be dismissed. However, this rule
is not absolute. According to this Court in
(d) That the plaintiff has no legal capacity to Allied Banking Corporation v. Court of
sue; Appeals45 :

(e) That there is another action pending In these cases, it is evident that the first
between the same parties for the same action was filed in anticipation of the filing of
cause; the later action and the purpose is to
preempt the later suit or provide a basis for
seeking the dismissal of the second action.
Even if this is not the purpose for the filing of spouses Samuel and Odette Beluso are also
the first action, it may nevertheless be liable for the following amounts:
dismissed if the later action is the more
appropriate vehicle for the ventilation of the a. Penalty of 12% per annum on the amount
issues between the parties. Thus, in Ramos due46 from the date of demand; and
v. Peralta, it was held:
b. Compounded legal interest of 12% per
[T]he rule on litis pendentia does not require annum on the amount due47 from date of
that the later case should yield to the earlier demand;
case. What is required merely is that there
be another pending action, not a prior 2. The following amounts shall be deducted
pending action. Considering the broader from the liability of the spouses Samuel and
scope of inquiry involved in Civil Case No. Odette Beluso:
4102 and the location of the property
involved, no error was committed by the a. Payments made by the spouses in the
lower court in deferring to the Bataan court's amount of P763,692.00. These payments
jurisdiction. shall be applied to the date of actual
payment of the following in the order that
Given, therefore, the pendency of two they are listed, to wit:
actions, the following are the relevant
considerations in determining which action i. penalty charges due and demandable as of
should be dismissed: (1) the date of filing, the time of payment;
with preference generally given to the first
action filed to be retained; (2) whether the ii. interest due and demandable as of the
action sought to be dismissed was filed time of payment;
merely to preempt the later action or to
anticipate its filing and lay the basis for its iii. principal amortization/payment in arrears
dismissal; and (3) whether the action is the as of the time of payment;
appropriate vehicle for litigating the issues
between the parties. iv. outstanding balance.

In the case at bar, Civil Case No. V-7227 b. Penalty under Republic Act No. 3765 in the
before the RTC of Roxas City was an action amount of P26,000.00. This amount shall be
for injunction against a foreclosure sale that deducted from the liability of the spouses
has already been held, while Civil Case No. Samuel and Odette Beluso on 9 February
99-314 before the RTC of Makati City includes 1999 to the following in the order that they
an action for the annulment of said are listed, to wit:
foreclosure, an action certainly more proper
in view of the execution of the foreclosure i. penalty charges due and demandable as of
sale. The former case was improperly filed in time of payment;
Roxas City, while the latter was filed in
Makati City, the proper venue of the action ii. interest due and demandable as of the
as mandated by the Credit Agreement. It is time of payment;
evident, therefore, that Civil Case No. 99-314
is the more appropriate vehicle for litigating iii. principal amortization/payment in arrears
the issues between the parties, as compared as of the time of payment;
to Civil Case No. V-7227. Thus, we rule that
the RTC of Makati City was not in error in not iv. outstanding balance.
dismissing Civil Case No. 99-314.
3. The foreclosure of mortgage is hereby
WHEREFORE, the Decision of the Court of declared VALID. Consequently, the amounts
Appeals is hereby AFFIRMED with the which the Regional Trial Court and the Court
following MODIFICATIONS: of Appeals ordered respondents to pay, as
modified in this Decision, shall be deducted
1. In addition to the sum of P2,350,000.00 as from the proceeds of the foreclosure sale.
determined by the courts a quo, respondent
SO ORDERED. the requirements being necessary for the
complaint to prosper.6

On April 27, 1989, petitioner submitted its


G.R. No. 95533 November 20, manifestation and motion to allow
2000 amendment of the petition to allege
compliance with the conditions set forth in
REPUBLIC OF THE PHILIPPINES, Section 2 of Act. No. 3936 as amended by
petitioner, P.D. 679 ("Unclaimed Balances Law").7
vs.
COURT OF APPEALS and PHILIPPINE The amended complaint prayed that
COMMERCIAL AND INTERNATIONAL judgment be rendered ordering that the
BANK (Santa Ana Branch Davao City),* amount of P97,263.38, deposited with the
respondents. defendant banks by depositors who are
known to be dead or have not made further
DECISION deposits or withdrawals during the preceding
ten years or more be escheated in favor of
YNARES-SANTIAGO, J.: the Republic of the Philippines in accordance
with Section 1, Act 3936 as amended by P.D.
On December 28, 1988, a complaint for 679.
escheat1 was filed by petitioner, Republic of
the Philippines, with the Regional Trial Court The trial court found the amendment
of Davao City against several banks which sufficient and issued an order dated June 7,
had branches within the jurisdiction of the 1989 requiring petitioner to publish a notice
said court.2 in the Mindanao Forum Standard once a
week for two consecutive weeks, containing
The complaint alleged that pursuant to Act the summons, notice to the public, the
No. 3936 as amended by P.D. 679,3 the amended petition incorporated in the
respective managers of the defendant banks summons and the list of unclaimed balances.
submitted to the Treasurer of the Republic of The notice was estimated to occupy 27
the Philippines separate statements pages of the said newspaper at an estimated
prepared under oath which listed all deposits cost of P50,000.00.8
and credits held by them in favor of
depositors or creditors either known to be On July 11, 1989, petitioner submitted a
dead, have not been heard from, or have not manifestation to the lower court praying that
made depositors or withdrawals for ten years the publication of the list of the unclaimed
or more since December 31, 1970. balances be dispensed with. Petitioner
posited that under Section 3, Act No. 3936,
The complaint prayed that after due notice only the following are required to be
to the defendant banks, and after hearing, published: (1) summons to respondent
judgment be rendered declaring that the banks; and (2) notice to all persons other
deposits, credits and unpaid balances in than those named defendants therein.
question be escheated to petitioner, Petitioner submitted that to require it to
commanding defendant banks to forthwith publish the names and list of unclaimed
deposit the same with the Treasurer of the balances would only result in additional and
Philippines.4 unnecessary expense to the government.9

On April 12, 1989, the lower court issued an On August 1, 1989, the trial court issued the
order directing petitioner to show cause why following Order:
the complaint should not be dismissed for
failure to state a cause of action. According "WHEREFORE, this Court will not dispense
to the order, the complaint contained no with the publication of the list of unclaimed
allegation that defendant banks have balances and, unless the plaintiff, through
complied with two of the conditions in the Office of the Solicitor General, agrees to
Section 2 of Act No. 3936,5 compliance with the publication thereof as stated in the Order
of this Court dated June 7, 1989, and
shoulder the cost thereof as also mentioned tantamount to lack of jurisdiction in ordering
in said Order, and manifests its agreement to the publication of the list of unclaimed
this Court in writing within thirty (30) days balances listed under annexes "A" to "P" of
from receipt thereof, this case will be the complaint.
DISMISSED WITHOUT PREJUDICE.
(2) Whether or not the remedy of appeal,
SO ORDERED." though available, was the speedy and
adequate remedy.
Petitioner filed a motion for reconsideration
of the above Order,10 which was denied by (3) Whether or not respondent RTC judge in
the lower court for lack of merit.11 issuing the interlocutory orders dated June 7,
1989 and August 1, 1990 which are
Subsequently, the trial court issued an Order contrary to Sec. 1, Act 3936, as amended by
dated October 31, 1989 dismissing Civil Case PD 679, otherwise known as the "Unclaimed
No. 19488-89 without prejudice for plaintiffs Balances Law" acted in excess of and without
failure to agree to the required publication jurisdiction; consequently thus making the
and shoulder the costs thereof.12 Orders of Sept. 1, 1989 (denying the motion
for reconsideration) and the Order dated
Petitioner received a copy of the aforesaid October 31, 1989 dismissing the case,
Order on November 15, 1989. On January 10, patently null and void.
1990, petitioner filed with the Court of
Appeals a petition for mandamus and (4) Whether or not the decision of the
certiorari, alleging grave abuse of discretion Honorable Court of Appeals is in accord with
on the part of respondent judge in ordering law.
the publication of the list of unclaimed
balances.13 The petition for certiorari and The petition is without merit.
mandamus was dismissed by the Court of
Appeals, on the ground that the proper The Order of the trial court dismissing the
remedy was ordinary appeal. Thus:14 complaint, albeit without prejudice, was a
final order in the sense that it finally
It is axiomatic that the extraordinary remedy disposed of the case. As such, petitioners
of certiorari is available only in the absence remedy was to file an ordinary appeal to the
of a plain, speedy and adequate remedy like Court of Appeals within fifteen (15) days
appeal. The order of the respondent court from receipt hereof.
dated October 31, 1989 dismissing the case
is final and appealable (Monares vs. CWA This Court has previously held that an order
Enterpises, 105 Phil. 1333; Vol. I, Francisco, dismissing a case without prejudice is a final
Rules of Court, at pp. 967-968). No timely order if no motion for reconsideration or
appeal having been taken therefrom, the appeal therefrom is timely filed.
same became final and executory and this
petition for certiorari filed on January 10, In Olympia International vs. Court of
1989 to review the interlocutory orders Appeals,16 we stated thus:
issued by the court before the case was
dismissed can no longer be entertained. The dismissal without prejudice of a
complaint does not however mean that said
WHEREFORE, the petition for certiorari is dismissal order was any less final.1vvph!1
dismissed for lack of merit. Such order of dismissal is complete in all
details, and though without prejudice,
SO ORDERED. nonetheless finally disposed of the matter. It
was not merely an interlocutory order but a
Aggrieved, petitioner filed an appeal under final disposition of the complaint.
Rule 45 of the Rules of Court raising the
following issues:15 The law grants an aggrieved party a period
of fifteen (15) days from his receipt of the
(1) Whether or not respondent RTC judge courts decision or order disposing of the
committed grave abuse of discretion
action or proceeding to appeal or move to filed within the reglementary period for filing
reconsider the same. a petition for review.19 In the case at bar,
there is no compelling reason for the Court of
After the lapse of the fifteen-day period, an Appeals to have treated the petition for
order becomes final and executory and is certiorari and mandamus as an ordinary
beyond the power or jurisdiction of the court appeal. Aside from being filed beyond the
which rendered it to further amend or fifteen (15) day period, the petition failed to
revoke. A final judgment or order cannot be show that the trial court committed grave
modified in any respect, even if the abuse of discretion or want or excess of
modification sought is for the purpose of jurisdiction in issuing the assailed Order
correcting an erroneous conclusion by the dismissing the complaint. If at all, any
court which rendered the same. mistake therein was an error of judgment or
procedure, which is correctible in an ordinary
Hence, the Court of Appeals did not err when appeal filed in due time.
it dismissed the petition for certiorari and
mandamus, on the ground that the proper The publication of the list of unclaimed
remedy was to appeal within fifteen (15) balances is intended to safeguard the right of
days. The lapse of the reglementary period the depositors, their heirs and successors to
was of no moment. A basic requisite for the due process.20 This was made clear by the
special civil action of certiorari to lie is that lower court in its assailed Order, to wit:21
there be no appeal nor plain, speedy and
adequate remedy in the ordinary course of Moreover, how would other persons who may
law. Certiorari is a remedy of last recourse have an interest in any of the unclaimed
and is a limited form of review. Its principal balances know what this case is all about
function is to keep inferior tribunals within and whether they have an interest in this
their jurisdiction. It cannot be used as a case if the amended complaint and list of
substitute for a lost appeal. It is not intended unclaimed balances are not published? Such
to correct errors of procedure or mistakes in other persons may be heirs of the bank
the judges findings or conclusions.17 depositors named in the list of unclaimed
balances.
In a more recent case,this Court held:
xxx xxx xxx
xxx xxx xxx. Apparently, petitioner resorted
to this special civil action because it had The fact that the government is in a tight
failed to take an appeal within the 15-day financial situation is not a justification for this
reglementary period which expired on June Court to dispense with the elementary rule of
20, 1997. This, of course, cannot be done. due process.
The special civil action of certiorari cannot be
used as a substitute for an appeal which As declared by the trial court in its Order
petitioner has lost. Nor can it be contended dated August 1, 1989, the dismissal of the
that the only question raised in this case is a petition for escheat is without
jurisdictional question. Certiorari lies only prejudice.1wphi1 In other words, the State
where there is no appeal nor any plain, can refile the said petition, notwithstanding
speedy, and adequate remedy in the the lapse of time. Prescription of action does
ordinary course of law. There is no reason not run against the government.22
why the question being raised by petitioner,
i.e., whether the appellate court committed a WHEREFORE, the petition is DENIED. The
grave abuse of discretion in dismissing decision of the Court of Appeals dated
petitions, could not have been raised by it on August 14, 1990 is AFFIRMED.
appeal.18
SO ORDERED.
Admittedly, this Court, in accordance with
the liberal spirit pervading the Rules of Court
and in the interest of justice, has the
discretion to treat a petition for certiorari as G.R. No. 181045 July 2, 2014
having been filed under Rule 45, especially if
SPOUSES EDUARDO and LYDIA SILOS, And in July 1989, a Supplement to the
Petitioners, Existing Real Estate Mortgage7 was executed
vs. to cover the same credit line, which was
PHILIPPINE NATIONAL BANK, increased to P2.5 million, and additional
Respondent. security was given in the form of a 134-
square meter lot covered by TCT T-16208. In
DECISION addition, petitioners issued eight Promissory
Notes8 and signed a Credit Agreement.9 This
DEL CASTILLO, J.: July 1989 Credit Agreement contained a
stipulation on interest which provides as
In loan agreements, it cannot be denied that follows:
the rate of interest is a principal condition, if
not the most important component. Thus, 1.03. Interest. (a) The Loan shall be subject
any modification thereof must be mutually to interest at the rate of 19.5% per annum.
agreed upon; otherwise, it has no binding Interest shall be payable in advance every
effect. Moreover, the Court cannot consider a one hundred twenty days at the rate
stipulation granting a party the option to prevailing at the time of the renewal.
prepay the loan if said party is not agreeable
to the arbitrary interest rates imposed. (b) The Borrower agrees that the Bank may
Premium may not be placed upon a modify the interest rate in the Loan
stipulation in a contract which grants one depending on whatever policy the Bank may
party the right to choose whether to continue adopt in the future, including without
with or withdraw from the agreement if it limitation, the shifting from the floating
discovers that what the other party has been interest rate system to the fixed interest rate
doing all along is improper or illegal. system, or vice versa. Where the Bank has
imposed on the Loan interest at a rate per
This Petition for Review on Certiorari1 annum, which is equal to the Banks spread
questions the May 8, 2007 Decision2 of the over the current floating interest rate, the
Court of Appeals (CA) in CA-G.R. CV No. Borrower hereby agrees that the Bank may,
79650, which affirmed with modifications the without need of notice to the Borrower,
February 28, 2003 Decision3 and the June 4, increase or decrease its spread over the
2003 Order4 of the Regional Trial Court floating interest rate at any time depending
(RTC), Branch 6 of Kalibo, Aklan in Civil Case on whatever policy it may adopt in the
No. 5975. future.10 (Emphases supplied)

Factual Antecedents The eight Promissory Notes, on the other


hand, contained a stipulation granting PNB
Spouses Eduardo and Lydia Silos (petitioners) the right to increase or reduce interest rates
have been in business for about two decades "within the limits allowed by law or by the
of operating a department store and buying Monetary Board."11
and selling of ready-to-wear apparel.
Respondent Philippine National Bank (PNB) is The Real Estate Mortgage agreement
a banking corporation organized and existing provided the same right to increase or
under Philippine laws. reduce interest rates "at any time depending
on whatever policy PNB may adopt in the
To secure a one-year revolving credit line of future."12
P150,000.00 obtained from PNB, petitioners
constituted in August 1987 a Real Estate Petitioners religiously paid interest on the
Mortgage5 over a 370-square meter lot in notes at the following rates:
Kalibo, Aklan covered by Transfer Certificate
of Title No. (TCT) T-14250. In July 1988,the 1. 1st Promissory Note dated July 24, 1989
credit line was increased to P1.8 million and 19.5%;
the mortgage was correspondingly increased
to P1.8 million.6 2. 2nd Promissory Note dated November 22,
1989 23%;
3. 3rd Promissory Note dated March 21, 1990 6. 14th Promissory Note dated July 12, 1993
22%; 17.5%;

4. 4th Promissory Note dated July 19, 1990 7. 15th Promissory Note dated November 17,
24%; 1993 21%;

5. 5th Promissory Note dated December 17, 8. 16th Promissory Note dated March 28,
1990 28%; 1994 21%;

6. 6th Promissory Note dated February 14, 9. 17th Promissory Note dated July 13, 1994
1991 32%; 21%;

7. 7th Promissory Note dated March 1, 1991 10. 18th Promissory Note dated November
30%; and 16, 1994 16%;

8. 8th Promissory Note dated July 11, 1991 11. 19th Promissory Note dated April 10,
24%.13 1995 21%;

In August 1991, an Amendment to Credit 12. 20th Promissory Note dated July 19, 1995
Agreement14 was executed by the parties, 18.5%;
with the following stipulation regarding
interest: 13. 21st Promissory Note dated December
18, 1995 18.75%;
1.03. Interest on Line Availments. (a) The
Borrowers agree to pay interest on each 14. 22nd Promissory Note dated April 22,
Availment from date of each Availment up to 1996 18.5%;
but not including the date of full payment
thereof at the rate per annum which is 15. 23rd Promissory Note dated July 22, 1996
determined by the Bank to be prime rate 18.5%;
plus applicable spread in effect as of the
date of each Availment.15 (Emphases 16. 24th Promissory Note dated November
supplied) 25, 1996 18%;

Under this Amendment to Credit Agreement, 17. 25th Promissory Note dated May 30,
petitioners issued in favor of PNB the 1997 17.5%; and
following 18 Promissory Notes, which
petitioners settled except the last (the note 18. 26th Promissory Note (PN 9707237)
covering the principal) at the following dated July 30, 1997 25%.16
interest rates:
The 9th up to the 17th promissory notes
1. 9th Promissory Note dated November 8, provide for the payment of interest at the
1991 26%; "rate the Bank may at any time without
notice, raise within the limits allowed by law
2. 10th Promissory Note dated March 19, x x x."17
1992 25%;
On the other hand, the 18th up to the 26th
3. 11th Promissory Note dated July 11, 1992 promissory notes including PN 9707237,
23%; which is the 26th promissory note carried
the following provision:
4. 12th Promissory Note dated November 10,
1992 21%; x x x For this purpose, I/We agree that the
rate of interest herein stipulated may be
5. 13th Promissory Note dated March 15, increased or decreased for the subsequent
1993 21%; Interest Periods, with prior notice to the
Borrower in the event of changes in interest
rate prescribed by law or the Monetary Board
of the Central Bank of the Philippines, or in The sheriffs certificate of sale was registered
the Banks overall cost of funds. I/We hereby on March 11, 1999.
agree that in the event I/we are not
agreeable to the interest rate fixed for any More than a year later, or on March 24, 2000,
Interest Period, I/we shall have the option top petitioners filed Civil Case No. 5975, seeking
repay the loan or credit facility without annulment of the foreclosure sale and an
penalty within ten (10) calendar days from accounting of the PNB credit. Petitioners
the Interest Setting Date.18 (Emphasis theorized that after the first promissory note
supplied) where they agreed to pay 19.5% interest, the
succeeding stipulations for the payment of
Respondent regularly renewed the line from interest in their loan agreements with PNB
1990 up to 1997, and petitioners made good which allegedly left to the latter the sole will
on the promissory notes, religiously paying to determine the interest rate became null
the interests without objection or fail. But in and void. Petitioners added that because the
1997, petitioners faltered when the interest interest rates were fixed by respondent
rates soared due to the Asian financial crisis. without their prior consent or agreement,
Petitioners sole outstanding promissory note these rates are void, and as a result,
for P2.5 million PN 9707237 executed in petitioners should only be made liable for
July 1997 and due 120 days later or on interest at the legal rate of 12%. They
October 28, 1997 became past due, and claimed further that they overpaid interests
despite repeated demands, petitioners failed on the credit, and concluded that due to this
to make good on the note. overpayment of steep interest charges, their
debt should now be deemed paid, and the
Incidentally, PN 9707237 provided for the foreclosure and sale of TCTs T-14250 and T-
penalty equivalent to 24% per annum in case 16208 became unnecessary and wrongful. As
of default, as follows: for the imposed penalty of P581,666.66,
petitioners alleged that since the Real Estate
Without need for notice or demand, failure to Mortgage and the Supplement thereto did
pay this note or any installment thereon, not include penalties as part of the secured
when due, shall constitute default and in amount, the same should be excluded from
such cases or in case of garnishment, the foreclosure amount or bid price, even if
receivership or bankruptcy or suit of any kind such penalties are provided for in the final
filed against me/us by the Bank, the Promissory Note, or PN 9707237.22
outstanding principal of this note, at the
option of the Bank and without prior notice of In addition, petitioners sought to be
demand, shall immediately become due and reimbursed an alleged overpayment of
payable and shall be subject to a penalty P848,285.00 made during the period August
charge of twenty four percent (24%) per 21, 1991 to March 5, 1998,resulting from
annum based on the defaulted principal respondents imposition of the alleged illegal
amount. x x x19 (Emphasis supplied) and steep interest rates. They also prayed to
be awarded P200,000.00 by way of
PNB prepared a Statement of Account20 as attorneys fees.23
of October 12, 1998, detailing the amount
due and demandable from petitioners in the In its Answer,24 PNB denied that it
total amount of P3,620,541.60, broken down unilaterally imposed or fixed interest rates;
as follows: that petitioners agreed that without prior
notice, PNB may modify interest rates
Principal P 2,500,000.00 depending on future policy adopted by it;
Interest 538,874.94 and that the imposition of penalties was
Penalties 581,666.66 agreed upon in the Credit Agreement. It
Total P 3,620,541.60 added that the imposition of penalties is
Despite demand, petitioners failed to pay the supported by the all-inclusive clause in the
foregoing amount. Thus, PNB foreclosed on Real Estate Mortgage agreement which
the mortgage, and on January 14, 1999, TCTs provides that the mortgage shall stand as
T-14250 and T-16208 were sold to it at security for any and all other obligations of
auction for the amount of P4,324,172.96.21 whatever kind and nature owing to
respondent, which thus includes penalties detailing their outstanding obligations, but
imposed upon default or non-payment of the she did not complain; that she assumed
principal and interest on due date. instead that what was written therein is
correct.28
On pre-trial, the parties mutually agreed to
the following material facts, among others: For his part, PNB Kalibo Branch Manager
Diosdado Aspa, Jr. (Aspa), the sole witness
a) That since 1991 up to 1998, petitioners for respondent, stated on cross-examination
had paid PNB the total amount of that as a practice, the determination of the
P3,484,287.00;25 and prime rates of interest was the responsibility
solely of PNBs Treasury Department which is
b) That PNB sent, and petitioners received, a based in Manila; that these prime rates were
March 10, 2000 demand letter.26 simply communicated to all PNB branches for
implementation; that there are a multitude of
During trial, petitioner Lydia Silos (Lydia) considerations which determine the interest
testified that the Credit Agreement, the rate, such as the cost of money, foreign
Amendment to Credit Agreement, Real currency values, PNBs spread, bank
Estate Mortgage and the Supplement thereto administrative costs, profitability, and the
were all prepared by respondent PNB and practice in the banking industry; that in
were presented to her and her husband every repricing of each loan availment, the
Eduardo only for signature; that she was told borrower has the right to question the rates,
by PNB that the latter alone would determine but that this was not done by the petitioners;
the interest rate; that as to the Amendment and that anything that is not found in the
to Credit Agreement, she was told that PNB Promissory Note may be supplemented by
would fill up the interest rate portion thereof; the Credit Agreement.29
that at the time the parties executed the said
Credit Agreement, she was not informed Ruling of the Regional Trial Court
about the applicable spread that PNB would
impose on her account; that the interest rate On February 28, 2003, the trial court
portion of all Promissory Notes she and rendered judgment dismissing Civil Case No.
Eduardo issued were always left in blank 5975.30
when they executed them, with respondents
mere assurance that it would be the one to It ruled that:
enter or indicate thereon the prevailing
interest rate at the time of availment; and 1. While the Credit Agreement allows PNB to
that they agreed to such arrangement. She unilaterally increase its spread over the
further testified that the two Real Estate floating interest rate at any time depending
Mortgage agreements she signed did not on whatever policy it may adopt in the
stipulate the payment of penalties; that she future, it likewise allows for the decrease at
and Eduardo consulted with a lawyer, and any time of the same. Thus, such stipulation
were told that PNBs actions were improper, authorizing both the increase and decrease
and so on March 20, 2000, they wrote to the of interest rates as may be applicable is
latter seeking a recomputation of their valid,31 as was held in Consolidated Bank
outstanding obligation; and when PNB did and Trust Corporation (SOLIDBANK) v. Court
not oblige, they instituted Civil Case No. of Appeals;32
5975.27
2. Banks are allowed to stipulate that
On cross-examination, Lydia testified that interest rates on loans need not be fixed and
she has been in business for 20 years; that instead be made dependent on prevailing
she also borrowed from other individuals and rates upon which to peg such variable
another bank; that it was only with banks interest rates;33
that she was asked to sign loan documents
with no indicated interest rate; that she did 3. The Promissory Note, as the principal
not bother to read the terms of the loan contract evidencing petitioners loan,
documents which she signed; and that she prevails over the Credit Agreement and the
received several PNB statements of account Real Estate Mortgage.
Petitioners appealed to the CA, which issued
As such, the rate of interest, penalties and the questioned Decision with the following
attorneys fees stipulated in the Promissory decretal portion:
Note prevail over those mentioned in the
Credit Agreement and the Real Estate WHEREFORE, in view of the foregoing, the
Mortgage agreements;34 instant appeal is PARTLY GRANTED. The
modified Decision of the Regional Trial Court
4. Roughly, PNBs computation of the total per Order dated June 4, 2003 is hereby
amount of petitioners obligation is AFFIRMED with MODIFICATIONS, to wit:
correct;35
1. [T]hat the interest rate to be applied after
5. Because the loan was admittedly due and the expiration of the first 30-day interest
demandable, the foreclosure was regularly period for PN. No. 9707237 should be 12%
made;36 per annum;

6. By the admission of petitioners during pre- 2. [T]hat the attorneys fees of10% is valid
trial, all payments made to PNB were and binding; and
properly applied to the principal, interest and
penalties.37 3. [T]hat [PNB] is hereby ordered to
reimburse [petitioners] the excess in the bid
The dispositive portion of the trial courts price of P377,505.99 which is the difference
Decision reads: between the total amount due [PNB] and the
amount of its bid price.
IN VIEW OF THE FOREGOING, judgment is
hereby rendered in favor of the respondent SO ORDERED.41
and against the petitioners by DISMISSING
the latters petition. On the other hand, respondent did not
appeal the June 4,2003 Order of the trial
Costs against the petitioners. court which reduced its award of attorneys
fees. It simply raised the issue in its
SO ORDERED.38 appellees brief in the CA, and included a
prayer for the reversal of said Order.
Petitioners moved for reconsideration. In an
Order39 dated June 4, 2003, the trial court In effect, the CA limited petitioners appeal to
granted only a modification in the award of the following issues:
attorneys fees, reducing the same from 10%
to 1%. Thus, PNB was ordered to refund to 1) Whether x x x the interest rates on
petitioner the excess in attorneys fees in the petitioners outstanding obligation were
amount of P356,589.90, viz: unilaterally and arbitrarily imposed by PNB;

WHEREFORE, judgment is hereby rendered 2) Whether x x x the penalty charges were


upholding the validity of the interest rate secured by the real estate mortgage; and
charged by the respondent as well as the
extra-judicial foreclosure proceedings and 3) Whether x x x the extrajudicial foreclosure
the Certificate of Sale. However, respondent and sale are valid.42
is directed to refund to the petitioner the
amount of P356,589.90 representing the The CA noted that, based on receipts
excess interest charged against the latter. presented by petitioners during trial, the
latter dutifully paid a total of P3,027,324.60
No pronouncement as to costs. in interest for the period August 7, 1991 to
August 6, 1997, over and above the P2.5
SO ORDERED.40 million principal obligation. And this is
exclusive of payments for insurance
Ruling of the Court of Appeals premiums, documentary stamp taxes, and
penalty. All the while, petitioners did not
complain nor object to the imposition of
interest; they in fact paid the same or the date of the auction sale, in the amount
religiously and without fail for seven years. of P3,946,667.87.47
The appellate court ruled that petitioners are
thus estopped from questioning the same. Hence, the present Petition.

The CA nevertheless noted that for the Issues


period July 30, 1997 to August 14, 1997, PNB
wrongly applied an interest rate of 25.72% The following issues are raised in this
instead of the agreed 25%; thus it Petition:
overcharged petitioners, and the latter paid,
an excess of P736.56 in interest. I

On the issue of penalties, the CA ruled that A. THE COURT OF APPEALS AS WELL AS THE
the express tenor of the Real Estate LOWER COURT ERRED IN NOT NULLIFYING
Mortgage agreements contemplated the THE INTEREST RATE PROVISION IN THE
inclusion of the PN 9707237-stipulated 24% CREDIT AGREEMENT DATED JULY 24, 1989 X
penalty in the amount to be secured by the X X AND IN THE AMENDMENT TO CREDIT
mortgaged property, thus AGREEMENT DATEDAUGUST 21, 1991 X X X
WHICH LEFT TO THE SOLE UNILATERAL
For and in consideration of certain loans, DETERMINATION OF THE RESPONDENT PNB
overdrafts and other credit accommodations THE ORIGINAL FIXING OF INTEREST RATE
obtained from the MORTGAGEE and to secure AND ITS INCREASE, WHICH AGREEMENT IS
the payment of the same and those others CONTRARY TO LAW, ART. 1308 OF THE [NEW
that the MORTGAGEE may extend to the CIVIL CODE], AS ENUNCIATED IN PONCIANO
MORTGAGOR, including interest and ALMEIDA V. COURT OF APPEALS,G.R. [NO.]
expenses, and other obligations owing by the 113412, APRIL 17, 1996, AND CONTRARY TO
MORTGAGOR to the MORTGAGEE, whether PUBLIC POLICY AND PUBLIC INTEREST, AND
direct or indirect, principal or secondary, as IN APPLYING THE PRINCIPLE OF ESTOPPEL
appearing in the accounts, books and ARISING FROM THE ALLEGED DELAYED
records of the MORTGAGEE, the MORTGAGOR COMPLAINT OF PETITIONER[S], AND [THEIR]
does hereby transfer and convey by way of PAYMENT OF THE INTEREST CHARGED.
mortgage unto the MORTGAGEE x x x43
(Emphasis supplied) B. CONSEQUENTLY, THE COURT OF APPEALS
AND THE LOWER COURT ERRED IN NOT
The CA believes that the 24% penalty is DECLARING THAT PNB IS NOT AT ALL
covered by the phrase "and other obligations ENTITLED TO ANY INTEREST EXCEPT THE
owing by the mortgagor to the mortgagee" LEGAL RATE FROM DATE OF DEMAND, AND IN
and should thus be added to the amount NOT APPLYING THE EXCESS OVER THE LEGAL
secured by the mortgages.44 RATE OF THE ADMITTED PAYMENTS MADE BY
PETITIONER[S] FROM 1991-1998 IN THE
The CA then proceeded to declare valid the ADMITTED TOTAL AMOUNT OF
foreclosure and sale of properties covered by P3,484,287.00, TO PAYMENT OF THE
TCTs T-14250 and T-16208, which came as a PRINCIPAL OF P2,500,000.[00] LEAVING AN
necessary result of petitioners failure to pay OVERPAYMENT OFP984,287.00 REFUNDABLE
the outstanding obligation upon demand.45 BY RESPONDENT TO PETITIONER[S] WITH
The CA saw fit to increase the trial courts INTEREST OF 12% PER ANNUM.
award of 1% to 10%, finding the latter rate to
be reasonable and citing the Real Estate II
Mortgage agreement which authorized the
collection of the higher rate.46 THE COURT OF APPEALS AND THE LOWER
COURT ERRED IN HOLDING THAT PENALTIES
Finally, the CA ruled that petitioners are ARE INCLUDEDIN THE SECURED AMOUNT,
entitled to P377,505.09 surplus, which is the SUBJECT TO FORECLOSURE, WHEN NO
difference between PNBs bid price of PENALTIES ARE MENTIONED [NOR] PROVIDED
P4,324,172.96 and petitioners total FOR IN THE REAL ESTATE MORTGAGE AS A
computed obligation as of January 14, 1999, SECURED AMOUNT AND THEREFORE THE
AMOUNT OF PENALTIES SHOULDHAVE BEEN
EXCLUDED FROM [THE] FORECLOSURE Next, petitioners suggest that since the Real
AMOUNT. Estate Mortgage agreements did not include
nor specify, as part of the secured amount,
III the penalty of 24% authorized in PN
9707237, such amount of P581,666.66 could
THE COURT OF APPEALS ERRED IN not be made answerable by or collected from
REVERSING THE RULING OF THE LOWER the mortgages covering TCTs T-14250 and T-
COURT, WHICH REDUCED THE ATTORNEYS 16208. Claiming support from Philippine
FEES OF 10% OF THE TOTAL INDEBTEDNESS Bank of Communications [PBCom] v. Court of
CHARGED IN THE X X X EXTRAJUDICIAL Appeals,51 petitioners insist that the phrase
FORECLOSURE TOONLY 1%, AND "and other obligations owing by the
[AWARDING] 10% ATTORNEYS FEES.48 mortgagor to the mortgagee"52 in the
mortgage agreements cannot embrace the
Petitioners Arguments P581,666.66 penalty, because, as held in the
PBCom case, "[a] penalty charge does not
Petitioners insist that the interest rate belong to the species of obligations
provision in the Credit Agreement and the enumerated in the mortgage, hence, the said
Amendment to Credit Agreement should be contract cannot be understood to secure the
declared null and void, for they relegated to penalty";53 while the mortgages are the
PNB the sole power to fix interest rates accessory contracts, what items are secured
based on arbitrary criteria or factors such as may only be determined from the provisions
bank policy, profitability, cost of money, of the mortgage contracts, and not from the
foreign currency values, and bank Credit Agreement or the promissory notes.
administrative costs; spaces for interest
rates in the two Credit Agreements and the Finally, petitioners submit that the trial
promissory notes were left blank for PNB to courts award of 1% attorneys fees should
unilaterally fill, and their consent or be maintained, given that in foreclosures, a
agreement to the interest rates imposed lawyers work consists merely in the
thereafter was not obtained; the interest preparation and filing of the petition, and
rate, which consists of the prime rate plus involves minimal study.54 To allow the
the bank spread, is determined not by imposition of a staggering P396,211.00 for
agreement of the parties but by PNBs such work would be contrary to equity.
Treasury Department in Manila. Petitioners Petitioners state that the purpose of
conclude that by this method of fixing the attorneys fees in cases of this nature "is not
interest rates, the principle of mutuality of to give respondent a larger compensation for
contracts is violated, and public policy as the loan than the law already allows, but to
well as Circular 90549 of the then Central protect it against any future loss or damage
Bank had been breached. by being compelled to retain counsel x x x to
institute judicial proceedings for the
Petitioners question the CAs application of collection of its credit."55 And because the
the principle of estoppel, saying that no instant case involves a simple extrajudicial
estoppel can proceed from an illegal act. foreclosure, attorneys fees may be equitably
Though they failed to timely question the tempered.
imposition of the alleged illegal interest rates
and continued to pay the loan on the basis of Respondents Arguments
these rates, they cannot be deemed to have
acquiesced, and hence could recover what For its part, respondent disputes petitioners
they erroneously paid.50 claim that interest rates were unilaterally
fixed by it, taking relief in the CA
Petitioners argue that if the interest rates pronouncement that petitioners are deemed
were nullified, then their obligation to PNB is estopped by their failure to question the
deemed extinguished as of July 1997; imposed rates and their continued payment
moreover, it would appear that they even thereof without opposition. It adds that
made an over payment to the bank in the because the Credit Agreement and
amount of P984,287.00. promissory notes contained both an
escalation clause and a de-escalation clause, insists that the stipulated 25% per annum as
it may not be said that the bank violated the embodied in PN 9707237 should be imposed
principle of mutuality. Besides, the increase during the interim, or the period after the
or decrease in interest rates have been loan became due and while it remains
mutually agreed upon by the parties, as unpaid, and not the legal interest of 12% as
shown by petitioners continuous payment claimed by petitioners.59
without protest. Respondent adds that the
alleged unilateral imposition of interest rates d. That PNB fixed interest rates on the basis
is not a proper subject for review by the of arbitrary policies and standards left to its
Court because the issue was never raised in choosing According to respondent, interest
the lower court. rates were fixed taking into consideration
increases or decreases as provided by law or
As for petitioners claim that interest rates by the Monetary Board, the banks overall
imposed by it are null and void for the costs of funds, and upon agreement of the
reasons that 1) the Credit Agreements and parties.60
the promissory notes were signed in blank;
2) interest rates were at short periods; 3) no e. That interest rates based on prime rate
interest rates could be charged where no plus applicable spread are indeterminate and
agreement on interest rates was made in arbitrary On this score, respondent submits
writing; 4) PNB fixed interest rates on the there are various factors that influence
basis of arbitrary policies and standards left interest rates, from political events to
to its choosing; and 5) interest rates based economic developments, etc.; the cost of
on prime rate plus applicable spread are money, profitability and foreign currency
indeterminate and arbitrary PNB counters: transactions may not be discounted.61

a. That Credit Agreements and promissory On the issue of penalties, respondent


notes were signed by petitioner[s] in blank reiterates the trial courts finding that during
Respondent claims that this issue was never pre-trial, petitioners admitted that the
raised in the lower court. Besides, Statement of Account as of October 12, 1998
documentary evidence prevails over which detailed and included penalty
testimonial evidence; Lydia Silos testimony charges as part of the total outstanding
in this regard is self-serving, unsupported obligation owing to the bank was correct.
and uncorroborated, and for being the lone Respondent justifies the imposition and
evidence on this issue. The fact remains that collection of a penalty as a normal banking
these documents are in proper form, practice, and the standard rate per annum
presumed regular, and endure, against for all commercial banks, at the time, was
arbitrary claims by Silos who is an 24%.
experienced business person that she
signed questionable loan documents whose Respondent adds that the purpose of the
provisions for interest rates were left blank, penalty or a penal clause for that matter is to
and yet she continued to pay the interests ensure the performance of the obligation and
without protest for a number of years.56 substitute for damages and the payment of
interest in the event of non-compliance.62
b. That interest rates were at short periods And the promissory note being the principal
Respondent argues that the law which agreement as opposed to the mortgage,
governs and prohibits changes in interest which is a mere accessory should prevail.
rates made more than once every twelve This being the case, its inclusion as part of
months has been removed57 with the the secured amount in the mortgage
issuance of Presidential Decree No. 858.58 agreements is valid and necessary.

c. That no interest rates could be charged Regarding the foreclosure of the mortgages,
where no agreement on interest rates was respondent accuses petitioners of pre-
made in writing in violation of Article 1956 of empting consolidation of its ownership over
the Civil Code, which provides that no TCTs T-14250 and T-16208; that petitioners
interest shall be due unless it has been filed Civil Case No. 5975 ostensibly to
expressly stipulated in writing Respondent question the foreclosure and sale of
properties covered by TCTs T-14250 and T- reimburse petitioner the excess in the bid
16208 in a desperate move to retain price of P377,505.09.
ownership over these properties, because
they failed to timely redeem them. It appears that respondents practice, more
than once proscribed by the Court, has been
Respondent directs the attention of the Court carried over once more to the petitioners. In
to its petition in G.R. No. 181046,63 where a number of decided cases, the Court struck
the propriety of the CAs ruling on the down provisions in credit documents issued
following issues is squarely raised: by PNB to, or required of, its borrowers which
allow the bank to increase or decrease
1. That the interest rate to be applied after interest rates "within the limits allowed by
the expiration of the first 30-day interest law at any time depending on whatever
period for PN 9707237 should be 12% per policy it may adopt in the future." Thus, in
annum; and Philippine National Bank v. Court of
Appeals,64 such stipulation and similar ones
2. That PNB should reimburse petitioners the were declared in violation of Article 130865
excess in the bid price of P377,505.99 which of the Civil Code. In a second case, Philippine
is the difference between the total amount National Bank v. Court of Appeals,66 the very
due to PNB and the amount of its bid price. same stipulations found in the credit
agreement and the promissory notes
Our Ruling prepared and issued by the respondent were
again invalidated. The Court therein said:
The Court grants the Petition.
The Credit Agreement provided inter alia,
Before anything else, it must be said that it is that
not the function of the Court to re-examine
or re-evaluate evidence adduced by the (a) The BANK reserves the right to increase
parties in the proceedings below. The rule the interest rate within the limits allowed by
admits of certain well-recognized exceptions, law at any time depending on whatever
though, as when the lower courts findings policy it may adopt in the future; Provided,
are not supported by the evidence on record that the interest rate on this accommodation
or are based on a misapprehension of facts, shall be correspondingly decreased in the
or when certain relevant and undisputed event that the applicable maximum interest
facts were manifestly overlooked that, if is reduced by law or by the Monetary Board.
properly considered, would justify a different In either case, the adjustment in the interest
conclusion. This case falls within such rate agreed upon shall take effect on the
exceptions. effectivity date of the increase or decrease in
the maximum interest rate.
The Court notes that on March 5, 2008, a
Resolution was issued by the Courts First The Promissory Note, in turn, authorized the
Division denying respondents petition in PNB to raise the rate of interest, at any time
G.R. No. 181046, due to late filing, failure to without notice, beyond the stipulated rate of
attach the required affidavit of service of the 12% but only "within the limits allowed by
petition on the trial court and the petitioners, law."
and submission of a defective verification
and certification of non-forum shopping. On The Real Estate Mortgage contract likewise
June 25, 2008, the Court issued another provided that
Resolution denying with finality respondents
motion for reconsideration of the March 5, (k) INCREASE OF INTEREST RATE: The rate of
2008 Resolution. And on August 15, 2008, interest charged on the obligation secured by
entry of judgment was made. This thus this mortgage as well as the interest on the
settles the issues, as above-stated, covering amount which may have been advanced by
a) the interest rate or 12% per annum that the MORTGAGEE, in accordance with the
applies upon expiration of the first 30 days provision hereof, shall be subject during the
interest period provided under PN 9707237, life of this contract to such an increase within
and b)the CAs decree that PNB should the rate allowed by law, as the Board of
Directors of the MORTGAGEE may prescribe
for its debtors. Sec. 5. Section 1303 of the Manual of
Regulations (for Banks and Other Financial
xxxx Intermediaries) is hereby amended to read
as follows:
In making the unilateral increases in interest
rates, petitioner bank relied on the Sec. 1303. Interest and Other Charges.
escalation clause contained in their credit
agreement which provides, as follows: The rate of interest, including
commissions, premiums, fees and other
The Bank reserves the right to increase the charges, on any loan, or forbearance of any
interest rate within the limits allowed by law money, goods or credits, regardless of
at any time depending on whatever policy it maturity and whether secured or unsecured,
may adopt in the future and provided, that, shall not be subject to any ceiling prescribed
the interest rate on this accommodation shall under or pursuant to the Usury Law, as
be correspondingly decreased in the event amended.
that the applicable maximum interest rate is
reduced by law or by the Monetary Board. In P.D. No. 1684 and C.B. Circular No. 905 no
either case, the adjustment in the interest more than allow contracting parties to
rate agreed upon shall take effect on the stipulate freely regarding any subsequent
effectivity date of the increase or decrease in adjustment in the interest rate that shall
maximum interest rate. accrue on a loan or forbearance of money,
goods or credits. In fine, they can agree to
This clause is authorized by Section 2 of adjust, upward or downward, the interest
Presidential Decree (P.D.) No. 1684 which previously stipulated. However, contrary to
further amended Act No. 2655 ("The Usury the stubborn insistence of petitioner bank,
Law"), as amended, thus: the said law and circular did not authorize
either party to unilaterally raise the interest
Section 2. The same Act is hereby amended rate without the others consent.
by adding a new section after Section 7, to
read as follows: It is basic that there can be no contract in
the true sense in the absence of the element
Sec. 7-a. Parties to an agreement pertaining of agreement, or of mutual assent of the
to a loan or forbearance of money, goods or parties. If this assent is wanting on the part
credits may stipulate that the rate of interest of the one who contracts, his act has no
agreed upon may be increased in the event more efficacy than if it had been done under
that the applicable maximum rate of interest duress or by a person of unsound mind.
is increased bylaw or by the Monetary Board;
Provided, That such stipulation shall be valid Similarly, contract changes must be made
only if there is also a stipulation in the with the consent of the contracting parties.
agreement that the rate of interest agreed The minds of all the parties must meet as to
upon shall be reduced in the event that the the proposed modification, especially when it
applicable maximum rate of interest is affects an important aspect of the
reduced by law or by the Monetary Board; agreement. In the case of loan contracts, it
Provided further, That the adjustment in the cannot be gainsaid that the rate of interest is
rate of interest agreed upon shall take effect always a vital component, for it can make or
on or after the effectivity of the increase or break a capital venture. Thus, any change
decrease in the maximum rate of interest. must be mutually agreed upon, otherwise, it
is bereft of any binding effect.
Section 1 of P.D. No. 1684 also empowered
the Central Banks Monetary Board to We cannot countenance petitioner banks
prescribe the maximum rates of interest for posturing that the escalation clause at bench
loans and certain forbearances. Pursuant to gives it unbridled right to unilaterally
such authority, the Monetary Board issued upwardly adjust the interest on private
Central Bank (C.B.) Circular No. 905, series of respondents loan. That would completely
1982, Section 5 of which provides: take away from private respondents the right
to assent to an important modification in one of the parties so as to lead to an
their agreement, and would negate the unconscionable result is void. Any stipulation
element of mutuality in contracts. In regarding the validity or compliance of the
Philippine National Bank v. Court of Appeals, contract which is left solely to the will of one
et al., 196 SCRA 536, 544-545 (1991) we of the parties, is likewise, invalid.
held
It is plainly obvious, therefore, from the
x x x The unilateral action of the PNB in undisputed facts of the case that respondent
increasing the interest rate on the private bank unilaterally altered the terms of its
respondents loan violated the mutuality of contract with petitioners by increasing the
contracts ordained in Article 1308 of the Civil interest rates on the loan without the prior
Code: assent of the latter. In fact, the manner of
agreement is itself explicitly stipulated by
Art. 1308. The contract must bind both the Civil Code when it provides, in Article
contracting parties; its validity or compliance 1956 that "No interest shall be due unless it
cannot be left to the will of one of them. has been expressly stipulated in writing."
What has been "stipulated in writing" from a
In order that obligations arising from perusal of interest rate provision of the credit
contracts may have the force of law between agreement signed between the parties is
the parties, there must be mutuality between that petitioners were bound merely to pay
the parties based on their essential equality. 21% interest, subject to a possible escalation
A contract containing a condition which or de-escalation, when 1) the circumstances
makes its fulfillment dependent exclusively warrant such escalation or de-escalation; 2)
upon the uncontrolled will of one of the within the limits allowed by law; and 3) upon
contracting parties, is void . . . . Hence, even agreement.
assuming that the . . . loan agreement
between the PNB and the private respondent Indeed, the interest rate which appears to
gave the PNB a license (although in fact have been agreed upon by the parties to the
there was none) to increase the interest rate contract in this case was the 21% rate
at will during the term of the loan, that stipulated in the interest provision. Any
license would have been null and void for doubt about this is in fact readily resolved by
being violative of the principle of mutuality a careful reading of the credit agreement
essential in contracts. It would have invested because the same plainly uses the phrase
the loan agreement with the character of a "interest rate agreed upon," in reference to
contract of adhesion, where the parties do the original 21% interest rate. x x x
not bargain on equal footing, the weaker
partys (the debtor) participation being xxxx
reduced to the alternative "to take it or leave
it" . . . . Such a contract is a veritable trap for Petitioners never agreed in writing to pay the
the weaker party whom the courts of justice increased interest rates demanded by
must protect against abuse and respondent bank in contravention to the
imposition.67 (Emphases supplied) tenor of their credit agreement. That an
increase in interest rates from 18% to as
Then again, in a third case, Spouses Almeda much as 68% is excessive and
v. Court of Appeals,68 the Court invalidated unconscionable is indisputable. Between
the very same provisions in the respondents 1981 and 1984, petitioners had paid an
prepared Credit Agreement, declaring thus: amount equivalent to virtually half of the
entire principal (P7,735,004.66) which was
The binding effect of any agreement applied to interest alone. By the time the
between parties to a contract is premised on spouses tendered the amount of
two settled principles: (1) that any obligation P40,142,518.00 in settlement of their
arising from contract has the force of law obligations; respondent bank was demanding
between the parties; and (2) that there must P58,377,487.00 over and above those
be mutuality between the parties based on amounts already previously paid by the
their essential equality. Any contract which spouses.
appears to be heavily weighed in favor of
Escalation clauses are not basically wrong or *THREE HUNDRED SIXTY FIVE DAYS* AFTER
legally objectionable so long as they are not DATE
solely potestative but based on reasonable
and valid grounds. Here, as clearly On the reverse side of the note the following
demonstrated above, not only [are] the condition was stamped:
increases of the interest rates on the basis of
the escalation clause patently unreasonable All short-term loans to be granted starting
and unconscionable, but also there are no January 1, 1978 shall be made subject to the
valid and reasonable standards upon which condition that any and/or all extensions
the increases are anchored. hereof that will leave any portion of the
amount still unpaid after 730 days shall
xxxx automatically convert the outstanding
balance into a medium or long-term
In the face of the unequivocal interest rate obligation as the case may be and give the
provisions in the credit agreement and in the Bank the right to charge the interest rates
law requiring the parties to agree to changes prescribed under its policies from the date
in the interest rate in writing, we hold that the account was originally granted.
the unilateral and progressive increases
imposed by respondent PNB were null and To secure payment of the loan the parties
void. Their effect was to increase the total executed a real estate mortgage contract
obligation on an eighteen million peso loan which provided:
to an amount way over three times that
which was originally granted to the (k) INCREASE OF INTEREST RATE:
borrowers. That these increases, occasioned
by crafty manipulations in the interest rates The rate of interest charged on the obligation
is unconscionable and neutralizes the secured by this mortgage as well as the
salutary policies of extending loans to spur interest on the amount which may have been
business cannot be disputed.69 (Emphases advanced by the MORTGAGEE, in accordance
supplied) with the provision hereof, shall be subject
during the life of this contract to such an
Still, in a fourth case, Philippine National increase within the rate allowed by law, as
Bank v. Court of Appeals,70 the above the Board of Directors of the MORTGAGEE
doctrine was reiterated: may prescribe for its debtors.

The promissory note contained the following xxxx


stipulation:
To begin with, PNBs argument rests on a
For value received, I/we, [private misapprehension of the import of the
respondents] jointly and severally promise to appellate courts ruling. The Court of Appeals
pay to the ORDER of the PHILIPPINE nullified the interest rate increases not
NATIONAL BANK, at its office in San Jose City, because the promissory note did not comply
Philippines, the sum of FIFTEEN THOUSAND with P.D. No. 1684 by providing for a de-
ONLY (P15,000.00), Philippine Currency, escalation, but because the absence of such
together with interest thereon at the rate of provision made the clause so one-sided as to
12% per annum until paid, which interest make it unreasonable.
rate the Bank may at any time without
notice, raise within the limits allowed by law, That ruling is correct. It is in line with our
and I/we also agree to pay jointly and decision in Banco Filipino Savings &
severally ____% per annum penalty charge, Mortgage Bank v. Navarro that although P.D.
by way of liquidated damages should this No. 1684 is not to be retroactively applied to
note be unpaid or is not renewed on due loans granted before its effectivity, there
dated. must nevertheless be a de-escalation clause
to mitigate the one-sidedness of the
Payment of this note shall be as follows: escalation clause. Indeed because of concern
for the unequal status of borrowers vis--vis
the banks, our cases after Banco Filipino
have fashioned the rule that any increase in have invested the loan agreement with the
the rate of interest made pursuant to an character of a contract of adhesion, where
escalation clause must be the result of the parties do not bargain on equal footing,
agreement between the parties. the weaker partys (the debtor) participation
being reduced to the alternative "to take it or
Thus in Philippine National Bank v. Court of leave it" (Qua vs. Law Union & Rock
Appeals, two promissory notes authorized Insurance Co., 95 Phil. 85). Such a contract is
PNB to increase the stipulated interest per a veritable trap for the weaker party whom
annum" within the limits allowed by law at the courts of justice must protect against
any time depending on whatever policy abuse and imposition.
[PNB] may adopt in the future; Provided, that
the interest rate on this note shall be A similar ruling was made in Philippine
correspondingly decreased in the event that National Bank v. Court of Appeals. The credit
the applicable maximum interest rate is agreement in that case provided:
reduced by law or by the Monetary Board."
The real estate mortgage likewise provided: The BANK reserves the right to increase the
interest rate within the limits allowed by law
The rate of interest charged on the obligation at any time depending on whatever policy it
secured by this mortgage as well as the may adopt in the future: Provided, that the
interest on the amount which may have been interest rate on this accommodation shall be
advanced by the MORTGAGEE, in accordance correspondingly decreased in the event that
with the provisions hereof, shall be subject the applicable maximum interest is reduced
during the life of this contract to such an by law or by the Monetary Board. . . .
increase within the rate allowed by law, as
the Board of Directors of the MORTGAGEE As in the first case, PNB successively
may prescribe for its debtors. increased the stipulated interest so that what
was originally 12% per annum became, after
Pursuant to these clauses, PNB successively only two years, 42%. In declaring the
increased the interest from 18% to 32%, increases invalid, we held:
then to 41% and then to 48%. This Court
declared the increases unilaterally imposed We cannot countenance petitioner banks
by [PNB] to be in violation of the principle of posturing that the escalation clause at bench
mutuality as embodied in Art.1308 of the gives it unbridled right to unilaterally
Civil Code, which provides that "[t]he upwardly adjust the interest on private
contract must bind both contracting parties; respondents loan. That would completely
its validity or compliance cannot be left to take away from private respondents the right
the will of one of them." As the Court to assent to an important modification in
explained: their agreement, and would negate the
element of mutuality in contracts.
In order that obligations arising from
contracts may have the force of law between Only recently we invalidated another round
the parties, there must be mutuality between of interest increases decreed by PNB
the parties based on their essential equality. pursuant to a similar agreement it had with
A contract containing a condition which other borrowers:
makes its fulfillment dependent exclusively
upon the uncontrolled will of one of the [W]hile the Usury Law ceiling on interest
contracting parties, is void (Garcia vs. Rita rates was lifted by C.B. Circular 905, nothing
Legarda, Inc., 21 SCRA 555). Hence, even in the said circular could possibly be read as
assuming that the P1.8 million loan granting respondent bank carte blanche
agreement between the PNB and the private authority to raise interest rates to levels
respondent gave the PNB a license (although which would either enslave its borrowers or
in fact there was none) to increase the lead to a hemorrhaging of their assets.
interest rate at will during the term of the
loan, that license would have been null and In this case no attempt was made by PNB to
void for being violative of the principle of secure the conformity of private respondents
mutuality essential in contracts. It would to the successive increases in the interest
rate. Private respondents assent to the letters sent by the bank amounted to their
increases can not be implied from their lack implied acceptance of the increase should
of response to the letters sent by PNB, likewise fail.
informing them of the increases. For as
stated in one case, no one receiving a Evidently, PNBs failure to secure the
proposal to change a contract is obliged to spouses Rocamoras consent to the
answer the proposal.71 (Emphasis supplied) increased interest rates prompted the lower
courts to declare excessive and illegal the
We made the same pronouncement in a fifth interest rates imposed. Togo around this
case, New Sampaguita Builders Construction, lower court finding, PNB alleges that the
Inc. v. Philippine National Bank,72 thus P206,297.47 deficiency claim was computed
using only the original 12% per annum
Courts have the authority to strike down or interest rate. We find this unlikely. Our
to modify provisions in promissory notes that examination of PNBs own ledgers, included
grant the lenders unrestrained power to in the records of the case, clearly indicates
increase interest rates, penalties and other that PNB imposed interest rates higher than
charges at the latters sole discretion and the agreed 12% per annum rate. This
without giving prior notice to and securing confirmatory finding, albeit based solely on
the consent of the borrowers. This unilateral ledgers found in the records, reinforces the
authority is anathema to the mutuality of application in this case of the rule that
contracts and enable lenders to take undue findings of the RTC, when affirmed by the CA,
advantage of borrowers. Although the Usury are binding upon this Court.75 (Emphases
Law has been effectively repealed, courts supplied)
may still reduce iniquitous or unconscionable
rates charged for the use of money. Verily, all these cases, including the present
Furthermore, excessive interests, penalties one, involve identical or similar provisions
and other charges not revealed in disclosure found in respondents credit agreements and
statements issued by banks, even if promissory notes. Thus, the July 1989 Credit
stipulated in the promissory notes, cannot be Agreement executed by petitioners and
given effect under the Truth in Lending respondent contained the following
Act.73 (Emphasis supplied) stipulation on interest:

Yet again, in a sixth disposition, Philippine 1.03. Interest. (a) The Loan shall be subject
National Bank v. Spouses Rocamora,74 the to interest at the rate of 19.5% [per annum].
above pronouncements were reiterated to Interest shall be payable in advance every
debunk PNBs repeated reliance on its one hundred twenty days at the rate
invalidated contract stipulations: prevailing at the time of the renewal.

We repeated this rule in the 1994 case of (b) The Borrower agrees that the Bank may
PNB v. CA and Jayme Fernandez and the modify the interest rate in the Loan
1996 case of PNB v. CA and Spouses Basco. depending on whatever policy the Bank may
Taking no heed of these rulings, the adopt in the future, including without
escalation clause PNB used in the present limitation, the shifting from the floating
case to justify the increased interest rates is interest rate system to the fixed interest rate
no different from the escalation clause system, or vice versa. Where the Bank has
assailed in the 1996 PNB case; in both, the imposed on the Loan interest at a rate per
interest rates were increased from the annum which is equal to the Banks spread
agreed 12% per annum rate to 42%. x x x over the current floating interest rate, the
Borrower hereby agrees that the Bank may,
xxxx without need of notice to the Borrower,
increase or decrease its spread over the
On the strength of this ruling, PNBs floating interest rate at any time depending
argument that the spouses Rocamoras on whatever policy it may adopt in the
failure to contest the increased interest rates future.76 (Emphases supplied)
that were purportedly reflected in the
statements of account and the demand
while the eight promissory notes issued signed the following promissory notes in
pursuant thereto granted PNB the right to blank, for the respondent to later on enter
increase or reduce interest rates "within the the corresponding interest rates, which it did,
limits allowed by law or the Monetary as follows:
Board"77 and the Real Estate Mortgage
agreement included the same right to 9th Promissory Note dated November 8,
increase or reduce interest rates "at any time 1991 26%;
depending on whatever policy PNB may
adopt in the future."78 10th Promissory Note dated March 19, 1992
25%;
On the basis of the Credit Agreement,
petitioners issued promissory notes which 11th Promissory Note dated July 11, 1992
they signed in blank, and respondent later on 23%;
entered their corresponding interest rates, as
follows: 12th Promissory Note dated November 10,
1992 21%;
1st Promissory Note dated July 24, 1989
19.5%; 13th Promissory Note dated March 15, 1993
21%;
2nd Promissory Note dated November 22,
1989 23%; 14th Promissory Note dated July 12, 1993
17.5%;
3rd Promissory Note dated March 21, 1990
22%; 15th Promissory Note dated November 17,
1993 21%;
4th Promissory Note dated July 19, 1990
24%; 16th Promissory Note dated March 28, 1994
21%;
5th Promissory Note dated December 17,
1990 28%; 17th Promissory Note dated July 13, 1994
21%;
6th Promissory Note dated February 14, 1991
32%; 18th Promissory Note dated November 16,
1994 16%;
7th Promissory Note dated March 1, 1991
30%; and 19th Promissory Note dated April 10, 1995
21%;
8th Promissory Note dated July 11, 1991
24%.79 20th Promissory Note dated July 19, 1995
18.5%;
On the other hand, the August 1991
Amendment to Credit Agreement contains 21st Promissory Note dated December 18,
the following stipulation regarding interest: 1995 18.75%;

1.03. Interest on Line Availments. (a) The 22nd Promissory Note dated April 22, 1996
Borrowers agree to pay interest on each 18.5%;
Availment from date of each Availment up to
but not including the date of full payment 23rd Promissory Note dated July 22, 1996
thereof at the rate per annum which is 18.5%;
determined by the Bank to be prime rate
plus applicable spread in effect as of the 24th Promissory Note dated November 25,
date of each Availment.80 (Emphases 1996 18%;
supplied)
25th Promissory Note dated May 30, 1997
and under this Amendment to Credit 17.5%; and
Agreement, petitioners again executed and
26th Promissory Note (PN 9707237) dated are ignored. A borrowers current financial
July 30, 1997 25%.81 state, his feedback or opinions, the nature
and purpose of his borrowings, the effect of
The 9th up to the 17th promissory notes foreign currency values or fluctuations on his
provide for the payment of interest at the business or borrowing, etc. these are not
"rate the Bank may at any time without factors which influence the fixing of interest
notice, raise within the limits allowed by law rates to be imposed on him. Clearly,
x x x."82 On the other hand, the 18th up to respondents method of fixing interest rates
the 26th promissory notes which includes based on one-sided, indeterminate, and
PN 9707237 carried the following provision: subjective criteria such as profitability, cost
of money, bank costs, etc. is arbitrary for
x x x For this purpose, I/We agree that the there is no fixed standard or margin above or
rate of interest herein stipulated may be below these considerations.
increased or decreased for the subsequent
Interest Periods, with prior notice to the The stipulation in the promissory notes
Borrower in the event of changes in interest subjecting the interest rate to review does
rate prescribed by law or the Monetary Board not render the imposition by UCPB of interest
of the Central Bank of the Philippines, or in rates on the obligations of the spouses
the Banks overall cost of funds. I/We hereby Beluso valid. According to said stipulation:
agree that in the event I/we are not
agreeable to the interest rate fixed for any The interest rate shall be subject to review
Interest Period, I/we shall have the option to and may be increased or decreased by the
prepay the loan or credit facility without LENDER considering among others the
penalty within ten (10) calendar days from prevailing financial and monetary conditions;
the Interest Setting Date.83 (Emphasis or the rate of interest and charges which
supplied) other banks or financial institutions charge or
offer to charge for similar accommodations;
These stipulations must be once more and/or the resulting profitability to the
invalidated, as was done in previous cases. LENDER after due consideration of all
The common denominator in these cases is dealings with the BORROWER.
the lack of agreement of the parties to the
imposed interest rates. For this case, this It should be pointed out that the authority to
lack of consent by the petitioners has been review the interest rate was given [to] UCPB
made obvious by the fact that they signed alone as the lender. Moreover, UCPB may
the promissory notes in blank for the apply the considerations enumerated in this
respondent to fill. We find credible the provision as it wishes. As worded in the
testimony of Lydia in this respect. above provision, UCPB may give as much
Respondent failed to discredit her; in fact, its weight as it desires to each of the following
witness PNB Kalibo Branch Manager Aspa considerations: (1) the prevailing financial
admitted that interest rates were fixed solely and monetary condition;(2) the rate of
by its Treasury Department in Manila, which interest and charges which other banks or
were then simply communicated to all PNB financial institutions charge or offer to
branches for implementation. If this were the charge for similar accommodations;
case, then this would explain why petitioners and/or(3) the resulting profitability to the
had to sign the promissory notes in blank, LENDER (UCPB) after due consideration of all
since the imposable interest rates have yet dealings with the BORROWER (the spouses
to be determined and fixed by respondents Beluso). Again, as in the case of the interest
Treasury Department in Manila. rate provision, there is no fixed margin above
or below these considerations.
Moreover, in Aspas enumeration of the
factors that determine the interest rates PNB In view of the foregoing, the Separability
fixes such as cost of money, foreign Clause cannot save either of the two options
currency values, bank administrative costs, of UCPB as to the interest to be imposed, as
profitability, and considerations which affect both options violate the principle of
the banking industry it can be seen that mutuality of contracts.84 (Emphases
considerations which affect PNBs borrowers supplied)
increase or decrease its spread over the
To repeat what has been said in the above- floating interest rate at any time depending
cited cases, any modification in the contract, on whatever policy it may adopt in the
such as the interest rates, must be made future.86 (Emphases supplied)
with the consent of the contracting
parties.1wphi1 The minds of all the parties IN THE AUGUST 1991 AMENDMENT TO
must meet as to the proposed modification, CREDIT AGREEMENT
especially when it affects an important
aspect of the agreement. In the case of loan 1.03. Interest on Line Availments. (a) The
agreements, the rate of interest is a principal Borrowers agree to pay interest on each
condition, if not the most important Availment from date of each Availment up to
component. Thus, any modification thereof but not including the date of full payment
must be mutually agreed upon; otherwise, it thereof at the rate per annum which is
has no binding effect. determined by the Bank to be prime rate
plus applicable spread in effect as of the
What is even more glaring in the present date of each Availment.87 (Emphasis
case is that, the stipulations in question no supplied)
longer provide that the parties shall agree
upon the interest rate to be fixed; -instead, Plainly, with the present credit agreement,
they are worded in such a way that the the element of consent or agreement by the
borrower shall agree to whatever interest borrower is now completely lacking, which
rate respondent fixes. In credit agreements makes respondents unlawful act all the more
covered by the above-cited cases, it is reprehensible.
provided that:
Accordingly, petitioners are correct in
The Bank reserves the right to increase the arguing that estoppel should not apply to
interest rate within the limits allowed by law them, for "[e]stoppel cannot be predicated
at any time depending on whatever policy it on an illegal act. As between the parties to a
may adopt in the future: Provided, that, the contract, validity cannot be given to it by
interest rate on this accommodation shall be estoppel if it is prohibited by law or is against
correspondingly decreased in the event that public policy."88
the applicable maximum interest rate is
reduced by law or by the Monetary Board. In It appears that by its acts, respondent
either case, the adjustment in the interest violated the Truth in Lending Act, or Republic
rate agreed upon shall take effect on the Act No. 3765, which was enacted "to protect
effectivity date of the increase or decrease in x x x citizens from a lack of awareness of the
maximum interest rate.85 (Emphasis true cost of credit to the user by using a full
supplied) disclosure of such cost with a view of
preventing the uninformed use of credit to
Whereas, in the present credit agreements the detriment of the national economy."89
under scrutiny, it is stated that: The law "gives a detailed enumeration of the
specific information required to be disclosed,
IN THE JULY 1989 CREDIT AGREEMENT among which are the interest and other
charges incident to the extension of
(b) The Borrower agrees that the Bank may credit."90 Section 4 thereof provides that a
modify the interest rate on the Loan disclosure statement must be furnished prior
depending on whatever policy the Bank may to the consummation of the transaction,
adopt in the future, including without thus:
limitation, the shifting from the floating
interest rate system to the fixed interest rate SEC. 4. Any creditor shall furnish to each
system, or vice versa. Where the Bank has person to whom credit is extended, prior to
imposed on the Loan interest at a rate per the consummation of the transaction, a clear
annum, which is equal to the Banks spread statement in writing setting forth, to the
over the current floating interest rate, the extent applicable and in accordance with
Borrower hereby agrees that the Bank may, rules and regulations prescribed by the
without need of notice to the Borrower, Board, the following information:
(1) the cash price or delivered price of the SEC. 4. Any creditor shall furnish to each
property or service to be acquired; person to whom credit is extended, prior to
the consummation of the transaction, a clear
(2) the amounts, if any, to be credited as statement in writing setting forth, to the
down payment and/or trade-in; extent applicable and in accordance with
rules and regulations prescribed by the
(3) the difference between the amounts set Board, the following information:
forth under clauses (1) and (2);
(1) the cash price or delivered price of the
(4) the charges, individually itemized, which property or service to be acquired;
are paid or to be paid by such person in
connection with the transaction but which (2) the amounts, if any, to be credited as
are not incident to the extension of credit; down payment and/or trade-in;

(5) the total amount to be financed; (3) the difference between the amounts set
forth under clauses (1) and (2);
(6) the finance charge expressed in terms of
pesos and centavos; and (4) the charges, individually itemized, which
are paid or to be paid by such person in
(7) the percentage that the finance bears to connection with the transaction but which
the total amount to be financed expressed as are not incident to the extension of credit;
a simple annual rate on the outstanding
unpaid balance of the obligation. (5) the total amount to be financed;

Under Section 4(6), "finance charge" (6) the finance charge expressed in terms of
represents the amount to be paid by the pesos and centavos; and
debtor incident to the extension of credit
such as interest or discounts, collection fees, (7) the percentage that the finance bears to
credit investigation fees, attorneys fees, and the total amount to be financed expressed as
other service charges. The total finance a simple annual rate on the outstanding
charge represents the difference between (1) unpaid balance of the obligation.
the aggregate consideration (down payment
plus installments) on the part of the debtor, The rationale of this provision is to protect
and (2) the sum of the cash price and non- users of credit from a lack of awareness of
finance charges.91 the true cost thereof, proceeding from the
experience that banks are able to conceal
By requiring the petitioners to sign the credit such true cost by hidden charges,
documents and the promissory notes in uncertainty of interest rates, deduction of
blank, and then unilaterally filling them up interests from the loaned amount, and the
later on, respondent violated the Truth in like. The law thereby seeks to protect
Lending Act, and was remiss in its disclosure debtors by permitting them to fully
obligations. In one case, which the Court appreciate the true cost of their loan, to
finds applicable here, it was held: enable them to give full consent to the
contract, and to properly evaluate their
UCPB further argues that since the spouses options in arriving at business decisions.
Beluso were duly given copies of the subject Upholding UCPBs claim of substantial
promissory notes after their execution, then compliance would defeat these purposes of
they were duly notified of the terms thereof, the Truth in Lending Act. The belated
in substantial compliance with the Truth in discovery of the true cost of credit will too
Lending Act. often not be able to reverse the ill effects of
an already consummated business decision.
Once more, we disagree. Section 4 of the
Truth in Lending Act clearly provides that the In addition, the promissory notes, the copies
disclosure statement must be furnished prior of which were presented to the spouses
to the consummation of the transaction: Beluso after execution, are not sufficient
notification from UCPB. As earlier discussed,
the interest rate provision therein does not Given the above supposition, the Court
sufficiently indicate with particularity the cannot subscribe to respondents argument
interest rate to be applied to the loan that in every repricing of petitioners loan
covered by said promissory notes.92 availment, they are given the right to
(Emphases supplied) question the interest rates imposed. The
import of respondents line of reasoning
However, the one-year period within which cannot be other than that if one out of every
an action for violation of the Truth in Lending hundred borrowers questions respondents
Act may be filed evidently prescribed long practice of unilaterally fixing interest rates,
ago, or sometime in 2001, one year after then only the loan arrangement with that
petitioners received the March 2000 demand lone complaining borrower will enjoy the
letter which contained the illegal charges. benefit of review or re-negotiation; as to the
99 others, the questionable practice will
The fact that petitioners later received continue unchecked, and respondent will
several statements of account detailing its continue to reap the profits from such
outstanding obligations does not cure unscrupulous practice. The Court can no
respondents breach. To repeat, the belated more condone a view so perverse. This is
discovery of the true cost of credit does not exactly what the Court meant in the
reverse the ill effects of an already immediately preceding cited case when it
consummated business decision.93 said that "the belated discovery of the true
cost of credit does not reverse the ill effects
Neither may the statements be considered of an already consummated business
proposals sent to secure the petitioners decision;"95 as to the 99 borrowers who did
conformity; they were sent after the not or could not complain, the illegal act
imposition and application of the interest shall have become a fait accompli to their
rate, and not before. And even if it were to detriment, they have already suffered the
be presumed that these are proposals or oppressive rates.
offers, there was no acceptance by
petitioners. "No one receiving a proposal to Besides, that petitioners are given the right
modify a loan contract, especially regarding to question the interest rates imposed is,
interest, is obliged to answer the under the circumstances, irrelevant; we have
proposal."94 a situation where the petitioners do not
stand on equal footing with the respondent.
Loan and credit arrangements may be made It is doubtful that any borrower who finds
enticing by, or "sweetened" with, offers of himself in petitioners position would dare
low initial interest rates, but actually question respondents power to arbitrarily
accompanied by provisions written in fine modify interest rates at any time. In the
print that allow lenders to later on increase second place, on what basis could any
or decrease interest rates unilaterally, borrower question such power, when the
without the consent of the borrower, and criteria or standards which are really one-
depending on complex and subjective sided, arbitrary and subjective for the
factors. Because they have been lured into exercise of such power are precisely lost on
these contracts by initially low interest rates, him?
borrowers get caught and stuck in the web of
subsequent steep rates and penalties, For the same reasons, the Court cannot
surcharges and the like. Being ordinary validly consider that, as stipulated in the
individuals or entities, they naturally dread 18th up to the 26th promissory notes,
legal complications and cannot afford court petitioners are granted the option to prepay
litigation; they succumb to whatever charges the loan or credit facility without penalty
the lenders impose. At the very least, within 10 calendar days from the Interest
borrowers should be charged rightly; but Setting Date if they are not agreeable to the
then again this is not possible in a one-sided interest rate fixed. It has been shown that
credit system where the temptation to abuse the promissory notes are executed and
is strong and the willingness to rectify is signed in blank, meaning that by the time
made weak by the eternal desire for profit. petitioners learn of the interest rate, they are
already bound to pay it because they have rate of interest shall be 6% per annum
already pre-signed the note where the rate is pursuant to our ruling in Nacar v. Gallery
subsequently entered. Frames99 and Bangko Sentral ng Pilipinas-
Monetary Board Circular No. 799.
Besides, premium may not be placed upon a
stipulation in a contract which grants one Now to the issue of penalty. PN 9707237
party the right to choose whether to continue provides that failure to pay it or any
with or withdraw from the agreement if it installment thereon, when due, shall
discovers that what the other party has been constitute default, and a penalty charge of
doing all along is improper or illegal. 24% per annum based on the defaulted
principal amount shall be imposed.
Thus said, respondents arguments relative Petitioners claim that this penalty should be
to the credit documents that documentary excluded from the foreclosure amount or bid
evidence prevails over testimonial evidence; price because the Real Estate Mortgage and
that the credit documents are in proper form, the Supplement thereto did not specifically
presumed regular, and endure, against include it as part of the secured amount.
arbitrary claims by petitioners, experienced Respondent justifies its inclusion in the
business persons that they are, they signed secured amount, saying that the purpose of
questionable loan documents whose the penalty or a penal clause is to ensure the
provisions for interest rates were left blank, performance of the obligation and substitute
and yet they continued to pay the interests for damages and the payment of interest in
without protest for a number of years the event of non-compliance.100 Respondent
deserve no consideration. adds that the imposition and collection of a
penalty is a normal banking practice, and the
With regard to interest, the Court finds that standard rate per annum for all commercial
since the escalation clause is annulled, the banks, at the time, was 24%. Its inclusion as
principal amount of the loan is subject to the part of the secured amount in the mortgage
original or stipulated rate of interest, and agreements is thus valid and necessary.
upon maturity, the amount due shall be
subject to legal interest at the rate of 12% The Court sustains petitioners view that the
per annum. This is the uniform ruling penalty may not be included as part of the
adopted in previous cases, including those secured amount. Having found the credit
cited here.96 The interests paid by agreements and promissory notes to be
petitioners should be applied first to the tainted, we must accord the same treatment
payment of the stipulated or legal and to the mortgages. After all, "[a] mortgage
unpaid interest, as the case may be, and and a note secured by it are deemed parts of
later, to the capital or principal.97 one transaction and are construed
Respondent should then refund the excess together."101 Being so tainted and having
amount of interest that it has illegally the attributes of a contract of adhesion as
imposed upon petitioners; "[t]he amount to the principal credit documents, we must
be refunded refers to that paid by petitioners construe the mortgage contracts strictly, and
when they had no obligation to do so."98 against the party who drafted it. An
Thus, the parties original agreement examination of the mortgage agreements
stipulated the payment of 19.5% interest; reveals that nowhere is it stated that
however, this rate was intended to apply penalties are to be included in the secured
only to the first promissory note which amount. Construing this silence strictly
expired on November 21, 1989 and was paid against the respondent, the Court can only
by petitioners; it was not intended to apply conclude that the parties did not intend to
to the whole duration of the loan. include the penalty allowed under PN
Subsequent higher interest rates have been 9707237 as part of the secured amount.
declared illegal; but because only the rates Given its resources, respondent could have
are found to be improper, the obligation to if it truly wanted to conveniently prepared
pay interest subsists, the same to be fixed at and executed an amended mortgage
the legal rate of 12% per annum. However, agreement with the petitioners, thereby
the 12% interest shall apply only until June including penalties in the amount to be
30, 2013. Starting July1, 2013, the prevailing
secured by the encumbered properties. Yet it an interest rate of only 12% per annum.104
did not. Thus, interest payment made in excess of
12% on the 2nd promissory note shall
With regard to attorneys fees, it was plain immediately be applied to the principal, and
error for the CA to have passed upon the the principal shall be accordingly reduced.
issue since it was not raised by the The reduced principal shall then be subjected
petitioners in their appeal; it was the to the 12%105 interest on the 3rd
respondent that improperly brought it up in promissory note, and the excess over 12%
its appellees brief, when it should have interest payment on the 3rd promissory note
interposed an appeal, since the trial courts shall again be applied to the principal, which
Decision on this issue is adverse to it. It is an shall again be reduced accordingly. The
elementary principle in the subject of reduced principal shall then be subjected to
appeals that an appellee who does not the 12% interest on the 4th promissory note,
himself appeal cannot obtain from the and the excess over12% interest payment on
appellate court any affirmative relief other the 4th promissory note shall again be
than those granted in the decision of the applied to the principal, which shall again be
court below. reduced accordingly. And so on and so forth;

x x x [A]n appellee, who is at the same time 3. After the above procedure is carried out,
not an appellant, may on appeal be the trial court shall be able to conclude if
permitted to make counter assignments of petitioners a) still have an OUTSTANDING
error in ordinary actions, when the purpose is BALANCE/OBLIGATION or b) MADE PAYMENTS
merely to defend himself against an appeal OVER AND ABOVE THEIR TOTAL OBLIGATION
in which errors are alleged to have been (principal and interest);
committed by the trial court both in the
appreciation of facts and in the interpretation 4. Such outstanding balance/obligation, if
of the law, in order to sustain the judgment there be any, shall then be subjected to a
in his favor but not when his purpose is to 12% per annum interest from October 28,
seek modification or reversal of the 1997 until January 14, 1999, which is the
judgment, in which case it is necessary for date of the auction sale;
him to have excepted to and appealed from
the judgment.102 5. Such outstanding balance/obligation shall
also be charged a 24% per annum penalty
Since petitioners did not raise the issue of from August 14, 1997 until January 14, 1999.
reduction of attorneys fees, the CA But from this total penalty, the petitioners
possessed no authority to pass upon it at the previous payment of penalties in the amount
instance of respondent. The ruling of the trial of P202,000.00made on January 27, 1998106
court in this respect should remain shall be DEDUCTED;
undisturbed.
6. To this outstanding balance (3.), the
For the fixing of the proper amounts due and interest (4.), penalties (5.), and the final and
owing to the parties to the respondent as executory award of 1% attorneys fees shall
creditor and to the petitioners who are be ADDED;
entitled to a refund as a consequence of
overpayment considering that they paid 7. The sum total of the outstanding balance
more by way of interest charges than the (3.), interest (4.) and 1% attorneys fees (6.)
12% per annum103 herein allowed the shall be DEDUCTED from the bid price of
case should be remanded to the lower court P4,324,172.96. The penalties (5.) are not
for proper accounting and computation, included because they are not included in
applying the following procedure: the secured amount;

1. The 1st Promissory Note with the 19.5% 8. The difference in (7.) [P4,324,172.96 LESS
interest rate is deemed proper and paid; sum total of the outstanding balance (3.),
interest (4.), and 1% attorneys fees (6.)]
2. All subsequent promissory notes (from the shall be DELIVERED TO THE PETITIONERS;
2nd to the 26th promissory notes) shall carry
9. Respondent may then proceed to solutio indebiti instead. If, on the other hand,
consolidate its title to TCTs T-14250 and T- it turns out that petitioners overpayments in
16208; interests do not exceed their total obligation,
then the respondent may consolidate its
10. ON THE OTHER HAND, if after performing ownership over the properties, since the
the procedure in (2.), it turns out that period for redemption has expired. Its only
petitioners made an OVERPAYMENT, the obligation will be to return the difference
interest (4.), penalties (5.), and the award of between its bid price (P4,324,172.96) and
1% attorneys fees (6.) shall be DEDUCTED petitioners total obligation outstanding
from the overpayment. There is no except penalties after applying the latters
outstanding balance/obligation precisely overpayments.
because petitioners have paid beyond the
amount of the principal and interest; WHEREFORE, premises considered, the
Petition is GRANTED. The May 8, 2007
11. If the overpayment exceeds the sum Decision of the Court of Appeals in CA-G.R.
total of the interest (4.), penalties (5.), and CV No. 79650 is ANNULLED and SET ASIDE.
award of 1% attorneys fees (6.), the excess Judgment is hereby rendered as follows:
shall be RETURNED to the petitioners, with
legal interest, under the principle of solutio 1. The interest rates imposed and indicated
indebiti;107 in the 2nd up to the 26th Promissory Notes
are DECLARED NULL AND VOID, and such
12. Likewise, if the overpayment exceeds the notes shall instead be subject to interest at
total amount of interest (4.) and award of 1% the rate of twelve percent (12%) per annum
attorneys fees (6.), the trial court shall up to June 30, 2013, and starting July 1,
INVALIDATE THE EXTRAJUDICIAL 2013, six percent (6%) per annum until full
FORECLOSURE AND SALE; satisfaction;

13. HOWEVER, if the total amount of interest 2. The penalty charge imposed in Promissory
(4.) and award of 1% attorneys fees (6.) Note No. 9707237 shall be EXCLUDED from
exceed petitioners overpayment, then the the amounts secured by the real estate
excess shall be DEDUCTED from the bid price mortgages;
of P4,324,172.96;
3. The trial courts award of one per cent
14. The difference in (13.) [P4,324,172.96 (1%) attorneys fees is REINSTATED;
LESS sum total of the interest (4.) and 1%
attorneys fees (6.)] shall be DELIVERED TO 4. The case is ordered REMANDED to the
THE PETITIONERS; Regional Trial Court, Branch 6 of Kalibo,
Aklan for the computation of overpayments
15. Respondent may then proceed to made by petitioners spouses Eduardo and
consolidate its title to TCTs T-14250 and T- Lydia Silos to respondent Philippine National
16208. The outstanding penalties, if any, Bank, taking into consideration the foregoing
shall be collected by other means. dispositions, and applying the procedure
hereinabove set forth;
From the above, it will be seen that if, after
proper accounting, it turns out that the 5. Thereafter, the trial court is ORDERED to
petitioners made payments exceeding what make a determination as to the validity of
they actually owe by way of principal, the extrajudicial foreclosure and sale,
interest, and attorneys fees, then the declaring the same null and void in case of
mortgaged properties need not answer for overpayment and ordering the release and
any outstanding secured amount, because return of Transfer Certificates of Title Nos. T-
there is not any; quite the contrary, 14250 and TCT T-16208 to petitioners, or
respondent must refund the excess to ordering the delivery to the petitioners of the
petitioners.1wphi1 In such case, the difference between the bid price and the
extrajudicial foreclosure and sale of the total remaining obligation of petitioners, if
properties shall be declared null and void for any;
obvious lack of basis, the case being one of
6. In the meantime, the respondent the said amount from DBP for the purchase
Philippine National Bank is ENJOINED from of the lot and the construction of a
consolidating title to Transfer Certificates of residential building thereon. He obliged
Title Nos. T-14250 and T-16208 until all the himself to pay the loan in 25 years, with a
steps in the procedure above set forth have monthly amortization of P1,417.91, with 9%
been taken and applied; interest per annum, to be deducted from his
monthly salary.3
7. The reimbursement of the excess in the
bid price of P377,505.99, which respondent DBP obliged itself to transfer the title of the
Philippine National Bank is ordered to property upon the payment of the loan,
reimburse petitioners, should be HELD IN including any increments thereof. It was also
ABEYANCE until the true amount owing to or agreed therein that if Arcilla availed of
owed by the parties as against each other is optional retirement, he could elect to
determined; continue paying the loan, provided that the
loan/amount would be converted into a
8. Considering that this case has been regular real estate loan account with the
pending for such a long time and that further prevailing interest assigned on real estate
proceedings, albeit uncomplicated, are loans, payable within the remaining term of
required, the trial court is ORDERED to the loan account.4
proceed with dispatch.
Arcilla was notified of the periodic release of
SO ORDERED. his loan.5 During the period of July 1984 to
December 31, 1986, the monthly
amortizations for the said account were
deducted from his monthly salary, for which
G.R. No. 161397 June 30, 2005 he was issued receipts.6

DEVELOPMENT BANK OF THE The monthly amortization was increased to


PHILIPPINES, Petitioner, P1,468.92 in November 1984, and to
vs. P1,691.51 beginning January 1985. However,
FELIPE P. ARCILLA, JR., Respondent. Arcilla opted to resign from the bank in
December 1986. Conformably with the Deed
x - - - - - - - - - - - - - - - - - - - - - - -x of Conditional Sale, the bank informed him,
on June 11, 1987, that the balance of his loan
G.R. No. 161426 June 30, 2005 account with the bank had been converted to
a regular housing loan, thus:
FELIPE P. ARCILLA, JR., Petitioner,
vs. Amount converted to PH Loan Interest Rate
DEVELOPMENT BANK OF THE Remaining Term Monthly
PHILIPPINES, Respondent. Amortization
P 155,218.79 - 1 9% 22 yrs. & 6 mos<
DECISION P1,342.72
6,802.45 - 2 9% 21 yrs. & 10 mos. 59.41
CALLEJO, SR., J.: 24,342.91 - 3 9% 22 yrs.
212.07
Atty. Felipe P. Arcilla, Jr. was employed by the Plus: MRI at PC. 41/thousand P1,614.20
Development Bank of the Philippines (DBP) in 76.41
October 1981. About five or six months P186,364.15 Total
thereafter, he was assigned to the legal P1,690.617
department, and thereafter, decided to avail =========
of a loan under the Individual Housing Project On July 24, 1987, Arcilla signed three
(IHP) of the bank.1 On September 12, 1983, Promissory Notes8 for the total amount of
DBP and Arcilla executed a Deed of P186,364.15. He was also obliged to pay
Conditional Sale2 over a parcel of land, as service charge and interests, as follows:
well as the house to be constructed thereon,
for the price of P160,000.00. Arcilla borrowed
a.1 On the amount advanced or balance b.1 One time service charge 2% of the
thereof that remains unpaid for 30 days* or amount advanced
less: b.2 Interest and penalty charge
Interest - 7% p.a. over borrowing cost
i. Interest on advances at 7% p.a. over Penalty charge 8% p.a. if unpaid
DBP's borrowing cost: after 30 days from date of advance
ii. No 2% service charge However, Arcilla also agreed to the
iii. No 8% penalty charge reservation by the DBP of its right to increase
a.2 On the amount advanced or balance (with notice to him) the "rate of interest on
thereof that remains unpaid for more than 30 the loan, as well as all other fees and
days: charges on loans and advances pursuant to
such policy as it may adopt from time to time
i. Interest on the advance at 7% p.a. during the period of the loan; Provided, that
over DBP's borrowing cost; ] the rate of interest on the loan shall be
] reduced by law or by the Monetary Board;
ii. One time 2% service charge ] Provided, further, that the adjustment in the
-- To be computed from rate of interest shall take effect on or after
iii. Interest on the service charge ] the effectivity of the increase or decrease in
the start of the 30-day the maximum rate of interest."10
iv. 8% penalty charge on the balances
of the advances and service charge.9 ] Upon his request, DBP agreed to grant Arcilla
period an additional cash advance of P32,000.00.
Arcilla also agreed to pay to DBP the Thereafter, on May 23, 1984, a Supplement
following: to the Conditional Sale Agreement was
executed in which DBP and Arcilla agreed on
*Insurance Premiums - 30-day period to be the following terms of the loan:
computed from date of advances
Amount Interest Rate Per Annum Terms
Other Advances - 30-day period to be Amortization
computed from date of notification P32,000.00 Nine (9%) per cent MRI for
P32,000.00 at P0.40/1,000.00 24 years
b. Taxes P271.57
b.1 One time service charge 2% of the
amount advanced 12.80
b.2 Interest and penalty charge P32,000.00 same to be consolidated with
Interest - 7% p.a. over borrowing cost the original advance in accordance with
Penalty charge 8% p.a. if unpaid Condition No. 8 hereof.11 (Est. Amort.)
after 30 days from date of advance P 284.37
i. Interest of the advance at ] =========
7% p.a. over DBP's ] The additional advance was, thus,
borrowing costs; ]-- To be computed consolidated to the outstanding balance of
from start of 30-day period Arcilla's original advance, payable within the
ii. One time 2% service charge ] remaining term thereof at 9% per annum.
iii. Interest on the service charge ] However, he failed to pay his loan account,
iv. 8% penalty charge on the advances, penalty charges and interests
balances of the advance and which, as of October 31, 1990, amounted to
service charge. ] P241,940.93.12 DBP rescinded the Deed of
] Conditional Sale by notarial act on November
] 27, 1990.13 Nevertheless, it wrote Arcilla, on
*Insurance Premiums - 30-day period to be January 3, 1992, giving him until October 24,
computed from date of advances. 1992, within which to repurchase the
property upon full payment of the current
Other Advances - 30-day period to be appraisal or updated total, whichever is
computed from date of notification. lesser; in case of failure to do so, the
property would be advertised for bidding.14
b. Taxes DBP reiterated the said offer on October 7,
1992.15 Arcilla failed to respond. transactions. DBP interposed a counterclaim
Consequently, the property was advertised for the possession of the property.
for sale at public bidding on February 14,
1994.16 On April 27, 2001, the trial court rendered
judgment in favor of Arcilla and nullified the
Arcilla filed a complaint against DBP with the notarial rescission of the deeds executed by
Regional Trial Court (RTC) of Antipolo, Rizal, the parties. The fallo of the decision reads:
on February 21, 1994. He alleged that DBP
failed to furnish him with the disclosure WHEREFORE, premises considered, judgment
statement required by Republic Act (R.A.) No. is hereby rendered in favor of the plaintiff
3765 and Central Bank (CB) Circular No. 158 and against the defendant.1avvphil.zw+
prior to the execution of the deed of Defendant is hereby directed to furnish the
conditional sale and the conversion of his disclosure statement to the plaintiff within
loan account with the bank into a regular five (5) days upon receipt hereof in the
housing loan account. Despite this, DBP manner and form provided by R.A. No. 3765
immediately deducted the account from his and submit to this Court for approval the
salary as early as 1984. Moreover, the bank total obligation of the plaintiff as of this date,
applied its own formula and imposed its within ten (10) days from receipt of this
usurious interests, penalties and charges on order. The Notarial Rescission (Exh. "16")
his loan account and advances. He further dated November 27, 1990 is hereby declared
alleged, thus: null and void. Costs against the defendant.

13. That when plaintiff could no longer cope- SO ORDERED.18


up with defendant's illegal and usurious
impositions, the DBP unilaterally increased DBP appealed the decision to the Court of
further the rate of interest, without notice to Appeals (CA) wherein it made the following
the latter, and heaped-up usurious interests, assignment of errors:
penalties and charges;
4.1. The trial court erred in ruling that the
--- provision of the details of the loan without
the issuance of a "Disclosure Statement" is
14. That to further bend the back of the not compliance with the "Truth in Lending
plaintiff, defendant rescinded the subject Act;"
deed of conditional sale on 4 December 1990
without giving due notice to plaintiff; 4.2. The trial court erred in declaring the
Notarial Rescission null and void; and
15. That much later, on 10 October 1993,
plaintiff received a letter from defendant 4.3. The trial court erred in denying DBP's
dated 19 September 1993, informing plaintiff counterclaims for recovery of possession,
that the subject deed of conditional sale was back rentals and litigation expenses.19
already rescinded on 4 December 1990
(xerox copy of the same is hereto attached On May 29, 2003, the CA rendered judgment
and made an integral part hereof as Annex setting aside and reversing the decision of
"C";17 the RTC. In ordering the dismissal of the
complaint, the appellate court ruled that DBP
In its answer to the complaint, the DBP substantially complied with R.A. No. 3765
alleged that it substantially complied with and CB Circular No. 158. Arcilla filed a motion
R.A. No. 3765 and CB Circular No. 158 for reconsideration of the decision. For its
because the details required in said part, DBP filed a motion for partial
statements were particularly disclosed in the reconsideration of the decision, praying that
promissory notes, deed of conditional sale Arcilla be ordered to vacate the property.
and the required notices sent to Arcilla. In However, the appellate court denied both
any event, its failure to comply strictly with motions.
R.A. No. 3765 did not affect the validity and
enforceability of the subject contracts or The parties filed separate petitions for review
on certiorari with this Court. The first
petition, entitled Development Bank of the
Philippines v. Court of Appeals, was docketed DBP, on the other hand, avers that all the
as G.R. No. 161397; the second petition, information required by R.A. No. 3765 was
entitled Felipe Arcilla, Jr. v. Court of Appeals, already contained in the loan transaction
was docketed as G.R. No. 161426. The Court documents. It posits that even if it failed to
resolved to consolidate the two cases. comply strictly with the disclosure
requirement of R.A. No. 3765, nevertheless,
The issues raised in the two petitions are the under Section 6(b) of the law, the validity
following: a) whether or not petitioner DBP and enforceability of any action or
complied with the disclosure requirement of transaction is not affected. It asserts that
R.A. No. 3765 and CB Circular No. 158, Series Arcilla was estopped from invoking R.A. No.
of 1978, in the execution of the deed of 3765 because he failed to demand
conditional sale, the supplemental deed of compliance with R.A. No. 3765 from the bank
conditional sale, as well as the promissory before the consummation of the loan
notes; and b) whether or not respondent transaction, until the time his complaint was
Felipe Arcilla, Jr. is mandated to vacate the filed with the trial court.
property and pay rentals for his occupation
thereof after the notarial rescission of the In its petition in G.R. No. 161397, DBP
deed of conditional sale was rescinded by asserts that the RTC erred in not rendering
notarial act, as well as the supplement judgment on its counterclaim for the
executed by DBP. possession of the subject property, and the
liability of Arcilla for rentals while in the
On the first issue, Arcilla avers that under possession of the property after the notarial
R.A. No. 3765 and CB Circular No. 158, the rescission of the deeds of conditional sale.
DBP, as the creditor bank, was mandated to For his part, Arcilla (in G.R. No. 161426)
furnish him with the requisite information in insists that the respondent failed to comply
such form prescribed by the Central Bank with its obligation under R.A. No. 3765;
before the commutation of the loan hence, the notarial rescission of the deed of
transaction. He avers that the disclosure of conditional sale and the supplement thereof
the details of the loan contained in the deed was null and void. Until DBP complies with its
of conditional sale and the supplement obligation, he is not obliged to comply with
thereto, the promissory notes and release his.
sheet, do not constitute substantial
compliance with the law and the CB Circular. The petition of Arcilla has no merit.
He avers that the required disclosure did not
include the following: Section 1 of R.A. No. 3765 provides that prior
to the consummation of a loan transaction,
[T]he percentage of Finance Charges to the bank, as creditor, is obliged to furnish a
Total Amount Financed (Computed in client with a clear statement, in writing,
accordance with Sec. 2(i) of CB Circular 158; setting forth, to the extent applicable and in
the Additional Charges in case certain accordance with the rules and regulations
stipulations in the contract are not met by prescribed by the Monetary Board of the
the debtor; Total Non-Finance Charges; Total Central Bank of the Philippines, the following
Finance Charges, Effective Interest Rate, etc. information:
20
(1) the cash price or delivered price of the
Arcilla further posits that the failure of DBP to property or service to be acquired;
comply with its obligation under R.A. No.
3765 and CB Circular No. 158 forecloses its (2) the amounts, if any, to be credited as
right to rescind the transaction between down payment and/or trade-in;
them, and to demand compliance of his
obligation arising from said transaction. (3) the difference between the amounts set
Moreover, the bank had no right to deduct forth under clauses (1) and (2);
the monthly amortizations from his salary
without first complying with the mandate of (4) the charges, individually itemized, which
R.A. No. 3765. are paid or to be paid by such person in
connection with the transaction but which The Court is convinced that Arcilla's claim of
are not incident to the extension of credit; not having been furnished the
data/information required by R.A. No. 3765
(5) the total amount to be financed; and CB Circular No. 158 was but an
afterthought. Despite the notarial rescission
(6) the finance charges expressed in terms of of the conditional sale in 1990, and DBP's
pesos and centavos; and subsequent repeated offers to repurchase
the property, the latter maintained his
(7) the percentage that the finance charge silence. Arcilla filed his complaint only on
bears to the total amount to be financed February 21, 1994, or four years after the
expressed as a simple annual rate on the said notarial rescission. The Court finds and
outstanding unpaid balance of the obligation. so holds that the following findings and
ratiocinations of the CA are correct:
Under Circular No. 158 of the Central Bank,
the information required by R.A. No. 3765 After a careful perusal of the records, We find
shall be included in the contract covering the that the appellee had been sufficiently
credit transaction or any other document to informed of the terms and the requisite
be acknowledged and signed by the debtor, charges necessarily included in the subject
thus: loan. It must be stressed that the Truth in
Lending Act (R.A. No. 3765), was enacted
The contract covering the credit transaction, primarily "to protect its citizens from a lack
or any other document to be acknowledged of awareness of the true cost of credit to the
and signed by the debtor, shall indicate the user
above seven items of information. In
addition, the contract or document shall by using a full disclosure of such cost with a
specify additional charges, if any, which will view of preventing the uninformed use of
be collected in case certain stipulations in credit to the detriment of the national
the contract are not met by the debtor. economy" (Emata vs. Intermediate Appellate
Court, 174, SCRA 464 [1989]; Sec. 2, R.A. No.
Furthermore, the contract or document shall 3765). Contrary to appellee's claim that he
specify additional charges, if any, which will was not sufficiently informed of the details of
be collected in case certain stipulations in the loan, the records disclose that the
the contract are not met by the debtor.21 required informations were readily available
in the three (3) promissory notes he
If the borrower is not duly informed of the executed. Precisely, the said promissory
data required by the law prior to the notes were executed to apprise appellee of
consummation of the availment or the remaining balance on his loan when the
drawdown, the lender will have no right to same was converted into a regular housing
collect such charge or increases thereof, loan. And on its face, the promissory notes
even if stipulated in the promissory note.22 signed by no less than the appellee readily
However, such failure shall not affect the shows all the data required by the Truth in
validity or enforceability of any contract or Lending Act (R.A. No. 3765).
transaction.23
Apropos, We agree with the appellant that
In the present case, DBP failed to disclose appellee, a lawyer, would not be so gullible
the requisite information in the disclosure or negligent as to sign documents without
statement form authorized by the Central knowing fully well the legal implications and
Bank, but did so in the loan transaction consequences of his actions, and that
documents between it and Arcilla. There is appellee was a former employee of
no evidence on record that DBP sought to appellant. As such employee, he is as well
collect or collected any interest, penalty or presumed knowledgeable with matters
other charges, from Arcilla other than those relating to appellant's business and fully
disclosed in the said cognizant of the terms of the loan he applied
deeds/documents.1avvphi1.zw+ for, including the charges that had to be
paid.
It might have been different if the borrower vs.
was, say, an ordinary employee eager to buy Hi-Tri Development Corporation and Luz
his first house and is easily lured into R. Bakunawa, Respondents.
accepting onerous terms so long as the same
is payable on installments. In such cases, the DECISION
Court would be disposed to be stricter in the
application of the Truth in Lending Act, SERENO, J.:
insisting that the borrower be fully informed
of what he is entering into. But in the case at Before the Court is a Rule 45 Petition for
bar, considering appellee's education and Review on Certiorari filed by petitioner Rizal
training, We must hold, in the light of the Commercial Banking Corporation (RCBC)
evidence at hand, that he was duly informed against respondents Hi-Tri Development
of the necessary charges and fully Corporation (Hi-Tri) and Luz R. Bakunawa
understood their implications and effects. (Bakunawa). Petitioner seeks to appeal from
Consequently, the trial court's annulment of the 26 November 2009 Decision and 27 May
the rescission anchored on this ground was 2010 Resolution of the Court of Appeals
unjustified.24 (CA),1 which reversed and set aside the 19
May 2008 Decision and 3 November 2008
Anent the prayer of DBP to order Arcilla to Order of the Makati City Regional Trial Court
vacate the property and pay rentals therefor (RTC) in Civil Case No. 06-244.2 The case
from 1990, a review of the records has before the RTC involved the Complaint for
shown that it failed to adduce evidence on Escheat filed by the Republic of the
the reasonable amount of rentals for Arcilla's Philippines (Republic) pursuant to Act No.
occupancy of the property. Hence, the Court 3936, as amended by Presidential Decree No.
orders a remand of the case to the court of 679 (P.D. 679), against certain deposits,
origin, for the parties to adduce their credits, and unclaimed balances held by the
respective evidence on the bank's branches of various banks in the Philippines.
counterclaim. The trial court declared the amounts, subject
of the special proceedings, escheated to the
IN LIGHT OF ALL THE FOREGOING, the Republic and ordered them deposited with
petition in G.R. No. 161426 is DENIED for lack the Treasurer of the Philippines (Treasurer)
of merit. The petition in G.R. No. 161397 is and credited in favor of the Republic.3 The
PARTIALLY GRANTED. The case is hereby assailed RTC judgments included an
REMANDED to the Regional Trial Court of unclaimed balance in the amount of P
Antipolo, Rizal, Branch 73, for it to resolve 1,019,514.29, maintained by RCBC in its
the counterclaim of the Development Bank of Ermita Business Center branch.
the Philippines for possession of the
property, and for the reasonable rentals for We quote the narration of facts of the CA4 as
Felipe P. Arcilla, Jr.'s occupancy thereof after follows:
the notarial rescission of the Deed of
Conditional Sale in 1990. x x x Luz [R.] Bakunawa and her husband
Manuel, now deceased ("Spouses
Costs against petitioner Felipe P. Arcilla, Jr. Bakunawa") are registered owners of six (6)
parcels of land covered by TCT Nos. 324985
SO ORDERED. and 324986 of the Quezon City Register of
Deeds, and TCT Nos. 103724, 98827, 98828
and 98829 of the Marikina Register of Deeds.
These lots were sequestered by the
Presidential Commission on Good
Government [(PCGG)].

Sometime in 1990, a certain Teresita Millan


G.R. No. 192413 June 13, 2012 ("Millan"), through her representative, Jerry
Montemayor, offered to buy said lots for "P
Rizal Commercial Banking Corporation, 6,724,085.71", with the promise that she will
Petitioner, take care of clearing whatever preliminary
obstacles there may[]be to effect a Check No. ER 034469 and refrained from
"completion of the sale". The Spouses canceling or negotiating it.
Bakunawa gave to Millan the Owners Copies
of said TCTs and in turn, Millan made a All throughout the proceedings in Civil Case
down[]payment of "P 1,019,514.29" for the No. Q-91-10719, especially during
intended purchase. However, for one reason negotiations for a possible settlement of the
or another, Millan was not able to clear said case, Millan was informed that the Managers
obstacles. As a result, the Spouses Bakunawa Check was available for her withdrawal, she
rescinded the sale and offered to return to being the payee.
Millan her down[]payment of P 1,019,514.29.
However, Millan refused to accept back the P On January 31, 2003, during the pendency of
1,019,514.29 down[]payment. Consequently, the abovementioned case and without the
the Spouses Bakunawa, through their knowledge of [Hi-Tri and Spouses Bakunawa],
company, the Hi-Tri Development x x x RCBC reported the "P 1,019,514.29-
Corporation ("Hi-Tri") took out on October 28, credit existing in favor of Rosmil" to the
1991, a Managers Check from RCBC-Ermita Bureau of Treasury as among its "unclaimed
in the amount of P 1,019,514.29, payable to balances" as of January 31, 2003. Allegedly,
Millans company Rosmil Realty and a copy of the Sworn Statement executed by
Development Corporation ("Rosmil") c/o Florentino N. Mendoza, Manager and Head of
Teresita Millan and used this as one of their RCBCs Asset Management, Disbursement &
basis for a complaint against Millan and Sundry Department ("AMDSD") was posted
Montemayor which they filed with the within the premises of RCBC-Ermita.
Regional Trial Court of Quezon City, Branch
99, docketed as Civil Case No. Q-91-10719 On December 14, 2006, x x x Republic,
[in 1991], praying that: through the [Office of the Solicitor General
(OSG)], filed with the RTC the action below
1. That the defendants Teresita Mil[l]an and for Escheat [(Civil Case No. 06-244)].
Jerry Montemayor may be ordered to return
to plaintiffs spouses the Owners Copies of On April 30, 2008, [Spouses Bakunawa]
Transfer Certificates of Title Nos. 324985, settled amicably their dispute with Rosmil
324986, 103724, 98827, 98828 and 98829; and Millan. Instead of only the amount of "P
1,019,514.29", [Spouses Bakunawa] agreed
2. That the defendant Teresita Mil[l]an be to pay Rosmil and Millan the amount of "P
correspondingly ordered to receive the 3,000,000.00", [which is] inclusive [of] the
amount of One Million Nineteen Thousand amount of ["]P 1,019,514.29". But during
Five Hundred Fourteen Pesos and Twenty negotiations and evidently prior to said
Nine Centavos (P 1,019,514.29); settlement, [Manuel Bakunawa, through Hi-
Tri] inquired from RCBC-Ermita the
3. That the defendants be ordered to pay to availability of the P 1,019,514.29 under RCBC
plaintiffs spouses moral damages in the Managers Check No. ER 034469. [Hi-Tri and
amount of P 2,000,000.00; and Spouses Bakunawa] were however dismayed
when they were informed that the amount
4. That the defendants be ordered to pay was already subject of the escheat
plaintiffs attorneys fees in the amount of P proceedings before the RTC.
50,000.00.
On April 17, 2008, [Manuel Bakunawa,
Being part and parcel of said complaint, and through Hi-Tri] wrote x x x RCBC, viz:
consistent with their prayer in Civil Case No.
Q-91-10719 that "Teresita Mil[l]an be "We understand that the deposit
correspondingly ordered to receive the corresponding to the amount of Php
amount of One Million Nineteen Thousand 1,019,514.29 stated in the Managers Check
Five Hundred Fourteen Pesos and Twenty is currently the subject of escheat
Nine [Centavos] ("P 1,019,514.29")["], the proceedings pending before Branch 150 of
Spouses Bakunawa, upon advice of their the Makati Regional Trial Court.
counsel, retained custody of RCBC Managers
Please note that it was our impression that ER034469 does not form part of the Banks
the deposit would be taken from [Hi-Tris] own account. By simple operation of law, the
RCBC bank account once an order to debit is funds covered by the managers check in
issued upon the payees presentation of the issue became a deposit/credit susceptible for
Managers Check. Since the payee rejected inclusion in the escheat case initiated by the
the negotiated Managers Check, OSG and/or Bureau of Treasury.
presentation of the Managers Check was
never made. xxx xxx xxx

Consequently, the deposit that was supposed Granting arguendo that the Bank was duty-
to be allocated for the payment of the bound to make good the check, the Banks
Managers Check was supposed to remain obligation to do so prescribed as early as
part of the Corporation[s] RCBC bank October 2001."
account, which, thereafter, continued to be
actively maintained and operated. For this (Emphases, citations, and annotations were
reason, We hereby demand your omitted.)
confirmation that the amount of Php
1,019,514.29 continues to form part of the The RTC Ruling
funds in the Corporations RCBC bank
account, since pay-out of said amount was The escheat proceedings before the Makati
never ordered. We wish to point out that if City RTC continued. On 19 May 2008, the
there was any attempt on the part of RCBC trial court rendered its assailed Decision
to consider the amount indicated in the declaring the deposits, credits, and
Managers Check separate from the unclaimed balances subject of Civil Case No.
Corporations bank account, RCBC would 06-244 escheated to the Republic. Among
have issued a statement to that effect, and those included in the order of forfeiture was
repeatedly reminded the Corporation that the amount of P 1,019,514.29 held by RCBC
the deposit would be considered dormant as allocated funds intended for the payment
absent any fund movement. Since the of the Managers Check issued in favor of
Corporation never received any statements Rosmil. The trial court ordered the deposit of
of account from RCBC to that effect, and the escheated balances with the Treasurer
more importantly, never received any single and credited in favor of the Republic.
letter from RCBC noting the absence of fund Respondents claim that they were not able to
movement and advising the Corporation that participate in the trial, as they were not
the deposit would be treated as dormant." informed of the ongoing escheat
proceedings.
On April 28, 2008, [Manuel Bakunawa] sent
another letter to x x x RCBC reiterating their Consequently, respondents filed an Omnibus
position as above-quoted. Motion dated 11 June 2008, seeking the
partial reconsideration of the RTC Decision
In a letter dated May 19, 2008, x x x RCBC insofar as it escheated the fund allocated for
replied and informed [Hi-Tri and Spouses the payment of the Managers Check. They
Bakunawa] that: asked that they be included as party-
defendants or, in the alternative, allowed to
"The Banks Ermita BC informed Hi-Tri and/or intervene in the case and their motion
its principals regarding the inclusion of considered as an answer-in-intervention.
Managers Check No. ER034469 in the Respondents argued that they had
escheat proceedings docketed as Civil Case meritorious grounds to ask reconsideration of
No. 06-244, as well as the status thereof, the Decision or, alternatively, to seek
between 28 January 2008 and 1 February intervention in the case. They alleged that
2008. the deposit was subject of an ongoing
dispute (Civil Case No. Q-91-10719) between
xxx xxx xxx them and Rosmil since 1991, and that they
were interested parties to that case.5
Contrary to what Hi-Tri hopes for, the funds
covered by the Managers Check No.
On 3 November 2008, the RTC issued an I. Whether the Decision and Order of the RTC
Order denying the motion of respondents. were void for failure to send separate notices
The trial court explained that the Republic to respondents by personal service
had proven compliance with the
requirements of publication and notice, II. Whether petitioner had the obligation to
which served as notice to all those who may notify respondents immediately before it
be affected and prejudiced by the Complaint filed its Sworn Statement with the Treasurer
for Escheat. The RTC also found that the
motion failed to point out the findings and III. Whether or not the allocated funds may
conclusions that were not supported by the be escheated in favor of the Republic
law or the evidence presented, as required
by Rule 37 of the Rules of Court. Finally, it Discussion
ruled that the alternative prayer to intervene
was filed out of time. Petitioner bank assails7 the CA judgments
insofar as they ruled that notice by personal
The CA Ruling service upon respondents is a jurisdictional
requirement in escheat proceedings.
On 26 November 2009, the CA issued its Petitioner contends that respondents were
assailed Decision reversing the 19 May 2008 not the owners of the unclaimed balances
Decision and 3 November 2008 Order of the and were thus not entitled to notice from the
RTC. According to the appellate court,6 RCBC RTC Clerk of Court. It hinges its claim on the
failed to prove that the latter had theory that the funds represented by the
communicated with the purchaser of the Managers Check were deemed transferred
Managers Check (Hi-Tri and/or Spouses to the credit of the payee or holder upon its
Bakunawa) or the designated payee (Rosmil) issuance.
immediately before the bank filed its Sworn
Statement on the dormant accounts held We quote the pertinent provision of Act No.
therein. The CA ruled that the banks failure 3936, as amended, on the rule on service of
to notify respondents deprived them of an processes, to wit:
opportunity to intervene in the escheat
proceedings and to present evidence to Sec. 3. Whenever the Solicitor General shall
substantiate their claim, in violation of their be informed of such unclaimed balances, he
right to due process. Furthermore, the CA shall commence an action or actions in the
pronounced that the Makati City RTC Clerk of name of the People of the Republic of the
Court failed to issue individual notices Philippines in the Court of First Instance of
directed to all persons claiming interest in the province or city where the bank, building
the unclaimed balances, as well as to require and loan association or trust corporation is
them to appear after publication and show located, in which shall be joined as parties
cause why the unclaimed balances should the bank, building and loan association or
not be deposited with the Treasurer of the trust corporation and all such creditors or
Philippines. It explained that the depositors. All or any of such creditors or
jurisdictional requirement of individual notice depositors or banks, building and loan
by personal service was distinct from the association or trust corporations may be
requirement of notice by publication. included in one action. Service of process in
Consequently, the CA held that the Decision such action or actions shall be made by
and Order of the RTC were void for want of delivery of a copy of the complaint and
jurisdiction. summons to the president, cashier, or
managing officer of each defendant bank,
Issue building and loan association or trust
corporation and by publication of a copy of
After a perusal of the arguments presented such summons in a newspaper of general
by the parties, we cull the main issues as circulation, either in English, in Filipino, or in
follows: a local dialect, published in the locality
where the bank, building and loan
association or trust corporation is situated, if
there be any, and in case there is none, in
the City of Manila, at such time as the court interest in the said unclaimed balances, or
may order. Upon the trial, the court must any of them, and shall have full and
hear all parties who have appeared therein, complete jurisdiction to hear and determine
and if it be determined that such unclaimed the issues herein, and render the appropriate
balances in any defendant bank, building judgment thereon. (Emphasis supplied.)
and loan association or trust corporation are
unclaimed as hereinbefore stated, then the Hence, insofar as banks are concerned,
court shall render judgment in favor of the service of processes is made by delivery of a
Government of the Republic of the copy of the complaint and summons upon
Philippines, declaring that said unclaimed the president, cashier, or managing officer of
balances have escheated to the Government the defendant bank.8 On the other hand, as
of the Republic of the Philippines and to depositors or other claimants of the
commanding said bank, building and loan unclaimed balances, service is made by
association or trust corporation to forthwith publication of a copy of the summons in a
deposit the same with the Treasurer of the newspaper of general circulation in the
Philippines to credit of the Government of locality where the institution is situated.9 A
the Republic of the Philippines to be used as notice about the forthcoming escheat
the National Assembly may direct. proceedings must also be issued and
published, directing and requiring all persons
At the time of issuing summons in the action who may claim any interest in the unclaimed
above provided for, the clerk of court shall balances to appear before the court and
also issue a notice signed by him, giving the show cause why the dormant accounts
title and number of said action, and referring should not be deposited with the Treasurer.
to the complaint therein, and directed to all
persons, other than those named as Accordingly, the CA committed reversible
defendants therein, claiming any interest in error when it ruled that the issuance of
any unclaimed balance mentioned in said individual notices upon respondents was a
complaint, and requiring them to appear jurisdictional requirement, and that failure to
within sixty days after the publication or first effect personal service on them rendered the
publication, if there are several, of such Decision and the Order of the RTC void for
summons, and show cause, if they have any, want of jurisdiction. Escheat proceedings are
why the unclaimed balances involved in said actions in rem,10 whereby an action is
action should not be deposited with the brought against the thing itself instead of the
Treasurer of the Philippines as in this Act person.11 Thus, an action may be instituted
provided and notifying them that if they do and carried to judgment without personal
not appear and show cause, the Government service upon the depositors or other
of the Republic of the Philippines will apply to claimants.12 Jurisdiction is secured by the
the court for the relief demanded in the power of the court over the res.13
complaint. A copy of said notice shall be Consequently, a judgment of escheat is
attached to, and published with the copy of, conclusive upon persons notified by
said summons required to be published as advertisement, as publication is considered a
above, and at the end of the copy of such general and constructive notice to all
notice so published, there shall be a persons interested.14
statement of the date of publication, or first
publication, if there are several, of said Nevertheless, we find sufficient grounds to
summons and notice. Any person interested affirm the CA on the exclusion of the funds
may appear in said action and become a allocated for the payment of the Managers
party thereto. Upon the publication or the Check in the escheat proceedings.
completion of the publication, if there are
several, of the summons and notice, and the Escheat proceedings refer to the judicial
service of the summons on the defendant process in which the state, by virtue of its
banks, building and loan associations or trust sovereignty, steps in and claims abandoned,
corporations, the court shall have full and left vacant, or unclaimed property, without
complete jurisdiction in the Republic of the there being an interested person having a
Philippines over the said unclaimed balances legal claim thereto.15 In the case of dormant
and over the persons having or claiming any accounts, the state inquires into the status,
custody, and ownership of the unclaimed or the date when he made his last deposit or
balance to determine whether the inactivity withdrawal; and
was brought about by the fact of death or
absence of or abandonment by the (d) The interest due on such unclaimed
depositor.16 If after the proceedings the balance, if any, and the amount thereof.
property remains without a lawful owner
interested to claim it, the property shall be A copy of the above sworn statement shall
reverted to the state "to forestall an open be posted in a conspicuous place in the
invitation to self-service by the first premises of the bank, building and loan
comers."17 However, if interested parties association, or trust corporation concerned
have come forward and lain claim to the for at least sixty days from the date of filing
property, the courts shall determine whether thereof: Provided, That immediately before
the credit or deposit should pass to the filing the above sworn statement, the bank,
claimants or be forfeited in favor of the building and loan association, and trust
state.18 We emphasize that escheat is not a corporation shall communicate with the
proceeding to penalize depositors for failing person in whose favor the unclaimed balance
to deposit to or withdraw from their stands at his last known place of residence
accounts. It is a proceeding whereby the or post office address.
state compels the surrender to it of
unclaimed deposit balances when there is It shall be the duty of the Treasurer of the
substantial ground for a belief that they have Philippines to inform the Solicitor General
been abandoned, forgotten, or without an from time to time the existence of unclaimed
owner.19 balances held by banks, building and loan
associations, and trust corporations.
Act No. 3936, as amended, outlines the (Emphasis supplied.)
proper procedure to be followed by banks
and other similar institutions in filing a sworn As seen in the afore-quoted provision, the
statement with the Treasurer concerning law sets a detailed system for notifying
dormant accounts: depositors of unclaimed balances. This
notification is meant to inform them that
Sec. 2. Immediately after the taking effect of their deposit could be escheated if left
this Act and within the month of January of unclaimed. Accordingly, before filing a sworn
every odd year, all banks, building and loan statement, banks and other similar
associations, and trust corporations shall institutions are under obligation to
forward to the Treasurer of the Philippines a communicate with owners of dormant
statement, under oath, of their respective accounts. The purpose of this initial notice is
managing officers, of all credits and deposits for a bank to determine whether an inactive
held by them in favor of persons known to be account has indeed been unclaimed,
dead, or who have not made further deposits abandoned, forgotten, or left without an
or withdrawals during the preceding ten owner. If the depositor simply does not wish
years or more, arranged in alphabetical order to touch the funds in the meantime, but still
according to the names of creditors and asserts ownership and dominion over the
depositors, and showing: dormant account, then the bank is no longer
obligated to include the account in its sworn
(a) The names and last known place of statement.20 It is not the intent of the law to
residence or post office addresses of the force depositors into unnecessary litigation
persons in whose favor such unclaimed and defense of their rights, as the state is
balances stand; only interested in escheating balances that
have been abandoned and left without an
(b) The amount and the date of the owner.
outstanding unclaimed balance and whether
the same is in money or in security, and if In case the bank complies with the provisions
the latter, the nature of the same; of the law and the unclaimed balances are
eventually escheated to the Republic, the
(c) The date when the person in whose favor bank "shall not thereafter be liable to any
the unclaimed balance stands died, if known, person for the same and any action which
may be brought by any person against in any bank would then debit the amount to be paid
bank xxx for unclaimed balances so to the holder of the check from the account
deposited xxx shall be defended by the of the depositor-drawer.
Solicitor General without cost to such
bank."21 Otherwise, should it fail to comply There are checks of a special type called
with the legally outlined procedure to the managers or cashiers checks. These are
prejudice of the depositor, the bank may not bills of exchange drawn by the banks
raise the defense provided under Section 5 manager or cashier, in the name of the bank,
of Act No. 3936, as amended. against the bank itself.28 Typically, a
managers or a cashiers check is procured
Petitioner asserts22 that the CA committed a from the bank by allocating a particular
reversible error when it required RCBC to amount of funds to be debited from the
send prior notices to respondents about the depositors account or by directly paying or
forthcoming escheat proceedings involving depositing to the bank the value of the check
the funds allocated for the payment of the to be drawn. Since the bank issues the check
Managers Check. It explains that, pursuant in its name, with itself as the drawee, the
to the law, only those "whose favor such check is deemed accepted in advance.29
unclaimed balances stand" are entitled to Ordinarily, the check becomes the primary
receive notices. Petitioner argues that, since obligation of the issuing bank and constitutes
the funds represented by the Managers its written promise to pay upon demand.30
Check were deemed transferred to the credit
of the payee upon issuance of the check, the Nevertheless, the mere issuance of a
proper party entitled to the notices was the managers check does not ipso facto work as
payee Rosmil and not respondents. an automatic transfer of funds to the account
Petitioner then contends that, in any event, it of the payee. In case the procurer of the
is not liable for failing to send a separate managers or cashiers check retains custody
notice to the payee, because it did not have of the instrument, does not tender it to the
the address of Rosmil. Petitioner avers that it intended payee, or fails to make an effective
was not under any obligation to record the delivery, we find the following provision on
address of the payee of a Managers Check. undelivered instruments under the
Negotiable Instruments Law applicable:31
In contrast, respondents Hi-Tri and Bakunawa
allege23 that they have a legal interest in Sec. 16. Delivery; when effectual; when
the fund allocated for the payment of the presumed. Every contract on a negotiable
Managers Check. They reason that, since instrument is incomplete and revocable until
the funds were part of the Compromise delivery of the instrument for the purpose of
Agreement between respondents and Rosmil giving effect thereto. As between immediate
in a separate civil case, the approval and parties and as regards a remote party other
eventual execution of the agreement than a holder in due course, the delivery, in
effectively reverted the fund to the credit of order to be effectual, must be made either
respondents. Respondents further posit that by or under the authority of the party
their ownership of the funds was evidenced making, drawing, accepting, or indorsing, as
by their continued custody of the Managers the case may be; and, in such case, the
Check. delivery may be shown to have been
conditional, or for a special purpose only,
An ordinary check refers to a bill of exchange and not for the purpose of transferring the
drawn by a depositor (drawer) on a bank property in the instrument. But where the
(drawee),24 requesting the latter to pay a instrument is in the hands of a holder in due
person named therein (payee) or to the order course, a valid delivery thereof by all parties
of the payee or to the bearer, a named sum prior to him so as to make them liable to him
of money.25 The issuance of the check does is conclusively presumed. And where the
not of itself operate as an assignment of any instrument is no longer in the possession of a
part of the funds in the bank to the credit of party whose signature appears thereon, a
the drawer.26 Here, the bank becomes liable valid and intentional delivery by him is
only after it accepts or certifies the check.27 presumed until the contrary is proved.
After the check is accepted for payment, the (Emphasis supplied.)
nothing in the records that would show that
Petitioner acknowledges that the Managers the OSG appealed the assailed CA
Check was procured by respondents, and judgments. We take this failure to appeal as
that the amount to be paid for the check an indication of disinterest in pursuing the
would be sourced from the deposit account escheat proceedings in favor of the Republic.
of Hi-Tri.32 When Rosmil did not accept the
Managers Check offered by respondents, the WHEREFORE the Petition is DENIED. The 26
latter retained custody of the instrument November 2009 Decision and 27 May 2010
instead of cancelling it. As the Managers Resolution of the Court of Appeals in CA-G.R.
Check neither went to the hands of Rosmil SP No. 107261 are hereby AFFIRMED.
nor was it further negotiated to other
persons, the instrument remained SO ORDERED.
undelivered. Petitioner does not dispute the
fact that respondents retained custody of the
instrument.33
G.R. No. 174629 February 14,
Since there was no delivery, presentment of 2008
the check to the bank for payment did not
occur. An order to debit the account of REPUBLIC OF THE PHILIPPINES,
respondents was never made. In fact, Represented by THE ANTI-MONEY
petitioner confirms that the Managers Check LAUNDERING COUNCIL (AMLC),
was never negotiated or presented for petitioner,
payment to its Ermita Branch, and that the vs.
allocated fund is still held by the bank.34 As HON. ANTONIO M. EUGENIO, JR., AS
a result, the assigned fund is deemed to PRESIDING JUDGE OF RTC, MANILA,
remain part of the account of Hi-Tri, which BRANCH 34, PANTALEON ALVAREZ and
procured the Managers Check. The doctrine LILIA CHENG, respondents.
that the deposit represented by a managers
check automatically passes to the payee is DECISION
inapplicable, because the instrument
although accepted in advance remains TINGA, J.:
undelivered. Hence, respondents should
have been informed that the deposit had The present petition for certiorari and
been left inactive for more than 10 years, prohibition under Rule 65 assails the orders
and that it may be subjected to escheat and resolutions issued by two different courts
proceedings if left unclaimed.1wphi1 in two different cases. The courts and cases
in question are the Regional Trial Court of
After a careful review of the RTC records, we Manila, Branch 24, which heard SP Case No.
find that it is no longer necessary to remand 06-1142001 and the Court of Appeals, Tenth
the case for hearing to determine whether Division, which heared CA-G.R. SP No.
the claim of respondents was valid. There 95198.2 Both cases arose as part of the
was no contention that they were the aftermath of the ruling of this Court in Agan
procurers of the Managers Check. It is v. PIATCO3 nullifying the concession
undisputed that there was no effective agreement awarded to the Philippine
delivery of the check, rendering the International Airport Terminal Corporation
instrument incomplete. In addition, we have (PIATCO) over the Ninoy Aquino International
already settled that respondents retained Airport International Passenger Terminal 3
ownership of the funds. As it is obvious from (NAIA 3) Project.
their foregoing actions that they have not
abandoned their claim over the fund, we rule I.
that the allocated deposit, subject of the
Managers Check, should be excluded from Following the promulgation of Agan, a series
the escheat proceedings. We reiterate our of investigations concerning the award of the
pronouncement that the objective of escheat NAIA 3 contracts to PIATCO were undertaken
proceedings is state forfeiture of unclaimed by the Ombudsman and the Compliance and
balances. We further note that there is Investigation Staff (CIS) of petitioner Anti-
Money Laundering Council (AMLC). On 24 partiality, evident bad faith, or gross
May 2005, the Office of the Solicitor General inexcusable negligence, in violation of
(OSG) wrote the AMLC requesting the latters Section 3(e) of Republic Act No. 3019."12
assistance "in obtaining more evidence to
completely reveal the financial trail of Under the authority granted by the
corruption surrounding the [NAIA 3] Project," Resolution, the AMLC filed an application to
and also noting that petitioner Republic of inquire into or examine the deposits or
the Philippines was presently defending itself investments of Alvarez, Trinidad, Liongson
in two international arbitration cases filed in and Cheng Yong before the RTC of Makati,
relation to the NAIA 3 Project.4 The CIS Branch 138, presided by Judge (now Court of
conducted an intelligence database search Appeals Justice) Sixto Marella, Jr. The
on the financial transactions of certain application was docketed as AMLC No. 05-
individuals involved in the award, including 005.13 The Makati RTC heard the testimony
respondent Pantaleon Alvarez (Alvarez) who of the Deputy Director of the AMLC, Richard
had been the Chairman of the PBAC David C. Funk II, and received the
Technical Committee, NAIA-IPT3 Project.5 By documentary evidence of the AMLC.14
this time, Alvarez had already been charged Thereafter, on 4 July 2005, the Makati RTC
by the Ombudsman with violation of Section rendered an Order (Makati RTC bank inquiry
3(j) of R.A. No. 3019.6 The search revealed order) granting the AMLC the authority to
that Alvarez maintained eight (8) bank inquire and examine the subject bank
accounts with six (6) different banks.7 accounts of Alvarez, Trinidad, Liongson and
Cheng Yong, the trial court being satisfied
On 27 June 2005, the AMLC issued Resolution that there existed "[p]robable cause [to]
No. 75, Series of 2005,8 whereby the Council believe that the deposits in various bank
resolved to authorize the Executive Director accounts, details of which appear in
of the AMLC "to sign and verify an paragraph 1 of the Application, are related to
application to inquire into and/or examine the offense of violation of Anti-Graft and
the [deposits] or investments of Pantaleon Corrupt Practices Act now the subject of
Alvarez, Wilfredo Trinidad, Alfredo Liongson, criminal prosecution before the
and Cheng Yong, and their related web of Sandiganbayan as attested to by the
accounts wherever these may be found, as Informations, Exhibits C, D, E, F, and G."15
defined under Rule 10.4 of the Revised Pursuant to the Makati RTC bank inquiry
Implementing Rules and Regulations;" and to order, the CIS proceeded to inquire and
authorize the AMLC Secretariat "to conduct examine the deposits, investments and
an inquiry into subject accounts once the related web accounts of the four.16
Regional Trial Court grants the application to
inquire into and/or examine the bank Meanwhile, the Special Prosecutor of the
accounts" of those four individuals.9 The Office of the Ombudsman, Dennis Villa-
resolution enumerated the particular bank Ignacio, wrote a letter dated 2 November
accounts of Alvarez, Wilfredo Trinidad 2005, requesting the AMLC to investigate the
(Trinidad), Alfredo Liongson (Liongson) and accounts of Alvarez, PIATCO, and several
Cheng Yong which were to be the subject of other entities involved in the nullified
the inquiry.10 The rationale for the said contract. The letter adverted to probable
resolution was founded on the cited findings cause to believe that the bank accounts
of the CIS that amounts were transferred "were used in the commission of unlawful
from a Hong Kong bank account owned by activities that were committed" in relation to
Jetstream Pacific Ltd. Account to bank the criminal cases then pending before the
accounts in the Philippines maintained by Sandiganbayan.17 Attached to the letter was
Liongson and Cheng Yong.11 The Resolution a memorandum "on why the investigation of
also noted that "[b]y awarding the contract the [accounts] is necessary in the
to PIATCO despite its lack of financial prosecution of the above criminal cases
capacity, Pantaleon Alvarez caused undue before the Sandiganbayan."18
injury to the government by giving PIATCO
unwarranted benefits, advantage, or In response to the letter of the Special
preference in the discharge of his official Prosecutor, the AMLC promulgated on 9
administrative functions through manifest December 2005 Resolution No. 121 Series of
2005,19 which authorized the executive order and giving the Republic five (5) days to
director of the AMLC to inquire into and respond to Alvarezs motion.
examine the accounts named in the letter,
including one maintained by Alvarez with The Republic filed an Omnibus Motion for
DBS Bank and two other accounts in the Reconsideration27 of the 26 January 2006
name of Cheng Yong with Metrobank. The Manila RTC Order and likewise sought to
Resolution characterized the memorandum strike out Alvarezs motion that led to the
attached to the Special Prosecutors letter as issuance of said order. For his part, Alvarez
"extensively justif[ying] the existence of filed a Reply and Motion to Dismiss28 the
probable cause that the bank accounts of the application for bank inquiry order. On 2 May
persons and entities mentioned in the letter 2006, the Manila RTC issued an Omnibus
are related to the unlawful activity of Order29 granting the Republics Motion for
violation of Sections 3(g) and 3(e) of Rep. Act Reconsideration, denying Alvarezs motion to
No. 3019, as amended."20 dismiss and reinstating "in full force and
effect" the Order dated 12 January 2006. In
Following the December 2005 AMLC the omnibus order, the Manila RTC reiterated
Resolution, the Republic, through the AMLC, that the material allegations in the
filed an application21 before the Manila RTC application for bank inquiry order filed by the
to inquire into and/or examine thirteen (13) Republic stood as "the probable cause for the
accounts and two (2) related web of investigation and examination of the bank
accounts alleged as having been used to accounts and investments of the
facilitate corruption in the NAIA 3 Project. respondents."30
Among said accounts were the DBS Bank
account of Alvarez and the Metrobank Alvarez filed on 10 May 2006 an Urgent
accounts of Cheng Yong. The case was Motion31 expressing his apprehension that
raffled to Manila RTC, Branch 24, presided by the AMLC would immediately enforce the
respondent Judge Antonio Eugenio, Jr., and omnibus order and would thereby render the
docketed as SP Case No. 06-114200. motion for reconsideration he intended to file
as moot and academic; thus he sought that
On 12 January 2006, the Manila RTC issued the Republic be refrained from enforcing the
an Order (Manila RTC bank inquiry order) omnibus order in the meantime. Acting on
granting the Ex Parte Application expressing this motion, the Manila RTC, on 11 May 2006,
therein "[that] the allegations in said issued an Order32 requiring the OSG to file a
application to be impressed with merit, and comment/opposition and reminding the
in conformity with Section 11 of R.A. No. parties that judgments and orders become
9160, as amended, otherwise known as the final and executory upon the expiration of
Anti-Money Laundering Act (AMLA) of 2001 fifteen (15) days from receipt thereof, as it is
and Rules 11.1 and 11.2 of the Revised the period within which a motion for
Implementing Rules and Regulations."22 reconsideration could be filed. Alvarez filed
Authority was thus granted to the AMLC to his Motion for Reconsideration33 of the
inquire into the bank accounts listed therein. omnibus order on 15 May 2006, but the
motion was denied by the Manila RTC in an
On 25 January 2006, Alvarez, through Order34 dated 5 July 2006.
counsel, entered his appearance23 before
the Manila RTC in SP Case No. 06-114200 On 11 July 2006, Alvarez filed an Urgent
and filed an Urgent Motion to Stay Motion and Manifestation35 wherein he
Enforcement of Order of January 12, 2006.24 manifested having received reliable
Alvarez alleged that he fortuitously learned information that the AMLC was about to
of the bank inquiry order, which was issued implement the Manila RTC bank inquiry order
following an ex parte application, and he even though he was intending to appeal from
argued that nothing in R.A. No. 9160 it. On the premise that only a final and
authorized the AMLC to seek the authority to executory judgment or order could be
inquire into bank accounts ex parte.25 The executed or implemented, Alvarez sought
day after Alvarez filed his motion, 26 January that the AMLC be immediately ordered to
2006, the Manila RTC issued an Order26 refrain from enforcing the Manila RTC bank
staying the enforcement of its bank inquiry inquiry order.
appeal from an order of inquiry is disallowed
On 12 July 2006, the Manila RTC, acting on under the Anti money Laundering Act
Alvarezs latest motion, issued an Order36 (AMLA).
directing the AMLC "to refrain from enforcing
the order dated January 12, 2006 until the Meanwhile, respondent Lilia Cheng filed with
expiration of the period to appeal, without the Court of Appeals a Petition for Certiorari,
any appeal having been filed." On the same Prohibition and Mandamus with Application
day, Alvarez filed a Notice of Appeal37 with for TRO and/or Writ of Preliminary
the Manila RTC. Injunction45 dated 10 July 2006, directed
against the Republic of the Philippines
On 24 July 2006, Alvarez filed an Urgent Ex through the AMLC, Manila RTC Judge
Parte Motion for Clarification.38 Therein, he Eugenio, Jr. and Makati RTC Judge Marella, Jr..
alleged having learned that the AMLC had She identified herself as the wife of Cheng
began to inquire into the bank accounts of Yong46 with whom she jointly owns a
the other persons mentioned in the conjugal bank account with Citibank that is
application for bank inquiry order filed by the covered by the Makati RTC bank inquiry
Republic.39 Considering that the Manila RTC order, and two conjugal bank accounts with
bank inquiry order was issued ex parte, Metrobank that are covered by the Manila
without notice to those other persons, RTC bank inquiry order. Lilia Cheng imputed
Alvarez prayed that the AMLC be ordered to grave abuse of discretion on the part of the
refrain from inquiring into any of the other Makati and Manila RTCs in granting AMLCs
bank deposits and alleged web of accounts ex parte applications for a bank inquiry
enumerated in AMLCs application with the order, arguing among others that the ex
RTC; and that the AMLC be directed to refrain parte applications violated her constitutional
from using, disclosing or publishing in any right to due process, that the bank inquiry
proceeding or venue any information or order under the AMLA can only be granted in
document obtained in violation of the 11 May connection with violations of the AMLA and
2006 RTC Order.40 that the AMLA can not apply to bank
accounts opened and transactions entered
On 25 July 2006, or one day after Alvarez into prior to the effectivity of the AMLA or to
filed his motion, the Manila RTC issued an bank accounts located outside the
Order41 wherein it clarified that "the Ex Philippines.47
Parte Order of this Court dated January 12,
2006 can not be implemented against the On 1 August 2006, the Court of Appeals,
deposits or accounts of any of the persons acting on Lilia Chengs petition, issued a
enumerated in the AMLC Application until the Temporary Restraining Order48 enjoining the
appeal of movant Alvarez is finally resolved, Manila and Makati trial courts from
otherwise, the appeal would be rendered implementing, enforcing or executing the
moot and academic or even nugatory."42 In respective bank inquiry orders previously
addition, the AMLC was ordered "not to issued, and the AMLC from enforcing and
disclose or publish any information or implementing such orders. On even date, the
document found or obtained in [v]iolation of Manila RTC issued an Order49 resolving to
the May 11, 2006 Order of this Court."43 The hold in abeyance the resolution of the urgent
Manila RTC reasoned that the other persons omnibus motion for reconsideration then
mentioned in AMLCs application were not pending before it until the resolution of Lilia
served with the courts 12 January 2006 Chengs petition for certiorari with the Court
Order. This 25 July 2006 Manila RTC Order is of Appeals. The Court of Appeals Resolution
the first of the four rulings being assailed directing the issuance of the temporary
through this petition. restraining order is the second of the four
rulings assailed in the present petition.
In response, the Republic filed an Urgent
Omnibus Motion for Reconsideration44 dated The third assailed ruling50 was issued on 15
27 July 2006, urging that it be allowed to August 2006 by the Manila RTC, acting on
immediately enforce the bank inquiry order the Urgent Motion for Clarification51 dated
against Alvarez and that Alvarezs notice of 14 August 2006 filed by Alvarez. It appears
appeal be expunged from the records since that the 1 August 2006 Manila RTC Order had
amended its previous 25 July 2006 Order by which deferred the implementation of its
deleting the last paragraph which stated that Order dated 12 January 2006, and the Court
the AMLC "should not disclose or publish any of Appeals, in issuing its Resolution dated 1
information or document found or obtained August 2006, which ordered the status quo
in violation of the May 11, 2006 Order of this in relation to the 1 July 2005 Order of the
Court."52 In this new motion, Alvarez argued RTC-Makati and the 12 January 2006 Order of
that the deletion of that paragraph would the RTC-Manila, both of which authorized the
allow the AMLC to implement the bank examination of bank accounts under Section
inquiry orders and publish whatever 11 of Rep. Act No. 9160 (AMLA), commit
information it might obtain thereupon even grave abuse of discretion?
before the final orders of the Manila RTC
could become final and executory.53 In the (a) Is an application for an order authorizing
15 August 2006 Order, the Manila RTC inquiry into or examination of bank accounts
reiterated that the bank inquiry order it had or investments under Section 11 of the AMLA
issued could not be implemented or enforced ex-parte in nature or one which requires
by the AMLC or any of its representatives notice and hearing?
until the appeal therefrom was finally
resolved and that any enforcement thereof (b) What legal procedures and standards
would be unauthorized.54 should be observed in the conduct of the
proceedings for the issuance of said order?
The present Consolidated Petition55 for
certiorari and prohibition under Rule 65 was (c) Is such order susceptible to legal
filed on 2 October 2006, assailing the two challenges and judicial review?
Orders of the Manila RTC dated 25 July and
15 August 2006 and the Temporary 2. Is it proper for this Court at this time and
Restraining Order dated 1 August 2006 of the in this case to inquire into and pass upon the
Court of Appeals. Through an Urgent validity of the 1 July 2005 Order of the RTC-
Manifestation and Motion56 dated 9 October Makati and the 12 January 2006 Order of the
2006, petitioner informed the Court that on RTC-Manila, considering the pendency of CA
22 September 2006, the Court of Appeals G.R. SP No. 95-198 (Lilia Cheng v. Republic)
hearing Lilia Chengs petition had granted a wherein the validity of both orders was
writ of preliminary injunction in her favor.57 challenged?62
Thereafter, petitioner sought as well the
nullification of the 22 September 2006 After the oral arguments, the parties were
Resolution of the Court of Appeals, thereby directed to file their respective memoranda,
constituting the fourth ruling assailed in the which they did,63 and the petition was
instant petition.58 thereafter deemed submitted for resolution.

The Court had initially granted a Temporary II.


Restraining Order59 dated 6 October 2006
and later on a Supplemental Temporary Petitioners general advocacy is that the
Restraining Order60 dated 13 October 2006 bank inquiry orders issued by the Manila and
in petitioners favor, enjoining the Makati RTCs are valid and immediately
implementation of the assailed rulings of the enforceable whereas the assailed rulings,
Manila RTC and the Court of Appeals. which effectively stayed the enforcement of
However, on respondents motion, the Court, the Manila and Makati RTCs bank inquiry
through a Resolution61 dated 11 December orders, are sullied with grave abuse of
2006, suspended the implementation of the discretion. These conclusions flow from the
restraining orders it had earlier issued. posture that a bank inquiry order, issued
upon a finding of probable cause, may be
Oral arguments were held on 17 January issued ex parte and, once issued, is
2007. The Court consolidated the issues for immediately executory. Petitioner further
argument as follows: argues that the information obtained
following the bank inquiry is necessarily
1. Did the RTC-Manila, in issuing the Orders beneficial, if not indispensable, to the AMLC
dated 25 July 2006 and 15 August 2006 in discharging its awesome responsibility
regarding the effective implementation of Organization (Interpol) `as "any act or
the AMLA and that any restraint in the attempted act to conceal or disguise the
disclosure of such information to appropriate identity of illegally obtained proceeds so that
agencies or other judicial fora would render they appear to have originated from
meaningless the relief supplied by the bank legitimate sources."64 Even before the
inquiry order. passage of the AMLA, the problem was
addressed by the Philippine government
Petitioner raises particular arguments through the issuance of various circulars by
questioning Lilia Chengs right to seek the Bangko Sentral ng Pilipinas. Yet
injunctive relief before the Court of Appeals, ultimately, legislative proscription was
noting that not one of the bank inquiry necessary, especially with the inclusion of
orders is directed against her. Her "cryptic the Philippines in the Financial Action Task
assertion" that she is the wife of Cheng Yong Forces list of non-cooperative countries and
cannot, according to petitioner, territories in the fight against money
"metamorphose into the requisite legal laundering.65 The original AMLA, Republic
standing to seek redress for an imagined Act (R.A.) No. 9160, was passed in 2001. It
injury or to maintain an action in behalf of was amended by R.A. No. 9194 in 2003.
another." In the same breath, petitioner
argues that Alvarez cannot assert any Section 4 of the AMLA states that "[m]oney
violation of the right to financial privacy in laundering is a crime whereby the proceeds
behalf of other persons whose bank accounts of an unlawful activity as [defined in the law]
are being inquired into, particularly those are transacted, thereby making them appear
other persons named in the Makati RTC bank to have originated from legitimate
inquiry order who did not take any step to sources."66 The section further provides the
oppose such orders before the courts. three modes through which the crime of
money laundering is committed. Section 7
Ostensibly, the proximate question before creates the AMLC and defines its powers,
the Court is whether a bank inquiry order which generally relate to the enforcement of
issued in accordance with Section 10 of the the AMLA provisions and the initiation of
AMLA may be stayed by injunction. Yet in legal actions authorized in the AMLA such as
arguing that it does, petitioner relies on what civil forefeiture proceedings and complaints
it posits as the final and immediately for the prosecution of money laundering
executory character of the bank inquiry offenses.67
orders issued by the Manila and Makati RTCs.
Implicit in that position is the notion that the In addition to providing for the definition and
inquiry orders are valid, and such notion is penalties for the crime of money laundering,
susceptible to review and validation based the AMLA also authorizes certain provisional
on what appears on the face of the orders remedies that would aid the AMLC in the
and the applications which triggered their enforcement of the AMLA. These are the
issuance, as well as the provisions of the "freeze order" authorized under Section 10,
AMLA governing the issuance of such orders. and the "bank inquiry order" authorized
Indeed, to test the viability of petitioners under Section 11.
argument, the Court will have to be satisfied
that the subject inquiry orders are valid in Respondents posit that a bank inquiry order
the first place. However, even from a cursory under Section 11 may be obtained only upon
examination of the applications for inquiry the pre-existence of a money laundering
order and the orders themselves, it is offense case already filed before the
evident that the orders are not in accordance courts.68 The conclusion is based on the
with law. phrase "upon order of any competent court
in cases of violation of this Act," the word
III. "cases" generally understood as referring to
actual cases pending with the courts.
A brief overview of the AMLA is called for.
We are unconvinced by this proposition, and
Money laundering has been generally agree instead with the then Solicitor General
defined by the International Criminal Police who conceded that the use of the phrase "in
cases of" was unfortunate, yet submitted deposit or investment with any banking
that it should be interpreted to mean "in the institution or non bank financial institution
event there are violations" of the AMLA, and upon order of any competent court in cases
not that there are already cases pending in of violation of this Act, when it has been
court concerning such violations.69 If the established that there is probable cause that
contrary position is adopted, then the bank the deposits or investments are related to an
inquiry order would be limited in purpose as unlawful activity as defined in Section 3(i)
a tool in aid of litigation of live cases, and hereof or a money laundering offense under
wholly inutile as a means for the government Section 4 hereof, except that no court order
to ascertain whether there is sufficient shall be required in cases involving unlawful
evidence to sustain an intended prosecution activities defined in Sections 3(i)1, (2) and
of the account holder for violation of the (12).
AMLA. Should that be the situation, in all
likelihood the AMLC would be virtually To ensure compliance with this Act, the
deprived of its character as a discovery tool, Bangko Sentral ng Pilipinas (BSP) may inquire
and thus would become less circumspect in into or examine any deposit of investment
filing complaints against suspect account with any banking institution or non bank
holders. After all, under such set-up the financial institution when the examination is
preferred strategy would be to allow or even made in the course of a periodic or special
encourage the indiscriminate filing of examination, in accordance with the rules of
complaints under the AMLA with the hope or examination of the BSP.70 (Emphasis
expectation that the evidence of money supplied)
laundering would somehow surface during
the trial. Since the AMLC could not make use Of course, Section 11 also allows the AMLC
of the bank inquiry order to determine to inquire into bank accounts without having
whether there is evidentiary basis to to obtain a judicial order in cases where
prosecute the suspected malefactors, not there is probable cause that the deposits or
filing any case at all would not be an investments are related to kidnapping for
alternative. Such unwholesome set-up should ransom,71 certain violations of the
not come to pass. Thus Section 11 cannot be Comprehensive Dangerous Drugs Act of
interpreted in a way that would emasculate 2002,72 hijacking and other violations under
the remedy it has established and encourage R.A. No. 6235, destructive arson and murder.
the unfounded initiation of complaints for Since such special circumstances do not
money laundering. apply in this case, there is no need for us to
pass comment on this proviso. Suffice it to
Still, even if the bank inquiry order may be say, the proviso contemplates a situation
availed of without need of a pre-existing case distinct from that which presently confronts
under the AMLA, it does not follow that such us, and for purposes of the succeeding
order may be availed of ex parte. There are discussion, our reference to Section 11 of the
several reasons why the AMLA does not AMLA excludes said proviso.
generally sanction ex parte applications and
issuances of the bank inquiry order. In the instances where a court order is
required for the issuance of the bank inquiry
IV. order, nothing in Section 11 specifically
authorizes that such court order may be
It is evident that Section 11 does not issued ex parte. It might be argued that this
specifically authorize, as a general rule, the silence does not preclude the ex parte
issuance ex parte of the bank inquiry order. issuance of the bank inquiry order since the
We quote the provision in full: same is not prohibited under Section 11. Yet
this argument falls when the immediately
SEC. 11. Authority to Inquire into Bank preceding provision, Section 10, is examined.
Deposits. Notwithstanding the provisions
of Republic Act No. 1405, as amended, SEC. 10. Freezing of Monetary Instrument or
Republic Act No. 6426, as amended, Republic Property. The Court of Appeals, upon
Act No. 8791, and other laws, the AMLC may application ex parte by the AMLC and after
inquire into or examine any particular determination that probable cause exists
that any monetary instrument or property is expressly provide that the applications for
in any way related to an unlawful activity as freeze orders be filed ex parte,75 but no
defined in Section 3(i) hereof, may issue a similar clearance is granted in the case of
freeze order which shall be effective inquiry orders under Section 11.76 These
immediately. The freeze order shall be for a implementing rules were promulgated by the
period of twenty (20) days unless extended Bangko Sentral ng Pilipinas, the Insurance
by the court.73 Commission and the Securities and
Exchange Commission,77 and if it was the
Although oriented towards different true belief of these institutions that inquiry
purposes, the freeze order under Section 10 orders could be issued ex parte similar to
and the bank inquiry order under Section 11 freeze orders, language to that effect would
are similar in that they are extraordinary have been incorporated in the said Rules.
provisional reliefs which the AMLC may avail This is stressed not because the
of to effectively combat and prosecute implementing rules could authorize ex parte
money laundering offenses. Crucially, applications for inquiry orders despite the
Section 10 uses specific language to absence of statutory basis, but rather
authorize an ex parte application for the because the framers of the law had no
provisional relief therein, a circumstance intention to allow such ex parte applications.
absent in Section 11. If indeed the legislature
had intended to authorize ex parte Even the Rules of Procedure adopted by this
proceedings for the issuance of the bank Court in A.M. No. 05-11-04-SC78 to enforce
inquiry order, then it could have easily the provisions of the AMLA specifically
expressed such intent in the law, as it did authorize ex parte applications with respect
with the freeze order under Section 10. to freeze orders under Section 1079 but
make no similar authorization with respect to
Even more tellingly, the current language of bank inquiry orders under Section 11.
Sections 10 and 11 of the AMLA was crafted
at the same time, through the passage of The Court could divine the sense in allowing
R.A. No. 9194. Prior to the amendatory law, it ex parte proceedings under Section 10 and
was the AMLC, not the Court of Appeals, in proscribing the same under Section 11. A
which had authority to issue a freeze order, freeze order under Section 10 on the one
whereas a bank inquiry order always then hand is aimed at preserving monetary
required, without exception, an order from a instruments or property in any way deemed
competent court.74 It was through the same related to unlawful activities as defined in
enactment that ex parte proceedings were Section 3(i) of the AMLA. The owner of such
introduced for the first time into the AMLA, in monetary instruments or property would thus
the case of the freeze order which now can be inhibited from utilizing the same for the
only be issued by the Court of Appeals. It duration of the freeze order. To make such
certainly would have been convenient, freeze order anteceded by a judicial
through the same amendatory law, to allow a proceeding with notice to the account holder
similar ex parte procedure in the case of a would allow for or lead to the dissipation of
bank inquiry order had Congress been so such funds even before the order could be
minded. Yet nothing in the provision itself, or issued.
even the available legislative record,
explicitly points to an ex parte judicial On the other hand, a bank inquiry order
procedure in the application for a bank under Section 11 does not necessitate any
inquiry order, unlike in the case of the freeze form of physical seizure of property of the
order. account holder. What the bank inquiry order
authorizes is the examination of the
That the AMLA does not contemplate ex particular deposits or investments in banking
parte proceedings in applications for bank institutions or non-bank financial institutions.
inquiry orders is confirmed by the present The monetary instruments or property
implementing rules and regulations of the deposited with such banks or financial
AMLA, promulgated upon the passage of R.A. institutions are not seized in a physical
No. 9194. With respect to freeze orders sense, but are examined on particular details
under Section 10, the implementing rules do such as the account holders record of
deposits and transactions. Unlike the assets proceedings under Section 10 and those
subject of the freeze order, the records to be which are not ex parte under Section 11
inspected under a bank inquiry order cannot would be lost and rendered useless.
be physically seized or hidden by the
account holder. Said records are in the There certainly is fertile ground to contest
possession of the bank and therefore cannot the issuance of an ex parte order. Section 11
be destroyed at the instance of the account itself requires that it be established that
holder alone as that would require the "there is probable cause that the deposits or
extraordinary cooperation and devotion of investments are related to unlawful
the bank. activities," and it obviously is the court which
stands as arbiter whether there is indeed
Interestingly, petitioners memorandum does such probable cause. The process of
not attempt to demonstrate before the Court inquiring into the existence of probable
that the bank inquiry order under Section 11 cause would involve the function of
may be issued ex parte, although the determination reposed on the trial court.
petition itself did devote some space for that Determination clearly implies a function of
argument. The petition argues that the bank adjudication on the part of the trial court,
inquiry order is "a special and peculiar and not a mechanical application of a
remedy, drastic in its name, and made standard pre-determination by some other
necessary because of a public necessity body. The word "determination" implies
[t]hus, by its very nature, the application for deliberation and is, in normal legal
an order or inquiry must necessarily, be ex contemplation, equivalent to "the decision of
parte." This argument is insufficient a court of justice."81
justification in light of the clear disinclination
of Congress to allow the issuance ex parte of The court receiving the application for
bank inquiry orders under Section 11, in inquiry order cannot simply take the AMLCs
contrast to the legislatures clear inclination word that probable cause exists that the
to allow the ex parte grant of freeze orders deposits or investments are related to an
under Section 10. unlawful activity. It will have to exercise its

Without doubt, a requirement that the own determinative function in order to be


application for a bank inquiry order be done convinced of such fact. The account holder
with notice to the account holder will alert would be certainly capable of contesting
the latter that there is a plan to inspect his such probable cause if given the opportunity
bank account on the belief that the funds to be apprised of the pending application to
therein are involved in an unlawful activity or inquire into his account; hence a notice
money laundering offense.80 Still, the requirement would not be an empty
account holder so alerted will in fact be spectacle. It may be so that the process of
unable to do anything to conceal or cleanse obtaining the inquiry order may become
his bank account records of suspicious or more cumbersome or prolonged because of
anomalous transactions, at least not without the notice requirement, yet we fail to see any
the whole-hearted cooperation of the bank, unreasonable burden cast by such
which inherently has no vested interest to circumstance. After all, as earlier stated,
aid the account holder in such manner. requiring notice to the account holder should
not, in any way, compromise the integrity of
V. the bank records subject of the inquiry which
remain in the possession and control of the
The necessary implication of this finding that bank.
Section 11 of the AMLA does not generally
authorize the issuance ex parte of the bank Petitioner argues that a bank inquiry order
inquiry order would be that such orders necessitates a finding of probable cause, a
cannot be issued unless notice is given to characteristic similar to a search warrant
the owners of the account, allowing them the which is applied to and heard ex parte. We
opportunity to contest the issuance of the have examined the supposed analogy
order. Without such a consequence, the between a search warrant and a bank inquiry
legislated distinction between ex parte
order yet we remain to be unconvinced by
petitioner. alone," the most comprehensive of rights
and the right most valued by civilized
The Constitution and the Rules of Court people.84
prescribe particular requirements attaching
to search warrants that are not imposed by One might assume that the constitutional
the AMLA with respect to bank inquiry dimension of the right to privacy, as applied
orders. A constitutional warrant requires that to bank deposits, warrants our present
the judge personally examine under oath or inquiry. We decline to do so. Admittedly, that
affirmation the complainant and the question has proved controversial in
witnesses he may produce,82 such American jurisprudence. Notably, the United
examination being in the form of searching States Supreme Court in U.S. v. Miller85 held
questions and answers.83 Those are that there was no legitimate expectation of
impositions which the legislative did not privacy as to the bank records of a
specifically prescribe as to the bank inquiry depositor.86 Moreover, the text of our
order under the AMLA, and we cannot find Constitution has not bothered with the
sufficient legal basis to apply them to Section triviality of allocating specific rights peculiar
11 of the AMLA. Simply put, a bank inquiry to bank deposits.
order is not a search warrant or warrant of
arrest as it contemplates a direct object but However, sufficient for our purposes, we can
not the seizure of persons or property. assert there is a right to privacy governing
bank accounts in the Philippines, and that
Even as the Constitution and the Rules of such right finds application to the case at
Court impose a high procedural standard for bar. The source of such right is statutory,
the determination of probable cause for the expressed as it is in R.A. No. 1405 otherwise
issuance of search warrants which Congress known as the Bank Secrecy Act of 1955. The
chose not to prescribe for the bank inquiry right to privacy is enshrined in Section 2 of
order under the AMLA, Congress nonetheless that law, to wit:
disallowed ex parte applications for the
inquiry order. We can discern that in SECTION 2. All deposits of whatever nature
exchange for these procedural standards with banks or banking institutions in the
normally applied to search warrants, Philippines including investments in bonds
Congress chose instead to legislate a right to issued by the Government of the Philippines,
notice and a right to be heard its political subdivisions and its
characteristics of judicial proceedings which instrumentalities, are hereby considered as
are not ex parte. Absent any demonstrable of an absolutely confidential nature and may
constitutional infirmity, there is no reason for not be examined, inquired or looked into by
us to dispute such legislative policy choices. any person, government official, bureau or
office, except upon written permission of the
VI. depositor, or in cases of impeachment, or
upon order of a competent court in cases of
The Courts construction of Section 11 of the bribery or dereliction of duty of public
AMLA is undoubtedly influenced by right to officials, or in cases where the money
privacy considerations. If sustained, deposited or invested is the subject matter of
petitioners argument that a bank account the litigation. (Emphasis supplied)
may be inspected by the government
following an ex parte proceeding about which Because of the Bank Secrecy Act, the
the depositor would know nothing would confidentiality of bank deposits remains a
have significant implications on the right to basic state policy in the Philippines.87
privacy, a right innately cherished by all Subsequent laws, including the AMLA, may
notwithstanding the legally recognized have added exceptions to the Bank Secrecy
exceptions thereto. The notion that the Act, yet the secrecy of bank deposits still lies
government could be so empowered is cause as the general rule. It falls within the zones
for concern of any individual who values the of privacy recognized by our laws.88 The
right to privacy which, after all, embodies framers of the 1987 Constitution likewise
even the right to be "let recognized that bank accounts are not
covered by either the right to information89 the subject matter of the litigation." The
under Section 7, Article III or under the orientation of the bank inquiry order is
requirement of full public disclosure90 under simply to serve as a provisional relief or
Section 28, Article II.91 Unless the Bank remedy. As earlier stated, the application for
Secrecy Act is repealed or such does not entail a full-blown trial.

amended, the legal order is obliged to Nevertheless, just because the AMLA
conserve the absolutely confidential nature establishes additional exceptions to the Bank
of Philippine bank deposits. Secrecy Act it does not mean that the later
law has dispensed with the general principle
Any exception to the rule of absolute established in the older law that "[a]ll
confidentiality must be specifically legislated. deposits of whatever nature with banks or
Section 2 of the Bank Secrecy Act itself banking institutions in the Philippines x x x
prescribes exceptions whereby these bank are hereby considered as of an absolutely
accounts may be examined by "any person, confidential nature."96 Indeed, by force of
government official, bureau or office"; statute, all bank deposits are absolutely
namely when: (1) upon written permission of confidential, and that nature is unaltered
the depositor; (2) in cases of impeachment; even by the legislated exceptions referred to
(3) the examination of bank accounts is upon above. There is disfavor towards construing
order of a competent court in cases of these exceptions in such a manner that
bribery or dereliction of duty of public would authorize unlimited discretion on the
officials; and (4) the money deposited or part of the government or of any party
invested is the subject matter of the seeking to enforce those exceptions and
litigation. Section 8 of R.A. Act No. 3019, the inquire into bank deposits. If there are
Anti-Graft and Corrupt Practices Act, has doubts in upholding the absolutely
been recognized by this Court as constituting confidential nature of bank deposits against
an additional exception to the rule of affirming the authority to inquire into such
absolute confidentiality,92 and there have accounts, then such doubts must be resolved
been other similar recognitions as well.93 in favor of the former. Such a stance would
persist unless Congress passes a law
The AMLA also provides exceptions to the reversing the general state policy of
Bank Secrecy Act. Under Section 11, the preserving the absolutely confidential nature
AMLC may inquire into a bank account upon of Philippine bank accounts.
order of any competent court in cases of
violation of the AMLA, it having been The presence of this statutory right to
established that there is probable cause that privacy addresses at least one of the
the deposits or investments are related to arguments raised by petitioner, that Lilia
unlawful activities as defined in Section 3(i) Cheng had no personality to assail the
of the law, or a money laundering offense inquiry orders before the Court of Appeals
under Section 4 thereof. Further, in instances because she was not the subject of said
where there is probable cause that the orders. AMLC Resolution No. 75, which
deposits or investments are related to served as the basis in the successful
kidnapping for ransom,94 certain violations application for the Makati inquiry order,
of the Comprehensive Dangerous Drugs Act expressly adverts to Citibank Account No.
of 2002,95 hijacking and other violations 88576248 "owned by Cheng Yong and/or Lilia
under R.A. No. 6235, destructive arson and G. Cheng with Citibank N.A.,"97 whereas Lilia
murder, then there is no need for the AMLC Chengs petition before the Court of Appeals
to obtain a court order before it could inquire is accompanied by a certification from
into such accounts. Metrobank that Account Nos. 300852436-0
and 700149801-7, both of which are among
It cannot be successfully argued the the subjects of the Manila inquiry order, are
proceedings relating to the bank inquiry accounts in the name of "Yong Cheng or Lilia
order under Section 11 of the AMLA is a Cheng."98 Petitioner does not specifically
"litigation" encompassed in one of the deny that Lilia Cheng holds rights of
exceptions to the Bank Secrecy Act which is ownership over the three said accounts,
when "the money deposited or invested is laying focus instead on the fact that she was
not named as a subject of either the Makati enactment of the law on 17 October 2001. As
or Manila RTC inquiry orders. We are much was understood by the lawmakers
reasonably convinced that Lilia Cheng has since they deliberated upon the AMLA, and
sufficiently demonstrated her joint ownership indeed there is no serious dispute on that
of the three accounts, and such conclusion point.
leads us to acknowledge that she has the
standing to assail via certiorari the inquiry Does the proscription against ex post facto
orders authorizing the examination of her laws apply to the interpretation of Section
bank accounts as the orders interfere with 11, a provision which does not provide for a
her statutory right to maintain the secrecy of penal sanction but which merely authorizes
said accounts. the inspection of suspect accounts and
deposits? The answer is in the affirmative. In
While petitioner would premise that the this jurisdiction, we have defined an ex post
inquiry into Lilia Chengs accounts finds root facto law as one which either:
in Section 11 of the AMLA, it cannot be
denied that the authority to inquire under (1) makes criminal an act done before the
Section 11 is only exceptional in character, passage of the law and which was innocent
contrary as it is to the general rule when done, and punishes such an act;
preserving the secrecy of bank deposits.
Even though she may not have been the (2) aggravates a crime, or makes it greater
subject of the inquiry orders, her bank than it was, when committed;
accounts nevertheless were, and she thus
has the standing to vindicate the right to (3) changes the punishment and inflicts a
secrecy that attaches to said accounts and greater punishment than the law annexed to
their owners. This statutory right to privacy the crime when committed;
will not prevent the courts from authorizing
the inquiry anyway upon the fulfillment of (4) alters the legal rules of evidence, and
the requirements set forth under Section 11 authorizes conviction upon less or different
of the AMLA or Section 2 of the Bank Secrecy testimony than the law required at the time
Act; at the same time, the owner of the of the commission of the offense;
accounts have the right to challenge whether
the requirements were indeed complied with. (5) assuming to regulate civil rights and
remedies only, in effect imposes penalty or
VII. deprivation of a right for something which
when done was lawful; and
There is a final point of concern which needs
to be addressed. Lilia Cheng argues that the (6) deprives a person accused of a crime of
AMLA, being a substantive penal statute, has some lawful protection to which he has
no retroactive effect and the bank inquiry become entitled, such as the protection of a
order could not apply to deposits or former conviction or acquittal, or a
investments opened prior to the effectivity of proclamation of amnesty. (Emphasis
Rep. Act No. 9164, or on 17 October 2001. supplied)100
Thus, she concludes, her subject bank
accounts, opened between 1989 to 1990, Prior to the enactment of the AMLA, the fact
could not be the subject of the bank inquiry that bank accounts or deposits were involved
order lest there be a violation of the in activities later on enumerated in Section 3
constitutional prohibition against ex post of the law did not, by itself, remove such
facto laws. accounts from the shelter of absolute
confidentiality. Prior to the AMLA, in order
No ex post facto law may be enacted,99 and that bank accounts could be examined, there
no law may be construed in such fashion as was need to secure either the written
to permit a criminal prosecution offensive to permission of the depositor or a court order
the ex post facto clause. As applied to the authorizing such examination, assuming that
AMLA, it is plain that no person may be they were involved in cases of bribery or
prosecuted under the penal provisions of the dereliction of duty of public officials, or in a
AMLA for acts committed prior to the case where the money deposited or invested
was itself the subject matter of the litigation. scrutiny through a bank inquiry order, but it
The passage of the AMLA stripped another cannot yield any interpretation that records
layer off the rule on absolute confidentiality of transactions undertaken after the
that provided a measure of lawful protection enactment of the AMLA are similarly exempt.
to the account holder. For that reason, the Due to the absence of cited authority from
application of the bank inquiry order as a the legislative record that unqualifiedly
means of inquiring into records of supports respondent Lilia Chengs thesis,
transactions entered into prior to the there is no cause for us to sustain her
passage of the AMLA would be interpretation of the AMLA, fatal as it is to
constitutionally infirm, offensive as it is to the anima of that law.
the ex post facto clause.
IX.
Still, we must note that the position
submitted by Lilia Cheng is much broader We are well aware that Lilia Chengs petition
than what we are willing to affirm. She presently pending before the Court of
argues that the proscription against ex post Appeals likewise assails the validity of the
facto laws goes as far as to prohibit any subject bank inquiry orders and precisely
inquiry into deposits or investments included seeks the annulment of said orders. Our
in bank accounts opened prior to the current declarations may indeed have the
effectivity of the AMLA even if the suspect effect of preempting that0 petition. Still, in
transactions were entered into when the law order for this Court to rule on the petition at
had already taken effect. The Court bar which insists on the enforceability of the
recognizes that if this argument were to be said bank inquiry orders, it is necessary for
affirmed, it would create a horrible loophole us to consider and rule on the same question
in the AMLA that would in turn supply the which after all is a pure question of law.
means to fearlessly engage in money
laundering in the Philippines; all that the WHEREFORE, the PETITION is DISMISSED. No
criminal has to do is to make sure that the pronouncement as to costs.
money laundering activity is facilitated
through a bank account opened prior to SO ORDERED.
2001. Lilia Cheng admits that "actual money
launderers could utilize the ex post facto
provision of the Constitution as a shield" but G.R. No. 170290 April 11, 2012
that the remedy lay with Congress to amend
the law. We can hardly presume that PHILIPPINE DEPOSIT INSURANCE
Congress intended to enact a self-defeating CORPORATION, Petitioner,
law in the first place, and the courts are vs.
inhibited from such a construction by the CITIBANK, N.A. and BANK OF AMERICA,
cardinal rule that "a law should be S.T. & N.A., Respondents.
interpreted with a view to upholding rather
than destroying it."101 DECISION

Besides, nowhere in the legislative record MENDOZA, J.:


cited by Lilia Cheng does it appear that there
was an unequivocal intent to exempt from This is a petition for review under Rule 45 of
the bank inquiry order all bank accounts the 1997 Revised Rules of Civil Procedure,
opened prior to the passage of the AMLA. assailing the October 27, 2005 Decision1 of
There is a cited exchange between the Court of Appeals (CA) in CA-G.R. CV No.
Representatives Ronaldo Zamora and Jaime 61316, entitled "Citibank, N.A. and Bank of
Lopez where the latter confirmed to the America, S.T. & N.A. v. Philippine Deposit
former that "deposits are supposed to be Insurance Corporation."
exempted from scrutiny or monitoring if they
are already in place as of the time the law is The Facts
enacted."102 That statement does indicate
that transactions already in place when the Petitioner Philippine Deposit Insurance
AMLA was passed are indeed exempt from Corporation (PDIC) is a government
instrumentality created by virtue of Republic placements they received from their head
Act (R.A.) No. 3591, as amended by R.A. No. office and other foreign branches were not
9302.2 deposits and did not give rise to insurable
deposit liabilities under Sections 3 and 4 of
Respondent Citibank, N.A. (Citibank) is a R.A. No. 3591 (the PDIC Charter) and, as a
banking corporation while respondent Bank consequence, the deficiency assessments
of America, S.T. & N.A. (BA) is a national made by PDIC were improper and
banking association, both of which are duly erroneous.10 The cases were then
organized and existing under the laws of the consolidated.11
United States of America and duly licensed
to do business in the Philippines, with offices On June 29, 1998, the Regional Trial Court,
in Makati City.3 Branch 163, Pasig City (RTC) promulgated its
Decision12 in favor of Citibank and BA, ruling
In 1977, PDIC conducted an examination of that the subject money placements were not
the books of account of Citibank. It deposits and did not give rise to insurable
discovered that Citibank, in the course of its deposit liabilities, and that the deficiency
banking business, from September 30, 1974 assessments issued by PDIC were improper
to June 30, 1977, received from its head and erroneous. Therefore, Citibank and BA
office and other foreign branches a total of were not liable to pay the same. The RTC
P11,923,163,908.00 in dollars, covered by reasoned out that the money placements
Certificates of Dollar Time Deposit that were subject of the petitions were not assessable
interest-bearing with corresponding maturity for insurance purposes under the PDIC
dates.4 These funds, which were lodged in Charter because said placements were
the books of Citibank under the account deposits made outside of the Philippines and,
"Their Account-Head Office/Branches-Foreign under Section 3.05(b) of the PDIC Rules and
Currency," were not reported to PDIC as Regulations,13 such deposits are excluded
deposit liabilities that were subject to from the computation of deposit liabilities.
assessment for insurance.5 As such, in a Section 3(f) of the PDIC Charter likewise
letter dated March 16, 1978, PDIC assessed excludes from the definition of the term
Citibank for deficiency in the sum of "deposit" any obligation of a bank payable at
P1,595,081.96.6 the office of the bank located outside the
Philippines. The RTC further stated that there
Similarly, sometime in 1979, PDIC examined was no depositor-depository relationship
the books of accounts of BA which revealed between the respondents and their head
that from September 30, 1976 to June 30, office or other branches. As a result, such
1978, BA received from its head office and its deposits were not included as third-party
other foreign branches a total of deposits that must be insured. Rather, they
P629,311,869.10 in dollars, covered by were considered inter-branch deposits which
Certificates of Dollar Time Deposit that were were excluded from the assessment base, in
interest-bearing with corresponding maturity accordance with the practice of the United
dates and lodged in their books under the States Federal Deposit Insurance Corporation
account "Due to Head Office/Branches."7 (FDIC) after which PDIC was patterned.
Because BA also excluded these from its
deposit liabilities, PDIC wrote to BA on Aggrieved, PDIC appealed to the CA which
October 9, 1979, seeking the remittance of affirmed the ruling of the RTC in its October
P109,264.83 representing deficiency 27, 2005 Decision. In so ruling, the CA found
premium assessments for dollar deposits.8 that the money placements were received as
part of the banks internal dealings by
Believing that litigation would inevitably Citibank and BA as agents of their respective
arise from this dispute, Citibank and BA each head offices. This showed that the head
filed a petition for declaratory relief before office and the Philippine branch were
the Court of First Instance (now the Regional considered as the same entity. Thus, no bank
Trial Court) of Rizal on July 19, 1979 and deposit could have arisen from the
December 11, 1979, respectively.9 In their transactions between the Philippine branch
petitions, Citibank and BA sought a and the head office because there did not
declaratory judgment stating that the money exist two separate contracting parties to act
as depositor and depositary.14 Secondly, the
CA called attention to the purpose for the The sole question to be resolved in this case
creation of PDIC which was to protect the is whether the funds placed in the Philippine
deposits of depositors in the Philippines and branch by the head office and foreign
not the deposits of the same bank through branches of Citibank and BA are insurable
its head office or foreign branches.15 Thirdly, deposits under the PDIC Charter and, as
because there was no law or jurisprudence such, are subject to assessment for
on the treatment of inter-branch deposits insurance premiums.
between the Philippine branch of a foreign
bank and its head office and other branches The Courts Ruling
for purposes of insurance, the CA was guided
by the procedure observed by the FDIC The Court rules in the negative.
which considered inter-branch deposits as
non-assessable.16 Finally, the CA cited A branch has no separate legal personality;
Section 3(f) of R.A. No. 3591, which Purpose of the PDIC
specifically excludes obligations payable at
the office of the bank located outside the PDIC argues that the head offices of Citibank
Philippines from the definition of a deposit or and BA and their individual foreign branches
an insured deposit. Since the subject money are separate and independent entities. It
placements were made in the respective insists that under American jurisprudence, a
head offices of Citibank and BA located banks head office and its branches have a
outside the Philippines, then such principal-agent relationship only if they
placements could not be subject to operate in the same jurisdiction. In the case
assessment under the PDIC Charter.17 of foreign branches, however, no such
relationship exists because the head office
Hence, this petition. and said foreign branches are deemed to be
two distinct entities.20 Under Philippine law,
The Issues specifically, Section 3(b) of R.A. No. 3591,
which defines the terms "bank" and "banking
PDIC raises the issue of whether or not the institutions," PDIC contends that the law
subject dollar deposits are assessable for treats a branch of a foreign bank as a
insurance purposes under the PDIC Charter separate and independent banking unit.21
with the following assigned errors:
The respondents, on the other hand, initially
A. point out that the factual findings of the RTC
and the CA, with regard to the nature of the
The appellate court erred in ruling that the money placements, the capacity in which the
subject dollar deposits are money same were received by the respondents and
placements, thus, they are not subject to the the exclusion of inter-branch deposits from
provisions of Republic Act No. 6426 assessment, can no longer be disturbed and
otherwise known as the "Foreign Currency should be accorded great weight by this
Deposit Act of the Philippines." Court.22 They also argue that the money
placements are not deposits. They postulate
B. that for a deposit to exist, there must be at
least two parties a depositor and a
The appellate court erred in ruling that the depository each with a legal personality
subject dollar deposits are not covered by distinct from the other. Because the
the PDIC insurance.18 respondents respective head offices and
their branches form only a single legal entity,
Respondents similarly identify only one issue there is no creditor-debtor relationship and
in this case: the funds placed in the Philippine branch
belong to one and the same bank. A bank
Whether or not the money placements cannot have a deposit with itself.23
subject matter of these petitions are
assessable for insurance purposes under the This Court is of the opinion that the key to
PDIC Act.19 the resolution of this controversy is the
relationship of the Philippine branches of controlled by the parent bank and their
Citibank and BA to their respective head property and assets belong to the parent
offices and their other foreign branches. bank, although nominally held in the names
of the particular branches. Ultimate liability
The Court begins by examining the manner for a debt of a branch would rest upon the
by which a foreign corporation can establish parent bank. [Emphases supplied]
its presence in the Philippines. It may choose
to incorporate its own subsidiary as a This ruling was later reiterated in the more
domestic corporation, in which case such recent case of United States v. BCCI Holdings
subsidiary would have its own separate and Luxembourg26 where the United States
independent legal personality to conduct Court of Appeals, District of Columbia Circuit,
business in the country. In the alternative, it emphasized that "while individual bank
may create a branch in the Philippines, which branches may be treated as independent of
would not be a legally independent unit, and one another, each branch, unless separately
simply obtain a license to do business in the incorporated, must be viewed as a part of
Philippines.24 the parent bank rather than as an
independent entity."
In the case of Citibank and BA, it is apparent
that they both did not incorporate a separate In addition, Philippine banking laws also
domestic corporation to represent its support the conclusion that the head office of
business interests in the Philippines. Their a foreign bank and its branches are
Philippine branches are, as the name implies, considered as one legal entity. Section 75 of
merely branches, without a separate legal R.A. No. 8791 (The General Banking Law of
personality from their parent company, 2000) and Section 5 of R.A. No. 7221 (An Act
Citibank and BA. Thus, being one and the Liberalizing the Entry of Foreign Banks) both
same entity, the funds placed by the require the head office of a foreign bank to
respondents in their respective branches in guarantee the prompt payment of all the
the Philippines should not be treated as liabilities of its Philippine branch, to wit:
deposits made by third parties subject to
deposit insurance under the PDIC Charter. Republic Act No. 8791:

For lack of judicial precedents on this issue, Sec. 75. Head Office Guarantee. In order to
the Court seeks guidance from American provide effective protection of the interests
jurisprudence.1wphi1 In the leading case of of the depositors and other creditors of
Sokoloff v. The National City Bank of New Philippine branches of a foreign bank, the
York,25 where the Supreme Court of New head office of such branches shall fully
York held: guarantee the prompt payment of all
liabilities of its Philippine branch.
Where a bank maintains branches, each
branch becomes a separate business entity Residents and citizens of the Philippines who
with separate books of account. A depositor are creditors of a branch in the Philippines of
in one branch cannot issue checks or drafts foreign bank shall have preferential rights to
upon another branch or demand payment the assets of such branch in accordance with
from such other branch, and in many other the existing laws.
respects the branches are considered
separate corporate entities and as distinct Republic Act No. 7721:
from one another as any other bank.
Nevertheless, when considered with relation Sec. 5. Head Office Guarantee. The head
to the parent bank they are not independent office of foreign bank branches shall
agencies; they are, what their name imports, guarantee prompt payment of all liabilities of
merely branches, and are subject to the its Philippine branches.
supervision and control of the parent bank,
and are instrumentalities whereby the parent Moreover, PDIC must be reminded of the
bank carries on its business, and are purpose for its creation, as espoused in
established for its own particular purposes, Section 1 of R.A. No. 3591 (The PDIC Charter)
and their business conduct and policies are which provides:
the PDIC Charter, it would result to the
Section 1. There is hereby created a incongruous situation where Citibank, as the
Philippine Deposit Insurance Corporation head office, would be placed in the ridiculous
hereinafter referred to as the "Corporation" position of having to reimburse itself, as
which shall insure, as herein provided, the depositor, for the losses it may incur
deposits of all banks which are entitled to the occasioned by the closure of Citibank
benefits of insurance under this Act, and Philippines. Surely our law makers could not
which shall have the powers hereinafter have envisioned such a preposterous
granted. circumstance when they created PDIC.

The Corporation shall, as a basic policy, Finally, the Court agrees with the CA ruling
promote and safeguard the interests of the that there is nothing in the definition of a
depositing public by way of providing "bank" and a "banking institution" in Section
permanent and continuing insurance 3(b) of the PDIC Charter27 which explicitly
coverage on all insured deposits. states that the head office of a foreign bank
and its other branches are separate and
R.A. No. 9576, which amended the PDIC distinct from their Philippine branches.
Charter, reaffirmed the rationale for the
establishment of the PDIC: There is no need to complicate the matter
when it can be solved by simple logic
Section 1. Statement of State Policy and bolstered by law and jurisprudence. Based on
Objectives. - It is hereby declared to be the the foregoing, it is clear that the head office
policy of the State to strengthen the of a bank and its branches are considered as
mandatory deposit insurance coverage one under the eyes of the law. While
system to generate, preserve, maintain faith branches are treated as separate business
and confidence in the country's banking units for commercial and financial reporting
system, and protect it from illegal schemes purposes, in the end, the head office remains
and machinations. responsible and answerable for the liabilities
of its branches which are under its
Towards this end, the government must supervision and control. As such, it is
extend all means and mechanisms necessary unreasonable for PDIC to require the
for the Philippine Deposit Insurance respondents, Citibank and BA, to insure the
Corporation to effectively fulfill its vital task money placements made by their home
of promoting and safeguarding the interests office and other branches. Deposit insurance
of the depositing public by way of providing is superfluous and entirely unnecessary
permanent and continuing insurance when, as in this case, the institution holding
coverage on all insured deposits, and in the funds and the one which made the
helping develop a sound and stable banking placements are one and the same legal
system at all times. entity.

The purpose of the PDIC is to protect the Funds not a deposit under the definition
depositing public in the event of a bank of the PDIC Charter;
closure. It has already been sufficiently Excluded from assessment
established by US jurisprudence and
Philippine statutes that the head office shall PDIC avers that the funds are dollar deposits
answer for the liabilities of its branch. Now, and not money placements. Citing R.A. No.
suppose the Philippine branch of Citibank 6848, it defines money placement as a
suddenly closes for some reason. Citibank deposit which is received with authority to
N.A. would then be required to answer for invest. Because there is no evidence to
the deposit liabilities of Citibank Philippines. indicate that the respondents were
If the Court were to adopt the posture of authorized to invest the subject dollar
PDIC that the head office and the branch are deposits, it argues that the same cannot be
two separate entities and that the funds considered money placements.28 PDIC then
placed by the head office and its foreign goes on to assert that the funds received by
branches with the Philippine branch are Citibank and BA are deposits, as
considered deposits within the meaning of contemplated by Section 3(f) of R.A. No.
3591, for the following reasons: (1) the dollar PDIC attempts to define money placement in
deposits were received by Citibank and BA in order to impugn the respondents claim that
the course of their banking operations from the funds received from their head office and
their respective head office and foreign other branches are money placements and
branches and were recorded in their books not deposits, as defined under the PDIC
as "Account-Head Office/Branches-Time Charter. In the process, it loses sight of the
Deposits" pursuant to Central Bank Circular important issue in this case, which is the
No. 343 which implements R.A. No. 6426; (2) determination of whether the funds in
the dollar deposits were credited as dollar question are subject to assessment for
time accounts and were covered by deposit insurance as required by the PDIC
Certificates of Dollar Time Deposit which Charter. In its struggle to find an adequate
were interest-bearing and payable upon definition of "money placement," PDIC
maturity, and (3) the respondents maintain desperately cites R.A. No. 6848, The Charter
100% foreign currency cover for their deposit of the Al-Amanah Islamic Investment Bank of
liability arising from the dollar time deposits the Philippines. Reliance on the said law is
as required by Section 4 of R.A. No. 6426.29 unfounded because nowhere in the law is the
term "money placement" defined.
To refute PDICs allegations, the respondents Additionally, R.A. No. 6848 refers to the
explain the inter-branch transactions which establishment of an Islamic bank subject to
necessitate the creation of the accounts or the rulings of Islamic Sharia to assist in the
placements subject of this case. When the development of the Autonomous Region of
Philippine branch needs to procure foreign Muslim Mindanao (ARMM),32 making it
currencies, it will coordinate with a branch in utterly irrelevant to the case at bench. Since
another country which handles foreign Citibank and BA are neither Islamic banks
currency purchases. Both branches have nor are they located anywhere near the
existing accounts with their head office and ARMM, then it should be painfully obvious
when a money placement is made in relation that R.A. No. 6848 cannot aid us in deciding
to the acquisition of foreign currency from this case.
the international market, the amount is
credited to the account of the Philippine Furthermore, PDIC heavily relies on the fact
branch with its head office while the same is that the respondents documented the money
debited from the account of the branch placements with certificates of time deposit
which facilitated the purchase. This is further to simply conclude that the funds involved
documented by the issuance of a certificate are deposits, as contemplated by the PDIC
of time deposit with a stated interest rate Charter, and are consequently subject to
and maturity date. The interest rate assessment for deposit insurance. It is this
represents the cost of obtaining the funds kind of reasoning that creates non-existent
while the maturity date represents the date obscurities in the law and obstructs the
on which the placement must be returned. prompt resolution of what is essentially a
On the maturity date, the amount previously straightforward issue, thereby causing this
credited to the account of the Philippine case to drag on for more than three
branch is debited, together with the cost for decades.1wphi1
obtaining the funds, and credited to the
account of the other branch. The Noticeably, PDIC does not dispute the
respondents insist that the interest rate and veracity of the internal transactions of the
maturity date are simply the basis for the respondents which gave rise to the issuance
debit and credit entries made by the head of the certificates of time deposit for the
office in the accounts of its branches to funds the subject of the present dispute.
reflect the inter-branch accommodation.30 Neither does it question the findings of the
As regards the maintenance of currency RTC and the CA that the money placements
cover over the subject money placements, were made, and were payable, outside of the
the respondents point out that they maintain Philippines, thus, making them fall under the
foreign currency cover in excess of what is exclusions to deposit liabilities. PDIC also
required by law as a matter of prudent fails to impugn the truth of the testimony of
banking practice.31 John David Shaffer, then a Fiscal Agent and
Head of the Assessment Section of the FDIC,
that inter-branch deposits were excluded
from the assessment base. Therefore, the All things considered, the Court finds that the
determination of facts of the lower courts funds in question are not deposits within the
shall be accepted at face value by this Court, definition of the PDIC Charter and are, thus,
following the well-established principle that excluded from assessment.
factual findings of the trial court, when
adopted and confirmed by the CA, are WHEREFORE, the petition is DENIED. The
binding and conclusive on this Court, and will October 27, 2005 Decision of the Court of
generally not be reviewed on appeal.33 Appeals in CA-G.R. CV No. 61316 is
AFFIRMED.
As explained by the respondents, the
transfer of funds, which resulted from the SO ORDERED.
inter-branch transactions, took place in the
books of account of the respective branches
in their head office located in the United
States. Hence, because it is payable outside G.R. No. 126911 April 30, 2003
of the Philippines, it is not considered a
deposit pursuant to Section 3(f) of the PDIC PHILIPPINE DEPOSIT INSURANCE
Charter: CORPORATION, petitioner,
vs.
Sec. 3(f) The term "deposit" means the THE HONORABLE COURT OF APPEALS
unpaid balance of money or its equivalent and JOSE ABAD, LEONOR ABAD, SABINA
received by a bank in the usual course of ABAD, JOSEPHINE "JOSIE" BEATA ABAD-
business and for which it has given or is ORLINA, CECILIA ABAD, PIO ABAD,
obliged to give credit to a commercial, DOMINIC ABAD, TEODORA ABAD,
checking, savings, time or thrift account or respondents.
which is evidenced by its certificate of
deposit, and trust funds held by such bank CARPIO MORALES, J.:
whether retained or deposited in any
department of said bank or deposit in The present petition for review assails the
another bank, together with such other decision of the Court of Appeals affirming
obligations of a bank as the Board of that of the Regional Trial Court of Iloilo City,
Directors shall find and shall prescribe by Branch 30, finding petitioner Philippine
regulations to be deposit liabilities of the Deposit Insurance Corporation (PDIC) liable,
Bank; Provided, that any obligation of a bank as statutory insurer, for the value of 20
which is payable at the office of the bank Golden Time Deposits belonging to
located outside of the Philippines shall not be respondents Jose Abad, Leonor Abad, Sabina
a deposit for any of the purposes of this Act Abad, Josephine "Josie" Beata Abad-Orlina,
or included as part of the total deposits or of Cecilia Abad, Pio Abad, Dominic Abad, and
the insured deposits; Provided further, that Teodora Abad at the Manila Banking
any insured bank which is incorporated Corporation (MBC), Iloilo Branch.
under the laws of the Philippines may elect
to include for insurance its deposit obligation Prior to May 22, 1997, respondents had,
payable only at such branch. [Emphasis individually or jointly with each other, 71
supplied] certificates of time deposits denominated as
"Golden Time Deposits" (GTD) with an
The testimony of Mr. Shaffer as to the aggregate face value of P1,115,889.96.1
treatment of such inter-branch deposits by
the FDIC, after which PDIC was modelled, is On May 22, 1987, a Friday, the Monetary
also persuasive. Inter-branch deposits refer Board (MB) of the Central Bank of the
to funds of one branch deposited in another Philippines, now Bangko Sentral ng Pilipinas,
branch and both branches are part of the issued Resolution 5052 prohibiting MBC to do
same parent company and it is the practice business in the Philippines, and placing its
of the FDIC to exclude such inter-branch assets and affairs under receivership. The
deposits from a banks total deposit liabilities Resolution, however, was not served on MBC
subject to assessment.34 until Tuesday the following week, or on May
26, 1987, when the designated Receiver took
over.3 Because of the report, PDIC entertained
serious reservation in recognizing
On May 25, 1987, the next banking day respondents' GTDs as deposit liabilities of
following the issuance of the MB Resolution, MBC-Iloilo. Thus, on August 30, 1991, it filed
respondent Jose Abad was at the MBC at a petition for declaratory relief against
9:00 a.m. for the purpose of pre-terminating respondents with the Regional Trial Court
the 71 aforementioned GTDs and re- (RTC) of Iloilo City, for a judicial declaration
depositing the fund represented thereby into determination of the insurability of
28 new GTDs in denominations of P40,000.00 respondents' GTDs at MBC-Iloilo.10
or less under the names of herein
respondents individually or jointly with each In their Answer filed on October 24, 1991
other.4 Of the 28 new GTDs, Jose Abad pre- and Amended Answer11 filed on January 9,
terminated 8 and withdrew the value thereof 1992, respondents set up a counterclaim
in the total amount of P320,000.00.5 against PDIC whereby they asked for
payment of their insured deposits.12
Respondents thereafter filed their claims with
the PDIC for the payment of the remaining In its Decision of February 22, 1994,13
20 insured GTDs.6 Branch 30 of the Iloilo RTC declared the 20
GTDs of respondents to be deposit liabilities
On February 11, 1988, PDIC paid of MBC, hence, are liabilities of PDIC as
respondents the value of 3 claims in the total statutory insurer. It accordingly disposed as
amount of P120,000.00. PDIC, however, follows:
withheld payment of the 17 remaining claims
after Washington Solidum, Deputy Receiver WHEREFORE, premises considered, judgment
of MBC-Iloilo, submitted a report to the PDIC7 is hereby rendered:
that there was massive conversion and
substitution of trust and deposit accounts on 1. Declaring the 28 GTDs of the Abads
May 25, 1987 at MBC-Iloilo.8 The pertinent which were issued by the TMBC-Iloilo on May
portions of the report stated: 25, 1987 as deposits or deposit liabilities of
the bank as the term is defined under
xxx xxx xxx Section 3 (f) of R.A. No. 3591, as amended;

On May 25, 1987 (Monday) or a day prior to 2. Declaring PDIC, being the statutory
the official announcement and take-over by insurer of bank deposits, liable to the Abads
CB of the assets and liabilities of The Manila for the value of the remaining 20 GTDs, the
Banking Corporation, the Iloilo Branch was other 8 having been paid already by TMBC
found to have recorded an unusually heavy Iloilo on May 25,1987;
movements in terms of volume and amount
for all types of deposits and trust accounts. It 3. Ordering PDIC to pay the Abads the
appears that the impending receivership of value of said 20 GTDs less the value of 3
TMBC was somehow already known to many GTDs it paid on February 11, 1988, and the
depositors on account of the massive amounts it may have paid the Abads
withdrawals paid on this day which pursuant to the Order of this Court dated
practically wiped out the branch's entire cash September 8, 1992;
position. . . .
4. Ordering PDIC to pay immediately the
xxx xxx xxx Abads the balance of its admitted liability as
contained in the aforesaid Order of
. . . The intention was to maximize the September 8, 1992, should there be any,
availment of PDIC coverage limited to subject to liquidation when this case shall
P40,000 by spreading out big accounts to as have been finally decide; and
many certificates under various nominees. . .
.9 5. Ordering PDIC to pay legal interest on
the remaining insured deposits of the Abads
xxx xxx xxx
from February 11, 1988 until they are fully irregular, petitioner essentially seeks a
paid. judicial declaration that such transactions
were not made "in the usual course of
SO ORDERED. business" and, therefore, it cannot be made
liable for deposits subject thereof.17
On appeal, the Court of Appeals, by the
assailed Decision of October 21, 1996,14 Petitioner points that as MBC was prohibited
affirmed the trial court's decision except as from doing further business by MB Resolution
to the award of legal interest which it 505 as of May 22, 1987, all transactions
deleted. subsequent to such date were not done "in
the usual course of business."
Hence, PDIC's present Petition for Review
which sets forth this lone assignment of Petitioner further posits that there was no
error: consideration for the 20 GTDs subject of
respondents' claim. In support of this
THE HONORABLE COURT OF APPEALS ERRED submission, it states that prior to March 25,
IN AFFIRMING THE HOLDING OF THE TRIAL 1987, when the 20 GTDs were made, MBC
COURT THAT THE AMOUNT REPRESENTED IN had been experiencing liquidity problems,
THE FACES OF THE SO CALLED "GOLDEN e.g., at the start of banking operations on
TIME DEPOSITS" WERE INSURED DEPOSITS March 25, 1987, it had only P2,841,711.90
EVEN AS THEY WERE MERE DERIVATIVES OF cash on hand and at the end of the day it
RESPONDENTS' PREVIOUS ACCOUNT was left with P27,805.81 consisting mostly of
BALANCES WHICH WERE PRE- mutilated bills and coins.18 Hence, even if
TERMINATED/TERMINATED AT THE TIME THE respondents had wanted to convert the face
MANILA BANKING CORPORATION WAS amounts of the GTDs to cash, MBC could not
ALREADY IN SERIOUS FINANCIAL DISTRESS. have complied with it.

In its supplement to the petition, PDIC adds Petitioner theorizes that after MBC had
the following assignment of error: exhausted its cash and could no longer
sustain further withdrawal transactions, it
THE HONORABLE COURT OF APPEALS ERRED instead issued new GTDs as "payment" for
IN AFFIRMING THE HOLDING OF THE TRIAL the pre-terminated GTDs of respondents to
COURT ORDERING PETITIONER TO PAY make sure that all the newly-issued GTDs
RESPONDENTS' CLAIMS FOR PAYMENT OF have face amounts which are within the
INSURED DEPOSITS FOR THE REASON THAT statutory coverage of deposit insurance.
AN ACTION FOR DECLARATORY RELIEF DOES
NOT ESSENTIALLY ENTAIL AN EXECUTORY Petitioner concludes that since no cash was
PROCESS AS THE ONLY RELIEF THAT SHOULD given by respondents and none was received
HAVE BEEN GRANTED BY THE TRIAL COURT by MBC when the new GTDs were transacted,
IS A DECLARATION OF THE RIGHTS AND there was no consideration therefor and,
DUTIES OF PETITIONER UNDER R.A. 3591, AS thus, they were not validly transacted "in the
AMENDED, PARTICULARLY SECTION 3(F) usual course of business" and no liability for
THEREOF AS CONSIDERED AGAINST THE deposit insurance was created.19
SURROUNDING CIRCUMSTANCES OF THE
MATTER IN ISSUE SOUGHT TO BE Petitioner's position does not persuade.
CONSTRUED WITHOUT PREJUDICE TO OTHER
MATTERS THAT NEED TO BE CONSIDERED BY While the MB issued Resolution 505 on May
PETITIONER IN THE PROCESSING OF 22, 1987, a copy thereof was served on MBC
RESPONDENTS' CLAIMS. only on May 26, 1987. MBC and its clients
could be given the benefit of the doubt that
Under its charter,15 PDIC (hereafter they were not aware that the MB resolution
petitioner) is liable only for deposits received had been passed, given the necessity of
by a bank "in the usual course of confidentiality of placing a banking
business."16 Being of the firm conviction institution under receivership.20
that, as the reported May 25, 1987 bank
transactions were so massive, hence,
The evident implication of the law, therefore, relief that should have been granted by the
is that the appointment of a receiver may be trial court is a declaration of the parties'
made by the Monetary Board without notice rights and duties. As such, petitioner
and hearing but its action is subject to continues, no order of payment may arise
judicial inquiry to insure the protection of the from the case as this is beyond the office of
banking institution. Stated otherwise, due declaratory relief proceedings.24
process does not necessarily require a prior
hearing; a hearing or an opportunity to be Without doubt, a petition for declaratory
heard may be subsequent to the closure. relief does not essentially entail an executory
One can just imagine the dire consequences process. There is nothing in its nature,
of a prior hearing: bank runs would be the however, that prohibits a counterclaim from
order of the day, resulting in panic and being set-up in the same action.25
hysteria. In the process, fortunes may be
wiped out, and disillusionment will run the Now, there is nothing in the nature of a
gamut of the entire banking community. special civil action for declaratory relief that
(Emphasis supplied).21 proscribes the filing of a counterclaim based
on the same transaction, deed or contract
Mere conjectures that MBC had actual subject of the complaint. A special civil
knowledge of its impending closure do not action is after all not essentially different
suffice. The MB resolution could not thus from an ordinary civil action, which is
have nullified respondents' transactions generally governed by Rules 1 to 56 of the
which occurred prior to May 26, 1987. Rules of Court, except that the former deals
with a special subject matter which makes
That no actual money in bills and/or coins necessary some special regulation. But the
was handed by respondents to MBC does not identity between their fundamental nature is
mean that the transactions on the new GTDs such that the same rules governing ordinary
did not involve money and that there was no civil suits may and do apply to special civil
consideration therefor. For the outstanding actions if not inconsistent with or if they may
balance of respondents' 71 GTDs in MBC serve to supplement the provisions of the
prior to May 26, 198722 in the amount of peculiar rules governing special civil
P1,115,889.15 as earlier mentioned was re- actions.26
deposited by respondents under 28 new
GTDs. Admittedly, MBC had P2,841,711.90 Petitioner additionally submits that the issue
cash on hand more than double the of determining the amount of deposit
outstanding balance of respondent's 71 GTDs insurance due respondents was never tried
at the start of the banking day on May 25, on the merits since the trial dwelt only on the
1987. Since respondent Jose Abad was at "determination of the viability or validity of
MBC soon after it opened at 9:00 a.m. of that the deposits" and no evidence on record
day, petitioner should not presume that MBC sustains the holding that the amount of
had no cash to cover the new GTDs of deposit due respondents had been finally
respondents and conclude that there was no determined.27 This issue was not raised in
consideration for said GTDs. the court a quo, however, hence, it cannot
be raised for the first time in the petition at
Petitioner having failed to overcome the bar.28
presumption that the ordinary course of
business was followed,23 this Court finds Finally, petitioner faults respondents for
that the 28 new GTDs were deposited "in the availing of the statutory limits of the PDIC
usual course of business" of MBC. law, presupposing that, based on the
conduct of respondent Jose Abad on March
In its second assignment of error, petitioner 25, 1987, he and his co respondents
posits that the trial court erred in ordering it "somehow knew" of the impending closure of
to pay the balance of the deposit insurance MBC. Petitioner ascribes bad faith to
to respondents, maintaining that the instant respondent Jose Abad in transacting the
petition stemmed from a petition for questioned deposits, and seeks to disqualify
declaratory relief which does not essentially him from availing the benefits under the law.
entail an executory process, and the only 29
and his family for possible violation of RA No.
Good faith is presumed. This, petitioner 9160.5
failed to overcome since it offered mere
presumptions as evidence of bad faith. In support of this recommendation, the
Ombudsman attached the Complaint6 it filed
WHEREFORE, the assailed decision of the against the Ligots for perjury under Article
Court of Appeals is hereby AFFIRMED. 183 of the Revised Penal Code, and for
violations of Section 87 of RA No. 67138 and
SO ORDERED. RA No. 3019 (Anti-Graft and Corrupt
Practices Act).

The Ombudsmans Complaint


G.R. No. 176944 March 6, 2013
a. Lt. Gen. Ligot and immediate family
RET. LT. GEN. JACINTO C. LIGOT, ERLINDA
Y. LIGOT, PAULO Y. LIGOT, RIZA Y. LIGOT, The Ombudsmans complaint alleges that Lt.
and MIGUEL Y. LIGOT, Petitioners, Gen. Ligot served in the Armed Forces of the
vs. Philippines (AFP) for 33 years and 2 months,
REPUBLIC OF THE PHILIPPINES, from April 1, 1966 as a cadet until his
represented by the ANTI-MONEY retirement on August 17, 2004.9 He and Mrs.
LAUNDERING COUNCIL, Respondent. Ligot have four children, namely: Paulo Y.
Ligot, Riza Y. Ligot,
DECISION
George Y. Ligot and Miguel Y. Ligot, who have
BRION, J.: all reached the age of majority at the time of
the filing of the complaint.10
In this petition for certiorari,1 retired
Lieutenant General (Lt. Gen.) Jacinto C. Ligot, Lt. Gen. Ligot declared in his Statement of
Erlinda Y. Ligot (Mrs. Ligot), Paulo Y. Ligot, Assets, Liabilities, and Net Worth (SALN) that
Riza Y. Ligot, and Miguel Y. Ligot (petitioners) as of December 31, 2003, he had assets in
claim that the Court of Appeals (CA) acted the total amount of Three Million Eight
with grave abuse of discretion amounting to Hundred Forty-Eight Thousand and Three
lack or excess of jurisdiction when it issued Pesos (P3,848,003.00).11 In contrast, his
its January 12, 2007 resolution2 in CA G.R. SP declared assets in his 1982 SALN amounted
No. 90238. This assailed resolution affirmed to only One Hundred Five Thousand Pesos
in toto the CAs earlier January 4, 2006 (P105,000.00).12
resolution3 extending the freeze order issued
against the Ligots properties for an Aside from these declared assets, the
indefinite period of time. Ombudsmans investigation revealed that Lt.
Gen. Ligot and his family had other
BACKGROUND FACTS properties and bank accounts, not declared
in his SALN, amounting to at least Fifty Four
On June 27, 2005, the Republic of the Million One Thousand Two Hundred
Philippines (Republic), represented by the Seventeen Pesos (P54,001,217.00). These
Anti-Money Laundering Council (AMLC), filed undeclared assets consisted of the following:
an Urgent Ex-Parte Application for the
issuance of a freeze order with the CA Undeclared Assets Amount
against certain monetary instruments and Jacinto Ligots undeclared assets P
properties of the petitioners, pursuant to 41,185,583.5313
Section 104 of Republic Act (RA) No. 9160, as Jacinto Ligots childrens assets
amended (otherwise known as the Anti- 1,744,035.6014
Money Laundering Act of 2001). This Tuition fees and travel expenses P
application was based on the February 1, 2,308,047.8715
2005 letter of the Office of the Ombudsman Edgardo Yambaos assets relative to the real
to the AMLC, recommending that the latter properties P 8,763,550.0016
conduct an investigation on Lt. Gen. Ligot Total P 54,001,217.00
Bearing in mind that Lt. Gen. Ligots main As a result of the Ombudsmans complaint,
source of income was his salary as an officer the Compliance and Investigation staff (CIS)
of the AFP,17 and given his wife and of the AMLC conducted a financial
childrens lack of any other substantial investigation, which revealed the existence
sources of income,18 the Ombudsman of the Ligots various bank accounts with
declared the assets registered in Lt. Gen. several financial institutions.20 On April 5,
Ligots name, as well as those in his wifes 2005, the Ombudsman for the Military and
and childrens names, to be illegally obtained Other Law Enforcement Officers issued a
and unexplained wealth, pursuant to the resolution holding that probable cause exists
provisions of RA No. 1379 (An Act Declaring that Lt. Gen. Ligot violated Section 8, in
Forfeiture in Favor of the State Any Property relation to Section 11, of RA No. 6713, as
Found to Have Been Unlawfully Acquired by well as Article 18321 of the Revised Penal
Any Public Officer or Employee and Providing Code.
for the Proceedings Therefor).
On May 25, 2005, the AMLC issued
b. Edgardo Tecson Yambao Resolution No. 52, Series of 2005, directing
the Executive Director of the AMLC
The Ombudsmans investigation also looked Secretariat to file an application for a freeze
into Mrs. Ligots younger brother, Edgardo order against the properties of Lt. Gen. Ligot
Tecson Yambao. The records of the Social and the members of his family with the
Security System (SSS) revealed that Yambao CA.22 Subsequently, on June 27, 2005, the
had been employed in the private sector Republic filed an Urgent Ex-Parte Application
from 1977 to 1994. Based on his with the appellate court for the issuance of a
contributions to the SSS, Yambao did not Freeze Order against the properties of the
have a substantial salary during his Ligots and Yambao.
employment. While Yambao had an
investment with Mabelline Foods, Inc., the The appellate court granted the application
Ombudsman noted that this company only in its July 5, 2005 resolution, ruling that
had a net income of P5,062.96 in 2002 and probable cause existed that an unlawful
P693.67 in 2003.19 Moreover, the activity and/or money laundering offense had
certification from the Bureau of Internal been committed by Lt. Gen. Ligot and his
Revenue stated that Yambao had no record family, including Yambao, and that the
of any annual Individual Income properties sought to be frozen are related to
the unlawful activity or money laundering
Tax Return filed for the calendar year 1999 offense. Accordingly, the CA issued a freeze
up to the date of the investigation. order against the Ligots and Yambaos
various bank accounts, web accounts and
Despite Yambaos lack of substantial income, vehicles, valid for a period of 20 days from
the records show that he has real properties the date of issuance.
and vehicles registered in his name,
amounting to Eight Million Seven Hundred On July 26, 2005, the Republic filed an
Sixty Three Thousand Five Hundred Fifty Urgent Motion for Extension of Effectivity of
Pesos (P8,763,550.00), which he acquired Freeze Order, arguing that if the bank
from 1993 onwards. The Office of the accounts, web accounts and vehicles were
Ombudsman further observed that in the not continuously frozen, they could be placed
documents it examined, Yambao declared beyond the reach of law enforcement
three of the Ligots addresses as his own. authorities and the governments efforts to
recover the proceeds of the Ligots unlawful
From these circumstances, the Ombudsman activities would be frustrated. In support of
concluded that Yambao acted as a dummy its motion, it informed the CA that the
and/or nominee of the Ligot spouses, and all Ombudsman was presently investigating the
the properties registered in Yambaos name following cases involving the Ligots:
actually belong to the Ligot family.
Case Number Complainant(s)
Urgent Ex-Parte Freeze Order Application Nature
OMB-P-C-05- 0523 Wilfredo Garrido
Plunder THE PETITIONERS ARGUMENTS
OMB-P-C-05- 0003 AGIO Gina Villamor, et al.
Perjury Lt. Gen. Ligot argues that the appellate court
OMB-P-C-05- 0184 Field Investigation Office committed grave abuse of discretion
Violation of RA No. 3019, Section 3(b); amounting to lack or excess of jurisdiction
Perjury under Article 183, Revised Penal when it extended the freeze order issued
Code in relation to Section 11 of RA No. against him and his family even though no
6713; Forfeiture Proceedings in Relation to predicate crime had been duly proven or
RA No. 1379 established to support the allegation of
OMB-P-C-05-0352 David Odilao Malicious money laundering. He also maintains that
Mischief; Violation of Section 20, RA No. 7856 the freeze order issued against them ceased
Finding merit in the Republics arguments, to be effective in view of the 6-month
the CA granted the motion in its September extension limit of freeze orders provided
20, 2005 resolution, extending the freeze under the Rule in Civil Forfeiture Cases. The
order until after all the appropriate CA, in extending the freeze order, not only
proceedings and/or investigations have been unduly deprived him and his family of their
terminated. property, in violation of due process, but also
penalized them before they had been
On September 28, 2005, the Ligots filed a convicted of the crimes they stand accused
motion to lift the extended freeze order, of.
principally arguing that there was no
evidence to support the extension of the THE REPUBLICS ARGUMENTS
freeze order. They further argued that the
extension not only deprived them of their In opposition, the Republic claims that the CA
property without due process; it also can issue a freeze order upon a
punished them before their guilt could be determination that probable cause exists,
proven. The appellate court subsequently showing that the monetary instruments or
denied this motion in its January 4, 2006 properties subject of the freeze order are
resolution. related to the unlawful activity enumerated
in RA No. 9160. Contrary to the petitioners
Meanwhile, on November 15, 2005, the "Rule claims, it is not necessary that a formal
of Procedure in Cases of Civil Forfeiture, criminal charge must have been previously
Asset Preservation, and Freezing of Monetary filed against them before the freeze order
Instrument, Property, or Proceeds can be issued.
Representing, Involving, or Relating to an
Unlawful Activity or Money Laundering The Republic further claims that the CAs
Offense under Republic Act No. 9160, as September 20, 2005 resolution, granting the
Amended"23 (Rule in Civil Forfeiture Cases) Republics motion to extend the effectivity of
took effect. Under this rule, a freeze order the freeze order, had already become final
could be extended for a maximum period of and executory, and could no longer be
six months. challenged. The Republic notes that the
Ligots erred when they filed what is
On January 31, 2006, the Ligots filed a effectively a second motion for
motion for reconsideration of the CAs reconsideration in response to the CAs
January 4, 2006 resolution, insisting that the January 4, 2006 resolution, instead of filing a
freeze order should be lifted considering: (a) petition for review on certiorari via Rule 45
no predicate crime has been proven to with this Court. Under these circumstances,
support the freeze orders issuance; (b) the the assailed January 4, 2006 resolution
freeze order expired six months after it was granting the freeze order had already
issued on July 5, 2005; and (c) the freeze attained finality when the Ligots filed the
order is provisional in character and not present petition before this Court.
intended to supplant a case for money
laundering. When the CA denied this motion THE COURTS RULING
in its resolution dated January 12, 2007, the
Ligots filed the present petition. We find merit in the petition.
reversible only by an appeal. Error of
I. Procedural aspect jurisdiction is one where the act complained
of was issued by the court without or in
a. Certiorari not proper remedy to assail excess of jurisdiction and which error is
freeze order; exception correctible only by the extraordinary writ of
certiorari. Certiorari will not be issued to cure
Section 57 of the Rule in Civil Forfeiture errors by the trial court in its appreciation of
Cases explicitly provides the remedy the evidence of the parties, and its
available in cases involving freeze orders conclusions anchored on the said findings
issued by the CA: and its conclusions of law. As long as the
court acts within its jurisdiction, any alleged
Section 57. Appeal. - Any party aggrieved by errors committed in the exercise of its
the decision or ruling of the court may discretion will amount to nothing more than
appeal to the Supreme Court by petition for mere errors of judgment, correctible by an
review on certiorari under Rule 45 of the appeal or a petition for review under Rule 45
Rules of Court. The appeal shall not stay the of the Rules of Court.25 (citations omitted;
enforcement of the subject decision or final italics supplied)
order unless the Supreme Court directs
otherwise. [italics supplied] Clearly, the Ligots should have filed a
petition for review on certiorari, and not what
From this provision, it is apparent that the is effectively a second motion for
petitioners should have filed a petition for reconsideration (nor an original action of
review on certiorari, and not a petition for certiorari after this second motion was
certiorari, to assail the CA resolution which denied), within fifteen days from receipt of
extended the effectivity period of the freeze the CAs January 4, 2006 resolution. To recall,
order over their properties. this resolution denied the petitioners motion
to lift the extended freeze order which is
Even assuming that a petition for certiorari is effectively a motion for reconsideration of
available to the petitioners, a review of their the CA ruling extending the freeze order
petition shows that the issues they raise (i.e., indefinitely.26
existence of probable cause to support the
freeze order; the applicability of the 6-month However, considering the issue of due
limit to the extension of freeze orders process squarely brought before us in the
embodied in the Rule of Procedure in Cases face of an apparent conflict between Section
of Civil Forfeiture) pertain to errors of 10 of RA No. 9160, as amended, and Section
judgment allegedly committed by the CA, 53(b) of the Rule in Civil Forfeiture Cases,
which fall outside the Courts limited this Court finds it imperative to relax the
jurisdiction when resolving certiorari application of the rules of procedure and
petitions. As held in People v. Court of resolve this case on the merits in the interest
Appeals:24 of justice.27

In a petition for certiorari, the jurisdiction of b. Applicability of 6-month extension period


the court is narrow in scope. It is limited to under the Rule in Civil Forfeiture Cases
resolving only errors of jurisdiction. It is not
to stray at will and resolve questions or Without challenging the validity of the fixed
issues beyond its competence such as errors 6-month extension period, the Republic
of judgment. Errors of judgment of the trial nonetheless asserts that the Rule in Civil
court are to be resolved by the appellate Forfeiture Cases does not apply to the
court in the appeal by and of error or via a present case because the CA had already
petition for review on certiorari in this Court resolved the issues regarding the extension
under Rule 45 of the Rules of Court. of the freeze order before the
Certiorari will issue only to correct errors of
jurisdiction. It is not a remedy to correct Rule in Civil Forfeiture Cases came into
errors of judgment. An error of judgment is effect.
one in which the court may commit in the
exercise of its jurisdiction, and which error is This reasoning fails to convince us.
pending civil forfeiture proceeding. This
Notably, the Rule in Civil Forfeiture Cases provision gives the impression that the filing
came into effect on December 15, 2005. of the appropriate cases in courts in 2011
Section 59 provides that it shall "apply to all and 2012 rendered this case moot and
pending civil forfeiture cases or petitions for academic.
freeze order" at the time of its effectivity.
A case is considered moot and academic
A review of the record reveals that after the when it "ceases to present a justiciable
CA issued its September 20, 2005 resolution controversy by virtue of supervening events,
extending the freeze order, the Ligots filed a so that a declaration thereon would be of no
motion to lift the extended freeze order on practical use or value. Generally, courts
September 28, 2005. Significantly, the CA decline jurisdiction over such case or dismiss
only acted upon this motion on January 4, it on ground of mootness."28 However, the
2006, when it issued a resolution denying it. moot and academic principle is not an iron-
clad rule and is subject to four settled
While denominated as a Motion to Lift exceptions,29 two of which are present in
Extended Freeze Order, this motion was this case, namely: when the constitutional
actually a motion for reconsideration, as it issue raised requires the formulation of
sought the reversal of the assailed CA controlling principles to guide the bench, the
resolution. Since the Ligots motion for bar, and the public, and when the case is
reconsideration was still pending resolution capable of repetition, yet evading review.
at the time the Rule in Civil Forfeiture Cases
came into effect on December 15, 2005, the The apparent conflict presented by the
Rule unquestionably applies to the present limiting provision of the Rule in Civil
case. Forfeiture Cases, on one hand, and the very
broad judicial discretion under RA No. 9160,
c. Subsequent events as amended, on the other hand, and the
uncertainty it casts on an individuals
During the pendency of this case, the guaranteed right to due process indubitably
Republic manifested that on September 26, call for the Courts exercise of its discretion
2011, it filed a Petition for Civil Forfeiture to decide the case, otherwise moot and
with the Regional Trial Court (RTC) of Manila. academic, under those two exceptions, for
On September 28, 2011, the RTC, Branch 22, the future guidance of those affected and
Manila, issued a Provisional Asset involved in the implementation of RA No.
Preservation Order and on October 5, 2011, 9160, as amended.
after due hearing, it issued an Asset
Preservation Order. Additionally, we would be giving premium to
the governments failure to file an
On the other hand, the petitioners appropriate case until only after six years
manifested that as of October 29, 2012, the (despite the clear provision of the Rule in
only case filed in connection with the frozen Civil Forfeiture Cases) were we to dismiss the
bank accounts is Civil Case No. 0197, for petition because of the filing of the forfeiture
forfeiture of unlawfully acquired properties case during the pendency of the case before
under RA No. 1379 (entitled "Republic of the the Court. The sheer length of time and the
Philippines v. Lt. Gen. Jacinto Ligot, et. al."), constitutional violation involved, as will be
pending before the Sandiganbayan. discussed below, strongly dissuade us from
dismissing the petition on the basis of the
These subsequent developments and their "moot and academic" principle. The Court
dates are significant in our consideration of should not allow the seeds of future
the present case, particularly the procedural violations to sprout by hiding under this
aspect. Under Section 56 of the Rule in Civil principle even when directly confronted with
Forfeiture Cases which provides that after the glaring issue of the respondents
the post-issuance hearing on whether to violation of the petitioners due process
modify, lift or extend the freeze order, the CA right30 - an issue that the respondent itself
shall remand the case and transmit the chooses to ignore.
records to the RTC for consolidation with the
We shall discuss the substantive relevance of which would lead a reasonably discreet,
the subsequent developments and their prudent or cautious man to believe that an
dates at length below. unlawful activity and/or a money laundering
offense is about to be, is being or has been
II. Substantive aspect committed and that the account or any
monetary instrument or property subject
a. Probable cause exists to support the thereof sought to be frozen is in any way
issuance of a freeze order related to said unlawful activity and/or
money laundering offense."34
The legal basis for the issuance of a freeze
order is Section 10 of RA No. 9160, as In other words, in resolving the issue of
amended by RA No. 9194, which states: whether probable cause exists, the CAs
statutorily-guided determinations focus is
Section 10. Freezing of Monetary Instrument not on the probable commission of an
or Property. The Court of Appeals, upon unlawful activity (or money laundering) that
application ex parte by the AMLC and after the Office of the Ombudsman has already
determination that probable cause exists determined to exist, but on whether the bank
that any monetary instrument or property is accounts, assets, or other monetary
in any way related to an unlawful activity as instruments sought to be frozen are in any
defined in Section way related to any of the illegal activities
enumerated under RA No. 9160, as
3(i) hereof, may issue a freeze order which amended.35 Otherwise stated, probable
shall be effective immediately. The freeze cause refers to the sufficiency of the relation
order shall be for a period of twenty (20) between an unlawful activity and the
days unless extended by the court. [italics property or monetary instrument which is the
supplied] focal point of Section 10 of RA No. 9160, as
amended. To differentiate this from any
The Ligots claim that the CA erred in criminal case that may thereafter be
extending the effectivity period of the freeze instituted against the same respondent, the
order against them, given that they have not Rule in Civil Forfeiture Cases expressly
yet been convicted of committing any of the provides
offenses enumerated under RA No. 9160 that
would support the AMLCs accusation of SEC. 28. Precedence of proceedings. - Any
money-laundering activity. criminal case relating to an unlawful activity
shall be given precedence over the
We do not see any merit in this claim. The prosecution of any offense or violation under
Ligots argument is founded on a flawed Republic Act No. 9160, as amended, without
understanding of probable cause in the prejudice to the filing of a separate petition
context of a civil forfeiture proceeding31 or for civil forfeiture or the issuance of an asset
freeze order application.32 preservation order or a freeze order. Such
civil action shall proceed independently of
Based on Section 10 quoted above, there are the criminal prosecution. [italics supplied;
only two requisites for the issuance of a emphases ours]
freeze order: (1) the application ex parte by
the AMLC and (2) the determination of Section 10 of RA No. 9160 (allowing the
probable cause by the CA.33 The probable extension of the freeze order) and Section 28
cause required for the issuance of a freeze (allowing a separate petition for the issuance
order differs from the probable cause of a freeze order to proceed independently)
required for the institution of a criminal of the Rule in Civil Forfeiture Cases are only
action, and the latter was not an issue before consistent with the very purpose of the
the CA nor is it an issue before us in this freeze order, which specifically is to give the
case. government the necessary time to prepare
its case and to file the appropriate charges
As defined in the law, the probable cause without having to worry about the possible
required for the issuance of a freeze order dissipation of the assets that are in any way
refers to "such facts and circumstances related to the suspected illegal activity. Thus,
contrary to the Ligots claim, a freeze order Rule in Civil Forfeiture Cases (A.M. No. 05-11-
is not dependent on a separate criminal 04-SC). This section states:
charge, much less does it depend on a
conviction. Section 53. Freeze order.

That a freeze order can be issued upon the xxxx


AMLCs ex parte application further
emphasizes the laws consideration of how (b) Extension. On motion of the petitioner
critical time is in these proceedings. As we filed before the expiration of twenty days
previously noted in Republic v. Eugenio, Jr.,36 from issuance of a freeze order, the court
"to make such freeze order anteceded by a may for good cause extend its effectivity for
judicial proceeding with notice to the account a period not exceeding six months. [italics
holder would allow for or lead to the supplied; emphasis ours]
dissipation of such funds even before the
order could be issued." We find merit in this claim.

It should be noted that the existence of an A freeze order is an extraordinary and


unlawful activity that would justify the interim relief37 issued by the CA to prevent
issuance and the extension of the freeze the dissipation, removal, or disposal of
order has likewise been established in this properties that are suspected to be the
case. proceeds of, or related to, unlawful activities
as defined in Section 3(i) of RA No. 9160, as
From the ex parte application and the amended.38 The primary objective of a
Ombudsmans complaint, we glean that Lt. freeze order is to temporarily preserve
Gen. Ligot himself admitted that his income monetary instruments or property that are in
came from his salary as an officer of the AFP. any way related to an unlawful activity or
Yet, the Ombudsmans investigation revealed money laundering, by preventing the owner
that the bank accounts, investments and from utilizing them during the duration of the
properties in the name of Lt. Gen. Ligot and freeze order.39 The relief is pre-emptive in
his family amount to more than Fifty-Four character, meant to prevent the owner from
Million Pesos (P54,000,000.00). Since these disposing his property and thwarting the
assets are grossly disproportionate to Lt. States effort in building its case and
Gen. Ligots income, as well as the lack of eventually filing civil forfeiture proceedings
any evidence that the Ligots have other and/or prosecuting the owner.
sources of income, the CA properly found
that probable cause exists that these funds Our examination of the Anti-Money
have been illegally acquired. On the other Laundering Act of 2001, as amended, from
hand, the AMLCs verified allegations in its ex the point of view of the freeze order that it
parte application, based on the complaint authorizes, shows that the law is silent on
filed by the Ombudsman against Ligot and the maximum period of time that the freeze
his family for violations of the Anti-Graft and order can be extended by the CA. The final
Corrupt Practices Act, clearly sustain the sentence of Section 10 of the Anti-Money
CAs finding that probable cause exists that Laundering Act of 2001 provides, "the freeze
the monetary instruments subject of the order shall be for a period of twenty (20)
freeze order are related to, or are the days unless extended by the court." In
product of, an unlawful activity. contrast, Section 55 of the Rule in Civil
Forfeiture Cases qualifies the grant of
b. A freeze order, however, cannot be issued extension "for a period not exceeding six
for an indefinite period months" "for good cause" shown.

Assuming that the freeze order is We observe on this point that nothing in the
substantively in legal order, the Ligots now law grants the owner of the "frozen" property
assert that its effectiveness ceased after any substantive right to demand that the
January 25, 2006 (or six months after July 25, freeze order be lifted, except by implication,
2005 when the original freeze order first i.e., if he can show that no probable cause
expired), pursuant to Section 53(b) of the exists or if the 20-day period has already
lapsed without any extension being forfeiture proceeding is concluded in their
requested from and granted by the CA. favor and after they shall have been
Notably, the Senate deliberations on RA No. adjudged not guilty of the crimes they are
9160 even suggest the intent on the part of suspected of committing. These periods of
our legislators to make the freeze order extension are way beyond the intent and
effective until the termination of the case, purposes of a freeze order which is intended
when necessary.40 solely as an interim relief; the civil and
criminal trial courts can very well handle the
The silence of the law, however, does not in disposition of properties related to a
any way affect the Courts own power under forfeiture case or to a crime charged and
the Constitution to "promulgate rules need not rely on the interim relief that the
concerning the protection and enforcement appellate court issued as a guarantee
of constitutional rights xxx and procedure in against loss of property while the
all courts."41 Pursuant to this power, the government is preparing its full case. The
Court issued A.M. No. 05-11-04-SC, limiting term of the CAs extension, too, borders on
the effectivity of an extended freeze order to inflicting a punishment to the Ligots, in
six months to otherwise leave the grant of violation of their constitutionally protected
the extension to the sole discretion of the right to be presumed innocent, because the
CA, which may extend a freeze order unreasonable denial of their property comes
indefinitely or to an unreasonable amount of before final conviction.
time carries serious implications on an
individuals substantive right to due In more concrete terms, the freeze order
process.42 This right demands that no over the Ligots properties has been in effect
person be denied his right to property or be since 2005, while the civil forfeiture case
subjected to any governmental action that per the Republics manifestation was filed
amounts to a denial.43 The right to due only in 2011 and the forfeiture case under RA
process, under these terms, requires a No. 1379 per the petitioners manifestation
limitation or at least an inquiry on whether was filed only in 2012. This means that the
sufficient justification for the governmental Ligots have not been able to access the
action.44 properties subject of the freeze order for six
years or so simply on the basis of the
In this case, the law has left to the CA the existence of probable cause to issue a freeze
authority to resolve the issue of extending order, which was intended mainly as an
the freeze order it issued. Without doubt, the interim preemptive remedy.
CA followed the law to the letter, but it did so
by avoiding the fundamental laws command As correctly noted by the petitioners, a
under its Section 1, Article III. This command, freeze order is meant to have a temporary
the Court under its constitutional rule- effect; it was never intended to supplant or
making power sought to implement replace the actual forfeiture cases where the
through Section 53(b) of the Rule in Civil provisional remedy - which means, the
Forfeiture Cases which the CA erroneously remedy is an adjunct of or an incident to the
assumed does not apply. main action of asking for the issuance of an
asset preservation order from the court
The Ligots case perfectly illustrates the where the petition is filed is precisely
inequity that would result from giving the CA available. For emphasis, a freeze order is
the power to extend freeze orders without both a preservatory and preemptive remedy.
limitations. As narrated above, the CA, via its
September 20, 2005 resolution, extended the To stress, the evils caused by the laws
freeze order over the Ligots various bank silence on the freeze orders period of
accounts and personal properties "until after effectivity46 compelled this Court to issue
all the appropriate proceedings and/or the Rule in Civil Forfeiture Cases. Specifically,
investigations being conducted are the Court fixed the maximum allowable
terminated."45 By its very terms, the CA extension on the freeze orders effectivity at
resolution effectively bars the Ligots from six months. In doing so, the Court sought to
using any of the property covered by the balance the States interest in going after
freeze order until after an eventual civil suspected money launderers with an
individuals constitutionally-protected right secure an asset preservation order or it
not to be deprived of his property without should have filed the necessary
due process of law, as well as to be information.47 Otherwise, the property
presumed innocent until proven guilty. owner should already be able to fully enjoy
his property without any legal process
To our mind, the six-month extension period affecting it. However, should it become
is ordinarily sufficient for the government to completely necessary for the Republic to
act against the suspected money launderer further extend the duration of the freeze
and to file the appropriate forfeiture case order, it should file the necessary motion
against him, and is a reasonable period as before the expiration of the six-month period
well that recognizes the property owners and explain the reason or reasons for its
right to due process. In this case, the period failure to file an appropriate case and justify
of inaction of six years, under the the period of extension sought. The freeze
circumstances, already far exceeded what is order should remain effective prior to the
reasonable. resolution by the CA, which is hereby
directed to resolve this kind of motion for
We are not unmindful that the State itself is extension with reasonable dispatch.
entitled to due process.1wphi1 As a due
process concern, we do not say that the six- In the present case, we note that the
month period is an inflexible rule that would Republic has not offered any explanation why
result in the automatic lifting of the freeze it took six years (from the time it secured a
order upon its expiration in all instances. An freeze order) before a civil forfeiture case
inflexible rule may lend itself to abuse - to was filed in court, despite the clear tenor of
the prejudice of the States legitimate the Rule in Civil Forfeiture Cases allowing the
interests - where the property owner would extension of a freeze order for only a period
simply file numerous suits, questioning the of six months. All the Republic could proffer
freeze order during the six-month extension is its temporal argument on the
period, to prevent the timely filing of a inapplicability of the Rule in Civil Forfeiture
money laundering or civil forfeiture case Cases; in effect, it glossed over the squarely-
within this period. With the limited resources raised issue of due process. Under these
that our government prosecutors and circumstances, we cannot but conclude that
investigators have at their disposal, the end- the continued extension of the freeze order
result of an inflexible rule is not difficult to beyond the six-month period violated the
see. Ligots right to due process; thus, the CA
decision should be reversed.
We observe, too, that the factual
complexities and intricacies of the case and We clarify that our conclusion applies only to
other matters that may be beyond the the CA ruling and does not affect the
governments prosecutory agencies control proceedings and whatever order or
may contribute to their inability to file the resolution the RTC may have issued in the
corresponding civil forfeiture case before the presently pending civil cases for forfeiture.
lapse of six months. Given these We make this clarification to ensure that we
considerations, it is only proper to strike a can now fully conclude and terminate this CA
balance between the individuals right to due aspect of the case.
process and the governments interest in
curbing criminality, particularly money As our last point, we commend the fervor of
laundering and the predicate crimes the CA in assisting the States efforts to
underlying it. prosecute corrupt public officials. We remind
the appellate court though that the
Thus, as a rule, the effectivity of a freeze governments anti-corruption drive cannot be
order may be extended by the CA for a done at the expense of cherished
period not exceeding six months. Before or fundamental rights enshrined in our
upon the lapse of this period, ideally, the Constitution. So long as we continue to be
Republic should have already filed a case for guided by the Constitution and the rule of
civil forfeiture against the property owner law, the Court cannot allow the justification
with the proper courts and accordingly of governmental action on the basis of the
noblest objectives alone. As so oft-repeated, same properties in the cases pending before
the end does not justify the means. Of them. Pursuant to Section 56 of A.M. No. 05-
primordial importance is that the means 11-04-SC, the Court of Appeals is hereby
employed must be in keeping with the ordered to remand the case and to transmit
Constitution. Mere expediency will certainly the records to the Regional Trial Court of
not excuse constitutional shortcuts.48 Manila, Branch 22, where the civil forfeiture
proceeding is pending, for consolidation
WHEREFORE, premises considered, we therewith as may be appropriate.
GRANT the petition and LIFT the freeze order
issued by the Court of Appeals in CA G.R. SP SO ORDERED.
No. 90238. This lifting is without prejudice to,
and shall not affect, the preservation orders
that the lower courts have ordered on the

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