G.R. No.
82027 March 29, 1990 Vitug insists that the said funds are his exclusive property having acquired
ROMARICO G. VITUG, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and ROWENA FAUSTINO-
CORONA, respondents.
Rufino B. Javier Law Office for petitioner.
Quisumbing, Torres & Evangelista for private respondent.
SARMIENTO, J.:
This case is a chapter in an earlier suit decided by this Court 1 involving the
probate of the two wills of the late Dolores Luchangco Vitug, who died in
New York, U. S.A., on November 10, 1980, naming private respondent
Rowena Faustino-Corona executrix. In our said decision, we upheld the
appointment of Nenita Alonte as co-special administrator of Mrs. Vitug's
estate with her (Mrs. Vitug's) widower, petitioner Romarico G. Vitug,
pending probate.
On January 13, 1985, Romarico G. Vitug filed a motion asking for authority
from the probate court to sell certain shares of stock and real properties
belonging to the estate to cover allegedly his advances to the estate in the
sum of P667,731.66, plus interests, which he claimed were personal funds.
As found by the Court of Appeals, 2 the alleged advances consisted of
P58,147.40 spent for the payment of estate tax, P518,834.27 as deficiency
estate tax, and P90,749.99 as "increment thereto." 3 According to Mr. Vitug,
he withdrew the sums of P518,834.27 and P90,749.99 from savings account
No. 35342-038 of the Bank of America, Makati, Metro Manila.
On April 12, 1985, Rowena Corona opposed the motion to sell on the ground
that the same funds withdrawn from savings account No. 35342-038 were
conjugal partnership properties and part of the estate, and hence, there was
allegedly no ground for reimbursement. She also sought his ouster for
failure to include the sums in question for inventory and for "concealment of
funds belonging to the estate." 4
the same through a survivorship agreement executed with his late wife and
the bank on June 19, 1970. The agreement provides:
We hereby agree with each other and with the BANK OF AMERICAN
NATIONAL TRUST AND SAVINGS ASSOCIATION (hereinafter referred to as the
BANK), that all money now or hereafter deposited by us or any or either of
us with the BANK in our joint savings current account shall be the property
of all or both of us and shall be payable to and collectible or withdrawable
by either or any of us during our lifetime, and after the death of either or
any of us shall belong to and be the sole property of the survivor or
survivors, and shall be payable to and collectible or withdrawable by such
survivor or survivors.
We further agree with each other and the BANK that the receipt or check of
either, any or all of us during our lifetime, or the receipt or check of the
survivor or survivors, for any payment or withdrawal made for our above-
mentioned account shall be valid and sufficient release and discharge of the
BANK for such payment or withdrawal. 5
The trial courts 6 upheld the validity of this agreement and granted "the
motion to sell some of the estate of Dolores L. Vitug, the proceeds of which
shall be used to pay the personal funds of Romarico Vitug in the total sum of
P667,731.66 ... ." 7
On the other hand, the Court of Appeals, in the petition for certiorari filed
by the herein private respondent, held that the above-quoted survivorship
agreement constitutes a conveyance mortis causa which "did not comply
with the formalities of a valid will as prescribed by Article 805 of the Civil
Code," 8 and secondly, assuming that it is a mere donation inter vivos, it is a
prohibited donation under the provisions of Article 133 of the Civil Code. 9
The dispositive portion of the decision of the Court of Appeals states:
WHEREFORE, the order of respondent Judge dated November 26, 1985
(Annex II, petition) is hereby set aside insofar as it granted private
respondent's motion to sell certain properties of the estate of Dolores L.
Vitug for reimbursement of his alleged advances to the estate, but the same
1
order is sustained in all other respects. In addition, respondent Judge is Stephenson was the exclusive owner of the bank account. In the absence,
directed to include provisionally the deposits in Savings Account No. 35342- then, of clear proof to the contrary, we must give full faith and credit to the
038 with the Bank of America, Makati, in the inventory of actual properties certificate of deposit which recites in effect that the funds in question
possessed by the spouses at the time of the decedent's death. With costs belonged to Edgar Stephenson and Ana Rivera; that they were joint (and
against private respondent. 10 several) owners thereof; and that either of them could withdraw any part or
the whole of said account during the lifetime of both, and the balance, if
In his petition, Vitug, the surviving spouse, assails the appellate court's
any, upon the death of either, belonged to the survivor. 17
ruling on the strength of our decisions in Rivera v. People's Bank and Trust
Co. 11 and Macam v. Gatmaitan 12 in which we sustained the validity of xxx xxx xxx
"survivorship agreements" and considering them as aleatory contracts. 13
In Macam v. Gatmaitan, 18 it was held:
The petition is meritorious.
xxx xxx xxx
The conveyance in question is not, first of all, one of mortis causa, which
This Court is of the opinion that Exhibit C is an aleatory contract whereby,
should be embodied in a will. A will has been defined as "a personal,
according to article 1790 of the Civil Code, one of the parties or both
solemn, revocable and free act by which a capacitated person disposes of his
reciprocally bind themselves to give or do something as an equivalent for
property and rights and declares or complies with duties to take effect after
that which the other party is to give or do in case of the occurrence of an
his death." 14 In other words, the bequest or device must pertain to the
event which is uncertain or will happen at an indeterminate time. As already
testator. 15 In this case, the monies subject of savings account No. 35342-038
stated, Leonarda was the owner of the house and Juana of the Buick
were in the nature of conjugal funds In the case relied on, Rivera v. People's
automobile and most of the furniture. By virtue of Exhibit C, Juana would
Bank and Trust Co., 16 we rejected claims that a survivorship agreement
become the owner of the house in case Leonarda died first, and Leonarda
purports to deliver one party's separate properties in favor of the other, but
would become the owner of the automobile and the furniture if Juana were
simply, their joint holdings:
to die first. In this manner Leonarda and Juana reciprocally assigned their
xxx xxx xxx respective property to one another conditioned upon who might die first,
the time of death determining the event upon which the acquisition of such
... Such conclusion is evidently predicated on the assumption that
right by the one or the other depended. This contract, as any other contract,
Stephenson was the exclusive owner of the funds-deposited in the bank,
is binding upon the parties thereto. Inasmuch as Leonarda had died before
which assumption was in turn based on the facts (1) that the account was
Juana, the latter thereupon acquired the ownership of the house, in the
originally opened in the name of Stephenson alone and (2) that Ana Rivera
same manner as Leonarda would have acquired the ownership of the
"served only as housemaid of the deceased." But it not infrequently
automobile and of the furniture if Juana had died first. 19
happens that a person deposits money in the bank in the name of another;
and in the instant case it also appears that Ana Rivera served her master for xxx xxx xxx
about nineteen years without actually receiving her salary from him. The
There is no showing that the funds exclusively belonged to one party, and
fact that subsequently Stephenson transferred the account to the name of
hence it must be presumed to be conjugal, having been acquired during the
himself and/or Ana Rivera and executed with the latter the survivorship
existence of the marita. relations. 20
agreement in question although there was no relation of kinship between
them but only that of master and servant, nullifies the assumption that
2
Neither is the survivorship agreement a donation inter vivos, for obvious
reasons, because it was to take effect after the death of one party. Secondly,
it is not a donation between the spouses because it involved no conveyance
of a spouse's own properties to the other.
It is also our opinion that the agreement involves no modification petition of
the conjugal partnership, as held by the Court of Appeals, 21 by "mere
stipulation" 22 and that it is no "cloak" 23 to circumvent the law on conjugal
property relations. Certainly, the spouses are not prohibited by law to invest
conjugal property, say, by way of a joint and several bank account, more
commonly denominated in banking parlance as an "and/or" account. In the
case at bar, when the spouses Vitug opened savings account No. 35342-038,
they merely put what rightfully belonged to them in a money-making
venture. They did not dispose of it in favor of the other, which would have
arguably been sanctionable as a prohibited donation. And since the funds
were conjugal, it can not be said that one spouse could have pressured the
other in placing his or her deposits in the money pool.
The validity of the contract seems debatable by reason of its "survivor-take-
all" feature, but in reality, that contract imposed a mere obligation with a
term, the term being death. Such agreements are permitted by the Civil
Code. 24
Under Article 2010 of the Code:
ART. 2010. By an aleatory contract, one of the parties or both reciprocally
bind themselves to give or to do something in consideration of what the
other shall give or do upon the happening of an event which is uncertain, or
which is to occur at an indeterminate time.
Under the aforequoted provision, the fulfillment of an aleatory contract
depends on either the happening of an event which is (1) "uncertain," (2)
"which is to occur at an indeterminate time." A survivorship agreement, the
sale of a sweepstake ticket, a transaction stipulating on the value of
currency, and insurance have been held to fall under the first category, while
a contract for life annuity or pension under Article 2021, et sequentia, has
been categorized under the second. 25 In either case, the element of risk is
present. In the case at bar, the risk was the death of one party and
survivorship of the other.
However, as we have warned:
xxx xxx xxx
But although the survivorship agreement is per se not contrary to law its
operation or effect may be violative of the law. For instance, if it be shown in
a given case that such agreement is a mere cloak to hide an inofficious
donation, to transfer property in fraud of creditors, or to defeat the legitime
of a forced heir, it may be assailed and annulled upon such grounds. No such
vice has been imputed and established against the agreement involved in
this case. 26
xxx xxx xxx
There is no demonstration here that the survivorship agreement had been
executed for such unlawful purposes, or, as held by the respondent court, in
order to frustrate our laws on wills, donations, and conjugal partnership.
The conclusion is accordingly unavoidable that Mrs. Vitug having
predeceased her husband, the latter has acquired upon her death a vested
right over the amounts under savings account No. 35342-038 of the Bank of
America. Insofar as the respondent court ordered their inclusion in the
inventory of assets left by Mrs. Vitug, we hold that the court was in error.
Being the separate property of petitioner, it forms no more part of the
estate of the deceased.
WHEREFORE, the decision of the respondent appellate court, dated June 29,
1987, and its resolution, dated February 9, 1988, are SET ASIDE.
No costs.
SO ORDERED.
3

G.R. No. 94723 August 21, 1997
KAREN E. SALVACION, minor, thru Federico N. Salvacion, Jr., father and
Natural Guardian, and Spouses FEDERICO N. SALVACION, JR., and EVELINA
E. SALVACION, petitioners,
vs.
CENTRAL BANK OF THE PHILIPPINES, CHINA BANKING CORPORATION and
GREG BARTELLI y NORTHCOTT, respondents.
TORRES, JR., J.:
In our predisposition to discover the "original intent" of a statute, courts
become the unfeeling pillars of the status quo. Ligle do we realize that
statutes or even constitutions are bundles of compromises thrown our way
by their framers. Unless we exercise vigilance, the statute may already be
out of tune and irrelevant to our day.
The petition is for declaratory relief. It prays for the following reliefs:
a.) Immediately upon the filing of this petition, an Order be issued
restraining the respondents from applying and enforcing Section 113 of
Central Bank Circular No. 960;
b.) After hearing, judgment be rendered:
1.) Declaring the respective rights and duties of petitioners and respondents;
2.) Adjudging Section 113 of Central Bank Circular No. 960 as contrary to the
provisions of the Constitution, hence void; because its provision that
"Foreign currency deposits shall be exempt from attachment, garnishment,
or any other order or process of any court, legislative body, government
agency or any administrative body whatsoever
i.) has taken away the right of petitioners to have the bank deposit of
defendant Greg Bartelli y Northcott garnished to satisfy the judgment
rendered in petitioners' favor in violation of substantive due process
guaranteed by the Constitution;
ii.) has given foreign currency depositors an undue favor or a class privilege
in violation of the equal protection clause of the Constitution;
iii.) has provided a safe haven for criminals like the herein respondent Greg
Bartelli y Northcott since criminals could escape civil liability for their
wrongful acts by merely converting their money to a foreign currency and
depositing it in a foreign currency deposit account with an authorized bank.
The antecedent facts:
On February 4, 1989, Greg Bartelli y Northcott, an American tourist, coaxed
and lured petitioner Karen Salvacion, then 12 years old to go with him to his
apartment. Therein, Greg Bartelli detained Karen Salvacion for four days, or
up to February 7, 1989 and was able to rape the child once on February 4,
and three times each day on February 5, 6, and 7, 1989. On February 7,
1989, after policemen and people living nearby, rescued Karen, Greg Bartelli
was arrested and detained at the Makati Municipal Jail. The policemen
recovered from Bartelli the following items: 1.) Dollar Check No. 368,
Control No. 021000678-1166111303, US 3,903.20; 2.) COCOBANK Bank
Book No. 104-108758-8 (Peso Acct.); 3.) Dollar Account — China Banking
Corp., US$/A#54105028-2; 4.) ID-122-30-8877; 5.) Philippine Money
(P234.00) cash; 6.) Door Keys 6 pieces; 7.) Stuffed Doll (Teddy Bear) used in
seducing the complainant.
On February 16, 1989, Makati Investigating Fiscal Edwin G. Condaya filed
against Greg Bartelli, Criminal Case No. 801 for Serious Illegal Detention and
Criminal Cases Nos. 802, 803, 804, and 805 for four (4) counts of Rape. On
the same day, petitioners filed with the Regional Trial Court of Makati Civil
Case No. 89-3214 for damages with preliminary attachment against Greg
Bartelli. On February 24, 1989, the day there was a scheduled hearing for
Bartelli's petition for bail the latter escaped from jail.
On February 28, 1989, the court granted the fiscal's Urgent Ex-Parte Motion
for the Issuance of Warrant of Arrest and Hold Departure Order. Pending the
4
arrest of the accused Greg Bartelli y Northcott, the criminal cases were
archived in an Order dated February 28, 1989.
Meanwhile, in Civil Case No. 89-3214, the Judge issued an Order dated
February 22, 1989 granting the application of herein petitioners, for the
issuance of the writ of preliminary attachment. After petitioners gave Bond
No. JCL (4) 1981 by FGU Insurance Corporation in the amount of
P100,000.00, a Writ of Preliminary Attachment was issued by the trial court
on February 28, 1989.
On March 1, 1989, the Deputy Sheriff of Makati served a Notice of
Garnishment on China Banking Corporation. In a letter dated March 13,
1989 to the Deputy Sheriff of Makati, China Banking Corporation invoked
Republic Act No. 1405 as its answer to the notice of garnishment served on
it. On March 15, 1989, Deputy Sheriff of Makati Armando de Guzman sent
his reply to China Banking Corporation saying that the garnishment did not
violate the secrecy of bank deposits since the disclosure is merely incidental
to a garnishment properly and legally made by virtue of a court order which
has placed the subject deposits in custodia legis. In answer to this letter of
the Deputy Sheriff of Makati, China Banking Corporation, in a letter dated
March 20, 1989, invoked Section 113 of Central Bank Circular No. 960 to the
effect that the dollar deposits or defendant Greg Bartelli are exempt from
attachment, garnishment, or any other order or process of any court,
legislative body, government agency or any administrative body, whatsoever.
This prompted the counsel for petitioners to make an inquiry with the
Central Bank in a letter dated April 25, 1989 on whether Section 113 of CB
Circular No. 960 has any exception or whether said section has been
repealed or amended since said section has rendered nugatory the
substantive right of the plaintiff to have the claim sought to be enforced by
the civil action secured by way of the writ of preliminary attachment as
granted to the plaintiff under Rule 57 of the Revised Rules of Court. The
Central Bank responded as follows:
May 26, 1989
Ms. Erlinda S. Carolino
12 Pres. Osmena Avenue
South Admiral Village
Paranaque, Metro Manila
Dear Ms. Carolino:
This is in reply to your letter dated April 25, 1989 regarding your inquiry on
Section 113, CB Circular No. 960 (1983).
The cited provision is absolute in application. It does not admit of any
exception, nor has the same been repealed nor amended.
The purpose of the law is to encourage dollar accounts within the country's
banking system which would help in the development of the economy.
There is no intention to render futile the basic rights of a person as was
suggested in your subject letter. The law may be harsh as some perceive it,
but it is still the law. Compliance is, therefore, enjoined.
Very truly yours,
(SGD) AGAPITO S. FAJARDO
Director1
Meanwhile, on April 10, 1989, the trial court granted petitioners' motion for
leave to serve summons by publication in the Civil Case No. 89-3214 entitled
"Karen Salvacion, et al. vs. Greg Bartelli y Northcott." Summons with the
complaint was a published in the Manila Times once a week for three
consecutive weeks. Greg Bartelli failed to file his answer to the complaint
and was declared in default on August 7, 1989. After hearing the case ex-
parte, the court rendered judgment in favor of petitioners on March 29,
1990, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of plaintiffs and against
defendant, ordering the latter:
1. To pay plaintiff Karen E. Salvacion the amount of P500,000.00 as moral
damages;
2. To pay her parents, plaintiffs spouses Federico N. Salvacion, Jr., and
Evelina E. Salvacion the amount of P150,000.00 each or a total of
P300,000.00 for both of them;
5
3. To pay plaintiffs exemplary damages of P100,000.00; and
4. To pay attorney's fees in an amount equivalent to 25% of the total amount
of damages herein awarded;
5. To pay litigation expenses of P10,000.00; plus
6. Costs of the suit.
SO ORDERED.
The heinous acts of respondent Greg Bartelli which gave rise to the award
were related in graphic detail by the trial court in its decision as follows:
The defendant in this case was originally detained in the municipal jail of
Makati but was able to escape therefrom on February 24, 1989 as per report
of the Jail Warden of Makati to the Presiding Judge, Honorable Manuel M.
Cosico of the Regional Trial Court of Makati, Branch 136, where he was
charged with four counts of Rape and Serious Illegal Detention (Crim. Cases
Nos. 802 to 805). Accordingly, upon motion of plaintiffs, through counsel,
summons was served upon defendant by publication in the Manila Times, a
newspaper of general circulation as attested by the Advertising Manager of
the Metro Media Times, Inc., the publisher of the said newspaper.
Defendant, however, failed to file his answer to the complaint despite the
lapse of the period of sixty (60) days from the last publication; hence, upon
motion of the plaintiffs, through counsel, defendant was declared in default
and plaintiffs were authorized to present their evidence ex parte.
In support of the complaint, plaintiffs presented as witnesses the minor
Karen E. Salvacion, her father, Federico N. Salvacion, Jr., a certain Joseph
Aguilar and a certain Liberato Madulio, who gave the following testimony:
Karen took her first year high school in St. Mary's Academy in Pasay City but
has recently transferred to Arellano University for her second year.
In the afternoon of February 4, 1989, Karen was at the Plaza Fair Makati
Cinema Square, with her friend Edna Tangile whiling away her free time. At
about 3:30 p.m. while she was finishing her snack on a concrete bench in
front of Plaza Fair, an American approached her. She was then alone because
Edna Tangile had already left, and she was about to go home. (TSN, Aug. 15,
1989, pp. 2 to 5)
The American asked her name and introduced himself as Greg Bartelli. He
sat beside her when he talked to her. He said he was a Math teacher and
told her that he has a sister who is a nurse in New York. His sister allegedly
has a daughter who is about Karen's age and who was with him in his house
along Kalayaan Avenue. (TSN, Aug. 15, 1989, pp. 4-5)
The American asked Karen what was her favorite subject and she told him
it's Pilipino. He then invited her to go with him to his house where she could
teach Pilipino to his niece. He even gave her a stuffed toy to persuade her to
teach his niece. (Id., pp. 5-6)
They walked from Plaza Fair along Pasong Tamo, turning right to reach the
defendant's house along Kalayaan Avenue. (Id., p. 6)
When they reached the apartment house, Karen noticed that defendant's
alleged niece was not outside the house but defendant told her maybe his
niece was inside. When Karen did not see the alleged niece inside the
house, defendant told her maybe his niece was upstairs, and invited Karen
to go upstairs. (Id., p. 7)
Upon entering the bedroom defendant suddenly locked the door. Karen
became nervous because his niece was not there. Defendant got a piece of
cotton cord and tied Karen's hands with it, and then he undressed her. Karen
cried for help but defendant strangled her. He took a packing tape and he
covered her mouth with it and he circled it around her head. (Id., p. 7)
Then, defendant suddenly pushed Karen towards the bed which was just
near the door. He tied her feet and hands spread apart to the bed posts. He
knelt in front of her and inserted his finger in her sex organ. She felt severe
pain. She tried to shout but no sound could come out because there were
tapes on her mouth. When defendant withdrew his finger it was full of
blood and Karen felt more pain after the withdrawal of the finger. (Id., p. 8)
He then got a Johnson's Baby Oil and he applied it to his sex organ as well as
to her sex organ. After that he forced his sex organ into her but he was not
6
able to do so. While he was doing it, Karen found it difficult to breathe and
she perspired a lot while feeling severe pain. She merely presumed that he
was able to insert his sex organ a little, because she could not see. Karen
could not recall how long the defendant was in that position. (Id. pp. 8-9)
After that, he stood up and went to the bathroom to wash. He also told
Karen to take a shower and he untied her hands. Karen could only hear the
sound of the water while the defendant, she presumed, was in the
bathroom washing his sex organ. When she took a shower more blood came
out from her. In the meantime, defendant changed the mattress because it
was full of blood. After the shower, Karen was allowed by defendant to
sleep. She fell asleep because she got tired crying. The incident happened at
about 4:00 p.m. Karen had no way of determining the exact time because
defendant removed her watch. Defendant did not care to give her food
before she went to sleep. Karen woke up at about 8:00 o'clock the following
morning. (Id., pp. 9-10)
The following day, February 5, 1989, a Sunday, after a breakfast of biscuit
and coke at about 8:30 to 9:00 a.m. defendant raped Karen while she was
still bleeding. For lunch, they also took biscuit and coke. She was raped for
the second time at about 12:00 to 2:00 p.m. In the evening, they had rice for
dinner which defendant had stored downstairs; it was he who cooked the
rice that is why it looks like "lugaw". For the third time, Karen was raped
again during the night. During those three times defendant succeeded in
inserting his sex organ but she could not say whether the organ was inserted
wholly.
Karen did not see any firearm or any bladed weapon. The defendant did not
tie her hands and feet nor put a tape on her mouth anymore but she did not
cry for help for fear that she might be killed; besides, all the windows and
doors were closed. And even if she shouted for help, nobody would hear
her. She was so afraid that if somebody would hear her and would be able to
call the police, it was still possible that as she was still inside the house,
defendant might kill her. Besides, the defendant did not leave that Sunday,
ruling out her chance to call for help. At nighttime he slept with her again.
(TSN, Aug. 15, 1989, pp. 12-14)
On February 6, 1989, Monday, Karen was raped three times, once in the
morning for thirty minutes after a breakfast of biscuits; again in the
afternoon; and again in the evening. At first, Karen did not know that there
was a window because everything was covered by a carpet, until defendant
opened the window for around fifteen minutes or less to let some air in, and
she found that the window was covered by styrofoam and plywood. After
that, he again closed the window with a hammer and he put the styrofoam,
plywood, and carpet back. (Id., pp. 14-15)
That Monday evening, Karen had a chance to call for help, although
defendant left but kept the door closed. She went to the bathroom and saw
a small window covered by styrofoam and she also spotted a small hole. She
stepped on the bowl and she cried for help through the hole. She cried:
"Maawa no po kayo so akin. Tulungan n'yo akong makalabas dito. Kinidnap
ako!" Somebody heard her. It was a woman, probably a neighbor, but she
got angry and said she was "istorbo". Karen pleaded for help and the woman
told her to sleep and she will call the police. She finally fell asleep but no
policeman came. (TSN, Aug. 15, 1989, pp. 15-16)
She woke up at 6:00 o'clock the following morning, and she saw defendant
in bed, this time sleeping. She waited for him to wake up. When he woke up,
he again got some food but he always kept the door locked. As usual, she
was merely fed with biscuit and coke. On that day, February 7, 1989, she was
again raped three times. The first at about 6:30 to 7:00 a.m., the second at
about 8:30 — 9:00, and the third was after lunch at 12:00 noon. After he
had raped her for the second time he left but only for a short while. Upon
his return, he caught her shouting for help but he did not understand what
she was shouting about. After she was raped the third time, he left the
house. (TSN, Aug. 15, 1989, pp. 16-17) She again went to the bathroom and
shouted for help. After shouting for about five minutes, she heard many
voices. The voices were asking for her name and she gave her name as Karen
Salvacion. After a while, she heard a voice of a woman saying they will just
call the police. They were also telling her to change her clothes. She went
from the bathroom to the room but she did not change her clothes being
afraid that should the neighbors call for the police and the defendant see
7
her in different clothes, he might kill her. At that time she was wearing a T-
shirt of the American because the latter washed her dress. (Id., p. 16)
Afterwards, defendant arrived and he opened the door. He asked her if she
had asked for help because there were many policemen outside and she
denied it. He told her to change her clothes, and she did change to the one
she was wearing on Saturday. He instructed her to tell the police that she
left home and willingly; then he went downstairs but he locked the door. She
could hear people conversing but she could not understand what they were
saying. (Id., p. 19)
When she heard the voices of many people who were conversing
downstairs, she knocked repeatedly at the door as hard as she could. She
heard somebody going upstairs and when the door was opened, she saw a
policeman. The policeman asked her name and the reason why she was
there. She told him she was kidnapped. Downstairs, he saw about five
policemen in uniform and the defendant was talking to them. "Nakikipag-
areglo po sa mga pulis," Karen added. "The policeman told him to just
explain at the precinct. (Id., p. 20)
They went out of the house and she saw some of her neighbors in front of
the house. They rode the car of a certain person she called Kuya Boy
together with defendant, the policeman, and two of her neighbors whom
she called Kuya Bong Lacson and one Ate Nita. They were brought to Sub-
Station I and there she was investigated by a policeman. At about 2:00 a.m.,
her father arrived, followed by her mother together with some of their
neighbors. Then they were brought to the second floor of the police
headquarters. (Id., p. 21)
At the headquarters, she was asked several questions by the investigator.
The written statement she gave to the police was marked as Exhibit A. Then
they proceeded to the National Bureau of Investigation together with the
investigator and her parents. At the NBI, a doctor, a medico-legal officer,
examined her private parts. It was already 3:00 in the early morning of the
following day when they reached the NBI. (TSN, Aug. 15, 1989, p. 22) The
findings of the medico-legal officer has been marked as Exhibit B.
She was studying at the St. Mary's Academy in Pasay City at the time of the
incident but she subsequently transferred to Apolinario Mabini, Arellano
University, situated along Taft Avenue, because she was ashamed to be the
subject of conversation in the school. She first applied for transfer to Jose
Abad Santos, Arellano University along Taft Avenue near the Light Rail
Transit Station but she was denied admission after she told the school the
true reason for her transfer. The reason for their denial was that they might
be implicated in the case. (TSN, Aug. 15, 1989, p. 46)
xxx xxx xxx
After the incident, Karen has changed a lot. She does not play with her
brother and sister anymore, and she is always in a state of shock; she has
been absent-minded and is ashamed even to go out of the house. (TSN,
Sept. 12, 1989, p. 10) She appears to be restless or sad, (Id., p. 11) The
father prays for P500,000.00 moral damages for Karen for this shocking
experience which probably, she would always recall until she reaches old
age, and he is not sure if she could ever recover from this experience. (TSN,
Sept. 24, 1989, pp. 10-11)
Pursuant to an Order granting leave to publish notice of decision, said notice
was published in the Manila Bulletin once a week for three consecutive
weeks. After the lapse of fifteen (15) days from the date of the last
publication of the notice of judgment and the decision of the trial court had
become final, petitioners tried to execute on Bartelli's dollar deposit with
China Banking Corporation. Likewise, the bank invoked Section 113 of
Central Bank Circular No. 960.
Thus, petitioners decided to seek relief from this Court.
The issues raised and the arguments articulated by the parties boil down to
two:
May this Court entertain the instant petition despite the fact that original
jurisdiction in petitions for declaratory relief rests with the lower court?
Should Section 113 of Central Bank Circular No. 960 and Section 8 of R.A.
6426, as amended by P.D. 1246, otherwise known as the Foreign Currency
Deposit Act be made applicable to a foreign transient?
8
Petitioners aver as heretofore stated that Section 113 of Central Bank
Circular No. 960 providing that "Foreign currency deposits shall be exempt
from attachment, garnishment, or any other order or process of any court,
legislative body, government agency or any administrative body
whatsoever." should be adjudged as unconstitutional on the grounds that:
1.) it has taken away the right of petitioners to have the bank deposit of
defendant Greg Bartelli y Northcott garnished to satisfy the judgment
rendered in petitioners' favor in violation of substantive due process
guaranteed by the Constitution; 2.) it has given foreign currency depositors
an undue favor or a class privilege in violation of the equal protection clause
of the Constitution; 3.) it has provided a safe haven for criminals like the
herein respondent Greg Bartelli y Northcott since criminals could escape civil
liability for their wrongful acts by merely converting their money to a foreign
currency and depositing it in a foreign currency deposit account with an
authorized bank; and 4.) The Monetary Board, in issuing Section 113 of
Central Bank Circular No. 960 has exceeded its delegated quasi-legislative
power when it took away: a.) the plaintiffs substantive right to have the
claim sought to be enforced by the civil action secured by way of the writ of
preliminary attachment as granted by Rule 57 of the Revised Rules of Court;
b.) the plaintiffs substantive right to have the judgment credit satisfied by
way of the writ of execution out of the bank deposit of the judgment debtor
as granted to the judgment creditor by Rule 39 of the Revised Rules of
Court, which is beyond its power to do so.
On the other hand, respondent Central Bank, in its Comment alleges that
the Monetary Board in issuing Section 113 of CB Circular No. 960 did not
exceed its power or authority because the subject Section is copied
verbatim from a portion of R.A. No. 6426 as amended by P.D. 1246. Hence, it
was not the Monetary Board that grants exemption from attachment or
garnishment to foreign currency deposits, but the law (R.A. 6426 as
amended) itself; that it does not violate the substantive due process
guaranteed by the Constitution because a.) it was based on a law; b.) the
law seems to be reasonable; c.) it is enforced according to regular methods
of procedure; and d.) it applies to all members of a class.
Expanding, the Central Bank said; that one reason for exempting the foreign
currency deposits from attachment, garnishment or any other order or
process of any court, is to assure the development and speedy growth of the
Foreign Currency Deposit System and the Offshore Banking System in the
Philippines; that another reason is to encourage the inflow of foreign
currency deposits into the banking institutions thereby placing such
institutions more in a position to properly channel the same to loans and
investments in the Philippines, thus directly contributing to the economic
development of the country; that the subject section is being enforced
according to the regular methods of procedure; and that it applies to all
foreign currency deposits made by any person and therefore does not
violate the equal protection clause of the Constitution.
Respondent Central Bank further avers that the questioned provision is
needed to promote the public interest and the general welfare; that the
State cannot just stand idly by while a considerable segment of the society
suffers from economic distress; that the State had to take some measures to
encourage economic development; and that in so doing persons and
property may be subjected to some kinds of restraints or burdens to secure
the general welfare or public interest. Respondent Central Bank also alleges
that Rule 39 and Rule 57 of the Revised Rules of Court provide that some
properties are exempted from execution/attachment especially provided by
law and R.A. No. 6426 as amended is such a law, in that it specifically
provides, among others, that foreign currency deposits shall be exempted
from attachment, garnishment, or any other order or process of any court,
legislative body, government agency or any administrative body whatsoever.
For its part, respondent China Banking Corporation, aside from giving
reasons similar to that of respondent Central Bank, also stated that
respondent China Bank is not unmindful of the inhuman sufferings
experienced by the minor Karen E. Salvacion from the beastly hands of Greg
Bartelli; that it is only too willing to release the dollar deposit of Bartelli
which may perhaps partly mitigate the sufferings petitioner has undergone;
but it is restrained from doing so in view of R.A. No. 6426 and Section 113 of
Central Bank Circular No. 960; and that despite the harsh effect of these
laws on petitioners, CBC has no other alternative but to follow the same.
9
This Court finds the petition to be partly meritorious.
Petitioner deserves to receive the damages awarded to her by the court. But
this petition for declaratory relief can only be entertained and treated as a
petition for mandamus to require respondents to honor and comply with
the writ of execution in Civil Case No. 89-3214.
This Court has no original and exclusive jurisdiction over a petition for
declaratory relief.2 However, exceptions to this rule have been recognized.
Thus, where the petition has far-reaching implications and raises questions
that should be resolved, it may be treated as one for mandamus.3
Here is a child, a 12-year old girl, who in her belief that all Americans are
good and in her gesture of kindness by teaching his alleged niece the Filipino
language as requested by the American, trustingly went with said stranger
to his apartment, and there she was raped by said American tourist Greg
Bartelli. Not once, but ten times. She was detained therein for four (4) days.
This American tourist was able to escape from the jail and avoid
punishment. On the other hand, the child, having received a favorable
judgment in the Civil Case for damages in the amount of more than
P1,000,000.00, which amount could alleviate the humiliation, anxiety, and
besmirched reputation she had suffered and may continue to suffer for a
long, long time; and knowing that this person who had wronged her has the
money, could not, however get the award of damages because of this
unreasonable law. This questioned law, therefore makes futile the favorable
judgment and award of damages that she and her parents fully deserve. As
stated by the trial court in its decision,
Indeed, after hearing the testimony of Karen, the Court believes that it was
undoubtedly a shocking and traumatic experience she had undergone which
could haunt her mind for a long, long time, the mere recall of which could
make her feel so humiliated, as in fact she had been actually humiliated
once when she was refused admission at the Abad Santos High School,
Arellano University, where she sought to transfer from another school,
simply because the school authorities of the said High School learned about
what happened to her and allegedly feared that they might be implicated in
the case.
xxx xxx xxx
The reason for imposing exemplary or corrective damages is due to the
wanton and bestial manner defendant had committed the acts of rape
during a period of serious illegal detention of his hapless victim, the minor
Karen Salvacion whose only fault was in her being so naive and credulous to
believe easily that defendant, an American national, could not have such a
bestial desire on her nor capable of committing such a heinous crime. Being
only 12 years old when that unfortunate incident happened, she has never
heard of an old Filipino adage that in every forest there is a
snake, . . . .4
If Karen's sad fate had happened to anybody's own kin, it would be difficult
for him to fathom how the incentive for foreign currency deposit could be
more important than his child's rights to said award of damages; in this case,
the victim's claim for damages from this alien who had the gall to wrong a
child of tender years of a country where he is a mere visitor. This further
illustrates the flaw in the questioned provisions.
It is worth mentioning that R.A. No. 6426 was enacted in 1983 or at a time
when the country's economy was in a shambles; when foreign investments
were minimal and presumably, this was the reason why said statute was
enacted. But the realities of the present times show that the country has
recovered economically; and even if not, the questioned law still denies
those entitled to due process of law for being unreasonable and oppressive.
The intention of the questioned law may be good when enacted. The law
failed to anticipate the iniquitous effects producing outright injustice and
inequality such as the case before us.
It has thus been said that —
But I also know,5 that laws and institutions must go hand in hand with the
progress of the human mind. As that becomes more developed, more
enlightened, as new discoveries are made, new truths are disclosed and
manners and opinions change with the change of circumstances, institutions
must advance also, and keep pace with the times. . . We might as well
require a man to wear still the coat which fitted him when a boy, as civilized
society to remain ever under the regimen of their barbarous ancestors.
10
In his Comment, the Solicitor General correctly opined, thus:
The present petition has far-reaching implications on the right of a national
to obtain redress for a wrong committed by an alien who takes refuge under
a law and regulation promulgated for a purpose which does not
contemplate the application thereof envisaged by the alien. More
specifically, the petition raises the question whether the protection against
attachment, garnishment or other court process accorded to foreign
currency deposits by PD No. 1246 and CB Circular No. 960 applies when the
deposit does not come from a lender or investor but from a mere transient
or tourist who is not expected to maintain the deposit in the bank for long.
The resolution of this question is important for the protection of nationals
who are victimized in the forum by foreigners who are merely passing
through.
xxx xxx xxx
. . . Respondents China Banking Corporation and Central Bank of the
Philippines refused to honor the writ of execution issued in Civil Case No.
89-3214 on the strength of the following provision of Central Bank Circular
No. 960:
Sec. 113. Exemption from attachment. — Foreign currency deposits shall be
exempt from attachment, garnishment, or any other order or process of any
court, legislative body, government agency or any administrative body
whatsoever.
Central Bank Circular No. 960 was issued pursuant to Section 7 of Republic
Act No. 6426:
Sec. 7. Rules and Regulations. The Monetary Board of the Central Bank shall
promulgate such rules and regulations as may be necessary to carry out the
provisions of this Act which shall take effect after the publication of such
rules and regulations in the Official Gazette and in a newspaper of national
circulation for at least once a week for three consecutive weeks. In case the
Central Bank promulgates new rules and regulations decreasing the rights of
depositors, the rules and regulations at the time the deposit was made shall
govern.
The aforecited Section 113 was copied from Section 8 of Republic Act NO.
6426, as amended by P.D. 1246, thus:
Sec. 8. Secrecy of Foreign Currency Deposits. — All foreign currency deposits
authorized under this Act, as amended by Presidential Decree No. 1035, as
well as foreign currency deposits authorized under Presidential Decree No.
1034, are hereby declared as and considered of an absolutely confidential
nature and, except upon the written permission of the depositor, in no
instance shall such foreign currency deposits be examined, inquired or
looked into by any person, government official, bureau or office whether
judicial or administrative or legislative or any other entity whether public or
private: Provided, however, that said foreign currency deposits shall be
exempt from attachment, garnishment, or any other order or process of any
court, legislative body, government agency or any administrative body
whatsoever.
The purpose of PD 1246 in according protection against attachment,
garnishment and other court process to foreign currency deposits is stated
in its whereases, viz.:
WHEREAS, under Republic Act No. 6426, as amended by Presidential Decree
No. 1035, certain Philippine banking institutions and branches of foreign
banks are authorized to accept deposits in foreign currency;
WHEREAS, under the provisions of Presidential Decree No. 1034 authorizing
the establishment of an offshore banking system in the Philippines, offshore
banking units are also authorized to receive foreign currency deposits in
certain cases;
WHEREAS, in order to assure the development and speedy growth of the
Foreign Currency Deposit System and the Offshore Banking System in the
Philippines, certain incentives were provided for under the two Systems
such as confidentiality of deposits subject to certain exceptions and tax
exemptions on the interest income of depositors who are nonresidents and
are not engaged in trade or business in the Philippines;
11
WHEREAS, making absolute the protective cloak of confidentiality over such
foreign currency deposits, exempting such deposits from tax, and
guaranteeing the vested rights of depositors would better encourage the
inflow of foreign currency deposits into the banking institutions authorized
to accept such deposits in the Philippines thereby placing such institutions
more in a position to properly channel the same to loans and investments in
the Philippines, thus directly contributing to the economic development of
the country;
Thus, one of the principal purposes of the protection accorded to foreign
currency deposits is "to assure the development and speedy growth of the
Foreign Currency Deposit system and the Offshore Banking in the
Philippines" (3rd Whereas).
The Offshore Banking System was established by PD No. 1034. In turn, the
purposes of PD No. 1034 are as follows:
WHEREAS, conditions conducive to the establishment of an offshore banking
system, such as political stability, a growing economy and adequate
communication facilities, among others, exist in the Philippines;
WHEREAS, it is in the interest of developing countries to have as wide access
as possible to the sources of capital funds for economic development;
WHEREAS, an offshore banking system based in the Philippines will be
advantageous and beneficial to the country by increasing our links with
foreign lenders, facilitating the flow of desired investments into the
Philippines, creating employment opportunities and expertise in
international finance, and contributing to the national development effort.
WHEREAS, the geographical location, physical and human resources, and
other positive factors provide the Philippines with the clear potential to
develop as another financial center in Asia;
On the other hand, the Foreign Currency Deposit system was created by PD.
No. 1035. Its purposes are as follows:
WHEREAS, the establishment of an offshore banking system in the
Philippines has been authorized under a separate decree;
WHEREAS, a number of local commercial banks, as depository bank under
the Foreign Currency Deposit Act (RA No. 6426), have the resources and
managerial competence to more actively engage in foreign exchange
transactions and participate in the grant of foreign currency loans to
resident corporations and firms;
WHEREAS, it is timely to expand the foreign currency lending authority of
the said depository banks under RA 6426 and apply to their transactions the
same taxes as would be applicable to transaction of the proposed offshore
banking units;
It is evident from the above [Whereas clauses] that the Offshore Banking
System and the Foreign Currency Deposit System were designed to draw
deposits from foreign lenders and investors (Vide second Whereas of PD No.
1034; third Whereas of PD No. 1035). It is these deposits that are induced by
the two laws and given protection and incentives by them.
Obviously, the foreign currency deposit made by a transient or a tourist is
not the kind of deposit encouraged by PD Nos. 1034 and 1035 and given
incentives and protection by said laws because such depositor stays only for
a few days in the country and, therefore, will maintain his deposit in the
bank only for a short time.
Respondent Greg Bartelli, as stated, is just a tourist or a transient. He
deposited his dollars with respondent China Banking Corporation only for
safekeeping during his temporary stay in the Philippines.
For the reasons stated above, the Solicitor General thus submits that the
dollar deposit of respondent Greg Bartelli is not entitled to the protection of
Section 113 of Central Bank Circular No. 960 and PD No. 1246 against
attachment, garnishment or other court processes. 6
In fine, the application of the law depends on the extent of its justice.
Eventually, if we rule that the questioned Section 113 of Central Bank
Circular No. 960 which exempts from attachment, garnishment, or any other
order or process of any court, legislative body, government agency or any
administrative body whatsoever, is applicable to a foreign transient, injustice
would result especially to a citizen aggrieved by a foreign guest like accused
12
Greg Bartelli. This would negate Article 10 of the New Civil Code which
provides that "in case of doubt in the interpretation or application of laws, it
is presumed that the lawmaking body intended right and justice to prevail.
"Ninguno non deue enriquecerse tortizeramente con dano de otro." Simply
stated, when the statute is silent or ambiguous, this is one of those
fundamental solutions that would respond to the vehement urge of
conscience. (Padilla vs. Padilla, 74 Phil. 377).

It would be unthinkable, that the questioned Section 113 of Central Bank

No. 960 would be used as a device by accused Greg Bartelli for wrongdoing,
and in so doing, acquitting the guilty at the expense of the innocent.

Call it what it may — but is there no conflict of legal policy here? Dollar
against Peso? Upholding the final and executory judgment of the lower
court against the Central Bank Circular protecting the foreign depositor?
Shielding or protecting the dollar deposit of a transient alien depositor
against injustice to a national and victim of a crime? This situation calls for
fairness against legal tyranny.

We definitely cannot have both ways and rest in the belief that we have
served the ends of justice.

IN VIEW WHEREOF, the provisions of Section 113 of CB Circular No. 960 and
PD No. 1246, insofar as it amends Section 8 of R.A. No. 6426 are hereby held
to be INAPPLICABLE to this case because of its peculiar circumstances.
Respondents are hereby REQUIRED to COMPLY with the writ of execution
issued in Civil Case No. 89-3214, "Karen Salvacion, et al. vs. Greg Bartelli y
Northcott, by Branch CXLIV, RTC Makati and to RELEASE to petitioners the
dollar deposit of respondent Greg Bartelli y Northcott in such amount as
would satisfy the judgment.

SO ORDERED.

13
G.R. Nos. 157294-95 November 30, 2006 b. Urban bank Corp. MC # 34181 dated November 8, 1999 in the amount of
P10,875,749.43;
JOSEPH VICTOR G. EJERCITO, Petitioner,
vs. c. Urban Bank MC # 34182 dated November 8, 1999 in the amount of
SANDIGANBAYAN (Special Division) and PEOPLE OF THE ₱42,716,554.22;
PHILIPPINES, Respondents.
d. Urban Bank Corp. MC # 37661 dated November 23, 1999 in the amount
DECISION of ₱54,161,496.52;

CARPIO MORALES, J.: 5. Trust Agreement dated January 1999:

The present petition for certiorari under Rule 65 assails the Sandiganbayan Trustee: Joseph Victor C. Ejercito
Resolutions dated February 7 and 12, 2003 denying petitioner Joseph Victor
Nominee: URBAN BANK-TRUST DEPARTMENT
G. Ejercito’s Motions to Quash Subpoenas Duces Tecum/Ad Testificandum,
and Resolution dated March 11, 2003 denying his Motion for Special Private Account No. (SPAN) 858; and
Reconsideration of the first two resolutions.
6. Ledger of the SPAN # 858.
The three resolutions were issued in Criminal Case No. 26558, "People of
the Philippines v. Joseph Ejercito Estrada, et al.," for plunder, defined and II. For Savings Account No. 0116-17345-9
penalized in R.A. 7080, "AN ACT DEFINING AND PENALIZING THE CRIME OF SPAN No. 858
PLUNDER."
1. Signature Cards; and
In above-stated case of People v. Estrada, et al., the Special Prosecution
Panel1 filed on January 20, 2003 before the Sandiganbayan a Request for 2. Statement of Account/Ledger
Issuance of Subpoena Duces Tecum for the issuance of a subpoena directing III. Urban Bank Manager’s Check and their corresponding Urban Bank
the President of Export and Industry Bank (EIB, formerly Urban Bank) or Manager’s Check Application Forms, as follows:
his/her authorized representative to produce the following documents
during the hearings scheduled on January 22 and 27, 2003: 1. MC # 039975 dated January 18, 2000 in the amount of ₱70,000,000.00;

I. For Trust Account No. 858; 2. MC # 039976 dated January 18, 2000 in the amount of ₱2,000,000.00;

1. Account Opening Documents; 3. MC # 039977 dated January 18, 2000 in the amount of ₱2,000,000.00;

2. Trading Order No. 020385 dated January 29, 1999; 4. MC # 039978 dated January 18, 2000 in the amount of ₱1,000,000.00;

3. Confirmation Advice TA 858;
4. Original/Microfilm copies, including the dorsal side, of the following:
a. Bank of Commerce MC # 0256254 in the amount of ₱2,000,000.00;
The Special Prosecution Panel also filed on January 20, 2003, a Request for
Issuance of Subpoena Duces Tecum/Ad Testificandum directed to the
authorized representative of Equitable-PCI Bank to produce statements of
account pertaining to certain accounts in the name of "Jose Velarde" and to
testify thereon.
14
The Sandiganbayan granted both requests by Resolution of January 21, 2003
and subpoenas were accordingly issued.
The Special Prosecution Panel filed still another Request for Issuance of
Subpoena Duces Tecum/Ad Testificandum dated January 23, 2003 for the
President of EIB or his/her authorized representative to produce the same
documents subject of the Subpoena Duces Tecum dated January 21, 2003
and to testify thereon on the hearings scheduled on January 27 and 29,
2003 and subsequent dates until completion of the testimony. The request
was likewise granted by the Sandiganbayan. A Subpoena Duces Tecum/Ad
Testificandum was accordingly issued on January 24, 2003.
Petitioner, claiming to have learned from the media that the Special
Prosecution Panel had requested for the issuance of subpoenas for the
examination of bank accounts belonging to him, attended the hearing of the
case on January 27, 2003 and filed before the Sandiganbayan a letter of even
date expressing his concerns as follows, quoted verbatim:
Your Honors:
It is with much respect that I write this court relative to the concern of
subpoenaing the undersigned’s bank account which I have learned through
the media.
I am sure the prosecution is aware of our banking secrecy laws everyone
supposed to observe. But, instead of prosecuting those who may have
breached such laws, it seems it is even going to use supposed evidence
which I have reason to believe could only have been illegally obtained.
The prosecution was not content with a general request. It even lists and
identifies specific documents meaning someone else in the bank illegally
released confidential information.
If this can be done to me, it can happen to anyone. Not that anything can
still shock our family. Nor that I have anything to hide. Your Honors.
But, I am not a lawyer and need time to consult one on a situation that
affects every bank depositor in the country and should interest the bank
itself, the Bangko Sentral ng Pilipinas, and maybe the Ombudsman himself,
who may want to investigate, not exploit, the serious breach that can only
harm the economy, a consequence that may have been overlooked. There
appears to have been deplorable connivance.
xxxx
I hope and pray, Your Honors, that I will be given time to retain the services
of a lawyer to help me protect my rights and those of every banking
depositor. But the one I have in mind is out of the country right now.
May I, therefore, ask your Honors, that in the meantime, the issuance of the
subpoena be held in abeyance for at least ten (10) days to enable me to take
appropriate legal steps in connection with the prosecution’s request for the
issuance of subpoena concerning my accounts. (Emphasis supplied)
From the present petition, it is gathered that the "accounts" referred to by
petitioner in his above-quoted letter are Trust Account No. 858 and Savings
Account No. 0116-17345-9.2
In open court, the Special Division of the Sandiganbayan, through Associate
Justice Edilberto Sandoval, advised petitioner that his remedy was to file a
motion to quash, for which he was given up to 12:00 noon the following day,
January 28, 2003.
Petitioner, unassisted by counsel, thus filed on January 28, 2003 a Motion to
Quash Subpoena Duces Tecum/Ad Testificandum praying that the subpoenas
previously issued to the President of the EIB dated January 21 and January
24, 2003 be quashed.3
In his Motion to Quash, petitioner claimed that his bank accounts are
covered by R.A. No. 1405 (The Secrecy of Bank Deposits Law) and do not fall
under any of the exceptions stated therein. He further claimed that the
specific identification of documents in the questioned subpoenas, including
details on dates and amounts, could only have been made possible by an
earlier illegal disclosure thereof by the EIB and the Philippine Deposit
Insurance Corporation (PDIC) in its capacity as receiver of the then Urban
Bank.
15
The disclosure being illegal, petitioner concluded, the prosecution in the
case may not be allowed to make use of the information.
Before the Motion to Quash was resolved by the Sandiganbayan, the
prosecution filed another Request for the Issuance of Subpoena Duces
Tecum/Ad Testificandum dated January 31, 2003, again to direct the
President of the EIB to produce, on the hearings scheduled on February 3
and 5, 2003, the same documents subject of the January 21 and 24, 2003
subpoenas with the exception of the Bank of Commerce MC #0256254 in
the amount of ₱2,000,000 as Bank of Commerce MC #0256256 in the
amount of ₱200,000,000 was instead requested. Moreover, the request
covered the following additional documents:
IV. For Savings Account No. 1701-00646-1:
1. Account Opening Forms;
2. Specimen Signature Card/s; and
3. Statements of Account.
The prosecution also filed a Request for the Issuance of Subpoena Duces
Tecum/Ad Testificandum bearing the same date, January 31, 2003, directed
to Aurora C. Baldoz, Vice President-CR-II of the PDIC for her to produce the
following documents on the scheduled hearings on February 3 and 5, 2003:
1. Letter of authority dated November 23, 1999 re: SPAN [Special Private
Account Number] 858;
2. Letter of authority dated January 29, 2000 re: SPAN 858;
3. Letter of authority dated April 24, 2000 re: SPAN 858;
4. Urban Bank check no. 052092 dated April 24, 2000 for the amount of P36,
572, 315.43;
5. Urban Bank check no. 052093 dated April 24, 2000 for the amount of
P107,191,780.85; and
6. Signature Card Savings Account No. 0116-17345-9. (Underscoring
supplied)
The subpoenas prayed for in both requests were issued by the
Sandiganbayan on January 31, 2003.
On February 7, 2003, petitioner, this time assisted by counsel, filed an
Urgent Motion to Quash Subpoenae Duces Tecum/Ad Testificandum praying
that the subpoena dated January 31, 2003 directed to Aurora Baldoz be
quashed for the same reasons which he cited in the Motion to Quash 4 he
had earlier filed.
On the same day, February 7, 2003, the Sandiganbayan issued a Resolution
denying petitioner’s Motion to Quash Subpoenae Duces Tecum/Ad
Testificandum dated January 28, 2003.
Subsequently or on February 12, 2003, the Sandiganbayan issued a
Resolution denying petitioner’s Urgent Motion to Quash Subpoena Duces
Tecum/Ad Testificandum dated February 7, 2003.
Petitioner’s Motion for Reconsideration dated February 24, 2003 seeking a
reconsideration of the Resolutions of February 7 and 12, 2003 having been
denied by Resolution of March 11, 2003, petitioner filed the present
petition.
Raised as issues are:
1. Whether petitioner’s Trust Account No. 858 is covered by the term
"deposit" as used in R.A. 1405;
2. Whether petitioner’s Trust Account No. 858 and Savings Account No.
0116-17345-9 are excepted from the protection of R.A. 1405; and
3. Whether the "extremely-detailed" information contained in the Special
Prosecution Panel’s requests for subpoena was obtained through a prior
illegal disclosure of petitioner’s bank accounts, in violation of the "fruit of
the poisonous tree" doctrine.
Respondent People posits that Trust Account No. 858 5 may be inquired into,
not merely because it falls under the exceptions to the coverage of R.A.
1405, but because it is not even contemplated therein. For, to respondent
People, the law applies only to "deposits" which strictly means the money
16
delivered to the bank by which a creditor-debtor relationship is created
between the depositor and the bank.
The contention that trust accounts are not covered by the term "deposits,"
as used in R.A. 1405, by the mere fact that they do not entail a creditor-
debtor relationship between the trustor and the bank, does not lie. An
examination of the law shows that the term "deposits" used therein is to be
understood broadly and not limited only to accounts which give rise to a
creditor-debtor relationship between the depositor and the bank.
The policy behind the law is laid down in Section 1:
SECTION 1. It is hereby declared to be the policy of the Government to give
encouragement to the people to deposit their money in banking institutions
and to discourage private hoarding so that the same may be properly
utilized by banks in authorized loans to assist in the economic development
of the country. (Underscoring supplied)
If the money deposited under an account may be used by banks for
authorized loans to third persons, then such account, regardless of whether
it creates a creditor-debtor relationship between the depositor and the
bank, falls under the category of accounts which the law precisely seeks to
protect for the purpose of boosting the economic development of the
country.
Trust Account No. 858 is, without doubt, one such account. The Trust
Agreement between petitioner and Urban Bank provides that the trust
account covers "deposit, placement or investment of funds" by Urban
Bank for and in behalf of petitioner.6 The money deposited under Trust
Account No. 858, was, therefore, intended not merely to remain with the
bank but to be invested by it elsewhere. To hold that this type of account is
not protected by R.A. 1405 would encourage private hoarding of funds that
could otherwise be invested by banks in other ventures, contrary to the
policy behind the law.
Section 2 of the same law in fact even more clearly shows that the term
"deposits" was intended to be understood broadly:
SECTION 2. All deposits of whatever nature with banks or banking
institutions in the Philippines including investments in bonds issued by the
Government of the Philippines, its political subdivisions and its
instrumentalities, are hereby considered as of an absolutely confidential
nature and may not be examined, inquired or looked into by any person,
government official, bureau or office, except upon written permission of the
depositor, or in cases of impeachment, or upon order of a competent court
in cases of bribery or dereliction of duty of public officials, or in cases where
the money deposited or invested is the subject matter of the litigation.
(Emphasis and underscoring supplied)
The phrase "of whatever nature" proscribes any restrictive interpretation of
"deposits." Moreover, it is clear from the immediately quoted provision that,
generally, the law applies not only to money which is deposited but also to
those which are invested. This further shows that the law was not intended
to apply only to "deposits" in the strict sense of the word. Otherwise, there
would have been no need to add the phrase "or invested."
Clearly, therefore, R.A. 1405 is broad enough to cover Trust Account No. 858.
The protection afforded by the law is, however, not absolute, there being
recognized exceptions thereto, as above-quoted Section 2 provides. In the
present case, two exceptions apply, to wit: (1) the examination of bank
accounts is upon order of a competent court in cases of bribery or
dereliction of duty of public officials, and (2) the money deposited or
invested is the subject matter of the litigation.
Petitioner contends that since plunder is neither bribery nor dereliction of
duty, his accounts are not excepted from the protection of R.A.
1405. Philippine National Bank v. Gancayco7 holds otherwise:
Cases of unexplained wealth are similar to cases of bribery or dereliction of
duty and no reason is seen why these two classes of cases cannot be
excepted from the rule making bank deposits confidential. The policy as to
one cannot be different from the policy as to the other. This policy
expresses the notion that a public office is a public trust and any person
who enters upon its discharge does so with the full knowledge that his life,
so far as relevant to his duty, is open to public scrutiny.
17
Undoubtedly, cases for plunder involve unexplained wealth. Section 2 of
R.A. No. 7080 states so.
SECTION 2. Definition of the Crime of Plunder; Penalties. — Any public
officer who, by himself or in connivance with members of his family,
relatives by affinity or consanguinity, business associates, subordinates or
other persons, amasses, accumulates or acquires ill-gotten wealth through
a combination or series of overt or criminal acts as described in Section 1(d)
hereof, in the aggregate amount or total value of at least Seventy-five million
pesos (P75,000,000.00), shall be guilty of the crime of plunder and shall be
punished by life imprisonment with perpetual absolute disqualification from
holding any public office. Any person who participated with said public
officer in the commission of plunder shall likewise be punished. In the
imposition of penalties, the degree of participation and the attendance of
mitigating and extenuating circumstances shall be considered by the court.
The court shall declare any and all ill-gotten wealth and their interests and
other incomes and assets including the properties and shares of stock
derived from the deposit or investment thereof forfeited in favor of the
State. (Emphasis and underscoring supplied)
An examination of the "overt or criminal acts as described in Section 1(d)" of
R.A. No. 7080 would make the similarity between plunder and bribery even
more pronounced since bribery is essentially included among these criminal
acts. Thus Section 1(d) states:
d) "Ill-gotten wealth" means any asset, property, business enterprise or
material possession of any person within the purview of Section Two (2)
hereof, acquired by him directly or indirectly through dummies, nominees,
agents, subordinates and or business associates by any combination or
series of the following means or similar schemes.
1) Through misappropriation, conversion, misuse, or malversation of public
funds or raids on the public treasury;
2) By receiving, directly or indirectly, any commission, gift, share,
percentage, kickbacks or any other form of pecuniary benefit from any
person and/or entity in connection with any government contract or
project or by reason of the office or position of the public officer
concerned;
3) By the illegal or fraudulent conveyance or disposition of assets belonging
to the National Government or any of its subdivisions, agencies or
instrumentalities or government-owned or -controlled corporations and
their subsidiaries;
4) By obtaining, receiving or accepting directly or indirectly any shares of
stock, equity or any other form of interest or participation including promise
of future employment in any business enterprise or undertaking;
5) By establishing agricultural, industrial or commercial monopolies or other
combinations and/or implementation of decrees and orders intended to
benefit particular persons or special interests; or
6) By taking undue advantage of official position, authority, relationship,
connection or influence to unjustly enrich himself or themselves at the
expense and to the damage and prejudice of the Filipino people and the
Republic of the Philippines. (Emphasis supplied)
Indeed, all the above-enumerated overt acts are similar to bribery such that,
in each case, it may be said that "no reason is seen why these two classes of
cases cannot be excepted from the rule making bank deposits confidential." 8
The crime of bribery and the overt acts constitutive of plunder are crimes
committed by public officers, and in either case the noble idea that "a public
office is a public trust and any person who enters upon its discharge does so
with the full knowledge that his life, so far as relevant to his duty, is open to
public scrutiny" applies with equal force.
Plunder being thus analogous to bribery, the exception to R.A. 1405
applicable in cases of bribery must also apply to cases of plunder.
Respecting petitioner’s claim that the money in his bank accounts is not the
"subject matter of the litigation," the meaning of the phrase "subject matter
of the litigation" as used in R.A. 1405 is explained in Union Bank of the
Philippines v. Court of Appeals,9 thus:
18
Petitioner contends that the Court of Appeals confuses the "cause of action"
with the "subject of the action". In Yusingco v. Ong Hing Lian, petitioner
points out, this Court distinguished the two concepts.
x x x "The cause of action is the legal wrong threatened or committed, while
the object of the action is to prevent or redress the wrong by obtaining
some legal relief; but the subject of the action is neither of these since it is
not the wrong or the relief demanded, the subject of the action is the
matter or thing with respect to which the controversy has arisen, concerning
which the wrong has been done, and this ordinarily is the property or the
contract and its subject matter, or the thing in dispute."
The argument is well-taken. We note with approval the difference between
the ‘subject of the action’ from the ‘cause of action.’ We also find
petitioner’s definition of the phrase ‘subject matter of the action’ is
consistent with the term ‘subject matter of the litigation’, as the latter is
used in the Bank Deposits Secrecy Act.
In Mellon Bank, N.A. v. Magsino , where the petitioner bank inadvertently
caused the transfer of the amount of US$1,000,000.00 instead of only
US$1,000.00, the Court sanctioned the examination of the bank accounts
where part of the money was subsequently caused to be deposited:
‘x x x Section 2 of [Republic Act No. 1405] allows the disclosure of bank
deposits in cases where the money deposited is the subject matter of the
litigation. Inasmuch as Civil Case No. 26899 is aimed at recovering the
amount converted by the Javiers for their own benefit, necessarily, an
inquiry into the whereabouts of the illegally acquired amount extends to
whatever is concealed by being held or recorded in the name of persons
other than the one responsible for the illegal acquisition."
Clearly, Mellon Bank involved a case where the money deposited was the
subject matter of the litigation since the money deposited was the very
thing in dispute. x x x" (Emphasis and underscoring supplied)
The plunder case now pending with the Sandiganbayan necessarily involves
an inquiry into the whereabouts of the amount purportedly acquired
illegally by former President Joseph Estrada.
In light then of this Court’s pronouncement in Union Bank, the subject
matter of the litigation cannot be limited to bank accounts under the name
of President Estrada alone, but must include those accounts to which the
money purportedly acquired illegally or a portion thereof was alleged to
have been transferred. Trust Account No. 858 and Savings Account No.
0116-17345-9 in the name of petitioner fall under this description and must
thus be part of the subject matter of the litigation.
In a further attempt to show that the subpoenas issued by the
Sandiganbayan are invalid and may not be enforced, petitioner contends, as
earlier stated, that the information found therein, given their "extremely
detailed" character, could only have been obtained by the Special
Prosecution Panel through an illegal disclosure by the bank officials
concerned. Petitioner thus claims that, following the "fruit of the poisonous
tree" doctrine, the subpoenas must be quashed.
Petitioner further contends that even if, as claimed by respondent People,
the "extremely-detailed" information was obtained by the Ombudsman
from the bank officials concerned during a previous investigation of the
charges against President Estrada, such inquiry into his bank accounts would
itself be illegal.
Petitioner relies on Marquez v. Desierto10 where the Court held:
We rule that before an in camera inspection may be allowed there must be a
pending case before a court of competent jurisdiction. Further, the account
must be clearly identified, the inspection limited to the subject matter of the
pending case before the court of competent jurisdiction. The bank personnel
and the account holder must be notified to be present during the
inspection, and such inspection may cover only the account identified in the
pending case. (Underscoring supplied)
As no plunder case against then President Estrada had yet been filed before
a court of competent jurisdiction at the time the Ombudsman conducted an
investigation, petitioner concludes that the information about his bank
accounts were acquired illegally, hence, it may not be lawfully used to
facilitate a subsequent inquiry into the same bank accounts.
19
Petitioner’s attempt to make the exclusionary rule applicable to the instant
case fails. R.A. 1405, it bears noting, nowhere provides that an unlawful
examination of bank accounts shall render the evidence obtained therefrom
inadmissible in evidence. Section 5 of R.A. 1405 only states that "[a]ny
violation of this law will subject the offender upon conviction, to an
imprisonment of not more than five years or a fine of not more than twenty
thousand pesos or both, in the discretion of the court."
The case of U.S. v. Frazin,11 involving the Right to Financial Privacy Act of
1978 (RFPA) of the United States, is instructive.
Because the statute, when properly construed, excludes a suppression
remedy, it would not be appropriate for us to provide one in the exercise of
our supervisory powers over the administration of justice. Where Congress
has both established a right and provided exclusive remedies for its
violation, we would "encroach upon the prerogatives" of Congress were we
to authorize a remedy not provided for by statute. United States v.
Chanen, 549 F.2d 1306, 1313 (9th Cir.) , cert. denied, 434 U.S. 825, 98 S.Ct.
72, 54 L.Ed.2d 83 (1977).
The same principle was reiterated in U.S. v. Thompson:12
x x x When Congress specifically designates a remedy for one of its acts,
courts generally presume that it engaged in the necessary balancing of
interests in determining what the appropriate penalty should
be. See Michaelian, 803 F.2d at 1049 (citing cases); Frazin, 780 F.2d at 1466.
Absent a specific reference to an exclusionary rule, it is not appropriate for
the courts to read such a provision into the act.
Even assuming arguendo, however, that the exclusionary rule applies in
principle to cases involving R.A. 1405, the Court finds no reason to apply the
same in this particular case.
13
Clearly, the "fruit of the poisonous tree" doctrine presupposes a violation
of law. If there was no violation of R.A. 1405 in the instant case, then there
would be no "poisonous tree" to begin with, and, thus, no reason to apply
the doctrine.
How the Ombudsman conducted his inquiry into the bank accounts of
petitioner is recounted by respondent People of the Philippines, viz:
x x x [A]s early as February 8, 2001, long before the issuance of
the Marquez ruling, the Office of the Ombudsman, acting under the powers
granted to it by the Constitution and R.A. No. 6770, and acting on
information obtained from various sources, including impeachment (of then
Pres. Joseph Estrada) related reports, articles and investigative journals,
issued a Subpoena Duces Tecum addressed to Urban Bank. (Attachment "1-
b") It should be noted that the description of the documents sought to be
produced at that time included that of numbered accounts 727, 737, 747,
757, 777 and 858 and included such names as Jose Velarde, Joseph E.
Estrada, Laarni Enriquez, Guia Gomez, Joy Melendrez, Peachy Osorio,
Rowena Lopez, Kevin or Kelvin Garcia. The subpoena did not single out
account 858.
xxxx
Thus, on February 13, 2001, PDIC, as receiver of Urban Bank, issued a
certification as to the availability of bank documents relating to A/C 858 and
T/A 858 and the non-availability of bank records as to the other accounts
named in the subpoena. (Attachments "2", "2-1" and "2-b)
Based on the certification issued by PDIC, the Office of the Ombudsman
on February 16, 2001 again issued a Subpoena Duces Tecum directed to Ms.
Corazon dela Paz, as Interim Receiver, directing the production of
documents pertinent to account A/C 858 and T/C 858. (Attachment "3")
In compliance with the said subpoena dated February 16, 2001, Ms. Dela
Paz, as interim receiver, furnished the Office of the Ombudsman certified
copies of documents under cover latter dated February 21, 2001:
1. Transaction registers dated 7-02-99, 8-16-99, 9-17-99, 10-18-99, 11-22-99,
1-07-00, 04-03-00 and 04-24-00;
2. Report of Unregularized TAFs & TDs for UR COIN A & B Placements of
Various Branches as of February 29, 2000 and as of December 16, 1999; and
3. Trading Orders Nos. A No. 78102 and A No. 078125.
20
Trading Order A No. 07125 is filed in two copies – a white copy which
showed "set up" information; and a yellow copy which showed "reversal"
information. Both copies have been reproduced and are enclosed with this
letter.
We are continuing our search for other records and documents pertinent to
your request and we will forward to you on Friday, 23 February 2001, such
additional records and documents as we might find until then. (Attachment
"4")
The Office of the Ombudsman then requested for the manger’s checks,
detailed in the Subpoena Duces Tecum dated March 7, 2001. (Attachment
"5")
PDIC again complied with the said Subpoena Duces Tecum dated March 7,
2001 and provided copies of the manager’s checks thus requested under
cover letter dated March 16, 2001. (Attachment "6")14 (Emphasis in the
original)
The Sandiganbayan credited the foregoing account of respondent
People.15 The Court finds no reason to disturb this finding of fact by the
Sandiganbayan.
The Marquez ruling notwithstanding, the above-described examination by
the Ombudsman of petitioner’s bank accounts, conducted before a case was
filed with a court of competent jurisdiction, was lawful.
For the Ombudsman issued the subpoenas bearing on the bank accounts of
petitioner about four months before Marquez was promulgated on June 27,
2001.
While judicial interpretations of statutes, such as that made in Marquez with
respect to R.A. No. 6770 or the Ombudsman Act of 1989, are deemed part
of the statute as of the date it was originally passed, the rule is not absolute.
Columbia Pictures, Inc. v. Court of Appeals 16 teaches:
It is consequently clear that a judicial interpretation becomes a part of the
law as of the date that law was originally passed, subject only to the
qualification that when a doctrine of this Court is overruled and a different
view is adopted, and more so when there is a reversal thereof, the new
doctrine should be applied prospectively and should not apply to parties
who relied on the old doctrine and acted in good faith. (Emphasis and
underscoring supplied)
When this Court construed the Ombudsman Act of 1989, in light of the
Secrecy of Bank Deposits Law in Marquez, that "before an in camera
inspection may be allowed there must be a pending case before a court of
competent jurisdiction", it was, in fact, reversing an earlier doctrine found
in Banco Filipino Savings and Mortgage Bank v. Purisima 17.
Banco Filipino involved subpoenas duces tecum issued by the Office of the
Ombudsman, then known as the Tanodbayan, 18 in the course of
its preliminary investigation of a charge of violation of the Anti-Graft and
Corrupt Practices Act.
While the main issue in Banco Filipino was whether R.A. 1405 precluded the
Tanodbayan’s issuance of subpoena duces tecum of bank records in the
name of persons other than the one who was charged, this Court, citing P.D.
1630,19 Section 10, the relevant part of which states:
(d) He may issue a subpoena to compel any person to appear, give sworn
testimony, or produce documentary or other evidence the Tanodbayan
deems relevant to a matter under his inquiry,
held that "The power of the Tanodbayan to issue subpoenae ad
testificandum and subpoenae duces tecum at the time in question is not
disputed, and at any rate does not admit of doubt."20
As the subpoenas subject of Banco Filipino were issued during a preliminary
investigation, in effect this Court upheld the power of the Tandobayan under
P.D. 1630 to issue subpoenas duces tecum for bank documents prior to the
filing of a case before a court of competent jurisdiction.
Marquez, on the other hand, practically reversed this ruling in Banco Filipino
despite the fact that the subpoena power of the Ombudsman under R.A.
21
6770 was essentially the same as that under P.D. 1630. Thus Section 15 of
R.A. 6770 empowers the Office of the Ombudsman to
(8) Administer oaths, issue subpoena and subpoena duces tecum, and take
testimony in any investigation or inquiry, including the power to examine
and have access to bank accounts and records;
A comparison of this provision with its counterpart in Sec. 10(d) of P.D. 1630
clearly shows that it is only more explicit in stating that the power of the
Ombudsman includes the power to examine and have access to bank
accounts and records which power was recognized with respect to the
Tanodbayan through Banco Filipino.
The Marquez ruling that there must be a pending case in order for the
Ombudsman to validly inspect bank records in camera thus reversed a
prevailing doctrine.21 Hence, it may not be retroactively applied.
The Ombudsman’s inquiry into the subject bank accounts prior to the filing
of any case before a court of competent jurisdiction was therefore valid at
the time it was conducted.
Likewise, the Marquez ruling that "the account holder must be notified to be
present during the inspection" may not be applied retroactively to the
inquiry of the Ombudsman subject of this case. This ruling is not a judicial
interpretation either of R.A. 6770 or R.A. 1405, but a "judge-made" law
which, as People v. Luvendino22 instructs, can only be given prospective
application:
x x x The doctrine that an uncounselled waiver of the right to counsel is not
to be given legal effect was initially a judge-made one and was first
announced on 26 April 1983 in Morales v. Enrile and reiterated on 20
March 1985 in People v. Galit. x x x
While the Morales-Galit doctrine eventually became part of Section 12(1) of
the 1987 Constitution, that doctrine affords no comfort to appellant
Luvendino for the requirements and restrictions outlined
in Morales and Galit have no retroactive effect and do not reach waivers
made prior to 26 April 1983 the date of promulgation of Morales. (Emphasis
supplied)
In fine, the subpoenas issued by the Ombudsman in this case were legal,
hence, invocation of the "fruit of the poisonous tree" doctrine is misplaced.
At all events, even if the challenged subpoenas are quashed, the
Ombudsman is not barred from requiring the production of the same
documents based solely on information obtained by it from
sources independent of its previous inquiry.
In particular, the Ombudsman, even before its inquiry, had already
possessed information giving him grounds to believe that (1) there are bank
accounts bearing the number "858," (2) that such accounts are in the
custody of Urban Bank, and (3) that the same are linked with the bank
accounts of former President Joseph Estrada who was then under
investigation for plunder.
Only with such prior independent information could it have been possible
for the Ombudsman to issue the February 8, 2001 subpoena duces
tecum addressed to the President and/or Chief Executive Officer of Urban
Bank, which described the documents subject thereof as follows:
(a) bank records and all documents relative thereto pertaining to all bank
accounts (Savings, Current, Time Deposit, Trust, Foreign Currency Deposits,
etc…) under the account names of Jose Velarde, Joseph E. Estrada, Laarni
Enriquez, Guia Gomez, Joy Melendrez, Peach Osorio, Rowena Lopez, Kevin
or Kelvin Garcia, 727, 737, 747, 757, 777 and 858. (Emphasis and
underscoring supplied)
The information on the existence of Bank Accounts bearing number "858"
was, according to respondent People of the Philippines, obtained from
various sources including the proceedings during the impeachment of
President Estrada, related reports, articles and investigative journals. 23 In the
absence of proof to the contrary, this explanation proffered by respondent
must be upheld. To presume that the information was obtained in violation
of R.A. 1405 would infringe the presumption of regularity in the
performance of official functions.
22
Thus, with the filing of the plunder case against former President Estrada
before the Sandiganbayan, the Ombudsman, using the above independent
information, may now proceed to conduct the same investigation it earlier
conducted, through which it can eventually obtain the same information
previously disclosed to it by the PDIC, for it is an inescapable fact that the
bank records of petitioner are no longer protected by R.A. 1405 for the
reasons already explained above.1âwphi1
Since conducting such an inquiry would, however, only result in the
disclosure of the same documents to the Ombudsman, this Court, in
avoidance of what would be a time-wasteful and circuitous way of
administering justice,24 upholds the challenged subpoenas.
Respecting petitioner’s claim that the Sandiganbayan violated his right to
due process as he was neither notified of the requests for the issuance of
the subpoenas nor of the grant thereof, suffice it to state that the defects
were cured when petitioner ventilated his arguments against the issuance
thereof through his earlier quoted letter addressed to the Sandiganbayan
and when he filed his motions to quash before the Sandiganbayan.
IN SUM, the Court finds that the Sandiganbayan did not commit grave abuse
of discretion in issuing the challenged subpoenas for documents pertaining
to petitioner’s Trust Account No. 858 and Savings Account No. 0116-17345-9
for the following reasons:
inadmissible, does not apply in this case. In the first place, R.A. 1405 does
not provide for the application of this rule. Moreover, there is no basis for
applying the same in this case since the primary source for the detailed
information regarding petitioner’s bank accounts – the investigation
previously conducted by the Ombudsman – was lawful.
3. At all events, even if the subpoenas issued by the Sandiganbayan were
quashed, the Ombudsman may conduct on its own the same inquiry into
the subject bank accounts that it earlier conducted last February-March
2001, there being a plunder case already pending against former President
Estrada. To quash the challenged subpoenas would, therefore, be pointless
since the Ombudsman may obtain the same documents by another route.
Upholding the subpoenas avoids an unnecessary delay in the administration
of justice.
WHEREFORE, the petition is DISMISSED. The Sandiganbayan Resolutions
dated February 7 and 12, 2003 and March 11, 2003 are upheld.
The Sandiganbayan is hereby directed, consistent with this Court’s ruling
in Marquez v. Desierto, to notify petitioner as to the date the subject bank
documents shall be presented in court by the persons subpoenaed.

1. These accounts are no longer protected by the Secrecy of Bank Deposits

Law, there being two exceptions to the said law applicable in this case,
namely: (1) the examination of bank accounts is upon order of a competent
court in cases of bribery or dereliction of duty of public officials, and (2) the
money deposited or invested is the subject matter of the litigation.
Exception (1) applies since the plunder case pending against former
President Estrada is analogous to bribery or dereliction of duty, while
exception (2) applies because the money deposited in petitioner’s bank
accounts is said to form part of the subject matter of the same plunder case.

2. The "fruit of the poisonous tree" principle, which states that once the
primary source (the "tree") is shown to have been unlawfully obtained, any
secondary or derivative evidence (the "fruit") derived from it is also
23
G.R. No. 161397 June 30, 2005 account were deducted from his monthly salary, for which he was issued
receipts.6
DEVELOPMENT BANK OF THE PHILIPPINES, Petitioner,
vs. The monthly amortization was increased to ₱1,468.92 in November 1984,
FELIPE P. ARCILLA, JR., Respondent. and to ₱1,691.51 beginning January 1985. However, Arcilla opted to resign
from the bank in December 1986. Conformably with the Deed of Conditional
x - - - - - - - - - - - - - - - - - - - - - - -x
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, Amount converted

vs. Interest Rate Remaining Term
to PH Loan
DEVELOPMENT BANK OF THE PHILIPPINES, Respondent.
₱ 155,218.79 - 1 9% 22 yrs. & 6 mos<
DECISION

CALLEJO, SR., J.: 6,802.45 - 2 9% 21 yrs. & 10 mos.

Atty. Felipe P. Arcilla, Jr. was employed by the Development Bank of the
24,342.91 - 3 9% 22 yrs.
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
Plus: MRI at PC. 41/thousand ₱1,614.20
loan under the Individual Housing Project (IHP) of the bank. 1 On September
12, 1983, DBP and Arcilla executed a Deed of Conditional Sale 2 over a parcel
76.41
of land, as well as the house to be constructed thereon, for the price of
₱160,000.00. 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 ₱186,364.15 Total ₱1,690.617
₱1,417.91, with 9% interest per annum, to be deducted from his monthly =========
salary.3
On July 24, 1987, Arcilla signed three Promissory Notes 8 for the total amount
DBP obliged itself to transfer the title of the property upon the payment of of ₱186,364.15. He was also obliged to pay service charge and interests, as
the loan, including any increments thereof. It was also agreed therein that if follows:
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 a.1 On the amount advanced or balance thereof that remains unpaid
estate loan account with the prevailing interest assigned on real estate for 30 days* or less:
loans, payable within the remaining term of the loan account. 4
i. Interest on advances at 7% p.a. over DBP's borrowing cost:
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

24
 ii. No 2% service charge after 30 days from date of advance

iii. No 8% penalty charge i. Interest of the advance ]

at
a.2 On the amount advanced or balance thereof that remains unpaid
for more than 30 days: 7% p.a. over DBP's ]

i. Interest on the advance at 7% ] borrowing costs; ]-- To be computed from start of 30-
p.a. ] day period
over DBP's borrowing cost;
One time 2% service
ii. ]
-- To be computed charge
ii. One time 2% service charge ]
from
Interest on the service
iii. ]
iii. Interest on the service charge ] the start of the 30-day charge

iv. 8% penalty charge on the ] period iv. 8% penalty charge on ]

balances the ]
of the advances and service balances of the ]
charge.9 advance and
service charge.
Arcilla also agreed to pay to DBP the following:
*Insurance Premiums - 30-day period to be computed from date of
*Insurance Premiums - 30-day period to be computed from date of
advances.
advances
Other Advances - 30-day period to be computed from date of notification.
Other Advances - 30-day period to be computed from date of notification
b. Taxes
b. Taxes
b.1 One time service charge 2% of the amount advanced
b.1 One time service 2% of the amount advanced
charge
b.2 Interest and penalty Interest - 7% p.a. over borrowing
charge cost
b.2 Interest and penalty Interest - 7% p.a. over borrowing cost
Penalty charge û 8% p.a. if unpaid
charge Penalty charge û 8% p.a. if unpaid
after 30 days from date of advance

25
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
₱32,000.00. 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
₱32,000.00 Nine (9%) per cent MRI for 24 years ₱271.57
P32,000.00 at P0.40/1,000.00
12.80
₱32,000.00 same to be consolidated with the (Est.
original advance in accordance Amort.)
₱ 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
₱241,940.93.12 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:
26
WHEREFORE, premises considered, judgment is hereby rendered in favor of
the plaintiff and against the defendant.1avvphil.zw+ 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;
and
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:
à [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. à 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
27
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; and
(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.1avvphi1.zw+
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
28
Act (R.A. No. 3765), was enacted primarily "to protect its citizens from a lack occupancy of the property. Hence, the Court orders a remand of the case to
of awareness of the true cost of credit to the user the court of origin, for the parties to adduce their respective evidence on
the bank's counterclaim.
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 IN LIGHT OF ALL THE FOREGOING, the petition in G.R. No. 161426
vs. Intermediate Appellate Court, 174, SCRA 464 [1989]; Sec. 2, R.A. No. is DENIED for lack of merit. The petition in G.R. No. 161397 is
3765). Contrary to appellee's claim that he was not sufficiently informed of PARTIALLY GRANTED. The case is hereby REMANDED to the Regional Trial
the details of the loan, the records disclose that the required informations Court of Antipolo, Rizal, Branch 73, for it to resolve the counterclaim of the
were readily available in the three (3) promissory notes he executed. Development Bank of the Philippines for possession of the property, and for
Precisely, the said promissory notes were executed to apprise appellee of the reasonable rentals for Felipe P. Arcilla, Jr.'s occupancy thereof after the
the remaining balance on his loan when the same was converted into a notarial rescission of the Deed of Conditional Sale in 1990.
regular housing loan. And on its face, the promissory notes signed by no less
Costs against petitioner Felipe P. Arcilla, Jr.
than the appellee readily shows all the data required by the Truth in Lending
Act (R.A. No. 3765). SO ORDERED.
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
29
G.R. No. 135706 October 1, 2004 On April 26, 1996, petitioners filed a complaint with the RTC, Cebu City, to
declare the extra-judicial foreclosure and the subsequent sale thereof to
SPS. CESAR A. LARROBIS, JR. and VIRGINIA S. LARROBIS, petitioners,
respondent bank null and void.7
vs.
PHILIPPINE VETERANS BANK, respondent. In the pre-trial conference, the parties agreed to limit the issue to whether
or not the period within which the bank was placed under receivership and
DECISION
liquidation was a fortuitous event which suspended the running of the ten-
AUSTRIA-MARTINEZ, J.: year prescriptive period in bringing actions. 8

Before us is a petition for review of the decision of the Regional Trial Court On April 17, 1998, the RTC rendered its decision, the fallo of which reads:
(RTC), Cebu City, Branch 24, dated April 17, 1998, 1 and the order denying
WHEREFORE, premises considered judgment is hereby rendered dismissing
petitioner’s motion for reconsideration dated August 25, 1998, raising pure
the complaint for lack of merit. Likewise the compulsory counterclaim of
questions of law.2
defendant is dismissed for being unmeritorious. 9
The following facts are uncontroverted:
It reasoned that:
On March 3, 1980, petitioner spouses contracted a monetary loan with
…defendant bank was placed under receivership by the Central Bank from
respondent Philippine Veterans Bank in the amount of ₱135,000.00,
April 1985 until 1992. The defendant bank was given authority by the
evidenced by a promissory note, due and demandable on February 27,
Central Bank to operate as a private commercial bank and became fully
1981, and secured by a Real Estate Mortgage executed on their lot together
operational only on August 3, 1992. From April 1985 until July 1992,
with the improvements thereon.
defendant bank was restrained from doing its business. Doing business as
On March 23, 1985, the respondent bank went bankrupt and was placed construed by Justice Laurel in 222 SCRA 131 refers to:
under receivership/liquidation by the Central Bank from April 25, 1985 until
"….a continuity of commercial dealings and arrangements and contemplates
August 1992.3
to that extent, the performance of acts or words or the exercise of some of
On August 23, 1985, the bank, through Francisco Go, sent the spouses a the functions normally incident to and in progressive prosecution of the
demand letter for "accounts receivable in the total amount of ₱6,345.00 as purpose and object of its organization."
of August 15, 1984,"4 which pertains to the insurance premiums advanced
The defendant bank’s right to foreclose the mortgaged property prescribes
by respondent bank over the mortgaged property of petitioners. 5
in ten (10) years but such period was interrupted when it was placed under
On August 23, 1995, more than fourteen years from the time the loan receivership. Article 1154 of the New Civil Code to this effect provides:
became due and demandable, respondent bank filed a petition for
"The period during which the obligee was prevented by a fortuitous event
extrajudicial foreclosure of mortgage of petitioners’ property. 6 On October
from enforcing his right is not reckoned against him."
18, 1995, the property was sold in a public auction by Sheriff Arthur Cabigon
with Philippine Veterans Bank as the lone bidder. In the case of Provident Savings Bank vs. Court of Appeals, 222 SCRA 131,
the Supreme Court said.

30
"Having arrived at the conclusion that a foreclosure is part of a bank’s
activity which could not have been pursued by the receiver then because of
the circumstances discussed in the Central Bank case, we are thus convinced
that the prescriptive period was legally interrupted by fuerza mayor in 1972
on account of the prohibition imposed by the Monetary Board against
petitioner from transacting business, until the directive of the Board was
nullified in 1981. Indeed, the period during which the obligee was prevented
by a caso fortuito from enforcing his right is not reckoned against him. (Art.
1154, NCC) When prescription is interrupted, all the benefits acquired so far
from the possession cease and when prescription starts anew, it will be
entirely a new one. This concept should not be equated with suspension
where the past period is included in the computation being added to the
period after the prescription is presumed (4 Tolentino, Commentaries and
Jurisprudence on the Civil Code of the Philippines 1991 ed. pp. 18-19),
consequently, when the closure of the petitioner was set aside in 1981, the
period of ten years within which to foreclose under Art. 1142 of the N.C.C.
began to run and, therefore, the action filed on August 21, 1986 to compel
petitioner to release the mortgage carried with it the mistaken notion that
petitioner’s own suit for foreclosure has prescribed."
Even assuming that the liquidation of defendant bank did not affect its right
to foreclose the plaintiffs’ mortgaged property, the questioned extrajudicial
foreclosure was well within the ten (10) year prescriptive period. It is
noteworthy to mention at this point in time, that defendant bank through
authorized Deputy Francisco Go made the first extrajudicial demand to the
plaintiffs on August 1985. Then on March 24, 1995 defendant bank through
its officer-in-charge Llanto made the second extrajudicial demand. And we
all know that a written extrajudicial demand wipes out the period that has
already elapsed and starts anew the prescriptive period. (Ledesma vs. C.A.,
224 SCRA 175.)10
Petitioners filed a motion for reconsideration which the RTC denied on
August 25, 1998.11 Thus, the present petition for review where petitioners
claim that the RTC erred:
I from doing business should not be construed as barring any and all business
…IN RULING THAT THE PERIOD WITHIN WHICH RESPONDENT BANK WAS
PUT UNDER RECEIVERSHIP AND LIQUIDATION WAS A FORTUITOUS EVENT
THAT INTERRUPTED THE RUNNING OF THE PRESCRIPTIVE PERIOD.
II
…IN RULING THAT THE WRITTEN EXTRA-JUDICIAL DEMAND MADE BY
RESPONDENT ON PETITIONERS WIPED OUT THE PERIOD THAT HAD ALREADY
ELAPSED.
III
…IN DENYING PETITIONERS’ MOTION FOR RECONSIDERATION OF ITS HEREIN
ASSAILED DECISION.12
Petitioners argue that: since the extra-judicial foreclosure of the real estate
mortgage was effected by the bank on October 18, 1995, which was
fourteen years from the date the obligation became due on February 27,
1981, said foreclosure and the subsequent sale at public auction should be
set aside and declared null and void ab initio since they are already barred
by prescription; the court a quo erred in sustaining the respondent’s theory
that its having been placed under receivership by the Central Bank between
April 1985 and August 1992 was a fortuitous event that interrupted the
running of the prescriptive period; 13 the court a quo’s reliance on the case
of Provident Savings Bank vs. Court of Appeals 14 is misplaced since they have
different sets of facts; in the present case, a liquidator was duly appointed
for respondent bank and there was no judgment or court order that would
legally or physically hinder or prohibit it from foreclosing petitioners’
property; despite the absence of such legal or physical hindrance,
respondent bank’s receiver or liquidator failed to foreclose petitioners’
property and therefore such inaction should bind respondent
bank;15 foreclosure of mortgages is part of the receiver’s/liquidator’s duty of
administering the bank’s assets for the benefit of its depositors and
creditors, thus, the ten-year prescriptive period which started on February
27, 1981, was not interrupted by the time during which the respondent
bank was placed under receivership; and the Monetary Board’s prohibition
dealings and transactions by the bank, otherwise, the specific mandate to
31
foreclose mortgages under Sec. 29 of R.A. No. 265 as amended by Executive
Order No. 65 would be rendered nugatory. 16 Said provision reads:
Section 29. Proceedings upon Insolvency – Whenever, upon examination by
the head of the appropriate supervising or examining department or his
examiners or agents into the condition of any bank or non-bank financial
intermediary performing quasi-banking functions, it shall be disclosed that
the condition of the same is one of insolvency, or that its continuance in
business would involve probable loss to its depositors or creditors, it shall be
the duty of the department head concerned forthwith, in writing, to inform
the Monetary Board of the facts. The Board may, upon finding the
statements of the department head to be true, forbid the institution to do
business in the Philippines and designate the official of the Central Bank or a
person of recognized competence in banking or finance, as receiver to
immediately take charge its assets and liabilities, as expeditiously as
possible, collect and gather all the assets and administer the same for the
benefit of its creditors, and represent the bank personally or through
counsel as he may retain in all actions or proceedings for or against the
institution, exercising all the powers necessary for these purposes including,
but not limited to, bringing and foreclosing mortgages in the name of the
bank.
Petitioners further contend that: the demand letter, dated March 24, 1995,
was sent after the ten-year prescriptive period, thus it cannot be deemed to
have revived a period that has already elapsed; it is also not one of the
instances enumerated by Art. 1115 of the Civil Code when prescription is
interrupted;17 and the August 23, 1985 letter by Francisco Go demanding
₱6,345.00, refers to the insurance premium on the house of petitioners,
advanced by respondent bank, thus such demand letter referred to another
obligation and could not have the effect of interrupting the running of the
prescriptive period in favor of herein petitioners insofar as foreclosure of the
mortgage is concerned.18
Petitioners then prayed that respondent bank be ordered to pay them
₱100,000.00 as moral damages, ₱50,000.00 as exemplary damages and
₱100,000.00 as attorney’s fees.19
Respondent for its part asserts that: the period within which it was placed
under receivership and liquidation was a fortuitous event that interrupted
the running of the prescriptive period for the foreclosure of petitioners’
mortgaged property; within such period, it was specifically restrained and
immobilized from doing business which includes foreclosure proceedings;
the extra-judicial demand it made on March 24, 1995 wiped out the period
that has already lapsed and started anew the prescriptive period;
respondent through its authorized deputy Francisco Go made the first extra-
judicial demand on the petitioners on August 23, 1985; while it is true that
the first demand letter of August 1985 pertained to the insurance premium
advanced by it over the mortgaged property of petitioners, the same
however formed part of the latter’s total loan obligation with respondent
under the mortgage instrument and therefore constitutes a valid extra-
judicial demand made within the prescriptive period. 20
In their Reply, petitioners reiterate their earlier arguments and add that it
was respondent that insured the mortgaged property thus it should not pass
the obligation to petitioners through the letter dated August 1985. 21
To resolve this petition, two questions need to be answered: (1) Whether or
not the period within which the respondent bank was placed under
receivership and liquidation proceedings may be considered a fortuitous
event which interrupted the running of the prescriptive period in bringing
actions; and (2) Whether or not the demand letter sent by respondent
bank’s representative on August 23, 1985 is sufficient to interrupt the
running of the prescriptive period.
Anent the first issue, we answer in the negative.
One characteristic of a fortuitous event, in a legal sense and consequently in
relations to contract, is that its occurrence must be such as to render it
impossible for a party to fulfill his obligation in a normal manner. 22
Respondent’s claims that because of a fortuitous event, it was not able to
exercise its right to foreclose the mortgage on petitioners’ property; and
that since it was banned from pursuing its business and was placed under
receivership from April 25, 1985 until August 1992, it could not foreclose the
32
mortgage on petitioners’ property within such period since foreclosure is
embraced in the phrase "doing business," are without merit.
While it is true that foreclosure falls within the broad definition of "doing
business," that is:
…a continuity of commercial dealings and arrangements and contemplates
to that extent, the performance of acts or words or the exercise of some of
the functions normally incident to and in progressive prosecution of the
purpose and object of its organization. 23
it should not be considered included, however, in the acts prohibited
whenever banks are "prohibited from doing business" during receivership
and liquidation proceedings.
This we made clear in Banco Filipino Savings & Mortgage Bank vs. Monetary
Board, Central Bank of the Philippines24 where we explained that:
Section 29 of the Republic Act No. 265, as amended known as the Central
Bank Act, provides that when a bank is forbidden to do business in the
Philippines and placed under receivership, the person designated as receiver
shall immediately take charge of the bank’s assets and liabilities, as
expeditiously as possible, collect and gather all the assets and administer the
same for the benefit of its creditors, and represent the bank personally or
through counsel as he may retain in all actions or proceedings for or against
the institution, exercising all the powers necessary for these purposes
including, but not limited to, bringing and foreclosing mortgages in the
name of the bank.25
This is consistent with the purpose of receivership proceedings, i.e., to
receive collectibles and preserve the assets of the bank in substitution of its
former management, and prevent the dissipation of its assets to the
detriment of the creditors of the bank. 26
When a bank is declared insolvent and placed under receivership, the
Central Bank, through the Monetary Board, determines whether to proceed
with the liquidation or reorganization of the financially distressed bank. A
receiver, who concurrently represents the bank, then takes control and
possession of its assets for the benefit of the bank’s creditors. A liquidator
meanwhile assumes the role of the receiver upon the determination by the
Monetary Board that the bank can no longer resume business. His task is to
dispose of all the assets of the bank and effect partial payments of the
bank’s obligations in accordance with legal priority. In both receivership and
liquidation proceedings, the bank retains its juridical personality
notwithstanding the closure of its business and may even be sued as its
corporate existence is assumed by the receiver or liquidator. The receiver or
liquidator meanwhile acts not only for the benefit of the bank, but for its
creditors as well.27
In Provident Savings Bank vs. Court of Appeals,28 we further stated that:
When a bank is prohibited from continuing to do business by the Central
Bank and a receiver is appointed for such bank, that bank would not be able
to do new business, i.e., to grant new loans or to accept new deposits.
However, the receiver of the bank is in fact obliged to collect debts owing
to the bank, which debts form part of the assets of the bank. The receiver
must assemble the assets and pay the obligation of the bank under
receivership, and take steps to prevent dissipation of such assets.
Accordingly, the receiver of the bank is obliged to collect pre-existing debts
due to the bank, and in connection therewith, to foreclose mortgages
securing such debts.29 (Emphasis supplied.)
It is true that we also held in said case that the period during which the bank
was placed under receivership was deemed fuerza mayor which validly
interrupted the prescriptive period. 30 This is being invoked by the
respondent and was used as basis by the trial court in its decision. Contrary
to the position of the respondent and court a quo however, such ruling does
not find application in the case at bar.
A close scrutiny of the Provident case, shows that the Court arrived at said
conclusion, which is an exception to the general rule, due to the peculiar
circumstances of Provident Savings Bank at the time. In said case, we stated
that:
Having arrived at the conclusion that a foreclosure is part of a bank’s
business activity which could not have been pursued by the receiver then
33
because of the circumstances discussed in the Central Bank case, we are
thus convinced that the prescriptive period was legally interrupted by fuerza
mayor in 1972 on account of the prohibition imposed by the Monetary
Board against petitioner from transacting business, until the directive of the
Board was nullified in 1981.31 (Emphasis supplied.)
Further examination of the Central Bank case reveals that the circumstances
of Provident Savings Bank at the time were peculiar because after the
Monetary Board issued MB Resolution No. 1766 on September 15, 1972,
prohibiting it from doing business in the Philippines, the bank’s majority
stockholders immediately went to the Court of First Instance of Manila,
which prompted the trial court to issue its judgment dated February 20,
1974, declaring null and void the resolution and ordering the Central Bank to
desist from liquidating Provident. The decision was appealed to and affirmed
by this Court in 1981. Thus, the Superintendent of Banks, which was
instructed to take charge of the assets of the bank in the name of the
Monetary Board, had no power to act as a receiver of the bank and carry out
the obligations specified in Sec. 29 of the Central Bank Act. 32
In this case, it is not disputed that Philippine Veterans Bank was placed
under receivership by the Monetary Board of the Central Bank by virtue of
Resolution No. 364 on April 25, 1985, pursuant to Section 29 of the Central
Bank Act on insolvency of banks. 33
Unlike Provident Savings Bank, there was no legal prohibition imposed upon
herein respondent to deter its receiver and liquidator from performing their
obligations under the law. Thus, the ruling laid down in the Provident case
cannot apply in the case at bar.
There is also no truth to respondent’s claim that it could not continue doing
business from the period of April 1985 to August 1992, the time it was
under receivership. As correctly pointed out by petitioner, respondent was
even able to send petitioners a demand letter, through Francisco Go, on
August 23, 1985 for "accounts receivable in the total amount of ₱6,345.00
as of August 15, 1984" for the insurance premiums advanced by respondent
bank over the mortgaged property of petitioners. How it could send a
demand letter on unpaid insurance premiums and not foreclose the
mortgage during the time it was "prohibited from doing business" was not
adequately explained by respondent.
Settled is the principle that a bank is bound by the acts, or failure to act of
its receiver.34 As we held in Philippine Veterans Bank vs. NLRC, 35 a labor case
which also involved respondent bank,
… all the acts of the receiver and liquidator pertain to petitioner, both having
assumed petitioner’s corporate existence. Petitioner cannot disclaim liability
by arguing that the non-payment of MOLINA’s just wages was committed by
the liquidators during the liquidation period. 36
However, the bank may go after the receiver who is liable to it for any
culpable or negligent failure to collect the assets of such bank and to
safeguard its assets.37
Having reached the conclusion that the period within which respondent
bank was placed under receivership and liquidation proceedings does not
constitute a fortuitous event which interrupted the prescriptive period in
bringing actions, we now turn to the second issue on whether or not the
extra-judicial demand made by respondent bank, through Francisco Go, on
August 23, 1985 for the amount of ₱6,345.00, which pertained to the
insurance premiums advanced by the bank over the mortgaged property,
constitutes a valid extra-judicial demand which interrupted the running of
the prescriptive period. Again, we answer this question in the negative.
Prescription of actions is interrupted when they are filed before the court,
when there is a written extra-judicial demand by the creditors, and when
there is any written acknowledgment of the debt by the debtor. 38
Respondent’s claim that while its first demand letter dated August 23, 1985
pertained to the insurance premium it advanced over the mortgaged
property of petitioners, the same formed part of the latter’s total loan
obligation with respondent under the mortgage instrument, and therefore,
constitutes a valid extra-judicial demand which interrupted the running of
the prescriptive period, is not plausible.
The real estate mortgage signed by the petitioners expressly states that:
34
This mortgage is constituted by the Mortgagor to secure the payment of the
loan and/or credit accommodation granted to the spouses Cesar A. Larrobis,
Jr. and Virginia S. Larrobis in the amount of ONE HUNDRED THIRTY FIVE
THOUSAND (₱135,000.00) PESOS ONLY Philippine Currency in favor of the
herein Mortgagee.39
deleterious actions, may be awarded only after the claimant has proven that
he is entitled to moral, temperate or compensatory damages. 44 Finally, as to
attorney’s fees, it is demanded that there be factual, legal and equitable
justification for its award.45 Since the bases for these claims were not
adequately proven by the petitioners, we find no reason to grant the same.

The promissory note, executed by the petitioners, also states that: WHEREFORE, the decision of the Regional Trial Court, Cebu City, Branch 24,
dated April 17, 1998, and the order denying petitioners’ motion for
…FOR VALUE RECEIVED, I/WE, JOINTLY AND SEVERALLY, PROMISE TO PAY
reconsideration dated August 25, 1998 are hereby REVERSED and SET
THE PHILIPPINE VETERANS BANK, OR ORDER, AT ITS OFFICE AT CEBU CITY
ASIDE. The extra-judicial foreclosure of the real estate mortgage on October
THE SUM OF ONE HUNDRED THIRTY FIVE THOUSAND PESOS (P135,000.00),
18, 1995, is hereby declared null and void and respondent is ordered to
PHILIPPINE CURRENCY WITH INTEREST AT THE RATE OF FOURTEEN PER CENT
return to petitioners their owner’s duplicate certificate of title.
(14%) PER ANNUM FROM THIS DATE UNTIL FULLY PAID. 40
Costs against respondent.
Considering that the mortgage contract and the promissory note refer only
to the loan of petitioners in the amount of ₱135,000.00, we have no reason SO ORDERED.
to hold that the insurance premiums, in the amount of ₱6,345.00, which
was the subject of the August 1985 demand letter, should be considered as
pertaining to the entire obligation of petitioners.

In Quirino Gonzales Logging Concessionaire vs. Court of Appeals, 41 we held

that the notices of foreclosure sent by the mortgagee to the mortgagor
cannot be considered tantamount to written extrajudicial demands, which
may validly interrupt the running of the prescriptive period, where it does
not appear from the records that the notes are covered by the mortgage
contract.42

In this case, it is clear that the advanced payment of the insurance

premiums is not part of the mortgage contract and the promissory note
signed by petitioners. They pertain only to the amount of ₱135,000.00
which is the principal loan of petitioners plus interest. The arguments of
respondent bank on this point must therefore fail.

As to petitioners’ claim for damages, however, we find no sufficient basis to

award the same. For moral damages to be awarded, the claimant must
satisfactorily prove the existence of the factual basis of the damage and its
causal relation to defendant’s acts.43 Exemplary damages meanwhile, which
are imposed as a deterrent against or as a negative incentive to curb socially
35
.R. No. 213241
PHILIPPINE NATIONAL BANK, Petitioner
vs.
JUAN F. VILLA, Respondent
DECISION
PEREZ, J.:
For resolution of the Court is the instant Petition for Review
on Certiorari1 filed by petitioner Philippine National Bank (PNB), seeking to
reverse and set aside the Decision 2 dated 18 December 2013 and
Resolution3 dated 13 June 2014 of the Court of Appeals (CA) in CA-G.R. CV
No. 97612. The assailed decision and resolution affirmed the 22 June 2011
Decision4 of the Regional Trial. Court (RTC) of Villasis, Pangasinan, Branch 50
which found that petitioner PNB is not a mortgagee in good faith.
The Facts
Petitioner PNB is a universal banking corporation duly authorized by Bangko
Sentral ng Pilipinas (BSP) to engage in banking business. Sometime in 1986,
Spouses Reynaldo Comista and Erlinda Gamboa Comista (Spouses Comista)
obtained a loan from Traders Royal Bank (Traders Bank). 5 To secure the said
obligation, the Spouses Comista mortgaged to the bank a parcel of land with
an area of 451 square meters designated as Lot 555-A-2 and registered
under Transfer Certificate of Title (TCT) No. 131498 in their names by the
Register of Deeds of Pangasinan.
For failure of the Spouses Comista to make good of their loan obligation
after it has become due, Traders Bank foreclosed the mortgage constituted
on the security of the loan. After the notice and publication requirements
were complied with, the subject property was sold at the public auction on
23 December 1987. During the public sale, respondent Juan F. Vila (Vila) was
declared as the highest bidder after he offered to buy the subject property
for P50,000.00. The Certificate of Sale dated 13 January 1988 was duly
recorded in TCT No. 131498 under Entry No. 623599.6
To exercise his right of ownership, Vila immediately took possession of the
subject property and paid the real estate taxes corresponding thereon.
On 11 February 1989, a Certificate of Final Sale was issued to Vila after the
one-year redemption period had passed without the Spouses Comista
exercising their statutory right to redeem the subject property. He was,
however, prevented from consolidating the ownership of the property under
his name because the owner's copy of the certificate of title was not turned
over to him by the Sheriff.
Despite the lapse of the redemption period and the fact of issuance of a
Certificate of Final Sale to Vila, the Spouses Comista were nonetheless
allowed to buy back the subject property by tendering the amount of
₱50,000.00. A Certificate of Redemption7 dated 14 March 1989 was issued
for this purpose and was duly annotated in the title under Entry No. 708261.
Claiming that the Spouses Cornista already lost their right to redeem the
subject property, Vila filed an action for nullification of redemption, transfer
of title and damages against the Spouses Comista and Alfredo Vega in his
capacity as the Register of Deeds of Pangasinan. The case was docketed as
Civil Case No. V-0242 on 10 January 1992 and was raffled to Branch 50. A
Notice of Lis Pendens was issued for this purpose and was duly recorded in
the certificate of title of the property on 19 October 1992 under Entry No.
759302.8
On 3 February 1995, the RTC rendered a Decision 9 in Civil Case No. V-0242 in
favor of Vila thereby ordering the Register of Deeds to cancel the
registration of the certificate of redemption and the annotation thereof on
TCT No. 131498. The said decision was affirmed by the CA on 19 October
1997 in CA-G.R. CV No. 49463. 10 The decision of the appellate court became
final and executory on 19 November 1997.
In order to enforce the favorable decision, Vila filed before the RTC a Motion
for the Issuance of Writ of Execution which was granted by the court.
Accordingly, a Writ of Execution 11 was issued by the RTC on 14 December
1997.
36
By unfortunate tum of events, the Sheriff could not successfully enforce the
decision because the certificate of title covering the subject property was no
longer registered under the names of the Spouses Comista. Hence, the
judgment was returned unsatisfied as shown in Sheriffs Retum 12 dated 13
July 1999.
Upon investigation it was found out that during the interregnum the
Spouses Comista were able to secure a loan from the PNB in the amount of
₱532,000.00 using the same property subject of litigation as security. The
Real Estate Mortgage (REM) was recorded on 28 September 1992
under Entry No. 758171 13 or month before the Notice of Lis Pendens was
annotated.
Eventually, the Spouses Comista defaulted in the payment of their loan
obligation with the PNB prompting the latter to foreclose the property
offered as security. The bank emerged as the highest bidder during the
public sale as shown at the Certificate of Sale issued by the Sheriff. As with
the prior mortgage, the Spouses Comista once again failed to exercise their
right of redemption within the required period allowing PNB to consolidate
its ownership over the subject property. Accordingly, TCT No. 131498 14 in
the name of the Spouses Comista was cancelled and a new one under TCT
No. 216771 15 under the name of the PNB was issued.
The foregoing tum of events left Vila with no other choice but to commence
another round of litigation against the Spouses Comista and PNB before the
RTC of Villasis, Pangasinan, Branch 50. In his Complaint docketed as Civil
Case No. V-0567, Vila sought for the nullification of TCT No. 216771 issued
under the name of PNB and for the payment of damages.
To refute the allegations of Vila, PNB pounded that it was a mortgagee in
good faith pointing the fact that at the time the subject property was
mortgaged to it, the same was still free from any liens and encumbrances
and the Notice of Lis Pendens was registered only a month after the REM
was annotated on the title. PNB meant to say that at the time of the
transaction, the Spouses Cornista were still the absolute owners of the
property possessing all the rights to mortgage the same to third persons.
PNB also harped on the fact that a close examination of title was conducted
and nowhere was it shown that there was any cloud in the title of the
Spouses Cornista, the latter having redeemed the property after they have
lost it in a foreclosure sale. 16
After the Pre-Trial Conference, trial on the merits ensued. The court a quo
then proceeded to receive documentary and testimonial evidence from the
opposing parties. Thereafter, the parties submitted their respective
memorandum and the case was submitted for decision.
On 22 June 2011, the RTC rendered a Decision 17 in favor of Vila and ruled
that PNB is not a mortgagee in good faith. As a financial institution, the trial
court held that PNB is expected to observe a higher degree of diligence. In
hastily granting the loan, the trial court declared that PNB failed in this
regard. Had the bank exercised due diligence, it could have easily discovered
that the Spouses Comista were not the possessors of the subject property
which could lead it to the fact that at the time the subject property was
mortgaged to it, a litigation involving the same was already commenced
before the court. ·It was further ratiocinated by the RTC that "[a] mortgagee
cannot close his eyes to facts which should put a reasonable man upon his
guard" in ascertaining the status of a mortgaged property. The dispositive
portion of the decision reads:
"WHEREFORE, judgment is hereby rendered:
1. Declaring the Real Estate Mortgage dated September 28, 1992, executed
by the Spouses Reynaldo Comista and Erlinda Gamboa in favor of the
Philippine National Bank, Tayug, Pangasinan Branch, over the parcel of land
covered by TCT No. 131498 null and void;
2. Declaring the Deed of Sale dated September 27, 1996, in favor of the PNB
null and void;
3. Ordering the nullification and cancellation of Transfer Certificate of Title
No. 216771 in the name of PNB;
4. Ordering the Register of Deeds of Pangasinan to issue a new certificate of
title covering the property subject matter of this case in the name.of Juan F.
Vila; and
37
5. Ordering [the] defendant PNB to pay the plaintiff P-50,000.00 moral
damages, P-50,000.00 exemplary damages and P-100,000.00 attorney's fees
and litigation expenses.
Costs against defendant Philippine National Bank.
SO ORDERED." 18
In a Resolution19 dated 13 June 2014, the RTC refused to reconsider its
earlier decision and thereby denied the Motion for Reconsideration
interposed by PNB.
On appeal, the CA Decision 20 dated 18 December 2013 affirmed the RTC
ruling. In failing to exercise greater care and diligence in approving the loan
of the Spouses Comista without first ascertaining if there were any defects in
their title, tlre appellate court held that PNB could not be afforded the status
of a mortgagee in good faith. It went further by declaring that "[a] bank
whose business is impressed with public interest is expected to exercise
more care and prudence in its dealings than a private individual, even in
cases involving registered lands. A bank cannot assume that, simply because
the title offered as security is on its face free of any encumbrances of lien, it
is relieved of the responsibility of taking further steps to verify the title and
inspect the properties to be mortgaged. " 21 The CA thus disposed:
"WHEREFORE, the instant appeal is DENIED. The assailed Decision dated
June 22, 2011 and the Resolution dated August 11, 2011 of the Regional
Trial Court of Villasis, Pangasinan, Branch 50, in Civil Case No, V-0567 are
hereby AFFIRMED."22
On 13 June 2014, the CA issued a Resolution 23 denying the Motion for
Reconsideration of the PNB prompting the bank to seek recourse before the
Court via instant Petition for Review on Certiorari. For Our resolution are the
following issues:
The Issues
I.
WHETHER OR NOT PNB IS A MORTGAGEE IN GOOD FAITH;
II.
WHETHER OR NOT PNB IS LIABLE FOR DAMAGES.24
The Court's Ruling
We resolve to deny the petition.
In general, the issue of whether a mortgagee is in good faith cannot be
entertained in a Rule 45 petition. This is because the ascertainment of good
faith or the lack thereof, and the determination of negligence are factual
matters which lay outside the scope of a petition for review on certiorari.
Good faith, or the lack of it, is a question of intention. In ascertaining
intention, courts are necessarily controlled by the evidence as to the
conduct and outward facts by which alone the inward motive may, with
safety, be determined.25 A recognized. exception to the rule is when there
are conflicting findings of fact by the CA and the RTC. 26 In the case at bar,
RTC and the CA agreed on their findings.
The RTC, which possessed the first hand opportunity to observe the
demeanor of the witnesses and admit the documentary evidence, found
that PNB accepted outright the collateral offered by the Spouses Cornista
without making further inquiry as to the real status of the subject property.
Had the bank been prudent and diligent enough in ascertaining the
condition of the property, it could have discovered that the same was in the
possession of Vila who, at that time, possessed a colorable title thereon
being a holder of a Final Certificate of Sale. The RTC further exposed the
frailty of PNB' s claim by pointing to the fact that it was Vila who was paying
the realty tax on the property, a crucial information that the bank could have
easily discovered had it exercised due diligence.
Resonating the findings of the RTC, the CA also declared that PNB fell short
in exercising the degree of diligence expected from bank and financial
institutions. We hereby quote with approval the disquisition of the appellate
court:
Thus, before approving a loan application, it is a standard operating practice
for these institutions to conduct an ocular inspection of the property offered
38
for mortgage and to verify the genuineness of the title to determine the real
owner thereof. The apparent purpose of an ocular inspection is to protect
the "true owner" of the property as well as innocent third parties with a
right, interest or claim thereon from a usurper who may have acquired a
fraudulent certificate of title thereto. Here, [the] PNB has failed to exercise
the requisite due diligence in ascertaining the status and condition of the
property being offered to it as security for the loan before it approved the
same. xxx. 27
Clearly, the PNB failed to observe the exacting standards required of banking
institutions which are behooved by statutes and jurisprudence to exercise
greater care and prudence before entering into a mortgage contract.
No credible proof on the records could substantiate the claim of PNB that a
physical inspection of the property was conducted. We agree with both the
RTC and CA that if in fact it were true that ocular inspection was conducted,
a suspicion could have been raised as to the real status of the property. By
failing to uncover a crucial fact that the mortgagors were not the possessors
of the subject property, We could not lend credence to the claim of the bank
that an ocular inspection of the property was conducted.1âwphi1 What
further tramples upon PNB' s claim is the fact that, as shown on the records,
it was Vila who was religiously paying the real property tax due on the
property from 1989 to 1996, another significant fact that could have raised a
red flag as to the real ownership of the property. The failure of the
mortgagee to take precautionary steps would mean negligence on his part
and would thereby preclude it from invoking that it is a mortgagee in good
faith.
Before approving a loan application, it is standard operating procedure for
banks and financial institutions to conduct an ocular inspection of the
property offered for mortgage and to determine the real owner(s) thereof.
The apparent purpose of an ocular inspection is to protect the "true owner"
of the property as well as innocent third parties with a right, interest or
claim thereon from a usurper who may have acquired a fraudulent
certificate of title thereto.28
In this case, it was adjudged by the courts of competent jurisdiction in a final
and executory .decision that the Spouses Cornista's reacquisition of the
property after the lapse of the redemption period is fraudulent and the
property used by the mortgagors as collateral rightfully belongs to Vila, an
innocent third party with a right, could have been protected if PNB only
observed the degree diligence expected from it.
In Land Bank of the Philippines v. Belle Corporation,29 the Court exhorted
banks to exercise the highest degree of diligence in its dealing with
properties offered as securities for the loan obligation:
When the purchaser or the mortgagee is a bank, the rule on innocent
purchasers or mortgagees for value is applied more strictly. Being in the
business of extending loans secured by real estate mortgage, banks are
presumed to be familiar with the rules on land registration. Since the
banking business· is impressed with public interest, they are expected to be
more cautious, to exercise a higher degree of diligence, care and prudence,
than private individuals in their dealings, even those involving registereo
lands. Banks may not simply rely on the face of the certificate of title. Hence,
they cannot assume that, xxx the title offered as security is on its face free of
any encumbrances or lien, they are relieved of the responsibility of taking
further steps to verify the title and inspect the properties to be mortgaged.
As expected, the ascertainment of the status or condition of a property
offered to it as security for a loan must be a standard and indispensable part
of the bank's operations. xxx. (Citations omitted)
We never fail to stress the remarkable significance of a banking institution to
commercial transactions, in particular, and to the country's economy in
general. 30 The banking system is an indispensable institution in the modern
world and plays a vital role in the economic life of every civilized
nation.31 Whether as mere passive entities for the safekeeping and saving of
money or as active instruments of business and commerce, banks have
become an ubiquitous presence among the people, who have come to
regard them with respect and even gratitude and, most of all,
confidence.32 Consequently, the highest degree of diligence is expected, and
high standards of integrity and performance are even required, of it. 33
39
PNB clearly failed to observe the required degree of caution in readily
approving the loan and accepting the collateral offered by the Spouses
Comista without first ascertaining the real ownership of the property. It
should not have simply relied on the face of title but went further to
physically ascertain the actual condition of the property. That the property
offered as security was in the possession of the person other than the one
applying for the loan and the taxes were declared not in their names could
have raised a suspicion. A person who deliberately ignores a significant fact
that could create suspicion in an otherwise reasonable person is not an
innocent purchaser for value.34

Having laid down that the PNB is not in good faith, We are led to affirm the
award of moral damages, exemplary damages, attorney's fees and costs of
litigation in favor of Vila. Moral damages are not awarded to penalize the
defendant but to compensate the plaintiff for the injuries he may have
suffered.35 Willful injury to property may be a legal ground for awarding
moral damages if the court should find that, under the circumstances, such
damages are justly due.36 In the instant case, we find that the award of
moral damages is proper. 37 As for the award of exemplary damages, we
deem that the same is proper for the PNB was remiss in its obligation to
inquire the real status of the subject property, causing damage to
Vila.38 Finally, we rule that the award of attorney's fees and litigation
expenses is valid since Vila was compelled to litigate and thus incur expenses
in order to protect its rights over the subject property. 39

WHEREFORE, premises considered, the petition is DENIED. The assailed

Decision and Resolution of the Court of Appeals are hereby AFFIRMED.
Accordingly, the decision of the RTC dated 22 June 2011 STANDS as the final
resolution of this case.

SO ORDERED.

40
G.R. No. 162336 February 1, 2010
HILARIO P. SORIANO, Petitioner,
vs.
PEOPLE OF THE PHILIPPINES, BANGKO SENTRAL NG PILIPINAS (BSP),
PHILIPPINE DEPOSIT INSURANCE CORPORATION (PDIC), PUBLIC
PROSECUTOR ANTONIO C.BUAN, and STATE PROSECUTOR ALBERTO R.
FONACIER, Respondents.
DECISION
DEL CASTILLO, J.:
A bank officer violates the DOSRI 2 law when he acquires bank funds for his
personal benefit, even if such acquisition was facilitated by a fraudulent loan
application. Directors, officers, stockholders, and their related interests
cannot be allowed to interpose the fraudulent nature of the loan as a
defense to escape culpability for their circumvention of Section 83 of
Republic Act (RA) No. 337.3
Before us is a Petition for Review on Certiorari4 under Rule 45 of the Rules of
Court, assailing the September 26, 2003 Decision 5 and the February 5, 2004
Resolution6 of the Court of Appeals (CA) in CA-G.R. SP No. 67657. The
challenged Decision disposed as follows:
WHEREFORE, premises considered, the instant petition for certiorari is
hereby DENIED.7
Factual Antecedents
Sometime in 2000, the Office of Special Investigation (OSI) of the Bangko
Sentral ng Pilipinas (BSP), through its officers, 8 transmitted a letter9 dated
March 27, 2000 to Jovencito Zuño, Chief State Prosecutor of the Department
of Justice (DOJ). The letter attached as annexes five affidavits, 10 which would
allegedly serve as bases for filing criminal charges for Estafa thru Falsification
of Commercial Documents, in relation to Presidential Decree (PD) No.
1689,11 and for Violation of Section 83 of RA 337, as amended by PD
1795,12 against, inter alia, petitioner herein Hilario P. Soriano. These five
affidavits, along with other documents, stated that spouses Enrico and
Amalia Carlos appeared to have an outstanding loan of ₱8 million with the
Rural Bank of San Miguel (Bulacan), Inc. (RBSM), but had never applied for
nor received such loan; that it was petitioner, who was then president of
RBSM, who had ordered, facilitated, and received the proceeds of the loan;
and that the ₱8 million loan had never been authorized by RBSM's Board of
Directors and no report thereof had ever been submitted to the Department
of Rural Banks, Supervision and Examination Sector of the BSP. The letter of
the OSI, which was not subscribed under oath, ended with a request that a
preliminary investigation be conducted and the corresponding criminal
charges be filed against petitioner at his last known address.
Acting on the letter-request and its annexes, State Prosecutor Albert R.
Fonacier proceeded with the preliminary investigation. He issued a
subpoena with the witnesses’ affidavits and supporting documents
attached, and required petitioner to file his counter-affidavit. In due course,
the investigating officer issued a Resolution finding probable cause and
correspondingly filed two separate informations against petitioner before
the Regional Trial Court (RTC) of Malolos, Bulacan. 13
The first Information,14 dated November 14, 2000 and docketed as Criminal
Case No. 237-M-2001, was for estafa through falsification of commercial
documents, under Article 315, paragraph 1(b), of the Revised Penal Code
(RPC), in relation to Article 172 of the RPC and PD 1689. It basically alleged
that petitioner and his co-accused, in abuse of the confidence reposed in
them as RBSM officers, caused the falsification of a number of loan
documents, making it appear that one Enrico Carlos filled up the same, and
thereby succeeded in securing a loan and converting the loan proceeds for
their personal gain and benefit.15 The information reads:
That in or about the month of April, 1997, and thereafter, in San Miguel,
Bulacan, and within the jurisdiction of this Honorable Court, the said
accused HILARIO P. SORIANO and ROSALINDA ILAGAN, as principals by direct
participation, with unfaithfulness or abuse of confidence and taking
advantage of their position as President of the Rural Bank of San Miguel
(Bulacan), Inc. and Branch Manager of the Rural Bank of San Miguel – San
Miguel Branch [sic], a duly organized banking institution under Philippine
Laws, conspiring, confederating and mutually helping one another, did then
41
and there, willfully and feloniously falsify loan documents consisting of
undated loan application/information sheet, credit proposal dated April 14,
1997, credit proposal dated April 22, 1997, credit investigation report dated
April 15, 1997, promissory note dated April 23, 1997, disclosure statement
on loan/credit transaction dated April 23, 1997, and other related
documents, by making it appear that one Enrico Carlos filled up the
application/information sheet and filed the aforementioned loan documents
when in truth and in fact Enrico Carlos did not participate in the execution of
said loan documents and that by virtue of said falsification and with deceit
and intent to cause damage, the accused succeeded in securing a loan in the
amount of eight million pesos (PhP8,000,000.00) from the Rural Bank of San
Miguel – San Ildefonso branch in the name of Enrico Carlos which amount of
PhP8 million representing the loan proceeds the accused thereafter
converted the same amount to their own personal gain and benefit, to the
damage and prejudice of the Rural Bank of San Miguel – San Ildefonso
branch, its creditors, the Bangko Sentral ng Pilipinas, and the Philippine
Deposit Insurance Corporation.
CONTRARY TO LAW.16
The other Information17 dated November 10, 2000 and docketed as Criminal
Case No. 238-M-2001, was for violation of Section 83 of RA 337, as amended
by PD 1795. The said provision refers to the prohibition against the so-called
DOSRI loans. The information alleged that, in his capacity as President of
RBSM, petitioner indirectly secured an ₱8 million loan with RBSM, for his
personal use and benefit, without the written consent and approval of the
bank's Board of Directors, without entering the said transaction in the
bank's records, and without transmitting a copy of the transaction to the
supervising department of the bank. His ruse was facilitated by placing the
loan in the name of an unsuspecting RBSM depositor, one Enrico
Carlos.18 The information reads:
That in or about the month of April, 1997, and thereafter, and within the
jurisdiction of this Honorable Court, the said accused, in his capacity as
President of the Rural Bank of San Miguel (Bulacan), Inc., did then and there,
willfully and feloniously indirectly borrow or secure a loan with the Rural
Bank of San Miguel – San Ildefonso branch, a domestic rural banking
institution created, organized and existing under Philippine laws, amounting
to eight million pesos (PhP8,000,000.00), knowing fully well that the same
has been done by him without the written consent and approval of the
majority of the board of directors of the said bank, and which consent and
approval the said accused deliberately failed to obtain and enter the same
upon the records of said banking institution and to transmit a copy thereof
to the supervising department of the said bank, as required by the General
Banking Act, by using the name of one depositor Enrico Carlos of San
Miguel, Bulacan, the latter having no knowledge of the said loan, and one in
possession of the said amount of eight million pesos (PhP8,000,000.00),
accused converted the same to his own personal use and benefit, in flagrant
violation of the said law.
CONTRARY TO LAW.19
Both cases were raffled to Branch 79 of the RTC of Malolos, Bulacan. 20
On June 8, 2001, petitioner moved to quash 21 these informations on two
grounds: that the court had no jurisdiction over the offense charged, and
that the facts charged do not constitute an offense.
On the first ground, petitioner argued that the letter transmitted by the BSP
to the DOJ constituted the complaint and hence was defective for failure to
comply with the mandatory requirements of Section 3(a), Rule 112 of the
Rules of Court, such as the statement of address of petitioner and oath and
subscription.22 Moreover, petitioner argued that the officers of OSI, who
were the signatories to the "letter-complaint," were not authorized by the
BSP Governor, much less by the Monetary Board, to file the complaint.
According to petitioner, this alleged fatal oversight violated Section 18, pars.
(c) and (d) of the New Central Bank Act (RA 7653).
On the second ground, petitioner contended that the commission of estafa
under paragraph 1(b) of Article 315 of the RPC is inherently incompatible
with the violation of DOSRI law (as set out in Section 83 23 of RA 337, as
amended by PD 1795),24 hence a person cannot be charged for both
offenses. He argued that a violation of DOSRI law requires the offender
to obtain a loan from his bank, without complying with procedural,
reportorial, or ceiling requirements. On the other hand, estafa under par.
42
1(b), Article 315 of the RPC requires the offender to misappropriate or
convert something that he holds in trust, or on commission, or for
administration, or under any other obligation involving the duty to return
the same.25
Essentially, the petitioner theorized that the characterization of possession is
different in the two offenses. If petitioner acquired the loan as DOSRI, he
owned the loaned money and therefore, cannot misappropriate or convert
it as contemplated in the offense of estafa. Conversely, if petitioner
committed estafa, then he merely held the money in trust for someone else
and therefore, did not acquire a loan in violation of DOSRI rules.
Ruling of the Regional Trial Court
In an Order26 dated August 8, 2001, the trial court denied petitioner's
Motion to Quash for lack of merit. The lower court agreed with the
prosecution that the assailed OSI letter was not the complaint-affidavit itself;
thus, it need not comply with the requirements under the Rules of Court.
The trial court held that the affidavits, which were attached to the OSI letter,
comprised the complaint-affidavit in the case. Since these affidavits were
duly subscribed and sworn to before a notary public, there was adequate
compliance with the Rules. The trial court further held that the two offenses
were separate and distinct violations, hence the prosecution of one did not
pose a bar to the other.27
Petitioner’s Motion for Reconsideration was likewise denied in an Order
dated September 5, 2001.28
Aggrieved, petitioner filed a Petition for Certiorari29 with the CA, reiterating
his arguments before the trial court.
Ruling of the Court of Appeals
The CA denied the petition on both issues presented by petitioner.
On the first issue, the CA determined that the BSP letter, which petitioner
characterized to be a fatally infirm complaint, was not actually a complaint,
but a transmittal or cover letter only. This transmittal letter merely contained
a summary of the affidavits which were attached to it. It did not contain any
averment of personal knowledge of the events and transactions that
constitute the elements of the offenses charged. Being a mere transmittal
letter, it need not comply with the requirements of Section 3(a) of Rule 112
of the Rules of Court.30
The CA further determined that the five affidavits attached to the transmittal
letter should be considered as the complaint-affidavits that charged
petitioner with violation of Section 83 of RA 337 and for Estafa thru
Falsification of Commercial Documents. These complaint-affidavits complied
with the mandatory requirements set out in the Rules of Court – they were
subscribed and sworn to before a notary public and subsequently certified
by State Prosecutor Fonacier, who personally examined the affiants and was
convinced that the affiants fully understood their sworn statements. 31
Anent the second ground, the CA found no merit in petitioner's argument
that the violation of the DOSRI law and the commission of estafa thru
falsification of commercial documents are inherently inconsistent with each
other. It explained that the test in considering a motion to quash on the
ground that the facts charged do not constitute an offense, is whether the
facts alleged, when hypothetically admitted, constitute the elements of the
offense charged. The appellate court held that this test was sufficiently met
because the allegations in the assailed informations, when hypothetically
admitted, clearly constitute the elements of Estafa thru Falsification of
Commercial Documents and Violation of DOSRI law. 32
Petitioner’s Motion for Reconsideration 33 was likewise denied for lack of
merit.
Hence, this petition.
Issues
Restated, petitioner raises the following issues34 for our consideration:
I
Whether the complaint complied with the mandatory requirements
provided under Section 3(a), Rule 112 of the Rules of Court and Section 18,
paragraphs (c) and (d) of RA 7653.
43
II
Whether a loan transaction within the ambit of the DOSRI law (violation of
Section 83 of RA 337, as amended) could also be the subject of Estafa under
Article 315 (1) (b) of the Revised Penal Code.
III
Is a petition for certiorari under Rule 65 the proper remedy against an Order
denying a Motion to Quash?
IV
Whether petitioner is entitled to a writ of injunction.
Our Ruling
The petition lacks merit.
First Issue:
Whether the complaint complied with the mandatory requirements
provided under Section 3(a), Rule 112 of the Rules of Court and Section 18,
paragraphs (c) and (d) of
Republic Act No. 7653
Petitioner moved to withdraw the first issue from the instant petition
On March 5, 2007, the Court noted35 petitioner's Manifestation and Motion
for Partial Withdrawal of the Petition 36 dated February 7, 2007. In the said
motion, petitioner informed the Court of the promulgation of a Decision
entitled Soriano v. Hon. Casanova,37 which also involved petitioner and
similar BSP letters to the DOJ. According to petitioner, the said Decision
allegedly ruled squarely on the nature of the BSP letters and the validity of
the sworn affidavits attached thereto. For this reason, petitioner moved for
the partial withdrawal of the instant petition insofar as it involved the issue
of "whether or not a court can legally acquire jurisdiction over a complaint
which failed to comply with the mandatory requirements provided under
Section 3(a), Rule 112 of the Rules of Court and Section 18, paragraphs (c)
and (d) of RA 7653".38
Given that the case had already been submitted for resolution of the Court
when petitioner filed his latest motion, and that all respondents had
presented their positions and arguments on the first issue, the Court deems
it proper to rule on the same.
In Soriano v. Hon. Casanova, the Court held that the affidavits attached to
the BSP transmittal letter complied with the mandatory requirements under
the Rules of Court.
To be sure, the BSP letters involved in Soriano v. Hon. Casanova 39 are not the
same as the BSP letter involved in the instant case. However, the BSP letters
in Soriano v. Hon. Casanova and the BSP letter subject of this case are
similar in the sense that they are all signed by the OSI officers of the BSP,
they were not sworn to by the said officers, they all contained summaries of
their attached affidavits, and they all requested the conduct of a preliminary
investigation and the filing of corresponding criminal charges against
petitioner Soriano. Thus, the principle of stare decisis dictates that the ruling
in Soriano v. Hon. Casanova be applied in the instant case – once a question
of law has been examined and decided, it should be deemed settled and
closed to further argument.40
We held in Soriano v. Hon. Casanova, after a close scrutiny of the letters
transmitted by the BSP to the DOJ, that these were not intended to be the
complaint, as envisioned under the Rules. They did not contain averments of
personal knowledge of the events and transactions constitutive of any
offense. The letters merely transmitted for preliminary investigation the
affidavits of people who had personal knowledge of the acts of petitioner.
We ruled that these affidavits, not the letters transmitting them, initiated
the preliminary investigation. Since these affidavits were subscribed under
oath by the witnesses who executed them before a notary public, then there
was substantial compliance with Section 3(a), Rule 112 of the Rules of Court.
Anent the contention that there was no authority from the BSP Governor or
the Monetary Board to file a criminal case against Soriano, we held that the
requirements of Section 18, paragraphs (c) and (d) of RA 7653 did not apply
because the BSP did not institute the complaint but merely transmitted the
affidavits of the complainants to the DOJ.
44
We further held that since the offenses for which Soriano was charged were
public crimes, authority holds that it can be initiated by "any competent
person" with personal knowledge of the acts committed by the offender.
Thus, the witnesses who executed the affidavits clearly fell within the
purview of "any competent person" who may institute the complaint for a
public crime.
The ruling in Soriano v. Hon. Casanova has been adopted and elaborated
upon in the recent case of Santos-Concio v. Department of Justice. 41 Instead
of a transmittal letter from the BSP, the Court in Santos-Concio was faced
with an NBI-NCR Report, likewise with affidavits of witnesses as
attachments. Ruling on the validity of the witnesses’ sworn affidavits as
bases for a preliminary investigation, we held:
The Court is not unaware of the practice of incorporating all allegations in
one document denominated as "complaint-affidavit." It does not pronounce
strict adherence to only one approach, however, for there are cases where
the extent of one’s personal knowledge may not cover the entire gamut of
details material to the alleged offense. The private offended party or relative
of the deceased may not even have witnessed the fatality, in which case the
peace officer or law enforcer has to rely chiefly on affidavits of witnesses.
The Rules do not in fact preclude the attachment of a referral or transmittal
letter similar to that of the NBI-NCR. Thus, in Soriano v. Casanova, the Court
held:
A close scrutiny of the letters transmitted by the BSP and PDIC to the DOJ
shows that these were not intended to be the complaint envisioned under
the Rules. It may be clearly inferred from the tenor of the letters that the
officers merely intended to transmit the affidavits of the bank employees to
the DOJ. Nowhere in the transmittal letters is there any averment on the
part of the BSP and PDIC officers of personal knowledge of the events and
transactions constitutive of the criminal violations alleged to have been
made by the accused. In fact, the letters clearly stated that what the OSI of
the BSP and the LIS of the PDIC did was to respectfully transmit to the DOJ
for preliminary investigation the affidavits and personal knowledge of the
acts of the petitioner. These affidavits were subscribed under oath by the
witnesses who executed them before a notary public. Since the affidavits,
not the letters transmitting them, were intended to initiate the preliminary
investigation, we hold that Section 3(a), Rule 112 of the Rules of Court was
substantially complied with.
Citing the ruling of this Court in Ebarle v. Sucaldito, the Court of Appeals
correctly held that a complaint for purposes of preliminary investigation by
the fiscal need not be filed by the offended party. The rule has been
that, unless the offense subject thereof is one that cannot be
prosecuted de oficio, the same may be filed, for preliminary investigation
purposes, by any competent person. The crime of estafa is a public crime
which can be initiated by "any competent person." The witnesses who
executed the affidavits based on their personal knowledge of the acts
committed by the petitioner fall within the purview of "any competent
person" who may institute the complaint for a public crime. x x x (Emphasis
and italics supplied)
A preliminary investigation can thus validly proceed on the basis of an
affidavit of any competent person, without the referral document, like the
NBI-NCR Report, having been sworn to by the law enforcer as the nominal
complainant. To require otherwise is a needless exercise. The cited case
of Oporto, Jr. v. Judge Monserate does not appear to dent this proposition.
After all, what is required is to reduce the evidence into affidavits, for while
reports and even raw information may justify the initiation of an
investigation, the preliminary investigation stage can be held only after
sufficient evidence has been gathered and evaluated which may warrant the
eventual prosecution of the case in court. 42
Following the foregoing rulings in Soriano v. Hon. Casanova and Santos-
Concio v. Department of Justice, we hold that the BSP letter, taken together
with the affidavits attached thereto, comply with the requirements provided
under Section 3(a), Rule 112 of the Rules of Court and Section 18,
paragraphs (c) and (d) of RA 7653.
Second Issue:
Whether a loan transaction within the ambit of the DOSRI law (violation of
Section 83 of RA 337, as amended) could be the subject of Estafa under
Article 315 (1) (b) of the
45
Revised Penal Code
The second issue was raised by petitioner in the context of his Motion to
Quash Information on the ground that the facts charged do not constitute
an offense.43 It is settled that in considering a motion to quash on such
ground, the test is "whether the facts alleged, if hypothetically admitted,
would establish the essential elements of the offense charged as defined by
law. The trial court may not consider a situation contrary to that set forth in
the criminal complaint or information. Facts that constitute the defense of
the petitioner[s] against the charge under the information must be proved
by [him] during trial. Such facts or circumstances do not constitute proper
grounds for a motion to quash the information on the ground that the
material averments do not constitute the offense". 44
We have examined the two informations against petitioner and we find that
they contain allegations which, if hypothetically admitted, would establish
the essential elements of the crime of DOSRI violation and estafa thru
falsification of commercial documents.
In Criminal Case No. 238-M-2001 for violation of DOSRI rules, the
information alleged that petitioner Soriano was the president of RBSM; that
he was able to indirectly obtain a loan from RBSM by putting the loan in the
name of depositor Enrico Carlos; and that he did this without complying
with the requisite board approval, reportorial, and ceiling requirements.
In Criminal Case No. 237-M-2001 for estafa thru falsification of commercial
documents, the information alleged that petitioner, by taking advantage of
his position as president of RBSM, falsified various loan documents to make
it appear that an Enrico Carlos secured a loan of ₱8 million from RBSM; that
petitioner succeeded in obtaining the loan proceeds; that he later converted
the loan proceeds to his own personal gain and benefit; and that his action
caused damage and prejudice to RBSM, its creditors, the BSP, and the PDIC.
Significantly, this is not the first occasion that we adjudge the sufficiency of
similarly worded informations. In Soriano v. People, 45 involving the same
petitioner in this case (but different transactions), we also reviewed the
sufficiency of informations for DOSRI violation and estafa thru falsification of
commercial documents, which were almost identical, mutatis mutandis,
with the subject informations herein. We held in Soriano v. People that there
is no basis for the quashal of the informations as "they contain material
allegations charging Soriano with violation of DOSRI rules and estafa thru
falsification of commercial documents".
Petitioner raises the theory that he could not possibly be held liable for
estafa in concurrence with the charge for DOSRI violation. According to him,
the DOSRI charge presupposes that he acquired a loan, which would make
the loan proceeds his own money and which he could neither possibly
misappropriate nor convert to the prejudice of another, as required by the
statutory definition of estafa. 46 On the other hand, if petitioner did not
acquire any loan, there can be no DOSRI violation to speak of. Thus,
petitioner posits that the two offenses cannot co-exist. This theory does not
persuade us.
Petitioner’s theory is based on the false premises that the loan was
extended to him by the bank in his own name, and that he became the
owner of the loan proceeds. Both premises are wrong.
The bank money (amounting to ₱8 million) which came to the possession of
petitioner was money held in trust or administration by him for the bank, in
his
fiduciary capacity as the President of said bank. 47 It is not accurate to say
that petitioner became the owner of the ₱8 million because it was the
proceeds of a loan. That would have been correct if the bank knowingly
extended the loan to petitioner himself. But that is not the case here.
According to the information for estafa, the loan was supposed to be for
another person, a certain "Enrico Carlos"; petitioner, through falsification,
made it appear that said "Enrico Carlos" applied for the loan when in fact he
("Enrico Carlos") did not. Through such fraudulent device, petitioner
obtained the loan proceeds and converted the same. Under these
circumstances, it cannot be said that petitioner became the legal owner of
the ₱8 million. Thus, petitioner remained the bank’s fiduciary with respect
to that money, which makes it capable of misappropriation or conversion in
his hands.
46
The next question is whether there can also be, at the same time, a charge
for DOSRI violation in such a situation wherein the accused bank officer did
not secure a loan in his own name, but was alleged to have used the name
of another person in order to indirectly secure a loan from the bank. We
answer this in the affirmative. Section 83 of RA 337 reads:
Section 83. No director or officer of any banking institution shall, either
directly or indirectly, for himself or as the representative or agent of others,
borrow any of the deposits of funds of such bank, nor shall he become a
guarantor, indorser, or surety for loans from such bank to others, or in any
manner be an obligor for moneys borrowed from the bank or loaned by it,
except with the written approval of the majority of the directors of the bank,
excluding the director concerned. Any such approval shall be entered upon
the records of the corporation and a copy of such entry shall be transmitted
forthwith to the Superintendent of Banks. The office of any director or
officer of a bank who violates the provisions of this section shall
immediately become vacant and the director or officer shall be punished by
imprisonment of not less than one year nor more than ten years and by a
fine of not less than one thousand nor more than ten thousand pesos. x x x
The prohibition in Section 83 is broad enough to cover various modes of
borrowing.[48] It covers loans by a bank director or officer (like herein
petitioner) which are made either: (1) directly, (2) indirectly, (3) for himself,
(4) or as the representative or agent of others. It applies even if the director
or officer is a mere guarantor, indorser or surety for someone else's loan or
is in any manner an obligor for money borrowed from the bank or loaned by
it. The covered transactions are prohibited unless the approval, reportorial
and ceiling requirements under Section 83 are complied with. The
prohibition is intended to protect the public, especially the depositors,
[49] from the overborrowing of bank funds by bank officers, directors,
stockholders and related interests, as such overborrowing may lead to bank
failures.[50] It has been said that "banking institutions are not created for
the benefit of the directors [or officers]. While directors have great powers
as directors, they have no special privileges as individuals. They cannot use
the assets of the bank for their own benefit except as permitted by law.
Stringent restrictions are placed about them so that when acting both for
the bank and for one of themselves at the same time, they must keep within
certain prescribed lines regarded by the legislature as essential to safety in
the banking business".51
A direct borrowing is obviously one that is made in the name of the DOSRI
himself or where the DOSRI is a named party, while an indirect borrowing
includes one that is made by a third party, but the DOSRI has a stake in the
transaction.52 The latter type – indirect borrowing – applies here. The
information in Criminal Case 238-M-2001 alleges that petitioner "in his
capacity as President of Rural Bank of San Miguel – San Ildefonso branch x x
x indirectly borrow[ed] or secure[d] a loan with [RBSM] x x x knowing fully
well that the same has been done by him without the written consent and
approval of the majority of the board of directors x x x, and which consent
and approval the said accused deliberately failed to obtain and enter the
same upon the records of said banking institution and to transmit a copy
thereof to the supervising department of the said bank x x x by using the
name of one depositor Enrico Carlos x x x, the latter having no knowledge of
the said loan, and once in possession of the said amount of eight million
pesos (₱8 million), [petitioner] converted the same to his own personal use
and benefit".53
The foregoing information describes the manner of securing the loan
as indirect; names petitioner as the benefactor of the indirect loan; and
states that the requirements of the law were not complied with. It contains
all the required elements54 for a violation of Section 83, even if petitioner
did not secure the loan in his own name.
The broad interpretation of the prohibition in Section 83 is justified by the
fact that it even expressly covers loans to third parties where the third
parties are aware of the transaction (such as principals represented by the
DOSRI), and where the DOSRI’s interest does not appear to be beneficial but
even burdensome (such as in cases when the DOSRI acts as a mere
guarantor or surety). If the law finds it necessary to protect the bank and the
banking system in such situations, it will surely be illogical for it to exclude a
case like this where the DOSRI acted for his own benefit, using the name of
an unsuspecting person. A contrary interpretation will effectively allow a
DOSRI to use dummies to circumvent the requirements of the law.
47
In sum, the informations filed against petitioner do not negate each other.
Third Issue:
Is a Rule 65 petition for certiorari the proper remedy against an Order
denying a Motion to Quash?
This issue may be speedily resolved by adopting our ruling in Soriano v.
People,55 where we held:
In fine, the Court has consistently held that a special civil action
for certiorari is not the proper remedy to assail the denial of a motion to
quash an information. The proper procedure in such a case is for the
accused to enter a plea, go to trial without prejudice on his part to present
the special defenses he had invoked in his motion to quash and if after trial
on the merits, an adverse decision is rendered, to appeal therefrom in the
manner authorized by law. Thus, petitioners should not have forthwith filed
a special civil action for certiorari with the CA and instead, they should have
gone to trial and reiterated the special defenses contained in their motion to
quash. There are no special or exceptional circumstances in the present case
that would justify immediate resort to a filing of a petition for certiorari.
Clearly, the CA did not commit any reversible error, much less, grave abuse
of discretion in dismissing the petition.56
It has been consistently held that there is no power the exercise of which is
more delicate, which requires greater caution, deliberation and sound
discretion, or more dangerous in a doubtful case, than the issuance of an
injunction. It is the strong arm of equity that should never be extended
unless to cases of great injury, where courts of law cannot afford an
adequate or commensurate remedy in damages.
Every court should remember that an injunction is a limitation upon the
freedom of action of the [complainant] and should not be granted lightly or
precipitately. It should be granted only when the court is fully satisfied that
the law permits it and the emergency demands it.
Given this Court's findings in the earlier issues of the instant case, we find no
compelling reason to grant the injunctive relief sought by petitioner.
WHEREFORE, the petition is DENIED. The assailed September 26, 2003
Decision as well as the February 5, 2004 Resolution of the Court of Appeals
in CA-G.R. SP No. 67657 are AFFIRMED. Costs against petitioner.
SO ORDERED.

Fourth Issue:

Whether petitioner is entitled to a writ of injunction

The requisites to justify an injunctive relief are: (1) the right of the
complainant is clear and unmistakable; (2) the invasion of the right sought
to be protected is material and substantial; and (3) there is an urgent and
paramount necessity for the writ to prevent serious damage. A clear legal
right means one clearly founded in or granted by law or is "enforceable as a
matter of law." Absent any clear and unquestioned legal right, the issuance
of an injunctive writ would constitute grave abuse of discretion. 57 Caution
and prudence must, at all times, attend the issuance of an injunctive writ
because it effectively disposes of the main case without trial and/or due
process.58 In Olalia v. Hizon,59 the Court held as follows:

48
G.R. No. 170865 April 25, 2012 Cheah, for the amount wrongfully paid the latter, while the spouses Cheah
plead that they be declared entirely faultless.
PHILIPPINE NATIONAL BANK, Petitioner,
vs. Factual Antecedents
SPOUSES CHEAH CHEE CHONG and OFELIA CAMACHO
On November 4, 1992, Ofelia Cheah (Ofelia) and her friend Adelina Guarin
CHEAH, Respondents.
(Adelina) were having a conversation in the latter’s office when Adelina’s
x-----------------------x friend, Filipina Tuazon (Filipina), approached her to ask if she could have
Filipina’s check cleared and encashed for a service fee of 2.5%. The check is
G.R. No. 170892
Bank of America Check No. 1906 under the account of Alejandria Pineda and
SPOUSES CHEAH CHEE CHONG and OFELIA CAMACHO CHEAH, Petitioners, Eduardo Rosales and drawn by Atty. Eduardo Rosales against Bank of
vs. America Alhambra Branch in California, USA, with a face amount of
PHILIPPINE NATIONAL BANK, Respondent. $300,000.00, payable to cash. Because Adelina does not have a dollar
account in which to deposit the check, she asked Ofelia if she could
DECISION accommodate Filipina’s request since she has a joint dollar savings account
DEL CASTILLO, J.: with her Malaysian husband Cheah Chee Chong (Chee Chong) under
Account No. 265-705612-2 with PNB Buendia Branch.
Law favoreth diligence, and therefore, hateth folly and negligence.—
Wingate’s Maxim. Ofelia agreed.

In doing a friend a favor to help the latter’s friend collect the proceeds of a
foreign check, a woman deposited the check in her and her husband’s dollar
account. The local bank accepted the check for collection and immediately
credited the proceeds thereof to said spouses’ account even before the
lapse of the clearing period. And just when the money had been withdrawn
and distributed among different beneficiaries, it was discovered that all
along, to the horror of the woman whose intention to accommodate a
friend’s friend backfired, she and her
bank had dealt with a rubber check.
These consolidated1 Petitions for Review on Certiorari filed by the Philippine
National Bank (PNB)2 and by the spouses Cheah Chee Chong and Ofelia
Camacho Cheah (spouses Cheah)3 both assail the August 22, 2005
Decision4 and December 21, 2005 Resolution5 of the Court of Appeals (CA) in
CA-G.R. CV No. 63948 which declared both parties equally negligent and,
hence, should equally suffer the resulting loss. For its part, PNB questions
why it was declared blameworthy together with its depositors, spouses
That same day, Ofelia and Adelina went to PNB Buendia Branch. They met
with Perfecto Mendiola of the Loans Department who referred them to PNB
Division Chief Alberto Garin (Garin). Garin discussed with them the process
of clearing the subject check and they were told that it normally takes 15
days.7 Assured that the deposit and subsequent clearance of the check is a
normal transaction, Ofelia deposited Filipina’s check. PNB then sent it for
clearing through its correspondent bank, Philadelphia National Bank. Five
days later, PNB received a credit advice 8 from Philadelphia National Bank
that the proceeds of the subject check had been temporarily credited to
PNB’s account as of November 6, 1992. On November 16, 1992, Garin called
up Ofelia to inform her that the check had already been cleared. 9 The
following day, PNB Buendia Branch, after deducting the bank charges,
credited $299,248.37 to the account of the spouses Cheah. 10 Acting on
Adelina’s instruction to withdraw the credited amount, Ofelia that day
personally withdrew $180,000.00.11 Adelina was able to withdraw the
remaining amount the next day after having been authorized by
Ofelia.12 Filipina received all the proceeds.
49
In the meantime, the Cable Division of PNB Head Office in Escolta, Manila
received on November 16, 1992 a SWIFT 13 message from Philadelphia
National Bank dated November 13, 1992 with Transaction Reference
Number (TRN) 46506218, informing PNB of the return of the subject check
for insufficient funds.14 However, the PNB Head Office could not ascertain to
which branch/office it should forward the same for proper action.
Eventually, PNB Head Office sent Philadelphia National Bank a SWIFT
message informing the latter that SWIFT message with TRN 46506218 has
been relayed to PNB’s various divisions/departments but was returned to
PNB Head Office as it seemed misrouted. PNB Head Office thus requested
for Philadelphia National Bank’s advice on said SWIFT message’s proper
disposition.15 After a few days, PNB Head Office ascertained that the SWIFT
message was intended for PNB Buendia Branch.
PNB Buendia Branch learned about the bounced check when it received on
November 20, 1992 a debit advice, 16 followed by a letter17 on November 24,
1992, from Philadelphia National Bank to which the November 13, 1992
SWIFT message was attached. Informed about the bounced check and upon
demand by PNB Buendia Branch to return the money withdrawn, Ofelia
immediately contacted Filipina to get the money back. But the latter told her
that all the money had already been given to several people who asked for
the check’s encashment. In their effort to recover the money, spouses Cheah
then sought the help of the National Bureau of Investigation. Said agency’s
Anti-Fraud and Action Division was later able to apprehend some of the
beneficiaries of the proceeds of the check and recover from them
$20,000.00. Criminal charges were then filed against these suspect
beneficiaries.18
Meanwhile, the spouses Cheah have been constantly meeting with the bank
officials to discuss matters regarding the incident and the recovery of the
value of the check while the cases against the alleged perpetrators remain
pending. Chee Chong in the end signed a PNB drafted 19 letter20 which states
that the spouses Cheah are offering their condominium units as collaterals
for the amount withdrawn. Under this setup, the amount withdrawn would
be treated as a loan account with deferred interest while the spouses try to
recover the money from those who defrauded them. Apparently, Chee
Chong signed the letter after the Vice President and Manager of PNB
Buendia Branch, Erwin Asperilla (Asperilla), asked the spouses Cheah to help
him and the other bank officers as they were in danger of losing their jobs
because of the incident. Asperilla likewise assured the spouses Cheah that
the letter was a mere formality and that the mortgage will be disregarded
once PNB receives its claim for indemnity from Philadelphia National Bank.
Although some of the officers of PNB were amenable to the proposal, 21 the
same did not materialize. Subsequently, PNB sent a demand letter to
spouses Cheah for the return of the amount of the check, 22 froze their peso
and dollar deposits in the amounts of ₱275,166.80 and $893.46, 23 and filed a
complaint24 against them for Sum of Money with Branch 50 of the Regional
Trial Court (RTC) of Manila, docketed as Civil Case No. 94-71022. In said
complaint, PNB demanded payment of around ₱8,202,220.44, plus
interests25 and attorney’s fees, from the spouses Cheah.
As their main defense, the spouses Cheah claimed that the proximate cause
of PNB’s injury was its own negligence of paying a US dollar denominated
check without waiting for the 15-day clearing period, in violation of its bank
practice as mandated by its own bank circular, i.e., PNB General Circular No.
52-101/88.26 Because of this, spouses Cheah averred that PNB is barred from
claiming what it had lost. They further averred that it is unjust for them to
pay back the amount disbursed as they never really benefited therefrom. As
counterclaim, they prayed for the return of their frozen deposits, the
recoupment of ₱400,000.00 representing the amount they had so far spent
in recovering the value of the check, and payment of moral and exemplary
damages, as well as attorney’s fees.
Ruling of the Regional Trial Court
The RTC ruled in PNB’s favor. The dispositive portion of its Decision 27 dated
May 20, 1999 reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of
the plaintiff Philippine National Bank [and] against defendants Mr. Cheah
Chee Chong and Ms. Ofelia Camacho Cheah, ordering the latter to pay
jointly and severally the herein plaintiffs’ bank the amount:
50
1. of US$298,950.25 or its peso equivalent based on Central Bank Exchange
Rate prevailing at the time the proceeds of the BA Check No. 190 were
withdrawn or the prevailing Central Bank Rate at the time the amount is to
be reimbursed by the defendants to plaintiff or whatever is lower. This is
without prejudice however, to the rights of the defendants (accommodating
parties) to go against the group of Adelina Guarin, Atty. Eduardo Rosales,
Filipina Tuazon, etc., (Beneficiaries- accommodated parties) who are privy to
the defendants.
No pronouncement as to costs.
No other award of damages for non[e] has been proven.
SO ORDERED.28
The RTC held that spouses Cheah were guilty of contributory negligence.
Because Ofelia trusted a friend’s friend whom she did not know and
considering the amount of the check made payable to cash, the RTC opined
that Ofelia showed lack of vigilance in her dealings. She should have
exercised due care by investigating the negotiability of the check and the
identity of the drawer. While the court found that the proximate cause of
the wrongful payment of the check was PNB’s negligence in not observing
the 15-day guarantee period rule, it ruled that spouses Cheah still cannot
escape liability to reimburse PNB the value of the check as an
accommodation party pursuant to Section 29 of the Negotiable Instruments
Law.29 It likewise applied the principle of solutio indebiti under the Civil
Code. With regard to the award of other forms of damages, the RTC held
that each party must suffer the consequences of their own acts and thus left
both parties as they are.
Unwilling to accept the judgment, the spouses Cheah appealed to the CA.
Ruling of the Court of Appeals
While the CA recognized the spouses Cheah as victims of a scam who
nevertheless have to suffer the consequences of Ofelia’s lack of care and
prudence in immediately trusting a stranger, the appellate court did not hold
PNB scot-free. It ruled in its August 22, 2005 Decision, 30 viz:
As both parties were equally negligent, it is but right and just that both
parties should equally suffer and shoulder the loss. The scam would not
have been possible without the negligence of both parties. As earlier stated,
the complaint of PNB cannot be dismissed because the Cheah spouses were
negligent and Ms. Cheah took an active part in the deposit of the check and
the withdrawal of the subject amounts. On the other hand, the Cheah
spouses cannot entirely bear the loss because PNB allowed her to withdraw
without waiting for the clearance of the check. The remedy of the parties is
to go after those who perpetrated, and benefited from, the scam.
WHEREFORE, the May 20, 1999 Decision of the Regional Trial Court, Branch
5, Manila, in Civil Case No. 94-71022, is hereby REVERSED and SET ASIDE
and another one entered DECLARING both parties equally negligent and
should suffer and shoulder the loss.
Accordingly, PNB is hereby ordered to credit to the peso and dollar accounts
of the Cheah spouses the amount due to them.
SO ORDERED.31
In so ruling, the CA ratiocinated that PNB Buendia Branch’s non-receipt of
the SWIFT message from Philadelphia National Bank within the 15-day
clearing period is not an acceptable excuse. Applying the last clear chance
doctrine, the CA held that PNB had the last clear opportunity to avoid the
impending loss of the money and yet, it glaringly exhibited its negligence in
allowing the withdrawal of funds without exhausting the 15-day clearing
period which has always been a standard banking practice as testified to by
PNB’s own officers, and as provided in its own General Circular No.
52/101/88. To the CA, PNB cannot claim from spouses Cheah even if the
latter are accommodation parties under the law as the bank’s own
negligence is the proximate cause of the damage it sustained. Nevertheless,
it also found Ofelia guilty of contributory negligence. Thus, both parties
should be made equally responsible for the resulting loss.
Both parties filed their respective Motions for Reconsideration 32 but same
were denied in a Resolution33 dated December 21, 2005.
Hence, these Petitions for Review on Certiorari.
51
Our Ruling
The petitions for review lack merit. Hence, we affirm the ruling of the CA.
PNB’s act of releasing the proceeds of the check prior to the lapse of the 15-
day clearing period was the proximate cause of the loss.1âwphi1
"Proximate cause is ‘that cause, which, in natural and continuous sequence,
unbroken by any efficient intervening cause, produces the injury and
without which the result would not have occurred.’ x x x To determine the
proximate cause of a controversy, the question that needs to be asked is: If
the event did not happen, would the injury have resulted? If the answer is
no, then the event is the proximate cause." 34
Here, while PNB highlights Ofelia’s fault in accommodating a stranger’s
check and depositing it to the bank, it remains mum in its release of the
proceeds thereof without exhausting the 15-day clearing period, an act
which contravened established banking rules and practice.
It is worthy of notice that the 15-day clearing period alluded to is construed
as 15 banking days. As declared by Josephine Estella, the Administrative
Service Officer who was the bank’s Remittance Examiner, what was unusual
in the processing of the check was that the "lapse of 15 banking days was
not observed."35 Even PNB’s agreement with Philadelphia National
Bank36 regarding the rules on the collection of the proceeds of US dollar
checks refers to "business/ banking days." Ofelia deposited the subject
check on November 4, 1992. Hence, the 15th banking day from the date of
said deposit should fall on November 25, 1992. However, what happened
was that PNB Buendia Branch, upon calling up Ofelia that the check had
been cleared, allowed the proceeds thereof to be withdrawn on November
17 and 18, 1992, a week before the lapse of the standard 15-day clearing
period.
This Court already held that the payment of the amounts of checks without
previously clearing them with the drawee bank especially so where the
drawee bank is a foreign bank and the amounts involved were large is
contrary to normal or ordinary banking practice. 37 Also, in Associated Bank v.
Tan,38 wherein the bank allowed the withdrawal of the value of a check prior
to its clearing, we said that "[b]efore the check shall have been cleared for
deposit, the collecting bank can only ‘assume’ at its own risk x x x that the
check would be cleared and paid out." The delay in the receipt by PNB
Buendia Branch of the November 13, 1992 SWIFT message notifying it of the
dishonor of the subject check is of no moment, because had PNB Buendia
Branch waited for the expiration of the clearing period and had never
released during that time the proceeds of the check, it would have already
been duly notified of its dishonor. Clearly, PNB’s disregard of its preventive
and protective measure against the possibility of being victimized by bad
checks had brought upon itself the injury of losing a significant amount of
money.
It bears stressing that "the diligence required of banks is more than that of a
Roman pater familias or a good father of a family. The highest degree of
diligence is expected."39 PNB miserably failed to do its duty of exercising
extraordinary diligence and reasonable business prudence. The disregard of
its own banking policy amounts to gross negligence, which the law defines
as "negligence characterized by the want of even slight care, acting or
omitting to act in a situation where there is duty to act, not inadvertently
but wilfully and intentionally with a conscious indifference to consequences
in so far as other persons may be affected."40 With regard to collection or
encashment of checks, suffice it to say that the law imposes on the
collecting bank the duty to scrutinize diligently the checks deposited with it
for the purpose of determining their genuineness and regularity. "The
collecting bank, being primarily engaged in banking, holds itself out to the
public as the expert on this field, and the law thus holds it to a high standard
of conduct."41 A bank is expected to be an expert in banking procedures and
it has the necessary means to ascertain whether a check, local or foreign, is
sufficiently funded.
Incidentally, PNB obliges the spouses Cheah to return the withdrawn money
under the principle of solutio indebiti, which is laid down in Article 2154 of
the Civil Code:42
Art. 2154. If something is received when there is no right to demand it, and
it was unduly delivered through mistake, the obligation to return it arises.
52
"[T]he indispensable requisites of the juridical relation known as solutio In any case, the complaint against the spouses Cheah could not be
indebiti, are, (a) that he who paid was not under obligation to do so; and (b) dismissed. As PNB’s client, Ofelia was the one who dealt with PNB and
that the payment was made by reason of an essential mistake of fact. 43 negotiated the check such that its value was credited in her and her
husband’s account. Being the ones in privity with PNB, the spouses Cheah
In the case at bench, PNB cannot recover the proceeds of the check under
are therefore the persons who should return to PNB the money released to
the principle it invokes. In the first place, the gross negligence of PNB, as
them.
earlier discussed, can never be equated with a mere mistake of fact, which
must be something excusable and which requires the exercise of prudence. All told, the Court concurs with the findings of the CA that PNB and the
No recovery is due if the mistake done is one of gross negligence. spouses Cheah are equally negligent and should therefore equally suffer the
loss. The two must both bear the consequences of their mistakes.
The spouses Cheah are guilty of contributory negligence and are bound to
share the loss with the bank WHEREFORE, premises considered, the Petitions for Review on Certiorari in
G.R. No. 170865 and in G.R. No. 170892 are both DENIED. The assailed
"Contributory negligence is conduct on the part of the injured party,
August 22, 2005 Decision and December 21, 2005 Resolution of the Court of
contributing as a legal cause to the harm he has suffered, which falls below Appeals in CA-G.R. CV No. 63948 are hereby AFFIRMED in toto.
the standard to which he is required to conform for his own protection." 44
SO ORDERED.
The CA found Ofelia’s credulousness blameworthy. We agree. Indeed, Ofelia
failed to observe caution in giving her full trust in accommodating a
complete stranger and this led her and her husband to be swindled.
Considering that Filipina was not personally known to her and the amount
of the foreign check to be encashed was $300,000.00, a higher degree of
care is expected of Ofelia which she, however, failed to exercise under the
circumstances. Another circumstance which should have goaded Ofelia to be
more circumspect in her dealings was when a bank officer called her up to
inform that the Bank of America check has already been cleared way earlier
than the 15-day clearing period. The fact that the check was cleared after
only eight banking days from the time it was deposited or contrary to what
Garin told her that clearing takes 15 days should have already put Ofelia on
guard. She should have first verified the regularity of such hasty clearance
considering that if something goes wrong with the transaction, it is she and
her husband who would be put at risk and not the accommodated party.
However, Ofelia chose to ignore the same and instead actively participated
in immediately withdrawing the proceeds of the check. Thus, we are one
with the CA in ruling that Ofelia’s prior consultation with PNB officers is not
enough to totally absolve her of any liability. In the first place, she should
have shunned any participation in that palpably shady transaction.
53
G.R. No. 178467
SPS. CRISTINO & EDNA CARBONELL, Petitioners,
vs.
METROPOLITAN BANK AND TRUST COMPANY, Respondent.
DECISION
BERSAMIN, J.:
The petitioners assail the decision promulgated on December 7,
2006, 1 whereby the Court of Appeals (CA) affirmed with modification the
decision rendered on May 22, 19982 by the Regional Trial Court, Branch 157,
in Pasig City (RTC) dismissing the petitioners' complaint in Civil Case No.
65725 for its lack of merit, and awarded attorney's fees under the
respondent's counterclaim.
Antecedents
The petitioners initiated against the respondent Civil Case No. 65725, an
action for damages, alleging that they had experienced emotional shock,
mental anguish, public ridicule, humiliation, insults and embarrassment
during their trip to Thailand because of the respondent's release to them of
five US$ 100 bills that later on turned out to be counterfeit. They claimed
that they had travelled to Bangkok, Thailand after withdrawing US$ l ,000.00
in US$ 100 notes from their dollar account at the respondent's Pateros
branch; that while in Bangkok, they had exchanged five US$ 100 bills into
Baht, but only four of the US$ 100 bills had been accepted by the foreign
exchange dealer because the fifth one was "no good;" that unconvinced by
the reason for the rejection, they had asked a companion to exchange the
same bill at Norkthon Bank in Bangkok; that the bank teller thereat had then
informed them and their companion that the dollar bill was fake; that the
teller had then confiscated the US$ 100 bill and had threatened to report
them to the police if they insisted in getting the fake dollar bill back; and
that they had to settle for a Foreign Exchange Note receipt. 3
The petitioners claimed that later on, they had bought jewelry from a shop
owner by using four of the remaining US$100 bills as payment; that on the
next day, however, they had been confronted by the shop owner at the hotel
lobby because their four US$ 100 bills had turned out to be counterfeit; that
the shop owner had shouted at them: "You Filipinos, you are all cheaters!;"
and that the incident had occurred within the hearing distance of fellow
travelers and several foreigners.
The petitioners continued that upon their return to the Philippines, they had
confronted the manager of the respondent's Pateros branch on the fake
dollar bills, but the latter had insisted that the dollar bills she had released
to them were genuine inasmuch as the bills had come from the head office;
that in order to put the issue to rest, the counsel of the petitioners had
submitted the subject US$ 100 bills to the Bangko Sentral ng Pilipinas (BSP)
for examination; that the BSP had certified that the four US$100 bills were
near perfect genuine notes;4 and that their counsel had explained by letter
their unfortunate experience caused by the respondent's release of the fake
US dollar bills to them, and had demanded moral damages of ₱10 Million
and exemplary damages.5
The petitioners then sent a written notice to the respondent, attaching the
BSP certification and informing the latter that they were giving it five days
within which to comply with their demand, or face court action. 6 In
response, the respondent's counsel wrote to the petitioners on March 1996
expressing sympathy with them on their experience but stressing that the
respondent could not absolutely guarantee the genuineness of each and
every foreign currency note that passed through its system; that it had also
been a victim like them; and that it had exercised the diligence required in
dealing with foreign currency notes and in the selection and supervision of
its employees.7
Prior to the filing of the suit in the RTC, the petitioners had two meetings
with the respondent's representatives. In the course of the two meetings,
the latter's representatives reiterated their sympathy and regret over the
troublesome experience that the petitioners had encountered, and offered
to reinstate US$500 in their dollar account, and, in addition, to underwrite a
round-trip all-expense-paid trip to Hong Kong, but they were adamant and
staged a walk-out.8
54
In its judgment rendered on May 22, 1998, 9 the RTC ruled in favor of the
respondent, disposing as follows:
WHEREFORE, in the light of all the foregoing, judgment is hereby rendered:
1. Dismissing plaintiff’s complaint for lack of merit;
2. On the counterclaim, awarding Metrobank the amount of ₱20,000.00 as
attorney's fees.
SO ORDERED.10
The petitioners appealed, but the CA ultimately promulgated its assailed
decision on December 7, 2006 affirming the judgment of the RTC with the
modification of deleting the award of attorney's fees, 11 to wit:
As to the award of attorneys fees, we agree with appellants that there is
simply no factual and legal basis thereto.
Unquestionably, appellants filed the present case for the humiliation and
embarrassment they suffered in Bangkok. They instituted the complaint in
their honest belief that they were entitled to damages as a result of
appellee's issuance of counterfeit dollar notes. Such being the case, they
should not be made answerable to attorney's fees. It is not good public
policy to put a premium on the right to litigate where such right is exercised
in good faith, albeit erroneously.
WHEREFORE, the appealed decision is AFFIRMED with modification that the
award of attorney's fees is deleted.
SO ORDERED.
Issues
Hence, this appeal, with the petitioners contending that the CA gravely
erred in affirming the judgment of the RTC. They insist that inasmuch as the
business of banking was imbued with public interest, the respondent's
failure to exercise the degree of diligence required in handling the affairs of
its clients showed that it was liable not just for simple negligence but for
misrepresentation and bad faith amounting to fraud; that the CA erred in
giving weight and relying on the news clippings allegedly showing that the
"supernotes" had deceived even the U.S. Secret Service and Central
Intelligence Agency, for such news were not based on facts. 12
Ruling of the Court
The appeal is partly meritorious.
The General Banking Act of 2000 demands of banks the highest standards of
integrity and performance. As such, the banks are under obligation to treat
the accounts of their depositors with meticulous care. 13 However, the banks'
compliance with this degree of diligence is to be determined in accordance
with the particular circumstances of each case.
The petitioners argue that the respondent was liable for failing to observe
the diligence required from it by not doing an act from which the material
damage had resulted by reason of inexcusable lack of precaution in the
performance of its duties. 14 Hence, the respondent was guilty of gross
negligence, misrepresentation and bad faith amounting to fraud.
The petitioners' argument is unfounded.
Gross negligence connotes want of care in the performance of one's duties;
it is a negligence characterized by the want of even slight care, acting or
omitting to act in a situation where there is duty to act, not inadvertently
but wilfully and intentionally, with a conscious indifference to consequences
insofar as other persons may be affected. It evinces a thoughtless disregard
of consequences without exe1iing any effort to avoid them. 15
In order for gross negligence to exist as to warrant holding the respondent
liable therefor, the petitioners must establish that the latter did not exert
any effort at all to avoid unpleasant consequences, or that it wilfully and
intentionally disregarded the proper protocols or procedure in the handling
of US dollar notes and in selecting and supervising its employees.
The CA and the RTC both found that the respondent had exercised the
diligence required by law in observing the standard operating procedure, in
taking the necessary precautions for handling the US dollar bills in question,
and in selecting and supervising its employees. 16 Such factual findings by
55
the trial court are entitled to great weight and respect especially after being
affirmed by the appellate court, and could be overturned only upon a
showing of a very good reason to warrant deviating from them.
In this connection, it is significant that the BSP certified that the falsity of the
US dollar notes in question, which were "near perfect genuine notes," could
be detected only with extreme difficulty even with the exercise of due
diligence. Ms. Nanette Malabrigo, BSP's Senior Currency Analyst, testified
that the subject dollar notes were "highly deceptive" inasmuch as the paper
used for them were similar to that used in the printing of the genuine notes.
She observed that the security fibers and the printing were perfect except
for some microscopic defects, and that all lines were clear, sharp and well
defined. 17
Nonetheless, the petitioners contend that the respondent should be liable
for moral and exemplary damages 18 on account of their suffering the
unfortunate experience abroad brought about by their use of the fake US
dollar bills withdrawn from the latter.
The contention cannot be upheld.
The relationship existing between the petitioners and the respondent that
resulted from a contract of loan was that of a creditor-debtor. 19 Even if the
law imposed a high standard on the latter as a bank by vi1iue of the
fiduciary nature of its banking business, bad faith or gross negligence
amounting to bad faith was absent. Hence, there simply was no legal basis
for holding the respondent liable for moral and exemplary damages. In
breach of contract, moral damages may be awarded only where the
defendant acted fraudulently or in bad faith. That was not true herein
because the respondent was not shown to have acted fraudulently or in bad
faith. This is pursuant to Article 2220 of the Civil Code, to wit:
Article 2220. Willful injury to property may be a legal ground for awarding
moral damages if the court should find that, under the circumstances, such
damages are justly due. The same rule applies to breaches of contract
where defendant acted fraudulently or in bad faith.
With the respondent having established that the characteristics of the
subject dollar notes had made it difficult even for the BSP itself as the
country's own currency note expert to identify the counterfeiting with ease
despite adhering to all the properly laid out standard operating procedure
and precautions in the handling of US dollar bills, holding it liable for
damages in favor of the petitioners would be highly unwarranted in the
absence of proof of bad faith, malice or fraud on its part. That it formally
apologized to them and even offered to reinstate the USD$500.00 in their
account as well as to give them the all-expense-paid round trip ticket to
Hong Kong as means to assuage their inconvenience did not necessarily
mean it was liable. In civil cases, an offer of compromise is not an admission
of liability, and is inadmissible as evidence against the offeror. 20
Even without taking into consideration the news clippings to the effect that
the US Secret Service and Central Intelligence Agency had themselves been
deceived by the 1990 series of the US dollar notes infamously known as the
"supernotes," the record had enough to show in that regard, not the least of
which was the testimony of Ms. Malabrigo as BSP's Senior Currency Analyst
about the highly deceptive nature of the subject US dollar notes and the
possibility for them to pass undetected.
Also, the petitioners' allegation of misrepresentation on the part of the
respondent was factually unsupported.1âwphi1 They had been satisfied
with the services of the respondent for about three years prior to the
incident in question. 21 The incident was but an isolated one. Under the law,
moral damages for culpa contractual or breach of contract are recoverable
only if the defendant acted fraudulently or in bad faith, or is found guilty of
gross negligence amounting to bad faith, or in wanton disregard of his
contractual obligations.22 The breach must be wanton, reckless, malicious or
in bad faith, oppressive or abusive. 23 In order to maintain their action for
damages, the petitioners must establish that their injury resulted from a
breach of duty that the respondent had owed to them, that is, there must
be the concurrence of injury caused to them as the plaintiffs and legal
responsibility on the part of the respondent. Underlying the award of
damages is the premise that an individual was injured in contemplation of
law. In this regard, there must first be a breach of some duty and the
56
imposition of liability for that breach before damages may be awarded; and was not liable for damages. Given the situation being one of damnum
the breach of such duty should be the proximate cause of the injury. 24 That absque injuria, they could not be compensated for the damage sustained.
was not so in this case.
WHEREFORE, the Court AFFIRMS the decision promulgated on December 7,
It is true that the petitioners suffered embarrassment and humiliation in 2006; and ORDERS the petitioners to pay the costs of suit.
Bangkok. Yet, we should distinguish between damage and injury. In The
SO ORDERED.
Orchard Golf & Country Club, Inc. v. Yu, 25 the Court has fittingly pointed out
the distinction, viz.:

x x x Injury is the illegal invasion of a legal right, damage is the loss, hurt, or
harm which results from the injury; and damages are the recompense or
compensation awarded for the damage suffered. Thus, there can be damage
without injury in those instances in which the loss or harm was not the
result of a violation of a legal duty. These situations are often
called dmimum absque injuria. 26

In every situation of damnum absque injuria, therefore, the injured person

alone bears the consequences because the law affords no remedy for
damages resulting from an act that does not amount to a legal injury or
wrong. For instance, in BP I Express Card Corporation v. Court of
Appeals ,27 the Court turned down the claim for damages of a cardholder
whose credit card had been cancelled after several defaults in
payment, holding therein that there could be damage without injury where
the loss or harm was not the result of a violation of a legal duty towards the
plaintiff. In such situation, the injured person alone should bear the
consequences because the law afforded no remedy for damages resulting
from an act that did not

amount to a legal injury or wrong. 28 Indeed, the lack of malice in the conduct
complained of precluded the recovery of damages. 29

Here, although the petitioners suffered humiliation resulting from their

unwitting use of the counterfeit US dollar bills, the respondent, by virtue of
its having observed the proper protocols and procedure in handling the US
dollar bills involved, did not violate any legal duty towards them. Being
neither guilty of negligence nor remiss in its exercise of the degree of
diligence required by law or the nature of its obligation as a banking
institution, the latter
57
[ G.R. No. 194589, September 21, 2015 ]
BALAYAN BAY RURAL BANK, INC., REPRESENTED BY ITS STATUTORY
LIQUIDATOR, THE PHILIPPINE DEPOSIT INSURANCE CORPORATION,
PETITIONER, VS. NATIONAL LIVELIHOOD DEVELOPMENT CORPORATION,
RESPONDENT.
DECISION
PEREZ, J.:
This is a Petition for Review on Certiorari[1] filed by petitioner Balayan Bay
Rural Bank (Batangas), Inc. (petitioner bank), seeking to reverse and set
aside the 11 June 2010 Order [2] of the Regional Trial Court (RTC) of Makati
City, Branch 147. In its assailed Order, the RTC granted the Motion for
Substitution of parties filed by respondent National Livelihood Development
Corporation (NLDC) and ordered that the Philippine Deposit Insurance
Corporation (PDIC) be substituted or joined as co-defendant in Civil Case No.
09-917. The dispositive portion of the assailed RTC Order reads:
WHEREFORE, premises considered, the Motion for Substitution of Part is
hereby GRANTED. Accordingly, PDIC is hereby ordered substituted or joined
as co-defendant in this case.[3]
The Facts
Petitioner bank is a banking institution duly authorized by the Central Bank
to engage in banking business before it was placed under receivership by the
Bangko Sentral ng Pilipinas on 26 November 2009.
NLDC, on the other hand, is a government institution created to promote
and generate the development of livelihood and community-based
enterprises by virtue of Executive Order No. 715 (1981).
On 12 October 2009, NLDC filed a complaint for collection of sum of money
against petitioner bank for the latter's unpaid obligation in the amount of
P1,603,179.86 before the RTC of Makati City. The case was docketed as Civil
Case No. 09-917 and was raffled to Branch 147 of the trial court. [4]
During the pendency of the case before the RTC, the Bangko Sentral ng
Pilipinas, thru the Monetary Board, issued MIN-70-26 November 2009,
[5]
placing the petitioner bank under receivership and appointed the PDIC as
receiver of the bank pursuant to Section 30 of Republic Act (R.A.) No. 7653.
[6]
After the petitioner bank was placed under receivership, NLDC filed a
Motion for Substitution of Party and Set the Case for Pre-Trial. [7] Invoking
Section 19, Rule 3 of the Revised Rules of Court, the NLDC claimed that by
virtue of transfer of interest of the petitioner bank to the PDIC, the latter
may be substituted as party or joined with the original party.
The motion was duly opposed by the petitioner bank contending that the
PDIC is not the real party in interest in the instant case because it does not
stand to be benefited or injured by the judgment in the suit. It argued that
the PDIC is merely the Statutory Receiver/Liquidator of all banks placed by
the Monetary Board under receivership and is merely a representative of
the petitioner bank which remains as the real party in interest. The
substitution of the PDIC as defendant in this case is therefore not proper. [8]
On 11 June 2010, the RTC issued an Order granting the Motion for
Substitution filed by NLDC and directed that the PDIC be substituted or
joined as co-defendant in the case. In sustaining the NLDC, the court a
quo ruled that the prosecution or defense of the action must be done thru
the liquidator, lest, no suit for or against the insolvent entity would prosper.
Arguing that the substitution is not proper in the instant case since the PDIC
is not the real party in interest but was merely tasked to conserve the assets
of the bank for the benefit of its creditors, petitioner bank elevated the
matter before the Court on question of law via this instant Petition for
Review on Certiorari.[9]
58
In the interregnum, the RTC issued a Decision[10] in Civil Case No. 09-917
dated 18 June 2010 in favor of the NLDC thereby ordering the petitioner
bank to pay the former the amount of P1,603,179.86 representing its unpaid
loan obligation. The RTC disposed in this wise:
WHEREFORE, premises considered, judgment is hereby rendered in favor of
the [NLDC] and against [petitioner bank], ordering the [petitioner bank] to
pay [NLDC] the amount of P1,603,179.86 inclusive of interest and surcharges
as actual damages and P30,000.00 as attorney's fees. [11]
While the petitioner bank made no objection to the afore-quoted ruling, it
maintained that the lower court committed an error of law in issuing the 11
June 2010 Order. [12] For the resolution of the Court is the sole issue of:
Issue
WHETHER OR NOT THE 11 JUNE 2010 RTC ORDER WHICH DIRECTED THE
SUBSTITUTION OF THE PDIC AS DEFENDANT OR ITS INCLUSION THEREIN AS
CO-DEFENDANT IS CONTRARY TO LAW.
The Court's Ruling
We deny the petition.
The instant case involves a disputed claim of sum of money against a closed
financial institution. After the Monetary Board has declared that a bank is
insolvent and has ordered it to cease operations, the Board becomes the
trustee of its assets for the equal benefit of all the creditors, including
depositors.[13] The assets of the insolvent banking institution are held in
trust for the equal benefit of all creditors, and after its insolvency, one
cannot obtain an advantage or a preference over another by an attachment,
execution or otherwise.[14] Towards this end, the PDIC, as the statutory
receiver/liquidator of the bank, is mandated to immediately gather and take
charge of all the assets and liabilities of the institution and administer the
same for the benefit of its creditors. [15]
As the fiduciary of the properties of a closed bank, the PDIC may prosecute
or defend the case by or against the said bank as a representative
party while the bank will remain as the real party in interest pursuant to
Section 3, Rule 3 of the Revised Rules of Court which provides:
SEC. 3. Representatives as parties.- Where the action is allowed to be
prosecuted or defended by a representative or someone acting in a fiduciary
capacity, the beneficiary shall be included in the title of the case and shall be
deemed to be the real party in interest. A representative may be a trustee of
an express trust, a guardian, an executor or administrator, or a party
authorized by law or these Rules. An agent acting in his own name and for
the benefit of an undisclosed principal may sue or be sued without joining
the principal except when the contract involves things belonging to the
principal.
The inclusion of the PDIC as a representative party in the case is therefore
grounded on its statutory role as the fiduciary of the closed bank which,
under Section 30[16] of R.A. 7653 (New Central Bank Act), is authorized to
conserve the latter's property for the benefit of its creditors.
While we agree with the conclusion reached by the RTC that the PDIC should
be included in Civil Case No. 09-917, its reliance on Section 19, Rule 3 of the
Revise Rules of Court on transfer of interest pendente lite as justification for
its directive to include the PDIC in the case is erroneous.
For one, the properties of an insolvent bank are not transferred by operation
of law to the statutory receiver/liquidator but rather these assets are just
held in trust to be distributed to its creditors after the liquidation
proceedings in accordance with the rules on concurrence and preference of
credits.[17] The debtors properties are then deemed to have been conveyed
to the Liquidator in trust for the benefit of creditors, stockholders and other
persons in interest. [18] This notwithstanding, any lien or preference to any
property shall be recognized by the Liquidator in favor of the security or
59
lienholder, to the extent allowed by law, in the implementation of the sued through its liquidator. The only limitation being that the prosecution
liquidation plan.[19] or defense of the action must be done through the liquidator. Otherwise,
no suit for or against an insolvent entity would prosper. In such situation,
In addition, the insolvent bank's legal personality is not dissolved by virtue banks in liquidation would lose what justly belongs to them through a mere
of being placed under receivership by the Monetary Board. It must be technicality.[24] (Emphasis supplied)
stressed here that a bank retains its juridical personality even if placed
In fine, the legal personality of the petitioner bank is not ipso facto dissolved
under conservatorship; it is neither replaced nor substituted by the
by insolvency; it is not divested of its capacity to sue and be sued after it was
conservator who shall only take charge of the assets, liabilities and the
ordered by the Monetary Board to cease operation. The law mandated,
management of the institution.[20]
however, that the action should be brought through its statutory
liquidator/receiver which in this case is the PDIC. The authority of the PDIC
It being the fact that the PDIC should not be considered as a substitute or as
to represent the insolvent bank in legal actions emanates from the fiduciary
a co-defendant of the petitioner bank but rather as a representative party or
relation created by statute which reposed upon the receiver the task of
someone acting in fiduciary capacity, the insolvent institution shall remain in
preserving and conserving the properties of the insolvent for the benefit of
the case and shall be deemed as the real party in interest. [21] Nowhere in
its creditors.
Section 3, Rule 3 of the Revised Rules of Court is it stated or, at the very least
implied, that the representative is likewise deemed as the real party in
WHEREFORE, premises considered, the instant petition is hereby DENIED.
interest.[22] The said rule simply states that, in actions which are allowed to
be prosecuted or defended by a representative, the beneficiary shall be
SO ORDERED.
deemed the real party in interest and, hence, should be included in the title
of the case.

In Manalo v. Court of Appeals,[23] the Court validated the right of a bank

which was placed under receivership to continue litigating the petition for
the issuance of writ of possession and dismissed the position assumed by
petitioner therein that a closed bank cannot maintain a suit against its
debtor, thus:

Petitioner next casts doubt on the capacity of the respondent to continue

litigating the petition for the issuance of the writ. He asserts that, being
under liquidation, respondent bank is already a "dead" corporation that
cannot maintain the suit in the RTC. Hence, no writ may be issued in its
favor.

The argument is devoid of merit. A bank which had been ordered closed by
the monetary board retains its juridical personality which can sue and be
60
G.R. No. 200678, June 04, 2018
BANCO FILIPINO SAVINGS AND MORTGAGE BANK, Petitioner, v. BANGKO
SENTRAL NG PILIPINAS AND THE MONETARY BOARD, Respondents.
DECISION
LEONEN, J.:
A bank which has been ordered closed by the Bangko Sentral ng Pilipinas
(Bangko Sentral) is placed under the receivership of the Philippine Deposit
Insurance Corporation. As a consequence of the receivership, the closed
bank may sue and be sued only through its receiver, the Philippine Deposit
Insurance Corporation. Any action filed by the closed bank without its
receiver may be dismissed.
1
This is a Petition for Review on Certiorari assailing the Court of Appeals July
28, 2011 Decision2 and February 16, 2012 Resolution3 in CA-G.R. SP No.
116905, which dismissed Civil Case No. 10-1042 and held that the trial court
had no jurisdiction over Bangko Sentral and the Monetary Board.
On December 11, 1991, this Court promulgated Banco Filipino Savings &
Mortgage Bank v. Monetary Board and Central Bank of the
Philippines,4 which declared void the Monetary Board's order for closure and
receivership of Banco Filipino Savings & Mortgage Bank (Banco Filipino). This
Court also directed the Central Bank of the Philippines and the Monetary
Board to reorganize Banco Filipino and to allow it to resume business under
the comptrollership of both the Central Bank and the Monetary Board. 5
Banco Filipino subsequently filed several Complaints before the Regional
Trial Court, among them a claim for damages in the total amount of
P18,800,000,000.00.6
On June 14, 1993, Congress passed Republic Act No. 7653, 7 providing for the
establishment and organization of Bangko Sentral as the new monetary
authority.
On November 6, 1993, pursuant to this Court's 1991 Banco Filipino Decision,
the Monetary Board issued Resolution No. 427, which allowed Banco
Filipino to resume its business.8
In 2002, Banco Filipino suffered from heavy withdrawals, prompting it to
seek the help of Bangko Sentral. In a letter dated October 9, 2003, Banco
Filipino asked for financial assistance of more than P3,000,000,000.00
through emergency loans and credit easement terms. 9 In a letter10 dated
November 21, 2003, Bangko Sentral informed Banco Filipino that it should
first comply with certain conditions imposed by Republic Act No. 7653
before financial assistance could be extended. Banco Filipino was also
required to submit a rehabilitation plan approved by Bangko Sentral before
emergency loans could be granted.
In a letter11 dated April 14, 2004, Banco Filipino submitted its Long-Term
Business Plan to Bangko Sentral. It also claimed that Bangko Sentral already
extended similar arrangements to other banks and that it was still awaiting
the payment of P18,800,000,000.00 in damage claims, "the entitlement to
which the Supreme Court has already decided with finality." 12
In response, Bangko Sentral informed Banco Filipino that its business plan
could not be acted upon since it was neither "confirmed nor approved by
[Banco Filipino's Board of Directors]." 13
On July 8, 2004, Banco Filipino filed a Petition for Revival of Judgment with
the Regional Trial Court of Makati to compel Bangko Sentral to approve its
business plan. The case was docketed as Civil Case No. 04-823 and was
raffled to Branch 62.14
During the pendency of its Petition, Banco Filipino entered into discussions
and negotiations with Bangko Sentral, which resulted to seven (7) revisions
in the business plan. Thus, Banco Filipino filed a Proposal for Settlement
dated September 21, 2007 before Branch 62, Regional Trial Court, Makati
City to settle the issues between the parties. 15
On April 8, 2009, Banco Filipino submitted its 8 th Revised Business Plan to
Bangko Sentral for evaluation.16 In this business plan, Banco Filipino
requested, among others, a P25,000,000,000.00 income enhancement loan.
61
Unable to come to an agreement, the parties constituted an Ad Hoc
Committee composed of representatives from both parties to study and act
on the proposals. The Ad Hoc Committee produced an Alternative Business
Plan, which was accepted by Banco Filipino, but was subject to the
Monetary Board's approval.17
In a letter18 dated December 4, 2009, Bangko Sentral informed Banco Filipino
that the Monetary Board issued Resolution No. 1668 granting its request for
the P25,000,000,000.00 Financial Assistance and Regulatory Reliefs to form
part of its Revised Business Plan and Alternative Business Plan. The approval
was also subject to certain terms and conditions, among which was the
withdrawal or dismissal with prejudice to all pending cases filed by Banco
Filipino against Bangko Sentral and its officials. 19 The terms also included the
execution of necessary quitclaims and commitments to be given by Banco
Filipino's principal stockholders, Board of Directors, and duly authorized
officers "not to revive or refile such similar cases in the future." 20
In a letter21 dated January 20, 2010, Banco Filipino requested
reconsideration of the terms and conditions of the P25,000,000,000.00
Financial Assistance and Regulatory Reliefs package, noting that the salient
features of the Alternative Business Plan were materially
modified.22 However, in a letter23 dated April 8, 2010, Banco Filipino
informed Bangko Sentral that it was constrained to accept the "unilaterally
whittled down version of the [P25,000,000,000.00] Financial Assistance
Package and Regulatory Reliefs."24 It, however, asserted that it did not agree
with the condition to dismiss and withdraw its cases since this would require
a separate discussion.25
In a letter26 dated April 19, 2010, Bangko Sentral informed Banco Filipino
that it was surprised by the latter's hesitation in accepting the terms and
conditions, in particular, the withdrawal of the cases against it, since this
condition had already been discussed from the start of the negotiations
between the parties.27
In a letter28 dated June 21, 2010, Banco Filipino informed Bangko Sentral
that it never accepted the condition of the withdrawal of the cases in prior
negotiations but was willing to discuss this condition as a separate and
distinct matter.
In a letter29 dated August 10, 2010, Bangko Sentral and the Monetary Board,
through counsel CVC Law, informed Banco Filipino that its rejection of
certain portions of Resolution No. 1668, particularly its refusal to withdraw
all cases filed against Bangko Sentral, was deemed as a failure to reach a
mutually acceptable settlement.
In a letter30 dated August 13, 2010, Banco Filipino questioned the legality of
referring the matter to private counsel and stated that it had not been
notified of the action taken on the acceptance of its Business Plan.
In a letter31 dated September 13, 2010, CVC Law told Banco Filipino that the
matter was referred to it as an incident of Civil Case No. 04-823, which it was
handling on behalf of Bangko Sentral. It also informed Banco Filipino that
the latter's rejection of the terms and conditions of Resolution No. 1668
made this Resolution legally unenforceable.
Banco Filipino sent letters32 dated September 22, 2010 and September 28,
2010, questioning the legality of Bangko Sentral's referral to private counsel
and reiterating that the terms and conditions embodied in Resolution No.
1668 were not meant to be a settlement of its P18,800,000,000.00 damage
claim against Bangko Sentral.
In a letter33 dated October 4, 2010, Bangko Sentral reiterated that its referral
of the matter to CVC Law was due to the matter being incidental to the civil
case pending before the Regional Trial Court.
On October 20, 2010, Banco Filipino filed a Petition For Certiorari and
Mandamus with prayer for issuance of a temporary restraining order and
writ of preliminary injunction34 before Branch 66, Regional Trial Court,
Makati City, docketed as Civil Case No. 10-1042. It assailed the alleged
"arbitrary, capricious and illegal acts" 35 of Bangko Sentral and of the
Monetary Board in coercing Banco Filipino to withdraw all its present suits in
exchange of the approval of its Business Plan. In particular, Banco Filipino
alleged that Bangko Sentral and the Monetary Board committed grave abuse
of discretion in imposing an additional condition in Resolution No. 1668
62
requiring it to withdraw its cases and waive all future cases since it was
unconstitutional and contrary to public policy. It prayed that a writ of
mandamus be issued to compel Bangko Sentral and the Monetary Board to
approve and implement its business plan and release its Financial Assistance
and Regulatory Reliefs package.36
The trial court issued a Notice of Hearing on the prayer for a temporary
restraining order on the same day, setting the hearing on October 27,
2010.37
On October 27, 2010, Bangko Sentral and the Monetary Board filed their
Motion to Dismiss Ad Cautelam,38 assailing the Regional Trial Court's
jurisdiction over the subject matter and over the persons of Bangko Sentral
and the Monetary Board. Banco Filipino, on the other hand, filed its
Opposition39 to this Petition.
In its October 28, 2010 Order, 40 the Regional Trial Court granted the request
for the issuance of a temporary restraining order against Bangko Sentral and
the Monetary Board. The dispositive portion of this Order read:
WHEREFORE, premises considered and pursuant to Rule 58 of the Revised
Rules of Court, Petitioner's prayer for a Temporary Restraining Order is
hereby GRANTED. Respondent[s] Ban[gk]o Sentral ng Pilipinas and [t]he
Monetary Board, as well as [their] representatives, agents, assigns and/or
third person or entity acting for and [their] behalf are hereby enjoined from
(a) employing acts inimical to the enforcement and implementation of the
approv[ed] Business Plan, (b) continuing and committing acts prejudicial to
Petitioner's operations, (c) withdrawing or threatening to withdraw the
approval of the Business Plan containing financial assistance, and package of
regulatory reliefs, and (d) otherwise enforcing other regulatory measures
and abuses calculated to coerce Banco Filipino Savings and Mortgage Bank
into agreeing to drop and/or withdraw its suits and damage claims against
BSP and MB, and to waive future claims against Respondents or their
official[s] and employees.
Further, the Court directs Sheriff Leodel N. Roxas to personally serve a copy
of this Order to the herein Respondent Ban[gk]o Sentral ng Pilipinas and
[t]he Monetary Board. Finally, let this case be set on November 11, 2010 and
November 12, 2010 both at 2:00 in the afternoon for hearing on the prayer
for issuance of a Writ of Preliminary Mandatory Injunction.
SO ORDERED.41
On the same day or on October 28, 2010, summons was served on Bangko
Sentral through a staff member of the Office of the Governor, as certified by
the Process Server's Return dated November 4, 2010. 42
On November 5, 2010, Bangko Sentral and the Monetary Board filed a
Petition For Certiorari with prayer for temporary restraining order and/or
writ of preliminary injunction 43 with the Court of Appeals, assailing the
Regional Trial Court's October 28, 2010 Order for having been issued
without jurisdiction. The Petition was docketed as CA-G.R. SP No. 116627. 44
On November 17, 2010, the trial court issued an Order 45 denying the Bangko
Sentral and the Monetary Board's Motion to Dismiss Ad Cautelam, stating
that the acts complained of pertained to Bangko Sentral 's regulatory
functions, not its adjudicatory functions. 46 It likewise stated that as
requested in the handwritten letter47 dated October 21, 2010 by Bangko
Sentral's general counsel requesting for an advanced copy of Banco Filipino's
Petition, it furnished Bangko Sentral a copy of the Petition. It also held that
Bangko Sentral's subsequent participation in the preliminary hearing and its
receipt of the summons on October 28, 2010 satisfied the requirements of
procedural due process.48
The trial court likewise found that litis pendencia and forum shopping were
not present in the case, that Bangko Sentral's verification and certification of
non-forum shopping were validly signed by the Executive Committee, and
that Banco Filipino's Petition did not fail to state a cause of action. 49
On November 25, 2010, Bangko Sentral and the Monetary Board filed
another Petition for Certiorari50 with prayer for temporary restraining order
and writ of preliminary injunction with the Court of Appeals, this time
assailing the November 17, 2010 Order. The case was docketed as CA-G.R.
SP No. 116905. However, the trial court issued a writ of preliminary
injunction on November 18, 2010 51 so they filed their Urgent Motion to
63
Admit Attached Amended Petition 52 with the Court of Appeals to include the
Issuance.
In the meantime, or on November 23, 2010, Bangko Sentral and the
Monetary Board filed a Motion to Admit Attached Supplemental Petition for
Certiorari with Application for Interim Relief 53 in CA-G.R. SP No. 116627
seeking to include the trial court's October 28, 2010 Order.
In its December 28, 2010 Resolution, 54 the Court of Appeals
granted55 Bangko Sentral and the Monetary Board's Urgent Motion to Admit
Attached Amended Petition in CA-G.R. SP No. 116905.
Meanwhile, Banco Filipino filed its Opposition dated January 18, 2011 in CA-
G.R. SP No. 116905.56
After oral arguments were held on February 7, 2011, 57 the Court of Appeals
issued its February 14, 2011 Resolution 58 in CA-G.R. SP No. 116905. It
granted the application for a writ of preliminary injunction and enjoined the
trial court from conducting further proceedings in Civil Case No. 10-1042
pending a decision on the merits.
On February 16, 2011, Banco Filipino filed an Urgent Motion for
Consolidation59 in CA-G.R. SP No. 116905, requesting for the consolidation of
the two (2) Petitions for Certiorari filed by Bangko Sentral and the Monetary
Board before the Court of Appeals. On March 1, 2011, it also filed a Motion
for Reconsideration60 of the Court of Appeals February 14, 2011 Resolution.
In its June 2, 2011 Resolution,61 the Court of Appeals in CA-G.R. SP No.
116905 denied Banco Filipino's Motion for Reconsideration, holding that
special civil actions against quasi-judicial agencies should be filed before the
Court of Appeals, not before a trial court. 62 The Court of Appeals also denied
the Urgent Motion for Consolidation for the following reasons:
1) [I]t would cause not only further congestion of the already congested
docket of the ponente of CA-G.R. SP No. 116627, but also in the delay in the
disposition of both cases; 2) the subject matters and issues raised in the
instant petition are different from those set forth in CA-G.R. SP No. 116627,
hence, they can be the subject of separate: petitions; and 3) Since a writ of
preliminary injunction was earlier issued, Section 2 (d), Rule VI of the 2009
IRCA requires that the instant petition remain with the
undersigned ponente for decision on the merits with dispatch. 63
On July 28, 2011, the Court of Appeals rendered its Decision 64 in CA-G.R. SP
No. 116905 granting Bangko Sentral and the Monetary Board's Amended
Petition. According to the Court of Appeals, the trial court had no
jurisdiction over the Petition for Certiorari and Mandamus filed by Banco
Filipino since special civil actions against quasi-judicial agencies are only
cognizable by the Court of Appeals. 65 It also found that the trial court gravely
abused its discretion in acquiring jurisdiction over Bangko Sentral and the
Monetary Board by reason of their voluntary appearance in the preliminary
hearing since their counsel had made it clear that the appearance was
specifically to question the absence of a service of summons. 66
The Court of Appeals likewise found that the delegation of authority from
Banco Filipino's Board of Directors to the Executive Committee to sign
pleadings on its behalf validated the verification and certification of non-
forum shopping signed only by the Executive Vice Presidents. 67 It also ruled
that there was no litis pendencia or forum shopping in the case docketed as
Civil Case No. 10-1042 despite the pendency of Civil Case No. 04-823 since
the causes of action and the reliefs prayed for were not the same. 68 The
dispositive portion of the Court of Appeals July 28, 2011 Decision read:
WHEREFORE, the petition is GRANTED. The Order dated November 17, 2010
issued by respondent Judge Joselito C. Villarosa of the Regional Trial Court
(RTC), Branch 66, Makati City, in Civil Case No. 10-1042, is ANNULLED and
SET ASIDE. In lieu thereof, judgment is hereby rendered. DISMISSING Civil
Case No. 10-1042 on the ground of the RTC's lack of jurisdiction over the
same.
Accordingly, the writ of preliminary injunction issued by this Court on
February 14, 2011, enjoining respondent Judge, private respondent and
their representatives from conducting further proceedings in Civil Case No.
10-1042, is hereby made PERMANENT.
SO ORDERED.69
64
Banco Filipino filed a Motion for Reconsideration, 70 which was denied by the
Court of Appeals in its February 16, 2012 Resolution. 71 Hence, it filed this
Petition72 on April 10, 2012 against Bangko Sentral and the Monetary Board
before this Court.
Petitioner claims that it had the authority to file this Petition since the Court
of Appeals promulgated its January 27, 2012 Decision in CA-G.R. SP No.
118599, finding petitioner's closure and receivership to have been illegal. 73 It
argues that to dismiss its Petition now pending before this Court for lack of
authority from its receiver Philippine Deposit Insurance Corporation would
be "an absurd and unjust situation." 74 Petitioner admits, however, that this
decision was eventually overturned on reconsideration 75 in the Court of
Appeals November 21, 2012 Amended Decision. 76
Petitioner points out that there was nothing in the Philippine Deposit
Insurance Corporation Charter or in Republic Act No. 7653 that precludes its
Board of Directors from suing on its behalf. It adds that there was an obvious
conflict of interest in requiring it to seek Philippine Deposit Insurance
Corporation's authority to file the case considering that Philippine Deposit
Insurance Corporation was under the control of herein respondent
Monetary Board.77
Petitioner asserts that the trial court had jurisdiction over special civil
actions against respondents, accordingly with Merchants Rural Bank of
Talavera v. Monetary Board, et al.,78 a decision promulgated by the Court of
Appeals in 2006.79
Petitioner likewise argues that the trial court acquired jurisdiction over
respondents considering that they were able to participate in the summary
hearing. It points out that respondents questioned before the trial court the
service of the petition on October 21, 2010 but never actually questioned
the service of summons on October 28, 2010 until it filed its petition with
the Court of Appeals.80 It argues that respondents' private counsel was
present during the raffle of the case on October 21, 2010 and even assisted
respondents' general counsel in receiving copies of the petition that the
latter requested, showing that respondents' due process was never
violated.81 It asserts that the Court of Appeals should have dismissed
outright respondents' Petition for Certiorari for "maliciously omitt[ing]" the
handwritten letter dated October 21, 2010 of their general counsel. 82 It
likewise points out that respondents failed to file a motion for
reconsideration before the trial court before filing their petition for certiorari
with the Court of Appeals.83
Respondents, on the other hand, counter that the Petition should be
dismissed outright for being filed without Philippine Deposit Insurance
Corporation's authority. It asserts that petitioner was placed under
receivership on March 17, 2011, and thus, petitioner's Executive Committee
would have had no authority to sign for or on behalf of petitioner absent the
authority of its receiver, Philippine Deposit Insurance Corporation. 84 They
also point out that both the Philippine Deposit Insurance Corporation
Charter and Republic Act No. 7653 categorically state that the authority to
file suits or retain counsels for closed banks is vested in the receiver. 85 Thus,
the verification and certification of non-forum shopping signed by
petitioner's Executive Committee has no legal effect. 86
Respondents likewise claim that the Court of Appeals did not err in finding
that the trial court had no jurisdiction over respondents. It cited this Court's
ruling in United Coconut Planters Bank v. E. Ganzon, Inc.87 and National
Water Resources Board v. A. L. Ang Network,88 where this Court categorically
stated that special civil cases filed against quasi-judicial agencies must be
filed before the Court of Appeals. 89 They argue that there was no showing
that Merchants Rural Bank of Talavera was ever upheld by this Court. 90 They
contend that petitioner should be estopped from raising the issue of
jurisdiction considering that during the pendency of this case, or on March
21, 2011 and November 20, 2011, it filed two (2) separate petitions for
certiorari against respondent Monetary Board directly before the Court of
Appeals.91
Respondents maintain that the trial court did not acquire jurisdiction over
them since there was no valid service of summons. They argue that when
they filed their Motion to Dismiss on October 27, 2010, they could not have
validly argued the propriety of the summons on them on October 28,
2010.92 They likewise contend that their voluntary appearance in the
summary hearing before the trial court was not a submission to the trial
65
court's jurisdiction since they consistently manifested that their appearance
would be special and limited to raise the issues of jurisdiction. 93 They also
assert that the service of summons to a staff member of the Office of the
Governor General is not equivalent to the service of summons to the
Governor General, making the service of summons ineffective. 94
Respondents likewise claim that their filing of their Petition before the Court
of Appeals without a prior motion for reconsideration was justified by
certain exceptional circumstances. They mention, among others, the trial
court's lack of jurisdiction, the fact that the issues have already been raised
and passed upon by the trial court, the prejudice to government interest in
delaying the case, and their denied due process because of the improper
service of summons.95 They further argue that the only significance of the
October 21, 2010 handwritten letter was to show that respondents were
informed that a Petition was filed, and not that the trial court had. already
acquired jurisdiction over their persons.96
From the arguments of the parties, this Court is asked to resolve the
following issues:
First, whether or not trial courts have jurisdiction to take cognizance of a
petition for certiorari against acts and omissions of the Monetary Board;
Second, whether or not respondents Bangko Sentral ng Pilipinas and the
Monetary Board should have filed a motion for reconsideration of the trial
court's denial of their motion to dismiss before filing their petition for
certiorari before the Court of Appeals; and
Finally, whether or not the trial court validly acquired jurisdiction over
respondents Bangko Sentral ng Pilipinas and the Monetary Board.
However, before any of these issues can be addressed, this Court must first
resolve the issue of whether or not petitioner Banco Filipino, as a closed
bank under receivership, could file this Petition for Review without joining
its statutory receiver, the Philippine Deposit Insurance Corporation, as a
party to the case.
I the condition of the same is one of insolvency, or that its continuance in
A closed bank under receivership can only sue or be sued through its
receiver, the Philippine Deposit Insurance Corporation.
Under Republic Act No. 7653, 97 when the Monetary Board finds a bank
insolvent, it may "summarily and without need for prior hearing forbid the
institution from doing business in the Philippines and designate the
Philippine Deposit Insurance Corporation as receiver of the banking
institution."98
Before the enactment of Republic Act No. 7653, an insolvent bank under
liquidation could not sue or be sued except through its liquidator.
In Hernandez v. Rural Bank of Lucena:99
[A]n insolvent bank, which was under the control of the finance
commissioner for liquidation, was without power or capacity to sue or be
sued, prosecute or defend, or otherwise function except through the finance
commissioner or liquidator. 100
This Court in Manalo v. Court of Appeals101 reiterated this principle:
A bank which had been ordered closed by the monetary board retains its
juridical personality which can sue and be sued through its liquidator. The
only limitation being that the prosecution or defense of the action must be
done through the liquidator. Otherwise, no suit for or against an insolvent
entity would prosper.102
Under the old Central Bank Act, or Republic Act No. 265, 103 as
amended,104 the same principle applies to the receiver appointed by the
Central Bank. The law explicitly stated that a receiver shall "represent the
[insolvent] bank personally or through counsel as he [or she] may retain in
all actions or proceedings for or against the institution." Section 29 of the
old law states:
Section 29. Proceedings upon insolvency. — Whenever, upon examination
by the head of the appropriate supervising or examining department or his
examiners or agents into the condition of any bank or non-bank financial
intermediary performing quasi-banking functions, it shall be disclosed that
66
business would involve probable loss to its depositors or creditors, it shall be
the duty of the department head concerned forthwith, in writing, to inform
the Monetary Board of the facts. The Board may, upon finding the
statements of the department head to be true, forbid the institution to do
business in the Philippines and designate an official of the Central Bank or a
person of recognized competence in banking or finance, as receiver to
immediately take charge of its assets and liabilities, as expeditiously as
possible collect and gather all the assets and administer the same for the
benefit of its creditors, and represent the bank personally or through
counsel as he [or she] may retain in all actions or proceedings for or against
the institution, exercising all the powers necessary for these purposes
including, but not limited to, bringing and foreclosing mortgages in the
name of the bank or non-bank financial intermediary performing quasi-
banking functions.
In Republic Act No. 7653, this provision is substantially altered. Section 30
now states, in part:
The receiver shall immediately gather and take charge of all the assets and
liabilities of the institution, administer the same for the benefit of its
creditors, and exercise the general powers of a receiver under the Revised
Rules of Court but shall not, with the exception of administrative
expenditures, pay or commit any act that will involve the transfer or
disposition of any asset of the institution: Provided, That the receiver may
deposit or place the funds of the institution in non-speculative investments.
The receiver shall determine as soon as possible, but not later than ninety
(90) days from take-over, whether the institution may be rehabilitated or
otherwise placed in such a condition so that it may be permitted to resume
business with safety to its depositors and creditors and the general public:
Provided, That any determination for the resumption of business of the
institution shall be subject to prior approval of the Monetary Board.
If the receiver determines that the institution cannot be rehabilitated or
permitted to resume business in accordance with the next preceding
paragraph, the Monetary Board shall notify in writing the board of directors
of its findings and direct the receiver to proceed with the liquidation of the
institution. The receiver shall:
(1) file ex parte with the proper regional trial court, and without
requirement of prior notice or any other action, a petition for assistance in
the liquidation of the institution pursuant to a liquidation plan adopted by
the Philippine Deposit Insurance Corporation for general application to all
closed banks. In case of quasi-banks, the liquidation plan shall be adopted
by the Monetary Board. Upon acquiring jurisdiction, the court shall, upon
motion by the receiver after due notice, adjudicate disputed claims against
the institution, assist the enforcement of individual liabilities of the
stockholders, directors and officers, and decide, on other issues as may be
material to implement the liquidation plan adopted. The receiver shall pay
the cost of the proceedings from the assets of the institution.
(2) convert the assets of the institution to money, dispose of the same to
creditors and other parties, for the purpose of paying the debts of such
institution in accordance with the rules on concurrence and preference of
credit under the Civil Code of the Philippines and he may, in the name of the
institution, and with the assistance of counsel as he may retain, institute
such actions as may be necessary to collect and recover accounts and assets
of, or defend any action against, the institution. The assets of an institution
under receivership or liquidation shall be deemed in custodia legis in the
hands of the receiver and shall, from the moment the institution was placed
under such receivership or liquidation, be exempt from any order of
garnishment, levy, attachment, or execution. (Emphasis supplied)
The relationship between the Philippine Deposit Insurance Corporation and
a closed bank is fiduciary in nature. Section 30 of Republic Act No. 7653
directs the receiver of a closed bank to "immediately gather and take
charge of all the assets and liabilities of the institution" and "administer the
same for the benefit of its creditors." 105
The law likewise grants the receiver "the general powers of a receiver under
the Revised Rules of Court." 106 Under Rule 59, Section 6 of the Rules of
Court, "a receiver shall have the power to bring and defend, in such capacity,
actions in his [or her] own name."107 Thus, Republic Act No. 7653 provides
that the receiver shall also "in the name of the institution, and with the
assistance of counsel as [it] may retain, institute such actions as may be
necessary to collect and recover accounts and assets of, or defend any
67
action against, the institution."108 Considering that the receiver has the
power to take charge of all the assets of the closed bank and to institute for
or defend any action against it, only the receiver, in its fiduciary capacity,
may sue and be sued on behalf of the closed bank.
In Balayan Bay Rural Bank v. National Livelihood Development
Corporation,109 this Court explained that a receiver of a closed bank is tasked
with the duty to hold the assets and liabilities in trust for the benefit of the
bank's creditors.
As fiduciary of the insolvent bank, Philippine Deposit Insurance Corporation
conserves and manages the assets of the bank to prevent the assets'
dissipation. This includes the power to bring and defend any action that
threatens to dissipate the closed bank's assets. Balayan Bay Rural
Bank explained that Philippine Deposit Insurance Corporation does so, not
as the real party-in-interest, but as a representative party, thus:
As the fiduciary of the properties of a closed bank, the PDIC may prosecute
or defend the case by or against the said bank as a representative party
while the bank will remain as the real party in interest pursuant to Section 3,
Rule 3 of the Revised Rules of Court which provides:
SEC. 3. Representatives as parties. — Where the action is allowed to be
prosecuted or defended by a representative or someone acting in a fiduciary
capacity, the beneficiary shall be included in the title of the case and shall be
deemed to be the real party in interest. A representative may be a trustee of
an express trust, a guardian, an executor or administrator, or a party
authorized by law or these Rules. An agent acting in his own name and for
the benefit of an undisclosed principal may sue or be sued without joining
the principal except when the contract involves things belonging to the
principal.
The inclusion of the PDIC as a representative party in the case is therefore
grounded on its statutory role as the fiduciary of the closed bank which,
under Section 30 of R.A. 7653 (New Central Bank Act), is authorized to
conserve the latter's property for the benefit of its creditors. 110 (Citation
omitted)
For this reason, Republic Act No. 3591, 111 or the Philippine Deposit Insurance
Corporation Charter, as amended,112 grants Philippine Deposit Insurance
Corporation the following powers as a receiver:
(c) In addition to the powers of a receiver pursuant to existing laws, the
Corporation is empowered to:
(1) bring suits to enforce liabilities to or recoveries of the closed bank;
....
(6) hire or retain private counsels as may be necessary;
....
(9) exercise such other powers as are inherent and necessary for the
effective discharge of the duties of the Corporation as a receiver. 113
Balayan Bay Rural Bank summarized, thus:
[T]he legal personality of the petitioner bank is not ipso facto dissolved by
insolvency; it is not divested of its capacity to sue and be sued after it was
ordered by the Monetary Board to cease operation. The law mandated,
however, that the action should be brought through its statutory
liquidator/receiver which in this case is the PDIC. The authority of the PDIC
to represent the insolvent bank in legal actions emanates from the fiduciary
relation created by statute which reposed upon the receiver the task of
preserving and conserving the properties of the insolvent for the benefit of
its creditors.114
Petitioner contends that it was not a closed bank at the time of the filing of
this Petition on April 10, 2012 since the Court of Appeals January 27, 2012
Decision, docketed as CA-G.R. SP No. 118599, found the closure to have
been illegal.115
This Court of Appeals Decision, however, was not yet final since the
Monetary Board filed a timely motion for reconsideration. 116 There is also
nothing in its dispositive portion which states that it was immediately
executory.117 Through its November 21, 2012 Amended Decision, the Court
of Appeals reversed its January 27, 2012 Decision, 118 confirming petitioner's
68
status as a closed bank under receivership. It was, therefore, erroneous for
petitioner to presume that it was not a closed bank on April 10, 2012 when
it filed its Petition with this Court considering that there was no final
declaration yet on the matter.
Petitioner should have attempted to comply after the promulgation of the
November 21, 2012 Amended Decision. Its substantial compliance would
have cured the initial defect of its Petition.
Petitioner likewise claims that there was "an obvious conflict of interest" 119 if
it was required to sue respondents only through Philippine Deposit
Insurance Corporation, considering that respondent Monetary Board
appointed Philippine Deposit Insurance Corporation as petitioner's receiver.
This is a fact, however, that petitioner failed to address when it filed its
Petition, signifying that petitioner had no intention of complying with the
law when it filed its Petition or anytime after.
It was speculative on petitioner's part to presume that it could file this
Petition without joining its receiver on the ground that Philippine Deposit
Insurance Corporation might not allow the suit. At the very least, petitioner
should have shown that it attempted to seek Philippine Deposit Insurance
Corporation's authorization to file suit. It was possible that Philippine
Deposit Insurance Corporation could have granted its permission to be
joined in the suit. If it had refused to allow petitioner to file its suit,
petitioner still had a remedy available to it. Under Rule 3, Section 10 of the
Rules of Court,120 petitioner could have made Philippine Deposit Insurance
Corporation an unwilling co-petitioner and be joined as a respondent to this
case.
Petitioner's suit concerned its Business Plan, a matter that could have
affected the status of its insolvency. Philippine Deposit Insurance
Corporation's participation would have been necessary, as it had the duty to
conserve petitioner's assets and to examine any possible liability that
petitioner might undertake under the Business Plan.
Philippine Deposit Insurance Corporation also safeguards the interests of the
depositors in all legal proceedings. Most bank depositors are ordinary
people who have entrusted their money to banks in the hopes of growing
their savings. When banks become insolvent, depositors are secure in the
knowledge that they can still recoup some part of their savings through
Philippine Deposit Insurance Corporation. 121 Thus, Philippine Deposit
Insurance Corporation's participation in all suits involving the insolvent bank
is necessary and imbued with the public interest.
In any case, petitioner's verification and certification of non-forum shopping
was signed by its Executive Vice Presidents Maxy S. Abad and Atty. Francisco
A. Rivera, as authorized by its Board of Directors. 122 Under Section 10(b) of
the Philippine Deposit Insurance Corporation Charter, as amended:
b. The Corporation as receiver shall control, manage and administer the
affairs of the closed bank. Effective immediately upon takeover as receiver of
such bank, the powers, functions and duties, as well as all allowances,
remunerations and prerequisites of the directors, officers, and stockholders
of such bank are suspended, and the relevant provisions of the Articles of
Incorporation and By-laws of the closed bank are likewise deemed
suspended.123 (Emphasis supplied)
When petitioner was placed under receivership, the powers of its Board of
Directors and its officers were suspended. Thus, its Board of Directors could
not have validly authorized its Executive Vice Presidents to file the suit on its
behalf. The Petition, not having been properly verified, is considered an
unsigned pleading.124 A defect in the certification of non-forum shopping is
likewise fatal to petitioner's cause.125
Considering that the Petition was filed by signatories who were not validly
authorized to do so, the Petition does not produce any legal effect. 126 Being
an unauthorized pleading, this Court never validly acquired jurisdiction over
the case. The Petition, therefore, must be dismissed.
II
Even assuming that the Petition did not suffer from procedural infirmities, it
must still be denied for lack of merit.
Unless otherwise provided for by law and the Rules of Court, petitions for
certiorari against a quasi-judicial agency are cognizable only by the Court of
69
Appeals. The Regional Trial Court had no jurisdiction over the Petition for
Certiorari filed by petitioner against respondents.
Pursuant to Article XII, Section 20 of the Constitution, 127 Congress
constituted Bangko Sentral 128 as an independent central monetary authority.
As an administrative agency, it is vested with quasi-judicial powers, which it
exercises through the Monetary Board. In United Coconut Planters Bank v. E.
Ganzon, Inc.:129
A quasi-judicial agency or body is an organ of government other than a court
and other than a legislature, which affects the rights of private parties
through either adjudication or rule-making. The very definition of an
administrative agency includes its being vested with quasi-judicial powers.
The ever increasing variety of powers and functions given to administrative
agencies recognizes the need for the active intervention of administrative
agencies in matters calling for technical knowledge and speed in countless
controversies which cannot possibly be handled by regular courts. A "quasi-
judicial function" is a term which applies to the action, discretion, etc., of
public administrative officers or bodies, who are required to investigate
facts, or ascertain the existence of facts, hold hearings, and draw
conclusions from them, as a basis for their official action and to exercise
discretion of a judicial nature.
Undoubtedly, the BSP Monetary Board is a quasi-judicial agency exercising
quasi-judicial powers or functions. As aptly observed by the Court of
Appeals, the BSP Monetary Board is an independent central monetary
authority and a body corporate with fiscal and administrative autonomy,
mandated to provide policy directions in the areas of money, banking and
credit. It has power to issue subpoena, to sue for contempt those refusing to
obey the subpoena without justifiable reason, to administer oaths and
compel presentation of books, records and others, needed in its
examination, to impose fines and other sanctions and to issue cease and
desist order. Section 37 of Republic Act No. 7653, in particular, explicitly
provides that the BSP Monetary Board shall exercise its discretion in
determining whether administrative sanctions should be imposed on banks
and quasi-banks, which necessarily implies that the BSP Monetary Board
must conduct some form of investigation or hearing regarding the same. 130
Bangko Sentral's Monetary Board is a quasi-judicial agency. Its decisions,
resolutions, and orders are the decisions, resolutions, and orders of a quasi-
judicial agency. Any action filed against the Monetary Board is an action
against a quasi-judicial agency.
This does not mean, however, that Bangko Sentral only exercises quasi-
judicial functions. As an administrative agency, it likewise exercises "powers
and/or functions which may be characterized as administrative,
investigatory, regulatory, quasi-legislative, or quasi-judicial, or a mix of these
five, as may be conferred by the Constitution or by statute." 131
In this case, the issue between the parties was whether the trial court had
jurisdiction over petitions for certiorari against Bangko Sentral and the
Monetary Board. Rule 65, Section 4 of the Rules of Court provides:
Section 4. Where and when petition to be filed. — The petition shall be filed
not later than sixty (60) days from notice of the judgment, order or
resolution. In case a motion for reconsideration or new trial is timely filed,
whether such motion is required or not, the sixty (60) day period shall be
counted from notice of the denial of said motion.
The petition shall be filed in the Supreme Court or, if it relates to the acts or
omissions of a lower court or of a corporation, board, officer or person, in
the Regional Trial Court exercising jurisdiction over the territorial area as
defined by the Supreme Court. It may also be filed in the Court of Appeals
whether or not the same is in aid of its appellate jurisdiction, or in the
Sandiganbayan if it is in aid of its appellate jurisdiction. If it involves the acts
or omissions of a quasi-judicial agency, unless otherwise provided by law or
these Rules, the petition shall be filed in and cognizable only by the Court of
Appeals. (Emphasis supplied)
The Rules of Court categorically provide that petitions for certiorari involving
acts or omissions of a quasi-judicial agency "shall be filed in and cognizable
only by the Court of Appeals."
As previously discussed, respondent Bangko Sentral exercises a myriad of
functions, including those that may not be necessarily exercised by a quasi-
judicial agency. It is settled, however, that it exercises its quasi judicial
70
functions through respondent Monetary Board. Any petition for certiorari
against an act or omission of Bangko Sentral, when it acts through the
Monetary Board, must be filed with the Court of Appeals. Thus, this Court
in Vivas v. Monetary Board and Philippine Deposit Insurance
Corporation132 held that the proper remedy to question a resolution of the
Monetary Board is through a petition for certiorari filed with the Court of
Appeals.
The Court of Appeals, therefore, did not err in dismissing the case before the
Regional Trial Court since the trial court did not have jurisdiction over the
Petition for Certiorari filed by petitioner against respondents.
This Court cannot subscribe to petitioner's contention that a Court of
Appeals decision already provided for an exception to Rule 65. A Court of
Appeals decision, no matter how persuasive or well written, does not
function as stare decisis.133 Neither can a Court of Appeals decision amend
the Rules of Court.134 As it stands, Rule 65 and jurisprudence hold that
petitions for certiorari against the Monetary Board must be filed with the
Court of Appeals.
III
While this Petition is considered dismissed, this Court takes the opportunity
to address other lingering procedural issues raised by the parties in their
pleadings.
Petitioner assails respondents' failure to file a motion for reconsideration of
the trial court's denial of its motion to dismiss before filing a petition for
certiorari with the Court of Appeals. 135
Rule 65, Section 1 of the Rules of Court requires that there be "no appeal, or
any plain, speedy, and adequate remedy in the ordinary course of law"
available before a petition for certiorari can be filed. An order denying a
motion to dismiss is merely an interlocutory order of the court as it does not
finally dispose of a case.136 In BA Finance Corporation v. Pineda,137 a case
citing the 1964 Rules of Court:
It must be remembered that, normally, when an interlocutory order is
sought to be reviewed or annulled by means of any of the extra legal
remedies of prohibition or certiorari, it is required that a motion for
reconsideration of the question[ed] order must first be filed, such being
considered a speedy and adequate remedy at law which must first be
resorted to as a condition precedent for filing of any of such proceedings
(Secs. 1 and 2, Rule 65, Rules of Court). 138
In contrast, Rule 41, Section 1(c) of the Revised Rules of Court now provides:
Section 1. Subject of appeal. — An appeal may be taken from a judgment or
final order that completely disposes of the case, or of a particular matter
therein when declared by these Rules to be appealable.
No appeal may be taken from:
....
(c) An interlocutory order;
....
In all the above instances where the judgment or final order is not
appealable, the aggrieved party may file an appropriate special civil action
under Rule 65.
It would appear that the Revised Rules of Court allow a direct filing of a
petition for certiorari of an interlocutory order without need of a motion for
reconsideration. However, in Estate of Salvador Serra Serra v. Primitivo
Hernaez,139 a case decided after the Rules of Court were revised in 1997:
The settled rule is that a motion for reconsideration is a sine qua non
condition for the filing of a petition for certiorari. The purpose is to grant an
opportunity to public respondent to correct any actual or perceived error
attributed to it by the re-examination of the legal and factual circumstances
of the case.140
This rule evolved from several labor cases of this Court. Estate of Salvador
Serra Serra cited Interorient Maritime Enterprises v. National Labor Relations
Commission141 as basis for this rule, which in turn, cited Palomado v.
71
National Labor Relations Commission 142 and Pure Foods Corporation v.
National Labor Relations Commission.143 This Court, in formulating the rule
in Palomado, declared:
The unquestioned rule in this jurisdiction is that certiorari will lie only if
there is no appeal or any other plain, speedy and adequate remedy in the
ordinary course of law against the acts of public respondent. In the instant
case, the plain and adequate remedy expressly provided by [Sec. 9, Rule X,
New Rules of the National Labor Relations Commission] was a motion for
reconsideration of the assailed decision, based on palpable or patent errors,
to be made under oath and filed within ten (10) calendar days from receipt
of the questioned decision.144
Pure Foods Corporation, on the other hand, stated:
In the present case, the plain and adequate remedy expressly provided by
law was a motion for reconsideration of the assailed decision and the
resolution thereof, which was not only expected to be but would actually
have provided adequate and more speedy remedy than the present petition
for certiorari. This remedy was actually sought to be availed of by petitioner
when it filed a motion for reconsideration albeit beyond the 10-day
reglementary period. For all intents and purposes, petitioner cannot now be
heard to say that there was no plain, speedy and adequate remedy available
to it and that it must, therefore, be allowed to seek relief by certiorari. This
contention is not only untenable but would even place a premium on a
party's negligence or indifference in availing of procedural remedies
afforded by law.145
In labor cases, it was necessary to first file a motion for reconsideration
before resorting to a petition for certiorari since the National Labor Relations
Commission's rules of procedure provided for this remedy. The same rule
has since applied to civil cases through Estate of Salvador Serra Serra,
regardless of the absence of a provision in the Rules of Court requiring a
motion for reconsideration even for interlocutory orders.
Thus, the general rule, in all cases; "is that a motion for reconsideration is
a sine qua non condition for the filing of a petition for certiorari." 146 There
are, however, recognized exceptions to this rule, namely:
(a) where the order is a patent nullity, as where the Court a quo had no
jurisdiction; (b) where the questions raised in the certiorari proceeding have
been duly raised and passed upon by the lower court, or are the same as
those raised and passed upon in the lower court; (c) where there is an
urgent necessity for the resolution of the question and any further delay
would prejudice the interests of the Government or of the petitioner or the
subject matter of the action is perishable; (d) where, under the
circumstances, a motion for reconsideration would be useless; (e) where
petitioner was deprived of due process and there is extreme urgency for
relief; (f) where, in a criminal case, relief from an order of arrest is urgent
and the granting of such relief by the trial court is improbable; (g) where the
proceedings in the lower court are a nullity for lack of due process; (h)
where the proceedings [were] ex parte or in which the petitioner had no
opportunity to object; and (i) where the issue raised is one purely of law or
where public interest is involved. 147 (Citations omitted)
In this instance, the trial court had no jurisdiction over the petition filed by
petitioner against respondents, an issue which respondents properly
asserted before the Court of Appeals when they filed their Petition for
Certiorari.148 They were, thus, excused from filing the requisite motion for
reconsideration.
Considering that there is sufficient basis to dismiss this Petition outright, this
Court finds it unnecessary to address the other issues raised.
In sum, this Court holds that petitioner did not have the legal capacity to file
this Petition absent any authorization from its statutory receiver, Philippine
Deposit Insurance Corporation. Even assuming that the Petition could be
given due course, it would still be denied. The Court of Appeals did not err in
dismissing the action pending between the parties before the trial court
since special civil actions against quasi-judicial agencies must be filed with
the Court of Appeals.
WHEREFORE, the Petition is DISMISSED on the ground of petitioner's lack of
capacity to sue.
SO ORDERED.
72
G.R. No. 230020, March 19, 2018
PETER L. SO, Petitioner, v. PHILIPPINE DEPOSIT INSURANCE
CORPORATION, Respondent.
DECISION
TIJAM, J.:
This is a Petition for Review on Certiorari1 under Rule 45 of the Rules of
Court, assailing the Decision 2 dated November 7, 2016 and Order 3 dated
February 17, 2017 of the Regional Trial Court (RTC) of Makati, Branch 138, in
Special Civil Case No. 16-031, which dismissed Peter L. So's (petitioner's)
Petition for Certiorari4 on the ground of lack of jurisdiction.
Factual Antecedents
Petitioner opened an account with the Cooperative Rural Bank Bulacan
(CRBB) on April 17, 2013, amounting to P300,000, for which he was assigned
the Special Incentive Savings Account (SISA) No. 05-15712-1. 5
On the same year, however, petitioner learned that CRBB closed its
operations and was placed under Philippine Deposit Insurance Corporation's
(PDIC's) receivership. This prompted petitioner, together with other
depositors, to file an insurance claim with the PDIC on November 8, 2013. 6
Acting upon such claim, PDIC sent a letter/notice dated November 22, 2013,
requiring petitioner to submit additional documents, which petitioner
averred of having complied with.7
Upon investigation, the PDIC found that petitioner's account originated from
and was funded by the proceeds of a terminated SISA (mother account),
jointly owned by a certain Reyes family. 8 Thus, based on the determination
that petitioner's account was among the product of the splitting of the said
mother account which is prohibited by law, PDIC denied petitioner's claim
for payment of deposit insurance.9 Petitioner filed a Request for
Reconsideration, which was likewise denied by the PDIC on January 6,
2016.10
Aggrieved, petitioner filed a Petition for Certiorari11 under Rule 65 before the
RTC.
RTC Ruling
In its November 7, 2016 assailed Decision, the RTC upheld the factual
findings and conclusions of the PDIC. According to the RTC, based on the
records, the PDIC correctly denied petitioner's claim for insurance on the
ground of splitting of deposits which is prohibited by law. 12
It also declared that, pursuant to its Charter (RA 3591), PDIC is empowered
to determine and pass upon the validity of the insurance deposits claims, it
being the deposit insurer. As such, when it rules on such claims, it is
exercising a quasi-judicial function. Thus, it was held that petitioner's
remedy to the dismissal of his claim is to file a petition for certiorari with the
Court of Appeals under Section 4,13 Rule 65, stating that if the petition
involves the acts or omissions of a quasi-judicial agency, unless otherwise
provided by law or the rules, it shall be filed in and cognizable only by the
Court of Appeals (CA).14
In addition, the RTC also cited Section 22 15 of Republic Act (RA) No. 3591, as
amended, which essentially states that only the CA shall issue temporary
restraining orders, preliminary injunctions or preliminary mandatory
injunctions against the PDIC for any action under the said Act.
The RTC disposed, thus:
WHEREFORE, in view of the foregoing, for lack of jurisdiction, the petition
for certiorari filed by the petitioner is hereby DISMISSED.
SO ORDERED.16
In its February 17, 2017 Order, the RTC denied petitioner's motion for
reconsideration.
Hence, this petition, filed directly to this Court on pure question of law.
Issue
73
Does the RTC have jurisdiction over a petition for certiorari filed under Rule
65, assailing the PDIC's denial of a deposit insurance claim?
Our Ruling
The petition lacks merit.
There is no controversy as to the proper remedy to question the PDIC's
denial of petitioner's deposit insurance claim. Section 4(f) of its Charter, as
amended, clearly provides that:
xxx
The actions of the Corporation taken under this section shall be final and
executory, and may not be restrained or set aside by the court, except on
appropriate petition for certiorari on the ground that the action was taken
in excess of jurisdiction or with such grave abuse of discretion as to
amount to a lack or excess of jurisdiction. The petition for certiorari may
only be filed within thirty (30) days from notice of denial of claim for deposit
insurance. (emphasis supplied)
The issue, however, is which court has jurisdiction over such petition.
Petitioner's stance is that the petition for certiorari, questioning PDIC's
action, denying a deposit insurance claim should be filed with the RTC,
arguing in this manner: PDIC is not a quasi-judicial agency and it does not
possess any quasi-judicial power under its Charter; It merely performs fact-
finding functions based on its regulatory power. As such, applying Section 4,
Rule 65 of the Rules of Court, as amended by A.M. 07-7-12-SC, which in part
states that if the petition relates to an act or omission of a corporation, such
as the PDIC, it shall be filed with the RTC exercising jurisdiction over the
territorial area as defined by this Court; Also, Batas Pambansa Blg. 129 or
the Judiciary Reorganization Act provides that this Court, the CA, and the
RTC have original concurrent jurisdiction over petitions for certiorari,
prohibition, and mandamus. Applying the principle of hierarchy of courts,
the RTC indeed has jurisdiction over such petition for certiorari.
We do not agree.
On June 22, 1963, PDIC was created under RA 3591 as an insurer of deposits
in all banks entitled to the benefits of insurance under the said Act to
promote and safeguard the interests of the depositing public. 17 As such,
PDIC has the duty and authority to determine the validity of and grant or
deny deposit insurance claims. Section 16(a) of its Charter, as amended,
provides that PDIC shall commence the determination of insured deposits
due the depositors of a closed bank upon its actual take over of the closed
bank. Also, Section 1 of PDIC's Regulatory Issuance No. 2011-03, provides
that as it is tasked to promote and safeguard the interests of the depositing
public by way of providing permanent and continuing insurance coverage on
all insured deposits, and in helping develop a sound and stable banking
system at all times, PDIC shall pay all legitimate deposits held by bona fide
depositors and provide a mechanism by which depositors may seek
reconsideration from its decision, denying a deposit insurance claim.
Further, it bears stressing that as stated in Section 4(f) of its Charter, as
amended, PDIC's action, such as denying a deposit insurance claim, is
considered as final and executory and may be reviewed by the court only
through a petition for certiorari on the ground of grave abuse of discretion.
Considering the foregoing, the legislative intent in creating the PDIC as a
quasi-judicial agency is clearly manifest.
In the case of Lintang Bedol v. Commission on Elections,18 cited in Carlito C.
Encinas v. PO1 Alfredo P. Agustin, Jr. and PO1 Joel S. Caubang,19 this Court
explained the nature of a quasi-judicial agency, viz.:
Quasi-judicial or administrative adjudicatory power on the other hand is the
power of the administrative agency to adjudicate the rights of persons
before it. It is the power to hear and determine questions of fact to which
the legislative policy is to apply and to decide in accordance with the
standards laid down by the law itself in enforcing and administering the
same law. The administrative body exercises its quasi-judicial power when it
performs in a judicial manner an act which is essentially of an executive or
administrative nature, where the power to act in such manner is incidental
to or reasonably necessary for the performance of the executive or
administrative duty entrusted to it. In carrying out their quasi-judicial
functions the administrative officers or bodies are required to investigate
74
facts or ascertain the existence of facts, hold hearings, weigh evidence,
and draw conclusions from them as basis for their official action and
exercise of discretion in a judicial nature.
The Court has laid down the test for determining whether an administrative
body is exercising judicial or merely investigatory functions: adjudication
signifies the exercise of the power and authority to adjudicate upon the
rights and obligations of the parties. Hence, if the only purpose of an
investigation is to evaluate the evidence submitted to an agency based on
the facts and circumstances presented to it, and if the agency is not
authorized to make a final pronouncement affecting the parties, then there
is an absence of judicial discretion and judgment. (emphasis supplied)
Thus, the legislative intent in creating PDIC as a quasi-judicial agency is
clearly manifest. Indeed, PDIC exercises judicial discretion and judgment in
determining whether a claimant is entitled to a deposit insurance claim,
which determination results from its investigation of facts and weighing of
evidence presented before it. Noteworthy also is the fact that the law
considers PDIC's action as final and executory and may be reviewed only on
the ground of grave abuse of discretion.
That being established, We proceed to determine where such petition
for certiorari should be filed. In this matter, We cite the very provision
invoked by the petitioner, i.e., Section 4, Rule 65 of the Rules, as amended
by A.M. No. 07-7-12-SC:
Sec. 4. When and where to file the petition. - The petition shall be filed not
later than sixty (60) days from notice of the judgment, order or resolution. In
case a motion for reconsideration or new trial is timely filed, whether such
motion is required or not, the petition shall be filed not later than sixty (60)
days counted from the notice of the denial of the motion.
If the petition relates to an act or an omission of a municipal trial court or of
a corporation, a board, an officer or a person, it shall be filed with the
Regional Trial Court exercising jurisdiction over the territorial area as defined
by the Supreme Court. It may also be filed with the Court of Appeals or with
the Sandiganbayan, whether or not the same is in aid of the court's
appellate jurisdiction. If the petition involves an act or an omission of a
quasi-judicial agency, unless otherwise provided by law or these rules, the
petition shall be filed with and be cognizable only by the Court of
Appeals. (emphasis supplied)
Clearly, a petition for certiorari, questioning the PDIC's denial of a deposit
insurance claim should be filed before the CA, not the RTC. This further finds
support in Section 22 of the PDIC's Charter, as amended, which states that:
Section 22. No court, except the Court of Appeals, shall issue any temporary
restraining order, preliminary injunction or preliminary mandatory
injunction against the Corporation for any action under this Act. xxx.
This prohibition shall apply in all cases, disputes or controversies instituted
by a private party, the insured bank, or any shareholder of the insured bank.
xxx.
xxxx
Finally, the new amendment in PDIC's Charter under RA 10846, specifically
Section 5(g) thereof, confirms such conclusion, viz.:
The actions of the Corporation taken under Section 5(g) shall be final and
executory, and may only be restrained or set aside by the Court of Appeals,
upon appropriate petition for certiorari on the ground that the action was
taken in excess of jurisdiction or with such grave abuse of discretion as to
amount to a lack or excess of jurisdiction. The petition for certiorari may
only be filed within thirty (30) days from notice of denial of claim for deposit
insurance. (Emphasis Ours)
As it stands, the controversy as to which court has jurisdiction over a
petition for certiorari filed to question the PDIC's action is already settled.
Therefore, We find no reversible error from the findings and conclusion of
the court a quo.
WHEREFORE, the instant petition is DENIED for lack of merit. SO ORDERED.
75
G.R. No. 216914, December 06, 2016 xxx The Anti-Money Laundering Council (AMLC) asked the Court of
Appeals (CA) to allow the [C]ouncil to peek into the bank accounts of the
SUBIDO PAGENTE CERTEZA MENDOZA AND BINAY LAW
Binays, their corporations, and a law office where a family member was
OFFICES, Petitioner, v. THE COURT OF APPEALS, HON. ANDRES B. REYES,
once a partner.
JR., IN HIS CAPACITY AS PRESIDING JUSTICE OF THE COURT OF APPEALS,
AND THE ANTI-MONEY LAUNDERING COUNCIL, REPRESENTED BY ITS xxxx
MEMBERS, HON. AMANDO M. TETANGCO, JR., GOVERNOR OF THE
Also the bank accounts of the law office linked to the family, the Subido
BANGKO SENTRAL NG PILIPINAS, HON. TERESITA J. HERBOSA,
Pagente Certeza Mendoza & Binay Law Firm, where the Vice President's
CHAIRPERSON OF THE SECURITIES AND EXCHANGE COMMISSION, AND
daughter Abigail was a former partner.4
HON. EMMANUEL F. DOOC, INSURANCE COMMISSIONER OF THE
INSURANCE COMMISSION, Respondents. The following day, 26 February 2015, SPCMB wrote public respondent,
Presiding Justice of the CA, Andres B. Reyes, Jr.:
DECISION
The law firm of Subido Pagente Certeza Mendoza and Binay was surprised
PEREZ, J.:
to receive a call from Manila Times requesting for a comment regarding a
Challenged in this petition for certiorari1 and prohibition under Rule 65 of [supposed petition] filed by the Republic of the Philippines represented by
the Rules of Court is the constitutionality of Section 11 of Republic Act the Anti-Money Laundering Council before the Court of Appeals seeking to
(R.A.) No. 9160, the Anti-Money Laundering Act, as amended, specifically examine the law office's bank accounts.
the Anti-Money Laundering Council's authority to file with the Court of
To verify the said matter, the law office is authorizing its associate Atty.
Appeals (CA) in this case, an ex-parte application for inquiry into certain
Jose Julius R. Castro to inquire on the veracity of said report with the Court
bank deposits and investments, including related accounts based on
of Appeals. He is likewise authorized to secure copies of the relevant
probable cause.
documents of the case, such as the petition and orders issued, if such a
In 2015, a year before the 2016 presidential elections, reports abounded case exists.
on the supposed disproportionate wealth of then Vice President Jejomar
As this is a matter demanding serious and immediate attention, the Firm
Binay and the rest of his family, some of whom were likewise elected
respectfully manifests that if no written response is received within 24-
public officers. The Office of the Ombudsman and the Senate conducted
hours from receipt of this letter, we shall be at liberty to assume that such
investigations2 and inquiries3 thereon ostensibly based on their respective
a case exists and we shall act accordingly.
powers delineated in the Constitution.
Hoping for your immediate action.
From various news reports announcing the inquiry into then Vice President
Binay's bank accounts, including accounts of members of his family, Respectfully yours,
petitioner Subido Pagente Certeza Mendoza & Binay Law Firm (SPCMB) For the Firm
was most concerned with the article published in the Manila Times on 25
February 2015 entitled "Inspect Binay Bank Accounts" which read, in CLARO F. CERTEZA5
pertinent part:

76
Within twenty four (24) hours, Presiding Justice Reyes wrote SPCMB
denying its request, thus:
Anent your request for a comment on a supposed petition to inquire into
your law office's bank accounts, please be informed that a petition of this
nature is strictly confidential in that when processing the same, not even
the handling staff members of the Office of the Presiding Justice know or
have any knowledge who the subject bank account holders are, as well as
the bank accounts involved.
Please be informed further that clearly under the rules, the Office of the
Presiding Justice is strictly mandated not to disclose, divulge, or
communicate to anyone directly or indirectly, in any manner or by any
means, the fact of the filing of any petition brought before this Court by
the Anti-Money Laundering Council, its contents and even its entry in the
logbook.
6
Trusting that you find satisfactory the foregoing explanation.
By 8 March 2015, the Manila Times published another article entitled, "CA
orders probe of Binay's assets" reporting that the appellate court had
issued a Resolution granting the ex-parte application of the AMLC to
examine the bank accounts of SPCMB:
The Court of Appeals (CA) has officially issued an order for examination of
Vice President Jejomar Binay's bank accounts.
In granting the petition of the Anti-Money Laundering Council (AMLC), the
CA also ordered the inspection of the bank deposits of Binay's wife,
children, and a law office connected to him.
xxx xxx xxx
The bank accounts of the law office linked to Binay - the Subido Pagente
Certeza Mendoza & Binay where Binay's daughter, Makati City (Metro
Manila) Rep. Mar-len Abigail Binay was a partner, are also included in the
probe, the sources said.7
Forestalled in the CA thus alleging that it had no ordinary, plain, speedy,
and adequate remedy to protect its rights and interests in the purported
ongoing unconstitutional examination of its bank accounts by public
respondent Anti-Money Laundering Council (AMLC), SPCMB undertook
direct resort to this Court via this petition for certiorari and prohibition on
the following grounds:
A. THE ANTI-MONEY LAUNDERING ACT IS UNCONSTITUTIONAL
INSOFAR AS IT ALLOWS THE EXAMINATION OF A BANK ACCOUNT
WITHOUT ANY NOTICE TO THE AFFECTED PARTY:cralawlawlibrary
1. IT VIOLATES THE PERSON'S RIGHT TO DUE PROCESS; AND
2. IT VIOLATES THE PERSON'S RIGHT TO PRIVACY.
B. EVEN ASSUMING ARGUENDO THAT THE ANTI-MONEY
LAUNDERING ACT IS CONSTITUTIONAL, THE RESPONDENTS
COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK
OR EXCESS OF JURISDICTION CONSIDERING THAT:cralawlawlibrary
1. THE REFUSAL OF RESPONDENT PRESIDING JUSTICE TO PROVIDE
PETITIONER WITH A COPY OF THE EX-PARTE APPLICATION FOR
BANK EXAMINATION FILED BY RESPONDENT AMLC AND ALL
OTHER PLEADINGS, MOTIONS, ORDERS, RESOLUTIONS, AND
PROCESSES ISSUED BY THE RESPONDENT COURT OF APPEALS IN
RELATION THERETO VIOLATES PETITIONER'S RIGHT TO DUE
PROCESS;
2. A CARTE BLANCHE AUTHORITY TO EXAMINE ANY AND ALL
TRANSACTIONS PERTAINING TO PETITIONER'S BANK ACCOUNTS
VIOLATES THE ATTORNEY-CLIENT PRIVILEGE WHICH IS
77
 SACROSANCT IN THE LEGAL PROFESSION;
3. A BLANKET AUTHORITY TO EXAMINE PETITIONER'S BANK
ACCOUNTS, INCLUDING ANY AND ALL TRANSACTIONS THEREIN
FROM ITS OPENING UP TO THE PRESENT, PARTAKES THE
NATURE OF A GENERAL WARRANT THAT IS CLEARLY INTENDED
TO AID A MERE FISHING EXPEDITION;
4. THERE IS NOTHING IN THE ANTI-MONEY LAUNDERING ACT
THAT ALLOWS OR JUSTIFIES THE WITHHOLDING OF
INFORMATION AND/OR ANY COURT RECORDS OR
PROCEEDINGS PERTAINING TO AN EXAMINATION OF A BANK
ACCOUNT, ESPECIALLY IF THE COURT HAS ALREADY GRANTED
THE AUTHORITY TO CONDUCT THE EXAMINATION;
5. THE PETITIONER DID NOT COMMIT, NOR HAS THE PETITIONER
BEEN IMPLEADED IN ANY COMPLAINT INVOLVING ANY
PREDICATE CRIME THAT WOULD JUSTIFY AN INQUIRY INTO ITS
BANK ACCOUNTS; AND
7. THE EXAMINATION OF THE PETITIONER'S BANK ACCOUNTS IS A
FORM OF POLITICAL PERSECUTION OR HARASSMENT.8
In their Comment, the AMLC, through the Office of the Solicitor General
(OSG), points out a supposed jurisdictional defect of the instant
petition, i.e., SPCMB failed to implead the House of Representatives which
enacted the AMLA and its amendments. In all, the OSG argues for the
dismissal of the present petition, highlighting that the AMLC's inquiry into
bank deposits does not violate due process nor the right to privacy:
1. Section 11's allowance for AMLC's ex-parte application for an inquiry
into particular bank deposits and investments is investigative, not
adjudicatory;
2. The text of Section 11 itself provides safeguards and limitations on the
allowance to the AMLC to inquire into bank deposits: (a) issued by the CA
based on probable cause; and (b) specific compliance to the requirements
of Sections 2 and 3, Article III of the Constitution;
3. The ex-parte procedure for investigating bank accounts is necessary to
achieve a legitimate state objective;
4. There is no legitimate expectation of privacy as to the bank records of a
depositor;
5. The examination of, and inquiry, into SPCMB's bank accounts does not
violate Attorney-Client Privilege; and
6. A criminal complaint is not a pre-requisite to a bank inquiry order.
In their Reply, SPCMB maintains that the ex-parte proceedings authorizing
inquiry of the AMLC into certain bank deposits and investments is
unconstitutional, violating its rights to due process and privacy.
Before anything else, we here have an original action turning on three
crucial matters: (1) the petition reaches us from a letter of the Presiding
Justice of the CA in response to a letter written by SPCMB; (2) SPCMB's
bank account has been reported to be a related account to Vice President
Binay's investigated by the AMLC for anti-money laundering activities; and
(3) the constitutionality of Section 11 of the AMLA at its recent
amendment has not been squarely raised and addressed.
To obviate confusion, we act on this petition given that SPCMB directly
assails the constitutionality of Section 11 of the AMLA where it has been
widely reported that Vice President Binay's bank accounts and all related
accounts therewith are subject of an investigation by the AMLC. In fact,
78
subsequent events from the filing of this petition have shown that these
same bank accounts (including related accounts) were investigated by the
Ombudsman and both Houses of the Legislature. However, at the time of
the filing of this petition, SPCMB alleged that its accounts have been
inquired into but not subjected to a freeze order under Section 10 of the
AMLA. Thus, as previously noted, with its preclusion of legal remedies
before the CA which under the AMLA issues the ex-parte bank inquiry and
freeze orders, Sections 10 and 11, respectively, SPCMB establishes that it
has no plain, speedy and adequate remedy in the ordinary course of law to
protect its rights and interests from the purported unconstitutional
intrusion by the AMLC into its bank accounts.
The foregoing shall be addressed specifically and bears directly on the
disposition of the decision herein.
Additionally, we note that the OSG did not question how this petition
reaches us from a letter of the appellate court's Presiding Justice, only
that, procedurally, SPCMB should have impleaded Congress.
On the sole procedural issue of whether SPCMB ought to have impleaded
Congress, the contention of the OSG though novel is untenable. All cases
questioning the constitutionality of a law does not require that Congress
be impleaded for their resolution. The requisites of a judicial inquiry are
elementary:
1. There must be an actual case or controversy; party;
2. The question of constitutionality must be raised by the proper party;
3. The constitutional question must be raised at the earliest possible
opportunity; and
4. The decision of the constitutional question must be necessary to the
determination of the case itself.9
The complexity of the issues involved herein require us to examine the
assailed provision vis-a-vis the constitutional proscription against violation
of due process. The statute reads:
SEC. 11. Authority to Inquire into Bank Deposits. - Notwithstanding the
provisions of Republic Act No. 1405, as amended; Republic Act No. 6426,
as amended; Republic Act No. 8791; and other laws, the AMLC may inquire
into or examine any particular deposit or investment, including related
accounts, with any banking institution or non-bank financial institution
upon order of any competent court based on an ex parte application in
cases of violations of this Act, when it has been established that there is
probable cause that the deposits or investments, including related
accounts involved, are related to an unlawful activity as defined in Section
3(i) hereof or a money laundering offense under Section 4 hereof; except
that no court order shall be required in cases involving activities defined in
Section 3(i)(1), (2), and (12) hereof, and felonies or offenses of a nature
similar to those mentioned in Section 3(i)(1), (2), and (12), which are
punishable under the penal laws of other countries, and terrorism and
conspiracy to commit terrorism as defined and penalized under Republic
Act No. 9372.
The Court of Appeals shall act on the application to inquire into or
examine any deposit or investment with any banking institution or non-
bank financial institution within twenty-four (24) hours from filing of the
application.
To ensure compliance with this Act, the Bangko Sentral ng Pilipinas may, in
the course of a periodic or special examination, check the compliance of a
covered institution with the requirements of the AMLA and its
implementing rules and regulations.
For purposes of this section, 'related accounts' shall refer to accounts, the
funds and sources of which originated from and/or are materially linked to
the monetary instrument(s) or property(ies) subject of the freeze order(s).
A court order ex parte must first be obtained before the AMLC can inquire
into these related Accounts: Provided, That the procedure for the ex
parte application of the ex parte court order for the principal account shall
be the same with that of the related accounts.
79
The authority to inquire into or examine the main account and the related
accounts shall comply with the requirements of Article III, Sections 2 and 3
of the 1987 Constitution, which are hereby incorporated by reference. 10
The due process clause of the Constitution reads:
SECTION 1. No person shall be deprived of life, liberty or property without
due process of law, nor shall any person be denied the equal protection of
the laws. 11
The right to due process has two aspects: (1) substantive which deals with
the extrinsic and intrinsic validity of the law; and (2) procedural which
delves into the rules government must follow before it deprives a person
of its life, liberty or property.12
As presently worded, Section 11 of the AMLA has three elements: (1) ex-
parte application by the AMLC; (2) determination of probable cause by the
CA; and (3) exception of court order in cases involving unlawful activities
defined in Sections 3(i)(1), (2), and (12).
As a brief backgrounder to the amendment to Section 11 of the AMLA, the
text originally did not specify for an ex-parte application by the AMLC for
authority to inquire into or examine certain bank accounts or investments.
The extent of this authority was the topic of Rep. of the Phils. v. Hon.
Judge Eugenio, Jr., et al. (Eugenio) 13 where the petitioner therein, Republic
of the Philippines, asseverated that the application for that kind of order
under the questioned section of the AMLA did not require notice and
hearing. Eugenio schooled us on the AMLA, specifically on the provisional
remedies provided therein to aid the AMLC in enforcing the law:
It is evident that Section 11 does not specifically authorize, as a general
rule, the issuance ex-parte of the bank inquiry order. We quote the
provision in full:
SEC. 11. Authority to Inquire into Bank Deposits. — Notwithstanding the
provisions of Republic Act No. 1405, as amended, Republic Act No. 6426,
as amended, Republic Act No. 8791, and other laws, the AMLC may inquire
into or examine any particular deposit or investment with any banking
institution or non bank financial institution upon order of any competent
court in cases of violation of this Act, when it has been established that
there is probable cause that the deposits or investments are related to an
unlawful activity as defined in Section 3(i) hereof or a money laundering
offense under Section 4 hereof, except that no court order shall be
required in cases involving unlawful activities defined in Sections 3(i)1, (2)
and (12).
To ensure compliance with this Act, the Bangko Sentral ng Pilipinas (BSP)
may inquire into or examine any deposit of investment with any banking
institution or non bank financial institution when the examination is made
in the course of a periodic or special examination, in accordance with the
rules of examination of the BSP. (Emphasis supplied)
Of course, Section 11 also allows the AMLC to inquire into bank accounts
without having to obtain a judicial order in cases where there is probable
cause that the deposits or investments are related to kidnapping for
ransom, certain violations of the Comprehensive Dangerous Drugs Act of
2002, hijacking and other violations under R.A. No. 6235, destructive arson
and murder. Since such special circumstances do not apply in this case,
there is no need for us to pass comment on this proviso. Suffice it to say,
the proviso contemplates a situation distinct from that which presently
confronts us, and for purposes of the succeeding discussion, our reference
to Section 11 of the AMLA excludes said proviso.
In the instances where a court order is required for the issuance of the
bank inquiry order, nothing in Section 11 specifically authorizes that such
court order may be issued ex parte. It might be argued that this silence
does not preclude the ex parte issuance of the bank inquiry order since the
same is not prohibited under Section 11. Yet this argument falls when the
immediately preceding provision, Section 10, is examined.
SEC 10. Freezing of Monetary Instrument or Property. — The Court of
Appeals, upon application ex parte by the AMLC and after determination
that probable cause exists that any monetary instrument or property is in
any way related to an unlawful activity as defined in Section 3(i) hereof,
may issue a freeze order which shall be effective immediately. The freeze
80
order shall be for a period of twenty (20) days unless extended by the
court.
Although oriented towards different purposes, the freeze order under
Section 10 and the bank inquiry order under Section 11 are similar in that
they are extraordinary provisional reliefs which the AMLC may avail of to
effectively combat and prosecute money laundering offenses. Crucially,
Section 10 uses specific language to authorize an ex parte application for
the provisional relief therein, a circumstance absent in Section 11. If
indeed the legislature had intended to authorize ex parte proceedings for
the issuance of the bank inquiry order, then it could have easily expressed
such intent in the law, as it did with the freeze order under Section 10.
Even more tellingly, the current language of Sections 10 and 11 of the
AMLA was crafted at the same time, through the passage of R.A. No. 9194.
Prior to the amendatory law, it was the AMLC, not the Court of Appeals,
which had authority to issue a freeze order, whereas a bank inquiry order
always then required, without exception, an order from a competent
court. It was through the same enactment that ex parte proceedings were
introduced for the first time into the AMLA, in the case of the freeze order
which now can only be issued by the Court of Appeals. It certainly would
have been convenient, through the same amendatory law, to allow a
similar ex parte procedure in the case of a bank inquiry order had Congress
been so minded. Yet nothing in the provision itself, or even the available
legislative record, explicitly points to an ex parte judicial procedure in the
application for a bank inquiry order, unlike in the case of the freeze order.
That the AMLA does not contemplate ex parte proceedings in applications
for bank inquiry orders is confirmed by the present implementing rules
and regulations of the AMLA, promulgated upon the passage of R.A. No.
9194. With respect to freeze orders under Section 10, the implementing
rules do expressly provide that the applications for freeze orders be
filed ex parte, but no similar clearance is granted in the case of inquiry
orders under Section 11. These implementing rules were promulgated by
the Bangko Sentral ng Pilipinas, the Insurance Commission and the
Securities and Exchange Commission, and if it was the true belief of these
institutions that inquiry orders could be issued ex parte similar to freeze
orders, language to that effect would have been incorporated in the said
Rules. This is stressed not because the implementing rules could
authorize ex parte applications for inquiry orders despite the absence of
statutory basis, but rather because the framers of the law had no intention
to allow such ex parte applications.
Even the Rules of Procedure adopted by this Court in A.M. No. 05-11-04-SC
to enforce the provisions of the AMLA specifically authorize ex
parte applications with respect to freeze orders under Section 10 but make
no similar authorization with respect to bank inquiry orders under Section
11.
The Court could divine the sense in allowing ex parte proceedings under
Section 10 and in proscribing the same under Section 11. A freeze order
under Section 10 on the one hand is aimed at preserving monetary
instruments or property in any way deemed related to unlawful activities
as defined in Section 3(i) of the AMLA. The owner of such monetary
instruments or property would thus be inhibited from utilizing the same
for the duration of the freeze order. To make such freeze order anteceded
by a judicial proceeding with notice to the account holder would allow for
or lead to the dissipation of such funds even before the order could be
issued. (Citations omitted.)
Quite apparent from the foregoing is that absent a specific wording in the
AMLA allowing for ex-parte proceedings in orders authorizing inquiry and
examination by the AMLC into certain bank deposits or investments,
notice to the affected party is required.
Heeding the Court's observance in Eugenio that the remedy of the
Republic then lay with the legislative, Congress enacted Republic Act No.
10167 amending Section 11 of the AMLA and specifically inserted the
word ex-parte appositive of the nature of this provisional remedy available
to the AMLC thereunder.
It is this current wording of Section 11 which SPCMB posits as
unconstitutional and purportedly actually proscribed in Eugenio.
We do not subscribe to SPCMB's position.
81
Succinctly, Section 11 of the AMLA providing for ex-parte application and
inquiry by the AMLC into certain bank deposits and investments does not
violate substantive due process, there being no physical seizure of
property involved at that stage. It is the preliminary and actual seizure of
the bank deposits or investments in question which brings these within
reach of the judicial process, specifically a determination that the seizure
violated due process.14 In fact, Eugenio delineates a bank inquiry order
under Section 11 from a freeze order under Section 10 on both remedies'
effect on the direct objects, i.e. the bank deposits and investments:
On the other hand, a bank inquiry order under Section 11 does not
necessitate any form of physical seizure of property of the account holder.
What the bank inquiry order authorizes is the examination of the
particular deposits or investments in banking institutions or non-bank
financial institutions. The monetary instruments or property deposited
with such banks or financial institutions are not seized in a physical sense,
but are examined on particular details such as the account holder's record
of deposits and transactions. Unlike the assets subject of the freeze order,
the records to be inspected under a bank inquiry order cannot be
physically seized or hidden by the account holder. Said records are in the
possession of the bank and therefore cannot be destroyed at the instance
of the account holder alone as that would require the extraordinary
cooperation and devotion of the bank.15
At the stage in which the petition was filed before us, the inquiry into
certain bank deposits and investments by the AMLC still does not
contemplate any form of physical seizure of the targeted corporeal
property. From this cite, we proceed to examine whether Section 11 of the
law violates procedural due process.
As previously stated, the AMLA now specifically provides for an ex-
parte application for an order authorizing inquiry or examination into bank
deposits or investments which continues to pass constitutional muster.
Procedural due process is essentially the opportunity to be heard. 16 In this
case, at the investigation stage by the AMLC into possible money
laundering offenses, SPCMB demands that it have notice and hearing of
AMLC's investigation into its bank accounts.
We are not unaware of the obiter in Eugenio17 and cited by SPCMB, voicing
misgivings on an interpretation of the former Section 11 of the AMLA
allowing for ex-parte proceedings in bank inquiry orders, to wit:
There certainly is fertile ground to contest the issuance of an ex-
parte order. Section 11 itself requires that it be established that "there is
probable cause that the deposits or investments are related to unlawful
activities," and it obviously is the court which stands as arbiter whether
there is indeed such probable cause. The process of inquiring into the
existence of probable cause would involve the function of determination
reposed on the trial court. Determination clearly implies a function of
adjudication on the part of the trial court, and not a mechanical
application of a standard pre-determination by some other body. The word
"determination" implies deliberation and is, in normal legal
contemplation, equivalent to "the decision of a court of justice."
The court receiving the application for inquiry order cannot simply take
the AMLC's word that probable cause exists that the deposits or
investments are related to an unlawful activity. It will have to exercise its
own determinative function in order to be convinced of such fact. The
account holder would be certainly capable of contesting such probable
cause if given the opportunity to be apprised of the pending application to
inquire into his account; hence a notice requirement would not be an
empty spectacle. It may be so that the process of obtaining the inquiry
order may become more cumbersome or prolonged because of the notice
requirement, yet we fail to see any unreasonable burden cast by such
circumstance. After all, as earlier stated, requiring notice to the account
holder should not, in any way, compromise the integrity of the bank
records subject of the inquiry which remain in the possession and control
of the bank. (Emphasis supplied)
On that score, the SPCMB points out that the AMLC 's bank inquiry is
preliminary to the seizure and deprivation of its property as in a freeze
order under Section 10 of the AMLA which peculiarity lends itself to a sui
82
generis proceeding akin to the evaluation process in extradition
proceedings pronounced in Secretary of Justice v. Hon. Lantion.18 Under
the extradition law, the Secretary of Foreign Affairs is bound to make a
finding that the extradition request and its supporting documents are
sufficient and complete in form and substance before delivering the same
to the Secretary of Justice. We ruled:
[L]ooking at the factual milieu of the case before us, it would appear that
there was failure to abide by the provisions of Presidential Decree No.
1069. For while it is true that the extradition request was delivered to the
Department of Foreign Affairs on June 17, 1999, the following day or less
than 24 hours later, the Department of Justice received the request,
apparently without the Department of Foreign affairs discharging its duty
thoroughly evaluating the same and its accompanying documents. xxx.
xxxx
[T]he record cannot support the presumption of regularity that the
Department of Foreign Affairs thoroughly reviewed the extradition request
and supporting documents and that it arrived at a well-founded judgment
that the request and its annexed documents satisfy the requirements of
law. XXX.
The evaluation process, just like the extradition proceedings, proper
belongs to a class by itself. It is sui generis. It is not a criminal investigation,
but it is also erroneous to say that it is purely an exercise of ministerial
functions. At such stage, the executive authority has the power: (a) to
make a technical assessment of the completeness and sufficiency of the
extradition papers; (b) to outrightly deny the request if on its face and on
the face of the supporting documents the crimes indicated are not
extraditable; and (c) to make a determination whether or not the request
is politically motivated, or that the offense is a military one which is not
punishable under non-military penal legislation. Hence, said process may
be characterized as an investigative or inquisitorial process in contrast to a
proceeding conducted in the exercise of an administrative body's quasi-
judicial power.
In administrative law, a quasi-judicial proceeding involves: (a) taking and
evaluation of evidence; (b) determining facts based upon the evidence
presented; and (c) rendering an order or decision supported by the facts
proved. Inquisitorial power, which is also known as examining or
investigatory power, is one of the determinative powers of an
administrative body which better enables it to exercise its quasi-judicial
authority. This power allows the administrative body to inspect the
records and premises, and investigate the activities, of persons or entities
coming under its jurisdiction, or to require disclosure of information by
means of accounts, records, reports, testimony of witnesses, production of
documents, or otherwise.
The power of investigation consists in gathering, organizing, and analyzing
evidence, which is a useful aid or tool in an administrative agency's
performance of its rule-making or quasi-judicial functions. Notably,
investigation is indispensable to prosecution. 19 (Emphasis supplied,
citations omitted)
The submission of AMLC requires a determination whether the AMLC is an
administrative body with quasi-judicial powers; corollary thereto, a
determination of the jurisdiction of the AMLC.
Lim v. Gamosa20 is enlightening on jurisdiction and the requirement of a
specific grant thereof in the enabling law. We declared that the creation of
the National Commission on Indigenous Peoples (NCIP) by the Indigenous
Peoples Rights Act (IPRA) did not confer it exclusive and original, nor
primary jurisdiction, in all claims and disputes involving rights of IPs and
ICCs where no such specific grant is bestowed.
In this instance, the grant of jurisdiction over cases involving money
laundering offences is bestowed on the Regional Trial Courts and the
Sandiganbayan as the case may be. In fact, Rule 5 of the IRR is
entitled Jurisdiction of Money Laundering Cases and Money Laundering
Investigation Procedures:
Rule 5.a. Jurisdiction of Money Laundering Cases. The Regional Trial Courts
shall have the jurisdiction to try all cases on money laundering. Those
committed by public officers and private persons who are in conspiracy
83
with such public officers shall be under the jurisdiction of the
Sandiganbayan.
Rule 5.b. Investigation of Money Laundering Offenses. - The AMLC shall
investigate:
(1) suspicious transactions;
(2) covered transactions deemed suspicious after an investigation
conducted by the AMLC;
(3) money laundering activities; and
(4) other violations of the AMLA, as amended.
The confusion on the scope and parameters of the AMLC's investigatory
powers and whether such seeps into and approximates a quasi-judicial
agency's inquisitorial powers lies in the AMLC's investigation and
consequent initial determination of whether certain activities are
constitutive of anti-money laundering offenses.
The enabling law itself, the AMLA, specifies the jurisdiction of the trial
courts, RTC and Sandiganbayan, over money laundering cases, and
delineates the investigative powers of the AMLC.
Textually, the AMLA is the first line of defense against money laundering in
compliance with our international obligation. There are three (3) stages of
determination, two (2) levels of investigation, falling under three (3)
jurisdictions:
1. The AMLC investigates possible money laundering offences and initially
determines whether there is probable cause to charge any person with a
money laundering offence under Section 4 of the AMLA, resulting in the
filing of a complaint with the Department of Justice or the Office of the
Ombudsman;21
2. The DOJ or the Ombudsman conducts the preliminary investigation
proceeding and if after due notice and hearing finds probable cause for
money laundering offences, shall file the necessary information before the
Regional Trial Courts or the Sandiganbayan;22
3. The RTCs or the Sandiganbayan shall try all cases on money laundering,
as may be applicable.23
Nowhere from the text of the law nor its Implementing Rules and
Regulations can we glean that the AMLC exercises quasi-judicial functions
whether the actual preliminary investigation is done simply at its behest or
conducted by the Department of Justice and the Ombudsman.
Again, we hark back to Lantion citing Ruperto v. Torres,23-a where the Court
had occasion to rule on the functions of an investigatory body with the
sole power of investigation:
[Such a body] does not exercise judicial functions and its power is limited
to investigating facts and making findings in respect thereto. The Court laid
down the test of determining whether an administrative body is exercising
judicial functions or merely investigatory functions: Adjudication signifies
the exercise of power and authority to adjudicate upon the rights and
obligations of the parties before it. Hence, if the only purpose for
investigation is to evaluate evidence submitted before it based on the facts
and Circumstances presented to it, and if the agency is not authorized to
make a final pronouncement affecting the parties, then there is an absence
of judicial discretion and judgment.
adjudicate in regard to the rights and obligations of both the Requesting
State and the prospective extraditee. Its only power is to determine
whether the papers comply with the requirements of the law and the
treaty and, therefore, sufficient to be the basis of an extradition petition.
Such finding is thus merely initial and not final. The body has no power to
determine whether or not the extradition should be effected. That is the
role of the court. The body's power is limited to an initial finding of
whether or not the extradition petition can be filed in court.
It is to be noted, however, that in contrast to ordinary investigations, the
evaluation procedure is characterized by certain peculiarities. Primarily, it
sets into motion the wheels of the extradition process. Ultimately, it may
result in the deprivation of liberty of the prospective extraditee. This
deprivation can be effected at two stages: First, the provisional arrest of
the prospective extraditee pending the submission of the request. This is
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so because the Treaty provides that in case of urgency, a contracting party
may request the provisional arrest of the person sought pending
presentation of the request (Paragraph [1], Article 9, RP-US Extradition
Treaty), but he shall be automatically discharged after 60 days if no request
is submitted (Paragraph 4). Presidential Decree No. 1069 provides for a
shorter period of 20 days after which the arrested person could be
discharged (Section 20[d]). Logically, although the Extradition Law is silent
on this respect, the provisions only mean that once a request is forwarded
to the Requested State, the prospective extraditee may be continuously
detained, or if not, subsequently rearrested (Paragraph [5], Article 9, RP-
US Extradition Treaty), for he will only be discharged if no request is
submitted. Practically, the purpose of this detention is to prevent his
possible flight from the Requested State. Second, the temporary arrest of
the prospective extraditee during the pendency of the extradition petition
in court (Section 6, Presidential Decree No. 1069).
Clearly, there is an impending threat to a prospective extraditee's liberty
as early as during the evaluation stage. It is not only an imagined threat to
his liberty, but a very imminent one.
Because of these possible consequences, we conclude that the evaluation
process is akin to an administrative agency conducting an investigative
proceeding, the consequences of which are essentially criminal since such
technical assessment sets off or commences the procedure for, and
ultimately, the deprivation of liberty of a prospective extraditee, As
described by petitioner himself, this is a "tool" for criminal law
enforcement. In essence, therefore, the evaluation process partakes of the
nature of a criminal investigation. In a number of cases, we had occasion
to make available to a respondent in an administrative case or
investigation certain constitutional rights that are ordinarily available only
in criminal prosecutions. Further, as pointed out by Mr. Justice Mendoza
during the oral arguments, there are rights formerly available only at the
trial stage that had been advanced to an earlier stage in the proceedings,
such as the right to counsel and the right against self-
incrimination.24 (Citations omitted)
In contrast to the disposition in Lantion that the evaluation process before
the Department of Foreign Affairs is akin to an administrative agency
conducting investigative proceedings with implications on the
consequences of criminal liability, i.e., deprivation of liberty of a
prospective extraditee, the sole investigative functions of the AMLC finds
more resonance with the investigative functions of the National Bureau of
Investigation (NBI).
That the AMLC does not exercise quasi-judicial powers and is simply an
investigatory body finds support in our ruling in Shu v. Dee.25 In that case,
petitioner Shu had filed a complaint before the NBI charging respondents
therein with falsification of two (2) deeds of real estate mortgage
submitted to the Metropolitan Bank and Trust Company (Metrobank).
After its investigation, the NBI came up with a Questioned Documents
Report No. 746-1098 finding that the signatures of petitioner therein
which appear on the questioned deeds are not the same as the standard
sample signatures he submitted to the NBI. Ruling on the specific issue
raised by respondent therein that they had been denied due process
during the NBI investigation, we stressed that the functions of this agency
are merely investigatory and informational in nature:
[The NBI] has no judicial or quasi-judicial powers and is incapable of
granting any relief to any party. It cannot even determine probable cause.
The NBI is an investigative agency whose findings are merely
recommendatory. It undertakes investigation of crimes upon its own
initiative or as public welfare may require in accordance with its mandate.
It also renders assistance when requested in the investigation or detection
of crimes in order to prosecute the persons responsible.
Since the NBI's findings were merely recommendatory, we find that no
denial of the respondent's due process right could have taken place; the
NBI's findings were still subject to the prosecutor's and the Secretary of
Justice's actions for purposes of finding the existence of probable cause.
We find it significant that the specimen signatures in the possession of
Metrobank were submitted by the respondents for the consideration of
the city prosecutor and eventually of the Secretary of Justice during the
85
preliminary investigation proceedings. Thus, these officers had the
opportunity to examine these signatures.
The respondents were not likewise denied their right to due process when
the NBI issued the questioned documents report. We note that this report
merely stated that the signatures appearing on the two deeds and in the
petitioner's submitted sample signatures were not written by one and the
same person. Notably, there was no categorical finding in the questioned
documents report that the respondents falsified the documents. This
report, too, was procured during the conduct of the NBI's investigation at
the petitioner's request for assistance in the investigation of the alleged
crime of falsification. The report is inconclusive and does not prevent the
respondents from securing a separate documents examination by
handwriting experts based on their own evidence. On its own, the NBI's
questioned documents report does not directly point to the respondents'
involvement in the crime charged. Its significance is that, taken together
with the other pieces of evidence submitted by the parties during the
preliminary investigation, these evidence could be sufficient for purposes
of finding probable cause — the action that the Secretary of Justice
undertook in the present case.
As carved out in Shu, the AMLC functions solely as an investigative body in
the instances mentioned in Rule 5.b.26 Thereafter, the next step is for the
AMLC to file a Complaint with either the DOJ or the Ombudsman pursuant
to Rule 6.b.
Even in the case of Estrada v. Office of the Ombudsman,27 where the
conflict arose at the preliminary investigation stage by the Ombudsman,
we ruled that the Ombudsman's denial of Senator Estrada's Request to be
furnished copies of the counter-affidavits of his co-respondents did not
violate Estrada's constitutional right to due process where the sole issue is
the existence of probable cause for the purpose of determining whether
an information should be filed and does not prevent Estrada from
requesting a copy of the counter-affidavits of his co-respondents during
the pre-trial or even during trial. We expounded on the nature of
preliminary investigation proceedings, thus:
It should be underscored that the conduct of a preliminary investigation is
only for the determination of probable cause, and "probable cause merely
implies probability of guilt and should be determined in a summary
manner. A preliminary investigation is not a part of the trial and it is only
in a trial where an accused can demand the full exercise of his rights, such
as the right to confront and cross-examine his accusers to establish his
innocence." Thus, the rights of a respondent in a preliminary investigation
are limited to those granted by procedural law.
A preliminary investigation is defined as an inquiry or proceeding for the
purpose of determining whether there is sufficient ground to engender a
well founded belief that a crime cognizable by the Regional Trial Court has
been committed and that the respondent is probably guilty thereof, and
should be held for trial. The quantum of evidence now required in
preliminary investigation is such evidence sufficient to "engender a well
founded belief' as to the fact of the commission of a crime and the
respondent's probable guilt thereof A preliminary investigation is not the
occasion for the full and exhaustive display of the parties' evidence; it is
for the presentation of such evidence only as may engender a well-
grounded belief that an offense has been committed and that the accused
is probably guilty thereof. We are in accord with the state prosecutor's
findings in the case at bar that there exists prima facie evidence of
petitioner's involvement in the commission of the crime, it being
sufficiently supported by the evidence presented and the facts obtaining
therein.
Likewise devoid of cogency is petitioner's argument that the testimonies of
Galarion and Hanopol are inadmissible as to him since he was not granted
the opportunity of cross-examination.
It is a fundamental principle that the accused in a preliminary investigation
has no right to cross-examine the witnesses which the complainant may
present. Section 3, Rule 112 of the Rules of Court expressly provides that
the respondent shall only have the right to submit a counter-affidavit, to
examine all other evidence submitted by the complainant and, where the
fiscal sets a hearing to propound clarificatory questions to the parties or
their witnesses, to be afforded an opportunity to be present but without
86
the right to examine or cross-examine. Thus, even if petitioner was not
given the opportunity to cross-examine Galarion and Hanopol at the time
they were presented to testify during the separate trial of the case against
Galarion and Roxas, he cannot assert any legal right to cross-examine them
at the preliminary investigation precisely because such right was never
available to him. The admissibility or inadmissibility of said testimonies
should be ventilated before the trial court during the trial proper and not
in the preliminary investigation.
Furthermore, the technical rules on evidence are not binding on the fiscal
who has jurisdiction and control over the conduct of a preliminary
investigation. If by its very nature a preliminary investigation could be
waived by the accused, we find no compelling justification for a strict
application of the evidentiary rules. In addition, considering that under
Section 8, Rule 112 of the Rules of Court, the record of the preliminary
investigation does not form part of the record of the case in the Regional
Trial Court, then the testimonies of Galarion and Hanopol may not be
admitted by the trial court if not presented in evidence by the prosecuting
fiscal. And, even if the prosecution does present such testimonies,
petitioner can always object thereto and the trial court can rule on the
admissibility thereof; or the petitioner can, during the trial, petition said
court to compel the presentation of Galarion and Hanopol for purposes of
cross-examination. (Citations and emphasis omitted)
Plainly, the AMLC's investigation of money laundering offenses and its
determination of possible money laundering offenses, specifically its
inquiry into certain bank accounts allowed by court order, does not
transform it into an investigative body exercising quasi-judicial powers.
Hence, Section 11 of the AMLA, authorizing a bank inquiry court order,
cannot be said to violate SPCMB's constitutional right to procedural due
process.
We now come to a determination of whether Section 11 is violative of the
constitutional right to privacy enshrined in Section 2, Article III of the
Constitution. SPCMB is adamant that the CA's denial of its request to be
furnished copies of AMLC's ex-parte application for a bank inquiry order
and all subsequent pleadings, documents and orders filed and issued in
relation thereto, constitutes grave abuse of discretion where the
purported blanket authority under Section 11: (1) partakes of a general
warrant intended to aid a mere fishing expedition; (2) violates the
attorney-client privilege; (3) is not preceded by predicate crime charging
SPCMB of a money laundering offense; and (4) is a form of political
harassment [of SPCMB's] clientele.
We shall discuss these issues jointly since the assailed Section 11
incorporates by reference that "[t]he authority to inquire into or examine
the main and the related accounts shall comply with the requirements of
Article III, Sections 2 and 3 of the 1987 Constitution." On this point, SPCMB
asseverates that "there is nothing in the AMLA that allows or justifies the
withholding of information and/or any court records or proceedings
pertaining to an examination of a bank account, especially if the court has
already granted the authority to conduct the examination."
The theme of playing off privacy rights and interest against that of the
state's interest in curbing money laundering offenses is recurring. 28
The invoked constitutional provisions read:
SEC. 2. The right of the people to be secure in their persons, houses,
papers, and effects against unreasonable searches and seizures of
whatever nature and for any purpose shall be inviolable, and no search
warrant or warrant of arrest shall issue except upon probable cause to be
determined personally by the judge after examination under oath or
affirmation of the complainant and the witnesses he may produce, and
particularly describing the place to be searched and the person or things to
be seized.
SEC. 3. (1) The privacy of communication and correspondence shall be
inviolable except upon lawful order of the court, or when public policy or
order requires otherwise as prescribed by law.
(2) Any evidence obtained in violation of this or the preceding section shall
be inadmissible for any purpose in any proceeding.
Once again, Eugenio29 offers guidance:
87
The Court's construction of Section 11 of the AMLA is undoubtedly
influenced by right to privacy considerations. If sustained, petitioner's
argument that a bank account may be inspected by the government
following an ex parte proceeding about which the depositor would know
nothing would have significant implications on the right to privacy, a right
innately cherished by all notwithstanding the legally recognized exceptions
thereto. The notion that the government could be so empowered is cause
for concern of any individual who values the right to privacy which, after
all, embodies even the right to be "let alone," the most comprehensive of
rights and the right most valued by civilized people.
One might assume that the constitutional dimension of the right to
privacy, as applied to bank deposits, warrants our present inquiry. We
decline to do so. Admittedly, that question has proved controversial in
American jurisprudence. Notably, the United States Supreme Court in U.S.
v. Miller held that there was no legitimate expectation of privacy as to the
bank records of a depositor. Moreover, the text of our Constitution has not
bothered with the triviality of allocating specific rights peculiar to bank
deposits.
However, sufficient for our purposes, we can assert there is a right to
privacy governing bank accounts in the Philippines, and that such right
finds application to the case at bar. The source of such right is statutory,
expressed as it is in R.A. No. 1405 otherwise known as the Bank Secrecy
Act of 1955. The right to privacy is enshrined in Section 2 of that law, to
wit:
SECTION 2. All deposits of whatever nature with banks or banking
institutions in the Philippines including investments in bonds issued by the
Government of the Philippines, its political subdivisions and its
instrumentalities, are hereby considered as of an absolutely confidential
nature and may not be examined, inquired or looked into by any person,
government official, bureau or office, except upon written permission of
the depositor, or in cases of impeachment, or upon order of a competent
court in cases of bribery or dereliction of duty of public officials, or in cases
where the money deposited or invested is the subject matter of the
litigation.
Because of the Bank Secrecy Act, the confidentiality of bank deposits
remains a basic state policy in the Philippines. Subsequent laws, including
the AMLA, may have added exceptions to the Bank Secrecy Act, yet the
secrecy of bank deposits still lies as the general rule. It falls within the
zones of privacy recognized by our laws. The framers of the 1987
Constitution likewise recognized that bank accounts are not covered by
either the right to information under Section 7, Article III or under the
requirement of full public disclosure under Section 28, Article II. Unless the
Bank Secrecy Act is repealed or amended, the legal order is obliged to
conserve the absolutely confidential nature of Philippine bank deposits.
Any exception to the rule of absolute confidentiality must be specifically
legislated. Section 2 of the Bank Secrecy Act itself prescribes exceptions
whereby these bank accounts may be examined by "any person,
government official, bureau or office"; namely when: (1) upon written
permission of the depositor; (2) in cases of impeachment; (3) the
examination of bank accounts is upon order of a competent court in cases
of bribery or dereliction of duty of public officials; and (4) the money
deposited or invested is the subject matter of the litigation. Section 8 of
R.A. Act No. 3019, the Anti-Graft and Corrupt Practices Act, has been
recognized by this Court as constituting an additional exception to the rule
of absolute confidentiality, and there have been other similar recognitions
as well.
The AMLA also provides exceptions to the Bank Secrecy Act. Under Section
11, the AMLC may inquire into a bank account upon order of any
competent court in cases of violation of the AMLA, it having been
established that there is probable cause that the deposits or investments
are related to unlawful activities as defined in Section 3(i) of the law, or a
money laundering offense under Section 4 thereof. Further, in instances
where there is probable cause that the deposits or investments are related
to kidnapping for ransom, certain violations of the Comprehensive
Dangerous Drugs Act of 2002, hijacking and other violations under R.A. No.
6235, destructive arson and murder, then there is no need for the AMLC to
obtain a court order before it could inquire into such accounts.
88
It cannot be successfully argued the proceedings relating to the bank
inquiry order under Section 11 of the AMLA is a "litigation" encompassed
in one of the exceptions to the Bank Secrecy Act which is when "the
money deposited or invested is the subject matter of the litigation." The
orientation of the bank inquiry order is simply to serve as a provisional
relief or remedy. As earlier stated, the application for such does not entail
a full-blown trial.
Nevertheless, just because the AMLA establishes additional exceptions to
the Bank Secrecy Act it does not mean that the later law has dispensed
with the general principle established in the older law that "[a]ll deposits
of whatever nature with banks or banking institutions in the Philippines x
x x are hereby considered as of an absolutely confidential nature." Indeed,
by force of statute, all bank deposits are absolutely confidential, and that
nature is unaltered even by the legislated exceptions referred to above.
There is disfavor towards construing these exceptions in such a manner
that would authorize unlimited discretion on the part of the government
or of any party seeking to enforce those exceptions and inquire into bank
deposits. If there are doubts in upholding the absolutely confidential
nature of bank deposits against affirming the authority to inquire into such
accounts, then such doubts must be resolved in favor of the former. Such a
stance would persist unless Congress passes a law reversing the general
state policy of preserving the absolutely confidential nature of Philippine
bank accounts. (Citations omitted, emphasis supplied)
From the foregoing disquisition, we extract the following principles:
1. The Constitution did not allocate specific rights peculiar to bank
deposits;
2. The general rule of absolute confidentiality is simply statutory, 30i.e. not
specified in the Constitution, which has been affirmed in jurisprudence; 31
3. Exceptions to the general rule of absolute confidentiality have been
carved out by the Legislature which legislation have been sustained, albeit
subjected to heightened scrutiny by the courts;32 and
4. One such legislated exception is Section 11 of the AMLA.
The warning in Eugenio that an ex-parte proceeding authorizing the
government to inspect certain bank accounts or investments without
notice to the depositor would have significant implications on the right to
privacy still does not preclude such a bank inquiry order to be allowed by
specific legislation as an exception to the general rule of absolute
confidentiality of bank deposits.
We thus subjected Section 11 of the AMLA to heightened scrutiny and
found nothing arbitrary in the allowance and authorization to AMLC to
undertake an inquiry into certain bank accounts or deposits. Instead, we
found that it provides safeguards before a bank inquiry order is issued,
ensuring adherence to the general state policy of preserving the absolutely
confidential nature of Philippine bank accounts:
(1) The AMLC is required to establish probable cause as basis for its ex-
parte application for bank inquiry order;
(2) The CA, independent of the AMLC's demonstration of probable cause,
itself makes a finding of probable cause that the deposits or investments
are related to an unlawful activity under Section 3(i) or a money
laundering offense under Section 4 of the AMLA;
(3) A bank inquiry court order ex-parte for related accounts is preceded by
a bank inquiry court order ex-parte for the principal account which court
order ex-parte for related accounts is separately based on probable cause
that such related account is materially linked to the principal account
inquired into; and
(4) The authority to inquire into or examine the main or principal account
and the related accounts shall comply with the requirements of Article III,
Sections 2 and 3 of the Constitution.
The foregoing demonstrates that the inquiry and examination into the
bank account are not undertaken whimsically and solely based on the
investigative discretion of the AMLC. In particular, the requirement of
demonstration by the AMLC, and determination by the CA, of probable
cause emphasizes the limits of such governmental action. We will revert to
these safeguards under Section 11 as we specifically discuss the CA's
89
denial of SPCMB's letter request for information concerning the purported
issuance of a bank inquiry order involving its accounts.
First. The AMLC and the appellate court are respectively required to
demonstrate and ascertain probable cause. Ret. Lt. Gen. Ligot, et al. v.
Republic of the Philippines,33 which dealt with the adjunct provisional
remedy of freeze order under Section 10 of the AMLA, defined probable
cause, thus:
The probable cause required for the issuance of a freeze order differs from
the probable cause required for the institution of a criminal action, xxx.
As defined in the law, the probable cause required for the issuance of a
freeze order refers to "such facts and circumstances which would lead a
reasonably discreet, prudent or cautious man to believe that an unlawful
activity and/or money laundering offence is about to be, is being or has
been committed and that the account or any monetary instrument or
property subject thereof sought to be frozen is in any way related to said
unlawful activity and/or money laundering offense."
In other words, in resolving the issue of whether probable cause exits, the
CA's statutorily-guided determination's focus is not on the probable
commissions of an unlawful activity (or money laundering) that the office
of the Ombudsman has already determined to exist, but on whether the
bank accounts, assets, or other monetary instruments sought to be
frozen are in any way related to any of the illegal activities enumerated
under R.A. 9160, as amended. Otherwise stated, probable cause refers to
the sufficiency of the relation between an unlawful activity and the
property or monetary instrument which is the focal point of Section 10 of
RA No. 9160, as amended. xxx. (Emphasis supplied)
Second. As regards SPCMB's contention that the bank inquiry order is in
the nature of a general warrant, Eugenio already declared that Section 11,
even with the allowance of an ex parte application therefor, "is not a
search warrant or warrant of arrest as it contemplates a direct object but
not the seizure of persons or property." 34 It bears repeating that the ''bank
inquiry order" under Section 11 is a provisional remedy to aid the AMLC in
the enforcement of the AMLA.
Third. Contrary to the stance of SPCMB, the bank inquiry order does not
contemplate that SPCMB be first impleaded in a money laundering case
already filed before the courts:
We are unconvinced by this proposition, and agree instead with the then
Solicitor General who conceded that the use of the phrase "in cases of'
was unfortunate, yet submitted that it should be interpreted to mean "in
the event there are violations" of the AMLA, and not that there are
already cases pending in court concerning such violations. If the contrary
position is adopted, then the bank inquiry order would be limited in
purpose as a tool in aid of litigation of live cases, and wholly inutile as a
means for the government to ascertain whether there is sufficient
evidence to sustain an intended prosecution of the account holder for
violation of the AMLA. Should that be the situation, in all likelihood the
AMLC would be virtually deprived of its character as a discovery tool, and
thus would become less circumspect in filing complaints against suspect
account holders. After all, under such set-up the preferred strategy would
be to allow or even encourage the indiscriminate filing of complaints
under the AMLA with the hope or expectation that the evidence of money
laundering would somehow .surface during the trial. Since the AMLC could
not make use of the bank inquiry order to determine whether there is
evidentiary basis to prosecute the suspected malefactors, not filing any
case at all would not be an alternative. Such unwholesome set-up should
not come to pass. Thus Section 11 cannot be interpreted in a way that
would emasculate the remedy it has established and encourage the
unfounded initiation of complaints for money laundering. 35 (Citation
omitted)
Guided as we are by prior holdings, and bound as we are by the
requirements for issuance of a bank inquiry order under Section 11 of the
AMLA, we are hard pressed to declare that it violates SPCMB's right to
privacy.
Nonetheless, although the bank inquiry order ex-parte passes
constitutional muster, there is nothing in Section 11 nor the implementing
rules and regulations of the AMLA which prohibits the owner of the bank
account, as in his instance SPCMB, to ascertain from the CA, post issuance
90
of the bank inquiry order ex-parte, if his account is indeed the subject of
an examination. Emphasized by our discussion of the safeguards under
Section 11 preceding the issuance of such an order, we find that there is
nothing therein which precludes the owner of the account from
challenging the basis for the issuance thereof.
The present controversy revolves around the issue of whether or not the
appellate court, through the Presiding Justice, gravely abused its discretion
when it effectively denied SPCMB's letter-request for confirmation that the
AMLC had applied (ex-parte) for, and was granted, a bank inquiry order to
examine SPCMB's bank accounts relative to the investigation conducted on
Vice-President Binay's accounts.
We recall the Presiding Justice's letter to SPCMB categorically stating that
"under the rules, the Office of the Presiding Justice is strictly mandated not
to disclose, divulge, or communicate to anyone directly or indirectly, in any
manner or by any means, the fact of the filing of the petition brought
before [the Court of Appeals] by the [AMLC], its contents and even its
entry in the logbook." Note that the letter did not cite the aforementioned
rules that were supposedly crystal clear to foreclose ambiguity. Note
further that Rules 10.c.3 and 10.d of the IRR on Authority to File Petitions
for Freeze Order provides that:
Rule 10.c. Duty of Covered Institutions upon receipt thereof. —
Rule 10.c.1. Upon receipt of the notice of the freeze order, the covered
institution concerned shall immediately freeze the monetary instrument or
property and related accounts subject thereof.
Rule 10.c.2. The covered institution shall likewise immediately furnish a
copy of the notice of the freeze order upon the owner or holder of the
monetary instrument or property or related accounts subject thereof.
Rule 10.c.3. Within twenty-four (24) hours from receipt of the freeze order,
the covered institution concerned shall submit to the Court of Appeals and
the AMLC, by personal delivery, a detailed written return on the freeze
order, specifying all the pertinent and relevant information which shall
include the following:
(a) the account numbers;
(b) the names of the account owners or holders;
(c) the amount of the monetary instrument, property or related accounts
as of the time they were frozen;
(d) all relevant information as to the nature of the monetary instrument or
property;
(e) any information on the related accounts pertaining to the monetary
instrument or property subject of the freeze order; and
(f) the time when the freeze thereon took effect.
Rule 10.d. Upon receipt of the freeze order issued by the Court of Appeals
and upon verification by the covered institution that the related accounts
originated from and/or are materially linked to the monetary instrument
or property subject of the freeze order, the covered institution shall freeze
these related accounts wherever these may be found.
The return of the covered institution as required under Rule 10.c.3 shall
include the fact of such freezing and an explanation as to the grounds for
the identification of the related accounts.
If the related accounts cannot be determined within twenty-four (24)
hours from receipt of the freeze order due to the volume and/or
complexity of the transactions or any other justifiable factor(s), the
covered institution shall effect the freezing of the related accounts,
monetary instruments and properties as soon as practicable and shall
submit a supplemental return thereof to the Court of Appeals and the
AMLC within twenty-four (24) hours from the freezing of said related
accounts, monetary instruments and properties.
The foregoing rule, in relation to what Section 11 already provides,
signifies that ex-parte bank inquiry orders on related accounts may be
questioned alongside, albeit subsequent to, the issuance of the initial
freeze order of the subject bank accounts. The requirements and
procedure for the issuance of the order, including the return to be made
thereon lay the grounds for judicial review thereof. We expound.
An act of a court or tribunal can only be considered tainted with grave
abuse of discretion when such act is done in a capricious or whimsical
91
exercise of judgment as is equivalent to lack of jurisdiction. It is well-
settled that the abuse of discretion to be qualified as "grave" must be so
patent or gross as to constitute an evasion of a positive duty or a virtual
refusal to perform the duty or to act at all in contemplation of law. 36 In this
relation, case law states that not every error in the proceedings, or every
erroneous conclusion of law or fact, constitutes grave abuse of
discretion.37 The degree of gravity, as above-described, must be met.
That the propriety of the issuance of the bank inquiry order is a justiciable
issue brooks no argument. A justiciable controversy refers to an existing
case or controversy that is appropriate or ripe for judicial determination,
not one that is conjectural or merely anticipatory. 38
As previously adverted to in our discussion on the right to privacy, the
clash of privacy rights and interest against that of the government's is
readily apparent. However, the statutorily enshrined general rule on
absolute confidentiality of bank accounts remains. Thus, the safeguards
instituted in Section II of the AMLA and heretofore discussed provide for
certain well defined limits, as in the language of Baker v. Carr, "judicially
discoverable standards" for determining the validity of the exercise of such
discretion by the appellate court in denying the letter-request of
SPCMB.39 In short, Section II itself provides the basis for the judicial inquiry
and which the owner of the bank accounts subject of the AMLC inquiry
may invoke.
Undeniably, there is probable and preliminary governmental action against
SPCMB geared towards implementation of the AMLA directed at SPCMB's
property, although there is none, as yet, physical seizure thereof, as in
freezing of bank accounts under Section 10 of the AMLA. 40 Note, however,
that the allowance to question the bank inquiry order we carve herein is
tied to the appellate court's issuance of a freeze order on the principal
accounts. Even in Eugenio, while declaring that the bank inquiry order
under Section II then required prior notice of such to the account owner,
we recognized that the determination of probable cause by the appellate
court to issue the bank inquiry order can be contested. As presently
worded and how AMLC functions are designed under the AMLA, the
occasion for the issuance of the freeze order upon the actual physical
seizure of the investigated and inquired into bank account, calls into
motions the opportunity for the bank account owner to then question, not
just probable cause for the issuance of the freeze order under Section I 0,
but, to begin with, the determination of probable cause for an ex-
parte bank inquiry order into a purported related account under Section II.
In enacting the amendment to Section II of the AMLC, the legislature saw it
fit to place requirements before a bank inquiry order may be issued. We
discussed these requirements as basis for a valid exception to the general
rule on absolute confidentiality of bank accounts. However, these very safe
guards allow SPCMB, post issuance of the ex-parte bank inquiry order,
legal bases to question the propriety of such issued order, if any. To
emphasize, this allowance to the owner of the bank account to question
the bank inquiry order is granted only after issuance of the freeze order
physically seizing the subject bank account. It cannot be undertaken prior
to the issuance of the freeze order.
While no grave abuse of discretion could be ascribed on the part of the
appellate court when it explained in its letter that petitions of such nature
"is strictly confidential in that when processing the same, not even the
handling staff members of the Office of the Presiding Justice know or have
any knowledge who the subject bank account holders are, as well as the
bank accounts involved," it was incorrect when it declared that "under the
rules, the Office of the Presiding Justice is strictly mandated not to
disclose, divulge, or communicate to anyone directly or indirectly, in any
manner or by any means, the fact of the filing of any petition brought
before [the Court of Appeals] by the Anti-Money Laundering Council, its
contents and even its entry in the logbook." As a result, the appellate
court effectively precluded and prevented SPCMB of any recourse,
amounting to a denial of SPCMB's letter request.
We cannot overemphasize that SPCMB, as the owner of the bank account
which may be the subject of inquiry of the AMLC, ought to have a legal
remedy to question the validity and propriety of such an order by the
appellate court under Section 11 of the AMLA even if subsequent to the
issuance of a freeze order. Moreover, given the scope of inquiry of the
AMLC, reaching and including even related accounts, which inquiry into
92
specifies a proviso that: "[t]hat the procedure for the ex-parte application
of the ex-parte court order for the principal account shall be the same with
that of the related accounts," SPCMB should be allowed to question the
government intrusion. Plainly, by implication, SPCMB can demonstrate the
absence of probable cause, i.e. that it is not a related account nor are its
accounts materially linked to the principal account being investigated. 41
In BSB Group, Inc. v. Go,42 we recounted the objective of the absolute
confidentiality rule which is protection from unwarranted inquiry or
investigation if the purpose of such inquiry or investigation is merely to
determine the existence and nature, as well as the amount of the deposit
in any given bank account:
xxx. There is, in fact, much disfavor to construing these primary and
supplemental exceptions in a manner that would authorize unbridled
discretion, whether governmental or otherwise, in utilizing these
exceptions as authority for unwarranted inquiry into bank accounts. It is
then perceivable that the present legal order is obliged to conserve the
absolutely confidential nature of bank deposits.
The measure of protection afforded by the law has been explained
in China Banking Corporation v. Ortega. That case principally addressed
the issue of whether the prohibition against an examination of bank
deposits precludes garnishment in satisfaction of a judgment. Ruling on
that issue in the negative, the Court found guidance in the relevant
portions of the legislative deliberations on Senate Bill No. 351 and House
Bill No. 3977, which later became the Bank Secrecy Act, and it held that
the absolute confidentiality rule in R.A. No. 1405 actually aims at
protection from unwarranted inquiry or investigation if the purpose of
such inquiry or investigation is merely to determine the existence and
nature, as well as the amount of the deposit in any given bank account.
Thus,
x x x The lower court did not order an examination of or inquiry into the
deposit of B&B Forest Development Corporation, as contemplated in the
law. It merely required Tan Kim Liong to inform the court whether or not
the defendant B&B Forest Development Corporation had a deposit in the
China Banking Corporation only for purposes of the garnishment issued by
it, so that the bank would hold the same intact and not allow any
withdrawal until further order. It will be noted from the discussion of the
conference committee report on Senate Bill No. 351 and House Bill No.
3977 which later became Republic Act No. 1405, that it was not the
intention of the lawmakers to place banks deposits beyond the reach of
execution to satisfy a final judgment Thus:
x x x Mr. Marcos: Now, for purposes of the record, I should like the
Chairman of the Committee on Ways and Means to clarify this further.
Suppose an individual has a tax case. He is being held liable by the Bureau
of Internal Revenue [(BIR)] or, say, P1,000.00 worth of tax liability, and
because of this the deposit of this individual [has been] attached by the
[BIR].
Mr. Ramos: The attachment will only apply after the court has pronounced
sentence declaring the liability of such person. But where the primary aim
is to determine whether he has a bank deposit in order to bring about a
proper assessment by the [BIR], such inquiry is not allowed by this
proposed law.
Mr. Marcos: But under our rules of procedure and under the Civil Code, the
attachment or garnishment of money deposited is allowed. Let us assume
for instance that there is a preliminary attachment which is for
garnishment or for holding liable all moneys deposited belonging to a
certain individual, but such attachment or garnishment will bring out into
the open the value of such deposit. Is that prohibited by... the law?
Mr. Ramos: It is only prohibited to the extent that the inquiry... is made
only for the purpose of satisfying a tax liability already declared for the
protection of the right in favor of the government; but when the object is
merely to inquire whether he has a deposit or not for purposes of taxation,
then this is fully covered by the law. x x x
Mr. Marcos: The law prohibits a mere investigation into the existence and
the amount of the deposit.
Mr. Ramos: Into the very nature of such deposit. x x x (Citations omitted)
93
What is reflected by the foregoing disquisition is that the law plainly
prohibits a mere investigation into the existence and the amount of the
deposit. We relate the principle to SPCMB's relationship to the reported
principal account under investigation, one of its clients, former Vice
President Binay. SPCMB as the owner of one of the bank accounts
reported to be investigated by the AMLC for probable money laundering
offenses should be allowed to pursue remedies therefrom where there are
legal implications on the inquiry into its accounts as a law firm. While we
do not lapse into conjecture and cannot take up the lance for SPCMB on
probable violation of the attorney-client privilege based on pure
speculation, the extent of information obtained by the AMLC concerning
the clients of SPCMB has not been fully drawn and sufficiently
demonstrated. At the same time, the owner of bank accounts that could
be potentially affected has the right to challenge whether the
requirements for issuance of the bank inquiry order were indeed complied
with given that such has implications on its property rights. In this regard,
SPCMB's obeisance to promulgated rules on the matter could have
afforded it a remedy, even post issuance of the bank inquiry order.
Rule 10.b. of the IRR defines probable cause as "such facts and
circumstances which would lead a reasonably discreet, prudent or cautious
man to believe that an unlawful activity and/or a money laundering
offense is about to be, is being or has been committed and that the
account or any monetary instrument or property sought to be frozen is in
any way related to said unlawful activity and/or money laundering
offense." Evidently, the provision only refers to probable cause for freeze
orders under Section 10 of the AMLA. From this we note that there is a
glaring lacunae in our procedural rules concerning the bank inquiry order
under Section 11. Despite the advent of RA No. 10167, amending Section
11 of the AMLA, we have yet to draft additional rules corresponding to
the ex-parte bank inquiry order under Section 11. A.M. No. 05-11-04-SC
entitled "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 Republic Act No. 9160, as Amended," only covers what is already
provided in the title. As we have already noted, the bank inquiry order
must likewise be governed by rules specific to its issuance where the AMLC
regularly invokes this provision and which, expectedly clashes with the
rights of bank account holders.
Apart from Section 2, Rule IV of the 2009 Internal Rules of the CA (IRCA)
reads:
SEC. 2. Action by the Presiding Justice or Executive Justice. — When a
petition involves an urgent matter, such as an application for writ
of habeas corpus, amparo or habeas data or for temporary restraining
order, and there is no way of convening the Raffle Committee or calling any
of its members, the Presiding Justice or the Executive Justice, as the case
may be, or in his/her absence, the most senior Justice present, may
conduct the raffle or act on the petition, subject to raffle in the latter case
on the next working day in accordance with Rule III hereof.
(AMLA cases are limited to the first three most senior Justices as stated in
the law and are raffled by the Chairmen of the First, Second and Third
Divisions to the members of their Divisions only.)
Nothing in the IRCA justifies the disallowance to SPCMB of information
and/or court records or proceedings pertaining to the possible bank
inquiry order covering its bank deposits or investment.
We note that the Presiding Justice's reply to the request for comment of
SPCMB on the existence of a petition for bank inquiry order by the AMLC
covering the latter's account only contemplates the provisions of Section
10 of the AMLA, its IRR and the promulgated rules thereon. Such
immediate and definitive foreclosure left SPCMB with no recourse on how
to proceed from what it perceived to be violation of its rights as owner of
the bank account examined. The reply of the Presiding Justice failed to
take into consideration Section 54 of A.M. No. 05-11-04-SC on Notice of
Freeze Order which reads:
SEC. 54. Notice of freeze order.- The Court shall order that notice of the
freeze order be served personally, in the same manner provided for the
service of the asset preservation order in Section 14 of this Rule, upon the
respondent or any person acting in his behalf and such covered institution
94
or government agency. The court shall notify also such party in interest as
may have appeared before the court. (Emphasis supplied)
We relate this Section 54 to the already cited Rule 10.d of the IRR
Rule 10.d. Upon receipt of the freeze order issued by the Court of Appeals
and upon verification by the covered institution that the related accounts
originated from and/or are materially linked to the monetary instrument
or property subject of the freeze order, the covered institution shall freeze
these related accounts wherever these may be found.
The return of the covered institution as required under Rule 10.c.3 shall
include the fact of such freezing and an explanation as to the grounds for
the identification of the related accounts.
If the related accounts cannot be determined within twenty-four (24)
hours from receipt of the freeze order due to the volume and/or
complexity of the transactions or any other justifiable factor(s), the
covered institution shall effect the freezing of the related accounts,
monetary instruments and properties as soon as practicable and shall
submit a supplemental return thereof to the Court of Appeals and the
AMLC within twenty-four (24) hours from the freezing of said related
accounts, monetary instruments and properties. (Emphasis supplied)
demonstrating that the return of the Freeze Order must provide an
explanation as to the grounds for the identification of the related
accounts, or the requirement of notice to a party in interest affected
thereby whose bank accounts were examined. This necessarily
contemplates the procedure for a prior bank inquiry order which we ought
to provide for.
For exact reference, we cite A.M. No. 05-11-04-SC, Title VIII on Petitions for
Freeze Order in the CA which certain pertinent provisions we adopt and
apply suppletorily as a separate Title on Petitions for Bank Inquiry Order:
TITLE VIII
PETITIONS FOR FREEZE ORDER IN THE COURT OF APPEALS
SEC. 43. Applicability. - This Rule shall apply to petitions for freeze order in
the Court of Appeals. The 2002 Internal Rules of the Court of Appeals, as
amended, shall apply suppletorily in all other aspects.
xxxx
SEC. 46. Contents of the petition. - The petition shall contain the following
allegations:
(a) The name and address of the respondent;
(b) A specific description with particularity of the monetary instrument,
property or proceeds, their location, the name of the owner, holder,
lienholder or possessor, if known;
(c) The grounds relied upon for the issuance of a freeze order; and
(d) The supporting evidence showing that the subject monetary
instrument, property, or proceeds are in any way related to or involved
in an unlawful activity as defined under Section 3(i) of Republic Act
No. 9160, as amended by Republic Act No. 9194.
The petition shall be filed in seven clearly legible copies and shall be
accompanied by clearly legible copies of supporting documents duly
subscribed under oath.
xxxx
SEC. 49. Confidentiality; prohibited disclosure. - The logbook and the
entries therein shall be kept strictly confidential and maintained under the
responsibility of the Presiding Justice or the Executive Justices, as the case
may be. No person, including Court personnel, shall disclose, divulge or
communicate to anyone directly or indirectly, in any manner or by any
means, the fact of the filing of the petition for freeze order, its contents
and its entry in the logbook except to those authorized by the Court.
Violation shall constitute contempt of court.
xxxx
95
SEC. 51. Action by the Court of Appeals.- All members of the Division of the
Court to which the assigned justice belongs shall act on the petition within
twenty-four hours after its filing. However, if one member of the Division is
not available, the assigned justice and the other justice present shall act on
the petition. If only the assigned justice is present, he shall act alone. The
action of the two justices or of the assigned justice alone, as the case may
be, shall be forthwith promulgated and thereafter submitted on the next
working day to the absent member or members of the Division for
ratification, modification or recall.
If the Court is satisfied from the verified allegations of the petition that
there exists probable cause that the monetary instrument, property, or
proceeds are in any way related to or involved in any unlawful activity as
defined in Section 3(i) of Republic Act No. 9160, as amended by Republic
Act No. 9194, it shall issue ex parte a freeze order as hereinafter provided.
If the Court finds no substantial merit in the petition, it shall dismiss the
petition outright, stating the specific reasons for such dismissal.
When the unanimous vote of the three justices of the Division cannot be
obtained, the Presiding Justice or the Executive Justice shall designate two
justices by raffle from among the other justices of the first three divisions
to sit temporarily with them forming a special division of five justices. The
concurrence of a majority of such special division shall be required for the
pronouncement of a judgment or resolution.
SEC. 52. Issuance, form and contents of the freeze order - The freeze order
shall:
(a) issue in the name of the Republic of the Philippines represented by the
Anti-Money Laundering Council;
(b) describe with particularity the monetary instrument, property or
proceeds frozen, as well as the names of their owner or owners; and
(c) direct the person or covered institution to immediately freeze the
subject monetary instrument, property or proceeds or its related web
of accounts.
SEC. 53. Freeze order.
(a) Effectivity; post issuance hearing. - The freeze order shall be effective
immediately for a period of twenty days. Within the twenty-day
period, the court shall conduct a summary hearing, with notice to the
parties, to determine whether or not to modify or lift the freeze order,
or extend its effectivity as hereinafter provided.
(b) Extension. - On motion of the petitioner filed before the expiration of
twenty days from issuance of a freeze order, the court may for good
cause extend its effectivity for a period not exceeding six months.
SEC. 54. Notice of freeze order.- The Court shall order that notice of the
freeze order be served personally, in the same manner provided for the
service of the asset preservation order in Section 14 of this Rule, upon the
respondent or any person acting in his behalf and such covered institution
or government agency. The court shall notify also such party in interest as
may have appeared before the court.
SEC. 55. Duty of respondent, covered institution or government agency
upon receipt of freeze order. - Upon receipt of a copy of the freeze order,
the respondent, covered institution or government agency shall
immediately desist from and not allow any transaction, withdrawal,
deposit, transfer, removal, conversion, other movement or concealment
the account representing, involving or relating to the subject monetary
instrument, property, proceeds or its related web of accounts.
SEC. 56. Consolidation with the pending civil forfeiture proceedings - After
the post-issuance hearing required in Section 53, the Court shall forthwith
remand the case and transmit the records to the regional trial court for
consolidation with the pending civil forfeiture proceeding.
SEC. 57. Appeal.- Any party aggrieved by the decision or ruling of the court
may appeal to the Supreme Court by petition for review on certiorari
under Rule 45 of the Rules of Court. The appeal shall not stay the
96
enforcement of the subject decision or final order unless the Supreme
Court directs otherwise.
A reverse situation affords us a clearer picture of the arbitrary and total
preclusion of SPCMB to question the bank inquiry order of the appellate
court. In particular, in an occasion where the appellate court denies the
AMLC's ex-parte application for a bank inquiry order under Section 11, the
AMLC can question this denial and assail such an order by the appellate
court before us on grave abuse of discretion. Among others, the AMLC can
demonstrate that it has established probable cause for its issuance, or if
the situation contemplates a denial of an application for a bank inquiry
order into a related account, the AMLC can establish that the account
targeted is indeed a related account. The resolution on these factual and
legal issues ought to be reviewable, albeit post issuance of the Freeze
Order, akin to the provision of an Appeal to the Supreme Court under
Section 57 of A.M. No. 05-11-04-SC.
Palpably, the requirement to establish probable cause is not a useless
supposition. To establish and demonstrate the required probable cause
before issuance of the bank inquiry and the freeze orders is a screw on
which the AMLC's intrusive functions turns. We are hard pressed to justify
a disallowance to an aggrieved owner of a bank account to avail of
remedies.
That there are no specific rules governing the bank inquiry order does not
signify that the CA cannot confirm to the actual owner of the bank account
reportedly being investigated whether it had in fact issued a bank inquiry
order for covering its accounts, of course after the issuance of the Freeze
Order. Even in Ligot,43 we held that by implication, where the law did not
specify, the owner of the "frozen" property may move to lift the freeze
order issued under Section 10 of the AMLA if he can show that no
probable cause exists or the 20-day period of the freeze order has already
lapsed without any extension being requested from and granted by the CA.
Drawing a parallel, such a showing of the absence of probable cause ought
to be afforded SPCMB.
Ligot clarifies that "probable cause refers to the sufficiency of the relation
between an unlawful activity and the property or monetary instrument
which is the focal point of Section 10 of the AMLA, as amended." This
same probable cause is likewise the focal point in a bank inquiry order to
further determine whether the account under investigation is linked to
unlawful activities and/or money laundering offense. Thus, the specific
applicability of Sections 52, 53, 54 and 57 Title VIII of A.M. No. 05-11-04-SC
covering the following: (1) Issuance, Form and Content of the Freeze
Order; (2) Effectivity of the Freeze Order and Post Issuance Hearing
thereon; (3) Notice of the Freeze Order; and (4) Appeal from the Freeze
Order as separate Rules for Petitions to Question the Bank Inquiry Order.
And as held in Eugenio which now applies to the present Section 11 of the
AMLA:
Although oriented towards different purposes, the freeze order under
Section 10 and the bank inquiry order under Section 11 are similar in that
they are extraordinary provisional reliefs which the AMLC may avail of to
effectively combat and prosecute money laundering offenses. Crucially,
Section 10 uses specific language to authorize an ex parte application for
the provisional relief therein, a circumstance absent in Section 11. xxx. 44
The cited rules cover and approximate the distinction made by Eugenio in
declaring that the bank inquiry order is not a search warrant, and yet there
are instituted requirements for the issuance of these orders given that
such is now allowed ex-parte:
The Constitution and the Rules of Court prescribe particular requirements
attaching to search warrants that are not imposed by the AMLA with
respect to bank inquiry orders. A constitutional warrant requires that the
judge personally examine under oath or affirmation the complainant and
the witnesses he may produce, such examination being in the form of
searching questions and answers. Those are impositions which the
legislative did not specifically prescribe as to the bank inquiry order under
the AMLA and we cannot find sufficient legal basis to apply them to
Section 11 of the AMLA. Simply put, a bank inquiry order is not a search
warrant or warrant of arrest as it contemplates a direct object but not the
seizure of persons or property.
97
Even as the Constitution and the Rules of Court impose a high procedural bank, which inherently has no vested interest to aid the account holder in
standard for the determination of probable cause for the issuance of such manner. Rule 10.c.46 of the IRR provides for Duty of the Covered
search warrants which Congress chose not to prescribe for the bank Institution receiving the Freeze Order. Such can likewise be made
inquiry order under the AMLA, Congress nonetheless disallowed ex applicable to covered institutions notified of a bank inquiry order.
parte applications for the inquiry order. We can discern that in exchange
On the other hand, a scenario where SPCMB or any account holder under
for these procedural standards normally applied to search warrants,
examination later shows that the bank inquiry order was without the
Congress chose instead to legislate a right to notice and a right to be heard
required probable cause, the information obtained through the account
— characteristics of judicial proceedings which are not ex parte. Absent
reverts to, and maintains, its confidentiality. In short, any and all
any demonstrable constitutional infirmity, there is no reason for us to
information obtained therein by the AMLC remains confidential, as if no
dispute such legislative policy choices.45
examination or inquiry on the bank account or investments was
Thus, as an ex-parte bank inquiry order which Congress has now undertaken. The foregoing consequence can be added as a Section in the
specifically allowed, the owner of a bank account post issuance of the Rules entitled "Effect of absence of probable cause."
freeze order has an opportunity under the Rules to contest the
All told, we affirm the constitutionality of Section 11 of the AMLA allowing
establishment of probable cause.
the ex-parte application by the AMLC for authority to inquire into, and
Again, we cannot avoid the requirement-limitation nexus in Section 11. As examine, certain bank deposits and investments.
it affords the government authority to pursue a legitimate state interest to
Section 11 of the AMLA providing for the ex-parte bank deposit inquiry is
investigate money laundering offenses, such likewise provides the limits
constitutionally firm for the reasons already discussed. The ex--
for the authority given. Moreover, allowance to the owner of the bank
parte inquiry shall be upon probable cause that the deposits or
account, post issuance of the bank inquiry order and the corresponding
investments are related to an unlawful activity as defined in Section 3(i) of
freeze order, of remedies to question the order, will not forestall and
the law or a money laundering offense under Section 4 of the same law. To
waylay the government's pursuit of money launderers. That the bank
effect the limit on the ex-parte inquiry, the petition under oath for
inquiry order is a separate from the freeze order does not denote that it
authority to inquire, must, akin to the requirement of a petition for freeze
cannot be questioned. The opportunity is still rife for the owner of a bank
order enumerated in Title VIII of A.M. No. 05-11-04-SC, contain the name
account to question the basis for its very inclusion into the investigation
and address of the respondent; the grounds relied upon for the issuance of
and the corresponding freezing of its account in the process.
the order of inquiry; and the supporting evidence that the subject bank
As noted in Eugenio, such an allowance accorded the account holder who deposit are in any way related to or involved in an unlawful activity.
wants to contest the issuance of the order and the actual investigation by
If the CA finds no substantial merit in the petition, it shall dismiss the
the AMLC, does not cast an unreasonable burden since the bank inquiry
petition outright stating the specific reasons for such denial. If found
order has already been issued. Further, allowing for notice to the account
meritorious and there is a subsequent petition for freeze order, the
holder should not, in any way, compromise the integrity of the bank
proceedings shall be governed by the existing Rules on Petitions for Freeze
records subject of the inquiry which remain in the possession and control
Order in the CA. From the issuance of a freeze order, the party aggrieved
of the bank. The account holder so notified remains unable to do anything
by the ruling of the court may appeal to the Supreme Court by petition for
to conceal or cleanse his bank account records of suspicious or anomalous
review on certiorari under Rule 45 of the Rules of Court raising all
transactions, at least not without the whole hearted cooperation of the
98
pertinent questions of law and issues, including the propriety of the
issuance of a bank inquiry order. The appeal shall not stay the
enforcement of the subject decision or final order unless the Supreme
Court directs otherwise. The CA is directed to draft rules based on the
foregoing discussions to complement the existing A.M. No. 05-11-04-SC
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 Republic Act No. 9160, as Amended for submission to the
Committee on the Revision of the Rules of Court and eventual approval
and promulgation of the Court en banc.

WHEREFORE, the petition is DENIED. Section 11 of Republic Act No. 9160,

as amended, is declared VALID and CONSTITUTIONAL.

SO ORDERED.

99

PERLAS-BERNABE, J.:
Before the Court is a petition for review on certiorari[1] filed by petitioners
Apex Bancrights Holdings, Inc., Lead Bancfund Holdings, Inc, Asia Wide
Refreshments Corporation, Medco Asia Investment Corporation, Zest-O
Corporation, Harmony Bancshares Holdings, Inc., Excalibur Holdings, Inc.,
and Alfredo M. Yao (petitioners) assailing the Decision [2] dated January 21,
2014 and the Resolution[3] dated October 10, 2014 of the Court of Appeals in
CA-G.R. SP No. 129674, which affirmed Resolution No. 571 dated April 4,
2013 of the Monetary Board of respondent Bangko Sentral ng Pilipinas (BSP)
ordering the liquidation of the Export and Industry Bank (EIB).
The Facts
Sometime in July 2001, EIB entered into a three-way merger with Urban
Bank, Inc. (UBI) and Urbancorp Investments, Inc. (UII) in an attempt to
rehabilitate UBI which was then under receivership. [4] In September 2001,
following the said merger, EIB itself encountered financial difficulties which
prompted respondent the Philippine Deposit Insurance Corporation (PDIC)
to extend financial assistance to it. However, EIB still failed to overcome its
financial problems, thereby causing PDIC to release in May 2005 additional
financial assistance to it, conditioned upon the infusion by EIB stockholders
of additional capital whenever EIB's adjusted Risk Based Capital Adequacy
Ratio falls below 12.5%. Despite this, EIB failed to comply with the BSP's
capital requirements, causing EIB's stockholders to commence the process
of selling the bank.[5]
Initially, Banco de Oro (BDO) expressed interest in acquiring EIB. However,
certain issues derailed the acquisition, including BDO's unwillingness to
assume certain liabilities of EIB, particularly the claim of the Pacific Rehouse
Group against it. In the end, BDO's acquisition of EIB did not proceed and
the latter's financial condition worsened. Thus, in a letter [6] dated April 26,
2012, EIB's president and chairman voluntarily turned-over the full control
of EIB to BSP, and informed the latter that the former will declare a bank
holiday on April27, 2012.[7]
On April 26, 2012, the BSP, through the Monetary Board, issued Resolution
No. 686[8] prohibiting EIB from doing business in the Philippines and placing
it under the receivership of PDIC, in accordance with Section 30 of Republic
Act No. (RA) 7653, otherwise known as "The New Central Bank
Act."[9] Accordingly, PDIC took over EIB.[10]
In due course, PDIC submitted its initial receivership report to the Monetary
Board which contained its finding that EIB can be rehabilitated or permitted
to resume business; provided, that a bidding for its rehabilitation would be
conducted, and that the following conditions would be met: (a) there are
qualified interested banks that will comply with the parameters for
rehabilitation of a closed bank, capital strengthening, liquidity, sustainability
and viability of operations, and strengthening of bank governance; and (b)
all parties (including creditors and stockholders) agree to the rehabilitation
and the revised payment terms and conditions of outstanding liabilities.
[11]
Accordingly, the Monetary Board issued Resolution No. 1317 on August 9,
2012 noting PDIC's initial report, and its request to extend the period within
which to submit the final determination of whether or not EIB can be
rehabilitated. Pursuant to the rehabilitation efforts, a public bidding was
scheduled by PDIC on October 18, 2012, but the same failed as no bid was
submitted. A re-bidding was then set on March 20, 2013 which also did not
materialize as no bids were submitted.[12]
On April 1, 2013, PDIC informed BSP that EIB can hardly be rehabilitated.
[13]
Based on PDIC's report that EIB was insolvent, the Monetary Board
passed Resolution No. 571 on April 4, 2013 directing PDIC to proceed with
the liquidation of EIB.[14]
On April 29, 2013, petitioners, who are stockholders representing the
100
majority stock of EIB,[15] filed a petition for certiorari[16] before the CA
challenging Resolution No. 571. In essence, petitioners blame PDIC for the
failure to rehabilitate EIB, contending that PDIC: (a) imposed unreasonable
The Issue Before the Court
and oppressive conditions which delayed or frustrated the transaction
between BDO and EIB; (b) frustrated EIB's efforts to increase its liquidity
when PDIC disapproved EIB's proposal to sell its MRT bonds to a private The sole issue before the Court is whether or not the CA correctly ruled that
third party and, instead, required EIB to sell the same to government the Monetary Board did not gravely abuse its discretion in issuing Resolution
entities; (c) imposed impossible and unnecessary bidding requirements; and No. 571 which directed the PDIC to proceed with the liquidation of EIB.
(d) delayed the public bidding which dampened investors' interest. [17]

In defense, PDIC countered [18] that petitioners were already estopped from
assailing the placement of EIB under receivership and its eventual The Court's Ruling
liquidation since they had already surrendered full control of the bank to the
BSP as early as April 26, 2012. [19] For its part, BSP maintained [20] that it had The petition is without merit.
ample factual and legal bases to order EIB's liquidation. [21]
Section 30 of RA 7653 provides for the proceedings in the receivership and
liquidation of banks and quasi-banks, the pertinent portions of which read:
The CA Ruling
Section 30. Proceedings in Receivership and Liquidation. - Whenever, upon
[22]
In a Decision dated January 21, 2014, the CA dismissed the petition for report of the head of the supervising or examining department, the
lack of merit. It ruled that the Monetary Board did not gravely abuse its Monetary Board finds that a bank or quasi-bank:
discretion in ordering the liquidation of EIB pursuant to the PDIC's findings
that the rehabilitation of the bank is no longer feasible. In this regard, the CA is unable to pay its liabilities as they become due in the ordinary course
held that there is nothing in Section 30 of RA 7653 that requires the of business: Provided, That this shall not include inability to pay caused
Monetary Board to make its own independent factual determination on the (a)
by extraordinary demands induced by financial panic in the banking
bank's viability before ordering its liquidation. According to the CA, the law community;
only provides that the Monetary Board "shall notify in writing the board of
directors of its findings and direct the receiver to proceed with the
liquidation of the institution," [23] which it did in this case. has insufficient realizable assets, as determined by the Bangko Sentral,
(b)
to meet its liabilities; or
Undaunted, petitioners moved for reconsideration [24] which was, however,
denied by the CA in its Resolution [25] dated October 10, 2014; hence, this
petition. (c) cannot continue in business without involving probable losses to its

101
 depositors or creditors; or
has willfully violated a cease and desist order under Section 37 that has
become final, involving acts or transactions which amount to fraud or a
dissipation of the assets of the institution; in which cases, the Monetary
(d) Board may summarily and without need for prior hearing forbid the
institution from doing business in the Philippines and designate the
Philippine Deposit Insurance Corporation as receiver of the banking
institution.
x x x x
The receiver shall immediately gather and take charge of all the assets and
liabilities of the institution, administer the same for the benefit of its
creditors, and exercise the general powers of a receiver under the Revised
Rules of Court x x x[.]
If the receiver determines that the institution cannot be rehabilitated or
permitted to resume business in accordance with the next preceding
paragraph, the Monetary Board shall notify in writing the board of
directors of its findings and direct the receiver to proceed with the
liquidation of the institution. The receiver shall:
x x x x
The actions of the Monetary Board taken under this section or under
Section 29 of this Act shall be final and executory, and may not be
restrained or set aside by the court except on petition for certiorari on the
ground that the action taken was in excess of jurisdiction or with such
grave abuse of discretion as to amount to lack or excess of jurisdiction. The
petition for certiorari may only be filed by the stockholders of record
representing the majority of the capital stock within ten (10) days from
receipt by the board of directors of the institution of the order directing
receivership, liquidation or conservatorship.
The designation of a conservator under Section 29 of this Act or the
appointment of a receiver under this section shall be vested exclusively with
the Monetary Board. Furthermore, the designation of a conservator is not a
precondition to the designation of a receiver. (Emphases and underscoring
supplied)
It is settled that "[t]he power and authority of the Monetary Board to close
banks and liquidate them thereafter when public interest so requires is an
exercise of the police power of the State. Police power, however, is subject
to judicial inquiry. It may not be exercised arbitrarily or unreasonably and
could be set aside if it is either capricious, discriminatory, whimsical,
arbitrary, unjust, or is tantamount to a denial of due process and equal
protection clauses of the Constitution." [26] Otherwise stated and as culled
from the above provision, the actions of the Monetary Board shall be final
and executory and may not be restrained or set aside by the court except on
petition for certiorari on the ground that the action taken was in excess of
jurisdiction or with such grave abuse of discretion as to amount to lack or
excess of jurisdiction. "There is grave abuse of discretion when there is an
evasion of a positive duty or a virtual refusal to perform a duty enjoined by
law or to act in contemplation of law as when the judgment rendered is not
based on law and evidence but on caprice, whim and despotism." [27]
In line with the foregoing considerations, the Court agrees with the CA that
the Monetary Board did not gravely abuse its discretion in ordering the
liquidation of EIB through its Resolution No. 571.
To recount, after the Monetary Board issued Resolution No. 686 which
placed EIB under the receivership of PDIC, the latter submitted its initial
findings to the Monetary Board, stating that EIB can be rehabilitated or
permitted to resume business; provided, that a bidding for its rehabilitation
would be conducted, and that the following conditions would be met: (a)
there are qualified interested banks that will comply with the parameters for
rehabilitation of a closed bank, capital strengthening, liquidity, sustainability
and viability of operations, and strengthening of bank governance; and (b)
all parties (including creditors and stockholders) agree to the rehabilitation
102
and the revised payment terms and conditions of outstanding liabilities.
[28]
However, the foregoing conditions for EIB's rehabilitation "were not met
because the bidding and re-bidding for the bank's rehabilitation were
aborted since none of the pre-qualified Strategic Third Party Investors (STPI)
submitted a letter of interest to participate in the bidding," [29] thereby
resulting in the PDIC's finding that EIB is already insolvent and must already
be liquidated - a finding which eventually resulted in the Monetary Board's
issuance of Resolution No. 571.
In an attempt to forestall EIB's liquidation, petitioners insist that the
Monetary Board must first make its own independent finding that the bank
could no longer be rehabilitated - instead of merely relying on the findings
of the PDIC before ordering the liquidation of a bank. [30]
Such position is untenable.
As correctly held by the CA, nothing in Section 30 of RA 7653 requires the
BSP, through the Monetary Board, to make an independent determination of
whether a bank may still be rehabilitated or not. As expressly stated in the
afore-cited provision, once the receiver determines that rehabilitation is no
longer feasible, the Monetary Board is simply obligated to: (a) notify in
writing the bank's board of directors of the same; and (b) direct the PDIC to
proceed with liquidation, viz.:
If the receiver determines that the institution cannot be rehabilitated or
permitted to resume business in accordance with the next preceding
paragraph, the Monetary Board shall notify in writing the board of directors
of its findings and direct the receiver to proceed with the liquidation of the
institution.
x x x[31]
Suffice it to say that if the law had indeed intended that the Monetary Board
make a separate and distinct factual determination before it can order the
liquidation of a bank or quasi-bank, then there should have been a provision
to that effect. There being none, it can safely be concluded that the
Monetary Board is not so required when the PDIC has already made such
determination. It must be stressed that the BSP (the umbrella agency of the
Monetary Board), in its capacity as government regulator of banks, and the
PDIC, as statutory receiver of banks under RA 7653, are the principal
agencies mandated by law to determine the financial viability of banks and
quasi-banks, and facilitate the receivership and liquidation of closed
financial institutions, upon a factual determination of the latter's insolvency.
[32]
Thus, following the maxim verba legis non est recedendum which means
"from the words of a statute there should be no departure" - a statute that
is clear, plain, and free from ambiguity must be given its literal meaning and
applied without any attempted interpretation, [33] as in this case.
In sum, the Monetary Board's issuance of Resolution No. 571 ordering the
liquidation of EIB cannot be considered to be tainted with grave abuse of
discretion as it was amply supported by the factual circumstances at hand
and made in accordance with prevailing law and jurisprudence. To note, the
"actions of the Monetary Board in proceedings on insolvency are explicitly
declared by law to be 'final and executory.' They may not be set aside, or
restrained, or enjoined by the courts, except upon 'convincing proof that the
action is plainly arbitrary and made in bad faith,'" [34] which is absent in this
case.
WHEREFORE, the petition is hereby DENIED. The Decision dated January 21,
2014 and the Resolution dated October 10, 2014 of the Court of Appeals in
CA-G.R. SP No. 129674 are hereby AFFIRMED.
SO ORDERED.
103
G.R. No. 183774 : November 14, 2012
PHILIPPINE BANKING CORPORATION, Petitioner, v. ARTURO DY, BERNARDO
DY, JOSE DELGADO AND CIPRIANA DELGADO, Respondents.
DECISION
PERLAS-BERNABE, J.:
This Petition for Review on Certiorari assails the January 30, 2008
Decision1ςrνll of the Court of Appeals (CA) in CA-G.R. CV No. 51672, which
set aside the October 5, 1994 Decision 2ςrνll of the Regional Trial Court of
Cebu City, Branch 22 (RTC) and directed the Register of Deeds of Cebu City
to cancel Transfer Certificate of Title (TCT) Nos. 51768 3ςrνll and
519014ςrνll in the names of respondents Arturo Dy and Bernardo Dy (Dys)
and to issue the corresponding TCTs in the name of respondent Cipriana
Delgado (Cipriana).
The Factual Antecedents
Cipriana was the registered owner of a 58,129-square meter (sq.m.) lot,
denominated as Lot No. 6966, situated in Barrio Tongkil, Minglanilla, Cebu,
covered by TCT No. 18568. She and her husband, respondent Jose Delgado
(Jose), entered into an agreement with a certain Cecilia Tan (buyer) for the
sale of the said property for a consideration of P10.00/sq.m. It was agreed
that the buyer shall make partial payments from time to time and pay the
balance when Cipriana and Jose (Sps. Delgado) are ready to execute the
deed of sale and transfer the title to her.
At the time of sale, the buyer was already occupying a portion of the
property where she operates a noodle (bihon) factory while the rest was
occupied by tenants which Sps. Delgado undertook to clear prior to full
payment. After paying the total sum of P147,000.00 and being then ready to
pay the balance, the buyer demanded the execution of the deed, which was
refused. Eventually, the buyer learned of the sale of the property to the Dys
and its subsequent mortgage to petitioner Philippine Banking Corporation
(Philbank), prompting the filing of the Complaint 5ςrνll for annulment of
certificate of title, specific performance and/or reconveyance with damages
against Sps. Delgado, the Dys and Philbank.
In their Answer, Sps. Delgado, while admitting receipt of the partial
payments made by the buyer, claimed that there was no perfected sale
because the latter was not willing to pay their asking price of P17.00/sq.m.
They also interposed a cross-claim against the Dys averring that the deeds of
absolute sale in their favor dated June 28, 1982 6ςrνll and June 30,
19827ςrνll covering Lot No. 6966 and the adjoining Lot No. 4100-A (on
which Sps. Delgado's house stands), were fictitious and merely intended to
enable them (the Dys) to use the said properties as collateral for their loan
application with Philbank and thereafter, pay the true consideration of
P17.00/sq.m. for Lot No. 6966. However, after receiving the loan proceeds,
the Dys reneged on their agreement, prompting Sps. Delgado to cause the
annotation of an adverse claim on the Dys' titles and to inform Philbank of
the simulation of the sale. Sps. Delgado, thus, prayed for the dismissal of the
complaint, with a counterclaim for damages and a cross-claim against the
Dys for the payment of the balance of the purchase price plus damages.
For their part, the Dys denied knowledge of the alleged transaction between
cross-claimants Sps. Delgado and buyer. They claimed to have validly
acquired the subject property from Sps. Delgado and paid the full
consideration therefor as the latter even withdrew their adverse claim and
never demanded for the payment of any unpaid balance.
On the other hand, Philbank filed its Answer 8ςrνll asserting that it is an
innocent mortgagee for value without notice of the defect in the title of the
Dys. It filed a cross-claim against Sps. Delgado and the Dys for all the
damages that may be adjudged against it in the event they are declared
seller and purchaser in bad faith, respectively.
In answer to the cross-claim, Sps. Delgado insisted that Philbank was not a
mortgagee in good faith for having granted the loan and accepted the
mortgage despite knowledge of the simulation of the sale to the Dys and for
failure to verify the nature of the buyers physical possession of a portion of
Lot No. 6966. They thereby prayed for the cancellation of the mortgage in
Philbank's favor.
104
Subsequently, Sps. Delgado amended their cross-claim against the Dys to The CA also declared Philbank not to be a mortgagee in good faith for its
include a prayer for the nullification of the deeds of absolute sale in the failure to ascertain how the Dys acquired the properties and to exercise
latter's favor and the corresponding certificates of title, and for the greater care when it conducted an ocular inspection thereof. It thereby
consequent reinstatement of Ciprianas title. 9ςrνll canceled the mortgage over the two lots.

The complaints against the Dys and Philbank were subsequently withdrawn. The Petition
On the other hand, both the buyer and Sps. Delgado never presented any
In the present petition, Philbank insists that it is a mortgagee in good faith. It
evidence in support of their respective claims. Hence, the RTC limited itself
further contends that Sps. Delgado are estopped from denying the validity
to the resolution of the claims of Sps. Delgado, Philbank and the Dys against
of the mortgage constituted over the two lots since they participated in
one another.
inducing Philbank to grant a loan to the Dys.
The RTC Ruling
On the other hand, Sps. Delgado maintain that Philbank was not an innocent
10
In the Decision ςrνll dated October 5, 1994, the RTC dismissed the cross- mortgagee for value for failure to exercise due diligence in transacting with
claims of Sps. Delgado against the Dys and Philbank. It noted that other than the Dys and may not invoke the equitable doctrine of estoppel to conceal its
Sps. Delgado's bare allegation of the Dys' supposed non-payment of the full own lack of diligence.
consideration for Lot Nos. 6966 and 4100-A, they failed to adduce
For his part, Arturo Dy filed a Petition-in-Intervention 13ςrνll arguing that
competent evidence to support their claim. On the other hand, the Dys
while the deeds of absolute sale over the two properties were admittedly
presented a cash voucher11ςrνll dated April 6, 1983 duly signed by Sps.
simulated, the simulation was only a relative one involving a false statement
Delgado acknowledging receipt of the total consideration for the two lots.
of the price. Hence, the parties are still bound by their true agreement. The
The RTC also observed that Sps. Delgado notified Philbank of the purported same was opposed/objected to by both Philbank 14ςrνll and Sps.
simulation of the sale to the Dys only after the execution of the loan and Delgado15ςrνll as improper, considering that the CA judgment had long
mortgage documents and the release of the loan proceeds to the latter, become final and executory as to the Dys who neither moved for
negating their claim of bad faith. Moreover, they subsequently notified the reconsideration nor appealed the CA Decision.
bank of the Dys' full payment for the two lots mortgaged to it.
The Ruling of the Court
The CA Ruling
The petition is meritorious.
12
However, on appeal, the CA set aside ςrνll the RTC's decision and ordered
At the outset, the Court takes note of the fact that the CA Decision nullifying
the cancellation of the Dys' certificates of title and the reinstatement of
the questioned contracts of sale between Sps. Delgado and the Dys had
Cipriana's title. It ruled that there were no perfected contracts of sale
become final and executory. Accordingly, the Petition-in-Intervention filed by
between Sps. Delgado and the Dys in view of the latter's admission that the
Arturo Dy, which seeks to maintain the subject contracts' validity, can no
deeds of sale were purposely executed to facilitate the latter's loan
longer be entertained. The cancellation of the Dys' certificates of title over
application with Philbank and that the prices indicated therein were not the
the disputed properties and the issuance of new TCTs in favor of Cipriana
true consideration. Being merely simulated, the contracts of sale were, thus,
must therefore be upheld.
null and void, rendering the subsequent mortgage of the lots likewise void.

105
However, Philbank's mortgage rights over the subject properties shall be
maintained. While it is settled that a simulated deed of sale is null and void
and therefore, does not convey any right that could ripen into a valid
title,16ςrνll it has been equally ruled that, for reasons of public
policy,17ςrνll the subsequent nullification of title to a property is not a
ground to annul the contractual right which may have been derived by a
purchaser, mortgagee or other transferee who acted in good faith. 18ςrνll
The ascertainment of good faith or lack of it, and the determination of
whether due diligence and prudence were exercised or not, are questions of
fact19ςrνll which are generally improper in a petition for review on
certiorari under Rule 45 of the Rules of Court (Rules) where only questions
of law may be raised. A recognized exception to the rule is when there are
conflicting findings of fact by the CA and the RTC, 20ςrνll as in this case.
Primarily, it bears noting that the doctrine of "mortgagee in good faith" is
based on the rule that all persons dealing with property covered by a
Torrens Certificate of Title are not required to go beyond what appears on
the face of the title. This is in deference to the public interest in upholding
the indefeasibility of a certificate of title as evidence of lawful ownership of
the land or of any encumbrance thereon. 21ςrνll In the case of banks and
other financial institutions, however, greater care and due diligence are
required since they are imbued with public interest, failing which renders
the mortgagees in bad faith. Thus, before approving a loan application, it is a
standard operating practice for these institutions to conduct an ocular
inspection of the property offered for mortgage and to verify the
genuineness of the title to determine the real owner(s) thereof. 22ςrνll The
apparent purpose of an ocular inspection is to protect the "true owner" of
the property as well as innocent third parties with a right, interest or claim
thereon from a usurper who may have acquired a fraudulent certificate of
title thereto.23ςrνll
In this case, while Philbank failed to exercise greater care in conducting the
ocular inspection of the properties offered for mortgage, 24ςrνll its omission
did not prejudice any innocent third parties. In particular, the buyer did not
pursue her cause and abandoned her claim on the property. On the other
hand, Sps. Delgado were parties to the simulated sale in favor of the Dys
which was intended to mislead Philbank into granting the loan application.
Thus, no amount of diligence in the conduct of the ocular inspection could
have led to the discovery of the complicity between the ostensible
mortgagors (the Dys) and the true owners (Sps. Delgado). In fine, Philbank
can hardly be deemed negligent under the premises since the ultimate
cause of the mortgagors' (the Dys') defective title was the simulated sale to
which Sps. Delgado were privies.
Indeed, a finding of negligence must always be contextualized in line with
the attendant circumstances of a particular case. As aptly held in Philippine
National Bank v. Heirs of Estanislao Militar, 25ςrνll "the diligence with which
the law requires the individual or a corporation at all times to govern a
particular conduct varies with the nature of the situation in which one is
placed, and the importance of the act which is to be
performed."26ςrνll Thus, without diminishing the time-honored principle
that nothing short of extraordinary diligence is required of banks whose
business is impressed with public interest, Philbank's inconsequential
oversight should not and cannot serve as a bastion for fraud and deceit.
To be sure, fraud comprises "anything calculated to deceive, including all
acts, omissions, and concealment involving a breach of legal duty or
equitable duty, trust, or confidence justly reposed, resulting in damage to
another, or by which an undue and unconscientious advantage is taken of
another."27ςrνll In this light, the Dys' and Sps. Delgado's deliberate
simulation of the sale intended to obtain loan proceeds from and to
prejudice Philbank clearly constitutes fraudulent conduct. As such, Sps.
Delgado cannot now be allowed to deny the validity of the mortgage
executed by the Dys in favor of Philbank as to hold otherwise would
effectively sanction their blatant bad faith to Philbank's detriment.
Accordingly, in the interest of public policy, fair dealing, good faith and
justice, the Court accords Philbank the rights of a mortgagee in good faith
whose lien to the securities posted must be respected and protected. In this
regard, Philbank is entitled to have its mortgage carried over or annotated
on the titles of Cipriana Delgado over the said properties.
106
WHERFORE, the assailed January 30, 2008 Decision of the Court of Appeals
in CA-G.R. CV No. 51672 is hereby AFFIRMED with MODIFICATION upholding
the mortgage rights of petitioner Philippine Banking Corporation over the
subject properties.ςrαlαωlιbrαr

SO ORDERED.

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