G.R. No.
176438               January 24, 2011 Pilipinas (BSP) on ten (10) banks, four (4) of which
PHILIPPINE DEPOSIT INSURANCE
CORPORATION (PDIC), Petitioner,
vs.
PHILIPPINE COUNTRYSIDE RURAL BANK,
INC., RURAL BANK OF CARMEN (CEBU),
INC., BANK OF EAST ASIA (MINGLANILLA,
CEBU), INC., and PILIPINO RURAL BANK
(CEBU), INC., Respondents.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari under Rule
45 of the Rules of Court filed by the Philippine
Deposit Insurance Corporation (PDIC) assailing the
September 18, 2006 Decision of the Court of
Appeals-Cebu (CA-Cebu), which granted the
petition for injunction filed by respondents
Philippine Countryside Rural Bank, Inc. (PCRBI),
Rural Bank of Carmen (Cebu), Inc. (RBCI), Bank of
East Asia (Minglanilla, Cebu), Inc. (BEAI), and
Pilipino Rural Bank (Cebu), Inc. (PRBI), all
collectively referred to as "Banks." The dispositive
portion of the CA-Cebu decision reads:
WHEREFORE, in view of all the foregoing
premises, the petition for injunction is
hereby GRANTED. The respondent PDIC is
restrained from further conducting investigations or
examination on petitioners-banks without the
requisite approval from the Monetary Board.
SO ORDERED.1
In a resolution dated January 25, 2007, the CA-Cebu
denied petitioner’s motion for reconsideration for
"lack of merit."2
THE FACTS
On March 9, 2005, the Board of Directors of the
PDIC (PDIC Board) adopted Resolution No. 2005-
03-0323 approving the conduct of an investigation,
in accordance with Section 9(b-1) of Republic
Act (R.A.) No. 3591, as amended, on the basis of the
Reports of Examination of the Bangko Sentral ng
are respondents in this petition for review. The said
resolution also created a Special Investigation Team
to conduct the said investigation, with the authority
to administer oaths, to examine, take and preserve
testimony of any person relating to the subject of the
investigation, and to examine pertinent bank records.
On May 25, 2005, the PDIC Board adopted another
resolution, Resolution No. 2005-05-056,4 approving
the conduct of an investigation on PCRBI based on
a Complaint-Affidavit filed by a corporate depositor,
the Philippine School of Entrepreneurship and
Management (PSEMI) through its president, Jacinto
L. Jamero.
On June 3, 2005, in accordance with the two PDIC
Board resolutions, then PDIC President and Chief
Executive Officer Ricardo M. Tan issued the Notice
of Investigation5 to the President or The Highest
Ranking Officer of PCRBI.
On June 7, 2005, the PDIC Investigation Team
personally served the Notice of Investigation on
PCRBI at its Head Office in Pajo, Lapu-Lapu City.6
According to PDIC, in the course of its
investigation, PCRBI was found to have granted
loans to certain individuals, which were settled by
way of dacion of properties. These properties,
however, had already been previously foreclosed
and consolidated under the names of P[C]RBI,
BEAI and RBCI.7
On June 15, 2005, PDIC issued similar notices of
investigation to PRBI8 and BEAI.9
The notices stated that the investigation was to be
conducted pursuant to Section 9 (b-1) of the PDIC
Charter and upon authority of PDIC Board
Resolution No. 2005-03-032 authorizing the twelve
(12) named representatives of PDIC to conduct the
investigation.10
The investigation was sought because the Banks
were found to be among the ten (10) banks
collectively known as "Legacy Banks." The Reports
of General and Special Examinations of the BSP as
of June 30, 2004, disclosed, among others, that the
Legacy Banks were commonly owned and/or
controlled by Legacy Plans Inc. (now Legacy
Consolidated Plans, Inc.), and Celso Gancayco
delos Angles, Jr. and his family.11
The notice of investigation was served on PRBI the
next day, June 16, 2005.12
On June 25, 2005, a separate notice of
investigation13 was served on RBCI. The latter
provided the PDIC Investigation Team with certified
copies of the loan documents they had requested,
until its president received an order directing him
not to allow the investigation.14
Subsequently, PRBI and BEAI refused entry to their
bank premises and access to their records and
documents by the PDIC Investigation Team, upon
advice of their respective counsels.15
On June 16 and 17, 2005, Atty. Victoria G.
Noel (Atty. Noel) of the Tiongson & Antenor Cruz
Law Office sent letters to the PDIC16 informing it of
her legal advice to PCRBI and BEAI not to submit
to PDIC investigation on the ground that its
investigatory power pursuant to Section 9(b-1) of
R.A. No. 3591, as amended (An Act Establishing
The Philippine Deposit Insurance Corporation,
Defining Its Powers And Duties And For Other
Purposes), cannot be differentiated from the
examination powers accorded to PDIC under
Section 8, paragraph 8 of the same law , under
which, prior approval from the Monetary Board is
required.
On June 17, 2005, PDIC General Counsel Romeo
M. Mendoza sent a reply to Atty. Noel stating that
"PDIC’s investigation power, as distinguished from
the examination power of the PDIC under Section 8
of the same law, does not need prior approval of the
Monetary Board."17 PDIC then urged PRBI and
BEAI "not to impede the conduct of PDIC’s
investigation" as the same "constitutes a violation of
the PDIC Charter for which PRBI and BEAI may be
held criminally and/or administratively liable."18
On June 27 and 28, 2005, the Banks, through
counsel, sought further clarification from PDIC on
its source of authority to conduct the impending
investigations and requested that PDIC refrain from
proceeding with the investigations.19
Simultaneously, the Banks wrote to the Monetary
Board requesting a clarification on the parameters of
PDIC’s power of investigation/examination over the
Banks and for an issuance of a directive to PDIC not
to pursue the investigations pending the requested
clarification.20
On June 28, 2005, PRBI and BEAI again received
letters from PDIC, dated June 24, 2005, which
appeared to be final demands on them to allow its
investigation.21 PRBI and BEAI replied that letters
of clarification had been sent to PDIC and the
Monetary Board.22 Pending action on such requests,
PDIC was requested to refrain from proceeding with
the investigation.23
Notwithstanding, on July 11, 2005, the Banks
received a letter, dated July 8, 2005, from the PDIC
General Counsel reiterating its position that prior
Monetary Board approval was not a pre-requisite to
PDIC’s exercise of its investigative power.24
Not in conformity, on July 28, 2005, the Banks filed
a Petition for Declaratory Relief with a Prayer for
the Issuance of a TRO and/or Writ of Preliminary
Injunction (RTC Petition) before the Regional Trial
Court of Makati (RTC-Makati) which was
25
docketed as Civil Case No. 05-697.
In the RTC Petition, the Banks prayed for a
judgment interpreting Section 9(b-1) of the PDIC
Charter, as amended, to require prior Monetary
Board approval before PDIC could exercise its
investigation/examination power over the Banks.26
PDIC filed a motion to dismiss alleging that the
RTC had no jurisdiction over the said petition since
a breach had already been committed by the Banks
when they received the notices of investigation, and
because PDIC need not secure prior Monetary Board
approval since "examination" and "investigation" are
two different terms.27
Later, the Banks withdrew their application for a
temporary restraining order (TRO) reasoning that
lower courts cannot issue injunctions against PDIC.
Thus, the Banks instituted a petition for injunction
with application for TRO and/or Preliminary
Injunction (CA-Manila petition) before the Court of
Appeals-Manila (CA-Manila). The case was
docketed as CA-G.R. SP No. 91038.28
Even before the CA-Manila could rule on the
application for a TRO and/or writ of preliminary
injunction, the RTC-Makati dismissed the petition
on the ground that there already existed a breach of
law that isolated the case from the jurisdiction of the
trial court.29
The Banks filed a motion for reconsideration but it
was denied by the RTC for lack of merit.30 On
February 10, 2006, the Banks filed a notice of
appeal31 which they later withdrew on February 28,
2006.32
In view of the dismissal of the RTC-Makati petition,
the CA-Manila dismissed the petition for injunction
for being moot and academic. In its Decision, dated
February 1, 2006,33 the CA-Manila wrote:
What remained for the petitioners to do was
to litigate over the breach or violation by
ordinary action, as the circumstances ensuing
from the breach or violation warrant. The
ordinary action may either be in the same
case, if the RTC permitted the conversion, in
which event the RTC may allow the parties
to file such pleadings as may be necessary or
proper, pursuant to Sec. 5, Rule 63; or the
petitioners may file another action in the
proper court (e.g. including the Court of
Appeals, should injunction be among the
reliefs to be sought) upon some cause of
action that has arisen from the breach or
violation.34
Thereafter, on March 14, 2006, the Banks filed
their Petition for Injunction with Prayer for
Preliminary Injunction35 (CA-Cebu Petition) with
the CA-Cebu (CA-Cebu).
On March 15, 2006, the CA-Cebu issued a
resolution granting the Bank’s application for a
TRO. This enjoined the PDIC, its representatives or
agents or any other persons or agency assisting them
or acting for and in their behalf from conducting
examinations/investigations on the Banks’ head and
branch offices without securing the requisite
approval from the Monetary Board of BSP.36
During the pendency of the CA-Cebu petition, PDIC
filed with this Court a Petition for Certiorari,
Prohibition and Mandamus with Prayer for Issuance
of Temporary Restraining Order and/or Writ of
Preliminary Injunction under Rule 65 docketed as
G.R. No. 173370.37 It alleged that the CA-Cebu
committed grave abuse of discretion amounting to
lack or excess of jurisdiction in taking cognizance of
the Banks’ petition, and in issuing a TRO and a writ
of preliminary injunction.38
On July 31, 2006, this Court issued a resolution
dismissing the petition for certiorari in G.R. No.
173370. The Resolution reads:
Considering the allegations, issues and
arguments adduced in the petition for
certiorari, prohibition and mandamus with
prayer for preliminary injunction and/or
restraining order dated 19 July 2006, the
Court resolves to DISMISS the petition for
failure to sufficiently show that the
questioned resolution of the Court of
Appeals is tainted with grave abuse of
discretion. Moreover, the petition failed to
conform with Rule 65 and other related
provisions of the 1997 Rules of Civil
Procedure, as amended, governing petitions
for certiorari, prohibition and mandamus
filed with the Supreme Court, since
petitioner failed to submit a verified
statement of material date of receipt of the
assailed resolution dated 16 May 2006 in
accordance with Section 4, Rule 65 in
relation to the second paragraph of Section 3,
Rule 46. In any event, the petition is
premature since no motion for
 reconsideration of the questioned resolution
of the Court of Appeals was filed prior to the
availment of this special civil action and
there are no sufficient allegations to bring the
case within the recognized exceptions to this
rule.39
On September 18, 2006, after both parties had
submitted their respective memoranda, the CA-Cebu
rendered a decision granting the writ of preliminary
injuction,40 pertinent portions of which read:
[A]fter undergoing a series of amendments,
the controlling law with respect to PDIC’s
power to conduct examination of banks is-
prior approval of the Monetary Board is a
condition  sine qua non  for PDIC to exercise
its power of examination. To rule otherwise
would disregard the amendatory law of the
PDIC’s charter.
The Court is not also swayed by the contention of
respondent that what it seeks to conduct is an
investigation and not an examination of petitioners’
transactions, hence prior approval of the Monetary
Board is a mere surplusage.
The ordinary definition of the words "examination"
and "investigation" would lead one to conclude that
both pertain to the same thing and there seems to be
no fine line differentiating one from the other.
Black’s Law Dictionary defines the word
"investigate" as "to examine and inquire into with
care and accuracy; to find out by careful inquisition;
examination and the word "examination" as an
investigation. In Collin’s Dictionary of Banking and
Finance, the word "investigation" is defined as an
"examination to find out what is wrong."
In the case of Anti-Graft League of the Philippines,
Inc. vs. Hon. Ortega, et al.,41 the Supreme Court
using Ballentine’s Law Dictionary defines an
"investigation" as an inquiry, judicial or otherwise,
for the discovery or collection of facts concerning
the matter or matters involved. Such common
definitions would show that there is really nothing to
distinguish between these two (2) terms as to
support the PDIC view differentiating Section 9 (b-
1) from paragraph 8, Section 8 of the PDIC Charter.
In the realm of the PDIC rules, specifically under
Section 3 of PDIC Regulatory Issuance No. 2205-
0242 "investigation" is defined as: Investigation shall
refer to fact-finding examination, study, inquiry, for
determining whether the allegations in a complaint
or findings in a final report of examination may
properly be the subject of an administrative, criminal
or civil action.
From the foregoing definition alone, it can be easily
deduced that investigation and examination are
synonymous terms. Simply stated, investigation
encompasses a fact-finding examination. Thus, it is
inconsistent with the rules if respondent PDIC be
(sic) allowed to conduct an investigation without the
approval of the Monetary Board.
Moreover, the Court sees that the rationale of the
law in requiring a (sic) prior approval from the
Monetary Board whenever an examination or in this
case an investigation needs to be conducted by the
PDIC is obviously to ensure that there is no
overlapping of efforts, duplication of functions and
more importantly to provide a check and balance to
the otherwise unrestricted power of respondent
PDIC to conduct investigations on banks insured by
it.
With the foregoing premises, this Court rules that a
prior approval from the Monetary Board is necessary
before respondent PDIC can proceed with its
investigations on petitioners-banks.43
PDIC moved for reconsideration but it was denied in
a resolution dated January 25, 2007.44
Hence, this petition.
THE ISSUES
I.
WHETHER RESPONDENT BANKS
VIOLATED THE RULE AGAINST FORUM
SHOPPING WHEN THEY FILED THE
PETITION FOR INJUNCTION BEFORE THE
COURT OF APPEALS-CEBU.
II.
WHETHER THE PRONOUNCEMENT OF
THE REGIONAL TRIAL COURT OF MAKATI
IN THE PETITION FOR DECLARATORY
RELIEF CONSTITUTES RES JUDICATA TO
THE PETITION FOR INJUNCTION IN THE
COURT OF APPEALS-CEBU.
III.
WHETHER PETITIONER WAS DEPRIVED
OF ITS OPPORTUNITY TO BE HEARD
WHEN THE COURT OF APPEALS-CEBU
ISSUED THE WRIT OF INJUNCTION.
IV.
WHETHER THE ISSUES RAISED BY
PETITIONERS ARE THE SAME ISSUES
RAISED IN G.R. NO. 173370 WHICH WAS
EARLIER DISMISSED BY THIS COURT.
V.
WHETHER THE COURT OF APPEALS
ERRED IN FINDING THAT PRIOR
APPROVAL OF THE MONETARY BOARD OF
THE BANGKO SENTRAL NG PILIPINAS IS
NECESSARY BEFORE THE PDIC MAY
CONDUCT AN INVESTIGATION OF
RESPONDENT BANKS.
THE COURT’S RULING
I - Whether respondent banks violated the rule
against forum shopping when they filed the
petition for injunction before the Court of Appeals-
Cebu.
II - Whether the pronouncement of the Regional
Trial Court of Makati in the petition for
declaratory relief constitutes res judicata to the
petition for injunction in the Court of Appeals-
Cebu.
In the recent case of Sameer Oversees Placement
Agency, Inc. v. Mildred R. Santos,45 the Court
discussed the matter of forum shopping:
Forum shopping is defined as an act of a party,
against whom an adverse judgment or order has
been rendered in one forum, of seeking and possibly
getting a favorable opinion in another forum, other
than by appeal or special civil action for certiorari.
It may also be the institution of two or more actions
or proceedings grounded on the same cause on the
supposition that one or the other court would make a
favorable disposition. There is forum shopping
where the elements of litis pendentia are present,
namely: (a) there is identity of parties, or at least
such parties as represent the same interest in both
actions; (b) there is identity of rights asserted and
relief prayed for, the relief being founded on the
same set of facts; and (c) the identity of the two
preceding particulars is such that any judgment
rendered in the pending case, regardless of which
party is successful, would amount to res judicata in
the other. It is expressly prohibited by this Court
because it trifles with and abuses court processes,
degrades the administration of justice, and congests
court dockets. A willful and deliberate violation of
the rule against forum shopping is a ground for
summary dismissal of the case, and may also
constitute direct contempt.46
Juxtaposing the RTC-Makati, CA-Manila and CA-
Cebu petitions, what must be determined here, is
whether the elements of litis pendentia are present
between and among these petitions, i.e. whether (a)
there is identity of parties, or at least such parties as
represent the same interest in both actions; (b) there
is identity of rights asserted and relief prayed for, the
relief being founded on the same set of facts; and (c)
the identity of the two preceding particulars is such
that any judgment rendered in the pending case,
regardless of which party is successful, would
amount to res judicata in the other.
The first element is clearly present as between the
RTC-Makati petition and the CA-Cebu petition.
Both involved the Banks on one hand, and the PDIC
on the other.
The second and third elements of litis pendentia,
however, are patently wanting. The rights asserted
and reliefs prayed for were different, though
founded on the same set of facts. The RTC-Makati
Petition was one for declaratory relief while the CA-
Manila Petition was one for injunction with a prayer
for preliminary injunction.
A petition for declaratory relief is filed by any
person interested under a deed, will, contract or
other written instrument, or whose rights are
affected by a statute, executive order or regulation,
ordinance, or any other governmental regulation,
before breach or violation, thereof, to determine any
question of construction or validity arising, and for a
declaration of his rights or duties thereunder.47
Injunction, on the other hand, is "a judicial writ,
process or proceeding whereby a party is directed
either to do a particular act, in which case it is called
a mandatory injunction, or to refrain from doing a
particular act, in which case it is called a prohibitory
injunction. As a main action, injunction seeks to
permanently enjoin the defendant through a final
injunction issued by the court and contained in the
judgment."48
Clearly, there is a marked difference between the
reliefs sought under an action for declaratory relief
and an action for injunction. While an action for
declaratory relief seeks a declaration of rights or
duties, or the determination of any question or
validity arising under a statute, executive order or
regulation, ordinance, or any other governmental
regulation, or under a deed, will, contract or other
written instrument, under which his rights are
affected, and before breach or violation, an action
for injunction ultimately seeks to enjoin or to
compel a party to perform certain acts.
Moreover, as stated in the RTC-Makati Decision,
because the Banks had already breached the
provisions of law on which declaratory judgment
was being sought, it was without jurisdiction to take
cognizance of the same. Any judgment rendered in
the RTC-Makati petition would not amount to res
judicata in the CA-Manila Petition. Thus, the RTC
was correct in dismissing the case, having been
bereft of jurisdiction to take cognizance of the action
for declaratory judgment.
As between the CA-Manila and the CA-Cebu
petitions, the second and third elements of litis
pendentia are absent. The rights asserted and reliefs
prayed for were different, although founded on the
same set of facts.
The CA-Manila Petition is a petition for injunction
wherein the Banks prayed that:
1) Immediately upon filing of this Petition, a Writ of
Preliminary Injunction and/or Temporary
Restraining Order be issued commanding the
respondent and all its officers, employees and agents
to cease and desist from proceeding with the
investigations sought to be conducted on the
petitioners’ head and branch offices while the
Petition for Declaratory Relief before Branch 58 of
the Makati Regional Trial Court is pending.
2) After due proceedings, judgment be rendered
declaring as permanent the Writ of Preliminary
Injunction and/or Temporary Restraining Order
prayed for above.
Other equitable reliefs are likewise prayed for.49
[Underscoring supplied]
The CA-Cebu Petition, on the other hand, is
denominated as a Petition for Injunction With Prayer
for Writ of Preliminary Injunction and/or
Restraining Order. The Banks prayed therein that:
1) Upon filing of this Petition, a Writ of Preliminary
Injunction and/or Temporary Restraining Order be
issued forthwith, enjoining Respondent PDIC and all
its officers, employees and agents to cease and desist
from conducting examinations/investigations on
Petitioner Banks’ head and branch offices without
securing the requisite approval from the Monetary
Board of the Bangko Sentral ng Pilipinas, as
required by Sec. 8, Paragraph 8 of the PDIC Charter,
as amended;
2) After due proceedings, judgment be rendered
declaring as permanent the Writ of Preliminary
Injunction and/or Temporary Restraining Order
prayed for above.
Other equitable reliefs are likewise prayed for.50
As can be gleaned from the above-cited portions of
the CA-Manila and CA-Cebu petitions, the petitions
seek different reliefs.
Therefore, as between and among the RTC Makati,
and the CA-Manila and CA-Cebu petitions, there is
no forum shopping.
III - Whether petitioner was deprived of its
opportunity to be heard when the Court of
Appeals-Cebu issued the writ of injunction.
PDIC alleges that the CA-Cebu, in issuing the TRO
in its March 15, 2006 Resolution, and subsequently,
the preliminary injunction in its May 16, 2006
Resolution, violated the fundamental rule that courts
should avoid issuing injunctive relief which would
in effect dispose of the main case without
trial.51 PDIC argues that a TRO is intended only as a
restraint until the propriety of granting a temporary
injunction can be determined, and it goes no further
than to preserve the status until that
determination.52 Moreover, its purpose is merely to
suspend proceedings until such time when there may
be an opportunity to inquire whether any injunction
should be granted, and it is not intended to operate
as an injunction pendente lite, and should not, in
effect, determine the issues involved before the
parties can have their day in court, or give an
advantage to either party by proceeding in the
acquisition or alteration of the property the right to
which is disputed while the hands of the other party
are tied.53
On the other hand, the Banks claim that PDIC was
given every opportunity to present its arguments
against the issuance of the injunction.54 Its active
participation in the proceedings negates its assertion
that it was denied procedural due process in the
issuance of the writ of injunction.55 Citing Salonga
v. Court of Appeals,56 the Banks state that the
essence of due process is the reasonable opportunity
to be heard and to submit evidence one may have in
support of one’s defense,57 and PDIC was able to do
so.
On March 15, 2006, the CA-Cebu issued a
resolution granting their prayer for a 60-day TRO,
and requiring PDIC to file its comment.58 The latter
thereafter filed its Comment ad Cautelam dated
March 30, 2006.59 [Underscoring ours]
On May 16, 2006, the CA-Cebu issued another
resolution, this time granting the prayer for a
preliminary injunction and requiring the parties to
file their respective memoranda. PDIC thereafter
filed its memorandum dated July 31, 2006.60
On September 18, 2006, the CA-Cebu promulgated
its Decision granting the Petition for
61
Injunction.  PDIC filed a motion for reconsideration
dated October 10, 2006,62 which was subsequently
denied.
The essence of procedural due process is found in
the reasonable opportunity to be heard and submit
one’s evidence in support of his defense.63 The Court
finds that procedural due process was observed by
the CA-Cebu. The parties were afforded equal
opportunity to present their arguments. In the
absence of any indication to the contrary, the CA-
Cebu must be accorded the presumption of
regularity in the performance of their functions.
However, as discussed herein, the matter of whether
it erred in its conclusion and issuance of the TRO,
preliminary injunction and final injunction is another
matter altogether.
IV – Whether the issues raised by petitioner are the
same issues raised in G.R. No. 173370 which was
earlier dismissed by this Court.
In G.R. 173370, a petition for certiorari under Rule
65 of the Rules of Court, PDIC alleged that the CA-
Cebu committed grave abuse of discretion
amounting to lack or excess of jurisdiction in taking
cognizance of the Bank’s petition, and in issuing a
TRO and a writ of preliminary injunction.64
In the case at bench, a petition for review under Rule
45, PDIC’s core contention is that the CA-Cebu
erred in finding that prior approval of the Monetary
Board of the BSP is necessary before it may conduct
an investigation of the Banks.
Clearly then, the two petitions were of different
nature raising different issues.
G.R. 173370 challenged the CA-Cebu’s having
taken cognizance of the Bank’s petition and
interlocutory orders on the issuance of a TRO and a
writ of preliminary injunction. This case, however,
strikes at the core of the final decision on the merits
of the CA-Cebu, and not merely the interlocutory
orders. While both G.R. 173370 and the present case
may have been anchored on the same set of facts,
that is, the refusal of the Banks to allow PDIC to
conduct an investigation without the prior consent of
the Monetary Board, the issues raised in the two
petitions are not identical. Moreover, the disposal of
the first case does not amount to res judicata in this
case.
V – Whether the Court of Appeals-Cebu erred in
finding that prior approval of the Monetary Board
of the Bangko Sentral ng Pilipinas is necessary
before the PDIC may conduct an investigation of
respondent banks.
PDIC is of the position that in order for it to exercise
its power of investigation, the law requires that:
(a) The investigation is based on a complaint of a
depositor or any other government agency, or on the
report of examination of [the] Bangko Sentral ng
Pilipinas (BSP) and/or PDIC; and,
(b) The complaint alleges, or the BSP and/or PDIC
Report of Examination contains adverse findings of,
fraud, irregularities or anomalies committed by the
Bank and/or its directors, officers, employees or
agents; and,
(c) The investigation is upon the authority of the
PDIC Board of Directors.65
It argues that when it commenced its investigation
on the Banks, all of the aforementioned
requirements were met. PDIC stresses that its power
of examination is different from its power of
investigation, in such that the former requires prior
approval of the Monetary Board while the latter
requires merely the approval of the PDIC Board.66 It
further claims that the power of examination cannot
be exercised within twelve (12) months from the last
examination conducted, whereas the power of
investigation is without limitation as to the
frequency of its conduct. It states that the purpose of
the PDIC’s power of examination is merely to look
into the condition of the bank, whereas the power of
investigation aims to address fraud, irregularities and
anomalies based on complaints from depositors and
other government agencies or upon reports of
examinations conducted by the PDIC itself or by the
BSP.67
The Banks, on the other hand, are of the opinion that
a holistic reading of the PDIC charter shows that
petitioner’s power of examination is synonymous
with its power of investigation.68 They cite, as bases,
the law dictionary definitions, Section 8, Eighth
paragraph69 and Section 9(b-1)70 of the PDIC
Charter, and Rule 1, Section 3(1) of PDIC
Regulatory Issuance No. 2005-02, which defines
"investigation" as follows:
(l) ‘Investigation’ shall refer to fact-finding
examination, study or inquiry for
determining whether the allegations in a
complaint or findings in a final report of
examination may properly be the subject of
an administrative, criminal or civil action.
The Banks further cite Section X658 of the Manual
of Regulations for Banks, which states:
Sec. X658 - Examination by the BSP. The
term ‘examination’ shall, henceforth, refer to
an investigation of an institution under the
supervisory authority of the BSP to
determine compliance with laws and
regulations. It shall include determination
that the institution is conducting its business
 on a safe and sound basis. Examination
requires full and comprehensive looking into
the operations and books of institutions, and
shall include, but need not be limited to the
following:
a. Determination of the bank’s
solvency and liquidity position;
b. Evaluation of asset quality as well
as determination of sufficiency of
valuation reserves on loans and other
risk assets;
c. Review of all aspects of bank
operations;
d. Assessment of risk management
system, including the evaluation of
the effectiveness of the bank
management’s oversight functions,
policies, procedures, internal control
and audit;
e. Appraisal of overall management
of the bank;
f. Review of compliance and
applicable laws, rules and
regulations; and any other activities
relevant to the above."
After an evaluation of the respective positions of the
parties, the Court is of the view that the Monetary
Board approval is not required for PDIC to
conduct an investigation on the Banks.
The disagreement stems from the interpretation of
these two key provisions of the PDIC Charter. The
confusion can be attributed to the fact that although
"investigation" and "examination" are two separate
and distinct procedures under the charter of the
PDIC and the BSP, the words seem to be used
loosely and interchangeably.
It does not help that indeed these terms are very
closely related in a generic sense. However, while
"examination" connotes a mere generic perusal or
inspection, "investigation" refers to a more intensive
scrutiny for a more specific fact-finding purpose.
The latter term is also usually associated with
proceedings conducted prior to criminal prosecution.
The PDIC was created by R.A. No. 3591 on June
22, 1963 as an insurer of deposits in all banks
entitled to the benefits of insurance under the PDIC
Charter to promote and safeguard the interests of the
depositing public by way of providing permanent
and continuing insurance coverage of all insured
deposits. It is a government instrumentality that
operates under the Department of Finance. Its
primary purpose is to act as deposit insurer, as a
co-regulator of banks, and as receiver and liquidator
of closed banks.
Section 1 of the PDIC Charter states:
SECTION 1. There is hereby created a
Philippine Deposit Insurance Corporation
hereinafter referred to as the "Corporation"
which shall insure, as herein provided, the
deposits of all banks which are entitled to the
benefits of insurance under this Act, and
which shall have the powers hereinafter
granted.
The Corporation shall, as a basic policy,
promote and safeguard the interests of the
depositing public by way of providing
permanent and continuing insurance
coverage on all insured deposits.
Section 1 of R.A. No. 9576 further provides: An Act
Increasing the Maximum Deposit Insurance
Coverage, and in connection therewith, to
Strengthen the Regulatory and Administrative
Authority, and Financial Capability of the Philippine
Deposit Insurance Corporation (PDIC), amending
for this purpose R.A. No. 3591, as Amended,
otherwise known as the PDIC Charter.
SECTION 1. Statement of State Policy and
Objectives. - It is hereby declared to be the policy of
the State to strengthen the mandatory deposit
insurance coverage system to generate, preserve,
maintain faith and confidence in the country’s
banking system, and protect it from illegal schemes
and machinations.
Towards this end, the government must extend all
means and mechanisms necessary for the Philippine
Deposit Insurance Corporation to effectively fulfill
its vital task of promoting and safeguarding the
interests of the depositing public by way of
providing permanent and continuing insurance
coverage on all insured deposits, and in helping
develop a sound and stable banking system at all
times.1âwphi1
Under its charter, the PDIC is empowered to conduct
examination of banks with prior approval of the
Monetary Board:
Eighth – To conduct examination of banks with
prior approval of the Monetary Board: Provided,
That no examination can be conducted within twelve
(12) months from the
last examination date: Provided, however, That the
Corporation may, in coordination with the Bangko
Sentral, conduct a special examination as the Board
of Directors, by an affirmative vote of a majority of
all its members, if there is a threatened or impending
closure of a bank; Provided, further, That,
notwithstanding the provisions of Republic Act No.
1405, as amended, Republic Act No. 6426, as
amended, Republic Act No. 8791, and other laws,
the Corporation and/or the Bangko Sentral, may
inquire into or examine deposit accounts and all
information related thereto in case there is a finding
of unsafe or unsound banking practice; Provided,
That to avoid overlapping of efforts, the examination
shall maximize the efficient use of the relevant
reports, information, and findings of the Bangko
Sentral, which it shall make available to the
Corporation; (As amended by R.A. 9302, 12 August
2004, R.A. 9576, 1 June 2009)
xxx. [Underlining supplied]
Section 9(b-1) of the PDIC Charter further provides
that the PDIC Board shall have the power to:
POWERS AND RESPONSIBILITIES AND
PROHIBITIONS
SECTION 9. xxx
(b) The Board of Directors shall appoint examiners
who shall have power, on behalf of the Corporation
to examine any insured bank. Each such examiner
shall have the power to make a thorough
examination of all the affairs of the bank and in
doing so, he shall have the power to administer
oaths, to examine and take and preserve the
testimony of any of the officers and agents thereof,
and, to compel the presentation of books,
documents, papers, or records necessary in his
judgment to ascertain the facts relative to the
condition of the bank; and shall make a full and
detailed report of the condition of the bank to the
Corporation. The Board of Directors in like manner
shall appoint claim agents who shall have the power
to investigate and examine all claims for insured
deposits and transferred deposits. Each claim agent
shall have the power to administer oaths and to
examine under oath and take and preserve testimony
of any person relating to such claim. (As amended
by E.O. 890, 08 April 1983; R.A. 7400, 13 April
1992)
(b-1) The investigators appointed by the Board of
Directors shall have the power on behalf of the
Corporation to conduct investigations on frauds,
irregularities and anomalies committed in banks,
based on reports of examination conducted by the
Corporation and Bangko Sentral ng Pilipinas or
complaints from depositors or from other
government agency. Each such investigator shall
have the power to administer oaths, and to examine
and take and preserve the testimony of any person
relating to the subject of investigation. (As added by
R.A. 9302, 12 August 2004)
xxx. [Underscoring supplied]
As stated above, the charter empowers the PDIC to
conduct an investigation of a bank and to appoint
examiners who shall have the power to examine any
insured bank. Such investigators are authorized to
conduct investigations on frauds, irregularities and
anomalies committed in banks, based on an
examination  conducted by the PDIC and the BSP  or
on complaints  from depositors or from other
government agencies.
The distinction between the power to investigate and
the power to examine is emphasized by the existence
of two separate sets of rules governing the procedure
in the conduct of investigation and examination.
Regulatory Issuance (RI) No. 2005-02 or the
PDIC Rules on Fact-Finding Investigation of Fraud,
Irregularities and Anomalies Committed in
Banks covers the procedural requirements of the
exercise of the PDIC’s power of investigation. On
the other hand, RI No. 2009-05 sets forth the
guidelines for the conduct of the power of
examination.
The definitions provided under the two
aforementioned regulatory issuances elucidate on the
distinction between the power of examination and
the power of investigation.
Section 2 of RI No. 2005-02 states that its coverage
shall be applicable to "all fact-
finding investigations on fraud, irregularities and/or
anomalies committed in banks that are conducted by
PDIC based on: [a] complaints from depositors or
other government agencies; and/or [b] final reports
of examinations of banks conducted by the Bangko
Sentral ng Pilipinas and/or PDIC."
The same issuance states that the Final Report of
Examination72  is one of the three pre-requisites to
the conduct of an investigation, in addition to the
authorization of the PDIC Board73  and a
complaint.74  Juxtaposing this provision with
Section 9(b-1) of the PDIC Charter, since an
examination is explicitly made the basis of a fact-
finding examination, then clearly examination and
investigation are two different proceedings. It would
obviously defy logic to make the result of an
"investigation" the basis of the same proceeding.
Thus, RI No. 2005-02 defines an "investigation" as a
"fact-finding examination, study or inquiry for
determining whether the allegations in a complaint
or findings in a final report of examination may
properly be the subject of an administrative, criminal
or civil action."75
The Banks cite the dictionary definitions of
"examination" and "investigation" to justify their
conclusion that these terms refer to one and the same
proceeding. It is tempting to use these two terms
interchangeably, which practice may be perfectly
justified in a purely literary sense. Indeed, a reading
of the PDIC Charter shows that the two terms have
been used interchangeably at some point. However,
based on the provisions aforecited, the intention of
the laws is clearly to differentiate between the
process of investigation and that of examination.
In 2009, to clarify procedural matters, PDIC released
RI No. 2009-05 or the Rules and Regulations on
Examination of Banks. Section 2 thereof
differentiated between the two types of examination
as follows:
Section 2. Types of Examination
a. Regular Examination - An examination
conducted independently or jointly with the
BSP. It requires the prior approval of the
PDIC Board of Directors and the Monetary
Board (MB). It may be conducted only after
an interval of at least twelve (12) months
from the closing date of the last Regular
Examination.
b. Special Examination – An examination
conducted at any time in coordination with
the BSP, by an affirmative vote of a majority
of all the members of the PDIC Board of
Directors, without need of prior MB
approval, if there is a threatened or
impending bank closure as determined by the
PDIC Board of Directors. [Underscoring
supplied]
Section 3 of RI No. 2009-05 provides for the general
scope of the PDIC examination:
Section 3. Scope of Examination
The examination shall include, but need not
be limited to, the following:
 a. Determination of the bank’s solvency and
liquidity position;
b. Evaluation of asset quality as well as
determination of sufficiency of valuation
reserves on loans and other risk assets;
c. Review of all aspects of bank operations;
d. Assessment of risk management system,
including the evaluation of the effectiveness
of the bank management’s oversight
functions, policies, procedures, internal
control and audit;
e. Appraisal of overall management of the
bank;
f. Review of compliance with applicable
banking laws, and rules and regulations,
including PDIC issuances;
g. Follow-through of specific exceptions/
violations noted during a previous
examination; and
h. Any other activity relevant to the above.
Rule 2, Section 1 of PDIC RI No. 2005-02 or
the PDIC Rules on Fact-Finding Investigation of
Fraud, Irregularities and Anomalies Committed in
Banks provides for the scope of fact-finding
investigations as follows:
SECTION 1. Scope of the Investigation.
Fact-finding Investigations shall be limited to
the particular acts or omissions subject of a
complaint or a Final Report of Examination.
From the above-cited provisions, it is clear that the
process of examination covers a wider scope than
that of investigation.
Examination involves an evaluation of the current
status of a bank and determines its compliance with
the set standards regarding solvency, liquidity, asset
valuation, operations, systems, management, and
compliance with banking laws, rules and
regulations.
Investigation, on the other hand, is conducted based
on specific findings of certain acts or omissions
which are subject of a complaint or a Final Report of
Examination.
Clearly, investigation does not involve a general
evaluation of the status of a bank.1âwphi1 An
investigation zeroes in on specific acts and
omissions uncovered via an examination, or which
are cited in a complaint.
An examination entails a review of essentially all the
functions and facets of a bank and its operation. It
necessitates poring through voluminous documents,
and requires a detailed evaluation thereof. Such a
process then involves an intrusion into a bank’s
records.
In contrast, although it also involves a detailed
evaluation, an investigation centers on specific acts
of omissions and, thus, requires a less invasive
assessment.
The practical justification for not requiring the
Monetary Board approval to conduct an
investigation of banks is the administrative hurdles
and paperwork it entails, and the correspondent
time to complete those additional steps or
requirements. As in other types of investigation, time
is always of essence, and it is prudent to expedite
the proceedings if an accurate conclusion is to be
arrived at, as an investigation is only as precise as
the evidence on which it is based. The promptness
with which such evidence is gathered is always of
utmost importance because evidence, documentary
evidence in particular, is remarkably fungible. A
PDIC investigation is conducted to "determine[e]
whether the allegations in a complaint or findings in
a final report of examination may properly be the
subject of an administrative, criminal or civil
action."76 In other words, an investigation is based
on reports of examination and an examination is
conducted with prior Monetary Board approval.
Therefore, it would be unnecessary to secure a
separate approval for the conduct of an
investigation. Such would merely prolong the
process and provide unscrupulous individuals the
opportunity to cover their tracks.
Indeed, while in a literary sense, the two terms may
be used interchangeably, under the PDIC Charter,
examination and investigation refer to two different
processes. To reiterate, an examination of banks
requires the prior consent of the Monetary Board,
whereas an investigation based on an examination
report, does not.
WHEREFORE, the petition is GRANTED. The
Decision and Resolution of the Court of Appeals in
CA G.R. CEB SP. No. 01550, dated September 18,
2006 and January 25, 2007
are REVERSED and SET ASIDE.
SO ORDERED.
 G.R. No. 150886             February 16, 2007
RURAL BANK OF SAN MIGUEL, INC. and
HILARIO P. SORIANO, in his capacity as
majority stockholder in the Rural Bankof San
Miguel, Inc., Petitioners,
vs.
MONETARY BOARD, BANGKO SENTRAL
NG PILIPINAS and PHILIPPINE DEPOSIT
INSURANCE CORPORATION, Respondents.
DECISION
CORONA, J.:
This is a petition for review on certiorari1 of a
decision2 and resolution3 of the Court of Appeals
(CA) dated March 28, 2000 and November 13, 2001,
respectively, in CA-G.R. SP No. 57112.
Petitioner Rural Bank of San Miguel, Inc.
(RBSM) was a domestic corporation engaged in
banking. It started operations in 1962 and by year
2000 had 15 branches in Bulacan.4 Petitioner
Hilario P. Soriano claims to be the majority
stockholder of its outstanding shares of stock.5
On January 21, 2000, respondent Monetary Board
(MB), the governing board of respondent Bangko
Sentral ng Pilipinas (BSP), issued Resolution No.
105 prohibiting RBSM from doing business in the
Philippines, placing it under receivership and
designating respondent Philippine Deposit
Insurance Corporation (PDIC) as receiver:
On the basis of the comptrollership/monitoring
report as of October 31, 1999 as reported by Mr.
Wilfredo B. Domo-ong, Director, Department of
Rural Banks, in his memorandum dated January 20,
2000, which report showed that [RBSM] (a) is
unable to pay its liabilities as they become due in the
ordinary course of business; (b) cannot continue in
business without involving probable losses to its
depositors and creditors; that the management of the
bank had been accordingly informed of the need to
infuse additional capital to place the bank in a
solvent financial condition and was given adequate
time within which to make the required infusion and
that no infusion of adequate fresh capital was made,
the Board decided as follows:
1. To prohibit the bank from doing business
in the Philippines and to place its assets and
affairs under receivership in accordance with
Section 30 of [RA 7653];
2. To designate the [PDIC] as receiver of the
bank;
xxx xxx xxx6
On January 31, 2000, petitioners filed a petition for
certiorari and prohibition in the Regional Trial Court
(RTC) of Malolos, Branch 22 to nullify and set aside
Resolution No. 105.7 However, on February 7, 2000,
petitioners filed a notice of withdrawal in the RTC
and, on the same day, filed a special civil action for
certiorari and prohibition in the CA. On February
8, 2000, the RTC dismissed the case pursuant to
Section 1, Rule 17 of the Rules of Court.8
The CA’s findings of facts were as follows.
To assist its impaired liquidity and operations, the
RBSM was granted emergency loans on different
occasions in the aggregate amount of ₱375 [million].
As early as November 18, 1998, Land Bank of the
Philippines (LBP) advised RBSM that it will
terminate the clearing of RBSM’s checks in view of
the latter’s frequent clearing losses and continuing
failure to replenish its Special Clearing Demand
Deposit with LBP. The BSP interceded with LBP
not to terminate the clearing arrangement of RBSM
to protect the interests of RBSM’s depositors and
creditors.
After a year, or on November 29, 1999, the LBP
informed the BSP of the termination of the clearing
facility of RBSM to take effect on December 29,
1999, in view of the clearing problems of RBSM.
On December 28, 1999, the MB approved the
release of ₱26.189 [million] which is the last tranche
of the ₱375 million emergency loan for the sole
purpose of servicing and meeting the withdrawals of
its depositors. Of the ₱26.180 million, xxx ₱12.6
million xxx was not used to service withdrawals
[and] remains unaccounted for as admitted by
[RBSM’s Treasury Officer and Officer-in-Charge of
Treasury]. Instead of servicing withdrawals of
depositors, RBSM paid Forcecollect Professional
Solution, Inc. and Surecollect Professional, Inc.,
entities which are owned and controlled by Hilario
P. Soriano and other RBSM officers.
On January 4, 2000, RBSM declared a bank holiday.
RBSM and all of its 15 branches were closed from
doing business.
Alarmed and disturbed by the unilateral declaration
of bank holiday, [BSP] wanted to examine the books
and records of RBSM but encountered problems.
Meanwhile, on November 10, 1999, RBSM’s
designated comptroller, Ms. Zenaida Cabais of the
BSP, submitted to the Department of Rural Banks,
BSP, a Comptrollership Report on her findings on
the financial condition and operations of the bank as
of October 31, 1999. Another set of findings was
submitted by said comptroller [and] this second
report reflected the financial status of RBSM as of
December 31, 1999.
The findings of the comptroller on the financial state
of RBSM as of October 31, 1999 in comparison with
the financial condition as of December 31, 1999 is
summed up pertinently as follows:
FINANCIAL CONDITION OF RBSM
As of Oct. 31, As of Dec. 31,
1999 1999
Total ₱1,076,863,00 1,009,898,000
obligation 0.00 .00
s/
Liabilities
Realizable 796,930,000.0
898,588,000.00
Assets 0
212,968,000.0
Deficit 178,275,000.00
0
Cash on
101,441.547.00 8,266,450.00
Hand
Required Capital Infusion ₱252,120,000.00
Capital Infusion ₱5,000,000.00
(On Dec. 20, 1999)
Actual Breakdown of Total Obligations:
1) Deposits of 20,000 depositors – ₱578,201,000.00
2) Borrowings from BSP – ₱320,907,000.00
3) Unremitted withholding and gross receipt taxes –
₱57,403,000.00.9
Based on these comptrollership reports, the director
of the Department of Rural Banks Supervision and
Examination Sector, Wilfredo B. Domo-ong, made a
report to the MB dated January 20, 2000.10 The MB,
after evaluating and deliberating on the findings and
recommendation of the Department of Rural Banks
Supervision and Examination Sector, issued
Resolution No. 105 on January 21,
11
2000.  Thereafter, PDIC implemented the closure
order and took over the management of RBSM’s
assets and affairs.
In their petition12 before the CA, petitioners claimed
that respondents MB and BSP committed grave
abuse of discretion in issuing Resolution No. 105.
The petition was dismissed by the CA on March
28, 2000. It held, among others, that the decision of
the MB to issue Resolution No. 105 was based on
the findings and recommendations of the
Department of Rural Banks Supervision and
Examination Sector, the comptroller reports as of
October 31, 1999 and December 31, 1999 and the
declaration of a bank holiday. Such could be
considered as substantial evidence.13
Pertinently, on June 9, 2000, on the basis of reports
prepared by PDIC stating that RBSM could not
resume business with sufficient assurance of
protecting the interest of its depositors, creditors and
the general public, the MB passed Resolution No.
966 directing PDIC to proceed with the liquidation
of RBSM under Section 30 of RA 7653.14
Hence this petition.
It is well-settled that the closure of a bank may be
considered as an exercise of police power.15 The
action of the MB on this matter is final and
executory.16 Such exercise may nonetheless be
subject to judicial inquiry and can be set aside if
found to be in excess of jurisdiction or with such
grave abuse of discretion as to amount to lack or
excess of jurisdiction.
Petitioners argue that Resolution No. 105 was bereft
of any basis considering that no complete
examination had been conducted before it was
issued. This case essentially boils down to one core
issue: whether Section 30 of RA 7653 (also known
as the New Central Bank Act) and applicable
jurisprudence require a current and
complete examination of the bank before it can be
closed and placed under receivership.
Section 30 of RA 7653 provides:
SECTION 30. Proceedings in Receivership
and Liquidation. — Whenever, upon report
of the head of the supervising or
examining department, the Monetary Board
finds that a bank or quasi-bank:
(a) is unable to pay its liabilities as they
become due in the ordinary course of
business: Provided, That this shall not
include inability to pay caused by
extraordinary demands induced by financial
panic in the banking community;
(b) has insufficient realizable assets, as
determined by the [BSP] to meet its
liabilities; or
(c) cannot continue in business without
involving probable losses to its depositors or
creditors; or
(d) has willfully violated a cease and desist
order under Section 37 that has become final,
involving acts or transactions which amount
to fraud or a dissipation of the assets of the
institution; in which cases, the Monetary
Board may summarily and without need
for prior hearing forbid the institution
from doing business in the Philippines and
designate the Philippine Deposit Insurance
Corporation as receiver of the banking
institution.
xxx xxx xxx
The actions of the Monetary Board taken
under this section or under Section 29 of this
Act shall be final and executory, and may not
be restrained or set aside by the court except
on petition for certiorari on the ground that
the action taken was in excess of jurisdiction
or with such grave abuse of discretion as to
amount to lack or excess of jurisdiction. The
petition for certiorari may only be filed by
the stockholders of record representing the
majority of the capital stock within ten (10)
days from receipt by the board of directors of
the institution of the order directing
receivership, liquidation or conservatorship.
(Emphasis supplied)
xxx xxx xxx
Petitioners contend that there must be a current,
thorough and complete examination before a bank
can be closed under Section 30 of RA 7653. They
argue that this section should be harmonized with
Sections 25 and 28 of the same law:
SECTION 25. Supervision and Examination.
— The [BSP] shall have supervision over,
and conduct periodic or special
examinations of, banking institutions and
quasi-banks, including their subsidiaries and
affiliates engaged in allied activities.
xxx xxx xxx
SECTION 28. Examination and Fees.
— The supervising and examining
department head, personally or by deputy,
shall examine the books of every banking
institution once in every twelve (12) months,
and at such other time as the Monetary Board
 by an affirmative vote of five (5) members
may deem expedient and to make a report
on the same to the Monetary Board:
Provided that there shall be an interval of at
least twelve (12) months between annual
examinations. (Emphasis supplied)
xxx xxx xxx
According to the petitioners, it is clear from these
provisions that the "report of the supervising or
examining department" required under Section 30
refers to the report on the examination of the bank
which, under Section 28, must be made to the MB
after the supervising or examining head conducts an
examination mandated by Sections 25 and
28.18 They cite Banco Filipino Savings & Mortgage
Bank v. Monetary Board, Central Bank of the
Philippines19 wherein the Court ruled:
There is no question that under Section 29 of the
Central Bank Act, the following are the mandatory
requirements to be complied with before a bank
found to be insolvent is ordered closed and
forbidden to do business in the Philippines: Firstly,
an examination shall be conducted by the head of
the appropriate supervising or examining
department or his examiners or agents into the
condition of the bank; secondly, it shall be disclosed
in the examination that the condition of the bank is
one of insolvency, or that its continuance in business
would involve probable loss to its depositors or
creditors; thirdly, the department head concerned
shall inform the Monetary Board in writing, of the
facts; and lastly, the Monetary Board shall find the
statements of the department head to be
true.20 (Emphasis supplied)
Petitioners assert that an examination is necessary
and not a mere report, otherwise the decision to
close a bank would be arbitrary.
Respondents counter that RA 7653 merely requires a
report of the head of the supervising or examining
department. They maintain that the term "report"
under Section 30 and the word "examination" used
in Section 29 of the old law are not synonymous.
"Examination" connotes in-depth analysis,
evaluation, inquiry or investigation while "report"
connotes a simple disclosure or narration of facts for
informative purposes.21
Petitioners’ contention has no merit. Banco
Filipino and other cases petitioners cited22 were
decided using Section 29 of the old law (RA 265):
SECTION 29. Proceedings upon insolvency.
— Whenever, upon examination by the head of
the appropriate supervising or examining
department or his examiners or agents into the
condition of any bank or non-bank financial
intermediary performing quasi-banking functions, it
shall be disclosed that the condition of the same is
one of insolvency, or that its continuance in business
would involve probable loss to its depositors or
creditors, it shall be the duty of the department head
concerned forthwith, in writing, to inform the
Monetary Board of the facts. The Board may, upon
finding the statements of the department head to be
true, forbid the institution to do business in the
Philippines and designate an official of the Central
Bank or a person of recognized competence in
banking or finance, as receiver to immediately take
charge of its assets and liabilities, as expeditiously as
possible collect and gather all the assets and
administer the same for the benefits of its creditors,
and represent the bank personally or through counsel
as he may retain in all actions or proceedings for or
against the institution, exercising all the powers
necessary for these purposes including, but not
limited to, bringing and foreclosing mortgages in the
name of the bank or non-bank financial intermediary
performing quasi-banking functions. (Emphasis
supplied)
xxx xxx xxx
Thus in Banco Filipino, we ruled that an
"examination [conducted] by the head of the
appropriate supervising or examining department or
his examiners or agents into the condition of the
bank"23 is necessary before the MB can order its
closure.
However, RA 265, including Section 29 thereof, was
expressly repealed by RA 7653 which took effect in
1993. Resolution No. 105 was issued on January 21,
2000. Hence, petitioners’ reliance on Banco
Filipino  which was decided under RA 265 was
misplaced.
In RA 7653, only a "report of the head of the
supervising or examining department" is necessary.
It is an established rule in statutory construction that
where the words of a statute are clear, plain and free
from ambiguity, it must be given its literal meaning
and applied without attempted interpretation:24
This plain meaning rule or verba legis derived from
the maxim index animi sermo est (speech is the
index of intention) rests on the valid presumption
that the words employed by the legislature in a
statute correctly express its intention or will and
preclude the court from construing it differently. The
legislature is presumed to know the meaning of the
words, to have used words advisedly, and to have
expressed its intent by use of such words as are
found in the statute. Verba legis non est
recedendum, or from the words of a statute there
should be no departure.25
The word "report" has a definite and unambiguous
meaning which is clearly different from
"examination." A report, as a noun, may be defined
as "something that gives information" or "a usually
detailed account or statement."26 On the other hand,
an examination is "a search, investigation or
scrutiny."27
This Court cannot look for or impose another
meaning on the term "report" or to construe it as
synonymous with "examination." From the words
used in Section 30, it is clear that RA 7653 no longer
requires that an examination be made before the MB
can issue a closure order. We cannot make it a
requirement in the absence of legal basis.
Indeed, the court may consider the spirit and reason
of the statute, where a literal meaning would lead to
absurdity, contradiction, injustice, or would defeat
the clear purpose of the lawmakers.28 However,
these problems are not present here. Using the literal
meaning of "report" does not lead to absurdity,
contradiction or injustice. Neither does it defeat the
intent of the legislators. The purpose of the law is to
make the closure of a bank summary and
expeditious in order to protect public interest. This is
also why prior notice and hearing are no longer
required before a bank can be closed.29
Laying down the requisites for the closure of a bank
under the law is the prerogative of the legislature
and what its wisdom dictates. The lawmakers could
have easily retained the word "examination" (and in
the process also preserved the jurisprudence attached
to it) but they did not and instead opted to use the
word "report." The insistence on an examination is
not sanctioned by RA 7653 and we would be guilty
of judicial legislation were we to make it a
requirement when such is not supported by the
language of the law.
What is being raised here as grave abuse of
discretion on the part of the respondents was the
lack of an examination and not the supposed
arbitrariness with which the conclusions of the
director of the Department of Rural Banks
Supervision and Examination Sector had been
reached in the report which became the basis of
Resolution No. 105.
The absence of an examination before the closure of
RBSM did not mean that there was no basis for the
closure order. Needless to say, the decision of the
MB and BSP, like any other administrative body,
must have something to support itself and its
findings of fact must be supported by substantial
evidence. But it is clear under RA 7653 that the
basis need not arise from an examination as required
in the old law.
We thus rule that the MB had sufficient basis to
arrive at a sound conclusion that there were grounds
that would justify RBSM’s closure. It relied on the
report of Mr. Domo-ong, the head of the supervising
or examining department, with the findings that: (1)
RBSM was unable to pay its liabilities as they
became due in the ordinary course of business and
(2) that it could not continue in business without
incurring probable losses to its depositors and
creditors.30 The report was a 50-page memorandum
detailing the facts supporting those grounds, an
extensive chronology of events revealing the
multitude of problems which faced RBSM and the
recommendations based on those findings.
In short, MB and BSP complied with all the
requirements of RA 7653. By relying on a report
before placing a bank under receivership, the MB
and BSP did not only follow the letter of the law,
they were also faithful to its spirit, which was to act
expeditiously. Accordingly, the issuance of
Resolution No. 105 was untainted with arbitrariness.
Having dispensed with the issue decisive of this
case, it becomes unnecessary to resolve the other
minor issues raised.31
WHEREFORE, the petition is
hereby DENIED. The March 28, 2000 decision and
November 13, 2001 resolution of the Court of
Appeals in CA-G.R. SP No. 57112
are AFFIRMED.
Costs against petitioners.
SO ORDERED.
 G.R. No. L-20119             June 30, 1967
CENTRAL BANK OF THE
PHILIPPINES, petitioner,
vs.
THE HONORABLE JUDGE JESUS P. MORFE
and FIRST MUTUAL SAVING AND LOAN
ORGANIZATION, INC., respondents.
Natalio M. Balboa, F. E. Evangelista and Mariano
Abaya for petitioner.
Halili, Bolinao, Bolinao and Associates for
respondents.
CONCEPCION, C.J.:
This is an original action for certiorari, prohibition
and injunction, with preliminary injunction, against
an order of the Court of First Instance of Manila, the
dispositive part of which reads:
WHEREFORE, upon the petitioner filing an
injunction bond in the amount of P3,000.00,
let a writ of preliminary preventive and/or
mandatory injunction issue, restraining the
respondents, their agents or representatives,
from further searching the premises and
properties and from taking custody of the
various documents and papers of the
petitioner corporation, whether in its main
office or in any of its branches; and ordering
the respondent Central Bank and/or its co-
respondents to return to the petitioner within
five (5) days from service on respondents of
the writ of preventive and/or mandatory
injunction, all the books, documents, and
papers so far seized from the petitioner
pursuant to the aforesaid search warrant.
Upon the filing of the petition herein and of the
requisite bond, we issued, on August 14, 1962, a
writ of preliminary injunction restraining and
prohibiting respondents herein from enforcing the
order above quoted.
[Antecedent Facts]
The main respondent in this case, the First Mutual
Savings and Loan Organization, Inc. —
hereinafter referred to as the Organization — is a
registered non-stock corporation, the main purpose
of which, according to its Articles of Incorporation,
dated February 14, 1961, is "to encourage . . . and
implement savings and thrift among its members,
and to extend financial assistance in the form of
loans," to them. The Organization has three (3)
classes of "members,"1 namely: (a) founder
members — who originally joined the organization
and have signed the pre-incorporation papers —
with the exclusive right to vote and be voted for ;
(b) participating members — with "no right to vote
or be voted for" — to which
category all other members belong; except
(c) honorary members, so made by the board of
trustees, — "at the exclusive discretion" thereof —
due to "assistance, honor, prestige or help extended
in the propagation" of the objectives of the
Organization — without any pecuniary expenses on
the part of said honorary members.
On February 14, 1962, the legal department of the
Central Bank of the Philippines — hereinafter
referred to as the Bank — rendered an opinion to the
effect that the Organization and others of similar
nature are banking institutions, falling within the
purview of the Central Bank Act.2 Hence, on April 1
and 3, 1963, the Bank caused to be published in the
newspapers the following:
ANNOUNCEMENT
To correct any wrong impression which recent
newspaper reports on "savings and loan associations"
may have created in the minds of the public and other
interested parties, as well as to answer numerous
inquiries from the public, the Central Bank of the
Philippines wishes to announce that all "savings and
loan associations" now in operation and other
organizations using different corporate names, but
engaged in operations similar in nature to said
"associations" HAVE NEVER BEEN AUTHORIZED
BY THE MONETARY BOARD OF THE CENTRAL
BANK OF THE PHILIPPINES TO ACCEPT
DEPOSIT OF FUNDS FROM THE PUBLIC NOR
TO ENGAGE IN THE BANKING BUSINESS NOR
TO PERFORM ANY BANKING ACTIVITY OR
FUNCTION IN THE PHILIPPINES.
 Such institutions violate Section. 2 of the General (b) Cash Disbursements Journal or Cash
Banking Act, Republic Act No. 337, should they Disbursement Book
engage in the "lending of funds obtained from the
public through the receipts of deposits or the sale of II. BOOKS OF FINAL ENTRY
bonds, securities or obligations of any kind" without
authority from the Monetary Board. Their activities (1) General Ledger
and operations are not supervised by the
Superintendent of Banks and persons dealing with (2) Individual Deposits and Loans Ledgers
such institutions do so at their risk.
(3) Other Subsidiary Ledgers
CENTRAL BANK OF THE PHILIPPINES
III. OTHER ACCOUNTING RECORDS
Moreover, on April 23, 1962, the Governor of the
Bank directed the coordination of "the investigation (1) Application for Membership
and gathering of evidence on the activities of the (2) Signature Card
savings and loan associations which are operating
contrary to law." Soon thereafter, or on May 18, (3) Deposit Slip
1962, a member of the intelligence division of the (4) Passbook Slip
Bank filed with the Municipal Court of Manila a
verified application for a search warrant against (5) Withdrawal Slip
the Organization, alleging that "after close
(6) Tellers Daily Deposit Report
observation and personal investigation, the premises
at No. 2745 Rizal Avenue, Manila" — in which the (7) Application for Loan Credit Statement
offices of the Organization were housed — "are
(8) Credit Report
being used unlawfully," because said Organization is
illegally engaged in banking activities, "by receiving (9) Solicitor's Report
deposits of money for deposit, disbursement,
safekeeping or otherwise or transacts the business of (10) Promissory Note
a savings and mortgage bank and/or building and (11) I n d o r s e m e n t
loan association . . . without having first complied
with the provisions of Republic Act No. 337" and (12) Co-makers' Statements
that the articles, papers, or effects enumerated in a (13) Chattel Mortgage Contracts
list attached to said application, as Annex A
thereof.3 are kept in said premises, and "being used (14) Real Estate Mortgage Contracts
or intended to be used in the commission of a felony, (15) Trial Balance
to wit: violation of Sections 2 and 6 of Republic Act
No. 337."4 Said articles, papers or effects are (16) Minutes Book — Board of Directors
described in the aforementioned Annex A, as IV. FINANCIAL STATEMENTS
follows:
(1) Income and Expenses Statements
I. BOOKS OF ORIGINAL ENTRY
(2) Balance Sheet or Statement of Assets and
(1) General Journal Liabilities
(2) Columnar Journal or Cash Book V. OTHERS
(a) Cash Receipts Journal or Cash Receipt (1) Articles of Incorporation
Book
(2) By-Laws
 (3) Prospectus, Brochures Etc. partially performed, that a writ of preliminary
mandatory injunction be forthwith issued ex parte,
(4) And other documents and articles which
ordering the preservation of the status quo of the
are being used or intended to be used in
parties, as well as the immediate return to the
unauthorized banking activities and
Organization of the documents and papers so far
operations contrary to law.
seized under, the search warrant in question. After
Upon the filing of said application, on May 18, due hearing, on the petition for said injunction,
1962, Hon. Roman Cancino, as Judge of the said respondent, Hon. Jesus P. Morfe, Judge, who
municipal court, issued the warrant above referred presided over the branch of the Court of First
to,5 commanding the search of the aforesaid Instance of Manila to which said Case No. 50409
premises at No. 2745 Rizal Avenue, Manila, and the had been assigned, issued, on July 2, 1962, the
seizure of the foregoing articles, there being "good order complained of.
and sufficient reasons to believe" upon examination,
Within the period stated in said order, the Bank
under oath, of a detective of the Manila Police
moved for a reconsideration thereof, which was
Department and said intelligence officer of the Bank
denied on August 7, 1962. Accordingly, the Bank
— that the Organization has under its control, in the
commenced, in the Supreme Court, the present
address given, the aforementioned articles, which
action, against Judge Morfe and the Organization,
are the subject of the offense adverted to above or
alleging that respondent Judge had acted with grave
intended to be used as means for the commission of
abuse of discretion and in excess of his jurisdiction
said off offense.
in issuing the order in question.
Forthwith, or on the same date, the Organization
At the outset, it should be noted that the action taken
commenced Civil Case No. 50409 of the Court of
by the Bank, in causing the aforementioned search to
First Instance of Manila, an original action for
be made and the articles above listed to be seized,
"certiorari, prohibition, with writ of preliminary
was predicated upon the theory that the Organization
injunction and/or writ of preliminary mandatory
was illegally engaged in banking — by receiving
injunction," against said municipal court, the Sheriff
money for deposit, disbursement, safekeeping or
of Manila, the Manila Police Department, and the
otherwise, or transacting the business of a savings
Bank, to annul the aforementioned search
and mortgage bank and/or building and loan
warrant, upon the ground that, in issuing the same,
association, — without first complying with the
the municipal court had acted "with grave abuse of
provisions of R.A. No. 337, and that the order
discretion, without jurisdiction and/or in excess of
complained of assumes that the Organization had
jurisdiction" because: (a) "said search warrant is a
violated sections 2 and 6 of said Act.6 Yet
roving commission general in its terms . . .;" (b) "the
respondent Judge found the searches and, seizures in
use of the word 'and others' in the search warrant . . .
question to be unreasonable, through the following
permits the unreasonable search and seizure of
process of reasoning: the deposition given in support
documents which have no relation whatsoever to any
of the application for a search warrant states that the
specific criminal act . . .;" and (c) "no court in the
deponent personally knows that the premises of the
Philippines has any jurisdiction to try a criminal case
Organization, at No. 2745 Rizal Avenue,
against a corporation . . ."
Manila,7 were being used unlawfully for banking
The Organization, likewise, prayed that, pending and purposes. Respondent judge deduce, from this
hearing of the case on the merits, a writ of premise, that the deponent " knows specific banking
preliminary injunction be issued ex parte restraining transactions of the petitioner with specific persons,"
the aforementioned search and seizure, or, in the and, then concluded that said deponent ". . . could
alternative, if the acts complained of have been have, if he really knew of actual violation of the law,
applied for a warrant to search and seize only books" conclusion that said municipal Judge had committed
or records: a grave abuse of discretion, amounting to lack of
jurisdiction or excess of jurisdiction. Upon the other
covering the specific purportedly illegal banking
hand, the failure of the witness to mention particular
transactions of the petitioner with specific
individuals does not necessarily prove that he had no
persons who are the supposed victims of said illegal
personal knowledge of specific  illegal transactions
banking transactions according to his knowledge. To
of the Organization, for the witness might be
authorize and seize all  the records listed in Annex A
acquainted with specific transactions, even if
to said application for search warrant, without
the names  of the individuals concerned were
reference to specific alleged victims of the purported
unknown to him.
illegal banking transactions, would be to harass the
petitioner, and its officers with a roving commission Again, the aforementioned order would seem to
or fishing expedition for evidence which could be assume that an illegal banking transaction, of the
discovered by normal intelligence operations or kind contemplated in the contested action of the
inspections (not seizure) of books and records officers of the Bank, must always connote the
pursuant to Section 4 of Republic Act No 337 . . ." existence of a "victim." If this term is used to denote
a party whose interests have been actually injured,
The concern thus shown by respondent judge for the
then the assumption is not necessarily justified. The
civil liberty involved is, certainly, in line with the
law requiring compliance with certain requirements
function of courts, as ramparts of justice and liberty
before anybody can engage in banking obviously
and deserves the greatest encouragement and
seeks to protect the public against actual, as well
warmest commendation. It lives up to the highest
as potential, injury. Similarly, we are not aware of
traditions of the Philippine Bench, which underlies
any rule limiting the use of warrants to papers or
the people's faith in and adherence to the Rule of
effects which cannot be secured otherwise.
Law and the democratic principle in this part of the
World. The line of reasoning of respondent Judge might,
perhaps, be justified if the acts imputed to the
At the same time, it cannot be gainsaid the
Organization consisted of isolated  transactions,
Constitutional injunction against unreasonable
distinct and different from the type of business in
searches and seizures seeks to forestall, not purely
which it is generally engaged. In such case, it may
abstract or imaginary evils, but specific and concrete
be necessary to specify or identify the parties
ones. Indeed, unreasonableness is, in the very nature
involved in said isolated transactions, so that the
of things, a condition dependent upon the
search and seizure be limited to the records pertinent
circumstances surrounding each case, in much the
thereto. Such, however, is not  the situation
same way as the question whether or not "probable
confronting us. The records suggest clearly that the
cause" exists is one which must be decided in the
transactions objected to by the Bank constitute
light of the conditions obtaining in given situations.
the general pattern  of the business of the
Referring particularly to the one at bar, it is not clear Organization. Indeed, the main  purpose thereof,
from the order complained of whether respondent according to its By-laws, is "to extend financial
Judge opined that the abovementioned statement of assistance, in the form of loans, to its members,"
the deponent — to the effect that the Organization with funds deposited by them.
was engaged in the transactions mentioned in his
It is true, that such funds are referred to — in the
deposition — deserved of credence or not.
Articles of Incorporation and the By-laws — as their
Obviously, however, a mere disagreement with
"savings." and that the depositors thereof are
Judge Cancino, who issued the warrant, on the
designated as "members," but, even a cursory
credibility of said statement, would not justify the
examination of said documents will readily show respondent First Mutual Savings and Loan
that anybody can be a depositor and thus be a Organization, Inc. It is so ordered.
"participating member." In other words, the
Organization is, in effect, open to the "public" for
deposit accounts, and the funds so raised may be lent
by the Organization. Moreover, the power to so
dispose of said funds is placed under
the exclusive  authority of the "founder members,"
and "participating members" are expressly denied
the right to vote or be voted for, their "privileges and
benefits," if any, being limited to those which the
board of trustees may, in its discretion, determine
from time to time. As a consequence, the
"membership" of the "participating members" is
purely nominal in nature. This situation is fraught,
precisely, with the very dangers or evils which
Republic Act No. 337 seeks to forestall, by exacting
compliance with the requirements of said Act,
before the transactions in question could be
undertaken.
It is interesting to note, also, that the Organization
does not seriously contest the main facts, upon
which the action of the Bank is based. The principal
issue raised by the Organization is predicated upon
the theory that the aforementioned transactions of
the Organization do not amount to " banking," as the
term is used in Republic Act No. 337. We are
satisfied, however, in the light of the circumstance
obtaining in this case, that the Municipal Judge did
not commit a grave abuse of discretion in finding
that there was probable cause that the Organization
had violated Sections 2 and 6 of the aforesaid law
and in issuing the warrant in question, and that,
accordingly, and in line with Alverez vs. Court of
First Instance (64 Phil. 33), the search and seizure
complained of have not been proven to be
unreasonable.
Wherefore, the order of respondent Judge dated July
2, 1962, and the writ of preliminary mandatory
injunction issued in compliance therewith are hereby
annulled, and the writ of preliminary injunction
issued by this Court on August 14, 1962,
accordingly, made permanent, with costs against
 [ G.R. NO. 162270, April 06, 2005 ]
ABACUS REAL ESTATE DEVELOPMENT
CENTER, INC., PETITIONER, VS. THE
MANILA BANKING CORPORATION,
RESPONDENT.
DECISION
GARCIA, J.:
Thru this appeal by way of a petition for review on
certiorari under Rule 45 of the Rules of Court,
petitioner Abacus Real Estate Development Center,
Inc. seeks to set aside the following issuances of the
Court of Appeals in CA-G.R. CV No. 64877, to wit:
1. Decision dated May 26, 2003,[1] reversing an
earlier decision of the Regional Trial Court at
Makati City, Branch 59, in an action for
specific performance and damages thereat
commenced by the petitioner against the
herein respondent Manila Banking
Corporation; and
2. Resolution of February 17, 2004,[2] denying
petitioner's motion for reconsideration.
The petition is casts against the following factual
backdrop:
Respondent Manila Banking Corporation (Manila
Bank, for brevity), owns a 1,435-square meter parcel
of land located along Gil Puyat Avenue Extension,
Makati City and covered by Transfer Certificate of
Title (TCT) No. 132935 of the Registry of Deeds of
Makati. Prior to 1984, the bank began constructing
on said land a 14-storey building. Not long after,
however, the bank encountered financial difficulties
that rendered it unable to finish construction of the
building.
On May 22, 1987, the Central Bank of the
Philippines, now Bangko Sentral ng Pilipinas,
ordered the closure of Manila Bank and placed it
under receivership, with Feliciano Miranda, Jr. being
initially appointed as Receiver. The legality of the
closure was contested by the bank before the proper
court.
On November 11, 1988, the Central Bank, by virtue
of Monetary Board (MB) Resolution No. 505,
ordered the liquidation of Manila Bank and
designated Atty. Renan V. Santos as Liquidator.
The liquidation, however, was held in abeyance
pending the outcome of the earlier suit filed by
Manila Bank regarding the legality of its closure.
Consequently, the designation of Atty. Renan V.
Santos as Liquidator was amended by the Central
Bank on December 22, 1988 to that of Statutory
Receiver.
In the interim, Manila Bank's then acting president,
the late Vicente G. Puyat, in a bid to save the bank's
investment, started scouting for possible investors
who could finance the completion of the building
earlier mentioned. On August 18, 1989, a group of
investors, represented by Calixto Y. Laureano
(hereafter referred to as Laureano group), wrote
Vicente G. Puyat offering to lease the building for
ten (10) years and to advance the cost to complete
the same, with the advanced cost to be amortized
and offset against rental payments during the term of
the lease. Likewise, the letter-offer stated that in
consideration of advancing the construction cost, the
group wanted to be given the "exclusive option to
purchase" the building and the lot on which it was
constructed.
Since no disposition of assets could be made due to
the litigation concerning Manila Bank's closure, an
arrangement was thought of whereby the property
would first be leased to Manila Equities
Corporation (MEQCO, for brevity), a wholly-
owned subsidiary of Manila Bank, with MEQCO
thereafter subleasing the property to the Laureano
group.
In a letter dated August 30, 1989, Vicente G. Puyat
accepted the Laureano group's offer and granted it
an "exclusive option to purchase" the lot and
building for One Hundred Fifty Million Pesos
(P150,000,000.00). Later, or on October 31, 1989,
the building was leased to MEQCO for a period of
ten (10) years pursuant to a contract of lease bearing
that date. On March 1, 1990, MEQCO subleased the
property to petitioner Abacus Real Estate
Development Center, Inc. (Abacus, for short), a
corporation formed by the Laureano group for the
purpose, under identical provisions as that of the
October 31, 1989 lease contract between Manila
Bank and MEQCO.
The Laureano group was, however, unable to finish
the building due to the economic crisis brought
about by the failed December 1989 coup attempt. On
account thereof, the Laureano group offered its
rights in Abacus and its "exclusive option to
purchase" to Benjamin
Bitanga (Bitanga hereinafter), for Twenty Million
Five Hundred Thousand Pesos (P20,500,000.00).
Bitanga would later allege that because of the
substantial amount involved, he first had to talk with
Atty. Renan Santos, the Receiver appointed by the
Central Bank, to discuss Abacus' offer. Bitanga
further alleged that, over lunch, Atty. Santos then
verbally approved his entry into Abacus and his
take-over of the sublease and option to purchase.
On March 30, 1990, the Laureano group transferred
and assigned to Bitanga all of its rights in Abacus
and the "exclusive option to purchase" the subject
land and building.
On September 16, 1994, Abacus sent a letter to
Manila Bank informing the latter of its desire to
exercise its "exclusive option to purchase".
However, Manila Bank refused to honor the same.
Such was the state of things when, on November 10,
1995, in the Regional Trial Court (RTC) at Makati,
Abacus Real Estate Development Center, Inc. filed a
complaint[3] for specific performance and damages
against Manila Bank and/or the Estate of Vicente G.
Puyat. In its complaint, docketed as Civil Case No.
96-1638 and raffled to Branch 59 of the court,
plaintiff Abacus prayed for a judgment ordering
Manila Bank, inter alia, to sell, transfer and convey
unto it for P150,000,000.00 the land and building in
dispute "free from all liens and encumbrances", plus
payment of damages and attorney's fees.
Subsequently, defendant Manila Bank, followed a
month later by its co-defendant Estate of Vicente G.
Puyat, filed separate motions to dismiss the
complaint.
In an Order dated April 15, 1996, the trial court
granted the motion to dismiss filed by the Estate of
Vicente G. Puyat, but denied that of Manila Bank
and directed the latter to file its answer.
Before plaintiff Abacus could adduce evidence but
after pre-trial, defendant Manila Bank filed a Motion
for Partial Summary Judgment, followed by
a Supplement to Motion for Partial Summary
Judgment. While initially opposed, Abacus would
later join Manila Bank in submitting the case for
summary judgment.
Eventually, in a decision dated May 27, 1999,[4] the
trial court rendered judgment for Abacus in
accordance with the latter's prayer in its complaint,
thus:
WHEREFORE, premises considered, judgment is hereby
rendered in favor of the plaintiff as follows:
1. Ordering the defendant [Manila Bank] to
immediately sell to plaintiff the parcel of land and
building, with an area of 1,435 square meters and
covered by TCT No. 132935 of the Makati
Registry of Deeds, situated along Sen. Gil J.
Puyat Ave. in Makati City, at the price of One
Hundred Fifty Million (P150,000.000.00) Pesos
in accordance with the said exclusive option to
purchase, and to execute the appropriate deed of
sale therefor in favor of plaintiff;
2. Ordering the defendant [Manila Bank] to pay
plaintiff the amount of Two Million
 (P2,000,000.00) Pesos representing reasonable
attorney's fees;
3. Ordering the DISMISSAL of defendant's
counterclaim, for lack of merit; and
4. With costs against the defendant.
SO ORDERED.
Its motion for reconsideration of the aforementioned
decision having been denied by the trial court in its
Order of August 17, 1999,[5] Manila Bank then went
on to the Court of Appeals whereat its appellate
recourse was docketed as CA-G.R. CV No. 64877.
As stated at the threshold hereof, the Court of
Appeals, in a decision dated May 26, 2003,
[6]
 reversed and set aside the appealed decision of the
trial court, thus:
WHEREFORE, finding serious reversible error, the
appeal is GRANTED.
The Decision dated May 27, 1999 of the Regional
Trial Court of Makati City, Branch 59
is REVERSED and SET ASIDE.
Cost of the appeal to be paid by the appellee.
SO ORDERED.
On June 25, 2003, Abacus filed a Motion for
Reconsideration, followed, with leave of court, by
an Amended Motion for Reconsideration. Pending
resolution of its motion for reconsideration, as
amended, Abacus filed a Motion to Dismiss Appeal,
[7]
 therein praying for the dismissal of Manila Bank's
appeal from the RTC decision of May 27, 1999,
contending that said appeal was filed out of time.
In its Resolution of February 17, 2004,[8] the
appellate court denied Abacus' aforementioned
motion for reconsideration.
Hence, this recourse by petitioner Abacus Real
Estate Development Center, Inc.
As we see it, two (2) issues commend themselves for
the resolution of the Court, namely:
WHETHER OR NOT RESPONDENT BANK'S
APPEAL TO THE COURT OF APPEALS WAS
FILED ON TIME; and
WHETHER OR NOT PETITIONER ABACUS
HAS ACQUIRED THE RIGHT TO PURCHASE
THE LOT AND BUILDING IN QUESTION.
We rule for respondent Manila Bank on both issues.
Addressing the first issue, petitioner submits that
respondent bank's appeal to the Court of Appeals
from the adverse decision of the trial court was
belatedly filed. Elaborating thereon, petitioner
alleges that respondent bank received a copy of the
May 27, 1999 RTC decision on June 22, 1999,
hence, petitioner had 15 days, or only up to July 7,
1999 within which to take an appeal from the same
decision or move for a reconsideration thereof.
Petitioner alleges that respondent furnished the trial
court with a copy of its Motion for Reconsideration
only on July 7, 1999, the last day for filing an
appeal. Under Section 3, Rule 41 of the 1997 Rules
of Civil Procedure, "the period of appeal shall be
interrupted by a timely motion for new trial or
reconsideration". Since, according to petitioner,
respondent filed its Motion for Reconsideration on
the last day of the period to appeal, it only had one
(1) more day within which to file an appeal, so much
so that when it received on August 23, 1999 a copy
of the trial court's order denying its Motion for
Reconsideration, respondent bank had only up to
August 24, 1999 within which to file the
corresponding appeal. As respondent bank appealed
the decision of the trial court only on August 25,
1999, petitioner thus argues that respondent's appeal
was filed out of time.
As a counterpoint, respondent alleges that it sent the
trial court a copy of its Motion for Reconsideration
on July 6, 1999, through registered mail. Having
sent a copy of its Motion for Reconsideration to the
trial court with still two (2) days left to appeal,
respondent then claims that its filing of an appeal on
August 25, 1999, two (2) days after receiving the
Order of the trial court denying its Motion for
Reconsideration, was within the reglementary
period.
Agreeing with respondent, the appellate court
declared that respondent's appeal was filed on time.
Explained that court in its Resolution of February
17, 2004, denying petitioner's motion for
reconsideration:
Firstly, the file copy of the motion for
reconsideration contains the written annotations
"Registry Receipt No. 1633 Makati P.O. 7-6-99" in
its page 13. The presence of the annotations proves
that the motion for reconsideration was truly filed
by registered mail on July 6, 1999 through registry
receipt no. 1633.
Secondly, the appellant's manifestation filed in the
RTC personally on July 7, 1999 contains the
following self-explanatory statements, to wit:
2. Defendant [Manila Bank] also filed with this
Honorable Court a Motion for
Reconsideration of the Decision dated 27
May 1999 promulgated by this Honorable
Court in this case, and served a copy thereof
to the plaintiff, by registered mail yesterday,
6 July 1999, due to lack of material time and
messenger to effect personal service and
filing.
3. In order for this Honorable Court to be able
to review defendant [Manila Bank's] Motion
for Reconsideration without awaiting the
mailed copy, defendant [Manila Bank] is
now furnishing this Honorable Court with a
copy of said motion, as well as the entry of
appearance, by personal service.
The aforecited reference in the manifestation to the
mailing of the motion for reconsideration on July 6,
1999, in light of the handwritten annotations
adverted to herein, renders beyond doubt the
appellant's insistence of filing through registered
mail on July 6, 1999.
Thirdly, the registry return cards attached to the
envelopes separately addressed and mailed to the
RTC and the appellee's counsel, found in pages 728
and 729 of the rollo, indicate that the contents were
the motion for reconsideration and the formal entry
of appearance. Although the appellee argues that the
handwritten annotations of what were contained by
the envelopes at the time of mailing was easily self-
serving, the fact remains that the envelope addressed
to the appellee's counsel appears thereon to have
been received on July 6, 1999 ("7/6/99"), which
enhances the probability of the motion for
reconsideration being mailed, hence filed, on July 6,
1999, as claimed by the appellant.
Fourthly, the certification issued on October 2, 2003
by Atty. Jayme M. Luy, Branch Clerk of Court,
Branch 59, RTC in Makati City, has no consequence
because Atty. Luy based his data only on page 3 of
the 1995 Civil Case Docket Book without reference
to the original records which were already with the
Court of Appeals.
Fifthly, since the appellant received the denial of
the motion for reconsideration on August 23, 1999,
it had until August 25, 1999 within which to perfect
its appeal from the decision of the RTC because 2
days remained in its reglementary period to appeal.
It is not disputed that the appellant filed its notice of
appeal and paid the appellate court docket fees on
August 25, 1999.
These circumstances preponderantly demonstrate
that the appellant's appeal was not late by one day.
(Emphasis in the original)
Petitioner would, however, contest the above
findings of the appellate court, stating, among other
things, that if it were true that respondent filed its
Motion for Reconsideration by registered mail and
then furnished the trial court with a copy of said
Motion the very next day, then the rollo should have
had two copies of the Motion for Reconsideration in
question. Respondent, on the other hand, insists that
it indeed filed a Motion for Reconsideration on July
6, 1999 through registered mail.
It is evident that the issue raised by petitioner relates
to the correctness of the factual finding of the Court
of Appeals as to the precise date when respondent
filed its motion for reconsideration before the trial
court. Such issue, however, is beyond the province
of this Court to review. It is not the function of the
Court to analyze or weigh all over again the
evidence or premises supportive of such factual
determination.[9] The Court has consistently held that
the findings of the Court of Appeals and other lower
courts are, as a rule, accorded great weight, if not
binding upon it,[10] save for the most compelling and
cogent reasons.[11] As nothing in the record indicates
any of such exceptions, the factual conclusion of the
appellate court that respondent filed its appeal on
time, supported as it is by substantial evidence, must
be affirmed.
Going to the second issue, petitioner insists that the
option to purchase the lot and building in question
granted to it by the late Vicente G. Puyat, then
acting president of Manila Bank, was binding upon
the latter. On the other hand, respondent has
consistently maintained that the late Vicente G.
Puyat had no authority to act for and represent
Manila Bank, the latter having been placed under
receivership by the Central Bank at the time of the
granting of the "exclusive option to purchase."
There can be no quibbling that respondent Manila
Bank was under receivership, pursuant to Central
Bank's MB Resolution No. 505 dated May 22, 1987,
at the time the late Vicente G. Puyat granted the
"exclusive option to purchase" to the Laureano
group of investors. Owing to this defining reality,
the appellate court was correct in declaring that
Vicente G. Puyat was without authority to grant the
exclusive option to purchase the lot and building in
question. The invocation by the appellate court of
the following pronouncement in Villanueva vs.
Court of Appeals[12] was apropos, to say the least:
... the assets of the bank pass beyond its
control into the possession and control of the
receiver whose duty it is to administer the
assets for the benefit of the creditors of the
bank. Thus, the appointment of a receiver
operates to suspend the authority of the bank
and of its directors and officers over its
property and effects, such authority being
reposed in the receiver, and in this respect,
the receivership is equivalent to an injunction
to restrain the bank officers from
intermeddling with the property of the bank
in any way.
With respondent bank having been already placed
under receivership, its officers, inclusive of its acting
president, Vicente G. Puyat, were no longer
authorized to transact business in connection with
the bank's assets and property. Clearly then, the
"exclusive option to purchase" granted by Vicente
G. Puyat was and still is unenforceable against
Manila Bank.[13]
Petitioner, however, asseverates that the "exclusive
option to purchase" was ratified by Manila Bank's
receiver, Atty. Renan Santos, during a lunch meeting
held with Benjamin Bitanga in March 1990.
Petitioner's argument is tenuous at best. Concededly,
a contract unenforceable for lack of authority by one
of the parties may be ratified by the person in whose
name the contract was executed. However, even
assuming, in gratia argumenti, that Atty. Renan
Santos, Manila Bank's receiver, approved the
"exclusive option to purchase" granted by Vicente
G. Puyat, the same would still be of no force and
effect.
Section 29 of the Central Bank Act, as amended,
[14]
 pertinently provides:
 Sec. 29. Proceedings upon insolvency. - not, with the exception of administrative
Whenever, upon examination by the head of expenditures, pay or commit any act that will
the appropriate supervising and examining involve the transfer or disposition of any asset of the
department or his examiners or agents into institution.."
the condition of any banking institution, it
shall be disclosed that the condition of the In all, respondent bank's receiver was without any
same is one of insolvency, or that its power to approve or ratify the "exclusive option to
continuance in business would involve purchase" granted by the late Vicente G. Puyat,
probable loss to its depositors or creditors, it who, in the first place, was himself bereft of any
shall be the duty of the department head authority, to bind the bank under such exclusive
concerned forthwith, in writing, to inform the option. Respondent Manila Bank may not thus be
Monetary Board of the facts, and the Board compelled to sell the land and building in question to
may, upon finding the statements of the petitioner Abacus under the terms of the latter's
department head to be true, forbid the "exclusive option to purchase".
institution to do business in the Philippines
and  shall designate an official of the Central WHEREFORE, the instant petition
Bank as receiver to immediately take charge is DENIED and the challenged issuances of the
of its assets and liabilities, as expeditiously Court of Appeals AFFIRMED.
as possible collect and gather all the
assets  and administer the same  for the Costs against petitioner.
benefit of its creditors, exercising all the
powers necessary for these SO ORDERED.
purposes including, but not limited to,
bringing suits and foreclosing mortgages in
the name of the banking institution.
Clearly, the receiver appointed by the Central Bank
to take charge of the properties of Manila Bank only
had authority to  administer the same for the benefit
of its creditors. Granting or approving an "exclusive
option to purchase" is not an act of administration,
but an act of strict ownership, involving, as it does,
the disposition of property of the bank. Not being an
act of administration, the so-called "approval" by
Atty. Renan Santos amounts to no approval at all, a
bank receiver not being authorized to do so on his
own.
For sure, Congress itself has recognized that a bank
receiver only has powers of administration. Section
30 of the New Central Bank Act[15] expressly
provides that "[t]he receiver shall immediately
gather and take charge of all the assets and liabilities
of the institution, administer the same for the benefit
of its creditors, and exercise the general powers of a
receiver under the Revised Rules of Court but shall
 [G.R. NO. 135706 : October 1, 2004]
SPS. CESAR A. LARROBIS, JR. and VIRGINIA
S. LARROBIS, Petitioners, v. PHILIPPINE
VETERANS BANK, Respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
Before us is a Petition for Review of the decision of
the Regional Trial Court (RTC), Cebu City, Branch
24, dated April 17, 1998,1 and the order denying
petitioner's motion for reconsideration dated August
25, 1998, raising pure questions of law.2
The following facts are uncontroverted:
On March 3, 1980, petitioner spouses contracted a
monetary loan with respondent Philippine
Veterans Bank in the amount of P135,000.00,
evidenced by a promissory note, due and
demandable on February 27, 1981, and secured by a
Real Estate Mortgage executed on their lot together
with the improvements thereon.
On March 23, 1985, the respondent bank went
bankrupt and was placed under
receivership/liquidation by the Central Bank from
April 25, 1985 until August 1992.3
On August 23, 1985, the bank, through Francisco
Go, sent the spouses a demand letter for "accounts
receivable in the total amount of P6,345.00 as of
August 15, 1984,"4 which pertains to the insurance
premiums advanced by respondent bank over the
mortgaged property of petitioners.5
On August 23, 1995, more than fourteen years from
the time the loan became due and demandable,
respondent bank filed a petition for extrajudicial
foreclosure of mortgage of petitioners'
6
property.  On October 18, 1995, the property was
sold in a public auction by Sheriff Arthur Cabigon
with Philippine Veterans Bank as the lone bidder.
On April 26, 1996, petitioners filed a complaint
with the RTC, Cebu City, to declare the extra-
judicial foreclosure and the subsequent sale thereof
to respondent bank null and void.7
In the pre-trial conference, the parties agreed to limit
the issue to whether or not the period within which
the bank was placed under receivership and
liquidation was a fortuitous event which suspended
the running of the ten-year prescriptive period in
bringing actions.8
On April 17, 1998, the RTC rendered its decision,
the fallo of which reads:
WHEREFORE, premises considered
judgment is hereby rendered dismissing the
complaint for lack of merit. Likewise the
compulsory counterclaim of defendant is
dismissed for being unmeritorious.9
It reasoned that:
'defendant bank was placed under receivership by
the Central Bank from April 1985 until 1992. The
defendant bank was given authority by the Central
Bank to operate as a private commercial bank and
became fully operational only on August 3, 1992.
From April 1985 until July 1992, defendant bank
was restrained from doing its business. Doing
business as construed by Justice Laurel in 222
SCRA 131 refers to: "' a continuity of commercial
dealings and arrangements and contemplates to that
extent, the performance of acts or words or the
exercise of some of the functions normally incident
to and in progressive prosecution of the purpose and
object of its organization."
The defendant bank's right to foreclose the
mortgaged property prescribes in ten (10) years but
such period was interrupted when it was placed
under receivership. Article 1154 of the New Civil
Code to this effect provides:
"The period during which the obligee was
prevented by a fortuitous event from
enforcing his right is not reckoned against
him."
In the case of Provident Savings Bank v. Court of
Appeals, 222 SCRA 131, the Supreme Court said.
"Having arrived at the conclusion that a foreclosure
is part of a bank's activity which could not have been
pursued by the receiver then because of the
circumstances discussed in the Central Bank case,
we are thus convinced that the prescriptive period
was legally interrupted by fuerza mayor in 1972 on
account of the prohibition imposed by the Monetary
Board against petitioner from transacting business,
until the directive of the Board was nullified in
1981. Indeed, the period during which the obligee
was prevented by a caso fortuito from enforcing his
right is not reckoned against him. (Art. 1154, NCC)
When prescription is interrupted, all the benefits
acquired so far from the possession cease and when
prescription starts anew, it will be entirely a new
one. This concept should not be equated with
suspension where the past period is included in the
computation being added to the period after the
prescription is presumed (4 Tolentino,
Commentaries and Jurisprudence on the Civil Code
of the Philippines 1991 ed. pp. 18-19), consequently,
when the closure of the petitioner was set aside in
1981, the period of ten years within which to
foreclose under Art. 1142 of the N.C.C. began to run
and, therefore, the action filed on August 21, 1986 to
compel petitioner to release the mortgage carried
with it the mistaken notion that petitioner's own suit
for foreclosure has prescribed."
Even assuming that the liquidation of defendant
bank did not affect its right to foreclose the
plaintiffs' mortgaged property, the questioned
extrajudicial foreclosure was well within the ten (10)
year prescriptive period. It is noteworthy to mention
at this point in time, that defendant bank through
authorized Deputy Francisco Go made the first
extrajudicial demand to the plaintiffs on August
1985. Then on March 24, 1995 defendant bank
through its officer-in-charge Llanto made the second
extrajudicial demand. And we all know that a
written extrajudicial demand wipes out the period
that has already elapsed and starts anew the
prescriptive period. (Ledesma v. C.A., 224 SCRA
175.)10
Petitioners filed a motion for reconsideration which
the RTC denied on August 25, 1998.11 Thus, the
present Petition for Review where petitioners
claim that the RTC erred:
I
'IN RULING THAT THE PERIOD WITHIN
WHICH RESPONDENT BANK WAS PUT
UNDER RECEIVERSHIP AND LIQUIDATION
WAS A FORTUITOUS EVENT THAT
INTERRUPTED THE RUNNING OF THE
PRESCRIPTIVE PERIOD.
II
'IN RULING THAT THE WRITTEN EXTRA-
JUDICIAL DEMAND MADE BY RESPONDENT
ON PETITIONERS WIPED OUT THE PERIOD
THAT HAD ALREADY ELAPSED.
III
'IN DENYING PETITIONERS' MOTION FOR
RECONSIDERATION OF ITS HEREIN
ASSAILED DECISION.12
Petitioners argue *that: since the extra-judicial
foreclosure of the real estate mortgage was effected
by the bank on October 18, 1995, which was
fourteen years from the date the obligation became
due on February 27, 1981, said foreclosure and the
subsequent sale at public auction should be set aside
and declared null and void ab initio since they are
already barred by prescription; *the court a
quo erred in sustaining the respondent's theory that
its having been placed under receivership by the
Central Bank between April 1985 and August 1992
was a fortuitous event that interrupted the running of
the prescriptive period;13 the court a quo's reliance
on the case of Provident Savings Bank v. Court of
Appeals14 is misplaced since they have different sets
of facts; in the present case, a liquidator was duly
appointed for respondent bank and there was no
judgment or court order that would legally or
physically hinder or prohibit it from foreclosing
petitioners' property; despite the absence of such
legal or physical hindrance, respondent bank's
receiver or liquidator failed to foreclose petitioners'
property and therefore such inaction should bind
respondent bank;15 *foreclosure of mortgages is part
of the receiver's/liquidator's duty of administering
the bank's assets for the benefit of its depositors and
creditors, thus, the ten-year prescriptive period
which started on February 27, 1981, was not
interrupted by the time during which the respondent
bank was placed under receivership; and the
Monetary Board's prohibition from doing business
should not be construed as barring any and all
business dealings and transactions by the bank,
otherwise, the specific mandate to foreclose
mortgages under Sec. 29 of R.A. No. 265 as amended
by Executive Order No. 65 would be rendered
nugatory.16 Said provision reads:
Section 29. Proceedings upon Insolvency - Whenever,
upon examination by the head of the appropriate
supervising or examining department or his examiners
or agents into the condition of any bank or non-bank
financial intermediary performing quasi-banking
functions, it shall be disclosed that the condition of the
same is one of insolvency, or that its continuance in
business would involve probable loss to its depositors
or creditors, it shall be the duty of the department head
concerned forthwith, in writing, to inform the
Monetary Board of the facts. The Board may, upon
finding the statements of the department head to be
true, forbid the institution to do business in the
Philippines and designate the official of the Central
Bank or a person of recognized competence in
banking or finance, as receiver to immediately take
charge its assets and liabilities, as expeditiously as
possible, collect and gather all the assets and
administer the same for the benefit of its creditors, and
represent the bank personally or through counsel as he
may retain in all actions or proceedings for or against
the institution, exercising all the powers necessary for
these purposes including, but not limited to, bringing
and foreclosing mortgages in the name of the bank.
Petitioners further contend that: the demand letter,
dated March 24, 1995, was sent after the ten-year
prescriptive period, thus it cannot be deemed to have
revived a period that has already elapsed; it is also
not one of the instances enumerated by Art. 1115 of
the Civil Code when prescription is
17
interrupted;  and the August 23, 1985 letter by
Francisco Go demanding P6,345.00, refers to the
insurance premium on the house of petitioners,
advanced by respondent bank, thus such demand
letter referred to another obligation and could not
have the effect of interrupting the running of the
prescriptive period in favor of herein petitioners
insofar as foreclosure of the mortgage is
concerned.18
Petitioners then prayed that respondent bank be
ordered to pay them P100,000.00 as moral
damages, P50,000.00 as exemplary damages
and P100,000.00 as attorney's fees.19
Respondent for its part asserts that: the period within
which it was placed under receivership and
liquidation was a fortuitous event that interrupted the
running of the prescriptive period for the foreclosure
of petitioners' mortgaged property; within such
period, it was specifically restrained and
immobilized from doing business which includes
foreclosure proceedings; the extra-judicial demand it
made on March 24, 1995 wiped out the period that
has already lapsed and started anew the prescriptive
period; respondent through its authorized deputy
Francisco Go made the first extra-judicial demand
on the petitioners on August 23, 1985; while it is
true that the first demand letter of August 1985
pertained to the insurance premium advanced by it
over the mortgaged property of petitioners, the same
however formed part of the latter's total loan
obligation with respondent under the mortgage
instrument and therefore constitutes a valid extra-
judicial demand made within the prescriptive
period.20
In their Reply, petitioners reiterate their earlier
arguments and add that it was respondent that
insured the mortgaged property thus it should not
pass the obligation to petitioners through the letter
dated August 1985.21
To resolve this petition, two questions need to be
answered: (1) Whether or not the period within
which the respondent bank was placed under
receivership and liquidation proceedings may be
considered a fortuitous event which interrupted the
running of the prescriptive period in bringing
actions; and (2) Whether or not the demand letter
sent by respondent bank's representative on August
23, 1985 is sufficient to interrupt the running of the
prescriptive period.
Anent the first issue, we answer in the negative.
One characteristic of a fortuitous event, in a legal
sense and consequently in relations to contract, is
that its occurrence must be such as to render it
impossible for a party to fulfill his obligation in a
normal manner.22
Respondent's claims that because of a fortuitous
event, it was not able to exercise its right to
foreclose the mortgage on petitioners' property; and
that since it was banned from pursuing its business
and was placed under receivership from April 25,
1985 until August 1992, it could not foreclose the
mortgage on petitioners' property within such period
since foreclosure is embraced in the phrase "doing
business," are without merit.
While it is true that foreclosure falls within the broad
definition of "doing business," that is:
'a continuity of commercial dealings and
arrangements and contemplates to that extent, the
performance of acts or words or the exercise of some
of the functions normally incident to and in
progressive prosecution of the purpose and object of
its organization.23
it should not be considered included, however, in the
acts prohibited whenever banks are "prohibited from
doing business" during receivership and liquidation
proceedings.
This we made clear in Banco Filipino Savings &
Mortgage Bank v. Monetary Board, Central Bank of
the Philippines24 where we explained that:
Section 29 of the Republic Act No. 265, as amended
known as the Central Bank Act, provides that when
a bank is forbidden to do business in the Philippines
and placed under receivership, the person
designated as receiver shall immediately take
charge of the bank's assets and liabilities, as
expeditiously as possible, collect and gather all the
assets and administer the same for the benefit of its
creditors, and represent the bank personally or
through counsel as he may retain in all actions or
proceedings for or against the institution, exercising
all the powers necessary for these purposes
including, but not limited to, bringing and
foreclosing mortgages in the name of the bank.25
This is consistent with the purpose of receivership
proceedings, i.e., to receive collectibles and preserve
the assets of the bank in substitution of its former
management, and prevent the dissipation of its assets
to the detriment of the creditors of the bank.
When a bank is declared insolvent and placed under
receivership, the Central Bank, through the
Monetary Board, determines whether to proceed
with the liquidation or reorganization of the
financially distressed bank. A receiver, who
concurrently represents the bank, then takes control
and possession of its assets for the benefit of the
bank's creditors. A liquidator meanwhile assumes
the role of the receiver upon the determination by
the Monetary Board that the bank can no longer
resume business. His task is to dispose of all the
assets of the bank and effect partial payments of the
bank's obligations in accordance with legal priority.
In both receivership and liquidation proceedings, the
bank retains its juridical personality notwithstanding
the closure of its business and may even be sued as
its corporate existence is assumed by the receiver or
liquidator. The receiver or liquidator meanwhile acts
not only for the benefit of the bank, but for its
creditors as well.
In Provident Savings Bank v. Court of Appeals,28 we
further stated that:
When a bank is prohibited from continuing to do
business by the Central Bank and a receiver is
appointed for such bank, that bank would not be able
to do new business, i.e., to grant new loans or to
accept new deposits. However, the receiver of the
bank is in fact obliged to collect debts owing to
the bank, which debts form part of the assets of
the bank. The receiver must assemble the assets and
pay the obligation of the bank under receivership,
and take steps to prevent dissipation of such assets.
Accordingly, the receiver of the bank is obliged to
collect pre-existing debts due to the bank, and in
connection therewith, to foreclose mortgages
securing such debts.29(Emphasis supplied.)
It is true that we also held in said case that the
period during which the bank was placed under
receivership was deemed fuerza mayor which
validly interrupted the prescriptive period.30 This
is being invoked by the respondent and was used as
basis by the trial court in its decision. Contrary to
the position of the respondent and court  a
quo  however, such ruling does not find application
in the case at bar.
A close scrutiny of the Provident  case, shows that
the Court arrived at said conclusion, which is an
exception to the general rule, due to the peculiar
circumstances of Provident Savings Bank at the
time. In said case, we stated that:
Having arrived at the conclusion that a
foreclosure is part of a bank's business
activity which could not have been pursued
by the receiver then because of the
circumstances discussed in the Central
Bank  case, we are thus convinced that the
prescriptive period was legally interrupted
by fuerza mayor in 1972 on account of the
prohibition imposed by the Monetary Board
against petitioner from transacting business,
until the directive of the Board was nullified
in 1981.31 (Emphasis supplied.)
Further examination of the Central Bank case
reveals that the circumstances of Provident Savings
Bank at the time were peculiar because after the
Monetary Board issued MB Resolution No. 1766 on
September 15, 1972, prohibiting it from doing
business in the Philippines, the bank's majority
stockholders immediately went to the Court of First
Instance of Manila, which prompted the trial court to
issue its judgment dated February 20, 1974,
declaring null and void the resolution and ordering
the Central Bank to desist from liquidating
Provident. The decision was appealed to and
affirmed by this Court in 1981. Thus, the
Superintendent of Banks, which was instructed to
take charge of the assets of the bank in the name of
the Monetary Board, had no power to act as a
receiver of the bank and carry out the obligations
specified in Sec. 29 of the Central Bank Act.32
In this case, it is not disputed that Philippine
Veterans Bank was placed under receivership by the
Monetary Board of the Central Bank by virtue of
Resolution No. 364 on April 25, 1985, pursuant to
Section 29 of the Central Bank Act on insolvency of
banks.33
Unlike Provident Savings Bank, there was no legal
prohibition imposed upon herein respondent to deter
its receiver and liquidator from performing their
obligations under the law. Thus, the ruling laid
down in the Provident case cannot apply in the case
at bar.
There is also no truth to respondent's claim that it
could not continue doing business from the period of
April 1985 to August 1992, the time it was under
receivership. As correctly pointed out by petitioner,
respondent was even able to send petitioners a
demand letter, through Francisco Go, on August 23,
1985 for "accounts receivable in the total amount
of P6,345.00 as of August 15, 1984" for the
insurance premiums advanced by respondent bank
over the mortgaged property of petitioners. How it
could send a demand letter on unpaid insurance
premiums and not foreclose the mortgage during the
time it was "prohibited from doing business" was not
adequately explained by respondent.
Settled is the principle that a bank is bound by the
acts, or failure to act of its receiver. 34 As we held
in Philippine Veterans Bank v. NLRC,35 a labor case
which also involved respondent bank,
'all the acts of the receiver and liquidator pertain to
petitioner, both having assumed petitioner's
corporate existence. Petitioner cannot disclaim
liability by arguing that the non-payment of
MOLINA's just wages was committed by the
liquidators during the liquidation period.36
However, the bank may go after the receiver who is
liable to it for any culpable or negligent failure to
collect the assets of such bank and to safeguard its
assets.37
Having reached the conclusion that the period within
which respondent bank was placed under
receivership and liquidation proceedings does not
constitute a fortuitous event which interrupted the
prescriptive period in bringing actions, we now turn
to the second issue on whether or not the extra-
judicial demand made by respondent bank, through
Francisco Go, on August 23, 1985 for the amount
of P6,345.00, which pertained to the insurance
premiums advanced by the bank over the mortgaged
property, constitutes a valid extra-judicial demand
which interrupted the running of the prescriptive
period. Again, we answer this question in the
negative.
Prescription of actions is interrupted when they are
filed before the court, when there is a written extra-
judicial demand by the creditors, and when there is
any written acknowledgment of the debt by the
debtor.38
Respondent's claim that while its first demand letter
dated August 23, 1985 pertained to the insurance
premium it advanced over the mortgaged property of
petitioners, the same formed part of the latter's total
loan obligation with respondent under the mortgage
instrument, and therefore, constitutes a valid extra-
judicial demand which interrupted the running of the
prescriptive period, is not plausible.
The real estate mortgage signed by the petitioners
expressly states that:
This mortgage is constituted by the Mortgagor to
secure the payment of the loan and/or credit
accommodation granted to the spouses Cesar A.
Larrobis, Jr. and Virginia S. Larrobis in the amount
of ONE HUNDRED THIRTY FIVE THOUSAND
(P135,000.00) PESOS ONLY Philippine Currency
in favor of the herein Mortgagee.39
The promissory note, executed by the petitioners,
also states that:
'FOR VALUE RECEIVED, I/WE, JOINTLY AND
SEVERALLY, PROMISE TO PAY THE
PHILIPPINE VETERANS BANK, OR ORDER, AT
ITS OFFICE AT CEBU CITY THE SUM OF ONE
HUNDRED THIRTY FIVE THOUSAND PESOS
(P135,000.00), PHILIPPINE CURRENCY WITH
INTEREST AT THE RATE OF FOURTEEN PER
CENT (14%) PER ANNUM FROM THIS DATE
UNTIL FULLY PAID.40
Considering that the mortgage contract and the
promissory note refer only to the loan of petitioners
in the amount of P135,000.00, we have no reason to
hold that the insurance premiums, in the amount
of P6,345.00, which was the subject of the August
1985 demand letter, should be considered as
pertaining to the entire obligation of petitioners.
In Quirino Gonzales Logging Concessionaire v.
Court of Appeals,41 we held that the notices of
foreclosure sent by the mortgagee to the mortgagor
cannot be considered tantamount to written
extrajudicial demands, which may validly interrupt
the running of the prescriptive period, where it does
not appear from the records that the notes are
covered by the mortgage contract.42
In this case, it is clear that the advanced payment of
the insurance premiums is not part of the mortgage
contract and the promissory note signed by
petitioners. They pertain only to the amount
of P135,000.00 which is the principal loan of
petitioners plus interest. The arguments of
respondent bank on this point must therefore fail.
As to petitioners' claim for damages, however, we
find no sufficient basis to award the same. For moral
damages to be awarded, the claimant must
satisfactorily prove the existence of the factual basis
of the damage and its causal relation to defendant's
acts.43 Exemplary damages meanwhile, which are
imposed as a deterrent against or as a negative
incentive to curb socially deleterious actions, may be
awarded only after the claimant has proven that he is
entitled to moral, temperate or compensatory
damages.44 Finally, as to attorney's fees, it is
demanded that there be factual, legal and equitable
justification for its award.45 Since the bases for these
claims were not adequately proven by the
petitioners, we find no reason to grant the same.
WHEREFORE, the decision of the Regional Trial
Court, Cebu City, Branch 24, dated April 17, 1998,
and the order denying petitioners' motion for
reconsideration dated August 25, 1998 are
hereby REVERSED and SET ASIDE. The extra-
judicial foreclosure of the real estate mortgage on
October 18, 1995, is hereby declared null and void
and respondent is ordered to return to petitioners
their owner's duplicate certificate of title.
Costs against respondent.
SO ORDERED.
G.R. No. 73884 September 24, 1987
SPOUSES ROMEO LIPANA and MILAGROS
LIPANA, petitioners,
vs.
DEVELOPMENT BANK OF RIZAL, respondent.
PARAS, J.:
This is a petition for review on certiorari of the
August 30, 1985 Order of the Regional Trial Court
of Pasig denying petitioners' Motion to Lift Stay of
Execution in Civil Case No. 50802.
During the period from 1982 to January, 1984,
herein petitioners opened and maintained both time
and savings deposits with the herein respondent
Development Bank of Rizal all in the aggregate
amount of P939,737.32. When some of the Time
Deposit Certificates matured, petitioners were not
able to cash them but instead were issued a
manager's check which was dishonored upon
presentment. Demands for the payment of both time
and savings deposits having failed, on March 14,
1984, petitioners filed with the Regional Trial Court
of Pasig a Complaint With Prayer For Issuance of a
Writ of Preliminary Attachment for collection of a
sum of money with damages, docketed therein as
Civil Case No. 50802 (Record, pp. 3-11).
Respondent Judge, in an Order dated March 19,
1984 (Ibid., p. 19-21), ordered the issuance of a writ
of attachment, and pursuant thereto, a writ of
attachment dated March 20, 1984 was issued in
favor of the petitioners (Ibid., p. 33).
On June 27, 1984, respondent bank filed its Answer
(Ibid., p. 58-61).
On July 23, 1984, petitioners filed a Motion For
Judgment on the Pleadings (Ibid., pp. 68-73),
opposed by respondent bank (Ibid., pp. 74-76), but
respondent judge, in a Decision dated November 13,
1984, rendered judgment in favor of petitioners.
The dispositive portion of the said Decision, reads:
IN VIEW OF ALL THE FOREGOING, the
Court renders judgment in favor of the
plaintiffs, ordering the defendant to pay the
total sum of P939,737.32 plus stipulated
interest; the sum equivalent to 15% of the
amount due as attorney's fees; and costs of
suit.
The counterclaim is dismissed, for lack of
merit.
Meanwhile, on August 10, 1984, the Monetary
Board, in its Resolution No. 1009, finding that the
condition of respondent bank was one of insolvency
and that its continuance in business would result in
probable loss to its depositors and creditors, decided
to place it under receivership (Rollo, p. 84).
On December 7, 1984, petitioners filed a Motion for
Execution Pending Appeal (Rcd., pp. 91-93),
which was opposed by respondent bank (Ibid., p. 94-
96). On December 27, 1984, petitioners filed their
Reply to the opposition (Ibid., pp. 98-101), to which
respondent bank filed its Rejoinder on January 1,
1985 (Ibid., pp. 102-105).
In an order dated January 29, 1985, respondent
judge ordered the issuance of a writ of execution
(Ibid., p. 106).
On February 11, 1985, respondent bank filed a
Motion for Reconsideration of order dated January
29, 1985 and to Stay Writ of Execution (Ibid., pp.
109-110), opposed by petitioners (Ibid., p. 111) but
in an Order dated March 6, 1985, respondent judge
stayed the execution (Ibid., p. 113).
On August 7, 1985, petitioners filed a Motion to
Lift Stay of Execution (Ibid., pp. 119-122),
opposed by respondent bank (Ibid., pp. 123-127),
and in an Order dated August 30, 1985, respondent
judge denied the said motion (Ibid., p. 130). Hence,
the instant petition (Rollo, pp. 8-17).
The Second Division of the Court, in a resolution
dated May 5, 1986, resolved to require the
respondent to comment (Ibid., p. 52). In compliance
therewith, respondent bank filed its Comment on
June 9, 1986 (Ibid., pp. 53-58).
The petition was given due course in a resolution
dated August 11, 1986, and the parties were required
to file their respective memoranda (Ibid., p. 61). In
compliance therewith, petitioners filed their
Memorandum on September 19, 1986 (Ibid., p. 63-
75), while respondent bank filed its Memorandum
on September 25, 1986 (Ibid., pp. 76-83), and the
case was considered submitted for deliberation in the
Resolution dated October 8, 1986 (Ibid., p. 88)
Petitioners raised the following issues:
1. Respondent judge cannot legally stay execution of
judgement that has already become final and
executory;
2. The placing under receivership by the Central
Bank of the respondent bank, long after the
complaint was filed removed it from the application
of the doctrine in Re: Central Bank vs. Morfe (63
SCRA 113);
3. The filing of the complaint for a sum of money
With damages against respondent bank and the
subsequent attachment of its property in Pasig,
Metro Manila long before the receivership took
place render inapplicable the doctrine laid down by
this Honorable Supreme Court in the said Morfe
case;
4. The indefinite stay of execution without a ruling
as to how long it will last, amounts to deprivation of
petitioners of their property without due process of
law.
The instant petition is without merit.
I.
The main issue in this case is whether or not
respondent judge could legally stay execution of
judgment that has already become final and
executory.
The answer is in the affirmative.
The rule that once a decision becomes final and
executory, it is the ministerial duty of the court to
order its execution, admits of certain exceptions as
in cases of special and exceptional nature where it
becomes imperative in the higher interest of justice
to direct the suspension of its execution (Vecine vs.
Geronimo, 59 O.G. 579); whenever it is necessary to
accomplish the aims of justice (Pascual vs. Tan, 85
Phil. 164); or when certain facts and circumstances
transpired after the judgment became final which
could render the execution of the judgment unjust
(Cabrias vs. Adil, 135 SCRA 354).
In the instant case, the stay of the execution of
judgment is warranted by the fact that respondent
bank was placed under receivership. To execute the
judgment would unduly deplete the assets of
respondent bank to the obvious prejudice of other
depositors and creditors, since, as aptly stated
in Central Bank of the Philippines vs. Morfe (63
SCRA 114), after the Monetary Board has declared
that a bank is insolvent and has ordered it to cease
operations, the Board becomes the trustee of its
assets for the equal benefit of all the creditors,
including depositors. The assets of the insolvent
banking institution are held in trust for the equal
benefit of all creditors, and after its insolvency, one
cannot obtain an advantage or a preference over
another by an attachment, execution or otherwise.
Moreover, it will be noted that respondent bank was
placed under receivership on August 10, 1984, and
the Decision of respondent judge is dated November
13, 1984. Accordingly, in line with the ruling in the
aforesaid Morfe case, which reads:
The circumstance that the Fidelity Savings Bank,
having stopped operations since February 19, 1969,
was forbidden to do business (and that ban would
include the payment of time deposits) implies that
suits for the payment of such deposits were
prohibited. What was directly prohibited should not
be encompassed indirectly. ...
petitioners 'complaint should have been dismissed.
II.
It is the contention of petitioners, however, that the the writ of execution will be lifted after approval by
placing under receivership of respondent bank long the liquidation court of the project of distribution,
after the filing of the complaint removed it from the and the liquidator or his deputy will authorize
doctrine in the said Morfe case. payments to all claimants concerned in accordance
with the approved project of distribution.
This contention is untenable. The time of the filing
of the complaint is immaterial. It is the execution PREMISES CONSIDERED, the instant petition is
that win obviously prejudice the other depositors and hereby DISMISSED.
creditors. Moreover, as stated in the said Morfe case,
SO ORDERED.
the effect of the judgment is only to fix the amount
of the debt, and not give priority over other
depositors and creditors.
III.
Anent the contention of petitioners that the
attachment of one of the properties of respondent
bank was erased by virtue of the delayed
receivership is to expand the power of the Central
Bank, Suffice it to say that in the case of Central
Bank of the Philippines, et al. vs. Court of Appeals,
et al. (Resolution of this Court dated September 17,
1984 in G.R. No. 33302), wherein the original
plaintiff Algue Inc. was able to obtain a writ of
preliminary attachment against the original
defendant Island Savings Bank, this Court refused to
recognize any preference resulting from such
attachment and ruled that after a declaration of
insolvency, the remedy of the depositors is to
intervene in the liquidation proceedings.
IV.
It is also contended by the petitioners that the
indefinite stay of execution without ruling as to how
long it will last, amounts to a deprivation of their
property without due process of law.
Said contention, likewise, is devoid of merit. Apart
from the fact that the stay of execution is not only in
accordance with law but is also supported by
jurisprudence, such staying of execution is not
without a time limit. In fact, the Monetary Board, in
its resolution No. 4-33 approved the liquidation of
respondent bank on April 26, 1985 and ordered,
among others, the filing of a petition in the Regional
Trial Court praying for assistance of said court in the
liquidation of the bank. (Rollo, p. 81). The staying of
 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 . . . . . . . P7,390.1
.... 1
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 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), 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. . . .
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.
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;
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
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.
G.R. Nos. 173654-765             August 28, 2008
PEOPLE OF THE PHILIPPINES, petitioner,
vs.
TERESITA PUIG and ROMEO
PORRAS, respondents.
DECISION
CHICO-NAZARIO, J.:
This is a Petition for Review under Rule 45 of the
Revised Rules of Court with petitioner People of the
Philippines, represented by the Office of the
Solicitor General, praying for the reversal of the
Orders dated 30 January 2006 and 9 June 2006 of
the Regional Trial Court (RTC) of the 6th Judicial
Region, Branch 68, Dumangas, Iloilo, dismissing the
112 cases of Qualified Theft filed against
respondents Teresita Puig and Romeo Porras, and
denying petitioner’s Motion for Reconsideration, in
Criminal Cases No. 05-3054 to 05-3165.
The following are the factual antecedents:
On 7 November 2005, the Iloilo Provincial
Prosecutor’s Office filed before Branch 68 of the
RTC in Dumangas, Iloilo, 112 cases of Qualified
Theft against respondents Teresita Puig (Puig) and
Romeo Porras (Porras) who were the Cashier and
Bookkeeper, respectively, of private complainant
Rural Bank of Pototan, Inc. The cases were
docketed as Criminal Cases No. 05-3054 to 05-3165.
The allegations in the Informations1 filed before the
RTC were uniform and pro-forma, except for the
amounts, date and time of commission, to wit:
INFORMATION
That on or about the 1st day of August, 2002, in the
Municipality of Pototan, Province of Iloilo,
Philippines, and within the jurisdiction of this
Honorable Court, above-named [respondents],
conspiring, confederating, and helping one
another, with grave abuse of confidence, being
the Cashier and Bookkeeper of the Rural Bank of
Pototan, Inc., Pototan, Iloilo, without the knowledge
and/or consent of the management of the Bank and
with intent of gain, did then and there willfully,
unlawfully and feloniously take, steal and carry
away the sum of FIFTEEN THOUSAND PESOS
(P15,000.00), Philippine Currency, to the damage
and prejudice of the said bank in the aforesaid
amount.
After perusing the Informations in these cases, the
trial court did not find the existence of probable
cause that would have necessitated the issuance of a
warrant of arrest based on the following grounds:
(1) the element of ‘taking without the
consent of the owners’ was missing on the
ground that it is the depositors-clients, and
not the Bank, which filed the complaint in
these cases, who are the owners of the money
allegedly taken by respondents and hence,
are the real parties-in-interest; and
(2) the Informations are bereft of the phrase
alleging "dependence, guardianship or
vigilance between the respondents and the
offended party that would have created a
high degree of confidence between them
which the respondents could have abused."
It added that allowing the 112 cases for Qualified
Theft filed against the respondents to push through
would be violative of the right of the respondents
under Section 14(2), Article III of the 1987
Constitution which states that in all criminal
prosecutions, the accused shall enjoy the right to be
informed of the nature and cause of the accusation
against him. Following Section 6, Rule 112 of the
Revised Rules of Criminal Procedure, the RTC
dismissed the cases on 30 January 2006 and refused
to issue a warrant of arrest against Puig and Porras.
A Motion for Reconsideration2 was filed on 17 April
2006, by the petitioner.
On 9 June 2006, an Order3 denying petitioner’s
Motion for Reconsideration was issued by the RTC,
finding as follows:
Accordingly, the prosecution’s Motion for
Reconsideration should be, as it hereby, DENIED.
The Order dated January 30, 2006 STANDS in all
respects.
Petitioner went directly to this Court via Petition for
Review on Certiorari under Rule 45, raising the sole
legal issue of:
WHETHER OR NOT THE 112 INFORMATIONS
FOR QUALIFIED THEFT SUFFICIENTLY
ALLEGE THE ELEMENT OF TAKING
WITHOUT THE CONSENT OF THE OWNER,
AND THE QUALIFYING CIRCUMSTANCE OF
GRAVE ABUSE OF CONFIDENCE.
Petitioner prays that judgment be rendered annulling
and setting aside the Orders dated 30 January 2006
and 9 June 2006 issued by the trial court, and that it
be directed to proceed with Criminal Cases No. 05-
3054 to 05-3165.
Petitioner explains that under Article 1980 of the
New Civil Code, "fixed, savings, and current
deposits of money in banks and similar institutions
shall be governed by the provisions concerning
simple loans." Corollary thereto, Article 1953 of the
same Code provides that "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." Thus, it posits that the depositors who place
their money with the bank are considered creditors
of the bank. The bank acquires ownership of the
money deposited by its clients, making the money
taken by respondents as belonging to the bank.
Petitioner also insists that the Informations
sufficiently allege all the elements of the crime of
qualified theft, citing that a perusal of the
Informations will show that they specifically allege
that the respondents were the Cashier and
Bookkeeper of the Rural Bank of Pototan, Inc.,
respectively, and that they took various amounts of
money with grave abuse of confidence, and without
the knowledge and consent of the bank, to the
damage and prejudice of the bank.
Parenthetically, respondents raise procedural issues.
They challenge the petition on the ground that a
Petition for Review on Certiorari via Rule 45 is the
wrong mode of appeal because a finding of probable
cause for the issuance of a warrant of arrest
presupposes evaluation of facts and circumstances,
which is not proper under said Rule.
Respondents further claim that the Department of
Justice (DOJ), through the Secretary of Justice, is
the principal party to file a Petition for Review on
Certiorari, considering that the incident was indorsed
by the DOJ.
We find merit in the petition.
The dismissal by the RTC of the criminal cases was
allegedly due to insufficiency of the Informations
and, therefore, because of this defect, there is no
basis for the existence of probable cause which will
justify the issuance of the warrant of arrest.
Petitioner assails the dismissal contending that the
Informations for Qualified Theft sufficiently state
facts which constitute (a) the qualifying
circumstance of grave abuse of confidence; and (b)
the element of taking, with intent to gain and without
the consent of the owner, which is the Bank.
In determining the existence of probable cause to
issue a warrant of arrest, the RTC judge found the
allegations in the Information inadequate. He ruled
that the Information failed to state facts constituting
the qualifying circumstance of grave abuse of
confidence and the element of taking without the
consent of the owner, since the owner of the money
is not the Bank, but the depositors therein. He also
cites People v. Koc Song,4 in which this Court held:
There must be allegation in the information and
proof of a relation, by reason of dependence,
guardianship or vigilance, between the respondents
and the offended party that has created a high degree
of confidence between them, which the respondents
abused.
At this point, it needs stressing that the RTC Judge
based his conclusion that there was no probable
cause simply on the insufficiency of the allegations
in the Informations concerning the facts constitutive
of the elements of the offense charged. This,
therefore, makes the issue of sufficiency of the
allegations in the Informations the focal point of
discussion.
Qualified Theft, as defined and punished under
Article 310 of the Revised Penal Code, is committed
as follows, viz:
ART. 310. Qualified Theft. – The crime of theft shall
be punished by the penalties next higher by two
degrees than those respectively specified in the next
preceding article, if committed by a domestic
servant, or with grave abuse of confidence, or if the
property stolen is motor vehicle, mail matter or large
cattle or consists of coconuts taken from the
premises of a plantation, fish taken from a fishpond
or fishery or if property is taken on the occasion of
fire, earthquake, typhoon, volcanic eruption, or any
other calamity, vehicular accident or civil
disturbance. (Emphasis supplied.)
Theft, as defined in Article 308 of the Revised Penal
Code, requires the physical taking of another’s
property without violence or intimidation against
persons or force upon things. The elements of the
crime under this Article are:
1. Intent to gain;
2. Unlawful taking;
3. Personal property belonging to another;
4. Absence of violence or intimidation against
persons or force upon things.
To fall under the crime of Qualified Theft, the
following elements must concur:
1. Taking of personal property;
2. That the said property belongs to another;
3. That the said taking be done with intent to gain;
4. That it be done without the owner’s consent;
5. That it be accomplished without the use of
violence or intimidation against persons, nor of force
upon things;
6. That it be done with grave abuse of confidence.
On the sufficiency of the Information, Section 6,
Rule 110 of the Rules of Court requires, inter alia,
that the information must state the acts or omissions
complained of as constitutive of the offense.
On the manner of how the Information should be
worded, Section 9, Rule 110 of the Rules of Court, is
enlightening:
Section 9. Cause of the accusation. The acts or
omissions complained of as constituting the offense
and the qualifying and aggravating circumstances
must be stated in ordinary and concise language and
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 as well as its qualifying and aggravating
circumstances and for the court to pronounce
judgment.
It is evident that the Information need not use the
exact language of the statute in alleging the acts or
omissions complained of as constituting the offense.
The test is whether it enables a person of common
understanding to know the charge against him, and
the court to render judgment properly.
The portion of the Information relevant to this
discussion reads:
A]bove-named [respondents], conspiring,
confederating, and helping one another, with
grave abuse of confidence, being the
Cashier and Bookkeeper of the Rural Bank
of Pototan, Inc., Pototan, Iloilo, without the
knowledge and/or consent of the
management of the Bank x x x.
It is beyond doubt that tellers, Cashiers,
Bookkeepers and other employees of a Bank who
come into possession of the monies deposited
therein enjoy the confidence reposed in them by
their employer. Banks, on the other hand, where
monies are deposited, are considered the owners
thereof. This is very clear not only from the express
provisions of the law, but from established
jurisprudence. The relationship between banks and
depositors has been held to be that of creditor and
debtor. Articles 1953 and 1980 of the New Civil
Code, as appropriately pointed out by petitioner,
provide as follows:
Article 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.
Article 1980. Fixed, savings, and current deposits of
money in banks and similar institutions shall be
governed by the provisions concerning loan.
In a long line of cases involving Qualified Theft, this
Court has firmly established the nature of
possession by the Bank of the money deposits
therein, and the duties being performed by its
employees who have custody of the money or have
come into possession of it. The Court has
consistently considered the allegations in the
Information that such employees acted with grave
abuse of confidence, to the damage and prejudice of
the Bank, without particularly referring to it as
owner of the money deposits, as sufficient to make
out a case of Qualified Theft. For a graphic
illustration, we cite Roque v. People,6 where the
accused teller was convicted for Qualified Theft
based on this Information:
That on or about the 16th day of November, 1989, in
the municipality of Floridablanca, province of
Pampanga, Philippines and within the jurisdiction of
his Honorable Court, the above-named accused
ASUNCION GALANG ROQUE, being then
employed as teller of the Basa Air Base Savings and
Loan Association Inc. (BABSLA) with office address
at Basa Air Base, Floridablanca, Pampanga, and as
such was authorized and reposed with the
responsibility to receive and collect capital
contributions from its member/contributors of said
corporation, and having collected and received in her
capacity as teller of the BABSLA the sum of TEN
THOUSAND PESOS (P10,000.00), said accused,
with intent of gain, with grave abuse of confidence
and without the knowledge and consent of said
corporation, did then and there willfully, unlawfully
and feloniously take, steal and carry away the amount
of P10,000.00, Philippine currency, by making it
appear that a certain depositor by the name of Antonio
Salazar withdrew from his Savings Account No. 1359,
when in truth and in fact said Antonio Salazar did not
withdr[a]w the said amount of P10,000.00 to the
damage and prejudice of BABSLA in the total amount
of P10,000.00, Philippine currency.
In convicting the therein appellant, the Court held
that:
[S]ince the teller occupies a position of
confidence, and the bank places money in the
teller’s possession due to the confidence
reposed on the teller, the felony of qualified
theft would be committed.7
Also in People v. Sison,8 the Branch Operations
Officer was convicted of the crime of Qualified
Theft based on the Information as herein cited:
That in or about and during the period compressed
between January 24, 1992 and February 13, 1992,
both dates inclusive, in the City of Manila,
Philippines, the said accused did then and there
wilfully, unlawfully and feloniously, with intent of
gain and without the knowledge and consent of the
owner thereof, take, steal and carry away the
following, to wit:
Cash money amounting to P6,000,000.00 in different
denominations belonging to the PHILIPPINE
COMMERCIAL INTERNATIONAL BANK
(PCIBank for brevity), Luneta Branch, Manila
represented by its Branch Manager, HELEN U.
FARGAS, to the damage and prejudice of the said
owner in the aforesaid amount of P6,000,000.00,
Philippine Currency.
That in the commission of the said offense, herein
accused acted with grave abuse of confidence and
unfaithfulness, he being the Branch Operation
Officer of the said complainant and as such he had
free access to the place where the said amount of
money was kept.
The judgment of conviction elaborated thus:
The crime perpetuated by appellant against his
employer, the Philippine Commercial and Industrial
Bank (PCIB), is Qualified Theft. Appellant could not
have committed the crime had he not been holding the
position of Luneta Branch Operation Officer which
gave him not only sole access to the bank vault xxx.
The management of the PCIB reposed its trust and
confidence in the appellant as its Luneta Branch
Operation Officer, and it was this trust and confidence
which he exploited to enrich himself to the damage
and prejudice of PCIB x x x.9
From another end, People v. Locson,10 in addition
to People v. Sison, described the nature of
possession by the Bank. The money in this case was
in the possession of the defendant as receiving teller
of the bank, and the possession of the defendant was
the possession of the Bank. The Court held therein
that when the defendant, with grave abuse of
confidence, removed the money and appropriated it
to his own use without the consent of the Bank, there
was taking as contemplated in the crime of Qualified
Theft.11
Conspicuously, in all of the foregoing cases, where
the Informations merely alleged the positions of the
respondents; that the crime was committed with
grave abuse of confidence, with intent to gain and
without the knowledge and consent of the Bank,
without necessarily stating the phrase being
assiduously insisted upon by respondents, "of a
relation by reason of dependence, guardianship or
vigilance, between the respondents and the
offended party that has created a high degree of
confidence between them, which respondents
abused,"12 and without employing the word "owner"
in lieu of the "Bank" were considered to have
satisfied the test of sufficiency of allegations.
As regards the respondents who were employed as
Cashier and Bookkeeper of the Bank in this case,
there is even no reason to quibble on the allegation
in the Informations that they acted with grave abuse
of confidence. In fact, the Information which alleged
grave abuse of confidence by accused herein is even
more precise, as this is exactly the requirement of
the law in qualifying the crime of Theft.
In summary, the Bank acquires ownership of the
money deposited by its clients; and the employees of
the Bank, who are entrusted with the possession of
money of the Bank due to the confidence reposed in
them, occupy positions of confidence. The
Informations, therefore, sufficiently allege all the
essential elements constituting the crime of
Qualified Theft.
On the theory of the defense that the DOJ is the
principal party who may file the instant petition, the
ruling in Mobilia Products, Inc. v. Hajime
Umezawa13 is instructive. The Court thus the case upon a showing that there is a prima
enunciated: facie case against the respondents.
In a criminal case in which the offended party is the WHEREFORE, premises considered, the Petition
State, the interest of the private complainant or the for Review on Certiorari is hereby GRANTED.
offended party is limited to the civil liability arising The Orders dated 30 January 2006 and 9 June 2006
therefrom. Hence, if a criminal case is dismissed by of the RTC dismissing Criminal Cases No. 05-3054
the trial court or if there is an acquittal, a to 05-3165 are REVERSED and SET ASIDE. Let
reconsideration of the order of dismissal or acquittal the corresponding Warrants of Arrest issue against
may be undertaken, whenever legally feasible, herein respondents TERESITA PUIG and ROMEO
insofar as the criminal aspect thereof is concerned PORRAS. The RTC Judge of Branch 68, in
and may be made only by the public prosecutor; or Dumangas, Iloilo, is directed to proceed with the
in the case of an appeal, by the State only, through trial of Criminal Cases No. 05-3054 to 05-3165,
the OSG. x x x. inclusive, with reasonable dispatch. No
pronouncement as to costs.
On the alleged wrong mode of appeal by petitioner,
suffice it to state that the rule is well-settled that in SO ORDERED.
appeals by certiorari under Rule 45 of the Rules of
Court, only errors of law may be raised,14 and herein
petitioner certainly raised a question of law.
As an aside, even if we go beyond the allegations of
the Informations in these cases, a closer look at the
records of the preliminary investigation conducted
will show that, indeed, probable cause exists for the
indictment of herein respondents. Pursuant to
Section 6, Rule 112 of the Rules of Court, the judge
shall issue a warrant of arrest only upon a finding of
probable cause after personally evaluating the
resolution of the prosecutor and its supporting
evidence. Soliven v. Makasiar,15 as reiterated
in Allado v. Driokno,16 explained that probable
cause for the issuance of a warrant of arrest is the
existence of such facts and circumstances that would
lead a reasonably discreet and prudent person to
believe that an offense has been committed by the
person sought to be arrested.17 The records
reasonably indicate that the respondents may have,
indeed, committed the offense charged.
Before closing, let it be stated that while it is truly
imperative upon the fiscal or the judge, as the case
may be, to relieve the respondents from the pain of
going through a trial once it is ascertained that no
probable cause exists to form a sufficient belief as to
the guilt of the respondents, conversely, it is also
equally imperative upon the judge to proceed with
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.:
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:
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 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
NSLA 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 [NSLA] 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).
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:
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 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 same
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 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 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. 97626 March 14, 1997
PHILIPPINE BANK OF COMMERCE, now
absorbed by PHILIPPINE COMMERCIAL
INTERNATIONAL BANK, ROGELIO
LACSON, DIGNA DE LEON, MARIA
ANGELITA PASCUAL, et al., petitioners,
vs.
THE COURT OF APPEALS, ROMMEL'S
MARKETING CORP., represented by ROMEO
LIPANA, its President & General
Manager, respondents.
HERMOSISIMA, JR., J.:
Challenged in this petition for review is the Decision
dated February 28, 19911 rendered by public
respondent Court of Appeals which affirmed the
Decision dated November 15, 1985 of the Regional
Trial Court, National Capital Judicial Region,
Branch CLX (160), Pasig City, in Civil Case No.
27288 entitled "Rommel's Marketing Corporation,
etc. v. Philippine Bank of Commerce, now absorbed
by Philippine Commercial and Industrial Bank."
The case stemmed from a complaint filed by the
private respondent Rommel's Marketing
Corporation (RMC for brevity), represented by its
President and General Manager Romeo Lipana, to
recover from the former Philippine Bank of
Commerce (PBC for brevity), now absorbed by the
Philippine Commercial International Bank, the
sum of P304,979.74 representing various deposits it
had made in its current account with said bank but
which were not credited to its account, and were
instead deposited to the account of one Bienvenido
Cotas, allegedly due to the gross and inexcusable
negligence of the petitioner bank.
RMC maintained two (2) separate current accounts,
Current Account Nos. 53-01980-3 and 53-01748-7,
with the Pasig Branch of PBC in connection with its
business of selling appliances.
In the ordinary and usual course of banking
operations, current account deposits are accepted by
the bank on the basis of deposit slips prepared and
signed by the depositor, or the latter's agent or
representative, who indicates therein the current
account number to which the deposit is to be
credited, the name of the depositor or current
account holder, the date of the deposit, and the
amount of the deposit either in cash or checks. The
deposit slip has an upper portion or stub, which is
detached and given to the depositor or his agent; the
lower portion is retained by the bank. In some
instances, however, the deposit slips are prepared in
duplicate by the depositor. The original of the
deposit slip is retained by the bank, while the
duplicate copy is returned or given to the depositor.
From May 5, 1975 to July 16, 1976, petitioner
Romeo Lipana claims to have entrusted RMC funds
in the form of cash totalling P304,979.74 to his
secretary, Irene Yabut, for the purpose of
depositing said funds in the current accounts of
RMC with PBC. It turned out, however, that these
deposits, on all occasions, were not credited to
RMC's account but were instead deposited to
Account No. 53-01734-7 of Yabut's husband,
Bienvenido Cotas who likewise maintains an
account with the same bank. During this period,
petitioner bank had, however, been regularly
furnishing private respondent with monthly
statements showing its current accounts balances.
Unfortunately, it had never been the practice of
Romeo Lipana to check these monthly statements of
account reposing complete trust and confidence on
petitioner bank.
Irene Yabut's modus operandi is far from
complicated. She would accomplish two (2) copies
of the deposit slip, an original and a duplicate. The
original showed the name of her husband as
depositor and his current account number. On the
duplicate copy was written the account number of
her husband but the name of the account holder was
left blank. PBC's teller, Azucena Mabayad, would,
however, validate and stamp both the original and
the duplicate of these deposit slips retaining only the
original copy despite the lack of information on the
duplicate slip. The second copy was kept by Irene
Yabut allegedly for record purposes. After
validation, Yabut would then fill up the name of
RMC in the space left blank in the duplicate copy
and change the account number written thereon,
which is that of her husband's, and make it appear to
be RMC's account number, i.e., C.A. No. 53-01980-
3. With the daily remittance records also prepared by
Ms. Yabut and submitted to private respondent
RMC together with the validated duplicate slips with
the latter's name and account number, she made her
company believe that all the while the amounts she
deposited were being credited to its account when, in
truth and in fact, they were being deposited by her
and credited by the petitioner bank in the account of
Cotas. This went on in a span of more than one (1)
year without private respondent's knowledge.
Upon discovery of the loss of its funds, RMC
demanded from petitioner bank the return of its
money, but as its demand went unheeded, it filed a
collection suit before the Regional Trial Court of
Pasig, Branch 160. The trial court found petitioner
bank negligent and ruled as follows:
WHEREFORE, judgment is hereby rendered
sentencing defendant Philippine Bank of
Commerce, now absorbed by defendant
Philippine Commercial & Industrial Bank,
and defendant Azucena Mabayad to pay the
plaintiff, jointly and severally, and without
prejudice to any criminal action which may
be instituted if found warranted:
1. The sum of P304,979.72, representing
plaintiffs lost deposit, plus interest thereon at
the legal rate from the filing of the
complaint;
2. A sum equivalent to 14% thereof, as
exemplary damages;
3. A sum equivalent to 25% of the total
amount due, as and for attorney's fees; and
4. Costs.
Defendants' counterclaim is hereby
dismissed for lack of merit.2
On appeal, the appellate court affirmed the
foregoing decision with modifications, viz:
WHEREFORE, the decision appealed from herein is
MODIFIED in the sense that the awards of
exemplary damages and attorney's fees specified
therein are eliminated and instead, appellants are
ordered to pay plaintiff, in addition to the principal
sum of P304,979.74 representing plaintiff's lost
deposit plus legal interest thereon from the filing of
the complaint, P25,000.00 attorney's fees and costs
in the lower court as well as in this Court.3
Hence, this petition anchored on the following
grounds:
1) The proximate cause of the loss is the negligence
of respondent Rommel Marketing Corporation and
Romeo Lipana in entrusting cash to a dishonest
employee.
2) The failure of respondent Rommel Marketing
Corporation to cross-check the bank's statements of
account with its own records during the entire period
of more than one (1) year is the proximate cause of
the commission of subsequent frauds and
misappropriation committed by Ms. Irene Yabut.
3) The duplicate copies of the deposit slips presented
by respondent Rommel Marketing Corporation are
falsified and are not proof that the amounts
appearing thereon were deposited to respondent
Rommel Marketing Corporation's account with the
bank,
4) The duplicate copies of the deposit slips were
used by Ms. Irene Yabut to cover up her fraudulent
acts against respondent Rommel Marketing
Corporation, and not as records of deposits she made
with the bank.4
The petition has no merit.
Simply put, the main issue posited before us is:
What is the proximate cause of the loss, to the tune
of P304,979.74, suffered by the private respondent
RMC — petitioner bank's negligence or that of
private respondent's?
Petitioners submit that the proximate cause of the
loss is the negligence of respondent RMC and
Romeo Lipana in entrusting cash to a dishonest
employee in the person of Ms. Irene
Yabut.5 According to them, it was impossible for the
bank to know that the money deposited by Ms. Irene
Yabut belong to RMC; neither was the bank
forewarned by RMC that Yabut will be depositing
cash to its account. Thus, it was impossible for the
bank to know the fraudulent design of Yabut
considering that her husband, Bienvenido Cotas,
also maintained an account with the bank. For the
bank to inquire into the ownership of the cash
deposited by Ms. Irene Yabut would be irregular.
Otherwise stated, it was RMC's negligence in
entrusting cash to a dishonest employee which
provided Ms. Irene Yabut the opportunity to defraud
RMC.6
Private respondent, on the other hand, maintains that
the proximate cause of the loss was the negligent act
of the bank, thru its teller Ms. Azucena Mabayad, in
validating the deposit slips, both original and
duplicate, presented by Ms. Yabut to Ms. Mabayad,
notwithstanding the fact that one of the deposit slips
was not completely accomplished.
We sustain the private respondent.
Our law on quasi-delicts states:
Art. 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.
There are three elements of a quasi-delict: (a)
damages suffered by the plaintiff; (b) fault or
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 damages
incurred by the plaintiff.7
In the case at bench, there is no dispute as to the
damage suffered by the private respondent (plaintiff
in the trial court) RMC in the amount of
P304,979.74. It is in ascribing fault or negligence
which caused the damage where the parties point to
each other as the culprit.
Negligence is the omission to do something which a
reasonable man, guided by those considerations
which ordinarily regulate the conduct of human
affairs, would do, or the doing of something which a
prudent and reasonable man would do. The seventy-
eight (78)-year-old, yet still relevant, case of Picart
v. Smith,8 provides the test by which to determine the
existence of negligence in a particular case which
may be stated as follows: Did the defendant in doing
the alleged negligent act use that reasonable care and
caution which an ordinarily prudent person would
have used in the same situation? If not, then he is
guilty of negligence. The law here in effect adopts
the standard supposed to be supplied by the
imaginary conduct of the discreet paterfamilias of
the Roman law. The existence of negligence in a
given case is not determined by reference to the
personal judgment of the actor in the situation before
him. The law considers what would be reckless,
blameworthy, or negligent in the man of ordinary
intelligence and prudence and determines liability by
that.
Applying the above test, it appears that the bank's
teller, Ms. Azucena Mabayad, was negligent in
validating, officially stamping and signing all the
deposit slips prepared and presented by Ms. Yabut,
despite the glaring fact that the duplicate copy was
not completely accomplished contrary to the self-
imposed procedure of the bank with respect to the
proper validation of deposit slips, original or
duplicate, as testified to by Ms. Mabayad herself,
thus:
Q: Now, as teller of PCIB, Pasig Branch, will
you please tell us Mrs. Mabayad your
important duties and functions?
A: I accept current and savings deposits from
depositors and encashments.
Q: Now in the handling of current account
deposits of bank clients, could you tell us the
procedure you follow?
A: The client or depositor or the authorized
representative prepares a deposit slip by
filling up the deposit slip with the name, the
account number, the date, the cash
breakdown, if it is deposited for cash, and
the check number, the amount and then he
signs the deposit slip.
Q: Now, how many deposit slips do you
normally require in accomplishing current
account deposit, Mrs. Mabayad?
A: The bank requires only one copy of the
deposit although some of our clients prepare
the deposit slip in duplicate.
Q: Now in accomplishing current account
deposits from your clients, what do you issue
to the depositor to evidence the deposit
made?
A: We issue or we give to the clients the
depositor's stub as a receipt of the deposit.
Q: And who prepares the deposit slip?
A: The depositor or the authorized
representative sir?
Q: Where does the depositor's stub comes
(sic) from Mrs. Mabayad, is it with the
deposit slip?
A: The depositor's stub is connected with the
deposit slip or the bank's copy. In a deposit
slip, the upper portion is the depositor's stub
and the lower portion is the bank's copy, and
you can detach the bank's copy from the
depositor's stub by tearing it sir.
Q: Now what do you do upon presentment of
the deposit slip by the depositor or the
depositor's authorized representative?
A: We see to it that the deposit slip9  is
properly accomplished and then we count
the money and then we tally it with the
deposit slip sir.
Q: Now is the depositor's stub which you
issued to your clients validated?
A: Yes, sir. 10 [Emphasis ours]
Clearly, Ms. Mabayad failed to observe this very
important procedure. The fact that the duplicate slip
was not compulsorily required by the bank in
accepting deposits should not relieve the petitioner
bank of responsibility. The odd circumstance alone
that such duplicate copy lacked one vital
information — that of the name of the account
holder — should have already put Ms. Mabayad on
guard. Rather than readily validating the incomplete
duplicate copy, she should have proceeded more
cautiously by being more probing as to the true
reason why the name of the account holder in the
duplicate slip was left blank while that in the
original was filled up. She should not have been so
naive in accepting hook, line and sinker the too
shallow excuse of Ms. Irene Yabut to the effect that
since the duplicate copy was only for her personal
record, she would simply fill up the blank space later
on. 11 A "reasonable man of ordinary
prudence" 12 would not have given credence to such
explanation and would have insisted that the space
left blank be filled up as a condition for validation.
Unfortunately, this was not how bank teller
Mabayad proceeded thus resulting in huge losses to
the private respondent.
Negligence here lies not only on the part of Ms.
Mabayad but also on the part of the bank itself in its
lackadaisical selection and supervision of Ms.
Mabayad. This was exemplified in the testimony of
Mr. Romeo Bonifacio, then Manager of the Pasig
Branch of the petitioner bank and now its Vice-
President, to the effect that, while he ordered the
investigation of the incident, he never came to know
that blank deposit slips were validated in total
disregard of the bank's validation procedures, viz:
Q: Did he ever tell you that one of your cashiers
affixed the stamp mark of the bank on the deposit
slips and they validated the same with the machine,
the fact that those deposit slips were unfilled up, is
there any report similar to that?
A: No, it was not the cashier but the teller.
Q: The teller validated the blank deposit slip?
A: No it was not reported.
Q: You did not know that any one in the bank
tellers or cashiers validated the blank
deposit slip?
A: I am not aware of that.
Q: It is only now that you are aware of that?
A: Yes, sir. 13
Prescinding from the above, public
respondent Court of Appeals aptly observed:
xxx xxx xxx
It was in fact only when he testified in this case in
February, 1983, or after the lapse of more than seven
(7) years counted from the period when the funds in
question were deposited in plaintiff's accounts (May,
1975 to July, 1976) that bank manager Bonifacio
admittedly became aware of the practice of his teller
Mabayad of validating blank deposit slips.
Undoubtedly, this is gross, wanton, and inexcusable
negligence in the appellant bank's supervision of its
employees. 14
It was this negligence of Ms. Azucena Mabayad,
coupled by the negligence of the petitioner bank in
the selection and supervision of its bank teller,
which was the proximate cause of the loss suffered
by the private respondent, and not the latter's act of
entrusting cash to a dishonest employee, as insisted
by the petitioners.
Proximate cause is determined on the facts of each
case upon mixed considerations of logic, common
sense, policy and precedent. 15 Vda. de Bataclan v.
Medina, 16 reiterated in the case of Bank of the
Phil. Islands v. Court of Appeals, 17 defines
proximate cause as "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. . . ." In
this case, absent the act of Ms. Mabayad in
negligently validating the incomplete duplicate copy
of the deposit slip, Ms. Irene Yabut would not have
the facility with which to perpetrate her fraudulent
scheme with impunity. Apropos, once again, is the
pronouncement made by the respondent appellate
court, to wit:
. . . . Even if Yabut had the fraudulent intention to
misappropriate the funds entrusted to her by
plaintiff, she would not have been able to deposit
those funds in her husband's current account, and
then make plaintiff believe that it was in the latter's
accounts wherein she had deposited them, had it not
been for bank teller Mabayad's aforesaid gross and
reckless negligence. The latter's negligence was thus
the proximate, immediate and efficient cause that
brought about the loss claimed by plaintiff in this
case, and the failure of plaintiff to discover the same
soon enough by failing to scrutinize the monthly
statements of account being sent to it by appellant
bank could not have prevented the fraud and
misappropriation which Irene Yabut had already
completed when she deposited plaintiff's money to
the account of her husband instead of to the latter's
accounts. 18
Furthermore, under the doctrine of "last clear
chance" (also referred to, at times as "supervening
negligence" or as "discovered peril"), petitioner bank
was indeed the culpable party. This doctrine, in
essence, states that where both parties are negligent,
but the negligent act of one is appreciably later in
time than that of the other, or when it is impossible
to determine whose fault or negligence should be
attributed to the incident, the one who had the last
clear opportunity to avoid the impending harm and
failed to do so is chargeable with the consequences
thereof. 19 Stated differently, the rule would also
mean that an antecedent negligence of a person does
not preclude the recovery of damages for the
supervening negligence of, or bar a defense against
liability sought by another, if the latter, who had
the last fair chance, could have avoided the
impending harm by the exercise of due
diligence. 20 Here, assuming that private respondent
RMC was negligent in entrusting cash to a dishonest
employee, thus providing the latter with the
opportunity to defraud the company, as advanced by
the petitioner, yet it cannot be denied that the
petitioner bank, thru its teller, had the last clear
opportunity to avert the injury incurred by its client,
simply by faithfully observing their self-imposed
validation procedure.
At this juncture, it is worth to discuss the degree of
diligence ought to be exercised by banks in dealing
with their clients.
The New Civil Code provides:
Art. 1173. The fault or negligence of the obligor
consists in the omission of that diligence which is
required by the nature of the obligation and
corresponds with the circumstances of the persons,
of the time and of the place. When negligence shows
bad faith, the provisions of articles 1171 and 2201,
paragraph 2, shall apply.
If the law or contract does not state the diligence
which is to be observed in the performance, that
which is expected of a good father of a family shall
be required. (1104a)
In the case of banks, however, the degree of
diligence required is more than that of a good father
of a family. Considering the fiduciary nature of their
relationship with their depositors, banks are duty
bound to treat the accounts of their clients with
the highest degree of care. 21
As elucidated in Simex International (Manila),
Inc. v. Court of Appeals, 22 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 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 failure to duly credit him his
deposits as soon as they are made, can cause the
depositor not a little embarrassment if not 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 before us, it is apparent that the petitioner bank
was remiss in that duty and violated that
relationship.
Petitioners nevertheless aver that the failure of
respondent RMC to cross-check the bank's
statements of account with its own records during
the entire period of more than one (1) year is the
proximate cause of the commission of subsequent
frauds and misappropriation committed by Ms. Irene
Yabut.
We do not agree.
While it is true that had private respondent checked
the monthly statements of account sent by the
petitioner bank to RMC, the latter would have
discovered the loss early on, such cannot be used by
the petitioners to escape liability. This omission on
the part of the private respondent does not change
the fact that were it not for the wanton and reckless
negligence of the petitioners' employee in validating
the incomplete duplicate deposit slips presented by
Ms. Irene Yabut, the loss would not have occurred.
Considering, however, that the fraud was committed
in a span of more than one (1) year covering various
deposits, common human experience dictates that
the same would not have been possible without any
form of collusion between Ms. Yabut and bank teller
Mabayad. Ms. Mabayad was negligent in the
performance of her duties as bank teller nonetheless.
Thus, the petitioners are entitled to claim
reimbursement from her for whatever they shall be
ordered to pay in this case.
The foregoing notwithstanding, it cannot be denied
that, indeed, private respondent was likewise
negligent in not checking its monthly statements of
account. Had it done so, the company would have
been alerted to the series of frauds being committed
against RMC by its secretary. The damage would
definitely not have ballooned to such an amount if
only RMC, particularly Romeo Lipana, had
exercised even a little vigilance in their financial
affairs. This omission by RMC amounts to
contributory negligence which shall mitigate the
damages that may be awarded to the private
respondent 23 under Article 2179 of the New Civil
Code, to wit:
. . . When the plaintiff's own negligence was the
immediate and proximate cause of his injury, he
cannot recover damages. But if his negligence was
only contributory, the immediate and proximate
cause of the injury being the defendant's lack of due
care, the plaintiff may recover damages, but the
courts shall mitigate the damages to be awarded.
In view of this, we believe that the demands of
substantial justice are satisfied by allocating the
damage on a 60-40 ratio. Thus, 40% of the damage
awarded by the respondent appellate court, except
the award of P25,000.00 attorney's fees, shall be
borne by private respondent RMC; only the balance
of 60% needs to be paid by the petitioners. The
award of attorney's fees shall be borne exclusively
by the petitioners.
WHEREFORE, the decision of the respondent Court
of Appeals is modified by reducing the amount of
actual damages private respondent is entitled to by
40%. Petitioners may recover from Ms. Azucena
Mabayad the amount they would pay the private
respondent. Private respondent shall have recourse
against Ms. Irene Yabut. In all other respects, the
appellate court's decision is AFFIRMED.
Proportionate costs.
SO ORDERED.