SECOND DIVISION
Dizon
G.R. No. 128703 October 18, 2000
TEODORO BAÑAS,*C. G. DIZON CONSTRUCTION,
INC., and CENEN DIZON, petitioners,
vs.
ASIA PACIFIC FINANCE CORPORATION,1 substituted
by INTERNATIONAL CORPORATE BANK now known
as UNION BANK OF THE PHILIPPINES, respondent.
DECISION
BELLOSILLO, J.:
C. G. DIZON CONSTRUCTION INC. and CENEN DIZON in
this petition for review seek the reversal of the 24 July
1996 Decision of the Court of Appeals dismissing their
appeal for lack of merit and affirming in toto the
decision of the trial court holding them liable to Asia
Pacific Finance Corporation in the amount of
₱87,637.50 at 14% interest per annum in addition to
attorney's fees and costs of suit, as well as its 21
March 1997 Resolution denying reconsideration
thereof.2
On 20 March 1981 Asia Pacific Finance Corporation
(ASIA PACIFIC for short) filed a complaint for a sum of
money with prayer for a writ of replevin against
Teodoro Bañas, C. G. Dizon Construction and Cenen
Dizon. Sometime in August 1980 Teodoro Bañas
executed a Promissory Note in favor of C. G. Dizon
Construction whereby for value received he promised
to pay to the order of C. G. Dizon Construction the
sum of ₱390,000.00 in installments of "₱32,500.00
every 25th day of the month starting from September
25, 1980 up to August 25, 1981."3
Later, C. G. Dizon Construction endorsed with
recourse the Promissory Note to ASIA PACIFIC, and to
secure payment thereof, C. G. Dizon Construction,
through its corporate officers, Cenen Dizon, President,
and Juliette B. Dizon, Vice President and Treasurer,
executed a Deed of Chattel Mortgage covering three
(3) heavy equipment units of Caterpillar Bulldozer
Crawler Tractors with Model Nos. D8-14A, D8-2U and
D8H in favor of ASIA PACIFIC.4 Moreover, Cenen Dizon
executed on 25 August 1980 a Continuing
Undertaking wherein he bound himself to pay the
Page 1 of 91
obligation jointly and severally with C. G.
Construction.5
In compliance with the provisions of the Promissory
Note, C. G. Dizon Construction made the following
installment payments to ASIA PACIFIC: ₱32,500.00 on
25 September 1980, ₱32,500.00 on 27 October 1980
and ₱65,000.00 on 27 February 1981, or a total of
₱130,000.00. Thereafter, however, C. G. Dizon
Construction defaulted in the payment of the
remaining installments, prompting ASIA PACIFIC to
send a Statement of Account to Cenen Dizon for the
unpaid balance of ₱267,737.50 inclusive of interests
and charges, and ₱66,909.38 representing attorney's
fees. As the demand was unheeded, ASIA PACIFIC
sued Teodoro Bañas, C. G. Dizon Construction and
Cenen Dizon.
While defendants (herein petitioners) admitted the
genuineness and due execution of the Promissory
Note, the Deed of Chattel Mortgage and
the Continuing Undertaking, they nevertheless
maintained that these documents were never
intended by the parties to be legal, valid and binding
but a mere subterfuge to conceal the loan of
₱390,000.00 with usurious interests.
Defendants claimed that since ASIA PACIFIC could not
directly engage in banking business, it proposed to
them a scheme wherein plaintiff ASIA PACIFIC could
extend a loan to them without violating banking
laws: first, Cenen Dizon would secure a promissory
note from Teodoro Bañas with a face value of
₱390,000.00 payable in installments; second, ASIA
PACIFIC would then make it appear that the
promissory note was sold to it by Cenen Dizon with
the 14% usurious interest on the loan or ₱54,000.00
discounted and collected in advance by ASIA PACIFIC;
and, lastly, Cenen Dizon would provide sufficient
collateral to answer for the loan in case of default in
payment and execute a continuing guaranty to assure
continuous and prompt payment of the loan.
Defendants also alleged that out of the loan of
₱390,000.00 defendants actually received only
₱329,185.00 after ASIA PACIFIC deducted the
discounted interest, service handling charges,
insurance premium, registration and notarial fees.
Sometime in October 1980 Cenen Dizon informed
ASIA PACIFIC that he would be delayed in meeting his
monthly amortization on account of business reverses
and promised to pay instead in February 1981. Cenen
Dizon made good his promise and tendered payment
to ASIA PACIFIC in an amount equivalent to two (2)
monthly amortizations. But ASIA PACIFIC attempted
to impose a 3% interest for every month of delay,
which he flatly refused to pay for being usurious.
Afterwards, ASIA PACIFIC allegedly made a verbal
proposal to Cenen Dizon to surrender to it the
ownership of the two (2) bulldozer crawler tractors
and, in turn, the latter would treat the former's
account as closed and the loan fully paid. Cenen Dizon
supposedly agreed and accepted the offer.
Defendants averred that the value of the bulldozer
crawler tractors was more than adequate to cover
their obligation to ASIA PACIFIC.
Meanwhile, on 21 April 1981 the trial court issued a
writ of replevin against defendant C. G. Dizon
Construction for the surrender of the bulldozer
crawler tractors subject of the Deed of Chattel
Mortgage. Of the three (3) bulldozer crawler tractors,
only two (2) were actually turned over by defendants -
D8-14A and D8-2U - which units were subsequently
foreclosed by ASIA PACIFIC to satisfy the obligation.
D8-14A was sold for ₱120,000.00 and D8-2U for
₱60,000.00 both to ASIA PACIFIC as the highest
bidder.
During the pendency of the case, defendant Teodoro
Bañas passed away, and on motion of the remaining
defendants, the trial court dismissed the case against
him. On the other hand, ASIA PACIFIC was substituted
as party plaintiff by International Corporate Bank after
the disputed Promissory Note was assigned and/or
transferred by ASIA PACIFIC to International
Corporate Bank. Later, International Corporate Bank
merged with Union Bank of the Philippines. As the
surviving entity after the merger, and having
succeeded to all the rights and interests of
International Corporate Bank in this case, Union Bank
of the Philippines was substituted as a party in lieu of
International Corporate Bank.6
On 25 September 1992 the Regional Trial Court ruled
in favor of ASIA PACIFIC holding the defendants jointly
Page 2 of 91
and severally liable for the unpaid balance of the
obligation under the Promissory Note in the amount
of ₱87,637.50 at 14% interest per annum, and
attorney's fees equivalent to 25% of the monetary
award.7
On 24 July 1996 the Court of Appeals affirmed in
toto the decision of the trial court thus -
Defendant-appellants' contention that the
instruments were executed merely as a subterfuge to
skirt banking laws is an untenable defense. If that
were so then they too were parties to the illegal
scheme. Why should they now be allowed to take
advantage of their own knavery to escape the
liabilities that their own chicanery created?
Defendant-appellants also want us to believe their
story that there was an agreement between them and
the plaintiff-appellee that if the former would deliver
their 2 bulldozer crawler tractors to the latter, the
defendant-appellants' obligation would fully be
extinguished. Again, nothing but the word that comes
out between the teeth supports such story. Why did
they not write down such an important agreement? Is
it believable that seasoned businessmen such as the
defendant-appellant Cenen G. Dizon and the other
officers of the appellant corporation would deliver the
bulldozers without a receipt of acquittance from the
plaintiff-appellee x x x x In our book, that is not
credible.
The pivotal issues raised are: (a) Whether the
disputed transaction between petitioners and ASIA
PACIFIC violated banking laws, hence, null and void;
and (b) Whether the surrender of the bulldozer
crawler tractors to respondent resulted in the
extinguishment of petitioners' obligation.
On the first issue, petitioners insist that ASIA PACIFIC
was organized as an investment house which could
not engage in the lending of funds obtained from the
public through receipt of deposits. The
disputed Promissory Note, Deed of Chattel
Mortgage and Continuing Undertaking were not
intended to be valid and binding on the parties as
they were merely devices to conceal their real
intention which was to enter into a contract of loan in
violation of banking laws.
We reject the argument. An investment company
refers to any issuer which is or holds itself out as
being engaged or proposes to engage primarily in the
business of investing, reinvesting or trading
in securities.8 As defined in Sec. 2, par. (a), of
the Revised Securities Act,9 securities "shall include x x
x x commercial papers evidencing indebtedness of any
person, financial or non-financial entity, irrespective
of maturity, issued, endorsed, sold, transferred or in
any manner conveyed to another with or without
recourse, such as promissory notes x x x x" Clearly, the
transaction between petitioners and respondent was
one involving not a loan but purchase of receivables
at a discount, well within the purview of "investing,
reinvesting or trading in securities" which an
investment company, like ASIA PACIFIC, is authorized
to perform and does not constitute a violation of the
General Banking Act.10 Moreover, Sec. 2 of
the General Banking Act provides in part -
Sec. 2. Only entities duly authorized by the Monetary
Board of the Central Bank may engage in the lending
of funds obtained from the public through the receipt
of deposits of any kind, and all entities regularly
conducting such operations shall be considered as
banking institutions and shall be subject to the
provisions of this Act, of the Central Bank Act, and of
other pertinent laws (underscoring supplied).
Indubitably, what is prohibited by law is for
investment companies to lend funds obtained from
the public through receipts of deposit, which is a
function of banking institutions. But here, the funds
supposedly "lent" to petitioners have not been shown
to have been obtained from the public by way of
deposits, hence, the inapplicability of banking laws.
On petitioners' submission that the true intention of
the parties was to enter into a contract of loan, we
have examined the Promissory Note and failed to
discern anything therein that would support such
theory. On the contrary, we find the terms and
conditions of the instrument clear, free from any
ambiguity, and expressive of the real intent and
agreement of the parties. We quote the pertinent
portions of the Promissory Note -
FOR VALUE RECEIVED, I/We, hereby promise to pay to
the order of C.G. Dizon Construction, Inc. the sum of
Page 3 of 91
THREE HUNDRED NINETY THOUSAND ONLY
(₱390,000.00), Philippine Currency in the following
manner:
₱32,500.00 due every 25th of the month starting from
September 25, 1980 up to August 25, 1981.
I/We agree that if any of the said installments is not
paid as and when it respectively falls due, all the
installments covered hereby and not paid as yet shall
forthwith become due and payable at the option of
the holder of this note with interest at the rate of 14%
per annum on each unpaid installment until fully paid.
If any amount due on this note is not paid at its
maturity and this note is placed in the hands of an
attorney for collection, I/We agree to pay in addition
to the aggregate of the principal amount and interest
due, a sum equivalent to TEN PERCENT (10%) thereof
as Attorney's fees, in case no action is filed, otherwise,
the sum will be equivalent to TWENTY FIVE (25%) of
the said principal amount and interest due x x x x
Makati, Metro Manila, August 25, 1980.
(Sgd) Teodoro Bañas
ENDORSED TO ASIA PACIFIC FINANCE CORPORATION
WITH RECOURSE, C.G. DIZON CONSTRUCTION, INC.
By: (Sgd.) Cenen Dizon (Sgd.) Juliette B. Dizon
President VP/Treasurer
Likewise, the Deed of Chattel
Mortgage and Continuing Undertaking were duly
acknowledged before a notary public and, as such,
have in their favor the presumption of regularity. To
contradict them there must be clear, convincing and
more than merely preponderant evidence. In the
instant case, the records do not show even a
preponderance of evidence in favor of petitioners'
claim that the Deed of Chattel
Mortgage and Continuing Undertaking were never
intended by the parties to be legal, valid and binding.
Notarial documents are evidence of the facts in clear
and unequivocal manner therein expressed.11
Interestingly, petitioners' assertions were based
mainly on the self-serving testimony of Cenen Dizon,
and not on any other independent evidence. His
testimony is not only unconvincing, as found by the
trial court and the Court of Appeals, but also self-
defeating in light of the documents presented by
respondent, i.e., Promissory Note, Deed of Chattel
Mortgage and Continuing Undertaking, the accuracy,
correctness and due execution of which were
admitted by petitioners. Oral evidence certainly
cannot prevail over the written agreements of the
parties. The courts need only rely on the faces of the
written contracts to determine their true intention on
the principle that when the parties have reduced their
agreements in writing, it is presumed that they have
made the writings the only repositories and
memorials of their true agreement.
The second issue deals with a question of fact. We
have ruled often enough that it is not the function of
this Court to analyze and weigh the evidence all over
again, its jurisdiction being limited to reviewing errors
of law that might have been committed by the lower
court.12 At any rate, while we are not a trier of facts,
hence, not required as a rule to look into the factual
bases of the assailed decision of the Court of Appeals,
we did so just the same in this case if only to satisfy
petitioners that we have carefully studied and
evaluated the case, all too mindful of the tenacity and
vigor with which the parties, through their respective
counsel, have pursued this case for nineteen (19)
years.
Petitioners contend that the parties already had a
verbal understanding wherein ASIA PACIFIC actually
agreed to consider petitioners' account closed and the
principal obligation fully paid in exchange for the
ownership of the two (2) bulldozer crawler tractors.
We are not persuaded. Again, other than the bare
allegations of petitioners, the records are bereft of
any evidence of the supposed agreement. As correctly
observed by the Court of Appeals, it is unbelievable
that the parties entirely neglected to write down such
an important agreement. Equally incredulous is the
fact that petitioner Cenen Dizon, a seasoned
businessman, readily consented to deliver the
bulldozers to respondent without a corresponding
receipt of acquittance. Indeed, even the testimony of
petitioner Cenen Dizon himself negates the supposed
verbal understanding between the parties -
Page 4 of 91
Q: You said and is it not a fact that you surrendered
the bulldozers to APCOR by virtue of the seizure
order?
A: There was no seizure order. Atty. Carag during that
time said if I surrender the two equipment, we might
finally close a deal if the equipment would come up to
the balance of the loan. So I voluntarily surrendered, I
pulled them from the job site and returned them to
APCOR x x x x
Q: You mentioned a certain Atty. Carag, who is he?
A: He was the former legal counsel of APCOR. They
were handling cases.1âwphi1 In fact, I talked with
Atty. Carag, we have a verbal agreement if I surrender
the equipment it might suffice to pay off the debt so I
did just that (underscoring ours).13
In other words, there was no binding and perfected
contract between petitioners and respondent
regarding the settlement of the obligation, but only a
conditional one, a mere conjecture in fact, depending
on whether the value of the tractors to be
surrendered would equal the balance of the loan plus
interests. And since the bulldozer crawler tractors
were sold at the foreclosure sale for only
₱180,000.00,14 which was not enough to cover the
unpaid balance of ₱267,637.50, petitioners are still
liable for the deficiency.
Barring therefore a showing that the findings
complained of are totally devoid of support in the
records, or that they are so glaringly erroneous as to
constitute serious abuse of discretion, we see no valid
reason to discard them. More so in this case where
the findings of both the trial court and the appellate
court coincide with each other on the matter.
With regard to the computation of petitioners'
liability, the records show that petitioners actually
paid to respondent a total sum of ₱130,000.00 in
addition to the ₱180,000.00 proceeds realized from
the sale of the bulldozer crawler tractors at public
auction. Deducting these amounts from the principal
obligation of ₱390,000.00 leaves a balance of
₱80,000.00, to which must be added ₱7,637.50
accrued interests and charges as of 20 March 1981, or
a total unpaid balance of ₱87,637.50 for which
petitioners are jointly and severally liable.
Furthermore, the unpaid balance should earn 14%
interest per annum as stipulated in the Promissory
Note, computed from 20 March 1981 until fully paid.
On the amount of attorney's fees which under
the Promissory Note is equivalent to 25% of the
principal obligation and interests due, it is not, strictly
speaking, the attorney's fees recoverable as between
the attorney and his client regulated by the Rules of
Court. Rather, the attorney's fees here are in the
nature of liquidated damages and the stipulation
therefor is aptly called a penal clause. It has been said
that so long as such stipulation does not contravene
the law, morals and public order, it is strictly binding
upon the obligor. It is the litigant, not the counsel,
who is the judgment creditor entitled to enforce the
judgment by execution.15
Nevertheless, it appears that petitioners' failure to
fully comply with their part of the bargain was not
motivated by ill will or malice, but due to financial
distress occasioned by legitimate business reverses.
Petitioners in fact paid a total of ₱130,000.00 in three
(3) installments, and even went to the extent of
voluntarily turning over to respondent their heavy
equipment consisting of two (2) bulldozer crawler
tractors, all in a bona fide effort to settle their
indebtedness in full. Article 1229 of the New Civil
Code specifically empowers the judge to equitably
reduce the civil penalty when the principal obligation
has been partly or irregularly complied with. Upon the
foregoing premise, we hold that the reduction of the
attorney's fees from 25% to 15% of the unpaid
principal plus interests is in order.
Finally, while we empathize with petitioners, we
cannot close our eyes to the overriding considerations
of the law on obligations and contracts which must be
upheld and honored at all times. Petitioners have
undoubtedly benefited from the transaction; they
cannot now be allowed to impugn its validity and
legality to escape the fulfillment of a valid and binding
obligation.
WHEREFORE, no reversible error having been
committed by the Court of Appeals, its assailed
Decision of 24 July 1996 and its Resolution of 21
March 1997 are AFFIRMED. Accordingly, petitioners
C.G. Construction Inc. and Cenen Dizon are ordered
Page 5 of 91
jointly and severally to pay respondent Asia Pacific
Finance Corporation, substituted by International
Corporate Bank (now known as Union Bank of the
Philippines), ₱87,637.50 representing the unpaid
balance on the Promissory Note, with interest at
fourteen percent (14%) per annum computed from 20
March 1981 until fully paid, and fifteen percent (15%)
of the principal obligation and interests due by way of
attorney's fees. Costs against petitioners.
SO ORDERED.
G.R. No. L-43682 March 31, 1938
In Re Liquidation of Mercantile Bank of China.
TAN TIONG TICK, claimant-appellant,
vs.
AMERICAN APOTHECARIES CO., ET AL., claimants-
appellees.
Cirilo Lim and Antonio Gonzalez for appellant.
Eusebio Orense and Carmelino G. Alvendia for
appellees Chinese Grocers Asso., et al.
Marcelo Nubla for appellees Ang Cheng Lian, et al.
IMPERIAL, J.:
In the proceedings for the liquidation of the
Mercantile Bank of China, the appellant presented a
written claim alleging: that when this bank ceased to
operate on September 19, 1931, his current account
in said bank showed a balance of P9,657.50 in his
favor; that on the same date his savings account in the
said bank also showed a balance in his favor of
P20,000 plus interest then due amounting to P194.78;
that on the other hand, he owed the bank in the
amount of P13,262.58, the amount of the trust
receipts which he signed because of his withdrawal
from the bank of certain merchandise consigned to
him without paying the drafts drawn upon him by the
remittors thereof; that the credits thus described
should be set off against each other according to law,
and on such set off being made it appeared that he
was still the creditor of the bank in the sum of
P16,589.70. And he asked that the court order the
Bank Commissioner to pay him the aforesaid balance
and that the same be declared as preferred credit.
The claim was referred to the commissioner
appointed by the court, who at the same time acted
as referee, and this officer recommended that the
balance claimed be paid without interest and as an
ordinary credit. The court approved the
recommendation and entered judgment in the
accordance therewith. The claimant took an appeal.
In his report the commissioner classified the claims
presented under the following six groups: "(First)
Current accounts, savings and fixed deposits. (Second)
Checks or drafts sold by the Mercantile Bank of China
and not paid by the correspondents or banks against
which they were drawn. (Third) Checks or drafts
issued by the Mercantile Bank of China in payment or
reimbursement of drafts or goods sent to it for
collection by banks and foreign commercial houses
against merchants or commercial entities of Manila.
(Fourth) Drafts for collection received by the
Mercantile Bank of China to be collected from
merchants and commercial entities in Manila and
which were pending collection on the date of the
suspension of payments. (Fifth) Claims of depositors
who are at the same time debtor of the Mercantile
Bank of China.(Sixth Various claims." And referring to
the claims of the appellant, he states:
Mr. Tan Tiong Tick claims from the Mercantile Bank of
China the amount of P 27,597.80, the total amount of
the following sums which he has in his favor in said
bank including the corresponding interest:
Balance on the current account . . . . . . . .
P7,390.11
...
Balance of savings account No. 2266 . . .
20,000.00
..
Total . . . . . . . . . . . . . . . . . . 27,390.11
Adding to this total the interest also claimed by Mr.
Tan Tiong Tick, that is, P194.78 on the saving account
and P12.91 on the current account, the amount
claimed makes a total of P27,597.80.
Notwithstanding the fact that the Bank Commissioner
found the claim in accordance with the books of the
Mercantile Bank of China, he declined to issue the
corresponding certificate of proof of claim because
the said claimant has pending in the said bank
Page 6 of 91
obligations for accepting draft amounting to a total of
$6 631.29.
At the hearing of this claim, the claimant admitted
such pending obligations, alleging at the same time
that to guarantee the payment of drafts accepted by
him, he pledged his bank book No. 2266, which also
answered for the payment of any credit which the
said bank may extend to him.
In Exhibit A presented by the claimant as evidence,
consisting of a letter dated November 4, 1931
addressed by Mr. H. J. Belden to the then Bank
Commissioner, Mr. Leo. H. Martin it appears that the
said savings account was constituted for the sole
purpose of securing the payment of drafts against the
claimants, the bill of lading of where delivered to him
upon trust-receipts and that according to the records
of that bank Mr. Tan Tiong Tick did not obtain any
other accomodation from the bank except the trust-
receipts.
RECOMMENDATION
Having established the existence of such deposits in
the name of the bank alleged by the Bank
Commissioner, for the securities of which he
constituted the savings deposit in the amount of
P20,000, it is recommended that from this amount
there be deducted the amount of the obligation of
P13,778.90 which the claimant acknowledge in favor
of the Mercantile Bank of China, and that the
difference, plus the other current account deposit of
P7,390.11, be considered as ordinary credits subject
to the equal division of the funds of the said bank.
As to the interest on said deposits also claimed by Mr.
Tan Tiong Tick, the rejection thereof is recommended
in view of the fact that the Bank Commissioner has
not credited any interest to the current and savings
account of the Merchantile Bank of China, and would
be unfair that interest, not credited to the others, be
allowed to this claimant.
It will be noted that in the report of the commissioner
the credit of the claimant for the balance of his
deposit on current account has been reduced to
P7,390.11, instead of P9,657.50 alleged in his claim,
the total balance recommended in favor of the
appellant being P13,611.21, without including
interest, instead of P16,589.70. In his brief the
appellant admits the figures appearing in the report,
with the exception of the interest on which we shall
presently dwell.
1. Resolving the claims under the first group the
recommendation of this official to the effect that they
declared ordinary credits only, and approved them as
preferred credits. However, in considering the other
claims among them that of that of the appellant,
classified under the fifth group, the court approved
the recommendation of the commissioner that they
be declared ordinary credits; in otherwords, the court
considered and declared the claim of the appellant as
an ordinary credit just because the latter is at the
same time a debtor of the bank, notwithstanding the
fact that his claim is of the same kind as those
classified under the first group, inasmuch as they are
also current account and savings deposits. To this part
of the decision is addressed the appellant's first
assignment of error.
In truth if the current account, savings, and fixed
deposits are preferred credits for the reason states by
the court in its decision, we see no reason why the
preference should disappear when the depositors are
at the same time debtors of the bank less than their
credits. If the ground to declare them preferred
credits is sound, the balances resulting after the set
should likewise be preferred, unless there be a law
providing that a set off, when it take place, produces
such an effect, a law which does not exist as far as we
know.
But we are of the opinion, for the reason presently to
be stated, that current account and savings deposits
are not preferred credits in the cases, like the present,
involving the insolvency and liquidation of a bank,
where there are various creditors and it becomes
necessary to ascertain the preference of various
credits.
The court held that these deposits should be
governed by the Civil Code, and applying articles 1758
and 1868 of the said Code, ruled that the so-called
irregular deposits being still in vogue, as Manresa, the
commentator, maintain and as held by this court in
the case Rogers vs. Smith, Bell & Co. (10 Phil., 319),
Page 7 of 91
the former are preferred credits because partaking of
the nature of the irregular deposits.
In our opinion, these deposits are essentially
merchantile contracts and should, therefore, be
governed by the provisions of the Code of Commerce,
pursuant to its article 2 reading:
ART. 2 Commercial transactions, be they performed
by merchants or not, whether they are specified in
this Code or not, shall be governed by the provisions
contained in the same; in the absence of such
provisions, by the commercial customs generally
observed in each place; and in the absence of such
provisions, by the commercial customs generally
observed in each place; and in the absence of both, by
those of the common law.
Commercial transactions shall be considered those
enumerated in this Code and any others of a similar
character.
There is cited in support of the application of the Civil
Code to these deposits article 310 of the Code of
Commerce providing:
ART. 310. Notwithstanding the provisions of the
foregoing articles, deposits made banks, with general
warehouse, with loan or any other associations, shall
be governed in the place by the by-laws of the same in
the second by the provisions of this Code, and finally
by the rules of common law, which are applicable to
all deposits.
But apparently there was a failure to consider that,
according to the order established by the article, the
Civil Code or the common law is mentioned after
Code of Commerce, which means that the provisions
of the latter Code should first be applied before
resorting to those of the Civil Code which are
supplementary in character.
The Code of Commerce contains express provisions
regulating deposits of the nature under consideration,
and they are articles 303 to 310. The first and the
second to the last of the said articles are as follows:
ART. 303. In order that a deposit may be considered
commercial, it is necessary —
1. That the depositary, at least, be a merchant.
2. That the things deposited be commercial objects.
3. That the deposit constitute in itself a commercial
transaction, or be made by reason or as a
consequently of commercial transaction.
ART. 309. Whatever, with the consent of the
depositor, the depositary disposes of the articles on
deposit either for himself or for his business, or for
transactions intrusted to him by the former, the rights
and obligations of the depositary and of the depositor
shall cease, and the rules and provisions applicable to
the commercial loans, commissions, or contract which
took the place of the deposit shall be observed.
In accordance with article 309, the so-called current
account and savings deposits have lost the character
of deposits properly so-called, and are converted into
simple commercial loans, because the bank disposed
of the funds deposited by the claimant for its ordinary
transactions and for the banking business in which it
was engaged. That the bank had the authority of the
claimant to make use of the money deposited on
current and savings account is deducible from the fact
that the bank has been paying interest on both
deposits, and the claimant himself asks that he be
allowed interest up to the time when the bank ceased
its operations. Moreover, according to section 125 of
the Corporation Law and 9 of Act No. 3154, said bank
is authorized to make use of the current account,
savings, and fixed deposits provided it retains in its
treasury a certain percentage of the amounts of said
deposits. Said sections read:
SEC. 125. Every such commercial banking corporation
shall at all times have on hand in lawful money of the
Philippines Islands or of the United States, an amount
equal to at least eighteen per centum of the
aggregate amount of its deposits in current which are
payable on demand and of its fixed deposits coming
due within thirty days. Such commercial banking
corporations shall also at all times maintain equal in
amount to at least five per centum of its total savings
deposits. The said reserve may be maintained in the
form of lawful money of the Philippines Islands of the
United States, or in bonds issued or guaranteed by the
Government of the Philippines Islands or to the
United States. . . .
Page 8 of 91
The percentage of reserve to deposits in the case of
the Philippine National Bank and Bank of the
Philippine Islands is hereby fixed at eighteen per
centum of demand deposits and fixed deposits
payable within thirty days and five per centum of
savings deposits, in the same manner as is prescribed
in this section for commercial banking corporations in
general, which reserve against savings deposit may
consists of Philippine Government of United States
Government Bonds.
SEC. 9. Every bank organized under this Act shall at all
times have on hand, in lawful money of the Philippine
Islands of the United States, an amount equal to at
least twenty per centum of the aggregate amount of
its deposits. The Treasury certificates authorized by
Act Numbered Three thousand and fifty-eight, and the
term lawful money of the United States shall include
gold and silver certificates of the United States and
bank notes issued by the Federal Reserve Bank.
Therefore, the bank, without the necessity of the
claimant consent, was by law authorized to dispose of
the deposits, subject to the limitations indicated.
We, therefore, conclude that the law applicable to the
appellant's claim is the Code of Commerce and that
his current and savings account have converted into
simple commercial loans.
2. The next point to decide is the applicable law, if
any, to determine the preference of the appellant's
credits, considering that there happens to be other
creditors. Section V of Title I Book IV of the Code of
Commerce contains provisions relative to the rights of
creditors in case of bankruptcy and their respective
gradations, but these provisions have been repealed
by section 524 of the Code of Civil Procedure reading
as follows:
SEC. 524. No new proceedings to be instituted. — No
new bankrupt proceedings shall be instituted until a
new bankruptcy law shall come into force in the
Islands. All existing laws and other relating to
bankruptcy and proceedings therein are hereby
repealed: Provided, That nothing in this section shall
be deemed in any manner to affect pending litigation
in bankruptcy proceedings.
The Philippine Legislature subsequently enacted Act
No. 1956, also known as the Insolvency Law, which
took effect on May 20, 1909, containing provisions
regarding preference of credits; but its section 52
provides that all the provisions of the law shall not
apply to corporations engaged principally in the
banking business, and among them should be
understood included the Merchantile Bank of China.
Said section provide:
SEC. 48. Merchantile, effect, and any other kind of
property found among the property of the insolvent,
the ownership of which has not been conveyed to him
by a legal and irrevocable title, shall be considered to
be the property of other persons shall be placed at
the disposal of its lawful owners on order of the court
made at the hearing in section forty-three or at any
ordinary hearing, if the assignee or any creditor whose
right in the estate of the insolvent has been
established shall petition in writing for such hearing
and the court in its discretion shall so order, the
creditors, however, retaining such rights in said
property as belong to the insolvent, and subrogating
him whenever they shall have with all obligations
concerning said property.
The following shall be included in this section:
1. Drowy property inestimado and such
property estimado which may remain in the
possession of the husband where the receipt thereof
is matter of record in a public instrument registered
under the provisions of section twenty-one and
twenty-seven of the Code of Commerce in force.
2. Paraphernal property which the wife may have
acquired by inheritance, legacy, or donation whether
remaining in the form in which it was received or
subrogated or invested in other property, provided
that such investment or subrogation has been
registered in the registro mercantile in accordance
with the provisions of the sections of the Code of
Commerce mentioned in the next preceding
paragraph.
3. Property and effects deposited with the bankrupt,
or administered, least, rented, or held in usufruct by
him.
Page 9 of 91
4. Merchandise in the possession of the bankrupt, on
commission, for purchase, sale, forwarding, or
delivery.
5. Bills of exchange or promissory notes without
indorsement or other expression transferring
ownership remitted to the insolvent for collection and
all other acquired by him for the account of another
person, drawn or indorsed to the remitter direct.
6. Money remitted to the insolvent, otherwise than on
current account, and which is in his possession for
delivery to a definite person in the name and for the
account of the remitter or for the settlement of claims
which are to be met at the insolvent domicile.
7. Amounts due the insolvent for sales of merchandise
on commission, and bills of exchange and promissory
notes delivered therefrom in his possession, even
when the same are not made payable to the owner of
the merchandise sold, provided it is proven that the
obligation to the insolvent is derived therefrom and
that said bills of exchange and promissory notes were
in the possession of the insolvent for account of the
owner of the merchandise to be cashed and remitted,
in due time, to the said owners; all of which shall be a
legal presumption when the amount involved in any
such shall not been credited on the book of both the
owner of the merchantile and of the insolvent.
8. Merchandise bought on credit by the insolvent so
long as the actual thereof has not been made to him
at his store at any other place stipulated for such
delivery, and merchandise the bills of lading or
shipping receipts of which have been sent him after
the same has been loaded by order of the purchaser
and for his account and risk.
In all cases arising under this paragraph assignees may
retain the merchandise so purchased or claim it for
the creditors by paying the price thereof to the
vendor.
9. Goods or chattels wrongfully taken, converted, or
withheld by the insolvent if still existing in his
possession or the amount of the value thereof.
SEC. 49. All creditors, except those whose debts are
duly proved and allowed shall be entitled to share in
the property and estate pro rata, after the property
belonging to other persons referred to in the last
preceding section has been deducted therefrom,
without priority or preference whatever: Provided,
That any debt proved by any person liable as bail,
surety, guarantor, or otherwise, for the debtor, shall
not be paid to the person so providing the same until
satisfactory evidence shall be produced of the
payment of such debt by such person so liable, and
the share to which such debt would be entitled may
be paid into court, or otherwise held, for the benefit
of the party entitled thereto, as the court may direct.
SEC. 50. The following are preferred claims which shall
be paid in the order named:
(a) Necessary funeral expenses of the debtor, or of his
wife, or children who are under their parental
authority and have no property of their own, when
approved by the court;
(b) Debts due for personal services rendered the
insolvent by employees, laborers, or domestic
servants immediately preceding the commencement
of proceedings in insolvency;
(c) Compensation due the laborers or their
dependents under the provisions of Act Numbered
Thirty-four hundred and twenty-eight, known as the
Workmen's Compensation Act, as amended by Act
Numbered Thirty-eight hundred and twelve, and
under the provisions of Act Numbered Eighteen
hundred and seventy-four known as the Employers'
Liability Act, and of the other laws providing for
payment of indemnity for damages in cases of labor
accidents;
(d) Legal expenses, and expenses incurred in the
administration of the insolvent estate for the common
interest of the creditors, when properly authorized
and approved by the court;
(e) Debts, taxes and assessments due the Insular
Government;
(f ) Debts, taxes and assessments due to any province
of provinces of the Philippines Islands;
(g) Debts, taxes and assessment due to any
municipality or municipalities of the Philippine Islands;
Page 10 of 91
All other creditors shall be paid pro rata. (As amended
by Act No. 3962.)
ART. 52 . . . The provisions of this Act shall not apply
to corporations engaged principally in the banking
business, or to any other corporation as to which
there is any special provisions of law for its liquidation
in case of insolvency.
It appears that even after the enactment of the
Insolvency Law there was no law in this jurisdiction
governing the order or preference of credits in case of
insolvency and liquidation of a bank. But the
Philippine Legislature subsequently enacted Act No.
3519, amended various sections of the Revised
Administrative Code, which took effect on February
20, 1929, and section 1641 of this latter Code. as
amended by said Act provides:
SEC. 1641. Distribution of assets. — In the case of the
liquidation of a bank or banking institution, after
payment of the costs of the proceeding, including
reasonable expenses, commissions and fees of the
Bank Commissioner, to be allowed by the court, the
Bank Commissioner shall pay the debts of the
institution, under of the court in the order of their
legal priority.
From this section 1641 we deduce that the intention
of the Philippine Legislature, in providing that the
Bank Commissioner shall pay the debts of the
company by virtue of an order of the court in the
order of their priority, was to enforce the provisions
of section 48, 49 and 50 of the Insolvency Law in the
sense that they are made applicable to cases of
insolvency or bankruptcy and liquidation of banks. No
other deduction can be made from the phrase "in the
order of their legal priority" employed by the law, for
there being no law establishing any priority in the
order of payment of credits, the legislature could not
reasonably refer to any legislation upon the subject,
unless the interpretation above stated is accepted.
Examining now the claims of the appellant, it appears
that none of them falls under any of the cases
specified by section 48, 49 and 50 of the Insolvency
Law; wherefore, we conclude that the appellant's
claims, consisting of his current and savings account,
are not preferred credits.
3. The commissioner set off the claims of the
appellant against what the bank had against him. The
court approved this set off over the objection of the
appellant. The appellees contend that the set off does
not lie in this case because otherwise it would
prejudice them and the other creditors in the
liquidation. We hold that the court's ruling is not
error. "It may be stated as a general rule that when a
depositor is indebted to a bank, and the debts are
mutual — that is, between the same parties and in the
same right — the bank may apply the deposit, or such
portion thereof as may be necessary, to the payment
of the debt due it by the depositor, provided there is
no express agreement to the contrary and the deposit
is not specially applicable to some other particular
purposes." (7 Am. Jur., par. 629, p.455; United States
vs. Butterworth-Judson Corp., 267 U.S., 387; National
Bank vs. Morgan, 207 Ala.., 65; Bank of Guntersville
vs. Crayter, 199 Ala., 699; Tatum vs. Commercial Bank
& T. Co., 193 Ala., 120; Desha Bank & T. Co. vs.
Quilling, 118 Ark., 114; Holloway vs. First Nat. Bank,
45 Idaho, 746; Wyman vs. Ft. Dearborn Nat Bank, 181
Ill., 279; Niblack vs. Park Nat. Bank, 169 Ill., 517; First
Nat Bank vs. Stapf., 165 Ind., 162; Bedford Bank vs.
Acoam, 125 Ind., 584.) The situation referred to by the
appellees is inevitable because section 1639 of the
Revised Administrative Code, as amended by Act No.
3519, provides that the Bank Commissioner shall
reduce the assets of the bank into cash and this
cannot be done without first liquidating individually
the accounts of the debtors of said bank, and in
making this individual liquidation the debtors are
entitled to set off, by way of compensation, their
claims against the bank.
4. The court held that the appellant is not entitled to
charge interest on the amounts of his claims, and this
is the object of the second assignment of error. Upon
this point a distinction must be made between the
interest which the deposits should ear from their
existence until the bank ceased to operate, and that
which they may earn from the time the bank's
operations were stopped until the date of payment of
the deposits. As to the first class, we hold that it
should be paid because such interest has been earned
in the ordinary course of the bank's business and
before the latter has been declared in a state or
liquidation. Moreover, the bank being authorized by
Page 11 of 91
law to make us of the deposits, with the limitation
stated, to invest the same in its business and other
operations, it may be presumed that it bound itself to
pay interest to the depositors as in fact it paid interest
prior to the date of the said claims. As to the interest
which may be charged from the date the bank ceased
to do business because it was declared in a state of
liquidation, we hold that the said interest should not
be paid. Under articles 1101 and 1108 of the Civil
Code, interest is allowed by way of indemnity for
damages suffered, in the cases wherein the obligation
consists in the payment of money. In view of this, we
hold that in the absence of any express law or any
applicable provision of the Code of Commerce, it is
not proper to pay this last kind of interest to the
appellant upon his deposits in the bank, for this would
be anomalous and unjustified in a liquidation or
insolvency of a bank. This rule should be strictly
observed in the instant case because it is understood
that the assets should be prorated among all the
creditors as they are insufficient to pay all the
obligations of the bank.
5. The last assignment of error has to do with the
denial by the court of the claimant's motion for new
trial. No new arguments have been made in its
support and it appears that the assigned error was
inserted as a mere corollary of the preceding ones.
In view of all the foregoing considerations, we affirm
the part of the appealed decision for the reasons
stated herein, and it is ordered that the net claim of
the appellant, amounting to P13,611.21, is an ordinary
and not a preferred credit, and that he is entitled to
charge interest on said amount up to September 19,
1931, without special pronouncement up to
September 19, 1931, without special pronouncement
as to the costs. So ordered.
FIRST DIVISION
[G.R. No. 138569. September 11, 2003.]
THE CONSOLIDATED BANK and TRUST
CORPORATION, Petitioner, v. COURT OF APPEALS
and L.C. DIAZ and COMPANY, CPA’s, Respondents.
Before us is a petition for review of the Decision 1 of
the Court of Appeals dated 27 October 1998 and its
Resolution dated 11 May 1999. The assailed decision
reversed the Decision 2 of the Regional Trial Court of
Manila, Branch 8, absolving petitioner Consolidated.
Bank and Trust Corporation, now known as Solidbank
Corporation ("Solidbank"), of any liability. The
questioned resolution of the appellate court denied
the motion for reconsideration of Solidbank but
modified the decision by deleting the award of
exemplary damages, attorney’s fees, expenses of
litigation and cost of suit.chanrob1es virtua1 1aw
1ibrary
The Facts
Solidbank is a domestic banking corporation organized
and existing under Philippine laws. Private respondent
L.C. Diaz and Company, CPA’s ("L.C. Diaz"), is a
professional partnership engaged in the practice of
accounting.
Sometime in March 1976, L.C. Diaz opened a savings
account with Solidbank, designated as Savings
Account No. S/A 200-16872-6.
On 14 August 1991, L.C. Diaz through its cashier,
Mercedes Macaraya ("Macaraya"), filled up a savings
(cash) deposit slip for P990 and a savings (checks)
deposit slip for P50. Macaraya instructed the
messenger of L.C. Diaz, Ismael Calapre ("Calapre"), to
deposit the money with Solidbank. Macaraya also
gave Calapre the Solidbank passbook.
Calapre went to Solidbank and presented to Teller No.
6 the two deposit slips and the passbook. The teller
acknowledged receipt of the deposit by returning to
Calapre the duplicate copies of the two deposit slips.
Teller No. 6 stamped the deposit slips with the words
"DUPLICATE" and "SAVING TELLER 6 SOLIDBANK HEAD
OFFICE." Since the transaction took time and Calapre
had to make another deposit for L.C. Diaz with Allied
Bank, he left the passbook with Solidbank. Calapre
then went to Allied Bank. When Calapre returned to
Solidbank to retrieve the passbook, Teller No. 6
informed him that "somebody got the passbook. 3
Calapre went back to L.C. Diaz and reported the
incident to Macaraya.
Macaraya immediately prepared a deposit slip in
duplicate copies with a check of P200,000. Macaraya,
Page 12 of 91
together with Calapre, went to Solidbank and
presented to Teller No. 6 the deposit slip and check.
The teller stamped the words "DUPLICATE" and
"SAVING TELLER 6 SOLIDBANK HEAD OFFICE" on the
duplicate copy of the deposit slip. When Macaraya
asked for the passbook, Teller No. 6 told Macaraya
that someone got the passbook but she could not
remember to whom she gave the passbook. When
Macaraya asked Teller No. 6 if Calapre got the
passbook, Teller No. 6 answered that someone
shorter than Calapre got the passbook. Calapre was
then standing beside Macaraya.
Teller No. 6 handed to Macaraya a deposit slip dated
14 August 1991 for the deposit of a check for P90,000
drawn on Philippine Banking Corporation ("PBC"). This
PBC check of L.C. Diaz was a check that it had "long
closed." 4 PBC subsequently dishonored the check
because of insufficient funds and because the
signature in the check differed from PBC’s specimen
signature. Failing to get back the passbook, Macaraya
went back to her office and reported the matter to
the Personnel Manager of L.C. Diaz, Emmanuel
Alvarez.
The following day, 15 August 1991, L.C. Diaz through
its Chief Executive Officer, Luis C. Diaz ("Diaz"), called
up Solidbank to stop any transaction using the same
passbook until L.C. Diaz could open a new account. 5
On the same day, Diaz formally wrote Solidbank to
make the same request. It was also on the same day
that L.C. Diaz learned of the unauthorized withdrawal
the day before, 14 August 1991, of P300,000 from its
savings account. The withdrawal slip for the P300,000
bore the signatures of the authorized signatories of
L.C. Diaz, namely Diaz and Rustico L. Murillo. The
signatories, however, denied signing the withdrawal
slip. A certain Noel Tamayo received the
P300,000.cralaw : red
In an Information 6 dated 5 September 1991, L.C. Diaz
charged its messenger, Emerano Ilagan ("Ilagan") and
one Roscon Verdazola with Estafa through
Falsification of Commercial Document. The Regional
Trial Court of Manila dismissed the criminal case after
the City Prosecutor filed a Motion to Dismiss on 4
August 1992.
On 24 August 1992, L.C. Diaz through its counsel
demanded from Solidbank the return of its money.
Solidbank refused.
On 25 August 1992, L.C. Diaz filed a Complaint 7 for
Recovery of a Sum of Money against Solidbank with
the Regional Trial Court of Manila, Branch 8. After
trial, the trial court rendered on 28 December 1994 a
decision absolving Solidbank and dismissing the
complaint.
L.C. Diaz then appealed 8 to the Court of Appeals. On
27 October 1998, the Court of Appeals issued its
Decision reversing the decision of the trial court.
On 11 May 1999, the Court of Appeals issued its
Resolution denying the motion for reconsideration of
Solidbank. The appellate court, however, modified its
decision by deleting the award of exemplary damages
and attorney’s fees.
The Ruling of the Trial Court
In absolving Solidbank, the trial court applied the rules
on savings account written on the passbook. The rules
state that "possession of this book shall raise the
presumption of ownership and any payment or
payments made by the bank upon the production of
the said book and entry therein of the withdrawal
shall have the same effect as if made to the depositor
personally." 9
At the time of the withdrawal, a certain Noel Tamayo
was not only in possession of the passbook, he also
presented a withdrawal slip with the signatures of the
authorized signatories of L.C. Diaz. The specimen
signatures of these persons were in the signature
cards. The teller stamped the withdrawal slip with the
words "Saving Teller No. 5." The teller then passed on
the withdrawal slip to Genere Manuel ("Manuel") for
authentication. Manuel verified the signatures on the
withdrawal slip. The withdrawal slip was then given to
another officer who compared the signatures on the
withdrawal slip with the specimen on the signature
cards. The trial court concluded that Solidbank acted
with care and observed the rules on savings account
when it allowed the withdrawal of P300,000 from the
savings account of L.C. Diaz.
Page 13 of 91
The trial court pointed out that the burden of proof
now shifted to L.C. Diaz to prove that the signatures
on the withdrawal slip were forged. The trial court
admonished L.C. Diaz for not offering in evidence the
National Bureau of Investigation ("NBI") report on the
authenticity of the signatures on the withdrawal slip
for P300,000. The trial court believed that L.C. Diaz did
not offer this evidence because it is derogatory to its
action.
Another provision of the rules on savings account
states that the depositor must keep the passbook
"under lock and key." 10 When another person
presents the passbook for withdrawal prior to
Solidbank’s receipt of the notice of loss of the
passbook, that person is considered as the owner of
the passbook. The trial court ruled that the passbook
presented during the questioned transaction was
"now out of the lock and key and presumptively ready
for a business transaction." 11
Solidbank did not have any participation in the
custody and care of the passbook. The trial court
believed that Solidbank’s act of allowing the
withdrawal of P300,000 was not the direct and
proximate cause of the loss. The trial court held that
L.C. Diaz’s negligence caused the unauthorized
withdrawal. Three facts establish L.C. Diaz’s
negligence: (1) the possession of the passbook by a
person other than the depositor L.C. Diaz; (2) the
presentation of a signed withdrawal receipt by an
unauthorized person; and (3) the possession by an
unauthorized person of a PBC check "long closed" by
L.C. Diaz, which check was deposited on the day of the
fraudulent withdrawal.
The trial court debunked L.C. Diaz’s contention that
Solidbank did not follow the precautionary
procedures observed by the two parties whenever
L.C. Diaz withdrew significant amounts from its
account. L.C. Diaz claimed that a letter must
accompany withdrawals of more than P20,000. The
letter must request Solidbank to allow the withdrawal
and convert the amount to a manager’s check. The
bearer must also have a letter authorizing him to
withdraw the same amount. Another person driving a
car must accompany the bearer so that he would not
walk from Solidbank to the office in making the
withdrawal. The trial court pointed out that L.C. Diaz
disregarded these precautions in its past withdrawal.
On 16 July 1991, L.C. Diaz withdrew P82,554 without
any separate letter of authorization or any
communication with Solidbank that the money be
converted into a manager’s check.
The trial court further justified the dismissal of the
complaint by holding that the case was a last ditch
effort of L.C. Diaz to recover P300,000 after the
dismissal of the criminal case against Ilagan.
The dispositive portion of the decision of the trial
court reads:chanrob1es virtual 1aw library
IN VIEW OF THE FOREGOING, judgment is hereby
rendered DISMISSING the complaint.
The Court further renders judgment in favor of
defendant bank pursuant to its counterclaim the
amount of Thirty Thousand Pesos (P30,000.00) as
attorney’s fees.
With costs against plaintiff.
SO ORDERED. 12
The Ruling of the Court of Appeals
The Court of Appeals ruled that Solidbank’s
negligence was the proximate cause of the
unauthorized withdrawal of P300,000 from the
savings account of L.C. Diaz. The appellate court
reached this conclusion after applying the provision of
the Civil Code on quasi-delict, to wit:chanrob1es
virtual 1aw library
Article 2176. Whoever by act or omission causes
damage to another, there being fault or negligence, is
obliged to pay for the damage done. Such fault or
negligence, if there is no pre-existing contractual
relation between the parties, is called a quasi-delict
and is governed by the provisions of this chapter.
The appellate court held that the three elements of a
quasi-delict are present in this case, namely: (a)
damages suffered by the plaintiff; (b) fault or
Page 14 of 91
negligence of the defendant, or some other person for
whose acts he must respond; and (c) the connection
of cause and effect between the fault or negligence of
the defendant and the damage incurred by the
plaintiff.
The Court of Appeals pointed out that the teller of
Solidbank who received the withdrawal slip for
P300,000 allowed the withdrawal without making the
necessary inquiry. The appellate court stated that the
teller, who was not presented by Solidbank during
trial, should have called up the depositor because the
money to be withdrawn was a significant amount. Had
the teller called up L.C. Diaz, Solidbank would have
known that the withdrawal was unauthorized. The
teller did not even verify the identity of the impostor
who made the withdrawal. Thus, the appellate court
found Solidbank liable for its negligence in the
selection and supervision of its employees.
The appellate court ruled that while L.C. Diaz was also
negligent in entrusting its deposits to its messenger
and its messenger in leaving the passbook with the
teller, Solidbank could not escape liability because of
the doctrine of "last clear chance." Solidbank could
have averted the injury suffered by L.C. Diaz had it
called up L.C. Diaz to verify the withdrawal.
The appellate court ruled that the degree of diligence
required from Solidbank is more than that of a good
father of a family. The business and functions of banks
are affected with public interest. Banks are obligated
to treat the accounts of their depositors with
meticulous care, always having in mind the fiduciary
nature of their relationship with their clients. The
Court of Appeals found Solidbank remiss in its duty,
violating its fiduciary relationship with L.C. Diaz.
The dispositive portion of the decision of the Court of
Appeals reads:chanrob1es virtual 1aw library
WHEREFORE, premises considered, the decision
appealed from is hereby REVERSED and a new one
entered.
1. Ordering defendant-appellee Consolidated Bank
and Trust Corporation. to pay plaintiff-appellant the
sum of Three Hundred Thousand Pesos (P300,000.00),
with interest thereon at the rate of 12% per annum
from the date of filing of the complaint until paid, the
sum of P20,000.00 as exemplary damages, and
P20,000.00 as attorney’s fees and expenses of
litigation as well as the cost of suit; and
2. Ordering the dismissal of defendant-appellee’s
counterclaim in the amount of P30,000.00 as
attorney’s fees.
SO ORDERED. 13
Acting on the motion for reconsideration of Solidbank,
the appellate court affirmed its decision but modified
the award of damages. The appellate court deleted
the award of exemplary damages and attorney’s fees.
Invoking Article 2231 14 of the Civil Code, the
appellate court ruled that exemplary damages could
be granted if the defendant acted with gross
negligence. Since Solidbank was guilty of simple
negligence only, the award of exemplary damages was
not justified. Consequently, the award of attorney’s
fees was also disallowed pursuant to Article 2208 of
the Civil Code. The expenses of litigation and cost of
suit were also not imposed on Solidbank.
The dispositive portion of the Resolution reads as
follows:chanrob1es virtual 1aw library
WHEREFORE, foregoing considered, our decision
dated October 27, 1998 is affirmed with modification
by deleting the award of exemplary damages and
attorney’s fees, expenses of litigation and cost of
suit.chanrob1es virtua1 1aw 1ibrary
SO ORDERED. 15
Hence, this petition.
The Issues
Solidbank seeks the review of the decision and
resolution of the Court of Appeals on these
grounds:chanrob1es virtual 1aw library
I. THE COURT OF APPEALS ERRED IN HOLDING THAT
PETITIONER BANK SHOULD SUFFER THE LOSS
BECAUSE ITS TELLER SHOULD HAVE FIRST CALLED
Page 15 of 91
PRIVATE RESPONDENT BY TELEPHONE BEFORE IT
ALLOWED THE WITHDRAWAL OF P300,000.00 TO
RESPONDENT’S MESSENGER EMERANO ILAGAN,
SINCE THERE IS NO AGREEMENT BETWEEN THE
PARTIES IN THE OPERATION OF THE SAVINGS
ACCOUNT, NOR IS THERE ANY BANKING LAW, WHICH
MANDATES THAT A BANK TELLER SHOULD FIRST CALL
UP THE DEPOSITOR BEFORE ALLOWING A
WITHDRAWAL OF A BIG AMOUNT IN A SAVINGS
ACCOUNT.
II. THE COURT OF APPEALS ERRED IN APPLYING THE
DOCTRINE OF LAST CLEAR CHANCE AND IN HOLDING
THAT PETITIONER BANK’S TELLER HAD THE LAST
OPPORTUNITY TO WITHHOLD THE WITHDRAWAL
WHEN IT IS UNDISPUTED THAT THE TWO SIGNATURES
OF RESPONDENT ON THE WITHDRAWAL SLIP ARE
GENUINE AND PRIVATE RESPONDENT’S PASSBOOK
WAS DULY PRESENTED, AND CONTRARIWISE
RESPONDENT WAS NEGLIGENT IN THE SELECTION
AND SUPERVISION OF ITS MESSENGER EMERANO
ILAGAN, AND IN THE SAFEKEEPING OF ITS CHECKS
AND OTHER FINANCIAL DOCUMENTS.
III. THE COURT OF APPEALS ERRED IN NOT FINDING
THAT THE INSTANT CASE IS A LAST DITCH EFFORT OF
PRIVATE RESPONDENT TO RECOVER ITS P300,000.00
AFTER FAILING IN ITS EFFORTS TO RECOVER THE
SAME FROM ITS EMPLOYEE EMERANO ILAGAN.
IV. THE COURT OF APPEALS ERRED IN NOT
MITIGATING THE DAMAGES AWARDED AGAINST
PETITIONER UNDER ARTICLE 2197 OF THE CIVIL CODE,
NOTWITHSTANDING ITS FINDING THAT PETITIONER
BANK’S NEGLIGENCE WAS ONLY CONTRIBUTORY. 16
The Ruling of the Court
The petition is partly meritorious.
Solidbank’s Fiduciary Duty under the Law
The rulings of the trial court and the Court of Appeals
conflict on the application of the law. The trial court
pinned the liability on L.C. Diaz based on the
provisions of the rules on savings account, a
recognition of the contractual relationship between
Solidbank and L.C. Diaz, the latter being a depositor of
the former. On the other hand, the Court of Appeals
applied the law on quasi-delict to determine who
between the two parties was ultimately negligent. The
law on quasi-delict or culpa aquiliana is generally
applicable when there is no pre-existing contractual
relationship between the parties.
We hold that Solidbank is liable for breach of contract
due to negligence, or culpa contractual.
The contract between the bank and its depositor is
governed by the provisions of the Civil Code on simple
loan. 17 Article 1980 of the Civil Code expressly
provides that." . . savings . . . deposits of money in
banks and similar institutions shall be governed by the
provisions concerning simple loan." There is a debtor-
creditor relationship between the bank and its
depositor. The bank is the debtor and the depositor is
the creditor. The depositor lends the bank money and
the bank agrees to pay the depositor on demand. The
savings deposit agreement between the bank and the
depositor is the contract that determines the rights
and obligations of the parties.
The law imposes on banks high standards in view of
the fiduciary nature of banking. Section 2 of Republic
Act No. 8791 ("RA 8791"), 18 which took effect on 13
June 2000, declares that the State recognizes the
"fiduciary nature of banking that requires high
standards of integrity and performance." 19 This new
provision in the general banking law, introduced in
2000, is a statutory affirmation of Supreme Court
decisions, starting with the 1990 case of Simex
International v. Court of Appeals, 20 holding that "the
bank is under obligation to treat the accounts of its
depositors with meticulous care, always having in
mind the fiduciary nature of their relationship. 21
This fiduciary relationship means that the bank’s
obligation to observe "high standards of integrity and
performance" is deemed written into every deposit
agreement between a bank and its depositor. The
fiduciary nature of banking requires banks to assume
a degree of diligence higher than that of a good father
of a family. Article 1172 of the Civil Code states that
the degree of diligence required of an obligor is that
prescribed by law or contract, and absent such
stipulation then the diligence of a good father of a
Page 16 of 91
family. 22 Section 2 of RA 8791 prescribes the
statutory diligence required from banks — that banks
must observe "high standards of integrity and
performance" in servicing their depositors. Although
RA 8791 took effect almost nine years after the
unauthorized withdrawal of the P300,000 from L.C.
Diaz’s savings account, jurisprudence 23 at the time of
the withdrawal already imposed on banks the same
high standard of diligence required under RA No.
8791.
However, the fiduciary nature of a bank-depositor
relationship does not convert the contract between
the bank and its depositors from a simple loan to a
trust agreement, whether express or implied. Failure
by the bank to pay the depositor is failure to pay a
simple loan, and not a breach of trust. 24 The law
simply imposes on the bank a higher standard of
integrity and performance in complying with its
obligations under the contract of simple loan, beyond
those required of non-bank debtors under a similar
contract of simple loan.
The fiduciary nature of banking does not convert a
simple loan into a trust agreement because banks do
not accept deposits to enrich depositors but to earn
money for themselves. The law allows banks to offer
the lowest possible interest rate to depositors while
charging the highest possible interest rate on their
own borrowers. The interest spread or differential
belongs to the bank and not to the depositors who are
not cestui que trust of banks. If depositors are cestui
que trust of banks, then the interest spread or income
belongs to the depositors, a situation that Congress
certainly did not intend in enacting Section 2 of RA
8791.
Solidbank’s Breach of its Contractual Obligation
Article 1172 of the Civil Code provides that
"responsibility arising from negligence in the
performance of every kind of obligation is
demandable." For breach of the savings deposit
agreement due to negligence, or culpa contractual,
the bank is liable to its depositor.
Calapre left the passbook with Solidbank because the
"transaction took time" and he had to go to Allied
Bank for another transaction. The passbook was still in
the hands of the employees of Solidbank for the
processing of the deposit when Calapre left Solidbank.
Solidbank’s rules on savings account require that the
"deposit book should be carefully guarded by the
depositor and kept under lock and key, if possible."
When the passbook is in the possession of Solidbank’s
tellers during withdrawals, the law imposes on
Solidbank and its tellers an even higher degree of
diligence in safeguarding the passbook.
Likewise, Solidbank’s tellers must exercise a high
degree of diligence in insuring that they return the
passbook only to the depositor or his authorized
representative. The tellers know, or should know, that
the rules on savings account provide that any person
in possession of the passbook is presumptively its
owner. If the tellers give the passbook to the wrong
person, they would be clothing that person
presumptive ownership of the passbook, facilitating
unauthorized withdrawals by that person. For failing
to return the passbook to Calapre, the authorized
representative of L.C. Diaz, Solidbank and Teller No. 6
presumptively failed to observe such high degree of
diligence in safeguarding the passbook, and in insuring
its return to the party authorized to receive the same.
In culpa contractual, once the plaintiff proves a breach
of contract, there is a presumption that the defendant
was at fault or negligent. The burden is on the
defendant to prove that he was not at fault or
negligent. In contrast, in culpa aquiliana the plaintiff
has the burden of proving that the defendant was
negligent. In the present case, L.C. Diaz has
established that Solidbank breached its contractual
obligation to return the passbook only to the
authorized representative of L.C. Diaz. There is thus a
presumption that Solidbank was at fault and its teller
was negligent in not returning the passbook to
Calapre. The burden was on Solidbank to prove that
there was no negligence on its part or its employees.
Solidbank failed to discharge its burden. Solidbank did
not present to the trial court Teller No. 6, the teller
with whom Calapre left the passbook and who was
supposed to return the passbook to him. The record
does not indicate that Teller No. 6 verified the identity
of the person who retrieved the passbook. Solidbank
Page 17 of 91
also failed to adduce in evidence its standard
procedure in verifying the identity of the person
retrieving the passbook, if there is such a procedure,
and that Teller No. 6 implemented this procedure in
the present case.
Solidbank is bound by the negligence of its employees
under the principle of respondeat superior or
command responsibility. The defense of exercising the
required diligence in the selection and supervision of
employees is not a complete defense in culpa
contractual, unlike in culpa aquiliana.25cralaw:red
The bank must not only exercise "high standards of
integrity and performance," it must also insure that its
employees do likewise because this is the only way to
insure that the bank will comply with its fiduciary
duty. Solidbank failed to present the teller who had
the duty to return to Calapre the passbook, and thus
failed to prove that this teller exercised the "high
standards of integrity and performance" required of
Solidbank’s employees.chanrob1es virtua1 1aw
1ibrary
Proximate Cause of the Unauthorized Withdrawal
Another point of disagreement between the trial and
appellate courts is the proximate cause of the
unauthorized withdrawal. The trial court believed that
L.C. Diaz’s negligence in not securing its passbook
under lock and key was the proximate cause that
allowed the impostor to withdraw the P300,000. For
the appellate court, the proximate cause was the
teller’s negligence in processing the withdrawal
without first verifying with L.C. Diaz. We do not agree
with either court.
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. 26
Proximate cause is determined by the facts of each
case upon mixed considerations of logic, common
sense, policy and precedent. 27
L.C. Diaz was not at fault that the passbook landed in
the hands of the impostor. Solidbank was in
possession of the passbook while it was processing
the deposit. After completion of the transaction,
Solidbank had the contractual obligation to return the
passbook only to Calapre, the authorized
representative of L.C. Diaz. Solidbank failed to fulfill its
contractual obligation because it gave the passbook to
another person.
Solidbank’s failure to return the passbook to Calapre
made possible the withdrawal of the P300,000 by the
impostor who took possession of the passbook. Under
Solidbank’s rules on savings account, mere possession
of the passbook raises the presumption of ownership.
It was the negligent act of Solidbank’s Teller No. 6 that
gave the impostor presumptive ownership of the
passbook. Had the passbook not fallen into the hands
of the impostor, the loss of P300,000 would not have
happened. Thus, the proximate cause of the
unauthorized withdrawal was Solidbank’s negligence
in not returning the passbook to Calapre.
We do not subscribe to the appellate court’s theory
that the proximate cause of the unauthorized
withdrawal was the teller’s failure to call up L.C. Diaz
to verify the withdrawal. Solidbank did not have the
duty to call up L.C. Diaz to confirm the withdrawal.
There is no arrangement between Solidbank and L.C.
Diaz to this effect. Even the agreement between
Solidbank and L.C. Diaz pertaining to measures that
the parties must observe whenever withdrawals of
large amounts are made does not direct Solidbank to
call up L.C. Diaz.
There is no law mandating banks to call up their
clients whenever their representatives withdraw
significant amounts from their accounts. L.C. Diaz
therefore had the burden to prove that it is the usual
practice of Solidbank to call up its clients to verify a
withdrawal of a large amount of money. L.C. Diaz
failed to do so.
Teller No. 5 who processed the withdrawal could not
have been put on guard to verify the withdrawal. Prior
to the withdrawal of P300,000, the impostor
deposited with Teller No. 6 the P90,000 PBC check,
which later bounced. The impostor apparently
deposited a large amount of money to deflect
suspicion from the withdrawal of a much bigger
amount of money. The appellate court thus erred
Page 18 of 91
when it imposed on Solidbank the duty to call up L.C.
Diaz to confirm the withdrawal when no law requires
this from banks and when the teller had no reason to
be suspicious of the transaction.
Solidbank continues to foist the defense that Ilagan
made the withdrawal. Solidbank claims that since
Ilagan was also a messenger of L.C. Diaz, he was
familiar with its teller so that there was no more need
for the teller to verify the withdrawal. Solidbank relies
on the following statements in the Booking and
Information Sheet of Emerano Ilagan:chanrob1es
virtual 1aw library
. . . Ilagan also had with him (before the withdrawal) a
forged check of PBC and indicated the amount of
P90,000 which he deposited in favor of L.C. Diaz and
Company. After successfully withdrawing this large
sum of money, Accused Ilagan gave alias Rey (Noel
Tamayo) his share of the loot. Ilagan then hired a
taxicab in the amount of P1,000 to transport him
(Ilagan) to his home province at Bauan, Batangas.
Ilagan extravagantly and lavishly spent his money but
a big part of his loot was wasted in cockfight and
horse racing. Ilagan was apprehended and meekly
admitted his guilt. 28 (Emphasis supplied.)
L.C. Diaz refutes Solidbank’s contention by pointing
out that the person who withdrew the P300,000 was a
certain Noel Tamayo. Both the trial and appellate
courts stated that this Noel Tamayo presented the
passbook with the withdrawal slip.
We uphold the finding of the trial and appellate courts
that a certain Noel Tamayo withdrew the P300,000.
The Court is not a trier of facts. We find no justifiable
reason to reverse the factual finding of the trial court
and the Court of Appeals. The tellers who processed
the deposit of the P90,000 check and the withdrawal
of the P300,000 were not presented during trial to
substantiate Solidbank’s claim that Ilagan deposited
the check and made the questioned withdrawal.
Moreover, the entry quoted by Solidbank does not
categorically state that Ilagan presented the
withdrawal slip and the passbook.
Doctrine of Last Clear Chance
The doctrine of last clear chance states that where
both parties are negligent but the negligent act of one
is appreciably later than that of the other, or where it
is impossible to determine whose fault or negligence
caused the loss, the one who had the last clear
opportunity to avoid the loss but failed to do so, is
chargeable with the loss. 29 Stated differently, the
antecedent negligence of the plaintiff does not
preclude him from recovering damages caused by the
supervening negligence of the defendant, who had
the last fair chance to prevent the impending harm by
the exercise of due diligence. 30
We do not apply the doctrine of last clear chance to
the present case. Solidbank is liable for breach of
contract due to negligence in the performance of its
contractual obligation to L.C. Diaz. This is a case of
culpa contractual, where neither the contributory
negligence of the plaintiff nor his last clear chance to
avoid the loss, would exonerate the defendant from
liability. 31 Such contributory negligence or last clear
chance by the plaintiff merely serves to reduce the
recovery of damages by the plaintiff but does not
exculpate the defendant from his breach of contract.
32
Mitigated Damages
Under Article 1172, "liability (for culpa contractual)
may be regulated by the courts, according to the
circumstances." This means that if the defendant
exercised the proper diligence in the selection and
supervision of its employee, or if the plaintiff was
guilty of contributory negligence, then the courts may
reduce the award of damages. In this case, L.C. Diaz
was guilty of contributory negligence in allowing a
withdrawal slip signed by its authorized signatories to
fall into the hands of an impostor. Thus, the liability of
Solidbank should be reduced.
In Philippine Bank of Commerce v. Court of Appeals,
33 where the Court held the depositor guilty of
contributory negligence, we allocated the damages
between the depositor and the bank on a 40-60 ratio.
Applying the same ruling to this case, we hold that
L.C. Diaz must shoulder 40% of the actual damages
awarded by the appellate court. Solidbank must pay
he other 60% of the actual damages.
Page 19 of 91
WHEREFORE, the decision of the Court of Appeals is
AFFIRMED with MODIFICATION. Petitioner Solidbank
Corporation shall pay private respondent L.C. Diaz and
Company, CPA’s only 60% of the actual damages
awarded by the Court of Appeals. The remaining 40%
of the actual damages shall be borne by private
respondent L.C. Diaz and Company, CPA’s.
Proportionate costs.chanrob1es virtua1 1aw 1ibrary
SO ORDERED.
G.R. No. 102970 May 13, 1993
LUZAN SIA, petitioner,
vs.
COURT OF APPEALS and SECURITY BANK and TRUST
COMPANY, respondents.
Asuncion Law Offices for petitioner.
Cauton, Banares, Carpio & Associates for private
respondent.
DAVIDE, JR., J.:
The Decision of public respondent Court of Appeals in
CA-G.R. CV No. 26737, promulgated on 21 August
1991,1 reversing and setting aside the Decision, dated
19 February 1990, 2 of Branch 47 of the Regional Trial
Court (RTC) of Manila in Civil Case No. 87-42601,
entitled "LUZAN SIA vs. SECURITY BANK and TRUST
CO.," is challenged in this petition for review
on certiorari under Rule 45 of the Rules Court.
Civil Case No. 87-42601 is an action for damages
arising out of the destruction or loss of the stamp
collection of the plaintiff (petitioner herein) contained
in Safety Deposit Box No. 54 which had been rented
from the defendant pursuant to a contract
denominated as a Lease Agreement. 3 Judgment
therein was rendered in favor of the dispositive
portion of which reads:
WHEREFORE, premises considered, judgment is
hereby rendered in favor of the plaintiff and against
the defendant, Security Bank & Trust Company,
ordering the defendant bank to pay the plaintiff the
sum of —
a) Twenty Thousand Pesos (P20,000.00), Philippine
Currency, as actual damages;
b) One Hundred Thousand Pesos (P100,000.00),
Philippine Currency, as moral damages; and
c) Five Thousand Pesos (P5,000.00), Philippine
Currency, as attorney's fees and legal expenses.
The counterclaim set up by the defendant are hereby
dismissed for lack of merit.
No costs.
SO ORDERED.4
The antecedent facts of the present controversy are
summarized by the public respondent in its
challenged decision as follows:
The plaintiff rented on March 22, 1985 the Safety
Deposit Box No. 54 of the defendant bank at its
Binondo Branch located at the Fookien Times Building,
Soler St., Binondo, Manila wherein he placed his
collection of stamps. The said safety deposit box
leased by the plaintiff was at the bottom or at the
lowest level of the safety deposit boxes of the
defendant bank at its aforesaid Binondo Branch.
During the floods that took place in 1985 and 1986,
floodwater entered into the defendant bank's
premises, seeped into the safety deposit box leased
by the plaintiff and caused, according to the plaintiff,
damage to his stamps collection. The defendant bank
rejected the plaintiff's claim for compensation for his
damaged stamps collection, so, the plaintiff instituted
an action for damages against the defendant bank.
The defendant bank denied liability for the damaged
stamps collection of the plaintiff on the basis of the
"Rules and Regulations Governing the Lease of Safe
Deposit Boxes" (Exhs. "A-1", "1-A"), particularly
paragraphs 9 and 13, which reads (sic):
"9. The liability of the Bank by reason of the lease, is
limited to the exercise of the diligence to prevent the
opening of the safe by any person other than the
Renter, his authorized agent or legal representative;
xxx xxx xxx
"13. The Bank is not a depository of the contents of
the safe and it has neither the possession nor the
control of the same. The Bank has no interest
whatsoever in said contents, except as herein
provided, and it assumes absolutely no liability in
connection therewith."
The defendant bank also contended that its contract
with the plaintiff over safety deposit box No. 54 was
one of lease and not of deposit and, therefore,
governed by the lease agreement (Exhs. "A", "L")
Page 20 of 91
which should be the applicable law; that the
destruction of the plaintiff's stamps collection was
due to a calamity beyond obligation on its part to
notify the plaintiff about the floodwaters that
inundated its premises at Binondo branch which
allegedly seeped into the safety deposit box leased to
the plaintiff.
The trial court then directed that an ocular inspection
on (sic) the contents of the safety deposit box be
conducted, which was done on December 8, 1988 by
its clerk of court in the presence of the parties and
their counsels. A report thereon was then submitted
on December 12, 1988 (Records, p. 98-A) and
confirmed in open court by both parties thru counsel
during the hearing on the same date (Ibid., p. 102)
stating:
"That the Safety Box Deposit No. 54 was opened by
both plaintiff Luzan Sia and the Acting Branch
Manager Jimmy B. Ynion in the presence of the
undersigned, plaintiff's and defendant's counsel. Said
Safety Box when opened contains two albums of
different sizes and thickness, length and width and a
tin box with printed word 'Tai Ping Shiang Roast Pork
in pieces with Chinese designs and character."
Condition of the above-stated Items —
"Both albums are wet, moldy and badly damaged.
1. The first album measures 10 1/8 inches in length, 8
inches in width and 3/4 in thick. The leaves of the
album are attached to every page and cannot be lifted
without destroying it, hence the stamps contained
therein are no longer visible.
2. The second album measure 12 1/2 inches in length,
9 3/4 in width 1 inch thick. Some of its pages can still
be lifted. The stamps therein can still be distinguished
but beyond restoration. Others have lost its original
form.
3. The tin box is rusty inside. It contains an album with
several pieces of papers stuck up to the cover of the
box. The condition of the album is the second
abovementioned album."5
The SECURITY BANK AND TRUST COMPANY,
hereinafter referred to as SBTC, appealed the trial
court's decision to the public respondent Court of
Appeals. The appeal was docketed as CA-G.R. CV No.
26737.
In urging the public respondent to reverse the
decision of the trial court, SBTC contended that the
latter erred in (a) holding that the lease agreement is
a contract of adhesion; (b) finding that the defendant
had failed to exercise the required diligence expected
of a bank in maintaining the safety deposit box; (c)
awarding to the plaintiff actual damages in the
amount of P20,000.00, moral damages in the amount
of P100,000.00 and attorney's fees and legal expenses
in the amount of P5,000.00; and (d) dismissing the
counterclaim.
On 21 August 1991, the respondent promulgated its
decision the dispositive portion of which reads:
WHEREFORE, the decision appealed from is hereby
REVERSED and instead the appellee's complaint is
hereby DISMISSED. The appellant bank's counterclaim
is likewise DISMISSED. No costs.6
In reversing the trial court's decision and absolving
SBTC from liability, the public respondent found and
ruled that:
a) the fine print in the "Lease Agreement " (Exhibits
"A" and "1" ) constitutes the terms and conditions of
the contract of lease which the appellee (now
petitioner) had voluntarily and knowingly executed
with SBTC;
b) the contract entered into by the parties regarding
Safe Deposit Box No. 54 was not a contract of deposit
wherein the bank became a depositary of the subject
stamp collection; hence, as contended by SBTC, the
provisions of Book IV, Title XII of the Civil Code on
deposits do not apply;
c) The following provisions of the questioned lease
agreement of the safety deposit box limiting SBTC's
liability:
9. The liability of the bank by reason of the lease, is
limited to the exercise of the diligence to prevent the
opening of the Safe by any person other than the
Renter, his authorized agent or legal representative.
xxx xxx xxx
13. The bank is not a depository of the contents of the
Safe and it has neither the possession nor the control
of the same. The Bank has no interest whatsoever in
said contents, except as herein provided, and it
assumes absolutely no liability in connection
therewith.
are valid since said stipulations are not contrary to
law, morals, good customs, public order or public
policy; and
Page 21 of 91
d) there is no concrete evidence to show that SBTC
failed to exercise the required diligence in maintaining
the safety deposit box; what was proven was that the
floods of 1985 and 1986, which were beyond the
control of SBTC, caused the damage to the stamp
collection; said floods were fortuitous events which
SBTC should not be held liable for since it was not
shown to have participated in the aggravation of the
damage to the stamp collection; on the contrary, it
offered its services to secure the assistance of an
expert in order to save most of the stamps, but the
appellee refused; appellee must then bear the lose
under the principle of "res perit domino."
Unsuccessful in his bid to have the above decision
reconsidered by the public respondent, 7 petitioner
filed the instant petition wherein he contends that:
I
IT WAS A GRAVE ERROR OR AN ABUSE OF DISCRETION
ON THE PART OF THE RESPONDENT COURT WHEN IT
RULED THAT RESPONDENT SBTC DID NOT FAIL TO
EXERCISE THE REQUIRED DILIGENCE IN MAINTAINING
THE SAFETY DEPOSIT BOX OF THE PETITIONER
CONSIDERING THAT SUBSTANTIAL EVIDENCE EXIST
(sic) PROVING THE CONTRARY.
II
THE RESPONDENT COURT SERIOUSLY ERRED IN
EXCULPATING PRIVATE RESPONDENT FROM ANY
LIABILITY WHATSOEVER BY REASON OF THE
PROVISIONS OF PARAGRAPHS 9 AND 13 OF THE
AGREEMENT (EXHS. "A" AND "A-1").
III
THE RESPONDENT COURT SERIOUSLY ERRED IN NOT
UPHOLDING THE AWARDS OF THE TRIAL COURT FOR
ACTUAL AND MORAL DAMAGES, INCLUDING
ATTORNEY'S FEES AND LEGAL EXPENSES, IN FAVOR OF
THE PETITIONER.8
We subsequently gave due course the petition and
required both parties to submit their respective
memoranda, which they complied with.9
Petitioner insists that the trial court correctly ruled
that SBTC had failed "to exercise the required
diligence expected of a bank maintaining such safety
deposit box . . . in the light of the environmental
circumstance of said safety deposit box after the
floods of 1985 and 1986." He argues that such a
conclusion is supported by the evidence on record, to
wit: SBTC was fully cognizant of the exact location of
the safety deposit box in question; it knew that the
premises were inundated by floodwaters in 1985 and
1986 and considering that the bank is guarded
twenty-four (24) hours a day , it is safe to conclude
that it was also aware of the inundation of the
premises where the safety deposit box was located;
despite such knowledge, however, it never bothered
to inform the petitioner of the flooding or take any
appropriate measures to insure the safety and good
maintenance of the safety deposit box in question.
SBTC does not squarely dispute these facts; rather, it
relies on the rule that findings of facts of the Court of
Appeals, when supported by substantial exidence, are
not reviewable on appeal by certiorari. 10
The foregoing rule is, of course, subject to certain
exceptions such as when there exists a disparity
between the factual findings and conclusions of the
Court of Appeals and the trial court. 11 Such a disparity
obtains in the present case.
As We see it, SBTC's theory, which was upheld by the
public respondent, is that the "Lease Agreement "
covering Safe Deposit Box No. 54 (Exhibit "A and "1")
is just that — a contract of lease — and not a contract
of deposit, and that paragraphs 9 and 13 thereof,
which expressly limit the bank's liability as follows:
9. The liability of the bank by reason of the lease, is
limited to the exercise of the diligence to prevent the
opening of the Safe by any person other than the
Renter, his autliorized agent or legal representative;
xxx xxx xxx
13. The bank is not a depository of the contents of the
Safe and it has neither the possession nor the control
of the same. The Bank has no interest whatsoever said
contents, except as herein provided, and it assumes
absolutely no liability in connection therewith. 12
are valid and binding upon the parties. In the
challenged decision, the public respondent further
avers that even without such a limitation of liability,
SBTC should still be absolved from any responsibility
for the damage sustained by the petitioner as it
appears that such damage was occasioned by a
fortuitous event and that the respondent bank was
free from any participation in the aggravation of the
injury.
We cannot accept this theory and ratiocination.
Consequently, this Court finds the petition to be
impressed with merit.
Page 22 of 91
In the recent case CA Agro-Industrial Development
Corp. vs. Court of Appeals, 13 this Court explicitly
rejected the contention that a contract for the use of
a safety deposit box is a contract of lease governed by
Title VII, Book IV of the Civil Code. Nor did We fully
subscribe to the view that it is a contract of deposit to
be strictly governed by the Civil Code provision on
deposit; 14 it is, as We declared, a special kind of
deposit. The prevailing rule in American jurisprudence
— that the relation between a bank renting out safe
deposit boxes and its customer with respect to the
contents of the box is that of a bailor and bailee, the
bailment for hire and mutual benefit 15 — has been
adopted in this jurisdiction, thus:
In the context of our laws which authorize banking
institutions to rent out safety deposit boxes, it is clear
that in this jurisdiction, the prevailing rule in the
United States has been adopted. Section 72 of the
General Banking Act [R.A. 337, as amended]
pertinently provides:
"Sec. 72. In addition to the operations specifically
authorized elsewhere in this Act, banking institutions
other than building and loan associations may
perform the following services:
(a) Receive in custody funds, documents, and valuable
objects, and rent safety deposit boxes for the
safequarding of such effects.
xxx xxx xxx
The banks shall perform the services permitted under
subsections (a), (b) and (c) of this section
as depositories or as agents. . . ."(emphasis supplied)
Note that the primary function is still found within the
parameters of a contract of deposit, i.e., the receiving
in custody of funds, documents and other valuable
objects for safekeeping. The renting out of the safety
deposit boxes is not independent from, but related to
or in conjunction with, this principal function. A
contract of deposit may be entered into orally or in
writing (Art. 1969, Civil Code] and, pursuant to Article
1306 of the Civil Code, the parties thereto may
establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided
they are not contrary to law, morals, good customs,
public order or public policy. The depositary's
responsibility for the safekeeping of the objects
deposited in the case at bar is governed by Title I,
Book IV of the Civil Code. Accordingly, the depositary
would be liable if, in performing its obligation, it is
found guilty of fraud, negligence, delay or
contravention of the tenor of the agreement [Art.
1170, id.]. In the absence of any stipulation
prescribing the degree of diligence required, that of a
good father of a family is to be observed [Art.
1173, id.]. Hence, any stipulation exempting the
depositary from any liability arising from the loss of
the thing deposited on account of fraud, negligence or
delay would be void for being contrary to law and
public policy. In the instant case, petitioner maintains
that conditions 13 and l4 of the questioned contract
of lease of the safety deposit box, which read:
"13. The bank is a depositary of the contents of the
safe and it has neither the possession nor control of
the same.
"14. The bank has no interest whatsoever in said
contents, except as herein expressly provided, and it
assumes absolutely no liability in connection
therewith."
are void as they are contrary to law and public policy.
We find Ourselves in agreement with this proposition
for indeed, said provisions are inconsistent with the
respondent Bank's responsibility as a depositary
under Section 72 (a) of the General Banking Act. Both
exempt the latter from any liability except as
contemplated in condition 8 thereof which limits its
duty to exercise reasonable diligence only with
respect to who shall be admitted to any rented safe,
to wit:
"8. The Bank shall use due diligence that no
unauthorized person shall be admitted to any rented
safe and beyond this, the Bank will not be responsible
for the contents of any safe rented from it."
Furthermore condition 13 stands on a wrong premise
and is contrary to the actual practice of the Bank. It is
not correct to assert that the Bank has neither the
possession nor control of the contents of the box
since in fact, the safety deposit box itself is located in
its premises and is under its absolute control;
moreover, the respondent Bank keeps the guard key
to the said box. As stated earlier, renters cannot open
their respective boxes unless the Bank cooperates by
presenting and using this guard key. Clearly then, to
the extent above stated, the foregoing conditions in
the contract in question are void and ineffective. It
has been said:
Page 23 of 91
"With respect to property deposited in a safe-deposit
box by a customer of a safe-deposit company, the
parties, since the relation is a contractual one, may by
special contract define their respective duties or
provide for increasing or limiting the liability of the
deposit company, provided such contract is not in
violation of law or public policy. It must clearly appear
that there actually was such a special contract,
however, in order to vary the ordinary obligations
implied by law from the relationship of the parties;
liability of the deposit company will not be enlarged
or restricted by words of doubtful meaning. The
company, in renting safe-deposit boxes, cannot
exempt itself from liability for loss of the contents by
its own fraud or negligence or that, of its agents or
servants, and if a provision of the contract may be
construed as an attempt to do so, it will be held
ineffective for the purpose. Although it has been held
that the lessor of a safe-deposit box cannot limit its
liability for loss of the contents thereof through its
own negligence, the view has been taken that such a
lessor may limit its liability to some extent by
agreement or stipulation ."[10 AM JUR 2d., 466].
(citations omitted) 16
It must be noted that conditions No. 13 and No. 14 in
the Contract of Lease of Safety Deposit Box in CA
Agro-Industrial Development Corp. are strikingly
similar to condition No. 13 in the instant case. On the
other hand, both condition No. 8 in CA Agro-Industrial
Development Corp. and condition No. 9 in the present
case limit the scope of the exercise of due diligence by
the banks involved to merely seeing to it that only the
renter, his authorized agent or his legal representative
should open or have access to the safety deposit box.
In short, in all other situations, it would seem that
SBTC is not bound to exercise diligence of any kind at
all. Assayed in the light of Our aforementioned
pronouncements in CA Agro-lndustrial Development
Corp., it is not at all difficult to conclude that both
conditions No. 9 and No. 13 of the "Lease Agreement"
covering the safety deposit box in question (Exhibits
"A" and "1") must be stricken down for being contrary
to law and public policy as they are meant to exempt
SBTC from any liability for damage, loss or destruction
of the contents of the safety deposit box which may
arise from its own or its agents' fraud, negligence or
delay. Accordingly, SBTC cannot take refuge under the
said conditions.
Public respondent further postulates that SBTC cannot
be held responsible for the destruction or loss of the
stamp collection because the flooding was a
fortuitous event and there was no showing of SBTC's
participation in the aggravation of the loss or injury. It
states:
Article 1174 of the Civil Code provides:
"Except in cases expressly specified by the law, or
when it is otherwise declared by stipulation, or when
the nature of the obligation requires the assumption
of risk, no person shall be responsible for those events
which could not be foreseen, or which, though
foreseen, were inevitable.'
In its dissertation of the phrase "caso
fortuito" the Enciclopedia Jurisdicada Española 17 says:
"In a legal sense and, consequently, also in relation to
contracts, a "caso fortuito" prevents (sic) 18 the
following essential characteristics: (1) the cause of the
unforeseen ands unexpected occurrence, or of the
failure of the debtor to comply with his obligation,
must be independent of the human will; (2) it must be
impossible to foresee the event which constitutes
the "caso fortuito," or if it can be foreseen, it must be
impossible to avoid; (3) the occurrence must be such
as to render it impossible for one debtor to fulfill his
obligation in a normal manner; and (4) the obligor
must be free from any participation in the aggravation
of the injury resulting to the creditor." (cited in
Servando vs. Phil., Steam Navigation Co., supra). 19
Here, the unforeseen or unexpected inundating floods
were independent of the will of the appellant bank
and the latter was not shown to have participated in
aggravating damage (sic) to the stamps collection of
the appellee. In fact, the appellant bank offered its
services to secure the assistance of an expert to save
most of the then good stamps but the appelle refused
and let (sic) these recoverable stamps inside the
safety deposit box until they were ruined. 20
Both the law and authority cited are clear enough and
require no further elucidation. Unfortunately,
however, the public respondent failed to consider
that in the instant case, as correctly held by the trial
court, SBTC was guilty of negligence. The facts
constituting negligence are enumerated in the
petition and have been summarized in
this ponencia. SBTC's negligence aggravated the injury
or damage to the stamp collection. SBTC was aware of
Page 24 of 91
the floods of 1985 and 1986; it also knew that the
floodwaters inundated the room where Safe Deposit
Box No. 54 was located. In view thereof, it should
have lost no time in notifying the petitioner in order
that the box could have been opened to retrieve the
stamps, thus saving the same from further
deterioration and loss. In this respect, it failed to
exercise the reasonable care and prudence expected
of a good father of a family, thereby becoming a party
to the aggravation of the injury or loss. Accordingly,
the aforementioned fourth characteristic of a
fortuitous event is absent Article 1170 of the Civil
Code, which reads:
Those who in the performance of their obligation are
guilty of fraud, negligence, or delay, and those who in
any manner contravene the tenor thereof, are liable
for damages,
thus comes to the succor of the petitioner. The
destruction or loss of the stamp collection which was,
in the language of the trial court, the "product of 27
years of patience and diligence" 21 caused the
petitioner pecuniary loss; hence, he must be
compensated therefor.
We cannot, however, place Our imprimatur on the
trial court's award of moral damages. Since the
relationship between the petitioner and SBTC is based
on a contract, either of them may be held liable for
moral damages for breach thereof only if said party
had acted fraudulently or in bad faith. 22 There is here
no proof of fraud or bad faith on the part of SBTC.
WHEREFORE, the instant petition is hereby GRANTED.
The challenged Decision and Resolution of the public
respondent Court of Appeals of 21 August 1991 and
21 November 1991, respectively, in CA-G.R. CV No.
26737, are hereby SET ASIDE and the Decision of 19
February 1990 of Branch 47 of the Regional Trial Court
of Manila in Civil Case No. 87-42601 is hereby
REINSTATED in full, except as to the award of moral
damages which is hereby set aside.
Costs against the private respondent.
SO ORDERED.
G.R. No. L-60033 April 4, 1984
TEOFISTO GUINGONA, JR., ANTONIO I. MARTIN, and
TERESITA SANTOS, petitioners,
vs.
THE CITY FISCAL OF MANILA, HON. JOSE B.
FLAMINIANO, ASST. CITY FISCAL FELIZARDO N. LOTA
and CLEMENT DAVID, respondents.
MAKASIAR, Actg. C.J.:ñé+.£ªwph!1
This is a petition for prohibition and injunction with a
prayer for the immediate issuance of restraining order
and/or writ of preliminary injunction filed by
petitioners on March 26, 1982.
On March 31, 1982, by virtue of a court resolution
issued by this Court on the same date, a temporary
restraining order was duly issued ordering the
respondents, their officers, agents, representatives
and/or person or persons acting upon their
(respondents') orders or in their place or stead to
refrain from proceeding with the preliminary
investigation in Case No. 8131938 of the Office of the
City Fiscal of Manila (pp. 47-48, rec.). On January 24,
1983, private respondent Clement David filed a
motion to lift restraining order which was denied in
the resolution of this Court dated May 18, 1983.
As can be gleaned from the above, the instant petition
seeks to prohibit public respondents from proceeding
with the preliminary investigation of I.S. No. 81-
31938, in which petitioners were charged by private
respondent Clement David, with estafa and violation
of Central Bank Circular No. 364 and related
regulations regarding foreign exchange transactions
principally, on the ground of lack of jurisdiction in that
the allegations of the charged, as well as the
testimony of private respondent's principal witness
and the evidence through said witness, showed that
petitioners' obligation is civil in nature.
For purposes of brevity, We hereby adopt the
antecedent facts narrated by the Solicitor General in
its Comment dated June 28,1982, as
follows:têñ.£îhqwâ£
On December 23,1981, private respondent David filed
I.S. No. 81-31938 in the Office of the City Fiscal of
Manila, which case was assigned to respondent Lota
for preliminary investigation (Petition, p. 8).
In I.S. No. 81-31938, David charged petitioners
(together with one Robert Marshall and the following
directors of the Nation Savings and Loan Association,
Inc., namely Homero Gonzales, Juan Merino, Flavio
Macasaet, Victor Gomez, Jr., Perfecto Manalac, Jaime
V. Paz, Paulino B. Dionisio, and one John Doe) with
estafa and violation of Central Bank Circular No. 364
Page 25 of 91
and related Central Bank regulations on foreign
exchange transactions, allegedly committed as follows
(Petition, Annex "A"):têñ.£îhqwâ£
"From March 20, 1979 to March, 1981, David invested
with the Nation Savings and Loan Association,
(hereinafter called NSLA) the sum of P1,145,546.20 on
nine deposits, P13,531.94 on savings account deposits
(jointly with his sister, Denise Kuhne), US$10,000.00
on time deposit, US$15,000.00 under a receipt and
guarantee of payment and US$50,000.00 under a
receipt dated June 8, 1980 (au jointly with Denise
Kuhne), that David was induced into making the
aforestated investments by Robert Marshall an
Australian national who was allegedly a close
associate of petitioner Guingona Jr., then NSLA
President, petitioner Martin, then NSLA Executive
Vice-President of NSLA and petitioner Santos, then
NSLA General Manager; that on March 21, 1981 N LA
was placed under receivership by the Central Bank, so
that David filed claims therewith for his investments
and those of his sister; that on July 22, 1981 David
received a report from the Central Bank that only
P305,821.92 of those investments were entered in the
records of NSLA; that, therefore, the respondents in
I.S. No. 81-31938 misappropriated the balance of the
investments, at the same time violating Central Bank
Circular No. 364 and related Central Bank regulations
on foreign exchange transactions; that after demands,
petitioner Guingona Jr. paid only P200,000.00,
thereby reducing the amounts misappropriated to
P959,078.14 and US$75,000.00."
Petitioners, Martin and Santos, filed a joint counter-
affidavit (Petition, Annex' B') in which they stated the
following.têñ.£îhqwâ£
"That Martin became President of NSLA in March
1978 (after the resignation of Guingona, Jr.) and
served as such until October 30, 1980, while Santos
was General Manager up to November 1980; that
because NSLA was urgently in need of funds and at
David's insistence, his investments were treated as
special- accounts with interest above the legal rate, an
recorded in separate confidential documents only a
portion of which were to be reported because he did
not want the Australian government to tax his total
earnings (nor) to know his total investments; that all
transactions with David were recorded except the
sum of US$15,000.00 which was a personal loan of
Santos; that David's check for US$50,000.00 was
cleared through Guingona, Jr.'s dollar account
because NSLA did not have one, that a draft of
US$30,000.00 was placed in the name of one Paz
Roces because of a pending transaction with her; that
the Philippine Deposit Insurance Corporation had
already reimbursed David within the legal limits; that
majority of the stockholders of NSLA had filed Special
Proceedings No. 82-1695 in the Court of First Instance
to contest its (NSLA's) closure; that after NSLA was
placed under receivership, Martin executed a
promissory note in David's favor and caused the
transfer to him of a nine and on behalf (9 1/2) carat
diamond ring with a net value of P510,000.00; and,
that the liabilities of NSLA to David were civil in
nature."
Petitioner, Guingona, Jr., in his counter-affidavit
(Petition, Annex' C') stated the following:têñ.£îhqwâ£
"That he had no hand whatsoever in the transactions
between David and NSLA since he (Guingona Jr.) had
resigned as NSLA president in March 1978, or prior to
those transactions; that he assumed a portion o; the
liabilities of NSLA to David because of the latter's
insistence that he placed his investments with NSLA
because of his faith in Guingona, Jr.; that in a
Promissory Note dated June 17, 1981 (Petition, Annex
"D") he (Guingona, Jr.) bound himself to pay David the
sums of P668.307.01 and US$37,500.00 in stated
installments; that he (Guingona, Jr.) secured payment
of those amounts with second mortgages over two (2)
parcels of land under a deed of Second Real Estate
Mortgage (Petition, Annex "E") in which it was
provided that the mortgage over one (1) parcel shall
be cancelled upon payment of one-half of the
obligation to David; that he (Guingona, Jr.) paid
P200,000.00 and tendered another P300,000.00
which David refused to accept, hence, he (Guingona,
Jr.) filed Civil Case No. Q-33865 in the Court of First
Instance of Rizal at Quezon City, to effect the release
of the mortgage over one (1) of the two parcels of
land conveyed to David under second mortgages."
At the inception of the preliminary investigation
before respondent Lota, petitioners moved to dismiss
the charges against them for lack of jurisdiction
because David's claims allegedly comprised a purely
civil obligation which was itself novated. Fiscal Lota
denied the motion to dismiss (Petition, p. 8).
Page 26 of 91
But, after the presentation of David's principal
witness, petitioners filed the instant petition because:
(a) the production of the Promisory Notes, Banker's
Acceptance, Certificates of Time Deposits and Savings
Account allegedly showed that the transactions
between David and NSLA were simple loans, i.e., civil
obligations on the part of NSLA which were novated
when Guingona, Jr. and Martin assumed them; and (b)
David's principal witness allegedly testified that the
duplicate originals of the aforesaid instruments of
indebtedness were all on file with NSLA, contrary to
David's claim that some of his investments were not
record (Petition, pp. 8-9).
Petitioners alleged that they did not exhaust available
administrative remedies because to do so would be
futile (Petition, p. 9) [pp. 153-157, rec.].
As correctly pointed out by the Solicitor General, the
sole issue for resolution is whether public
respondents acted without jurisdiction when they
investigated the charges (estafa and violation of CB
Circular No. 364 and related regulations regarding
foreign exchange transactions) subject matter of I.S.
No. 81-31938.
There is merit in the contention of the petitioners that
their liability is civil in nature and therefore, public
respondents have no jurisdiction over the charge of
estafa.
A casual perusal of the December 23, 1981 affidavit.
complaint filed in the Office of the City Fiscal of
Manila by private respondent David against
petitioners Teopisto Guingona, Jr., Antonio I. Martin
and Teresita G. Santos, together with one Robert
Marshall and the other directors of the Nation Savings
and Loan Association, will show that from March 20,
1979 to March, 1981, private respondent David,
together with his sister, Denise Kuhne, invested with
the Nation Savings and Loan Association the sum of
P1,145,546.20 on time deposits covered by Bankers
Acceptances and Certificates of Time Deposits and the
sum of P13,531.94 on savings account deposits
covered by passbook nos. 6-632 and 29-742, or a total
of P1,159,078.14 (pp. 15-16, roc.). It appears further
that private respondent David, together with his
sister, made investments in the aforesaid bank in the
amount of US$75,000.00 (p. 17, rec.).
Moreover, the records reveal that when the aforesaid
bank was placed under receivership on March 21,
1981, petitioners Guingona and Martin, upon the
request of private respondent David, assumed the
obligation of the bank to private respondent David by
executing on June 17, 1981 a joint promissory note in
favor of private respondent acknowledging an
indebtedness of Pl,336,614.02 and US$75,000.00 (p.
80, rec.). This promissory note was based on the
statement of account as of June 30, 1981 prepared by
the private respondent (p. 81, rec.). The amount of
indebtedness assumed appears to be bigger than the
original claim because of the added interest and the
inclusion of other deposits of private respondent's
sister in the amount of P116,613.20.
Thereafter, or on July 17, 1981, petitioners Guingona
and Martin agreed to divide the said indebtedness,
and petitioner Guingona executed another promissory
note antedated to June 17, 1981 whereby he
personally acknowledged an indebtedness of
P668,307.01 (1/2 of P1,336,614.02) and US$37,500.00
(1/2 of US$75,000.00) in favor of private respondent
(p. 25, rec.). The aforesaid promissory notes were
executed as a result of deposits made by Clement
David and Denise Kuhne with the Nation Savings and
Loan Association.
Furthermore, the various pleadings and documents
filed by private respondent David, before this Court
indisputably show that he has indeed invested his
money on time and savings deposits with the Nation
Savings and Loan Association.
It must be pointed out that when private respondent
David invested his money on nine. and savings
deposits with the aforesaid bank, the contract that
was perfected was a contract of simple loan
or mutuum and not a contract of deposit. Thus, Article
1980 of the New Civil Code provides that:têñ.£îhqwâ£
Article 1980. Fixed, savings, and current deposits of-
money in banks and similar institutions shall be
governed by the provisions concerning simple loan.
In the case of Central Bank of the Philippines vs.
Morfe (63 SCRA 114,119 [1975], We said:têñ.£îhqwâ£
It should be noted that fixed, savings, and current
deposits of money in banks and similar institutions are
hat true deposits. are considered simple loans and, as
such, are not preferred credits (Art. 1980 Civil Code; In
re Liquidation of Mercantile Batik of China Tan Tiong
Tick vs. American Apothecaries Co., 66 Phil 414;
Pacific Coast Biscuit Co. vs. Chinese Grocers
Page 27 of 91
Association 65 Phil. 375; Fletcher American National
Bank vs. Ang Chong UM 66 PWL 385; Pacific
Commercial Co. vs. American Apothecaries Co., 65
PhiL 429; Gopoco Grocery vs. Pacific Coast Biscuit
CO.,65 Phil. 443)."
This Court also declared in the recent case of Serrano
vs. Central Bank of the Philippines (96 SCRA 102
[1980]) that:têñ.£îhqwâ£
Bank deposits are in the nature of irregular deposits.
They are really 'loans because they earn interest. All
kinds of bank deposits, whether fixed, savings, or
current are to be treated as loans and are to be
covered by the law on loans (Art. 1980 Civil Code
Gullas vs. Phil. National Bank, 62 Phil. 519). Current
and saving deposits, are loans to a bank because it
can use the same. The petitioner here in making time
deposits that earn interests will respondent Overseas
Bank of Manila was in reality a creditor of the
respondent Bank and not a depositor. The respondent
Bank was in turn a debtor of petitioner. Failure of the
respondent Bank to honor the time deposit is failure to
pay its obligation as a debtor and not a breach of
trust arising from a depositary's failure to return the
subject matter of the deposit (Emphasis supplied).
Hence, the relationship between the private
respondent and the Nation Savings and Loan
Association is that of creditor and debtor;
consequently, the ownership of the amount deposited
was transmitted to the Bank upon the perfection of
the contract and it can make use of the amount
deposited for its banking operations, such as to pay
interests on deposits and to pay withdrawals. While
the Bank has the obligation to return the amount
deposited, it has, however, no obligation to return or
deliver the same money that was deposited. And, the
failure of the Bank to return the amount deposited
will not constitute estafa through misappropriation
punishable under Article 315, par. l(b) of the Revised
Penal Code, but it will only give rise to civil liability
over which the public respondents have no-
jurisdiction.
WE have already laid down the rule that:têñ.£îhqwâ£
In order that a person can be convicted under the
above-quoted provision, it must be proven that he has
the obligation to deliver or return the some money,
goods or personal property that he
received Petitioners had no such obligation to return
the same money, i.e., the bills or coins, which they
received from private respondents. This is so because
as clearly as stated in criminal complaints, the related
civil complaints and the supporting sworn statements,
the sums of money that petitioners received were
loans.
The nature of simple loan is defined in Articles 1933
and 1953 of the Civil Code.têñ.£îhqwâ£
"Art. 1933. — By the contract of loan, one of the
parties delivers to another, either something not
consumable so that the latter may use the same for a
certain time- and return it, in which case the contract
is called a commodatum; or money or other
consumable thing, upon the condition that the same
amount of the same kind and quality shall he paid in
which case the contract is simply called a loan or
mutuum.
"Commodatum is essentially gratuitous.
"Simple loan may be gratuitous or with a stipulation
to pay interest.
"In commodatum the bailor retains the ownership of
the thing loaned while in simple loan, ownership
passes to the borrower.
"Art. 1953. — A person who receives a loan of money
or any other fungible thing acquires the ownership
thereof, and is bound to pay to the creditor an equal
amount of the same kind and quality."
It can be readily noted from the above-quoted
provisions that in simple loan (mutuum), as contrasted
to commodatum the borrower acquires ownership of
the money, goods or personal property borrowed
Being the owner, the borrower can dispose of the
thing borrowed (Article 248, Civil Code) and his act will
not be considered misappropriation thereof' (Yam vs.
Malik, 94 SCRA 30, 34 [1979]; Emphasis supplied).
But even granting that the failure of the bank to pay
the time and savings deposits of private respondent
David would constitute a violation of paragraph 1(b)
of Article 315 of the Revised Penal Code, nevertheless
any incipient criminal liability was deemed avoided,
because when the aforesaid bank was placed under
receivership by the Central Bank, petitioners
Guingona and Martin assumed the obligation of the
bank to private respondent David, thereby resulting in
the novation of the original contractual obligation
arising from deposit into a contract of loan and
converting the original trust relation between the
Page 28 of 91
bank and private respondent David into an ordinary
debtor-creditor relation between the petitioners and
private respondent. Consequently, the failure of the
bank or petitioners Guingona and Martin to pay the
deposits of private respondent would not constitute a
breach of trust but would merely be a failure to pay
the obligation as a debtor.
Moreover, while it is true that novation does not
extinguish criminal liability, it may however, prevent
the rise of criminal liability as long as it occurs prior to
the filing of the criminal information in court. Thus,
in Gonzales vs. Serrano ( 25 SCRA 64, 69 [1968]) We
held that:têñ.£îhqwâ£
As pointed out in People vs. Nery, novation prior to
the filing of the criminal information — as in the case
at bar — may convert the relation between the
parties into an ordinary creditor-debtor relation, and
place the complainant in estoppel to insist on the
original transaction or "cast doubt on the true nature"
thereof.
Again, in the latest case of Ong vs. Court of Appeals (L-
58476, 124 SCRA 578, 580-581 [1983] ), this Court
reiterated the ruling in People vs. Nery ( 10 SCRA 244
[1964] ), declaring that:têñ.£îhqwâ£
The novation theory may perhaps apply prior to the
filling of the criminal information in court by the state
prosecutors because up to that time the original trust
relation may be converted by the parties into an
ordinary creditor-debtor situation, thereby placing the
complainant in estoppel to insist on the original trust.
But after the justice authorities have taken cognizance
of the crime and instituted action in court, the
offended party may no longer divest the prosecution
of its power to exact the criminal liability, as
distinguished from the civil. The crime being an
offense against the state, only the latter can renounce
it (People vs. Gervacio, 54 Off. Gaz. 2898; People vs.
Velasco, 42 Phil. 76; U.S. vs. Montanes, 8 Phil. 620).
It may be observed in this regard that novation is not
one of the means recognized by the Penal Code
whereby criminal liability can be extinguished; hence,
the role of novation may only be to either prevent the
rise of criminal habihty or to cast doubt on the true
nature of the original basic transaction, whether or
not it was such that its breach would not give rise to
penal responsibility, as when money loaned is made
to appear as a deposit, or other similar disguise is
resorted to (cf. Abeto vs. People, 90 Phil. 581; U.S. vs.
Villareal, 27 Phil. 481).
In the case at bar, there is no dispute that petitioners
Guingona and Martin executed a promissory note on
June 17, 1981 assuming the obligation of the bank to
private respondent David; while the criminal
complaint for estafa was filed on December 23, 1981
with the Office of the City Fiscal. Hence, it is clear that
novation occurred long before the filing of the
criminal complaint with the Office of the City Fiscal.
Consequently, as aforestated, any incipient criminal
liability would be avoided but there will still be a civil
liability on the part of petitioners Guingona and
Martin to pay the assumed obligation.
Petitioners herein were likewise charged with
violation of Section 3 of Central Bank Circular No. 364
and other related regulations regarding foreign
exchange transactions by accepting foreign currency
deposit in the amount of US$75,000.00 without
authority from the Central Bank. They contend
however, that the US dollars intended by respondent
David for deposit were all converted into Philippine
currency before acceptance and deposit into Nation
Savings and Loan Association.
Petitioners' contention is worthy of behelf for the
following reasons:
1. It appears from the records that when respondent
David was about to make a deposit of bank draft
issued in his name in the amount of US$50,000.00
with the Nation Savings and Loan Association, the
same had to be cleared first and converted into
Philippine currency. Accordingly, the bank draft was
endorsed by respondent David to petitioner
Guingona, who in turn deposited it to his dollar
account with the Security Bank and Trust Company.
Petitioner Guingona merely accommodated the
request of the Nation Savings and loan Association in
order to clear the bank draft through his dollar
account because the bank did not have a dollar
account. Immediately after the bank draft was
cleared, petitioner Guingona authorized Nation
Savings and Loan Association to withdraw the same in
order to be utilized by the bank for its operations.
2. It is safe to assume that the U.S. dollars were
converted first into Philippine pesos before they were
accepted and deposited in Nation Savings and Loan
Association, because the bank is presumed to have
Page 29 of 91
followed the ordinary course of the business which is
to accept deposits in Philippine currency only, and
that the transaction was regular and fair, in the
absence of a clear and convincing evidence to the
contrary (see paragraphs p and q, Sec. 5, Rule 131,
Rules of Court).
3. Respondent David has not denied the aforesaid
contention of herein petitioners despite the fact that
it was raised. in petitioners' reply filed on May 7, 1982
to private respondent's comment and in the July 27,
1982 reply to public respondents' comment and
reiterated in petitioners' memorandum filed on
October 30, 1982, thereby adding more support to the
conclusion that the US$75,000.00 were really
converted into Philippine currency before they were
accepted and deposited into Nation Savings and Loan
Association. Considering that this might adversely
affect his case, respondent David should have
promptly denied petitioners' allegation.
In conclusion, considering that the liability of the
petitioners is purely civil in nature and that there is no
clear showing that they engaged in foreign exchange
transactions, We hold that the public respondents
acted without jurisdiction when they investigated the
charges against the petitioners. Consequently, public
respondents should be restrained from further
proceeding with the criminal case for to allow the
case to continue, even if the petitioners could have
appealed to the Ministry of Justice, would work great
injustice to petitioners and would render meaningless
the proper administration of justice.
While as a rule, the prosecution in a criminal offense
cannot be the subject of prohibition and injunction,
this court has recognized the resort to the
extraordinary writs of prohibition and injunction in
extreme cases, thus:têñ.£îhqwâ£
On the issue of whether a writ of injunction can
restrain the proceedings in Criminal Case No. 3140,
the general rule is that "ordinarily, criminal
prosecution may not be blocked by court prohibition
or injunction." Exceptions, however, are allowed in
the following instances:têñ.£îhqwâ£
"1. for the orderly administration of justice;
"2. to prevent the use of the strong arm of the law in
an oppressive and vindictive manner;
"3. to avoid multiplicity of actions;
"4. to afford adequate protection to constitutional
rights;
"5. in proper cases, because the statute relied upon is
unconstitutional or was held invalid" ( Primicias vs.
Municipality of Urdaneta, Pangasinan, 93 SCRA 462,
469-470 [1979]; citing Ramos vs. Torres, 25 SCRA 557
[1968]; and Hernandez vs. Albano, 19 SCRA 95, 96
[1967]).
Likewise, in Lopez vs. The City Judge, et al. ( 18 SCRA
616, 621-622 [1966]), We held that:têñ.£îhqwâ£
The writs of certiorari and prohibition, as
extraordinary legal remedies, are in the ultimate
analysis, intended to annul void proceedings; to
prevent the unlawful and oppressive exercise of legal
authority and to provide for a fair and orderly
administration of justice. Thus, in Yu Kong Eng vs.
Trinidad, 47 Phil. 385, We took cognizance of a
petition for certiorari and prohibition although the
accused in the case could have appealed in due time
from the order complained of, our action in the
premises being based on the public welfare policy the
advancement of public policy. In Dimayuga vs.
Fajardo, 43 Phil. 304, We also admitted a petition to
restrain the prosecution of certain chiropractors
although, if convicted, they could have appealed. We
gave due course to their petition for the orderly
administration of justice and to avoid possible
oppression by the strong arm of the law. And
in Arevalo vs. Nepomuceno, 63 Phil. 627, the petition
for certiorari challenging the trial court's action
admitting an amended information was sustained
despite the availability of appeal at the proper time.
WHEREFORE, THE PETITION IS HEREBY GRANTED; THE
TEMPORARY RESTRAINING ORDER PREVIOUSLY
ISSUED IS MADE PERMANENT. COSTS AGAINST THE
PRIVATE RESPONDENT.
SO ORDERED.1äwphï1.ñët
G.R. No. 158143 September 21, 2011
PHILIPPINE COMMERCIAL INTERNATIONAL
BANK, Petitioner,
vs.
ANTONIO B. BALMACEDA and ROLANDO N.
RAMOS, Respondents.
DECISION
BRION, J.:
Page 30 of 91
Before us is a petition for review on certiorari,1 filed
by the Philippine Commercial International
Bank2 (Bank or PCIB), to reverse and set aside the
decision3 dated April 29, 2003 of the Court of Appeals
(CA) in CA-G.R. CV No. 69955. The CA overturned the
September 22, 2000 decision of the Regional Trial
Court (RTC) of Makati City, Branch 148, in Civil Case
No. 93-3181, which held respondent Rolando Ramos
liable to PCIB for the amount of ₱895,000.00.
FACTUAL ANTECEDENTS
On September 10, 1993, PCIB filed an action for
recovery of sum of money with damages before the
RTC against Antonio Balmaceda, the Branch Manager
of its Sta. Cruz, Manila branch. In its complaint, PCIB
alleged that between 1991 and 1993, Balmaceda, by
taking advantage of his position as branch manager,
fraudulently obtained and encashed 31 Manager’s
checks in the total amount of Ten Million Seven
Hundred Eighty Two Thousand One Hundred Fifty
Pesos (₱10,782,150.00).
On February 28, 1994, PCIB moved to be allowed to
file an amended complaint to implead Rolando Ramos
as one of the recipients of a portion of the proceeds
from Balmaceda’s alleged fraud. PCIB also increased
the number of fraudulently obtained and encashed
Manager’s checks to 34, in the total amount of Eleven
Million Nine Hundred Thirty Seven Thousand One
Hundred Fifty Pesos (₱11,937,150.00). The RTC
granted this motion.
Since Balmaceda did not file an Answer, he was
declared in default. On the other hand, Ramos filed an
Answer denying any knowledge of Balmaceda’s
scheme. According to Ramos, he is a reputable
businessman engaged in the business of buying and
selling fighting cocks, and Balmaceda was one of his
clients. Ramos admitted receiving money from
Balmaceda as payment for the fighting cocks that he
sold to Balmaceda, but maintained that he had no
knowledge of the source of Balmaceda’s money.
THE RTC DECISION
On September 22, 2000, the RTC issued a decision in
favor of PCIB, with the following dispositive portion:
WHEREFORE, premises considered, judgment is
hereby rendered in favor of the plaintiff and against
the defendants as follows:
1. Ordering defendant Antonio Balmaceda to pay the
amount of ₱11,042,150.00 with interest thereon at
the legal rate from [the] date of his misappropriation
of the said amount until full restitution shall have
been made[.]
2. Ordering defendant Rolando Ramos to pay the
amount of ₱895,000.00 with interest at the legal rate
from the date of misappropriation of the said amount
until full restitution shall have been made[.]
3. Ordering the defendants to pay plaintiff moral
damages in the sum of ₱500,000.00 and attorney’s
fees in the amount of ten (10%) percent of the total
misappropriated amounts sought to be recovered.
4. Plus costs of suit.
SO ORDERED. 4 observed that other persons were also named as
From the evidence presented, the RTC found that
Balmaceda, by taking undue advantage of his position
and authority as branch manager of the Sta. Cruz,
Manila branch of PCIB, successfully obtained and
misappropriated the bank’s funds by falsifying several
commercial documents. He accomplished this by
claiming that he had been instructed by one of the
Bank’s corporate clients to purchase Manager’s
checks on its behalf, with the value of the checks to be
debited from the client’s corporate bank account.
First, he would instruct the Bank staff to prepare the
application forms for the purchase of Manager’s
checks, payable to several persons. Then, he would
forge the signature of the client’s authorized
representative on these forms and sign the forms as
PCIB’s approving officer. Finally, he would have an
authorized officer of PCIB issue the Manager’s checks.
Balmaceda would subsequently ask his subordinates
to release the Manager’s checks to him, claiming that
the client had requested that he deliver the
checks.5 After receiving the Manager’s checks, he
encashed them by forging the signatures of the
payees on the checks.
In ruling that Ramos acted in collusion with
Balmaceda, the RTC noted that although the
Manager’s checks payable to Ramos were crossed
checks, Balmaceda was still able to encash the
checks.6 After Balmaceda encashed three of these
Manager’s checks, he deposited most of the money
into Ramos’ account.7 The RTC concluded that from
the ₱11,937,150.00 that Balmaceda misappropriated
from PCIB, ₱895,000.00 actually went to Ramos. Since
the RTC disbelieved Ramos’ allegation that the sum of
money deposited into his Savings Account (PCIB, Pasig
Page 31 of 91
branch) were proceeds from the sale of fighting cocks,
it held Ramos liable to pay PCIB the amount of
₱895,000.00.
THE COURT OF APPEALS DECISION
On appeal, the CA dismissed the complaint against
Ramos, holding that no sufficient evidence existed to
prove that Ramos colluded with Balmaceda in the
latter’s fraudulent manipulations.8
According to the CA, the mere fact that Balmaceda
made Ramos the payee in some of the Manager’s
checks does not suffice to prove that Ramos was
complicit in Balmaceda’s fraudulent scheme. It
payees in the checks that Balmaceda acquired and
encashed, and PCIB only chose to go after Ramos.
With PCIB’s failure to prove Ramos’ actual
participation in Balmaceda’s fraud, no legal and
factual basis exists to hold him liable.
The CA also found that PCIB acted illegally in freezing
and debiting ₱251,910.96 from Ramos’ bank account.
The CA thus decreed:
WHEREFORE, the appeal is granted. The Decision of
the trial court rendered on September 22, 2000[,]
insofar as appellant Ramos is concerned, is SET ASIDE,
and the complaint below against him is DISMISSED.
Appellee is hereby ordered to release the amount of
₱251,910.96 to appellant Ramos plus interest at [the]
legal rate computed from September 30, 1993 until
appellee shall have fully complied therewith.
Appellee is likewise ordered to pay appellant Ramos
the following:
a) ₱50,000.00 as moral damages
b) ₱50,000.00 as exemplary damages, and
c) ₱20,000.00 as attorney’s fees.
No costs.
SO ORDERED.9
THE PETITION
In the present petition, PCIB avers that:
I
THE APPELLATE COURT ERRED IN HOLDING THAT
THERE IS NO EVIDENCE TO HOLD THAT RESPONDENT
RAMOS ACTED IN COMPLICITY WITH RESPONDENT
BALMACEDA
II
THE APPELLATE COURT ERRED IN ORDERING THE
PETITIONER TO RELEASE THE AMOUNT OF
₱251,910.96 TO RESPONDENT RAMOS AND TO PAY
THE LATTER MORAL AND EXEMPLARY DAMAGES AND
ATTORNEY’S FEES10
PCIB contends that the circumstantial evidence shows
that Ramos had knowledge of, and acted in complicity
with Balmaceda in, the perpetuation of the fraud.
Ramos’ explanation that he is a businessman and that
he received the Manager’s checks as payment for the
fighting cocks he sold to Balmaceda is unconvincing,
given the large sum of money involved. While Ramos
presented evidence that he is a reputable
businessman, this evidence does not explain why the
Manager’s checks were made payable to him in the
first place.
PCIB maintains that it had the right to freeze and
debit the amount of ₱251,910.96 from Ramos’ bank
account, even without his consent, since legal
compensation had taken place between them by
operation of law. PCIB debited Ramos’ bank account,
believing in good faith that Ramos was not entitled to
the proceeds of the Manager’s checks and was
actually privy to the fraud perpetrated by Balmaceda.
PCIB cannot thus be held liable for moral and
exemplary damages.
OUR RULING
We partly grant the petition.
At the outset, we observe that the petition raises
mainly questions of fact whose resolution requires the
re-examination of the evidence on record. As a
general rule, petitions for review on certiorari only
involve questions of law.11 By way of exception,
however, we can delve into evidence and the factual
circumstance of the case when the findings of fact in
the tribunals below (in this case between those of the
CA and of the RTC) are conflicting. When the
exception applies, we are given latitude to review the
evidence on record to decide the case with finality.12
Ramos’ participation in Balmaceda’s scheme not
proven
From the testimonial and documentary evidence
presented, we find it beyond question that
Balmaceda, by taking advantage of his position as
branch manager of PCIB’s Sta. Cruz, Manila branch,
was able to apply for and obtain Manager’s checks
drawn against the bank account of one of PCIB’s
clients. The unsettled question is whether Ramos,
who received a portion of the money that Balmaceda
Page 32 of 91
took from PCIB, should also be held liable for the
return of this money to the Bank.
PCIB insists that it presented sufficient evidence to
establish that Ramos colluded with Balmaceda in the
scheme to fraudulently secure Manager’s checks and
to misappropriate their proceeds. Since Ramos’
defense – anchored on mere denial of any
participation in Balmaceda’s wrongdoing – is an
intrinsically weak defense, it was error for the CA to
exonerate Ramos from any liability.
In civil cases, the party carrying the burden of proof
must establish his case by a preponderance of
evidence, or evidence which, to the court, is more
worthy of belief than the evidence offered in
opposition.13 This Court, in Encinas v. National
Bookstore, Inc.,14 defined "preponderance of
evidence" in the following manner:
"Preponderance of evidence" is the weight, credit,
and value of the aggregate evidence on either side
and is usually considered to be synonymous with the
term "greater weight of the evidence" or "greater
weight of the credible evidence." Preponderance of
evidence is a phrase which, in the last analysis, means
probability of the truth. It is evidence which is more
convincing to the court as worthy of belief than that
which is offered in opposition thereto.
The party, whether the plaintiff or the defendant, who
asserts the affirmative of an issue has the onus to
prove his assertion in order to obtain a favorable
judgment, subject to the overriding rule that the
burden to prove his cause of action never leaves the
plaintiff. For the defendant, an affirmative defense is
one that is not merely a denial of an essential
ingredient in the plaintiff's cause of action, but one
which, if established, will constitute an "avoidance" of
the claim.15
Thus, PCIB, as plaintiff, had to prove, by
preponderance of evidence, its positive assertion that
Ramos conspired with Balmaceda in perpetrating the
latter’s scheme to defraud the Bank. In PCIB’s
estimation, it successfully accomplished this through
the submission of the following evidence:
[1] Exhibits "A," "D," "PPPP," "QQQQ," and "RRRR"
and their submarkings, the application forms for MCs,
show that [these MCs were applied for in favor of
Ramos;]
[2] Exhibits "K," "N," "SSSS," "TTTT," and "UUUU" and
their submarkings prove that the MCs were issued in
favor of x x x Ramos[; and]
[3] [T]estimonies of the witness for [PCIB].16
We cannot accept these submitted pieces of evidence
as sufficient to satisfy the burden of proof that PCIB
carries as plaintiff.
On its face, all that PCIB’s evidence proves is that
Balmaceda used Ramos’ name as a payee when he
filled up the application forms for the Manager’s
checks. But, as the CA correctly observed, the mere
fact that Balmaceda made Ramos the payee on some
of the Manager’s checks is not enough basis to
conclude that Ramos was complicit in Balmaceda’s
fraud; a number of other people were made payees
on the other Manager’s checks yet PCIB never alleged
them to be liable, nor did the Bank adduce any other
evidence pointing to Ramos’ participation that would
justify his separate treatment from the others. Also,
while Ramos is Balmaceda’s brother-in-law, their
relationship is not sufficient, by itself, to render
Ramos liable, absent concrete proof of his actual
participation in the fraudulent scheme.
Moreover, the evidence on record clearly shows that
Balmaceda acted on his own when he applied for the
Manager’s checks against the bank account of one of
PCIB’s clients, as well as when he encashed the
fraudulently acquired Manager’s checks.
Mrs. Elizabeth Costes, the Area Manager of PCIB at
the time of the relevant events, testified that
Balmaceda committed all the acts necessary to obtain
the unauthorized Manager’s checks – from filling up
the application form by forging the signature of the
client’s representative, to forging the signatures of the
payees in order to encash the checks. As Mrs. Costes
stated in her testimony:
Q: I am going into [these] particular instances where
you said that Mr. Balmaceda [has] been making
unauthorized withdrawals from particular account of
a client or a client of yours at Sta. Cruz branch. Would
you tell us how he effected his unauthorized
withdrawals?
A: He prevailed upon the domestic remittance clerk to
prepare the application of a Manager’s check which
[has] been debited to a client’s account. This
particular Manager’s check will be payable to a certain
Page 33 of 91
individual thru his account as the instruction of the
client.
Q: What was your findings in so far as the particular
alleged instruction of a client is concerned?
A: We found out that he forged the signature of the
client.
Q: On that particular application?
A: Yes sir.
Q: Showing to you several applications for Manager’s
Check previously attached as Annexes "A, B, C, D and
E["] of the complaint. Could you please tell us where is
that particular alleged signature of a client applying
for the Manager’s check which you claimed to have
been forged by Mr. Balmaceda?
A: Here sir.
xxxx
Q: After the accomplishment of this application form
as you stated Mrs. witness, do you know what
happened to the application form?
A: Before that application form is processed it goes to
several stages. Here for example this was signed
supposed to be by the client and his signature
representing that, he certified the signature based on
their records to be authentic.
Q: When you said he to whom are you referring to?
A: Mr. Balmaceda. And at the same time he approved
the transaction.
xxxx
Q: Do you know if the corresponding checks applied
for in the application forms were issued?
A: Yes sir.
Q: Could you please show us where these checks are
now, the one applied for in Exhibit "A" which is in the
amount of ₱150,000.00, where is the corresponding
check?
A: Rolando Ramos dated December 26, 1991 and one
of the signatories with higher authority, this is Mr.
Balmaceda’s signature.
Q: In other words he is likewise approving signatory to
the Manager’s check?
A: Yes sir. This is an authority that the check [has]
been encashed.
Q: In other words this check issued to Rolando Ramos
dated December 26, 1991 is a cross check but
nonetheless he allowed to encash by granting it.
Could you please show us?
ATTY. PACES: Witness pointing to an initial of the
defendant Antonio Balmaceda, the notation cross
check.
A: And this is his signature.
xxxx
Q: How about the check corresponding to Exhibit E-2
which is an application for ₱125,000.00 for a certain
Rolando Ramos. Do you have the check?
A: Yes sir.
ATTY. PACES: Witness producing a check dated
December 19, 1991 the amount of ₱125,000.00
payable to certain Rolando Ramos.
Q: Can you tell us whether the same modus operandi
was ad[o]pted by Mr. Balmaceda in so far as he is
concerned?
A: Yes sir he is also the right signer and he authorized
the cancellation of the cross check.17 (emphasis ours)
xxxx
Q: These particular checks [Mrs.] witness in your
findings, do you know if Mr. Balmaceda [has] again
any participation in these checks?
A: He is also the right signer and approved officer and
he was authorized to debit on file.
xxxx
Q: And do you know if these particular checks marked
as Exhibit G-2 to triple FFF were subsequently
encashed?
A: Yes sir.
Q: Were you able to find out who encashed?
A: Mr. Balmaceda himself and besides he approved
the encashment because of the signature that he
allowed the encashment of the check.
xxxx
Q: Do you know if this particular person having in fact
withdraw of received the proceeds of [these]
particular checks, the payee?
A: No sir.
Q: It was all Mr. Balmaceda dealing with you?
A: Yes sir.
Q: In other words it would be possible that Mr.
Balmaceda himself gotten the proceeds of the checks
by forging the payees signature?
A: Yes sir.18 (emphases ours)
Mrs. Nilda Laforteza, the Commercial Account Officer
of PCIB’s Sta. Cruz, Manila branch at the time the
events of this case occurred, confirmed Mrs. Costes’
Page 34 of 91
testimony by stating that it was Balmaceda who
forged Ramos’ signature on the Manager’s checks
where Ramos was the payee, so as to encash the
amounts indicated on the checks.19 Mrs. Laforteza
also testified that Ramos never went to the PCIB, Sta.
Cruz, Manila branch to encash the checks since
Balmaceda was the one who deposited the checks
into Ramos’ bank account. As revealed during Mrs.
Laforteza’s cross-examination:
Q: Mrs. Laforteza, these checks that were applied for
by Mr. Balmaceda, did you ever see my client go to
the bank to encash these checks?
A: No it is Balmaceda who is depositing in his behalf.
Q: Did my client ever call up the bank concerning this
amount?
A: Yes he is not going to call PCIBank Sta. Cruz branch
because his account is maintained at Pasig.
Q: So Mr. Balmaceda was the one who just remitted
or transmitted the amount that you claimed [was
sent] to the account of my client?
A: Yes.20 (emphases ours)
Even Mrs. Rodelia Nario, presented by PCIB as its
rebuttal witness to prove that Ramos encashed a
Manager’s check for ₱480,000.00, could only testify
that the money was deposited into Ramos’ PCIB bank
account. She could not attest that Ramos himself
presented the Manager’s check for deposit in his bank
account.21 These testimonies clearly dispute PCIB’s
theory that Ramos was instrumental in the
encashment of the Manager’s checks.
We also find no reason to doubt Ramos’ claim that
Balmaceda deposited these large sums of money into
his bank account as payment for the fighting cocks
that Balmaceda purchased from him. Ramos
presented two witnesses – Vicente Cosculluela and
Crispin Gadapan – who testified that Ramos
previously engaged in the business of buying and
selling fighting cocks, and that Balmaceda was one of
Ramos’ biggest clients.
Quoting from the RTC decision, PCIB stresses that
Ramos’ own witness and business partner,
Cosculluela, testified that the biggest net profit he and
Ramos earned from a single transaction with
Balmaceda amounted to no more than ₱100,000.00,
for the sale of approximately 45 fighting cocks.22 In
PCIB’s view, this testimony directly contradicts Ramos’
assertion that he received approximately ₱400,000.00
from his biggest transaction with Balmaceda. To PCIB,
the testimony also renders questionable Ramos’
assertion that Balmaceda deposited large amounts of
money into his bank account as payment for the
fighting cocks.
On this point, we find that PCIB misunderstood
Cosculluela’s testimony. A review of the testimony
shows that Cosculluela specifically referred to the net
profit that they earned from the sale of the fighting
cocks;23 PCIB apparently did not take into account the
capital, transportation and other expenses that are
components of these transactions. Obviously, in sales
transactions, the buyer has to pay not only for the
value of the thing sold, but also for the shipping costs
and other incidental costs that accompany the
acquisition of the thing sold. Thus, while the biggest
net profit that Ramos and Cosculluela earned in a
single transaction amounted to no more than
₱100,000.00,24 the inclusion of the actual acquisition
costs of the fighting cocks, the transportation
expenses (i.e., airplane tickets from Bacolod or
Zamboanga to Manila) and other attendant expenses
could account for the ₱400,000.00 that Balmaceda
deposited into Ramos’ bank account.
Given that PCIB failed to establish Ramos’
participation in Balmaceda’s scheme, it was not even
necessary for Ramos to provide an explanation for the
money he received from Balmaceda. Even if the
evidence adduced by the plaintiff appears stronger
than that presented by the defendant, a judgment
cannot be entered in the plaintiff’s favor if his
evidence still does not suffice to sustain his cause of
action;25 to reiterate, a preponderance of evidence as
defined must be established to achieve this result.
PCIB itself at fault as employer
In considering this case, one point that cannot be
disregarded is the significant role that PCIB played
which contributed to the perpetration of the fraud.
We cannot ignore that Balmaceda managed to carry
out his fraudulent scheme primarily because other
PCIB employees failed to carry out their assigned tasks
– flaws imputable to PCIB itself as the employer.
Ms. Analiza Vega, an accounting clerk, teller and
domestic remittance clerk working at the PCIB, Sta.
Cruz, Manila branch at the time of the incident,
testified that Balmaceda broke the Bank’s protocol
when he ordered the Bank’s employees to fill up the
Page 35 of 91
application forms for the Manager’s checks, to be
debited from the bank account of one of the bank’s
clients, without providing the necessary Authority to
Debit from the client.26 PCIB also admitted that these
Manager’s checks were subsequently released to
Balmaceda, and not to the client’s representative,
based solely on Balmaceda’s word that the client had
tasked him to deliver these checks.27
Despite Balmaceda’s gross violations of bank
procedures – mainly in the processing of the
applications for Manager’s checks and in the releasing
of the Manager’s checks – Balmaceda’s co-employees
not only turned a blind eye to his actions, but actually
complied with his instructions. In this way, PCIB’s own
employees were unwitting accomplices in
Balmaceda’s fraud.
Another telling indicator of PCIB’s negligence is the
fact that it allowed Balmaceda to encash the
Manager’s checks that were plainly crossed checks. A
crossed check is one where two parallel lines are
drawn across its face or across its corner.28 Based on
jurisprudence, the crossing of a check has the
following effects: (a) the check may not be encashed
but only deposited in the bank; (b) the check may be
negotiated only once — to the one who has an
account with the bank; and (c) the act of crossing the
check serves as a warning to the holder that the check
has been issued for a definite purpose and he must
inquire if he received the check pursuant to this
purpose; otherwise, he is not a holder in due
course.29 In other words, the crossing of a check is a
warning that the check should be deposited only in
the account of the payee. When a check is crossed, it
is the duty of the collecting bank to ascertain that the
check is only deposited to the payee’s account.30 In
complete disregard of this duty, PCIB’s systems
allowed Balmaceda to encash 26 Manager’s checks
which were all crossed checks, or checks payable to
the "payee’s account only."
The General Banking Law of 200031 requires of banks
the highest standards of integrity and performance.
The banking business is impressed with public
interest. Of paramount importance is the trust and
confidence of the public in general in the banking
industry. Consequently, the diligence required of
banks is more than that of a Roman pater familias or a
good father of a family.32 The highest degree of
diligence is expected.33
While we appreciate that Balmaceda took advantage
of his authority and position as the branch manager to
commit these acts, this circumstance cannot be used
to excuse the manner the Bank – through its
employees –handled its clients’ bank accounts and
thereby ignored established bank procedures at the
branch manager’s mere order. This lapse is made all
the more glaring by Balmaceda’s repetition of his
modus operandi 33 more times in a period of over
one year by the Bank’s own estimation. With this kind
of record, blame must be imputed on the Bank itself
and its systems, not solely on the weakness or lapses
of individual employees.
Principle of unjust enrichment not applicable
PCIB maintains that even if Ramos did not collude
with Balmaceda, it still has the right to recover the
amounts unjustly received by Ramos pursuant to the
principle of unjust enrichment. This principle is
embodied in Article 22 of the Civil Code which
provides:
Article 22. Every person who through an act of
performance by another, or any other means,
acquires or comes into possession of something at the
expense of the latter without just or legal ground,
shall return the same to him.
To have a cause of action based on unjust enrichment,
we explained in University of the Philippines v. Philab
Industries, Inc.34 that:
Unjust enrichment claims do not lie simply because
one party benefits from the efforts or obligations of
others, but instead it must be shown that a party was
unjustly enriched in the sense that the term unjustly
could mean illegally or unlawfully.
Moreover, to substantiate a claim for unjust
enrichment, the claimant must unequivocally prove
that another party knowingly received something of
value to which he was not entitled and that the state
of affairs are such that it would be unjust for the
person to keep the benefit. Unjust enrichment is a
term used to depict result or effect of failure to make
remuneration of or for property or benefits received
under circumstances that give rise to legal or
equitable obligation to account for them; to be
entitled to remuneration, one must confer benefit by
mistake, fraud, coercion, or request. Unjust
enrichment is not itself a theory of reconvey. Rather,
Page 36 of 91
it is a prerequisite for the enforcement of the doctrine
of restitution.35 (emphasis ours)
Ramos cannot be held liable to PCIB on account of
unjust enrichment simply because he received
payments out of money secured by fraud from PCIB.
To hold Ramos accountable, it is necessary to prove
that he received the money from Balmaceda, knowing
that he (Ramos) was not entitled to it. PCIB must also
prove that Ramos, at the time that he received the
money from Balmaceda, knew that the money was
acquired through fraud. Knowledge of the fraud is the
link between Ramos and PCIB that would obligate
Ramos to return the money based on the principle of
unjust enrichment.
However, as the evidence on record indicates, Ramos
accepted the deposits that Balmaceda made directly
into his bank account, believing that these deposits
were payments for the fighting cocks that Balmaceda
had purchased. Significantly, PCIB has not presented
any evidence proving that Ramos participated in, or
that he even knew of, the fraudulent sources of
Balmaceda’s funds.
PCIB illegally froze and debited Ramos’ assets
We also find that PCIB acted illegally in freezing and
debiting Ramos’ bank account. In BPI Family Bank v.
Franco,36 we cautioned against the unilateral freezing
of bank accounts by banks, noting that:
More importantly, [BPI Family Bank] does not have a
unilateral right to freeze the accounts of Franco based
on its mere suspicion that the funds therein were
proceeds of the multi-million peso scam Franco was
allegedly involved in. To grant [BPI Family Bank], or
any bank for that matter, the right to take whatever
action it pleases on deposits which it supposes are
derived from shady transactions, would open the
floodgates of public distrust in the banking industry.37
We see no legal merit in PCIB’s claim that legal
compensation took place between it and Ramos,
thereby warranting the automatic deduction from
Ramos’ bank account. For legal compensation to take
place, two persons, in their own right, must first be
creditors and debtors of each other.38 While PCIB, as
the depositary bank, is Ramos’ debtor in the amount
of his deposits, Ramos is not PCIB’s debtor under the
evidence the PCIB adduced. PCIB thus had no basis, in
fact or in law, to automatically debit from Ramos’
bank account.
On the award of damages
Although PCIB’s act of freezing and debiting Ramos’
account is unlawful, we cannot hold PCIB liable for
moral and exemplary damages. Since a contractual
relationship existed between Ramos and PCIB as the
depositor and the depositary bank, respectively, the
award of moral damages depends on the applicability
of Article 2220 of the Civil Code, which provides:
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 the defendant acted
fraudulently or in bad faith. [emphasis ours]
Bad faith does not simply connote bad judgment or
negligence; it imports a dishonest purpose or some
moral obliquity and conscious commission of a wrong;
it partakes of the nature of fraud.39
As the facts of this case bear out, PCIB did not act out
of malice or bad faith when it froze Ramos’ bank
account and subsequently debited the amount of
₱251,910.96 therefrom. While PCIB may have acted
hastily and without regard to its primary duty to treat
the accounts of its depositors with meticulous care
and utmost fidelity,40 we find that its actions were
propelled more by the need to protect itself, and not
out of malevolence or ill will. One may err, but error
alone is not a ground for granting moral damages.41
We also disallow the award of exemplary damages.
Article 2234 of the Civil Code requires a party to first
prove that he is entitled to moral, temperate or
compensatory damages before he can be awarded
exemplary damages.1âwphi1 Since no reason exists to
award moral damages, so too can there be no reason
to award exemplary damages.
We deem it just and equitable, however, to uphold
the award of attorney’s fees in Ramos’ favor. Taking
into consideration the time and efforts involved that
went into this case, we increase the award of
attorney’s fees from ₱20,000.00 to ₱75,000.00.
WHEREFORE, the petition is PARTIALLY GRANTED.
We AFFIRM the decision of the Court of Appeals
dated April 29, 2003 in CA-G.R. CV No. 69955 with
the MODIFICATION that the award of moral and
exemplary damages in favor of Rolando N. Ramos
is DELETED, while the award of attorney’s fees
Page 37 of 91
is INCREASED to ₱75,000.00. Costs against the
Philippine Commercial International Bank.
SO ORDERED.
G.R. No. 88013 March 19, 1990
SIMEX INTERNATIONAL (MANILA),
INCORPORATED, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and TRADERS
ROYAL BANK, respondents.
Don P. Porcuincula for petitioner.
San Juan, Gonzalez, San Agustin & Sinense for private
respondent.
CRUZ, J.:
We are concerned in this case with the question of
damages, specifically moral and exemplary damages.
The negligence of the private respondent has already
been established. All we have to ascertain is whether
the petitioner is entitled to the said damages and, if
so, in what amounts.
The parties agree on the basic facts. The petitioner is a
private corporation engaged in the exportation of
food products. It buys these products from various
local suppliers and then sells them abroad,
particularly in the United States, Canada and the
Middle East. Most of its exports are purchased by the
petitioner on credit.
The petitioner was a depositor of the respondent
bank and maintained a checking account in its branch
at Romulo Avenue, Cubao, Quezon City. On May 25,
1981, the petitioner deposited to its account in the
said bank the amount of P100,000.00, thus increasing
its balance as of that date to
P190,380.74. 1 Subsequently, the petitioner issued
several checks against its deposit but was suprised to
learn later that they had been dishonored for
insufficient funds.
The dishonored checks are the following:
1. Check No. 215391 dated May 29, 1981, in favor of
California Manufacturing Company, Inc. for
P16,480.00:
2. Check No. 215426 dated May 28, 1981, in favor of
the Bureau of Internal Revenue in the amount of
P3,386.73:
3. Check No. 215451 dated June 4, 1981, in favor of
Mr. Greg Pedreño in the amount of P7,080.00;
4. Check No. 215441 dated June 5, 1981, in favor of
Malabon Longlife Trading Corporation in the amount
of P42,906.00:
5. Check No. 215474 dated June 10, 1981, in favor of
Malabon Longlife Trading Corporation in the amount
of P12,953.00:
6. Check No. 215477 dated June 9, 1981, in favor of
Sea-Land Services, Inc. in the amount of P27,024.45:
7. Check No. 215412 dated June 10, 1981, in favor of
Baguio Country Club Corporation in the amount of
P4,385.02: and
8. Check No. 215480 dated June 9, 1981, in favor of
Enriqueta Bayla in the amount of P6,275.00. 2
As a consequence, the California Manufacturing
Corporation sent on June 9, 1981, a letter of demand
to the petitioner, threatening prosecution if the
dishonored check issued to it was not made good. It
also withheld delivery of the order made by the
petitioner. Similar letters were sent to the petitioner
by the Malabon Long Life Trading, on June 15, 1981,
and by the G. and U. Enterprises, on June 10, 1981.
Malabon also canceled the petitioner's credit line and
demanded that future payments be made by it in cash
or certified check. Meantime, action on the pending
orders of the petitioner with the other suppliers
whose checks were dishonored was also deferred.
The petitioner complained to the respondent bank on
June 10, 1981. 3 Investigation disclosed that the sum
of P100,000.00 deposited by the petitioner on May
25, 1981, had not been credited to it. The error was
rectified on June 17, 1981, and the dishonored checks
were paid after they were re-deposited. 4
In its letter dated June 20, 1981, the petitioner
demanded reparation from the respondent bank for
its "gross and wanton negligence." This demand was
not met. The petitioner then filed a complaint in the
then Court of First Instance of Rizal claiming from the
private respondent moral damages in the sum of
P1,000,000.00 and exemplary damages in the sum of
P500,000.00, plus 25% attorney's fees, and costs.
After trial, Judge Johnico G. Serquinia rendered
judgment holding that moral and exemplary damages
were not called for under the circumstances.
However, observing that the plaintiff's right had been
violated, he ordered the defendant to pay nominal
damages in the amount of P20,000.00 plus P5,000.00
Page 38 of 91
attorney's fees and costs. 5 This decision was
affirmed in toto by the respondent court. 6
The respondent court found with the trial court that
the private respondent was guilty of negligence but
agreed that the petitioner was nevertheless not
entitled to moral damages. It said:
The essential ingredient of moral damages is proof of
bad faith (De Aparicio vs. Parogurga, 150 SCRA 280).
Indeed, there was the omission by the defendant-
appellee bank to credit appellant's deposit of
P100,000.00 on May 25, 1981. But the bank rectified
its records. It credited the said amount in favor of
plaintiff-appellant in less than a month. The
dishonored checks were eventually paid. These
circumstances negate any imputation or insinuation of
malicious, fraudulent, wanton and gross bad faith and
negligence on the part of the defendant-appellant.
It is this ruling that is faulted in the petition now
before us.
This Court has carefully examined the facts of this
case and finds that it cannot share some of the
conclusions of the lower courts. It seems to us that
the negligence of the private respondent had been
brushed off rather lightly as if it were a minor
infraction requiring no more than a slap on the wrist.
We feel it is not enough to say that the private
respondent rectified its records and credited the
deposit in less than a month as if this were sufficient
repentance. The error should not have been
committed in the first place. The respondent bank has
not even explained why it was committed at all. It is
true that the dishonored checks were, as the Court of
Appeals put it, "eventually" paid. However, this took
almost a month when, properly, the checks should
have been paid immediately upon presentment.
As the Court sees it, the initial carelessness of the
respondent bank, aggravated by the lack of
promptitude in repairing its error, justifies the grant of
moral damages. This rather lackadaisical attitude
toward the complaining depositor constituted the
gross negligence, if not wanton bad faith, that the
respondent court said had not been established by
the petitioner.
We also note that while stressing the rectification
made by the respondent bank, the decision practically
ignored the prejudice suffered by the petitioner. This
was simply glossed over if not, indeed, disbelieved.
The fact is that the petitioner's credit line was
canceled and its orders were not acted upon pending
receipt of actual payment by the suppliers. Its
business declined. Its reputation was tarnished. Its
standing was reduced in the business community. All
this was due to the fault of the respondent bank
which was undeniably remiss in its duty to the
petitioner.
Article 2205 of the Civil Code provides that actual or
compensatory damages may be received "(2) for
injury to the plaintiff s business standing or
commercial credit." There is no question that the
petitioner did sustain actual injury as a result of the
dishonored checks and that the existence of the loss
having been established "absolute certainty as to its
7
amount is not required." Such injury should bolster
all the more the demand of the petitioner for moral
damages and justifies the examination by this Court of
the validity and reasonableness of the said claim.
We agree that moral damages are not awarded to
penalize the defendant but to compensate the
8
plaintiff for the injuries he may have suffered. In the
case at bar, the petitioner is seeking such damages for
the prejudice sustained by it as a result of the private
respondent's fault. The respondent court said that the
claimed losses are purely speculative and are not
supported by substantial evidence, but if failed to
consider that the amount of such losses need not be
established with exactitude precisely because of their
nature. Moral damages are not susceptible of
pecuniary estimation. Article 2216 of the Civil Code
specifically provides that "no proof of pecuniary loss is
necessary in order that moral, nominal, temperate,
liquidated or exemplary damages may be
adjudicated." That is why the determination of the
amount to be awarded (except liquidated damages) is
left to the sound discretion of the court, according to
"the circumstances of each case."
From every viewpoint except that of the petitioner's,
its claim of moral damages in the amount of
P1,000,000.00 is nothing short of preposterous. Its
business certainly is not that big, or its name that
prestigious, to sustain such an extravagant pretense.
Moreover, a corporation is not as a rule entitled to
moral damages because, not being a natural person, it
cannot experience physical suffering or such
sentiments as wounded feelings, serious anxiety,
mental anguish and moral shock. The only exception
Page 39 of 91
to this rule is where the corporation has a good
reputation that is debased, resulting in its social
humiliation. 9
We shall recognize that the petitioner did suffer injury
because of the private respondent's negligence that
caused the dishonor of the checks issued by it. The
immediate consequence was that its prestige was
impaired because of the bouncing checks and
confidence in it as a reliable debtor was diminished.
The private respondent makes much of the one
instance when the petitioner was sued in a collection
case, but that did not prove that it did not have a
good reputation that could not be marred, more so
since that case was ultimately settled. 10 It does not
appear that, as the private respondent would portray
it, the petitioner is an unsavory and disreputable
entity that has no good name to protect.
Considering all this, we feel that the award of nominal
damages in the sum of P20,000.00 was not the proper
relief to which the petitioner was entitled. Under
Article 2221 of the Civil Code, "nominal damages are
adjudicated in order that a right of the plaintiff, which
has been violated or invaded by the defendant, may
be vindicated or recognized, and not for the purpose
of indemnifying the plaintiff for any loss suffered by
him." As we have found that the petitioner has indeed
incurred loss through the fault of the private
respondent, the proper remedy is the award to it of
moral damages, which we impose, in our discretion, in
the same amount of P20,000.00.
Now for the exemplary damages.
The pertinent provisions of the Civil Code are the
following:
Art. 2229. Exemplary or corrective damages are
imposed, by way of example or correction for the
public good, in addition to the moral, temperate,
liquidated or compensatory damages.
Art. 2232. In contracts and quasi-contracts, the court
may award exemplary damages if the defendant acted
in a wanton, fraudulent, reckless, oppressive, or
malevolent manner.
The banking system is an indispensable institution in
the modern world and plays a vital role in the
economic life of every civilized nation. 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. Thus, even the humble wage-
earner has not hesitated to entrust his life's savings to
the bank of his choice, knowing that they will be safe
in its custody and will even earn some interest for
him. The ordinary person, with equal faith, usually
maintains a modest checking account for security and
convenience in the settling of his monthly bills and the
payment of ordinary expenses. As for business entities
like the petitioner, the bank is a trusted and active
associate that can help in the running of their affairs,
not only in the form of loans when needed but more
often in the conduct of their day-to-day transactions
like the issuance or encashment of checks.
In every case, the depositor expects the bank to treat
his account with the utmost fidelity, whether such
account consists only of a few hundred pesos or of
millions. The bank must record every single
transaction accurately, down to the last centavo, and
as promptly as possible. This has to be done if the
account is to reflect at any given time the amount of
money the depositor can dispose of as he sees fit,
confident that the bank will deliver it as and to
whomever he directs. A blunder on the part of the
bank, such as the dishonor of a check without good
reason, can cause the depositor not a little
embarrassment if not also financial loss and perhaps
even civil and criminal litigation.
The point is that as a business affected with public
interest and because of the nature of its functions, the
bank is under obligation to treat the accounts of its
depositors with meticulous care, always having in
mind the fiduciary nature of their relationship. In the
case at bar, it is obvious that the respondent bank was
remiss in that duty and violated that relationship.
What is especially deplorable is that, having been
informed of its error in not crediting the deposit in
question to the petitioner, the respondent bank did
not immediately correct it but did so only one week
later or twenty-three days after the deposit was
made. It bears repeating that the record does not
contain any satisfactory explanation of why the error
was made in the first place and why it was not
corrected immediately after its discovery. Such
ineptness comes under the concept of the wanton
manner contemplated in the Civil Code that calls for
the imposition of exemplary damages.
Page 40 of 91
After deliberating on this particular matter, the Court,
in the exercise of its discretion, hereby imposes upon
the respondent bank exemplary damages in the
amount of P50,000.00, "by way of example or
correction for the public good," in the words of the
law. It is expected that this ruling will serve as a
warning and deterrent against the repetition of the
ineptness and indefference that has been displayed
here, lest the confidence of the public in the banking
system be further impaired.
ACCORDINGLY, the appealed judgment is hereby
MODIFIED and the private respondent is ordered to
pay the petitioner, in lieu of nominal damages, moral
damages in the amount of P20,000.00, and exemplary
damages in the amount of P50,000.00 plus the
original award of attorney's fees in the amount of
P5,000.00, and costs.
SO ORDERED.
G.R. No. 173259 July 25, 2011
PHILIPPINE NATIONAL BANK, Petitioner,
vs.
F.F. CRUZ and CO., INC. Respondent.
DECISION
DEL CASTILLO, J.:
As between a bank and its depositor, where the
bank’s negligence is the proximate cause of the loss
and the depositor is guilty of contributory negligence,
the greater proportion of the loss shall be borne by
the bank.
This Petition for Review on Certiorari seeks to reverse
and set aside the Court of Appeal’s January 31, 2006
Decision1 in CA-G.R. CV No. 81349, which modified the
January 30, 2004 Decision2 of the Regional Trial Court
of Manila City, Branch 46 in Civil Case No. 97-84010,
and the June 26, 2006 Resolution3 denying
petitioner’s motion for reconsideration.
Factual Antecedents
The antecedents are aptly summarized by the
appellate court:
In its complaint, it is alleged that [respondent F.F. Cruz
& Co., Inc.] (hereinafter FFCCI) opened
savings/current or so-called combo account No. 0219-
830-146 and dollar savings account No. 0219-0502-
458-6 with [petitioner Philippine National Bank]
(hereinafter PNB) at its Timog Avenue Branch. Its
President Felipe Cruz (or Felipe) and Secretary-
Treasurer Angelita A. Cruz (or Angelita) were the
named signatories for the said accounts.
The said signatories on separate but coeval dates left
for and returned from the Unites States of America,
Felipe on March 18, 1995 until June 10, 1995 while
Angelita followed him on March 29, 1995 and
returned ahead on May 9, 1995.
While they were thus out of the country, applications
for cashier’s and manager’s [checks] bearing Felipe’s
[signature] were presented to and both approved by
the PNB. The first was on March 27, 1995 for
₱9,950,000.00 payable to a certain Gene B. Sangalang
and the other one was on April 24, 1995 for
₱3,260,500.31 payable to one Paul Bautista. The
amounts of these checks were then debited by the
PNB against the combo account of [FFCCI].
When Angelita returned to the country, she had
occasion to examine the PNB statements of account
of [FFCCI] for the months of February to August 1995
and she noticed the deductions of ₱9,950,000.00 and
₱3,260,500.31. Claiming that these were unauthorized
and fraudulently made, [FFCCI] requested PNB to
credit back and restore to its account the value of the
checks. PNB refused, and thus constrained [FFCCI]
filed the instant suit for damages against the PNB and
its own accountant Aurea Caparas (or Caparas).
In its traverse, PNB averred lack of cause of action. It
alleged that it exercised due diligence in handling the
account of [FFCCI]. The applications for manager’s
check have passed through the standard bank
procedures and it was only after finding no infirmity
that these were given due course. In fact, it was no
less than Caparas, the accountant of [FFCCI], who
confirmed the regularity of the transaction. The delay
of [FFCCI] in picking up and going over the bank
statements was the proximate cause of its self-
proclaimed injury. Had [FFCCI] been conscientious in
this regard, the alleged chicanery would have been
detected early on and Caparas effectively prevented
from absconding with its millions. It prayed for the
dismissal of the complaint.4
Regional Trial Court’s Ruling
The trial court ruled that F.F. Cruz and Company, Inc. (
FFCCI) was guilty of negligence in clothing Aurea
Caparas (Caparas) with authority to make decisions on
and dispositions of its account which paved the way
for the fraudulent transactions perpetrated by
Page 41 of 91
Caparas; that, in practice, FFCCI waived the two-
signature requirement in transactions involving the
subject combo account so much so that Philippine
National Bank (PNB) could not be faulted for honoring
the applications for manager’s check even if only the
signature of Felipe Cruz appeared thereon; and that
FFCCI was negligent in not immediately informing PNB
of the fraud.
On the other hand, the trial court found that PNB was,
likewise, negligent in not calling or personally
verifying from the authorized signatories the
legitimacy of the subject withdrawals considering that
they were in huge amounts. For this reason, PNB had
the last clear chance to prevent the unauthorized
debits from FFCCI’s combo account. Thus, PNB should
bear the whole loss –
WHEREFORE, judgment is hereby rendered ordering
defendant [PNB] to pay plaintiff [FFCCI]
₱13,210,500.31 representing the amounts debited
against plaintiff’s account, with interest at the legal
rate computed from the filing of the complaint plus
costs of suit.
IT IS SO ORDERED.5
Court of Appeal’s Ruling
On January 31, 2006, the CA rendered the assailed
Decision affirming with modification the Decision of
the trial court, viz:
WHEREFORE, the appealed Decision
is AFFIRMED with the MODIFICATION that [PNB] shall
pay [FFCCI] only 60% of the actual damages awarded
by the trial court while the remaining 40% shall be
borne by [FFCCI].
SO ORDERED.6
The appellate court ruled that PNB was negligent in
not properly verifying the genuineness of the
signatures appearing on the two applications for
manager’s check as evidenced by the lack of the
signature of the bank verifier thereon. Had this
procedure been followed, the forgery would have
been detected.
Nonetheless, the appellate court found FFCCI guilty of
contributory negligence because it clothed its
accountant/bookkeeper Caparas with apparent
authority to transact business with PNB. In addition,
FFCCI failed to timely examine its monthly statement
of account and report the discrepancy to PNB within a
reasonable period of time to prevent or recover the
loss. FFCCI’s contributory negligence, thus, mitigated
the bank’s liability. Pursuant to the rulings
in Philippine Bank of Commerce v. Court of
Appeals7 and The Consolidated Bank & Trust
Corporation v. Court of Appeals,8 the appellate court
allocated the damages on a 60-40 ratio with the
bigger share to be borne by PNB.
From this decision, both FFCCI and PNB sought review
before this Court.
On August 17, 2006, FFCCI filed its petition for review
on certiorari which was docketed as G.R. No.
173278.9 On March 7, 2007, the Court issued a
Resolution10 denying said petition. On June 13, 2007,
the Court issued another Resolution11 denying FFCCI’s
motion for reconsideration. In denying the aforesaid
petition, the Court ruled that FFCCI essentially raises
questions of fact which are, as a rule, not reviewable
under a Rule 45 petition; that FFCCI failed to show
that its case fell within the established exceptions to
this rule; and that FFCCI was guilty of contributory
negligence. Thus, the appellate court correctly
mitigated PNB’s liability.
On July 13, 2006, PNB filed its petition for review
on certiorari which is the subject matter of this case.
Issue
Whether the Court of Appeals seriously erred when it
found PNB guilty of negligence.12
Our Ruling
We affirm the ruling of the CA.
PNB is guilty of negligence.
Preliminarily, in G.R. No. 173278, we resolved with
finality13 that FFCCI is guilty of contributory
negligence, thus, making it partly liable for the loss
(i.e., as to 40% thereof) arising from the unauthorized
withdrawal of ₱13,210,500.31 from its combo
account. The case before us is, thus, limited to PNB’s
alleged negligence in the subject transactions which
the appellate court found to be the proximate cause
of the loss, thus, making it liable for the greater part
of the loss (i.e., as to 60% thereof) pursuant to our
rulings in Philippine Bank of Commerce v. Court of
Appeals14 and The Consolidated Bank & Trust
Corporation v. Court of Appeals.15
PNB contends that it was not negligent in verifying the
genuineness of the signatures appearing on the
subject applications for manager’s check. It claims
that it followed the standard operating procedure in
Page 42 of 91
the verification process and that four bank officers
examined the signatures and found the same to be
similar with those found in the signature cards of
FFCCI’s authorized signatories on file with the bank.
PNB raises factual issues which are generally not
proper for review under a Rule 45
petition.1avvphi1 While there are exceptions to this
rule, we find none applicable to the present case. As
correctly found by the appellate court, PNB failed to
make the proper verification because the applications
for the manager’s check do not bear the signature of
the bank verifier. PNB concedes the absence16 of the
subject signature but argues that the same was the
result of inadvertence. It posits that the testimonies of
Geronimo Gallego (Gallego), then the branch manager
of PNB Timog Branch, and Stella San Diego (San
Diego), then branch cashier, suffice to establish that
the signature verification process was duly followed.
We are not persuaded.
First, oral testimony is not as reliable as documentary
evidence.17 Second, PNB’s own witness, San Diego,
testified that in the verification process, the principal
duty to determine the genuineness of the signature
devolved upon the account analyst.18 However, PNB
did not present the account analyst to explain his or
her failure to sign the box for signature and balance
verification of the subject applications for manager’s
check, thus, casting doubt as to whether he or she did
indeed verify the signatures thereon. Third, we cannot
fault the appellate court for not giving weight to the
testimonies of Gallego and San Diego considering that
the latter are naturally interested in exculpating
themselves from any liability arising from the failure
to detect the forgeries in the subject transactions.
Fourth, Gallego admitted that PNB’s employees
received training on detecting forgeries from the
National Bureau of Investigation.19 However,
Emmanuel Guzman, then NBI senior document
examiner, testified, as an expert witness, that the
forged signatures in the subject applications for
manager’s check contained noticeable and significant
differences from the genuine signatures of FFCCI’s
authorized signatories and that the forgeries should
have been detected or observed by a trained
signature verifier of any bank.20
Given the foregoing, we find no reversible error in the
findings of the appellate court that PNB was negligent
in the handling of FFCCI’s combo account, specifically,
with respect to PNB’s failure to detect the forgeries in
the subject applications for manager’s check which
could have prevented the loss. As we have often
ruled, the banking business is impressed with public
trust.21 A higher degree of diligence is imposed on
banks relative to the handling of their affairs than that
of an ordinary business enterprise.22 Thus, the degree
of responsibility, care and trustworthiness expected of
their officials and employees is far greater than those
of ordinary officers and employees in other
enterprises.23 In the case at bar, PNB failed to meet
the high standard of diligence required by the
circumstances to prevent the fraud. In Philippine Bank
of Commerce v. Court of Appeals24 and The
Consolidated Bank & Trust Corporation v. Court of
Appeals,25 where the bank’s negligence is the
proximate cause of the loss and the depositor is guilty
of contributory negligence, we allocated the damages
between the bank and the depositor on a 60-40 ratio.
We apply the same ruling in this case considering that,
as shown above, PNB’s negligence is the proximate
cause of the loss while the issue as to FFCCI’s
contributory negligence has been settled with finality
in G.R. No. 173278. Thus, the appellate court properly
adjudged PNB to bear the greater part of the loss
consistent with these rulings.
WHEREFORE, the petition is DENIED. The January 31,
2006 Decision and June 26, 2006 Resolution of the
Court of Appeals in CA-G.R. CV No. 81349
are AFFIRMED.
Costs against petitioner.
SO ORDERED.
G.R. No. 118492 August 15, 2001
GREGORIO H. REYES and CONSUELO PUYAT-
REYES, petitioners,
vs.
THE HON. COURT OF APPEALS and FAR EAST BANK
AND TRUST COMPANY, respondents.
DE LEON, JR., J.:
Before us is a petition for review of the
Decision1 dated July 22, 1994 and Resolution2 dated
December 29, 1994 of the Court of Appeals3 affirming
with modification the Decision4 dated November 12,
1992 of the Regional Trial Court of Makati, Metro
Manila, Branch 64, which dismissed the complaint for
Page 43 of 91
damages of petitioners spouses Gregorio H. Reyes and
Consuelo Puyat-Reyes against respondent Far East
Bank and Trust Company.
The undisputed facts of the case are as follows:
In view of the 20th Asian Racing Conference then
scheduled to be held in September, 1988 in Sydney,
Australia, the Philippine Racing Club, Inc. (PRCI, for
brevity) sent four (4) delegates to the said conference.
Petitioner Gregorio H. Reyes, as vice-president for
finance, racing manager, treasurer, and director of
PRCI, sent Godofredo Reyes, the club's chief cashier,
to the respondent bank to apply for a foreign
exchange demand draft in Australian dollars.
Godofredo went to respondent bank's Buendia Branch
in Makati City to apply for a demand draft in the
amount One Thousand Six Hundred Ten Australian
Dollars (AU$1,610.00) payable to the order of the
20th Asian Racing Conference Secretariat of Sydney,
Australia. He was attended to by respondent bank's
assistant cashier, Mr. Yasis, who at first denied the
application for the reason that respondent bank did
not have an Australian dollar account in any bank in
Sydney. Godofredo asked if there could be a way for
respondent bank to accommodate PRCI's urgent need
to remit Australian dollars to Sydney. Yasis of
respondent bank then informed Godofredo of a
roundabout way of effecting the requested
remittance to Sydney thus: the respondent bank
would draw a demand draft against Westpac Bank in
Sydney, Australia (Westpac-Sydney for brevity) and
have the latter reimburse itself from the U.S. dollar
account of the respondent in Westpac Bank in New
York, U.S.A. (Westpac-New York for brevity). This
arrangement has been customarily resorted to since
the 1960's and the procedure has proven to be
problem-free. PRCI and the petitioner Gregorio H.
Reyes, acting through Godofredo, agreed to this
arrangement or approach in order to effect the urgent
transfer of Australian dollars payable to the
Secretariat of the 20th Asian Racing Conference.
On July 28, 1988, the respondent bank approved the
said application of PRCI and issued Foreign Exchange
Demand Draft (FXDD) No. 209968 in the sum applied
for, that is, One Thousand Six Hundred Ten Australian
Dollars (AU$ 1,610.00), payable to the order of the
20th Asian Racing Conference Secretariat of Sydney,
Australia, and addressed to Westpac-Sydney as the
drawee bank.1âwphi1.nêt
On August 10, 1988, upon due presentment of the
foreign exchange demand draft, denominated as
FXDD No. 209968, the same was dishonored, with the
notice of dishonor stating the following: "xxx No
account held with Westpac." Meanwhile, on August
16, 1988, Wespac-New York sent a cable to
respondent bank informing the latter that its dollar
account in the sum of One Thousand Six Hundred Ten
Australian Dollars (AU$ 1,610.00) was debited. On
August 19, 1988, in response to PRCI's complaint
about the dishonor of the said foreign exchange
demand draft, respondent bank informed Westpac-
Sydney of the issuance of the said demand draft FXDD
No. 209968, drawn against the Wespac-Sydney and
informing the latter to be reimbursed from the
respondent bank's dollar account in Westpac-New
York. The respondent bank on the same day likewise
informed Wespac-New York requesting the latter to
honor the reimbursement claim of Wespac-Sydney.
On September 14, 1988, upon its second presentment
for payment, FXDD No. 209968 was again dishonored
by Westpac-Sydney for the same reason, that is, that
the respondent bank has no deposit dollar account
with the drawee Wespac-Sydney.
On September 17, 1988 and September 18, 1988,
respectively, petitioners spouses Gregorio H. Reyes
and Consuelo Puyat-Reyes left for Australia to attend
the said racing conference. When petitioner Gregorio
H. Reyes arrived in Sydney in the morning of
September 18, 1988, he went directly to the lobby of
Hotel Regent Sydney to register as a conference
delegate. At the registration desk, in the presence of
other delegates from various member of the
conference secretariat that he could not register
because the foreign exchange demand draft for his
registration fee had been dishonored for the second
time. A discussion ensued in the presence and within
the hearing of many delegates who were also
registering. Feeling terribly embarrassed and
humiliated, petitioner Gregorio H. Reyes asked the
lady member of the conference secretariat that he be
shown the subject foreign exchange demand draft
that had been dishonored as well as the covering
letter after which he promised that he would pay the
registration fees in cash. In the meantime he
demanded that he be given his name plate and
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conference kit. The lady member of the conference
secretariat relented and gave him his name plate and
conference kit. It was only two (2) days later, or on
September 20, 1988, that he was given the
dishonored demand draft and a covering letter. It was
then that he actually paid in cash the registration fees
as he had earlier promised.
Meanwhile, on September 19, 1988, petitioner
Consuelo Puyat-Reyes arrived in Sydney. She too was
embarassed and humiliated at the registration desk of
the conference secretariat when she was told in the
presence and within the hearing of other delegates
that she could not be registered due to the dishonor
of the subject foreign exchange demand draft. She felt
herself trembling and unable to look at the people
around her. Fortunately, she saw her husband,
coming toward her. He saved the situation for her by
telling the secretariat member that he had already
arranged for the payment of the registration fee in
cash once he was shown the dishonored demand
draft. Only then was petitioner Puyat-Reyes given her
name plate and conference kit.
At the time the incident took place, petitioner
Consuelo Puyat-Reyes was a member of the House of
Representatives representing the lone Congressional
District of Makati, Metro Manila. She has been an
officer of the Manila Banking Corporation and was
cited by Archbishop Jaime Cardinal Sin as the top lady
banker of the year in connection with her conferment
of the Pro-Ecclesia et Pontifice Award. She has also
been awarded a plaque of appreciation from the
Philippine Tuberculosis Society for her extraordinary
service as the Society's campaign chairman for the
ninth (9th) consecutive year.
On November 23, 1988, the petitioners filed in the
Regional Trial Court of Makati, Metro Manila, a
complaint for damages, docketed as Civil Case No. 88-
2468, against the respondent bank due to the
dishonor of the said foreign exchange demand draft
issued by the respondent bank. The petitioners claim
that as a result of the dishonor of the said demand
draft, they were exposed to unnecessary shock, social
humiliation, and deep mental anguish in a foreign
country, and in the presence of an international
audience.
On November 12, 1992, the trial court rendered
judgment in favor of the defendant (respondent bank)
and against the plaintiffs (herein petitioners), the
dispositive portion of which states:
WHEREFORE, judgment is hereby rendered in favor of
the defendant, dismissing plaintiff's complaint, and
ordering plaintiffs to pay to defendant, on its
counterclaim, the amount of P50,000.00, as
reasonable attorney's fees. Costs against the plaintiff.
SO ORDERED.5
The petitioners appealed the decision of the trial
court to the Court of Appeals. On July 22, 1994, the
appellate court affirmed the decision of the trial court
but in effect deleted the award of attorney's fees to
the defendant (herein respondent bank) and the
pronouncement as to the costs. The decretal portion
of the decision of the appellate court states:
WHEREFORE, the judgment appealed from, insofar as
it dismissed plaintiff's complaint, is hereby AFFIRMED,
but is hereby REVERSED and SET ASIDE in all other
respect. No special pronouncement as to costs.
SO ORDERED.6
According to the appellate court, there is no basis to
hold the respondent bank liable for damages for the
reason that it exerted every effort for the subject
foreign exchange demand draft to be honored. The
appellate court found and declared that:
xxx xxx xxx
Thus, the Bank had every reason to believe that the
transaction finally went through smoothly,
considering that its New York account had been
debited and that there was no miscommunication
between it and Westpac-New York. SWIFT is a world
wide association used by almost all banks and is
known to be the most reliable mode of
communication in the international banking business.
Besides, the above procedure, with the Bank as
drawer and Westpac-Sydney as drawee, and with
Westpac-New York as the reimbursement Bank had
been in place since 1960s and there was no reason for
the Bank to suspect that this particular demand draft
would not be honored by Westpac-Sydney.
From the evidence, it appears that the root cause of
the miscommunications of the Bank's SWIFT message
is the erroneous decoding on the part of Westpac-
Sydney of the Bank's SWIFT message as an MT799
format. However, a closer look at the Bank's Exhs. "6"
and "7" would show that despite what appears to be
an asterick written over the figure before "99", the
Page 45 of 91
figure can still be distinctly seen as a number "1" and
not number "7", to the effect that Westpac-Sydney
was responsible for the dishonor and not the Bank.
Moreover, it is not said asterisk that caused the
misleading on the part of the Westpac-Sydney of the
numbers "1" to "7", since Exhs. "6" and "7" are just
documentary copies of the cable message sent to
Wespac-Sydney. Hence, if there was mistake
committed by Westpac-Sydney in decoding the cable
message which caused the Bank's message to be sent
to the wrong department, the mistake was Westpac's,
not the Bank's. The Bank had done what an ordinary
prudent person is required to do in the particular
situation, although appellants expect the Bank to have
done more. The Bank having done everything
necessary or usual in the ordinary course of banking
transaction, it cannot be held liable for any
embarrassment and corresponding damage that
appellants may have incurred.7
xxx xxx xxx
Hence, this petition, anchored on the following
assignment of errors:
I
THE HONORABLE COURT OF APPEALS ERRED IN
FINDING PRIVATE RESPONDENT NOT NEGLIGENT BY
ERRONEOUSLY APPLYING THE STANDARD OF
DILIGENCE OF AN "ORDINARY PRUDENT PERSON"
WHEN IN TRUTH A HIGHER DEGREE OF DILIGENCE IS
IMPOSED BY LAW UPON THE BANKS.
II
THE HONORABLE COURT OF APPEALS ERRED IN
ABSOLVING PRIVATE RESPONDENT FROM LIABILITY BY
OVERLOOKING THE FACT THAT THE DISHONOR OF
THE DEMAND DRAFT WAS A BREACH OF PRIVATE
RESPONDENT'S WARRANTY AS THE DRAWER
THEREOF.
III
THE HONORABLE COURT OF APPEALS ERRED IN NOT
HOLDING THAT AS SHOWN OVERWHELMINGLY BY
THE EVIDENCE, THE DISHONOR OF THE DEMAND
DRAFT AS DUE TO PRIVATE RESPONDENT'S
NEGLIGENCE AND NOT THE DRAWEE BANK.8
The petitioners contend that due to the fiduciary
nature of the relationship between the respondent
bank and its clients, the respondent should have
exercised a higher degree of diligence than that
expected of an ordinary prudent person in the
handling of its affairs as in the case at bar. The
appellate court, according to petitioners, erred in
applying the standard of diligence of an ordinary
prudent person only. Petitioners also claim that the
respondent bank violate Section 61 of the Negotiable
Instruments Law9 which provides the warranty of a
drawer that "xxx on due presentment, the instrument
will be accepted or paid, or both, according to its
tenor xxx." Thus, the petitioners argue that
respondent bank should be held liable for damages
for violation of this warranty. The petitioners pray this
Court to re-examine the facts to cite certain instances
of negligence.
It is our view and we hold that there is no reversible
error in the decision of the appellate court.
Section 1 of Rule 45 of the Revised Rules of Court
provides that "(T)he petition (for review) shall
raise only questions of law which must be distinctly
set forth." Thus, we have ruled that factual findings of
the Court of Appeals are conclusive on the parties and
not reviewable by this Court – and they carry even
more weight when the Court of Appeals affirms the
factual findings of the trial court.10
The courts a quo found that respondent bank did not
misrepresent that it was maintaining a deposit
account with Westpac-Sydney. Respondent bank's
assistant cashier explained to Godofredo Reyes,
representing PRCI and petitioner Gregorio H. Reyes,
how the transfer of Australian dollars would be
effected through Westpac-New York where the
respondent bank has a dollar account to Westpac-
Sydney where the subject foreign exchange demand
draft (FXDD No. 209968) could be encashed by the
th
payee, the 20 Asian Racing Conference Secretariat.
PRCI and its Vice-President for finance, petitioner
Gregorio H. Reyes, through their said representative,
agreed to that arrangement or procedure. In other
words, the petitioners are estopped from denying the
said arrangement or procedure. Similar arrangements
have been a long standing practice in banking to
facilitate international commercial transactions. In
fact, the SWIFT cable message sent by respondent
bank to the drawee bank, Westpac-Sydney, stated
that it may claim reimbursement from its New York
branch, Westpac-New York, where respondent bank
has a deposit dollar account. The facts as found by the
courts a quo show that respondent bank did not cause
an erroneous transmittal of its SWIFT cable message
Page 46 of 91
to Westpac-Sydney. It was the erroneous decoding of
the cable message on the part of Westpac-Sydney
that caused the dishonor of the subject foreign
exchange demand draft. An employee of Westpac-
Sydney in Sydney, Australia mistakenly read the
printed figures in the SWIFT cable message of
respondent bank as "MT799" instead of as "MT199".
As a result, Westpac-Sydney construed the said cable
message as a format for a letter of credit, and not for
a demand draft. The appellate court correct found
that "the figure before '99' can still be distinctly seen
as a number '1' and not number '7'." Indeed, the line
of a "7" is in a slanting position while the line of a "1"
is in a horizontal position. Thus, the number "1" in
"MT199" cannot be construed as "7".11
The evidence also shows that the respondent bank
exercised that degree of diligence expected of an
ordinary prudent person under the circumstances
obtaining. Prior to the first dishonor of the subject
foreign exchange demand draft, the respondent bank
advised Westpac-New York to honor the
reimbursement claim of Westpac-Sydney and to debit
the dollar account12 of respondent bank with the
former. As soon as the demand draft was dishonored,
the respondent bank, thinking that the problem was
with the reimbursement and without any idea that it
was due to miscommunication, re-confirmed the
authority of Westpac-New York to debit its dollar
account for the purpose of reimbursing Westpac-
Sydney.13 Respondent bank also sent two (2) more
cable messages to Westpac-New York inquiring why
the demand draft was not honored.14
With these established facts, we now determine the
degree of diligence that banks are required to exert in
their commercial dealings. In Philippine Bank of
Commerce v. Court of Appeals15 upholding a long
standing doctrine, we ruled that the degree of
diligence required of banks, is more than that of
a good father of a family where the fiduciary nature of
their relationship with their depositors is concerned.
In other words banks are duty bound to treat the
deposit accounts of their depositors with the highest
degree of care. But the said ruling applies only to
cases where banks act under their fiduciary capacity,
that is, as depositary of the deposits of their
depositors. But the same higher degree of diligence is
not expected to be exerted by banks in commercial
transactions that do not involve their fiduciary bar. In any event, it was established that the
relationship with their depositors. respondent bank acted in good faith and that it did
Considering the foregoing, the respondent bank was not cause the embarrassment of the petitioners in
not required to exert more than the diligence of a Sydney, Australia. Hence, the Court of Appeals did not
good father of a family in regard to the sale and commit any reversable error in its challenged
issuance of the subject foreign exchange demand decision.
draft. The case at bar does not involve the handling of WHEREFORE, the petition is hereby DENIED, and the
petitioners' deposit, if any, with the respondent bank. assailed decision of the Court of Appeals is AFFIRMED.
Instead, the relationship involved was that of a buyer Costs against the petitioners.
and seller, that is, between the respondent bank as SO ORDERED.1âwphi1.nêt
the seller of the subject foreign exchange demand
draft, and PRCI as the buyer of the same, with the G.R. No. 178429 October 23, 2009
20th Asian Racing conference Secretariat in Sydney, JOSE C. GO, Petitioner,
Australia as the payee thereof. As earlier mentioned, vs.
the said foreign exchange demand draft was intended BANGKO SENTRAL NG PILIPINAS, Respondent.
for the payment of the registration fees of the DECISION
petitioners as delegates of the PRCI to the 20th Asian
BRION, J.:
Racing Conference in Sydney.
Through the present petition for review on
The evidence shows that the respondent bank did
certiorari,1 petitioner Jose C. Go (Go) assails the
everything within its power to prevent the dishonor of
October 26, 2006 decision2 of the Court of Appeals
the subject foreign exchange demand draft. The
(CA) in CA-G.R. SP No. 79149, as well as its June 4,
erroneous reading of its cable message to Westpac-
2007 resolution.3 The CA decision and resolution
Sydney by an employee of the latter could not have
annulled and set aside the May 20, 20034 and June 30,
been foreseen by the respondent bank. Being
20035 orders of the Regional Trial Court (RTC), Branch
unaware that its employee erroneously read the said
26, Manila which granted Go’s motion to quash the
cable message, Westpac-Sydney merely stated that
Information filed against him.
the respondent bank has no deposit account with it to
THE FACTS
cover for the amount of One Thousand Six Hundred
On August 20, 1999, an Information6 for violation of
Ten Australian Dollar (AU $1610.00) indicated in the
Section 83 of Republic Act No. 337 (RA 337) or the
foreign exchange demand draft. Thus, the respondent
General Banking Act, as amended by Presidential
bank had the impression that Westpac-New York had
Decree No. 1795, was filed against Go before the RTC.
not yet made available the amount for
The charge reads:
reimbursement to Westpac-Sydney despite the fact
That on or about and during the period comprised
that respondent bank has a sufficient deposit dollar
between June 27, 1996 and September 15, 1997,
account with Westpac-New York. That was the reason
inclusive, in the City of Manila, Philippines, the said
why the respondent bank had to re-confirm and
accused, being then the Director and the President
repeatedly notify Westpac-New York to debit its
and Chief Executive Officer of the Orient Commercial
(respondent bank's) deposit dollar account with it and
Banking Corporation (Orient Bank), a commercial
to transfer or credit the corresponding amount to
banking institution created, organized and existing
Westpac-Sydney to cover the amount of the said
under Philippines laws, with its main branch located at
demand draft.
C.M. Recto Avenue, this City, and taking advantage of
In view of all the foregoing, and considering that the
his position as such officer/director of the said bank,
dishonor of the subject foreign exchange demand
did then and there wilfully, unlawfully and knowingly
draft is not attributable to any fault of the respondent
borrow, either directly or indirectly, for himself or as
bank, whereas the petitioners appeared to be under
the representative of his other related companies, the
estoppel as earlier mentioned, it is no longer
deposits or funds of the said banking
necessary to discuss the alleged application of Section
institution and/or become a guarantor, indorser or
61 of the Negotiable Instruments Law to the case at
Page 47 of 91
obligor for loans from the said bank to others, by then
and there using said borrowed deposits/funds of the
said bank in facilitating and granting and/or caused
the facilitating and granting of credit lines/loans and,
among others, to the New Zealand Accounts loans in
the total amount of TWO BILLION AND SEVEN
HUNDRED FIFTY-FOUR MILLION NINE HUNDRED FIVE
THOUSAND AND EIGHT HUNDRED FIFTY-SEVEN AND
0/100 PESOS, Philippine Currency, said accused
knowing fully well that the same has been done by
him without the written approval of the majority of
the Board of Directors of said Orient Bank and which
approval the said accused deliberately failed to obtain
and enter the same upon the records of said banking
institution and to transmit a copy of which to the
supervising department of the said bank, as required
by the General Banking Act.
CONTRARY TO LAW. [Emphasis supplied.]
On May 28, 2001, Go pleaded not guilty to the offense
charged.
After the arraignment, both the prosecution and
accused Go took part in the pre-trial conference
where the marking of the voluminous evidence for the
parties was accomplished. After the completion of the
marking, the trial court ordered the parties to proceed
to trial on the merits.
Before the trial could commence, however, Go filed
on February 26, 20037 a motion to quash the
Information, which motion Go amended on March 1,
2003.8 Go claimed that the Information was defective,
as the facts charged therein do not constitute an
offense under Section 83 of RA 337 which states:
No director or officer of any banking institution shall
either directly or indirectly, for himself or as the
representative or agent of another, borrow any of the
deposits of funds of such banks, nor shall he become a
guarantor, indorser, or surety for loans from such
bank, to others, or in any manner be an obligor for
money borrowed from the bank or loaned by it,
except with the written 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
appropriate supervising department. The office of any
director or officer of a bank who violates the
provisions of this section shall immediately become
Page 48 of 91
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.
The Monetary Board may regulate the amount of
credit accommodations that may be extended,
directly or indirectly, by banking institutions to their
directors, officers, or stockholders. However, the
outstanding credit accommodations which a bank
may extend to each of its stockholders owning two
percent (2%) or more of the subscribed capital stock,
its directors, or its officers, shall be limited to an
amount equivalent to the respective outstanding
deposits and book value of the paid-in capital
contribution in the bank. Provided, however, that
loans and advances to officers in the form of fringe
benefits granted in accordance with rules and
regulations as may be prescribed by Monetary Board
shall not be subject to the preceding limitation. (As
amended by PD 1795)
In addition to the conditions established in the
preceding paragraph, no director or a building and
loan association shall engage in any of the operations
mentioned in said paragraphs, except upon the pledge
of shares of the association having a total withdrawal
value greater than the amount borrowed. (As
amended by PD 1795)
In support of his motion to quash, Go averred that
based on the facts alleged in the Information, he was
being prosecuted for borrowing the deposits or funds
of the Orient Bank and/or acting as a guarantor,
indorser or obligor for the bank’s loans to other
persons. The use of the word "and/or" meant that he
was charged for being either a borrower or a
guarantor, or for being both a borrower and
guarantor. Go claimed that the charge was not only
vague, but also did not constitute an offense. He
posited that Section 83 of RA 337 penalized only
directors and officers of banking institutions who
acted either as borrower or as guarantor, but not as
both.
Go further pointed out that the Information failed to
state that his alleged act of borrowing and/or
guarantying was not among the exceptions provided
for in the law. According to Go, the second paragraph
of Section 83 allowed banks to extend credit
accommodations to their directors, officers, and
stockholders, provided it is "limited to an amount
equivalent to the respective outstanding deposits and
book value of the paid-in capital contribution in the
bank." Extending credit accommodations to bank
directors, officers, and stockholders is not per se
prohibited, unless the amount exceeds the legal limit.
Since the Information failed to state that the amount
he purportedly borrowed and/or guarantied was
beyond the limit set by law, Go insisted that the acts
so charged did not constitute an offense.
Finding Go’s contentions persuasive, the RTC granted
Go’s motion to quash the Information on May 20,
2003. It denied on June 30, 2003 the motion for
reconsideration filed by the prosecution.
The prosecution did not accept the RTC ruling and
filed a petition for certiorari to question it before the
CA. The Information, the prosecution claimed, was
sufficient. The word "and/or" did not materially affect
the validity of the Information, as it merely stated a
mode of committing the crime penalized under
Section 83 of RA 337. Moreover, the prosecution
asserted that the second paragraph of Section 83
(referring to the credit accommodation limit) cannot
be interpreted as an exception to what the first
paragraph provided. The second paragraph only sets
borrowing limits that, if violated, render the bank, not
the director-borrower, liable. A violation of the
second paragraph of Section 83 – under which Go is
being prosecuted – is therefore separate and distinct
from a violation of the first paragraph. Thus, the
prosecution prayed that the orders of the RTC
quashing the Information be set aside and the
criminal case against Go be reinstated.
On October 26, 2006, the CA rendered the assailed
decision granting the prosecution’s petition for
9
certiorari. The CA declared that the RTC misread the
law when it decided to quash the Information against
Go. It explained that the allegation that Go acted
either as a borrower or a guarantor or as both
borrower and guarantor merely set forth the different
modes by which the offense was committed. It did not
necessarily mean that Go acted both as borrower and
guarantor for the same loan at the same time. It
agreed with the prosecution’s stand that the second
paragraph of Section 83 of RA 337 is not an exception
to the first paragraph. Thus, the failure of the
Information to state that the amount of the loan Go
borrowed or guaranteed exceeded the legal limits
Page 49 of 91
was, to the CA, an irrelevant issue. For these reasons,
the CA annulled and set aside the RTC’s orders and
ordered the reinstatement of the criminal charge
against Go. After the CA’s denial of his motion for
reconsideration,10 Go filed the present appeal by
certiorari.
THE PETITION
In his petition, Go alleges that the appellate court
legally erred in overturning the trial court’s orders. He
insists that the Information failed to allege the acts or
omissions complained of with sufficient particularity
to enable him to know the offense being charged; to
allow him to properly prepare his defense; and
likewise to allow the court to render proper judgment.
Repeating his arguments in his motion to quash, Go
reads Section 83 of RA 337 as penalizing a director or
officer of a banking institution for either borrowing
the deposits or funds of the bank, or guaranteeing or
indorsing loans to others, but not for assuming both
capacities. He claimed that the prosecution’s shotgun
approach in alleging that he acted as borrower and/or
guarantor rendered the Information highly defective
for failure to specify with certainty the specific act or
omission complained of. To petitioner Go, the
prosecution’s approach was a clear violation of his
constitutional right to be informed of the nature and
cause of the accusation against him.
Additionally, Go reiterates his claim that credit
accommodations by banks to their directors and
officers are legal and valid, provided that these are
limited to their outstanding deposits and book value
of the paid-in capital contribution in the bank. The
failure to state that he borrowed deposits and/or
guaranteed loans beyond this limit rendered the
Information defective. He thus asks the Court to
reverse the CA decision to reinstate the criminal
charge.
In its Comment,11 the prosecution raises the same
defenses against Go’s contentions. It insists on the
sufficiency of the allegations in the Information and
prays for the denial of Go’s petition.
THE COURT’S RULING
The Court does not find the petition meritorious and
accordingly denies it.
The Accused’s Right to be Informed
Under the Constitution, a person who stands charged
of a criminal offense has the right to be informed of
the nature and cause of the accusation against
him.12 The Rules of Court, in implementing the right,
specifically require that the acts or omissions
complained of as constituting the offense, including
the qualifying and aggravating circumstances, must be
stated in ordinary and concise language, not
necessarily in the language used in the statute, but in
terms sufficient to enable a person of common
understanding to know what offense is being charged
and the attendant qualifying and aggravating
circumstances present, so that the accused can
properly defend himself and the court can pronounce
judgment.13 To broaden the scope of the right, the
Rules authorize the quashal, upon motion of the
accused, of an Information that fails to allege the acts
constituting the offense.14 Jurisprudence has laid
down the fundamental test in appreciating a motion
to quash an Information grounded on the insufficiency
of the facts alleged therein. We stated in People v.
Romualdez15 that:
The determinative test in appreciating a motion to
quash xxx is the sufficiency of the averments in the
information, that is, whether the facts alleged, if
hypothetically admitted, would establish the essential
elements of the offense as defined by law without
considering matters aliunde. As Section 6, Rule 110 of
the Rules of Criminal Procedure requires, the
information only needs to state the ultimate facts; the
evidentiary and other details can be provided during
the trial.
To restate the rule, an Information only needs to state
the ultimate facts constituting the offense, not the
finer details of why and how the illegal acts alleged
amounted to undue injury or damage – matters that
are appropriate for the trial. [Emphasis supplied]
The facts and circumstances necessary to be included
in the Information are determined by reference to the
definition and elements of the specific crimes. The
Information must allege clearly and accurately the
elements of the crime charged.16
Elements of Violation of
Section 83 of RA 337
Under Section 83, RA 337, the following elements
must be present to constitute a violation of its first
paragraph:
1. the offender is a director or officer of any banking
institution;
Page 50 of 91
2. the offender, either directly or indirectly, for
himself or as representative or agent of another,
performs any of the following acts:
a. he borrows any of the deposits or funds of such
bank; or
b. he becomes a guarantor, indorser, or surety for
loans from such bank to others, or
c. he becomes in any manner an obligor for money
borrowed from bank or loaned by it;
3. the offender has performed any of such acts
without the written approval of the majority of the
directors of the bank, excluding the offender, as the
director concerned.
A simple reading of the above elements easily rejects
Go’s contention that the law penalizes a bank director
or officer only either for borrowing the bank’s
deposits or funds or for guarantying loans by the
bank, but not for acting in both capacities. The
essence of the crime is becoming an obligor of the
bank without securing the necessary written approval
of the majority of the bank’s directors.
The second element merely lists down the various
modes of committing the offense. The third mode, by
declaring that "[no director or officer of any banking
institution shall xxx] in any manner be an obligor for
money borrowed from the bank or loaned by it," in
fact serves a catch-all phrase that covers any situation
when a director or officer of the bank becomes its
obligor. The prohibition is directed against a bank
director or officer who becomes in any manner an
obligor for money borrowed from or loaned by the
bank without the written approval of the majority of
the bank’s board of directors. To make a distinction
between the act of borrowing and guarantying is
therefore unnecessary because in either situation, the
director or officer concerned becomes an obligor of
the bank against whom the obligation is juridically
demandable.
The language of the law is broad enough to
encompass either act of borrowing or guaranteeing,
or both. While the first paragraph of Section 83 is
penal in nature, and by principle should be strictly
construed in favor of the accused, the Court is
unwilling to adopt a liberal construction that would
defeat the legislature’s intent in enacting the statute.
The objective of the law should allow for a reasonable
flexibility in its construction. Section 83 of RA 337, as
well as other banking laws adopting the same
prohibition,17 was enacted to ensure that loans by
banks and similar financial institutions to their own
directors, officers, and stockholders are above
board.18 Banks were not created for the benefit of
their directors and officers; they cannot use the assets
of the bank for their own benefit, except as may be
permitted by law. Congress has thus deemed it
essential to impose restrictions on borrowings by
bank directors and officers in order to protect the
public, especially the depositors.19 Hence, when the
law prohibits directors and officers of banking
institutions from becoming in any manner an obligor
of the bank (unless with the approval of the board),
the terms of the prohibition shall be the standards to
be applied to directors’ transactions such as those
involved in the present case.
Credit accommodation limit is not an exception nor is
it an element of the offense
Contrary to Go’s claims, the second paragraph of
Section 83, RA 337 does not provide for an exception
to a violation of the first paragraph thereof, nor does
it constitute as an element of the offense charged.
Section 83 of RA 337 actually imposes three
restrictions: approval, reportorial, and ceiling
requirements.
The approval requirement (found in the first sentence
of the first paragraph of the law) refers to the written
approval of the majority of the bank’s board of
directors required before bank directors and officers
can in any manner be an obligor for money borrowed
from or loaned by the bank. Failure to secure the
approval renders the bank director or officer
concerned liable for prosecution and, upon
conviction, subjects him to the penalty provided in the
third sentence of first paragraph of Section 83.
The reportorial requirement, on the other hand,
mandates that any such approval should be entered
upon the records of the corporation, and a copy of the
entry be transmitted to the appropriate supervising
department. The reportorial requirement is addressed
to the bank itself, which, upon its failure to do so,
subjects it to quo warranto proceedings under Section
87 of RA 337.20
The ceiling requirement under the second paragraph
of Section 83 regulates the amount of credit
accommodations that banks may extend to their
Page 51 of 91
directors or officers by limiting these to an amount
equivalent to the respective outstanding deposits and
book value of the paid-in capital contribution in the
bank. Again, this is a requirement directed at the
bank. In this light, a prosecution for violation of the
first paragraph of Section 83, such as the one involved
here, does not require an allegation that the loan
exceeded the legal limit. Even if the loan involved is
below the legal limit, a written approval by the
majority of the bank’s directors is still required;
otherwise, the bank director or officer who becomes
an obligor of the bank is liable. Compliance with the
ceiling requirement does not dispense with the
approval requirement.
Evidently, the failure to observe the three
requirements under Section 83 paves the way for the
prosecution of three different offenses, each with its
own set of elements. A successful indictment for
failing to comply with the approval requirement will
not necessitate proof that the other two were
likewise not observed.
Rules of Court allow amendment of insufficient
Information
Assuming that the facts charged in the Information do
not constitute an offense, we find it erroneous for the
RTC to immediately order the dismissal of the
Information, without giving the prosecution a chance
to amend it. Section 4 of Rule 117 states:
SEC. 4. Amendment of complaint or information.—If
the motion to quash is based on an alleged defect of
the complaint or information which can be cured by
amendment, the court shall order that an amendment
be made.
If it is based on the ground that the facts charged do
not constitute an offense, the prosecution shall be
given by the court an opportunity to correct the
defect by amendment. The motion shall be granted if
the prosecution fails to make the amendment, or the
complaint or information still suffers from the same
defect despite the amendment. [Emphasis supplied]
Although an Information may be defective because
the facts charged do not constitute an offense, the
dismissal of the case will not necessarily follow. The
Rules specifically require that the prosecution should
be given a chance to correct the defect; the court can
order the dismissal only upon the prosecution’s failure
to do so. The RTC’s failure to provide the prosecution
this opportunity twice21 constitutes an arbitrary
exercise of power that was correctly addressed by the
CA through the certiorari petition. This defect in the
RTC’s action on the case, while not central to the issue
before us, strengthens our conclusion that this
criminal case should be resolved through full-blown
trial on the merits.
WHEREFORE, we DENY the petitioner’s petition for
review on certiorari and AFFIRM the decision of the
Court of Appeals in CA-G.R. SP No. 79149,
promulgated on October 26, 2006, as well as its
resolution of June 4, 2007. The Regional Trial Court,
Branch 26, Manila is directed to PROCEED with the
hearing of Criminal Case No. 99-178551. Costs against
the petitioner.
SO ORDERED.
G.R. No. 166859 April 12, 2011
REPUBLIC OF THE PHILIPPINES, Petitioner,
vs.
SANDIGANBAYAN (FIRST DIVISION), EDUARDO M.
COJUANGCO, JR., AGRICULTURAL CONSULTANCY
SERVICES, INC., ARCHIPELAGO REALTY CORP., BALETE
RANCH, INC., BLACK STALLION RANCH, INC.,
CHRISTENSEN PLANTATION COMPANY, DISCOVERY
REALTY CORP., DREAM PASTURES, INC., ECHO
RANCH, INC., FAR EAST RANCH, INC., FILSOV
SHIPPING COMPANY, INC., FIRST UNITED
TRANSPORT, INC., HABAGAT REALTY DEVELOPMENT,
INC., KALAWAKAN RESORTS, INC., KAUNLARAN
AGRICULTURAL CORP., LABAYUG AIR TERMINALS,
INC., LANDAIR INTERNATIONAL MARKETING CORP.,
LHL CATTLE CORP., LUCENA OIL FACTORY, INC.,
MEADOW LARK PLANTATIONS, INC., METROPLEX
COMMODITIES, INC., MISTY MOUNTAIN
AGRICULTURAL CORP., NORTHEAST CONTRACT
TRADERS, INC., NORTHERN CARRIERS CORP.,
OCEANSIDE MARITIME ENTERPRISES, INC., ORO
VERDE SERVICES, INC., PASTORAL FARMS, INC., PCY
OIL MANUFACTURING CORP., PHILIPPINE
TECHNOLOGIES, INC., PRIMAVERA FARMS, INC.,
PUNONG-BAYAN HOUSING DEVELOPMENT CORP.,
PURA ELECTRIC COMPANY, INC., RADIO AUDIENCE
DEVELOPERS INTEGRATED ORGANIZATION, INC.,
RADYO PILIPINO CORP., RANCHO GRANDE, INC.,
REDDEE DEVELOPERS, INC., SAN ESTEBAN
Page 52 of 91
DEVELOPMENT CORP., SILVER LEAF PLANTATIONS,
INC., SOUTHERN SERVICE TRADERS, INC., SOUTHERN
STAR CATTLE CORP., SPADE ONE RESORTS CORP.,
UNEXPLORED LAND DEVELOPERS, INC., VERDANT
PLANTATIONS, INC., VESTA AGRICULTURAL CORP.
AND WINGS RESORTS CORP., Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 169203
REPUBLIC OF THE PHILIPPINES, Petitioner,
vs.
SANDIGANBAYAN (FIRST DIVISION), EDUARDO M.
COJUANGCO, JR., MEADOW LARK PLANTATIONS,
INC., SILVER LEAF PLANTATIONS, INC., PRIMAVERA
FARMS, INC., PASTORAL FARMS, INC., BLACK
STALLION RANCH, INC., MISTY MOUNTAINS
AGRICULTURAL CORP., ARCHIPELAGO REALTY CORP.,
AGRICULTURAL CONSULTANCY SERVICES, INC.,
SOUTHERN STAR CATTLE CORP., LHL CATTLE CORP.,
RANCHO GRANDE, INC., DREAM PASTURES, INC., FAR
EAST RANCH, INC., ECHO RANCH, INC., LAND AIR
INTERNATIONAL MARKETING CORP., REDDEE
DEVELOPERS, INC., PCY OIL MANUFACTURING CORP.,
LUCENA OIL FACTORY, INC., METROPLEX
COMMODITIES, INC., VESTA AGRICULTURAL CORP.,
VERDANT PLANTATIONS, INC., KAUNLARAN
AGRICULTURAL CORP., ECJ & SONS AGRICULTURAL
ENTERPRISES, INC., RADYO PILIPINO CORP.,
DISCOVERY REALTY CORP., FIRST UNITED
TRANSPORT, INC., RADIO AUDIENCE DEVELOPERS
INTEGRATED ORGANIZATION, INC., ARCHIPELAGO
FINANCE AND LEASING CORP., SAN ESTEBAN
DEVELOPMENT CORP., CHRISTENSEN PLANTATION
COMPANY, NORTHERN CARRIERS CORP., VENTURE
SECURITIES, INC., BALETE RANCH, INC., ORO VERDE
SERVICES, INC., and KALAWAKAN RESORTS,
INC., Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 180702
REPUBLIC OF THE PHILIPPINES, Petitioner,
vs.
EDUARDO M. COJUANGCO, JR., FERDINAND E.
MARCOS, IMELDA R. MARCOS, EDGARDO J.
ANGARA,* JOSE C. CONCEPCION, AVELINO V. CRUZ,
EDUARDO U. ESCUETA, PARAJA G. HAYUDINI, JUAN
PONCE ENRILE, TEODORO D. REGALA, DANILO
URSUA, ROGELIO A. VINLUAN, AGRICULTURAL
CONSULTANCY SERVICES, INC., ANGLO VENTURES,
INC., ARCHIPELAGO REALTY CORP., AP HOLDINGS,
INC., ARC INVESTMENT, INC., ASC INVESTMENT, INC.,
AUTONOMOUS DEVELOPMENT CORP., BALETE
RANCH, INC., BLACK STALLION RANCH, INC.,
CAGAYAN DE ORO OIL COMPANY, INC.,
CHRISTENSEN PLANTATION COMPANY, COCOA
INVESTORS, INC., DAVAO AGRICULTURAL AVIATION,
INC., DISCOVERY REALTY CORP., DREAM PASTURES,
INC., ECHO RANCH, INC., ECJ & SONS AGRI. ENT.,
INC., FAR EAST RANCH, INC., FILSOV SHIPPING
COMPANY, INC., FIRST MERIDIAN DEVELOPMENT,
INC., FIRST UNITED TRANSPORT, INC., GRANEXPORT
MANUFACTURING CORP., HABAGAT REALTY
DEVELOPMENT, INC., HYCO AGRICULTURAL, INC.,
ILIGAN COCONUT INDUSTRIES, INC., KALAWAKAN
RESORTS, INC., KAUNLARAN AGRICULTURAL CORP.,
LABAYOG AIR TERMINALS, INC., LANDAIR
INTERNATIONAL MARKETING CORP., LEGASPI OIL
COMPANY, LHL CATTLE CORP., LUCENA OIL
FACTORY, INC., MEADOW LARK PLANTATIONS, INC.,
METROPLEX COMMODITIES, INC., MISTY MOUNTAIN
AGRICULTURAL CORP., NORTHEAST CONTRACT
TRADERS, INC., NORTHERN CARRIERS CORP.,
OCEANSIDE MARITIME ENTERPRISES, INC., ORO
VERDE SERVICES, INC., PASTORAL FARMS, INC., PCY
OIL MANUFACTURING CORP., PHILIPPINE RADIO
CORP., INC., PHILIPPINE TECHNOLOGIES, INC.,
PRIMAVERA FARMS, INC., PUNONG-BAYAN
HOUSING DEVELOPMENT CORP., PURA ELECTRIC
COMPANY, INC., RADIO AUDIENCE DEVELOPERS
INTEGRATED ORGANIZATION, INC., RADYO PILIPINO
CORP., RANCHO GRANDE, INC., RANDY ALLIED
VENTURES, INC., REDDEE DEVELOPERS, INC.,
ROCKSTEEL RESOURCES, INC., ROXAS SHARES, INC.,
SAN ESTEBAN DEVELOPMENT CORP., SAN MIGUEL
CORPORATION OFFICERS, INC., SAN PABLO
MANUFACTURING CORP., SOUTHERN LUZON OIL
MILLS, INC., SILVER LEAF PLANTATIONS, INC.,
SORIANO SHARES, INC., SOUTHERN SERVICE
TRADERS, INC., SOUTHERN STAR CATTLE CORP.,
SPADE 1 RESORTS CORP., TAGUM AGRICULTURAL
DEVELOPMENT CORP., TEDEUM RESOURCES, INC.,
THILAGRO EDIBLE OIL MILLS, INC., TODA HOLDINGS,
INC., UNEXPLORED LAND DEVELOPERS, INC.,
VALHALLA PROPERTIES, INC., VENTURES SECURITIES,
INC., VERDANT PLANTATIONS, INC., VESTA
AGRICULTURAL CORP. and WINGS RESORTS
CORP., Respondents.
Page 53 of 91
JOVITO R. SALONGA, WIGBERTO E. TAÑADA, OSCAR
F. SANTOS, VIRGILIO M. DAVID, ROMEO C.
ROYANDAYAN for himself and for SURIGAO DEL SUR
FEDERATION OF AGRICULTURAL COOPERATIVES
(SUFAC), MORO FARMERS ASSOCIATION OF
ZAMBOANGA DEL SUR (MOFAZS) and COCONUT
FARMERS OF SOUTHERN LEYTE COOPERATIVE (COFA-
SL); PHILIPPINE RURAL RECONSTRUCTION
MOVEMENT (PRRM), represented by CONRADO S.
NAVARRO; COCONUT INDUSTRY REFORM
MOVEMENT, INC. (COIR) represented by JOSE MARIE
T. FAUSTINO; VICENTE FABE for himself and for
PAMBANSANG KILUSAN NG MGA SAMAHAN NG
MAGSASAKA (PAKISAMA); NONITO CLEMENTE for
himself and for the NAGKAKAISANG UGNAYAN NG
MGA MALILIIT NA MAGSASAKA AT MANGGAGAWA
SA NIYUGAN (NIUGAN); DIONELO M. SUANTE, SR. for
himself and for KALIPUNAN NG MALILIIT NA
MAGNINIYOG NG PILIPINAS (KAMMPIL),
INC., Petitioners-Intervenors.
DECISION
BERSAMIN, J.:
For over two decades, the issue of whether the
sequestered sizable block of shares representing 20%
of the outstanding capital stock of San Miguel
Corporation (SMC) at the time of acquisition belonged
to their registered owners or to the coconut farmers
has remained unresolved. Through this decision, the
Court aims to finally resolve the issue and terminate
the uncertainty that has plagued that sizable block of
shares since then.
These consolidated cases were initiated on various
dates by the Republic of the Philippines (Republic) via
petitions for certiorari in G.R. Nos. 1668591 and
169023,2 and via petition for review on certiorari in
180702,3 the first two petitions being brought to assail
the following resolutions issued in Civil Case No. 0033-
F by the Sandiganbayan, and the third being brought
to appeal the adverse decision promulgated on
November 28, 2007 in Civil Case No. 0033-F by the
Sandiganbayan.
Specifically, the petitions and their particular reliefs
are as follows:
(a) G.R. No. 166859 (petition for certiorari), to assail
the resolution promulgated on December 10,
20044 denying the Republic’s Motion For Partial
Summary Judgment;
(b) G.R. No. 169023 (petition for certiorari), to nullify
and set aside, firstly, the resolution promulgated on
October 8, 2003,5 and, secondly, the resolution
promulgated on June 24, 20056 modifying the
resolution of October 8, 2003; and
(c) G.R. No. 180702 (petition for review on certiorari),
to appeal the decision promulgated on November 28,
2007.7
ANTECEDENTS
On July 31, 1987, the Republic commenced Civil Case
No. 0033 in the Sandiganbayan by complaint,
impleading as defendants respondent Eduardo M.
Cojuangco, Jr. (Cojuangco) and 59 individual
defendants. On October 2, 1987, the Republic
amended the complaint in Civil Case No. 0033 to
include two additional individual defendants. On
December 8, 1987, the Republic further amended the
complaint through its Amended Complaint [Expanded
per Court-Approved Plaintiff’s ‘Manifestation/Motion
Dated Dec. 8, 1987] albeit dated October 2, 1987.
More than three years later, on August 23, 1991, the
Republic once more amended the complaint
apparently to avert the nullification of the writs of
sequestration issued against properties of Cojuangco.
The amended complaint dated August 19, 1991,
designated as Third Amended Complaint [Expanded
Per Court-Approved Plaintiff’s Manifestation/Motion
Dated Dec. 8, 1987],8 impleaded in addition to
Cojuangco, President Marcos, and First Lady Imelda R.
Marcos nine other individuals, namely: Edgardo J.
Angara, Jose C. Concepcion, Avelino V. Cruz, Eduardo
U. Escueta, Paraja G. Hayudini, Juan Ponce Enrile,
Teodoro D. Regala, and Rogelio Vinluan, collectively,
the ACCRA lawyers, and Danilo Ursua, and 71
corporations.
On March 24, 1999, the Sandiganbayan allowed the
subdivision of the complaint in Civil Case No. 0033
into eight complaints, each pertaining to distinct
transactions and properties and impleading as
defendants only the parties alleged to have
participated in the relevant transactions or to have
owned the specific properties involved. The
subdivision resulted into the following subdivided
complaints, to wit:
Page 54 of 91
Subdivided
Subject Matter
Complaint
1. Civil Case Anomalous Purchase and Use
No. 0033-A of First United Bank (now
United Coconut Planters
Bank)
2. Civil Case Creation of Companies Out
No. 0033-B of Coco Levy Funds
Civil Case Creation and Operation of
3.
No. 0033-C Bugsuk Project and Award of
P998 Million Damages to
Agricultural Investors, Inc.
4. Civil Case Disadvantageous Purchases
No. 0033-D and Settlement of the
Accounts of Oil Mills Out of
Coco Levy Funds
5. Civil Case Unlawful Disbursement and
No. 0033-E Dissipation of Coco Levy
Funds
6. Civil Case Acquisition of SMC shares of
No. 0033-F stock
7. Civil Case Acquisition of Pepsi-Cola
No. 0033-G
8. Civil Case Behest Loans and Contracts
No. 0033-H
In Civil Case No. 0033-F, the individual defendants
were Cojuangco, President Marcos and First Lady
Imelda R. Marcos, the ACCRA lawyers, and Ursua.
Impleaded as corporate defendants were Southern
Luzon Oil Mills, Cagayan de Oro Oil Company,
Incorporated, Iligan Coconut Industries, Incorporated,
San Pablo Manufacturing Corporation, Granexport
Manufacturing Corporation, Legaspi Oil Company,
Incorporated, collectively referred to herein as the
CIIF Oil Mills, and their 14 holding companies, namely:
Soriano Shares, Incorporated, Roxas Shares,
Incorporated, Arc Investments, Incorporated, Toda
Holdings, Incorporated, ASC Investments,
Incorporated, Randy Allied Ventures, Incorporated, AP
Holdings, Incorporated, San Miguel Corporation
Officers, Incorporated, Te Deum Resources,
Incorporated, Anglo Ventures, Incorporated, Rock
Steel Resources, Incorporated, Valhalla Properties,
Incorporated, and First Meridian Development,
Incorporated.
Allegedly, Cojuangco purchased a block of 33,000,000
shares of SMC stock through the 14 holding
companies owned by the CIIF Oil Mills. For this
reason, the block of 33,133,266 shares of SMC stock
shall be referred to as the CIIF block of shares.
Also impleaded as defendants in Civil Case No. 0033-F
were several corporations9 alleged to have been
under Cojuangco’s control and used by him to acquire
the block of shares of SMC stock totaling 16,276,879
at the time of acquisition (representing approximately
20% percent of the capital stock of SMC). These
corporations are referred to as Cojuangco
corporations or companies, to distinguish them from
the CIIF Oil Mills. Reference hereafter to Cojuangco
and the Cojuangco corporations or companies shall be
as Cojuangco, et al., unless the context requires
individualization.
The material averments of the Republic’s Third
Amended Complaint (Subdivided)10 in Civil Case No.
0033-F included the following:
12. Defendant Eduardo Cojuangco, Jr., served as a
public officer during the Marcos administration.
During the period of his incumbency as a public
officer, he acquired assets, funds, and other property
grossly and manifestly disproportionate to his salaries,
lawful income and income from legitimately acquired
property.
13. Having fully established himself as the undisputed
"coconut king" with unlimited powers to deal with the
coconut levy funds, the stage was now set for
Defendant Eduardo M. Cojuangco, Jr. to launch his
predatory forays into almost all aspects of Philippine
economic activity namely: softdrinks, agribusiness, oil
mills, shipping, cement manufacturing, textile, as
more fully described below.
14. Defendant Eduardo Cojuangco, Jr. taking undue
advantage of his association, influence and
connection, acting in unlawful concert with
Defendants Ferdinand E. Marcos and Imelda R.
Marcos, and the individual defendants, embarked
upon devices, schemes and stratagems, including the
use of defendant corporations as fronts, to unjustly
enrich themselves at the expense of Plaintiff and the
Filipino people, such as when he – misused coconut
levy funds to buy out majority of the outstanding
Page 55 of 91
shares of stock of San Miguel Corporation in order to
control the largest agri-business, foods and beverage
company in the Philippines, more particularly
described as follows:
(b) He entered SMC in early 1983 when he bought
most of the 20 million shares Enrique Zobel owned in
the Company. The shares, worth $49 million,
represented 20% of SMC;
(c) Later that year, Cojuangco also acquired the
Soriano stocks through a series of complicated and
secret agreements, a key feature of which was a
"voting trust agreement" that stipulated that Andres,
Jr. or his heir would proxy over the vote of the shares
owned by Soriano and Cojuangco. This agreement,
which accounted for 30% of the outstanding shares of
SMC and which lasted for five (5) years, enabled the
Sorianos to retain management control of SMC for the
same period;
(d) Furthermore, in exchange for an SMC investment
of $45 million in non-voting preferred shares in UCPB,
Soriano served as the vice-chairman of the supposed
bank of the coconut farmers, UCPB, and in return,
Cojuangco, for investing funds from the coconut levy,
was named vice-chairman of SMC;
(e) Consequently, Cojuangco enjoyed the privilege of
appointing his nominees to the SMC Board, to which
he appointed key members of the ACCRA Law Firm
(herein Defendants) instead of coconut farmers
whose money really funded the sale;
(f) The scheme of Cojuangco to use the lawyers of the
said Firm was revealed in a document which he signed
on 19 February 1983 entitled "Principles and
Framework of Mutual Cooperation and Assistance"
which governed the rules for the conduct of
management of SMC and the disposition of the shares
which he bought.
(g) All together, Cojuangco purchased 33 million
shares of the SMC through the following 14 holding
companies:
a) Soriano Shares, Inc. 1,249,163
b) ASC Investors, Inc. 1,562,449
c) Roxas Shares, Inc. 2,190,860
d) ARC Investors, Inc. 4,431,798
e) Toda Holdings, Inc. 3,424,618
 f) AP Holdings, Inc. 1,580,997 (i) Mr. Eduardo M. Cojuangco, Jr., acquired a total of
16,276,879 shares of San Miguel Corporation from the
g) Fernandez Holdings, Inc. 838,837 Ayala group: of said shares, a total of 8,138,440
h) SMC Officers Corps., Inc. 2,385,987 (broken into 7,128,227 Class A and 1,010,213 Class B
shares) were placed in the names of Meadowlark
i) Te Deum Resources, Inc. 2,674,899 Plantations, Inc. (2,034,610) and Primavera Farms, Inc.
(4,069,220). The Articles of Incorporation of these
j) Anglo Ventures Corp. 1,000.000
three companies show that Atty. Jose C. Concepcion
k) Randy Allied Ventures, Inc. 1,000,000 of ACCRA owns 99.6% of the entire outstanding stock.
The same shareholder executed three (3) separate
l) Rock Steel Resources, Inc. 2,432,625
"Declaration of Trust and Assignment of
m) Valhalla Properties Ltd., Inc. 1,361,033 Subscription:" in favor of a BLANK assignee pertaining
to his shareholdings in Primavera Farms, Inc., Silver
n) First Meridian Development, Inc. 1,000,000 Leaf Plantations, Inc. and Meadowlark Plantations,
Inc.
33,133,266 (k) The other respondent Corporations are owned by
interlocking shareholders who are likewise lawyers in
3.1. The same fourteen companies were in turn
the ACCRA Law Offices and had admitted their status
owned by the following six (6) so-called CIIF
as "nominee stockholders" only.
Companies which were:
(k-1) The corporations: Agricultural Consultancy
a) San Pablo Manufacturing Corp. 19% Services, Inc., Archipelago Realty Corporation, Balete
Ranch, Inc., Black Stallion Ranch, Inc., Discovery Realty
b) Southern Luzon Coconut Oil Mills, Inc. 11%
Corporation, First United Transport, Inc., Kaunlaran
c) Granexport Manufacturing Corporation 19% Agricultural Corporation, LandAir International
Marketing Corporation, Misty Mountains Agricultural
d) Legaspi Oil Company, Inc. 18%
Corporation, Pastoral Farms, Inc., Oro Verde Services,
e) Cagayan de Oro Oil Company, Inc. 18% Inc. Radyo Filipino Corporation, Reddee Developers,
Inc., Verdant Plantations, Inc. and Vesta Agricultural
f) Iligan Coconut Industries, Inc. 15%
Corporation, were incorporated by lawyers of ACCRA
Law Offices.
100% (k-2) With respect to PCY Oil Manufacturing
Corporation and Metroplex Commodities, Inc., they
(h) Defendant Corporations are but "shell"
are controlled respectively by HYCO, Inc. and Ventures
corporations owned by interlocking shareholders who
Securities, Inc., both of which were incorporated
have previously admitted that they are just "nominee
likewise by lawyers of ACCRA Law Offices.
stockholders" who do not have any proprietary
(k-3) The stockholders who appear as incorporators in
interest over the shares in their names. The respective
most of the other Respondents corporations are also
affidavits of the following, namely: Jose C.
lawyers of the ACCRA Law Offices, who as early as
Concepcion, Florentino M. Herrera III, Teresita J.
1987 had admitted under oath that they were acting
Herbosa, Teodoro D. Regala, Victoria C. de los Reyes,
only as "nominee stockholders."
Manuel R. Roxas, Rogelio A. Vinluan, Eduardo U.
(l) These companies, which ACCRA Law Offices
Escuete and Franklin M. Drilon, who were all, at the
organized for Defendant Cojuangco to be able to
time they became such stockholders, lawyers of the
control more than 60% of SMC shares, were funded
Angara Abello Concepcion Regala & Cruz (ACCRA) Law
by institutions which depended upon the coconut levy
Offices, the previous counsel who incorporated said
such as the UCPB, UNICOM, United Coconut Planters
corporations, prove that they were merely nominee
Assurance Corp. (COCOLIFE), among others.
stockholders thereof.
Cojuangco and his ACCRA lawyers used the funds from

Page 56 of 91
6 large coconut oil mills and 10 copra trading financial and corporate framework and structures that
companies to borrow money from the UCPB and led to the establishment of UCPB, UNICOM,
purchase these holding companies and the SMC COCOLIFE, COCOMARK. CIC, and more than twenty
stocks. Cojuangco used $150 million from the coconut other coconut levy-funded corporations, including the
levy, broken down as follows: acquisition of San Miguel Corporation shares and its
Amount institutionalization through presidential directives of
Source Purpose
(in the coconut monopoly. Through insidious means and
machinations, ACCRA, being the wholly-owned
million)
investment arm, ACCRA Investments Corporation,
Oil became the holder of approximately fifteen million
$22.26 equity in holding companies
Mills shares representing roughly 3.3% of the total
outstanding capital stock of UCPB as of 31 March
Oil
$65.6 loan to holding companies 1987. This ranks ACCRA Investments Corporation
Mills
number 44 among the top 100 biggest stockholders of
loan to holding companies UCPB which has approximately 1,400,000
$61.2 UCPB
[164] shareholders. On the other hand, the corporate books
show the name Edgardo J. Angara as holding
The entire amount, therefore, came from the coconut
levy, some passing through the Unicom Oil mills, approximately 3,744 shares as of February, 1984.
others directly from the UCPB. 16. The acts of Defendants, singly or collectively,
and/or in unlawful concert with one another,
(m) With his entry into the said Company, it began to
constitute gross abuse of official position and
get favors from the Marcos government, significantly
the lowering of the excise taxes (sales and specific authority, flagrant breach of public trust and fiduciary
obligations, brazen abuse of right and power, unjust
taxes) on beer, one of the main products of SMC.
enrichment, violation of the constitution and laws of
(n) Defendant Cojuangco controlled SMC from 1983
the Republic of the Philippines, to the grave and
until his co-defendant Marcos was deposed in 1986.
irreparable damage of Plaintiff and the Filipino
(o) Along with Cojuangco, Defendant Enrile and
people.11
ACCRA also had interests in SMC, broken down as
On June 17, 1999, Ursua and Enrile each filed his
follows:
separate Answer with Compulsory Counterclaims.
% of SMC
Owner Before filing their answer, the ACCRA lawyers sought
Cojuangco
their exclusion as defendants in Civil Case No. 0033,
31.3% coconut levy money averring that even as they admitted having assisted in
18% companies linked to Cojuangco the organization and acquisition of the companies
5.2% government included in Civil Case No. 0033, they had acted as
mere nominees-stockholders of corporations involved
5.2% SMC employee retirement fund
in the sequestration proceedings pursuant to office
Enrile & ACCRA practice. After the Sandiganbayan denied their
1.8% Enrile motion, they elevated their cause to this Court, which
ultimately ruled in their favor in the related cases
1.8% Jaka Investment Corporation
of Regala, et al. v. Sandiganbayan, et
1.8% ACCRA Investment Corporation al.12 and Hayudini v. Sandiganbayan, et al.,13 as
15. Defendants Eduardo Cojuangco, Jr., Edgardo J. follows:
Angara, Jose C. Concepcion, Teodoro Regala, Avelino WHEREFORE, IN VIEW OF THE FOREGOING, the
Cruz, Rogelio Vinluan, Eduardo U. Escueta and Paraja Resolutions of respondent Sandiganbayan (First
G. Hayudini of the Angara Concepcion Cruz Regala and Division) promulgated on March 18, 1992 and May 21,
Abello law offices (ACCRA) plotted, devised, schemed, 1992 are hereby ANNULLED and SET ASIDE.
conspired and confederated with each other in setting Respondent Sandiganbayan is further ordered to
up, through the use of coconut levy funds, the
Page 57 of 91
exclude petitioners Teodoro D. Regala, Edgardo J.
Angara, Avelino V. Cruz, Jose C. Concepcion, Victor P.
Lazatin, Eduardo U. Escueta and Paraja G. Hayudini as
parties-defendants in SB Civil Case No. 0033 entitled
"Republic of the Philippines v. Eduardo Cojuangco, Jr.,
et al."
SO ORDERED.
Conformably with the ruling, the Sandiganbayan
excluded the ACCRA lawyers from the case on May 24,
2000.14
On June 23, 1999, Cojuangco filed his Answer to the
Third Amended Complaint,15 averring the following
affirmative defenses, to wit:
7.00. The Presidential Commission on Good
Government (PCGG) is without authority to act in the
name and in behalf of the "Republic of the
Philippines".
7.01. As constituted in E.O. No. 1, the PCGG was
composed of "Minister Jovito R. Salonga, as Chairman,
Mr. Ramon Diaz, Mr. Pedro L. Yap, Mr. Raul Daza and
Ms. Mary Concepcion Bautista, as Commissioners".
When the complaint in the instant case was filed,
Minister Salonga, Mr. Pedro L. Yap and Mr. Raul Daza
had already left the PCGG. By then the PCGG had
become functus officio.
7.02. The Sandiganbayan has no jurisdiction over the
complaint or over the transaction alleged in the
complaint.
7.03. The complaint does not allege any cause of
action.
7.04. The complaint is not brought in the name of the
real parties in interest, assuming any cause of action
exists.
7.05. Indispensable and necessary parties have not
been impleaded.
7.06. There is improper joinder of causes of action
(Sec. 6, Rule 2, Rules of Civil Procedure). The causes of
action alleged, if any, do not arise out of the same
contract, transaction or relation between the parties,
nor are they simply for money, or are of the same
nature and character.
7.07. There is improper joinder of parties defendants
(Sec. 11, Rule 3, Rules of Civil Procedure).The causes
of action alleged as to defendants, if any, do not
involve a single transaction or a related series of
transactions. Defendant is thus compelled to litigate
in a suit regarding matters as to which he has no
Page 58 of 91
involvement. The questions of fact and law involved
are not common to all defendants.
7.08. In so far as the complaint seeks the forfeiture of
assets allegedly acquired by defendant "manifestly
out of proportion to their salaries, to their other
lawful income and income from legitimately acquired
property," under R.A. 1379, the "previous inquiry
similar to preliminary investigation in criminal cases"
required to be conducted under Sec. 2 of that law
before any suit for forfeiture may be instituted, was
not conducted; as a consequence, the Court may not
acquire and exercise jurisdiction over such a suit.
7.09. The complaint in the instant suit was filed July
31, 1987, or within one year before the local election
held on January 18, 1988. If this suit involves an action
under R.A. 1379, its institution was also in direct
violation of Sec. 2, R.A. No. 1379.
7.10. E.O. No. 1, E.O. No. 2, E.O. No. 14 and 14-A, are
unconstitutional. They violate due process, equal
protection, ex post facto and bill of attainder
provisions of the Constitution.
7.11. Acts imputed to defendant which he had
committed were done pursuant to law and in good
faith.
The Cojuangco corporations’ Answer16 had the same
tenor as the Answer of Cojuangco.
In his own Answer with Compulsory
Counterclaims,17 Ursua averred affirmative and special
defenses.
In his own Answer with Compulsory
Counterclaims,18 Enrile specifically denied the material
averments of the Third Amended Complaint and
asserted affirmative defenses.
The CIIF Oil Mills’ Answer19 also contained affirmative
defenses.
On December 20, 1999, the Sandiganbayan scheduled
the pre-trial in Civil Case No. 0033-F on March 8,
2000, giving the parties sufficient time to file their
Pre-Trial Briefs prior to that date. Subsequently, the
parties filed their respective Pre-Trial Briefs, as
follows: Cojuangco and the Cojuangco corporations,
jointly on February 14, 2000; Enrile, on March 1, 2000;
the CIIF Oil Mills, on March 3, 2000; and Ursua, on
March 6, 2000. However, the Republic sought several
extensions to file its own Pre-Trial Brief, and
eventually did so on May 9, 2000.
In the meanwhile, some non-parties sought to
intervene. On November 22, 1999, GABAY
Foundation, Inc. (GABAY) filed its complaint-in-
intervention. On February 24, 2000, the Philippine
Coconut Producers Federation, Inc., Maria Clara L.
Lobregat, Jose R. Eleazar, Jr., Domingo Espina, Jose
Gomez, Celestino Sabate, Manuel del Rosario, Jose
Martinez, Jr., and Eladio Chato (collectively referred to
as COCOFED, considering that the co-intervenors were
its officers) also sought to intervene, citing the
October 2, 1989 ruling in G.R. No. 75713 entitled
COCOFED v. PCGG whereby the Court recognized
COCOFED as the "private national association of
coconut producers certified in 1971 by the PHILCOA as
having the largest membership among such
producers" and as such "entrusted it with the task of
maintaining continuing liaison with the different
sectors of the industry, the government and its mass
base." Pending resolution of its motion for
intervention, COCOFED filed a Pre-Trial Brief on March
2, 2000.
On May 24, 2000, the Sandiganbayan denied GABAY’s
intervention without prejudice because it found "that
the allowance of GABAY to enter under the special
character in which it presents itself would be to open
the doors to other groups of coconut farmers whether
of the same kind or of any other kind which could be
considered a sub-class or a sub-classification of the
coconut planters or the coconut industry of this
country."20
COCOFED’s intervention as defendant was allowed on
May 24, 2000, however, because "the position taken
by the COCOFED is relevant to the proceedings herein,
if only to state that there is a special function which
the COCOFED and the coconut planters have in the
matter of the coconut levy funds and the utilization of
those funds, part of which is in dispute in the instant
matter."21
The pre-trial was actually held on May 24,
2000,22 during which the Sandiganbayan sought
clarification from the parties, particularly the
Republic, on their respective positions, but at the end
it found the clarifications "inadequately" enlightening.
Nonetheless, the Sandiganbayan, not disposed to
reset, terminated the pre-trial:
xxx primarily because the Court is given a very clear
impression that the plaintiff does not know what
Page 59 of 91
documents will be or whether they are even available
to prove the causes of action in the complaint. The
Court has pursued and has exerted every form of
inquiry to see if there is a way by which the plaintiff
could explain in any significant particularity the acts
and the evidence which will support its claim of
wrong-doing by the defendants. The plaintiff has
failed to do so.23
The following material portions of the pre-trial
order24 are quoted to provide a proper perspective of
what transpired during the pre-trial, to wit:
Upon oral inquiry from the Court, the issues which
were being raised by plaintiff appear to have been
made on a very generic character. Considering that
any claim for violation or breach of trust or deception
cannot be made on generic statements but rather by
specific acts which would demonstrate fraud or
breach of trust or deception, together with the
evidence in support thereof, the same was not
acceptable to the Court.
The plaintiff through its designated counsel for this
morning, Atty. Dennis Taningco, has represented to
this Court that the annexes to its pre-trial brief, more
particularly the findings of the COA in its various
examinations, copies of which COA reports are
attached to the pre-trial brief, would demonstrate the
wrong, the act or omission attributed to the
defendants or to several of them and the basis,
therefore, for the relief that plaintiff seeks in its
complaint. It would appear, however, that the plaintiff
through its counsel at this time is not prepared to go
into the specifics of the identification of these wrongs
or omissions attributed to plaintiff.
The Court has reminded the plaintiff that a COA
report proves itself only in proceedings where the
issue arises from a review of the accountability of
particular officers and, therefore, to show the
existence of shortages or deficiencies in an
examination conducted for that purpose, provided
that such a report is accompanied by its own working
papers and other supporting documents.
In civil cases such as this, a COA report would not have
the same independent probative value since it is not a
review of the accountability of public officers for
public property in their custody as accountable
officers. It has been the stated view of this Court that
a COA report, to be of significant evidence, may itself
stand only on the basis of the supporting documents
that upon which it is based and upon an analysis made
by those who are competent to do so. The Court,
therefore, sought a more specific statement from
plaintiff as to what these documents were and which
of them would prove a particular act or omission or a
series of acts or omissions purportedly committed by
any, by several or by all of the defendants in any
particular stage of the chain of alleged wrong-doing in
this case.
The plaintiff was not in a position to do so.
The Court has remonstrated with the plaintiff, insofar
as its inadequacy is concerned, primarily because this
case was set for pre-trial as far back as December and
has been reset from its original setting, with the
undertaking by the plaintiff to prepare itself for these
proceedings. It appears to this Court at this time that
the failure of the plaintiff to have available responses
and specific data and documents at this stage is not
because the matter has been the product of oversight
or notes and papers left elsewhere; rather, the
agitation of this Court arises from the fact that at this
very stage, the plaintiff through its counsel does not
know what these documents are, where these
documents will be and is still anticipating a submission
or a delivery thereof by COA at an undetermined time.
The justification made by counsel for this stance is
that this is only pre-trial and this information and the
documents are not needed yet.
The Court is not prepared to postpone the pre-trial
anew primarily because the Court is given a very clear
impression that the plaintiff does not know what
documents will be or whether they are even available
to prove the causes of action in the complaint. The
Court has pursued and has exerted every form of
inquiry to see if there is a way by which the plaintiff
could explain in any significant particularity the acts
and the evidence which will support its claim of
wrong-doing by the defendants. The plaintiff has
failed to do so.
Defendants Cojuangco have come back and reiterated
their previous inquiry as to the statement of the cause
of action and the description thereof. While the Court
acknowledges that logically, that statement along that
line would be primary, the Court also recognizes that
sometimes the phrasing of the issue may be
determined or may arise after a statement of the
Page 60 of 91
evidence is determined by this Court because the
Court can put itself in a position of more clearly and
perhaps more accurately stating what the issues are.
The Pre-Trial Order, after all, is not so much a
reflection of merely separate submissions by all of the
parties involved, witnesses by the Court, as to what
the subject matter of litigation will be, including the
determination of what matters of fact remain
unresolved. At this time, the plaintiff has not taken
the position on any factual statement or any piece of
evidence which can be subject of admission or denial,
nor any specifics of any act which could be disputed
by the defendants; what plaintiff through counsel has
stated are general conclusions, general statements of
abuse and misuse and opportunism.
After an extended break requested by some of the
parties, the sessions were resumed and nothing anew
arose from the plaintiff. The plaintiff sought fifteen
(15) days to file a reply to the comments and
observations made by defendant Cojuangco to the
pre-trial brief of the plaintiff. This Court denied this
Request since the submissions in preparation for pre-
trial are not litigious or contentious matters. They are
mere assertions or positions which may or may not be
meritorious depending upon the view of the Court of
the entire case and if useful at the pre-trial. At this
stage, the plaintiff then reiterated its earlier request
to consider the pre-trial terminated. The Court sought
the positions of the other parties, whether or not they
too were prepared to submit their respective
positions on the basis of what was before the Court at
pre-trial. All of the parties, in the end, have come to
an agreement that they were submitting their own
respective positions for purpose of pre-trial on the
basis of the submissions made of record.
With all of the above, the pre-trial is now deemed
terminated.
This Order has been overly extended simply because
there has been a need to put on record all of the
events that have taken place leading to the
conclusions which were drawn herein.
The parties have indicated a desire to make their
submissions outside of trial as a consequence of this
terminated pre-trial, with the plea that the transcript
of the proceedings this morning be made available to
them, so that they may have the basis for whatever
assertions they will have to make either before this
Court or elsewhere. The Court deems the same
reasonable and the Court now gives the parties fifteen
(15) days after notice to them that the transcript of
stenographic notes of the proceedings herein are
complete and ready for them to be retrieved. Settings
for trial or for any other proceeding hereafter will be
fixed by this Court either upon request of the parties
or when the Court itself shall have determined that
nothing else has to be done.
The Court has sought confirmation from the parties
present as to the accuracy of the recapitulation herein
of the proceedings this morning and the Court has
gotten assent from all of the parties.
xxx
SO ORDERED.25
In the meanwhile, the Sandiganbayan, in order to
conform with the ruling in Presidential Commission on
Good Government v. Cojuangco, et al.,26 resolved
COCOFED’s Omnibus Motion (with prayer for
preliminary injunction) relative to who should vote
the UCPB shares under sequestration, holding as
follows: 27
In the light of all of the above, the Court submits itself
to jurisprudence and with the statements of the
Supreme Court in G.R. No. 115352 entitled Enrique
Cojuangco, Jr., et al. vs. Jaime Calpo, et al. dated
January 27, 1997, as well as the resolution of the
Supreme Court promulgated on January 27, 1999 in
the case of PCGG vs. Eduardo Cojuangco, Jr., et
al., G.R. No. 13319 which included the Sandiganbayan
as one of the respondents. In these two cases, the
Supreme Court ruled that the voting of sequestered
shares of stock is governed by two considerations,
namely:
1. whether there is prima facie evidence showing that
the said shares are ill-gotten and thus belong to the
State; and
2. whether there is an imminent danger of dissipation
thus necessitating their continued sequestration and
voting by the PCGG while the main issue pends with
the Sandiganbayan.
xxx xxx xxx
In view hereof, the movants COCOFED, et al and
Ballares, et al. as well as Eduardo Cojuangco, et al.
who were acknowledged to be registered
stockholders of the UCPB are authorized, as are all
other registered stockholders of the United Coconut
Page 61 of 91
Planters Bank, until further orders from this Court, to
exercise their rights to vote their shares of stock and
themselves to be voted upon in the United Coconut
Planters Bank (UCPB) at the scheduled Stockholders’
Meeting on March 6, 2001 or on any subsequent
continuation or resetting thereof, and to perform such
acts as will normally follow in the exercise of these
rights as registered stockholders.
xxx xxx xxx
Consequently, on March 1, 2001, the Sandiganbayan
issued a writ of preliminary injunction to enjoin the
PCGG from voting the sequestered shares of stock of
the UCPB.
On July 25, 2002, before Civil Case No. 0033-F could
be set for trial, the Republic filed a Motion for
Judgment on the Pleadings and/or for Partial
Summary Judgment (Re: Defendants CIIF Companies,
14 Holding Companies and COCOFED, et al.).28
Cojuangco, Enrile, and COCOFED separately opposed
the motion. Ursua adopted COCOFED’s opposition.
Thereafter, the Republic likewise filed a Motion for
Partial Summary Judgment [Re: Shares in San Miguel
Corporation Registered in the Respective Names of
Defendant Eduardo M. Cojuangco, Jr. and the
Defendant Cojuangco Companies].29
Cojuangco, et al. opposed the motion,30 after which
the Republic submitted its reply.31
On February 23, 2004, the Sandiganbayan issued an
order,32 in which it enumerated the admitted facts or
facts that appeared to be without substantial
controversy in relation to the Republic’s Motion for
Judgment on the Pleadings and/or for Partial
Summary Judgment [Re: Defendants CIIF Companies,
14 Holding Companies and COCOFED, et al.].
Commenting on the order of February 23, 2004,
Cojuangco, et al. specified the items they considered
as inaccurate, but particularly interposed no objection
to item no. 17 (to the extent that item no. 17 stated
that Cojuangco had disclaimed any interest in the CIIF
block SMC shares of stock registered in the names of
the 14 corporations listed in item no. 1 of the order).33
The Republic also filed its Comment,34 but COCOFED
denied the admitted facts summarized in the order of
February 23, 2004.35
Earlier, on October 8, 2003,36 the Sandiganbayan
resolved the various pending motions and pleadings
relative to the writs of sequestration issued against
the defendants, disposing:
IN VIEW OF THE FOREGOING, the Writs of
Sequestration Nos. (a) 86-0042 issued on April 8,
1986, (b) 86-0062 issued on April 21, 1986, (c) 86-
0069 issued on April 22, 1986, (d) 86-0085 issued on
May 9, 1986, (e) 86-0095 issued on May 16, 1986, (f)
86-0096 dated May 16, 1986, (g) 86-0097 issued on
May 16, 1986, (h) 86-0098 issued on May 16, 1986
and (i) 87-0218 issued on May 27, 1987 are hereby
declared automatically lifted for being null and void.
Despite the lifting of the writs of sequestration, since
the Republic continues to hold a claim on the shares
which is yet to be resolved, it is hereby ordered that
the following shall be annotated in the relevant
corporate books of San Miguel Corporation:
(1) any sale, pledge, mortgage or other disposition of
any of the shares of the Defendants Eduardo
Cojuangco, et al. shall be subject to the outcome of
this case;
(2) the Republic through the PCGG shall be given
twenty (20) days written notice by Defendants
Eduardo Cojuangco, et al. prior to any sale, pledge,
mortgage or other disposition of the shares;
(3) in the event of sale, mortgage or other disposition
of the shares, by the Defendants Cojuangco, et al., the
consideration therefore, whether in cash or in kind,
shall be placed in escrow with Land Bank of the
Philippines, subject to disposition only upon further
orders of this Court; and
(4) any cash dividends that are declared on the shares
shall be placed in escrow with the Land Bank of the
Philippines, subject to disposition only upon further
orders of this Court. If in case stock dividends are
declared, the conditions on the sale, pledge, mortgage
and other disposition of any of the shares as above-
mentioned in conditions 1, 2 and 3, shall likewise
apply.
In so far as the matters raised by Defendants Eduardo
Cojuangco, et al. in their "Omnibus Motion" dated
September 23, 1996 and "Reply to PCGG’s
Comment/Opposition with Motion to Order PCGG to
Complete Inventory, to Nullify Writs of Sequestration
and to Enjoin PCGG from Voting Sequestered Shares
of Stock" dated January 3, 1997, considering the
above conclusion, this Court rules that it is no longer
Page 62 of 91
necessary to delve into the matters raised in the said
Motions.
SO ORDERED.37
Cojuangco, et al. moved for the modification of the
resolution,38 praying for the deletion of the conditions
for allegedly restricting their rights. The Republic also
sought reconsideration of the resolution.39
Eventually, on June 24, 2005, the Sandiganbayan
denied both motions, but reduced the restrictions
thuswise:
WHEREFORE, the "Motion for Reconsideration (Re:
Resolution dated September 17, 2003 Promulgated on
October 8, 2003)" dated October 24, 2003 of Plaintiff
Republic is hereby DENIED for lack of merit. As to the
"Motion for Modification (Re: Resolution Promulgated
on October 8, 2003)" dated October 22, 2003, the
same is hereby DENIED for lack of merit. However, the
restrictions imposed by this Court in its Resolution
dated September 17, 2003 and promulgated on
October 8, 2003 shall now read as follows:
"Despite the lifting of the writs of sequestration, since
the Republic continues to hold a claim on the shares
which is yet to be resolved, it is hereby ordered that
the following shall be annotated in the relevant
corporate books of San Miguel Corporation:
"a) any sale, pledge, mortgage or other disposition of
any of the shares of the Defendants Eduardo
Cojuangco, et al. shall be subject to the outcome of
this case.
"b) the Republic through the PCGG shall be given
twenty (20) days written notice by Defendants
Eduardo Cojuangco, et al. prior to any sale, pledge,
mortgage or other disposition of the shares.
"SO ORDERED."40
Pending resolution of the motions relative to the
lifting of the writs of sequestration, SMC filed a
Motion for Intervention with attached Complaint-in-
Intervention,41 alleging, among other things, that it
had an interest in the matter in dispute between the
Republic and defendants CIIF Companies for being the
owner by purchase of a portion (i.e., 25,450,000 SMC
shares covered by Stock Certificate Nos. A0004129
and B0015556 of the so-called "CIIF block of SMC
shares of stock" sought to be recovered as alleged ill-
gotten wealth).
Although Cojuangco, et al. interposed no objection to
SMC’s intervention, the Republic opposed,42 averring
that the intervention would be improper and was a
mere attempt to litigate anew issues already raised
and passed upon by the Supreme Court. COCOFED
similarly opposed SMC’s intervention,43 and Ursua
adopted its opposition.
On May 6, 2004, the Sandiganbayan denied SMC’s
motion to intervene.44 SMC sought
reconsideration,45 and its motion to that effect was
opposed by COCOFED and the Republic.
On May 7, 2004, the Sandiganbyan granted the
Republic’s Motion for Judgment on the Pleadings
and/or Partial Summary Judgment (Re: Defendants
CIIF Companies, 14 Holding Companies and COCOFED,
et al.) and rendered a Partial Summary
Judgment,46 the dispositive portion of which reads as
follows:
WHEREFORE, in view of the foregoing, we hold that:
The Motion for Partial Summary Judgment (Re:
Defendants CIIF Companies, 14 Holding Companies
and Cocofed, et al.) filed by Plaintiff is hereby
GRANTED. ACCORDINGLY, THE CIIF COMPANIES,
NAMELY:
1. Southern Luzon Coconut Oil Mills (SOLCOM);
2. Cagayan de Oro Oil Co., Inc. (CAGOIL);
3. Iligan Coconut Industries, Inc. (ILICOCO);
4. San Pablo Manufacturing Corp. (SPMC);
5. Granexport Manufacturing Corp. (GRANEX); and
6. Legaspi Oil Co., Inc. (LEGOIL),
AS WELL AS THE 14 HOLDING COMPANIES, NAMELY:
1. Soriano Shares, Inc.;
2. ACS Investors, Inc.;
3. Roxas Shares, Inc.;
4. Arc Investors, Inc.;
5. Toda Holdings, Inc.;
6. AP. Holdings, Inc.;
7. Fernandez Holdings, Inc.;
8. SMC Officers Corps. Inc.;
9. Te Deum Resources, Inc.;
10. Anglo Ventures, Inc.;
11. Randy Allied Ventures, Inc.;
12. Rock Steel Resources, Inc.;
13. Valhalla Properties Ltd., Inc.; and
14. First Meridian Development, Inc.
AND THE CIIF BLOCK OF SAN MIGUEL CORPORATION
(SMC) SHARES OF STOCK TOTALING 33,133,266
SHARES AS OF 1983 TOGETHER WITH ALL DIVIDENDS
Page 63 of 91
DECLARED, PAID AND ISSUED THEREON AS WELL AS
ANY INCREMENTS THERETO ARISING FROM, BUT NOT
LIMITED TO, EXERCISE OF PRE-EMPTIVE RIGHTS ARE
DECLARED OWNED BY THE GOVERNMENT IN-TRUST
FOR ALL THE COCONUT FARMERS AND ORDERED
RECONVEYED TO THE GOVERNMENT.
Let the trial of this Civil Case proceed with respect to
the issues which have not been disposed of in this
partial Summary Judgment, including the
determination of whether the CIIF Block of SMC
Shares adjudged to be owned by the Government
represents 27% of the issued and outstanding capital
stock of SMC according to plaintiff or 31.3% of said
capital stock according to COCOFED, et al. and
Ballares, et al.
SO ORDERED.47
In the same resolution of May 7, 2004, the
Sandiganbayan considered the Motions to Dismiss
filed by Cojuangco, et al. on August 2, 2000 and by
Enrile on September 4, 2000 as overtaken by the
Republic’s Motion for Judgment on the Pleadings
and/or Partial Summary Judgment.48
On May 25, 2004, Cojuangco, et al. filed their Motion
for Reconsideration.49
COCOFED filed its so-called Class Action Omnibus
Motion: (a) Motion to Dismiss for Lack of Subject
Matter Jurisdiction and Alternatively, (b) Motion for
Reconsideration dated May 26, 2004.50
The Republic submitted its Consolidated Comment.51
Relative to the resolution of May 7, 2004, the
Sandiganbayan issued its resolution of December 10,
2004,52 denying the Republic’s Motion for Partial
Summary Judgment (Re: Shares in San Miguel
Corporation Registered in the Respective Names of
Defendants Eduardo M. Cojuangco, Jr. and the
defendant Cojuangco Companies) upon the following
reasons:
In the instant case, a circumspect review of the
records show that while there are facts which appear
to be undisputed, there are also genuine factual
issues raised by the defendants which need to be
threshed out in a full-blown trial. Foremost among
these issues are the following:
1) What are the "various sources" of funds, which the
defendant Cojuangco and his companies claim they
utilized to acquire the disputed SMC shares?
2) Whether or not such funds acquired from alleged
"various sources" can be considered coconut levy
funds;
3) Whether or not defendant Cojuangco had indeed
served in the governing bodies of PC, UCPB and/or
CIIF Oil Mills at the time the funds used to purchase
the SMC shares were obtained such that he owed a
fiduciary duty to render an account to these entities
as well as to the coconut farmers;
4) Whether or not defendant Cojuangco took
advantage of his position and/or close ties with then
President Marcos to obtain favorable concessions or
exemptions from the usual financial requirements
from the lending banks and/or coco-levy funded
companies, in order to raise the funds to acquire the
disputed SMC shares; and if so, what are these
favorable concessions or exemptions?
Answers to these issues are not evident from the
submissions of the plaintiff and must therefore be
proven through the presentation of relevant and
competent evidence during trial. A perusal of the
subject Motion shows that the plaintiff hastily derived
conclusions from the defendants’ statements in their
previous pleadings although such conclusions were
not supported by categorical facts but only mere
inferences. In the Reply dated October 2, 2003, the
plaintiff construed the supposed meaning of the
phrase "various sources" (referring to the source of
defendant Cojuangco’s funds which were used to
acquire the subject SMC shares), which plaintiff said
was quite obvious from the defendants’ admission in
his Pre-Trial Brief, which we quote:
"According to Cojuangco’s own Pre-Trial Brief, these
so-called ‘various sources’, i.e., the sources from
which he obtained the funds he claimed to have used
in buying the 20% SMC shares are not in fact ‘various’
as he claims them to be. He says he obtained ‘loans’
from UCPB and ‘advances’ from the CIIF Oil Mills. He
even goes as far as to admit that his only evidence in
this case would have been ‘records of UCPB’ and a
‘representative of the CIIF Oil Mills’ obviously the
‘records of UCPB’ relate to the ‘loans’ that Cojuangco
claims to have obtained from UCPB – of which he was
President and CEO – while the ‘representative of the
CIIF Oil Mills’ will obviously testify on the ‘advances’
Cojuangco obtained from CIIF Oil Mills – of which he
was also the President and CEO."
Page 64 of 91
From the foregoing premises, plaintiff went on to
conclude that:
"These admissions of defendant Cojuangco are
outright admissions that he (1) took money from the
bank entrusted by law with the administration of
coconut levy funds and (2) took more money from the
very corporations/oil mills in which part of those
coconut levy funds (the CIIF) was placed – treating the
funds of UCPB and the CIIF as his own personal capital
to buy ‘his’ SMC shares."
We cannot agree with the plaintiff’s contention that
the defendant’s statements in his Pre-Trial Brief
regarding the presentation of a possible CIIF witness
as well as UCPB records, can already be considered as
admissions of the defendant’s exclusive use and
misuse of coconut levy funds to acquire the subject
SMC shares and defendant Cojuangco’s alleged taking
advantage of his positions to acquire the subject SMC
shares. Moreover, in ruling on a motion for summary
judgment, the court "should take that view of the
evidence most favorable to the party against whom it
is directed, giving such party the benefit of all
inferences." Inasmuch as this issue cannot be resolved
merely from an interpretation of the defendant’s
statements in his brief, the UCPB records must be
produced and the CIIF witness must be heard to
ensure that the conclusions that will be derived have
factual basis and are thus, valid.
WHEREFORE, in view of the forgoing, the Motion for
Partial Summary Judgment dated July 11, 2003 is
hereby DENIED for lack of merit.
SO ORDERED.
Thereafter, on December 28, 2004, the
Sandiganbayan resolved the other pending
motions,53 viz:
WHEREFORE, in view of the foregoing, the Motion for
Reconsideration dated May 25, 2004 filed by
defendant Eduardo M. Cojuangco, Jr., et al. and the
Class Action Omnibus Motion: (a) Motion to Dismiss
for Lack of Subject Matter Jurisdiction and
Alternatively, (b) Motion for Reconsideration dated
May 26, 2004 filed by COCOFED, et al. and Ballares, et
al. are hereby DENIED for lack of merit.
SO ORDERED.54
COCOFED moved to set the case for trial,55 but the
Republic opposed the motion.56 On their part,
Cojuangco, et al. also moved to set the trial,57 with the
Republic similarly opposing the motion.58
On March 23, 2006, the Sandiganbayan granted the
motions to set for trial and set the trial on August 8,
10, and 11, 2006.59
In the meanwhile, on August 9, 2005, the Republic
filed a Motion for Execution of Partial Summary
Judgment (re: CIIF block of SMC Shares of
Stock),60 contending that an execution pending appeal
was justified because any appeal by the defendants of
the Partial Summary Judgment would be merely
dilatory.
Cojuangco, et al. opposed the motion.61
The Sandiganbayan denied the Republic’s Motion for
Execution of Partial Summary Judgment (re: CIIF block
of SMC Shares of Stock),62 to wit:
WHEREFORE, the MOTION FOR EXECUTION OF
PARTIAL SUMMARY JUDGMENT (RE: CIIF BLOCK OF
SMC SHARES OF STOCK) dated August 8, 2005 of the
plaintiff is hereby denied for lack of merit. However,
this Court orders the severance of this particular claim
of Plaintiff. The Partial Summary Judgment dated May
7, 2004 is now considered a separate final and
appealable judgment with respect to the said CIIF
Block of SMC shares of stock.
The Partial Summary Judgment rendered on May 7,
2004 is modified by deleting the last paragraph of the
dispositive portion which will now read, as follows:
WHEREFORE, in view of the foregoing, we hold that:
The Motion for Partial Summary Judgment (Re:
Defendants CIIF Companies, 14 Holding Companies
and Cocofed, et al.) filed by Plaintiff is hereby
GRANTED. ACCORDINGLY, THE CIIF COMPANIES,
NAMELY:
1. Southern Coconut Oil Mills (SOLCOM);
2. Cagayan de Oro Oil Co., Inc. (CAGOIL);
3. Iligan Coconut Industries, Inc. (ILICOCO);
4. San Pablo Manufacturing Corp. (SPMC);
5. Granexport Manufacturing Corp.
(GRANEX); and
6. Legaspi Oil Co., Inc. (LEGOIL),
AS WELL AS THE 14 HOLDING COMPANIES, NAMELY:
1. Soriano Shares, Inc.;
2. ACS Investors, Inc.;
3. Roxas Shares, Inc.;
4. Arc Investors, Inc.;
Page 65 of 91
5. Toda Holdings, Inc.;
6. AP Holdings, Inc.;
7. Fernandez Holdings, Inc.;
8. SMC Officers Corps, Inc.;
9. Te Deum Resources, Inc.;
10. Anglo Ventures, Inc.;
11. Randy Allied Ventures, Inc.;
12. Rock Steel Resources, Inc.;
13. Valhalla Properties Ltd., Inc.; and
14. First Meridian Development, Inc.
AND THE CIIF BLOCK OF SAN MIGUEL CORPORATION
(SMC) SHARES OF STOCK TOTALING 33,133,266
SHARES AS OF 1983 TOGETHER WITH ALL DIVIDENDS
DECLARED, PAID AND ISSUED THEREON AS WELL AS
ANY INCREMENTS THERETO ARISING FROM, BUT NOT
LIMITED TO, EXERCISE OF PRE-EMPTIVE RIGHTS ARE
DECLARED OWNED BY THE GOVERNMENT IN TRUST
FOR ALL THE COCONUT FARMERS AND ORDERED
RECONVEYED TO THE GOVERNMENT.
The aforementioned Partial Summary Judgment is
now deemed a separate appealable judgment which
finally disposes of the ownership of the CIIF Block of
SMC Shares, without prejudice to the continuation of
proceedings with respect to the remaining claims
particularly those pertaining to the Cojuangco, et al.
block of SMC shares.
SO ORDERED.63
During the pendency of the Republic’s motion for
execution, Cojuangco, et al. filed a Motion for
Authority to Sell San Miguel Corporation (SMC)
shares, praying for leave to allow the sale of SMC
shares to proceed, exempted from the conditions set
forth in the resolutions promulgated on October 3,
2003 and June 24, 2005.64 The Republic opposed,
contending that the requested leave to sell would be
tantamount to removing jurisdiction over the res or
the subject of litigation.65
However, the Sandiganbayan eventually granted the
Motion for Authority to Sell San Miguel Corporation
(SMC) shares.66
Thereafter, Cojuangco, et al. manifested to the
Sandiganbayan that the shares would be sold to the
San Miguel Corporation Retirement Plan.67 Ruling on
the manifestations of Cojuangco, et al., the
Sandiganbayan issued its resolution of July 30, 2007
allowing the sale of the shares, to wit:
This notwithstanding however, while the Court
exempts the sale from the express condition that it
shall be subject to the outcome of the case,
defendants Cojuangco, et al. may well be reminded
that despite the deletion of the said condition, they
cannot transfer to any buyer any interest higher than
what they have. No one can transfer a right to
another greater than what he himself has. Hence, in
the event that the Republic prevails in the instant
case, defendants Cojuangco, et al. hold themselves
liable to their transferees-buyers, especially if they are
buyers in good faith and for value. In such eventuality,
defendants Cojuangco, et al. cannot be shielded by
the cloak of principle of caveat emptor because case
law has it that this rule only requires the purchaser to
exercise such care and attention as is usually
exercised by ordinarily prudent men in like business
affairs, and only applies to defects which are open and
patent to the service of one exercising such care.
Moreover, said defendants Eduardo M. Cojuangco, et
al. are hereby ordered to render their report on the
sale within ten (10) days from completion of the
payment by the San Miguel Corporation Retirement
Plan.
SO ORDERED.68
Cojuangco, et al. later rendered a complete
accounting of the proceeds from the sale of the
Cojuangco block of shares of SMC stock, informing
that a total amount of ₱ 4,786,107,428.34 had been
paid to the UCPB as loan repayment.69
It appears that the trial concerning the disputed block
of shares was not scheduled because the
consideration and resolution of the aforecited
motions for summary judgment occupied much of the
ensuing proceedings.
At the hearing of August 8, 2006, the Republic
manifested70 that it did not intend to present any
testimonial evidence and asked for the marking of
certain exhibits that it would have the Sandiganbayan
take judicial notice of. The Republic was then allowed
to mark certain documents as its Exhibits A to I,
inclusive, following which it sought and was granted
time within which to formally offer the exhibits.
On August 31, 2006, the Republic filed its
Manifestation of Purposes (Re: Matters Requested or
Judicial Notice on the 20% Shares in San Miguel
Corporation Registered in the Respective Names of
Page 66 of 91
defendant Eduardo M. Cojuangco, Jr. and the
defendant Cojuangco Companies).71
On September 18, 2006, the Sandiganbayan issued
the following resolution,72 to wit:
Acting on the Manifestation of Purposes (Re: Matters
Requested or Judicial Notice on the 20% Shares in San
Miguel Corporation Registered in the Respective
names of Defendant Eduardo M. Cojuangco, Jr. and
the Defendant Cojuangco Companies) dated 28
August 2006 filed by the plaintiff, which has been
considered its formal offer of evidence, and the
Comment of Defendants Eduardo M. Cojuangco, Jr., et
al. on Plaintiff’s "Manifestation of Purposes …" Dated
August 30, 2006 dated September 15, 2006, the court
resolves to ADMIT all the exhibits offered, i.e.:
• Exhibit "A" – the Answer of defendant Eduardo M.
Cojuangco, Jr. to the Third Amended Complaint
(Subdivided) dated June 23, 1999, as well as the sub-
markings (Exhibit "A-1" to "A-4";
• Exhibit "B" – the "Pre-Trial Brief dated January 11,
2000 of defendant CIIF Oil Mills and fourteen (14) CIIF
Holding Companies, as well as the sub-markings
Exhibits "B-1" and "B-2"
• Exhibit "C" – the Pre-Trial Brief dated January 11,
2000 of defendant Eduardo M. Cojuangco, Jr. as well
as the sub-markings Exhibits "C-1", "C-1-a" and "C-1-
b";
• Exhibit "D" – the Plaintiff’s Motion for Summary
Judgment [Re: Shares in San Miguel Corporation
Registered in the Respective Names of Defendant
Eduardo M. Cojuangco, Jr. and the Defendant
Cojuangco Companies] dated July 11, 2003, as well as
the sub-markings Exhibits "D-1" to "D-4"
the said exhibits being part of the record of the case,
as well as
• Exhibit "E" – Presidential Decree No. 961 dated July
11, 1976;
• Exhibit "F" – Presidential Decree No. 755 dated July
29, 1975;
• Exhibit "G" – Presidential Decree No. 1468 dated
June 11, 1978;
• Exhibit "H" – Decision of the Supreme Court in
Republic vs. COCOFED, et al., G.R. Nos. 147062-64,
December 14, 2001, 372 SCRA 462
the aforementioned exhibits being matters of public
record.
The admission of these exhibits is being made over
the objection of the defendants Cojuangco, et al. as to
the relevance thereof and as to the purposes for
which they were offered in evidence, which matters
shall be taken into consideration by the Court in
deciding the case on the merits.
The trial hereon shall proceed on November 21, 2006,
at 8:30 in the morning as previously scheduled.73
During the hearing on November 24, 2006, Cojuangco,
et al. filed their Submission and Offer of Evidence of
Defendants,74 formally offering in evidence certain
documents to substantiate their counterclaims, and
informing that they found no need to present
countervailing evidence because the Republic’s
evidence did not prove the allegations of the
Complaint. On December 5, 2006, after the Republic
submitted its Comment,75 the Sandiganbayan
admitted the exhibits offered by Cojuangco, et al., and
granted the parties a non-extendible period within
which to file their respective memoranda and reply-
memoranda.
Thereafter, on February 23, 2007, the Sandiganbayan
considered the case submitted for decision.76
ISSUES
The various issues submitted for consideration by the
Court are summarized hereunder.
G.R. No. 166859
The Republic came to the Court via petition for
certiorari77 to assail the denial of its Motion for Partial
Summary Judgment through the resolution
promulgated on December 10, 2004, insisting that the
Sandiganbayan thereby committed grave abuse of
discretion: (a) in holding that the various sources of
funds used in acquiring the SMC shares of stock
remained disputed; (b) in holding that it was disputed
whether or not Cojuangco had served in the governing
bodies of PCA, UCPB, and/or the CIIF Oil Mills; and (c)
in not finding that Cojuangco had taken advantage of
his position and had violated his fiduciary obligations
in acquiring the SMC shares of stock in issue.
The Court will consider and resolve the issues thereby
raised alongside the issues presented in G.R. No.
180702.
G.R. No. 169203
In the resolution promulgated on October 8, 2003, the
Sandiganbayan declared as "automatically lifted for
being null and void" nine writs of sequestration (WOS)
Page 67 of 91
issued against properties of Cojuangco and Cojuangco
companies, considering that: (a) eight of them (i.e.,
WOS No. 86-0062 dated April 21, 1986; WOS No. 86-
0069 dated April 22, 1986; WOS No. 86-0085 dated
May 9, 1986; WOS No. 86-0095 dated May 16, 1986;
WOS No. 86-0096 dated May 16, 1986; WOS No. 86-
0097 dated May 16, 1986; WOS No. 86-0098 dated
May 16, 1986; and WOS No. 87-0218 dated May 27,
1987) had been issued by only one PCGG
Commissioner, contrary to the requirement of Section
3 of the Rules of the PCGG for at least two
Commissioners to issue the WOS; and (b) the ninth
(i.e., WOS No. 86-0042 dated April 8, 1986), although
issued prior to the promulgation of the Rules of the
PCGG requiring at least two Commissioners to issue
the WOS, was void for being issued without prior
determination by the PCGG of a prima facie basis for
sequestration.1avvphi1
Nonetheless, despite its lifting of the nine WOS, the
Sandiganbayan prescribed four conditions to be still
"annotated in the relevant corporate books of San
Miguel Corporation" considering that the Republic
"continues to hold a claim on the shares which is yet
to be resolved."78
In its resolution promulgated on June 24, 2005, the
Sandiganbayan denied the Republic’s Motion for
Reconsideration filed vis-a-vis the resolution
promulgated on October 8, 2003, but reduced the
conditions earlier imposed to only two.79
On September 1, 2005, the Republic filed a petition
for certiorari80 to annul the resolutions promulgated
on October 8, 2003 and on June 24, 2005 on the
ground that the Sandiganbayan had thereby
committed grave abuse of discretion:
I.
XXX IN LIFTING WRIT OF SEQUESTRATION NOS. 86-
0042 AND 87-0218 DESPITE EXISTENCE OF THE BASIC
REQUISITES FOR THE VALIDITY OF SEQUESTRATION.
II.
XXX WHEN IT DENIED PETITIONER’S ALTERNATIVE
PRAYER IN ITS MOTION FOR RECONSIDERATION FOR
THE ISSUANCE OF AN ORDER OF SEQUESTRATION
AGAINST ALL THE SUBJECT SHARES OF STOCK IN
ACCORDNCE WITH THE RULING IN REPUBLIC VS.
SANDIGANBAYAN, 258 SCRA 685 (1996).
III.
XXX IN SUBSEQUENTLY DELETING THE LAST TWO (2)
CONDITIONS WHICH IT EARLIER IMPOSED ON THE
SUBJECT SHARES OF STOCK.81
G.R. No. 180702
On November 28, 2007, the Sandiganbayan
promulgated its decision,82 decreeing as follows:
WHEREFORE, in view of all the foregoing, the Court is
constrained to DISMISS, as it hereby DISMISSES, the
Third Amended Complaint in subdivided Civil Case No.
0033-F for failure of plaintiff to prove by
preponderance of evidence its causes of action
against defendants with respect to the twenty percent
(20%) outstanding shares of stock of San Miguel
Corporation registered in defendants’ names,
denominated herein as the "Cojuangco, et al. block"
of SMC shares. For lack of satisfactory warrant, the
counterclaims in defendants’ Answers are likewise
ordered dismissed.
SO ORDERED.
Hence, the Republic appeals, positing:
I.
COCONUT LEVY FUNDS ARE PUBLIC FUNDS. THE SMC
SHARES, WHICH WERE ACQUIRED BY RESPONDENTS
COJUANGCO, JR. AND THE COJUANGCO COMPANIES
WITH THE USE OF COCONUT LEVY FUNDS – IN
VIOLATION OF RESPONDENT COJUANGCO, JR.’S
FIDUCIARY OBLIGATION – ARE, NECESSARILY, PUBLIC
IN CHARACTER AND SHOULD BE RECONVEYED TO THE
GOVERNMENT.
II.
PETITIONER HAS CLEARLY DEMONSTRATED ITS
ENTITLEMENT, AS A MATTER OF LAW, TO THE RELIEFS
PRAYED FOR.83
and urging the following issues to be resolved, to wit:
I.
WHETHER THE HONORABLE SANDIGANBAYAN
COMMITTED A REVERSIBLE ERROR WHEN IT
DISMISSED CIVIL CASE NO. 0033-F; AND
II.
WHETHER OR NOT THE SUBJECT SHARES IN SMC,
WHICH WERE ACQUIRED BY, AND ARE IN THE
RESPECTIVE NAMES OF RESPONDENTS COJUANGCO,
JR. AND THE COJUANGCO COMPANIES, SHOULD BE
RECONVEYED TO THE REPUBLIC OF THE PHILIPPINES
FOR HAVING BEEN ACQUIRED USING COCONUT LEVY
FUNDS.84
Page 68 of 91
On their part, the petitioners-in-intervention85 submit
the following issues, to wit:
I
WHETHER OR NOT THE COURT A QUO GRAVELY
ERRED AND DECIDED THE CASE A QUO IN VIOLATION
OF LAW AND APPLICABLE RULINGS OF THE
HONORABLE COURT IN RULING THAT, WHILE
ADMITTEDLY THE SUBJECT SMC SHARES WERE
PURCHASED FROM LOAN PROCEEDS FROM UCPB AND
ADVANCES FROM THE CIIF OIL MILLS, SAID SUBJECT
SMC SHARES ARE NOT PUBLIC PROPERTY
II
WHETHER OR NOT THE COURT A QUO GRAVELY
ERRED AND DECIDED THE CASE A QUO IN VIOLATION
OF LAW AND APPLICABLE RULINGS OF THE
HONORABLE COURT IN FAILING TO RULE THAT, EVEN
ASSUMING FOR THE SAKE OF ARGUMENT THAT LOAN
PROCEEDS FROM UCPB ARE NOT PUBLIC FINDS, STILL,
SINCE RESPONDENT COJUANGCO, IN THE PURCHASE
OF THE SUBJECT SMC SHARES FROM SUCH LOAN
PROCEEDS, VIOLATED HIS FIDUCIARY DUTIES AND
TOOK A COMMERCIAL OPPORTUNITY THAT
RIGHTFULLY BELONGED TO UCPB (A PUBLIC
CORPORATION), THE SUBJECT SMC SHARES SHOULD
REVERT BACK TO THE GOVERNMENT.
RULING
We deny all the petitions of the Republic.
I
Lifting of nine WOS for violation of PCGG Rules
did not constitute grave abuse of discretion
Through its resolution promulgated on June 24, 2005,
assailed on certiorari in G.R. No. 169203, the
Sandiganbayan lifted the nine WOS for the following
reasons, to wit:
Having studied the antecedent facts, this Court shall
now resolve the pending incidents especially
defendants’ "Motion to Affirm that the Writs or
Orders of Sequestration Issued on Defendants’
Properties Were Unauthorized, Invalid and Never
Became Effective" dated March 5, 1999.
Section 3 of the PCGG Rules and Regulations
promulgated on April 11, 1986, provides:
"Sec. 3. Who may issue. – A writ of sequestration or a
freeze or hold order may be issued by the Commission
upon the authority of at least two
Commissioners, based on the affirmation or complaint
of an interested party or motu propio (sic) the
issuance thereof is warranted."
In this present case, of all the questioned writs of
sequestration issued after the effectivity of the PCGG
Rules and Regulations or after April 11, 1986, only writ
no. 87-0218 issued on May 27, 1987 complied with
the requirement that it be issued by at least two
Commissioners, the same having been issued by
Commissioners Ramon E. Rodrigo and Quintin S.
Doromal. However, even if Writ of Sequestration No.
87-0218 complied with the requirement that the same
be issued by at least two Commissioners, the records
fail to show that it was issued with factual basis or
with factual foundation as can be seen from the
Certification of the Commission Secretary of the PCGG
of the excerpt of the minutes of the meeting of the
PCGG held on May 26, 1987, stating therein that:
"The Commission approved the recommendation of
Dir. Cruz to sequester all the shares of stock, assets,
records, and documents of Balete Ranch, Inc. and the
appointment of the Fiscal Committee with ECI
Challenge, Inc./Pepsi-Cola for Balete Ranch, Inc. and
the Aquacor Marketing Corp. vice Atty. S. Occena. The
objective is to consolidate the Fiscal Committee
activities covering three associated entities of Mr.
Eduardo Cojuangco.Upon recommendation of Comm.
Rodrigo, the reconstitution of the Board of Directors
of the three companies was deferred for further
study."
Nothing in the above-quoted certificate shows that
there was a prior determination of a factual basis or
factual foundation. It is the absence of a prima
facie basis for the issuance of a writ of sequestration
and not the lack of authority of two (2)
Commissioners which renders the said writ void ab
initio. Thus, being the case, Writ of Sequestration No.
87-0218 must be automatically lifted.
As declared by the Honorable Supreme Court in two
cases it has decided,
"The absence of a prior determination by the PCGG of
a prima facie basis for the sequestration order is,
unavoidably, a fatal defect which rendered the
sequestration of respondent corporation and its
properties void ab initio." And
"The corporation or entity against which such writ is
directed will not be able to visually determine its
validity, unless the required signatures of at least two
Page 69 of 91
commissioners authorizing its issuance appear on the
very document itself. The issuance of sequestration
orders requires the existence of a prima facie case.
The two –commissioner rule is obviously intended to
assure a collegial determination of such fact. In this
light, a writ bearing only one signature is an obvious
transgression of the PCGG Rules."
Consequently, the writs of sequestration nos. 86-
0062, 86-0069, 86-0085, 86-0095, 86-0096, 86-0097
and 86-0098 must be lifted for not having complied
with the pertinent provisions of the PCGG Rules and
Regulations, all of which were issued by only one
Commissioner and after April 11, 1986 when the
PCGG Rules and Regulations took effect, an utter
disregard of the PCGG’s Rules and Regulations. The
Honorable Supreme Court has stated that:
"Obviously, Section 3 of the PCGG Rules was intended
to protect the public from improvident, reckless and
needless sequestrations of private property. And since
these Rules were issued by Respondent Commission,
it should be the first entity to observe them."
Anent the writ of sequestration no. 86-0042 which
was issued on April 8, 1986 or prior to the
promulgation of the PCGG Rules and Regulations on
April 11, 1986, the same cannot be declared void on
the ground that it was signed by only one
Commissioner because at the time it was issued, the
Rules and Regulations of the PCGG were not yet in
effect. However, it again appears that there was no
prior determination of the existence of a prima
facie basis or factual foundation for the issuance of
the said writ. The PCGG, despite sufficient time
afforded by this Court to show that a prima facie basis
existed prior to the issuance of Writ No. 86-0042,
failed to do so. Nothing in the records submitted by
the PCGG in compliance of the Resolutions and Order
of this Court would reveal that a meeting was held by
the Commission for the purpose of determining the
existence of a prima facie evidence prior to its
issuance. In a case decided by the Honorable Supreme
Court, wherein it involved a writ of sequestration
issued by the PCGG on March 19, 1986 against all
assets, movable and immovable, of Provident
International Resources Corporation and Philippine
Casino Operators Corporation, the Honorable
Supreme Court enunciated:
"The questioned sequestration order was, however
issued on March 19, 1986, prior to the promulgation
of the PCGG Rules and Regulations. As a consequence,
we cannot reasonably expect the commission to abide
by said rules, which were nonexistent at the time the
subject writ was issued by then Commissioner Mary
Concepcion Bautista. Basic is the rule that no statute,
decree, ordinance, rule or regulation (and even
policies) shall be given retrospective effect unless
explicitly stated so. We find no provision in said Rules
which expressly gives them retroactive effect, or
implies the abrogation of previous writs issued not in
accordance with the same Rules. Rather, what said
Rules provide is that they "shall be effective
immediately," which in legal parlance, is understood
as "upon promulgation". Only penal laws are given
retroactive effect insofar as they favor the accused.
We distinguish this case from Republic vs.
Sandiganbayan, Romualdez and Dio Island Resort,
G.R. No. 88126, July 12, 1996 where the sequestration
order against Dio Island Resort, dated April 14, 1986,
was prepared, issued and signed not by two
commissioners of the PCGG, but by the head of its
task force in Region VIII. In holding that said order was
not valid since it was not issued in accordance with
PCGG Rules and Regulations, we explained:
"(Sec. 3 of the PCGG Rules and Regulations), couched
in clear and simple language, leaves no room for
interpretation. On the basis thereof, it is indubitable
that under no circumstances can a sequestration or
freeze order be validly issued by one not a
commissioner of the PCGG.
xxx xxx xxx
Even assuming arguendo that Atty. Ramirez had been
given prior authority by the PCGG to place Dio Island
Resort under sequestration, nevertheless, the
sequestration order he issued is still void since PCGG
may not delegate its authority to sequester to its
representatives and subordinates, and any such
delegation is valid and ineffective."
We further said:
"In the instant case, there was clearly no prior
determination made by the PCGG of a prima facie
basis for the sequestration of Dio Island Resort, Inc. x
xx
xxx xxx xxx
Page 70 of 91
The absence of a prior determination by the PCGG of
a prima facie basis for the sequestration order is,
unavoidably, a fatal defect which rendered the
sequestration of respondent corporation and its
properties void ab initio. Being void ab initio, it is
deemed nonexistent, as though it had never been
issued, and therefore is not subject to ratification by
the PCGG.
What were obviously lacking in the above case were
the basic requisites for the validity of a sequestration
order which we laid down in BASECO vs. PCGG, 150
SCRA 181, 216, May 27, 1987, thus:
"Section (3) of the Commission’s Rules and regulations
provides that sequestration or freeze (and takeover)
orders issue upon the authority of at least two
commissioners, based on the affirmation or complaint
of an interested party, or motu propio (sic) when the
Commission has reasonable grounds to believe that
the issuance thereof is warranted."
In the case at bar, there is no question as to the
presence of prima facie evidence justifying the
issuance of the sequestration order against
respondent corporations. But the said order cannot
be nullified for lack of the other requisite (authority of
at least two commissioners) since, as explained
earlier, such requisite was nonexistent at the time the
order was issued."
As to the argument of the Plaintiff Republic that
Defendants Cojuangco, et al. have not shown any
contrary prima facie proof that the properties subject
matter of the writs of sequestration were legitimate
acquisitions, the same is misplaced. It is a basic legal
doctrine, as well as many times enunciated by the
Honorable Supreme Court that when a prima
facie proof is required in the issuance of a writ, the
party seeking such extraordinary writ must establish
that it is entitled to it by complying strictly with the
requirements for its issuance and not the party
against whom the writ is being sought for to establish
that the writ should not be issued against it.
According to the Republic, the Sandiganbayan thereby
gravely abused its discretion in: (a) in lifting WOS No.
86-0042 and No. 87-0218 despite the basic requisites
for the validity of sequestration being existent; (b) in
denying the Republic’s alternative prayer for the
issuance of an order of sequestration against all the
subject shares of stock in accordance with the ruling
in Republic v. Sandiganbayan, 258 SCRA 685, as stated
in its Motion For Reconsideration; and (c) in deleting
the last two conditions the Sandiganbayan had earlier
imposed on the subject shares of stock.
We sustain the lifting of the nine WOS for the reasons
made extant in the assailed resolution of October 8,
2003, supra.
Section 3 of the Rules of the PCGG, promulgated on
April 11, 1986, provides:
Section 3. Who may issue. – A writ of sequestration or
a freeze or hold order may be issued by the
Commission upon the authority of at least two
Commissioners, based on the affirmation or complaint
of an interested party or motu proprio when the
Commission has reasonable grounds to believe that
the issuance thereof is warranted.
Conformably with Section 3, supra, WOS No. 86-0062
dated April 21, 1986; WOS No. 86-0069 dated April
22, 1986; WOS No. 86-0085 dated May 9, 1986; WOS
No. 86-0095 dated May 16, 1986; WOS No. 86-0096
dated May 16, 1986; WOS No. 86-0097 dated May 16,
1986; and WOS No. 86-0098 dated May 16, 1986 were
lawfully and correctly nullified considering that only
one PCGG Commissioner had issued them.
Similarly, WOS No. 86-0042 dated April 8, 1986 and
WOS No. 87-0218 dated May 27, 1987 were lawfully
and correctly nullified ̶ notwithstanding that WOS No.
86-0042, albeit signed by only one Commissioner (i.e.,
Commissioner Mary Concepcion Bautista), was not at
the time of its issuance subject to the two-
Commissioners rule, and WOS No. 87-0218, albeit
already issued under the signatures of two
Commissioners ̶ considering that both had been
issued without a prior determination by the PCGG of a
prima facie basis for the sequestration.
Plainly enough, the irregularities infirming the
issuance of the several WOS could not be ignored in
favor of the Republic and resolved against the persons
whose properties were subject of the WOS. Where
the Rules of the PCGG instituted safeguards under
Section 3, supra, by requiring the concurrent
signatures of two Commissioners to every WOS issued
and the existence of a prima facie case of ill gotten
wealth to support the issuance, the non-compliance
with either of the safeguards nullified the WOS thus
issued. It is already settled that sequestration, due to
its tendency to impede or limit the exercise of
Page 71 of 91
proprietary rights by private citizens, is construed
strictly against the State, conformably with the legal
maxim that statutes in derogation of common rights
are generally strictly construed and rigidly confined to
the cases clearly within their scope and purpose.86
Consequently, the nullification of the nine WOS, being
in implementation of the safeguards the PCGG itself
had instituted, did not constitute any abuse of its
discretion, least of all grave, on the part of the
Sandiganbayan.
Nor did the Sandiganbayan gravely abuse its
discretion in reducing from four to only two the
conditions imposed for the lifting of the WOS. The
Sandiganbayan thereby acted with the best of
intentions, being all too aware that the claim of the
Republic to the sequestered assets and properties
might be prejudiced or harmed pendente lite unless
the protective conditions were annotated in the
corporate books of SMC. Moreover, the issue became
academic following the Sandiganbayan’s
promulgation of its decision dismissing the Republic’s
Amended Complaint, which thereby removed the
stated reason – "the Republic continues to hold a
claim on the shares which is yet to be resolved" –
underlying the need for the annotation of the
conditions (whether four or two).
II
The Concept and Genesis of
Ill-Gotten Wealth in the Philippine Setting
A brief review of the Philippine law and jurisprudence
pertinent to ill-gotten wealth should furnish an
illuminating backdrop for further discussion.
In the immediate aftermath of the peaceful 1986
EDSA Revolution, the administration of President
Corazon C. Aquino saw to it, among others, that rules
defining the authority of the government and its
instrumentalities were promptly put in place. It is
significant to point out, however, that the
administration likewise defined the limitations of the
authority.
The first official issuance of President Aquino, which
was made on February 28, 1986, or just two days after
the EDSA Revolution, was Executive Order (E.O.) No.
1, which created the Presidential Commission on
Good Government (PCGG). Ostensibly, E.O. No. 1 was
the first issuance in light of the EDSA Revolution
having come about mainly to address the pillage of
the nation’s wealth by President Marcos, his family,
and cronies.
E.O. No. 1 contained only two WHEREAS Clauses, to
wit:
WHEREAS, vast resources of the government have
been amassed by former President Ferdinand E.
Marcos, his immediate family, relatives, and close
associates both here and abroad;
WHEREAS, there is an urgent need to recover all ill-
gotten wealth;87
Paragraph (4) of E.O. No. 288 further required that the
wealth, to be ill-gotten, must be "acquired by them
through or as a result of improper or illegal use of or
the conversion of funds belonging to the Government
of the Philippines or any of its branches,
instrumentalities, enterprises, banks or financial
institutions, or by taking undue advantage of their
official position, authority, relationship, connection or
influence to unjustly enrich themselves at the expense
and to the grave damage and prejudice of the Filipino
people and the Republic of the Philippines."
Although E.O. No. 1 and the other issuances dealing
with ill-gotten wealth (i.e., E.O. No. 2, E.O. No. 14, and
E.O. No. 14-A) only identified the subject matter of ill-
gotten wealth and the persons who could amass ill-
gotten wealth and did not include an explicit
definition of ill-gotten wealth, we can still discern the
meaning and concept of ill-gotten wealth from the
WHEREAS Clauses themselves of E.O. No. 1, in that ill-
gotten wealth consisted of the "vast resources of the
government" amassed by "former President
Ferdinand E. Marcos, his immediate family, relatives
and close associates both here and abroad." It is clear,
therefore, that ill-gotten wealth would not include all
the properties of President Marcos, his immediate
family, relatives, and close associates but only the part
that originated from the "vast resources of the
government."
In time and unavoidably, the Supreme Court
elaborated on the meaning and concept of ill-gotten
wealth. In Bataan Shipyard & Engineering Co., Inc. v.
Presidential Commission on Good Government,89 or
BASECO, for the sake of brevity, the Court held that:
xxx until it can be determined, through appropriate
judicial proceedings, whether the property was in
truth "ill-gotten," i.e., acquired through or as a result
of improper or illegal use of or the conversion of funds
Page 72 of 91
belonging to the Government or any of its branches,
instrumentalities, enterprises, banks or financial
institutions, or by taking undue advantage of official
position, authority, relationship, connection or
influence, resulting in unjust enrichment of the
ostensible owner and grave damage and prejudice to
the State. And this, too, is the sense in which the term
is commonly understood in other jurisdictions.90
The BASECO definition of ill-gotten wealth was
reiterated in Presidential Commission on Good
Government v. Lucio C. Tan,91 where the Court said:
On this point, we find it relevant to define "ill-gotten
wealth." In Bataan Shipyard and Engineering Co., Inc.,
this Court described "ill-gotten wealth" as follows:
"Ill-gotten wealth is that acquired through or as a
result of improper or illegal use of or the conversion
of funds belonging to the Government or any of its
branches, instrumentalities, enterprises, banks or
financial institutions, or by taking undue advantage of
official position, authority, relationship, connection or
influence, resulting in unjust enrichment of the
ostensible owner and grave damage and prejudice to
the State. And this, too, is the sense in which the term
is commonly understood in other jurisdiction."
Concerning respondents’ shares of stock here, there is
no evidence presented by petitioner that they belong
to the Government of the Philippines or any of its
branches, instrumentalities, enterprises, banks or
financial institutions. Nor is there evidence that
respondents, taking undue advantage of their
connections or relationship with former President
Marcos or his family, relatives and close associates,
were able to acquire those shares of stock.
Incidentally, in its 1998 ruling in Chavez v. Presidential
Commission on Good Government,92 the Court
rendered an identical definition of ill-gotten wealth,
viz:
xxx. We may also add that ‘ill-gotten wealth’, by its
very nature, assumes a public character. Based on the
aforementioned Executive Orders, ‘ill-gotten wealth’
refers to assets and properties purportedly acquired,
directly or indirectly, by former President Marcos, his
immediate family, relatives and close associates
through or as a result of their improper or illegal use
of government funds or properties; or their having
taken undue advantage of their public office; or their
use of powers, influence or relationships, "resulting
in their unjust enrichment and causing grave damage
and prejudice to the Filipino people and the Republic
of the Philippines." Clearly, the assets and properties
referred to supposedly originated from the
government itself. To all intents and purposes,
therefore, they belong to the people. As such, upon
reconveyance they will be returned to the public
treasury, subject only to the satisfaction of positive
claims of certain persons as may be adjudged by
competent courts. Another declared overriding
consideration for the expeditious recovery of ill-
gotten wealth is that it may be used for national
economic recovery.
All these judicial pronouncements demand two
concurring elements to be present before assets or
properties were considered as ill-gotten wealth,
namely: (a) they must have "originated from the
government itself," and (b) they must have been
taken by former President Marcos, his immediate
family, relatives, and close associates by illegal means.
But settling the sources and the kinds of assets and
property covered by E.O. No. 1 and related issuances
did not complete the definition of ill-gotten wealth.
The further requirement was that the assets and
property should have been amassed by former
President Marcos, his immediate family, relatives, and
close associates both here and abroad. In this regard,
identifying former President Marcos, his immediate
family, and relatives was not difficult, but identifying
other persons who might be the close associates of
former President Marcos presented an inherent
difficulty, because it was not fair and just to include
within the term close associates everyone who had
had any association with President Marcos, his
immediate family, and relatives.
Again, through several rulings, the Court became the
arbiter to determine who were the close associates
within the coverage of E.O. No. 1.
In Republic v. Migriño,93 the Court held that
respondents Migriño, et al. were not necessarily
among the persons covered by the term close
subordinate or close associate of former President
Marcos by reason alone of their having served as
government officials or employees during the Marcos
administration, viz:
It does not suffice, as in this case, that the
respondent is or was a government official or
Page 73 of 91
employee during the administration of former Pres.
Marcos. There must be a prima facie showing that
the respondent unlawfully accumulated wealth by
virtue of his close association or relation with former
Pres. Marcos and/or his wife. This is so because
otherwise the respondent’s case will fall under
existing general laws and procedures on the matter.
xxx
In Cruz, Jr. v. Sandiganbayan,94 the Court declared that
the petitioner was not a close associate as the term
was used in E.O. No. 1 just because he had served as
the President and General Manager of the GSIS during
the Marcos administration.
In Republic v. Sandiganbayan,95 the Court stated that
respondent Maj. Gen. Josephus Q. Ramas’ having
been a Commanding General of the Philippine Army
during the Marcos administration "d[id] not
automatically make him a subordinate of former
President Ferdinand Marcos as this term is used in
Executive Order Nos. 1, 2, 14 and 14-A absent a
showing that he enjoyed close association with former
President Marcos."
It is well to point out, consequently, that the
distinction laid down by E.O. No. 1 and its related
issuances, and expounded by relevant judicial
pronouncements unavoidably required competent
evidentiary substantiation made in appropriate
judicial proceedings to determine: (a) whether the
assets or properties involved had come from the vast
resources of government, and (b) whether the
individuals owning or holding such assets or
properties were close associates of President Marcos.
The requirement of competent evidentiary
substantiation made in appropriate judicial
proceedings was imposed because the factual
premises for the reconveyance of the assets or
properties in favor of the government due to their
being ill-gotten wealth could not be simply assumed.
Indeed, in BASECO,96 the Court made this clear
enough by emphatically observing:
6. Government’s Right and Duty to Recover All Ill-
gotten Wealth
There can be no debate about the validity and
eminent propriety of the Government’s plan "to
recover all ill-gotten wealth."
Neither can there be any debate about the
proposition that assuming the above described factual
premises of the Executive Orders and Proclamation
No. 3 to be true, to be demonstrable by competent
evidence, the recovery from Marcos, his family and
his minions of the assets and properties involved, is
not only a right but a duty on the part of Government.
But however plain and valid that right and duty may
be, still a balance must be sought with the equally
compelling necessity that a proper respect be
accorded and adequate protection assured, the
fundamental rights of private property and free
enterprise which are deemed pillars of a free society
such as ours, and to which all members of that society
may without exception lay claim.
xxx Democracy, as a way of life enshrined in the
Constitution, embraces as its necessary components
freedom of conscience, freedom of expression, and
freedom in the pursuit of happiness. Along with these
freedoms are included economic freedom and
freedom of enterprise within reasonable bounds and
under proper control. xxx Evincing much concern for
the protection of property, the Constitution distinctly
recognizes the preferred position which real estate
has occupied in law for ages. Property is bound up
with every aspect of social life in a democracy as
democracy is conceived in the Constitution. The
Constitution realizes the indispensable role which
property, owned in reasonable quantities and used
legitimately, plays in the stimulation to economic
effort and the formation and growth of a solid social
middle class that is said to be the bulwark of
democracy and the backbone of every progressive
and happy country.
a. Need of Evidentiary Substantiation in Proper Suit
Consequently, the factual premises of the Executive
Orders cannot simply be assumed. They will have to
be duly established by adequate proof in each case, in
a proper judicial proceeding, so that the recovery of
the ill-gotten wealth may be validly and properly
adjudged and consummated; although there are some
who maintain that the fact — that an immense
fortune, and "vast resources of the government have
been amassed by former President Ferdinand E.
Marcos, his immediate family, relatives, and close
associates both here and abroad," and they have
resorted to all sorts of clever schemes and
manipulations to disguise and hide their illicit
acquisitions — is within the realm of judicial notice,
Page 74 of 91
being of so extensive notoriety as to dispense with
proof thereof. Be this as it may, the requirement of
evidentiary substantiation has been expressly
acknowledged, and the procedure to be followed
explicitly laid down, in Executive Order No. 14. 97
Accordingly, the Republic should furnish to the
Sandiganbayan in proper judicial proceedings the
competent evidence proving who were the close
associates of President Marcos who had amassed
assets and properties that would be rightly considered
as ill-gotten wealth.
III.
Summary Judgment was not warranted;
The Republic should have adduced evidence
to substantiate its allegations against the Respondents
We affirm the decision of November 28, 2007,
because the Republic did not discharge its burden as
the plaintiff to establish by preponderance of
evidence that the respondents’ SMC shares were
illegally acquired with coconut-levy funds.
The decision of November 28, 2007 fully explained
why the Sandiganbayan dismissed the Republic’s case
against Cojuangco, et al., viz:
Going over the evidence, especially the laws, i.e., P.D.
No. 961, P.D. No. 755, and P.D. No. 1468, over which
plaintiff prayed that Court to take judicial notice of, it
is worth noting that these same laws were cited by
plaintiff when it filed its motion for judgment on the
pleadings and/or summary judgment regarding the
CIIF block of SMC shares of stock. Thus, the Court has
already passed upon the same laws when it arrived at
judgment determining ownership of the CIIF block of
SMC shares of stock. Pertinently, in the Partial
Summary Judgment promulgated on May 7, 2004, the
Court gave the following rulings finding certain
provisions of the above-cited laws to be
constitutionally infirmed, thus:
In this case, Section 2(d) and Section 9 and 10, Article
III, of P.D. Nos. 961 and 1468 mandated the UCPB to
utilize the CIIF, an accumulation of a portion of the
CCSF and the CIDF, for investment in the form of
shares of stock in corporations organized for the
purpose of engaging in the establishment and the
operation of industries and commercial activities and
other allied business undertakings relating to coconut
and other palm oils industry in all aspects. The
investments made by UCPB in CIIF companies are
required by the said Decrees to be equitably
distributed for free by the said bank to the coconut
farmers (Sec. 10, P.D. No. 961 and Sec. 10, P.D. No.
1468). The public purpose sought to be served by the
free distribution of the shares of stock acquired with
the use of public funds is not evident in the laws
mentioned. More specifically, it is not clear how
private ownership of the shares of stock acquired with
public funds can serve a public purpose. The mode of
distribution of the shares of stock also left much room
for the diversion of assets acquired through public
funds into private uses or to serve directly private
interests, contrary to the Constitution. In the said
distribution, defendants COCOFED, et al. and Ballares,
et al. admitted that UCPB followed the administrative
issuances of PCA which we found to be
constitutionally objectionable in our Partial Summary
Judgment in Civil Case No. 0033-A, the pertinent
portions of which are quoted hereunder:
xxx xxx xxx
The distribution for free of the shares of stock of the
CIIF Companies is tainted with the above-mentioned
constitutional infirmities of the PCA administrative
issuances. In view of the foregoing, we cannot
consider the provision of P.D. No. 961 and P.D. No.
1468 and the implementing regulations issued by the
PCA as valid legal basis to hold that assets acquired
with public funds have legitimately become private
properties.
The CIIF Companies having been acquired with public
funds, the 14 CIIF-owned Holding Companies and all
their assets, including the CIIF Block of SMC Shares,
being public in character, belong to the government.
Even granting that the 14 Holding Companies acquired
the SMC Shares through CIIF advances and UCPB
loans, said advances and loans are still the obligations
of the said companies. The incorporating equity or
capital of the 14 Holding Companies, which were
allegedly used also for the acquisition of the subject
SMC shares, being wholly owned by the CIIF
Companies, likewise form part of the coconut levy
funds, and thus belong to the government in trust for
the ultimate beneficiaries thereof, which are all the
coconut farmers.
xxx xxx xxx
And, with the above-findings of the Court, the CIIF
block of SMC shares were subsequently declared to be
Page 75 of 91
of public character and should be reconveyed to the
government in trust for coconut farmers. The
foregoing findings notwithstanding, a question now
arises on whether the same laws can likewise serve as
ultimate basis for a finding that the Cojuangco, et al.
block of SMC shares are also imbued with public
character and should rightfully be reconveyed to the
government.
On this point, the Court disagrees with plaintiff that
reliance on said laws would suffice to prove that
defendants Cojuangco, et al.’s acquisition of SMC
shares of stock was illegal as public funds were used.
For one, plaintiff’s reliance thereon has always had
reference only to the CIIF block of shares, and the
Court has already settled the same by going over the
laws and quoting related findings in the Partial
Summary judgment rendered in Civil Case No. 0033-A.
For another, the allegations of plaintiff pertaining to
the Cojuangco block representing twenty percent
(20%) of the outstanding capital stock of SMC stress
defendant Cojuangco’s acquisition by virtue of his
positions as Chief Executive Officer of UCPB, a
member-director of the Philippine Coconut Authority
(PCA) Governing Board, and a director of the CIIF Oil
Mills. Thus, reference to the said laws would not
settle whether there was abuse on the part of
defendants Cojuangco, et al. of their positions to
acquire the SMC shares. 98
Besides, in the Resolution of the Court on plaintiff’s
Motion for Parial Summary Judgment (Re: Shares in
San Miguel Corporation Registered in the Respective
Names of Defendants Eduardo M. Cojuangco, Jr. and
the defendant Cojuangco Companies), the Court
already rejected plaintiff’s reference to said laws. In
fact, the Court declined to grant plaintiff’s motion for
partial summary judgment because it simply
contended that defendant Cojuangco’s statements in
his pleadings, which plaintiff again offered in evidence
herein, regarding the presentation of a possible CIIF
witness as well as UCPB records can already be
considered admissions of defendants’ exclusive use
and misuse of coconut levy funds. In the said
resolution, the Court already reminded plaintiff that
the issues cannot be resolved by plaintiff’s
interpretation of defendant Cojuangco’s statements in
his brief. Thus, the substantial portion of the
Resolution of the Court denying plaintiff’s motion for
partial summary judgment is again quoted for
emphasis: 99
We cannot agree with the plaintiff’s contention that
the defendant’s statements in his Pre-Trial Brief
regarding the presentation of a possible CIIF witness
as well as UCPB records, can already be considered as
admissions of the defendant’s exclusive use and
misuse of coconut levy funds to acquire the subject
SMC shares and defendant Cojuangco’s alleged taking
advantage of his positions to acquire the subject SMC
shares. Moreover, in ruling on a motion for summary
judgment, the court "should take that view of the
evidence most favorable to the party against whom it
is directed, giving such party the benefit of all
favorable inferences." Inasmuch as this issue cannot
be resolved merely from an interpretation of the
defendant’s statements in his brief, the UCPB records
must be produced and the CIIF witness must be heard
to ensure that the conclusions that will be derived
have factual basis and are thus, valid. 100
WHEREFORE, in view of the foregoing, the Motion for
Partial Summary Judgment dated July 11, 2003 is
hereby DENIED for lack of merit.
SO ORDERED.
(Emphasis supplied)
Even assuming that, as plaintiff prayed for, the Court
takes judicial notice of the evidence it offered with
respect to the Cojuangco block of SMC shares of
stock, as contained in plaintiff’s manifestation of
purposes, still its evidence do not suffice to prove the
material allegations in the complaint that Cojuangco
took advantage of his positions in UCPB and PCA in
order to acquire the said shares. As above-quoted, the
Court, itself, has already ruled, and hereby stress that
"UCPB records must be produced and the CIIF witness
must be heard to ensure that the conclusions that will
be derived have factual basis and are thus, valid."
Besides, the Court found that there are genuine
factual issues raised by defendants that need to be
threshed out in a full-blown trial, and which plaintiff
had the burden to substantially prove. Thus, the Court
outlined these genuine factual issues as follows:
1) What are the "various sources" of funds, which
defendant Cojuangco and his companies claim they
utilized to acquire the disputed SMC shares?
Page 76 of 91
2) Whether or not such funds acquired from alleged
"various sources" can be considered coconut levy
funds;
3) Whether or not defendant Cojuangco had indeed
served in the governing bodies of PCA, UCPB and/or
CIIF Oil Mills at the time the funds used to purchase
the SMC shares were obtained such that he owed a
fiduciary duty to render an account to these entities
as well as to the coconut farmers;
4) Whether or not defendant Cojuangco took
advantage of his position and/or close ties with then
President Marcos to obtain favorable concessions or
exemptions from the usual financial requirements
from the lending banks and/or coco-levy funded
companies, in order to raise the funds to acquire the
disputed SMC shares; and if so, what are these
favorable concessions or exemptions?101
Answers to these issues are not evident from the
submissions of plaintiff and must therefore be proven
through the presentation of relevant and competent
evidence during trial. A perusal of the subject Motion
shows that the plaintiff hastily derived conclusions
from the defendants’ statements in their previous
pleadings although such conclusions were not
supported by categorical facts but only mere
inferences. xxx xxx xxx." (Emphasis supplied) 102
Despite the foregoing pronouncement of the Court,
plaintiff did not present any other evidence during the
trial of this case but instead made its manifestation of
purposes, that later served as its offer of evidence in
the instant case, that merely used the same evidence
it had already relied upon when it moved for partial
summary judgment over the Cojuangco block of SMC
shares. Altogether, the Court finds the same
insufficient to prove plaintiff’s allegations in the
complaint because more than judicial notices, the
factual issues require the presentation of admissible,
competent and relevant evidence in accordance with
Sections 3 and 4, Rule 128 of the Rules on Evidence.
Moreover, the propriety of taking judicial notice of
plaintiff’s exhibits is aptly questioned by defendants
Cojuangco, et al. Certainly, the Court can take judicial
notice of laws pertaining to the coconut levy funds as
well as decisions of the Supreme Court relative
thereto, but taking judicial notice does not mean that
the Court would accord full probative value to these
exhibits. Judicial notice is based upon convenience
and expediency for it would certainly be superfluous,
inconvenient, and expensive both to parties and the
court to require proof, in the ordinary way, of facts
which are already known to courts. However, a court
cannot take judicial notice of a factual matter in
controversy. Certainly, there are genuine factual
matters in the instant case, as above-cited, which
plaintiff ought to have proven with relevant and
competent evidence other than the exhibits it offered.
Referring to plaintiff’s causes of action against
defendants Cojuangco, et al., the Court finds its
evidence insufficient to prove that the source of funds
used to purchase SMC shares indeed came from
coconut levy funds. In fact, there is no direct link that
the loans obtained by defendant Cojuangco, Jr. were
the same money used to pay for the SMC shares. The
scheme alleged to have been taken by defendant
Cojuangco, Jr. was not even established by any paper
trail or testimonial evidence that would have
identified the same. On account of his positions in the
UCPB, PCA and the CIIF Oil Mills, the Court cannot
conclude that he violated the fiduciary obligations of
the positions he held in the absence of proof that he
was so actuated and that he abused his positions.103
It was plain, indeed, that Cojuangco, et al. had
tendered genuine issues through their responsive
pleadings and did not admit that the acquisition of the
Cojuangco block of SMC shares had been illegal, or
had been made with public funds. As a result, the
Republic needed to establish its allegations with
preponderant competent evidence, because, as
earlier stated, the fact that property was ill gotten
could not be presumed but must be substantiated
with competent proof adduced in proper judicial
proceedings. That the Republic opted not to adduce
competent evidence thereon despite stern reminders
and warnings from the Sandiganbayan to do so
revealed that the Republic did not have the
competent evidence to prove its allegations against
Cojuangco, et al.
Still, the Republic, relying on the 2001 holding in
Republic v. COCOFED,104 pleads in its petition for
review (G.R. No. 180702) that:
With all due respect, the Honorable Sandiganbayan
failed to consider legal precepts and procedural
principles vis-à-vis the records of the case showing
that the funds or "various loans" or "advances" used
Page 77 of 91
in the acquisition of the disputed SMC Shares
ultimately came from the coconut levy funds.
As discussed hereunder, respondents’ own admissions
in their Answers and Pre-Trial Briefs confirm that the
"various sources" of funds utilized in the acquisition of
the disputed SMC shares came from "borrowings" and
"advances" from the UCPB and the CIIF Oil Mills.105
Thereby, the Republic would have the Sandiganbayan
pronounce the block of SMC shares of stock acquired
by Cojuangco, et al. as ill-gotten wealth even without
the Republic first presenting preponderant evidence
establishing that such block had been acquired
illegally and with the use of coconut levy funds.
The Court cannot heed the Republic’s pleas for the
following reasons:
To begin with, it is notable that the decision of
November 28, 2007 did not rule on whether coconut
levy funds were public funds or not. The silence of the
Sandiganbayan on the matter was probably due to its
not seeing the need for such ruling following its
conclusion that the Republic had not preponderantly
established the source of the funds used to pay the
purchase price of the concerned SMC shares, and
whether the shares had been acquired with the use of
coconut levy funds.
Secondly, the ruling in Republic v.
COCOFED106 determined only whether certain
stockholders of the UCPB could vote in the
stockholders’ meeting that had been called. The issue
now before the Court could not be controlled by the
ruling in Republic v. COCOFED, however, for even as
that ruling determined the issue of voting, the Court
was forthright enough about not thereby preempting
the Sandiganbayan’s decisions on the merits on ill-
gotten wealth in the several cases then pending,
including this one, viz:
In making this ruling, we are in no way preempting the
proceedings the Sandiganbayan may conduct or the
final judgment it may promulgate in Civil Case No.
0033-A, 0033-B and 0033-F. Our determination here is
merely prima facie, and should not bar the anti-graft
court from making a final ruling, after proper trial and
hearing, on the issues and prayers in the said civil
cases, particularly in reference to the ownership of
the subject shares.
We also lay down the caveat that, in declaring the
coco levy funds to be prima facie public in character,
we are not ruling in any final manner on their
classification — whether they are general or trust or
special funds — since such classification is not at issue
here. Suffice it to say that the public nature of the
coco levy funds is decreed by the Court only for the
purpose of determining the right to vote the shares,
pending the final outcome of the said civil cases.
Neither are we resolving in the present case the
question of whether the shares held by Respondent
Cojuangco are, as he claims, the result of private
enterprise. This factual matter should also be taken up
in the final decision in the cited cases that are pending
in the court a quo. Again, suffice it to say that the only
issue settled here is the right of PCGG to vote the
sequestered shares, pending the final outcome of said
cases.
Thirdly, the Republic’s assertion that coconut levy
funds had been used to source the payment for the
Cojuangco block of SMC shares was premised on its
allegation that the UCPB and the CIIF Oil Mills were
public corporations. But the premise was grossly
erroneous and overly presumptuous, because:
(a) The fact of the UCPB and the CIIF Oil Mills being
public corporations or government-owned or
government-controlled corporations precisely
remained controverted by Cojuangco, et al. in light of
the lack of any competent to that effect being in the
records;
(b) Cojuangco explicitly averred in paragraph 2.01.(b)
of his Answer that the UCPB was a "private
corporation;" and
(c) The Republic did not competently identify or
establish which ones of the Cojuangco corporations
had supposedly received advances from the CIIF Oil
Mills.
Fourthly, the Republic asserts that the contested block
of shares had been paid for with "borrowings" from
the UCPB and "advances" from the CIIF Oil Mills, and
that such borrowings and advances had been illegal
because the shares had not been purchased for the
"benefit of the Coconut Farmers." To buttress its
assertion, the Republic relied on the admissions
supposedly made in paragraph 2.01 of Cojuangco’s
Answer in relation to paragraph 4 of the Republic’s
Amended Complaint.
The best way to know what paragraph 2.01 of
Cojuangco’s Answer admitted is to refer to both
Page 78 of 91
paragraph 4 of the Amended Complaint and
paragraph 2.01 of his Answer, which are hereunder
quoted:
Paragraph 4 of the Amended Complaint
4. Defendant EDUARDO M. COJUANGCO, JR., was
Governor of Tarlac, Congressman of then First District
of Tarlac and Ambassador-at-Large in the Marcos
Administration. He was commissioned Lieutenant
Colonel in the Philippine Air Force, Reserve.
Defendant Eduardo M. Cojuangco, Jr., otherwise
known as the "Coconut King" was head of the coconut
monopoly which was instituted by Defendant
Ferdinand E. Marcos, by virtue of the Presidential
Decrees. Defendant Eduardo E. Cojuangco, Jr., who
was also one of the closest associates of the
Defendant Ferdinand E. Marcos, held the positions of
Director of the Philippine Coconut Authority, the
United Coconut Mills, Inc., President and Board
Director of the United Coconut Planters Bank, United
Coconut Planters Life Assurance Corporation, and
United Coconut Chemicals, Inc. He was also the
Chairman of the Board and Chief Executive Officer and
the controlling stockholder of the San Miguel
Corporation. He may be served summons at 45 Balete
Drive, Quezon City or at 136 East 9th Street, Quezon
City.
Paragraph 2.01 of Respondent Cojuangco’s Answer
2.01. Herein defendant admits paragraph 4 only
insofar as it alleges the following:
(a) That herein defendant has held the following
positions in government: Governor of Tarlac,
Congressman of the then First District of Tarlac,
Ambassador-at-Large, Lieutenant Colonel in the
Philippine Air Force and Director of the Philippines
Coconut Authority;
(b) That he held the following positions in private
corporations: Member of the Board of Directors of the
United Coconut Oil Mills, Inc.; President and member
of the Board of Directors of the United Coconut
Planters Bank, United Coconut Planters Life Assurance
Corporation, and United Coconut Chemicals, Inc.;
Chairman of the Board and Chief Executive of San
Miguel Corporation; and
(c) That he may be served with summons at 136 East
9th Street, Quezon City.
Herein defendant specifically denies the rest of the
allegations of paragraph 4, including any insinuation
that whatever association he may have had with the
late Ferdinand Marcos or Imelda Marcos has been in
connection with any of the acts or transactions
alleged in the complaint or for any unlawful purpose.
It is basic in remedial law that a defendant in a civil
case must apprise the trial court and the adverse
party of the facts alleged by the complaint that he
admits and of the facts alleged by the complaint that
he wishes to place into contention. The defendant
does the former either by stating in his answer that
they are true or by failing to properly deny them.
There are two ways of denying alleged facts: one is by
107
general denial, and the other, by specific denial.
In this jurisdiction, only a specific denial shall be
sufficient to place into contention an alleged
108 109
fact. Under Section 10, Rule 8 of the Rules of
Court, a specific denial of an allegation of the
complaint may be made in any of three ways, namely:
(a) a defendant specifies each material allegation of
fact the truth of which he does not admit and,
whenever practicable, sets forth the substance of the
matters upon which he relies to support his denial; (b)
a defendant who desires to deny only a part of an
averment specifies so much of it as is true and
material and denies only the remainder; and (c) a
defendant who is without knowledge or information
sufficient to form a belief as to the truth of a material
averment made in the complaint states so, which has
the effect of a denial.
The express qualifications contained in paragraph 2.01
of Cojuangco’s Answer constituted efficient specific
denials of the averments of paragraph 2 of the
Republic’s Amended Complaint under the first
method mentioned in Section 10 of Rule 8, supra.
Indeed, the aforequoted paragraphs of the Amended
Complaint and of Cojuangco’s Answer indicate that
Cojuangco thereby expressly qualified his admission
of having been the President and a Director of the
UCPB with the averment that the UCPB was a "private
corporation;" that his Answer’s allegation of his being
a member of the Board of Directors of the United
Coconut Oil Mills, Inc. did not admit that he was a
member of the Board of Directors of the CIIF Oil Mills,
because the United Coconut Oil Mills, Inc. was not one
of the CIIF Oil Mills; and that his Answer nowhere
contained any admission or statement that he had
held the various positions in the government or in the
private corporations at the same time and in 1983,
Page 79 of 91
the time when the contested acquisition of the SMC
shares of stock took place.
What the Court stated in Bitong v. Court of Appeals
(Fifth Division)110 as to admissions is illuminating:
When taken in its totality, the Amended Answer to
the Amended Petition, or even the Answer to the
Amended Petition alone, clearly raises an issue as to
the legal personality of petitioner to file the
complaint. Every alleged admission is taken as an
entirety of the fact which makes for the one side with
the qualifications which limit, modify or destroy its
effect on the other side. The reason for this is, where
part of a statement of a party is used against him as
an admission, the court should weigh any other
portion connected with the statement, which tends to
neutralize or explain the portion which is against
interest.
In other words, while the admission is admissible in
evidence, its probative value is to be determined from
the whole statement and others intimately related or
connected therewith as an integrated unit. Although
acts or facts admitted do not require proof and
cannot be contradicted, however, evidence aliunde
can be presented to show that the admission was
made through palpable mistake. The rule is always in
favor of liberality in construction of pleadings so that
the real matter in dispute may be submitted to the
judgment of the court.
And, lastly, the Republic cites the following portions of
the joint Pre-Trial Brief of Cojuangco, et al.,111 to wit:
IV.
PROPOSED EVIDENCE
xxx
4.01. xxx Assuming, however, that plaintiff presents
evidence to support its principal contentions,
defendant’s evidence in rebuttal would include
testimonial and documentary evidence showing: a)
the ownership of the shares of stock prior to their
acquisition by respondents (listed in Annexes ‘A" and
‘B"); b) the consideration for the acquisition of the
shares of stock by the persons or companies in whose
names the shares of stock are now registered; and c)
the source of the funds used to pay the purchase
price.
4.02. Herein respondents intend to present the
following evidence:
xxx
b. Proposed Exhibits ____, ____, ____
Records of the United Coconut Planters Bank which
would show borrowings of the companies listed in
Annexes "A" and "B", or companies affiliated or
associated with them, which were used to source
payment of the shares of stock of the San Miguel
Corporation subject of this case.
4.03. Witnesses.
xxx
(b) A representative of the United Coconut Planters
Bank who will testify in regard the loans which were
used to source the payment of the price of SMC
shares of stock.
(c) A representative from the CIIF Oil Mills who will
testify in regard the loans or credit advances which
were used to source the payment of the purchase
price of the SMC shares of stock.
The Republic insists that the aforequoted portions of
the joint Pre-Trial Brief were Cojuangco, et al.’s
admission that:
(a) Cojuangco had received money from the UCPB, a
bank entrusted by law with the administration of the
coconut levy funds; and
(b) Cojuangco had received more money from the CIIF
Oil Mills in which part of the CIIF funds had been
placed, and thereby used the funds of the UCPB and
the CIIF as capital to buy his SMC shares.112
We disagree with the Republic’s posture.
The statements found in the joint Pre-Trial Brief of
Cojuangco, et al. were noticeably written beneath the
heading of Proposed Evidence. Such location indicated
that the statements were only being proposed, that is,
they were not yet intended or offered as admission of
any fact stated therein. In other words, the matters
stated or set forth therein might or might not be
presented at all. Also, the text and tenor of the
statements expressly conditioned the proposal on the
Republic ultimately presenting its evidence in the
action. After the Republic opted not to present its
evidence, the condition did not transpire; hence, the
proposed admissions, assuming that they were that,
did not materialize.
Obviously, too, the statements found under the
heading of Proposed Evidence in the joint Pre-Trial
Brief were incomplete and inadequate on the
important details of the supposed transactions (i.e.,
alleged borrowings and advances). As such, they could
Page 80 of 91
not constitute admissions that the funds had come
from borrowings by Cojuangco, et al. from the UCPB
or had been credit advances from the CIIF Oil
Companies. Moreover, the purpose for presenting the
records of the UCPB and the representatives of the
UCPB and of the still unidentified or unnamed CIIF Oil
Mills as declared in the joint Pre-Trial Brief did not at
all show whether the UCPB and/or the unidentified or
unnamed CIIF Oil Mills were the only sources of
funding, or that such institutions, assuming them to
be the sources of the funding, had been the only
sources of funding. Such ambiguousness disqualified
the statements from being relied upon as admissions.
It is fundamental that any statement, to be
considered as an admission for purposes of judicial
proceedings, should be definite, certain and
unequivocal;113 otherwise, the disputed fact will not
get settled.
Another reason for rejecting the Republic’s posture is
that the Sandiganbayan, as the trial court, was in no
position to second-guess what the non-presented
records of the UCPB would show as the borrowings
made by the corporations listed in Annexes A and B,
or by the companies affiliated or associated with
them, that "were used to source payment of the
shares of stock of the San Miguel Corporation subject
of this case," or what the representative of the UCPB
or the representative of the CIIF Oil Mills would testify
about loans or credit advances used to source the
payment of the price of SMC shares of stock.
Lastly, the Rules of Court has no rule that treats the
statements found under the heading Proposed
Evidence as admissions binding Cojuangco, et al. On
the contrary, the Rules of Court has even
distinguished between admitted facts and facts
proposed to be admitted during the stage of pre-trial.
Section 6 (b),114 Rule 18 of the Rules of Court, requires
a Pre-Trial Brief to include a summary of admitted
facts and a proposed stipulation of facts. Complying
with the requirement, the joint Pre-Trial Brief of
Cojuangco, et al. included the summary of admitted
facts in its paragraph 3.00 of its Item III, separately
and distinctly from the Proposed Evidence, to wit:
III.
SUMMARY OF UNDISPUTED FACTS
3.00. Based on the complaint and the answer, the
acquisition of the San Miguel shares by, and their
registration in the names of, the companies listed in
Annexes "A" and "B" may be deemed undisputed.
3.01. All other allegations in the complaint are
disputed.115
The burden of proof, according to Section 1, Rule 131
of the Rules of Court, is "the duty of a party to present
evidence on the facts in issue necessary to establish
his claim or defense by the amount of evidence
required by law." Here, the Republic, being the
plaintiff, was the party that carried the burden of
proof. That burden required it to demonstrate
through competent evidence that the respondents, as
defendants, had purchased the SMC shares of stock
with the use of public funds; and that the affected
shares of stock constituted ill-gotten wealth. The
Republic was well apprised of its burden of proof, first
through the joinder of issues made by the responsive
pleadings of the defendants, including Cojuangco, et
al. The Republic was further reminded through the
pre-trial order and the Resolution denying its Motion
for Summary Judgment, supra, of the duty to prove
the factual allegations on ill-gotten wealth against
Cojuangco, et al., specifically the following disputed
matters:
(a) When the loans or advances were incurred;
(b) The amount of the loans from the UCPB and of the
credit advances from the CIIF Oil Mills, including the
specific CIIF Oil Mills involved;
(c) The identities of the borrowers, that is, all of the
respondent corporations together, or separately; and
the amounts of the borrowings;
(d) The conditions attendant to the loans or advances,
if any;
(e) The manner, form, and time of the payments
made to Zobel or to the Ayala Group, whether by
check, letter of credit, or some other form; and
(f) Whether the loans were paid, and whether the
advances were liquidated.
With the Republic nonetheless choosing not to
adduce evidence proving the factual allegations,
particularly the aforementioned matters, and instead
opting to pursue its claims by Motion for Summary
Judgment, the Sandiganbayan became completely
deprived of the means to know the necessary but
crucial details of the transactions on the acquisition of
the contested block of shares. The Republic’s failure
to adduce evidence shifted no burden to the
Page 81 of 91
respondents to establish anything, for it was basic
that the party who asserts, not the party who denies,
must prove.116 Indeed, in a civil action, the plaintiff
has the burden of pleading every essential fact and
element of the cause of action and proving them by
preponderance of evidence. This means that if the
defendant merely denies each of the plaintiff’s
allegations and neither side produces evidence on any
such element, the plaintiff must necessarily fail in the
action.117 Thus, the Sandiganbayan correctly dismissed
Civil Case No. 0033-F for failure of the Republic to
prove its case by preponderant evidence.
A summary judgment under Rule 35 of the Rules of
Court is a procedural technique that is proper only
when there is no genuine issue as to the existence of a
material fact and the moving party is entitled to a
judgment as a matter of law.118 It is a method
intended to expedite or promptly dispose of cases
where the facts appear undisputed and certain from
the pleadings, depositions, admissions, and affidavits
on record.119 Upon a motion for summary judgment
the court’s sole function is to determine whether
there is an issue of fact to be tried, and all doubts as
to the existence of an issue of fact must be resolved
against the moving party. In other words, a party who
moves for summary judgment has the burden of
demonstrating clearly the absence of any genuine
issue of fact, and any doubt as to the existence of
such an issue is resolved against the movant. Thus, in
ruling on a motion for summary judgment, the court
should take that view of the evidence most favorable
to the party against whom it is directed, giving that
party the benefit of all favorable inferences.120
The term genuine issue has been defined as an issue
of fact that calls for the presentation of evidence as
distinguished from an issue that is sham, fictitious,
contrived, set up in bad faith, and patently
unsubstantial so as not to constitute a genuine issue
for trial. The court can determine this on the basis of
the pleadings, admissions, documents, affidavits, and
counter-affidavits submitted by the parties to the
court. Where the facts pleaded by the parties are
disputed or contested, proceedings for a summary
judgment cannot take the place of a trial.121 Well-
settled is the rule that a party who moves for
summary judgment has the burden of demonstrating
clearly the absence of any genuine issue of
fact.122 Upon that party’s shoulders rests the burden
to prove the cause of action, and to show that the
defense is interposed solely for the purpose of delay.
After the burden has been discharged, the defendant
has the burden to show facts sufficient to entitle him
to defend.123 Any doubt as to the propriety of a
summary judgment shall be resolved against the
moving party.
We need not stress that the trial courts have limited
authority to render summary judgments and may do
so only in cases where no genuine issue as to any
material fact clearly exists between the parties. The
rule on summary judgment does not invest the trial
courts with jurisdiction to try summarily the factual
issues upon affidavits, but authorizes summary
judgment only when it appears clear that there is no
genuine issue as to any material fact.124
IV.
Republic’s burden to establish by preponderance of
evidence that respondents’ SMC shares had been
illegally acquired with coconut-levy funds was not
discharged
Madame Justice Carpio Morales argues in her dissent
that although the contested SMC shares could be
inescapably treated as fruits of funds that are prima
facie public in character, Cojuangco, et al. abstained
from presenting countervailing evidence; and that
with the Republic having shown that the SMC shares
came into fruition from coco levy funds that are prima
facie public funds, Cojuangco, et al. had to go forward
with contradicting evidence, but did not.
The Court disagrees. We cannot reverse the decision
of November 28, 2007 on the basis alone of judicial
pronouncements to the effect that the coconut levy
funds were prima facie public funds,125 but without
any competent evidence linking the acquisition of the
block of SMC shares by Cojuangco, et al. to the
coconut levy funds.
V.
No violation of the DOSRI and
Single Borrower’s Limit restrictions
The Republic’s lack of proof on the source of the funds
by which Cojuangco, et al. had acquired their block of
SMC shares has made it shift its position, that it now
suggests that Cojuangco had been enabled to obtain
the loans by the issuance of LOI 926 exempting the
UCPB from the DOSRI and the Single Borrower’s Limit
restrictions.
Page 82 of 91
We reject the Republic’s suggestion.
Firstly, as earlier pointed out, the Republic adduced
no evidence on the significant particulars of the
supposed loan, like the amount, the actual borrower,
the approving official, etc. It did not also establish
whether or not the loans were DOSRI126 or issued in
violation of the Single Borrower’s Limit. Secondly, the
Republic could not outrightly assume that President
Marcos had issued LOI 926 for the purpose of allowing
the loans by the UCPB in favor of Cojuangco. There
must be competent evidence to that effect. And,
finally, the loans, assuming that they were of a DOSRI
nature or without the benefit of the required
approvals or in excess of the Single Borrower’s Limit,
would not be void for that reason. Instead, the bank
or the officers responsible for the approval and grant
of the DOSRI loan would be subject only to sanctions
under the law.127
VI.
Cojuangco violated no fiduciary duties
The Republic invokes the following pertinent statutory
provisions of the Civil Code, to wit:
Article 1455. When any trustee, guardian or other
person holding a fiduciary relationship uses trust
funds for the purchase of property and causes the
conveyance to be made to him or to a third person, a
trust is established by operation of law in favor of the
person to whom the funds belong.
Article 1456. If property is acquired through mistake
or fraud, the person obtaining it s by force of law,
considered a trustee of an implied trust for the
benefit of the person from whom the property comes.
and the Corporation Code, as follows:
Section 31. Liability of directors, trustees or officers.—
Directors or trustees who willfully and knowingly vote
for or assent to patently unlawful acts of the
corporation or who are guilty of gross negligence or
bad faith in directing the affairs of the corporation or
acquire any personal or pecuniary interest in conflict
with their duty as such directors, or trustees shall be
liable jointly and severally for all damages resulting
therefrom suffered by the corporation, its
stockholders or members and other persons.
When a director, trustee or officer attempts to
acquire or acquires, in violation of his duty, any
interest adverse to the corporation in respect of any
matter which has been reposed in him in confidence,
as to which equity imposes a disability upon him to
deal in his own behalf, he shall be liable as a trustee
for the corporation and must account for the profits
which otherwise would have accrued to the
corporation.
Did Cojuangco breach his "fiduciary duties" as an
officer and member of the Board of Directors of the
UCPB? Did his acquisition and holding of the
contested SMC shares come under a constructive
trust in favor of the Republic?
The answers to these queries are in the negative.
The conditions for the application of Articles 1455 and
1456 of the Civil Code (like the trustee using trust
funds to purchase, or a person acquiring property
through mistake or fraud), and Section 31 of the
Corporation Code (like a director or trustee willfully
and knowingly voting for or assenting to patently
unlawful acts of the corporation, among others)
require factual foundations to be first laid out in
appropriate judicial proceedings. Hence, concluding
that Cojuangco breached fiduciary duties as an officer
and member of the Board of Directors of the UCPB
without competent evidence thereon would be
unwarranted and unreasonable.
Thus, the Sandiganbayan could not fairly find that
Cojuangco had committed breach of any fiduciary
duties as an officer and member of the Board of
Directors of the UCPB. For one, the Amended
Complaint contained no clear factual allegation on
which to predicate the application of Articles 1455
and 1456 of the Civil Code, and Section 31 of the
Corporation Code. Although the trust relationship
supposedly arose from Cojuangco’s being an officer
and member of the Board of Directors of the UCPB,
the link between this alleged fact and the borrowings
or advances was not established. Nor was there
evidence on the loans or borrowings, their amounts,
the approving authority, etc. As trial court, the
Sandiganbayan could not presume his breach of
fiduciary duties without evidence showing so, for
fraud or breach of trust is never presumed, but must
be alleged and proved.128
The thrust of the Republic that the funds were
borrowed or lent might even preclude any
consequent trust implication. In a contract of loan,
one of the parties (creditor) delivers money or other
consumable thing to another (debtor) on the
Page 83 of 91
condition that the same amount of the same kind and
quality shall be paid.129 Owing to the consumable
nature of the thing loaned, the resulting duty of the
borrower in a contract of loan is to pay, not to return,
to the creditor or lender the very thing loaned. This
explains why the ownership of the thing loaned is
transferred to the debtor upon perfection of the
contract.130 Ownership of the thing loaned having
transferred, the debtor enjoys all the rights conferred
to an owner of property, including the right to use and
enjoy (jus utendi), to consume the thing by its use (jus
abutendi), and to dispose (jus disponendi), subject to
such limitations as may be provided by
law.131 Evidently, the resulting relationship between a
creditor and debtor in a contract of loan cannot be
characterized as fiduciary.132
To say that a relationship is fiduciary when existing
laws do not provide for such requires evidence that
confidence is reposed by one party in another who
exercises dominion and influence. Absent any special
facts and circumstances proving a higher degree of
responsibility, any dealings between a lender and
borrower are not fiduciary in nature.133 This explains
why, for example, a trust receipt transaction is not
classified as a simple loan and is characterized as
fiduciary, because the Trust Receipts Law (P.D. No.
115) punishes the dishonesty and abuse of confidence
in the handling of money or goods to the prejudice of
another regardless of whether the latter is the
owner.134
Based on the foregoing, a debtor can appropriate the
thing loaned without any responsibility or duty to his
creditor to return the very thing that was loaned or to
report how the proceeds were used. Nor can he be
compelled to return the proceeds and fruits of the
loan, for there is nothing under our laws that compel
a debtor in a contract of loan to do so. As owner, the
debtor can dispose of the thing borrowed and his act
will not be considered misappropriation of the
thing.135 The only liability on his part is to pay the loan
together with the interest that is either stipulated or
provided under existing laws.
WHEREFORE, the Court dismisses the petitions for
certiorari in G.R. Nos. 166859 and 169023; denies the
petition for review on certiorari in G.R. No. 180702;
and, accordingly, affirms the decision promulgated by
the Sandiganbayan on November 28, 2007 in Civil
Case No. 0033-F.
The Court declares that the block of shares in San
Miguel Corporation in the names of respondents
Cojuangco, et al. subject of Civil Case No. 0033-F is the
exclusive property of Cojuangco, et al. as registered
owners.
Accordingly, the lifting and setting aside of the Writs
of Sequestration affecting said block of shares
(namely: Writ of Sequestration No. 86-0062 dated
April 21, 1986; Writ of Sequestration No. 86-0069
dated April 22, 1986; Writ of Sequestration No. 86-
0085 dated May 9, 1986; Writ of Sequestration No.
86-0095 dated May 16, 1986; Writ of Sequestration
No. 86-0096 dated May 16, 1986; Writ of
Sequestration No. 86-0097 dated May 16, 1986; Writ
of Sequestration No. 86-0098 dated May 16, 1986;
Writ of Sequestration No. 86-0042 dated April 8,
1986; and Writ of Sequestration No. 87-0218 dated
May 27, 1987) are affirmed; and the annotation of the
conditions prescribed in the Resolutions promulgated
on October 8, 2003 and June 24, 2005 is cancelled.
SO ORDERED.
G.R. No. 162336 February 1, 2010
HILARIO P. SORIANO, Petitioner,
vs.
PEOPLE OF THE PHILIPPINES, BANGKO SENTRAL NG
PILIPINAS (BSP), PHILIPPINE DEPOSIT INSURANCE
CORPORATION (PDIC), PUBLIC PROSECUTOR
ANTONIO C.BUAN, and STATE PROSECUTOR
ALBERTO R. FONACIER, Respondents.
DECISION
DEL CASTILLO, J.:
A bank officer violates the DOSRI2 law when he
acquires bank funds for his personal benefit, even if
such acquisition was facilitated by a fraudulent loan
application. Directors, officers, stockholders, and their
related interests cannot be allowed to interpose the
fraudulent nature of the loan as a defense to escape
culpability for their circumvention of Section 83 of
Republic Act (RA) No. 337.3
Before us is a Petition for Review on Certiorari4 under
Rule 45 of the Rules of Court, assailing the September
26, 2003 Decision5 and the February 5, 2004
Resolution6 of the Court of Appeals (CA) in CA-G.R. SP
No. 67657. The challenged Decision disposed as
follows:
Page 84 of 91
WHEREFORE, premises considered, the instant
petition for certiorari is hereby DENIED.7
Factual Antecedents
Sometime in 2000, the Office of Special Investigation
(OSI) of the Bangko Sentral ng Pilipinas (BSP), through
its officers,8 transmitted a letter9 dated March 27,
2000 to Jovencito Zuño, Chief State Prosecutor of the
Department of Justice (DOJ). The letter attached as
annexes five affidavits,10 which would allegedly serve
as bases for filing criminal charges for Estafa thru
Falsification of Commercial Documents, in relation to
Presidential Decree (PD) No. 1689,11 and for Violation
of Section 83 of RA 337, as amended by PD
1795,12 against, inter alia, petitioner herein Hilario P.
Soriano. These five affidavits, along with other
documents, stated that spouses Enrico and Amalia
Carlos appeared to have an outstanding loan of ₱8
million with the Rural Bank of San Miguel (Bulacan),
Inc. (RBSM), but had never applied for nor received
such loan; that it was petitioner, who was then
president of RBSM, who had ordered, facilitated, and
received the proceeds of the loan; and that the ₱8
million loan had never been authorized by RBSM's
Board of Directors and no report thereof had ever
been submitted to the Department of Rural Banks,
Supervision and Examination Sector of the BSP. The
letter of the OSI, which was not subscribed under
oath, ended with a request that a preliminary
investigation be conducted and the corresponding
criminal charges be filed against petitioner at his last
known address.
Acting on the letter-request and its annexes, State
Prosecutor Albert R. Fonacier proceeded with the
preliminary investigation. He issued a subpoena with
the witnesses’ affidavits and supporting documents
attached, and required petitioner to file his counter-
affidavit. In due course, the investigating officer
issued a Resolution finding probable cause and
correspondingly filed two separate informations
against petitioner before the Regional Trial Court
(RTC) of Malolos, Bulacan.13
The first Information,14 dated November 14, 2000 and
docketed as Criminal Case No. 237-M-2001, was for
estafa through falsification of commercial documents,
under Article 315, paragraph 1(b), of the Revised
Penal Code (RPC), in relation to Article 172 of the RPC
and PD 1689. It basically alleged that petitioner and
his co-accused, in abuse of the confidence reposed in
them as RBSM officers, caused the falsification of a
number of loan documents, making it appear that one
Enrico Carlos filled up the same, and thereby
succeeded in securing a loan and converting the loan
proceeds for their personal gain and benefit.15 The
information reads:
That in or about the month of April, 1997, and
thereafter, in San Miguel, Bulacan, and within the
jurisdiction of this Honorable Court, the said accused
HILARIO P. SORIANO and ROSALINDA ILAGAN, as
principals by direct participation, with unfaithfulness
or abuse of confidence and taking advantage of their
position as President of the Rural Bank of San Miguel
(Bulacan), Inc. and Branch Manager of the Rural Bank
of San Miguel – San Miguel Branch [sic], a duly
organized banking institution under Philippine Laws,
conspiring, confederating and mutually helping one
another, did then and there, willfully and feloniously
falsify loan documents consisting of undated loan
application/information sheet, credit proposal dated
April 14, 1997, credit proposal dated April 22, 1997,
credit investigation report dated April 15, 1997,
promissory note dated April 23, 1997, disclosure
statement on loan/credit transaction dated April 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.
16
CONTRARY TO LAW.
17
The other Information 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
Page 85 of 91
against the so-called DOSRI loans. The information
alleged that, in his capacity as President of RBSM,
petitioner indirectly secured an ₱8 million loan with
RBSM, for his personal use and benefit, without the
written consent and approval of the bank's Board of
Directors, without entering the said transaction in the
bank's records, and without transmitting a copy of the
transaction to the supervising department of the
bank. His ruse was facilitated by placing the loan in
the name of an unsuspecting RBSM depositor, one
Enrico Carlos.18 The information reads:
That in or about the month of April, 1997, and
thereafter, and within the jurisdiction of this
Honorable Court, the said accused, in his capacity as
President of the Rural Bank of San Miguel (Bulacan),
Inc., did then and there, willfully and feloniously
indirectly borrow or secure a loan with the Rural Bank
of San Miguel – San Ildefonso branch, a domestic rural
banking institution created, organized and existing
under Philippine laws, amounting to eight million
pesos (PhP8,000,000.00), knowing fully well that the
same has been done by him without the written
consent and approval of the majority of the board of
directors of the said bank, and which consent and
approval the said accused deliberately failed to obtain
and enter the same upon the records of said banking
institution and to transmit a copy thereof to the
supervising department of the said bank, as required
by the General Banking Act, by using the name of one
depositor Enrico Carlos of San Miguel, Bulacan, the
latter having no knowledge of the said loan, and one
in possession of the said amount of eight million
pesos (PhP8,000,000.00), accused converted the same
to his own personal use and benefit, in flagrant
violation of the said law.
CONTRARY TO LAW.19
Both cases were raffled to Branch 79 of the RTC of
Malolos, Bulacan.20
On June 8, 2001, petitioner moved to quash21 these
informations on two grounds: that the court had no
jurisdiction over the offense charged, and that the
facts charged do not constitute an offense.
On the first ground, petitioner argued that the letter
transmitted by the BSP to the DOJ constituted the
complaint and hence was defective for failure to
comply with the mandatory requirements of Section
3(a), Rule 112 of the Rules of Court, such as the
statement of address of petitioner and oath and
subscription.22 Moreover, petitioner argued that the
officers of OSI, who were the signatories to the
"letter-complaint," were not authorized by the BSP
Governor, much less by the Monetary Board, to file
the complaint. According to petitioner, this alleged
fatal oversight violated Section 18, pars. (c) and (d) of
the New Central Bank Act (RA 7653).
On the second ground, petitioner contended that the
commission of estafa under paragraph 1(b) of Article
315 of the RPC is inherently incompatible with the
violation of DOSRI law (as set out in Section 8323 of RA
337, as amended by PD 1795),24 hence a person
cannot be charged for both offenses. He argued that a
violation of DOSRI law requires the offender to obtain
a loan from his bank, without complying with
procedural, reportorial, or ceiling requirements. On
the other hand, estafa under par. 1(b), Article 315 of
the RPC requires the offender to misappropriate or
convert something that he holds in trust, or on
commission, or for administration, or under any
other obligation involving the duty to return the
same.25
Essentially, the petitioner theorized that the
characterization of possession is different in the two
offenses. If petitioner acquired the loan as DOSRI, he
owned the loaned money and therefore, cannot
misappropriate or convert it as contemplated in the
offense of estafa. Conversely, if petitioner committed
estafa, then he merely held the 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
Page 86 of 91
Petitioner’s Motion for Reconsideration was likewise
denied in an Order dated September 5, 2001.28
Aggrieved, petitioner filed a Petition
for Certiorari29 with the CA, reiterating his arguments
before the trial court.
Ruling of the Court of Appeals
The CA denied the petition on both issues presented
by petitioner.
On the first issue, the CA determined that the BSP
letter, which petitioner characterized to be a fatally
infirm complaint, was not actually a complaint, but a
transmittal or cover letter only. This transmittal letter
merely contained a summary of the affidavits which
were attached to it. It did not contain any averment of
personal knowledge of the events and transactions
that constitute the elements of the offenses charged.
Being a mere transmittal letter, it need not comply
with the requirements of Section 3(a) of Rule 112 of
the Rules of Court.30
The CA further determined that the five affidavits
attached to the transmittal letter should be
considered as the complaint-affidavits that charged
petitioner with violation of Section 83 of RA 337 and
for Estafa thru Falsification of Commercial
Documents. These complaint-affidavits complied with
the mandatory requirements set out in the Rules of
Court – they were subscribed and sworn to before a
notary public and subsequently certified by State
Prosecutor Fonacier, who personally examined the
affiants and was convinced that the affiants fully
understood their sworn statements.31
Anent the second ground, the CA found no merit in
petitioner's argument that the violation of the DOSRI
law and the commission of estafa thru falsification of
commercial documents are inherently inconsistent
with each other. It explained that the test in
considering a motion to quash on the ground that the
facts charged do not constitute an offense, is whether
the facts alleged, when hypothetically admitted,
constitute the elements of the offense charged. The
appellate court held that this test was sufficiently met
because the allegations in the assailed
informations, when hypothetically admitted, clearly
constitute the elements of Estafa thru Falsification of
Commercial Documents and Violation of DOSRI law.32
Petitioner’s Motion for Reconsideration33 was likewise
denied for lack of merit.
Hence, this petition.
Issues
Restated, petitioner raises the following issues34 for
our consideration:
I deems it proper to rule on the same.
Whether the complaint complied with the mandatory
requirements provided under Section 3(a), Rule 112 of
the Rules of Court and Section 18, paragraphs (c) and
(d) of RA 7653.
II
Whether a loan transaction within the ambit of the
DOSRI law (violation of Section 83 of RA 337, as
amended) could also be the subject of Estafa under
Article 315 (1) (b) of the Revised Penal Code.
III
Is a petition for certiorari under Rule 65 the proper
remedy against an Order denying a Motion to Quash?
IV
Whether petitioner is entitled to a writ of injunction.
Our Ruling
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 Petition36 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
Page 87 of 91
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
In Soriano v. Hon. Casanova, the Court held that the
affidavits attached to the BSP transmittal letter
complied with the mandatory requirements under the
Rules of Court.
To be sure, the BSP letters involved in Soriano v. Hon.
Casanova39 are not the same as the BSP letter
involved in the instant case. However, the BSP letters
in Soriano v. Hon. Casanova and the BSP letter subject
of this case are similar in the sense that they are all
signed by the OSI officers of the BSP, they were not
sworn to by the said officers, they all contained
summaries of their attached affidavits, and they all
requested the conduct of a preliminary investigation
and the filing of corresponding criminal charges
against petitioner Soriano. Thus, the principle of stare
decisis dictates that the ruling in Soriano v. Hon.
Casanova be applied in the instant case – once a
question of law has been examined and decided, it
should be deemed settled and closed to further
argument.40
We held in Soriano v. Hon. Casanova, after a close
scrutiny of the letters transmitted by the BSP to the
DOJ, that these were not intended to be the
complaint, as envisioned under the Rules. They did
not contain averments of personal knowledge of the
events and transactions constitutive of any offense.
The letters merely transmitted for preliminary
investigation the affidavits of people who had
personal knowledge of the acts of petitioner. We
ruled that these affidavits, not the letters transmitting
them, initiated the preliminary investigation. Since
these affidavits were subscribed under oath by the
witnesses who executed them before a notary public,
then there was substantial compliance with Section
3(a), Rule 112 of the Rules of Court.
Anent the contention that there was no authority
from the BSP Governor or the Monetary Board to file
a criminal case against Soriano, we held that the
requirements of Section 18, paragraphs (c) and (d) of
RA 7653 did not apply because the BSP did not
institute the complaint but merely transmitted the
affidavits of the complainants to the DOJ.
We further held that since the offenses for which
Soriano was charged were public crimes, authority
holds that it can be initiated by "any competent
person" with personal knowledge of the acts
committed by the offender. Thus, the witnesses who
executed the affidavits clearly fell within the purview
of "any competent person" who may institute the
complaint for a public crime.
The ruling in Soriano v. Hon. Casanova has been
adopted and elaborated upon in the recent case of
41
Santos-Concio v. Department of Justice. 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,
Page 88 of 91
were intended to initiate the preliminary
investigation, we hold that Section 3(a), Rule 112 of
the Rules of Court was substantially complied with.
Citing the ruling of this Court in Ebarle v. Sucaldito,
the Court of Appeals correctly held that a complaint
for purposes of preliminary investigation by the fiscal
need not be filed by the offended party. The rule has
been that, unless the offense subject thereof is one
that cannot be prosecuted de oficio, the same may
be filed, for preliminary investigation purposes,
by any competent person. The crime of estafa is a
public crime which can be initiated by "any competent
person." The witnesses who executed the affidavits
based on their personal knowledge of the acts
committed by the petitioner fall within the purview of
"any competent person" who may institute the
complaint for a public crime. x x x (Emphasis and
italics supplied)
A preliminary investigation can thus validly proceed
on the basis of an affidavit of any competent person,
without the referral document, like the NBI-NCR
Report, having been sworn to by the law enforcer as
the nominal complainant. To require otherwise is a
needless exercise. The cited case of Oporto, Jr. v.
Judge Monserate does not appear to dent this
proposition. After all, what is required is to reduce the
evidence into affidavits, for while reports and even
raw information may justify the initiation of an
investigation, the preliminary investigation stage can
be held only after sufficient evidence has been
gathered and evaluated which may warrant the
eventual prosecution of the case in court.42
Following the foregoing rulings in Soriano v. Hon.
Casanova and Santos-Concio v. Department of Justice,
we hold that the BSP letter, taken together with the
affidavits attached thereto, comply with the
requirements provided under Section 3(a), Rule 112 of
the Rules of Court and Section 18, paragraphs (c) and
(d) of RA 7653.
Second Issue:
Whether a loan transaction within the ambit of the
DOSRI law (violation of Section 83 of RA 337, as
amended) could be the subject of Estafa under Article
315 (1) (b) of the
Revised Penal Code
The second issue was raised by petitioner in the
context of his Motion to Quash Information on the
ground that the facts charged do not constitute an
offense.43 It is settled that in considering a motion to
quash on such ground, the test is "whether the facts
alleged, if hypothetically admitted, would establish
the essential elements of the offense charged as
defined by law. The trial court may not consider a
situation contrary to that set forth in the criminal
complaint or information. Facts that constitute the
defense of the petitioner[s] against the charge under
the information must be proved by [him] during trial.
Such facts or circumstances do not constitute proper
grounds for a motion to quash the information on the
ground that the material averments do not constitute
the offense". 44
We have examined the two informations against
petitioner and we find that they contain allegations
which, if hypothetically admitted, would establish the
essential elements of the crime of DOSRI violation and
estafa thru falsification of commercial documents.
In Criminal Case No. 238-M-2001 for violation of
DOSRI rules, the information alleged that petitioner
Soriano was the president of RBSM; that he was able
to indirectly obtain a loan from RBSM by putting the
loan 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
Page 89 of 91
"they contain material allegations charging Soriano
with violation of DOSRI rules and estafa thru
falsification of commercial documents".
Petitioner raises the theory that he could not possibly
be held liable for estafa in concurrence with the
charge for DOSRI violation. According to him, the
DOSRI charge presupposes that he acquired a loan,
which would make the loan proceeds his own money
and which he could neither possibly misappropriate
nor convert to the prejudice of another, as required
by the statutory definition of estafa.46 On the other
hand, if petitioner did not acquire any loan, there can
be no DOSRI violation to speak of. Thus, petitioner
posits that the two offenses cannot co-exist. This
theory does not persuade us.
Petitioner’s theory is based on the false premises that
the loan was extended to him by the bank in his own
name, and that he became the owner of the loan
proceeds. Both premises are wrong.
The bank money (amounting to ₱8 million) which
came to the possession of petitioner was money held
in trust or administration by him for the bank, in his
fiduciary capacity as the President of said bank.47 It is
not accurate to say that petitioner became the owner
of the ₱8 million because it was the proceeds of a
loan. That would have been correct if the bank
knowingly extended the loan to petitioner himself.
But that is not the case here. According to the
information for estafa, the loan was supposed to be
for another person, a certain "Enrico Carlos";
petitioner, through falsification, made it appear that
said "Enrico Carlos" applied for the loan when in fact
he ("Enrico Carlos") did not. Through such fraudulent
device, petitioner obtained the loan proceeds and
converted the same. Under these circumstances, it
cannot be said that petitioner became the legal owner
of the ₱8 million. Thus, petitioner remained the
bank’s fiduciary with respect to that money, which
makes it capable of misappropriation or conversion in
his hands.
The next question is whether there can also be, at the
same time, a charge for DOSRI violation in such a
situation wherein the accused bank officer did not
secure a loan in his own name, but was alleged to
have used the name of another person in order to
indirectly secure a loan from the bank. We answer this
in the affirmative. Section 83 of RA 337 reads:
Section 83. No director or officer of any banking
institution shall, either directly or indirectly, for
himself or as the representative or agent of others,
borrow any of the deposits of funds of such bank, nor
shall he become a guarantor, indorser, or surety for
loans from such bank to others, or in any manner be
an obligor for moneys borrowed from the bank or
loaned by it, except with the written approval of the
majority of the directors of the bank, excluding the
director concerned. Any such approval shall be
entered upon the records of the corporation and a
copy of such entry shall be transmitted forthwith to
the Superintendent of Banks. The office of any
director or officer of a bank who violates the
provisions of this section shall immediately become
vacant and the director or officer shall be punished by
imprisonment of not less than one year nor more than
ten years and by a fine of not less than one thousand
nor more than ten thousand pesos. x x x
The prohibition in Section 83 is broad enough to cover
various modes of borrowing.[48] It covers loans by a
bank director or officer (like herein petitioner) which
are made either: (1) directly, (2) indirectly, (3) for
himself, (4) or as the representative or agent of
others. It applies even if the director or officer is a
mere guarantor, indorser or surety for someone else's
loan or is in any manner an obligor for money
borrowed from the bank or loaned by it. The covered
transactions are prohibited unless the 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
Page 90 of 91
named party, while an indirect borrowing includes
one that is made by a third party, but the DOSRI has a
stake in the transaction.52 The latter type – indirect
borrowing – applies here. The information in Criminal
Case 238-M-2001 alleges that petitioner "in his
capacity as President of Rural Bank of San Miguel –
San Ildefonso branch x x x indirectly borrow[ed] or
secure[d] a loan with [RBSM] x x x knowing fully well
that the same has been done by him without the
written consent and approval of the majority of the
board of directors x x x, and which consent and
approval the said accused deliberately failed to obtain
and enter the same upon the records of said banking
institution and to transmit a copy thereof to the
supervising department of the said bank x x x by using
the name of one depositor Enrico Carlos x x x, the
latter having no knowledge of the said loan, and
once in possession of the said amount of eight million
pesos (₱8 million), [petitioner] converted the same to
his own personal use and benefit".53
The foregoing information describes the manner of
securing the loan as indirect; names petitioner as the
benefactor of the indirect loan; and states that the
requirements of the law were not complied with. It
contains all the required elements54 for a violation of
Section 83, even if petitioner did not secure the loan
in his own name.
The broad interpretation of the prohibition in Section
83 is justified by the fact that it even expressly covers
loans to third parties where the third parties are
aware of the transaction (such as principals
represented by the DOSRI), and where the DOSRI’s
interest does not appear to be beneficial but even
burdensome (such as in cases when the DOSRI acts as
a mere guarantor or surety). If the law finds it
necessary to protect the bank and the banking system
in such situations, it will surely be illogical for it to
exclude a case like this where the DOSRI acted for his
own benefit, using the name of an unsuspecting
person. A contrary interpretation will effectively allow
a DOSRI to use dummies to circumvent the
requirements of the law.
In sum, the informations filed against petitioner do
not negate each other.
Third Issue:
Is a Rule 65 petition for certiorari the proper remedy
against an Order denying a Motion to Quash?
This issue may be speedily resolved by adopting our precipitately. It should be granted only when the
ruling in Soriano v. People,55 where we held: court is fully satisfied that the law permits it and the
In fine, the Court has consistently held that a special emergency demands it.
civil action for certiorari is not the proper remedy to Given this Court's findings in the earlier issues of the
assail the denial of a motion to quash an information. instant case, we find no compelling reason to grant
The proper procedure in such a case is for the accused the injunctive relief sought by petitioner.
to enter a plea, go to trial without prejudice on his WHEREFORE, the petition is DENIED. The assailed
part to present the special defenses he had invoked in September 26, 2003 Decision as well as the February
his motion to quash and if after trial on the merits, an 5, 2004 Resolution of the Court of Appeals in CA-G.R.
adverse decision is rendered, to appeal therefrom in SP No. 67657 are AFFIRMED. Costs against petitioner.
the manner authorized by law. Thus, petitioners SO ORDERED.
should not have forthwith filed a special civil action
for certiorari with the CA and instead, they should
have gone to trial and reiterated the special defenses
contained in their motion to quash. There are no
special or exceptional circumstances in the present
case that would justify immediate resort to a filing of
a petition for certiorari. Clearly, the CA did not commit
any reversible error, much less, grave abuse of
discretion in dismissing the petition.56
Fourth Issue:
Whether petitioner is entitled to a writ of injunction
The requisites to justify an injunctive relief are: (1) the
right of the complainant is clear and unmistakable; (2)
the invasion of the right sought to be protected is
material and substantial; and (3) there is an urgent
and paramount necessity for the writ to prevent
serious damage. A clear legal right means one clearly
founded in or granted by law or is "enforceable as a
matter of law." Absent any clear and unquestioned
legal right, the issuance of an injunctive writ would
constitute grave abuse of discretion.57 Caution and
prudence must, at all times, attend the issuance of an
injunctive writ because it effectively disposes of the
main case without trial and/or due process.58 In Olalia
v. Hizon,59 the Court held as follows:
It has been consistently held that there is no power
the exercise of which is more delicate, which requires
greater caution, deliberation and sound discretion, or
more dangerous in a doubtful case, than the issuance
of an injunction. It is the strong arm of equity that
should never be extended unless to cases of great
injury, where courts of law cannot afford an adequate
or commensurate remedy in damages.
Every court should remember that an injunction is a
limitation upon the freedom of action of the
[complainant] and should not be granted lightly or

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