[G.R. NO.

161397 : June 30, 2005]

DEVELOPMENT BANK OF THE PHILIPPINES, Petitioner, v. FELIPE P. ARCILLA, JR., Respondent.

[G.R. NO. 161426 : June 30, 2005]

FELIPE P. ARCILLA, JR., Petitioner, v. DEVELOPMENT BANK OF THE PHILIPPINES, Respondent.

DECISION

CALLEJO, SR., J.:

Atty. Felipe P. Arcilla, Jr. was employed by the Development Bank of the Philippines (DBP) in October
1981. About five or six months thereafter, he was assigned to the legal department, and thereafter,
decided to avail of a loan under the Individual Housing Project (IHP) of the bank.1 On September 12,
1983, DBP and Arcilla executed a Deed of Conditional Sale2 over a parcel of land, as well as the house to
be constructed thereon, for the price of P160,000.00. Arcilla borrowed the said amount from DBP for
the purchase of the lot and the construction of a residential building thereon. He obliged himself to pay
the loan in 25 years, with a monthly amortization of P1,417.91, with 9% interest per annum, to be
deducted from his monthly salary.3

DBP obliged itself to transfer the title of the property upon the payment of the loan, including any
increments thereof. It was also agreed therein that if Arcilla availed of optional retirement, he could
elect to continue paying the loan, provided that the loan/amount would be converted into a regular real
estate loan account with the prevailing interest assigned on real estate loans, payable within the
remaining term of the loan account.4

Arcilla was notified of the periodic release of 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
he was issued receipts.6

The monthly amortization was increased to P1,468.92 in November 1984, and to P1,691.51 beginning
January 1985. However, Arcilla opted to resign from the bank in December 1986. Conformably with the
Deed of Conditional Sale, the bank informed him, on June 11, 1987, that the balance of his loan account
with the bank had been converted to a regular housing loan, thus:

Amount converted Monthly

Interest Rate Remaining Term
to PHLoan Amortization
P 155,218.79 - 1 9% 22 yrs. & 6 mos P1,342.72
6,802.45 - 2 9% 21 yrs. & 10 mos. 59.41
24,342.91 - 3 9% 22 yrs. 212.07

Plus: MRI at PC. 41/thousand P1,614.20

76.41
P186,364.15 Total P1,690.617
=========

On July 24, 1987, Arcilla signed three Promissory Notes8 for the total amount of P186,364.15. He was
also obliged to pay service charge and interests, as follows:

a.1 On the amount advanced or balance thereof that remains unpaid for 30 days* or less:

i. Interest on advances at 7% p.a. over DBP's borrowing cost:

ii. No 2% service charge

iii. No 8% penalty charge

a.2 On the amount advanced or balance thereof that remains unpaid for more than 30 days:

i. Interest on the advance at 7% p.a. ]

over DBP's borrowing cost; ]

ii. One time 2% service charge ] - - To be computed from

iii. Interest on the service charge ] the start of the 30-day

iv. 8% penalty charge on the balances ] ‌ ‌ period

of the advances and service charge.9

Arcilla also agreed to pay to DBP the following:

*Insurance Premiums - 30-day period to be computed from date of advances

Other Advances - 30-day period to be computed from date of notification

b. Taxes

b.1 One time service charge 2% of the amount advanced

b.2 Interest and penalty charge Interest - 7% p.a. over borrowing cost
Penalty charge - 8% p.a. if unpaid
after 30 days from date of advance

i. Interest of the advance at ]

7% p.a. over DBP's ]

borrowing costs; ] - - To be computed from start of 30-day period

ii. One time 2% service charge ]

iii. Interest on the service charge ]

iv. 8% penalty charge on the ]
balances of the advance and ]
service charge. ]

*Insurance Premiums - 30-day period to be computed from date of advances.

Other Advances - 30-day period to be computed from date of notification.

b. Taxes

b.1 One time service charge 2% of the amount advanced

b.2 Interest and penalty charge Interest - 7% p.a. over borrowing cost
Penalty charge - 8% p.a. if unpaid
after 30 days from date of advance

However, Arcilla also agreed to the reservation by the DBP of its right to increase (with notice to him)
the "rate of interest on the loan, as well as all other fees and charges on loans and advances pursuant to
such policy as it may adopt from time to time during the period of the loan; Provided, that the rate of
interest on the loan shall be reduced by law or by the Monetary Board; Provided, further, that the
adjustment in the rate of interest shall take effect on or after the effectivity of the increase or decrease
in the maximum rate of interest."10

Upon his request, DBP agreed to grant Arcilla an additional cash advance of P32,000.00. Thereafter, on
May 23, 1984, a Supplement to the Conditional Sale Agreement was executed in which DBP and Arcilla
agreed on the following terms of the loan:

Amount Interest Rate Per Annum Terms Amortization

P32,000.00 Nine (9%) per cent MRI for 24 years P271.57

P32,000.00 at P0.40/1,000.00
12.80

P32,000.00 same to be consolidated with the (Est.

original advance in accordance Amort.) P 284.37
with Condition No. 8 hereof.11 =========

The additional advance was, thus, consolidated to the outstanding balance of Arcilla's original advance,
payable within the remaining term thereof at 9% per annum. However, he failed to pay his loan account,
advances, penalty charges and interests which, as of October 31, 1990, amounted to P241,940.93.12 DBP
rescinded the Deed of Conditional Sale by notarial act on November 27, 1990.13 Nevertheless, it wrote
Arcilla, on January 3, 1992, giving him until October 24, 1992, within which to repurchase the property
upon full payment of the current appraisal or updated total, whichever is lesser; in case of failure to do
so, the property would be advertised for bidding.14 DBP reiterated the said offer on October 7,
1992.15 Arcilla failed to respond. Consequently, the property was advertised for sale at public bidding on
February 14, 1994.16
Arcilla filed a complaint against DBP with the Regional Trial Court (RTC) of Antipolo, Rizal, on February
21, 1994. He alleged that DBP failed to furnish him with the disclosure statement required by Republic
Act (R.A.) No. 3765 and Central Bank (CB) Circular No. 158 prior to the execution of the deed of
conditional sale and the conversion of his loan account with the bank into a regular housing loan
account. Despite this, DBP immediately deducted the account from his salary as early as 1984. Moreover,
the bank applied its own formula and imposed its usurious interests, penalties and charges on his loan
account and advances. He further alleged, thus:

13. That when plaintiff could no longer cope-up with defendant's illegal and usurious impositions, the
DBP unilaterally increased further the rate of interest, without notice to the latter, and heaped-up
usurious interests, penalties and charges;

---

14. That to further bend the back of the plaintiff, defendant rescinded the subject deed of conditional
sale on 4 December 1990 without giving due notice to plaintiff;

15. That much later, on 10 October 1993, plaintiff received a letter from defendant dated 19 September
1993, informing plaintiff that the subject deed of conditional sale was already rescinded on 4 December
1990 (xerox copy of the same is hereto attached and made an integral part hereof as Annex "C"; 17

In its answer to the complaint, the DBP alleged that it substantially complied with R.A. No. 3765 and CB
Circular No. 158 because the details required in said statements were particularly disclosed in the
promissory notes, deed of conditional sale and the required notices sent to Arcilla. In any event, its
failure to comply strictly with R.A. No. 3765 did not affect the validity and enforceability of the subject
contracts or transactions. DBP interposed a counterclaim for the possession of the property.

On April 27, 2001, the trial court rendered judgment in favor of Arcilla and nullified the notarial
rescission of the deeds executed by the parties. The fallo of the decision reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against the
defendant.ςηαñrοblεš νιr†υαl lαω lιbrαrÿ

Defendant is hereby directed to furnish the disclosure statement to the plaintiff within five (5) days
upon receipt hereof in the manner and form provided by R.A. No. 3765 and submit to this Court for
approval the total obligation of the plaintiff as of this date, within ten (10) days from receipt of this
order. The Notarial Rescission (Exh. "16") dated November 27, 1990 is hereby declared null and void.
Costs against the defendant.

SO ORDERED.18

DBP appealed the decision to the Court of Appeals (CA) wherein it made the following assignment of
errors:

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 not compliance with the "Truth in Lending Act;"
4.2. The trial court erred in declaring the Notarial Rescission null and void; andcralawlibrary

4.3. The trial court erred in denying DBP's counterclaims for recovery of possession, back rentals and
litigation expenses.19

On May 29, 2003, the CA rendered judgment setting aside and reversing the decision of the RTC. In
ordering the dismissal of the complaint, the appellate court ruled that DBP substantially complied with
R.A. No. 3765 and CB Circular No. 158. Arcilla filed a motion for reconsideration of the decision. For its
part, DBP filed a motion for partial reconsideration of the decision, praying that Arcilla be ordered to
vacate the property. However, the appellate court denied both motions.

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 as G.R. No. 161397; the
second petition, entitled Felipe Arcilla, Jr. v. Court of Appeals, was docketed as G.R. No. 161426. The
Court resolved to consolidate the two cases.

The issues raised in the two petitions are the following: a) whether or not petitioner DBP complied with
the disclosure requirement of R.A. No. 3765 and CB Circular No. 158, Series of 1978, in the execution of
the deed of conditional sale, the supplemental deed of conditional sale, as well as the promissory notes;
and b) whether or not respondent Felipe Arcilla, Jr. is mandated to vacate the property and pay rentals
for his occupation thereof after the notarial rescission of the deed of conditional sale was rescinded by
notarial act, as well as the supplement executed by DBP.

On the first issue, Arcilla avers that under R.A. No. 3765 and CB Circular No. 158, the DBP, as the creditor
bank, was mandated to furnish him with the requisite information in such form prescribed by the
Central Bank before the commutation of the loan transaction. He avers that the disclosure of the details
of the loan contained in the deed of conditional sale and the supplement thereto, the promissory notes
and release sheet, do not constitute substantial compliance with the law and the CB Circular. He avers
that the required disclosure did not include the following:

'[T]he percentage of Finance Charges to Total Amount Financed (Computed in accordance with Sec. 2(i)
of CB Circular 158; the Additional Charges in case certain stipulations in the contract are not met by the
debtor; Total Non-Finance Charges; Total Finance Charges, Effective Interest Rate, etc. '20

Arcilla further posits that the failure of DBP to comply with its obligation under R.A. No. 3765 and CB
Circular No. 158 forecloses its right to rescind the transaction between them, and to demand
compliance of his obligation arising from said transaction. Moreover, the bank had no right to deduct
the monthly amortizations from his salary without first complying with the mandate of R.A. No. 3765.

DBP, on the other hand, avers that all the information required by R.A. No. 3765 was already contained
in the loan transaction documents. It posits that even if it failed to comply strictly with the disclosure
requirement of R.A. No. 3765, nevertheless, under Section 6(b) of the law, the validity and enforceability
of any action or transaction is not affected. It asserts that Arcilla was estopped from invoking R.A. No.
3765 because he failed to demand compliance with R.A. No. 3765 from the bank before the
consummation of the loan transaction, until the time his complaint was filed with the trial court.
In its petition in G.R. No. 161397, DBP asserts that the RTC erred in not rendering judgment on its
counterclaim for the possession of the subject property, and the liability of Arcilla for rentals while in the
possession of the property after the notarial rescission of the deeds of conditional sale. For his part,
Arcilla (in G.R. No. 161426) insists that the respondent failed to comply with its obligation under R.A. No.
3765; hence, the notarial rescission of the deed of conditional sale and the supplement thereof was null
and void. Until DBP complies with its obligation, he is not obliged to comply with his.

The petition of Arcilla has no merit.

Section 1 of R.A. No. 3765 provides that prior to the consummation of a loan transaction, the bank, as
creditor, is obliged to furnish a client with a clear statement, in writing, setting forth, to the extent
applicable and in accordance with the rules and regulations prescribed by the Monetary Board of the
Central Bank of the Philippines, the following information:

(1) the cash price or delivered price of the property or service to be acquired;

(2) the amounts, if any, to be credited as down payment and/or trade-in;

(3) the difference between the amounts set forth under clauses (1) and (2);

(4) the charges, individually itemized, which are paid or to be paid by such person in connection with the
transaction but which are not incident to the extension of credit;

(5) the total amount to be financed;

(6) the finance charges expressed in terms of pesos and centavos; andcralawlibrary

(7) the percentage that the finance charge bears to the total amount to be financed expressed as a
simple annual rate on the outstanding unpaid balance of the obligation.

Under Circular No. 158 of the Central Bank, the information required by R.A. No. 3765 shall be included
in the contract covering the credit transaction or any other document to be acknowledged and signed by
the debtor, thus:

The contract covering the credit transaction, or any other document to be acknowledged and signed by
the debtor, shall indicate the above seven items of information. In addition, the contract or document
shall specify additional charges, if any, which will be collected in case certain stipulations in the contract
are not met by the debtor.

Furthermore, the contract or document shall specify additional charges, if any, which will be collected in
case certain stipulations in the contract are not met by the debtor.21

If the borrower is not duly informed of the data required by the law prior to the consummation of the
availment or drawdown, the lender will have no right to collect such charge or increases thereof, even if
stipulated in the promissory note.22 However, such failure shall not affect the validity or enforceability of
any contract or transaction.23
In the present case, DBP failed to disclose the requisite information in the disclosure statement form
authorized by the Central Bank, but did so in the loan transaction documents between it and Arcilla.
There is no evidence on record that DBP sought to collect or collected any interest, penalty or other
charges, from Arcilla other than those disclosed in the said
deeds/documents.ςηαñrοblεš νιr†υαl lαω lιbrαrÿ

The Court is convinced that Arcilla's claim of not having been furnished the data/information required
by R.A. No. 3765 and CB Circular No. 158 was but an afterthought. Despite the notarial rescission of the
conditional sale in 1990, and DBP's subsequent repeated offers to repurchase the property, the latter
maintained his silence. Arcilla filed his complaint only on February 21, 1994, or four years after the said
notarial rescission. The Court finds and so holds that the following findings and ratiocinations of the CA
are correct:

After a careful perusal of the records, We find that the appellee had been sufficiently informed of the
terms and the requisite charges necessarily included in the subject loan. It must be stressed that the
Truth in Lending Act (R.A. No. 3765), was enacted primarily "to protect its citizens from a lack of
awareness of the true cost of credit to the user

by using a full disclosure of such cost with a view of preventing the uninformed use of credit to the
detriment of the national economy" (Emata v. Intermediate Appellate Court, 174, SCRA 464 [1989]; Sec.
2, R.A. No. 3765). Contrary to appellee's claim that he was not sufficiently informed of the details of the
loan, the records disclose that the required informations were readily available in the three (3)
promissory notes he executed. Precisely, the said promissory notes were executed to apprise appellee
of the remaining balance on his loan when the same was converted into a regular housing loan. And on
its face, the promissory notes signed by no less than the appellee readily shows all the data required by
the Truth in Lending Act (R.A. No. 3765).

Apropos, We agree with the appellant that appellee, a lawyer, would not be so gullible or negligent as to
sign documents without knowing fully well the legal implications and consequences of his actions, and
that appellee was a former employee of appellant. As such employee, he is as well presumed
knowledgeable with matters relating to appellant's business and fully cognizant of the terms of the loan
he applied for, including the charges that had to be paid.

It might have been different if the borrower was, say, an ordinary employee eager to buy his first house
and is easily lured into accepting onerous terms so long as the same is payable on installments. In such
cases, the Court would be disposed to be stricter in the application of the Truth in Lending Act, insisting
that the borrower be fully informed of what he is entering into. But in the case at bar, considering
appellee's education and training, We must hold, in the light of the evidence at hand, that he was duly
informed of the necessary charges and fully understood their implications and effects. Consequently,
the trial court's annulment of the rescission anchored on this ground was unjustified.24

Anent the prayer of DBP to order Arcilla to vacate the property and pay rentals therefor from 1990, a
review of the records has shown that it failed to adduce evidence on the reasonable amount of rentals
for Arcilla's occupancy of the property. Hence, the Court orders a remand of the case to the court of
origin, for the parties to adduce their respective evidence on the bank's counterclaim.
IN LIGHT OF ALL THE FOREGOING, the petition in G.R. No. 161426 is DENIED for lack of merit. The
petition in G.R. No. 161397 is
PARTIALLY GRANTED. Thecaseis hereby REMANDED to the Regional Trial Court of Antipolo, Rizal,
Branch 73, foritto resolve the counterclaim of the Development Bank of the Philippines for possession of
the property, and for the reasonable rentals for Felipe P. Arcilla, Jr.'s occupancy thereof after the
notarial rescission of the Deed of Conditional Sale in 1990.

Costs against petitioner Felipe P. Arcilla, Jr.

SO ORDERED.

G.R. No. 170281 January 18, 2008

REPUBLIC OF THE PHILIPPINES, represented by the ANTI-MONEY LAUNDERING COUNCIL, petitioner,

vs.
GLASGOW CREDIT AND COLLECTION SERVICES, INC. and CITYSTATE SAVINGS BANK, INC., respondents.

DECISION

CORONA, J.:

This is a petition for review1 of the order2 dated October 27, 2005 of the Regional Trial Court (RTC) of
Manila, Branch 47, dismissing the complaint for forfeiture3 filed by the Republic of the Philippines,
represented by the Anti-Money Laundering Council (AMLC) against respondents Glasgow Credit and
Collection Services, Inc. (Glasgow) and Citystate Savings Bank, Inc. (CSBI).

On July 18, 2003, the Republic filed a complaint in the RTC Manila for civil forfeiture of assets (with
urgent plea for issuance of temporary restraining order [TRO] and/or writ of preliminary injunction)
against the bank deposits in account number CA-005-10-000121-5 maintained by Glasgow in CSBI. The
case, filed pursuant to RA 9160 (the Anti-Money Laundering Act of 2001), as amended, was docketed as
Civil Case No. 03-107319.

Acting on the Republic’s urgent plea for the issuance of a TRO, the executive judge4 of RTC Manila issued
a 72-hour TRO dated July 21, 2003. The case was thereafter raffled to Branch 47 and the hearing on the
application for issuance of a writ of preliminary injunction was set on August 4, 2003.

After hearing, the trial court (through then Presiding Judge Marivic T. Balisi-Umali) issued an order
granting the issuance of a writ of preliminary injunction. The injunctive writ was issued on August 8,
2003.

Meanwhile, summons to Glasgow was returned "unserved" as it could no longer be found at its last
known address.

On October 8, 2003, the Republic filed a verified omnibus motion for (a) issuance of alias summons and
(b) leave of court to serve summons by publication. In an order dated October 15, 2003, the trial court
directed the issuance of alias summons. However, no mention was made of the motion for leave of
court to serve summons by publication.

In an order dated January 30, 2004, the trial court archived the case allegedly for failure of the Republic
to serve the alias summons. The Republic filed an ex parte omnibus motion to (a) reinstate the case and
(b) resolve its pending motion for leave of court to serve summons by publication.

In an order dated May 31, 2004, the trial court ordered the reinstatement of the case and directed the
Republic to serve the alias summons on Glasgow and CSBI within 15 days. However, it did not resolve
the Republic’s motion for leave of court to serve summons by publication declaring:

Until and unless a return is made on the alias summons, any action on [the Republic’s] motion
for leave of court to serve summons by publication would be untenable if not premature.

On July 12, 2004, the Republic (through the Office of the Solicitor General [OSG]) received a copy of the
sheriff’s return dated June 30, 2004 stating that the alias summons was returned "unserved" as Glasgow
was no longer holding office at the given address since July 2002 and left no forwarding address.

Meanwhile, the Republic’s motion for leave of court to serve summons by publication remained
unresolved. Thus, on August 11, 2005, the Republic filed a manifestation and ex parte motion to resolve
its motion for leave of court to serve summons by publication.

On August 12, 2005, the OSG received a copy of Glasgow’s "Motion to Dismiss (By Way of Special
Appearance)" dated August 11, 2005. It alleged that (1) the court had no jurisdiction over its person as
summons had not yet been served on it; (2) the complaint was premature and stated no cause of action
as there was still no conviction for estafa or other criminal violations implicating Glasgow and (3) there
was failure to prosecute on the part of the Republic.

The Republic opposed Glasgow’s motion to dismiss. It contended that its suit was an action quasi in
rem where jurisdiction over the person of the defendant was not a prerequisite to confer jurisdiction on
the court. It asserted that prior conviction for unlawful activity was not a precondition to the filing of a
civil forfeiture case and that its complaint alleged ultimate facts sufficient to establish a cause of action.
It denied that it failed to prosecute the case.

On October 27, 2005, the trial court issued the assailed order. It dismissed the case on the following
grounds: (1) improper venue as it should have been filed in the RTC of Pasig where CSBI, the depository
bank of the account sought to be forfeited, was located; (2) insufficiency of the complaint in form and
substance and (3) failure to prosecute. It lifted the writ of preliminary injunction and directed CSBI to
release to Glasgow or its authorized representative the funds in CA-005-10-000121-5.

Raising questions of law, the Republic filed this petition.

On November 23, 2005, this Court issued a TRO restraining Glasgow and CSBI, their agents,
representatives and/or persons acting upon their orders from implementing the assailed October 27,
2005 order. It restrained Glasgow from removing, dissipating or disposing of the funds in account no.
CA-005-10-000121-5 and CSBI from allowing any transaction on the said account.
The petition essentially presents the following issue: whether the complaint for civil forfeiture was
correctly dismissed on grounds of improper venue, insufficiency in form and substance and failure to
prosecute.

The Court agrees with the Republic.

The Complaint Was Filed

In The Proper Venue

In its assailed order, the trial court cited the grounds raised by Glasgow in support of its motion to
dismiss:

1. That this [c]ourt has no jurisdiction over the person of Glasgow considering that no
[s]ummons has been served upon it, and it has not entered its appearance voluntarily;

2. That the [c]omplaint for forfeiture is premature because of the absence of a prior finding by
any tribunal that Glasgow was engaged in unlawful activity: [i]n connection therewith[,] Glasgow
argues that the [c]omplaint states no cause of action; and

3. That there is failure to prosecute, in that, up to now, summons has yet to be served upon
Glasgow.5

But inasmuch as Glasgow never questioned the venue of the Republic’s complaint for civil forfeiture
against it, how could the trial court have dismissed the complaint for improper venue? In Dacoycoy v.
Intermediate Appellate Court6(reiterated in Rudolf Lietz Holdings, Inc. v. Registry of Deeds of Parañaque
City),7 this Court ruled:

The motu proprio dismissal of petitioner’s complaint by [the] trial court on the ground of
improper venue is plain error…. (emphasis supplied)

At any rate, the trial court was a proper venue.

On November 15, 2005, this Court issued A.M. No. 05-11-04-SC, the Rule of Procedure in Cases of Civil
Forfeiture, Asset Preservation, and Freezing of Monetary Instrument, Property, or Proceeds
Representing, Involving, or Relating to an Unlawful Activity or Money Laundering Offense under RA 9160,
as amended (Rule of Procedure in Cases of Civil Forfeiture). The order dismissing the Republic’s
complaint for civil forfeiture of Glasgow’s account in CSBI has not yet attained finality on account of the
pendency of this appeal. Thus, the Rule of Procedure in Cases of Civil Forfeiture applies to the Republic’s
complaint.8 Moreover, Glasgow itself judicially admitted that the Rule of Procedure in Cases of Civil
Forfeiture is "applicable to the instant case."9

Section 3, Title II (Civil Forfeiture in the Regional Trial Court) of the Rule of Procedure in Cases of Civil
Forfeiture provides:

Sec. 3. Venue of cases cognizable by the regional trial court. – A petition for civil forfeiture shall
be filed in any regional trial court of the judicial region where the monetary instrument,
property or proceeds representing, involving, or relating to an unlawful activity or to a money
 laundering offense are located; provided, however, that where all or any portion of the
monetary instrument, property or proceeds is located outside the Philippines, the petition may
be filed in the regional trial court in Manila or of the judicial region where any portion of the
monetary instrument, property, or proceeds is located, at the option of the petitioner.
(emphasis supplied)

Under Section 3, Title II of the Rule of Procedure in Cases of Civil Forfeiture, therefore, the venue of civil
forfeiture cases is any RTC of the judicial region where the monetary instrument, property or proceeds
representing, involving, or relating to an unlawful activity or to a money laundering offense are located.
Pasig City, where the account sought to be forfeited in this case is situated, is within the National Capital
Judicial Region (NCJR). Clearly, the complaint for civil forfeiture of the account may be filed in any RTC of
the NCJR. Since the RTC Manila is one of the RTCs of the NCJR,10 it was a proper venue of the Republic’s
complaint for civil forfeiture of Glasgow’s account.

The Complaint Was Sufficient In Form And Substance

In the assailed order, the trial court evaluated the Republic’s complaint to determine its sufficiency in
form and substance:

At the outset, this [c]ourt, before it proceeds, takes the opportunity to examine the [c]omplaint
and determine whether it is sufficient in form and substance.

Before this [c]ourt is a [c]omplaint for Civil Forfeiture of Assets filed by the [AMLC], represented
by the Office of the Solicitor General[,] against Glasgow and [CSBI] as necessary party. The
[c]omplaint principally alleges the following:

(a) Glasgow is a corporation existing under the laws of the Philippines, with principal office
address at Unit 703, 7th Floor, Citystate Center [Building], No. 709 Shaw Boulevard[,] Pasig City;

(b) [CSBI] is a corporation existing under the laws of the Philippines, with principal office at
Citystate Center Building, No. 709 Shaw Boulevard, Pasig City;

(c) Glasgow has funds in the amount of P21,301,430.28 deposited with [CSBI], under CA 005-10-
000121-5;

(d) As events have proved, aforestated bank account is related to the unlawful activities of
Estafa and violation of Securities Regulation Code;

(e) The deposit has been subject of Suspicious Transaction Reports;

(f) After appropriate investigation, the AMLC issued Resolutions No. 094 (dated July 10, 2002),
096 (dated July 12, 2002), 101 (dated July 23, 2002), and 108 (dated August 2, 2002), directing
the issuance of freeze orders against the bank accounts of Glasgow;

(g) Pursuant to said AMLC Resolutions, Freeze Orders Nos. 008-010, 011 and 013 were issued on
different dates, addressed to the concerned banks;
 (h) The facts and circumstances plainly showing that defendant Glasgow’s bank account and
deposit are related to the unlawful activities of Estafa and violation of Securities Regulation
Code, as well as to a money laundering offense [which] [has] been summarized by the AMLC in
its Resolution No. 094; and

(i) Because defendant Glasgow’s bank account and deposits are related to the unlawful activities
of Estafa and violation of Securities Regulation Code, as well as [to] money laundering offense as
aforestated, and being the subject of covered transaction reports and eventual freeze orders,
the same should properly be forfeited in favor of the government in accordance with Section 12,
R.A. 9160, as amended.11

In a motion to dismiss for failure to state a cause of action, the focus is on the sufficiency, not the
veracity, of the material allegations.12 The determination is confined to the four corners of the complaint
and nowhere else.13

In a motion to dismiss a complaint based on lack of cause of action, the question submitted to
the court for determination is the sufficiency of the allegations made in the complaint to
constitute a cause of action and not whether those allegations of fact are true, for said motion
must hypothetically admit the truth of the facts alleged in the complaint.

The test of the sufficiency of the facts alleged in the complaint is whether or not, admitting
the facts alleged, the court could render a valid judgment upon the same in accordance with
the prayer of the complaint.14 (emphasis ours)

In this connection, Section 4, Title II of the Rule of Procedure in Cases of Civil Forfeiture provides:

Sec. 4. Contents of the petition for civil forfeiture. - The petition for civil forfeiture shall be
verified and contain the following allegations:

(a) The name and address of the respondent;

(b) A description with reasonable particularity of the monetary instrument, property, or

proceeds, and their location; and

(c) The acts or omissions prohibited by and the specific provisions of the Anti-Money
Laundering Act, as amended, which are alleged to be the grounds relied upon for the
forfeiture of the monetary instrument, property, or proceeds; and

[(d)] The reliefs prayed for.

Here, the verified complaint of the Republic contained the following allegations:

(a) the name and address of the primary defendant therein, Glasgow;15

(b) a description of the proceeds of Glasgow’s unlawful activities with particularity, as well as
the location thereof, account no. CA-005-10-000121-5 in the amount of P21,301,430.28
maintained with CSBI;
 (c) the acts prohibited by and the specific provisions of RA 9160, as amended, constituting the
grounds for the forfeiture of the said proceeds. In particular, suspicious transaction reports
showed that Glasgow engaged in unlawful activities of estafa and violation of the Securities
Regulation Code (under Section 3(i)(9) and (13), RA 9160, as amended); the proceeds of the
unlawful activities were transacted and deposited with CSBI in account no. CA-005-10-000121-5
thereby making them appear to have originated from legitimate sources; as such, Glasgow
engaged in money laundering (under Section 4, RA 9160, as amended); and the AMLC subjected
the account to freeze order and

(d) the reliefs prayed for, namely, the issuance of a TRO or writ of preliminary injunction and the
forfeiture of the account in favor of the government as well as other reliefs just and equitable
under the premises.

The form and substance of the Republic’s complaint substantially conformed with Section 4, Title II of
the Rule of Procedure in Cases of Civil Forfeiture.

Moreover, Section 12(a) of RA 9160, as amended, provides:

SEC. 12. Forfeiture Provisions. –

(a) Civil Forfeiture. – When there is a covered transaction report made, and the court has, in a
petition filed for the purpose ordered seizure of any monetary instrument or property, in whole
or in part, directly or indirectly, related to said report, the Revised Rules of Court on civil
forfeiture shall apply.

In relation thereto, Rule 12.2 of the Revised Implementing Rules and Regulations of RA 9160, as
amended, states:

RULE 12
Forfeiture Provisions

xxx xxx xxx

Rule 12.2. When Civil Forfeiture May be Applied. – When there is a SUSPICIOUS TRANSACTION
REPORT OR A COVERED TRANSACTION REPORT DEEMED SUSPICIOUS AFTER INVESTIGATION BY
THE AMLC, and the court has, in a petition filed for the purpose, ordered the seizure of any
monetary instrument or property, in whole or in part, directly or indirectly, related to said
report, the Revised Rules of Court on civil forfeiture shall apply.

RA 9160, as amended, and its implementing rules and regulations lay down two conditions when
applying for civil forfeiture:

(1) when there is a suspicious transaction report or a covered transaction report deemed
suspicious after investigation by the AMLC and

(2) the court has, in a petition filed for the purpose, ordered the seizure of any monetary
instrument or property, in whole or in part, directly or indirectly, related to said report.
It is the preliminary seizure of the property in question which brings it within the reach of the judicial
process.16 It is actually within the court’s possession when it is submitted to the process of the
court.17 The injunctive writ issued on August 8, 2003 removed account no. CA-005-10-000121-5 from the
effective control of either Glasgow or CSBI or their representatives or agents and subjected it to the
process of the court.

Since account no. CA-005-10-000121-5 of Glasgow in CSBI was (1) covered by several suspicious
transaction reports and (2) placed under the control of the trial court upon the issuance of the writ of
preliminary injunction, the conditions provided in Section 12(a) of RA 9160, as amended, were satisfied.
Hence, the Republic, represented by the AMLC, properly instituted the complaint for civil forfeiture.

Whether or not there is truth in the allegation that account no. CA-005-10-000121-5 contains the
proceeds of unlawful activities is an evidentiary matter that may be proven during trial. The complaint,
however, did not even have to show or allege that Glasgow had been implicated in a conviction for, or
the commission of, the unlawful activities of estafa and violation of the Securities Regulation Code.

A criminal conviction for an unlawful activity is not a prerequisite for the institution of a civil forfeiture
proceeding. Stated otherwise, a finding of guilt for an unlawful activity is not an essential element of
civil forfeiture.

Section 6 of RA 9160, as amended, provides:

SEC. 6. Prosecution of Money Laundering. –

(a) Any person may be charged with and convicted of both the offense of money laundering and
the unlawful activity as herein defined.

(b) Any proceeding relating to the unlawful activity shall be given precedence over the
prosecution of any offense or violation under this Act without prejudice to the freezing
and other remedies provided. (emphasis supplied)

Rule 6.1 of the Revised Implementing Rules and Regulations of RA 9160, as amended, states:

Rule 6.1. Prosecution of Money Laundering –

(a) Any person may be charged with and convicted of both the offense of money laundering and
the unlawful activity as defined under Rule 3(i) of the AMLA.

(b) Any proceeding relating to the unlawful activity shall be given precedence over the
prosecution of any offense or violation under the AMLA without prejudice to the application ex-
parte by the AMLC to the Court of Appeals for a freeze order with respect to the monetary
instrument or property involved therein and resort to other remedies provided under the
AMLA, the Rules of Court and other pertinent laws and rules. (emphasis supplied)

Finally, Section 27 of the Rule of Procedure in Cases of Civil Forfeiture provides:

 Sec. 27. No prior charge, pendency or conviction necessary. – No prior criminal charge,
pendency of or conviction for an unlawful activity or money laundering offense is necessary for
the commencement or the resolution of a petition for civil forfeiture. (emphasis supplied)

Thus, regardless of the absence, pendency or outcome of a criminal prosecution for the unlawful activity
or for money laundering, an action for civil forfeiture may be separately and independently prosecuted
and resolved.

There Was No Failure

To Prosecute

The trial court faulted the Republic for its alleged failure to prosecute the case. Nothing could be more
erroneous.

Immediately after the complaint was filed, the trial court ordered its deputy sheriff/process server to
serve summons and notice of the hearing on the application for issuance of TRO and/or writ of
preliminary injunction. The subpoena to Glasgow was, however, returned unserved as Glasgow "could
no longer be found at its given address" and had moved out of the building since August 1, 2002.

Meanwhile, after due hearing, the trial court issued a writ of preliminary injunction enjoining Glasgow
from removing, dissipating or disposing of the subject bank deposits and CSBI from allowing any
transaction on, withdrawal, transfer, removal, dissipation or disposition thereof.

As the summons on Glasgow was returned "unserved," and considering that its whereabouts could not
be ascertained despite diligent inquiry, the Republic filed a verified omnibus motion for (a) issuance
of alias summons and (b) leave of court to serve summons by publication on October 8, 2003. While the
trial court issued an aliassummons in its order dated October 15, 2003, it kept quiet on the prayer for
leave of court to serve summons by publication.

Subsequently, in an order dated January 30, 2004, the trial court archived the case for failure of the
Republic to cause the service of alias summons. The Republic filed an ex parte omnibus motion to (a)
reinstate the case and (b) resolve its pending motion for leave of court to serve summons by publication.

In an order dated May 31, 2004, the trial court ordered the reinstatement of the case and directed the
Republic to cause the service of the alias summons on Glasgow and CSBI within 15 days. However, it
deferred its action on the Republic’s motion for leave of court to serve summons by publication until a
return was made on the alias summons.

Meanwhile, the Republic continued to exert efforts to obtain information from other government
agencies on the whereabouts or current status of respondent Glasgow if only to save on expenses of
publication of summons. Its efforts, however, proved futile. The records on file with the Securities and
Exchange Commission provided no information. Other inquiries yielded negative results.

On July 12, 2004, the Republic received a copy of the sheriff’s return dated June 30, 2004 stating that
the aliassummons had been returned "unserved" as Glasgow was no longer holding office at the given
address since July 2002 and left no forwarding address. Still, no action was taken by the trial court on
the Republic’s motion for leave of court to serve summons by publication. Thus, on August 11, 2005, the
Republic filed a manifestation and ex partemotion to resolve its motion for leave of court to serve
summons by publication.

It was at that point that Glasgow filed a motion to dismiss by way of special appearance which the
Republic vigorously opposed. Strangely, to say the least, the trial court issued the assailed order granting
Glasgow’s motion.

Given these circumstances, how could the Republic be faulted for failure to prosecute the complaint for
civil forfeiture? While there was admittedly a delay in the proceeding, it could not be entirely or
primarily ascribed to the Republic. That Glasgow’s whereabouts could not be ascertained was not only
beyond the Republic’s control, it was also attributable to Glasgow which left its principal office address
without informing the Securities and Exchange Commission or any official regulatory body (like the
Bureau of Internal Revenue or the Department of Trade and Industry) of its new address. Moreover, as
early as October 8, 2003, the Republic was already seeking leave of court to serve summons by
publication.

In Marahay v. Melicor,18 this Court ruled:

While a court can dismiss a case on the ground of non prosequitur, the real test for the exercise
of such power is whether, under the circumstances, plaintiff is chargeable with want of due
diligence in failing to proceed with reasonable promptitude. In the absence of a pattern or
scheme to delay the disposition of the case or a wanton failure to observe the mandatory
requirement of the rules on the part of the plaintiff, as in the case at bar, courts should decide
to dispense with rather than wield their authority to dismiss. (emphasis supplied)

We see no pattern or scheme on the part of the Republic to delay the disposition of the case or a
wanton failure to observe the mandatory requirement of the rules. The trial court should not have so
eagerly wielded its power to dismiss the Republic’s complaint.

Service Of Summons
May Be By Publication

In Republic v. Sandiganbayan,19 this Court declared that the rule is settled that forfeiture proceedings
are actions in rem. While that case involved forfeiture proceedings under RA 1379, the same principle
applies in cases for civil forfeiture under RA 9160, as amended, since both cases do not terminate in the
imposition of a penalty but merely in the forfeiture of the properties either acquired illegally or related
to unlawful activities in favor of the State.

As an action in rem, it is a proceeding against the thing itself instead of against the person.20 In actions in
rem or quasi in rem, jurisdiction over the person of the defendant is not a prerequisite to conferring
jurisdiction on the court, provided that the court acquires jurisdiction over the res.21 Nonetheless,
summons must be served upon the defendant in order to satisfy the requirements of due process.22 For
this purpose, service may be made by publication as such mode of service is allowed in actions in
rem and quasi in rem.23

In this connection, Section 8, Title II of the Rule of Procedure in Cases of Civil Forfeiture provides:
Sec. 8. Notice and manner of service. - (a) The respondent shall be given notice of the petition in the
same manner as service of summons under Rule 14 of the Rules of Court and the following rules:

1. The notice shall be served on respondent personally, or by any other means prescribed in
Rule 14 of the Rules of Court;

2. The notice shall contain: (i) the title of the case; (ii) the docket number; (iii) the cause of
action; and (iv) the relief prayed for; and

3. The notice shall likewise contain a proviso that, if no comment or opposition is filed within the
reglementary period, the court shall hear the case ex parte and render such judgment as may be
warranted by the facts alleged in the petition and its supporting evidence.

(b) Where the respondent is designated as an unknown owner or whenever his

whereabouts are unknown and cannot be ascertained by diligent inquiry, service may,
by leave of court, be effected upon him by publication of the notice of the petition in a
newspaper of general circulation in such places and for such time as the court may
order. In the event that the cost of publication exceeds the value or amount of the
property to be forfeited by ten percent, publication shall not be required. (emphasis
supplied)

WHEREFORE, the petition is hereby GRANTED. The October 27, 2005 order of the Regional Trial Court of
Manila, Branch 47, in Civil Case No. 03-107319 is SET ASIDE. The August 11, 2005 motion to dismiss of
Glasgow Credit and Collection Services, Inc. is DENIED. And the complaint for forfeiture of the Republic
of the Philippines, represented by the Anti-Money Laundering Council, is REINSTATED.

The case is hereby REMANDED to the Regional Trial Court of Manila, Branch 47 which shall forthwith
proceed with the case pursuant to the provisions of A.M. No. 05-11-04-SC. Pending final determination
of the case, the November 23, 2005 temporary restraining order issued by this Court is
hereby MAINTAINED.

SO ORDERED